Randstad NV

AEX:RAND

Earnings Call Transcript 2021-Q2

[Operator]

Hello, and welcome to the Randstad Second Quarter Results 2021. My name is Judy, and I'll be the coordinator for today's event. Please note that this call is being recorded. [Operator Instructions]I will now hand you over to your host, Jacques van den Broek, the CEO, to begin today's conference. Thank you.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes. Thank you very much. Good morning, everybody. So summer is here. So the Q2 presentation. I'm here with Henry and Bisera and Akshay from Investor Relations to take you through our Q2. So going to Slide 6 immediately. Positive momentum continue, too, across all our geographies in the second quarter of 2021. And we think we delivered a strong above-market group performance. We surpassed 2019. Now we already mentioned that last time for us, 2019 a record year, EUR 23.7 billion of revenue. That is really the benchmark because 2020 was a bit of a funny year. So we surpassed 2019, utilizing the full strength of our portfolio. We believe we made a good decision with introducing our #newways program last year, new ways both for our clients, our talent and ourselves, benefiting and utilizing virtual calls, virtual hangouts, remote HR processes, that sort of thing. But for ourselves, we continue to invest in people and digital initiatives. And yes, that gives us a position of strength today, and it enables us to further drive profitable growth. All our markets record significantly quarterly year-over-year revenue growth, driven by increased demand for all our concepts on the back of a continued global market recovery. We are, however, seeing supply chain dynamics impacting some of our markets, such as France, Spain and Belgium, but we do think they are of a temporary nature. In the quarter, we've seen our perm revenue grow by 91% year-on-year, and that's also above 2019, which is a very strong recovery and, well, a bit sooner even than we expected a few months ago. Our experienced management teams, the diversified portfolio and focused investments contribute, too, to outperformance in several markets. And we continue to gain market share in the U.S. and France, but also in Germany, Netherlands and Belgium. We achieved solid profitability whilst continuing to invest in new growth opportunities. As a result, we welcomed more than 2,400 new colleagues to our global workforce. And you might remember, we already put in 1,000 more in Q1. We're also continuing to invest in our global technology transformation with Monster showing positive year-on-year momentum. And we're excited to provide a better experience to both talent and employers using the combination of Randstad and Monster capabilities in the future. Something is changing, we think. Talent and employers think significantly differently about work and their relationship to work today than they did before. And that means that those whose job it is to find other people's jobs are busier than ever and their help is in more demand than ever. There's a lot of talk, of course. We've had a lot of talk about technology and how it will take over. We've always said it's support. And what we've seen in the last year is that people really supported by technology, but want to reach out to a human being. We also think that clients increasingly want to reach out to a human being providing data on the labor market. As markets begin to recover, pre-pandemic trends such as talent scarcity are returning. We provide in-depth data, technology and integrated services. We're playing an essential role for our clients by helping them to achieve a total talent management strategy. Our clients need to be increasingly aware that their workers, they have a different outlook. Our recent Randstad Employer Branding Research also showed that is that people want to continue a hybrid form of working from home. So we very much work with our clients on what does that mean, what are the demands of your people and how can you accommodate that. To take you through our full strategy, how are things -- how are we doing, the data strategy, Monster, enterprise, we will organize a Capital Markets Day on 17th of November this year. More to come in the coming months. However, having said all that, the pandemic continues to touch the lives of many, and the well-being and health of our employees is our highest priority. This quarter, in particular, I'm very proud of the active role we played in the pandemic humanitarian response to India. I would also like to thank all our global colleagues for the support they have shown in this initiative. Based on the strength of our performance in the first half, we're optimistic for the remainder of 2021, although we're still exercising caution with pandemic-related instabilities and limited visibility remains. I think we can say, overall, lockdowns have been easing throughout Europe in the second quarter as vaccination rates are increasing. This is, of course, fueling some of the positive sentiment in the economy. Nonetheless, we need to be cautious and careful. Restrictions are still tentative, and there are concerns of the delta variant, how the holiday season unfolds and, finally, getting back to work. So let's see how the situation evolves in the coming weeks ahead of us. So let's take you to the next slide where we're going to have a closer look at the developments in our markets. Our North American business continued its growth path, up 23% year-on-year, and they're above 2019, 1%. Perm revenue was up 9% against 2019, which is a remarkable achievement. The U.S. market, in particular, was impacted by talent scarcity. We still see a bit of friction of, call it, unemployment schemes unwinding. And we hope that more people will get back to work again in September as some of these schemes will be adjusted. U.S. Staffing and Inhouse grew 33%, outperforming the market, with the Staffing business performing particularly well as all sectors bounced back versus 2020. U.S. Profs, up 6% year-on-year. But of course, this was a business that had low single-digit declines as opposed to the Staffing and Inhouse business, so way more -- way tougher comparisons. But definitely kudos to the Randstad technologies team on a very strong performance, but also the engineering company, smaller company, they're doing very well. Canada grew, that's roughly 10% of our North American portfolio, grew 50% in Q2 and 12% versus 2019. So a very, very strong performance of market share and [ ST ]. EBITA, 4.7%, up 60 basis points compared to last year. And the margin reflects the ongoing investments for future growth. We see that we're able to onboard people faster, which contributes to an improved productivity. Our French market had competitive performance or we think market-leading performance, again, above market. Perform -- the business continued to perform well in still a challenging economic environment driven by the severity of the lockdown. We expect ongoing improvement given that the majority of the restrictions have been lifted towards the end of the second quarter. However, we also experienced supply chain constraints in the quarter, as I mentioned earlier on this call, up 63% year-on-year, but still down 5% versus 2019. Good recovery in perm fees, 94% growth year-on-year, but again, still down 6% in -- compared to 2019.Staffing and Inhouse is up 71%, very strong demand across all sectors given the comparison with COVID-19, of course. Food, retail, health care and logistics continue to perform strongly. Profs continued to grow territory in the first quarter and continue to perform very well in the second quarter, mainly driven by the health care business.Ausy, our solutions business in IT and engineering, has seen a remarkable improvement in profitability due to operational excellence, improved utilization rates of the people we have on our payroll and no longer on the bench for the vast majority and focus on key accounts, obviously, a longer project, and we supply the right expertise. So the result, of course, is a strong improvement in profitability, driven by this top line recovery. Our Dutch business, on the next slide, it accelerated in Q2. And the Netherlands is now up 37% year-on-year and 4% versus 2019, very strong performance in the second quarter. And at the end of the second quarter, the Dutch business was also above the market. The Dutch market continued to perform throughout the quarter, and we saw revenue of all 3 brands above 2019 levels.In the Netherlands, unlike France, for example, the economy has remained relatively more open throughout the pandemic. Lockdowns have been less severe. There's also been a lot of government support and relief packages to strengthen the economy. Additionally, the Netherlands, as we also flagged in our Q1 call, did significantly benefit from COVID-related activities, so vaccinations, people in call centers, testing. Second quarter -- and that was the second quarter. This is an example how we can bring solutions at speed and scale to help clients and communities at large.Staffing and Inhouse is up 44% with a broad-based recovery, again, amongst all sectors, and ongoing momentum in food, e-commerce and logistics. Our Pros business job was already above 2019 in Q1 and continued its solid performance. EBITA came in exceptionally strong at 6.4%, benefiting from the demand momentum and productivity gains. Our German business, 46% growth year-on-year, reflecting a strong recovery through the quarter despite talent scarcity and supply chain constraints. There's a bit of a difference between German automotive and French, Spanish automotive. I've shared this with you a few times. And in the financial crisis, German automotive was strong because they sold worldwide. And Europe was way more subdued, and that hit the French business. We see that to a certain extent again, very strong demand for Asian brands, Asian cars -- sorry, German cars in Asia, and that fuels the growth in Germany despite the supply chain issues. We see early signs of the automotive industry picking up. Order books are full as demand for premium and electric cars is picking up. What we also see in Germany, but of course, that's across the board, is that manufacturers seeking more flexibility, which we think will drive demand for temp labor and increased penetration rates. EBITA came in at 1.7%. What's important to mention in Germany is this is a business which already is in, for 3 years, in decline; now picking up. Fortunately, they are at 2019 level. But we decided to leave most of the infrastructure in Germany in place. So compared to other businesses, they still have a lower conversion rate. But for us, this is a deliberate investment in the biggest economy in Europe. And we do expect EBITA to improve in the coming years. Belgium, a solid performer as always, continued to improve in Q2, revenue, 37%, but again, one of the markets which is still 3% below 2019. Lockdowns were slowly lifted, and we have some specific businesses that were affected. We have a business of subsidized cleaning ladies, a few thousand. And we do see that the angst around COVID affects this specifically Belgian part of the business. Food, retail, health care and logistics, again, performing strongly. Our Belgian Professionals business, part of Ausy, performed very well and is also already above 2019, an improvement in profitability as the utilization rates also there continue to improve. Italy, yes, it's the gift that keeps on giving. Italy is 15% above 2019. We mentioned this before, given the low penetration in Italy, although going up, this is a very, very promising market. They invested well ahead of the cycle, and that's now paying off. Let's all be reminded, of course, that Italy was the first country hit by COVID. And if we see where they are now, we're very happy and we're very proud of our Italian business, had a very strong 6.3% EBITA margin driven by productivity gains and, at the same time, investing in growth. This is still a market, by the way, we are still opening branches in regions where we think we are underrepresented. Iberia, Spain continued to recover, still 1% above 2019. The bet's out if they can beat that in the third quarter. Still impacted by supply chain constraints, as mentioned, nonetheless, momentum has improved since Q1. And we have a great pipeline for the second half of the year in this business. Solid profitability with 5.5%. The rest of Europe, a mixed picture, but overall, improvement across the board. U.K., 12% above 2019. Good and strong growth in food and logistics again. And Poland even 28% above 2019. The Rest of the world, 16% in the total portfolio above 2019. I would like to remind you that our Latin American business already grew last year, so no 2020 easy comps here. Biggest market, Japan, predominantly in blue-collar staffing, growing 5%; 3% above 2019. LatAm, we celebrated our 10 years in Brazil this month -- this quarter, actually. So congratulations colleagues in Brazil. Close to 700 people already in Brazil, so one of our more promising markets given the size of this economy and the fact that this is still a young market.Australia and New Zealand, a very strong growth of 33%, 24% above 2019. And then India, I mentioned it already, one of the countries heavily, heavily touched by COVID, also our own colleagues, flex workers, hence the support, but still continue to grow, remarkable achievement, 21% above 2019. Well done, India. And overall, as you can see, a strong and stable profitability.Finally, our global businesses. Our SR doing extremely well, up 19% above 2019. This is driven by RPO, recruitment process outsourcing, predominantly in North America, the very strong pipeline for new and existing clients. This strong performance is also supporting the overall improvement of profitability in the global business concept. RiseSmart, a mixed picture here, down in the U.S., but overall, very strong growth last year here. You see momentum in the economy. That business goes down. But in Europe, where we are on the rollout for our career transition business, still strong numbers there. Then on Monster, as you know, we've been rolling out our new job board platform across our geographies. First half year, we worked on the seeker part, so the candidate part. We see applies going up. We also see way more job postings. So we do see, on the one hand, more job postings. But as a general term, not so much Monster, but also Randstad, less traffic. So that's a sign, of course, of the market heating up.Second half of the year, we're going to roll out the customer part with more pay-per-click, pay-for-performance and e-commerce for small client functionalities. And that means that at the end of 2021, we'll be the job board in the world with the newest technology. And more on that on our Capital Markets Day. But great to see that they have a little bit of growth in May and June, early days, still below 2019. But well done, Monster team, a lot of hard work.So that's it for the markets. Henry, the numbers.

[Henry R. Schirmer, CFO & Member of Executive Board]

Thank you so much, Jacques. Good morning, everybody. Yes, quite excited to report back on another strong quarter, not just expressed in the P&L, balance sheet and cash flow statement, but also with regards to the creation of growth capacity and digital enablement for our company. Our group revenue already surpassed 2019 levels, and we are very well positioned to continue to benefit from strong demand in recovering markets as well as further strengthening our market position in key geographies.Revenue growth in quarter 2 came in at 38.2% year-over-year and 3% above quarter 2 2019 levels. The recovery of volume and revenue is broad-based in all countries, so we'll continue to see reasonable differences due to ongoing COVID-related restrictions. We continue to gain market share in significant parts of our portfolio without compromising our overall pricing discipline. And gross margins in the period came in strongly, up 30 basis points sequentially and 80 basis points up year-over-year. We will go more into detail on the next page. With regards to OpEx, as we've mentioned in our earlier calls, we are pushing hard to invest well ahead of the curve while safeguarding attractive ROIs. We continue to operate from a position of strength. Our incremental conversion ratio in the quarter was 53%, well under control, of course, in line with our guidance, while it's adding sequentially about 2,400 FTEs to further build market development capacity. EBITA came in at EUR 260 million at a margin of 4.3%, 60 basis points higher sequentially. The integration and one-offs were EUR 10 million negative this quarter, which reflects some fine-tuning of operational structures in a few businesses. The reported effective tax rate stood at 26% for the first 6 months of the year. And for the full year, we now expect an effective tax rate between 25% and 27%, a touch lower than what we've guided for last quarter. So let me now take you to the next page to talk about the gross margin. Here we go already, Page 14. So the second blue bar on the left shows the temp margin impact, which is up 30 basis points year-over-year. The temp margin impact reflects the annualization of COVID-19-related effects like idle time and sickness, which is further benefiting from a bit of working day tailwind. Most importantly, we can confirm a broadly stable pricing environment across the board. The middle blue bar reflects our perm margin impact, which is 50 basis points up year-over-year. As the economies are recovering, this also reflected in our perm business, which increased by 91% year-over-year and is up 1% versus 2019. And lastly, HR Solutions impact was broadly stable year-over-year. Whilst our gross margin path remains difficult to predict, we reiterate the importance of safeguarding attractive gross margins in all our business activities. Smart, value-based pricing is fully back on the agenda as the strategic mix management is winning the most customized digital support. That brings me to the OpEx bridge on Page 15. Our active and disciplined OpEx management seeks to support the full utilization of countless, significant, profitable growth opportunities in our markets in an uncompromised investment strategy to further differentiate our market-leading services, hence, our decision to invest back into growth capacity quite early in the recovery and an acceleration of our investments into the digital enablement of the business.Our OpEx came in at EUR 923 million, which is 15.2% of revenue. That compares to EUR 858 million in quarter 1 at an OpEx ratio of 15.5%. This represents a 30 basis points margin uplift from the OpEx line sequentially. As mentioned in my opening, we have added about 2,400 FTEs throughout quarter 2, which will help us in our quest to further develop our market position once those results are fully productive. Please note that the cost of those hires will materialize fully in quarter 3, which is also reflected in our quarter 3 OpEx outlook. As reported also in the last quarters, we continue to work relentlessly to identify less productive spend to support our investments into growth and winning capabilities. That productivity journey has become part of our DNA and will provide ongoing self-help to secure sufficient fuel for growth and market-leading profitability. With that in mind, let's now move on to our cash flow and balance sheet on Page 16. Whilst benefiting in the quarter for more than EUR 300 million higher EBITDA, we have also seen an expected swing back of working capital to support our strong growth. In quarter 2, we still managed to generate a free cash flow of EUR 78 million with solid fundamentals. Our DSO came down another 0.9 days year-over-year to 52.1 on last 4 quarters moving base.Our balance sheet remains to be very strong, showing a EUR 160 million net cash position at a leverage ratio of minus 0.2 excluding IFRS 16. As we've already mentioned, in April this year, we have paid a regular dividend of EUR 1.62 per share and dividend on the preference shares totaling EUR 306 million. This impacted our total net cash position against the quarter. That brings me to the last chart, the conclusion and outlook on Slide 17. As stated before, the volume recovery sustained throughout the second quarter and is broad-based across our portfolio. At the same time, visibility remains limited with ongoing macroeconomic uncertainty due to the COVID-19 pandemic. Quarter 2 '21 organic revenue per working day increased 38% year-over-year and by 3% compared to quarter 2 2019. The development of volumes in early July indicate continued positive momentum.Quarter 3 gross margin is expected to be flat sequentially. Quarter 3 operating expenses are expected to be slightly higher sequentially, reflecting the continued investments in line with our growth momentum in quarter 2. And we are aiming for an incremental conversion ratio of 40% to 50% over time. For quarter 3, however, we expect an incremental conversion ratio of 30% to 40%, mainly due to the full materialization of added field capacity throughout quarter 2. And lastly, let me mention, there is no significant working day expected -- or there is no working day impact in the third quarter. We know that already.Well, that concludes our prepared remarks, and I'd like to give it back to the operator.

[Operator]

[Operator Instructions] The first question in the queue is coming from the line of Oscar Val Mas from JPMorgan.

[Oscar Val Mas, Analyst]

Three quick questions from me. The first one, on the exit rate, I think in April, you said that April was close to 2019 levels. Is it fair to assume then that June and July are above 3%? That's the first question. And then the second question, in transport and logistics, you previously said it's about 25% of the group. Is that end market still outperforming other parts of the group?And then the third question on just the vaccine and one-off COVID. Could you quantify the impact in the Netherlands and maybe Italy as well? Should we think of vaccines helping to explain the outperformance versus the market? Yes, those are my 3 questions.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

The last one, we're not quantifying. It's small, but it doesn't -- it's way less than the outperformance in the market, fortunately, the outperformance very much. The #newways program, training our people, hiring more people, and yes, in the Netherlands, this is sizable. But on a global level, it's very small. Yes, transport and logistics is still outperforming, so absolutely.And then, Henry, on the exit rates?

[Henry R. Schirmer, CFO & Member of Executive Board]

Yes. Exit rates, look, we say we've continued a positive momentum throughout the quarter. That's where we like to leave it. There's many moving parts in there. We feel -- see how positive we are. In general, our gas is about full reinvestment mode. But we'd like to leave it there.

[Operator]

And the next question is coming from the line of Marc Zwartsenburg from ING.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Yes, I would also like to come back on the exit rate. I know, Henry, you would like to leave it there. But can't you give any -- a bit more color, particularly given that Q2 has a tough comp, so let's compare it to 2019. Can you give a little bit more color how this last 4 months are evolving? Because it is also in your outcome statement a bit difficult to get a grip on the top line. So can you give maybe a little bit more color? Or are we not going to get perspective?

[Henry R. Schirmer, CFO & Member of Executive Board]

No, actually, I'd like to leave it there. I mean we have -- I think we've been relatively clear as we can be that we have seen positive momentum throughout the quarter. Volumes are firmly above 2019 levels. And it would be more confusing than the rest. Just take our positive outlook in general, Marc. That's all the guidance.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Yes. Of course, if I look to your outlook and take all the moving parts, except for the guidance on the top line, we can get some feel with the recovery ratio or the conversion ratio. It does seem to indicate that indeed the positive trend is continuing into July. Otherwise, I can't square the outlook.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

That's definitely true, Marc, the positive trend. But of course, on the one hand, we are okay with the fact that this is all very tough to compare if you compare it to the more stable years we've had. But yes, it is what it is. Of course, the comparisons are getting a bit tougher. But we are, as we speak, continue our outperformance versus 2019. That's what we're stating.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Yes. Okay, that's good. And then maybe coming back to the OpEx line. What has triggered -- because we had this call in April. You guided for a low to mid-single-digit increase in OpEx, and it came in quite a bit higher. What triggered that strong investment in the second half maybe of the quarter? What are you seeing that triggered -- that you are investing even more aggressively than what we've seen in Q1 and what we have heard a bit in the guidance at Q1 results?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes. Well, this, of course, is the way we work. It's a field steering. So you see that we grew faster than maybe we would have expected when we did our guidance. And then we put in more people. It's -- you can look at the absolute numbers. You can also look at the percentage here. It's stable at 15.2%. Your consensus was 15.2%, and our cost is also 15.2%. So if we grow faster, we have more confidence, then we put in more people. For example, in perm, we're very happy we did that because if you would have asked me at the back of Q1 that perm was growing as it was now, I would probably have doubted that a bit. But we're very happy we aggressively put people into our perm businesses to benefit from that. Because if you don't have it, you are too late. If you look at manpower, they were still negative in Q4 and also in Q1. Yes, and then you can't pick up the growth. So yes, it's an art, but more people because of more growth.

[Marc Zwartsenburg, Head of Benelux Equity Research]

And then maybe last one, on pricing, you already mentioned the strategy issues here and there. We see it everywhere. Do you already see something moving into the pricing that is moving up that you have easy discussions? Or is it more that this candidate scarcity is limiting your growth a bit?

[Henry R. Schirmer, CFO & Member of Executive Board]

So let me take that one. So in quarter 2, actually, we see overall really stable pricing climate. Of course, there's some scarcity in there and, therefore, first anecdotal views about a price increase. But quarter 2, it's a pretty clean quarter in that regard. There's probably 50% volume, 50% price in there, what you would expected also, so there's no artificial pricing impact that we would see.

[Marc Zwartsenburg, Head of Benelux Equity Research]

But also no acceleration already that you see that it's moving up a bit...

[Henry R. Schirmer, CFO & Member of Executive Board]

No. Look, we are not guiding on price going forward. But as a general statement, we benefit from labor scarcity in markets because it drives the demand for our services, but also gives us a little bit more impact on pricing power and we can play out our value-based pricing a little bit better. So in general, we like to see a bit of inflation.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Well, that's true. And is there any limit to growth in certain regions due to scarcity? Or are people expected to move back into the labor force after the summer?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

This goes back to our strategy, of course, Marc. So we have foreseen, if you just do the numbers, that there's going to be less and less active job seekers. That's why we are creating this data lake where we can still, on behalf of our clients, get in and find them the people they need. But our clients also need to adjust. They need to adjust to what's not the ideal profile. So that's the core of the discussions you're going to have with clients to see what's out there and not so much what do you want.Also, people want to work from home. Can you put work on a platform? Can you put work elsewhere? Can you automate? So those discussions are fully back where we are very well positioned to benefit from it. What I said earlier in my remarks is that the pure tech plays can't cater for this because the labor market is an imperfect market, so it's tech and touch. So optimistic there on the role we can play.

[Operator]

[Operator Instructions] The next question in the queue is coming from the line of Anvesh Agrawal from Morgan Stanley.

[Anvesh Agrawal, Equity Analyst]

So I got 2 questions, one on the gross margin and then on the FTEs. So just on the gross margin, while your sort of revenue line is back or sort of about 2019 level now with perm is also about -- but the gross margins remain below 2019. I know there's a bit of a mix with Inhouse growing faster, but maybe some comments there. Why is that? And when do you expect -- and especially given the pricing environment is stable, when do you expect the gross margins to catch up with 2019 level? And then just on the FTEs, if I look, the number of FTEs you ended with at Q2 are pretty much in line with where you were at the end of 2019. So with the growth running at well and about 2019, should we expect further investment as we go in Q3, Q4? Or the guidance implies that the Q3 SG&A will move up only because there's a run rate impact and you're not looking to add any further heads? Just some thoughts there.

[Henry R. Schirmer, CFO & Member of Executive Board]

Let me take the first one. Anvesh, thanks for your question. Yes, so I think it's -- we are quite pleased to see the benefit of perm kicking in, in quarter 2. We've quite suffered last year. You remember we had quarters of minus 50, minus 60. To see that kicking back in is really good, and to see overall stable pricing is also good. So in a way, we really are taking a part of our business on a unit-by-unit base. We just make sure that we get the right conversion out of each of our business lines. And going totally back to 2019 is probably not the right way of looking at it because our business is quite changed in its composition. So we are upbeat about gross margin. It's strong. But maybe we need to take the new business into account with much stronger Inhouse growth and also other business lines kicking in.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes. and a large part of the difference is still the negative growth of Monster compared to 2019. But if you take that out, then we have a pretty stable business, also given the fact that a lot of growth is Inhouse.That takes me to the headcount thing. We do have slightly more people than we have in 2019, actually. But growing in Inhouse is highly profitable business. So it has a profitable -- also profitable from a conversion point of view, but it's a highly productive business. So that means that we actually need a little bit less people as opposed to SME or that kind of business to run that.So what we're now seeing is, yes, we've invested. We've got a sequential uptick seasonal into Q3. Let's wait and see. But I think what we've proven is that we can very quickly pivot in 2020 negatively, this year positively whenever we see business opportunity. But rest assured, whenever we see more possibilities in markets, of course, we will add the required headcount.

[Anvesh Agrawal, Equity Analyst]

Yes. And just to follow up on that, you already said on Inhouse with higher productivity, higher profitability, that means the conversion margin should be higher. And then obviously, the Q3 conversion margins are expected to be lower. So is the incremental growth now coming from more like SME players or smaller clients other than the big Inhouse clients that's why you have this temporary dislocation between the growth and the conversion margin? Or...

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes, yes, yes. Lots of moving parts, of course. But as I mentioned, we put people in perm that in the beginning, of course, comes at a lower productivity because, yes, that takes, let's say, 9 months for people to ramp up and they start at a lower productivity. So that's one part. SME is, in a way, is still a promise for half 2. So it could still be that we will see as, call it, confidence increases, that we'll see more SME business. And again, we're set up to handle that, but time will tell.

[Operator]

And the next question in the queue is coming from the line of George Gregory from Exane.

[George Nicholas Gregory, Research Analyst]

Just one follow-up, if I may, on digital. I'm just wondering when you would expect to have a -- for the end-to-end digital offering, including Canada, in your main markets sort of fully integrated? Is there a road map with a -- I'm sure there is a road map there. When would you say that, that should be complete, please?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes, George, 5 years ago. So yes, 5 or 7 years ago. So we have many fully digital things. But as we said on many calls, fully digital doesn't really scale. So we're experimenting. Again, we launched one in the U.S. recently to see when fully digital is going to hit the road and really scale. In a way, I'm expecting the reverse. As I mentioned earlier, people in this imperfect labor market want to be supported to go into jobs. They're not the ideal profile. Clients don't get the ideal profiles anymore. They want to be supported in what is the ideal candidate. Having said that, and I said that a lot of times, if the business is going to move to fully digital, we're also going to be a world market leader in fully digital. If we look at large clients, so large clients in e-commerce, a very large part of the process is fully automated. So large parts of interviewing, large parts of scheduling, of course, the whole administration is fully automated. But the actual personal connection with the candidate -- well, by the way, that could also be chat bot. So you can debate whether that's tech or touch, but it's varying aspects of technology as much as clients allow us, as much as candidates or talent appreciate it. And yes, that's where we are.

[George Nicholas Gregory, Research Analyst]

And just to clarify, Jacques, if a client would like an end-to-end digital service, they can get it without any additional -- any significant reintegration work?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

No. Yes, definitely. And yes, again, fully digital. About 110% of our clients want to touch. So they want us to, in a way, have testimonials on their candidates. So again, experimented a lot with it, but clients want to know who's in there. Clients want to know if credentials are checked. Clients want to know if people fit their culture, fit their process. So, so far, always a touch moment. But if a client has no touch, I'll do it myself, happy to do so; next week, you'll have it.

[Operator]

[Operator Instructions] We do have a follow-up question coming from the line of Anvesh Agrawal from Morgan Stanley.

[Anvesh Agrawal, Equity Analyst]

Just to follow up on what George was asking really on digital and you saying that clients want to get in touch and want to know the candidates better. Does it differ between the blue collar and the white collar? Is there more sort of human touch needed in one or the other? Or is it sort of same across the board?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Not really. I have a lot of discussions that people think that it's tougher to select white collar than blue collar. I beg to differ. In blue collar, it's all about soft skills and personality because, of course, surely, a resume in blue collar, that's not something to go on. So this is all about the touch, so to say. So no, not a lot of difference. And if so, maybe even more in blue collar than it is in white collar. Hence, the success of our Inhouse, by the way, where we built a pool dedicated for a client that in today's labor market fits availability, fits the right profiles and all the demands that clients have and all the wishes that candidates have.

[Operator]

And the next question in the queue is coming from the line of Andy Grobler from Crédit Suisse.

[Andrew Charles Grobler, Analyst]

Just one quick one for me. You talked about some supply chain dynamics in France and Spain impacting business to an extent and then mentioned that you thought those would be temporary. Could you just go into a bit more detail about what you're seeing and why you think that those will not be persistent?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes, sure. Andy, yes, so what you see is that a client at some point calls us and says, I'm going to close for 2 days or I'm going to work without the temp pool for a few days because my amount of cars to be produced is not as high as I would like to because, yes, I've got -- I don't have the chips to put in, very bluntly put. So that is what this is. I'm hoping that all the semiconductor producers are working in 5 or 6 shifts or however to churn out this stuff as quickly as possible. And then hopefully, well, for us, but way more for the producers and also people waiting for cars, that they will solve this issue. So it's not an economically driven thing. It has nothing to do with COVID. It's probably a hiccup of supply chain starting up again after putting the economy on pause for a year.

[Andrew Charles Grobler, Analyst]

And could I ask just a bit of a U.K.-centric follow-up? But we've -- a lot of people are getting asked to self-isolate in the U.K. at the moment through the track-and-trace system. When that happens to one of your temps, does that person still get paid? Or how does that process work?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

That's very detailed. I was this morning educated on the fact that this is called pingdemic. Yes, I couldn't tell you.

[Andrew Charles Grobler, Analyst]

Okay. I'll follow up later.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes, yes. In general, of course, not, but yes.

[Operator]

And there are no further questions in the queue. [Operator Instructions]

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Okay. Good. Thank you for hosting. Thanks, everybody, for calling in. Thanks for your questions, and we're going to continue to grow and do our best. Thank you very much. Bye.

[Henry R. Schirmer, CFO & Member of Executive Board]

Thank you very much. Bye.

[Operator]

Thank you, everyone, for joining us on today's call. You may now disconnect your handsets. Hosts, please stay connected.