Good morning, everyone. Welcome to Hays Quarterly Update Call for the three months ended 31st December 2021, the second quarter of our 2022 financial year. I'm here with Paul Venables, Group Finance Director. 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 as a result of new information, future events or otherwise.
I'll now hand you over to Paul.
Thank you, David. Good morning, everybody, and thanks for joining us at short notice for this rearranged call. I'll present the highlights and key themes of today's update and discuss regional performances before taking questions. As usual, all net figure percentages are on a like-for-like basis versus prior- year unless stated otherwise. Performance overview. In Q2, we delivered record quarterly fees at 37%, which is ahead of market expectations with excellent growth in all regions. Within that, November delivered an all-time fee record. Currency translation had a significant negative impact, decreasing headline net fees by 5%, and there were no material working days adjustments in the period. I highlight the following key features of the results. One, we delivered quarterly fee records in 16 countries, including the strategically important markets of the U.S. and China. In Germany, our largest business, we delivered record contracting fees.
Two, growth was led by perm up an excellent 61%. Temp increased by 22% with volumes and margins improving through the quarter. Three, fees in the quarter were 11% above two years ago, with perm up 19% and temp up 6%. Four, at the specialism level, Technology, our largest global specialism at 25% of group fees, delivered another record quarter with fees at 33%. Technology fees are now 20% above pre-pandemic levels. Five, consultant productivity remained at near record levels despite increasing consultant headcount by 6% or 480 people in the quarter. Headcount is now up 26% year-on-year as we continue to invest to capitalize on the cyclical recovery and strategic growth opportunities. Six, our net fee exit rate in December was 34% despite a tougher growth comparative.
Seven, cash performance was good, and we ended the quarter in a strong financial position with net cash of GBP 235 million in line with our expectations. Of course, this is after having made dividend payments of GBP 170 million in November. Eight, finally, as a result of the strong fee performance, FY 2022 operating profit is expected to be circa GBP 200 million ahead of consensus market expectations. I'll now comment on the performance of each region in more detail. ANZ. Our ANZ division, 16% of group net fees, increased by 31% with momentum improving following the lifting of lockdowns in October. Perm, 36% of ANZ fees were up an excellent 75%, while temp increased by 15% against a relatively resilient performance last year.
The private sector, 62% of fees, increased by 36%, while public sector grew by 24%. Australia increased by 30% led by New South Wales at 39%, and our two largest specialisms, Construction & Property and Technology, grew by 11% and 44% respectively. New Zealand, which is 8% of ANZ fees, delivered a fee record and increased by an excellent 56%. Consult headcount in ANZ increased by 3% in the quarter and 29% year-on-year. Germany, our largest business, representing 25% of group fees, grew by 37%, with activity improving through the quarter and fees growing sequentially versus Q1 FY 2022. November produced a monthly fee record. Overall business confidence continued to improve with clients increasingly investing in new and extending existing projects. Contracting, 57% of German fees, delivered a record quarter.
Fees grew by 22%, driven by 27% growth in contractor volumes, with average contractor volumes now 11% above prior peak levels. This was partially offset by 5% lower average weekly hours per contractor. Temp, which is mainly in engineering and manufacturing, continued to recover at 68%, or 51% excluding the effects of temp severance costs in FY 2021. Volumes improved through the quarter, although given slow recovery in the automotive and manufacturing sector still remain 18% below pre-pandemic levels. Perm delivered an excellent performance up 58%, and consultant headcount increased by 5% in the quarter and 12% year-on-year. United Kingdom and Ireland. The U.K. and Ireland division, 23% of group fees, increased by 33%, with sequential growth versus Q1 FY 2022 led by an excellent perm performance of 69% and temp up 13%.
Private sector fees increased by 46%, with the public sector up 12%. Most regions traded broadly in line with the overall business, except the East of England and Scotland, which grew by 44% and 39% respectively. Our largest U.K. region of London grew by 34%, including London City, which is predominantly private sector-focused, up an excellent 68%. At the specialism level, we saw excellent growth in Technology at 43% and Accounting & Finance at 48%, while the fastest growth in our other larger specialisms was HR, up 105%. Consultant headcount increased by 7% in the quarter and is 23% up year-on-year. Rest of World. The Rest of World division, representing 36% of group fees and comprising 28 countries, grew by 41%, with 15 countries delivering quarterly records.
Perm, which is 68% of Rest of World fees, increased by 55%, with temp up 20%. In the EMEA ex- Germany, fees increased by 33% and activity levels remained high. Our largest Rest of World country, France, was up 33%, and 10 countries delivered record quarterly fees, including Switzerland up 30%, Poland 45%, and Spain 28%. The Americas grew by 55%, including records in the U.S., our second-largest Rest of World country, up 51%, and Brazil grew by an excellent 79%. Asia fees increased by 53%. Both China, our third-largest Rest of World country, up 59%, and Malaysia up 53% delivered net fee records. Consultant headcount was up 7% in the quarter and 35% year-on-year. Cash flow and balance sheet. Cash collection was good.
We ended the quarter in a strong financial position with net cash of GBP 235 million in line with our expectations after paying GBP 170 million in dividends in November. Current trading and guidance. As usual, our new year return to work trends will be a key driver of second half performance. It's too early to quantify how the Omicron variant will impact trading. Two, after significant investment in consultant headcount over the last 12 months, we expect investment to moderate to 4% over the next quarter, with headcount growth mainly in Germany and in our strategic growth initiatives, which continue to perform very well. Consultant productivity remains very high and close to record levels, and we expect to increase consultant productivity further as productivity of our newer consultants ramps up in the coming quarters.
Three, the strengthening of sterling versus the Euro and Australian dollar represents a headwind to FY 2022 operating profit. If we retranslate our FY 2021 operating profit of GBP 95 million at 11th January 2022 exchange rates, operating profit would decline by GBP 7 million, a GBP 2 million deterioration versus our position at Q1 FY 2022 trading update in October. Importantly, as group operating profit will clearly increase materially in FY 2022, currency will have a much larger negative impact this year. Four, as I mentioned earlier, as a result of our strong fee performance, FY 2022 operating profit is expected to be circa GBP 200 million. While the Omicron variant creates some further uncertainties, recruitment markets are very strong and candidate and client confidence remains at high levels.
There are clear and increasing signs of significant skill shortage in wage inflation, particularly at the higher salary levels. Our focus for the second half will be on delivering substantial profit growth while continuing to invest in the future. As global economies continue to rebound, I'm confident we'll continue to take further market share as we invest in the cyclical recovery and take advantage of the many structural growth opportunities. We are firmly focused on positioning Hays as the clear market leader in the most attractive long-term sectors and geographies, including Technology and Germany. We look forward to providing a more detailed update of our strategy at our Investor Day on Thursday, the 28th of April. I'll now hand you back to the administrator, and we're happy to take your questions.
Thank you. As a reminder, if you'd like to ask a question today, please press star followed by one on your telephone keypad now. When preparing to ask your question, please ensure your headset is fully plugged in and unmuted locally. That's star one to ask a question. Our first question today is from Anvesh Agrawal from Morgan Stanley. Anvesh, your line is open. Please go ahead.
Good morning, Paul, and thanks for the update. Just one question from me really, on the headcount investment which have been above your guidance in Q2. Is that purely a catch-up on the cyclical recovery or there is an intention to increase the SGI investment compared to what you guided before?
I think in part, Anvesh, it's a clear sign of our confidence on the markets we're operating in and our trading position. I think one of the, you know, real the two kind of, in my mind, positive, material points in this set of results. Firstly, we're starting to see real acceleration in our German business and specifically the contracting within that. As you well know, Anvesh, you know, the average length of a contractor is nine months, and therefore, we have an increasingly secure revenue stream looking into the near future. Second, of course, our temp business now is starting to accelerate. We haven't just got strong perm performance, but we've also got strong temp performance across a number of markets.
Therefore, to an extent, I think it's bringing in some of the cyclical investment and SGI slightly early, earlier than we originally had intended. Of course, it's always going to be a little bit of phasing on this. I think importantly, the guidance we've given for the next quarter, and I think that will continue for the second half of the year, is less headcount investment because we've now got sufficient capacity to grow our business at these sort of levels of confidence in the market by a good 10%-20% versus where we are today as we drive productivity of the newer consultants. Therefore, that investment going forward will be predominantly in Germany and in the SGI markets.
Whereas in some of the other markets, I think, you know, we put a lot of headcount in, we're now gonna focus on driving productivity and profitability. I think you should take it as, you know, this quarter has been better than our expectations. Within that, the major markets have been better and a clear sign of our confidence, not just for FY 2022, but FY 2023 and beyond.
Okay. Yeah. I mean, this is some of it, is phasing as you say, but we should not expect an increase in the OpEx investment compared to what you guided before, net on the SGI.
No. On SGI, the investment will be the same. On overall, if I kind of answer it another way, I gave guidance both six months ago and three months ago of an expectation of drop-through of 40%-50% this year, and significantly above 50% in FY 2023. That guidance still holds today.
Okay. That's very clear. Thank you.
Our next question is from Rory McKenzie from UBS. Rory, please go ahead.
Morning. It's Rory here. Hope everyone's well. Firstly, on Germany, with that good step up in the demand levels, can you talk about what happened to the contractor book in the run up to Christmas and what that means for the sign-ons on projects being extended or carried over? Secondly, more generally across temp and contractor, can you comment on what rate of wage inflation you're seeing, and if you're also seeing expansion in your own fee rates? Thank you. Thank you.
Thanks, Rory. On Germany, contractor acquisitions, which I guess is the way we look at it on a weekly basis, accelerated as we went into November. That continued into December, right the way up to the pre-Christmas week. In fact, in the two last major weeks in December, we had all-time record acquisition numbers and well above what we were achieving in FY 2019 or even FY 2018. Again, a clear confidence sign. I have no view at the moment, Rory, on kind of terminations. You know, we normally have a termination rate in contracting of about 18% at December. Far too early to have a view on that at this stage. We would generally have clear observation somewhere between the 21st of January and the 28th of January is when we get clear that kind of things to settle down.
I think just kind of standing back and looking at it, the confidence of our clients coming into Christmas, our ability to meet that demand in either rolling contractors from one assignment into a new one was, is very high. Therefore, I wouldn't expect the termination to be any worse than previous years, but I have no data to support that either way at the moment. I think the way to look at Germany is, you know, it's our largest profit generator by some way now, it is returned to that position. As you guys know, we set out our strategy when we did the 2017 Investor Day of doubling the profitability of our German business from GBP 100 million up to GBP 200 million.
You know, when we come to do our Investor Day in April, surprise, you know, that's clearly still a very achievable target. I actually think we're in a much better position to deliver that today than we were in hindsight four years ago. You know, what could well be a longer term weakness in areas such as automotive, you know, that's in these numbers today. Automotive is a growth opportunity versus where we are today, as well as all the additional markets. If you remember in Germany, we'd also, you know, just going into the pandemic, put in place a reorganization, which means we've got much greater focus on the regional markets as well. You know, we really are opening up those regional markets in second and third tier cities through professional recruitment.
That positions us fairly well for the next five years. On temp and contracting and perm, [I] clearly will give greater detail on this when we get to the interims. On perm, we saw in this quarter a clear increase now in our average perm fee and a greater level in this quarter than we did in the previous one. Clearly what we are seeing, like a lot of other recruiters, is candidates getting 15%-20% pay rises for changing jobs. But of course, they've always got greater than 10%. But what I think we're starting to see now is just that increasing and therefore wage inflation being a benefit for us. Secondly, in the temp part of it, this is really quite exciting. You know, we've got...
There's a broad gap between where we are in fee growth and the volume growth of 8%-10%. That 8%-10% is all about margin improvements. About half of that is of course the lack of one-offs in places like Germany in the previous year. The other half is absolutely an increase in the average margin we get per week per temp. The only way you can kind of conclude on that is that's wage inflation. Because of course, outside of Germany, we've got a lot of temps which are more in the kind of 8 - 12 week assignments, and therefore there's greater churn. Absolutely, we're being able to increase both our margin but also the rate we're getting for those temps.
Taking all of those points together, that's the first time I've ever seen all of those in any quarter in my almost 16 years as Group Finance Director at Hays. You know, we all know that between 2010 and 2020, there was little or no wage inflation and margin improvement. We are now beginning to see both of those, and I think that bodes well for the rest of FY 2022 and FY 2023 and beyond.
Interesting. Thanks very much.
As a quick reminder, that's star one on your keypad to ask a question. The next question is from Andy Grobler from Credit Suisse. Andy, please go ahead.
Hi, good morning. Three from me, if I may. Firstly, Paul, you partly talked to this earlier, for perm and temp, perm continues to grow more quickly. Do you think it's just a matter of time now before temp catching or temp and contracting catches up? Secondly, on Germany, this might be a bit too early to ask a question, but you talked about doubling the profitability. When that target was initially set, for a variety of reasons, profits declined. What kind of time period would you think about getting to that GBP 200 million in Germany? Thirdly, with growth across the industry so strong, are you beginning to see your consultant attrition go up?
How confident are you that you can hold on to all of these people to drive that growth over the next 18 months? Thank you.
Yeah, thanks for that, Andy. Again, if I don't pick up all of the parts of that, then I do apologize. Absolutely in the first part of it, look, we've got a phenomenally strong perm market now, and none of us could have expected that 18 months ago when we were in the teeth of the pandemic. Equally, I think what we're now starting to see, and it started at the bigger corporate end of town, and it's now beginning to work its way through, is that clients need professional staffing. They're now also returning in large volumes to looking for contractors, interims and temps. Look, what's not gonna happen is temp growth go from 22% up to 60%.
That can never happen in a temp market because, of course, the very nature is, and if you use Germany as an example, all of those additional contractors that we brought in, those fees are gonna be recognized over the next nine, 12, 15 months. It's not that you book all of that immediately, whereas clearly in perm, that fee is booked immediately. That's my point about we now have, you know, greater confidence in the forward secured revenue stream that we've got for the next kind of three, six, nine, 12 months. Temp will catch up because, of course, I do think the perm market's going to stay strong across calendar year 2022. I think all of the reasons that are leading to a lot of people changing jobs are going to continue for a period of time.
At some point, of course, those workers that are more likely to change later, that will have, you know, they will have worked their ways through. The temp percentages will start to come down with better comps. I think temp has got some runway to go. We're very excited by what we're seeing in that market. In Germany, look, I don't want to steal Alistair's thunder for the investment day, the Investor Day, but I think that's well achievable over the next five years, if not slightly earlier. I think, we're in such a stronger position now versus four or five years ago. We've got greater diversity of our fees across client base. We've now got some other really quite exciting specialisms.
You know, traditionally it was all IT and engineering, but now we've got a very big accounts and finance business. We've got a big legal business, a big marketing business, a big HR business, and therefore I think we're well-placed. We are starting to see acceleration, not just in the larger corporates, but also in the SME market. It's exciting. Five years, but, Andy, Alistair will take everybody through that when we do the Investor Day. You know, growth in the industry, consultant attrition, can we hold on to them? I think that actually some of the worst of that is over because if you think it through, it is not that, people are leaving Hays to go to other recruitment agencies. It's all about enhanced recruitment.
A lot of the companies in March 2020 just decided to slash their internal recruitment teams because they were fearful that, of course, there will be little or no recruitment for six, 12, 18 months. That has proved to be wrong, as we all now know. A lot of those companies are in the tech space and have got great, you know, branded names, et cetera. They are coming back. It is those people that have been attacking certainly a number of the consultants in our own business over the last 12 months. I actually think we're in a stronger position. It is slightly easier today than it was three or six months ago. We're not complacent in any way.
Equally, of course, we've also brought a lot of new people in ourselves over the last year. As we take those individuals' productivity curve over the next 1-2 years, you know, we've got more than enough productive capacity to have a much bigger business than we've got today. There will be a point, somewhere across the next 12-18 months, of course, that we'll start to decelerate headcount investment and really monetize what we've got. At the moment, we are still absolutely determined to dominate Technology, to double the size of our Technology business from GBP 250 million- GBP 500 million over the next five years.
You can see in here, we're already 20% above where we were pre-pandemic, and we're also determined to attack not just Germany, but also a lot of the kind of green economy markets that we're incredibly well-positioned through our specialisms in Engineering and Construction & Property.
Great. Thank you very much.
The next question is from James Rose from Barclays. James, please go ahead.
Hi there. Morning. Just got one, please. It's on productivity. In the second half, you said that's gonna be less about headcount and more about productivity of those new hires. When a new hire is ramped up, what would you expect their productivity levels to be versus pre-pandemic?
Well, I think pre-pandemic, when we got through this, if we have a perm market which is as strong as we are today. We are shooting for productivity of a good 10%-20% higher than we were pre-pandemic. Of course, what we've got at the moment is a very strong permanent market, and within that we've got quicker decision-making from clients, which is the secret sauce in all of this, because of course it enables you to have greater security on an assignment, getting that assignment closed, getting that fee booked. I think this talent war part's going to go on for some time. If we just think through, you know, what are the reasons for it, 'cause I think that comes back to productivity, James.
You know, there was massive skill shortage pre-pandemic, and that's been exacerbated by continuing demographic issues, minimal immigration globally with the borders effectively shut, thinking about Australia, U.K., U.S. In the case of the U.K., Europeans going home. People withdrawing from the workplace, looking for new challenges, purposes in jobs. You know, work from home for two years, weakening cultural bonds, so it's more likely more employees will look to change. Of course, some people also a greater number of people in their 20s and 30s rather than looking for one full-time job, doing a number of kind of part-time jobs, almost going plural. You know, when you've got a massive skill shortage and a war for talent, that leads to the wage inflation, it leads to clients making faster decisions. All of that, of course, helps the productivity of consultants.
You know, what we're seeing in our experienced consultants today is that they're generating fees 30%-40% higher than they were kind of pre-pandemic. We've clearly got a number of, you know, about 10%-15% of the consultants we've brought in over the last year are experienced. The rest, of course, have been through the Hays Academy. They're now starting to come up the productivity curve. That will take us a good year to 18 months for them to be, you know, fully productive. But I think we're really well placed for that, and I do think we're gonna have this period of time with higher productivity and also part of that is wage inflation, 'cause that, if you like, goes straight through to the bottom line.
Great. Thank you very much.
Nothing further in the queue at present, but as a reminder, that's star one on your telephone keypad to ask a question.
Brilliant. If that's all of the questions for today, we'd like to thank you all again for joining the call. I look forward to speaking to you at our half-one FY 2022 results on the 24th of February, 2022. Of course, anybody have any follow-up questions, David, Charles and I will be available to take calls for the rest of the day. Thank you very much for joining us at short notice, and have a great day.