TIDMHAS
RNS Number : 5487I
Hays PLC
02 April 2020
TRADING UPDATE & EQUITY PLACING
2 April 2020
Trading update & equity placing
Given the rapidly-developing global Covid-19 situation, Hays
provides an update on current trading and announces an equity
placing targeting gross proceeds of approximately GBP200 million
.
Hays has identified four immediate priorities:
-- Protecting the health, safety and wellbeing of its employees,
clients, temps and candidates.
-- Delivering full operational capability with remote working
and providing high service levels to all our stakeholders.
-- Reinforcing the Group's strong financial position.
-- Positioning the Group to gain market share from blue-chip
clients, both in the near-term and as our end markets
stabilise.
Current trading
Trading between 1 January and 13 March was in line with our
expectations, with like-for-like net fees down c.5% year-on-year.
However, since then the rapidly escalating impact of Covid-19 has
driven a very material deceleration in client and candidate
activity. To date, across our major markets, the impact has been
felt most in Europe, and least in Australia. Permanent recruitment
(c.42% Group fees) has seen more of an impact than Temporary (c.58%
Group fees), and the Private sector (c.83% Group fees) has been
more impacted than the Public sector (c.17% of Group fees), which
has been broadly resilient. To date, Hays Talent Solutions, our
large corporate account business, which predominantly places Temp
and Contracting candidates, has also shown relative resilience.
Considering the uncertainties arising from Government
restrictions worldwide on working and movement and how long these
may remain in place, it is not currently possible to estimate the
extent of the impact on the Group's earnings this financial year
and beyond. However, we expect the impact will be substantial and
Group operating profit for the year to 30 June 2020 is, therefore,
likely to be materially below the GBP190m consensus average shown
on Bloomberg (as at 30 March 2020).
Management actions
Our Executive team, which has been together for many years and
successfully navigated the GFC, and our highly experienced regional
management teams are taking all available actions to ensure Hays
can withstand significant short-term pressures. In addition,
management is seeking to ensure Hays is in the best possible
position to gain market share once our end markets stabilise.
We have established an Executive sub-committee to closely
monitor market conditions and update our advice to employees, temps
and clients. This is helping to share best practice in business
continuity planning and ensures our global operations are
effectively coordinated. Most of o ur consultants are now working
from home and business continuity plans are working well. The main
exception is China, where all our offices have re-opened.
W e are taking decisive steps to actively manage our costs and
further strengthen our financial position. The following actions
have already been initiated:
-- Cost base : our aim is to proactively manage our cost base in
the short-term, while protecting the core of our business to take
advantage of medium and longer-term opportunities. Our monthly cost
base, prior to Covid-19, was c.GBP70 million, with c.GBP25 million
fixed and c.GBP45 million variable. To date, our actions have
included stopping all hiring and appropriately managing our
headcount, reducing senior management pay, eliminating all
discretionary costs including non-essential capital expenditure,
and reducing previously committed costs such as advertising. As in
previous downturns, this will provide significant protection in the
event of a prolonged downturn, albeit with a time lag.
-- Divide nds : the Board has taken the decision to cancel the
1.11p per share interim dividend which was due to be paid on 9
April 2020 to holders of ordinary shares on the register at the
close of business on 5 March 2020. The interim dividend was
expected to result in a payment of GBP16.3 million. The Board is
highly conscious of the importance of its dividend to shareholders
and will look to return to paying dividends at the appropriate
time.
-- Tax deferrals: we have had positive discussions with fiscal
authorities globally to secure local support for our businesses and
appreciate the speed and scale of government responses. Based on
the discussions held directly with tax authorities thus far, we are
confident that we will secure significant tax payment deferrals of
more than GBP100 million across the UK, Germany and Australia. The
timings of these deferrals range from 3 to 12 months.
-- Other Government initiatives: in many of our Group countries,
there are existing and newly-initiated furloughing and short-time
working arrangements. It is, as yet, too early to quantify the
benefit of such schemes on our own business and our Temp workers in
different countries. We are, however, in active discussions to
explore all such options.
Financial position
As at 27 March 2020, the Group's net cash position was c.GBP35
million (31 December 2019: GBP13.2 million). The Group has
significant committed borrowing facilities of GBP210 million,
expiring in November 2024, of which c.GBP165 million is currently
undrawn. The financial covenants attached to our committed
facilities are that EBITDA should be at least 4x interest and total
borrowings should be no greater than 2.5x EBITDA. At 31 December
2019, the former covenant ratio was 240:1; the latter was not
applicable due to our net cash position. Given the management
actions being taken, the Company also expects to meet its covenant
thresholds as at 30 June 2020.
In addition, we are exploring other financing options such as
government schemes across the world, including being at an advanced
stage in seeking access to the Bank of England's Covid Corporate
Financing Facility (CCFF), to further strengthen our financial
position.
Strategy & outlook
Hays' strategy, which has been consistent for many years, is to
be the undisputed global leader in white collar specialist
recruitment. Our business model is based on having unrivalled scale
and breadth across geographies, sectors and recruitment contract
types.
During the GFC, Group net fees fell by c.40% from peak to trough
over a c.9-month period. However, it is too early to form any
definitive view as to the impact of Covid-19 on our business. As
part of our analysis, we have modelled a stressed scenario with
immediate declines in net fees of c.70% year-on-year during this
initial 'lockdown' phase (assumed to be 4 months). We also included
sensitivities whereby our debtor days materially increase during
the initial phase. We then modelled a gradual reduction in the
downturn such that net fees are c.35% down YoY by the end of
December 2020.
Under this scenario, and implementing the proactive cost
reductions noted earlier, we could reduce our total cost base by up
to c.GBP20 million per month by December 2020. Accordingly, we
expect our robust business model to be able to manage such a
downturn and stay within the headroom of our current banking
facilities, even if we reclassify the cash benefits from tax
deferrals as debt. However, we would be left with material levels
of residual debt.
Encouragingly, in recent weeks we have seen growing interest
from many existing and prospective large blue-chip clients looking
to consolidate their white-collar recruitment outsourcing with a
financially strong partner. We expect this to increase further over
the coming months. We believe that our industry is likely to see a
material 'flight to quality' both during and in the aftermath of
Covid-19. Therefore, while the current environment is highly
challenging, there remain significant and attractive opportunities
in our markets - both in the short and longer-term.
Background to equity placing
Over recent years Hays has consistently operated with a net cash
balance sheet, and strongly believes this gives valuable confidence
to both our clients and investors.
To ensure that we have a strong balance sheet and can continue
with minimal or no debt once our end markets stabilise, the Board
has concluded that it is prudent to now raise equity. This will
both provide the Group with a further liquidity buffer and
importantly best allow us to pursue organic growth opportunities
with new and existing blue-chip clients. We are already seeing such
opportunities begin to emerge and expect further vendor
consolidation from our clients when markets stabilise.
Accordingly, Hays has separately announced today its intention
to conduct a non-pre-emptive placing of new ordinary shares of the
Company targeting gross proceeds of approximately GBP200
million.
Hays Directors and members of the Executive management team,
including the Chairman, CEO and FD, have committed to participate
alongside the equity raise and intend in aggregate to contribute
c.GBP100k.
Commenting on the unprecedented global situation, Alistair Cox,
Chief Executive, said:
"The past few weeks have been unlike anything the world has seen
in modern times and has severely impacted recruitment markets
globally. These are hugely challenging times and I would like to
thank sincerely all our colleagues at Hays for their support and
commitment. Governments across the world also deserve major credit
for the scale and speed of their response to support individuals
and businesses through the Covid-19 pandemic.
"Today's equity fundraise is designed to further reinforce our
business so that we are strongly placed to build on our market
leading positions globally by supporting our clients and capturing
additional market share."
Enquiries
Hays plc +44 (0) 20 3978 2520
Paul Venables Group Finance Director +44 (0) 20 3978 3173
David Phillips Head of Investor Relations
Finsbury hays@finsbury.com
Guy Lamming
Anjali Unnikrishnan
Next newsflow
Trading update for the quarter ending 30 June
2020 16 July 2020
Full-year results for the year ending 30 June
2020 27 August 2020
Cautionary statement
This Trading Update (the "Report") has been prepared in
accordance with the Disclosure Guidance and Transparency Rules of
the UK Financial Conduct Authority and is not audited. No
representation or warranty, express or implied, is or will be made
in relation to the accuracy, fairness or completeness of the
information or opinions contained in this Report. Statements in
this Report reflect the knowledge and information available at the
time of its preparation. Certain statements included or
incorporated by reference within this Report may constitute
"forward-looking statements" in respect of the Group's operations,
performance, prospects and/or financial condition. By their nature,
forward-looking statements involve a number of risks, uncertainties
and assumptions and actual results or events may differ materially
from those expressed or implied by those statements. Accordingly,
no assurance can be given that any particular expectation will be
met and reliance shall not be placed on any forward-looking
statement. Additionally, forward-looking statements regarding past
trends or activities shall not be taken as a representation that
such trends or activities will continue in the future. The
information contained in this Report is subject to change without
notice and no responsibility or obligation is accepted to update or
revise any forward-looking statement resulting from new
information, future events or otherwise. Nothing in this Report
shall be construed as a profit forecast. This Report does not
constitute or form part of any offer or invitation to sell, or any
solicitation of any offer to purchase or subscribe for any shares
in the Company, nor shall it or any part of it or the fact of its
distribution form the basis of, or be relied on in connection with,
any contract or commitment or investment decisions relating
thereto, nor does it constitute a recommendation regarding the
shares of the Company or any invitation or inducement to engage in
investment activity under section 21 of the Financial Services and
Markets Act 2000. Past performance cannot be relied upon as a guide
to future performance. Liability arising from anything in this
Report shall be governed by English Law, and neither the Company
nor any of its affiliates, advisors or representatives shall have
any liability whatsoever (in negligence or otherwise) for any loss
howsoever arising from any use of this Report or its contents or
otherwise arising in connection with this Report. Nothing in this
Report shall exclude any liability under applicable laws that
cannot be excluded in accordance with such laws.
This announcement contains inside information.
LEI code: 213800QC8AWD4BO8TH08
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END
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