Pagegroup PLC

LSE:PAGE

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the PageGroup Q4 Results Call.My name is Seth, and I'll be the coordinator for your call today. I'll now hand you over to Kelvin Stagg, CFO, to begin.

[Kelvin Stagg]

Good morning, everyone, and welcome to the PageGroup fourth quarter and full year 2017 trading update.I'm Kelvin Stagg, Chief Financial Officer. And I have with me Steve Ingham, Chief Executive Officer. Today, we will take you through our fourth quarter and full year 2017 results, starting with a financial review from me, followed by a regional review and summary and outlook from Steve. We'll then be happy to answer any questions you may have.Before we start the presentation, I'd just like to make reference to the legal formalities that are covered in the cautionary statement in the appendix to this presentation and which will also be available on our website following the presentation.The group delivered a fourth quarter gross profit of GBP 182.4 million with constant currency growth of 13.8%. This was an improvement on the 8.8% in Q3, a record quarter and our best quarterly growth since Q3 2011. All regions other than the U.K. delivered strong double-digit growth, with EMEA and Latin America having their best-ever quarters. For the full year, the group delivered gross profit of GBP 711.6 million, an increase of 9.9% in constant currencies and another record for the group. This compares to 3% growth for the full year in 2016.Foreign exchange had a negative impact during the fourth quarter, which led for the first time this year to a lower reported gross profit growth rate of 11.7%. This was due primarily to currency movements in Asia Pacific and the Americas. However, for the full year, foreign exchange benefited our results, increasing our full year growth rate to 14.6% in reported rates.Our Michael Page businesses grew 12.8% in the quarter and by 8.2% for the full year. Page Personnel grew at a faster rate, up 16.3% and 13.9% for the quarter and full year, respectively. Page Personnel continues to benefit from having more structural opportunities for growth.We ended the year in a strong financial position with net cash of around GBP 91 million, down from the GBP 109 million at the end of Q3. However, this was after payment of both the interim and special dividends, which combined totaled GBP 52.3 million. We are in line with our 2016 closing cash figure of GBP 93 million.In the fourth quarter, the foreign exchange impact was a GBP 4 million reduction in gross profits and a GBP 1 million reduction in operating profits. However, for 2017 as a whole, foreign exchange movements benefited gross profit by around GBP 29 million and operating profit by around GBP 6 million.In the fourth quarter, permanent recruitment grew 13.6% in constant currencies, with temporary up 14.4%. This gave a ratio of permanent to temporary gross profit of 75 to 25, in line with both sequential and prior year quarters. Performance in the fourth quarter was marginally stronger in temporary than in our permanent businesses. Continental Europe delivered particularly strong growth in temporary, with Belgium, France and Switzerland all growing at over 30%. Growth rates in the emerging temporary markets in Latin America and Asia were also high, albeit from a much lower base.For the full year, permanent recruitment grew 9.5% in constant currencies, with temporary recruitment growing 10.9%. To remind you, our higher ratio of permanent recruitment reflects the mix of geographies and salary bands in which the group operates. In Latin America, Greater China and other parts of Asia, for cultural reasons, the white collar temporary recruitment market is only just starting to emerge. In these geographies, over 90% of our gross profit is derived from permanent recruitment. In other markets, the permanent-to-temporary mix reflects the salary bands in which we operate.Our Page Executive brand is largely permanent. In our Michael Page businesses, permanent recruitment represented 83% of gross profit in Q4, but in Page Personnel it was less at 55%. Finally, our Technology recruitment business, which as a discipline is naturally skewed to temps and contractors, is currently a relatively small part of our overall portfolio representing around 7% of the group.Looking now at our gross profit by the disciplines in which we operate.The disciplines we do outside of accounting and Financial Services, collectively representing 63% of the group, remained at a record high, reflecting the continuing success of our diversification strategy. Accounting and Financial Services, which represented 37% of the group, was up 11.1%. Within this, Financial Services, which now represents 7% of the group, had another strong quarter, growing 19%. Our technical disciplines category, which represented 23% of the group, again recorded the strongest growth, up 25.7%. Within this category, Property & Construction and Engineering grew 37% and 32%, respectively, driven by strong performances in Continental Europe, Asia and North America. Our professional services category also represented 23% of group gross profit and grew 15.1%, with the Technology and Legal disciplines having the strongest growth. Finally, our Marketing, Sales and Retail disciplines, representing 17% of the group, grew by 4.8%.Having added 276 fee earners in H1 and 290 in Q3, we added a further 220 fee earners in Q4. In total, this was an increase of 786 for the year or just under 17%. These were mainly into our Large High Potential Markets, as well as those where we saw the greatest growth such as France and Japan. By region, we added 108 in EMEA, 84 in Asia Pacific and 34 in the Americas. In the U.K., fee earner headcount was down 6. Given our team profit share model, where demand for additional fee earners is managed according to the trading conditions currently being experienced by each one of our 1,200 teams around the world, fee earner additions are a strong indicator of our confidence in those markets in which we have invested in additional fee earner headcounts. Operational support staff headcount increased by 59 in the quarter and by 144 for the year. The increase reflected both the need to support our operational business and also to optimize our operational support functions such as with the implementation of our new Global Finance System. As a result, our fee earners-to-operational support staff ratio was maintained at the record level of 78:22, an improvement on the 77:23 at the end of 2016. The ratio of fee earner to operational support staff joiners for 2017 was 85:15.At the end of December, the group had a record total of 5,497 fee earners and 1,532 operational support staff. In total, we now have a record headcount of 7,029.This quarterly headcount and gross profit chart illustrates both our record fourth quarter gross profit at reported rates; and also our record headcount, which was up 4.1% on Q3. The gray column on the right shows the quarter in constant currencies to enable comparison with Q4 2016.This chart shows the historical alignment between our gross profit and headcount by year. It also demonstrates our record gross profit for 2017 of GBP 711.6 million. Again, the gray column on the right shows the full year in constant currencies to enable comparison with 2016.I will now hand you over to Steve, who will take you through the rest of the presentation.

[Stephen J. Ingham]

Thank you, Kelvin.I will start with both a quarterly and full year overview of our regional performances before presenting each region in turn.Gross profit in the fourth quarter grew 13.8% in constant currencies, up from 8.8% in Q3. As Kelvin mentioned earlier, this is our best quarterly growth rate since Q3 2011. Our largest region, Europe, Middle East and Africa, which represented 50% of the group, grew 19.3%, up from 12.6% in Q3; and delivered a record quarter. This performance was driven by France and Germany, which both also delivered record performances. Asia Pacific, now our second largest region, delivered growth of 14.9%, up from 13.9% in Q3, with particularly strong results from Asia. In the U.K., where market conditions remained tough with the ongoing uncertainty continuing to impact senior candidate and client confidence, gross profit declined 2.8%, although this was an improvement on the last quarter's 7.6% decline. The Americas grew 18.8%, marginally up from 18.4% in Q3, with another strong performance from the U.S. and a record quarter for Latin America.Across the group, 9 countries delivered record quarters. 12 achieved growth of over 20%, and 21 achieved growth of over 10%.For the full year, the group achieved 9.9% growth in constant currencies and delivered a record year. This is up from the 3% growth achieved in 2016. In reported rates, the group delivered growth of 14.6%. For the year as a whole, 22 countries had record years, including 4 of our 5 largest countries: France, Germany, Greater China and the U.S.In the EMEA region, full year growth in constant currencies improved from 11.5% in 2016 to 15%. France and Germany, the 2 largest countries in the region, grew 25% and 12%, respectively, with the Netherlands up 14% and Spain up 16%. The U.K. was the only region not to improve on the prior year but was broadly in line down 3.8% compared to down 3.5% in 2016. However, both Asia Pacific and the Americas returned to positive growth. Asia Pacific grew 10.2% in 2017, after a decline of 2.2% in 2016. Greater China grew 14%, after a decline of 4% in 2016, and this was the main driver for the region's return to growth. The Americas grew 16.4% in 2017, after a decline of 0.9% in 2016. There was a strong recovery in the U.S., up 21%; and a return to growth for Brazil, up 4%, after respective declines of 3% and 21% in 2016.Moving to each of our 4 regions, starting with the largest, Europe, Middle East and Africa, which for the first time represented half of group gross profit; and grew 19.3%, its 14th consecutive quarter of double-digit growth. 10 EMEA countries saw growth of over 10%, and 4 delivered record quarters.Michael Page, which represented 55% of EMEA, grew 20%, while Page Personnel, which delivered record quarters in Belgium, France and the Netherlands, grew 19%. France, our largest country in EMEA, represented 17% of the group, only 1% less than the U.K. It grew 28% and delivered a record quarter. Page Personnel, which represents around 2/3 of our French business, and Michael Page both grew at 28%. Growth was strongest in our technical and accounting and Financial Services disciplines. Germany, which represented 7% of the group, delivered a record quarter and grew 14%. Our Michael Page Interim business, in which we've invested heavily, had another record quarter and delivered growth of 23%. We saw a particularly strong growth in the Engineering and Technology disciplines.Southern Europe grew 10%. Spain, 5% of the group, grew 11% despite the challenging conditions in Catalonia which represents around 40% of the business. Belgium, Portugal and Switzerland all saw growth of around 40%, with the former two delivering record quarters. And other strong performances came from the Netherlands and Poland. The Middle East and Africa, which represented 2% of the group, declined by 3%. However, our business in the Middle East continued to diversify, becoming less dependent on the oil sector.Reflecting these generally favorable trading conditions across the region, fee earner headcount rose by 108 in the quarter, a rise of 5%. Fee earners were added to most businesses in Continental Europe, but the larger investments were in France and Germany.Our Asia Pacific region, which represented 18% of group gross profit, grew by 14.9%, up from 13.9% in the previous quarter; and was again our second largest region. In Asia, 74% of the region and 14% of the group, we grew 21%, a second consecutive-quarter growth of over 20%.Greater China, the group's third largest market after the U.K. and France, grew 15%. We have invested heavily in fee earner headcount in this market, adding 126 or 32% in 2017 to now over 500 consultants. Mainland China, now 62% of Greater China, grew by 23%, driven by our focus on regional and domestic companies. Hong Kong, helped by another strong quarter in Page Personnel, grew 5%. Our investments in Japan to expand our presence in the Nikkei market helped to deliver a record quarter with growth of 41%. Year-on-year fee earner headcount has increased by over 50%.South East Asia grew 27%, driven by strong growth in Singapore, up 33%, with Indonesia up 30%. Thailand ended its first full year of operations with a record month and quarter and was profitable.Australasia, which represented 26% of Asia Pacific and 4% of the group, grew by 1% in the quarter, following a decline of 4% in Q3. Australia grew 2%, with Michael Page up 1% and Page Personnel up 7%. There were mixed results regionally, with double-digit growth in Western Australia and Queensland offset by single-digit declines in New South Wales and Victoria. We added 20 fee earners in the quarter, particularly into Perth and our new office in Canberra.In the U.K., which represented 18% of the group, gross profit was down by 2.8%. Brexit and political instability continued to impact confidence, and uncertainty remained, particularly with our more senior candidates and some multinational clients. However, this growth rate has an -- was an improvement on the 7.6% decline in Q3. Our Michael Page business, which operates at higher salary levels, with 71% permanent recruitment, was down 3% in the quarter, while Page Personnel, which represented 23% of the U.K., declined by 2%. Both our permanent and temporary businesses declined by a similar amount.Several disciplines delivered positive growth, with office support up 12%, Property & Construction up 9% and Technology up 5%. There was also a small growth in our Financial Services and Legal disciplines. We saw growth in London and the Midlands, offset by weaker performances elsewhere. Our private sector business, representing 87% of the U.K., was down 2% in the quarter, while the public sector was down 10%. Both sectors declined 4% for the year as a whole.Fee earner headcount remained broadly flat, down by 6 in the quarter, with fee earner growth in the better-performing markets offset by attrition elsewhere. Year-on-year fee earner headcount is broadly flat at just over 1,000 consultants.Finally, to the Americas, which represented 14% of group gross profit and grew 18.8% in the quarter.In North America, which represented 8% of the group and 54% of the region, we grew 19%. The U.S., representing 7% of the group and 49% of the Americas, grew 21%. We continued to diversify both our geographic and discipline mix in the U.S. The New York-based Financial Services sector, which now represents less than 1/4 of the U.S., declined by 4% in the quarter, in line with its full year performance. However, the rest of the U.S. grew 32%, with strong performances from our offices in Chicago, Houston and Los Angeles. Within the disciplines, Property & Construction and Marketing have again been particularly successful. Supporting this growth has been fee earner headcount investment, up 64 or 21% in the last 12 months.Latin America, which represented 6% of the group and 46% of the region, grew 19%; and achieved another record quarter, as did Argentina, Mexico and Peru. This was the region's best quarterly growth rate for 3 years, helped by Brazil which grew 14%, driven by Page Personnel and the emerging temporary business. Excluding Brazil, the rest of Latin America grew 21%, with all countries recording double-digit growth. Mexico grew 13%, after a flat third quarter. And Chile delivered its best quarterly growth for over 2 years, with encouraging results in mining, agriculture and its temporary business.Fee earner headcount in the Americas increased by 34 in the quarter and by 134 for the full year.We updated you at our last set of results on our ongoing strategic commitment to our world-leading Digital platform built around 3 core pillars: our own websites, candidate acquisition and consistent customer engagement.Our single global web platform that runs all our 55 websites around the world had 49 million user visits in 2017. We have a number of strategic global partnerships with media partners to acquire new relationships with candidates, driving 15 million applications on our sites in the last 12 months. Increasingly, our engagement with candidates is on mobile devices, reaching an all-time high last year of 36% of visits. We use social media actively, such as LinkedIn, for our consultants to engage with customers on an ongoing basis. Fueling their networks through our content program, we saw over 100 million views of our content in 2017, building trust and credibility in our teams and in our brands. Our program saw us being recognized by LinkedIn as globally the winner of their most socially engaged recruitment company award in 2017.Digital forms only part of our investment in innovation and technology platforms. We'll provide a more detailed and wider update at our full year results presentation in March.I'll now finish with a brief summary and outlook.The group delivered a record quarter of gross profit growing 13.8% in constant currencies and 11.7% in reported rates. The majority of our markets performed well in the quarter, with EMEA and Latin America delivering record performances and all 4 of our regions showing sequential improvements in their growth rates. 4 of our 5 largest markets, namely France, Germany, Greater China and the U.S., collectively grew 21%. The U.K., our largest single market, showed an improved performance compared to recent quarters but remained in negative growth. Other challenging markets such as Australia, Brazil and Singapore improved in the quarter and were all positive.We added 279 heads in the quarter, of which 220 were fee earners. Combined with additions in earlier quarters, this added 786 fee earners for 2017 as a whole; and we now have a record total headcount of 7,029. This reflects our confidence across a large number of the markets in which we operate.Our financial position remained strong with net cash of around GBP 91 million despite the payment in Q4 of GBP 52.3 million in interim and special dividends.Full year operating profit is expected to be ahead of consensus but within the range of current market forecasts.Finally, to comment on our outlook for the first quarter and the year ahead. Our strategy to invest in our Large High Potential Markets remains unchanged, and we are pleased that we're seeing strong growth in all 5 of these markets. We will continue to diversify in the U.S., invest in Latin America and South East Asia, develop a domestic market in China and expand our temporary and contracting businesses in Germany. Where we're seeing strong growth elsewhere such as in Continental Europe, India and Japan, we will continue to add heads selectively but remain mindful of the impact on our conversion rate. A number of our markets remain challenging. In the U.K., despite an improved quarter, we remain cautious, as a considerable uncertainty remains around the timing in terms of Brexit. While Australia, Brazil and Singapore have shown improvement in Q4, we remain cautious on these markets as we go into 2018. As ever, we will continue to focus on driving profitable growth whilst retaining the flexibility to adjust rapidly to changing market conditions.Kelvin and I will now be happy to take any questions you may have.

[Operator]

[Operator Instructions] And today's first question comes from Bilal Aziz from UBS.

[Bilal Aziz, Associate Director and Equity Research Analyst]

Just 2 questions from my side, please. Firstly, on France, clearly strong double-digit growth for 5 quarters straight now, I suppose, if you look into your early indicators for 2018, what is your feeling of the sustainability of that double-digit growth rate given Page Personnel is increasingly an important part of that region? And also, I appreciate you've added significant headcounts over the past 5 quarters into France, but are we approaching the tipping point for 30% conversion margins within that region? And separately, just in the U.K., have you seen any changes to fee rates across some of your verticals over the past 6 months? And similar question within that, given you've kept headcount broadly flat in the fourth quarter, should we be thinking about flattish conversion margin expectations for 2018 at this sort of run rate initially?

[Stephen J. Ingham]

Thank you. All right, just writing those down. In France, first of all, the sustainability of our growth, look, clearly our world can change very quickly, but as we sit here today, yes, we would like to think we can continue at double-digit growth. The most important indicator for our level of confidence is always our headcount. It's a direct indicator. When you've got 1,200 teams around the world rewarded on profit share, invariably they will not add headcounts unless they are pretty confident of the outlook. Otherwise, their bonuses, their rewards are going to go down. And so if you see heads added to a country or a business, then it's because locally -- and they are the people I trust to actually judge a market, locally they believe that they are seeing future growth. Now they will be wrong from time to time because unexpected things happen in markets, but with headcount added in France in Q4, that's because they have confidence going into 2008 (sic) [ 2018 ] and they believe it's sustainable at this point. In terms of conversion rate, yes, I mean, look, France is an incredible performance and has been for some time now for a number of reasons. The reality is we are outperforming any records that we've ever had in France on all levels, from gross profits to profit, trading profit and conversion rates. And yes, the conversion rates would be, as you say, approaching 30%, which is a lot higher than they've ever been. Back in 2007, our conversion rate would have been just north of 20%, probably actually lower as a country than most other countries that we had at the time. That was largely because a lot of our support office -- our support staff were based in France because France was the first country that we launched into when we first started expanding internationally from the U.K. That's obviously been changed with the operational support functions now largely based in Barcelona. Clearly, it gives us some savings rather than having them based in Paris. So yes, our conversion rate is at the highest level we've seen. Obviously, we will push for higher as we continue to grow going into 2018. In terms of the U.K., no, we've not seen any erosion of our fee rates at the moment. Typically, when I've seen markets in the past and slowdowns and pickups, you probably need a more significant change than minus 2.8% to impact our fee rates. So our fee rates are flat, as is our headcount. And yes, you can largely assume that, going into 2008, our conversion rate will roughly speaking remain flat, assuming that we continue to perform at these levels. And as you can imagine, I mean, it's been a relatively tough market. We've been minus 3.5% and then minus 3.8% for the last 2 years. We continue to do everything we can to improve the conversion rate within the U.K. There's a lot the fee earners, 1,000 of them, focused to try and maximize profitability to maximize their rewards. And as a result, we look at everything from employment costs, right the way through to any other costs associated with the business that we can reduce to improve our conversion rate, but as we sit here today, we'd expect it to remain relatively flat for 2018.

[Operator]

The next question comes from Robert Plant from JPMorgan.

[Robert Plant, Research Analyst]

Steve and Kelvin, the proportion of fee earners, 78%, a record; and the intake at 85%. Is that 85% indicative of where that ratio could end up at some point?

[Stephen J. Ingham]

Look, we set out a target some time ago of 80:20. It's fair to say that, if this year continues, 2018 continues, as 2017 did, then we will be approaching that target by the end of 2018. Could we ever get to 85:15 for the group? Well, as I sit here now, that's unlikely. Could it be better than 80:20? Yes. That is all dependent on the sort of growth rates we achieve. The faster we grow, the more headcount we'll add in fee earner terms. And then we get more and more efficiencies from the shared service centers that we've built in the 4 regions. What is the maximum we could achieve? I don't know. We're in new territory now. Obviously, at our large peak, when our conversion rate was 30% in 2017, we were at 76:24. So we're in record territory now. We're moving towards 79:21, which is very good. And I would like to think that, if we have a good year in 2018, we'll achieve our record roughly of 80:20. Kelvin?

[Kelvin Stagg]

I mean I would add to that we are obviously in the process of rolling out our Global Finance System. That is live in the U.K. shared service center, which also supports North America, Middle East and Africa. And that brings with it some benefits, synergies and efficiencies that we will be rolling out into our other 3 shared service centers later on this year, so I would expect that, that would give us a greater leverage in that particular area. We are also, as you know, in the process of transitioning to a new target operating model within IT, which broadly is about having global applications and using the cloud for infrastructure. And again, that will actually allow us to be more consistent in how we offer services in Technology around the group and should give us more efficiencies with the people and the provision of that. So both of those will lead towards it. And as Steve said, it's largely been driven by our fee earner headcount.

[Operator]

The next question comes from Anvesh Agrawal from Morgan Stanley.

[Anvesh Agrawal, Research Associate]

I have a couple of questions. The first, on the Digital delivery models. So what's your view in investing in the new delivery models? Which models do you think could be interesting for PAGE? I know, last time, we talked about exploring the use of technology for the candidate search and match. Any progress on that? And the second one is, with [ DBD ] growth remaining strong outside the U.K., are you seeing any increase in your consultant turnover with some possible rate inflation kicking in?

[Stephen J. Ingham]

I think there's a very long answer to the first one. And I must admit, the first half of your question, I didn't fully understand, but in terms of the use of technology for candidate acquisition, yes. I mean that's 100%. We use technology to acquire all of our candidates. And we gave some of the statistics in the presentation in terms of applications. We have 15 million applications through social media and the likes. So of course, we're using technology. We have a lot of people dedicated to innovation constantly looking at new softwares, new applications that we can use to enhance the different processes that our consultants have. That's an ongoing process. It'll never go away. And we want to be able to react as quickly as we possibly can to candidate acquisitions going forward.

[Kelvin Stagg]

Yes. I think, in terms of actual digital technology methodology, we don't see Digital as being something that will change entirely the model that we operate. We see it as being something that makes us more efficient in terms of how we capture candidates, in terms of how we then sort and select those candidates and actually in terms of how we present those candidates to our clients. And we have a range of different innovations that we have both in terms of tests at the moment but also that are being rolled out across the group, which we will bring a lot more detail around when we present it in March.

[Stephen J. Ingham]

In terms of your second question -- sorry. Go on.

[Anvesh Agrawal, Research Associate]

No, that's I'm just saying -- on the second question, please?

[Stephen J. Ingham]

Yes, your second question. Actually, our staff turnover last year came down, no doubt, so as we've been hiring people and growing. And this is typically the case. I mean, the more success we see, then typically our staff turnover does come down, but we have been doing a lot of work in terms of our EBP, in terms of our values, in terms of our vision, in terms of our purpose. We've been doing a lot of work around staff retention. And that has actually borne success in the last 2 years, with staff turnover in the group coming down across the group for the last 2 years.

[Operator]

The next question comes from Steve Woolf from Numis Securities.

[Steven John Woolf, Analyst]

Just a couple from my side. One, on the U.K. public sector weakness, just any thoughts you can give there whether this is in terms of purely on the candidate side or whether there are issues with job adverts coming from the supply side as well. And secondly, on France, just as I was scribbling down, I might have missed that in terms of the any -- the end market's sort of been particularly strong to back up some of the headcount that you've been putting in place there. And then finally, just some more color in terms of the U.S. again to back up some of the regional strengths, just any color in terms of the end markets that you might have been particularly strong on outside of the Financial Services, where that diversification has come from as well.

[Stephen J. Ingham]

If I may, I'll do them in reverse order, as I can remember them that way, but starting with the U.S. Look, we -- when we first were in the U.S., we opened in New York. And we very quickly played to our strengths and grew our Financial Services business. And I think that flattered to deceive but obviously, when it's good, we -- it's very good. And probably, we had our -- well, we didn't probably. We had our biggest Financial Services business worldwide in New York. And it was very profitable, and it was very good when the market was good. What we probably didn't do was invest fast enough in diversifying the business into new geographies and new disciplines, which has been the focus of our attention for the last couple of years. So whilst we'd opened other offices, they were relatively small, and therefore it was very easy for them to either fall into small losses or very low margins. Over the last couple of years, we've been investing heavily in headcount into those offices and, almost by default, newer disciplines outside of Financial Services. As you move to places like Boston, Chicago, Houston and so on, naturally you will start to reflect the disciplines that are required by the clients there. And so we've been diversifying into supply chain, Property & Construction, Marketing, as we said today. And that's been very successful. Now all of the offices that we've mentioned having a good year, so we mentioned Houston, Chicago, Los Angeles but also Boston, Philadelphia, Stamford, New Jersey, we've had a particularly strong year in those offices. But more importantly, they have got to a size of anywhere between 40 and 60 or 70 people, where the sort of critical size for an office makes it easier for us to hire and retain and promote new people. And so I think the sustainability or the foundations or the platform, whichever you want to call it, now in America is that much more promising going forward. If you take Los Angeles as an example, where we've seen very strong growth in 2017: Los Angeles is our newest office in the U.S. It's now our largest office by headcount outside of New York and is growing incredibly fast. And it's growing by a combination of good people that we're hiring within the states and promoting up through the business, supported by good transfers into the U.S., which are helping manage that increasing headcount. So it's, we believe, sustainable, assuming the U.S. economy continues to grow...

[Steven John Woolf, Analyst]

Where do you think is it price point, while salary point wise, relative to, say, a position in the U.K.?

[Stephen J. Ingham]

Slightly higher is the answer. It is a different market to the U.K. It's more contingent driven, so it's more success only, if that's -- if you understand that, as a business. So it's more contingent on us placing somebody, but in the U.S. what we find is that they have the same sort of technical roles that we would recruit here in the U.K., but they are prepared to pay a higher fee when you meet the exact requirements that a client has. So we're -- they're much more responsive to the perfect candidates than they would be here in the U.K. And the process in the U.K. was you pick up the job. You take a brief, and then you send them your best and strongest candidates and the appropriate candidates that you have. There in the U.S. picking up the jobs is not the issue. Finding the right candidates for those jobs is the challenge. And a client will really only start talking to you when you can prove to them that you have got the relevant candidates, so you have to have the specialist knowledge of the different disciplines. And when you've got that and you've got the access to the candidates, invariably you can open the door and then charge a higher fee rate for it. So the average salary and the average fee rate that we operate in the States is higher than the U.K.

[Steven John Woolf, Analyst]

Got you, okay.

[Stephen J. Ingham]

In terms of France, I mean, our growth, as I mentioned, you say you missed it, was basically the same in Michael Page and Page Personnel. So our growth over the last few years, and it's led to Page Personnel being 2/3 of the French business, our growth largely came from Page Personnel. And as you all know, that employment legislation is quite tough and complicated in France and large parts of Europe. And as a result, where possible, a client would take a temp rather than a perm. That's not always possible, obviously. That said, as confidence has grown, we're now placing the same number of people in permanent roles as we are in temp, so we're making similar levels of gross profit. So that's very promising. In terms of the disciplines, I mean, we do every discipline in France. And the fastest-growing one was actually Engineering, and generally speaking, the more technical disciplines did well, so Property & Construction and so on. So we've seen strong growth in the majority of the disciplines, as you'd expect if we're growing at 28% in total, but the strongest-performing discipline was Engineering and the more technical disciplines. We actually did quite well as -- in accounting and Financial Services as well, which is the -- obviously the first discipline we established in France some 20 -- no, sorry, 32 years ago. Hopefully, that answered the question on France. You have to remind me the first question of the three.

[Kelvin Stagg]

U.K. public sector...

[Steven John Woolf, Analyst]

It was the U.K. public sector, yes.

[Stephen J. Ingham]

U.K. public sector. I'm not sure I've got a detailed answer to that. You -- and as you all know, it's only 13% of the U.K. I mean, over the year, what we've seen is variances from quarter to quarter. I mean, through the year, our public sector and private sector actually performed the same, both down about 4%. What we've seen recently is not a shortage of candidates so much but a shortage of jobs as well. And it's -- apparently, it exists in certain parts of the public sector, including for example the National Health Service, but it's nothing specific. So although this quarter public sector was down more than private sector, actually it was the reverse in Q3.

[Steven John Woolf, Analyst]

Yes -- no, that's the -- what I was after, whether it was jobs rather than candidates, particularly on -- in Q4. That's fine.

[Stephen J. Ingham]

You'll get a different answer from each element of public sector, but largely speaking, it's jobs.

[Operator]

The next question comes from Tom Sykes from Deutsche Bank.

[Thomas Richard Sykes]

It's just going back to the France conversion and then the implications for non-France conversion in EMEA. I think, looking at it, your overall conversion in Continental Europe's sort of gone from 30% in 2007 to about 20-ish-percent now, but you're saying France has gone from 20-ish-percent to 30% now, so maybe if you could just break out the moving parts in non-France conversion; or particularly, perhaps just at the moment, what might be holding that back a little. Obviously, you're investing in Germany et cetera. And whether we can expect non-France conversion to see an improvement in Continental Europe in the first 6 months of this year. And then maybe just again a little bit more granularity, if possible, on France will be if the Page Personnel salary differential to Michael Page is big in France as it might be elsewhere. Or is that a little narrow? And are you able to charge temp-to-perm fees in Page Personnel in the same way as you were -- or same way as you are elsewhere? And does -- has that kind of impacted the conversion rate as people have suddenly maybe started hiring people from the temp into the perm side, please?

[Stephen J. Ingham]

Okay, I think there were 3 questions there. First of all, on conversion, yes. I mean you mentioned the biggest area of investment, and that's Germany. I mean clearly we have several other countries where we've been investing headcounts and so on, but Germany for us has been a very significant level of investment to grow our temporary and the contracting business. If you'll recall, back in 2007, we did 0 temp and contracting in Germany. We were 100% a permanent recruitment business, and our conversion rate was as high as the rest of Europe, but in 2009, we launched Page Personnel and Page Interim in Germany. And we've been investing heavily in that area. The good news is that it's a very, very big market in Germany. The bad news is the lead time when you -- for your investment is that much longer, so in other words, the time taken for a new consultant to get up to speed, yes, particularly in the contracting market, the sort of high end, if you like, is longer. Now that's starting to bear fruit, clearly, but that investment has been very significant. Clearly, it's benefiting the top line at the moment. And we're gradually seeing it come through in conversion, but the conversion in Germany will be a lot lower than it was in 2017. So that's one impact. The second biggest impact will be the Netherlands. Back in 2007, the highest conversion rate of any country in the whole of Europe was Holland, and today, it's not as high. There are probably 2 reasons. In terms of employment legislation and culture, it's probably more challenging in Holland than most other European countries, which says something. And as a result, there was a very large interim market in Holland which we benefited from in 2007. And again, just to give you an idea: We made more profit in Holland than we made in France in 2007. That lucrative interim market has been coming back over the last 18 months. And we see it recovering now, but we are still way off the peak that we were. And that's what gave us this inflated conversion rate in 2007 in Holland. The second thing, I said there was 2, was clearly we did quite a lot in Financial Services, predominantly with one bank, which -- [ ABN ], which we don't make today. And so that's a structural change that's happened specific to Holland. So those are the 2 fundamentals. The rest is just down to different bits of investments in different teams, offices and disciplines across different countries. The reality is, as we've often said and to you specifically, Tom, where we've seen growth, consistent growth in the sort of high double -- high -- sort of above 15%, if we get that sort of growth for a couple of years, then most countries will start to achieve peak levels of conversion. So somewhere like Spain, for example, would be similar to France at the moment. And elsewhere, the investment lowers the overall conversion for Europe. In terms of salary differential for Page Personnel and Michael Page in France, yes, it's exactly the same. It's not a narrower band, as you described it. I'm not sure what you mean by that, but it's almost exactly the same as anywhere else in the world. There's no real difference. And in terms of temp to perm, yes, we can charge a temp-to-perm fee in the same way that we can here in the U.K. Is there an increasing trend of that happening in France? No.

[Thomas Richard Sykes]

Okay. And just on the incremental conversion in EMEA then. Do you -- as you see the growth rates in Germany, I mean, what's your outlook for Germany then? And would you be able to venture whether that is a double-digit conversion rate at the moment? And do you think that overall your EMEA conversion has got -- I mean obviously you're growing quite quickly at the moment, but you're again putting in headcount and putting it into Germany. Would the EMEA conversion rate itself go up on a weighted average basis if France is improving at the rate it's going up but you're still investing in Germany, please?

[Stephen J. Ingham]

Yes, I mean Germany is -- Germany's conversion rate is gradually improving and is now just double digit. And we would expect it to continue as the size of our interim and temporary businesses grow. I mean we have over 1,000 runners now in Germany. As that continues to grow, clearly we have more established fee earners who will be operating at peak levels, and so clearly the investment in new headcount diminishes as a proportion. In terms of the prize, if you like, at the end of the game, whenever that is, and that depends on economies and so on, the prize at the end is that Germany should have a conversion rate amongst the highest in Europe because it's a very big market. We should have some very large offices in Germany. Salaries are very good, and fee rates are very strong. So the potential prize is very big, and that's why it's one of our Large High Potential Markets.

[Operator]

The next question comes from Rahim Karim from Liberum.

[Rahim Nizar Karim, Research Analyst]

Two questions, if I may. Just the first, on Australia, just trying to get sense in terms of your outlook for productivity and the profile of gross profit. I note the investment that's been made but the caution in the outlook statement, so if you could help us understand your outlook for those 2 components. And then in terms of LatAm sustainability of the growth, which is obviously very impressive, especially with next year's election in Brazil. So any thoughts that you have there would be appreciated.

[Stephen J. Ingham]

Sure. Well, firstly, on Australia, I mean, our caution is more to do with the fact that we've been through a period of negative growth. And we've only just turned positive and plus 2%, and we are now in the depths of those summer months. In effect, almost their January is like Europe's August. So the reality is it's a very quiet period for Australia and therefore a difficult one to judge our performance. We are confident that the market offers a better level of growth. As a result, we've been investing in our headcount, particularly into the faster-growing opportunities that we see. One of those is our new office in Canberra. And clearly we have a relatively immature Page Personnel business as well, so we've been investing heavily there but, to be honest, also in some of the faster-growing offices like Perth. We see a bigger opportunity. We've been through a period which has been disappointing. Do we think we're past the worst? Probably yes, but we're just cautious having seen a sustained period of negative growth that's only just turned positive and now being in the depths of summer. I guess the real indicator will be Q2, so we'll go through Q1. It's a quiet period, anyway. We will continue to train new consultants, get them onboard, get them bedded down and so on. Hopefully, we'll start to see results improve through Q2 and beyond. In Latin America, a very different market to Australia. Australia is probably one of the most competitive we're in worldwide. In Latin America, we have very few competitors. We have over 600 people in Latin America. We're very well established in 6 different countries. You're right to point out the elections in Brazil in October. Political stability certainly hasn't returned to Brazil yet, but we are seeing the commodity markets improve, and that is very promising. Clearly, many of the countries that I've mentioned or where we're established in do rely on the commodities markets, and that paves us a path in Brazil as well. So again, it's been a very tough 3 or 4 years in Brazil. And we have to constantly remind ourselves and should remind you as well this was, about 5 years ago, our third most profitable market. And whilst we've been through a very tough period, we've been very resolute that we should tough it out along with the market. We've held off -- held onto the office network. We still operate under 3 brands predominantly, Page Personnel, Michael Page, Page Executive. We've got the management team in place, ready to catch that market when it recovers. And if more political stability returns, the potential to grow fast is very strong. Now we've just turned positive again with 4% growth for 2017 and 14% for Q4. That's a great sign for the future, but clearly we've got to maintain some caution going forward. Elsewhere, double-digit growth in all of the markets that we've had. Clearly, we slowed a bit in Q3 in Mexico, with the earthquake not helping business. We had to temporarily close one of our offices in Mexico City, which wasn't helpful, but beyond that there is no reason why we can't continue to grow. And as a result, we have been investing in headcount this year into all of those 6 countries.

[Operator]

The next question comes from Rajesh Kumar from HSBC.

[Rajesh Kumar, Analyst]

Could you also give us some color on how gross margin impacts the conversion ratio? That is, if your pricing starts improving, can you see a different conversion ratio as a result? Or for example, if there is an RPO contract, I'm aware you don't do many of those, you can have a very high conversion ratio but a low gross margin, so is the overall margin something you think about when you think about conversion ratio at all?

[Kelvin Stagg]

Yes, I can probably take that. I mean we don't really look at gross margins. Gross margins tends to reflect the mix of perm and temp really in our different markets and to a certain extent then the mix of temp within the "lower sort of salary" Page Personnel compared to the Michael Page business, which is where we will look very much at temp margins, so the actual revenue that we make off a temp contract, as compared to a perm contracts. Actually, the margins that we make, the percentages we make are very similar on both. If anything, it tend to be just very slightly higher in a couple of countries, but largely it doesn't matter hugely to us whether it is temp or perm. And in every market around the world's, apart from Germany which we've spoken at length about, our mix of temp and perm will match whatever the natural mix of temp and perm is at that level overall in that market. So in terms of conversion, the only point to which it would have a direct impact is that temp takes longer to build up revenue. So with perm, you can move quicker, but having said that, our biggest fee earners anywhere in the world would all be temp operators. And therefore, there's a point after maybe around 18 months or so when actually temp operators have built up a sizable book and they then become able to generate higher productivity than the equivalent perm operator does, if that helps.

[Rajesh Kumar, Analyst]

No, appreciate that. Just on the -- so within a temp business, for example, if you were doing better gross margins, wouldn't that also result in better conversion ratio?

[Kelvin Stagg]

To the extent that, that was driven by a higher temp margin, so a higher percentage you were able to charge, correct, but actually if it was just driven by having higher wages, then it wouldn't make any difference.

[Operator]

[Operator Instructions]

[Stephen J. Ingham]

Okay, looking at the screen, there are no more questions, so thank you all for joining us this morning. Our next update to the market will be our 2017 full year results on the 7th of March 2018, and our first quarter 2018 trading update will follow on the 11th of April.Thank you, everyone. Good morning.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you all for dialing in.