Good day, and thank you for standing by. Welcome to the Hays trading update for the quarter ending December 31, 2023 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Phillips, Head of Investor Relations. Please go ahead.
Thank you, Sandra, and good morning, everyone. Welcome to our quarterly update call for the three months ended December 31, 2023. Before we begin, please be aware that this call is being recorded, with the recording accessible using the number and code provided in the release. Please also 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 will now hand you over to James Hilton, Group Finance Director.
Thank you, David. Good morning, everyone, and thanks for joining us today at short notice. I'll present an overview of today's update and discuss regional performances before taking questions. As usual, all net fee growth percentages are on a like-for-like basis versus prior year, unless stated otherwise. Please note that given we have brought forward our Q2 statement, we have not yet finished our normal period-end accounting for presenting slightly less regional and sector detail than usual. As you will see in our statement, overall market conditions became increasingly challenging through the quarter, including a clear slowdown in most markets in December. This drove a group net fee exit rate of -15% or -13% on a working day adjusted basis, below our October fee decline of -7% and November at -8%.
Our fee exit rate in temp was down 5% on a working day adjusted basis, with perm down 25%. As a result, we expect pre-exceptional operating profits in our first half to be circa GBP 60 million, below consensus expectations, despite our ongoing actions to reduce costs, which I'll cover later. I'd like to highlight the following key items from the results. Firstly, our temp business, with fees down 5% or 4% working day adjusted, continued to outperform perm, with fees down 17%. Temp volumes remained broadly stable through the quarter. However, we did not see our normal seasonal step-up in worker volumes, leading to a temp volume decline 8% year-over-year. We continued to benefit from positive margin and mix effects, although this was partially offset by higher sickness on holiday leave.
In perm, markets were increasingly challenging, particularly in December, where we saw increased levels of placement decision deferrals from clients and candidates. Overall, new job registrations remained down year-on-year, but were broadly stable overall and in line with seasonal trends. However, we've seen a lower conversion of this activity into placements and further increases in time to hire. Partly offsetting perm volume decline of 25%, our average perm fee increased by 8%. Group consultant headcount decreased by 5% in the quarter and 12% year-on-year, as we actively managed our costs and capacity. We also reduced our non-consultant headcount by 3% in the quarter and targeted other overhead cost saves. As a result of our actions to reduce costs in the half, we have delivered circa GBP 30 million in annualized cost savings, with further material savings expected in H2.
As a result, we expect to incur a structural restructuring exceptional charge in H1 of circa GBP 12 million. Our balance sheet remains strong, with cash of circa GBP 60 million in December, in line with our expectations, and after paying GBP 68.3 million in core and special dividends in the quarter. I will now comment on the performance by each division in more detail. Our largest market of Germany delivered flat fees year-on-year, or up 2% on a working day adjusted basis. As previously reported, there was one fewer working day in Germany in Q2, and in combination with one fewer day in Q1, this had a circa GBP 3.5 million negative impact on fees and profit in the half. Temp and contracting fees were flat year-on-year, or up 2% on a working day adjusted basis.
This was driven by a 5% increase from higher margins, offset by a 1% reduction in volume, a 2% reduction from fewer working days year-on-year, and a 2% reduction from hours worked and higher sickness rates. Overall volumes in Germany were impacted by lower new project sales year-on-year through the quarter. Consultant headcount decreased by 2% in the quarter and by 3% year-on-year. In U.K. and Ireland, fees decreased by 17%. Temp decreased by 13%, with perms slowing through the quarter and down 21%. The private sector, roughly two-thirds of U.K. and Ireland fees, declined by 21%, with the public sector down 6%.... At the specialism level, accountancy and finance and technology decreased by 16% and 32% respectively. Construction and Property decreased by 11%, although our education business was flat.
In Ireland, our fees decreased by 4%, and consultant headcount decreased by 3% in the quarter and by 10% year-on-year. In ANZ, fees decreased by 20%. Temp, 65% of ANZ, decreased by 16%, with perms slowing through the quarter and down 27%. The private sector, with 59% of fees, decreased by 25%, with the public sector down 13%. At the specialism level, construction and property decreased by 23%, while accountancy and finance and technology decreased by 21% and 19% respectively. In New Zealand, our fees decreased by 35%, and consultant headcount decreased by 11% in the quarter and by 20% year-on-year. In our Rest of World division, comprising 28 countries, fees decreased by 11%.
Perm, which is 61% of our net fees, decreased by 17%, with temp down 1%. In the EMEA, Germany decreased by 6% and slowed through the quarter. France declined by 5%, with Poland and Switzerland down 25% and 9% respectively. The UAE and Belgium performed stronger, up 28% and 10% respectively, while Spain was flat. The Americas decreased by 25%, with challenging but broadly stable conditions through Q2. Canada and the U.S. remained tough, down 25% and 24% respectively, with Latam down 27%. In Asia, declined by 11%, with conditions broadly stable through Q2. China decreased by 18%, with Mainland China down 14% and showing modest improvement through the quarter. Fees in Japan were flat, while Malaysia performed well, up 8%.
Overall, our Rest of World consultant headcount decreased by 6% in the quarter and by 15% year-on-year. Moving on to current trading and guidance. I'd like to highlight the following points: firstly, given increased uncertainties and reduced client and candidate confidence, our new year return to work will be particularly important in FY 2024, and we are closely monitoring activity levels. It is too early to say if December's weakness reflects a more sustained market slowdown or whether this was due to shorter term deferrals of client and candidate decisions. However, we expect near-term market conditions to remain challenging. We accelerated our cost reduction and efficiency programs while focusing on increased operational performance and rigor.
Our actions to reduce consultant and non-consultant headcount and target other overhead cost saves have reduced the group's cost base by circa GBP 2.5 million per period since August. This drives the circa GBP 30 million pro forma annualized group cost saving that I mentioned earlier. We also expect our ongoing actions will deliver further material group cost reductions in H2 FY 2024, and I expect group headcount will reduce by another circa 3%-4% in Q3. Clearly, though, we are also managing the business to deliver on the many long-term opportunities that we see. We are therefore balancing cost control with protecting our key infrastructure and investments in strategic growth markets. Our strategy is increasingly focused on enhancing our leading positions in the most attractive and skill short markets globally, including Germany, our non-perm businesses, and enterprise clients.
In conclusion, although we are disappointed with the group's performance in December, we have been decisive in our actions to address costs and are firmly focused on delivering increased operational rigor and performance. I'm confident our current initiatives will materially benefit profitability once our end markets stabilize. I'll now hand you back to the administrator, and we're happy to take your questions.
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now take the first question. Coming from the line of Kean Marden from Jefferies. Please go ahead.
Thanks. Morning, all, and apologies for the cold. I've got three questions. First of all, I've had a few questions from clients this morning looking for a bit more sector detail in Germany. It looks like if we break down your specialisms, technology was probably one of the biggest swing factors, but everything seems to have faded down a bit. But I guess some client interest in terms of end markets and anything that you might be able to touch on there. Then secondly, when we look at the exit rate for Germany, I'm just wondering if you can provide a bit of insight to that. So it looks like temp and contracting net fees up 2% in the second quarter and perm flat.
Just wondering if you happen to have that data for December to help us with the exit rate and just any narrative on what wage rates, inflation tailwinds have been to those numbers. And then finally, and apologies, James, another another data question. If you've got the December exit rates for Americas, which looks like actually it's sequentially the year-on-year rate has actually sequentially improved in the second quarter. And then France, which looks like it's it's gone in the opposite direction. That that would also be helpful. Thank you.
Okay, thanks, Kean. I'll pick each one of concern, so please remind me if I miss anything. I think, first of all, we wanted a little bit of extra detail on Germany and what did we see through the course of there? It's fair to say that in Germany, we saw a slowdown across the board. If I look at the sector detail, we continue to see resilience in our engineering business, which was up 12%, versus prior year, and that was clearly our most resilient business in our major markets. C&P was up 4% in the quarter.
So I think what we continue to see there, and it's a theme that we saw across the business more broadly, is in the technical areas outside of technology, we continue to see relative stability, and we've seen weaker markets in more of the professional services. So our A&F business in Germany was slightly down year-on-year, down 1%. HR was down 5%, and legal was tougher, and that was down 26%. And those areas in professional services had, you know, been pretty strong growth areas for us in Germany for some period of time, and that supported quite a bit of the growth.
But that we have seen slowing markets in the professional services area as we move through the quarter, and that was consistent in Germany as well. In terms of Germany, in terms of exit rates, we were down 8% overall in December. And if I look at that broadly in the mix between perm and temp, our temp business was down 7%. Or we were actually flat on a working day adjusted basis, and that was driven by volumes, which were down about 3%. Our perm business was tougher in December, similar to what we saw elsewhere around the group, and our perm business was down 10% in December in Germany. So a consistent picture there with what we've seen elsewhere.
In terms of wage inflation, Kean, and I think Germany is no different than what we've seen across the overall group. We have seen a deceleration in wage inflation compared to where we were 12 months ago, or perhaps even 6 months ago. And that's consistent with the sort of perm pricing dynamics and in the temp pricing dynamics that we've seen and reported on in the business. So in our perm business, our average perm fee was up 8% in the quarter against volume that was down 25%. Actually, in Germany, it was pretty similar with that. We have about 4% increase from pricing in perm.
In temp, we similar dynamic, as I mentioned, we exited the quarter, we were slightly down on volume, which means that we're still getting a positive pricing impact there, about 4 or 5%. We did actually see slightly higher sickness in Germany in December as well, slightly hours worked around Christmas in the mix as well. But we've continued to get about a 5% tailwind from positive pricing in our German temp and contracting business. And then just moving on to Americas exit rate. Americas was pretty stable actually through the quarter, Kean. It's been tough there for some period of time. If I look at it at the overall level, North America was down 25% in December. Actually, US was slightly less down.
It was down 17%, and then Canada was down 40%. And in Latin America, we're down 18% in December as well, there. So continuing broadly stable through the quarter, and I think a relatively stable trend we've seen there for the last 6 or 9 months, but clearly not yet any sign of recovery. Did I get everything, Kean?
Almost. So the last one was France, just the exit rate for that. So, I mean, from outside, looks like French and German macro data has deteriorated over the last few months, and I'm just wondering if that's been represented in your monthly trading momentum as well. So yeah.
Yeah.
France in December will be helpful too, James.
Yeah, absolutely. And yeah, we have seen a slowdown in, particularly in northern Europe. It's interesting, we actually hit an all-time record fees in September and again in October in France, but then we exited December at -18%. So we had a pretty big swing through the quarter in our French business. So having, you know, performed pretty strongly up until October, we saw a step down, a clear step down in December. And, you know, that was consistent with a lot of our other businesses that saw, you know. Our French business is about 75%-80% perm, about 20-25% temp, and then clearly, that had a material impact on the performance there in December.
Sorry, last one for me. Is that -18% day-day adjusted, James?
There's no real day adjustment in France.
Okay.
Yeah.
Okay. Very kind. Thanks for your help.
Thanks.
Thank you. We will now take the next question... From the line of Rory McKenzie from UBS. Please go ahead.
Good morning, it's Rory here. Thanks for the questions. So firstly, on the perm slowdown in December, you commented the actual job flow was pretty stable through the quarter. So can you talk more about which points of the hiring process were you seeing that job conversion drop? And what does that, you know, tell you about client and candidate willingness to move? And then secondly, related to that, can you also talk about seasonality? I imagine some decisions are deferred from before to after holidays, and that's normal. But equally, we've had a couple of very abnormal years, and it sounds like from your comments and your cuts, you don't think this is just a timing issue? Can you talk about how you think about that issue with understanding what's going on?
And then I'll come back with a question on costs, if that's okay?
Great. Okay. I'll kick off, Rory, with the question on job flow and what did we see. So we see the relatively consistent trend through the quarter of incoming job flow around in perm, down 10%-15% versus prior year. And that was pretty consistent through the quarter. We didn't see any material drop down in December, so incoming jobs obviously do come down in December, but what we saw this year was pretty normal in terms of that trend. But what we did see was a clear slowdown in the conversion of the process into successful placement. And remember that our revenue recognition is on, we recognize the perm fee on start date of the candidate. So we have to have people starting in new roles in the month.
So that's, that's relatively clear. Where, where did it slow down? Well, we still have good interview numbers. Interview numbers slowed down a little bit, but not materially so versus job flow. So we were still seeing decent levels of interview numbers through December, but what we didn't see was final decisions being made by clients and by candidates. It was both. It wasn't just one or the other. It wasn't the clients were just pulling jobs, and, and, and it was a combination of the two. And as we stand here today, and clearly we're only on the ninth of January, it's not clear yet how much of that was genuine deferral of a decision and will come back in the new year, and how much of that has gone, and we don't get back in the new year.
And hence, it's quite difficult for me to make a call right now as to where the underlying level of trading is in perm, and what comes back in the new year. So we're obviously watching activity very carefully, but I only have half a week's data to go on, and those were the days worked on Wednesday, Thursday, Friday last week. So it's relatively early days to say whether the new year kicks off at a similar level or whether we get a bounce back. And similar on temp as well. I mean, the temp slowed down into the run into Christmas.
We saw that slow down with new, lower levels of new temp starters across the business, and clearly we'll be watching as normal the temp business in the new year and the return to work as we normally do. As to whether the trend was a more normal December after the last couple of years, which you rightly highlight were relatively abnormal in some respects, due to the post-pandemic boom in perm, I think that this was a slower December than normal. Clearly slower December than what we would normally see. If I look back to, say, perhaps 2018, 2017, even 2019, where things had slowed a little bit then, this was a clearly slower level of conversion of activity to placement than in any of those periods.
No, I appreciate the visibility. I appreciate the visibility you have, so that's all really helpful detail. Just to turn to the cost savings, it's relatively unusual to see an exceptional cost of restructuring for you. So can you talk about which changes you're making that fall outside the kind of normal course of adjusting your business? And then can you also comment on where you would expect the periodic cost base to come down to for the Q3 based on the current plans?
Yeah, thanks, Rory. So yeah, we as you've seen in the statement, we have an exceptional in the half year of about GBP 12 million, and broadly speaking, about half of that, 12 million cost, so about circa GBP 6 million, relates to a relatively small number of senior executive changes across the group, which have taken place in the last few months. And then the remaining GBP 6 million is a more delayering of headcount through the organization in terms of combination of operational roles and some non-operational back office roles as well. So you'll have seen from the statement that our consultant headcount was down 5% in the quarter.
In terms of consultants, the majority of that is via natural attrition and performance management as normal, and some selective reductions as well, where the markets have dictated that we should do that. But clearly, we've taken some operational management out of the organization and some back office areas as well, which has attracted the one-off costs, which we've included in that exceptional. So relatively, you know, it's a combination of the two. In terms of the cost guidance going forward, you'll have seen that we expect further reductions in the next quarter. As we exit the half, our periodic cost base is about GBP 83.5 million, and we've brought that down from GBP 86 million in August.
As we've reported there, it's about GBP 2.5 million of period saving we've made. I'd expect that to come down through the next quarter again, based on the headcount guidance we've given. Where we land exactly at the end of March, I haven't done the math actually, but I mean, there will be clearly a reduction from the GBP 83.5 million today. I'd expect that to come down perhaps by GBP 1 million-GBP 1.5 million or so, over the next quarter.
But look, we're still reassessing where, what we do with the cost side of things, because clearly December has been below our expectations, and it's important that we look at that cost base accordingly in line with the activity that we see in the new year and what our feeling is for the underlying level of business that we have. I think it's very difficult for me to say right now what the appropriate level of adjustment needs to be, because I don't have full visibility of that.
Of course, I understand. Thank you very much for detail.
Thanks, Rory.
Thank you. As a reminder, if you wish to ask a question, please press star one one on your telephone. That's star one one, if you wish to ask a question. We will now take the next question from the line of Andy Grobler from BNP Paribas Exane. Please go ahead.
Hi, good morning. Two from me, if I may, as well. Firstly, and just coming back to costs and changes, you've sort of given some info on this already, but can you quantify how much of that GBP 30 million is cyclical, so just normal course of business adjustments? And how much is structural, so won't come back as markets kind of stabilize? And then secondly, a bit related, Australia, there were some pretty big cuts to headcount there, down 11% in the quarter. Is that getting into the kind of the muscle of the business?
As a result, when you look out longer term, do those targets you'd set for fiscal 2027, I know the timing might vary anyway because of the cycle, but do those targets just look overly ambitious now that it seems to have gone through quite a big adjustment? Thanks very much.
Sure. Okay, Andy, I'll kick off with the annualized cost saves. I'd say, and I don't have an exact number to this, but approximately 2/3 of that would be the kind of normal, cyclical type adjustments that you would expect us to do, in terms of taking capacity out of the business to align to the markets. And about a third of that cost would be more structural, a combination, as I mentioned earlier, so senior level management and also more of a delayering across the operational management levels and in some of the back office roles. I'd say approximately 2/3, 1/3. Moving on to ANZ, and clearly, we took 11% out of headcount, out of the business in the quarter, which was quite significant.
And was an acceleration from where we'd been in the previous couple of quarters, but really responding to the difficult market conditions that we have there and the overall level of capacity that we need. I expect relatively lower, if little, reductions going forward in ANZ, actually, given that based on the markets that we've got today, I think they have addressed that cost base quite significantly and quite quickly. I expect much lower levels of reductions going forward and relatively limited. So that was, I wouldn't say it was a catch up, but it was certainly addressing a difficult market in the quarter, and I would expect relatively fewer headcount reductions going forward.
Let me just follow up from that. You talked about headcount being down 3%-4% in Q3. If ANZ is flat, where's the bulk of that decline going to come?
I mean, logically, Andy, we saw the slowdown in Europe and in Germany in the quarter. And I would expect the headcount there hasn't come down too far yet because we've seen pretty much stable markets until November. So we're gonna have to have a look at what December brings and also what the new year brings, but instinctively, we'll have an element of catch up there. And I think in the U.K. as well, we've been continually, we started taking early action in the U.K. We're actually down about 15% from where we were at peak back in sort of August, September time last year.
And that's, we took 3% out, and of course, I think there's probably a little bit more to come there. We've made pretty decisive reductions in the Americas region during the quarter, and Asia was, as you see, also quite significant reductions. So I think it's broadly more Europe than the U.K.
Okay. Thanks very much.
Thanks, Andy.
Thank you. There are no further questions at this time. I will now hand back over to James Hilton for final remarks.
If that's all for questions, thanks again for joining the call today. I look forward to speaking to you at our H1 results on the twenty-second of February. Should anyone have any follow-up questions, David, Rob, and myself will be available, of course, for the rest of the day. Many thanks.
This concludes today's conference call. Thank you for participating. You may now disconnect.