Hays plc (HAS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Preliminary Results for the Year Ended 30th June, 2020. [Operator Instructions] I must advise you that this conference is being recorded today on 27th of August, 2020. I would now like to hand the conference over to your first speaker today, Alistair Cox. Please go ahead, sir.

Thank you very much, Nadia. Morning, everybody, and welcome to our full year results. Clearly, we'd all like to be sitting and presenting these results in person, but we [ also ] have been unusual times these days. So here goes with our first Hays remote annual results presentation, where I think it's fair to say that virtually every single one of us on this call is in a separate location. We will, however, stick to our traditional format. I'll take you through the operating review before Paul then addresses our detailed financials as well as current trading, and then I'll finish off with an update on our strategy. So I think it's obvious to everybody that the pandemic has been all-consuming on our world. However, we should also recognize that the economic backdrop was deteriorating even before the pandemic hit in our final quarter. We faced a number of specific events in our first half, including, for example, the U.K. general election, general strikes in France, the bushfires in Australia. And that all combined to dampen our growth. The pandemic and the resultant lockdowns then began in our third quarter, and the effects clearly dwarfed these previous events. And as an indication, our quarterly net fee sequence through FY '20 was 0%, minus 4%, minus 7% and then minus 34%. I'll put in this into context, those fee declines as a result of COVID-19 match to that of the global financial crisis, but they happened in only 6 weeks versus the 8 months of the GFC. Now our business has been around for around 52 years, but in all that time, we've never seen such a sharp deceleration in activity. That said, as difficult as the markets have been, it's also fair to say that trading has stabilized faster and at higher fee levels than we expected at the time of our equity raise. And coupled with a stellar performance in terms of cash collection, we now have the strongest balance sheet in our history, and that has allowed us to protect our core infrastructure. So facing such a challenging backdrop, as you'd expect, we've been incredibly busy. #1 priority was, and it remains, the safety of our colleagues, our clients and our candidates. And we immediately implemented travel bans and quarantines often before local government guidance. I'm very relieved to say that to date, only a very few of our colleagues have knowingly contracted the virus and all have since recovered. Our offices in China, obviously, were the first to close, and we learned a lot from that initial phase that has stood us in good stead in the months to come. As lockdowns spread globally, we then switched to our entire business to working from home overnight with complete operational continuity. And I think great credit is due to our technology teams worldwide. They ensured that all of our colleagues retained full working functionality, helped by our rapid rollout of Microsoft Teams to support remote working. Consultant activity with clients and candidates has remained very strong through the lockdown as we adjust it to this new way of working. And as restrictions have eased in recent weeks around the world, we now have around 80% of our offices globally opening, and we're operating under a hybrid model of remote and office working, and we're already starting to see some of the benefits that this can bring. Also, in support of our clients and candidates, we launched Hays Thrive. That's our unique free-to-use employee training and well-being platform. And in the 3 months since launch, we've already had 17,000 client sign-ups, which includes 5,000 new clients to Hays and over 51,000 individuals registering their own personal learning account. This is all part of our strategy to become lifelong partners to our customers. And it shows that we can bring innovative new services to market very quickly even when conditions are so volatile. With fees under such sharp decline, we obviously have reduced our cost base, but we did that while protecting our core business operations and our productive capacity. Overall, we reduced the monthly cost base by around 20% between February and June. And as part of this, as of the 30th of June, 18% of group employees were either in job support schemes, short-term working -- short time working arrangements or had voluntarily reduced their pay, including senior management. We also took swift and decisive action to strengthen our balance sheet via our equity raise, we’re hugely grateful to our shareholders for their support, and our financial strength now allows us to navigate the pandemic, however long its effects may last. We'll use it to take market share as organizations fly to quality suppliers, and it has allowed us to protect our productive capacity that we've invested in over so many years. As ever, however, rest assured that we will use our capital in a highly disciplined way. And when conditions improve, the Board will consider how best to reinstate our capital returns policy, as that remains an important aspect of our strategy. We also undertook a strategic return to growth review of each of our divisions globally, and we've agreed over GBP 20 million of accelerated investment plans in attractive opportunities such as our IT business, and our large corporate accounts businesses, which I'll return to later in the strategy section. Yes, of course, that does mean a short-term impact on profitability. But we also think it's absolutely the right thing to do as we set Hays up to be a winner in the post-COVID world. And our focus is to make sure that Hays is in the best possible position for the recovery when it comes. Finally, I think it's at times like this that the company's purpose and its culture becomes most evident. Over decades, we've very deliberately built our culture, and it's been deeply moving to me to hear so many success stories and team initiatives, which have brought colleagues together around the world and helped our clients and candidates. With so many thousands working from home, connectivity and communication across all of our people globally has been absolutely vital both to ensure their own productivity as well as their own well-being, and that has gone flawlessly. I'm also very proud that, in these tough times, we've helped literally thousands of people find new work every single week. And after all, alongside our family and our health, careers and our livelihoods are fundamental in our society. And we feel privileged to be playing our part, and as CEO, I simply could have not asked for more from our team. I think they've been absolutely exceptional. Turning then to our results. Considering the macro storms that we've faced, I think the business has stood up well to the challenge. Over the year, the fees declined by 11% to GBP 996.2 million, 7 of our countries grew fees year-on-year, including 6 individual records. Operating profit declined by 45% to GBP 135 million. Prior to the pandemic, we were already reducing our cost base to defend profitability, as markets had started to soften. We restructured several European countries, particularly in Germany, we incurred exceptional charges of GBP 19.6 million. This is expected to deliver around GBP 15 million of annualized cost savings. At the same time, we continued our strategic investments in key markets such as our IT specialism globally. IT is now our largest specialism by some margin, representing about 1/4 of group net fees, and we now find ourselves as one of the world's largest recruiters of IT talent. Global IT fees performed better than the group average. They were down 4%, but outside Germany, IT grew by 2%. Cash generation was excellent. 183% of operating profit was converted into cash. And our Temp debtors book on round substantially in the fourth quarter. But I do hope that, that is a short-term effect. I want to see our Temp book expanding as we return to growth in the future. And we're clearly in a very strong position to fund that. Clearly, we've been dealing with a world full of huge change and uncertainty. However, the steadfastness and innovation shown by my colleagues around the world and just their sheer grit to get so many things done so quickly just shows us all what a remarkable organization is. So let me give you a little bit of additional color on each division. Starting at the other side of the world and considering the backdrop, I think our Australia & New Zealand division deserves great credit. Fees fell by 11%, and profit was down 25%, and within that, Temp was relatively resilient, down 6%, but perm was more difficult, down 20%. Our first half fees fell by 4%, and that was in part impacted by the bush fires in December. Activity levels were then starting to improve before the onset pandemic. But the lockdowns have a relatively less impact on our business in ANZ than in other regions, and fees declined by 28% in our final quarter, with Temp down 18% and Perm down 52%. Sector wise in Australia, the professional sectors, such as Accountancy & Finance, were the hardest hit, that was down 23% in the year. However, again, a recurring theme, IT demonstrated its resilience with flat fees, and our corporate account business had an excellent year, it was up by 1/3. Consultant headcount across the division declined 20% year-on-year. Turning now to our largest country, Germany. Net fees fell by 13%, and profit was down 41%. The growth slowed materially through the first half amid broad signs of reduced business confidence as well as increased client cost control. And this was particularly evident in the larger clients, obviously, in the automotive sector, although there were also some signs of weakness spread into the large financial services sector clients. And in response, as I mentioned earlier, in January, we restructured the German business to provide greater local focus on the midsized Mittelstand enterprises alongside a dedicated large corporate accounts division, that came at an exceptional cost of GBP 12.6 million. We completed that restructuring in our third quarter, and we expect it to deliver annualized cost savings of around GBP 10 million. Contracting is our largest area at 58% of German fees, and it operates under a freelancer model, that was relatively resilient and declined 9% in the year. The Temp business, however, was much weaker, and it declined 24%, with Q4 down more significantly. A large proportion of this decline was due to the underutilization of Temp workers, and Paul will cover the actions that we took towards year-end to reduce this bench exposure. I think we're making good progress in reducing underutilization. However, I also remain convinced that there is a large and growing market for highly skilled temps in Germany, and we're determined to continue to lead it. The third part of the business is the Perm business. It's 17% of the German fees, and there remains a lot of structural outsourcing potential there, and the performance was relatively solid, given the conditions, falling just 8%. So in summary, our restructure in Germany, I think, can set our business up to capitalize on the structural growth that remains there once the market stabilize as well as to reinforce our market-leading position. Germany remains, in my view, the most exciting recruitment market in the world, and we believe that there remains substantial value to unlock there. Moving now to the U.K. and Ireland, net fees fell 14%, and profit was down 66%. Fees in the first half had already declined 4% as clients and candidate confidence weakened in the run up to general election. The second half, however, was much tougher as the lockdown impacted, and Q4 was down 42%. Temp is about 61% of the U.K. and Ireland fees, that was relatively resilient. It was down 9%. The Perm market was much tougher, and it declined 22%. Again, our public sector business outperformed the private sector, with fees down 3% and 19%, respectively. Regional performance around the U.K. was broadly similar to the overall U.K. average, but London, which is our largest region, around 1/3 of the U.K. business, fared slightly better. It was down 10%. And finally, at the specialism level, IT, yet again, delivered an excellent performance, up 4%. However, Accountancy & Finance and Construction & Property, much more difficult, down 19% and 20%, respectively. Overall consultant headcount, which includes those that were on the furlough schemes, decreased by 6%. And our final division, Rest of the World. Obviously, with 28 countries in that division, performance was understandably mixed. In Europe and the Middle East, outside Germany, fees fell by 9% in the year following a flat first half. Our largest markets there are France, Belgium and Spain declined by 13%, 14% and 15%, respectively. Although Russia and Switzerland delivered strong performances, up 7% and 5%, respectively. Asia overall declined by 9% in the year after growing 4% in the first half. In that region, China is our largest Asian business, and following a flat first half, fees fell by 17% over the year, as that was the first country to be hit by the pandemic. In contrast, Japan was more resilient. Fees there were down just 2%, and I also think a special mention is deserved for our team in Malaysia. They grew fees by a remarkable 28%. Across the water in the Americas, the U.S. was our standout performer, with fees up 12% in the first half and 3% year-on-year despite the effects of the pandemic, and IT represents 2/3 of our U.S. business, and it grew by an impressive 9%. Overall, average Rest of the World head count decreased by 11% year-on-year, but we did protect our infrastructure because once the pandemic has passed, our Rest of the World countries continue to offer some massive structural growth opportunity, particularly for first-time outsourcing of recruitment, and that gives me great confidence for our future. Then pulling all of this together, as you know, since 2013, we've maintained an ambitious set of 5-year profit ambitions. Looking at our 2022 plan, we said at our first half results, back in February, that the targets remained valid, but that economic weakness meant that it would take a couple of years beyond 2022 to achieve those targets. However, as GDP in our main markets has since collapsed, at rates unseen in peace time, I have to say that the plan as outlined in 2017 is now no longer valid. Remember, though, that we've always said that our long-term plans, they are a means to convey the scale of the opportunities, almost an art of the possible Hays over the medium to long-term when supported by a stable global economy. They also act as a strategic guide to us internally, so that we focus our ambition as well as our resources where most appropriate. And as such, once we see sustained green shoots of recovery, our plan is to conduct an Investor Day where we'll present a new 5-year plan. Back in 2013, our first plan showed us doubling our profits to GBP 250 million, which we then subsequently delivered. So despite limited visibility, I do think this framework is very effective at articulating where we can take Hays in the future. Remember, our industry continues to face significant structural opportunities, and we have built leadership positions in many of the key global markets, and that combination gives me every reason to be confident in our long-term potential. So needless to say, it's been an incredibly tough year. However, the team have worked tirelessly to make sure the business is in the strongest possible shape, both to weather the storm but also to grow once again once our markets stabilize. We have a clear strategy in place. We are the leaders in some of the best markets in the world. We also have a highly experienced and long-established management teams everywhere around the world, and they've already navigated through many periods of uncertainty, including the global financial crisis. So we know what to do. We'll continue to do the right thing for the long term. That's investing in the strongest sectors, taking market share and protecting our productive core whilst also appropriately managing our near-term cost base. I'll now hand over to Paul, who will take us through a deeper look into our financial performance as well as an overview of current trading. Paul?

Thank you, Alistair, and good morning, everyone. Before I start the highlights of the financial review, unless otherwise stated, when I refer to operating profit and EPS, I'm representing numbers before exceptional costs of GBP 39.9 million, which I'll cover in more detail shortly. On this slide, we have shown the quarterly fee trends over the last 2 financial years. Prior to the pandemic, global macroeconomic conditions have been slowing for over 18 months. This reflected falling business confidence as clients moved from, firstly, reducing investments, then to cost control and on to cost reduction as the first half of FY '20 progressed. In our first half, whilst we continue to invest in structural growth opportunities, including our IT specialism, we had already moved to reducing costs in those markets that have become more difficult. And I completed a program to reduce our global overhead by GBP 5 million and have already reduced our headcount by more than 200 people. The second half of the year, and particularly Q4, saw severe pandemic-related lockdowns, which caused the fastest fee decline in our 52 year history. The relative level of fee reduction per region in Q4 was very much linked to the severity and length of each country's lockdown. As the magnitude of the pandemic became evident, we moved to swift and appropriate cost reduction. On to summarize what has been a very tough year. Net fees decreased by 11% on a like-for-like basis. We delivered GBP 135 million operating profit, which is all generated in the first 9 months of the year. Q4 was broadly breakeven. Our equity raise in April strengthened our financial position and our strong cash performance, driven by excellent credit control globally and a partial unwind of the Temp debtor book, added further strength. As a result, we finished the year with our strongest ever balance sheet with net cash of GBP 366 million, excluding short-term deferrals of tax payments. Moving on to the income statement. Turnover decreased by 1% in the year, with the difference between turnover and fees primarily explained by 3 large client wins, which included a high proportion of payroll revenues. The difference between the headline and like-for-like growth rates is primarily the result of the depreciation and the average rate of exchange between the Australian dollar and Euro versus Sterling. Overall, FX movements decreased net fees and operating profits by GBP 6.6 million and GBP 2.7 million, respectively. And basic earnings per share was GBP 0.0528, a 56% decrease versus prior year, reflecting the group's lower profit, higher interest charge from tax rate, which I will cover later. Alistair covered regional trading earlier, but I'll add one detail on a technical issue. In Germany, our Temp business, which is required under German law, we employ temporary workers, fees declined by 24% but including Q4, down 72%, while we had a large proportion of the decline due to the underutilization attempts, which arose primarily due to the widespread client closure of manufacturing sites during lockdown. Consequently, the net reduction of billable hours in Q4 impacted net fees by GBP 6.8 million, which is net of GBP 2.2 million reserved -- received from the German short time working program. In Q4, fees were further reduced by GBP 4.1 million as we took the decision to release 420 temps given significantly reduced levels of demand and the tough market outlook. Moving on to look at the performances of our Perm and Temp business. Our Perm business, which comprised 41% of net fees, declined 15% as an 18% decrease in volume more than offset a 3% increase in average Perm fee, mainly driven by underlying wage inflation, which we estimate was 2%. Our Temp business, which comprised 59% of group net fees, decreased by 9%. This comprised a volume decline of 6%, a 70 basis point decrease in underlying Temp margins, primarily in Australia and Germany, and this includes the impact of the underutilization of temps in Q4 that I just covered, partially offset by a 2% increase in mix in hours, driven by the relative resilience in a higher paid IT specialism. Here, we've set out the operating profit bridge comparing FY '19 and FY '20. Starting with GBP 248.8 million, we deduct the negative impact of FX on profits of GBP 2.7 million and the 11% decline in like-for-like fees of GBP 126.9 million explained earlier. Then there are 6 main cost buckets, which impact profitability. As explained in the interims, we invested GBP 10 million to accelerate the growth and capacity of our IT specialism around the world. We incurred GBP 8 million higher property costs increasing capacity in existing offices, primarily in Asia. And as we said before, these decisions were taken some 2 years earlier. An additional GBP 4 million in our IT capability and cybersecurity, and finally, GBP 9 million of pay inflation and other cost increases. Pre-COVID, we'd already identified cost savings, including a GBP 5 million overhead reduction program in the second half and GBP 5 million of other savings. As the extent of the pandemic that came clear in March, we took swift and appropriate cost duction to reduce our variable and discretionary costs, including headcount. This led to cost reduction of GBP 37 million, which we'll explain in more detail in the next slide. Overall, while we materially reduced our cost base, importantly, we ensure that we protected our core business operations and productive capacity. The speed and severity of the downturn led to a material reduction in group conversion. On this slide, we set out -- how we reduced the cost base per period as the pandemic hit. Our pre-COVID cost base was GBP 73 million per period. We achieved payroll savings of GBP 9 million, comprising GBP 4 million reduced commission, GBP 3 million in headcount and GBP 2 million lower management incentive costs. Additionally, other overheads reduced by GBP 3 million, including travel and office costs, and we received GBP 3 million of various government support schemes globally. This reduced our cost base to circa GBP 58 million by June. In Q1, the period costs will increase as government schemes end, adding GBP 3 million, we move back to more normal levels of incentive payments, GBP 1 million and office reopenings and other costs at GBP 1 million. And we anticipate GBP 1 million per period of return to growth investments starting in August, part of the total GBP 15 million, which we'll discuss later. And finally, costs were reduced by circa GBP 1 million of further headcount savings, giving a per-period cost base of GBP 63 million at current levels of trading. Our P&L is sensitive to changes in key exchange rates, namely the Australian dollar, and even more so, the euro. As we said before, the group does not undertake any P&L translation hedging arrangements. IFRS 16 leases become effective for the group on the 1st July 2019, and the group is reporting under this new standard for the first time. We've applied the modified retrospective approach with no restatements to prior years. The left-hand side sets out the impact on the income statement, which leads to an operating profit increase of GBP 1.9 million and a profit before tax reduction of GBP 3.4 million. And on the right-hand side, we set out the impact on the balance sheet, both at the start and end of FY '20. And the reduction in asset and liability levels during the year reflects that there were minimal new leases signed during FY '20. Moving on to interest and tax. The net finance charge for the year increased to GBP 8.8 million due to the adoption of IFRS 16, which increased the interest charge by GBP 5.3 million, and a GBP 1.4 million increase in IAS 19 pension charge, but of which are noncash. Looking forward, we expect net finance charge to remain at circa GBP 8.5 million in FY '21. Turning to tax. Our effective tax rate increased to GBP 36.6 million, driven by the geographic mix of profits, the impact of trading losses in certain countries and a write-down of the U.K. deferred tax asset. With such a wide range of potential trading results in FY '21, at this stage, it's not possible to forecast the group's effective tax rate for this year only. During the year, we incurred an exceptional cost of GBP 39.9 million comprising, firstly, GBP 19.6 million of restructuring, including GBP 12.6 million in Germany. We've restructured its operations to focus more on mid-sized enterprises while creating a specific large corporate accounts division. And the remaining GBP 7 million resulted from the restructuring of several country operations after the fall in demand for recruitment services due to the pandemic. This will deliver annualized savings of GBP 15 million, of which GBP 2 million was realized in FY '20. Overall, the cash outflow was GBP 8.1 million in FY '20 and will be GBP 11.5 million in FY '21. And secondly, we've written down the carrying value of goodwill by GBP 20 million relating to our U.S. business. The U.S. business performed in line with expectations until the pandemic. But as disclosed in previous years, the business had limited headroom on the carrying value of goodwill. And as we frequently stated, the group's priority is to continue to make investments in the U.S. business in line with our strategy to build a strong presence in that market. Because of the ongoing investment against a difficult market backdrop, we have recognized a GBP 20 million exceptional impairment loss against goodwill. Cash flow. On this slide, we've summarized the key components of our cash flow. The chart on the left details our sources of cash flow, starting with operating profit of GBP 135 million. We add back noncash items of GBP 77.7 million, predominantly IFRS 16 property depreciation and other fixed asset depreciation and amortization. We then had a working capital inflow of GBP 199 million, reflecting very strong cash collection, with debtor days reduced by 3 to 36 days and GBP 100 million partial unwind of the Temp book. We then subtract the element of that GBP 118 million, which refers to deferral of payroll taxes and VAT, resulting from various government responses to the pandemic, and we deduct lease payments of GBP 46 million. This leaves an operating cash flow of GBP 247.7 million, an excellent underlying conversion of profit into cash of 183%. From this, we paid tax of GBP 29.8 million, a net interest of GBP 1.4 million, leading to free cash flow of GBP 216 million. And on the right-hand slide, we detail how we've used the cash generated as well as the cash increase from the equity raise. The main items were dividend payments of GBP 122 million, which represents last year's final core and special dividends paid in November 2019, CapEx of GBP 25.8 million, pension deficit payments of GBP 16 million, and then finally, the net proceeds of equity raise of GBP 196 million. And for FY '21, we expect CapEx to be circa GBP 25 million. With our strong cash performance and April's equity raise, we ended the year with net cash of GBP 366 million. And in October 2019, we extended our GBP 210 million facility by year to November 2024, exercising our option in the agreement. And finally, while we're admitted into the Bank of England CCFS scheme in April 2020, up to a level of funding of GBP 600 million, we do not expect to draw on this facility. Balance sheet. On this slide, we compare the balance sheet as of June 2020, with prior year. The 4 noteworthy movements are impact of the implementation of IFRS 16, as explained earlier, an increase in the IAS 19 pension accounting surplus to GBP 55 million, primarily due to an increase in asset values, normal company contributions, net of the increase in liabilities due to a lower discount rate. The decrease in working capital explained earlier, and increase in provisions due to restructuring provisions. Moving on to shareholder returns. Our priorities for free cash flow remain unchanged, namely to Fund Group's investments in development, maintain a strong balance sheet and delivered a core dividend at a level which is sustainable, progressive and appropriate. Given the current level of macroeconomic uncertainty and the fact that we traded at a breakeven level of profitability in Q4, the Board is not proposing a final dividend for FY '20. We remain acutely aware of the importance of dividends to shareholders, and we'll look to return to paying dividends as soon as is appropriate. So in summary, given the unprecedented impact of the global pandemic on society and the global economy, we've delivered a creditable performance in the year. We acted quickly to manage costs whilst protecting our core operations and the productive capacity of our business. We delivered an excellent cash performance, driven by strong working capital management and partial unwind of the tent book, and we acted decisively to reinforce our balance sheet and finished the year with net cash of GBP 366 million. As a result, we look forward to the future with confidence. Coming on to current trading. In Australia, our business has been stable since mid-April, and we begin -- began to see initial signs of modest improvement in activity in July, particularly in Perm. It is too early to quantify the negative impact of the recent lockdown in Victoria. In Germany, overall fees are stable. Activity in Contracting is stable, and we've seen a marginally better renewal rate on June ending assignments than normal. Temp on assignment volumes are broadly stable. However, we continue to see some underutilization of Temp workers, albeit at an improving level versus Q4 FY '20. And we expect some temp underutilization and one-off costs to continue across Half 1 FY '21. In the U.K., our business is stable at low levels with modest sign of improvement in Perm activity. In the Rest of the World, we're starting to see some modest signs of recovery. Fees in EMEA ex Germany are broadly stable on a seasonally adjusted basis, with signs of some modest positive momentum, and our Asia and Americas business are stable. Overall, it's also worth highlighting that any second wave lockdowns may have short-term negative impacts on activity levels and potentially delay country recoveries. With that, I'll hand you back to Alistair, who will update you on our strategic priorities and progress before taking any questions.

Thanks very much, Paul. Let me just spend a few minutes covering strategy, in particular, what we're doing for the longer-term as well as talking a little bit about our return to growth initiatives. Now we've talked a lot in the past about some of the big changes that are underway in the world of work, what we've called megatrends and also how we're aligning our business so that we can leverage those changes to our own benefit. And if anything, some of these megatrends, I think they've only been accelerated by COVID, which makes our existing strategy even more valid. So for example, the structural attraction of non Perm and flexible working, I think that's obvious in today's world of uncertainty. And overnight, remote working has become an absolute necessity for most businesses worldwide. However, there's also still potentially some huge benefits from flexible working yet to be realized. And at the same time, we're also seeing major changes in worker demographics, workers' financial needs. People are working longer, more portfolio careers. That's becoming the new norm. And I think we are well positioned to serve those needs. And one of the side benefits of remote work in member is that we can also attract talent from both a wider geographic area, and we can create broader and deeper talent pools for our clients, and our infrastructure around the world gives us a major advantage for this versus in-house HR departments, small local agencies or the less tech-enabled larger competitors. Clearly, the pandemic has had a huge impact on the global economy. However, the 4 key themes that we've consistently used to run Hays make sure that we build a profitable and cash-generative business, those are as applicable today as ever. So firstly, when our business moves into recovery phase, we'll continue to aspire to materially increase as well as diversify our profits, and already over 80% of our profits originate from outside the U.K. Secondly, remember, we remain a highly cash-generative business, and we're acutely aware of the significance of dividends to our shareholders. And clearly, with conditions today remaining highly uncertain, the Board concluded that it's still too early right now to recommence dividends yet. We're very clear, though, that distributing excess funds above an appropriate buffer is absolutely the right thing to do. That philosophy has not changed one iota. And as I said earlier, when conditions improve, the Board will consider how best to reinstate our capital returns policy. And as a reminder, in the 3 years prior to the pandemic, we paid over GBP 374 million in core and special dividends, and we believe that such an approach remains absolutely right. Another key pillar of our strategy is to embrace technology to make us better at our jobs and enhance value of our services. And to do this, we create and grow partnerships with some of the biggest technology companies in the world. Technology and the smart use of data augments our human expertise, it does not replace it. And a great example of that is our Education Hub app, which has made great strides prior to the pandemic. Hays Hub is a fully automated temp recruitment tool for highly regulated environments, such as schools, and many of you will have seen it demoed at our technology seminar just over a year ago, and it remains unique in today's market. In this service, it could literally help every single school and every single teacher in the land. So clearly, our ambition to make a real difference is very high. Prior to the lockdown, we had around 4,300 teachers using the app every single day, and it was signed up to -- by over 2,000 schools. Since then, we've expanded the app services to include safeguarding and training. And by the autumn term, which starts next month, over 4,500 schools will be accessing the system. And we're now starting to generate meaningful fees in areas such as training, compliance, safeguarding and well-being modules. This concept also extends to many other similar regulated fields we've recently launched a version into the social care sector, for example, and we've also taken it into Australia, and I'm really quite excited by the prospects there. So together with Hays Thrive, which I mentioned earlier in the ops review, I think we're leading the way in providing training and well-being services to our clients. That enriches our approachability signals, fulfilling new roles, it builds greater engagement with the outside world, it improves employability prospects and it deepens our talent pool. So it's a win-win all around. I also mentioned in my first section, that we've identified over 20 return to growth investment projects as a direct consequence of the pandemic. We'll invest over GBP 20 million in these in FY '21 across both the revenue and the CapEx areas globally. The project was selected after a detailed bottom-up approach, which was designed to identify meaningful profit opportunities that will move our dial over the medium term. The projects themselves span many areas in specific countries, including, for example, accelerated investments in areas such as life sciences, sales and marketing specialism, engineering in some countries. But 2 common things, which continually reoccur in all regions around the world, is growing our IT specialism more aggressively as well as expanding our share in large corporate accounts, where I am convinced that there are opportunities to look after the lion's share of any clients recruitment needs. I said back at the half year results, that IT represented around 14% of group net fees in 2008. And back then, it was our third largest specialism. As the left-hand chart here shows, today, with annual fees of GBP 250 million, IT is now our largest specialism, and it represents 1/4 of group fees. Those stats make us one of the world's largest technology recruiters with over 1,700 consultants worldwide. And I think that's a privileged place that we find ourselves in today's market, but I also believe that there's a lot more to come. Remember, these are skill short markets. Pretty much every company in every country needs more technology people and support. But there's obviously a wide range of skills and subsectors under that IT banner. And our return to growth plans are targeting the most attractive areas anticipating in advance, which subsegments are likely to be in greatest demand in different economies. And when I think about some of the hottest parts of the market today, areas such as cyber, artificial intelligence and machine learning, the use of big data, DevOps. Many of these were tiny, tiny subsegments by comparison just 5 years ago. And actually, many of the roles that we're approved for today simply did not exist 3, 4, 5 years ago. So I'm proud of the progress that our IT specialism has made in the last few years, but I also believe there's no reason why it can't become greater than 30% of our group fees in the foreseeable future. Changing topic, Hays Talent Solutions is our large corporate accounts business, and it, too, has made some good progress in recent years, and it was one of our most resilient areas in FY '20. It's grown from just under 14% of group fees 2 years ago to over 16% today. We've also seen an expansion in the number of our clients generating over GBP 0.5 million of annual fees with Hays, grow by nearly 1/3 in 2 years to now 80 clients today. And that's a clear sign of taking share. And I'm personally convinced that at the larger end of the market, there'll be some excellent growth opportunities over the next few years. And each of our regions around the world is very focused on leveraging this. Projects such as these simply would not be possible without our financial strength. It is fair to say that we are investing ahead of economies recovery. But in order to reap the benefit in 2 or 3 years' time, we think it's exactly the right thing to be doing now. So wrapping it all up, we faced the toughest tough market of my lifetime, but the business has also stood up well to that challenge. My Hays colleagues around the world deserve huge credit. I'd like to thank them again, on behalf of the Board, for their outstanding efforts. We have a clear strategy, one that we believe in very deeply. We also have experienced management teams across all our countries who've been through economic cycles many times. So while it's impossible to predict where our markets might be over the next year or so, rest assured that we believe we can navigate through all conditions, protect our business and make sure that we exploit the many opportunities that remain available. And with that, Paul and I would be delighted to start to take your questions.

[Operator Instructions] The first question on the line comes from the Kean Marden from Jefferies.

Just first of all, on Germany and current trading. Is the lack of momentum in Germany, at the moment, a function of the natural lags in contracts and it's small contribution from Perm? Or is that something else that you'd sort of call out just because I think the economy is sort of picking up maybe a little more rapidly than some of the other territories at the moment? Secondly, we've seen another companies where sort of tech innovation and collaboration has suffered, and obviously, some natural distractions during COVID over the last 3 to 6 months. I'm just wondering whether that's impacted the pace of innovation and roll out of new ideas for your technology sort of internally. And then secondly, it's a small point. And I have a feeling actually that you got asked a similar question 12 months ago. Is there any reason why remuneration of other recruitment agencies is up about 10% year-on-year versus a revenue number that looks slightly down?

Kean, thanks for your questions. Let me deal with the tech one first, and then maybe Paul, I can hand over to you for the current trading and Kean's comments around momentum and the German economic recovery. In terms of tech innovation, it's absolutely not suffered, Kean. If anything, it's accelerated because one of the outputs, if you like, of the pandemic, I believe, is that the need for greater technological support and development in a more remote working world is going to be stronger than ever. So we've actually accelerated our tech innovation, and we've been very successful at doing that, even though we've been working remotely. I mentioned a couple of examples, Hays Thrive, which has really taken off. That's designed to help people understand what skills they might need and then access them. That all helps employability. Hays Hub in the education world, we've quite dramatically expanded the services that we can supply to teachers in almost a one-stop shop. So it's not just about recruitment, it's also about training, self guarding, compliance checking. And we'd expect to expand further services into the school sector as time goes by. So we have a very full program. And if anything, we're putting even more effort and resources into that space because it underpins so much of what we do. Paul, can I hand over to you for the German part?

Yes. I'll start off with the other agency question, Kean. So 3 large wins during the year, all in Australia, which brought with them quite a high other agency spend. One of them is -- [ beyond ] me, all of that is in the blue-collar space. Where we have contracts, which we've got a mix between white collar and blue collar, we're in the MSP position, and we often use a blue-collar provider to do that work. And part of that as well had a payroll element that we didn't want to take on ourselves. So certainly, on the -- if we stand back and look at our MSP business, we deliver -- we fill more than 90% of all roles on all of our contracts globally. So we're in a very strong position for that. So we'd expect to see a good slug of that in Australia convert over time. But in the blue-collar space, we'll leave that work with the blue-collar agency. And we receive a fee for managing on top. Coming to Germany, I think it's really about the Temp part of it because, you're correct, our Perm business is relatively small in scale. It's slightly more than 10% of the business. That's reasonably stable. Contracting, as we covered in Q4, was very resilient, only down 11%. So those 2 businesses haven't fallen very far. It's all really about the Temp part of it. We naturally take about a 5% step down in contractor and Temp numbers when we get to the end of June. We said in here that contracting losses was slightly less than the normal, about 1% better. So that's a positive. But the Temp part will dominate as we come through the next couple of months. And the positive is that every single week that goes by, there's greater utilization of the temps that we're retaining. And we're still working our way through some other temps that we are going to be releasing over this period. So I think overall, considering the impact in Temp, we're pretty happy to be stable. What you are correct on is, of all of the economies in the world, it has the most positive forward economic data at the moment, the most uniform, certainly across Europe. Some more data came up this morning, that's quite encouraging. So I think we're in a really good position. And as I kind of alluded to when I've covered the current trading. We're going to have 3 to 6 months of issues to work through with the Temp book, making good progress on it. I do think we'll finish that by the end of December. And then I'd expect us to see to return to sequential growth.

The next question comes from the line of Rory McKenzie from UBS.

It's Rory here. Three for me, please. Firstly, obviously, it's really good to hear the signs of improvement are now coming through, albeit tentative. Any sense if these are Perm roles that were delayed by the lockdowns, or any sign of kind of real activity recovery? And secondly, on the GBP 15 million OpEx investment, I guess, that could be around 200 or so heads. Can you say how you assess the potential payback or what you expect that to deliver given the difficult markets to judge at the moment? And then just lastly, you talked about more remote working world. Have you had any thoughts on what that means for Hays itself and your cost base? I'm aware that 20% of the offices are still closed. So any thoughts about the kind of midterm outlook there?

Rory. Let me kick off on all 3, and then Paul, I'll hand over to you for any further points on the GBP 15 million OpEx, and issues around our cost base. In terms of the Perm roles picking up, yes, there are some tentative signs of modest improvement in activity, particularly in the Perm markets in a number of countries around the world. Undoubtedly, some of that is organizations that put things on hold a while ago, while they worked out their own strategy about what they're focused on. But also, there are new roles coming through as well in different sectors that have resulted maybe postpandemic. So I think it's a combination of the two. In terms of the GBP 15 million OpEx, that goes into a whole number of areas, but it's largely bringing in more capacity, as you quite rightly point out, into specific subsegments around the world, which are country specific. I would expect that we'd start to see the returns for that in the second year. So we're not going to be seeing anything in the first 12 months because we're building up teams, training them. They're building up their databases, et cetera. It will take us into year 2 of that investment before we're seeing a return. But I still think it's a rapid and fast payback, it's exactly in line with the sorts of previous investments that we've already been making. So this is more of the same done more quickly in more areas is how I would describe it, Rory, as opposed to something fundamentally new. So we know what the track record of when you make this investment, when you start to see it washing its face and when you start to see it delivering the kind of longer-term returns that you'd expect. So years 2 -- year 2, it starts to be washing its face, years 3 onwards, you're earning very attractive returns. But clearly, we don't have a bottomless pit of investment. So we've had to be the careful and considerate and challenging on the plans that have come to us from around the world. And we've not backed everything, for example, we've been very focused on where do we allocate our resources because resources always are scarce, whether it's time, people or money. And I think we've got the right balance there. Once we've gone through year 1, then we'll assess where we've got to, and provided we're being successful, then we may well look at continuing into years 2 and 3 with some level of additional investment. But I think these are all the right things to do, to build big businesses in those segments of the market, that kind of a particular point going forward. And then finally, on the remote working, about 80% of our offices globally are now open. We have a number in places such as parts of the State, South America, et cetera, where the offices are closed at the moment for obvious reasons. At any point in time, about 30% of our people are back in an office. But each day, it might be a different 30%, if you see what I mean. Because we have to make sure that we're planning properly around safe working protocol, social distancing, et cetera. We've started at the early stage thinking through what's the implication for our office footprint and clearly, over time, we -- you can easily envisage that we may not need the space that we currently have. But that doesn't mean we'll be pulling out of anywhere. We still expect to retain a local presence. It's just that the local physical presence may not need to be as big as it's been in the past. But we're working through all of that now. I think one of the things that all companies, ourselves included, have learned through this pandemic is, number one, you can do a lot of your job remotely. Number two, over time, you may not want to do that 100% of the time. Homeworking situations around the world may not be particularly conducive either to continued strong productivity or even just in individuals' sort of well-being. So we do think there's a time and a place for the office, but we also think that we can build greater flexibility into all of our employees' work schedule. And we think that will give them a better balance going forward, actually, and create a stronger proposition for people to want to come and work for Hays, finding that balance between working in the office with your team and all the benefits that brings, whether it's cultural, training, just the social interaction, with also the ability to work from home in a planned way. Too early to say what that might say. But with that, let me hand over to Paul.

Yes. Just a couple of comments. I would add, Alistair, I guess, on the Perm side of it. Clearly, some of the indicators that we're seeing are more likely to hit into Q2, but the U.K., we are definitely seeing a fairly obvious pickup in activity levels. And I think in part, that's, of course, because the U.K. was the -- one of the toughest long -- lockdowns and the longest. So encouraging, but more likely to impact the second quarter. And I think on the investment, an important part of it is back to the key account management. And we've got a great client base, but what we're trying to do, and we've done good track record, as Alistair showed in his slides, of getting greater share of wallet of each of those accounts. So for example, there's a large investment going into the U.S. to put a number of key account managers to focus not just for the benefit of the U.S. market, but for the benefit of the global market because, of course, you've got so many global companies based in the U.S., and that will be -- and that's going to give us a return for years to come.

The next question comes from the line of Anvesh Agrawal from Morgan Stanley.

I -- sorry, my line has been on and off, so I appreciate if this has been covered before, but I just got a couple of long-term questions, [indiscernible]. First, I mean, one of the issues for the recruiting industry in general has been the level of competition increasing. Postpandemic, have you seen sort of any signs of consolidation or sort of the smaller players in the industry starting to suffer, therefore, there is a landscape for the bigger equipment companies to sort of gain market share, and probably some of the investments you're making in the field to -- sort of helps you to cover that? And second, just -- talking about the flexible working and then there are sort of 2 aspects to that. One, I mean, if more of your consultants sort of work from home, then obviously, there is scope for cost savings there? Any sort of thoughts on that? And then second, how does it sort of change the revenue model? Or does it change the revenue model for you guys at all, if your sort of consultants are working more work from home? And do you sort of need to append anything in there?

Let me kick off, and then Paul, I'm going to hand over to you. So I think it is fair to say that we will see a degree of consolidation in the marketplace. As organizations struggle to survive or grow some organizations undoubtedly will exit this market. And that will play to our benefit. So I fully expect that part of our strategy, very clearly, is to grow our own market share as a result of those changes. However, we'll do that organically. So we have no intention to engage in any kind of sort of inorganic growth. I think the opportunities are there for us to take by just doing a better service for more people. As Paul has already mentioned, there's a number of areas where we've already taken market share. And we're making investments ahead of the curve now. Paul's example in the United States is a great one. They've put in quite a significantly enhanced bigger team into our account management part of the business with that very intention to either hoover up greater market share within existing clients and do more of their recruitment spend, where we may be one of several suppliers, or to win new clients. And we've got examples of both of those going on. And that's a key part of our strategy going forward. In terms of flexible work, I'll hand over to Paul in a second on the cost savings. I personally don't see why it would change the revenue model, but Paul, any thoughts?

Look, I think 2 or 3 things. We cannot underestimate the importance of offices. And for culture, for on-the-job training, the best on-the-job training is where you hear your colleagues doing calls with candidates or clients and you get used to their success part, and that's very important for the new people we bring in the business in the first 12, 18 months. Et cetera. But I think what is true is that I've had the pleasure of being here for 14-odd years, if I'm here for another 5 to 10 years, then I don't think I'd sign an extension or expansion of a large property lease again. So I think for most businesses now, we know that in the individuals in your business that have proven themselves, got proven skills, they will get greater flexibility, and they are likely to work from home 2 days a week, 3 days a week, whatever the right model is. So I think over time, there will be savings as we work our way through. I would not be surprised to see the actual sheer space that we have per consultants in the business fall by something like 20% over the next 5-odd years. So that's some benefits. But there has no change to the revenue model. That will be the same as normal.

The next question comes from the line of Andy Grobler from Crédit Suisse.

Just one from me, if I may. The Temp gross margin was down again, and you mentioned some of that was the German utilization. Can you just talk through the other drivers of that decline through the year. And I guess, there's a bit of an add-on to that. As the IT business continues to grow, would you expect that to put further incremental pressure on the Temp gross margin?

Yes.

Paul, over to you.

Quite a weak line, Andy, sorry if I -- hopefully, I'll pick up both ones. But, you're right. First of all, on the Temp margin, it was predominantly in Australia and in Germany. And in Germany, I think there were 2 parts to that. One, without a doubt, the last -- really the last 2 years, not just postpandemic, last 2 years in the German economy has been much harder, we've been talking about weakness in automotive for some time, we've got a lot of clients, whether it's in automotive space, but also, of course, in the banking space, looking to reduce costs, et cetera. So understandably, there has been pressure on suppliers. And our aim is to stick with our customers through tough times. We have to accept that we may earn slightly less margin. And there's also less wage inflation and everything else. So that's been part of it. In Australia, specifically, of course, there has been a very long, tough slowdown in construction property and also in resource and mining. And that those have been relatively higher-margin areas and therefore have reduced. And then finally, on IT, that is correct. The beauty of IT, though, you get it both ways. It's the highest salary level specialism that we operate in on an average across the world. So we get a higher pounds margin per hour on activity. But of course, our clients recognize that. And therefore, it tends to be a slightly lower margin level versus things like Accounting & Finance, which are pretty much in the 18% to 20% level and have stayed at that level. But the important part for us is that's one of the reasons that we're always focused on our own internal efficiencies. So one of our track records over time, which Alistair has driven beautifully, has been to drive efficiencies into our business, not just in front office and consultant productivity, but of course, all aspects of back-office automation, et cetera. We've got a lot of bots being tested at the moment. Those are the things to reduce our own costs. And pretty much, we've been able to off -- more than offset through consultant productivity and our own cost reductions, any reduction in Temp margin.

[Operator Instructions] At this moment, there are no questions over the phone. Please speakers, you're welcome to announce the questions of -- from the webcast.

There doesn't appear to be any questions on the webcast. [Operator Instructions]

Dear speakers, there are no questions on the phone.

Alistair, I think we can wrap it now.

Excellent. Okay, guys. Well, thank you, everybody, for dialing in this morning. I hope it was helpful. I hope we've given you some clear indications of where we find ourselves and how we're feeling today. So we look forward to talking at the first quarter IMS in the not-too-distant future. Thanks again for dialing in.

Thank you.

That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a have a nice day.