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UK – Hays reports strong full year operating profit growth

28 August 2014

The UK’s largest staffing firm, Hays (HAS: LSE) reported revenue for the full year ending 30 June 2014 of £3.7 billion, an organic increase of +3% compared with last year. Operating profit for the period increased organically by +20% to £140.3 million, up from £125.5 million a year ago.

Operating costs across the company were +2% higher, on a like-for-like basis with the company’s operating profit also impacted by a £8.3 million foreign exchange headwind.

Alistair Cox, Chief Executive of Hays, commented: “This is a strong financial performance, and we are ahead of schedule in terms of our aspirations to broadly double the Group’s operating profits by 2018.”

“We saw improved conditions in several key markets, notably in the UK, Asia, North America, and many European countries, and took advantage by investing to drive growth. In the UK & Ireland, strong net fee growth and our focus on driving productivity improvements, combined with the on-going benefit of 2012’s overhead cost reductions, meant we converted 86% of incremental net fees into operating profit.”

“Elsewhere, 19 countries delivered record net fee performances and we made significant progress against our operational and strategic objectives, for example further expanding our global Oil & Gas business and making further good progress in rolling out our IT Contracting business into new markets,” Mr Cox added.

Net fees for the year rose by +5% on an organic basis to £724.9 million, compared with £719 million in 2013. Net fees derived from the company’s temporary recruitment business, which represented 59% of Group net fees, increased organically by +5%. This comprised a volume increase of +7%, which was partially offset by a -2% decline in hours worked.

Net fees derived from permanent recruitment also increased by +5%, on an organic basis. Volumes increased by +7%, driven by improved client and candidate confidence in several key markets, most notably the UK and Asia. This was partially offset by -2% reduction in the average fee per placement.

Net fee income across the United Kingdom & Ireland, Hays’ home market, increased organically by +11% to £246 million, up from £222 million last year. The company reported significant organic operating profit growth of +368% to £26.2 million, compared with £5.6 million last year.

The company’s temporary recruitment business reported organic net fee income growth of +7%, while permanent recruitment increased by +16%, following improved candidate confidence throughout the year.

Activity levels were strong and broad-based, with all regions delivering organic net fee growth. Scotland, Northern Ireland, Midlands, North West, East and South of England each reported growth of more than +10%. In Ireland the company delivered organic net fee growth of +27%.

Construction & Property delivered organic growth of +21%, IT performed strongly and was up by +15%, whilst net fees from the largest specialism of Accountancy & Finance grew by +11%. Activity levels in the company’s Banking business remained more subdued, declining by -3% on an organic basis.

Hays’ private sector business, which represented 71% of the division’s net fees, delivered organic net fee growth of +9% and our public sector business.

According to the company’s financial statement: “The strong improvement in profitability in the UK & Ireland business was the result of meaningful net fee growth of +11% and average consultant headcount growth of only +7%, as we improved the productivity of our consultants and also the positive impact of the range of cost reduction measures we announced in February 2012. These factors combined generated the excellent 86% drop-through of incremental net fee growth into operating profits. We believe our UK & Ireland business is well-placed to take full advantage of the current market opportunity, as well as any further market improvement. Going forward we anticipate a drop-through of incremental net fee growth into operating profits of c.60%.”

Across Asia-Pacific net fees decreased by -6% on an organic basis to £173.9 million, down from £211.8 million a year ago. Operating profit in the region fell organically by -14% to £49.7 million, compared with £67.2 million in 2013.

In Australia, net fees decreased by -13% on an organic basis, as overall market conditions remained tough throughout the year. Net fees derived from temporary recruitment, which represented 70% of net fees, decreased organically by -9%. Permanent net fees decreased by -24%, on an organic basis, as candidate confidence remained subdued. Hays’ Accountancy & Finance division’s net fee income fell by -21%, on an organic basis, the company’s largest specialism, Construction & Property, remained flat. 

New Zealand reported organic net fee income growth of +6%.

Asia, which accounted for 21% of the Asia Pacific division’s net fees, delivered organic net fee growth of +25%, with operating profit nearly doubling on an organic basis to £4.9 million. Four of the five businesses in the region delivered record annual net fees. On an organic basis, net fees increased by +25% in China, +28% in Singapore, +29% in Malaysia, +42% in Hong Kong. Net fees in Japan increased by +17%, on an organic basis.  

Across Continental Europe & Rest of World region net fees increased by +8% on an organic basis to £305 million, up from £285.2 million last year. Operating profit for the region increased organically by +20% to £64.4 million, compared with £52.7 million last year.

Germany, which represented 54% of the division’s net fees, reported organic net fee growth of +8%. The company’s contracting and temporary recruitment business reported organic growth of +7%, while permanent net fees grew by +10%. The company’s newer specialisms; Accountancy & Finance, Legal, and Sales & Marketing, which account for 27% of German net fee income, all reported organic net fee growth of +20% or more. Net fees from IT recruitment, which represent 41% of German net fees, increased by +8% on an organic basis, while Engineering net fee income increased by +2%.

In its statement, the company advised: “[Last year’s] general election and subsequent coalition negotiations have created a degree of uncertainty regarding future regulations governing Temp and Contractor markets, which has impacted recruitment decision making in certain client segments. However, the long-term structural growth opportunity in Germany remains unchanged, and we are ideally positioned to continue to benefit from the increasing demand for specialist recruitment services.”   

In France, Hays’ second largest country in the region, reported record annual net fees with organic growth of +5%, against the backdrop of a market which remained subdued throughout the year. Elsewhere, 13 other countries delivered record annual net fee performances, including Switzerland, Belgium, Russia, and Poland.

In Latin America; Chile, Colombia and Mexico all continued to perform well, although Brazil remained tough and net fees were down by -32% on an organic basis. In North America; Canada delivered solid organic net fee growth of +5% and the USA continued to perform well, increasing net fees on an organic basis by +73%.

Hays reported their Q4 results in July with net fee income growth of +7% over the comparable quarter last year, ahead of the +5% they achieved for the full year, suggesting a modest acceleration in the company’s business.

Looking forward, Mr Cox commented: “I am confident that we enter the new year in a position of strength, with unrivalled breadth, scale and balance around the world and the best people and technology tools in our industry. Having outperformed during the downturn, we now have the ideal platform to capitalise on the many growth opportunities we see around the world. Our focus is on continuing to grow the business by leveraging that platform, driving further profit growth and building an ever-stronger leadership position in our industry.”

In early trading today, the company’s share rose slightly by +0.3% to £1.30, an increase of +30.6% compared with a year ago. Based on its current share price, the company has a market value of £1.8 billion.