PageGroup’s gross profit increases 6.5% in H1 2016
PageGroup plc has announced its unaudited half year results for the period ended 30th June 2016.
The Group’s revenue for the six months ended 30th June 2016 increased 8.6% to £575.9m (2015: £530.4m) and gross profit increased 6.5% to £299.2m (2015: £280.9m). At constant exchange rates, the Group’s revenue increased 5.5% and gross profit by 3.6%. The Group’s revenue mix between permanent and temporary placements was 40:60 (2015: 42:58) and for gross profit was 76:24 (2015: 78:22).
Total headcount increased by 84, with the Grou’s ongoing focus on conversion rates and maximising productivity from the investment in 206 fee earners added in 2015. It’s fee earner to operational support staff ratio has remained at its record level of 77:23.
In total, administrative expenses in the first half increased 4.6% to £252.1m (2015: £240.9m), driven by increases in headcount and foreign exchange movements, in constant currency administrative expenses are up 2.2%. At constant exchange rates the Group's operating profit from trading activities increased 12.1% to £47.1m (2015: £40.0m) an increase of 17.6% at reported rates.
The Group’s conversion rate of gross profit to operating profit from trading activities improved to 15.7% (2015: 14.3%), reflecting a combination of full run-rate cost savings, steadily improving market conditions in many markets and improving consultant productivity. This was however in part offset by more challenging conditions in the UK, Brazil and Greater China.
In the UK, representing 25% of Group first half gross profit, revenue increased 1.6% to £166.7m (2015: £164.0m), but gross profit decreased 1.3% to £74.8m (2015: £75.7m), with uncertainty impacting clients’ decision-making in the lead up to the EU Referendum.
With clients continuing to focus on hiring at the lower salary levels, Page Personnel, which represents 22% of the UK, performed strongly, with growth of 5%. Page Personnel Finance was strong across the UK, while the newer Page Personnel HR, Secretarial, and Property & Construction disciplines continued to expand their footprint successfully. Trading conditions were more difficult within Michael Page, which operates at higher salary levels and with over 70% permanent recruitment. As such, it declined 3% for the first half of 2016. Within this, we did see a notable result from our Legal discipline, which saw growth of 23%.
Headcount decreased 3% during the first half of 2016 to 1,466 at the end of June 2016 (1,516 at 31 December 2015) as we managed our headcount in response to the tougher trading conditions. Operating profit decreased 7.1% to £11.6m (2015: £12.5m) and the conversion rate decreased to 15.6% (2015: 16.5%).
Steve Ingham (pictured), chief executive officer, said, “PageGroup delivered an increase of 3.6% in gross profit and 12.1% in operating profit in constant currencies in the first half of 2016, with the Group’s conversion rate rising to 15.7% from 14.3%, reflecting an improved business performance and operational efficiencies.
“Movements in foreign exchange rates as a result of a weaker Sterling have benefitted our first half results by c. £8m of gross profit and c. £2m of operating profit.
“We saw good performances in Continental Europe and Latin America (ex-Brazil), which combined now account for around 45% of the Group. However, the challenging market conditions in several of our larger markets, including Greater China, the UK and Brazil, continued.
“The Board has announced an interim dividend of 3.75 pence per share, an increase of 4.2% over last year. In addition, the Group is pleased to announce today a special dividend of 6.46 pence per share in line with its intention to return surplus capital to shareholders. Taking both dividend payments together, this amounts to a cash return to shareholders of £31.6m payable on 12 October 2016.
“Fee earner headcount grew 45 (+1.0%) to end the half year at a record level for the Group. With our continued focus on operational efficiencies, we maintained our record fee earner to operational support staff ratio of 77:23.
“We are pleased with our first half performance, but remain mindful of ongoing macro-economic uncertainty in the UK and elsewhere as we start the second half of the year. However, we will continue to focus on driving profitable growth, as we did in the first half, whilst remaining able to respond quickly to any changes in market conditions.”
Connor Campbell, a senior market analyst at www.spreadex.com, commented, "It looks like you can add recruitment to one of the many sectors that have suffered since the Brexit referendum result, with PageGroup announcing this Thursday that it was slashing its UK headcount by 3%. This likely wasn’t why the stock fell by 1.5% this morning, however; no that honour goes to the company’s slide in operating profit, which dropped by 7% to £11.6 million in the first half of the year."