Hello, and welcome to Hays Q2 quarterly update. My name is Amelia, and I will be your coordinator for today's conference. For the duration of the call, you will be on listen only. However, if at any point you require assistance, please press star zero on your telephone keypad and you will be connected to an operator. I will now hand over to your host, David Phillips, to begin today's conference.
Thanks, Amelia, and good morning, everyone. Welcome to Hays quarterly update conference call for the three months ended 31 December 2018, our second quarter of our financial year. I am David Phillips, Head of Investor Relations, and I am here with Paul Venables, Group Finance Director. Before we start, please be aware that this call is being recorded and that the recording may be accessed using the number and code provided in the release. You should be aware that the 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 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 will now hand over to Paul.
Thank you, David. Good morning, everybody, and thanks for joining us. I will summarize the highlights of today's update, cover the key themes, and discuss our regional performances before taking any questions. As usual, all net fee growth % I give for the quarter will be on a like-for-like basis versus prior year. Highlights of the results. I am pleased to report we have delivered another good quarter performance with group net fees at 9% against an increasingly tough year-on-year comparative. Currency translation continued to have a negative impact and reduced headline net fees by 1% in the quarter. I would highlight the following key features in the results. First, our performance is again broad-based, with 17 of our 33 countries delivering double-digit growth, including eight all-time quarterly records. Second, growth is 9% in both our temp and perm businesses.
Third, Australia delivered strong growth in net fees of 10% versus increasingly tough comparative, has extended its run of consecutive growth quarters to 18. Four, Germany delivered strong growth of 15%, or 12% underlying, adjusted for working days. Our temp and contracting business grew 13%, and we saw continued excellent growth in perm at 26%. Five, the U.K. and Ireland delivered another solid performance with growth of 3%. This was driven by 12% growth in our public sector business, in part due to easier comparatives. Private sector net fees were flat. Six, performance in the rest of the world was strong at 10%. Within this, Asia and Americas were the standouts, delivering growth of 18 and 15% respectively. Europe ex Germany grew 6%, with Southern and Eastern European countries performing those in Northern Europe.
Seven, group consultant headcount rose 2% in the quarter, in line with expectations, and 7% year-on-year. We continue to make selective investments in markets where we see strong growth opportunities such as Germany, the USA, and Asia. In line with our long-term plan as we opened a net three new offices in the quarter. Eight, our cash performance has been good. After paying GBP 113 million in dividends in November, we ended 2018 with GBP 30 million net cash, similar to 2017. I'll now comment on the performance by each division in a little more detail. ANZ. Our ANZ division, which represents 17% of group net fees, delivered another good quarter with net fees up 8%, despite tough comparatives. This was our 18th consecutive quarter of growth. Our temp business was up 11%, with perm continuing to be subdued at 1%.
Public sector net fees grew 11%, with private sector up 7%. We saw another strong performance in Australia with net fees up 10%. Growth is broad based across most states. In both New South Wales and Victoria, together 56% of Australian business net fees grew 10%. Queensland, our third-largest state, delivered growth of 12%, and South Australia 9%. ACT grew by 11%, although Western Australia fell by 2%. At a specialism level, net fee growth in IT was again excellent at 30%, and Office Support grew by 13%. Construction & Property, our largest business in Australia, declined by 4%, and Accountancy and Finance by 5%. In New Zealand, which represents about 5% of ANZ, our growth remains below expectations and net fees fell by 21%. As outlined last quarter, we've taken actions to improve our performance. Headcount in ANZ increased 2% in the quarter and by 11% year-on-year. Germany.
Our largest business, Germany, which represented 27% of group net fees, grew by 15%, or 12% underlying for working days. Given our scale in Germany and an underlying growth comparative of 23% in Q2 last year, this was a strong performance. Our temp and contracting or flex business, which together represented 84% of German net fees, grew by 13%. Contracting was up 5%, while temp delivered excellent growth of 32%. Perm, which represented 16% of German net fees, continued its run of excellent growth at 26%, the 12th consecutive quarter we've delivered growth in excess of 20%. Our largest specialisms of IT and engineering, which represented over two-thirds of net fees, both grew by 11%. Accountancy and Finance was again excellent at 28%, as was Construction & Property at 21%. Sales and Marketing grew by 17%. Consultant headcount increased by 3% in the quarter and was up 3% year-on-year.
As previously flagged, we expect a much smoother profile of headcount additions throughout FY 2019 compared to last year, which saw our consultant headcount growth heavily skewed to half one. U.K. and Ireland. In U.K. and Ireland, which represents 23% of the group, we delivered a solid performance, particularly given economic uncertainty, with net fees at 3%. This matched our Q1 growth rate. Our temp and perm businesses grew by 4% and 3% respectively. Growth was led by our public sector, which represents 28% of U.K. and Ireland, and rose 12%. Within the public sector, temp grew 9% and perm 18%, and growth in the private sector was flat, with temp and perm delivering similar rates. Although underlying public sector activity has improved slightly, some of our growth is down to easier comparatives as markets were artificially low this time last year due to IR35 rule changes.
All regions traded broadly in line with the overall business, with the exception of South West and Wales and North West up 14% and 9% respectively, and Scotland and the Southeast down 15% and 8% 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 grew strongly at 13%, Accountancy and Finance 3%, Office Support 2%, whilst Construction fell by 1%. Education continues to face tough market conditions and declined 10%. Consultant headcount was flat in the quarter and year-on-year as we continue to focus on driving consultant productivity. rest of the world. Our largest division of rest of the world, made up by 28 countries and representing 33% of group net fees, delivered strong growth of 10%, and eight countries delivered all-time records.
Europe ex-Germany was up 6%, despite increasingly tough comparatives. Our largest rest-of-the-world market of France grew 3%, while Spain delivered a strong quarter at 19% and Poland up 16%. However, Belgium had a tough quarter and declined 14%. Asia delivered strong growth overall of 18%. China, which includes our Hong Kong business and is our third-largest rest-of-the-world country, grew by an excellent 33%. Within this, Hong Kong delivered a superb 41%. Elsewhere in Asia, Japan was tougher and fell 6%, but Singapore returned to growth, up 25%. In the Americas, we also saw strong growth, with net fees at 15%. The USA, our second-largest rest-of-the-world country by fees, grew 10%, while Canada delivered an excellent 28%. Brazil declined 2%, while Mexico fell 20%. Overall consultant headcount in the division was up 2% in the quarter and 13% year-on-year. Cash flow and balance sheet. Cash generation in the quarter was good.
We ended the period with net cash of GBP 30 million, in line with prior year. This was after paying GBP 113 million in core and special dividends in November 2018. We also extended the maturity of our GBP 210 million unsecured revolving credit facility in November at attractive rates of 0.7% - 1.5% over LIBOR. This is in place until November 2023, with potential options to extend by a further two years. Current trading and guidance. I'd highlight six points. Our group net fee exit rate was broadly in line with the quarter as a whole. Considering the increased economic uncertainty, activity levels at the start of the new year and the 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. Looking ahead, we continue to overlap tough year-on-year growth comparatives across our international business.
We are also mindful of the likely Australian general election in April/May and the impacts that may have in that market. Four, 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 negative GBP 1 million operating profit currency headwind for FY 2019. This represents a negative swing of GBP 4 million since we reported our prelims. Via some technical guidance, Easter falls entirely in Q4 FY 2019, whilst last year it was evenly split between our Q3 and Q4. We expect this will have a 1% benefit to our net fees in Q3, with a corresponding 1% negative impact in Q4. Finally, overall, while we are alert to macroeconomic conditions, our outlook is good across most international markets. We will continue to invest in key structural growth markets like Germany, USA, and Asia.
We anticipate sequential growth in group headcount to be broadly similar to the 2% delivered in Q2. In conclusion, this has been another quarter of broad-based growth led by international businesses, but with a creditable performance from the U.K. Our focus remains on driving profitable net cash generative growth and leveraging our global platform, the largest and most balanced platform in our industry. I will now hand you back to the administrator, and we are happy to take your questions.
If you would like to ask a question, please press star one on your telephone keypad. If you change your mind and you wish to withdraw your question, please press star two. You will be advised when to ask your question. We have the first one from the line of Rory McKenzie from UBS. Please go ahead.
Morning all. It is Rory here on behalf of Bilal Aziz. Two first, please, on the European regions. Firstly, within Germany, the temp business accelerated quite strongly, I think. So can you give any more detail behind that? Secondly, you mentioned a slowing in Northern Europe. Any verticals in particular you would call out within that?
Yeah. If I take Germany first, I think first of all, we were very pleased with the German results. It's pleasing on several aspects. One, after a weaker September, we saw very strong perm growth across the quarter. I think that's removed one uncertainty. Secondly, within the contracting and temp business, actually, our volume growth improved across the quarter. Very happy with the German results. Clearly, temp gets a disproportionate benefit of the increasing working days, Rory, because not only do we get a pickup in more margin, but we also, of course, when we have reduced days, we have to pay for the temps, so we get a double whammy. Combination, I think the more important statistic is overall temp and contracting is up 13%, and we're really happy with that.
On Northern Europe, I think generally we've seen more of a weakness in the industrial manufacturing heartland across Northern Europe, and that was a point that we discussed on the last quarter, and it continued into this. Within places like France, where we still think on the background of having more than doubled the business over the last four years and outperformed our competitors, growth of 3% is less than we had before, but a pretty credible result. We've seen a specific weaknesses within the Life Sciences and a reduction in temp numbers, but overall, still growing and still a pretty good performance.
Okay, thanks. Just on Australia, you still describe favorable conditions today. I was just wondering if you're worried yet about any of the lead indicators or just kind of worried ahead of the potential election impact, kind of your thoughts on that market there.
I think one of the key parts there, Rory, is that our Construction & Property business, which is 28% of ANZ, was down by 4%, and that's the second quarter where we've been down. The best way of looking at that backdrop is after a very strong acceleration in activity over the last three to four years, we've seen a weakening in the residential space. The good part is that we're seeing an increase in activity in commercial construction infrastructure, but there's no doubt there's a little bit less activity than we had six or twelve months ago. We're mindful, we read the industry statistics such as you do. There's a bit greater uncertainty in Construction & Property. Outside of that, I think it's all about the run-up to the election. Strong performance in Australia, growth of 10%.
We've been growing at two times the growth of our basket of competitors now for the last three to four years. A very strong comparatives we're up against. Good, solid performance, but there's no doubt it's slowing slightly.
Okay. Makes sense. Thank you.
The next question comes from the line of Anvesh Agrawal from Morgan Stanley. Please go ahead.
Hi, good morning. Just got a couple of questions. Just following on Germany, obviously the mix of growth shifted from contract and temp. Can you just say in the business similar and can you manage it with your existing headcount, i.e., the headcount that you have put in the business can manage both contracting and temp businesses? Second, again, on the headcount perspective, obviously there are a few headwinds to the growth from a macroeconomic perspective. At the same time, you look to continue to invest into these structural growth markets. How do you balance that from a productivity perspective? How should we think about the conversion margins this year? Thank you.
The two parts, I might have missed part of your question on the headcount and temp and contracting, but I think the better way of looking at it is we increased headcount by 3% in the quarter. That's the increase in productive capacity we have put in, and that gives us enough capacity to be growing this business at about 10%. We would expect to continue that sort of trend if we go into Q3 and Q4. I think on a headcount growth, we've always been very explicit about which of the key countries that drive the profitability of the group and where we have supported conditions in those markets. Germany is one of those, and the U.S. is one of those, and parts of Asia are one of those, then we've always been on the front foot in putting investment in. France is another good example.
France is a key country for us. It's driven significant profitability growth over the last few years, but clearly growth is slower at the moment and therefore, we are more mindful to be very modest in any headcount growth and focus on cost control. We're always trying to do the right thing for the long term of the business, but we've also been a business that's believed in driving profitability as we go along. The overall question about drop-throughs, all I can really give at this stage is where we are for the first half. The context for this is the three or four factors. First of all, of course, as we've outlined over the last year, we've expanded a number of properties over the last year.
When we do that in our major markets, we look to give productive capacity from between 10%-20% in any expansion. We've had an increase in property cost. We've got a number of system projects on the go at the moment, both front and back office. When you add that together with, of course, within the rest of the world where we have had slightly weaker growth in Europe, and therefore we've got headcount growth ahead of fee growth, we would expect drop-through in the first six months to be something like 20%. Coming to the second six months, that's really all driven by the return to work. We're in a very good position. We've got very tight cost control. Very happy with the headcount we've got for the business. Like every other year at this point, the return to work is important.
We will have an internal clear view on that by the end of January, and of course, we'll give you detailed color on that when we do the interims at the end of February.
Yeah, assuming, let's say, a normal return to work, is it fair to assume the drop-through in second half touches somewhere around 30% or so?
I said 20% for the first six months.
Yeah.
Yeah. If we get a normal return to work. With growth levels at this or slightly higher, we'd expect to see a slightly improved drop-through in the second half of the year. As we've always discussed, that in part is dependent on where the mix of growth comes from. For example, we are very happy with our U.K. performance in the first six months. 3% growth with the backdrop we've got. Of course, with that, we can drive good profit growth.
Yeah.
It's a combination of where the mix of growth will come from in the second half and where the absolute growth level will be. We'll be in a much better position to give you some guidance when we get to the end of February, but for the purpose of today, we've had about 20% drop-through in the first six months.
Okay. That's very clear. Thank you so much.
The next question comes from the line of Sanjam Sriram from Reuters. Please go ahead.
Hi there. I had a question specifically in regard with the U.K. market and Ireland, and regard with Brexit and how that is affecting hiring as such. Has it slowed? Has it frozen, are companies more reluctant to hire? I wanted to know on this perspective.
I think, look, we're happy with the performance of our U.K. business, and at the moment, the business remains in very stable conditions. We delivered 3% growth in Q1. We delivered 4%, a 3% growth again in Q2, and we're very happy with that performance. Clearly, we are at lower levels of absolute fees than we were a couple of years ago. There is good enough stability in the moment for us to drive fee growth and profit growth. Clearly, we all look to see what will happen in the next three to six months.
All right. A follow-up one. Are you specifically seeing jobs moving out of London to other EU countries, especially with the finance roles or anything of that sort? Are you seeing anything?
If anything, it's very minor. Again, this is a question we've covered mainly on the press side, which is where you're from, over the last few years. Anything we've seen is really around the edges.
Okay, thank you so much.
The next question comes from the line of Steve Woolf from Numis Securities. Please go ahead.
Hi, guys. Just in trying to sort of put the jigsaw together in a sort of compare and contrast way. There's three markets which I'm sort of getting a little bit stuck on at the moment, and there's Japan, China and Mexico, and the performances are across that with peers. I was wondering, could you provide any color on trading conditions there that you might be seeing versus others? Maybe even market positioning, that you think where you are different to others, if that's possible.
I think Mexico is easiest here. We've got a relatively small business. When you've got a relatively small business, any small changes can have quite an impact on that fee. It's not significant in our overall group position.
Sure.
Japan, after again, a few good years worth of growth, this was just a poorer quarter. We'll take all the actions to try to drive fee growth, but there's nothing fundamentally wrong with the Japanese economy. I think the China performance was absolutely superb. It is our third largest country within the rest of the world. The really pleasing part of it, we had strong growth across mainland China, which of course has an industrial base as well as finance and legal, et cetera. We also had very strong growth in Hong Kong, which is more around financial services. We are really pleased, very much in line with the strategy we've set out, supported by headcount investment. It's becoming a meaningful part of our group.
I think, the most important of those, certainly from profit perspective, are Japan and China, and the upsides in China more than offset any weakness in Japan.
Within China, it's still multinationals. It's more sort of multinationals in rather than the Chinese multinationals, as it were, or Chinese international out, if that makes sense.
We're increasingly diversifying our business as we go across a period of time. For example, Alibaba is a really good customer of ours. We started off, like most companies going into China, with predominantly Western companies and bilingual Chinese nationals. As you build a business over a long period of time, and we've been in China now for almost 10 years, we are now increasingly growing the Chinese element of that business. That's an important part of our growth going forward.
Perfect. Thank you.
There are no further questions. I will hand you back to Paul Venables for any concluding remarks.
If that's all the questions today, we'd like to thank you all again for joining the call. I look forward to speaking to you at our half one FY19 results on 21st of February. Should anyone have any follow-up questions, David, Charles and I, we're available to take calls for the rest of the day. Thank you very much.
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