PageGroup flexing geographic approaches – City Comment

Overall the tone was upbeat at a well-attended analyst roundtable event on Tuesday [9 September], hosted by PageGroup, the specialist recruiter. Sell-side analysts and investors exchanged Q&A [questions & answers] with senior members of the operational team from all four divisions, with each highlighting the key growth drivers in their respective geography.
Thu, 11 Sep 2014 | By Adrian KearseyOverall the tone was upbeat at a well-attended analyst roundtable event on Tuesday [9 September], hosted by PageGroup, the specialist recruiter. Sell-side analysts and investors exchanged Q&A [questions & answers] with senior members of the operational team from all four divisions, with each highlighting the key growth drivers in their respective geography.  

Although the ‘One-Page’ strategy clearly runs through the whole organisation, the teams appreciate the need for flexibility. For example, a few years ago in the US, the new management line-up reviewed the Page model and recognised the need to re-position the group’s US strategy. The team had struggled to recover from the downturn, having to compete with a ‘me-too’ offering and losing out to local agencies. Their response was to offer a new executive search service within the mid-market, essentially delivering higher service levels to clients than delivered by much of the competition. Recent quarterly updates demonstrate the success of this move, with net fee income up by more than 30% year-on-year. 

Analysts asked all of the divisional heads whether there was scope for the conversion ratio to trend higher? The ratio peaked at 31.3% in financial year (FY) 07, falling to 5.7% in FY09. It has begun to recover, and is expected to be in the region of 15.1% in FY14 and 16.5% in FY15. Although a sustainable level for the ratio is probably sub-30% there is clearly scope for a material upward movement. For example, in Germany (currently 250 consultants) there is capacity within the existing network of seven offices to materially add to headcount. This should enable a sufficient uplift to regional margins.     

During the meeting with the Asia-Pac management team, analyst questions immediately focused on China. It was clear that growth was only limited by the ability to recruit appropriate consultants. Essentially they are looking to expand as quickly as possible, without having an impact on quality. Currently the headcount is just over 400. This is 50% bigger than the German team. The China team is increasingly being led by locals and within the next few months one of the regions will headed up by a local. Expats have clearly done well initiating the roll-out, educating teams and kickstarting the process. But cultural factors mean that success needs to be delivered from a domestic, rather than an expat team.  

The session with the UK management focused on which disciplines were performing well. Structural shortages are clearly driving demand in certain areas and candidate confidence is building. These factors are driving strong net fee income trends. Indeed Q2 trading showed that UK NFI increased by 11%. This makes the UK the strongest division after Asia-Pac.

Adrian Kearsey is head of smaller companies research, Sanlam Securities UK

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