Recruiter Hays reports 37% collapse in net fees income

Employment agency's 'dreadful summer' prompts job losses and office closures

Hays has become the second major UK recruitment agency in a week to axe staff and post a slump in fees, as the industry braces itself for the further pain of a "dreadful" summer.

Just days after Michael Page painted a bleak picture of the job market, Hays revealed that net fees had fallen 37 per cent between April and June.

Paul Jones, analyst at Panmure Gordon, said: "It feels like it could get worse before conditions level out, never mind improve." He added: "It will be a dreadful summer. People are just trying to survive, not move. Also companies out there face enormous challenges, which normally means firing, not hiring."

Alistair Cox, Hays' chief executive, said earlier this year that it was the "toughest job market" he had ever seen. Presenting the results yesterday, he added that it had been "another tough quarter with continued reduction in demand across all the 28 countries in which we operate".

The fall in revenues prompted the company to axe 26 per cent of its workforce during the financial year, which ended on 30 June. It also closed 15 offices in the last quarter alone.

Mr Jones said: "Short-term visibility remains poor, especially as recruiters now have to second-guess employees who could pull out at any moment."

Michael Page posted a 45 per cent fall in net fees during its second quarter on Monday and revealed that it had slashed 1,800 jobs, "in response to market conditions, retaining our more experienced and stronger people".

Hector Forsythe, analyst at Oriel Securities, said the job cuts were not an indication of problems: "Even in good times recruitment firms have a high level of churn. It is crucial that they hold on to the older, more experienced workers, which they have done so far."

Steve Ingham, Michael Page chief executive, warned of "a challenging third quarter as we enter into the seasonally quieter summer period both in continental Europe, which was later in the downturn, and in the UK".

It is often seen as a late cycle sector as it tracks unemployment to some extent, which itself lags a downturn. The signs aren't good for the industry as earlier this year the British Chambers of Commerce predicted that unemployment would surpass three million by 2010, levels not seen for two decades.

Mr Jones of Panmure said: "First new vacancies dried up, then people stopped specific projects like IT needing temporary workers, now the smaller companies are getting aggressive on the rates they're charging." The recruiters are predicting a 10 per cent drop in the rates from peak levels. Headhunters make their money from commissions on placing staff, generally equating to between 15 and 20 per cent of the salary, but those commissions are under threat from smaller players in a hugely fragmented market. Hays estimated that there were more than 10,000 recruitment companies registered in the UK, but despite the impending fee battle, the larger companies are expected to come out stronger as companies become more risk averse in the downturn. Analysts expect many niche players to be shaken out of the market.

Further bad news for recruiters comes as experts have linked a growth in headhunters' business with a rise in GDP of about 1.5 per cent. The Government believes GDP will hit those levels in two years, but most independent forecasters believe it will be longer.