Hello everybody, and a warm welcome to the PageGroup 2022 interim results. My name is Melissa, and I'll be your operator. If you would like to ask a question following today's presentation, you can press star followed by one on your telephone keypads. I now have the pleasure of handing over to our host today, Kelvin Stagg, CFO, to begin. Kelvin, over to you.
Thank you, Melissa, and good morning everyone, and welcome to PageGroup's 2022 interim results presentation. I'm Kelvin Stagg, Financial Officer. Sadly, Steve Ingham, our Chief Executive Officer, has been called away at short notice for a funeral overseas. I have Nicholas Kirk, Regional Managing Director for the U.K. and North America, with me for the Q&A session at the end of the presentation. I will now present the headline numbers and a financial review before moving on to a strategic review and concluding with a summary. Although I will not read it through, I would like to make reference to the legal formalities that are covered in the cautionary statement in the appendix to this presentation and which will also be available on our website following the call. The improvement in trading conditions we saw as 2021 progressed continued into H1 2022.
Consequently, the group delivered gross profit of GBP 538.9 million, a record first half, up 33.3% on 2021. Our operating profit was GBP 115.3 million, up 79% from GBP 64.3 million in H1 2021. Our conversion rate was 21.4%, up from 15.9% in H1 2021 due to the favorable trading conditions and improvement in fee earner productivity. Earnings per share more than doubled to GBP 0.256 , and we closed the first half in a strong financial position with net cash of GBP 136.2 million. The record trading in the first half and our continued strong liquidity position has ensured that we are able to maintain our capital allocation policy.
We are today announcing an increase in the interim dividend of 4.5% to GBP 0.0491 Per share or GBP 15.6 million. In line with our policy to return surplus cash to shareholders, the board has also announced a special dividend of GBP 0.2671 Per share in line with 2021. This represents an additional return of GBP 85 million. Both the interim and special dividends will be paid on the 14th of October to shareholders on the register on the 2nd of September. I will now take you through the financial review. This fee earner headcount and quarterly gross profit chart shows the unprecedented scale of the decline in group gross profit in 2020 due to COVID-19, and the comparison to the global financial crisis in 2008.
It also shows how we chose strategically to maintain and invest in our platform, which has driven the sharp recovery seen throughout 2021 and the first half of 2022. Overall, the group's operating profit was GBP 115.3 million, up from GBP 64.3 million in 2021. Our conversion rate was 21.4%, up from 15.9% in H1 2021 due to the strong trading conditions as well as Q1 2021 still being impacted by COVID-19 restrictions, together with the repayment of GBP 3.4 million of furlough monies to HMRC. Our H1 2022 underlying conversion rate, excluding the accelerated amortization of certain software assets of GBP 4 million, was 22.1%.
Gross profit per fee earner, our measure of productivity, increased by 9.2% compared to 2021, which I will discuss in more detail later on. Looking at each of our regions and starting with the largest, EMEA, our conversion rate was 24.5%, up from 17.6% in H1 2020. We saw strong trading results throughout the region, driving EMEA to have our highest regional conversion rate. We invested a total of 368 of 10.7% in headcounts in the first half. Asia Pacific delivered a conversion rate of 20.5%, up from 18.8% in H1 2021.
This was slightly behind its full year 2021 conversion rate of 21.8% due to tougher trading conditions in Greater China in H1 2022, a result of COVID lockdowns and restrictions. We continue to invest in headcount in the region up 133 or 7.8% in the first half, particularly into India and Southeast Asia. In the Americas, our conversion rate was 14.7%, slightly ahead of H1 2021, which was 14.3%. Gross profit increased 44.1% in constant currencies, and we invested significantly in headcount up 252 or 18.3%. In the U.K., our conversion rate increased significantly from 7.5% in H1 2021 to 20.1%, driven by an improvement in productivity of 16.8%.
The prior year conversion rate was also impacted by the furlough repayment of GBP 3.4 million to HMRC. Excluding this, the H1 2021 conversion rate would have been 13.3%. Headcount increased by 77 or 5.9% in the first half. We saw continued strong growth across all our disciplines in H1 and a further diversification away from accounting and financial services. As a result, all of our other disciplines now represent 68.8% of the group, up from 67.8% in H1 2021. Both our higher potential disciplines of technology and healthcare and life sciences delivered a record first half, justifying our investment strategy. Technology within our professional services category remains our second largest discipline, representing 14% of the group, and delivered growth of 53% compared to H1 2021.
We've also continued to focus on healthcare and life sciences, which although a smaller part of the group, also grew 53% in H1. The tax charge for the half year was GBP 33 million, which represented an effective tax rate of 28.8%, broadly in line with the 29% for the full year 2021. Going forward, we expect the full year effective tax rate for 2022 to remain around 29%. The most significant item in our balance sheet was trade and other receivables, which increased by GBP 337.2 million versus H1 2021. This was due primarily to the strong growth in trading across both permanent and temporary recruitment. Lease assets increased by GBP 9.4 million and lease liability broadly offset up GBP 10.6 million.
Overall, net assets increased from GBP 346.2 million in H1 2021 to GBP 387.3 million in H1 2022. This chart lays out the movements in and uses of cash during the first half. EBITDA was GBP 151.8 million. Working capital increased by GBP 59.3 million, driven by growth in revenue, increasing debtors. To date, we have seen no deterioration in the quality of our debtor book. Tax and net interest payments were GBP 30.2 million and net capital expenditure was GBP 19 million, driven by investment in Customer Connect, our new operating system, as well as an increase in total headcount of 830. Payments made in relation to lease liabilities reduced cash by GBP 17.1 million.
The group purchased GBP 14.8 million worth of shares into the employee benefit trust to satisfy future committed obligations under our group share plans. We also paid out GBP 32.7 million in June in relation to the 2021 final dividend. 0.3 was generated from employees exercising options, down from 6.9 in H1 2021, as a result of the lower share price in 2022. Overall, the impact of these cash flows decreased the group's net cash position from the year end by GBP 17.8 million - GBP 136.2 million at the end of June. I will now present a strategic review.
The strong gross profit growth seen in the first half was driven by an increase in both fee rates and volume of placements, with video interviewing and talent shortages resulting in a shorter time to hire. The increase in number of placements is a result of both our investment in new technologies such as Customer Connect, as well as the sharp increase in virtual recruitment, significantly reducing time to hire. This is combined with candidate shortages, meaning clients made faster decisions to secure talent. Our first half productivity increase of 9.2% was achieved despite a year-on-year headcount increase of 24%. In terms of margin, average fee rates across both permanent and temporary recruitment have increased versus the first half of 2021, with significant increases noted in all our largest markets, including the U.K., France, Germany, the U.S., China, and Italy.
We are also seeing wage inflation across the majority of our markets, again, driven by candidate shortages, with clients needing to offer higher salaries to attract the best talent. PageGroup operates a highly cash-generative business model with very high levels of cash conversion. We have a clear capital allocation strategy with 3 defined uses of cash. The first and primary use is to satisfy the operational investment requirements of the group, such as adding additional headcounts and continuing to roll out technology and innovation, as well as hedging liabilities under the group's employee share plans. The second use of cash is for the payment of ordinary dividends, where it is the group's policy to maintain these through a downturn, which we have done in all years apart from 2020, and to increase them when conditions are more favorable.
Thirdly, and finally, any remaining cash surplus is distributed to shareholders by way of a supplementary return. Today, we are announcing an interim dividend of GBP 0.0491 per share or a total of GBP 15.6 million. Our policy has been to grow the dividend over the course of the cycle in line with our long-term growth rate, which historically has been between 4%-5%. As such, we've increased the ordinary dividend by 4.5% on the 2021 interim dividend of GBP 0.047 per share. After this interim dividend, the group's board has concluded that we are still holding surplus capital. Accordingly, we are also announcing today a special dividend of GBP 0.2671 Per share, totaling GBP 85 million.
Together with the interim dividend, this amounts to a cash return to shareholders of just over GBP 100 million. The special dividend will be paid at the same time as the interim dividend on the fourteenth of October to shareholders on the register as at the second of September. This chart shows our proven track record of shareholder returns, with capital returns made in all years since flotation, except 2020 due to the pandemic. Including the 2022 special dividend, we've returned over GBP 360 million by way of special dividends since 2015. Together with share buybacks totaling GBP 276 million and ordinary dividends totaling GBP 564 million, we have returned a total of GBP 1.2 billion to shareholders since flotation. We continue to make great strides in sustainability.
In April, we published our second sustainability report, where we articulated progress against our sustainability vision and our four targets. As a reminder, these are to positively change over one million lives in the 10 years to 2030, to increase gender diversity in our senior management team to 50/50 by 2030, to establish a meaningful sustainability business by 2026, and to become carbon net zero with the ambition of becoming carbon positive by 2026. The results from this year indicate 2022 will be another successful year for our sustainability agenda. We remain focused on increasing the numbers of lives we change, both through candidate placements and through the volunteering of our time and recruitment skills to social impact programs. Our female representation in senior management continues to improve, and this year we completed the UN Global Compact Target Gender Equality Accelerator program.
We have also grown our sustainability business, making placements into dedicated sustainability roles in over half of the group's markets. It is likely that our greenhouse gas emissions will increase slightly this year as our regular business activities return post-COVID. Overall, our emissions are still trending downwards from 2019. This half year, we've transitioned to further 11 offices to green energy, which now gives a total of 57% of the group, and we remain committed to achieving operational net zero emissions by 2026. I will now finish with a brief summary of the first half. We achieved a strong H1 performance across our geographies, disciplines, and brands, and delivered group operating profit up 80% and a conversion rate of 21.4%. This was particularly pleasing given that 2021 had been a record year for gross and operating profit.
We are pleased to be making further capital returns to shareholders, with just over GBP 100 million to be paid out in October. Looking forward, we recognize the heightened degree of global macroeconomic and geopolitical uncertainty, particularly with regards to increasing inflation around the world. In July, we noted a slight slowing in time to hire in some of our markets, and we continue to closely monitor our forward-looking KPIs. However, at this point, our expectations for 2022 full-year operating profit remain in line with the company compiled consensus with GBP 206 million. Nick and I will now be happy to answer any questions you may have. Over to you, Melissa.
Thank you. If you would like to ask a question, we invite you to press star followed by one on your telephone keypad. If you do change your mind or feel that your question has already been answered, you can press star followed by two to withdraw your question. When preparing to ask a question, please ensure that your phone is unmuted locally. We'll be taking our first question today from Anvesh Agrawal of Morgan Stanley. Anvesh, over to you.
Hi, good morning. I got two questions. First, really, if you can comment on China, how things been in July after the lockdown has been lifted, at least in parts of the country, and how that is trading. Second, just your comment around slowing time to hire in July. I mean, when we spoke back during Q2 update, everything was sort of fine. I mean, you did flag that you're mindful of the economic uncertainty out there. But if you can just elaborate, like, what exactly have you seen? Is it China-specific or it is across the board? Can the slowing time to hire also be because there is less video interview probably now and there is more in-person interviews? Is that also sort of impacting that?
Sure. Let me start on those and then I'll probably hand back to Nick for a little bit more color on the second question. In terms of Greater China, I mean, it is largely mainland China, but there is still an impact in Hong Kong, albeit less so. There are lockdowns and they are rolling lockdowns and they are quite severe in terms of the impact. Strangely, we've seen a bit of a reversal of what we saw earlier during last year in terms of trading. Insofar that last year, actually, we had a greater proportion of our business in domestic Chinese clients than we had before as the multinationals who were dealing with COVID at home invested less into China and focused on trying to resolve their issues elsewhere.
As COVID has now hit, particularly mainland China, but also Hong Kong, but the conditions in the countries that the expats come from are actually generally okay now. We've seen quite an exodus of foreign expats within China and therefore, actually, they were mainly in the multinationals. Therefore, it's the multinationals that are now trying to hire to replace that exodus of talent that's now left the country. Yes, we were negative in mainland China and just slightly in Hong Kong in July. I think it's hard to tell over what period of time and to what extent the zero COVID policy will remain in place. Certainly at the moment, it's impacting the businesses that are there.
Certainly to a lesser degree than it did in the Western economies, when COVID sort of let rip across Europe in 2020. Moving on to slowing time to hire. I think it's simple, really. In the first six months of the year, we were really flying across pretty much all of our countries and we had people taking multiple candidates off shortlists. People really were making decisions very fast. There was no issue with having to get multiple levels of sign-off within an organization and therefore it felt very frothy. More recently, it was really only in July we saw that the decision-making from clients had just taken a little bit longer.
Whether that was because some of the managers were on holiday, possibly, very good weather in July, or whether it was just that, they had got to get another level of sign-off or they were just feeling a little bit less confident about the future, is at this point, fairly unclear. Going into August, it won't become any clearer, I don't believe, until we get into September. September pipeline is always relatively light, obviously, coming out of August, and so it's the last couple of weeks in September that will really tell us whether things have slowed or whether actually this really was just a slightly early pack-up for summer. As that, I mean, we still had a very good exit rate in July. It just wasn't quite as good as previous.
Some of that is also 'cause the comps were better. Nick, have you got anything to add to that?
Yeah, I would just say in terms of the point around slowing time to hire, it's probably worth contextualizing where we're coming from. Kelvin and I were over in the U.S. in late April, and we popped into quite a few of our offices. We were being told stories then of consultants that were being WhatsApped by clients 20 minutes into an interview, asking whether we felt it was too early for them to offer the job because they wanted to land the talent. I mean, that's the type of market that we're coming down from, which is a market I don't think any of us have really seen in our time in recruitment.
I think it's important just to give that sense that this is slowing from a very, very high level of, as Kelvin called it, froth. I guess as regards the second part of your question, is there a flight towards face-to-face from virtual? No, no. I mean, where clients can get a candidate in for a face-to-face meeting, certainly for more senior roles, they probably will. But no, I mean, the front end of the process is still very much virtual.
That's very clear. Just to clarify and then really, has July been better than sort of, let's say June, just to put it in context?
No, it wasn't better than June. I don't think it was a huge amount worse than June, but it wasn't better than June.
Okay, fine.
Thank you for your question. Our next question today comes from Rory McKenzie of UBS. Rory, over to you.
Morning, all. Three from me, please. Firstly, just to follow up on that outlook comment. It sounds like the slowdown, if any, has been seen mainly on the client side, given what you just said. Just wondering if you could comment on any of the candidate confidence KPIs and if that's changed at all. Secondly, wanted to go into the different disciplines laid out on slide seven, maybe particularly ahead of any slowdown. Can you maybe talk about your salary ranges across those different disciplines and also maybe the different rates of wage inflation across those different areas? Just trying to get some sense of, you know, how strong any kind of structural hiring backlog there could be.
Lastly, just on the special dividend, can you just talk about where you would expect to land for kind of December this year in net cash. Maybe if that's what sets your thinking on the size of the special. Thank you.
Yeah. Work through those in order, and I'm sure I'll miss a bit that Nick can add in. I mean, client versus candidate, at the moment it is really on the client side that's slowing things down. We're not seeing really any impact on candidate confidence. Certainly we're still seeing candidates who are motivated to move, partly or probably a large part because of the wage inflation that people are getting when they move jobs. There's probably not a huge amount else to add into that. I think, looking at disciplines and salaries, I mean, most of our disciplines will be across all the salary ranges.
The salary ranges are more linked into Page Personnel that, in most businesses would probably top out at around GBP 40,000, maybe GBP 45,000 nowadays with a bit of wage inflation in there. Michael Page will trade up to about GBP 120,000-GBP 125,000, and then Page Executive will go above that. Apart from maybe secretarial, which probably caps out. Well, it caps out, but then you look into sort of London secretarial, and it can go as high as GBP 60,000-GBP 70,000. I mean, it's probably the only one that doesn't go right the way up. Outside of that, all of the disciplines go to the bottom and up to the top.
In terms of differences between disciplines, in terms of rates, if we're talking about wage inflation rates, then there are some hot disciplines. I mean, digital, technology, logistics in certain parts of the world. The more technical disciplines, engineering, property, construction, procurement, supply chain, are gonna be the ones that have probably got the highest wage inflation rates. It's also a little bit by geography as well. Certainly, in terms of wage inflation, I think it's probably highest in the U.S., as much as anywhere else around the world, but it's gonna be pretty robust in places like Germany and certain parts of Europe. I'll just mention the special dividend, and then, Nick, if you wanna add in anything after that.
I mean, the special dividend, I expect that we will probably end the year somewhere around GBP 110 million of net cash. That's slightly higher than we've targeted in the past. We would normally have said we'll have GBP 50 million of spare cash at the end of January. The January bonus round is normally about GBP 30 million, and therefore, we try and target GBP 80 million, and we normally miss it a bit and end up at GBP 95 million. I think a net cash of GBP 50 million is still broadly where I want to be. I think we're a bigger group at the moment, and we've obviously had a good first half of the year, so maybe the bonuses will be a little bit higher. Maybe in total, that now comes to about GBP 90 million.
I felt that we might need some more for working capital. If I'm honest, I also thought that expectations from both the market and what we paid last year probably meant that we didn't need to go more than the GBP 85 million, which is in line with the previous year. That was the thinking around coming to the special dividend. In overall terms, our thought process around how we decide what supplementary cash we've got and therefore how we return it hadn't changed. We spoke to 13 of our top 15 shareholders and the majority of them asked for a special dividend. We followed their advice and tried to be consistent in the application of that policy. Nick, can I? Is there anything else you want to add?
No. I'll probably go back to the first question. I think it's a very sensible question and something that we'd be watching very closely right now around candidate confidence. As Kelvin said, it has predominantly been client confidence impacted first. I think if we've learned anything over the years is that the next thing that tends to follow is candidate-side confidence, as they're potentially worried about being into an organization. Then changes coming and that they're last in, first out. It's one we're watching. We're not seeing anything just yet, but it's one to keep a close eye on because naturally, that tends to follow.
Great. That's very helpful. Thank you both.
Thank you for your question, Rory. Before we do move on to our next question, as a reminder, you can press star followed by one to register a question. We'll be taking our next question from Steve Woolf of Numis Securities. Steve, please go ahead.
Morning, both. Just two from me. Just first one, thinking about in terms of the company confidence at this point. Does this alter your own thinking about what headcount you might add into in the second half? Would you know, think of pausing and wait until the end of October, September before sort of thinking about more plans? Then secondly, could you just touch on where fee rates themselves are at the moment relative to, you know, prior bandings across the cycle? Thanks.
Yeah. Well, first then on headcount. I think we had quite a few starters actually in July, which isn't a big surprise. They were probably hired in April or May. We don't want to sort of pull any offers and didn't feel minded to do so at the time. We never have many people that are gonna start really in August over the summer period. Consequently also, we're not doing a lot of hiring in August because a lot of our people are away. Therefore, it is likely, with our natural attrition, to be a relatively small number of additions during Q3 anyway.
I think we are minded to look a little bit closer at our own hiring and that possibly is also what's being reflected in the slightly lengthening time to hire with our clients. At the moment, we are still hiring because to remind. Well, I don't need to remind you, Steve, but to remind other people on the call, we have a 30% staff turnover that we need to fill. Therefore, actually, it doesn't take a lot for our headcount to go backwards, which may be needed if things do get difficult. For the time being, we'll maintain our headcount. It'll be light over the summer period.
Then as we look into sort of October, November, when we'd normally be hiring significant numbers of people, we'll take a view on that in line with probably what we see during September. Has it changed? A little bit, but not substantially. Certainly, we haven't decided that we're gonna shrink the headcount at this point by any means. Fee rates. Our fee rates are going to be at historical highs. They're quite different by market, but within the ranges that you'd normally see in that market. I don't know, to pick out a particularly strong one, somewhere like Germany, those fee rates are gonna be in the high twenties now. In the U.S., Nick will know slightly better than me, but I think probably similar.
Would normally have been around 20, mid-20s and probably trading up a bit from there. In the U.K., we're probably up into the very high teens. But that will have only really in most of those markets, moved up by 2%, against where it was. Our fee rates don't massively move, but they're gonna be at the top end of the trading, as you'd expect in a market like this, where actually for our clients, it's about finding them the best candidate at, not any cost, but at good cost because there's plenty of people competing for that same person. Nick?
Yeah. In regards to the first point, I think there's a couple of things worth flagging. I think that we did a particularly good job coming out of the pandemic of seizing the moment and going after some experienced hires from the competition. I think that that's something that we're seeing the opportunity to do again. That opportunity had gone away for a period of time when the market was moving quickly, everyone was performing well within their organization. I think that we're seeing in certain places, there's a chance to tap into some of our competitors, which, as you know from coming out of the pandemic, was something that we did quite aggressively, and we reaped the benefits of that, so we'll be looking at that again.
Also, you know, where we do see some slight slowing in a very specific market, in a very specific geography, so a city, for instance, we'll move people across to other disciplines that are still moving very, very quickly. When we bring people on board, we give them base training skills in recruitment. We can move them to gain sector knowledge relatively quickly in those early days. Again, we can be pretty agile.
Sure. Perfect. Thanks, gents.
Welcome.
Thank you for your question, Steve. We'll take our next question today from James Rose of Barclays. James, please go ahead.
Hi there. Morning to you both. Two questions from me, both a bit hypothetical. The first one is, appreciate your high level thoughts on cost control, if it is a wider market slowdown. You know, very aware you've just built a platform, and you've added, I think it's 1,300 people versus last year, and presume you're reluctant to reduce capabilities overall. Yeah, what are your thoughts on how you balance, you know, near versus long term capabilities if the market did slow down? Secondly, on special dividends, you know, for all but extreme scenarios, is PageGroup in a position to continue special dividends or buybacks, pretty much every single year?
Start with cost control. I mean, 80% of our cost is people related directly. We built a lot more flexibility into our business over the last eight or so years. If I look at the non-operational side of the business back in sort of 2008, so the last time that we had a recession, we didn't have our shared service center network across the group. We didn't have a global finance system in place that allowed us to have synergies that we have today that we didn't have then. We didn't have Customer Connect in place, which is enterprise scale system, but it's the same system that can flex up and down.
I think the degree to which the organization and the supporting cast of the organization are able to flex is greater today than it ever has been. In contrast, the organization is in a very different shape to what it was before. Back in sort of 2008, 20% of our business was in financial services. Today, that would be about 5%. Back then, about 5% of our business was in the technical disciplines of engineering, property and construction, procurement and supply chain, and now that's about 20%. We believe that is a more robust and less volatile mix in the organization. Our main flexing factor as far as cost is concerned, though, remains headcount and primarily consultants.
We have added, as you say, a substantial number of fee earners, 25% increase or 24% in the last year. Those people may or may not perform as well as some of our more experienced people through a downturn. Therefore it is quite likely that some of those people would leave if we went into a particularly difficult period. I think very different to the pandemic when people didn't leave because they couldn't leave because they were working from home, to when it becomes a recession and actually people have the flexibility to decide where they want to go. There will be some of those people, if it becomes particularly difficult, who do decide to leave.
As always, our philosophy is to hold on to our senior people, retain our senior people, and proactively go out and look for good people from the competition and add those people in, which is what we did in the pandemic, which has proved very successful and which is what we would do, if we went into a difficult period again. I'll move on to special dividends. I think you're right from a special dividend perspective.
I mean, apart from something like a pandemic, we are always going to be generating substantial amounts of cash. If we go into a downturn, some of the very large both perm and temp working capital will unwind, and that will support the balance sheet as we've seen back in 2008 and as we saw in 2020. Therefore, that is supportive for continuing to make supplementary returns. Maybe not at the size that we've just made, but certainly the balance sheet guidelines and structure would remain the same, and we would look to return capital in that vein. Would you add anything on the first one, Nick?
No, only to say that I think, you know, what we've learned over the years is that there's always an opportunity if the market does slow, to gain market share. Therefore, we do need to maintain our platform. The process of doing that is actually pretty straightforward. We have a leadership team in place. The good performers stand out in good markets and tough markets. Then what you're looking for across to more junior hires is those that have the attitude and the resilience to work through it. I mean, I worked through one when I first joined the business and many others have, and you come out the other side better for it.
It's always a balance, but there are opportunities, as Kelvin's just pointed out, and we took those in the pandemic and our view would be to take those opportunities again.
Great. Appreciate your thoughts. Thank you.
Thanks, James.
Thank you for your question, James. We don't have any further questions registered at this time, so I'd like to hand back to Kelvin Stagg for any closing remarks.
Thank you. Well, as there are no more questions, thank you all for listening to the call. Our next scheduled update to the market is on Wednesday, the twelfth of October, when we'll hold a conference call to deliver our Q3 2022 trading update. Bye for now.
Thank you, Kelvin.