Shares in recruitment firm Hays (HAS) fell 7% to 102p after it said it had seen ‘a very material deceleration in client and candidate activity’ in March, scrapped its interim dividend and tapped investors for £200m.
The firm said that so far the impact of the virus and the global lockdown had been most felt in Europe and least felt in Australia. Unsurprisingly, the private sector, which represents 83% of net fee income, had been hit harder than the public sector.
Although the firm didn’t formally withdraw its guidance for the year to 30 June, it said ‘the impact will be substantial and group operating profit for the year to 30 June is therefore likely to be materially below the £190m consensus.’
CUTTING COSTS
Most of Hays’ consultants are working from home, in line with government advice around the world, with the main exception of China where all of its offices have re-opened.
The firm’s monthly cost base before the outbreak was around £70m, of which £25m were fixed and £45m were variable, so it has already begun cutting back on non-essential spending and reducing previously committed costs like advertising.
As well as taking advantage of government schemes such as Job Retention, it has also held talks with fiscal authorities around the world and is confident that it can secure ‘significant tax payment deferrals of more than £100 million across the UK, Germany and Australia’ over the next three months to a year.
RAISING CASH
Although Hays had a net cash position of £35m as of last Friday, up from £13.2m at the end of December, and £165m of undrawn bank facilities, the firm has taken the opportunity to beef up its cash pile by issuing £200m of new shares ‘to ensure we have a strong balance sheet and can continue with minimal or no debt once our end markets stabilise.’
By increasing its liquidity now, rather than waiting for the crisis to be resolved, the firm is positioning itself ‘to pursue organic growth opportunities with new and existing blue-chip clients.’
It notes it is ‘already seeing such opportunities begin to emerge’ and that it expects ‘further vendor consolidation from our clients when markets stabilise.’ Therefore it wants to have the resources to be able to pick up new business from weaker rivals once hiring re-starts.
Directors and members of the executive management team, including chairman Andy Martin, chief executive Alistair Cox and finance director Paul Venables, have committed to participate in the equity raise with a contribution of around £100,000.
