Hays tripped up by own hiring spree

Recruitment companies were riding high in the aftermath of the pandemic, fuelled by labour shortages, wage inflation and the ‘Big Quit’. To make the most of booming demand, all the big listed players took on more consultants, confidently declaring that it was “just the beginning of the great reshuffle”. 

A few months down the line, however, and the situation has changed. In its half-year results, Hays (HAS) reported an 8 per cent fall in operating profit to £97mn, in spite of record fees. This was primarily due to high staff costs: the group entered the financial year with headcount up 26 per cent, and like-for-like costs rose by 16 per cent in the period, driven by wages – which had been increased – and consultant commission.

Management said it “actively managed” the situation and reduced headcount in the second quarter in several markets, including in the UK, China and the US. This was achieved through attrition as opposed to redundancies, according to the group.

The next six months should be easier, therefore, and second-half profits are expected to be higher.  However, the economic backdrop is still gloomy and the group noted a decline in volume of work. So far, this has been more than offset by wage inflation, as Hays tends to charge a percentage fee per placement, based on employee salary. How long wage inflation will persist remains to be seen, however.

Hays has also announced that chief executive Alistair Cox will be stepping down after 15 years at the helm, which could add to the short-term turbulence. Hold. 

Last IC View: Hold, 117p, 25 Aug 2022