Randstad Nv Unsp/Adr

Good day and welcome to today's Q4 and full year 2024 Randstad Analyst Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. You may register for questions at any time by pressing star 1 on your telephone keypad. We kindly ask you to limit your questions to one and one follow-up question. And now, I'd like to hand the call over to your host today, Mr. Sander on Nordende, CEO. Please go ahead, sir.

Thank you very much, Sergei, for that kind introduction. And good morning, everybody. I'm here with George and our investor relations team to share our Q4 and full year 2024 results. We continue to experience labor market challenges in Q4, which contributed to a 5.5% decline in organic revenue. We saw further stabilization in North America, while Europe remains a story of two tales. Southern European countries continued to grow, while challenging conditions in berm and automotive led to subdued demand in Northwest Europe. Against this backdrop, we delivered a gross margin of 18.8%, driven by business and service mix. With our continued focus on cost, we have delivered an EBITDA of 200 million euro, with an EBITDA margin of 3.3% for the quarter. For full year 2024, we delivered revenues of 24.1 billion euro, 7% lower year over year and an EBITDA of €754 million with a margin of 3.1%. I'm very proud of how our teams have navigated their markets during this year with a consistent focus on adaptability. In addition to our field steering, balancing supply and demand, we took decisive actions to reduce indirect costs and restructure the portfolio. While this impacted net income for the year, these actions position Ransap better to invest and execute our partner for talent strategy, as well as to respond to any growth scenario. Based on this performance and our solemn balance sheet, we will propose to pay a dividend of €1.62 per share, equating to €285 million. This proposal is in line with our capital allocation policy, and we believe it strikes the right balance between confidence in our business the ability to execute our strategy and attractive capital returns for our shareholders. Looking ahead to Q1, we of course remain laser focused on serving our clients and talents whilst carefully managing our cost levels. Entering 2025, we observed further stabilization across markets and I'm positive that the cost actions we have taken in 2024 And the progress we've made with our partner for talent strategy position as well to navigate the current environment. Let me now take you through some of the highlights of the execution of our partner for talent strategy. And I will tell you, I couldn't be more pleased with the progress we've made throughout the year. First of all, their specialization, a key pillar of our strategy. We have completed the implementation of the specialization framework in all our markets, which is an important milestone for our business. Because specialized teams and specialized delivery models differentiate us in the marketplace through a better understanding of client and talent needs, as well as competitive and pricing dynamics. We're also allocating additional capacity in our main geographies to our growth segments, including skilled trade and logistics and operational, and healthcare, finance, and engineering in professional. In enterprise, our investments in the life sciences growth segment are paying off with some great wins at Roche and Lonza. And of course, we acquired Zorgwerk, a digital marketplace making us the market leader in healthcare in the Netherlands. Delivery excellence is why Ransat is the preferred partner for talent for many organizations. We deliver what we promise, and the objective here is simple. to create the best and most efficient experience for our clients and talents. In 2024, we've launched over 45 specialized talent and delivery centers in 10 key markets. And these centers allow us to optimize talent attraction and delivery services, creating focused talent pools tailored to meet client demands. And as a result, we've seen a 20% increase in fulfillment across these centers in 2024. The Ransom Talent Platform supports our business end-to-end from initial client and talent engagement all the way through to payment and redeployment. And our vision here is to digitize the transactional aspects of our business to the max, whilst adding the personal touch where that truly adds value. Our digital marketplaces will be at the heart of our business, underpinned by a harmonized backbone for front, mid, and back office. And also here, we've made some very good progress in 2024. Firstly, besides Swordwerk, we acquired Torque, a next-generation AI-powered digital marketplace, providing skills-based matching to connect digital talent to clients. We now have more than 320,000 digital talent enrolled in the US, Latin America, and India. Over 2024, we launched our digital marketplace app in the US. The Ransat app caters to both clients and talent across various industries, empowering talent to select their own assignments while providing clients with immediate, reliable access to skilled workers. There are 440,000 talents on the platform with 60,000 active users every day. This means we now have around 1.5 billion euro revenue flowing through this platform. Finally, we've rolled out our harmonized front office system in the Netherlands and Belgium with more markets to follow in 2025. In short, the future is already here and we will roll out the Randstad Talent Platform at speed. The ambition is to have most of our key markets on the platform over the coming two years. And to give you more insights into these elements of our strategy, we plan to host an update on our Randstad Talent Platform in April, right after the publication of our Q1 results. In summary, in 2024 Randstad demonstrated resilience and adaptability in challenging markets. We've taken decisive action to ensure we enter 2025 as a stronger business than we came into 2024. And last but not least, we continue to invest in executing our partner for talent strategy, putting the Ransap Talent Platform at the heart of our business. With that, I'm going to hand over to George for some details on the financials.

Thank you, Sander, and good morning, everyone. As Sander pointed out, things stabilized, results are not better than in Q3. but in many ways still a difficult quarter to win what was a challenging year. With many actions that resulted in sizable one-offs and extraordinary accounting primarily items, there are only two positions for a better 2025 and beyond, but do require explanations. So let's start unpacking those and the broader underlying performance, starting with our key regions on page eight. Starting with North America, and in particular the United States, Hiring rates and firm remain very weak, but we do see early signs of optimism on the industrial side, with PMIs and staffing data slightly improving sequentially. Temp is likely to lead the recovery once again. However, it has yet to materialize in a meaningful step up in demand. Our numbers reflect this. Firm full-time hires are still pretty much frozen, declining 26%, but our overall revenue was again sequentially a notch better, down 7% versus 9% in the previous quarter. Our operational, with a major presence in industrial staffing, is now declining by 4%, but in-house, our larger clients continue to grow as we are called to support increased demand. In the other specializations in Q4, we see some sequential improvement in professional, digital, and enterprise. In Canada, the market has not yet improved, and we saw our growth further decline in Q4, where seasonal pick-up and sour demand in berms impacted our business. The EBITDA margins stood at 3.4% due to the overall impact of FIRM and the fast decline of our RA high and margin-exclusive businesses. Moving on to Northern Europe on slide nine. In Northern Europe, as with Q3, automotive and related production declined further, but transport and logistics experienced growth. Revenue declined 7% as slight sequential improvements. While most countries improved sequentially, the macroeconomic background remains challenging. Approximately half of our restructuring efforts, we'll talk about that later, were in this region. Here, the bench model used in many markets particularly weighs on idle time and sickness. Zooming in into the Netherlands, growth deteriorated to minus 10%. The environment is stable at low levels, but manufacturing shows little signs of improvements. Professional talent solutions were down 11%, whilst professional talent solutions slowed to minus 3%, as we saw still additional pressure in the admin and clerical segments. We welcomed, and we're quite happy, the team of Zollwerk to Ramstad, strengthening our position in one of our most strategic growth segments. EBITDA margin for the Netherlands came in at 4.6%. To the east, the economic environment in Germany has remained relatively unchanged, and our growth rate has sequentially improved to minus 8%. The automotive sector obviously continues to be under pressure, and we do continue to see elevated idle time costs in sickness and few hours' work per employee. At the same time, The streamlining of operations continues and allow us to focus now on our commercial activity and new wins in new segments, positioning us for growth in our four specializations. Belgium shows true underlying sequential improvement, is now flat year on year. Manufacturing and transport and logistics, our largest end markets, are now returning to growth. We are leveraging on the strengths of a very well diversified portfolio. Operational talent solutions was up 3%, while professional talent solutions improved to down, still declined 7%. EBITDA margin came in at a strong 4.9%. Other northern European countries reflect a little bit of mixed performance, and let me summarize it to you. Poland is growing 6% year on year, still growing strong. Switzerland was down 2%, and the Nordics deteriorated further, more on that later, down 26%. EBITDA margin came in at 1.4%. Now moving on to segment Southern Europe, UK and Latam on slide 10. In Southern Europe, trends diverged, or in this bigger region, trends diverged a bit. Our real Southern countries continued to show profitable growth whilst we saw hiring confidence, and in particular on the automotive sector, weakness deteriorating in the UK and France. Italy continued to demonstrate positive growth. We continue to invest in growth segments such as IT, healthcare, and skilled trade units. As a result, our professional talent solutions are up, plus 15%. The industrial environment was sequentially tougher, but not immune to the automotive sector. Operations talent solutions declined 2%. Notably, though, Italy still shows a solid EBITDA margin of 6.2%. In France, the political uncertainty is impacting business confidence. Permanent hiring and the professional and markets were the most under pressure. In professional talent solutions, France was down 15%, and digital talent solutions are also declining, given its exposure to the broader, in our case, automotive sector. Idle time and bench year also weigh on the gross margin. OTS, though, operational talent solutions growth was down 5%, reflecting primarily headwinds in automotive sector. On the other hand, our transport, logistics, and manufacture continued to improve sequentially. The EBITDA margin was 4.1%. For the south, Iberia. Iberia stabilized at a high level, growing 5% this quarter. Spain once more showed robust growth, with a 9% increase, mainly driven by strong performance in operational talent solutions, supporting clients' increased demands. This progress shows the return on the target investments in growth we've made over the last year, segments such as skilled trades, logistics, and e-commerce. RPO is also up double digits. We remain with many opportunities to grow further in Spain. Revenue and profit performance. Now let's look at the southern European countries, the UK and Latin America. The UK labor market continued to soften, and we were down 12% this quarter. In Latin America, Brazil is profitably growing at 11%, offset partially by weaknesses in Argentina. And now let's move to Asia Pacific on slide 11. Asia Pacific region continues to recover. Japan demonstrated a decent performance against very tough comparables, stable growth, but with strong profitability. Here we continue to see our investments from the last quarter paying off. Our digital specialization continues to expand, and consistently breaking records, growing now at 16% in this quarter. In the clear candidate scarce markets, we see significant opportunity for our sector with ample room to grow. Australia and New Zealand improved sequentially, declining by 8% in the quarter. India grew by 13%, confirming the opportunity and benefits of focusing on our four specializations. Overall, the EBITDA margin for APEC was a sound 4.3%, showing strong operational discipline. And that concludes the performance on the region.

So now let us walk through the group of financial performance on slide 13. Starting with the top line.

Again, this quarter, the group's revenue showed a more typical seasonal pattern and stability since Q1, 2024. From a sector perspective, transport and logistics are growing and manufacturing has stabilized further. If we then look at it from a specialization point of view, Operational stabilized at minus 4%, with diverting trends depending on where each market is in the cycle. Professional was at minus 8%, and although below the group, digital and enterprise improved again sequentially to minus 8% and minus 7%, respectively. We'll cover gross margin and OPEX later, but the quarter's underlying EBITDA was €200 million, with a margin of 3.3%, a notch better than the previous quarter. But now let me unpack the items until net income. This quarter, integration and one-off expenses reached $79 million. These costs help us to adapt our organization to new ways of working and match current activity levels. We are particularly focused on optimizing indirect costs, balancing capacity, and strategic investments. We build resilience in our organization to protect profitability. In the amortization and impairment of intangible assets, you also see there that we've taken an impairment on goodwill on Sweden and UK, two markets that have been particularly challenging over the years, and in particular as well in 2024. If we keep going and look at the net finance costs, it also includes one of 139 million fair value adjustment impairment on our loans and financial commitments to the Monster joint venture. In short, the subdued hiring rate that Sander alluded to impacted the joint venture performance over the last few months compared to our expectations. This in simple resulted in a restructuring write-down of our loans that we created at the joint venture reception. As a result, we do not anticipate any significant future impact from Monster on our financial statements going forward. In terms of tax rate, the effective tax rate was 35%. primarily impacted by the low taxable income following lower earnings impairments and one-offs. Underlying, our effective tax rate was actually 23.4%. For 2025, we are now sticking to a guidance of 26% to 28%, including already the expected to be seen impact of the French changes in terms of tax. Now, if we look at adjusting that income, it's $40 million. But if we look at the adjusted net income, adjusted for the impact of the joint venture, amount full, is 149 million positive. With that, let's turn the page and look indeed at our gross margin breach on slide 14. The third quarter gross margin was 18.8%, down 138 points from last year. We anticipated the majority of this due to business mix idle time in our temp margin and perm development. However, at the beginning of the quarter, we expected total gross margin to be slightly higher than Q3, which did not materialize. This difference stems mostly from our perm results. On the back of easy comparables, our perm volume deteriorated further in line with the market, which impacted gross margin year-on-year by approximately 30 basis points. Additionally, we saw some more temp margin pressure mostly related to mix, reflecting a record, I have to say, high share of logistic clients related to the holiday season, as this sector is growing in most of our countries and idle time has also impacted a few countries. This led overall to a decrease in our gross margin of 130 basis points. Lastly, in HR solutions, for the stabilization in RPO and positive impact still of outplacement, compensated, remember, for the 60 basis points adverse impact, of the divestment of Monster. Monster was recorded as net fees and therefore has a 60 basis points year over year. Which now brings me to the OPEX breach on slide 15. And attention, as always, this one is sequential. So how do we compare previous to quarter three? First of all, following the disposal of Monster, and remember, Q4, we already excluded completely Monster. The cost base was $35 million lower, excluding the Monster impact. Still, our FTEs are sequentially down 1%. We continue to push for structural cost savings, allowing the company to absorb already in 2025 the wage and cost increase, and ultimately position us for a stronger recovery. We also work, as Sandra already mentioned, continue to work more effectively as we continue to roll out new talent centers, digital marketplaces, and all target operating models across our functions. In part also, and as in previous quarter, OPEX aligns with gross profit and gross margin because it does reflect different mixes of services and geographies. As we already mentioned, a more pronounced logistic and industrial recovery implies more in-house, as an example, or more business in blue collars. and has a different higher ratio of cost base and impact in our cost base. Overall, we operated at a full year recovery rate of 38%, and as we continue to balance performance, growth, readiness, and strategic investments, we achieved the recovery ratio we were hoping for at the beginning of the year.

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 87 million euros, reflecting the regular seasonal inflow.

Lower EBITDA and the higher DSL impacted it. DSL was 54.6 days, up 0.5 days sequentially. And in short, the client mix is putting some upward pressure, which we expect to normalize as recovery continues. Overdues and write-offs remain at historical lows. Following the acquisition of Zorgwerk and the payout of dividend in early October, we see the full year 2024 leverage ending at 1.6 times. We propose, as well, a regular dividend of 1.62 euros per share, reflecting 70% of the adjusted net earnings, which was impacted by the write-down of bonds. This equals the floor when we temporarily exceed the 40% to 50% payout range, and it's fully in line with our capital location policy.

And that brings me to the outlook now on slide 17. We see the key market trends continuing, as Sandra already alluded to it, as we have moved into the first quarter.

The early signs in 2025 are that the challenging macroeconomic conditions remain, especially in Northwestern Europe. However, we do see some increasing U.S. business confidence, and while this has yet to materialize in an uptick in activity, confidence is key to unlocking higher hiring activity. We do as we always do, regardless of the situation. We manage on actions. We steer daily and weekly and adapt when necessary. A few attention points. There will be almost one less working day, reflecting a seasonal light quarter last year that we had a leap year. But let me start with the activity momentum. The development of volumes in 2025 indicates further stabilization. We generate organic revenue growth in line with Q4 2024 trends. Q1-25 gross margin is expected to be modestly up sequentially, reflecting Q4-related adverse impact to unwind, but also a slightly improved mix. Operating expenses are expected to decline sequentially in Q1-2025. This follows the adjustment we just talked about, partly to address the upward pressure on costs at the beginning of each year. For Q1, we will continue to capture growth opportunity where we can, balancing selective targeting investments in strategic initiatives. ZorVec will also be fully consolidated in Q1. And following IFRS net revenue recognition, we see approximately 25 million of revenue added per quarter. So to summarize, we have now had two years of subdued industrial PMIs, which historically correlates the most with our top line. Unsurprisingly, hiring rates globally remain at very low levels and outplacement relatively high. The market did stabilize at the start of 2024 after several quarters of decline. And albeit shy, there were signs of returning seasonality throughout the year and early cyclical sectors starting to improve. The fourth quarter confirmed this. We see signs of growing confidence in some markets, from elections into policies, inflation and interest rates decreasing from previous highs. But while it takes time, ultimately, confidence will flow back into recovery, first led by flexibility and later through permanent solutions. In this context, we took decisive action to adapt our cost structure and our portfolio. We also continued making targeted strategic investments. And as a result, we are now more focused on our four specializations, and structurally leaner in supporting them. This position grants us stronger as we prepare for a border recovery. And that concludes our prepared remarks, and we look forward to taking your questions. Operator?

Thank you. As a reminder, to ask a question, please signal by pressing star 1. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. And please make sure the mute function on your phone is switched off to allow you to signal reach our equipment and we kindly remind you please limit your questions to one and one follow-up question and our first first question is from Remy Grenou from Morgan Stanley please go ahead your line is open morning gentlemen thanks for the presentation so first just on the gross margin it's been unwinding for the last few quarters now and I mean I

A lot of that has been driven by the temp activity this quarter. I know that you're facing a negative mix effect, but it would be good to have an update on the competitive environment and the pricing as well, what you're seeing there, and if it's having any impact on the gross margin, especially in that environment of weakening stable volumes at very low levels.

Good morning. First of all, Yes, we've seen that now for a while. But at the same time, I think in our particular case, we understand the gross margin impacts. A few are incidentals. Much is also a result of the mix we've seen evolving throughout the year. And in terms of pricing in particular, I'll say it does remain competitive, but rational. So we don't feel that it's creating necessarily an explanation in the gross margin developments. If you would look into Q1, looking ahead, we expect indeed, let's say some of these incidents, first of all, to start annualizing and kind of have a reversal impact from Q4. So as we look into Q1,

we'll expect actually our gross margin to be sequentially a little bit better.

Okay, understood. And just a second one, if I may, on the one-off in Q4, which were quite elevated, it blurs a little bit the line from a modeling perspective going into 2025. So what should we expect there? A more normalized level or the still weak organic growth in January means we should see more of this one-off going forward?

No, I mean, I've mentioned in my prepared remarks, so we've basically had to take decisive action. SYNC stabilized, we said it. SYNC started slowly improving in line with seasonality, but we did not see a clear recovery. So we had to make a decision and basically adjust on one hand to the level that what we were seeing, and that's what we've done, and two, try to, as much as we could, structurally make Hanstad a more leaner and a more efficient company. A lot of the savings happened in support functions, management layers, so try to make sure that this cost and Hansard in general becomes much more scalable going forward. We are ready for what we see now in terms of stabilization into Q1. We cannot guarantee we'll not have to do more, but I'll definitely expect this to become a much more normalized level and not such an increased level as we now saw in 2024.

Thank you very much.

Thank you, Remy.

Thank you. Our next question is from Andy Grubler from BNP Paribas Exxon. Please go ahead. Your line is open.

Hi, good morning. Just on the stabilization that you're seeing in some of those end markets, to what extent is that kind of coming through in real numbers and real volumes, and to what extent is it in discussion with clients and some some level of forward visibility so essentially do you feel from an organic perspective at this point that you've you've troughed out and things should start to modestly improve through 2025 thank you yeah thank you and well first of all everything we say is is backed up by real numbers so there's no speculation uh in there in in terms of the

of where the market is, and I'm going to give you a bit of a broader answer, because I'm sure there will be many questions around that. The labor market, I would say, if there would be one word to characterize it, it's stuck. The number of vacancies came down quite dramatically. The hiring levels in some parts of our business are back to 2016, in other parts back to 2013 even. So there's low hiring levels. Quit rates are low, and there are not a lot of layoffs going on either. So stuck is the word there. Two factors are at work. The unwinding of overhiring in COVID, as well as the level of uncertainty in the minds of our clients, is still quite high. So more clarity about where the economy or the economies are going is needed to get things moving again. Then let's do a little round robin in the geographies. Lots of optimism in the US. The 333 plan of the new administration, 3% growth, 3% budget deficit, 3 million barrels more oil. I mean, that's a positive for the economy, positive attitudes towards deregulation, innovation, new technology, quite a bit of excitement there that has not yet translated into a material uptick, I would say. So it's yet to trickle down in a meaningful way. leading indicators the manufacturing PMI as well as the new orders index went up more recently and in our business we've seen a bit of an uptick in our in-house business and our digital business as George already mentioned I would say too early to call it a trend but some let's say a positive backdrop optimism and a few nuggets in a positive sense George already mentioned Italy and Spain have been doing well, and we continue to be optimistic about those markets. That brings us to the rest of Europe. Still quite challenging. PMI's stable, but below 50. And then overall, I would say, and there might be some interesting nuggets in there as well, the industry view is logistics is growing. Business and IT services are, I would say, flattish. Manufacturing is stable. And let's say the source pop is a little bit, as you could imagine, automotive, both in Germany and France. That's a relatively small industry for us, but it is painful. So that's sort of the lay of the land. In summary, I would say stabilization with some positive nuggets.

And just one follow-up on that. When you talk to your clients, in terms of use of temps in the longer term, we've seen penetration rates in the US and France fall very sharply in recent years. Do your clients talk about lower usage going forward, or do they feel that this reduction that we've seen is a cyclical factor and will normalize over a period of time?

Well, let's say we don't hear anything of our clients to say we want a lower flexible workforce going forward as a strategy. I think what we've seen today and what we will see in the near future is the normal development of business through the cycle. So there's no signs that clients are saying we want less flexibility.

Okay. Thank you very much.

Thank you. Our next question is from Sohasini Varanasi from Goldman Sachs. Please go ahead. Your line is open.

Hi, good morning. Thank you for taking my question. Sorry, I just wanted to clarify again. If you think about the moving parts on gross margin evolution for the first quarter compared to 4Q, is it that Zorg work effectively adds a little bit to the gross margin sequentially and maybe even you get a little bit of the restructuring benefits on the gross margin? Is that the way to think about it?

Hi, Swasini. Good morning. Yes, I would I would probably add 10 to 15 basis points there, yes, just to kind of, in that range.

Thank you, thank you. And I think just one more on working capital.

One other, so we talked about the software. Yeah.

Yeah, and I just want to check if there were any restructuring benefits as well that would help your gross margin, given you did the impairments on the bench activities in Sweden.

Yeah, I'll say approximately another 10 basis points on top of that. So, we are reasonably... And then the rest, it will always depend a little bit on mix, let me be clear. So, starting in Q4, we start to write in Q3. We're also picking up a little bit on the question of ND. If some sectors and sectors, like Sander said, start gaining confidence, like transport logistics, we see... in our penetration rate, and we see basically our mix starting to change. That has two consequences, one on our margin, but also in our OPEX.

Thank you. And just to follow up to that, so in terms of the verticals that are still seeing a little bit of a sequential decline, is it just the automotive vertical then?

It's primarily automotive, yes.

Thank you. Thank you very much. That's it from me.

Can only get better.

Yeah.

Thank you. We'll move now to our next question from Rory McKenzie from UBS. Please go ahead. Your line is open.

Morning all. It's Rory here from UBS. Just a question again on the temp gross margin. Can you quantify the negative impact of the idle time and sickness year over year, just so we can know what the non-seasonal trend is? And then on that resulting mixed impact, which has been negative for a while, Is there anything going on here with, say, a fundamental shift of volumes onto lower cost channels like in-house or digital, which of course then come with a lower gross margin for you structurally?

So let me start. So the impact of either time and sickness, it changes. I told you as well, last quarter, we do a lot from one quarter to the other to start pricing it back to clients with just our venture. It is very volatile, so I It's difficult to break it down like that, Rory. But on the second one, I'll know. So our in-house business in general, because it's more of a large-scale business, yes, has a different price. On the other hand, it comes with a very different delivery cost structure and architecture for it. But there's no structural change in it. And when it comes to the rollout of digital marketplace, I think that's what you are referring to. We don't have a pricing policy for one and a pricing policy for other. I mean, we have a service which is finding talent for clients and helping clients have talent. Yeah, I think this is a very important part.

Sorry to interrupt you, George, because this is not a channel next to our business. This is our business. And frankly, the experience that we deliver with our digital marketplace is a better one than we deliver through our traditional channels. So there is no need to reduce price as a result of that. I would say the opposite. Better service would warrant a better price.

Okay. Thank you. That's really interesting. I'll have to look forward to seeing the platform in more detail. I guess right to that, I was just wondering on the one-off cost, because Over the past, you know, maybe three years before today, you'd expensed €385 million in restructuring costs, and then today you've announced another €79 million. So I'm just wondering, you know, what are the kind of remaining structural changes you're making now that you hadn't in the past? And maybe you could just give us a guide on what we should expect to see for group headcount in Q1.

Yeah, so, Rory, first of all, I mean, we don't celebrate those exceptional items and the one else. On the other hand, we do need to take decisive action. I think what we take some comfort from, and this obviously impacts people, a large part of that are actually restructures. Another part of that is about we starting to adapt how we do our business. So you'll see in the disclosures, a lot of that also has to do with reducing our consolidating footprint in terms of offices, the rollout of our talent centers, the rollout of our digital technology in how we work. But overall, you could argue that you also look at the last two years, the reduction we have had in OPEX supersedes that. So on one hand, one comes with the other. My main focus is to make sure that this cost reduction is as much as possible structured and stays on like this, building scalability to the organization, meaning that the company is now more efficient and leaner going forward in any scenarios we see.

Thank you. Thank you.

Our next question is from Simon Luship from Jefferies. Please go ahead.

Yes, good morning. A follow-up on the gross profit margin and your expectation for Q1. I mean, in which extent the scenario you are talking about this morning is conservative? I mean, you were expecting some improvement for a few quarters now, and unfortunately it did not materialize yet. So, I mean, I'm just curious around the degree of conservatism in your expectations.

Hi, Simon. So... So first of all, I mean, yes, we did. But on the other hand, look at the fact that we also, I mean, the main thing is always gross margins is strongly correlation to how we deliver and strong. So the flip side of having automatic was on the operational, on the OPEC side. If we look at Q1, what you'll see is primarily two, three big impacts from Q4 into Q1. One is the source aggregate position that will add approximately 10 basis points. The other one is a combination of some of the incidentals that we saw and the bench impact that we saw in Q4. We will see the reverse impact of that as we go into Q1. But also keep in mind that we start analyzing some of the bigger impacts we've had. So we're now in Q1 last year, we already had a reduced margin.

Therefore, as we now go into 2025, we expect some of that annualized impact to also have an impact on comparisons.

Okay, so you don't really need a lot of underlying improvement to get to your scenario, that's what you are saying this morning?

Yes, we've been doing a lot of work over the last quarter to basically make sure that we enter 2025 better prepared, also in terms of gross margin.

Okay, and just on the free cash flow, so it was quite weak in Q4, I understand part of the reason was the cash effect from restructuring. in which extent restructuring should also impact Q1 free cash flow generation?

No, I don't expect any spillover effect from Q4 into Q1. Cash flow generation uh it's primarily a function of the of the probe of the ebitda and the the english that injection in terms of one offs but also uh dso and our dso has increased 1.6 days we are monitoring it on the other hand that's the flip side effect of some of the sections where we're finding growth and some of the geographies where we're finding growth and if you combine larger clients and geographies that has an impact on dso As we go into 2025, normally Q1 and Q2 are not very cash-generative quarters.

Q3 and Q4 are the quarters that are going to generate cash. Got it. Thank you. Thank you.

Thank you. We'll now take our next question from Mark Schweizenberger from ING. Please go ahead.

Yeah, good morning, gentlemen. Two for me as well. First on the... on the restriction charge and looking at your guidance on the cost base, George. You see it modestly down in Q1, but if we extend it a bit further, what should we expect maybe a bit through the quarters of next year, given where the market sits now? Should we expect then maybe that the cost base will continue to modestly decline going forward with what you've taken as a one-off in Q4? Give us a bit of a... Yeah, so the first... How we should look to the... Yeah, go ahead.

Yeah, so I'll say mark at least stable. So I've said a few things already today. One is we're building scalability into the business. So that should enable us to have peace of mind looking to the first course of recovery when it comes. But given everything that we've done already... particularly in the last six months of the year. If we now add all of those up from Q4 into Q1, we expect, I would say, a good, again, sequential decrease from Q4 into Q1. And you can probably see something like out of the 180 million restructure we've done this year, just to break it down, 10, 15 has to do with integration costs and M&A, but the remaining is actually restructures. And of that, I'll say probably 50 are related to leases and long-term contracts. So that will take a slightly longer payback. But the remaining part does give us, let's say, adjustment capacity in PE in personal expenses that does support a lower cost base in 2025. We have partially an offset just because of the natural inflationary movements from Q4 into Q1. But adding all of these things up, we can feel reasonably confident that OPEX will decrease from Q4 into Q1 again.

Yeah, yeah, clear, clear. Because, yeah, you need a bit of support, of course, to offset the top line and the gross margin pressure. Otherwise, we'll not see the lines crossing at Q2. So that was a bit of background.

Maybe... What you've also noticed, Mark, just because it's a question that I think Rory asked, What you also notice is our FTE are down. It's also probably important to note our December exit rate is actually even lower than perhaps the quarter. So we have on our control how to influence as we go into Q1 and what we see ahead of us, how much we want to basically control our rockets.

And then my other question is about top line. In the U.S., you're improving a bit. It's a bit different from what we see in market data. Is that taking market share? Do you see maybe your digital strategy or your Torque platform helping out there? Can you maybe give a bit more color on that one? And I might have missed your follow-up on the Swiss decline. Maybe a bit of color on that one as well.

Thanks.

So on the U.S., I mean, you know us well, so US, but we are primarily on the manufacturing logistics, on the operational talent solution, on the manufacturing logistics side of things. And there, like Sander said, it has become our way of working. And indeed, we are activating new clients. So in that part of the sector, I'll argue, we are getting market share. We are just together with all the others in a bigger market. And that depends a little bit on Europe. But we see the impact of how we are working in the United States. as making us now gain market share, and to continue in terms of the trends into Q1. I did not understand your question on Switzerland.

I think you mentioned quite a deep decline, and you said I will give a bit more color there.

No, so Switzerland, I mean, so top of mind, we are minus 2% now, which is basically a combination of things. Our operational and special larger clients... are growing, we have more employees that work even in Switzerland than we had last year. So if anything, things are starting to improve in Switzerland where we have a big step back and therefore an impairment coming from that is in the Nordics, in particular Sweden. So that's where we see a deterioration.

Oh, maybe that's the reason. Okay. Thanks for the call, George.

Thanks very much.

Thank you, Mark.

Thank you. Our next question is from Will Kirkness from Bernstein. Please go ahead. Your line is open.

Good morning. Just on your number of temp employees, I think that troughed in Q1 of 24. So in the absence of any sort of unforeseen sequential deterioration, it should be the case that we can just kind of unwind the area towards a flat top line position.

Is that a fair view?

No, so I think, look, we, first of all, the actual employees working, indeed, they floored in, they were coming down, and then they stabilized in Q1, and then from Q1 onwards, we saw the normal seasonality return in the industry, which basically means, okay, things have stabilized. What we now see going into Q1 Adding up all the things that Sander described in terms of the different regions, we expected a reasonably similar development from Q4 in 2021, if anything, probably supporting a tick better. So a tick better for when we were in Q4.

Okay, thanks. And then if I could just follow up on the gross margin again, sorry. So if we go back to November 23 and your capital markets day, I just wondered if you'd you'd actually seen any of the sort of impacts, the levers you felt that you would have to improve gross margin, whether you've seen any of them have an impact. Clearly they've been perhaps lost in the cyclicality, but I just wondered if you'd seen any kind of gross improvement from those initiatives on the gross margin.

I think when you put it all together, then you have a lot of parts that in the end result in the average of the group. When we talked in 2023, we basically also, it's a cyclical business, especially when it comes to the hiring freeze or the markets are stuck, as you said. I think we saw that at a level, I mean, some sectors are hiring even less, almost at the level of the financial crisis, one of those being professional services and digital. So we do see a big impact in the group. from the deceleration of digital and the broader professional talent solutions. The structural facts supporting our margins, they remain unchanged. We have talent scarcity. It is about helping clients timely with finding the right talent for their operations, and we believe those factors are there. Overall, we are more excited about building more resilience and scalability from the margins that we generate.

Okay, thanks very much.

Thank you. We'll move on to our next question from Afonso Zodio from Barclays. Please go ahead.

Hi, everyone. Thank you for taking my question and for the presentation. George, I mean, I just have one last one on the SG&A and FTE number. How do you view a capacity downside further from here? I mean, to your point about already running a very lean operation at this point. So just your views on that in Q1 going forward, because I believe your FTEs are now up roughly 5% from 2019 levels. This was over 8% in Q3. So I appreciate it involves a lot of lives, a lot of people. So how low can this get if things remain quite challenging in the short term? And the rationale for the question is, I mean, you did 3.0% operating margin in Q1 last year. I mean, that's already trough levels for the industry and for you guys as well. Just trying to understand how, I mean, if there's downside to that 3.0% and how you think about that and how willing you are to protect that trough in terms of operating margins.

Yeah, so first of all, on the FTEs, first on where we are and then we can talk about 2019 and then indeed the EBITDA margin or the margins in general. So from an FTE perspective, We always say at Randstad, as you remember me saying this several times, we focus on doing basically the performance that we need to do to adapt our business. Adapting, yes, but ultimately always we're having insight that we can protect the capacity we need to generate if we find ourselves in recovery. So there's always been an effort to keep a degree of capacity that if recovery comes, It's not because we don't have enough FTE, enough capacity that we cannot go after it. And the last part of that is always strategic investment. So a lot of the restructuring and the FTE adjustments you've seen, in particular, have been in how we support our business and making sure that we actually do this in much more efficient ways. So from a recovery perspective, we still feel we are in a position to capture any upcoming growth. Keep in mind that I just said that, yes, December exit rate was slightly lower for the quarter than the quarter in terms of FTE. And we still have the ability to just managing attrition to naturally adjust during Q1 on how we evolve our FTE. So that is basically how we steer. And we do this daily and weekly, literally, in the organization. Overall, there's a lot of moving pieces in our FTE. We also see, if you look at the company versus 2019, It is a company with very different geographical businesses and operating models, where we have way more employees in APEC, in India, in some of our services, or even throughout the world, in Latin America. So it is different in Poland. It is a different company than it was in 2019. Overall, we still have to make sure that we continue building resilience and scalability in Tukhansi.

Which brings me to your last question, the margins.

I mean, we've been doing a lot of decisive action. We've been doing a lot of focusing for specializations because we do want to make sure that we start building from here and hopefully that we've achieved the degree of floor in our profitability. We feel we are well prepared for what we see now in Q1 as we enter the year. Can we guarantee that we don't have to do more adjustments and that indeed this is the end of this trough? Yeah, we don't control the external environments, but I can say we are now much better prepared than perhaps we were at the beginning of 2024.

Okay, that's very helpful, Jorge. I appreciate that. And then just a follow-up, quick one. Do you do any business with the U.S. government? So given the recent news flow, just trying to understand if that's going to impact you in 2025 or not.

Yeah. This is Sandro Alfonso. So we do very limited business with the U.S. government. In fact, most of the business we do with the U.S. government is through others, so through systems integrators or other technology partners. It's primarily in our digital business, but the total of it is very small.

Got it. Thank you. Thank you. As a reminder, we kindly ask you to limit your questions to one and one follow-up. And our next question is from Conrad Sommer from Odo BHF. Please go ahead. Your line is open.

Hi, good morning. First of all, I'd like to pay you a compliment for being able to publish your 2024 annual report on the same day as your Q4 results because it shows that Randstad's got its house in order. A question on the determination of the fair value adjustment and the impairments on the loans. Is that the actual size? Is that... the accountant that comes up with a suggestion, is it something that you can objectively calculate yourself, or is that something that you suggest based on your knowledge of the assets?

Hi, Conrad.

Good morning. On behalf of all the teams, by the way, I thank the government, but the government is to them. So on the monster joint venture. So basically, at the end of the year, we look at the information that we had. We were provided with, let's say, the latest forecast in terms of how the business is evolving. And then we have to take a decision on how we look at the potential value and basically at the likelihood of the results on those loans. And we're just taking a prudent perspective in terms of hiring levels are still down, as Sander just alluded to it. A job board business is obviously highly dependent on hiring and hiring activity. And in that respect, our expectations are that there is no value on these loans. And we decide basically to take that impairment to the amount of 139 million.

Right. Okay. Understood. As a quick follow-up, you started talking about signs of stabilization and green shoots about three quarters ago. You make similar statements today. Now that we and yourselves as well can look back for the last three quarters, has it worked out as you expected? Because I think the market, and certainly myself, are... I'm negatively surprised about the size of the one-offs and restructuring charges, particularly in Q4.

Yeah, so we talked about green shoots exactly one year ago, and we then talked about green shoots not coming to fruition in Q2 and Q3. So in that sense, there's no news. Today we're not talking about green shoots. If you remember what I said, I said stabilization with a few positive nuggets. So that's sort of where we are. I think maybe that's where we should leave it on the restructuring and the impairments involved. I guess I will ask George to comment on that. But we need to do what we need to do. We've taken action to right-size the business to the volume that the market carries. And that's what we have to do. That's what we always do in Onset. We're all about adaptability. So I guess the market could be surprised about the volumes of business, but the market could not be surprised about us taking action when we need to.

Right.

So, Conrad, so building on the, I mean, look, I think the overall point is we know where to invest. We have a strategy that is focused on four specializations, not five, not six, on four. We have growth segments where we see upticks on them and we see a return on investments that we're making, even though, of course, the external environment does not allow for more. We then look at our portfolio. We adapt it. We make the choices we need to make. If I look ahead, we are stronger, more resilient, and better prepared for 2025. That alone should render that in terms of one-offs. If we look at what we see, there's no reason to expect such a high level. If anything, more resilience in that respect. In terms of the impairments, we've made the judgment we had to make when it came to the monster loans. And the broader thing is about now investing on where we can get return, and we know where we can get return.

All clear, thank you.

Thank you. Director, there are currently no further questions. With this, I'd like to hand the call back over to Sander for closing remarks.

Thank you, Sergei, and thanks again all for joining the call today. And as we wrap up the call, as I always do, I would like to thank our more than 600,000 talents and Ransom team members for going the extra mile every day. You are at the heart of our success, and together we make the best team in the industry.

And on that note, we wrap up the call. Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.