Hays PLC

LSE:HAS

Earnings Call Transcript 2021-Q1

[Operator]

Hello and welcome to the Hays Q1 Investor Call. My name is Molly, and I'll be your coordinator for today's event. Please note that this call is being recorded. [Operator Instructions]I would now like to hand the call over to David Phillips, Head of Investor Relations, to begin today's conference. Thank you.

[David Ian Phillips, Head of Investor Relations]

Thank you, Molly, and good morning, everyone. Welcome to Hays quarterly update call for the 3 months ended 30 September 2020, the first quarter of our 2021 financial year. I'm here with Paul Venables, Group Finance Director.Before we begin, please be aware that this call is being recorded and with the recording accessible using the number and code provided in the release.Please also be aware that our discussion may contain forward-looking statements that are based on current expectations or beliefs as well as assumptions on future events. There are key 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 the 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 present highlights of today's update, cover key themes and discuss regional performances before taking any questions. As usual, all net fee growth percentages stated are on a like-for-like basis versus prior year, unless stated otherwise.Performance review. The pandemic continued to significantly impact the business through the quarter with net fees down 29%. While markets remain tough across most of the world, the temp markets were stable overall and the perm markets improved sequentially across the quarter. There were no working day adjustments in the quarter, but currency translation has a slightly negative impact, decreasing headline net fees by circa 1%.I'd highlight the following key features. One, considering the unique and uncertain backdrop of a global pandemic, our fees continue to be reasonably predictable in all of our major markets around the world. To date, the shape of our recovery continues to be gradual.Two, whilst markets remain tough, fees improved sequentially, and our fee decline improved from minus 34% in Q4 to minus 29% in Q1. Most of the improvement was in Perm, especially in those countries which had previously faced the toughest lockdown restrictions in March to June, including the U.K., France and Spain, as those severe lockdown restrictions eased.Three, we saw a good rebound in activity in the public sector markets around the world where decline in fees improved from 24% in Q4 to 14% in Q1. And the rebound in private sector was more modest, moving from 35% to 32%. Temp, down 25%, continued to outperform Perm, which was down 35%. However, the fee decline differential between Temp and Perm narrowed from 18% to 10% in the quarter with more Perm activity in most markets.Five, while both group and consultant headcount reduced by 5% over the quarter, our consultant base is now appropriate for the current conditions, and we expect modest increases from the Return to Growth initiatives over the next few quarters.Six, our current cost base of GBP 63 million per period remains in line with the guidance given at our full year results in August, including GBP 1 million per period in the Return to Growth projects.Seven, during the quarter, we exited all major government support schemes globally.Eight, over 90% of our offices globally are currently open and working under a hybrid office/home model. The level of interactions with clients and candidates remain strong, and initiatives like Hays Thrive, our free online training and well-being platform, continue to prosper with over 15,000 clients registered.And then finally, cash performance is again good, and the group maintained its strong balance sheet. We ended the quarter with net cash of GBP 350 million, excluding short-term deferrals of tax payments, only slightly below June 2020.I'll now comment on the performance by each division in more detail. Australia & New Zealand. Our ANZ division, which represents 19% of group net fees, declined by 26%. Temp, which represented 75% of ANZ fees, declined by 19%, but was stable. And whilst Perm was down 40%, we saw sequential improvement across the quarter. Public sector improved in the quarter to be down only 12%, while private sector remained difficult and was down 33%.Australia decreased by 27%. And in New South Wales and Victoria, together 51% of our Australian business, net fees decreased by 34% and 32%, respectively. Encouragingly, stringent lockdown regulations in Victoria had only a limited impact on fees in the quarter. Queensland declined by 24%, whilst Western Australia and ACT fared better, down 15% and 11%, respectively.At the Australian specialism level, Construction & Property declined by 32%; Accountancy & Finance, 37%; and Office Support, 41%. But IT and our large Corporate Accounts were less impacted, down 22% and 19%, respectively. And New Zealand, which is 6% of ANZ fees, fell 16% as activity rebounded strongly following the relaxing of lockdown rules. Consultant headcount in ANZ was flat in the quarter, but down 21% year-on-year.Moving on to Germany. Conditions in Germany, our largest business at 26% of group net fees, remained tough but stable with fees down 31%. Overall, business confidence remained low, but again is stable. However, the Automotive and Manufacturing sectors remain very tough. This led to continued underutilization of our Temp workers, albeit with trends improving through the quarter. And excluding the impact of Temp severance costs, German fees declined by 29%. Our Contracting business, which represents 65% of German fees, was relatively resilient and declined by 18%.Temp remained the weakest subsector with fees down 53%. The 3 drivers of this were, firstly, average Temp volumes fell by 32% as clients controlled their costs and fewer new projects started. Second, the lower average utilization of Temp workers reduced Temp net fees by a net GBP 2.7 million or 12%, however, the impacts of the part-time work decreased through the quarter, and we exited the German short-time working scheme in September. Three, with lower client demand, we took the decision to release a further 260 temps in the quarter at a cost of GBP 1.9 million. This reduced Temp fees by 9%.Perm, 15% of fees, declined by 36%. Our German Public sector business, 16% of Germany fees, delivered a strong relative performance with fees down by 3%.At specialism level, our largest specialism of IT, which is 44% of the German business, saw net fees fall by 26%; Engineering, our second largest at 21% of fees, remained tough and fell by 47%, driven by the Temp effects just discussed. Accountancy & Finance and Life Sciences improved and fell 19% and 5%, respectively. Consultant headcount was down 1% in the quarter and down 14% year-on-year. Moving on to the U.K. Whilst conditions in the U.K. & Ireland, 21% of group net fees, again remained tough, activity did improve through the quarter, especially in Perm. Net fees declined by 34%, which represented an 8% sequential improvement versus Q4. Temp fees were down 29%; and Perm, 41%. Both our Private and especially our Public sector businesses showed sequential improvement versus Q4.Fees in the Private sector, 65% of U.K. & Ireland, fell by 40%, with the Public sector down 20%. And all regions traded broadly in line with the overall business, except for the North and the North West, which declined by 41% and 38%, respectively. Our largest U.K. region of London fell by 34%. And in Ireland, net fees declined by 38%.At the specialism level, hardest-hit areas were Office Support, down 52%; and Accountancy & Finance, down 44%. Construction & Property saw some sequential improvement, was down 34%. IT continue to be relative outperformer, down 12%; as was our large Corporate Accounts business, down 22%. Consultant headcount decreased by 14% in the quarter and 21% year-on-year, and we exited the U.K. furlough scheme at the end of July.Moving on to the Rest of the World, which comprise 28 countries and 34% of group net fees, this declined by 27%. In EMEA ex Germany, fees reduced by 24%, representing an 8% sequential improvement versus Q4, especially in France and Spain, as lockdown restrictions eased. Our largest Rest of the World country of France declined by 30%, whilst Belgium and Italy were also tough, down 41% and 30%, respectively. In Spain, trading improved significantly with fees only down 17%, while Switzerland was again a standout performer, down 6%.The Americas declined 27%. The U.S., our second-largest Rest of the World country, declined by 23%; whilst Canada continued to be tough, down 34%. Lat Am fell 33%, including Brazil, down 29%. And in Asia, our fees fell by 33%. China, our third-largest Rest of the World country, declined by 31%, with Mainland China significantly outperforming Hong Kong. Japan had a difficult quarter, down 44%, although Malaysia was again relatively strong, down 16%. And consultant headcount was down 3% in the quarter and down 15% year-on-year.Cash flow and balance sheet. We delivered a good underlying cash performance in the quarter with net cash, September 30, of GBP 350 million, excluding short-term deferral of tax payments of GBP 60 million. Cash collection remained strong.Current trading and guidance, I would make the following points. First, the group's net fee exit rate at minus 26% was modestly ahead of the overall like-for-like fee decline in the quarter. Two, it is too early to determine how much of the improvement in Perm trading in the quarter is sustainable or simply the release of Perm jobs frozen in the March to June lockdown phase, especially in Europe.Three, whilst to date the impact of more localized second wave lockdowns has only had a limited negative impact on fees, clearly, the more of these lockdowns proliferate, the greater the impact on the wider economic confidence of clients and candidates.Four, we currently expect trading in the first half of FY '21 to be modestly profitable. Five, any material recovery in profitability in the second half of the year will require a significant sequential increase in net fees across the whole of the second half and, of course, no national lockdowns in our major markets.Six, we expect group headcount to be broadly sequentially flat in Q2 FY '21, outside of the Return to Growth initiatives, as we continue to balance appropriate cost controls in the more difficult markets whilst positioning the group to benefit from any market recovery. And seven, our strategic Return to Growth program is making good progress, and we remain confident that the projects will accelerate our medium-term growth.In conclusion, it's been another very challenging quarter, but our teams have performed admirably. Notwithstanding the risks of prolonged second wave lockdowns, it is encouraging that momentum has improved throughout the quarter. And although many uncertainties remain, our highly experienced management teams are focused on best positioning the business for any recovery. With our strongest-ever balance sheet and leading positions in key sectors, we are confident we can take further market share.I'll now hand you back to the administrator, and we're happy to take your questions.

[Operator]

[Operator Instructions] The first question comes from the line of Rory McKenzie.

[Rory Edward McKenzie, European Support Services Analyst]

It's Rory here. Two questions, first, please, on the pace of improvement. Firstly, which data are you looking at internally to try and assess how much of the Perm recovery so far reflects pent-up demand versus maybe more underlying and sustainable trends? And could you also give more detail on what you've seen in areas that have gone into Phase 2 lockdown so far? Obviously, parts of Australia, in particular, I guess.And then on the Temp side, thanks for the detail in Germany, where it sounds like you're now moving past some of the headwinds. But more generally, I guess, Temp still feels a bit sluggish to kind of pick up. Do you think you're suffering from clients using government furlough and short-time working schemes as an alternative to the traditional temp channel?

[Paul Venables, Group Finance Director & Executive Director]

Yes. Good questions, Rory, and hopefully I can do them justice. I think on the pace of improvement, I think the positive for me is that generally, the improvement has been very gradual and pretty predictable. So it's not like we certainly had one large spike.The only question in my mind is Europe. As most of you on the call know, the European markets and even more so, the ones outside of Germany, we see a very slow hiatus almost across July and August, and we always had a very strong September. So September, from a level of fees, is always the biggest month we have in a year.So I think the question there is one of the largest parts of sequential improvement, for example, we had in September versus the quarter as a whole was in the Rest of the World business, and a large part of that was in Europe. So I think there, the question is, as the European markets came out of lockdown a little bit later, as they went across June into Europe -- into July, it would be quite natural for clients to bring -- if they were bringing -- if they were suddenly going to fill a number of roles that have been frozen, rather than starting those on the 1st of July and the 1st of August, they would do it on the 1st of September when more of their business, more of their individuals were back at work in whatever hybrid form they have.So I think Europe is the only one, whereas I think the improvements we've seen a little bit in Australia, certainly the improvements we've seen in the U.K., I think was more gradual. Now the positive is I always reflect in some detail on exit rates and talking about them in the language we use. And therefore, I think you can -- everybody can take some comfort that, that September rate, we think that sort of level will at least hold into October. Beyond that, of course, it is harder to determine.But I think Europe is the only one where we would normally have October and November as a good GBP 0.5 million to GBP 1 million lower than September. And the question mark this year is, where will that be? So I think that's the only one.On Phase 2 lockdowns, I think the positive so far, if you take something like Victoria -- and I remember, I was actually on -- as you guys know, I always go to Australia in the first weekend in August, clearly, I couldn't do this year. But in all of the normal meetings, external and internal, just by getting up in the middle of the night and having no sleep and then doing them, I was actually on the trading call with the Aussies when Victoria was put into lockdown. They've been put into lockdown about a day before. And of course, the Victorian lockdown has been very stringent, and it is still in place today. And our original belief was that our fees will fall by something like 15% in Victoria. The first 4 weeks of that, which really takes us across August, yes, we had some fall, but it was closer to 10%. When we got back into September, we actually got back to where we were ahead of that lockdown.So I think it kind of continues to, so far, follow the kind of the guidance I've given previously where I think the issue is more just delays recovering. So what I can't tell you is what Australia has been. Instead of 27% down, would it have been 25% down or 24% down in this quarter had we not had the lockdown in Victoria? It clearly had some negative impact. But it -- one, it didn't -- wasn't too material in Victoria; and secondly, had no discernible impact on the rest of Australia, and I think that's quite important.So far in the U.K., there's no doubt that whilst -- actually, we've had a pretty good -- the improvement has been pretty much across the board. So far, the region that is bouncing back the least has actually been London, which of course, has got no lockdown issues to it. The North West, we've had a pretty good August. Some of the activity levels are a bit lower today.And I think the real question mark is, are they short and targeted? Or are they longer term? And then what does it do to the -- to things like offices, return to office? Because there's no doubt, as we've seen more of our clients return a bit more to office and as we've returned a bit more to office, that's also given a bit of a pickup in fees. So I think the real question mark is, if it is a coordinated short-term effort, I don't see there being too much of an issue. Clearly, if there's a national lockdown in a major country, all bets are off. But it's too early to tell at the moment. Most governments are trying to minimize the impact on work and clearly trying to have a greater impact on hospitality.When we come to Temp, I think Temp is -- you're right to say that -- well, first of all, we're still in that initial shock phase. And secondly, none of us had a recovery pattern for a global pandemic, which is ongoing. What is clear in the temp market is that those contractors and temps that were with clients through the lockdown phase were able to work remotely. They've generally been protected and their assignments have been elongated. So in a number of sectors now, even more in the sectors where we tend to have more short-term temp assignments, the temp assignments are elongating, they are longer.Then the question mark comes, as each project comes to an end and if a client doesn't then have newest -- new projects for them to work on and then releases them, have we got enough new projects to offset the projects that are completed? I think we're going to have this hiatus period for another, certainly, another quarter. But I do think when we get into calendar year '21 that we're moving to a more normal recovery phase then in the economy where most of the pickup will be in the contracting, it will be in Temp and it will be in interim markets in the Perm part. I do think, however I put this, that Perm fell too far in the previous quarter, and that was the lockdown part. This may well be a more sustainable sort of number.And the question is, where do we move from here? Do I think that governments are using furlough schemes rather than using temps? I think there's lots of different reasons why companies have used furlough schemes around the world. And of course, the furlough schemes are very different from one country to another with the type of flexibility that you have. I think most companies follow the same fact pattern. When the shock hits and for as long as the shock lasts, you're trying to protect as many jobs in your own business as possible. And normally, certainly for those countries which are more industrialized or unionized and there are redundancy programs and everything else, you always have to release temps for there. And there's certainly parts of that, and there's certainly parts of that in Germany.But I'm not clear that that's going to -- I mean, in the end, pretty much all of the furlough schemes are ending. If you're in the hardest-hit sectors, then I think it's just going to be low demand. And for us, the most obvious one is automotive around the world. Clearly, outside of our business, it would be hospitality. I think in the other areas, the next quarter will also be similar. I think we will probably get some pickup in Temp, very modest, but I think we'll return to growth when we get in post-Christmas, Rory.

[Operator]

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

[Hans Pluijgers, Head of Research of Benelux]

I heard what you say about, let's say, the exit rate on Europe. But could you maybe still give some more flavor on the exit rates by region?And then secondly, on cash flows and cash returns to shareholders. You've been starting a buyback for the Treasury shares for the employee share plan. But you -- could you maybe elaborate a little bit on what, let's say, what your way of thinking is currently with respect to dividends? Have you already had any thoughts on that?And lastly, a more detailed question. On Germany, could you give some maybe some feeling of the impact of the unutilization and maybe reduction in the number of temps on your Q4 numbers? What's your view currently on that?

[Paul Venables, Group Finance Director & Executive Director]

Yes. Thanks, Hans. And again, if I miss any of those, please do come back. On the exit rate, the bulk of the improvement actually is in 2 areas: it's in Germany and it's in the Rest of the World. If you look at ANZ and U.K., they were only about 1% better than the quarter as a whole. Germany was 7% better, and the Rest of the World was 6% better. Within the Rest of the World, that was all Asia and Europe. EMEA was 3% better. Asia was actually 13% better. So really, it wasn't uniformly spread. It was primarily in Germany and in the Rest of the World. And within the Rest of the World, it was all in Europe and in Asia. The Americas is actually slightly worse.Moving on to cash flows. The positive thing under all of the scenarios at the moment is we're clearly in a very strong cash position. So first of all, that enables us to get straight on the front foot, staff up the Return to Growth initiatives, except that's going to be a P&L hit in the financial year of GBP 15 million, more in the second half of the year than the first half. It also enables us to put some related CapEx there, and we've got other CapEx. And we can get on and do that and do whatever we think is appropriate for the business. That's a real positive.And then the other one is, of course, it positions us to return to dividends very early in the process. You're right, we are -- traditionally, we have just issued shares to do any modest incentive schemes for the top 300 people in the business. This time, we are using the cash position. And of course, the low share price, it makes more sense to buy modestly on the market. But that's -- it's only 10 million shares. So we'll work our way through that.That's still going to leave a very large amount of cash. Of course, at some point, the Temp book will unwind -- sorry, will start to grow again. And therefore, let's say that cash reduces to something like GBP 250 million, whatever that is. But that clearly gives us optionalities, doesn't it? And the first of that, I think, is to return to making core dividends early. Of course, we need to see sustainable profitability to make that appropriate, but we can look to do that early enough. And we would hope to be able to do that when we get towards the end of this financial year.And then secondly, we have options, if we want to, to do some token dividends. And I think the really pleasing part, certainly from my personal perspective, the really pleasing part of the investor road show was we had very strong support from our shareholders in the actions that we've taken so far. Clearly, we're in a very strong cash position, and therefore, we can return to dividend growth early. We're not interested in a broader buyback program. I personally don't believe in it. And we've got very loyal shareholders. They were very loyal in the equity raise. And therefore, we'll be able to return funds to them through dividends, which is the most appropriate part.And I think on Germany, there are some clear positives in here. Clearly, the hard part is that the Manufacturing and Automotive sector is, by far, the most difficult element of it. But I think if we just think through the component parts in that business, I think we'll have another quarter of severance because really, what is now happening is the lower average utilization of temp workers, in the previous quarter, so in Q4, that was a combination of 2 factors. It was less hours actually being worked by those temps with our clients. So a number of those temps were part-time working for our clients. And then, of course, we had an increased bench, and you pay through the bench. And then, of course, those temps are either getting new assignments with you, they are released at no cost or because it might be the end of their back-to-back agreement or we have to make a severance payment to them.So what is clear in the Manufacturing and Automotive sector is that, as you've seen, temp numbers have reduced further. And I'd expect that to continue to go into the next quarter. Actually, the utilization of our temp workers, i.e., those temp workers that are working at our clients is now at a high level. And it's only a few percentage points. Certainly, in September, it was only a few percentage points, where it would normally be. But still, we've got a number of workers that are working into bench. So the bench percentage is higher than normal.And I would expect that the next quarter will be the last quarter materially impacted by this. We'll have some more severance costs that may be similar to this. I think we'll have less lower average utilization because that really just will be benched now. We've got a really good program, well-managed. And I think the beauty about working in Germany and certainly the long-term relationships we've got with those clients is that they are very close with us. They are very close with us, and that puts us in a good position. There's very good open discussions with our clients, and therefore, we have very open discussions.So I think the positive bit in Germany is that we've got a much greater -- the contracting market continues to be stable and we're sequentially growing in volumes across the quarter, but clearly nowhere near what we were doing a year ago. Temp market is still difficult, but I think we're coming out of the worst of it. Certainly, I think the next quarter, there'll be another hit, not as much, but expect that to be minimal when we get into the back end of the year. So I think it is better, but there's still more to go. And I think the outlook clearly for certainly the automotive sector is very weak for the next couple of years for obvious reasons.

[Operator]

The next question comes from the line of Matthew Lloyd calling from HSBC.

[Matthew Lloyd, Head of United Kingdom Small and Mid]

1/3 more technical question. I just wondered what, if you could remind me, what bad debt assumption you were accruing at historically? And what you're doing, what bad debt assumption you're accruing at the moment?And then secondly, in the Perm part of the business, have you seen lots of people hiring without interviews? And have you seen any trend? Some of your peers have talked about, most notably Robert Half, of people sort of being prepared to hire on much wider geographies because they don't expect people to be in the office 5 days a week from 9:00 a.m. going forward.

[Paul Venables, Group Finance Director & Executive Director]

Yes. No, good questions, Matthew. And I think, certainly the latter ones, will be fascinating to see, won't it, over the next few years.On the bad debt part, it's pretty de minimis. I mean I think the thing I'm almost most proud about in all of my years is that for a GBP 6 billion turnover business, we've never had bad debts more than GBP 4 million a year. So it's really de minimis. And therefore, our recruit levels are quite normal. We simply accrue a target number across the year. And then, of course, at the half year and the full year, we review that.And actually, we're certainly getting de minimis bad debts across the whole of this period of time. I think it's really been one of the most pleasing parts. Clearly, for us, I mean all of that risk is in Construction & Property. In areas such as Resources & Mining, you get de minimis bad debts outside of that area. It tends to be a large company that goes under -- or a small -- most of our bad debts are in the small subcontractor market, but it's pretty de minimis. No change at the moment. And actually, cash collection is very strong and aging looks very good.On Perm part, I mean, absolutely. I mean physical interviews have gone out now, Matthew. It's a bit like your business, and it's a bit like most of my reviews. It's all on Teams or Zoom. We've all got into that pattern. And I think that the beauty of the technology, look, the key in an interview is that you get a feel for the person and their chemistry, and you get to feel whether there's any bulls***. Are you seeing the real candidate? And I think that technology works to such a great extent that we've had no problems at all, both in our business and me personally. In parts of our team, we've been able to move on and hire remotely. That's the world we're in.And then on the wider geography, I think absolutely. I think that there is a general acceptance in the professional recruitment markets that -- and generally in greater business. Whilst we don't yet know what the final rhythm is going to be going forward, most people, when they're out of any probation period, when they know the business well, there is a strong expectation even if you go 1 or 2 or 3 years down the line. So hopefully, when we're through the worst of the pandemic, that there's going to be a hybrid model where people may well be in the office 3 days a week. They may be at home 2 days a week. The important part of that is that it is scheduled.What you can't have is random attendance in businesses because, of course, teams have to work together. Now most teams, of course, are working remotely on technology. But from a cultural standpoint and from on-the-job training parts, which is important in the initial phases of most jobs, of course, there is a benefit in some -- in kind of physically being together. But I think the day of you must be in and you must be in 5 days a week in most roles are gone outside of whether you're in retail or manufacturing or those sorts of areas. So what that does do is it means that candidates have a much greater geographic map that they can focus on. And I think all of those are positives.You could actually make an argument, Matthew, that that's been the IT market forever in that, whilst Accountancy & Finance has been quite a traditional market where everybody is physically interviewed up until this crisis, the IT market has been for years remote interviewing and, of course, primarily remote working, other than when you're working on a large change project and that team needs to be together in the mobilization phase and towards the sharper end of the project. But I think this gives real flexibility both for clients, companies, and it gives real flexibility for candidates and workers. And I think kind of some of the things you've written on that are spot on.

[Matthew Lloyd, Head of United Kingdom Small and Mid]

That's very kind. And one last question. One of your rivals talked about having lots of interview rooms they don't need and, therefore, implied slightly less office space. Some of the others have talked about that. You, the last time we spoke, mentioned that you wouldn't be renewing a long lease again in a hurry. Is there scope to reduce your office costs? I mean, obviously, you're going to need offices because you've got sales teams. They need to work together as a culture, but is there a scope there?

[Paul Venables, Group Finance Director & Executive Director]

I think one of the ways of looking at it is we just need to ignore the next 12, 18 months because one of the benefits, of course, of having those meeting rooms is it enables us to work socially distant. So in most of our offices, Matthew, everybody wants to be back. They want to be back 2, 3, 4 days a week. We've got very high utilization in lots of places around the world, but we've all got to follow the social distance part of it, don't we? So therefore, the offices have been -- those interview rooms have been naturally cannibalized. And it enables people to work so that we can space everybody out.So we all need that additional space at the moment. Of course, we've all -- but the bigger question, I think, is when we work our way through this and we get through the other end, if you then come back to your earlier question, where your attendance in the office in most jobs, including in recruitment, is scheduled, so the team is together. So all of the teams is together for 2 or 3 days a week. Let's say everybody below 2 years, who are still kind of working their -- learning their trade to a varying degree, are in the office 5 days a week. Then if you work through the maths on all of that, you probably end up over the longer term of needing something like 20% less office space. So I think that, that is more in 1 or 2 years' time rather than immediately when we've all got to deal with the socially distance part. But I think it's -- all of us, you can easily see a situation, rather than needing a large amount of space in Central London, that you would actually want some satellite offices in the regions that would be in the -- we've always got offices in places like a Reading or whatever. But you can see there being a benefit, I don't know, looking at people like David having somewhere in Fulham or somewhere in Richmond. He just hoped to be in Fulham. But you know what, you know what I mean because I think that, that way, there is going to be an interesting question longer term about where you want people together. But I think it is important that people work together, Matthew.The one thing that is crystal clear, and I said it earlier on but on the basis you've asked a direct question, is we have -- one of the reasons our fees have improved in this quarter, I believe, is that we've now got more of our people working more together. That brings a natural sales culture and competitiveness. And there's no doubt that, that physical activity, even in a social distance and slightly weird world, is better, drives competition, drives at fees. And also in the end, for all of us in the industry, enables us to keep more of our employees because we all need to, of course, sequentially grow our way out of this. But I think longer term, absolutely, we'll all be having a little bit less property, won't we?

[Matthew Lloyd, Head of United Kingdom Small and Mid]

Indeed. So the future is bright as Aston Villa's at the moment, which I know you'll appreciate even if most of the business don't.

[Paul Venables, Group Finance Director & Executive Director]

Well, I think at least we're 29 points from being -- from safety, Matthew. But no, it's a great start.

[Operator]

[Operator Instructions] The next question comes from the line of Anvesh Agrawal calling from Morgan Stanley.

[Anvesh Agrawal, Equity Analyst]

And most of my questions have been asked. It's just the one I have. You talked about Hays Thrive, and I understand it's like a free training platform. So what's the sort of route for monetization of that? Or is it more like a goodwill thing and then you would look to build the client relationship there?And maybe just one more. Like on the recovery, how should we think about the drop-through in the second half? I mean assuming there is recovery, pretty much the incremental fees drop at 100%? Or there will be incremental cost related to that?

[Paul Venables, Group Finance Director & Executive Director]

Yes. Look, I think on Thrive, at the moment, it just is all about goodwill, isn't it? There's quite a lot of people who've been at home, remote, often in organizations where they're not connecting everybody. And it's been well received by our clients. It was already a platform that we developed originally for the education sector because of all of the education and compliance and onboarding and safeguarding programs they have to go through. And all we've done now is much greater broad than that, and it now covers the whole gamut. And I think the positive part is lots of clients are using it. More than 60,000 individuals are using it. It's being rolled out worldwide. So I think it's just a good thing to do.And I think, like generally, what we're trying to do on our platform with temps and contractors is getting them to come into our website on a more frequent basis, offering them additional services such as professional indemnity insurance where we can bulk buy on their behalf and then they can buy because most professionals need that. Training programs, loyalty programs, and that's a really big push from Alistair and Steve Weston. And I think it's an important part in engagement, isn't it? If you think about the whole concept to find and engage, the more ongoing discussions and pinch points we have with all of our candidates, the better we get to know them, the better we service and the better the relationship is. So I think that's really important.For monetizing, yes, I think that comes later. And -- but that will be a really good question for Alistair when we get to the interims or the prelims. David, you're looking very fetching, by the way, in a mask. I don't know whether he now thinks he's a real risk, but it is quite funny.On the recovery part of it, there will be more commission across all of this. And on the basis that for most recruiters, those activity levels in Q4 and even in Q1 in the Perm areas are still very low. So there's a greater bounce back. I've always talked to about 13% to 15% of all of our fees going out in commission. It's more likely to be closer to 17% to 20% in the initial recovery phase.And then the real question mark is, what do we do in headcount? Of course, we said that in the Return to Growth, we're talking about around 1 million a month in the first half. That's going to go to 2 million, certainly, when we get from about February, March onwards per month as we go through. So I guess, if you added all of that together, including the Return to Growth, that might reduce lockdown -- might reduce the drop-through of, let's say, it was 75% to 80%, that might reduce it to 65% to 70%.The real question mark is, perhaps not that piece, how strongly can our fees rebound from where they are at the moment? We set our cost base out. Clearly, our fees are a couple of million better than that consistently across the months now. But we need significant sequential growth. We need to get well into the GBP 70 million and the mid-GBP 70 million certainly in getting into Q3 and Q4 to do the sorts of numbers that a few of you have out there. Of course, all of that is possible.And I think it's why I mentioned in our comments about those kind of second wave, what none of us knows now is how far and how deep. Clearly, in certain countries, it's a very logical, structured, controlled methodology. In other countries, as we know, it's a bit more haphazard. But I think that's going to be quite important in candidate confidence. Most larger clients or who've already set out their route map, they know what they're doing. It is very logical.We're getting very few, almost phantom jobs. It's not a real job, hasn't been approved. We're getting a high flow-through on jobs into its completion. We are normally getting this sort of thing. You get at this point where you get counter offers for candidates, which means a number of those drops-through, that's normally in a weak economy. But I think to get meaningful recovery in this financial year, we need both candidate and client confidence to continue to improvement across the period of time.But certainly, if you look out a good 6 to 12 months, I actually think all of the rebound so far is really very encouraging. So I think FY '22 and '23 looks pretty good at the moment. The real question mark is, how much profit can we drop-through in the next 6 to 9 months?

[Operator]

The final question comes from the line of Joe Easton calling from Bloomberg News.

[Joe Easton;Bloomberg News]

I just wanted to ask about the executive units, whether that's held up more resiliently than some of the lower-income groups? So the hiring -- so has the higher-income hiring been more resilient? And if so, have there been variations across industries or geographies?

[Paul Venables, Group Finance Director & Executive Director]

As a generic, I mean, we need to be careful on the phraseology of executive. But let me put it in another way around and take one market right now. I think really across all of the areas, actually, one, things like Construction & Property where we're the only one of "U.K. recruiters" really in that space, and that's just been a recovery that's come through opening locations and everything else. So that's been across the board.Outside of that, absolutely all of the strongest fee performers had been in the more senior qualified ends of the market. So if you take Accountancy & Finance, the qualified up -- the qualified in 5 years and upwards have been the strongest area because in those parts, companies don't have any spare resource. And if they lose somebody, they've got to replace them. That's been an instant replacement.Clearly, in the more junior areas, in the more administrative areas, companies have been much more reticent about replacing any levers. And we're not seeing that much investment in those spaces. And of course, the common trend over the last few years from most companies, including our own company in what we do, is you're always looking to automate. And therefore, generally, you're automating data, data entry-type roles. But of course, decision-making, whilst technology is important in giving enablers, you still need people with sharp brains, thank God for all of us on this call, to kind of make those decisions. So yes, the senior market is running a good 10% to 15% better than the junior market at the moment. And also within this, remember, if you take qualified accountants, there's minimal -- the 98%, 99% of them are in a job today. So there's very low levels of unemployment in the skilled markets. It has been for the last few years. That's continued across this downturn, whereas, of course, most of the issues on unemployment and where still today 99% of all the people we placed are in a job, and therefore, you're teaching a candidate out of one company and placing them into another role.But I think that's normal for this shape of the recovery. And also with the uncertainty and furlough schemes and everything else, very few people in the senior areas, whoever, have been put into those schemes in the first place. So whilst their jobs may -- replacement jobs might have been frozen as the market has started to defrost and people have changed jobs or most of the activities in the more senior end of the market.

[Operator]

We have no further questions coming through on the phone line. So I'd like to hand the call back over to your host for any closing remarks.

[Paul Venables, Group Finance Director & Executive Director]

And I've got something, yes. Thank you. Look, guys, if that's all the questions today, we'd like to thank you all for joining us. I look forward to speaking at our next -- at the Q2 trading update on the 14th of January. Should anybody have any follow-up questions, David, Charles and I will be available to take your calls for the rest of the day.Thank you very much, and have a great day. Bye.

[Operator]

Thank you for joining today's call. You may now disconnect your lines.