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UK - Harvey Nash's revenues up +12%

April 28 2011

Revenues were up by +12% from 376 million Pounds in 2010 to 422 million Pounds in 2011 at staffing firm Harvey Nash Group Plc (HVN:LSE). Results for the year ended 31 January 2011 show that gross profit was up by +13% from 60.4 million Pounds in 2010 to 68.5 million Pounds in 2011.

Operating profit was up by +292% from 1.6 million Pounds in 2010 to 6.4 million Pounds in 2011. Operating profit, adjusted for non-recurring items (fees in relation to the acquisition in Norway and onerous property provision movements), was up by +45% from 4.5 million Pounds in 2010 to 6.5 million Pounds in 2011.

Profit before tax was up by +387% from 1.3 million Pounds in 2010 to 6.3 million Pounds in 2011. Profit before tax, adjusted for non-recurring items, was up by +2.2 million Pounds from 4.1 million Pounds in 2010 to 6.3 million Pounds in 2011.

Revenue in the UK and Ireland increased by +19% to 131.5 million Pounds (2010: 110.3 million Pounds) with gross profit up by +14% to 28.3 million Pounds (2010: 24.9 million Pounds).  Included in these results are revenues of 6.1 million Pounds (2010: 4.7 million Pounds) attributable to clients based in Asia. Operating profit was up by +41% at 2.7 million Pounds compared with 1.9 million Pounds in the previous year.

The group's Mortimer Spinks brand benefited from its focus on the new media and mobile sectors with a +44% rise in gross profit and virtually doubled its profit contribution compared to the previous year.

Group offices based in the regions of the UK all performed well, particularly the Edinburgh operation, which increased gross profit by +73%. Despite the economic uncertainty in Ireland, the group increased revenues and generated a healthy profit from a small loss in the prior year.

Overall executive search and interim revenues were stable compared to the prior year. Significant improvement in demand from the technology sector was offset by the expected declines in the public sector although manufacturing, business services, retail and the corporate sector were up +30%. Interim management was affected mainly by the public sector's freeze on headcount and consultancy but has made a good recovery in the first quarter of the current year.

Offshoring and outsourcing increased by +44% in the UK, resulting in a record profit contribution to the UK business since the start of the business almost ten years ago.

Revenue in Mainland Europe was up by +8% to 256.4 million Pounds (2010: 236.7 million Pounds) and gross profit increased by +14% to 31.1million Pounds (2010: 27.3 million Pounds). Operating profit was +28% higher at 3.2 million Pounds compared with 2.5 million Pounds in the previous year. 

Harvey Nash focuses on the stronger Northern European region, including the Nordics, Benelux, Germany and Switzerland.

During the year demand declined in three markets, The Netherlands, France and Switzerland. Action to re-shape the group's businesses in France and Switzerland was taken to prepare them for a return to growth in 2011. The recession and lack of recovery experienced in The Netherlands has featured prominently in reports across the industry. The Netherlands contributed just under 20% to European profits despite a decline in revenues and challenging trading conditions.

Belgium and Luxembourg capitalised on a strong recovery particularly in permanent recruitment, and demand for freelance professionals also improved. One of the key success factors is the focus on Fortune 500 companies headquartered in and around the capital of the European Union in the telecommunications, automotive and pharmaceutical sectors.

In the Nordics, recovery was the strongest in Europe with Sweden leading the organic growth and the acquisition of Bjerke & Luther AS in Norway adding to the 96% rise in revenues. The satellite offices in Copenhagen and Warsaw reported modest top line growth and a reduced loss for the year. Alumni executive search business enjoyed a healthy increase in profits, the successful expansion into new markets such as Finland and Norway provided additional growth in revenues and operating profits. The new permanent contingent recruitment service marketed under the Harvey Nash brand also enjoyed strong growth with total gross profit rising 49% compared to the prior year.

In Switzerland a significant contract win in the financial services sector enhanced the market leading position of the Group's operations in both Zurich and Geneva. Whilst the costs of implementation were incurred during the year with an impact on overall profitability, the market was also relatively subdued compared to Germany and the Nordic region. 

The German economy was widely reported to be one of the strongest in Europe in 2010. The group's operations in Germany have grown significantly over the last three years and in the year ending 31 January 2011, Germany represented just over 40% of European profit contribution. Recruitment growth was concentrated in the south, where manufacturing and exports have driven growth in the Stuttgart and Munich offices. Some labour overcapacity continues in the employment market, particularly in technology and engineering and this resulted in continued shorter working hours affecting contractors and a slower pick up in permanent recruitment.

In the group's outsourcing location in Nuremberg revenues and profitability were lower than the previous year as expected and in line with Group expectations. However on 30 April 2010 an additional contract was secured by Nash Technologies worth 43 million Euro over a number of years and a new development centre was added in Stuttgart during the year. In relation to the extension of the group's existing strategic partnership in Nuremberg, a new framework contract was successfully concluded in December 2010 which includes a guaranteed level of project work throughout 2011. Both the Nuremburg and Stuttgart locations are on budget for the current year to date.

Revenue in the USA was up by +17% at 34.4 million Pounds (2010: 29.3 million Pounds) and gross profit up +11% to 9.1 million Pounds (2010: 8.2 million Pounds). Operating profit was 600,000 Pounds compared to broadly break even in the prior year.

Although demand for higher margin strategic consultancy and major project work continued to decline impacting the Atlanta operation in particular, the outsourcing service grew strongly, increasing revenues by 19% year on year which was a major factor contributing to the resilience of the US business.

The technology recruitment market began to improve toward the end of the first half of the year. Increased demand resulted in an additional 19% of freelancers at 31 January 2011 on client projects compared to the year before. Demand was concentrated in the flexible labour market and it was not until early 2011 that the business began to see significant improvements in the market for permanent technology professionals.
Executive Search also began to see much more activity as confidence returned to the financial services sector which began to expand once again. This lifted executive search revenues for the year by +22% overall with much of the improvement coming in the second half. The revival of business activity on the East Coast also impacted the New Jersey office significantly which reported a +73% rise in revenues. Demand continued to remain subdued in Chicago and recovery in Denver lagged behind the rest of the country. The West Coast was less affected by the recession and the San Francisco and Seattle offices continued to benefit from buoyant market conditions and tight labour markets particularly in the technology sector. With strong comparatives revenue increased +17% on the prior year.

Albert Ellis, Chief Executive Officer, commented "I am delighted with these results which reflect significant market share gains and build on the group's remarkable resilience during the downturn."

"The strength of the recovery in permanent recruitment particularly in the UK and the Nordic region lifted margins and generated strong cash flows. Increased demand for flexible labour in the US particularly in the second half resulted in revenues and profits exceeding expectations.  In Europe, as elsewhere, the stronger trading in the final quarter has continued into the new financial period."

"The Board is pleased to recommend an increased final dividend reflecting the success achieved in the year ended 31 January 2011 and its confidence in making further progress during the current year."

In early trading Harvey Nash's shares were up by +3.41% to 74.45 Pence.


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