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Hays announces 20% growth in operating profit

The excellent 20 per cent growth in operating profit & strong cash performance is driving increased dividend.

Highlights

Year ended 30 June
(In &pound's million)

2014

2013

Actual
growth

LFL(1)
growth

Net fees

724.9

719.0

1%

5%

Operating profit

140.3

125.5

12%

20%

Cash generated by operations(2)

175.6

136.3

29%

Profit before tax

132.3

118.5

12%

Basic earnings per share

6.13p

5.14p

19%

Dividend per share

2.63p

2.50p

5%

&middot      Strong 12% headline growth in operating profit despite an &pound8.3m foreign exchange headwind

&middot      Full year dividend increase of 5%

&middot      Strong, broad-based net fee growth in UK & Ireland

Net fees up 11%(1), or &pound23.9m, generating &pound20.6m operating profit improvement an 86% drop-through

Excellent operating leverage as a result of improved consultant productivity and overhead cost reductions

Good 8%(1) net fee growth in Continental Europe & Rest of World, driving operating profit              growth of 20%(1)

Good growth in key businesses with Germany net fees up 8%(1), France up 5%(1) and Canada up 5%(1)

14 countries delivered net fee growth of over 10%(1), including Belgium, Poland and Switzerland

Asia Pacific net fees down 6%(1)

Australia net fees down 13%(1), but business sequentially stable through H2

Excellent growth of 25%(1) in Asia with four countries delivering record net fee performances

Consultant headcount up 6%, primarily in H2, as we selectively invested to capitalise on growth opportunities

Strong cash performance, with 125% conversion of operating profit into operating cash flow

Strong growth in Basic EPS of 19%, reflecting excellent growth in operating profit and lower effective tax rate

Commenting on the results, Alistair Cox, chief executive, said, "This is a strong financial performance, and we are ahead of schedule in terms of our aspirations to broadly double the Group's operating profits by 2018. I am also pleased that our excellent earnings and cash performance has enabled us to increase the dividend by 5%.

"We saw improved conditions in several key markets, notably in the UK, Asia, North America and many European countries, and took advantage by investing to drive growth. In the UK & Ireland, strong net fee growth and our focus on driving productivity improvements, combined with the on-going benefit of 2012's overhead cost reductions, meant we converted 86% of incremental net fees into operating profit. Elsewhere, 19 countries delivered record net fee performances and we made significant progress against our operational and strategic objectives, for example further expanding our global Oil & Gas business and making further good progress in rolling out our IT Contracting business into new markets.

"I am confident that we enter the new year in a position of strength, with unrivalled breadth, scale and balance around the world and the best people and technology tools in our industry. Having outperformed during the downturn, we now have the ideal platform to capitalise on the many growth opportunities we see around the world. Our focus is on continuing to grow the business by leveraging that platform, driving further profit growth and building an ever-stronger leadership position in our industry."

(1)  LFL (like-for-like) growth represents organic growth of continuing operations at constant currency.

(2)  Excludes exceptional cash cost of &pound0.2 million in 2014 and &pound0.6 million in 2013.

(3)  The underlying Temp gross margin is calculated as Temp net fees divided by Temp gross revenue and relates solely to Temp placements in which Hays generates net fees and specifically excludes transactions in which Hays acts as agent on behalf of workers supplied by third party agencies and arrangements where the Company provides major payrolling services.

(4)  Exchange rate as at 26 August 2014: &pound1 / &euro1.2559 &pound1 / AUD1.7847.

Hays stated, "Our 5,357 consultants work in a broad range of sectors with no sector specialism representing more than 17% of Group net fees. While Accountancy & Finance, Construction & Property and IT represent 49% of Group net fees, our expertise across 20 professional and skilled recruitment specialisms gives us opportunities to rapidly develop newer markets by replicating these long-established, existing areas of expertise.Hays has 8,237 employees in 237 offices in 33 countries. In many of our global markets, the vast majority of professional and skilled recruitment is still done in-house, with minimal outsourcing to recruitment agencies which presents substantial long-term structural growth opportunities. This has been a key driver of the rapid diversification and internationalisation of the Group, with the International business representing 66% of the Group's net fees as at 30 June 2014, compared with just over 20% 10 years ago.

"In addition to this international and sectoral diversification, the Group's net fees are generated 59% from temporary and 41% permanent placement markets, and this balance gives our business model relative resilience.

"This well diversified business model continues to be a key driver of the Group's financial performance."

Introduction

We have delivered a strong Group financial performance for the year. Net fees increased by 5% on a like-for-like basis(1) and 1% on a headline basis. Operating profit increased by 20% on a like-for-like basis(1) and 12% on a headline basis and we converted 125% of operating profit into operating cash flow. Taking into account the strong financial performance of the Group this year and the good trading performance of the business as we start the new financial year, the Board proposes to increase the full year dividend by 5% to 2.63p, resulting in an increase to the final dividend of 8% to 1.80p.

Targeted investment to capitalise on stronger markets and deliver profitable fee growth

Throughout the year we saw clear opportunities for growth and better trading conditions across several key markets. We invested quickly where conditions were supportive, and controlled costs in a small number of more challenging markets. Targeting investment in this way ensures we maximise current and future growth opportunities by using productivity and efficiency to drive profitable fee growth around the world. We delivered improved productivity in the year, as net fees grew by 5%(1) and average consultant numbers were up 2% resulting in an improvement in net fees per consultant of 3%(1).

Movements in consultant headcount

Consultant headcount ended June at 5,357, up 4% versus December 2013 and up 6% year-on-year. In our Continental Europe & Rest of World (RoW) division we increased consultant headcount by 3% year-on-year, including Germany which was also up 3%. In Asia Pacific, consultant headcount was up 3%, within which Australia consultant headcount was down 6% year-on-year but up 2% in the second half. In Asia, consultant headcount increased by 16% after we invested aggressively in each of our businesses across that region. In the UK & Ireland consultant headcount was up 12%, primarily in the second half as we invested to capitalise on the clear opportunities for future growth which exist across that business.

Consultant headcount

30 June
2014

Net

change

30 June
2013

Asia Pacific

1,055

31

1,024

Continental Europe & RoW

2,145

61

2,084

United Kingdom & Ireland

        2,157

228

1,929

Group

5,357

320

5,037

Office network changes & global specialism roll-out

Our focus through the year remained on building scale and critical mass across our existing platform of 33 countries. We continued to develop our global Oil & Gas focused business and made further good progress in rolling out our IT Contracting business into new markets. During the year we opened a new office in Winnipeg, relocated from New Jersey to New York and closed offices in Mumbai, Arnhem and Auckland where we consolidated our business in the city into a single site.

Office network

30 June
2014

Net opened/

(closed)

30 June

 2013

Asia Pacific

47

(1)

48

Continental Europe & RoW

88

(1)

89

United Kingdom & Ireland

102

-

102

Group

237

(2)

239

Investing in technology, responding to change and building intellectual property

We strongly believe that equipping our consultants with evolving technology tools improves their productivity by enabling them to find the ideal candidate for their client's roles more quickly and more effectively than the competition.

To build these tools, we have invested internally in our own resources, built our own proprietary systems and intellectual property and fostered unique relationships with a number of important players in the technology world including Google and LinkedIn. These investments are now paying off, for example allowing us to receive and process around 8 million CV's a year, take our brand to over 310 million professionals globally via the LinkedIn platform and enabling our consultants to perform complex searches of our proprietary OneTouch database in seconds.

In a world where speed of response and the quality of relationships are key to success, these tools, combined with the expertise of our consultants, are delivering us real competitive advantage and underpinning both our financial performance and the growth in our market share and leadership.

Good growth in both temp and perm businesses

Net fees in the Temp business, which represented 59% of Group net fees, increased by 5%(1). This comprised a volume increase of 7% partially offset by a decrease in mix/hours worked of 2%. Underlying Temp margins(3) were flat at 16.6% (2013: 16.6%).

Net fees in the Perm business increased by 5%(1), as volumes increased 7%, driven by improved client and candidate confidence in several key markets, most notably the UK and Asia as well as some European markets. This was partially offset by areduction in the average fee per placement of 2%, largely as a result of business mix.

Asia Pacific

Australia tough but sequentially stable for the last six months excellent performance in Asia

Growth

Year ended 30 June

 (In &pound's million)

2014

2013

Actual

LFL(1)

Net fees

173.9

211.8

(18)%

(6)%

 

 

 

Operating profit

49.7

67.2

(26)%

(14)%

 

 

 

Conversion rate

28.6%

31.7%

 

Period end consultant headcount

1,055

1,024

3%

In Asia Pacific, net fees decreased by 18% (6% on a like-for-like basis(1)) to &pound173.9 million and operating profit decreased by 26% (14% on a like-for-like basis(1)) to &pound49.7 million, representing a conversion rate of 28.6% (2013: 31.7%). The difference between actual growth and like-for-like growth rates is primarily the result of the material depreciation in the rate of exchange between the Australian Dollar and Japanese Yen versus Sterling during the year, which reduced net fees in the division by &pound26.4 million and operating profits by &pound9.2 million. Prevailing rates of currency exchange continue to represent a significant sensitivity for the reported performance of the division.

In Australia, net fees decreased by 13%(1) as overall market conditions remained tough throughout the year. Temp net fees, which represented 70% of net fees, decreased by 9%(1) but were sequentially stable through the year. Perm net fees decreased by 24%(1) as candidate confidence remained subdued, and that market was challenging through the year although activity levels were broadly stable for the final six months. At a specialism level, whilst Accountancy & Finance remained tough and was down 21%(1), our largest specialism, Construction & Property, was flat(1). We saw good net fee growth of 6%(1) in New Zealand.

In Asia, which accounted for 21% of the division's net fees, we delivered excellent net fee growth of 25%(1) and operating profits more than doubled(1) to &pound4.9 million. Four of the five Hays businesses in the region delivered record annual net fees and all five businesses delivered growth of over 15%(1). Net fees in China grew 25%(1), Singapore 28%(1), Malaysia 29%(1) and Hong Kong 42%(1). In Japan, net fees increased by 17%(1) and market conditions were strong throughout the year.

Consultant headcount in the Asia Pacific division increased by 3% year-on-year, weighted towards additions made in the second half. In Australia & New Zealand, consultant headcount decreased by 2% year-on-year but was up 3% through the second half. In Asia, we ended the year with over 350 consultants and consultant headcount increased by 16% as we invested to drive growth and capitalise on supportive market conditions across the region.

Continental Europe & Rest of World

Germany growth good significant market improvement and material &pound7.7 million profit increase in rest of the division

Growth

Year ended 30 June

(In &pound's million)

2014

2013

Actual

LFL(1)

Net fees

        305.0

285.2

7%

8%

 

 

 

Operating profit

          64.4

52.7

22%

20%

 

 

 

Conversion rate

21.1%

18.5%

 

Period end consultant headcount

2,145

2,084

3%

In Continental Europe & RoW, we delivered good net fee growth of 7% (8% on a like-for-like basis(1)) to &pound305.0 million, driving excellent operating profit growth of 22% (20% on a like-for-like basis(1)) to &pound64.4 million. The difference between actual growth and like-for-like growth rates in net fees and operating profit was due to the varying, often material fluctuations in the rates of the various operating currencies of the division versus Sterling, notably the appreciation of the Euro offset by the depreciation of the Brazilian Real and Canadian Dollar. The conversion rate of the division increased to 21.1% (2013: 18.5%) driven by good net fee growth and strong drop through of incremental net fees into operating profits, notably across several Continental European markets.

Germany, which represented 54% of the division's net fees, delivered good net fee growth of 8%(1). We saw growth across Contracting and Temp, which together grew by 7%(1), and Perm which grew by 10%(1). We saw strong growth in our newer specialisms, which now represent 27% of Germany net fees, particularly Accountancy & Finance, Legal and Sales & Marketing all of which grew by 20%(1) or more. Net fees in IT, which represents 41% of Germany business, grew by 8%(1) whilst net fees in Engineering increased by 2%(1). September's general election and subsequent coalition negotiations have created a degree of uncertainty regarding future regulations governing Temp and Contractor markets, which has impacted recruitment decision making in certain client segments. However, the long-term structural growth opportunity in Germany remains unchanged, and we are ideally positioned to continue to benefit from the increasing demand for specialist recruitment services.

Across the rest of the division, net fees were up 8%(1) with significant drop-through into operating profit, up &pound7.7 million. We saw improved market conditions overall and materially improved our financial performance as a result of increased productivity of our consultants as well as our continued focus on tight cost control. France, our second largest country in the division, delivered record annual net fees with growth of 5%(1), a good performance against the backdrop of a market which remained subdued throughout the year. Elsewhere, 13 other countries delivered record annual net fee performances, including Switzerland, Belgium, Russia and Poland.

In Latin America, Chile, Colombia and Mexico all continued to perform well, although Brazil remained tough and net fees were down 32%(1). In North America, Canada delivered solid net fee growth of 5%(1) and our business in the USA continued to perform well, increasing net fees by 73%(1).

Within the division, 14 countries delivered net fee growth of 10%(1) or more while three countries saw net fees decline(1) in the year.

Consultant headcount in the division increased by 3% year-on-year. In Germany, consultant headcount increased by 3%, and was broadly flat through the second half. We invested in markets which demonstrated clear growth opportunities, many of which showed sustained recovery after having been challenging for some time, such as Spain where consultant headcount was up 9%, Benelux up 8% and the UAE up 29%.

United Kingdom & Ireland

Strong, broad-based growth across all regions and most specialisms excellent operating profit leverage

 

 

Growth

Year ended 30 June

(In &pound's million)

2014

2013

Actual

LFL(1)

Net fees

        246.0

222.0

11%

11%

 

 

 

Operating profit

          26.2

5.6

368%

368%

 

 

 

Conversion rate

10.7%

2.5%

 

Period end consultant headcount

2,157

1,929

12%

The United Kingdom & Ireland delivered strong net fee growth of 11%(1) to &pound246.0 million and generated material improvement of operating profit to &pound26.2 million (2013: &pound5.6 million). Our Temp business delivered good growth of 7%(1), whilst our Perm business delivered strong growth of 16%(1) as candidate confidence improved through the year.

Activity levels were strong and broad-based, with all regions delivering net fee growth. We saw stand out performances from Scotland & Northern Ireland, Midlands, North West, East and South of England, each of which grew by more than 10%. In Ireland our business delivered excellent net fee growth of 27%(1).

At the specialism level, Construction & Property delivered excellent growth of 21%(1), IT performed strongly and was up 15%(1), whilst net fees in our largest specialism of Accountancy & Finance grew by 11%(1), within which our Senior Finance business grew by 12%(1). Activity levels in our Banking business remained more subdued, declining by 3%(1).

Our private sector business, which represented 71% of the division's net fees, delivered good net fee growth of 9%(1) and our public sector business delivered strong net fee growth of 16%(1), driven by particularly good performances in Education and Healthcare.

The strong improvement in profitability in the UK & Ireland business was the result of meaningful net fee growth of 11% and average consultant headcount growth of only 7%, as we improved the productivity of our consultants and also the positive impact of the range of cost reduction measures we announced in February 2012. These factors combined generated the excellent 86% drop-through of incremental net fee growth into operating profits. We believe our UK & Ireland business is well-placed to take full advantage of the current market opportunity, as well as any further market improvement. Going forward we anticipate a drop-through of incremental net fee growth into operating profits of c.60%.

Consultant headcount in the division was up 12% year-on-year, primarily in the second half, as we invested with the aim of growing market share and taking full advantage of those market segments which present clear growth opportunities going forward.

Current trading

Strong growth in the UK and many other key parts of the Group Australia sequentially stable continued good growth in Germany

We continue to see good overall levels of net fee growth, and in several key markets growth remains strong.

We will continue to invest quickly to capitalise on the many clear growth opportunities that exist, whilst acting if necessary to control or reduce costs in any businesses that remain, or become challenging.

Movements in the rates of exchange of the Group's key currencies, notably the Australian Dollar and the Euro, remain a material sensitivity to our reported financial performance. 

Asia Pacific

Conditions in Australia remain tough, but have shown broad-based sequential stability for the last eight months. The Temp market, which represented 70% of our Australian net fees in FY14, has been sequentially stable for twelve months. In the Perm market, candidate confidence remains subdued although activity levels remain sequentially stable. New Zealand continues to demonstrate good growth and in our Asia businesses, growth remains strong.

Based on the prevailing conditions across the division, we expect headcount to increase selectively through the first half of the year as we invest to support opportunities for growth.

Continental Europe & RoW

In Continental Europe & RoW, levels of growth remain good overall. In Germany we continue to see good year-on-year growth. In the rest of the division, conditions in most areas are good. Canada is strong, France remains challenging though our business there continues to perform well and although Brazil remains tough, it is broadly sequentially stable.

Overall, we expect headcount in the division to increase on a selective basis in the first half of the year with Germany remaining broadly stable and investments to support growth in the rest of the division.

United Kingdom & Ireland

In the UK & Ireland we continue to see strong growth, especially in the Perm market, with broad-based growth across all regions and most specialisms. Candidate and client confidence remains strong.

Whilst we remain focused on driving consultant productivity and the efficiency of our UK operations, we expect to increase headcount in the first half of the year to continue to capitalise on strong market conditions. 

 

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