Robert Walters plc (RWA) Earnings Call Transcript & Summary

Hello, and welcome to the Robert Walters Q1 of 2025 Trading Update Call. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your host, David Bower, CFO, to begin today's conference. Thank you.

Thanks, Francois. Good morning, everyone, and thanks for joining our Q1 2025 trading update. I'm David Bower, Chief Financial Officer; and joining me this morning is Toby Fowlston, Chief Executive. As we begin, I'll make a few remarks around performance at the group level before Toby touches on trading across our regions as well as the market backdrop. As ever, we'll then be happy to take any questions you may have. As usual, all net fee income percentage movements are in constant currency. As you all have seen from this morning's statement, group net fee income was down by 16% year-on-year in the first quarter as trading conditions overall remain challenging across our markets. We saw some pockets of growth in the U.K. and broadly stable activity levels in Asia Pacific. However, the weaker sentiment observed in Europe in late 2024 continued in the first quarter. Forward activity levels for the specialist recruitment business, namely job flow and interviews, follow the typical shape we see in Q1 with activity levels picking up in March, following a quieter January and February. For our specialist recruitment service line overall, jobs flow was in line with the first quarter last year. So turning now to consider headcount and productivity. We closed the quarter with group head count just over 3,200, which was down 3% on the 2024 closing position. Within this, fee earner headcount fell by 4% quarter-on-quarter whilst non-fee earner head count was down by 1%. In managing fee earner headcount, we remain highly selective in replacing natural attrition with fee earner headcount levels now down by 28% against the peak reached in the first quarter of 2023 and down by 16% year-on-year, in line with the reduction in fees. Overall, productivity for the group, measured by net fee income per fee earner remained strong and was up by 2% year-on-year in constant currency terms. This is underpinned by stable fee rates and positive effects of mix and wage inflation. As you'll be aware, one of the key drivers for our overall model is volume volatility in our specialist recruitment service line, measured in terms of perm placement per perm fee earner per month. Guided by job flow levels, our strategic approach has been to not let perm fee earner headcount fall wholly proportionately with volumes. And this, along with the market conditions, explains a 7% reduction in volume productivity. Sitting just below 0.8 perm placements per perm fee earner per month, we continue to have a good deal of headroom compared to a long win average volume productivity of around 1 perm placement per month, underpinning the opportunity we have to drive operational leverage over the medium term. Looking at the balance sheet, in line with the typical first quarter profile, where we tend to see an outflow driven by fee earner available pay in respect to the prior year, we closed the quarter with net cash of around GBP 42 million. So I'll now hand you over to Toby to take you through trading in our regional segments and the market backdrop.

Thanks, David. Good morning, everyone. Let's turn first to our Asia Pacific segment. Here, fee income is down 15% overall. In specialist recruitment, fees were down 11%, a few points lower than the fourth quarter. In Japan, the 7% reduction in fees reflected more cautious client behavior in perm, which extended time to hire, but we continue to see positive trends in temp. In Australia, fees were down by 11%, albeit with some pockets of growth in certain markets and conditions remain more favorable than in New Zealand, where public sector demand for temp is still yet to improve. We continue to see a more resilient performance in Greater China with fees down 1%, led by growth in the Mainland, while Southeast Asia declined by 16%. Asia Pacific recruitment outsourcing fee income declined by 42%, reflective of a client account not being renewed. Turning now to Europe, where fee income overall and in specialist recruitment was down by 22%. In the Netherlands, where we're over 70% weighted towards temp, there was increased uncertainty from new legislative enforcement powers regarding self-employment, driving the 30% reduction in fee income. We do, however, feel confident in our ability to help clients navigate the regulatory change, particularly given our status as a larger provider and therefore, potentially take share, particularly as the landscape settled. In France and Belgium, where fees were down 17% and 15%, respectively, conditions remain tough. And in Spain, which is in the early stages of a turnaround with new leadership, fees were down 32%, but have been largely stable sequentially over the prior 2 quarters. In Germany, where the cornerstone of our offering is in accounting and finance and technology, we saw tougher conditions in perm. However, interim volumes were up year-on-year. Turning to the U.K. Fee income is down 4% overall, a notable improvement from the recent trend. Specialist recruitment fee income was down by 1%. We saw another quarter of growth in London with fees up 22%, whilst in the regions, the 22% decline in fees is partly a function of the comparative predating the recent office network consolidation. Recruitment outsourcing fee income was down by 8%, driven by lower hiring volumes. In our Rest of World segment, fee income is down by 18% overall. Specialist recruitment fee income was down by 26%. We saw a slightly more muted performance in the Middle East, with fees down 12%, whilst the U.S.A. performance with fees half the prior year level, partly reflects again the office network consolidation during the quarter. There was a more resilient performance in recruitment outsourcing with fees down 1%. So in summary then, global hiring markets remained challenging during the first quarter. Thinking about our activity levels in specialist recruitment in terms of job flow and interviews, these were stable to slightly up year-on-year in the U.K. and Asia Pacific. In Europe, meanwhile, the weaker sentiment seen in late 2024 continued in the first quarter. And more recently, we have, of course, seen increased uncertainty regarding the flow of global trade due to tariffs and our early interactions with clients and candidates informs our view this is likely to be a further headwind to confidence levels in the near term, limiting visibility on the outlook for the balance of the year at present. Notwithstanding that, we remain highly focused on our strategic initiatives to strengthen the business. And this, combined with the full suite of talent solutions, we have to support our clients and the experienced and motivated teams that deliver them means we will continue to take the right actions to navigate the challenging trading environment. And with that, David and I would be happy to take any of your questions.

[Operator Instructions] The first question comes from the line of Thomas Callan from Investec.

I've got 2, please. So just firstly, thinking about the group's vertical exposure in the context of U.S. trade tariff dynamics. For example, it's skewed to say sort of financial services or legal services. To what extent do you think verticals such as these provide the company with a degree of downside risk protection? And then secondly, just on the cost base and noting that 16% year-on-year fee earner headcount reduction. How should we be thinking about where that headcount base might end up at the end of fiscal '25? Has there been any changes to your expectations here versus the prelims? Or is it still that you're looking to ensure optimal positioning to sort of take advantage of the recovery as and when that materializes.

Tom, so I'll take the vertical question. David can touch on the fee earner headcount. Look, I think in terms of verticals, it's still clearly very challenging overall. In specialist recruitment, we've clearly seen greater year-to-date resilience, anyway, in terms of low to mid-single-digit percentage of clients across legal, financial services, particularly more so encouraging in the U.K. Overall, I think supply chain and procurement, we've seen a lot of activity in that space and across cyber and AI. I think tariffs, look, it's just too cool -- sorry, too early to really have any visibility on that as of yet. With regards to headcount, I'll pass to David.

Yes. Tom, it's David. So in terms of the headcount, as we've said, we've used sort of very, very selective rehiring of natural attrition to sort of manage the headcount levels down. I think that's worked as well. If I look at the productivity piece, as I said earlier, we've got net fee income for fee earner up slightly. We've got job flow broadly stable. So those 2 things combined, plus the natural attrition sort of management all come together to say, look, I think we've got heads in broadly the right place and the right numbers. We will look at pockets of success and recruit accordingly. But overall, I think the headcount level we've got today is broadly where we would expect it to be. So yes, to your question, really unchanged from the prelims view. But we'll clearly keep it very much under review as we progress through the year.

[Operator Instructions] The next question comes from the line of Steve Woolf from Deutsche Bank.

A couple for me. Just back to that tariff question inevitably. Have you noticed out there in any sort of particular region, I'm thinking maybe specific to Asia where the tariffs are highest, any sort of mandates being pulled at this play -- at this point put on hold? Any sort of very early sort of rabbit in the headlights kind of activity that you've seen? Secondly, just on the Netherlands and the legislative changes. Just what roles there are you being -- are you exposed to and are being impacted? Thirdly...

Yes. Sorry.

Sorry, go ahead. I'll follow up.

Okay. Toby here. So just on the Netherlands, the legislation assets really in that interim space. So as I mentioned, about 70% -- just over 70% of our business is non-perm in the Netherlands. I mean, I won't go into all the specifics of what the legislation is around. But essentially, it's around sort of protecting what might be perceived as people moving to temp to perm. So we are exposed in that interim space. That said, of course, it's across the whole country. So we're looking at ways in which we can support our clients. So we feel we've got some solutions which we can come up with. But currently, obviously, it is a challenge. I think in Asia, it's probably too early to say. China is the obvious one, given that's still the position that sits right now. We haven't seen any immediate impact as of yet. So I think we'll probably be in a better position once we've got some visibility, particularly after the sort of 90-day moratorium if indeed, that's where it goes.

Sure. The other ones I had were on the headcount reductions, if we're sort of where largely have they been. I know I'm speaking to David earlier, there's obviously the closure of Liverpool and areas like that and some consolidation in the U.S. From a fee earner perspective, where have those other reductions outside of that been? And then finally, just on the cash position. Any thoughts on where the shares are now with the likes of a buyback, et cetera?

Yes, on the headcount question. The headcount, as we said along, we're trying to look at very [ surgically ] and scientifically around job flow, productivity and where we're seeing activity. So fee earners have come off in many and most of the markets. That being said, where you see us talk about having sort of a more resilient performance or even some growth, that's where potentially have gone -- have come off less to where we have resilience in performance. We've had a lower headcount reduction than where we've seen more weakness, and that's how we manage staff and that's how we'll continue to look at it. And with regards to the cash, so yes, given where shares are, but equally given where cash currently is, we have our internal view of really wanting to try and maintain a minimum of around about GBP 50 million. That gives us the protection for [ interim ] swings, but also for tough times, which we're clearly in at the moment. But I think for me, the priority is preserving the strength of the balance sheet and preserving the dividend. And yes, as soon as we -- I can see through that. And yes, we can look at alternative allocations of capital. But first and foremost, it's about the balance sheet maintenance and dividend.

We currently have no questions coming through. [Operator Instructions] We have no further questions. So handing back over to you for closing remarks.

Thank you very much. Good to speak to everybody, and no doubt we'll speak soon. Thanks.

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