APAC gross profit up over 16% YoY in H1 2017 for Harvey Nash
Harvey Nash Group plc has released its unaudited interim results in line with expectations for the six month period ended 31st July 2017.
Revenue increased by 12.6% to £425.3m (2016: £377.7m), 9.2% on a constant currency basis, and profit before tax and non-recurring items increased by 4.4% to £4.0m (2016: £3.8m), 1.8% on a constant currency basis. This was as a result of continued recruitment demand for technology consultants in the UK and Benelux, as well as actions taken to reduce the Group’s cost base.
Gross profit increased by 2.0% to £48.2m (2016: £47.3m), a decline of 3.9% on a constant currency basis. This was mainly due to changes in revenue mix with the strongest growth in profitable but lower-margin managed services, coupled with a slowdown in permanent hiring in the UK during the election period. Operating profit increased by 12.4% to £4.7m including a net non-recurring credit of £0.5m (2016: nil). Operating profit before non-recurring items increased by 1.2% to £4.2m (2016: £4.2m).
Statutory profit before tax of £4.4m was £0.6m higher than the prior period and earnings per share were 24.9% higher at 4.47p (2016: 3.58p), 25.2% on a constant currency basis. Interest costs were 29.7% lower at £274k (2016: £390k) and the effective tax rate reduced to 26.9% (2016: 31.3%).
Performance in the Rest of World was much improved compared to the prior year. Gross profit decreased by 4.4% to £10.6m (2016: £11.1m) but operating profit grew by 20.5% to £0.08m (2016: £0.07m).
In the USA, demand continues to swing in favour of permanent recruitment but record executive search revenues were offset by a decline in freelancers. Overall gross profit decreased by 10.8% to £7.6m (2016: £8.5m) and operating profit reduced to £0.3m (2016: £0.6m). Acute skills shortages in the technology sector are creating unexpected challenges, particularly in Seattle, where major global technology companies are competing for talent. The US business has implemented a range of measures to improve conversion from open vacancies into placements, the benefits of which should be seen in the second half.
Gross profit in Asia Pacific increased by 16.9% to £3.0m with much of this growth in Vietnam (£0.5m) and Singapore (£0.1m) offset by a weak recruitment in Australia (down £0.1m). The operating loss was reduced to £0.2m (2016: loss of £0.5m) due to productivity gains in Vietnam and reduced losses in Hong Kong as this office winds down.
The Group increased its market share and revenue in the UK and Ireland, despite the impact of political uncertainty surrounding the UK General Election and changes to the tax treatment of freelancers working in the public sector. Gross profit of £18.2m was 1.2% down on last year, mainly due to a slowdown in the level of higher-margin permanent hiring during the election period.
Gross profit from Ireland showed strong growth (up 33%), with offices in the North of England (up 14%) and Scotland (up 6%) offsetting the Midlands, South West and London (each down by 4%). Investment in headcount (up 4% on the prior year) resulted in an operating profit of £1.6m, down 2.5% on the prior period.
Executive recruitment reported growth but interim placement activity was mixed compared to the prior year. Demand from the Financial Services sector was strong, with increased compliance and regulation measures in preparation for Brexit driving the recruitment of technology specialists.
The introduction of IR35 legislation resulted in significant activity within the public sector to transition existing freelancers and demand for new recruitment fell as a result. Despite this, overall the number of freelancers in the UK & Ireland at 31 July 2017 grew by 7.9% on the prior year, improving the outlook for the seasonally more productive second half.
Chief executive officer, Albert Ellis (pictured), commented, “The Group has reported encouraging results for the first half of the year, in line with our expectations.
“I am very pleased that in a challenging UK market our business has increased its revenue and delivered a robust financial performance. The Group’s businesses in the Benelux reported record revenues and profits, and improved results in the Nordics and Asia Pacific reflected the actions taken to increase margins and overall results during the period.
“Our strategy is focused on the demand for executive and technology recruitment from clients undergoing digital transformation, and we have added to the Group’s capacity with two excellent acquisitions. The combined benefits of these and the efficiencies from the transformation programme are expected to flow through into the current and next year’s results.
“Accordingly, we enter the second half of the year on track, well positioned to capitalise further on market opportunities as they arise and confident about the outlook for the remainder of the year.”
Revenue grew in Mainland Europe by 15.9%, whilst gross profit increased by 9.2% to £19.4m (2016: £17.8). Performance was varied across the regions of Europe with a strong performance in Benelux offset by more challenging conditions in Central Europe. Operating profit increased by 3.1% to £2.6m (2016: £2.5m) which comprises £2.3m in Benelux (2016: £1.9m), £0.2m in Nordics (2016: £0.2m) and £0.1m in Central Europe (2016: £0.4m).