Hays 2013/14 results: UK & Ireland division drives profit rise

As regular readers will know, I am a keen
observer of Hays. This is not just because I started my recruitment
career at Hays (then called Accountancy Personnel in the UK) but because
they have built a recruitment business model that has consistently
delivered outstanding financial results.

 

The Hays plc annual report for 2014 covers
the 1 July 2013 – 30 June 2014 financial year and is available for

download here
.

 

Just in case you can’t be bothered wading
through the whole 122 pages, I’ve had a look and pulled out the stuff I
think is the most interesting.

 

Table #1  

 

 
June 2012 year  
June 2014 year  
Change  
Global Net fees
£734 million
£724.9 m
-1.3%
Temp net fees
£414.0 m  
(56% of total)
£427 m (59%)
+13%
Perm net fees
£320.0 m  
(44% of total )
£297 m (41%)
-7.1%
Global Operating Profit
£128.1 m
£140.3 m
+9.3%
    
Asia Pac consultants
1,112
1,055
-5.1%
UK/Ire consultants
1,934
2,157
+11.5%
Europe/RoW consultants
1,967
2,145
+9.0%
    
Asia Pacific net fees
£242.2 m
£173.9 m
-28.5%
APAC Operating profit
£90.9 m
£49.7 m
-45.3%
 
 
 
 
UK & Ire net fees
£225.3 m
£246.9 m
+9.7%
UK & Ire operating profit
-£6.5 m
£26.2 m
+503%
 

Table #2  

 

   
Asia Pacific*
 largest specialisms by net fees
2013/14 Actual Net
Fees AUD$#
% of total Asia
Pacific net fees
1.
Construction and
property
$66m  
21%
2.
Accountancy &
finance
$50m  
16%
3.
Office support
$35m  
11%
4.
IT
$31.5m  
10%
5.
Resources and
mining
$10m  
7%
 

* Asia
Pacific (by percentage of net fees) comprises: Australia 72%, Japan 8%,
New Zealand 7%, Singapore 5%, China 4%, Hong Kong 3%, Malaysia 1%

#Using
sterling/AUD exchange rate on 30 June, 2014 of
£1 = AUD$1.81

 

In summary, it’s easy to conclude that the move of Nigel Heap, from
running the
Hays Asia Pacific business,
to running the Hays UK & Ireland business has been a hugely successful
one. The underperforming UK & Ireland business had its costs slashed
(235 offices have now been reduced to just over 100) and revenue has
improved, resulting in a dramatic 500 per cent profit turnaround in the
two years of Heap’s stewardship.

 

Unfortunately, in the same two year period the Hays Asia Pacific
business has slumped, with operating income down by nearly one third and
operating profit nearly halved. The conversion rate in Asia Pacific,
although down from 37.2% to 28.6% over the past two years, is still
comfortably the best conversion rate within the Hays empire.

 

Of course, Heap has been the beneficiary of the UK’s vastly
improved
economic position

while Heap’s successor in Australia/New Zealand, Nick Deligiannis, has
had to contend with very subdued economic and recruitment activity over
the same period after riding the recent mining and resources employment
boom.

 

The most recent trading
update issued by Hays last Thursday
indicates that Asia Pacific like-for-like growth in the December quarter
was up 11% with Australia and New Zealand recording a 10% improvement so
the good news for Hays shareholders (and Deligiannis and his executive
team) is that the downward spiral seems to have been arrested.

 

Of some concern is the flat top line (ie operating income or net fees)
group result for the past three years. The recent freefall in the
Australia/NZ business has clearly been the major factor in this decline.

 

Other interesting snippets include:

 

  • Hays has  8,237 global employees (7,800 in 2012) including 5,357    consultants,
    (5,013    in 2012) in  237   offices (245 in 2012) in 33    countries
  • 5,025 of these employees are women (61%) and women occupy 12 out of
    59 senior leadership and management roles (20%)
  • Hays has not expanded into a new country since an office in Malaysia
    was opened in May 2012
  • Employee engagement was 85%; an improvement on the 83% recorded in
    2012
  • IT (17%), Accountancy & Finance (16%) and Construction & Property
    (16%) represent  49%    of Group net fees, down from a combined
    total of 64% two years ago
  • Like-for-like net fees per consultant per annum grew from
    £137k in 2012 to £140k (AUD$253k) in 2014
  • Net fees from the non-UK & Ireland part of Hays has declined 5.9% in
    the past two years from £509m in 2012 to £479m in
    2014
  • 12% net fee decline in Australia & New Zealand over the 2014
    financial year, with Perm business down 20%
  • Germany (net fees of £165m) has now overtaken
    Australia (£126m) as the second largest country (by net fees) after
    the UK (£239m)
  • 211 senior managers participated in the Hays Fast Forward and
    Advanced Management Training during the year
  • Hays is the 23rd most-followed company worldwide on
    LinkedIn with over 830,000 followers
  • In July 2013 Hays became the Official Recruitment Partner of
    Manchester City FC for next three years, seeking to build their
    brand via the English Premier League – with their matches viewed
    across 175 countries by 4.7 billion people in 645 million homes
 

Hays have a very simple
goal:

 

Our long-term aim is
clear; to be the world’s pre-eminent specialist recruitment business.
Achieving this will mean us developing the best brand in our industry,
delivering the best service, being the company that new recruits aspire
to work for and of course delivering the best financial performance
through the cycle.

 

(Hays
Annual Report and Financial Statements 2014, page 17)

 

Hays remain very buoyant
about their future:

 

The long-term
opportunities to build large, profitable operations in our industry are
immense. In most countries around the world, the use of recruitment
agencies to find professional, technical and skilled talent is still at
a very early stage of development.

 

Of our significant
businesses, only the North American, UK & Ireland and, to some extent,
Australian and French markets show a degree of maturity, and yet they
too still offer very significant opportunities for growth.

 

As the market leader in
this industry, our task is to identify markets that offer us the best
long-term potential and invest in them to create businesses which, over
time, will become material to us.

 

(Hays
Annual Report and Financial Statements 2014, page 18)

 

And how they will
capitalise on this future:

 

As the markets around
the world continue to show general improvement, our focus and priorities
for the new year are unchanged as we enter the second year of our
five-year plan. We will continue to seek ways to further improve
consultant productivity, for example by utilising the new technologies
we are working with, and investing further in our training and
development programmes worldwide.

 

We will continue to
invest in those businesses where we need additional

capacity and I expect us
to recruit hundreds of new consultants around the world over the year.

 

However, we will also
ensure that we focus our resources on those businesses best positioned
to deliver a meaningful contribution to the Group’s results over the
next five years. Where we need to take tough decisions to protect
profitability, we will do so as I believe every single business needs to
make a positive contribution to our  growth.

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