Hays' profits slide as fees plummet

Hays (HAS) slashed its operating profit guidance and pointed to "increased uncertainties and reduced client and candidate confidence" in a trading update last month, so it was no surprise that the recruitment agency confirmed it would plough ahead with further job cuts after its interim pre-tax profits plunged by over 70 per cent. 

Net fees fell 11 per cent to £583mn as the company's markets weakened over the first half, with permanent and temporary role fees down by 17 per cent and 5 per cent respectively. Germany was the only locale to enjoy fee growth in the period, as painful double-digit declines were posted in the UK and Ireland, Australia and New Zealand, and the Rest of World divisions.  

Operating profit before exceptional charges came in as guided in January, down 38 per cent to £60.1mn.  

The £27.9mn-worth of exceptional items which, alongside lower revenue, dragged down statutory earnings was mostly composed of a £15.3mn impairment charge relating to the 2014 acquisition of US IT recruiter Veredus. The rest of the balance came from restructuring and redundancy costs. 

On the topic of redundancies, management plans to reduce headcount by 3-4 per cent in the third quarter as it tries to cut costs. This comes after headcount was slashed by 9 per cent in 2023. 

The shares are valued at 15 times forward earnings, a discount to the 5-year average of 19 times. While RBC Capital Markets analysts "see significant upside to our mid-cycle-derived price target of 155p", we are more circumspect in what remains a tough trading environment. Hold. 

Last IC view: Hold, 103p, 24 Aug 2023