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Edited Transcript of HAS.L earnings conference call or presentation 30-Aug-18 8:00am GMT

Full Year 2018 Hays PLC Earnings Presentation

London Dec 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Hays PLC earnings conference call or presentation Thursday, August 30, 2018 at 8:00:00am GMT

TEXT version of Transcript


Corporate Participants


* Alistair Richard Cox

Hays plc - CEO & Executive Director

* Paul Venables

Hays plc - Group Finance Director & Executive Director


Conference Call Participants


* Andrew Charles Grobler

Crédit Suisse AG, Research Division - Analyst

* Anvesh Agrawal

Morgan Stanley, Research Division - Research Associate

* Hans Pluijgers

Kepler Cheuvreux, Research Division - Head of Research of Benelux

* Kean Marden

Jefferies LLC, Research Division - Equity Analyst

* Paul Daniel Alasdair Checketts

Barclays Bank PLC, Research Division - Director




Alistair Richard Cox, Hays plc - CEO & Executive Director [1]


Okay, good morning, everybody. I think we're pretty much all here. Let us kick off, and welcome to our full year results. I'm pleased to say that 2018, I described it as a landmark year for us. And I think that's true in many ways. We passed GBP 1 billion in fees for the first time ever in our history. We have 22 countries deliver an all-time net fee record. We did complete our 2013 5-year plan. If you remember, that was to broadly double our profits from where they were in 2013, and I think we've achieved that. We've had another excellent year in terms of profit and cash performance. That's obviously allowed us to pay out significant distributions again to our shareholders for the second year running. And on top of that, we also celebrated our 50th birthday. So we had a big birthday cake for that.

It wasn't a year, however, without sadness. I'm thinking, in particular, about the passing of our Chairman, Alan Thomson. Many of you all knew Alan well. He provided our board with immense integrity, support, leadership for the last 8 years. He was a wise, as well as a humble man. We'll miss his guidance. We'll miss his counsel, and we'll miss his good humor, and our thoughts go out to his family and all of those that knew him, and I think these results today, they're a fitting testament to Alan.

However, we all move on. I'm delighted our new Chairman, Andy Martin, is with us in the audience today, and I very much look forward to working with Andy as we take the company forward into the future.

So as is our usual format, I'll take you through our operating review. I'll then hand over to Paul, who'll walk us through the detailed financials and the current trading. And I'll be back and I'll give you an update on our strategic thinking, particularly as we embark on our next 5-year plan, which remember, is again, to broadly double our profits by FY 2022.

So let me turn to the results. As you've seen already, net fees increased 12% to GBP 1,073,000,000. Operating profit was up 15% to GBP 243 million; EPS, up 18% to 11.44p. And that performance allowed us to drive an increase in the full year dividend, an 18% increase in the full year dividend, to 3.81p; plus the board proposing our second special dividend of 5p per share for a total of GBP 72.9 million of special.

When you look behind these results, there are 3 main priorities: number one, to maximize our financial performance; number two, to invest in and grow our business, which means further diversification; and then thirdly, to deliver world-class efficiency, both in terms of profit, as well as in terms of cash generation. And when you look at the past year, I do think that we've delivered on all 3 of those.

Our profits at GBP 243.4 million was slightly ahead of market consensus and consensus itself had risen something like GBP 10 million during the course of the year. We took the opportunity to invest aggressively in additional people, additional offices and in upgrading our systems. So consultant headcount was up 8% globally year-on-year, and that was driven by our international businesses, which was up 12%. We did open 7 new offices around the world. We materially expanded another 20, all of that obviously to make sure that we've got in place the capacity to deliver against our future growth.

And I think the benefits of our international diversification and investment that we've made over the last 10 years, they're crystal-clear in this set of results. 80% of our operating profits were generated outside the U.K., 22% of our markets around the world, delivering record net fees. And while the U.K. market has remained subdued, I think our team there has produced a great result, with profits up 13%, helped by their strong cost control in that business.

And then finally, despite our many investments, we did continue to improve our industry-leading conversion rate, up another 50 basis points to 22.7%. And in many ways, I think that this is the strongest set of results that I've ever had the privilege of delivering. So let me give you some color on each of the divisions, and I'll start, as usual, in Australia & New Zealand.

Back in -- over in ANZ, in the last 12 months, we grew both fees and profits by 14%. I've often used the word consistency to best describe Australia in recent years, but I think after 16 consecutive quarters now of growth, and with the final quarter last year delivering our fastest growth in 10 years, I think that actually understates our performance there. Every single state and every single specialism were up, including places, such as Victoria and Queensland, which both grew over 20%. I think that's impressive by any measure. But given that we are the market leaders in Australia by a long, long way, I think it's notable that we continue to pull further away from our competition there.

Perms was up 16%, and Temps was up 13%. We hit record new levels of Temp workers on assignment with 21,000 Temps and Contractors on assignment for the first time ever. And we've had -- with markets as supportive as these, you can understand that we invested aggressively. We grew our own Australian headcount by 12%.

We've also benefited from the many technology investments that we've made. For example, our partnership with SEEK helps us find exactly the right match of candidate to a job vacancy more quickly than ever before, and its investments, such as that, that have allowed us to grow well in excess of the market and further aim forward our market leadership, and our net fees in Australia now are greater than the next 6 competitors combined.

As we look forward, I think the local economy remains in good health. Clearly, the last week has shown that there's a more fluid political situation over there. And elections are scheduled for some time in the spring, at the latest, next year, and that will bring the usual short-term pause in terms of public sector activity. But remember, there is an absolutely vast state and federal infrastructure program in place across Australia, and that, combined with strong candidate and consumer confidence, I think, bodes well for the future. And I think that our diversified business out there will continue to grow, and it will continue to lead the market.

Turning now to Germany. Germany, as you know, is our largest business in the world. And I've said before that I think Germany is the most exciting recruitment market in the world, and you can see on this slide here exactly why I believe that. We've delivered another strong fee performance, up 16%. Remember, that's despite fewer working days in FY '18 versus the prior year. The non-perm business, as you know, is around 85% of our German fees. That was up 14%, with contracting up 11% and Temp up 22%. I think the Perm business had an absolutely superb year. It was up by over 1/3.

Looking at the largest specialisms, IT & Engineering are the largest 2, but they both grew by 13%. But look at the newer specialisms as well. They now make up around 30% of our total German fees, and they were excellent. So Accountancy & Finance, up 42%; Sales & Marketing, up 32%; and Legal up by an impressive 74%. Yet, remember, these newer specialisms, they represent still relatively untapped markets for us, so they offer huge long-term potential.

As you will recall, about 18 months ago, we took the decision to accelerate and to increase our investment in Germany. We're already the market leader, but we're determined to capitalize on the structural opportunities that are on offer there. So with greater investment going into the business, we did see a dilution of near-term profits. However, profits were still up 7% on a day adjusted basis. That was absolutely in line with our plans, and it sets us up very well for the future. Much of that accelerated investment went into additional capacity, and consultant headcount was up by 13%. Putting that into some context, that's around 200 additional people, or put simply, it's the equivalent of creating a new major player from scratch in the market in just 1 year.

We also increased the physical network. We opened 3 new offices, and we expanded a further 5. And finally, we also upgraded our IT operational systems, increasing, as well as automating back office capacity so that, that creates scalable cost advantages, as we grow volumes into the future.

So in summary in Germany, just as we set out at the Investor Day back in November, as the market leader in that market, far ahead already of the competition, we see a once-in-a-lifetime opportunity to build real scale. So it's appropriate, I think, that we consciously sacrifice some of our short-term profit growth to build our business faster. That's exactly what we have done in the last 12 months, and I'm very pleased with the progress to date.

Back here in the U.K., we all know business confidence remains uncertain. Fewer clients are invested in large infrastructure projects, but the positive news is that job levers continue to be replaced. And remember, this is a pretty much a full employment market, so candidate confidence remains good.

So against that backdrop, we still grew fees by 2%, and profits up an impressive 13%. I'll be the first to admit some of that profit growth it came from legacy IT assets becoming fully depreciated. We flagged that at previous results presentations. But on top of that, the overall cost control from the team in the U.K. was particularly strong.

Looking at the business, the private sector is 3/4 of the U.K. business. That grew 3%. And the public sector, it has remained more difficult, and it did slip 2%. However, what's noticeable is the rate of decline in the public sector definitely improved as the year went on, helped by easier comps as we lapped the negative impact of the IR35 legislation changes that were in the spring 2017. Temp fees were up 3%. That shows the relative resilience of that sector. Perm was up a more modest 1% in a tough market. And then finally, looking regionally, London, which is about 1/3 of the U.K. business, was up 3%. The South West & Wales did a little better, up 8%, while the Midlands and the North, as you can see, were more subdued. I think I'd need to give a special nod to Ireland, another great year on top of the year previous: net fees, up 16%; profit, up by 1/4. So overall, in a tough market here in the U.K., we're focused, as you'd expect, on consultant productivity and cost control. Headcount was down very marginally in the year.

And then finally turning to the Rest of the World business. This comprises 28 separate markets. And in many ways, I think this was the standout performance over the last 12 months. Net fees were up 17%, and operating profit was up a phenomenal 51%, and that growth was broad based. 21 of those 28 countries delivered all-time net fee records. And as more and more of our countries now reach critical scale, you can see in these results just how strong the operating leverage was.

Now I'm going to come back to the Rest of the World in my strategy section in a few minutes time, but let me just offer a few highlights right now. So Europe outside Germany delivered 8% -- 15% net fee growth. Within that division, France is our biggest Rest of the World business. France grew net fees by 14%. That's its fourth consecutive year of double-digit growth. The next largest European business is Belgium. They were up 18% in fees, 26% in profit, followed in third place by Spain, net fees and profit, up 15% and 23% respectively.

Over in the Americas, net fees were up 21%. That was led by the United States, which itself was up 28%, and the States accelerated in the second half. Canada and Brazil were both up 16%. I think it's important to note that this region in the Americas, it's fast becoming an important part of the group, and we invested very aggressively in headcount, up 21% in the States and 23% in Canada, for example.

Across in the other side of the world, in Asia, another excellent performance from the Asian team, right across the region. Fees were up 23% and profits were up 72%. Five of the 6 markets we operate in across Asia delivered all-time record fees.

So finally, a word of conclusion around our successful 2013 5-year plan. It ended in the year just gone, and it's now been obviously superseded by our 2022 aspirations. But as you know, we've targeted a profit outcome of between GBP 200 million and GBP 300 million back in 2013. So the GBP 243.4 million that we've just reported today is broadly double the 2013 base of GBP 125 million operating profit.

So given the effects of Brexit on the U.K. business, we certainly did not plan that back in 2013 nor necessarily the accelerated investments in many parts of our business. I think to deliver something like that is an absolutely striking result. And when you look within the detail, Australia delivered GBP 69 million. That's pretty much the midpoint of our 5-year aspiration. That's a strong recovery from the GBP 44 million in FY '16 straight after the mining industry collapse.

Over in Germany at GBP 86 million, we were just within the 5-year range of 85 to 115. And yet that's despite the very deliberate increase in investment over the last 2 years in particular. To put that in context, our consultant headcount has grown by 81% in Germany in the last 5 years, the life of this plan.

Again, in the U.K., despite the Brexit uncertainty, the U.K. profit last year was within our anticipated range, and our market position has been enhanced over that time frame. And then finally, in the Rest of the World, we surpassed the top of our range by GBP 11 million. That's nearly 1/4 above the top of the range, and I think that provides the perfect foundation as our focus shifts to our 2022 aspirations.

So in summary for last year, I think we're extremely well-positioned to continue to develop each of our businesses. I'm very excited about what we can achieve given the balance, given the scale and given the diversity of our platform across the globe.

So I'll now hand over to Paul for a more detailed review of the financial performance, as well as an update on our current trading. Paul?


Paul Venables, Hays plc - Group Finance Director & Executive Director [2]


Thank you, Alistair, and good morning, everyone. Starting with the highlights of the financial review. Firstly to summarize what's been a strong financial performance. As you can see on the slide, net fees increased by 12% on a like-for-like basis, and we generated GBP 243.4 million operating profit, with strong underlying profit performances across our international businesses and good cost control in the U.K. As a result, EPS increased by 18%, and we propose an 18% increase in the core full year dividend to 3.81p per share, as well as our second special dividend of 5p per share for a total proposed dividend payout of GBP 128.4 million.

Overall, in market conditions, which have been mixed but overall supportive, these results were a testament to our ability to both invest and capitalize on long-term growth opportunities, such as Rest of the World and Germany, whilst at the same time, focus on driving improved consultant productivity and good cost control in markets, such as the U.K. and Australia in order to consistently maximize our group profit performance. This balanced approach and consistent delivery of strong results over several years sets our performance apart from the competition.

Moving on to the more detailed income statements, on both the actual and like-for-like basis, net fees increased by 12% and operating profit by 15%. And as you can see at the bottom of the slide, actually, net currency movements versus sterling were minimal in the year, reducing fees by GBP 0.1 million and increasing operating profit by GBP 1 million. I'll cover FX in a bit more detail later in the presentation.

On the regional slide, as Alistair has already covered the trading in detail, I'm purely going to give some technical issues and a bit of color. So starting with ANZ, profit growth was in line with fee growth at 14%, a good performance, considering the significant expansion of all of our major offices and combined investments in IT systems, which increased our cost base in ANZ by GBP 3 million during the year.

In Germany, trading was impacted by a loss of 3 working days versus the prior year. This reduced our operating profit by GBP 3 million, and adjusting for this are fee growth of 17% and profit growth of 7%. But the remaining shortfall of profit growth versus fee growth in Germany was primarily due to the decision to invest significantly in people, offices and systems. In addition to the 13% increase in consultant headcount, we opened 3 new offices, materially expanded 5 others at an incremental P&L cost of GBP 2.5 million, and upgraded our IT operational back-office systems at a further P&L cost of circa GBP 2 million. This is a clear statement in our long-term confidence in the market and our determination to build appropriately for the longer term.

In the U.K., as previously disclosed, we benefited from the end of depreciation on our 2010 systems transformation, which reduced costs by GBP 4.6 million in the year. But as we've also said before, part of this benefit was offset by increased IT spend elsewhere, including the obvious area of cybersecurity. Excluding that depreciation benefit, U.K. profit grew by GBP 1.5 million, demonstrating our strong focus on cost control.

Moving on to look at the performance in our Perm and Temp businesses, our Perm business, which comprised 42% of net fees, grew by 16%, driven by an 11% increase in volume and a 5% increase in the average Perm fee. The increase in Perm fee was driven by increases above inflation in Australia and the Rest of the World and a mixed benefit from the excellent Perm performance in Germany, which is a higher average Perm salary. And we estimate the range of underlying wage inflation in the economies that we deal in at 2% to 3% globally.

Our Temp business, which comprise 58% of group net fees, increased by 10%. This comprised a volume increase of 13%, partially offset by a reduction in underlying Temp margins by 50 basis points in our Australia, Germany and U.K. markets.

Exchange. And in some respects, this slide of all needs a little bit of a health warning, and I'll explain as we go through. On this slide, we provided details of P&L sensitivity to changes in key exchange rates. The key parts here is the material sensitivity in respect of movements in the Australian dollar and especially the euro versus sterling for the group. In fact, each 1 cent movement in the annual average exchange rate impacts operating profit by 0.4 million and 1.2 million, respectively. As mentioned earlier, overall, net currency movements versus sterling in FY '18 were minimal.

Looking at FY '19, and the best way of covering this is 3 weeks ago, we had a GBP 3 million exchange negative coming into this year. On Tuesday night, we had a 3 million positive. That's what's on the slide, but you have a speech yesterday in Europe and a speech by the Bank of England, and that 3 million has disappeared. So my point here is, it's a sensitivity. As we said before, key, the group doesn't undertake any P&L hedging translation.

So moving on to conversion rates, which increased in the year by 50 basis points to 22.7%. Within that, there are a number of moving parts. I've already covered the changes in exchange rates in ANZ, Germany and the U.K. In the Rest of the World division, building on Alistair's point, conversion rates increased by 300 basis points to 12.2%, driven both an acceleration of growth, but also a strong drop-through of incremental fees into profit, especially in Asia and Europe. This increase in conversion rates has been delivered despite significant growth investment. In addition to the headcount growth we've covered earlier, we have opened 7 new offices and 20 significant expansions, including all the major offices that we have across the group. This has increased property cost in the year by GBP 4 million, and we expect property cost to increase by a further GBP 6 million in FY '19.

Group drop through rates for the full year were in line with our guidance of 26%. And looking forward, and despite both property and further investments we expect to make, we anticipate a modest increase in group drop-through rate of incremental fees into profit in FY '19.

Coming on to interest rate and tax, net finance charge for the year was GBP 4.9 million, with a reduction in net interest charge and debt and other interest payable. We expect net finance charge for FY '19 to be around GBP 3 million.

Turning to tax. Our effective tax rate decreased to 30.5% due primarily to the increased profits in lower tax jurisdictions, many of those in the Rest of the World, and also a reduction in the U.K. tax rate. And we expect the tax rate to remain at 30.5% in FY '19.

Moving on to earnings per share, basics earnings per share was 11.44p, an 18% increase versus prior year. This reflects the group's higher operating profit, lower interest and lower tax rate.

On this slide, we summarize the key components of our cash flow. In the chart on the left, we detail the sources of cash flow starting with operating profit of GBP 243.4 million. We add back noncash items of GBP 25.9 million, primarily depreciation, amortization of fixed assets and also share-based payments. We then deduct the GBP 25.8 million outflow in respect of working capital, which is better-than-expected due to strong management of trade debtors. This leaves an operating cash flow of GBP 243.5 million, an excellent underlying conversion of profit into cash of 100%. Out of operating cash, we paid tax, GBP 65.7 million, and net interest of GBP 2 million, leading to free cash flow of GBP 175.8 million.

And then on the right-hand side, we set out how we've used the cash, CapEx of GBP 25 million, pension deficit payments of just over GBP 15 million, total dividend payments of GBP 109.7 million, which represent last year's special dividend payment made in November '17 of only GBP 62 million and core dividends of GBP 48 million, and finally, GBP 13.7 million payment related to the acquisition of the remaining 20% equity in Veredus, which we paid in January 2018. And importantly, looking forward, we expect CapEx to be at about GBP 30 million in the next financial year.

Moving on to cash performance and cash balance. We had a strong cash performance. We ended the year with net cash of GBP 122.9 million, and therefore I don't think we need to cover the covenant headroom.

Balance sheet. Two things to cover. The first on the balance sheet, a movement in IAS 19 pension accounting position. It was GBP 76 million surplus from a small deficit. This is primarily due to favorable changes in demographics, financial assumptions, rising asset values and company contributions, probably the first year where everything gets moved in our direction. We also saw an increase in working capital, which I've already explained, which we're pretty happy with.

Outside of the balance sheet, but in the prelims announcement today, we stated that in August 2018, the pension scheme trustees, in agreement with Hays plc, entered into a bulk annuity policy, will buy in with Canada Life for a premium of GBP 270.6 million in respect of insuring all future payments to the existing pensioners of the Hays defined benefit scheme as of December 31, 2017. Now this payment was funded solely by assets coming out of pension scheme. So there's no additional company contribution. But most importantly, this material balance sheet derisking exercise, in line with our long-term strategy to reduce the future volatility of the group's defined benefit schemes, and specifically the financial impact on the group, so this is a big positive for us going forward.

And finally, 2015 triennial valuation quantify the actuarial deficit at GBP 95 million. There's no change to our deficit payments of GBP 16 million per annum, and the next actuarial valuation has commenced with the results anticipated by the time we report our results next year.

Moving on to dividends. Our priorities for free cash flow are unchanged. Number one, to fund the group's investments and development. We never scrimp on that. The second is to maintain a strong balance sheet, and then to deliver a core dividend at a level which is sustainable, progressive and appropriate. In line with our dividend policy outlined in the middle box on the slide, the board proposes to increase the final core dividend by 22% to 2.75p per share, resulting in an increase to the full year core dividend by 18% to 3.81p per share, and that is covered by 3x earnings.

Additionally, in line with our policy on the uses of excess cash flow, outlined in the bottom box, the board recommends the payment of a special dividend of GBP 72.9 million, equivalent to 5p per share, which, of course, just happens to be up 18%. So importantly, GBP 128.4 million of dividends of this, with a lot more profit growth and cash growth to come.

So in summary, with supportive market conditions across the vast majority of our international businesses, we've delivered a strong set of results. We've added significant capacity into many of our major businesses, including Germany, Australia, France and the U.S.A. But despite this material investment, we've driven strong profit growth in our international businesses, whilst at the same time, improving the underlying profitability of our U.K. business. As a result, we further improved our sector leading conversion rate to 22.7%. And our ability to turn profits into cash mean we end the year with a net cash position of GBP 122.9 million, and have increased total dividends by 18% to 8.81p or GBP 128 million.

In conclusion, these results are further testament to significant diversification we've achieved in our business over the last 10 years, with our non-U. K. business now representing 76% of group net fees and more than 80% of profits.

So enough of the past. Let's move on to the future, current trading. Almost no new news. So we continue to see strong overall conditions in the vast majority of our international markets, whilst the U.K. remains uncertain, but stable. In Australia, we continue to see good activity levels, and the key part here is actually activity levels continue to be at levels slightly better than we had in the last couple of quarters, but we now move into tough comparators and we've been very clear with everybody. Therefore, it's good rather than strong.

In Germany, growth remained strong overall despite tough comparators. In the U.K., conditions remain uncertain, but stable with the underlying trend that we saw in half 2 FY '18. In the Rest of the World, conditions remain strong across Europe, Asia and Americas.

With that, I'll hand you back to Alistair, who'll update you on the strategic priorities and progress before taking any questions.


Alistair Richard Cox, Hays plc - CEO & Executive Director [3]


Thanks, Paul. Thanks very much, Paul. So you've already heard last year it was a strong year. I've already covered the conclusion of our 2013 plan. Our 2022 plan was presented in our Investor Day back in November. So let me use the few minutes remaining to just outline some of the key aspects of our strategy, and in particular, where I see our future opportunities lie. So why do we think that Hays is best-positioned to actually deliver superior returns to our shareholders? I'm trying to encapsulate the answers to that question on this slide.

So firstly, we concentrate on white-collar recruitment only. We have a balance across Temp, Perm and Contracting, and we're experts in all 3, with many, many years of experience across all 3 parts of the market. We've very purposefully positioned ourselves to benefit from the mega trends that we see as driving the job markets and the ways that people want to work.

So Temp and Contracting, for example, it's highly attractive to our clients because it gives them flexibility, allows them to convert their fixed costs into variable. But at the same time, it's also very popular increasingly with candidates who can increase their experience. They can work on particular projects that they want to work on, and they can potentially earn more.

We also operate in the higher salary specialisms. These are specialisms that are often characterized by acute skill shortages. So while we recognize the HR departments, they're often our main competitors in the market, as well as being our biggest clients. But if we can bring them deeper access into talent pools with very detailed knowledge of our candidates, and we can do that faster than the competition, then our contingent fee model, where we're only paid for success is hugely attractive, and that allows us to build strong and long-term relationships with literally tens of thousands of clients around the world.

Looking at market maturity at class, the U.K., Australia and North America is highly mature markets. In the U.K., for example, we've got clients who may be on their fifth decade of outsourcing recruitment to an agency, and something like 8 out of 10 addressable white-collar jobs in the U.K. could already involve a recruitment agency in one form or another. Yet most of the markets around the world are significantly under-penetrated against those 3 mature markets. And it may take decades of recruitment outsourcing before they reach the level of maturity that we currently see in the more established markets, such as the U.K. And our business model translates absolutely perfectly into those immature markets. And we're at the very vanguard of opening those markets up often with very limited competition.

So for example, in mainland Europe, in Latin America and across Asia, the very concept of using an agency is still relatively new in the white-collar space. Maybe it's something like 3 out of 10 jobs. We estimate that something like about half of our growth in Germany and the Rest of the World in recent years has been from clients using an agency for the very first time or as we cross-sell further specialisms and new areas into existing clients. So whereas it may have taken the U.K. many decades to reach the level of maturity that we now see, I think that there's many years of market penetration to come across Europe, across Asia and across Latin America to reach a similar level of penetration. So we obviously have a lot of growth potential ahead.

In many markets, particularly in the Rest of the World, we also have significant scope to expand the number of specialisms that we deliver. On average, we deliver something like 8 specialisms per country in places such as the Rest of the World. However, around the group, we do have 20 specialisms on offer. So even in Germany, our biggest business, and one we're the market leader by a long way, there are over 10 specialisms, which we don't yet cover in that marketplace.

As you know, we view the relationship between productivity and the use of technology as fundamental to our long-run success. And back at the Investor Day in November, Paul described how productivity has driven something like 40% of our profit growth since 2013. Again, last year, we made further productivity gains, and our consultants each build around 1% more on average. That translates to around GBP 11 million in incremental fees through productivity gain alone. And post commission, most of that dropped straight through to the bottom line. So our growth is not simply about just adding more heads to the business. It's about making every single one of us better at our jobs and more profitable, and technology is a key part of our equation alongside the people.

And then finally, we're increasingly focused on the more technical specialisms areas, such as IT, engineering, construction property, life sciences. We've been in those industries for a long, long time. But as the world rapidly evolves, we find that those sorts of jobs are seemingly less exposed to disruption, and in some cases, may actually be the disruptors themselves as new technologies, automation, the use of data and artificial intelligence, et cetera, transform other more traditional roles.

And I think that trend is clear when we split our business and our net fees between technical versus professional disciplines over the last decade. Now don't get me wrong, we really like being the market leader in the professional specialisms, such as Accountancy & Finance, on Legal, and they have grown faster than the market in recent years. So if you look at our German A&F business, just last year, it was up 42%. So it's clearly an excellent sector to do business in. However, I do think it's a sign of the changing job markets around the world, when across all our professional specialisms globally, we've delivered something like a 6% net fee compound growth since the start of the decade versus 10% in the more technical areas.

These technical roles, they tend to be more investment led than candidate led. They're typically characterized by global skill shortages, and they lend themselves to those people looking for a more flexible working arrangement. That's another of the mega trends that we've highlighted. So that, again, enables us to build our Temp and our Contractor businesses more quickly than might be the case. And again, we see the Temp and the Contractor markets as having both higher barriers to entry to Perm. So it protects our business, as well as a higher quality of earnings.

Now I'm very conscious that we haven't talked much about the Rest of the World in these meetings, as some of our other divisions, and yet, when you look at the sheer financials, it is our biggest division by fees, and I think it's the one that's got the greatest upside potential. So let's have a look at that business in a little more detail.

Back in 2013, the Rest of the World division had net fees of GBP 168 million, and it made a small loss of about GBP 3 million. Since then, you can see on the left, we've delivered over 15% net fee growth CAGR, so GBP 339 million. We've increased headcount 14% per year, and average productivity has gone up 1% per annum.

So this has driven our reported operating profit to around GBP 41 million. That's equivalent to over GBP 56 million on the pre-overhead spaces that we presented in our 5-year plan, remember? And that's 25% higher than the upper end of our range of aspirations by last year.

Now while the markets have generally been good since 2013, the main profit driver -- profit growth driver in the business has been scale. We haven't actually opened a new country since 2012. Instead, we've been making inroads and building depth in each of the local markets that we're already in, and we focused our investment in the key countries in this division. We're building critical mass, and with critical mass, comes operational leverage. So on average, we've added something like 270 basis points per year to the Rest of the World conversion rate over the last 5 years, and yet, this division is still 1,000 basis points below the group average conversion rate.

Some of that difference is due to the additional overhead because you need additional overhead to run a network of smaller countries. That's the GBP 15 million that I just mentioned. But even when you allow for this, there's a lot more conversion rate improvement to aim for in the Rest of the World. And at its most basic level, the more consultants there are in a country and the more productive they are, the higher your conversion rate obviously should be. Yet we've achieved this margin improvement despite the 14% compound headcount growth across the division in the last 5 years. Today, we still only have 2 countries that have got over 200 consultants in that division. We've got 9 countries between 100 and 200 consultants, and we've got 17 countries with less than 100. So clearly, there's a lot of further scale benefits to come as we increase the consultant base, and thereby, grow our net fees.

So let me say just a few words about each of the 3 subdivisions within the Rest of the World. Europe outside Germany is the largest subdivision by net fees. It's around 60% of the division. It splits something like 40% Temp, 60% Perm. 12 of the countries across Europe delivered record performances last year, and we saw excellent profit leverage, profits up 32%. Obviously, we've continued to invest in that area. Headcount more than doubled since 2013. Put it in context, France, which is the biggest market for us in this division, I think it's performed absolutely fantastically over the last 5 years. Over that time frame, net fees have almost doubled and operating profit is up by nearly GBP 10 million, and that's despite the investment that we've made opening 4 new offices across France in the last 2 years. Yet despite all of that investment and growth, our French headcount is still less than 1/4 that of our German business. So we clearly have a lot of runway ahead in that country.

Just next door, Belgium is our second biggest business in Europe outside France, and obviously, Germany. Belgium, another success story. Profit has more than tripled in the last 5 years, our net fees, up 16% compound, and in third place, Spain. Again, excellent moving from breakeven to GBP 5 million profit, all as we built scale.

Across in the Americas, it's the next largest subregion, just over GBP 70 million of net fees last year, 4 of the 6 countries in that subregion delivering record net fees. Within that area, the United States is our largest business. It represents just over half of the Americas fees.

As you well know, back in 2014, we acquired Veredus, and we spent much of the first 2 years post-acquisition integrating our systems, our management teams, designing basically a platform for future growth. So today, 2/3 of our U.S. business is in IT, and that part of the business grew 15% last year, strong growth, but we've also diversified in the States. We launched our C&P business 4 years ago. And from a standing start 4 years ago, last year, we delivered GBP 13 million in C&P fees. That's up 80% year-on-year. I think that is a hugely attractive sector for us, and we certainly aim to be the national leader in C&P in the States just as we are the global leader in C&P around the world.

I think all the hard work that the team put into integrating Veredus, it's now paying off. That business is really starting to fly. Yet it still feels to me as though we're very much in the foothills of our journey and our long-term potential in the States. We only have today 12 offices. They're mainly in the Midwest and then the Eastern seaboard cities. We're not yet in the top 100 of agencies in the States by fees, and we only really have 2 specialisms of any meaningful size. So clearly, there's a huge prize to aim for, including ramping up in the near future our fledgling accounts assume finance specialism in the States. So I'm pleased to say we've got the platform. We've got the expertise, and importantly, we've got the management team in place to start to deliver on all of that now.

Just further North in Canada, again, a top 5 market share business, strong positions in temp, contracting and perm. And after dealing with the negative effects on the Canadian economy as the oil industry collapsed a few years ago, that business now has got very good momentum. We grew net fees last year by 16%, and profits are well above the 2013 level.

Further South in LatAm, that business is small, it's very Perm-focused. However, it's growing. And in time, we'll introduce Temp into those markets where legislation permits.

And then finally, across in Asia. That's 6 markets for us. Last year, the Asian team delivered 23% net fee growth, profits up a phenomenal 72%. It's predominantly a Perm business across Asia, although we are building a business in Temp as well. That's now around 15% of regional fees, and we've invested aggressively, headcount up 65% since 2013. And over that period, Asian fees have broadly doubled and profits have increased by GBP 8 million. And again, that's the outcome of the operating leverage that we enjoy when we get the business to a certain scale.

Traditionally, in Asia, we've been positioned largely to service our large international clients that have got businesses over in that part of the world. But going forward, and particularly, in the largest markets of China and Japan, we're now in a position to give greater emphasis on also serving the domestic markets. And needless to say, the immature outsourced recruitment market in Asia, it represents an excellent opportunity for us. This region alone is now a meaningful contributor to the overall group earnings. It regularly delivers GBP 1 million a month profit.

Now I'm conscious that's a lot more color on the Rest of the World than I've given in the past, but I do think that this is a division that is set to play a more prominent role in the group's story going forward, particularly as we build further scale. And I think it has got every opportunity to positively surprise us in terms of profit growth.

So looking at our 2022 plan, we're 1 year in. I think we made a great start. In the bottom right, dwelling on the Rest of the World, we're already only GBP 9 million below the lower end of our 2022 ambition and we've got another 4 years to go. And I hope that, that shows why I'm so optimistic about that particular part of the business. And as you can see, we've continued with our traffic light system to assess performance in the period, and both the Rest of the World and Australia/New Zealand are very definitely on green lights.

I'm very pleased with our performance, as well as our prospects up in Germany. It was in investment mode throughout last year. And in the last 3 years, remember, we've nearly doubled the German office network and we've also increased headcount by 50%. As you know, net fee growth was strong across Temp and Contracting. It was fantastic in Perm.

So having made those significant investments, we obviously now need to deliver on our long-term growth plans. And I think a combination of strong net fee growth, and over time, rising conversion margins would see us return Germany to the green light and on track to broadly double its profits over the plan period.

So while the rest of the -- in the U.K. business, they've already delivered profits that are well within the 5-year plan range. But we're also mindful of the wider uncertainty created by the ongoing Brexit negotiations, for example. So while I'm delighted with our performance in the U.K., I could argue that the U.K. is on the green light, given that it's already within its 5-year range. We have kept the traffic light on amber for obvious reasons for now. But overall though, pulling it all together, 1 year into the 5-year plan, we're on track with where we need to be with our group profit growth. And should conditions in our key growth markets remain positive, as this new financial year progresses, we'll look to capitalize with further investments again.

So in conclusion, we've had a very strong year financially, operationally and strategically. We continue to diversify and to internationalize our profits. We've generated excellent cash flow, and that's allowed the board to propose and pay total FY '18 dividends of GBP 128.4 million.

Standing here today, we're more diversified. We're more technology-enabled than ever before. I think we have got the strongest management and consultant base that we've ever had in my time. I know that we're exposed to the exciting markets and sectors around the world. Conditions remain positive in virtually all of our market. As Paul has already illustrated, we're absolutely determined to take advantage of the opportunities that sit in front of us, and there are many of those opportunities.

And with that, we'll be delighted to take any of your questions.


Questions and Answers


Paul Venables, Hays plc - Group Finance Director & Executive Director [1]


And as normal, we've got a couple of people that we circulate, those straight from the microphones. You have microphones in front of you, just been informed. So if you could state your name and company before you ask a question. Anybody want to go first? I think we can start with Andy and the latter. That was brave, Andy, to go first, wasn't it?


Andrew Charles Grobler, Crédit Suisse AG, Research Division - Analyst [2]


Andy Grobler from Crédit Suisse. Just 3, if I may. Temp gross margins were down 50 basis points, and you noted the countries. Can you talk through what are the moving parts that continue to drive that down? And what are pretty good end markets in most cases? Secondly, just a bit of guidance, you talked about drop through rates picking up into fiscal '19. What do you mean by that? Can you elaborate a little bit more, potentially, by region? And then thirdly, again, a bit of guidance on working capital. After a very good year in fiscal '18, is there any kind of hangover from a good year-end? Or do you expect a similar kind of performance this year?


Paul Venables, Hays plc - Group Finance Director & Executive Director [3]


Well, to take them in order, I think they're all mine possibly. If we start with the Temp margin, I think the markets are strong, but let's be clear, and everybody in this room knows it's on a daily basis. Every time anything goes through procurement, it's unlikely that your margins are going to increase. So there continues to be pricing pressure. I think the pleasing part for me in these results, if you take the 5% increase in average perm fee that we've got, there's a bit of a wage inflation, but an increase above that. And you take the loss in the Temp margin, that broadly offsets. If I use one of the first year, those 2 broadly offsets. I mean, one of the reasons that we're sort of ruthlessly focused on consultant productivity is the virtuous benefits over a few years is where we have had some margin pressure. Consultant productivity has more than offset that. This is one of the few years where we got a bit of pricing uplift in Perm, a bit of pressure in Temp. Actually, what we earn per hour, we earn per day, stayed pretty much the same over the year because there's been again some salary increase, some wage increase in temp. But the nice part of it is the consultant productivity drops to the bottom line, and we look at all those. That's why one of the pleasures in working with Alistair is it's not -- we just don't focus on consultant productivity. Now we make sure we look at absolutely every area of our own cost base to drive efficiency. I think that's the world we're in. I don't see that changing for some time to go, but we're pretty happy with these results. On the drop-through rate, you missed the word marginal. It's quite an important word, marginal isn't it? That's not large, it's marginal. Let's think through what drives drop-throughs. First is what's the geographic composition of profit growth? Clearly, and this is not a central case, if fee growth started to accelerate in the U.K., we know we'll drop large profits. But if we kind of look at the year we just had with some tougher comps in Australia, marginal could be -- we were 26% last year. With that, we would expect to be something like 30% this year. Clearly, if fees go up across the board a bit more, well, that will help the drop through. If fees aren't at 9% or 10%, they're a bit lower, then of course, that will impact the drop through, but again, pretty happy with where we are, and there's lots of moving parts to that. We've given the property part today because it's important. But if the economy's good in a year's time, this isn't a -- we focus solely on year 2. What we like to do is we like to deliver gem today and gem tomorrow, so we'll continue to invest for the longer term as well. And then finally, on working capital, yes, it's good. I've probably kept my job from this in the 3 months, which is not bad. But we do it better than we expected. It was better than our guidance. If you remember, the 5-year plan, with the higher working capital outflow increasing to GBP 50 million and above over a few years. I think if we did GBP 30 million this year, it would be excellent. If we did GBP 40 million, we'd be probably happy with it. But remember the point I've always made, we're a 5.7 billion business now. In that last week in June, it's 140 million coming through in a week. We have no ability to defer costs for payments, neither should we, because the payments go to our temps. Our commitment to temps is if you have your time sheet, and it's approved online, you'll be paid in 48 hours. That's an important part of why we win in that space. Therefore, it's all about credit control. We're happy with what we've got. If we're 30 million to 400 million, we'll be happy next year.


Andrew Charles Grobler, Crédit Suisse AG, Research Division - Analyst [4]


Just one follow up. You talked about wage growth, which is a topic for every company. What are you seeing in terms of wage growth in your [business]?


Alistair Richard Cox, Hays plc - CEO & Executive Director [5]


There isn't any really, on average, above general inflation. I could point to pockets in red-hot markets, the technology sector being a case in point. But I think the working assumption is there is no real wage growth really anywhere in the world. Paul?


Paul Venables, Hays plc - Group Finance Director & Executive Director [6]


Paul? It's your turn to see now the -- well, Andrew showed you, so I'm sure you can do it. Otherwise, maybe you can just use your glasses.


Paul Daniel Alasdair Checketts, Barclays Bank PLC, Research Division - Director [7]


It's Paul Checketts from Barclays. I've got 3 as well, please. There's a couple on the Rest of the World, extra detail you gave Alistair I'd just like to ask you about. The first is in North -- in the U.S. I think you found some good niches in IT and Construction & Property, but you talked about expanding in Accounting & Finance, which is a much more competitive industry with established players. Is there any -- is there a need to do that? Is that the best way to spend your time? And the second question is about Asia, where you talked about expansion into the domestic market, and that strikes me as a very different challenge. I wonder if you'd elaborate on what the strategy would be to try and do that? And the last question, I just wanted to return to the contractor model more generally because you had tremendous success in that space, but a lot of your competitors are talking about their own aspirations to expand. Could you remind us why you think the barriers to entry are higher, and perhaps, what steps you can take to make sure you don't see some encroachment?


Alistair Richard Cox, Hays plc - CEO & Executive Director [8]


Sure, yes. Some -- these are mine, Paul. So in the United States, you're absolutely right. It's the world's biggest recruitment market. It's something like 2/3 of the global market in white collar recruitment. So it's got -- it's vast. It's mature. There's huge potential for us. And we have a business and a platform there now, which you've seen on these results, is growing extremely well. Yes, so we're very happy with it. So our challenge in the States, if you like, is how do we get more investment more quickly, embedded into that business and productive and profitable as quickly as we can because then we can put even more investment in. We have the management team in place. We have all of the support infrastructure, whether it's marketing, whether it's IT systems, et cetera. That's all done and dusted. Now it's just the case of putting our foot to floor, getting capacity and ramping up the scale. And you see what happens, when you get scale, you get fantastic leverage. IT is clearly a massive market. It's the core of our business in the States and will be for a long, long, long time to come. If we've had to bet on 1 industry sector in America, that's likely to do better over the cycle than any others, I'd pick technology for obvious reasons. So we're in the sweet spot. Construction & Property is a market that up until very recently has been our biggest market in the world. Actually, IT has become our biggest specialism in the world now in very recent past. But for a long time, Construction & Property has been the #1 global player. Wherever we operate in Construction & Property, we are the local leader usually by a country mile. We've been doing it for 50 years. So we have a management team and a DNA that really understands that business, and it is different to, say, Accountancy & Finance or Legal or Sales & Marketing. It's a different DNA of business, but we understand it. We've got a team over there. We've obviously brought people into the States from around the world, who got 20 years-plus experience in running CMP businesses. The results absolutely speak for themselves. But remember, Construction & Property can be sometimes a bit feast and famine. It's absolutely in feast mode at the moment in the States, massive expenditure going on across all areas of construction. But one day, there will be a slowdown in some parts of it because there always is. And I think we just have to be conscious about that, that we're building a massive business that will be there for decades. But we just have to recognize that, at some point, some part of it geographically, or by sector, may hit a little bit of a challenging time because that's what always happens in that industry. We could just concentrate on those 2, and we would build a massive business just in those 2 over the next 10, 20 years, and that's fine. However, we're also experts in areas like Accountancy & Finance. It's our third biggest specialism in the world. We really know how to do it, and when we look at the U.S. market, there's a massive market for those sorts of skills. I accept that there are already well-entrenched players who do a good job over there in that space. It is a relatively mature market. And in a very small way, we brought some of our consultants into the U.S. market to just test it out over the last 12, 18 months. What we found is that they can be incredibly successful bringing our model and our way of doing things into that U.S. market. So we have said, actually, the experiment has worked. This is a place that can grow just like the CMP has grown phenomenally well, highly productive. Why don't we see if we can find extra people with that skill set and drop them into the States and build a third leg to the business? Without -- absolutely without it distracting any management attention from the other 2. That would be wrong if we sacrifice the other 2 because we were starting to the new. But if we can keep the other 2 going, just as we would anyway, and bring in a third that we know how to do anyway, we don't have to learn how to do A&F. We're deep-seated in it, and we found that it absolutely flies. That's why we started to think about ramping up and doing now what we did 3, 4 years ago with CMP. I think that will put us in a fantastic position in 10 years' time, assuming we're successful with that. So okay in the States? Asia, domestic market, there are domestic companies and there are domestic companies. Our business is starting to look in China and Japan. They're big, what I would call, professionalized global domestic companies, so the big Japanese multinationals that are obviously headquartered in Japan, but have got operations around the world. And understand they've got a cultural assimilation, if you like, with, say, Western businesses. And the same applies in China. So it's not so much state-owned organizations. It's the larger organizations in China that are operating around the world often with a global workforce. So if I look at Osaka, for example, we opened up in Osaka a number of years ago. It is a domestic market. We're finding that, that business is absolutely flying. It's actually the most productive part of our Japanese business on a per consultant basis. It's totally a Japanese team down there, Japanese management, so the same large Japanese multinationals going incredibly well. What we found, therefore, is our model is translating into that sort of company, and there are many, many companies like that that were traditionally not really serviced, but now we're starting to -- and they're buying offers. So it's a good sign. It's another area to open up for us as opposed to more Western globals that have got an establishment in Japan or China. And then finally, the contractor model, you're absolutely right, Paul, to point out. It is very, very different to running a Perm business. It might look like the same business from the outside, but inside, it's got a completely different chemistry. It's got a different DNA. It's got a different way of running, it's got a different mindset. It's got different systems. Why do I think it's different to Perm? Clearly, you need different systems in terms of timesheet management, contractor after care, et cetera, et cetera. There's a lot more to looking after a contractor than when you put a Perm placement in, and they're off and running and you may not be in touch with them for many months or years to come. You've got systems implications around time sheets and pay. You've got working capital implications around, as Paul has quite rightly said, part of our proposition is these temps get paid securely. You need the funds to be able to do that. You need probably above all a management expertise and DNA. You cannot flip-flop, in our view, between I'll do a bit of perm now and I'll do a bit of temp or contractor tomorrow. It's a completely different business model with a different set of management metrics and a different ethos. It's just different, but it can coexist. We've proven it can coexist, and that's why I'd make great emphasis. We have very strong Perm teams, and we have very strong contractor management teams, and that breadth across both, and will be in both for a long time and a long time to come. We're not going to dabble on one or the other according to the vagaries of the market at any point in time. We're in both for the long term. That's hugely important. I also think the stickiness of your revenue stream that you get with contractors gives you a higher quality of earnings for a pound of profit from a contractor business versus a pound of profit from a Perm business. Okay?


Paul Venables, Hays plc - Group Finance Director & Executive Director [9]


Can you pass the mic, please? Thank you. It's just by the side, I think.


Anvesh Agrawal, Morgan Stanley, Research Division - Research Associate [10]


This is Anvesh from Morgan Stanley. I just have one. There's quite a significant increase in the remuneration you paid to the other recruitment agencies. Is this a function of where we are in this cycle as in there a few economies who are in a lower unemployment, but you are finding it hard to fill the jobs and using more third parties' agencies? Or is this something structural where because of the technology, there is more access to candidates available to more number of recruitment companies are due to simply how to use them?


Paul Venables, Hays plc - Group Finance Director & Executive Director [11]


It's actually very simple. We have -- we won a couple of very large construction property contracts during the year, and in Construction & Property, we don't do the blue collar. So often, what our clients will ask us to do is to manage the whole of the supply chain. And then we receive a fee for everything we do with the white collar, the architects, the engineers. We go down to the carpenter level because that is a skilled profession. When you get into the blue-collar space, we often inherit other agencies who are very good at doing that on a local level. So in that case, I think it was something like 2/3 of the amount came strictly out of Construction & Property, strictly in 2 areas that we don't have a large space in the blue-collar space. Kean?


Kean Marden, Jefferies LLC, Research Division - Equity Analyst [12]


It's Kean Marden from Jefferies. I suppose by this point, I think some of us may have expected CapEx to have started to rolling off a little bit towards even in an investment mode for the last few years. But the guidance, obviously, is for that to increase again a little bit during fiscal '19. But maybe can you just share with us what you're spending the CapEx on at the moment and just give us an overview of sort of returns in areas you spend over the last sort of year or so? And then secondly, I appreciate things are quite early and fluid in Australia at the moment. But obviously, we've got yet another prime minister and yet another election coming along. Is it too early to get any insight into the various labor market policies of the various candidates?


Alistair Richard Cox, Hays plc - CEO & Executive Director [13]


You want to take the first one first?


Paul Venables, Hays plc - Group Finance Director & Executive Director [14]


Look, I think on the CapEx part of it, it almost goes into 3 areas. First, obviously, the more property expansion you do and specifically renewals, then the more CapEx spend you have. Of course, you can have landlords pay for that, putting into the rent, but that's not a good way of controlling your rental costs in the long term. So on the basis we can borrow at competitive rates, we prefer to spend the CapEx itself in that space, and that certainly was an increase in an area last year. It will be an increase in area next year, because for example, we've got Tokyo and Shanghai, 2 big offices that we're doing. We need to turn Chifley Tower in Sydney, which is one of our largest offices this year. We've moved to 2 additional floors, so some in the property space. And that -- if you took all of that together, that's probably about 1/3 of it. About 1/3 of it then continues to go in the -- just above 1/3 goes into the revenue generation, and that's a combination of new tools for consultants. What we do is we take a pretty conservative policy. So we write off amounts, so we go through small amount to write-off where we've got a large project that we know is going to give us a longer-term benefit, and we can really capitalize that. If you take last year, and it will be something that we start to depreciate next year, we've done -- we're in the process of completing a complete rewrite of the PVS system, which is what our German consultants use. So we spent most of the money this year in that space. As you know, we completed the back-office transformation, which again, the depreciation will start next year. So there's a good slug of CapEx there. And quite frankly, the more we can do in that space to make our business more efficient, we'll use it firmly. We'll continue to do that. And then finally, and unfortunately, for most businesses in the world, you've also got continued increased spending in cybersecurity, and we covered this off of last year. We make no apology at all for trying to make sure that all point in time we have very secure systems. It's a combination of capital expenditures. It's also a combination of revenue expenditure. If we look at our own IT teams in our own business, we have much larger teams now faced in that space. And I think that served us well so far, and our track record in that area has been good. Coming to next year, the 25 to 30 goes because we got to finish off the German operation systems. We've got a bit more property. And then I think we'll go back to the kind of 25-ish million. So I think we probably will peak next year and then go lower, unless, suddenly, we get to a point, where you know what, we really are ramping up the property side of it because we've done most of the large properties now, and that capacity gets about 3 years.


Alistair Richard Cox, Hays plc - CEO & Executive Director [15]


Over in Australia, Kean, the last decade, we've had -- I've lost count of the number of leadership changes, and there's been many government changes. It's quite a short parliamentary cycle, actually, in Australia. So we're well used to government and leadership change. And I think if you look over the last decade, the big impacts on our business have not really been government-driven. They've been industry-driven, things like the mining boom and then downturn. So I think we're well-positioned, and the management team have been running that business for 15, 20 years. They can manage through whatever new government happens to come in because the changes, they tend to be a little bit around the edge as opposed to fundamentally driving the economy one way or the other. So what I would say is it's too early to know exactly what their employment legislation agenda might be regardless of whether there's a change in government or not. But whatever it is, I'm very confident that the Australian team will manage through. When you look at the fundamentals that are driving the Australian economy and why we feel so positive about it, very high levels of employment already. Still skill shortages, just like in many other countries around the world. I was struggling to find enough of what they need. No new story there, really, very buoyant market, very good employee confidence to change jobs, massive infrastructure investment programs at the state, as well as the federal level funded. And some of them already now are off the drawing board and starting. So I think that's going to be a real impetus and bedrock, if you like, for the economy, as well as for our business for a long time to come. I think if I had to point one thing out, then a few years ago, the Australian business in the normal state of the cycle will be kind of 50:50. Temp may be a 55:45. It's now 65 Temp and 35 Perm, and I think that's actually an interesting movement of the dial. Read into that what you will, whether it's people struggling to find the skills they need. Therefore, they'll take a Temp, whether it's employee -- employers saying I'd like more flexibility in my workforce, so I'll take contractors. Whether it's individuals themselves, saying, "I'd like to work on projects and then move on." I think it's probably driven by all 3. But I think it is interesting that we're at record numbers of Temp workers. We still like the Perm market, obviously. It's huge and buoyant, and we're growing in it. But I think it's interesting that the dial has moved to a 2/3, 1/3 split instead of 50:50. But I'm a great fan of our Australian business and the Australian economy, particularly, if it stays the way it's been feeling for the last 12, 24 months. And I'd expect we put more investment into Australia in the next 12 months, feeling a lot positive about it. We will have a very short-term hiatus around government spend. It always happens. It tends to be quite short-lived, but I think the fundamentals are rock-solid.


Paul Venables, Hays plc - Group Finance Director & Executive Director [16]


Question in the back, sorry.


Hans Pluijgers, Kepler Cheuvreux, Research Division - Head of Research of Benelux [17]


Hans Pluijgers of Kepler. Two questions from my side. First of all, on contracting, the margin in contracting, how do you compare, let's say, to the group average in temp-ing? I assume the group is slightly lower because you were taking less risk on that. And secondly, on the U.K. market and especially on the [peer] group market, I guess, you have feeling on how that is, let's say, developing and what you see coming up in the coming months, which could maybe have an impact on recruitment there?


Paul Venables, Hays plc - Group Finance Director & Executive Director [18]


Yes, I mean, on the first one, I think the -- I mean, perhaps, it's a strange dynamic. But generally, the higher the salary level, the higher margin you get. And of course, part of that is you've got to do much work to tease people out of existing organizations or in the contractor space. You've got to manage them over a longer period of time. So generally, if we look at our business, like in a lot of other ones in the world, it doesn't really matter whether we're talking about Germany or Australia or the U.K., our best margins are clearly in smaller businesses in higher salary levels. And there's not much difference between shorter-term assignments and longer-term assignments. But of course, the beauty of contracting versus temp is if we look at our temp book, globally, on average, the assignment tends to be about 8 to 10 weeks, whereas in the contracting space, the average length of the assignment is between 9 to 12 months. So I also heard, to Alistair's point, about the kind of relative part of profitability coming out of it. And then you have higher salary levels, higher-margin for a longer period of time and more secure. So there's no doubt that it's attractive, and we're not seeing many changes in that so far. Funnily enough, where the margin squeeze have been, back to the question earlier on, those tended to be in that lower salary levels with the bigger clients, where there's less differentiation in one candidate to another. I think that probably makes a lot of sense.


Alistair Richard Cox, Hays plc - CEO & Executive Director [19]


Turning to the U.K., we've described it as a tough but stable marketplace. I think it's notable that the team have grown fees modestly in the U.K. and grown profits much more strongly. That backdrop has continued as we started the new financial year. What I would characterize in the U.K., there's a lack of employer confidence around major capital investment programs. And while everybody is waiting to find out what future trading relationships might be with Europe or the Rest of the World, I think that's understandable. However, on the job's perspective and job confidence, remember, it's an almost full employment market in the U.K. these days, record numbers of working people. There is certainly a pretty good level of employee confidence to change jobs and match that with employer confidence to replace somebody when they've left. So there is that natural merry-go-round of just a job change going on, which is a key part of our equation. The private sector grew modestly last year. It's -- it was up 3%. The public sector for a number of years now has been subject to an austerity program, and that's impacted on recruitment in general in the public sector for a number of years. Our public sector is quarter-on-quarter been declining. But the good news is that rate of decline certainly slowed during last year. And in the last 2 or 3 months, it has stabilized. Now I won't read too much into that, but at least, they have stabilized. So that slight drag on the U.K. business from the public sector appears to have abated. And hopefully, that's permanent. The one area of legislation that I must point out is that there is the possibility that the government introduces IR35 legislation into the private sector, just as they did in the public sector back in April 2017. So that will be legislation around when is a temporary worker -- surely, a temporary worker versus should be classed as a permanent employee and subject to PAYE. So that will bring some legislative change if it is introduced. We've obviously dealt with that issue as it was introduced into the public sector. The public sector is about 1/4 of our U.K. business and about 1/4 of the U.K. employment base in general, and we've managed our way through that. So if that legislation does start to look as though it's brought into the private sector, you can imagine that as the market leader in the business, we'd obviously be on the front foot with our clients and our candidates to help them understand what the complexities of that new legislation, whatever it may be, could entail for them, and making sure that we're keeping them fully abreast of their own personal position in the employment market at that point in time. I'd like to hope that, therefore, we can attract volumes through that, as people rely on an organization that understands the rules and complies with them and can manage accordingly. And if it comes in, there's no sign of it coming in. If it comes in, in our current financial year, it would most likely be at the very tail end of it or it could even be next financial year. There's no hint as yet from the government on what they might do, but that is something we just got our antenna tuned [in] to.


Paul Venables, Hays plc - Group Finance Director & Executive Director [20]


Any more questions in the room? It's been like a bidding. This isn't it really. I don't think, David, there's any on the webcast.

Well, thank you very much for attending today and for all of the questions. We much appreciate it. We'll be around to take any questions around the stage, and then later on today. And then as always is the case, we'll be doing our first quarter IMS on the 11th of October, which is about 6 weeks' time. Thank you very much.


Alistair Richard Cox, Hays plc - CEO & Executive Director [21]


Thank you.