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Harvey Nash Group Results Reoprt Robust Performance

HARVEY NASH GROUP PLC has announced its unaudited Interim Results for the six months ended 31 July 2011.

Revenues were up 28% from &pound198,6M to &pound253.4M and the company’s gross profits were up 21% to &pound38.6M.  Profits before tax of &pound3.8M were up 47% on HI 2010.


? The Group has capitalised on growth in specialist technology markets

? Revenue exceeded previous peak as market share gains accelerate

? Broad geographic spread with non-UK gross profit increasing to over 60% (2010: 57%)

? Strong growth in permanent recruitment up 29%

? All businesses improved, with overall operating profit and PBT up 47%

? Strong operating cash inflow up 40% before investment in additional working capital

? Interim dividend up 10% to 1.025p per share (2010: 0.935p per share)

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

"These results demonstrate once again the strength of our brand, reputation and the success of our portfolio of services in driving growth across all our markets. Despite significant organic growth in revenues and profits, working capital was tightly controlled and operating margins improved. The strong balance sheet reflects a positive net cash position and no long term debt.

While markets remain volatile and visibility is limited, the Group’s balance sheet and broad portfolio of services, including its IT outsourcing and off shoring capability, should underpin our performance going forward.” 


The Group is pleased to report an excellent set of financial results for the six months ended 31 July 2011, particularly as the global economy slowed during the period. Demand for technology specialists across the world has remained robust and permanent recruitment continues to grow.

The Group’s revenues exceeded all previous peaks for the period and the reported 28% growth reflects significant market share gains made during the downturn, as a result of the Group’s successful strategy.

Net fee income in relation to permanent recruitment grew strongly in the period and was up by 29% on the previous year. Growth in contract recruitment and offshore outsourcing was robust and the Group benefited from new contracts won in 2010 fully coming on stream in 2011.

There was strong operating cash inflow in the period, up 40% before funding working capital and turnover growth, all of which was organic. Accordingly, the Group will increase its interim dividend by 10% on last year.

Financial Results

The Group’s revenue for the six months ended 31 July 2011 was &pound253.4m (2010: &pound198.6m), with increases in all three key revenue services: permanent, contract recruitment and outsourcing. Geographic spread broadened further with over 60% of the Group’s gross profit generated outside of the UK and Ireland (2010: 57%).

Gross profit increased to &pound38.6m (2010: &pound32.0m). In the six months to 31 July 2011 the proportion of permanent recruitment increased to 42% of total gross profit, up from 39% for the comparable period last year, thus benefitting margins. This growth occurred mainly in Europe where permanent revenue increased by 61% compared to the prior year.

Adjusted operating profit increased by 40% to &pound4.1m (2010: &pound2.9m) and profit before tax increased by 47% to &pound3.8m (2010: &pound2.6m). The net operating margin increased to 10.5% from 8.7% for the comparable period in 2010 reflecting a 4% increase in fee earner productivity and tight control of overheads.

The tax charge for the period was &pound1.2m (2010: &pound0.8m) and the effective tax rate, at 32%, has been broadly consistent with prior years (2010: 31%).

Basic earnings per share increased by 47% to 3.45p (2010: 2.35p), in line with the increase in profit before tax.

Balance Sheet

With a significant increase in trading levels, debtors increased by &pound18.8m to &pound98.0m (2010: &pound79.2m) as revenue increased by 28% compared to the same period last year. However, debtor days outstanding were 41.6 days compared to 45.4 days on the 31 July 2010, reflecting tight control of working capital.

Net assets increased by 9% at &pound61.1m (2010: &pound56.2m) with tangible net assets increasing by 49% mainly as a result of retained earnings and positive currency movements in relation to translation of foreign assets and balance sheets.

The reduction of &pound0.3m in the deferred income tax asset from 1 February 2011 mainly arose due to the utilisation of tax losses brought forward. Provisions for liabilities and charges mainly comprise provisions for two onerous property leases which run to December 2011 and September 2013 respectively.

The Group has a strong balance sheet, with net cash of &pound1.8m (2010: &pound4.8m), despite the significant increase in revenue and investment in working capital. The Group has no long term debt and continues to have short term working capital facilities of circa &pound39m available on a rolling twelve month basis in order to fund its growing contracting and outsourcing services.

Cash flow

Operating cash flow was strong at &pound5.2m, up 40% on the comparable period in 2010 (&pound3.7m). The cash absorbed into trading activities was &pound4.2m (2010: inflow &pound3.2m) of which &pound8.5m (2010: inflow &pound0.1m) was invested in working capital and &pound0.9m (2010: &pound0.7m) represented tax paid during the period.

Capital expenditure of &pound0.7m (2010: &pound0.2m) was incurred on technology and office infrastructure relating to the core business. Client paid project expenditure remained consistent with prior year at &pound0.1m (2010: &pound0.1m).

The increased final dividend payment to shareholders in relation to the year ended 31 January 2011 amounted to &pound1.1m (2010: &pound1.0m), with dividends paid to non controlling interests of &pound0.2m (2010: &pound0.4m). Interest incurred was up by 38% to &pound0.25m (2010: &pound0.18m) reflecting the increased investment and higher peaks and troughs in working capital. 


The Group’s strategy is to build and maintain a broad and unique portfolio of services aligned to different stages of the economic cycle and build long term relationships with its clients. The successful implementation of this strategy, underpinned by greater visibility of the outsourcing division’s revenue stream, has served the Group well through the financial crisis and will continue to provide support in the future.

Additionally, the Group’s strategy to increase diversity through a broad geographic spread has improved stability. During the period under review over 60% of the Group’s gross profit derived from markets outside of the UK (2010: 57%) as revenues generated in Europe grew more rapidly than the UK and USA. 

Revenue growth has been boosted by significant market share gains as a result of the Group’s innovative marketing activities and investment in its brand. Brand recognition has increased in many of its markets. For example in the UK, the Group is now the established leader at all levels of technology recruitment. In the Nordics, the Group has materially increased its leading position relative to the market and the sector as a result of strong organic growth and acquisition.

Across Northern Europe, in the Netherlands, Belgium, Germany and Switzerland, the Group’s operations have increased their market share and brand awareness. In Asia, the Group is one of the most recognised employers of technology and graduate talent in Vietnam. This strategy has attracted new business and lowered the cost of new client acquisition, contributing to increased margins.

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

Looking forward, our proven strategy of achieving sustainable growth through organic expansion combined with bolt-on acquisitions where there exists a clear strategic rationale, should continue to benefit all the Group’s stakeholders.

Operational Review

United Kingdomand Ireland

During a period when the market was increasingly challenging, the Group increased revenue by 40% to &pound83.6m (2010: &pound59.6m), gross profit by 10% to &pound15.2m, (2010: &pound13.8m) and increased operating profit by 13% to &pound2.2m (2010: &pound1.9m).

The impact of these significant market share gains have helped to offset the challenging market conditions as the economy slowed. In particular, a number of managed services contracts secured in 2010 were fully operational in 2011 and whilst lower margin, are profitable and provide opportunities for cross selling higher margin services such as permanent recruitment. Growth continues to be found in the relatively buoyant specialist technology markets such as smart phone application and social media sectors and this trend continues to underpin performance overall.

Although demand from the public sector had been affected by the change in government the impact was only felt in the market in the second half of last year. Despite this, the Group has not only increased its senior executive recruitment revenues in the Health and Education sectors, but it has returned to profits compared to a small loss in the prior year. However, Retail, Consumer, Manufacturing and Professional Services all slowed and the overall impact was a levelling off in senior assignments resulting in revenues being 5% lower than in 2010.

Comparatives in 2010 were relatively strong as the UK recruitment market led Europe in recovery following the financial crisis. Notwithstanding this, all offices and locations throughout the UK and Ireland increased revenues and profits during the period, including Dublin and the City of London, a remarkable achievement given the trading environment.

Rest of Europe

Revenue in mainland Europe increased by 24% to &pound152.3m (2010: &pound122.4m), with gross profit 35% higher at &pound18.8m (2010: &pound13.9m) and operating profit up by 90% to &pound1.5m (2010: &pound0.8m).

Strong demand from the Nordic market benefited the Group’s European business following a period of expansion into Norway, Finland and Denmark. Strong organic revenue growth of 33% was reported in Sweden with Denmark and Finland both doubling revenues. In Norway, Bjerke & Luther AS, which the Group acquired last year also grew strongly. The region was up 61% in total. The market in this region was supportive during the period and headcount was increased by 19% year on year.

In Switzerland the business responded to the financial crisis by offering managed services to key financial services clients. The result was an increase in revenues and market share. With a substantial upfront investment in the prior year, the return on this investment flowed through in 2011. Whilst contractor margins in the banking sector have reduced, new placements in the pharmaceutical sector has offset the decline and underpinned the increase in overall profitability. 

Revenues in the Netherlands were 5% lower as the recession continued to impact the recruitment market, but as reported in April a recovery is now underway and revenues and profits in July 2011 were higher than in the previous year. 

In Belgium, revenues were up 19% overall driven by increased demand from clients in the Pharmaceutical, Telecommunications and Automotive sectors. In France cost reduction measures in 2010 combined with new contract wins resulted in a small contribution compared to a loss in the prior year.

Technology recruitment revenues in Germany grew 39% and the additional revenues secured in 2010 provided by new contracts lifted outsourcing by 16% in constant currency terms. Recovery was broadly

spread across all geographic areas and all services including a doubling of permanent revenues. Higher margins were achieved in niche markets where skills shortages are acute, such as specialist technology engineering skills in the automotive markets. The skills shortages also contributed to 19% year on year growth in freelance contractors.

United States

In the US, revenue increased by 6% to &pound17.5m (2010: &pound16.6m) , gross profit by 8% to &pound4.6m (2010: &pound4.3m) and operating profit was up 127% to &pound0.34m compared to the prior year (2010: &pound0.15m). The relative strength of the US dollar in 2011 compared to 2010, resulted in underlying revenue increasing 12% and gross profit increasing 16% on a constant currency basis.

Whilst our US business remained remarkably resilient during the downturn delivering annual profits and cash throughout the recession, as recovery took hold headcount was increased to capitalise on the improvement in demand. Growth was strongest in the permanent recruitment market whilst revenues were broadly flat in outsourcing and contracting. This however, masked the change in the market which is reflected in the change in mix. Off shoring growth was strong (49%) while higher margin strategic consulting revenues declined 65%. The main driver of growth came from increased demand for permanent recruitment which grew by 37%. This boosted profits and cash flow accordingly.


During the period the Board was pleased to make two further board appointments and also announced the retirement of Gus Moore from the Board as non executive director at the Company’s AGM on the 30 June 2011.

The appointment of Margot Katz, as an Executive Director responsible for Group Talent, to the Board with effect from the 1 May 2011, was followed by the appointment of Julie Baddeley as an independent non executive director with effect from 1 September 2011. As previously announced Julie will chair the remuneration committee of the Board.


The third quarter has started well, with the momentum from the first half continuing into the second half.Demand for technology specialists across the world has remained robust. Nevertheless, the macro economic outlook remains challenging and visibility is limited for permanent recruitment. Historically when business confidence declines, this tends to result in demand migrating from permanent jobs in favour of contract and temporary recruitment. If, as we anticipate, a mild slow down in executive recruitment is broadly offset by increases in contracting and off shoring, the Board is confident that the outturn for the full year remains on track.


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