International specialist recruitment firm PageGroup (MPI: LSE) reported group gross profit of £242.2 million for the third quarter ending 30 September, a decrease of 7.9% in constant currency when compared to last year. 

Nicholas Kirk, Chief Executive Officer, PageGroup, said, “The group delivered a resilient result in challenging markets. EMEA was our best performing region, however, tough market conditions affected our performances in Asia, the UK and the US.”

“Overall, group gross profit declined 7.9% in constant currencies against Q3 2022,” Kirk added. “Candidate shortages remain acute and are supportive of continued high fee rates. Salary levels remain elevated, albeit the salary increases offered to candidates reduced compared to Q3 2022. These lower offers, combined with lower candidate confidence, led to a further increase in the number of offers rejected by candidates, either through employer buybacks or unwillingness to risk the move for the size of incentive on offer. The increased time to hire that we saw in Q2 continued.”

Kirk continued, “Reflecting the uncertain macro-economic conditions, temporary recruitment continued to outperform permanent, as clients sought more flexible options. In line with these conditions, we reduced our fee earner headcount by 310 (-4.8%) in Q3, following declines in H1 2023 and Q4 2022, with reductions in all regions.”

“Our total headcount of 8,140 is now 10.7% lower than at the end of Q3 2022. Productivity, measured as gross profit per fee earner, was up 4% versus Q3 2022, as a result of our action on fee earner headcount over the past 12 months,” Kirk said.

The Board also announced it expects 2023 operating profit, excluding a one-off cost of circa £5 million, to be between £125 million - £130 million. This is lower than the company-compiled consensus of £137.6 million it had forecasted during its Q2 results. For comparision, FY 2022 operating profit stood at £196.1 million.

By Geography

Unless otherwise stated all growth rates in the below geographical analysis are in constant currency and compared with 2022.

Within EMEA Germany, the largest market during Q3, delivered a record quarter, growing 5%. The standout results continued to be delivered by the Page Personnel (15%) and Michael Page Interim businesses (11%), the latter delivering a record quarter. Tougher trading conditions remained in permanent recruitment, which had a greater impact on Michael Page (-4%).

France was up 1% for the quarter, with similar performances in both Michael Page and Page Personnel. The group saw a stronger performance from within temporary recruitment, which is indicative of the current uncertainty in the market. Elsewhere in Europe, trading conditions were tougher due to weaker candidate and client confidence. The businesses in the Middle East and Africa grew 17%, with good growth in all markets.

In the US, gross profit declined 25%, a deterioration on the decline of 16% in Q2. Uncertainty in market conditions continued to impact time to hire as well as client and candidate confidence.

In Latin America, gross profit grew 7%, a record quarter, despite macro-economic uncertainty across the region. Mexico, the largest country in the region, was down 4%, compared to a decline of 7% in Q2 and Brazil was up 4%, an improvement on the decline of 9% in Q2. Elsewhere in Latin America, the remaining countries grew 19%, collectively. In line with the more challenging conditions, overall fee earner headcount decreased by 96, mainly in the US and Mexico.

In Asia Pacific, permanent recruitment across the region declined 12%, while temporary recruitment declined 3%, reflecting the continued uncertain market conditions.

Mainland China was down 23%. Trading remained challenging with the recovery continuing to be slower than anticipated. Hong Kong declined 21% for the quarter. Overall Greater China was down 22%.

South East Asia declined 12%, with Singapore, which continued to be impacted by the slowdown in Greater China, down 13%.

India continued to deliver strong results, up 3% on Q3 2022, a record quarter. Japan returned to growth of 4%, compared to the decline of 10% in Q2, while Australia declined 11%, compared to  a decline of 4% in Q2, due to tougher market conditions. Fee earner headcount in the region decreased by 85, mainly in South East Asia and Japan.

In the UK, gross profit for Q3 decreased 18.9% against 2022 to £30.3 million, following the decline of 17.0% in Q2. PageGroup continued to see clients deferring hiring decisions and candidates cautious about accepting offers. It also experienced an increase in turndowns and buybacks in the permanent business during September.

Reflecting the uncertain market conditions, clients sought more flexible options, and, as such, temporary recruitment (-5%) was more resilient than permanent recruitment (-24%). In line with the more challenging trading conditions, the fee earner headcount reduced by 36 in Q3 and is now 17% lower than Q3 2022.

Kirk continued, “As previously disclosed, as part of our refined strategy and our increased focus on our conversion rate target, we have already implemented a number of initiatives to reduce our cost base. These initiatives will incur a one off cost in 2023 of circa £15 million, offset by the majority of the cost savings being realised in FY23. The net negative impact this year will be circa £5 million. Going forward, we expect these initiatives to deliver annualised savings of circa £20 million per annum compared to our FY23 cost base from FY24 onwards.”

“Looking ahead, due to a slower end to the quarter, there is a heightened degree of uncertainty in the short term,” Kirk said. “However, we have a highly diversified and adaptable business model, a strong balance sheet, and our cost base is under continuous review and can be adjusted rapidly to match market conditions.”

“Given these fundamental strengths, we believe we will continue to perform well in these challenging markets, and we are confident in our ability to implement our new strategy driving the long-term profitability of the group. We are also seeing the benefits from our investments in innovation and technology, where Customer Connect is supporting productivity and enhancing customer experience, and Page Insights is providing real time data to inform business decisions,” Kirk said. Pagegroup shares last traded at £401.20, down 5.38% on the day and 11.44% above the 52-week low of £360.00 set on 13 October 2022. The company has a market cap of £1.37 billion.