Tuesday, UK-based specialist recruitment consultancy Michael Page International Plc (MPI.L,MPGPF.PK) reported a 14.6% rise in gross profit for the third quarter, driven by ongoing growth in regions outside UK on diversification strategy. Meanwhile, company also warned of a possible headcount reduction further if general market conditions continue to weaken.
In the UK, quarterly gross profit fell 8.3% due to weakening market conditions. Looking ahead, Michael Page, which was a takeover target of Switzerland-based HR services provider Adecco S.A. (ADO.L, AHEXF.PK), noted that the outlook is likely to become more challenging in some of the markets, and that the ongoing weakness in general market conditions may result in further headcount reductions in the fourth quarter.
The company's total gross profit for the third quarter increased to 141.4 million pounds from 123.4 million pounds in the previous year. On a constant exchange rate basis, it increased 3.9%.
Permanent gross profit growth was 13.5% on a reported basis, and 2.2% at constant exchange rates, while reported temporary gross profit growth was 18.5%, and constant currency growth was 10%.
Michael Page noted that despite slow trading due to weakening market conditions and increased cautionary behavior from clients and candidates, the company's three of the four regions, representing almost 70% of the total gross profits, reported higher results in the quarter.
Commenting on the quarterly trading, Chief Executive Steve Ingham said, "Market conditions through the third quarter became increasingly challenging. The unprecedented turmoil in the financial sector during September has eroded confidence in the wider economy. This has reduced activity levels and increased the cautionary candidate and client behaviour we started to encounter in the first half of 2008, further reducing our visibility."
On a regional basis, gross profit in the company's largest region, Europe, Middle East, Africa, or EMEA climbed 31.8% to 63.7 million pounds from 48.4 million pounds a year ago, and represented 45.1% of the total result.
On a constant currency basis, growth was 12.5% in the region, comprising growth of 17% in France, 23% in Germany, 15% in Switzerland and Italy each, and total 37% in Austria, Belgium, Ireland, Luxembourg, Poland, Portugal, Russia, South Africa, Sweden, Turkey, and U.A.E. Meanwhile, gross profit in the Netherlands dropped 3%, while the decline was 15% in Spain, both impacted by tougher conditions.
The company's Asia-Pacific region, representing 13% of the group, recorded a 19.1% rise in quarterly gross profit to 18.4 million pounds from 15.5 million pounds last year. The increase was 6.2% at constant exchange rates on 13% rise in Australia, partly offset by 3% decline in Rest of Asia Pacific mainly due to the weakness in the banking sector.
In the quarter, Americas gross profit jumped 34.9% to 14.3 million pounds from 10.6 million pounds a year ago, and represented 10.1% of the total results. On a constant currency basis, total gross profit growth was 17.1%, comprising 49% rise in Brazil, Mexico & Argentina, partly offset by 7% drop in USA & Canada, where the increased discipline diversification largely offset the reduction in financial services.
Meanwhile, in the UK, quarterly gross profit fell to 44.9 million pounds from 49.0 million pounds last year, and represented 31.8% of the total result. The lower result was due to decline of 15% in Finance & Accounting gross profit, 5% in marketing, sales and retail, and 8% in legal, technology, HR and Secretarial. Meanwhile, Engineering & Manufacturing, Procurement & Supply Chain, Property & Construction gross profit climbed 31%, reflecting the benefits of discipline diversification.
Michael Page pointed out that the weakness in the banking sector, which started over a year ago, is having a significant impact on other sectors. The recruitment process lengthens, impacting productivity, due to erosion in confidence and cautious approach by clients and candidates.
In the quarter, total headcount was reduced by 84, broadly in line with market conditions, to 5,452 at the end of September. The company pointed out that its businesses in the markets, where conditions weakened and the activity levels are slowing, reacted quickly by reducing headcount, mainly in the UK by 76 and North America by 53, through natural attrition. However, these were partly offset by an increase of 21 in Latin America where the conditions remain strong.
In mid-September, Adecco S.A., which approached Michael Page in May 2008, said that it was no longer considering making an offer for Michael Page at that time and that it remains financially disciplined. Adecco noted that the response from Michael Page and its advisers indicated that a recommended transaction would not be achievable on terms satisfactory to Adecco. Meanwhile, Michael Page responded that the company and its advisers gave Adecco's proposals due consideration and unanimously concluded that the offer materially undervalued the company and its prospects, and that it decided to remain as an independent entity.
MPI.L is currently trading at 211.50 pence, down 22.75 pence or 9.71%, on a volume of 1.5 million shares. MPGPF.PK last traded on August 15 at $5.80.
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