Hays PLC

LSE:HAS

Earnings Call Transcript 2018-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to the Hays Q2 Trading Update Analyst Call. My name is Marco, and I'll be your coordinator for today's event. [Operator Instructions]I will now hand over to your host, David Phillips to begin today's conference. Thank you.

[David Phillips]

Thanks, Marco. Good morning, everyone, and welcome to the Hays quarterly update conference call for the 3 months ended 31st December 2017, the second quarter of our 2018 financial year. I'm David Phillips, Head of IR, and I have with me Paul Venables, Group Finance Director of Hays.Before we start the call, I would like to cover some legal formalities. The conference call is being recorded, and the recording may be accessed using the number and access code provided in the press release. You should be aware that the discussions may contain forward-looking statements that are based on current expectations or beliefs as well as the assumptions about future events. There are risk factors that could cause actual results to differ materially from these expressed -- from those expressed in or implied by such statements. Hays disclaims any intention or obligation to revise any update of forward-looking statements that may be made during the conference call regardless of whether these statements are affected as a result of the new information, future events or otherwise. I will now hand you over to Paul.

[Paul Venables, Group Finance Director & Executive Director]

Thank you, David. Good morning, everybody, and thank you for joining us. I'll summarize the highlights of today's update, cover some of the key themes, and then discuss the regional performances before we take any questions. As usual, all net fee growth percentages I will give for the quarter will be on a like-for-like basis versus prior year.Highlights of the results. We delivered another strong performance in Q2, with group net fee growth of 13%, outperforming market consensus expectations by 3%. During the quarter, there were 2 fewer trading days versus the prior year in Germany due to 2 additional public holidays. We estimate that this had a circa 1% negative impact on group fees, 2% on Europe and 4% negative on Germany. I'd highlight the following key features in the results. Our performance was again driven by the continued strength of our International businesses, which represent 76% of group net fees and grew 17%. Within this, growth was broad-based with 24 of our 33 countries delivering growth in excess of 10%, and we had 9 record quarterly performances. Two, we delivered excellent growth of 17% in CERoW with Germany, our largest business in the group growing by 19% or 23% on a working days adjusted basis. Three, Asia Pacific was up 16%, with strong 14% growth in Australia and excellent growth in Asia where net fees increased by 24%. Four, our business in the U.K. and Ireland remained stable with net fees up 1%. Five, we continue to invest significantly in additional consultants, up 3% in the quarter and 13% year-on-year or more than 850 consultants. And we opened 7 new offices. And lastly, we ended the quarter with net cash of GBP 35 million, a good underlying cash performance in light of the payment of GBP 94 million in special and final dividends in November 2017. I will now comment on the performances by each division in a little more detail.Asia Pacific. In our Asia Pacific division, representing 23% of group net fees, we delivered excellent growth of 16%. Net fees in Australia and New Zealand were up 14%, within which our Temp business is up 12% and Perm accelerated to 17%. In Australia specifically, we continued to see strong market-leading growth of 14%. Growth was broad-based across all sectors and all major specialisms; and in both the private and public sector, which were up 16% and 12%, respectively. In New South Wales and Victoria, which together represent 57% of Australian business, net fees grew by 10% and 19%, respectively. And in Queensland, our third-largest state, we saw growth of 16%. Elsewhere, growth was strong in both Western Australian up 22%; and ACT 11%. At specialism level, Construction & Property, our largest business in Australia, grew by 15%. And within our other main specialisms, Accounting & Finance, up 11%; Office Support, 14%; and IT, 5%. In New Zealand, net fees grew by 3%. Consultant headcount in Australia and New Zealand was flat in the quarter and up 15% year-on-year.Asia, which accounted for 23% of the division, also delivered another excellent performance, with net fees of 24%. Within this, our 3 largest businesses in the region, Japan, China and Hong Kong, grew by 19%, 25% and 51%, respectively. Malaysia was up 76% and Singapore was down 7%. Consultant headcount in Asia was flat in the quarter and up 7% year-on-year. Continental Europe and the rest of the world. In CERoW, our largest division, representing 53% of the group, we delivered excellent broad-based growth of 17% with 18 of our countries growing in excess of 10%. Our German business grew 19% or 23% on the working days adjusted basis with strong growth in contracting up 14% and excellent growth in Temp of 28% and Perm of 29%. And growth in our core IT & Engineering business was 15% and 20%, respectively. And Accounting & Finance our third-largest specialism in Germany delivered excellent growth of 39%. Fees in Life Sciences were up 4% and Sales & Marketing, 34%. As we work towards our 5-year plan to broadly doubling the profitability of our German business as outlined at the 2017 Investor Day, we opened 3 new offices in Germany during the quarter, in Essen, Augsburg and Waldorf, increasing our network to 22 offices. The rest of Continental Europe delivered 16% growth with 8 European countries delivering record quarterly fees, including France, Belgium and Switzerland. And 12 countries also exceeded 10% growth. France, our second-largest business in the division delivered another strong broad-based performance of 14%. This is our 13th consecutive quarter of double-digit growth and included strong performances in Accounting, Finance, Construction Property and industry, which are our 3 largest specialisms in France and they were up 11%, 13% and 41%, respectively. In the Americas, net fees grew by 16% with many strong performances, including the U.S. up 16%; and Canada and Brazil, which both grew by 15%. Consultant headcount in division was up 5% in the quarter and up 21% year-on-year, including increases in Germany of 7% in the quarter and 30% year-on-year, and the annual increase in Germany is 400 consultants. U.K. and Ireland. In U.K. and Ireland, which represent 24% of the group, net fees increased by 1% with activity levels stable but subdued overall. Net fees in our private sector business, representing 74% of the division, increased by 4%. This was particularly evident in Perm where net fees were up 3%. Our Temp business was down 1%. This continued to be negatively impacted by the tough market conditions in the public sector as well as the annualized impacts of IR35 regulations. And overall, public sector net fees were down 8%. All regions traded broadly in line with the overall U.K. business with the exception of South West and Wales where we grew by 8% and the Midlands where net fees were down 7%. London, our largest region, was up 1%. In Ireland, our business delivered another strong performance with net fees up 11%. And across our 5 largest specialisms, Accounting & Finance grew by 1%, Construction Property, 4%; and Office Support 8%. Net fees in IT and Education decreased by 5% and 6% respectively as they continue to be heavily impacted by the decline in public sector markets. And consultant headcount in division was down 1% in the quarter and flat year-on-year. Cash flow and balance sheet. We delivered a good underlying cash performance in the quarter with net cash of GBP 35 million, down from GBP 60 million end of November, due primarily to the payment of GBP 95 million of special and final dividends in November 2017. Current trading and guidance, I'd highlight 5 points. The exit rate of group net fees was broadly in line with the quarter as a whole with no significant differences by region. Second, as ever, activity levels at the start of the year will be an important driver of the group's second half performance, and we'll update you in detail at our interims in February. That's exceptionally important when 60% of our business is Temp-related at the group level. Third, exchange rate movements remain a material sensitivity to the group's reported results. For example, if we retranslate the group's FY '17 operating profit of GBP 211.5 million at current exchange rates, the actual reported result would increase by circa GBP 3 million to GBP 214 million. This exchange uplift is GBP 2 million less than estimated at the Q1 quarterly update and GBP 9 million less than estimated at our prelims in August 2017.Four, having materially investing consultant headcounts over the first half of the year and in the past year, we expect headcount growth in half 2 to be more selective as we focus on driving consultant productivity. And five, finally, some technical guidance. Moving into Q3, we'll start overlapping tough growth comparators from the prior year, especially in CERoW and APAC divisions. And also, we're aware of the working day impact of the timing of Easter, which this year is evenly split between Q3 and Q4 whilst in FY '17, it fell entirely in the fourth quarter. We expect this to have a circa 1% negative impact in fees in Q3 with a corresponding 1% benefit in Q4. In conclusion, this has been another strong quarter of broad-based growth led by International business which now represents over 3 quarters of the group's net fees. And when looking ahead, we continue to see strong trading conditions and many clear growth opportunities. Our diverse and balanced global business, together with our highly experienced management teams and our strong balance sheet, means we're well positioned to capitalize on those opportunities while maximizing earnings and cash along the way. I'll now hand you back to the administrator, Marco, and we are happy to take any questions.

[Operator]

[Operator Instructions] So we have several questions coming through. The first one comes in from the line of Robert Plant from JPMorgan.

[Robert Plant, Research Analyst]

As you mentioned, the private sector in the U.K., pretty stable in terms of trends compared to Q1. But in terms of any extra detail, Canada attitude, client attitude, any change compared to the Q1?

[Paul Venables, Group Finance Director & Executive Director]

Yes. I think, the big positive -- I guess we focus on the private sector part of the U.K. I don't think there's been much change over the last quarter, Robert. Most of our clients continue with very tight cost control. We continue to see little evidence of significant investments in the front-end of the cycle. What I mean by that is, for example, in Construction & Property, in the kind of the development part of it is -- there's fairly minimal spend, some in manufacturing. What we are seeing is the continuation of pretty much universally across the U.K. where the relievers, they are replaced. So it's a pretty stable jobs market without -- with very few companies looking to make significant incremental spend. And then in the public sector, it's very much the same as before. This is a continued tough position for most authorities dealing with austerity over a long period of time, and they continue to look to try to drive cost savings. But really a headline for the U.K., there's not much difference in this quarter versus the previous one. And I guess the only change in language is I didn't feel when we looked at all of our numbers, we could continue to say that we're having sequential growth in the private sector. I think we've got stability. And I do think in the U.K., it's a subdued market. And the return to work is going to be important. So not just for you guys, but more importantly for me and our business, it'll be interesting to see in 4 or 5 weeks' time, what sort of momentum there is in the U.K. But not a lot of new news, Robert. The positive is pretty much every single -- the last of the 3 months, the numbers we expected to get from our U.K. business at the start of the month is actually what we got delivered. So it's predictable, but it's pretty subdued.

[Operator]

The next question comes in from the line of Tom Sykes from Deutsche Bank.

[Thomas Richard Sykes]

Would you be able to just give a bit more detail on what's driving the German Perm business, please? And maybe could you give a little bit more granularity on the headcount increases and which parts of the business you're putting them in? Are you still adding to mature offices in new disciplines? Presumably you are, but when you think about the scale of the headcount, would you be looking to add more people in Perm in smaller offices? Maybe if you could break that out a bit? And in the U.K., just following on from the last question, is there a chance that this could go negative at all in the next quarter? Or do you think as you start sort of lapping out space that easier -- the declines in public sector, and you've got, as you say, people leaving in the U.K. being replaced, that that can continue at the same level?

[Paul Venables, Group Finance Director & Executive Director]

There are 2 very good questions. Let me start with the German one. I guess it's a high level. I'm struggling to see any weakness in the German market or in any of our detail or kind of statistics. And therefore, at the headline level, we are investing in all aspects of the business. Within that, of course, as you guys will know, a couple of years ago, we made a conscious decision to try to open up the Mittelstand, the SME sector. We've traditionally in Germany been, unlike most of our Hays business, quite heavily focused on the top 100 companies in Germany. There's no doubt that that investment has paid off. Of course, it is a bit more people-intensive because you're starting to open up markets, and the very nature of dealing with a large corporate where you'll get more jobs or a lot of smaller corporates is that you'll get fewer jobs per consultant. But of course, you tend to get a higher margin on those jobs. So we continue to invest in trying to open the market. The best way of answering your office part of it, and I don't have the statistics but I'll give you the sentiment. I think if I looked across the latter 9 months, I signed off more expansion of our properties in Germany than I've done in the previous 5 years put together and certainly over in those 9 months than in all of the other offices in the world together. So what we're seeing is both in the existing offices we've got, we're running out of space. We're taking more offices. We're also taking -- so we're taking more space where that's going to new office without taking more floors in the existing buildings. And of course, with the prospects that we've got and the outlook and our intent, which we set out at the Investor Day, that means we're not just taking a short amount of additional space to cover us for the next 6 months. We're trying to make sure that we've got sufficient space for the next 12 to 24 months. So the growth is pretty uniform. I think back to Perm, as we've discussed several times in the past, the big difference in Perm and even more when you're moving to the SME sector, is that most of that has been done in-house where agencies have been involved. They are very small local agencies. But most of -- certainly, more than 50% of our growth in the Perm space comes from companies that have traditionally done Perm in-house. They may have then started to use Hays over a period of time but they were using part of it, the hard to fill jobs. We're now getting more of their jobs. So I think that without a doubt, that's where the -- mathematically the largest opportunity is. Although I would caveat that with of course in the temp space, we've said before there's quite a high proportion of the temp assignments than go perm after about a year because with the restricted labor practices in Germany, it's often the case, certainly in the engineering space. So there're a lot of the clients that use them as temps first and if somebody does a great job and there's a vacancy, they move perm. So I think the headcounts increased across the patch. We clearly are increasing offices but more importantly, we're increasing space in the existing -- in nearly much every existing space we've got. Then on the absolute increase in headcount, I think it's fair to say that 30% is a little bit more than we would have expected and perhaps even desired at this point, and if I tried to explain that -- and I think, the -- what was hard to judge a few months ago was the impact of the statutory process in Germany. I mean, you guys saw the end of that at Investor Day. We did a lot of work with the German team beforehand. But they rolled out that strategy out across all of the offices and engagement in all of the offices. And retention levels in our German business are up all-time high. So really now currently, we are only losing the people that are on the poor performance level. So we have very high retention levels, therefore, where we've ended up is probably -- Tom, it might well be 5% more headcount than we would have expected at this point. I mean, that's a good thing because in the end, the more good people you have that stay, become productive, the better it is for the group. And that's to an extent why -- and I did try to get the right balance of wording. I said we would be more selective. So for example, with the headcount we've got in Germany at the moment, we've got a large amount of productive capacity, free productive capacity for the next 6 to 9 months. Clearly, we're paying for all of that now. So that has a cost base implication on the German business on the group and we'll set that out in great detail when we get to the interims. Therefore, I think the absolute level of headcounts increase in Germany over the next few months will be lower. And that's more the fact that we now can recognize the fact that there's hardly anybody leaving the business. And then beyond that, it's no different to the way I positioned it last time. Our volume growth in Germany in temp and contracting has moved up a bit. So we've moved from that 16%. At the end of the previous year, we got 18% in Q1. We're close to 20% now. But that needs to go to 23%, 25%, 27%. If it does, then of course, we'll continue with the sort of headcount we've got now. I think we will let that headcount go from 30%, maybe down to 25%. And then, we'll -- we have a target in mind for the end of the year, but we also need to see the return to work in Germany for us first before we make that final decision. So they're all positives in Germany. We have made a large incremental investment in headcounts -- it is expensive in Germany. That clearly has an impact on profitability. We're very happy with that, and that's the beauty of having a portfolio. You squeeze some businesses and you invest heavily in others. And then on the U.K., well, that's the beauty of this job isn't it -- and recruitment. What's the possibility of this being negative in the next course. Say well, I've got 3 to 5 weeks' visibility out of Christmas, that's more like 3 to 5 days. Absolutely it's positive. And actually if I stretch separate, it's a little bit, because you're not completely correct on your comparators point. The U.K. comparators do start to get tougher now, and actually sequentially, we had quite a bit of pickup in the private sector a year ago. So what will be interesting to see, will that private sector grow forward at 4%. If it does over the next quarter, we will have had some sequential growth. Will that 4% become 2% and come back to 0? It's possible. I think what we absolutely saw in the last quarter was there was just very tight cost control. And if you think to the backdrop of that call to where there was such focus on Brexit and the government and everything else, and we didn't know whether there was going to be an agreement on anything, and all we've now agreed is the divorce. I think there is an underlying part that we -- I don't think we're going to see much large incremental investment. Most recruitment moves are very tactical. And therefore, absolutely, it could be negative in the next quarter term, so we could be plus 2, we could be minus 2. That's the beauty of this job, I don't know. And so I apologize for that. But I don't have that crystal ball.

[Operator]

So the next question from -- in from the line of Hans Pluijgers from Kepler Cheuvreux.

[Hans Pluijgers, Head of Research of Benelux]

Three questions from my side. First, on Australia. [indiscernible] say you have headcounts quite stable through the quarter. Is there any indication, also because comps will become more difficult, that you see that the expected markets will be -- growth will be slightly coming down? Can you give us some feeling on that? Then secondly, in general, on your investments, you indicate you will be slightly more selective. Will you give some background on Germany? But more or less across the board, what do you -- let's say do you see any regions where you are clearly becoming more selective? Secondly, how do you see, let's say, that filtering through to the conversion rates, could you give some feeling on that? And lastly, on the cash position quite strong, cash generation in Q2, could you give some color on that, the moving part of that cash generation?

[Paul Venables, Group Finance Director & Executive Director]

Right. You made a lot of points, Hans, and I may not have noted them all of them down. So I do apologize.If I miss any, please do raise it at the end. I'll try to pick them all up, but I'm not sure I can even read my own handwriting looking at this. And if we start with Australia. I mean, first of all, actually December is kind of a tough one on headcount because what you're not going to do in the recruitment business is bring a lot of people into your business on the 15th of December or the 22nd of December. You'll much more likely to bring them in in January. So by the very nature of that, it's always a little bit more sensitive. We tend to get to a headcount position at the start of December. We don't tend to bring new people in. They're then coming in January, et cetera. So if your point was is the fact that we were flat, was that a point that we were trying to make? I don't think so. I'd probably expected it to be 1% or 2%. The point is that I think, and I may get this wrong, so I'm just kind of looking around. I think we're about 15% up year-on-year in headcounts in Australia. And that's pretty much in line with the fees. As to Australia as a whole, I'm just delighted with the performance. I think when you are the dominant player as big as 2, 3, 4 and 5 together. And quite frankly, you've been growing at double-digit now for several quarters on the patch.It is a stunning performance. I have explained on this call before, my focus -- most analyses I do with our team, and I'm in Australian in 3 weeks' time, I will sit down with the chief economist of ANZ bank and I will go through the whole of the construction property intelligence they have on new commercial loans they've signed off, property loans they've signed off, what they're seeing, everything else for fairly obvious reasons. Construction & Property is 28% of our business in Australia and it continues to be very strong. At some point, that has to start to slow. That's why we built the Investor Day numbers we did. We built it off with good first year and slowing beyond. Very happy with this. Actually, with headcounts of what we've got at the end of the year, if I look at the productivity that we're getting currently from workers in Australia, if I look at where we target in Australia in a good economy, that says that we've got about 6% spare capacity at the moment. I mean normally, we target something like AUD 29,500 for 4 weeks. We're running at AUD 27,500 at the moment. So we've got a bit of spare capacity there. So I think there'll be some modest increase. It's back to how does return to work come in January? If that's good, that's why the timing is perfect of me being there. We also do all of our quarterly reviews right at the start of February which is where we set out the headcount plans for the rest of the year globally. So we will perform that in Australia. If we're continuing to see strong growth then we'll return to some modest investment. But at some point, we can't continue to grow at 14% or 15%. It will have to go to 10%, it will have to go below. But every single quarter we get means that we can drive some profitability. So I think the more selective point is we made a lot of investment over the last year. We're up 13%, going into much tougher comps. Therefore, we're just -- we'll see through the return to work, and then we'll make some decisions where we want to go. Ideally, if we come -- if we get towards the end of February going into March with what would be a good or strong quarter, then where we would want to put the headcount, we would want to put some more headcount in Germany at the right point, not yet, but at the right point. Want to put some more headcounts in France. Certainly, Switzerland, Spain, Belgium, good momentum, could take some additional headcount. Asia, we have to put more headcount in. So if it was a disappointing number in here, I think the headcount growth is something like 7% or 8% year-on-year in Asia is a bit too low. So now I'm sure that we will put more headcount in there over the next period of time. And then as we've said before, the U.S. is a long-term play for us. We're not trying to grow profitability. What we are looking to do is to continue to reinvest any incremental fees and profits we get into headcount. And therefore, that will be the area that we'll invest in the most. Excepting that we've made some big investment in headcounts. We now need to start to drive profitability in the second half of the year. And therefore, the headcount growth in the second half will be lower than it was in the first half. How does that impact conversion rates? Well, clearly, we haven't closed the books yet, but we don't have -- [indiscernible] we've got large growth coming out of the U.K. And over the last few years, decent growth out of the U.K. all that's dropped to the bottom line. Therefore, certainly for the first half drop through, which is a kind of the good surrogate way of putting it, I expect to be just below 30%. And we're pretty happy with that with the level of investment we've put in. And I think in the second half, it will be all around, does the fee growth stay up.We know if that fee growth -- when we get to tough comps, if that can stay 9% or 10%, anything double-digit, then I think we will continue to invest further headcounts. And we may have similar in the second half of the year, but a long way to go in that. And then finally, on cash, actually, you -- I'm very -- it's very kind of you to make a good comment, because you rightfully criticized us in Q1. If you remember, I said I'd use the word broadly. It was kind of broadly in line or broadly, whatever it was. And this time, we didn't use the word broadly. I think this is good performance. We know at the end of the last financial year that we did better than we expected on the collection side. Then I took you through our philosophy last time. I think across this 6 months, we've just done pretty well.Things like debtor days are exactly in line with prior year. I think that's a real achievement when all customers want longer terms all of that time. So I think we're quite happy with that. Clearly now, we're into the key part as we go into the second half of the year, we tend to have made more corporation tax payments, rubbish like that, as we go through the first half. We also got a much clear end to the year in June.December was a bugger.A number of customers would say they're going to pay, including I think 2 on this line. Say they're going to pay, say they're going to pay x amount and pay about half or they don't pay anything at all. So we always get better in the second half and we need to. Because in an ideal world, excepting that we have GBP 120 million cash coming into our business, I'd like to end the year -- if we could end the year somewhere between GBP 80 million to GBP 100 million net cash, that would be a position to be, excepting we've got Veredus deferred consideration payment to make. So hopefully I answered your questions, Hans. If I did miss any, I do apologize and then please raise them again.

[Operator]

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

[Anvesh Agrawal, Research Associate]

I have a couple of questions. The first, as you flagged in your outlook statement that the comps are tougher as we go into next quarter. But I would assume that some of the investment that you've made into the headcount over the last 12 months or so should be productive now. So is it fair to assume that there will be an offset there because of the investment with the headcount becoming productive? And second, can you just explain what's driving the growth into the U.K. private sector market? You seem to be ahead of the competition. How big RPO is part of that growth and what's the growth excluding that?

[Paul Venables, Group Finance Director & Executive Director]

Yes, actually, if I take the second one first because it's probably the easiest one. That growth is just across the board. But remember, it's against some weak comparators more than a year ago when going into the Brexit poll and afterwards, most private sector business just stopped absolutely everything. As we've said before, it was only in November in 2016 that we started to see a pickup investment. So the 4% is against weaker comps. Actually, friendly enough, us versus most competitors, I'm not sure how relevant that is, I mean we are such a big business across the U.K. We've also got a big exposure to things like construction as well as accounting and finance. So I think we're probably the clearest bellwether and we're the biggest player and the most profitable. So I think that there's been -- so the private sector a bit 4%, there's not -- I think we're happy with it, but it's not something to cheer about. Much more interesting will be where is that in 2 quarters' time. Will that be positive in 2 quarters' time I think is the question that Tom was trying to get at earlier on. And on the comps, you're right, we put more headcount in. There's quite a distinction between headcount you put into a perm business and I'm going to use Germany as an example in a second, and headcount that you put even more into a longer burn IT contracting high-end business. So let me give you an example. In Germany, it takes us about 2 years to get a new consultant up to average productivity. It's -- whilst we have a machine in Germany, it is a harder business to build even more in the new cities. It's harder to build. And of course, your fees you get over a 12-month period.Whereas perm, if I take Germany, we had a review recently of the headcount we put in and the productivity of where we were in Germany today versus where we were 1 or 2 years ago, and our positivity level is exactly the same and we were kind of gobsmacked, because logically, you would've expected productivity to have gone down because of the investment we've made. So I think on productivity, where economies are very supportive, you get up the curve quicker on perm. But temp contracting, you boarding that for the long term because the good days don't stay forever and that is what gives you the relative resilience in tougher markets. And we are determined to go everything. So what we're never going to do is say great, it's a perm market, let's just focus on perm. We're always going to grow all aspects of our business to best position ourselves across the cycle. And therefore, if I answer your question, we would hope that the new headcount we put in will get to drive more productivity in this quarter, even more in Q4. And we'd hope that that would drive fees forward. But we're pretty conscious of where the comps go to, and I think it will be a mix. What we are is where we have a target profit we're trying to get to for the full year, who knows whether we'll get there or not.We're happy with that headcount we've got in so far. We've got a lot of spare capacity in our business. We're going to start to drive productivity improvement against that and the question will be how far do we get when we get into March and April on that, and how much more headcount do we want to put in by the end of June and when do we do that. They're great choices to have and what is outside the U.K. are really a strong recruitment market and the best that I've seen universally since I joined all those years ago in 2006.

[Anvesh Agrawal, Research Associate]

Yes. That's very clear. Just on the U.K., again, can you just tell us how big RPO is part of your business in the U.K.?

[Paul Venables, Group Finance Director & Executive Director]

It's about 7%. So the contracts of the RPO team do themselves add to their shared service about 7% of the U.K. business. If you then add that up into what also go through the specialism business is coming out of those contracts, it'd takes us to about 15% of our growth and the growth in that market was in line with where we were overall.

[Operator]

So the next question comes in from the line of Suhasini Varanasi from Goldman Sachs.

[Suhasini Varanasi, Equity Analyst]

Just one quick question. You're seeing such strong growth in Europe, rest of the world, Americas, et cetera. Are you seeing any signs of wage inflation now given the labor markets are beginning to tighten that's benefiting your gross profit growth?

[Paul Venables, Group Finance Director & Executive Director]

I'd love to be able to say yes. I'd love to be able to say it was accelerating. I think we'd get -- all staffers would cheer that as well as you guys. I think -- look, I think there's been a lot of research and good well-argued notes put out in this space. There are 2 things that are conflicting each other. The first is that most companies are under constant margin pressure in their day-to-day business. So it is fairly rare in this world now that you're getting price increases, margin increases. It's pretty much the most companies are always, every single couple of years trying to renegotiate, trying to do things at a better price. So that's universally across all industries. So therefore, the difficulty for companies is -- of course, there are pockets of wage inflation where there's acute skill shortage. And equally, in a strong economy, for a number of individuals, they will monetize that by changing jobs and of course, more churn would absolutely be useful for the recruiters because it will drive perm fees up. But I think it's difficult for companies to do across-the-board pay increases because of course, if you suddenly came out and did a 5% pay increase today, but weren't able to pass any of those costs across to your clients, then you're either going to take a 5% reduction in your profitability absolutely in kind of margins or you're going to have to reduce the amount of headcount in your business. So there is still little or no underlying universal price, say wage pressure, anywhere in the world. I think the really interesting part is going to be this. If these conditions, which are pretty universally strong outside the U.K., hold and they go for another 1 year, 2 years, 3 years, at a point in time, I do think we'll start to see more wage inflation. The most interesting bit now, this is 2 quarters where perm for us has been higher than temp growth. That to me, with what we're seeing in places like Europe, becomes a sheer -- a sign that I do think there will be a push for -- companies focusing more on growth. There are lots of growth opportunities. They're focusing more on growth and wanting to get the people to be able to deliver that. And if this cycle then follows previous cycles, you'd expect to see a bit more perm opportunity. So I -- we're not seeing any difference in wage growth at the moment. If I was asked what I think it is, I still think it's about 2% globally. There are some pockets in some IT spaces where it's much greater than that. There are some areas where it is lower than that. I don't see anything fundamentally changing in the next 6 to 12 months in that space. But if these growth conditions in the global economies continue for a few more years, it will absolutely come at some point. And that will really nice for all of us, won't it, because it would be great to have increasing margins, dropping right to the bottom line, and we would all be happy, but we are certainly not a, building anything in our build -- business model in that. And as we said at the Investor Day, none of those numbers were based on any margin improvement at all, but it would be nice to have wouldn't it.

[Operator]

So Paul, we currently have no questions coming through. [Operator Instructions]

[Paul Venables, Group Finance Director & Executive Director]

Are we done then, Marco? Have any more come through?

[Operator]

No more questions coming through at the moment.

[Paul Venables, Group Finance Director & Executive Director]

Look, if that's all the questions for today, we'd like, first of all, thank you very much for joining us. We realize that you've got busy lives and you just spent 45 minutes talking to us, so much appreciated. I look forward to speaking to you at our next interim results presentation on the 22nd of February and of course, we'll cover the return to work information which is pretty vital. And should anybody have any follow-up questions today, David, [Vincenzo ] and myself will be available to take 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 replace your handsets. Thank you.