Hays PLC

LSE:HAS

Earnings Call Transcript 2019-Q1

[Operator]

Hello, and welcome to the Hays Q1 Analyst Call. My name is Emilia, and I'll be your coordinator for today's conference. [Operator Instructions] I am now handing you over to your host, David Phillips, Head of Investor Relations, to begin today's conference. Thank you.

[David Ian Phillips, Head of Investor Relations]

Thank you, and good morning, everyone, and welcome to Hays quarterly update conference call for the 3 months ended 30th of September 2018, the first quarter of our 2019 financial year. I'm David Phillips, Head of Investor Relations, and I'm here with Paul Venables, Group Finance Director.Before we start, please be aware that this call is being recorded and the recording may be accessed using the number and code provided in the release. You should be aware that the discussions may contain forward-looking statements that are based on current expectations or beliefs as well as assumptions on our future events. There are risk factors which could cause actual results to differ materially from those expressed in or implied by such statements. Hays disclaims any intention or obligation to revise or update any forward-looking statements that have been made during this call regardless of whether these statements are affected as a result of new information, future events or otherwise.I'll now hand you over to Paul.

[Paul Venables, Group Finance Director & Executive Director]

Thank you, David. Good morning, everybody, and thanks for joining us. I'll summarize the highlights of today's update, cover some of the key themes and discuss the regional performances before taking any questions. As usual, all net figure percentages I give for the quarter will be on a like-for-like basis versus prior year.Highlights and results. We delivered another record quarterly net fee performance with group net fees up a good 9% against a tough year-on-year comparative. Currency translation continued to move adversely and reduced headline net fees by 2% in the quarter.As a reminder, our main sensitivities are sterling versus Australian dollar and euro. Movements in these currencies since our prelims in 2018 would mean that we if retranslate our FY '18 profits of GBP 243.4 million at 9th of October 2018 exchange rates, our operating profit would reduce by GBP 5 million. This represents a reduction of GBP 8 million versus the position on the 28th of August 2018.I'd highlight the following key features in the results: one, our performance is broad-based with 17 of our 33 countries delivering double-digit growth, including 10 all-time country record performances; two, our Perm business grew slightly faster than Temp at 11% versus 8%.; three, Australia delivered good growth in net fees of 9% versus a tough year-on-year comparative and extended its run of consecutive growth quarters to 17; four, Germany delivered another record quarterly performance with strong growth of 13%, our Temp business grew by 10% and we saw continued excellent growth in Perm of 29%; five, the U.K. and Ireland business delivered a solid performance with growth of 3%, this was driven by good 7% growth in our Temp business, helped in part by easy comparatives; six, performance in the Rest of the World was strong at 14%, within this, Americas and Asia were the standouts, delivering excellent growth of 22% and 20%, respectively, and against a tough year-on-year growth comparative, Europe ex Germany was a good 9%; seven, group consultant headcount rose 5% in the quarter, in line with our expectation and up 7% year-on-year. This was boosted by our normal seasonal graduate intake, together with ongoing selected investments in markets where we see strong growth opportunities like Germany, France, the U.S.A. and Asia.And finally, at the end of our quarter, our net cash position was GBP 80 million, representing a good performance and is in line with our expectations.I'll now comment on performance by each division in a little more detail.ANZ. Our ANZ division, which represents 18% of group net fees, delivered another good quarter with net fees up 7% despite tough comparatives. This is our 17th consecutive quarter of growth, and Q1 FY '19 was also our strongest net fee quarter since 2008.Our Temp business was up 10%, and Perm up 1%. Our private sector net fees grew by 7% with public sector up 5%. We show another good performance in Australia with net fees up 9%. Growth is broad-based across most major specialisms and states. In New South Wales and Victoria, which together represent 58% of our Australian business, net fees grew 9% and 11%, respectively. Queensland, our third largest state, saw growth of 11%, and South Australia delivered 18%. ACT grew by 5%.At the specialism level, net fee growth in IT was again excellent, up 26%. Office Support grew by 12%, and Sales & Marketing delivered an excellent 20% growth.Net fees in Construction & Property, our largest business in Australia, declined by 1%, and Accountancy & Finance was also 3% lower.In New Zealand, which represents about 4% of ANZ, our growth remains below expectations and net fees fell by 29%. However, we have taken steps to improve our performance.Consultant headcount in ANZ increased by 4% in the quarter and was up by 7% year-on-year.Germany. Our largest market of Germany, which represent 27% of group net fees, grew strongly at 13% and delivered another all-time record quarter. Our Temp and Contracting business, which together represents 83% of German net fees, grew by 10%, and within this, Contracting was up 8% and Temp up 14%.Perm, which represent 17% of German net fees, delivered another excellent performance of 29%.And at the specialism level, our larger specialisms of IT & Engineering, which represents over 2/3 of net fees grew by 8% and 9%, respectively. Growth in Accountancy & Finance was excellent at 27%, with Sales & Marketing up 18%, and Construction & Property grew by 9%.Consultant headcount increased by 4% in the quarter, including our normal seasonal graduate intake, and was up 7% year-on-year. With respect of our full year results, we expect a smoother profile of headcount additions in FY '19 compared to the prior year.U.K. and Ireland. In U.K. and Ireland, which represents 24% of the group, net fees continued to grow modestly, increasing by 3%. This was led by our public sector business, which saw net fees up 8%, in part due to easier comparatives following the negative impact of IR35 changes in the prior year. Growth in the private sector, 74% of our U.K. business was up 1%.Our Temp business, which is 55% of U.K. net fees, continued to deliver good growth of 7%, whilst Perm fell by 2%.Our overall growth of 3% represents a continuation of the underlying U.K. and Ireland growth trends in half 2 FY '18, where we grew by 2%.All regions traded broadly line with the overall U.K. business with the exception of Northern Ireland and South West & Wales, up 15% and 12% respectively, and the South East and Midlands, down 7% and 5%, respectively.Our largest U.K. region of London delivered solid 5% growth. In Ireland, our business delivered another strong performance with net fees up 12%.Across our 5 larger specialisms, net fees in IT grew strongly at 14%; Construction & Property was up 7%; Office Support, 5%; and Accounting & Finance at 1%. Education continues to face tough market conditions and declined by 12%.Consultant headcount in the division increased by 3%, driven by graduate intake, and fell 1% year-on-year. We will continue to focus on driving consultant productivity in the region.Rest of the World. Our largest division, the Rest of the World, made up of 28 countries and representing 31% of group net fees, delivered excellent growth of 14%. Nine countries delivered all-time record net fees. Europe ex Germany was up 9% despite increasingly tough growth comparatives. Our largest markets of France grew by 8%, while Spain delivered another strong quarter, up 16%.Belgium, our fourth largest Rest of the World country by net fees, grew by 3%.In Asia, we delivered excellent growth of 20%. China, which includes our Hong Kong business and is now our third largest Rest of the World country, grew by an excellent 29%. And within this, Hong Kong delivered a superb 41%. And elsewhere in Asia, Japan's growth of 19% was also strong.In the Americas, we also saw excellent growth with net fees up 22%. And the U.S., our second largest Rest of the World country by net fees, delivered another excellent result, up 27%, as did Canada, also up by 27%.Brazil fell by 3%, and Mexico is down 7%.During the quarter, we opened 2 new offices in our Rest of the World division, in line with our long-term plans. And overall consultant headcount in the division was up 7% in the quarter and 14% year-on-year.Cash flow and balance sheet. Net cash was GBP 80 million at 30th of September 2018, circa GBP 20 million above our Q1 FY '18 level. The decrease in the quarter was entirely in line with our expectations and is due to the normal timing and phasing of cash flows.Current trading and guidance. I would highlight 6 points. First, to reiterate, exchange rate movements remain a material sensitivity for the group's reported results. If we retranslate FY '18 profits at current sterling spot rates, we estimate a negative GBP 5 million operating profit currency headwind for FY '19. This represents a negative swing of GBP 8 million since we reported our prelims.Second, our consultant headcount of 5 -- growth of 5% in the quarter was boosted by a normal seasonal graduate intake. Looking forward, we expect that sequential increase in Q2 will be slightly below that of Q1.Third, the group net fee growth exit rate was below the quarter as a whole, up 7%, driven by Europe, including our largest market of Germany.Growth comparatives are increasingly tough, but we also saw a slower than expected European result in the second half of September, resulting in European growth of 7% for the month.Fourth, exit growth rates outside of Europe were broadly in line with the growth rate reported in each region in the quarter.Five, in the second quarter, there were 2 additional working days in Germany versus the prior year, which included additional public holidays. We expect this to have a 3% positive impact on Q2 net fees in Germany and a 1% positive impact on Q2 group net fees.And six, as we sit here today, with a normal caveat that we have 3 to 5 weeks visibility and limited forward secured revenue stream, we expect our group like-for-like growth rate in Q2, adjusted for these working -- additional working days, to be broadly similar to Q1.In conclusion, this has been another record quarter of broad-based growth, led by our international business, which represents 76% of group net fees.Whilst we're mindful of global macroeconomic conditions, trading conditions remain positive across our international markets. We continue to invest significantly in key growth markets, where we see structural and market share opportunities, notably Germany, France, the U.S. and Asia.Our focus remains on driving profitable cash-generative growth and leveraging the largest and most balanced global platform in our industry.I will now hand you back to the administrator, and we're very happy to take your questions.

[Operator]

[Operator Instructions] Okay, we have some questions on the line. The first one is from the line of Kean Marden from Jefferies.

[Kean Marden, Equity Analyst]

I just wondered if you might be able to expand your narrative on Germany. Obviously, the trajectory during the quarter, there's obviously a lot of debate going on at the moment around momentum within the German labor market. So would you characterize your momentum as being driven by sort of the impact on the automotive supply chain from sort of recent developments? Do you think actually there's a broader impact that's taking place in the German labor market at the moment? Or do you think that you've maybe hit a speed limit for the business as the law of big numbers kicks in that it's more difficult to maintain same percentage year-on-year growth rates?

[Paul Venables, Group Finance Director & Executive Director]

Thanks, Kean. It's both an excellent question. There are various component parts to it, and in many respects, my simple answer is, I think, all of those. I mean, first of all, we are, by far, the largest specialist recruitment business in Germany. We are as big as #2, 3, 4 and almost 5 put together. Therefore, from where I sit, any growth in excess of 10% in a quarter is pretty good. So we wouldn't be disappointed with anything greater than 10%. I think when you look under the cover, there are 2 or 3 things which are playing. Firstly, there's no doubt that if we focus on the Contracting and Temp side, that we're a couple of percentage points below where we would have expected, certainly, when I did the Q4 update at the end of June. And I think, as we've gone across that period of time, the volume growth that we've had has been slightly below our own expectations. And then secondly, clearly impacting -- sorry, and on that part of it, that's almost entirely in the IT & Engineering area. And as we've discussed before, Engineering, which is one of our larger specialisms, more than 30% of our business, that's pretty much dominated by automotive. Automotive is 20% of our group. So I think there is, underneath, there is some modest cautiousness of some of our clients. But equally, I think when you've got overall growth of 13%, that's at a good place. And then secondly, clearly, as we've explained in the exit paragraph, our growth in Germany in September was below where we expected it to. I certainly expected it to be 10% or slightly above that, we were at 7%. And that is more Perm-driven and that's the last couple of weeks of the month. And why I tried to give that guidance at the end is as much to say, having been there earlier this week, my own view is that's just gone across into October and has landed into October. So I think, overall, 13% is good growth. We would clearly have preferred it to have been 14% or 15%. You can see in the headcount position that we're in about the right space from a headcount perspective, so I think we've done a pretty good job of managing the cost base. And on underlying, despite the fact that the last couple of weeks in September has been a bit weaker, Perm growth of 29% is excellent. And all we're talking about is, without those last 2 weeks, we would have been closer to -- we would've been above 35%. So it's far too early to draw, I think, any conclusions on more broader issues, but -- 13% is pretty good, but absolutely, I'd have preferred 14% or 15%.

[Operator]

The next question comes from the line of Hans Pluijgers from Kepler Cheuvreux.

[Hans Pluijgers, Head of Research of Benelux]

First question on your guidance for Q2. Did I understand well that, adjusted for the trading days, you should expect growth to be in line with that of Q1, despite, let's say, the lower exit rate? Is that correct? So that -- and if such case, where do you see then, let's say, the improvement versus the exit rates? And secondly, looking to Europe ex Germany, could you give maybe some indications what did you see happening, let's say, by end user, where let's say you see the slowdown in growth coming from specific sectors. I guess you could give some more flavor on that.

[Paul Venables, Group Finance Director & Executive Director]

Okay. Again, Hans, if I don't cover all the points you've raised, please do come back. There's quite a few points there. Look, why have I given both the exit rate in September and then try to give comforts on Q2? I've had the pleasure of being the Group Finance Director for 12 years here, and through that period of time, I've always believed in transparency. I think if there's a fact -- if something comes in the business, which is a bit of a surprise to me, I should state that. So what we try to do is 2 things. One the exit rate is 7%, that's factual. Secondly, the only weakness in that exit rate is in Europe, all of the other regions of our business performed exactly in line with the quarterly rate as a whole. Secondly, sitting here and reflecting on that weakness in September and having done some [ sensitized ] analysis across our Q2, sitting here today with all the caveats I gave because we don't have that much forward secured revenue stream, we've only got 3 to 5 weeks visibility, all of those things. My point was to say, "Look, guys, where we're sitting here today, I expect to grow by 9% on a working days adjusted like-for-like basis, therefore, closer to 10%. I'm including the additional working days for Q2." So why did I say that? Because, I think, otherwise, we leave the 7% half naked. I don't think I'm giving the other parts of the guidance. And I think, therefore, it's important just to give that, but of course, that is my view looking at all the results. In the end, when we get to January, we will know where we are. Where did the improvements in the exit rates come to? I think, firstly, Australia will -- we should give part of that. See, our Australia results in this quarter, actually, I think was good because it's between 5% and 10%. Actually, I think that's a pretty impressive result, that's the best quarter since 2008, and we had sequential growth across that quarter, so we get into slightly easier comps when we go into the next quarter. So I think some of that is comps. The U.K. businesses continues to do well, of course, there's all of the uncertainty there at the moment. And we would we expect to do -- Asia and the Americas still continue to be strong. And I expect to do a little bit better in Europe. So -- then you moved on to, I think, was your last comment. If we look at Europe ex Germany, why was September 7%? Again, that is -- that's Perm. So we had a strong July, we had a strong August. But of course, perhaps what I should have said earlier on but most of you know, September in this quarter dominates. It is more than 40% of the overall fees, as a disproportionate impact. And what is clear in the last couple of weeks of the year, the Perm growth was lower. I think there are several factors in that. First of all, I think we have to acknowledge that we're now into our fifth year of growth in Europe. So when you've got markets such as France, we've had 4 years of double-digit growth. So I think we are into tough comps. I talked to tough comps in Q3. I've talked to it again, and those comps were even higher during the September period. And you see that, within Belgium, I think France and Belgium are 2 of our strongest well-run businesses and yet, clearly, their growth was a little bit less than we expected. And we've showed those percentages today. When you look under the hood, it's not like it is any one specific sector, but if I went to the client base, there's more -- been more weakness, certainly, in the manufacturing sector, in the export sectors than we've seen anywhere else at the moment. But it's 2 weeks, so I think if you look at the exit part, that's 2 weeks trading. That's far too early to make any assumptions. But having kind of factored that sensitivity in, we have a lot of markets across Europe where we're growing very strongly. As we said today, we've got 17 markets in excess of 10%. So the underlying business is doing very well. We've had a slightly weaker last couple of months in September, it's important to disclose that today. It's I think important to use my 12 years' worth of judgment to say that, based on what I can see today with the caveats, I still think we'll drive good growth similar to Q1 in Q2.

[Hans Pluijgers, Head of Research of Benelux]

Okay. And one follow-up question with respect to headcount additions, consultant headcount additions, what do you expect, let's say, for Q2 to add?

[Paul Venables, Group Finance Director & Executive Director]

Yes, I would expect -- I mean, if you think what we're trying to achieve at the global business, we have always focused on consultant productivity. And that's why we've had by far the best profit performance out of any specialists or generalist recruiters over the last kind of 5, 6, 7 years. And therefore, sitting here, having had a normal stronger Q1, I think if we're at 2% to 3% in Q2, that is where we should look to be. In that way, if we can continue to have consultant headcount growth in the 6%, 7%, 8%, 9% range, that means that we can drive some leverage because, other than this kind of little wobble in the last couple of weeks, the markets are still pretty predictable. And there's some very good growth opportunities out there, and therefore, there's no reason why we can't focus on productivity and drive profit leverage.

[Operator]

The next question comes from the line of [ Thirod Badia ] from HSBC.

[Unknown Analyst]

Three questions for me. Have you seen any reduction in the fill rates in your MSP or RPO contracts? Secondly, how many MSPs are coming up for renewal in the next 12 months? And what are the fees on that? And finally, are you seeing, given the Bank of England comment yesterday, an increasing number of pockets of wage inflation?

[Paul Venables, Group Finance Director & Executive Director]

I think, first of all, we should put the RPO bit into context. Those contracts across all of our global business are less than 15%. So I understand that we have a fixation on those, but they're a relatively small part of our business. Secondly, they grew pretty much in line with the overall business in this quarter. And we don't have any large customer which is a significant proportion of our overall fees. So I don't really get the renewal part. The answer is, we always have renewals in those businesses. But remember, that business is largest in the U.K., it's largest in Australia. We, of course, have global and European contracts like all the recruitment companies do. But I reiterate, it is kind of below 15% of our net fees. Then moving on to the Bank of England bit, I'm going broader. I think there are pockets of wage inflation, there's no doubt about that. And I -- from where we sit at the moment, it is strongest in the U.S., if we take a global position. Broadly across the path, including the U.K., it's in the very skilled shortage areas of the market. So the IT sector, if you're in digital marketing, if you're in digital IT, if you're in cybersecurity, those are strong markets and there's a massive war for talent and a significant increase in salary levels, but that tends to be our movement. And I think what is interesting in the results is not just if you stand back and say that Perm continues to grow in excess of Temp, certainly, outside the U.K. and Australia, our Perm growth is 2x Temp. But I think we are in a market where there is significant candidate confidence. The candidate confidence is slightly greater than corporate confidence. But does this mean that wage growth is going to go from the current 2% 2.5%, 3%, to 4% or 5%? I don't think that's the case because, fundamentally, as we've discussed before until companies are confident that they can increase their own prices to end-customers, they're always going to be cautious on overall wage increases. So what you have is pockets. What you have within individual business is, of course, talented people getting decent pay rises. But what you haven't got is an across-the-board increase in salary level. And I think, with all of the uncertainty at the moment, the primary one being about trade issues between the U.S. and China for fairly obvious reasons, I don't think we're going to see a sudden pickup in wage inflation, but what I do think we are seeing is more candidates looking to move Perm, and they're looking to do that in part to secure wage increases. So by the very nature of that, if we get an acceleration of candidate move, then that would be a positive for us. And of course, on those deals, we would earn more money.

[Operator]

The next question comes from the line of Andy Grobler from Crédit Suisse.

[Andrew Charles Grobler, Analyst]

Just a question on Germany, if I may, or a couple. You've talked about driving consultant productivity. German headcount has grown over 40% over the last couple of years and net fees haven't really kept pace. Is there still a case for that consultant productivity to improve going forward? And then on a similar kind of theme, you mentioned that growing over 10% was very good performance, given how big that German business is. Looking at your longer-term targets, you need to grow 10% to 16% within those targets. How sustainable is that if the markets are a little bit volatile?

[Paul Venables, Group Finance Director & Executive Director]

Well, I think you know the answer to that yourself, Andy. Volatility doesn't help any recruitment business in the longer term, but I'm back to the 5-year plan needs us to drive 13% fee growth and a little bit leverage on the top of that. We were in excess of that at the fee line last year. We're in line with that in the fee line in the first quarter. We clearly, had it been not for the Perm issue in the last couple of weeks, should have been at 14%. So I think, at the moment, we've had a good start in the 5-year plan. And clearly, when you start to plan to expand and broaden your business, to go into the SME sector, to open new offices, all those sorts of things, that's an investment on which you don't get an immediate return. But we're pretty happy with the performance of the German business. Fundamentally, I would have preferred 2% more fee growth. Where you are right is that, of course, we need to take the growth we've got and to start to drive some leverage on that. And that will be our primary focus over the remaining part of this year.

[Andrew Charles Grobler, Analyst]

And in terms of doing that, is that just a -- the course of time as those consultants get up to speed? Or is there anything more you can do?

[Paul Venables, Group Finance Director & Executive Director]

No. There's a fundamental difference between a Perm business and a run rate business. In a Perm business, of course, if you put the new candidates into the right desks, you get a much earlier return on fees, that has always been the case. But as we all know, why you need a large flex business, Temp and Contracting, is that that's more sustainable for the longer term. But when you're building that growth, it takes a good 2, 2.5 years before you get to a new consultant being fully productive. So where you're correct is you make investment today, not for the next 6 months or the next 12 months is beyond that. Having put a lot of headcount in last year, a bit more in at the moment, we will be a little bit more cautious as we go across the next few months, but we're going to try to keep the fee growth at 10% -- sorry, the headcount growth, at about 10% and drive a little bit of productivity on the top, expecting, of course, that the headcount we brought in 12 months ago is now becoming more productive and it will go through that productivity curve. One of the beauties of our German business and the market position we're in and the strength of that franchise is that, actually, the productivity assumptions are fairly predictable as you go through that. Other than, of course, as I've said earlier on, we're probably 1 or 2 percentage points of growth where we -- behind where we would have been. And therefore, we're a little bit behind on productivity to where we would have been. But that's for the German team, supported by Alistair and myself, to improve that over the next few quarters.

[Operator]

The next question comes from the line of Anvesh Agrawal from Morgan Stanley.

[Anvesh Agrawal, Research Associate]

I just have one follow-up on the U.K. and you kind of partially touched on it. But do you think the combination of wage, wage growth and skill shortage into the U.K. market can further strengthen the growth rate because we have seen some sort of stabilization in the growth and the growth is in positive territory for the last couple of quarters now? So just your thoughts there.

[Paul Venables, Group Finance Director & Executive Director]

I think the answer is all about politics, actually. And this might seem rather strange, and I don't in any way mean to denigrate the performance of our Americas or Asia region, which is up by more than 20%. But I think the performance of the U.K., at 3% growth in the uncertain market we've got, is very good. Clearly, we use the word solid. But I think with all of the political turmoil we've got at the moment, not just Brexit, but will -- can they get any deal to the House of Commons, I think it reflects on the various party conference and everything else. There's clearly a lot of uncertainty in the U.K. market. Therefore -- sorry, about this -- therefore, while your point is very apt, is if that uncertainty is increased, clearly, that will weaken because that will lead to companies being more cautious, if there is some certainty given to that, i.e. a deal, even more, if that deal got through the House of Commons, I do believe that growth in our U.K. business will accelerate. And one of the nice features of our U.K. business, as we've demonstrated over, certainly, the last 7 or 8 years, is that give us any growth, we're very good at driving profitability after that. So I think 3% is good. There's a bit of wage growth there, but very targeted. There's absolutely skill shortage, you're correct, in certain sectors. IT would be by far the largest and marketing being by far the largest. Companies are very selective and surgical on where they will allow wage growth going into their businesses and which areas. So do I think there's going to be material wage growth in Accountancy & Finance, not really, but I think there's some good opportunities there. But at the moment, I think until we get through -- this next 3 months are pretty critical, aren't they, on lots of levels, because you can draw lots of scenarios. Equally, if you're on the positive side of it and we get an agreement, you get it through the House of Commons, uncertainty disappears. I actually think that there is a positive outlook for our U.K. business because I'm exceptionally clear and confident that had it not been for all of the Brexit crap, we would have a much bigger U.K. business than we've got today. So 3% is good. Could that go up by more? Yes. I think the timing on that is all about the political issues of the deal and getting through the House of Commons. Most companies are cautious, are looking at that, but they have both plans. They have the downside plan, but they also have the upside plan. So I think, for all of us on this call, even more for many of you in the organizations that you're in, I'd say we're on the upside plan.

[Operator]

Your next question in the queue comes from the line of Paul Checketts from Barclays.

[Paul Daniel Alasdair Checketts, Director]

I've got 3 questions, please. Paul, do you know -- if you look back at the quarter last year, how much better was September in Europe? I know there was sort of some stalling factors, but can you give us a feel for how much stronger September was in the quarter? And then the second question is on Australia. You often give us this rundown of your appraisal of the lead indicators that you look at. Would you be able to do that again, please? I know some of the house price there that was a bit weaker of late. And then lastly, if -- going back to Germany, and maybe another way of asking Andy's question, if theoretically the growth rate stepped down further in Germany, related to the macro, how would the investment program evolve? That's the 3.

[Paul Venables, Group Finance Director & Executive Director]

Perfect. And again, Paul, because I actually do think I've answered all parts of people's questions today. So please do come back if I miss any of them. I can't really remember last -- back to last September. But if I can explain, we had a real [ flower ] in the year last year. We had very strong growth, both in July and August. We had an excellent September, it exceeded our expectations. And we're a good -- we're probably about a 5% of a comp within Europe, so that's why. But going back to Q4 and then emphasizing the prelims, and clearly, at the prelims, I expected that we would deliver 10% or 11% growth in this quarter. We mentioned tough comparatives. It's not like we've just got it today and started talking tough comps. We've been talking about it for some time. And we've solely talked about them in Australia, which I'll come on to in a second, and in Europe including Germany. So there is no doubt that the comps were tough and in September. But it is more in September this year that we've had 2 weeks' worth of Perm weakness in a few of the markets, and we didn't expect that. So that's clearly led to probably being about 1% fees off versus where we would have been. On ANZ, I think -- it's a fascinating market, isn't it? So if I tried to give you what we see at the moment, I haven't physically been in Australia since the start of August, but as you guys know, one, I know that market really well; secondly, I have a very close relationship with both ANZ's and ANB's Chief Economist. And in fact, we're taking our board down for a scheduled visit there in 1.5 weeks' time. Overall, the economy is doing very well. The government's financial position is in a strong position. Every country in the world would like to be in the position of the Australian economy. But of course, the political environment is a bit of a mess. You've already had a Prime Minister change. So you now have a majority of one. It's hard to get anything through. There will be an election. That election, the expectation is it will be next May, assuming that the government can continue through to that point. And at the moment, the opposition party is well ahead in the poll. So there is a greater degree of political uncertainty, and that is on the horizon for a lot of companies. If we look at Construction & Property, which is our largest specialism by far. Last year, it was 28% of our business, the trends are the same as we talked about the last couple of times. There is a significant acceleration in large state- and government-funded infrastructure projects. But of course, the largest demand for labor in that space comes from large construction companies themselves or all have individually large construction recruitment businesses. So the business we get out of those is in the higher-end professional areas. And we got a lot of business into subcontractors, et cetera. So that is a positive. There is no doubt on the residential part of it in the multistory apartment blocks, which have more of an impact on our business in Construction & Property in that space. That is probably past its peak. Certainly, it's past its peak in approvals, but there's still a lot of activity, and that activity will give us, I think, pretty good market position for the next year. Smaller residential is accelerating. Commercial construction is in a pretty good space. So for us, construction being -- I think we're 1% down in the quarter, is more, as we actually saw in the U.K. a few years ago, when you've had a strong run-up in construction property, now we're into the fifth year of our growth in ANZ, of course, you get to a mathematical position. You can't have any more clients. So I think the market could be strong, but I don't see much sequential growth in Construction & Property from where we sit today. We have continued to put some investment in certain sectors, certainly, the energy sectors, and we may well get an extraction from there. The nice part is we made a material investment in our IT specialism a couple of years ago, continued to do that today and that growth is quite dramatic. We've gone from being a #3 player in IT about 4 years ago to being by far the largest player in that marketplace. I think the team have done a really good job. And the business confidence part of it is still in a stable and supportive position. But of course, there is a greater discussion about China and tariffs between the U.S. and China and all those sorts of things, so that tends to dominate. So it's a longer-wound route of saying I think, overall, the indicators today are the positive orderly market. And we had sequential growth in this quarter, it's the best quarter since 2008. It's slightly in excess of our expectation. Australia was up 9%. And I think we'll have another good quarter, and we've put the reasonable amount of headcount in to deliver that. Whilst clearly, with our 7% up year-on-year, we're trying to drive some productivity improvements. And I think, on Germany, we're into a bit of hypotheticals now, but the very obvious nature of any recruitment business is that if growth becomes a little bit less, all you do is you're a little bit more cautious on headcount growth. We will still continue with the office roll out. We will still continue with moving into the SMS -- SME sector. Our German business, as we've always described it, as well as being a market-dominant player in IT & Engineering and the #2 player in Accountancy & Finance, so we've got a really good market position. And there is a long-term opportunity for structural growth. That business was initially concentrated around larger corporates, because you have a big business in engineering so it gets to automotive, that's going to be the case. And if you have a big business in IT, that often starts in the larger corporates. What is clear in Germany is a few of those larger corporates are being more cautious on their hiring at the moment, certainly in the financial service sector, for fairly obvious reasons, if you've read any of the press. And so for us, if growth slowed a bit, we will be more cautious on headcount, we would continue with the structural investment because this is not about FY '19, it's not about FY '20, we're in a market-dominant position. We want to ensure that the market position that we've built in Australia over a long period of time, which drove superior financial performance and superior profitability, is replicated in Germany. And therefore, we will continue with the structural investments, whilst being slightly more cautious on headcount. But sitting here today, with everything we know, fee growth is in a good place and we're in a good place I think to get within the 2022 range. So we just had a couple of quarters where, in the end, we're 1% to 2% below where we would like it to have been.

[Operator]

We have no further questions in the queue. [Operator Instructions] We have one more question from the line of Kean Marden from Jefferies.

[Kean Marden, Equity Analyst]

Just wanted to sneak in. So how would you characterize the delay in German Perm decisions at the moment? So is this HR departments being slow to sign off? Is it because of the number of interviews required to get the candidate on board is increasing? Are you seeing sort of candidates being slower to take the decision to commit? Or you're seeing the start dates delayed?

[Paul Venables, Group Finance Director & Executive Director]

Yes. They are excellent questions, as normal. Everything I've seen so far is it is just not like what we expected to land in the last 2 weeks in September, specifically on the 1st October start date. As you guys know, we book when people start in their jobs. We include the first working day of the next month, included in our cut off. 1st of October is an important date. And in the end, clearly, it looks like some of those dates just moved as we went across the month and it was slightly greater than we expected. I think that's quite hard to disaggregate between candidates and clients and we've certainly seen no signs of any distress or weakness. More of it has been skewed to some of the larger companies. But having been all day Tuesday, having looked at the parts of the business that did move, we've got very firm start dates later in October. So I think it's hard to give greater clarity at the moment. And of course, we're only sitting here on the, what, we're the 11th of October. And I think the key that I don't know at the moment, of course, is will we see a similar trend at the end of October or at the end of November, all those sorts of things. We'll see that when we do the Q2 results. What I can say, I think, is that all the discussions we've been having with our clients other than with perhaps a handful of some of the larger clients are it's still a pretty positive market. There's significant skill shortage. Certainly, in the IT sector, there's a real scramble to get hold of good candidates. So I think the market is strong. And I would reiterate, as by far the largest market player, both dominant in IT & Engineering and overall, I think when we're around 8%, 9%, 10% in the 2 biggest specialisms and 13% overall, that's a pretty good growth position to be in, whilst we would clearly have preferred to be a little bit higher.

[Operator]

We have another question from the line of [ Martin Grant ] from -- it's a private investor.

[Unknown Shareholder]

You may or may not be able to answer this, but would you expect that the reason of your fairly sharp drop-off in share price has anything to do with simply a fall in line with the [ 250 ] in general, or do you think there's some underlying confidence in the growth figures that you've proposed?

[Paul Venables, Group Finance Director & Executive Director]

No, I think it's all the former. I think, if you -- at 7:00 this morning, I happened to be at the CNBC Studios doing an interview with them. And the first 20 minutes of their program was all about what's happened to the risk -- or part of the stock market. So I think, in the end, we were about GBP 2.10 at the start of September. We were at below GBP 1.80 end of yesterday. And pretty much across the whole of the cyclical part of the markets, we've seen a good 10% fall. And I think that's all around forward confidence, isn't it? It's not about 1 quarter or 2 quarters trading, it's much more about where will the market be in a year's time. Concerns over interest rates, concerns over trade. The biggest issue in my own humble view is all about the trade war between the U.S. and China because that's 1/3 of the global economy, so you can't dismiss that. And I think the biggest confidence that can be given to the market is all around that trade position. But no, I think that the falloff is pretty much in line with everybody else. And I think that...

[Unknown Shareholder]

So you're confident about your 5-year plan and where you are?

[Paul Venables, Group Finance Director & Executive Director]

Yes, the normal caveats I gave earlier on about any certain numbers, I think we're in excellent position. And -- but what we said in our 5-year plan, clearly, have the caveats around any significant downturn in a major market. But at the moment, the economy -- so I'll clearly put it this way then. The economy is completely supportive of delivering the 5-year plan. The politics around the world is in an interesting position, isn't it? And the key thing is trying to get some stability in that market, whether that's the U.K., with the discussions we had earlier on, whether that's over tariff issues, whether that's in Australia, with the elections to come forward, that's something we can't do anything about. What we do is we've delivered an excellent long track record of superior financial performance over the last 4, 5, 6, 7, 8 years. And we continue to look at all of our indicators and make decisions on the back of that. We clearly have an eye on what's going in the broader economy. We look at our own indicators we make those decisions. And that's why we've got superior conversion rates in this sector because we're very good at converting what fee growth we have into profit growth. And in the long term, that's the most important part, because that also drives cash, drives dividends, drives specials and everything else, and we will continue to do that.

[Operator]

We have no further questions in the queue at the moment.

[Paul Venables, Group Finance Director & Executive Director]

I was waiting for another one, actually, after the last 5 minutes. If that's all the questions for today, we'd like to thank you all for joining us for the call. I look forward to speaking to you again at our Q2 FY '19 IMS on January 15, 2019. Should anybody have any follow-up questions, David, Charles and I will be available to take calls for the rest of the day.Thank you very much for joining. Have a good day.

[Operator]

Thank you for joining the call. You may now disconnect your handsets.