Hays plc (HAS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the trading update for the quarter ending 30 June 2026. [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, Kean Marden, Head of Investor Relations and M&A. Please go ahead.

Thank you, Melinda. Good morning, everyone, and thank you for joining us on another warm day in London. I am Kean Marden, Head of Investor Relations and M&A, and I'm joined here today by James Hilton, Chief Financial Officer, to present Hays Q4 '26 results. . Before we begin, please be aware that this call is being recorded, and the replay is accessible using the number and code provided in the release. Please 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 updates. I'll now hand you over to James.

Thank you, Kean. Good morning, everyone, and thanks for joining us today. I'll present the key points and regional details of today's trading update before taking questions. As usual, all net fee growth percentages on a like-for-like basis versus prior year unless stated otherwise, and consequently exclude our previously communicated exits from operations in 4 countries and our divestment of the Czech Republic, Denmark, Hungary, Luxembourg, Romania and Sweden. Group net fees decreased by 5%, with Temp & Contracting down 3% and Perm down 7%. And I'm pleased to confirm that our decisive action has improved our financial performance, and we currently expect FY '26 pre-exceptional operating profit will be at the top of the consensus range following a strong return to year-on-year profit growth in the second half. I'd like to highlight the following key items from the results. Temp & Contracting net fees decreased by 3% as volumes remained stable the year-on-year decline in average hours worked in Germany was in line with our expectations and stable through the quarter. Group Temp & Contracting volumes decreased by 5% year-on-year, including Germany, down 6% and U.K. and I down 8%; Australian and New Zealand down 8% and Rest of the World up 4%. Perm net fees decreased by 7%, driven by a 10% decline in volumes, and we saw modestly lower perm activity and placement conversion through the quarter in markets outside of North America, Southern Europe and Asia. This was partially offset by a 3% increase in group average perm fee supported by our actions to target higher salary roles. We continue to carefully allocate consultants to business lines with the most attractive productivity and long-term structural growth opportunity. Target higher payrolls for candidates and invest in the best tools for our consultants. Despite challenging markets, our actions delivered an acceleration in year-on-year average consultant net fee productivity growth to 8% in Q4, including notable increases in Germany and rest of world. On a seasonally adjusted basis, productivity has now increased for a sector-leading 11 consecutive quarters. Excluding the impact of country disposals and exits, group consultant head count decreased by 4% sequentially in the quarter and by 12% year-on-year. We've continued to make strong progress towards our structural cost saving program with a further GBP 20 million per annum savings delivered in Q4. Altogether, we have achieved GBP 50 million per annum savings in FY '26, exceeding our target of GBP 45 million per annum by FY '29, 3 years ahead of schedule, and in total, have now delivered GBP 115 million per annum of structural savings since the start of FY '24. Our non-consultant head count exited the quarter down 13% year-on-year. As a result of the acceleration of our cost program in FY '26, we expect to incur a circa GBP 40 million exceptional restructuring charge, which will drive a GBP 40 million per annum reduction in costs. In addition, we have undertaken a significant review of our global property estate outside of the countries we have exited or plan to exit. This will lead to the consolidation or downsize of circa 80 properties globally, which will drive a circa GBP 10 million per annum saving and will result in the impairment of our right-of-use property assets of circa GBP 30 million. During the quarter, we took action to reshape our country portfolio as we focus on building scale in high-performing and high-potential markets where we have an ability to establish and grow leading positions. As a result, we incurred a modest noncash loss on the disposal of our operations in 6 European countries. The group's net cash position was circa GBP 20 million, which is in line with our expectations and reflects normal seasonal cash flows. I'll now comment on the performance by each division in more detail. Our largest market of Germany saw fees down 7% year-on-year. Temp & contracting net fees decreased by 7% with volumes down 6% and a further 1% impact from negative hours and mix. Temp & contracting volumes remained stable overall and average hours worked in Germany remained stable through the quarter and in line with our expectations. Perm was challenging, but broadly stable sequentially through the quarter, and the year-on-year decline in net fees was steady at 12%. In our 2 largest specialisms, technology was again flat year-on-year, while the net fee decline in engineering, our second largest, to 20% driven by greater stability in the automotive sector. Accountancy & Finance was down 15%. Property performed strongly once again with 38% net fee growth, driven by our focus on the infrastructure and the sector. And this specialism now contributes 10% of our net fees in Germany versus only 4% in FY '24. Consultant head count decreased by 6% in the quarter and by 16% year-on-year. Consultant net fee productivity increased by 9% year-on-year in Q4, driven by our ongoing focus on resource allocation, and we made strong progress with our structural cost-saving initiatives. In U.K. and Ireland, fees decreased by 8%. Temp & Contracting declined by 5%, but Perm remains subdued, down 12%, and activity softened slightly through the quarter. Fees in the private sector declined by 9% with the public sector down 6%. At the specialism level, technology was stable versus prior year, while Accountancy & Finance and Construction & Property decreased by 9% and 2%, respectively. Office support was up 1% as our actions to target higher salary rolls continue to offset lower volumes in junior roles. Consultant head count decreased by 4% in the quarter and 16% year-on-year. Consultant net fee productivity increased by 8%, and we made further good progress in improving operational efficiency and the cost structures during the quarter as we continue to optimize our office portfolio and delayer management. Once again, a key driver of productivity has been greater focus from our consultants on high-skilled roles. And as a result, year-on-year growth in average candidate salary remained at 7% in Q4. In Australia and New Zealand, fees decreased by 2% year-on-year with Temp and Contracting stable, down 2%, but Perm became slightly more challenging through the quarter and was down 1%. The private sector grew by 5%, but the public sector was again tougher and down 14%. At the specialism level, Construction & Property, our largest but 20% of ANZ net fees increased by 2% with Accountancy & Finance and Office support booked by 6% and 3%, respectively. Technology was tougher and declined by 9%. Australia net fees were down 2% with New Zealand at minus 13%. ANZ consultant head count was down 6% through the quarter and by 8% year-on-year, driven by our focus on resource allocation. Consultant net fee productivity increased by 6%. As with the U.K. and Ireland, a key driver of our profit recovery has been greater focus from our consultant on higher skill roles. As a result, year-on-year growth in our average salary of our Perm placements was maintained at 4% in Q4. In our Rest of World division, now comprising 18 countries, like-for-like fees decreased by 1%. Temp remained in positive year-on-year growth for the second consecutive quarter with fees up 5%, but Perm declined by 5%. As a reminder, our total actual growth rate includes the impact from our previously communicated exits from operations in Chile, Colombia, Thailand and Mexico and the recent disposal of our operations in 6 European countries. In EMEA ex Germany, net fees decreased by 2%. France, our largest Rest of the World country, remained challenging with net fees down 17%, but our actions to address productivity and costs are being delivered on plan, and our profit performance improved in Q4. Portugal performed strongly, and Spain again achieved record quarterly net fees, and these were up 31% and 23% year-on-year, respectively. Poland grew by 6%. In the Americas, net fees decreased by 2%. The momentum improved through the quarter in the U.S., which was down 1%, and Canada was down 8%. We have previously highlighted a substantial bid pipeline with large enterprise clients in North America, and we expect recent wins to mobilize over the coming quarters. Asia net fees increased again by 8%. Japan grew by 9%, driven by strong growth in our Temp & business while Greater China grew by 22% with improved activity in Perm. For rest of the world as a whole, consultant head count decreased by 2% in the quarter and by 8% year-on-year. I'd like to take a few moments to update you on our strong strategic progress during the quarter. As we've previously shared with you, our initiatives to improve consultant net fee productivity in real terms and structurally improve our cost base will be key drivers of profit recovery. So we are encouraged by our return to strong year-on-year profit growth in our second half. Amidst challenging markets, we are executing well and continue to make significant operational progress. We continue to invest in high potential and high-performing business lines and scale back or exit those with low performance and potential. As previously communicated, we have exited 4 countries and sold our operations in 6 European countries over the last year. And consistent with our strategy, we recently announced we are exploring options relating to our businesses in Belgium, Brazil, Greater China, Malaysia, the Netherlands, Singapore and the UAE. Consultant fee productivity accelerated 8% in the quarter and has increased now for a sector-leading 11 consecutive quarters, driven by careful allocation of consultants to business lines with the most attractive productivity and long-term structural growth opportunity, together with greater focus from our consultants on higher skilled roles and our investments to provide them with the best tools. We are mobilizing new contract wins with several large enterprise clients, which we expect to contribute to net fees over the coming quarters. And our programs to structurally reduce our cost base are performing well with the GBP 45 million per annum structural cost saving target we set last year exceeded 3 years ahead of schedule. Before moving to current trading, I'd like to share some background behind our recent country portfolio decisions. In the past, we have operated in many countries and specialisms, and that has spread us too thinly. Over the last year, we've made deliberate choices around where we compete, the specialisms we prioritize, the products we offer and where we have the greatest opportunity to grow and establish leading positions. Businesses that are #1 or 2 in clearly defined markets by country and by specialism consistently deliver stronger growth, higher margins and more resilient performances. Following careful assessment of our choices, we intend to build scale in high performing and high potential markets, where we have the greatest ability to maintain or establish leading positions. We will reinforce our competitive advantage to differentiate and to drive leadership positions through investment in our proprietary data and technology, our people, our brand and reputation. Client feedback is consistent across permanent recruitment and temp and contracting. They value recruitment agencies whose consultants provide deep specialism expertise and access to high-quality candidates. So in every market we compete in, our ambition is clear: to grow, to achieve leadership and deliver the benefits that come with it through faster matching, greater exposure to higher-value roles, stronger margins and better outcomes for clients and candidates. And where we can't, we'll step back and reallocate investments to generate superior returns elsewhere. Progress on the design of our strategy and the shaping of a more competitive operating model is well underway. We are on track to share an update alongside our full year results on the 20th of August. And I would like to thank all of our Hays' colleagues for their hard work and commitment through the year. Moving on to current trading and guidance. Our actions to deliver strong consultant net fee productivity growth and cost discipline continued to offset our lower net fees in H2, and we currently expect FY '26 pre-exceptional operating profit will be at the top of the GBP 37 million to GBP 46 million profit consensus range. To date, we have observed minimal direct impact from the developments in the Middle East, but we remain vigilant to the modest softening in perm activity through the quarter in some markets. Given heightened levels of global macroeconomic uncertainty, we continue to expect near-term market conditions to remain challenging with greater resilience in Temp & Contracts than in Perm. We were pleased once again with our net fee productivity through Q4 and believe our group consultant head count capacity is appropriate for the current market conditions, and therefore, expect it to remain broadly stable in Q1 '27, as we balance focused investment in high-performing and high-potential business lines with improving productivity in more challenging areas. We'll continue to structurally reduce our cost base to support our investments in data and technology and position Hays strongly for when end markets recover. We'll share more information regarding these initiatives and any associated restructuring charges at our full year results in August. Finally, there were no material working day impacts expected in Q1 '27. I'll now hand you back to the administrator, and we are happy to take your questions.

[Operator Instructions] And this question comes from the line of Andy Grobler from BNP Paribas.

Just a couple from me, if I may. Just thinking about perm markets and the ongoing challenging nature. Can you just talk about kind of client behavior and views and how that developed through the quarter, particularly in places like France and Australia? And then secondly, in Germany, just whether you are seeing any impact from the fiscal stimulus as yet? And what your expectations are for that coming through over the next 6 months or so?

Thanks, Andy. I'll take the first question up on the perm that we've seen through Q4. And I think back to the previous trading update we did in April, and clearly, events have just sort of kicked off in the Middle East, and there was questions then, have you seen anything in your business? And clearly, at that stage, the answer was no. I think 3 months later on, what have we seen? You've seen, if I compare the level of job inflow in markets outside of the North America, Asia and Southern Europe, and I'll come back to those regions separately, that leaves the U.K. and Ireland, Australia and Northern Europe. Our job inflow is down about 5% versus where we were in February and March at pre-Easter levels. So there has been a modest softening, I would say, in the top of funnel activity coming through, but not a dramatic one. And at this stage, we've continued to see decent levels of conversion on jobs, but probably a slight softening as well on the time to hire as business decision-making has lengthened slightly. So Andy, I'd say it's been a modest softening in those markets rather than anything significant, but we remain vigilant, and we'll see how things play out. And clearly, there's broader macroeconomic uncertainty. That leads to business confidence and fragility there, but -- that's what we're seeing right now. In North America, actually, we're seeing improving momentum in Perm. The U.S. business, which has got a big business there in Construction & Property is seeing good momentum and good levels of activity actually improving through the quarter. Asia has been pretty strong. Japan has had a good Perm quarter, so was Greater China, so it's been quite upbeat there. And as I say, in Southern Europe, we've continued to hit record after record in the business in Spain and the business is in Portugal. Italy performed well as well. So it's not a 1 size fits all by any means. On the other hand, Temp & Contracting has been really, really resilient, and we've continued to see stable trends in volumes working through the quarter and consistent with where we were back in February and March. And then specifically on the Germany position, we've talked about for some time the impact on working hours in Germany. That was stable in the quarter. We were down 5%, which is consistent with where we were in the previous quarter, and we're continuing to see that largely offset by better margin and better day rate on Perms placed and Contractors placed. So overall, pretty stable trends in Germany. Whether we're seeing any specific impact there of the fiscal stimulus, again, it's quite hard to say. I probably need another quarter or 2. Nothing obvious, Andy, at this stage. But certainly, we've seen a pretty stable picture in Germany right now in this quarter, which is quite pleasing in many respects.

And this question comes from the line of James Rowland Clark from Barclays.

So with adjusted operating profit guided to the top end of the range for FY '26. So I just wondered if you could confirm that the sale of those loss-making market has no bearing on that and this was all just sort of structural cost savings that sort of got you there and a slightly better top line? And then my sort of follow-up to that is what sort of cost savings could we see from those sold countries if you've announced? And what about the sort of remaining 13 that are available for sale at the moment on top of the GBP 50 million, I appreciate you don't consider them structural, but I'm interested to know what sort of savings you could get there? And then my second part is just on trading again. It looked like in terms of year-on-year trends, there's been a material improvement, but the outlook is very, very similar. Are we overall at a group level, just looking at those Perm markets you've just flagged as being the real -- as really holding you back because of year-on-year trends are certainly improving. Maybe that's just improving to a sort of a stable position. But is it just those sort of softer Perm markets you've just flagged? Or is there anything else to mention?

Thanks, James. I'll pick up the profit and the cost question first. So yes, we've guided towards the top end of the range for the full year, which is the 37% to 46%, which is about I think consensus was about 43%, so ahead of where the market is. And actually, interestingly, if you think about where that is from a year-on-year perspective, it means that our second half -- this second half profit performance is up about 30% versus H2 last year. So I think that's a good reinforcement of the actions we've taken to both improve our productivity and to look at the cost base more structurally as well. . With regards to the countries that we've disposed of during the quarter, the 6 countries that we disposed of made around GBP 15 million per annum in fees and pretty much zero from a P&L perspective. So cost base there, clearly about GBP 15 million per annum. We -- by the way, we don't include disposed countries in our structural cost savings because we wouldn't see that as our actions to really reduce the underlying cost base. That is more mathematical. And interesting, similarly, with the further 7 countries that we're reviewing right now, those together this year will do about GBP 70 million of net fees. And again, modest level of operating profit, not far, but somewhere between 0 and 1%. So not a lot. So you can see there that the cost base clearly is around the GBP 70 million mark as well. So as we move forward and we explain further in August about the cost-saving plans we have going forward, we won't be, again, including the cost reductions from those countries in those numbers. We'd like to keep ourselves focused on delivering real cost savings from the underlying cost structures of the business. Just -- hopefully, that was clear. Just moving on to the question around outlook and Temp & Perm. And yes, I mean, it's a fair question. Our exit rate overall was at 5%. So June performance was consistent with where we were overall as a business, we -5% down in the quarter and 5% down in June, if I adjust for working days. And then when I look at the mix within there, Perm was down 6% in June, and our contracting business was down 3%. So not dramatically different. Remember, last year, we actually had quite a tough Perm in Q4 and particularly in May and June. We had a really sort of slow end to the last financial year in FY '25, probably indeed the tariff and all that sort of stuff that happened in April time. So actually, that Perm is against quite a soft comparator. And I think looking at it, I think it reinforces the trends that we try to highlight in this trading update. The Temp & Contracting feels very stable. We look at the number of Temps & Contractors being out on placement. It's stable overall. We continue to see clients holding on to Temps & Contractors because they're valuable resources. So we see lower levels of finishes than we have done historically, slightly lower levels of new starters. But overall, it's a stable trend. The margin and hours trends are pretty stable as well. And Perm is, as I said before, and I've tried to be helpful of which markets we're seeing that little softening in Perm activity versus the markets where we're seeing actually quite robust Perm markets, and we continue to grow. So we don't have huge visibility going forward in Perm, as you're well aware. And hence, we have to be relatively sort of considered, as we think through the summer. And then what the outlook is for September, September is always a really important Perm month for us. So much of the activity we're doing now will be Perm fees in September. So we're watching it very carefully. But I think we've been trying to be as clear as we can, James, on our forward visibility on Perm versus Temp & Contracting.

And this question comes from the line of Simon Van Oppen from Kepler Cheuvreux.

Two questions, if I may. First 1 is on the portfolio reshaping. Could you walk us through the specific criteria used to classify a country as core versus noncore? And beyond the 7 countries already under review, are there any additional markets currently on the table? And should we expect further portfolio announcements before the full year results on the 20th of August? And then secondly, on dividend and capital allocation and with disposal proceeds now coming in from the portfolio reshaping, how should we think about the dividend ahead of the full year results? And going forward, what will be your capital allocation priority with your new reshape portfolio?

Thanks, Simon. And hopefully, relatively clear in my script how we've approached the country portfolio. And just to be clear, the 16 remaining countries will be the core countries that we continue with as a business going forward, and there'll be nothing else for review. . We tried to be very clear on how we prioritize the business going forward. And what we want to achieve is a more focused business. And I think in the past, we have been quite thinly spread on a geographic basis. We -- and that's led to several subscale businesses in a number of those markets. When we stand back from this, what do we want to achieve? We want to achieve market leadership in the markets that we operate in, and that's when we look at it both by geography, and importantly, the specialisms within those geographies. And the reason for that is the returns to being market leader are significant in terms of higher growth rates, historically stronger margins, and importantly, greater resilience. And I think no businesses underpin that. And it sort of lived up to that more than our German business, where we have a really, really strong market leadership. And that business has not just grown structurally over many years. Remember, that was a business we bought that did GBP 3 million in operating profit back in 2003. And we've grown that exponentially over many years and reinforced that market leadership position. And also, it's performed incredibly well through this tougher down market over the last 3 years. And I think that really reinforces the benefits of having that market leadership position. We'll reinforce those positions with investment, importantly, in data and technology, our people and our brand. But it's important to prioritize our investment, and you can't spread yourself again too thinly, and we have to prioritize that where we have scale and where we have focus as a business. So when you put that all together and our view is clear that the benefits of leadership are significant in terms of faster matching of candidates, of delivering against high-value roles, stronger margins. And ultimately, that is about delivering better outcomes for our clients and for our candidates. So this has been a pretty measured piece of work. Clearly, it's a big change, and we have many good quality businesses around the world, which will leave us over a period of time, and they will succeed, I'm sure, under different leadership. But our job and our priority is to focus on where our returns are greatest. And this is the route that we're going down. Hopefully, that was relatively clear. In terms of dividend and capital allocation going forward, clearly, we had a big lease at this time last year with the dividend, and we set out our capital allocation strategy then. Clearly, I'm not going to talk too much about that because it's a decision for August and the Board then. But safe to say that we had a reset, then we changed our core dividend to 3x our cover, and that obviously the recalibration at that point. But we'll talk about that more in August going forward.

And this question comes from the line of Rory McKenzie from UBS.