Earnings call: Randstad reports challenging Q1 amidst market downturn

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Earnings call: Randstad reports challenging Q1 amidst market downturn
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In the first quarter of 2024, Randstad, the global leader in the HR services industry, faced a revenue decline of 7.8% year-over-year, amounting to €5.9 billion due to challenging market conditions, particularly in North America and Northern Europe. The gross margin slightly decreased to 20.2%, with the staffing business experiencing lower margins.

Despite these conditions, the company reported an underlying EBITA of €177 million, representing a 3% margin. Randstad (RAND.AS) is adapting its strategy by implementing specialization frameworks and expanding its digital marketplace, which is showing promising progress.

While the macroeconomic environment is expected to remain challenging, the company is optimistic about signs of improvement in some regions and is continuing to invest in growth opportunities.

Key Takeaways

  • Randstad's Q1 revenue fell to €5.9 billion, a 7.8% decrease year-over-year.
  • Gross margin was down slightly to 20.2%, primarily due to lower margins in staffing.
  • Underlying EBITA stood at €177 million, with a margin of 3%.
  • The company is expanding its digital marketplace and expects a €2 billion run rate globally by Q2.
  • Randstad is focusing on specialization and has launched the Randstad Talent platform in the Netherlands and Sweden.
  • Southern Europe, LatAm, and Asia Pacific showed positive performance, while North America and Northern Europe struggled.
  • Free cash flow for the quarter was negative at -€42 million, influenced by Easter's timing on working capital.

Company Outlook

  • The macroeconomic environment remains challenging, with signs of normalization and potential bottoming out.
  • Randstad plans to prioritize investments in go-to-market power and maintain disciplined capital allocation.
  • The company is optimistic about recovery, noting positive growth signs in some markets.

Bearish Highlights

  • North America revenue declined by 15%, influenced by lower manufacturing sector activity and temporary staffing demand.
  • Northern Europe, particularly Germany, saw a 15% decline in revenue.
  • The UK market was down 12% due to portfolio choices and market challenges.

Bullish Highlights

  • Southern Europe displayed resilience, with Italy showing signs of growth and Iberia achieving a 4% revenue increase.
  • Asia-Pacific's Japan saw 5% growth with strong profitability.
  • Professional talent solutions in Iberia grew by 19%, with Spain's revenue up by 6%.

Misses

  • Gross margin decline was attributed to sickness rates and a mix of business, with permanent and HR solutions underperforming.
  • Free cash flow was negatively impacted by -€42 million due to lower profitability and the timing of Easter.

Q&A Highlights

  • The company discussed the negative cash flow impact due to Easter's timing, a recurring seasonal pattern.
  • A decrease of approximately 48,000 temps at work in Q1 compared to the previous year's Q4 was reported.
  • SG&A expenses are expected to increase modestly in Q2, by around €5 million to €10 million.
  • Investments in strategic initiatives and marketing are planned for Q2 to prepare for future growth.

Randstad continues to adapt to the market by focusing on specialization and digital initiatives, positioning itself for growth when market conditions improve. The company's strategic approach, including its role as the official provider of staffing services for the Paris Olympics, is expected to enhance its brand and client relationships, notwithstanding the modest financial impact.

With a disciplined approach to investing and capital allocation, Randstad remains committed to its employees and delivering client value as it navigates through a challenging economic landscape.

Full transcript - Randstad NV (RAND) Q1 2024:

Operator: Good day, and welcome to Randstad's First Quarter Results 2024 Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. Later we will conduct a Q&A. [Operator Instructions] At this time, I'd like to hand the call over to Mr. Sander van't Noordende, CEO. Please go ahead, sir.

Sander van't Noordende: Thank you, Alicia, for the introduction, and good morning everybody. I'm here with Jorge, Steph, and Temur from Investor Relations. During the first quarter, we continued to adapt, as market conditions remain challenging. While we performed well in Southern Europe, LatAm and Asia Pacific, we encountered softer than expected conditions in North America and in Northern Europe. Against this backdrop, we delivered revenues of €5.9 billion, a decline of 7.8% year-on-year. Our gross margin came in at 20.2%, modestly down compared to last year, reflecting our service mix and a slightly lower margin in our staffing business, which was driven by higher sickness and other seasonal effects. As you would expect, we sustained our focus on adaptability resulting in an underlying EBITA of €177 million, a 3% margin for the quarter with a recovery rate of 46%. And as we move into Q2, we expect the macroeconomic environment to remain challenging. That said we do see green shoots across some of our regions and segments. And in our conversation with clients, we hear that things appear to be bottoming out. We're now a few weeks into April, and we are seeing broadly similar volumes to those at the end of Q1. We are ramping up our commercial activities and following our steering principles with investments in field capacity where we see concrete growth opportunities. Also in Q1, we stayed the course on executing our partner for talent strategy. And as you might recall, a key priority for us is growth through specialization. We have identified four specializations: operational, professional, digital and enterprise and each of these specialization is focused on high-growth markets. Another pivotal plank of the strategy is our investment in technology and I would like to highlight three things in particular. Firstly, the implementation of our specialization framework is progressing at speed. At the time of our Q4 results in February, we have implemented the framework in half of our markets. We now expect 90% of our markets to be brought within the new framework this quarter. Secondly, we are excited that our digital marketplace rollout in North America is progressing very well. As set out at our Capital Markets Day, we expected to reach a run rate of €2 billion globally by the end of 2024. We now expect to reach this number in Q2, several months ahead of schedule. Thirdly, our Randstad Talent platform went live in the Netherlands and Sweden, and the rollout has gone smoothly and according to plan. In summary, the ramp-up of commercial activities, our investments in field capacity where we see fit, combined with the execution of our partner for talent strategy, positioned us very well to capitalize on the growth opportunities when the markets return. And it's fantastic to see the focus and commitment of our people across the globe and how they position Randstad for growth. Let me now hand over to Jorge to give a bit more colors on the number for the quarter.

Jorge Vazquez: Thank you, Sander, thank you Alicia, and good morning everyone. Let me bring where we last left it during our Q4 publication in mid-February. We discussed then how our year started slowly, the impact of holidays, supply chain disruptions, given sickness rate, among other things. Today, looking at the entire Q1 and comparing it to Q4, we did observe indeed a slow start to the year, but in the end, within the range of a much more familiar seasonal historical trends and broader signs of stabilization, which is especially important after an atypical 2023. Things do seem to have normalized. In terms of comparison to last year, Q1 declines and trends are in many ways that you will see similar to what we saw in Q2, Q3 and Q4, as normalization from 2023 has not yet left. At the same time, the path to recovery is unlikely to be uniform across all our markets. As you'll see from this quarter's performance, we made good progress towards growth in some, while in others things have been slower to pick up. We will cover that in more detail shortly. Financially, our performance and adaptability ratio remains strong, and we have again demonstrated the resilience of our business model. As Sander said, we are beginning to see green shoots. While uncertainty remains into Q2, we have recently seen some positive economic indicators changing. Q2, therefore, appears to be somewhat of a transition quarter from comparables, from seasonality perspective and hopefully into a more pronounced recovery. In this context, we continue to roll out our partner for talent strategy across all our operations and are making early cyclical investments. I'm excited about these initiatives, which are designed to put us in the best position for an economic recovery. Remember when conditions softened, our clients post projects, reduce costs or labor and outsource many of their activities. Clients begin to test waters, ramp up projects, higher flexibly and increase the teams permanently when in recovery. We have been managing for the former and will now be tentatively for the latter. Let's go into details and let me now discuss the performance of our key regions on Page 8. Shifting our focus towards North America, especially in the United States, as discussed before, the current economic indicators show a slightly different story compared to previous cycles. The sectors where [indiscernible] had less presence such as health care, government and hospitality, are experiencing no hurry. In the manufacturing sector, however, we have observed one of the most extended periods of restrained PMIs our confidence levels, accompanied by a similar long decline trend in temporary staffing policy. Things did seem to stabilize sequentially. As the post-pandemic normalization process continues, we expect more positivity towards hiring and lever planning to return to normal levels. Our revenue dropped by 15% this quarter, stable compared to Q4, with permanent hirings declining 40%, therefore creating pressure on our gross margin and EBITA margin in the region. Our U.S. Operational talent solutions declined by 11% with lower demand across all sectors. Professional Talent Solutions was down 22%, facing challenging market conditions affecting the IT service sector. U.S. Digital talent solutions was down 16%, while the U.S. Enterprise solutions was down 16% as well. The EBITA margin stood at 2.3% with a recovery ratio of 54%. In United States, in particular, we continue to roll out our Digital marketplace, as you heard from Sander, redesigning and resizing our organization to accommodate new ways of working and is new normalized levels of gross profit. This quarter, as you will see, we incurred a significant restructuring charge on real estate. Moving on now to Northern Europe on Slide 9. In Northern Europe, we continue to navigate a challenging business environment with ongoing softness in demand. As established market leaders in these regions, our comparables from a still relatively strong Q1 2023 pose additional challenges. Germany, in particular, was difficult and we faced persistent headwinds that impacted our profitability in the region. Despite these difficulties, we have maintained strong adaptability in Northern Europe. Again, here, as the new normalized level becomes clear, we have also adapted our teams and made a significant restructuring charge this quarter in the region. Breaking it down in more detail, in the Netherlands, revenue was down 7% compared to last year, reflecting a slight sequential improvement from the minus 8% in Q4. We have seen a softening decline across all sectors, except the public and automotive industries and a gradual easing towards the end of the year. The Operational Talent Solutions was down 7%, while our Professional Talent Solutions was up 1% year-over-year. Perm was down 18% and EBITA margin came in at 4.8%. In Germany, challenging economic environment has resulted in revenue declining 15% due indeed to different market conditions and portfolio decisions we spoke earlier in the year. Operational Talent Solutions was down 17% and perm saw a 10% increase this quarter. Profitability was significantly down year-on-year, mainly as we elaborated in February due to high sickness rates, impact record high sickness rates, the impact of holidays and other incidental effects. We do not expect an immediate recovery in Germany and are refocusing the business for growth in our four specializations. In Belgium, revenue decline continued to narrow and improvement again compared to the trend of Q4. Operational Talent Solutions was still down 5%, while Professional Talent Solutions was close to flat and down 1%. Belgium is one of our long-established markets, with good portfolio diversification and has shown good adaptability. EBITA came in at 4.5% this first quarter. Looking at other Northern European countries, reflecting mixed performance. Let me break it down for you. Poland continued its growth from Q4 with revenue up 7%, cementing our number one position. Nordics was down 22% and Switzerland was down 12%. EBITA margin for these countries altogether came in at 2.1%. Let's now turn the page and move on to segment Southern Europe, UK and LatAm on Slide 9. Our businesses in Southern Europe have shown resilience and adaptability. With improved growth trends, we achieved an EBITA of €107 million with a margin of 4.8% in the region. Here, as discussed before, we are selectively increasing capacity in some units to enable a standard ramp-up period in 2024. France's revenue was down by 5% compared to last year due to softening demand in most sectors, below our expectations exiting the fourth quarter. Only public services and automotive sectors experienced an increase. Compared to its neighbors, France was in a late cycle last year. Remember, we were still growing in the first half of the year. The Operational talent solutions decreased by 7% year-on-year, while the Professional talent solutions increased by 2%. France ended the quarter with an EBITA margin of 4.3%. Italy's revenue decreased by 2% compared to the previous year. However, there was an encouraging sign. In March, it actually returned to growth. The Operational talent solutions experienced a year-on-year decline of 2%, while Perm in the quarter declined by 2% as well. On the other hand, we are pleased with successful rollout of our Enterprise solutions, especially the RPO, which has already become sizable and is growing at 18%. Italy finished the quarter with improved profitability compared to last year at a 7.6% EBITA margin. We plan to invest more in Q2 to remain well positioned to continue capturing the market. Turning into Iberia. Iberia revenue continued to improve, growing by 4% this quarter and continuing to improve versus Q4, flat. We crossed the line. Operational talent solutions grew by 3%, whereas Professional talent solutions grew by an impressive 19% compared to last year. Notably, Spain showed robust growth with a 6% increase, mainly driven by strong performance in its Professional talent solutions. This progression reflects our ongoing efforts to capitalize on market opportunities and enhance our regional presence. Across the Southern European countries, UK and Latin America, revenue and profit performance was mixed. UK was still down 12%, reflecting primarily portfolio choices and challenging markets. And by contracts, Latin America continued to grow with Brazil notably at 10%. Let me now turn to Asia-Pacific on Slide 11. The Asia-Pacific region also shows a mixed growth trends with more challenging macroeconomic conditions at the beginning of the year. Nevertheless, Japan demonstrated a solid performance, achieving 5% growth with strong profitability. There remains considerable potential in the world's second largest staffing market. Operational talent solutions were up 2%, whereas again, Professional talent solutions delivered growth of 6% year-over-year. Our Digital specialization recorded double-digit growth in Q1 at plus 19%. Australia and New Zealand saw continued softening in demand particularly impacting, as we discussed in February, by the holiday period and revenue declined by 16% in the quarter. India grew by 2%, showing resilience and continued focus on profit portfolio. And overall, the EBITA margin for APAC was 3.9% in the first quarter. And this concludes the performance of our key geographies. So let's just now walk you through the group financial performance on Slide 11. The group revenue for the first quarter was €5.9 billion, which is a decrease of 7.8% year-over-year. Sequentially, this is in line with the normal Q4 to Q1 transition. Our Operational and Professional talent solutions did slightly better than the group average, declining 7% and 6%, respectively. Our Digital and Enterprise talent solutions, more attained in North America declined more than the group average. At the same time, our pipeline in, Randstad Digital and Randstad Enterprise continue to improve on the back of stronger capabilities than we have had before. Monster came in at minus 13%, broadly in line with the previous two quarters. We will cover in detail gross margin OpEx later, before now the quarter's EBITA was €177 million with a solid margin of 3% EBITA. Integration and one-offs were €41 million this quarter. Of this, €2 million are related to M&A integration costs, the remaining €39 million are restructuring expenses, as mentioned before. The majority are rightsizing and direct cost in North America and Northern Europe, particularly in this quarter with a significant charge on real estate. In amortization and impairment of intangible assets, not in relevant, our net finance costs in Q1 were €7 million. The effective tax rate was 26%, with our guidance remaining between 25% and 27% for the full year 2024. With that, let’s turn the page to look at our gross margin bridge on Slide 14. A few things about margin, the first quarter gross margin was 20.2%, down 80 basis points versus last year. The chart shows this is mainly due to our Perm and HR solutions businesses in line with Q3, Q4 and all the adjustments we saw in 2023. The overall temp margin declined modestly by 10 basis points caused by mix of other factors. Apart from the usual seasonal pattern, sickness levels increased in Germany and Northern Europe. The business mix in North America and the mix effects due to varying geographical growth rates also contributed to this decline. Perm revenue decreased by 21% compared to a fall of 26% in Q4, reaching €131 million. This decline was more significant, therefore, than the temp business and hurt the gross margin by 30 basis points, as you can see in the chart. Additionally, RPO showed a similar trend and declined by 20%, which explains most of the 40 basis points negative impact on HR services. Perm and RPO accounted for approximately 16% of our gross profit. One crucial point is, we have not left yet the fee business declines of mid-last year, comparisons year-on-year still play a role. Compared to Q4, our perm and RPO invoiced amounts were broadly stable in Q1, slightly up. Perm and RPO are more cyclical, which is weighing on us now, but cyclicality works in both directions and will support us strongly in a recovery, which brings me to the OpEx bridge on Slide 15. Remember, this one is sequential. It’s not year-over-year. In short, as we have encountered a more subdued Q1 than initially expected, we continued our discipline on operating expenses, resulting in a recovery ratio of 47%. In the first quarter, OpEx was €1.22 billion, 1% down sequentially and 7% down year-over-year. The average headcounts remained broadly in line with Q4 organically. As mentioned in Q4 publication, our focus is to ensure we have sufficient capacity in the market to get back to growth, continue the rollout of our strategic initiatives and persistently streamline our indirect costs. A good example in resetting our accommodation footprint in the United States, where we expect to stay between 30% to 40% of our costs in the next two years. 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 minus €42 million, reflecting partially a lower profitability compared to last year, but the majority of it is from the impact of Easter on our working capital and the long weekends and the quarter finishing on a long weekend. We saw the reverse effect of this at the beginning of April. DSO was 53.7, up 0.7, let’s say, year-over-year. And the geographical mix put some upward pressure on our DSO over the past quarters, which we expect to normalize as recovery continues. We continue to apply a strict capital discipline. Lastly, we completed the fourth tranche of our share buyback program announced in February 2023. Today, we announced that we will start our fifth tranche, which will be completed by mid-July, which now brings me to the outlook on Slide 17. We expect the macroeconomic environment to remain challenging. On the one hand, uncertainty remains, as you heard from Sander and even increases with the geopolitical events over the last few weeks and persistently high inflation levels. And on the other hand, sequentially, we see signs of normalization in the quarter, and as I previously mentioned, and echoing Sander’s points, PMIs conversations with clients and green shoots across some of our marketing segments do point to a potential bottoming out. Also, its seasonality was as expected, we expect to see our top line starting to increase. We have worked hard to be this position today. Our teams have been led by Randstad’s golden rule in field steering adaptability. Now as I mentioned before, as we move to Q2, we are balancing for others such as input headcount for output gross profit. As we maintain our disciplined approach to capital allocation, we are prioritizing investments in go-to-market power. Let me first start with the activity momentum. In the first two weeks of April, we see broadly similar volumes to those we experienced as we exit Q1. Q2 2024 gross margin is expected to be broadly in line sequentially. Q2 2024 operating expenses are expected to be modestly higher sequentially. As we position for growth to ensure we outperform our markets in the future recovery. We do this by, number one, protecting field capacity in many markets; number two, protecting our strategic initiatives; and number three, investing selectively in headcount guided by field steering. Finally, we note there will be a positive 0.6 working days impact in Q2 2024. To summarize, before we open for Q&A, it was a slow start to a much more normalized year. In general, it appears some of our markets are bottoming out, but things remain challenging. We are in a strong financial position, and we have the best teams to operate the cycle. Therefore, we are confident in our choices to capture growth more firmly as markets return, which concludes our prepared remarks, and we now look forward to taking your questions. Operator?

Operator: Thank you. [Operator Instructions] We’ll take now the first question from Simona Sarli from Bank of America (NYSE: BAC ). Your line is open now.

Simona Sarli: Yes, good morning, and thanks for taking my questions. So first of all, if you could please comment on the exceptionals, so how we should think for Q2 and also for the remaining part of the year? Also, the second question is related to working capital. So you have mentioned some impact from mix and also holidays – Easter holidays in Q1? So again, if we – if you could talk a little bit about a more normalized trajectory for, like, how we should think for Q2 and onwards? Thank you.

Jorge Vazquez: Yes, [indiscernible]. Okay, so let me start on the exceptionals. They are by definition exceptionals, Simona, so it is somewhat difficult to predict. But let me be – I think we were quite open. We obviously have seen the company normalizing after the peak of 2022. And if we look at two of our very difficult – well, we have more challenging conditions, North America and Northern Europe. We’ve decided to take action and action meaning resizing as much as we can in direct costs to the new normalized levels. In that context, this quarter, in particular, is impacted by a significant restructure on real estate. Approximately half of the number you see there comes down to basically vacating offices in the United States. And basically make – taking the charge that comes with it. Obviously, we do not rechange our accommodation strategy every quarter. So that is a one-off that we don’t expect to see. Going forward, if things do seem to be bottoming out, our restructures, if any, seem to be more surgical in indirect costs and ideally only indirect never, never, never in fields because we want to now protect with this. On working capital, so I think let’s separate the six, the large impact of what you see in terms of negative cash flow is purely the effect of Easter having – or the quarter having finished in Easter with a long weekend. We saw the immediate reverse impact of that on the first days of April, as we went into Q2. We had the similar effect in 2016, 2017, 2018. So it is nothing abnormal. It’s just that indeed, it is in timing, in particular, Easter was exactly at the end of Q1.

Simona Sarli: Thank you very much.

Jorge Vazquez: Thanks, Simona.

Operator: We’ll take now our next question from Suhasini Varanasi from Goldman Sachs (NYSE: GS ). Your line is open now.

Suhasini Varanasi: Hi, good morning. Thank you for taking my question. I have a couple of questions, please. One is on the number of temps at work, which I think on average, has stepped down by about 48,000 in 1Q versus 4Q last year. Was there a difference between March and January? And if there was, can you please let us know what the exit rate was? The second one is on the SG&A, please, on the outlook. When you say it is modestly higher, just slight difference in terminology versus the marginally higher SG&A that you had talked about for 1Q, which effectively stepped up by €6 million. So how should we think about the modestly higher SG&A place? Should it be up €10 million, €15 million Q-o-Q? Thank you.

Jorge Vazquez: Yes. Let me take first the second one. Look, what I think I said, and I try to make clear, is we’ve been clearly managing for adaptability over last year. We, of course, will do this responsibly, but we’re starting to manage as well to capture the upside. So from looking ahead into Q2, when we say moderately, I’ll say it’s not €5 million. So the plan as it stands at the moment, it’s probably north of €5 million to €10 million. But we’re just starting the quarter now, Suhasini, so we’ll see how we actually move into the quarter. And this is to set us up for more growth in the second half of the year. In terms of the first question, our employees working were pretty stable throughout the quarter, and we find reasonably imbalanced. I mean, typically, things decline around 4% to 7% – 6%, 7% from Q4 into Q1. We saw a revenue decline of close to 5% from the Q4. So we see – let’s say, we saw a number, yes, on the lower range of things or the lower range of – on the lower part of the range, but still in line with, we typically see, seasonality. If you look at the quarter, it’s a difficult quarter to read intra-quarter. January started very slowly. You remember we discussed this in our Q4 publication. A lot of prolonged holidays or let’s say, slow start after New Year’s Eve or after New Year. Margin itself, the numbers remain stable, but it’s also a funny quarter three because, of course, we have a lot of holidays. And as I mentioned earlier on, we had Easter falling into it. So we are confident as we start Q2. We are seeing the normal size of seasonality. And in that context, we are ramping up our investments.

Suhasini Varanasi: Understood. Thank you.

Operator: We’ll take now the next question from Abi Bell from UBS. Your line is open now.

Abi Bell: Hi. It’s Abi Bell with just 2 questions from UBS, please. Firstly, what’s within the 40 basis points gross margin decline from HRS and other? I know that you mentioned that 20 basis points was around from RPO, but what about the other 20 basis point? And will these pressures ease over the year? And then secondly, net headcount was about – was stable sequentially in this quarter. And so will you expect this to be rising in the Q2? Or is there other items that are increasing for now within your cost outlook? Thank you.

Jorge Vazquez: Thank you, Abi Bell. So first one on HRS. I mean the RPO is 20%. But I mean, it’s broadly in line with the rest of the different products we have or different service we have in HRS. And then I think the reality is we are now starting to lap especially in Q2, a lot of the declines we had last year. What I do take comfort is, if you look – I mean, we don’t believe on percentages, if you look at the hiring activities of the invoiced amount we gave to our clients, they are actually pretty stable between Q4 and Q1, both on the permanent side of things as well as on the RPO side of things. So that means you just see that we have achieved a bit of a bottom. And going forward, yes, they might start easing, but that now remains to be seen and captured in the markets.

Sander van’t Noordende: Let me say a few things about the headcount, Abi. You have Jorge say about our field steering and that’s what we continue to do. Well, first of all, we see segments and pockets in our business where we see opportunity, and that’s where we will increase the headcount. Secondly, there might still be pockets where we have challenges, so we might reduce headcount. So I would say in terms of our headcount going forward, it might pick up a bit, but not dramatically.

Jorge Vazquez: Yes. And lastly, you asked a question about – so is it headcount? Yes, like Sander just answered and not dramatically. At the same time, of course, as we go into market, it’s also time to consider things like marketing, time to consider things of timing up a lot of our go-to-market investments, and that all plays for as we stand today, going back into more of an investing mode in Q2.

Abi Bell: That’s great. Thank you very much.

Operator: We’ll take now the next question from Afonso Osorio from Barclays (LON: BARC ). Your line is open now.

Afonso Osorio: Hello, everyone. Good morning. I just have two, please. First one, building on Simona’s question before around restructuring charges in Q1 and the rest of this year. Is that just downsizing your real estate footprint in the U.S. and in Northern Europe or are you doing something else in these regions, i.e., delayering manager roles or perhaps changing in the strategy in those two countries? And then number two, on the current competition environment. Just wondering what kind of trends are you seeing on the ground at the moment, particularly in Europe and in the U.S. as well? And if you it had any meaningful impact on your pricing power in Q1? And what kind of pricing power you expect going forward this year? Thank you.

Jorge Vazquez: Yes. So I mean – thank you for the question. Just to be objective, we are consistently, I mean, always looking into ways of optimizing our cost burden, our OpEx and definitely our indirect costs. So in that respect, whereas a large part of this quarter restructure was done to real estate adjustments, other part of it comes down just to, yes, reorganizations of how we support our business in North America and in Northern Europe. Obviously, it is difficult to say how that will evolve into the rest of the year, but we are continuously looking as we roll out new ways of working on how to optimize our cost base and sets us up stronger towards 2024, 2025, 2026. So that is the main point.

Sander van't Noordende: On the competitive environment, Alfonso, I would say, no major change. We have ramped up our commercial activity in a major way over Q1 within some pockets over 20% more commercial activity. So we're out there talking to clients and making sure we capture all the business we can. And again, we are investing in those pockets where we see concrete growth opportunities. And do recall that our specializations are also focused on high-growth pockets and think about health care and professional, think about finance, think about life sciences. So we are out there where the market is growing and making sure that we are competitive.

Afonso Osorio: Okay, thank you very much.

Operator: We'll take the next question from Marc Zwartsenburg from ING. Your line is open now.

Marc Zwartsenburg: Yes, good morning everybody. It's Marc Zwartsenburg. It's not easy. First a question on the mix. I see that Profs in Europe, in quite some countries, is actually outperforming the more general staffing. On the other hand, we see the gross margin going down and particularly the temp margin coming down. Can you maybe explain to me why Profs in this part of the cycle is outperforming in those regions, the general business. Well, actually, we see peers struggling more in the Profs area than your trends. So I'm just trying to get my head around that difference. And then maybe also a bit connected to that, the gross margin. You mentioned sickness rates is explaining a bit of the margin weakness and the other part is then mix. But this is then purely the mix from the U.S. Profs is having such an impact on the margin or is it also other businesses? Just trying to get my head around a bit on whether we've seen the trough in the gross margin.

Sander van't Noordende: Yes, Marc, let me say a few words about the Profs. I think what you see is our specialization strategy is starting to work. Profs has seen – has done well in health care, in particular, which has been tracking nicely in France, but also in Netherlands. Also in Iberia, we have had a good run at Profs. The other thing on Operational is, of course, that's the general industrial activity that is continuing to be challenging so that's why Profs is doing better than Operational.

Jorge Vazquez: Yes. And in terms of – hi, Marc, in terms of margin, I mean, ultimately – so yes, I think, especially from Q4 into Q1, we've talked before. I mean, the sickness rates have kind of in a way increased more than we had originally expected. But I would say mix still is primarily the big impact. So think about it in a few ways. We have, in some of our larger markets, with namely the United States, as an example, our large clients, at least our in-house business, is still growing faster than, let's say, our normal more general staffing proposition. But if you then look out to our regions, you see some of the countries where we're clearly capturing growth and overall, a lower margin than some of the countries that we are now seeing a more pronounced decline still. So if you look at Southern Europe versus Northern Europe, you also see the impact that might have on our mix. So altogether, there is pressuring our margin as we go forward. Of course, yes, we will work in it throughout the rest of the year. But as a starting point, that is starting for the Q2.

Marc Zwartsenburg: And do you expect the Profs maybe being late cycle to get weaker in the coming quarters? Or will this be the investments you made?

Jorge Vazquez: I think I expect our focus on specialization to actually enable us more than ever in the recent history of onset to continue to capture opportunity in the overall Professional space. Now these are different definitions in different countries. As you know, in France, we have a quite strong health care business. We believe in health care as a growth segment. Other countries, we do more towards education, towards finance, but a more dedicated approach to it should enable us to grow market share and to actually start increasing the presence of onset in the professional talent solution.

Marc Zwartsenburg: Okay. Then I have a question on the OpEx line. You’ve done quite some restructuring, some rightsizing of the indirect cost base and the transformation of the – towards the new structure is also 90% done there, as I read on the slide. So shouldn’t it have a sort of knock over effect into Q2 in the coming quarters that actually the OpEx underlying is coming down further or is it reflecting your guidance being modestly up that you see that the growth is really around the corner that you need to invest already? I’m just trying to…

Jorge Vazquez: Yes. It’s good question, Marc.

Marc Zwartsenburg: …see how that balance works.

Jorge Vazquez: Well, good question. I think overall, what – I mean that’s why I also recall it a traditional quarter. I see our job almost like us not to necessarily plan only for the next quarter, but try to see, let’s say, a little bit from the smoke and start hopefully preparing us for recovery. So Q2, we are continuing to invest in our strategic initiatives. I mean you heard Sander talking about how fast we’re already rolling out a lot of our digital ways of working in the United States. But also start investing potentially, not only in protecting headcount, but ramping up headcount where we see logical because it will take three months to six months to ramp up our new colleagues to productivity. And eventually increase as well our marketing costs and making sure that we are everywhere where that opportunity arises. And it’s in that context, are we looking at Q2 and OpEx in particular, yes, so setting us up for more. Yes.

Marc Zwartsenburg: Very clear. Thank you very much.

Jorge Vazquez: Thanks, Marc.

Sander van't Noordende: Cheers.

Operator: We’ll take now the next question from Konrad Zomer from ABN AMRO (AS: ABNd ). Your line is open now.

Konrad Zomer: Hi. Good morning, gentlemen. Thanks for taking my question. I still get a bit of a mixed message from what you said on the call because you talk about green shoots bottoming out, investing for growth selectively returning to normal. But at the same time, you also talk about softening conditions in more than half of your revenues, particularly North America and Northern Europe. I think longer term, you’re definitely on the right path. But I think that particularly for Q2, it looks like that could be quite a weak quarter, not just a transitional one. Can you maybe give us a bit more feeling as to what your internal communication is on cost cutting on the one hand because of the tough market conditions and looking to capture the growth opportunities that may arise a bit later this year, please? Thank you.

Sander van't Noordende: Thank you, Konrad. Let me just sort of go back to your question. The first point you mentioned about green shoots, et cetera. Those you got right. The softening conditions that we talked about were in Q1. So the green shoots were going forward, the softening conditions or the software conditions were looking backward. Internally, our message is always, let’s go out and talk to as many clients as we can and make sure we capture the business that we can. So that’s what we’ve been doing. And most of our markets, as I said, we have now focused, our teams, on operational and professional. Last year, we launched Randstad Digital, and we already have Randstad Enterprise. So the teams are now 100% lined up, aligned with the demand in the market. And as I said, we are ready to invest, and we are investing in those pockets where we see fit. At the same time, you’re right, we’re still doing some restructuring here and there, but that’s primarily in the indirect costs. So that’s not affecting our field teams because they are 100% focused on their clients and their talents.

Konrad Zomer: Okay. And do you agree with my view that you're willing to sacrifice profitability in order to get your – to capture the volumes that are out there? Because that's the impression I got from Q1. Your margins were down quite significantly.

Jorge Vazquez: Konrad, so let me put it like this. Yes, we acknowledge that we are now focused, and we worked hard in 2023 to be in a position now to start investing if we think that things are bottoming out and if we see green shoots. Therefore, yes, we will need time to ramp up capacity. We'll need to ramp up go-to-market strategies. And in that respect, there might be a transition or a couple of quarter-over-quarter that indeed profitability is sacrificed. At the same time, I don't agree with that word because our role is to actually prepare the company for the quarters afterwards and for the future so, but that's one-point. In terms of sacrificing margin, none, let's say, the explanations we have for our margin and what you see the deltas in the margin. If you actually go through it and we alluded to it a few times already in Q4 in our mid-February, when we talked, there are all things that are not necessarily related to pricing. It has to do with sickness rate it has to do with mix in our businesses. So yes, we see the normal price pressure that we've always seen. We don't see at the moment any increased price pressure or need to redefine pricing.

Konrad Zomer: Okay. Thanks for the clarification. Thank you.

Jorge Vazquez: Thanks, Konrad.

Operator: We'll take now the next question from Sylvia Barker from JPMorgan (NYSE: JPM ). Your line is open now.

Sylvia Barker: Thank you. Hi. Good morning. I've got two questions, please. Firstly, could you update us on logistics, which obviously was quite a big sector for you? It seems like maybe you have lost kind of some large contracts within that end market. So could you maybe just update us on what's happened over the past kind of few quarters? And how much is that as a proportion of your revenue today? And then secondly, just looking for the summer. I think you're the official provider of staffing services to the Paris Olympics. Would you just tell us if there's any impact from that that you expect to see in the numbers? Thank you.

Sander van't Noordende: Yes. So on logistics, Sylvia, logistics has actually been performing better than average over the last quarter, so in Q1. So I think we're tracking well. It is actually a focus area for our operational specialization, and we're confident that we will get back to growth in logistics over the next couple of quarters. There are, of course, on the Olympics, we're totally excited. However, let's say, it's too early to say whether that will have a major impact on our business because with Olympics, you may have read the Financial Times that in Paris, it's quite difficult to rent out your apartment at the required price these days. So there's a lot of people coming to the Olympics. That's great, but there's also a lot of people not coming to Paris this summer. So that is sort of a plus and a minus. So we'll see how it goes, but we're excited to be the official partner for the Olympics, of course.

Jorge Vazquez: In terms of the financial impact, I mean, first of all, I mean, it is an exciting thing for our teams. You just heard me talking earlier on about how in France, we have different specializations on how some of them are growing. And how, I mean, it's our largest operating company in many ways. So it is an extremely exciting thing for us to be present and endorsing and supporting it in July, August. At group level, and therefore, given it's such a large company, the exact direct consequence is not necessarily material. However, all it does for boosting our brand, boosting our relationships and then first of all, a big thank you to all our colleagues there. It's – yes, it's an intangible asset like this.

Sylvia Barker: Thank you.

Sander van't Noordende: Do you have any other question?

Operator: We currently have no more questions coming through. [Operator Instructions] We have got one more question now from RemiGrenu from Morgan Stanley (NYSE: MS ). Your line is open now.

Q - RemiGrenu: Yes. Good morning. [Indiscernible] for the call.Just one question. I just want to – maybe it's a little bit difficult to answer that question, but I wanted to pick your brain on how you think the recovery, once it materializes, is going to look like? And through for your discussion with the clients, I mean, we've heard about like labor holding at some of the employers, some of the corporates. And probably pricing is going to be less of a, of a tailwinds over the – in the next few quarters and when the recovery materializes. So I just wanted to pick your brain on that and how you're thinking about that pace of recovery. How it compares to what you experienced in the past and what we could look at to have kind of a proxy for that?

A - Sander van't Noordende: Well, we know, Remi, if the recovery comes, it can come fast. However, today, it's too early to say at what speed it will come. But as far as I'm concerned, it comes at the highest possible speed. But we'll see if that actually happens, of course. We are now looking at the green shoots. That gives us positive feelings about what works to come. And again, they are about – some of our markets are already growing. Japan, Brazil, Spain, industrial activities going up. The requisitions in our RPO business are trending up. The pipelines in Enterprise and Digital are growing. So all bright spots and in some markets, clients have started to change their buying behavior, and we're optimistic more that will follow later this year.

Q - RemiGrenu: Thanks.

A - Sander van't Noordende: Thanks, Remi.

End of Q&A:

Operator: We've got no more questions coming through, so I will hand you back to Sander to conclude today's conference. Thank you.

Sander van't Noordende: Thank you very much all for joining the call. But before we wrap up the call, I would like to say a big thank you to all our 620,000 Randstad people, talent and Randstad employees for doing what they are best at, and that's delivering value to our clients. So thanks to all of you, and see you all next quarter.

Jorge Vazquez: Thank you everyone.

Operator: Thank you.

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