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?

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. We will take our first questions from Suhasini Varanasi from Goldman Sachs. Your line is open. Please go ahead.

Hi, good morning. Thank you for taking my questions. I have three, please. You've spoken about your plans to reduce indirect costs in Q3. Are there any numbers that you could put around it? How should we think about one-off costs below the line, please? That's my first one. Second, Paris Olympics, is it expected to provide any benefits for you in Q3? And the third question is on free cash flow.

You need to speak up a little bit. We couldn't hear the second question.

Paris Olympics. Any benefits from that?

Paris Olympics.

Thank you. Okay. Yeah. And the third one?

Third one is on free cash flow, please. Working capital is normally counter-cyclical, and yet despite the revenue declines, you are seeing negative working capital. What has changed in this cycle versus previous cycles? Please. Thank you.

All right, can I start? Swasini, good to speak to you. Good morning.

Good morning.

So let me start with, let me actually start to make things funny. Let me start with the last one and then we go into the other one. So on the cash flow, to be honest, there's nothing really changing. We, of course, our DSO and our receivables is a function typically of the last three months revenue. Our revenue is increasing from Q1 into Q2. So you see a little bit of buildup of working cap. And remember, normally the seasonal pattern of Gansad is the first half of the year is, let's say, either not cash flow generated or very small, very little cash flow generation. And a vast front of our cash flow generation, typically between 80% to 100% of our cash flow is generated on the second half of the year. And we see exactly that behavior panning out. So I would say there's no change whatsoever from a free cash flow capability of the industry and the company. Then on the one-off costs, look, they've been high, but you also have to understand that things have normalized for us, and it becomes clear to our teams what we say this normalization means. We continue to learn, let's say, from how we change this COVID. Sunday mentioned we've rolled out specialization throughout the organization. We continue to digitize a lot of our processes. We are also, let's say, creating global delivery centers for our clients, but also for us. So we will continue to use the opportunities we now have in our hands, in our books, to basically make sure that we address our indirect costs as much as we can to exactly protect field capacity and direct those to strategic investments and power in the markets. In that respect, I mean, it's it's always difficult to tell you what will be the exact level. I would say the levels I see in Q2, given that we were disappointed from where we were in Q1, are relatively high. So, I mean, I think it's fair to say these levels are quite high. At the same time, what we always strive to do, and I mean, you've followed us for a while, is our teams know very well what's expected in terms of the range of adaptability, and we reconfirm that it's always our ambition between 30% and 50%. recovery ratio. So that is basically what we'll be striving to do throughout the rest of the year.

I understand.

Thank you. In terms of Paris Olympics.

Yeah, well, let me say a few words about Paris Olympics. Of course, we're very pleased to be partnering and proud to be partnering with Paris Olympics on their recruiting and temporary labor needs, which is great. We have hired a significant number of people for their organization over the past quarter, I would say. And they're going to be working a lot of people on the Paris Olympics, not only with the organization of the Olympics, but also with some of their partners in catering media, et cetera. So all very exciting. In the bigger scheme of things, in the scheme of France, relevant, of course, but temporary. In the bigger scheme of things, we should probably not expect too much of it in terms of revenues, et cetera.

I understand. Thank you.

Thank you. We will take our next questions from Rory McKenzie from UBS. Your line is open. Please go ahead.

And firstly, your volume in the index were down 6.8% per year, which means that I think for the first time since 2019, there's been a net negative impact from price mix overall. You know, I understand that obviously term and RPO are still in steep declines, but that had been in the past offset by tailwinds from wage inflation. So I guess the question is, is wage inflation now really fading away to a minimal amount? What are you seeing on that point? And then secondly, can you talk about what's driving the higher gross margin outlook sequentially? Is there any benefit from normalizing sickness, for example? And then thirdly and finally, Can you just talk more about the rationale behind the Monster move? What makes you think that there's a better home for Monster to be combined with CareerBuilder? And also, can you just run through the impact on your accounts as it gets deconsolidated? Thank you.

Yeah, so on the wage... Rory, first of all, good morning. So on the wage inflation, it's a good question. I think, let's say, after what we've seen in 2022, 2023 even, We now see things normalizing overall and the normal, let's say, wage inflation support that we typically had over the last 10 to 15 years, which is what we should start normalizing and converging towards, and we see that. Now, it is still a labor market with mismatches, so depending on the profiles, depending on the geographies, there are different considerations to take into account, but at the higher level, wage inflation is normalizing and becoming part of the normal trend that we've always seen. In terms of gross margin, let me break it down a little bit to you. So we expect gross margin to sequentially increase from Q2 to Q3. Part of that is relatively easy to explain. So Q2 margin, as I mentioned, was impacted by incidentals, especially a high sickness level, but also, let's say, incidentals in Germany in particular. So take into account Q2 is a quarter with a lot of holidays, public holidays. So how we account for this also has an impact on, let's say, on our gross margin. As we go into Q3, a lot of these things will normalize. That alone will support an improvement in the gross margin. But also, let me be clear, if you look a little bit deeper into the numbers, the growth rates of RPO and PERM will start, let's say, annualizing, so facing significantly easier comparables as we move from Q2 into Q3. And if you look at the actual amounts that we've invoiced in Q2. I mean, you see 129 million of firm in Q2 versus 130, 131 in Q1. So quite stable already. RPOX, the same amount, 79 to 80 million, pretty stable. So things have stabilized. And therefore, just annualizing comparables from one quarter into the other will start supporting our margin.

Maybe a few comments on Monster from my side. Well, Rory, it's fairly straightforward. I mean, you look at the market as well as we do, and you have seen that the job board market is a very competitive place to be these days. And it's a technology game, so operating at scale is really important in such a market, especially when the market is under pressure as it is these days. So by combining CareerBuilder and Monster, we can realize significant synergies, first of all in technology, but of course also in sales and marketing. So it's a scale slash synergies type of game, which makes total sense.

From a P&L impact, Rory, so it was your last question. We expect to be quite limited. We'll talk more about it, of course, when we actually close the deal, which we're expecting to be probably the first half of September. But then we'll be above the overall, I mean, minimum non-material impact in our P&L.

That's great. Thank you both very much.

Thank you. We will take our next questions from Sylvia Barker from J.P. Morgan. Your line is open. Please go ahead.

Thank you. Hi, morning, everyone. Firstly, on the trend in July, Clearly, you're referencing the easier comps, and that's maybe going to 200, 220 basis points. On that 7.5, could you maybe clarify, you're running down 5-ish, 5.5. And then on the second question, on the cost base, could you maybe comment around the number of FTEs and number of branches trend that you expect to see in the Q3? And then finally, on talk, could you... Maybe talk around the strategy on that and where you see that getting to in terms of, I guess, candidates being put onto the marketplace within the course of the year.

Cynthia, let me start with the TORC one because that's a very exciting platform and group of people that have joined Ransom. The name of the game going forward is making sure we are engaged not only for one assignment, but for the longer term with as many talented people in technology as possible. And in order to do that, you need a platform. You need a platform that is a destination for people to find assignments. It's a destination for people to learn. and it's a destination for people to engage with each other. And all of that, that's what Torque is doing for us. So it's our intent to put our talent services business in digital, our staffing business, if you will, all on the Torque platform, starting in North America, then moving to other parts in the world. Because we think having a platform in the middle is good for a seamless client experience, clients can put in their assignments and also for seamless talent experience and for maximum matching, I would say. So that's the game plan going forward. George, over to you on the other two questions.

So, Silvio, first of all, good morning. So first on the trends in July, I mean, first of all, Q2 was a bit of a choppy quarter, probably the best I can use for it. Probably many of you have seen and have read and written about some market data that came out. You saw April starting in a way that may be accelerating or showing a little bit of contradictory data. Then June kind of normalizing again in line with the overall quarter. What we see in the first weeks of July is that overall quarter trends prolonging into July. So that is basically what we see. and what we are navigating. Though it is diverging trends, right? So it is a bit of a kind of different trends geographically, but in broad, pretty much. If I look at your second question, FTE and branches, I'll need to zoom out a little bit. So FTE, look, we see many signs that are coherent with a lower part of the cycle or basically just a tipping point in the sense of certain of our countries are already returning. Temp is more resilient than other. We see some positive signs on in-house. We see term still a little bit hit. So logically speaking, where we see opportunities for growth, and again, having worked hard to kind of guarantee good recoverability and adaptability through the last two years, we are now investing in FTE. At the same time, just looking at Q2, you heard today, we're investing in Spain, we're investing in Italy, we're investing in Japan. Looking at Q2 overall, we see that we actually decreased FTE from Q1 to Q2. So overall, it doesn't mean that where we have too much fuel capacity or capacity installed, we will also not act. So if you look at Northwestern Europe, we're still finding ourselves 10%, 15% from where we would like to see ourselves. There, we clearly have too much installed capacity, and we'll need to continue to address this. So overall, it will be playing market by market, making sure we're ready to capture growth. Branch is a little bit the same. You saw some of our restructure costs has been addressing accommodation. So Sander talked about, let's say, our excitement, especially in the United States. We have all our business now in, let's say, manufacturing and logistics, all our, let's say, staffing business going through a digital marketplace. That does mean we can look at our accommodation and look at it from, okay, what type of work we want to do in physical places versus more combined offices. Sandra alluded to talent centers and delivery centers. All of that plays for us to basically continue to reduce a little bit our expenditure in accommodation. But I want to be clear. It's not about exiting markets. So we're not necessarily exiting markets. We are consolidating locations, and we are choosing what type of accommodation we need to have in each one of these markets. But the tendency is to continue to decrease. Thank you. Thank you, Silvia.

Thank you. We will take our next questions from Afonso Osorio from Barclays. Your line is open. Please go ahead.

Hello, guys. Good morning. I just have two, please. The first one, trying to quantify the impact of your sickness rates, high sickness rates in Q2. I think you mentioned 10 basis points. I think that was Germany. But then, was this just an April situation, or did you see the same trend in May and June? And I guess just a follow-up to Rory's question earlier, like in terms of normalization in Q3 on the sickness rates, is that what you're seeing? And what kind of positive impact would that be on the gross margin? sequentially. And then number two, which is on Germany, obviously continues to be a drag to good performance. The minus 16 organic, I mean, comps get somewhat tougher in the second half. So should we expect probably similar performance or slightly worse on growth for Germany in the second half? And then as a follow-up to that on the margin in Germany, I mean, not now like negative margin in Germany. So What are you doing to improve operating margin in Germany going forward back to the mid-single-digit range you used to do before? So those are my two questions. Thank you.

Okay, Afonso, thank you very much. Let me start with Germany. First of all, a bit more complex. Germany, of course, as a country, is in a very tough situation these days. As you would expect, we've implemented our specialization framework in Germany, which was, I would say, a bit more of a profound exercise in Germany than in most of our markets, meaning we have integrated Tempo Team into Ransat Operational, and we have combined the professional business of Ransat with the professional business of Kult, and that's now all under the Ransat professional brand name. We've worked spans and layers by combining regions and branches, similar along the lines of what George just mentioned, and we have created the national account and sales team to go after the big deals more deliberately. So we think we got our homework done. The teams are lined up for future success, so things should get better from here. That's the way we look at Germany these days, better in terms of revenues and, of course, in terms of margin. Now over to George to talk a bit about the gross margin and thickness, I guess.

Good morning. Overall, every quarter has its own peculiarities. I broke it down quite specifically on our gross margin, but to give a little bit more color, And while we are from Q1 into Q2, I think from Q2, excuse me, into Q3, we see indeed that in Q2, we had a specifically lower gross margin in Germany, but also in Northern Europe in general, you saw it on our temp margin. That has been with prolonged, especially in the beginning of the quarter, prolonged sickness levels, so coming from the, say, Carnival winter into Q2. And overall, in particular, given the high level of public holidays, and remember in Germany that has a bigger effect for us because a lot of the employees are accounted for very specifically different to other countries, that has an impact and created an incidental effect in Q2. Going into Q3, we expect that to recover from that and therefore sequentially monetary higher in Q3.

Okay, that's very clear. Thank you, guys. Thank you.

Thank you. We will take our next questions from Remy Grenou from Morgan Stanley. Your line is open. Please go ahead.

Yes, thank you and good morning. Just one remaining on my side. Just wanted to focus a little bit on France and what has happened. I understand that the phasing at group level in Q2, you saw a little bit of a better June, but what happened in France more specifically and especially since the snap election being called and the political uncertainty and if you are having any concerns discussion with clients or from your experience of historical precedent, what would you say could be, if any, the impact on the next few quarters if we were to remain in a kind of political uncertainty environment in this country?

Yeah, so thank you, Remy, for that question. I would say the situation in France is probably a combination of things. First of all, the GDP growth in France these days is less than 1%. That's one thing. The PMIs were ticking up, but then went back down during the quarter, especially on the industrial activity. Maybe there is some impact from the elections or the aftermath of the elections and the Olympics, which sort of seems to pause things a bit over the summer, more so than we normally see in France, especially on the berm sites. So I would just summarize to say clients are a little bit on the fence for confidence reasons, but also maybe for practical reasons given the Olympics. I think that's the summary. That's where we are. We'll see what happens after the summer. But generally in France, things get a little better after the summer.

Understood. Thanks.

Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. We will take our next questions from Mark Zuckerberg from ING. Your line is open. Please go ahead.

Good morning. Thank you for taking my questions. George, first of all, I would like to come back on that working capital item because you mentioned first off always a bit cash out. But the gap with last year is quite significant and it follows revenues, but revenues are not going to be that much lower in the second half, hopefully. But I see it last year in the first half, actually revenues came down, went up, sorry, and you had less of a cash outflow than now with a declining revenue base. So I'm still a bit puzzled. why that working capital is such a significant outflow in the first half while the top line actually came down. So, DSOs must have gone up quite a bit and give a bit more color, maybe.

Yeah, absolutely. So, thanks, Mark, first of all. So, let's take a step back. So, if you look, first of all, I'm going to be absolutely clear. So, the trends we normally see from a seasonality pattern in working capital and free cash flow generation is what we are seeing this year. Last year, of course, we were declining significantly revenue from quarter to quarter. And this year, we are destabilizing, which is calibrating, or increasing even as we saw from Q1 to Q2. That means that from a receivables perspective and a VDSO approximately of 58 days, let's say, The last three months revenue is quite important in terms of how much receivables we build and the delta we build from one quarter to the other. We don't see any changes on payment terms. We have our overdues actually at a record low level. So things are very, very well controlled from a capital perspective, capital protection perspective. And then zooming out, what we've always seen in the industry is also on growth years or stabilized years is the first half of the year always investing or at least not generating capital. We have many pension things. We have many holiday components. We have VAT components. So a lot of tax components, a lot of the large outflows in terms of working cap and cash happen typically on the first half of the year with inflation. I would argue, 80% to 100% of our cash flow generation always happening in the second half of the year. This year in particular, I would argue, or this quarter in particular, what happened, and I saw this, we saw actually the exact reverse of this in the first days of July. So the quarter finished in the weekend. The first days of July, we already saw a significant inflow of capital from receivables being paid in the first days of July. So there's nothing specifically to highlight apart from we're coming back to the normal seasonality because the company has stabilized and we're going back into the normal season.

Okay, so for the full year with revenues likely still down quite a bit, should we see a positive working capital inflow or still a negative?

We will see a strong cash flow, or we'll see the normal cash flow generation pattern of Randstad for the full year, with probably working capital being a little bit of a mix on the regions where we are growing or we're still somewhat in decline. Again, please also take into account the sequential pattern as much as you take the year-on-year capital. So we need to celebrate the fact that we're going back into revenue growth and not necessarily under the decline rate versus last year. Okay, okay.

And then maybe on digital, that's down 14% in the quarter. Can you give a bit more color maybe why digital is still so much down? Is that specifically clients? Is that startup stuff?

Can you give a bit more color on the digital segment, please? Well, it's the market and the actions that clients are taking. So first of all, our talent services business is in the spot where clients take actions first. The contractors that are doing the small stuff at clients, they are let go, if you will, as the first ones. Then the second, there are two key trends that are happening, and that is there's a lot of vendor consolidation going on. which generally also has a tendency to stall activity at the clients. And then there's clients moving more and more of their work to places like India and Romania. And we have centers there, and we're building them at the rapid pace. I think we have more than 1,500 people now working in India for some digital clients. But as you are well aware, the revenues that come with those talents are also at the lower level. So it's sort of the combination of the two that results in the minus 15.

Thank you, that's very clear. And then maybe on the... Yeah, sorry, George. Go ahead.

Just a quick check. Last year, just out of curiosity, we also built working capital from Q1 to Q2.

So it is kind of the normal... Maybe it's a bit more the Q1 where we had a huge cash outflow while the revenues were down. Maybe that explains a bit where there's a bit of timing effect at the end of the year. Indeed. And then maybe on the corporate cost. So it's still increasing, you're investing, that's all clear. How should we... Think about that going forward, also keeping in mind that you're trying to work hard on bringing the indirect costs down. I can imagine that also assumes that on the headquarter there might be some trimming. Should we look at that going forward?

Yeah, so Marco Barolo, I'd say from a corporate cost perspective in concrete, I'd say stabilization now for the rest of the years. But I'll always say, I mean, again, Our point is we strive to be quite consistent. It's in the culture of the company. So to be honest, this happens throughout the organization to either on the way up or the way down, be quite clear of what's expected from a conversion of into profit and managing of OPEX in that respect. And that's typically the 30% to 50% recoverability of incremental conversion. Within that, we do make choices. So we are investing indeed in our strategic agenda. With this, we can reduce some of our indirect costs elsewhere. We can optimize a lot of how we work. We can also protect field capacity as long as the net result of that brings us to a good recoverability ratio for the full deal.

Okay. And then a final one, if I may. Now we... are bottoming or stabilizing on the volume side. Gross margin may be now also maybe troughed. Let's hope so. But, yeah, if we then look at the market, is it now time maybe to put the balance sheet to work and look at M&A now that everybody is still in a tough spot, not seeing the recovery yet? Is this the time maybe to make moves? That's a great question.

Great question, Mark. Let's say we have our strategy and we're looking for M&A candidates that fit our strategy. And if they are available and we have a few in the pipeline, then we'll make our moves. Making a move because things are cheap, so to speak, is never a good thing to do because we want to make sure we employ the capital of our shareholders in the most careful way. But yes, we're looking at acquisitions, but the ones that are 100% part of our strategy. And that means specialization, supporting one of our specializations.

Maybe a bit of a follow-up, looking to TORQ. Would there be such...

synergies to have a similar platform in europe that you can can merge things or or can you just organically roll out torque throughout the group the torque platform we can that is the platform for our digital business and for answer digital we can roll that out in due course in europe and in other markets in australia um In general, I would say we are very excited about digital marketplaces. As you have seen in North America, the rollout has been quite smooth. We're definitely looking to have more platforms in the mix or to roll out the platforms that we have, so to cover a bigger chunk of our business by platforms for seamless talent and client experience so that our consultants can spend more time you know, face-to-face time with our clients and with our talents.

Okay, that's very clear. Thank you very much. Those were my questions. Thank you, Mark.

Thank you. We will take our next questions from Conrad Sommer from ABN Embro Auto. Your line is open. Please go ahead.

Hi, good morning, gentlemen. I've only got one question, which is on your EBITDA margins. I think that today's results show that you're willing to sacrifice short-term profitability for mid-term recovery potential. But my question is, how do you look at your EBITDA margin as a steering guide? Because you're looking at slightly lower OPEX in Q3. Your revenues are still likely to be down. Is it fair to say that the 3.0% you reported today is probably the low point of the year? Or are you willing to sacrifice more near-term profitability in order to prepare yourself for the recovery that at some point is likely to reoccur?

Yeah. Conrad, let me try to be short in the answer. So thanks for the question. It's a very good question. Yes, we've been balancing for the right reasons because we are excited to what, let's say, a lot of things we're building on the portfolio we have today and the specialization like Sena highlighted. Organization by specialization can mean to us in the recovery. But things have been normalizing. And I can tell you no one in the organization is happy. No one, let's say, throughout the whole world of Gansal is happy. We're seeing a 3.0% EBITDA margin. We understand also there's an impact on mix. Things have gone a little bit deeper than we expected in PERM, even in RPO and other areas. At the same time, yes, this should be the lowest. We have a lot of things ongoing to start, let's say, bringing it up fast. The clear explanation or the clear guide is always our recovery ratio and incremental conversion, so teams know exactly what's expected from them. Within that, we do not take the eye off the ball when it comes to EBITDA margins. We need to balance, but we're not ready yet.

Okay, thank you.

Thank you. We will take our next questions from Sylvia Barker from J.P. Morgan. Please go ahead.

Thank you. Apologies. Just a quick follow-up. You obviously basically called for a turning point in the top-line trends, and one of the comments you made were the positive signs on in-house. Could you maybe just elaborate a little bit more on what these positive signs have been and what end markets in particular? Thank you.

Yeah, so Sylvia, thanks for the question. So in-house, first of all, we have won a significant number of deals, more deals than last year. And I'm talking specifically North America here. And then also in North America, we see some of our clients ramping up the number of people they are using. So the in-house story, North America helped, of course, also by the Ransom app because, again, the fulfillment and the ramp-up is so much easier with the technology than in the old situation. It's absolutely helpful. So the fact that in-house is moving in the right direction in North America, is a very positive sign, I would say.

Okay, thank you. And are these industrial customers?

Yes, the in-house customers are generally manufacturing and logistics. Thank you very much.

Thank you. It appears there are no further questions. At this time, I will hand over back to Sander for any additional or closing remarks. Please go ahead.

Thank you, Adit. Before we wrap up the call, I would like to thank our over 640,000 Ramsar people for their ongoing dedication and doing what they are best at, and that's delivering value to our clients. And for those of them in the Northern Hemisphere, if you still have some vacation ahead of you, Have a great vacation and see you back in Q3.

Thank you everyone.

This concludes today's call. Thank you for your participation. You may now disconnect.