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Recruitment market past the worst

We were delighted to have David Phillips, Head of Investor Relations at Hays, provide an introduction to the company and update on current trading at a Yellowstone Advisory webinar last week. A recording of the webinar is available here on the Yellowstone Advisory YouTube channel.

The company has gone through a substantial internationalisation since the GFC and is now a market leading, diversified recruitment company. The focus is on white collar job opportunities in IT (25%), Accounting and Finance (15%). Construction and Property (12%) and Engineering (9%). Approximately 40% of vacancies are for permanent positions with 60% in the temporary category. These are relatively well paid jobs with a salary range of £35k-£150k.

Germany, Australia and the UK account for c65% of the business and performance in these regions are key for overall group performance. The US and China are currently small but these two markets have the potential to contribute meaningfully to profitability in good time. Pre Covid, Hays was profitable in every market they competed in. In total Hays operates in 33 countries and has 20 specialisms in total. Most specialisms are represented in the UK&I and ANZ divisions, however Germany and Rest of the World has 8-9 industry specialisms, providing lots of opportunities for organic growth into new specialisms.

The company was performing solidly at the start of FY20 but was hit very harshly by the lockdown restrictions and the slowdown of the economy with March and April being particularly weak. Since May though, there has been sequential growth in Net Fee Income and numbers have stabilised sooner than expected. The exit rate in September was -26% compared to -38% in April. Compared to the GFC this shock happened in 4 weeks compared to 10 months back in 2008/9. Australia was least effected and the UK as the most effected although construction has bounced back strongly in recent weeks. The indicators point to continued recovery in trading although visibility is only a few weeks.

This is a very operationally geared business with drop through rates of 65/70% so when net fee income does start to grow again it will quickly flow through to improved profitability. The company undertook a £200m equity raise earlier in the year to bolster the balance sheet for tough times ahead and suspended the dividend. As conditions improve and profitability can be more clearly seen the dividend will be reviewed again with cover likely to be in the 2-3x range.

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