Harvey Nash Group Regulatory News (HVN)

HARVEY NASH GROUP PLC

Trading Update

Harvey Nash, the executive recruitment and professional services Group, will announce interim results for the six months ended 31 July 2012 on 28 September 2012 when it expects to confirm a robust performance during the period.

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 services.

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.

Acquisition

The Group's organic growth is underpinned through earnings enhancing bolt on acquisitions to add new services, geographies or increase market leadership. 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 track.

Dividends

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.

Financial position

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 in total.

Summary

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.

13 August 2012

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