Ladies and gentlemen, welcome to the PageGroup Quarter four and full year 2019 trading update. My name is Kieran and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star on your telephone keypad. I will now like to hand over to your host, Kelvin Stagg, to begin. Kelvin, please go ahead.
Good morning, everyone, welcome to the PageGroup fourth quarter and full year 2019 trading update. I'm Kelvin Stagg, Chief Financial Officer, and I have with me Steve Ingham, Chief Executive Officer. I will now present the headline numbers and a financial review before handing over to Steve for the regional review, summary and an 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 for this presentation and which will also be available on our website following the call. Trading conditions deteriorated in the quarter with all our regions impacted by heightened macroeconomic and political uncertainty to a greater or lesser extent. Consequently, the group delivered Gross Profit of GBP 205.6 million in the quarter, a decline of 0.4% and down from growth of 2.1% in Q3.
Despite the challenging trading conditions, it was a record year for the group, with gross profit of GBP 856 million and growth in both constant currencies and reported rates of 5%. 19 countries delivered record years. During the course of foreign exchange had an adverse impact on gross profit, which led to a larger decline in reported rates of 2.6%. In monetary terms, foreign exchange movements decreased gross profit by around GBP 4.6 million. For the quarter, Michael Page declined to 0.1% and Page Personnel declined 1%. We ended the year in a strong financial position with net cash of around GBP 93 million. I will now take you through the financial review. In the fourth quarter, reflecting the heightened uncertainty in many of our markets, permanent recruitment declined 3% in constant currencies, while temporary grew 7.5%. Our temporary businesses in Asia Pacific, EMEA, and Latin America all delivered growth.
As a result, our ratio of permanent to temporary gross profit reduced to 74 to 26, compared to 75 to 25 the previous year. In Michael Page, permanent recruitment represented 82% of gross profit, down from 83% in Q3. While in Page Personnel, it was less, at 54, also down from 56% in Q3. Looking now at our gross profit by the disciplines in which we operate. Accounting and financial services, which represented 35% of the group, declined 0.4%. Our disciplines outside of accounting and financial services represented 65% of the group collectively in the quarter, up from 64% in Q3 and reflecting the continuing success of our diversification strategy. Our professional services category, representing 24% of the group, declined 2%. Our technical discipline category, which also represented 24% of the group, declined by 0.6%. Finally, our marketing, sales and retail discipline, representing 17% of the group, grew by 2.2%.
Having added 619 fee earners in 2018, our fee earner headcount reduced by 35 in the first three quarters of 2019. During the fourth quarter, our fee earner headcount fell a further 54. Fee earner headcount reduced in response to the heightened geopolitical and macroeconomic uncertainty seen in many of our markets, most notably in Greater China and the U.K. However, we continue to invest in markets where we saw the greatest growth, such as the U.S. Our flexible business model enables us to react quickly to changes in market conditions. We can grow our headcount rapidly in a strong market or in more challenging conditions, use our staff attrition to adjust our headcount lower, focusing on productivity and conversion. Operational support staff headcount decreased by 37 in the quarter as several of our global transformation programs, particularly the implementation of our new global finance system, were completed.
This resulted in our fee earner to operational support staff ratio remaining at 78/22. At the end of December, the group had 6,027 fee earners and 1,671 operational support staff, a total headcount of 7,698. This fee earner headcount and gross profit chart shows the flattening of both our gross profit growth rate and fee earner headcount. The last column on the right shows the quarter in constant currencies to enable comparison with Q4 2018. I will now hand you over to Steve for a regional review, summary and outlook.
Thank you, Kelvin. I'll now give a brief overview of our regional performances before presenting each region in more detail. With the group impacted by heightened macroeconomic and political uncertainty, gross profit declined in the fourth quarter by 0.4% in constant currencies against a tough comparator of 15.4% the year before. Our large high potential markets, representing 34% of the group, grew 4% collectively with challenging trading conditions in Greater China and Southeast Asia impacting the growth rate. In our largest region, Europe, Middle East and Africa, which represented 50% of the group, we grew 2.3%. This was below our quarter three growth rate of 5.6%, with increased macroeconomic and political uncertainty continuing to impact confidence. Asia Pacific, representing 18% of the group, declined by 7.9%, in line with Q3. Trade tariff uncertainty continued to impact confidence in Mainland China, while our business in Hong Kong was disrupted by the protests.
The Americas, representing 16% of the group, was again our fastest-growing region, up 5%, with growth in both North and Latin America. Finally, in the U.K., disruption from Brexit impacted market sentiment, with gross profit declining 4.8%, broadly in line with Q3. Moving now to each of our four regions and starting with the largest, Europe, Middle East, and Africa, which represented half of group gross profit. With a headcount of over 3,000, we delivered growth of 2.3% in constant currencies. Growth in Michael Page, 55% of EMEA, was slightly stronger, up 4%, while Page Personnel was flat. In France, our largest country in EMEA, representing around a third of the region and 17% of the group, we grew 1%, with confidence impacted by increased macroeconomic uncertainty, as well as the recent large-scale strikes.
Germany, 9% of the group, grew 16%, with our technology-focused contracting business, Michael Page Interim, now 26% of Germany, delivering another record quarter and growth of 50%. Benelux grew 6%, with the Netherlands flat and a standout performance from Belgium delivering growth of 17%, which was a record quarter. Southern Europe, also impacted by political and macroeconomic uncertainty, grew 2%, with Italy and Spain delivering growth of 3% and 2% respectively. The Middle East and Africa, which represented 2% of the group, declined 3%, with the UAE flat and tough trading conditions in Africa. The earner headcount in the region declined by nine in the quarter. Our Asia Pacific region, which represented 18% of group gross profit, declined by 7.9%. In Asia, 76% of the region and 14% of the group, we declined 8%. In Greater China, we were down 14%.
Mainland China declined 7%, an improvement on the decline of 27% in Q3, as the comparatives became easier and our business adapted to the more challenging trading conditions. However, our Hong Kong business continued to be impacted by the social unrest and declined 27%, in line with Q3. Southeast Asia was down 4%, with strong growth in some of our newest countries, namely Indonesia, Thailand, and Vietnam, offset by a decline in Singapore of 19%, albeit against a tough comparator of 37% the year before. Elsewhere in Japan, where we continue to focus on both the Gaishi and Nikkei markets, gross profit declined 1%, down from growth of 5% in Q3, with trading more challenging amongst multinational clients. In India, where we've invested heavily in fee earners, up 28% year on year to around 160, we delivered a strong performance up 13%, despite a particularly tough comparator of 79%.
Australasia, which represented 24% of Asia Pacific and 4% of the group, declined 10%. Australia was down 7% against a strong prior year comparator of 25%, with the challenging conditions in New South Wales continuing to offset good growth elsewhere. Overall fee earner headcount in the region declined by 31, mainly in Greater China. The Americas, which represented 16% of group gross profit with a headcount approaching 1,400, was our fastest-growing region, up 5%. This was despite a particularly tough prior year comparator of 29.2%. In North America, representing 10% of the group and 60% of the region, we grew 5%. In the U.S., 95% of North America, we grew 10%. Growth was strongest in our offices outside of New York, which was impacted by a weaker financial services sector. Latin America, 6% of the group and 40% of the region, with a headcount of around 800, grew 5%.
Mexico, our largest country in Latin America, grew 9%. Brazil continued to perform well and grew 4%, driven by Page Personnel. Our other four countries in Latin America with a combined headcount of over 300 grew 4% collectively. Record performances from Argentina, Colombia, and Peru were partially offset by the challenging trading conditions in Chile, which was affected by political and social unrest. Our fee earner headcount in the Americas increased by 13, mainly into the U.S. and Mexico. Finally, the U.K., 16% of the group declined by 4.8% with disruption from Brexit increasing uncertainty and impacting confidence. Page Personnel, which represented around a quarter of the U.K., suffered from client uncertainty, impacting job flows. As a result, we declined by 4%. Michael Page, which is focused on more senior opportunities, continued to be impacted by lower levels of candidate confidence and declined by 5%.
Most disciplines across both brands experienced difficult trading conditions, though there were some areas of growth, such as marketing, secretarial, and technology. Fee and headcount decreased by 27 in the quarter, predominantly in our Michael Page business. I will now finish with a brief summary of our fourth quarter results and an outlook. The majority of our regions were impacted by increased macroeconomic and political uncertainty, with gross profit declining 0.4% in constant currency. During the quarter, we decreased our fee and our headcount by 54, mainly in Greater China and the U.K. Our operational support headcount decreased by 37, as several of our global transformation programs, particularly the implementation of our new global finance system, were completed. Our financial position remains strong with net cash of around GBP 93 million.
Despite the tougher trading conditions in Q4, we expect full year 2019 operating profits to be in line with our previous guidance of GBP 140 million-GBP 150 million. Looking ahead, the challenging trading conditions experienced during Q4 across the majority of our regions are expected to continue. There are challenges in EMEA, including social unrest in France and heightened political tensions, notably in the Middle East. Asia Pacific continues to be impacted by trade tariff uncertainty in Mainland China, the protests in Hong Kong, as well as the fires in Australia. In the Americas, the weak financial services market in New York, as well as the social unrest in Chile, are expected to continue to impact the region's results. In the U.K., Brexit-related uncertainty is anticipated to be ongoing during 2020.
The group was impacted by adverse foreign exchange movements during Q4, decreasing our Q4 reported gross profit by 2.2 percentage points or GBP 4.6 million. Looking forward, we expect that these foreign exchange headwinds will persist or possibly increase. Our flexible business model enables us to react quickly to changes in market conditions. We can grow our headcount rapidly in a strong market or, in more challenging conditions, use staff attrition to adjust our headcount lower and focus on productivity and conversion. We're clear market leaders in many of our markets with a highly experienced senior management team, which we believe positions us well to take advantage of all opportunities during 2020. Despite the tougher trading conditions, we will continue to focus on driving profitable growth while progressing our strategic investments towards our vision of 10,000 headcount, GBP 1 billion of gross profit, and GBP 200 million-GBP 250 million of operating profit.
Kelvin and I will now be happy to take any questions you may have.
Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question comes from Andy Grobler from Credit Suisse. Andy, your line is now open. Please ask your question.
Hi. Good morning, and happy new year to everyone. Three quick ones, if I may. Firstly, in the U.K., clearly Q4 was difficult. While saying we've got certainty would be going a bit too far, we do have a bit more clarity now. What are you hearing back from some of your clients in terms of their hiring expectations? One of your peers suggested that there was a little bit of confidence edging back into the market, and the rec data suggested the same. Secondly, on cost savings through 2020. I know this is a trading update. Can you just remind us what costs naturally fall out through 2020? Thirdly, on Germany, where despite the tough macro backdrop, you had a really good quarter. What is the momentum and what is your year-on-year headcount growth going into 2020 to derive any further growth? Thank you very much.
Okay, Andy. It's Steve. I'll take question one and three, and Kelvin can handle the cost savings. Look, it's very early days. We've had just over a week of trading since we've been back from Christmas in the U.K. I think the logic would be that having gone through a difficult quarter with, as you say, some uncertainty leading up to the election, you'd like to think that that would create a pent-up need and one or two clients therefore will release vacancies they may not have released during the quarter. It's really too early to say that. Yes, I'd be a little optimistic that that may happen. I don't think we're out of the woods yet in terms of having certainty, as you say. I think the Brexit uncertainty will continue for some time.
I would hope things will be an improvement on Q4 going into the first quarter, but not significantly. On question three, yes, we were very pleased with the performance of Germany throughout last year. I think, as I've said before, we were predominantly a perm business Pre-2009, when we decided to focus on Page Personnel in temp and also contracting in Michael Page Interim. As a result, we were coming at it from a very small base. So we focused on SMEs and we focused on the technology market where we had good expertise in the perm market. I think that's helped us where the economy hasn't been particularly strong. We've been focused on smaller clients and many of them.
I think that builds up a skills base of selling, which allows us to constantly open new doors and develop client relationships, and that's helped build what we feel is market share, particularly in that contracting market. We aren't a player in the very large contracts, particularly in the automotive sector, and that's probably the hardest hit sector in Germany. We've probably avoided some of the pain that maybe others have felt. Delighted with our performance. Again, I'm speaking to our head of Germany actually later today. It is only really eight or nine working days into the year. So far, nothing tells us that we won't continue. It is, I would repeat, only a few working days into the year. Hopefully we start the year with good momentum. What will happen will unfold, I guess, as the months tick by. Sorry, on fee earners.
We have grown our headcounts in Germany. We'll continue to invest. It's one of our high potential markets, and we see a lot of potential. Clearly with growth of 50% in the contract market and growth in perm as well, we will have to add fee earners throughout this year if that continues. We're doing it cautiously. As they get to the end of every month and we see mid to high teen growth, knowing the performance of some of our peers, they are certainly not complacent. We hire where we need to sustain the growth rate that we have, but we're not hiring ahead of that rate, if that makes sense.
Yeah. Okay. Thank you.
Coming back to you on cost savings. The main aspect of cost savings this year will come from the ending of some of our transformation programs. We saw some of the people fall away that had been helping us to implement the global finance system. The 37 decrease in non-ops that we saw during Q4 was primarily related to that. There was also a reduction in our help desk as actually some of these programs have embedded themselves and the number of calls have gone down. The one that we expect to deliver some savings, which I anticipate to be of the order of about GBP 6 million this year, relates to the conclusion of some of the larger infrastructure programs within our IT function.
Things like the rollout of Windows 10 in terms of closing some of our data centers which will deliver some savings over a period of time.
Is that GBP six million, is that a gross number or a net number as of now?
Net.
Net. Okay. Brilliant. Thank you very much.
Thank you.
Our next question comes from Bilal Aziz from UBS. Bilal, your line is now open. Please ask your question.
Good morning, everyone. Just wanted to clarify the profit bridge for the year ahead. I think you previously suggested you had GBP 6 million of gross savings in 2019 as well. What was the net number that you were able to achieve from those cost savings, just to understand the delta year-over-year. Secondly, can you perhaps break out Page Personnel and Michael Page growth in France, please? Thank you.
I'll take the cost saving one. The cost savings within the year were as delivered. I think it's quite difficult within our overall profit numbers to try and gauge the difference between the impact on productivity of the various different macroeconomic and political issues that went on during the year vis-a-vis the cost savings. The cost savings were broadly as originally expected and delivered.
In terms of France, for the quarter, Page Personnel and Michael Page grew almost exactly the same, +1%. I have to say, though, in the third month of the quarter, we don't typically break out months within a quarter. Michael Page actually grew by more than Page Personnel. That was, I think, a direct reflection of the strikes. There were transport strikes amongst others. That made it very difficult for temps particularly to get to work. We lost temp hours on what is a very big temp business for us, where people literally couldn't get to work. Invariably, more senior candidates still made a lot more effort to get to interviews and so on. Our Michael Page business outgrew Page Personnel. For the quarter, they were both +1.
Very clear. Thank you.
Our next question comes from Hans Pluijgers from Kepler Cheuvreux. Hans, your line is now open. Please go ahead.
Yes. Good morning, gentlemen. All the best for 2020, first of all. Looking already, you point a little bit out for Germany on your KPIs. Label to the outlook is. Could you maybe go through some other regions, especially the bigger regions like the U.K., and Continental Europe more in general? What are the development in the vacancy growth over the last, let's say, two, three months and going into Q1? Also what you see over the last quarter in, let's say, the conversion ratio and, let's say, the speed, especially going from vacancy to replacement. Secondly, could you maybe give some feeling how you look at the budget for this year? I know you don't give guidance, but I can imagine that you're a little bit cautious for this year on budgeting. If you could give some feeling on that.
Lastly, coming back on Germany, you already said you were more focusing on the SME segment, are there, let's say, any specific jobs you are doing quite well? You already indicated on technical roles. Within technical, are there any specific job categories you've been focusing on, and where you could, let's say, can still see handsome growth going forward?
Well, as I keep saying, we are only a few days into the new year. In terms of how do we track at the end of last year in terms of job flow, fairly consistent. The job count has not gone up, but it's not gone down either. What we have found that in particular markets like France, probably the most impacted by some social unrest and strikes, what we found was that the time to hire was extended. Where it might have taken a few weeks, four or five weeks to place somebody in a permanent role, it just took longer, and clients were less decisive and insisting on another interview or whatever before making a decision. We didn't see jobs canceled or frozen. Job flow at the moment, so far this year, it's too early to call.
Like I say, most people got back last Monday, and we're only Tuesday of the following week. With seven working days behind us, it's difficult to tell. At the moment, we're comfortable with how we're traveling in January, but we haven't even done a mid-month estimation of where we'll end at the end of the month. It is very early days, but there is no red flags in terms of concern and so on. As I said before, in Germany, yes, it is the SME market. It's technology rather than technical positions that we're predominantly focused on in our interim business, which has done particularly well, +50% in Q4. It is IT roles in a contracting fashion that's grown the strongest in a wide selection of different industry.
Maybe I can talk to the budget question. We did our budget as we always do and started in September, October time last year, to land a number in December. I've got to say, by the time that we'd really cooked that number in the beginning of December, it very much looked like it was probably out of touch. There were a lot of things that changed during Q4. We've actually reforecasted the whole business last week, to come to another set of numbers that are probably a little bit more in tune with the current macroeconomic and political tensions we see around the world. In short, we ended last year broadly flat, down 0.4%. I think as of today, it's difficult to look into a crystal ball and see anything that's particularly adrift from that.
We probably view today the consensus, which implies a very small amount of top-line growth and broadly flat in terms of conversion rate on the current year, is where we would be until we see otherwise. As we say within the statement and we always say, have a very flexible business model that allows us to adjust our headcounts and adjust our cost to the revenue that we see at the time, and we'll continue to do that. Hopefully, as we go through the first quarter and probably through into April, May time, we'll have a better view on some of our bigger markets, particularly the U.K., post the elections, particularly China, post the Chinese New Year, and we'll have a better picture. We're broadly comfortable with where consensus sits today, and as I say, there's a lack of visibility and very early in the year.
Okay, thanks.
Our next question comes from Anvesh Agrawal from Morgan Stanley. Anvesh, your line is now open. Please go ahead.
Hi, good morning. Hi, good morning. I got three questions. On Brazil, when the growth rate has kind of remained positive, but the run rate has slowed down in Q4. Maybe if you can just comment what has caused there, and what you're seeing. Are there kind of early signs that Q1 will be better again? Can you just give an idea in terms of number of contractors attempts that you are placing in Germany? Just the absolute number. Finally, just to clarify your point on conversion margin, Kelvin, when you said you expect it to be flat for FY 2020, I assume that's underlying and does not include the expected cost savings. Thank you.
Well, to tell you whether Brazil will be better in Q1 would be quite a prediction. Q1 obviously is a more challenging quarter generally for the region because of Carnival. There's nothing to say that Brazil wouldn't be another strong quarter for us. I don't think you can read anything into it particularly slowing in Q4. Politically, it's improved throughout 2019, but not to the point where there isn't some social unrest and some concerns going forward. I think momentum at the end of the year was good, but like I say, it's our weaker quarter of the year. In terms of contractors, we don't disclose the exact contracting number, but it's growing both in temp and contracting in Germany, and we are comfortably north of our objective of being over 1,000.
Yeah. Coming back to the conversion number. No, I mean, the GBP 6 million obviously is an improvement. I think this early in the year, as strange as it sounds, that's possibly slightly in the rounding. I think that the macro effect of some of these other political and socioeconomic issues that are going on would mean that that's probably just going to either become a benefit as we go forward or get eaten up by those issues. We will deliver the cost savings there regardless of what goes through on the underlying profit.
Okay, that's clear. Thank you so much.
Our next question comes from Paul Checketts from Barclays Capital. Paul, your line is now open. Please ask your question.
Morning. I've got two as well. Please. There's just one country that we haven't covered that I was hoping to ask about. That was Mexico, which slowed quite materially. Can you just give us a feel for what you're seeing there? A more general one on Asia. If you look at the slowdown over 2019, I suppose, is it more of a multinational company issue, Steve, and the local businesses are holding up better, or is it a bit more widespread? Thanks.
Yeah. Just on Mexico, I think it's nothing more than a comparator, a very tough comparator. If you look back to 2018, we were growing in the mid-30s in Q3 and high 20s, 27.7, in Latin America in Q4. Again, I wouldn't read much into it. Our Mexican business is doing well. We're still hiring into it. We also benefit there from a reasonable amount of RPO business as well, and sometimes projects finish and start, and volumes aren't consistent throughout every quarter. I wouldn't read anything into it. We're still very confident in Mexico and Latin America as a whole, with the exception of Chile, where clearly there's been some issues in Santiago. In Asia, yes. It's not completely confined to only multinationals, but that is where the tougher sentiment exists with some multinationals just cautious on their investment in headcounts.
It's a difficult one to predict exactly what will happen this year. So far, for example, it does feel like it's quieter in Hong Kong, talking to them. Equally, they are anxious as to whether the unrest we saw in the second half in Hong Kong continues through Chinese New Year. Let's hope it does. Clearly, if things do settle down, then Hong Kong typically has a track record of recovering quite quickly. For us, it's a very, very big business. When a few multinationals hold back because they're cautious about investment, that can hurt us quite quickly.
Looking at the growth rate we were achieving in the first half of last year in a market like Hong Kong, then what we experienced, which was unpredicted in the second half, that will have taken GBP 6 million of GP away and probably GBP 2 million of OP off our business. It wasn't predicted. Equally, if it calms down, then clearly we'll be in a better position at the midpoint of this year. That concern that some multinationals have isn't just confined to China. It's the same to a degree in Japan and in Singapore. We are dependent on both local companies as well as multinationals. If a few of them take the foot off the gas in terms of investment, we feel that. That can equally change very quickly should other factors change this year.
Thanks for the color.
As a reminder, ladies and gentlemen, to ask any further questions, please press star followed by one on your telephone keypad now. Our next question comes from Steve Woolf from Numis Securities. Steve, your line is now open. Please go ahead.
Hi, guys. Just one from me regarding your balance sheet position and sort of references you've made before to the GBP 50 million sort of cash buffer position. I guess a lot of those capital returns before you've made clear is sort of predicated on the market outlook at that time. Do you still stick to that GBP 50 million at this position subject to review by the board, et cetera?
Steve, yes. I think there's nothing really that would cause us to move away from that. In terms of cash flow, we've got a healthy cash flow. We ended up with a healthy balance at the end of the year. As you know, if we go into a sort of a slowdown, we will see some of our temp books unwind, and we'll actually end up with a greater inflow of cash. We don't at this time feel that we need to hold more cash. We've got group-level facilities that would carry us through any short-term challenges, and we don't currently have any downstream funding that would take that any lower.
Today, GBP 50 million is fine, and we'll continue to assess in August as we always do, what we think would be the right way to return excess capital to the shareholders, which more recently has been by way of a special dividend. Depending on where the share price is and what our shareholders want, we'll make that decision in August again.
Perfect. That's great. Thank you.
To ask a question on today's conference, please press star followed by one on your telephone keypad now. We have no further questions on the phone lines. I'd like to hand back over to you.
Thank you. As there's no further questions, thank you for all of you for joining us this morning. Our next update will be our 2019 full year results on the 5th of March 2020. Our first quarter 2020 trading update will follow on the 15th of April. Thank you, everyone.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.