Michael Page warns on falling profits

The function of Michael Page International may be finding jobs for others, but its short-term priority must be to shed some of its own.

Such is the lesson of today’s unscheduled trading update from the FTSE 250 recruitment consultant, which gave warning that current year pre-tax profit forecasts will be at the bottom end of analysts’s forecasts — some £136 million, or 9 per cent lower than consensus expectations, and 8 per cent lower than last year’s number. In other words, for the first time in five years, Page’s profits are heading backwards.

That Page is feeling the pinch should not come as too much of a surprise. Recruitment is a famously cyclical business, and with Page drawing the bulk of its profits from permanent positions, which are much more economically sensitive than their temporary counterparts, it sits at the more lively end of its sector.

Like all recruiters, it also highly operationally geared. It has a big base of fixed costs — in the form of staff — whose fee income can swiftly fall to zero when then phones stop ringing. If they do, a drop in sales has a disproportionate effect on profits. Just as 2007 profit forecasts where raised no fewer than seven times in the space of a year, so Page faces successive cuts to estimates when the economy heads down.

That explains why Page disclosed today that it is cutting its headcount, which was heading for 5,500 at the half-year stage, to 5,100.

The company is much more diversified both geographically and sectorally than at the time of the last downturn, but a bigger footprint in continental Europe is no comfort when France and Germany are following the UK’s faltering path.

The fact that Page’s 2008 profit forecasts are 9 per cent lower than they were a month ago — and that it has less than a month of its financial year to run — clearly illustrates its problem: next year’s profits are close to unforecastable.

Nor is there any reason to believe that the likes of Adecco — from whom Page rejected a 400p a share bid this summer — will be quick to return. At 174p, stay away.

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