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HARVEY NASH GROUP PLC Unaudited Interim Results for the six months ended 31 July 2010
Harvey Nash, the global professional services group, announces increased profits and cash for the six months ended 31 July 2010

Financial Results 2010 H1

2009 H1





? 1%

Gross Profit



? 1%

Operating profit



? 39%

Operating profit *



? 17%

Profit before tax



? 45%

Profit before tax *



? 20%

Non recurring items **



? 73%

Earnings per share



? 48%

Interim dividend



? 10%

Operating cash inflow



? 33%

Net cash



? 4.1m

* Adjusted for non recurring items
** 2010 Professional fees in relation to the acquisition in Norway written off
2009 non-recurring restructuring costs

Revenue in line with the previous two years despite the severe recession
Significant market share gains with multiple contract wins
Increased demand for flexible labour contractor numbers up 20% since Jan 2010
Net fee income from permanent recruitment up over 23%
Operating profits up 39% and profit before taxation up 45%
Operating cash inflow up 33% increasing net cash to 4.8m (2009: 0.7m)
Increased interim dividend, up 10% to 0.935p per share (2009: 0.850p per share)
Market leadership consolidated in Europe with expansion into Norway and Finland
Second multi year telecomm outsourcing contract secured in Stuttgart, Germany

Commenting on the results, the Chief Executive Officer, Albert Ellis, said:
"The Group has performed remarkably well during the downturn, remaining profitable and generating cash, despite the severe recession in all of our markets. Our broad range of services and focus on relationships enabled the Group to continue to add value to its clients, many of which had implemented recruitment freezes.
With markets now recovering, demand for recruitment has been picking up and the Group is very well positioned for the upturn.

The Group has performed very well during the six months ended 31 July 2010 as demand for permanent and flexible recruitment increased. While broadly maintaining its revenues in line with the previous two years, the Group has been able to substantially increase profit before tax as a result of tight control of costs.

Net fee income in relation to permanent recruitment grew strongly in the period and was up by 23% on the previous year. Contract recruitment, managed services and offshore outsourcing also remained robust. The Group secured a number of new contracts and clients during the period.

Strong operating cash flow, up 33%, resulted in a significant increase in net cash compared to last year, after settling the initial consideration for the Group?s acquisition in Norway. Accordingly, the Group will increase its interim dividend to 0.935p per share up 10% on last year.

With the recovery underway, management have focused on maintaining revenue generating and delivery capability, with an increase in fee-earning headcount in order to leverage the market share gains achieved during the recession.

Financial Results
The Group?s revenue for the six months ended 31 July 2010 was 198.6m (2009: 199.9m), with an increase in permanent recruitment offsetting lower contracting revenue.

Gross profit increased to 32.0m (2009: 31.7m) mainly due to the increase in permanent recruitment. In the six months to 31 July 2010 the proportion of permanent recruitment increased to 39% of total gross profit up from 32% for the comparable period last year.

Operating profit, adjusted for non recurring items, increased by 17% to 2.9m (2009: 2.5m) and profit before tax increased by 45% to 2.6m (2009: 1.8m). The tax charge for the period was 0.8m (2009: 0.5m) and the tax rate, 31% (2009: 29%) due to certain unrelieved losses.

Basic earnings per share increased by 48% to 2.35p (2009: 1.59p), slightly higher than the increase in profit before tax as a result of a lower proportion of minority share of profits.

Balance Sheet
The Group has a sound balance sheet, with net cash increasing to 4.8m (2009: 0.7m), despite paying the final dividend and settling the initial consideration for the acquisition in Norway in cash. Although the Group has no long term debt, short term working capital funding of circa 39m is available on a rolling twelve month basis for its growing contracting and outsourcing services.

Net assets were lower by 5% at 56.2m (2009: 59.1m) owing to an adjustment of 2.6m in the cumulative translation reserve. Tangible fixed assets increased by 0.7m mainly as a result of project capital expenditure in Nash Technologies the majority of which is reimbursed by the client.

Movements in the deferred income tax asset arose due to deferred tax on losses brought forward, share option, holiday and interest accruals. Trade debtors increased by 2.2m to 65.0m (2009: 62.8m) as a consequence of higher turnover in the second quarter compared to the same period last year. Provisions for liabilities and charges mainly comprise provisions for two onerous property leases which run to December 2011 and September 2013 respectively.

Cash flow
Operating cash flow was strong at 3.7m, up 33% on the comparable period in 2009 (2.8m) and cash from operating activities (after deducting movements in working capital) was 3.8m (2009: 1.2m), over three times the result compared to last year.

Due to lower profits in the previous year, the tax payments of 0.7m (2009: 1.6m) were lower during the period. This resulted in a net 3.2m of cash generated by operating activities compared to an outflow of 0.4m in the previous year.

Capital expenditure of 0.2m (2009: 0.4m) was incurred on technology and office infrastructure relating to the core business.

Acquisition costs, net of cash acquired, was 1.5m. The increased final dividend payment to shareholders in relation to the year ended 31 January 2010 amounted to 1m (2009: 0.9m), with dividends paid to non controlling interests of 0.35m (2009: Nil). Interest incurred was down by 26% to 0.18m (2009: 0.24m) reflecting the increased cash generation and more efficient cash pooling in Europe while differences on translation accounted for 0.3m compared to 0.1m in the prior year.

The Group?s resilient financial performance during the global financial crisis demonstrated the effectiveness of a broad portfolio of services, with growth in the outsourcing business offsetting the decline in demand for permanent recruitment.

This strategy has underpinned the Group?s profitability and resilience throughout the recession and as a result, the Group broadly maintained revenues, remained profitable and continued prudent investment for the upturn, despite the fall in demand for recruitment.

The Group?s key assets, its strong brand and unique portfolio of services, have been crucial in maintaining and growing existing client relationships, winning additional mandates and retaining key employees. The Group?s professional values place clients at the centre of its strategy and this has clearly had a positive impact over the last decade. Marketing the Group?s services and engaging with clients through thought leadership activities will continue to be at the core of the business development strategy.

The strategic objectives for each division within the Group is to improve its market share and expand its portfolio of services geographically, building resilience for uncertain times as well as leveraging demand for permanent recruitment when economic conditions are strong.

Looking forward, our proven strategy of sustainable growth through organic expansion combined with bolt-on acquisitions will continue to benefit all the Group?s stakeholders.

Operational Review
United Kingdom and Ireland
Revenue increased by 6% to 59.6m (2009: 56.4m) with gross profit improving by 9% to 13.8m (2009: 12.7m) and operating profit increasing by 64% to 1.9m (2009: 1.2m).

The impact of market share gains and the cost reduction measures taken during the recession, resulted in a significant uplift in operating profit.

The success of the UK business was marked by a return to growth in demand for higher margin permanent recruitment, with the Technology and Financial Services sectors particularly active, mitigating the predicted slow down in the Public Sector. These two sectors were profoundly affected throughout the downturn and an element of catch up has been in evidence in the hiring activity in the early part of 2010. Consolidation has also been the key driver for recruitment, as the changes have impacted management structures and technology. Demand has also arisen from global organisations actively expanding their businesses in emerging markets.

The outsourcing division benefited from new contracts secured during the downturn and a release of new projects and software development work from existing clients.

All markets reported a positive contribution during the period, including Ireland. An additional location has been established in South East England, and the Group has also consolidated its positioning within the financial services sector with a new City office focusing exclusively on recruitment within this sector.

Rest of Europe
Revenue in mainland Europe declined by 4% to 122.4m (2009: 127.8m), with gross profit 2% lower to 13.9m (2009: 14.2m) and operating profit decreased by 30% to 0.8m (2009: 1.2m).

As expected, demand for recruitment continued to be weak in mainland Europe, as the impact of the financial crisis lagged the UK and the US. While HR and IT outsourcing services continued to provide profitable support to the results, demand for permanent recruitment was mixed with a recovery in Sweden and Norway partly offsetting the overall decline.

During the period under review, the Group acquired a leading recruitment business in Norway and also opened an office in Helsinki, Finland. The acquisition in Norway and organic expansion in Finland significantly enhances Harvey Nash's Northern European footprint and further strengthens its market leading business across the Nordic region. Harvey Nash Alumni is now the Nordic region?s largest provider of executive and specialist recruitment.

On the 30 April 2010 an additional contract was secured by Nash Technologies worth 43m over a number of years. A new development centre was added in Stuttgart, Germany to support the German fixed line telecommunications market. In relation to the extension of the Group?s existing strategic partnership in Nuremberg, discussions are ongoing and although not yet concluded, are expected to result in a satisfactory outcome in due course.

With the exception of the Netherlands, a recovery in Europe led by Germany and the Nordics began toward the end of the second quarter, with new assignments and increased contractor numbers when compared to the previous quarter.

United States
In the US, revenue increased by 5% to 16.6m (2009: 15.7m) but as a result of changes in the mix favouring lower margin contract recruitment, gross profit declined by 11% to 4.3m (2009: 4.8m) with operating profits broadly similar to the previous year.

Our US business has shown remarkable resilience delivering annual profits and cash throughout the recession. As in Europe, maintaining our capacity and continuing to deliver profits was a key objective. This was delivered by focusing on the outsourcing and offshoring division, assisting clients through cost reduction and efficiencies during the recession. Now, as the markets recover, prudent investment in additional fee-earners in the recruitment business is being made as client hiring activities increase including opening a location in Houston, Texas.

Despite mixed signals on the macro employment picture in the US, much higher levels of demand for flexible labour provides good visibility into the third quarter and the pace of improvement in permanent recruitment has continued to reflect an uplift in demand.

The Board is pleased to announce the appointment of Ian Davies MBA FCA CF as an independent non executive director and chairman of the audit committee with immediate effect. Ian is a former audit partner, and has publicly listed Board experience. He is currently deputy chairman of BMT Group Limited, and a member of the Council at the Institute of Chartered Accountants.

The Group will pay an interim dividend of 0.935p per share (2009: 0.850p) an increase of 10%, on 26 November 2010 to shareholders on the register at 29 October 2010.

Whilst the economic outlook remains unclear, demand for recruitment has been picking up and we are therefore confident of delivering a result for the year in line with the Board?s expectations.
Ian Kirkpatrick

Consolidated Interim Income Statement Unaudited
6 months ended
31 July 2010

6 months ended
31 July 2009

12 months ended
31 January 2010





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6 months ended
31 July 2010

6 months ended
31 July 2009

12 months ended
31 January 2010

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