Hello, and welcome to Hays Q1 Analyst Call. My name is Emilia, and I'll be your coordinator for today's conference. For the duration of the call, you'll be on listen only. However, you'll have the opportunity to ask questions. If at any point you require assistance, please press star zero on your telephone keypad, and you'll be connected to an operator. I now hand over to your host, David Phillips, Head of Investor Relations, to begin today's conference. Thank you.
Thank you, and good morning, everyone, and welcome to Hays Quarterly Update Conference Call for the three months ended 30th September 2018, the first 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, and 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 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, and thanks for joining us. I'll summarize the highlights of today's update, cover some of the key themes, and discuss the 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 of the results. We delivered another record quarterly net fee performance, with group net fees up a good 9% against a tough year-on-year comparative. Currency translation continued to move adversely and reduced headline net fees by 2% in the quarter. As a reminder, our main sensitivities are sterling versus Australian dollar and euro. Movements in these currencies since our prelims in 2018 would mean that if we retranslate our FY 2018 profits of GBP 243.4 million, at ninth of October 2018 exchange rates, our operating profit would reduce by GBP 5 million.
This represents a reduction of GBP 8 million versus the position on the 28th of August 2018. I'd highlight the following key features in the results. One, our performance was broad-based, with 17 of our 33 countries delivering double-digit growth, including 10 all-time country record performances. Two, our perm business grew slightly faster than temp at 11% versus 8%. Three, Australia delivered good growth in net fees of 9% versus a tough year-on-year comparative and extended its run of consecutive growth quarters to 17. Four, Germany delivered another record quarterly performance with strong growth of 13%. Our temp business grew by 10%, and we saw continued excellent growth in perm at 29%. Five, the U.K. and Ireland business delivered a solid performance with growth of 3%. This was driven by good 7% growth in our temp business, helped in part by easier comparatives.
Six, performance in the rest of the world was strong at 14%. Within this, Americas and Asia were the standouts, delivering excellent growth of 22% and 20% respectively. Against a tough year-on-year growth comparative, Europe ex-Germany was a good 9%. Seven, group consultant headcount rose 5% in the quarter, in line with our expectation, and up 7% year-on-year. This was boosted by our normal seasonal graduate intake, together with ongoing selective investments in markets where we see strong growth opportunities like Germany, France, the U.S.A., and Asia. Finally, at the end of our quarter, our net cash position was GBP 80 million, representing a good performance and is in line with our expectations. I'll now comment on performance by each division in a little more detail. ANZ. Our ANZ division, which represents 18% of group net fees, delivered another good quarter, with net fees up 7%, despite tough comparatives.
This is our 17th consecutive quarter of growth, and Q1 FY 2019 was also our strongest net fee quarter since 2008. Our temp business was up 10% and perm at 1%. Our private sector net fees grew by 7%, with public sector up 5%. We saw another good performance in Australia with net fees up 9%. Growth was broad-based across most major specialisms of the states. In New South Wales and Victoria, which together represent 58% of Australian business, net fees grew nine and 11% respectively. Queensland, our third largest state, saw growth of 11%, and South Australia delivered 18%. ACT grew by 5%. At the specialism level, net fee growth in IT was again excellent at 26%, office support grew by 12%, and sales and marketing delivered an excellent 20% growth.
Net fees in construction and property, our largest business in Australia, declined by 1%, and accounts in finance was also 3% lower. In New Zealand, which represents about 4% of ANZ, our growth remains below expectations, and net fees fell by 29%. However, we have taken steps to improve our performance. Consultant headcount in ANZ increased by 4% in the quarter and was up by 7% year-on-year. Germany. Our largest market of Germany, which represents 27% of group net fees, grew strongly at 13% and delivered another all-time record quarter. Our temp and contracting business, which together represents 83% of German net fees, grew by 10%, and within this, contracting was up 8% and temp up 14%. Perm, which represents 17% of German net fee, delivered another excellent performance up 29%.
At the specialism level, our largest specialisms of IT and engineering, which represent over two-thirds of net fees, grew by 8% and 9%, respectively. Growth in accounts and finance was excellent at 27%, with sales and marketing up 18%, and construction property grew by 9%. Consultant headcounts increased by 4% in the quarter, including our normal seasonal graduate intake, and was up 7% year-on-year. As flagged at our full-year results, we expect a smoother profile of headcount additions in FY 2019 compared to the prior year. U.K. and Ireland. In U.K. and Ireland, which represents 24% of the group, net fees continued to grow modestly, increasing by 3%. This was led by our public sector business, which saw net fees up 8%, in part due to easier comparatives following the negative impact of IR35 changes in the prior year.
Growth in the private sector, 74% of our U.K. business, was up 1%. Our temp business, which is 55% of U.K. net fees, continued to deliver good growth of 7%, whilst perm fell by 2%. Our overall growth of 3% represents a continuation of the underlying U.K. and Ireland growth trends in half 2 FY 2018, where we grew by 2%. All regions traded broadly in line with the overall U.K. business, with the exception of Northern Ireland and southwestern Wales at 15% and 12% respectively, and the Southeast and Midlands down 7% and 5%, respectively. Our largest U.K. region of London delivered solid 5% growth. In Ireland, our business delivered another strong performance, with net fees up 12%. Across our five largest specialisms, net fees in IT grew strongly at 14%, construction and property were up 7%, office support 5%, and accounts and finance up 1%.
Education continues to face tough market conditions and declined by 12%. Consultant headcount in the division increased by 3%, driven by graduate intake and fell 1% year-on-year. We will continue to focus on driving consultant productivity in the region. Rest of the World. Our largest division, the Rest of the World, made up of 28 countries and representing 31% of group net fees, delivered excellent growth of 14%. Nine countries delivered all-time record net fees. Europe ex-Germany was up 9%, despite increasingly tough growth comparatives. Our largest market of France grew by 8%, while Spain delivered another strong quarter, up 16%. Belgium, our fourth-largest Rest of the World country by net fees, grew by 3%. In Asia, we delivered excellent growth of 20%. China, which includes our Hong Kong business and is now our third-largest Rest of the World country, grew by an excellent 29%, and within this, Hong Kong delivered a superb 41%.
Elsewhere in Asia, Japan's growth of 19% was also strong. In the Americas, we also saw excellent growth, with net fees up 22%, and the U.S., our second-largest Rest of the World country by net fees, delivered another excellent result, up 27%, as did Canada, also up by 27%. Brazil fell by 3%, and Mexico was down 7%. During the quarter, we opened two new offices in our Rest of the World division in line with our long-term plans. Overall consultant headcount in the division was up 7% in the quarter and 14% year-on-year. Cash flow and balance sheet. Net cash was GBP 80 million at the 30th of September 2018, circa GBP 20 million above our Q1 FY 2018 level. The decrease in the quarter was entirely in line with our expectations and is due to the normal timing and phasing of cash flows. Current trading and guidance. I would highlight six points.
First, to reiterate, 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 5 million operating profit currency headwind for FY 2019. This represents a negative swing of GBP 8 million since we reported our prelims. Second, our consultant headcount growth of 5% in the quarter was boosted by a normal seasonal graduate intake. Looking forward, we expect that sequential increase in Q2 will be slightly below that of Q1. Third, the group net fee growth exit rate was below the quarter as a whole, up 7%, driven by Europe, including our largest market of Germany. Growth comparatives are increasingly tough. We also saw a slower-than-expected European result in the second half of September, resulting in European growth of 7% for the month.
Fourth, exit growth rates outside of Europe were broadly in line with the growth rate reported in each region in the quarter. Five, in the second quarter, there were two additional working days in Germany versus the prior year, which included additional public holidays. We expect this to have a 3% positive impact on Q2 net fees in Germany and a 1% positive impact on Q2 group net fees. Six, as we sit here today, with a normal caveat, we have three to five weeks visibility and limited forward-recorded revenue stream, we expect our group like-for-like growth rate in Q2, adjusted for these additional working days, to be broadly similar to Q1. In conclusion, this has been another record quarter of broad-based growth led by our international business, which represents 76% of group net fees.
Whilst we're mindful of global macroeconomic conditions, trading conditions remain positive across our international markets. We continue to invest significantly in key growth markets where we see structural and market share opportunities, notably Germany, France, the U.S., and Asia. Our focus remains on driving profitable cash generative growth and leveraging the largest and most balanced global platform in our industry. I will now hand you back to the administrator. We're very 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. Okay, we have some questions on the line. The first one is from the line of Kean Marden from Jefferies. Please go ahead. You're now unmuted.
Morning, all. I just wondered if you might be able to expand your narrative on Germany, obviously the trajectory during the quarter. It's obviously a lot of debate going on at the moment around momentum within the German labor market. Would you characterize your momentum as being driven by sort of impact on the automotive supply chain from recent developments? Do you think actually there's a broader impact that's taking place in the German labor market at the moment? Or do you think that you've maybe hit a speed limit for the business and as the law of big numbers kicks in, that it's more difficult to maintain same percentage year-over-year growth rates?
Thanks, Kean. It's both an excellent question. There are various component parts to it. In many respects, my simple answer is, I think all of those. First of all, we are by far the largest specialist recruitment business in Germany. We are as big as number two, three, four, and almost five put together. Therefore, from where I sit, any growth in excess of 10% in a quarter is pretty good. We wouldn't be disappointed with anything greater than 10%. I think when you look under the cover, there are two or three things which are playing. Firstly, there's no doubt that if we focus on the contracting and temp side, we're a couple of percentage points below where we would have expected, certainly when I did the Q4 update at the end of June.
I think, as we've gone across that period of time, the volume growth that we've had has been slightly below our own expectations. On that part of it, that's almost entirely in the IT and engineering area. As we've discussed before, engineering, which is one of our largest specialisms, more than 30% of our business, that's pretty much dominated by automotive. Automotive is 20% of our group. I think underneath, there is some modest cautiousness of some of our clients. Equally, I think when you've got overall growth at 13%, that's in a good place. Secondly, clearly, as we've explained in the exit paragraph, our growth in Germany in September was below where we expected it to. I certainly expected it to be 10% or slightly above that.
We were at seven, and that is more perm driven, that's the last couple of weeks of the month. Why I tried to give that guidance at the end is as much to say, having been there earlier this week, my own view is that's just gone across into October and has landed into October. I think overall, 13% is good growth. We would clearly have preferred it to have been 14 or 15%. You can see in the headcount position that we're in about the right space from a headcount perspective. I think we've done a pretty good job of managing the cost base. Underlying, despite the fact that the last couple of weeks in September might have been a bit weaker, perm growth at 29% is excellent.
All we're talking about is without those last two weeks, we would have been closer to above 35%. It's far too early to draw, I think, any conclusions on more broader issues. 13% is pretty good, but absolutely, I'd have preferred 14 or 15.
Okay. Thanks very much.
The next question comes from the line, Hans Bevers from Kepler Cheuvreux . Please go ahead.
Yes. Good morning, gentlemen. First question on your guidance for Q2. Did I understand well that adjusted for the trading day, you expect growth to be in line with that of Q1 despite, let's say, the lower exit rate? Is that correct? If that's the case, where do you see then, let's say, the improvement versus the exit rates? Secondly, looking to ex-Germany, could you give maybe some indications what did you see happening, let's say, by end user, where, let's say, you see the slowdown in growth coming from? Is it for specific sectors? I think if you could give some flavor on that.
Again, Hans, if I don't cover all the points you've raised, please do come back. There's quite a few points there. Why have I given both the exit rate in September and then tried to give comfort on Q2? I've had the pleasure of being the Group Finance Director for 12 years here, and through that period of time, I've always believed in transparency. I think if there's a fact, if something comes in the business which is a bit of a surprise to me, I should state that. What we tried to do is two things. One, the exit rate is 7%, that's factual. Secondly, the only weakness in that exit rate is in Europe. All of the other regions of our business performed exactly in line with the quarterly rate as a whole.
Secondly, sitting here and reflecting on that weakness in September and having done some sensitized analysis across our Q2, sitting here today with all the caveats I gave, because we don't have that much forward-secured revenue stream. We've only got three to five weeks visibility, all of those things. My point was to say, guys, where we're sitting here today, I expect to grow by 9% on a working days adjusted like-for-like basis, therefore closer to 10%, including the additional working days for Q2. Why do I say that? Because I think otherwise we leave the 7% out naked. I don't think I'm giving the other part of the guidance. I think therefore it's important just to give that. Of course, that is my view looking at all the results. In the end, when we get to January, we will know where we are.
Where do the improvements in the exit rates come from? I think firstly, Australia should give part of that. Australia results in this quarter, I actually think whilst we use good because it's between 5% and 10%, I actually think that's a pretty impressive result. That's the best quarter since 2008, and we had sequential growth across that quarter. We get into slightly easier comps when we go into the next quarter. I think some of that is comps. The U.K. businesses continues to do well. Of course, there's all of the uncertainty there at the moment. Asia and the Americas still continue to be strong, and I expect to do a little bit better in Europe. You moved on to, I think was your last comment, if we look at Europe ex-Germany, why was September 7%?
Again, that is perm. We had a strong July, we had a strong August. Of course, perhaps what I should have said earlier on, but most of you know, September in this quarter dominates. It is more than 40% of the overall fees, therefore has a disproportionate impact. What is clear in the last couple of weeks of the year, the perm growth was lower. I think there are several factors in that. First of all, I think we have to acknowledge that we're now into our fifth year of growth in Europe. When you've got markets such as France, we've had four years of double-digit growth. I think we are into tough comps. I talked tough comps in Q3, I talked to it again, those comps are even harder in the September period. You see that within Belgium.
I think France and Belgium are two of our strongest, well-run businesses, yet clearly their growth was a little bit less than we expected, and we've showed those percentages today. When you look under the hood, it's not like it is any one specific sector. If I went to the client base, there's been more weakness certainly in the manufacturing sector, in the export sectors than we've seen anywhere else at the moment. It's two weeks. I think, if you look at the exit part, that's two weeks trading. That's far too earlier to make any assumptions. Having factored that sensitivity in, we have a lot of markets across Europe where we're growing very strongly. As we said today, we've got 17 markets in excess of 10%. The underlying business is doing very well.
We've had a slightly weaker last couple of months in September. It's important to disclose that today. It's I think, important to use my 12 years' worth of judgment to say that based on what I can see today with the caveats, I still think we'll drive good growth similar to Q1 in Q2.
Okay, thanks. One follow-up question, with respect to headcount additions, consultant headcount additions, what do you expect, let's say, for Q2 to add?
Yeah, if you think what we're trying to achieve as a global business, we have always focused on consultant productivity. That's why we've had by far the best profit performance out of any specialist or generalist recruiters over the last five, six, seven years. Therefore, sitting here, having had a normal, stronger Q1, I think if we're at 2%-3% in Q2, that is where we should look to be. In that way, if we can continue to have consultant headcount growth in the 6%, 7%, 8%, 9% range, that means that we can drive some leverage, because other than this little wobble in the last couple of weeks, the markets are still pretty predictable. There's some very good growth opportunities out there, therefore, there's no reason why we can't focus on productivity and drive profit leverage.
Okay, thanks.
The next question comes from the line of Chirag Bhadia from HSBC. Please go ahead.
Good morning. Three questions from me. Have you seen any reduction in the bill rates in your MSP or RPO contracts? Secondly, how many MSPs are coming up for renewal in the next 12 months, and what are the fees on that? Finally, are you seeing, given the Bank of England comment yesterday, an increasing number of pockets of wage inflation? Thank you.
I think first of all, we should put the RPO bit into context. Those contracts across all of our global business are less than 15%. I understand that you have a fixation on those, but they're a relatively small part of our business. Secondly, they grew, pretty much in line with the overall business in this quarter. We don't have any large customer which is a significant proportion of our overall fees. I don't really get the renewal part. The answer is we always have renewals in those businesses. Remember, that business is largest in the U.K., it's largest in Australia. We of course have global and European contracts like all the recruitment companies do. I reiterate, it is below 15% of our net fees.
Moving on to the Bank of England bit and going broader, I think there are pockets of wage inflation, there's no doubt about that. From where we sit at the moment, it is strongest in the U.S., if we take a global position. Broadly across the path, including the U.K., it's in the very skill shortage areas of the market. The IT sector, if you're in digital marketing, if you're in digital IT, if you're in cybersecurity, those are strong markets, and there's a massive war for talent, and there's a significant increase in salary levels. But that tends to be on movement. I think what is interesting in the results is not just if you stand back and say that perm continues to grow in excess of temp. Funnily enough, outside the U.K. and Australia, our perm growth is two times temp.
I think we are in a market where there is significant candidate confidence. That candidate confidence is slightly greater than corporate confidence. Does this mean that wage growth is going to go from the current 2.5%, 3% to 4% or 5%? I don't think that's the case, because fundamentally, as we've discussed before, until companies are confident that they can increase their own prices to end customers, they're always going to be cautious on overall wage increases. What you have is pockets. What you have within individual businesses, of course, talented people getting decent pay rises, but what you haven't got is an across the board increase in salary levels.
I think with all of the uncertainty at the moment, the primary one being about trade issues between the U.S. and China, for fairly obvious reasons, I don't think we're going to see a sudden pickup in wage inflation. What I do think we are seeing is more candidates looking to move perm, and they're looking to do that in part to secure wage increases. By the very nature of that, if we get an acceleration of candidate move, then that would be a positive for us. Of course, on those deals, we would earn more money.
Thank you.
The next question comes from the line of Andy Grobler from Credit Suisse. Please go ahead.
Hi. Good morning. Just a question on Germany, if I may, or a couple. You've talked about driving consultant productivity. German headcount's grown over 40% over the last couple of years, and net fees haven't really kept pace. Is there still a case for that consultant productivity to improve going forward? On a similar kind of theme, you mentioned that growing over 10% was a very good performance given how big that German business is. Looking at your longer-term targets, you need to grow 10%-16% was in those targets. How sustainable is that if the markets are a little bit volatile?
Well, I think you know the answer to that yourself, Andy.
Yeah.
Volatility doesn't help any recruitment business in the longer term. I'm back to the five-year plan needs us to drive 13% fee growth and a little bit leverage on the top of that. We're in excess of that at the fee line last year. We're in line with that in the fee line in the first quarter. Clearly, had it been not for the perm issue in the last couple of weeks, it would have been at 14%. I think at the moment we've had a good start in the five-year plan. Clearly, when you start a plan to expand and broaden your business, to go into the SME sector, to open new offices, all those sorts of things, that's an investment on which you don't get an immediate return. We're pretty happy with the performance of the German business.
Fundamentally, I would have preferred 2% more fee growth. Where you are right is that, of course, we need to take the growth we've got and to start to drive some leverage on that, and that will be our primary focus over the remaining part of this year.
In terms of doing that, is that just a course of time as those consultants get up to speed, or is there anything-
No
you can do?
There's a fundamental difference between a perm business and a run rate business. In a perm business, of course, if you put the new candidates into the right desks, you get a much earlier return on fees. That has always been the case. As we all know, why you need a large flex business, temp and contracting, is that that's more sustainable for the longer term. When you're building that growth, it takes a good two and a half years before you get to a new consultant being fully productive. Where you're correct is you make an investment today, not for the next six months or the next 12 months. It's beyond that.
Having put a lot of headcount in last year, a bit more in at the moment, we will be a little bit more cautious as we go across the next few months, but we're going to try to keep the fee growth at 10%. Sorry, the headcount growth at about 10% and drive a little bit of productivity on the top, excepting, of course, that the headcount we brought in 12 months ago is now becoming more productive, and it will go through that productivity curve. One of the beauties of our German business and the market position we're in and the strength of that franchise, is that actually the productivity assumptions are fairly predictable as you go through that.
Other than, of course, as I said earlier on, we're probably one or two percentage points of growth where we're behind where we would have been, and therefore we're a little bit behind on productivity where we would have been. That's for the German team, supported by Alistair and myself, to improve that over the next few quarters.
Okay. Thanks very much.
The next question comes from the line of Anvesh Agrawal from Morgan Stanley. Please go ahead.
Hi. Good morning. I just have one follow-up on the U.K., and you kind of partially touched on it. Do you think the combination of wage growth and skill shortage into the U.K. market can further strengthen the growth rate? We have seen some sort of stabilization in the growth, and the growth is in positivity for the last couple of quarters now. Just your thoughts there.
I think the answer is all about politics, actually. This might seem rather strange, and I don't in any way mean to denigrate the performance of our Americas or Asia region, which is up 120%. I think the performance of the U.K. at 3% growth in the uncertain market we've got is very good. Clearly, we use the word solid, but I think with all of the political turmoil we've got at the moment, not just Brexit, but can they get any deal through the House of Commons? Reflect on the various party conference and everything else. There's clearly a lot of uncertainty in the U.K. market.
Yeah.
Sorry about this. While your point is very apt, is if that uncertainty is increased, clearly that will weaken because that will lead to companies being more cautious. If there is some certainty given to that, i.e., a deal, even more if that deal got through the House of Commons, I do believe that growth in our U.K. business will accelerate. One of the nice features of our U.K. business, as we demonstrated over certainly the last seven or eight years, is that give us any growth, we're very good at driving profitability out of that. I think 3% is good. There's a bit of wage growth there, but very targeted. There's absolutely skill shortage, you're correct, in certain sectors. IT would be by far the largest, in marketing by being far the largest.
Companies are very selective and surgical on where they will allow wage growth going into their businesses, in which areas. Do I think there's going to be material wage growth in accounts and finance? Not really. I think there are some good opportunities there. At the moment, I think until we get through this next three months are pretty critical, aren't they, on lots of levels, because you can draw lots of scenarios. Equally, if you're on the positive side of it and we get an agreement, it gets through the House of Commons, that uncertainty disappears. I actually think that there is a positive outlook for our U.K. business because I'm exceptionally clear and confident that had it not been for all of the Brexit crap, we would have a much bigger U.K. business than we've got today. 3% is good.
Could that go by more? Yes. I think the timing on that is all about the political issues of the deal and getting through the House of Commons. Most companies are cautious, are looking at that. They have both plans. They have the downside plan, they also have the upside plan. I think for all of us on this call, even more for many of you in the organizations that you're in, let's say we're on the upside plan.
That's very clear. Thank you so much.
Your next question in the queue comes from the line of Paul Teckock from Barclays. Please go ahead.
Good morning. I've got three questions, please. Paul, do you know if you look back at the quarter last year, how much better was September in Europe? I know there were some distorting factors, can you give us a feel for how much stronger September was in the quarter? The second question is on Australia. You often give us this rundown of your appraisal of the lead indicators that you look at. Would you be able to do that again, please? I know some of the house price data was a bit weaker of late. Lastly, if going back to Germany and maybe another way of asking Andy's question, if theoretically the growth rate stepped down further in Germany related to the macro, how would the investment program evolve? That's the three things.
Perfect. Again, Paul, because I actually do think I haven't answered all parts of people's questions today, please do come back if I miss any of them. I can't really remember back to last September, if I can explain, we had a real flyer in the year last year. We had very strong growth both in July and August. We had an excellent September. It exceeded our expectations. We're probably about a 5% tougher comp within even Europe. That's why both going back to Q4 and then emphasizing at the prelims, and clearly at the prelims, I expected that we would deliver 10% or 11% growth in this quarter. We mentioned tough comparatives. It's not like we've just got up today and started talking to tough comps.
We've been talking about for some time, we've solely talked about them in Australia, which I'll come onto in a second, and in Europe, including Germany. There is no doubt that the comps were tough and in September. It is more in September this year that we've had two weeks worth of perm weakness in a few of the markets, and we didn't expect that. That's clearly led to us probably being about 1% fees off versus where we would have been. On ANZ, I think it's a fascinating market, isn't it? If I try to give you what we see at the moment, I haven't physically been in Australia since the start of August, but as you guys know, one, I know that market really well. Secondly, I have a very close relationship with both ANZ's and NAB's chief economist.
In fact, we're taking our board down for a scheduled visit there in a week and a half's time. Overall, the economy is doing very well. The government's financial position is in a strong position. Every country in the world would like to be in the position of the Australian economy. Of course, the political environment is a bit of a mess. You've already had prime minister change. They now have a majority of one. It's hard to get anything through. There will be an election. That election, the expectation is it will be next May, assuming that the government can continue through to that point. At the moment, the opposition party is well ahead in the polls. There is a greater degree of political uncertainty, and that is on the horizon for a lot of companies.
If we look at construction property, which is our largest specialism by far, last year it was 28% of our business. The trends are the same as we talked about the last couple of times. There is a significant acceleration in large state and government-funded infrastructure projects. Of course, the largest demand for labor in that space comes from large construction companies themselves, all have individually large construction recruitment businesses. The business we get out of those is in the high-end professional areas, and we get a lot of business into subcontractors, et cetera. That is a positive. There is no doubt on the residential part of it, in the multi-story apartment blocks, which have more of an impact on our business in construction and property in that space, that that is probably past its peak.
Certainly, it's past its peak in approvals, but there's still a lot of activity, and that activity will give us, I think, pretty good market position for the next year. Smaller residential is accelerating. Commercial construction is in a pretty good space. For us, construction being, I think we're 1% down in the quarter, is more as we actually saw in the U.K. a few years ago when you've had a strong run-up in construction property, now we're into the fifth year of our growth in ANZ. Of course, you get to a mathematical position. You can't have any more cranes. I think the market is strong. I don't see much sequential growth in construction property from where we sit today. We have continued to put some investment in certain sectors, certainly the energy sectors, and we may well get an extraction from there.
The nice part is we made a material investment in our IT specialism a couple of years ago, continue to do that today, and that growth is quite dramatic. We've gone from being a number 3 player in IT about four years ago to being by far the largest player in that marketplace. I think the team have done a really good job. The business confidence part of it is still in a stable and supportive position. Of course, there is a greater discussion about China and tariffs between the U.S. and China and all those sorts of things. That tends to dominate. It's the longer round route to saying, I think overall, the indicators today are of a positive, orderly market, and we had sequential growth in this quarter. It's the best quarter since 2008. It's slightly in excess of our expectations.
Australia was up 9%, and I think we'll have another good quarter, and we've put the reasonable amount of headcount in to deliver that, whilst clearly, with our 7% up year-on-year, we're trying to drive some productivity improvements. I think on Germany, we're into a bit of hypotheticals now. The very obvious nature of any recruitment business is that if growth becomes a little bit less, all you do is you're a little bit more cautious on headcount growth. We will still continue with the office rollout. We will still continue with moving into the SME sector. Our German business, as we've always described it, as well as being a market dominant player in IT and engineering, and the number 2 player in accountancy and finance. We've got a really good market position. There is a long-term opportunity for structural growth.
That business was initially concentrated around larger corporates because you have a big business in engineering, surrogates for automotive. That's going to be the case. If you have a big business in IT, that often starts in the larger corporates. What is clear in Germany is a few of those larger corporates are being more cautious on their hiring at the moment, certainly in the financial service sector, for fairly obvious reasons if you read any of the press. For us, if growth slowed a bit, we would be more cautious on headcount. We would continue with the structural investments, because this is not about FY 2019. It's not about FY 2020. We're in a market dominant position.
We want to ensure that the market position that we built in Australia over a long period of time, which drove superior financial performance and superior profitability, is replicated in Germany. Therefore we will continue with the structural investments whilst being slightly more cautious on headcounts. Sitting here today with everything we know, Tegos is in a good place, and we're in a good place, I think, to get within the 2022 range. We just had a couple of quarters where, in the end, we're 1%-2% below where we would like it to have been.
Very clear. Thanks.
We have no further questions in the queue. Please be reminded, if you would like to ask a question, please dial one. We have one more question from the line of Kean Marden from Jefferies. Please go ahead.
Hi there. Just managed to sneak in. How would you characterize the delay in German perm decisions at the moment? Is this HR departments being slower to sign off? Is it because the number of interviews required to get the candidate on board is increasingly you seeing sort of candidates being slower to take the decision to commit, or are you seeing the start dates delayed?
Yeah. They are excellent questions as normal. Everything I've seen so far is it just felt like what we expected to land, in the last two weeks in September, specifically on the 1st October start date. You guys know, we book when people start in their jobs. We include the first working day of the next month included in our cutoff. 1st of October is an important date. In the end, Kean, it looks like some of those dates just moved as we went across the month, and it was slightly greater than we expected. I think that's quite hard to disaggregate between candidates and clients. We've certainly seen no signs of any distress or weakness.
More of it has been skewed to some of the larger companies, but having been there all day Tuesday, having looked at the parts of the business that did move, we've got very firm start dates later in October. I think it's hard to give greater clarity at the moment. Of course, we're only sitting here on the, what are we, the 11th of October. I think the key that I don't know at the moment, of course, is will we see a similar trend at the end of October or at the end of November, all those sorts of things. We'll see that when we do the Q2 results. What I can say, I think, is that all the discussions we've been having with our clients, other than with perhaps a handful of some of the larger clients, it's still a pretty positive market.
There's a significant skill shortage. Certainly in the IT sector, there's a real scramble to get hold of good candidates. I think the market is strong, and I would reiterate, as by far the largest market player, both dominant in IT and engineering and overall, I think when we're around eight, nine, 10% in the two biggest specialisms and 13% overall, that's a pretty good growth position to be in, whilst we would clearly have preferred to be a little bit higher. Very clear. Thanks so much, Paul.
We have another question from the line of Martin Burns. It's a private investor. Please go ahead.
Well, hello, Paul. Thanks. Very interesting conversation. Would you expect that the recent fairly sharp drop-off in share price has anything to do with simply a fall in line with the FTSE 250 in general? Or do you think there's some underlying confidence in the growth figures that you've proposed?
I think it's all the former. At 7:00 this morning, I happened to be at the CNBC studios doing an interview with them, the first 20 minutes of their program was all about what's happened to the risk-off part of the stock market. I think, in the end, we were about GBP 2.10 at the start of September. We were at below GBP 1.80 end of yesterday, pretty much across the whole of the cyclical part of the markets. We've seen a good 10% fall, I think that's all around forward confidence, isn't it? It's not about one quarter or two quarters trading. It's much more about where will the market be in a year's time, concerns over interest rates, concerns over trade.
The biggest issue, in my own humble view, is all about the trade war between the U.S. and China, because that's a third of the global economy, you can't dismiss that. I think the biggest confidence that can be given to the markets is all around that trade position. I think that the falloff is pretty much in line with everybody else.
You're confident about your five-year plan anyway, aren't you?
With the normal caveats that I gave early on about any set of numbers. I think we're in an excellent position. Look, what we said in that five-year plan clearly had the caveats around any significant downturn in a major market. At the moment, the economy is completely supportive of delivering the five-year plan. The politics around the world is in an interesting position, isn't it? The key thing is trying to get some stability in that market, whether that's the U.K. with the discussions we had earlier on, whether that's over tariff issues, whether that's in Australia, with the elections to come forward. That's something we can't do anything about.
What we do is we've delivered an excellent long track record of superior financial performance over the last four, five, six, seven, eight years. We continue to look at all of our indicators and make decisions on the back of that. We clearly have an eye on what's going in the broader economy. We look at our own indicators, and we make those decisions. That's why we've got superior conversion rate in this sector because we're very good at converting what figure we have into profit growth. In the long term, that's the most important part because it also drives cash, drives dividends, drives specials and everything else, and we will continue to do that.
That's great. Thank you very much.
We have no further questions in the queue at the moment.
I was waiting for another one actually after the last five minutes. If that's all of the questions for today, we'd like to thank you all for joining us for the call. I look forward to speaking to you again at our Q2 FY 2019 IMS on January 15th, 2019. Should anybody have any follow-up questions, David Phillips and I will be available to take calls for the rest of the day. Thank you very much for joining. Have a good day.
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