Earnings Call: H2 2021

Aug 26, 2021

Good day and thank you for standing by. Welcome to the FY 2021 Full Year Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer I must advise you that this conference is being recorded today on Thursday, 26 August 2021. I would now like to turn the conference over to your first speaker today, Alastair Cox. Please go ahead. Thank you. Good morning, everybody. Welcome to our FY 2021 results. We've all obviously lived through a year like no other and I really hope this is the last time that we have to present our results virtually. But I do think we've got a strong story to tell today with one that involves structural growth opportunities, cyclical recovery and self improvement. So as usual, I'll take you through the operating review. Paul will then address the detailed financials in our current trading. And then I'll finish off with an update on our strategy. So of course the year was dominated by the pandemic and what we were doing about it, but it was also a year of 2 distinct halves during which I think we've made more changes to the business in 12 months than I think we've ever done before. We've learned some incredibly valuable lessons. I think those will stand us in good stead for many years to come as we set out to continually improve our business and to take it beyond our previous peak profits. Looking back a year ago, the year started with the toughest macroeconomic backdrop that we've ever faced And literally millions of people and organizations struggling just to get through the pandemic. And then just 12 months on, We're now in a world where businesses are increasingly confident, they're aggressively hiring, candidate confidence is strong, Skills shortages are evident virtually everywhere and we're seeing real wage inflation starting to emerge in a way that we haven't seen for many years. And here in Hays, we've never experienced such a sharp downturn and then an equally sharp recovery in any of our 53 years in business. Obviously given such massive change, I think our purpose as a business that is to help organizations To thrive and for people to advance their careers, that's never been more relevant. And it's been an incredibly busy period and there's a lot to talk about. But let me pull out just Three key points from this slide. Firstly, a time of such great anxiety with so many people under immense personal stress, I think it's incredibly rewarding that we placed over 280,000 people into a new job last year. And at the start of the pandemic, The idea that people would go through an entire recruitment process virtually was completely unproven and I could not have predicted that. However, this is now standard practice and it opens up a whole host of new ways that we can deliver our services going forward. We've also helped millions of other people with career advice, guidance and training so that they can get on with their careers. And for example, We had over 850,000 unique training courses were completed across all of our online portals in the last 12 months. That's over 26,000,000 minutes of online learning and it shows our contribution to helping people fulfill their potential. Secondly, we very deliberately protected the infrastructure and the capability of our business because we knew that we would need it in time We wanted to be on the front foot when that time came. I could not have predicted the speed with which we would return to growth And our investment in our people is obviously now paying off. For example, consultant productivity hit record highs in our 4th quarter And activity was strong enough for us to warrant adding another 10% to our headcount in H2 and that will drive further fee growth both this year and beyond. We also think that COVID will change aspects of the world of work permanently And our strategic growth initiatives are designed to capitalize on the longer term structural growth opportunities in the most likely future in demand We added around 250 consultants into the SGI program last year and the program is going very well. I'll come back to that in a few minutes in Thirdly, we're seeing other major changes in the world of work. Remote working is opening employers' eyes on where they can look for future Organizations are intent on improving their workforce diversity and promoting social mobility. Governments and businesses are joining up to tackle the huge issues of climate change and sustainability. Yet skill shortages are becoming ever more acute everywhere. As businesses struggle to find talent, they're turning to experts such as ourselves to solve that problem. And all of these shifts are opportunities for us. And again, I'll come back to them shortly. Trading obviously improved through the year, which I'll cover in the next slide and cash collection has been excellent. I want to give a special mention to our credit control teams because they delivered record low debtor days. It's Clear to me that the strong support that our shareholders gave us over a year ago enabled us to invest when our markets were at their lows And that gave us a head start as we position Hays to be stronger than ever in the future. And those investments are now starting to pay off And consequently, we've raised our ambitions and our expectations accordingly. However, the financial position that we're now in Means it's appropriate to restart cash returns to shareholders via core and special dividends starting with £150,000,000 special this November. Finally, all of this only happens because of the hard work of all of our people. Their commitment resolve and their mutual support Has been the one thing I'm most proud of and I'd like to thank them publicly for all that they've done because they've been exceptional. We've learned together how a more flexible working style combining the best of the office environment as well as remote working Can both increase productivity as well as the employee experience and that's an incredibly powerful lesson. I'm sure it will make for a better business for all stakeholders in the future. So let me turn now to our financial results. Group fees decreased by 8% to €918,100,000 Trading began to stabilize last summer and we saw good sequential improvement from September 2020 onwards. And I think our quarterly fee sequence says it all. 1st quarter down 29%, 2nd quarter down 19%, 3rd quarter down 10% and the 4th quarter up 39%. Our temp business is 61% of the group Fees and that fell by 6%. Perm fell a little steeper down 10%. However, both perm and temp rebounded in the second half with temp fees up 9 And perm up 18%. At the global sector level, Life Sciences grew a strong 12% And we saw resilience in technology, which is only down 5%, but that includes the second half up 7%. And HTS continued to take market share And outperformed our group average with flat fees. With such dramatic changes in the market, we're obviously very active on managing costs and headcount. And with first half fees down 24%, cost control was vital then and consultant headcount was down 350 right at the start of the first half. However, as markets recovered, we also reacted quickly to the strong cyclical recovery And we added 650 consultants in the second half net net ending up 300 over the year. With such an improvement in fee momentum, our operating profit performance also increased significantly in the second half and it exceeded our earlier expectations. Overall, we made £95,100,000 last year, but £70,000,000 of that came in the second half despite £11,000,000 of second half investment into our SGI program. So in summary, as a CEO, it's hard to be pleased when your operating profits fall 31%. However, our performance was well above where I would have thought possible at the start of the year and I think the business has delivered on many fronts. So let me give you an additional color on each division and as usual we'll start in Australia and New Zealand. ANZ delivered one of our most resilient performances. Fees fell by 10%, but strong cost control limited the operating profit decline to 21%. Temp fees were down 11%, but perm was more volatile. And while it was down only 6% over the full year, This includes a strong rebound in the second half when it grew by a third as business confidence improved and skill shortages intensified. The initial phase of the pandemic was less severe in ANZ than the rest of the world, hence fees did not fall as far as in some other areas in Q4 financial year 2020 and in our first half. Once the long term lockdowns in Victoria ended around November, We quickly saw positive momentum return both in temp and perm, particularly in our Q4. And today Australia is still in a continuing cycle The lockdowns, I think it's too early to say what impact that may have on sentiment. However, as with our experiences in Europe, Australian markets appear to have found a way to cope with remote working. Also significant skill shortages are magnified by the borders remaining closed meaning that migration is non existent today. I also want to give a special shout out to New Zealand. The team there produced what I think is a remarkable performance and fees grew by 14%. New Zealand has been a major success story since we put new leadership in there Just over 3 years ago and I'm very optimistic that there's a lot more that we can do there. Finally, as demand, Activity and momentum all accelerated sharply in the second half. We invested in the business and we grew consultant headcount by 17% year on year. Turning now to our largest country, Germany. Net fees fell by 7% and profit was down 42% as we largely maintained our productive capacity. The first half fees were down 26%, although there were clear signs of improving business confidence generally from the Q2 onwards. Performance then improved sharply in our second half with fees up 18%, including good monthly sequential fee growth through the 4th quarter. Contracting, which is where we operate a freelance model primarily in the technology sector is our largest business and that was relatively resilient down only 5% in the year. Momentum again improved throughout the year and most encouragingly we had a record year end number of contractors working. Our temp business was down 3%, but that masks a 45% decline in the first half. A large proportion of that was due to underutilization of temp workers, but again trends have improved significantly and temp utilization It's currently at historic high levels, which Paul will cover later. The bottom line is Germany needs more highly skilled temp talent. And as the leader in this space, of course, we'll continue to open up that market. And then finally, perm is our smallest part of the business. That declined by 18 But the sector is now enjoying improved momentum. If you remember just before the pandemic, we restructured the German business To improve our client focus in both the larger strategic accounts as well as with more local clients. And that refocus is paying off Because we gained share in both areas. I personally believe that Germany is our largest profit growth opportunity over the next 2 years And it also remains the most exciting long term recruitment opportunity in the world today and we intend to continue to reinforce our leadership position there. Moving now to the UK and Ireland. We saw good sequential fee improvement through the year And a sharp positive turnaround in profitability in the second half. And overall fees fell by 11% and we made an operating profit of £11,500,000 With all of that coming in H2. Our largest business of temp fell by 9% and it was more resilient than perm which was obviously more volatile and was down 14%. However, both temp and perm fees grew sequentially in each quarter of the year, Delivering growth of 5% and 19% respectively in the second half. The public sector fell by 3%, but outperformed Private sector, which was down 14%. However, the private sector rebounded significantly faster in the second half as business confidence surged. And as we exited the year, trends were positive across all parts of the U. K. Business. Consultant headcount declined 4% year on year, But it increased 11% in our second half as we invested into the recovery. And then on to Rest of Our World. Our Rest of World division comprises 28 countries. And while net fees declined by 6%, We delivered £12,500,000 of operating profit, again all made in the second half. Despite the divisional fee decline, 6 countries still delivered all time annual fee records, including the United States, Switzerland and Russia, And 11 countries produced record half year performances. And I think that demonstrates how varied our world has been as well as the benefits of our diversification. In Europe, outside Germany, net fees declined by 5% with operating profit down 23%. Fees increased by 12% in the second half with good improvements in all our major markets. France, which is our largest rest of the world country Decreased by 11%. Belgium and the Netherlands were down 17% 15% respectively. On the other hand, fees in Russia, Italy and Spain were much stronger, increasing by 6%, 5% and 2%, respectively. Across the world in Asia, net fees declined by 11% with operating profit down 29%. Fees in the first half fell by 28%, They then increased by 12% in H2. Mainland China was particularly strong, grew 17% And Malaysia delivered a record. It was up 11%. On the other hand, Hong Kong and Japan were much tougher, down 32% and 28 respectively, and we've made management changes in both those businesses. Across in the Americas, fees decreased by 2% With the first half down 20% and the second half up 19%. The States, which is our 2nd largest rest of the world country And one of our strongest growth prospects grew by 4%, including a stunning final quarter performance, up 55%, helped by high exposure to a red hot technology market. Fees in Canada were down 15%, but improved through the second half. And Brazil was a standout performer, up 9% and doing increasingly well. So overall in the Americas, As underlying profitability rebounded, we reinvested all of our gains to build our United States business even faster. With such a broad portfolio, we're certainly not short of structural growth opportunities across the rest of the world And we increased headcount by 7% as activity grew and we see several countries in the rest of the world that offer massive potential for many years to come. So in summary, it's hugely encouraging to see how quickly the world has adapted and how we're now seeing strong trading conditions in all of our key markets. Again, I'd like to thank all of our people across the world for their resilience in enterprise and for taking tough decisions every day. Our financial strength enabled us to get onto the front foot early on, setting out an aggressive growth plan while the world was still in turmoil, And I personally feel more ambitious for what we can achieve than ever before. There's a very palpable sense of engagement and optimism around the business. And while we've achieved a lot in the last year, we all think that there's a lot more to come. The combination of strong business confidence, A war for talent in a skill short market, a willingness to look further afield for future employees and underlying wage growth All bode well for us. Let me now hand over to Paul for a deeper look at our financial performance and an overview on current trading. Paul? Thank you, Alastair, and good morning, everyone. Firstly, this slide As a reminder of the context to trading in FY 2021. When the pandemic hit in March 2020, Our fee decline was comparable in scale to the 2,008 global financial crisis that occurred in only 6 weeks rather than 8 months, And of course, impacting every country simultaneously. The first half of FY 2021 continued to be significantly impacted by the pandemic. However, trading stabilized through the summer and we then saw strong sequential improvement starting in Q2 and accelerating in the second half. And encouragingly, our inflection back to growth occurred far faster and on a much greater scale than our recovery following the GFC. On this slide, we've showed the quarterly free trends overall and by region since Q1 FY 2019. Global economic conditions have been slowing well before the pandemic with business confidence falling and clients becoming increasingly cautious on hiring. As the pandemic unfolded in Q3 and Q4 FY 2020, severe restrictions and lockdowns caused the fastest fee decline in our 53 year history. The relative level of fee decline per region in Q4 FY 'twenty was very much linked to the severity and length of each country's lockdown. We entered FY 2021 with fees sequentially stable. And as lockdown restrictions eased in our main markets, client Activity and fees began to show signs of modest sequential improvements in Q1. And with client and candidate activity increasing, We saw a strong sequential increase in fees from October 2020 to March 2021 and good sequential fee growth through to June. As one might expect, the initial recovery in Q2 was driven by temp. However, the second half recovery has increasingly been led by perm Both clients and candidate confidence improved. Encouragingly, we've seen a uniformity of recovery across all major markets. And importantly, to date, 2nd and third wave lockdowns have tended to delay rather than derail the recovery. And as the top right of the slide shows, Germany had the greatest half one half two rebound in fees with a positive swing of 44%. And considering the longer length of contracted and temp assignments offers the greatest opportunity for profit growth for the group over the next 2 to 3 years. And overall, I'm pleased to say we began FY 2022 with good sequential momentum in most markets. So summarizing the year characterized by accelerating recovery from the pandemic. Net fees decreased by 8% on a like for like basis. Operating profit declined by 31% to €95,100,000 A week 20,000,000 sorry, £70,000,000 was made in the second half. This is well ahead of our prior expectations, Which were upgraded at both the Q3 and Q4 trading updates. We delivered another strong cash performance driven by excellent credit control. And as a result, we finished the year with net cash of £411,000,000 And the strong recovery in group profitability in the second half, Our balance sheet strength and our confidence in our future prospects have enabled us to restart dividend payments with a core of 1.22p and special of 8.93p. Moving on to the income statement. Turnover decreased by 6% With the decrease between turnover and fees primarily due to the greater resilience of temp, especially our large corporate accounts business, The difference between headline and like for like fee growth rates is primarily the result of the depreciation and the average rate of exchange between sterling and the Australian dollar. And overall, FX movements increased net fees and operating profit by £1,100,000 £2,600,000 respectively. Basic earnings per share was 3.67p, a 30% decline versus prior year reflecting the group's lower profit, The increase in average number of shares followed our equity raise in 2020 and this was partially offset by lower effective tax rate and net finance charge. Alastair covered regional trading earlier, but I'll cover 2 technical issues. Firstly, an update on our German Under German law, we employed tent workers. Tent fees declined by 3% in FY 2021. However, this masked a significant difference in performance between In the first half, fees fell by 45%, highly impacted by the underutilization of the employee temps and temp severance costs, We've reduced fees by a combined circa £6,000,000 Encouragingly, there were no further severance or underutilization costs in the second half And German temp fees improved substantially, up 79% year on year and by an underlying 16%, excluding similar one off costs in the second half FY 2020. Average temp volumes improved through the second half, but we saw very high levels of temp utilization, Helped by lower than normal levels of vacation taken, some of which will reverse in the coming months and lower levels of sickness leave. And then secondly, group profits were held by £3,900,000 of government assistance around the world. And as you know, we exited all major government support schemes in Q1 And there was no benefit from U. K. Furlough schemes in FY 2021 operating profit. Moving on to look at the performances of our perm and tent businesses. Our perm business, 39% of net fees, declined by 10% With an 11% decrease in volume and 1% increase in average per month, our temp business, 61% of group net fees, Decreased by 6%. And this comprised a volume decline of 8%, a 20 basis point decrease in underlying temp margins due to the greater resilience in our larger corporate accounts business, partially offset by a 3% positive effect of mix, which is driven by higher paid specialisms, especially technology and higher hours worked. On this slide, we set out an operating profit bridge between FY 2020 and FY 2021. Starting with the FY 'twenty pre exceptional profit of €135,000,000 we had the positive impact of exchange on profit of £2,600,000 and Subtracts the 8% decline in like for like fees of €79,200,000 explained by Alastair earlier. Through our actions, we reduced total cost by net €36,700,000 comprising, firstly, payroll cost savings of €41,500,000 With the reduction of £41,000,000 in base pay, £5,500,000 of other payroll, partially offset by £5,000,000 higher commission and bonus payments. Secondly, overhead savings of £14,000,000 comprising £13,000,000 lower travel and entertaining costs, Almost €9,000,000 of lower bad debt charges, partially offset by higher depreciation of €5,000,000 and other costs, mainly IT, of €2,600,000 Thirdly, global support government support decreased by €3,800,000 versus FY 2020. And finally, as Alastair will cover later, We've invested circa €15,000,000 via strategic growth initiatives. Overall, we delivered significant cost savings in FY 2021 And at the same time invested in our SGI program. Moving on to exchange. As a reminder, our P and L is sensitive to Changes in key exchange rates, namely the Australian dollar and especially the euro, the group does not undertake any P and L translation hedging arrangements. And exchange movements over the last few months, especially in the Australian dollar, are likely to have a significant negative impact on FY 2022 profitability. Moving on to our conversion rate. Group conversion rate decreased by 320 basis points to 10.4%. This comprised a conversion rate of 5.9% in half 1, improving significantly to 14.1% in half 2, Despite investments in SGI and consultant headcount, this recovery was more dramatic in those regions more impacted by the pandemic lockdowns, especially the U. K. And Germany. We expect to see a material improvement in conversion rates over the next few years With an expected drop through of incremental fees to profits of circa 40% to 50% in FY 2022 and above 50% in FY2023, We're confident we'll drive our conversion rate back to and beyond the pre pandemic conversion rate over the medium term. Moving on to interest and tax. The net finance charge for the year decreased to £7,000,000 The largest component is a non cash IFRS 16 interest on lease liabilities. And looking forward, we expect the finance charge for FY 2022 to be circa £8,000,000 With the increase driven by non cash pension charge. Turning to tax. Our effective tax rate decreased to 30.2%, Driven by the geographic mix of profits, the impact of reduced trading losses in certain countries and the partial recognition of U. K. Deferred tax assets. Importantly, we expect the ETR in FY 2022 to be circa 30%. On this slide, we've summarized the key components of our cash flow. The chart on the left details our sources of cash flow, starting with profit of €95,100,000 We have back noncash items of £78,300,000 predominantly IFRS 16 property depreciation, other fixed asset depreciation and amortization And share based payments. We then add working capital inflow of €7,400,000 which reflects strong cash collection with debtor days reducing to which fully funded the significant rebound in the temp book during the year and then we deduct lease payments of £50,000,000 This leaves an operating cash flow of €130,800,000 representing a strong underlying conversion of profit into cash of 138%. From this, we paid tax of €31,800,000 and net interest of €900,000 Leading to free cash flow of GBP 98,100,000 On the right hand side, we detail how we've used the cash generated. The main items are CapEx of €18,800,000 pension deficit payments of €16,700,000 and the purchase of our own shares of £4,000,000 at an average price of 109.9p to satisfy employee share based award obligations over the next 2 years. In FY 2022, we expect CapEx to be circa €25,000,000 On DSO, our Hard work on Credit Control has delivered a 6 day reduction in debtor days from 39 days in FY 2019 to a record low 33 days in FY 2021. This has driven a cumulative cash flow benefit of GBP 90,000,000 in FY 2020 2021. The strong cash performance Combined with the proceeds of our April 2020 equity raise mean we ended the year with net cash of £411,000,000 The group has in place a GBP 210,000,000 revolving credit facility that reduces in November 2024 to GBP 170,000,000 And expires in 2025. On this slide, we compare the balance sheet as of June 20212020 And the four main movements are a decrease in IAS 19 pension accounting surplus to £47,000,000 with a reduction in scheme asset values, partially offset Our increase in discount rate and by company contributions. The decrease in working capital, as explained earlier, The payment of $118,300,000 of all the FY 2020 deferred payroll taxes and VAT and finally, a decrease in provisions due to use of restructuring provisions set up in FY 2020. Moving on to dividends. Our highly cash generative business model has been the foundation of our strong on returning capital to shareholders over the last 20 years, including the payments of GBP 374,000,000 in dividends during the financial years 2017 to 2019. Our priorities for free cash flow remain unchanged, Namely to fund the group's investments and development, maintain a strong balance sheet, deliver a core dividend at a level which is sustainable, progressive and appropriate And pay surplus cash to shareholders via special dividends. Now we reiterated our policy on core and special dividends at the end of it. Given the strong recovery in group profitability in the second half of the year, our strong balance sheet and our confidence in our outlook, we are proposing the following. Firstly, to resume our core dividend at 3 times earnings cover commencing with single payment to FY 2021 of 1.22p And our target dividend cover remains 2 to 3 times earnings. Secondly, to return GBP 150,000,000 of surplus cash In one single payment of 8.93p also in November. Looking forward, the Board expects To restart ongoing special dividends in FY 2022, our policy for such dividends will be based on distributing all funds About the previously announced €100,000,000 cash buffer at each financial year end. And additionally, at 31 December 2020, we budgeted for a further €130,000,000 of working We saw a GBP 20,000,000 working capital outflow in half 2 reducing the balance to GBP 110,000,000 Which will further reduce as our working capital grows and working capital increases including any normalization in client payment terms. And of course, any ongoing special dividends will also be dependent on a positive economic outlook. During FY 2021, we've initiated a series of actions to further streamline certain areas of our business and drive material annual cost savings in the future. Firstly, by reducing our property footprint and its cost, we anticipate annual savings of circa £10,000,000 per year within the next 5 years. Secondly, we've identified opportunities to further improve the efficiencies of our back office functions by the increased use of automation of existing lower cost shared service centers to drive annual savings at again £10,000,000 within 3 to 5 years. And finally, we expect €10,000,000 of the cost savings already achieved during the pandemic on reduced travel to be permanent. So We continue making better use of video technology across the business. For example, we set out a flight reduction target of 40% versus pre pandemic levels. And clearly, this also helps our net zero journey. And then finally, we also anticipate the cash benefits of substantially lower debtor days. And even if we see some normalization in client payment terms, from the GBP 90,000,000 benefit that I explained earlier, I'd expect to retain about half of this, which in course will lead to greater cash return to shareholders over the next few years. So in summary, given the impact of the pandemic on the global economy and society, we delivered an increasingly strong profit performance, driven by the fastest sequential improvement in fee generation in our history. Having started the year at breakeven profitability, we balanced managing our cost base. We're strategically investing for the long term and protecting our core infrastructure. As fees rebounded, we began investing to accelerate our recovery. Despite significant second half investment, consultant productivity reached record levels in Q4. Our investments in the second half We'll drive fee growth in FY 2022 and beyond. Our strong cash performance has given us our strongest balance sheet ever. Given this balance sheet strength and our encouraging sequential improvement during the year, especially in the second half, the Board is proposing to pay a combined 10.15p in core and special dividends. Now moving on to current trading. We've made a good start to FY 2022. Overall, Tempur Contracting markets are performing well and conditions in perm are strong. Candidate confidence is high with clear signs of skill shortages and wage inflation in certain industries. We expect our total SGI investment in FY 2022 will be circa €20,000,000 And including those SGI plans, we expect consultant headcount will increase by circa 5% in Q1. At a regional level, the only specific comment I'd make, I think it's too early to quantify the negative impact So recent lockdowns in most states in Australia, especially in New South Wales and Victoria. And finally, I would also highlight that currency movements are likely to have A larger negative impact is group profit increases in FY22. With that, I'll hand you back to Alastair who will update you on strategy before we answer your questions. Thanks very much, Paul. So let me now show you a little bit more detail of what's behind our strategic investment program. So you can see Actually what we're doing as well as why as well as some of the early paybacks that we're now starting to get. So we've talked a lot in the past about some of the major changes That are underway in our world. We call those megatrends and how we're building our strategy to capitalize on those changes. I think many of the changes that we're seeing will have a very profound and long lasting impact on the job market. And over the last year, we've seen the pandemic influence And accelerate those megatrends. For example, we're seeing candidates and companies increasingly seeking more flexible ways of working, Particularly in the highest skilled, higher salary, technical white collar sectors areas such as technology, life sciences, engineering, Contracting or freelancing is also increasingly becoming a preferred career path for many professionals. That means companies can tap into those And as the world has been forced into remote working over the last 18 months, the demands for greater flexibility have also grown massively. So hybrid and remote working today is becoming a must have for many organizations. I think the next stage Will be the realization that if work can be conducted remotely, then it can be done from almost anywhere. And that opens the prospects More geographically diverse talent pools and with the leading global network and insights into talent almost everywhere in the world that obviously plays to our advantage. The pace of industry change has also accelerated with some industries and skill sets in decline, While others see exponential growth, market requirements are changing faster than skill supply and that's creating skill shortages in many parts of the world now. And resolving this requires significant investment in training and upskilling and that needs coordinating at a national level. So it will obviously take time to resolve. And in the meantime, the conditions are now in place for real wage inflation around the world and we're increasingly seeing evidence of that as the war for talent intensifies. There will obviously be some real winners in the skills market where the demand for talent is only likely to increase And where talented employees are likely to command a premium and the technology and the green economy sectors are obvious examples of that, But there will be others too including such areas as life sciences or specialist engineering niches. And with so much Change as the world moves to an ever more digital age, companies are struggling to find the talent they need today and that's where we provide a highly valuable service Because we're investing in building the talent pools of the future. An in house HR department, a smaller local agency Or an agency that doesn't have the right brand to attract talent, we'll find life increasingly difficult. However, all of these changes give us the opportunity To grow our share further, playing to the strategy that we've now followed for the last decade and which we're now accelerating. And that brings me to our strategic growth initiatives. So think for a moment of our business as following 2 simultaneous investment paths. The first is to capitalize on the cyclical recovery that we're currently enjoying as the world bounces back from the lows of last year. We need more capacity across virtually all of our business replacing that which we lost over the last 18 months as we quite rightly reduced our cost base. As I said earlier, we increased group consultant headcount by around 650 in the second half alone, the majority of whom were replacement Capacity across the entire business. Now there's nothing new in that what I would call business as usual investment. We're just doing it At greater scale than we've ever done before as the world has never seen such a violent decline followed by such a sharp recovery. The second investment path however is to accelerate our structural growth and to position the business over time To be right at the heart of what the world will soon need as opposed to what it needed in the past. And that's where the SGI program comes in. So back in May 2020, we asked ourselves the question, what will the world need once the pandemic has passed and how will it want those services delivered? We then asked ourselves how can we put ourselves in the path of that evolution, grow our market share and position ourselves as the leader in that future world. Now transforming in this way means that we take a longer term view on investment and payback. Hence, we've ring fenced funds to invest in structurally attractive what I'd call dial moving initiatives, which will significantly accelerate our growth once the pandemic passes, but which may have a payback beyond 1 year. And we identified 20 individual projects Last year across all of our divisions and there are several common themes such as investing in technology, life sciences or engineering, Scaling our large corporate account business as well as enhancing our brand and our customer experience. Now over the year, we allocated around £15,000,000 into such structural projects, putting in place the management infrastructure As well as 250 heads across specific projects in Asia, Australia, Europe, the UK and North America. I'm delighted with the performance so far as we're seeing real traction in every single area that we've targeted. And that level of success Gives us the confidence to accelerate in FY 2022 and we expect to add another 350 consultants into those initiatives this year. And that's on top of whatever BAU additions will need to include to meet demand from the cyclical recovery. Now let me make this real with a few examples. Last year, we added 45 heads to our Tech business in France and that almost doubled The technology business there. That's the equivalent in terms of scale of buying a small to medium sized tech recruiter with fees of around say €5,000,000 to €10,000,000 But we'd rather spend the money organically. Each year, we'll do the same again because we see no limit to the IT market and over time The shape of our French business will obviously shift to reflect this. Over in the States, we added 20 heads to our Life Sciences business. Again, that's the equivalent of a niche acquisition in terms of scale and productivity improved strongly throughout the year. We should get around £2,500,000 of incremental fees from this cohort alone this year and much more next year as they move into full productivity. Around the world, our sales teams, I think, have done a great job of bringing home high volume contracts with larger clients. But to fulfill those opportunities, we've built or we've expanded existing delivery centers across Asia, Europe, ANZ and the states, and we're making far greater and more innovative use of our Indian shared service center. And then finally, we've invested in our digital estate because we believe that world class digital customer experience is fundamental in today's world. So with hindsight, I'm delighted that we got onto the front foot so quickly. We started these investments well before the economy showed any signs of recovery. Now financial strength gave us the freedom to think longer term and we're doing things faster and at a greater scale than we've ever done before. And as a result, Our ambition for what we can become is greater than it's ever been before and these plans should take us well beyond previous peak profits. The best example of that ambition is arguably in technology. We're already a global leader in tech recruitment with the scale and the geographic coverage that perhaps only 2 or 3 companies in the world have today. We recently launched HAYES Technology as a global brand, supporting our ability To deliver highly skilled tech experts globally and at scale and that's a great place to find ourselves today. Our tech business has grown from around €100,000,000 of fees in 2011 to a GBP250,000,000 prior to the pandemic and that's a CAGR of about 12%. Technology was relatively resilient through the pandemic. It was down only 5% last year, for example, And encouragingly fees in our final quarter were 2% above the pre pandemic fee level. So I absolutely expect us to deliver record tech fees in FY 2022. We've also built as you can see here a highly diversified business. So a decade ago Germany represented 57% of our tech fees, while the Rest of the World division was only 15%. Today, while technology sorry, while Germany is still our largest technology business at 43% of the total And it has more than doubled its own fees in the last decade. The rest of the world has more than doubled in our mix to 34% of the total. Fees in EMEA ex Germany grew by 19% CAGR over that period even with the impact of the pandemic. And then over in the United States, we now have a tech business of real scale. It just delivered a record quarter in our final quarter last year. And then here in the U. K. Despite the pandemic, we grew our tech fees by 9% last year. These results The product of our focus to build the undisputed global leader in technology recruitment. However, our ambition now is to double our technology fees to £500,000,000 in the next 5 years. That requires a CAGR of just under 15%, which while it's demanding, it's only slightly faster than that which we achieved in the decade up to COVID. And in my mind, there are 4 key drivers for how we'll get there. Firstly, every country we're in can contribute, but we can certainly double our German fees again and potentially triple our United States fees. Secondly, we'll expand our products and services, for example, building large contract Businesses in all of our major markets, winning more outsourced MSP deals and growing our James Harvard business which focuses on project services. Near shoring or off shoring are also exciting areas because we can advise clients on where best to look for their technology talent around the world. Thirdly, there are many newer verticals where we can build a leadership position such as cybersecurity, Amazon Web Services, enterprise apps such as Salesforce or Workday, Marketing Tech, Big Data or Robotics and Automation. We're already in some of these niches. Some of them were not yet in, but they're all large opportunities. And then finally, we can pursue growth across multiple client types, Whether those be at large enterprises, for example, going through their own digital transformation or the smallest startup, FinTech is a hot market. We also have native tech organizations as well as the large public sector. So getting to €250,000,000 fees in the last decade Has given us the scalable infrastructure, the management expertise, the brand and the industry partnerships to now accelerate our growth. And I absolutely believe that a global leadership position in Teck with £500,000,000 in fees will be enviable as well as a valuable place to find ourselves and that's what we intend to build. So in conclusion, We have a clear strategy that becomes more relevant by the day and we've got world class management teams across all of our countries. Profits were up significantly in the second half and we started FY 2022 with good momentum driven by the hard work and dedication of our colleagues worldwide, A stronger than expected cyclical recovery and the benefit of our earlier investments. Consultant productivity is at record levels and we're adding heads, But we're also retaining the operational rigor that characterizes Hays. We're growing profits in the short term, but we're also investing for the longer term. We now see a clear route back to and then exceeding pre pandemic levels of profit and that's faster than I could have envisaged even just 6 months ago. We're highly cash generative and reinvestment is always our priority. But with such confidence in our future, We're proposing to resume core and special dividends paying a total of 10.15p to shareholders this November. So while there still be chapters to write in this pandemic story, we're already capitalizing on the many opportunities the world is presenting us and we're very excited about our future. We'd now be delighted to take all of your questions. Your first question comes from the line of Rory McKenzie from UBS. Please ask your question. Good morning, all. It's Rory here. Hope everyone's doing well. 3 for me, please. Firstly, on current trading. I appreciate it feels like most of the world has been on holiday through August. But how do you assess The trends are continuing to improve sequentially across the regions. And I appreciate you said it's too early to quantify The risks in Australia, but should we expect that to now slow sequentially? Then secondly, on the structural aims to recover and grow profits. You've been clear on the capacity that you're putting in, but can you talk about the client demand side that's meeting? Are you seeing the aggregate market share gains that you need to achieve a good return on investment? For example, looking at the 250 SGI DI has added this year a vessel to generate, I think you said about €100,000 in net fees next year, which is still well below the group average Of about $160,000,000 So how should we think about the productivity of those of that capacity? And then just thirdly, on the cash return, Should we treat all working capital outflows over the next 2 years as part of that original $130,000,000 buffer? I'm just wondering how to kind of distinguish between what's maybe structural and what's just a rebuild. Thank you. Thank you, Rory. Maybe Paul can talk about The first and the last one, trading and the working capital, and I'll pick up on the investment program. Yes. I think on the trading part of it, Rory, I mean, clearly, the summary is always slightly more difficult to read the tea leaves, specifically within Europe. So what have we tried to say today? We've tried to say 2 separate things. In many of the markets, there's still strong good opportunities. Certainly, in perm, I think the pleasing part is the contractor market, kind of the high end temp, which as everybody knows is high salary and high margin. That is also picking up as well. And we've had a good start to the year. July August are always much lower months than June for us. But I think if we adjusted things like working days, we're certainly on a good sequential growth path from where we are today. We're happy, but of course, September It's always by far the biggest quarter in the month. It's about 38%, 39% of the fees for the quarter. So we'll give you a great update In the middle of October, but a good start to the year. And hopefully, that was clear enough in the announcement. On the cash returns, actually, it's relatively simple. Whatever the working capital is going outflow is going to be over the next 2 years that is picked up straight away by that buffer. So whereas normally in trying to determine a level of cash outflow of course Well, the largest reductions in cash in our business will be working capital outflow. At this time, we've already got that protected in the buffer. And therefore, It wouldn't be a deduction in getting to any special dividend over the next 2 years. And then finally, as I tried to allude to, At some point in the future, we have to say, well, you know what, the reduction in debt today is from 39% to 33%, wherever it eventually lands, whether that's 33%, 34%, 35%, whatever, that's final. So I think in about 2 years' time that buffer will just disappear completely, Rory. So I think the really pleasing aspect and however you do your modeling, The next 3 years we're talking about a good €500,000,000 worth of cash returns. Thanks Paul. Let me talk about The program and what we're trying to do and the evidence that we're seeing. So really there's 2 themes behind the strategic growth investment program. Number 1 Is to more quickly structurally open up those sectors that we think are going to be extremely large and buoyant sectors In the future, technology we've talked a lot about, that's an obvious one, but other areas such as life sciences, engineering, over time, the green economy Are all going to be massive sectors with big skill shortages. And even though we're the biggest tech player, one of the biggest tech players in the world today, The sky is the limit in terms of how big we could become in that space simply because the market is so massive and it's changing so quickly. So we want to open up those sectors. The second theme behind SGI is we want to grow our market share at the big end of town as well as at the smaller end of town. So those are the two things. So the 250 people that went into the business, they were split roughly fifty-fifty, 125 in each half. You're right to do that mathematics of 100,000 From each person on average, but I think this is where statistics almost sort of get in the way, Rory. Some of those people will have only just come in And we'll be still at the early stage of working the way up the productivity curve. The ones that have been in the longest have only been in around about a year now. And many of those are going into areas such as the contracting business that we're building all around the world. And as we all know, It takes a little longer for people to ramp up to full time steady state productivity when you're working on a contractor day book. So whereas you're right with your maths for this coming financial year, then we'd expect to see the productivity of each of those individuals Continue to march upwards before the hit steady state, which will be more like FY2023. Clearly, the average number will be somewhat depressed Because in FY 2022, we fully expect to bring even more people in. So we have to be a little bit careful differentiating between What is an individual's performance versus what is an average performance? What I would say is we would not be as confident about putting in the 3 50 That we've said we're going to unless we saw that the initial slug of 250 was already starting to deliver as we're investing them around the world. And then when it comes to market share, looking for evidence, I can give you a whole list of different contracts That we've won in the bigger end of town over the last 12 months. We've won a big piece of work with Cognizant in the United States, obviously in the tech sector. In Australia, we've expanded our Commonwealth Bank arrangement. We originally had an MSP there. We've now expanded that into an RPO as well. In Germany, we're a leading supplier to Volkswagen in their autonomous their autonomy division, which is the electric car Parder Volkswagen, big RPO in Germany. Deloitte, again, big outsource arrangement with 1 in And here in the UK with OVO Energy, one of the biggest renewable energy suppliers in electricity in the UK, won a big RPO there. So Our investment into growing share, particularly at the big end of town, is obviously paying dividends. And again, we'd expect to double down on that as we're coming into the New Year. And then one last point, Rory. I realized I didn't answer your ANZ comment. So on ANZ, I guess, so far so good. What has traditionally happened, I mean this has been a very tough third phase lockdown specifically in New South Wales. What traditionally happens is it just stops any further sequential growth. And I guess that's where we are in Australia at the moment, but I think we're pretty happy with that. As you guys know, We had a very strong Q4. So if we could hold that level that we got to in Q4, I still think we're then well placed to reaccelerate growth. I think for those of you who follow Australia, you can actually see that their vaccine rollout has accelerated dramatically over the last few weeks. So I think for us, we may have another Your next question comes from the line of Kean Marden from Jefferies. Good morning all. I have 3 as well. So first of all, on France, it looks like some decent job advertisement momentum from your business. Sort of like through June and into July, and you haven't really called out France to a great degree today. So I'm just wondering whether you've been encouraged by some of the lead indicator momentum in that business over the last few months. And secondly, still on Rest of the World, Does that division now have sufficient scale that the conversion rates at the peak of the next cycle will be much higher than the So the 11% to 12% that you've delivered at the peak of the last two cycles or do you intend to still be quite aggressive with investment there? And then thirdly, just picking up on that statement of work development. Does that come with higher turnover but potentially higher risk as well for you to manage? Let me talk about France very quickly and then Paul if you want to talk about commercial rates in rest of the world Maybe we'll both do statement of work. So we're very pleased with France. France Obviously, has been grappling with the pandemic and their own issues just like the rest of the world. It was a little bit slower to start to show Clear signs of recovery, but that has come through over the summer. And I'm very encouraged by some of the more recent sort of uplifts that we're seeing in activity And trading and confidence across the whole of the French business. So it is one of our sectors That we're investing in aggressively through the SGI program. Just like we did last year, we're doing the same again this year. So increasingly optimistic about French business. I think on the conversion rate, Keene, you're absolutely right. I will be very confident that we will exceed Previous conversion rates in the rest of the world. Clearly, within that, we've got the U. S. Where we're putting material levels of investment in. But actually, I think we'll actually see some quite significant improvements in profitability this year in that market because I think we've got such great traction. We had 2 record fee performances in the last quarter. I'm sure we'll have another one in this quarter. And we've got a very beautiful business in IT, We're also building a very exciting opportunity for us in Construction Properties. So whilst we'll continue to invest in the U. S, Having scaled the management infrastructure so significantly over the last few years for a much bigger business, we'll absolutely start to leverage that. And that alone with the banks back we'll get in a number of other markets means we'll go well beyond the level of conversion rate we had higher. So yes, I think I would agree with your Almost your question. And then on the statement of work, using technology as the main sector where we're doing this at the moment, Keene. The vast majority of IT recruitment is still find me a DevOps person or find me a cybersecurity person. However, there is increasing impetus behind organizations saying, I actually need to get a project delivered. Can you advise me on the scale of the team and put that team together so they actually come in and work on that project? There's obviously a broad spectrum of how close to that is that project service to say just find me 6 people All the way through to put in place a full blown SAP system. There's a very broad spectrum of profiles. Clearly, in my last job all those years ago, we were at the right hand end of that spectrum. So I've been there before. I would Absolutely make the point that what we're looking at here, while in theory might carry some additional risk, it's Very, very manageable, understandable and marginal risk because we're really just putting a wrapper around the people that we will be supplying anyway and saying okay, They're going to work on this particular project. And obviously, we make sure that contractually it's crystal clear exactly what they're on the hook to deliver, Who's supervising them? What the milestones for payment might be, etcetera, etcetera. But we've been doing it for some time In places like the UK and Germany, we just feel that now is the time to start to accelerate our investment and capability in that space. And hence, we're putting further investment into it. I'd have to guess the following ones. First of all, Kian, to the extent of our IT project, Steve Weston signs off on the nature of the deliverables within our capabilities. I'm involved in reviewing the commercials and every single contract that within that business on a global basis. The size of our business today is in kind of the £10,000,000 to £15,000,000 fee opportunity. We put a cap on the size of every project It is much higher return. And so far, over our kind of 5 years we've been doing, we've had no issues. So I think we've got greater capabilities today. The parts of the market, whether it is in sections of IT, also in some sections of engineering, is moving down this space. And therefore, it's important that We increased the capability and size of our business there. I think it's a good opportunity for us specifically within the tech space. Yes. And I think My final point on this, Keene, it plays to our advantage. And I think because of our skill set and our sort of approach to this, This is a good thing for us and we seek to accelerate it. Thanks very much. That's very, very helpful. Thanks, Alistair. At the moment, we have no further questions. Please continue. Excuse me, we've got one more question and it's from the line of Andy Grobler from Credit Suisse. Please ask your question. Hi, good morning. Sorry, I was slow with the questions. 3 from me as well. A very simple housekeeping one Start with amortization went up quite sharply in the year. Could you just talk us through why and expectations going forward? Secondly, within tech, we've had a fair bit of M and A activity in that sector in the last few weeks. What are your thoughts in terms of how that potentially changes those end markets? And then thirdly, You've continued down the road as you've done forever really of organic growth in terms of consultants. Was there a thought about trying to build up these businesses with experienced hires? I mean, one of your key competitors has taken That part or what did you think that created potentially other issues? Thank you. Amortization is a relatively straightforward one. We finished a number of projects that we've talked about before in Germany, just towards the Start of the pandemic and that has a full amortization charge in the P and L this year. I think the nature of our CapEx going forward Also means that it's going to be more amortization versus depreciation in that the days of, I think, big property expansion, Fit out, etcetera, is reduced. More of our CapEx is in the IT space. We do internal development in a lot of areas. We use Wipro, etcetera, for parts of that, All managed by Steve Weston. So I think it's going to be a bit more amortization, but this year it was the German projects. Okay. Just talking about Teck, You're right, almost every time we open our morning emails somebody has bought something and it's either a project services business or a tech business. This morning it was a tech business. So there's a lot of activity going on and I understand why people are doing that as they're seeking to build scale. But our view on acquisitions hasn't really changed. We do look for add on platform businesses that we can have a base if you like, which is exactly what we did with Veridus in the States 6 years ago now and then organically build from that. And now our approach really hasn't changed. And having put in Place around the world pretty much all of the platforms that we need. Now the challenge is how do we accelerate investment into them. And as the market changes and new subspecialisms and niches of skill sets emerge, then how do we open up one of those niches Very, very quickly. So for example, in the States in the last 12 months, we've opened up a cybersecurity practice. We felt it was More appropriate that we would recruit the talent. We actually did bring in an external leader who was doing cybersecurity recruitment to actually build Practice for us, but then everything under them has been organic investment behind them. And we've built almost from well, from scratch, we've built a Currently quite small, but in the future will be much bigger cybersecurity niche in the States. We're doing the same in the UK now and we'll obviously do the same in Countries as we roll it around the world. So our approach hasn't really changed. I think when you do these big blockbuster deals, The business can get incredibly distracted with integration or the cultural aspects that come along with that. This is a red hot market today Andy, in terms of tech all around the world, my guys in the States have been in the business for 25 years in the world of recruitment. I've never seen a market Backdrop like it. So the last thing I want is to be somehow distracted by trying to put something together when I can Simply go out and invest in my own people, whether that's reallocating people towards it or bringing new people on board and training them And building our own business as opposed to trying to integrate somebody else's business. So that really is our theme. Then linked to that is your point around experienced hires. We have long held the view Our culture is strongest if we grow our own and that hasn't changed. However, as we start to open up some of these new areas, We do recognize that there are some highly talented, highly experienced individuals out there who would fit in perfectly well within our own culture And come here, we'll ring fence investment around them to build a team in the likeness of the rest of Hays. And that's what we've done. And we've done that successfully in places like the States and the UK predominantly in this early stage. And I think out of those several handfuls of people, we're not talking hundreds of people, we're talking about senior leaders to come in and build teams around them. Every single one of them has been incredibly successful. But I think it's the way we've chosen those people and integrated them into Hays As opposed to just say, please join us, here's a lot of money, go and build the business. It's far more thoughtful Because the last thing we want to do is to somehow undermine and over time destroy the culture that we spent 50 years building. It might be a nice short term boost to bring in some billers, but is that the right long term thing for our business? I do not think so. So I think having really excellent leaders whether they're homegrown All brought in and then building a Hays business around them. That's how we'll build a strong cultural business over time. Because remember, we're in this we're not just in this for the next 2, 3 years. We're building the business that's going to be here for the next 20, 30, 50 years. Excellent. Thanks very much. Thanks, Andy. We have no further questions. Okay. Well, if that's all the questions answered, thank you very much everybody for coming on Call as I hope you've taken away, we've got a great story to tell. We're very excited about the future. Who could have anticipated a year ago We'll be telling the story like we're telling today, but we're very much on the front foot, very excited about this year, but also very excited about where we're going over the 3, 4, 5 years. It's a red hot market. It's a great time to be in recruitment and look forward to talking to you all in the near future. That does conclude our conference for today. Thank you for participating. You may all disconnect.