ii view: Hays’ profits fall, but a special dividend is declared

Full-year results to 30 June

• Like-for-like net fees up 6% to £1.29 billion
• Operating profit down 9% to £197 million
• Dividend up 5% to 3p per share
• Special dividend of 2.24p per share
• Net cash of £136 million, down from £296 million a year ago

Chief executive Alistair Cox said: “While we cannot control the macroeconomic environment, we do control our reaction to it. We acted swiftly to manage our capacity and costs in the face of toughening markets, delivering increased profits in our second half. 

“At the same time, we protected the investments which are successfully positioning Hays as a leader in attractive long-term growth markets. We also remain highly cash generative, and as a sign of confidence in our strategy and our strong financial position, the board proposes an increased core dividend and announces a further £35.6 million cash return to shareholders.”

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ii round-up:

Recruiter Hays (LSE:HAS) today detailed both record annual fees and a special dividend, but warned of a decline in fees for the first-half of the financial year ahead. 

Total annual net fees to the end of June rose 6% to £1.29 billion, helped along by a 9% improvement in temporary hires and a near one-fifth improvement in demand for its biggest market Germany, thanks to large engineering and automotive clients. Operating profit matched management’s prior forecasts, falling 9% to £197 million. A special dividend of 2.24p per share added to its 5% increase in the ordinary dividend to 3p per share. 

Shares for the FTSE 250 company fell by 2% in early UK trading having come into this latest news down around a 10th year-to-date. Shares for fellow FTSE 250 company PageGroup (LSE:PAGE) have fallen by around 7% over that time, while the 250 index itself is down by almost 3%. 

Hays recruits across 21 industries with information technology its biggest at around a quarter of total fees, followed by accountancy and finance at 15%, and both engineering and construction, and property each at 10%.

Against the uncertain economic backdrop, activity for its permanent hires business slowed sharply over the year, falling by 6% in the second half.

The biggest recruiter by UK stock market value also announced the appointment of Dirk Hahn as chief executive. Mr Hahn, who currently heads its German business, will take over from Alistair Cox in September.

Broker UBS reiterated its ‘buy’ rating on the shares following the results, highlighting what it sees as an attractive risk/reward balance given the current valuation.  

Hays is scheduled to detail its first-quarter trading update on 12 October. 

ii view:

Hays is a UK and overseas recruitment company. It employs around 13,000 staff in around 250 offices across 33 countries. With more than five decades of experience, Hays today generates its biggest slug of profit in Germany at around half, followed by Australia and New Zealand at 16%, the UK and Ireland at 15%, and the rest of the world the balance at 18%. Its split between temporary and permanent fees came out at 57% to 43% over this latest year. 

For investors, the uncertain economic backdrop will be doing little for its customers’ confidence in making permanent hires. Administrative costs are up by almost a 10th compared to last year, currency movements can impact, while the chief executive for the past 16 years is now departing. 

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On the upside, diversity in both customer industry sector and geographical region are present. Consultant numbers and related costs continue to be managed closely, skill shortages in some of its industrial sectors persist, while a lack of company outsourcing of recruitment persists in many international markets, offering room for longer-term growth. 

For now, and while some caution remains sensible, a consensus analyst estimate of fair value sat at over 140p per share and an estimated future dividend yield of around 5% look to give grounds for continued investor interest. 

Positives: 

• Business sector and geographical diversity
• Adjustable cost base

Negatives:

• Economic outlook uncertainty
• Currency movements can hinder

The average rating of stock market analysts:

Buy