Trading Update

Jul 7, 2021

Good morning, everyone, and welcome to the Page Group Q2 Half Year of twenty twenty one Trading Update. My name is Seb, and I'll now hand the floor over to Steve Ingham, CEO, to begin. Please go ahead. Thank you, Seb. Good morning, everyone, and welcome to the Page Group 2nd Quarter Trading Update. Thank you for joining us for short notice and apologies for any inconvenience this has caused. I'm Steve Wingham, Chief Executive Officer and on the call with me is Calvin Stagg, Chief Financial Officer following the call. The improvement in trading conditions we experienced at the end of Q1 continued into the 2nd quarter. Consequent to the first half of $404,100,000 Against 2020, We grew 94.1 percent for the quarter, given the 2019, which was also a record year. Compared to Q2 twenty nineteen, we grew 2% in constant currency. Trading in April May was broadly in line with the exit rate in March, down 3% on 2019. We have a strong balance sheet with net cash at the end of June around £168,000,000 Reflecting the continued improvement in trading, the down rose by 64 and as such, our ratio of fee owners to operational The force path was maintained at 77.23. Overall, the group had 5,400 7,763 in Q2 2019. Overall, our quarterly growth rate improved its large high potential markets of Germany, Greater China, Latin America, Southeast Asia and the U. S. Now representing 38% of the group grew 16%, which represented 49% of the group. We grew 0.4%, up from a decline of 8.4% in Q1. Funds declined 11% again, showed further improvement exiting the quarter down 6%. Page personnel with a higher proportion of temporary workers was impacted more significantly by the lockdown, June up 43%. This continued to be driven by our Michael Page interim business, which was up 50% for the quarter on 2019, respectively, for the quarter versus 2019 And exited in June, up 24%, 11% 13%, with Germany, Italy, Spain. In Asia Pacific, representing 21 percent of the group, gross profit was up 10.5% in the quarter from a decline of 4.2 In Greater China, 9% of the group, we grew 10%. Mainland China We're up 29% and we exited in June strongly up 40% quarter, so this was an improvement on Q1. Southeast Asia delivered a record quarter and was up 35% on 2019 with Singapore. Japan was up 17%, delivering a record quarter and a significant improvement on Q1. India, despite being 13%, though exited the quarter in June, down only 2%. The Americas representing 16% to 7% on 2019, A record quarter and a significant improvement on Q1, which was down 5.6%. The U. S. Delivered a record quarter. In Latin America, gross profit grew 11%, A record quarter, up from a decline of minus 2% in Q1. Brazil was up 27%, they exited the quarter up 31% and 3%, respectively. Elsewhere, in Latin America, the remaining countries were up 15% for the quarter collectively, K, representing 14% of the group, gross profit declined 9% in Q2, a significant improvement on the decline of 5.1% in Q1 with Michael Page growing 7%. Our Michael Page business be more resilient than Beige personnel throughout the quarter with declines of 4% 24%, respectively, to focus the protection and well-being of our employees, candidates and clients, whilst progressing strategic investments in our platform take advantage of the recovery. Now reaffirmed at the forefront of our operations, I'm immensely proud of the spirit, resilience and commitment of all of our people. This I believe is reflected in these rates in March. We then saw a significant improvement in June, which was up 11% on 2019. Overall, this meant the group was up 2% The quarter comparable improvement in Q2 was seen throughout the group and was achieved despite the backdrop of continued restrictions or lockdowns in many of our markets. We delivered record courses in 4 of our 5 listing in our platform by continuing to invest carefully in headcount, be demonstrated by the spook of 400 experienced hires we added in 2020, which continued in 20 Our headcount is currently down 8% on the pre pandemic level at the end of 2019. As a result of the more favorable trading conditions in 2019 and 86% on Q2 2020. We're the clear leader in many of our markets with a highly experienced senior management team, which we progress towards our long term strategic goals. Given the lower headcount as well as reduced spending on travel and entertainment due to the pandemic, our underlying free budget and if visibility continues to improve, we will further invest in our Fiena headcount in H2. As a result, our underlying cost base will increase. Looking ahead, there continues to be a high degree of global macro economic uncertainty as COVID-nineteen remains to determine whether the improved performance is still the result of pent up supply and demand However, notwithstanding the early stage in the year, the strength subject to other unexpected events, We now expect full year operating profit to be within the range of £125,000,000 to £235,000,000 25,000,000 to 135,000,000 thank you. A few questions from my side. First of all, can you give us some, let's say, the development with temp versus perm? So Actually, let's say, I've seen especially also in June, do you have the feeling that there is, let's say, a sort of catch up also in demand? I'll or do you believe, let's say, it's also more or less a little bit more looking sustainable, also you invested in more experienced people. But how do you see it, let's say, going forward? Do you believe this Productivity level is sustainable? Or do you believe, let's say, maybe there could be some pressure on and is it only, let's say, for and my last question is on cash distribution. Of course, you have now a very strong cash balance. It's further improved. Could you give maybe some feeling on how do you I think I can remember all of those hands. I'll try the first three, and then Kelvin can To the 4th. Sam versus Perm. Largely speaking, throughout the recovered fast and it's fair to say You can see that in that Michael Page performance is way stronger than Page Personnel's performance at the lower levels and I'll need more offices to open and life at work to get more back to normal than it currently is. At the moment, we have 48% of our fee earners through to 95% in Mainland China where everybody chosen to go back to the office. However, China is not a big tent market for us to improve. But so our success Is largely perm driven. That's good because obviously, to grow in perm doesn't require Capital is more than enough to sustain. In terms of What clients are saying is it catch up or sustainable? Difficult to tell. I mean, they don't usually come to a large Number of multinationals in a number of the countries which we operate and they seem to be strategically investing Rather than in a lot of markets, there's a lot of uncertainty that remains the candidate About whether they should or shouldn't, is now the perfect time to change jobs? So actually, that helps. But You'd like to think that if candidate confidence continues to improve and if you take the U. K. Where supposedly lockdowns are going to finish on kit, which will also improve churn. In terms of productivity and is it sustainable, I think there's 2 things I'd point to that are helping us significantly, done the equivalent, which we would have needed to have done, Number of hires of people that have never worked in recruitment before. Now some of the people amongst those 8 hung up, What those 800 have produced in the first half is £25,000,000 That would have never been possible if we've recruited engineers, accounts and some lawyers try to retrain them. And this is from the time we get a job from a client to the time the job is expected by a candidate. The key reason for that reduction apart from the competitive nature of the market as we have moved, we're now doing a lot of video The speed and efficiency of arranging video interviews versus arranging mutually convenient time between Canada and Germany, for example, our times are higher has reduced by 6 days. That makes our consultants more efficient. And therefore, I would like to think productivity is sustainable. The CRM system, which Is now available to comfortably over 50% of the group. We've gone live in Australia in the last quarter and are on the verge of going live in The rest of that proportion of time spent on administrative tasks, allowing them to focus more on client and candidate relationships. So We would like to think productivity will be sustainable. However, in particular in markets where we don't have competition, we will be training people to do recruitment and that will take longer. Calvin will answer the 4th question on cash. Sure. Good morning, Hans. It is sort of fully our intention to go back to our capital allocation policy this year. To remind you, historically, we requirements covered. As you know, that's pretty small on the basis that It's leasehold fit outs on some of the software improvements that we're currently rolling out. Historically, that would have been an interim of around £15,000,000 and a final of about £30,000,000 the last time we paid into those. As I say, we paid an interim last time about £15,000,000 I currently would expect that we would reinstate that and possibly increase it slightly. Historically, we've normally returned it To shareholders, more recently by way of a special dividend, historically by way of share buyback and cancellation Given where the share price is, actual dividends, we've always said that we prefer to have about $50,000,000 of net cash as the low point for the group during the year, and That low point is normal at the end of January. We pay out in pounds. So ideally, we turn the year somewhere around €80,000,000 Plus minus any cash that we feel that we need in order to ensure that we can reinflate the business from working capital purposes. And so actually, the cash Conversion from that recruitment revenue has been extremely strong. So I would expect fully that when we're out on the 9th August. But maybe it's logical to assume that maybe because of the let's say, let's say, that you already said the temp maybe is, let's say, somewhat delayed the growth there that you want to have some cautiousness that you maybe need some additional cash. In total, the working capital unwind was something at the order of about $75,000,000 of which we've seen probably about $40,000,000 of that go back into the business already. So there's a small amount that week of the year anyway. And over recent years, when we've tried to aim for the €80,000,000 we've tended to close the year at about 90 £596,000,000. So I don't think there will be a huge amount that we would need to hold. Our next one comes from Edward Donahue from 1 Investments. Please go ahead. Good morning, gentlemen, and not at all disappointed. Thank you. Talk about Germany with regard to exit rates. What are you actually seeing there across the various business verticals? And then When you talk about the potential highs you're running roughly 10% below where you were in 'nineteen, to get an idea of sort of where we might be exiting. And I remember and it's a bit of a rerun of a previous question, but when you how is that tracking versus note that original pool figure just as a matter of interest. Yes. Just well, first of all, Jim, be right throughout 2020 as well as the Q1 of this year as well. And that we've Honestly, apart from 1 quarter, grown and last year was a record year for Germans there, us focusing specifically on contracting. And the focus that we have on contracting is particularly geared towards technology. And there's a high demand for candidates, which is making it challenging, but clearly not so challenging they couldn't grow 50% in June. So We expect that to continue. We're now at a record level of headcount in Germany, and we're hiring, and we've got a number of plan the hires that are landing in the business in the next 3 months in Germany. So, 3 months and I suspect 6 months. So where are we seeing it with verticals? Pretty well most, except for large manufacturing, which has proved to be quite difficult with some so others do. So most of our business tends to be the sort of smaller to medium sized enterprises. And that seems to be sustainable growth that we can continue, be numerous. We also, I'm trying to give you a flavor of our German business. We're about a third contracting, About a third term and about a third lower level term and temp far off the same performance as our interim business, But the Page Personnel business and particularly the temp side is a slower burn and is yet to come fully on stream. So we can come back to you. But on the 3rd, around the generation of revenues, I mean, look, we did, as just say, when we totaled up what gross profit, we've doubled that number of hires. So clearly, you'd like think we could double that number as well. And there's no reason why not. We're only hiring people who've got a very good strategy. They've landed well. Not all of them, of course, have landed in the offices yet, but we have a very low level of attrition compared to the group from those 800. So yes, we're very excited. It didn't cost us an acquisition cost. But obviously, if we were building a business that had 800 proven fee earners in it, it would have been very expensive, so it went well so far this year. Yes. In total, we now have 804 people on board. They came on, as you know, from sort of halfway through last year progressive profit. I think they are on target. And as Steve mentioned, the attrition rate is Extremely low. It's about 15%, which is less than half of where we would. A number of these people have come on board to help us in disciplines, such as technology contracting in parts of the world, but we're not great at it. In Healthcare and Life, I mentioned 400 people could deliver €50,000,000 You have to mind that in contracting, it takes some time to build the revenue streams up. So individually and when you work it back against the points that came in and are higher in the future and where we would need to, I'll I mean, there are a number of pinch points which we can measure and see through the productivity that we've got, to give you one being as high as it is at the moment. So for us to sustain what we're achieving at the moment in state and June was a record ever month for us by some single market. It's the same In America now, we've seen a couple of quarters of growth. Our productivity is extremely high for that part of the world. Again, we're going to have our exit rates in Mainland China. Again, going to have to hire. So look, due to I expect We hired just under 300 net in the first half. So the trajectory we're imagining next year could look like. Yes, we will literally keep moving that, hunt for if you like specifically to suit what we actually see. And Yes, it's good. The OpEx before roughly $53,000,000 to $54,000,000 a month. And you did indicate previously that, that would step up. I mean, if you go back to 'nineteen, simplistically, you have some headroom within that. I think there's still some headroom within that. So we're currently traveling That would imply that we're going to be somewhere around the 57% mark. I think we're still not really traveling. Our travel in 2019 It was about £1,000,000 a month. I can't managing the business, but it will come back to a certain extent. So there's still A degree of that that's not in the business. There's a degree of clients and staff entertaining that's not in the business, and we're still slightly lower off Unless things really take off and therefore, maybe we would put a little bit more cost into some of those large high potential markets that Steve was talking about. But The other main driver is that. Thank you. Thank you. Our next question comes from Anvesh Agarwal from Morgan Stanley. Please go ahead. The sort of pent up demand or Your underlying improvement, just sort of going forward, what are the things you are clearly watching to gauge that? And let's say, if this momentum sort of continues for another 2, 3 months, just kind of begin to start off. There's no specific time frame. I think every month gives you more confidence. It's sustainable. Every month, we see growth like this anyway. The type of recruitment they're doing, is it projects? Is it large numbers of people because Strategic initiatives, so therefore, clearly their confidence is going back to perhaps seeing a brighter future. We have had A really good start to our page outsourcing business and drive and our investment there. We have landed a lot of very large hard evidence as well. It's fair to say that There's a lot of markets currently impacted by COVID. And with COVID, we'll eventually get a bit better and therefore more and more offices will open and life will get back to Some sort of normal, albeit not exactly the same as it was before. And so you'll see more churn as well. But In answer to your question, when what month does it suddenly stop being the results of the pent up demand and it become enduring? I think every month, it's difficult when you just finished with your best month of the year, a record month for the group. It's difficult to see why that would change just now, but I am wary that a hell of a Things like spalu and everything has sort of made the difference In this cycle bringing some of the firm demand forward or that's not really is what's going out there? And just for them to carry on, but I think the majority of the people that were in the furlough schemes and remind me that Apart from the U. K, which had a full sort of onoff furlough scheme, there weren't that got a roar in leisure and travel and those sort of sectors. So did it make a huge amount of difference to us? I'm not sure that it is that we would have been doing much work with. So I'm sure it probably was very good at supporting people through Q2 last year when it was really, really acute. But after that, we've not really seen a huge amount of how many of our candidates are currently on furlough and he said next to 0. Very, very small number indeed. So there is no September impact we need to be concerned about. We're impactful. Okay. That's very helpful. Thank you. And no further questions, so I'll hand the floor back to Steve and Kelvin. Thank you, everyone. Well, like I say, apologies for bringing this statement forward. I'm delighted to say it was some good reasons, and