Final Results

28 April 2016

HARVEY NASH GROUP PLC

("Harvey Nash" or the "Group")

PRELIMINARY RESULTS

Harvey Nash, the global recruitment and professional services group, announces its preliminary results for the year ended 31 January 2016, delivering growth in key service lines.

Group Highlights

· Growth of 9% in gross profit and adjusted operating profit on a constant currency basis

· Adjusted earnings per share up 10% on a constant currency basis

· Final dividend up 8.7% to 2.360p (2015: 2.171p) bringing the total dividend for the year to 3.850p (2015: 3.531p)

· Trading cash flow from operating activities up 73%

· Positive net cash position at year end on improved debtor days

· The loss from discontinued operations was £14.4m, resulting in a £7.6m statutory loss for the year and a loss per share of 10.5p.

Regional Highlights2

· Strong growth in the USA with gross profit up 25% and operating profit up 56%

· Good growth in UK contracting with a weaker result in permanent placements

· Germany & Sweden experienced strong growth although reported results were held back by currency headwinds

· Record performance from Talent IT, our Belgian acquisition

· Strategic review concluded: Disposal of non-core loss-making German outsourcing business completed in Dec 2015

· Asia: Revenue increased by 77% and new Singapore office opened

Albert Ellis, Chief Executive Officer of Harvey Nash, commented:

"The Group has delivered another year of robust underlying growth in gross profit and operating profit while cashflow was ahead of expectations. .

Results were excellent in the USA where a booming technology sector and an acute skills shortage led to record revenues and operating profits. Revenue increased 77% in Asia, driven in particular by outstanding results in Vietnam and Japan.

In Europe, currency headwinds held back results and in the UK the final quarter was affected by weaker business confidence, a slowing economy and fears over Brexit.

The Group continues to win market share and invest in headcount in key locations, focusing on driving profitable growth, whilst remaining flexible and agile."

Key: 1 2015 results have been represented to exclude the effect of discontinued operations.

2 From continuing operations before non-recurring costs. FY16 non-recurring costs predominantly relate to excess consideration payable on settlement of Talent IT earn out. FY15 costs relate to acquisition and the strategic review and restructuring of European operations.

CHAIRMAN'S STATEMENT

Financial Performance

The Group has delivered another year of growth from continuing operations in all service lines on a constant currency basis. The results were in line with expectations despite being affected for a second year by the strength of sterling. In addition, cash balances at 31 January 2016 were slightly higher than expectations.

Revenue from continuing operations was in line with the prior year at £676.5m (2015: £677.9m), gross profit increased by 6.4% to £90.3m (2015: £84.9m) and operating profit from continuing operations before non-recurring items for the year increased by 4.1% to £10.2m (2015: £9.8m). Adjusted(1) profit before tax from continuing operations was in line with expectations at £9.3m (2015: £9.2m).

Basic earnings per share from continuing operations increased by 10.7% to 9.42p (2015: 8.51p). Basic earnings per share from continuing operations before non-recurring costs increased by 3.3% to 9.73p (2015: 9.42p).

In constant currency, revenue and gross profit increased by 4.9% and 9.1% respectively, with adjusted operating profit up 9.2%, reflecting an overall improvement to the net profit margin.

Key to the success during the year has been the record growth reported from our US business combined with strong trading results from Asia Pacific following the Group's investment in both of those regions in 2015. Trading conditions in the USA have been favourable with strong demand for technology skills, in executive, technical and offshore services. In Asia, revenues and gross profits grew strongly as productivity continued to improve and a new office was opened in Singapore.

Currency headwinds in mainland Europe masked good underlying growth despite a strong performance in contract recruitment. Both Germany and Sweden grew significantly in a recruitment market recovering from the uncertainty of the Euro crisis. In the UK, notwithstanding a generally weaker permanent recruitment market, particularly in the final two months of the year, contract recruitment was robust and offshore services reported record growth.

Following a full review of all the strategic options, in December 2015, Nash Technologies GmbH ("NT Group"), the German outsourcing business was disposed of by way of a management buy-out. This transaction provided an exit from non-core, loss-making activities and lowered the Group's financial risk profile, whilst retaining the upside potential of possible further consideration depending on the future performance of the NT Group. This resulted in a £13.6m (2015: £0.6m) loss on disposal. The NT Group's loss before tax on discontinued operations for the year was £0.4m (2015: £0.9m).

The Group also decided to close its Oil & Gas operations in Warrington due to a downturn in the energy market. The business incurred a loss before tax of £0.2m (2015: £0.1m profit) and the non-recurring costs resulting from closure were also £0.2m (2015: £nil).

In Belgium, the Group's acquisition of Talent IT in Antwerp delivered a record performance. The final payment of £2.1m under the earn-out was settled in August resulting in excess consideration payable of £0.2m.

Taking into account these events, the Group's statutory loss for the year was £7.6m (2015: £5.3m profit).

(1) Excluding the impact of non-recurring items

Strategy and risks

The Group's strategy is to continue to grow the business organically as well as through earnings enhancing bolt-on acquisitions. The Group's strong relationship-based trading model supports the delivery of a broad portfolio of services to our clients enabling cross-selling opportunities across service lines and geographic regions.

In the year under review, our key strategic focus has been on securing the disposal of the NT Group, which was completed in December 2015. This has improved the Group's financial risk profile, as well as allowing us to concentrate on the core strategic aims of the Group.

The Group has considered recent changes to risk guidelines and evaluated our risk assessment processes to ensure we have mechanisms in place to enable effective strategic decision making. Taking into account the Group's balanced portfolio of services, strategic objectives and any potential impact arising from the principal risks identified, the Board has confirmed the longer-term viability of the business over a period of three years ending on 31 January 2019. 

Dividend

The Board is recommending an 8.7% increase in the final dividend to 2.360 pence per share (2015: 2.171p). This gives a total dividend for the year of 3.850 pence per share (2015: 3.531p), up 9.0%, and reflects the Group's progressive and sustainable dividend policy. Subject to approval at the Annual General Meeting on 30 June 2016, the final dividend will be paid on 8 July 2016 to shareholders on the register as at 17 June 2016.

Outlook

In the year ended 31 January 2016, the Group's businesses in the USA, Germany, Sweden and Asia all reported strong growth and in some cases record revenues and profits. Whilst the weakness in executive recruitment and the energy sector held back the overall UK results, strong growth came from Scotland and offices outside of London. Despite this and the strong contracting results, the UK experienced a slowdown in permanent recruitment in the final two months as uncertainty affected clients' decision making processes. This caution in the UK is likely to continue until the referendum on Europe concludes.

In the current year, uncertainty in Asia as a result of economic challenges in China continues however, trading in Europe has been broadly on track.

Visibility is undoubtedly limited whilst global economic and UK political volatility persist. Nevertheless the Group's performance at this early stage of the financial year is in line with expectations.

Julie Baddeley

Chairman

CEO REVIEW

The Group has delivered another year of underlying growth in gross profit across all regions on a constant currency basis, returning to its pre-financial crisis level of operating profit.

The UK & Ireland delivered further progress during the year, with particular success in growing market share. Overall organic revenues and gross profit, including the UK offshore business, hit record highs despite the market for permanent recruitment being weaker at the end of the year, which held back operating profit.

The underlying results in our European operations were strong, despite foreign exchange headwinds, with the exception of the loss making Nash Technologies GmbH ("NT Group"), which was sold in December 2015. Sweden recorded a year of strong growth but, as with the Euro, the weak Swedish Krona held back results.

Record results were delivered by the US, reflecting progress in all three service lines, executive search, IT recruitment and offshore services. The business has focused its activities on the fast growing technology and digital sectors and has benefited from unprecedented levels of demand for IT skills, ranging from highly skilled software developers to senior leadership roles within global Fortune 500 companies.

Strong growth was achieved in Asia, an encouraging result in a relatively new region of growth for the Group. The best performers were the businesses in Vietnam and Japan, but Hong Kong also significantly improved its results in the second half. Australia was steady and a new office was opened in Singapore.

More detail about the performance of the business is set out below by region. All results are from continuing operations, details of the discontinued operations performance in respect of the German outsourcing business are set out in the FD Report.

United Kingdom and Ireland

The UK & Ireland represented 41.0% of the Group's gross profit in 2016 and operated from 10 offices, employing 247 fee earners across the region. The Group has leveraged its unique portfolio of services to gain considerable market share over the last decade despite the market being mature and highly competitive. Harvey Nash and its subsidiary brands Impact Executives (Interim), Mortimer Spinks (specialist digital technology talent) and Nash Tech (offshore software development) have strong market positions in executive and professional recruitment across the UK and Ireland and a growing presence in offshore services. Permanent placements accounted for 36.4%, contract placements 49.1% and offshore services 14.5% of gross profit.

The business is one of the market leaders in technology recruitment and a significant opportunity to integrate the broad service portfolio further exists across the business. In particular, its growing capability to augment client recruitment of specialist technology skills with offshore teams, where appropriate, can offer a more valuable and competitive cost proposition than contract recruitment.

During the first half of the year particularly, the UK contingent recruitment business enjoyed strong growth and experienced robust demand especially for permanent hires. However, during the final two months of the year, client decision making processes slowed and a swing from permanent recruitment to contract reflected a more cautious wait and see approach. Trading conditions in the senior market for executive and leadership roles tightened up considerably compared to the prior year, impacted first by the UK election in May and then by global uncertainty in relation to China and energy markets in the second half. The offshore business, however, appeared to benefit from these variable conditions and reported a record year in the UK.

Revenue increased by 1.8% to £233.4m (2015: £229.3m) and gross profit increased by 3.6% to £37.0m (2015: £35.7m). Reported operating profit was down 2.8% at £3.5m compared to £3.6m the previous year.

This was a solid performance, as the business capitalised on market share gains and continued to invest in capacity expansion. The main reasons for the small reduction in operating profit were a broad swing from permanent to temporary recruitment in the UK in the final quarter, a weaker market for senior executive search and a decline in contribution from Ireland.

Strong growth came from the UK Regions and Scotland. This was driven by organic investment in headcount in existing offices and newly established satellites locations such as Glasgow and Bristol. New client wins and increased market share resulted in a 17.0% increase in gross profit for the year compared to the prior year. London was weaker with exposure to the oil and gas slowdown affecting numbers of contractors on billing. The decline in the energy market also impacted executive recruitment and the Group decided to close its Oil & Gas business based in Warrington, which focused on recruiting international engineering and technology candidates for mainly Middle East based companies.

(1) Continuing before non-recurring items

Mainland Europe

Mainland Europe is the Group's largest geographic region. With operations in nine countries, the Group employs 300 staff in 18 offices across Northern Europe, the Group has many leading market positions across the continent. Harvey Nash Alumni is the clear market leader in executive and leadership services and the largest executive and senior professional recruitment business in the Nordics. In the Benelux the Group is the largest specialist technology recruiter in the market. In Germany and Switzerland, the Group has been trading for over 20 years as a leading player in certain high value niche markets. The brand is well recognised for quality and a professional approach to recruitment. The region, which includes Poland, comprises a number of large, mature markets, across which there is a broad range of global competition.

This market offers attractive opportunities for the Group in two key areas. First, there are opportunities to expand in temporary and contract placement, as clients seek to outsource risks arising from directly employing IT staff. This includes outsourcing models, such as extended workforce services, where the Group flexibly employs IT consultants and hires them out to companies as employees. This is a growing trend in Germany particularly but also in the Benelux. Second, there are opportunities to develop further in Board services and executive recruitment, such as in the Nordics where this market is growing and companies are undergoing significant change.

In 2016, the region generally enjoyed improved market conditions but this was impacted significantly by the weakness of the Euro and other currencies. Revenue in mainland Europe was £378.0m (2015: £395.0m) and gross profit was £32.6m (2015: £33.3m), declines of 4.3% and 2.1% respectively. However, in constant currency, revenue increased by 5.1% and gross profit increased by 7.8%. Operating profit reduced by 7.1% from the prior year to £5.2m (2015: £5.6m) but again increased by 1.8% on a constant currency basis. Across the region, permanent executive and professional placements accounted for 38.0% and temporary and contract management placements 62.0% of gross profit.

Results from the Benelux were solid with gross profit increasing 3.1% on a constant currency basis, as clients continued to favour temporary contract recruitment over permanent recruitment. In the Netherlands, uncertainty over new legislation in relation to temporary recruitment impacted demand and resulted in delays to clients hiring. In Belgium, the Group made further progress in its relatively new location in Ghent with a good business contribution for the year and the new service of providing teams of permanently employed technical apprentices reported an increase in gross margin of 10.0%. Deferred consideration of £2.1m relating to the acquisition in Antwerp acquired in 2012 was settled during the year. This business has delivered excellent results throughout its three year earn-out period.

The Nordic region comprises Norway, Sweden and Finland. The Group's business in Sweden reported strong financial results with overall gross profit up 7.3% despite challenging trading conditions, and business contribution up 42.7%. The overall reported results were materially impacted by weak currencies, recession in Finland and uncertainty linked to the decline of the oil price in Norway. The business in Finland held up well with net fees only 13.9% below the prior year. The office was broadly breakeven as a result. In Norway, despite the challenges, the prior year's loss was reduced by 9.4%.

The results from Central & Eastern Europe, which include Germany, Switzerland and Poland, were stronger particularly in Germany, which was up 5.6% in gross profit and 53.8% in business contribution. In Switzerland, results were down 8.8% on the prior year mainly due to the decline of managed services revenues in the Financial Services sector. Whilst Poland Technology recruitment reported a slightly higher loss than in the prior year, this was mainly related to restructuring. The business will serve as a near shore recruitment centre for the Swiss business with the benefits of lower costs and higher productivity.

The Group disposed of its German telecommunications outsourcing business, the NT Group, and its two subsidiaries on 6 December 2015. The NT Group was identified as non-core in a strategic review of the Group's operations in 2014 and following a full review of the disposal options, the Board agreed the sale of the NT Group by way of a management buy-out. This transaction provided an exit from a non-core loss making activity and lowered the Group's financial risk profile, whilst retaining the upside potential of possible further consideration depending on the future performance of the NT Group. This resulted in a charge of £13.6m (2015: £0.6m) relating to the loss on disposal. The NT Group's loss before tax on discontinued operations for the year was £0.4m (2015: £0.9m).

United States

The USA represented 16.4% of the Group's gross profit in 2016. The US is the largest market for technology recruitment in the world but is fragmented and offers strong growth particularly on the West Coast. The Group's unique portfolio of technology recruitment is compelling in a market with severe skills shortages and limited competition of any scale. The Group has six offices, with 80 fee-earners based in the USA and 45 offshore recruiters based in Vietnam supporting clients such as Apple and Microsoft.

Permanent placements accounted for 35.6%, contract placements 33.8%, and offshore and solutions 30.6% of gross profit. Revenue in the USA increased by 14.5% to £54.6m (2015: £47.7m) and gross profit increased by 25.4% to £14.8m (2015: £11.8m), whilst operating profit increased by 55.6% following the investment in fee-earning capacity in the prior year.

The US economy was once again the strongest market across the Group during 2015. All services grew strongly with demand for enterprise recruitment the strongest with gross profit up 79.0% in constant currency. Executive Search also reported a record year with net fees up 19.0% to $3.0m mainly driven by US Fortune 500 companies investing in digital transformation. Permanent IT recruitment was also strong with gross profit up 17.0% in a buoyant market for technology specialists. The swing from temp to perm affected contractor numbers but higher margins resulted in an overall increase in gross profit (+39.7%). Offshore and solutions also posted good growth of +11.3% in gross profit.

Asia Pacific

The Group has six offices across the Asia Pacific region, employing 48 fee-earners and representing 6.5% of the Group's gross profit during the year. Growth in gross profit was the fastest regional growth achieved across the Group, albeit from a lower base.

Tokyo, Singapore and Hong Kong are well developed and offer good opportunities for professional recruitment, executive search and leadership consulting. Multi-national companies base many of their senior staff in these locations and compensation levels are comparable to Europe. China also represents a growing opportunity, as large domestic Chinese companies seek to grow their international presence and are increasingly employing recruiters to search for business leaders.

Our Vietnam business is located in the faster growing South East Asian economic region, which is generally under-developed and offers strong growth opportunities for recruitment and offshoring. Australia is a mature, well developed and highly competitive market but, with its technology sector rapidly adopting digital strategies and a fast growing and healthy start-up sector, the Group's leading IT recruitment brand and offshore capability has made a significant impact in the market. 

Revenue in Asia Pacific increased by 76.7% to £10.6m (2015: £6.0m) and gross profit increased by 47.5% to £5.9m (2015: £4.0m). The profit of £0.1m compares to an operating loss of £0.3m in the prior year. Permanent or executive placements accounted for 65.6%, contract placements 2.3%, and offshore services 32.1% of gross profit.

Asia Pacific enjoyed strong growth particularly in the second half of the year, and benefited from demand in offshore services in the US and UK. Executive search fees grew 72.0% in Hong Kong, Japan and the new office in Singapore resulting in an operating profit before the investment in Singapore. Professional recruitment fees in Vietnam were up 41.1% and delivered good business contribution growth. Gross profit from Offshore services (software development, BPO and shared services) grew 48.2% and contribution 51.9% as results from the Japanese market improved. Whilst Australia remained challenging throughout the year, revenues were up 56.3% and the loss reduced compared to the prior year.

FD Review

Overview

Revenue from continuing operations was in line with the previous year at £676.5m (2015: £677.9m) but 4.9% higher on a constant currency basis. Statutory revenue, including discontinued operations, declined by 1.0% to £689.6m (2015: £696.6m) but increased by 4.2% on a constant currency basis.

Gross profit from continuing operations increased by 6.4% to £90.3m (2015: £84.9m) and was 9.1% higher on a constant currency basis. Total gross profit increased by 4.4% to £93.4m (2015: £89.5m) and was 7.3% higher on a constant currency basis.

Gross profit from permanent recruitment was 5.1% higher, whilst contracting increased by 4.2%. Gross profit from offshore solutions was 3.1% higher, with the decline in NT Group gross profit partially offsetting an underlying increase of 15.7% in respect of continuing operations from offshore solutions. Fee earner headcount for continuing operations was in line with the prior year at 597 (2015: 595), following investment in 2015.

The net finance charge of £0.8m (2015: £0.6m) was slightly higher than the prior year due to increased use of the discounting facility to fund the NT Group disposal.

Profit before tax and non-recurring items from continuing operations increased by 1.1% to £9.3m (2015: £9.2m). Profit before tax from continuing operations increased by 7.1% to £9.1m (2015: £8.5m) due to a higher non-recurring charge relating to continuing operations in the prior year. Including discontinued operations the loss for the year was £7.6m (2015: £5.3m profit) due to the costs of the disposal of the NT Group of £13.6m and the closure of the Oil & Gas division (£0.2m).

Taxation

The overall effective rate of tax is a function of the mix of profits between the various countries in which the Group operates with higher rates in the United States, Germany and Belgium in particular being offset by lower rates elsewhere.

The tax charge for continuing operations for the year was £2.2m (2015: £2.3m) giving an effective rate of tax on continuing operations of 24.0% or 28.2% (2015: 27.1%) excluding the impact of discontinued losses relieved against profits from continuing operations.

The deferred income tax asset decreased by £0.4m due to the disposal of the NT Group and the removal of assets relating to associated pension obligations. The deferred tax asset of £2.3m (2015: £2.8m) relates primarily to accrued Group interest charges payable by the US business (£1.0m), tax losses (£0.8m) and was partially offset by a deferred tax liability of £0.2m relating to unremitted earnings. The deferred tax liability decreased by £0.1m due to the removal of a deferred liability relating to accrued income in the NT Group.

Disposals and acquisitions

Following a full review of all strategic options, on 6 December 2015, the Group entered into a sale agreement to dispose of the German telecommunications outsourcing business Nash Technologies GmbH and its two fully owned subsidiaries, Nash Technologies Stuttgart GmbH and Nash Innovations GmbH ("NT Group") by way of a management buyout.

The initial consideration for the sale for the NT Group was €27,600, with further cash consideration receivable up to an aggregate cap of €9.0m, by way of an earn-out, based on the performance of the NT Group for the financial years 2016 to 2020. No asset has been recorded for the deferred consideration in the accounts.

The loss on disposal of the NT Group amounted to £13.6m (2015: £0.6m) and related predominantly to the write off of loans from Harvey Nash GmbH to the NT Group on disposal (£6.8m) and payments accrued in respect of the agreement to indemnify the buyer in relation to certain liabilities of the NT Group up to a maximum of £4.2m (€5.75m) which were expected to be incurred over the nine month period to 31 August 2016. A loan to the NT Group of £1.7m (€2.3m) for product investment and property costs was also agreed. No provision has been recognised against this long-term receivable at 31 January 2016 as management believe it to be recoverable. Cash outflows in respect of the disposal totalled £2.7m in the period to 31 January 2016. The NT Group's loss before tax on discontinued operations for the year was £0.4m (2015: £0.9m).

The Group also decided to close its Oil & Gas operations in Warrington due to a downturn in the energy market. The business incurred a loss before tax of £0.2m (2015: £0.1m profit) and the non-recurring costs resulting from closure were also £0.2m (2015: £nil).

In Belgium, the Group's acquisition of Talent IT in Antwerp achieved its targets and the final payment of £2.1m under the earn-out was settled in August, with a small excess consideration payable of £0.2m, charged to non-recurring items.

Earnings per Share

Basic earnings per share from continuing operations increased by 10.7% to 9.42p (2015: 8.51p). Basic earnings per share from continuing operations before non-recurring costs increased by 3.3% to 9.73p (2015: 9.42p). Due to the loss on disposal of the NT Group, statutory loss per share was 10.48p (2015: 7.24p earnings).

Balance Sheet

Total net assets at the year-end were £54.1m (2015: £64.6m), a decrease of 16.3% due to the retained loss in the year arising from the disposal of the NT Group of £7.6m, dividend payments of £2.7m and adverse currency movements of £0.2m.

Property, plant and equipment decreased by £0.3m to £3.6m (2015: £3.9m) due to the disposal of £0.6m of assets related to the NT Group, offset by a £0.3m increase in other assets as capital additions exceeded depreciation. Other fixed asset disposals of £0.3m were made, of which £0.3m were fully depreciated.

Intangible assets decreased by £0.7m to £50.7m due to the disposal of capitalised software of £3.8m as part of the NT Group disposal, of which £2.1m had been capitalised in the year (2015: £1.7m), offset by exchange adjustments (£1.0m) and brand amortisation (£0.1m).

Net trade receivables increased to £106.3m (2015: £80.0m), due mainly to the timing of invoicing in the Netherlands (+£23.0m). Debtor days decreased for another year to 41.8 days(1) (2015: 42.5 days). Prepayments and accrued income decreased by £18.0m, due mainly to decreases in accrued revenue in the Netherlands as a result of the timing of invoicing (-£13.2m). Trade payables increased by £2.7m to £61.8m, again due mainly to the timing of payments. Accruals for taxes and social security payable increased by £4.0m to £11.0m due mainly to the later payment of VAT in the Netherlands compared to the prior year (+£3.7m). Accruals and deferred income increased by £7.0m to £48.8m due mainly to higher accruals for contractor costs in the Netherlands (+£5.5m). Other payables increased by £7.3m to £8.2m and relate mainly to payment obligations related to the NT Group disposal.

Deferred consideration also decreased by £1.9m to £0.5m (2015: £2.4m), due to the final payment of £2.1m in respect of the Talent IT acquisition, of which £1.9m was included within deferred consideration and the excess taken to non-recurring items. The excess consideration was due to the assumed discounting of the payable not being realised. The closing balance includes £0.5m estimated as payable in August 2017 in respect of the Beaumont KK acquisition completed in August 2014. The overall decrease of £0.3m in provisions for liabilities and charges relates predominantly to the utilisation of the provision in respect of the closure of the French office which was completed in the current year. The remaining provision of £0.1m relates to an onerous lease obligation in the Norwegian business following restructuring in 2015.

The Group had a positive net cash position at 31 January 2016 of £0.2m (2015: £2.1m) and has no long-term debt.

Cash Flow

Free cash flow from operating activities before movements in working capital was once again strong at £10.8m (2015: £10.2m). Overall net cash at 31 January 2016 of £0.2m was £1.9m lower than the previous year due mainly to cash outflows of £2.1m relating to the settlement of deferred consideration for the acquisition of Talent IT. Other significant cash outflows in the period that were paid from retained profits included dividend payments of £2.7m (2015: £2.4m) and tax payments of £3.3m (2015: £2.6m). The disposal of the NT Group resulted in cash outflows of £2.7m in the period being the costs of disposal paid of £4.4m, offset by the £1.7m loan facility disposed of to the NT Group. Cash outflows of £2.1m (2015: £1.7m) relating to capitalised software for the NT Group before disposal also lowered cash. Cash outflows on capital expenditure in the year were £0.1m higher than the previous year.

Banking Facilities

The Group maintains substantial headroom in its banking facilities to fund working capital. The Group maintained an invoice discounting facility of £50m in the year of which £22m is in the United Kingdom, the equivalent in Euros of £2m in Ireland, £5m in Belgium, £15m is in the Netherlands and the equivalent in US Dollars of £6m is in the US, plus a £2m overdraft facility in the United Kingdom. In March 2016, the Group increased its invoice discounting facilities to £60m.

(1) Debtor days are calculated by reference to outstanding debtors relative to amounts invoiced in the preceding months up to the year end.

Consolidated Income Statement

for the year ended 31 January 2016

Consolidated Statement of Comprehensive Income

for the year ended 31 January 2016

(1) Excludes the impact of non-recurring items

(2) These differences may be recycled into the Consolidated Income Statement if specific conditions are met

Consolidated Balance Sheet

as at 31 January 2016

Consolidated Statement of Changes in Equity

for the year ended 31 January 2016

* The movements in the Own Shares held reserve relate to shares awarded from and purchased by the Employee Benefit Trust.

Consolidated Cash Flow Statement

for the year ended 31 January 2016

Notes to the Preliminary Statement

1. Publication of non-statutory accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts for the years ended 31 January 2016 or 2015, for the purpose of the Companies Act 2006, but is derived from those accounts.

The statutory accounts for 2015 have been filed with the Registrar of Companies. The statutory accounts for 2016 will be filed with the Registrar of Companies following the Group's next Annual General Meeting. The Group's auditors have reported on the 2015 and 2016 statutory accounts; their reports were unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

2. Basis of preparation

Whilst the financial information included in this preliminary announcement has been prepared in accordance with the International Financial Reporting Standards (IFRSs) as adopted for use in the European Union and as issued by the International Accounting Standards Board, this announcement does not itself contain sufficient information to comply with IFRS. The accounting policies applied in preparing this financial information are consistent with the Group's financial statements for the year ended January 2015 with the exception of the following new accounting standards and amendments which were mandatory for accounting periods beginning on or after 1 February 2015, none of which had any material impact on the Group's results or financial position:

(i) New and amended standards, adopted by the Group

In the current year, the following new and revised Standards and Interpretations have been adopted:

· Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

· Annual Improvements to IFRSs 2010 - 2012 Cycle

· Annual Improvements to IFRSs 2011 - 2013 Cycle

These changes have no material impact on the consolidated result, financial position or cash flows of the Group.

(ii) New and revised IFRSs in issue but not yet effective

At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRSs that have been issued but are not yet effective and, in some case, had not yet been adopted by the EU:

· IFRS 9 Financial Instruments

· IFRS 15 Revenue from Contracts with Customers

· IFRS 16 Leases

· Amendment to IFRS 11 on Accounting for Acquisitions of Interests in Joint Operations

· Amendments to IAS 16 and IAS 38 Clarifying Acceptable Methods of Depreciation and Amortisation

· Amendments to IAS 1 for the Disclosure Initiative

· Amendment to IAS 27 Separate Financial Statements on Use of Equity Method

· Amendments to IFRS 10 and IAS 28 for Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

· Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exemption

· Annual Improvements to IFRSs: 2012-2014 Cycle Amendments to: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting

The Group intends to adopt the above in the relevant future accounting periods in which they become mandatory, subject to endorsement by the EU where relevant. 

The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods, except that IFRS 9 may impact both the measurement and disclosures of financial instruments, IFRS 15 may have an impact on revenue recognition and related disclosures and IFRS 16 will have an impact on the Consolidated Balance Sheet. Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of IFRS 9, IFRS 15 and IFRS 16 until a detailed review has been completed, this will be completed in the year ending 31 January 2017.

The Directors have assessed the Group's viability over a longer period than the twelve months required by the 'Going Concern' statement in accordance with the 2014 Corporate Governance Code. The Directors have assessed and confirm the Group's viability over the three year period ending 31 January 2019 which aligns with the Group's planning process. There have been no significant changes in the Group's principals risks previously presented. For further information, see the Principal Risks section of the Annual Report 2015.

3. Going concern

The Group's business activities for the year are described in the Chairman's statement, CEO Review and FD Review and the statement of financial performance, position and cash flow within this preliminary announcement. The Directors have reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. As a result they continue to adopt the going concern basis of accounting in the preparation of the financial statements.

4. Segment information

IFRS 8 "Operating Segments" requires disclosure of information about the Group's operating segments. It requires a management approach under which segment information is presented on a similar basis as that used for internal reporting purposes. The chief operating decision maker in the business has been identified as the Group Board. Services provided by each reportable segment are permanent recruitment, contracting and outsourcing.

The Group Board analyses segmental information as follows:

Revenue

There was no one customer that generated in excess of 10% of the consolidated revenue of the Group in this or the previous financial year.

Gross profit

Operating profit (before non-recurring items)

 (Loss) / profit before tax

Non-recurring items from continuing operations of £0.2m (2015: £0.7m) predominantly relates to the excess consideration payable over the previously recognised deferred consideration on the Talent IT acquisition. The prior year non-recurring items included £0.5m related to the restructuring of Norwegian business, £0.2m in respect of acquisition cost of Beaumont KK included within the UK & Ireland segment. Further details are disclosed within note 7.

Costs associated with disposal included within discontinued operations includes £13.6m in respect the costs of disposal for the NT Group and £0.2m relate to the closure costs for the oil and gas division. The prior year non-recurring items of £0.6m relate to advisory costs in relation to the disposal and relocation of Nash Technologies laboratory assets. Further details are disclosed within note 10.

Depreciation and amortisation charge

Depreciation charge

Amortisation

Amortisation of £0.1m (2015: £0.1m) was charged to the Mainland Europe segment.

5. Income tax expense

The tax for the year is higher (2015: higher) than the standard UK corporation tax rate applied to pre-tax profit. The standard rate of corporation tax in the UK changed from 21% to 20% with effect from the 1 April 2015. Accordingly, the Group's profits for this accounting period are taxed at an effective standard rate of 20.17% (21.33%) before non-recurring items.

6. Earnings per share

From continuing operations

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding those held in the employee share trust, which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has two categories of potential dilutive ordinary shares: those share options granted to employees where the exercise price is less than the average price of the Company's ordinary shares during the year, and deferred consideration shares to be issued.

From discontinued operations

The diluted loss per share has not been presented as this would reflect the basic loss per share and adjusted basic loss per share value as above.

From continuing and discontinued operations

7. Non-recurring items

Non-recurring items of £0.2m were incurred in the year (2015: £0.7m). The non-recurring items predominantly related to the settlement of deferred consideration for the Talent IT acquisition. Contingent consideration of £2.0m had been recognised as at 31 January 2015 in respect of the estimated consideration due on completion of the earn-out period which commenced on acquisition of Talent IT. The non-recurring element represents the excess consideration payable over the previously recognised deferred consideration.

The prior year non-recurring items included £0.5m related to the restructuring of Norwegian operations leaving the business well placed to capitalise on future opportunities. £0.2m was incurred in the UK in respect of acquisition cost of Beaumont KK. The current year tax credit as a result of these items was £nil (2015: £40,000).

8. Provisions

Provisions relate to an onerous lease in the Norwegian operations.

All provisions fall due within one year.

9. Business combinations

In the prior year, the Group acquired 100% of the share capital of Beaumont KK, a recruitment business in Tokyo, Japan, for an initial cash consideration of JPY 61,163,000 (£0.4m). The contingent consideration arrangements require the Group to pay the former owners of Beaumont KK based on a multiple of profit before tax, over threshold performance, for the three years ending August 2017 up to a maximum of JPY 81,077,000 (£0.5m). The excess of consideration above net asset values has been attributed in full to goodwill as no other intangible assets have been identified.

There was no change during the current year to the fair value of the net assets acquired as reported in the prior year annual report.

Details of the net assets acquired and the goodwill recognised were as follows:

Acquisition-related costs amounted to £nil.

The assets and liabilities arising at the date of acquisition were as follows:

The outflow of cash to acquire the business, net of cash acquired, was:

10. Discontinued operations

Nash Technologies

On 6 December 2015, the Group entered into a sale agreement to dispose of the German telecommunications outsourcing business Nash Technologies GmbH ("NT") and its two fully owned subsidiaries, Nash Technologies Stuttgart GmbH ("NTS") and Nash Innovations GmbH ("NI") ("NT Group"). On the disposal date, full control passed to the acquirer.

The initial consideration for the sale of the NT Group was €27,600 with possible further earn-out consideration dependent upon the financial performance of the NT Group for the financial years 2016 to 2020, which has a maximum cap of €9.0m but has been fair valued as £nil. The sales and purchase agreement provided for a loan to Nash Technologies of £1.75m (€2.3m) which is not repayable in the next 12 months. At 31 January 2016, Nash Technologies had not drawn down against this facility. There has been no provision recognised against this long-term receivable at 31 January 2016.

Nash Technologies had previously been reported under the Mainland Europe Segment.

The results of the discontinued operations, which have been included in the consolidated income statement, were as follows:

(1) Expenses in the prior year include non-recurring items of £0.6m relating to advisory costs in relation to the disposal and relocation of the NT Group laboratory assets.

 (2) Net of consideration of €27,600.

The loss on disposal comprises the following items:

The major classes of assets and liabilities of Nash Technologies GmbH at disposal on 6 December 2015 and at 31 January 2015 were as follows:

The above net assets analysis includes balances of £6.8m with other group companies which were waived on disposal and are included in the disposal related costs in the analysis above.

The net cash flow used in Nash Technologies

Oil and Gas

During the year, a decision was made to close the Oil & Gas business, which separately focused on recruiting international engineering and technology candidates for mainly Middle East based companies in the energy sector. 

The results of the discontinued Oil and Gas business, which have been included in the Consolidated Income Statement, were as follows:

There were no assets or liabilities directly attributable to the Oil and Gas business at 31 January 2016 and 31 January 2015. Cash out flows used in the operating activities of the Oil and Gas business were £0.4m (2015: cash generated from operating activities £0.1m). The Oil and Gas division had previously been reported under the United Kingdom and Ireland segment.