Hays plc (HASL.XC) Q2 FY2026 Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Has Trading Update for the 3 months ending 31st December 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 our first speaker today, Kean Marden, Head of Investor Relations and M&A. Please go ahead, sir.

Thank you, Nadia. Good morning, everyone. Thank you for joining us today, and Happy New Year to anyone we haven't spoken with yet in 2026. I'm Kean Marden, Head of Investor Relations, and I'm joined here today by James Hilton, Chief Financial Officer, to present Hays Q2 '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 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 consequently exclude our operations in Chile and Colombia, which as we previously communicated, closed in June 2025. Group net fees decreased by 10%, with Temp and Contracting down 8% and Perm down 14%. Strong consultant net fee productivity growth and cost discipline has broadly offset our lower net fees. And as a result, we expect pre-exceptional operating profit in our first half to be around GBP 20 million, including year-on-year increases in the U.K. and Ireland and Australia and New Zealand, and in line with consensus expectations. I'd like to highlight the following key items from the results. Temp and Contracting net fees decreased by 8% as volumes remained solid but were impacted by lower average hours worked in Germany during the quarter. Group Temp and Contracting volumes decreased by 7% year-on-year, including Germany, down 9%; U.K. and Ireland down 12%, ANZ down 8%; and the rest of the world, up 1%. Perm net fees decreased by 14%, driven by a 14% decline in volumes with the group average Perm fee flat. We continue to manage our consultant capacity on a business line basis. And despite challenging markets, our actions delivered 6% year-on-year growth in average consultant net fee productivity in Q2, including notable increases in the U.K. and Ireland and in ANZ. This continues the encouraging trend we have demonstrated through FY '25. And on a seasonally adjusted basis, productivity has now increased for 9 consecutive quarters. Consultant headcount reduced by 1% in the quarter and by 15% versus prior year. We will deliver circa GBP 80 million per annum structural cost savings by the end of FY '29, comprising the GBP 35 million delivered in FY '25 and the additional GBP 45 million target we communicated at our full year results. We've made strong progress towards the latter with circa GBP 15 million annualized savings secured in H1 '26, and our non-consultant headcount exited the quarter down 5% year-on-year. The group's net cash position was around GBP 40 million, which reflected normal seasonal inflows and the timing of month-end payments and was in line with our expectations. Payments in the period included GBP 4.6 million in dividends and GBP 1.2 million purchase of shares for employee incentive schemes. DSOs were maintained at 37 days. I'll now comment on the performance by each division in more detail. Our largest market of Germany saw fees down 14%. Temp and Contracting net fees decreased by 13% with volumes down 9% and a further 4% impact from negative hours in mix. Temp and Contracting volumes remained solid overall. However, the modest decline in average hours worked through the summer accelerated further during Q2, driven by cost control measures within our public sector and enterprise clients, largely in the energy and infrastructure sectors. These sectors had hired in anticipation of fiscal stimulus, hence, our placement volumes have remained resilient, but hours worked softened in the quarter after federal budget approval was delayed. In Perm, conditions remain challenging and fees decreased by 20%. At the specialism level, technology and engineering, our 2 largest specialisms were down 10% and 23%, respectively. Accountancy and Finance was down 22%, and Construction and Property performed strong once again with 36% net fee growth, driven by our focus on infrastructure and the energy sector. Consultant headcount decreased by 3% in the quarter, and by 14% year-on-year. Despite our ongoing focus on resource allocation, consultant net fee productivity decreased by 1% year-on-year in Q2, impacted by the reduction in average hours worked. In U.K. and Ireland, fees decreased by 9%. Temp &and Contracting and Perm broke down by 9%. Temp &and Contracting net fees were steady through the quarter, while Perm remained challenging. Fees in the private sector declined 5%, while the public sector was down 16%. At the specialism level, Technology, up 4% moved back into positive year-on-year growth for the first time since Q2 '23, and while Construction and Property and Accountancy and Finance decreased by 12% and 10%, respectively. Enterprise continued to perform well with fees up 3%. Consultant headcount decreased by 2% in the quarter and by 22% year-on-year. We have taken decisive action over the last 12 months to improve consultant net fee productivity with growth accelerating to 15% year-on-year in Q2, and have made good progress in improving operational efficiency. As a result of these actions, the U.K. and Ireland returned to profitability on a pre-exceptional basis in H1 '26. We'll provide further information at the interims, detailing how we've returned to profitability but a key driver has been our greater focus from our consultant on high skilled roles consistent with our 5-lever strategy. As a result, year-on-year growth in average candidate salary accelerated from Q1 at 5% in Q1 to 8% in Q2 in both Perm and Temp and Contracting. In ANZ fees decreased by 1% year-on-year, with activity improving slightly through the quarter. Although Temp and Contracting decreased by 3% year-on-year, momentum improved during the quarter, and Perm net fees up 2% moved back into positive year-on-year growth for the first time since Q1 '23, driven by enterprise, executive, resources and mining and the banking sectors. The private sector increased by 2% with the public sector down 6%. At the specialism level, Construction and Property and Technology were flat, Accountancy and Finance decreased by 1%, while office support was up 1%. The Australia net fees were flat year-on-year with New Zealand tougher at minus 15%. ANZ Consultant headcount was down 1% in the quarter and by 10% year-on-year. Driven by our focus on resource allocation, consultant net fee productivity growth accelerated to 9% year-on-year in Q2. As a result of these actions, we delivered good year-on-year profit growth in H1 on a pre-exceptional basis. As with the U.K. and Ireland, a key driver of our profit recovery has been our greater focus from our consultants on high-skilled roles. As a result, year-on-year growth in the average salary of our Perm placements accelerated to 5% in Q2. In our Rest of World division comprising 26 countries, like-for-like fees decreased by 11%. Temp fees decreased by 2%, but Perm was tougher and declined by 17%. As a reminder, our total actual growth rate includes the impact from our previously communicated actions to close our operations in Chile and Colombia in June '25. In EMEA ex Germany, net fees decreased by 12%. In France, our largest Rest of the World country, market conditions remained tough with fees down 21%. Our actions to address productivity and costs are being delivered on plan, so we expect an improved performance in H2. Southern Europe was stronger with Portugal and Spain, up 16% and 7%, respectively. And Poland returned to year-on-year growth and was up 3%. In the Americas, net fees decreased by 10%. The U.S. and Canada were down 9% and 13%, respectively. LatAm, down 8% was again challenging. Asia net fees decreased by 3% with mixed for improved activity overall through the quarter. Japan declined by 3%, but we continue to drive good growth in our Temp and Contracting business. Mainland China grew by 3% and Hong Kong by 26%. And in December, we announced the closure of our operations in Thailand. For rest of the world as a whole, consultant headcount was flat over the quarter and down 14% year-on-year. As you may recall from previous calls, we have several initiatives underway to build a structurally more profitable and resilient business, underpinned by our culture and talented colleagues worldwide. Before moving to current trading, I wanted a few moments to update you. Amidst challenging markets, we are executing well against our strategy and continue to make significant operational progress. Consultant fee productivity has increased for 9 consecutive quarters and was up 6% year-on-year. Within Temp and Contracting, net fee growth was positive in 5 of our 8 focus countries in Q2 with standout performances in Spain, up 31% and Japan up 21%. We delivered a resilient net fee performance with enterprise clients in Q2. Net fees decreased by 3% year-on-year with good growth in the U.K. and Ireland and ANZ, offset by contract losses in North America and Switzerland. As we've previously shared with you, our initiatives to improve the consultant net fee productivity in real terms through our 5-lever strategy and structurally lower our cost base will be key drivers of profit recovery. H1 reinforces our confidence in this view. Pre-exceptional operating profit is expected to be circa GBP 20 million, down GBP 5 million year-on-year, despite a 9% or GBP 45 million net fee decline with the U.K. and Ireland back in profit and Australia and New Zealand up year-on-year. Our programs to structurally reduce our cost base are performing well, and we secured circa GBP 50 million of additional annualized savings in H1 and expect to make further material progress in H2. Moving on to current trading and guidance, and I'd highlight the following. Given ongoing macroeconomic uncertainty and reduced average hours worked in Germany, our new year return to work will be particularly important in FY '26, and we are closely monitoring activity levels. We were pleased once again with our net fee productivity through Q2 and believe our group consultant headcount capacity is appropriate for current market conditions, and therefore, expect it to remain broadly stable in Q3 as we balance focused investment in high-performing and potential business lines with improving productivity in more challenging areas. We will continue to structurally reduce our cost base to position Hays strongly for when end markets recover. There are no material working day impacts anticipated in Q3 and Q4. And overall, while it is difficult to predict timing, we know our markets will recover. When they do, we remain confident that we are well positioned to benefit materially. I'll now hand you back to the administrator, and we're happy to take your questions.

[Operator Instructions] And now we take our first question. The question comes from the line of James Rowland Clark from Barclays.

Just on the top line, it looks like trends are running a little lower than expectations as you exit the first half and head into the second half. I think consensus is down low single digit for the second half. Is that fair? And do you think that's achievable? And then my second sort of related question to that is, are the current levels of activity, when in this year or which quarter in this year, this calendar year, would you expect to return to breakeven or positive net fee growth? And my final question is on the adjusting operating profit. I think as you guide to GBP 20 million in the first half, but consensus is at GBP 50 million for the second half, that implies a GBP 30 million of EBIT in the second half. Can you just talk about the sort of bridging items to get into that, given that the top line looks like it's a little under pressure?

Thanks, James. I'll try and pick each one of those in turn. So I mean, yes, we delivered decline in net fees in Q1, and that was slightly behind that minus 10% in Q2. I think the material swing factor between Q1 and Q2 was the working hours in Germany. I think in our other larger businesses around the world, we actually saw some positive movements between Q1 and Q2, notably Australia, which improved versus the first quarter and actually getting back into the year-on-year growth in Perm was pretty encouraging, and we saw forward momentum in Temp. And it's pretty mixed around the world. But I mean, it was probably a percentage point or 2 behind our expectations. I think on the other hand, though, we've actually outperformed and delivered better on the structural cost savings than we expected. We expected our consultant headcount to be broadly stable this quarter, which it has done. So that was in line with where we expected it to be. But we've made better progress on the costs. When you put that all together, our profits at circa GBP 20 million, we've offset most of that top line weakness year-on-year through the cost initiatives. So GBP 20 million is broadly where we expected to be in the first half. In terms of the second half and what we expect for that, I mean, it's really quite difficult at this time of year to be accurately predicting the top line. As I mentioned in the current trading, the return to work over the next 6 weeks is critical. We always see a drop in Temp and Contracting volumes over Christmas and we track how that rebuilds over the next 6 to 8 weeks to see how much of that we will rebuild and how quickly. And that's a material sensitivity to the second half. And I put on top of that this year, the working hours in Germany is a sensitivity for the second half as is Perm activity itself and whether we drive enough new job registrations and interviews in Perm over the next 2 months to deliver what we need in Perm. So there's a lot of moving parts, James, for the second half of the year. So it's pretty difficult for me to accurately predict when the business returns back into year-on-year growth. But what we've seen in some of our businesses this year is positivity around the world. And I would say that where we've seen supportive conditions and macro economic conditions, take Spain as a good example. We've had a really strong quarter in Spain, and year-on-year growth off the back of a really good year last year. That's an economy running at 2.5% GDP and you can see the performance coming through in a business like that. So I think a lot of it depends on the wider world as well. Regarding second half from a consensus perspective, we've got a consensus at the moment, which is about GBP 48.5 million, something like that for the full year, which means clearly, we've got to do a slightly better second half from a profit perspective than the first half. It's really quite difficult for me to predict the moving parts at the top line. I expect to continue to make progress on the cost savings in the second half and that's within our [ gift, ] and we're making good progress on that. So I expect it to deliver a good result in the second half. Really, though, logically, we do normally have a better second half than first half due to working days. So whilst we provided, we see some stability and return to work in line with our expectations and we see Perm activity come back at levels we saw pre-Christmas than we've got -- that's a realistic number for us. And clearly, we'd be talking differently if we didn't think that was our expectation.

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

So I have 2 questions. The first one is taking your growth rate at quarter end into account, which was in line with the overall quarter of minus 10%. How do you look at, yes, the consultant headcount for the remainder of the year? So how should we look at consultant capacity for the remainder of your fiscal year? And secondly, can you give a bit more granularity on Germany and France by segment or by Temp and Perm, and also by sector, so which end markets are performing better versus those that are underperforming?

Thanks, Simon. I'll take the first one on consultant capacity in H2. Relatively simplistically we're pretty happy with where we are as per guidance. And so next quarter, we expect it to be broadly stable. And therefore, for the second half, I expect it to be broadly stable unless things change materially from where we are now. And as I've just highlighted, clear, we're in a relatively key part of our second half now. So provided we performed in line with our expectations. I'd expect that to be pretty stable over the half. Doesn't mean that we won't see some mix changes between that because what we're doing continually is investing in some parts of the business and we may be scaling back in others. But I think net-net, I expect things to stay pretty flat because we're happy with the overall level of capacity for the markets we've got today. In terms of performance, within Germany and France by sector. The standout performance in Germany was in our Construction and Property business. We had strong growth there of north of 30% year-over-year. That was the clear standout. I think we've continued -- you see clearly seeing some impact of working hours in our results this quarter. We actually saw the start of that in the previous quarter, but it's clearly accelerated in this quarter. When we've looked all of the covers of where exactly that is, it's very clear that the client base in our public sector and some of our enterprise clients, both of which when they have leanings towards the infrastructure and energy sectors, that's where we're seeing the weakness in working hours. Several of those clients have hired hard in our bands of government-led projects and government-funded projects. They're holding on to those contractors, so the volumes are there, but the hours haven't come through and they're managing the costs as those -- the funding of those has perhaps been slightly slower than they had expected. So we'd rather have the volume in the not that's a positive. Clearly, the hours is a headwind, and we've seen that this quarter. But that's where we've seen some challenges. I think we've spoken in the past around engineering and clearly, our engineering business, which was down 23%, continues to be impacted by a subdued automotive sector. So we have a high leaning towards that. Although I would highlight that the automotive sector now is only around 8% of our business in Germany. And actually, if you look at the mix overall in Germany now, if we're starting to build some significant businesses in defense, for example, 2% of our business is in defense, 7% in Construction & Property in the Energy & Infrastructure sector itself, and about 5% of our business. So hopefully, that gives you a good feel. Perm, clearly, in Germany is pretty challenging, down 20%. We had a tough quarter in Q1. We're continuing to see slow decision-making as we are across most of Northern Europe which is very different, as perhaps Southern Europe and Eastern Europe, which are clearly more supportive. If I move on to France. Our business in France has been challenging. It's been a particularly tough market. Our business in France is about 75% Perm, 25% Temp and Contracting. Temp and Contracting continues to be resilient. It was modestly down year-over-year. So we have seen a little bit of slowdown in our contracting business there. Really clients being hesitant to make decisions and commit to projects. Clearly, Perm has been impacted quite broadly. Paris has been really challenging, and the regions has been slightly more supportive. We have a big business in office support and junior finance in our French business. That's been really difficult. Those businesses are just not getting on and making decisions in the Perm markets. It's really hard getting decisions over the line. We've seen a long time higher. Business confidence is very low. We've clearly had challenges from a macro perspective in terms of the government policies and getting budgets approved, et cetera. So the whole business environment in France is very challenging. And I think we're seeing that across broadly across the industry. I don't think it's a Hays issue. I think it's a market problem. We're not sat on our hands though, and we're busy reshaping that business, we're working hard to take some of the cost out of that business, both in the front office and the back office and those plans are performing well. So I expect a better performance in the second half.

And then the next question comes from the line of [ Doug Alcamuti ] from Morgan Stanley.

Just 2 quick questions for me, please. So firstly, the enterprise business still looks more resilient, but net fee growth was a little bit weaker sequentially. And so it sounds like that was almost entirely driven by the contract losses in the U.S. and Switzerland. Are you seeing a tougher competitive environment to win and retain this business? Or is there nothing more really to read into there? And then secondly, could you just remind us what level of one-off costs you're expecting for the second half?

Thanks. I'll start with the enterprise question. And we were down slightly this quarter, having had several quarters of strong growth in enterprise. We -- I think we were up 4% in Q1 and we were down 3% in Q2, almost, if I just put on RPO contract, which we lost sadly in September, that had a swing of about 5% on its own. It's our biggest RPO contract in North America, which has clearly impacted the business in the States and overall, our enterprise business. Actually, we've got a really good pipeline. We're pleased with how that business is performing. We've got a good pipeline of work coming through. With all these things, clearly, sometimes you win a contract, sometimes you lose a contract. So we're working hard. We're bidding on work selectively. We've got a good win rate. We've got a good pipeline coming through. So I do expect the business to move forward in the second half. So I'm not overly concerned about that. Second question on one-off costs. It's really difficult for me to estimate that in H2. Clearly, in the first half, we've got about GBP 10 million exceptional costs, we drove about GBP 15 million unrealized savings. So it's difficult for me to predict exactly what it will be in the second half. maybe a similar level again. I would say, at this stage. But clearly, there's some moving parts to that. And a lot of it depends on timing and also depends on where it is. Some parts of the world are significantly more expensive than others to actually make changes. So it really depends on timing and how quickly we get there and where it is. But broadly, I expect to have a similar level of exception in the second half.

And the question comes from the line of Steve Woolf from Deutsche Bank.

Just one to follow up on that comment on the U.S. contract that was lost, given it was your biggest. What was the customer feedback? So why you might have lost that, whether it was again price service or just a change of heart by the company taking it in-house? And then secondly, just on Germany, with those reduced hours, I appreciate saying volumes are essentially the same, slightly down. But are you seeing any evidence of a flight from candidates who are moving in search of higher hours elsewhere? Just any thoughts there.

Thanks, Steve. In terms of why that was lost, it was put out to tender as these things are. We've been a long-standing client, and they put that out to tender and met with someone but their decision is their decision. I'm not going to speculate on what drove that. We performed well on that contract in many years, a long-standing client, disappointing to lose it, but that's life in some respect. In terms of Germany hours, and what's really driving that, Steve, I think, is the key. We are still, by far, the largest provider of contractors in Temp in Germany. And we still have the virtuous circle of having the best opportunities for our candidates because we have the best access into the best companies and the best jobs. So I don't think we've seen flight of talent. We have seen -- and this is much more of a longer-term trend. We have seen more candidates choosing to split their time and do 2 part-time contracts. And that's been a trend that we've seen in the German market now for several years and post-market employment introduction in sort of late teens. That is part of the market that we're operating now. I don't think that's been a driver at all with what we've seen in the last few months. So I think what we've seen in the last few months has been much more directly correlated specific sectors within energy and infrastructure. So if I look down at all of our clients, client by client, where we're seeing the negative hours trend, it is a very, very clear pattern in those sectors and clients, particularly in the public sector who are able to manage their own budgets and their own funding. So that clearly hits us this quarter. But as I said that earlier, I'd rather have the volume in there and the placements secured. And with a fair following wind, we'll benefit that over the longer term.

The question comes the line of Simon LeChipre from Jefferies.

Just one for me on the cost savings. So you commented on the GBP 15 million annualized savings by the end of H1, but can you clarify the actual savings contributing to the GBP 20 million EBIT in H1? And how much do you expect for H2, please?

Yes, so the GBP 15 million annualized savings is what we've delivered through this half. In terms of the actual half and the full year, in-year cost benefit we expect to be about GBP 30 million or so in year benefit from a P&L perspective. And it will be pretty broadly split between the 2, slightly more than the first half, slightly less in the second half, about 17.5% in the first and 12.5% in the second just on timing of that as we clearly get the annualization of the GBP 35 million that we saved in the previous financial year. Now clearly, what we save in the second half to a certain extent, depends on how much cost saves we deliver in the second half, but clearly, the annualization of that is relatively low or sort of the P&L impact of that is lower in the second half, but we do expect to get some benefit in the second half from those actions as well.

And we'll take our next question. And the question comes from line of Karl Green from RBC Capital Markets.

Just going back to the average hours worked in Germany. James, I think you talked about the infrastructure and energy sectors where they've hired hard. I suppose the question is they wouldn't have done that if they weren't fairly confident that the funds -- the infrastructure funds wouldn't come through or fiscal stimulus funds rather wouldn't come through eventually. So is that the sense you've got that the -- although the timing of those fund flows might be uncertain, there is an inevitability to the average hours in those spaces going up once the action starts to materialize? That's the first question. And then the second question, a much broader one. We kind of -- here we are again, we've got this European malaise that just keeps pushing a wishful recovery to the right. To what extent do you think there's a change in the mood in the industry about potential consolidation? It must be the case that it's going to be harder for consultants to jump ship or set up on their own for all the reasons that we think biggest guys are going to keep getting bigger and taking market share. What's the latest mood music around M&A basically?

I'll pick the first question, Karl, on the -- is the hours impact to timing issue rather than step down that's going to be there for the longer term. It's difficult for me to comment on that. And I'd probably like to wait and see for the second half of the next couple of quarters. I mean, logically, there is an element of logic there that they wouldn't have held on to the volume and wouldn't have recruited so heavily, and there may be an element of timing in that. But I'd like to wait and see over the next couple of quarters, how that trends. And I'd like to think that we see some longer-term benefit. But I won't call it until I see it. I think you know me well enough to be prudent enough on that, to wait and see how that pans out over the next couple of quarters. In terms of M&A and consolidation, I mean, clearly, the whole recruitment market has had some challenges over the last 2 or 3 years. This has been a very unusual period of economic performance across the world. And we've seen it sequence starting in the States over 3 years ago. Europe held up for longer, but clearly, it is going to be the last out of this downturn. And -- but it's not everywhere. You can see in our performance that Southern Europe has maintained a strong performance and a strong economy. Spain and Portugal, we've continued to perform really well there and we're growing well, but it shows what an economy that does 2.5% GDP growth does for recruitment business. And I get asked a lot of the time, is this a structural thing? Is it a cyclical problem? And whilst the world changes in the world of jobs always changes, new job categories get created, old job categories come and go. It shows that when we have a supportive macro backdrop, we can perform really well and drive business forward and grow, which is what we intend to do. We see huge structural growth opportunity in Temp and Contracting around the world as businesses continually look for flexible solutions. Candidates want flexible careers. They want to move jobs more. So the macro drivers that we talk about, the mega trends in the industry and the world of work, I don't think it's gone away. But we've been battling in this world for the last 2 or 3 years now where it's been political shocks, geopolitical uncertainties. We had government in fiscal pressures and having to cut funding across the world. And that's created a lot of uncertainty in businesses and a lot of uncertainty in candidates. My own view is that won't last forever. Two things will happen. Economies will normalize over a period of time and people get on with their lives and start making their choices of how they want to be for the next 5, 10 years. And people will move jobs. And I think we're starting to see some parts of the world coming through that. And I think this -- so I can't really speculate on consolidation or M&A, but we're very clear on what our strategy is as an organization and what we're going to go and do and execute on that.

Thank you. Dear speakers there are no further questions for today. I would now like to hand the conference over to your speaker, James Hilton, for any closing remarks.

Thanks, Nadia. If that's all for questions today. Can I thank everyone for joining the call? I'd like -- look forward to speaking to you next at our interim results on the 27th of February. And should anyone have any follow-up questions, Kean and myself will be available to take calls for the rest of the day. Thank you.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.