Robert Walters plc (RWA) Earnings Call Transcript & Summary

Good day, and welcome to the Robert Walters Q4 Trading Update Conference Call. At this time, I would like to turn the conference over to David Bower, the CFO. Please go ahead. Thank you.

Thank you. Good morning, everyone, and welcome to the Robert Walters Fourth Quarter 2024 Trading Update. I'm David Bower, Chief Financial Officer. And joining me this morning is Toby Fowlston, Chief Executive. I hope you've all seen the short statement we published earlier this morning. Before we move to Q&A, I'll just make a few remarks around performance at the group level before Toby focuses on trading across our regions. Unless otherwise stated, all net fee income percentage movements are in constant currency terms. Quarter 4 group net fee income of around GBP 75 million was down 14% year-on-year in the fourth quarter, reflective of the challenging market conditions seen throughout 2024. Activity levels in October and November were broadly stable versus the third quarter, albeit quarter 4 fees were slightly weaker than we'd expected. Looking at our service lines, specialist recruitment fee income of around GBP 62 million was down by 14% year-on-year, with perm down by 18% and temp comprising our contract and interim offerings, slightly more resilient and down 10%. In Recruitment Outsourcing, net fee income of around GBP 13 million was down by 14%. Turning now to group headcount and productivity. We closed the year with total headcount of 3,294, a 5% reduction on the third quarter closing figure. Within this, there was a 7% reduction in fee earners, where we continue to be highly selective in replacing natural attrition and a 2% reduction in non-fee earners. Looking at year-on-year, fee earners and non-fee earners were down 17% and 18%, respectively. Perm placements per perm fee earner, a key driver of our model, was down slightly compared to the third quarter and the prior year. As a reminder, we continue to believe our fee earner headcount is broadly appropriate for the current market conditions, and we will prioritize maintaining a strong fee earner average tenure, leaving us well positioned for when market conditions improve. Indicative of the value being delivered to clients, fee rates remained strong, helping to drive the growth in net fee income per fee earner, which is up 2% year-on-year in constant currency terms. We closed the period with net cash of GBP 53 million with our strong balance sheet enabling us to continue to take the right actions for our clients, candidates, our people and our wider stakeholders. I'll now hand you over to Toby to take you through the trading in our regional segments.

Thanks, David. Good morning, everyone. Let's first turn to look at our Specialist recruitment business. All net fee income percentage movements continue to be in constant currency terms and at a segmental level just related to our Specialist recruitment business. So turning first to our Asia Pacific business. Net fee income was down 11% year-on-year, broadly consistent with the third quarter. In Northeast Asia, Japan was down 5%, having seen a slower end of the quarter, while South Korea saw some modest growth. Southeast Asia was down 12% with a good performance in Malaysia, more than offset by other markets. In Australia and New Zealand, whilst conditions in public sector hiring, in particular, in New Zealand remained very challenging, we did see signs of stabilization in Australia, which was flat year-on-year. In Greater China, down 16%, there was a more resilient performance in Mainland China and Taiwan, that was outweighed by softer conditions in Hong Kong. Turning to look at Europe. Net fee income was down 17%, a drop down from the third quarter performance. France and Spain remain challenging, while Belgium down 17% was against a record prior year quarter. There was, of course, increased political uncertainty in Germany during the quarter, which had an impact on sentiment with fees there down 21%. However, the December exit rate in Germany was better. The Netherlands was the most resilient of our larger European markets with fees down 10%. Turning to the U.K. Net fee income was down 23%. Broadly in line with the third quarter pacing. There was modest growth in London. However, this was more than offset by tougher conditions in the regions and with many employees now reevaluating their hiring plans, obviously in light of the U.K. budget in October. In our Rest of World segment, net fee income was down 16%, a drop off from the third quarter pacing. Whilst we continue to see a resilient performance from our largest market of the Middle East, conditions remained more challenging in our other markets. Turning to our recruitment outsourcing business. As David mentioned a moment ago, fees were down 14%, consistent with the third quarter pacing. Fees were down 12% in our largest outsourcing region of the U.K. and down 9% in Asia Pacific, with a weaker performance in the Rest of the World segment. So in conclusion then, with the exception of 1 or 2 pockets of relative resilience, the fourth quarter was a challenging one, consistent with the first 3 quarters of the year, and there are as yet key signs of a clear improvement in client and candidate confidence levels. Fee income was slightly weaker than expected, which in addition to further actions taken on the cost base mean that we now expect a broadly breakeven position at the profit before tax level for the full year. Notwithstanding the market backdrop, however, we continue to focus on our strategic initiatives to strengthen the business. Fee earner productivity is stable, and we are focused on realizing further improvements across our markets. We are taking actions to drive efficiencies in our front and back office teams as well as optimizing our office network. And these initiatives give us the conviction on driving a higher conversion rate than pre-pandemic levels in the medium term as market conditions improve. And with that, we'd be happy to take your questions.

[Operator Instructions] We'll take our first question from Tom Callan from Investec. The question from him is, firstly, on the cost saving point, could you remind us as to how the group is currently set up in terms of use of sharing service centers and how the link -- how that links back to the strategy laid out at the CMD.

Yes, so we do have a number of shared service centers across the group at the moment, providing services across multiple markets from there. And it's almost fair to say we've got a number of activities sitting in local markets, but equally, we operate from the shared centers. So as I said at the Capital Markets Day, one of our key actions regarding efficiency and productivity of our back office is to harmonize the processes where possible and to consolidate into our service centers. So we have some service centers that are running, but they have far more capacity and as I say, there's plenty of activity that currently happens in some markets that could equally be done from shared services. So we're looking to roll those out further over the coming months.

And Tom's second question, on Australia, clearly encouraging to see signs of stabilization there. Could you provide a bit more color as to the underlying market dynamics there and how, if at all, they have improved versus, say, this time last year?

Yes. Thanks, Tom. So I mean, firstly, in terms of the labor demand in the wide Australia market, i.e., job postings, it does seem to have been a few months of stabilization through October and November, perhaps versus other larger hiring markets, U.K., France, Germany, for example, which have continued to reduce slightly over the same time frame. I think looking secondly at our own performance, we did see a more stable picture from quarter 3 into quarter 4 this year than we saw last year. The team has obviously been working very hard through the various actions to improve the funnel and diversification well at all stages, and we're starting obviously to see that come through now.

[Operator Instructions] I'll hand over to Caroline to manage the Q&A.

We will take the next question from line of Sanjay Vidyarthi from Panmure.

Just a question on cash, please. Can you just remind us as to what the seasonal swings are in terms of cash balances? And also any impact that you've seen from the contract temp side in terms of working capital unwind in Q4 and how we should think about that going into FY '25?

Yes. In terms of seasonal swings, we would normally expect through the first half of the year to see our cash balance reduce off the back of effective repayment of the year-end bonuses of the final dividend in sort of April, May time. And then as is traditionally second half weighted, traditionally sort of build the cash balance back up through the second half. So really our capital policy around GBP 60 million of cash is a year-end target, giving us the cash at the end of the year and ready, therefore, for the decline through the first half in the cash that we see the normal seasonality. In terms of working capital, it's been broadly stable. We have had, as you imagine, some countercyclical release of working capital through the year that help support that cash balance as the trading results have come off a bit.

We will take the next question from line of Steve Woolf from Deutsche Bank.

Just a quick couple from me. Just if you could flag any particular areas of weakness that you're seeing within Europe? Is it more centered on the perm side? Is it centered any particular job roles? And any thoughts on the extension rate of the time to hire, whether it's sort of pushed out from 7 weeks to 10? And then secondly, in fee rates, whether any of that has been pressure on that or whether it's still the skill shortages, which are keeping those levels higher. It is just that it's the conversion from interviews into job acceptance that has been the key problem.

Thanks, Steve. I'll touch on your first part. I'll leave Dave to talk on fee rates. I think generally, in Europe anyway, as you -- as David mentioned, perm impacted 18%, temp 10%. So temp has definitely been a little bit more resilient. I think it is stronger for us in Europe. We have a very strong interim business. So that has served us well, and that is a key focus area for us this year in terms of continued growth in that interim section. Across Europe, job roles, we are very strong in the accountancy sector. That is a fairly significant portion of our income. That's an area that's holding up very well. I think in terms of specific countries, on the upside, I'd say Netherlands has continued to be resilient. I think some of our challenges, I'll probably call out Spain. That hasn't -- the performance hasn't been where we would like that to be, and it is a market where we've recently changed the leadership. So we believe that will drive a better performance there. Germany, obviously well documented. We're not big in Germany, but we do still see opportunity there.

No, just any particular roles beyond the accounting side that were maybe of sort of interest from your numbers you've seen.

Yes. I mean where we're seeing opportunity is definitely accountancy specifically transformation type roles. Technology has been a challenge, probably the exception there is cyber, where we've seen opportunity in growth. And obviously, the other sector that has remained resilient, not just in Europe but across the group actually is in legal. And I mean it partly plays into particularly if you look at the U.K. with what's happened in terms of the employs and what's coming forward, anything with sort of regulatory compliance skills within that legal sector have been in demand, and we continue to see healthy wage growth there and demand from our clients.

Perfect. And then, David, sorry, I interrupted on the time to hire.

Yes, time to hire, it's still taking longer than it has historically. It's longer than it was earlier on in the year. So we're not seeing that as a worsening issue. And I think it also mentioned about fee rates and fee rates are holding up -- are still holding up very well. As you saw in the announcement, we're going to increase our net fee income by 3% in constant currency. So fee rates are still holding up.

It appears no further question. I will hand it back over to your host for closing remarks.

Thank you very much, everybody, and thanks for taking the time to speak with us this morning. That's it from us. Thank you.

Thank you for joining today's call. You may now disconnect.