Hays sees continued market challenges, reports 8% drop in Q1 net fees

British recruitment firm Hays Plc reported an 8% decline in group net fees for the quarter ended September 30, reflecting continued weakness across permanent (down 14%) and temporary (down 5%) hiring markets globally. This broad-based decline, which included significant drops in Germany, the UK, and Australia, led to a 15% year-on-year reduction in consultant headcount despite a rise in productivity. The company anticipates challenging market conditions through FY26, with analysts at Jefferies forecasting a 6% full-year FY26 like-for-like net fee decline and adjusted EBIT below consensus, citing persistent weakness in Europe and deterioration in the U.S. market.

Analysis

Hays Plc reported an 8% year-over-year decline in group net fees for the quarter ended September 30, with like-for-like net fees also down 8%, consistent with the prior quarter. This broad-based weakness was driven by a 14% drop in permanent net fees due to a 13% fall in placement volumes, and a 5% decline in temporary and contracting net fees. Regional performance was uniformly negative, with Germany, UK & Ireland, and Australia & New Zealand experiencing net fee declines of 7%, 9%, and 5% respectively.

Despite a 15% year-over-year reduction in consultant headcount, productivity per consultant rose by 7% over the prior year, indicating efficiency gains. The company is actively pursuing structural cost savings, targeting £45 million annually by FY29, supported by a 17% year-over-year reduction in non-consultant headcount. Net debt increased to £40 million from £26 million net cash at FY25-end, reflecting seasonal cash outflows.

Hays anticipates market conditions to remain challenging through FY26, with limited visibility. Jefferies analysts noted the 8% like-for-like net fee decline was in line with consensus but showed no improvement, highlighting persistent weakness in Europe and deterioration in the U.S. market. Their FY26 forecast for a 6% like-for-like net fee decline and £45 million adjusted EBIT is below consensus estimates of a 4% decline and £52 million.

Key Decisions for Investors

• Investors should closely monitor broader macroeconomic indicators, particularly in Europe and the U.S., for any signs of improvement or further deterioration in hiring markets, as Hays' outlook remains challenging through FY26.
• Evaluate the effectiveness and timeline of Hays' £45 million structural cost savings program and its impact on future profitability, especially given the increased net debt position.
• Consider adjusting investment theses based on Jefferies' more conservative FY26 forecasts for net fee decline and adjusted EBIT, which are below current consensus.