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UK — Tough year for Hays but company sees optimism in H2 results

02 September 2010

Hays Plc (HAS:LSE), the fifth largest staffing company in Europe, has announced its annual results for the year ended 30 June 2010. Net fees were down by -17% from 670.8 million Pounds in 2009 to 557.7 million Pounds in 2010. Like-for-like, net fees were down by -21%.

Net fees from temporary employment were down by -13% from 373.4 million Pounds in 2009 to 323.5 million Pounds in 2010. Like-for-like, temporary net fees were down by -18%.


Net fees from permanent employment were down by -21% from 297.4 million Pounds in 2009 to 234.2 million Pounds in 2010. Like-for-like, permanent net fees were down by -26%.

Operating profit before exceptional items (29 million Pounds relating to an OFT fine for anti-competitive behaviour in the construction sector which is currently under appeal, and 12.4 million Pounds of restructuring costs relating mainly to the UK) fell by -49% from 158 million Pounds in 2009 to 80.5 million Pounds in 2010. Like-for-like, operating profit before exceptional items fell by -53%.

Profit before tax was down by -80% from 151 million Pounds in 2009 to 29.7 million Pounds in 2010.

The underlying temporary margin decreased by 160 basis points to 15.2%. Around half of the margin reduction was a result of the mix effect of a greater proportion of placements being made through large volume contracts, with the balance of the reduction resulting from modest pricing pressure impacting the Company's major temporary placement markets; Australia, Germany and the UK. The Company highlighted new multi-specialism contract wins with a number of large corporates, such as Goodyear, JDSU, Reckitt Benckiser and Sony Pictures.

In the United Kingdom & Ireland, net fees declined by -26% to 243.9 million Pounds, and operating profit before exceptional items declined by -82% to 11.4 million Pounds. Net fees decreased by -23% in the temporary placement business and by -32% in the permanent placement business. The UK conversion rate (a measure of operating efficiency) collapsed from 19.2% to 4.7% this year.

Overall, demand remained sequentially stable throughout the period with net fees in the second half of the year in line with the first half. In the private sector, net fees improved sequentially in the second half versus the first half with Pharma, Corporate Accounts and City-related recruitment all achieving particularly strong growth. As might be anticipated, performances in the public sector were mixed. In frontline service areas Hays continued to achieve growth, with net fees in Healthcare and Education up by +29% and by +4%, respectively, versus prior year. In contrast, the pressures on public finances impacted the remainder of the public sector business, particularly in Construction & Property and back office functions. Overall public sector net fees, which currently represent 30% of United Kingdom & Ireland net fees, decreased by -19% versus prior year, and are now more than a third below peak levels.

Consultant headcount in the United Kingdom & Ireland was reduced by -5% during the year with most of the reduction being undertaken near the start of the year. Throughout the year, Hays supported growth in the private sector by redirecting resources from the public sector and intends to continue to do this if current trends continue. As a result, the group expects to broadly maintain headcount at current levels in the coming months.

In the year, 38 offices were closed as the group have continued to drive efficiency savings by consolidating operations in selected cities. A new front office system has been fully rolled out across the United Kingdom &Ireland.

The back office automation project will complete in October 2010. As a result of this implementation, and the reduction in volumes during the downturn, the back office headcount will be reduced by around -50% from peak levels to around 300, of which a significant proportion will be based in India.

In the Continental Europe & RoW division, net fees decreased by -12% (-16% on a like-for-like basis) to 167.5 million Pounds and operating profit before exceptional items decreased by -48% (-50% on a like-for-like basis) to 17.1 million Pounds. This division now represents 21% of group operating profit before exceptional items. The difference between actual growth and like-for-like growth was mainly due to the appreciation in the Euro. The conversion rate declined from 17.3% to 10.2% in 2010.

The German business, representing 48% of the division's net fees and the majority of the division's profits, recorded a -12% decrease in net fees versus the prior year. Germany has been the group's most resilient country through the downturn and, on a sequential basis, net fees in Germany showed a stable trend in the first half of the year before recording +8% sequential net fee growth in the second half, driven by a broad based recovery of the temporary and permanent placement markets. The German business continues to diversify into a broader range of specialisms including Accountancy & Finance, Construction & Property, Sales & Marketing, Legal and Pharma, which now account for 21% of total net fees in Germany (2005: 3%).

Other businesses in this division, covering 19 countries, are focused principally on the permanent placement markets. Spain's net fees declined by -24% on a like-for-like basis while like-for like net fee declines were also experienced in France (-22%) and Benelux (-18%). After experiencing sequential net fee stability in the first half of the year, most countries returned to sequential growth in the second half as client and candidate confidence levels improved across the markets. The businesses in Brazil, Portugal, Denmark and Hungary each achieved all-time record fee months during the fourth quarter of the year, with 14 countries across the region achieving net fee growth of over +10% in this quarter. The businesses in Southern and Eastern Europe, which currently contribute 11% of the division's net fees, have seen no impact from the sovereign debt issues.

Consultant headcount within the division decreased by -3% during the year. This comprised a -9% reduction in the first half, which was partially offset by a +6% increase in the second half, with increases in Germany and Brazil. Hays currently plans to add headcount more broadly across the region after the summer vacation period.

In the Asia Pacific division, net fees decreased by -2% (-18% on a like-for-like basis) to 146.3 million Pounds and operating profit decreased by -15% (-30% on a like-for-like basis*) to £52.0 million. The division represents 65% of Group operating profit making it the largest of Hays' contributing divisions. The difference between actual growth and like-for-like growth was mainly due to the appreciation in the Australian Dollar. In Australia and New Zealand, net fees were down by -21% versus the prior year. Net fees decreased by -18% in the temporary placement business and by -25% in the permanent placement business however, the Company saw a strong private sector recovery across all specialisms and states from the second quarter onwards.

Elsewhere in Asia Pacific, market conditions improved markedly through the year, driven by improved levels of demand across a broad range of specialisms, culminating in all-time record monthly net fee performances being achieved by Japan, China and Singapore. Hays aims to double the size of this business within the next two years and Asia is now operating at above its pre-downturn level.

Alistair Cox, Chief Executive of Hays, said "after a tough first half to the year, we returned to growth in the second half driven by excellent performances in Asia Pacific and Germany. In the fourth quarter, 20 countries across the group delivered net fee growth of over 10% as we added headcount to capitalise on the upturn."

"The outlook across 90% of our markets, including the UK private sector, continues to improve. During the downturn we invested in building a stronger, more efficient and broader based business, and with our major investment programmes now substantially complete, this ideally positions us to capitalise on the significant growth opportunities that are increasingly present across our markets."

As a key priority, Hays aims to more than double the number of consultants operating outside the UK by 2014 including expansion into the US and Mexican markets.

The better than expected performance in the second half of the year enabled the company to beat analysts' expectations. In early trading Hays's shares were up by +3.46%% to 97.25 Pence.

 

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