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?