Hays : Quarterly Earnings

PRELIMINARY

RESULTS

FOR THE YEAR ENDED 30 JUNE 2022

25 August 2022

Preliminary Results

RECORD FEES & MATERIAL PROFIT GROWTH, DRIVEN BY STRONG MARKETS AND MANAGEMENT ACTIONS. £262M IN TOTAL CASH DISTRIBUTIONS FOR FY22

Year ended 30 June (In £s million)

Net fees (1)

Operating profit

Conversion rate (2)

Cash generated by operations (3)

Basic earnings per share

Core dividend per share

Special dividend per share

2022	2021	Reported	LFL
growth	growth
1,189.4	918.1	30%	32%
210.1	95.1	121%	128%
17.7%	10.4%	+730 bps
182.9	130.8	40%
9.22 p	3.67 p	151%
2.85 p	1.22 p	134%
7.34 p	8.93 p	n/a

Note: unless otherwise stated all growth rates discussed in this statement are LFL (like-for-like), YoY (year-on-year) net fees and profits, representing organic growth of continuing operations at constant currency.

• Fees up 32%; operating profit up 128% to £210.1 million. Excellent fee performance in all regions, including 24 country records, driven by strong client & candidate confidence, our management actions and continued improved fee margins. Q4 FY22 represented a quarterly fee record, with fees and activity levels sequentially stable at strong levels
• Australia & New Zealand: fees up 24%; operating profit up 32% to £51.6 million. Excellent fee growth in Perm, up 60%; slower growth in Temp, up 9%. Record fees in New Zealand, up 49%
• Germany: record fees, up 34%; operating profit up 152% to £75.6 million. Strong activity levels drove excellent growth in our largest business of Temp & Contracting, up 31%, with record contractor volumes. Perm up 51%
• UK & Ireland (UK&I): fees up 31%; operating profit up 277% to £43.4 million. Perm fees up an excellent 58%, Temp up 15%. The Private sector, up 42%, significantly outperformed the Public sector, up 10%
• Rest of World (RoW): fees up 36%, including 22 country records; operating profit up 234% to £39.5 million(4). Fees in EMEA ex-Germany up 31%, the Americas up 51% and Asia up 35%
• Investment and profitable growth: consultant headcount increased by 26% YoY, with additions across all key specialisms and via our Strategic Growth Initiatives, which continue to perform strongly. Even with our investments, consultant productivity was at record levels and the Group's conversion rate(2) increased by 730 basis points
• Strong cash generation supports £168M in FY22 dividends & £75M share buyback programme: net cash of £296.2 million. Given confidence in our strategy, the Board has proposed a final core dividend of 1.90 pence per share, making a full year core dividend of 2.85 pence and a special dividend of 7.34 pence per share

Commenting on the results Alistair Cox, Chief Executive, said:

"Performance in all regions was excellent. Our actions to capitalise on long-term structural opportunities, acute skill shortages and strong markets, supported by our ability to increase fee margins and the benefits of wage inflation, delivered record Group fees, 24 country records and 128% operating profit growth. Germany, our largest business, was the biggest absolute contributor to our profit growth, while the UK&I and RoW divisions delivered strong profit recoveries. We also made significant investments to underpin our long-term growth ambitions as set out at our Investor Day in April 2022. These Strategic Growth Initiatives helped deliver record fees in long-term structural growth markets such as Technology, where we exceeded £300 million in fees for the first time, and in our broader services offering into large Enterprise clients.

"In addition to our FY22 core dividend of £47.3 million, given the Board's confidence in our strategy and commitment to returning significant cash to shareholders, we propose a special dividend of £121.2 million. The Board has also increased our share buyback programme by a further £18.2 million, meaning we began FY23 with £75.0 million available for buybacks.

"With macroeconomic uncertainties increasing, we are closely monitoring our activity levels and KPIs, which remain broadly stable overall at strong levels. Our focus is now on leveraging the investments we have made and increasing our already strong consultant productivity. We have a clear strategy to continually build market-leading positions in the most attractive structural growth markets, which are characterised by ongoing skill shortages. Our global network, financial strength and highly experienced management teams give me confidence that we can navigate current uncertainties and remain highly focused on delivering our long-term objectives."

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Preliminary Results

1. Net fees comprise turnover less remuneration of temporary workers and other recruitment agencies.
2. Conversion rate is the conversion of net fees into operating profit.
3. Cash generated by operations is stated after IFRS 16 lease payments. FY21 cash generated by operations of £130.8 million is also adjusted for £118.3 million of FY20 payroll tax and VAT deferred which was paid in FY21.
4. FY22 operating profit includes £4.2 million one-off costs of closing our Russia business, within our RoW division. Excluding this, RoW operating profit was £43.7 million and conversion rate was 10.5%.
5. Due to the cycle of our internal Group reporting, the Group's annual cost base equates to c.12.5x our cost base per period. This is consistent with prior years.
6. The underlying Temp margin is calculated as Temp net fees divided by Temp gross revenue and relates solely to Temp placements in which Hays generates net fees. This specifically excludes transactions in which Hays acts as agent on behalf of workers supplied by third party agencies and arrangements where Hays provides major payrolling services. FY21 Temp margin included £6.2 million of one-off Germany Temp severance costs. Excluding this, underlying FY21 Temp margin would have been 14.6%.
7. Represents percentage of Group net fees and operating profit.

Enquiries

Hays plc

Paul Venables	Group Finance Director	+ 44 (0) 203 978 2520
David Phillips	Head of Investor Relations	+ 44 (0) 333 010 7122

FGS Global

Guy Lamming / Anjali Unnikrishnan

[e-mail]

Results presentation & webcast

Our results webcast will take place at 8.00am on 25 August 2022, available live on our website, www.haysplc.com/investors/results-centre. A recording of the webcast will be available on our website later the same day along with a copy of this press release and all presentation materials.

Reporting calendar

Trading update for the quarter ending 30 September 2022 (Q1 FY23)	13	October 2022
Trading update for the quarter ending 31 December 2022 (Q2 FY23)	17	January 2023
Half-year results for the six months ending 31 December 2022	23	February 2023

Hays Group Overview

As at 30 June 2022, Hays had c.13,000 employees in 253 offices in 32 countries. In many of our global markets, the vast majority of professional and skilled recruitment is still done in-house, with minimal outsourcing to recruitment agencies, which presents substantial long-term structural growth opportunities. This has been a key driver of the diversification and internationalisation of the Group, with the International business representing c.78% of the Group's net fees in FY22, compared with 25% in FY05.

Our consultants work across a broad range of industries covering recruitment in 21 professional and skilled specialisms. In FY22 our three largest specialisms of Technology (26% of Group net fees), Accountancy & Finance (14%) and Construction & Property (11%) together represented 51% of Group fees.

In addition to our international and sectoral diversification, in FY22 the Group's net fees were generated 55% from temporary and 45% from permanent placement markets, and this balance gives our business model relative resilience. This well- diversified business model continues to be a key driver of the Group's financial performance.

In our 2022 employee 'YourVoice' survey, 86% of employees said they would recommend Hays as a great place to work, up from 80% in 2021.

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Preliminary Results

Introduction & market backdrop

FY22 trading review: record Group fees

Trading in the year to 30 June 2022 represented a fee record for the Group, with 24 individual country records and strong overall activity levels in all our major markets. Net fees increased by 32% on a like-for-like basis, and by 30% on a reported basis, to £1,189.4 million, helped by global economic recovery from the pandemic. This represented like-for-like fee growth of £291.7 million versus the prior year. Fees in the Private sector, up 37%, significantly outperformed the Public sector, up 14%. Group fees in the year were c.8% above pre-pandemic levels of FY19.

We began the year with strong momentum, with our FY21 exit rate (June 2021) representing our strongest fee period since the start of the pandemic. Net fees in the first half were £565.3 million, including monthly records in September and November. Second half fees accelerated to £624.1 million, including a record month in March, and our fourth quarter remained sequentially stable at strong levels, delivering record fees of £320.2 million. As previously disclosed, the Group's net fee growth exit rate in June 2022 was 19%.

Performance was led by excellent results in Perm (45% of Group net fees), with fees up 49%, driven by 42% volume growth and including a 5% increase in average Perm fee, which improved through the year. Temp fee growth was also very strong, up 21%, led by Temp volumes up 10% and also benefitting from a 7% increase in underlying Temp margin plus 4% positive mix / hours effects. Temp volumes increased through H1 and remained sequentially stable at record levels through Q3 and Q4. Our growth in both average Perm fee and Temp margins clearly demonstrate how we are benefitting from wage inflation and skill-short markets.

Our largest global specialism of Technology (26% of Group net fees) exceeded £300 million for the first time, increasing by 32%. Accountancy & Finance and Construction & Property increased by 37% and 21% respectively. Direct outsourcing fees with Enterprise clients also reached £200 million for the first time, growing by 21%, and we continue to win Enterprise market share and broaden our service offering, with a strong pipeline of opportunities.

On 3 March 2022, we announced that due to the ongoing conflict in Ukraine, Hays had taken the decision to close its offices in Moscow and St Petersburg, cease trading with immediate effect and exit Russia, which was completed in June 2022. The total one-off costs of closing our Russia business were £4.2 million, which were incurred as an expense in H2 FY22. In FY22, Russia produced £7.8 million of Group net fees and, excluding closure costs, £1.2 million of operating profit.

Our highest-ever profit growth, after significant investments

Driven by the increase in net fees, Group operating profit in the year of £210.1 million represented a like-for-like increase of 128%. Our conversion rate in the year was 17.7%, up 730 basis points, or 18.0% excluding the costs of exiting Russia. This represented an FY22 like-for-like drop through rate of net fees to operating profit of 40%, or 42% excluding Russia.

Like-for-like costs increased by 22% year-on-year or £173.9 million (£156.3 million on a reported basis). This was driven by our investment in productive capacity, with year-end consultant headcount increasing by 26%, and increased consultant commissions, which rose in line with net fees. During the year we added 1,847 consultants, investing to capitalise on the cyclical recovery globally and in our Strategic Growth Initiatives (SGI), which continued to perform strongly and where we added c.550 consultants. SGI is positioning us for future growth, and we invested c.£20 million in FY22. We continue to expect c.£20 million of incremental SGI investment in FY23.

Encouragingly, even with our increased headcount, average productivity per consultant was at record levels, and we are focused on increasing productivity further. We continued to actively manage our variable cost base, including travel costs which remained well below pre-pandemic levels.

The Group's cost base per period(5) as we entered FY23 was c.£87 million, representing a like-for-like increase of c.£14 million per period(5) or c.19% versus our cost base at the start of FY22. This reflects our significant investment in headcount through FY22, increased consultant commissions which rose in line with net fees, together with the impact of inflation on our own cost base, mainly due to salary increases in July 2022.

Having made significant headcount investments in FY22, we have appropriate capacity for today's good market conditions and the opportunities we see. We expect consultant headcount growth will be minimal in H1, outside of our SGI programme, as we focus on driving consultant productivity and returns from our investments.

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Preliminary Results

Earnings per share boosted by one-off tax benefits

The Group's Profit after Tax of £154.2 million and Earnings per share of 9.22 pence benefited from one-off tax items. These were driven by positive one-off settlements with certain tax authorities, plus the recognition of deferred tax assets, driven by the positive movement in the Group's Defined Benefit pension surplus, which meant our Effective Tax Rate in the year was 24.5%. We expect the ETR will return to c.30% in FY23. On a normalised basis applying a 30% ETR, the Group's adjusted EPS was 8.55 pence.

Cash generation, working capital and dividends

We converted 87% of operating profit into operating cash flow(3), helped by another strong performance from our credit control teams, with debtor days of 33 days (2021: 33 days), well below pre-pandemic levels (39 days). Our year-end net cash was strong at £296.2 million, after paying £170.5 million in core and special dividends in November 2021, £15.9 million in respect of our FY22 interim dividend, and purchasing £19.8 million in Treasury stock during our second and third quarters. These shares will be held in treasury and utilised to satisfy employee share-based award obligations over the next two to three years. The Group also purchased £18.2 million in shares for cancellation in our fourth quarter under our share buyback programme, which we announced in April 2022.

Given the excellent growth in our Temp business, with fees up 21%, we saw a working capital outflow of £65.0 million in the year. The working capital outflow resulted from growth in our Temp debtor book.

Our business model remains highly cash-generative. The Board's priorities for free cash flow are to fund the Group's investment and development, maintain a strong balance sheet, deliver a sustainable and appropriate core dividend and to return cash to shareholders in the most appropriate form. Our FY22 core dividend is 2.85 pence per share, representing dividend cover of 3.0x our underlying EPS when adjusted for a normalised tax rate of 30%, i.e. excluding our one-off FY22 tax benefits. The Board is also pleased to propose a special dividend of 7.34 pence per share, equating to £121.2 million.

As announced on 28 April 2022, the Group commenced a £75 million share buyback programme, to be completed over a 12- month period. By 30 June 2022 we had purchased and cancelled 15.4 million shares under this programme at a cost of £18.2 million. The Board announces that it has increased this programme by a further £18.2 million, which means we began FY23 with £75 million available for buybacks during this financial year.

As a reminder, our policy for special dividends will be based on returning capital above our cash buffer at each financial year- end (30 June) of £100 million, plus any amounts outstanding on our share buyback programme and is subject to the Board having a positive economic outlook.

Investor day summary

Hays held its first Investor Day since 2017 on 28 April 2022, which can be viewed here. Presentations by 13 members of our global management team set out the reasons why we believe Hays will win in the new world of work, including:

• Our market-leading positions and global infrastructure in many of the fastest growing, most skill-short talent markets including Technology, Life Sciences and Engineering, and across large Enterprise Clients
• The breadth and depth of our candidate relationships and Talent Networks in the skilled talent market
• Our formidable client base, with strong relationships with SME's at one end of the market and partnerships with large Enterprise clients at the other end
• Our clients' demands for Hays to provide a broader suite of HR services (see page 7)

Achieving our aspirations will make us a more resilient and higher-quality business, with stickier and more visible earnings streams. Assuming a broadly supportive economic backdrop, we believe we can drive material fee growth over the next five years, including our ambition to deliver over £500 million in Technology fees by FY27, and double fees in our outsourced Enterprise Solutions business to over £400 million. We are confident that we can also improve our conversion rate back to and above pre-pandemic levels, and overall, we aspire to double Hays profitability to over £400 million over the plan period.

We will also maintain our relentless focus on converting this increased profitability into high levels of cash generation. At its mid-point, our plan aspirations can generate c.£1 billion in free cash flow and help facilitate c.£650 million of shareholder returns over the plan period. These will be distributed via core and special dividends and disciplined share buybacks, as appropriate. As stated at the Investor Day, while we recognise that there are macroeconomic and geopolitical uncertainties which could delay the delivery of these aspirations by one to two years, the strong recovery of our business from the pandemic clearly demonstrates our clients' demand for our services.

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