Investing.com — Hays (LON:HAYS) on Wednesday in a stock exchange filing cautioned that its pre-exceptional operating profit for the first half of its financial year is likely to come in at the lower end of market expectations.
The UK-based recruitment group indicated it expects a profit of around £25 million for the six months ending December 2024, placing it at the lower end of analysts’ consensus range of £24 million to £33.2 million.
The warning comes amid challenging economic conditions and slowing recruitment activity, particularly in permanent roles across key markets.
Group net fees for the second quarter fell 12% year-on-year on a like-for-like basis, with permanent hiring fees declining 19% as employers delayed hiring decisions.
Temporary and contracting recruitment proved somewhat more resilient, with fees down 7% and activity levels stable during the period.
Hays reported that weaker performance in the UK & Ireland, Germany, and the broader EMEA region weighed heavily on results.
In the UK and Ireland, net fees fell 14%, driven by an 11% drop in temporary hiring and a steeper 19% decline in permanent recruitment.
The private sector, which accounts for the bulk of Hays’ UK business, saw a 10% decrease in activity, while the public sector contracted more sharply, down 21%.
Germany, one of the company’s key markets, recorded a 13% drop in net fees. Temporary and contracting activity fell by 10%, reflecting reduced demand in the automotive sector and a 5% drop in average hours worked.
Permanent recruitment in Germany was particularly weak, with net fees down 27% as client decision-making slowed.
“Operational recovery keeps getting pushed out as candidate and client confidence remains febrile, but we continue to think that the underperformance of the sector will resolve itself sooner rather than later,” said analysts at RBC Capital Markets in a note.
The EMEA region, excluding Germany, also faced significant challenges. France, Hays’ largest market in this region, reported a 21% decline in fees, driven by a slowdown in permanent hiring during the quarter.
However, some markets, such as Spain and the Netherlands, managed to buck the trend, with modest growth in net fees of 1% and 5%, respectively.
Elsewhere, Australia and New Zealand saw net fees fall 14%, with permanent hiring plunging 23% and temporary recruitment declining 9%.
The Americas offered some relief, with net fees rising 2%, supported by strong performances in Canada and the US.
Asia’s performance was mixed, with net fees down 6%. Mainland China and Singapore saw growth, but Hong Kong and Japan struggled.
Consultant headcount was reduced by 2% during the quarter and by 15% year-on-year, reflecting the group’s focus on managing resources in line with market conditions.
The company also noted progress in delivering structural cost savings of £30 million annually by FY27, which contributed to a £3 million reduction in its quarterly cost base to £77 million.
Going forward, Hays said it is closely monitoring early-year trends in temporary recruitment, traditionally a critical period for this segment.
According to the company, the slowdown in permanent hiring may be owing to broader market weakness or to short-term delays in clients’ and candidates’ decision-making.
The group remains focused on its longer-term strategy of shifting its business mix toward higher-growth sectors and large enterprise clients, which it believes will enhance profitability and resilience.
However, for now, subdued market conditions and economic uncertainty are likely to weigh on its near-term performance.
Hays ended the quarter with net cash of approximately £25 million, after outflows related to dividends, pension commitments, and exceptional costs.
The company said that a recently completed pension buy-in would reduce balance sheet volatility and improve free cash flow from FY26 onwards.
“We see material longer-term upside potential for Hays, despite the current slowdown in activity. On a through-cycle basis, we expect meaningful shareholder returns via special dividends, albeit on our current estimates we assume no specials will be proposed for FY25 or FY26,” RBC added.
