UK&I net fees up 3% in H1 2019 for Hays
Hays has released its results for the half year ended 31st December 2018.
First half operating profit was up 9% to £124.1m and net fees were £568.0m, up 9%. Profit before tax increased 8% to £122.6m. Basic earnings per share were u 9% to 5.86p and the dividend per share was up 5% to 1.11p.
Group perm net fees increased by 10%, driven by a 5% increase in volume and a 5% increase in its average perm fee. The increase in average perm fee was in part due to our 27% perm net fee growth in Germany, which is a higher average salary market and thus benefited mix. Underlying wage inflation increased slightly to c.2-3% globally, but with pockets of greater inflation in certain skill-short locations and markets.
Net fees in temp, which incorporates its contracting business and represented 58% of group net fees, increased by 9%. This comprised a volume increase of 8%, partially offset by a decrease in underlying temp margins, down 40bps to 15.0% (2017: 15.4%), and a modest increase in mix / hours worked. The reduction in temp margin was primarily in Australia and the UK.
In the United Kingdom & Ireland ("UK&I") net fees increased by 3% to £131.7m, with operating profit up 6% to £24.0m. This represents a conversion rate of 18.2% (2017: 17.7%), with continued focus on consultant productivity and good cost control driving profit leverage.
Overall, the UK market remained relatively stable despite ongoing economic uncertainty. Hays’ private sector business, which represented 73% of net fees, grew by 1%. In the public sector, net fees grew by 9%. Although underlying public sector activity has improved slightly, this growth was in part due to easier comparatives following the negative impact of IR35 changes in the public sector, implemented in April 2017. In perm recruitment, where Hays has a bias to the private sector, net fees were flat year-on-year. The company’s temp business, which represented 56% of division net fees, grew by 6%.
All regions traded broadly in line with the overall UK business, with the exception of the South West & Wales, which grew by 14%, Northern Ireland, where fees were up 6%, and Scotland and the Midlands, where net fees fell by 9% and 3% respectively. Hays’ largest region of London was up 3%. Ireland continued to deliver strong net fee growth, up 10%.
At the specialism level, IT delivered strong growth of 14%, while its largest specialisms of accountancy & finance and construction & property each grew net fees by 3%. HR grew by 15%, and its talent solutions business, which focuses on large corporate accounts, delivered 7% growth. Purchasing and education fell by 12% and 11% respectively, with the latter continuing to be impacted by the decline in public sector markets.
Alistair Cox (pictured), chief executive, said, "We have delivered another good first half, and despite increasingly tough comparatives are pleased to report 9% net fee and profit growth. Conditions were supportive in most of our markets, with 20 of our 33 countries delivering record net fees. This included our largest countries by profit, Germany and Australia, as well as exciting growth markets such as China, Canada and the USA. UK&I delivered another solid result, with 6% profit growth despite economic uncertainties.
"Our Group growth is testament to the strength of our diversified global portfolio and our leading positions in key structural growth markets. We continued to invest through the half, increasing our International consultant headcount by 10% and further building on our technology and infrastructure. Underlying cash conversion remained good, and we are pleased to grow our interim dividend by 5%.
"Looking ahead, although we remain mindful of continuing macroeconomic uncertainty, the outlook in the vast majority of our markets remains positive. Our second half focus will be on driving consultant productivity, while selectively investing in our key markets to build on our existing scale, balance and diversity. Our financial strength and highly experienced management teams stand us in good stead for the future."
Hays’ Rest of World ("RoW") division, which includes 28 countries, delivered strong net fee growth of 11% to £181.1m. Operating profit was up by 4% to £19.3m, with conversion rate down 70bps to 10.7% (2017: 11.4%), primarily due to slower growth in our EMEA ex-Germany region.
Net fee growth in the division was broad-based, with 18 countries delivering all-time record net fees. Perm net fees, which represented 69% of RoW, were up by 14%, while temp net fees rose by 6%. Modest Sterling strength versus other currencies resulted in a decrease in net fees of £1.2m, and a decrease in operating profit of £0.1 million.
EMEA ex-Germany delivered net fee growth of 7%, including 11 countries with record net fees in the half. This included France, itd largest RoW country, which increased net fees by 5%, and Spain which delivered strong growth of 18%. Poland grew by 9%, although Belgium was tough and fell 6%. Net fee growth in the region slowed through the half, notably in France & Benelux, and as a result operating profit fell by 7% year-on-year.
Asia delivered a strong performance, with net fees up 19% and operating profit up 13%. Profit growth was below fee growth due to significant investment in property and IT, including office expansions in Shenzhen, Beijing, Tokyo and Osaka. Three countries in the region delivered record net fee performances, including China, its largest Asian country, up by 31% and Japan, which grew by 7%.
The Americas grew net fees by a strong 18%, with a £1.0m increase in operating profits. Hays continues to invest most of its profits to build scale, particularly in the USA including expanded offices in Atlanta and New York. Net fees in the USA grew by 17%, and Canada by an excellent 27%, including temp up 56%. In Latin America, Brazil net fees fell by 2%, and Mexico was tougher and declined by 13%.
In Australia & New Zealand, net fees increased by 7% to £101.5m and operating profit was up 6% to £34.1m. This represents a conversion rate of 33.6% (2017: 34.2%), with the 60bps decline primarily resulting from weaker profit performance in New Zealand. Currency impacts were negative in the half versus prior year, decreasing net fees by £5.3m and operating profit by £1.9m.
Net fees in perm grew by 2%, whilst temp, which represented 67% of ANZ net fees in the half, grew by 10%. The number of temp and contracting workers reached a new record in the half, at over 21,000 per week. Both its public and private sector markets delivered good growth, up 8% and 7% respectively.
Australia, which represented 95% of ANZ, delivered a record net fee performance. Growth in net fees, up 10%, was broad-based across most regions. New South Wales and Victoria, which together accounted for 56% of net fees, were up 9% and 11% respectively. Queensland also delivered strong growth of 11%, and Western Australia was flat year-on-year. At the specialism level, Hays delivered growth in IT, up 27%. Office support grew by 12%, with banking also strong, up 20%. Construction & property, its largest market in Australia, declined by 9% while accountancy & finance was down 4%. New Zealand trading continued to be tough, and net fees were down by 25%.
In Germany, Hays’ largest market, net fees grew by 14% to £153.7m, with operating profit also up by 14% to £46.7m. This represented a conversion rate of 30.4% (2017: 30.5%). Trading in the half benefitted from two additional working days versus the prior year. The company estimates this had a c.1% positive impact on net fees and a c.4% positive impact on operating profit. Therefore, adjusted for working days, underlying net fee growth was c.13% and operating profit grew by c.10%. Currency impacts were slightly negative in the half versus prior year, decreasing net fees by £0.4m and operating profit by £0.1m.
Hays temp and contracting business, which represented 84% of Germany fees, delivered strong growth of 12%. Contracting, which represented 56% of Germany net fees, grew by 7% while temp, which represented 28% of Germany net fees, delivered excellent growth of 22%. Hays’ perm business, representing 16% of Germany net fees, also delivered excellent growth of 27%.
IT, its largest specialism accounting for 41% of Germany net fees, grew by 9%. Hays’ next largest specialism of engineering grew by 10%. It saw growth in its newer specialisms, which now make up c.31% of Germany net fees, notably accountancy & finance, up 29%, sales & marketing, up 20%, and legal, which grew by 75%.