Investing.com — Hays ( LON: ) warned in a stock filing on Wednesday that its operating profit before exceptions for the first half of the financial year is likely to fall short of market expectations.
The UK-based recruitment group indicated it expected a profit of around £25m for the six months to December 2024, which put it at the lower end of an analyst consensus of £24m to £33.2m.
The warning comes amid challenging economic conditions and a slowdown in hiring activity, particularly in permanent positions in key markets.
Group net compensation for the second quarter fell 12% year-on-year on a like-for-like basis, with permanent compensation falling 19% as employers delayed hiring decisions.
Temporary and contract employment proved somewhat more resilient, with compensation down 7% and activity levels stable over the period.
Hayes reported that weaker results in the UK and Ireland, Germany and the wider EMEA region weighed heavily on the results.
In the UK and Ireland, net compensation fell by 14%, driven by an 11% drop in temporary employment and a sharper 19% drop in permanent employment.
The private sector, which makes up the bulk of Hays’ UK business, saw activity fall by 10%, while the public sector contracted more sharply, by 21%.
Germany, one of the company’s key markets, saw a 13% drop in net fees. Temporary and contract activity fell 10%, reflecting reduced demand in the automotive sector and a 5% drop in average hours worked.
Permanent hiring in Germany was particularly weak, with net fees falling 27% as client decision-making slowed.
“The operational recovery remains subdued as candidate and client confidence remains feverish, but we continue to think the sector’s failure will be resolved sooner rather than later,” RBC Capital Markets analysts said 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 a 14% drop in net compensation, with permanent employment down 23% and temporary employment down 9%.
The Americas offered some relief, with net fees up 2%, supported by strong results 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.
The number of consultants decreased 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 achieving structural cost savings of £30m a year to FY27, which helped reduce the quarterly cost base by £3m to £77m.
Going forward, Hays said he is closely monitoring early-year trends in temporary hiring, which is traditionally a critical period for this segment.
According to the company, the slowdown in permanent hiring may be due to broader market weakness or short-term delays in client and candidate decision-making.
The group remains focused on its long-term strategy of realigning its business mix towards higher growth sectors and large corporate clients, which it believes will increase 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 £25m, after outflows related to dividends, pension liabilities and exceptional costs.
The company said the recently completed pension buy-in will reduce balance sheet volatility and improve free cash flow from FY26 onwards.
“We see significant long-term growth potential for Hays, despite the current slowdown in activity. Based on the cycle, we expect significant returns to shareholders through special dividends, although our current estimates assume no special offers will be proposed for FY25 or FY26,” RBC added.
