Two recruitment companies reported today and surprisingly, the news wasn't all bad.
Recruitment companies tend to be closely watched when an economic cycle is coming to an end. These companies boom when times are good, but when an economy slows down, employers cut back on hiring and recruitment companies can suffer big time.
Two recruitment specialists reported today. Obviously that’s important for shareholders or potential shareholders but the results are also interesting for the rest of us. That’s because they may give useful intelligence on the state of the economy and the short-term outlook.
Perhaps surprisingly, today’s news from the recruiters wasn’t all bad.
Let’s start with Hays (LSE: HAS). Although concentrating on the UK and Ireland, it has international operations in another 25 countries. The company has beaten expectations with a 25% surge in profits to £264m in the year to June with fees received growing 20% to £2.54bn.
While the acquisition of James Harvard earlier in the year helped, it is worth noting that like-for-like revenue was up 19%. The figures show the stark difference between the performance at home and overseas. In the core market of the UK and Ireland, net fee income rose 7% on a comparable basis yet profits were squeezed down 3%.
Hays' international business grew like-for-like net fees by 43%, with Germany and France performing especially well. Fees from abroad now account for 42% of the total.
Chief Executive Alistair Cox sees scope to 'grow the business around the world' which is perhaps as well since he also admits that conditions in the UK are challenging for the short term at least.
While net fees for temporary staff were up 14% during the year, and for permanent placements up 24%, demand for permanent placements in the UK is falling while the market for temps has flattened. Not good.
In contrast, Staffline’s (LSE: STAF) ambitions for international expansion extend at the moment to gaining a foothold in Scotland as it spreads out from its Nottingham base. Despite a 5% raise in sales to £54.5m in the six months to the end of June, pre-tax profits were flat at £1.4m.
Staffline, which supplies blue collar and contract staff, claims its forward order book is at a record level for this point in the year but it admits that trading during July and August was ‘marginally’ held back by subdued demand from some existing customers.
Meanwhile three client sites have been closed and another client has gone into receivership, so the full year performance is likely to be a little below that of last year.
Managing director Andy Hogarth says optimistically: ‘We believe that the current trading environment should play to the group's strengths because the margin pressure being experienced by both our existing and target client base is acting as a catalyst for high levels of interest in the efficiencies and cost savings we are able to offer.’
That’s all very well, but companies under pressure will ultimately have less money to spend on recruitment and are in any case likely to cut back on staffing levels.
Both companies have raised their dividends in a display of confidence – or bravado. Hays is paying a final dividend of 5.8p, up from 5p last time, while Staffline has raised its interim from 1.3p to 1.4p.
Staffline is a well-run company with a niche market but its narrow reliance on the UK has turned off investors. Its shares have fallen from a peak of 185p in August last year and although they have recently found support around 100p they slumped another 9p to 90p today as the City declined to share Hogarth’s optimism.
Hays shares have fared no better over the same period, dropping from 180p to a low of 71p in July but they have been picking up of late and today they eased just 0.25p to 94p. Given the current state of the global economy, it may be premature to move into either company but Hays looks the better bet at this stage.
More: Making Hay While The Sun Shines
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