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UK — Harvey Nash results better than expected

30 April 2010

Harvey Nash Group Plc (HVN:LSE), the professional recruitment and outsourcing consultancy, has today released results for the year ended 31 January 2010.

Revenues were down by -10% from 420.1 million Pounds in January 2009 to 376.2 million Pounds in January 2010. Gross profits fell by -13% from 69.2 million Pounds to 60.4 million Pounds during the same period.

Profit before tax fell by -87% from 9.5 million Pounds in January 2009 to 1.3 million Pounds in January 2010. Adjusted profit before tax (before non-recurring items in relation to the group's cost reduction initiatives) fell by -57% from 9.5 million Pounds to 4.1 million Pounds during the same period.

United Kingdom and Ireland
Revenue in the UK and Ireland has declined by a less than expected 7% to 110.3 million Pounds (2009: 118.3 million Pounds) and gross profit was lower by -18% to 24.9 million Pounds (2009: 30.6 million Pounds). Included in these results are revenues of 4.7 million Pounds (2009: 2.6 million Pounds) attributable to subsidiaries of UK clients based in Asia. Operating profit was 60% lower at 1.9 million Pounds compared to 4.8 million Pounds the previous year.

The UK business benefited from its scale, expertise and well known brand as companies migrated away from smaller privately owned boutique suppliers to larger, more financially stable businesses.

Whilst the technology sector had a strong year in 2008, the impact from the financial crisis appeared to be delayed into the first half of 2009 with overall demand particularly for executive search, down almost 50%. A recovery in activity began towards the end of the second half and continues into 2010 as global outsourcing organisations are now gearing up for growth.

Demand from the financial services sector was subdued for most of the year and the impact of reductions in rates and margins affected the whole market.

Consolidation and significant job cuts in the banking sector also reduced the market for executive search as restructuring delayed plans for hiring top management talent.

The public and voluntary sector remained robust throughout 2009 and contributed to revenue stability in the UK particularly in the permanent and executive recruitment division. A significant contract win in relation to the Department of Home Affairs and increased volume of executive recruitment for the NHS and local government provided visibility at a time when the financial services sector was severely impacted. This was the case in Ireland too, as a key technology outsourcing contract with the public sector ensured the business remained profitable despite the reduction in demand in 2009.

As a result of the continued growing demand for outsourcing, the UK division's revenues were buoyant, with an increase of 85% in gross profit over the previous year.
Mainland Europe
Revenue in Europe has declined by -13% to 236.7 million Pounds (2009: 273.2 million Pounds), gross profit was lower by only -7% to 27.3 million Pounds (2009: 29.2 million Pounds). Operating profit was 41% lower at 2.5 million Pounds compared to 4.3 million Pounds in the previous year. The business has benefited significantly from a full year of outsourcing revenues from its Nuremberg based wireless research and development laboratory, Nash Technologies.

Demand for permanent recruitment in Europe has, as expected, been subdued throughout the year.

Measures taken by governments and companies to retain their workforce and skills through the recession through shorter flexible working arrangements have resulted in a material overcapacity of labour particularly in manufacturing. This has affected contractor working time as well, reducing the Group’s margin earned on each subcontractor.

Germany was significantly affected by shorter working in manufacturing particularly in the auto sector and permanent revenue was down by -47%. However, the outsourcing services enjoyed a full year of revenue and the new office in Nuremberg contributed to a rise in overall gross profit of +26%, remarkable in a deep recession. Following the year end a further multiyear contract was secured by Nash Technologies, located in Stuttgart, to provide IT engineering support and maintenance for a substantial element of the fixed line telecoms infrastructure in Germany. Estimated at 40 million Euro, the additional contract further establishes the Group as one of the leading providers of specialist telecoms talent in Europe.

In Belgium, the business reported revenue down -9%, with permanent recruitment down -60%.

In the Netherlands a similar decline in permanent recruitment of -69% was reported and overall gross profit -28% lower reflected the severe impact of the global recession on the Dutch economy.

Permanent revenues in France were the least affected in northern Europe, down only -5%.

In Scandinavia the Group's executive recruitment business reported a drop of -24% in gross profit against a market that declined substantially. With lower demand for hiring, the business focused on its broad portfolio of services, in particular winning significant contracts for leadership services and leveraging its new mid market recruitment service into existing clients.

The new office in Poland, whilst doubling revenue, made a loss for the year.

Following the year end the Group has continued its expansion from its base in Scandinavia, organically into Finland with the establishment of an office in Helsinki and the recent acquisition of Bjerke & Luther AS, a leading business in Norway establishing Harvey Nash Alumni as the market leader in the whole of the Nordic region.

Switzerland was the only market where overall recruitment revenue increased, by +7% year-on-year, mainly as a result of the recently established Geneva office.

Harvey Nash's Chairman, Ian Kirkpatrick, said in a statement "we faced extremely challenging conditions during the year. The impact of the global financial crisis was felt across all of the Group's markets. The Group demonstrated its resilience in the global recession and we are pleased that the revenue decline, which was limited to 10% of turnover and 13% of gross profit, reflects an enhanced market share."

"Organisations across the world have implemented actions to reduce costs and conserve cash which has clearly benefited the Group's outsourcing business. During the year, gross profit attributable to outsourcing increased by +34% from 9.6 million Pounds to 12.9 million Pounds."

"The success of our broad portfolio of services in achieving greater resilience through diversification has been demonstrated with the Group remaining profitable throughout the year, supported by the strength of our client relationships and quality of delivery."

In early trading Harvey Nash's shares were up by +0.97% to 46.70 Pence.



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