- Hiring showed signs of slowing in September
- UK market flagged as ‘more challenging’
- Firms still returning large amounts of surplus cash
Trading updates from three of the UK’s major listed staffing firms this week all pointed towards a slight slowing in demand for new hires, particularly in the permanent job market.
While all three companies posted strong net fee income growth, most of the upside seems to have come from charging higher fees and a tailwind from the strength of the US dollar rather than greater activity.
RECORD-BREAKERS
All three firms posted double-digit increases in net fee income in the three months to the end of September, with Hays (HAS) racking up another record quarter with 15% growth and hitting a new monthly record last month.
Rival PageGroup (PAGE) reported an 18.6% jump in net fees for the quarter with September marking the third consecutive month of more than £100 million in fees generated.
Robert Walters (RWA) also recorded 18% fee income growth during the quarter with eight out of nine markets delivering double-digit increases.
However, Hays noted that while client and candidate confidence levels were good overall, especially in Germany - one of its biggest markets, which posted record fees - it had ‘reduced modestly in a number of other markets as macroeconomic uncertainties increase’.
As a result, its ‘exit rate’ in September was only 12% compared to 15% for the quarter as a whole which represents quite a slowdown from July and August.
Similarly, PageGroup referred to ‘a slight softening in client confidence across the majority of our regions’ which resulted in a small number of job offers being withdrawn and ‘a slowdown in time to hire in a number of our markets towards the end of the quarter’.
As Hays’ finance director James Hilton explained to Shares, September is a key month for new hires as firms return from their summer break and look to invest in headcount for the year ahead.
Robert Walters commented that the ‘more volatile political and economic backdrop’ in the UK had affected market confidence, causing a decline in net fee income, while also flagging ‘more challenging conditions’ in technology recruitment.
ATTRACTIVE RETURNS
While a certain degree of caution on the part of firms is understandable, particularly when it comes to permanent hires, investors should stay tuned to news from the recruitment companies over the next few quarters as they tend to be a lead indicator of the health of the economy.
Meanwhile, the staffing business as a whole remains highly cash-generative and both Hays and PageGroup continue to return cash to shareholders in the form of rising dividends and share buybacks.
Hays ended the quarter with net cash of £185 million after working capital outflows and a £40 million share buyback, while shareholders are due to vote next month on a proposed £121 million special dividend.
PageGroup ended the quarter with £186 million of net cash, an almost identical amount to Hays, and is paying out a £100 million special dividend to shareholders tomorrow.
