Recruitment giant Reed has survived the recruitment downturn with its profit margins relatively intact, but has warned that the staffing market continues to be unpredictable.

Pre-tax profits for the year ending 28 December 2001 dropped to £14.2m from £15.4m the previous year, with turnover increasing from £315.6m to £373.6m.

The results indicated that strong performances from its insurance and accountancy divisions compensated for weaker sales from Reed’s IT division, which was hit by the economic slowdown.

CEO James Reed admitted that sales had suffered because of the downturn in the last quarter of 2001 – but the company’s performance had improved since then.

He said: ‘The second half of 2001 presented a significant challenge and, as predicted at the half-year results, we saw our growth slow markedly as a consequence of much more difficult trading conditions.

‘Encouragingly, the first quarter of this year has seen an improvement on the fourth quarter of 2001, which may lend some credence to the argument that the low point in the economic cycle has passed.

‘However our like for like turnover for the first quarter of 2002 is down 10% on the same period last year, which makes the board cautious about the outlook for the remainder of the year,’ he added.

Litigation against the business publishing company and owner of recruitment website Totaljobs, Reed Elsevier, for trademark infringement has so far cost the recruitment company £2m.

The company is still waiting for the outcome of a High Court judgement, which could recover some of the costs.

Reed's jobsite, Reed.co.uk, has performed very well, with the number of visits totalling eight million in the first months of 2002, compared with total visits of four million over the whole of 2001.

Reed’s involvement with government projects continued to expand, with its division Reed in Partnership winning nine new government contracts.

Shares in the company, which had recently performed well on the stock market, slipped 6.5p to 156.5p after the announcement.