PageGroup plc (PAGE) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the PageGroup 2026 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. Despite ongoing challenging market conditions, the group produced a good performance in Q2. Q2 gross profit was GBP 197.6 million, a decline of 0.2% in constant currencies. For the first half, we delivered gross profit of GBP 385.2 million, a decline of 2.4% in constant currencies. We reduced our fee earner headcount by 80 or 1.6% during Q2, mainly in France and Northern Europe. Overall, the group ended the quarter with 4,914 fee earners and a total headcount of 6,679. Despite the challenging conditions, gross profit per fee earner, our measure of productivity, remained high and grew 5% versus Q2 2025. In line with expectations and having paid out the 2025 final dividend of around GBP 10 million in June, net debt at the end of June was around GBP 7 million, in line with Q1. In the first week of July, the cash balance improved to be broadly net flat, and we expect to close the year with around GBP 30 million to GBP 40 million of net cash. I will now give a brief financial review. We reduced our fee earner headcount by 80 or 1.6% during Q2, mainly in France and Northern Europe. We remain committed to our strategy and continue to reallocate resources into the areas of the business offering the most significant long-term structural opportunities, such as in Asia. Overall, our focus remains on aligning headcount in all of our markets to activity levels and balancing near-term productivity with ensuring we are well placed to take market share as conditions improve. We reduced our non-operations headcount by 42 in Q2 or 2.3%. Despite the challenging macroeconomic conditions, productivity remains high and grew 5% versus Q2 2025. We continue to target higher salary level roles and delivered our highest quarterly productivity since 2022. In the markets where we have experienced improved trading, such as in Asia Pacific and our U.S. construction business, this was driven by a normalization of conversion of offers to placements as both candidates and clients became more willing to negotiate and compromise to deliver a successful outcome. Our business model focuses on white-collar qualified candidates working in specialist management and leadership roles. The supply of this talent remains a key challenge for our clients. And as a result, our permanent fee rates remain at record levels. I will now present a regional review. Group gross profit declined 0.2% in constant currencies against Q2 2025. Market conditions remain mixed across the group. We delivered a seventh consecutive quarter of growth in the U.S. and a fifth consecutive quarter of growth in Asia. Page Executive delivered a record quarter with growth of 15% against Q2 2025, demonstrating the success of our strategy, and we returned to growth in Southern Europe in Q2. We also saw challenging but stable conditions in Northern Europe, France and the U.K. Overall, around 50% of the group was in growth in Q2. In our largest region, Europe, Middle East and Africa, which represented 51% of the group, we declined 4.8% on Q2 2025 with mixed results across the region. Temporary recruitment down 2%, continued to be more resilient than permanent, down 6%. Germany, the group's largest market, which represented 12% of the group, declined by 4% in Q2, albeit against a soft comparator. We saw strong results from our contracting business and Page Executive, but trading was more challenging in our Michael Page permanent recruitment business due to a combination of renewed energy price shocks, ongoing geopolitical tensions and weak market sentiment. France, our second largest market, declined 12% due to ongoing political and macroeconomic uncertainty. Reflective of market conditions, temporary recruitment, down 7%, continued to outperform permanent, down 16%, where job acquisition per fee earner remained weak in Q2. As in the previous quarter, clients have become increasingly selective, slower to make decisions and more conservative on salary offers. As a result, the recruitment process has become more complex and time to hire has increased. Southern Europe, which represented 14% of the group, returned to growth in Q2. Spain continued to deliver the standout performance, up 9%. Italy grew 7%, driven by a particularly strong performance in Page Executive. Trading in Northern and Central Europe remained more challenging in all markets. The Middle East declined 24% as both client and candidate confidence remained subdued amid the regional conflict. In line with the tougher trading conditions in Q2, we reduced our fee earner headcount by 62, mainly in France and the Netherlands. The Americas, which represented 21% of the group, grew 7.2%. North America was up 5% with the U.S. up 5%, a seventh consecutive quarter of growth and an improvement on the growth of 1% in Q1. Construction, our largest discipline, continued to deliver the standout result, up 12%. In addition, we saw a return to growth in our second largest discipline, Engineering and Manufacturing, up 22% with improving client confidence and high demand for talent, particularly in the aerospace, defense and electronics sectors. However, we are yet to see a broad-based recovery with tough conditions in most other disciplines. In Latin America, gross profit was up 10%. Mexico, our largest country in the region, grew 7%, an improvement on the 8% decline in Q1, albeit against a softer comparator. We continue to see ongoing tariff-related uncertainty in this market. Brazil was down 6%. Temporary recruitment up 12%, continued to outperform permanent, down 14%. Ahead of the general election in H2, clients are taking a more cautious approach, postponing both hiring and investment decisions. Colombia, which now represents around 20% of Latin America, was the standout market in the region, delivering a record quarter, up 15%, with another particularly strong performance in our technology-focused consulting business. Elsewhere in Latin America, our remaining countries grew 29% collectively. Fee earner headcount in the region decreased by 33 with the timing of the next intake cohort of fee earners in the U.S. starting in early July. In Asia Pacific, which represented 17% of the group, Q2 gross profit grew 9.4% on 2025. In Asia, which represented 14% of the group, we grew 11%, our fifth consecutive quarter of growth with 9 out of 11 markets growing. We continue to see improvements in both candidate and client confidence, which is helping to secure placements, particularly for more senior roles. Greater China was up 17%, an improvement on the growth of 11% in Q1. Mainland China grew 28% due partly to a soft comparator, but with improved trading across both brands. Customer sentiment remains stable with increased willingness to make decisions, resulting in improved offer to placement conversion rates. Hong Kong was up 2%. Southeast Asia grew 4% with strong trading conditions across most of our markets in this region. In Japan, where we have invested in fee earners due to the size of the market and its strategic importance, we delivered another standout performance, up 18%. India grew 7%, another record quarter. Australia was flat with stable market conditions. We increased our fee earner headcount by 26 in the quarter, mainly in Japan and India. In the U.K., which represented 11% of the group, gross profit declined 5.3%. The market remains tough but stable with pockets of optimism beginning to appear in Page Executive, Interim and Technology. Reflective of market uncertainty, temporary recruitment, up 1%, outperformed permanent, down 8%, where we continue to see lower job acquisition levels per fee earner. We reduced our fee earner headcount by 11 in the quarter. I will now provide a summary of our results. Despite ongoing challenging market conditions, the group produced a good performance in Q2. We saw continued growth in Asia Pacific and the Americas as well as a return to growth in Southern Europe. In total, around 50% of the group was in growth. However, trading remained more challenging across France, Northern Europe and the U.K. In the markets where we experienced improved trading, this was driven by a normalization of conversion of offers to placements as both candidates and clients became more willing to negotiate and compromise to deliver a successful outcome. In the markets where trading remained challenging, we are yet to see any improvement in this metric. We remain committed to our strategy and continue to reallocate resources into markets where we see an improvement in business confidence and activity levels, such as in Asia. The progress we are making in productivity, technological innovation, operational efficiency and strategic execution demonstrates that our strategy is working and positions us well for future growth. We continue to harness the power of Page and our position as the global leader for specialist management and leadership recruitment, placing more senior talent at higher salary levels and at higher fee rates, which has driven our highest level of productivity since our record year in 2022 and a record quarter for Page Executive. We have a flexible cost base through our fee earner headcount, which adjusts naturally to market conditions. Alongside this, we continue to control the cost base tightly and have undertaken various programs since the launch of our new strategy to manage it in light of the tougher market conditions. These programs included managing our support headcount, moving our SSCs to more cost-effective locations, closing offices and reducing management layers. Collectively, excluding savings due to the reduction in fee earner headcount, these initiatives have delivered annualized savings of around GBP 40 million. This cost base control has continued in 2026, incurring some one-off costs, which we will cover in more detail at the interims. Whilst we have seen an improvement and signs of a normalization in trading in a number of our markets, there still remains a high degree of uncertainty in the outlook for the rest of the year. We have a highly diversified and adaptable business model, a strong balance sheet and a cost base that is under continuous review. The Board currently expects 2026 operating profit to be in line with company compiled consensus of around GBP 28 million. Nick and I will now be happy to take any questions you may have.

[Operator Instructions]We will now take our first question from Andy Grobler from BNP...

Just a couple from me, if I may. Firstly, on the conversion of offers to placements, which you talked to, which areas are seeing improvement? And are there any areas that are still going backwards on that metric? And kind of broadly across the group, where does that stand versus, I guess, either both the trough and where you would expect it to get to a normalized market? And then secondly, just on the U.K., some of the market data was better in June and on a 2-year stack, you've made big strides in that region. Are you seeing that improvement through the course of the quarter? And how do you see this pan out through Q3 given changes to government and so forth that are impacting [indiscernible]

Thanks, Andy. I can take those 2. So in terms of conversion of offers to placements, I mean, broadly, where we're seeing improvements in results, that's where we're seeing improvements of the conversion of those offers to placements. So I suppose where it's most embedded is somewhere like the construction business we have in the U.S., where we've seen a seventh consecutive quarter of growth. And that would now be back up to where it would have been at peak as you referred to it, so probably 4 out of 5. So back to normal levels, you still always get turned down because a candidate might get multiple offers and we'll pick another one over your one, et cetera, or you might still get buyback. But that certainly returned to more normal levels as it has across many parts of Asia now where we've had 5 consecutive quarters of growth, so very much back towards where it would have been. I think in your question, you said, are there any markets where it's going backwards? I don't think there is. I think probably most of the markets where it's tougher, it's stable, but stable at a lower level. So at that level of around 3 out of 5 rather than 4 out of 5, I'm thinking markets like France as an example of that. So as we start to see kind of more normalization across other markets, we would start to see that rate of conversion improving. And indeed, what we've seen is a kind of shape of recovery, if you like, now that we've been able to analyze the recovery we saw in the U.S. with the recovery we've seen also in the broader Americas region now, across Asia over the last 5 quarters is it tends to be more of a recovery in perm that's driven by conversion and productivity than it is by activity. We haven't seen a huge spike in more jobs, more interviews. It's just the consultants are getting more of a return for the work they're doing. Because more of the processes that they're managing are resulting in successful outcomes. For somewhere like the U.S. construction business now that is, as we said before, 7 quarters into a recovery, they are now starting to also see top of the funnel gains as well, and we'll react to that by bringing some more fee earner headcount selectively as we move through the second half of the year. As we come back to then the U.K., yes, we're pleased to see the result in the U.K. It's been tough in the U.K. for quite a period of time. And we're starting to see some pockets of optimism, areas like Page Executive, Interim, Technology, all performed pretty well in Q2. So we're pleased with that. I think it is still relatively fragile is business confidence, and you referred to potentially a change in leadership of the country, and we'll have to wait to see what that means for business. I don't know at this stage because I haven't seen any policies. So we'll wait and see. But I think what we're doing in the U.K. is very much self-help. We're focusing on the areas where we believe we can operate well. We, as you know, closed our Page Personnel business here back in 2024. So we're now over a year on from that. And we're seeing the results of that. Our productivity in the U.K. was up 11% in Q2. And that's as a result of us trading up and moving more into the Michael Page and Page Exec markets and really putting our resource into those businesses. So yes, pleased with how the U.K. is going, but still relatively early stages and not back in growth as yet.

We will now take our next question from Karl Green from RBC.

Just a couple for me as well. On the cost base control measures, which you've alluded to in the statement. I know you're going to elaborate on this more at the interim phase. But just kind of any early hints as to the phasing around this in terms of costs going in and then benefits coming out of the other side at this stage? And then the second question, on Americas, you did reference Mexico having a soft comp year-on-year. That looks like it's pretty soft actually for the next couple of quarters as well. So the question would be, are you confident that we're going to see good levels of like-for-like net fee growth continue in the Americas as you see things at the moment?

Thanks, Karl. Okay. Well, I'll take the Americas question and then pass over to Kelvin for the cost base question. I think, yes, as regards to the Americas, I mean, we saw, what, 9% growth in the LatAm region. And it's really trading in line with expectations. Mexico is our biggest business there. And as you alluded to, it had a stronger quarter, up 7%. It seems to be a bit more improved confidence. We're still waiting on the outcome of the renegotiation of the NAFTA deal between the U.S. and Mexico, but we hear that, that's kind of anytime now type situation. So that's positive. And again, what we saw there was growth coming through improved productivity. So this, as I said before, this return to normalization of offers converting into placements and productivity in Mexico was up 24%. So we were delighted with that. Brazil is still a little bit tougher. We're waiting on the results of the outcome of the upcoming election later in the year. And so that's kind of just put people in a situation where they're holding off on decisions at the moment, but hopefully, that will settle down once the result is known. Colombia is really the success story for us in the Americas at the moment, another record quarter, over 100 heads and a strong focus on tech consulting. And that was up 15% in Q2, and I don't see any reason why that will soften in the second half of the year. So no, I think that certainly our performance across the Americas, LatAm region specifically is looking good going into the second half.

Yes, I can pick up the cost question. So I think we, as always, have got various different activities going on to try and streamline the business in terms of the cost base. This year, it's primarily looking at back-office operations. So as we've mentioned before, we've got a transformation program running in our HR function. We have just gone live in Asia Pacific with SAP SuccessFactors, which is an HR system. And we're in the process of moving the HR function into the shared service centers around the group. We also have a number of activities ongoing around the location strategy where we, for legacy reasons, have got people in support functions that are in relatively expensive countries, and we continue to move those roles into shared service centers in the lower-cost locations. So I expect that the one-off costs relating to all of those activities will be mid-single digit and split broadly 50-50 first half and second half. But we will go into a bit more detail about all of that when we get to the interims.

Next, we will take questions from James Rowland Clark from Barclays.

Two short ones, I think. So my first is just on the better conversion rates that you're seeing at the moment or that have been ongoing in the U.S., but have improved elsewhere in the group in certain regions. Is that simply candidate confidence? Or is there something else that's driving that? Is there maybe improved salary offers or anything like that sort of underlying that improvement? And then secondly, just on operating profit unchanged. With the better top line trends you're seeing, one might have thought that, that would be moving up. Is the one-offs the reason it's not?

Thanks, James. I mean, as regards to improving conversion rates for anyone who's been involved in moving jobs, it's a cocktail of things. It's never one simple outcome. It's not just about offering more money or flexibility or even being that one-sided. It's a client situation and the candidate situation where that chemistry has to work. It's 2 humans in a room. It's about the financials. Of course, it is. It's about selling the story of a future opportunity and career opportunity for the individual. It's also about that individual feeling connected to the culture of the company. And that's why we so strongly feel the role of the consultant, the human in the process is vital as we move forward. So I don't think it's down to any one thing at the moment. It will be partly due to better offers on the table. It will be partly due to candidates feeling a bit more comfortable about moving. It will be partly due to clients who have order books and commitments with their customers, and they need to fulfill those commitments and therefore, need resource on board. So it's always lots and lots of different things. But clearly, from our perspective, it's pleasing to see some of those elements starting to be more positive than they have been.