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Group new fees down 4% in Q2 2019 for Hays

Hays has released its results for the second quarter ended 31st December 2019.

In the second quarter, ended 31st December 2019, group net fees decreased by 7% on a headline basis and by 4% on a like-for-like basis against the prior year. The strengthening of Sterling, primarily versus the Euro and Australian Dollar, reduced its reported net fee growth.

Like-for-like net fees in hays’ temp and perm businesses declined by 3% and 6% respectively. Temp represented 58% of group net fees, and perm 42%.

The group net fee exit rate was down 6%. It was materially impacted by the general strike in France, tragic bushfires in Australia, the UK election and, to a lesser extent, a further slowdown in activity in Germany. When combined with the company’s continuing investments in strategically important, long-term growth markets, plus recent adverse FX movements, the company anticipates that H1 FY20 operating profit will be around £100m.

Hays is closely monitoring the rebound from these events, plus its New Year 'return to work' levels. During the quarter, it reviewed its cost base in detail, and as a result Hays expect its overhead costs to reduce by c.£5m in the second half. Additionally, given the step down in Germany, Hays is reviewing the cost base of that business.

For comparison purposes, if Hays re-translates its FY19 profits of £248.8m at current exchange rates (AUD1.8870 and €1.1701 as at 14th January 2020), the actual reported result would be c.£245m. This is c.£3m lower than the position at its Q1 trading update in October and represents a c.£9m reduction versus the number stated at Hays preliminary results in August 2019. Looking forward, exchange rate movements remain a material sensitivity to the Group's reported profitability.

Alistair Cox (pictured), chief executive, said, "Growth slowed markedly in December, driven by specific events in key markets: general strikes in France, tragic Australian bushfires and the UK election. Each event impacted markets already facing challenging economic conditions and low business confidence. Germany weakened further, with economic uncertainties driving increased client cost controls. The Americas performed well, with the USA a standout, while Asia was flat. Conditions in the UK remained uncertain, particularly before the election, although the result may provide impetus over time.

"The rebound from these events and our New Year 'return to work' are thus particularly important, and we are closely monitoring activity levels. Overall, we expect near-term macro conditions to remain difficult, but see continued opportunities for growth in key specialisms like IT. Our task is to balance such investment opportunities with managing our cost base, while protecting our infrastructure and market leadership. Our highly experienced management teams, combined with our financial strength, gives us confidence in achieving this balance."

Net fees in Australia & New Zealand (ANZ) declined by 7%, versus a tough growth comparative. Having been broadly sequentially stable in October and November, the perm market slowed materially in December, with sentiment heavily impacted by the bushfires.

Hays’ temp business, which represented 70% of its ANZ net fees, was resilient and declined by 2%, while perm net fees fell by 15%. Public sector net fees, which represented 37% of ANZ, decreased by 2% while private sector net fees fell by 9%.

Australia net fees decreased by 7%. Its largest regions of New South Wales and Victoria, which represented 56% of Australia net fees, declined by 7% and 11% respectively. Queensland decreased by 6%, Western Australia by 5% and ACT by 4%.

At the Australian specialism level, office support fell by 19%, and construction & property, Hays’ largest business representing c.20% of Australian net fees, remains challenging and declined by 14%. Accountancy & finance was also difficult and reduced by 14%, while IT fell by 2%. However, net fee growth in HR was strong at 12%, and sales & marketing grew by 4%.

New Zealand (which represented c.5% of ANZ net fees) grew by a solid 4%.

Net fees fell by 9% in Germany, versus a tough growth comparative. There are broad signs of reduced business confidence and increased levels of client cost control, particularly evident in the manufacturing and automotive sectors. There are also clear signs that weakness has begun to spread to the financial and services sectors.

Hays’ temp & contracting business, which represented 83% of Germany net fees, decreased by 10% as it experienced a c.4% reduction in assignment volumes, plus a reduction in average hours worked per contracting & temp assignment of c.6% year-on-year. Perm, which represented 17% of Germany net fees, also slowed and declined by 3%.

The company’s largest Germany specialism of IT decreased 6%, while its second largest, engineering, declined by 12%. Construction & property and accountancy & finance were also tough, down 17% and 9% respectively. However, sales & marketing and legal grew by a strong 16% and a good 7% respectively.

Net fee growth in the United Kingdom & Ireland (UK&I) decreased by 4%. Growth in its public sector business, which represented 31% of UK&I net fees, was good at 8%. In the private sector, net fees fell by 8%, significantly impacted by continued economic and political uncertainty. Candidate confidence weakened through the quarter, and client confidence also reduced, particularly in December.

Net fees in temp, which represented 59% of UK&I net fees, decreased by 1%, although perm markets were tougher and net fees decreased by 7%.

All regions traded broadly in line with the overall UK business, with the exception of Northern Ireland which grew by 4%, and the North West, down 12%. Our largest UK region of London fell by 1%, and in Ireland our business declined by 7%.

At the specialism level, IT delivered strong growth with net fees up by 11%. Accountancy & finance and office support fell by 4% and 3% respectively, while construction & property fell by 8%. After a number of difficult quarters, education showed some signs of stabilisation, with net fees down 3%.

Hays’ Rest of World (RoW) division, comprising 28 countries, delivered net fee growth of 1%, versus a tough growth comparative. Perm, which represented 66% of RoW net fees, fell by 4% while temp grew a strong 12%. Five countries delivered growth of more than 10%.

EMEA ex-Germany (59% of RoW net fees) net fees decreased by 1%. Fees were sequentially stable in October and November, however Hays saw a significant step down in growth in December, primarily in its largest RoW country of France, which was impacted by the general strike and declined by 3% overall in the quarter. The Netherlands was tough, down 12%, and Spain fell by 2%. Growth in Italy and Belgium was good, up 9% and 6% respectively.

The Americas (23% of RoW) increased net fees by 6%. This was driven by a strong quarter in the USA, Hays’ second-largest RoW country, with 13% growth. Mexico grew by a superb 57% and Brazil by 1%, although Canada was weaker and fell by 5%.

Asia (18% of RoW) was flat overall, led by strong 12% growth in Japan. China, the company’s largest Asian country, declined by 9%, with conditions in Hong Kong SAR becoming increasingly difficult and net fees declining by 10%. Malaysia grew by 25%.

Net cash for the group was c.£15m as at 31st December 2019 (30th September 2019: c.£90m; 31st December 2018: £32.5m). This represents a good performance and was after the payment of £121.6m of special and final dividends in November 2019.

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