Shares in recruitment firm Hays (HAS) fell 5.5% to 158p even though the company posted a near 40% increase in net fee income and increased its full year operating profit forecast.

Profits are expected to be around £95 million compared with consensus forecasts of £91 million and previous guidance of £85 million. However, that still marks a steep drop from last year’s profit of £120 million, which is possibly why investors were disappointed.

REBOUND IN GROWTH

Net fee income for the quarter was up 39% on a like-for like basis with strong growth in Hays’ key markets of Germany and the UK, which make up almost 50% of fees.

In the UK there was a big increase in demand for permanent roles, which generate higher revenues, meaning fees for the quarter were up 48%, while in Germany high demand for contractors – who typically earn six figure salaries – boosted fees by 38%.

Chief executive Alistair Cox was upbeat: ‘We continued to see good momentum throughout the quarter, particularly in Perm, and I am pleased to say group fees and profits were ahead of our expectations. All our key markets rebounded significantly as business confidence rose and we saw strong recovery in our largest markets.

INVESTING FOR GROWTH

‘We see many opportunities to build much bigger businesses and we are focused on positioning Hays to be the market leader in the most attractive long-term sectors and geographies’, added Cox.

One of the firm’s key priorities is IT, which accounts for 25% of fees and where it aims to double its annual revenues from pre-pandemic levels of £250 million to £500 million.

To do this inevitably means investing in staff itself, and after a 6% rise in headcount last year the firm expects to increase staff numbers by a further 5% this year.

Last year's operating profits were crimped by a 'significant' spend on headcount, including £15 million as part of the Strategic Growth Initiative. The firm said it would likely spend a further £22 million on the programme again this year.

As finance director Paul Venables explained to Shares, ‘this investment isn’t just to ensure growth in FY22, it’s about growing through FY23 and FY24’.

At the same time, the firm is paying cash back to shareholders, making it a strong contender for income funds. A single full-year ordinary dividend will be declared at the interims in August, on top of which the group will distribute £100 million as a special dividend with another £50 million to follow at a later date.

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Issue Date: 15 Jul 2021