Hays results highlight improving conditions in certain markets - City Comment
27 February 2014
Interim results from Hays that came out yesterday [26 February] provide further evidence that an increasing number of recruitment markets are gradually improving. During the October to December quarter, group level net fee income (NFI) increased 2%. However, this headline number masks larger gains in certain key territories, notably the UK (+10%) and Germany (+6%).
Thu, 27 Feb 2014 | By Adrian Kearsey, equity analyst at Hardman & CoInterim results from Hays that came out yesterday [26 February] provide further evidence that an increasing number of recruitment markets are gradually improving. During the October to December quarter, group level net fee income (NFI) increased 2%. However, this headline number masks larger gains in certain key territories, notably the UK (+10%) and Germany (+6%).
Over recent quarters, trading in the UK and Ireland division (33% of group NFI) has experienced improving NFI trends, with year-on-year growth increasing from -3% during fiscal 2Q13 (ie. October to December 2012) to +10% during fiscal 2Q14 (ie. October to December 2013). The recovery appears to be broadly based with growth in the private sector (+6% during the last six months) and public sector (+18%). Within the private sector construction, IT and office support delivered double digit growth. Elsewhere, accountancy & finance moved into positive territory. Most regions are experiencing improved activity levels, indicating a relatively healthy market. Consultant headcount has moved higher, albeit at a slower rate to NFI, thereby enabling the conversion rate to move higher. That said, at 8.3% for the first half there is considerable scope for further expansion.
The recovery in Europe/Rest of World division (42% of group NFI) has principally been driven by further expansion in Germany (54% of division NFI). Both temp and perm expanded, as did all key specialisms. Within the mix accountancy & finance, construction, legal and sales & marketing all delivered double-digit growth. Elsewhere in Europe, Spanish and Italian activity levels significantly jumped, albeit from a low base. Outside of Europe, Chile, Columbia and Mexico performed well. However, NFI in Brazil fell 32%, reflecting political and economic problems in the country.
The Asia-Pacific division (25% of group NFI) continues to be impacted by fee income declines in Australia, with divisional fees 10% lower than the period a year ago. During the first half of fiscal 2014 (ie. July to December 2013) VFI declined 17% in Australia, principally reflecting further contraction in resources and mining activity. These activities are concentrated in Western Australia and Queensland; combined these operations contracted 28%. The resources and mining segment is now 70% down from its peak. Management have indicated that trading in recent weeks has stabilised but they are reluctant to point to an upturn. Investors will therefore be waiting to see what management have to say about Australia when the company makes its next trading update (due in early April).
Elsewhere in the division, things are looking more upbeat. Each of the five countries in the region delivered double digit growth. Top of the leader board was Singapore (+36%), with Hong Kong a respectable second (+27%). In Japan, NFI increased 19%, driven by a “sustained improvement in sentiment”. Given the sustained government stimulus in the country, we expect this trend has further to run.
Overall the results point to an improving recruitment market, with confidence levels steadily improving across an increased number of territories. Allied to these gains are productivity gains which are helping drive higher levels of profitability. This trend is likely to remain in place for some time and we expect the company will deliver good earnings growth as the cycle progresses.
Over recent quarters, trading in the UK and Ireland division (33% of group NFI) has experienced improving NFI trends, with year-on-year growth increasing from -3% during fiscal 2Q13 (ie. October to December 2012) to +10% during fiscal 2Q14 (ie. October to December 2013). The recovery appears to be broadly based with growth in the private sector (+6% during the last six months) and public sector (+18%). Within the private sector construction, IT and office support delivered double digit growth. Elsewhere, accountancy & finance moved into positive territory. Most regions are experiencing improved activity levels, indicating a relatively healthy market. Consultant headcount has moved higher, albeit at a slower rate to NFI, thereby enabling the conversion rate to move higher. That said, at 8.3% for the first half there is considerable scope for further expansion.
The recovery in Europe/Rest of World division (42% of group NFI) has principally been driven by further expansion in Germany (54% of division NFI). Both temp and perm expanded, as did all key specialisms. Within the mix accountancy & finance, construction, legal and sales & marketing all delivered double-digit growth. Elsewhere in Europe, Spanish and Italian activity levels significantly jumped, albeit from a low base. Outside of Europe, Chile, Columbia and Mexico performed well. However, NFI in Brazil fell 32%, reflecting political and economic problems in the country.
The Asia-Pacific division (25% of group NFI) continues to be impacted by fee income declines in Australia, with divisional fees 10% lower than the period a year ago. During the first half of fiscal 2014 (ie. July to December 2013) VFI declined 17% in Australia, principally reflecting further contraction in resources and mining activity. These activities are concentrated in Western Australia and Queensland; combined these operations contracted 28%. The resources and mining segment is now 70% down from its peak. Management have indicated that trading in recent weeks has stabilised but they are reluctant to point to an upturn. Investors will therefore be waiting to see what management have to say about Australia when the company makes its next trading update (due in early April).
Elsewhere in the division, things are looking more upbeat. Each of the five countries in the region delivered double digit growth. Top of the leader board was Singapore (+36%), with Hong Kong a respectable second (+27%). In Japan, NFI increased 19%, driven by a “sustained improvement in sentiment”. Given the sustained government stimulus in the country, we expect this trend has further to run.
Overall the results point to an improving recruitment market, with confidence levels steadily improving across an increased number of territories. Allied to these gains are productivity gains which are helping drive higher levels of profitability. This trend is likely to remain in place for some time and we expect the company will deliver good earnings growth as the cycle progresses.
