PageGroup plc (PAGE) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the PageGroup Q1 trading update. My name is Ezra, and I will be your coordinator today. [Operator Instructions] We will be taking questions at the end of the presentation. I will now hand you over to Kelvin Stagg, Chief Financial Officer, to begin. Please go ahead.

Thank you, and good morning, everyone, and thank you for joining us at short notice. Welcome to the PageGroup 2025 First 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. The group delivered a Q1 performance in line with expectations. Q1 gross profit was GBP 194.2 million, a decline of 9.2% in constant currencies against Q1 2024. We saw challenging market conditions in the majority of the group's markets as ongoing macroeconomic uncertainty continued to impact candidate and client confidence. Our fee earner headcount reduced by 74, or 1.4%, with reductions in areas of weaker trading performance. Overall, the group ended the quarter with 5,296 fee earners and a total headcount of 7,228. Despite the tough macroeconomic conditions, gross profit per fee earner, our measure of productivity, remained at elevated levels, down just 1% on Q1 2024. Our balance sheet remains strong with net cash at the end of March of around GBP 54 million. This compares to GBP 95 million at the end of 2024, having paid out annual bonuses and quarterly profit share in January. I will now give a brief financial review. We reduced our fee earner headcount by 74, or 1.4%, during the quarter with reductions in areas of weaker trading performance. And on operations, headcount reduced by 59 in Q1, due mainly to the exit of around 45 heads that we've been double running as we transitioned our shared service center from Singapore to Kuala Lumpur. We continue to review our fee earner headcount, reallocating resources in line with our strategy into the areas of the business where we see the most significant long-term structural opportunities as well as ensuring it remains aligned to the levels of activity we are seeing in each of our markets. Against the ongoing challenging trading conditions, we have taken robust actions to optimize the cost base by simplifying our management structure and reducing our leadership team along with other business support functions, and these actions will benefit the group from 2026 onwards. These initiatives will deliver ongoing cost savings of around GBP 15 million per year with a one-off charge in 2025 of also around GBP 15 million. The net impact on 2025 operating profit is expected to be around GBP 10 million. Despite the tough macroeconomic conditions, productivity remains strong, down just 1% in constant currencies compared to Q1 2024. Although salary levels remained high, offers made to candidates were not as elevated as they were in 2022 and early 2023. As a consequence, conversion of interviews to accepted offers remained the most significant challenge as the ongoing macroeconomic uncertainty continued to impact candidate and client confidence. While our fee rates remained at high levels, as clients' recruitment budgets tightened, they became more risk-averse, which continued to slow the recruitment process, impacting time to hire. I will now present a regional review. Group gross profit declined 9.2% in constant currencies against Q1 2024. The tough conditions we experienced in Q4 continued into Q1. Foreign exchange had a negative impact on our results, decreasing our reported gross profit growth rate by 2.5 percentage points or GBP 5.6 million. In our largest region, Europe, Middle East and Africa, which represented 55% of the group, gross profit declined 12% on Q1 2024. The tougher conditions we saw at the end of 2024 continued into Q1 2025. Reflecting this uncertainty, temporary recruitment was more resilient, down 9% compared to permanent, down 14%. France, the group's largest market, which represented 13% of the group, declined 17% due to ongoing political and macroeconomic uncertainty. Germany, the group's second largest market, which represented 13% of the group, declined 12% in the quarter. This was an improvement on the 23% decline in Q4 2024 with reduced levels of political uncertainty following the elections and, more recently, the lifting of the debt brake to fund defense and infrastructure spending. We saw tough conditions in Michael Page, down 23%. However, our Technology and Accounting-focused Interim business was more resilient, down 2%. Spain was flat on Q1 2024 with a standout performance from our Technology consulting business. In line with the tougher trading conditions, we reduced our fee earner headcount by 74 in Q1. The Americas, which represented 19% of the group, and excluding Argentina due to hyperinflation, grew 3.3% against Q1 2024. North America was up 5% with U.S. up 7%, a further improvement on the growth of 3% in Q4 2024 with a particularly strong performance in Engineering and Manufacturing. In Latin America, excluding Argentina due to hyperinflation, gross profit grew 1%. Mexico, our largest country in the region, was flat, an improvement on the 4% decline in Q4. Brazil was up 10% with strong growth, particularly in temporary recruitment. Across the region, fee earner headcount decreased by 13. In Asia Pacific, which represented 14% of the group, Q1 gross profit declined 11.1% on 2024. In Greater China, which represented 3% of the group, we declined by 22%, broadly in line with Q4 2024. Mainland China was down 27% and Hong Kong was down 18%. Southeast Asia declined 16% due to particularly tough trading conditions in Singapore. India, where we have over 230 fee earners, continued to deliver standout performance in the region, delivering a record quarter, up 14%. Elsewhere, Japan declined 7%, in line with Q4. Australia was down 14% with ongoing challenging conditions across all states. Our fee earner headcount increased by 22 in the quarter. Our nonoperations headcount decreased by 51, due mainly to the exit of around 45 heads that we have been double running as we transitioned our shared service center from Singapore to Kuala Lumpur. In the U.K., which represented 12% of the group, gross profit declined 12.7%, in line with Q4 2024. Temporary recruitment, down 11%, outperformed permanent, down 14%, reflective of market conditions as the earner headcount reduced by 9 in the quarter. I will now provide a summary of our results. The slower end to Q4 2024 continued into Q1 2025, albeit the majority of our markets were sequentially stable in economic conditions, which remained challenging. The conversion of interviews to accepted offers remained the most significant challenge as ongoing macroeconomic uncertainty continued to impact confidence, which extended time to hire. Despite the decline in gross profit, activity levels remained robust. India continued to deliver the standout result of the group, up 14%, and we saw an improvement in customer confidence in Germany as well as an improvement in trading in the U.S., particularly in Engineering and Manufacturing. Against the ongoing challenging trading conditions, we have taken robust action to optimize our cost base by simplifying our management structure and reducing our leadership team along with other business support functions. And these actions will benefit the group from 2026 onwards. We also continued with our strategy of reallocating resources into the areas of the business where we see the most significant long-term structural opportunities as well as ensuring it remained aligned to the activity levels we were seeing in each of our markets. Overall, our focus remains to balance near-term productivity with ensuring we remain well placed to take advantage of opportunities when market conditions improve. Despite the uncertain outlook due to the increasingly unpredictable economic environment, PageGroup has a highly diversified and adaptable business model, a strong balance sheet, and our cost base is under continuous review. Given the recent introduction of tariffs and the result of market uncertainty, we are not providing forward-looking guidance on business performance. Nick and I will now be happy to take any questions you may have.

[Operator Instructions] Our first question comes from Remi Grenu with Morgan Stanley.

So I'm going to throw at you the very tough question, trying to assess the impact of the current situation probably on a best effort basis. I just wanted to understand what was the impact of the tariffs under the first Trump administration, if there were any? And as things stand, what is your base case scenario given how bad the current situation must be on business confidence? So do you think it's likely that we are going to see like-for-like growth going backwards once again? And trying to think in scenario there if the tariffs are actually implemented for a meaningful period of time or if we see this being pulled. So that would be the first question. Then the second one, I think you're flagging in the press release that client hiring budgets are being constrained or being optimized. Has it translated into any discussion on the level of fee rates that you are charging for these recruitments? And the third one, going beyond the phasing of growth in Q1, is there any material differences in performance between Jan, Feb and March that you think is worth flagging?

Okay. Remi, I think I can probably take all three of those. So in terms of the impact of tariffs, I mean, the reason that we've withdrawn any kind of forward-looking guidance is that at this stage, it's just too early to tell. And we closed out Q1. We started to see the results on Q1 on April 1, April 2. And then later that day, we have the announcements on the tariffs. And really at this stage, we haven't even seen a week of activity to judge what client and candidate sentiment will be. I think it is fair to say, though, that we were already trading in a market that was uncertain and challenging and there was difficulty in converting activity into revenue. And it's therefore very difficult to believe that in the current state, that confidence will have improved in any way. I think what we are seeing and hearing, not on a large scale but early kind of conversations with clients, it's probably hurry up and wait, a sense of hesitation, a sense of pausing, a sense of we still want to go ahead with this hiring but let's just wait to see how things pan out over the next week or two, similar with candidates. And that will undoubtedly have an impact on our performance in April. I think that's probably the only thing I can say at this stage. Much beyond that, we're into realms of crystal balls and guessing, and that's something that we don't want to do at this stage. Your second question was around client hiring budgets and fee rates. I mean, again the only data I have at the moment is Q1. And Q1 was in line with last year, so record fee rates, and that hasn't changed. And then as regards phasing across Q1, it was pretty much identical in each of the 3 months. There wasn't a significant change in any specific month. So nothing to call out there.

Our next question comes from Rory McKenzie with UBS.

It's Rory here. Just before we think about whatever is coming next, can you just talk more about the dynamics in the U.S. that you saw in Q1? 7% growth is actually quite meaningful. So what was the range of trends across verticals? And what had been happening with job flow, I guess, up until April? And then secondly, again, I guess, looking back at 2018, '19. Obviously, externally, we saw APAC fall from high teens sort of growth into high single-digit declines over that time period. As you look back on your own data internally over that time period, what did that reflect? Were clients telling you they wanted to pause hiring for a bit? Were clients telling you that they were closing capacity or rightsizing operations in APAC? Yes. I'm sure you spent a lot of time looking back as much as you can. So what did that experience tell you at all about how your clients reacted before?

Okay. Thanks, Rory. I'll take the first question. As regards to U.S., yes, let's maybe talk about right up to the point of the announcement because otherwise, I'll be caveating everything saying tariff, tariff, tariff, and there's no need for that. So how did Q1 go a very positive feeling throughout the quarter in the U.S., I've got to say. A real sense of impetus and momentum, clients feeling positive about hiring, putting sensible offers on the table to get candidates over the line, candidates feeling equally optimistic and being happy to turn that activity back into that conversion rate around final interviews to accepted offers that we talked about before which, as we've said, dropped from probably 4 out of 5 to 3 out of 5. You saw it going back to historical norms in the U.S. during Q1, which was what we'd expected and, I suppose, what we were hoping then would start to kind of probably have some kind of halo effect into other markets going through the year, this return to normal trading, every 5 offers we get, 4 of them turn into a fee. So we saw that. So that all went on. As regards job flow, again, very positive. Really good job flow throughout the quarter and actually some good momentum on job flow in March which, again, if it weren't to the announcement on the tariffs, I think would lead us to high levels of optimism coming into April. As regards to verticals, our biggest discipline, as you know, in the U.S. is Construction. And that grew low single digit. Financial Services again is our third largest discipline, and that grew low single digit. The really big swing was our second largest discipline, which is Engineering and Manufacturing, which was up 50%. We saw a real bounce back in that sector which are particularly encouraging. A lot of the work that we do is around life sciences, medical devices, that kind of area. So again it was a really strong quarter. And I guess we just now wait and see. We just wait and see. I'll be watching activity very closely. I think that's really the name of the game over the next few weeks, is looking at activity levels because we've said before, our headcount is very much linked to the job flow. And as we said on many calls, the job flow hasn't decreased significantly. So we've had busy consultants. If that were to change, then we'd obviously take a look at fee earner headcount. But at the moment, the activity levels have been good. But we haven't seen a full week of trading since the announcement. As we do and as we get through April, understanding the Easter is in there somewhere as well so that will slightly build the results at some stage, then we'll have a better idea as to the impact of the announcement. But actually through Q1, to your question, very optimistic, feeling very positive about the trading performance and a real sense of announcement to once say a start of a recovery, perhaps. Kelvin?

Yes. So think back to sort of 2018 and 2019 times when we had the previous tariffs, the impact was seen mainly in Mainland China and in Hong Kong and it did contribute towards a slowing in those markets really from low double digits into the low single digits. I would say contribute rather than cause. I think the scale of the tariffs is completely different to what we're looking at today and the sort of global nature of the ones today. The main impact that we felt back then was really with the multinationals. So less of an issue for domestic companies probably for relatively obvious reasons, where it's domestic demand. But certainly it was the multinationals that were more concerned about the impact of tariffs in '18 and '19. I suspect that can be the case again this time, albeit I think the size of the tariffs this time are likely going to hit domestics as well as multinationals.

[Operator Instructions] We currently have no further questions, so I will hand back over to Kelvin for any closing remarks.

Thank you. So as there are no further questions, can I just thank you all for joining us this morning. Our next update to the market will be our Q2 2025 trading update on the 11th of July. Thank you all.

Thank you very much, Kelvin, and thank you, Nick, for being our speakers on today's conference call. This concludes our call for today. You may now disconnect your lines.