Q3 Trading Statement

11 October 2023

Implementing new strategy; resilient performance in challenging markets

Q3 Highlights*

·    Group gross profit of £242.2m, -7.9% vs. 2022 (-10.5% in reported rates)

·    Stronger performance in temporary recruitment +5.8%; permanent -12.1%

·    Decrease in fee earner headcount of 310 to 6,075 (Q3 2022: 7,071)

·    Productivity up 4% on Q3 2022

·    EMEA -1.3%: France +1%; Germany +5%

·    Americas -13.3%: US -25%; Latin America +7%

·    Asia Pacific -11.0%: Greater China -22%; SE Asia -12%; Japan +4%; India +3%

·    UK -18.9%: Michael Page -20%; Page Personnel -17%

·    Strong cash position, net cash of c. £136m (Q2 2023: c. £96m, Q3 2022: c. £186m)

·    Interim and special dividends of £66.2m to be paid on 13 October 2023

Outlook

·    The Board expects 2023 operating profit, excluding the previously announced one off cost of c. £5m, to be between £125m - £130m

* In constant currencies vs 2022 except where stated otherwise

Q3 Gross Profit Analysis

Nicholas Kirk, Chief Executive Officer, PageGroup, said:

"The Group delivered a resilient result in challenging markets. EMEA was our best performing region, however, tough market conditions affected our performances in Asia, the UK and the US. Overall, Group gross profit declined 7.9% in constant currencies against Q3 2022.

"Candidate shortages remain acute and are supportive of continued high fee rates. Salary levels remain elevated, albeit the 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. 

"Reflecting the uncertain macro-economic conditions, temporary recruitment continued to outperform permanent, as clients sought more flexible options. In line with these conditions, we reduced our fee earner headcount by 310 (-4.8%) in Q3, following declines in H1 2023 and Q4 2022, with reductions in all regions. Our total headcount of 8,140 is now 10.7% lower than at the end of Q3 2022. Productivity, measured as gross profit per fee earner, was up 4% versus Q3 2022, as a result of our action on fee earner headcount over the past 12 months.

"As previously disclosed, as part of our refined strategy and our increased focus on our conversion rate target, we have already implemented a number of initiatives to reduce our cost base. These initiatives will incur a one off cost in 2023 of c. £15m, offset by the majority of the cost savings being realised in FY23. The net negative impact this year will be c. £5m. Going forward, we expect these initiatives to deliver annualised savings of c. £20m per annum compared to our FY23 cost base from FY24 onwards.

"Looking ahead, due to a slower end to the quarter, there is a heightened degree of uncertainty in the short term. However, we have a highly diversified and adaptable business model, a strong balance sheet, and our cost base is under continuous review and can be adjusted rapidly to match market conditions. Given these fundamental strengths, we believe we will continue to perform well in these challenging markets, and we are confident in our ability to implement our new strategy driving the long-term profitability of the Group. We are also seeing the benefits from our investments in innovation and technology, where Customer Connect is supporting productivity and enhancing customer experience, and Page Insights is providing real time data to inform business decisions.

"At this stage of the year, the Board expects 2023 operating profit, excluding the previously announced one off cost of c. £5m, to be between £125m - £130m."

Geographical Analysis (unless stated otherwise all growth rates are vs. 2022 and in constant currency)

In Europe, Middle East and Africa, gross profit declined 1.3% against a tough comparator to £128.0m. Germany, our largest market during Q3, delivered a record quarter, growing 5%. The standout results continued to be delivered by our Page Personnel (+15%) and Michael Page Interim businesses (+11%), the latter delivering a record quarter. Tougher trading conditions remained in permanent recruitment, which had a greater impact on Michael Page (-4%). France was up 1% for the quarter, with similar performances in both Michael Page and Page Personnel. We saw a stronger performance from within temporary recruitment, which is indicative of the current uncertainty in the market. Elsewhere in Europe, trading conditions were tougher due to weaker candidate and client confidence. Our businesses in the Middle East and Africa grew 17%, with good growth in all markets. Having reduced fee earners by 79 in Q2 2023, we reduced our fee earner headcount further in Q3, down 93 for the region overall.

In the Americas, gross profit was £43.3m, down 13.3% against Q3 2022. In the US, gross profit declined 25%, a deterioration on the decline of 16% in Q2. Uncertainty in market conditions continued to impact time to hire as well as client and candidate confidence. In Latin America, gross profit grew 7%, a record quarter, despite macro-economic uncertainty across the region. Mexico, our largest country in the region, was down 4%, compared to a decline of 7% in Q2 and Brazil was up 4%, an improvement on the decline of 9% in Q2. Elsewhere in Latin America, our remaining countries grew 19%, collectively. In line with the more challenging conditions, overall fee earner headcount decreased by 96, mainly in the US and Mexico.

In Asia Pacific, gross profit for Q3 was down 11.0% against 2022 to £40.6m. Permanent recruitment across the region declined 12%, whilst temporary recruitment declined 3%, reflecting the continued uncertain market conditions. Greater China declined 22%, with Mainland China down 23%. Trading remained challenging with the recovery continuing to be slower than anticipated. Hong Kong declined 21% for the quarter. South East Asia declined 12%, with Singapore, which continued to be impacted by the slowdown in Greater China, down 13%. India continued to deliver strong results, up 3% on Q3 2022, a record quarter. Japan returned to growth of 4%, compared to the decline of 10% in Q2, whilst Australia declined 11%, compared to -4% in Q2, due to tougher market conditions. Our fee earner headcount in the region decreased by 85, mainly in South East Asia and Japan.

In the UK, gross profit for Q3 decreased 18.9% against 2022 to £30.3m, following the decline of 17.0% in Q2. We continued to see clients deferring hiring decisions and candidates cautious about accepting offers. We also experienced an increase in turndowns and buybacks in our permanent business during September. Reflecting the uncertain market conditions, clients sought more flexible options, and, as such, temporary recruitment (-5%) was more resilient than permanent recruitment (-24%). In line with the more challenging trading conditions, our fee earner headcount reduced by 36 in Q3 and is now 17% lower than Q3 2022.

Perm/Temp mix

Gross profit from permanent recruitment decreased 15.0% in reported rates and 12.1% in constant currencies to £175.5m (Q3 2022: £206.5m). Gross profit from temporary recruitment increased 4.3% in reported rates and 5.8% in constant currencies to £66.7m (Q3 2022: £64.0m). This resulted in a ratio of permanent to temporary recruitment of 72:28 (Q3 2022: 76:24).

Headcount

We reduced our fee earner headcount by 310 (-4.8%) during Q3, with reductions made across all regions, albeit more significantly in markets where we saw the most challenging trading conditions. Our non-operations headcount fell by 122 (-5.6%) in Q3, as we reduced headcount in areas such as operational support and candidate acquisition. Overall, the Group had 6,075 fee earners and a total headcount of 8,140.

Productivity

As a result of the reduction in fee earners made in the quarter, gross profit per fee earner, our measure of productivity, increased 4% compared to Q3 2022. We continued to see the benefits of video interviewing, continued high fee rates as well as wage inflation. However, reduced candidate and client confidence caused an increase in time to hire as well as some reluctance to accept offers, limiting the number of placements per fee earner.

Foreign Exchange

Foreign exchange had a negative impact on the Group's reported results during Q3, decreasing our Q3 reported gross profit by 2.6 percentage points, or £7.0m.

Financial Position

Save for the effects of Q3 trading detailed above and the forthcoming payment of the 2023 interim and special dividends of £66.2m to be paid on 13 October 2023, there have been no other significant changes in the financial position of the Group since the publication of the results for the quarter ended 30 June 2023. Net cash at 30 September 2023 was c. £136m (Q2 2023: c. £96m, Q3 2022: c. £186m).

Shares

At 30 September 2023 there were 328,618,774 Ordinary shares in issue, of which 15,149,770 were held by the Employee Benefit Trust (EBT). The rights to receive dividends and to exercise voting rights have been waived by the EBT over 13,502,599 shares and consequently these shares should be excluded when calculating earnings per share. The total number of voting rights in the Company is 328,618,774.

Cautionary Statement

This Third Quarter 2023 Trading Update has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The Trading Update should not be relied on by any other party or for any other purpose. This Trading Update contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this Trading Update and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. This Trading Update has been prepared for the Group as a whole and therefore gives greater emphasis to those matters that are significant to PageGroup and its subsidiary undertakings when viewed as a whole.

The Group will issue its Fourth Quarter Trading Update on 15 January 2024.

Enquiries:

The Company will host a conference call and presentation for analysts and investors at 8.30am today. The live presentation can be viewed by following the link:

https://www.investis-live.com/pagegroup/650bfe60673c270c00b7af50/dssa

Please use the following dial-in numbers to join the conference:

Please quote participant access code 27 10 62 to gain access to the call.

A presentation and recording to accompany the call will be posted on the Company's website during the course of the morning of 11 October 2023 at:

https://www.page.com/presentations/year/2023