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PageGroup Q2 & H1 Trading

Update Q&A

Wednesday, 13th July 2022

Q&A

Anvesh Agrawal (Morgan Stanley): Hi, good morning, I have got three questions if I may. First on China if you could provide a little bit more colour on when during the quarter, April, May, June, were the trends any different and any signs of the business getting better in July or looking forward?

Secondly how are you thinking from a headcount perspective from here on. There is obviously increased uncertainty. Are you still looking to add to the headcount, or have you got enough capacity in the business to also maintain the run rate on the fees?

Finally, any comment around the capital allocation. Are you still expecting a special dividend as usual or are you thinking a change given the macroeconomic uncertainty? Thank you.

Steve Ingham (Chief Executive Officer, PageGroup): Good morning. Let me answer the first two and then Kelvin can come round on the third question. In China it is difficult. We are highly profitable, and the business is very strong. We have built a great platform that we are very proud of. However, it has become increasingly difficult; and what we have found is that particularly with a lot of the multinationals, there has been quite a big exodus of expats out of the market. For example, in Shanghai, roughly 50% of expats have left; and there is an expectation that half as many again will leave as well over the remaining part of the year. That has had an impact. Whilst multinationals are not necessarily growing headcount, they are having to replace that headcount and we are involved in doing that. There is a natural element of business to what we are doing in China. Our ratio last year between domestic and multinationals was around 50:50. That has slightly changed in favour of multinationals as we have had to replace those vacancies that have been created by exodus.

Business has continued. You asked whether it is different in June to the other two months of the quarter. No not particularly. It seems to be fairly consistent with where we are at. Our intention is to keep the platform that we have got and that means replacing those that leave but we will not expand our headcount there until we see a change in the environment. We are also I would add very fortunate that across China in terms of our own dependence on expats, it is relatively limited. Whilst we have got several very strong expats in that market, they are few in number and at the moment are committed to the region and staying there. All good, highly profitable. Clearly, we are very vigilant at the moment but there is a reasonable activity and no further trend downwards or upwards.

In terms of headcount, we cannot be unaware of the outlook and the analyst notes that you guys are all writing, the press and so on. It is pretty downbeat at the moment obviously. I have asked all of the Regional Managing Directors around the world to only add headcount where it is absolutely necessary. You are right, we have added quite a bit of headcount and a lot of that headcount as yet will not be productive. Some of it will have only just arrived, the 300 or so who arrived in the quarter and who will have yet to have made a placement. Clearly, we should be able to take up a significant amount of the growth that we hopefully will see in Q3 and Q4 using what we have already hired. We will only grow our headcount in the second half where we really need to in markets where our growth rate is particularly high, the potential is particularly good, and we see it as more sustainable than perhaps other markets. However, I would be very surprised if it was 300. Naturally as well particularly in Europe for

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obvious reasons it does not tend to be a big quarter Q3 where we hire a lot of people into our own business. There will be a natural breath if you like in our own hiring over the next quarter. I expect a significantly lower number when we are doing our Q3 trading update.

Kelvin Stagg (Chief Financial Officer, PageGroup): Capital allocation, nothing has really changed. We would normally announce any supplementary return at the same time as we announce the interim dividend at the interims announcement. We have £135 million of net cash in the bank at the moment. I think we proved our cash flow model through the pandemic as indeed we did back in 2009, that particularly the temp working capital unwind. Therefore, I would expect if things continued to go well, we will have additional cash that will come in the second half of the year. If they do not, we will probably have more cash. We have said previously we look to have a low point at the end of January in terms of net cash which is after paying out annual bonuses to senior staff and the fourth quarter profit-relatedbonuses to all of our consultants of about £50 million. Therefore that £30 million bonus number means we aim to turn the year at about £80 million and we make a bit of a guess therefore between where we are in August and where we think we are going to be at the end of the year. I suspect that the interim dividend which is of the order of about £16-17million we would increase that by 4-5%which is what we have done in many of the recent years. Therefore, there will be a capital return.

Whether we return by dividend or whether we do share buyback, we would have to discuss that at the Board, and actively we have been. I think we talked to a number of our shareholders recently about the choice that we make. We will try to continue to be consistent in our capital allocation policy and apply it accordingly.

Anvesh Agrawal: Yes, that is very clear Kelvin and Steve. Thanks for the answers.

James Rose (Barclays): Hi, morning to you both. When we look at the pre-pandemic rate of 28% could you help us think about that in terms of the volume of placements versus all the other components of wage, mix and fees? Then on wage inflation overall I would appreciate your thoughts on how that is tracking, whether between jobs or on underlying salaries. Is that still accelerating sequentially?

Steve Ingham: Sorry I did not understand the first question. 28% of what, sorry?

James Rose: In constant currency growth I think the business is 28% larger than it was pre- pandemic. Within that, can you give us a sense of how much of it is due to wage inflation and how much of it is volume of placements overall in the business?

Steve Ingham: Yes, it is difficult to proportion it to be honest but what I would say is that I have not seen it this busy in terms of job activity in 37 years. In terms of job count at the moment it is way above where we were. There is a significant element of that growth created by job count. Clearly, we have seen some wage inflation particularly in areas like Technology and Healthcare & Life Sciences. It does vary by market considerably. Interestingly wage inflation or inflation generally in the market is lower in Asia than it was at the beginning of the year. It is significantly up across Europe, but Poland is the highest of the markets we are in where are seeing inflation at the end of June of around 12%. It varies.

In terms of what we actually measure is the gap between the salary that somebody comes to us on when they are looking for a job and the salary, we place them on. That is often a

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bigger gap. It would have been a significant gap even in 2019 because generally-speaking whilst people move for a variety of reasons, they also tend to expect a salary increase when they move as well. There would always be an element of between 5% and 15% depending on which discipline you are talking about which would be what you call wage inflation.

Finally on fees there is no doubt about it, our fees have strengthened around the world. I suppose probably the most significant would be our third and fourth largest markets where our average fee was just above 24% of an annual salary. It would be now around 29% which again shows supply and demand, a 20% increase in our fee rate. That is clients saying, 'We need this candidate. We have got an important vacancy to fill. We know what your standard fees are. We are going to pay closer, or we are going to pay your full fee on that salary.' That has clearly helped as well. It is a mixture of the three and I would say all have contributed significantly to that 28% growth.

James Rose: Great, thanks for the colour.

Rory McKenzie (UBS): Morning all, first to come back to this outlook statement where you have not seen any change in trends yet. Can you talk about which KPIs you are most closely watching or maybe nervously watching at the moment? As you said, there has been a lot written about falling business sentiments and of course financial markets and analysts can be known to overreact. I wondered what intelligence your teams collect on your clients' own outlook and budget and whether you think that has actually been adjusted yet as we have gone through this year. Secondly, on the US within North America, can you talk about your market share in there at the moment and what your team's objectives have been and how that has been going relative to the market in the US?

Steve Ingham: Sure. First of all, on KPIs somewhat flippantly of course the first one we look at is the share price which gives us an indication probably of what the expectation for the future looks like. In terms of what consultants, managers, directors and so on are measuring and watching across all 37 markets team by team of typically five or six people, the first thing they would look at is job count. Every week they will expect a certain number of new vacancies to be working on and that would include quality of those jobs as well. Are they with clients we have worked with before? Significant clients? Clients that are likely to actually see the recruitment through? If it is a speculative approach, then clearly, we do not count it the same as a we need to fill this job by the end of the week or by the end of the month. Job count is the first one.

Clearly, we then also send CVs out to those in response, and we measure the number of interviews that we get. The client's appetite to respond to the CVs we have sent, the number they want to interview and the speed that they are interviewing them. If they go, 'Yes, there were two that were vaguely interesting. We will see them at the end of the month' then again, we take that as a sign. People are getting more nervous and slowing. Then we look at the conversion rates of those interviews from first to second and so on depending on which brand we are talking about. Typically, Michael Page or even Page Executive the process can be more interviews than it would be in Page Personnel where it can be a one-interview process sometimes.

Then we look at either a client not making a decision or in candidates turning a [inaudible]. Where you see a candidate getting nervous about the market and the outlook and deciding

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that actually, 'Maybe thinking about it I am better off with the job I have got. I have been here a number of years' and so on. That is a thought that would happen 20-30 years ago. I see it less and less now. Maybe that is because COVID and the pandemic 2020 took care of a lot of the [inaudible] businesses and now a lot of the roles that we are filling are critical hires and therefore important. Also, with high employment amongst professional people particularly, I do think there is an element of confidence which says if I am an accountant or a technology expert or whatever looking for a job, I do not need to worry about whether I will find one or not because there are plenty out there. At the moment, there certainly seems to be.

We monitor all of that activity right the way through to not only verbally accepting but obviously starting in a new job, buybacks and so on. Also, the enthusiasm by the client to make sure that they take it over the line and offer what is necessary. It really is a lot of detail, but this is our day job, and this is what we do. Clearly, I have got a lot of very experienced operators that have been doing this for over 20 years. We are very much used to watching the signs. We are mindful of what the press is saying and, like I said earlier, what everyone is writing at the moment.

In terms of North America our market share is not measurable. It is so small in terms of where we are at. It is a huge market, the biggest recruitment market in the world by some way. We are a predominantly perm business, almost entirely perm, and we have got small offices in comparison to the size of the cities that we are in, although bigger than they have ever been. Market share is really not an issue. We are measuring the same KPIs across that market at the moment and they remain healthy. It is a market with particularly high salaries and particularly high fee rates. At the moment, it seems to be in a good state. Again, we are watching very carefully, and we are reading as well in the press, so there is an element of caution in our approach at the moment. However, as we see it today, it remains very, very positive. In terms of market share, that really is not a concern. We are a multi-discipline,multi-office business. We have a national footprint there. There is more than we could ever imagine going for. Therefore, in terms of size of the business, I am sure one day maybe it will be competing with Germany, but it will probably be one of our two biggest markets globally.

Rory McKenzie: That is very helpful colour, thank you.

Steve Ingham: Thanks Rory.

Hans Pluijgers (Kepler Cheuvreux): Good morning gentlemen, a few questions from my side. You indicated that you had a record end to the quarter with over £100 million in fees but maybe you could give us some feeling on how the trend was through the quarter. Was there a slowdown in the quarter? Especially also some indication by end markets, by client segment and whether anything is changing there.

Secondly on productivity you already mentioned that you are focused on limiting the hiring in the coming months but that you do believe there is still room for productivity gains. Do you also see some room for improvement there? If you could give some feeling on that.

Lastly on the rollout of new specialisations and activities, could you maybe give some feeling whether there is still room to rollout all your plans to rollout new specialisations and which countries, what is the potential there?

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