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UK — Harvey Nash revenues slightly down but profits up considerably

30 September 2010

Revenues were slightly down by -1% from 200 million Pounds in H1 2009 to 199 million Pounds in H1 2010 at Harvey Nash Group Plc (HVN:LSE), the professional recruitment and outsourcing consultancy.

Interim results for the first six months ended 31 July 2010 reveal that gross profit was up by +1% from 31.7 million Pounds in H1 2009 to 32 million Pounds in H1 2010.

Operating profit was up by +39% from 2 million Pounds in H1 2009 to 2.8 million Pounds in H1 2010. Operating profit adjusted for non-recurring items (2009: non-recurring re-structuring costs of 0.5 million Pounds. 2010 professional fees in relation to the acquisition in Norway of 0.1 million Pounds) was up by +17% from 2.5 million Pounds in H1 2009 to 2.9 million Pounds in H1 2010.

Profit before tax was up by +45% from 1.8 million Pounds in H1 2009 to 2.6 million Pounds in H1 2010. Profit before tax adjusted for non-recurring items (see above) was up by +20% from 2.3 million Pounds in H1 2009 to 2.7 million Pounds in H1 2010.

In the United Kingdom and Ireland revenues increased by +6% to 59.6 million Pounds (2009: 56.4 million Pounds) with gross profit improving by +9% to 13.8 million Pounds (2009: 12.7 million Pounds) and operating profit increasing by +64% to 1.9 million Pounds (2009: 1.2 million Pounds).

The impact of market share gains and the cost reduction measures taken during the recession, resulted in a significant uplift in operating profit.

The success of the UK business was marked by a return to growth in demand for higher margin permanent recruitment, with the Technology and Financial Services sectors particularly active, mitigating the predicted slow down in the Public Sector. These two sectors were profoundly affected throughout the downturn and an element of catch up has been in evidence in the hiring activity in the early part of 2010. Consolidation has also been the key driver for recruitment, as the changes have impacted management structures and technology. Demand is also up because global organisations are actively expanding their businesses in emerging markets.

The outsourcing division benefited from new contracts secured during the downturn and a release of new projects and software development work from existing clients.

All markets reported a positive contribution during the period, including Ireland. An additional location has been established in South East England, and the group has also consolidated its positioning within the financial services sector with a new City office focusing exclusively on recruitment within this sector.

In Mainland Europe, revenues declined by -4% to 122.4 million Pounds (2009: 127.8 million Pounds), with gross profit -2% lower to 13.9 million Pounds (2009: 14.2 million Pounds) and operating profit decreased by -30% to 0.8 million Pounds (2009: 1.2 million Pounds).

As expected, demand for recruitment continued to be weak in mainland Europe, as the impact of the financial crisis lagged the UK and the US. While HR and IT outsourcing services continued to provide profitable support to the results, demand for permanent recruitment was mixed with a recovery in Sweden and Norway partly offsetting the overall decline.

During the period under review, the group acquired a leading recruitment business in Norway and also opened an office in Helsinki, Finland. The acquisition in Norway and organic expansion in Finland significantly enhances Harvey Nash's Northern European footprint and further strengthens its market leading business across the Nordic region. Harvey Nash Alumni is now the Nordic region's largest provider of executive and specialist recruitment.

On the 30 April 2010 an additional contract was secured by Nash Technologies worth 43 million Euro over a number of years. A new development centre was added in Stuttgart, Germany to support the German fixed line telecommunications market. In relation to the extension of the group's existing strategic partnership in Nuremberg, discussions are ongoing and although not yet concluded, are expected to result in a satisfactory outcome in due course.

With the exception of the Netherlands, a recovery in Europe led by Germany and the Nordics began toward the end of the second quarter, with new assignments and increased contractor numbers when compared to the previous quarter.

In the United States, revenues increased by +5% to 16.6 million Pounds (2009: 15.7 million Pounds) but as a result of changes in the mix favouring lower margin contract recruitment, gross profit declined by -11% to 4.3 million Pounds (2009: 4.8 million Pounds) with operating profits broadly similar to the previous year.

The US business has shown remarkable resilience delivering annual profits and cash throughout the recession. As in Europe, maintaining our capacity and continuing to deliver profits was a key objective. This was delivered by focusing on the outsourcing and off-shoring division, assisting clients through cost reduction and efficiencies during the recession. Now, as the markets recover, prudent investment in additional fee-earners in the recruitment business is being made as client hiring activities increase including opening a location in Houston, Texas.

Despite mixed signals on the macro employment picture in the US, much higher levels of demand for flexible labour provides good visibility into the third quarter and the pace of improvement in permanent recruitment has continued to reflect an uplift in demand.

Commenting on the results, the Chief Executive Officer, Albert Ellis, said "the group has performed remarkably well during the downturn, remaining profitable and generating cash, despite the severe recession in all of our markets. Our broad range of services and focus on relationships enabled the Group to continue to add value to its clients, many of which had implemented recruitment freezes."

"With markets now recovering, demand for recruitment has been picking up and the Group is very well positioned for the upturn."

In early trading Harvey Nash's shares were up by +4% to 52 Pence.



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