Hays (HAS:LSE) announced in its half-yearly report ( for the six months ended 31 December 2011) that international businesses drove net fee growth of +15% (+11% organic) to £373.8 from £326.1 million in 2011 while operating profit went up by +21% (+14% organic) to £63.1 million from £52.1 million. Profit before tax also increased by +24% from £48.6 million to £60.3 million in 2011.

Turnover for the six months amounted to £1.863 billion, up +18% (+16% organic) from £1.576 billion in the previous year.

Media attention today has widely focused on the firm’s interim dividend, which went down -55% to 0.83 Pence from 1.85 Pence from the year before. Hays said it rebased the dividend to a level that is “more appropriately covered by current earnings and cash flow” as the firm intends to grow the dividend on a “sustainable and progressive basis in line with future profits."

The firm also highlighted that 69% of the Group’s net fees were now generated outside the UK (2010: 62%). A good performance was recorded in Asia Pacific with +16% net fee organic growth. In Australia & New Zealand net fees were up +15% organically, driven by Resources and Mining while in Continental Europe & Rest of World region, net fee growth increased +27% organically. However, the firm pointed out that the UK market remained challenging with net fees down -6% and also spoke of difficult trading conditions in several other markets.

Chief Executive Alistair Cox overall spoke of “good results”. He added that the firm’s “diversification has again delivered great benefits with the International business growing net fees by 27%, and 14 countries growing by more than 20%. Furthermore, with the broadest set of specialisms in our industry, we benefited from our exposure to a number of high-growth industries and skill-sets, including IT, Engineering and the Resource-based industries.”

“The global economic backdrop became increasingly uncertain as the half progressed, and this continues to adversely impact confidence in some of our markets, especially global banking. However, we continue to see good levels of demand in other markets, many of which are key competitive strengths for Hays, including the mining-based regions of Australia, and the IT and engineering sectors in Germany. With such diverse markets, our focus is on maximising profitability and market share gains in tougher areas, together with continued selective investment to capitalise on growth opportunities.”

Temporary net fees, which represent 56% of Group net fees, grew +17% (+14% organic growth) to £209.9 million from £178.7 million. This comprised a volume increase of +6% and a favourable increase in mix/hours worked of 9%, which was partially offset by underlying margins slightly lower at 14.9%(2010: 15.1%). Margins have, however, remained broadly stable through the first half. The temporary placement business was resilient throughout the half, as clients in several key markets, such as Germany and Australia, increased their use of flexible specialist skilled workers.

Permanent net fees, representing 44% of Group net fees, increased by +11% (8% organic growth) to £163.9 million from £147.4 million with an increase in the average placement fee of +10%, primarily due to a change in the mix of business, being partially offset by a reduction in volumes of -3%. As macro-economic uncertainty increased through the period, it particularly impacted confidence amongst candidates and clients in the permanent placement market, notably in banking and financial services-related specialisms around the world, which impacted volumes, especially in the second quarter.

The Group's operating cost base increased by +11% organically versus the prior year, largely as a result of headcount investments made earlier in calendar year 2011 in the Group's International businesses, together with an increase in commission payments in line with net fees. The Group's conversion rate, which is the proportion of net fees converted into operating profit (and, therefore acts as an indication of efficiency), increased to 16.9% (2010: 16.0%).

The firm also increased its consultant headcount by +5% during the first half. In the International business, consultant headcount increased by +12% overall, but in the latter part of the half the firm became increasingly selective about areas for investment, and reduced headcount in certain countries. A consultant headcount reduction of -4% in the UK came by way of natural attrition.

Global Performance

As pointed out earlier, in the United Kingdom & Ireland net fees decreased by -6% on a like-for-like basis to £116.4 million from £123.1 million, and the division made an operating loss of £3.1 million. Net fees decreased by -5% in the temporary placement business, largely as a result of its greater weighting to the public sector markets, and by -6% in the permanent placement business primarily due to a reduction in activity levels in banking and City-related specialisms. The operating loss was a result of the net fee reduction, partially offset by headcount reductions made during the half and the savings achieved through various other cost and efficiency measures, net of increased depreciation costs and modest cost inflation.

In the private sector business, which currently represents 78% of UK net fees, net fees declined by -1%. This was in large part due to slowing activity of the permanent placement business as confidence amongst candidates and clients worsened as the half progressed, particularly in the firm’s banking and City-related specialisms. Elsewhere in the private sector business, IT, Legal, Life Sciences and Sales and Marketing businesses all delivered good growth.

In the public sector business, conditions remain tough, but although net fees decreased by -18% year-on-year and the Group exited the half down 57% from peak levels, this business has remained sequentially stable since April 2011. The UK public sector business represented 22% of UK net fees and 7% of Group net fees in the half.

Given that the outlook remains uncertain, the firm will continue to reduce all aspects of the UK cost base, which is down more than 25% from peak levels, with particular emphasis on overhead and support costs.

Things were looking better in Continental Europe and the Rest of the World, where net fees increased by +30% (+27% on a like-for-like basis) to £132.8 million from £102.5 million, a record for the division. Operating profit also increased +37% (+32% on a like-for-like basis) to £18.2 million from £13.3 million. The difference between actual growth and like-for-like growth was mainly due to the modest appreciation in the Euro. The division achieved a conversion rate of 13.7%, up from 13.0% in the prior year.

The German business, representing 51% of the division's net fees and most of the division's profits, recorded +31% net fee growth organically and posted several record monthly performances as momentum remained strong through the half. Growth was broadly based across all sectors, and was particularly strong in the contracting and temporary placement businesses which account for 90% of the net fees in the German business. The firm recorded good performance in its IT and Engineering business, which grew by +32% organically.

In France, the firm’s second largest country in the division, the firm recorded +28% net fee organic growth with strong momentum through the half, while the Group also recorded organic growth of more than +20% in a further eight businesses including the Netherlands, Russia and Brazil. However, several countries, particularly in Southern Europe and Latin America, saw net fee growth slow significantly because confidence amongst candidates and clients was negatively impacted by the ongoing macro-economic uncertainty.

Overall consultant headcount in this division increased by +16% during the half. However, through the period the firm became more selective about areas for investment across the division and reduced consultant numbers in certain countries. The Group expects consultant headcount to reduce modestly overall for the division in the current quarter through natural attrition, with selected pockets of investment to take advantage of those markets that are continuing to grow being offset by reduced consultant numbers elsewhere in the division.

In Asia Pacific, net fees increased by +24% (+16% on a like-for-like basis) to £124.6 million from £100.5 million and operating profit increased by +31% (22% on a like-for-like basis) to £48 million from £36.7 million. The difference between actual growth and like-for-like growth was predominantly due to the appreciation in the Australian Dollar. The division achieved a conversion rate of 38.5%, up from 36.5% in the prior year.

In the Australia & New Zealand business, net fees were up +15% organically. Temporary placement net fees increased by +20% organically with demand increasing across all regions through the half and the firm exited the first half at record temporary levels. Permanent placement net fees increased by +7% organically with the rate of growth slowing through the half, as candidate and client confidence in the permanent market was impacted by increased macro-economic uncertainty, particularly in New South Wales and Victoria. Elsewhere, in the resource-based regions of Western and South Australia net fee growth was stable throughout the half and momentum in the public sector business, which accounts for 23% of net fees in Australia & New Zealand, remained good with net fees increasing by 15% organically.

The Asian business, which accounted for 14% of the division's net fees in the half, achieved strong net fee growth of +23%. Businesses in Hong Kong, China and Singapore each performed strongly, achieving net fee growth of more than +25% organically and each posted a record monthly net fee performance in the half.

Market conditions across the region did, however, become progressively more difficult through the half, particularly in those markets with a relatively high exposure to banking and financial specialisms. Business in Japan continues to see good progress as net fees increased by +11% organically.

Consultant headcount in Asia Pacific increased by +6% during the half, with consultant headcount increasing by +3% in Australia & New Zealand and by +16% in Asia, but through the half, the firm became increasingly selective about areas for headcount investment in the division. In Australia & New Zealand the firm will continue to cautiously increase consultant headcount based on specific business needs in areas of Western and South Australia, although the Group is not currently investing in consultant headcount in the other regions.  In Asia, where the firm has more than doubled its consultant headcount in the past two years, the consultant headcount is expected to remain broadly at current levels in the coming months.

Hays is a global professional recruiting group, specialising in the recruitment of qualified, professional and skilled people in both the private and public sectors. The firm deals in permanent positions, contract roles and temporary assignments and almost employs 8,000 staff in over 30 countries. Hays is the second largest staffing firm in the UK based on revenue, according to Staffing Industry Analysts latest research.

After announcing its results today, the firm’s share price jumped by +9.63% in early trading this morning and now stands at £88.80 Pence, which is down -25.69% from a year ago but +51.32% above the 52- week low of £58.69 Pence set on 15 December 2011. This values the company at £1.13 billion.