Unaudited Interim Results

28 September 2017

Harvey Nash Group plc ("Harvey Nash" or "Group")

Unaudited Interim Results for the six months ended 31 July 2017

Harvey Nash Group plc (AIM: HVN), the global technology recruitment and outsourcing group, announces its unaudited interim results in line with expectations for the six month period ended 31 July 2017.

Highlights

· Revenue and gross profit up 12.6% and 2.0% respectively

· Profit before tax before non-recurring items up 4.4%

· Profit before tax up 16.8%

· Earnings per share up 24.9%, up 17.0% before non-recurring items

· Interim dividend of 1.643p per share, up 5.0%

· Transformation programme on track, delivering against strategy

· Robust UK performance in weaker market

· Record results in Benelux

· Improved results from Asia Pacific

· Move to AIM to support growth strategy

· Two earnings-enhancing acquisitions announced

* Non-recurring items mainly comprise the cost of the Group transformation programme offset by a release of aged accrued liabilities.

Chief Executive Officer, Albert Ellis commented:

"The Group has reported encouraging results for the first half of the year, in line with our expectations.

I am very pleased that in a challenging UK market our business has increased its revenue and delivered a robust financial performance. The Group's businesses in the Benelux reported record revenues and profits, and improved results in the Nordics and Asia Pacific reflected the actions taken to increase margins and overall results during the period.

Our strategy is focused on the demand for executive and technology recruitment from clients undergoing digital transformation, and we have added to the Group's capacity with two excellent acquisitions. The combined benefits of these and the efficiencies from the transformation programme are expected to flow through into the current and next year's results.

Accordingly, we enter the second half of the year on track, well positioned to capitalise further on market opportunities as they arise and confident about the outlook for the remainder of the year."

 Enquiries:

Harvey Nash Albert Ellis (CEO) and Mark Garratt (CFO) 020 7333 2635

Panmure Gordon (Nominated Adviser & Broker) Ben Thorne, Erik Anderson, Andrew Potts 020 7886 2500

Hudson Sandler Hattie O'Reilly and Fern Duncan 020 7796 4133

Notes to editors

Harvey Nash is a global recruitment business, with a focus on technology and digital talent recruitment. Our unique portfolio of services, from executive search, professional recruitment to offshore solutions, enables us to engage with clients at every stage of the business cycle. Our relationship-based model underpins the delivery of resilient financial returns and supports sustainable returns to shareholders.

With approximately 9,000 freelancers placed from 39 offices across Europe, USA and Asia Pacific, Harvey Nash has the reach and resources of a global organisation, while fostering a culture of innovation and autonomy that empowers its employees and associates to deliver client-centric solutions.

CEO Statement

Results for the first half of the year to 31 July 2017 were in line with expectations. Revenue increased by 12.6% to £425.3m (2016: £377.7m), 9.2% on a constant currency basis, and profit before tax and non-recurring items increased by 4.4% to £4.0m (2016: £3.8m), 1.8% on a constant currency basis. This was as a result of continued recruitment demand for technology consultants in the UK and Benelux, as well as actions taken to reduce the Group's cost base.

Gross profit increased by 2.0% to £48.2m (2016: £47.3m), a decline of 3.9% on a constant currency basis. This was mainly due to changes in revenue mix with the strongest growth in profitable but lower-margin managed services, coupled with a slowdown in permanent hiring in the UK during the election period. Operating profit increased by 12.4% to £4.7m including a net non-recurring credit of £0.5m (2016: nil). Operating profit before non-recurring items increased by 1.2% to £4.2m (2016: £4.2m).

Statutory profit before tax of £4.4m was £0.6m higher than the prior period and earnings per share were 24.9% higher at 4.47p (2016: 3.58p), 25.2% on a constant currency basis. Interest costs were 29.7% lower at £274k (2016: £390k) and the effective tax rate reduced to 26.9% (2016: 31.3%).

During the period, there were a number of items which fell outside the usual course of business. These costs are presented as non-recurring items and are discussed below.

Transformation programme

During the period, management undertook a thorough review of the Group's operations and cost base. Consequently, a transformation programme was implemented, including actions to streamline the business, review underperforming offices and reduce central overhead costs. Expected savings from this programme in the current financial year are £1.1m and £2.2m in FY19.

One-off costs were incurred in relation to under-performing offices and service lines across the world, which were either closed or the operations moved to more suitable locations. Central services, provided globally from the UK, are being reviewed and, where appropriate, reduced or delivered locally. Opportunities for efficiencies are being identified where investment in technology can reduce the cost of delivery and longer-term financial planning is underway to remove tax and structural inefficiencies in a geographically diverse Group. This process is anticipated to be complete by the end of the financial year with the full benefits expected to be realised in FY19.

The accounting estimate for aged accrued liabilities in the Netherlands was re-assessed following a detailed review. The resultant £3.5m reduction in the accrual has been treated as a non-recurring item.

Move to AIM

On 28 July 2017, the Group's shares were admitted to AIM and its listing on the London Stock Exchange's Main Market was cancelled. The move provides an environment more appropriate to the Group's scale and acquisition strategy.

Acquisitions

On 3 July 2017, the Group announced and completed the acquisition of PAT Management AB ("PAT"), a human resource consultancy based in Sweden, for an initial cash consideration of SEK 18.2m (£1.7m) with a further SEK 19m (£1.7m) of potential deferred consideration. Leadership consultancy is one of the fastest-growing services within the executive recruitment market and clients are increasingly commissioning assessment and other HR related projects alongside traditional recruitment assignments. This acquisition provides our market-leading Alumni executive search business in the Nordics with enhanced capability and a broader client base and supports the Group's strategy of increasing its annuity revenues.

On 12 September 2017, the Group announced and completed the acquisition of Crimson Limited ("Crimson"), a UK-based technology solutions and recruitment consultancy specialising in digital and technology transformation solutions as well as offering a full range of recruitment services, both permanent and contract. For the year ended 31 March 2017, Crimson reported a profit before tax of £1.7m on revenue of £23.5m. Under the terms of the acquisition the Group has acquired 100% of the shares in Crimson for an initial cash consideration of £6.0m with deferred cash consideration of up to £4.0m payable in two equal tranches on the first and second anniversary of completion with 50% guaranteed and 50% subject to achieving a minimum level of EBITDA. In addition to this, an earn-out of up to £5.0m will be payable in cash based on EBITDA targets in the second and third years post acquisition. Total consideration is capped at £15m.

These acquisitions are both expected to be earnings-enhancing and represent important steps in our growth strategy, supported by the move to AIM. In particular, Crimson is a transformative acquisition for the Group's UK & Ireland business, firmly establishing its position as one of the leading providers of technology talent services to the IT and Digital sectors.

The Group continues to assess and pursue value enhancing acquisitions in its core geographies.

Balance sheet

Net assets at 31 July 2017 grew by 2.5% to £63.6m compared to £62.0m at 31 January 2017. Intangible assets increased by 4.9% (£2.7m) to £57.8m due to the goodwill on the acquisition of PAT.

Net debt at 31 July 2017 was £10.0m, compared to a net cash position of £5.6m at the start of the period. However, average borrowings over the six months to 31 July 2017 were lower than the comparative period, as reflected by the 29.7% reduction in finance costs.

Trade and other receivables increased by £23.7m to £152.6m (31 January 2017: £128.9m) reflecting the growth in contract services over the period. Trade and other payables increased to £140.0m (31 January 2017: £133.2m). Tight control of working capital continued, with debtor days at 31 July of 41.4 compared to 41.8 in July 2016.

Deferred consideration increased by £1.2m to £1.4m following the acquisition of PAT and the £0.1m increase in liability for Japan booked as a non-recurring cost. Provisions increased from £0.1m at 31 January 2017 to £1.4m at 31 July 2017 as a result of future commitments under the Group's transformation programme.

Cash flow

Operating cash flow before changes in working capital decreased by £0.4m to £4.4m due to a payment relating to the 2016 disposal of Nash Technologies GmbH. Taking account of working capital, there was an outflow of cash from operating activities in the period of £8.0m (2016: inflow of £3.4m). This is the result of the increase in trade receivables referred to above.

The cash impact of non-recurring items was an outflow of £1.5m (2016: nil) and income tax paid increased by £0.2m to £2.1m.

Cash used in investing activities decreased by £4.4m to £2.1m (2016: £6.5m). The current period includes the acquisition of PAT Management AB for £1.5m and fixed asset additions of £0.5m. The comparative period included a £6.0m outflow relating to the disposal of Nash Technologies GmbH and a similar level of fixed asset additions.

Dividend

The Board has declared an interim dividend of 1.643p per share (2016: 1.565p per share) representing an increase of 5.0%, which will be paid on 17 November 2017 to shareholders on the register on 20 October 2017.

Operational review

United Kingdom & Ireland

The Group increased its market share and revenue in the UK and Ireland, despite the impact of political uncertainty surrounding the UK General Election and changes to the tax treatment of freelancers working in the public sector. Gross profit of £18.2m was 1.2% down on last year, mainly due to a slowdown in the level of higher-margin permanent hiring during the election period.

Gross profit from Ireland showed strong growth (up 33%), with offices in the North of England (up 14%) and Scotland (up 6%) offsetting the Midlands, South West and London (each down by 4%). Investment in headcount (up 4% on the prior year) resulted in an operating profit of £1.6m, down 2.5% on the prior period.

Executive recruitment reported growth but interim placement activity was mixed compared to the prior year. Demand from the Financial Services sector was strong, with increased compliance and regulation measures in preparation for Brexit driving the recruitment of technology specialists.

The introduction of IR35 legislation resulted in significant activity within the public sector to transition existing freelancers and demand for new recruitment fell as a result. Despite this, overall the number of freelancers in the UK & Ireland at 31 July 2017 grew by 7.9% on the prior year, improving the outlook for the seasonally more productive second half.

Mainland Europe

Revenue grew in Mainland Europe by 15.9%, whilst gross profit increased by 9.2% to £19.4m (2016: £17.8). Performance was varied across the regions of Europe with a strong performance in Benelux offset by more challenging conditions in Central Europe. Operating profit increased by 3.1% to £2.6m (2016: £2.5m) which comprises £2.3m in Benelux (2016: £1.9m), £0.2m in Nordics (2016: £0.2m) and £0.1m in Central Europe (2016: £0.4m).

We have a strong platform in Europe. Skills shortages in Benelux drove demand for freelancers, project teams and managed services as more companies outsource the management of their temporary staff. In the Nordics, gross profit growth of 6.2% was helped by the first month of post-acquisition results from PAT. Specialist recruitment and interim services offset lower executive search fees. Norway continues its turnaround with gross profit up 29%.

In Central Europe, Poland reported a 66% increase in gross profit but the larger businesses in Germany and Switzerland saw gross profit fall by 23% and 18%. Germany saw a decline in freelancers exacerbated by regulatory changes to the freelance labour market and the strong currency in Switzerland led to weaker demand for permanent recruitment. Actions were taken in both countries to align costs with revenues, to refocus investment in growth areas and to reduce fixed overheads.

Rest of World

Performance in the Rest of World was much improved compared to the prior year. Gross profit decreased by 4.4% to £10.6m (2016: £11.1m) but operating profit grew by 20.5% to £0.08m (2016: £0.07m).

In the USA, demand continues to swing in favour of permanent recruitment but record executive search revenues were offset by a decline in freelancers. Overall gross profit decreased by 10.8% to £7.6m (2016: £8.5m) and operating profit reduced to £0.3m (2016: £0.6m). Acute skills shortages in the technology sector are creating unexpected challenges, particularly in Seattle, where major global technology companies are competing for talent. The US business has implemented a range of measures to improve conversion from open vacancies into placements, the benefits of which should be seen in the second half.

Gross profit in Asia Pacific increased by 16.9% to £3.0m with much of this growth in Vietnam (£0.5m) and Singapore (£0.1m) offset by a weak recruitment in Australia (down £0.1m). The operating loss was reduced to £0.2m (2016: loss of £0.5m) due to productivity gains in Vietnam and reduced losses in Hong Kong as this office winds down.

Board changes

Mark Garratt assumed the role of Group Finance Director on 27 April 2017, having joined the Board on 3 April 2017, following Richard Ashcroft's decision to step down from the Board during 2017, as announced in September 2016.

As set out in further detail in a separate announcement today, with effect from 1 October 2017, Harvey Nash has appointed Adrian Gunn as a nominee non-executive director on behalf of the investment adviser of the Company's largest shareholder, DBAY Advisors Limited.

Outlook

As we stated in the Group's preliminary results in April 2017, the Group has a clear strategy to grow the business and our vision is to be Europe's market-leading technology and digital talent provider with challenger businesses in the US and Asia. With 80% of our clients, services and skills in the technology sector, our plan for growing the business and increasing shareholder value is based on capitalising on our strong market positions and investing in selected geographies both organically and by acquisition. To accelerate our growth plans, we embarked on a programme to streamline the business and reduce costs.

With benefits from the transformation programme and the acquisitions of PAT and Crimson resulting in full-year profit forecasts being upgraded three times since the AGM on 29 June 2017, we enter the second half of the year well positioned to capitalise further on market opportunities as they arise and are confident about the outlook for the remainder of the year.

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

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

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the 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. The Group has offices in United Kingdom, Europe, United States and Asia Pacific.

The Company is a public listed company incorporated in the United Kingdom. Its registered address is 110 Bishopsgate, London, EC2N 4AY and its listing is on the London Stock Exchange (AIM).

2. Accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied across the Group in both years presented.

Basis of preparation

This condensed consolidated interim financial information for the six months ended 31 July 2017 has been prepared in accordance with International Accounting Standards ('IAS') 34 'Interim financial reporting' and the disclosure and transparency directives of the FCA. 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 2017, which were prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union and were approved by the Board of Directors on 26 April 2017 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 auditor Deloitte LLP.

Significant accounting policies

Except as noted below, 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 2017. The accounting policies are drawn up in accordance with IAS and IFRS as endorsed by the European Union.

Principal risks and uncertainties

Principal risks and uncertainties affecting the business activities of the Group are the same as those detailed within the Strategic Report on pages 14 to 16 of the Group's 2017 Annual report.

New and amended standards adopted by the Group

There are no new standards or IFRIC interpretations that were effective during the period that significantly affect this interim financial information.

Critical accounting judgements and key sources of estimation uncertainty

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 2017.

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.

3. 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 to 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:

Gross profit

Operating profit

4. Net finance costs

5. Tax

Taxation for the six-month period is charged at 26.5% (31 July 2016: 31.3%), 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. The tax effect on non-recurring items is a charge of £265,000 resulting in an effective tax rate before non-recurring items of 22.9% (2016: 31.3%).

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 benefit 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.

7. Analysis of changes in net funds

Net funds comprise cash and cash equivalents less overdraft and utilisation of the Group's invoice discounting facility.

8. Dividends

The Group paid a final dividend of 2.525p per share on 7 July 2017 to shareholders on the register as at 16 June 2017 (2016: 2.360p per share).

9. Non-recurring items

In the period, the Executive Directors commenced a review of the Group's operations and cost base. They have implemented a transformation programme to review underperforming offices, streamline the business and reduce central overheads. Offices in Geneva, Dusseldorf and Denver were closed at a cost of £0.6m and contracting services ended in Japan at a cost of £0.3m. The Hong Kong office continues to trade but is being wound down with anticipated closure costs of £0.6m recognised. Businesses were streamlined in UK, Nordics and Central Europe at a cost of £0.2m, £0.2m and £0.3m respectively. Restructuring of central costs totalled £0.4m, split between USA and UK. The recruitment of a new Group Finance Director and consequent overlapping costs are considered the first step in this transformation and as such these costs are included within the central costs restructuring charge of £0.4m. This transformation programme is anticipated to complete by the end of the financial year at a further cost of approximately £1.0m.

On 28 July 2017, the Group's shares were admitted to AIM and its listing on the London Stock Exchange's Main Market was cancelled. The cost of this listing was £0.2m.

The accounting estimate for aged accrued liabilities in Netherlands was re-assessed following a detailed review resulting in a release of aged accrued liabilities totalling £3.5m.

The final deferred consideration payable for the Beaumont KK acquisition in Japan exceeded initial estimates and the £0.1m shortfall was booked as a non-recurring item.

10. Business combinations

On 3 July 2017, the Group acquired 100% of the share capital of PAT Management AB, a recruitment business in Lund, Sweden, for an initial cash consideration of SEK 18.2m (£1.7m) and deferred cash consideration of up to SEK 19m (£1.8m). The contingent consideration arrangements require the Group to pay the selling company, PAT Invest AB, based on a multiple of earnings before interest and tax ('EBIT'), over threshold performance, for the three years ending January 2020. Acquisition-related costs amounted to £0.1m.

The provisional fair value of the net assets acquired is approximately equal to the acquiree's carrying amount. The excess of consideration above net asset values has been attributed in full to goodwill as no other intangible assets have been identified.

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

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:

Deferred consideration of £0.5m was recognised following the acquisition of Beaumont KK, a recruitment business in Tokyo, Japan, in 2014. Deferred consideration of £0.3m (2016: £0.6m) remains on the balance sheet for the final earn-out payable in October 2017.

11. Discontinued operations

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"). On the disposal date, full control passed to the acquirer.

Under the sale agreement, the Group remains liable, subject to a cap, for taxes owed by the entities up to the sale date. In the year ended 31 January 2017, an audit by the German tax office of the NT Group resulted in a tax charge of £0.4m relating to prior years, which was paid in July 2017.

A loan receivable of £2.1m (31 July 2016: £1.9m) from Nash Technologies is included within non-current assets and is due to mature on 30 June 2025. The rate of interest is 3-month EURIBOR plus 1.5% and the interest received in the period amounted to £6,000 (31 July 2016: £nil).

12. Post balance sheet events

On 12 September 2017 the Group announced and completed the acquisition of 100% of the shares in Crimson Limited, a UK based IT solutions and recruitment consultancy for an initial cash consideration of £6.0m, deferred cash consideration of up to £4.0m and an earn-out of up to £5.0m. Consideration is capped in total at £15.0m.

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 2017. 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's 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.

Mark Jonathan Garratt

Group Finance Director

28 September 2017

Cautionary statement

This Half Year Report (the "Report") has been prepared in accordance with the Disclosure Rules and Transparency Rules of the UK Financial Conduct 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.