Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Hays PLC (FRA:HAY) achieved a sector-leading productivity increase over the last two quarters through business line prioritization and optimized resource allocation. The company secured GBP 55 million per annum in structural cost savings since the start of the last fiscal year. Net fees with enterprise clients are growing well, with a 12% acceleration in Q2. Consultant fee productivity increased by 4% year on year, indicating efficient resource allocation. The company maintained a strong cash conversion rate of 257% in H-125.

Negative Points

Group like-for-like net fees decreased by 13%, with temp and contracting down 9% and permanent placements down 19%. Pre-exceptional operating profit decreased by 56% year on year to GBP 25.5 million. The UK and Ireland division reported a GBP 6.5 million operating loss, with net fees declining by 17%. The ANZ division saw a 17% decline in net fees and a reduced operating profit of GBP 1.4 million. The company faces ongoing macroeconomic uncertainty, impacting client and candidate confidence and leading to lower placement volumes.

Q & A Highlights

Warning! GuruFocus has detected 8 Warning Signs with FRA:HAY.

Q: Can you discuss the phasing of the 55 million savings and any plans to increase this number or any exceptionals expected in the second half of fiscal '25 or next year? A: (James Hilton, CFO) Last year, we talked about 30 million of structural cost savings, which are in the cost run rate through this half. We've delivered about 13 million of annualized savings through the half, with about 4 million already booked. We also had about 12 million of savings in other operational areas, with about 2 million in the P&L this half. We have plans for H2, both in back office and operational areas, and expect further exceptional costs in the second half.

Q: What are your thoughts on the full-year dividend, given the interim dividend wasn't covered by EPS? A: (James Hilton, CFO) The interim dividend is important to us and our shareholders, and we have a balance sheet with 29 million of cash, so we maintained it. The full-year dividend decision will be made in August, considering current trading, financial position, and outlook. Our full-year dividend is about 47 million in cash, and with the pension buy-in saving us about 19 million annually, we need about 80 to 85 million of operating profit to cover it from free cash flow.

Q: Is AI impacting your business, and do you see it affecting demand for your services? A: (Dirk Hahn, CEO) AI is a topic for all industries, and while some clients are more advanced, we see it as a positive trend. AI creates new jobs and increases productivity. We have internal use cases to optimize productivity with AI, such as our end-to-end digital platform, Tribe Works. We believe AI will enhance productivity rather than reduce demand for our services.

Story Continues

Q: Can you provide more detail on the German current trading, particularly in the auto temp sector, and contractor volumes compared to last year? A: (James Hilton, CFO) In Germany, our contracting business is down about 1% versus prior year, while temp is weaker, down 5-6%. The auto sector is a specific weakness, with about 1,400-1,500 temps out of a total of 3,600. Despite this, we've been relatively resilient and taken market share as other players exit the market.

Q: Given the structural cost savings, how should we think about the group's capacity during a recovery? A: (James Hilton, CFO) We've focused on getting the right people in the right desks, which has improved consultant productivity. We've reduced consultant headcount by over 20% in the last 18 months. While there's some surplus capacity, we've managed it to ensure we're not carrying too much. The latent capacity is driven by the cycle, and we need consultants to make placements, so we've balanced capacity management carefully.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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