Robert Walters Regulatory News (RWA)

30 July 2020

ROBERT WALTERS PLC

(the "Company", or the "Group")

Half-yearly financial results for the six months ended 30 June 2020

DIGITAL CAPABILITY AND COST MANAGEMENT DELIVER A PROFITABLE FIRST HALF DESPITE COVID-19 IMPACT

Robert Walters plc (LSE: RWA), the leading international recruitment group, today announces its half-yearly financial results for the six months ended 30 June 2020.

Financial and Operational Highlights

* Constant currency is calculated by applying prior period exchange rates to local currency results for the current and prior periods.

§ All of the Group's regions significantly impacted by the Covid-19 pandemic during the first half of the year. The outbreak was largely confined to Asia Pacific for the first two months of the year but quickly spread across Europe, the Middle East, Africa and the Americas.

§ Pre-Covid investment in technology ensured the Group was able to seamlessly transition to home-working as lockdowns were instigated across the globe.

§ Strong but prudent cost control measures implemented including voluntary Executive Director salary reductions of 20%, voluntary reduced working hours schemes for employees globally and reductions in all discretionary spending.

§ Large majority of the Group's offices are now open, albeit with reduced capacities to adhere to local government guidelines.

§ Employees are now back to full working hours in a number of the Group's markets as local recruitment activity levels either stabilised or showed signs of improvement.

§ Asia Pacific net fee income down 21% (21%*) to £63.9m (£63.4m*) (2019: £80.5m) and operating profit down 71% (73%*) to £2.9m (£2.7m*) (2019: £10.0m).

§ In Asia, our market-leading business in Japan performed relatively well with net fee income declining by 13%* year-on-year. Hong Kong was significantly impacted by both Covid-19 and on-going political and social unrest resulting in a 47%* decline in net fee income. In South East Asia, Malaysia and Thailand produced robust performances whilst activity levels in Singapore and Indonesia were more significantly impacted.

§ Solid performance across Australia and New Zealand with net fee income declining by 19%* and 16%* respectively. Performance underpinned by temporary recruitment and activity across the technology, digital and specialist financial services sectors.

§ Europe net fee income down 18% (18%*) to £44.5m (£44.5m*) (2019: £54.0m) and operating profit down 81% (81%*) to £1.5m (£1.5m*) (2019: £7.7m).

§ The breadth of our permanent, temporary and interim recruitment offerings enabled us to respond to varying client needs across the region.

§ Our Netherlands and Belgium businesses held up well with net fee income declining by just 3%* and 8%* respectively. The region's largest business, France, was more significantly affected with net fee income declining by 26%* year-on-year.

§ Our smaller businesses in Switzerland and Portugal delivered increases in net fee income albeit from a lower base.

§ UK net fee income down 31% to £36.3m (2019: £52.9m) producing an operating profit of £0.0m (2019: £4.2m).

§ Positive signs of both client and candidate confidence in the first two months of the year were erased with the onset of Covid-19 and lockdown in mid-March.

§ Significant fall in recruitment activity across both London and the UK regions during the second quarter. Pockets of activity did exist but limited to disciplines of technology, digital transformation, fintech, logistics and healthcare.

§ Other International (the Americas, Middle East and South Africa) net fee income down 21% (22%*) to £13.8m (£13.7m*) (2019: £17.5m) producing an operating loss of £0.2m (operating loss of £0.3m*) (2019: operating profit of £0.6m).

§ The Board believes that given the current level of market uncertainty and volatility it is not prudent to propose an interim dividend. The Board will continue to review and assess its dividend policy as the long-term economic impact of the Covid-19 pandemic becomes clearer.

§ Group headcount decreased by 14% to 3,734 (30 June 2019: 4,323).

§ Strong balance sheet with net cash of £119.0m as at 30 June 2020 (30 June 2019: £54.4m). The Group also has a £60m committed loan facility due for renewal in 2023.

Robert Walters, Chief Executive, said:

"The Covid-19 global pandemic presented the Group with an unprecedented set of challenges to navigate during the first six months of the year. The way our people across the globe have responded to these challenges with a unity of purpose and steadfastness has been truly inspiring and is testament to the strength of the Group's culture.

"Our pre-Covid investment in technology and innovation coupled with prudent cost management has enabled the business to remain profitable and gain market share through this extraordinary period.

"Current trading is in line with market expectations for the full year, albeit visibility remains limited. There is a clear correlation between the easing of lockdown restrictions and positive movement in recruitment activity indicators, however, the fluid and volatile nature of the pandemic does mean that the risk of infection spikes and a return to lockdown remains a reality.

"The Group has a strong brand, balance sheet and cash position and is led by an experienced management team that has steered the business successfully through a number of previous international crises. We remain confident that we will emerge from this unprecedented period with increased market share and well placed to benefit from operational gearing as markets normalise and recover."

The Company will publish a trading update for the third quarter ending 30 September 2020 on 8 October 2020.

Further information

About Robert Walters Group

The Robert Walters Group is a market-leading international specialist professional recruitment group with over 3,700 staff spanning 31 countries. We specialise in the placement of the highest calibre professionals across the disciplines of accountancy and finance, banking, engineering, HR, IT, legal, sales, marketing, secretarial and support and supply chain and procurement. Our client base ranges from the world's leading blue-chip corporates and financial services organisations through to SMEs and start-ups. The Group's outsourcing division, Resource Solutions is a market leader in recruitment process outsourcing and managed services.

www.robertwaltersgroup.com

Forward looking statements

This announcement contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them at the time of their approval of this announcement 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.

Robert Walters plc

Half-yearly financial results for the six months ended 30 June 2020

Half-yearly Management Report

The Covid-19 global pandemic presented the Group with an unprecedented set of challenges to navigate during the first six months of the year. The way our people across the globe have responded to these challenges with a unity of purpose and steadfastness has been truly inspiring and is testament to the strength of the Group's culture.

Whilst it can be no surprise that the Group's profitability has been significantly hit, with operating profit for the period falling to £4.2m (2019: £22.5m), our pre-Covid investment in technology and innovation coupled with prudent cost management has enabled the business to remain profitable and gain market share through this extraordinary period.

Our investment in technology, particularly in ensuring all staff were already equipped with tablet devices to facilitate remote working enabled the Group to immediately and seamlessly move to safe and productive home-working as lockdowns were imposed around the world. Video communication, video CV and video interviewing platforms were also already in place, thereby ensuring our high-quality service levels to both candidates and clients could continue uninterrupted.

Cost reduction and control measures were quickly put in place as the spread of the pandemic accelerated across all of the Group's regions, including voluntary Executive Director salary reductions of 20%, voluntary reduced working hour schemes globally and reductions in all discretionary spending. As of 1 July 2020, the Group's cost base was reduced by 19% from pre-Covid levels. In addition, selective access to local employment protection schemes enabled the Group to better protect the jobs and livelihoods of employees during the period.

As has been evidenced during the recovery cycles of previous international crises, the Group has a proven track record of implementing sensible and targeted cost management measures without damaging our core business and long-term ability to quickly benefit from operational gearing when market conditions become more favourable.

As we enter the early weeks of the second half of the year, it's pleasing to report that the large majority of the Group's offices are now open, albeit with reduced capacities to adhere to local government guidelines. In addition, our employees are now back to full working hours and pay in a number of the Group's markets as local recruitment activity levels either stabilised or showed signs of improvement. The fluid and volatile nature of the pandemic does, however, mean that the risk of spikes in infection rates and a return to lockdown remains a reality.

Group Financials

Revenue was down 22% (21%*) to £496.4m (£498.7m*) (2019: £634.5m) and gross profit (net fee income) declined by 23% (23%*) to £158.5m (£157.9m*) (2019: £204.9m). Profit before taxation decreased by 79% (81%*) to £4.3m (£4.1m*) (2019: £20.9m). Permanent recruitment currently represents 63% (2019: 69%) of the Group's recruitment net fee income.

The Group has a strong balance sheet with net cash of £119.0m as at 30 June 2020 (30 June 2019: £54.4m). The Group also has a £60.0m committed loan facility due for renewal in 2023. At 30 June 2020, £13.2m (2019: £26.3m) was drawn down under this facility.

Group headcount now stands at 3,734 (30 June 2019: 4,323) including 440 employees currently on furlough.

Asia Pacific (40% of net fee income)

Revenue was £187.0m (2019: £197.4m) and net fee income decreased by 21% (21%*) to £63.9m (£63.4m*) (2019: £80.5m) delivering an operating profit of £2.9m (£2.7m*) (2019: £10.0m).

In Asia, our market-leading business in Japan, the Group's largest and most profitable operation, produced the most resilient performance with net fee income down 13%* year-on-year. The systemic shortage of bilingual professionals remains acute and our specialist focus continues to be a source of significant competitive advantage. Whilst recruitment activity levels were impacted by a relatively short lockdown period, organisations were able to successfully adjust their recruitment practices.

Activity levels in Hong Kong were significantly impacted by both Covid-19 and ongoing political and social unrest with net fee income declining 47%* year-on-year. Across South East Asia, our businesses in Malaysia and Thailand proved most robust in terms of net fee income and operating profit, whereas both Indonesia and Singapore were more significantly impacted with net fee income declining 47%* and 34%* respectively.

The relative success with which Australia and, particularly, New Zealand managed their respective infection rates enabled our businesses there to produce relatively robust performances with net fee income declining 19%* and 16%* respectively. Our strength in technology, digital transformation and specialist areas of financial services recruitment coupled with our market-leading temporary recruitment offering underpinned the performance.

Reduced client recruitment activity led to a fall in Resource Solutions' net fee income but this was partially offset by new client projects in the retail, insurance and pharmaceuticals sectors.

Europe (28% of net fee income)

Revenue was £111.3m (2019: £125.8m) and net fee income decreased by 18% (18%*) to £44.5m (£44.5m*) (2019: £54.0m) delivering an operating profit of £1.5m (£1.5m*) (2019: £7.7m).

The breadth of our service offering across Europe, covering permanent, contract and interim recruitment, enabled our businesses to be agile and respond to client recruitment needs across the region. Interim and temporary recruitment activity held up more strongly than permanent recruitment as client hiring confidence was impacted by the pandemic, particularly during the latter part of the first quarter and the beginning of the second quarter. As lockdown measures have eased across the region, we did begin to see some positive signs of an uptick in activity levels in June, however forward visibility still remains limited.

Our mature and well-established businesses in the Netherlands and Belgium proved incredibly robust with net fee income holding up strongly, declining just 3%* and 8%* respectively. In France, our largest business in the region, net fee income declined 26%*, with interim recruitment activity proving most resilient. In Spain, where lockdown was more strict and prolonged than the rest of the Eurozone, net fee income declined by 24%* year-on-year.

Positively, our smaller businesses in Switzerland and Portugal delivered 19%* and 3%* increases in net fee income respectively, albeit from lower bases.

United Kingdom (23% of net fee income)

Revenue in the UK was £182.3m (2019: £293.2m) and net fee income decreased by 31% to £36.3m (2019: £52.9m) delivering an operating profit of £0.0m (2019: £4.2m).

The start of the year showed positive signs of client and candidate confidence following the General Election and the clearing of the first hurdle of the Brexit process. However, the onset of Covid-19 and the lockdown that followed significantly impacted recruitment activity and confidence levels across the UK. The technology, digital, healthcare and logistics sectors have proven to be the most resilient areas of the economy, whilst pockets of financial services have also seen activity most notably in fintech, risk, compliance and treasury.

The recruitment process outsourcing market was also negatively impacted by reduced client hiring requirements. We were extremely proud that our Resource Solutions business was able to successfully deliver a project for the National Health Service to onboard healthcare professionals to help fight the Covid-19 pandemic.

Other International (9% of net fee income)

Other International comprises the Americas, Middle East and South Africa. Revenue was £15.8m (2019: £18.1m), net fee income was down 21% (22%*) to £13.8m (£13.7m*) (2019: £17.5m) delivering an operating loss of £0.2m (operating loss of £0.3m*) (2019: operating profit of £0.6m).

Our US business has bucked the trend and performed relatively well during the first half, increasing net fee income and operating profit. With infection rates currently rising across the country, it remains to be seen whether this positive momentum can be maintained through the second half. In South America, our fledgling business in Chile has performed well increasing net fee income by 33%*, and in the Middle East, where activity levels have also held up relatively well, we have opened a new office in Abu Dhabi to further extend our office coverage across the region. Market conditions in South Africa, Brazil and Mexico remain challenging.

Cash flow

The Group maintained a strong net cash position of £119.0m as at 30 June 2020 (30 June 2019: £54.4m). Working capital in the period has increased by £27.3m and notable cash outflows included £12.3m of repayment of financing facility, £9.0m of principal paid on lease liabilities, £9.0m of tax payments and £3.7m of capital expenditure.

Dividend

The Group believes that given the current level of market uncertainty and volatility, it is not currently prudent to propose an interim dividend. The Board will continue to review and assess its dividend policy as the long-term economic impact of the Covid-19 pandemic becomes clearer.

Treasury management, currency risk and other principal risks and uncertainties affecting the business

The Group does not have material transactional exposures, although it is exposed to translation differences on the profits and cash flows generated in its overseas operations. Overseas currency balances that are surplus to local working capital requirements are converted on a regular basis to Pounds Sterling. The main functional currencies of the Group's operating divisions are Pounds Sterling, the Euro, the Australian Dollar and the Japanese Yen.

The other principal risks and uncertainties affecting the Group's business activities remain those detailed within the Principal Risks and Uncertainties section of the Annual Report and Accounts for the year ended 31 December 2019, namely political factors; economic, environmental and market uncertainty; talent attraction and retention; competition and emerging technologies; brand reputation and business strategy; candidate risk; non-compliance with laws, regulations and contractual obligations; regulatory environment, data breach and cyber security; reliance on technology infrastructure; and treasury risk. The Board does not foresee a material change in respect of these factors for the remainder of the year.

Outlook

Current trading remains in line with market expectations for the full year. The Group has a strong brand, balance sheet and cash position and is led by an experienced management team that has steered the business successfully through a number of previous international crises. We remain confident that we will emerge from this unprecedented period with increased market share and well placed to benefit from operational gearing as markets normalise and recover.

*Constant currency is calculated by applying prior period exchange rates to local currency results for the current and prior period.

ROBERT WALTERS PLC

Half-yearly Financial Results 2020

CONDENSED CONSOLIDATED INCOME STATEMENT

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE

ROBERT WALTERS PLC

Half-yearly Financial Results 2020

CONDENSED CONSOLIDATED BALANCE SHEET

1. A material adjustment of £30.0m has been made to increase the Trade and other receivables and Trade and other payables for June 2019, in order to recognise the gross asset and liability values in relation to the temporary revenue accrual for the timesheets received after the period ending 30 June 2019. Previously, the liability had been offset with the accrued income. There is no impact to the Consolidated Income Statement in relation to this correction.

ROBERT WALTERS PLC

Half-yearly Financial Results 2020

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

1. A material adjustment of £30.0m has been made to increase the Trade and other receivables and Trade and other payables for June 2019, in order to recognise the gross asset and liability values in relation to the temporary revenue accrual for the timesheets received after the period ending 30 June 2019. Previously, the liability had been offset with the accrued income. There is no impact to the Consolidated Income Statement in relation to this correction.

ROBERT WALTERS PLC

Half-yearly Financial Results 2020

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

ROBERT WALTERS PLC

Half-yearly Financial Results 2020

NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS

1. Statement of accounting policies 

Basis of preparation

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The condensed set of financial statements has been prepared in accordance with the International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.

The accounting policies applied by the Group are as set out in detail in the Annual Report and Accounts for the year ended 31 December 2019.

The Group was profitable for the period and has considerable financial resources, including £119.0m of net cash at 30 June 2020, together with a diverse range of clients and suppliers across different geographic locations and sectors. As a consequence, the Directors believe the Group is well placed to manage its business risks successfully.

Going concern

The Directors have assessed the long-term prospects of the Group based upon business plans, cash flow projections for the remaining six months ending 31 December 2020, the three-year period ending 31 December 2023 and the impact of the Covid-19 outbreak.

The three-year period was chosen as it is considered the longest timeframe over which any reasonable view can be formed, given the cyclical nature of the market in which the Group operates. The forward visibility of permanent recruitment can be measured in weeks, and whilst temporary recruitment and recruitment process outsourcing may be less affected, with 63% of the Group based upon permanent recruitment activity, three years is considered to be the maximum period over which to consider the future cash flows of the business.

The forecasts and cash flow projections being used to assess going concern have been comprehensively stress-tested by using simulation techniques involving sensitivity analysis applying, in particular, projections of reduced net fee income of up to 20% from forecasts each year over a three-year period. In the light of the outbreak of Covid-19, the Directors have completed reverse stress testing (as per the FRC guidance), by running various downside scenarios, including but not limited to, no revenue for four months from July to October 2020, no further cost management, significant increase in debtor days and loss of key clients.

It should be noted that the Group has limited forward visibility and like all organisations, at this stage it is hard to predict the full extent of the impact of Covid-19. Consequently, there is a high degree of uncertainty in respect of future outcomes, however, the various stress test scenarios indicate that the Group still has a strong balance sheet and can continue to operate within its banking covenants. Historically, the Group has successfully managed its cost base during previous economic downturns. The same policy and cost management measures have been put in place and the Group has also taken advantage of the various Government's schemes available in each country where the Group operates. In the event that there is a more significant downturn than in the scenarios tested, there are further mitigating actions which could include but are not limited to, further reductions in capital expenditure, further reductions in non-business critical expenditure as well as the potential for headcount reductions.

The Directors remain confident of the Group's long-term growth prospects, and a diverse range of clients and suppliers across different geographic locations and sectors means that while some countries are still at the peak of the Covid-19 outbreak, other countries are returning to office working and are already seeing an increase in productivity.

As a consequence, the Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence and meet its liabilities as they fall due over the three-year assessment period. For this reason, the Directors continue to adopt the going concern basis in preparing the condensed financial statements.

Impact of Covid-19 on the half-yearly financial results

Trade Debtors decreased by 15% during H1 2020 through increased contact with clients and credit control initiatives put in place as a result of Covid-19. The Directors adjusted the forward-looking analysis within the expected credit loss model to consider the increased risk arising from clients' credit deterioration through the impact of Covid-19. As a result, the Group recognised an expected credit loss and related balance sheet accrual of £3.8m at 30 June 2020 (31 December 2019: £2.8m).

Cash management

At 30 June 2020, the Group has £119.0m of net cash, compared to £54.4m in 2019. The Group has a committed financing facility of £60.0m, which expires in March 2023 and at 30 June 2020, £13.2m (2019: £26.3m) was drawn down under this facility. The Group also has a non-recourse £15.0m facility.

Cost reduction and control measures were quickly put in place as the spread of the pandemic accelerated across all of the Group's regions; including voluntary Executive Director salary reductions of 20%, voluntary reduced working hour schemes globally and reductions in all discretionary spending. As of 1 July 2020, the Group's cost base was reduced by 19% from pre-Covid levels.

In addition, the Group took advantage of the various Government's schemes available in each country where the Group operates such as deferral of VAT payments and employment protection schemes.

Principal risks and uncertainties

The Board recognises the importance of identifying and actively monitoring the full range of financial and non-financial risks facing the business, at both a local and Group level. Since the year-end, the Board has reviewed the risk profile of the business, and inherently do not believe the principal risks for the business are different in nature overall as those detailed within the Principal Risks and Uncertainties section of the Annual Report and Accounts for the year ended 31 December 2019. However, the dial on individual risks has increased as a result of Covid-19. The Group has taken a number of actions to mitigate the impact on those risks. The Board will monitor the ongoing impact of Covid-19 on the business, including the identification and consideration of emerging risks, the consequences of any decision in the long term and appropriate risk mitigation strategies.

Significant accounting judgements and estimates

Judgement and estimates are continually evaluated and are based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances. Due to inherent uncertainty involved in making estimates and assumptions, actual outcomes could differ from those assumptions and estimates.

In the light of the Covid-19 outbreak, further review of the judgements and estimates have been performed when preparing the half-yearly financial results. Following the review, it was concluded that the significant accounting judgements and estimates made by management were the same as those that applied in the Group's Annual Report and Accounts for the year ended 31 December 2019.

2. Financial information

The financial information on pages 7 to 17 was formally approved by the Board of Directors on 29 July 2020. The financial information set out in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

Statutory accounts prepared under IFRSs for the year ended 31 December 2019 for Robert Walters plc have been delivered to the Registrar of Companies. The auditor's report on these accounts was not qualified, did not draw attention to any matters by way of emphasis and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The financial information in respect of the period ended 30 June 2020 is unaudited but has been reviewed by the Company's auditor. The financial information in respect of the period ended 30 June 2019 is also unaudited.

3. Currency conversion

The presentational currency of the Group is Pounds Sterling and the condensed set of financial statements has been prepared on this basis.

The Condensed Consolidated Income Statement for the period ended 30 June 2020 has been prepared using, among other currencies, the average exchange rate of €1.1441 to the Pound (period ended 30 June 2019: €1.1449; year ended 31 December 2019: €1.1403); ¥136.4874 to the Pound (30 June 2019: ¥142.3428;

31 December 2019: ¥139.2389) and AU$1.9182 to the Pound (30 June 2019: AU$1.8309; 31 December 2019: AU$1.8356).

The Condensed Consolidated Balance Sheet as at 30 June 2020 has been prepared using the exchange rates on that day of €1.0977 to the Pound (30 June 2019: €1.1159 ; 31 December 2019: €1.1755); ¥132.8544 to the Pound (30 June 2019: ¥136.9944 ; 31 December 2019: ¥143.2483) and AU$1.7922 to the Pound (30 June 2019: AU$1.8055; 31 December 2019: AU$1.8797).

ROBERT WALTERS PLC

Half-yearly Financial Results 2020

*For the purpose of segmental analysis, unallocated corporate assets and liabilities include cash, bank loans, corporation and deferred tax balances.

1. A material adjustment of £30.0m has been made to increase the Trade and other receivables and Trade and other payables for June 2019, in order to recognise the gross asset and liability values in relation to the temporary revenue accrual for the timesheets received after the period ending 30 June 2019. Previously, the liability had been offset with the accrued income. There is no impact to the Consolidated Income Statement in relation to this correction.

ROBERT WALTERS PLC

Half-yearly Financial Results 2020

The tax charge is based on the expected annual effective tax rate of 35.7% (2019: 28.3%) on profit before taxation. The effective tax rate is higher than the standard UK rate of 19%, primarily as a result of overseas taxation in Japan, the Netherlands and Belgium, and the impact of adjustments to accounting profit in the tax calculation.

Due to current level of market uncertainty and volatility as a result of Covid-19, no interim dividend has been proposed by the Board.

ROBERT WALTERS PLC

Half-yearly Financial Results 2020

ROBERT WALTERS PLC

Half-yearly Financial Results 2020

8. Bank loans

The Group has a committed financing facility of £60.0m, which expires in March 2023.

At 30 June 2020, £13.2m (30 June 2019 £26.3m) was drawn down under this facility.

The Group also has a non-recourse £15.0m facility.

The Group has a short-term facility of Renminbi 25m (£2.9m) of which Renminbi 10m (£1.2m) was drawn down as at 30 June 2020. The loan is secured against cash deposits in Hong Kong.

9. Related party transactions

There were no related party transactions in the year to 30 June 2020 (30 June 2019: £1,400), other than employment and share-based remuneration payments to key management personnel.

There were no outstanding balances as at 30 June 2020.

10. Registered office

The Company's registered office is located at 11 Slingsby Place, St Martin's Courtyard, London, WC2E 9AB.