Pagegroup Plc

Good morning, everyone, and welcome to the Page Group 2023 second quarter trading update. I'm Kelvin Stagg, 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. The group delivered gross profit of £263.5 million in the quarter, a decline of 6.5% in constant currencies against Q2 2022, a record comparator. For the first half, we delivered gross profit of £526.5 million, down 4.5% on our record H1 last year. In line with the continued challenging trading conditions, our Fiona headcount reduced through natural attrition by 255 or 3.8% in the quarter, with reductions in all regions. Overall, the group ended the quarter with 6,385 fee earners and a total headcount of 8,572. Gross profit per fee earner, our measure of productivity, declined 4% on Q2 2022, driven by the reduction in gross profit, partially offset by the decrease in headcount. We have a strong balance sheet with net cash at the end of June of around £96 million. This compares to £105 million at the end of Q1, having purchased £11 million worth of shares for the Employee Benefit Trust in April, as well as having paid out the 2022 final dividend of £34 million in June. I will now give a brief financial review. Q2 growth was stronger in temporary, up 11.1% against Q2 2022. while permanent recruitment was down 11.4, indicative of the current uncertainty in the market, with many clients seeking more flexible options. 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 Q2 2022. In Michael Page, permanent recruitment represented 83% of gross profit, while in Page personnel it was less, at 52%. 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 a stronger performing brand, down 2%, compared to a decline of 8% in Michael Page. Growth was notably stronger in temporary recruitment in both Michael Page, up 7%, and Page Personnel, up 15%, with permanent recruitment declining in both brands against 2022. In Q2, we decreased our Fiona headcount through natural attrition by 255, or 3.8%, with reductions in all regions. This follows the reduction in Fiona headcount of 304, or 4.4%, in Q1. Our operational support headcount rose by 29 as we continue to transition some of our candidate acquisition teams to delivery centres. The reduction for the past three quarters means our total headcount is now 96, or 1.1% lower than this time last year. Due to the reduction in gross profit as a result of the continued weakness in both candidate and client confidence in the quarter, productivity decreased 4% in constant currencies compared to Q2 2022. This is a particularly tough comparator with Q2 2022 productivity at a record level for the group. We continue to focus on productivity and have seen sequential growth in the past two quarters. When comparing to Q1 2023, productivity was up 6% as we reduced our fee earner headcount in line with trading conditions. During the quarter, activity levels remained strong and reflecting continued shortages of candidates, fee rates remained at high levels and above the prior year. Salary levels also remained strong with wage inflation in most markets. However, the slowdown in time to hire that we saw in Q1 continued in Q2. driven by increased client caution. Accordingly, conversion into placements continue to be slower than the previous year, due to both clients being less willing to raise offers and candidates being subject to buyback from their current employer or less confident in switching roles. We are also seeing the benefits from our investment in innovation and technology, where Customer Connect is supporting productivity and enhancing the customer experience, and Page Insights is providing real-time data to inform business decisions. I will now present a regional review. The group delivered good results in the quarter, despite the record comparator in Q2 2022. The strongest performance was in EMEA, where the standout result was Germany. Latin America also achieved strong results and a new record quarter in Q2. However, tough market conditions continued in Asia, the UK and the US. Overall group gross profit declined 6.5% in constant currencies against Q2 2022. Foreign exchange had a slight favorable impact on the quarter's growth rate compared to the prior year, increasing the reported gross profit growth rate by 0.3 percentage points, or £1 million. In our largest region, Europe, Middle East, and Africa, which represented 54% of the group, we grew 1.4% on Q2 2022. EMEA was our strongest performing region in Q2, despite Q2 2022 being a particularly tough comparator across the region. Michael Page, which is focused on higher income permanent recruitment, was down 1% for the quarter. Page Personnel, which is focused on lower level recruitment with a higher proportion of temporary, grew four. France, the group's largest market, was flat against a very strong comparator, with Michael Page down three, whilst Page Personnel grew three. Growth was stronger in temporary recruitment, up 8%, whereas permanent was down four. Germany, now the group's second largest market, which represented 13% of the group, delivered another strong quarter, up 6%. The standout performances were achieved by Page personnel, up 17%, and our Michael Page interim business, which focused primarily on technology, up 19%. Elsewhere in Europe, we delivered robust results against a tough comparator. The Middle East and Africa delivered a record quarter, driven by strong performances in both the UAE and South Africa. Across EMEA, having reduced fee earners by 37 in Q1, we reduced our headcount by a further 79, or 2.5%, in Q2. The Americas, which represented 18% of the group, declined by 8.8%. North America was down 16, with the US also declining 16, in line with Q1. The conditions we saw in Q1 continued into Q2, with uncertainty driven by tech firm layoffs, banking failures, and interest rate rises affecting both candidate and client confidence. In Latin America, gross profit grew 3%, and we delivered a record quarter despite the macroeconomic uncertainty. Mexico, our largest country in the region, was down 7% compared to a decline of 4% in Q1, while Brazil was down 9%, an improvement on the minus 13 in Q1. The remaining countries grew 23%. Argentina, Colombia, and Panama all achieved record quarters. Across the Americas, Fiona headcount decreased by 84, or 7.2%, mainly in the US, Mexico, and Brazil. In Asia Pacific, which represented 16% of the group, Q2 gross profit declined 17.2% on 2022. Permanent recruitment across the region declined 19, while temporary declined 5, reflecting the continued market uncertainty. In Asia, 12% of the group, we declined 21, due mainly to tough conditions in Greater China. In Greater China, 5% of the group, we declined 32, with mainland China down 37. Whilst COVID restrictions have been lifted, trading remains challenging, with the recovery being slower than anticipated. Hong Kong declined 19% in the quarter. Southeast Asia, our other large high-potential market in the region, declined by 22% against Q2 2022, with Singapore down 29, due mainly to the slowdown in Greater China, as well as a particularly tough comparator. India, which represented 15% of Asia, continued to deliver strong results, up 5% for the quarter. Elsewhere, Japan declined 10% and Australia declined 4%. Across the region, our Fiona headcount decreased by 57, or 4.1% in the quarter, broadly similar to the decrease in Q1 2023. In the UK, which represented 12% of the group, gross profit declined 17%, following a decline of 9.4% in Q1 2023. Michael Page was down 19%, whilst Page personnel declined 12%. During the quarter, 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, up 6%, whereas permanent recruitment declined 24%. In line with the more challenging trading conditions, in Q2, our FIONA headcount reduced by 35%, or 3.9%. I will now provide a summary of our results. Group gross profit declined 4.5% in constant currencies against a particularly tough Q2 comparator, being the group's record quarter. EMEA and Latin America performed strongly. However, tough market conditions affected the performances in Asia, the UK, and the US. We continued to reduce our FIONA headcount by 255, or 3.8%, in Q2, with reductions in all regions. Productivity measured as gross profit per FIONA declined 4%, however, was up 6% sequentially and remains a key area of focus. Looking forward, there remains a high level of global macroeconomic and political uncertainty in the majority of our markets. However, we continue to see candidate shortages and good levels of vacancies, as well as continued high fee rates. We have a highly diversified and adaptable business model, a strong balance sheet, and a cost base under continuous review, which can be adjusted rapidly to match market conditions. At this stage of the year, the board expects 2023 operating profit to be in line with company compiled consensus of £137.6 million. Nick and I will now be happy to take any questions you have.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your own question, and please ensure that you are unmuted locally. Our first question today comes from the line of Anvesh Agrawal from Morgan Stanley. Anvesh, please go ahead. Your line is now open.

Yeah, hi, good morning. I got three questions, really. First, just in terms of your guidance of 137.6 million, what sort of scenario you are baking in for the second half? I mean, are you assuming a sort of sequentially stable or slightly down trading or something materially worse? Any steer toward that would be useful. Second, just in terms of the profit split this time around between first half and second half, I mean, given the trading continues to weak, anything to think about there? And finally, just on the capital allocation, I mean, obviously you have set the framework for special, but just for the core, should we expect the dividend to move in line with the earnings or you sort of