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PageGroup shares drop as tough market conditions lead to profit warning

Chief financial officer Kelvin Stagg said it is “clear that macro-economic conditions in a number of our regions are becoming more challenging”

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UK employers are more cautious about hiring amid Brexit uncertainty

PageGroup PLC (LON:PAGE) expects operating profit for the year to be at the lower end of market forecasts due to challenging market conditions.

The recruitment firm reported a 7.9% year-on-year increase in gross profit to £224.6mln for the second quarter, marking a slowdown on the 11.2% rise delivered in the first three months of the 2019 financial year.

The company achieved growth across all its divisions, apart from the UK where employers are more cautious about hiring given the uncertainty over Brexit.

READ: PageGroup expects to meet 2019 estimates despite Brexit uncertainty and US-China trade dispute

UK gross profit dropped 2.4% to £35mln in the period, compared to a 1.7% gain in the first quarter. The UK represents 16% of total gross profit.

The European, Middle East and Africa (EMEA) region is the group’s biggest market, accounting for 48% of total gross profit. In the second quarter, EMEA gross profit edged up 8.7% to £108.9mln, led by record results in France and Germany, following a 9.9% rise in previous quarter.

PageGroup said growth in Italy and Spain eased due to weaker economies.

The Asia Pacific, which makes up 20% of the total, grew gross profit by 6.4% to £43.8mln as growth in India, South East Asia and Australia offset a decline in Greater China where a trade dispute with the US and social unrest in Hong Kong has hurt business sentiment. That compares to a 16.0% advance in first quarter.

The Americas saw gross profit jump 19.2% to £36.9mln, driven by a strong performance in the US and Mexico, after a 21.9% rise in the first quarter.

Challenging job markets 

The total fee headcount reduced by 122 in the quarter due to declines in markets where the company saw more difficult trading including France, Greater China and the UK.

Permanent job hires rose 5.8% to £171.5mln in the quarter while temporary positions jumped 15.1% to £53.1mln, signalling more caution among employers.

“We continued to invest in markets where we saw the greatest growth, such as the US and India, but we are mindful of the weaker macro-economic conditions seen in much of Continental Europe,” said chief financial officer Kelvin Stagg.

“Our flexible business model enables us to react quickly to changes in market conditions by adjusting our headcount to focus on productivity and conversion.”

Stagg said it is “clear that macro-economic conditions in a number of our regions are becoming more challenging” and as a result the company expects operating profit to be at the lower end of analysts’ estimates of £156.5mln to £168.0mln, compared to £142.5mln in 2018.

Shares dropped 12.7% to 440.8p in morning trading.

Quick facts: PageGroup

Price: 399 GBX

LSE:PAGE
Market: LSE
Market Cap: £1.31 billion
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