Pagegroup Plc

Good morning, everyone, and welcome to the Page Group 2023 third 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 for this presentation, and which will also be available on our website following the call. The group delivered gross profit of £242.2 million in the quarter, a decline of 7.9% in constant currencies against Q3 2022. This was a resilient result despite a slower end to the quarter. Our largest region, EMEA, was our best performing. However, tough market conditions affected performances in Asia, the US, and the UK. In line with the continued challenging trading conditions, AFIANA headcount reduced by 310 or 4.8% in the quarter, with reductions in all regions. AFIANA headcount ended the quarter at 6,075, 996 or 14.1% lower than in Q3 2022. The group had a total headcount of 8,140. Due primarily to this reduction in fee earners, gross profit per fee earner and measure of productivity increased 4% compared to Q3 2022. We have a strong balance sheet with net cash at the end of September of around 136 million pounds. This compares to 96 million at the end of Q2 and is before the special and interim dividend payments to be paid on the 13th of October, totaling 66.2 million pounds. I will now give a brief financial review. Growth in temporary recruitment remains stronger than permanent during Q3, which is indicative of the current uncertainty in the market, with many clients seeking more flexible options. Temporary recruitment grew 5.8% against Q3 2022, with permanent down 12.1. Reflecting this, our ratio of permanent to temporary gross profit was 72.28, down from 74.26 last quarter, and down from 76.24 in Q3 2022. In Michael Page, permanent recruitment represented 82% of gross profit, while in Page personnel it was less, at 48%. At lower salary levels, there is often more choice between permanent and temporary solutions, and accordingly, the current market uncertainty led to a bigger differentiation between permanent and temporary performances in Page personnel. In Q3, we decreased our Fiona headcount through natural attrition by 310%, or 4.8% with reductions in all regions. This followed the Fiona reduction of 255 or 3.8% in Q2. Our operational support headcount also decreased by 122 or 5.6% in areas such as operational support and candidate acquisition. Our total headcount is now 971 or 10.7% lower than in Q3 2022. Driven by the action on Fiona headcount over the past 12 months, productivity increased by 4% in constant currencies compared to Q3 2022. Candidate shortages remain acute and are supportive of continued high fee rates. Salary levels also remain elevated, albeit salary increases offered to candidates reduced compared to Q3 2022. These lower offers combined with lower candidate confidence led to a further increase in the number of offers rejected by candidates, either through employer buybacks or unwillingness to risk the move for the size of incentive on offer. The increased time to hire that we saw in Q2 continued. I will now present a regional review. The group delivered resilient results in the quarter despite a slow exit. The strongest performance was in EMEA, with Germany delivering a new record quarter in Q3. Latin America also achieved robust results and a record quarter. However, tough market conditions continued in Asia, the US and the UK. Overall, group gross profit declined 7.9% in constant currencies against Q3 2022. Foreign exchange had a negative impact on the quarter's growth rate compared to the prior year, decreasing the reported gross profit growth rate by 2.6 percentage points, or £7 million. In our largest region, Europe, Middle East and Africa, which represented 53% of the group, we declined by 1.3% on Q3 2022. Michael Page, which is focused on higher income, permanent recruitment, was down 3% for the quarter, while Page Personnel, which is focused on lower level recruitment with a higher proportion of temporary, was flat. Germany, the group's largest market during Q3, which represented 14% of the group, delivered a record quarter, up 5%. The standout performances were delivered by Page Personnel and our Michael Page interim business, which is focused primarily on technology. France, the group's second largest market in Q3, representing 13% of the group, was up 1%, with Michael Page up 2% and Page Personnel up 1%. Growth was stronger in temporary recruitment, up 12%, whereas permanent was down 5%. Elsewhere in Europe, trading conditions were tougher due to weaker candidate and client confidence. The Middle East and Africa grew 17% with good growth in all markets. Having reduced Fianas in the region by 79 in Q2, we reduced our Fiana headcount by a further 93 or 3% in Q3. The Americas, which represented 18% of the group, declined by 13.3%. North America was down 25%, with the U.S. also declining 25%, compared to the decline of 16% in Q2. The conditions we saw in Q2 continued into Q3, with uncertainty around market conditions continuing to impact both candidate and client orders. In Latin America, gross profit grew 7%, and we delivered a record quarter, despite the macroeconomic uncertainty. Mexico, our largest country in the region, was down 4%, compared to a decline of seven in Q2, and Brazil was up 4%, an improvement on the decline of nine in Q2. The remaining countries grew 19% collectively, and Argentina, Chile, and Colombia all achieved record quarters. Across the region, Fiona headcount decreased by 96, or 8.9%, mainly in the US and Mexico. In Asia Pacific, which represented 17% of the group, Q3 gross profit declined 11% on 2022. Permanent recruitment across the region declined 12, whilst temporary declined 3, reflecting the continued market uncertainty. In Asia, 13% of the group, we declined 11, due mainly to tough conditions in Greater China. In Greater China, 5% of the group, we declined 22, compared to a decline of 32 in Q2. Mainland China was down 23, A Fiona headcount in mainland China is now around 210, down from around 340 at the end of Q2 2022, albeit now a third on manager grade or above, with an average tenure of over six years. Market conditions are stable, but showing little sign of improvement. Hong Kong declined 21% in the quarter. Southeast Asia declined by 12% against Q3 2022, with Singapore down 13% due mainly to the broader influence of Greater China across the region. India, which represented 16% of Asia, delivered a new record quarter, up 3% on the prior year. Elsewhere, Japan grew 4%, while Australia declined 11%. Afriana headcount decreased by 85%, or 6.4% in the quarter, mainly in Southeast Asia and Japan. In the UK, which represented 12% of the group, gross profit declined 18.9%, following the decline of 17% in Q2. Michael Page was down 20%, whilst Page personnel declined 17. We continue to see clients deferring hiring decisions and increased caution from candidates. We also experienced an increase in offer turn downs and candidate buybacks in our permanent business during September. Reflecting the uncertain market conditions, clients sought more flexible options, and as such, temporary recruitment was more resilient, down 5%, whereas permanent recruitment declined 24%. In line with the more challenging trading conditions, our Fiona headcount reduced by 36, or 4.3% in Q2, and is now 17% lower than Q3 last year. I will now provide a brief summary of our results. Group gross profit declined 7.9% in constant currencies against Q3 2022, with a slower end to the quarter in September. EMEA was our best performing region. However, tough market conditions affected the performances in Asia, the UK and the US. In line with the challenging market conditions, we reduced our Fiona headcount by 310 or 4.8% in Q3, with reductions in all regions. Productivity measured as gross profit per fee earner increased by 4%. Despite the slower end to the quarter, which presents a higher degree of uncertainty in the short term, we're confident in our ability to implement our new strategy, driving the long-term profitability of the group. We're also seeing the benefits from our investments in innovation and technology. We also have a highly diversified and adaptive business model, a strong balance sheet, and a cost base which is under continuous review. and can be adjusted rapidly to match market conditions. At this stage of the year, the Board expects 2023 operating profit, excluding the previously disclosed one-off costs of around £5 million, to be between £125 and £130 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 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 or asking your question and please do ensure that you are unmuted locally. Our first question today comes from the line of Steve Wall from Numa Securities. Please go ahead. Your line is now open.

Morning, guys. Just really a couple from me. Firstly, on Germany, I'm just thinking you've got a decent performance there. Again, I know you flagged it was at the page personnel level, but anything you can give me on volume versus wage growth or perhaps which key markets are giving the strength? And the second question? Second question was on the US and the performance there and the feeling that things might have got a little bit less worse during that period. And again, just sector thoughts on the US market. Thanks.

Okay. So Germany first then. I mean, we've seen increases in fee percentages and salary ranges, but in the permanent side, certainly we've seen longer time to hire coming through. We've seen more activity levels are needed to place a job, so similar to other markets as we've discussed. But the temp business and the contracting business still remains pretty stable. Activity levels are good. So I suppose there's kind of the split there, which is if you look at the kind of the non-perm side, so that being the interim business or contracting business and temp, it's in good shape, perhaps reflecting what Kelvin spoke about in the statement, this flight to more flexible options. And then on the perm side, probably a replica of what we're seeing elsewhere, which is just this sense of a lack of confidence on both sides of the equation, from a candidate side and from a client side. And the metrics within that are, for instance, candidates needing probably a bit more persuasion, which is typically via a better offer, and clients being quite reticent to give that higher offer because of a concern around their own cost base. They're kind of caught in the middle there on the permanent side. And then moving on to the US, I would agree with you. I mean, my view of the US is that perhaps it's starting to get to a point now where we're somewhere towards the bottom. Clearly, I'm guessing I don't have a crystal ball, but I do have a sense, you know, certainly when I look at the performance of the US business, it was one of the only businesses or one of a very few number of businesses that did actually have a bit of a rally at the end of September when some of our other businesses didn't. The U.S. business did have that. It did see some additional revenue coming through in the final couple of weeks, which is what you'd kind of typically expect in more buoyant conditions. So, yeah, perhaps we are there in the U.S. I mean, it is a bit of a wait and see. I mean, interestingly, and this is, you know, very small scale and early stages, but We spoke to you probably a year or so ago about some of these SAS operations and these kind of early stage technology companies that we recruit for really kind of winding things down, not hiring, very much in the shadow of the job losses on the West Coast. It felt as if through Q3 we started to see some activity picking up in that area. And if it is, then, you know, we had a really nice business covering that across East Coast, West Coast up until about a year ago when all the job losses were announced and that shadow came across the sector. So if that were to start to come back, that would be one of our older revenue streams from a year ago coming back online, which would be lovely. So we'll wait and see. But I think there is some merit in your assumption there, Steve.

Thanks, Nick. And just going back to that German market, I see sort of from a candidate perspective and the type of candidate, but is there any, the people hiring in that market, is that in the, you know, are we looking at the IT market within there or is it broader than that, would you say?

Well, we're looking at more technology as a sector, sorry, technology as a discipline rather than as a sector. So we're placing technology candidates into all sorts of organisations rather than a focus specifically on the IT sector. And within that kind of demand for technology candidates, whether you're a retailer, a manufacturer, a financial services company, because of skill shortages, that is still very much there.

Perfect. So it's fairly broad-based IT into other areas. That's perfect.

Yeah. I mean, yeah, it's a structural issue, isn't it? I mean, the demand isn't going to go away and organizations are after these very niche talents. We spoke in the strategy launch about this element of hyper-specialization and where one job used to be kind of a job title that's converted into five job titles three years later. And therefore, to have that specific knowledge of that area is you know, you need to kind of really dig deep in the market to find it, and that's typically where we come in to support those clients. Perfect. That's great. Thanks, Nick. Thank you. Cheers, Dave.

Thank you. The next question today comes from the line of Carl Green from RBC. Please go ahead. Your line is now open.

Yeah, thanks very much. Just one from me. Just thinking about the change in the full-year EBIT Guidance XP, one-offs um i mean just looking from the outside in um q3 like for like uh net fee growth was sort of in the right ballpark versus where consensus was looking for so could you just talk through the building blocks as to what's driven that that downgrade to the profit guidance for the full year just in simple terms please sure um so i guess

As of a couple of days ago, consensus was sitting at 132. We saw the note from UBS that came out yesterday that came in at 120, which moved consensus to 130. In terms of actually where we landed at the end of Q3, we were pretty comfortable with where consensus was at 132. Having then had what was a softer end to the quarter in September, obviously went out to the business and re-forecast Q4 and got back a softer view on what might come through in Q4, which probably moved us more in line with the 130 as it had moved really than, certainly in the 130 than the 132. That's probably what moved us down to there. As you know, we announced the Capital Markets Day on the 20th of September. We were going to have this one-off $5 million, which was a net of $15 million of costs to move certain costs or people out of the organization. And it would have an offsetting $5 million positive movement in the year. And we were going to take that through the P&L. So that's the $5 million movement that then moves you from $130 to $125 million. We set a range of 120 to 125 due to the uncertainty that has come about as a result of this slightly surprising drop off at the end of September. I would say at the moment we're towards the top of that range as I've just outlined, but on the basis that things are uncertain and it would be helpful for us not to have to come and update you again before January, we've set a range within which we can We feel that we can hold the profit for the year. Talking a bit more about the end of September, we traveled through the first two months of the quarter, actually broadly in line, sort of comp-adjusted with Q2. So there wasn't really any big surprises there. Our expectation when we saw the mid-month, which is, as it sounds, halfway through the month in September, was that like all the other quarter end months, because our consultants are remunerated on a quarterly bonus scheme, was that we would get a bit of a push towards the end of the month and that would move it up, not a lot, but a little bit more than it landed, and therefore the growth rate in September would have been fairly similar to the other two months. That push at the end of the month just didn't really come through, which is unusual, and could have been for a number of different reasons. I think anecdotally in In continental Europe, it was felt that it was a bit slow to get started in September. September is always a difficult month to try and gauge because more so than the others, you come into September with a pretty empty pipeline coming out the summer. And therefore, you've got to get started relatively early in order to get candidates through the process to ensure that they've resigned and they've signed their contracts with their new employers by the end of the month. there's a possibility that some of those deals that didn't make it into September come into October. But there's also a possibility that it reflects a softening in the market. And given really that the move was in the last week or week or so in the month when we don't have that much forward visibility. That's where we're just giving ourselves a bit of a range looking forward. But as I say, I think we will be towards the top of that range as we sit here today.

That's really helpful. Thanks, Kelvin.

You're welcome.

Thank you. The next question today comes from the line of Hans Pugis from Tepla Chevro. Please go ahead, Hans. Your line is now open.

Yes, good morning, gentlemen. Two questions from my side. One, coming back on your guidance. I hear what you're saying with respect to the weakness at the end of the quarter, but also looking at currencies. I understand a little bit that they didn't have any impact on your renewed guidance. Is that correct? And secondly, looking at your, let's say, reduction in your headcount, about 5% reduction, about 300 heads of the earnings side. I can imagine that in Q4 you will have a comparable or maybe slightly lower reduction again, let's say, in the pipe. Could you give me some feeling on that? And is then logical to assume that your drop-through rate in Q4 would improve looking at current market circumstances?

Sure, Hans. I'll take the first one and then Nick can pick up the second one. You're right, is the short answer that there's no real impact of currency in terms of our expectations or any of the reason that we built in that range buffer for Q4. It's purely about the expectations given the slightly slower than expected finish to the quarter.

As regards headcount, I think it's very much going back to the strategy launch that you were at with us. I mean, we spoke then about a business that was focused on productivity and profitability, and I think we've demonstrated that even in the quarter we've just been through. It remains a core focus for us to make sure that our consultants are as productive as possible. Therefore, it is important that even in tough market conditions, you make sure you have your best consultants, your most experienced consultants, working on the jobs to give you the highest possible chance of conversion. I think as we go into Q4, as we've highlighted in the statement, there is just a level of uncertainty as to what's going to happen next. The bit that you can be assured of is that, as we've shown in China and other markets, we will retain the core leadership team, our best people, so that as conditions improve, we can accelerate out of the markets that we find ourselves in. But if things were to decelerate in certain places, then we've always used our natural attrition to right-size the business, and we'll continue to do that because productivity remains a real focus for us even through this period and beyond.

Okay, but is it logical to assume that you, let's say, will again reduce by about 300 heads of the inner side? Is that a logical starting point for our forecast?

It's logical if the modelling for next quarter is a reduction on the top line, similar to the reduction you've just seen. But if it isn't, then it's not logical. It really depends on what we see in front of us as we go through the quarter. And so I wouldn't predict right now a headcount reduction based on a set of market conditions that I don't know what they're going to be. You know, our headcount can move very quickly. The people we're talking about typically are junior consultants that are in their first year in the business who maybe make a decision that it's tougher than they thought it was going to be or we make a decision that they're maybe not doing as well as we thought they would. And you multiply that up by 37 countries and multiple divisions and multiple teams and it can move relatively quickly. So I guess, you know, we'll just have to wait and see how the quarter plays through. But if the conditions, you know, get tougher, then it could accelerate. If they're broadly the same, then it'll be about the same. And if they don't get too much worse, then, you know, maybe we'll have a more positive view. So I'm sorry, I'm not trying to be difficult, but at the same time, I'm not trying to call market conditions for November and December, because I don't quite know at the moment. You only have a thing to add to that.

And we obviously have about 30% staff turnover. So we're always hiring. It's not that we're not hiring. We are hiring. It's just the speed at which we're hiring. And therefore, are we over hiring to get the headcount to go up or are we just slowing that hiring a bit to get the headcount to go down? So it's also not exactly a perfect science. albeit that hiring or letting go happens in each of our teams around the world, and each sort of 2,500 of them will be making those individual decisions and having them sort of filter up the chain to ensure it's the right point to make those investments. But yeah, as Nick said, Because it's so done down at the team level, it's very difficult for us to be able to manage or even assess the individual economic circumstances of each of those individual teams.

Okay, thanks.

Thanks.

Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question today comes from Keane Marden from Jefferies. Please go ahead. Your line is now open.

Thanks. Morning, guys. Two quick ones from me. At the moment, our new job inflows unaffected. So we still have an environment here where it's time to hire is extending rather than new roles joining the pipeline also now coming down or not. And then linked to that, are rates still holding up in the industry or are there pockets where they're starting to come off?

I can probably do both of those, actually. So new job inflows, I mean, with the headcount reduction, it's probably a better and more relevant assessment to look at jobs per head rather than actually looking at the absolute volume, because I would want consultants to be selective in an environment where there's lots of jobs coming through to try and select the ones that they feel their best place to fill where they have candidates that are available and a client that's committed. Sometimes you can get clients coming out to fish and the good thing about the headcount reduction in terms of experience is that the overall experience per head goes up because the people typically leaving are the more junior ones. So the more experienced consultants are far better able to assess this is a role where the client's committed And I've got a better chance of filling it, which in market conditions like this one is important, because ironically, if you were to walk out onto the floor of the London office here, you'd have consultants that are just really busy. You know, they've got lots of jobs, they've got candidates that they're working with. So it doesn't feel like an environment necessarily, which is reflective in some of the headlines you'd see about the UK. They are really busy. But it's very frustrating for them and for us that they are very, very busy and they don't get the output at the bottom end. And as we've described before, that's where the friction is. So yes, to your point, extended time to hire. So from a perm perspective, certainly at the more senior levels that we work at, if you take a finance director through a process, you get to final stage, you have two candidates at final stage, you offer one of them, they turn it down. then the client just says, well, can you start again? So that's just doubled the length of the process. There isn't an option where they go, well, throw the temp. They typically will just say, begin the process again. Or, even more frustratingly, from a consultant perspective, you get those two candidates to final stage for that finance director role, and the client goes, I like this about him and this about her, and I'd like a combination of them both. Can you start again? Because the clients, again, are wanting to find the perfect candidate, because They're conscious about budget, and I get it. They're looking at their cost base. They want to make the right decision. And therefore, you know, they're looking for, quote, unquote, perfect. So it means that if you haven't got that, you are starting the process all over. So, yeah, busy consultants, good numbers of interviews. I mean, similar numbers of interviews per head as you would have seen a year, 18 months ago. But just right at that bottom end of the funnel, that friction that we've mentioned before causing, you know, a frustration there. with our consultants, their ability to turn it into revenue. As regards rates, yeah, I mean, they're still up at record levels. There isn't really any change in that message. That is reflective in the fact that if you do find a good candidate, then you're taking it to market. They're in high demand. I mean, just in terms of a comment from a conversation with the managing director of the UK, I mean, good candidates are still getting three or four offers. So in that situation, you don't want to be going out and selling candidates for a lower fee rate. So know that the margins are holding up, the absolute fee rates are holding up well, because there is a scarcity of product. And therefore, if you get product, you want to sell it at a good price. It's more that case around then when it gets to final stage, is the client going to do enough to make an offer that's going to incentivize the candidate for them to go, I'm lacking a little bit in confidence. but that salary offer you've given me makes up for that? Or is it I'm lacking a little bit in confidence and the salary that you've just offered me isn't doing enough to kind of take that issue away, therefore I'll probably stay where I am and see what I get as a January increase?

Great. Thanks, Nick. That background is really helpful.

Cheers, mate. Thank you. As a final reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. There are no additional questions waiting at this time, so I'd like to pass the call back over to Calvin Stagg for any closing remarks.

Thank you. So as there are no further questions, thank you all for joining us this morning. Our next update to the market will be our fourth quarter trading update results on the 15th of January. Thank you all for attending.