Robert Walters plc (RWA) Earnings Call Transcript

Hello, and welcome to the Robert Walters Half Year 2026 Financial Results Presentation. [Operator Instructions] I would now like to hand the call over to Toby Fowlston. Please go ahead.

Good morning, everyone, and welcome to our 2026 half year results presentation webcast. I'm Toby Fowlston, Chief Executive of Robert Walters, and I'm joined here in London by Jonathan Solesbury, Interim Chief Financial Officer. We're pleased to have delivered a first half financial performance in line with our expectations, a good outcome, particularly given the increased uncertainty we have seen so far in 2026. The steps that we've been taking over the last 3 years to unlock more of the potential of Robert Walters has frequently required many of our people to go above and beyond. So it's right to recognize that and say a very big thank you. The execution of our strategy has been sharpened around cost, cash and growth actions over the last 9 months. The actions we have taken continue to give us confidence in the opportunity we have ahead and in the value this business can deliver for our clients, for our shareholders and for our people. In terms of our agenda today, I'll hand over to Jonathan shortly for a review of our first half financials and an update on our cost and cash actions. I'll then return to update you on the growth actions that we've been taking in the business and the positive impact that they are driving. We'll then leave time at the end to open up for questions. So let me firstly highlight our key messages for today. Whilst markets have, of course, been tougher than almost everyone in the industry anticipated in the 2 years since we presented our refreshed strategy at CMD, we remain confident in our plan. That said, tough markets have, of course, prompted us to further sharpen how we're executing the plan. We are further focused on cost, cash and growth actions, the 3 of which are fundamentally linked. Secondly, on costs and cash, we have made substantial progress. Our annual cost base has reduced on an annualized basis by GBP 83 million since 2023, and we're very clear on the actions ahead to deliver the cost base that is right for the current market. Meanwhile, we have made solid progress in optimizing cash levels across the group to support execution of our strategy. And thirdly, we continue to take focused growth actions to position the business strongly for the structural opportunities we see ahead. We are confident in returning our specialist recruitment business to growth quicker than the broader market. We have a larger addressable market today than 3 years ago, and we are increasingly well positioned in attractive areas where our total talent solutions offering will continue to resonate with clients over the long term. So with that said, I'll hand over to Jonathan now for a review of our first half financial performance and an update on our cost and cash actions.

Thank you, Toby. Good morning, everybody. Turning first to the summary of our first half financial performance. As Toby said, we're pleased to have delivered trading in line with our expectations in what remains a volatile global backdrop. Net fees of GBP 135 million in H1 were down 3% year-on-year in constant currency, a clear sequential improvement from the 2025 trend. In terms of the shape of our first half, given the Asia Pacific weighting of the business, net fees in the second quarter were larger than the first quarter. Comparing the 4% year-on-year decline in the second quarter net fees to the 2% year-on-year decline in the first quarter, what we are seeing is a consequence of the tougher second quarter comparator with fees bigger by GBP 5 million. Operating costs of GBP 139 were reduced by 6% on the prior year. Within this, there was a net charge of around GBP 1 million of one-off items taken above the line during the first half, thereby giving an underlying cost base of GBP 138 million. After interest costs and the impact of foreign exchange, the first half result was a GBP 6.8 million loss before tax, reduced on the prior year. As we continue to take actions to ensure a strong balance sheet to enable the business to execute its operational and strategic objectives, the Board is not declaring an interim dividend. As Toby has already made clear, we are focused on the costs across the business. Let me first turn to a review of the H1 operating costs before updating you on our cost actions more widely. The average group headcount was down 11% on the prior year in H1, driving a GBP 4.5 million reduction in staff costs. We continued to manage non-staff costs very tightly during the first half with a GBP 4 million reduction year-on-year. We are being selective in investing spend in those client relationships that best support good-quality business development, and all our teams are focused on ensuring spend is directly fee-generating, ultimately cost-reducing or ensures regulatory compliance. Our tight cost management during the first half was part of the longer-running cost initiatives that underpin our strategy and medium-term targets. Let's now turn to that. Over the last few years, the business has taken considerable action to reduce the cost base. As you can see from the chart on the left-hand side, since 2023 and on an underlying annualized basis, around GBP 83 million of cost has been removed. Investors are rightly keen to know what that can assure that the cost actions being taken isn't damaging the muscle of the business, which we clear, it hasn't. We gauge this by tracking the average tenure of our fee earners, which you can see on the chart in the middle of the slide. All else equal, we know that higher fee earner experience levels are associated with greater levels of productivity. As such, we've made the necessary reductions in the cost base by retaining many of our most experienced fee earners. Fee earner average tenure at the end of H1 was up nearly 1/4 versus the end of 2021 when the hiring market was showing signs of overheating. The other significant part of our cost reduction program relates to reducing the structural costs within the business. You will recall that we're targeting delivery at least GBP 12 million of annual structural cost savings against the 2023 base with the full benefit of that being seen in the P&L in 2027. For reference, we've included detail on the slide of how that program has unfolded over time with a little over half of the reduction being delivered this year, which now at just over the halfway mark, we remain on track to do. Putting the cyclical element of the cost base required for current market conditions, together with the structural savings being secured, we have developed a line of sight to an underlying cost base -- monthly cost base that will exit in 2026 at around GBP 22 million. Turning now to the cash profile during the first half and our recent [ cash actions ]. In the first half, we saw a reduced outflow on a free cash basis compared to the prior year, underpinned by our control of costs. Regarding working capital, we saw a GBP 6.3 million outflow during the period. Receivable days decreased year-on-year. However, the working capital inflow associated with that was more than offset by the rebuild in temp volumes, particularly reflective of the growth in Australia and New Zealand, and timing effects of period-end cutoff where revenue has been earned but not yet invoiced. Now, moving on to our wider actions. At the full year results in March, we outlined the focus throughout the business on further optimizing cash. You may recall that whilst the cash resources across the group remains solid, we've historically operated with a consistent net debt position in the U.K. compared to our overseas markets, which retain positive cash reserves. That financing structure did not give [ the capability ] to our international business mix, and we had to [ obtain sufficient ] cash overseas reserves to fully fund the local working capital requirements across our international markets rather than repatriating that cash to the U.K. During the first half, we made good progress in improving this. Specifically, we have upweighted our day-to-day cash management actions, including more robust forecasting processes, led by an upskilled treasury function. This has enabled us to forecast cash with more precision, resulting in lower cash reserves to fund local working capital requirements. We continue to see [indiscernible] for the business in having access to financing facilities locally in certain of our non-U.K. markets, and steps to realize this are in advanced stage. In summary, we have made substantial progress with our cost and cash actions, and they will continue to support the delivery of our growth strategy. Before handing back to Toby, let me touch on our full year guidance. The key takeaway is that we expect to deliver our financial results for the year towards the upper end of current market expectations. With regard to net fees, we remain mindful that hiring markets across the globe continue to move at different speeds with a volatile backdrop being managed with agility. As such, we continue to expect 2026 group net fees to be slightly below 2025. In specialist recruitment, we see a blend of continued growth in certain of our larger hiring markets, whilst we anticipate conditions in Northern Europe to remain relatively tougher but stable. In recruitment outsourcing, we anticipate the growth in net fees in the first half to be broadly sustained in H2. With regard to costs, we expect further reduction in the underlying cost base over the second half of the year, and we continue to envisage net cash at the end of 2026 to be broadly stable on the closing level in 2025. And with that said, I will now hand you back to Toby.

Thanks, Jonathan. We've sharpened execution regarding cost and cash to help fund the investment into the growth actions that we are taking in the business. So before we turn to look at those growth actions in more detail, let me take a moment just to remind you and put them in the context of our group strategy. As you can see from the slide, our strategy focuses on 2 levers of organic growth. Geographic penetration is about scaling in key markets. Our strong market position in Japan is a good example of what we're focused on extending and replicating. Service line diversification, such as we are focused on through interim management, consultancy and outsourcing grows our addressable market. We first set out this strategy at the Capital Markets Day in September 2024. Clearly, the cycle downturn has been tougher, and the AI-driven debate about the future of professional work more contested than perhaps anyone could have anticipated back then. All that said, though, we remain confident in our plan but clearly have been adaptive over the last couple of years. Let me talk more on what continues to guide our thinking given the structural debate on the sector. On the hotly debated impact AI will have on the world of professional work, we first set out our view back in March. Whilst much, of course, remains uncertain, we have confidence in 2 core beliefs. The first is that the change in the world of professional work will present opportunities for our relationship-based business model. The chart that you can see on the left-hand side of the slide is one we first shared at our preliminary results in March. It shows the proportion of job adverts on the Indeed platform mentioning AI in the description. We think this is a useful way to track the speed at which this new technology is reshaping existing jobs and creating completely new types of jobs. The clear trend continues to be upwards, though at different rates across the major hiring markets. Many people who know their stuff on these matters are coming to a similar conclusion [ to us ]. On the slide, we've included a quote from the Chair of the U.K. government's AI Economics Institute. As seen previously in history with computers, the Internet, we agree it's much more likely that there will be net new job creation from AI, and we think the emerging evidence is starting to bear this out. Our second core belief is that human skills become more, not less important in an AI-enabled future professional work. We hear this from our own clients who consistently tell us that finding the right people have been validated by a trusted human source remains a top priority for them. We also see it more widely across a whole range of professional job types. And this theme was brought out well by PwC in their recent global AI jobs barometer, which analyzed over 1 billion job adverts across 6 continents. Their finding is that for the white-collar work that is our specialism, AI is changing those roles by automating away routine tasks and raising the importance of human expertise, judgment and creativity. Right now, that is most clearly seen in the entry-level jobs. And as you can see on the chart on the right-hand side, PwC's finding is that for the entry-level roles, which are highly exposed to AI, that's the bar on the left, just over half of the new skills required for these roles are distinctly human ones that simply aren't going to be taken by an AI agent anytime soon, so things like motivational leadership, strategic decision-making, team building. Now, perhaps those strike you as a bit intangible, but if you look at the organizations where those skills are in abundance, they're likely to be the ones leading in their sectors. So the key point seems to be this, the more that AI is deployed into professional work, the more we'll need distinctly human skills to truly leverage all of its benefits. And whilst you know that entry-level roles is not where we play, we think this is an instructive finding about what is happening now. And we suspect that roles at more mid to senior levels will also need to further seniorize to demonstrate these skills. Let's now turn to the growth actions that we've been focused on in the business, consistent with our 2 key levers of geographic penetration and service line diversification. Specialist recruitment remains the engine of the group. We're focused on returning it to profitable growth as soon as possible, and we're clear on how we want to do that. Across our footprint, there is increasingly better execution of our commercial playbook. And this is well illustrated when you consider that broadly, half of our portfolio was in growth during the first half, as you can see from the chart on the left-hand side. This is well up from just 1/10 in the first half of last year. Importantly, we believe that in many cases, this growth is due to our market share gains. To help you see that more clearly, we've included a couple of other charts on the slide. The middle chart shows our hiring demand has trended in the U.K., Spain and New Zealand, using our preferred measure of job adverts from external sources. As you can see, it's been a relatively stable picture so far in 2026 compared to the prior year. We think this is important when you consider the chart on the right-hand side, which shows how our top line trading has trended in those same 3 markets. The clear takeaway is that our performance seems to have inflected. We believe this comes back to clients and candidates continuing to respond to our differentiated relationship-based offering and high-quality service. But don't take it just from me because it's much more powerful coming directly from the clients that we serve. And on the bottom of the slide, we've included some direct feedback collected as part of our NPS program from clients in our U.K. specialist recruitment business. What stands out for me is the value and our ability to provide really quality candidates and quickly demonstrate a good understanding of the clients' needs. When you consistently create the conditions for that sort of quality service to be repeated day in, day out in both supportive and challenging markets, you have real barriers to entry and the sort of relationship property that market share gains are built on. So half of our specialist recruitment portfolio was in growth in the first half. And clearly, we're not satisfied with just that. Whilst we can't detach ourselves from the reality that hiring markets globally are moving at different speeds, we're focused on outperforming the market. To deliver this, our playbook remains our 4-box model, and I'll bring to life what that really means in practice. In the top right of our portfolio, we have country businesses in markets where there are strong structural tailwinds and where we are, on the whole, executing well. The key action here is to invest to strengthen our platform. Platform strengthening can either be focused on the top line, i.e. net fees, or the bottom line, operating profit, with the real sweet spot clearly being both. Malaysia and Japan are great examples where we're focusing actions to strengthen both top line and bottom line, respectively. In Malaysia, our largest market in Southeast Asia, we've invested to develop our executive search offering, expanding the suite of solutions we can help our clients with. This helped drive a 6% increase in our average perm fee during the first half, particularly pleasing to see in a business where the conversion rate is already in line with the medium-term target for the group as a whole. In Japan, our single largest specialist recruitment market, our recent actions have been particularly focused on further strengthening profitability with volume productivity in perm, which is to say perm placements per perm fee earner, a key focus. Here, we're more actively managing the sales funnel to get even more from our existing fee earner headcount. Now, there's more we have to do, and a more competitive market environment for the best consultants is something we're watching closely. But the early evidence gives encouragement with volume productivity rising 12% year-on-year during the first half. Let me also say a quick word on our European interim management business, where we place senior professionals, often at C-suite level, into organizations going through a critical event such as an acquisition or large-scale transformation. Our platforming strengthening actions here have been focused on going into different segments of the interim market. For instance, in France, we saw an opportunity to access the mid-management level as a complement to the C-suite positioning that our business there is well known for. Now, whilst market conditions in Northern Europe remain tougher than other key markets, we continue to be excited about Interim as a key engine of future growth. And it was really encouraging to see our interim volumes in France exceed prior year levels during the second quarter for the first time since early 2025. Moving to the top left quadrant. The structural market tailwinds remain strong, but our execution needs to be better. And so, here, our focus is on improving execution before looking to grow the platform. Our specialist recruitment offering in the U.S. is a prime example. And you may recall that we consolidated our footprint last year to focus on 2 key hubs, one on the East Coast and the other in Texas. In addition, we've also narrowed our segment presence as well, whereby we envisage the majority of our activity being the placement of senior talent. In the bottom right, we have markets where, perhaps due to maturity, the structural tailwinds are less pronounced. However, we are executing well. Our focus then is to keep doing that to a high level to outperform competitors and take market share. The U.K. is a good example here. And as you can see from the chart, whilst our average perm fee earner headcount was broadly flat year-on-year during H1, we saw an 18% increase in perm placement volumes. Our platform, in terms of the market experience our fee earners have, is as strong as ever, and that is supporting authority and trust in the marketplace, which is a real differentiator. Lastly then, in the bottom left quadrant has weaker structural market tailwinds, whilst our execution has historically required improvement. Here, we challenge ourselves and whether a path to a more competitive position exists. During the first half, we continue to review markets in this quadrant, albeit now against stricter criteria, whereby we're asking ourselves whether we remain the best owner of these businesses. And we anticipate concluding that review later this year. However, we are clear that our objective is to optimize value for the group. So I hope that's helpful in demonstrating the growth actions that we're taking in specialist recruitment. As we move now to consider our growth actions elsewhere in the business, it's helpful to place these in the context of our addressable market. We showed a version of this slide for the first time in our 2025 full year results in March. Outside of specialist recruitment, our growth actions can be summarized under the banner of investing to expand our future addressable market. We've included some detail on the slide in terms of how we've gone about that since '23. And this has mainly been about addressing the talent challenges that larger enterprise businesses have, often distinct from those faced by the small and medium-sized businesses that are often our clients in the specialist recruitment market. So let me now turn to update you on our growth actions in enterprise talent solutions. We've historically provided the enterprise talent solutions that our clients need through our recruitment outsourcing business. That business has been turned around over the last 3 years. Under new leadership, we focused our range of solutions, become more competitive at tender and developed new offerings, which have real commercial traction. The business now consists of 3 main elements, as you can see on the bottom left of the slide. Firstly, you have the RPO offering, which is basically doing perm hiring at scale for larger enterprises, and this delivered about 2/3 of the net fees for the outsourcing as a whole during the first half of the year. Then you have the MSP offering, which is doing non-perm hiring at scale for larger enterprises. These 2 offerings have historically been the bedrock of our enterprise talent solutions offering. And when I say that the outsourcing business has been turned around over the last 3 years, it's really here that those turnaround actions needed to be focused. Thirdly, you have the consultancy offering. This is a much newer business. We launched it from a standing start in late '22, but it's already grown to comprise around 1/6 of outsourcing net fees in the first half, or about GBP 4 million. And I'll say more on that later. Before that, let's take more closely a look at the RPO and MSP offerings. We're really starting to see the impact of the turnaround actions I mentioned in our financial performance. RPO and MSP combined returned to net fee income growth during the first half of the year, as you can see on the chart at the top right of the slide. Furthermore, the book now largely comprises only retained clients, as you can see on the chart on the bottom right of the slide. This has removed the headwind from clients with whom we parted ways and where it run off. The turnaround actions have also enabled us to show up more confidently in the marketplace. And you'll recall, we secured a significant expansion of a perm volume hiring partnership with a major financial institution, namely MUFG, in the fourth quarter of last year. Looking ahead, our pipeline of opportunities, particularly in RPO, is something we're encouraged by. Turning to consultancy, we're excited by the structural growth opportunity. Here, we're specifically focused on the IT space. When we first launched the business, we supplied those larger enterprises needing IT talent on a non-perm basis at scale, but we wanted a different model to the MSP. In the consultancy model, Robert Walters directly employs the IT talent, and we then deploy the talent into our clients, typically the 6-month assignments, but with high rates of renewal and very low bench costs. More recently -- and this is what has unlocked the incremental GBP 5 billion addressable market opportunity you saw a couple of slides ago -- we had gone into the [ statement of workspace ], where the key value-add is not just supplying the worker, but an end-to-end solution for clients with often large complex technology projects. A great case study of that is our work with the U.K. government department responsible for setting and delivering digital services. They needed to scale specialist capability quickly to hit their project milestones. In the tender process, our conversations with them focused first on solution outcomes rather than resource requests and help them with governance, risks and operational requirements. We now have teams responsible for delivering outcomes for our clients across both the IT infrastructure platform, as well as the end user data platform. And this relationship has made a strong contribution to the 41% year-on-year growth in net fees in our consultancy business during the first half. And on the slide, we've included a visual of how we're now showing up in the marketplace across our 4 key practice areas. So I hope that provides helpful detail on the focused growth actions we've been taking right across our business. So in conclusion then, we delivered a first half trading performance in line with our expectations. My thanks go to all of our people for the contribution they have made in making that happen. Three years on, from the beginning of our work to unlock more of the potential of Robert Walters, we're seeing good strategic progress focused on cost, cash and growth actions. We've begun the second half of the year with good trading momentum in a number of our markets, accelerating progress on the cost base and better execution capability of our growth actions. And as such, we expect to deliver a financial result for the year towards the upper end of current market expectations. We remain focused and confident in how we can deliver for our clients, for our talent, for our shareholders and for our people. So thank you for listening. And Jonathan and I are now happy to take any questions.

[Operator Instructions] Our first question today comes from Thomas Callan from Investec.

Two questions from me, please. So firstly, on productivity. So Japan delivered 12% growth in perm productivity. U.K. placement volumes picked up as well on broadly flat consultant numbers. That's great. But how repeatable do you think those gains are moving forward? And then secondly, on the outsourcing piece, great that RPO and MSP returned to growth. Where do you see the medium-term margin profile with respect to enterprise talent? And how does that potentially change the group's overall conversion margin once that mix has potentially shifted?