UK net fees up 1% in Q1 2018 for Hays
Hays has released its results for the quarter ended 30th September 2017 (Q1 2018).
In the first quarter ended 30th September 2017 Group net fees increased 13% on a headline basis and 10% on a like-for-like basis against the prior year, its 18th consecutive quarter of year-on-year growth. The difference between headline and like-for-like growth was primarily the result of the appreciation of the Euro and the Australian Dollar against Sterling.
The impact of these movements in foreign exchange rates means that if it retranslates the Group's FY17 operating profit of £211.5m at current exchange rates (AUD1.6968 and €1.1193 as at 10th October 2017), the actual reported result would increase by c.£5m to c.£216m. This exchange uplift is c.£7m lower than that estimated in the Preliminary Results it released on 31st August 2017.
Germany had one less trading day in the quarter versus the prior year, which impacted its temp andcontractor business. This had an estimated c.1%(2) negative impact on Q1 Continental Europe & RoW net fee growth, including c.2%(2) negative impact in Germany.
The exit rate for Group net fee growth was in line with the quarter as a whole, with no significant differences by region. In the second quarter, there are two fewer trading days in Germany versus the prior year due to two additional public holidays. The company expects this to have a c.4% negative impact on net fees in Germany and a c.1% negative impact on Group net fees. The temp business, which accounted for 58% of Group net fees in the quarter, grew by 8%. Net fee growth in the perm business accelerated to 13%.
In the United Kingdom & Ireland, which represented 25% of the Group, net fees increased 1%. In its private sector business, representing 75% of the division, it continued to experience modest signs of improvement and net fees increased 4%, partially due to easier comparators. This was particularly evident in the perm business, which was up 2% in the quarter. Hays temp business was flat as it continued to be negatively affected by tough market conditions in the public sector as well as by the impact of the IR35 regulations. Overall, public sector net fees were down 9%.
All regions traded broadly in line with the overall UK business, with the exception of the South West & Wales, where it saw strong net fee growth of 14%, and the East of England, where net fees were down 11%. In Ireland Hays business delivered another excellent performance, with net fees up 16%.
At a specialism level, accountancy & finance, its largest business in the division, grew by 3%, while net fees in construction & property and office support increased by 1% and 8% respectively. IT and education were down 15% and 13% respectively, as they continued to be impacted by the decline in the public sector market.
Commenting on the Group's performance, Alistair Cox (pictured), chief executive, said, "We have made a strong start to the new financial year with all divisions growing. Continental Europe delivered further strong, broad-based growth, led by a record net fee performance in Germany, our largest business in the world, as we continued to invest in consultant headcount. Australia delivered another strong quarter of double-digit growth, which was uniform across all states and specialisms. We continued to see modest improvements in our UK private sector business, which returned to growth, although this was largely offset by a tough public sector market.
“Looking ahead, conditions remain good in the vast majority of our International markets. In the UK, market conditions remain stable overall. Our diverse and balanced global business, together with our highly experienced management teams and our strong balance sheet means we are well positioned to capitalise on the many clear growth opportunities we currently see across the vast majority of our markets, while maximising earnings and cash along the way."
In Asia Pacific, which represented 25% of Group net fees, Hays delivered strong growth of 14%. In Australia & New Zealand net fees were up 13%. The temp business, which represented 66% of net fees in the quarter, posted a quarterly record performance as growth accelerated to 14%. Perm net fees increased by 11%.
Australia delivered another quarter of double-digit growth, up 15%. Growth was uniform and broad-based across all regions and specialisms, as it continued to proactively invest in consultant headcount to take advantage of favourable market conditions. Hays’ largest regions of New South Wales and Victoria, which account for 58% of Australia net fees, were up 10% and 21% respectively, supported by strong activity levels in its private sector business, which was up 15%. It saw excellent growth in Queensland and Western Australia, where net fees increased 23% and 17% respectively. ACT (Canberra) also delivered another strong performance, up 14% driven by continued strength in our public sector business, up 16%.
At the specialism level, Hays delivered 16% growth in construction & property, its largest business in Australia. Accountancy & finance grew 6%, office support was up 12% and IT continued to perform strongly, up 11%. Net fees in New Zealand decreased 8%.
Asia, which accounted for 22% of the division, delivered a record quarterly performance with net fees up 18%. Japan, its largest business in Asia, returned to growth, up 6%, while net fees in China grew by 9%. Hong Kong and Malaysia delivered excellent growth of 80% and 46% respectively.
In Continental Europe & RoW, the Group’s largest division, which represented 50% of Group net fees, Hays delivered another quarter of strong growth, with net fees up 13%, despite a c.1% negative impact from one less trading day in Germany.
Growth was led by another quarterly record performance in Germany, where net fees grew 15% (underlying growth of c.17% adjusted for working days), with strong growth in its temp & contractor business, up 12%, and 37% growth in perm. Net fees in its core IT & engineering business increased 12% and within its newer specialisms accountancy & finance grew 38% and life science was up 11%.
The rest of Continental Europe delivered 14% growth, with 12 countries growing by over 10%, including Spain, Belgium, Poland and Russia. France, the second largest business in the division, delivered another strong, broad-based performance, up 10%, Hays’ 12th consecutive quarter of double digit growth. Its top two specialisms in France, accountancy & finance and construction & property grew net fees by 17% and 3% respectively.
In the Americas net fees grew by 3%. Within this, Hays saw good performances in the USA, up 9%, as well as in Brazil and Colombia, where net fees increased 11% and 9% respectively. Net fees in Canada were down 3% mainly due to tough comparators in the prior year, while Mexico declined 24%.
Fiona Cincotta, a senior market analyst at https://www.cityindex.co.uk/, said, "Hays reported a record 10% like for like increase in fees in the quarter ending in September. Continental Europe and Asia Pacific put in particularly strong performances, whilst the UK scraped together a 1% increase in fees, as Brexit weighed on sentiment.
"The lack of clarity surrounding Brexit is clearly taking its toll on hiring in the UK. Businesses are experiencing a high level of uncertainty over the future; they are still no wiser as to what will happen when the UK leaves the EU and this is starting to impact on business confidence, planning and recruiting.
"However, growth is growth, even at 1%. The great Brexit exodus has not yet started. Leavers are still being replaced, for the time being, which is a positive sign. Furthermore, the 1% growth actually represents an improvement on the last quarter, where a 5% drop was reported. The news is a welcomed relief for the sector after disappointing figures from recruiter Page Group yesterday. Hays share price is up 0.3% to 190p on the day and continues to hover close to its all-time high of 194.5p."