Paul Venables, the CFO of recruitment giant Hays, offers a very clear view of the dangers of an unresolved Brexit with the possibility of a no-deal outcome on 12 April. “I think everyone in business believes a no-deal Brexit has no advantages to the UK economy at all. It would be a major risk to the economic activity and well-being of the country,” he says.
But at the moment the political gridlock after three failed attempts to pass a government withdrawal agreement and all parliament-backed indicative votes having failed, Venables is like many other business leaders leveling the blame at politicians’ lack of desire to compromise. “Up until last week there was the possibility of a deal getting done, we’re now in a completely different world. Politicians need to put the country ahead of their own personal or party views,” he says.
“None of this is beneficial at all to the long term health of the UK economy the longer it goes on because of the effect on multinational companies looking at investing in the UK or with subsidiaries in the UK who are sitting on their hands. It doesn’t portray the stability of the UK or its attractiveness in the market in a good way,” he says.
Venables should know. As the finance chief of the world’s largest white collar recruiter, the company is closely tapped into not just the current thinking of employers but also how businesses are planning for the future. He says that on the face of it the picture is relatively positive because companies have been operating with assumptions that by the end of March there would be an agreed exit of Europe. “A no-deal situation where we crash out without a transition period causing a large economic shock and a downturn, is not what has been expected by UK businesses,” he says.
“So far everything has been reasonably controlled with businesses being very cautious in their investment but still getting on and doing things, but what is going in at the moment is leading to enhanced uncertainty,” he says. Venables, who has just returned from two weeks on the road in Japan, Hong Kong, China, US and Canada says “It’s a difficult environment to be in when everybody is asking you what the hell is going on in the UK with Brexit,” he adds.
Venables, who has been CFO of Hays for 13 years, says that the group’s own fortunes have taken a different path to that of most companies that have seen little impact so far. “In the run up to the referendum and in the immediate aftermath through to July we lost about 10% of UK business, 90% of our cake is replacement investment, people changing jobs, plus companies undertaking projects, so we lost the top tenth where there’s large amounts of investment growth,” he says.
Over the last six to months Hays has seen a modest rebound of growth in the UK, as Venables says most companies are getting on with trying to find ways to drive sales and profitability. He says that has meant that areas such as IT recruitment, for which companies have demand when they’re looking to do projects, to improve manufacturing processes or improve business processes, means that companies focus on IT investment first. As the UK’s biggest IT recruiter, Hays has benefited to the tune of double digit growth in that space.
But with the possibility of various Brexit outcomes still possible, including a no-deal result, Hays has undertaken some adjustments in order to minimise the impact. “We renewed our banking facilities last November rather than waiting till March 2019. Our main facility is a revolving credit facility of around £220m, which we would normally have renewed between March and June 2019.
“We will react to changes in demand from our clients. As a recruitment business we are always ready to accelerate growth or deal with decline. There’s no point doing any pre-emptive action other than we will follow the actions of our clients very quickly in trying to adjust our own cost base.
“It’s not straightforward because 72% of our cost base is people related. We have a business model which is lower base pay, high uncapped commission, so a 15% reduction in fees is offset by a 15% reduction in commission, beyond that we would look at our headcount.
“If there’s a no-deal Brexit our position will be that we will stop bringing anybody new into the business. We have the ability to move quickly, although any sharp shock or downturn is always very painful, specifically at the profit line,” he says.
In the meantime, Venables says Hays, a bellwether for the UK economy, is continuing to grow, reflecting employment in Britain rising to record levels. “Everything in the last 12 months has gone from employee traction to employee retention in clients, e.g. at HR director events the focus has been how do we keep out skilled workforce, as we don’t know what the government’s immigration policy will be. It would have been clear at the end of the transition period in 2021, but that’s no longer the case.
“It will be some sort of minimum salary or skill level, so companies are trying to engage with their own employees, through more training. At the lower end of accounting and finance there’s more automation and AI. I think most companies are looking at smarter ways of doing things, to reduce the amount of lower value-added work,” he says.
Venables says that although the UK is the second largest market and third largest profit generator for Hays, nearly 80% of the group’s profit comes from outside the UK, given it operates in 33 countries. So the group is well hedged against a Brexit calamity, but the wider global economy is uncertain.
“Across the world we’ve seen a gradual slowing, we’ve gone from 15% growth to £243m in 2018, to 9% in Q1 and 8% in Q2, companies are more cautious, but the confidence of candidates and companies looking to hire is still strong, although there are more clouds on the horizon including the tensions between the US and China.
“With our business model there is not much more we can do, a no-deal Brexit will be a downturn in the economy and none of us knows if it will be modest or a full-scale recession, we hope that at the final hour something sensible will be agreed,” he says. “Personally I’d hope we move forward. What we don’t want is further delay, another 12 days here and 12 days there,” he adds.
Paul Venables is participating in a discussion on Brexit at this year’s CFO Agenda.
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