Harvey Nash keeps its head above water

(By Anthony Miller – Wednesday 30th September 2009 8:30am). There were frankly few surprises in recruitment, and now burgeoning offshore IT services player, Harvey Nash’s H1 results, given the signals sent in last month’s trading update (see Offshore outsourcing helps Harvey Nash). A pretty much flat revenue line (£200m) would have looked 15% lower had it not been for positive FX movements, given over 70% of revenues derives from outside of the UK. Operating margins more than halved, from 2.2% to 1.0%, but the business remained profitable, which must be considered a result.

I have just spoken to Harvey Nash CEO, Albert Ellis, and he confirmed that their Vietnam-based offshoring operations now contribute 21% of GP. The landmark Alcatel-Lucent contract, now approaching its first anniversary, is on track, and Harvey Nash has signed some new clients to use the offshore service – all of them existing recruitment services clients. However, Ellis noted that although outsourcing is still ‘reasonably robust’, clients are even delaying decisions on cost-reduction proposals on the basis that ‘may be we’ll get a better deal next month’ – a classic response in a recessive market. On the core recruitment business, Ellis sees no signs of any upturn, but commented that US bulge-bracket banks are headhunting again.

There’s nothing here that makes me change our view that we’ll have to wait until the second half of next year before we see any meaningful upturn in the IT sector. Meanwhile, recruitment firms like Harvey Nash will need to keep the hatches well battened down, a sentiment we are likely to hear repeated when Michael Page and Hays update the market next week. Indeed, the Hays update will be even more interesting given today’s news of a £30m fine by the Office of Fair Trading for breaches of the Competition Act in the construction industry. I am scheduled to meet Hays CEO, Alistair Cox, next week and hope to bring you more (assuming the meeting goes ahead!).