TIDMPAGE
RNS Number : 1341J
PageGroup plc
08 April 2020
8 April 2020
FIRST QUARTER AND COVID-19 UPDATE
PageGroup ("PageGroup" or the "Group") today issues a trading
update for the first quarter to 31 March 2020 (Q1) and an
operational and financial update regarding COVID-19.
Q1 Financial Summary*
-- Group gross profit decline of -11.7% (-13.0% in reported
rates); January and February -3%; March -26%
-- Large, High Potential markets (34% of Group) -10%
-- EMEA -11.1%; France -12%; Germany -4%
-- Asia Pacific -16.6%; Greater China -34%; SE Asia -5%; Australia -15%
-- Americas -3.0%; US +4%; Latin America -11%
-- UK -16.0%; Page Personnel -15%; Michael Page -16%
* In constant currencies except where stated otherwise
Q1 Gross profit analysis
Reported (GBPm) Constant
Year-on-year % of Group Q1 2020 Q1 2019 % %
----------- -------- -------- ------- ---------
EMEA 50% 91.3 104.3 -12.5% -11.1%
----------- -------- -------- ------- ---------
Asia Pacific 17% 31.3 38.0 -17.7% -16.6%
----------- -------- -------- ------- ---------
Americas 17% 30.3 32.2 -5.8% -3.0 %
----------- -------- -------- ------- ---------
UK 16% 28.9 34.4 -16.0% -16.0%
----------- -------- -------- ------- ---------
Total 100% 181.8 208.9 -13.0% -11.7%
----------- -------- -------- ------- ---------
Permanent 73% 132.7 158.6 -16.4% -15.2%
----------- -------- -------- ------- ---------
Temporary 27% 49.1 50.3 -2.3% -0.5%
----------- -------- -------- ------- ---------
COVID-19 Operational and Financial Update
-- PageGroup is, first and foremost, focused on the protection
and wellbeing of the Group's employees, candidates, clients and
other stakeholders
-- The majority of the Group's employees are working from home
with full access to the Group's systems, ensuring continuity of
service to our clients and candidates
-- PageGroup is reinforcing its financial position by
proactively reducing the cost base by 20-25% in Q2 vs. Q1 - actions
include:
o headcount decrease in Q1 already undertaken - 104 fee earners
and 28 operational support staff
o headcount reduction expected in April of over 250
o 450 directors have agreed to reduce their salaries and fees by
20% for Q2, including the Executives and Non-Executives
o majority of consultants, managers and operational support
staff agreeing to a four day week, salary reduction, furlough
schemes where available and other government schemes, such as tax
cash deferral
o postponement of non-essential spending
-- The Group continues to have a strong balance sheet, including
cash balances of c. GBP83m as at 31 March 2020, an undrawn GBP30m
Revolving Credit Facility and is in advanced talks regarding access
to the Bank of England's CCFF programme
-- The Board has decided to cancel the final dividend of GBP30.2m or 9.40p per share
-- The Group is suspending financial guidance for current and future years
Protecting Our People
Above all else, our priority is to protect the health and safety
of our employees, candidates and clients. In recent weeks the Group
has taken action to protect our employees by ensuring that all
consultants are able to work from home. Our technology teams acted
quickly to ensure continuity of service to PageGroup's candidates
and clients.
The swift implementation of working from home protocols
benefited from the Group's experience of the impact of COVID-19 in
our Mainland China and Hong Kong businesses in late January. As a
result of this experience, we were able to move quickly to enable
all of our people around the world to work effectively from
home.
Managing our Cost Base
We have a flexible and highly diversified business model that
enables us to react quickly to changes in market conditions, albeit
not to the same degree or speed as a sharp reduction in revenue.
Our aim is to balance tight cost management, while ensuring we
position the Group to take full advantage of all opportunities as
conditions improve.
Given the unprecedented nature of this COVID-19 event, with many
people across the world social distancing at home, our headcount is
unlikely to reduce significantly in the short term through natural
attrition, as was the case during the Global Financial Crisis. The
management team have been proactive in reducing headcount by 132 in
Q1, and this is expected to fall by over 250 in April.
450 directors have agreed to reduce their salaries and fees by
20% for Q2, including the Executives and Non-Executives. In
addition, the majority of our consultants, managers and operational
support staff have agreed to a four day week, salary reduction,
furlough schemes where they exist and other government schemes,
such as tax cash deferral, etc. We are taking a number of immediate
cost saving measures, including reviewing all areas of
discretionary spend, such as bonuses, staff entertainment, travel
and capital expenditure.
We expect these actions, as well as our continuous and rigorous
approach to managing costs, to reduce our cost base by around
20-25% in Q2.
Balance Sheet and Liquidity
The Group has a strong balance sheet, with net cash of c. GBP83m
at the end of the quarter. The Group also generates c. 60% of its
revenue from temporary recruitment, with a current debtor
receivable of c. GBP125m. This will reduce generating an inflow of
cash if our temporary business continues to decrease as we saw
occur progressively during the first quarter. We have strong
banking relationships and facilities, including a GBP30m committed
Revolving Credit Facility, expiring in 2022. We are also in
advanced discussions to access the Bank of England's CCFF to
support liquidity and minimise any disruption to cash flows. We
continue to model, and are monitoring, a range of different
scenarios to ensure the Group has sufficient liquidity at all
times.
The Board believes given the current uncertainty it should act
prudently and in the best interests of all stakeholders to maximise
its short-term liquidity. With that in mind, the Group has made the
difficult decision to cancel its final dividend of GBP30.2m or
9.40p per share, which was proposed for approval at the Group's AGM
in June. This action is also a requirement in order to access a
number of government employee assistance schemes across the world.
The Group fully intends to restore returns to shareholders once
stability returns to the business and its markets.
Financial Guidance
With COVID-19 now impacting the majority of our markets around
the world, it is too early to estimate the impact on the Group's
operations and, as such, we are suspending financial guidance for
current and future years. We will continue to monitor the situation
closely and will provide updates when appropriate.
Commenting, Steve Ingham, Chief Executive Officer, PageGroup,
said:
"PageGroup continues to have a flexible and highly diversified
business model that enables us to react quickly to changes in
market conditions, albeit not to the same degree or speed as a
sharp reduction in revenue. We are clear market leaders in many of
our markets, with a highly experienced senior management team,
which, we believe, positions us well to both protect our business
during these extremely challenging times and take full advantage of
all opportunities as and when they arise.
"I am incredibly proud of the reaction from our staff, their
attitude has been tremendous and I am very grateful for their
support. They continue to demonstrate our strong company Values,
whilst working tirelessly towards our Purpose of changing people's
lives."
Q1 Trading Update
All of the Group's regions were impacted by the emergence of
COVID-19 during Q1, resulting in Group gross profit declining
-11.7% in constant currencies, down from -0.4% in Q4. In constant
currencies, Michael Page was down -11.0%, with Page Personnel
declining -13.1% in the quarter.
As announced in our Full Year Results on 5 March 2020, Group
gross profit declined -3% in the two months to the end of February,
when the emergence of COVID-19 had impacted primarily our Greater
China business. In March, usually one of our biggest months for
trading, Group gross profit declined by -26%, as the impact of
COVID-19 began to spread across the world.
Detailed Geographical analysis (unless otherwise stated all
growth rates are in constant currency)
EMEA Gross Profit (GBPm) Growth Rates
(50% of Group) Reported Constant
---------- ---------- ----------- -----------
Q1 2020 vs. Q1 2019 91.3 104.3 -12.5% -11.1%
---------- ---------- ----------- -----------
Headcount at 31 March 2020: 3,309 (31 December 2019: 3,317)
* France (16% of Group) -12%
* Germany (9% of Group) -4%
* Southern Europe -16%
* Italy -19%
* Spain -15%
* Benelux -7%
* Middle East and Africa -10%
In Europe, Middle East and Africa, trading was impacted by
COVID-19 towards the end of the quarter, initially in Italy and
Spain, followed rapidly by France, the Netherlands, and now the
entire region. As a result, gross profit declined -11.1% across the
region, with the larger countries all down: France -12% (-31% in
March), Germany -4% (-15% in March), Southern Europe -16% (-41% in
March), and Benelux -7% (-20% in March). Permanent recruitment
declined -15% for the quarter (-34% in March) with Temporary down
-2% (-11% in March).
Asia Pacific Gross Profit (GBPm) Growth Rates
(17% of Group) Reported Constant
---------- ---------- ----------- -----------
Q1 2020 vs. Q1 2019 31.3 38.0 -17.7% -16.6%
---------- ---------- ----------- -----------
Headcount at 31 March 2020: 1,599 (31 December 2019: 1,679)
* Asia (13% of Group) -17%
* Greater China (5% of Group and 42% of Asia) -34%
* Australasia (4% of Group) -17%
* Mainland China -29%
* Hong Kong -48%
* South East Asia -5%
* Singapore -13%
* India +14%
* Japan +5%
* Australia -15%
In Mainland China our operations are starting to show signs of
recovery, with almost all of our consultants having now returned to
office-based working. Gross profit in Mainland China improved to
-32% in March compared to -41% in February. In Hong Kong, while our
offices were open for the first two weeks in February, the virus
returned and these offices are now closed again. Overall, Greater
China, declined -34% for the quarter. Elsewhere in Asia Pacific we
felt the impact of COVID-19 in March and overall we were down
-16.6% for the quarter. South East Asia was down -5% (-10% in
March), with Singapore down -13%. India grew 14% and Japan grew 5%,
although conditions in both countries deteriorated at the end of
the quarter. Australia declined -15% (-21% in March), with
challenging trading conditions due to the effects of bushfires
earlier in the quarter and COVID-19 impacting trading in March.
Americas Gross Profit (GBPm) Growth Rates
(17% of Group) Reported Constant
---------- ---------- ----------- -----------
Q1 2020 vs. Q1 2019 30.3 32.2 -5.8% -3.0%
---------- ---------- ----------- -----------
Headcount at 31 March 2020: 1,362 (31 December 2019: 1,376)
* North America (11% of Group) +2%
* Latin America (6% of Group) -11%
* US +4%
* Brazil -10%
* Mexico -15%
In the Americas, where the timing of the COVID-19 impact has
been varied, overall gross profit was down -3.0%. In the US,
overall gross profit grew 4% in the quarter (-11% in March). Nearly
all construction sites in the US are closed, significantly
impacting Property & Construction, our largest discipline in
the US. In Latin America, the business was impacted later in the
quarter, causing gross profit to decline by -11% (-30% in March),
with Brazil down -10% (-28% in March) and Mexico, our largest
country in the region, down -15% (-43% in March).
UK Gross Profit (GBPm) Growth Rate
(16% of Group)
---------- ---------- -----------------
Q1 2020 vs. Q1 2019 28.9 34.4 -16.0%
---------- ---------- -----------------
Headcount at 31 March 2020: 1,296 (31 December 2019: 1,326)
In the UK, gross profit declined by -16.0% in the quarter.
However, COVID-19 began to impact the business significantly in
March, causing gross profit to decline by -30%. The impact of
COVID-19 had a similar impact on both Michael Page and Page
Personnel. Overall for the quarter, Permanent recruitment was down
-20% (-43% in March) with Temporary down -6% (flat in March).
Headcount
As a result of COVID-19 and the heightened uncertainty in a
number of the Group's markets, fee earner headcount reduced by 104
in Q1, mainly in Australia, Greater China and the UK. Our
operational support headcount decreased by 28 in the quarter. Our
fee earner to operational support staff ratio remained at 78:22.
This represented 5,923 fee earners and a total headcount of
7,566.
Perm/Temp mix
Gross profit from permanent recruitment declined -16.4% in
reported rates and -15.2% in constant currencies, to GBP132.7m (Q1
2019: GBP158.6m). Gross profit from temporary recruitment declined
-2.3% in reported rates and -0.5% in constant currencies, to
GBP49.1m (Q1 2019: GBP50.3m). This resulted in a ratio of permanent
to temporary recruitment of 73:27. Permanent recruitment, having
been down -5% for the first two months of the year, was down -32%
in March. Temporary recruitment was impacted less, having been up
+2% in the first two months of the year, it declined -5% in
March.
Shares
At 31 March 2020 there were 328,618,774 Ordinary shares in
issue, of which 9,824,210 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 8,228,834 shares and
consequently these shares should be excluded when calculating
earnings per share. The total number of voting rights in the
Company is 328,618,774.
Audit Tender
The Company previously announced that it intended to undertake a
competitive tender for the Company's external audit services and
that it would announce the outcome of the process ahead of the
Annual General Meeting. Given the current circumstances, it has not
been possible to conduct the tender and as such we propose that
Ernst & Young LLP be reappointed at the forthcoming AGM. It
remains the Company's intention to conduct the tender during the
course of 2020 to the extent that it is practicable. An update will
be issued in due course.
Cautionary Statement
This First Quarter 2020 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.
The Group will issue its Second Quarter Trading Update on 14
July 2020.
This announcement contains inside information for the purposes
of article 7 of EU Regulation 596/2014. The person responsible for
making this announcement on behalf of PageGroup is Kelvin Stagg,
Chief Financial Officer.
Enquiries:
PageGroup +44 (0)20 3077 8172
Steve Ingham, Chief Executive Officer
Kelvin Stagg, Chief Financial Officer
FTI Consulting +44 (0)20 3727 1340
Richard Mountain / Susanne Yule
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END
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