Empresaria warns on profits after German ruling

Recruitment firm Empresaria has swung into the red and issued a profit warning after experiencing a tougher environment in Germany, its biggest market.Reported loss before tax was £1.9m in the first half of 2011, versus a profit of £2.3m the year before. Adjusted profit before tax, which excludes amortisation of intangible assets, exceptional items and movements in the fair values of put and call options, more than halved to £1.2m from £2.6m the year before. Revenue was slightly up from £104.4m to £105.2m, but this was offset by rising sales and administrative costs. Revenue from permanent placements increased by 26% from the year before but temporary staffing revenues decreased by 1% year-on-year.Net debt at the end of June stood at £8.5m, up from £7.6m a year earlier. Chief Executive Miles Hunt said: "Overall, group performance in the period did not meet our expectations. The group faced unexpected challenges in the period, particularly the impact of the earthquake and tsunami in Japan and, of greater short term financial consequence, the adoption of new collective labour agreements in Germany following court rulings which required us to increase pay rates to temporary workers as well as incur substantial one-off legal costs."The gross margin reduction experienced in Germany is being partially reversed through price increases and further compensated for by cost reductions, although it is taking longer to fix than initially anticipated, Hunt admitted. Empresaria is expecting a stronger trading performance from its German operations in the second half, but the group's full year profits before exceptional provision are expected to be lower than current market forecasts. As per usual, the company is not recommending payment of an interim dividend.