Welcome to the Hays Q3 analyst call. My name is Molly, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be an opportunity to ask questions later in the call. Please note that this call is being recorded. If you require assistance at any time, please press star zero on your telephone keypad, and you will be connected to an operator. I will now hand you over to your host, David Phillips, to begin today's conference. Thank you.
Thank you, Molly. Good morning, everyone. Welcome to Hays quarterly update call for the three months ending 31st March 2019, the third quarter of our 2019 financial year. I'm David Phillips, Head of Investor Relations, and I'm here with Paul Venables, Group Finance Director. Before we start, please be aware that this call is being recorded, with the recording accessible using the number and code provided in the release. You should be aware that our discussions may contain forward-looking statements that are based on current expectations or beliefs, as well as assumptions on our future events. There are risk factors which could cause actual results to differ materially from those expressed in or implied by such statements.
Hays disclaims any intention or obligation to revise or update any forward-looking statements that have been made during this call, regardless of whether these statements are affected as a result of new information, future events, or otherwise. I'll now hand you over to Paul.
Thank you, David. Good morning, everybody. Thanks for joining us. I'll summarize the highlights of today's update, cover the key themes, and discuss our regional performances before taking any questions. As usual, all net figure percentages I give for the quarter will be on a like-for-like basis versus prior year. Highlights and results. We delivered another good quarterly performance with group net fees of 6% against increasingly tough year-on-year comparatives and uncertain macroeconomic conditions, particularly in Europe. Currency translation continued to have a negative impact and reduced headline net fees by 1% in the quarter. I'd highlight the following key features in the results. One, o ur performance was again broad-based, with 17 of our 33 countries delivering double-digit growth, including eight all-time quarterly records. Two, growth was 5% in temp and 7% in our perm business.
Three, Australia delivered solid growth in net fees of 3% versus an increasingly difficult comparative and a tough construction property market. This extended its run of consecutive growth quarters to 19. Four, Germany delivered good growth of 6% against a more challenging economic backdrop, with temp and contracting up 6% and perm up 7%. Five, U.K. and Ireland delivered another solid performance, maintaining the 3% growth seen in Q1 and Q2. This was driven by strong 14% growth in our public sector business, while private sector fees fell by 1%. Six, performance in the rest of the world was good at 9%. Within this, Asia and EMEA, ex-Germany grew strongly, 12% and 10% respectively, led by Greater China up 21% and Spain 18%. The Americas delivered good growth of 7%, led by Canada up 18%.
Seven, group consultant headcount was down 1% in the quarter, but up 5% year-on-year as we focused on driving consultant productivity. In line with our long-term plans, we opened two offices in the quarter. Eight, we ended March with net cash of GBP 30 million, a good performance. As in our recent financial years, we anticipate a strong cash performance in our fourth quarter. I'll now comment on the performance by each division in a little bit more detail. Australia and New Zealand. Our ANZ division, which represents 17% of group net fees, delivered a solid quarter with net fees up 3% or 2% adjusted for Easter, despite a tough 13% underlying growth comparator and the construction property market is tough. This is our 19th consecutive quarter of growth. Our temp business grew by 6%, while perm continued to be subdued, down 4%.
Although year-on-year growth did slow over the quarter, mainly in perm and in line with broader industry data, it's important to know that March was still an all-time record net fee performance month. Public sector net fees grew by 7%, with private sector up 1%. In Australia, net fees increased by 3%. In New South Wales and Victoria, which together represent 59% of our Australian business, net fees grew by 11% and 3% respectively. Queensland, our third-largest state, delivered growth of 2% and ACT 9%. Although fees in South and Western Australia fell by 14% and 12% respectively. At the specialism level, net fee growth in IT was again excellent at 20%, and HR grew by 9%. Construction property, our largest business in Australia, declined by 7%, its third consecutive quarterly decline, while accounts and finance declined by 4%.
In New Zealand, which represents about 5% of ANZ, trading remained tough and net fees fell by 8%. However, encouragingly, our momentum improved through the quarter. Overall, consultant headcount in ANZ increased by 1% in the quarter and by 5% year-on-year. Germany, our largest business, Germany, 27% of group net fees, grew by 6% or 5% adjusted for Easter. This was against a tough 18% underlying growth comparator and a weaker macroeconomic backdrop. Our temp and contracting business, which together represent 85% of German net fees, grew by 6%. Within this, contracting was up 3%, whilst temp delivered strong growth of 14%. Perm, which represented 15% of Germany net fees, delivered a good performance of 7%, including strong 10% growth in our core higher salary perm markets. However, our mid-level salary perm recruiting market declined by 5%.
Our largest specialism of IT, 41% of German net fees, delivered good growth of 9%. Engineering, our second-largest specialism, slowed to 2%, due primarily to weaker automotive markets. Accounting, finance and construction and property grew by 7% and 3% respectively, while sales and marketing grew by an excellent 19%. Consult headcount was flat in the quarter and was up 7% year-on-year. U.K. and Ireland. In U.K. and Ireland, 23%, which represents 23% of group net fees, we delivered another solid performance, particularly given the political and economic uncertainties, with net fees up 3% or 2% adjusted for Easter. Our temp and perm businesses grew by 4% and 2% respectively. Growth was led by the public sector, which represented 29% of U.K. and Ireland, up 14%. Within the public sector, temp grew by 12% and perm 26%.
Net fees in the private sector decreased by 1% overall across both temp and perm. All regions traded broadly in line with the overall business, except for South West and Wales and Northern Ireland, up 20% and 18% respectively, and with Scotland and North down 12% and 6% respectively. Our largest U.K. region of London delivered 3% growth. Our Irish business delivered another good performance, with net fees up 6%. Across our five largest specialisms, net fees in IT, again, grew strongly at 15%, while the accounting, finance and office support grew by 6% and 4% respectively. Construction and property was flat, and education, which continues to face tough market conditions, was down 6%. Consult headcount was flat in the quarter and year-on-year, as we continued to focus on driving consultant productivity.
In our largest division, the rest of the world, which comprises operations in 28 countries and represents 33% of group net fees, we delivered good broad-based growth of 9%, with 17 countries delivering growth in excess of 10% and eight countries delivered all-time quarterly fee records. UFX Germany was up a strong 10% despite tough comparatives. Our largest rest-of-the-world market, France, grew by 8%, while Spain was up 18%, both quarterly records. Within France, our Paris business decreased by 6%, whilst our regional business, which represents 58% of France fees, grew by a strong 19%. In Italy, growth was excellent, up 26%, and while Belgium and the Netherlands remained tough and declined 7% and 9% respectively. Asia delivered strong growth overall of 12%. Greater China, our third-largest rest-of-the-world country, grew by an excellent 21%. Within this, Hong Kong delivered a superb 34%.
Elsewhere, Singapore continued to rebound, up 29%, but Japan was tougher and decreased by 5%. In the Americas, we saw good growth with net fees up 7%. Canada grew a strong 18%, while the U.S., our second-largest rest-of-the-world country, was flat. This was due to tough comparatives and a 15% decline in our largest specialism, IT, offset by an excellent construction and property growth, up 50%. Brazil grew by 2% and Mexico returned to growth, up 15%. Consult headcount in the division was down 2% in the quarter but up 9% year-on-year. Cash flow and balance sheet. We delivered a good underlying cash performance in the quarter with net cash of circa GBP 30 million. This compares to GBP 5 million in March 2018. We've historically delivered strong cash performance in our fourth quarter, and I anticipate this year being similar. Current trading and guidance. I'd highlight six points.
One, looking ahead, we continue to lap tough year-on-year comparatives across our international businesses. Additionally, we remain mindful of the Australian general election in May, which may lead to a short-term market hiatus, especially in the public sector activity. Two, exchange rate movements remain a material sensitivity to the group's reported results. If we retranslate FY 2018 profits at current sterling spot rates, we estimate a - GBP 4 million operating profit currency headwind for FY 2019. This represents a further GBP 1 million negative move since reporting our half-year results and circa GBP 7 million negative from the position at our prelim results in August 2018. Season technical guidance. Easter falls entirely in Q4 FY 2019, while last year it was evenly split between our Q3 and Q4. We estimate this had a circa 1% benefit to our net fees in Q3 FY 2019, with a corresponding 1% negative impact in Q4 FY 2019.
Additionally, there is one fewer trading day in Germany in the fourth quarter. Four, we estimate the exit rate on a working day-adjusted basis was broadly in line with the underlying performance of the quarter as a whole. Five, overall, while we remain alert to more uncertain macroeconomic conditions, particularly in Europe, trading conditions remain positive in most of our markets. Finally, our focus remains on driving consultant productivity while selectively investing in key markets. We anticipate group headcount to be sequentially stable in Q4 FY 2019. In conclusion, this has been another good quarter of broad-based growth in slightly tougher macroeconomic conditions. Performance is led by our international business, but with a creditable performance from the U.K. Our focus remains on driving profitable cash generative growth and leveraging our global platform, the largest and most balanced in our industry.
I'll now hand you back to the administrator, and we're happy to take your questions.
If you would like to ask a question, please press star one on your telephone keypads and ensure that your telephone line is unmuted locally. You'll then be advised when to ask your question. First question comes from the line of Anvesh Agrawal calling from Morgan Stanley. Please go ahead.
Hi, good morning. I just got a couple of questions. First, in Germany, the drop you have seen in autos, do you think that it's kind of approaching trough, or when you speak to the clients, what is the feeling you get? Has it got worse as you move through the quarter? If you just look at the mix of the growth, probably U.S. slowing a little bit, how does it impact the drop-through to the profits? If you can comment on the drop-through rate overall for second half as well for the group. Thank you.
On Germany, without doubt, the biggest change over the quarter was the weakening sentiment in the automotive markets. That represents about 20% of our business. We certainly expected to grow by something like 5% in this quarter, but actually we declined by close to 5%. It's about two-thirds of it. If we were expecting to do something like 9% growth in Germany in this quarter, about two-thirds of that is a reduction in automotive. I think it's far too early to say whether we are seeing a bottom and whether it's further weakness. What we have seen is that reduction has really been across the board. We haven't seen specifically large termination of any projects. That hasn't happened at all.
What we're getting is a lot less growth, and therefore, as projects have come to the natural conclusion, we're getting less growth than we were having to replace those ones that come to an end. I think you can see that across the patch, because both in contracting, which is weak for automotive temp and in perm, we saw that across the board, and across both the primary end automotive customers and the subcontractors. Outside of that, in the rest of Germany, I think we just saw still pretty strong growth underlying, but a little bit more cost control than we had in the previous two quarters. We're still reasonably happy with the performance in Germany. The headcount's in about the right space. We've got good control of the cost base.
Clearly in the end, our growth level is a few percentage points below what we expected both for this quarter and for the final quarter. I think for the rest of the world, of course, that's the hardest one to give a view on things like drop-through, because you've got a large number of countries. There's 28 countries in that market. Our growth still held at a creditable 9% like for like for the quarter. Whilst the drop-through will be slightly better than we achieved in the first six months of the year in the rest of the world, because our headcount is in a better space, it's nowhere near similar to the drop-through we had a year ago.
How should we think about drop-through?
I think similar-ish to the first half because in the end, what have we got? We've got a bit less fee growth. Our cost base is in a better position. If you think through the first half of the year, had the weakness that we saw in September, and since September, the guys out in the field have done a great job in adjusting our cost base just through natural attrition into about the right space. Overall, our consult headcount is up 5%. Our fees on a working day adjusted basis are up about 5%. I think we're doing a pretty good job. I think therefore, a drop-through of around 20%, I would have thought is likely to be there. Accepting that, of course, we've got a hell of a Q4 to come. Q4 is the biggest quarter that we have.
There's a lot of activity that needs to take place. We need to drive a lot of fees. Sitting here today, I think something like 20% drop-through.
Okay. That's clear. Thank you so much.
The next question comes from the line of Paul Checketts calling from Barclays. Please go ahead.
Morning. I've got three questions, please, Paul. The first is, I suppose on Germany and Australia, for me, the question is whether the weakness is seen in autos and engineering and construction and property in Australia spreads into the other segments. Would you give us your thoughts on what you're seeing on that, please? The second is around working capital. In the past, we've always thought that if you're growing the contracting business in Germany strongly, it consumes working capital. If it's growing a bit slower, does that work in reverse? If you just confirm that. Lastly, I know it's relatively small, but those U.S. numbers that you quoted, IT flat and construction up so strongly, could you flesh out a bit what's going on there? Because obviously, more generally, we're seeing the construction and property segment in the U.S. slow somewhat. Thanks.
Yeah. I think on Germany, I think the backdrop to it is three to six months ago, there had been some weakening in the external German data, but most of it was believed to be technical. If you remember back to the weak GDP that was in September, a lot of the commentary then was about, it was all about the fixing of the diesel engines. This was short-term, and there will be a return to strong growth. Of course, that didn't happen in the last quarter of 2018. On top of that, you've seen some very weak PMI data. For most of you who follow the staffing space, PMI indices are the best forward indicators. That doesn't mean, Paul, that 44 is frightening. We grew at 5% underlying in this quarter.
I'm very confident we will continue to grow in the next quarter and into next year, sitting here today. There is no doubt that what we're seeing is most of the larger manufacturing companies have suddenly got very cautious about investment over the next three, six, 12 months. We discussed on the previous call the main reasons for that. Without a doubt, trade war, A, between the U.S. and China, which has now been going on for almost a year. B, the expectation that even if that issue gets resolved, that the U.S. will now take on Europe, is of course a big concern for German companies. 50% of GDP in Germany is export related.
I think if you actually look at a number of articles that have come out of Mittelstand, what they've started to see is a weakening of their forward order books, specifically coming out of China, but other parts of the world. I think therefore, with that as a backdrop and the second backdrop of four or five very strong years of growth in Germany, our clients have just dabbed the brakes. We saw that originally, of course, in September, where we saw a weaker September in Germany and across Europe. Secondly, in the renewal of the contractor base coming after Christmas, where our contractor level, the renewal was about 3% lower. I think we've seen a bit more here. We've seen not one sign of any distress in the German market.
We've had no projects canceled ahead of their time, so all of that is positive. We continue to grow in Germany. What is clear is that after four to five very strong years, very strong economic backdrop and good growth, we're seeing slightly weaker at the moment. I think if you stand back, all the structural reasons for growth are positive in Germany. I do think for the next quarter or two, until our clients get a better view as to where the tariff issues are going, they are deciding to be a little bit more cautious on investment. I think with all of the economic backdrop in Germany, that makes sense. Coming on to ANZ, I think that's in a very different position because construction property, we've had an absolutely massive boom over a six-year period of time. This isn't been a normal upcycle.
This has been phenomenally strong. Of course, that has benefited us significantly. I think we've done a very good job this year to be growing at all when we've had our largest specialism that was not far off 30% of our business a year ago, in decline. What the guys have done in the IT space has been really positive, and that continues to give good growth. I think the mix in Australia at the moment, as you said, the retail data is weak. There's a lot of concern as to why there hasn't been a larger increase in wage levels, et cetera. That's not just a U.K. phenomenon, it's a global one. I think we've still got a reasonably measured economy in Australia. Again, I'm not seeing any real signs of distress other than the pre-planning and planning phase of construction.
We're now seeing significant declines, as we expected. I guess the context for this is our five-year plan from Australia had 4%-9% growth. We grew at 14% in the first year, and we will be growing within that band for the whole of this year. The only specific uncertainty we have at the moment is the election with an expectation of a change in government, and we've been in Australia since 1976, so we'll deal with it. That of course, has a slightly bigger impact on our business. You're completely right when you flow through into working capital, and I think you can see it in these numbers already.
Our guys continue to do a very good job, our cash position is higher than it was a year ago and in part, unfortunately, some of that is we haven't got as much contracting growth and therefore, our cash generation is higher. If you actually look through what we've been able to do over the last couple of years in the fourth quarter, which is a beautiful period of time, little or no corporate taxation going out, few of our clients have a June year end, whereas around December, we always have games played against us. If we deliver the same sort of uplift in Q4, without a doubt we would have a record cash performance and year-end cash balance. Certainly a record in my 13 years as FD. I think all of that is a positive.
I'd rather have higher growth, of course, and more working capital, but that's life. Coming on to the U.S., I think the question is correct. Actually, the slight weakness that we saw interestingly goes back to November, December and January. The positive is that we've seen a really good exit in the end of Feb and in March in the IT space. Construction continues to be strong. We are too small to be seen as a bellwether on the U.S. construction property market. Whilst we are probably now already number one in the market, our business could still be 50 times bigger. We're not a call on that marketplace, but the business is doing very well.
Of course, the fact that we can bring experts in from various parts of the world, out of the U.K., out of Canada, out of Australia, then ally that to a lot of local hiring, I think that business is doing very well. On the IT space, it was actually in the contracting numbers that we saw a bit of weakness, as I said, kind of October, November, December and January, a good pickup since. I'm very confident that we will grow in the U.S. in Q4 and deliver a better result than we've got here. I think it's a sign that what we've had over the last three, six, nine months is we've kind of got rolling surprises in a number of countries.
On the basis that of our 33 countries, I would say we're delighted with the management in about 31 or 32 of them. I think it's a sign that, you know what, there's a little bit more cautiousness around a number of countries in the world, and we've certainly seen this over the last six to nine months.
In the past, we've talked about in Germany, if it was slower growth, that some of the levers you could pull would include opening the new branches, locations less quickly. Are you at that point yet or is it more continue until there's more information?
No, we continue. Paul, we are the market leader in Germany by a hell of a long way. We are as big as two, three, four, and five put together, and in absolute growth money terms, we'll have still delivered the highest growth in kind of absolute size in this quarter. For us, we have a one-off opportunity to dominate that market, and we will continue to invest in it. We've got a great team there. All of you have met that team over the investor days and everything else. This is just a slightly tougher market, I have no doubt that there will be a point in the not too distant future that we'll return to strong growth again in Germany. The long-term opportunity is undiminished. We may just have a bit of short-term weakness.
Right.
The next question comes from the line of Rory Mackenzie calling from UBS. Please go ahead.
Hey, morning all. It's Rory here on behalf of Bilal Aziz. Firstly, just on the comment you made that Australia slowed throughout the quarter. Was that just on the tougher comps month-on-month, or did you detect a further drop in activity levels as we get closer and closer to that election? Secondly, with the headcount down 1% in the quarter, I guess you referred to not replacing that attrition at the start of the year. Did you say you want to now hold this level sequentially into Q4? What would that imply in terms of the year-on-year trend for headcount, please?
Yeah. That's a blast from the past, Rory. Good to hear from you. On Australia, it's all about tougher comps. We have battered the phrase tougher comps and Australia in the same sentence for about the last eight results because it's true. A year ago, we were growing at phenomenally strong double-digit growth across both Q3 and Q4. We were always going to slow as we came into this period of time. It is primarily tougher comps. The activity levels remain pretty good. We naturally will see it. We're already seeing the first signs of kind of, you almost kind of get a lockdown on perm hiring in the public sector. That has already happened. It's why I said early on that March was an all-time record fee performance for us in Australia. Not a record since the crash.
This is an all-time record for March, I think that's again, a sign that the guys are doing a good job. Clearly, the market is slightly slower than it was a year ago, fees are 2% or 3%, headcount up 5% year-on-year, probably in about the right space because your productivity's always going to be a little bit lower when decision-making slows a bit. I think the market's in a pretty decent space, but the construction property part has further to run because, of course, the nature of construction is that we see it in the front end first. We see it in planning, we see it in architecture, we see it in quality and quantity surveying, and then it rolls through. House prices in Sydney and Melbourne, for example, are down about 10% off peak.
It depends where you look at these things because they went up by 40% and now they've come down by 10%. All we're seeing is slightly slower growth in the Australian market. Interestingly, now, some talk overnight from the central bank of potentially some sort of interest rate reduction at some stage because of course they have increased interest rates. I think you can kind of understand that there. If you look at the SEEK data, SEEK are the dominant job board, we're the dominant recruitment company, and they're down about 4%, which is primarily perm, and we're down 4%. I think that's kind of aligned with the market. I think we're doing a good job. I think we're quite happy with headcount.
Coming to the overall growth of headcount, I think there's still a little bit of time to go yet because, of course, all we've done today is at our businesses. We know what our businesses are looking to do in April and May and what they want to do in June. The final decision and timing on June will be made over the next few weeks. I think we'll be broadly flat across this quarter, and that means that our headcount growth, I don't have the absolute number at year end, rather than being 5%, it's more likely to be 4% or 3%. I think for where we are at the moment, that's okay. We would rather focus on driving productivity where the markets are there. If we had greater certainty on the U.K., we would be looking to increase headcount in the U.K.
For obvious reasons, that doesn't make a lot of sense at the moment, and we will simply drive profitability in the U.K. market. We're happy with where we are on Germany, and we're still minded, if anything, to increase headcount growth in Germany rather than reduce it. Whereas I think in Europe and the rest of the world. After what we saw in September, we decided to be more cautious. We've got more than enough productive capacity in our business today to do something like 5% fee growth with what we've got, what you're adding headcount for where you think you will be in a year's time. At the moment, I think we'll be more cautious today, drive profitability, and then when we come to the end of the year, that will give us a position then to push on with headcount for next year.
Great. Thanks, Paul. Very happy to be here while Bilal is already taking advantage of Easter being in Q2 already. Thank you.
The next question comes from the line of Hans Pluijgers, calling from Kepler Cheuvreux. Please go ahead.
Yes, good morning, gentlemen. A few questions from my side. First, looking at Germany, you are indicating that especially bigger clients are holding back. Automotive, especially, you see some weakness. Is that mainly visible, let's say, in that conversion rates are coming down? Or do you see also the number of vacancies requests are coming down? More in general, also in Germany and the rest of the world, what are your key KPIs telling you through the quarter in Q3 and, let's say, for the beginning of Q4, especially looking at vacancies, conversion rates, and candidates availability? Then second question on the fee earners. You indicated to be flat. Should we expect the same development as we've seen in Q3? Across the board, about the same development, or do you still see some opportunity to grow?
Do you expect maybe also some other regions where you maybe should reduce your fee earners or more?
Start with the last one first. I think we're pretty happy overall with where the headcount is. If underlying fee growth is 5% and consultant headcount growth is 5%, we're in about the right space in most of the markets. I think one of the beauties, Hans, in this business is we've got world-class operators across the world, and we adjust very quickly, and I think that will continue. They are the guys in the best place to determine what to do on headcount, and Alistair and myself leave it predominantly to them to decide what they want to do. Even within that, of course, we'll have big shifts. Take in Australia, we've added about 100 consultants into our IT specialism over the last 18 months. About 10% of our business, we've shifted into that space.
You can see that now in the significant growth that we've been able to deliver on a consistent basis for the last year. Whilst at the same time, of course, we're reducing the headcount we have in construction property. Underneath the hood, whilst it might look very stable at the top level, underneath the hood, we're repositioning. We're bringing new people into growth areas. We're allowing in the tougher areas for natural attrition headcount to reduce slightly. I see that continuing. I don't think this would be the right point to suddenly say, "You know what? We're going to increase headcount by a further 5% in the last quarter." Equally, it would be the wrong decision to say, "We're going to reduce it." I think neither of those are appropriate. What's nice at the moment, everywhere around the world, this is a very measured recruitment business.
We are seeing no signs of distress in any country anywhere in the world. I think one of the benefits, I'm not sure benefit's the right word, but one of the benefits of what all of our clients and ourselves have been through over the last 10 to 15 years is we're used to change, and we're used to things changing very rapidly. I think our clients are on top of that. We're on top of that. We have constant discussions with them, et cetera. Pretty happy where the headcount is. Don't expect to see much change in the fourth quarter. On Germany, it's a bit of both. Where you are right to ask about conversions is that we're having to do more prospecting work now to get each incremental piece of business.
We kind of, like most of this, you have prospective even more in the kind of as we've opened up all these regional offices in the Mittelstand, so outside of the bigger clients. We're having to do more prospective work, prospecting work to get each job through than we were six or nine months ago. That's something like 8% more work we have to do to get each job in. That's part of this. We've got to do more work to get there. Secondly, it takes a little bit longer to kind of close those deals. All of that, I think, is a sign that the market is getting a little bit more cautious. I think for us, we've seen that in the longer-term areas of the business. Perm has come down from growth of 20% to about 7%. Contracting is 3%.
Whereas the temp marketplace, which gives a bit greater flexibility, of course, whilst it's still very high in salary levels, we saw growth of 14%. I think just a little bit more cautiousness and pretty much across the board. I think our guys have done a good job in converting the opportunities, but it's certainly harder to convert them than it was a year ago.
If you look, let's say, at the rest of the world, you could give some indication also on the KPIs, conversions, and the vacancies?
Yeah, pretty good, actually. In many respects, I think the rest of the world, outside of the U.S. comment I made earlier on, the growth level there is very much in line with what we've done in the previous quarter. Maybe 1% lower than I would have liked in an ideal world, but I actually think the performance was pretty consistent across the board. I think we saw that in France, I gave a bit of color earlier on. I think a common theme from all the recruiters is we're still getting impacted by some of the demonstrations. Our building in Haussmann was completely bricked the first time. We've had to have hoardings up on pretty much every weekend now for the last two or three months. The nice thing is we've built a very large business in the regions.
We've been building that over the whole of my time here now. It's not far off 60% of our business, and it grew by not far off 20%. I think we're doing all the right things. Actually, I think Northern Europe manufacturing heartland, more cautious for obvious reasons. The rest of Europe, continuing to feel reasonably confident, good opportunities for growth. Within Asia, still good opportunities for growth. Our business in Greater China has had another stonking performance. It will be very close to hitting the GBP 10 million kind of seminal profit target this year. Both the business in Hong Kong, where I was about three weeks ago now, doing very well. Both South China in Shenzhen and Guangzhou doing well, but also in Shanghai and Beijing. I think we're doing well in that marketplace.
I think that's probably the region that is the clearest in here. The only part I would say we're seeing a bit more cautious in is in the whole of Northern Europe.
Okay, thanks.
The next question comes from the line of Steve Woolf, calling from Numis Securities. Please go ahead.
Morning. Just one from me. Just a bit more commentary on Japan, which seems to be a little bit standout in terms of the negative fee growth for this period. Just any more color you can give on that, please.
Yeah, I think that's one of those kind of classics. There's a bit of the market, and there's a bit of us. Without a doubt, we saw that in the pharmaceutical, in the manufacturing space, which again, have more exposure to export, we still had a weaker quarter in there. For us, that translates into some part of recruitment in the professional specialisms as well. That part of our business is probably about a quarter of our business in Japan was quite a bit weaker. Equally, though, I think the Japanese marketplace is in a reasonable position. I think I was in Tokyo and Osaka three weeks ago, and we've got a lot of guys and girls doing a good job driving the business forward.
I think without a doubt, the manufacturing part of it has been hard, and that's been quite heavily backwards and has impacted our overall growth. I'd expect to return to growth certainly within either the next quarter or the one after that. There's enough activity in the market for us to grow, I think it's a bit of market and a bit of us.
Perfect. That's great. Thank you.
Before we take the next question, please be reminded, if you do have a question, please press star one on your telephone keypads and ensure that your telephone line is unmuted locally. The next question comes from the line of Rajesh Kumar calling from HSBC. Please go ahead.
Morning, Paul. Appreciate you've given a lot of color on the German growth rate. Can you incrementally add some color on the volume trends you're seeing in Germany in terms of the number of contractors you're placing, number of temps you're placing or recruitment? Anything that can give us a better handle of what's the differential between value and volume growth rate in that market.
There's no doubt that we continue to see a reasonable level of wage inflation in Germany. I think in our own space, remember, we're a very large business. I think if you took across the whole of that, we've got to be in the 3% sort of level. We've kind of got 2%-3% volume. We've got 2%-3% pricing. Other than that, probably, I probably covered all the other bits early on without repeating. Automotive manufacturing weaker. Professional services, banking, still reasonably good position. I'm not sure I'd have anything more than that, really. We certainly didn't see in the exit rate in Germany, is in line with kind of around 5%, so we didn't see anything different in there. Our margins have continued to be stable in Germany.
That's probably the only bits of color I could give you, Rajesh.
Thanks. Just on the wage inflation figure you're using in that estimate. When you had your double-digit growth in Germany, would you say that your volume growth was running between 7%-8% and that has tapered down to 3% now?
Yes. Without a doubt, the only shift has been in volume, Rajesh. If the question was, are we seeing a reduction in wage levels or increases? No, not at all. We're back to Germany is significantly short of IT professionals and engineers. There's about 80,000 shortage of individuals. That's been part of the backdrop on which we built by far the best recruiting business in Germany, and we dominate the IT and engineering space for a nice part of that. It's a significant skill shortage. The only thing that is different today versus, let's say, two years ago, is you've got a global spat on tariffs between the two largest economies in the world, which represent 33% of GDP. The U.S. is threatening to bring in Europe into that, which combined would represent 57% of GDP.
You have that, then specifically within the automotive space, all of the issues on diesels, all the investment that's having to go in the electric and everything else. I think we're seeing, and understandably, a bit more cautious from our clients this quarter than the previous quarter, but it remains very measured. I think all we're seeing here is a slight hiatus of growth. I have no doubt that over a longer time horizon, we will return to very strong growth levels as well, because the structural opportunity is undiminished.
Thank you very much.
The next question comes from the line of Rahim Karim calling from Liberum. Please go ahead.
Good morning, gents. One question from me on the U.K. I guess the private sector kind of momentum is understandable given the backdrop, but I was surprised to see how strong the public sector was. It's just useful to get any additional color you can provide on that. Is it IR35 rolling off or what is it? Perhaps your thoughts on what we should expect in terms of public sector split over in the fourth quarter.
Look, I think there's more money being spent in the authorities is the bottom line. There's no doubt that central government has tried to ensure that there's been a bit more funding into the NHS. The NHS is, of course, not one client. It is 636 authorities. We saw a massive reduction in activity levels over a three to four-year period of time, where our overall fee levels went from something like GBP 12 million down to about GBP 5 million. We're back up to something like GBP 7 million today. Actually, it's across the patch. We've seen the improvements in central government. We've seen improvement in initiatives. We've seen an improvement in the public sector for us. The largest growth area has been IT and property. We've seen a big pickup in IT initiatives.
I think it's also back to why we have the biggest and most profitable recruiting business in the U.K., is that when times were tough in the public sector over three or four years, we hung tough in all of the markets. We maintained very strong relationships with all of those authorities. We simply said to them, "When you have some money to spend, we'll be happy to help you." I think the good news is all those relationships have come to bear, and that with a little bit more money. There's no doubt that the local council market remains difficult, and there is still significant squeeze on funding there. Of course, education, for which we're the market leader, remains a hard marketplace. Outside of that, a bit more money. We continue to grow.
This may well be the high percentage, Rahim. It's got nothing to do with IR35 now. We dropped that one from this stuff. I do think that this has been a strong rebound. Of course, there is often a situation in authorities when you come to the end of a fiscal year, that if they have any money left, they like to get on and spend it, and we've certainly seen a pickup in activity across the January, February, March timeframe. I think we'll see a more measured I think we'll continue to grow in the public sector, but I think it'll be more measured. The key, of course, is the private sector.
Overall, I'm happy with -1% because I think with the sheer amount of turmoil that's been in place over the last two to three months, I think the fact that we've kind of held a very large business together across the whole of the U.K. is good testament to our operators. Again, it's back to that nimble thought. We've got flat headcounts overall, but we've got a number of areas where we're increasing headcounts, a number where we're reducing. I think the U.K. is going to be another subdued quarter. We've clearly got Easter negatives, so the headline will be lower.
I do think it'll be a subdued quarter just because it'll be fascinating to see whether all of the fun at the end of March, fun being in inverted commas, as to how much of that kind of leaches into the underlying economy. So far, we've seen nothing, so we started April okay. We're delighted with the results, and we're delighted with the profits we're able to drive off that. I would take another quarter like that in a heartbeat.
Okay, great. Thank you very much, and have a great Easter.
Thank you very much.
We have no further questions in the queue, so I'd like to hand the call back over to your host for any concluding remarks.
Thank you. If that's all the questions for today, we'd like to thank you all again for joining the call. I look forward to speaking to you next at Q4 FY19 results on the 16th of July. Should anybody have any follow-up questions, David, Charles, and I will be available to take calls the rest of the day. Thank you very much and have a great Easter. Thanks. Bye.
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