Robert Walters plc

Hello and welcome to the Robert Waters Q3 Trading Update Call. My name is Saskia and I will be your coordinator for today's event. Please note, this call is being recorded. For the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. I will now hand you over to your host, David Bauer, to begin today's conference. Please go ahead, sir.

Thank you, Saskia. Good morning, everyone, and welcome to the Robert Walters third quarter 2024 trading update. I'm David Bower, Chief Financial Officer, and joining me this morning is Toby Halston, our Chief Executive. I hope you've seen the statement we published earlier this morning. Before we move to Q&A, I'll make a few remarks around performance at the group level before Toby touches on trading across our regional segments and then our full-year outwork. Unless otherwise stated, all net fee income percentage movements are in constant currency terms. As you have seen, group net fee income of around £80 million was down by 12% year-on-year in the third quarter, mirroring the year-on-year performance seen in the second quarter. In that sense, the trading backdrop remains largely consistent with what we were seeing with client and candidate confidence levels yet to show signs of material improvement. One contrast to our second quarter, where you might recall we saw a particularly soft exit rate in June, was a more consistent pacing for this third quarter just gone, as implied by the September exit rate, which saw Group B income down by 13% year on year, and therefore broadly consistent with the quarter as a whole. Looking at our service lines, specialist recruitment fee income of around £66 million was down by 12% year-on-year, within which both PERM and TEMP, and to remind that TEMP comprises our contracted interim offering, they were both down by 12%. In recruitment outsourcing, net fee income of around £14 million was down by 14%. Turning now to group headcount and productivity, At the end of the third quarter, group headcount stood at 3,466. That was a 4% reduction on the second quarter closing figure. Within this, there was a 7% reduction in the non-fear of the population, as our front office support ratio continued to trend back towards pre-pandemic levels, consistent with the second building block of our programme to drive higher medium-term through cycle margins, as detailed at our capital markets event last month. There was then a 3% reduction in the sea urn population. We continue to be slightly selective in replacing sea urn as a natural attrition, and our strategic imperative is to ensure that our average sea urn tenure remains strong, leaving us well positioned for when market conditions improve. With sea urns now down 20% versus the end of the first quarter in 2023, we broadly feel where we have reached is appropriate for the current market conditions. And indeed, looking at the volume productivity of our terms of the earners during the third quarter, it was down just 3% year on year. And when combined with mixed wage inflation benefits, this meant that we saw growth in overall fee earner productivity in terms of net fee income per fee earner year on year. Following our capital markets event last month, I would remind you that we will commence looking at fee earners and non-fee earners, as well as volume and overall productivity as part of our standard quarterly disclosures from our fourth quarter trading update in January. So finally for me, turning to look at the balance sheet, this continues to remain strong, with closing net cash of £50 million at the quarter end, consistent with one of the cornerstones of our capital allocation policy. We'll now hand over to Toby, who will take you through trading in our regional segments and the bullier outlook. Thanks, David. Good morning, everybody. Let's first turn to look at our specialist recruitment business. All net free income percentage movements continue to be in constant currency terms and at a segmental level, just relating it to specialist recruitment. Looking first at our Asia-Pacific business, Net fee income was down 10% year on year. As you know, Japan is a key market for us, and it was pleasing to see another quarter of growth there with fees up 3%, albeit that was more than offset by softer conditions in South Korea. Southeast Asia grew by 2%, and that comes on the back of a bit of momentum that's built there in job flow, which has improved over the last six to nine months, albeit from a top position seen as 2023 closed. In Australia and New Zealand, which was down 23%, conditions remain very challenging, and in particular with public sector tent hiring in New Zealand. As a reminder, we did see headwinds increase there around the time of the newly elected government shifting away from the use of tent labour towards the back end of last year. In Greater China, with fees down overall by 12%, The positive performance in mainland China, but more than offset by softer conditions in Hong Kong. Then we look at Europe. Specialist recruitment net fee income was down 13%. As expected in France, our largest European market, activity was more muted in the quarter due to the Olympic Games. However, the September exit rate in France was slightly better in quarter three as a whole. Belgium, down 14%, continued to annualize tough comparatives, and you may recall that the first half of 23 was a record for our business there. Of our larger European markets, we did see slightly more resilience in the Netherlands, which was down 10% overall, but did deliver modest growth in Pern. Really, it's the first time since fourth quarter of 2022. Germany, down 4%, was also pretty resilient, with a notable performance by the interim business there. Now turning to the UK. Net fee income was down 26%, so a fair bit softer than the pacing we saw during the second quarter. And as noted in the statement, we did see clients generally choose to pause activity as they awaited clarity on the now published employment rights legislation of the new government. Combined with the budget taking place later this month, this has generally given incentives for clients to adopt a wait-and-see approach, with fees down in quarter three by 19% and 29% respectively in London and the regions. In the rest of the world, we saw the most resilient segmental performance year-on-year of our specialist recruitment businesses, with fees down 4%. We saw another good performance in the Middle East with fees up 12%, although this was more than offset by softer conditions in LATAM. And now turning to our recruitment outsourcing business. As you heard from David a moment ago, fees overall were down 14%. Looking around the region, where the fee income split in the quarter was just over half coming from the UK, a quarter coming from Asia Pacific, and just under a quarter from rest of the world. UK recruitment outsourcing was down 13%, with Asia Pacific down 23%, and rest of the world up 2%. Reflective of still greater caution among clients, non-perm volume hiring was slightly more resilient than perm. Before turning to the full year outlook, let me just give a few brief comments on how activity levels trended during the quarter. And by this, we're really thinking about job flow, interviews, and placement, all on a per-fee and a basis. At the group level, job flow trended broadly, as we'd expect, with a reduction in August versus July, given the Northern Hemisphere holiday season. There was then a bit of a further reduction into September, but job flow held up better than we saw in September last year. And interviews and placement followed a broadly similar shape. Commenting more selectively around the regions, in Asia Pacific, we have seen signs of stabilization in ANZ job flow, albeit at levels much reduced compared to last year and the peak. And I noted in my earlier remarks that momentum in Southeast Asia job flow continued to be positive. Meanwhile, in Europe, unsurprisingly, given traditional summer vacations, job flow and interviews came off in the latter part of the quarter. consistent with last year and as we would expect. We'll be keenly focused on trends through October and November to see if the build-up seen last year is replicated. And finally, just before we move to Q&A, some comments around how we're thinking about the full-year outlook. As we referenced in the statement, hiring markets do remain challenging, with the period of decline seen since the peak now running to about two years. And in that sense, longer, I think, than most of the industry expected. As we sit here today, our previously stated assumption that market improvement in client and candidate confidence levels will be gradual and likely to not commence until 2025, that remains unchanged. With the exception of last year and the COVID impact of 2020, we have historically seen a seasonal profile whereby second half fees have been slightly bigger than the first half. However, as we called out in this morning's statement, given market conditions and the very near-term outlook, we think it is unlikely that fees in the second half will exceed the £166 million we saw in the first half. That being said, we have seen progress on lowering our cost base this year, and actions there continue. and we will continue to aim for possible full-year outcomes. That concludes our prepared remarks, and with that, we'll open up for Q&A.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question on today's call, please take it by pressing star 1 on your telephone keypad. That is star 1 for your questions today. And up first, we have Tom Callan from Investec. Please go ahead.