Good day, and thank you for standing by. Welcome to the trading update for the quarter ending 30th of September 2023 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, David Phillips, Head of Investor Relations. Please go ahead.
Thank you, Sharon, and good morning, everyone. Welcome to Hays' quarterly update call for the three months ended 30th September 2023, the first quarter of our 2024 financial year. I'm here with James Hilton, Group Finance Director. Before we begin, please be aware that this call is being recorded, with the recording 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, David. Good morning, everyone, and thanks for joining us. I'll present the highlights and key themes of today's update and discuss regional performances before taking questions. As usual, all net fee growth percentages are on a like-for-like basis versus prior year, unless stated otherwise. FY 2024 has begun in line with our expectations, with group fees down 7% versus a record quarter in the prior year. Temp continued to outperform perm and delivered a resilient performance, with fees flat and volumes broadly stable through the quarter. As expected, perm was tougher and declined 15%, with increased time to hire globally. The group's September net fee exit rate was in line with Q1 overall at - 7%, and currency translation had a 2% negative impact in the quarter, primarily due to the weakening of the Australian dollar versus sterling.
I'd like to highlight the following in the results. Our key strategic markets continued to face skill shortages, and our fee performance was again driven by our actions to increase fee margins and our focus on higher value markets, together with the positive effects of wage inflation globally. Our resilient performance in temp was entirely driven by 6% growth from margins and positive mix, offset by lower volumes year-on-year. As with recent quarters, the decrease in perm fees was entirely volume driven, down 26% and partially offset by an 11% increase in our average perm fee. Regionally, growth was led by our largest business of Germany, up 7% or 8% when adjusted for one fewer working day year-on-year. EMEA fees were flat, while ANZ, Asia, and the Americas remained the most challenging markets.
Fees in our largest global specialism of technology, which is 25% of group fees, declined by 7% versus a record prior year performance, with temp significantly outperforming perm. Accounting and finance declined by 4% and showed greater resilience in more senior markets, and engineering, our third largest specialism, grew by 10%. Group consultant headcount decreased by 2% in the quarter and 9% year-on-year, as we continue to focus on driving productivity, which remained at good levels overall. Our balance sheet remains strong, with quarter end cash of circa GBP 75 million, in line with our expectations and reflecting normal working capital seasonality. I'll now comment on the performance by each division in more detail. Our largest market of Germany delivered a strong performance, with fee growth of 7% or 8.8% working days adjusted.
Contracting, our largest German business, delivered another good quarter, up 6% or 8% working day adjusted. This was driven by 1% growth in contractor volumes, together with a 7% benefit from higher margins. Temp increased by 12% or 14% working day adjusted, with volume up 5% and higher margins adding another 9%. Perm fees increased by 2%. At the specialism level, our three largest specialisms, technology, engineering, and accountancy and finance, increased by 1%, 17%, and 4%, respectively. Consultant headcount increased by 1% in the quarter and by 2% year-on-year. In U.K. and Ireland, fees decreased by 11%. Temp decreased by 8%, with perm down 14%. The private sector, which is roughly 2/3 of U.K. and Ireland fees, declined by 16%, with the public sector stronger, up 4%.
At the specialism level, accountancy and finance and technology decreased by 6% and 20%, respectively. Education increased by 7%, although construction and property decreased by 10%. In Ireland, our fees decreased by 10%. Our consultant headcount decreased by 1% in the quarter and by 13% year-on-year. In ANZ, fees decreased by 17%. Temp, which is 62% of ANZ, decreased by 13%, with perm down 24%. The private sector, which is two-thirds of fees, decreased by 20%, with the public sector down 11%, and we continue to see challenging temp markets with the federal, federal government. At the specialism level, construction and property decreased by 24%, while accountancy and finance and technology decreased by 12% and 21% respectively.
In New Zealand, fees decreased by 17%, and our consultant headcount decreased by 26% in the quarter and by 14% year-on-year. In our Rest of World division, comprising 28 countries, fees decreased by 11%, in which perm, which is 63% of Rest of World net fees, decreased by 17%, with temp up 4%. EMEA ex Germany fees were flat. France, our largest Rest of the World country, grew by 6%, with the UAE and Italy up 25% and 10% respectively. Belgium and Switzerland increased by 2% and 3%, while fees in Poland declined by 21%. The Americas decreased by 28%, with conditions difficult through the quarter, particularly in perm. Canada and the U.S. continued to be tough, down 31% and 27% respectively, with LatAm down 29%.
Asia declined by 17%. Japan decreased by 4%, with Malaysia down 15%, and China decreased by 25%, with mainland China not yet showing any post-pandemic recovery and underperforming Hong Kong, which was down 15%. Overall, our Rest of World consultant headcount decreased by 2% in the quarter and by 10% year-on-year. Moving on to current trading and guidance, and I'd highlight the following points: Overall, our Q1 was in line with our expectations, and our fees continue to benefit from the positive effects of wage inflation and pricing and mix globally. Volumes remain broadly stable in temp and contracting, with only the Australian public sector below pre-summer levels. This reflects modestly lower numbers of new assignments, offset by greater contract extensions. In perm, we continue to see lower clients and candidate confidence with increased time to hire.
With group fees down 9%, including FX in Q1, as we stated at our prelim results in August, we expect group conversion rate and operating profit will also decline in H1 2024. As many of you know, historically, we have seen such percentage fee declines usually drive a 2x-2.5x multiplier to the percentage operating profit decline in the short term, as we protect key strategic investments to benefit from future recovery and structural growth opportunities. As previously reported, we have also two fewer working days in Germany in H1, which will have a further GBP 3.5 million negative profit impact in H1. We remain firmly focused on driving consultant productivity and managing our cost base.
We expect group consultant headcount will reduce by circa 2%-3% in Q2 as we balance short-term cost management with protecting our infrastructure and longer-term investments. In conclusion, while we remain vigilant of macroeconomic uncertainties, we are market leaders in many of the most attractive structural growth markets globally. Our focus is on delivering excellence of execution, including driving consultant productivity and increasing group profitability. Our strong balance sheet and flexible business model mean we are well positioned to adapt to near-term market conditions while continuing to target structural growth opportunities. I will now hand you back to the administrator, and we are happy to take your questions.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. That is star one and one to ask a question. We will now go to your first question. One moment, please. And your first question comes from the line of Rory McKenzie from UBS. Please go ahead.
Good morning, it's Rory here. Three questions, please. The first two are about the shape of the quarter. Firstly, can you talk about the temp book rebuild in September, maybe picking out some of the more one-off items like U.K. education or what's happening in Australia, and at what level did the, or what stage did the temp book rebuild to the pre-summer levels? Secondly, on permanent hiring net fees, it looks like they took another step down this quarter, but you're reporting a stable exit rate. Can you comment on how and when you saw candidate or client behavior change in the quarter? Maybe those two first, and I've got a follow-up on the cost base.
Thanks, Rory. So I'll kick off with the temp question and the trends that we've seen through the quarter. So as normal, we do see temp volumes drop down in the summer, for obvious reasons, as people go on vacations. And added to that, in the U.K. specifically, where we have a large education temp business, clearly for obvious reasons, while school holidays are off, that drops down as well. So what we look at is to see how that trend rebuilds through September and how quickly that gets back to the levels we were at pre-summer. And what we've seen is the continuation of stable trends in our temp and contracting business around the world....
such that outside of Australia, specifically in the public sector, the rest of our markets have got back to our pre-summer levels by the end of September, which is, for us, a good sign of overall continued stability in that business for us, and which is clearly important because it's 58% of our group. So that's an encouraging backdrop to the market. We've already spoken previously about Australia in the public sector, and that's specifically into the federal government there, where now for best part of probably 16, 17 months or so, since the elections last May, we have seen reductions in our temps into the public sector there, which is consistent with the market overall.
But outside of that, we've had a good recovery overall in temps, which we see as a pretty stable trend. Going on to the question about perm, and clearly we've had a tougher quarter this quarter in perm. We were down 15% in the quarter, and we were down 9% in the previous quarter, so clearly a step down. And if we look across the trends we saw through the quarter, we had a clear drop-down in July, and then I think we've had a pretty stable trend since then. If we look at it on a year-on-year perspective, it's been pretty stable right across the quarter, and we've not seen any deterioration through the quarter.
September, overall, was in line with the rest of the quarter, which is what we talked about. If we look at our overall levels of activity, so we clearly look at job flow and the numbers that we're doing on those, those have recovered well as well. We're back now in September and into October at the levels we were at in June, pre-summer. So there's lots of jobs coming in, lots of work going on. What we don't have complete clarity on is how that converts into successful placements, and we did see that step down in the summer. And we've had a pretty stable trend through the quarter. But clearly, we'll watch that very carefully as we go forward.
But at least there are good levels of job flow coming into the group, and there's lots of activity. It's just about conversion.
Okay, great. Thank you. And then I just wanted to ask a question on the kind of reminder you gave about the drop through impact of declining fees, and also ask about what your headcount plans were into Q2. I guess that typical math of a 2x-2.5x multiplier already considers that you tend to be adjusting headcount in a weaker market. So this should be seen as part of that normal mechanics.
Yeah, of course. So I'll answer the first part of that question, Rory. What do I mean by that 2x-2.5x multiplier? But so put simply, at a headline level, so including the impacts of FX, we were down 9% in this quarter. And, I mean, I'm not going to talk about the second quarter for obvious reasons, but if I apply a 2x-2.5x multiplier to that, I'd expect our profit reduction year-over-year to be somewhere in the region of 20%-25%. So that's what we mean by that guidance, and that's the kind of drop-through that we've seen historically in the group when we've seen a downward trend in the business.
In terms of our headcount plans, clearly, we, we-- Our heads are down 9% versus prior year. We took it down by a further 2% through the quarter. For the last 12 months, we've been managing that capacity in the business to make sure we keep it in line with where our fees are. I think we, we, we feel like we're in about the right sort of place at the moment. We expect, as I said in the script, to bring it down a little bit further in the next quarter, again, primarily through natural attrition. That 2x-2.5x ratio is driven by the reductions in the cost measures we take.
It clearly. If we hadn't made those reductions, it would be a lot higher multiplier, so that it does incorporate those cost savings, which are in focus for us.
Makes sense. Thank you very much.
Thanks, Rory.
Thank you. Once again, if you would like to ask a question, please press star one and one on your telephone keypad. We will now go to our next question, and the question comes to the line of Karl Green from RBC. Please go ahead.
Yeah, thanks very much. Good morning. Couple of questions from me. Just firstly, back on that dynamic in terms of the perm volumes and then perm fees. I think you said, -2 6%, offset by + 11%. You know, strong, strong pricing power. How should we think about that going forward in terms of the durability of that fee strength against those weaker volumes? Are there any kind of obvious historical precedents from, you know, maybe years back, where you've seen that endure for sort of multiple quarters?
Then secondly, just going back to your comments about, you know, job flows, again, sticking with perm recovering back to June levels, just whether there's any incremental color you can add as to, you know, which sectors, which verticals, which geographies are maybe stronger than they were back in June, or, you know, maybe, you know, any, any sort of detail you'd pull out there. Thanks.
Thanks, Karl. So I'll kick off with the perm volume versus pricing dynamic. And we've been pretty active on the front foot in managing our average perm fee now for the last 18, 24 months, and I think it's been a real feature of our performance actually, over that period of time, and no less in this set of results. As you quite rightly highlight, our perm fees were down 15%. But if you look between volume and pricing, that's volume down 26% in what is a really quite tough perm market.
As I've mentioned before, we've got, you know, probably 5%-10% down on overall job flow year-on-year, but it's the conversion of that job flow into interviews and the amount of interviews you're having to put on a job in order to convert that through to placement. It's been absolutely a core part of our performance, is driving the average perm fee. There's probably a little bit of mix in there as well, but we also have been actively driving that pricing as part of our strategy. Overall, we're pleased with where we are on that. Regarding the durability, and I guess the historical precedent part of the question, is quite difficult to answer because I think in my time in the group, this is the first time we've really seen an act...
A forward dynamic in average pricing. Partly, as we know, that we're in a world of higher wage inflation and overall inflation than we've seen for many years. But also I think we've capitalized on prioritizing real skill short parts of the market and really focusing on those, and that's allowed us to drive that dynamic forward. And I think, you know, that's to our credit as well. So how long this lasts for is a difficult one for me to answer. I would certainly expect to continue with momentum in this area through the first half of the year. I think I'd be pretty confident in that.
I think thereafter, it becomes difficult for me to say how long, how long we can continue to maintain that, because clearly, we start to overlap sort of comparatives from a pricing perspective. So, you know, part of it will be also macro-driven on how long we continue to see wage inflation in the economy as well. In terms of perm job flow, the second question, where are we seeing the stronger or weaker pockets of the market? I would pick out technology as an area where we have seen a weaker perm market now for the last... Probably the last 12 months, it's been coming off, but certainly in the last six, it's become noticeably tougher.
In a if I give you a good example in tech, if you look at our overall performance, we were down 7% versus a record performance last year. But if I look at the parts of that, our perm market in tech was down 27%, and our tech business was up... Sorry, our temp business was at 1% in tech. So you can really see there that the tech market's pretty stable, and we've continued to trade well in the temp and contracting area, which is obviously for us, the majority of what we do, but it does underline that there is weakness in the perm market. I think elsewhere, I would highlight, we've had some stronger trends in public sector, which continued to perform well, in perm in the public sector.
We've had a really good education performance in here in the U.K., this quarter, and that's, you know, a fantastic performance by the team there. And also just generally, more generally in the public sector, perm has held up, more strongly than it has in the private sector. And a couple of other areas I'd just highlight, in professional services, we're definitely seeing more strength in the more senior end of the market than in the more junior end of the market. And a good example for us is in senior finance, where, overall we've continued to perform really well. In fact, we're up year-on-year in senior finance, whereas the more junior end of finance was down, year-on-year.
So I think, there's pockets there, which is being driven more by the skill sets and also the skill shortages in the market.
That's great. Thanks, James.
Thank you. We will now go to our next question. One moment, please. Your next question comes from the line of Hans Pluijgers from Kepler. Please go ahead.
Yes, morning, gentlemen. One question from my side. Would you maybe a little bit remind us what the trend was through Q2 of last year? Of course, comps become easier, but give me some feeling on how the trend was through Q2 of last year. Looking at fee income, of course.
Yeah. Thanks. Thanks, Hans. So if we sort of cast our mind back to Q2 last year, we grew at 8% overall, at a group level last year. But what we talked about in Q2 last year versus Q1 was a pretty stable picture overall. I do remember it because we hit a record period in September last year, and then when we moved forward to November, we just beat that record. So we literally just raised the bar by a few thousand GBP. So it was a pretty stable overall picture across the group in Q2 on a sequential basis versus Q1. So whilst we were growing at 8% year-over-year, it was a pretty stable performance overall through that half year. So, I mean, that...
I mean, there's obviously slight moving parts within that. Germany was growing strongly. In Q2, we were up 22% last year, whereas we'd already started to see some weakening in other parts of the world where, particularly the U.S. and Australia were down year-on-year. But, you know, if I look at it overall, it was a pretty, pretty stable picture through that first half.
Okay, thanks.
Thanks, Hans.
Thank you. As we have no further questions at this time, I will hand you back to James for closing remarks.
Thanks, Sharon. If that's all for questions today, we'd like to thank you all again for joining the call. I look forward to speaking to you next at our Q2 results on the eighteenth of January. Should anyone have any follow-up questions, David, Rob, and myself will be available to take calls for the rest of the day. Thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.