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PageGroup Q1 2021 Trading

Update

Friday, 9th April 2021

Transcript produced by Global Lingo

London - 020 7870 7100

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PageGroup Q1 2021 Trading Update

Friday, 9th April 2021

Q1 2021 Trading Update

Steve Ingham

Chief Executive Officer, PageGroup

Welcome

Good morning everyone and welcome to the PageGroup first quarter trading update. Thank you for joining us at short notice and apologies for any inconvenience this has caused. I am Steve Ingham, Chief Executive Officer and on the call with me is Kelvin Stagg, Chief Financial Officer. Although I will not read it through, I would like to make a 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.

Q1 Overview

Key financial highlights

The improvement in trading conditions we experienced at the end of Q4 2020 continued into the first quarter. Consequently, the Group delivered gross profit of £184.2 million in the quarter, representing constant currency growth of 2%. Given the magnitude of the impact of Covid in 2020, we are also including comparisons against 2019 to ensure the most appropriate representation of our current trading. Compared to 2019, which is also our record year, we were down 9.9% for the quarter. The Group's results improved sequentially in each of the three months of the quarter with a decline against 2019 in January of 17%, February of 12% and then a significant improvement in March to -2%. Against 2020, where Covid had already started to impact our results, we exited the quarter with growth of 31% in March. We maintain a strong balance sheet with net cash at the end of March of around £136 million. This was after the purchase of shares into the Employee Benefit Trust to hedge the Group's exposure under our share plans of around £10 million and repayment to HMRC of furlough income of £3.4 million. As conditions continued to improve in Q1 we increased our fee earner headcount by a net 122. Our operational support headcount rose by 19 and as such, a ratio of fee earners to operational support staff was maintained at 77:23. Overall the Group had 5,267 fee earners and a total headcount of 6,835.

Group growth rate improved to +2%

Significant improvement in March +31% (-2% vs 2019)

Our Large, High Potential markets, representing 36% of the Group, grew 10% in the quarter compared to a decline of 17% in Q4 2020. Looking now at each of our regions, in our largest region, Europe, Middle East and Africa, which represented 52% of the Group, we grew 3.6%, up from a decline of 18.6% in Q4 2020. However, this was partly as a result of the weak comparator in March 2020 when the region started to be impacted by the pandemic. Against Q1 2019 we were down 8.4%. France, currently our largest market, declined 7% against 2020 and 19% versus 2019. March showed modest improvement, exiting the quarter up 23% or down 15% versus 2019. With a higher proportion of temporary workers Page Personnel was impacted more significantly by the lockdown. The Netherlands' performance was similar to France. Elsewhere Germany, the Group's third-largest market, delivered a record quarter, up 15% with March up 37% against 2020 and up 17% versus 2019. Belgium, Italy and Spain exited the quarter in March up 17%, 104% and 74% respectively versus 2020

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PageGroup Q1 2021 Trading Update

Friday, 9th April 2021

and up 11%, 6% and 7% against 2019, with Italy and Spain delivering record ever months in March.

In Asia Pacific, representing 19% of the Group, gross profit was up 15.3% in the quarter from a decline of 10.2% in Q4 2020. In Asia, 15% of the Group, we grew 22%. In Greater China, 8% of the Group, we grew 45% for the quarter. Mainland China was up 66% which was also up 16% on Q1 2019. We exited in March up 26% on 2019. Whilst Hong Kong was up 25%, this was still down 35% on Q1 2019. South East Asia delivered a record ever month in March and was up 12% for the quarter with Singapore flat. Japan was down 2% against a strong comparator of +5% in Q1 2020. India delivered a record quarter growing 15%, up from 3% in Q4 2020 and exited the quarter in March up 41% compared to 2019. Australia declined 4%, a significant improvement from a decline of 26% in Q4, with March up 4% on 2019.

The Americas, representing 15% of the Group, has been one of the worst affected regions by Covid and gross profit for Q1 was down 4.3%. However, this was a significant improvement on Q4 2020 which was down 23.2%. The US declined 9%. Having been down 27% on both January and February, the performance in March improved significantly, up 22%, which also represented growth of 8% on 2019. In Latin America gross profit grew 4% which was down 2% compared to 2019. Brazil was up 15% and Mexico, our largest country in the region, was flat for the quarter exiting in March up 19% and down 12% effectively compared to 2019. Elsewhere in Latin America the remaining countries were flat for the quarter collectively

In the UK, representing 14% of the Group, gross profit declined 11% in Q1, improving from a decline of -34.2% in Q4 2020. Conditions remained challenging with a nationwide lockdown imposed for the majority of the quarter. Our Michael Page business was more resilient than Page Personnel with declines of 5% and 27% respectively. Having been down 29% in January and February combined versus 2019, our performance in March improved to -19%.

Summary

Activity levels improved further in Q1

Throughout the pandemic we have continued to focus on the protection and wellbeing of our employees, candidates and clients, whilst progressing strategic investments in our platform to take advantage of the recovery. I am pleased to report that year-on-year results in each of the three months of the first quarter improved sequentially, continuing the monthly trend since May last year. January and February were down 13% and 10% respectively compared to 2020 with March growing 31%.

Significantly, our performance in March was down just 2% on 2019. This noticeable improvement in March was seen throughout the Group and was achieved despite the backdrop of continued and increasing restrictions or lockdowns in many of our markets. We delivered a record ever month in March in markets such as Germany, Italy, Spain and South East Asia. At this stage of the recovery it is not easy to determine whether the improved performance is the result of pent up supply and demand or the beginning of a sustainable trend. Our fee earner headcount is currently down 12.6% on the pre-pandemic levels in 2019. As visibility develops our fee earner headcount will react accordingly.

We remain confident in our strategy of maintaining and investing in our platform by continuing to invest carefully in headcount, exemplified by the 400 experienced hires we added in 2020 and a further 200 added in Q1 2021, as well as rolling out new technology and

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innovation. We remain confident that the strategy we adopted in 2020 will allow the Group to take advantage of the recovery as it emerges.

We returned everyone to full pay from 1st July 2020 providing confidence and visibility to our employees. The early adoption of this strategy allowed us to invest in the market in advance of the competition. We are the clear leader in many of our markets with a highly experienced senior management team which we believe positions us well to take advantage of opportunities to grow and improve our business. We have maintained our focus on driving progress towards our long-term strategic goals.

Looking ahead there continues to be a high degree of global macroeconomic uncertainty as Covid remains a significant issue and lockdowns have returned in a number of the Group's markets. However, and notwithstanding the early stage of the year, the strength of our performance in Q1 and notably in March has increased confidence in our outlook for the year. Subject to other unexpected events, we now expect full year operating profit to be within the range of £90-£100 million. Kelvin and I will now be happy to take any questions you may have.

Q&A

Matthew Lloyd (HSBC): Good morning gentlemen. I wanted to ask about the productivity levels you must have been running at in March because if you had an awful lot of that kind of acceleration in demand and placement, I wondered what happened to things like time to hire and the fill rate and whether they tell you anything at this early stage about how efficient the business could be going forward.

Steve Ingham: Productivity was at its highest ever for the Group in March which was great to see. If you think of our headcount strategy last year, in an effort to minimise our costs in Q2 we in effect lost those people that had barely landed in Page and landed in the recruitment industry who therefore we felt would be exposed if they were working from home with limited experience of how to make placements. If you like, we lost those that frankly had very, very low, if any, productivity and kept the long-serving platform of experienced people that we have got who are highly productive. That has helped us enormously with the market recovery we have seen in March. In addition, the adding of 400 experienced people, although some of them landed very late in the year they have picked up productivity very quickly, which has been good to see. You would expect that because on average they had over four years' experience. You would expect when they land that they know how it works, they know what they are doing and require little training. It is more just cultural induction to make sure they fit with the business.

In terms of time to hire and the KPIs, yes, things got quicker. The number of meetings required and the acceptance of using media technology as they were not available to see people face-to-face, which slows the process down. What we started to see in some cases in certain areas that were particularly hot was we saw shortlists of two candidates at final interview both getting an offer. We saw some wage inflation where clients were very keen to get it over the line. We did see buyback which is always a healthy sign although it is annoying because sometimes obviously it is successful. However we saw some clients trying to persuade the candidates that had got an offer not to resign and stay with increased offers

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where they were. When that starts to happen it feels very good and it is a good indication of hopefully more to come. Certainly we ended the month with good KPIs.

That all said and we put this in the statement, we cannot tell whether this is the pent up frustration caused by a year of lockdown where clearly a lot of people will have been reflecting. They will have looked at the sector they are in, the job they are in, the geography they are in, the boss they have, the vision their business has, the approach to D&I, CSR, sustainability. All of these things will be enough to persuade during that period of reflection candidates to decide to move jobs or not. When they do, because a lot of what we do are critical jobs, they create a vacancy that has to be filled. I read a Microsoft report early this morning and it said that 41% of all people in work are considering a career move this year and that was even higher in the Z Generation, which we are supporting with their career goals. It bodes well but one swallow does not make a summer which is the same saying we have often said in Page. We have had a great month with high productivity. It could just be pent up frustration and therefore it could be that we have a bubble of a few months and then it resumes to normal behaviour. I do not know. That is very, very difficult to predict but productivity was high.

We continued in this year with net fee earner growth of 122 but that was a combination of again weaker consultants leaving, having had a pretty tough year last year, and us hiring another 200 experienced people into the Group. Again, that should help productivity. Although we will had more heads I am sure going into the second quarter, in a fairly conservative manner because I think it is good for the consultants who are paid profit share after a very difficult year last year frankly to be feeling the bonuses which they get quarterly. They get that based on productivity of course because the gearing then on their profit share bonuses that are available is good. We will probably add in the second quarter but when those 200 experienced hires land and become fully productive, including the ones that joined in Q4 of last year, we have still got some capacity to take us forward in the next few months. A long answer, sorry Matthew.

Matthew Lloyd: One quick follow-up question, probably a shorter answer but are you seeing clients say, 'Look, show me the good candidates and if they happen to be 100 miles away show me anyway because I might be able to figure it with work from home or partial work from home'? Are you starting to see that? I was wondering whether that helps you take market share from some of the smaller boutiques.

Steve Ingham: Yes, we are seeing it in certain disciplines, as you would imagine. Not all jobs are that flexible. We place engineers in factories and they need to be there every day. However, on the other hand at the other end of the scale and our fastest-growing discipline, we place people in technology where they could be anywhere. Definitely we are seeing clients showing more flexibility after their experiences last year. Yes, you are right in saying it. Are they in other countries? Occasionally but generally-speaking they are being more flexible nationally and that does help us against boutiques.

Matthew Lloyd: Okay, thank you very much.

Hans Pluijgers (Kepler Cheuvreux): Good morning gentlemen, thanks for the time. Two questions from my side. First of all, on the hiring going forward will you continue to focus on hiring more experienced people and have you seen some changes with respect to it becoming

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