Hays PLC

LSE:HAS

Earnings Call Transcript 2019-Q4

[Operator]

Good morning and welcome to the Hays Q4 Analyst Conference Call. My name is Courtney, and I'll be your coordinator for today's event. Please note that this conference 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, Courtney, and thanks, everybody, for joining us and good morning. Welcome to our quarterly update call for the 3 months ended 30th June 2019, the fourth quarter of our financial year. I'm David Phillips, Head of Investor Relations, and I'm here with Paul Venables, Group Finance Director. Before we begin, please be aware that the call is being recorded and the recording is accessible using the number and code provided in the release. Please also be aware that any discussions today 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 have been made during this call regardless of whether these statements are affected as a result of new information, future events or otherwise. I'll now hand you over to Paul.

[Paul Venables, Group Finance Director & Executive Director]

Thank you, David. Good morning, everybody, and thanks for joining us. I'll summarize the highlights of today's update, cover some key themes and discuss regional performances before taking any questions. As usual, all net figures and percentages I will give will be on a like-for-like basis versus prior year. Highlights of the results. We delivered a solid quarterly performance with group net fees flat on a headline basis and up 1% underlying when adjusted for working days. This is against tough year-end -- year-on-year comparatives, more mixed macro conditions and signs of reduced business confidence. Net currency effects were minimal. I highlight the following key features in the results: growth was flat in both our Temp and Perm businesses. On an underlying basis, Q1's 1% -- Q4's 1% increase represented our 25th consecutive quarter of year-on-year growth. Each of our 33 countries delivered double-digit growth, including 6 all-time quarterly records.Australia net fees declined underlying 2% by virtue of tough comparative and some negative impact from the run-up to the General Election. Germany delivered solid underlying growth of 4% against an increasingly challenging macroeconomic backdrop. In U.K. and Ireland, fees declined 1% on an underlying basis, comprising good 7% headline growth in the public sector business and understandably tougher conditions in the private sector, where net fees fell by 6%.Performance in the Rest of the World was solid, up 2%; Asia performed strongly, up 10%; EMEA ex Germany was flat, with Southern Europe performing better than Northern; whilst the Americas fell 1%. Consultant headcount was down 2% in the quarter and up 4% year-on-year. In line with our long-term plans, we opened 1 new office in Erfurt, Germany. We've reiterated the expectation that full year operating profit has been in line with current market's expectations of GBP 248 million. And finally, cash performance is strong, and we entered the quarter -- we ended the quarter with record net cash of GBP 130 million. I'll now comment on the performance by each division in a little more detail. Our ANZ division, 18% of group net fees, declined 3% or 2% underlying. This was against a tough comparative: some negative impacts from the General Election and market activity levels and more mixed market conditions generally. This particularly impacted Perm, which declined 15%, although Temp was solid and grew by 3%. Public sector fees were flat, with private sector down 4%. Australia fell an underlying 2%. In New South Wales and Victoria, together 57% of Australian business, net fees fell 4% and 7%, respectively. Queensland grew by 1% and ACT was up 2%, although fees in Western and South Australia fell by 6% and 1%, respectively. At the specialism level, net fee growth in IT was good, up 7%, and HR grew by 4%. Construction & Property, our largest business in Australia, saw continued tough conditions and declined by 16%, fourth consecutive quarterly decline. Accounting & Finance fell by 11%. New Zealand, which represented about 5% of ANZ, remained tough. And as in Q3, net fees fell 6%. Consultant headcount in ANZ decreased 6% in the quarter but was up 1% year-on-year.Moving on to Germany, our largest business, which represents 25% of group net fees, which grew by 2% or 4% on an underlying basis against a tough 16% growth comparator in Q4 last year. We also in the quarter saw broader signs of client cost control and slower decision-making. Our Temp & Contractor business, which represents 83% of German net fees, grew by 4% underlying with Contracting flat and Temp delivering another quarter of strong growth at 13%. Perm grew a solid 4%. Our largest specialism, IT, 41% of Germany net fees, delivered good growth of 6%. Engineering, our second largest specialism, was flat in part due to tougher conditions in the Automotive sector. Accounting & Finance was up 3%, while Sales & Marketing grew 10%. And Legal was up by an excellent 31%, while Construction & Property declined 11%. Consultant headcount in the quarter was down 1% but up 6% year-on-year.In U.K. and Ireland, 23% of group net fees, conditions are understandably more subdued, and net fees fell by 2% to 1% underlying. Both Perm and Temp declined by 2%. Growth in the public sector, which represents 26% of U.K. and Ireland, was a good 7%. Within this, Temp grew by 6% and Perm by 10%. Conditions in the private sector were tougher and fell by 6%. All regions traded broadly in line with the overall business except the South West & Wales and East of England, up 8% and 3%, respectively, and North and Scotland is down 12% and 7%. Our largest U.K. region of London fell 2%, and our Ireland business declined by 11%. At specialism level, net fees in IT grew by 2%; Accounting & Finance and Office Support both fell 1%; whilst Construction & Property was down by 3%. And Education continues to face tough market conditions and declined 15%. Consultant headcount was flat in the quarter and up 2% year-on-year.And finally, our largest division, Rest of the World, comprising 28 countries and 34% of group net fees, grew 2% with 6 countries delivering all-time records. This was against a very tough 23% growth comparative. Europe ex Germany was flat with service-led Southern Europe outperforming the more manufacturing-led Northern Europe. Spain saw a good 6% growth, while growth in Italy and Portugal was excellent at 23% and 21%, respectively. Our largest Rest of World market, France, fell 2%. And Belgium was down 4%. And The Netherlands remained soft with net fees down 15%. Asia delivered strong growth of 10%. Greater China, our third largest Rest of World market, delivered a record quarter and grew by 9%. And within this, Hong Kong delivered a strong 18%. As well in Asia, Japan rebounded up 8%, and Singapore continued its recovery, up an excellent 48%.In the Americas, net fees fell 1%. Within that, the USA declined by 4%, although it did have a better end to the quarter and delivered a monthly fee record in June. Canada grew by 2%. Mexico continued its rebound, up 17%, and Brazil grew by 6%. Consultant headcount in the division as a whole was down 1% in the quarter but up 6% year-on-year.Cash flow and balance sheet. We delivered a strong underlying cash performance in the quarter, finishing with a record year-end net cash position of GBP 130 million. This will allow the Board to consider increasing shareholder returns in line with our clear dividend policy. Moving onto current trading and guidance. I'd highlight 6 points: firstly, we expect full year operating profits to be in line with current consensus market expectations, which we understand from Bloomberg to be GBP 248 million. Second, we estimate the group's net fee exit rate was in line with the underlying rates of growth in the quarter. Three, looking forward, we will overlap high single-digit growth comparators in half 1 2020, particularly in our International businesses. Fourth, we expect headcount growth in Q1 FY '20 to be up 1% to 3% sequentially, including the impacts of our normal seasonal graduate intake. This is lower than last year, and as a result, by the end of Q1, we'd expect our headcount and net fee growth to be in alignment. Five, for comparative purposes, if we translate FY '18 profits to average FY '19 exchange rates, operating profit will be GBP 3 million lower at GBP 240 million. So within this, exchange rate movements remain a material sensitivity for the group's reported results. Looking ahead, we are mindful of economic and political uncertainties. Our focus remains on driving consultant productivity while selectively investing in key markets to reinforce our market leadership. And in conclusion, this has been a solid performance in a more mixed macroeconomic conditions and a backdrop of increased client cost control and slower decision-making. Our cash performance is strong, and I'm delighted we've ended the year in a record net cash position. Our financial strength and our global network, which is the largest and most balanced in our industry, means you have an excellent platform to balance short-term performance with long-term strategic goals. I'll now hand you back to the administrator, and we'll be happy to take your questions.

[Operator]

[Operator Instructions] The first question comes in from the line of Matthew Lloyd calling from HSBC.

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

I'll try and do that thing where I ask too many questions and pretend it's only 3. One, I just wondered whether you had any feeling about -- or any data about how much of the slowdown was volume and how much of it was value. So what was the volume of placements doing in the period? Was that worse than the value, the sales and net fees number? Secondly, is it sort of primarily manufacturing clients that are seeing some degree of slowing? Or is that -- do you think that's a slightly broader economic across the group? And then just a third question, is there any pressure on fee rates emerging? Or are people sort of reasonably holding firm?

[Paul Venables, Group Finance Director & Executive Director]

Yes. Thank you, Matthew, but I do think that was 3 questions, so it's ...

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

I can count.

[Paul Venables, Group Finance Director & Executive Director]

It's clear that we can both count as well. I guess we could -- if the results weren't where they were, we could bask in Villa being promoted back for the Premier League. But anyway, I guess you...

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

Worth mentioning, though.

[Paul Venables, Group Finance Director & Executive Director]

I think it is. The answers in order, first of all, if I take the last 2 quarters, it's been mainly volume, Matthew. If I take that further into third one, I don't think there's any difference today on pressure and fee rates. I think we're -- we all understand in pretty much any industry in the world, that we're all under constant margin pressure. And of course, our job, which I think we've done a phenomenally good job, I'd say, is over the years and also in this year's results is to also look for efficiencies in our own business. And we are ruthlessly focused on trying to ensure that the efficiencies we can drive in our business off-lay any kind of margin pressure we face. I've seen no change in the margin parts of it. And I think that actually leads into the middle question that you asked, which is I think I would describe it as actually, everything is just getting a little bit harder every quarter. And that's been a theme that we've gone through this year. And of course, we entered this year with growth at 14% underlying, and we've exited at 1%. And that's been fairly universal across the base. I think what is clearer though, if you think it through, is that service industries tend to be more candidate-led. Say, for example, Accounting & Finance, no chief exec wakes up in the morning and says, "I want to hire more finance people," unless you run Deloitte. And therefore, I think what we're seeing is, in the service part of it, candidate confidence remains strong. And therefore, for us in that part of our business, fee growth is a little bit higher. If I then move to the more manufacturing, exports, technical specialism part, technical specialisms are driven by companies investing. And the way I would try to describe this is after 3 to 4 years of very strong investment by our clients, and we're perfectly placed for that and have driven a lot of growth, a lot of increase in profitability, et cetera, understandably, we've seen our clients be increasingly more cautious as we've gone across this year as their own end markets have weakened. So I think manufacturing side had more impact than services, but I do think increasingly all of the areas are being impacted. So we try to draw distinction where we can, but I think if you look at our results and also you look at the kind of the general industries' results, it's now being a bit more uniform.

[Operator]

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

[Hans Pluijgers, Head of Research of Benelux]

Question on Q1 headcount increase. You're going for 1% to 3%. What's the basis for that? Do you, let say, of course, you -- historically, Q1 is always, I'd say, high season for hiring. But if you look, let's say, at the trend, you say the exit rate is, as I understand it, around 1%. But trend is slowing down. Yet where do you expect to add to that mainly? And what's the basis for it? Do you expect, say, continued growth? Because also you're indicating what I understand, that you see Q1 fee income in line with headcount increase. Is that correct?

[Paul Venables, Group Finance Director & Executive Director]

No. I think it's trying to give a directional path. A year ago, if you think back to, we'd -- as I said in Matthew's reply, we were at 14% in the exit quarter underlying. We went into this year expecting strong growth. And of course, the year has got increasingly more difficult. We are still at 4% increase in headcount. Our underlying fee growth is 1%. The market is still very measured. So whilst we have given some examples over the last year though as we're having to do more work to get real prospects. Actually, when you get the real prospects, the conversion rates are still staying high. So for us, we have not felt the need to do much preemptive headcount reductions, just been through natural attrition. At it's clear coming into next year that we don't need the same level of increase in headcounts earlier in the year, and it wouldn't be appropriate. So if we do 1% to 3%, I think that would lead our headcount growth at the end of September to be somewhere from 0% to 2%. And I think that's in the right position for the market today. But a completely separate point is, of course, these are -- that's just an overarching position and we will continue to significantly invest in IT headcount, for example. So we've a very clear strategy. We're in a very strong financial position. It enables us to take choices. We are focused, as always, on the long-term prospects of the group whilst trying to drive decent profitability as we work our way through. So we will continue to invest quite significantly in increasing our exposure to the IT specialism. When I joined all those years ago, just remembering now, we were about 8% in IT. Today, it's about 23%, 24% of our group. I think it will be well over 25% within the next 2 to 3 years. So we're investing in the areas of the market that are strong. So in Australia, we're investing significantly in IT. We increased their headcount already. We've added 100 consultants into that space. We'll continue to invest in the next year. But obviously, there are areas such as Construction & Property around the world where we're being phenomenally cautious on our headcount growth. So overall, very tight cost control going into next year but continuing to attack those markets which give us long-term prospects.

[Hans Pluijgers, Head of Research of Benelux]

And looking at those markets, I would imagine Germany and maybe the Rest of the World. That's where the investment maybe you will be looking at headcount in the coming months.

[Paul Venables, Group Finance Director & Executive Director]

Number one is Asia. And whilst it's less than 10% of our group, it's by far -- it's the one area of our business that we still got significant sequential growth. It feels a good market. There's good opportunities. And we know there's a high degree of us plus them outsourcing. So Asia will have the largest part of our headcounts increase. The Americas, we'll invest significantly into. And in Germany, we'll continue to invest, but it will be much more modest than it was a year ago, because we can have a long debate, from a client perspective, of course, there are a number of headwinds hitting that market. So we'll be more cautious there.

[Operator]

The next question comes in from the line from Paul Checketts calling from Barclays Capital.

[Paul Daniel Alasdair Checketts, Director]

I've got 3 questions, please. The first, Paul, would you be able to go into a bit more detail in terms of what you're seeing in Germany and Australia? Obviously, you often give us a run-through of the various data points that you're looking at. It gives us a sense of what you're expecting in the coming months. And then following on from that, would you be able to remind us the cost base excluding headcount in 2020? I know there's some -- there's various factors coming in and moving out. Could you just give us an update on that? And then the last one is on the special dividend. In the past, you've had a very clear framework about what would be returned. If we were going into a weaker period of economic growth, is it possible you would take a more cautious view?

[Paul Venables, Group Finance Director & Executive Director]

Right. I'm not clear, Paul, I understood question #3, so if I answer the other, sorry, and perhaps you can just think of kind of a tighter way of asking that one.

[Paul Daniel Alasdair Checketts, Director]

Okay.

[Paul Venables, Group Finance Director & Executive Director]

Why don't I start with Germany? I think on the basis of Australia on the special dividend, it's very clear and I think positive. Let me give you each one. Germany. I think with Germany, that's probably where the greater uncertainty is at the moment. All of you will have seen the announcement from a lot of German companies over the last couple of quarters some significant profit warnings. It's clear that a number of German companies are looking to adjust their cost base downwards. And we won't be immune to any impact from that. So I think we have to be a little bit more mindful that -- we've got a fabulous business in Germany. We dominate the market. We're as big 2, 3, 4 and almost 5 put together. We will continue to invest for the long term, new offices, et cetera. But I think we will be fairly modest on headcount in the short term because of the uncertainty. I think there's more uncertainty in Germany, but interestingly, the strategic push to go into additional offices, to move into the Mittelstadt to widen our customer base away from the top Germany -- top 100 employers in Germany and moving to smaller and medium-sized companies is really paying off. What we are seeing is much higher growth in that markets and not just, "We're going into new markets, and therefore, we're growing." But we're seeing continued strong hiring trends in that part of the market, whereas what we are seeing, if I come to our top 20 clients, we're seeing a much more cautious position. Within that, Automotive, for lots of reasons, is the hardest hit. And I actually think our Engineering specialism did pretty well this quarter to be flat. I had actually expected it to be negative. Automotive, we were certainly down by between 5% and 6%, and that's against a number that we've been growing in a year ago. So I think that market continues to get more difficult. We're seeing all of the signs of cost control, from less new assignments to a bit more nonrenewals at the end of each period to a bit tighter cost control. And I think that's going to continue in Germany for the next couple of quarters. If I flip across to Australia, I think there are some reasons to be cheerful. They're probably a year out, if I'm honest, Paul. But it's the first time I've seen from it, I think it's worthwhile saying. So why do I say that when we're negative in Australia? I think, number one, the election result was excellent. I think the fact that the government was reelected with a stronger position, a greater mandate. The most important part of there is the hiatus that we had in public sector hiring going into election, therefore, it kind of gets removed immediately. We don't lose 3, 6, 9 months. We don't see a whole raft of new initiatives, which might have impacted our industry. So I think that is a real positive. Secondly, if I look at our Construction, which is one of the lead part indicators for us, and then if you look at the residential housebuilding part of it, we've now seen 2 months -- 3 months where there's been no further fall in house prices in Sydney and Melbourne. They seem to have stabilized at about 10% down. Remember the backdrop, they went up 40%. Now they've fallen off 10%. Well, that's quite important for candidates being more confident to change jobs. And if you look at our business, its -- the Perm part of it is weaker. On top of that, you clearly got a weak Australian economy. And you saw the Central Banks done 2 interest rate cuts on employment, 2 interest rate cuts down to very low levels. So that's an interesting one. But I do think all of those taken together means that we may well see in 6 or 9 or 12 months' time, an inflection point in our Australian business. And if I was [ mutually ] honest here, I'd also say that within this quarter, in May, we had a really strong result, and it was something like the second or third all-time best performance in Australia. So I think there are some signs in that market. We may have another couple of negative quarters, but I think there's some initial signs in that market that reminds us of stabilization. And then on the special dividend, we have a phenomenally clear policy. I think when the Board gets together in August, clearly, our many one member of the Board, I think it will be very easy. I certainly know where I will be voting. I think if your broader point is now what happens if your trading is negative and everything else about 1 year or two's time, I think that's hard to describe. Then the one thing we know, as these results show, is we're phenomenally cash-generative. And our profitability could see material reduction before -- we wouldn't be generating -- we wouldn't have cash balances well in excess of GBP 50 million, for example. So I think sitting here today, what we're seeing is a slight tightening by our clients around the investments in their cost base. And we're seeing no distress in the markets at all. And if I don't see us fulfill certain circumstances today where we see a significant reduction in fee. And therefore, I think we have the get-out-of-jail-free card, but I think that's for more extreme circumstances. So I actually think that our policy is very clear and we'll continue to follow it. And then Paul, I know you have something on the cost base, which seemed like...

[Paul Daniel Alasdair Checketts, Director]

I was only asking about some of the amortization and depreciation around various assets. Can you remind us what the year-on-year move would be?

[Paul Venables, Group Finance Director & Executive Director]

Right. Yes, thank you. And of course, I will do a slide on that when I get there. But next year -- sitting here today, we have a GBP 5 million uplift in property cost fees all for expansions in property that we signed off during the year. As we've been very open when we went across the '14, '15, '16, '17 period of time, we have effectively used most of the spare spaces setting offices around the world. And across last financial year and the financial year we've just started, we are seeing an increase. And right now we captured about GBP 5 million, Paul, we'll be a little bit more cautious now. But we still got a couple in Germany to gather. GBP 5 million is a good number in there. And on depreciation, GBP 5 million is the same number for that. So those are the main areas. And on the other one I'd give just -- because you've asked the question, I'd feel a bit guilty if I didn't give an answer. And I don't expect anybody to start weeping on the call, but the failure of this recent -- the level profitability this year isn't the level we expected coming into the year. And therefore, like a lot of businesses in those circumstances, it does mean that things like incentive payouts are quite a bit lower. That, of course, just helps give some resilience to our second half profitability. But I mean some of that, one would hope, would reverse next year. So you've got the main 2, but I -- if I hadn't, I've given you the fact that we had benefited from lower incentive payouts this year. And it will obviously increase a bit next year assuming we do a good job and hit our numbers.

[Operator]

The next question comes in from the line of [ Tom Cullen ] calling from Investec.

[Unknown Analyst]

Can you just give me a bit of an update on the Hong Kong business? I noticed in the RNS that you guys had a strong performance there in the quarter of 18%. Can you just sort of shed a bit of light on what's driving this and then how you guys are different if I page in this region -- or sorry, in these regions, of course. And they clearly had a pretty tough time there for the same 3-month period. So I'm just trying to sort of understand how you're basically structured differently to sort of drive the outperformance versus the rest of the market.

[Paul Venables, Group Finance Director & Executive Director]

I think sometimes, [ Tom ], and -- where we have underperformance, sometimes it's just management. And I think this time, it's overperformance because of management. I think we've got a superb management team both across Greater China and within Hong Kong, and then that team has performed very strongly now over the last 3 years. It is one of the markets that I'm much more measured in my use of these words. But it's one of the markets where we have taken market share. We've had some real momentum as we've done across the year. That doesn't mean, of course, that our business won't be impacted by all of the demonstrations we've seen recently. Of course, we have the most conservative [ term ] policy in the industry. We only book term fees when somebody starts. And so there's no doubt that activity levels in June -- the demonstrations of [indiscernible], for example, is a demonstration about a week ago, was literally phenomenally close to where our offices are. Fortunately, I'm going to service there in March. I think one for me that was the 61st floor, so we were well above it. But it clearly means it's been a little bit more mixed market, but I do think we've got a really good team there doing very well and very occasionally in life. I should just say I think our teams outperformed the business. And our core businesses in Hong Kong has a high exposure to financial services and we've done very well there. But we've also driven -- and in fact, it's common theme, we've taken a very clear strategic view -- position 3, 4 years ago that we would put investments into the IT specialism we would look to globally. And we put a lot of investments into Hong Kong and it's really come out very well. So the whole area of IT, digital marketing, cybersecurity, all those areas, we've got very strong specialism. And of course, those are some of the areas that the financial institutions as well have been investing into. So I think good performance in IT, good performance in banking, good performance in Accounting & Finance. But clearly, like everybody else, we're mindful and we're watching all the trends at the moment.

[Operator]

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

[Anvesh Agrawal, Research Associate]

I got 2 questions. First, on the U.K. Now it looks like the IR35 is all set to come into place for private sector from April 20. Just wondering if you have had any discussion with the clients or how you're thinking about the impact there given the uncertainty around the implementation of it is still kind of there. And the second is on the cash flow. And like you pay your employee share-based payments and which obviously are -- it's done through the dilution to your shares. Now given where the share prices are, any thought on instead of diluting the shares, you buy back from the market and pay up the employees? Just these 2.

[Paul Venables, Group Finance Director & Executive Director]

Yes. So 2 good questions. Look, on IR35, this is nothing new. We've done more than 100 seminars with our clients over the U.K. over the last 18 months. We have a rolling program of this. We've got both the group, tax guys, members of our own business. So they are working very hard with our clients. And I think it's very different in the private sector versus public. If you remember, in the public sector, this was -- there's no negotiation. This was implemented with a massive baseball bat, where if you didn't deduct tax and there was any problem at any point in the future, you would be hung, drawn and quartered and fired. Whereas in the private sector, it will be much more measured. We have a superb tool that we developed with the company called Qdos that we offer to our clients. We offer as part of the service to validate where the individuals are within or outside of IR35. So we will -- we got the guidance from HMRC last Thursday. I spent an enjoyable afternoon reading it yesterday. There wasn't that much new news in that. There's meant to be much more detail coming out plus an updated model in September. We are working very hard with our clients. I think it will be a more measured reaction. But of course, there's bound to be some uncertainty, and I will come and talk about this when we get to the prelims with a little bit more color. Secondly, on dividends, buybacks and share-based payments, of course, we've had a -- prior to my time, we had a large amount of shares in treasury, which we've used up over a period of time. So we've been using those up. We will as a Board have to make a formal decision, which we'll do at our August Board, about whether we continue to issue shares for management share-based payments or whether we buy shares on the market. We have our discussions with all of our shareholders, and we will announce that policy in August at the prelims. But you know what, on whether you should certainly do a buyback or not, I kind of don't -- personally, I don't believe in buybacks. It's -- I think you have to have a right in a moment of clear distress. And as I said before, in the dark days post-Lehman's, had I had the firepower, then I might have done it. But remember, when things like Brexit happened and our share price went from GBP 1.40 to 95p in a nanosecond, 3 of our largest shareholders, who are long-standing supporters of our business bought 160 million shares in kind of 10 days. So I think we have a strong following among institutions, and if the share price is seen as being, let's say, at a below-market price for short or medium term, I have big confidence that those shareholders who've got much greater firepower will step in rather than us coming in and playing around in the market with GBP 10 million or GBP 20 million in the short term. So we haven't done that since we completed the original buyback program. But as I say, we will have a discussions with the Board in August. But our shareholders, it gives them an opportunity to buy at a cheaper price and to benefit for the long term.

[Operator]

The next question comes in from the line of Bilal Aziz calling from UBS.

[Bilal Aziz, Associate Director and Equity Research Analyst]

Just one quick one from my side. And you alluded to incentive payments. Can you talk about the level of cost inflation you expect to see over the business in the next 12 months? And in a scenario where like-for-like is negative, will you perhaps still feel you've got a good amount of cost flexibility within your regions?

[Paul Venables, Group Finance Director & Executive Director]

Yes. I think there's a series of difficult questions to answer, sure, if kind of concisely. On the cost side of it, there's a market rate for our consultants. We have a -- offer a very attractive package, which is unlimited commission on an individual basis with suitable team incentives as well. So I think that is in the right space. There will, of course, be some cost inflation that you will face in property, you'll face in kind of administrative purposes. That tends to be at 2% or lower. I don't see us doing any more than that this year. And of course, we will get most of that back in continued wage inflation, which, a, will push up -- certainly pushes up the average Perm fee. So I think generally, we have -- we're incredibly good at adjusting our cost base pretty quickly. And we don't need to be told more than once that the market is weakening, and we're seeing that across this year. And therefore, we've moved into, as I said earlier on, trying to invest strong for the longer term but being very tight on cost control across the patch. And we will continue to do that. The hardest part when you're in a position like this is, of course, we still -- in a market that we still have a reasonable degree of confidence in but not the confidence we had a year ago, there are still pockets where we know that we can grow. And also, of course, on the basis that we've got a 60%, 65% exposure to technical stations, we know that we suffer weaknesses first. But also, we see stabilization first and we get to grow first. So it's trying to get that balance right of managing the profitability appropriately for the short term but investing for the long term. I think we've got -- the nice thing is we have a phenomenally experienced management team across the world. It is not just Alistair, Nigel and myself and the other senior operators, it really is across the patch. And we'll make all the right decisions. But what is true going into FY '20, it's a year to be cautious on the cost base and to be surgical on revenue investments and we will do that.

[Operator]

The next question comes in from the line of George Gregory calling from Exane.

[George Nicholas Gregory, Research Analyst]

Paul, just 3, please. Again, largely on movements in the cost base. I just wondered if you could maybe roughly quantify the benefit you saw in the fourth quarter from lower incentive payouts. Secondly, I think it was in response to Paul's earlier question, you gave some guidance on the impact of D&A in fiscal '20. Could I just clarify, you expect that to be an uplift of about GBP 5 million aligned with the uplift in property cost to today? Did I mishear that? And then just pulling the various movements in the cost base together. I know you don't give guidance at this stage, your guidance was stopped when we talk about fiscal '20 in detail at this point. But is it fair to say that H1, given the exit rate with an uplift in D&A and property cost and with headcount still running slightly above fee growth, we might expect that being a slightly tougher period that maybe then hopefully turning a bit better in the second half of next year? Just some thoughts around sort of drop-through phasing would be helpful.

[Paul Venables, Group Finance Director & Executive Director]

That's a pretty lengthy question, George. I'll do my best, but I think really I'll fail on most counts. But to reiterate, we said GBP 5 million more on property. We said GBP 5 million more on depreciation. So yes, the -- also kind of cash ad back would go up by that amount. We will separately on the results day issue the IFRS 16 lease impacts for next year. So I'd rather cover that there because Deloitte's are -- and PwC are all sort of moved up, and Deloitte is reviewing our modeling on that standpoint. But I think other than that, you just described my job in a nutshell. We've got a lot of moving parts. The most important one, more important than anything else, is what happens to the fee line. And clearly, we've gone from 8% in underlying in Q2 to 5% in Q3 to 1% in Q4. The positives, I reiterate, are no real distress in any markets. While I mentioned the Australia stuff earlier on, I do think Australia will be the first of our bigger countries that returns to growth and starts to accelerate, but that's some time off. The importance of that is in kind of that first and second half point you made. I think the first half, of course, will have some tough comps. So from a profit standpoint, it's a bit more difficult. And in fact, you saw that in actually the second half this year. We've said GBP 248 million. We did GBP 124 million in the first half. We did GBP 127 million a year ago in the second half. So it's been a bit more difficult despite the protection from incentives. But we got to get the balance right and we'll do that. We're going to continue to invest in all of the IT tools that we're developing. I'm actually very happy with consultant productivity this year. I think to protect the position in the market that's weakened and decision-making is slow, it's been really good. A lot of moving parts into next year, and there are 2 things that will never change in our business. One, we'll do the right thing for the long term. And secondly, you're right, I won't give -- I won't talk to guidance for a year in advance or 3 quarters and answer 2 quarters in advance. We have 3 to 5 weeks' visibility. We have no thoughts for revenue stream outside of Germany, and it is speculative at most. But we exited the year in a better position from a cost standpoint because the headcount, as I said earlier on, by September, will be there. The real question mark is will our fees, say at 1, to increase to 2 or 3 or 4? Or do they decline? And I -- that's not possible to predict at the moment, even more when you're going to a summer period where visibility gets a bit harder. So I probably haven't answered your question very well, but it's quite a hard one to do. And I do think the summer and exit rate in September will be very important for next year's trading.

[George Nicholas Gregory, Research Analyst]

No. That's helpful, Paul. I just wondered if you could maybe quantify the incentive movement year-over-year in the second half.

[Paul Venables, Group Finance Director & Executive Director]

Well, what I can say is that it's been a bit more than GBP 5 million. So we will have -- appropriately, we have incentives which are driven on growth. We had a growth budget for this year. It's been harder to get there. I think we're doing a really good job. I think we operated -- done a really good job because even growth has gone from 14% up. We're expecting strong growth this year, right away down to want to manage the cost base. And I am deeply grateful for everything the guys have done around the world. But this has been a harder year. Positive for me, reiterate, is I don't see any distress at all. And we know having exposed tech specialisms, we suffered the weakness first. But we come out first. So I look forward to an inflection point, but I have no real view when that will be at the moment.

[Operator]

We currently have no further questions coming through. [Operator Instructions]

[Paul Venables, Group Finance Director & Executive Director]

I suggest then, I do a short wrap-up. First of all, thank you all very much for listening. Secondly, thank you for humoring me and allowing me to mention Aston Villa. Thirdly, I should mention I was at Lord's on Sunday, so that was also a thoroughly enjoyable day. That's all the questions for today. We'd like to thank you again for joining the call. We look forward to speaking to you all at our prelim results on the 29th of August. And should anybody have any follow-up questions, David, Charles and I will be available to take calls for the rest of the day. Thank you. Bye.

[Operator]

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