Pagegroup Plc

Good morning, everyone, and welcome to the Page Group 2023 first quarter trading update. I'm Kelvin Snagg, Chief Financial Officer, and on the call with me is Nick Kirk, Chief Executive Officer. 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 to this presentation, and which will also be available on our website following the call. You will also find our 2022 annual report and sustainability report are now live on the website and available to download. The group delivered gross profit of £262.7 million in the quarter, and against Q1 2022, we declined 2.4% in constant currencies, albeit this was a particularly tough comparator. We delivered a record quarter in our largest region, EMEA, despite the ongoing challenging market conditions throughout the group. The group benefited from positive foreign exchange movements, increasing our reported growth profit by 10.8 million pounds. And as a result, we grew 1.8% in reported rates. In line with the continued challenging trading conditions, our fee earner headcount reduced by 4.4% in the quarter through natural attrition, with reductions in all regions. Overall, the group ended the quarter with 6,639 fee earners and a total headcount of 8,798. Due to the reduction in gross profit as a result of reduced confidence levels, combined with a 6.2% higher year-on-year headcount, gross profit per fee earner and measure of productivity declined 8% on Q1 2022. We have a strong balance sheet with net cash at the end of March of around £105 million. This compares to £131 million at the end of 2022, having paid out annual and quarterly bonuses in January, as well as having purchased £6 million worth of shares for the Employee Benefit Trust in March. I will now give a brief financial review. Overall, growth was stronger in temporary than permanent recruitment, which is indicative of the current uncertainty in the market, with many clients seeking more flexible options. Temporary recruitment grew 14.9% against Q1 2022, with permanent down 7.2. Reflecting this, our ratio of permanent to temporary gross profit was 74.26, consistent with the last quarter, but down from the 78.22 in Q1 2022. In Michael Page, permanent recruitment represented 83% of gross profit, while in Page Personnel it was less, at 55. As is often the case in uncertain times, trading was stronger at lower salary levels, where the financial commitment from clients is less. Accordingly, Page Personnel was the stronger performing brand, up 7% compared to a decline of six in Michael Page. Growth was notably stronger in temporary recruitment in both Michael Page and Page personnel. In Q1, we decreased our Fiona headcount through natural attrition by 304, or 4.4%, with reductions in all regions. Our operational support headcount rose by 82 as we continued to build out our capabilities in Page outsourcing and move candidate acquisition activities into our delivery centres. In total, our headcount remains 510 or 6.2% higher than Q1 2022. Due to the reduction in gross profit as a result of the continued weakness in both candidate and client confidence in the quarter, as well as the higher year-on-year headcount, productivity decreased 8% in constant currencies compared to Q1 2022. As can be seen in the chart, When compared to Q4 2022, productivity was marginally higher. Reflecting continued candidate shortages, D rates remained at high levels and above the prior year. Salary levels also remained strong. However, salary increases offered by clients reduced compared to Q1 2022. The increased time to hire that we saw in Q4 continued and further increased during the quarter. Accordingly, whilst activity levels such as the number of jobs and interviews remained high, conversion into placement slowed, due to both clients being less urgent to commit to or raise offers, and candidates being less likely to accept and switch roles. I will now present a regional report. The group delivered strong results in the quarter, with a record performance from EMEA, where the standout result was Germany. However, tough market conditions continued in Asia, the US, and the UK. Overall group gross profit declined 2.4% in constant currencies against Q1 2022. Foreign exchange had a favorable impact on the quarter's growth rate compared to the prior year, increasing the reported gross profit growth rate by 4.2 percentage points, or 10.8 million pounds. Now, largest region, Europe, Middle East, and Africa, which represented 55% of the group, we grew 6.8% on Q1 2022, a new record quarter. Michael Page, which is focused on higher income permanent recruitment, was up 5% for the quarter. Page Personnel, which is focused on lower level recruitment with a higher proportion of temporary, grew nine. France, the group's largest market, which represented 14% of the group, grew 3% against a strong comparator in both Michael Page and Page Personnel. We saw consistent performances across both permanent and temporary recruitment. Germany, which represented 13% of the group, delivered another record quarter, up 11% against the tough comparator, with standout performances from Page personnel and our Michael Page interim business, which is focused primarily on technology. Elsewhere in the region, we delivered robust results, with Belgium, Spain, and Turkey delivering record quarters. Having added 534 fee earners in 2022, in Q1 we reduced our headcount by 37. The Americas, which represented 16% of the group, declined by 7.6%. North America was down 14%, with the US declining 15%. The conditions we saw at the end of 2022 continued into Q1, with uncertainty around market conditions affecting both candidate and client confidence. particularly with our technology and banking discipline. In Latin America, gross profit grew 4%, despite the tough market conditions, particularly in Brazil and Mexico. Driven by increased delays in decision-making, Mexico, our largest country in the region, was down 4%. Brazil was down 13%, while the remaining countries grew 23% collectively. In line with the more challenging conditions across the region, overall fear and headcount decreased by 134, or 10.3%, mainly in the US, Mexico, and Brazil. In Asia Pacific, which represented 16% of the group, Q1 gross profit declined 17% on 2022. Permanent recruitment across the region declined 21. Off-temporary grew 12, reflecting the continued uncertain market conditions. In Asia, 12% of the group, we declined 21, due mainly to tough conditions in Greater China. In Greater China, which represented 4% of the group, we declined 42. Mainland China was down 46. Whilst COVID restrictions have been lifted, trading remains challenging, with fluctuating levels of COVID infections during the quarter and a particularly slow start in January. Hong Kong was also impacted and declined 36% in the quarter. Southeast Asia, our other large high potential market in the region, declined by 12% against Q1 2022. India, which represented 14% of Asia, was flat for the quarter, against growth of 79% in Q1 2022. We now have around 230 fee owners in this highly profitable market. Elsewhere, Japan grew 5%, another record quarter, and Australia grew 1%, broadly in line with Q4 2022. Afiona headcount decreased by 67, or 4.6% in the quarter, broadly similar to the decrease in Q4 2022. In the UK, which represented 13% of the group, gross profit declined 9.4%. Page Personnel, which operates at lower salary levels with a greater proportion of temporary recruitment, was up 4%, while Michael Page declined 14%. Growth slowed from a decline of 1.9% in Q4 2022 as we saw more clients deferring hiring decisions and increased caution from candidates. Reflecting the uncertain market conditions, clients sought more flexible options and as such temporary recruitment was more resilient than permanent recruitment. In line with the more challenging training conditions, AFIANA headcount reduced by 66 or 7.1% in Q1. I will now provide a summary of our results. The Group delivered strong results for the quarter, with a record performance from EMEA, where the standout result was Germany. However, tough market conditions continued in Asia, the US and the UK. Overall, Group gross profit declined 2.4% in constant currencies against Q1 2022. Looking forward, there remains a high level of global macroeconomic and political uncertainty in the majority of our markets. However, against this backdrop, we continue to see candidate shortages and good levels of vacancies. Given our highly diversified and adaptable business model, with a cost base that can be adjusted rapidly and a strong balance sheet, we believe we are well positioned to continue to perform well despite the uncertainty. At this early stage of the year, we expect 2023 operating profit to be in line with company compiled consensus of £140 million. Nick and I will now be happy to take any questions you may have.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question today comes from Maddy Jobber from Morgan Stanley. Your line is open.

Hi, and thank you for taking my questions. I have three to start with, please. So firstly, just on China, would you be able to give a little bit more color around the kind of activity levels you're seeing there, any pickup and also your expectations of pickup and how that develops through the coming quarters? Then secondly, on EMEA, just wondering if you could give a bit more detail around the sort of pillars driving the growth there. So the proportion of wage inflation versus a mix. And then finally, just on headcount, a little bit more detail around your expectations for that going forward and how that will develop in the course to come as well. Thanks very much.