Randstad Nv Unsp/Adr

Good day and welcome to Ransom's first quarter results 2024 conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. Later, we will conduct a Q&A. If you wish to register for questions, please press the one on your telephone keypad at any time. At this time, I'd like to hand the call over to Mr. Sander Van Noordendie, CEO. Please go ahead, sir.

Thank you, Alicia, for the introduction, and good morning, everybody. I'm here with George, Steph, and Tamer from Investor Relations. During the first quarter, we continued to adapt as market conditions remained challenging. While we performed well in Southern Europe, Latam, and Asia-Pacific, we encountered softer-than-expected conditions in North America and in Northern Europe. Against this backdrop, we delivered revenues of €5.9 billion, a decline of 7.8% year-on-year. Our gross margin came in at 20.2%, modestly down compared to last year, reflecting our service mix and a slightly lower margin in our staffing business, which was driven by higher sickness and other seasonal effects. As you would expect, we sustained our focus on adaptability, resulting in an underlying EBITDA of 177 million euro, a 3% margin for the quarter, with a recovery rate of 46%. And as we move into Q2, we expect the macroeconomic environment to remain challenging. That said, we do see green shoots across some of our regions and segments. And in our conversation with clients, we hear that things appear to be bottoming out. But now a few weeks into April, and we are seeing broadly similar volumes to those at the end of Q1. We are ramping up our commercial activities and following our steering principles with investments in field capacity, where we see concrete growth opportunities. Also in Q1, we stayed the course on executing our partner for talent strategy. And as you might recall, a key priority for us is growth through specialization. We have identified four specializations, operational, professional, digital, and enterprise. And each of these specialization is focused on high growth markets. Another pivotal plank of the strategy is our investment in technology. And I would like to highlight three things in particular. Firstly, the implementation of our specialization framework is progressing at speed. At the time of our Q4 results in February, we had implemented the framework in half of our markets. We now expect 90% of our markets to be brought within the new framework this quarter. Secondly, we are excited that our digital marketplace rollout in North America is progressing very well. As set out at our capital markets day, we expect it to reach a run rate of 2 billion euro globally by the end of 24th. We now expect to reach this number in Q2, several months ahead of schedule. Thirdly, our ransom talent platform went live in the Netherlands and Sweden, and the rollout has gone smoothly and according to plan. In summary, the ramp-up of commercial activities, our investments in field capacity where we see fit, combined with the execution of our partner for talent strategy, position us very well to capitalize on the growth opportunities when the markets return. And it's fantastic to see the focus and commitment of our people across the globe and how their position runs up for growth. Let me now hand over to George to give a bit more colors on the number for the quarter.

Thank you, Sander. Thank you, Alicia. And good morning, everyone. Let me bring you where we last left it during our Q4 publication in mid-February. We discussed then how our year started slowly, the impact of holidays, supply chain disruptions, even sickness rate, among other things. Today, looking at the entire Q1 and comparing it to Q4, we did observe, indeed, a slow start to the year, but in the end, within the range of a much more familiar seasonal historical trend and broader signs of stabilization, which is especially important after a typical 2023. Things do seem to have normalized. In terms of comparison to last year, Q1 declines and trends are in many ways, as you will see, similar to what we saw in Q2, Q3, and Q4. as normalization from 2023 has not yet left. At the same time, the path to recovery is unlikely to be uniform across all our markets. As you'll see from this quarter's performance, we made good progress towards growth in some, while in others, seeing a bit slower to pick up. We will cover that in more detail shortly. Financially, our performance and adaptability ratio have remained strong, and we have again demonstrated the resilience of our business model. As Sundar said, we are beginning to see green shoots. While uncertainty remains in Q2, we have recently seen some positive economic indicators changing. Q2, therefore, appears to be somewhat of a transition quarter, from comparables, from seasonality perspective, and hopefully into a more pronounced recovery. In that context, we continue to roll out our Partner for Talent strategy across all our operations and are making early cyclical investments. I am excited about these initiatives, which are designed to put us in the best position for an economic recovery. Remember, when conditions soften, our clients pause projects, reduce costs, hoard labor, and outsource many of their activities. Clients begin to test the waters, ramp up projects, hire flexibly, and increase their teams permanently when in recovery. We have been managing for the former and will now be tentatively for the latter. Let's go into detail and let me now discuss the performance of our key regions on page 8. Shifting our focus towards North America, especially the United States. As discussed before, the current economic indicators show a slightly different story compared to previous cycles. The sectors where Hansa traditionally had less presence, such as healthcare, government, and hospitality, are experiencing more hiring. In the manufacturing sector, however, we have observed one of the most extended periods of restrained PMIs, or confidence levels, accompanied by a similar long-decline trend in temporary staffing policies. Things did seem to stabilize sequentially. As the post-pandemic normalization process continues, we expect more positivity towards hiring and labor planning to return to normal levels. Our revenue dropped by 15% this quarter, stable compared to Q4, with permanent hirings declining 40%, therefore creating pressure on our gross margin and EBITDA margin in the region. Our U.S. operational talent solutions declined by 11%, with lower demand across all sectors. Professional talent solutions was down 22, facing challenging market conditions affecting the IT service sector. U.S. digital talent solutions was down 16%, while the U.S. enterprise solutions was down 16% as well. The EBITDA margins stood at 2.3%, with a recovery ratio of 54%. In the United States, in particular, we continue to roll out our digital marketplace, as you heard from Simon. We're designing and resizing our organization to accommodate new ways of working, and these new normalized levels of gross profit. This quarter, as you will see, we incurred a significant restructuring charge on real estate. Moving on, now to Northern Europe on slide nine. In Northern Europe, we continue to navigate a challenging business environment with ongoing softness in demand. As established market leaders in these regions, our comparables from a still relatively strong Q1 2023 pose additional challenges. Germany, in particular, was difficult, and we faced persistent headwinds that impacted our profitability in the region. Despite these difficulties, we've maintained strong adaptability in Northern Europe. Again here, as the new normalized level becomes clear, we have also adapted our teams and made a significant restructuring charge this quarter in the region. Breaking it down in more detail, in the Netherlands, revenue was down 7% compared to last year, reflecting a slight sequential improvement from the minus 8 in Q4. We have seen a softening decline across all sectors, except the public and automotive industries, and a gradual easing toward the end of the year. The operational talent solutions was down 7%, while our professional talent solutions was up 1% over a year. Firm was down 18%, and EBITDA margin came in at 4.8%. In Germany, challenging economic environment has resulted in revenue declining 15%, due indeed to difficult market conditions and portfolio decisions we spoke earlier in the year. Operational talent solutions was down 17% and firms saw a 10% decrease this quarter. Profitability was significantly down year-on-year, mainly, as we elaborated in February, due to high sickness rates, impact record high sickness rates, the impact of holidays and other incidental effects. We do not expect an immediate recovery in Germany and are refocusing the business for growth in our core specializations. In Belgium, revenue decline continued to narrow and improvement again compared to the trend of Q4. Operational talent solutions were still down 5%, while professional talent solutions was close to flat, down 1%. Belgium is one of our long-established markets with good portfolio diversification and has shown good adaptability. EBITDA came in at 4.5% this first quarter. Looking at other Northern European countries reflecting mixed performance. Let me break it down for you. Poland continued its growth from Q4 with revenue up 7%, cementing our number one position. Nordics was down 22% and Switzerland was down 12%. EBITDA margins for these countries all together came in at a 2.1%. Let's now turn the page and move on to segment Southern Europe, UK and Latin on slide nine. Our businesses in Southern Europe have shown resilience and adaptability with improved growth trends. We achieved an EBITDA of 107 million euros with a margin of 4.8% in the region. Here, as discussed before, we are selectively increasing capacity in some units to enable a standard ramp-up period in 2024. France's revenue was down by 5% compared to last year due to softening demand in most sectors, below our expectations exiting the fourth quarter. Only public service and automotive sectors experienced an increase. Compared to its neighbors, France was in a late cycle last year. Remember, we were still growing in the first half of the year. The operational talent solutions decreased by 7% year-on-year, while the professional talent solutions increased by 2%. France ended the quarter with an average time margin of 4.3%. Italy's revenue decreased by 2% compared to the previous year. However, there was an encouraging sign. In March, it actually returned to growth. The operational talent solutions experienced a year-on-year decline of 2%, while firm in the quarter declined by 2% as well. On the other hand, we are pleased with the successful rollout of our enterprise solutions, especially RPO, which has already become sizable and is growing at 18%. Italy finished the quarter with improved profitability compared to last year at 7.6% EBITDA margin. We plan to invest more in Q2 to remain well-positioned to continue capturing the markets overall. Turning into Iberia, Iberia revenue continued to improve, growing by 4% this quarter and continuing to improve versus Q4 where we were flat. We crossed the line. Operational talent solutions grew by 3%, whereas professional talent solutions grew by an impressive 19% compared to last year. Notably, Spain showed robust growth with a 6% increase, mainly driven by strong performance in its professional talent solutions. This progression reflects our ongoing efforts to capitalize on market opportunities and enhance our regional breadth. Across other Southern European countries, UK and Latin America, revenue and profit performance was mixed. UK was still down 12%, reflecting primarily portfolio choices and challenging markets. By contrast, Latin America continued to grow, with Brazil notably at 10%. Let me now turn to Asia-Pacific on slide 11. The Asia-Pacific region also shows a mixed growth trend with more challenging macroeconomic conditions at the beginning of the year. Nevertheless, Japan demonstrated solid performance, achieving 5% growth with strong profitability. There remains considerable potential in the world's second-largest staffing market. Operational talent solutions were up 2%, whereas, again, professional talent solutions delivered growth of 6% year-over-year. Our digital specialization recorded double-digit growth in Q1 at plus 19%. Australia and New Zealand saw continued softening in demands. particularly impacting, as we discussed in February, by the holiday period and revenue decline by 16% in the quarter. India grew by 2%, showing resilience and continued focus on profit portfolio. And overall, the EBITDA margin for APEC was 3.9% in the first quarter. And this concludes the performance of our key geographies. So let us now walk you through the group financial performance on slide 11. The group revenue for the first quarter was 5.9 billion euros, which is a decrease of 7.8% year over year. Sequentially, this is in line with the normal Q4 to Q1 transition. Our operational and professional talent solutions did slightly better than the group average, declining 7% and 6% respectively. Our digital and enterprise talent solutions, more attained in North America, declined more than the group average. At the same time, our pipelines in Ransat Digital and Ransat Enterprise continue to improve on the back of stronger capabilities than we have had before. Monster came in at minus 13, brought in line with the previous two quarters. We will go over in detail gross margin and OPEX later, but for now, the quarter's EBITDA was 277 million euros with a solid margin of 3% EBITDA. Integration and one-offs were 41 million this quarter. Of these, 2 million are related to M&A integration costs. The remaining 39 million are restructuring expenses, as mentioned before. The majority are right-sizing and at right cost in North America and Northern Europe, particularly in this quarter with a significant charge on real estate. In amortization and impairment of intangible assets, nothing relevant, our net finance costs in Q1 were 7 million euros. The effective tax rate was 26%, with our guidance remaining between 25% and 27% for the full year 2024. With that, let's turn the page and look at our gross margin bridge on slide 14. A few things about margin. The first quarter gross margin was 20.2%, down 80 by this point versus last year. The chart shows it is mainly due to our permanent chart solutions to businesses in line with Q3, Q4, and all the adjustments we saw in 2023. The overall temp margin declined modestly by 10 by this point, caused by a miss of practice. Apart from the usual seasonal pattern, sickness levels increased in Germany and Northern Europe. The business mix in North America and the mix effects due to varying geographical growth rates also contributed to this decline. Firm revenue decreased by 21% compared to a fall of 26% in 2004, reaching 131 million euros. This decline was more significant, therefore, than the temp business and hurt the gross margin by 30 basis points, as you can see in the chart. Additionally, RPO showed a similar trend and declined by 20%, which explained most of the 40 basis points negative impact on HR services. PERM and RPO accounted for approximately 16% of our gross profit. One crucial point, Luz, we have not left yet the fee business declines of mid last year. Comparisons year on year still play a role. Compared to Q4, our PERM and RPO invoiced amounts were broadly stable in Q1, slightly up. PERM and RPO are more cyclical, which is weighing on us now, but cyclicality works in both directions and will support us strongly in a recovery. Which brings me to the OPEX breach on slide 15. Remember, this one is sequential. It's not year-over-year. In short, as we have encountered a more subdued Q1 than initially expected, we continued our discipline on operating expenses, resulting in a recovery ratio of 47%. In the first quarter, OPEX was €1,022,000,000, 1% down sequentially and 7% down year-over-year. The average outcomes remain broadly in line with Q4 organically. As mentioned in Q4 publication, our focus is to ensure we have sufficient capacity in the market to get back to growth, continue the rollout of our strategic initiatives, and persistently streamline our indirect costs. A good example is resetting our accommodation footprint in the United States, where we expect to save between 30% to 40% of our costs in the next two years. With that in mind, let's move on to slide 16, which contains our cash flow and balance sheet remarks. Our free cash flow for the quarter was minus 42 million euros, reflecting partially a lower profitability compared to last year, but the majority of it from the impact of Easter on our working capital on the long weekend and the quarter finishing on a long weekend. We saw the reverse effect of this at the beginning of April. DSL was 53.7, let's say, year over year, and the geographical mix put some upward pressure on our DSL over the past quarters, which we expect to normalize as recovery continues. We continue to apply a strict capital discipline. Lastly, we completed the fourth trend of our Share by Bank program announced in February 2023. Today, we announced that we will start our fifth trend, which will be completed by mid-July, which now brings me to the outlook on slide 17. We expect the macroeconomic environment to remain challenging. On the one hand, uncertainty remains, as you heard from Sandra, and even increases with the geopolitical events of the last few weeks and persistently high inflation levels. But on the other hand, sequentially, we see signs of normalization in the quarter. And as I previously mentioned, and echoing again Sandra's points, PMIs, conversations with clients, and green shoots across some of our marketing segments do point to a potential bottoming out. Also, if seasonality works as expected, we expect to see our top line starting to increase. We have worked hard to be in this position today. Our teams have been led by Ransat's golden rule in field steering, adaptability. Now, as I mentioned before, as we would do, we are balancing for others, such as input headcounts for output cross-profit. As we maintain our disciplined approach to capital allocation, we are prioritizing investments in go-to-market power. Let me first start with activity momentum. In the first few weeks of April, we see broadly similar volumes to those we experienced as we exited Q1. Q2 2024 gross margin is expected to be broadly in line sequentially. Q2 2024 operating expenses are expected to be modestly higher sequentially, as we position for growth to ensure we outperform our markets in the future recovery. We do this by, number one, protecting field capacity in many markets, number two, protecting our strategic initiatives, and number three, investing selectively in ad count guided by field steering. Finally, we note there will be a positive 0.6 working days impact in Q2 2024. To summarize, before we open for Q&A, it was a slow start to a much more normalized year. In general, it appears some of our markets are bottoming out, but things remain challenging. We are in a strong financial position, and we have the best teams to operate the cycle. Therefore, we are confident in our choices to capture growth more firmly as markets return. Which concludes our prepared remarks, and we now look forward to taking your questions. Operator?