Hey and thank you for standing by. Welcome to the Hays pre-closed year-end trading update conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question-and-answer session. To ask a question during the session, you will need to press star one one on your cell phone keypad. You will then hear an automatic message advising your hand is raised. To withdraw a question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Kean Marden, Head of Investor Relations. Please go ahead.
Thank you, Nadia. Good morning, everyone, and thank you for joining us. What we appreciate will be short notice for many of you on the call. I'm Kean Marden, Head of Investor Relations, and I'm joined here today by James Hilton, Chief Financial Officer, to present our latest thoughts regarding Hays' likely Q4 results. Before we begin, please be aware that this call is being recorded and the replay is accessible using the number and code provided in the release. Please be aware that our discussions may contain forward-looking statements that are based on current expectations or beliefs, as well as assumptions on future events. There are risk factors which could cause actual results to differ materially from those expressed in or implied by such statements.
Hays disclaims any intention or obligation to revise or update any forward-looking statements that have been made during this call, regardless of whether these statements are affected by new information, future events, or otherwise. I'll now hand you over to James.
Thank you, Kean. Good morning, everyone, and thanks for joining us today at short notice. As you'll appreciate, we haven't closed our books for June yet, so we are not in a position to provide the full level of disclosure normally contained in our quarterly release. We will be as helpful as we can today, and we'll include an appendix containing fuller Q4 data in our prelim results slide in August. I'll present the key points and regional details of today's trading update before taking questions. As usual, all net fee growth percentages are on a like-for-like basis versus prior year unless stated otherwise. I'd like to highlight the following key items.
Following a sequentially stable period of trading in Q3, net fees reduced sequentially through our fourth quarter, primarily driven by a broad-based weakness in perm activity globally, reflecting low levels of client and candidate confidence as a result of macroeconomic uncertainty. Based on our current expectations for June, like-for-like net fees are expected to decline by 9% year-on-year in Q4, 8% on a working-day-adjusted basis, despite a soft prior-year comparative. Temp and contracting net fees and forward activity indicators continue to be more resilient. Net fees are expected to decline by 5% in Q4 and by 4% on a working-day-adjusted basis. We've seen a sequential reduction in perm activity in the majority of our markets globally, both in new job registrations and in placements. Despite the soft prior-year comparative, perm net fees are expected to decline by 14% in Q4.
Our current cost base on a periodic and constant currency basis has improved to GBP 75 million per period from GBP 76 million in Q3. Given the largely fixed short-term nature of our cost base, there has been a high drop-through of lower net fees to profitability, and as a result, we currently expect FY 2025 pre-exceptional operating profits of GBP 45 million. At this level of profitability, our FY 2025 pre-exceptional tax rate is expected to be 35%. Despite the shortfall in operating profits, cash performance during our seasonally stronger fourth quarter remains in line with normal trends, and we reiterate our guidance for a modest net cash position at year-end. I'll now provide high-level commentary on the performance of each division. In our largest market of Germany, we expect fees to decrease by 5% year-on-year.
The year-on-year decline in temp and contracting fees is expected to moderate slightly to 3%. Volumes remain solid overall in contracting, but conditions remain weak in temp, where we have a greater exposure to the automotive sector. Perm remains challenging, and we expect fees to decrease by 17%. In the U.K. and Ireland, we expect fees to decrease by 13%. Temp and contracting fees are expected down 12%, were impacted by subdued public sector activity. Perm is expected to be down 14%, has experienced a broad-based slowdown as the quarter progressed. In ANZ, we expect fees to decrease by 9% year-on-year. While market conditions remain challenging, temp and contracting activity levels have been stable through the quarter, and we expect fees to decrease by 6%. Perm has become more challenging during the quarter, but the year-on-year net fee decline is likely to improve to 15% due to an easier comparable.
In our rest-of-world division comprising 26 countries, we expect fees to decrease by 9%. In ME/EGG Germany, with expected net fees down 30%, has experienced challenging perm conditions, particularly in France. Asia, with expected fees down 3%, is stable overall, and we expect net fees to decline by 1% in the Americas, with 5% year-on-year growth in North America, where markets remain stable. While we're disappointed to end FY 2025 with a shortfall in profitability relative to expectations, we're pleased with the pace and direction of our strategic development during the year. Consultant headcount is expected to decrease by 4% in the quarter, and by managing our consultant capacity on a business-line basis, our resource allocation actions should continue to drive a 5% year-on-year improvement in average consultant net fee productivity in Q4.
Our enterprise business has maintained good net fee growth, driven by headcount investment in existing clients, higher fill rates, and new contract wins, and we enter FY 2026 with a healthy bid pipeline. Our initiatives to deliver structural savings of circa GBP 30 million per annum by the end of FY 2027 continue to progress well, and consequently, our current cost base on a periodic and constant currency basis has improved to circa GBP 75 million from circa GBP 76 million in Q3. We have removed duplicated costs, delayed management, outsourced selective opportunities, further standardized and globalized processes, and expanded our shared service centers. We expect current challenging market conditions to persist into FY 2026 and remain committed to delivering our focus strategy. Our initiatives to improve net fee productivity in real terms and back office efficiency will be important drivers of medium-term profit recovery when the market recovers.
I'll now hand you back to the administrator, and we're happy to take your questions.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your cell phone keypad, and wait for a name to be announced. To withdraw a question, please press star one one again. Please stand by. We'll compile the Q&A roster, and this will take a few moments. Now we're going to take the first question. The question comes from the line of Simon Lechipre from Jefferies. The line is open. Please ask your question.
Yes, good morning, James. Sorry if I may. First of all, can you give us some color on how much weaker this minus 9% is compared with your initial expectation for the quarter, and what are the countries where you have seen the biggest deterioration? Secondly, on the perm business specifically, can you give us a bit more context? I mean, is this slowdown mainly driven by the further slowdown of the decision-making process and slow hiring process, or did you start to see something different with less jobs coming into the market? And lastly, as perm got weaker, have you seen a shift from perm to temp, sorry, as companies are looking for more flexibility? Thank you.
Thanks, Simon. I'll pick each of those up in terms. The first one is kind of how did this quarter pan out versus our expectations? I think coming into the quarter, we were expecting fees to be down year-on-year, but probably more in the region around 5% year-on-year. As I said in the trading update, the weakness has been, the vast majority of it has been perm-led, with our temp and contracting business solid overall. We've gone through pockets of weakness, which I'm sure we'll pick up, but this is really predominantly a perm issue, and it's progressive through the quarter. We were slightly down on expectations in April, a little bit behind in May, but clearly it's worsened in our expectations coming into June. Overall, our perm business is probably about 10% behind where we expected it to be in the quarter.
This time last year, we did about GBP 100 million of perm fees in Q4, and clearly that creates about a GBP 10 million gap on perm fees versus where we expected to be. As you well know, Simon, the vast majority of that drops through to the bottom line in the immediate short term because the only saves we have on the cost base in the immediate term is the commission saves with the rest dropping through. That is really actually the temp and contracting is probably within a couple of million of where I expected it to be. We have got a couple of pockets of weakness. We have highlighted German autos for a period of time in our temp business. It is not really markedly changed. It has drifted through the quarter, and the U.K. public sector has been quite challenging as well.
Overall, I was expecting to be about 5% down year-on-year this quarter, and coming in at 9% is clearly 4% behind where we expected to be, and it is about GBP 12 million of fees. Perm, where are we seeing the weakness? If I start geographically, where we have seen the most challenging perm markets have been in Northern Europe and in the U.K. You can see in the statement that Germany has had a tough quarter in perm and other areas in Northern Europe. Notably, France and Belgium and Netherlands have been pretty challenging as well. Here in the U.K., it has been a challenge where actually, interestingly, in February and March, across the business, but actually here in the U.K. as well, we actually had a better perm expect than we expected, and we actually had a pretty decent month in February and March.
Both of those months we beat up in period forecast and felt like we were creating a bit of momentum, but we have seen that, unfortunately, go into reverse through this quarter. Where else have we seen weaker markets? Australia is highlighted in the statement. I have seen a modest drift through the quarter, which has been pretty much offset by a slight pickup in temp and contracting, which has been helpful. Overall, Australia feels pretty stable, but we have seen the perm markets go backwards. Asia is mixed, but probably stable overall, but it is a bit choppy. North America has been stable, and we continue to grow modestly there in perm as well as temp. I would highlight that it is largely a Europe and U.K. issue. The final, I guess, looking at it from a segmentation perspective, is pretty consistent across our major specialisms.
Whether it is in construction, in accountancy and finance, or in professional services, we have seen step-downs across all three. Actually, technology perm has been pretty stable, but we are coming off a pretty low base there, as you know, because we have seen pretty tough perm markets in tech for some time. It is pretty consistent across the other major specialisms. The salary range level is probably, again, slightly softer in the lower salary bands than in the more senior salary bands. The other segmentation I would give is tougher in public sector than in private, but clearly, public sector is more of a U.K. issue anyway for us. In terms of your question, the last question on ship and temp to perm, sorry, yes, you did ask about jobs and where is the client decision coming from. What we have seen through this quarter is, I think, two things.
One is we have seen lower levels of job registrations coming through. I think in previous quarters, we've talked about softer perm markets and longer time to hire, but we have seen through this quarter a reduction in the new number of jobs coming through, as well as continued length and time to hire as well. That is indicative, really, for us of lower business confidence, lower decision, and slower decision-making as well, collectively reducing the level of demand in perm. Temp and contracting is, as I say, resilient. Going on to your last question, which is, are we seeing a shift in perm into temp and contracting? It's hard to say, actually. I think that we've probably seen that dynamic now for two or three years, where clients are generally cautious on their hiring in perm and are taking temps and contractors to fulfill their demands.
I think that continues. It's actually quite encouraging that we've seen resilience in our temp and contracting. That's 68% of our business, and it is an important area for us. I think that's important, but clearly, the short-term perm weakness is something which has happened, as I say, in the last three months. Hopefully, Simon, that gives you a bit of color.
Yeah, thanks, guys. It's very cool.
Thanks.
Thank you. Now we're going to take our next question. The question comes to the line of Rory McKenzie from UBS. Your line is open. Please ask your question.
Morning, it's Rory here. I'll just start with two, please. Firstly, on the perm deterioration, is it fair to say that jobs will worsen through the quarter? Can you help us think about the exit rate into Q1 2026 and any kind of comparatives to think about there? Secondly, about, I guess, the exit rate on profitability. Your guidance implies around GBP 20 million in H2, which I guess would be less than half of that in Q4. Can you give us any guidance about the cost-based reductions you already had in flight that should ramp up into the next period? Any thoughts you can share about further cost reductions at this stage?
Okay, thanks, Rory. In terms of the job flow through the quarter, it's quite hard to look at it sort of month on month on month because clearly we have April is seasonally impacted by Easter. If I look through the full working weeks where we had five days, it's clear that in April we saw lower job registrations than we'd seen in February and March for a full five-day week. Similarly, again, into May, we saw a modest step-down versus where we were in April, and that level was held into June. I'd say that it's clear that it has come off the reduction of about 5%-10% versus where we were in Q3 if I look at it and adjust for it seasonally.
In terms of exit rate, I'm not going to get too drawn into exit rates for this quarter clearly because I haven't closed the books yet for June, so it would be slightly early for me to try and comment on that. I would just reiterate the point that the trends that we have seen through the quarter, both in terms of perm and temp, are consistent with what I expect the numbers to be in June. I don't see a material difference from that overall. In terms of profitability, Rory, it's a fair challenge. So GBP 45 million is where we've guided for the full year. That means we've done GBP 25 million in the first half and GBP 20 million in the second half. Clearly, with the trading pattern through this half, we've got more about GBP 20 million profit in Q3 than we have in Q4.
Despite our efforts to, and I think we have made substantial progress in bringing the cost base down through the year, we are materially lower than where we were 12 months ago. A good proportion of that is in the structural areas as well as managing our capacity appropriately as you would expect us to do. In terms of how that goes forward, I do not have a June headcount yet, but I expect it to have reduced modestly again versus May. We will continue to assess that market by market, and we will take action to address capacity where we feel appropriate and also to redeploy and to move people around the business as well where we feel it is appropriate to. I am not going to give firm guidance for the next quarter on consultant headcount.
I'll give an update on that in August when we do our prelims instead because then I'll have a firm June number which I can kind of work from. Our actual initiatives to drive efficiencies in some of the overhead areas and the structural areas of the business continue at a pace, actually. I'm very pleased with how we're continuing to make progress on that. I expect to continue to make progress on that through into the next financial year. I'll give more guidance at the prelims on what we've done through the year, specifically what we've done through the second half and what the plans are going into FY 2026. Yes, we've got more work to do there, and I'm pleased with the progress we're making.
Thank you. Just one last one. Again, I know any dividend decisions are to be made in August, but as you're tracking below that GBP 85 million profit level that you would cover the dividend, can you just remind us on your capital allocation policies? Are you committed to maintaining a net cash position, and in which environment do you see it as appropriate to pay out any free cash flow?
Yeah, thanks, Rory. Clearly, we spoke about this last time, and I was clear that to maintain the current level of dividend payout, which is about GBP 47 million over the full year, I need to be doing around GBP 80 million-GBP 85 million of operating profit now that we've done the deal on the pension scheme. Clearly, we're not at a level that can cover that, which means we don't cover the dividend from free cash flow. I've given pretty clear guidance, I think, on where I expect to be from a cash perspective, and the cash performance is continuing to track in line with what I would expect. We normally have a better quarter of Q4 and seasonally stronger quarter, so I expect to be in a modest cash position.
In terms of our capital allocation policy, that has been to have a core dividend of two to three times cover, and clearly, we're well outside of that. The other part of the capital allocation we've had historically is to return surplus cash of over GBP 100 million, and clearly, we're not at that level, so that's not relevant at this point. I think what is relevant is around affordability and what's appropriate, and that's a decision for the board in August, and we'll fill in the details once we've got to that decision.
Good. Thank you.
Thanks, Rory.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. Now we are going to take our next question. The question comes from Zach Al-Qaryooti from Morgan Stanley. Your line is open. Please ask your question.
Morning. The first question is just on FY 2026. Obviously, there's a lot of moving parts. There's kind of the tariff-related and geopolitical uncertainty, so I appreciate it's probably hard to give firm guidance at this stage. I appreciate it's probably hard to give firm guidance at this stage. Just hoping maybe you could kind of give us some sort of range of possible scenarios, perhaps. The second question on France. In that market, you're quite heavily indexed to perm, which I think, again, you've called out as particularly challenging. I think in recent quarters, you've talked about kind of increasing the temp and contracting mix there. I just wanted to check if that is something that's actively in the works or if it's something that is planned for more of the longer- term.
Thanks, Zach. I'll pick up each of those. I'll kick off with the question on FY 2026 guidance and look. I think we're in a pretty uncertain world right now, and you've seen the impact of that uncertainty into our numbers this quarter. I feel at this stage it wouldn't be appropriate or, in fact, realistic for me to give a full-year guidance. I've tried to be as clear as I can on exactly what we've seen through the last few months of trading. You can see that, and going following on from the question that Rory asked, actually, our profit this half has been at GBP 20 million, and as I said before, that was weighted towards Q3 rather than Q4. That is our starting point. I've given you where our cost base is.
You can see from your model where our fees are, and you can draw your own extrapolation out from that. I think that would be your view on the macro. It's different than mine, probably. At this stage, I don't think it's appropriate or, in fact, possible for me to give relevant guidance for FY 2026. In terms of the question on France and temp and contracting mix versus perm, you're absolutely right that we have a business that's weighted towards perm. In France, about 75% of our business is perm. Our business was down 22% in the quarter in France. As I highlighted in the script, it's been a challenging market there, as it has been across northern Europe more broadly. Clearly, in a business where we're heavily weighted to perm, we've seen a harder impact on our business there.
Our business is also more heavily weighted into the more junior parts of the market in France than we would like. We are busy working on both two things. One is to increase the mix of temp and contracting versus perm, but also within perm itself to move up the food chain and focus more on the senior ends of the market, which is both consistent with our strategy. The team are working hard back, leave away in a tough market in France, and you can see that in our numbers. Overall, it's a challenging market in France. As I said, we've got a way to go to improve the performance there. We have made management changes, as I mentioned last time in the previous quarter, and we're heavily focused on improving that.
Thank you very much.
Thank you. Now we're going to take our next question. The question comes to the line of Sanjay Vidyarth i from Panmure Liberum. Your line is open. Please ask your question.
Morning. Just one for me, please. Is GBP 15 million-GBP 20 million still the right kind of number in terms of H2 exceptional costs? How should we think about that for 2026? Would it be sensible for us to factor in another GBP 20 million-GBP 30 million for 2026?
Hi, Sanjay. Yes. We're holding that guidance at around GBP 15 million-GBP 20 million. Clearly, we haven't closed the books for June yet, so we've got a little way to go to confirm that. Obviously, we'll give full disclosure and transparency on that in August in the prelims. Yeah, that expectation hasn't shifted at all materially from where we were previously. In terms of FY 2026 and whether we'll have exceptional items going forward, I think, again, I'd hold judgment on that going forward. Obviously, we're working heavily on reducing the cost base next year in terms of some of the structural areas, and there's going to be some change programs related to that. There could be is the answer, but we'll have to wait and see whether they're material or not and hence exceptional.
I think at this stage, we're focused on this year, getting the job done in terms of fixing the cost structures in the business, and we'll crack on with that into FY 2026.
Okay. Understood. Thanks very much.
Thanks.
Thank you. Dear speaker, that's all the questions for today. I would now like to hand the conference over to Kean for any closing remarks.
Thanks, Nadia. If that's all for questions for today, I'd like to thank you again for joining the call. I look forward to speaking to you next with our prelim results on the 21st of August. Should anyone have any follow-up questions on today's call, Team, Rob, and myself will be available for calls for the rest of the day. Thank you. Bye-bye.
This concludes today's conference call. Thank you for participating. You may now disconnect. Have a nice day.