Reed in poor health after profit warning

The recruitment company Reed Health suffered another setback yesterday, issuing a profit warning that wiped 15 per cent off the value of the business.

The company, a recruitment agency for the healthcare industry, said results for the year to 30 June would be "somewhat below" previous expectations.

It blamed increased competition for the alert as well as a fall in demand for temporary staff in the health and social care service after a significant number of permanent appoint-ments in the sector were made.

"Since the start of the public sector's financial year on 1 April, trading in the markets in which Reed Health operates, particularly the social care, physiotherapy and education markets, has become more difficult," Reed Health said.

Shares in the company closed down 15p, or 15 per cent, at 84p. Analysts at its house broker Baird cut their profit forecast for the year to £7.5m from £8.4m.

Analysts at Altium Capital thought increased competition was more to blame for the profit warning than a slump in demand. "We have to say, that this [fall in demand] does not seem to be borne out by figures from the Recruitment and Employment Confederation. Whilst their figures for April did show a decline in the rate of month by month increase for medical temps, this rate did accelerate again in May," they pointed out.

Reed Health said yesterday that it expected the demand for temporary staff to cover holidays would resume, particularly over the busier summer months. And it insisted that its long-term prospects were good. "Despite the difficult trading environment we have experienced during the last couple of months, the board remains optimistic about the company's prospects in the medium and long term," it said.

But the alert comes less than four months after two of its non-executive directors, Alan Dexter and Daphne Statham, quit the business citing a climate of "mistrust".

Their resignations came after the company's major shareholder, the Reed family, used its votes to block the reappointment of both its chief executive and finance director at last autumn's AGM. The move, which stunned the City and investors, in effect, fired chief executive Christa Echtle and finance director Desmond Doyle - its only executive directors.