Offshoring now 20% of Harvey Nash’s profit

(By Anthony Miller – Wednesday, 29th April 2009 9:00am). We’ve written many times about recruitment firm Harvey Nash’s Vietnam-based offshore development centres, especially its landmark €54m deal with Alcatel-Lucent last November (see Harvey Nash wins its biggest outsourcing contract with Alcatel-Lucent). I’ve just been speaking with CEO Albert Ellis, who told me that offshoring is now contributing 20% of group operating profit, with new clients coming on board, mostly as sell-throughs from its core recruitment businesses.

Harvey Nash had a cracking year last year (to 31st January ’09 - see here) with reported revenues up 32%, but a slight trimming of operating margins down 20bps to 2.5%. On a constant currency (ccy) basis, profits grew 10% and so it’s fair to assume revenues grew pretty much in line ccy, a very pleasing result in such a difficult recruitment market, especially as it’s virtually all organic. The strongest sectors were Healthcare, Pharma and Telecoms, though Ellis told me that demand for interim management specialising in turnarounds, restructuring and M&A is also pretty buoyant, notably in the Utilities sector. As other players are also finding, permanent recruitment is just horrible. So far this year, only 29% of Harvey Nash’s net fee income (NFI – essentially gross profit) came from perm, compared to 43% last year.

Ellis has a cautious view on market outlook very much in tune with ours. He doesn’t believe the ‘green shoots’ story is sustainable and is operating the business with the expectation that perm recruitment may not pick up again for another couple of years. To my mind, this is what makes Harvey Nash’s move into offshore services such a shrewd idea.