3 March 2021

 

 

Full Year Results for the Year Ended 31 December 2020

 

PageGroup plc ("PageGroup"), the specialist professional recruitment company, announces its full year results for the year ended 31 December 2020.

 

Financial summary	2020	2019	Change		Change CC*
Revenue	£1,304.8m	£1,653.9m	-21.1%		-20.5%
Gross profit	£610.2m	£855.5m	-28.7%		-28.1%
Operating profit	£17.0m	£146.7m	-88.4%		-90.1%
Profit before tax	£15.5m	£144.2m	-89.2%
Basic earnings per share	-1.8p	32.2p	-105.6%
Diluted earnings per share	-1.8p	32.2p	-105.6%
Total dividend per share (excl. special dividend)	-	13.70p
Total dividend per share (incl. special dividend)	-	26.43p

 

 

HIGHLIGHTS*

 

·    Focus continues to be on the protection and wellbeing of employees, candidates and clients

·    Continue to protect and invest in the platform to take advantage of the recovery

·    Group gross profit down 28.1% to £610.2m, gross profit per fee earner down 18.7% to £113.3k (2019: £140.4k)

·    Conversion rate** decreased to 2.8% (2019: 17.1%)

·    Effective tax rate of 136.9% (2019: 28.3%) driven by profit mix and treatment of losses

·    Fee earner headcount reduced by a net 882 (15%) for the year, leavers partially offset by the hiring of c. 400 experienced fee earners

·    Total headcount reduced by a net 1,004 (13%) for the year, closing headcount of 6,694

·    Strong cash position of £166m (2019: £97.8m)

·    UK Government Furlough income of £3.4m to be repaid in 2021

 

 

 

*At constant currency - all growth rates in constant currency at prior year rates unless otherwise stated

**Operating profit as a percentage of gross profit

 

 

 

 

 

 

 

Commenting, Steve Ingham, Chief Executive Officer, said:

 

"2020 was an unprecedented year, with all of our markets impacted by the COVID-19 pandemic. Our focus throughout has been the protection and wellbeing of our employees, candidates and clients, whilst progressing our strategy of investment in our platform to take advantage of the recovery. Our people made significant sacrifices, predominantly in Q2, with many of our people taking 20% salary cuts or working four day weeks, and demonstrated incredible resilience during the last 12 months. I am incredibly proud of the reaction of our staff in what continues to be extraordinary times.

 

"We have a resilient highly diversified business model, with focus areas such as Technology, Digital, Healthcare and Life Sciences delivering robust results during the pandemic. Our Interim business in Germany and the Nikkei domestic market business in Japan both performed particularly well, with Interim up 6% and Nikkei up 47% for the year. In total, we invested in the recruitment of around 400 experienced hires, largely into these growing disciplines and markets in 2020 and we will continue to invest in these businesses going forward. We have also continued to invest in our new operating system, Customer Connect, with around a third of our fee earners now live on the system. Investments in innovations also continued, such as in Page Insights, our data intelligence tool, which provides rich information for our clients and consultants on hiring trends by specialism and geography, using internal and external data.

 

"The Group ended the year with a strong cash position of £166m. As a result, we will repay the £3.4m income received in the UK under the Furlough scheme. We will seek to return to our policy of Shareholder returns as market conditions improve and we get more clarity over the trading outlook.

 

"As we enter 2021, there remains a high degree of global macro-economic uncertainty in many of our markets, with COVID-19 still a significant global issue and a number of the Group's markets in lockdown. However, in the UK we are encouraged that the Brexit deal and the recent Government announcements about lockdown easing have provided a degree of clarity. We remain confident in our strategy of maintaining our platform and continuing to invest carefully in headcount, as well as continuing to roll-out new technology and innovation. We are the clear leader in many of our markets, with a highly experienced senior management team, which, we believe, positions us well to take advantage of opportunities to grow and improve our business. We have maintained our focus on our long-term vision for the Group to drive progress towards our strategic goals."

 

Enquiries:

 

PageGroup plc	+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

The Company will host a conference call and presentation for analysts and investors at 9:00am today. The live presentation can be viewed by following the link:

https://www.investis-live.com/pagegroup/60127c6249aa2a0e0097e72d/mslf 

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

United Kingdom (Local)          020 3936 2999

All other locations                    +44 20 3936 2999

Please quote the access code 40 18 68 to gain access to the call

The presentation and recording to accompany the call will be available on the Company's website later today at:

https://www.page.com/investors/investor-library.aspx

MANAGEMENT REPORT

CAUTIONARY STATEMENT

This Management Report has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed.

 

This Management Report 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.

 

GROUP STRATEGY

At PageGroup we have a clear strategic vision via our four brands of Page Executive, Michael Page, Page Personnel and Page Outsourcing. We aim to be the leading specialist recruiter in each of the markets in which we operate. We have sought to achieve this by developing a significant market presence in major global economies, as well as targeting new markets where we see the greatest potential for long-term gross profit growth at attractive conversion rates. 

 

We offer our services across a broad range of disciplines and specialisms, solely within the professional recruitment market. Our origins are in permanent recruitment, but around a quarter of our gross profit is in temporary placements, where local culture and market conditions allow. We focus on opportunities where our industry and market expertise can set us apart from our competition. This enables us to offer a premium service that is valued by clients and attracts the highest calibre of candidates.

 

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, and Page Executive operating at higher salary levels, have 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 we are also seeing the emergence of the white-collar temporary recruitment market.

 

PageGroup is focused on delivering against three key objectives to achieve its strategic vision and provide sustainable financial returns. These are: 1) to look for organic, high-margin and diversified growth; 2) to position the business to be scalable, efficient and highly flexible to reflect market conditions; and 3) as a people-oriented, organically driven business, to nurture and develop talent and skills which are fundamental to us achieving long-term sustainable growth.

 

We therefore invest significantly in our people, as the recruitment, retention, succession and development of the best talent available is central to our ability to grow the business and to manage our resources through economic cycles. Investment in the business has been focused on developing the long-term sustainability of the business and is supported by significant balance sheet strength and cash flow generation. 

 

Organic, scalable growth

Our strategy is to grow organically, achieved by drawing upon the skill and experience of proven PageGroup management, ensuring we have the best and most experienced home-grown talent in each key role. Our team-based structure and profit share business model is highly scalable. The small size of our specialist teams means we can increase headcount rapidly to achieve growth when market conditions are favourable.

 

Conversely, when market conditions tighten, these entrepreneurial, profit-sharing teams reduce in size, largely through natural attrition. Consequently, our cost base contracts in downturns. Our strategy for organic growth has served the business well over the 44 years since its inception and we believe it will continue to do so. We have grown from a small, single-discipline recruitment company operating in one country to a large multidiscipline, multinational business, operating in 37 countries represented by our four key brands of Page Executive, Michael Page, Page Personnel and Page Outsourcing.

 

Diversification by region and discipline

Our strategy is to expand and diversify the Group by industry sectors, professional disciplines, geography and level of focus, be it Page Executive, Michael Page, Page Personnel or Page Outsourcing, with the objective of being the leading specialist recruitment consultancy in each of our chosen markets.

 

The Group has designated five markets as large, high potential markets. These are markets that are typically under-developed in terms of recruitment, but where we have a successful track record and confidence in their ability to successfully scale operations. The five large, high potential markets are Germany, Greater China, Latin America, South East Asia and the US. India and Japan are two markets which have the potential to be classified in this category in the future.

 

We have also designated three disciplines as being high potential disciplines, namely Healthcare & Life Sciences, Technology and Digital.

 

As recruitment is a cyclical business, impacted significantly by the strength of economies, diversification is an important element of our strategy as it reduces our dependency on individual businesses or markets, thereby increasing the resilience of the Group. This strategy is pursued entirely through the organic growth of existing and new teams, offices, disciplines and countries, maintaining a consistent team and meritocratic culture as we grow.

 

Talent and skills development

We recognise that it is our people who are at the heart of everything we do, particularly as an organically grown business where ensuring we have a talent pool with experience through economic cycles and across both geographies and disciplines is critical. Investing in our people is, therefore, a vital element of our strategy. We seek to find the highest calibre staff from a diverse range of backgrounds and then do our very best to retain them through offering a fulfilling career and an attractive working environment. 

 

This includes a team-based structure, a profit share business model and continuous training and career development, often internationally. Our strong track record of internal career moves and promotion from within means that people who join us know that they could be our future senior managers and Main Board Directors.

 

Diversity and inclusion are key to our culture and the success of our business. It is not just an item on our to-do list, it's an inherent part of our culture and our business. We are a people business - the people who work here, the companies we do business with, the candidates whose lives we change for the better on a daily basis, and the communities and individuals we help as we give back to others. Understanding the values and cultural differences of our employees helps them reach their potential as we build a stronger, more successful business. A business which reflects society and the clients and candidates whose lives we change.

 

Sustainable growth

When we invest in a new business, be it a new country, a new office or a new discipline, we do so for the long term. Our organic and team-based business model allows us to grow strongly when market conditions are favourable, enabling us to increase our fee earner headcount investment rapidly. Conversely, downturns in the general economy of a country or in specific industries will inevitably have a knock-on effect on the recruitment market. However, it has been our practice in the past, and remains our intention, to maintain our presence in our chosen markets through these downturns, while closely controlling our cost base. In this way, we can retain our highly capable management teams in whom we have invested. Normally, we find that we gain market share during downturns, which positions our business for market-leading rates of growth when the economy improves. Pursuing this approach means that we carry spare capacity during downturns, which can have a negative effect on profitability in the short term. A strong balance sheet is, therefore, essential to support the business at these times.

 

Despite COVID-19, 2020 has given us the opportunity to reflect on our approach to sustainability. This has allowed us to broaden the meaning of sustainability and taking a deep dive into at each element of ESG. From an environmental perspective, during 2020 we reduced our reported carbon emissions by c. 26%. We have also for the first time offset our carbon emissions in full.  We will continue to reduce our carbon emissions by converting traditional electricity to renewable sources, reducing waste and reducing business travel. 

 

In addition, we have joined the UN Global Compact. The UN Global Compact provides a framework for developing a more sustainable and responsible business. We are excited to be joining the largest corporate sustainability initiative in the world. This is the first in a series of sustainability initiatives to be released over the course of 2021.

 

 

Our strategic priorities comprise the following:

 

·    increase the scale and diversification of PageGroup by organically growing existing and new teams, offices, disciplines, brands and countries;

·    manage the business with a team and meritocratic culture, while delivering a consistent and high-quality client and candidate experience;

·    invest through cycles in our Large, High Potential markets of Germany, Greater China, Latin America, South East Asia and the US to achieve scale and a market leading position;

·    invest through cycles in our High Potential disciplines of Technology, Digital and Healthcare & Life Sciences;

·    manage our fee earner headcount in all other markets to reflect prevailing market conditions, by adding selectively to geographies and disciplines where there is positive growth momentum, while reducing headcount where the outlook for growth or fee earner productivity is weak;

·    focus on operational support consistency; and

·    focus on succession planning and international career paths to encourage retention and development of key staff.

The main factors that could affect the business and the financial results are described in the "Principal Risks and Uncertainties" section in the PageGroup plc 2020 Annual Report and Accounts, which will be available to shareholders in April 2021.

 

 

 

 

 

 

GROUP RESULTS  

GROSS PROFIT		Reported			CC
Year-on-year	% of Group	2020 (£m)	2019 (£m)	%	%
EMEA	52%	319.4	418.3	-23.7%	-24.4%
Asia Pacific	20%	121.1	163.3	-25.8%	-25.1%
Americas	15%	88.8	138.8	-36.0%	-31.4%
UK	13%	80.9	135.1	-40.0%	-40.0%
Total	100%	610.2	855.5	-28.7%	-28.1%
Permanent	72%	436.7	643.8	-32.2%	-31.5%
Temporary	28%	173.5	211.7	-18.0%	-17.8%

 

At constant exchange rates, Group revenue decreased 20.5% and gross profit decreased 28.1% for the year ended 31 December 2020. Gross profit per fee earner decreased 18.7% to £113.3k (2019: £140.4k). At reported rates, revenue decreased 21.1% to £1,304.8m (2019: £1,653.9m) and gross profit decreased 28.7% to £610.2m (2019: £855.5m).

 

The Group's revenue mix between permanent and temporary placements was 34:66 (2019: 39:61) and for gross profit was 72:28 (2019: 75:25). Revenue from temporary placements comprises the salaries of those placed, together with the margin charged. This margin on temporary placements decreased slightly to 20.1% in 2020 (2019: 21.1%). Overall, pricing remained relatively stable across all regions, although a weaker pricing environment was experienced in markets more impacted by COVID-19.

 

In our Large, High Potential markets category, now representing 36% of the Group, gross profit decreased 24.8% in constant currencies to £218.2m. This category performed slightly better than the rest of the Group, primarily due to the resilience of our business in Germany.  

 

Total Group headcount decreased by 1,004 in the year to 6,694. This comprised a net decrease of 882 fee earners (-14.6%) and a decrease of 122 operational support staff (-7.3%). The reduction in our fee earner headcount was a response to the tough macro-economic conditions caused by the COVID-19 pandemic. The leavers were largely recent joiners who were therefore very inexperienced in recruitment, or those on performance review. We have continued to invest in our business model, with approaching 400 experienced fee earners added to the Group during the year. This additional headcount was primarily into our strategic areas of investment, as well as those areas which have been more resilient during the COVID-19 pandemic. As a result of this reduction in net fee earner headcount, our fee earner to operational support staff ratio was 77:23 (2019: 78:22). In total, administrative expenses decreased 16.3% to £593.2m (2019: £708.8m).

 

OPERATING PROFIT AND CONVERSION RATES

 

The Group's organic growth model and profit-based team bonus ensures cost control remains tight. Approximately three-quarters of costs were employee related, including wages, bonuses, share-based long-term incentives, and training & relocation costs.

 

Depreciation and amortisation for the year totalled £61.8m (2019: £57.5m). Amortisation relating to our operating system, PRS, was £7.5m (2019: £6.2m), which is now concluded. 

 

Throughout this pandemic, all our people have pulled together in these difficult times. In the second quarter, employees agreed to reduced working weeks or placement onto government assistance schemes. 450 of our most senior employees, including the Main and Executive Boards, agreed to salary cuts of 20%. This, in addition to access to government assistance schemes, reduced travel, and reduced client and candidate entertaining, enabled us to achieve a reduction in our cost base of 21% in Q2, 15% in Q3 and 10% in Q4 compared to March. We are thankful to all our people who agreed to take salary reductions, work four-day weeks or make other sacrifices for the long-term benefit of the Group during this period.

 

The Group's conversion rate for the year of 2.8% was a decline from 17.1% in 2019. This was due to the sharp decrease in gross profit as a result of COVID-19, partly mitigated by the reduction in headcount and cost saving initiatives.

 

Conversion rates were impacted in all of the Group's regions. EMEA was the Group's most resilient region, with a conversion rate of 9.6%. Asia Pacific also remained profitable, with conditions improving towards the end of the year and conversion was 3.1% compared to 12.1% in 2019. The UK and the Americas were most impacted by the COVID-19 pandemic, with conversion rates of          -12.8% and -7.9% respectively.

 

A net interest charge of £1.5m (2019: £2.4m) was primarily due to an IFRS 16 interest charge of £1.7m. Excluding IFRS 16, the net interest income of £0.2m reflected interest income, albeit in the continued low interest rate environment, partially offset by borrowing facility charges.

 

Earnings per share and dividends

In 2020, basic and diluted earnings per share both decreased to -1.8p (2019: 32.2p), as a result of the reduction in profit due to the COVID-19 pandemic, as well as an increase in the effective tax rate.

 

The Group's strategy is to operate a policy of financing the activities and development of the Group from our retained earnings and to maintain a strong balance sheet position. We first use our cash to satisfy our operational and investment requirements and to hedge our liabilities under the Group's share plans. We then review our liquidity over and above these requirements to make returns to shareholders, firstly by way of an ordinary dividend.

 

Our policy is to grow this ordinary dividend over the course of the economic cycle, in line with our long-term growth rate. We believe this will enable us to sustain the level of ordinary dividend payments during a downturn as well as to increase 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 or share buybacks.

 

In 2020, in line with many of its peers, PageGroup announced the temporary suspension of its dividend policy. This was against a backdrop of unprecedented global economic disruption and significant near-term uncertainty caused by the outbreak of COVID-19 and designed to preserve liquidity. We will seek to restart our dividend programme as market conditions improve and greater clarity over the trading outlook is restored.

 

Cash flow and balance sheet

Cash flow in the year was strong, with £169.0m (2019: £194.1m) generated from operations. The closing cash balance was £166.0m at 31 December 2020 (2019: £97.8m). The significant increase in the cash balance compared to 2019 was primarily due to the unwind of working capital of £84.6m, deferral of c. £11m of tax payments and a strong focus on cash collection.

 

Several actions were taken during the year to protect liquidity and ensure a strong cash flow throughout. We deferred tax payments and utilised government support schemes where available, as well as ensuring the Group had access to additional liquidity, should this be required, as described below. We actively protected against potential downsides from the pandemic, despite remaining confident in our business model throughout. Due to the continued strong cash position, we will now be repaying the UK Government Furlough income of £3.4m.

 

PageGroup maintains a Confidential Invoice Facility with HSBC whereby the Group has the option to discount receivables in order to advance cash. The Group also has a Revolving Credit Facility with BBVA, expiring in 2022, with a total drawable amount of £30m. We have agreed a covenant waiver to the end of the agreement on this facility, to ensure we retain access to these funds should they be required. Neither of these facilities were in use as at 31 December. These facilities are used on an ad hoc basis to fund any major Group GBP cash outflows. The Group also gained access to the Bank of England Covid Corporate Finance Facility, with a limit of £300m, which has not been drawn against. We do not currently expect to draw down on this facility.

 

Income tax paid in the year was £31.7m (2019: £37.0m) and net capital expenditure in 2020 was £21.7m (2019: £24.6m). Spending on software was broadly flat on 2019 and was primarily related to the roll out of our new operating system, Customer Connect. Spending on property, plant and equipment decreased, with no significant office moves in the year, as well as a reduction in our fee earner headcount.

Due to the suspension of our dividend policy, no dividend payments were made during 2020 (2019: £83.5m). The lower share price in 2020 meant that there was a decrease in cash receipts from share option exercises, with £0.4m in 2020, compared to £7.2m in 2019. In 2020, £14.4m (2019: £10.0m) was also spent on the purchase of shares by the Employee Benefit Trust to satisfy future committed obligations under our employee share plans.

 

The most significant item in our balance sheet was trade receivables, which amounted to £186.1m at 31 December 2020 (2019: £271.1m), comprising permanent fees invoiced and salaries and fees invoiced in the temporary placement business, but not yet paid. Day's sales in debtors decreased due to the significant unwind of our debtor book.

 

EUROPE, MIDDLE EAST AND AFRICA (EMEA)

EMEA is the Group's largest region, contributing 52% of the Group's gross profit in the year. With operations in 17 countries, PageGroup has a strong presence in the majority of EMEA markets and is the clear leader in specialist permanent recruitment in the two largest, France and Germany.  Across the region, permanent placements accounted for 66% and temporary placements 34% of gross profit.

 

The region includes four of our Large, Proven markets, France, Spain, Italy and the Netherlands, across which there is a broad range of competition. EMEA also includes Germany, one of the Group's Large, High Potential markets, which has low penetration rates (markets where less than 30% of recruitment is outsourced) and significant growth potential, particularly in temporary recruitment. In addition, there are markets such as Poland, Turkey and Africa, which are less developed, with limited competition, but are increasingly looking for professional recruitment services.

 

EMEA	£m		Growth rates
(52% of Group in 2020)	2020	2019	Reported	CC
Gross Profit	319.4	418.3	-23.7%	-24.4%
Operating Profit	30.6	90.3	-66.1%	-66.5%
Conversion Rate (%)	9.6%	21.6%

 

In constant currencies, revenue decreased 17.7% on 2019 and gross profit decreased 24.4%. In reported rates, revenue in the region was down 16.8% to £717.3m (2019: 861.8m) and gross profit decreased 23.7% to £319.4m (2019: £418.3m).

 

Trading conditions were impacted by COVID-19 throughout the region, with many countries again entering lockdown at the end of the year. Our largest businesses in the region, France and Germany, together representing over half of the region by gross profit, declined 28% and 11%, respectively. Michael Page Interim in Germany, which is mainly focused on technology, was one of our most resilient businesses during the pandemic, growing 6% overall for the year. In our other European markets, Benelux was down 24%, Southern Europe down 28% with Italy and Spain down 28% and 29%, respectively. The Middle East and Africa, which represented 3% of the region, declined 30%.

 

2020 operating profit decreased 66.1% to £30.6m (2019: £90.3m), a conversion rate of 9.6% (2019: 21.6%). The region was the most resilient to the COVID-19 pandemic and had the highest conversion rate in the Group.  Headcount across the region decreased by 338 (-10.2%) to 2,979 at the end of 2020 (2019: 3,317).

 

ASIA PACIFIC

Asia Pacific represented 20% of the Group's gross profit in 2020, with 79% of the region being Asia and 21% Australasia. Other than in the financial centres of Hong Kong, Singapore and Tokyo, the Asian market is generally highly under-developed and offers attractive opportunities in both international and domestic markets at good conversion rates.  Two of our Large, High Potential markets, Greater China and South East Asia, are in this region. With a highly experienced management team, approaching 1,200 staff and limited competition, the size of the opportunity in Asia is significant. Across Asia, driven by cultural attitudes towards white collar temporary recruitment, permanent placements accounted for 84% and temporary placements 16% of gross profit.  

 

Australia, one of our Large, Proven markets, is a mature, well-developed and highly competitive recruitment market. PageGroup has a meaningful presence in permanent recruitment in the majority of the professional disciplines and major cities in Australia. Page Personnel has a growing presence and significant potential to expand and grow market share.

 

 

ASIA PACIFIC	£m		Growth rates
(20% of Group in 2020)	2020	2019	Reported	CC
Gross Profit	121.1	163.3	-25.8%	-25.1%
Operating Profit	3.8	19.8	-80.9%	-81.9%
Conversion Rate (%)	3.1%	12.1%

 

In Asia Pacific, in constant currencies, revenue decreased 20.1% and gross profit decreased by 25.1%. In reported rates, revenue decreased 21.0% to £216.0m (2019: £273.4m) and gross profit decreased 25.8% to £121.1m (2019: £163.3m).

 

In Asia, representing 16% of the Group, gross profit declined 22%. Greater China declined 27%, with Hong Kong down 46%. Conditions improved as the year progressed, with Mainland China growing 15% in December and social unrest easing in Hong Kong. South East Asia was down 23% on the prior year, with Singapore down 28%. We opened in the Philippines during the year, our sixth country in this Large, High Potential market. India, where we have around 150 fee earners, declined 15%. Japan was down 9% for the year, though our Nikkei market business delivered a record year, up 47%. Australia declined 35%.

 

Operating profit decreased 80.9% to £3.8m (2019: £19.8m), with the conversion rate down at 3.1% (2019: 12.1%). The region remained profitable, with conditions improving towards the end of the year. Headcount across the region declined 294 (-17.5%), ending the year at 1,385 (2019: 1,679).

 

THE AMERICAS

The Americas represented 15% of the Group's gross profit in 2020, being North America (64% of the region) and Latin America (36% of the region). The US and Latin America are two of the Large, High Potential markets in our growth strategy. The US, where we have eight offices, has a well-developed recruitment industry, but in many disciplines, especially technical, there is limited national competition of any scale.  PageGroup's breadth of professional specialisms and geographic reach is uncommon and provides a competitive advantage. 

 

Latin America is a highly under-developed region, where PageGroup enjoys the market leading position with around 700 employees in seven countries. There are few international competitors and none with regional scale.  Across the Americas, permanent placements accounted for 84% of gross profit and temporary placements 16%.

 

AMERICAS	£m		Growth rates
(15% of Group in 2020)	2020	2019	Reported	CC
Gross Profit	88.8	138.8	-36.0%	-31.4%
Operating Profit	-7.0	19.3	-136.4%	-147.0%
Conversion Rate (%)	-7.9%	13.9%

  

In constant currencies, revenue decreased by 17.5% and gross profit decreased by 31.4%. In reported rates, revenue decreased by 24.8% to £154.3m (2019: £205.1m) while gross profit decreased 36.0% to £88.8m (2019: £138.8m).

 

In North America, gross profit decreased by 30% in constant currencies. The US declined 30%, with tough trading conditions due to COVID-19, as well as political uncertainty and social unrest. Conditions were particularly tough within our largest discipline, Construction, with sites closed for large periods of the year.

 

In Latin America, gross profit was down 33% year-on-year in constant currencies. The region has been one of the most impacted by COVID-19, having received little governmental support. Brazil was down 28%, Mexico down 43%, with the other five countries in the region down 28%, collectively.

 

Driven by our strategy of maintaining our trading platform in these two Large, High Potential markets, operating profit decreased to -£7.0m (2019: £19.3m), with a conversion rate of -7.9% (2019: 13.9%). Headcount across the region decreased by 221 (-16.1%) in 2020 to 1,155 (2019: 1,376).

 

UNITED KINGDOM

The UK represented 13% of the Group's gross profit in 2020, operating from 25 offices covering all major cities. It is a mature, highly competitive and sophisticated market with the majority of vacant positions being outsourced to recruitment firms. PageGroup has a market leading presence in permanent recruitment across the UK and a growing presence in temporary recruitment. In the UK, permanent placements accounted for 63% and temporary placements 37% of gross profit.

 

The UK business operates under all four of our brands, with representation in 13 specialist disciplines via the Michael Page brand. There remains opportunity to roll-out new discipline businesses under the lower salary-level Page Personnel brand, which now represents 24% of UK gross profit.

 

UK	£m
(13% of Group in 2020)	2020	2019	Growth rate
Gross Profit	80.9	135.1	-40.0%
Operating Profit	-10.3	17.3	-159.9%
Conversion Rate (%)	-12.8%	12.8%

 

In the UK, revenue decreased 30.7% to £217.3m (2019: £313.6m) and gross profit declined         40.0% to £80.9m (2019: £135.1m).

 

The UK was significantly impacted by COVID-19, as well as Brexit related uncertainty. The Brexit deal has provided a degree of clarity. Page Personnel declined 44% and Michael Page, which is focused on more senior opportunities, declined 39%.

 

Due to this sharp decline in gross profit, operating profit was down 159.9% to -£10.3m, a conversion rate of -12.8%.

 

Headcount decreased 11.4% to 1,175 at the end of December 2020 (2019: 1,326). Our fee earner headcount reduced by 105 (11.4%) in response to the challenging trading conditions seen throughout the year.

 

OTHER FINANCIAL ITEMS

 

Foreign exchange

 

Foreign exchange had a marginal impact on the Group's results for the year, decreasing revenue by c. £9m, gross profit by c. £5m and increasing operating profit by c. £2m.

 

Taxation

 

The tax charge for the year was £21.3m (2019: £40.8m). This represented an effective tax rate of 136.9% (2019: 28.3%). A summary is shown below.

 

Reconciliation of effective tax rate	2020 £'000	%	2019 £'000	%
Profit before taxation	15,544		144,245
Profit before tax multiplied by the standard rate of corporation tax in the UK	2,952	19.0	27,406	19.0
Effects of:
Disallowable items and other permanent differences	1,947	12.5	2,094	1.5
Unrelieved overseas losses	1,954	12.5	2,292	1.6
Derecognition/(recognition) of overseas losses and other tax attributes	1,525	9.8	(35)	0
Other tax movements	694	4.5	(26)	0
Higher tax rates on overseas earnings	2,038	13.1	4,239	2.9
Other tax overseas	6,855	44.1	6,501	4.5
Movement of rate difference	662	4.3	(265)	(0.2)
Adjustments to tax charge in respect of prior periods	2,659	17.1	(1,406)	(1.0)
Tax expense and effective rate for the year	21,286	136.9	40,800	28.3

 

We have generated profits in overseas countries which have higher rates and we have been subject to additional taxes on profits which have contributed 61.7% to the tax rate in 2020.

 

Losses arose in the year that we could not recognise due to the requirement to have profits against which to offset in the foreseeable future. In addition, we wrote off deferred tax assets on losses which expired in the period as well as deferred tax assets on deductible temporary differences and losses where we do not consider it probable that there will be taxable profits to support their recovery in future periods. Together, these two categories increased the tax rate by 22.3%.

 

Disallowable and other permanent differences are broadly in line with 2019, though with the significant reduction in PBT, the impact on the rate has been much greater. Similarly to 2019, adjustments in respect of prior periods were one-off in nature, and again have a higher impact on the rate due to the lower PBT in 2020. Finally there have been changes to the substantively enacted tax rates which apply to the calculation of deferred tax, predominately in the UK (moving from 17% to 19%).  Collectively, these three categories increased the tax rate by 33.9%. 

 

These factors add to the basic UK rate of 19% to give the total effective tax rate of 136.9%.  

 

The tax charge for the year reflects the Group's tax strategy, which is aligned to business goals.  It is PageGroup's policy to pay its fair share of taxes in the countries in which it operates and deal with its tax affairs in a straightforward, open and honest manner.  The Group's tax strategy is set out in detail on our website in the Investor section under "Responsibilities".

                                                                                                         

Share options and share repurchases

At the beginning of 2020 the Group had 10.3m share options outstanding, of which 4.2m had vested, but had not been exercised. During the year, options were granted over 1.8m shares under the Group's share option plans. Options were exercised over 0.1m shares, generating £0.4m in cash, and options lapsed over 0.7m shares. At the end of 2020, options remained outstanding over 11.4m shares, of which 5.3m had vested, but had not been exercised. During 2020, 3.8m shares were purchased for the Group's Employee Benefit Trust, and no shares were cancelled (2019: 2.2m shares were purchased and no shares were cancelled).

 

 

Audit tender

 

Following the competitive tender process during the year, the Audit Committee has recommended, and the Board has approved the retaining of Ernst & Young LLP (EY) as the Company's auditor. The Board will propose the re-appointment of EY as external auditors for the year ending 31 December 2021 at the Company's Annual General Meeting in June 2021.

 

 

KEY PERFORMANCE INDICATORS (KPIs)

 

KPI	Definition, method of calculation and analysis
Financial
Gross profit growth	How measured: Gross profit growth represents revenue less cost of sales expressed as the percentage change over the prior year. It consists principally of placement fees for permanent candidates and the margin earned on the placement of temporary candidates. Why it's important: This metric indicates the degree of income growth in the business. It can be impacted significantly by foreign exchange movements in our international markets. Consequently, we look at both reported and constant currency metrics. How we performed in 2020: Gross profit decreased 28.1% in constant currencies and 28.7% in reported rates (2019: +5.0% in both constant currencies and reported rates). This was due to macro-economic uncertainty as well as rolling lockdowns due to the COVID-19 pandemic. Relevant strategic objective: Organic growth
Gross profit diversification	How measured: Total gross profit from: a) geographic regions outside the UK; and b) disciplines outside of Accounting & Financial Services, each expressed as a percentage of total gross profit. Why it's important: These percentages give an indication of how the business has diversified its revenue streams away from its historical concentrations in the UK and from the Accounting & Financial Services disciplines. How we performed in 2020: Geographies: the percentage increased to 86.7% from 84.2% in 2019, largely as a result of the UK being impacted most severely by the COVID-19 pandemic.   Disciplines: the percentage was broadly flat at 65.2% (2019: 65.1%), with the COVID-19 pandemic affecting the Group's operations in all disciplines. Relevant strategic objective: Diversification
Ratio of gross profit generated from permanent and temporary placements	How measured: Gross profit from each type of placement expressed as a percentage of total gross profit. Why it's important: This ratio reflects both the current stage of the economic cycle and our geographic spread, as a number of countries culturally have minimal white collar temporary roles. It gives a guide as to the operational gearing potential in the business, which is significantly greater for permanent recruitment. How we performed in 2020: The ratio decreased to 72:28 (2019: 75:25). As is usually the case in downturns, permanent recruitment is hit harder when trading conditions deteriorate. Temporary and Contracting recruitment was more resilient to the tougher trading conditions, particularly in disciplines such as Technology.    Relevant strategic objective: Diversification
Basic earnings per share (EPS)	How measured: Profit for the year attributable to the Group's equity shareholders, divided by the weighted average number of shares in issue during the year. Why it's important: This measures the underlying profitability of the Group and the progress made against the prior year. How we performed in 2020: The Group saw a -105.6% fall in Basic EPS to -1.8p. This is driven by the significant reduction in profits caused by the challenging trading conditions due to COVID-19 and the resultant high effective tax rate. Relevant strategic objective: Sustainable growth
Cash	How measured: Cash and short-term deposits Why it's important: The level of cash reflects our cash generation and conversion capabilities and our success in managing our working capital. It determines our ability to reinvest in the business, to return cash to shareholders and to ensure we remain financially robust through cycles. How we performed in 2020: Cash increased to £166.0m (2019: £97.8m). The significant increase in the cash balance compared to 2019 was primarily due to the unwind of working capital of £84.6m, deferral of c. £11m of tax payments and a strong focus on cash collection.   Relevant strategic objective: Sustainable growth
Strategic
Fee earner headcount growth	How measured: Number of fee earners and directors involved in revenue-generating activities at the year end, expressed as the percentage change compared to the prior year. Why it's important: Growth in fee earners is a guide to our confidence in the business and macro-economic outlook, as it reflects our expectations as to the level of future demand for our services above the existing capacity currently within the business. How we performed in 2020: Net fee earner headcount declined by 882, or -14.6% in the year, resulting in 5,145 fee earners at the end of the year. We have continued to invest in certain areas of the Group such as Technology, Contracting, Healthcare & Life Sciences and Digital, adding nearly 400 experienced fee earners to the Group in the year.    Relevant strategic objective: Sustainable growth
Gross profit per fee earner	How measured: Gross profit divided by the average number of fee-generating staff, calculated on a rolling monthly average basis. Why it's important: This is our indicator of productivity, which is affected by levels of activity in the market, capacity within the business and the number of recently hired fee earners who are not yet at full productivity. Currency movements can also impact this figure. How we performed in 2020: Productivity decreased 18.7% in constant currencies to £113.3k (2019: £140.4k). During the lockdowns, our fee earners saw a significant reduction in activity, which together with our strategy of maintaining our platform of experienced consultants to take market share when markets recover, resulted in a short-term drop in productivity.     Relevant strategic objective: Organic growth
Fee earner: support staff headcount ratio	How measured: The percentage of fee earners compared to operational support staff at the year end, expressed as a ratio. Why it's important: This reflects the operational efficiency in the business in terms of our ability to grow the revenue-generating platform at a faster rate than the staff needed to support this growth. How we performed in 2020: The ratio decreased to 77:23 from 78:22 in 2019. This was driven by a decline in our fee earner headcount of 882, in response to the more challenging trading conditions in many of our markets. Our operational support staff headcount decreased by 122.   Relevant strategic objective: Sustainable growth
Conversion rate	How measured: Operating profit (EBIT) expressed as a percentage of gross profit. Why it's important: This reflects the level of fee-earner productivity and the Group's effectiveness at controlling costs in the business, together with the degree of investment being made for future growth. How we performed in 2020: The Group's conversion rate decreased to 2.8% (2019: 17.1%) due to the sharp decrease in gross profit as a result of COVID-19, partly mitigated by the reduction in headcount and cost saving initiatives.   Relevant strategic objective: Sustainable growth
People
Employee engagement index	How measured: A key output of the employee surveys undertaken periodically within the business. Why it's important: A positive working environment and motivated team helps productivity and encourages retention of key talent within the business. How we performed in 2020: We recorded an 83% positive score for employee engagement in the latest Employee Survey in 2019. No overall Employee Survey was performed in 2020, but our Working Environment Survey told us that 90% of our people feel our communication tools are effective in providing the information they need; 85% feel part of a team despite not being physically together; 70% see their health and wellbeing as a top priority for the company; and 84% feel proud to work at PageGroup. Relevant strategic objective: Sustainable growth
Management experience	How measured: Average tenure of front-office management measured as years of service for directors and above. Why it's important: Experience through the economic cycle and across both geographies and disciplines is critical for an organic cyclical business operating across the globe. Our organic business model relies on an experienced management pool to enable flexibility in resourcing and senior management succession planning. How we performed in 2020: The average tenure of the Group's management was broadly flat at 12.3 years (2019: 12.5 years). Relevant strategic objective: Talent and skills development
Total GHG emissions	How measured: Direct and Indirect GHG emissions calculated in line with the UK Government's 2020 DEFRA reporting standards. Principally based on data from a sample of our offices, covering 70% of the Group by headcount, and extrapolated for the Group as a whole. Why it's important: The emissions calculations look at the CO2e impact of our operations in absolute terms. How we performed in 2020: Direct GHG emissions relating to the combustion of fuel remained broadly flat at 2,023 tonnes CO2e, while Indirect GHG emissions, through the purchase of energy such as electricity, decreased by 25.7% to 3,264 tonnes. Relevant strategic objective: Sustainable growth.
Intensity values of GHG emissions	How measured: Intensity values for GHG emissions are based on property and vehicle energy-derived emissions per 1,000 headcount. Headcount is viewed as being the most representative metric for PageGroup's activity levels and is unaffected by issues such as business mix or foreign exchange variations. Why it's important: Intensity values help to normalise the GHG metrics and place them in the context of the Group's changing business profile, particularly in terms of increases in headcount. It helps to identify where progress has been made on emissions reduction. How we performed in 2020: Energy-derived emissions were reduced by 4.2% compared with 2019, largely due to a decrease in headcount, along with changes in fuel sources and improvements in office energy efficiencies. Relevant strategic objective: Sustainable growth.

 

The source of data and calculation methods year-on-year are on a consistent basis, including changes resulting from the use of 2020 DEFRA conversion factors. The movements in KPIs are in line with expectations.

 

 

 

 

 

Steve Ingham	Kelvin Stagg
Chief Executive Officer	Chief Financial Officer
2 March 2021

 

 

Consolidated Income Statement

For the year ended 31 December 2020

 

						2020			2019
				Note		£'000			£'000
Revenue				3		1,304,791			1,653,948
Cost of sales						(694,542)			(798,498)
Gross profit				3		610,249			855,450
Administrative expenses						(593,221)			(708,781)
Operating profit				3		17,028			146,669
Financial income				4		588			494
Financial expenses				4		(2,072)			(2,918)
Profit before tax				3		15,544			144,245
Income tax expense				5		(21,286)			(40,800)
(Loss)/profit for the year						(5,742)			103,445
Attributable to:
Owners of the parent						(5,742)			103,445
Earnings per share
Basic earnings per share (pence)				8		(1.8)			32.2
Diluted earnings per share (pence)				8		(1.8)			32.2
The above results all relate to continuing operations

 

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2020

 

						2020			2019
						£'000			£'000
(Loss)/profit for the year						(5,742)			103,445
Other comprehensive income/(loss) for the year
Items that may subsequently be reclassified to profit and loss:
Currency translation differences						5,945			(14,842)
Loss on hedging instruments						-			(939)
Total comprehensive income for the year						203			87,664
Attributable to:
Owners of the parent						203			87,664

 

 

Consolidated Balance Sheet

As at 31 December 2020

 

			2020			2019
	Note		£'000			£'000
Non-current assets
Property, plant and equipment	9		26,401			31,925
Right-of-use assets			95,414			120,246
Intangible assets - Goodwill and other intangible			2,097			2,087
- Computer software			39,708			36,967
Deferred tax assets			17,688			18,915
Other receivables	10		13,169			15,036
			194,477			225,176
Current assets
Trade and other receivables	10		252,476			365,555
Current tax receivable			16,889			13,008
Cash and cash equivalents	12		165,987			97,832
			435,352			476,395
Total assets	3		629,829			701,571
Current liabilities
Trade and other payables	11		(184,022)			(215,811)
Lease liabilities			(32,711)			(29,139)
Current tax payable			(12,365)			(19,110)
			(229,098)			(264,060)
Net current assets			206,254			212,335
Non-current liabilities
Other payables	11		(12,483)			(11,613)
Lease liabilities			(70,758)			(99,473)
Deferred tax liabilities			(1,589)			(2,038)
			(84,830)			(113,124)
Total liabilities	3		(313,928)			(377,184)
Net assets			315,901			324,387
Capital and reserves
Called-up share capital			3,286			3,286
Share premium			99,564			99,507
Capital redemption reserve			932			932
Reserve for shares held in the employee benefit trust			(55,498)			(47,662)
Currency translation reserve			25,320			19,375
Retained earnings			242,297			248,949
Total equity			315,901			324,387