Hays : Quarterly Earnings

PRELIMINARY

RESULTS

FOR THE YEAR ENDED 30 JUNE 2022

25 August 2022

PREPARED

REMARKS

Preliminary Results - Prepared remarks

SLIDE 1-4: INTRODUCTION

< Alistair Cox, Group Chief Executive >

Good morning, everyone and welcome to our FY22 results. I don't think we've ever had a year quite like this. We began the year with improving momentum, which then accelerated, and we ended up delivering record fees, the largest profit growth in our history and significant cash generation. We also held our first investor day for five years, setting out our strategic stall for the next five years, which all makes for a strong story today.

We've also slightly modified our format. As usual, I will take you through our operating review, Paul will cover detailed financials and then James Hilton, our incoming FD, will cover current trading. I'll then finish off with a strategy update.

SLIDE 5: OUR STRATEGY DELIVERED FOR ALL OUR STAKEHOLDERS IN FY22

As we set out at our investor day, the world has changed dramatically. We live in a world of long-term skills shortages, new job category creation, continual upskilling, wage inflation and changing work habits. In my view, all these changes strongly benefit Hays, and our strategy is designed to capitalise on them. We sit right at the heart of one of the hottest areas of the global economies - building talented workforces. With the breadth and depth of our global network and the insights that gives us, we are busier than ever helping our customers navigate what is a more complex world.

We also know we live in a world of increasing uncertainties. However, it is worth saying up-front that although we have seen some normalisation of activity in the previously hottest parts of the market, we have made a good start to our financial year, with fees and activity sequentially stable at strong levels. Clearly, we closely monitor all our activity levels and KPI's, and we will respond quickly should circumstances change.

That said, we have never been busier. Last year we helped over 350,000 talented people find their next role, and we delivered almost a million online training courses to candidates looking to upgrade their skills for the new economy. We launched our new Brand identity, 'Working for your tomorrow', to better reflect where now see ourselves and where we are going as a business.

We invested aggressively, increasing our consultant capacity by 26%, and continued to reposition our business towards those areas where we see the most significant longer-term opportunity.

All these actions, supported by a strong market, delivered record annual fees, including 24 country records. We also saw a very sharp recovery in profit, up 128% to £210.1m, and despite our investment, our conversion rate increased by more than 700 basis points.

Cash performance was also strong, and we ended the year with nearly £300m in the bank.

We also made huge progress in our societal priorities. Our science-based targets in support of Net Zero were approved, and we are leading our industry in this important area. We promote social mobility by bringing career training programmes to our markets, free of charge, to help people get on in their lives. Our Hays 'Helping for your tomorrow' programme completed its first full year, with over 10,000 hours of volunteer work by our colleagues, bringing their expertise and passion to help many disadvantaged communities. I am incredibly proud that through those efforts we have helped literally thousands of people improve their prospects.

And then for our shareholders, the Board's confidence in our strategy and our commitment to returning significant amounts of cash is shown in the £168m we propose to pay in Core and Special dividends, plus the decision to top up our share buyback programme, so that we start FY23 with a full £75m available for buybacks.

I have to say, Paul and I have worked together here for 15 years, but we have never delivered a set of results with so many positives for all our stakeholders. However, I also think there's a lot more to come.

Let me turn then to our financial results.

Preliminary Results - Prepared remarks

SLIDE 6: RECORD GROUP FEES AND MATERIAL PROFIT GROWTH, WITH SIGNIFICANT INVESTMENT

Group fees were up 32% to a record level of £1,189m and 24 of our 32 countries delivered individual annual records. Our first half was the strongest market we have ever seen. Growth rates moderated versus tougher comparatives in H2 - but they remained excellent overall. Fees and activity levels were sequentially stable at strong levels through the fourth quarter, which delivered fees of just over £320m.

Our Perm business was the standout, with fees up 49%. Temp, which was relatively resilient in the prior year, grew by 21%, and both Perm and Temp benefited from increased margins and from wage inflation.

Globally, our largest specialism, Technology, produced record fees and grew 32%, exceeding £300m for the first time. Accountancy & Finance rebounded strongly, up 37%, and although its recovery started slightly later, Construction & Property grew 21%. We also delivered record direct outsourcing fees in our Enterprise clients, up 21% and with a strong pipeline of new opportunities in both recruitment and HR services.

We started to increase our own headcount around 20 months ago as markets stabilised. That investment accelerated last year, and we added over 1,800 new consultants, including 550 in our SGI programme.

Despite this, consultant productivity was excellent and with much of our capacity now moving up the productivity curve, we are focused on increasing productivity further.

With so much rapid change in markets and investments, our operating profit growth was the largest we have ever achieved, up 128% to £210.1m and we upgraded consensus forecasts three times during the year.

There's a lot behind those numbers - so let me add some colour, starting in ANZ.

SLIDE 7: AUSTRALIA & NEW ZEALAND - STRONG GROWTH, LED BY PERM AND THE TECHNOLOGY SECTOR

Growth in ANZ was strong with fees up 24% and operating profit up 32%. Activity improved as lockdown restrictions were removed in our second quarter, although we saw some negative Covid impacts in Q3, and fourth quarter volumes and activity were sequentially stable.

Perm fees grew an excellent 60%. Temp, which stood up well in the pandemic, was up 9%. There were signs of some skilled candidates shifting from the Temp to Perm markets, and our Temp volumes were flat in the fourth quarter.

Technology fees hit a record, up 37%, and A&F and HR also recovered very strongly, up 30% and 28% respectively.

New Zealand continued to deliver fantastic results, with fees up 49% to a huge record. I'm delighted with the job our team are doing there and we are back to market leadership in NZ, with a lot more to come I'm sure.

Overall, in such a strong market, our consultant headcount across ANZ increased 20% YoY.

SLIDE 8: GERMANY - RECORD FEES AND EXCELLENT PROFIT GROWTH, DRIVEN BY RECORD CONTRACTOR NUMBERS

Turning to our largest country, Germany. We delivered records all over the world but in many ways this was our standout performer. Fees were up 34% in what is already a massive business, and operating profit up 152%.

Activity levels were high, with clients continuing to invest in new projects. The skill shortage in Germany is particularly acute and there simply are not enough talented people there to fill all the roles. That meant that our largest business of Contracting produced record numbers of contractors working and fees up 28%. Temp growth was faster still, up 39%, and the Perm business was outstanding, up 51%.

With such high activity levels, we increased Consultant headcount by 24% YoY.

Preliminary Results - Prepared remarks

Overall, I'm delighted with our progress in Germany and they hit a quarterly fee record in the fourth quarter. I've said many times that Germany is our biggest profit growth opportunity over the next few years, and I think these results show why. There are decades of structural opportunity to go for and as the far and away leader in that market, we have lots of options to grow.

SLIDE 9: UK & IRELAND - EXCELLENT FEES AND PROFIT GROWTH, DRIVEN BY PERM AND THE TECHNOLOGY SECTOR

Moving to the UK & Ireland, fees increased by 31% and profit rebounded by 277%.

Perm fees led the way again, up 58%, with Temp up 15%. Temp was slower in the fourth quarter, although margins increased on slightly lower volumes.

The Private sector was strong with fees up 42%, and the Public sector grew 10%.

By sector, a familiar theme with Technology hitting new records, with fees up 56% off an already large business. A&F, Office Support & HR were also excellent, up 38%, 50% & 81% respectively, while C&P grew by 15%.

Consultant headcount increased by 24% YoY.

SLIDE 10: REST OF WORLD - RECORD FEES IN 22 COUNTRIES AND EXCELLENT PROFIT GROWTH

Our Rest of World division comprises of 27 countries, and 22 of them delivered fee records. Total Fees grew 36%, with operating profit up 234%.

Perm fees again led the way, up 43%, with Temp up 24%. Regionally, EMEA, which is over half of RoW, grew by 31%, with consistent growth across countries. The Americas were even stronger, up 51%, led by Canada, the USA and Brazil. Asia was also excellent, up 35%, led by Japan and Malaysia. Growth in China was 25% overall, but the strict lockdown restrictions imposed in the Spring meant our fees declined 5% in Q4. Thankfully, many of those restrictions are now easing.

There are plenty of structural growth opportunities everywhere in RoW, and we increased headcount by 29% YoY as we continued to open up the markets.

SLIDE 11: OPERATIONAL SUMMARY: EXCELLENT PROGRESS

In summary, it has been a remarkable year. To hit record fees so soon after the pandemic, and deliver such a rapid profit rebound, is testament to the tremendous hard work and expertise of our colleagues worldwide.

Our strategy continues to deliver as we build leadership positions in skill-short markets. Wage inflation and job churn both help our business and clients increasingly want us to deliver more of their recruitment, and more of their related HR services, and we are firmly focused on achieving this.

I will now hand over to Paul for a deeper look at our financial performance.

SLIDE 12: FINANCIAL REVIEW INTRODUCTION

< Paul Venables, Group Finance Director >

Thank you, Alistair and good morning, everyone.

Preliminary Results - Prepared remarks

SLIDE 13: MARKET CONTEXT - RECORD FEES, WITH EXCELLENT PERFORMANCES IN PERM AND TEMP

To set the context of the results we are reporting today, we entered FY22 with excellent momentum in all our regions, having delivered good sequential growth through the second half of FY21. Sequential growth continued in our first three quarters of FY22, including monthly fee records in September, November and March. In Q4 we delivered a record quarter which was sequentially stable at strong levels and overall H2, fees were 10% higher than H1.

While growth was Perm led, Temp fees were also excellent, with both benefiting from skill shortages, wage inflation and rising fee margins.

SLIDE 14: OVERVIEW - RECORD FEES AND MATERIAL PROFIT GROWTH. STRONG CASH POSITION DRIVES SUBSTANTIAL RETURNS TO SHAREHOLDERS

This slide summarises our excellent performance, with record LFL fees and a material increase in our profitability driving a strong cash position and enabling substantial shareholder returns.

On a like-for-like basis, net fees increased by 32% to £1,189m, and Operating profit more than doubled to £210.1m, even with the significant investments made through the year.

We delivered another strong cash performance, with net cash of £296m, after £205m of shareholder distributions during the year.

The Board has proposed a final core dividend of 1.90 pence per share, making a full year core dividend of 2.85 pence per share, and a special dividend of 7.34 pence per share. The Board has also increased our share buyback programme by a further £18.2m, meaning we began FY23 with £75.0m available for buybacks.

SLIDE 15: INCOME STATEMENT - STRONG PROFIT AND EARNINGS GROWTH. EPS BENEFITED FROM ONE-OFFTAX GAINS

Moving onto the income statement.

Turnover increased by 19%, with the difference between turnover and fee growth primarily driven by the excellent growth in our Perm fees and the significant improvement in temp margin.

The difference between the headline and like-for-like growth rates is primarily the result of the strengthening of Sterling versus our main trading currencies of the Euro and Australian dollar.

Overall, FX movements reduced net fees and operating profits by £20.4m and £2.8m, respectively.

Basic earnings per share was 9.22p, a 151% increase versus prior year, driven by the significant increase in operating profit along with the effect of a lower effective tax rate, which was boosted by one-off tax gains, which I'll cover shortly.

SLIDE 16: REGIONAL PERFORMANCE - EXCELLENT PERFORMANCE IN ALL

REGIONS

Alistair covered regional trading earlier, and I will cover two specific points.

Firstly, an update on our German Temp business where, as required under German law, we employ temp workers. Temp fees increased by 39%. However, our comparative fees in FY21 included £6.2 million in Temp severance and under-utilisation costs. Excluding this, underlying Temp fees increased by 27%. Average Temp volumes improved through the year, but remain below previous peaks, due to slower recovery in the automotive and manufacturing sectors.