Hays weighed down by staff costs

Hays’ (HAYS) full-year results make for familiar reading. Fee growth at the recruitment agency “slowed sharply” through the period, with growth reversing in the final quarter as jobs dried up and hiring processes stretched out.

Permanent roles – which account for 43 per cent of the business – were under particular pressure, down by 6 per cent in the second half. Temporary positions did a lot to offset this, however, and in total net fees increased by 9 per cent year on year to a “record” £1.3bn. 

This wasn’t enough to prevent the group’s operating profit from sliding by 6 per cent to £197mn, though. The decline was largely due to headcount, with more staff needing to be paid and base salaries on the rise. (The company entered the year with consultant headcount up 26 per cent, after going on a hiring spree of its own.) As these pressures ratcheted up, average placement volumes per consultant fell. 

Hays acted fast to tackle the problem, cutting 447 staff in several markets, “primarily through natural attrition”. It also increased fee margins in skill-short markets and focused on higher-value roles. As such, its operating profit and its conversion rate increased in the second half of the year versus the first half. 

Cash generation also remained strong, and Hays increased its core dividend by 5 per cent to 3p per share and announced a special dividend of 2.24p per share. Meanwhile, the group announced the appointment of Hays veteran Dirk Hahn as new chief executive, which should reassure jittery shareholders. 

Nevertheless, the economic backdrop means the next few months are likely to be tough for Hays and a forward price/earnings ratio of 13 isn’t enough to tempt us. Hold.

Last IC View: Hold, 122p, 23 Feb 2023