Randstad Nv Unsp/Adr

Hello and welcome to Randstad First Quarter Results 2023 Conference Call. My name is Priscilla and I'll be your coordinator for today's event. Please note this call is being recorded and your lines will be on listen only. If you require assistance at any point, please press star zero and you'll be connected to an operator. I will now hand you over to your host, Mr. Sender Van Noordende, the CEO, to begin today's conference. Please go ahead, sir.

Thank you very much, Priscilla, for that kind introduction. And good morning, everybody. I'm here with George and Bisra and Akshay from Investor Relations. And I'm pleased to share our Q1 results with you. I would say overall, I'm pleased with the resilient performance that we delivered in the first quarter in a challenging macroeconomic environment across our markets. We have adapted well to this operating environment. Revenue growth for the quarter was minus 4.2%. Our enterprise solutions grew by 5%, in-house business grew by 1%, professionals was down 1%, and staffing was down 8% in the quarter. Growth profit was down 2%, and we delivered a strong gross margin of 21%, with around 19% of gross profit generated by PERM and RPO combined. The improvement in our gross margin this quarter reflects a sustained focus on pricing, as well as the mix of our different services. EBITDA came in at 266 million euros for the quarter with a solid EBITDA margin of 4.1%, demonstrating cost management across our business. We continue to benefit from our strong market position. We have deep customer relationship and are committed to building the best talent delivery engine in the market with an excellent team in place to deliver on this. Our strong balance sheet enables us to capture the growth opportunities available to us while, of course, we remain disciplined and able to adapt our operations as needed. The trends we have experienced in the first quarter have continued into early April and we remain cautious. The prevailing trend of labor market scarcity, however, remains across our markets. And I'm pleased to say that our positioning as partner for talent clearly resonates with our clients and talent as they are looking to navigate this new world of work. Our sources of differentiation, specialization, equity, and our delivery models are more and more visible in the Randstad brand. And that, coupled with our experienced teams and long track record of delivery and execution in all environments, gives us confidence as we look ahead. Performance and progress will continue to be the name of the game, meaning that we are laser-focused on delivering a strong performance whilst further enhancing our differentiation and productivity. And we will, of course, keep you updated as we continue on our journey. Let me now hand over to George to present the results in more detail.

Thank you, Sander, and good morning, everybody. In the past weeks, I've had the pleasure of meeting many of you, and I would like to thank you first and foremost for the warm welcome For those who I have not yet met, I am George Vasquez. I am honored and proud to become Randstad CFO. I've had a chance now to be with Randstad for 12 years, and over the past five years, I was head controller, group controller, and head of strategy. Work is, in short, one of the most important activities in people's lives. We see ourselves as a catalyst, let's say, for a better world of work. That is why many of us join and stay at Randstad. It is part of who we are, our identity. As CFO, therefore, short introduction, my role is ultimately about ensuring continuity at all times. And if I have to choose three focus areas to prioritize, will be always about safeguarding a sound financial position through solid risk management, continued optimization of EVA. EVA is here at Randstad, our northern star for decision making. And ultimately, exactly in that context, making sure to prioritize our investments towards profitable organic growth. But now let's move on to Q1 and our results. Sander summarized it well already. We would always prefer growth in these numbers, but overall, in the context of very high growth in Q1 2022 and Q1 2021, after eight consecutive quarters of growth, we are pleased with adaptability. We are pleased with the predictability of our teams and our results today. So let us discuss the segment performance in more detail, starting with North America. First, regarding the layout, you'll see some changes here. So as you know, we have changed our primary external segmentation. We've discussed this to reflect the new team structure we have in place. So in this context, in addition to the traditional reporting of our key geographies, we now also aggregate the following five regional segments, and I'll just list them for clarity. North America, Northern Europe, Southern Europe, UK, and LATAM, Asia Pacific, and global businesses, these five. As you also see, in addition to the Verve team on the right-hand side of the slide, you'll also find a new chart per region. Ransat steers always for profitable growth and adaptability. Therefore, on each page, you'll find this chart with a quick summary of revenue growth for the current and previous quarters and EBITDA margin performance. You'll also find that both for the region as well in this example for the key countries that make up the region, U.S. and Canada. Now, zooming in. Revenue in North America was down 10%, particularly PERM down 22%. The U.S. has always been a more dynamic labor market, adjusting quicker to both positive and negative market trends. U.S. staffing and in-house declined by 15%, driven overall by a softening demand in manufacturing, transportation, and distribution sectors, along overall as well with other admin support profiles. The challenging market conditions were also visible in our technology business, with U.S. professional revenue down 4% year over year. And remember, technology does make up the most significant part of our professional position in North America. Our OPEX was down year on year and also sequentially from Q4 and versus Q1 last year. We have a very experienced team that has delivered consistently throughout the years, and we are confident we are working on the right balance between profitable growth and adaptability. We are adapting our operations and have continued to do so throughout the quarter. The EBITDA margin was solid at the 4.7% in the quarter. Now let's look at Northern Europe on slide eight. Northern European countries did see a mixed revenue growth trends with good profitability and adaptability. And you'll see overall, despite lower revenue, as you can see in the graph, on the back of a very hot 2022 also here in Europe, We protected absolute profit and actually even increased profit margins. In the Netherlands, revenue was down 11%, our whole market, and was particularly impacted by exactly a very red-hot COVID-related economy or getting out of COVID-related economy in the first quarter, the first half of 2020. Perm, still at an historical record high level, grew again 1%. EBITDA margin came in strongly at 6.4%, well above the group average, So good profitability was adapting to a more regular year. Let's look at Germany. Germany delivered a solid quarter. Revenue was also up 1%. Firm grew 39%, and our focus continued to pay off. Staffing and in-house was up, with double-digit growth coming from automotive. Still doing very well. Manufacturing was only slightly down in the quarter. I think overall, our German business continued its journey to sound profitability, and we're very pleased, reaching a record high first quarter. This is reflected in the EBITDA margin for the quarter, which came in at 3.2%, 190 basis points up compared to last year. Again, next door, Belgium, reported a revenue decline of 8%. Staffing and in-house in Belgium revenue was down 10%, impacted also by a more challenging macroeconomic environment. as well as a very red hot Q1 2022. However, remind ourselves, Belgium is one of our long-established market-leading businesses and has always shown very good adaptability. EBITDA margin came in at a solid 4.7%. Other northern European countries, last column, reflected mixed trends. Let me break it down to you. The Nordics was down 1%, Switzerland was up 2%, and Poland was down 10% year over year. Overall, EBITDA margin came in at 3.3% for these countries. Again, summarizing Northern Europe, overall, a resilient performance in the region. And now let's look at the Southern Brother, moving on to the segments, Southern Europe, UK, and Latam. Again here, solid performance. Robust operations, mixed revenue growth trend that we will talk about in a minute, but we actually delivered extra margin and extra profits. France's revenue was slightly down year over year, a striking example, though, of portfolio focus and delivery. France ended the quarter with EBITDA margin 5.6%. We delivered a record first quarter again in margin and profits. PERM, as an example of diversification, continued to do well with 9% growth, and professionals delivered solid growth of 10%, predominantly driven by healthcare business and technologies. However, staff in and in-house were down 6% year over year. In Italy, revenue was down 3% over extreme successful growth in 2022 and 2021. We've talked about it many times before. PERM, still on a very high end, delivered solid growth of 8%, and in-house also held up steadily. Now, this partly offsets decline in staffing, which was driven by the overall economic slowdown. On the other hand, Italy ended up the quarter with a strong EBITDA margin of 7.2%, again, excellent profitability over the last years, reflecting the balance between high returns and investing in growth. Going more south now, Spain saw its revenues decline by 8% in the first quarter, with a decrease in our staffing and in-house businesses. Again, diversification, we do continue to see growth in PERM, professionals, and outsourcing, and we're capturing it. Iberia EBITDA margin and profit actually increased to the strongest Q1 ever. This reflects a changing mix and excellent field steering discipline in Spain and Portugal. Across the southern European countries, UK and Latin America, revenue and profit performance reflected our efforts always to find growth in profitable pockets. In Latin America, revenue was up 13%, and Argentina and Brazil stayed in good growth momentum. As a result, EBITDA margin for this subregion came in at 2.9%. Let's go east, moving on to Asia Pacific on slide 10. Asia Pacific continued to perform well with 4% profitable growth year on year. This is a region where we still find and we still see a lot of opportunity for Randstad. Japan showed structurally good performances with 3% growth and some profitability and still with significant opportunity in the second largest staffing market in the world. Australia and New Zealand delivered again good growth at 5% with our recently acquired team in finite growing profitably and at a significantly higher pace. india grew by eight percent as it continues to focus not on your growth but on improving the quality of our portfolio overall the ebitda margin for aipac was a solid 4.8 percent accretive to the group in the first quarter and that brings me to the last region global businesses on slide 11. as you can see global businesses segment grew by two percent um a strong demand for our outplacement career mobility services RiseSmart or RiseSmart.com more than offset a decline in our RPO business also of 2%. Monster revenue was down 14% in line with the job market trends and affected overall by a slowdown in demand. Here again, we started to adapt our Monster business as we've discussed before in the fourth quarter of last year, and that process continued in Q1. EBITDA margin for global businesses increased now to 0.7% in the fourth quarter. And that concludes the performance of our key geographies. Let's now walk through the group financial performance on slide 13. Moving to the P&L, slide 13 summarizes much of what we already covered. After eight quarters of significant growth and competitive growth, we have seen a slowdown in revenue, yet consistently shown adaptability. It is therefore a transition quarter in that context, from growth in Q4 to decline in Q1. We are approaching from a position of strength, with greater scale, a more diversified portfolio, and the operational usual of agility. EBITDA for the quarter was due to 266 million euros, and the EBITDA margin was 4.1%. Remember, from a seasonality perspective, Q1 is typically our lowest quarter. Integration, moving down, integration and one-off costs were 37 million euros this quarter. Many reflect, on one hand, integration costs from our recent acquisitions, And on the other hand, necessary adjustments of operational structures across key geographies, including U.S. and Monster. Although these costs are extraordinary, I want to make clear we strive to keep them minimal. As a reminder and as a policy, we record here structures with a payback time of less than one year. Moving on, last year we acquired Finite, which has also increased our acquisition-related intangibles position. And we now have a higher periodic amortization of these acquired intangibles going forward. It is a pure accounting movement. Net finance costs in Q1 were 14 million euros, primarily reflecting higher interest expenses. Again, as a reminder, last year we had a net cash position at the end of Q1. This year we have a low net debt position. The underlying effective tax rate, unsurprisingly, amounted to 24.1% for the first quarter, and for 2023 we expect ETR to be between 24% and 26%. And with that, let's turn the page to our gross margin bridge. The gross margin bridge effectively puts it all together, what we already said before. The gross margin, you can see from the lighter blue to the darker blue, improved a further 50 basis points to 21.0 for the quarter. Our temp margin increased by 40 basis points, the first column in the bar, mainly reflecting mix and our discipline in value-based pricing. The bar in the middle shows a decline of 10 basis points as PERM revenue fell by 8%, as mentioned before, which is purely a mixed effect. Lastly, HR solutions again includes enterprise solutions, headed 20 basis points to the gross margin increase. This includes the strong performance of our outplacement and career mobility services. Just in terms of materiality, remember PERM and RPO jointly represented 19% of the group gross profit in the quarter. Which brings me now to the OPEX bridge on slide 15, gross margin and OPEX working together. OPEX overall came in at 1,102,000,000 euros, 25 million up sequentially, excluding the impact of foreign exchange and M&A. You can find that on the bridge sequentially in the graph. The biggest driver of OPEX is by far personnel expenses, slightly up sequentially. Absolute OPEX levels reflected, on one hand, the impact of mix in our revenue base and showed increased adaptability throughout the quarter. Though different businesses have higher or lower gross margins and come in with slightly different OPEX ratio requirements, our conversion per business line is healthy, reasonably similar, and clearly communicated throughout the company. OPEX goes with gross margin, gross margin goes with OPEX. The average headcount number you can see decreased by 1,840 FTEs. Another important point, the March exit rate for FTEs was well below the Q1 average. Personal expenses this quarter reflect seller inflation and dues were more or less up a flattish sequentially. With that in mind, let's now move on to our cash flow and balance sheet on slide 16. Our free cash flow for the quarter came in at 169 million euros. Rather standard, it is a function of the counter-psychical movement of working capital that offsets decline in EBITDA. The ESL was at 53 days, one point days up year on year, primarily driven by mix and stabilizing over the years. Our balance sheet shows a net deposition of 145 million euros and a leverage, very healthy leverage, a ratio of 0.1%, 0.1, excuse me, excluding lease liabilities and down from the levels of Q4. Also here, we are in a position of strength, low leverage in our balance sheet. Importantly, as scheduled and announced, we also paid the regular ordinary dividend of 285 euros per share at the beginning of April, totaling about 522 million euros. This is not yet reflected in Q1 net cash position, but of course it will affect our position in the second quarter. As a reminder, Q1 is typically the softest quarter of the year. Q2 will include the outflow of dividends and payment of holiday allowances as well as other costs. So typically at the end of Q2, we have a higher debt than at the end of Q1. And then that improves again in the second half of the year. Lastly, today we will start the share buyback program as announced in February. The share buyback problem will be executed in several trenches. We are not reinventing the wheel, keeping it quite simple. We will repurchase up to a maximum of 1.55 million shares in Randstad in the period between today and July 24. This is equivalent to a first trench of 80 million euros based on yesterday's closing share price. These shares will subsequently be cancelled and we'll be providing weekly updates on the progress. That brings me now to the last chart, the outlook on slide 17. Let me start first with the activity momentum. The macroeconomic environment remains challenging across our markets, translating into lower client hiring activities. This trend continued into early April, whereby the year-on-year growth rate of our employees working aligned with the Q1 2023, or this quarter, year-on-year growth rate. We expect both Q2 gross margin and OPEX to be broadly non-sequentially. We do remain cautious, we do remain vigilant, and we are mindful of the volatility we are operating in. In that context, we continue to work with scenario planning to ensure adaptability and predictability. We respond to actual data every week in our branches, in our apps, in our offices, in our websites, and then we aim at protecting and converting EBITDA. Our mix will evolve always with different businesses. Diversification is paying off, but again, each has specific conversion disciplines, allowing us to constantly adapt. Gross margin goes with OPEX, OPEX goes with gross margin. And there will be a negative as well, 0.4 working days impact in Q2 2023. As closing remarks, it was a solid quarter from growth to decline, and today's results reflect the actions taken this quarter and throughout 2022. In the same way, the next quarter will also result from the actions taken already in Q1 and previous quarters. We have successfully built scale and a more diversified portfolio, giving us today more resilience over the long term compared to pre-pandemic times. We are in a position of strength. At Randstad, predictability, good returns provide a basis and capacity to grow that we then turn into further growth and further profitability. It is a delicate balance that we need to strike every day. I talked about identity in the beginning. This quarter's results are a great proof of that identity and give us confidence now for the first half of 2023. And that concludes our prepared remarks and we look forward to taking your questions. Operator?