17th Apr 2007 07:03
Harvey Nash Group PLC17 April 2007 HARVEY NASH GROUP PLC ("Harvey Nash" or "the Group") Harvey Nash, the Global Professional Recruitment and Outsourcing services group,announces preliminary results for the year ended 31 January 2007, ahead ofexpectations, with a strong performance in the second half. Financial Results 2007 2006 Change Revenue £251.7m £202.3m + 24%Net Fee Income * £48.3m £42.9m + 13%Adjusted Operating Profit ** £7.0m £5.3m +33%Operating Profit £6.7m £5.1m +32%Profit Before Tax £5.8m £4.0m +45%Basic Earnings Per Share 6.33p 5.59p +13% Source: Unaudited consolidated Financial Statements of Harvey Nash Group Plc *Net Fee Income = Gross Profit (and this will apply throughout the statement) ** Operating profit before disposal of investment, property lease provision and share based payments Highlights • Strong organic revenue growth of 24% • Dividend re-instated with final dividend of 1p per share • Excellent increase in Profit Before Tax of 45% • Strong cash generation of £5.3m from operating activities • New offices opened in USA, Europe and UK • Continued growth of Outsourcing revenues in Europe • Strong performance from Offshore Services with revenues up 47% Commenting on the results, the Chief Executive Officer, Albert Ellis, said: "The Group's performance for the year has exceeded expectations. Our uniqueportfolio of services and global geographic spread are key strategic advantageswhich are delivering strong growth and increased operating margins. Building on our successful organic led growth strategy, we have identified bolton acquisition opportunities in new and existing fast growing markets. Current trading in the first quarter has been strong with the excellent runrates from last year continuing and therefore we are confident of furtherprogress." 17th April 2007 ENQUIRIES: Harvey Nash Tel: 020 7333 2635 Albert Ellis, Chief Executive OfficerRichard Ashcroft, Group Finance Director College Hill Tel: 020 7457 2020 Mark Garraway/Matthew Gregorowski A presentation for analysts will take place at 09:30 this morning at the officesof College Hill, 78 Cannon Street, London, EC4N 6HH CHAIRMAN'S STATEMENT Once again I am pleased to be able to report that the Group's financial resultsfor the year ended 31 January 2007 exceeded expectations, with a stronger thanexpected performance in the second half, particularly in the UK. Tradingconditions remain favourable and demand is robust across all of the Group'smarkets. Financial Results The Group's revenue for the year ended 31 January 2007 increased by 24% to£251.7m (2006: £202.3m). Net fee income was £48.3m (2006: £42.9m). Profit beforetax increased 45% to £5.8m (2006: £4.0m). Basic earnings per share increased 13%to 6.3p (2006: 5.6p). There was trading cash inflow of £7.5m (2006: £6.1m) generated from operationsbefore movements in working capital. As a result, the Group's net borrowingsreduced by 59% to £2.6m (2006: £6.4m), significantly strengthening the Group'sbalance sheet. Dividend Following the completion of its capital reorganisation in July 2006, the Boardis pleased to declare a final dividend for the year of 1p per share, which willbe paid on 28 June 2007 to shareholders on the register as at 8 June 2007. Strategy A key success factor is the Group's strategy of diversifying its geographiccoverage. This year over 63% (2006: 61%) of revenue was generated from outsidethe United Kingdom. In the 2005 Annual Report, we set out the details of our three year planintended to leverage growth opportunities and deliver better than average marketreturns. The Group has continued to make targeted investment in additionalheadcount, new offices and its Outsourcing services during the year. As a resultof the implementation of the strategy, strong organic growth has been achievedand over the past two years (February 2005 to January 2007) profit before taxhas increased by over 80%. Our broad portfolio of services gives the Group a unique competitive advantageas major clients benefit from our comprehensive approach to the recruitment oftheir senior executives and IT professionals and their strategic ITrequirements. The trend to offshore projects has gathered momentum with strongdemand for our project based Offshore Software Development and Outsourcingservices. These partnerships are longer term in nature and less susceptible toshort term cyclical changes, thereby enhancing the Group's quality andvisibility of earnings. The Group's ongoing strategy is based on the success achieved in combining astrong organic growth model with bolt on, earnings enhancing acquisitions in newmarkets. Board and Employees Having made a major contribution to the Group over the years as both a founderand Chief Executive, David Higgins will move to a non-executive role with effectfrom 1 May 2007. He will step back from day to day operations but will continueto be involved in the Group's ongoing business development and in maintainingkey client relationships. On behalf of the Board, I would like to thank all of the Group's employees andassociates, who have worked hard and made possible another year of successfulgrowth. Prospects and Outlook Following the excellent performance in the year ended January 2007, currenttrading remains strong and business sentiment is positive. The US business has seen improved profitability notwithstanding the softening ofgrowth in that market and we expect to take advantage of an improved economicforecast in the second half. In Europe, demand is strong and our businesscontinues its solid growth. In the UK demand has accelerated in the second halfand the excellent run rates continue into the current year. Overall, trading in the first quarter has been strong with the excellent runrates from last year continuing and therefore we are confident of furtherprogress. We will build on this successful organic led growth strategy, while we continueto identify earnings enhancing bolt on acquisition opportunities in new markets. Ian Kirkpatrick Chairman OPERATIONAL REVIEW United Kingdom Revenue in the UK increased by 16% to £92.2m (2006: £79.2m) and operating profitincreased by 41% to £3.5m (2006: £2.5m). The increase in operating profit marginhas been brought about by our continued focus on higher margin added valueservices such as Offshore Software Services. The macro economic picture was positive compared to the previous year withaccelerated UK GDP growth in 2006 having a positive impact on demand. The IT business in particular, benefited from the strong demand for ITprofessionals as companies continue to invest in their IT systems andinfrastructure. Revenues were up 14% with an increase in both permanent andcontract placements with revenue from Offshore services increased by 47%. TheFinancial Services and Oil sectors were key drivers for growth, with demand forIT professionals also strong in the Media sector as convergence continues todrive mergers and acquisitions. The Group successfully established a Board level practice during the year,building delivery capability at the senior level in both the private and publicsectors. An office was also opened in Edinburgh in September to broaden thegeographic reach of the UK business. Continental Europe Revenue in mainland Europe increased by 39% to £132.6m (2006: £95.7m), andoperating profit increased by 28% to £2.3m (2006: £1.8m). Economic conditionswere favourable throughout the year, with client demand for technologyprofessionals outstripping supply. The Netherlands once again delivered the strongest result with revenues up by64%. Our business continues to grow with additional headcount taken on duringthe year to support our large blue chip clients with specialist recruitment,workforce risk management, Outsourcing and Executive Search services. In Belgium, revenue increased by 24%. Investment in headcount helped grow thenumbers of IT consultants significantly. Productivity improved and the businessexperienced no bench costs in relation to its employed IT consultants working onproject based assignments during the year. As stated in October 2006, in France we are leveraging the economic recoverywith increased fee earning capacity. This has now been implemented in February2007 following the appointment of key management. Forecast investment of circa£0.3m will be made in our Paris office and we anticipate reaching profitabilityin the fourth quarter of this year. In Germany, revenues increased by 14%. Margins have been slightly lower over thelast two years but this has been offset by rising volumes of IT consultants. TheGroup's specialist competencies in SAP, Engineering and Systems Management haveall experienced increased demand driven by skills shortages. In Switzerland, revenues increased by 13%, generated mainly from demand for bothIT consultants and permanent IT professionals in the Financial Services sector.The Geneva office has been successfully established and is already making acontribution in its first full year. Additional headcount in the final quarterof last year has been taken on to further develop this growing market. United States Operating profit increased by 6% to £0.9m (2006: £0.8m) notwithstanding revenuesbeing at similar levels to last year at £27.0m (2006: £27.4m). Although thefluctuating currency has had a small adverse affect on the reported tradingresults a process of ongoing yield management of lower margin contracts and anincrease in the growth of Executive Search has improved gross margin in theperiod from 30% to 31%. The operating margin also increased to 11% (2006: 10%). Two new offices in Boston and Phoenix were opened during the year to furtherexpand our geographic footprint. Although the Accountancy business generatedlower revenues than in the previous year, the IT market was buoyant andExecutive Search revenues increased by 75%. The market currently favours permanent hiring which has resulted in a change ofmix in gross profit to 78:22 (contracting:permanent) compared to 81:19 in theprevious year. Demand for Offshore and Outsourcing is strong in the US and the Group is seekingto leverage the opportunities that exist in this market. Currently a number ofUK based clients have asked the Group to assist their subsidiaries in the USboth in providing Offshore Software services and recruitment, the benefits ofwhich are anticipated in the latter part of 2007. The Managed Service divisionincreased its revenues with an extension at Sunguard and a new contract win atSmith & Nephew. As has been well documented, growth slowed in the US economy in the finalquarter of last year with business sentiment slighter softer than at the startof the year. This has resulted in lower demand for IT consultants. However, witha robust pipeline mainly in the Outsourcing and Offshore business and a strongExecutive Search practice, we believe our US business is well placed for growthin the future, particularly in the second half when an acceleration of economicgrowth is forecast. Summary The Group's performance for the year has exceeded expectations. Our uniqueportfolio of services and global geographic spread are key strategic advantageswhich are delivering strong growth and increased operating margins. We intendbuilding on our successful organic led growth strategy, and continue to identifybolt on acquisition opportunities in new markets and geographic areas. Albert Ellis Chief Executive Officer FINANCIAL REVIEW Profit and Loss Revenue increased by 24% to £251.7m for the year ended 31 January 2007 (2006:£202.3m). This increase was 100% organic and reflected improved tradingconditions both in the United Kingdom and continental Europe. Adjusted operating profit (before profit on disposal of investment, propertylease provision and share based payments) increased by 32% to £7.0m (2006:£5.3m) as the conversion ratio (adjusted operating profit as a percentage ofgross profit) improved from 12% in the previous year to 15%. The profit on disposal of investment of £0.45m represents cash consideration forthe sale of the 10% shareholding in the Hong Kong company St. Georges HarveyNash Limited. The property provision of £0.3m relates to the cost of re-lettingvacant premises in Lower Regent Street, London. The share based payments expenserepresents the share options charge (£0.2m) and a provision for share basedmanagement bonuses (£0.2m). Net interest payable fell by 15% to £0.9m from £1.1m in the previous year as aresult of lower net borrowings, despite increases in interest rates during theyear. Taxation The tax charge for the year was £1.7m (2006: £0.5m), giving an overall effectiverate of tax of 29.5% (2006: 13.1%). Excluding adjustments in respect of prioryears, the effective rate of tax was 28.4% (2006: 27.6%). Earnings per Share Basic earnings per share rose by 13% to 6.33p (2006: 5.59p). Fully dilutedearnings per share rose by 22% to 6.18p (2006: 5.05p). Balance Sheet Tight control over capital expenditure during the year resulted in a total spendof £0.6m, which was lower than the depreciation charge of £0.8m. The value of intangible assets (goodwill) fell during the year by £0.9m, as aresult of foreign exchange movements of £0.8m and an adjustment to the value ofgoodwill in SBS Inc of £0.1m. Trade and other receivables have increased by £8.7m as a result of increasedtrading. The increase in trade and other receivables (20%) is slightly lowerthan the increase in revenue (24%), reflecting tight control over receivables.Trade and other payables increased by £6.5m, also as a result of increasedtrading. Provisions and other liabilities (£0.3m) comprise the costs relating to theproperty in Lower Regent Street, London. Cash Flow There was a trading cash inflow of £7.5m generated from operating activitiesbefore working capital movements. Of this, £2.2m was absorbed in working capitaldespite the 24% increase in revenue. Tax payment of £0.6m, capital expenditureof £0.6m and net interest paid of £0.9m was partly offset by cash proceeds fromthe sale of investment of £0.4m. Banking Facilities The Group's banking facilities total circa £21.4m, comprising working capital of£12.0m in the UK and €5.0m in Germany, an overdraft facility of £4.0m and aresidual £2.0m term loan with two re-payments of £1.0m each, on 31 January 2008and 31 January 2009. These facilities are available to fund growth in thegroup's operations. Acquisitions The final tranche of deferred consideration of up to $1.0m in relation to theacquisition of Snowdogs LLC, the Group's Seattle based business, was based onthe results for the year ended 31 January 2006 and was satisfied in April 2006by the issue of 833,061 shares following the successful achievement of theearnout. In January 2007 the Group issued 1,146,331 shares in connection with the Group'sdeferred consideration for the acquisition of the business and certain assets ofBluesuit Consulting Inc, the Group's Chicago based business. The final trancheof the deferred consideration of up to $0.7m is payable in shares, based on theresults for the year ending on 16 December 2007. Richard Ashcroft Group Finance Director Unaudited Consolidated Income Statementfor the year ended 31 January 2007 Notes 2007 2006 £ '000 £ '000 Revenue 3 251,742 202,294Cost of sales (203,480) (159,390)Gross profit 48,262 42,904Total administrative expenses (41,530) (37,803) Operating profit before disposal of investment, property lease 7,034 5,286provision and share based paymentsProfit on disposal of investment 449 -Property lease provision (328) -Share based payments (423) (185) Operating profit 6,732 5,101Finance costs (1,235) (1,117)Finance income 299 19Profit before tax 5,796 4,003Income tax expense 5 (1,712) (527)Profit for the year 7 4,084 3,476 Basic earnings per share 4 6.33p 5.59pDiluted earnings per share 4 6.18p 5.05p Unaudited Consolidated Statement of Recognised Income and Expensefor the year ended 31 January 2007 2007 2006 £ '000 £ '000 Profit for the year 4,084 3,476Foreign currency translation differences (978) (70)Total recognised income and expense for the year 3,106 3,406 The above results are derived from continuing activities. Unaudited Consolidated Balance Sheetfor the year ended 31 January 2007 Notes 2007 2006 £ '000 £ '000 ASSETSNon-current assetsProperty, plant and equipment 1,450 1,744Intangible assets 27,516 28,463Deferred income tax assets 1,304 1,190 30,270 31,397Current assetsTrade and other receivables 51,747 43,032 Total assets 82,017 74,429 LIABILITIESCurrent liabilitiesTrade and other payables (40,736) (34,219)Current income tax liabilities (1,388) (459)Financial liabilities - borrowings 6 (1,784) (6,392)Provisions (328) (14) (44,236) (41,084)Non-current liabilitiesFinancial liabilities - borrowings 6 (819) -Deferred income tax liabilities (175) (233) (994) (233)Total liabilities (45,230) (41,317)Net assets 36,787 33,112 EQUITYCapital and reserves attributable to equity shareholdersShare capital 3,325 3,137Share premium 4,111 19,064Shares to be issued 595 2,532Fair value and other reserves 15,079 13,152Own shares held (656) (656)Cumulative translation reserve (885) 93Retained earnings 7 15,218 (4,210)Total equity 36,787 33,112 Unaudited Consolidated Cash Flow Statementfor the year ended 31 January 2007 Notes 2007 2006 £ '000 £ '000 Profit before taxation 5,796 4,003Adjustments for: - depreciation 789 797- loss on disposal of fixed assets 33 -- finance income (299) (19)- finance costs 1,235 1,117- profit on sale of investment (449) -- share based employee settlement and share option charge 423 185 Operating cash flows before changes in working capital 7,528 6,083Changes in working capital (excluding the effects of acquisition and exchangedifferences on consolidation) - increase in trade and other receivables (7,639) (12,477)- increase in trade and other payables 5,138 11,479- increase/(decrease) in provisions for liabilities and charges 314 (266) Cash flows from operating activities 5,341 4,819Income tax (paid)/ received (630) 55Net cash generated/ (absorbed) from operating activities 4,711 4,874 Cash flows from investing activitiesPurchases of property, plant and equipment (565) (1,109)Proceeds from sale of investment 449 -Net cash absorbed from investing activities (116) (1,109) Cash flows from financing activitiesRepayment of borrowings (1,000) (3,308)Proceeds from issue of ordinary shares 129 13Interest received 299 19Interest paid (1,235) (1,117)Net cash used in financing activities (1,807) (4,393) Increase / (decrease) in cash and cash equivalents 2,788 (628)Cash and cash equivalents at the beginning of the year (3,371) (2,694)Exchange (losses)/gains on cash and cash equivalents (201) (49)Cash and cash equivalents at the end of the year 6 (784) (3,371) Notes to the Unaudited Consolidated Financial Statements 1. General 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 listing is on the LondonStock Exchange. 2. Accounting Policies The principal accounting policies adopted in the preparation of these financialstatements are set out in the 31 January 2006 annual report. These policieshave been consistently applied to both years presented unless otherwise stated. The financial information does not constitute statutory accounts within themeaning of section 240 of the Companies Act 1985. Statutory accounts for theyear ended 31 January 2007 will be dispatched to shareholders during May 2007for approval at the Annual General Meeting to be held on 25 June 2007. Basis of preparation The main section of these financial statements presents the financial statementsof the Group prepared under International Financial Reporting Standards (IFRS)adopted by the European Union. 3. Segment Information The consolidated entity operates in one business segment being that ofrecruitment and outsourcing services. As a result, no additional businesssegment information is required to be provided. The Group's secondary segmentis geography. The segment results by geography are shown below includingrevenue by origin. The directors do not consider revenue by origin to bematerially different from revenue by destination. Revenue Segment assets Capital expenditure 2007 2006 2007 2006 2007 2006 £ '000 £ '000 £ '000 £ '000 £ '000 £ '000 United Kingdom 92,220 79,229 26,798 24,001 352 704Netherlands 74,668 45,574 22,787 17,780 6 8Germany 29,935 26,196 6,209 5,220 18 42Rest Of Europe 27,960 23,920 15,188 15,265 24 270United States 26,959 27,375 9,731 10,944 165 85Asia Pacific - - - 29 - -Total 251,742 202,294 80,713 73,239 565 1,109 4. Earnings Per Share 2007 2006 Profit attributable to shareholders £'000 4,084 3,476Weighted average number of shares 64,542,753 62,224,342Basic earnings per share 6.33p 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. 2007 2006 Profit attributable to shareholders £'000 4,084 3,476Weighted average number of shares 64,542,753 62,224,342Effect of dilutive securities 1,533,120 6,670,461Adjusted weighted average number of shares 66,075,873 68,894,803Diluted earnings per share 6.18p 5.05p 5. Taxation 2007 2006 £ '000 £ '000 Corporation tax on profits in the year 1,542 664Adjustments in respect of prior years 65 (577)Total current tax 1,607 87Deferred tax 105 440Total tax charge 1,712 527 6. Analysis of Changes in Net Debt 1 February 2006 Cash flow Non cash Foreign exchange 31 January 2007 movements movements £'000 £'000 £'000 £'000 £'000 Cash and cash equivalents (3,371) 2,788 - (201) (784) (3,371) 2,788 - (201) (784)Debt due within one year (3,021) 1,000 819 202 (1,000)Debt due after one year - - (819) - (819) (3,021) 1,000 - 202 (1,819)Total (6,392) 3,788 - 1 (2,603) The non-cash movements reflect changes in the maturity of the debt following adebt restructuring in the year. 7. Retained Earnings 2007 2006 £ '000 £ '000 At 1 February (4,210) (7,234)Employee share options and bonus plan 160 (226)IFRS 2 Deferred Tax charge to equity 277 (226)Capital Restructuring 15,063 -Goodwill adjustment (156) -Profit for the year 4,084 3,476At 31 January 15,218 (4,210) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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