Hays plc (HAS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Hays Trading Update for the quarter ending December 31, 2023 Conference Call. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Phillips, Head of Investor Relations. Please go ahead.

Thank you, Sandra, and good morning, everyone. Welcome to our quarterly update call for the 3 months ended December 31, 2023. Before we begin, please be aware that this call is being recorded with the recording accesses in the number and code provided in the release. Please also be aware that our discussions may contain forward-looking statements that are based on current expectations or beliefs as well as assumptions on future events. There are risk factors which could cause actual results to differ materially from those expressed in or implied by such statements. Hays disclaims any intention or obligation to revise or update any forward-looking statements that have been made during this call regardless of whether these statements are affected by new information, future events or otherwise. I will now hand you over to James Hilton, Group Finance Director.

Thank you, David. Good morning, everyone, and thanks for joining us today at short notice. I'll present an overview of today's update and discuss regional performances before taking questions. As usual, all net fee growth percentages are on a like-for-like basis versus prior year unless stated otherwise. And please note that given we have brought forward our Q2 statement, we have not yet finished our normal period-end accounting, so presenting slightly less regional and sector detail than usual. As you will see in our statement, overall market conditions became increasingly challenging through the quarter, including a clear slowdown in most markets in December. This drove a grew net fee exit rate of minus 15% and or minus 13% on a working day adjusted basis, below our October fee decline of minus 7% and November at minus 8%. Our fee exit rate in Temp was down 5% on a working day adjusted basis with perm down 25%. And as a result, we expect pre-exceptional operating profit in our first half to be circa GBP 60 million, below consensus expectations despite our ongoing actions through due costs, which I'll cover later. I'd like to highlight the following key items from the results. Firstly, our Temp business, with fees down 5% or 4% working day adjusted, continue to outperform Perm with fees down 17%. Temp volumes remained broad stable through the quarter. However, we did not see our normal seasonal step-up in worker volumes, leading to a Temp volume declined 8% year-on-year. We continue to benefit from positive margin and mix effects although this was partially offset by higher sickness on holiday leave. In Perm, markets were increasingly challenging, particularly in December, where we saw increased levels of placement decision deferrals from clients and candidates. Overall, new job registrations remained down year-on-year, but were broadly stable overall and in line with seasonal trends. However, we have seen a lower conversion of this activity into placements and further increases in times or higher. Partially offsetting Perm volume decline of 25%, our average Perm fee increased by 8%. Group consultant headcount decreased by 5% in the quarter and 12% year-on-year, as we actively managed our cost and capacity. We also reduced our non-consultant headcount by 3% in the quarter and targeted other overhead cost saves. As a result of our actions to reduce costs in the half, we have delivered circa GBP 30 million in annualized cost savings with further material savings expected in H2. As a result, we expect to incur a restructuring exceptional charge in H1 of circa GBP 12 million. Our balance sheet remains strong with cash of circa GBP 60 million in December, in line with our expectations and after paying GBP 68.3 million in core and special dividends in the quarter. I will now comment on the performance by each division in more detail. Our largest market of Germany delivered flat fees year-on-year or up 2% on a working day adjusted basis. As previously reported, there was 1 fewer working day in Germany in Q2. And in combination with 1 fewer day in Q1, this had a circa GBP 3.5 million negative impact on fees and profit in the half. Temp and contracting fees were flat year-on-year or up 2% on a working day adjusted basis. This was driven by a 5% increase from higher margins, offset by a 1% reduction in volume, a 2% reduction from few working days year-on-year and a 2% reduction from hours worked and higher sickness rates. Overall volumes in Germany were impacted by lower new project sales year-on-year through the quarter. Consultant headcount decreased by 2% in the quarter and by 3% year-on-year. In U.K. and Ireland, fees decreased by 17%. Temp decreased by 13% with Perm slowing through the quarter and down 21%. The private sector, roughly 2/3 of U.K. and Ireland fees declined by 21% with the public sector down 6%. At the specialism level, Accountancy & Finance and Technology decreased by 16% and 32%, respectively. Construction & Property decreased by 11%, although our Education business was flat. In Ireland, our fees decreased by 4%. And consultant headcount decreased by 3% in the quarter and by 10% year-on-year. In ANZ, fees decreased by 20%. Temp, 65% of ANZ decreased by 16% with Perm slowing through the quarter and down 27%. The private sector with 59% of fees decreased by 25% with the public sector down 13%. At the specialism level, Construction & Property decreased by 23% while Accountancy & Finance and Technology decreased by 21% and 19%, respectively. In New Zealand, our fees decreased by 35%. The consultant headcount decreased by 11% in the quarter and by 20% year-on-year. In our Rest of World division, comprising 28 countries, fees decreased by 11%. Perm, which is 61% of ROW fees, decreased by 17% with Temp down 1%. EMEA ex Germany decreased by 6% and slowed through the quarter. France declined by 5%, with Poland and Switzerland down 25% and 9%, respectively. The UAE and Belgium performed stronger, up 28% and 10%, respectively, while Spain was flat. The Americas decreased by 25% with challenging but broadly stable conditions through Q2. Canada and the U.S. remained tough, down 25% and 24%, respectively, with LatAm down 27%. And Asia declined by 11%, with conditions broadly stable through Q2. China decreased by 18% with Mainland China down 14% and showing modest improvement through the quarter. Fees in Japan were flat, while Malaysia performed well, up 8%. Overall, our Rest of World consultant headcount decreased by 6% in the quarter and by 15% year-on-year. Moving on to current trading and guidance. I'd like to highlight the following points. Firstly, given increased uncertainties and reduced clients and candidate confidence, our new year return to work will be particularly important in FY '24, and we are closely monitoring activity levels. It is too early to say if December's weakness reflects a more sustained market slowdown or whether this is due to shorter-term deferrals of client and candidate decisions. However, we expect near-term market conditions to remain challenging. We accelerated our cost reduction and efficiency programs focusing on increased operational performance and rigor. Our actions to reduce consultant and non-consultant headcount and target other overhead cost saves have reduced the group's cost base by circa GBP 2.5 million per period since August. This drives the circa GBP 30 million pro forma annualized group cost savings that I mentioned earlier. We also expect our ongoing actions will deliver further material group cost reductions in H2 FY '24, and I expect group headcount will reduce by another circa 3% to 4% in Q3. Clearly, though, we are also managing the business to deliver on the many long-term opportunities that we see. We are, therefore, balancing cost control with protecting our key infrastructure and investments in strategic growth markets. Our strategy is increasingly focused on enhancing our leading positions in the most attractive and skill short markets globally, including Germany, our non-Perm businesses and enterprise clients. In conclusion, although we are disappointed with the group's performance in December, we have been decisive in our actions to address costs and are firmly focused on delivering increased operational rigor and performance. I'm confident our current initiatives will materially benefit profitability once our end markets stabilize. I'll now hand you back to the administrator, and we're happy to take your questions.

[Operator Instructions] We will now take the first question coming from the line of Kean Marden from Jefferies.

I've got 3 questions. First of all, we've had a few questions from clients this morning looking for a bit more sector detail in Germany. It looks like if we break down your specialisms, Technology was probably one of the biggest swing factors, but everything seems to have faded down a bit. But I guess client interest in terms of end markets and anything that you might be able to touch on there? Then secondly, when we look at the exit rate for Germany, I'm just wondering if you can provide a bit of insight to that. So look, Temp & Contracting net fees up 2% in the second quarter and Perm flat. Just wondering if you happen to have that data for December to help us with the exit rate? And just any narrative on what wage rates inflation tailwinds have been to those numbers? And then, finally, and apologies, James, another data question. If you've got the December exit rates for Americas, which looks like, actually, it's sequentially the year-on-year rate has actually sequentially improved in the second quarter. And then France, which is like it's gone in the opposite direction, that would also be helpful.

Okay. Thanks, Kean. I'll pick each one of concern, so please remind me if I miss anything. I think, first of all, we wanted a little bit of extra detail on Germany and what did we see through the quarter of that. It's fair to say that in Germany, we saw a slowdown across the board. . If I look at the sector detail, we continue to see resilience in our engineering business, which was up 12% versus prior year. And that was clearly our most resilient business in our major market. And C&P was up 4% in the quarter. So I think what we've continued to see there, and it's a theme that we saw across the business more broadly, is in the technical areas outside of technology, we continue to see relative stability. And we've seen weaker markets in more of the professional services. So our A&S business in Germany was slightly down year-year, down 1%. HR was down 5%. And legal was tougher, and that was down 26%. And those areas in professional services had been pretty strong growth areas for us in Germany for some period of time, and that was -- and that supported quite a bit of the growth. But we have seen slowing markets in the professional services area as we move through the quarter, and that was consistent in Germany as well. In terms of Germany, in terms of exit rate, we were down 8% overall in December. And if I look at that broadly in the mix between Perm and Temp, our Temp business was down 7% or will be down flat on a working day adjusted basis, and that was driven by volumes, which were down about 3%. Our Perm business was tougher in December, similar to what we saw elsewhere around the group, and our Perm business was down 10% in December in Germany. So a consistent picture there with what we've seen elsewhere. In terms of wage inflation, Kean, and I think Germany is no different than what we've seen across the overall group. We have seen a deceleration in wage inflation compared to where we were 12 months ago or perhaps even 6 months ago. And that's consistent with the sort of pricing dynamics and in the Temp pricing dynamics that we've seen and reported on in the business. So in our Perm business, our average Perm fee was up 8% in the quarter against volume that was down 25%. And actually, in Germany, it was pretty flat. We had about 4% increase from pricing in Perm. In Temp, similar dynamic, as I mentioned, we exited the quarter, we were slightly down on volumes. We're getting a positive pricing impact there of about 4%, 5%. We did actually see slightly higher sickness in Germany in December as well, slightly hours worked around Christmas in the mix as well. But we've continued to get about a 5% tailwind from positive pricing in our German Temp & Contracting business. And then just moving on to Americas exit rate. Americas was pretty stable, actually, through the quarter, Kean. It's been tough there for some period of time. If I look at it at the overall level, North America was down 5% in December. Actually, the U.S. was slightly less down. It was down 17% and then Canada was down [ 4% ]. And in Latin America, we're down 18% in December as well. So continuing broadly stable through the quarter, and I think a relatively stable trend we've seen there for the last 6 or 9 months, but clearly not yet any sign of recovery. Did I get everything, Kean?

Almost. So the last 1 was France, just the exit rate for that. So I mean, from outside, looks like French and German macro data has deteriorated over the last few months. And I'm just wondering that's been represented in your monthly trading momentum as well. So yes, props in December would be helpful, too, James.

Yes, absolutely. And yes, we have seen a slowdown in -- particularly in Northern Europe. It's interesting, we actually hit an all-time record fees in September and again in October in France, but then we exited December at minus 18%. So we had a pretty big swing through the quarter in our French business. So having performed pretty strongly up until October, we saw a step down and a clear step down in December. And that was consistent with a lot of our other businesses that saw -- the French business is about 75% to 80% Perm, about 20%, 25% Temp. And then clearly, that had a material impact on the performance there in December.

Sorry, I lost you. Is that minus 18% day adjusted, James?

There's no real day adjustment in France.

We will now take the next question from the line of Rory McKenzie from UBS.

It's Rory here. So firstly, on the Perm slowdown in December, you commented the actual job flow was pretty stable through the quarter. So can you talk more about which points of the hiring process were you seeing that job conversion drop? And what does that tell you about client and candidate willingness to move? And then secondly, related to that. Can you also talk about seasonality. I imagine some decisions are deferred from before to after holidays, and that's normal. But equally, we've had a couple of very abnormal years. And it sounds from your comments and your cuts, you don't think this is just a timing issue. So can you talk about how you think about that issue with understanding what's going on? And then I'll come back with a question on costs, if that's okay.