Hays (LSE:HAS) marked the latest step in its reorganisation on Wednesday, as the London-listed recruitment group confirmed one divestment deal, covering six markets, and put under review operations in another seven.
It completed the sale of its operations in six European countries to Meraki Capital on 16 June, receiving net cash proceeds of approximately £4 million after transaction costs and working capital adjustments.
The specialist recruitment businesses sold focus primarily on serving local customers and together form part of a broader portfolio that the FTSE-listed staffing group has been exiting over the past year, including a prior disposal of four other countries.
The transaction will trigger a modest non-cash loss on sale, to be recognised in the second half of Hays' financial year ending 30 June.
Other exits under review
Hays is also exploring options for a further seven markets: Belgium, Brazil, Greater China, Malaysia, the Netherlands, Singapore, and the UAE.
In aggregate, all 13 countries under review are expected to generate broadly break-even pre-exceptional operating profit on approximately £85 million in net fees for the 12 months to 30 June.
The strategy leaves Hays concentrating resources on a remaining core of 16 countries, where management believes it can build scale and establish leading market positions.
"Reshaping our portfolio to provide a sharper focus and build scale in high-performing and high-potential markets remains a key strategic priority," said Chief Executive Mark Dearnley.
Absolutely the right move
The asset rationalisation programme is "absolutely the right thing to do," according to Sanjay Vidyarthi, analyst at Panmure Liberum.
Reacting to today's news, the analyst, who retains a Hold rating and 35p price target, argues that such portfolio exits will materially improve operational gearing.
Vidyarthi highlighted a stark conversion gap, which is described as the core of the divestment thesis, pointing out that Hays' rest-of-world division generated net fee income (NFI) of £368m and earnings (EBIT) of £42m at its fiscal 2019 peak, an 11% conversion rate, against more than 30% in Australia and Germany, and the group average at 22%.
Sector consolidation, long mooted as a fix for recruiters, has consistently run into cultural obstacles, the analyst said, instead adding that internal rationalisation may be the more realistic path - and, the broker sees Hays as leading the way.
