Harvey Nash Group Plc – Trading Update
Despite the challenging market conditions and macro-economic
uncertainty, the Group expects to report further increases in revenue (up 15%
to circa £293m) and gross profit (up 6% to circa £41m).
During the period, robust demand for temporary and contract
recruitment mitigated expected lower levels of permanent recruitment and lifted
by 19% the overall average number of freelance and offshore contractors working
on client projects compared to the same period last year.
This continued change in mix is the result of clients hiring
flexible labour as opposed to permanent recruits and accordingly has shifted
the Group’s gross margin in favour of flexible and contract recruitment
Operating profit before non-recurring items is expected to
improve for the fourth successive year to no less than £4.4m for the period
(2011: £4.1m) notwithstanding the Group’s investment in Asia (opening two
additional offices in Hong Kong and Sydney). Interest of circa £0.3m will also
be higher than in 2011 as result of working capital costs associated with the
significant increases in contract and flexible labour.
The Group’s USA business reported the strongest performance
with profits expected to increase by more than 30% whilst in mainland Europe,
the Group continued to generate good revenues and profits slightly ahead of the
prior year despite uncertainties in the Eurozone. The UK & Ireland
businesses demonstrated the value of its significant market share gains with an
increase in revenues and profits over the prior period despite a generally weak
market for recruitment.
The Group’s organic growth is underpinned through earnings
enhancing bolt on acquisitions to add new services, geographies or increase market
On the 1st June, the Group announced the acquisition of
Talent-IT BVBA, an IT recruitment and project business based in Antwerp, for an
initial cash consideration of €1.8m. The acquisition has resulted in the
combined Harvey Nash Benelux business becoming the clear market leader in the
region and we are pleased to report that integration into the wider Group is on
Following approval at the Annual General Meeting on 28 June
2012, Harvey Nash paid a final dividend on 13 July 2012 for the year ended 31
January 2012 of 1.635p per share, an increase of 10% (2011: 1.48p).
The total dividend for the year was 2.66p per share (2011:
2.42p), and marks the fifth successive annual increase.
Harvey Nash has a sound balance sheet. Whilst trading cash
flow before working capital movements during the period has been robust, the
Group has incurred a number of one off cash outflows, resulting in a net debt
position of c£13m at 31 July 2012 (2011: net cash £1.8m).
Firstly, the initial cash consideration for the acquisition,
of €1.8m, was settled from trading cash flow.
Secondly, in June 2012, the Group successfully relocated its
London headquarters and incurred a one-off cash relocation cost of c£0.6m and a
one off capital fit out cost of £1.6m. The benefits are substantial with the
new property releasing c£0.8m annually in like for like savings over the
duration of the ten year lease and a rent-free period extends until 1 October
2013 which fully covers the capital investment.
Thirdly, the demand for flexible and temporary labour whilst
continuing to drive the Group’s revenues and profits has, understandably
absorbed working capital, particularly over the last six months. As expected, and
combined with the short term impact of acquisition initial consideration and
the relocation, the Group’s historic net cash position has reversed at the
balance sheet date of 30 July 2012.
We expect this to return to more normalised levels over the
next eighteen months and will continue to manage our cash resources tightly
within the Group’s overall banking facilities, which comprise circa £41 million
The Group is continuing to secure market share gains in all
its key geographies. These gains have been achieved through offering the
broadest portfolio of services in the market, and implemented by steadily adding
headcount in existing locations and additional satellite offices (such as
Manchester, Ghent, Hong Kong and Sydney).
Complementing organic growth is our ongoing strategy of
making carefully targeted earnings enhancing bolt on acquisitions to
consolidate a market leading position of which the acquisition of Talent IT in
the Benelux is an example.
Strategically, the Group’s focus on the growing digital,
mobile and social media technology markets, and its unique outsourcing and
offshoring offering has resulted in an excellent financial performance so far and
positions the Group well going into the second half.
Tel: 020 7333 2635
Albert Ellis, Chief Executive Officer
Richard Ashcroft, Group Finance Director
Tel: 020 7457 2020
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