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UK - Harvey Nash performs well in all key areas

30 September 2011

Revenues were up by +28% from 198.6 million Pounds in H1 2010 to 253.4 million Pounds in H1 2011 at staffing firm Harvey Nash Group Plc (HVN:LSE).

Interim results for the six months ended 31 July 2011 reveal that gross profit was up by +21% from 32 million Pounds in H1 2010 to 38.6 million Pounds in H1 2011.

Operating profit was up by +47% from 2.8 million Pounds in H1 2010 to 4.1 million Pounds in H1 2011.

Profit before tax was equally up by +47% from 2.6 million Pounds in H1 2010 to 3.8 million Pounds in H1 2011.

During a period when the market in the United Kingdom and Ireland was increasingly challenging, the group increased revenues by +40% to 83.6 million Pounds (2010: 59.6 million Pounds), gross profit by +10% to 15.2 million Pounds, (2010: 13.8 million Pounds) and increased operating profit by +13% to 2.2 million Pounds (2010: 1.9 million Pounds).

The impact of these 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.

Revenues in mainland Europe increased by +24% to 152.3 million Pounds (2010: 122.4 million Pounds), with gross profit +35% higher at 18.8 million Pounds (2010: 13.9 million Pounds) and operating profit up by +90% to 1.5 million Pounds (2010: 800,000 Pounds).

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.
In the US, revenue increased by +6% to 17.5 million Pounds (2010: 16.6 million Pounds) , gross profit by +8% to 4.6 million Pounds (2010: 4.3 million Pounds) and operating profit was up +127% to 340,000 Pounds compared to the prior year (2010: 150,000 Pounds). 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 the 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. Offshoring growth was strong (+49%) while higher margin strategic consulting revenues declined by -65%. The main driver of growth came from increased demand for permanent recruitment, which grew by +37%.

Chief Executive Officer, Albert Ellis, commented "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."

In early trading Harvey Nash's shares were up by +5.69% to 65 Pence.


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