Hays plc (HAS:LSE), the seventh-largest staffing firm in the world, reported net fees, or gross profit, fell by 10% year-over-year, on a like-for-like basis, in its fiscal second quarter ended 31 December 2023.

Group fees were impacted by a more difficult December, where fees fell by 15% (minus 13% Working Days Adjusted (WDA)). As a result of this slowdown at the end of the quarter, Hays also expects H1 pre-exceptional operating profit of circa £60 million, below the current market consensus expectations of circa £73 million.

Net fees for Q2 were down for permanent and temporary staffing, while all regions, except for Germany, reported a downturn for the second quarter.

Dirk Hahn, Chief Executive, said, "Overall market conditions became increasingly challenging through the quarter, including a clear slowdown in most markets in December, notably in our Perm businesses as client and candidate decision-making slowed. Temp volumes remained broadly stable sequentially through the quarter but declined year-on-year as we did not see our normal seasonal step-up in worker volumes. As a result, we expect operating profit in our first half to be circa £60 million, despite our ongoing actions to reduce costs."

Hahn said, "Given increased uncertainties and reduced client and candidate confidence, our New Year' return to work' is particularly important, and we are closely monitoring activity levels. It is too early to say if December's weakness reflects a sustained market slowdown or some placement deferrals, however, 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."

Unless otherwise stated, all growth rates mentioned below are like-for-like, representing year-on-year organic growth of continuing operations at constant currency.

On an actual basis, net fees decreased by 12% in the quarter, with a weakening of the Australian and US dollar versus sterling decreasing group fees.

Temp and Contracting (59% of group fees) declined by 5% (down 4% WDA) against a challenging annual growth comparative. While overall volumes remained broadly stable on a sequential basis, Hays did not see its normal seasonal step-up in worker volumes, and therefore, volumes were down circa 8% year-on-year. Hays added that it continued to see some benefit from its actions to increase fee margins and focus on higher value markets, together with the positive effects of wage inflation.

Fees in Perm (41% of group fees) decreased by 17%, driven by volumes down 25%. This was partially offset by an increase in its group average Perm fee, up 8%. Overall, Perm markets were increasingly challenging, particularly in December, where slower client and candidate decision-making led to a lower conversion rate. Overall, new job registrations remained down year-on-year but were broadly stable sequentially, with lower conversion into placements and further increases in time-to-hire.

In Germany, fees were flat year-on-year or up 2% on a working day-adjusted basis. The largest specialism of technology, 33% of Germany fees, decreased by 7%, with the second largest, engineering, up 12%. Accountancy & finance declined by 1%, with construction & property up 4%. Temp & contracting fees were flat year-on-year, or up 2% on a WDA basis. This was driven by a 5% increase from higher margins, offset by a 1% reduction in volumes, a 2% reduction from fewer working days year-on-year, a 2% reduction from hours worked, and higher sickness rates. The volume decline was driven by lower new assignment sales year-on-year through the quarter. Perm fees, which represented 18% of Germany fees, were flat year-on-year.

Net fees in the UK & Ireland decreased by 17%. Temp (58% of UK&I fees) fees decreased by 13%, with Perm slowing through the quarter and down 21%. The private sector (64% of UK&I fees) declined by 21%, with the public sector down 6%.

Most regions traded broadly in line with the overall UK&I business, apart from the Midlands and North of England, each down 10%, and Scotland, down 26%. The largest region of London decreased by 21%, and in Ireland, the business decreased by 4%. At the specialism level, the two largest UK&I businesses, accountancy & finance and technology, decreased by 16% and 32% respectively. Construction & property decreased by 11%, although education fees were flat.

Net fees in Australia & New Zealand fell by 20%. Temp, 65% of ANZ, decreased by 16%, with Perm slowing through the quarter and down 27%. Private sector fees, 59% of ANZ, decreased by 25%, with the public sector down 13%.

Australia net fees decreased by 19%. The largest regions of New South Wales and Victoria, which combined represented 51% of Australian fees, decreased by 24% and 17%, respectively. ACT (Australian Capital Territory) and Western Australia fell by 21% and 14%, with Queensland down 12%. By sector,  construction & property (19% of ANZ fees) decreased by 23%. Technology, the second largest specialism, fell by 19%, while accountancy & finance and HR decreased by 21% and 7%, respectively.

In New Zealand (8% of ANZ), net fees decreased by 35%.

Fees in the Rest of World division, comprising 28 countries, decreased by 11%. Perm, which represented 61% of RoW net fees, decreased by 17%, with Temp fees down 1%.

EMEA ex-Germany (64% of RoW) fees decreased by 6% and slowed through the quarter. France, the largest RoW country, declined by 5%, with Poland and Switzerland down 25% and 9% respectively. The UAE, Belgium and Italy performed stronger, up 28%, 10% and 8% respectively, while Spain was flat year-on-year.

The Americas (21% of RoW) fees decreased by 25%, with challenging but broadly stable conditions through the quarter. Canada and the USA remained tough, down 25% and 24% respectively, with Latam down 27%.

Asia (15% of RoW) fees decreased by 11%, with conditions broadly stable through the quarter. China fees decreased by 18%, with Mainland China down 14% and improving through the quarter, although Hong Kong fell 21%. Fees in Japan were flat, while Malaysia was more resilient and grew by 8%.

Group consultant headcount decreased by 5% in the quarter and 12% year-on-year. Hays managed its overall capacity, which remained in line with market conditions until the end of November. Additionally, the group's non-consultant headcount was reduced by 3% in the quarter, as the group said it accelerated its efficiency programmes and targeted overhead cost savings.

Given increased uncertainties and reduced client and candidate confidence, Hays said the New Year return to work will be particularly important in FY24, adding that it is closely monitoring activity levels. Furthermore, the group said it is too early to tell if December's weakness reflects a more sustained market slowdown or shorter-term deferrals of client and candidate decision-making. However, it expects near-term market conditions to remain challenging. Consequently, Hays accelerated its cost reduction and efficiency programmes, while focusing on increased operational performance and rigour.

Since its FY23 preliminary results in August, Hays said its actions have reduced its costs per period by circa £2.5 million. This equates to pro forma annualised group cost savings of circa £30 million, and, as a result, Hays expects to incur an exceptional restructuring charge in H1 FY24 of circa £12 million. Hays also expects its ongoing actions will deliver further material group costs reductions in H2 FY24.

Looking ahead to H2 FY24, there are no material working-day effects year-on-year at a group level. However, Easter is evenly split between Q3 and Q4, while in FY23, it fell entirely in Q4. Hays expects this to have a circa 1% negative impact on net fees at the group level in Q3 FY24, with a corresponding circa 1% benefit to Q4 FY24.

"Looking ahead, our strategy is increasingly focused on enhancing our leading positions in the most attractive and skill-short markets globally, including Germany, non-Perm and Enterprise clients. I am confident our current initiatives will materially benefit profitability once our end markets stabilise," Hahn said.

Following the group's profit warning, Hays set a 52-week low during today's trading session when it reached £87.10. Over this period, the share price is down 12.96%. The group last traded at £98.35, down 8.68% on the day. The company has a market cap of £1.71 billion.