Click here to download the Recruiter Hot 100 graphs and tables

This is the fourth consecutive year that Agile Intelligence has compiled the Hot 100 report on behalf of Recruiter to determine which companies are best at leveraging their intellectual assets. Rigorously measuring the gross profit (net fees) per employee can reveal how effectively an organisation uses the skills of all of its people to generate a profitable return for stakeholders.

On balance, this year saw a much reduced growth performance from the Hot 100 companies. Only 44% achieved stable or increased gross profit per employee, yet over two-thirds again added to their own workforce. A mere 22% achieved both targets of increased gross profit and increased workforce, compared with 40% in the 2008 Hot 100 report.

All in-house employees (excluding temporary workers or contractors) are included in the calculation, not just fee-earners. While wild cards may exist, those companies emerging strongly from this analysis, especially if featuring well for the third year running, are primarily those that operate the most efficient organisation, effectively balancing the need for good, well-trained, directed and motivated staff against the need to minimise costs.

In difficult times the best companies stand out from the crowd. Which companies derive most benefit from their own employees before allocating overheads and engender the right atmosphere to encourage a profitable and sustainable sales approach?
Recruiter’s 2009 Hot 100 should provide answers to these questions.

agile intelligence
Sue Dodd is the joint founder of Agile Intelligence, specialising in business intelligence and leading-edge analysis of the recruitment market

compiling the Hot 100

Methodology: the data has been rigorously filtered by turnover and employee numbers. Details are available on request. The companies featured in this edition employ around 30,000 in-house staff and account for over £10.4m of industry turnover. Latest available accounts have been used — dated 2008 or 2009 for 95% of these companies. Companies whose accounts have not been updated with Companies House since last year’s report, or where required data appears to be absent, do not appear. Furthermore, wherever possible UK-only companies are
considered; however, in some cases group accounts have been used where these prove more up-to-date even if some overseas business is evident — examples would be Robert Walters, Michael Page International and some IT recruiters. Primarily overseas operators such as Swift have been excluded. Two prominent exclusions are Manpower and Reed Employment since both adopt accounting methods under-stating gross profit and margin, making comparison with their peers invalid. Furthermore companies including temporary employees in their employee count are not included as this would grossly underestimate their performance. Small specialists with global interests such as in headhunting may have been omitted for a variety of reasons: incomplete disclosure, overseas business and a shortage of data for peer group comparison.

Disclaimer: while every effort has been made to ensure accurate reporting and analysis no guarantees are made regarding the information portrayed in this document.

Key findings
On average, most of the profit reflected in the 2009 Hot 100 rankings is derived from 2008 activity. Hot 100 group turnover again outperformed the wider trend across the whole recruitment market which saw sales decline by 0.5%, according to the Office of National Statistics’ statistics for labour recruitment turnover in calendar year 2008. The Hot 100, with its changing membership each year, accounts for a greater part of the industry’s turnover than ever before as these companies are the natural outperformers.

Nevertheless, challenges are evident: profitability is now under pressure and most companies experienced a downward shift in productivity. The permanent market slowdown had a distinct impact on 2008 results and will be even more in evidence when 2009 accounts are published.

• The 2009 Hot 100 companies collectively reported a 7.8% rise from their previous year in latest available sales to around £10.4bn. This represents a considerable slowdown in the growth rate from the previous year.
• Hot 100 combined gross profit reached almost £2.7bn, up just 4.4% on previous year’s sales.
• Hot 100 companies’ in-house workforce rose by 1,665 to total just over 30,000 employees, a gain of 5.9% - well below sales growth but slightly ahead of net fees growth.
• Headcount outstripped gross profit growth.
• Productivity, or gross profit per employee, fell 1.5% to an average £91,199 - over 4% below last year’s Hot 100 figure.
• Hot 100 average gross margin fell 110 basis points to 26.2%, almost certainly driven downwards by the permanent market’s weakness during the latter half of 2008. This reversed the trend seen in 2007 with a cyclical shift away from permanent sales.

Across all Hot 100 companies, almost 72% expanded their workforce either organically or by acquisition - a percentage which, perhaps surprisingly, surpasses last year’s two-thirds. However, only 42% managed to increase gross profit per head compared with last year’s 63%. Overall only 22% of companies achieved both employee growth and productivity per head gains, in contrast to last year’s 44%. Smaller firms again fared worse in this respect.

• Only one in six firms with less than 50 employees converted headcount growth into gross profit/head (productivity) growth.
• In contrast, the success rate is one in four for firms with 50 or more employees.
• Challenges facing the smaller firms are clearly different. For instance, training new staff can prove a major short-term distraction, a situation aggravated in the present climate because their lack of scale makes it proportionately much more difficult to yield a financial return on a new member of staff.

Margin breakdown in more detail
Gross margin is the gross profit (or net fees) as a percentage of sales turnover. Gross profit is a combination of permanent fees (at virtually 100% margin) plus the profit on temporary supply after subtracting payroll and other ‘temp’ employment costs. The mix of business between temporary and permanent placements influences the level of gross margin as does the trend in temporary pricing and employment related costs.

With larger contract business notoriously competitive compared with small to medium enterprises (SMEs) or ad hoc placements, the type of business and delivery model/cost structure play a crucial part both in determining temporary margin and also bottom line profitability. An opposite situation arose in 2008 versus 2007 as high margin businesses found business more difficult.

• Since last year’s report the composition of the Hot 100 sees fewer higher margin performers, reflecting the slowdown in permanent hiring experienced in the second half of 2008.
• The 40% to 50% band particularly lost ground with margin eroding into the band below.
• Margin bands making the most gain are ‘less than 10%’, ‘10% to 15%’ and ‘30% to 40%’ displaying a real turnaround in fortunes.
• The rise in low margin business is noticeable - mainly reflecting large volume contract and managed service or project managed operations.
• Conversely, the middle ground companies stood still at the 20% to 30% band.
• More than one in five agencies achieve gross margin below 15%, with nine of these below 10%.
• Around 7% of the companies featured are predominantly permanent recruiters.

Across all Hot 100 companies, almost 72% expanded their workforce either organically or by acquisition — a percentage which surpasses last year’s two-thirds

Permanent bias backfires but specialists remain top dogs
All of the new top 10 are professional candidate recruitment companies. Only two have substantial permanent business. Four of the 10 are heavily biased towards the public sector - in education, health and social care - a clear sign of these useful, defensive qualities during 2008.

Morgan Law Recruitment Consultancy is the new Hot 100 leader, specialising in executive level finance, HR, PR and procurement into the public and not-for-profit sectors. Elsewhere in the top five, Hexagon, moving from second to third, is the highest placed company with substantial permanent bias. In second place, Parity’s recruitment arm performs well in the highly competitive IT contractor market where relatively low margin is coupled with a highly efficient delivery model. While Walker Hamill performs extremely well in tough financial markets, Mayday Healthcare takes over the number four spot, demonstrating the benefit of its underlying market in 2008.

Again 13 specialists are listed in the top 20, with seven in the top 10. In addition six IT staffing companies are listed in the top 20, with three of these back in the top 10. A clear message, recurring each year, is that the most profit per head is achieved by specialisation. Yet, with an efficient delivery model, generalist Heads Recruitment holds its own as the sole non-professional candidate firm in the top 20.

The major global players and the large branch network agencies are generally absent unless they have sizeable candidate speciality. For example:

• Randstad, following its acquisition of Vedior, is well represented through its individual operating companies, although now with just one company in the top 10 but a significant 13 across the Hot 100.
• Adecco conversely has just two of its UK brands in the 100, which clearly illustrates why it has recently bought Spring Group and latterly launched a bid for MPS, parent group of professional specialists Badenoch & Clarke and Modis.

Pertemps is the largest ‘national’ to feature - at 79th, with the much more professionally biased Hays only three places ahead. Heads Recruitment is again the only generalist recruitment representative in the top 20 at 16th.

For a more meaningful comparison the companies have been separated into three major groupings - specialists (mainly professional or technical), IT/telecoms specialists and general recruiters (generalists).

The Hot 10 specialists

Financial sector specialists reported sharply diverse fortunes for 2008. Several suffered heavily from the permanent slowdown and the general pull-back in financial recruitment. Others, in sectors not so exposed, fared well and some improved productivity substantially. Here is the summary of findings:

• The Hot 10 represents over £420m in turnover generating £152m in net fees.
• Net fee growth among the Hot 10 rose 15.4%.
• Average gross profit/head gained just 2.8%.
• Five companies retain their place in the Hot 10 from last year’s rankings.
• Morgan Law, newcomer and specialist supplier of both temporary and permanent specialists to the public sector, takes the top spot with a 36%rise in productivity to £195,600 gross profit per head. With just 35 employees it is at the smaller end of the scale but packs a sizeable £6.8m gross profit at a margin of 28.2%.
• Nine out of the 10 expanded their workforce and seven increased gross profit, but only three simultaneously expanded gross profit/head.

Turning to gross margin trends:

• Sheffield Haworth and Shilton Sharpe Quarry are the only 100% permanent recruitment firms in the Hot 10, with the remainder mixed and Joslin Rowe clearly temporary. Healthcare Locums, Mayday and Select Education are also predominantly temporary recruiters.
• Overall weighted average margin remained unchanged at 36.1%.
• Four companies increased their margin - Walker Hamill and Career Legal saw the best improvement. Given some impact from permanent mix shift, there looks to be only minor erosion in temporary margin for this Hot 10 at least.

The Hot 10 IT recruiters

Employee numbers continued to grow for most of this Hot 10 into late 2008 as demand for the ICT [information and communication technology] candidate was far less affected by the approaching downturn than the professions. Headcount growth in almost all cases was converted into not just additional profit but additional productivity - a rare achievement. Overseas development is now commonplace in the sector as is a broadening of vertical sector coverage and some diversification into emerging candidate markets. Despite this, most companies remain highly focused upon their core offering. The real winners are those with a niche bent.

Most of the 21 IT specialists in the Hot 100 are recurrent names, suggesting a stable picture within the sector. Only four of last year’s constituents remain in the Hot 10 of IT recruiters though.

Gross margin remains low, dependent upon permanent mix, but typically with contractor margins averaging less than 10% on volume contract business. Procurement arrived early into UK IT recruitment and has left an indelible mark. In the UK highly efficient, lean processes have helped mitigate low pricing throwing up some low margin but highly profitable per head operations. To this end many IT recruitment firms just operate single offices.

Larger companies have been withdrawing from loss-making contracts. The whole sector has been helped by the lack of large-scale numbers of candidates flooding the market in the way it saw in the early part of the decade

Conversely, substantial off-contract business remains, as illustrated by SThree, where branch networks encourage local loyalty. Delivery models do vary enormously with fixed-price project resourcing now an increasing trend. The current bid offer for MPS by Adecco throws open the real possibility of Computer People, Spring/Glotel and Modis all under the same parent group - a very varied range of business models indeed with considerably different track records.

Hot 10 IT in summary…

• Out of the 10 companies featured, five increased both their employee numbers and profit per head.
• Only four remain from last year: Networkers/MSB, Aston Carter, Harvey Nash and SThree. Those with financial sector exposure have experienced setbacks.
• From the six outgoing firms, Abraxas has seen a sharp reduction in sales as it sheds low-priced contracts but margin improved and stabilised last year.
• Newcomers include Parity’s recruitment business, Resource Solutions Group, Red Commerce, G2, SEC and LA International an intriguingly diverse group offering different delivery methods and substantial niche positions. SEC, for example, very specifically offers IT, biometric and clinical candidates into very specific verticals. LA International has a strong presence in high security cleared personnel.
• Major IT players Spring, Elan and Ajilon/Computer People still do not make the Hot 10 and nor does MPS’s Modis. With the exception of Harvey Nash and SThree, in rugby speak, the smaller companies have achieved a ‘turnover’ and now take most slots in the Hot 10. In the true spirit of technology, the sector is re-inventing itself with new specialisations and this provides opportunity to newly emerging niche players.
• The Hot 10 represents almost £1.6bn in turnover generating almost £375m in net fees. Hot 10 leader, Parity Resources, places primarily contractors from three offices in the UK. Its operations are based upon a highly efficient delivery model ensuring strong conversion to profit from the typically low-margin preferred supplier list (PSL) business seen in the sector. In 2008 Parity earned £10.7m gross profit on sales of £110.5m, extracting exceptionally high productivity from its 60 employees.
  
  Turning to gross margin trends, which are dependent not only on temporary pricing but on the business mix between spot, volume contract and permanent:
• Weighted average gross margin of this Hot 10 fell just 30 basis points to 24% versus 25.3% on a like-for-like basis.
• SThree over-dominates the data, with 58% of the Hot 10 gross profit. Nevertheless in 2008 it reported a slight erosion of group margin.
• In total, five from nine known Hot 10 companies increased margin, with four recording a fall.

Niche players in particular have made good improvements in the past year. Larger companies have been withdrawing from loss-making contracts, and the whole sector has been helped by the lack of large-scale numbers of candidates flooding the market in the way it saw in the early part of the decade.

The Hot 10 generalists
- mainly commercial, industrial and other non-professional candidate sectors

• Just 14 general recruiters, in the broadest sense, appear in the whole of the 2009 Hot 100. This compares with 18 last year and illustrates the challenges of the more general recruiters versus the increasing profitability of the specialist sector companies. Nevertheless:
• Hot 10 generalists represents £713m sales turnover and around £172m in gross profit.
• Six out of nine known companies increased their gross profit/employee.
• Although Now Recruitment would be positioned in the Hot 10, their latest available accounts relate to 2007, placing them out of contention.
• Five out of 10 companies remain from last year, with Heads Recruitment still very much the number one, along with Morgan Hunt (more mixed staffing), Right4Staff, Champion and Extrastaff all well placed.
• The newcomer is Portfolio Payroll, with Angela Mortimer, Pertemps, Office Angels and Jark all returning.
• Relegated from the Hot 10 are PMP, Quest, Kinetic (disposal), First Call and Teleresources. Some may be due to lack of any update on accounts but Kinetic disposed of a high-earning subsidiary, while Teleresources was acquired within the Randstad Group.
• Again, there is some shift down the table from the generalists, with several large recruiters not featuring.
• Ranked by turnover, in the Hot 10, Pertemps, Office Angels, Right4Staff and pre-dominantly public sector provider, Morgan Hunt, are the largest ‘generalists’.
• Five of the 10 expanded their workforce - Jark was noticeably expansionary and also converted it into growth in gross profit/head. The others drove their profitability per head by a combination of improved efficiency and reduced workforce (especially Angela Mortimer and Office Angels in response to falling permanent market).

The office specialists had a difficult 2008 with a weakening permanent market and cutbacks in temporary needs as clients responded to the financial crisis and forthcoming recession.

Pertemps remains the only true UK industry ‘major’, while other companies such as Adecco, Blue Arrow, Brook Street and Kelly Services feature outside the Hot 100, in the £50,000 to £65,000 gross profit per head range.

Following 2008 consolidations at Impellam/Carlisle and Vedior/Randstad, the major change in general recruitment is the exit of Kelly Services from most of its branches, several of which were closed. It sold a substantial part of its network to Interaction which is now building on a sizeable physical presence. Branch cutbacks accelerated towards the year end and during the first half of 2009, with most large networks closing or consolidating existing branches and increasing their candidate-type coverage from single locations.

This year, industrial and office high performers are rather evently split - a reflection of the late but sudden downturn in industrial during the second half of 2008, giving office a relative boost. Given the direction of manufacturing, retail and distribution industries throughout most of 2009, it would be surprising if industrial recruiters regained their predominance in the next Hot 100. But perhaps they can look ahead a year or two when exporters begin to benefit from the global recovery.

Turning to gross margin trends:

• Average weighted gross margin for this Hot 10 fell by 90 basis points to 24.1%. This is in line with the overall trend seen in the Hot 100 - with any temporary pricing weakness dwarfed by the pull-back in permanent placements.
• Lower permanent sales among general recruiters place them at a relative advantage compensating for their generally poorer margin profitability.
• Only three Hot 10 companies reported an increase in gross margin with one of these heavily biased towards public sector.
• The drop in margin was more pronounced at Portfolio Payroll and Office Angels, driven by lower permanent proportion.
• While pricing may be always more difficult in the general rather than specialist recruitment environment, lower permanents and usually quicker time-to-fill are proving a very useful hedge in the present climate.

Looking ahead

This Hot 100 is not immune to financial difficulty but companies more attuned to sustainable profitability generally take the better strategic decisions to outperform the wider industry.

The stage is set for an interesting year in recruitment with more mergers and acquisitions (M&A) activity underway — yet the real story lies in how the industry has fared, and is still faring, in the face of economic recession, rising unemployment and a tight funding climate.
If the past year has required strong defensive qualities interspersed with some ‘flair’ players, the next 12 to 24 months will see persistence, patience and the odd star performance winning through. However, a touch of the ruthless may also be needed as the deteriorating labour market continues to place pressure on recruitment companies’ volumes and margin while the continuing weakness of the banking sector places credit-needy companies at risk.

It is more important now than ever that recruitment companies ensure their strategy and focus is both flexible and exactly suited to the uncertain climate

Considerable change in the UK recruitment industry is the likely outcome of the current downturn. Major consolidations continue, driven mainly but not exclusively, by global groups. As public sector funding pressures increase there is a real risk that the private sectory recovery will still be too weak to take up the slack, pushing the economy into a second dip - whether just a slowdown or back into recession.

For the present, the economy has certainly bottomed out, but a return to strong growth cannot be foreseen. It is more important now than ever that recruitment companies ensure their strategy and focus is both flexible and exactly suited to the uncertain climate.

With competitor groups likely to change, further consolidation of the industry will occur and the delivery network will not be immune.
Meanwhile, the buying methods of public sector organisations will be pressured, which could also force recruiters into further alliances and partnerships. Opportunities will present themselves even in this still challenging environment. But recruitment companies themselves will need to be well positioned to take any advantage.

outlook & conclusion

This report illustrates immense stability in an industry often described as immature. Confidence and optimism are not easily shaken, and the
growth from some companies in the face of weakening conditions is commendable. The specialist bias has migrated upwards towards the top end of the rankings, but there do remain five generalists in the top 50.

Overall the multi-nationals do not feature highly, with the exception of Randstad and MPS, each with multiple entries, some high on the list.
SThree, Michael Page and Robert Walters all stand well within or close to the top half of the list but primarily it is the smaller, highly focused
firms that achieve the highest productivity. Hays, the largest UK recruitment company, falls to 76th from 51st last year.

Several finance-related companies understandably lost ground as theirmarkets declined ahead of the pack. 2009 should see a more equablemarket with most sectors now affected by recession but the finance related sector possibly showing some uplift from its deep trough.

Perhaps the main concern for some companies will be the financing of any recovery if credit availability does not significantly improve. The need to ensure that the best is achieved from your own people, that this key resource is fully utilised to the benefit of all stakeholders, is paramount to success in a slimmed-down, post-recession business environment.

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