PageGroup Regulatory News (PAGE)

8 August 2018

Half Year Results for the Period Ended 30 June 2018

PageGroup plc ("PageGroup"), the specialist professional recruitment company, announces its unaudited half year results for the period ended 30 June 2018.

HIGHLIGHTS

· Group operating profit increased +18.8%* to £67.2m, +18.1% in reported rates

· Investment in 829 (+16.6%) fee earners year-on-year

· Adverse FX movements decreased reported gross profit by c. £6m and operating profit by c. £1m

· Conversion rate** increased to 17.0% (H1 2017: 16.2%)

· Strong Balance Sheet with net cash of £87.0m (H1 2017: £88.9m)

· Interim dividend up 5.1% to 4.10 pence per share, totalling £13.1m

· Special dividend of 12.73 pence per share, totalling £40.6m

* in constant currency at prior year rates

** operating profit as a percentage of gross profit

Commenting, Steve Ingham, Chief Executive Officer, said:

"PageGroup delivered an increase of 14.2%* in gross profit and 18.8%* in operating profit in the first half of 2018, with the Group's conversion rate rising to 17.0% from 16.2%. This reflected an improved business performance and operational efficiencies, as well as continued investment in new fee earners, two new offices, in Canberra and Chengdu, and a new country launch, in Vietnam.

"Adverse foreign exchange movements impacted our reported performance by c. £6m of gross profit and c. £1m of operating profit.

"In the past 12 months we have added 829 fee earners (+16.6%), with over half of these being into our five Large, High Potential markets. Each of these markets had a record first half in terms of gross profit, with collective growth accelerating to 23%, up from 12% in the first half of last year.

"We ended the first half of the year with both record fee earner and total headcount. Fee earner headcount grew 319 (+5.8%) in the first half, to a record level for the Group of 5,816 at 30 June 2018. We maintained our fee earner to operational support staff ratio at 78:22. Total headcount at the end of the first half was 7,457.

"We have announced an interim dividend of 4.10 pence per share, an increase of 5.1% over last year. In addition, in line with our policy of returning surplus capital to shareholders, we are pleased to announce today a special dividend of 12.73 pence per share (2017: 12.73 pence per share) totalling £40.6m, a fourth consecutive year of special dividends. Taking both dividend payments together, this amounts to a cash return to shareholders of £53.7m. Together with the 2017 final dividend paid in June of £27.4m, this represents a total of £81.1m returned to shareholders in 2018, or 25.43 pence per share.

"We are pleased with the Group's strong performance in the first half. However, there remain challenges, including Brexit in the UK, trading in Catalonia and forthcoming elections in Latin America.

"We will continue to focus on driving profitable growth as we progress towards our Vision of 10,000 headcount, £1bn of gross profit and £200m - £250m of operating profit, whilst being able to respond quickly to any changes in market conditions."

PageGroup will host a conference call, with on-line slide presentation, for analysts and investors at 8.30am on 8 August 2018, the details of which are below.

Link:

https://www.investis-live.com/pagegroup/5b4607c75821140a00e95e7a/kylk 

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

Please quote participant access code 91 98 55 to gain access to the call.

A presentation and recording to accompany the call will be posted on the PageGroup website during the course of the morning of 8 August 2018 at:

http://www.page.com/investors/investor-library/2018.aspx

Enquiries:

INTERIM MANAGEMENT REPORT

To the members of PageGroup plc

GROUP RESULTS

The Group's revenue for the six months ended 30 June 2018 increased 11.7% to £751.6m (2017: £673.1m) and gross profit increased 12.5% to £396.0m (2017: £352.0m). At constant currencies, the Group's revenue increased by 12.8% and gross profit by 14.2%. The Group's revenue mix between permanent and temporary placements was 41:59 (2017: 40:60) and for gross profit was 77:23 (2017: 76:24).

Revenue from temporary placements comprises the salaries of those placed, together with the margin charged. Overall, pricing has remained relatively stable across all regions.

Total headcount increased in the period by 428, while fee earner headcount grew by 319. We added a further 109 support staff mainly to support our strategic operational support programmes in the short term. We maintained our fee earner to operational support staff ratio at a record 78:22. We will continue to invest in our headcount in the second half in response to trading conditions and in line with our updated Page Vision.

The Group's organic growth model and profit-based team bonus ensures costs remain tightly controlled. 78% of first half costs were employee related, including salaries, bonuses, share-based long-term incentives, and training and relocation costs.

In total, administrative expenses in the first half increased 11.4% to £328.8m (2017: £295.1m), driven by increases in headcount being offset by foreign exchange movements. In constant currency administrative expenses were up 13.3% and operating profit increased 18.8% to £67.2m (2017: £56.9m), an increase of 18.1% at reported rates.

The Group views its conversion rate, which represents the ratio of operating profit to gross profit, as a key metric for the business. This conversion rate is affected by macro-economic conditions, the level of investment, particularly in fee earners and the degree of spare capacity within the business. The Group's conversion rate of 17.0% (2017:16.2%) was an improvement on H1 2017, driven by a strong performance in EMEA and a noticeable improvement in the Americas. Investment continued during the first half, with the addition of 319 new fee earners, two new offices, in Canberra and Chengdu, and a new country launch, with the opening of an office in Ho Chi Minh City, Vietnam.

FOREIGN EXCHANGE

The Group was impacted adversely in the period by movements in foreign exchange rates, as Sterling strengthened against almost all of the currencies relevant to the Group's operations. In the first half, this decreased the Group's revenue, gross profit and operating profit when expressed in Sterling by c. £8m, c. £6m and c. £1m, respectively.

OTHER ITEMS

A net interest income of £nil (2017: £nil) reflected the consistent level of cash held this year compared to 2017 and the continuing low interest rate environment. Interest income of £0.2m on cash balances held through the period was offset by financial charges related to the Group's Invoice Discounting Facility and overdrafts used to support local operations.

The charge for taxation at the half year is 26.5% (2017: 28.2%). It is based on the full year underlying tax rate of around 27.5%, reduced by positive prior year items arising from tax returns filed in the half year to 30 June.

Basic earnings per share for the six months ended 30 June 2018 was 15.5p, an increase of 18.3% and diluted earnings per share was 15.4p, an increase of 17.6% (2017: basic earnings per share 13.1p; diluted earnings per share 13.1p).

CASH FLOW

The Group started the year with net cash of £95.6m. In the first half, £40.5m was generated from operations after funding an increase in working capital of £39.9m, mainly due to growth in our temporary and contracting business, which has a higher working capital requirement. Tax paid was £19.7m and net capital expenditure was £10.8m. During the first half, £19.1m was received from exercises of share options. £9.9m was spent on the purchase of shares in the Employee Benefit Trust to hedge exposures under share-based awards (2017: £nil) and dividends of £27.4m were paid to shareholders. As a result, the Group had net cash of £87.0m at 30 June 2018 (30 June 2017: £88.9m).

DIVIDENDS AND SHARE REPURCHASES

It is the Directors' intention to continue to finance the activities and development of the Group from retained earnings and to operate while maintaining a strong balance sheet position.

The Group's first use of cash is to satisfy operational and investment requirements, as well to hedge its liabilities under the Group's share plans. The level of cash required for this purpose will vary depending upon the revenue mix of geographies, permanent and temporary recruitment, and point in the economic cycle.

Our second use of cash is to make returns to shareholders by way of an ordinary dividend. Our policy is to grow the ordinary dividend over the course of the economic cycle in a way that we believe we can sustain the level of ordinary dividend payment during downturns, as well as increasing it during more prosperous times.

Cash generated in excess of these first two priorities will be returned to shareholders through supplementary returns, using special dividends and/or share buybacks.

The Board has announced an interim dividend of 4.10 pence per share, an increase of 5.1% over last year. In addition, in line with its policy of returning surplus capital to shareholders, the Group is pleased to announce today a special dividend of 12.73 pence per share or £40.6m (2017: 12.73 pence per share), making it a fourth consecutive year of special dividends. Taking both dividend payments together, this amounts to a cash return to shareholders of £53.7m. Together with the 2017 final dividend paid in June of £27.4m, this represents a total of £81.1m returned to shareholders in 2018.

This special dividend will be paid, as in previous years, at the same time as the interim dividend on 10 October 2018 to shareholders on the register as at 7 September 2018.

During the first half, £9.9m was spent on the purchase of shares into the Employee Benefit Trust to hedge exposures under share-based awards (2017: £nil).

All growth rates given below are in constant currency unless otherwise stated.

EUROPE, MIDDLE EAST AND AFRICA (EMEA)

EMEA is the Group's largest region, contributing 49% of Group first half gross profit. In reported rates, revenue in the region increased by 20.6% to £389.7m (2017: £323.1m) and gross profit increased 20.3% to £194.9m (2017: £162.1m). In constant currency, revenue increased 18.7% on the first half of 2017 and gross profit increased by 18.6%.

The EMEA region performed strongly, with Michael Page and Page Personnel growing 20% and 17%, respectively. We continued our investment in France, which now represents a third of the region and 16% of the Group, by increasing fee earner headcount 21% year-on-year. Despite the disruption from strikes in Q2, gross profit grew by 17%. In Germany, one of our Large, High Potential markets, we grew 27%. We continued to invest in fee earners, up 90 or 30% year-on-year, particularly into the Contracting and Interim markets. Southern Europe grew 15%, with Italy up 25% and Spain up 7%, despite continued challenging trading conditions in Catalonia. Benelux grew 22%, with Belgium and the Netherlands up 37% and 16% respectively. The Middle East and Africa grew 14%, driven mainly by growth in UAE of 23%.

The 30.4% increase in operating profit for the first half of 2018 to £40.9m (2017: £31.4m) and improvement in the conversion rate to 21.0% (2017: 19.4%) was driven by a combination of improved fee earner productivity and a reduced cost per fee earner. This reduction in cost per fee earner was a combination of adding more junior, lower cost fee earners, as well as efficiency benefits from our European shared service centre. Headcount across the region increased 179 (+6.0%) in the first half to 3,175 at the end of June 2018 (2,996 at 31 December 2017).

ASIA PACIFIC

In Asia Pacific, representing 19% of Group first half gross profit, revenue increased 7.5% in reported rates to £125.6m (2017: £116.9m), and gross profit increased 11.1% to £74.1m (2017: £66.7m). In constant currency, revenue increased 13.0% in the first half and gross profit increased by 16.1%.

In Asia, we have two of our Large, High Potential markets, Greater China and South East Asia, as well as two other large recruitment markets, India and Japan, in which we continue to invest heavily. As a result, we grew fee earner headcount by 36% year-on-year, which in part helped us to achieve gross profit growth of 20%. In addition, in the Asia Pacific region we have opened 3 new offices, Chengdu, in the west of China, Canberra in Australia and our first office in Vietnam, in Ho Chi Minh City.

These investments have accelerated growth in the first half from Q1 to Q2 and have positioned us for continued growth. However, in the short-term these investments have reduced our conversion rate to 12.1% in H1 2018 from 17.0% in H1 2017. Headcount across the region increased by 128 (8.4%) to 1,660 at the end of June 2018 (1,532 at 31 December 2017).

UNITED KINGDOM

In the UK, representing 18% of Group first half gross profit, revenue declined -3.5% to £155.0m (2017: £160.7m), and gross profit declined -4.6% to £69.7m (2017: £73.0m), with Brexit related uncertainty continuing to impact decision-making from clients and candidates at the more senior levels of the market. Page Personnel, which has a higher proportion of temporary recruitment, grew 3%, while Michael Page, which is focused on more senior candidates, declined -7%.

Operating profit increased by 20.1% to £10.5m (2017: £8.7m), with the conversion rate increasing to 15.0% (2017: 11.9%). As noted last year, our H1 2017 UK conversion rate was impacted by around 3 percentage points by a particularly high share plan charge that, due to the proportion of senior management who are based in the UK, disproportionately impacted the region's conversion rate. In H1 2018, we also restructured our business in the UK, moving from a discipline to a regional basis, in order to more closely align us with our customers. While not the driver of the restructure, it also resulted in a reduction in our UK management team.

Headcount decreased by 12 (0.9%) during the first half of 2018 to 1,395 at the end of June 2018 (1,407 at 31 December 2017).

THE AMERICAS

In the Americas, representing 14% of Group first half gross profit, revenue increased 12.1% in reported rates to £81.3m (2017: £72.5m), while gross profit increased 14.2% to £57.3m (2017: £50.2m). In constant currency, revenue increased by 22.6% and gross profit increased by 24.9%.

North America saw growth of 22% in both the US and Canada. In the US, we continued to invest, with fee earner headcount up 32 or 9% in H1, following the increase of 64 or 21% in 2017. We saw particularly strong performances from our offices outside of New York, which now represent 54% of the US, a proportion that has grown by around 50% since 2015, and which grew 31% collectively.

In Latin America, we increased fee earner headcount by 24% year-on-year and grew 29%. This investment was spread across the region, including the four countries outside of Brazil and Mexico, being Argentina, Chile, Colombia and Peru, where we now have a total headcount of over 300 and grew 43%, collectively. Elsewhere, Brazil grew 17% as market conditions continued to improve. In Mexico, our largest business in the region in terms of fee earners, we grew 26%.

Headcount in the Americas was up 133 (12.2%) in the first half, to 1,227 at the end of June 2018 (1,094 at 31 December 2017). Operating profit increased by 24.0% to £6.8m (2017: £5.5m), with an increase in the conversion rate to 11.9% (2017: 11.0%), due primarily to the increase in gross profit growth throughout the region.

KEY PERFORMANCE INDICATORS ("KPIs")

We measure our progress against our strategic objectives using the following key performance indicators:

The source of data and calculation methods year-on-year are on a consistent basis. The movements in KPIs are in line with expectations. Disclosure for GHG emissions and People KPIs is provided annually.

PRINCIPAL RISKS AND UNCERTAINTIES

The management of the business and the execution of the Group's strategy are subject to a number of risks. The main risks that PageGroup believes could potentially impact the Group's operating and financial performance for the remainder of the financial year remain those as set out in the Annual Report and Accounts for the year ending 31 December 2017 on pages 35 to 39.

There have been no changes to these risk categories in the first half to 30 June 2018. However, there remains a degree of uncertainty in the UK as a result of Brexit.

We have a proven track record of being able to manage our headcount and costs effectively throughout the economic cycle and it should be noted that the UK is now only 18% of the Group, but a more resilient market due to its size and maturity. We also expect our other markets to continue to remain positive. In light of these mixed trading conditions, we will continue to focus on activity levels, adjusting headcount during the second half to react to market conditions. As always, we remain focused on driving profitable growth, whilst remaining able to respond quickly and effectively to any changes in market conditions.

TREASURY MANAGEMENT, BANK FACILITIES AND CURRENCY RISK

It is the Directors' intention to continue to finance the activities and development of the Group from retained earnings and to operate while maintaining a strong balance sheet position.

The Group's first use of cash is to satisfy operational and investment requirements, as well as hedging its liabilities under the Group's share plans. The level of cash required for this purpose will vary depending upon the revenue mix of geographies, permanent and temporary recruitment, and point in the economic cycle.

Our second use of cash is to make returns to shareholders by way of an ordinary dividend. Our policy is to grow the ordinary dividend over the course of the economic cycle in a way that we believe we can sustain the level of ordinary dividend payment during downturns, as well as increasing it during more prosperous times.

Cash generated in excess of these first two priorities will be returned to shareholders through supplementary returns, using special dividends and/or share buybacks.

Cash surpluses are invested in short-term deposits, with any working capital requirements being provided from Group cash resources, Group facilities, or by local overdraft facilities. The Group has a multi-currency notional cash pool based in the UK Group Treasury subsidiary and a cash concentration structure between the UK and Eurozone subsidiaries. The structure facilitates interest and balance compensation of cash and bank overdrafts. The Group has an Invoice Financing facility with HSBC Bank, the availability of which is limited to the level of UK trade receivable available for financing. This facility is subject to conventional banking covenants.

The main functional currencies of the Group are Sterling, Euro, Australian Dollar, Swiss Franc, Chinese Renminbi, Singapore and US Dollars. The Group does not have material exposure to foreign denominated monetary assets and liabilities.

In certain cases, where the Group gives or receives short-term loans to and from other Group companies with different reporting currencies, it may use short-dated foreign exchange swap derivatives financial instruments to manage the currency and interest rate exposure that arises on these loans. The Group has entered into hedges to cover its investment in foreign entities in the US and Canada.

GOING CONCERN

The Board has undertaken a recent and thorough review of the Group's forecasts and associated risks and sensitivities. Despite the uncertainty in the economy and its inherent risk and impact on the business, the Board has concluded, given the level of cash in the business and Group borrowing facilities, the geographical and discipline diversification, limited concentration risk, as well as the ability to manage the cost base, that the Group has adequate resources to continue in operational existence for the foreseeable future, being a period of at least 12 months from the date of this announcement.

CAUTIONARY STATEMENT

This Interim Management Report ("IMR") 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 IMR should not be relied on by any other party or for any other purpose. This IMR 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 report 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 IMR has been prepared for the Group as a whole and therefore gives greater emphasis to those matters that are significant to PageGroup plc and its subsidiary undertakings when viewed as a whole.

Page House

The Bourne Business Park

1 Dashwood Lang Road

Addlestone

Weybridge

Surrey

KT15 2QW

By order of the Board,

INDEPENDENT REVIEW REPORT TO PAGEGROUP PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and the related notes 1 to 13. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

7 August 2018

Condensed Consolidated Income Statement

For the six months ended 30 June 2018

The above results all relate to continuing operations

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2018

Condensed Consolidated Balance Sheet

As at 30 June 2018

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2018

Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June 2018

Notes to the condensed set of interim results

For the six months ended 30 June 2018

1. General information

The information for the year ended 31 December 2017 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

2. Accounting policies

Basis of preparation

The unaudited interim condensed consolidated financial statements for the six months ended 30 June 2018 have been prepared in accordance with IAS 34 'Interim financial reporting' and with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority.

The unaudited interim condensed consolidated financial statements do not constitute the Group's statutory financial statements. The Group's most recent statutory financial statements, which comprise the annual report and audited financial statements for the year ended 31 December 2017, were approved by the directors on 6 March 2018. The interim condensed consolidated financial statements should be read in conjunction with the Annual Report and Accounts for the year ended 31 December 2017, which have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union.

During the period the Group adopted "IFRS 15 - Revenue from Contracts with Customers" and "IFRS 9 - Financial Instruments" for the first time. No adjustment was required for either standard on first time adoption. All other accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2017.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the interim management report. The interim management report also includes a summary of the Group's financial position, its cash flows and its borrowing facilities.

The directors believe the Group is well placed to manage its business risks successfully. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current committed facilities.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly financial report.

New accounting standards, interpretations and amendments adopted by the Group

During 2017, the Group concluded its detailed assessment of "IFRS 15 - Revenue from Contracts with Customers". As a result of this assessment, no adjustment is required. A fully retrospective method has been adopted for transparency and comparison purposes.

The Directors have also concluded that no adjustment is required in respect of "IFRS 9 - Financial Instruments".

We are continuing with our review and implementation of the new Accounting Standard, "IFRS 16 - Leases". A further update will be provided in this year's Annual Report and Accounts.

The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

3. Segment reporting

All revenues disclosed are derived from external customers.

The accounting policies of the reportable segments are the same as the Group's accounting policies. Segment operating profit represents the profit earned by each segment including allocation of central administration costs. This is the measure reported to the Group's Board, the chief operating decision maker, for the purpose of resource allocation and assessment of segment performance.

(a) Revenue, gross profit and operating profit by reportable segment