Worrying signs for the economy as recruitment giant Hays issues profit warning
Recruitment giant Hays has been forced to lower its expectations after a difficult December in a worrying sign of the health of the UK economy.
The recruitment giant is looking for “cost reduction and efficiency programmes” to steer it through a tough macro-economic environment, it told markets this morning.
The listed company’s fees were down 10 per cent overall and 17 per cent in the UK, as a slowdown in the jobs market hit its businesses, with fees falling by 15 per cent.
The slowdown means Hays now expects its first-half profit to by below expectations at around £60m.
Recruiters are often seen as canaries in the coalmine for the state of the wider economy.
Fees linked to temp and contract which, which is almost 60 per cent of overall group fees, was down five per cent, Hays said it “did not see our normal seasonal step-up in worker volumes” during the period.
This comes as many companies have been slashing jobs in a bid to cut costs, as high inflation and interest rates have put pressure on finances.
Hays said in particular its fees for UK and Ireland were down 17 per cent, while other markets including Germany, Australia and the Americas, also saw significant drops.
Consultant headcount also dropped by five per cent in the last quarter and by more than 12 per cent year-on-year.
Hays has also said it will look to make savings of £30m in the first half of the year, with further ‘material savings’ in the second half, as it waits for the economy to bounce back and hiring to rebound.
In the last year, Hays’ share price has been down more than 11 per cent, as the recruitment sector continues to struggle with the jobs market.
This morning’s Hays shares dropped by 19 per cent after the open, before slightly stabilising to 12 per cent down. By 4pm its shares had dropped to around seven per cent down.
Hays warned it would have an “exceptional restructuring charge” in the first half of the year, which could hit them to the tune of £12m.
Looking ahead to 2024, it noted the “increased uncertainties and reduced client and candidate confidence” in the market, but hoped a new ‘return to work’ scheme would bolster its business.
The company said it would be monitoring figures in the coming weeks and months, and that it was “too early to say if December’s weakness reflects a more sustained market slowdown, or shorter-term deferrals.”
Dirk Hahn, the firm’s chief executive bemoaned market conditions which were “increasingly challenging through the quarter, including a clear slowdown in most markets in December.
“As a result, we expect operating profit in our first half to be c.£60 million, despite our ongoing actions to reduce costs.”
“We expect near-term market conditions to remain challenging. Consequently, we accelerated our cost reduction and efficiency programmes, while focusing on increased operational performance and rigour.”
Hays told City PM that across its global business about 450 consultant job were either cut or not filled, with roughly 50 in UK.
It added that there were around 150 non consultant jobs gone over the last quarter across all markets with roughly 10 in UK.
Russ Mould, investment director at AJ Bell said: “Recruitment stocks are often a good harbinger for the wider economy as companies are keen to hire when they’re feeling confident and tend to freeze recruitment when times are more uncertain.
“In this sense a profit warning from Hays has wider significance. The speed of the deterioration in its outlook will be cause for particular concern.
“The company’s problems look particularly acute in the UK – but with fees as a whole down 10% for the quarter and down an alarming 15 per cent for December, this is a global issue too.
“Hays is cutting its own cloth accordingly and as a cyclical business it is used to dealing with fluctuating fortunes.
“The company may have to batten down the hatches for some time, but it will hope a pivot in interest rates and a reduction in inflationary pressures will eventually lead to an improvement in business confidence and help drive a recovery in hiring activity.
“While this is out of the company’s control, levers it can pull include expanding its ‘enterprise client’ business which sees firms outsource their temporary and permanent white-collar recruitment to Hays. This could help increase the predictability of earnings.”