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Hays shares hit by fears of German slowdown despite first half profit growth

Despite pre-tax profit rising 8% to £122.6mln, investors were spooked by a slowdown in growth from the central European country, which slipped from 17% to 14% year-on-year
German flag
Germany accounted for nearly 40% of the FTSE 250 recruiters operating profit in the period

Hays PLC (LON:HAS) reported increased profits and revenues for the first half of its fiscal year, however, shares sank in early deals amid signs of a slowdown in its key market, Germany.

Despite pre-tax profit rising 8% to £122.6mln and net fees jumping 8% to £568mln on a like-for-like (LFL) basis for the six months to 31 December, investors were spooked by the pace of growth in Germany, which accounts for nearly 40% of the FTSE 250 recruiters operating profit.

READ: Hays delivers 'good quarter' but remains cautious amid Brexit uncertainty

In the half-year, net fees in Germany grew 14% on an LFL basis, slower than the 17% rate in the year-ago period.

This was compounded by comments from the firm around the impact of foreign exchange rate on its earnings, with fluctuations of its key operating currencies versus sterling continuing to represent a “reduction” to its performance.

Hays added that over the six month period, currency movements had taken around £2.1mln off its operating profit and represented a “significant sensitivity” for the business.

Shares took a knock soon after the release of the results, falling 5% to 150.4p.

Broker expects German slowdown and forex to dent full-year forecasts

In a note to clients, analysts at broker Liberum said the slowdown in German growth and the impact of currency movement were expected to result in a consensus for the 2019 fiscal year to be “trimmed” by 2%-3%.

“Although not massive in the context of the recent share price performance [which has fallen around 26% in the last six months], we expect investors to pay particular attention to the outlook for the group's largest region,” the broker said.

Interim dividend hiked

Regarding the rest of the interims, Liberum said the results were in line with forecasts, with Hays upping its interim dividend by 5% to 1.11p.

The company’s conversion rate (the changing of net fees into operating profit), had also risen to 22.2% from 21.5%.

Alistair Cox, chief executive, said that the firm had delivered a “good first half” despite “increasingly tough comparatives”.

"Looking ahead, although we remain mindful of continuing macroeconomic uncertainty, the outlook in the vast majority of our markets remains positive. Our second half focus will be on driving consultant productivity, while selectively investing in our key markets to build on our existing scale, balance and diversity.”

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