Randstad Nv Unsp/Adr

Hello and welcome to the Randstad Third Quarter Results 2024. My name is Saskia and I will be your coordinator for today's events. Please note, this call is being recorded. For the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. I will now hand you over to your host, Sander van Noordende, CEO, to begin today's conference. Please go ahead.

Thank you very much, Saskia, for that introduction. And good morning, everybody. I'm here with George and our investor relations team to share our Q3 update. Before we talk you through our results, I'd like to spend a few moments to reflect on the passing of our founder, Fritz Goldsmating, at the end of July. Because with Fritz's passing, we lose a great visionary and a wonderful inspirational personality. What started as an ID 64 years ago in his dorm room has developed into the world's leading partner for talent for the best companies and organizations across the globe. And at the heart of all this success was Fritz's unwavering focus on long-term and sustainable value creation reflected in Ransat's core values. To know, to serve, to trust. And today, these values are still the foundation of our strong people-focused culture. Fritz held the CEO position for 38 years, not only growing the company, but shaping our industry by enhancing the role of flexible work and the rights of talent in the labor market. Later, he served on our supervisory board, and over the past three years, I got to know him as a very, very committed shareholder. You all miss him. He was an iconic entrepreneur. And we at Randstad will do everything we can to continue to grow and innovate the company in a way that Fritz would be proud of.

Turning to our Q3 results.

Overall trading conditions remain subdued across many of our markets. The challenging macroeconomic environment we saw in the second quarter continued in Q3. And the Factor and PMIs are below 50 in all our main markets. and especially the automotive industry is challenged these days. Lower client and candidate confidence results in muted hiring activities and longer time to hire. However, in Q3, we've also seen stabilization as our portfolio has shown resilience. Spain, Italy, and Japan continue to grow on the back of investments, while early cyclical businesses such as US in-house, e-commerce, and logistics have turned to growth this quarter. And I'm also pleased to see our increased level of commercial activities paying off. All of this contributed to revenues of 6.0 billion euros, a decline of 5.9% year over year. Our gross margin came in at 19.5%, and this reflects a combination of mixed changes in both our geographic and surface footprint, as well as some country-specific air twins. But I'm pleased to say we maintained our usual discipline on costs and these were sequentially lower driven by our efforts on indirect cost, business mix and seasonality. This resulted in an underlying EBITDA of 196 million euros and an EBITDA percentage of 3.3, slightly up sequentially and equating to a recovery ratio of 37% over the last four quarters. In Q4, we expect trends to remain stable. We maintain our focus on field steering and reducing indirect costs, while ensuring we sustain sufficient field capacity to be ready for a market turn. At the same time, we have continued to invest in our partner for talent strategy. As shared almost a year ago on our Capital Markets Day, our vision is to become the world's most equitable and specialized talent company. Why specialized? Specialized because it's all about ensuring we provide clients and talent what they are looking for. Clients want specialized skills and delivery models, so the more we focus on the right specialization, the better we can help the right talent to find opportunities and add value to their careers. Let me talk you through a few highlights here. First, growth through specialization. Following the implementation of our specialization framework, we're allocating additional capacity to our growth segments. Beyond our normal field steering, we invested over 300 FTEs this year in these structural market opportunities. For example, skilled trade and operational talent solutions in Spain, healthcare and professional talent solutions in Australia, and digital talent solutions in Japan and Italy. And these are just examples. We're doing this across the globe. And specialization is not only a focus for growth. It runs through everything we do. Skills, sourcing strategies, business models, and career tracks. And remember, specialization does not mean niche. We are all about specialization at scale. And a great example is our U.S. digital marketplace, which is continuing to go from strength to strength. Co-activity is up, and talent and client adoptions are very encouraging. And lastly, this morning, we announced the acquisition of Zoragwerk, the leading digital marketplace in healthcare in the Netherlands. And we're excited about this because this acquisition ticks all our strategic boxes. It's all about specialization in a growth segment underpinned by a digital marketplace to create seamless experiences for clients and talent. And, of course, be a true partner for talent. But let me unpack that for you. Specialization. Zorgberg brings over 75,000 passionate healthcare professionals and a portfolio of more than 300 clients. This is as specialized as it gets, I would say. Growth segment. Demand for specialized healthcare and care talent will continue to grow in the Netherlands. Today, one in seven people are working in the ecosystem, and this is expected to grow to one in four in 2040. Lastly, digital marketplace. Clients schedule their shifts and talent selects them via the ZorgWare Cup. It does not get more seamless than that, I would say. So Randstad and ZorgWare combined will be the partner for talent in healthcare in the Netherlands, as we can serve our clients across the full range of work arrangements, as well as provide talent not only with work, but also with the required training. So we at Randstad look forward to welcoming the ZorgWare team to Randstad. So in summary, While challenging market conditions remained in Q3, we saw stabilization in our markets underpinned by a diversified portfolio. We continue to focus on operational discipline, carefully balancing field capacity, indirect cost reduction, and of course, strategic investments. And against this backdrop, we're making great progress with our partner for talent strategy. Before I hand over to George, I would like to make a couple of remarks on our team. He announced last week that Chris Heutting will be stepping down as our COO and that Jesus Echevarria will be his successor starting January 1, 2025. I would like to sincerely thank Chris for the more than three decades of service to Randstad. Throughout his impressive career, he has demonstrated an unwavering determination to deliver results and a very strong dedication to our people. And Chris has been instrumental in Randstad's journey to become a leading global talent company. We wish him every success in his future endeavors. Jesus has, first as our MD of Spain, and more recently in his role of Chief Talent and Client Delivery Officer, demonstrated an exceptional focus on operational excellence. Jesus always puts talents and clients' needs first. He's a great role model of Ransom Values and is passionate about the growth of our people. And I'm convinced that under his leadership, we will further accelerate our partner for talent strategies.

George, over to you. Thank you, Sander, and good morning, everyone. Let me pick up exactly where you left it, Sander, three key overarching points about our financial performance these quarters. First, full market recovery is pushed out, but trends are stable and in many ways recognizable. On the one hand, macroeconomic more of the same, challenging conditions remain. On the other hand, underlying improvement in traditional early single markets, and we still see late single segments with downwind performance. Secondly, like you said, operational discipline, balancing performance, field capacity, and strategic investments, protecting today and the future. Thirdly, as again you also mentioned, large steps in executing our strategies. But now let's look at the details and discuss the performance of our key regions. Starting with North America, especially the United States. The macroeconomic environment remained little unchanged over the quarter, as this cycle has experienced one of the most extended periods of restraint PMIs and weak staffing market data. However, on top of intercomparables, we see various signs of underlying sequential improvement in the U.S., especially in the operational talent demand. Our revenue dropped by 9%, sequentially still better compared to Q2, minus 13, with firm declining 19% when it was declining 24% in Q2. Our U.S. operational talent solutions declined by 3%, with growth actually already returning to logistics. More importantly, our larger clients in-house is growing 6%, and we see the tangible impact of our marketplace providing momentum as the general market is still in decline. U.S. professional talent solutions are still significantly down, facing challenging market conditions and in line with our program. U.S. digital talent solutions was down minus 14%, as we see trends stabilizing, while U.S. enterprise solutions was down 11%, with good sequential improvement already in RBO. The EBITDA margin stood at 3.6%, but improved sequentially as productivity continues to improve. Moving on now to Northern Europe on slide 10. In Northern Europe, diverging sector trends impacted our business environments. We saw a sharp slowdown in automotive production, while the broader industrial environment stabilized at lower levels. Growth came in overall at minus 8% and not better sequentially from Q2. However, despite these difficulties, we've maintained strong adaptability. we continued to adjust our operations in line with the current reality and reposition for more structural growth. In the Netherlands, revenues sequentially improved to minus 7% in Q3, from minus 9, remember, in Q2. Most sectors did stabilize, but again, the broader automotive sectors saw softening demand. Operational talent solutions were down 8%, but on the other hand, here, our professional talent solutions continued to grow at 1%. The EBITDA margin came in at 5.3%, again, showing strong adaptability. Turning the page to Germany, Germany's challenging economic environment has remained relatively unchanged over the summer, and growth sequentially improved to minus 11% on easy comparables. Profitability returns, but is still impacted by idle time-related costs, pinch, sickness, fewer hours worked per EW, as we see the average number of sick days structurally higher post-COVID. Remember, recovery will not be a straight line as we refocus the business for growth in our four specializations and streamline operations driving efficiencies. In Belgium, one of the three countries with tougher comparables, we saw revenues decline by 4%, with broader automotive weighing in the mix. However, we remain in line with the market, leveraging on the strengths of a very well-diversified portfolio. Operational talent solutions were down 5% year-on-year, while professional talent solutions were up 3%. The EBITDA margin came in at 4.3%, once more showing strong productivity improvements. Looking at other Northern European countries, let me break it up for you. Poland was down 4%, Nordics remained tough, down 22%, and Switzerland was down 7%. EBITDA margin for the other Northern European countries came in at 3.1%. Let's now turn to the segments Southern Europe, UK, and Latam on flyage 11. Here I'm pleased to see the continued recovery in our most southern European countries. As a key profit driver for the group, countries have kept their Q2 momentum despite the automotive slowdown. We achieved an EBITDA of 105 million euros with a margin of 4.5% in the region. We are protecting field capacity to recover cyclicality, but as you heard from Sandra as well, very important, we continue to invest in growth segments to structurally position us for more growth. Italy maintained its growing momentum, plus 3%. Operational talent solutions continued to grow at 2%, and professional talent solutions, one of our growth segments, were up 10%. As mentioned last time, we want to capture market opportunities and continue to invest where we see structural growth. This includes IT, healthcare, and skill trades. As a result, our professional talent solutions is up 10%. Despite this, Italy still shows, despite all these investments, still shows a solid EBITDA margin of 5.5%. France feels like conquering, on the other hand, a post-Olympics blues. The current uncertainty around the budget and the ability to reform is delaying recovery. Markets have moved sideways, if anything else, resulting in a decline of revenue of 7%, similar to Q2. The operational talent solutions decreased by 4%, while the professional talent solutions was more impacted, down by 10%. Digital, in particular, is in double digital decline, given its exposure to the broader automotive sector, and idle time here weighs in on the gross margin. As a result, EBITDA came in at 3.9%, down 130 basis points year-over-year. For the south, Iberia. Iberia revenue stabilized at a high level, growing by 6% this quarter. Q2 was 7%. Operational talent solutions grew by seven, whereas professional talent solutions declined by 4% compared to last year. If we zoom in, Spain showed robust growth with double-digit 10% increase, mainly driven by strong performance in its operational talent solutions and RPO. This progression also reflects the value of field steering discipline and, again, the impact of growth segment investments, with positions this time stronger in Spain in skilled trades, logistics, and e-commerce. Across other southern European countries, UK and Latin America, let me break it down for you. UK was down 11% as UK labor markets softened in September. Latin America was actually up 2%, with Brazil in particular again growing at 13%. Now let's turn east to Asia-Pacific on slide 12. The Asia-Pacific region continues to recover. Japan once more demonstrated solid performance, achieving 4% growth with strong profitability. Operational talent solutions were up 1%, whereas professional talent solutions delivered a decline of 2% year-over-year. Within that, our digital specialization recorded double-digit growth in Q3 at plus 23%. We continue to see our investments from last quarter paying off, but there's still significant opportunity to position even more for structural growth in a market where we still believe we are underrepresented. Australia and New Zealand saw sequential improvement, although attention at low levels, declining still minus 14% in the quarter. India grew by 8%, confirming the opportunity and benefits of focus in our portfolio. Overall, the EBITDA margin for APAC was a strong, sound 4.8% in the third quarter, reflecting softness in the Australia and New Zealand region. Now, this concludes the performance of our key geographies, so let's look at our group financial performance on slide 14. As you can see, the group's revenue for the third quarter was 6 billion euros, a decrease of 5.9% year over year organically. Sequentially, we see stability from Q2 into Q3, showing more and more of a normal seasonal pattern. From a specialization point of view, we saw the following. Our operational talent solutions continue to improve, underlying and sequentially, at minus 4%. Professional talent solutions took a step back. at minus 10%, reflecting tough white-collar markets. Although still below the group average, digital enterprise also continued to improve sequentially, now at minus 11% and minus 8% respectively. We'll cover gross margin OPEX later, but for now, the quarter's underlying EBITDA was 196 million euros, with a margin of 3.3% and strong operational discipline. Integration and one-offs were 17 million this quarter. Although not as elevated as in the first half of the year, we continue to right-size and accelerate future-fitting organization and take action. In the amortization and impairment of intangible assets, there's nothing relevant to highlight. Net finance costs, as you can see, were 23 million euros, slightly up from last year, mainly to do with adverse effects impact. Overall, the effective tax rate was 26%. in line with our guidance between 25 and 27 for full tier. Let's now look and unpack our gross margin on slide 15. The third quarter gross margin was 19.5%, down 110 basis points versus last year, and below our expectations. First of all, most of the disposal, just to make sure we compare like-for-like, most of the disposal had a 20 basis points adverse impact, as the net fee was deconsolidated in mid-September. The temp margin itself declined 60 basis points, and it is important to note that half of this impact is related to the geographical mix and services mix, as blue-collar temp, like in the United States and Southern Europe, and lower temp margin countries, Spain, Italy, continue to outgrow even more the rest of the business. While negative here, remember this has a reverse impact in our OPEX and conversion, as discussed in the next slide. On the other hand, absence and idle time-related costs are still elevated in certain pockets of our business. Specifically, this effect is the largest in Northern Europe, as these are more exposed to the bench model. It combines higher insurance for employee working, higher absence, or a bench rate above acceptable rates. I do expect these effects to diminish once we see demand returning and temp utilization normalizing across many sectors. PERM remains still somewhat subdued, 10% below the group average, and RPO came in slightly better, but it is definitely not a straight path recovery. Again, the secretality is weighing on us now, but secretality works in both directions and will support us strongly when recovery comes. That brings me to the OPEX bridge on slide 15. And remember, this bridge is sequential. Let me unpack it, and as we continue to balance performance, growth, and strategic investments. First of all, again, following the disposal of Monster, the cost base was $10 million lower this quarter. Excluding the Monster impact, our FTEs are actually broadly stable sequentially, but OPEX is organically 3% down. It's relatively simple. One, we benefit from normal seasonal effects in our personal expenses. Two, As always, OPEX moves in line with gross margin. We said internally, moves hand-in-hand with gross profit because it reflects different mixes of services and geographies. For example, a more pronounced logistic and industrial recovery than other areas or a higher ratio of temporary than permanent service comes with different OPEX requirements and expectations and therefore requires adjustments elsewhere in our operations. Three, on our installed field capacity for recovery or reallocation to growth segments. It's crucial to be the first to present talent ready to work to clients as they start rehiring. This position is for a better moment in the cycle when that opportunity is there. Through, let's say, our weekly field steering data, we closely monitor our field capacity for recovery and we adjust capacity if required, at the same time protecting it where growth is. Fourth, as mentioned last time, we do achieve all of this But still, because we have a very prolonged recovery so far, we are continuing to optimize our support services by reducing indirect costs. We are already seeing the impact of this, and we will continue to do so. All of this we do while safeguarding our strategic investments. Overall, we operated in the last four quarters recovery rate of 37%, showcasing what can be done through operational decision-making. With that in mind, let's move on to slide 17, which contains our cash flow and balance sheet remarks. Our free cash flow for the quarter was up 258 million euros, reflecting a seasonal inflow that is in line with our expectations. We discussed this last quarter. The SL was 54.1 days, broadly in line sequentially, with the geographical mix particularly putting us some upward pressure. We do expect this to normalize as its recovery continues. Overdues, though important, are at historical lows or remain at historical lows. Important this quarter, clear portfolio inorganic choices. Sander mentioned this. We have completed the merger between Monster and CareerBuilder, from which we will have a minority stake in the joint venture. As far as the disposal is concerned, we have provided the joint venture with a fair share of liquidity to ensure a smooth start. At the same time, looking forward, looking ahead, very exciting news about Zorvex. As mentioned, this acquisition sticks all the boxes. It is all about specialization in a growth segment and a pin by a digital marketplace to create seamless experience for clients and talent and be a true partner for talent. Zorvex generated in 2023 gross revenues of approximately 200 million and we consider an enterprise value of 323 million euros. This bolt-on acquisition fits within our unchanged capital allocation strategy, and we expect it, as always, to be EVA-accretive within three years. We are looking forward to working together with the Zorba team and their thousands of qualified and dedicated professionals. We expect the deal to close in the coming period. Lastly, we paid, of course, our special dividend in the first week of October, totaling €222 million, which now brings me to the outlook slide on page 18. Let me start with one comment. We see a continuation of stable trends going into the fourth quarter in the first weeks of October. On the one hand, macroeconomic conditions remain challenging and our visibility is limited. On the other hand, growth is returning in a number of 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. We manage on actuals. We steal daily and weekly and adapt when necessary. For Q4, we continue to capture growth opportunities where we can, balancing selective investments in strategic initiatives while safeguarding conversion through our set adaptability corridors on a rolling yearly basis. Let me start with the given momentum. In the first weeks of October, we saw stable volumes compared to those we experienced as we executed Q3. There will be a slightly easy comparison base again as we go into Q4. We expect that approximately 1%, and there will be an additional one working day. From a margin perspective, remember, as Monster was only partially deconsolidated during this quarter, we see the sequential impact. 50 basis points lower sequentially, or 70 basis points in total year over year. The impact on operating expenses is about 35 to 40 million sequentially, which is nearly equal to the gross profit amount. Removing that and looking at the line, we see Q3 2024 gross margin expected to be slightly up sequentially, reflecting centralization in volumes. Q3 24 expenses or Q4 24 expenses to be broadly stable underlying sequentially. This is, in reality, already reflecting an improvement as seasonality normally weighs in on the cost base towards the end of the year. Overall, it is actually quite simple. It should be a fairly similar quarter with a notch better profitability. And let me summarize before we open Q&A. While challenging market conditions remain in Q3, we did see a stabilization in some of our markets. Very telling, we continue to deliver on operational discipline, carefully balancing field capacity for the recovery in direct cost reduction and strategic investments. More importantly, against this backdrop, we are making strong progress on our strategic agenda and optimizing the business for when things return. And from a financial perspective, as we repeatedly say internally, it is how strong you get out of a crisis that really matters, not necessarily how you end it. After downturns, we consistently generated more profit during growth than the profit lost during declines. This time, we are laser-focused on our growth algorithm, and we're actually analyzing one year of our capital markets day, and we see very clearly three parts for this. Number one, continue to increase our operating leverage through delivery excellence. Number two, continue to unlock scale benefits in our indirect costs. Number three, continue to apply that capacity wisely, both organically and inorganically. These three choices reinforce each other. It's a flywheel. They're about more than recovering the subdued cyclical revenue. They're about to finally position us to structurally capture higher growth. And with that, we conclude our remarks. Sander?

We're opening up for questions. Great job, George. And we look forward now to take your questions. Operator?

Thank you. As a reminder, ladies and gentlemen, that is star one if you would like to ask a question today. And first up, we have Simona Sarli from Bank of America. Please go ahead.

Good morning, and thank you very much for taking my questions. So the first one, is on SG&A, which decreased on quarter-over-quarter basis quite substantially. But if I look at your number of FTEs, excluding Monster, was stable. So I see that Monster explains only 13 million euros of overall SG&A reduction. So I was wondering what is explaining the balance of that. And also, should we assume a 35 to 40 million reduction in SG&A per quarter also in H1 of 2025? So that's the first question, please.

Thank you. So first on the OPEX, I mean, there's two things. One is, of course, Q3 has a seasonal impact. And therefore, as we look into Q4, we are... continue to see the benefit of our push in particular on indirect costs and focused on making sure that these continue to support and therefore underline, even if we correct a monster, we expect it to be stable into Q4. At the same time, it is somewhat early for us to be calling out how we will evolve into Q1. What we will for sure do is we will enter the year or we will end 2024 responsibly to make sure that we enter 2025 in the best prepared way for what we see then. And that obviously means managing on actuals and taking into account what we see at the time. Balancing ultimately indirect costs, we still are focused on that and busy in operating those with safeguarding a degree of capacity to make sure that we can recover if the opportunities are there.

Thank you, Simona. Let's take the next person with a question.

And we're moving on to Remy Grenou from Morgan Stanley. Please go ahead.

Yes. Good morning. I have two, if I may. So the first one is on your guidance. I guess one of your key peers has flagged that they are expecting some sequential deterioration in Q4 on the back of lower seasonal activity and some end-of-the-year closure at industrial facilities lasting longer. So that's probably diverging a little bit from your own comments on easier combates and stable volumes. So can you maybe elaborate a little bit on what makes you more confident about the outlook for activity in Q4 and where you are seeing potentially further weakness and where you could have some positive offsets in the next quarter. So that's the first one.

And the second one is just... Jamie, hold on. We're doing one question per person. If you have a question later, we can come back to you.

Okay, sure. Let's do that.

So, in terms of outlook, look, we don't guide or we don't necessarily forecast what we can see. What we say is, what we reflect is, we look at the trends we have entering into Q4, so the first weeks of October, and our teams pretty much know exactly what's expected within, let's say, what they see, what we call managing on actuals. Based on that, we can basically look at Q4 and say, So if we are to continue to see this trend and continuation of Q3, we expect the quarter to be pretty much in line. Yes, some countries have a less seasonal effect in Q4. Other countries, actually, if you look at them, have a more kind of ramp up until Christmas and ramp up until the festivities. So one, let's say, can't await the others. And in that respect, we expect a notch higher profitability in Q4. So pretty in line with Q3, slightly better profitability.

Okay, understood. Thanks.

Thank you. And we're moving on to Rory McKenzie from UBS. Please go ahead.

Morning. My first question is that I appreciate you highlighted parts of the business that were stabilizing or backing growth. I guess against that, some segments have deteriorated. Can you say in particular how much of the group is your autos exposure nowadays and how much of a drag was it within Q3? And also, any view on if it worsened through the quarter, given some of the reports we've heard from the clients? Thank you.

So, approximately, let's say, the broader automotive sector, Rory, good morning, is 6-7% of the group, and it has come down, indeed, especially, I would say, more firmly from Q2 to Q3, approximately 8%. So, it has weighed both, I mean, primarily in Europe, but it has weighed on us, yes. But again, these trends on the other hand, it also means, and you heard that in my prepared remarks, that other sectors are somewhat either improving or at least stable sequentially.

Any comment on the trends within the quarter? Did it end September particularly worse or was it quite stable within Q3?

It was pretty stable within Q3. I mean, most of the automotive news, if you heard, if you follow the sector, were actually quite, I mean, it was present throughout the quarter, so it was pretty much in line throughout the quarter, yeah.

Okay, thank you. I'll go back to Mickey. Thank you, Rory.

Thank you. And we're moving on to a question from Suhasani Varanasi from Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for taking my question. I just had one question on gross margins, please. I think for the third quarter, you had talked about in the original outlook with the 2Q results that gross margins could be better modestly, sequentially, but actual numbers were a little bit lower. Can you maybe help us understand what changed with your expectations and gives you the confidence that underlying gross margins X monster can still improve in 4Q? Thank you.

So, first of all, good morning. Good to speak to you. Yes, we were disappointed with the gross margin. And a few things we did not expect as, let's say, such acute movements from Q2 to Q3, and that has an impact. So let me again be clear on what they were. On one hand, indeed, PERM continues to be quite subdued. You saw many of our, let's say, peers or specialized peers also somewhat more negative than they were, and they had an impact. In particular, our temp margin, we did not, we saw even, let's say, more diverging trends in what we call blue-collar, so in OTS versus PTS, so Professional Talent Solutions, And that means indeed that our margins in some of these more large-scale operations are lower. Now, the flip side of that, and that's, of course, what you also see, is that automatically in terms of how we manage our business, it also means our operating expenses adjust. So that operational discipline gives us some sort of peace of mind in how to look at it. Secondly, we also saw, given a little bit the pronounced, let's say, cycle where we are in, an increase in sickness rates higher than what we had expected, insurance premiums, and higher medical costs overall, as well as bench. But let's also kind of put one thing into perspective. It is as we move and as we progress, we continue to take all these inputs in several ways. So not only, let's say, the delivery, we soften part of it through OPEX, But if you look at bench as well, bench is a consequence to a large extent of sales. And therefore, it also impacts field steering. So we're also not hiring in many places where we have higher bench. We are actually adjusting and making sure that we place the bench and we reskill the bench to make sure that we address this as fast as we can in terms of partnering with our talents. And ultimately as well, as things evolve, some of it might be recovering pricing. So yes, we were surprised. At the same time, we were disappointed of a busy and, let's say, crowd on how to operate within what we see in the markets. Going forward into Q4, I mean, we know a lot of these trends we start basically normalizing as we progress. And from a divergence perspective in terms of different sectors, we expect things to be slightly different in Q4. So we are comfortable in expecting a slight or broadly in line to a slightly up gross margin before. More important to me, our teams know very well what to do if that will not be the case and how to adjust further our operating expenses.

Thank you very much. Thank you. And from B&B Paribas Exxon, we have Andy Grobler with our next question. Please go ahead.

Hi, good morning. I just wanted to ask about the U.S. large accounts business. where you'd like to be taking share. Can you just talk through which sub-sectors you're winning in and also within those end markets if there is any sense that the markets themselves are seeing sequential improvement? Thank you.

Yeah. So, Andy, good morning. Good morning, Andy. I mean, in the United States in particular, we believe we are gaining market share. So I wouldn't say overall markets are necessarily doing better. We do see e-commerce logistics improving, and it is exactly in those sectors that we are performing better and gaining market share. And there I'll argue it's basically down to two reasons. On one hand, we've been rolling out our digital marketplaces, and Sandra will probably talk a little bit more about it in a minute. Clearly, this has an impact on our fuel rates, and the more we can fuel, the faster we can fuel, the faster we can be a better partner for both talent and clients. It becomes a flywheel, and we become a better provider in these clients. On the other hand, at the same time, what this is also doing, and I remember we talked about this in Q2, as we rolled out this now nationwide scale, it's the only way we work in the United States at the moment, it also means we are freeing up capacity. And some of this capacity, you saw our revenue increasing from Q2 into Q3. We are not necessarily increasing FTE to capture this, but what we are doing is we bring up commercial activities. So we are also signing new clients, and these clients are ramping up and therefore building a stronger presence, particularly in the in-house sector in the United States. Sandra, anything to comment?

No, I think you said it perfectly. It's working very well, the digital market. In short, it's working well. Absolutely.

Okay, thank you.

Thank you. And we're moving on to Mark Zwartzenburg from ING. Please go ahead.

Yes, good morning, gentlemen. One question, I believe. So, yeah, maybe coming also back to what Manpower said last week. So in their outlook, they basically assumed they would have extended plant closures in Q4 and a slower holiday season. Is it? Is it something that you also foresee for Q4? Is it something you hear back from your clients, or is it just a manpower statement and not more than that?

Yeah. It's not something, Mark, that we have heard explicitly in many places. I'm sure there is the occasional client that says we have a little bit less work in the coming period, but it's not something that has come through loud and clearly to us.

I think, Mike, we see it in auto. Yes, in auto there is a risk. I mean, everyone has been reading the news and following the sector well. I mean, I just disclosed quite openly what our mix in auto is. At the same time, yeah, I guess different companies, different mixes, different exposures. Yeah, overall, we see these trends continue from Q3 into Q4.

Yeah, maybe, George, just to confirm, what did you say on Q3 on the automotive sector? How much was it down? Did you mention a number?

It was down 8% sequentially from Q2 into Q3. And remember, it's about 6% to 7% of our exposure. Yeah, yeah, yeah, I got that.

I got it. Maybe a quick one on the savings, because you pushed through still some very good indirect savings in Q3. Can you repeat that again in Q4, if needed?

Yeah, I'll say if needed. And at the same time, it's needed in the sense of we've had two years now of decline. We are learning on how to basically optimize how we support our businesses. These things reinforce each other. The more we simplify our delivery models, the more we can actually optimize how we support them. We continue to automate. We continue to look at location strategies. But remember, because for our teams, it's important to always keep that in the back of our minds. um we do this with the purpose of being able to reinvest part of this in what it matters in terms of strategic investments invest in growth so yes what we started already in q2 we continue into q3 and this will continue to give us benefits into q4 and 2025. yeah but you did a bit extra i think in q3 because you came in below your car your own guidance so you

were able to do a bit extra.

Yeah, but a lot of those things were set in motion already in Q2, Mark, right? And at the same time, remember, our OPEX expectations from a mixed perspective are very clear. So our current business has a certain expectation, our operational talent solutions in each one of the delivery models has expectations. So a lot of that is a reflection of making sure that our teams know exactly what's expected from them and what to manage to in each delivery model.

Yeah, yeah, clear, clear. Thanks, George.

Thank you. And we're moving on to Céline Hilaire-Guelin from Bank of America. Please go ahead.

Hello. Hi. Actually, this is Simona Sarli from Bank of America. So on gross profit margin, please, one quick follow-up. In Q4, you indicated a 50 basis points headwind from Monster. Is it reasonable to assume something similar also in the first half of the year and 30 basis points for Q3 of 2025? So purely like the technical guidance, please.

Yeah, so 50 basis points. So we deconsolidated monster mid-September. Yeah, mid-September. So I'll say year over year, C-70 basis points is a better number to take into account. Remember, our revenue from Monster is straight fees, so it's 100% gross margin. So that's why you see that impact.

Thank you.

Thank you. And up next, we have a question from Conrad Zomer from ABN Amro Oddo. Please go ahead.

Hi. Good morning. Thanks for taking my question. It's actually on France. You mentioned in your prepared remarks that the current reforms are delaying a potential recovery. Can you be a bit more specific what you expect the higher taxes and the political plans could have on your staffing business in France, please?

Yeah, thank you, Conrad, for that question. It's a very good question. And you're right. I mean, our market momentum deteriorated a bit. I would say overall in France, everything is a little slower than it normally is in other countries. But this new government obviously has only just been installed. So they have some plans. It's unclear what they are exactly. And it is also unclear... to whether they will be accepted in the form that they are on the table just now. So I think it is too early to anticipate any consequences of that other than to say, you know, we know about regulation and we navigate regulation, whatever it is in the budget or laws. So we're on top of it, but it's too early to say anything specifically just now. Okay, thank you.

Thank you. And now we move on to a question from Sylvia Backer of JP Morgan. Please go ahead.

Thank you. Hi, morning, everyone. Two quick questions for me, please. Firstly, can you maybe just comment on how much profit you're making from German authors today? And then secondly, I guess one question we get is just around kind of AI automating jobs, which is similarly important. what we saw, I guess, with the computer revolution years ago. But can you maybe just comment on how much of your revenue is coming from administrative-type jobs today? Thank you.

Well, Sylvia, we do one question per person. So George will comment on the automotive, and then we'll go to the next.

On the automotive industry, I mean, we don't disclose profit for sector, Silvia. I mean, if anything, if I think about Germany at the moment, I think that the property is low. So, unfortunately, automotive sector is not necessarily making a lot of profit in Germany either because we are not doing a lot of profit there. So, if anything, it's about repositioning the company for structurally growth segments and profits from that. We don't disclose it. I wouldn't necessarily assume, I mean, You have an idea of the size of it. You have an idea of our margins. That's basically how we deliver. It does not necessarily change per sector. And the second one on AI.

Okay, thank you. Thank you very much.

Thank you, Sylvia.

Thank you. And we now take a follow-up question from Rory McKenzie of UBS. Please go ahead.

Good morning. My second question is about the quarter of busy corporate activity you've had, you know, de-merging one digital asset in Monster and acquiring another one in ZorgWork. Where do you think digital fits into Randstad overall? I mean, ZorgWork sounds like a good digital platform. but it's quite specialized within one area with its vetted candidate base. So what are you learning about how you broaden a digital offering organically? Or will you always need to buy in specialized platforms for different verticals and markets?

Great question, Rory. Let me take that. Let me just remind you that our strategy is first of all about specialization. Secondly, about putting talent at the heart of everything we do. Thirdly, about delivery excellence. And fourth, about underpinning all of that with the Ransom Talent Platform. So what we are doing here is we're building, we're harmonizing our core systems, i.e. CRM, mid-office, and back-office. And on top of that, we will have specialized digital marketplaces. We will have multiple of those, not tens or hundreds. The first big example that we have in North America is our digital marketplace for operational talent solutions. We have one in France already in healthcare, and we now have a second one for healthcare in the Netherlands. We may have multiple ones there because healthcare is actually quite a specific marketplace in each and every country. We have acquired Torque, which is all focused on digital talent that is starting in North America. We have about 75,000 people in Latin America talent. We have added our India talent and we have added our North America talent to that marketplace. So that's the one we focus for digital. So clearly digital marketplaces, a number of specialized digital marketplaces on top of the

harmonized core over on stuff that is the way we are we are going here thank you thank you and we have a follow-up from suhasani varanasi from goldman sachs please go ahead hi thank you i think it's just a follow-up on monster please um um

just the rationale behind the disposal and some color around what made you decide to sell it today and create the JV, and maybe on the payment, which seems to be $128 million via financial assets. Can you maybe provide some color on this? Is the payment contingent on some performance metrics? Thank you.

Yeah, so, Swasini, let me take that first of all from a strategic point of view. We have set out to be the world's most equitable and specialized talent company. We do that under our partner for talent strategy, and we do that all under one name, and that is Randstad. So from that perspective, Monster as a job board did not really fit in the strategy anymore. So that's why we decided to combine it with CareerBuilder to give it the best, I would say, position to be successful as an independent company going forward with CareerBuilder. I'm going to hand over to George to say a couple more things about the technicalities of all that, if you will.

Yeah, so in, let's say, as a negative data transaction, what we did is actually in the context of Sander's introduction, was to set up the company for success and realize these are two companies merging. that want to achieve significant scale benefits. So that means one tax system, that means more combined budgets, go-to-market strategy. And that also comes with structures to a certain extent, and they have announced them almost two weeks ago, three weeks ago. So in order to set up the joint venture for success, we have capitalized by approximately 50 million overall. In return, and that's what I just want to be clear, in return, we do get, let's say, loans or a seller note, we structure this, of 128 million, which will indeed provide us with financial benefits going forward in the form of interest and the seller note going forward. That benefit will be recorded in financial expenses and income. It's actually 128, no, it's 146, yeah. But the 128 loan plus note plus the 18 million loan we've made. So it's actually, together, it's 146.

I understand. Thank you. Thank you. And we now move on to a question from Martin Verbeek from DIDR. Please go ahead. Your line is open.

Good morning. It's Martin Verbeek of DIDR. Looking at your net deposition today, taking into account the cash flow you will generate in Q4 and the cash out for your acquisition in Zorkwerk, your leverage ratio will be more or less around 1. Should we therefore only expect a regular dividend from Randstad and refrain from expecting a special dividend?

Let me say the following about that, Martin. This is not the time of year that we decide about dividends. We only do that after we close Q4, so early next year, and we'll update you at the time that we have made the decision.

Thank you. Thank you. And we move on to a question from Mark, a follow-up from Mark from ING. Please go ahead.

Yeah, follow-up, gentlemen, on the gross margin. With all due respect, we had a bit of a miss on Q3 versus the guidance for the reasons you explained, George. But do you now feel that you have a bit more predictability or visibility on the Q4 gross margin, or is there still also quite an element of risk in there?

We believe indeed that if we look at our mix, it is still pronounced, but if we look at it, that Q4 is likely to be slightly up in terms of overall gross margin. Again, taking into account, of course, the disposal of MONSTER. Partially, Firm in terms of comparables is improving, so it's still somewhat subdued, but likely to improve. PTS, I did mention in the call in the country by country, there are signs of trends improving from a professional talent solutions. So if we look at the mix and the pronouncement of that versus what we saw in Q3, that should give us a bit of a sustainability for Q4. It's not obviously a guarantee. I mean, we cannot necessarily guarantee it. What I think we also need to reflect is if would that not be the case, then our OPEX and operational discipline will soften the reverse consequence of that.

All right. Thank you very much, George. Thanks, Mark.

Thank you. And we take a question from Afonso Othorio from Berkeley. Please go ahead.

Hello. Good morning, everyone. Just a housekeeping one from me. On this acquisition, you just announced Zork Work. I believe you mentioned before that you expect this to be completed in the upcoming quarter. Is that Q4? And then just wondering on the margin profile of this business into 2025 and how creative you expect this business to be as we start looking into 2025 numbers, please.

Yeah, so we expect it to be, yeah, to be honest, four to 12 weeks, so that is an approval process, so likely no impact in Q4. Of course, as soon as we know more and the deal is closed, there will be information to the markets. The business is accredited to Randstad. It is clearly an acquisition with a path for EVA accretion in three years. We know exactly what we want to leverage with this acquisition. I'll say just kind of rough indication, low double digits profit margin, which is indeed accretive already to the earnings of the company.

Got it. Thank you very much.

Thank you. And our final question for today comes from Andy Grobler from BNB Paribas. Please go ahead.

Hi, just a follow up on Germany and the other bench markets. We've seen sickness rates and absence rates go up post-COVID and they seem to be structurally higher and that's weighed on gross margins. Is that now effectively a permanent reduction in your profitability in those regions? Or can you offset it through price or efficiency elsewhere? Thank you.

Yeah, so good question, Andy. And it's one that we are busy addressing. So let me first, one important point. Bench is typically something we have more on our digital business. So let's also not necessarily make it a read across to the whole of Germany or to the whole of France or the whole of Northern Europe. It is. And in that respect, we are busy in placing this venture. We just have to manage it. And again, there is a consequence to that in terms of also field steering and how we are not investing or investing. We see this as a consequence of sales. So there's a lot of effort in that respect and it will be addressed. Sickness rates and all of that. Indeed, we are managing it. We also want to indeed maximize some part of it to pricing and the other parts, we just need to manage it in our OPEX and making sure that our conversion remains in line with what we expect. So we don't want to translate this into structural profitability, etc.

Okay. Thank you.

Well, thank you all for... Thank you all for joining the call today. As we wrap up the call, we'd like to thank our over 640,000 Venstep people for their ongoing dedication and doing what they are best at, and that is delivering value to our clients. Thanks a lot.

Thank you for joining today's call, ladies and gentlemen. You may now disconnect.