Hays H2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 21, 2025

Key Takeaways

  • Negative Sentiment: On a like-for-like basis, group net fees fell 11% with perm fees down 17% and temp and contracting down 7%, driving a 56% drop in pre-exceptional operating profit to £45.6 million.
  • Positive Sentiment: The company has achieved £65 million of annual structural cost savings two years early and set a new target of £45 million by FY 2029 to further improve profitability.
  • Positive Sentiment: Consultant net fee productivity rose a sector-leading 5% (38% in the US), while Enterprise Solutions net fees grew 8%, reflecting strong traction in large client contracts.
  • Positive Sentiment: Hays generated £128.3 million of cash from operations (up 14%), signed a new £240 million RCF, and completed a full pension scheme buy-in that derisks the balance sheet and frees c.£18 million annual cash flow.
  • Neutral Sentiment: The group reshaped its portfolio by exiting underperforming markets (including Chile and Colombia), closing 45 offices globally, and changing management in France to target improved EMEA performance in FY 2026.
AI Generated. May Contain Errors.
Earnings Conference Call
Hays H2 2025
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Hays Preliminary Results for the Year Ending 06/30/2025 Conference Call and Webcast. At this time, all participants are in listen only mode. After the speakers' presentation, there will be the question and answer session. To ask a question during the session, you need to press 11 on your telephone keypad.

Operator

You will hear an automatic message advising your hand is raised. To withdraw a question, please press 11 again. If you wish to ask a question via the webcast, please use the Q and A box available on the webcast link anytime during live events. Please be advised that this conference is being recorded. I would now like to hand the conference over to our first speaker today, Hahn, CEO.

Operator

Please go ahead.

Speaker 1

Good morning and welcome everyone. I'm Dirk Hahn, Chief Executive, and I'm here with our CFO, James Hilton to present our 2025 prelim results. Let me start with the market context for our 2025 financial year. As we have discussed with many of you before, global recruitment markets were not supportive for the third year in a row, and this length of downturn hasn't been seen before during my thirty years in the business. Why is this?

Speaker 1

Corporates need stability to invest, but economic and political uncertainty was weighed on business confidence. Candidate confidence is also fragile. During the Great Resignation, some candidates secured employment packages containing a substantially higher salary and ability to work remotely, but wage inflation is now more modest and lifestyle considerations have created a hesitancy to switch jobs. This has particularly impacted perm recruitment markets. Temp and contracting has been more resilient and benefits from powerful workplace megatrends, which guide our five lever strategy.

Speaker 1

But it is not immune from these cyclical headwinds. From a HACE perspective, our new job inflow has not declined materially, but time to hire has lengthened. In the meantime, we have remained resolutely focused on delivering our five lever strategy, which is designed to increase our exposure to attractive high potential markets and scale back where market forces are less supportive. We are controlling the controllables and improving HACE with the overarching goal of building a structurally more resilient, profitable, and growing business. Our presentation today will increase your confidence that we made significant strategic and operational progress in our 2025 financial year despite challenging markets.

Speaker 1

Our consultant net fee productivity increase during the year was market leading. Our enterprise business grew strongly. We have taken market share. And as James will cover later, we have exceeded our structural cost savings target two years ahead of schedule. Before we examine this in detail, let me briefly run through a high level overview of our year.

Speaker 1

Group like for like net fees decreased by 11%. Temp and contracting down 7% was more resilient than perm down 17%. As guided at our June trading update, pre exceptional operating profit decreased 56% on a like for like basis to £45,600,000 impacted by tough conditions in key markets, particularly towards the end of the year in perm. And we maintained excellent cost discipline with £65,000,000 per annum structural savings now secured since the start of the last fiscal year. James will provide more detail later in his section.

Speaker 1

We are not satisfied with the current profitability, but we are pleased with how we have remained highly disciplined in challenging markets. Driven by improved resource allocation, consultant net fee productivity increased by a sector leading 5%. Secondly, we delivered strong 8% net fee growth in Enterprise Solutions. And thirdly, we have improved our business mix through resilience in temp and contracting and by reshaping our country portfolio. Later in the presentation, I will provide examples outlining how we have achieved this, but first let me examine our divisional performance.

Speaker 1

I won't provide a detailed narrative because many of these figures have been previously disclosed. In Germany, like for like net fees declined by 10%. We took decisive action to protect profitability and the division has been relatively resilient in a challenging market, contributing £52,100,000 operating profit, down 22%. Contracting net fees were resilient. TEMP was more challenging because we have greater exposure to the automotive sector and slower client decision making impacted perm.

Speaker 1

However, there were bright spots. Growth was strong in construction property driven by infrastructure projects and energy. And we continue to realign the business to these growth sectors. Despite this, profit headwinds from economic conditions and fewer working hours more than offset cost efficiency initiatives and disciplined pricing. In The UK and Ireland, like for like net fees declined by 15% and the division reported a GBP 5,800,000.0 operating loss.

Speaker 1

Markets were challenging across the private and public sector and we experienced a perm step down in Q4. However, driven by our actions to address productivity and costs, we have more actively managed our consultant population and were pleased to increase net fee productivity by 9% in H2, secured structural savings in front and back office functions, and finally, reduced our office footprint by 19%, delayered our management structure, and closed Imposo, our statement of works business. We are pleased that the division returned to modest profitability in H2 and is now better positioned for our new divisional CEO to further apply our five leader strategy going forward. In ANZ, like for like net fees declined by 13% and the division reported a £3,600,000 operating profit. Our management team has increased accountability and alignment to a performance based culture, so consultant net fee productivity improved by 8% year on year to its highest level since 2022.

Speaker 1

And we increased market share despite challenging market conditions. In the second half, we intensified our initiatives to target high skilled roles and in demand job categories. It moved up the value chain in temps and contracting with pricing mix up 5%. And finally, in Rest of World, like for like net fees declined by 8% and following a difficult second half, the division moved to a £4,300,000 operating loss from a £19,200,000 profit last year. The US delivered a strong performance.

Speaker 1

Net fee productivity increased by 38%, driving a return to net fee growth and profitability from a loss making position in the prior year. In LatAm, we closed our businesses in Chile and Colombia and refocused on Brazil and Mexico. In addition, India achieved all time record net fees. Asia was broadly stable overall with profit down modestly. However, activity in EMEA slowed through the year, particularly in Northern Europe and the region delivered a £6,900,000 operating loss.

Speaker 1

In response, we took decisive action, including in France, where we addressed productivity and costs, changed local management, and closed offices. We expect an improved EMEA performance in FY 'twenty six. I will update later how we have delivered significant strategic and operational progress in challenging markets, but before then, I will hand over to James to run through our financials in more detail.

Speaker 2

Thank you, Dirk, and good morning, everyone. Summarizing our financial performance, on a like for like basis, net fees decreased by 11% to $972,000,000 with pre exceptional operating profit down 56% to $45,600,000 Our strong cash performance drove cash from operations of $128,300,000 up 14% year on year and we finished the year with $37,000,000 cash position. Moving on to the income statement, turnover decreased by 4% with net fees down 11%. The difference between reported and like for like growth rates was primarily the strengthening of sterling versus the euro, and overall FX movements decreased net fees and operating profits by $23,100,000 and $2,400,000 respectively. The higher decline in net fees relative to turnover was due to the more resilient performance in Temp and Contracting versus perm, in part due to a strong performance in our Enterprise Solutions MSP business.

Speaker 2

Pre exceptional earnings per share was 1.31p, a 67% decrease versus prior year, driven by a 57% lower reported operating profit, a higher net finance charge and higher effective tax rate. Moving on to the performances of Permanent ten. Perman fees decreased by 17% and slowed through the year, notably in the fourth quarter. Volumes declined by 20% as weaker clients and candidate confidence drove lower conversion of activity to placement. As with prior years, this was partially offset by growth in our average perm fee of 3%, albeit with wage inflation slowing in most markets.

Speaker 2

Temp and contracting fees decreased by 7% year on year and showed greater resilience in the majority of our markets. We continue to make good progress in building scale around the world in temp and contracting, and importantly, we delivered year on year net fee growth in five of our eight focus countries. Temp volumes declined by 6%, with a further 2% or circa £14,000,000 fee impact from lower average hours worked per contractor in Germany, as we saw continued client driven cost control measures impacting demand. We saw an increase of 1% in our average placement fee, driven by improved specialism and geographical mix, partially offset by a 20 basis point reduction in the underlying temp margin. Over the next couple of slides, we have set out the decisive actions taken to manage costs and protect profits, structurally improving the group's cost base and better positioning the business for the long term.

Speaker 2

As explained on the previous slide, we saw a significant reduction in net fees as conditions remain challenging across the majority of our markets. Our response has been decisive, with our operating costs reduced by 6% or £61,000,000 year on year. Payroll costs decreased by £62,100,000 from the actions taken to reduce consultant and back office headcount in the year, which decreased by 1415% respectively. Commission and bonus payments decreased in line with fees and profit performance, and partially offsetting this our average 3% group pay rise in July 2024 increased payroll costs by £15,500,000 Our other overhead costs increased by £1,000,000 We delivered property savings of £5,600,000 as we closed 29 offices in the year as part of our operational restructurings. These were offset by cost increases in insurance and computer related costs driven by cyber and infrastructure, together with broader cost inflation.

Speaker 2

We have taken decisive action to structurally improve the group's cost base across back office and operations, sustainable cost benefits. Our back office efficiency programs delivered $16,000,000 in annual savings by completing our Americas finance and Global Technology transformations. In addition, we've made significant progress with our Germany, EMEA and APAC Finance transformation programs, which will drive a further benefit in FY 2026. We delivered $19,000,000 annual savings through restructuring operations in Germany, UKNI, France, Czech Republic and LatAm. We closed or merged 29 offices and as we announced at our Q3 results, we closed our operations in Chile and Colombia.

Speaker 2

Last August we set ourselves a target of delivering $30,000,000 per annum in structural cost savings by FY 2027. Not only have we surpassed this target, but have achieved this two years early. Combined with the circa 30,000,000 per annum structural cost saves we reported in FY '24, our actions have structurally lowered our costs by 65,000,000 per annum since the start of the last fiscal year. However, we have more to do and we have set ourselves the new ambition of delivering a further £45,000,000 per annum of structural cost savings by FY 2029 through the completion of our global finance program, optimizing our technology model, restructuring other global support functions and optimizing our operations globally. During the year, we incurred an exceptional cost of $30,700,000 which comprised two parts.

Speaker 2

As described on the previous slide, we incurred a £17,700,000 charge relating to the restructuring of operations in Germany, UK and Ireland, France and Czech Republic. We restructured our back office functions, closed several business lines and delayed management levels. We closed 16 offices in The UK and four offices in France, and also closed our operations in Chile and Colombia. These restructuring exercises led to the redundancy of a number of employees, including senior management and back office positions. We also incurred a $13,000,000 exceptional charge in relation to the multi year technology transformation and finance transformation programs, comprising both staff costs and third party costs.

Speaker 2

Due to the ongoing nature of our restructuring and transformation programs, we expect to incur further exceptional restructuring costs in FY 2026, as we expect to make significant progress towards our $45,000,000 per annum structural cost saving ambition. Moving on to interest and tax, our net finance charge for the year increased to 13,400,000.0, driven by a 3,300,000.0 increase in net bank interest payable due to higher average drawings on the group's revolving credit facility. We expect the net finance charge for FY26 to be circa £12,000,000 slightly below FY25 due to the impact of the defined benefit pension buy in and lower utilization of our revolving credit facility driven by working capital improvements. Our pre exceptional effective tax rate increased by two seventy basis points to 35.1. The higher ETR was driven by the geographic mix of profits, together with the impact of tax losses in some country operations in H2 and the associated impact on deferred tax asset recognition.

Speaker 2

On a post exceptional basis, the effective tax rate was 620%, in which a 4,100,000 tax credit in respect of exceptional items was offset by a 2,100,000.0 tax charge arising from the derecognition of a deferred tax asset following the defined benefit pension buy in. Based on our latest view of profit, we expect the group's ETR for FY 2026 to be circa 38%, consistent with the ETR from H2 FY 2025. At the current level of profits, the ETR remains sensitive both to the geographic mix of profit and also to the adjustments and deferred tax asset recognitions. We would expect the ETR to reduce as profits rebuild over time. We delivered a strong cash performance in the year, with cash from operations of $128,300,000 up 14%.

Speaker 2

This represented a conversion of pre exceptional operating profit into cash from operations of 281%. Our working capital inflow was £58,100,000 driven by a reduction in temp fees and placements, partially offset by an increase in our debtor days to thirty seven days due to the greater resilience in our enterprise business clients, which have longer payment terms than the group average. We paid tax of £12,900,000 and net interest of 7,300,000.0 The cash impact of exceptional restructuring charges was $29,900,000 Overall, this led to free cash flow of $78,200,000 On the right hand side, we detail how we used the cash generated, and the main items were the payment of $47,800,000 of core dividends, CapEx of $22,700,000 and pension deficit payments of $23,100,000 which included the final payment of the full buy in completed in December. We expect capital expenditure to increase to circa $35,000,000 in FY 2026, driven by increased spending on our tech infrastructure and data and AI programs. Despite the slight increase in debtor days, we ended the year with cash of $37,000,000 Although DSOs increased by one day year on year, they remain below pre pandemic levels and our aged debt profile remains strong.

Speaker 2

Bad debt write offs are in line with FY24 and remain at historically low levels. During the year we signed a new five year RCF facility at an increased level of $240,000,000 with an option to extend by a further two years and at the same pricing as the previous deal. On this slide, we compare the balance sheet of June 2025 with prior year. The most significant movement was the reduction of the defined benefit accounting surplus following the completion of the final scheme buy in. The scheme's liabilities are now fully insured, removing all future risk and volatility from the group's balance sheet.

Speaker 2

Company pension contributions in the year were $23,100,000 which comprised $8,400,000 in respect of normal pension deficit contributions, and $12,600,000 related to the full pension buy in. In addition, we incurred $2,100,000 post buy in admin costs, and we anticipate a circa further $4,000,000 post buy in expenses and true up costs through to the final scheme buyout, which is expected to be in the next twelve months. The buy in will drive significant free cash flow benefit for the group from FY 2026, having removed the deficit contribution requirement previously costing circa $18,000,000 per annum cash funding. While our business model remains highly cash generative with a strong balance sheet, faced with a second consecutive year where our core dividend cover would be below our two to three times target range, together with an uncertain trading outlook, the Board has proposed a reduction in the final dividend payment that more appropriately aligns to the group's current level of profitability and affordability. The final dividend proposed of 0.29p per share is calculated on a three times FY25 pre exceptional earnings cover, and applying our historic one third, two thirds interim versus final split.

Speaker 2

This brings the full year dividend to 1.24p per share, and we expect to be at the higher end of the two to three times cover range going forwards. The group maintains a clear capital allocation framework and priorities for the use of the group's cash flow going forward. These are to fund the group's investment and development requirements, to maintain a strong balance sheet, to fund a core dividend that is affordable and appropriate, and return surplus cash to shareholders through a combination of special dividends and share buybacks. We have however removed our £100,000,000 cash buffer to provide greater flexibility as our cash position rebuilds over the longer term. Fees declined by 11% with challenging markets continued to persist, although we saw clear evidence of strategic delivery through the year.

Speaker 2

Volumes declined in both temp and perm, although temp remained significantly more resilient. However, we have acted decisively both to manage costs and protect profits, but also to better position the business going forward. Our structural cost reduction program surpassed our initial $30,000,000 per annum target, delivered two years early, but we have more to do and our new and additional $45,000,000 per annum cost save target will materially improve the group's cost base over the long term. We continue to maintain a strong balance sheet underpinned by strong levels of cash conversion, and we signed a new five year RCF facility in the year. The full pension buying significantly derisks our balance sheet and will drive material long term free cash flow benefit for the group.

Speaker 2

Finally, have rebased the dividend and revised our capital allocation policy to provide greater balance sheet flexibility going forward. This will ensure we maintain a strong balance sheet, fund our long term growth initiatives and generate attractive returns to shareholders. Despite the difficult trading environment, I'm confident our actions have better positioned Hayes to benefit from the market recovery when it comes. Turning to current trading and guidance, July and August to date have been in line with our expectations, with no significant change to trading momentum from Q4 in either temp or perm. September is our largest trading month of the quarter and it is currently too early to assess trends.

Speaker 2

At a group level, there are no material working day effects in either H1 twenty six or in the full year. Given our ongoing focus on driving consultant productivity, we expect overall group consultant headcount will remain broadly stable in Q1. We will also continue to deliver on our structural efficiency programs, which will further reduce our cost base per period through FY 2026. Overall, our current capacity has significant scope to deliver material net fee and profit growth when our key markets recover. I'd now like to hand back to Dirk to cover strategy.

Speaker 1

Thank you, James. Our strategy is built upon five levers and is designed to build a structurally more resilient, profitable and growing business underpinned by our culture and talented colleagues worldwide. We will increase our exposure to the most in demand job categories, growing industries and end markets, higher skilled and higher paid roles, temp and contracting, and large enterprise clients. Our strategy is not one size fits all, and we will tailor each region and country to its market and customer needs. We will build scale in high performing and high potential markets and will scale back where forces are less supportive.

Speaker 1

And when markets recover, we will use our golden rule to maintain a disciplined approach to consultant headcount investment. Despite challenging markets, we made substantial progress during the year. Consultant net fee productivity increased by 5%, Enterprise net fees grew by 8%. Net fees in temp and contracting were more resilient than perm and grew strongly in several focus countries. And as James just outlined, our structural cost savings are progressing very well.

Speaker 1

Let's examine these first three in more detail over the next few slides. Consultant net fee productivity increased by 5% in the year, by 6% in H2, and our growth has been sector leading over this period. And if we adjust for our seasonal quiet second quarter, productivity has increased now for seven consecutive quarters. Let me provide you with a few examples why. In The US, net fee productivity increased by 38% in FY twenty five and the country moved back to profitability from losses in the prior year.

Speaker 1

After an extensive review, our management team closed business units and offices where we lacked critical mass and now has a highly focused core. We were not satisfied with our first half performance in The UK and Ireland and took decisive actions to improve productivity and operational efficiency. Encouragingly, consultant net fee productivity increased by 9% year on year in H2 and this drove a return to profitability in the second half. Technology and enterprise solutions were positive highlights with productivity up double digits, driven mainly by temp and contracting. And in Germany, following reallocation of consultants to more attractive business lines and selective exits, our net fee productivity growth accelerated to 8% year on year in Q4.

Speaker 1

I believe our market leading productivity increase is proof that we are on the right track and are building a structurally improved pace. I reminded you earlier that our five levers include the commitment to increase our exposure to large enterprise clients. Our enterprise solutions business works with many of the largest companies in the world, often in multiple countries and specialisms. We provide recruitment and other HR services to blue chip, government, and large organizations, often delivered under more complex and structured agreements such as MSP. Enterprise delivered a strong performance in the year with 8% net fee growth.

Speaker 1

Our positive momentum was supported by three factors. Firstly, we grew within existing clients driven by headcount investment, higher fill rates and geographic expansion. Secondly, we secured new clients, including first generation outsourcing opportunities and strategic wins from competitors. Our win rate has significantly improved over the last two years, driven by a growing reputation for excellent client service and enhancements to our deal qualification discipline under a new global sales process. And thirdly, underpinned by our high service quality, we retained key contracts.

Speaker 1

Two years ago, a new global sales process introduced a more diligent approach to deal qualification, speed and consistency. As a result, our bid pipeline has become more focused containing fewer but large opportunities with average d value doubling over the last year. And our win rate percentage has improved from one in five in FY24 to one in three in FY25. Our C suite engagement is rising as we become a more strategic partner to our clients. We entered the new year with encouraging momentum and a substantial bid pipeline.

Speaker 1

We intended to improve our net fee mix over time by increasing our exposure to high performing markets with the most attractive long term structural growth opportunities in our core markets of temp contracting and perm. Temp and contracting net fees were relatively resilient through the year and the contribution to group net fees increased to 62% from 59% in FY24, whereas perm markets became increasingly challenging in most of our major countries. Temp and contracting net fees declined by 7% in our 2025 financial year. Net fee growth was positive in five of our eight focus countries, including notably strong performances in Spain, Poland and Italy. For example, Italy grew by 29% as our business line prioritization and resource allocation initiatives generated attractive returns.

Speaker 1

Poland grew by 19% due to strong handling of large contracting accounts and an HR MSP offering. And Spain grew by 16%, driven by a large new client win. We continue to forensically analyze our business lines to focus on those with the most attractive productivity and long term growth opportunities. During the year, we exited business lines and closed operations in Chile and Colombia. I believe that changing business mix through our five lever strategy and in combination with the golden rule is the foundation of our future success.

Speaker 1

Despite market headwinds over the year, we believe we have the right strategy and intent to relentlessly focus on execution to reposition and reshape our business. Firstly, we will continue to grow our business with high potential and high performing business lines. We will scale back our exit business lines with low performance and potential and are further reviewing our country portfolio. Secondly, we exceeded our structural cost saving target two years ahead of schedule and have now set ourselves the ambition of delivering a further £45,000,000 by FY 2029, bringing total annual savings to £80,000,000 These savings will be partially reinvested in our technology programs, which brings me to our final area of focus. We will continue to invest in our technology estate to harness the power of data and AI.

Speaker 1

This will provide the following benefits: improved Netfeed productivity as we provide our consultants with best in class tools and reduce administrative burden secondly, improved automation efficiency in our back office and finally, more powerful and personalized data and insights, enhancing our exceptional service to clients and candidates. Our investments will provide our consultants with the best tools and drive a superior client and candidate experience. This is key for our future. As I mentioned earlier, I believe that delivering on our strategy will result in a structurally more profitable, resilient and growing business. It will also drive the return to prior peak profitability.

Speaker 1

Here are a few examples how. Firstly, consultant productivity. A key long term focus for management is growing consultant net fee productivity above inflation. The strongest driver of our sector leading momentum in FY 'twenty five was a more forensic analysis of our business lines to reallocate consultants to those with most attractive productivity. We will continue to optimize our headcount allocation and delivery models going forward.

Speaker 1

In addition, we will reshape our business to focus on higher skilled, higher paid roles and the most in demand future job categories. And our data and AI investments will also support productivity growth. These factors will increase net fees with a potentially high drop through to operating profit. Secondly, operational efficiency. As we mentioned earlier, we exited the year with £35,000,000 per annum cost savings and have set ourselves the ambition of delivering a further £45,000,000 by FY 'twenty nine.

Speaker 1

And finally, cyclical recovery. For nearly three years, activity has been relatively high with job inflow per consultant broadly in line with twenty nineteen levels. So our consultants remain busy and have worked extremely hard. But lengthening time to hire has created a material track on the average number of placements per consultant and our profitability. We don't control the cycle, but eventually client and candidate confidence will improve and the economy will recover.

Speaker 1

When it does, we will deliver a healthy drop through to operating profit. So to close, markets remain challenging in our 2025 financial year, and the Board and I are very grateful for the deep commitment shown by all our colleagues through the period. We are not assuming that the market becomes more supportive in FY 2026. Therefore, we remain decisive and continue to focus on controlling the controllables. We are not satisfied with current levels of profitability and intend to relentlessly focus on execution to reposition and reshape our business.

Speaker 1

We have the right strategy in place. And our FY 'twenty five results provide evidence that we are making significant strategic and operational progress. I will now hand you back to the administrator, and we are happy to take your questions.

Operator

Thank you, dear participants. And now we're going to take our first question. And the question comes from the line of Andy Grobler from BNP Paribas. Your line is open. Please ask your question.

Speaker 3

Hi, good morning everybody. Just a couple from me, if I may. Firstly, CapEx spend is going up for fiscal twenty twenty six, you talked about some IT projects within that. Can you talk to whether this is a kind of a one year jump or whether this is a kind of a new level of expected CapEx for the next three to five years? And then secondly, Dirk, you were discussing that job flow is good, but conversion is weaker.

Speaker 3

Can you give any metrics around that in terms of how many of how many of those deals are going all the way through to placements now versus where we were in in 2019 and maybe the longer term averages? Just to get a sense of what the opportunity set is as markets normalize through time. Thank you very much.

Speaker 2

Andy, perhaps if I pick up the first question on CapEx and cover that one first, and then I'll hand over to Dirk for the second one. Clearly, had slightly lower CapEx than we guided this financial year. I think we were guiding about $25,000,000 and we did $22,000,000 so slightly behind. The step up next year is driven by two parts. One is technology investment in our infrastructure environment.

Speaker 2

So we're migrating the business over to Windows 11, and also a lot of work on our migration from our data center to the cloud. So that is more one off in nature. But the other part of our increased CapEx this financial year is being driven by investment in our programs around data and AI, which we see as the start of a multi year program and I expect that to carry on at a higher level over the next number of years. Each one is looked at through a clear return on investment lens and that's how we're looking at the opportunity for us in this area, because I think there are significant opportunities. But there's a lot of foundation work needed, particularly around data structure and making sure that that's fully agentic ready, And that's our key focus right now.

Speaker 2

So there's quite a bit of foundation work required in that, but then obviously the ROI on use cases of AI deployment come later off the back of that. So I do expect it to continue for several years. But about $10,000,000 of CapEx this year is infrastructure related, which is much more one off in nature.

Speaker 1

Yes. Then I take the second question, Andy. You asked the top flow and what comes into placement. So we have 25% less placements at the moment, so 25% less drop through. But on the other hand, we are improving our pricing and our and moving up the food chain.

Speaker 1

So, we cover a bit of this drop of 25%.

Speaker 3

Okay. Thank you.

Operator

Thank you. Now we're going to take our next question. And the question comes from the line of Karl Greene from RBC Capital Markets. Your line is open. Please ask your question.

Speaker 4

Yes. Thank you very much. Good morning to all of you. Firstly, just on the comments, Dirk, that you're expecting an improved performance in EMEA through fiscal twenty twenty six. Could you just give a sense as to how quickly you would expect to see it moving back into profitability?

Speaker 4

Is it likely to be back into profitability for the whole of the fiscal second half? Or is it going to be more a kind of run rate as we go and exit into fiscal 'twenty seven? And then my second question, just following up on Andy's question just before, just thinking about that step up in CapEx and thinking about IT related expenditure as being generally short lived assets. Can you just indicate what you'd expect to see in terms of a step up in depreciation and amortization over the next couple of years? It's obviously not going to be one big hit, but just in terms of it ramping up, what the sort of run rates could look like, please?

Speaker 2

Karl, perhaps if I just pick up that as an obvious follow on from the first question from Andy. Obviously, we will be seeing an increase in depreciation over time as we amortize those. Our typical policy somewhere between five and seven years depending on the nature of the project. So we will see a step up in depreciation, which will follow that CapEx over time. So yes, that's how it works.

Speaker 2

Can't really avoid that unfortunately.

Speaker 1

Yes. And to your first question, you may, how fast is the recovery? I think we have a good business in Europe, especially if it comes to Southern Europe and Eastern Europe. And our main challenge last year was mainly France. So we have a high exposure on junior perm.

Speaker 1

And therefore, we not happy with the performance in France. And so we took the decision to change management. And therefore, we are at the moment in reorganizing France. But France is an expensive country when it comes to people decision and changing structures and so on. So we are working on that.

Speaker 1

So it's hard to say how fast we can we really can turn this, but we are expecting that we are in FY 2026 come back in France to profitability.

Speaker 5

Thank you.

Operator

Thank you. Now we're going to take our next question. And the question comes from the line of Sanjay Vidhyarsi from Panmul Barum. Your line is open. Please ask your question.

Speaker 5

Good morning. A question on cash please. I think there's probably a beat in terms of the FY 2025 result. I just wanted to check if there's any timing benefits there. And then think about the various stepping stones for FY 2026, where you've talked about higher CapEx, there'll be more in terms of restructuring costs offset by lower dividend costs.

Speaker 5

But overall, would you expect cash to be lower by the year end of FY 2026 than it was at FY 2025?

Speaker 2

Thanks Sanjay. I'll pick that one up. Yes, we had a decent cash performance to be fair this financial year and you can see that in the working capital inflow. Clearly, volumes were down in the Tenpin contracting business, which was clearly a part of that, but we also did a pretty decent job on cash as well. But we had $37,000,000 in the bank at the end of the financial year.

Speaker 2

I think looking forward to next year, clearly we've had conversation around the CapEx and the guidance we've given there. Restructuring costs, we do expect to make progress next year, significant progress towards our longer term ambitions and that will incur some one off costs as well. And I think perhaps as a good rule of thumb, if you look at this financial year, we've incurred about $30,000,000 or so of cash on the restructuring charges incurred, which drove a $35,000,000 annual saving. And I think we've set an ambition for $45,000,000 over the next four years. I do expect to make significant progress towards that next year.

Speaker 2

And to a certain extent, that will be front end loaded. Therefore, we will have some cash impact of that as well. Clearly, we've rebased the dividend. I'll come back to that because there's one other important feature within cash flow, which is the pension. The full buy in that we did in December takes away we've been putting in around 18,000,000 just over $18,000,000 a year of free cash flow into the pension deficit contribution over many years.

Speaker 2

That now falls away, which creates a material tailwind for us on cash, which is important for us. I think that's really not only de risked the balance sheet and therefore taken away the potential risk of extra funding because of demographic changes or whatever it is within the pension scheme, but it actually creates a significant cash benefit as well, which is part of the equation. And then clearly on the dividend, we've rebased the dividend as you've seen in the statement. The final dividend for us next year, which will be payable in November, is about $4,600,000 and clearly, there'll be an expectation for an interim dividend to follow, which will be payable in April along the same lines. So hopefully, I mean, it's difficult to sort of say landing cash on a sixpence in our business, given that we're typically collecting about 130,000,000 $150,000,000 of cash a week.

Speaker 2

So there's always a bit of volatility, but it's our clear ambition is to maintain a strong balance sheet and that means a net cash balance sheet going forward. We do have some plans in place to continue to optimize working capital performance. Some of our improvement this year was driven by our work that we do on our unbilled, so that's the time that we actually spend to invoice. You will see that our DSOs went up slightly, and that's been driven by enterprise client mix increasing. But actually we've done some really good work on our unbilled, which is our speed to invoice, which meant that the sooner we issue the invoice, the sooner we can collect the cash.

Speaker 2

I was really pleased on the work we've done there, but we've got some more work to do, and I expect to see further improvements in that.

Speaker 5

Okay, that's great. Thank you very much.

Operator

Thank you. Dear participants, as a reminder, if you wish to ask a question over the phone, please press star one one on your telephone keypad and wait for your name to be announced. Alternatively, you can submit your questions via the webcast. Now we're going to take our next question. And the question comes from the line of Simon van Oppen from Kepler Cheuvreux.

Operator

Your line is open. Please ask your question.

Speaker 6

Good morning, gentlemen, and thank you for taking my question. I have a question on the cost saving program. Could you touch a little bit more on the 45,000,000 cost saving program? Where do you see room to generate more cost savings? Do you expect this to be more front end or back end loaded?

Speaker 6

And then on your temp and contracting business in five of your eight focus countries that posted solid growth in this year. Do you plan to add capacity here? Or are you satisfied with your current levels of consultant headcount in these regions? Thank you.

Speaker 2

Simon, perhaps if I pick up the first question on costs and then I'll hand over to Dirk to talk through the plan on the Tempur contract in focus countries. We've clearly made a lot of progress this year on our structural cost program, which we set ourselves an ambition to do $35,000,000 of structural saves over three years sorry, 30,000,000 over three years and we've done 35,000,000 in one. So I think that's been pleasing in some respects to make good progress on that. However, we've got more to do and therefore we've set out a further ambition to deliver savings over the next four years in structural areas. And these are savings that we see as savings that we will make over the longer term.

Speaker 2

They are not cyclical in nature, I. E. We don't consider the headcount reductions in say consultant numbers to be structural in nature, because at some point we will be putting those headcount back in. These are things we expect to deliver for the long term. In terms of phasing on that, I think it's slightly an answer to the previous question I said, I expect to make significant progress towards that in the next twelve months.

Speaker 2

And why do I say that? Well, actually some of the plans are in flight today and are a continuation of some of the programs that are already up and running. So the finance transformation program that we made good progress on this year, There are still parts of that program in flight, which I expect to convert through the next twelve months, so we should make good progress there. We've got further optimization to do in the technology program. We did the outsource of significant parts of our technology function in December, but there's still some more optimization to do with there.

Speaker 2

And then there's other areas of back office that we're looking at as well. And then as I say, we've made good progress on some of the operational areas of cost saves through the year, but we've got some other places that we have in mind as well. So I think we'll make good progress on that in the next twelve months. Dirk, if I hand over to you.

Speaker 1

Yes. I'll take then your other question in terms of the contracting business and the headcount investment. So as you're aware, we are constantly investing and changing our business mix because one of our five lever of our strategy is the contracting business. And therefore, we try to invest in areas where we see good productivity. And for instance, that's what we've done in the last two years and especially in the last financial year.

Speaker 1

For instance, in Poland, we reduced the headcount dramatically by 20 headcounts in term and added headcount in contracting. So that's what we are doing, not just in terms of contracting perm. So we are constantly changing our business mix in the areas where we see the future of the skill sets. And yes, so you're right. So we keep the headcount more or less flat at the moment.

Speaker 1

So we are happy with the consultant headcount for Q1. But for sure, we are shifting within countries the headcount.

Speaker 6

That's very helpful. Thank you very much.

Operator

Thank you. Dear speakers, there are no further questions for today. I would now like to hand the conference over to Doug Kahn for any closing remarks.

Speaker 1

Okay. Thank you, guys. James and I would like to thank you again for joining us this morning. We look forward to speaking to you next at our Q1 results on the October 10. Should anyone have any follow-up questions, James, Keene and Rob will be available for the rest of today.

Speaker 1

And we look forward to seeing investors over the next couple of weeks. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.

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