Hays PLC

LSE:HAS

Earnings Call Transcript 2021-Q3

[Operator]

Hello, and welcome to the Hays Quarter 3 Trading Update Conference Call. My name is Judy, and I'll be your coordinator for today's event. Please note that this call is being recorded. [Operator Instructions] I will now hand 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, Judy, and good morning, everyone. Welcome to Hays quarterly update call for the 3 months ended 31st March, 2021, the third quarter of our 2021 financial year. I am David Phillips, Head of IR, and I'm here with Paul Venables, Group Finance Director. Before we begin, please be aware that this call is being recorded with the recording accessible using the number and code provided in the release. Please be aware that our discussions may contain forward-looking statements that are based on current expectations or beliefs as well as assumptions on 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 will be 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 present highlights of today's update, cover key themes and discuss regional performances before taking any questions. As usual, all net fee growth percentages on a like-for-like basis versus prior year unless stated otherwise. Firstly, performance overview. Net fees were down 10%, a continued significant improvement on the 29% down in Q1 and 19% down in Q2 FY '21. While the pandemic continued to impact our business, activity levels in temp and especially perm improved in all regions, and we saw strong sequential group fee growth through the quarter. There were no working days adjustments in the period, but currency translations had a slightly positive impact, increasing headline net fees by circa 1%. I'd highlight the following key features: one, encouragingly, trading in most markets improved across the quarter. A good performance in February was followed by a strong pickup in March, which delivered by far our highest period of fees since the start of the global pandemic and was up 4% versus March 2020. However, for context, our fees were still 13% down versus March 2019. Second, temp and perm fees declined by 7% and 13%, respectively, with activity improving in all regions. In perm, activity significantly increased in February and March, and intent, many assignments have been extended. We have seen a sequential increase in volumes and a significant increase in the average hours worked per temp, in part due to historically low temp vacation and illness as much of our markets were in lockdown. Three, our largest market of Germany saw the strongest rebound with an improvement of 15% versus Q2. The U.K. and Ireland also saw significantly improving trends, especially in perm and whilst the rest of the world was helped in part by easier comparatives given that pandemic began earlier in parts of Asia, we also saw record trading in March in the U.S.A. Four, our cost base increased slightly over the quarter to an average of GBP 68 million per period, primarily as consultant commissions increased in line with net fees, especially in March. Group consultant headcount was up 3% in the quarter, but down by 12% year-on-year. Five, within that cost base, while we continue to tightly manage all discretionary costs, the fact that much of the world has been in lockdown means our non-payroll costs remain artificially low at circa GBP 3.5 million per period below pre pandemic levels. Six, as a result of the improved net fee performance and continued good cost control, group operating profit for FY '21 is expected to be at least GBP 85 million. Then finally, cash performance was again strong. We ended the quarter with underlying net cash of GBP 385 million, and we've now paid all short-term deferrals of tax. I'll now comment on the performance by each division in more detail. Australia and New Zealand. Our ANZ division, 17% of group fees declined by 13%, with momentum gradually improving through the quarter. Temp, which represented 69% of ANZ fees was relatively resilient, down 14%, while perm was down 10%, a sequential improvement of 17% versus Q2. The private sector, which represented 64% of fees declined by 15%, while public sector fell 10%. Australia decreased by 14%. And in New South Wales and Victoria, which together represent 51% of our Australian business, net fees decreased by 16% and 21%, respectively. Queensland and Western Australia were relatively resilient, both down 11%, while ACT and South Australia has fared better still down 6% and 3%, respectively. At the Australian specialism level, construction and property, our largest specialism in Australia, declined by 17%, while accounts in finance was down 25%, IT, 16%; office support, 15%; and resource and mining declined by 7%. HR grew by a good 7% and smaller specialisms, which represent 20% of our business and are primarily in the professional space, were collectively down 4%. New Zealand, which is 7% of ANZ fees decreased by 1% as activities rebounded following the relaxing of lockdown rules. And consultant headcount in ANZ had increased by 7% in the quarter but was down 6% year-on-year. Germany. Germany, our largest business at 27% of group net fees reported the largest sequential fee improvement throughout the -- through the quarter in our divisions, with net fees down 5%, a 15% sequential improvement versus Q2. Business confidence continued to improve with increased client investments, especially in contracting. Our contracting business, which represented 57% of German fees improved through the quarter with good acquisitions of new contractors and fees declined by 4%. Total net fees declined by 1%. Average temp volumes were down versus prior year but improved through the quarter, and we saw record levels of temp utilization and record hours per temp worker driven by very low vacation and sickness levels, performance of which will reverse in the coming months. And finally, there were no severance -- tax severance costs in the quarter. Perm, 15% of fees declined by 16%. Our German public sector business, which is now 14% of German business, delivered another strong relative performance with fees up 4%, and our specialism level, our largest specialism, IT fell by 9%, engineering, our second largest improved significantly to be down 10%, accounting finance debt is still down 6%, whilst Construction & Property and Life Sciences, both at 15% of the standout performers. Consultant headcount increased by 3% in the quarter and declined by 5% year-on-year. U.K. and Ireland. U.K. and Ireland, 22% of group net fees declined by 14%, with improved momentum, particularly in perm. Temp, 63% of U.K. and Ireland fees decreased by 12% and perm by 18%. Fees in the private sector, 66% of U.K. and Ireland fell by 17%, with the public sector down 8%, despite GBP 2 million lower education fees as schools were closed for most of the quarter. All regions traded broadly in line with the overall business, except for Northern Ireland and Southwestern Wales, both down 10%. And Scotland and the North, down 20% and 19%, respectively. Our largest U.K. region of London fell by 17%. And in Ireland, net fees declined by 11%. At the specialism level, IT and Life Sciences again performed resiliently, with fees down 4% and 3%, and our large corporate accounts business outperformed the U.K. average with flat fees, while construction property and office support both saw improved momentum, down 13% and 12%. However, accounting finance, down 25% and education, down 34% were tougher, although encouragingly, activities rebounded in education since the schools reopened in March. Consultant headcount increased by 3% in the quarter and declined by 17% year-on-year. Rest of the World. Our Rest of the World division comprising 28 countries and 34% of group net fees declined by 8%, comprising perm down 11% and a more resilient performance in temp, which fell by 2%. In EMEA, ex Germany, fees reduced by 10%. Our largest Rest of the World country of France declined by 16%, whilst Belgium and Spain declined by 15% and 14%, respectively. Italy and Switzerland were standout performers with fees up 7% and 2% when Poland saw flat fees in the quarter. The Americas declined by 8%, including the U.S.A., our second largest Rest of the World country, which was flat in the quarter and delivered a record performance in March. Canada continued to be tough, with fees down 17%. LatAm fell 20%, including Brazil, down 6%. In Asia, our fees fell by 2%, helped in part by easier growth comparatives, given the pandemic started earlier in parts of Asia. China, our third largest Rest of the World country, grew by a strong 20%, with Mainland China again significantly outperforming Hong Kong. Japan had another tough quarter down 23%, while Hong Kong performed relatively well, sorry, while Singapore performed relatively well, up 1%. Consultant headcount was up 2% in the quarter, but down 14% year-on-year. Cash flow and balance sheet. Cash collection remained very strong, and we delivered a good underlying cash performance in the quarter with net cash at 31st of March of GBP 385 million. And all short-term tax deferrals have now been paid in full. Current trading and guidance, I'd make the following points. Firstly, to date, second and third wave lockdowns has had minimal negative impact on our fees. Second, March trading was significantly ahead of our expectations. In addition to a strong perm performance, it was helped by much higher-than-normal hours per temp worked in our major markets as lockdowns have led to minimum vacation and sickness levels. Whilst it's too early to state whether the overall perm performance in March is repeatable, it is clear that temp hours will start to reduce to more normal levels as lockdown and especially travel restrictions are reduced and vacations are taken. Three, despite Q3 trading, clearly, significant uncertainties remain, and our forward visibility is very limited. Four, our return to growth investment program remains on track. We continue to expect to incur GBP 15 million of additional operating expenditure in FY '21, of which GBP 11 million is expected in half 2. We are confident these investments would accelerate our growth in the medium term and strengthen our positions in key strategic markets. Five, looking into FY '22, we expect investing at least the same net amount in return to both projects. Six, our strong recent fee momentum has driven consultant productivity, especially in March after historically high levels. Material fee growth from here will, therefore, increasingly be driven by additional consultant headcount and overall, we expect headcount will increase sequentially by a further 2% to 4% in Q4 across return to growth projects and key specialisms. Certainly, we expect our cost base to continue to gradually increase, driven by headcount increases and also non-payroll costs will increase to an extent as lockdown restrictions ease, offices reopen and eventually travel restrictions are lifted, especially in FY '22. And as with FY '20, Easter falls entirely in our fourth quarter, we, therefore, expect no material year-on-year working day effects in Q4 FY '21. In conclusion, the improvements in trading and our financial strength put us in a strong position to deliver substantial profit growth, invest for the future and increase our dividend to shareholders. Our highly experienced management teams are focused on best positioning us for recovery. We're confident we'll continue to take further market share as clients and candidates look for expert guidance to navigate pandemic and beyond. And I'll now hand you back to the administrator, and we're happy to take your questions.

[Operator]

[Operator Instructions] The first question in the queue is coming from the line of Rory McKenzie from UBS.

[Rory Edward McKenzie, European Support Services Analyst]

Three from me please. Firstly, on the perm fees in March. I appreciate the uncertainty you had, but you said that a lot landed right at the end of the quarter. Was that a push from your recruiters? Was it from the clients, the candidates? And what does that behavior tell us about the sustainability of some of that work? Secondly, on the temp and contractor trends. Can you just talk about, again, maybe some of the decline behaviors as you got to the end of the quarter. Are you still seeing lots of extensions of assignments and is it changing any of the kind of clients or segments that's happening in? And then just lastly, on the profit outlook. Obviously, you got your guidance this year implies a strong drop-through in H2 to get to over GBP 60 million in EBIT for the period. But given your comments on headcount and costs regrowth from here, what kind of normalized drop-through should we expect as we look out to FY '22?

[Paul Venables, Group Finance Director & Executive Director]

Thank you, Rory. Quite a few questions. So clearly, I will -- if I miss any of these, please come back to me. First of all on perm fees in March. I think all of you are aware that we booked perm fees on start date. So the candidates have to start with our clients. So I moved us to that policy when I joined almost 15 years ago. I think what was encouraging across this period and I guess trying to put myself in the position of all of our clients. I think all of us have seen a pickup in economic activity as we came to the end of the last calendar year. That's continued into start of this year. And I think a lot of our clients have probably found themselves short of headcount. We absolutely had a number of assignments where we were looking to get perhaps 2 people into a client. We gave them a short list of 6 or 7 people. And instead of taking 2, they took 3 or they took 4. So first of all, there was an acceleration in the decision-making speed of our clients. I think that's hugely encouraging. And I think the second part of it is there is no doubt the further we get away from the pandemic, more of our candidates are very happy to explore the market, go through a job process remotely and start remotely. So I'm not trying to say that this market feels like it did at the peak over the cycles of perm. Certainly, there are some sectors of it where candidates still remain cautious, we're still living in a global pandemic. But I do think the uniformity of clients and candidate confidence across the patch, first of all, is much greater than I would have expected, certainly, if you'd have asked me a year ago. And secondly, I think we've seen an improvement. And there's no doubt, I think but all of this is in part tied to the announcement and the success of various vaccination programs around the world. In temp -- and then for what does that mean for the next few months, I think it's a little bit too early to tell. What is, of course, true is that when we do get a strong month if anything, there's probably certainly a psychological incentive consultant to try to land these earlier and yet candidate started earlier. Activity levels are very strong in the business. I think the perm part of it feels that we'll have a good few months to come. But I think it's too early to tell whether that is sustainable across the next quarter and to what level. It's hard to disaggregate what may be a catch-up in roles and companies getting more confident and a continuation of those trends. And I think underpinning it, actually will be the candidate confidence because we are now very clearly, not just in areas such as IT and Life Sciences, but also in pretty much all of the areas of Construction & Property white collar and some of the senior finance areas, we're now in a school short market. So I think as long as candidate confidence remains strong, there is a good outlook. On Temp & Contracting, I think the extensions will continue for some time. I think if we think it through, pretty much in large parts of the world over the last quarter. Most of our temps have been working remotely, certainly outside of the manufacturing and engineering sectors and construction. A lot of our candidates have been -- temps have been working remotely. And of course, if a temp is working remotely from home, working well, they've gone through all of the protocols and companies and cybersecurity and all this sort of stuff. I think it makes sense if clients, whereas in the past, clients might have released a temp at the end of an assignment. And then if I need to something in 4, 5, 6 weeks' time and then look to come back to us to get another temp. Here, they're holding on to the temps for longer. And then associated with that, which is definitely an impact in February and even more in March versus previous years. I think we also saw this kind of unprecedented increase in temp powers. Specifically, Germany, we sustained that part of that, but it was also a trend in the U.K. and Australia, which is our biggest market. And I would put that down. So if you think it through in a world where you can't go anywhere, you can't travel anywhere. I think most -- understandably, most temps and contractors have been very happy to work and very happy to work the way up to Easter. And therefore, what I don't know whether the perm is sustainable, I do think that we benefited to the tune. Just for example, in March, we will have benefited to the tune of GBP 3 million to GBP 4 million of increase in ours. Of course, some of that doesn't reverse because the pickup in things like sickness versus where we would normally have that's not suddenly going to start to accelerate. But at some point in time, vacations will have to be taken. And from a segment standpoint, I think the really exciting part of this, it really is across the board. And the difference between these results in the previous quarters, from my standpoint, is that in the previous quarters, it was more about larger corporates in a strong financial position, returning to hiring earlier and, of course, continued strength in the public sector. This time, we saw a much greater improvement, both in the medium and smaller clients and really across the board. So I think that's quite encouraging. On profit outlook, you're right to say that we've had shown drop-through in part because we like temps, I guess, nobody goes anywhere. You can't spend anything on anything. And therefore, the cost base is artificially low. And therefore, our March level being only being 4% versus where we were a year ago. And a year ago, our March was strong, but the fact, again, that perm is booked when people start. I mean, we didn't have a strong fall off in fees. And I'm going to say off the top of my head, our March 2020 number was only 4% below February. Our reduction came in April and May. So we did get a strong drop-through. I don't think that drop-through is particularly irrelevant for next year. What is clear is, first of all, our decision to protect all of the experienced consultants in our business has been fully vindicated by the level of growth -- sequential growth we've achieved, since the trough in May of 2020, and that's put us in a position to be able to patch back strongly and to drive further growth. But now it's all about and I think the positive is, as markets reopen, as offices reopen, very important to the development of junior consultancies government job training. That is much harder than remotely than obviously it in offices and therefore, I think the fact that we're now looking to significantly increase our headcount. We added 200 consultants in this quarter. We'll be similar or more in the next quarter. I think is a positive because that's about making sure we've got sufficient productive capacity in a year's time to drive fee growth. And then on drop-through rates, we're already I think you can all guys can appreciate, we've done a couple of days earlier than expected. And I think we need to understand what is the trajectory of sequential fees from here to have a good idea on the drop-through. And as I said at the interims, we'll certainly give some guidance to that when we get to year-end. But overall, I think, quite encouraging across the patch.

[Operator]

And the next question in the queue is coming from the line of Anvesh Agrawal from Morgan Stanley.

[Anvesh Agrawal, Equity Analyst]

And you probably answered my questions in your previous answer, but I got like a couple of more clarifications really here. So you sort of touched on the way you guys book revenues for perm on the star data and then these -- the contract is signed, so to say, does that mean you have further acceleration to come given the activity level you have seen at the end of March? And there's some sort of revenue fall through in Q4? And then you commented at the March sort of down minus 13% versus 2019. Is that what you are baking in for Q4 as well versus Q4 '19? Or are you seeing sort of any underlying improvement in trend versus that minus 13% so far? And if you've given that already, apologies, but can you tell us what Jan, Feb and March was for temp and perm from a fee perspective like the numbers, if you can give that, please?

[Paul Venables, Group Finance Director & Executive Director]

Well, the final one, no, I can't do that one on numbers, I can do a lot of things. I'm pretty good with math, but that one will be a bit more difficult. What I can do is to tell you that, that 4% exit rate, I mean, perm was up 11%, for example, and temp was down 1% year-on-year, if that helps. Again, some complicated questions. So if I missed the point here, then please let me run through. If I can answer your first one on how we book perm, I can do it slightly differently. It may well be that the March fees will be the -- it could well be that, that's the largest we'll have in this financial year. March was a significant pickup in any of the months we've had previous in this year. As I said earlier, I think there are some nice points aligns, specifically in the tech side of it. I do think that sequentially, we will have lower fees in April and May, and that's in many respects due to the bank holidays and impact in the perm side of it, so impacting the temp side of it. I think our perm will hold so the most interesting one is what happens in my mind, temp, we continue to pick up our temp numbers from the rebound now. We're now some way above what we had going into Christmas, so that's a real positive. I think on the perm side of it, we did have a strong pickup in perms placed in March. I think there's every opportunity, we could have similar levels in the next 2 to 3 months. Whether it is greater in the end, I think, comes back to that point, which I don't have the answer to at the stage, as to how much of what we saw at the end of February going into March was almost like the release of some pent-up demand with clients saying, you know what, we've got a number of jobs that we cut a year ago or we put on hold when we went into lockdowns too, we now want to try to fill those. So it's too early to say that. I think the positive, though, is that the improvement was uniform and across the board. And therefore, it's not like it's really dependent on only 1 sector or any 1 client. On the kind of questions on Q4 '19. First of all, I haven't gone and looked at that in any sort of detail. And I don't know, for example, sequentially how things went across 2019. And in many respects, I'm not particularly too bothered. I think it comes my point. The key for us I think is where will June be versus where has March been because our 3 big months in any year are September, now that's overall a strong month. And in part, of course, impacted by things like U.K. education perm, but it's still a big month, so September is the one. March is an important month. Generally, if we've had an uptick in temps, we tend to called on to those temps. And I think, therefore, March is quite pleasing from a volume standpoint. Certainly, at a volume level the most exciting part of these results was in the German contracting market, that, in my mind, is actually more important than the temp results. But I think the -- and then June, and it will be interesting this year to see whether June is higher than the March number and whether we've had a sequential growth, therefore, across the next quarter. I think for us, across the next quarter, we know that our fees will dip in April and in May, simply due to the bank holidays. We book a large amount of temp fees every day, temp fees are -- I don't have the fund. It's well in excess of -- you're talking about GBP 2.5 million per working day. So it's quite big. But I think there's every opportunity that we'll have a strong June. So I think I may not have picked all of your points up, but in my mind, the uniformity of this, the fact it's across many all of our clients means that as long as the candidate confidence remains strong and ideally, again, increase in candidates coming to the market. And then finally, one of the new off-season in this, and I know a couple of you guys have written about it, is, of course, this point that you've now got greater flexibility as to where a candidate lives and what job you place them into. And there's no doubt that, that greater flexibility is there today. And of course, the final one is we've also seen that our clients and candidates have got very comfortable doing jobs remotely. Since the start of this pandemic now we have filled, I think it's about 65,000 perm jobs a large number of which all have been remote, including starting remotely. And we've done more than 200,000 temp assignments. So I think the one big positive out of this for all of us is that working practices of clients have changed and confidence of candidates is enough that they're continuing to move. But I think how that goes over the next 3, 6, 9 months will be in many respects, tied to the general sentiment in the market, but certainly, it's positive today.

[Operator]

[Operator Instructions] The next question in the queue is coming from the line of Matthew Lloyd from HSBC.

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

I just wondered if you could talk to us a little bit about what fill rates are doing and down to higher because in some ways, they're the same thing. But are you finding it easier to fill the vacancies that you've got? And is that part of the productivity gain?

[Paul Venables, Group Finance Director & Executive Director]

Absolutely, Matthew. That's spot-on correct. And I think if we stand back and think of it from a client standpoint, how do we think our clients would feel in most companies, if you're outside of hospitality and you're outside the travel industry and aerospace. And quite frankly, for recruiters, we've got little to no exposure to that now today because that would have gone now pretty much our clients in most other industries. If you think how they feel today versus how they will have felt in October, November, how they would have felt a year ago, they are feeling real confident. They're almost certainly concern that they've got a little bit to less headcount, and that means their confidence leads, so they're making decisions quicker. And I think we've seen that, and that also ties to your time to higher point. In the end, if clients pick up, if clients accelerate their decision-making and they move faster and they do the interviews quicker. And I think the nice thing is that, that's, I said, again, fully remote, and that position has now really embedded in. So I think all of that means that we have found that we've had a higher -- quite a significantly higher conversion of jobs into parts field. And then on the tech side of it, because that's almost a permit on the temp side of it, it is not so much that there's a lot more temp jobs out there. I have never seen the level of extensions we're getting. So we're getting increase in temp volumes, but it's the extensions, and I think that's back to it's a confidence standpoint across the board. So I think all of that is very positive. And it's fairly positive at the high end of town with very high fill rates in our MSP and RPO contracts. And it's also, if I look across the -- more of the SME segments, again, where we're getting high fill rates. And that's -- none of us would have expected to have seen pretty much all-time record consultant productivity in March 2021, a year after the pandemic, whereas we've all been used to much slower recovery, certainly thinking back to what happened. And of course, the last point I'd make on it is we're also in a kind of a unique fact pattern at the moment, because generally, in previous recessions, we've had government quickly get onto the concerns about austerity and affordability and all those things. Some of those may come in the future because we've all got to pay for this at some point. But at the moment, you've also got significant government expenditure as well. And without a doubt, that helps us because we are by far the largest recruiter in the U.K. and Australian public sector. And we've also got a really nice growth asset going business in the German public sector. So this is a different recovery because I think you've got increasing confidence in the private sector at the same time that the public sector wants to spend money. And I think all of those lead to the faster decision-making. And I think that a vaccination program and its success in certain countries and its nonexistence in others is interesting in the difference we've seen in candidate confidence between countries and what is true is the more comfort there is in that vaccination program. I think the more confidence we've seen generally in kind of those economies and activity levels, but a real positive.

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

And then just finally, I know it's very early to know. I understand that. But how are you thinking about if your business can run at the productivity levels that you must have had in February and into March, how is that making you think about the balance and has to be a balance between injecting headcount into growth and what is the right operating margin for the group?

[Paul Venables, Group Finance Director & Executive Director]

I find these relatively simple to answer because I am a top 100 shareholder in Hays, and I've been here almost 15 years, and this is a company that's in my heart and one I love. You got to focus on growth. It's all about growth in the end. And I think at the moment, so far, and of course, it can change. That's almost behind the initial sentence of your question, is that it can change. And therefore, of course, we could be having a discussion in 6 months' time. None of us knows the trajectory of the recovery from here. What we do know is the shape of recovery from where we were to where we are -- where we were in May, for example, to where we were in March is dramatically better than I could ever have foreseen. Now I think I'm pretty good at this. So I think on the back of that, where your fees are generally beating your expectations, you need to significantly increase the headcount and having fully protected the experienced consultants in the pandemic and like a lot of other recruiters letting the newcomers and poor performers. We've gone on the front foot with adding 200 in this period. Quite frankly, Matthew, if you have added 250, 300, 350, I'd have been very happy with that. We will look to do similar levels of increases every quarter for as long as we're seeing sequential opportunities because I think in the end, we're not -- the size of our business level is of profitability and where we might get to next year is interesting is kind of a relevant because we want a business 2x the size of what we got today. And we want profitability getting back to GBP 250 million and then well north of it. We need more headcount for that, and we need to be bringing those people in and train. I mean now, so that when they are fully trained and a large part other is, of course, on the job training with people in offices. Then that enables us to make sure that 1, 2, 3 years down the line, we still got sufficient productive capacity to drive growth. And -- but what is clear, I hope that comes across. So we will watch this business like the hawk as we always do, and we're all minded that pandemic has an opportunity to hit back, but I think everything is really encouraging so far.

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

And is there any room, sorry, I promised 2 and I'm going to cheat and do the third. Is there any room for acquisitions in that? Is there an ability to perhaps build out a network, make it stronger in geographies or in skill sets by -- and accelerate the growth with acquisitions. It's almost a sort of heretical view in staffing that acquisitions are good, but well executed, they could be?

[Paul Venables, Group Finance Director & Executive Director]

Well, I think we've got a good track record, Matthew. So I think if we came out at any points and announced an acquisition then I think with the track record we've got, not just in Germany, which is the obvious one. But I also think in Belgium, in the Netherlands, in the U.S. I think our U.S. business is going to do incredibly well in the next 5 years and will be the fourth big pillar of that business. I think we've got a good track record, but that is never going to be our primary focus. And in part, I think, in any professional service business, where the country managers and the senior management teams in those countries, all of their energy and skill in building a business, you've got to be really careful when you do acquisitions. Same as you've got to be really careful with the amount of very experienced consultants you bring into your businesses at any point. This is all about having 1 culture in a business. And that culture is better built for the longer-term by bringing people in at relatively junior level and training them up. We do -- not do modest acquisitions. We do bring modest levels of experienced consultants, specifically in specialisms where we're relatively small. But I think all of those need to be a moderation, the core of the business has to be organic growth. And showing that there is a clear opportunity for any consultant that joins today that they will be really well trained, they will become consultants, they will become managers and they become the Managing Director of this business within a period of time. And I think -- so our trajectory, our primary focus will be on organic growth. We may well do, perhaps we've done what, 2 deals in mind, 15 years here, if I was here another 15 years, I doubt we do more than probably one more, Matthew. I think we've got such a great network so the opportunities are there. Clearly, you could argue that something in the U.S. might help from geographic standpoint with little or no overlap. But there's nothing obvious in that market. There's nothing we're looking at today. But our primary focus is aggressive organic revenue growth because I think there's real opportunities, things like IT, we had GBP 250 million fees before the pandemic. Why can't that be GBP 500 million? Us and our leaders are, by far, the market leaders in that space. But we've gone from GBP 80 million fees 10 years ago, it's GBP 250 million pre pandemic, why can't it get to GBP 500 million. And therefore, our focus is really and has been -- it's a large part of return to growth is really accelerating growth, strengthening management, marketing, adding sub specialisms. I think there's lots we can do in the sub specialism space in things like IT and engineering, there's some really attractive opportunities for us over the next 3 to 5 years. And I have no doubt within the next year that we'll set out our store as an investors only because it feels that the time will be right, assuming the trajectory of recovery continues.

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

It's super to hear. So optimistic again. So congratulations and thank you.

[Operator]

And the next question in the queue is coming from the line of [ Edward Donahue ] from [ One Invest ]

[Unknown Analyst]

I got a few from my side, if you don't mind. You've referenced candidate confidence several times during the call. If you look to your commercial teams and the relevant KPIs to that particular space, what is -- what are they showing you looking for or additional actions do you think either you have to take place? Or is this generally a bigger picture confidence required?

[Paul Venables, Group Finance Director & Executive Director]

Well, first of all, as I said earlier, the confidence is not at the level it was around 2 or 3 years ago because you've got certain sectors where often in accounting and finance, you have some of the most cautious candidates. Rose often in the technical areas, in the sales areas, in the marketing areas, you tend to have more generally more confident candidates. But I think what we are seeing is conversions being quick. And of course, as I've already alluded to in a previous answer, that has 2 parts to it, because the clients making faster decision-making. But in the end, the candidates got the ultimate decision about whether they take that job or not. And so far, we're seeing pretty high conversions that when we expect to see candidates accept jobs and then move they are. I think longer term, it's all about making sure that you've got sufficient vetted suitably qualified candidate pools. And everything that we've been trying to do, certainly since Alistair joined 13 years ago. And all of the work we've done in the IT space and all the work we've done in marketing is building engaged relationships with cause of candidates so that when we get job assignments from clients, we haven't just got immediately go to market. We've already got candidates ready to go that we've got engaged discussions with, and we spend a lot of our time, a lot of our marketing focus in doing that. And in the end, that's all about the success part because back to a year ago, we were all talking about what might the level of unemployment be absolutely in the professional white collar space, outside of those industries, I mentioned earlier, the career have been hit hard, and people would have lost their jobs, et cetera. We've got pretty much full employment. So significant skill shortage. So it's all about building engaged relationships. So that you know candidates specifically. And that -- and you know that they will go to a new job by you. So that's all of our focus has been for the last 5 years, but it comes even, I think, even more important as we move into light distilled short markets.

[Unknown Analyst]

Okay. And then if you go to your comment with regard to vaccinations and the confidence factor attached to that. How do you square that a bit with Germany with a very strong performance out of your contracting teams you just give us an idea of why you've had such strong performance, which you highlight as well against a backdrop of not exactly the greatest vaccination rollout program?

[Paul Venables, Group Finance Director & Executive Director]

Yes. I think what is absolutely crystal clear Edward is there's a lot of frustration in Germany at the moment. And I don't think I've ever seen a situation where a government in this country might have a higher rating than a government in Germany, certainly around competence but that's the situation at the moment. And of course, you've also got an election in Germany coming up. I think in Germany, we have a dominant business, we are bigger than our top 4 leading competitors together. And we're, by far, the largest player in the IT space. And I think in the end, a lot of our clients realize that they made some mistakes in reducing contractor numbers a year ago. And without a doubt, this quarter, was we have a kind of a complex story to tell on temp. The contracting story is not complex at all. By the time we got to the end of March, we're not too far away I think it's 5%, 10%, 5% away from all-time record contractor numbers. So the volumes in contracting has come back quite strongly. That's clearly very encouraging. And then I think in the engineering space, a lot of the automotive companies, of course, cut back around headcount, sharply cut back temp sharply. You saw that in all of our previous results. And therefore, at the moment, I think what we've seen is a combination of, as I said earlier on, some unique features whereby -- these are highly paid temps in Germany, earning an average of about EUR 180,000 and contractors earning EUR 140,000. And in that market, therefore, things like scheme vacations do happen. Normally, well, none of them have happened in the last 2 or 3 months. And while that might seem a bit suspicious I actually think it's a unique set of circumstances, when nobody can go anywhere. Therefore, everybody is working. And my guess is some of the increase in hours as well. It's not just vacation and no sickness because a lot of people are working remotely. But there's also -- there's been a request for people to work more overtime, whereas normally a year after a massive economic shock, there is a complete overtime ban. So I think we've seen this quarter a real pickup in those markets, in part because in IT and engineering, we dominate that market with a go to play.

[Unknown Analyst]

Okay. And then just with regard to consultant wage inflation for this year. Do you see any particular tightness developing across any of the business lines or -- and how would you expect that relative to '19? I'm sorry, excuse me, on just a calendar year. Have an idea -- bear in mind that last year was brought on that level.

[Paul Venables, Group Finance Director & Executive Director]

Sorry, are we talking about general wage inflation in the economy or what?

[Unknown Analyst]

No, your consultants whether you won't have to pay your consultants?

[Paul Venables, Group Finance Director & Executive Director]

That's driven by fees primarily. So remember, if -- I do think there will be some wage inflation over the next few years back to the skill shortage earlier, and that leads to higher fee per placement, and that leads to greater commission per placement per consultant. So in consultants, what drives their pay is promotions, and it's a very clear path, get to x level of productivity on a consistent basis build team, if you get promoted, you own more money. And of course, the more fees they book then more than they get. So it's more through wage increases tend to come through promotions. We do increase base pay every few years, but that's not a great driver of our cost base. Our cost base is driven more by commissions. And what is true is when you get strong period, when you get strong pickup in perm, then, of course, a lot more consultants will be earning 30%, 35% of every fee at the top end because it increases depending on what fees you land in a month. So I think if people were allowed to be in offices in March, Edward, I think there have been a lot of happy consultants when they realize what commissions are going to run for the March month.

[Unknown Analyst]

Okay. And then just -- sorry, my final question is just on your headcount additions you're planning for the rest of this year. Again, on a calendar basis, if you looked by the end of '21, how would you be stacking out versus headcount at the end of '19? And I apologize, I'm probably being lazy, I could dig out the numbers. But if you add those, I'd be grateful.

[Paul Venables, Group Finance Director & Executive Director]

I think that's really driven by where fees goes from here. But as a simplistic standpoint, I think we were 13% there in these results, that's clearly going to be bridged. And if we just anchor it versus perhaps February a year ago, my guess is that we'll be back to 7% or 8%. Actually, we'll be about 10% down by the end of June. Beyond that, that's all what happens to the part of fees. But I put it into context, if the trends continue as it is at the moment, I can see us wanted to have a similar level of headcount every quarter, and that will increase our cost base by something like GBP 20 million in the full year next year. But again, that's really driven by continued trajectory the sort of recovery we've had so far, and that's the beauty of these calls. We'll give an update every quarter.

[Operator]

[Operator Instructions] The next question in the queue is coming from the line of Andy Grobler from Credit Suisse.

[Andrew Charles Grobler, Analyst]

Most of mine have been answered already. Just 2 quick ones. One, just given the pace of recovery and how much above expectations it was, do you have the scope to reevaluate how quickly you return that excess cash? Is that number now bigger than you may have thought a few months ago? And then secondly, just around efficiency, which you've talked already this morning, but is there an element of natural selection to you be more efficient in this kind of market as in the more experienced guys staff are still there, whereas the newer newcomers bond and that will -- there'll be kind of a natural process of kind of that normalizing as you go back to growth?

[Paul Venables, Group Finance Director & Executive Director]

If I take the second one first. That's spot-on correct. And in part because, of course, really good consultants have been not everywhere in the world, but certainly in most parts of Europe, have been working remotely. There have been few newcomers in the business. That's only just started really in the last quarter. And therefore, there's a little on the job training they're giving. And even in offices that are, I mean, in Asia, all of our offices are open, and there's a high level of people back in the offices. But obviously, on the job training is an incredibly important part of a senior consultant. We run desk of 4, 1 person is in charge of that desk and part of their remuneration and development and promotion criteria is the development of people underneath. And well, if you don't have many new people in there, there's less time has to be spent on that. And of course, when you're working from home, it is very difficult to do real on the job training. So I think really good consultants have had more time on their own to focus on their fees. And then the added parties, a lot more of our clients and candidates are working from home, it's easier to get hold of people so it is a virtuous circle. You are correct. Cycles are, you are correct. That will, at some point, normalize. But I think it will normalize more because we'll be increasing the amount of newcomers we bring into our business. And -- sorry, can you just reiterate the first one again about pace of the capital.

[Andrew Charles Grobler, Analyst]

Yes, it was just -- you set out your level of excess cash...

[Paul Venables, Group Finance Director & Executive Director]

Sorry. Got that. I think -- yes. This year-end, I don't think so. But of course, there'll be a bigger core dividend than I would have expected. I think the year afterwards, the real positive is that you're going to get the second return of capital of GBP 50 million. Again, there'll be a significantly increased core based on any level of trajectory we might come up with. And I think there'll be a meaningful trading pressure. Because remember, we kept back an amount which effectively funds the working capital increase that will happen as our temp book continues to grow. So I think you could easily see a situation that we'll be yielding about 5% for the next few years relatively easily. So I think that's a real positive from a cash perspective. And what it is strange, certainly, somebody has been in a long time that we talk about cash distributions in the context of a growth stock. I think in a world where interest rates are 0, actually, as a collective, the industry has shown that it's managed incredibly well with the pandemic. And therefore, to have a high-quality stock such as Hays where we're likely to be returning in excess of GBP 100 million per year for the next few years. I think that puts us in a really good position, and we'll be well appreciated by shareholders. And it is interesting that more than 30% of our shareholder base now is income stocks. And all of those companies have held, have stayed with us across this pandemic and therefore, can expect to get well rewarded over the next few years. So yes, I think another positive.

[Operator]

[Operator Instructions] There are no further questions in the queue. I'll hand you over to your host.

[Paul Venables, Group Finance Director & Executive Director]

Perfect. Well, thank you. That's all the questions for today. We'd like to thank you all again for joining the call. I look forward to speaking to you next at our Q4 FY '21 Trading Update on the 15th of July. And 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.

[Operator]

Thank you, everyone, for joining us on today's call. You may now disconnect your handsets.