Randstad Nv Unsp/Adr

Hello and welcome to the Randstad QA 2026 results conference call and audio webcast. For the first part of the call, the participants will be in listen-only mode. Afterwards, there will be a question and answer session. If you wish to ask a question, please press pound key 5 on your telephone keypad. Please note that you are limited to one question per round and one follow-up question. I will now hand the word over to Sander van het Noordende, CEO. Mr. van het Noordende, please go ahead.

Thank you very much, Martijn, for that kind introduction. And good morning, everybody. I'm here with George and our investor relations team to share our Q126 results. Let me first say I'm proud of our team's continued execution of our Partner for Talent strategy, which is delivering a strong foundation for our growth ambitions. And as a result, our growth has broadened with 63% of Ransat now in growth, up from 50% in Q4, which equates to 0.4% growth for the quarter. Overall volume in contingent work was resilient with strong momentum in the U.S. and Southern Europe, especially, of course, in our Ransat operational business. We see further stabilization in industrial markets in Northwest Europe, while the permanent and professional markets remain challenging. APEC remains robust. Together with strong adaptability, this has resulted in a solid performance with revenues of 5.5 billion euros and an EBITDA of 146 million euros, representing a 2.7% margin. Volume trends in early April have been encouraging, and so far we have seen very limited impact from the geopolitical situation in the Middle East. As you would expect, we are monitoring the situation vigilantly and are in constant dialogue with our clients to understand the impact they are noticing on their business. However, the current trajectory of our business gives us confidence for the months ahead. As we move further into 2026, we continue to progress well on our Partner for Talent strategy. Our growth through specialization is fueled by the 10x10x10 initiative. 10 markets with each 10 opportunities of 10 million or more. And Jesus and the team are doing a fantastic job here and secured over 600 million of new wins in view one. In operational, we saw an uptick of client activity across our industrial segments, particularly in manufacturing, including skilled trades in markets such as Germany and Italy. We saw strong growth in the logistics sector with increased hiring forecast in key markets such as the US, France, and the Netherlands. In professional, we see momentum improving in engineering in the U.S., Italy, and Japan, and we are growing in healthcare primarily driven by the Netherlands and Italy. After a slow January in our enterprise business, we expect trends to sequentially improve from here as we secured a number of new clients this quarter across life sciences, semiconductors, and energy. The health of our pipeline also bodes well for the rest of the year. We celebrated the rollout of our digital marketplace in the UK, and once again, talent loves it. Within two hours, we had 77% of the targeted talent on the app. We are now live in nine markets. In March alone, we managed close to 600,000 self-service shifts with around 240,000 monthly active users. We also went live with the front and mid-office of Aranza Talent Platform in Italy with our digital marketplace to follow later this year. On AI, 80% of our staff are now AI trained. Working smarter and more efficiently is essential to continue driving down indirect costs as a percentage of revenue. So as we enter 2026, I'm proud of our teams as a partner for talent strategy and commercial success provides a strong foundation for our growth ambitions. Because I know it's on your minds, let me say a few words about the role of AI in the labor market. Above all, we are AI optimists. In the context of an aging population and persistent labor mismatches, we view AI as a critical enabler for a very welcome productivity boost. And there are a few points I'd like to make here. First, studies show that the base case for the impact of AI is a job loss of 6-7% over the next 5-10 years, with a particular focus on clerical roles, customer service, marketing and design, and software developments. where our exposure as Randstad is currently limited. Then it looks like AI is more about task and team augmentation than outright job replacement. So roles will change over time, and we at Randstad call this the great adaptation of the workforce. Finally, the phenomenon of jobs disappearing and new jobs emerging is of all ages. Of the jobs we cater for today, around 60 to 70% did not exist 65 years ago when we started Randstad. Our first steps were mostly executive assistants, which today are a fraction of our business. So what does this all mean for Randstad? First of all, Randstad operational and healthcare are two-thirds of our business today. These are typically jobs that are human-centric and minimally impacted by AI. Think about maintenance technicians, welders and fabricators, HVAC specialists, and of course, nurses and care workers. Secondly, our strategy is to ensure that we are highly relevant where the future jobs are. That's why we have our four specializations, each with its own growth segments, such as skilled trade, logistics, engineering, healthcare. As the Canadians say, we are skating where the puck is going to be. In summary, we're confident by taking the right actions for our partner for talent strategy, we can navigate and benefit from the impact of AI on the labor market over the next five to 10 years. I'm going to now hand over to George to say a bit more about our financial results.

George. Thank you, Sander, and good morning, everyone. Let me start by saying that overall we are happy to see that this quarter mostly came in line with our expectations. The trends are consistent, they are more stable, and the changes we are doing are also more structural. We saw sequential improvement in growth rates across most of our markets, and we returned to organic revenue growth. This growth is led by our operational business, a standard that's highlighted, which grew 3% globally, including a strong 8% in the US, where our digital marketplace is driving tangible market share gains. But it's also positive to see manufacturing PMIs above 50 in most of our markets for the first time in many quarters. While remaining vigilant on geopolitics, we do balance momentum with discipline and investments in our roadmap. not only to protect the bottom line, but also in growth to ensure we have the operational gearing ready for the coming quarters. Before we move on to the section in the markets, please a small note, we have simplified the reporting structure by removing the regional subsegments in Europe. Where applicable, the comparative figures are presented to align with this new structure. So let's dive in and let's start with North America on page 9. In North America, we continue to build throughout the quarter, with strong exit rates in our industrial sectors. U.S. operational grew 8%, significantly outpacing the market, and its double-digit profit growth validates our new model of central delivery and a digital marketplace. Professional is down 8%, but improving sequentially, with corn returning now to growth. Enterprise started slow, as mentioned already at the end of Q4, but ended with stronger exit rates, driven by major new wins and a solid pipeline. Digital faced muted Q1 demand, but it did well. Canada mirrors the U.S., with strong operational growth offsetting a slower enterprise start. Overall, North American EBITDA margin was 3%, year-over-year delivering a 78% recovery ratio. Now, moving on to the major European markets on slide 10. In Europe, momentum is improving across our major markets. though the split between a strong south and a slower north still remains. In the Netherlands, organic revenue returned to growth, driven by continued good performance in healthcare and solid positioning with large logistics and e-commerce clients. We spent Q1 implementing the new CLT together with our clients and, while complex and not finished yet, we progressed well and expect this to be concluded in the next few weeks. Overall profitability came in at 4.4%. In Germany, we are seeing early signs of recovery, down just 4%, driven by improving PMIs. Industrial pockets are returning to growth, and even automotive was still declining, it is clearly bottoming out. Public infrastructure is pending, as yet to materialize. In Germany, the transformation we started last year is paying off, as the business pushes hard to return to growth at a more sustainable level of profitability. Now, in Belgium, we still declined 6%, with operation at minus 4%. The weakness in the market is mostly around permanent hiring and office jobs. Now, moving on to France, it remains still a two-speed market. On one side, our in-house and larger client portfolio is up 11%. On the other side, SME and still firm segments are currently lagging the market. Professionals here also declined 13% year-over-year, with volumes weighed down by the recent healthcare legislation. Overall profitability came in at 3.9%. In Italy, growth continued to accelerate on the back of a successful Olympics campaign, with operations up 9% and professionals also growing now at 6% as our recent investments over 2025 pay off. Profitability came in at 5.1%, impacted this quarter by an Olympic brand awareness campaign and strategic investments for the platform. Liberia had a fantastic quarter, plus 9%, led by Spain, north of 10%, where we are firing on all cylinders, and we continue to invest in further growth, both in people and capabilities. Let's now move on to the international market slide, on slide 11. International markets are a bit of a mixed bag, as you can see, so let me quickly unpack in more detail. In Europe, We celebrated the go-live on RDMP in the UK, like Sandra mentioned, and it's great to see our first talents using the platform over the last two, three weeks. Poland is still growing at 2%, Switzerland 3%, continue to grow, and offsetting still the subdued Nordics, still at minus 11%. In Latam, we continue to see good momentum, particularly in Brazil. In Asia Pacific, Japan continued its solid growth at plus 5%, and we continue here to invest to capture structural opportunities, particularly in the digital area and in Tokyo. Australia and New Zealand declined 4%, with some signs now of stabilization. India, growth accelerated to 16%, as we continue to invest in growth segments. Overall, the EBITDA margin for the region came at 3.6%, reflecting growth investments. And that concludes the performance of our key geographies, so let me now walk you through our combined financial performance on slide 13. Looking at the revenue mix, we see the trend of the last few quarters continuing. Operational sees momentum now accelerating and is now growing 3%. Remember, it was flat on Q4. Professional also improved quarter over quarter due to strong demand in healthcare, particularly in the Netherlands and Italy. Engineering in U.S. and Japan. Digital and enterprise started the year slowly, and tougher forms certainly did not help. Pipeline, deal wins, and exit rates for enterprise look better as we enter into Q2. Now, our gross profit and OPEX were well aligned, but we will talk more about that particularly later. Zooming into EBITDA, EBITDA margin was 2.7%. Underlying EBITDA was 146 million euros, with an adverse steel FX impact this quarter of 6 million euros, which will start leveling off from here. Integration costs announced this quarter amounted to 23 million, and they were mostly related to the Netherlands or Northern and Western Europe, as we continue to drive structural change across organizations. Net finance costs are just the regular interest payments, albeit lower, reflecting the lower net debt coming down. The effective tax rate for the first three months was 31%. We expect a 26 ETR towards the higher end of 29 to 31% range. And this all led to an adjusted net income of $91 million for the quarter. But with that, let's indeed now deep dive into the gross margin slides on slide 14. And a few things about the margin. So gross margin was down 80 basis points to 18.5%. Within that, our temp margin is down 60 basis points, and primarily with points we had highlighted right in the previous quarter. On one hand, operation remains more resilient, if not even now in growth, versus professional digital specializations. Two, we continue to see geographical divergence, with Northern Europe below group average, and Southern Europe continuing to do better. The adverse effects impact following, let's say, Liberation Day, it still plays a role. And last but not least, as we mentioned in Q4, there were incidentals between Q4 and Q1 last year, which impacts a little bit the comparisons. Firm contribution, which was still down 20 basis points, is now somewhat stable at low level, as key European firm markets still remain very challenging. In HRS and other, remember, here we include RPO, outplacement, and a lot of other fee businesses, MSP, is still flat. Now, this is the market at the moment where the majority of the gross margin pressure is simply a reflection of the continued growth divergence across our portfolio. Albeit, most of this pressure starts to analyze as we progress through the quarters ahead. Now, let me bring you now in more details into slide 15 on our OPEX bridge. Underlying operating expenses were $873 million, moving in lockstep with gross profit as we've been doing in the previous quarters. Despite inflectionary pressures, we lowered OPEX quarter over quarter, and we are building clear operational leverage. We're achieving this through delivery excellence, growing volumes in key markets, and delivering through the most productive talent service models without adding as much headcount. In fact, the correlation between volume and FTE is now at a six-year low. We also continue to reduce indirect costs as a percentage of revenue through scale and technology. Overall, I think the important point about our OPEX is that the change in the past three years proved to be structural, with, again, the last four quarters ICR hitting close to 70% at 68%. What this means is that we are improving our ability to offset gross profit declines by reducing OPEX or to convert gross profit into EBITDA as growth returns. And with that in mind, let's now move on to slide 16, which contains our cash flow and balance sheet remarks. First balance sheet, our underlying free cash flow for the quarter stood at minus 98 million. We typically have the most seasonal negative working capital movements in this quarter, such as VAT, wage taxes, commissions, and prepayments. In addition, in particular, in Q1 this quarter, we had a delay in invoicing at the beginning of the quarter associated with the Netherlands following the implementation of the new regulatory framework of about 40 to 50 million. This will obviously normalize now into Q2, and we expect the same cash trajectory for the full year. DSO came in at 57.4 days, up 0.7 days sequentially, and reflecting exactly the mix and the delay in invoicing. Net debt decreased 131 million year over year, and our leverage ratio stands now at 1.5. And that brings me to the output on slide 17. So looking at the current momentum, we see the positive volume trends in February and March. continuing to April, and that gives us confidence for the months ahead. Now, remember, Sandra highlighted, we have seen no direct impact from the Middle East, but we remain vigilant. Gross margin in Q2 is expected to be slightly down sequentially, reflecting the normal seasonal step-up into volume higher clients, but also the lowest working day quarter of the year. And we continue to still see, as we enter, ongoing reluctance in hiring or permanent hiring by clients and talents. On the other hand, operating expenses are expected to increase slightly quarter over quarter, but always, again, with strict operational discipline. So to summarize, by sustaining our growth momentum, continuing to drive productivity from how we run our business, and structurally reducing the cost to support it, we are inherently building operational leverage into OneStats. And that concludes our prepared remarks, and we look forward now to taking your questions.