UK&I net fees flat YoY for Hays
Hays has released its preliminary results for the year ended 30th June 2016.
Net fees increased by 7% on a like-for-like basis and 6% on a headline basis, up to £810.3m. Operating profit increased by 13% on a like-for-like basis and 10% on a headline basis, up to £181.0m, a like-for-like drop-through of incremental fees into operating profit of 40%, and the Group converted 88% of operating profit into operating cash flow. Profit before tax increased by 11% to £173.0m. Basic earnings per share were 8.48p, up 14% and dividends per share were up 5% to 2.90p.
Its industry-leading conversion rate, which is the proportion of net fees converted into operating profit, improved by 80 basis points to 22.3%. As a result of the above, the Board proposes to increase the final core dividend by 5% to 1.99p, resulting in an increase to the full year dividend to 2.90p, up 5% on prior year and covered 2.9x by earnings, in line with our strategy to build cover towards 3.0x.
Net fees in the perm business increased by 7%, as volumes increased 6%, driven by improved client and candidate confidence, especially in Europe. This was supported by an increase in the average fee per placement of 1%.
Net fees in the temp business, which represented 58% of Group net fees, also increased by 7%. This was driven by increased volumes, up 5%, and a 4% increase in the mix/hours worked over the year. Underlying Temp margins were down 20 bps at 16.7% (2015: 16.9%), primarily in Australia & New Zealand.
Commenting on the results Alistair Cox (pictured), chief executive, said, "This is an excellent financial performance, with both earnings and cash ahead of market expectations. We delivered strong, broad-based net fee growth in our international businesses, with 22 countries growing by 10%(1) or more, and an excellent UK profit performance. After three years, we remain in line with our five-year aspiration to broadly double the Group's operating profits. We also achieved the significant milestone of eliminating the Group's net debt.
“Following our headcount investment in Germany, growth accelerated and we saw strong, broad-based growth across many other European markets and much of the Americas, including the USA. Our Australia business continued to grow, driven by excellent public sector performance. In the UK, net fees were flat, as increased concern over the economic outlook negatively impacted client and candidate confidence, especially in the second half. However, despite this we delivered excellent 14%(1) profit growth, a testament to the strength of our business.
“We enter our new year in a position of strength, with a diverse, balanced and resilient global business, the strongest balance sheet we have had for many years and supportive conditions in many of our markets. Following the EU referendum, there is increased uncertainty in the UK market, but we have seen no evidence of any impact elsewhere. It is too early to tell what the longer term impact may be and as ever, we will monitor activity levels closely. In our international businesses, we will continue to invest to meet growing demand and further diversify our business by geography, sector and contract form. Our focus remains on capitalising on long-term growth opportunities while maximising earnings and cash along the way."
In the United Kingdom & Ireland Hays states it delivered an excellent profit performance, with operating profit up 14% to £52.1m (2015: £45.7m) as a result of a combination of further improvements in the productivity of its consultants, which increased by 2%, and active cost control throughout the business. This is despite the fact that net fees were flat at £271.7m. As a result, the conversion rate of the United Kingdom & Ireland increased to 19.2% (2015: 16.8%). The group’s temp business decreased by 1%, largely as a result of a more challenging public sector market, while perm grew 2%.
Hays say it saw more uncertainty across the UK market, notably in the second half, as increased risks regarding the macro economic outlook impacted negatively on private sector sentiment, especially amongst clients. This uncertainty increased in the period leading up to, and immediately after, the EU Referendum and it saw activity levels weaken significantly at the end of the financial year.
Against this backdrop, its private sector business, which represented 72% of the division's net fees, grew 2%(1), while net fees in our public sector business decreased by 4% as conditions became increasingly challenging in that market, particularly in local Government and healthcare focused markets.
Over the course of the year, London ex-City grew 11%, with mid-single digit growth in Scotland, the North and the Midlands. Its City business was down 3%, with a tough banking market. In Ireland our business delivered excellent net fee growth of 24%.
At the specialism level, office support delivered good growth of 6%, IT grew 3% while banking, where markets remain difficult, decreased by 12%. Net fees across the rest of our major specialisms, including accountancy & finance and construction & property, performed in line with the overall UK & Ireland business and were broadly flat, although Hays saw trends weakening towards the end of the financial year, particularly in its construction & property business.
Consultant headcount in the division was down 8% year-on-year (average consultant headcount down 2%), all by natural attrition, as we reacted to the decrease in activity levels and focused on consultant productivity, cost control and maximising our UK & Ireland financial performance.
In Asia Pacific, net fees decreased by 1% (but increased 4% on a like-for-like basis) to £176.1m and operating profit increased 1% (up 8% on a like-for-like basis) to £50.2m, representing a conversion rate of 28.5% (2015: 27.8%). The difference between actual growth and like-for-like growth rates is primarily the result of the depreciation in the average rate of exchange between the Australian Dollar and Japanese Yen versus Sterling during the year, which reduced net fees in the division by £9.4m and operating profits by £3.4m.
In Australia & New Zealand net fees were up 4% and operating profit was up 8%. The group’s perm business grew by 5% and temp, which represented 65% net fees in the year, grew by 4%. In Australia Hays delivered good net fee growth of 5%, with market conditions and performances varying between states and specialisms. Its largest regions of New South Wales and Victoria, which accounted for 56% of Australia net fees, were up 12%, and ACT delivered excellent growth of 21%, driven by continued strength in our public sector business. Western Australia was down 33% as reduced activity in the resources & mining sector continued to significantly impact trading across the state, although we were sequentially stable in the latter part of the year. Excluding Western Australia, net fees in Australia were up 11%, with activity led by the technical specialisms, such as construction & property, its largest specialism, which was up 9% and IT, up 10%. Overall, its public sector business delivered growth of 18%, while the private sector declined by 2%. Net fees in New Zealand were flat in the year.
In Asia, which accounted for 24% of the division's net fees, Hays delivered solid net fee growth of 4% and operating profits increased by 10% to £6.2m. Overall market conditions worsened as the year progressed, particularly in the banking sector. Despite this, net fees increased by 4% in Japan, 12% in China, 3% in Hong Kong and 7% in Malaysia, with all four countries posting record net fees for the year. In Singapore net fees were down 7%.
Consultant headcount in the Asia Pacific division increased by 1% year-on-year. Consultant headcount in Australia & New Zealand increased by 5%. In Asia, consultant headcount fell by 6% during the year as we responded to more challenging market conditions.
In Continental Europe & RoW, Hays delivered net fee growth of 16% (15% on a like-for-like basis) to £362.5m, driving strong operating profit growth of 15% (16% on a like-for-like basis) to £78.7m. The difference between actual and like-for-like growth rates is primarily the result of the depreciation in the average rate of exchange between the Euro versus Sterling, which reduced net fees by £6.9m and operating profit by £1.1m. The conversion rate of the division at 21.7% (2015: 21.9%), reduced slightly as we continued to invest in new consultant headcount, notably across several continental European markets, including Germany and France and in the US.
In Germany, which represented 48% of the division's net fees, it saw an acceleration in growth to 13% and an all-time net fee record performance in the year. Growth was strong across contracting and temp, which together grew by 12%, while perm net fees grew by 24%. The group saw strong growth in its newer specialisms, which now represent 27% of Germany net fees, particularly accountancy & finance, sales & marketing and legal which all grew by more than 10%. Net fees in IT, which represents 42% of Germany business, grew by 16% and net fees in engineering increased by 8%. Consultant headcount was up 11% year-on-year as we invested significantly to continue to build critical mass and scale in our IT and engineering specialisms as well as expanding our offering to our mid-size client base.
Across the rest of the division, net fees were up 17% and operating profit increased by £5.7m. In France, its second largest country in the division, we grew 17% and posted an all-time record net fees performance, outperforming the market and taking clear market share. In addition, Hays delivered strong growth and all-time record net fee performances in each of Switzerland, up 19%, Belgium, up 20% and Spain, up 34%.
In North America, Hays’ US business delivered strong net fee growth of 15%, while its business in Canada was flat, due primarily to continued challenging conditions in the resources-focused regions. In Latin America, Chile, Colombia and Mexico all continued to perform well, delivering strong growth. In Brazil, although market conditions remained challenging, net fees were flat, and it returned to growth in the second half.
Within the division, 11 countries delivered net fee growth of 20% or more, and the region as a whole delivered an all-time record net fee performance.
Consultant headcount in the division increased by 12% year-on-year, including increases of 11% in Germany and 10% in France.
David Cheetham, market analyst at XTB.com, commented, "Hays preliminary results for the year ended 30th June 2016 will likely be viewed as fairly solid on the whole, but investors should not read too much into the good performance as the period covered was almost entirely prior to the seismic shock of the Brexit. It's not hard to find the highlights in the report with a 7% like-for-like growth in net fees and 13% rise in operating profit both in keeping with a strong report.
"Having said that the biggest takeaway from the report may be the comments from CEO Alistair Cox surrounding the Brexit. Mr Cox stated that following the EU referendum there is increased uncertainty in the UK market, and whilst he stresses that there is no evidence of any impact elsewhere this remains the biggest risk to the business going forward. As is pointed out in the commentary, it remains too early to ascertain what the longer term impact may be and until there is a greater level of certainty headwinds will remain for the firm.”