Earnings Call: H1 2021

Feb 18, 2021

Ladies and gentlemen, thank you for standing by and welcome to today's HACE results call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today on the 18th February 2021. Without any further delay, I would now like to hand the conference over to your presenter today, Alastair Cox. Please go ahead, sir. Thank you very much and good morning everybody. Welcome to our half year results. We'd obviously love to be doing this live, but for obvious reasons here we are again presenting virtually. We will stick to the usual format though. So I'll kick off with the operating review, hand over to Paul to take us through the detailed financials and our current trading, And then I'll come back to finish with an update on our strategy. So clearly, the last 6 months have been completely dominated by COVID as well as our response to it. Millions of people and businesses been making every effort to get through the pandemic and our purpose as a business to bring opportunities to people so that they can advance their own careers has been very much in the spotlight. It's obviously been an intensely busy period and there's an awful lot to talk about. But let me pull out just Three things from this slide. Firstly, despite working in what has been the worst economic and societal backdrop we've ever experienced, It's incredibly rewarding to recognize that since the pandemic hit us a year ago, we've still placed over 200,000 people into a new job. In doing that, we've also helped many millions of others with advice, guidance and training towards their next role. And for example, over 3 quarters of a 1000000 training courses been undertaken on our web platforms in the last year alone. Secondly, we very deliberately protected the infrastructure and the capability in our business We've not cut as deeply as our fee decline might suggest because we think that we will need that capacity and that talent before too long. And alongside that protection, we've also started one of our biggest ever investment programs designed to build large businesses in the job categories We think will be in the greatest demand in the future. We've also invested to ensure all our own people are equipped to work from home. And as lockdown restrictions have been prolonged, we prioritize their own health and well-being. I think they're doing amazing work often in very difficult conditions, but their efforts are really paying off and I'm very proud of them. Thirdly, we're seeing the early stage of some major changes in the world of work whether that's remote working and the opportunities that that brings or organizations looking at ways of improving social mobility All businesses and governments gearing up to tackle climate change. All of these shifts are opportunities for us. And recent research suggests, for example, that $20,000,000,000,000 of investment will be required For the World to Meet Paris Agreement targets on climate change and the International Labour Organization believes that this will create 24,000,000 new jobs in the green and sustainable economy. Now we intend to be a leader in that space. So it's only right that we make our own contribution. And hence, we're setting up the target today to be a carbon net zero business by the end of 2021. All of this means that overall our trading has been distinctly better than we originally envisaged when we entered the pandemic nearly a year ago. And after a very difficult 1st 3 months as the world adjusted to major restrictions, we've seen momentum return particularly in the second quarter And we delivered a financial result ahead of what we earlier thought feasible. Cash collection has also been excellent. And combined with the support from our shareholders last April, this has put us into a very strong financial position. So having invested significantly in the business And given the recovery in fees and profits, it's now appropriate to return capital and we intend to resume dividends this year and Paul will cover the details later. I would like however to take this opportunity to again thank our shareholders for supporting us through these uncertain times as it's this support which has enabled us to pursue such an ambitious plan. Turning now then to our financial results. The backdrop to our first half is obviously highly uncertain, especially through the summer months. And given that, I think we delivered a relatively resilient and performance. Net fees declined 24 percent to €422,800,000 and operating profit fell to €25,100,000 But we exceeded our earlier expectations as momentum increased in the Q2. Given the uncertainty, we reduced costs And group headcount was down 14% year on year. However, as I mentioned, this was a lower reduction than our fee decline as we protected roles where we have talented people because we know they will add significant value in the future. We also put our return to growth investment program to work with £4,000,000 of mainly headcount investment in the first half with a further £11,000,000 due in the second half. Return to Growth covers over 20 exciting projects where we see structural growth opportunities and it's performing well. A lot of our investment is going into areas where the world will see ever greater demand. So it's reassuring to already see relative outperformance in areas such as technology and life sciences and growing market share through our Hays Talent Solutions business, which itself proved more resilient than the spot business. These are all fundamental aspects to our future growth and we can become significantly bigger in each than we are today. Looking at cash, I think it's been a stellar performance Converting 2 57 percent of operating profit into cash and reducing our debtors' days to a record low of 34. All of this remember was delivered when our people and all of our clients were working from home. We have seen a large unwind of our tent book, But there are positive early signs that that is now starting to reverse as we grow the number of temps and we're in a strong cash position to be able to fund this. So let me give you some additional color on each division. We'll start at the other side of the world in Australia and New Zealand. I think in many ways The ANZ division was the standout performer. Fees fell by 23%, but strong cost control limited the operating profit decline to 42%. Temp was relatively resilient down 18% and perm was more difficult down 34%. So after the initial shock of the pandemic, trading showed some early signs of sequential recovery in July August. However, we then had a strict lockdown in Victoria and that delayed further recovery particularly in Victoria and New South Wales which Together make up half of our Australia net fees. What's encouraging though is that once the lockdown ended in November, We quickly saw the return of positive momentum in both temp and perm and we exited the year with greater optimism despite the residual uncertainty. Sector wise in Australia, Construction and Properties, our largest business that declined 29%. Accountancy and Finance was also tough down 32%. However, IT declined 18% and Mining showed relative resilience down just 10%. And across in New Zealand fees were down 10%, but again activity continued to rebound following the relaxation of lockdown rules in our 2nd quarter. Overall, ANZ Consultant headcount declined 19% year on year. Turning now to our largest country, Germany. Net fees fell by 26% and profit was down 76%. The market was obviously difficult, although again, There were clear signs of improving business confidence in the Q2 and importantly stabilization in the automotive sector. Our underlying net fee exit rate in December was minus 15% and that's a marked improvement on our overall first half fees. Contracting is our largest business 2 thirds of German fees and this was relatively resilient. It declined 13% with Q2 down just 8%. Our temp business was weaker and that declined 45% And a large proportion of this was due to the underutilization of temp workers, but thankfully temp trends have now returned to more typical levels, which Paul will cover in a moment. Germany needs more of this high skilled and flexible workforce and as the leader in this space We'll continue to lead the way. Perm is around 15% of our German fees and that area undoubtedly had a tough period. Fees were down 34%. But overall, we're now seeing improving momentum in Germany. We restructured the business a year ago. That strengthened our position and focus And a lot of effort has gone into managing the temp utilization issues in the 1st 6 months, but that's now largely behind us. And I think Germany remains the most exciting long term recruitment opportunity in our world and we intend to reinforce our leadership position there. Moving now to the U. K. And Ireland. Net fees fell 27%. We made an operating loss of £1,000,000 As elsewhere though, we saw momentum improve through the first half with net fees down 34% in the 1st quarter And down only 20% in the second quarter and we returned to profitability in Q2. Our temp business is 2 thirds of the U. K. And Ireland fees that was down 21% and again Q2 was down just 14%. Perm was tougher. It was down 35%, although again We had a better second quarter. Our Public Sector business outperformed the Private Sector with fees down 12% and 34% respectively. Looking regionally, all regional performances were broadly similar to the U. K. Average. And at the specialism level, Life Sciences, IT and Healthcare were the relative out performers, no surprise there, with fees down 3%, 5% and 7% respectively. However, accountancy in Finance and Construction and Property were much tougher. Education delivered a strong rebound in the 2nd quarter, Although clearly the near term outlook is highly impacted by school closures and overall consultant headcount was down 20% year on year. Finally, our Rest of the World division comprises 28 countries. And while net fees declined by 21 We delivered a small operating profit. In Europe, outside Germany, fees fell by 20% with most markets However, there's a familiar theme as momentum improved as we exited the summer. And our largest markets of France, Belgium and Spain declined by 26%, 34% and 14%, respectively. However, Switzerland and Russia were more resilient, down 6% 8% respectively. Across in the Americas, the United States was the outperformer, fees down 13%, including Q2 down only 3%. And our U. S. Large corporate accounts business performed particularly well, boosted by several contract wins as we invested there and gained share. Over in Asia fees fell by 28% and is a mixed country fee performances. China as a whole fell by 28%, but Mainland China significantly outperformed Hong Kong. Japan was tough. Fees were down 40%. However, Malaysia contrasted that performed strongly down just 2% overall. I think there's some massive structural growth opportunities across the whole of this division as markets slowly mature And we reduced headcount 16% to reflect the current circumstances, but there are many areas here where we'll build much bigger businesses over time. So pulling it all together, in summary, it was a very tough half, particularly in the Q1. However, the world is learning to adapt just as mankind always does. And we saw improved momentum across most parts of the world in our Q2. This allowed us to deliver a profit which we could not have predicted in July. Our people across the world deserve some major credit for their steadfastness and for taking tough decisions on cost control. But balanced with that, we've invested in many exciting new areas and there's a palpable sense of optimism around our return to growth program. We've achieved a lot I think in the last 6 months, but I also think there's a lot more to come. So I'll now hand over to Paul for a deeper look at our financial performance as well as an overview of current trading. Thank you, Alastair, and good morning, everyone. Starting with the highlights of the financial review. Firstly, this slide provides the context to what has been a tough first half. When the pandemic hit in March 2020, the decline in our fees was comparable in scale The 2,008 global financial crisis that occurred in only 6 weeks rather than 8 months. And of course, it impacted every country simultaneously. On this slide, we've shown the quarterly fee trend since June 2018. Prior to the pandemic, global macroeconomic conditions have been slowing for over 18 months, reflecting falling business confidence With clients moving from reducing investment then to cost control and then on to cost reduction as the first half of FY 2020 progressed. As the pandemic unfolded in Q3 and Q4 FY 2020, severe restrictions and lockdowns caused the fastest fee decline in our 52 year history. And the relative level of fee reduction per region in Q4 was very much linked the severity and length of each country's lockdown. We entered FY 'twenty one with fees sequentially stable. And as lockdown restrictions eased in many of our main markets, client activity and fees began to show signs of modest sequential improvement in Q1. And with clients and candidate activity increasing, we saw a substantial fee improvement in Q2, especially in November December. And encouragingly, we've seen a uniformity of recovery across all of our major markets. And to date, 2nd and third wave lockdowns have tended to delay rather than derail the recovery. Summarizing what has been a tough but encouraging 6 months trading, net fees decreased by 24% on a like for like basis. And despite good cost control, operating profit declined by 75 percent to £25,100,000 but importantly, this was well ahead of our initial expectations. We delivered another strong cash performance with cash from operations of £64,600,000 down only 1%, driven primarily by excellent credit control. And as a result, and of course, helped by equity raise in April 2020, We finished the half with our strongest of our balance sheet with net cash of GBP 380,000,000 Moving on to the income statement. Turnover decreased by 12% with the difference between turnover and fees primarily due to the greater resilience of our business, especially in the large corporate account space. The difference between the headline and like for like growth rates is primarily the result of the depreciation in the average rate of exchange between sterling and the euro and Australian dollar. And overall, FX movements increased net fees and operating profit by £4,100,000 £1,800,000 respectively. Basic earnings per share was 0.75p, Firstly, an update on our German temp business, whereas required under German law, we employ temp workers. Fees declined by 45% with Q1 down 53% and Q2 down 36%. And overall, the decline in fees comprises 3 parts: So 30% fall in average temp volumes, 7% due to redundancy costs as we released 384 tents at a cost of £2,900,000 8 percent due to the impact of underutilization of temps at a cost of £3,300,000. Encouragingly, these costs have returned to normal levels as we exited the half. Secondly, our profits were held by £2,500,000 of government assistance around the world. And as I stated in October, we exited all the major government support schemes in Q1. Moving on to look at the performance of our perm and temp business. Our perm business, which comprised 38% of net fees, declined 31% with a 30% decrease in volume and a 1% in average perm fee. Our temp business, which comprised 62% of group net fees, decreased by 19%. This comprised a volume decrease of 16%, an 80 basis point decrease in underlying temp margins, Of which 30 basis points were due to the German temp issues I just explained, and the remaining 50 basis points came from client mix with relative resilience in our larger clients where the average temp fee is lower. And finally, there was a 3% increase in mix hours Driven by relative resilience in a higher pay IT and life science specialisms. On this slide, we set out an operating profit bridge between half 1 FY 2020 and half 1 FY 2021. Starting with half wide FY 2020 profit of €100,100,000 we add the positive impact of exchange on profits of €1,800,000 Subtract the 24% decline in like for like fees of €134,400,000 explained earlier. There are then 4 cost buckets totaling a net reduction in costs of £57,600,000 First, payroll cost savings of £45,100,000 comprising €24,000,000 of base pay, €13,000,000 of commissions and bonuses and €8,000,000 of other savings. 2nd, overhead savings of £14,000,000 comprising £10,000,000 of travel, £3,000,000 advertising and marketing and £1,000,000 of other. And third, we received £2,500,000 of government support, which I explained earlier. And finally, as Alastair will cover, We've invested £4,000,000 in our return to growth program. And overall, we've appropriately reduced our cost base and ensured we protected our core infrastructure and skilled people. On exchange, 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. Moving on to interest and tax. The net financial charge for the year decreased to GBP 4,000,000 and the largest component part of this is IFRS Interest on lease liabilities, which is non cash. Looking forward, we expect the net finance charge for the full year to be £8,000,000 Turning to tax. Our effective tax rate increased to 40%, driven by the geographic mix of profits and the impact of tax trading losses in certain countries. As group profits are recovering from a very low base and profits to date are predominantly in high tax jurisdictions, It is difficult to accurately forecast our ETR for FY 2021. Our current estimate is a full year ETR of 40%. But more importantly, as the group profitability returns to €100,000,000 or more, we expect the ETR will return to around the 30% rate. On this slide, we compare the balance sheet. Sorry. On this slide, we summarize the key components of our cash flow. The chart on the left details the sources of cash flow starting with profit of €25,100,000 We add back non cash items of €39,500,000 predominantly IFRS 16 property depreciation, other fixed asset depreciation and amortization and also share based payments. We then add a profit working capital inflow of CHF 26,700,000 which reflects strong cash collection with debtor days reducing to a record level of 34,000,000 and then deduct lease payments of 26,700,000 This leaves an operating cash flow of CHF 64,600,000 and excellent underlying conversion of profit into cash of 2 57%. From this, we paid tax of CHF 20,200,000 and net interest of CHF 500,000 leading to free cash flow of CHF 43,900,000 And on the right hand slide, we detail how we use the cash generated. The main items were CapEx of €8,800,000 pension deficit payments of €8,300,000 Purchase of our own shares is £6,400,000 at an average price of 109.9p to satisfy employee based shared awards over the next 2 years. And for the full year, we expect CapEx to be £20,000,000 On net cash, with our strong cash performance, combined, of course, with the proceeds from April 2020's equity raise, We ended the half with net cash of GBP 380,000,000 The group has in place a GBP 210,000,000 revolving credit facility The reduce is in November 2024 to €170,000,000 and expires in 2025. On this slide, we compare the balance sheet as of December June 2020. The 4 main movements Firstly, a decrease in the IAS 19 pension accounting surplus to £13,000,000 with a reduction in the discount rates partially offset by company contributions and an increase in asset values secondly, the decrease in working capital explained earlier Further, a reduction in the deferral of payroll taxes and VAT as we repaid €104,600,000 of short term deferral of tax payments. And finally, a decrease in provisions due to the use of restructuring provisions. Our highly cash generative business model has been the foundation for our strong track record of returning capital to shareholders over the last 20 years, including the payment of GBP 374,000,000 in dividends for 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 And deliver a core dividend at a level which is sustainable, progressive and appropriate without any special dividends in the good years. So in summary, given the unprecedented impact of the global pandemic Apologies, still on dividends. The group's cash generation and working capital management We've been considerably more resilient than our model scenarios at the time of our equity raise last April. We therefore intend to resume our core dividend at 3 times earning cover, Commencing with a single payment in FY 2021 to be declared with our full year results in August. Our target dividend cover will remain 2 to 3 times earnings. The Board also believes that the group will be in a position over the next 18 months to return surplus capital to shareholders. The group held €380,000,000 of net cash at December 2020. Going forward, we propose to prudently increase our financial year end cash buffer from £50,000,000 to £100,000,000 We're also budgeting in our cash flows for an expected £130,000,000 of future working capital outflows over the next few years as our Kent book rebuilds, and we see some normalization in client payment timings. And this results in €150,000,000 of surplus capital as at 31st December 2020 as shown in the chart on the top right hand corner. We intend distributing this surplus capital to shareholders via special dividends. Given the ongoing macroeconomic The Board believes it is prudent to conduct this return on a phased basis. And assuming no material deterioration in economic conditions a continued recovery in the group's profitability, we expect to commence the repayment with a special dividend of GBP 100,000,000 to be declared with our full year results in August 2021. And we currently expect a further €50,000,000 special will be declared in the subsequent 12 months. And finally, the Board intends to resume ongoing special dividends over time. Our policy for such dividends will be based On returning capital above our cash buffer at each financial year end of €100,000,000 And additionally, as I just mentioned, we will also We've also budgeted for further the €100,000,000 buffer for working capital rebuild, which will, of course, decline as our temp book grows and working capital increases over the next few years. Any ongoing special dividends will also be dependent on a return to more normal levels of profitability and a positive economic outlook. So in summary, given the unprecedented impact of the global pandemic on society and the global economy, we've delivered a creditable and profitable performance in the half. We balance managing our cost base with protecting our core infrastructure and our skilled people. We delivered a cash performance driven by continued credit control. And finally, with the recovery in fees and profits accelerating in Q2 and encouraging return to work, This provides us with confidence to resume paying core dividends at our full year results in August. We've also identified £150,000,000 of surplus capital, which we intend to return to shareholders in phases via special dividends also commencing in August. On current trading, overall, we're continuing to see gradual improvement in trading. While the New Year return to work was initially lower than in prior years. Temp numbers have returned to the pre Christmas levels by early February in all of our major markets around the world, which is encouraging and consistent with normal years. As previously disclosed and consistent with our prior years, Due to the timing of public holidays, there are fewer working days in the second half. This will have no impact on year on year growth comparatives, will act as a headwind on sequential second half profit growth versus the first half, particularly in our Tempur and Contracting business. Additionally, we expect our return to growth investment program will incur a further €11,000,000 investment in half 2 As part of the planned €15,000,000 for the full year and including our return to growth plans, we expect consultant headcount will increase by 2% to 4% in Q4. At a regional level, the only comment worth highlighting is to reiterate guidance we gave in January that in the U. K, we estimate school closures We'll have a negative fee and profit impact of circa £1,000,000 per period. And with that, I hand you back to Alastair, who will update you on our strategy before we answer your questions. Thanks very much, Paul. Let me spend the next few minutes covering strategy and what we're doing to deliver for the longer term. Now we've talked a lot in the past about some of the big changes that are underway in our world, what we've called megatrends and how we're aligning our business For example, the structural attraction of non perm and flexible working is very obvious in a world of uncertainty. We're also seeing changes in worker demographics and people are looking at longer careers with continual upskilling as a new norm. Remote workings become an overnight necessity for most businesses worldwide. While the investment to enable this has already been Businesses I think are only just beginning to understand and to harness the long term potential benefits of what will likely become a new hybrid way of working. Now this can allow us to attract talent from wider geographical areas, create broader deeper talent pools for our clients. And putting all of this together, they all represent opportunities for us and our scale and our infrastructure gives us a major advantage versus, For example, in house HR departments or small local agencies or even our less tech enabled competitors. Another growing megatrend across all markets is the wide spectrum of environmental and societal change. The pandemic has taught us one thing. It's that global problems need global solutions and every organization in the world is now asking themselves similar and complex questions ranging from decarbonization through to how to recruit in more inclusive and diverse ways. And again, we're in a unique position to help address many of these issues and they are a new business opportunity for us. So with our knowledge and our broad access to talent, for example, we can help organizations build the diverse workforces that they aspire to. We're already finding the health care workers and the teachers that governments and communities need as they invest in their social infrastructure. Employees themselves are looking for greater flexibility and they increasingly want to work for purpose led organizations that make a positive difference to the world. And again, we can help them find those roles. But all of these issues require investment. But again, we already have the foundations in place. And I think Hays has a major role to play in all of this to help organizations build the workforces that they're going to need in the future. For example, we already recruit large numbers of skilled workers into low carbon and social infrastructure roles. But as the global leader in construction recruitment, we now face a market where millions of new jobs will need to be created To build the infrastructure necessary to hit the Paris Agreement targets. Today, we're the leading recruiter in e mobility skills in our German engineering business And we're growing that capability across Europe as electric vehicles become mainstream. We have large and growing life sciences and cloud computing specialisms structure, whether that be teaching, health care or social care. And I think these are just a few examples that represent our existing bridgehead into this large emerging and very specialized market. However, there is a lot more that we can do including building talent pools in the skills areas of Tomorrow, as well as helping to upskill and retrain existing workers. And I believe that our existing expertise and our global reach puts us in a unique position to make a real difference in helping organizations find scarce talent for our future, hopefully, greener economy. And I look forward to reporting much more on this in the future. I mentioned our return to growth program earlier, so let me give you some extra color on this. Return to Growth is a bottom up process that we started back in May 2020 when I tasked each of our businesses worldwide to identify structurally attractive, what I would call, dial moving initiatives, which could accelerate our growth once the pandemic passed. And through that process, we identified around 20 individual projects that cross all of our divisions and common themes include, For example, scaling up our large corporate accounts business, investing in technology and life sciences, expanding our expertise in engineering. And we've now agreed projects in Asia, Australia, Europe, the United Kingdom and in North America. And we've put in place strict reporting and governance around each investment to ensure delivery. I think progress today has been very good. We're on track to add Over 250 heads in these areas by June. However, that's just the start. It's too early yet to see the financial returns, although I'm pleased to say many of our new recruits are delivering faster than expected. But assuming success with this first wave, I fully expect us to ramp up investment further and add at least an additional 300 more people to these same projects in FY 2022 because these frankly are massive markets. We'll also start to look at new areas such as those presented by the green economy that I've just mentioned. And to help bring Return to Growth to life, let me highlight a few of the projects themselves. So over in the States, Our Life Sciences business, we've added significant investment under a key account management structure and we've also built a dedicated recruitment fulfillment center to find the talent our clients need. The team there started from a standing start just 5 months ago. We've already put together an impressive list of 15 client wins. Personally, I thought we'd encounter a sales cycle of between 6 12 months, but we already have 200 live jobs And we've built a contract run rate that is now generating north of $1,500,000 in annualized fees. Similarly in the States in our cybersecurity business, we've tripled the size of the team. We've already billed over $650,000 And again, we're on track to deliver annualized fees of nearly $1,500,000 that's up threefold year on year. Across the other side of the world in China, we're doing something very similar. We're accelerating our expansion into Technology and Life Sciences, Again, through additional headcount and dedicated account teams. Remember though that Chinese owned businesses dominate these fast growing industries over there And our long term investment in our local Chinese management team is paying big dividends as they are the ones who are now opening up these domestic opportunities. And they've generated fees faster than our initial hopes over £250,000 in the 1st few months alone. I'm very pleased indeed that we got onto the front foot so quickly and we started these investments well before the economies recovered. Indeed, We initiated things while the world was still coming to terms with the initial lockdowns. Our financial strength through the summer gave us the freedom to pursue these options And we're doing things faster and at greater scale than we've ever done before. But it's absolutely the right thing to do as we reshape our business for the future demand that we And even though it's early days, we're already seeing how receptive the markets are to these new offerings. So in conclusion, our markets are still impacted by the pandemic, but it's been very encouraging To see the strong progress we've made and emerging signs of positivity and movement in our key markets. Our November December Performances in particular showed how our businesses are adjusting, getting things done in new ways and people are changing jobs even when that means doing so remotely. Hopefully, as the virus comes under greater control in the months ahead, I'm optimistic that we'll see increasing levels of activity. But obviously, We must expect a few bumps in the road ahead. However, we do have a clear strategy, one that we believe in very deeply And we've got management teams across all of our countries who are world class at dealing with whatever the world throws at them. Our eyes on the longer term and to do the right things and that means investing in the strongest sectors, taking market share, protecting our productive core, while also appropriately managing our variable costs. Our business remains highly cash generative. Reinvestment is always our first priority for that cash, but we also believe strongly in the return of surplus cash above our investment needs back to our shareholders and hence our confidence in signaling a clear intent with our core dividend resumption and returning an additional £150,000,000 of capital to shareholders. Remember also that our philosophy for ongoing special dividends once our profits return to normal levels remains in place. And prior to the pandemic, we paid over GBP 374,000,000 in core and specials in a 3 year period. So I think there's still chapters to write in this pandemic story, but I'm very confident in our prospects to capitalize on the opportunities our world is already presenting us as we all learn to adapt to a new way forward. And with that, we'd now be delighted to take your questions. Thank you. Ladies The first question comes from the line from Rory McKenzie from UBS. It's Rory here. 3 for me, please. Firstly, can you give some color on the return to work by region and if the recovery is starting to feel different kind of country to country? Secondly, Alastair, you mentioned some of the new client wins you're seeing. Obviously, activities are still depressed Across clients overall. But where do you think Hays should expect to recover structurally to become a bigger business in particular? And What kind of client wouldn't give you the most confidence in that? And then lastly, just on the capital allocation policy. Obviously, in determining the excess capital, you've identified the buffer should be increased from £50,000,000 to £100,000,000 What's changed? What have you learned through the pandemic that's maybe changed that outlook? Is there anything about the working capital consumption of the business? Thank you. Shall I take the return to work first, then perhaps I'll ask you to the structural growth and I'll come back Can do the capital allocation. Look, on the return to growth, Rory, I think one of the real interesting things about the shape of this recovery has been the uniformity And the return to growth has been exactly the same. In fact, it's quite hard to see any differences between the regional trends that we've shown here. And that really is the case. As we know, in December, when we talked to exit rate, there was minimal differences between the regions. And here outside of the U. K, where clearly schools have been shut and therefore, nearly all of the teachers that we According to schools, they've been unable to work. Outside of that, again, there's been a strong uniformity. Australia is one of the ones that we pointed out being slightly different and again it was a bit slower at the start. But I think one of the trends that we saw, One of the reasons, for example, that January was a little bit slower in coming back, I actually think, was the combination of 2 things. 1, The use of temps, the more uniform use of temps and the longer tenure of those temps meant a lot of temps went right the way up to Christmas, Whereas previously, clients will stop temp assignments early and then bring them back in January. And then on the basis that worked right the way up to Christmas. A lot of clients encourage those temps to actually take a couple of weeks clear off before coming back. So the most important part is when we got to early February In everywhere around the world, we're exactly where we were in mid December. So I think that's really encouraging. Hi, Rory. It's Alastair here. Just talking about the client wins. If we step back, one of our fundamental tenets of our approach going forward The pandemic has offered up, if you like, is an opportunity to grow market share and do that for a number of reasons. Clearly, the bigger end of town with the larger organizations and the larger corporates around the world is where the lion's share of that is going on at the moment. And we've very deliberately built our Hays Talent Solutions business, which is the more outsourced offering For those larger organizations, we've very deliberately invested in and built that business for more than a decade now. And the way you run that business and the performance metrics, etcetera, the way you deliver your services is quite different to the spot business, As we all know, but we've been very successful at growing our business over time. What we're seeing as a result of the pandemic has been Very interesting sort of behavioral shifts. Undoubtedly as the world went into lockdown in kind of March, April, May, June, Everybody was focused on the here and now and just getting through the cathartic shock of the restrictions that were put in place. So Understandably, the appetite for organizations to go out to market and tender for new projects was somewhat muted. But we have seen that starting to pick up in the more recent months and procurement processes have noticeably Accelerated or being put in place. So I'm very positive about the pipeline that's building there. But in the meantime, we have won a number of client wins Across the world, I mentioned in the States, but it also applies in other geographies around the world. A lot of that is focused in the tech space. Obviously, organizations looking for high numbers of technology skill sets. So we've won clients in that We've also won clients again understandably in the Life Sciences sector. There has been a flight to quality. We mentioned that at the time of the equity raise And the balance sheet that we've enjoyed, continued to enjoy has given prospective clients the confidence that we will be there for them through thick and thin. They Fulfillment sensors around the world is one thing to win client mandates, it's another thing to fill all the jobs that our clients give us. But many of those client mandates, we fill north of 90% of all of their jobs ourselves. And remember these might be 100, if not 1000 of jobs. So there's a real volume there, which requires us to build highly efficient centers. So we have them all around the world, the most recent one being in Germany, where we're building a center in Essen to support all the work we're doing for our German based clients. And the way I think about market share is twofold. Are we winning new clients? And the answer over the last 6 months is Yes, absolutely. And the pipeline is looking stronger by the day. But the second way of growing market share is to fill more of the jobs that any client is out to market. And again, in some areas, we'll be doing north of 90%. In other areas, we might be doing 20% or 30% of all of their jobs. So our opportunity is to take those 20% 30% and grow them up to 60%, 70%, 80%, which is exactly the approach we're on, Hence the use of our fulfillment centers in places like Essen, in Germany, in Krakow, in Auckland, in Kuala Lumpur And most recently over in Tampa in the States. I think the final point I'd make here is The HTS business, we've had it for decades. It's becoming a mainstream part business. It's north of 15% of our net fees now are delivered because of the relationships through HTS. The bigger end of town through HTS has been a more resilient part of the business than the spot business in the last 6 months. It's down about 9 worldwide versus the rest of the business down significantly more. So I think it's shown its strategic benefit for us. And our global network around the world and our infrastructure across all geographies means that as organizations at the big end of town look for Firstly, regional and they may be in the future more global support. There are very, very few organizations that can legitimately State and deliver that global support to them and we are one of them. I think you could count the number of organizations that can legitimately make that claim On less than one hand. So I think that puts us in a very strong position to serve our clients, again, as they're looking for more resilient supply chains. And coming on to the capital allocation policy. If you think of it this way, Rory, when we set out policy that we had previously of a €50,000,000 buffer, 2 to 3 times cover, aiming for 3 times cover where we can And then paying specials over that €50,000,000 we set that out on the back of the financial crisis in 2,008. And as we said at the time with that policy, We assumed a rerun of that financial crisis with 2 austerity programs. We modeled all of our business stress tested and knew we could get through it. We've now got another fact pattern, which is a global pandemic hits instantly every single country around the world, and we have to follow on from that. So The real positive lesson we've learned is twofold. 1, it's not just that our credit control teams can work superbly remotely. More importantly, It's also that our clients can make payments remotely. And certainly, in areas such as councils and some other organizations, that was absolutely a difficult issue in the first 2 or 3 weeks of the crisis. But clearly, as we've gone through that, all of that is now in place. So having remodeled the business, We've actually simply made the decision to increase that cash buffer by £50,000,000 so we go from £50,000,000 to £100,000,000 It does. No change in our working capital is driven by that. As you've seen in here, we've driven working capital performance superbly across this period of time. And therefore, with some simplicity, it also ties nicely into the fact that we raised €200,000,000 in the equity raise in April. We're keeping €50,000,000 of that to increase the buffer. But as we said at that time, we're also meeting our promise of returning any surplus capital to our shareholders and that is starting with £150,000,000 I think the key thing on both this and the core dividend today Yes, it is a combination of the improvements in trading as we went across Q2, Both the increase in fees, the level of profitability we generated, the return to work gives us confidence in the second half of the year, all of that It means it's now appropriate to set our store up very clearly in how we intend to not just return surplus capital in this initial phase, but also returning capital going Because we are a cash generating machine that has always been in our DNA that will continue going forward. The next question comes from the line from Anvesh Agarwal the headcounts on the return to work growth program will sort of increase by another 300 in FY 2022. Should we just assume a similar proportion of cost increase In next year or there are some obvious savings which can offset that? Or like how should we think about the per period cost for next year based on that? And second, looking at your bridge for special dividend of $150,000,000 Now obviously, as the profits recover, some of that Working capital will sort of fund itself. So is that a conservative estimate? And or because you just on the current cash balance and take out the €100,000,000 buffer, €130,000,000 of working capital. But obviously, there will be more inflows as you in next 18 months. If I take the second one first because it flows naturally on from the previous answer. It's not conservative forecasting, Ambrish. It's simply saying that We've had a working capital inflow of about £130,000,000 over the last 9, 10 months. We expect To regrow our business, we expect to regrow that temp book and therefore it made sense to keep that money To make sure that we can then reinvest in working capital as we go across the period, I think it would have been inappropriate to have returned not just An element of capital, but also all of the working capital inflow we came in, we're still in an uncertain world. But I think the real positive part of all of this is that we've got really good growth prospects. As we've gone across this 6 months, we look at prospects going into the next 1 to 2 years, I think what we've all seen is outside of a couple of sectors, which clearly have been hit hard very hard, such as hospitality And travel, which we don't have large exposure to. We are at least seeing nearly all of our clients focused on cautious growth. The further we get away from this pandemic, the more that the recovery becomes embedded, we'd expect to see a greater demand from our A greater improvement in our sequential fees, a greater increase in our cap book. And then the 2 positives is we'll have the outflow of working capital, but we've already set that aside. But then, Amvesh, that will generate increased profitability. And then that will then lead to trading special dividends. So you could see This financial year being a return of some capital and a core dividend, but The following financial year having a combination of that final return of the capital, clearly an increasing core dividend in line with profits on 3 times And a return at a suitable point to doing specials as well. And when that comes, we'll all be dependent on the strength and the nature of that recovery, but at least Phase 1 is really quite encouraging. And then coming on the return to growth, there's a lot of moving parts on there. What is true Is it by making the I mean, the investments this year are well underway. Clearly, it is more second half, biased. And therefore, it will take another good 6 to 12 months before that is generating returns and profits in its own guys. I don't think that we'll have It's not like we're sitting here and saying we've had €15,000,000 negative this year. On top of that, you can add €20,000,000 or €5,000,000 or €30,000,000 the following year. I don't think that's what we'd expect because we'll get some return on that first €15,000,000 But as All of these projects are going well so far. Assuming that happens in the second half, then we are likely to double down on that investment, and we've set that out today. So I think, Really, if you assume a similar sort of level of investment, maybe a little bit greater, but that slight increase will be offset by returns we get from the initial investment. The key driver will be sequential growth that will drive our profitability. The returns of growth initiatives are all about strengthening what is already a really good position in those markets. So we're positioned for significant growth over the next 3 to 5 years and we're determined Take the benefit, the strong financial position we're in, the strong market positions we're in, the strong management we've got, we're determined to really attack those market In the next 3 to 5 years. Yes. That's very clear. And maybe if I can just ask a follow-up slightly related on the cost. Now at the beginning of the presentation, Aristide, you made the comment that you have not cut the cost proportionate to the fee decline and sort of protected the investment and the capability. So when the fee return, should we assume that the drop through can be Better than what you had in the previous crisis or not really? I think that's too early to tell. And Historically, we've always given drop through guidance. I think we're too early in this recovery phase. And of course, The level of growth has been quite significant so far. Well, certainly, when we get to the full year, start to give some guidance, which will help you going forward. I think I'd make 2 or 3 comments. Clearly, we are investing increasing our head We will do that in Q3. We will do that in Q4, assuming nothing happens, and we'll do that on an increased level next year. That's all about The confidence we've got in our business, our market positions and making sure that we've got sufficient productive capacity To enable us to grow further, a year to 18 months down the line, we've got enough capacity in our business to do the next 6 months growth, But we want to make sure that there's no capacity constraints. And of course, that involves bringing predominantly new people into our business and training them up To make sure that we're ready for further significant organic growth in FY 'twenty two and FY 'twenty three, but we'll certainly give you some profit guidance when we get To year end on drop throughs. I think just a point I'd make Anvesh is, we have raised our ambition On the scale of businesses we intend to build in some of these future markets, the technology industry And the need for technologists across all other industries is enormous and it's not going to go away. It's only going to get more so. So today, more than a quarter of our fees, probably more like 30% of our fees come from the technology business. It's our largest specialism worldwide and yet sitting here is probably today the world's largest recruiter of technology talent. But there's still a massive opportunity for us to go ahead. We could have a business twice its current size and we'd still be scratching the surface. So our ambition, we have raised our sights on our ambition. We have raised our targets. And these are businesses that as Paul has said over the next 3, 4, 5 years, We're just going to build, because it's the right thing to do and it reshapes the business for the future. What we can do, the nice thing is we can do all three things at the same time. We can grow fees. We can grow profits. We can invest in the business and we can drive cash flow. So I think we're in for an exciting few years. That is very clear. Thank you so much. The last question comes from the line from Kean Marden from Jefferies. Your line is open. Thank you. Good morning all. I'm sorry as well, sorry. So first of all, just touching on Hong Kong, where there's been quite a lot of change In the economic environment and the political framework over the last 6 to 18 months, but that was previously quite high possibility area for you. I'm just wondering what your thoughts are for the shape of that business in the future. Secondly, Paul, is there Anything I appreciate that, but obviously a lot of your customers have been protected by government assistance schemes over the last 12 months. People are looking at sort of delinquency data and wondering whether that's going to pick up in 2021. Is there anything that you're monitoring, And then thirdly, So I guess less travel and a smaller office footprint are tailwinds towards your net zero And targets here, are those sufficient alone to achieve that? Or would you need any other practical changes in the way you do business? So maybe I'll let me kick off with Hong Kong and China, then Paul can take the second one and I'll come back and talk about what we're doing to Safe Planet Earth. So Hong Kong, yes, it is difficult. I think there's no new news there. The good news in Hong Kong is we have great spirit in the team. We're just talking about it just the other day actually and the morale there is positive. They're up for it. There is a level of activity going on in that business and it's an important part of the network. In the past, Kian, you're absolutely right. Hong Kong was where a lot of the money was made in our total China business, While we were building the business across the other offices in the mainland and the most recent addition being our office in Shenzhen, which we opened up about 18 months ago. I think things have turned around though now. And while Hong Kong is undoubtedly subdued and may well remain so from an activity standpoint Some time to come. The action has really shifted to Mainland China in the last sort of year or 2. The Mainland China business On its own, was a significant out performer in the last 6 months. And our Mainland China business It's above where it was this time last year. So it's obviously first into the downturns. This time last year, I remember standing up At this very presentation, Hussein, it's too early to know the impacts of the pandemic, but we have had to close our Chinese offices. Here we are today where virtually everywhere else in the world might be closed, but our China offices are all fully open and fully staffed because the people want to be in them. So the world has changed. What I'm really pleased about and what really sets us up for the future It's the strength and depth of our local Chinese management team. We spent a lot of time and money and effort and attention growing that team and developing those people many of whom have been with us for north of 10 years now. They joined us at the very beginning of the China story. They're now running the place. They're an excellent team and they're opening up that domestic market that I mentioned. So Hong Kong is still an important place for us, But I wouldn't expect it to suddenly come roaring back, but the rest of Mainland China is roaring ahead. And as soon as we're out of Chinese New Year, I'd activity levels to remain very strong there, very hopeful for it for the future. Paul? I mean, you're right to say, is there a tsunami of companies that may have difficulties coming down the pipe? Certainly, we're seeing nothing so far, Kian. And I think for us being selfish and focusing on HAYES, we've had The most the more difficult parts for us were in the March, April and May time because there are going to be some long standing clients that are having difficulties that didn't have access the funds that we managed to get hold of. And we made some very clear decisions about the companies we would help and sit next to across that period and the ones that we would be more stronger in our credit control collection. I think the most impressive thing across the next last 6, 9 months. But not just being the cash collection, but the fact that the actual level of bad debts of liquidations has been of less than €2,000,000 across that period of time. So I think the guys have done an incredibly good job. There's nothing that we see specific or anything sizable. For us, It's always all about construction property and resource and mining and not the very large developers, but the 2nd tier subcontractors. There's always going to be some risk in that space, but the very nature of that business is it's very well diversified. Of course, in perm, you haven't got a cash outflow, so it less of a risk. In temp, we have very strong lines of communication, really strong management. And we have a 3 strike policy. And the minute If you minute you don't make a payment, then you have that gets flagged up and you'll have a discussion with 1 of the regional managing directors, if that happens again, then they're joined by either my U. K. FDA or me. And if we have anything else, we just pull the temp. So I don't think in our book we're expecting to see anything material, but we don't have a high exposure to the hospitality and travel areas, which have been much more dependent on government funding. What we are seeing in pockets in the world is, of course, the various government schemes, isn't it? There are some people that are perhaps on those schemes rather than necessarily coming back into the workforce. And I think as those schemes start to diminish over a period of time. I think we'll actually see an improvement in some of the kind of semi skilled areas such as C and P, etcetera. But So far so good. No obvious tsunami of any receivable issues. And I think the fact we're at 34 debt a days, If we'd have been in situ and we'd have gone out from 38% to 44% or 45% or 49% then I think we'd be in a very different set of circumstances. Having reduced it to 34, that's a real positive. Thanks, Paul. Kean, just looking at The net zero commitment, it's absolutely the right thing to do, I believe. We're not a major polluter as an organization or as an industry. But we do produce some carbon and the vast majority of that comes really from 2 sources. Firstly, heating and light in our offices around the world and secondly travel whether that's things like the cars that we use to go to work or the international travel. So there's lots we can be doing to reduce both of those through internal self help. I'll give you a few examples. Understandably, our international travel is I wouldn't say it's reduced. It's eliminated because nobody's been anywhere for almost a year now. Clearly, that will pick up to some extent when the restrictions are lifted and we start to move around again. But I think there will be a permanent and significant drop In international travel because we have all understood the usefulness of technology to remain in touch and we are getting a lot done Using things like video. So I don't think it will come back to anything like the level it used to be. So that will be a permanent reduction. In terms of the electricity that we're using in our own office footprint, there's lots we can be doing. We've already moved the UK, for example, To 100 percent renewable electricity suppliers, that's 90 of our 260 offices worldwide We've already moved on to that basis. We're looking at things like the company car schemes around the world. We have different schemes Dotted around the world. We can move away from diesel cars. We can do that pretty much immediately. We can move more rapidly Towards electric vehicles and build those into our schemes. Again, all the right things to do. We've had a program underway of cutting plastic Fair play to the U. K. Team who about a year ago said we're going to eliminate single use plastic across the whole of the U. K. Business. We've got similar themes around the world. So lots of self help is going on and that will make a material difference, but it will not totally eliminate the Carbon that we produce will still need heating and lighting and sometimes some people might get on a bus or a train or an airplane in the future. So we will work to find if there's other ways of producing negative carbon as an offset against the positive carbon that we do produce in the future. There's 2 approaches to that. Number 1 is there are lots of partners out there that we're looking at That we could work alongside to do meaningful work. That may require modest investment, but I don't think it's going to be a huge amount of money, but it is the right But then secondly and I think more excitingly engaging our own workforce worldwide to say look there's More than 10,000 of us here. I'm sure that there's a wealth of ideas across the world amongst our people, Many of whom are very passionate to get involved in all of this. Let's tap into their creativity and their innovation. And if they come up with Great ideas. And I've said in that challenge to them today by the way, Cian. We're open to interesting ideas and we're open to working with people to make that happen. So a combination of self help, our own people's ideas and working with really good organizations on a partnership basis Who do this for a living, who can help us along this journey, I think it's that combination that will get us there. Well, with that, guys, thank you very much for everybody that's joined us both Online and at the live chat, we'll be around to take any questions you've got for the rest of the day. And then we'll speak to you very soon when we do the Q3 IMS. Thank you very much and good morning. And that does conclude the conference for today. Thank you all for participating. You may now disconnect.