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PageGroup Half Year Results

2022

Monday, 8th August 2022

PageGroup Half Year Results 2022

Monday, 8th August 2022

Introduction

Kelvin Stagg

CFO, PageGroup

Welcome

Good morning, everyone. Welcome to PageGroup's 2022 Interim Results Presentation. I am Kelvin Stagg, Financial Officer. Sadly, Steve Ingham, our Chief Executive Officer, has been called away at short notice for a funeral overseas. So, I have Nick Kirk, Regional Managing Director for the UK and North America with me for the Q&A session at the end of the presentation.

Agenda

I will now present the headline numbers and a financial review, before moving on to a strategic review and concluding with a summary.

Although I will not read it through, I would like to make reference to the legal formalities that are covered in the cautionary statements in the appendix of this presentation, and which will also be available on our website following the call.

Record Group operating profit, up 79%

Key financial highlights

The improvement in trading conditions we saw as 2021 progressed continued into H1 2022. Consequently, the Group delivered gross profit of £538.9 million, a record first half, up 33.3% on 2021. Our operating profit was £115.3 million, up 79% from £64.3 million in H1 2021.

Our conversion rate was 21.4%, up from 15.9% in H1 2021 due to the favourable trading conditions and improvement in fee earner productivity. Earnings per share more than doubled to 25.6p, and we closed the first half in a strong financial position with net cash of £136.2 million.

The record trading in the first half and our continued strong liquidity position has ensured that we were able to maintain our capital allocation policy. We are today announcing an increase in the interim dividend of 4.5% and to 4.91p per share or £15.6 million. In line with our policy to return surplus cash to shareholders, the Board has also announced a special dividend of 26.71p per share, in line with 2021. This represents an additional return of £85 million.

Both the interim and special dividends will be paid on 14th October to shareholders on the register on 2nd September.

Financial Review

I will now take you through the financial review.

Strong gross profit growth

Further investment made in headcount

This fee earner headcount and quarterly gross profit chart shows the unprecedented scale of the decline in Group gross profit in 2020 due to COVID-19 and the comparison to the Global Financial Crisis in 2008. It also shows how we chose strategically to maintain and invest in

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PageGroup Half Year Results 2022

Monday, 8th August 2022

our platform, which has driven the sharp recovery seen throughout 2021 and in the first half of 2022.

Improvement in conversion across all regions

Gross profit per fee earner up 9.2% on H1 2021

Overall, the Group's operating profit was £115.3 million, up from £64.3 million in 2021. Our conversion rate was 21.4%, up from 15.9% in H1 2021 due to the strong trading conditions as well as Q1 2021, still being impacted by COVID-19 restrictions, together with the repayment of £3.4 million of furlough monies to HMRC.

Our H1 2022 underlying conversion rate, excluding the accelerated amortisation of certain software assets of £4 million, was 22.1%.

Gross profit per fee earner, our measure of productivity, increased by 9.2% compared to 2021, which I will discuss in more details later on.

Looking at each of our regions and starting with the largest, EMEA, our conversion rate was 24.5%, up from 17.6% in H1 2020. We saw strong trading results throughout the region, driving EMEA to have our highest regional conversion rate. We invested a total of 368 or 10.7% in headcount in the first half.

Asia Pacific delivered a conversion rate of 20.5%, up from 18.8% in H1 2021. This was slightly behind its full year 2021 conversion rate of 21.8% due to tougher trading conditions in Greater China in H1 2022, a result of COVID lockdowns and restrictions. We continue to invest in headcount in the region of 133 or 7.8% in the first half, particularly into India and Southeast Asia.

In the Americas, our conversion rate was 14.7%, slightly ahead of H1 2021, which was 14.3%. Gross profit increased 44.1% in constant currencies, and we invested significantly in headcount, up 252 or 18.3%.

In the UK, our conversion rate increased significantly from 7.5% in H1 2021 to 20.1%, driven by an improvement in productivity of 16.8%. The prior year conversion rate was also impacted by the furlough repayment of £3.4 million to HMRC. Excluding this, the H1 2021 conversion rate would have been 13.3%. Headcount increased by 77 or 5.9% in the first half.

Technology strongest performing discipline

Strong growth in each discipline

We saw continued strong growth across all our disciplines in H1, and a further diversification away from accounting and financial services. As a result, all of our other disciplines now represent 68.8% of the Group, up from 67.8% in H1 2021. Both our higher potential disciplines, Technology and Healthcare and Life Sciences, delivered a record first half, justifying our investment strategy.

Technology within our professional services category remains our second largest discipline, representing 14% of the Group and delivered growth of 53% compared to H1 2021. We have also continued to focus on Healthcare and Life Sciences, which, although a smaller part of the group, also grew 53% in H1.

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PageGroup Half Year Results 2022

Monday, 8th August 2022

Effective Tax Rate (ETR)

Full year tax rate expected to be in line with 2021

The tax charge for the half year was £33 million. This represented an effective tax rate of 28.8% broadly in line with the 29% for the full year 2021. Going forward, we expect the full year effective tax rate for 2022 to remain around 29%.

Robust Balance Sheet

Net cash of £136.2m

Most significant item in our balance sheet was trade and other receivables, which increased by £137.2 million versus H1 2021. This was due primarily to the strong growth in trading across both permanent and temporary recruitment. Lease assets increased by £9.4 million and lease liability broadly offset up £10.6 million. Overall, net assets increased from £346.2 million in H1 2021 to £387.3 million in H1 2022.

Strong cash flow generation

EBITDA of £151.8m due to improved trading conditions

This chart lays out the movements in, in uses of cash during the first half. EBITDA was £151.8 million. Working capital increased by £59.3 million, driven by growth in revenue, increasing debtors. To-date, we have seen no deterioration in the quality of our debtor book.

Tax and net interest payments were £30.2 million, and net capital expenditure was £19 million, driven by investment in customer connect and new operating system as well as an increase in total headcount of 830. Payments made in relation to lease liabilities reduced cash by £17.1 million.

The Group purchased £14.8 million worth of shares into the Employee Benefit Trust to satisfy future committed obligations under our Group share plans. We also paid out £32.7 million in June in relation to the 2021 final dividend.

£0.3 million was generated from employees exercising options, down from £6.9 million in H1 2021 as a result of the lower share price in 2022. Overall, the impact of these cash flows decreased the Group's net cash position from the year end by £17.8 million to £136.2 million at the end of June.

Strategic Review

I will now present strategic review.

Productivity

Increase due to favourable trading conditions

The strong gross profit growth seen in the first half was driven by an increase in both fee rates and volume of placements with video interviewing and talent shortages resulting in a shorter time to hire. The increase in number of placements is a result of both our investment in new technologies, such as Customer Connect, as well as the sharp increase in virtual recruitment, significantly reducing time to hire. This is combined with candidate shortages, meaning clients made faster decisions to secure talent.

Our first half productivity increase of 9.2% was achieved despite a fee earner headcount increase of 24%.

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PageGroup Half Year Results 2022

Monday, 8th August 2022

In terms of margin, average fee rates across both permanent and temporary recruitment have increased versus the first half of 2021, with significant increases noted in all our largest markets, including the UK, France, Germany, the US, China and Italy. We are also seeing wage inflation across the majority of our markets, again, driven by candidate shortages with clients needing to offer higher salaries to attract the best talent.

Clear capital allocation strategy

£100m total dividend to be paid in October

PageGroup operates a highly cash generative business model with very high levels of cash conversion. We have a clear capital allocation strategy with three defined uses of cash. The first and primary use is to satisfy the operational investment requirements of the Group, such as adding additional headcount and continuing to roll out technology and innovation, as well as hedging liabilities under the Group's employee share plans.

The second use of cash is for the payment of ordinary dividends, where it is the Group's policy to maintain these through a downturn, which we have done in all years apart from 2020 and to increase them when conditions are more favourable.

Thirdly and finally, any remaining cash surplus is distributed to shareholders by way of a supplementary return. Today, we are announcing an interim dividend of 4.91p per share for a total of £15.6 million. Our policy has been to grow the dividend over the course of the cycle in line with our long-term growth rate, which historically has been between 4% and 5%. As such, we have increased the ordinary dividend by 4.5% on the 2021 interim dividend of 4.7p per share.

After this interim dividend, the Group's Board has concluded that we are still holding surplus capital. Accordingly, we are also announcing today a special dividend of 26.71p per share, totalling £85 million. Together with the interim dividend, this amounts to a cash return to shareholders of just over £100 million. The special dividend will be paid at the same time as the interim dividend on 14th October to shareholders on the register as at 2nd September.

Track record of Shareholder returns

Committed to consistently returning cash to shareholders

This chart shows our proven track record of shareholder returns with capital returns made in all years since flotation, except 2020 due to the pandemic. Including the 2022 special dividend, we have returned over £360 million by way of special dividends since 2015. Together with share buybacks totalling £276 million and ordinary dividends totalling £564 million, we have returned a total of £1.2 billion to shareholders since flotation.

Sustainability

Strong progress against our four targets

We continue to make great strides in sustainability. In April, we published our second Sustainability Report, where we articulated progress against our sustainability vision and our four targets. As a reminder, these are:

• To positively change over one million lives in the 10 years to 2030;
• To increase gender diversity in our senior management team to 50-50 by 2030;
• To establish a meaningful sustainability business by 2026; and

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