UK net fees down 2% in Q4 2019 for Hays
Hays has released its results for fourth quarter ended 30th June 2019.
In the quarter, group net fees were flat on both a headline and like-for-like basis against the prior year. On an underlying basis, this represented the company’s 25th consecutive quarter of year-on-year growth. The modest weakening of Sterling versus the US Dollar and some Asian currencies was offset by modest Sterling strength versus the Australian Dollar.
Net fees in both its temp and perm business were flat year-on-year. Temp represented 58% of Group net fees, with perm 42%.
Easter fell entirely in Q4 this year, whereas in FY18 it was split between Q3 and Q4. Hays estimates this had a c.1% benefit to Group net fees in Q3 FY19, with a corresponding c.1% negative impact in Q4 FY19.
Full-year operating profit is expected to be in line with current consensus market expectations, which the company understands to be £248.0m.
For comparison purposes, if Hays re-translates its FY18 profits at the average exchange rates seen during FY19, its reported operating profit of £243.4m would be c.£240m. Looking forward, exchange rate movements remain a material sensitivity to the Group's reported profitability.
Alistair Cox (pictured), chief executive, said, "We delivered a solid end to our financial year with underlying fees up 1% and strong cash generation, despite tough comparatives, more mixed macroeconomic conditions and some signs of reduced business confidence. Asia performed strongly, up 10%, although Australia slowed in the run-up to its General Election. Europe saw mixed conditions, although our largest market of Germany delivered solid underlying growth, and Southern Europe performed well. The UK was understandably more subdued, particularly in the private sector.
“Looking ahead, we are mindful of economic and political uncertainties and will continue to focus on driving consultant productivity, while making selective investments in our key markets to reinforce our market leadership. Our strong financial position means we have an excellent platform to balance short-term performance with our long-term strategic goals, allowing us to invest to capitalise on numerous opportunities in the changing world of work."
Net fee growth in the United Kingdom & Ireland (UK&I) was understandably more subdued and fell 2% (underlying down c.1%). Growth in its public sector business, which represented 26% of UK&I net fees, was good at 7%, although conditions in the private sector were tougher and net fees fell by 6%.
Net fees in both perm and temp fell by 2%, with temp down c.1%(1) on an underlying basis.
All regions traded broadly in line with the overall UK business, with the exception of the South West & Wales and East of England, up 8% and 3% respectively, and the North of England and Scotland, down 12% and 7% respectively. Hays’ largest UK region of London fell by 2%. In Ireland, the business declined by 11%.
At the specialism level, IT again delivered growth with net fees up by 2%. Accountancy & finance and office support both fell by 1%, while construction & property fell by 3%. Education continues to be impacted by tough market conditions, with net fees down 15%.
Net fees in Australia & New Zealand (ANZ) declined by 3% in the quarter (underlying down c.2%), against tough year-on-year growth comparatives and more mixed market conditions. Additionally, the run-up to the Australian General Election in May also led to the usual slowdown in market activity.
Hays’ temp business, which represented 70% of its ANZ net fees, delivered solid growth of c.3%(1). Perm net fees, which had a particularly tough growth comparative, continued to slow and declined by 15%. Public sector net fees, which represented 32% of ANZ, were flat while private sector net fees fell by 4%.
Australia continued to slow and fell by an underlying c.2%. Its largest regions of New South Wales and Victoria, which represented 57% of Australia net fees, declined by 4% and 7%, respectively. Queensland grew by 1% and ACT by 2%, although Western and South Australia fell by 6% and 1%, respectively.
At the Australian specialism level, net fee growth in IT was a good 7%, and HR grew by 4%. Construction & property, Hays’ largest business in ANZ, remains challenging and net fees declined by 16%, while accountancy & finance fell by 11%.
New Zealand trading (which represented c.5% of ANZ net fees) continued to be tough and net fees fell 8%, similar to the previous quarter.
Hays’ largest market of Germany delivered solid net fee growth of 2%, or c.4% underlying, versus tough comparatives and broad signs of client cost control and slower decision-making. this was increasingly evident in the manufacturing and Automotive sectors.
The company’s temp & contractor business, which represents 83% of Germany net fees, grew by a solid c.4% underlying. Contracting, the larger of the two businesses, was flat on an underlying basis, while temp delivered strong underlying growth of 13%. Hays’ perm net fees grew by 4%.
Its largest Germany specialism of IT grew by a good 6%, with engineering flat year-on-year. Legal continued to be excellent, up 31%, sales & marketing grew by a strong 10% and accountancy & finance by 3%. Construction & property was tougher and declined 11%.
Hays’ Rest of World (RoW) division, encompassing 28 markets, delivered net fee growth of 2%, against a very tough growth comparative. Growth in perm, which represented 69% of RoW net fees, was 5% while temp fell by 5%. Eight countries delivered growth of more than 10%, including six all-time quarterly records. As our net fees in RoW are predominantly Perm, we estimate there was no material trading day impact year-on-year.
EMEA ex-Germany net fees were flat, versus tough year-on-year comparatives. Net fees in France and Belgium fell by 2% and 4% respectively, although Spain had a record net fee quarter, growing by a good 6%. Growth in Italy was again excellent at 23%, however Poland and the Netherlands were tougher, with net fees falling by 9% and 15%, respectively.
Asia delivered a strong performance overall, with net fees up 10%. Greater China, Hays’ largest Asian market, delivered a record quarter and grew by 9%, including Hong Kong up a strong 18%. Japan grew by 8%, also producing record net fees, while growth in Singapore was an excellent 48%.
Net fees in the Americas fell by 1%. The USA declined by 4% and Canada grew by 2%. Mexico delivered strong growth of 17%, and Brazil was also good, up 6%.
Cash performance in the quarter was strong, underpinned by good credit control, resulting in a closing net cash position of c.£130m (31st March 2019: c.£30m, 30th June 2018: £122.9m). This will enable the board to consider increasing shareholder returns, in line with our clear dividend policy.