10th Oct 2006 07:01
Harvey Nash Group PLC10 October 2006 HARVEY NASH GROUP PLC ("Harvey Nash" or "the Group") Interim Results for the six months ended 31 July 2006 Harvey Nash, the global professional recruitment services and outsourcingcompany, with over 3200 staff and associates in 26 offices, announces anotherstrong performance in the first half year. Financial Results 2006 2005 ChangeRevenue £121.2m £92.7m + 31%Net fee income * £23.1m £20.9m + 11%Profit before tax £2.6m £1.7m + 53%Profit on disposal of investment £0.4m - -Profit before tax (excluding disposal) £2.2m £1.7m + 27%Cash from operating activities £2.5m £1.7m + 52% * Net fee income = gross profit (and this will apply throughout the statement) Operational Highlights • Excellent organic revenue growth of 31% • Increase in profit before tax of 53% • Operating profit increased across all geographic regions • Increased profit margin on net fee income • Strong cash generation, up 52% on prior year • Further gains for Public Sector division • New offices in the USA and Europe all profitable • Substantial new contract wins for Offshore Software Development & Outsourcing division • Capital re-organisation completed to allow re-instatement of dividends Commenting on the results, the Chief Executive Officer, Albert Ellis, said: "Harvey Nash continues to deliver strong organic growth in all of its coremarkets and our investment in people and new offices will provide furthermomentum going forward. Building on the success of these results, the Group has identified a number ofpossible bolt on acquisition opportunities in new and existing fast growinggeographical areas which will give us access to additional growth markets andcomplement our existing services." 10 October 2006 ENQUIRIES: Harvey Nash Tel: 020 7333 2635Albert Ellis, Chief ExecutiveRichard Ashcroft, Group Finance Director College Hill Tel: 020 7457 2020Mark GarrawayMatthew Gregorowski A presentation of the results will take place at 09:30 this morning at theoffices of College Hill, 78 Cannon Street, London, EC4N 6HH CHAIRMAN'S STATEMENT The Group is reporting another excellent set of results for the six months ended31 July 2006 and I am delighted by the financial performance which builds onstrong comparables in the previous year. Robust demand for senior executives and technology specialists across all ourmarkets continues to drive growth. The Group's geographical spread is a keystrength, with 64% of the Group's revenues generated outside the UK. Businessconfidence and the growth agenda have ensured that demand for senior executives,particularly in the ICT sector, continues unabated. Demand has also continuedfor technology specialists who develop new IT projects; a result of increasingcorporate earnings and technology related capital expenditure catch up. The Offshore Software Development & Outsourcing division also achieved furtherprogress with extensions to major contracts and new contract wins, underpinningthe Group's strategy to pursue long term visible annuity revenues and profits.In line with this objective the Group's total contract based net fee income inthis division has increased to 63% of the overall fee income up from 59% in thecomparable period last year. Financial Results The Group's turnover for the six months ended 31 July 2006 increased by 31% to£121.2m (2005: £92.7m). Net fee income increased by 11% to £23.1m (2005:£20.9m). Operating profit, excluding the profit of £0.4m on disposal of theinvestment in St Georges Harvey Nash Ltd, increased by 20% to £2.7m (2005:£2.2m). Profit before tax rose by 53% to £2.6m (2005: £1.7m). The tax charge for the period was £0.9m (2005: £0.1m). This included a prioryear adjustment of £0.1m and a deferred tax charge of £0.2m. The underlyingeffective tax rate was 32.4% (2005: 28.7%). This has affected basic earnings pershare, which rose by 5% to 2.71p (2005: 2.59p). Cash generated from operating activities was £2.5m (2005: £1.7m). After taxespaid of £0.7m mainly relating to the prior year (2005: received £0.2m), capitalexpenditure of £0.3m (2005:£0.5m) and interest paid of £0.5m (2005: £0.5m), netborrowings were reduced by 26% to £4.7m (January 2006: £6.4m). Dividends The Group continued to generate excellent free cash flow during the period. Thepriorities for the free cash are to fund the Group's ongoing development and tore-instate a progressive dividend policy. The Group completed a capitalre-organisation in July 2006 to allow the payment of dividends following theyear ended 31 January 2007. Balance Sheet Total receivables increased by 35% to £47.4m (2005: £35.2m) as a result ofstrong trading. Tight control of working capital resulted in a 6% improvementin debtor days notwithstanding the 31% increase in turnover. The revolving credit facility was converted into a 3 year term loan repayable inequal instalments of £1.0m commencing in January 2007. Applying unutilised tax losses brought forward, this resulted in a movement of£0.3m on the net deferred tax asset. During the period deferred consideration of £1.3m was settled by way of a shareissue in relation to the acquisition of the businesses in Seattle, Chicago andFlorida. Operational Review United Kingdom Turnover in the UK increased by 14% to £44.2m (2005: £38.7m) and operatingprofit increased to £1.3m, before the disposal of investment (2005: £1.2m). Inline with the Group's strategy, there was continued focus on high margin addedvalue services. The Executive Consulting Division has broadened its platform by establishing aBoard level practice. This further builds the Group's strength at the seniorlevel and includes specialists focusing on CEO, CFO and CIO roles. Expandingacross the UK, the Group has opened an office in Scotland in September toprovide further regional coverage to benefit from the growing UK economy. Thepublic sector is undergoing change at every level and our Executive ConsultingDivision has been at the forefront of delivery of senior private sector talentand skills, both on a permanent and interim basis. Our IT Division continued its progress with offshore revenue up 29% and anincreasing number of IT specialists and freelance professionals being placedpermanently with clients or on short term projects. The booming FinancialServices sector continues to show strong growth along with the Oil sector.Technology, New Media and Telecommunication convergence is another key factordriving growth, particularly with recent merger activity and the acceleration todigitise television and internet based services. Continental Europe Turnover in mainland Europe increased by 53% to £63.0m (2005: £41.3m), andoperating profit increased by 44% to £1.0m (2005: £0.7m). Growth was strong across all our core geographic markets and trading continuesto reflect positive business confidence. Investment in headcount and theexpansion of low cost satellite offices such as Geneva, have ensured gains inmarket share, resulting in excellent increases in operating profit. The Benelux region, up 82%, has seen the strongest growth in Europe. TheNetherlands has won substantial new assignments from clients to outsource theirflexible workforce risk management and Belgium has increased volumes and marginsas well as the client base. In France, we are building on the economic recoverywith increased fee earning capacity planned in the second half. Switzerland andthe larger German business increased by 17%, mainly due to the success of thenew office in Geneva and skills shortages in niche areas such as SAP. During theperiod, Harvey Nash entered into a partnership with SAP AG in Germany, providinghighly skilled SAP professionals both for core software development andinternational implementation projects and working for a number of multi-nationalclients such as IBM, BearingPoint and CapGemini. United States Turnover in the USA increased by 10% to £14.1m (2005: £12.8m), and operatingprofit increased by 20% to £0.4m (2005: £0.3m). Ongoing yield management of lower margin contracts and an increase in the growthof Executive Consulting has resulted in further improvement in the gross marginfrom 29% to 30%. The New Jersey office continues to gain market share andChicago experienced the strongest growth in the region. Two new offices inBoston and Phoenix were opened to further expand our services in new growingmarkets and are profitable. The outsourcing division increased its client basewith an extension at Sunguard and a new contract win at Smith & Nephew. Weexpect to secure further new outsourcing business in the second half and thepipeline for offshore software development is also strong. Outlook Building on our successful acquisition and organic led growth strategy in theUS, we are identifying earnings enhancing bolt on acquisition opportunities innew and existing fast growing geographical areas, leveraging our broad portfolioof services to add further value to the Group. Following the excellent performance in the first half of 2006, current tradingremains robust. Our European businesses continue to perform strongly and our UKand US businesses are also seeing improved profitability. We therefore remainconfident of delivering results for the full year in line with the Board'sexpectations. Ian Kirkpatrick Chairman 10 October 2006 Condensed Unaudited Consolidated Interim Income Statement Notes 6 months ended 6 months ended 12 months ended 31 July 2006 31 July 2005 31 January 2006 £'000 £'000 £'000 Revenue 3 121,246 92,705 202,294Cost of sales (98,158) (71,826) (159,390)Gross profit 23,088 20,879 42,904Administrative expenses (19,960) (18,643) (37,803)Operating profit 3 3,128 2,236 5,101 Add back:Profit on disposal of Investment * (449) - -Operating profit before material one-off items 2,679 2,236 5,101 Finance costs (479) (504) (1,098)Profit before tax 2,649 1,732 4,003Taxation 4 (911) (120) (527)Profit for the period 1,738 1,612 3,476 Basic earnings per share 5 2.71p 2.59p 5.59pDiluted earnings per share 5 2.58p 2.30p 5.05p * Profit on disposal of Investment represents cash consideration for the saleof the 10% shareholding in the Hong Kong company St Georges Harvey NashLimited. Condensed Unaudited Consolidated Interim Balance Sheet Notes 6 months ended 6 months ended 12 months ended 31 July 2006 31 July 2005 31 January 2006 £'000 £'000 £'000 * As restatedASSETSNon-current assetsProperty, plant and equipment 1,611 1,569 1,744Intangible assets 28,146 28,553 28,463Deferred income tax assets 1,027 1,147 1,190 30,784 31,269 31,397Current assetsTrade and other receivables 47,375 35,180 43,032 47,375 35,180 43,032Total assets 78,159 66,449 74,429 LIABILITIESCurrent liabilitiesTrade and other payables (37,897) (26,319) (34,219)Current income tax liabilities (573) (373) (459)Financial liabilities - borrowings 6 (2,748) (8,214) (6,392) (41,218) (34,906) (41,070)Non-current liabilitiesFinancial liabilities - borrowings 6 (1,952) - -Deferred income tax liabilities (221) (68) (233)Provisions and other liabilities (10) (54) (14) (2,183) (122) (247)Total liabilities (43,401) (35,028) (41,317)Net assets 34,758 31,421 33,112 Capital and reserves attributable to equityshareholdersShare capital 3,267 3,134 3,137Share premium 4,110 19,054 19,064Shares to be issued 1,205 2,555 2,532Fair value and other reserves 14,323 13,152 13,152Own shares held (656) (656) (656)Cumulative translation reserve (173) 324 93Retained earnings 12,682 (6,142) (4,210)Total equity 34,758 31,421 33,112 * As restated, see note 2.Condensed Unaudited Consolidated Interim Statement of Changes in Equity Share Share Shares to Fair value Own Cumulative Retained Total capital premium be issued and other shares translation earnings equity reserves held reserve £ '000 £ '000 £ '000 £ '000 £ '000 £ '000 £ '000 £ '000Balance at1 February 2005 3,134 19,054 2,386 13,152 (1,081) 163 (7,234) 29,574Employee share option - - - - 425 - (520) (95)and bonus planProfit for the period - - - - - - 1,612 1,612Currency translation adjustments - - 169 - - 161 - 330Balance at31 July 2005 3,134 19,054 2,555 13,152 (656) 324 (6,142) 31,421Employee share option and bonus plan 3 10 - - - - 68 81Profit for the period - - - - - - 1,864 1,864Currency translation adjustments - - (23) - - (231) - (254)Balance at31 January 2006 3,137 19,064 2,532 13,152 (656) 93 (4,210) 33,112Employee share option and bonus plan(including tax effectof £4,000) 19 109 - - - - 91 219Capital Restructuring * - (15,063) - - - - 15,063 -Payment of deferred consideration 111 - (1,282) 1,171 - - - -Profit for the period - - - - - - 1,738 1,738Currency translation adjustments - - (45) - - (266) - (311) Balance at 31 July 2006 3,267 4,110 1,205 14,323 (656) (173) 12,682 34,758 * On 26 July 2006 the High Court of Justice approved the cancellation of aproportion of the Harvey Nash Group plc share premium account. Condensed Unaudited Consolidated Interim Cash Flow Statement Notes Unaudited Unaudited Audited 6 months ended 6 months ended 12 months ended 31 July 2006 31 July 2005 31 January 2006 £'000 £'000 £'000 Profit before taxation 2,649 1,732 4,003Adjustments for:- depreciation 414 377 797- interest income (40) (12) (19)- interest expense 519 516 1,117- profit on sale of investment (449) - -- share based employee settlement and share option charge 87 126 185Operating cash flows before changes in working capital 3,180 2,739 6,083Changes in working capital (excluding theeffects of acquisition and exchange differenceson consolidation)- increase in trade and other receivables (4,246) (4,444) (12,477)- increase in trade and other payables 3,573 3,583 11,479- net movements in provisions for liabilities and charges 4 (227) (266)Cash flows from operating activities 2,511 1,651 4,819Income tax received/ (paid) (650) 238 55Net cash generated from operating activities 1,861 1,889 4,874 Cash flows from investing activitiesPurchases of property, plant and equipment (294) (516) (1,109)Proceeds from sale of investment 449 - -Net cash generated/(absorbed) from investing activities 155 (516) (1,109) Cash flows from financing activitiesRepayment of borrowings - (3,045) (3,308)Proceeds from issue of ordinary shares 128 - 13Net interest paid (479) (504) (1,098)Net cash used in financing activities (351) (3,549) (4,393) Increase/(decrease) in cash and cash equivalents 1,665 (2,176) (628)Cash and cash equivalents at the beginning of the period (3,371) (2,694) (2,694)Exchange loss on cash and cash equivalents (42) (38) (49)Cash and cash equivalents at the end of the 6 period (1,748) (4,908) (3,371) 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. TheGroup has offices in the UK, Europe and the United States and a branch inVietnam. The Company is a public listed company incorporated in the UK. Its registeredaddress is 13 Bruton Street, London, W1J 6QA and its primary listing is on theLondon Stock Exchange. This condensed consolidated interim financial information for the six monthsended 31 July 2006 was approved for issue on 9 October 2006. 2. Accounting Policies Basis of preparation This condensed consolidated interim financial information for the six monthsended 31 July 2006 has been prepared in accordance with IAS 34, 'Interimfinancial reporting' and the disclosure requirements of the Listing Rules. Itdoes not include all the information required for full annual financialstatements, and should be read in conjunction with the consolidated financialstatements of the Group for the year ended 31 January 2006. The balance sheet at 31 July 2005 has been restated to reflect finalised IFRSadjustments made at the transition date, 31 January 2004. For further detailssee the consolidated financial statements of the Group for the year ended 31January 2006. Nature of financial information The interim financial information does not constitute statutory financialstatements as defined under Section 240 of the Companies Act 1985. Thefinancial information for the year ended 31 January 2006 has been extracted fromthe statutory accounts for that year which have been delivered to the Registrarof Companies. The report of the auditors on those accounts was unqualified anddid not contain a statement under Section 237 (2) or (3) of the Companies Act1985. Significant accounting policies The accounting policies applied by the Group in these consolidated interimfinancial statements are the same as those applied by the Group in itsconsolidated financial statements for the year ended 31 January 2006. 3. Segment Information The consolidated entity operates in one business segment being that ofrecruitment services and outsourcing services. As a result, no additionalbusiness segment information is required to be provided. The Group's secondarysegment is geography. The segment results by geography are shown below: Analysis of Revenue Unaudited Unaudited Audited 6 months ended 6 months ended 12 months ended 31 July 2006 31 July 2005 31 January 2006 £'000 £'000 £'000 United Kingdom 44,168 38,627 79,229Rest Of Europe 62,982 41,252 95,690United States 14,096 12,826 27,375Total 121,246 92,705 202,294 Analysis of Operating Profit Unaudited Unaudited Audited 6 months ended 6 months ended 12 months ended 31 July 2006 31 July 2005 31 January 2006 £'000 £'000 £'000 United Kingdom 1,710 1,200 2,400Rest Of Europe 1,033 716 1,800United States 385 320 901Total 3,128 2,236 5,101 Operating profit in the United Kingdom includes £449,000 representing cashconsideration for the sale of the 10% shareholding in the Hong Kong company StGeorges Harvey Nash Limited. 4. Taxation Unaudited Unaudited Audited 6 months ended 6 months ended 12 months ended 31 July 2006 31 July 2005 31 January 2006 £'000 £'000 £'000Current tax:Tax on profit in the period 701 173 664Adjustments in respect of prior periods 54 (377) (577)Total current tax 755 (204) 87 Deferred tax:Origination and reversal of timing differences 152 544 666Deferred tax to equity 4 (220) (226)Total deferred tax charge 156 324 440 Total tax charge (continuing operations) 911 120 527 5. Earnings per Share Unaudited Unaudited Audited 6 months ended 6 months ended 12 months ended 31 July 2006 31 July 2005 31 January 2006 £'000 £'000 £'000 Profit attributable to shareholders 1,738 1,612 3,476Weighted average number of shares 64,082,419 62,150,562 62,224,342Basic earnings per share 2.71p 2.59p 5.59p Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares in issueduring the year, excluding those held in the employee share trust, which aretreated as cancelled. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. The Group has two categories of potential ordinary shares: those shareoptions granted to employees where the exercise price is less than the averageprice of the Company's ordinary shares during the year, and deferredconsideration shares to be issued. Unaudited Unaudited Audited 6 months ended 6 months ended 12 months ended 31 July 2006 31 July 2005 31 January 2006 £'000 £'000 £'000 Profit attributable to shareholders 1,738 1,612 3,476Weighted average number of shares 64,082,419 62,150,562 62,224,342Effect of dilutive securities 3,310,263 7,953,224 6,670,461Adjusted weighted average number of shares 67,392,682 70,103,786 68,894,803Diluted earnings per share 2.58p 2.30p 5.05p 6. Cash and Cash Equivalents Cash and bank overdrafts include the following for the purposes of the cash flowstatement. Unaudited Unaudited Audited 6 months ended 6 months ended 12 months ended 31 July 2006 31 July 2005 31 January 2006 £'000 £'000 £'000 Cash and cash equivalents (1,748) (4,908) (3,371)Debt within one year (1,000) (3,306) (3,021)Debt after one year (1,952) - -Net debt (4,700) (8,214) (6,392) 7. Analysis of Changes in Net Debt Unaudited Unaudited Foreign Unaudited 1 February Unaudited Non cash exchange 31 July 2006 Cash flow movements movements 2006 £'000 £'000 £'000 £'000 £'000 Cash and cash equivalents (3,371) 1,665 - (42) (1,748) (3,371) 1,665 - (42) (1,748)Debt due within one year (3,021) - 1,952 69 (1,000)Debt due after one year - - (1,952) - (1,952) (3,021) - - 69 (2,952)Total (6,392) 1,665 - 27 (4,700) The non-cash movements reflect changes in the maturity of the debt following adebt restructuring in the period. 8. Related Party Transactions Certain senior employees were entitled to receive deferred consideration inrespect of the acquisition of Snowdogs LLC in 2003 and the business and certainassets of Bluesuit Consulting Inc in 2005, in which they formerly held equityinterests. During the period, the total number of shares issued to theseemployees amounted to 833,061 and 1,394,453 for Snowdogs and Bluesuit ConsultingInc respectively. The total value of these shares on issue amounted to $1m and $1.25m for Snowdogsand Bluesuit Consulting Inc respectively. 9. Distribution of Interim Financial statements Copies of this statement are being dispatched to shareholders, and are availableto members of the public on the Group's website at www.harveynash.com or fromthe registered office at 13 Bruton Street, London, W1J 6QA. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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