Michael Page shares dive on profits warning

Michael Page International, the recruitment firm that struggled to float three months ago, yesterday warned profits would fall short of expectations after customers cancelled or delayed contracts to take on new staff.

Shares in Michael Page slumped 20 per cent to 151.5p, leaving them well below the listing price of 175p per share.

Terry Benson, the chief executive, said operating profits in the six months to June would be similar to the £42.5m achieved in the first half of last year, as revenue growth has contracted sharply.

Demand for new recruits in the financial services, information technology and telecoms sectors has fallen, while general weakness in the US and Australian economies has spread across most business sectors in recent weeks, the company said. All the main geographic areas Michael Page operates in are also being squeezed, with the UK and the rest of Europe now showing signs of economic difficulty.

Mr Benson said profits have been further depressed by an increase in costs. Michael Page invested in new offices and hired extra consultants in the second half of 2000, when the economic outlook appeared rosy.

Sales growth has slowed from 27.3 per cent in the first quarter to 11 per cent in the three months to June. The rate of increase in gross profit has contracted from 28.1 per cent in the first quarter to 8 per cent in the second. Mr Benson said over the first half as a whole, gross profits were expected to be up 17 per cent year on year, with revenues running 19 per cent ahead.

Analysts said the company's full-year profits could be little changed from the £82.5m Michael Page made last year but could also fall as low as £78m. They said recruitment companies were particularly susceptible to economic downturns, as companies cut back on hiring new staff. Profits of £95m had been forecast for the year.

Shares in Michael Page, which specialises in recruiting middle managers on salaries of £25,000 to £100,000, hit a high of 233.5p last month after the company reported strong first- quarter growth. Its demerger from its US parent, Spherion, in March only went ahead after bankers slashed the price of Michael Page shares when investors turned cautious because of volatile markets.

Investors had initially hoped to get 190p to 250p a share, valuing the company at £712.5m to £937.5m. Michael Page eventually came to market capitalised at £656.25m.