PageGroup plc FOURTH QUARTER AND FULL YEAR 2017 TRADING UPDATE (4214B)

TIDMPAGE

RNS Number : 4214B

PageGroup plc

10 January 2018

10 January 2018

PageGroup plc

FOURTH QUARTER AND FULL YEAR 2017 TRADING UPDATE

Q4 Highlights*

   --      Group gross profit +13.8% (+11.7% in reported rates) up from +8.8% in Q3, a record quarter 
   --      EMEA +19.3%: France +28%; Germany +14% 
   --      Asia Pacific +14.9%: Asia +21%; Greater China +15%; Australia +2% 
   --      UK (18% of the Group) -2.8%; macro environment impacting some clients and senior candidates 
   --      Americas +18.8%: US +21%; LatAm +19%; Brazil +14% 
   --      Technical disciplines (23% of the Group) fastest growing at +25.7% 
   --      Record headcount of 7,029; investment in 220 fee earners in Q4 
   --      Strong balance sheet; net cash of c. GBP91m (Q4 2016: GBP93m) 

Full Year Results*

   --      Group gross profit +9.9% (+14.6% in reported rates) to GBP711.6m, a record year 
   --      FX increased reported gross profit by GBP29.4m and operating profit by c. GBP6m 
   --      22 countries had record gross profit years 

-- Increase of 786 fee earners (+16.7%); fee earner to operational support staff joiners ratio of 85:15, resulting in overall ratio at a record 78:22

-- Operating profit expected to be ahead of consensus, but within the range of current market forecasts (Company compiled consensus of GBP115.0m, with a range of GBP112.0m - GBP119.0m)

* in constant currencies except where stated

Q4 GROSS PROFIT ANALYSIS

 
                                   Reported (GBPm)         Constant 
--------------  -----------  ---------------------------  --------- 
 Year-on-year    % of Group   Q4 2017   Q4 2016     %         % 
--------------  -----------  --------  --------  -------  --------- 
 EMEA               50%        90.9      75.9     +19.7%    +19.3% 
--------------  -----------  --------  --------  -------  --------- 
 Asia Pacific       18%        33.5      30.9     +8.4%     +14.9% 
--------------  -----------  --------  --------  -------  --------- 
 UK                 18%        32.9      33.8     -2.8%     -2.8% 
--------------  -----------  --------  --------  -------  --------- 
 Americas           14%        25.1      22.7     +11.0%    +18.8% 
--------------  -----------  --------  --------  -------  --------- 
 Total              100%       182.4     163.3    +11.7%    +13.8% 
--------------  -----------  --------  --------  -------  --------- 
 
 Permanent          75%        136.1     122.5    +11.1%    +13.6% 
--------------  -----------  --------  --------  -------  --------- 
 Temporary          25%        46.3      40.8     +13.6%    +14.4% 
--------------  -----------  --------  --------  -------  --------- 
 

FULL YEAR GROSS PROFIT ANALYSIS

 
                                   Reported (GBPm)         Constant 
--------------  -----------  ---------------------------  --------- 
 Year-on-year    % of Group   FY 2017   FY 2016     %         % 
--------------  -----------  --------  --------  -------  --------- 
 EMEA               47%        332.3     271.9    +22.2%    +15.0% 
--------------  -----------  --------  --------  -------  --------- 
 UK                 20%        140.8     146.3    -3.8%     -3.8% 
--------------  -----------  --------  --------  -------  --------- 
 Asia Pacific       19%        137.2     119.7    +14.6%    +10.2% 
--------------  -----------  --------  --------  -------  --------- 
 Americas           14%        101.3     83.1     +21.9%    +16.4% 
--------------  -----------  --------  --------  -------  --------- 
 Total              100%       711.6     621.0    +14.6%    +9.9% 
--------------  -----------  --------  --------  -------  --------- 
 
 Permanent          75%        536.4     470.0    +14.1%    +9.5% 
--------------  -----------  --------  --------  -------  --------- 
 Temporary          25%        175.2     151.0    +16.0%    +10.9% 
--------------  -----------  --------  --------  -------  --------- 
 

Steve Ingham, Chief Executive Officer, said:

"The Group delivered record gross profit in both the fourth quarter and the full year. Our Q4 gross profit of GBP182.4m grew 13.8%, up from 8.8% in Q3, and our full year gross profit of GBP711.6m was up 9.9% on the prior year in constant currencies.

"In the quarter, Continental Europe, Asia and the Americas delivered strong performances and we saw improvements and a return to growth in Australia, Brazil and Singapore. However, the UK continued to experience challenging market conditions, with the macro environment impacting some clients and senior candidates.

"Foreign exchange had a negative impact on our fourth quarter results, reducing our reported gross profit by GBP3.4m and operating profit by c. GBP1m, mainly due to currency movements in Asia Pacific and the Americas. However, for the full year, foreign exchange benefited our results, increasing our reported gross profit by GBP29.4m and operating profit by c. GBP6m.

"Our strategy of continued investment in our five Large, High Potential Markets of Greater China, Germany, Latin America, South East Asia and the US resulted in combined fourth quarter growth, ahead of the Group average, at +18%. There were some exceptional individual performances in this strategic category, with the US +21% and Greater China +15%, driven by Mainland China +23%. In Germany, where we continue to invest in the temporary and contracting markets, growth improved from the third quarter, from +9% to +14%. Latin America delivered a record quarter, up 19%, with all countries delivering double digit growth, including a return to growth in Brazil, up +14%. South East Asia grew +27% with Singapore up +33%, and our newest country, Thailand, profitable and performing well.

"Elsewhere, France, our second largest market after the UK and now 17% of the Group, delivered another record performance, +28% in the quarter. Elsewhere in Continental Europe, we saw a number of strong performances, with Belgium, Poland, Portugal and Switzerland all growing in excess of 25%. In Asia, our continued investment in Japan delivered growth of 41%. Australia, 4% of the Group, was up 2%, an improvement on its performance in Q3 (-2%). The UK, however, was down -2.8%, with client and candidate confidence levels continuing to be impacted by the ongoing uncertainty around the macro environment.

"Our focus on investing in our Large, High Potential Markets, as well as in businesses experiencing strong growth resulted in 220 additional fee earners in the quarter and 786, +16.7%, in the year. Total fee earner headcount is now 5,497, with a total headcount of 7,029, giving a ratio of fee earners to operational support of 78:22; all records for the Group.

"Cash generation in the quarter was strong, with net cash of c. GBP91m at the end of the quarter, after payment of the interim and special dividends of GBP52.3m on 11 October 2017.

"Looking forward, we remain cautious in several markets as we enter 2018: primarily in the UK, where we will continue to focus on protecting margins whilst investing in structural opportunities; in Australia, where we have invested in headcount and a new office in Canberra; and in Brazil, which remains challenging, despite a stronger performance in the fourth quarter. However, we will continue to invest in our Large High Potential Markets, as well as in markets with favourable trading conditions, both existing and new markets, such as India and the Nikkei market in Japan. We will, as always, continue to focus on driving profitable growth while being able to respond quickly to changes in market conditions.

"Full year operating profit is expected to be ahead of consensus, but within the range of current market forecasts*."

* (Company compiled consensus of GBP115.0m, with a range of GBP112.0m - GBP119.0m)

Group Trading Update

PageGroup delivered fourth quarter gross profit of GBP182.4m, up 13.8% in constant currencies and 11.7% in reported rates. For the full year, Group gross profit was a record GBP711.6m, up 9.9% in constant currencies and 14.6% in reported rates.

Foreign Exchange

Foreign exchange impacted the Group negatively in the quarter, reducing our reported gross profit by 2.1 percentage points or GBP3.4m and operating profit by c. GBP1m. For the full year, foreign exchange increased our reported gross profit by c. GBP29.4m and operating profit by c. GBP6m.

Ongoing Investment

Having added 276 fee earners in H1 2017 and 290 in Q3, we added a further 220 in Q4, mainly in our Large, High Potential Markets, as well as those where we saw the greatest growth, such as France and Japan. Our operational support headcount increased by 59 in the quarter to leave our fee earner to operational support staff ratio at the record of 78:22.

We continue to invest in our digital strategy and have seen this rewarded in the quarter, as we have been recognised by LinkedIn for the second time, winning the global award for the Most Socially Engaged Recruitment Company.

Perm/Temp mix

Our mix of permanent to temporary recruitment reflects the balance of our business mix, both in terms of brands, where Michael Page, our largest brand, operating at higher salary levels, has a naturally higher level of permanent recruitment, as well as our geographic mix. We are market leaders in regions such as Latin America, Greater China and South East Asia, where for cultural reasons, white collar temporary recruitment has only recently emerged.

Gross profit from permanent recruitment grew 11.1% in reported rates and 13.6% in constant currencies, to GBP136.1m (Q4 2016: GBP122.5m) and gross profit from temporary recruitment grew 13.6% in reported rates and 14.4% in constant currencies, to GBP46.3m (Q4 2016: GBP40.8m). This resulted in a ratio of permanent to temporary recruitment of 75:25.

Q4 Gross Profit - Discipline analysis

 
                                                                                      Reported (GBPm)         Constant 
----------------------------------------------------------------  -----------  ----------------------------  --------- 
 Year-on-year                                                      % of Group   Q4 2017   Q4 2016      %         % 
----------------------------------------------------------------  -----------  --------  ---------  -------  --------- 
 Accounting and Financial Services                                    37%        67.6       61.9     +9.2%     +11.1% 
----------------------------------------------------------------  -----------  --------  ---------  -------  --------- 
 Engineering, Property & Construction, Procurement & Supply 
  Chain                                                               23%        41.9       33.8     +23.9%    +25.7% 
----------------------------------------------------------------  -----------  --------  ---------  -------  --------- 
 Legal, Technology, HR, Secretarial, Healthcare                       23%        41.2       36.7     +12.4%    +15.1% 
----------------------------------------------------------------  -----------  --------  ---------  -------  --------- 
 Marketing, Sales and Retail                                          17%        31.7         30.9   +2.6%     +4.8% 
----------------------------------------------------------------  -----------  --------  ---------  -------  --------- 
 Total                                                                100%       182.4     163.3     +11.7%    +13.8% 
----------------------------------------------------------------  -----------  --------  ---------  -------  --------- 
 

Geographical analysis (unless otherwise stated all growth rates are in constant currencies)

 
 EMEA                  Gross Profit (GBPm)        Growth Rates 
-------------------  ----------------------  ---------------------- 
 (50% of Group)                               Reported    Constant 
-------------------  -----------  ---------  ----------  ---------- 
 Q4 2017 vs. Q4 
  2016                   90.9        75.9      +19.7%      +19.3% 
-------------------  -----------  ---------  ----------  ---------- 
 2017 vs. 2016          332.3       271.9      +22.2%      +15.0% 
-------------------  -----------  ---------  ----------  ---------- 
 Headcount at 31 December 2017: 2,996 (30 September 
  2017: 2,854) 
   *    France (17% of Group) +28% on Q4 2016 
 
 
   *    Germany (7% of Group) +14% on Q4 2016 
------------------------------------------------------------------- 
 

In EMEA, gross profit grew 19.3% (Q3 2017: +12.6%) to GBP90.9m, a record quarter. Both Michael Page and Page Personnel delivered strong performances, with growth of 20% and 19%, respectively. Following an investment in fee earner headcount of 124 (+23%) in the year, our largest country in the region, France, representing 17% of the Group, grew 28%, a record quarter, with strong performances across all brands. Germany delivered growth of 14%, a record quarter, and an improvement on Q3 (+9%). Spain delivered double-digit growth, despite the political uncertainly in Catalonia. Benelux continued to perform well, with Belgium the stand out result, and there were strong performances in Poland, Portugal and Switzerland, all growing in excess of 25%. Overall, Continental Europe grew 20%.

 
 Asia Pacific                 Gross Profit         Growth Rates 
                                 (GBPm) 
-------------------------  -----------------  ---------------------- 
 (18% of Group)                                Reported    Constant 
-------------------------  --------  -------  ----------  ---------- 
 Q4 2017 vs. Q4 2016         33.5      30.9      +8.4%      +14.9% 
-------------------------  --------  -------  ----------  ---------- 
 2017 vs. 2016               137.2    119.7     +14.6%      +10.2% 
-------------------------  --------  -------  ----------  ---------- 
 Headcount at 31 December 2017: 1,532 (30 September 
  2017: 1,438) 
   *    Asia (14% of Group) +21% on Q4 2016 
 
 
   *    Greater China (8% of Group and 58% of Asia) +15% on 
        Q4 2016 
 
 
   *    Australasia (4% of Group) +1% on Q4 2016 
-------------------------------------------------------------------- 
 

In Asia Pacific, gross profit increased 14.9%, up from 13.9% in Q3. In Asia, which is three quarters of the region, we grew 21%, with Greater China up 15%. In Mainland China, where we now have 7 offices and c. 350 fee earners, we grew by 23%. In South East Asia, we grew 27%, with particularly strong performances from Indonesia and Singapore, which both grew over 30%. Our investment in Japan, with fee earner headcount up 51% in the last year, delivered a record quarter with growth of 41%, up from 31% in Q3. In Australia, following recent fee earner investment, up 25% in the year, and a new office in Canberra, there was a return to growth, up 2% in Q4.

 
                             Gross Profit 
 UK                              (GBPm)       Growth Rate 
-------------------------  ----------------  ------------- 
 (18% of Group) 
-------------------------  -------  -------  ------------- 
 Q4 2017 vs. Q4 2016         32.9     33.8       -2.8% 
-------------------------  -------  -------  ------------- 
 2017 vs. 2016              140.8    146.3       -3.8% 
-------------------------  -------  -------  ------------- 
 Headcount at 31 December 2017: 1,407 (30 September 
  2017: 1,407) 
---------------------------------------------------------- 
 

In the UK, the decline in gross profit slowed to -2.8% in the quarter, from -7.6% in Q3. The macro environment continued to impact confidence, particularly among some of our multinational clients and more senior permanent candidates. Both temporary and permanent recruitment were affected equally. Page Personnel, which represented 23% of the UK, declined -2% compared to -3% in Michael Page. Within the disciplines, Financial Services, 5% of the UK, grew 4%. The Private Sector (87% of the UK) was down 2% and the Public Sector (13% of the UK) declined by 10%.

 
 Americas                 Gross Profit       Growth Rates 
                             (GBPm) 
----------------------  ---------------  -------------------- 
 (14% of Group)                           Reported   Constant 
----------------------  --------  -----  ---------  --------- 
 Q4 2017 vs. Q4 2016      25.1     22.7    +11.0%     +18.8% 
----------------------  --------  -----  ---------  --------- 
 2017 vs. 2016            101.3    83.1    +21.9%     +16.4% 
----------------------  --------  -----  ---------  --------- 
 Headcount at 31 December 2017: 1,094 (30 September 
  2017: 1,051) 
   *    North America (8% of Group) +19% on Q4 2016 
 
 
   *    Latin America (6% of Group) +19% on Q4 2016 
------------------------------------------------------------- 
 

In the Americas, we grew 18.8% in the quarter, up marginally from 18.4% growth in Q3. North America grew 19%, with the US up 21%, where our strategy of diversification continued, with strong performances from our regional offices (+32%), particularly from our offices in Chicago, Houston and Los Angeles. Latin America grew 19%, with Brazil, which represented a third of Latin America, returning to growth, up 14%. All countries in Latin America delivered double digit growth, with record performances from Argentina, Mexico and Peru.

Financial Position

Save for the effects of trading in the fourth quarter described and the payments of the 2017 interim and special dividends amounting to GBP52.3m on 11 October 2017, there have been no other significant changes in the financial position of the Group since the publication of the results for the Third Quarter Trading Update ended 30 September 2017.

Net cash at 31 December 2017 was in the region of GBP91m (31 December 2016: GBP93m).

Shares

At 31 December 2017 there were 326,808,701 Ordinary shares in issue, of which 14,311,816 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 11,181,237 shares and consequently these shares should be excluded when calculating earnings per share. The total number of voting rights in the Company is 326,808,701

Cautionary Statement

This Fourth Quarter and Full Year 2017 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.

Enquiries:

 
 
   PageGroup                        [phone] 
 Steve Ingham, Chief Executive 
  Officer 
 Kelvin Stagg, Chief Financial 
  Officer 
 
 FTI Consulting                   [phone] 
 Richard Mountain / Susanne 
  Yule 
 

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

http://www.investis-live.com/pagegroup/5a2522ac1563731100bba23b/tjss

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

 
 United Kingdom (Local)    020 3936 2999 
 All other locations       [phone] 
 

Please quote the access code 08 55 15 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 10 January 2018 at:

http://www.page.com/investors/investor-library

The Group will issue its Full Year Results on 7 March 2018 and its First Quarter 2018 Trading Update on 11 April 2018.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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January 10, 2018 02:00 ET (07:00 GMT)