18 September 2012

Global profit up 12%: Inside the Hays financial results for 2011/12

As Australia comes to the end of the 2012/13 financial year reporting season, the recruitment sector is digesting the flat market performance of its few remaining ASX –listed companies (my annual review of the performance of the publicly-listed recruitment companies will be out in early October). Overall it’s been a pretty uninspiring year for those with their money in recruitment stocks.

Meanwhile, over in the UK, Hays PLC have released their 12 month review for the year ended 30 June 2012 and what an interesting mix of data and commentary it was.

Here are some headline numbers:

 
 June 2012 year
 June 2011 year
Change
Global Net fees
£734 million
£672.1 m
+9%
   Temp net fees
£414.0 m
(56% of total)
£365.4 m (54%)
+13%
   Perm net fees
£320.0 m
(44% of total )
£306.7 m (46%)
+4%
Underlying temp margin
14.6%
14.7%
 
Global Operating Profit
£128.1 m
£114.1 m
+12%
 
 
 
 
Asia Pac consultants
1,112 (48 offices)
1,071 (46 offices)
+3.8%
UK/Ire consultants
1,934 (110 offices)
2,158 (125 offices)
-10.4%
Europe/RoW consultants
1,967 (87 offices)
1,714 (84 offices)
+14.8%
 
 
 
 
Asia Pacific net fees
£242.2 m
£210.0 m
+10%*
APAC Operating profit
£90.9 m
£78.1 m
+11%*
·         Denotes like-for-like increase (ie at constant currency)

Nigel Heap’s return to the UK as MD (UK & Ireland) was reported earlier this year and the extent of the job he has in front of him is evidenced in the closure of 125 Hays offices since 2009 that now sees the UK/Ireland Hays network reduced to  110 locations.

Heap’s appointment was the obvious consequence of not only the Asia Pacific division of Hays delivering year-on-year double figure net fee and operating profit growth, but the astonishing rate with which Heap and his leadership team have been able to turn net fees into operating profit (ie conversion rate).

Conversion rate by division
2012
2011
Asia Pacific 
37.5%
37.2%
Europe/Rest of the World
16.4%
14.7%
UK/Ireland
-2.9%
1.5%

To put this into context, for the 12 months to June 2012 the Europe/Rest of the World division generated £41.3 million more net fees than Asia Pacific, yet made £47.1 million less operating profit. That is an incredible result that shows Heap’s masterful control over the critical cost component in a recruitment business; consultant remuneration.

Other interesting snippets from the Hays review include:
  • Hays has 7,800 employees, (5,013 consultants) in 245 offices in 33 countries.
  • Record performance in Continental Europe & Rest of World, delivering 23% net fee growth with Germany up 30%, Brazil up 30%, Canada up 25% and France up 17%. Germany now accounts for 51% of this division’s net fees and a majority of the division’s profits.
  • UK net fees down 7%.
  • Excellent cash performance, with 127% conversion of operating profit into operating cash flow.
  • Accountancy & Finance, Construction & Property and IT represent 64% of Group net fees.
  • Group operating profit in the second half of the year was 3% higher than in the first half, despite net fees in the second half being sequentially 4% lower.
  • Opened an office in Guangzhou (fourth in China) and in May 2012 launched Hays Malaysia, the seventh Asia Pacific country of operation and the 33rd country for the Group. In Continental Europe/RoW offices were opened in Cologne and Leipzig (Germany), Houston (USA) and Gosselies (Belgium). Also launched new businesses in Colombia and Chile.
  • The average fee per placement increased by 6% driven primarily by the mix of business, as more perm fees were generated by the international businesses where the average salary of candidates placed is higher. This was partially offset by a 3% decline in placement volumes.
  • New Zealand delivered net fee growth of 34%. The public sector business, which accounts for 24% of net fees in Australia & New Zealand, delivered good growth of 13%.
  • Aus/NZ accounted for 87% of APAC net fees and Asia 13%.

Nowhere in the report does Hays talk about  its RPO business, which is an interesting omission. Maybe it’s not significant enough to warrant a mention but given how many years Hays have been operating in this space and the increasing trend of larger companies to utilise the services of a RPO, I was surprised it wasn’t commented upon , even in passing.
 
Clearly Hays remains committed to investing in its technology and processes:
 
We continue to build a stronger, broader-based and more efficient business. Our best-in-class IT systems enable us to interact with new media and social networks effectively, provide data capture on candidates and opportunities globally and allow us to manage administration more efficiently. Each of these elements are critical to ensure we continue to provide a market-leading service to our clients and candidates, and anticipate and respond to their evolving needs. (page 4)

Although the review finished on this cautionary note:

Overall trading conditions became more challenging through the second half, particularly in the fourth quarter. The difficult global economic environment continues to have a negative impact on candidate and client confidence in many markets, particularly in permanent recruitment markets.
 
Conditions in Australia are sequentially stable overall, with comparatives becoming tougher. We continue to see growth in Western Australia, although this is offset by tougher conditions elsewhere. In Asia, markets with significant weighting towards banking remain particularly tough. In Continental Europe & RoW, we see continued strong growth in Germany and Canada, and good growth in markets such as Brazil and Russia, but growth is slowing across much of the rest of the division, and net fees are declining in certain countries. In the UK, the market continues to be very difficult.
 
Looking ahead, whilst we continue to see pockets of growth and opportunity in certain markets, overall the environment remains challenging and in some countries very difficult. We will continue to react quickly to changing conditions in each market, investing selectively to capitalise on growth and defending the financial performance where markets are more difficult.
(page 8)
 
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2 comments:

  1. George Smith19/9/12 7:15 AM

    I find the Hays model very profitable , but the model recruiters tend to avoid at all costs.
    Recently alot of posts have talked about how its the relationship and delivery model and PSA's, but from where I sit Hays tends to look for the full margin business in the SME type market.

    I think the bottom line is the evolution of the recruiter wanting a delivery and relationship based model won't ever be as profitable as a hard core KPI measured sales environment where you sink or swim.

    One would have to assume one has it very right and one has it very wrong.

    As an ex Hays employee and someone who rightly points out their successes, I would be interested in your take Ross.

    Are we breeding lazy righteous recruiters who are as sharp as a brick and don't want to be held accountable ? From the financial reports, one would have to assume Hays has it very right and the rest have it very wrong.

    ReplyDelete
  2. Thanks for your comment, George. I don't think it's as black and white as you suggest. As you mention Hays has been very smart in creating a delivery and pricing model for the PSA/RPO/tender market (the big end of town) and a separate pricing and delivery model for the SME market.

    The difficulty with many other recruitment agencies is that they are trying to cover both of those markets with, fundamentally, the same pricing and delivery model for both and they haven't been able to make a decent profit doing that.

    To your last point I think Hays has been hugely successful at creating a highly accountable culture, whether that's 'good' or 'bad' from a consultant's point of view will be an individual preference. What's not in dispute, in the APAC region at least, is that this accountable culture has made Hays an enormous amount of money and that, as a result, Hays have been able to offer a genuine career path for ambitious young recruiters who have consistently delivered excellent results.

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