Trading Update

Jul 7, 2021

Good morning, everyone, and welcome to the PageGroup Q2 and Half Year 2021 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 PageGroup second quarter trading update. Thank you for joining us at short notice, and apologies for any inconvenience this has caused. I'm Steve Ingham, Chief Executive Officer, and on the call with me is Kelvin Stagg, Chief Financial Officer, following the call. The improvement in trading conditions we experienced at the end of Q1 continued into the second quarter. Consequent to the first half was GBP 404.1 million. Against 2020, we grew 94.1% for the quarter. Given the 2019, which was also a record year. Compared to Q2 2019, we grew 2% in constant currency, 20. Trading in April and 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 GBP 168 million. Reflecting the continued improvement in trading, town rose by 64, and as such, our ratio of fee earners to operational support staff was maintained at 77.23. Overall, the group had 5,407,763 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 presented 49% of the group, we grew 0.4%, up from a decline of 8.4% in Q1. Science 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 lockdowns. June, up 43%. This continued to be driven by our Michael Page interim business, which was up 50% for the quarter on 2009. 7% respectively for the quarter versus 2019, exited in June up 24, 11, and 13%, with Germany, Italy, Spain. In Asia Pacific, representing 21% of the group, gross profit was up 10.5% in the quarter from a decline of 4.2% in Q1 when compared. In Greater China, 9% of the group, we grew 10%. Mainland China was up 29%, we exited in June strongly up 40%. 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% of the group, 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 -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 25.1% in Q1, with Michael Page growing 7%. Our Michael Page business was more resilient than Page Personnel throughout the quarter, with declines of 4% and 24%. Continue to focus on the protection and well-being of our employees, candidates, and clients while progressing strategic investments in our platform to 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 saw a significant improvement in June, which was up 11% on 2019. Overall, this meant the group was up 2% for the quarter compared. 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 quarters in four of our five- Investing in our platform by continuing to invest carefully in headcount, demonstrated by the circa 400 experienced hires we added in 2020, which continued in 2020. 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 pre-bonus. If visibility continues to improve, we will further invest in our fee earner headcount in H2. As a result, our underlying cost base will increase. Looking ahead, there continues to be a high degree of global macroeconomic uncertainty as COVID-19 remains significant. Determine whether the improved performance is still the result of pent-up supply and demand or a sustainable trend. 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 GBP 125 million-GBP 235 million, GBP 25 million-GBP 135 million. Thank you. If you would like to ask a question, please press star one on your telephone. Good morning, gentlemen. A few questions from my side. First of all, can you give us some feeling, let's say, the development with temp versus perm? Actually let's say seeing especially also in June, do you have the feeling that there is, let's say, a sort of catch up also in demand? Do you believe, let's say, it's also more or less a little more looking sustainable, invested in more experienced people. How do you see, 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. My last question is on cash distribution. Of course, you have now a very strong cash balance. It further improved. Can you give maybe some feeling on how do you- I don't think I can remember all of those, Hans. I'll try the first three, and then Kelvin can answer the fourth. Temp versus perm. Largely speaking, recovered fast, and it's fair to say you can see that in the Michael Page performance is way stronger than Page Personnel's performance at the lower levels and 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 staff through to 95% in mainland China, where everybody's chosen to go back to the office. China is not a big temp market for us- To improve. Our success is largely perm driven. That's good because, obviously, to grow in perm doesn't require capital more than enough to sustain. In terms of what clients are saying, is it catch up or sustainable? Difficult to tell. They don't usually come to a large number of multinationals in a number of the countries which we operate. There's a lot of markets. There's a lot of uncertainty that remains for candidates about whether they should or shouldn't. Is now the perfect time to change jobs? Actually, that helps. 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, which will also improve churn. In terms of productivity and is it sustainable, I think there's two things I would point to that are helping us significantly. Done the equivalent, which we would have needed to have done, a number of hires of people that have never worked in recruitment before. Some of the people amongst those eight and what those 800 have produced in the first half is GBP 25 million. That would have never been possible if we'd recruited engineers, accountants, and lawyers and tried to retrain them. This is from the time we get a job from a client to the time the job is accepted by a candidate. The key reason for that reduction, apart from the competitive nature of the market, is we're now doing a lot of video interviewing instead of face-to-face. The speed and efficiency of arranging video interviews versus arranging a mutually convenient time between a candidate in Germany, for example, our time to hire has reduced by six days. That makes our consultants more efficient. Therefore, I would like to think productivity is sustainable. The new 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. A proportionate time spent on administrative tasks, allowing them to focus more on client and candidate relationships. We would like to think productivity will be sustainable. However, in particular markets where we don't have competition, we will be training people to do recruitment, and that will take longer. Kelvin will answer the fourth question on cash. Sure. Morning, Hans. It is sort of fully our intention to go back to our capital allocation policy this year. To remind you, historically, requirements covered. As you know, that's pretty small on the basis that it's leasehold fit outs and on some of the software improvements that we're currently rolling out. Historically, that would have been an interim of around GBP 15 million and a final of about GBP 30 million the last time we paid each of those. As I say, we paid an interim last time about GBP 15 million. 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, special dividends. We've always said that we prefer to have about GBP 50 million of net cash as the low point for the group during the year, and that low point is normally at the end of January. We pay out in pounds. Ideally, we turn the year somewhere around GBP 80 million plus minus any cash that we feel that we need in order to ensure that we can reinflate the business from working capital purposes. Actually the cash conversion from that recruitment revenue has been extremely strong. I would expect fully that when we're out on the ninth of August. Maybe it's logical to assume that maybe because of, as you said, the temp maybe is, let's say, somewhat delayed the growth there, and you want to have some cautiousness that you maybe need some additional cash. In total, the working capital unwind was something of the order of about GBP 75 million, of which we've seen probably about GBP 40 million of that go back into the business already. There's a small amount that we could hear anyway. Over recent years, when we've tried to aim for the GBP 80 million, we've tended to close the year at about GBP 95 million, GBP 96 million. I don't think there will be a huge amount that we would need to hold. Our next one comes from Edward Donahue from One Investment. Please go ahead. Morning, gentlemen, 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? When you talk about the potential hire, you're running roughly 10% below where you were in 2019 to get an idea of sort of where we might be exiting. I remember, and it's a bit of a rerun of a previous question, how is that tracking versus that original pool figure? Just as a matter of interest. Yeah, well, first of all, on Germany, you're right. Throughout 2020 as well as the first quarter of this year as well, in that we've constantly, apart from 1 quarter, grown. Last year was a record year for Germany. Us focusing specifically on contracting. The focus that we have on contracting is particularly geared towards technology. There's a high demand for candidates, which is making it challenging, but clearly not so challenging they couldn't grow 50% in June. We expect that to continue. We're now at a record level of head count in Germany, and we're hiring, and we've got a number of planned hires that are landing in the business in the next 3 months in Germany. Where are we seeing it with verticals? Pretty well most except for large manufacturing, which has proved to be quite difficult. Others do. 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. We also, and trying to give you a flavor of our German business, we're about a third contracting, about a third perm, and about a third lower level perm and temp. Far off the same performance as our interim business, the Page Personnel business, and particularly the temp side, is a slower burn and is yet to come fully on stream. We can come back to you. On the third around the generation of revenues, look, we did, as you say, when we totaled up gross profit. We doubled that number of hires. Clearly you'd like to think we could double that number as well. There's no reason why not. We're only hiring people who've got a very good attitude. They've landed well. Not all of them, of course, have landed in the offices yet. We have a very low level of attrition compared to the group from those 800. Yeah, we're very excited. It didn't cost us an acquisition cost, obviously, if we were buying a business that had 800 proven fee earners in it would have been very expensive. Well, so far this year. Yeah, 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. As Steve mentioned, the attrition rate is extremely low. It's about 15%, which is less than half. A number of these people have come on board to help us in disciplines such as technology contracting in parts of the world, we're not great at it. In healthcare, life science, 400 people could deliver GBP 50 million. You have to mind that in contracting, it takes some time to build the revenue streams up. Individually, and when you work it back against the point that they came in, going to hire in the future and where we will need to. There are a number of pinch points which we can measure and see through the productivity that we've got. To give you one example, being as high as it is at the moment, for us to sustain what we're achieving at the moment in the States, and June was a record ever month for us by some similar market. It's the same in Latin 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 exit rates in mainland China. Again, going to have to hire. Look, do I expect we hire just under 300 net in the first half? The trajectory we're imagining next year could look like. We will literally keep moving that hamster, if you like, specifically to see what we actually see, and yeah, it's good. The OPEX before roughly GBP 53 million-GBP 54 million per month. You did indicate previously that would step up. If you go back to 2019, simplistically, you've some headroom within that. I think there's still some headroom within that. We're currently traveling without much. That would imply that we're going to be somewhere around the 57 mark. We're still not really traveling. Our travel in 2019 was about GBP 1 million a month. I can't imagine the business, but it will come back to a certain extent. 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. The other main driver is then. Very much. Enjoy the summer. Thank you. You as well, Chris. Our next question comes from Anvesh Agrawal from Morgan Stanley. Please go ahead. Sort of pent-up demand or real underlying improvement, just sort of going forward, what are the things you are clearly watching to gauge that? Let's say if this momentum sort of continues for another two, three months, does that mean we can touch base on? There's no specific timeframe. 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 of 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. 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. So you'll see more churn as well. In answer to your question, what month does it suddenly stop being the result of a pent-up demand and it become enduring? I think every month is different. It's difficult when you just finished with your best month of the year, a record month for the PageGroup. It's difficult to see why that would change just now. But I am wary that a hell of a- Things like furlough and everything that sort of made the difference in the cycle, bringing some of it that pent-up demand forward, or that's not really is what playing out there? To support them to carry on. I think the majority of the people that were in the furlough schemes, remind me, apart from the U.K., which had a full sort of on-off furlough scheme, there weren't that gone are all in health and in leisure and travel and those sort of sectors. Did it make a huge amount of difference to us? I'm not sure that it did, that we would have been doing much work with. I'm sure it probably was very good at supporting people through Q2 last year when it was really, really acute. After that, we've not really seen a huge amount. How many of our candidates are currently on furlough? He said next to zero. Very small number indeed. There is no September impact we need to be concerned about. Okay. That's very helpful. Thank you. No further questions. I'll hand the floor back to Steve and Kelvin. Thank you, everyone. Well, I'd like to say apologies for bringing this statement forward, but I'm delighted to say it was some good reasons and cheers everyone. This concludes today's conference call. You may now disconnect. Have a great day ahead.