Hays plc (HASL.XC) Q1 FY2026 Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the trading update for the 3 months ending 30th of September 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kean Marden, Head of Investor Relations and M&A.

Thank you, Sharon. So good morning, everyone, and thank you for joining us at the end of the busy week. I'm Kean Marden, Head of Investor Relations. And I'm joined here today by James Hilton, Chief Financial Officer, to present Hay's Q1 '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 on this call regardless of whether these statements are affected by new information, future events or otherwise. 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 are on a like-for-like basis versus prior year unless stated otherwise, and also exclude our operations in Chile and Colombia, which as we previously communicated, closed in the prior year. Group net fees decreased by 8%, with Temp and Contracting down 5% and Perm down 13%. We experienced a normal recovery in post-summer activity levels and trading was stable on a seasonally adjusted basis through the quarter. Our September growth rate of minus 8% on a working day adjusted basis was in line with the quarter overall. Perm exited down 14%, while Temp and Contracting remained more resilient and exited down 4% on a working day adjusted basis. Driven by strong consultant fee, productivity growth and good cost discipline, group pre-exceptional operating profit was broadly stable year-on-year in Q1, including year-on-year increases in UK&I and ANZ and overall was in line with our expectations. I would highlight the following from our results. In our Temp and Contracting business, net fees decreased by 5% with activity levels and volumes rebuilding through the quarter in line with normal seasonal trends. Group Temp and Contracting volumes decreased by 8% year-on-year, including Germany down 9%; ANZ down 9%, UK&I down 12% and Rest of World, down 1%, which includes strong fee growth in several of our focus countries. Perm net fees decreased by 13%, driven by a 13% decline in volumes with the average group Perm fee flat. Perm job flow and activity levels have returned to pre-similar levels in the majority of our markets, but placement volumes remained subdued due to longer than normal time to hire. Our Enterprise Solutions business was again strong, and we delivered 4% year-on-year net fee growth in Q1, successfully providing a consistent global approach to how we engage with our clients, how we contract with them, and how we deliver services, provides opportunities to capture more share of client spend by growing geographically and by cross-selling our suite of services. We continue to manage our consultant capacity on a business line basis. And despite challenging markets, our actions drove year-on-year consultant net fee productivity growth of 7% in Q1, including notable increases in the UK&I, ANZ and in Germany. This continues the encouraging trend we have demonstrated through FY '25. And on a seasonally adjusted basis, productivity has increased now for 8 consecutive quarters. Consultant headcount was reduced by 4% in the quarter and is now down 15% versus prior year. Our program to deliver GBP 80 million per annum in structural cost savings by the end of FY '29, which comprises the GBP 35 million delivered in FY '25, and the additional GBP 45 million target we communicated at our full year results continues to progress well, and our non-consultant headcount exited the quarter down 17% year-on-year. Consequently, our cost base on a periodic and constant currency basis has improved to around GBP 74 million from GBP 75 million in Q2 -- sorry, Q4 '25. The group's net debt position was around GBP 40 million, which reflected normal seasonal outflows and timing of month-end payments. DSOs were maintained at 37 days, in line with prior year. I'll now provide comments on each division in more detail. Our largest market of Germany saw fees down 7%. Temp and Contracting fees decreased by 5% with contracting volumes remaining solid overall with fewer finishes offsetting lower starter volumes. We saw a modest year-on-year reduction in average hours worked through the quarter, which was offset by improved margin and mix. In Temp, volumes and starter numbers remain weak, although automotive headwinds steadied over the summer and the sector contributed only around 8% of the division's total net fees in the quarter, which is down from around 14% 2 years ago. In Perm, conditions remain challenging and fees decreased by 18%. At the specialism level, Technology and Engineering, our largest 2 specialisms were down 1% and 16%, respectively. Accountancy and Finance was down 15%, but Construction and Property performed strongly once again and net fees increased by 44%, driven by our focus on infrastructure and the energy sector. C&P now represents 7% of Germany net fees, and we are well positioned to benefit from the government's longer-term infrastructure commitments. Consultant headcount decreased by 2% in the quarter and by 13% year-on-year, driven by our ongoing resource allocation and back-office efficiency initiatives. Consultant net fee productivity increased by 6% year-on-year in Q1 and non-consultant headcount reduced further. In U.K. and Ireland, fees decreased by 9%. Temp and Contracting fees were down 10% year-on-year and was subdued through the quarter, notably in public sector. Perm was down 9% and remain challenging, but stable. Fees in the private sector declined by 5%, while public sector was tougher, with fees down 20%. At the specialism level, Accountancy and Finance and Technology decreased by 7% and 2%, respectively. Construction and Property decreased by 12% and Enterprise performed well with net fees up 16%. Consultant headcount decreased by 7% in the quarter and by 25% year-on-year. We have taken decisive action over the last 9 months to improve consultant net fee productivity, which increased by 14% year-on-year in Q1. And have made good progress with driving operational efficiency. As a result of these actions, pre-exceptional operating profit in the U.K. and Ireland increased year-on-year in Q1. In ANZ, fees decreased by 5% year-on-year. While market conditions remain challenging, activity levels were stable through the quarter. Temp and Contracting decreased by 2%, although the conversion of Perm activity remained challenging and Perm net fees were down 9%. The private sector was down 3%, with the public sector down 7%. At the ANZ specialism level, Construction and Property declined by 4%, Technology was down 2%, Accountancy and Finance decreased by 5% and Office support was flat. ANZ consultant headcount was down 4% in the quarter and down 11% year-on-year, driven by our focus on resource allocation, consultant net fee productivity increased by 5% year-on-year in Q1. And as a result of our actions, pre-exceptional profit in ANZ increased year-on-year. In our Rest of World division comprising 26 countries, like-for-like fees decreased by 10%. Temp fees decreased by 4%, but the majority of our Perm markets remain challenging and fees were down 14%. As a reminder, our actual growth rates include the impact from our previously communicated action to close our operations in Chile and Colombia. In EMEA, ex Germany, net fees were down 13%. France, our largest Rest of World country, remained tough and loss-making with net fees down 20%, but our actions to address productivity and costs are being delivered on plan. Southern Europe was stronger with Spain and Portugal up 18% and 5%, respectively. In the Americas, net fees were down 10%. And following a subdued summer, but stronger September and improving outlook, the U.S. and Canada were down 6% and 18%, respectively. LatAm was down 14%, again, challenging, but stable. Asia net fees increased by 2%, with mixed, but improved activity overall through the quarter. Japan grew by 5% as our strategy to develop local language recruitment services alongside our existing multinational clients drove record net fees in Q1. Mainland China and Hong Kong increased by 2% and 1%, respectively, and we delivered good growth in our Temp and Contracting business. For Rest of World as a whole, consultant headcount decreased by 4% in the quarter and was down 13% year-on-year. Moving on to current trading and guidance, and I'd like to highlight the following: Given ongoing macroeconomic uncertainty, we expect near-term market conditions to remain challenging. And although we have limited forward visibility, we continue to believe this is likely to persist through FY '26. We were pleased with our net fee productivity through Q1 and believe our consultant headcount capacity is appropriate for current market conditions and therefore, expected to remain broadly stable in Q2 as we balance focused investment in high-performing business lines with improving productivity in more challenging areas. We'll continue to structurally reduce our cost base to position Hays strongly for when end markets recover. And there are no material working day impacts anticipated in either H1 '26 or in FY '26 overall. So overall, while it is difficult to predict timing, we know our markets will recover. And when they do, we remain confident that we will benefit materially. I will now hand you back to the administrator, and we are happy to take your questions.

[Operator Instructions] And your first question today comes from the line of Andy Grobler from BNP Pariba.

Just a couple from me, if I may. You mentioned that profitability has improved in the U.K. and Australia. And I just wondered whether you could talk through your expectations for phasing of profits through the first half and the full year? And then secondly, in the U.S. a bit weaker through the quarter, but September was stronger. Can you just talk about kind of what's moving -- what are the moving parts within that business, 1 and 2. What the underlying market feels like at this point?

Great. And I'll kick off with the first question on the U.K. and Ireland and Australia profitability. So yes, we were pleased with the profit performance in both of those regions in Q1. In fact, this time last year, our U.K. business was slightly loss-making. So it's good to return that back into profitability. Why is that? We've worked really hard at driving consultant productivity across both of those regions. You can see from the statement that they were both heavily up year-on-year, notably in the U.K., actually, it was up 14%, which is significant. And also, we've done an awful lot of work to rightsize the infrastructure of those businesses in the U.K. We closed a number of offices that we felt that we didn't need to be in. In Australia, we closed 2 or 3 offices as well. Both businesses, we've worked hard in back office areas and then our overall management structure. So the overhead cost base is in much better shape. In terms of the profit phasing, I think we'll probably have a similar result in Q2 in both of those regions to where we were in Q1. I don't think there's any real change in the top line momentum in those businesses at the moment. And I think the cost base in both is in pretty decent shape. It may come down slightly in the U.K. and Ireland. But I think overall, it will stay fairly consistent through the half year. Into the second half, it's probably a little bit too hard to call only from a profit perspective. Just I mean, really, it will be dominated by top line and whether we see any material change there. But overall, for the group, as we highlighted in the statement, we're pretty pleased with where we've landed from a profit perspective. So whilst top line is down 8% overall at the group level, we're there or thereabouts on profit in Q1, which got us off to a decent start to the year. Just picking up the second question on the U.S. So we had a bit of a subdued July and early August, actually came back stronger in later August and then a better September. So we actually were up 3%, 4% in the U.S. in September, which is where I expected the business to be, i.e., in modest growth that we're not seeing hugely improving market conditions there, but the outlook certainly, it's not deteriorated at all. And we grew through the second half of last financial year. We had a bit of a dip in the summer with holidays and so on and so forth, but we actually had a pretty decent September. Outlook for October and November is a pretty similar level. So I expect to see modest growth in the next quarter, but not material growth in the U.S. It's not pretty difficult to call much further out than that, but I think things have picked up how we were expecting to. We do have a decent pipeline of some large contracts there, but the timing of those is always quite uncertain. So we'll get those when we get them. But so far, we're trading pretty well over there.

Your next question comes from the line of Simon LeChipre from Jefferies.

Two questions for me. First of all, just looking at consensus for this year, it points to a bit more than GBP 50 million EBIT. I mean, mindful it's still early in the year, but I mean, how do you feel about this, given the start of this year? And secondly, on France, could you comment on the magnitude of the losses and also, if you could detail a little bit the action plan you are putting in place? And basically, do you need to see market trends improving to be profitable again? Or you're confident that your cost action would bring you back to profitability in this market?

Thanks, Simon. First question on full year consensus, I think it's around GBP 51 million, as you highlighted. We're very early, obviously, in the year, we're 3 months in. And I think there's a lot of road ahead of us to get over the next 9 months to see where we get to. At this stage, Simon, I'm comfortable with where the market is. I don't really see it either way, to be honest. I think, as I said before, we've had a decent start to the year from a profit perspective, but it's very, very early days. I wouldn't want to get drawn on that number too much. Second question, on France. As I said, it's been a tough quarter over there. We've had a tough 12 months, to be honest. It's a really challenging market as you probably are well aware as a Frenchman, it's a difficult macro there. There's a lot of instability. There's a general lack of business confidence. And we, like many of our competitors, are finding that as a very challenging market to operate in. Our business in France is around 70% -- 70%, 75% Perm. So clearly, it has an impact. We were down 20% year-on-year in the quarter, which is representative of that. And we're not seeing any pickup at all. So top line is still very challenging. We've done a lot of work on the cost base. But as you'll also be aware that takes some time in France. We've been through a social plan, which is time-consuming and is necessary to make this kind of corrections that we need to our cost base. But the plans are going well. I expect that to land in the next quarter. And when it does, the cost base should come down to get us back to a position where we were around the breakeven. But in the first quarter, we lost about GBP 1.5 million.

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

Rory here. Two questions, please. You've already given the exit rate in September. But could you talk about how some of the KPIs within that look at the moment Temp and Contractor starters versus finishes, maybe anything on Perm job flow? I guess, September can kind of set the tone for the rest of the year. Just interested to know if there's anything worth reading into in terms of client behavior after the summer. And then secondly, while markets overall sound broadly stable, I guess, consultant headcount was down 4% in the quarter, which maybe was a bit faster than expected. Can you just talk about the kind of balance within that of where you're removing heads and maybe the number of areas where actually you're seeing net adds and how that adds up to a flattish picture from here?

Great. Thanks, Rory. I'll take the first question upon KPIs and what we've been seeing through September. I'll kick off with Perm, and our Perm job flow is back to where we were in May and June. So it has picked up. We always see a drop off through July and into August, as you can imagine. But our September job flow in the vast majority of markets and actually, overall, at the group level, is consistent with where we were through the second part of Q2 -- sorry, of our Q4. Remember that we did see a slowing down through our Q4, but we're consistent with levels through May and June. And then same on interview numbers, actually, interview numbers are pretty consistent as well, but it's still challenging to convert all the activity into placements. And I think that's reflective of still challenging business confidence. So we are seeing activity come through. Everyone's busy. There's plenty of work going on getting that work over the line is still challenging in Perm in the majority of market. It's not everywhere. I mean we still have pockets where we're seeing pretty decent conversion. Southern Europe is a really good example. We had a really good performance in Spain and in Portugal. In Japan, we had a good quarter as well, a record quarter, in fact. So it's not everywhere, but the majority of markets are still pretty challenging. Temp, we're seeing starter numbers again, consistent with where we were at the back end of the last financial year. And overall Temp volumes are slightly behind where we were in June, but that's normal at this stage because it takes a little bit of time to rebuild. But I expect that rebuild to continue now over the next few weeks and get -- normally by late October into November, we should be back at where we were in June. And I expect to be there or thereabouts. There's a couple of pockets of weakness, which we've highlighted in the statement. Temp in Germany is still subdued. I think a lot of that weakness has played through, though, as you've seen in the statement, our exposure now to the Temp automotive sector is materially lower than where we were a couple of years ago, but it's still a headwind for us. And I would also highlight public sector, both in the U.K. and in Australia is still challenging. And obviously, we have quite a lot of Temp business in each of those markets. But outside of that, the private sector, on the whole, feels pretty resilient, and we are back at the levels of volumes of where we were pre-summer in the private sector. Just your question on consultant headcount, we were down 4% in the quarter, up -- to be honest, it's probably a percentage point or 2 higher than where I expected it to be, but these things are never an exact science. But what we are doing is very much balancing investment in areas where we've got high performance and high potential with still throttling back on areas where we're seeing underperformance or we're not seeing the level of productivity or profitability that we need. So it's a bit of a balancing that right now. We are looking to expand headcount in some markets, as I highlighted before, Southern Europe, Japan, Asia, 1 or 2 other markets outside of Japan. We are adding headcount selectively. And also in some of our bigger businesses as well, such as the U.K. and Australia, there's very much parts of the senior professional areas, some of the technical areas in life sciences and some elements of the technology businesses and contracting, we are investing in. So it's not a one-size-fits-all at all at this stage. It's very much nimble market-by-market selection of where we really want to add heads. But I don't want really to see headcount fall much further than it is now for the markets we've got.

Great. And just a follow-up on the KPIs. Can you just talk about any changes in the salary offers that you're seeing? I think within Perm, the wage, the kind of tailwind is now 0% for you. So is wage inflation really kind of stalling at the moment?

Yes, I think that's fair, Rory, actually. We had a flat year-on-year average Perm fee. I think that's the first time in 3 or 4 years that we've seen that come off to about a flat result. Interestingly, if you see the RET data that just came out this morning in the U.K., they stay a very similar kind of trend in the U.K. specifically, but there's little to no wage inflation coming through now, and I think that's reflective of the work we're in.

Your next question come from the line of Zach Al-Qaryooti from Morgan Stanley.

Two questions, please. Firstly, regarding the remaining GBP 45 million cost savings that's targeted, could you help us quantify the amount of exceptional costs you expect to come with that? And then secondly, the GBP 40 million of net debt is a little more elevated than we expected. Could you maybe elaborate on the moving parts there and help us understand how much was just driven by timing of cash flows at the end of the month that should reverse?

On the exceptional costs, it's really hard to call how much that will be over because clearly, it's over a time line of 3 to 4 years. And it also depends on where it is. I wouldn't want to get drawn too much on it. What I would highlight is, last year, we saved about GBP 35 million in structural costs, and we incurred a GBP 30 million exceptional. So it wasn't quite one for one, but it wasn't a million miles away. So as I stand here today as a broad rule of thumb, I think that's probably not a bad yardstick to guide by. But clearly, there's a lot of sensitivity around that depending on where it is and exactly what decisions get made. But I think that's probably a sensible guideline on that. In terms of the GBP 40 million net debt, is a little bit behind where I was expecting it to be. We normally do see a cash outflow in Q1. It's normally more around GBP 50 million or so. Clearly, this time is a bit higher. It's about GBP 75 million. Part of that actually was that we slightly overshot in June. If I look back to where we landed at GBP 37 million, it was probably GBP 15 million better than I was expecting. And we've seen that reverse through this quarter. I don't see any underlying issues in the debt ledger. The DSOs are still fine. Aging is fine. I'm not seeing any that stretching out. It really is a seasonal impact. And I expect to recover that position back through the next quarter, which is what we did last year, and I expect to do the same again.

Your next question today comes from the line of Karl Green from RBC Capital Markets.

Just a couple of remaining questions from me. You talked obviously about the cadence of profitability in the U.K. and Australia between H1, H2. Just at the group level, very broadly, what kind of percentage split would you expect to see based on current consensus between the third and second halves? And then the second question. Just going back to this issue of consultant productivity and redeployment, it might not be a stat that you've got to hand, but what would you hazard a guess as to the proportion of consultants currently seeing productivity increases versus those seeing decreases in productivity. I guess the underlying question is, what's the residual tolerance of paying here in terms of preserving capacity to benefit when the upturn comes.

While that second one is going to be a difficult one to answer. But I'll have to go with the first one. It's probably slightly easier, so we can. I mean, historically, we generally have slightly better profitability in the second half of the year than in the first half. But clearly, we've been through some pretty choppy waters over the last 2 or 3 years. We haven't always seen that seasonality. But we do have more working days in the second half. Put simply, in the first half we have combination of summer and Christmas and in the second half, we have Easter. So you generally have a little bit of tailwind into the second half, but that's clearly dependent on a relatively stable top line. But if the world was stable when we saw stability through the year, expect generally to make about GBP 10 million more profit in the second half than in the first half. On the second question, well, that's a challenge. I'd have to sit there and look at all sort of 6,500 consultants and figure out who's up and who's down. But I mean, joking aside, what we are doing is managing our business on a very detailed basis business line by business line. The absolute, resolute focus is making sure that all of our performance is understood, that our business is performing. We are hitting the kind of metrics and measures that we would expect to in all of our businesses. And many of our businesses are performing well with very good productivity in fact, record productivity in some areas, and those are absolutely the businesses that we want to double down on and grow because if we're performing well, we're performing profitably. And the market outlook is good, and it's an area of long-term potential. Absolutely the right thing to do is to double down on that. Do we still have some pockets of weakness in the business? Yes, we do. There are still some areas of performance that aren't quite where we are, and each one of those is a careful, considered decision on whether we kind of stick or twist really on it, Karl. Is it something that we feel is doing well in the market is in and therefore, we should keep and therefore, hold them and preserve or not? And each one of those is a market-by-market call with its own individual set of circumstances. So I can't really answer that at a macro level other than to say we've been incredibly surgical and very, very thorough and detailed in how we look at the business and how we're managing it.

That's clear. I mean maybe phrasing it slightly differently and easier. We shouldn't interpret sequential headcount stability as a willingness at the group level to see productivity dip necessarily because of the churn or because of the redeployments, et cetera?

We still expect to see productivity growth, Karl, not just in the next quarter, over the longer term. I think that's how we measure the improving quality of business mix over a period of time, and that will be a really important part of how we rebuild profitability over the long term. Put simply, we see consultant productivity growth, be in inflation, has been really critical to the long-term profitability of the business and rebuilding that, and we'll continue to manage it that way.

Your next question comes from the line of James Rowland Clark from Barclays.

I just had a follow-up on the productivity question from Karl just a moment ago. You mentioned in the release that the U.K. has seen the strongest year-on-year gains. And I just wondered if that is a pure reflection of the mix of sort of taking out your least profitable consultants? Or is there anything that you've learned from the U.K. that are specific to the market that you can perhaps roll out across your other consultant base? Was the U.K. perhaps just lagging on productivity versus the other markets and have some catch-up. So I guess any color there specifically as to why it's been so strong and kind of be replicated across the group.

I think it's probably slightly more of the latter than the former, if I'm honest, James. I think we did have a bit of work to do and a bit of catch-up to be done in the U.K. And part of that was that we've had really tough markets in the U.K., particularly in a number of our Perm areas, and we had to address some of the levels of performance and productivity and make corrections. You can see that our consultant headcount is down 25% year-on-year. And we've had to make some really tough decisions and hard decisions in order to improve that. And I think it's come through really well. I think the team has done an absolutely fantastic job actually of managing that really well. That business is now back into profitability, which is really, really important for us. The productivity is in a pretty good place. Now I'd put it against most of the other businesses across the group in terms of fees per consultant which is where it should be and where we expect it to be and where we expect it to remain. So I think we've done a really good job there. Interestingly now, we are looking at pockets of investment in the U.K. So there are some good markets out there where we think performance is good. We've got the opportunity to get back on the front foot, which is great. There are still some areas where we're not quite happy with the performance, and we might have to take a few corrective measures as well. But overall, I think we'll be in a pretty stable position on U.K. headcount, maybe even slightly up in the next quarter, but we'll see.

Thank you. [Operator Instructions] We will now go the next question. The question was withdrawn, he has just come back apologies, one moment please. Your next question comes from the line of Simon Oppen from Kepler Cheuvreux.

I would like to zoom in on Germany a bit more. Quite interesting to see that your Construction & Property business performed strongly, whereas the broader market in Germany remains subdued. And could you give a little bit more color on the dynamics that you are currently seeing in Germany and the sentiment among your clients there?

Thanks, Simon. I think thanks for highlighting that. I think we've been really pleased with the action taken by the team in Germany to pivot the business quickly and effectively away from challenging markets, which we've been discussing for some time in autos, for example, into where a lot of the opportunities are and our successes in Construction & Property are testament to that. I think done a really good job. And actually, if you look at the size of that C&P business today, it's virtually as big as our auto business. I never would have thought that 3 years ago. So it just shows how much actions have been taken. And actually, we're positioned quite well for our biggest clients there, a combination of public sector and in private sector across infrastructure. We do a lot of work in the utilities and energy sector and increasingly now into the defense sector. And I think we're positioned well for what should hopefully be some stimulus and some tailwind from the infrastructure projects that the government has outlined and is now starting to fund. So I think the team have done a great job of pivoting away from some of our sort of historic businesses towards new areas of opportunity. So well done to them.

As there are no further questions, I will now hand back to James Hilton for closing remarks.

Thank you. If that's all for questions today, thank you again for joining the call. I look forward to speaking to you next at our Q2 results on the 14th of January. And should anyone have any follow-up questions, Kean, [ Prash ], and myself will be available for the rest of the day to take any calls. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.