Hays (HAS: LSE) today reported net fees of £1.29 billion for the full year ended 30 June 2023, an increase of 6% on a like-for-like (LFL) basis when compared to the same period a year ago. However, FY23 group operating profit of £197.0 million represented a like-for-like decrease of 9%.

Hays separately reported their Q4 results last month showing slower performance during the course of the year resulting in a decline of 2% in net fees. The company announced today that it expects fees to continue dropping in the first half of its new financial year.

Annual growth was driven by the company’s performance in temporary staffing, up 9% (LFL) while permanent placement was also up 3% (LFL). Hays noted permanent activity slowed sharply through the year, with fees up 12% in H1 and down 6% in H2.

The company said growth was also driven by its actions to increase fee margins, supported by positive effects of wage inflation globally, offsetting volume decline as permanent markets toughened through the year.

Alistair Cox, Chief Executive, said, “Despite facing tough economic conditions globally, we delivered record group fees. 21 countries hit individual records, including our largest market of Germany, together with records in key strategic markets of technology, engineering and enterprise clients.”

Cox continued, “We delivered all of this from our decisive actions to increase fee margins in skill-short sectors and our shift towards the most in-demand markets, supported by wage inflation globally. Temp & contracting, our largest business and key strategic focus, performed well although Perm fees decreased in the second half as market conditions toughened.”

Hays also announced today that Dirk Hahn, currently managing director of Hays Germany and CEMEA, has been appointed as CEO and to the board, with effect from 1 September 2023.

Having worked for Hays for over 20 years, Hahn led the expansion of its German business, which is the largest division representing over 30% of group fees, and which has doubled operating profit under his tenure. Hahn was also group strategy director between 2017 and 2019.

Cox will step down as CEO, and from the board, with effect from 31 August 2023.

“The board would like to thank Alistair for his leadership of Hays over the past 16 years,” the company stated. “During his tenure Hays has transformed into a global business with offices in 33 countries, with a leading position in many of those markets. The company is well set for the next stage of its development, and the board wishes him all the best for the future.”

The higher turnover growth compared to net fee growth was due to relatively stronger growth in temp fees versus perm, together with the first full-year of a large temp outsourcing contract in the Rest of World division, where Hays manages a supply chain which includes a significant volume of third-party agency supply.

Over time, Hays expects to increase its direct-fill proportion, driving fee growth. Fee growth was driven by the group’s early management actions to increase fee margins, supported by the positive effects of wage inflation globally, offsetting volume declines, particularly in perm.

Net fees by Geography

Unless otherwise stated all growth rates discussed below are LFL (like-for-like).

In Germany, the largest market, net fees increased by 19% to a record £382.0 million. Operating profit increased by 29% to £100.2 million, despite three fewer working-days in H1 FY23 year-on-year, which reduced fees and profit by £5.0 million. The largest specialism of Technology, comprising 35% of Germany net fees, increased by 10%, with Engineering, the second largest specialism, up 22%.

Temp and contracting, which represented 83% of Germany fees, increased by 18%. Perm, 17% of Germany fees, also delivered a fee record and increased by an excellent 22%.

In the United Kingdom & Ireland, net fees increased by 1% to £266.1 million. Operating profit of £28.7 million represented a decrease of 34%. Cost increases were driven by 7% higher average headcount year-on-year, together with the impact of pay increases effective from 1 July 2022, which lead to negative profit growth. Technology delivered a record fee performance, up 5%, with Accountancy & Finance up 2%. Temp, which represented 56% of UK&I, increased by 4%. The Perm business saw fees decrease by 3%.

All regions traded broadly in line with the overall UK&I business, except for Northern Ireland, up 9%, and the Northwest, down 4%. The largest region of London decreased by 3%, including London City up 1%, while Ireland grew by 13%.

In Australia & New Zealand, net fees decreased by 6% to £188.4 million, with operating profit down 39% to £32.1 million. Cost increases were driven by 5% higher average headcount in the year, together with the impact of pay increases effective from 1 July, leading to negative profit growth. Temp decreased by 6%, with volumes down 13%. Perm fees decreased by 5%, with volumes down 16%.

Australia, 91% of ANZ, saw net fees decrease by 7% while New Zealand delivered a record performance, with fees up 9%.

In the Rest of World division, which comprises 28 countries, the group reported record fees, up 5% and included 19 individual country records. Fee growth was led by Temp which increased by 9%, with Perm up 3% as markets slowed across Rest of World, especially in H2. Operating profit decreased by 14% to £36.0 million.

EMEA ex-Germany fees increased by 12%, with 11 country records including France, the largest Rest of World country, up 18%, and Switzerland, Poland and Spain up 16%, 12% and 11% respectively. Belgium increased by 9%, while Portugal, up 28%, and the UAE, up 53% also produced fee records.

The Americas (24% of RoW) fees decreased by 6%. Conditions were tough in the US and declined by 13%, including H2 down 26%. Latin America grew by 14% overall, and Canada increased by 1%.

Asia was flat, with tough conditions in China, down 21% and including Mainland China down 46%.

Current trading

Despite macroeconomic challenges, temp volumes have remained stable overall on a sequential basis. In permanent recruitment, conditions remain tough, with increased time-to-hire, driven by reduced client and candidate confidence.

The key markets continue to be supported by skill shortages. Both temp and perm fees continue to benefit from actions to increase margins, which Hays expects to continue through H1 24, and by the positive effects of wage inflation globally.

Hays expect group consultant headcount will reduce by circa 3-4% in Q1 FY24 as it continues to focus on consultant productivity and leveraging its infrastructure investments. The company has already reduced its number of consultants by 6% (more than 500) since December though staff cuts have been made through natural attrition with no redundancies planned.

The group’s June 2023 net fee exit rate was down 2% year-on-year, and given strong fee growth in the prior year, Hays has a tough H1 FY24 growth comparative.

Overall, Hays expect group net fees will decline year-on-year in H1 FY24, driving a reduction in first half conversion rate year-on-year, as it protects key strategic investments in order to benefit from future recovery and structural growth opportunities.

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 will continue to do this, as it sets us up well for the future.”

“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,” Cox continued.

Hays shares last traded at £103.15, down 0.15% on the day and 6.45% above its 52-week low of £96.90, set on 7 July 2023. The company has a market cap of £1.64 billion.