Before putting pen to paper this morning I glanced over last month’s column and was struck by how similar events have been over the past few weeks. In February, I noted that despite almost consistently negative news flow, staffing agency share prices had performed well. Although share prices have fallen over the past two weeks (with Michael Page, Harvey Nash, SThree, OPD and Hays all off between 5% and 10%), this needs to be put in context against broader declines in the London Stock Exchange (the FTSE All Share index declined by 5%). Investors have had many months to anticipate a weak labour market and consequently are not reacting as aggressively to the latest statistics.

Within the sector, there has been a deluge of company updates in recent weeks with all the major global players reporting preliminary results, interim results or Q1 updates. Unsurprisingly, the overwhelming message was one of a further deterioration in trading momentum during January/February. Unfortunately, given that the UK labour market only really started to weaken from last May, comparatives will be particularly difficult until we move into the spring/summer.

Hays’ interim results were 5% ahead of consensus expectations but net fee growth in January/February slumped to -24% (versus -10% in
October-December). A similar picture was painted by Adecco (January net fees -25%), USG People (January -20%) and, due to its more
substantial perm exposure, Michael Page (January/ February -38%). SThree reported the most notable decline in perm placements with UK volumes down 47.5% in Q1.

Bad debts have yet to emerge as a problem for the industry but this will surely become a greater issue in 2009 as the debtor ageing profile deteriorates. One finance director mentioned to me last week that this was the worst environment his credit department had seen in 30 years and they were closely monitoring 15% of their client base.

Within the persistent gloom there are a few small chinks of light for recruitment consultants. Headcount reductions have been put on hold at Hays and Manpower for the next few months as costs have reached a level consistent with current activity levels. Indeed, Manpower flagged that additional cost cutting would require a dismantling of part of their network and the company would rather suffer a short-term hit to margins than erode their capacity to benefit from an economic recovery.


Kean Marden, support services equity analyst, head of research, Singer Capital Markets