Robert Walters plc

Good day and welcome to the Robert Walters 2024 Full Year Results webcast and conference call. At this time, I would like to turn the conference over to Toby Falston, Chief Executive Officer. Please go ahead.

Good morning everyone and welcome to the Robert Walters 2024 Full Year Results presentation webcast. I'm Toby Falston, Chief Executive and joining me today is David Bauer, Chief Financial Officer. In terms of our agenda today, I'll shortly hand over to David to take you through an operational and financial review and the early progress we've seen on the five building blocks we're focused on to drive a higher margin business in the medium term. I'll then return to give you an update on what we are seeing in the changing world of work and the confidence we have in our growth drivers. As usual, we'll need plenty of time to then open up the Q&A. So as we begin, here are my key messages for today. Firstly, though 2024 brought a second year of very challenging conditions in global hiring markets, we began to execute our strategic plan against this tough backdrop, and we have seen some good early progress. We are managing our geographic portfolio with increased discipline, and we repositioned the business to be well placed for the rapidly changing world of work. Secondly, we remain sharply focused on costs. In 2024, we took actions to ensure our cost base is appropriate for the current end markets. In addition, we also began to realise structural cost savings in line with our disciplined entrepreneurialism strategy, with over £4 million of saving already secured. This stands us in good stead for 2025, where our outlook is that an improvement in end markets is unlikely to be seen before the latter part of the year. And thirdly, we continue to have high levels of conviction in the long-term growth drivers of the business, which has been further strengthened by the progress we have seen over 2024. There is more to go for in our largest specialist recruitment market of Japan, whilst interim management, workforce consultancy, and talent advisory offer outsized growth opportunities at above group average margins. With that said, I'll hand you over to David.

Thanks Toby, and good morning everyone. As Toby said a moment ago, 2024 brought a second year of challenging conditions across our industry, with subdued client and candidate confidence impacting both specialist recruitment and recruitment outsourcing. In specialist recruitment, fees were down 13%, Perm fees, accounting for around two thirds of the mix, declined 14% and temp being contract and the interim management offering was slightly more resilient, however, with fees down 10%. Within this, the performance in interim stood out with fees down just 2%. Across our specialist recruitment markets, and with the exception of interim, we observed a similar dynamic with lower volumes of permanent placements and temps working driving the year-on-year fee reduction. This was reflective of the muted confidence amongst clients and candidates, which slowed the pace of job moves. Average fees, however, were slightly up year-on-year, seeing the benefit from wage inflation and underpinned by stable fee rates as clients continue to value our services. In recruitment outsourcing, fees were down 18%, with non-PERM volume hiring more resilient than PERM volume hiring. reflective of client caution in the financial services sector that forms much of our customer base. Within recruitment outsourcing, we did see good growth in the workforce consultancy offering, with fees up 24% on the prior year, driven by a higher average number of consultants. Our third service line of talent advisory, which launched in 2023, delivered strong operational progress with the number of clients served almost doubling in 2024 versus the prior year. terms of our regional segments with the exception of the uk fees were down broadly in line with the 14 reduction theme group wide we've included further regional detail on the slide which i'll leave you to digest at your leisure let's turn now to the financial review where i'll begin with the group financial summary the continued challenging conditions in hiring markets globally drove a 14 reduction in group net fee income year on year to £321 million. Around two thirds of that year on year fee income impact was mitigated through cost actions, with group operating costs falling by 9%. However, operating profit of around £5 million was still clearly impacted by the reduced top line trading. This resulted in a break even position at the profit before tax level and a 9.1 pence loss per share. Net cash finished the year at £52.5 million. And in view of the group's balance sheet strength, the board is proposing a final dividend of 17 pence per share, which together with the 6.5 pence interim dividend give us a total dividend of 23.5 pence per share in line with that of the prior year. Now, I remarked a moment ago that around two thirds of the year on year fee income impact was offset through cost action. So let's now turn to look at our costs in more depth. Operating costs across the group reduced by £44 million year on year. With around 75% of the cost base comprising people costs, the reduction was clearly focused in this area. Average group headcount fell by 15% year on year, which drove a £27 million reduction in fixed staff costs. Within this, fee earner average headcount also fell by 15%, as we remained highly selective on the replacement of fee earner natural attrition through the year, whilst non-fee earner average headcount fell by 16%, driven by a lower level of fee earner support staff. Variable compensation fell by around £11 million, reflecting the reduced trading result. Non-staff costs were also managed down during the year, falling by around £6 million, and driven by lower direct operating costs, such as marketing and travel. So in 2024, we took the necessary actions to ensure our cost base was appropriate for the current end markets. And this resulted in us exiting the year with a monthly cost base run rate of around 25 to 26 million pounds, down from around 27 to 28 million pounds at the beginning of the year. Turning to look at cash, we saw negative free cash flow for the year of £8 million, with lower operating cash flow driven by the challenging trading performance. There was a broadly neutral working capital cash impact, with a lower year-on-year receivables balance offset by a decrease in payables. Overall capex of around £10 million was down around a third on the prior year, principally driven by lower spend on the group's office estate, where 2023 had seen a number of refurbishment projects in some of our large offices, intangibles capex predominantly being spent on zenith was in line with the prior year as we roll out nears completion turning now to capital consider capital allocation the foundation of our policy is to maintain year-end net cash of at least 50 million pounds and our 2024 closing position was consistent with that as a reminder our capital allocation priorities are set out on this slide Firstly, we seek to fund organic investment opportunities that enhance the group's growth drivers and provide sufficient headroom above our cost of capital. For example, we have above group average margin service line diversification opportunities in interim management, workforce consultancy and talent advisory. And in addition, we have our investment in the Zenith CRM. Our second priority is the ordinary dividend. where our policy targets a distribution that is between 1.75 and 2.25 times covered by earnings, albeit with a latitude, as at present, to allow cover to fall outside this range at points in the cycle. Here, the Group's continued balance sheet strength gives the Board confidence to propose a final dividend in line with that of the prior year. The Board remains cognizant, however, of the need to return to the targeted cover range in an appropriate timescale. And finally, should the Group hold cash in excess of the £50 million target, and should the Board expect this position to continue for the medium term, we will look to return excess capital to shareholders. Turning now to look at guidance. Firstly, with regard to top line trading, this has continued to be muted over the first few weeks of the new financial year. I would remind you that the Group's Asia-Pacific weighting means the first quarter has historically been quieter. Combined with this, our planning assumption is that an improvement in end markets is unlikely to be seen before the latter part of 2025. As such, we would anticipate a slight second half weighting to fee income. Secondly, with regards to costs, as I touched on earlier, we exited 2024 with a monthly run rate of around 25 to 26 million pounds. We take good momentum from our actions last year into 2025. and we will continue to ensure our cost base is appropriate for the current end market, remaining highly selective on the replacement of fee earner and natural attrition. And thirdly, turning to consider cash. We expect movement in cash over the first half to be in line with the typical profile, whereby payment of the ordinary dividend and fee earner bonuses drives a lower net cash position at the half year compared to the full year. That being said, and consistent with our expectations for a second half weighting to fee income over the year, we would anticipate a more balanced first half working capital cash impact than seen last year. So we've taken appropriate near-term cost actions in the current environment. We are, though, also pursuing a wider programme in five specific areas as shown on the slide, which we believe are building blocks to a higher margin business. At our capital markets event last year, we set out our conviction on how the business can operate with greater levels of efficiency and at higher rates of profitability. So let's turn now to consider the key actions we have been taking, where we saw early progress in 2024, and the opportunity ahead of us in 2025. The first building block is driving higher fee earner productivity. This of course applies to all of our service lines, but given the 83% of group net fee income that comes from specialist recruitment, and that two thirds of fees in that service line relate to permanent placements, we recognise how much of a driver of our overall financial performance PERM placements per PERM fee earner per month is. We increased focus on this metric around the business during the year. It is being used to allocate fee earner headcount with a greater regard to where it drives the most benefit. That said, across the Specialist Recruitment Service line, PERM placements per PERM fee earner per month did decrease by 5% year on year. reflecting our decision not to reduce Fiona headcount wholly proportionally with volumes. However, we did see growth in this measure in Southeast Asia and Northeast Asia held flat. And we continue to see the capacity in our current Fiona base to absorb higher volumes of perm placements, with average volume productivity through 2024 about 30% below the peak levels reached in the second quarter of 2022. and around 15% below the long-run average pre-COVID. On entering 2025, our specialist recruitment teams are focusing even harder on the sales funnel, whereby well-cultivated client relationships lead to new job flow, which in turn works through the various stages of a process to end with a candidate placed in role. Our key technology investments will also continue to support increased productivity in the medium term. As a reminder, with a fundamentally relationship-based business model, we deploy technology for our fee earners that enables them to spend even more time with clients and candidates. We are seeing the efficiency benefits of this today, and that gives us confidence on driving higher fee earner productivity from the time released. A great example of this is with our AI job ad writer, which we showed in action at our capital markets event. During 2024, the tool was used to write over 21,000 job ads, freeing up around 10,000 hours. Our rollout of Zenith, our in-house CRM, will also support higher fear and productivity in the medium term, driven by quicker navigation of the system versus its predecessor and the increased visibility Zenith delivers for our teams. So it's great to reach the milestone in the fourth quarter of 2024 of two-thirds of our specialist recruitment business being live on Zenith following the deployment into Northeast Asia. Our remaining rollouts into Europe and ANZ, scheduled for deployment by the half year, will complete the migration, and we're looking forward to seeing the benefits it drives across our markets. And it's worth noting that whilst we place particularly high emphasis on the volume productivity element, that is placement volumes per fee earner, as it's the most controllable for our consultants, overall productivity in terms of net fee income for fee earner was at 1% year on year in constant currency, underpinned by the stable fee rates of a service offering that clients continue to value. Turning now to the optimisation in both the front and back office. We recognise an opportunity to bring greater consistency to our ways of working in the front office, particularly regarding the proportion of fee earner support staff we deploy relative to fee earners. By the year end, we had further rebalanced this mix so that it is in line with 2021 levels and down from a peak reached in March 2023. There is now greater consistency across our markets in how we deploy the owner support staff and a more disciplined approach in the level of headcount required. Our actions here drove a £1 million structural saving in 2024. Our back office optimisation is about standardising processes in our central functions such as HR, technology and finance, and then, where appropriate, consolidating these activities into Global Business Services Hubs or GBS, thereby minimising duplication in our local markets. During the year, the HR function delivered its optimisation programme, a new target operating model was defined, and these changes will deliver £1.5 million of savings in 2025. With our technology function having moved to a GBS model a few years ago and HR having done so in 2024, we see the opportunity this year for other central functions to do the same. Next in scope for this year and into 2026 is the finance function where, for example, there are good opportunities to move some transactional processing activities out of local markets and into a hub location. We anticipate some modest net in-year savings this year from doing so, which will then annualise into 2026. In aggregate, once these programmes are completed across our central functions in 2026, we believe there is a structural cost saving opportunity in excess of £7 million from 2027 onwards compared to our cost base last year. As well as this, we will have an operating model able to service higher volumes of activity as end markets recover. We anticipate there may be scope to deliver certain benefits sooner and we will balance this against the one-off cost implications of doing so. Turning now to consider the fourth building block, office optimisation. We are appraising our office network more vigorously and during the year we took the decision to reduce our footprint in the UK, France and New Zealand by four offices. We are challenging ourselves on locations where we have not consistently been profitable and we do not see a pathway to adequate returns. We will continue to appraise those locations in our office network where the returns profile is most challenged and, factoring in the lease renew profile, realise savings where appropriate. As well as consolidating the number of offices in our network, we'll also optimise the locations we have through proactive renegotiation ahead of lease expiry. Our recent actions in both consolidating the network and renegotiating leases has yielded a £0.5 million saving for 2026, and there are further opportunities we see arising over the rest of this year. Whilst a modest saving, the action reflects the first step of our commitment to reallocate capital to those elements of our portfolio where we can be most competitive. And finally, turning to procurement. We're really pleased with the early progress delivered here. with proactive contract and commercial reviews combined with general cost challenge delivering annualised savings of around £1.4 million. In 2025, we anticipate further opportunities for saving in the element of spend that becomes addressable this year. And in addition, we will be growing the capabilities to more robustly manage our transactional suppliers and drive consolidation. So in conclusion then, we've made good early progress against the five building blocks of our margin improvement programme. Over £4 million of structural cost savings have been delivered thus far, with opportunities identified for at least a further £5.5 million savings after our GBS programme completes next year. We'll continue to realise benefits even prior to recovery in end markets, and this leaves us well-placed to drive expansion in the conversion rate through a strong drop-through of fees to operating profit once conditions improve. So with that, I'll hand you back to Toby.