Half Yearly Report

HARVEY NASH GROUP PLC

("Harvey Nash" or "the Group")

Unaudited Interim Results for the six months ended 31 July 2013

Harvey Nash, the global professional services group, announces results in line with expectations

Financial Results

* stated before non-recurring items

** H1 2014 restructuring and H1 2013 re-organisation of property

Operational highlights H1 2014

· Market share gains in key geographies and new contract wins

· Fee-earning headcount increased by 9% to take advantage of improved growth opportunities

· Opened new satellite offices in UK and Ireland

· Acquisition of remaining 49.9% in Bjerke and Luther in Norway

· Contract recruitment robust across Europe despite challenging market

· European outsourcing business stabilised following restructuring

· Joint Venture with Mitsui & Co, disposal of non-core call centre in Vietnam

Commenting on the results, Chief Executive Officer Albert Ellis, said:

"The Board is pleased with the way the Group's market leading recruitment businesses in the UK and mainland Europe have performed, increasing revenues and profits despite challenging market conditions and weakness in European outsourcing. Digital transformation has driven client demand for new hires in all of our markets across the world.

"In the relatively stronger economy of the USA, improved demand for permanent recruitment has increased momentum into the second half. Although the market for outsourcing and recruitment in Europe remains subdued, the outlook in our UK recruitment market is improving. The Group is well positioned to take advantage of the continuing improvements in the markets in which it operates. On this basis, the Board remains confident of delivering results in line with its current expectations."

ENQUIRIES:

A presentation of the results will take place at 9:30am this morning at the offices of College Hill, The Registry, Royal Mint Court, EC3N 4QN. To register your attendance please contact [email protected]

CHAIRMAN'S STATEMENT

Financial Results

Strong growth in contract recruitment services helped lift Group revenue for the six months ended 31 July 2013 to £329.2m up 13% compared to the prior year (2012: £292.5m). Gross profit increased by 6% to £43.1m (2012: £40.8m) representing a further change in the revenue mix towards temporary and contract recruitment.

Operating profit, adjusted for non-recurring items, was 3.2% lower at £4.4m (2012: £4.5m) due to reduced contribution from outsourcing services. As announced following the first quarter of the year, operating profit in the first half was held back in part by a reduction in the outsourcing project pipeline in Germany as a result of a general slowdown in investment in the mobile telecoms market. As stated in the trading update, a structural re-shaping of the business was implemented to align the cost base with longer term demand resulting in a non-recurring charge of £2.2m relating to redundancy costs. The payback period is expected to be less than 12 months. Operating profit after non-recurring items was £2.1m (2012: £3.7m). Non-recurring costs of £0.8m in the prior year mainly comprised property charges incurred in relocating the Group's London office achieving £1m per annum of like-for-like savings in overheads.

The tax charge for the period was £0.5m (2012: £1.0m). The effective rate of tax before non-recurring items was 28.8%, broadly consistent with the previous year (2012: 30.4%). Basic earnings per share, adjusted for non-recurring items, of 3.75p (2012: 3.95p) fell in line with adjusted profit before tax.

The Group's balance sheet showed a positive cash balance at 31 July 2013 of £1.2m (31 July 2012: net borrowing £14.1m) despite the seasonally related cash outflow over six months. Strong trading cash flows, improved working capital management and the effect of property cost savings resulted in a year on year improvement in net cash of £15.3m.

Acquisitions

On 29 April 2013, the Group acquired the remaining 49.9% stake of Bjerke & Luther AS in Norway for a consideration of NOK 11.5m (£1.3m) in cash and is transitioning the business under the existing Nordic management team and investing in expanding the fee-earning capacity. The Group's acquisition in Belgium, Talent IT NV, has performed in line with expectations and has successfully expanded its services and headcount too.

Balance Sheet

Harvey Nash maintains a sound balance sheet with tangible net assets increasing by £2.7m or 21% to £15.8m (2012: £13.1m). Intangible assets increased by 5% due to the foreign exchange differences offset by brand amortisation.

Notwithstanding a 13% increase in revenue compared to the previous year, trade and other receivables increased by £6.3m (6%) to £119.5m (2012: £113.2m). Trade and other payables increased by £17.4m (19%) to £107.1m (2012: £89.8m), which was broadly in line with the growth in revenue after adjusting for timing differences in contractor payments.

The deferred tax asset increased by £1.5m, reflecting increases in Holland (relating to an intercompany provision) and Germany (relating mainly to restructuring costs) partially offset by the utilisation of brought forward tax losses. Consideration of £2.3m represents a contingent liability in relation to the acquisition of Talent-IT BVBA and its wholly owned subsidiary Team4Talent BVBA and is based on performance over the three-year earnout period ending on 31 March 2015.

Cash flow

Cash generated from operating activities, before movements in working capital, during the period was £3.2m (2012: £5.0m). A net increase in working capital reduced cash inflow by £2.6m (2012: £16.2m) while tax paid in the period was £0.5m (2012: £1.6m). Combined with the one-off cash outflow on the purchase of the remaining stake in Norway of £1.3m, dividend payments of £1.3m and net interest paid of £0.4m, this resulted in an overall net cash outflow in the six months to 31 July 2013 of £13.4m (2012: outflow of £9.5m).

The Group maintains substantial headroom in its banking facilities to fund monthly working capital peaks and troughs and future growth. The facilities were increased on 12 February 2013 to £52.4m and currently comprise £50.0m of invoice discounting facilities and £2.4m of overdraft facilities. The geographic split is as follows: £25.0m funding the UK, the Euro equivalent of £20.0m in the Benelux and US dollar equivalent of £5.0m in the USA.

Strategy

The Group's strategy is to develop, both organically and through selective bolt-on acquisitions, a broad and unique portfolio of services comprising executive recruitment and leadership services, professional technical recruitment and outsourcing, aligned to different stages of the economic cycle. A balance of revenues over 60% in favour of contract recruitment and outsourcing relative to permanent recruitment provides both resilience in a downturn and the opportunity to benefit considerably from demand for permanent recruitment when economic conditions improve. This strategy has underpinned the Group's profitability and resilience through the downturn, but also ensures it is well positioned to benefit from an improving economic environment.

Our strong brand and unique portfolio of services have been crucial in maintaining and growing existing client relationships, winning new clients and retaining key employees. Our professional values place clients, with whom we build long-term relationships, at the centre of our strategy. The Group fosters a strong entrepreneurial culture with a strategic objective for each of our divisions to grow market share.

The Group's broad geographical spread diversifies the risk of reliance on a single country or economic area. Operating in sixteen countries, revenue and gross profit generated outside the UK represented 69% (2012: 67%) and 65% (2012: 64%) respectively in the six months to 31 July 2013.

Operational Review

United Kingdom and Ireland

Despite the weak economic environment during the first half of the year, revenue in the UK and Ireland increased by 9% to £112.2m (2012: £103.3m) and gross profit increased by 4% to £16.3m (2012: £15.6m). Operating profit before non-recurring items increased strongly by 16% to £1.7m (2012: £1.5m) as market share gains, cost savings made on the relocation of the Group's London office and growth from new offices increased operating margins.

Executive recruitment revenues were flat compared to the prior year, indicating a return to stability for the weakest part of the job market. An increase in mandates to deliver landmark CIO assignments, together with robust demand for NHS, local government and education Board positions, mitigated the softer conditions for technology and other practices. Revenues generated by financial services in the City of London were up 10% on the prior year, which is an encouraging trend.

Growth came from offices in Manchester and Edinburgh following a period of expansion in the fee-earning capacity of those offices whilst Leeds was more subdued, reflecting weaker local demand. Overall, Scotland continued to experience strong growth in both contract and permanent recruitment. In the West Midlands, revenue growth came from professional recruitment such as Accounting and HR whilst in London and the South East, shortages of software developers specialising in mobile devices and tablets, resulted in a swing from permanent to contract as spot rates increased.

Investment in sales and marketing, combined with the Vietnamese New Year in the first quarter, resulted in the contribution from outsourcing and offshoring being below that of the previous year.

In Ireland, revenues from the office in Dublin were up 56% due to strong demand from multi-national corporations for IT contractors and the impact of a new contract win with a major European financial institution. The Group opened a second office in Cork toward the end of the second quarter, and will expand headcount as market conditions allow.

Rest of Europe

Revenue in mainland Europe increased by 16% to £192.4m (2012: 165.3m) and gross profit increased by 6% to £19.7m (2012: £18.7m). Operating profit before non-recurring items was 11% below the prior year at £2.3m (2012: £2.6m), which was mainly as a result of the previously announced reduction in the outsourcing project pipeline in Germany.

Clients continued to favour temporary and contract recruitment, while the demand for permanent recruitment remained relatively weak. The Group's operations in the Benelux grew strongly with revenues increasing by 27% and gross profit increasing by 37%. The gross margin improvement was delivered through a favourable change in the permanent and temporary placement mix. Strong organic growth from increased contracting revenues in Brussels and Utrecht combined with the new office in Ghent and the acquisition of Talent-IT in Antwerp resulted in an excellent performance from the Benelux. A small loss of £0.1m in France was included in the Benelux's results.

Whilst the Nordic region suffered as expected from a decline last year in demand for permanent executive and professional recruitment the market appeared to stabilise during the period. Whilst many competitors in the market reduced their headcount significantly, even closing offices and withdrawing from the whole region, the Group took a long-term decision to retain its consultant base and even increase overall headcount as the outlook appeared to improve.

In April, the Group exercised its option to acquire the remaining 49.9% of Bjerke and Luther in Norway. This completed the acquisition, increasing revenues and gross profit by 17% and 19% respectively on the prior year.

Results from Central and Eastern Europe (namely Germany, Switzerland and Poland) were mixed. The weakness of overall levels of economic activity in Europe impacted the businesses in the first quarter. The financial services sector in Switzerland continued with general recruitment freezes and pressure on margins. In Germany, the impact of client delays to telecoms projects in our German outsourcing business affected mainly the first quarter results with actions taken subsequently to align costs with revenues. A restructuring charge of £2.2m has been accrued in the first half, the majority of which will be paid in the second half as the structural reshaping takes place. The reduction in revenue of 20% resulted in a loss for the first half as the business has a fixed cost base. The payback period is expected to be less than 12 months. The core German recruitment business increased revenues marginally with the strongest area being permanent recruitment which increased by 13%. Investment in IT recruitment in Poland generated strong growth with revenues up 48% overall when compared to the previous year.

United States

In the USA, revenue remained flat at £21.9m, with gross profit increasing by 2% as improved market conditions resulted in a swing of demand from temporary and outsourcing to permanent recruitment and executive search. Permanent recruitment revenues were up 29% on the prior year, whilst contracting and outsourcing were slightly down. Demand continues to be strongest in Seattle and Chicago, with the East Coast positively impacted by a new managed service contract with a global investment bank. The pipeline of assignments in the Executive Search division is improving in line with demand for permanent IT recruitment which should impact the second half of the year positively.

Asia Pacific

The investment in the two new offices of Hong Kong and Sydney resulted in growth in revenue and gross profit of 27% and 35% respectively when compared to the prior year. Headcount was increased by 33%. Whilst not yet achieving breakeven, Hong Kong nevertheless achieved a number of new client wins. The slowdown in Australia's domestic economy has naturally affected the growth trajectory of the Sydney office which has performed exceptionally well in a market which is contracting and in sharp decline. The key success factor is the portfolio of services, which includes the Group's offshore solution, which is attractive to clients who are seeking to control costs. Turnover in Vietnam increased by 33% and gross profit by 37%.

Board

Julie Baddeley was appointed Chairman at the Annual General Meeting in June following the retirement of Ian Kirkpatrick. Julie will continue to chair the Nomination Committee and be a member of the Remuneration Committee, but has stepped down from the Audit Committee. Ian Davies, Chairman of the Audit Committee, has been appointed as Senior Independent Director and will take the chair of the Remuneration Committee from 1 October 2013. David Bezem was appointed as an Independent Non-Executive Director on 1 June 2013.

Dividends

The Board has approved the payment of an increased interim dividend of 1.238p per share (2012: 1.125p) on 22 November 2013 to shareholders on the register at 25 October 2013.

Outlook

The Board is pleased with the way the Group's market leading recruitment businesses in the UK and mainland Europe have performed, increasing revenues and profits despite challenging market conditions and weakness in European outsourcing. Digital transformation has driven client demand for new hires in all of our markets across the world.

In the relatively stronger economy of the USA, improved demand for permanent recruitment has increased momentum into the second half. Although the market for outsourcing and recruitment in Europe remains subdued, the outlook in our UK recruitment market is improving. The Group is well positioned to take advantage of the continuing improvements in the markets in which it operates. On this basis, the Board remains confident of delivering results in line with its current expectations.

Julie Baddeley

Chairman

26 September 2013

Consolidated Interim Income Statement

Consolidated Statement of Comprehensive Income 

Key: * excluding non-recurring items ** which may be recycled into the profit if specific conditions are met.

 Consolidated Interim Balance Sheet

 Unaudited Consolidated Interim Statement of Changes in Equity

 Consolidated Interim Cash Flow Statement

Notes to the Unaudited Condensed Consolidated Interim Financial Statements

1. Corporate information

Harvey Nash Group plc (the Company) and its subsidiaries (together "the Group") is a leading provider of specialist recruitment and outsourcing solutions. The Group has offices in the UK, Europe, the United States and Asia.

The Company is a public listed company incorporated in the UK. Its registered address is Heron Tower, 110 Bishopsgate, London EC2N 4AY and its primary listing is on the London Stock Exchange.

The condensed consolidated interim financial information for the six months ended 31 July 2013 was approved for issue on 26 September 2013.

2. Risk management

The Board reviews the key risks facing the business regularly. Outlined below are the main risks that could potentially impact the Group's operating and financial performance, which remain the same as those reported on page 18 of the consolidated financial statements of the Group for the year ended 31 January 2013:

3. Accounting policies

Basis of preparation

This condensed consolidated interim financial information for the six months ended 31 July 2013 has been prepared in accordance with IAS 34, Interim financial reporting' and the disclosure and transparency directives of the FSA. It does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006 as it does not include all the information required for full statutory accounts. The interim financial statements should be read in conjunction with the statutory accounts for the year ended 31 January 2013, which were prepared in accordance with IFRS as adopted by the European Union and were approved by the board of directors on 29 April 2013 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. This condensed consolidated interim financial information has not been reviewed or audited by the Group's auditors, PricewaterhouseCoopers LLP.

Nature of financial information

The interim financial information does not constitute statutory financial statements as defined under Section 434 of the Companies Act 2006. The financial information for the year ended 31 January 2013 has been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain any statement under Section 498 of the Companies Act 2006.

Significant accounting policies

In preparing these interim financial statements the same accounting policies, methods of computation and presentation have been applied as those set out in the Harvey Nash Group plc annual report for the year ended 31 January 2013. The accounting policies are drawn up in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as endorsed by the European Union.

The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 January 2013.

Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 January 2013, with the exception of changes in estimates that are required in determining the provision for income taxes (see Note 5) and non-recurring items (see Note 13).

Going concern basis 

The group meets its day-to-day working capital requirements through its bank facilities. The current economic conditions continue to create uncertainty particularly over (a) the level of demand for the group's services; and (b) the availability of bank finance for the foreseeable future. The group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the group should be able to operate within the level of its current facilities. After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. The group therefore continues to adopt the going concern basis in preparing its consolidated interim financial statements.

4. Segment information

The chief operating decision maker has been identified as the Group Board. There have been no changes since the year-ended January 2013 in the way the Group Board analyses segmental information. The results for the six months to 31 July 2012 have been restated on a comparable basis with the year ended 31 January 2013, which were changed to attribute Vietnamese Overseas Development Centre profits to the appropriate segments and to reflect a change in the basis of allocating certain group overheads. Services provided by each reportable segment are permanent recruitment, contracting and outsourcing.

The Group Board analyses segmental information as follows:

Revenue

Gross Profit

Operating Profit before non-recurring items

Operating Profit

5. Taxation

Taxation (before non-recurring items) for the six month period is charged at 28.8% (six months ended 31 July 2012: 30.4%; year ended 31 January 2013: 28.6%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six month period.

6. Earnings per share

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's potential ordinary shares comprise of share options granted to employees where the exercise price is less than the average price of the Company's ordinary shares during the period.

7. Analysis of changes in net funds

Net Funds comprise cash and cash equivalents less invoice discounting and overdrafts utilised.

8. Dividends

The Group paid a final dividend of 1.795p per share on 12 July 2013 to shareholders on the register as at 21 June 2013 (2012: final dividend of 1.635p per share was paid on 13 July 2012).

9. Purchases of property, plant and equipment

The Group made cash purchases of property, plant and equipment of £0.8m (2012: £2.1m) in the period. £0.3m of this was recharged to a client (2012: £0.3m).

10. Capital commitments

The Group had capital commitments of £0.04m at 31 July 2013 (31 January 2013: £0.05m) for which no provision has been made in the accounts. These relate to the acquisition of property, plant and equipment. At 31 July 2012, it is all rechargeable to a client.

11. Related party transactions

There have been no related party transactions or changes in the related party transactions described in the January 2013 Annual Report in the six month period to 31 July 2013.

12. Non-controlling interests

On 29 April 2013, the Group acquired the remaining 49.9% of the share capital of Bjerke and Luther AS, a Norway based executive search, assessment and technical recruitment company, for cash consideration of NOK 11.5m (£1.3m). The difference between the consideration paid and the reduction in non-controlling interest has been adjusted against retained earnings, attributable to owners of the Company.

13. Non-recurring items

Non-recurring costs of £2.2m were incurred in the period (2012: £0.8m). Current period costs relate to termination costs associated with the restructuring of the Nash Tech business. The non-recurring costs in the period to the 31 July 2012 comprised £0.6m relate to relocating the Group's London headquarters and a further £0.2m of legal fees were incurred on the acquisition of Talent-IT BVBA.

Statement of Directors' Responsibilities

The directors confirm that, to the best of their knowledge, these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union. The interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

· an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related-party transactions in the first six months of the financial year and any material changes in the related party transactions described in the last Annual Report.

The directors of Harvey Nash Group plc are listed in the Harvey Nash Group plc Annual Report for 31 January 2013. A list of current directors is maintained on the Harvey Nash Group plc website: www.harveynash.com

The directors are also responsible for the maintenance and integrity of the Company website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

By order of the Board.

Richard Ashcroft

Group Company Secretary

26 September 2013

Cautionary statement

This Half Year report (the "Report") has been prepared in accordance with the Disclosure Rules and Transparency Rules of the UK Financial Services Authority and is not audited. No representation or warranty, express or implied, is or will be made in relation to the accuracy, fairness or completeness of the information or opinions contained in this Report. Statements in this Report reflect the knowledge and information available at the time of its preparation. Certain statements included or incorporated by reference within this Report may constitute "forward-looking statements" in respect of the Group's operations, performance, prospects and/or financial condition. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance shall not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past trends or activities shall not be taken as a representation that such trends or activities will continue in the future. The information contained in this Report is subject to change without notice and no responsibility or obligation is accepted to update or revise any forward looking statement resulting from new information, future events or otherwise. Nothing in this Report shall be construed as a profit forecast. This Report does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase or subscribe for any shares in the Company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares of the Company or any invitation or inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000. Past performance cannot be relied upon as a guide to future performance.