Randstad Nv Unsp/Adr

Hello and welcome to the rest of the third quarter results 2023. My name is Caroline and I'll be your operator 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 mode. 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 questions. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand over the call to your host, Sander Wendt-Nodin, the CEO to begin today's conference. Thank you.

Thank you very much, Caroline, for that kind introduction. And good morning, everyone. I'm here with George Mbizura and Timur from Investor Relations, and I'm pleased to share our Q3 results with you. We continue to perform resiliently in the third quarter in a challenging global economy, and I'm particularly pleased with how our teams have adapted to the challenging conditions in their markets. And it's really great to see how adaptability is an integral part of our DNA. And this is a very good muscle to have in good times, but also in challenging times, of course. And as you know, we are always balancing supply and demand to make sure we have the right teams on board as well as the right cost structure for the demand we are serving. Another important trade-off we are making every day is volume versus value, because volume and value need to go hand in hand. and we believe we have the right balance here as well. And that's why we have realized very solid profitability again in Q3. Revenue decreased by 7.3% in Q3. Europe, Latin America, and Asia Pacific were our better performing regions, while tough domestic market conditions impacted our performance in North America. In terms of concepts, professionals was down 4%, in-house was down 7%, Staffing was down 8% and enterprise solutions was down 12% in the quarter. One thing to note here, of course, is that Q3 last year was our biggest quarter ever in Gronstadt. We delivered a robust gross margin of 20.6%, which is about 16% of gross profit generated by BIRM and RBO combined. We demonstrated cost management and resilience across our companies. And as a result, we have delivered an industry-leading EBITDA of €273 million, with a solid EBITDA margin of 4.4% for the quarter. The market trends we experienced in the third quarter have continued in early October. And looking ahead, our markets continue to be defined by three prevailing trends. First, a scarcity of talent. Second, clients seeking greater levels of support. And of course, digital. and we are confident in our ability to capture the growth opportunities in our markets, and we are well positioned for when market sentiment improves. And I'm pleased to see that we are progressing very well with Realign and realizing our vision to be the world's most equitable and specialized talent company. As part of this, we launched Ransat Digital in August, and this is an important step which positions Ransat as a digital enablement partner for transforming businesses by providing global talent, capacity, and solutions across specialized platforms. We are very excited about the growth opportunities in this area. Now, let me give you a few updates on our leadership team. Mark Etienne Julien has been appointed Chief Executive for North America. As the former leader of our Canadian business, he brings over 20 years of experience in the dynamic North American market, as well as a deep commitment to equity and crafting exceptional talent experience. He also has a track record of growing client relationships. Jesus Ejibarria has taken on additional responsibilities and is now our Chief Talent and Client Delivery Officer. Finally, Mabel de Heide has joined us as Chief Marketing Officer. She will be responsible for developing and executing our marketing and branding strategy. So in short, perform and progress is what we do at Ransat. And our executive leadership team is very excited to provide an update on our plans next week at our Capital Markets Day in London and online. Let me now hand over to George to present the results in more detail.

Thank you, Sander. And good morning, everyone. Let me start also like you started. So in short, this was a quarter to deliver profitability and where possible find pockets of opportunity. And we did just that. We achieved that right balance. We deliver resiliency, we deliver sector-leading margins, so especially at this scale and breadth, 273 million euros of EBITDA and close to 300 million of cash flow. So we do remain conscious, like you said, of the economic conditions in which we operate, but from a financial position, we are surely in a position of strength to benefit from any recovery we can find in the next quarters. In our previous call, we reported the macro conditions remained challenging, and these trends, like Sandra mentioned, continued into the third quarter. Just as an example, in many markets, PMIs, especially manufacturing PMIs, and actual industrial production remained somewhat at low levels historically, below even in many cases anything we've seen in 2019 and beyond. Therefore, we are happy with the choice we made to balance demand and supply. We remain, as I said, well positioned for the recovery and find growth where it exists. And I'm also happy with our portfolio and how diversified it is. Please also note, before we go into a more kind of breakdown per performance or per countries, please note that in terms of growth rates and comparables, last year was very, very strong. It was actually in record the strongest quarter of UNSTAT, which obviously will think any comparison with this year. We've been seeing a normalization, and obviously that has now an impact, and so therefore sequentially is almost as relevant as year over year. This summer we actually had a quite strong summer period, I would say a deep summer or prolonged summer, and in September these trends did not necessarily recover as in previous years. The number of employees working remained broadly stable between 590,000 and 600,000. There were different levels per geography. So let's discuss North America and go a little bit in more detail on page seven. The softening trends pretty much continued in the third quarter. North American revenue dropped by 16%. Remember Q2, 14%, with PERM declining 40%, pretty much like in Q2 as well, 36%. After seeing, nevertheless, a 15% increase last year. So breaking it up, on one hand, our U.S. staffing and in-house business declined by 19% with lower demand across pretty much all sectors. But on the other hand, our professional revenue was down 10% to 11% and continued to face challenging market conditions, but less than 16% overall. We launched CanStar Digital, as Sandra just highlighted, and we were also recognized as a leader in the U.S. IT contingent and solutions space. by Everest Grouping, which excites us in terms of skills, breadth, and capabilities we are building. The EBITDA margin, though, for North America was still a solid 5.4% as we continue to adapt our operations. Moving on to Europe and close to here, Northern Europe on slide eight. Our Northern European countries, as you can see, saw mixed growth trends. As in most of these markets, we are established market leaders. So comparables, again, please remember, are very hot, very high in 2022, where we play a key role both, let's say, in the recovery post-COVID, but as well on supporting everything that was COVID-specific. So despite the slowdown, and this is important, in manufacturing, we did protect operating profit margins, EBITDA margins, and again, above 5%, delivering 102 million euros EBITDA. In the Netherlands, In particular, revenue was down 8% and continued to be impacted by, I just mentioned, COVID-related business. Firm was down 24% year-over-year, and professionals reflecting portfolio choices we are making, finding this right balance, we also made this year. EBITDA, again, a strong 6.3%. In Germany, though, revenue was down 9%. Our combined staffing and in-house services business down 10%, impacted by softening demand in-suburb. But importantly, the firm performed very well, with 29% growth up from the 10% we talked about in Q2, reflecting, again, diversification of our portfolio and continued progress to sound profitability and sustainability. We are well positioned for future growth in Germany. EBITDA margin for the quarter came in at some 5%, 90 basis points up compared to last year. In Belgium, again, a market leader country, we had revenue decline of 6%, a small improvement from where we were in Q2, Belgium is one of our long-established countries, good portfolio diversification, and has strong adaptability throughout the years. EBITDA margin came in at a solid 4.3%. Other North European countries obviously reflect mixed trends, but let me break it down to you. Nordics was down 15%, Switzerland was down 7%, and Poland was up 14% year over year. EBITDA margin came in at 3.4%. Now let's look at the Southern world, so let's look at Southern Europe, UK and Latam on slide 9. In Southern Europe, focus remains on getting back to profitable growth, as we spoke in Q2, and in many markets we are making significant progress. We deliver an impressive €122 million of EBITDA and margin again above 5% or 5.6% even for the region. Now, looking and starting with France, the largest country, revenue was down 3% year over year. But here, please remember, because it had a significant impact on the group level, in terms of growth rates and comparables last year, we were still increasing quarter over quarter in France, Q3 at the time already growing or increasing growth to 9%, which obviously this year affects comparisons and has a very strong impact also at group level. Last year, we were growing fast in our strong healthcare business, and that obviously now shows a comparison this year. This year, therefore, we saw relatively weak summer months, and in September, or at least we saw prolonged summer, let's put it like this, and in September, these trends did not recover as much as we've seen in previous years. Nevertheless, even though professions continue today to deliver solid growth of 8%, which partly offsets the decline in staffing and in-house over summer. France ended the quarter with an EBITDA margin of 5.4%, also 50 basis points up here over here. Now, moving into Italy, Italy was down 2% year over year, continually improving the trend sequentially. Remember, we were 3%, 4% down in Q2, step by step. Perm, again, from a very high base already last year, delivered growth of 5%. So we still are able to find growth where it exists. Italy ended up the quarter again with beyond excellent profitability. Iberia, though, declined also by 2% in the quarter, similar. So also, again, an improvement in trends since Q2. Our focus on delivery models here, and we'll talk about it more next week, is supporting these improvements. Staffing and in-house businesses were down 2%, adjusting, let's say, from peaks and application of the new legislation in Spain primarily. And also important, we are about to welcome now, finally, our new colleagues of Group CTC in July. which we expect now to close, given that we just received the approval from competition authorities on the 27th of October, which is obviously important for our competitive position in the outsourcing space in Spain. In our professional business, we continue to see growth in professions of 10%. Across other southern European countries, UK and Latin America, again, also a mixed bag of different things, revenue and profit performance saw a mixed picture. UK was down 16%, reflecting portfolio choices. Latin America was up 7%, which shows our ability to drive growth in profitable segments. And moving on now to Asia-Pac on slide 10. The Asia-Pacific region continued to perform well. But also in this region, note these microeconomic conditions are softening. The Asia-Pac region delivered a modest growth of 2% in this quarter, coming down slightly from where we left in Q2. Japan continues to show structurally good performance with 5% growth and some profitability and still with significant opportunity in the second largest staffing market in the world. Australia and New Zealand saw overall softening in demand and saw our revenue declining by 2% in the quarter. At the same time, our education business did very well in the quarter and saw its revenue growth by 21%. Again, capturing growth through specialization. We'll talk more about it in our capital markets next week. India grew by 7% and continues to focus on improving the quality of the portfolio. And overall, it's now adding up all of this. Our EBITDA margin for APEC was a solid, again, 5.4%, above 5% in the second quarter, well above the group average. And that brings me now to global businesses on slide 11. The global business segment showed a decline of 12% year-over-year, and our EBITDA margin for global business came in at 0.5% in the third quarter. So this is a mix of different realities. Monster revenue was down also 12%, in line, as probably you know, with the broader job board market trends. Our RPO business declined by 34% year-over-year compared to a strong Q3 last year. Well, we were still growing 55%. So again, declined 34%, but we were still growing 55% last year. And together with you two, we also had last year record high levels of hiring. RPO is obviously feeling the effect of a slowing hiring environment. It is also the service that we recover the fastest with our clients. We have ramped up problems, but we also have ramped down our problems. With a net reduction this quarter alone of 500 FTEs, versus Q2 sequentially, so versus just June, July. Moving ahead, we are confident about the growth, prospect, and adaptability of our RPO business. To put it in perspective, we recovered almost 80% of our gross profits, or in other words, the recovery ratio of 80%. This market continues to evolve, and we work with the largest Fortune 500 companies in shaping solutions of the future. On a very different dynamic, though, is our outplacement business. Remember RiseSmart, the company we acquired in 2016. We have continued to develop and roll out the platform and grows and scales significantly throughout the world. Heavily digitally delivered, already mitigating to a large extent almost half of the impact on profitability of our PO decline. And okay, that concludes the performance for our key geographies. So let me now walk you through our group's financial performance on slide 13. And in short, it summarizes pretty much everything I've just been mentioning before. Organic revenue for the group came in at 6.3 billion euros, which is a decline of 7% year over year. As we have discussed earlier, Europe, Latin America, and Asia Pacific were our better performing regions. Some trends increasing, while difficult market conditions impacted our market performance in North America. Again, the 7% decline comes on the back of a very hot, the strongest, let's say, quarter for Randstad in its history, and definitely in 2022 as well. Overall, we continue to see a stabilization in term placement sequentially, as the average number of employees working has broadly stabilized around 600,000 employees. We'll talk in a few minutes in more detail about gross margin and OPEX developments, but the outcome, in short, as you can see, was an EBITDA for the quarter of 273 million euros and a solid EBITDA margin of 4.4%. This is a recovery ratio of 61%, 6-1%. Emphasizing again the field steering model we've always had and our resolution in adapting our cost base to the best balance we can find in the market. Integration and one-offs were $16 million this quarter. Of these, $4 million are related to M&A integration costs in specific to finite in Australia. The remaining $12 million is restructured expenses across many of our markets. Amortization and impairment of intangible assets, as you can see, 12 million, pretty much regular in line with Q2. Our net finance costs in P3 were also 17 million euros, again, in line with Q2, and primarily just reflecting year over year the higher interest rates, and as well as slightly higher net debt level compared to last year. The underlying effective tax rates, again, also in range, amounted to 25.2%. For 2023, we expect our tax rate to be between 25% and 27%. Now, as I mentioned, let's turn to the next page to our gross margin bridge and understand our gross profit and gross margin performance. A few things about the margin. So we have the graph there on top of you. The gross margin for the third quarter came in at a robust 20.6%, impacted primarily by mix. As you will see, and practically the same as Q2, if I'm not 10 basis points, just rounded lower. Our temp margin, so the first column actually positively contributed 10 basis points to the overall gross margin. Our temp business in general is showing more resilience than our fee business. Holdings are broadly stable at around 600,000. And temp margin is once again reflecting our discipline in value-based pricing. The price and quantity effect combined means our overall gross profit and slash temp business has shown more resilience than our fee business and contributes, therefore, to our performance this quarter. Fee business declining more, but, of course, we also have a stronger flexibility in adjusting our cost structures in that type of business or business model. Our PERM revenue fell by 22% in Q3 to 139 million euros, which has led to a negative gross margin impact of 20 basis points. Again, this is purely a mixed effect. If PERM declines 22% and the overall group 10%, then the PERM business has a negative impact in our margin. Also, similar trend with RPO. This year, the normalizing labor market has impacted our RPO business, which declines 34%. And again, therefore, this translates into a negative impact in our margin. In terms of mix, PERM and RPO jointly represent about 60% of the group gross profits in the third quarter. which now brings me to the OPEX bridge on slide 15. Please note this one is sequential. So in our industry, in short, if we get it right in one quarter or year, we must ensure we also get it right again precisely in the following quarter or year. We continue to adapt, making the right choices, finding the right balances, and we are well positioned for the recovery, slimmer and faster. In short, we have continued to execute a clear focus with respect to OPEX, steering and adaptability, looking at the trends we see in the market, and making sure we do not make any step bigger than our legs can afford. As a result, in the third quarter, OPEX came in at €1.2 billion, 4% down sequentially, and 8% down year on year. And as mentioned before, this adds up to a recovery ratio of 61% in Q3. The biggest driver of our OPEX is by far personal expenses, which was 5% lower sequentially, And at the same time, our average ad count decreased by 320 FT sequentially. With that in mind, let's now move on to our cash flow and balance sheet on slide 16. And also a few words on cash flow, balance sheet, and update on our share buyback program. So our free cash flow for the quarter came in at 297 million euros, 40 million higher year over year. And therefore, our net debt sequentially reduced approximately by 200 million euros, with the difference being mainly our share-buy-back problem. Our balance sheet shows that for a lower net position of 414 million euros and a leverage ratio of 0.3, please note excluding these liabilities. I think, despite the volatility inherent to the business, two important points on cash flow. The strong cash flow generation remains an important characteristic of Hansen and of our business models, with good practice on working capital and DSL management well spread out throughout the company. In short, we convert cash from good years EBITDA. At the same time, in declining years, the counter-cyclical nature of our working capital typically upsets the declining EBITDA, again, as the case is here, providing always a line of sight and visibility into our cash flow. In the first nine months of the year, we generated free cash flow of 592 million euros, already 147 million euros more than last year. The ESO was 53.4, excuse me, 0.9 days up year over year, primarily driven by our mix and geographical composition. Lastly, an update on our share buyback program. The second range is completed. We purchased a total of 1.540 million ordinary shares for a total consideration of 80.5 million euros. Today, we also announced our intention to cancel 3,090,000 of ordinary shares, so the first two trenches of our share buyback program that were purchased in the first and second trench. As in previous quarters, we also announced again a third trench to now repurchase up to a maximum of 1.6 million ordinary shares. And per usual, we continue to provide weekly updates on the progress of the program, which now brings me to our last slide, the outlook on slide 17. And let me start first with the activity momentum. So the conditions remain challenging across our markets, and these conditions have continued into early October. In early October, the year-on-year growth rate of employees working, the temp momentum, let's call it, was aligned with the one of Q3, or in absolute terms, between 590,000 and 600,000 people every week. So it was pretty broadly stable in that context. The PERM and RPO moment, also similar to Q3, and also showing stability. Q4 2023 gross margin is therefore expected to be broadly in line sequentially. Again, just to be clear, we strive to always align gross profit and OPEX developments as much as possible, and therefore we anticipate our OPEX, again, to be broadly in line sequentially. Please note there will be a negative half a day working impact in Q4 2023. This is our base case, but again, I will say it one more time, we will continue to work with scenario planning and adaptability. We remain, one, vigilant, two, cautious, but three, ready. So to summarize, In the third quarter, we deliver strong profitability in a general challenging environment. At Randstad, this adaptability provides us now a basis for choices to benefit from the recovery when it comes. We don't know when the first opportunities will immediately come, which geographies, firms, digital, staffing, RPO, where those signs will be, but we feel we are operating from strength, we are ready, and we will capture them. We have scaled and a more diversified portfolio than ever, with very sound margins. We have a very solid client base. We have the most experienced team in the industry, and all of this supported by a very sound financial position. We'd like to see more recovery, and we're ready to capture it when it comes. Looking forward to speaking to you about many of these next weeks. This now concludes our prepared remarks, and we look forward to taking your questions. Operator?

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the first question from line Rory McKenzie from UBS. The line is open now. Please go ahead.

Good morning. Three questions from me, please. Firstly, just asking about wage inflation. Your temp volumes were, as you said, about minus 9% year over year through Q3, similar to Q2. But I guess the tailwind you've got from rising wages or fee inflation is is now only about 1%, 1.5%, compared to about 4% in the last quarter. So is that just the annualization of those wage inflation headwinds? And can you talk about what the sequential trends are looking like and any regional differences? And then secondly, just on the cost base, obviously you drove that 5% sequential reduction in Q3, and now you're expecting it to be stable into Q4. reflect the bottom of where you want to take the cost base down to, or would you be able to look for more cuts if the market did deteriorate again? And then finally, just one question on the divisions. Can you just go into a bit more detail on the big step down in RPO trends? Have you actually lost any kind of contracts there in Q3, or is it just the tough comps that you're up against that drove that divisional slowdown? Thank you.

Thank you very much, Rory, for those questions. Let me start on wage inflation. I mean, wage inflation is clearly coming down across our markets. It is now hovering around 2% in the U.S., and it's actually higher in Europe than in the U.S. In Europe, it's in most countries 4%, 46%, with France being an exception at 1.8%. That means also in our business, wage inflation has come down quarter over quarter. I don't think we disclosed the exact numbers there, but you can expect it to be in line with the market, but it depends, of course, on the mix of the countries. So yes, wage inflation is coming down, which I think for the broader economy is a good thing because inflation is coming down, wage inflation coming down, that all brings us into more normal territory as an economy, which I think is a good thing. Let me take the third question on RPO here. So in RPO, it's primarily existing clients who hire fewer people. Our wins have been significant in Q3 again, and our pipeline of primarily bigger deals, bigger than in the past, is still at a good level. Keep in mind that many clients are now looking at How can I do my recruitment process more efficiently, more cost-effectively? How can I maybe move some of it to global delivery in countries such as India or Latin America? And that's obviously very attractive opportunities for us to work on. And that's what we're working on with many clients in the tech space, in financial services, in life sciences.

Hi, Rory. It's George. Let me take your second question on the cost structure. Also, look, I mean, we kind of guide the broad in line, and I think I also alluded to it in my prepared remarks, because let's put aside, and you had a good question, you mentioned it yourself, let's put aside the year-on-year comparisons, and let's focus a little bit on what we see sequentially. We, at the moment, let's say we have adjusted our FT down 9%. I think our revenue was this quarter 7%. So from a bottom perspective, we feel we are prepared for what we see. And we feel, therefore, that sequentially, given the stabilization that we see after this normalization period, we have adjusted our OPEX in line with what we need to do. I prefer, I mean, again, we don't have any sense of if we need to, our gross profit goes up, then we are able to spend a little bit more OPEX. If our gross profit, for whatever reason, will decline, then we still feel that the ingredients we had in Q3, Q2, Q1, we have, again, to adjust individually. So I feel comfortable with what we see today.

Yeah, maybe to add to that, I mean, clearly we're starting to see more opportunities in pockets where we can find growth. So we will invest in those areas in specific countries. But we will do that in a very targeted and focused way.

You can see it, actually, now that you mention it. So just highlighting, I mentioned earlier on that we've decreased. Our RPO has gone by 500 people sequentially at the same time. Overall for the group, we've reduced 300, let's say, from Q2, meaning there are already focuses that we are trying to capture opportunities, such as Spain, such as Italy, even in certain parts of Germany. So where we find growth, we're not shy. That's the advantage of being in a position of strength and having a very sound financial position.

Great. That's all very helpful. Thank you both. Thank you.

Thank you. We will take the next question from my hand. The line is open.

Yes, morning all. Three questions from my side. First, going back on the outlook. I hear what you say with respect to stabilization and also on your cost base. But of course, sequentially, Q4 is always, let's say, somewhat more stronger quarter. So How should we read that underlying? Is this also partly driven by, let's say, seasonal impacts? Secondly, on Germany, a clear improvement in profitability, Berm doing quite well. Could you give maybe some flavor on what the drivers were for the improvement in the margin? Is that for major part Berm or also, let's say, cost savings doing? You could give maybe some flavor there. And all the global business units, um, still down quite materially a monster still doing, uh, have quite some difficulties also, of course, our RPO, but how do you see, let's say the longer term outlook for that, uh, business unit, and especially looking at profitability because profitability has remained quite low over the last few years. How do you see that? That's a message you can take to really improve that, uh, that profitability.

I'll start with Germany, Hans. Germany, I mean, you've been around longer than I am, so you almost know the story better than I do. Germany has been a market that has been under pressure for a long time. A couple of years ago, we had a major legislation change, and from there, it became harder and harder to do business for us. Our team got on the case starting around 12 to 15 months ago. They said we need to do things differently here in Germany. We need lower costs. They have worked on that and they are still working on that. We need to make sure that we have volume and value in terms of the business that we do go hand in hand. And that's very much about pricing. and we need to amp it up on our perm business. And they have pulled those three levers, and the results you see in the profitability, and I'm absolutely proud of the team in Germany, how they have gotten on the case, and the results that they've produced. And again, I was there actually two weeks ago, I said to you again, now we're in a much better space, now let's focus on growth, because we have the platform to grow in a profitable way. On global businesses and Monster, that's a story of two sides. On our RPO business, our profitability has been decent. I would say it's been a bit under pressure because volumes have come down. On Monster, we're making progress on the profitability side, which is sort of hard to see because we're going a little bit up on Monster and a little bit down on the RPO side. But Monster is still a work in progress. very important as a source for talent for us. We expect when markets come back in terms of the job postings, we should be able to get that to break even over the next year, year and a half, I would say.

Hans, hi, it's George. A little bit on the outlook. I mean, looking at what we can see is the first two weeks of October, and again, I'm emphasizing, I mean, we see stabilization. So, again, let's put comparisons year over year aside. We see stabilization from Q3 to Q4, 590 to 600,000 employees. Also, the pricing dynamics are the same as we just highlighted. So, I mean, looking ahead, we see the stabilization, and the same goes to our fee businesses. It will always depend a little bit, you're right, so Q4 might be the strongest quarter in the year, as you know, compared to Q3. It depends a little bit on how Christmas performs. And as it stands, it's anyone's guess, let's say, how the world will perform in terms of the build-up for the Christmas break and the holiday period. What I would say is, from an adjustment perspective, we are ready. The ingredients are the same. So it's about, hopefully, riding this normalization, and like Sander mentioned, try to find pockets of opportunity where they are. So we have the financial position to allow for that. On the global businesses, I'll just compliment you. I mean, you asked how we're happy. If all the regions are at 5% plus EBITDA, then if one region is not at 5% plus EBITDA, then we're not happy. So, yeah, but it's about continuing to working on that day by day and improving.

Okay, maybe one follow-up on the outlook. Can you maybe remind us how the comps developed in Q4 of last year?

The comps improved slightly, revenue, but I mean, pretty much similar volume as last year. If I'm not mistaken, I think 10,000 to 15,000 people more working in Q4. So pretty much in line. So there was quite, let's say, two high quarters. If looking at revenue as an example, Hans, was $7.5 billion approximately in Q3, and we have $7 billion in Q4, right? $7 billion. So pretty much two quarters the same. So again, we are trading and competing against super, super, super high comps in terms of the highest of Ransat ever, and also strong firm and RTO comparisons. So that's basically the comparison.

Okay, thanks, Claire.

So only two quarters in the history of Ransat above $7 billion.

Thanks.

Thank you.

Thank you. We will take the next question from line Keen Madin from Jefferies. The line is open now. Please go ahead.

Thank you. Good morning all. Just one from me. I've had a number of clients just try to understand the 1% sequential reduction in headcount in the quarter versus the 5% reduction in personnel expenses. So maybe you can help us understand that and I guess whether there have potentially been any accounting changes, i.e., maybe whether you've changed bonus accruals in the quarter, depending on your view of full-year profitability. Thank you.

Yeah. So, first of all, Ken, thank you for the question. So, let me be clear, there are no accounting changes. So, I mean, that is, it's exactly the same accounting principles and practices as always. I mean, first of all, we did reduce, let's say, 9% already year over year. So, that is kind of how we start Q3. Indeed, this quarter, because of holidays and in general, so lower deferred wage components, but also as we go into the year, we can always have the freedom to look and assess our provisions and buildups for bonus, variable compensation. So if we're doing less well, that always has an impact in the quarter in question. But at the same time, taking a step back, the fact is we are 9% down in terms of FTE. And the ingredients we had to deliver on cost adaptability, they're remaining to Q4. I mean, it's just basically a timing and practice of how we go through the year and reassess each one of our positions in our wage components. But in general, proud, happy, and just contributing as always to the adaptability ambition we have of 50% through the cycle.

And is that recalibration of accruals complete in the third quarter, or should we expect a little bit more in Q4?

Look, we don't micro-report, let's say, on everything. We look every quarter where we are in terms of gross profit. Again, gross profit and OPEX walk hand-in-hand at one start. That's what we strive always to match. I think the ingredients are there in the sense that we have less FTE, we're prepared for the revenue trends we see, and we are experiencing now, year over year, and it makes me, let's say, reasonably comfortable as we go into Q4.

Thank you very much. That's very helpful.

Thank you. We'll take the next question from Mark Farnsworth from ING. The line is open now. Please go ahead.

Good morning, Sandra and George. I would like to first come back on the revenue trend to understand it a bit better because you started Q3 in July with the same trend as Q2, so that basically implies that August, September must have been a bit weaker to get to that 7.3%. if you then tell me that October is in line with Q2, does it then imply that October actually saw a bit, you mentioned stabilization, actually that it means the trend, maybe that it has become even a little bit better. Is that how I should look at your outlook compared to the previous outlook and what you reported over the quarter? That's my first question. And then on the, on the, cost-based maybe, or a combination of margins and recovery ratio. Recovery ratio came in really, really good, so credits to you, George. And the margins in the Netherlands and Germany even improved while you have quite significant top-line declines. Should I take it as that you've been preparing for even worse trends in specific regions, that you've basically been running a bit faster on the cost-based Then in the end, the developmental volumes in the end ended in the quarter. Is that how I should look at it? That you prepared for the worst and that it came out a little bit better? Is that how I should read these margin improvements in the Netherlands? I'm sorry, and in Germany, for instance?

Yeah, so, I mean, definitely not only prepare for the work, but I think I'll let Sander also think. But first of all, thanks, Mark, and good question. So let me just, I mean, on exit trend. So, I mean, first, what we are talking about is the unfolding trend in October. And in that respect, we see pretty much stability where we are in Q3. So that is like the way we look at the quarter with information we have now. Secondly, especially on the temp side, because you alluded to that, let's also make a bit of a thing like, yes, our revenue is down 7%. It is also impacted, as we kind of mentioned, by our fee businesses. But overall, from a gross profit perspective, again, combining price and quantity effect, that is actually therefore less than 7%. So our temp businesses are showing more resilience. let's say then obviously you could see immediately in the results. So that does mean from a trends perspective into October and Q4, it's a stability from where we left in Q3, and it's basically looking ahead with what we can see prepared for it.

Yeah, Mark, on your second question, well, you've heard me say we're always balancing volume and value. That is the name of the game here. We think we have the right balance. Frankly, volume with no value has no point, to make it very blunt. So even if the times are challenging, we need to make sure that we get the right level of value for the volume that we sell. And we have been focused very hard on doing that. Because if there's one thing that I've learned in my career in services, If you drop the price too much, you're never going to get it back later. So if we stick with the value that we're looking for now, it will serve us well when times get better.

But that's because the ratio of over 60%, that doesn't imply that you have taken a little bit more of a few that maybe the market could have been weaker, that you did a bit extra to cut a little bit harder.

That's a good question. I mean, I did some math here for you. You all collectively did your expectations. So you said 5.8% growth. We have 7.3%. That's 150 basis points. We produced 15 million more profit. So we could have spent more money and get you your 150 basis points more revenue, but we decided to get 15 million more profit. That's the trade-off we're making every day.

Mark, a good point on the 61. I mean, we don't try to get it always at 61% or something. I think it's just the timings of some of the adjustments we've made. I always say the match might not be perfect, but over time it does come very close between GP and OPEX. It's just another reflection of different P&L dynamics. There's nothing to read in that respect.

Okay, maybe a short follow-up on the overhead costs. Should we take the current trend as the trend going forward? Is that a bit the number which we should be looking for? Or should we also expect some savings on that front? On the overhead costs?

Yeah. I mean, for the overhead costs, we managed total OPEX. So, I mean, from that perspective, It is a collection of choices. Where do we work? Do we work centrally? Do we do more work locally? I mean, how do we manage best for the overall efficiency of the company? I think as it stands, yes, that's a running level, and we're not predicting any changes in that respect.

Okay. Thank you. Thanks for the call. Thanks.

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Hi, good morning. I have two questions, one on the gross margin and one on your financial charges. The first one on the gross margin, you mentioned in your outlook that you expected to be broadly in line quarter on quarter. And if I then look at the gross margin development of the final two quarters of last year, that implies, let's say, a 20 basis point positive impact sequentially. Is that too statistical or is that related to, let's say, a less severe impact in your PERM placement and RPO business? Or do you expect to continue a higher gross margin in your temp side? And my second question on the finance charges, they've gone up over the quarters because of the higher interest rates. And it seems to me that the natural hedge that Randstad has always successfully had in place of the general economy and interest rates may no longer apply to the current market. Is that something you're still comfortable with? Or do you look at your, let's say, variable interest rates with a slightly different view now? Thank you.

Let me take first the interest rate one. So, I mean, yes, the interest expense has increased, as you said, and I think I've highlighted it as well. It's a combination of both. A slightly higher net debt than last year, but, of course, also an increase in interest rates. So, indeed, in general, our policy has always been we will keep, let's say, interest rates on our debt or our net debt, floating as much as possible, and that remains the same. I would argue, Conrad, that the natural edge is actually working. I mean, if you look at the cash flow that we generated, so it depends a little bit on how you take the hedging. Yes, EBITDA is slightly lower, but more than compensated by our cash flow generation. Interest rates are higher, but at the same time, they don't cause a problem for Hansard in terms of covering or any covenants from covering the interest expense. So it is working. We continuously look if it's still the best way for us to look at our financing needs going forward. Again, our net debt is still, of course, this year a function. It could be even lower. I mean, if we just did not have a share buyback program, for example, this year, our net debt would have been lower. So I would say the hedge... And the comfort with which we approach our financial position is quite solid and is still applicable. In terms of gross margin, look, what we do is, of course, look at what we know from where we live now, Q3, and we look at Q4. We look at our country mix. We look at our business mix. We look at our fee versus temp and the resilience, indeed, of the pricing in temp. And then we take a stance on how our gross margin is likely to evolve. And from what we know today, we feel quite confident saying broadly stable in line with Q3 into Q4. Again, we still see a reasonably strong permanent RPO mix or impact of mix in Q4. So in 2022, right? So I think it's a matter of mix and just what we see broadly in line is what we now choose to guide for.

Okay, thank you.

Thank you, Conrad.

Thank you. It appears no further question at this time. I'll hand it back over to you.

Okay.

Caroline, if there are no further questions, then I would like to say before we wrap up the call, I would like to thank all 640,000 Ransom Talents and Employees for their hard work in this quarter. And, of course, many thanks to our clients for doing business with us.

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