ii view: Hays flags a cruel summer

This recruiter’s strongest ever balance sheet will have to see it through some tough times. 

Fourth-quarter update to 30 June

• Total fees down 34%
• Net cash of £365 million

Guidance:

• Full-year operating profit before exceptional items expected to be between £130-135 million

Chief executive Alistair Cox said:

"The pandemic has severely impacted all our markets globally. Overall, we have both protected our business, while taking actions to appropriately reduce costs.

"Conditions in all regions were extremely tough, although ANZ, the USA and Asia performed better than the Group average, as did IT, our largest global specialism. Overall, Temp outperformed Perm, illustrating the relative resilience of the business we have purposely built. 

"Looking ahead, although the outlook remains highly uncertain there are tentative signs of stability. With our strongest ever balance sheet and market leading positions in key businesses, we are confident we can take further market share and will invest in organic opportunities to accelerate our return to growth.”

ii round-up:

UK and overseas job agency Hays (LSE:HAS) today reported a one-third drop in fee income and an expected move into losses over the summer months, as the Covid-19 pandemic triggers a hiring freeze. 

Profit for the year to the end of June is forecast to come in at £130-135 million, down from last year’s £249 million, while planned investments following a strategic business review will likely crimp profits for next year. 

Hays shares fell by more than 4% in early UK trading. The FTSE 250 constituent, which normally fills around 1,300 jobs every working day, has seen its shares retreat by more than 30% year-to-date.

The update came on a day when a survey by the British Chambers of Commerce (BCC) revealed that 29% of businesses expected to cut the size of their workforce in the next three months.

Having traded at broadly break-even through the fourth quarter to the end of June, costs at Hays are expected to rise over the summer months as it returns to normal working practices, reverses staff pay reductions and sees job support arrangements end.

Employing over 10,000 people in 266 offices and across 33 countries, Hays cut its own staff numbers by 9% in the fourth quarter. 

In early April it raised nearly £200 million via an institutional share sale to both strengthen the balance sheet and potentially invest in opportunities to seize market share from rivals. 

Technology staff currently provide its biggest recruitment specialism, generating around a quarter of annual fees, with the area now being targeted for future investment.

Under measures to conserve costs, it previously cancelled its half year 1.11p per share dividend payment, saving £16.3 million.

Full-year results to the 30 June are expected on 27 August 2020. 

ii view:

Of its 10,000-plus staff, Hays employs around 7,000 consultants. Their expertise stretches across 20 professional and skilled recruitment specialisms. The three largest sectors are Information Technology, generating a quarter of group fees, Accountancy & Finance at 15% of fees and Construction & Property at 12%.

Temporary and permanent fees are split in a rough 60% to 40% divide, with private and public sector fees divided roughly 80% to 20%. Its overseas business now accounts for more than three-quarters of income, up from around a quarter in 2005. The recruitment industry is geared to economic cycles and as such is highly cyclical in nature.  

For investors, swift action to bolster the group’s finances, in what will clearly be a tough period of virus impacted trading, is favourable. Navigation of the 2008 financial crisis has left the board highly experienced in dealing with economic downturns. 

But a record of six consecutive years of dividend growth is over, while the timing of any economic rebound from Covid-19 is highly uncertain. In all, and with institutional appetite for the shares potentially filled by the April fundraising, current investors are likely to require a long-term view. 

Positives: 

• Business sector and geographical diversity
• Strengthened finances

Negatives:

• Forecasting a loss over the summer months
• Interim dividend payment cancelled

The average rating of stock market analysts:

Strong hold