Randstad Nv Unsp/Adr

Good day and welcome to Randstad second quarter results 2023 call. My name is Priscilla and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand you over to your host, Sander Van Noordend, the CEO, and George Beskas, the CFO, to begin today's conference. Please go ahead. Thank you.

Thank you very much, Priscilla, and hello, everyone. I'm here with George Ambisa and Akshay of Investor Relations, and I'm, of course, pleased to share our Q2 results with you. Overall, we delivered solid results in the second quarter, however, in challenging market conditions. but I'm pleased with how our teams have responded to the current operating environment and the strong adaptability we have shown. Revenue growth for the quarter was minus 5.1%. We've seen growth in APEC and LATAM, mixed trends in Europe, and a decline in North America. In terms of our concepts, in-house and professionals were each down 2%, enterprise solutions was down 5%, and staffing was down 7% in the quarter. We delivered a robust growth margin of 20.7%, with around 18% of growth profit generated by PERM and IPO combined. We've reduced our OPEX by 25 million euro quarter over quarter, demonstrating focused cost management and resilience across our company. And as a result, we have delivered an industry-leading EBITDA of 271 million euros, with a solid EBITDA margin of 4.2% for the quarter. Our robust balance sheet enables us to continue our strategy of disciplined investments to strengthen our offer, and we were delighted to announce the acquisition of Grupo CTC earlier this month. We are excited by the opportunities in Spain and Portugal, and I would like to take this opportunity to welcome our new colleagues to Randstad. Grupo CTC is a leader in outsourced industrial logistics and sales and marketing services, and the Spanish market is increasingly moving towards outsourcing driven, towards outsourcing driven by recent labor market legislation changes. This provides interesting business opportunities for us, so this transaction is aligned with our strategy of complementing our existing operations with selective acquisitions that provide new growth opportunities. The market trends we experienced in the second quarter have continued in early July, with talent scarcity and wage inflation still present. We're still cautious, although our clients seem to become slightly more confident about their business going forward. So we will invest where we see specific growth opportunities while continuing to adapt our organization where needed. I would say it's all about navigation these days. 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 source of differentiation, equity, specialization, digital, and our delivery models are more and more visible in the Randstad brand. That's Coupled with our experienced team and long track record of execution in all environments gives us confidence as we look ahead. Perform and progress is what we do at Randstad. We're progressing well with our strategic plans and we look forward to providing an update on these during our Capital Markets Day on October 31st. Let me now hand over to George to present the results in more detail.

Thank you Sander and good morning everyone. So let me take you through a more detailed view of the results. But let me start by saying that in our book, this was a quarter to deliver adaptability. And I think we did. We delivered a solid second quarter, sector-leading operating profit and margin, which I believe now sets us in a position of strength for the next quarters. Context-wise, Sander alluded to it as well, important to remind everyone. We reported in Q1 already challenging macroeconomic conditions. They continue into the second quarter. though, as you'll see, at a different pace for geography and concepts. Again, our portfolio today is more diversified than ever, and that shows here in these results. I think also important to highlight, stabilizing and normalizing. Remember, after seven, eight quarters of consecutive growth, in many cases, 20%, 30% increasing, we found ourselves in Q1 in decline, and we do see now signs of debt stabilization and normalization, as Sander called it, which is good for us to understand where we are after the pandemic. Let us now turn to our key regions. So let's start with North America, page 7. And here we saw, indeed, the softening trends in the first quarter pretty much continued in the second quarter. North American revenue, as you can see in the charts, dropped by 14%. with PERM here being hit the hardest with a 36% decline. Remember, after experiencing still a 46% rise last year. With a great resignation, PERM helped up well in the previous quarters, albeit now it's coming down. And in general, the U.S. labor market is known for being more dynamic, and we're seeing the reflection of that. U.S. staffing puts a little bit more color, so staffing and in-house declined by 18%. with a softening demand across pretty much all the sectors. Manufacturing is perhaps the hardest. U.S. professional revenue was down 8% year over year. And remember, technologies make up the most significant part of our professional position in North America, which again is also facing challenging market conditions. We are adapting, though. We have an experienced team. We have adapted our operations and continue to do so throughout the quarter with a net reduction of 320 FTE alone versus Q1. The EBITDA margin was a solid 5.6%, significantly up from the previous quarter and showing a strong adaptability for the first half of the year, close to 50% recovery ratio. Now, moving on to Northern Europe on slide 8. Our Northern European countries also saw mixed growth trends. Seasonality-wise, this quarter was affected more than expected in April and May, seeing a more normal return in June. This is something we saw throughout the company, particularly big in Northern Europe. So April and May, our employees working were more effective than we had originally expected through holidays. However, we were pleased to see a more normal return to seasonality in June and basically employees working back to the level that we had in March and higher than any time in the quarter in Q2. Despite low revenue, though, on the back of a very hot 2022 and a slowdown in manufacturing, we protected operating profit margins, as you can see, and still delivered 91 million euros, only 5% decline in EBITDA versus last year. Remember, from a comparable perspective, in many of the large markets in this region, we are clearly market leaders, well-established in the largest countries. And therefore, we were a critical part of the solutions that the talent market needed last year on the recovery of the pandemic. So the comparables are particularly high. In the Netherlands, revenue was down 9%. Again, continued to the impact of reduced COVID-related business. Firm here was down 17% year over year. And professionals' performance reflected some portfolio choices that we made. But again, EBITDA margin came at a very solid 5.7%, higher than the average of the group. so good profitability was adapting to a more regular year. In Germany, revenue was down 4%. Our general business continued with journeys to sound profitability and sustainability. EBITDA margins for the quarter came in at a 4%, 170 basis points up compared to last year. That was the priority. Our combined staffing and in-house service business was down 4%, impacted by softening demand again in the manufacturing sector. However, the automotive sector remains resilient, held up again with double-digit growth. Payoffs also of our focus in PERM with solid growth of 10% already over a record year of last year in 2022. Belgium reported a revenue decline of 8%, similar to Q1. Belgium, again, is one of our long-established market-leading businesses, and that's shown good adaptability. And once again, one more time, EBITDA margin came in at a solid 4.5%. If we then look at other European accounts or northern European countries, they do reflect mixed trends. Let me break it down to you for reference. Nordics was down 6%, Switzerland was down 3%, and Poland was up 3% year over year. EBITDA margin came in at 2.4%. Let us now move to segment Southern Europe, UK and Latam on slide 9. Strong results. with an improved revenue trend to down 1% year-over-year. Still down, but already improved from QE1, and despite the record high last year. Good profitability, again, 5.5% for the region. But here it's clear. Focus remains on getting back to profitable growth ASAP, and we already see pockets of opportunity. Let me break down a little bit more for the key countries. France, revenue was actually up 2% year-over-year. Here is the play of our portfolio. Professionals delivered a solid growth of 13%, predominantly driven by our robust healthcare business in France. This offset the decline in staffing and in-house and perm, but still a strong example of portfolio focus and delivery. France ended the quarter with an EBITDA margin of 5.2%, very solid. Italy, in Italy, revenue was down 5% year over year, again, driven by the overall economic slowdown. However, PERM, again, from a very record high level last year, delivering growth of 4%. Italy ended the quarter with a strong EBITDA margin of 7.1%. We keep saying these records are not to keep, but again, thank you to the team, 7.1, excellent profitability. In Italy, though, the penetration rate still offers an excellent opportunity for us to continue to drive profitable growth. In Iberia, we see a revenue decline by 3%, and actually an improvement from when we were in Q1. Our focus on delivery models supporting improvement in trends is paying off. Staffing and in-house businesses were down 4%, and perm was well down 4% year over year. However, we do continue to see strong growth in professionals and a better picture in outsourcing. As Sandra mentioned, we are very excited, allow me to repeat it, with the announced acquisition of Group CTC in CTC, In Spain, for a total value of 80.5 million euros, enterprise value, Grupo CTC generated revenue of 230 million euros in 2022. This transaction, as a reminder, is aligned with our growth strategy and we expect it to be EVA-accretive within a three-year period. Across all the other Southern European countries, UK and Latin America, revenue and profit performance reflected our efforts to drive growth in profitable pockets. In Latin America, revenue was up 14%, And Argentina and Brazil stayed in good growth momentum throughout the quarter. Now let's move on to Asia Pacific. And here we see growth. Asia Pacific region continued to perform well with 5% profitable growth year over year. Already, though, seeing macroeconomic conditions softening. Japan showed again structurally good growth performance with 7% growth and sound profitability and still with significant opportunity in what is today the second largest staffing market in the world and where we have a higher ambition. Australia and New Zealand delivered good growth, up 3%. Tech continues to see growth supported by our increased presence with Finite, the acquisition we've made last year. India grew by 10% as it continues to focus on improving the quality of its portfolio. And overall, the EBITDA margin for APEC was a very solid 5.3% in the second quarter, which now brings me to global businesses. The global businesses segment showed a decline of 6% year over year. Here we show the ability to adjust fast ASAP combined now with a visible, more resilient portfolio. To put it into perspective, our RPO business declined 24% over a year, compared to a record prior year. Remember, RPO is feeling the effect of a slowing hiring environment from a permanent recruitment perspective. We have ramped down our programs with a net reduction of 520 FTE versus Q1 alone. This is a significant effort, and thank you to the teams. Looking ahead, we are very confident about the growth, prospect, and adaptability of our RPO business. This market continues to evolve, and we are involved with the largest Fortune 500 companies in shaping the solutions of the future. We were just again recognized, if I'm not mistaken, by the 13th consecutive quarter as a leader by the Everest Group Peak Matrix Assessment. This recognition underscores the depth and breadth of our solution. On the flip side, our outplacement offering is also unique in the market. It's fast-growing, and if you remember, based on our acquisition of RiceMark in 2016, 16, 17. Remember, a much more digital and remote personalized way of supporting people with career transition. That business, our RightSmart, our proposition in outplacement and career transition, were able to offset a large part of the impact of our RPO decline. Also here in this segment, most of the revenue was down 14%, in line with the job board market trends. EBITDA margins for the global businesses came in at 1.3%. which basically concludes the performance of our key geographies. Let's now look at our group financial predictions on slide 13. Organic revenue for the group came in at 6.5 billion euros, which is a decline of 5.1% year over year. As we have discussed earlier, we have seen mixed trends in geographies and concepts with a challenging environment, but also growth areas. Overall, as I mentioned in the beginning, we saw a stabilization. If we look back at the first half of 2023, we can see the average number of employees working stabilized at around 600,000. For temp, we did have a slow start of the quarter, perhaps a stronger impact than expected on the holidays in April and May. However, if we look at June, it picked up with more recognizable seasonality, and we did lose higher than Q2 average and Q1. EBITDA for the quarter was a strong 271 million euros, and the EBITDA margin came in at a solid 4.2%. We achieved a recovery ratio of 48% in the first half of the year, emphasizing our field steering model and resolution in adaptability of our cost base. Now, integration and one-off costs were 54 million this quarter. Of these 54, $14 million related to M&A integration costs largely are discussed in Q1 in relation to finite in Australia. Let me clarify one important point. These integration costs at large will reduce as this was the last quarter of the finite integration. So going forward in Q3 and Q4, this number is heavily reduced. The remainder $14 million is restructure expenses. I instead call it like this as opposed to one notice. As a policy, we record here restructures with a payback time of less than one year, and we do it to protect the results quality and to help understand the underlying performance today and going forward. These reflect necessary adjustments. We found ourselves from a growth cycle after seven, eight years of growth into decline period, and the world has also changed. We are adapting, rolling out best practices worldwide, organizing work differently, looking at our accommodation needs, and taking advantage for the future of what we learn today. slimmer and faster. Of all restructuring costs, 22 million euros, Germany, is by far the largest part, followed by the Netherlands and France. These costs are hard to predict, but if we strive to minimize them, things have stabilized, and I believe this will be significantly lower going forward. If we then look forward, look down, we have net finance costs, also here in Q1, worth 17 million euros, primarily reflecting higher interest expenses and a particularly adverse FX impact. Interest rates are effectively only the spreads we are paying. The underlying effective tax rate amounts to 25.5% for the second quarter. For 2023, we expect it to be between 25% and 27%. With that said, let's now turn the page and look at our gross margin breach on slide 14. The gross margin, as you can see, for the second quarter came in at a robust 20.7%. In fact, it's primarily by mix. It's just a reflection of our mix. It came somewhat, I have to say, lower than what we had originally guided for in April, solely explained by a slowdown of our firm and RPO business in the second quarter. Our tip margin contributed then by this point. This is pretty much a mathematical effect, again, just reflecting our discipline in value-based Firm revenue fell 16%, again, different trends across the world, some growth, some more serious declines, in Q2 to 158 million euros, which has led to a negative gross margin impact of 25 basis points, purely a mixed effect. In many of our markets, these are normalizations at a very high level. As a reminder, last year in Q2, we recorded actually our highest quarterly firm revenue ever, in absolute terms of 192 million euros, growing then at 38% versus the decline today of 16%. As you heard, we also saw a similar trend with RPO. Last year, RPO was on its path to break one record after another. This year, the normalizing labor market has impacted our RPO business, which declined 24%. In terms of mix, permanent RPO in absolute terms are well above 2021 and jointly represented 18% of the group gross profit in the second year. which now brings me to the OPEX bridge on slide 15. With a lower gross margin, as to be expected, we also had to intervene on the guidance and on our OPEX base. In short, we have seen a slowdown in Q1 and Q2, and we have executed a clear focus with respect to OPEX steering. Allow me to say thank you here to our leadership teams around the globe. This predictability is part of our principles, allows us now to look at whatever future from a position of strength. As a result, in the second quarter, OPEX came in at 1,070,000,000 euros, 4% down sequentially and 6% down year-on-year in line with our revenue. As mentioned before, a recovery ratio of 48% in the first half. The biggest driver of OPEX is, of course, by far personal expenses, which was 4% lower sequentially. The average account number decreased since Q1 alone, 1,390 FTE, and June was still the lowest number within the quarter. With that in mind, let's now move on to the cash flow and balance sheet on slide 16. Our free cash flow for the quarter came in at 126 million euros. It is a function of the improvement in working capital movement that more than offset, let's say, the decline in EBITDA from last year. The SLO was 53.0, 1.2 days up year over year, primarily driven by me. Our balance sheet shows a net deposition of 616 million euros and a leverage ratio of 0.5, excluding for clarity liabilities. The second quarter typically includes a reminder, the outflow of dividends and holiday allowances. So naturally, at the end of Q2, we have a higher net deposition than at the end of Q1. Please also note that in Q2, the regular ordinary cash dividend of 2.35 euros per share, totaling a cash out of 522 million euros. Lastly, an update on our share buyback program. The first tranche is completed. We purchased a total of 1,550,000 ordinary shares for a total consideration of 75 million euros. Today, in the same fashion as last quarter, we also announced a similar second tranche to repurchase up to a maximum of 1.54 million shares in the period between today and October 24th. As per usual, we will always continue to provide weekly updates on the progress of the Share Buy Back program on our website, which now brings me to the last slide, the outlook on slide 17. So let me first start with activity momentum. What did we see in the first weeks of July? The macroeconomic conditions remain challenging across our markets, and these conditions have continued into early July. In early July, PERM, RPO, and TEMP kept the momentum very similar to Q2. The year-on-year growth rate of employees working was aligned with the Q2 2023 year-on-year growth rate, or in absolute terms, at around 600,000 people. So it was broadly stable in that context. Q3 2023 growth margin is expected to be slightly lower sequentially. We anticipate PERM and RPO activities to continue to decline against higher levels last year, As again, we face very high levels of comparables. Again, we strive to align gross profit and OPEX. One walks with the other one. Developments as much as possible. Therefore, we anticipate to adjust our OPEX base further as well. To be clear, for Q3 2023, we expect slightly lower operating expenses sequentially from Q2. This is our base case. It's our base scenario. But we'll continue to work with scenario planning and adaptability. Please note, technical but important, there will also be a negative one working day impact in Q3. And lastly, in the second half of the year, we typically strive to have a high conversion than in the first half of the year. Which leads me to the last comment and to wrap up. To summarize, in the second quarter, we delivered a solid set of results showing strong adaptability and stabilization. At Randstad, this adaptability and predictability provides us a basis for choices. Therefore, we feel we are operating from a position of strength. We have sector-leading profitability at scale. We have a more diversified portfolio with good margins. We have a solid client base. We have the most experienced team in the industry with a passion for talent. All this supported by a healthy balance sheet. This gives us confidence for the second half of the year. This concludes our prepared remarks, and we now look forward to taking your questions. Operator?

Thank you, sir. Ladies and gentlemen, if you would like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. We will now take our first question from Oscar Val from JP Morgan. Please go ahead. Your line is open.

Yes. Good morning, Sandra and George. Three questions from my side. The first one, just understand OPEX for Q3. Could you give us a sense of where employees were running in June? You talked about June being below, but Q2 was down four sequentially. How much lower was June in terms of your own employees for OPEX? That's the first question. The second question is on, I guess, restructuring. Obviously, you've done 40 million restructuring in Q2. You talked about that lowering in Q3. Do you have a sense of how much that could be in the second half? And then the final question is a bit more high level and structural, but the U.S. is underperforming Europe quite significantly. Do you think that is because of, I guess, the nature of labor and the fact that it moves faster? And would you expect Europe to follow the U.S. or not in terms of underperformance? Thank you.

Yeah. Very good. Should I take the first two, Sander? Yeah. Awesome. Just a couple. So on OPEX, look, I think, yes, as I said, we've continued to adjust our structures, obviously in part taking natural attrition, in part taking the restructuring that we'll discuss in a minute. Our FT exit rate was indeed lower in June than the average of the quarter, just a tad lower. So, I mean, I wouldn't plot much more than that. but gives us confidence going into Q3 that we can deliver a lower OPEX. On the restructures, we need 40 million. I think it needs to be seen in light of also, again, up to seven, eight quarters of strong growth. We found ourselves in Q1, obviously, in decline. So the length of the adjustments we had to make in addition to the normal attrition and normal management of the flexibility we have is done. And in that respect, I expect it to be significantly lower in Q3 and Q4 for that matter. At the same time, I mean, there is a, yeah, obviously these are one up, so it's very hard to predict with certainty what will happen. But from what we see, the trends we see, significantly lower than what we saw until now.

Sander, on the... Yeah, no, let me say a couple of words on the restructuring. Oscar, the way I look at it with these restructurings, it's something like you're damp if you do, but you're even more damp if you don't. Meaning it's our experience. If there are challenges, you need to take action. It's better to take action sooner rather than later. And that's what we've been doing, and I think it will pay off over time. On the U.S., I think you already alluded to it. It's primarily the nature of the U.S. economy and the flexibility in the labor market that is driving this. U.S. companies always respond faster when things go up, when things go down. For instance, in COVID, you saw the unemployment in the U.S. peak at some point at 20%, to then go back to 3.5% over the period of a couple of quarters. So it's just the dynamics of the market that's driving that. In terms of the overall global economy, our sources tell us that the global economy is expected to go sideways over the next couple of quarters. And that is sort of what we are preparing for. Of course, we don't see anything more than the trends in early July. Okay, great.

Thanks a lot. Thank you.

Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We'll move on with our next participant, Hans Pleggers from Kepler Show Raw. Please go ahead. Your line is open.

Yes. Good morning, all. Two questions from my side. First, on North America, you already indicated the market is slightly more dynamic. Could you give maybe some feeling on what the dynamics are by verticals, so by IT, manufacturing, and office, and also how do you compare to the market in those verticals? Yeah, it's interesting to have some flavor there, and maybe also some changes in the picture compared to, let's say, the first quarter. And secondly, on HRS and other and the cross-margin, you already alluded that, let's say, of course, RPO has quite significant impact, but still, The change in the impact on the margin is about 60 base points if you compare it to the positive contributions in Q1. So could you give maybe somewhat more flavor on precisely the building blocks? Outplacement was up, but it looks still quite a significant jump compared to Q1. So could you give maybe some more feeling what's happening and especially what do you expect for, let's say, H2?

So shall I take the one on the US? Hans, I would say the broad picture is pretty much in line with Q1. No major changes, except that it sort of deteriorated across the board. In terms of industries, automotive has been particularly challenging. public health and education has been sort of the best performing industries with the other industries somewhat at par. If you look at the different profiles, it is obviously clear that the professional skilled profiles, so the higher skilled profiles have been holding up better than the lower and medium skilled profiles. So that's also a difference in the market there. The main driver has been in the United States, let's say, existing clients with lower demand. So it's not that we're losing clients, but it's existing clients who are just asking for fewer people. So as long as we keep those clients and demand is coming back, we can ramp up quickly if and when demand comes back, of course.

Yeah, so Hans, on the HRS impact. So it is, as you said yourself, a mixed bag. I'll say, I mean, in general, compared to Q1, the trends have decelerated. So, I mean, if you look at PERM, definitely came down significantly more than we were seeing in Q1. Also, RPO, significantly more. And if you now look at the mix, what those two alone mean, those two together are approximately 18% of our gross profit today, whereas last year they were representing 21%. So that delta alone justifies the margin. Again, it is a mixed bag, though. One important point, there's other businesses. You look at outplacements, that business is doing phenomenally well. You can see also, let's say, the profit from Q1 to Q2 in global business increase. So in general, it is a mixed bag with opportunities, but definitely a very deceleration moment in RPO, to which we responded.

Okay, thanks.

Thanks, Hans.

Thank you. We'll move on to our next participant, Mark Zwetserderk from ING. Please go ahead. Your line is open.

Yeah, good morning, everybody. Thanks for taking my questions. Just to dig into the PERM business a bit. You mentioned in the call, I think that PERM in the beginning of your line, and some mentioned it, that the trend is more or less in line with Q2. But you did see a difference in trends from Q4 to Q1 to Q2. Is that because the U.S. is bottoming a bit there or are there other trends visible? Because my worry is a bit that what we see in the U.S. of course is more a boom-bust market, but Europe still being up a bit on scarcity. Shouldn't we then expect that at some point that weakness might also come to Europe and that we should still expect a weaker boom trend? Can you maybe give a bit more call on that?

Well, I would say we'll leave the expectations to you, Mark. We manage the business based on what we see and hear from our clients. We look at what the economy is doing. We keep that in the back of our mind, but we respond to what our clients are saying. And what we're seeing today in the first few weeks of July is what we've seen in Q2, and I think we'll leave it with that. Because all the rest is speculation.

I would expect it to continue to weaken.

Mark, if I can put some color to that. Good to speak to you, by the way. Quickly, if we look at our Q2, I would say the trends are not necessarily weak. Of course, from Q1, we had the firm and RPO decelerating. Again, we have discussed this. But from a temp perspective, you'll see that if anything, it started somewhat slow due to a more prolonged holiday impact. But in June, we just recovered and we saw pretty much normal seasonal trends we would have expected from a Q2. Also, from a North American perspective, last year, comparables was actually going up still from Q1 to Q2. So it is a difficult order to speak. Overall, I think the best number that gives us comfort of stabilization is We had 600,000 people at work at the end of Q1. If we look at Q2, and again, June was slightly higher, we also have 600,000 people. So I would say, in general, things have stabilized from, let's say, on the decline from Q4 to Q1.

Okay, yeah, thanks for that. And then looking to your guidance on the gross margin, that it might come in slightly weaker than Q2, is that acceptable? a normal seasonal mix effect, or would you say that's also partly in RPA?

Yeah, good point. I mean, you saw also last year, so from Q2 to Q3, if I'm not mistaken, 20 basis points down. I mean, it's hard to predict, Mark, but if we were to have a view on what's likely to happen, then I think there's more risk to have slightly lower gross margin, I'll say 10 basis, I mean, we're talking reasonably small uh variances versus where we were in uh in uh in q2 indeed from an rpo is very difficult to to to predict uh you see different trends or that looks different growth environments uh around the world but if we will take us as an example rpo i mean like it's unlikely to to improve so i'll say 10 basis points as a good reference okay and then lastly on the um

on the transfers of peers. So we look at member reported there, they guide for minus three and a half. And you are guiding basically, let's say, minus 5.1 is a bit the ballpark to start with. We don't know Deco yet. We have different comps, obviously, but yeah, they were growing actually pretty fast at the beginning of the year because it's coming from a very low base. How do you see the the relative performance in markets? Do you see others becoming more aggressive because the market is tougher and there's a bit more hunting for business? What do you see?

I would say, Mark, the overall context is the market is normalizing after an enormous surge in demand of which we have been benefiting greatly. So now, The question is about the trade-off between volume and value. And so where we see opportunities to grow, we invest to grow. Where we don't see that growth, we adapt because we need to. And you can see that in our EBITDA. So finding the right balance between volume and value is the name of the game. And we believe we have found that right balance in Q2 as we have in Q1 and as we will in Q3. Other people may make other trade-offs, but I suggest you ask them.

We'll certainly do. All right, thank you for the corner on the corner. Thank you.

Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one. We'll move on with our next participant, Conrad Sommer from ABN Amro. Please go ahead. Your line is open.

Hi, good morning. Thanks for taking my questions. The first one is on your free cash flow development. It was particularly strong in Q2 because of the unwinding of working capital. Can you maybe comment on what you expect to happen with working capital in the second half of this year, particularly if the run rate of revenues continues at the current pace? My next question is on France. I think you had a very strong performance both top line and margin wise in France. Is that related to a business mix difference, particularly the previously Aussie business? Or are there any other developments that make you perform so strongly in France? And my final question. Can you make any comments on the temp to perm conversion within your business? Because labor markets are still in short supply. The perm business was down quite a lot, particularly in North America. I'm just curious to know if there's anything changing in the temp to perm conversion. Thank you. Shall I take the France one first?

Go on France first. a solid performance indeed, driven by two sectors, automotive, which has been performing well for us, by the way, also in other markets, and healthcare. And we have a great business in France called Appel Medical, and it's been doing phenomenal in terms of growth, but also in terms of profitability. Also, OC is growing, so we have some very specialized parts of our business that are performing well. And this is exactly proving the point that our specialization strategy works, I would say. George.

Yeah, so let me take the one on DSO. Hans, by the way, good speaking to you. So on the seasonality of cash flow and in general our working capital. So I think Q2 in particularly was impacted significantly I mean, indeed, we're investing less in working capital and I'll say impacted by favorable timing in terms of payments. To be honest, it's extremely hard to predict. It's almost like it depends on so many variables when exactly payments have to happen. I think there's two points to highlight. Typically, indeed, half to the second half of the year from a cash flow perspective is richer. We generate more cash on the second half of the year, primarily due If nothing else, because a lot of the larger social security payments, holidays, a lot of those payments came in in the first half and typically in the second quarter. So if I would have to say something, I'd say the second half of the year is stronger in terms of cash flow. But I think especially what I will highlight is the focus on the ESO. At the moment, I mean, we're living in a challenging environment in many ways. Interest rates are also higher. We've even have turned business away from a payment terms perspective. We've focused on it. Our overviews are lower actually than last year. So I think in general, there's just a strong focus on cash flow generation. And we like, as you know, strong balance sheets. And we'll just focus on that until the end of the year.

Okay. And my final question on the temp-to-perm conversion.

Look at it. that i don't think it has particularly changed i think tank has stabilized um firm i mean one one comment also to the us just to give a bit more color we discussed myself on sunday before what we've seen a lot is of course we had great resignation with high levels of talent scarcity and therefore last year a lot of firm higher including jobs that potentially could have been hired on a temp basis, hired on a permanent basis. And we've benefited from that. I mean, we've never had so much perm and we continue still much higher than pre-pandemic levels. I think what we're seeing now perhaps is some companies holding up to talents and waiting to see if nothing else, fearing that in a talent scarce environment, we do not want to be short of talent going forward. That puts pressure on our temp and perm business at the moment. But again, the U.S. is a dynamic labor market on the way down, but also on the way up. Okay, thank you, guys. Thanks, Hans.

No, Conrad, sorry. Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. All right, dear speakers, it appears there is, all right, we have one participant. Anvesh Agarwal from Morgan Stanley. Please go ahead. Your line is open.

Hi, good morning. I got three questions. Now, obviously, September is quite a big month within Q3 and in context of the years and the trends. Did you have any sort of interaction with your client in how they're thinking about the return to work post-holiday? I know it's sort of obviously not asking for an exit rate or sort of expectation, but any sort of qualitative discussions you had with the clients in terms of how they're thinking about post-holiday return to work. And then second is on wage inflation. I mean, in absolute terms, it's still quite high, but why does the comp start to then catch up in the second half? Just wondering the impact it can have on the organic growth. And finally, in the first half, you had a recovery ratio of about 48%, which is kind of pretty close to the rule of thumb of 50% in a downturn. Is that the way you sort of continue to manage the business, or given the mix of the growth, you know, wage inflation and everything, should we expect anything different on the recovery ratio cycle?

So let me start. We have conversations with our clients all the time, as you would expect. But there is no, let's say, we cannot share any nature of those conversations, let alone trends from those conversations, because it's not what we do. On the wage inflation, it is interesting to see that where the US came out of the block quickly, back to the dynamic labor market on wage inflation rapidly last year, Wage inflation now in Europe, in some parts of Europe, I would say, is higher than in the US. It's from the official statistics, and we see that reflected, of course, in our bill. So Europe is lagging on the wage inflation.

Anders, let me take the one on recovery ratios. So, yes, we are pleased with half one. I mean, look... Internally, it's very clear. It's what gives us comfort, let's say, and what gives us options. It's kind of how I mentioned. So it is the level we strive for. There might always be a lag sometimes. I mean, depending on the fluctuations that are thrown at us. But everyone, and let's say every single part of our business, knows how good it looks like and knows what is expected. So to be honest, this is kind of embedded in the organization. Also, to give some comfort there, I've talked about it in the prepared remarks. The restructures, typically, we strive to have a payback period of maximum one year. So that also supports us going forward in Q3 and Q4. So let's say the cards that we're playing should support a recovery ratio good in the second half of the year. But as you know, it's impossible to predict. But nevertheless, it's what we strive for. And yeah, go ahead.

Sorry, go ahead.

No, no, you please. Next question.

No, just on the wage inflation, my point was more around like, I mean, I know that Europe's kind of lagging the US and it's still quite strong. I'm just wondering, do the comms start to sort of play the part in the second half and therefore the why wage inflation in terms of percentage start to come down for your temps? So just a question more around that rather than Europe versus the US really.

I would expect, look, Europe is collective labor agreements based, so that's very hard to predict as a general rule, but typically they last for one year, so you can argue they will stay on. In the US, indeed, it's coming down, it's public data. It's hard to predict again. Probably stabilizing, I would say. If you ask different people, they have different opinions, but we hope for stabilization because then decisions can be made. And last comment, I think, from all of us. Wish you all the best. So we've followed you attentively over the last year. So we know we're taking a different path and just want to thank you for everything you've done for Ransat and all the coverage as well.

That's very kind. Thank you so much. I totally enjoyed coming in. Thank you.

Thank you. Once again, ladies and gentlemen, if you have any questions, press star one. All right, the speakers sit up. If there is no further questions at this time, I'd like to turn the conference back to the host for any additional closing remarks. Thank you.

Thank you, Priscilla, for that, for facilitating, and thank you all for joining the call today. Before we wrap up the call, I would like to thank all our 600,000 Ransom talents and employees for all the hard work for our clients over the past quarter, and we're going to count on you for the next quarter as well.

Cheers. Thank you everyone and have a good summer.

Thank you for joining today's call. You may now disconnect. Have a nice day everyone.