Earnings Call: H2 2019

Mar 5, 2020

It's 10 16, so we'll try to be prompt. Good morning, everyone, and welcome to Page Group's 2019 Full Year Results Presentation. I'm Stephenham, our Chief Executive I have with me, Kelvin Stagg, our CFO. I'll shortly present the headline numbers before handing over to Kelvin for the financial review. I'll then conclude today's presentation with a summary and outlook. Although I will not read it through, I'd just like to make reference to the legal formalities that are covered in the cautionary statement in the appendix of this presentation and which will also be available on our website following the presentation. The group delivered a record gross profit of 1,000,000 and growth in both constant currencies and reported rates of 5%. 19 of our 36 countries delivered record years, These results were achieved despite a tough comparator of 15.9% and a continued deterioration in trading conditions as the year progressed in a number of our markets, including France, our biggest Greater China and the UK. Our large high potential markets delivered a growth of 9% collectively, with 4 of our 5 markets, Germany, Latin America, Southeast Asia and the U S, all delivering record gross profits. In Mainland China, trade tariff uncertainty impacted confidence and our business in Hong Kong was disrupted by social unrest. Excluding Greater China, our 4 large hyper other 4 large high potential markets delivered collective growth of 16%. Our operating profit for the year was 1000000 up from 142 point 1,000,000 in 2018. This represented growth of 2.2% in constant currencies. Our conversion rate was 17.1%, a slight reduction from the 17.5% in the prior year, This was due to the challenging conditions seen across a number of our markets, many of which are normally amongst the highest conversion rates in the group. Earnings per share decreased by 0.9 percent to 32.2p per share. We ended the year in a strong financial position, with net cash of 1,000,000, broadly in line with the end of 2018. This was after returning 1000000 to shareholders during the year. Today, we're proposing a final dividend of 9 point 4p per share, an increase of 4.4% on 2018. Together with the interim and special dividends, this gives total for 2019 of £26..43 per share. I'll now hand you over to Kelvin for a financial review. Thank you, Steve, and good morning everyone. Overall, the group's operating profit increased by 1,000,000 in the year. With growth in constant currency of 2.2%. However, the conversion rate decreased by 0.4 percentage points to 17.1% due to tough trading conditions in a number of our markets where our conversion rates are the highest. Looking at each of our regions and starting with the largest, EMEA, gross profit grew 7%. Despite an improvement in Fiera Productivity of 3%, conversion was broadly flat on 2018, at 21.6% with the uncertain macroeconomic and political climate impacting confidence. In Asia Pacific, gross profit declined by 0.3% and fee owner productivity fell by 3. Our conversion rate also fell by 4.5 percentage points to 12.1%. This was impacted by our continued investments in the 2 large high potential markets as well as investments in new offices in Bangalore and Canberra, the Nikkei market in Japan and new disciplines in page personnel Australia. It was also impacted by tougher trading conditions as a result of the trade tariff uncertainty in mainland China, which also affected other markets. Such as Singapore as well as the social unrest in Hong Kong. In the Americas, our fastest growing region where we grew gross profit by 13.8 percent and Fiera productivity improved by 3, our conversion rate was broadly flat Improvements in growth in productivity in most markets were offset by our continued investment in both the U. S. And Latin America, 2 of our large high potential markets. Our conversion rate in the region was also impacted by the tougher trading conditions in the New York Financial Services market and social unrest in Chile. Finally, in the UK, gross profit declined by 2.4% with Brexit related uncertainty impacting market sentiment. Despite these challenging conditions, our operating profit conversion rate increased from 9.7 to 12.8%. While some of the improvement in profitability was through tight control of our cost base, partly as a result of a reduction in headcount, Our customer first initiative that was implemented in 2018 also led to an increase in our conversion rate during the year. Customer first restructured the business moving from operating on a discipline to a regional basis to more closely align ourselves with our customers. This had the effect of increasing productivity by 2%, increasing repeat business and reducing travel and the size of the UK management team. In 2019, our headcount decreased by 1% to Our fjeta headcount decreased by 89 or 1.5% in response to the increasingly tough market conditions. Seen as the year progressed. Our operational support staff increased by 15 to support our strategic transformation programs and this resulted in a Fianna to operational support staff ratio of 78.22. As the graph on this slide demonstrates, We've made good progress in recent years on improving this ratio. Clearly, when all or most of our markets are growing and adding fee earners, the ratio is geared to improve as we benefit from economies of scale and through our investments in shared service center hubs and systems. In 2019, the ratio fell back slightly in response to the mix of tougher trading conditions and an increase in operational support staff necessary to deliver our strategic programs. Many of these increases were temporary in nature and started to fall away towards the end of the year as several of our programs finished. Particularly the Global Finance System. We continue to work towards our page vision target the owner to operational support staff ratio of 8218. As you would expect in the people business, employment costs are by far the largest element of our cost base, representing 77% of the total. This percentage has remained broadly the same for a number of years. Our employee costs include wages, bonuses, share based long term incentives, and training and relocation expenses. Annual inflation linked pay rises and profit related bonuses drove the increase in our employment costs up 5.9% in constant currency. Other costs have increased by 5.4% compared to 2018. And the majority of these costs relate to property and business technology. We focus on managing these costs through having a variable IT cost base a flexible short term lease portfolio. The tax charge for the year increased to 1000000 from 38.6% in 2018, which resulted in an increase in the group's effective tax rate to 28.3 percent from 27.1% in 2018. Due primarily to the changes to CICE in France. The effective tax rate is higher than the UK rate of 19% due primarily to the impact of higher tax rates in overseas countries and to a lesser extent, dis allowable expenditure. There are some countries in which the tax rate is lower than the UK, but their impact is small. In 2020, we expect the group's effective tax rate to remain around 28%. Intangible assets increased by 1,000,000 compared to 2018 due mainly to capital expenditure on our customer connect operating system. Net trade and other receivables have increased by 1,000,000, driven by increased trading activity, particularly in Tempin Contracting. Under the new accounting standard, IFRS 16, right of use assets of 1000000 and lease liabilities of 1000000 have been recognized on the balance sheet, which I will explain in more detail on the next slide. After returning 1,000,000 to shareholders by way of ordinary and special dividends over the last 12 months, net cash was 1,000,000. Overall net assets have increased from 1000000 to 1000000. Under the new accounting standard, IFRS 16, leases that were previously classified as operating leases are now required to be recognized as right of use assets on the balance sheet with a corresponding lease liability. The lease expense previously recorded on a straight line basis is now replaced by depreciation and an interest charge. We've applied the modified retrospective method of adoption where the standard is applied retrospectively with an adjustment to reserves on transition. The adoption of IFRS 16 on the 1st January resulted in a reduction in opening reserves of 1,000,000 At the transition, right of use assets of 1,000,000 and lease liabilities of 1000000 were recognized on the balance sheet. Under IFRS 16, the straight line rental expense 1,000,000 has been replaced for the depreciation charge in respect of the right to use assets of 1,000,000. This has resulted in an increase to EBITDA of 1,000,000 and an increase to EBIT of 1.9 An interest charge in respects of the lease liabilities of 1,000,000 has also been recognized, resulting in a decrease in profit before tax of 0.1. This slide shows the key movement in our cash through the year. Our EBITDA inflow was 1000000 an increase of 1,000,000 from 2018, the majority of which related to IFRS 16. Working capital increased by 1,000,000 while tax and net interest paid decreased from 1,000,000 in 2018 to 1,000,000 in 2019. Net capital expenditure was 1,000,000 in line with 2018. The spending mainly due to office fit out expenditure, our global finance system and our new Customer Connect operating system. In 2019, employees exercised 1,700,000 share options, adding 1,000,000 to our net cash position. This was a decrease from the million received in 2018, which had been driven by the high share price. The group also purchased shares costing 1,000,000 into the employee benefit trust to hedge our liabilities under group share plans down slightly from 11.6% in 2018. Payments made in relation to lease liabilities reduced cash by 38.2%. The largest outflow of cash, totaling 1,000,000 related to dividends, and I'll explain this further on the next slide. The overall impact of these cash flows was to increase the group's net cash position by 1000000 to 1000000 at the end of the year. We current net cash of around 1,000,000. Today, the group announced the final ordinary dividend of £9..4 per share an increase of 4.4%. This will be paid on the 19th June to shareholders on the register as at the 22nd May. When combined with the interim dividend of per share, this gives a total ordinary dividend for the year of an increase of 4.6% over 2018. This remains consistent with our policy of growing ordinary dividend in a measured and sustainable way through the economic cycle. Together with a special dividend of £12.73 per share paid last October, total dividends for 2019 were £26.43 per share. This was our 5th consecutive year of paying special dividends in line with our policy of returning excess cash to shareholders. Over that period, we have returned over 1,000,000 in ordinary and special dividends. I will now hand you back to Steve. Thank you, Kelvin. Before continuing with the summary and outlook, if you'll indulge me, I would like to give you a brief update on two areas of strategic investment, which we believe will help the long term growth of our business. Two areas we see as critical and that differentiates us from our competitors, our investments into our culture and sustainable business model and our technology platform. Culture is central to our business strategy. We encourage a culture of inclusion where all our employees feel valued, heard, trusted, respected, and can bring their whole selves to work. This makes us progressive and resilient business which is fit for the future. Since 2012, our journey has been about moving beyond the business case showcasing and communicating the value and impact of diversity and inclusion to our employees, our customers and our stakeholders. We have moved from an initial focus on diversity and inclusion to inclusion engagement, belonging and purpose. Our focus is on long term sustainability aligning our purpose values, strategy and culture. Having seen the impact of our initiatives through the years, we're more conscious today that culture needs to be intentional We've acknowledged the evident link between culture engagement and critically performance. Last year, we bought all our activities together holistically under what we call our culture and engagement framework. The purpose of the framework is to demonstrate our culture and how it centers around the voice of our people and our customers. It also includes measures of success to help us drive continuous improvement and where appropriate meaningful change. With these measures of success, we've made invaluable progress. For example, since 2012, we've increased the number of female managers from 41% to 51 and the number of female directors from 26% to 40 Our gender pay gap has also decreased 5% from last year. We'll tell you more about our continuous listening strategy, the next step in the evolution of our culture and development at an investor event later this year. Moving on to technology just under 2 years ago, we introduced you to our connected customer experience, illustrating how we look to acquire engage and nurture all of our customers using a suite of technology and digital partnerships. We've built up our expertise on and investment capability to bring the best innovation and technology into recruitment. It involves a constant program to test learn, optimize, and evolve how we engage with our customers and then to deliver this at scale to our businesses worldwide. We believe this gives significant results. Officially acquiring customers is the fuel that powers our business. Our digital programme drove 55,000,000 visits to our websites worldwide, 9% up on 2018, leading to million applications. Through technologies such as Salesforce and Thunderhead, we then automatically further engage those customers through 1,000,000 targeted and relevant marketing emails with engagement rates that are three times the industry benchmark. We see technology as an enabler, doing more of the heavy lifting, leaving our people to concentrate on building better relationships with our customers. Pages's purpose is to change lives for people and the roles that we fill are often critical to the growth of a business or in the career path of the candidates. Both very good reasons for us to ensure that human is at the heart of what we do, understanding beyond the black and white of the CV. We see the seamless transition between technology tools and human contact as essential, and that is why we've integrated these tools into our new operating system Customer Connect. Customer Connect is a critical component in achieving our vision. The new operating system will replace PRS, our current operating system, driving improvements in both productivity and customer centricity. The integration of both our sales and marketing platforms will increase marketing personalization and improve the quality of consultant interactions, enabling stronger clients and customer relationships. Implementation of the new system has begun with the successful launch of a pilot in the Middle East and Africa. Towards the end of last year last year and will continue throughout this year. This summary Skims the surface of how we see technology in digital enabling our future. We'll also tell you more about the impact of our Customer Connect program at the investor event later this year. So in summary, overall, the group delivered a record gross profit with growth of 5% in constant currencies. The Americas are fastest growing region and 19 individual countries delivered record years. Our operating profit was 1000000, representing growth of 2.2% in constant currencies. Our conversion rate decreased from 17.5% in 2018 to 17.1 due primarily to the tough market conditions seen across a number of our markets, many of which are normally amongst those with the highest conversion rates. In 2019, our headcount decreased by 1% to 7698, Our fiona headcount decreased by 89 or 1.5% in response to the challenging trading conditions. Underpinning our confidence and investments in our is our strong net cash position. We closed the year with cash of 1,000,000 after dividend payments, totaling 1,000,000. Today, we proposed a final dividend of £9..4 per share, an increase of 4.4 percent from 2018. The slowing growth that we saw in the second half of twenty nineteen caused by a number of macroeconomic challenges have continued in the 1st 2 months of this year. In addition, we've seen the emergence of COVID-nineteen in Greater China. This, combined with the existing challenges, led the group gross profit to decline by 3% in these 1st 2 months. In our market leading Greater China business where COVID-nineteen first emerged, we have people across 9 offices. And we reacted swiftly in challenging circumstances, recognizing that the health and safety of our employees candidates and clients was our top priority. With consultants working are continuing to work via home access, we were able to maintain contact with both candidates and clients. After periods of office closure in some cities, we had over 90 percent of our consultants back in our offices at the end of February. Business was transacted using a range of technologies, And while there was almost no face to face contact in the 1st 2 months, we were still able to deliver gross profit at circa 65% compared to 2019. Looking forward in Greater China, many of our clients have not been able to return to work with the same speed, and therefore, we expect we expect a significant impact in March, one of our largest months of the year and potentially beyond. With COVID-nineteen now impacting other markets around the world, it's too early to estimate the impact on the group's operations. We'll continue to monitor the situation closely and will, of course, provide updates as necessary. Looking forward, it is possible that foreign exchange headwinds will persist or possibly decrease. If 2019 results were restated at current exchange rates, this would reduce group gross profit by around 1,000,000. And operating profit by around 3. In addition, current rates also remain substantially below pre Brexit levels. We continue to have a flexible and highly diversified business model that enables us to react quickly to changes in market conditions. We're clear market leaders in many of our markets with a highly experienced senior management team, which we believe positions us to take advantage of all opportunities in 2020. We'll continue to focus on driving profitable growth while progressing our strategic investments towards our vision of 10,000 headcount 1,000,000,000 of gross profit and 1000000 to 1000000 of operating profit. So that ends the presentation We'll now be happy to take any questions you may have. Apparently, you're going to need a mic. It's all at 6 feet, but Thank you, Hunter Power's Kepler Cheuvreux. Two questions from my side. Of course, it's very difficult to give any further indication on COVID-nineteen, but Could you give maybe some feeling or have you already seen something in your KPIs? Let's say over the last 2, 3 weeks outside China, maybe especially with, say, maybe vacancies coming in that kind of do you see already anything on that? Could you give some feeling And my second question is on the customer 1st initiative. Could you give us maybe some feeling or some examples what you have been doing and how that drives then your conversion ratio in the U. K. And do you have plans, let's say, to do more in also in other reach and you could get maybe some feeling what the impact could be? Sure. Well, on both, I mean, the COVID-nineteen one is a very difficult one, but just what we've seen in the last few weeks, what's basically happened is that the face to face element, and I mean, face to face in the same room rather than face to face through Skype or WeChat or whatever, has changed obviously. And so we're doing a lot of using technologies to drive activity. And in fact, we're still picking up a high level of jobs and we're still actually managing to get a high level of first interviews. The problem is a lot of our work is at a senior level and a lot of our work requires in the belief of a client anyway and some candidates that they have to be face to face respect will be impacted at the end of March and not really seeing it yet, apart from in China, and maybe Singapore, is that the final transaction, the final interview is not happening and therefore won't convert to as much revenue. Now lower level jobs, page personnel, and even the low level jobs in Michael Page, and technical jobs, as we've seen in China, that can still happen. You know, we've had COVID-nineteen for 2 months in China, honestly, I didn't know what to expect in February, because with offices closed and consultants not in offices and presumably clients and candidates unavailable, I thought gross profit could be even more difficult. But actually, what we found was that, clients were working from home and they were at home, I guess probably bored frustrated and so on and actually were quite happy to take calls from us. And ironically, it was actually easier to get hold of many clients because they were at home and bored and on the end of a mobile phone than it was when they were in meetings, walking factories, flying somewhere and so on. So actually we were able to maintain a high level of client contact and then of course they were happy to interview the candidates we were sending them because why not do a Skype or WeChat or whatever and actually face to face interview somebody when you're sat at home because you've not got up much else to do. So, you know, we, we found that we were getting a high strike rate of first interviews and a good conversion rate to propose second interviews. The frustration is with nontechnical jobs, those second interviews are being postponed until people are able to be face to face again. In China, they seem to They seemed to have gripped the situation quite quickly. We were allowed to go back to our offices. It varied from city to city. So ironically in Guangzhou, for example, which was the 2nd most impacted city with cases, we were allowed to go back to the office 100% and we are 100 back in the office. And we are starting to transact face to face in the same room. However, in Shenzhen, the 3rd most impacted, and Beijing that wasn't impacted as much as that at all, we're only allowed a fifty-fifty scenario, so 50% of our consultants can be in at one time. The other 50% are working from home. All of our people have home access, which was a challenge for our technology, an interesting challenge, but they managed to achieve it. Because normally we have whilst we have quite a lot of people working flexibly and working from home, we don't normally expect 100% of our consultants in a market to be at home consultants because, and we've talked about it in the past, we've created a digital learning program. We were able to actually continue the intense training of those consultants at home digitally. So even for them, who might have been the least productive by being at home without sort of clear management and guidance, they were still actually able to achieve quite a lot. That is going to vary from culture to culture, the importance of that face to face interview. And that that's where I become vague because, you know, as the virus rolls out and impacts different countries in different ways to different degrees, And equally, the cultures are different about the importance of a face to face interview. It's just too early and impossible to say. But it is quite remarkable what we can transact without using the face to face interview. I and then I guess the question is, does it change structurally forever? I don't think so. I think actually people will still prefer to go back to face to face, but we were picking up jobs, in China and I could name the clients, but I won't just in case the wrong people are listening in, but, we were picking up jobs, engineering jobs, and so forth, Those companies need those engineers in their factories and they can't afford to wait till everything's over and everyone's back to work to be able to start interviewing processes and then making offers So they interviewed and made offers and we build the client all in February, and progress was still being made. I imagine other countries will do that. So there'll be underlying business still happening, wherever. Customer 1st, so way back when I was rolling out new disciplines in the UK, we found that because the most important discipline we did the only discipline we did was finance and accounting. It was very difficult to establish other disciplines unless we gave it particular focus. So we would have a Managing Director, me, launching the 2nd discipline, marketing, and then the 3rd sales forth, etcetera, etcetera, and we rolled out all the disciplines that we now do, which, as you know, is more than 60% of the business. But we would have a dedicated management team to each of those disciplines to make sure it happened. Otherwise, consultants, the best ones, always seem to migrate their way back to finance, which was where the profits were being generated back in the day. And we left it that way which meant that the management structure in the UK, say for one discipline like engineering would be responsible for all the engineering consultants that were dotted around the country in different cities, And so we were spread thin in terms of a management team. It also meant that a client that might be recruiting engineers, lawyers, marketing people would actually have a senior point of contact multiple, all the different managing directors for each discipline. It wasn't efficient, it wasn't effective, and it didn't help our customer relationships, So we changed that, and that's what's driven productivity in our conversion rate in the UK. However, in many other countries, we didn't do it that way because actually the size of those countries didn't allow it in the first place. It's easy as we all know to drive between Leeds and Manchester and on a decent day without floods or snow or whatever, but you know, you can drive between those offices and frankly do them all in a week. You can't do that in Australia. You can't do that in France. They're too far apart. So actually we've always had that regional management structure. So we have people running individual offices. So rather than having lots of bosses turning up to Dusseldorf to manage one element of the business, one discipline, we always had regional management. So in terms of rolling it out, we can't because it's already rolled out. We have a different boss in Melbourne to a different boss in Sydney. So we're already getting that benefit, and it was that benefit that we saw in those countries that we realized we needed to So often because the UK is the most mature market, we've learned the lessons here and then we we export them. In this case, we actually imported that back and realized that was the best way of structuring the business. And in a what has been a marginally negative market now for some time in the UK to improve productivity is quite remarkable, and it's had a really refreshing impact. So, I'm pleased we did it. Good morning. Stifel from Numis. Just two from me. Firstly, in terms of if you talk a little bit about the fee rate pressure you might have experienced in those countries, which were sort of deteriorating a little bit in the second half. So I think in mainly the UK and France in particular and how that's trended in the early part of this year. And secondly, your headcount plans coming into the year, I appreciate, obviously, China is completely up for grabs now and there's lot of uncertainty, but just what were your initial thoughts on where you might end up given the changes made at the back end of last year? Sure. Well, on fee rates, 1st of all, actually we had a, last year, we had a drive to improve our productivity. And clearly, there's many things that impact productivity, one of them's fee rates. So we were absolutely keen not to let our fee rates slide, and they haven't. Of course, if the trading environment is really, really tough, sometimes clients will try and beat us up and get a better deal, you'd expect that. But you often have to remember that if the market's that tough, they're probably also not giving us as much volume. And if they're not giving us as much volume, then we've got an argument as to why we shouldn't reduce our fees. To be honest, one of the reasons that we do sometimes reduce our fees is actually that our younger less experienced consultants are probably the most flexible to reducing fees when pressured by a client. So we had a lot of activity and a lot of focus last year to make sure that didn't happen. So authority for those consultants, they wouldn't have the authority to be flexible on fees without referring it to senior management, etcetera, etcetera. And as a result, our fees didn't actually slip at all. So they've been there'll be the odd exception somewhere, but they are overall stable at the moment across the business, and in fact, in 1 or 2 markets where we were growing or we had a record year, they actually went up a bit. The most significant thing, I think when you talk about fees, which is important, is the mix. So which geographies are doing well and and which ones are getting bigger as a proportion. You know, the UK was 97% of the business when I started and and the UK is somewhere in the middle of the pack, 19%, 20% typically, but actually the bigger the proportion we have a business in Asia or the North America or Germany, then actually our average fee rate will go because their fee rates are significantly higher than the UK. The lowest fee rates we have worldwide are Portugal, Spain, Australia. So clearly, there's a mix issue here, and that's historically always been the same, so it's not probably going to change when I look back over the last 35 years, so there is a mix impact. The other thing I'd probably add to that is we are seeing Canada short market pretty much everywhere. So in terms of supply and pure supply and demand, while candidates remain short while they're difficult to find, fee rates will pay pretty robust. And regardless of the sort of slowdowns that we've seen, particularly in white collar, a senior white collar recruitment, there is a shortage of candidates in pretty much every market around the world. And then on headcount plans, I mean, look, if we remain negative, then we'll let our weakest consultants resign and leave. Typically when a market gets tougher and I've said this many times, recruitment gets to be a pretty challenging job, as you can imagine, trying to pick up clients that are actually hiring and not firing, is difficult. It fine if you're experienced, you're resilient, you've got a network, you know who to phone, you're happy to pick the phone up and talk to those people, then you'll get business and transact in whatever environment. So, a receding market quickly exposes those that are weaker and those that are weaker typically make a decision that perhaps recruitments not for them, they probably only been briefly in recruitment as an industry, and they leave and our headcount will come down. But we're certainly not planning to be absolutely clear with any issue that relates. It doesn't matter whether it is a virus or social unrest or strikes or all of the different uncertainties or issues or challenges we've had, We certainly do not change our strategy to fit that issue and go, okay, fine. Look, China's been impacted. That changes our strategy. China, for example, is a high potential market for us. We're market leader there. We expect to continue to invest. We're investing right now and we will continue to into the future and expect to have a far bigger business in China, irrespective of the challenges we've had in the last few months and probably going forward. So no plans to cut or change the structure, apart from letting the headcount come down if we remain in negative growth, and that will be just the weaker less productive consultants leaving. As you're aware, our staff turnover tends to be somewhere between 30% 40%. It's is somewhere towards the middle of that. So we're still hiring in all territories. If we don't, our headcount will go way too low too quickly. So it's just a matter of how many we hire and are we hiring more than a leaving. Hi, good morning. This is Anvesh Anwar from Morgan Stanley. Just 3 interconnected questions really. First, can you just remind us what is your cost base in China? And then the second is, if you can tell us what sort of cost saving you expect in FY 2020 net of the cost dropping out. And then finally, in an environment where growth likely to remain negative and continue to drift down, how sort of we think about the drop through rates or what's what's your internal assessment on that? Thank you. Drop through rates. I'll cover the first one, well, Kelvin gathers his thoughts. Roughly speaking, our cost base in China is about GBP 4,000,000 a month. So that's headcount and the 9 offices. So clearly, if we're doing 60%, 65% of the GP, which we were in the 1st 2 months of the year, it's a very profitable business, particularly Hong Kong, as you'd expect. So you can see the impact there. So it's significant. It's the it's 8% of the group. It's the 3rd largest market. In terms of cost savings? Yes, I mean, in terms of cost savings, the biggest element of cost is people. So they said earlier in the presentation, 77% of our cost base is people related. Where we need to, we will use some of that natural attrition, to lower the cost base for the more junior consultants as they leave. It doesn't follow that if you take 10% of the consultants out, the cost goes down by 10% because it's the more junior ones and certainly as Steve said earlier, in places like China, we've spent 10 years building a management team. And the most important thing for us is to carry that management team and secure them through. We will be looking, as I'm sure all companies are in this environment at areas such as staff, welfare, such as travel, and some of those particularly traveler coming towards us in terms of the ability to reduce the costs in those areas. Those two items combined are about 1,000,000 a year. So I mean, to the extent that we can make some meaningful inroads into those, that will certainly be another avenue we'll go after. We won't, however, cut our spending on strategic programs. So our customer connect system, we will continue to invest in that and roll it through and maybe take some advantage of markets being a bit slower to run that through. So, at this point, I'm not going to flag any definite cost savings, but there are a number of and we certainly will be looking at the cost base. Yeah, I'll just highlight the last one because Kelvin mentioned it earlier. A number of those transformational projects have come to an end was so he talked about GFS, which is the global finance system that we've introduced with one software and so on. We've hired people to get that over the line and to implement it. It's now rolled out everywhere. Clearly, some of those were hired temporarily temporarily. To finish the program, they will fall away. And we will see some efficiency of those programs as well. So there'll be cost savings as well we expect in the operational support functions. So There's a number of areas that we can go after. We're comfortable, as Kelvin said there, we're spending roughly 20,000,000 on staff welfare and travel, about half and half. And so that's 1,000,000 a month on travel, and it's fairly obvious. There's less of that going on at the moment. So you can see some obvious obvious savings. Last question was on drop through rates? Yes. On drop through rates, we don't normally look at drop through rates, to be honest. We tend to look at conversion. But in terms of additional gross profit, largely where it comes out of productivity improvements, which is what we've seen in a number of places, we will pay bonuses of the order of about 25% to 30%. It depends entirely which market it is and which one of our brands, and therefore, the rest should drop through. But it tends to get carried up into the headcount, attrition rates and therefore the amount of rehiring and productivity per consultant. I think it will be a pressure this year to be able to hold our conversion at the 17% level if things carry on, as challenging as they are, but we will look for cost savings as you mentioned earlier to try and secure that. Hi, it's Andy Grobler from Credit Suisse. Just two from me, if I may, sort of one backward looking, one forward. From a regulatory perspective, we've got, stuff going on in the Netherlands in the UK IR35 and in France, how do you see that panning out? Other stuff may get in the way of that being meaningful, but how do you see that? And then through last year, if you look at a couple of your more mature market say the UK and Australia. Did you see any difference from a client perspective between the large and the smaller clients in terms of demand for your services, has there been a shift either through 2019 or over the last 2, 3 years? Yes, just in terms of regulatory and IR35, specifically the UK, It is challenging. It's actually most challenging educating our clients because there's a lot of confusion when they make a regulatory change like this where clients and many of our clients, and we've said this before, you know, a good 80% of our clients in the UK are SMEs. They won't have a 1000 contractors, they might have 2, and they could be operating under IR 35. So for them to understand it and what to do, whether to increase what they pay that contractor, so the contractor ends up with the same net, whether the contractor wants to continue under some program of IR35 and set different company or framework for them to be able to operate in that way, or whether the client wants to turn them perm, and be done with it, it's confusing, so we've spent a lot of time educating our clients and candidates to understand the benefits, the risks, etcetera, etcetera. So far, it hasn't impacted the business. You know, if a client turns a contractor perm, we get a full fee. That's a benefit to the business, short term anyway. So what we've managed to do is balance basically this change by educating clients and so on. That's worked fine. In France specifically, I mean, really the impact as WashSure, are you talking referring to CICE? No. No. Netherlands is the same sort of arrangement that I think is being clustered in the Netherlands. I mean, I think generally what I seem to have seen in this is that the bigger clients are not willing to take the risk going forward. And so the bigger the client, the more of them are insisting that it's PAY or you don't stay anymore. We're seeing some smaller clients that are still struggling to hold on to people. And we're actually seeing a number of contractors, particularly in the IT space, forming sort of cooperatives to try and get around the substitution requirement. But generally, I think in terms of any sort of early trend on it, the bigger the client, the more that they're just saying it's PIA, we'll find another contractor. In terms of the trend, no, we continue in both, you mentioned Australia and the UK, we continue to focus on SMEs where we're mature and obviously Australia was our 3rd country that we operate in, so we've been there for nearly 40 years. We are focused on SMEs largely because larger companies are capable of attracting candidates and also have the resources, the resourcing functions to do a lot of their own interviewing and shortlisting and so on. There's not been a trend change in that. There was probably 12, 10 years ago. But anything that was that big that was going to go to an RPO or was going to go to an in house recruitment, get it 10 years ago, not in the last 2, pardon me. Okay. Morning. It's Paul Checketts from Barclays Capital. I've got 2, please. The first Calvin, can you just, lay out where you think CapEx is likely to land this year now? And then secondly, going back to China do you think because you recognize the gross profit when the candidate accepts the role Is there a risk that actually the corporate could pull that job because they sent the the situation that's worsened since January? Thanks. Yes, on CapEx. CapEx this year, I expect, will probably be around 20 We were a bit higher last year at 24 and the year before actually. The year before last year 2018, we had unusually quite a lot of very big offices that were all fit out in the same year, and we also had the global finance system running alongside it. And it was broadly 14 on fit out and 10 on software. Last year, actually, the fit outs were a more normal level. They were about 9. We actually had 2 system implementations running at the same time with the end of the global finance system and the starter customer connect as we go forward into 2020, I expect customer connect will be 11, 12, and actually our fit outs will be 8 or 9, and so it'll come down to about In terms of clients or candidates, of course, changing their mind because of what's happened, was a question we asked ourselves at the beginning of the year. Would people change their mind? We've seen it very limited cases where people have gone actually, I'm not going to move jobs and it's actually as much about the candidate rather than the client pulling the job just a candidate thinking, you know, I don't want to work in that city or whatever, but very, very limited evidence of it happening. So like I said before, we have had actually probably more direct dialogue with our candidates and clients than we did before because they're stuck at home in many cases and in a relatively small department and they're quite happy to talk. And as a result, we've been all over what we've already recognized in terms of revenue. Now we don't recognize all of our revenue that way in China, actually, and in every market we don't necessarily, particularly senior work, large fees and so on, we often recognize them when they start, so there is no risk anyway, but we are particularly close. I mean, if a consultant places 1 to 2 people a month, it's not difficult to stay in touch with 1 to 2 clients and 1 to 2 candidates to make sure that the revenue recognized happens. It's horrible seeing it reverse out. So we've had a lot of different dialogue. In some cases, candidates have started, even when they've not been able to come out of their apartment. So they've been sent induction notes, induction briefings, etc, etcetera, so that when they eventually are able to go back to work, which they can now, they're already starting to operate. In some cases, candidates have offered to delay their start date, so that it's not costing their clients anything so that it doesn't give the clients an incentive to say, well, it's not bother. I don't want to be paying for something that's not happening because you're still at home. So we've actually worked very hard to make sure that doesn't happen, and we've had 1 or 2 cases but very, very limited. And no reason why it should suddenly start because we're largely back at work. As there are no other questions or hands waving, thank you all for joining us this morning. Our next update will We had our first quarter trading, 2020 on 15th April. Thank you.