Randstad Nv Unsp/Adr

Hello and welcome to the Randstad Second Quarter Results 2024 call. My name is Adib and I will 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 listens 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. If you require assistance at any time, please press star 0 and you will be connected to an operator. I will now hand you over to your host, Sandovan Noordenda, CEO, to begin today's conference. Please go ahead, sir.

Thank you very much, Adit, and good morning, everybody. I'm here with George and with Steph, Tamer, and Stephen from Investor Relations, and I'm happy to be sharing our Q2 results with you. Overall, the period trading conditions remain challenging across many of our markets. The progressive improvements we saw in the beginning of the year in labor data and manufacturing PMI have leveled off during the second quarter, specifically in North Europe. And this has influenced decision-making amongst both clients and talent, leading to subdued hiring activities. And similar to Q1, we have seen a mixed picture in terms of growth across our markets. In short, not all green shoots that we saw at the end of Q1 have grown as well as we would have liked. Some of them have grown, however. Spain, Italy, and Belgium all showed growth for the quarter and continued their positive momentum from the start of the year. And I'm pleased with our performance in these markets. On the other hand, North America, France, Netherlands, and Germany have not seen a lot of improvement over the past quarter. All of this continued to revenues of 6.1 billion euro, a decline of 7.5% year on year. Q2 did show sequential stabilization, which we think is a positive sign. Our gross margin came in at 19.8%, a 40 basis point decline from last year, driven by surface and geomics. And this resulted in an underlying EBITDA of €181 million at 3% of revenues, which equates to a last four-quarter recovery ratio of 44%. We continue to navigate these challenging market conditions with operational rigor. Since the beginning of the year, we ramped up our commercial activities, resulting in significant double-digit increases in client visits compared to last year. We expect this will positively affect our relative market performance. At the same time, we're carefully balancing the deployment of our field capacity. And while we intend to keep our field capacity broadly at existing levels, We follow our field steering principles to allocate teams to growth segments and maintain productivity. We remain well-placed to take advantage of a pending recovery. In Q3, we expect the macroeconomic environment to remain challenging, so we're increasing our focus on reducing indirect costs to ensure we can afford sufficient field capacity, as well as strategic investments in talent engagement, delivery excellence, and technology. In the first weeks of July, we've seen stable volumes as compared to Q2. Then we continue to make good progress with our partner for talent strategy, and we are seeing the first benefits coming through. Starting with specialization, we have now completed the implementation of our specialization framework in all our markets. And let me reiterate why this is an important milestone. It is important because it means that now in each market, we have dedicated teams and leadership operational, professional, digital, and enterprise. And these teams are focused on specific client and talent needs, on innovating our offerings, and of course, on delivery excellence. This resonates with both clients and talent. Focus works. We've also completed the rollout of our digital marketplace in our operational business in the US. We are now live in all 40 states that we operate in, resulting in an annual run rate of over 1 billion euros. This makes us one of the leading digital marketplaces for operational talent in the United States. And it's great to see the first benefits coming through in terms of faster client ramp-ups, higher fill rates, talent retention, and productivity. And we welcome the team of Torq. Torq will be the marketplace for our digital talent services business. We've already onboarded our talent in Latin America and India. And we have begun the same process in North America, where we are also gradually onboarding our clients. From a delivery excellence perspective, we almost tripled the size of our local talent and delivery centers, which now have around 1,000 people. And this is another way of specialization that allows for a better client and talent experience while enhancing productivity. Finally, we announced the merger of Monster with CareerBuilder to create the third largest job board in the U.S., And as you will understand, combining the two companies will have significant scale benefits. In summary, we have a very challenging yet stable market environment. We've had significantly more commercial activity with a strong focus on indirect costs to, first of all, keep field capacity at level, and secondly, to be able to invest in the execution of our partner for talent strategy. Let me now hand over to George to give a bit more color on the numbers for the court.

Thank you, Sander, and good morning, everyone. So, bring us back, let's say, to the end of Q1, to our Q1 publication, where we last left it in April. We discussed early signs of stabilization, and back then, improving living indicators after a somewhat slow start of the year. Today, we are pleased to see, indeed, a gradual return to seasonality, We have more employees at work than we had in Q1, and we have a sequential uptick in revenues. At the same time, like Sander mentioned, somewhat disappointingly, we see that recovery has been slower than what we had originally expected, and as probably many of you have observed both in macro and labor market data. Progression in manufacturing PMIs has stalled across Q regions during the quarter, while industrial investments and therefore hiring levels are still reflecting a low part of the cycle. Our portfolio shows more pronounced trends. We see more countries improving, and you'll see it in a minute, and many going back to growth. On the other hand, we see, especially in Northwestern Europe, elevated macro and market uncertainty resulting still in subdued hiring levels and therefore growth levels. From an end market perspective, we see operational talent solutions outperforming late cycle segments. And if we zoom in to our services, we see a similar pattern. Firm remains and RPOs remain tough, with temporary staffing and outplacement showing more resilience. We'll cover all of this in more detail just shortly. We've been navigating these trends from a cost perspective, though. While we did make investments in growth and strategic initiatives, we managed this within our frame of adaptability. This means that productivity is addressed in the context of each market, and overall indirect costs are more forcefully taken out. Our costs sequentially ended up lower, showcasing continued operational discipline. I am pleased to see further stabilization in our revenues and our ability to steer through these environments. Going forward, the balance is pretty much the same. With our diverse portfolio, strategic initiatives underway, and continued operational discipline, we are putting ourselves in the best position for recovery. I'll let us zoom in and let me now discuss the performance of our key regions on page 8. starting with North America, especially the United States. As I mentioned in our earlier conversations, the cycle is seeing one of the most extended periods of restrained PMIs and weak staffing market data. However, we do see more and more regular seasonality returning, as well as some encouraging signs in our operational talent solutions. Our revenue dropped by 13%, slightly better compared to Q1, with firm declining still 24%, but however, Q1 at 40%. still creating pressure on our gross margin and EBITDA margin in the region, which nevertheless increased significantly from Q1. Our U.S. operational talent solutions declined by 7%, with sequential improvements in logistics and manufacturing. Most notably, our in-house is today, as we speak, returning to growth. U.S. professional talent solutions were still down, facing challenging market conditions, in line with our performance. U.S. Digital Talent Solutions was also down 16%, while U.S. Enterprise Solutions was approximately down 16% as well. The EBITDA margins stood at 3.4%, with a recovery ratio of 47%. As Sander mentioned, and very importantly, we have completed the rollout of our digital marketplace, making us a leading digital marketplace for operational talent in the market. We also see early signs of benefits from our marketplace with increased productivity, higher fuel rates with clients, and better utilization of our database. Overall, providing a better experience for our clients and our talents. Encouraging. Moving on to Northern Europe on slide nine. In Northern Europe, the business environment has not gotten any better. Q2 was a difficult quarter with a challenging macroeconomic uncertainty. Growth came in at minus 10%, sequentially lower, and profitability was heavily impacted by Germany as we faced persistent headwinds. Despite these difficulties, we did maintain strong adaptability, and again here, as the new normalized level becomes clear, we have also adapted our teams and made a significant restructure charge this quarter in the region. Tuning in a little bit into the countries, in the Netherlands, revenue decelerated to minus nine. Most sectors did saw a softening demand, most notably automotive and manufacturing industries. As a result, our operational talent solutions was down 10%. On the other hand, our professional talent solutions are still growing. EBITDA margin came in at 4.6%, showing, again, strong adaptability. If we then turn to Germany, its challenging economic environment has resulted in revenues still down minus 16%, showing no sequential improvement from Q1. Profitability was significantly down year-on-year, mainly due to less hours worked for EW and other incidental effects, including still elevated sick While we do expect a barricade tree, recovery isn't likely to be a straight line as we refocus the business for growth in our four specializations and streamline operations driving efficiencies. In Belgium, we did see great improvements and growth returning in line with the traditional cyclical pattern. I am pleased that as a market leader, we have competitive growth again and leveraging on the strengths of a very well diversified portfolio. Operational talent solutions was flat year-on-year, while professional talent solutions was up 3%. EBITDA margin came in at 4.5%, again showing good adaptability. Other northern European countries reflected mixed performance. Let me break it down for you. Poland saw stable trends being flat year-on-year. Nordics remained tough, down 26%, and Switzerland was down 12%. EBITDA margin came in at 1.4%. Now moving on to Southern Europe, UK, and LATAM on slide 10. And here you see, speaking of diverging trends, we see a strong recovery in our most Southern European countries. Our businesses in Southern Europe have shown resilience and strong adaptability, with countries returning to growth. We achieved an EBITDA of 117 million euros with a margin of 4.8% in the region. We are investing in growth, increasing capacity in some units to enable a standard wrap-up period in 2024. France's revenue was down by 7% compared to last year due to softening demand in most sectors, while we saw businesses taking a pause following the uncertainty around the elections, delaying the recovery. However, please note, compared to its neighbors, France was in a late cycle last year. We were actually increasing from Q1 to Q2. The operational talent solutions decreased by 8% year-on-year, while the professional talent solutions was down by 2%. France ended the quarter with an EBITDA margin of 4.4%, again showing strong adaptability. If we go slightly east, Italy has returned to growth for the full quarter, growing plus 3% after already encouraging signs in March. The operational talent solutions grew 4%, while the current decline also 4%. As mentioned last time, we want to capture the market opportunities and will continue to invest in areas of growth. Despite this, Italy still shows a solid EBITDA margin of 6.3%. For the South, Iberia, Iberia revenue continued to improve, growing by 7% this quarter, Q1 at 4%. Operational talent solutions, again, grew by 7%, whereas professional talent solutions started growing as well by 9% compared to last year. Notably, Spain in particular showed robust growth, with a double-digit 10% increase, mainly driven by strong performance in its operational talent solutions and also RPO. This progression reflects our ongoing efforts and investments again to capitalize on market opportunities and enhance our regional presence. Going into the other Southern European countries, UK and Latin America, revenue and profit performance was mixed. The UK was still down 7%, though sequentially improving. Latin America overall was flat, with Brazil notably growing at 10%. And now let's move on to slide 11, Asia Pacific. The Asia Pacific region also shows a mixed growth trend, with more challenging macroeconomic conditions at the beginning of the year. Nevertheless, Japan demonstrated a solid performance, achieving 2% growth with strong profitability. Operation talent solutions were down 1%, whereas professional talent solutions deliver growth of 2% year-over-year. Our digital specialization recorded once again double-digit growth in Q2 at plus 14%, and I'm very proud of this consistent performance. There remains considerable potential in the world's second-largest staffing market, and we continue to ramp up investments over the third quarter in line with the growth segments identified. For the south, Australia and New Zealand saw continued softening in demand, declining 17% in the quarter. India, on the other hand, grew by 2%, showing resilience and continued focus on improved portfolio. Overall, the EBITDA margin for APEC was at 3.8% in the second quarter, reflecting softness in the Australian and New Zealand region. And that concludes the performance of our two geographies. So now let's walk you through the group of financial performance on slide 13. The group revenue for the second quarter, as Sandra already highlighted, was 6.1 billion euros, which is a decrease of 7.5% year-over-year organically. Sequentially, we did see an improvement from Q1 into Q2, showing more and more of a normal seasonal pattern. From a specialization point of view, we saw the following. Our operational and professional talent solutions were brought in line with the group average, declining 6% and 8% respectively. Our digital and enterprise talent solutions, more exposed to North America and late cycle segments, declined more than the group average. Monster came in at minus 15%, broadly in line with the previous two quarters. As Sander alluded to already, we announced that Monster will start forming a joint venture combining its job board business with CareerBuilder. We are excited for this new venture and our teams expect this transaction to close in Q3 with no material financial impact. We'll cover gross margin and OPEX later, but for now, the quarter underlying EBITDA was €181 million, with a margin of 3% and adaptability. Integration and non-offs were €45 million this quarter. Of these, €3 million approximately is related to M&A integration costs. The remaining €42 million are restructure expenses. The majority are right-sizing indirect costs in Northwestern Europe, primarily. We'll talk more about this in a few minutes when we discuss our OPEX developments. In amortization and impairment of intangible assets, there's nothing relevant to highlight. Net finance costs in Q2 were €20 million, slightly up from last year, resulting mainly from a higher net debt position. The effective tax rate was 26%, with our guidance remaining between 25% and 27% for the full year 2074. With that, let's turn the page and look in detail at our gross margin breach on slide 14. A few things about margin. The second quarter gross margin was 19.8% down versus last year. The overall temp margin declined by 40 basis points and brings a combination of headwinds. We saw a divergence of various geographical growth trends. We just went through them in more detail. And these start playing in the mix, 10 basis points year on year. We also saw that sickness remained high, especially in Northern Europe, as well as some minor, and in particular this quarter, incidental impacts in Germany that were not supported. Another 10 basis points. Lastly, our business mix, and you can see it there, with operational solutions growing faster than other specializations had a negative impact of approximately 10 basis points. Furthermore, if you go further to the right in the chart, firm remains subdued despite easier comps. The firm declined by 18%, reaching 129 million euros. And this decline was more significant than a temp business that shows more resilience, therefore hurting the gross margin by approximately 30 basis points. Additional RPO was a bit better on EasyComps, but still declined by 19%, again, higher decline or stronger decline than our temp business, which explained, again, another 10 basis points negative impact of HR services. Monster explains the remaining 10. PERM and RPO account for approximately 17% of the group's gross profit in the second quarter. Remember, PERM and RPO have been more prone to the weak hiring data, and the time to hire was also longer in some markets, even both election and macroeconomic uncertainty. This cyclicality is weighing on us, but cyclicality is working both directions and will support us strongly when the recovery comes, which now brings me to the OPEX reach on slide 15. And remember, this one is a sequential bridge from Q1 to Q2. In short, as we saw data moderating into Q2, we continued our discipline on operating expenses and decked it to everyday's reality, resulting in the last four-quarter recovery ratio of 44%, well in line with our range of adaptability and well instilled into the company. Our headcount is broadly in line, allocating resources to growth areas such as Italy, Spain, and Japan. In the second quarter, therefore, we were able to keep our cost base broadly in line with Q1, carefully balancing our strategic investments for growth without losing focus on the overall net adaptability. As we've talked about in the previous two quarters, we continue to address our indirect cost base. Examples include the management of IT and marketing spend and organization of our functions. As things normalize, we continue to adapt and to the realities that we live in. A tangible example is our real estate strategy in the U.S. We harmonized our accommodation footprint significantly over the course of this first half of this year. Going forward, we are committed to lower our cost base going into Equitree. Again, we continue to balance our performance, strategic investments, and field capacity. And due to the right sizing of our cost base, I expect a degree still of restructured costs for the remainder of the year. As a reminder, we aim to have always a 12-month payback period for our research rates. 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 up 16 million euros, reflecting lower profitability and seasonality. The ESO was 53.8 days, broadly in line with Q1. The geographical mix does put some upward pressure on our DSO over the past quarters, which we expect to normalize as more late-cycle regions continue to recover. We continue to apply strict capital discipline throughout the whole organization. As Sander mentioned, we have also acquired Torque in May, and we're very happy with welcoming our colleagues and with this AI-powered talent marketplace under now Consta Digital Business. Lastly, we completed the fifth tranche of our share buyback program announced in February 2023. Today, we are announcing that this 400 million buyback program has now been finalized and it is our intent to cancel the shares. Please remember, our special dividend of 1.27 euros per share is due to be paid beginning of October. And that brings me to the outlook on slide 17. You heard from Sander, we remain cautious going into Q3. On one hand, macroeconomic conditions remain challenging and our visibility is typically limited. On the other hand, sequentially, we did see a stabilization. We have more people at work and a return to normal seasonal patterns. We see growth returning in more and more markets following the dynamics that we are used to in our industry. With a more seasonal pattern emerging and diverging growth trends, we do as we always do. managing on actuals, daily and weekly steering, and the depth where we find necessary. For Q3, we continue to capture growth opportunities where we can, balancing selective investments in strategic initiatives, while safeguarding conversion through our adaptability corridors on a rolling year basis. Now, let me first start with the activity momentum. In the first weeks of July, we see a stable volume to those experienced as we exit Q2. There will be, however, an easier comparison base. I would say approximately 2%. There will be an additional 1.1 working days, but these do fall in summer months. Q2 2024 gross margin is expected to be broadly in line sequentially. Q2 2024 operating expenses are expected to be slightly lower sequentially, while still protecting the capacity in many markets. protecting strategic initiatives, and three, investing selectively in headcounts guided by field steering principles. So to summarize, we saw stabilization in the second quarter with normalizing seasonality. Our portfolio with diverse and balanced exposure geographically and in terms of services allows us to benefit from different parts of the cycle. We've shown again our capability to adapt and how much there is built-in operational rigor in our teams. We have the best teams to operate the cycle, and therefore, we are confident to deliver on adaptability and execution of our strategy, positioning Sberra as a partner for talent in a more pronounced future recovery. And this concludes our prepared remarks, and we look forward to taking your questions now. Operator?