Hays PLC

LSE:HAS

Earnings Call Transcript 2020-Q4

[Operator]

Hello, and welcome to Hays Q4 Analyst Call. My name is Jose, and I will be your coordinator for today's event. Please note, 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]

Thanks, Jose, and good morning, everyone. Welcome to Hays quarterly update call for the 3 months ended 30th June 2020, the fourth quarter of FY '20. 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 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 these 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 on this call regardless of whether these statements are affected as a result of 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 thanks for joining us. Before I summarize the key elements of today's update and take questions, I want to reiterate Alistair's comments in the statement regarding the superb response of all of our colleagues to the crisis. The past few months has seen unprecedented peacetime disruption to economies, families and individuals. Our priority throughout and remains today to protect our colleagues in all aspects of our business and to continue to deliver excellent service to all of our clients and candidates. We're proud of the efforts and resilience shown by our people in navigating the efforts of this pandemic.I will now review the business performance in the quarter. And as usual, all net fee growth percentages will be on a like-for-like basis versus prior year.Key points. Net fees in the quarter declined by 34%, with all of our markets greatly impacted by the pandemic. Temp net fees were down 26%, and Perm down 44%. The magnitude of the overall decline in fees to date is comparable to the 2008-'09 financial crisis, but the speed of decline was much greater, occurring over a period of 6 weeks versus the 7 months in 2008-'09.That said, after falling sharply in March and April, net fees were broadly sequentially stable in May and June. I'd highlight the following key features in the results. One, conditions in each region were extremely tough. That said, fees in ANZ, the USA and Asia performed slightly better than the group average, with the U.K. and parts of Continental Europe hit harder.At the specialism level, IT, which represented 29% of group net fees in the quarter, was relatively resilient, with fees only down 17%.The group's periodic cost base was reduced by 21% from GBP 73 million pre-COVID to GBP 58 million as we exited the quarter. This was driven by variable and discretionary costs being significantly below normal levels, clearly exacerbated by the fact that all of our offices were in lockdown for large parts of the quarter, and also by group headcount, down 9% in the quarter.Additionally, at 30th of June, 18% of our group employees were either in job support schemes, short-time working arrangements or had voluntarily reduced their pay, including senior management. And also, given current conditions, the executive directors have agreed that no FY '20 bonuses will be paid to them or members of the Management Board.Three, while we'll continue to tightly manage our costs, we expect our periodic cost base to increase as we enter FY '21. We will incur more normal levels of operating and employee costs as normal working practices begin to resume as job support arrangements end and as we reverse the voluntary pay reductions.Four, since lockdown started, our business continuity was seamless, as colleagues transition to remote working in a matter of days. And today, excluding the U.K., 85% of our offices are currently open, and we are working under a hybrid model.And five, cash performance was excellent, and we ended the quarter with GBP 365 million net cash, excluding the GBP 120 million of short-term deferrals of tax payments. This performance and our equity raise of GBP 196 million in April puts Hays in a very strong financial position. I'll now comment on the performance in each division in more detail.Australia and New Zealand. Net fees in Australia and New Zealand declined by 28%. While market conditions were very difficult, the Australian lockdown restrictions were relatively less impactful on our business than elsewhere, especially on construction sites.Temp fees, which represented 80% of our ANZ business, showed relative resilience and declined 18%, helped by some significant short-term COVID-related business wins. And Perm decreased by 52%.Public sector fees fell by 22%, and private sector by 31%.Our Australian business also saw net fees down 28%. In New South Wales and Victoria, together 52% of our Australian business, fees fell by 35% and 31%, respectively. Queensland decreased by 27%, while Western Australia fell 16% and ACT 12%.And at the Australian specialism level, C&P, our largest business, declined by 34%, while Office Support and Accountancy & Finance both fell by 48%. IT was relatively resilient down 13%, as was our larger client, Hays Talent Solutions business, down 4%.And New Zealand, which is 4% of ANZ fees, had a more severe lockdown than Australia and fell 42%.Consultant headcount in ANZ decreased 13% in the quarter and by 20% year-on-year.Germany. Fees in Germany decreased by 33%, heavily impacted by the pandemic and specifically by underutilization in our Temp business. Business confidence remains low overall, particularly in the Manufacturing and Automotive sectors, although other sectors such as IT and Life Sciences, are showing clear signs of stability.Our Contracting business, which represents 70% of German fees and where we operate a freelance model, was relatively resilient and declined by 12%. Most assignments were able to continue under remote working.In contrast, Temp, where we employ workers as required under German law and has a greater exposure to Automotive and Manufacturing sectors, and this was significantly weaker and fees declined by 72%. There were 3 main drivers of the fee decline. First, our average Temp volumes reduced by 22% as less new projects were started across the quarter as clients tightly controlled costs.Second, as many clients closed their workplaces due to the lockdown, there was historically low utilization of Temp workers with many assignments impacted. This led to reduction in billable hours and thus reduced net fees of GBP 6.8 million or 30% year-on-year, which was net of government support on the German short-time working scheme.And third, given the significantly reduced level of demand from our clients and the tough market outlook, we took the decision to release 420 temps and incurred a GBP 4.3 million of severance costs, which further reduced net fees by 20% year-on-year.Finally, Perm fees fell by 29%.Moving on to specialisms. IT, our largest specialism, which represented 47% of German net fees, decreased by 23%. Engineering, our second largest specialism at 20% of net fees, was much tougher and fell by 52%, impacted by the Temp effects noted earlier.Life Sciences performed much better and declined by 12%. Our German public sector business, now 15% of fees, performed relatively well and decreased by 13%, while the private sector was down 36%.And consultant headcount decreased by 6% in the quarter and by 12% versus prior year.And finally, as we briefly mentioned at the interims, in Q3, we restructured our German business. Our new organizational structure provides greater regional focus on the SME sector or Mittelstand, alongside a dedicated division focused on our large Corporate Account clients. As part of this process, we've rationalized the management structure in Germany, and we will include an exceptional charge for the related restructuring costs in our FY '20 results.U.K. and Ireland. U.K. and Ireland, which represented 21% of the group, endured extremely tough market conditions and net fees decreased by 42%. The private sector, which is 68% of the business, fell by 46%. The public sector was less impacted, down 30%.Our Temp business, 70% of U.K. and Ireland fees, declined by 30%, whilst Perm was even more difficult down 58%.All regions traded broadly in line with the overall business, although London, our largest U.K. region, slightly outperformed, down 37%, whilst the Northwest declined by 53%.Our HTS business was less impacted and declined by 28%. And our Irish business, which is 4% of U.K. and Ireland fees, decreased by 44%.Across our larger specialisms, IT performed well, down 9%. However, Accountancy & Finance and Office Support fell -- both fell by 53%, while C&P declined by 51%. But Life Sciences, boosted by some COVID-related contracts, grew an excellent 25%.Consultant headcount decreased by 7% in the quarter and by 6% year-on-year.Rest of the World. In our largest division of Rest of the World, which consists of 28 countries, net fees declined by 31%. And Perm, which comprises 61% of divisional fees, fell 39%, whilst Temp decreased by 13%.Europe ex-Germany decreased by 32%. Our largest Rest of the World country, France, declined 44% as did Belgium, whilst Spain declined 47%.Switzerland performed very well with fees up 6%, whilst Poland also fared better, down 14%.In Americas, net fees decreased by 30%. Our USA, the largest Rest of the World country, fell 18%, with relative strength in IT, partially offsetting very difficult conditions in Construction & Property.Canada was tougher, down 45%; as was Latin America, down 51%.And in Asia, fees decreased by 28%. Our 2 largest Asian markets, Greater China and Japan were down 33% and 29%, respectively, although we did see improvement through the quarter in China, and all of our offices there have reopened.Malaysia had a superb quarter, up an excellent 23%. And overall, consultant headcount in the division were down 10% in the quarter and 8% year-on-year.Cash flow and balance sheet. We ended the period with net cash of GBP 365 million, excluding GBP 120 million of net short-term deferrals of tax payments. This was driven by strong cash generation, including a GBP 110 million inflow due to the partial unwind of a Temp trade debtor book and a strong performance by our credit control teams throughout the world, which reduced debtor days to 34 days versus 35 days last year.On the 2nd of April 2020, we raised GBP 196 million via an equity raise with heavy participation from our long-term shareholders, and we are highly grateful for all their support.Our considerable financial strength underpins our strategy and gives us significant confidence for the future despite heavily uncertain markets.For the avoidance of doubt, it is unlikely that the Board will resume dividend payments FY '20. But looking forward, we remain conscious of the importance of our dividends to shareholders, and we'll look to return paying dividends as soon as it is appropriate.And finally, during the quarter, we were admitted into the Bank of England's uncommitted CCFS scheme. This scheme has provided great support to U.K. PSC. However, I'm pleased to say that based on current forecast, we are highly unlikely to utilize this facility. And of course, this is in addition to our GBP 210 million revolving credit facility, which runs through 2024.Current trading and guidance. In addition to the comments I made at the start, I would highlight 5 further points. The group traded at broadly breakeven level through the fourth quarter, and we expect full year operating profit before exceptional items to be in the GBP 130 million to GBP 135 million range. Additionally, as I mentioned earlier, we expect to incur exceptional costs, both in the restructuring of our German business and other such programs and also as we perform our normal year-end reviews of items such as goodwill and acquisitions.Secondly, we estimate the group's net fee exit rate was in line with the level of fee decline for the quarter overall. And while current activity levels have improved, we've seen no signs yet of positive fee momentum.Three, as I stated at the beginning of the call, while we'll continue to closely control and monitor our costs, we expect our periodic cost base to increase as we enter FY '21. The combination of cost increases and continued tough market conditions mean that we anticipate being modestly loss-making over Q1 FY '21. The return to profitability thereafter will require a sequential increase in fees, which in the early phase of recovery, should deliver a very high rate of incremental profit drop through.Four, we have recently completed a strategic return to growth review of each division and agreed significant accelerated investment projects in attractive structural growth markets, including IT and large Corporate Accounts. We are confident that these investment projects would accelerate our medium-term growth and position us to take market share. After taking this investment into account, we may well be modestly loss-making in the first half of FY '21.And five, although currency translation has no impact on like-for-like net fees in the quarter, exchange rate movements will remain a material sensitivity to the group's reported results.In conclusion, this has been a very tough quarter and the most challenging work environment I've ever faced. On behalf of our Board, I'd like to express again our collective thanks to our shareholders, colleagues and other stakeholders for their deep support and commitments. The combination of our significant financial strength, highly experienced management teams and leading market positions gives us confidence for the future despite the many uncertainties ahead.I will now hand you back to Jose, our administrator, and we're happy to take your questions.

[Operator]

[Operator Instructions] The first question comes from Rory McKenzie from UBS.

[Rory Edward McKenzie, European Support Services Analyst]

It's Rory here. Three from me, please. Firstly, I appreciate there's a lag from client activity to your fees. With May, June stable overall, did you see any evidence of improving net fees in any countries or regions? And I guess a follow-on to that, the second question. You had a net fee drag from releasing temps in the Q4. Should we expect more drags in the Q1 of the current financial year? Those 2 first, please.

[Paul Venables, Group Finance Director & Executive Director]

And Rory, just so I'm clear on the second one, is that a generic question across the board or specific to Germany?

[Rory Edward McKenzie, European Support Services Analyst]

Specifically, in Germany, and that's what you called out in the statement?

[Paul Venables, Group Finance Director & Executive Director]

Okay. So I guess there's kind of 2 related positives. The first is that we were broadly sequentially stable across May and June. If we thought there had been any material changes in trends across this, we would have raised them in here. But as it is June, for example, was exactly in line with the overall fee part. Clearly, at a regional level, for example, Asia was slightly worse in June simply because, as most people will know, it was coming out of its original lockdown as we came across March. And therefore, April was a bit better, but some of those markets went back into lockdown as we went through May into June.But again, I think from a materiality standpoint, it's not that significant. And then I guess on the other side of it, Europe, certainly Europe ex-Germany performed slightly better as we went across June. But no real material trends there.And on the activity, look, there's kind of 2 or 3 separate things here. First of all, activity levels have remained reasonably strong across the lockdown phase. Clearly, all of our guys and girls are working incredibly hard on talking to candidates and clients. And whilst activity trends have picked up as we've gone across June modestly in most of the markets, it's unclear to me yet when those will convert into fees, Rory. And I think there's 2 or 3 things in the back of my mind. And clearly, I have the benefit of having done this job for more than 14 years now. The first part of it, I think, is for a lot of clients who perhaps didn't do any hiring in the early phase of recovery, what is hard to tell is some of the activity we've got at the moment is that just filling the urgent jobs, or is that going to be sustainable on a period of time?And then secondly, of course, I'm very conscious, as in every year, that we normally see a slowdown in activity as we go across Europe. And specifically, in places like France and Spain, activity levels tend to reduce, we lose visibility. So my positives are fees are stable and activity is a bit higher, but it's too early to see that converting into fees.And on the Temp part of it, look, I think the positive is, of course, that most of our clients, operational sites have opened or opening. It doesn't mean that in the Automotive sector, of course, all of the car manufacturers have restarted all of their operations. Quite a lot of it is on a phased basis. Without a doubt, we've had some of the worst idle time across this period of time. And you're seeing that in the reduction of billable hours. And I expect the reduction in billable hours to continue into -- certainly for the next 3 to 6 months because I don't think our clients are going to bring that full utilization of everybody.At the moment, we've still got about 500 temps who are on the bench and who are inactive. And we have about 600 temps who are working part-time, so there are some hours, and then we have 2,500 temps that are working fully. So we're certainly in a better position at the end of June than we were in the middle of May.What it's too early to tell is as clients return to work, do they then look across their activity levels and determine what their temps -- what temps they need going forward? So I think we'll have more uncertainty over the next couple of quarters. But instinctively, I think we've certainly had -- we've had the worst month so far. But from a magnitude standpoint, kind of the GBP 6.8 million and the GBP 4.3 million, we may well have similar numbers over the next 6 months. So I think we've had the worst, but I still think there's some uncertainty.And what's fascinating, of course, is when you compare Temp and contracting in Germany, the contracting part of it is an interesting situation because fees down 12%, that is actually better than the volume. Volume declined by a bit more than that. But contractors, who were all able to work remotely, primarily in the IT space, all of them were pretty much required by our clients, and that's continued as is. But I think with temps, whilst they're still highly paid, our average temp earns about GBP 80,000 a year if they work for a full year, I think that's going to be a more gradual recovery because, as I said, most of the manufacturing and car plants are only bringing part of their activity. So I think we've had the worst quarter, but I think we may have a similar magnitude over the next 6 months, but time will tell.

[Rory Edward McKenzie, European Support Services Analyst]

Yes. That's helpful. And then just a final question was on the investment projects you mentioned. Can you [Technical Difficulty]

[Paul Venables, Group Finance Director & Executive Director]

We lost you, Rory. Jose, are we still on?

[Operator]

Sorry about that. Rory, you can continue now.

[Paul Venables, Group Finance Director & Executive Director]

We lost you, Rory, I'm afraid.

[Rory Edward McKenzie, European Support Services Analyst]

That's all right. No worries. I'm happy to go again. So the final question was just on the investment projects. Can you talk more about what scale and form they will take? And how you assess payback given the, obviously, difficult outlook in general?

[Paul Venables, Group Finance Director & Executive Director]

I don't think we're really focused on payback, Rory. I mean I think one of the benefits that we've got such an experienced management team that Alistair and myself have been running the business now for the last 13, 14 years that we know our business incredibly well. We know the markets very well. And you can see across all of these results that IT has been from the large specialisms, our best-performing specialism. So we are very determined that in our tenure that we will become the largest global IT recruiter. We're probably already the largest quoted global IT recruiter, but of course, there's some big U.S. businesses, and we're determined to invest in that market. So a lot of this is effectively increasing headcount. So it's investment. It's moving. It's headcount that we would have let go otherwise. It's increasing headcount in the IT specialism. It's increasing management. It's also in our Corporate Account business, adding a lot more account managers because what we have seen certainly in all of the work we've done in Germany and the U.S. over the last few years that we've got lots of opportunities. So we've finished that work.We're talking in the region of about GBP 20 million worth of revenue investment in FY '21. And I think one of the benefits of the strong financial position that we're in is that we can use that firepower and deploy that. So this is not really focusing on what is the return in FY '21. That's of limited interest. What it is making sure is almost ahead of market stabilizing that we position ourselves really well so that when markets do stabilize, we can be very aggressive in our fee growth. And that can drive fee growth in FY '22 and FY '23. So the investment is in a number of regions and specialisms across the world. Alistair, when we come to the August results presentation, will take everybody through this in detail, but mainly, it's in IT, it's in our large Corporate Accounts, it's in Life Sciences and it's aimed around most of our major businesses: Australia, Germany, U.K., very large investment in the U.S. And I think that's the benefit of the financial strength we're in.

[Operator]

The next question comes from Hans Pluijgers from Kepler.

[Hans Pluijgers, Head of Research of Benelux]

You pointed out yet also you're expecting some restructuring cost. You already mentioned there were severance costs for Germany. Of course, we can imagine that on the goodwill side, you still, of course, have to do all the calculations, could you give some more, let's say, detail or what level of restructuring costs you expect, excluding your goodwill impairments?

[Paul Venables, Group Finance Director & Executive Director]

Yes. So look, I think we're expecting 2 exceptional items. The first is restructuring, that's predominantly in Germany, where we've incurred about GBP 13 million worth of costs. We expect that to return, give us annual returns of about GBP 10 million a year. And of course, we were -- we actually did all that work in [ Tianjin ] in February. Our timing was quite good because it was all completed by the end of February and therefore ahead of going into COVID.And on top, as you would expect, that we've also looked at all management positions around the world and there's some additional costs. So I would expect, in total, we're going to have a restructuring exceptional cost in the region of GBP 20 million. And then I think we're done, so we're not expecting to have anything further in FY '21. Certainly, anything else would be modest. We've finished all of that work. We've been very busy over May and June.And then secondly, for those of you that are active readers of our annual report, you will have seen over kind of 2 of the last 4 years, we've raised that we've had limited headroom over our -- on goodwill on our U.S. acquisition. We're in this kind of perverse situation. We've got a great business. We're very proud of it. It was performing incredibly well going into the pandemic. It's done well during it because we think that a good slug of that business now is in Construction & Property, that's a difficult market. And therefore, we are up, fully determined. We've got a strong management team. We were impressed very heavily.And what I don't want to, as the CFO, to feel hamstrung in the amount of investment we do versus also justifying the goodwill on our balance sheet, which, of course, you've always got to be looking at returns you're going to get over the next 2 or 3 years. And therefore, similarly, we're expected to do a goodwill write-down in the region of GBP 20 million. And I -- and the purpose of that is that removes any concern then of goodwill going forward, but we will keep GBP 20 million on the balance sheet. But it enables us to do all of the right things in building a large U.S. business. I mean if you actually look at the numbers across this quarter, which is why I got my tongue tied earlier on, the U.S. was our fourth largest business in this quarter. And we're determined with the strong team we've got to really put some rocket fuel behind it. And just getting rid of the goodwill means we can do all the right things going forward, and it's kind of an opportune time to do it this year. So hopefully, that gives you the answers you wanted.

[Hans Pluijgers, Head of Research of Benelux]

Yes. I have one follow-up question on the investments. You already mentioned, let's say, the growth in like IT and large accounts, but also any specific countries where you expect to invest more in the coming quarters?

[Paul Venables, Group Finance Director & Executive Director]

Yes. The main -- look, we're really putting -- this is outside of the normal investment that a country will do. So this is material group financial firepower, and therefore, it's going to be in our countries that move the dials. And most of the investment will be in the U.S., in Australia, in Germany, in the U.K. and in France, but also we've got a lovely Asian business, and we want a bigger one, and therefore, there will be investments in Japan and in China, specifically, we've got a great business in the multinational markets at the moment but we're determined to crack the domestic markets and we need more investments in that space. But again, Alistair will cover this in detail. I'm sure David will enjoy doing a few slides for him for the August presentation.

[Hans Pluijgers, Head of Research of Benelux]

Okay. And then maybe one last question from my side. Looking at headcount, it reduced by 9% in Q4. What's your expectation for Q1 and maybe -- or maybe H1 of coming fiscal year?

[Paul Venables, Group Finance Director & Executive Director]

Yes. Look, we're trying to get the balance right. I think the same in every other business. We're trying to protect as many jobs as possible. In a number of the markets, we've kind of adjusted where we want to get to, and it's in the right position. We've got a bit of more work to go in, in the next quarter. So absolutely, I expect our headcount to go down further in the next quarter, but I think we've done most of the adjustments. So certainly, any further reduction will be less than we've done over the quarter.

[Operator]

[Operator Instructions] The next question comes from Anvesh Agrawal from Morgan Stanley.

[Anvesh Agrawal, Equity Analyst]

I got a couple of questions. First, just on the cost base. And as you're describing that it's going to increase from where the current levels are, but when we sort of compare or in your budgeting when you look at FY '21 versus FY '20, we should sort of still assume that on a sort of full year basis, given the revenue or net fee situation, you'll still be sort of able to bring that down. Obviously, it will increase from a monthly cost base where it is right now, but on a full year basis, it should sort of still be as it has been in the previous cycle.And second, it's slightly backward looking, but sort of when you look at -- when we look at your net cash position and then the equity raise you've done, clearly, you don't need that money right now, but -- so sort of if you can just give us some indication of what are your plans to use the cash that is sitting on the balance sheet, apart from some of the investment you have flagged?

[Paul Venables, Group Finance Director & Executive Director]

Yes. Look, on the cost base side start of it, Anvesh, I would actually love to be in a position next year that our cost base is higher than it was across this year because that would suggest that our fees have rebounded very strongly, but that's not what I'm expecting. So clearly, what we were trying to get over is, yes, we've got fee stability, but all of us know there are a lot of businesses have been held, not just our own work that we've done on our own cost base and our own headcount, but we've also had this kind of strange situation where every single office around the world for large parts of this quarter has been locked, and nobody can travel or see anybody. So you have an artificial reduction in your cost base, which is unsustainable.Clearly, going forward, very tight cost control, and that's a large part of my job. We will be very tight on cost control. We will reduce headcount a bit further, that's kind of all in train. But all we were trying to get over is on a monthly basis, if we kind of been breakeven across this quarter, we are expecting to see our cost base, the absolute level in costs increased by -- when you get rid of all the government schemes, which have been worth about GBP 3 million a month to us and you come back to a more normal cost base and things like incentives and everything else, I think we're expecting to see a net increase in our cost base of something like GBP 5 million a month. And that will be after we've reduced our headcount. So -- and that's kind of why I got into this part. We're going to be modestly loss-making over this quarter, then the real key part is what -- do we -- is there any fee rebound in September and October because traditionally, things quieten over the summer, you then get a large rebound in September. And this year, more than most, you would have hoped that we would get up. But for obvious reasons, we have to be very uncertain.So what we don't want to do, though, and I think this is where the cash coming on to your second one is really useful. I think what we've done -- so on the last part of it, look, in this initial bounce back, outside of what we're doing on the growth stuff, we'd expect to take a good 75% plus of any fee increase to the bottom line. So we've done that over the past, we'll do it again.But one of the benefits of having such a strong cash position is that we can sustain some operational losses, if they're the right thing to have. And therefore, we're trying to get this balance right between maintaining muscle in our business, keeping all as many of the good consultants as possible and using them to accelerate, A, growth in targeted areas that we want to do; and then, B, as hopefully, the markets return to some growth to really attack those markets quite aggressively, and the financial firepower enables us to do that.And then I guess moving on to whether we have too much cash, only time will tell. Quite frankly, a week ago, we're in this kind of luxury position where pretty much all of our offices outside the U.K. were open. We're sitting here today with every office in the U.S. closed, with every office in Victoria closed. So the one thing we know is there's a lot of uncertainty that's going to come over the next 6 months, 1 year, 2 years. We are in an incredibly strong financial position. That gives us lots of options, both to organically invest, but also at the right point, return to paying suitable levels of dividend. And we will -- in discussions with our shareholders, we will set out our dividend policy this year. And one of the benefits of having cash is that we can return to that before. But also the other bit is we're not hamstrung in any capital investment we need to do or revenue investment, and I think that's a good position to be in.

[Anvesh Agrawal, Equity Analyst]

And just to be clear, when you said that the net increase of around GBP 5 million, that is excluding of the GBP 20 million of the investment you are planning over and above…

[Paul Venables, Group Finance Director & Executive Director]

Correct. Yes, correct. And that's why I shifted at the end to say, look, if from a simple trading standpoint, we would have been loss-making for -- modestly loss-making in the first quarter, I think when you add the investment on top, it's quite possible that we'll be modestly loss-making for the first 6 months. Clearly, the unknown is will we get any meaningful sequential increase in fees? Personally, I think the next 6 months, we'll have a quite modest recovery because I think most companies will be waiting until after the summer. And of course, the risk is unless they see a pickup in demand in their business, they may decide to wait into the next financial year, Anvesh. They want to make the positives at the moment for the whole of this crisis, we've had very measured discussions with all of our major clients around the world. But the nice position we're in is that rather than wait for recovery to have happened and then to start to invest, we can actually take some preemptive decisions, retain more of our headcount and attack a number of markets so that we're really in a very strong position to drive growth when markets start to return to growth.

[Operator]

We have no questions coming through at the moment. [Operator Instructions]

[Paul Venables, Group Finance Director & Executive Director]

Perfect then. So if that's all the questions for today, we'd like to thank you again for joining the call. I look forward to speaking to you at our next -- the next is our FY '20 results on the 27th of August 2020. And of course, as always, should anybody have any follow-up questions, David, Charles and myself are available to take your calls for the rest of the day. Thank you all very much.

[Operator]

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