HARVEY NASH GROUP PLC ANNUAL REPORT 2017

Transcription

1 HARVEY NASH GROUP PLC ANNUAL REPORT

2 HARVEY NASH GROUP PLC ABOUT HARVEY NASH ABOUT HARVEY NASH INTRODUCTION TO OUR BRANDS Harvey Nash is a global recruitment business. Our unique portfolio of services, from executive search and 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 results and supports returns to shareholders. The Group partners with many of the world s leading organisations to source, recruit and manage the highly skilled talent they need to succeed in an increasingly competitive and technology-enabled world. The Group has the reach and resources of a global organisation whilst fostering a culture of innovation and autonomy that empowers its employees to deliver client-centric solutions. Executive Search and Interim Management draw the Group up the value chain and reinforce the senior relationships at the heart of its business model. Technology Recruitment and Solutions is the largest division, specialising in the provision of highly skilled technical and digital specialists. Technology outsourcing is represented by the Group s global NashTech brand and includes the Vietnam-based offshore software development and business process outsourcing facilities. CONTENTS Overview Governance 1 Highlights 20 Meet the Board and Executive Council 2 Our Portfolio of Services 22 Corporate Governance 3 Our Locations 28 Directors Report 4 Our Investment Case 30 Directors Remuneration Report 5 Chairman s Statement 53 Audit Committee Report 56 Statement of Directors Responsibilities Strategic Report 57 Independent Auditor s Report 6 Business Model 7 Our Vision and Growth Strategy Financial Statements 8 Our Brand 61 Consolidated Financial Statements 9 Key Performance Indicators 90 Parent Company Financial Statements 10 Chief Executive s Review 13 Finance Director s Review Information 14 Principal Risks 94 List of Subsidiaries 18 Corporate and Social Responsibility 96 Offices 97 Shareholder Information

3 HARVEY NASH GROUP PLC HIGHLIGHTS / 1 HIGHLIGHTS KEY FACTS GROSS PROFIT* m 90.3m 84.9m 83.3m 76.3m 81% of placements are into technology roles or into technology companies EARNINGS PER SHARE* 7.1p 8.7p 9.4p 8.5p 9.0p OFFICES 44 TOTAL DIVIDEND PER SHARE 4.1p 3.9p p p p CONTRACTORS 8, CASH GENERATED FROM OPERATING ACTIVITIES 15.1m 13.0m 7.5m 5.4m 6.7m PERMANENT PLACEMENTS 2,336 GROSS PROFIT* OPERATING CASH EPS* DIVIDENDS 8.4% 31 January : 97.9m 31 January : 90.3m 16.0% 31 January : 15.1m 31 January : 13.0m 7.6% 31 January : 8.70p 31 January : 9.42p 6.2% 31 January : 4.09p 31 January : 3.85p *from continuing operations

4 2 / HARVEY NASH GROUP PLC OUR PORTFOLIO OF SERVICES OUR PORTFOLIO OF SERVICES LEADERSHIP SERVICES Executive Search We help clients ranging from multinational organisations to niche companies to attract, recruit and retain outstanding board members, top executives, senior management and future leaders through executive search. In our core markets, the business has a broad capability in key sectors but is focused on technology and digital segments, including the provision of candidates with strong digital skills. Interim Management Through interim management consultancy, we provide clients with highly experienced executives and leadership for short-term assignments across a broad range of geographies, sectors and functions. Leadership Consulting Our leadership consulting businesses provide our clients with a full range of strategic leadership services including board evaluations, management development, audits, assessments and strategic HR consulting. Digital disruption and turnaround are specialist areas. PROFESSIONAL RECRUITMENT Technology and Specialist Recruitment Our market-leading technology recruitment business provides organisations across more than 30 countries with highly skilled digital specialists on a flexible or permanent basis. Recruitment Solutions As employment relationships change and the future of work evolves in a digitally connected world, our recruitment solutions business provides tailored services that support clients to recruit and manage their workforces more effectively, from payroll services to recruitment process outsourcing. IT OUTSOURCING & OFFSHORE SERVICES Projects and Software Development Services We provide application development, third party software maintenance and outsourced software services to clients across the world. Through our software development centre in Vietnam, we deliver a unique highvalue offshore outsourcing service. Business Process Services We take responsibility for the full management of critical technology and infrastructure functions, including BPO operations such as payroll and other back office departments.

5 HARVEY NASH GROUP PLC OUR LOCATIONS / 3 OUR LOCATIONS MAINLAND EUROPE Antwerp Brussels Ghent Dusseldorf Stuttgart Frankfurt Munich Hamburg Utrecht Groningen Zurich Geneva Luxembourg Stockholm Gothenburg Malmo Copenhagen Helsinki Warsaw Oslo UK & IRELAND London Birmingham Leeds Manchester Newcastle Bristol Edinburgh Glasgow Dublin Cork USA Wayne, NJ San Francisco, CA Chicago, IL Houston, TX Denver, CO New York, NY Wrentham, MA Seattle, WA ASIA-PACIFIC Hanoi Ho Chi Minh Hong Kong Sydney Tokyo Singapore

6 4 / HARVEY NASH GROUP PLC OUR INVESTMENT CASE OUR INVESTMENT CASE Harvey Nash is a leading global technology and digital talent group. 1. BROAD PORTFOLIO OF SERVICES Top to bottom leadership & technology talent in a highly cyclical sector. Our broad mix of services covers the full business cycle, addressing changing client needs at each stage. 2. MARKET-LEADING BRANDS In uncertain times clients switch to larger, well-known and trusted brands. The Group has benefited from this flight to quality providing relative resilience in a cyclical sector. Demand for permanent recruitment grows as markets expand, while temporary, contract and outsourcing services enable clients to balance risk and achieve cost reductions in times of uncertainty. Recruitment solutions is a gateway to new client relationships whether it s the management of client IT operations, payroll services, or provision of recruitment outsourcing. Legislation across the globe is varied and increasingly complex. 3. CASH-GENERATIVE BUSINESS MODEL The Group has a track record of generating cash, funding organic and acquisitive growth whilst also increasing shareholder returns. The Group targets a revenue split of one third permanent placements and two thirds contract or outsourcing revenues. 4. EXCELLENT DIVIDEND RECORD As a result of tight control of working capital combined with the cash-generative business model, the Group has a strong record of increasing dividends which have doubled over the last 10 years whilst maintaining good cover WHY TECHNOLOGY? Over 80% of the Group s clients, services and skills markets are in the technology and digital sectors. The technology and digital market is fast-growing, with tight labour supply. The workplace of the future will be increasingly impacted by automation. Whilst this means the recruitment market will change, the technology recruitment sector is expected to benefit as demand for software developers and digital technologists continues to rise. Highly skilled, highly educated and technically able candidates face a significantly lower risk of job automation. Harvey Nash specialises in recruiting these candidates. On average the 8,000 contractors Harvey Nash has at client sites earn in excess of $100k per annum.

7 HARVEY NASH GROUP PLC CHAIRMAN S STATEMENT / 5 CHAIRMAN S STATEMENT Julie Baddeley Chairman The Group has delivered a resilient trading performance, underpinned by stronger than expected cash generation and an increased dividend. In the UK, the Group delivered a very strong performance relative to market conditions. In Europe, the Netherlands, Belgium and Sweden reported double digit revenue and profit growth. Across the Group, loss-making offices were returned to profit and steps taken to close offices where weak market conditions continue to prevail. Financial Performance Revenue increased by 15.9% to 784.3m, and gross profit increased by 8.4% to 97.9m. On a constant currency basis, growth in revenue was 5.8% and gross profit decreased by 0.6%. Despite political and economic turbulence in key territories, and continued uncertainty following the outcome of the UK Referendum, the results are in line with expectations, with the net cash balance at 31 January significantly higher than last year. This reflects the success of our strategic priority of supporting our clients at each stage of the business cycle with a balance of permanent recruitment, contracting and offshore services. The UK business performed well, with revenue and gross profit broadly similar to the prior year while the market declined. Following the fall in Sterling, currency tailwinds buoyed already strong growth in Benelux and Nordics regions. This growth was offset by a disappointing performance in Hong Kong, currency headwinds in Vietnam and bad and doubtful debt write-offs in the USA. Priorities for the Board Harvey Nash adopts a high standard of corporate governance which underpins the business and forms the foundation for sustainable growth. We remain focused on our three priorities: to execute the strategy for increasing shareholder value in ever-changing market conditions; to ensure we continue to have a highly talented team capable of executing our strategy and to hold them accountable for its delivery; and to make sure the right culture and corporate values are in place, supported by the appropriate governance structures and their effective implementation. Also during the year, we completed the disposal of our German outsourcing business and a focus on working capital yielded strong cash generation. In September, Richard Ashcroft notified the Company of his intention to step down from the Board during the course of after ensuring a smooth handover to his successor as Group Finance Director. The Board wishes to thank Richard for more than a decade of loyal service to the Company and the Board, during which time there has been a near four-fold increase in the Group s revenue. In March, the Board appointed Mark Garratt, who joined the Board in April. Mark s extensive knowledge of the recruitment sector, as well as his corporate finance experience, will be important as we continue to develop the Group s businesses. Further details on the Board and its governance are found in the Corporate Governance statement on page 22. Dividend The Board is recommending a 7.0% increase in the final dividend to pence per share (: 2.360p). This gives a total dividend for the year of 4.09 pence per share (: 3.85p), an increase of 6.2%, which reflects the Group s progressive and sustainable dividend policy. Subject to approval at the Annual General Meeting on 29 June, the final dividend will be paid on 7 July to shareholders on the register at 16 June. Proposed Move to AIM To support the Group s strategy to grow the business and deliver value to shareholders, we will be recommending a move from the Main Market to AIM in due course. Such a move will provide an environment more suited to the Group s current size and strategic intent to enhance shareholder value by organic growth and acquisitive activity. It will simplify the administrative and regulatory requirements of the Group, and enable us to execute strategic acquisitions more efficiently. The Board believes that moving to AIM will be of significant benefit to the Group and its shareholders going forward, and we currently intend to seek shareholder approval at a General Meeting to be held immediately following the Annual General Meeting on 29 June. Looking Ahead The year ended 31 January saw several unexpected political and economic changes in some of our key territories which affected trading. The Executive Directors recently completed a comprehensive long-term strategic review in response to the range of political and economic challenges internationally and the changing information technology landscape. This has resulted in a clear plan to develop the business and grow shareholder value by increasing our focus on technology staffing and by investment in selected geographies through both organic and acquisitive means. Growth in the IT industry, our largest sector, and high investment into research and development continue across the globe and we remain poised to respond quickly to market opportunities. Julie Baddeley Chairman

8 6 / HARVEY NASH GROUP PLC STRATEGIC REPORT BUSINESS MODEL WHAT WE DO We work with organisations across the world to recruit board members and senior executives on a permanent and interim basis. We place specialist technology and digital professionals on a temporary, permanent or fixedterm flexible contract for our clients. We provide business process outsourcing, application development, third party software maintenance and outsourced software services to clients across the world. HOW WE DO IT The heart of our trading model is our long-term relationships with board and senior technology leaders which support the delivery of a broad portfolio of client-centric solutions across service lines and geographic regions. We invest significantly in our people and the Group s values support a strong culture of employee engagement. The recruitment, retention and development of the best talent are central to our strategy to grow the business. The Group s digital strategy brings the complete portfolio of services to market via new channels using numerous social media tools and platforms to leverage our competitive advantages. The Group employs an in-house digital innovation team to implement new ideas and service offerings. We target a proportion of 67:33 gross profit in favour of contracting and offshore services compared to permanent. This proportion balances the demand for earnings visibility with the cash-generative benefits of permanent recruitment. WHY WE ARE DIFFERENT Harvey Nash is a network of strategically connected businesses, bound by a strong performance and values-driven culture. We offer a unique portfolio of services in technology talent provision, ranging from the executive team to technical specialists based offshore. We provide tailor-made and flexible solutions for our clients, whatever their needs. Our services are sold and delivered with individual businesses having highly skilled local leadership teams with detailed understanding of their specific markets, legislation and business culture. 11 years 3 months Average tenure of our global Strategic Management Team members

9 HARVEY NASH GROUP PLC STRATEGIC REPORT / 7 OUR VISION & GROWTH STRATEGY The Group will generate growth organically as well as through earningsenhancing acquisitions. THE VISION At Harvey Nash we have a clear vision to be Europe s market-leading technology and digital talent provider with challenger businesses in the USA and Asia. We aim to be the leading executive and specialist recruiter of technology and digital professionals in each of the markets where we have a strong brand and critical mass. The Group will continue to build on its market-leading businesses in the UK & Ireland, Benelux and the Nordics whilst targeting market share growth where it is a challenger brand. THE STRATEGY The Harvey Nash Group is focused on five key strategic objectives to achieve its vision and grow its sustainable financial returns. These are to: Leverage the Group s strengths in technology and digital staffing to win market share. Strengthen each business through diversification by rolling out the portfolio of services, increasing critical mass and protecting against cyclicality. Acquire earningsenhancing businesses in core markets which reinforce market leadership and deliver synergies following integration with the Group platform. Maintain a strong balance sheet and progressive cash returns to shareholders. Attract and retain the very best talent, fundamental to the achievement of long-term sustainable growth.

10 8 / HARVEY NASH GROUP PLC STRATEGIC REPORT OUR BRAND ATTRACTIVE TO CLIENTS AND CANDIDATES The Group has set the trend in the recruitment industry for developing world-class thought leadership such as the largest CIO survey of its kind in the world. Our brand benefits from research links with top universities around the world such as Cambridge, London Business School, MIT and Hong Kong University and also with groundbreaking diversity and inclusion work resulting in public recognition by the UK government. HA RVEY N ASH / KPM G CI O SU RVEY RUSTAT CONFERENCE - FUTURE OF WORK REPORT GAME OVER OR GAME ON? TECHNOLOGY CHANGES EVERYTHING, AND EVERYONE The future of work + In association with: TECH SURVEY IN ASSOCIATION WITH: HARVEY NASH & KPMG $250 billion combined annual IT budget of the 4,600 respondents to the CIO survey 125,000 views on Harvey Nash YouTube channel 47,000 followers of Harvey Nash on LinkedIn 3,000 attendees at Harvey Nash events in 1

11 HARVEY NASH GROUP PLC KEY PERFORMANCE INDICATORS / 9 KEY PERFORMANCE INDICATORS The Board considers the following nine performance indicators to be key in monitoring the Group s performance: 1 Strategic Gross Profit Growth 8.4% 6.4% 2 Strategic Dividend per Share 4.090p 3.850p 3 Strategic EPS 8.70p 9.42p % 6.4% 8.4% % 8.1% Strategic Total Shareholder Return (13.8%) (1.5%) 5 Financial Net Cash 5.6m 0.2m 6 Financial Gross Profit Mix 39:49:12 39:48: % -1.5% -23.5% % 68.1% % 49% 12% 39% 48% 13% % 49% 12% % 49% 11% % 49% 11% Permanent Contracting Outsourcing Financial Profit before Tax Financial Debtor Days People Employee Engagement 8.5m 9.1m 38.0 days 41.8 days 71% 80% % 500% 1000% % 80% 80% 90% For the first time, the survey was carried out by an external company in.

12 10 / HARVEY NASH GROUP PLC CHIEF EXECUTIVE S REVIEW CHIEF EXECUTIVE S REVIEW Albert Ellis Chief Executive With 80% of the Group s clients, services and skills in the technology and digital sector we are well positioned for growth. The Group has delivered a resilient trading performance, underpinned by stronger than expected cash generation. Over the year, management took actions to streamline the business by: aligning cost-base with revenues in markets with weak demand; protecting margins following the devaluation of Sterling; eliminating the impact of loss-making offices; and generating cash through tight working capital control. Over the coming year, we will continue to focus on our core geographies in the UK and Northern Europe, driving backoffice synergies while bringing our smaller, start-up offices into profit. We will also continue to strengthen our balance sheet to enable investment in accordance with our growth strategy. United Kingdom and Ireland The UK business performed well, maintaining revenue and gross profit while the market declined substantially. Realigning the cost base with lower revenues in the executive recruitment division was also undertaken in the first half and the associated one-off costs were included in operating profit. The UK & Ireland represented 37.8% of the Group s gross profit in (: 41.0%), employing just under 250 fee earners in 10 offices. Permanent placements accounted for 34.4% of gross profit, contracting 51.0% and offshore services 14.6%. Gross Profit '.)$ 38% Constant currency UK & Ireland Other m % m % m Gross profit 37.0 (0) 36.2 (2) 37.0 Operating profit 3.0 (14) 2.9 (17) 3.5 Despite headwinds, the UK & Ireland business reported a creditable performance, winning market share in a softer trading environment. Demand for senior executive recruitment suffered most, particularly in the public sector, along with financial services in London. Other offices across England, Scotland and Ireland reported a strong year of growth with increasing revenues and profits. Gross profit of 37.0m was flat year-on-year, down 2.4% on a constant currency basis. Operating profit was 14.0% lower at 3.0m (down 17.3% on a constant currency basis) compared to 3.5m in the previous year. Gross profit from contracting was 3.5% higher than the previous year, up 2.4% on a constant currency basis. Permanent revenue improved in the second half, but for the year as a whole was 5.7% lower than the previous year (down 6.6% on a constant currency basis). Gross profit from the UK businesses outside London grew by 5% during the year, while in London it declined by 3%. Gross profit from Ireland grew by 15%, but was flat in constant currency terms.

13 HARVEY NASH GROUP PLC CHIEF EXECUTIVE S REVIEW / 11 Mainland Europe Mainland Europe accounts for 40% of the Group s total gross profit. The Group employs over 300 staff in 19 offices in nine countries and benefits from leading market positions. Constant currency m % m % m Gross profit Operating profit (1) (1) Before a non-recurring credit of 0.5m in the Netherlands. 9% 14% Gross Profit '.)$ 17% Benelux Central Europe Nordics Other Revenue in Mainland Europe increased by 22.9% to 464.4m (: 378.0m) and gross profit increased by 19.8% to 39.1m (: 32.6m). On a constant currency basis, growth was 7.7% and 5.8% respectively. Operating profit increased by 18.2% to 6.1m (: 5.2m), up 2.5% on a constant currency basis. Across the region, temporary and contract management placements accounted for 60.1% of gross profit and permanent executive and professional placements accounted for 39.9%. Permanent revenue increased by 24.0% (12.7% on a constant currency basis) with a particularly notable increase in Germany of 71.5% (50.1% constant currency). Nordics The Nordic region, which comprises Sweden, Norway and Finland, recorded strong growth. Revenue and gross profit increased by 20.6% and 22.7% respectively (7.4% and 9.2% on a constant currency basis). Operating profit grew by 45.3% to 0.6m (28.7% at constant currency). Sweden, which accounts for 85% of gross profit, reported strong financial results. Norway saw a marked improvement, where gross profit increased by 65.7% (48.2% constant currency), following a strengthening of the management team and an improving economic outlook. Performance is improving, with losses reduced by 43%. Following proactive cost management, performance in Finland was stable despite difficult economic conditions, with gross profit 6.7% higher than the previous year (6.3% lower on a constant currency basis). Central Europe The Group s Central Europe region comprises Germany, Switzerland and Poland. Overall revenue fell in this region by 3.1% (14.1% on a constant currency basis), while gross profit fell by 2.2% (13.3% on a constant currency basis) to 8.8m. Operating profit fell by 37.1% (42.8% on a constant currency basis). The decline was due to a poor performance in the recruitment business in Germany, with shorter than expected temporary contract durations resulting in lower revenue, partly mitigated by a strong increase in permanent revenue. Costs in relation to new leadership were absorbed into the operating profit which therefore fell, despite the increase in permanent revenue. Overall gross profit was 6.0% lower (17.3% on a constant currency basis). In Switzerland, performance was solid despite the strength of the currency, which has weakened recruitment demand for back-office staff, and finally, a turnaround was achieved in Poland, with gross profit increasing by 79.2% (63.0% on a constant currency basis). Benelux Results from Benelux were excellent, with gross profit increasing by 33.3% to 16.3m (16.7% on a constant currency basis). This was supported by investment in fee earner headcount, which rose from 69 to 82 over the year. In addition, a release of accrued liabilities aged beyond the local statutes of limitation resulted in a non-recurring credit to the income statement. In the Netherlands, new regulations governing temporary recruitment led to the development and successful launch of a new service offering, which enabled the business to win new clients and gain market share. In Belgium, the Group continued to make good progress, with gross profit increasing by 24.4% (8.8% on a constant currency basis).

14 12 / HARVEY NASH GROUP PLC CHIEF EXECUTIVE S REVIEW Rest of World Results from the rest of the world were mixed, with strong performances from the USA, Japan and Australia, held back by weakness in Hong Kong and Singapore and by currency headwinds in Vietnam. Constant currency m % m % m Gross profit (8) 20.6 Operating profit (1) 0.2 (85) 0.2 (85) 1.5 (1) Before a non-recurring charge of 0.6m in the USA. 17% 5% Gross Profit USA Asia Pacific Other USA The USA represented 17.0% of the Group s gross profit in (: 16.4%). The USA is the largest market for technology recruitment in the world, and though fragmented, it offers strong growth potential. The Group has six offices in the USA, with 80 fee earners and 45 offshore recruiters based in Vietnam supporting well-known multinational clients. Gross profit increased by 12.4% to 16.6m, although it was down 1.1% on a constant currency basis, with demand favouring permanent and executive recruitment. Operating profit of 0.8m (: 1.4m) was affected by bad debts. The bad debt write-off in the year was 1.5m, which was significantly mitigated by other management action. This figure includes a 0.5m impact from a major client entering administration. The remaining 1.0m write-off resulted from a failure of internal control, specifically in segregation of duties, and includes a non-recurring charge of 0.6m relating to historical aged debts no longer collectible under contract terms. The Board undertook a thorough review of financial controls in the USA upon discovery and is satisfied they are now operating effectively. Asia Pacific Some volatility in the early part of the year affected performance in Asia. The Group has six offices across the Asia Pacific region, representing 5.5% (: 6.5%) of the Group s gross profit. Gross profit decreased by 11.8% to 5.2m (: 5.9m), with an operating loss of 0.5m compared to a profit of 0.1m in the prior year, due mainly to a drop in performance in Hong Kong. Japan performed well, increasing gross profit by 54.2% (20.8% on a constant currency basis). Australia was profitable for the first time, thanks to increased investment in headcount. The results from Vietnam were affected by increased costs as a result of the strength of the US dollar, with gross profit falling by 10.9% (20.8% on a constant currency basis). Management have taken a number of actions in Asia to improve performance in FY18, including the closure of the Hong Kong office, steps to bolster Singapore profitability, and the adjustment of client contracts in our Vietnamese business to reflect the strength of the US dollar. Outlook and Current Trading With 80% of the Group s clients, services and skills in the technology and digital sector the Group is now well positioned for growth. We have 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 USA and Asia. During the year management took actions to streamline the business, the benefits of which should be realised in the coming year. Our plan for growing the business and increasing shareholder value is by capitalising on our strong market positions and investing in selected geographies through both organic and acquisitive means. We have a strong balance sheet, a dedicated and skilled management team, and growth in the use of technology is set to continue. Despite market uncertainties, the Group is well positioned, with a clear strategy that underpins future growth. With the benefits from the actions taken, we are confident of driving profitable growth in the year to January 2018, whilst remaining flexible in response to changes in market conditions. The current financial year has started well, with performance marginally ahead of expectations.

15 HARVEY NASH GROUP PLC FINANCE DIRECTOR S REVIEW / 13 FINANCE DIRECTOR S REVIEW Strong cash inflow from operating activities with net cash up by 5.4m on last year. Overview There were no discontinued operations in current year trading and all subsequent comparatives in this report are stated on a continuing operations basis, unless stated otherwise. Revenue increased by 15.9% to 784.3m. Revenue in the prior year was 676.6m. Gross profit increased by 8.4% to 97.9m (: 90.3m). On a constant currency basis, revenue grew by 5.8% while gross profit decreased by 0.6%. This disparity in growth rates is due to a change in the revenue mix, with high growth in lower-margin contract services in the Netherlands. Gross profit from permanent recruitment was 9.6% higher (0.4% on a constant currency basis), while contracting gross profit increased by 8.7% (0.3% on a constant currency basis). Gross profit from offshore services was 0.4% higher, but down 10.2% on a constant currency basis. Closing fee earner headcount increased by 2% on the previous year to 611. Investment in Sweden and Benelux was offset by reductions in Germany and executive search in UK. The net finance charge of 0.7m was 0.2m lower than the prior year due to a combination of lower average net borrowing and a reduced interest rate on the Group s invoice discounting facilities. Profit before tax and non-recurring items reduced by 7.1% to 8.6m (: 9.3m). Trading in the UK & Ireland was affected by the UK Referendum, while in the rest of the world it was affected by challenging conditions in Asia and bad and doubtful debts in the USA. Trading was strong in Europe, especially in Benelux and the Nordics. The Group had a positive net cash position at 31 January of 5.6m (: 0.2m) and has no long-term debt. Taxation The overall effective rate of tax is a function of the mix of profits between the various countries in which the Group operates, with higher rates in the USA, Belgium and Germany, offset by lower rates elsewhere. The tax charge for continuing operations for the year was 2.2m (: 2.2m) giving an effective rate of tax on continuing operations of 25.9% (: 24.7%). The prior year was unusually low due to the impact of discontinued losses relieved against profits from continuing operations. The deferred tax asset of 3.0m (: 2.3m) relates primarily to accrued Group interest charges payable by the USA business and tax losses. Earnings per Share Basic earnings per share from continuing operation decreased by 7.6% to 8.70p (: 9.42p). Balance Sheet Total net assets at the year end were 62.0m (: 54.1m), reflecting a strong recovery following the disposal of the Nash Technologies Group in the prior year aided by foreign exchange movements. Property, plant and equipment decreased by 0.4m to 3.2m (: 3.6m) due to a focus on capital expenditure. Intangible assets increased by 4.4m to 55.1m due to exchange gains following the fall in Sterling. This was offset by a 0.1m impairment in Poland. Improved management of working capital despite revenue growth led to a decrease in net trade receivables to 102.9m (: 106.3m). Debtor days were 38.0 days (: 41.8 days). Accrued income increased by 4.3m, due mainly to the effect of the weekly invoicing cycle. Trade payables increased by 6.6m to 68.3m, due mainly to the timing of contractor payments. Accruals increased to 52.5m (: 48.8m) due mainly to the timing of contractor payments in Benelux. Other payables decreased by 6.6m to 1.6m due to prior year payment obligations related to the Nash Technologies Group disposal. Deferred consideration decreased to 0.2m (: 0.5m), due to a payment of 0.3m in respect of the Beaumont KK acquisition in Japan. The closing balance relates to the final Beaumont payment due in FY18. Cash Flow Net cash generated from operating activities was once again strong at 15.1m (: 13.0m). The overall net cash position at 31 January rose to 5.6m (: 0.2m) and arose mainly due to improved working capital management. Significant cash outflows in the year included dividend payments of 2.8m (: 2.7m) and tax payments of 2.9m (: 3.3m). The disposal of the Nash Technologies Group resulted in cash outflows in the year of 6.2m. No further amounts are payable. Cash outflows on capital expenditure decreased to 1.0m (: 1.8m). Banking Facilities The Group maintains substantial headroom in its banking facilities. During the year its invoice discounting facilities were increased from 50m to 60m. The facilities are available in the UK & Ireland, Benelux and the USA.

16 14 / HARVEY NASH GROUP PLC PRINCIPAL RISKS PRINCIPAL RISKS The Board holds the principles of good risk management at its core and is focused on continually evolving and enhancing governance and oversight within the business. The Board encourages a continual and responsive approach to risk policy and management at all levels of the business. GROUP BOARD AUDIT COMMITTEE EXECUTIVE COUNCIL INTERNAL AUDIT LOCAL MANAGEMENT The Board has overall responsibility for the Group s risk appetite, oversight, policy and reporting. Risk management is woven into the fabric of the Board s operational strategy, and risk policy and management is discussed throughout the year. The Audit Committee has responsibility for assessing and challenging the sufficiency of the internal control environment. It directs and reviews local management, internal audit and Group finance reports on internal control and risk management throughout the year and reports the principal risks to the Board. The Executive Council meet with the Board at least annually to discuss the Group s strategy, identify the principal risks to the strategy and agree mitigating actions. The Group internal audit function performs regular audits in country offices to assess culture, financial controls and compliance with local regulatory requirements and Group controls. Annual comprehensive risk reviews are performed by local management teams and reported to the Audit Committee. Principal risks and uncertainties and mitigation strategy The Directors have performed a robust assessment and consider that the following comprise the Group s principal risks and uncertainties, together with the associated mitigating actions. Each of these risks could impact the Group unless appropriately mitigated as set out in the following table.

17 HARVEY NASH GROUP PLC PRINCIPAL RISKS / 15 Risk Description Mitigation Change in risk level in Business Risks Loss of key clients The Group is not overly reliant on any one client; however, there is a risk that business performance may be impacted if a number of clients were lost. The Group s client-centric strategy places great emphasis on sustaining the relationship. A diversified geographical footprint and sector focus also reduces the risk of key client losses affecting the overall Group due to adverse national or sector-specific conditions. Brand damage The Group s brand, reputation and financial performance could be impacted by a service failing or individual action with viral social media exposure. The Group protects its reputation for professionalism and quality through its staff recruitment, training and development practices. Client and candidate satisfaction surveys are regularly carried out. Robust internal controls ensure high levels of compliance in relation to legal and contractual risks and obligations. We are supported by external advisers who provide ongoing advice on protection and management of our brand. We actively monitor social media to identify unusually high references to Harvey Nash brands and have a clear escalation path to effectively manage potential incidents. Political and economic environment Data governance Retention and succession Performance of the Group is impacted by the economic cycles and the political environment of the markets and countries in which it operates, for example, uncertainty of the terms of the UK s departure from the EU. This risk is considered to have increased in the year. The Group operates with sensitive personal data on a daily basis. A data breach or loss could expose the Group to financial penalties, reputational damage and loss of business. The Group s growth strategy is reliant on the recruitment, development and retention of high calibre managers and consultants. Failure to attract and retain individuals with the appropriate skill set could adversely affect performance. The Group continues to develop its broad portfolio of services to support clients at all stages of the economic cycle. The Group is also geographically diversified, which reduces reliance on any particular markets. The Group s cost base is predominantly variable and closely managed. The Group has comprehensive data protection policies and procedures in place for the management of sensitive data. These are regularly tested both internally and by external advisers as part of our IT security strategy of continuous improvement. The Board receives regular updates on this strategy. The Group is preparing for the introduction of EU General Data Protection Regulations. The recruitment and retention plans of the Group are revised by the Group s Head of Talent. As set out in the Directors Remuneration Report, an element of the Executive Directors remuneration is linked to retention of key employees. The Group has a policy of linking bonuses to profitability in individual business units which encourages retention of key staff. Senior management have deferred bonus arrangements, an element of which can be awarded in equity. The Group also has an established talent academy and global leadership programme.

18 16 / HARVEY NASH GROUP PLC PRINCIPAL RISKS Risk Description Mitigation Change in risk level in Financial Risks Margin pressure Foreign exchange Increased pressure particularly on temporary recruitment margins in maturing markets facilitated by digital dynamics and use of social media. The majority of the Group s operations are not denominated in Sterling, which leads to exposure to foreign exchange translation risk. The fall in Sterling following the outcome of the UK Referendum had a material effect on the Group s financial performance. The Group goes to great lengths to differentiate itself and deliver a high quality service to clients. The Group s balance of permanent, contracting and outsourcing revenues creates a sustainable mix of one-off higher profitability income alongside recurring revenues which builds sustainable profits in competitive markets. The majority of the Group s costs are aligned with revenues in the same currencies. Exposure on equity investments in overseas subsidiaries is managed by holding foreign currency borrowings. Cash gains or losses are limited through active management of working capital and appropriate accounting policies and financial controls. Operational Risks Regulatory environment Technological development and digital innovation The recruitment industry is governed by an increasing level of compliance, which varies from country to country and market to market. Changes to legislation such as IR35 in the UK and DBA in the Netherlands have increased this risk. New platforms such as social media or low-cost web-based operations lead to increased competition which may adversely affect Group performance. Staff receive induction training and regular technical updates covering changes to legislation. The Group utilises high quality external professional advice to reduce risk in this area. Robust internal controls ensure high levels of compliance. The Group has invested time both at Board level and in the operational context to design suitable strategies to capture the benefits of the current disruption and mitigate potential erosion of the Group s market share. Development of strong commercial relationships with clients enables the Group to win and maintain contracts. The Group continues to invest in its in-house expertise in utilising social media to accelerate sourcing and recruiting.

19 HARVEY NASH GROUP PLC PRINCIPAL RISKS / 17 Going Concern In assessing the going concern of the business, the Board reviewed the budget for the year ending 31 January 2018 and the longer-term strategic plan. In considering the going concern of the Group, the Board also gives consideration to the principal risks to the business as presented on pages 14 to 16 and the liquidity of the Group as shown in note 27 to the consolidated financial statements and other sources of funding that would be available if necessary. After consideration of these factors, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Viability Statement In making the assessment, the Directors took account of the Group s current financial and operational positions, contracted expenditure and availability of financing. They also assessed the potential financial and operational impacts on the Group s strategic plan over a three-year period, considering severe but plausible scenarios of the principal risks and uncertainties set out above and the likely degree of effectiveness of current and available mitigating actions. The impact of most of the principal risks would be to lower revenues, gross profit and operating margins and cash generation in the near term, which may have a longerterm impact. The Group s strong contracting revenue stream and flexible cost-base means that it is well placed to withstand the longer-term impact of the principal risks. Based on this assessment, the Directors have a reasonable expectation that the Company and the Group will be able to continue in operation and meet all their liabilities as they fall due up to 31 January 2020.

20 18 / HARVEY NASH GROUP PLC CORPORATE RESPONSIBILITY CORPORATE AND SOCIAL RESPONSIBILITY People People are at the heart of our business and the Board takes a keen interest in how we engage with and develop our employees. We foster employee engagement through building: the chance to grow and develop within the organisation; respect for the organisation and its leaders; and understanding of, and opportunities to influence, the Group s strategy and performance. Progress is measured in an annual Employee Engagement Survey, in FY conducted by an external provider. The overall workplace engagement score was 71% across the seven categories assessed. The Group s internal communications, such as the monthly HN Insider, are designed to build awareness of the full breadth of the Group s activities and performance. Employees are consulted regularly so that their views can be taken into account when decisions are made that affect their interests. Harvey Nash is a meritocracy, where talent and contribution come first. An attractive culture and strong, commercial corporate values are at the heart of what we do. Integrity, transparency, fairness, passion and excellence in delivery to our clients are just some examples of the professional attributes to which we all aspire. We always aim to work in the longer-term interests of our clients and candidates and we know that this, in turn, will be in the interests of our shareholders. We offer our employees the opportunity to participate in share incentive plans to help align their interests with shareholders and reward contribution to the Group s performance. Our commitment is reflected in our membership of the Recruitment and Employment Confederation, which requires us to observe the highest principles of ethics, integrity, professional conduct and fair practice. Harvey Nash not only ensures that employment decisions are consistent with equal opportunities legislation in each country, but also actively encourages diversity consciousness among its management, staff and clients. The launch of the Harvey Nash programme supported by an external advisory company has increased awareness and understanding of diversity and inclusion among employees. One of our key principles is that in each country in which we operate, the senior management includes nationals of that country, as they understand their market and are naturally integrated in the local business culture. The Group continues to participate in Ernst & Young s National Equality Standard ( NES ), one of the UK s most respected, rigorous and prestigious standards in diversity and inclusion. This helps Harvey Nash to assess and improve its inclusivity, from education, to culture to processes. Harvey Nash is the first recruitment firm to be fully certified with the NES. To achieve this, Harvey Nash undertook a robust assessment against more than 40 criteria, over an 18-month period. The assessment was carried out by trained NES assessors who conducted comprehensive interviews and in-depth surveys with over 100 staff, as well as reviewed procedures, documentation and legal compliance. Our hugely successful Inspire and Aspire programmes set out to encourage promotion of women to the highest levels in our UK and international markets. Carol Rosati, an employee of the Group for 10 years, founded Inspire, and was appointed an OBE for services to women in business. The charts below summarise the gender diversity of the Group at the end of the financial year. Board of Directors 6 Health, Safety and Equal Opportunities The Group is committed to providing for the health, safety and welfare of all employees. Across the Group, every effort is made to ensure compliance with national health and safety legislation, regulations or similar codes of practice. The Group is also committed to achieving equal opportunities and complying with anti-discrimination legislation. Group policy is to offer the opportunity to benefit from fair employment, without regard to gender, sexual orientation, race, religion or belief, age or disability. Human Rights 1 63 Female Senior Managers The Group respects all human rights and undertakes appropriate checks on suppliers, clients and candidates to ensure, as far as possible, that none are breached. The Board ensures that its policies encourage respect for individuals and that no discrimination arises. These policies are communicated to all employees through the Human Resources Policies Manual. Male 32 1,378 Employees 1,053

21 HARVEY NASH GROUP PLC CORPORATE RESPONSIBILITY / 19 Environment The Board is conscious that the business has an environmental impact, particularly in terms of energy consumption and business travel. The Harvey Nash Environmental Strategy aims to reduce the Group s carbon footprint and follows recommendations from the Carbon Trust and industry best practice on Environmental Social Governance ( ESG ) principles. The Group aims to reduce its CO 2 e per head emissions each year and continues to actively reduce its carbon footprint. Where possible, the Group leases office space in buildings with ISO14001 accreditation. In the UK, 68% of employees work in an office with a BREEAM environmental and sustainability rating of excellent. A current focus area is IT, where increased virtualisation of servers and systems lowers energy consumption. We also continue to reduce our motor fleet. To survey its environmental impact, Harvey Nash continues to partner with Sustain Ltd to calculate the organisational carbon footprint of its global operations. A carbon footprint describes the quantity of greenhouse gas ( GHG ) emissions produced by an organisation s operations, measured in tonnes of carbon dioxide equivalent ( tco 2 e ). Charitable Contributions Many of our staff around the world engage in activities which support charities and their local communities, which is encouraged by senior management and the Board. Here are a few examples: Harvey Nash London, Birmingham and Newcastle staff have again raised money for Byte Night, in aid of Action for Children, with a 12-hour static bike challenge, bake sales and a sleep out on the street. In Germany we supported the Good Night bus which provides the homeless with meals, medical and other services. In Sweden our offices in Stockholm, Malmo and Gothenburg all donated to their local City Mission, a charity for the homeless. Sweden continues to carry out a variety of pro bono board appointment and assessment work for the Swedish Childhood Cancer Foundation, the Stockholm City Mission and the Ester Foundation. In the USA we sponsor a junior cycling development team and continue to support i.c. stars, a non-profit organisation that prepares inner-city adults for careers in technology. In the Netherlands, staff participated for the sixth year in the Unicef run in Breukelen. Scope 1 Emissions source Fuel combustion and facilities operation Tonnes of CO 2 e Tonnes of CO 2 e Strategic Report Approval The Strategic Report on pages 6 to 19 was approved by the Board of Directors on 26 April and signed on its behalf by: 2 Electricity and heat Business travel Albert Ellis Chief Executive Officer 26 April Total 1,259 1,255 Emissions per employee The above calculation covers all material sources of emissions for which the Group is responsible. Our reporting year for GHG emissions is 1 November to 31 October. The methodology used was that of the GHG Protocol. Responsibility for emissions sources was determined using the operational control approach. All emissions sources required under the Companies Act 2006 (Strategic Report and Directors Reports) Regulations 2013 are included. The estimate covers all operations that are consolidated within the financial statements and the offices leased to conduct these operations. Data was collected at the Group s largest offices, which together employ 87% of the Group s employees, and extrapolated to cover the whole Group. Data was also collected for the Group s transport activity and converted to greenhouse gas estimates using the UK government s GHG Conversion Factors for Company Reporting and the International Energy Agency s Overseas Electricity Generation Emissions Factors.