14 January 2015

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.
 
(Hays Annual Report and Financial Statements 2014, page 19)
 

No matter what you think of Hays as a competitor in your own market, you would be very foolish indeed to take them lightly as a business.

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