My name is Rosie. I'll be your coordinator for today's event. Please note, this conference is being recorded, and for the duration, your line will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad to register your question at any time. If you require assistance, please press star 0 and you'll be connected to an operator. I will now hand you over to David Phillips, Head of Investor Relations, to begin today's conference. Thank you.
Thank you, Rosie, and good morning, everybody, and welcome to Hays quarterly update call for the three months ending 31 December 2019, the second quarter of our 2020 financial year. I'm David Phillips, Head of Investor Relations, and I'm here with Paul Venables, Group Finance Director. Before we begin, please be aware that this call is being recorded, with the recording accessible using the number and the code provided in the release. Please be aware that our discussions may contain forward-looking statements that are based on current expectations or beliefs, as well as assumptions on future events. There are risk factors which could cause actual results to differ materially from those expressed in or implied by such statements.
Hays disclaims any intention or obligation to revise or update any forward-looking statements that have been made during the call, regardless of whether these statements are affected as a result of new information, future events, or otherwise. I will now hand you over to Paul.
Thank you, David. Good morning, everybody, and thanks for joining us. I'll summarize the key themes of today's update, discuss regional performances before taking any questions. As usual, all net fee growth percentage I give for the quarter will be on a like-for-like basis versus prior year. Key points. Growth in the quarter declined to -4%, with December particularly tough, down -6%, impacted by certain specific external events, which I will discuss later. Temp was down by 3% and perm 6%. Currency translation had a negative impact and reduced like-for-like net fees by 3% in the quarter. I would highlight the following key features in the results. Firstly, underlying trading in October and November was -3% versus the working day-suggested -1% in Q1. This decline was driven primarily by two factors.
First, a deterioration in German trading, which as you can see, declined by 9% in the quarter from -2% underlying in Q1, with broad signs of reduced business confidence and increased level of client cost control. More on this later. Second, growth in our Asia business was heavily impacted by the continuing disturbances in Hong Kong. Outside of Germany and Asia, the rest of our business, whilst remaining subdued, was broadly sequentially stable, in line with our expectations. Two, however, as December progressed, group trading was materially impacted by specific external events in three countries which represent circa 45% of our group fees, namely the French general strike, the tragic bushfires in Australia, and the U.K. election. These reduced our group growth rate to -4% for the quarter and a group fee exit rate for December of -6%.
Three, these trends and events, combined with our continued investments in strategic launch and growth markets, plus recent adverse FX movements, mean we anticipate half one FY 2020 operating profit will be around GBP 100 million. Four, group consultants headcount declined by 1% in the quarter and 2% year-on-year. Five, during the quarter, we reviewed our overhead cost base in detail, and as a result, overhead costs were reduced by GBP 5 million in the second half. Additionally, given the step down in Germany over the quarter, we are reviewing its cost base. Next, we continue to make selective investments in markets where we see strong growth opportunities, such as IT specialism globally and the USA. Seven, our cash performance has been good. After paying GBP 122 million in dividends in November, GBP 10 million more than November 2018, we ended 2019 with GBP 15 million net cash.
I'll now comment on the performances in each region in more detail. ANZ. Net fees in our ANZ division, which represented 17% of group, declined by 7% versus a tough growth comparative. The perm market slowed materially in December, with bushfires particularly impacting sentiment in the private sector, especially in New South Wales. Temp remained stable, and our temp business decreased overall by 2% whilst perm was down 15%. Public sector fees fell by 2%, with private sector down 9%. Our Australian business saw net fees down 10%. In New South Wales and Victoria, together 56% of Australian business, net fees fell by 7% and 11% respectively. Queensland, our third largest state, decreased by 6%, whilst Western Australia fell by 5% and ACT by 4%. At specialism level, Office Support fell by 19%.
Construction & Property, our largest business in Australia, declined by 14%, and Finance also by 14%. However, net fee growth in HR was strong, up 12%, and Sales and Marketing, 4%. New Zealand, which represented about 5% of ANZ, delivered its second consecutive quarter of growth of a solid 4%. Consultant headcount in ANZ decreased by 1% in the quarter and by 6% year-on-year. Germany. Germany, our largest business at 26% of group net fees, decreased by 9%. We continue to see tough macroeconomic conditions and increasingly broad signs of reduced business confidence. This is most evident in the manufacturing and automotive sectors, but with clear signs of spreading to the finance and services sectors. Our temp and contracting business, which represented 83% of Germany's net fees, was down 10%.
This was driven by a 4% reduction in worker volumes and a 6% reduction in average temp and contract hours per assignment. The increased cost control through the quarter had a direct impact on our fees. This was particularly evident, prevalent in our largest clients in Engineering, automotive, and financial services sectors. Volume continued to slow and was down 3%. We continued to see growth in our German public sector business, now 11% of net fees, which was up 6% in the quarter as the private sector was down 11%. Our largest specialism of IT, 41% of German net fees, was down 6%. Engineering, our second-largest specialism, was down 12%, driven by the weakness in manufacturing and automotive sectors. Accountancy & Finance was down nine, and Construction & Property was down 17%. However, we saw growth in smaller specialisms such as Sales and Marketing, up 16%, and Legal, up 7%.
Consult headcount decreased by 2% in the quarter and by 4% versus prior year. UK and Ireland. UK&I, which represented 23% of the group net fees, decreased by 4%. Our temp and perm business fell 1% and 7% respectively, with the private sector perm heavily impacted by the continued economic and political uncertainty, which further increased in the run-up to the UK election. Candidate confidence continued to weaken across the quarter, and client confidence fell materially in December. Growth in the public sector, 31% of UK fees, was good at 8%. Within the public sector, temp grew by 7% and perm by 12%. Meanwhile, the private sector declined 8%, with temp down 5% and perm down 11%. All regions traded broadly in line with the overall business, except for Northern Ireland, which was up 4%, and the Northwest, down 12%.
Our largest U.K. region of London declined by 1%, while our Irish business decreased by 7%. Across our five largest specialisms, net fees in IT grew strongly at 11%, but Accountancy & Finance fell 4%, Office Support 3%, and Construction & Property 8%. Finally, Education shown signs of stabilization with fees down 3%. Consult headcount decreased by 1% in the quarter, but increased by 1% year-on-year, driven by investment in our IT specialism. Rest of the World. Our largest division of the Rest of the World, consisting of 28 countries and representing 34% of group net fees, delivered net fee growth of 1%, within which five countries delivered growth of more than 10%.
Europe ex Germany decreased by 1% with a significant step down in growth in December, particularly in our largest Rest of the World country of France, which was impacted by the general strike and declined by 3% overall in the quarter. The Netherlands was tough, down 12%, and Spain fell by 2%. The growth in Italy and Belgium was good, up 9% and 6% respectively. In the Americas, net fees increased by 6%. The U.S., our second-largest Rest of the World country by fees, delivered a strong quarter, up 13%, and Brazil was up 1%. Canada, however, was tougher with fees down 5%. Asia was flat overall, driven by a strong 12% growth in Japan, together with an excellent growth of 25% in Malaysia. China, our third-largest Rest of the World country, declined by 9%, with our Hong Kong business becoming increasingly difficult, with net fees down 10%.
Overall consult headcount in the division was up 1% in the quarter, which increased by 1% year-on-year. Cash flow and balance sheet. Cash generation in the quarter was good, and we ended the period with net cash of GBP 15 million. This was after paying almost GBP 122 million in court and special dividends in November 2019. Current guidance and trading. First, the rebound from the specific events in France, Australia, and the U.K. as the overall new year return-to-work period will be an important driver of the group's second half performance. We'll provide a detailed update at our interims in February. Second, we expect group headcount will be down modestly in Q3. Third, exchange rate movements may remain a material sensitivity to the group's reported results.
If we retranslate FY 19 profits at current sterling spot rates, we estimate a negative GBP 3 million operating profit currency move since our Q1 trading update in October, and this equates to a GBP 9 million currency reduction since we reported our prelims. Here are some closing messages. Overall, we expect near-term macro conditions to remain difficult, and we see continued opportunities for growth in key markets like IT. Our task is to balance such investment opportunities with managing our cost base while protecting the infrastructure and market leadership. In conclusion, this has been a tough quarter with a combination of worsening conditions in Germany and specific external events in three other major businesses. This, combined with adverse moves in currency, has negatively impacted the group's first half financial performance by more than we expected when we talked at the end of Q1.
The combination of our strong global platform, our highly experienced management teams across the world, and our financial strength gives us confidence for the future. I will now hand you back to Rosie, and we are happy to take your questions.
Thank you. As a reminder, if you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. You will be advised when to go ahead. Again, that's star one on your keypad. The first question comes from the line of Bilal Aziz from UBS. Please go ahead.
Morning, everyone. Just a few questions on Germany from my side. Firstly, have you started to see volumes decline and hours worked per assignment also decline? Can you perhaps comment on what impact you've seen, if any, on your fee rates within that region currently? Secondly, Paul, you've indicated that you're now assessing cost base in Germany now as well. Can you perhaps highlight some of the plans? Is it largely headcount you're looking at within that region or is there other stuff you can do as well? Thank you very much.
The reduction in the quarter, I think I tried to set out very clearly early on, and within my standpoint, the fact that hours reduced by 6% is the key part. That really shows that our clients have moved from modest cost control and adjustments around the edges to a much more concerted reduction in cost base, and that's what really drove the reduction in fees. Moving on to fee rates, we've seen little or no impact so far on fee rates. Of course, that will always come in any weaker period of time. The backdrop to Germany is we've seen GDP growth, which was almost 2.5% two years ago, fall to very modest level at the moment.
I think we'd expect to see our clients focused on cost, but at the moment it is much more around, rather than what we do for them, it's around the hours per assignment and the level of assignments. Moving on to the cost base. Look, this is just normal housekeeping at this stage. We've already done quite a bit of housekeeping around the overhead cost base over the last year, but clearly we were -2% working days adjusted a quarter ago. We'd expected to be in the -4% or -5% across this quarter, and we're sitting here at -9%. All we're doing is just a review of the cost base and nothing radical. We've got fantastic long-term opportunities in Germany.
The structural opportunities are undiminished, but it's clear that we're going to have a more difficult period of time for the next year or two.
Thank you.
The next question comes from the line of Paul Checketts from Barclays. Please go ahead.
Morning, Paul. I've got three, please. Just continuing the theme of Germany, the reduction in hours worked, do you think potentially the next step, is this how it will unfold? That originally the clients reduced the number of hours of people who they have in, and then they subsequently reduce the number of people if they want to address their cost base a bit more. If you looked at this, is it just really a phenomenon in the manufacturing and automotive sectors, or have you seen it elsewhere? The second is, can you give us a reminder of the year-on-year changes to the cost base? I know you've got the ring-fenced amount and depreciation, et cetera, but can you just give us an update?
Lastly, if I step back, I appreciate it must be quite difficult to deal with when the end of the period is so weak, but it feels like some of the factors are temporary. The strikes in France, bush fires hopefully, U.K. election now, we have [Lumira]. Is there a sense in the business that actually they're temporary and things will start to improve? Thanks.
Yeah, quite wide-ranging questions there, Paul. If I don't answer them all, please come back to me. Look, I think in Germany we've had both parts of it. The volume reductions have been primarily in the manufacturing space. What is clear as we've gone across this quarter and fairly early in this quarter, is that this has now moved into the more broader German economy. I think in back to several factors, really. There's been a lot of discussion in both the German press about technical recessions, et cetera, and I covered that on the call last time. Germany was always the one I was nervous about coming into this quarter. I think what we've seen is a complete overtime ban been put in place pretty much across most of the clients we deal with. Much more focused on detailed cost control.
What we've also seen, both in the manufacturing space but also within the financial service space, because it's easier within the contractor part of it to reduce hours further if you want to, we've seen a situation where newer assignments have a clear expectation and delivery of more four and a half days a week working rather than full. Secondly, overtime ban, and thirdly, reduced hours. I think this is a real notch up in cost control, and it's difficult at this stage to see where this might go. Quite measured, no real drama, if you like, within the business. Good discussions we're having with our clients. It is all in the higher-end companies that we deal with. It's the large companies we deal with.
What's been interesting is if I look at the Mittelstand that we've opened into over the last period of time, we've seen continued growth in that space. Therefore, if anything for me, it leads to in the strategy accelerating the additional offices and the roll-outs because I think the long-term opportunities are undiminished. Secondly, on the year-on-year changes in the cost base, clearly this is kind of early. I felt the need to talk to a half-year profit because overall I've got three facts. I've got a 3% underlying for the quarter, which went to 4% because of what happened in December and the three specific events. As a result, we're at GBP 100 million. I think when you look at it, the biggest part of it is fee reduction because fees overall are down by 2%, and that's certainly going to be GBP 11 million reduction in fees.
That comes straight off the bottom line because really we're in that phase where productivity is reversing, when decision-making gets a bit slower. Things like hour reduction, that doesn't lead you to do anything to your headcount at all. If hours per assignment reduces, you still need the same amount of consultants to deal with those clients. The fees have fallen to the bottom line. We talked about some ring-fence investment. I talked on the last conference call to GBP 5 million, We've certainly had a good GBP 3 million in here. There is GBP 3 million of property and depreciation. If you remember, we gave some numbers out when we did the results. Sorry, actually, it's GBP 5 million worth of property and depreciation. On the flip side of that, you get a 1 million pickup in IFRS 16, GBP 2 million for the overhead reductions we did in Europe.
Finally, I think it was George asked on the last conference call about underlying inflation in the business, and I talked about 1.5% cost inflation, and that would be about GBP 5 million. If you add all those together and a bit of exchange, it takes you to nearly where we are today. Finally, I think when we think about the factors, first of all, look, the Australia events are really quite troubling. Forget business, that's kind of irrelevant. We'll have all seen the fires, the deaths. Our focus at the moment is on the 1,000 employees that we have there and the 20,000 temps and contractors that we have in that business. So far, there's been no injuries to our own people, but we continue to be focused on that and supporting them.
On Australia, I really don't have a view at this stage, Paul. I think that's a hard one to call. I think on the other two, I think on the U.K., really what happened in hindsight was any engagement and activity stopped fully in perm from about the fourth or the fifth of December. Our clients didn't want to engage, and interview numbers were heavily reduced. Candidates were very slow in coming back and going to second interviews, et cetera. Therefore, we go into every period with an amount of secured. As you guys know, we only book permie people starting the month or the first day after the month. We went in with a level of secured perm. That normally goes up by predictable amounts across the month. That simply did not happen.
In many respects, it was, as I said, like the shutters being called up on perm from our clients. I think the fact that we've had massive uncertainty in the U.K. for a long period of time now with Brexit, tariffs, and everything else. We then have the added political uncertainty, and I think the positive for all of us on this call, for all of us, is we now have certainty. We have a government with a large majority, with a clear plan. I think what that will do is it will help candidate confidence the most in the short term because if you remember on the previous call, I talked to weakness in candidate confidence. I think we'll see an improvement in candidate confidence. I think for clients, they now have certainty.
They don't know what the final tariff agreement is going to be, and in the service sector, they don't know how that will work. However, they know that there is a government with a clear plan. Therefore, I think what we've probably had in December is a blip in the U.K. The really interesting thing is I actually think our U.K. business had a really good performance across this quarter other than the last three or four weeks. We were trading at minus two, minus three. I think that was really good. Therefore, I think that January, clearly that weakness in December has moved into a bit of January because, of course, you've got a reduced activity level, so you don't catch that back immediately.
I think the fees, you just have a one-off loss of fees, but I think certainly by the time we get into February, we'll have returned to a more normal level. Finally, in France, let me give you an example in France. We expected to be plus 3% in this quarter. France in December, for which the business is 78% perm, was minus 13%. That turned a plus three to a minus three. Again, I think it was much greater in December because it was easy for activity to slow down because you had a Christmas period coming, and with a massive transport disruption, it was easy that things just kind of stopped, got to a point, and stopped. I think you don't get hit for the same thing twice.
Whilst the general strike is still continuing, we don't know when it will end, I don't see anywhere near the same impact when we come even into January because I think we're into January. Christmas is gone. There'll be a normal return to work. You know what? If the general strike is going to go on for another 10 days, 30 days, 50 days, people are going to get on with their lives. What we were trying to do in these results to say, look, across France, across the U.K., and across Australia, we've taken a hit of not far off GBP 5 million. Hence why we've done the announcement as we've done it. I think France, I think you just lose the fees. It goes across. I think the U.K., in the end, is a good part.
Then Australia, it's far too early to tell. What we've tried to do today is set up the first half profitability. Clearly, all the cost parts of it, you asked me about Paul, roll in for the second half. Clearly, we've got the currency move, which reduces the second half. January is going to be a little bit more difficult than it would otherwise have been. Otherwise, we've got a great business, and we're going to continue doing all the good things that we're focused on.
Thanks very much.
The next question comes from the line of Matthew Lloyd from HSBC. Please go ahead.
Good morning. Just one question, really. I suppose it's similar vein to everybody else is it's very early in the year to know what's going on, and the tone seems from you to be more bearish than perhaps from some of the other businesses, and there are some probably mix and various other things. Is there anything specific that we should be aware of? Have you lost a big MSP RPO that'll affect the first half of this year or something like that that we should perhaps think through?
I mean, first of all, MSP RPO is about 15% of our group, and secondly, that business grew across the first six months of the year. There's nothing in that load. I think we sit there on the 16th of January. I'm kind of confident on UK because I think the election result helps, tried to say that. Australia, it's far too early to have any view on that. I think we're still in an uncertain world. We come back to the discussions we've had on previous calls. A trade deal between the U.S. and China that sticks, which then leads to a reduction in further tariffs, and let's hope there are no other kind of political or military type events. All of those are important in putting an underpinning under confidence.
I think the positive is a lot of uncertainty in these results already, and I'm not seeing that uncertainty increasing at the moment. Equally, I don't think anything's happened in the world over the next one month, two months, three months outside of the U.K., which is going to lead to any sort of real pickup. I think we're going to be in for a cautious next six to 12 months. For us, the nice thing is you only get hit by a weakness first, and therefore, the minute it gets into the underlying data and sentiment, you stabilize. Actually, Matthew, if I could put this another way around.
I had expected to be covering an IMS today where I talked to -1 going to -3, where I talked to the weakness being Germany related, and where I made a statement which said 70% of our business is sequentially stable. I tried to get that over in the way I've done this presentation. I do think that's important. We've had three events in those three countries, France, U.K., and Australia. Otherwise, up until that point, I think we were seeing the natural part of some stabilization and some of our clients returning to focus on growth. I remain confident, but clearly we've got some uncertainty to deal with in the near term.
Okay. Thank you very much.
We'll go to the next question. Please be reminded, if you do have a question or a comment, you can press star one now. The next question comes from the line of Morgan Stanley. Please go ahead.
Hi, this is Anvesh Agrawal from Morgan Stanley. Just a quick one, really. I know it's kind of too early to comment and perhaps you've answered the question, but how should we kind of think about the profitability in probably in second half, really, assuming that some of these one-off events mean that fee growth kind of remains in line with what you're guiding to in terms of execute?
Look, I've only been doing this job for almost 14 years, I don't talk to full year numbers because I think in a business where you've got three to five weeks visibility at minimum and secured forward revenue stream, you're kind of using a crystal ball. What we can say is if we strip out of those events, underlying fee decline was 3% in this quarter. That's kind of the fact that we've got today. We haven't got distress in any somebody's tapping on their keyboard if you could just bear for a second. We don't have distress in any of the major markets, clearly there's an uncertainty in Germany. Underlying minus three, the real question in the second half of the year is what now happens to Germany? Do we stabilize at this level and therefore start to get into some easier comps?
Do we see a further squeeze on cost control from our clients? 16 days into this quarter, I don't have a view on that. By the time we do the interims, myself we're in Germany. I mean, I'm in Australia in the last week of January, start of February. We're both in Germany in the second week, end of the first week in February. We'll have a much better view that we can give you. Therefore, what we've tried to do, what I've tried to do it in the way today is to say underlying fee decline was 3%, and that's the thing we know. What I can't tell you is where it will go from there.
Yeah. Okay. Thank you.
We have no further questions coming through, so I'll now hand call back to yourself, Paul, for any concluding remarks.
If that's all the questions for today, we'd like to thank you very much for joining the call. I look forward to speaking to you at our next half one FY20 results on 20th February 2020. Should anybody have any follow-up questions, David, Charles, and I will be available to take calls for the rest of the day. Thank you very much for joining, and thank you for your questions. Bye.
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