Randstad NV

AEX:RAND

Earnings Call Transcript 2023-Q1

[Operator]

Hello, and welcome to Randstad First Quarter Results 2023 Conference Call. My name is Priscilla, and I will be your coordinator for today’s event. Please note, this call is being recorded. [Operator Instructions]

I will now hand you over to your host, Mr. Sander van’t Noordende, the CEO, to begin today’s conference. Please go ahead, sir.

[Sander van’t Noordende, CEO]

Thank you very much, Priscilla for that kind introduction, and good morning, everybody. I’m here with Jorge and Bisera and Akshay from Investor Relations, and I’m pleased to share our Q1 results with you.

I would say overall, I’m pleased with the resilient performance that we delivered in the first quarter in a challenging macroeconomic environment across our markets. We have adapted well to this operating environment. Revenue growth for the quarter was minus 4.2%. Our enterprise solutions grew by 5%, in-house business grew by 1%, professionals was down 1% and staffing was down 8% in the quarter. Gross profit was down 2%, and we delivered a strong gross margin of 21% with around 19% of gross profit generated by perm and RPO combined. The improvement in our gross margin this quarter reflects a sustained focus on pricing as well as the mix of our different services. EBITA came in at EUR 266 million for the quarter with a solid EBITA margin of 4.1%, demonstrating cost management across our business.

And we continue to benefit from our strong market position. We have deep customer relationships and are committed to building the best talent delivery engine in the market with an excellent team in place to deliver on this. Our strong balance sheet enables us to capture the growth opportunities available to us, while, of course, we remain disciplined and able to adapt our operations as needed.

The trends we have experienced in the first quarter have continued into early April, and we remain cautious. The prevailing trend of labor markets scarcity however remains across our markets. And I’m pleased to say that our positioning as partner for talent clearly resonates with our clients end talent as they are looking to navigate this new world of work. Our sources of differentiation, specialization, equity and our delivery models are more and more visible in the Randstad brand. And that, coupled with our experienced teams and long track record of delivery and execution in all environments gives us confidence as we look ahead.

Performance and progress will continue to be the name of the game, meaning that we are laser focused on delivering a strong performance whilst further enhancing our differentiation and productivity. And we will, of course, keep you updated as we continue on our journey.

Let me now hand over to Jorge to present the results in more detail.

[Jorge Vazquez, CFO]

Thank you, Sander, and good morning, everybody. In the past week, I’ve had the pleasure of meeting many of you, and I would like to thank you, first and foremost, for the warm welcome. For those who I have not yet met, I am Jorge Vazquez, I am honor and proud to become Randstad CFO. I’ve had a chance now to be with Randstad for 12 years. And over the past 5 years, I was Head Controller, Group Controller and Head of Strategy.

Work is, in short, one of the most important activities in people’s lives. We see ourselves as a catalyst, let’s say, for a better world of work. That is why many of us joined and stayed at Randstad. It is part of who we are, our identity. As CFO, therefore, short introduction, my role is ultimately about ensuring continuity at all times. And if I have to choose three focus areas to prioritize will be always about safeguarding a sound financial position through solid risk management, continued optimization of EVA. EVA is here and comes at our Northern Star for decision to make results.

Sander summarized it well already. We would always prefer growth in these numbers, but overall in the context of very high growth in Q1 2022 and Q1 2021 after 8 consecutive quarters of growth, we are pleased with the adaptability, we are pleased with the predictability of our teams and our results today.

So let us discuss the segment performance in more detail, starting with North America. First, regarding the layout, you’ll see some changes here. So as you know, we have changed our primary external segmentation. We’ve discussed this to reflect the new team structure we have in place. So in this context, in addition to the traditional reporting of our key geographies, we now also aggregate the following five regional segments, and I’ll just list them for clarity. North America, Northern Europe, Southern Europe, U.K. and LatAm, Asia Pacific and Global Businesses, these five.

As you also see, in addition to the Verve team on the right-hand side of the slide, you’ll also find a new chart per region. Randstad peers always saw profitable growth and adaptability. Therefore, on each page, you’ll find this chart with a quick summary of revenue growth for the current and previous quarters and EBITA margin performance. You’ll also find that both for the region as well in this example for the countries that make up or the key countries that make up the region, U.S. and Canada.

Now zooming in. Revenue in North America was down 10%, particularly perm, down 22%. The U.S. has always been a more dynamic labor market, adjusting quicker to both positive and negative market trends. U.S. staffing and in-house declined by 15%, driven overall by a softening demand in manufacturing, transportation and distribution sectors, along overall as well with other admin support profiles. The challenging market conditions were also visible in our technology business with U.S. professionals revenue down 4% year-over-year. And remember, technology does make up the most significant part of our professionals position in North America.

Our OpEx was down year-on-year and also sequentially from Q4 and versus Q1 last year. We have a very experienced team that has delivered consistently throughout the years, and we are confident we are working on the right balance between profitable growth and adaptability. We are adapting our operations and have continued to do so throughout the quarter. The EBITA margin was solid at 4.7% in the quarter.

Now let’s look at Northern Europe on Slide 8. Northern European countries did see a mixed revenue growth trends with good profitability and adaptability. And you’ll see, overall, despite lower revenue, as you can see in the graph, on the back of a very hot 2022 also here in Europe, we protected absolute profit and actually even increased profit margins. In the Netherlands, revenue was down 11%, our home market, and was particularly impacted by exactly very red hot COVID-related economy or getting out of COVID-related economy in the first quarter of the first half of 2023.

Perm still at a historical record high level grew again 1%. EBITA margin came in strongly at 6.4%, well above the group average. So good profitability was adapting to a more regular year.

Let’s look at Germany. Germany delivered a solid quarter. Revenue was also up 1%. Perm grew 39%, and our focus continued to pay off. Staffing and in-house was up with double-digit growth coming from automotive still doing well. Manufacturing was only slightly down in the quarter. I think overall, our German business continued the journey to sound profitability, and we are very pleased reaching a record high first quarter. This is reflected in the EBITA margin for the quarter, which came in at 3.2%, 190 basis points up compared to last year.

Again, next door, Belgium, reported a revenue decline of 8%. Staffing and in-house in Belgium revenue was down 10%, impacted also by a more challenging macroeconomic environment as well as a very red hot Q1 2022. However, remind ourselves, Belgium is one of our long-established market-leading businesses and has always shown very good adaptability. EBITA margin came in at a solid 4.7%.

Other Northern European countries, last column, reflected mixed trends. Let me break it down to you. The Nordics was down 20 -- sorry, was down 1%, Switzerland was up 2% and Poland was down 10% year-over-year. Overall, EBITA margin came in at 3.3% for these countries. Again, summarizing Northern Europe, overall, a resilient performance in the region.

And now, let’s look at the Southern broader, moving on to the segments, Southern Europe, U.K. and LatAm. Again, here, solid performance, robust operations mix revenue growth trend that we will talk about in a minute, but we actually delivered extra margin and extra profit. France’s revenue was slightly down year-over-year, a struggle example, though, of portfolio focus and delivery. France ended the quarter with EBITA margin of 5.6%. We delivered a record first quarter, again, in margin and profits. Perm, as an example of diversification, continued to do well with 9% growth. And professionals delivered solid growth of 10%, predominantly driven by our health care business and technologies. However, staffing and in-house were down 6% year-over-year.

In Italy, revenue was down 3%, over extreme successful growth in 2022 and 2021. We’ve talked about it many times before. Perm still on a very high end, delivered solid growth of 8%. And in-house also held up steadily. Now this partly offsets decline in staffing, which was driven by the overall economic slowdown. On the other hand, Italy ended up the quarter with a strong EBITA margin of 7.2%, again, excellent profitability over the last 2 years, reflecting the balance between high returns and investing in growth.

Spain, going more south now. Spain, so its revenues declined by 8% in the first quarter with a decrease in our staffing and in-house businesses. Again, diversification, we do continue to see growth in perm, professionals and outsourcing and we’re capturing it. Iberia EBITA margin and profit actually increased to the strongest Q1 ever. This reflects a changing mix and excellent field steering discipline in Spain and Portugal.

Across other Southern European countries, U.K. and Latin America, revenue and profit performance reflected our efforts always to find growth in profitable pockets. In Latin America, revenue was up 13%, and Argentina and Brazil stating good growth momentum. As a result, EBITA margin for the subregion came in at 2.9%.

Let’s go east moving on to Asia Pacific on Slide 10. Asia Pacific continued to perform well with 4% profitable growth year-on-year. This is a region where we still find and we still see a lot of opportunity for Randstad. Japan showed structurally good performances with 3% growth and sound profitability, and still with significant opportunity in the second largest staffing market in the world.

Australia and New Zealand delivered again good growth, up 5% with our recently acquired team in Finite growing profitably and a significantly higher pace.

India grew by 8% as it continues to focus not only on growth but on improving the quality of our portfolio. Overall, the EBITA margin for APAC was a solid 4.8% accretive to the group in the first quarter.

And that brings me to the last region, Global Businesses on Slide 11. As you can see, Global Businesses segment grew by 2%. A strong demand for our outplacement career mobility services RiseSmart or risesmart.com, more than offset a decline in our RPO business also of 2%. Monster revenue was down 14%, in line with the job market trends and affected overall by a slowdown in demand. Here again, we started to adapt our Monster business, as we’ve discussed before in the fourth quarter of last year, and that process continued in Q1. EBITA margin for Global Businesses increased now to 0.7% in the fourth quarter.

And that concludes the performance of our key geographies. Let’s now walk through the group financial performance on Slide 13. Moving to the P&L. Slide 13 summarizes much of what we already covered. After 8 quarters of significant growth and competitive growth, we have seen a slowdown in revenue yet consistently shown adaptability. It is therefore a transition quarter in that context from growth in Q4 to decline in Q1. We are approaching it from a position of strength with greater scale and more diversified portfolio and the operational usual agility.

EBITA for the quarter was [indiscernible] EUR 266 million, and the EBITA margin was 4.1%. Remember, from a seasonality perspective, Q1 is typically our lowest quarter.

Integration, moving down. Integration and one-off costs were EUR 37 million this quarter, mainly reflect, on one hand, integration costs from our recent acquisitions, and, on the other hand, necessary adjustments of operational structures across key geographies, including U.S. and Monster.

Although this cost are extraordinary, I want to make clear, we start to keep them minimal. As a reminder, and as a policy, we record here structures with a payback time of less than 1 year.

Moving on. Last year, we acquired Finite, which has also increased our acquisition-related intangibles position, and we now have a higher periodic amortization of these acquired intangibles going forward. It is a pure accounting movement.

Net finance costs in Q1 were EUR 14 million, primarily reflecting higher interest expenses. Again, as a reminder, last year, we had a net cash position at the end of Q1. This year, we have a low net debt position. The underlying effective tax rate and surprising amounted to 24.1% for the first quarter. And for 2023, we expect ETR to be between 24% and 26%.

And with that, let’s turn the page to our gross margin bridge. The gross margin bridge effectively puts it all together what we already did before. The gross margin, you can see from the light blue to the darker blue improved a further 50 basis points to 21.0% for the quarter. Our temp margin increased by 40 basis points, the first column in the bar, mainly reflecting mix and our discipline in value-based pricing. The bar in the middle shows a decline of 10 basis points as perm revenue fell by 8% as mentioned before, which is purely a mix effect. Lastly, HR solutions, again, includes enterprise solutions, headed 20 basis points to the gross margin increase. This includes the strong performance of our placement and career mobility services.

Just in terms of materiality, remember, perm and RPO jointly represented 19% of the group gross profit in the quarter, which brings me now to the OpEx bridge on Slide 15, gross margin and OpEx walking together. OpEx overall came in at EUR 1.102 billion, EUR 25 million up sequentially, excluding the impact of foreign exchange and M&A. You can find that on the bridge sequentially in the graph. The biggest driver of OpEx is by far personnel expenses, slightly up sequentially. Absolute OpEx levels reflected, on one hand, the impact of mix in our revenue base and showed increased adaptability through the quarter.

Though different businesses have higher or lower gross margins and come in with slightly different OpEx ratio requirements, our conversion per business line is healthy, reasonably similar and clearly communicated throughout the company. OpEx goes with gross margin. Gross margin goes with OpEx.

The average headcount number, you can see decreased by 1,840 FTEs. Another important point, the March exit rate for FTEs was well below the Q1 average. Personnel expenses this quarter reflect seller inflation, and dues were more or less up flattish sequentially.

With that in mind, let’s now move on to our cash flow and balance sheet on Slide 16. Our free cash flow for the quarter came in at EUR 169 million. Rather standard, it is a function of the countercyclical movement of working capital that offsets decline in EBITA. DSO was at 53 days, 1 point days up year-on-year, primarily driven by mix and stabilizing over the years. Our balance sheet shows a net debt position of EUR 145 million and the leverage very healthy leverage ratio of 0.1% -- 0.1, excuse me, excluding lease liabilities and down from the levels of Q4. Also here, we are in a position of strength, low leverage in our balance sheet.

Importantly, as scheduled and announced, we also paid the regular ordinary dividend of EUR 2.85 per share at the beginning of April, totaling about EUR 522 million. This is not yet reflected in Q1 net cash position, but of course, it will affect our position in the second quarter.

As a reminder, Q1 is typically the softest quarter of the year. Q2 will include the outflow of dividends and payment of the holiday allowances as well as the costs. So typically, at the end of Q2, we have a higher debt than at the end of Q1. And then, that improves again in the second half of the year.

Lastly, today, we will start the share buyback program as announced in February. The share buyback program will be executed in several tranches. We are not reinventing the wheel, keeping it quite simple. We will repurchase up to a maximum of 1.55 million shares in Randstad in the period between today and July 24. This is equivalent to a first range of EUR 80 million based on yesterday’s closing share price. These shares will subsequently be canceled, and we’ll be providing weekly updates on the progress.

Then brings me now to the last chart, the outlook on Slide 17. Let me start first with the activity momentum. The macroeconomic environment remained challenging across our markets, translating into lower client hiring activities. This trend continued into early April, whereby the year-on-year growth rate of our employees working aligned with the Q1 2023 or this quarter year-on-year growth rates. We expect both Q2 gross margin and OpEx to be broadly in line sequentially. We do remain cautious. We do remain vigilant, and we are mindful of the volatility we are operating in.

In that context, we continue to work with scenario planning to ensure adaptability and predictability. We respond to actual data every week in our branches, our apps, in our offices, in our websites and then we aim at protecting and converting EBITA. Our mix will evolve always with different businesses. Diversification is paying off. But again, [indiscernible] specific conversion disciplines, allowing us to constantly adapt. Gross margin goes with OpEx, OpEx goes with gross margin. And there will be a negative as well 0.4 working days impact in Q2 2023.

As closing remarks, it was a solid quarter from growth to decline, and today’s results reflect the actions taken this quarter and throughout 2022. In the same way, the next quarter will also result from the actions taken already in Q1 and previous quarters.

We have successfully built scale and a more diversified portfolio giving us today more resilience over the long term compared to prepandemic times. We are in a position of strength. At Randstad, predictability, good returns, provide a basis and capacity to grow that we then turn into further growth and further profitability. It is a delicate balance that we need to strike every day. I talked about that entity in the beginning. This quarter’s results are a great proof of that identity and give us confidence now for the first half of 2023.

And that concludes our prepared remarks, and we look forward to taking your questions. Operator?

[Operator]

We’ll take our first question from Hans Pluijgers from Kepler.

[Hans Pluijgers, Kepler Cheuvreux]

Two questions from my side. First of all, on the margin development in both Southern Europe and Northern Europe, solid performance there. But can you give some better feeling on the key drivers. If I look at, let’s say, at the trend, I understand that the gross margin or the feeling of the gross margin clearly improving. That’s the main driver of the improvement in margin -- in the EBITA margin, both in Northern and Europe and Southern Europe. Is that the case? Could you maybe give some flavor what the key drivers are for that margin improvement?

And secondly, on SG&A, you guide for, let’s say, stable SG&A going into Q2. But if you -- could you give maybe some feeling how you see, let’s say, SG&A developing through the year, assuming stable revenues? Is it, let’s say, that you clearly see some delay in really reducing costs also in this inflationary environment. So assuming, let’s say, stable revenues, how do you see then SG&A developing through the year? Could you give maybe some guidance on that.

[Jorge Vazquez, CFO]

So, Hans, thank you. So on margins, specifically on Northern Europe and Southern Europe, I would say, I mean, diversification is paying off. So we have a more diversified company at the moment. And you can see, let’s say, our stocking revenue is going down as an example, but at the same time, our professional revenue is holding up. We also mentioned specifically for those countries that we’re still finding perm opportunity and we’re growing. So overall, I would say the mix is supporting us.

But more importantly as well, and we’ve discussed this in previous calls, we’ve embarked on quite a structural pricing discipline over the last years, and we do manage very carefully gross margin and temp margin. And in that respect, I think that’s the results you are seeing.

On SG&A, I’d say, overall, I mean, our SG&A will always move. We have a track record for that. We have predictability will always move with our margin. I mean at the moment, what we see is the first 2 weeks of April, you heard this is still the same level of activity. We are operating in that assumption but we are reviewing it every week, and we will adapt our OpEx going forward accordingly.

[Hans Pluijgers, Kepler Cheuvreux]

And maybe your follow-up on Northern Europe and Southern Europe. Is it correct to assume that your gross margin has increased slightly more than your improvement in your EBITA margin in respective regions as the logical assumption?

[Jorge Vazquez, CFO]

No. I mean it’s a mixed bag. I mean it’s a very big regions, I would say, overall, the teams know very well that the adaptability and the predictability we want to reach. You will also see there’s been FTE adjustments in almost every single geography, so they walk in hand on margin and OpEx.

[Operator]

We’ll move on to our next participant, Anvesh Agrawal from Morgan Stanley.

[Anvesh Agrawal, Morgan Stanley]

I got three, really. First, can you give a bit more color on the German performance. I mean, it was a little solid versus rest of Europe, but it did weaken quite a bit sequentially, probably contrary to at least what I was expecting. So maybe if you can tell us what’s sort of going back there.

Then just on the SG&A. Given the wage inflation, is it more difficult to manage this time around? I mean, we would have expected the SG&A to be down sequentially given where the volumes are, but it did move up despite FTEs being down. So really, what sort of wage inflation you’re running at? And do you expect the wage inflation in your own cost base to continue throughout the year?

And finally, just to clarify, did you give the pricing growth number at the beginning of the call? Was it 4%? Did I hear it correct?

[Sander van’t Noordende, CEO]

For the group, yes, 4.2%.

[Jorge Vazquez, CFO]

Yes, 4.2% for the group.

[Anvesh Agrawal, Morgan Stanley]

No, the pricing component of the organic growth. Can you split the price in volume, if you can.

[Unidentified Company Representative]

We typically don’t disclose that, Anvesh. So we prefer not to break it down now.

[Anvesh Agrawal, Morgan Stanley]

Okay, no problem.

[Sander van’t Noordende, CEO]

So jump performance?

[Jorge Vazquez, CFO]

Yes. So on the call -- on Germany, well, first of all, our German team has really stepped it up over the last 4 quarters in terms of running a sound business. If you look at the market, it’s holding steady. Unemployment rates are low and there’s still talent scarcity. I mean, obviously, automotive has been a tailwind for us in the past quarter where automotive companies are working their backlogs of orders that they still have. So demand was solid perm demand and, I would say, resilient temp demand. So there have been on the improvement process and that they will continue to go there.

[Sander van’t Noordende, CEO]

Yes. On wage inflation, Anvesh, I mean, look, we are -- I mean we are -- multinational operating in many countries. I would say we are exposed to the same data that you’re also see everywhere. Wage inflation, in particular in the U.S., overall, the data we have has been coming down since Q4. So Q4 was approximately 5%. And now the latest data point we have is around 4.4%.

But I would say, Europe is slightly different. Every country has its own collective labor agreements and regulations. But I’d say overall, I mean, we’re managing wage inflation both on our OpEx and on our gross margin. We absorbed it both on one side of the PNL and on the other side. And again, both work hand-in-hand with Randstad. So we’re quite comfortable on our ability to price it and how we’re doing it and absorb it on our OpEx.

[Operator]

We will move on to our next participant Oscar Val from JPMorgan.

[Oscar Val, JPMorgan]

Three questions from my side. The first one going back on temp gross margins, so up 40% in Q1. Can you just comment on how you expect that to behave for the rest of the year? Are you lapping kind of easier comps? And what mix is driving that? Are you seeing any kind of changes in competition in pricing on the temp side?

Then the second question is on restructuring and one-offs, EUR 37 million in Q1. Do you have any guidance for the rest of the year? Are you kind of working on new programs?

And then the final question is on the RiseSmart business, the outplacement business. Could you just comment on how material that is in size and kind of how much that is growing and if that’s to continue to grow next quarter?

[Sander van’t Noordende, CEO]

So let me start with that last one, Oscar. Thank you very much. RiseSmart is one of the offerings in our enterprise business, and we don’t disclose any information on the specific offerings there. So that’s what it is for now. But it is definitely helping us because, obviously, it’s a great business that sort of helps clients coach, stack talent as well as find new opportunities for people that are leaving organizations.

[Jorge Vazquez, CFO]

Yes. So on the – Oscar talk to you. So on the margin, look, Randstad’s a very diversified company. The results you saw today are the results of different trends geographically, different concept trends. So it is literally impossible to have a view on the margin. Of course, the underlying structural trends are there. We’re carefully managing margin. We’re carefully managing pricing, I think what is important, ultimately, is to conclude and we talked about it on the remarks earlier.

For each concept, we have clear expectations on OpEx requirements and conversion. So depending on how the margin evolves, so will OpEx, and that’s basically how we manage Q2, Q3, Q4 and how we’re managing the productibility of Randstad over the last years. So that is a track record.

Then on restructuring one-offs guidance, I mean, by definition, they are one-off. So by definition, there’s – it’s hard to predict anything. Integration costs associated with M&A, they might come back if we find it logical, vis-à-vis, the business plan and the good business plans we had, for these acquisitions.

Others literally, we always try to use as much as we can, natural turnover, reallocating people from units where we don’t find demand to other units in place where we find demand. And if not, then we will incur them again with a payback – last 12 months. We can’t predict no more.

[Operator]

We will move on to our next participant Suhasini Varanasi from Goldman Sachs.

[Suhasini Varanasi, Goldman Sachs]

Just one from me, please. You’ve indicated that the market exit rate on FTEs is below the 1Q average. Is it possible to give some color on how much lower it is by the end of March? Was it maybe under 4% down on a -- versus the 1Q average?

[Jorge Vazquez, CFO]

So Suhasini, we don’t like disclosing that. But I mean, let me give you some color. It is obviously down enough to feel comfortable on -- as we enter Q2. But again, as we enter Q2 based on the first visibility we have, would we see that things either change all the way down, and we will adjust accordingly. But it’s indeed well below the exit rate of Q1.

[Sander van’t Noordende, CEO]

Yes. So maybe an important comment to mention there is, obviously, we have been very much focused on adjusting our workforce. At the same time, we are also seeing left and right opportunities that would justify increasing our workforce here and there. So that we capture the revenues that are out there in the market. So it’s finding that right balance between volume and value. I think that is the name of the game and having the team that sort of is associated with the level of volume and value that we can capture in the marketplace. That is the fine-tuning that we’re doing day in, day out here. So we remain absolutely focused on doing that. .

[Operator]

[Operator Instructions] We will move on to our next participant, Rory McKenzie from UBS.

[Rory McKenzie, UBS]

Just two questions from me please. Firstly, can you comment on how large technology is as the group overall and what the organic revenue trends were in that vertical globally?

And then secondly, just a follow-up on this, I guess, volume versus value. If your own wage inflation is running at 5% or so, is it safe to assume that the price/mix component of your revenue growth is probably at least that and so organic volumes are maybe down nearly 10% in Q1? That’s one of the bigger volume declines in staffing we’ve seen since kind of 2009 really. So how are you thinking about trying to protect and position the business for what’s quite a sharp pullback in volume terms, even if actual revenues are being protected with the inflation running through the business?

[Sander van’t Noordende, CEO]

Yes. Good question. Let me start with the second, Rory. I mean, obviously, let me put things in perspective a little bit. We -- in 2022 and 2021, we were red hot, and we had a lot of pent-up demand from COVID. So we were sort of at a very high level in terms of volume. So what we have done is we stay very close to our clients, and we have to make the decisions that we have to make in adjusting our workforce up or down depending on what we see in the market.

We’ve done a very good job, a very great ride over the past 6 quarters. So the business is more diversified than ever with a proportion of in-house, professionals, perm and RPO in the mix. So that has been the establishment over the last quarters.

Now the economic definement is more challenging, so we have to adjust accordingly. And that’s what we’ve done. And when I talk about the balance between volume and value, that is all about making sure we get the volume, but we also get it at the right price. And Jorge has already mentioned it a couple of times, pricing is a discipline that we have perfected over the past years, and it is something that’s very high on our agenda. So that’s the name of the game. Managing volume and value is what we will continue to do going forward.

On our technology business, I’m looking here at Bisera, if we actually disclosed. Now she is nodding no if we disclose those numbers. So I’m afraid I can’t help you there, but it’s a significant chunk of our business, as you can imagine, in various markets in North America, in Western Europe, where we have OC, in Belgium, Germany and France. We acquired the Finite business in Australia. So it is a significant portion of our business indeed.

[Jorge Vazquez, CFO]

Let me give you some color on the other questions. So on the -- well, first of all, on the volume question, so on the number of -- I mean, I would argue as well. I mean, please do look, of course, we’re talking about a Q1 comparison versus last year, where we’re growing 15%. So red hot from many perspectives. And at the same time, yes, indeed, we do see a 10% decline. So now linking back to your first question on the breakdown, 10%, you can find that on the Page 22, by the way, of the presentation.

Now what I would also argue is, at the same time, we are a much more diversified company. We have different concepts. We have different service. If you look at our, let’s say, broad portfolio. So it’s in that context that I would always look at this 10% decline plus the write-out.

Now in terms of adaptability, you asked the question, volume versus value. I would call it, more growth versus profitability. I mean just putting things into some numbers even based on Q1, Northern Europe, Southern Europe, they represent 70 -- or even APAC, let’s say, together, 80% of our EBITA. That is actually going down in revenue a little bit, indeed, from a very red hot level, but delivering profitability. U.S. is adjusting. So it’s not yet as we like. But again, I mean, sometimes our debt ability might not be picture perfect. But if we look at over time enough, you will always find back to our principles of adaptability, incremental conversion and recovery. So overall, we are quite pleased. And I would even say it’s not volume versus value or growth versus profit. None of them is negotiated by Randstad. It’s both.

[Rory McKenzie, UBS]

That’s very helpful. And I guess one follow-up there, I think is the kind of question that we’re struggling with is that you with this inflation running through both revenue and your OpEx. It seems clear that we were a net beneficiary. You earned a net positive margin on inflation on the way up over the past 2 years. Are you still aiming to be a net beneficiary in terms of that inflation on any down cycle we go through?

[Jorge Vazquez, CFO]

Yes. Look, the same discipline – I mean the underlying biggest driver of our OpEx will always be personnel expenses, at least it is personnel expenses, and FTE. We are adjusting. The discipline between gross margin absorption of inflation and OpEx inflation, we pride ourselves on it. We have a track record. We’ve shown it again over the last years. Nothing to say suggest otherwise going forward.

[Operator]

Thank you. It appears there is no further questions at this time dear host, I’d like to -- sorry, we have one participation that is Konrad Zomer from ODDO BHF.

[Sander van’t Noordende, CEO]

It had to be you Konrad, that last...

[Konrad Zomer, ODDO BHF]

I thought you did it in alphabetical order. That’s why I waited to. No, sorry, just one final question. And we’ve talked about it already quite a bit, but just to make sure, because I think you did very well in terms of margin preservation in the quarter, particularly on gross, but also EBITA margin. But obviously, now that the top line is actually in quite rapid decline. Are you happy with the time gap and the development in your OpEx versus your top line? Because your headcount was still up year-on-year, although it was down sequentially. But if your top line continues to decelerate, I think you might need a step-up in reducing your OpEx as well. Are you happy with the progress that you’ve made so far?

[Sander van’t Noordende, CEO]

I would say, Konrad, we’re very pleased with the progress we’ve made so far, and I’ll tell you why. The adjustments always lag a little bit, what’s happening in the market. And I would say what’s happening in the market is not always very clear. And I’ll give you just one example. In our North American business, in the beginning of the year, we had some weeks that were very strong. We had some weeks that were weaker, then we had another strong week again. So it felt like the market was looking for a direction. And that’s – once the market has a direction, that’s when we can start adjusting, if you will.

So there’s always a bit of a lag. But I think Randstad can pride itself in the fact that the lag is actually relatively short. So I think we’re doing a very good job there. And that’s what we will continue to do. So we’ll continue to adjust to what the market is bringing us, but up and down because we did have a big meeting here last week with our top management in the various regions. And there are opportunities out there that require investment to capture them. So if that – if we see those, and we have the confidence that they’re good opportunities, we will go after them because ultimately, that’s the name of the game. We need to capture as much demand as possible, of course, in a profitable way.

[Operator]

Dear speakers, are we okay to take another question?

[Unidentified Company Representative]

Yes, absolutely.

[Sander van’t Noordende, CEO]

If there’s one, yes.

[Operator]

All right. We will move on with Marc Zwartsenburg from ING.

[Marc Zwartsenburg, ING]

Sticking to the alphabetical order. I couldn’t get through to the fixed lines. I’ll use my mobile. But now A final question maybe on the trend. You’re looking at April being in line with Q1, but at the same time, in March exit rate was a bit below the Q1 average, have to say. But we also see and markets to weakening quite sharply through the quarter and some data points also point to some softening in April. How can you explain that April is actually looking a bit better than March? Is that just a comparison based thing? Or is it explained some certain end markets that you see some recovery? Can you maybe give a bit more color why that trend has bended off a bit?

[Jorge Vazquez, CFO]

Marc, thank you. Let me start. Sander, if you want to give some color afterwards. First of all -- but just correct. So March exit rate, we did not talk about and we did not say it was lower. So the March exit rate in terms of FTE, I mean, as Sander just mentioned, we’ve been adjusting through the quarter. Konrad made the question about are we happy now. So we continue the adjustment for the quarter. The FTE exit rate was lower, but we did not necessarily talk about growth or -- because we did not mention.

Now at the same time, looking ahead, look, we don’t speculate, and you know that, so we’ve always preferred to work on [feasibility]. What I can say is early April, 10% volumes were down at a similar pace, so 10%, as we’ve communicated. Yes, we see what you see as well. So it is extremely difficult to predict more than that, but we remain cautious. And we are learning literally every week, as I mentioned before, with all the data that we can collect. I mean, field steering, you know how embedded is in our organization.

Perhaps, if anything now, we are also operating in a much more scenario planning basis. So what would happen if? What would we do with that? What would happen if this? But ultimately, with the portfolio we have, with the diversification we have now and different trends around the world, we prefer not to speculate and just work on what we see.

[Sander van’t Noordende, CEO]

Yes. And let me say to add some color, not to speculation, of course, but what do I hear from clients. I was just talking last week to a CEO of a med tech company and what do we hear there? We hear uncertainty in the economy. We hear uncertainty on what the Fed is going to do. We here PMIs are going up. We see inflation coming down. So there are some positive signs there, but uncertainty is still the key word.

The second key word is talent scarcity. And that means, for instance, in med tech, in hospitals have a shortage of doctors and nurses. They don’t do the operations, the surgeries. So that has an impact on demand in the med tech environment. So the two main things driving the market is uncertainty on where the economy is going and talent scarcity. Those are the things, as you should always keep in mind to Konrad .

[Marc Zwartsenburg, ING]

Marc.

[Sander van’t Noordende, CEO]

Yes. Sorry, Marc.

[Marc Zwartsenburg, ING]

No worries. So maybe that was actually my second question. If you look to the perm development in the U.S. with also scarcity, if you look at the job vacancies, although coming down, it was at record levels. But in our perm is coming down on the weakening macro trend. But if you look to Europe, particularly in Northern Europe, perm is very strong. At the same time, we see a bit of the same elements at PMI slowing, maybe the backlogs being trimmed now. And -- but still, what could we learn from that scarcity not being an argument currently in the U.S. in terms of perm, and perm still be strong. Are you afraid that the Permian Europe is then also coming down sharply following a bit the U.S. trends?

[Sander van’t Noordende, CEO]

We’ll see what happens. But perm in the U.S., and we -- your question is spot on. We looked at that in a lot of detail last week. And yes, it’s coming down but if you look historically, it is actually at pretty high levels still. So that tells us that these vacancies that have been open for a long time are still being filled. And that is also still happening, I would say, in Europe.

So in that respect, companies are now taking the opportunity to fill positions that have been open for a longer period of time. I think that’s the primary dynamic that we’re seeing.

[Marc Zwartsenburg, ING]

And maybe a final one, if I may, Sander, on the RPO. It was only down a couple of percentage points. So you invested there. You onboarded some new clients. But if you maybe step away a bit from onboarding and the organic growth you’re seeing, what is the trend in -- at a client is because it’s volume business, I assume. So do you see anything changing there in the trend because it might be more available for cyclical...

[Sander van’t Noordende, CEO]

Yes. So also, our RPO clients are hiring less, that’s very clear. At the same time, when I talk to clients, again, I spoke to a few CHROs in the tech and in the pharma industry and they are saying, well, listen, this is all very painful. We need to be very smart on how we come back with all this later because we need to organize more for flexibility. That’s one thing. So they’re talking to us saying how can we build back better, so to speak.

The ‘ther thing is clients that were not open to outsourcing any of their business, any part of their recruitment processes are now open to do that, to have more flexibility, but also, frankly, to have lower cost because, obviously, our teams in India can do a phenomenal job in helping those clients. So the pipeline of our RPO business is as strong as it was last year with a lot more bigger deals, which of course, are the ones that we like and that we are very well positioned for.

[Operator]

Thank you. Dear speakers, it appears there’s no further questions at this time. I’d like to turn the conference back to you for any additional or closing remarks. Thank you.

[Sander van’t Noordende, CEO]

Thank you very much, Priscilla, for facilitating the call. And I would like to wrap up the call by saying a big thank you to all 650,000 Randstad talents and employees for all the hard work for our clients over the past quarter because that’s ultimately that matters. Thanks a lot.

[Jorge Vazquez, CFO]

Thank you, everyone.

[Operator]

Thank you for joining today’s call. You may now disconnect.