Randstad NV

AEX:RAND

Earnings Call Analysis

Quarterly Results Show Growth Amid Challenges

During the second quarter, we faced challenging market conditions with revenues declining by 7.5% to EUR 6.1 billion. Despite this, we observed sequential stabilization and a gradual return to regular seasonal patterns. Our underlying EBITA was EUR 181 million, resulting in a 3% margin. Geographic performance was mixed, with notable growth in Southern Europe, especially Italy and Spain, offset by declines in North America and Northern Europe. We announced the merger of Monster with CareerBuilder, expected to close in Q3, though without substantial financial impact. Looking ahead, we remain cautious but are focused on reducing indirect costs and capturing growth opportunities in Q3.

Company Performance Amidst Market Challenges

In the second quarter of 2024, Randstad faced significant market challenges, reflected in a 7.5% year-over-year revenue decline to EUR 6.1 billion. This quarter also saw a dip in gross margin to 19.8%, primarily driven by a combination of geographic and service mix. Despite these hurdles, the company showed signs of stabilization, indicating a return to normal seasonal patterns.

Regional Highlights

The company's performance varied by region, with Northern Europe experiencing the most difficulty. Revenue in Germany fell by 16%, and the Netherlands saw a 9% decline due to weak demand in the automotive and manufacturing sectors. In contrast, Southern Europe, especially Spain, showed robust growth. Spain's revenue grew by 10%, driven by strong performance in Operational Talent Solutions. Latin American markets displayed mixed results, with Brazil growing by 10% while the rest of the region remained flat.

Sector Performance

Different sectors within Randstad showed varied performance. Operational and Professional Talent Solutions declined by 6% and 8% respectively, aligning with the overall company trend. Digital and Enterprise Talent Solutions, more affected by North America, saw steeper declines, particularly Monster, which was down 15%. However, digital specialization performed well in Asia-Pacific, recording a 14% growth.

Strategic Joint Ventures and Cost Management

A significant strategic move was the planned joint venture combining Monster with CareerBuilder, aiming for operational synergies and scale advantages. Concurrently, Randstad focused on cost management, particularly indirect costs. The company reduced its real estate footprint in the U.S. and managed IT and marketing expenditures carefully. These efforts resulted in a free cash flow of EUR 16 million despite lower profitability and seasonal factors.

Guidance and Future Outlook

Looking ahead, Randstad remains cautious but hopeful for Q3. The company expects to continue capturing growth opportunities while balancing selective investments in strategic initiatives. Operating expenses for Q3 are anticipated to be slightly lower, and the effective tax rate for the full year is projected to remain between 25% and 27%. Additionally, the company has finalized a EUR 400 million share buyback program and plans to cancel the shares, reflecting confidence in long-term performance.

Earnings Call Transcript 2024-Q2

[Operator]

Hello, and welcome to the Randstad Second Quarter Results 2024 Call. My name is Adip 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, Sander Van't Noordende, CEO, to begin today's conference. Please go ahead, sir.

[Alexander van't Noordende, executive]

Thank you very much, Adip, and good morning, everybody. I'm here with Jorge and with Steph, Temur and Steven from Investor Relations, and I'm happy to be sharing our Q2 results with you.

Overall, in the period, trading conditions remained challenging across many of our markets. The progressive improvements we saw in the beginning of the year on labor data and manufacturing PMI has leveled off during the second quarter, specifically in North Europe. This has influenced decision-making amongst both clients and talent leading to subdued hiring activities, and similar to Q1, we have seen a mixed picture in terms of growth across our markets. In short, not all green shoots that we saw at the end of Q1 have grown as well as we would have liked.

Some of them have grown, however, Spain, Italy and Belgium all showed growth for the quarter and continued the positive momentum from the start of the year, and I'm pleased with our performance in these markets. On the other hand, North America, France, Netherlands and Germany have not seen a lot of improvement over the past quarters. All of this contributed revenues of EUR 6.1 billion, a decline of 7.5% year-on-year. However, Q2 did show sequential stabilization, which we think is a positive sign. Our gross margin came in at 19.8%, a 40 basis point decline from last year, driven by service and geo mix. And this resulted in an underlying EBITA of EUR 181 million at 3% of revenue, which equates to a last quarter -- last 4 quarter recovery ratio of 44%.

We continue to navigate these challenging market conditions with operational rigor. Since the beginning of the year, we ramped up our commercial activities, resulting in significant double-digit increases in client visits compared to last year. We expect this will positively affect our relative market performance. At the same time, we're carefully balancing the deployment of our field capacity. And while we intend to keep our field capacity broadly at existing levels, we follow our field steering principles to allocate teams to growth segments and maintain productivity. We remain well placed to take advantage of a pending recovery.

In Q3, we expect the macroeconomic environment to remain challenging, so we're increasing our focus on reducing indirect costs to ensure we can afford sufficient field capacity as well as strategic investments in talent engagement, delivery excellence and technology. In the first weeks of July, we've seen stable volumes as compared to Q2.

And we continue to make good progress with our partner for talent strategy, and we are seeing the first benefits coming through. Starting with specialization. We have now completed the implementation of our specialization framework in all our markets. Let me reiterate why this is an important milestone. It is important because it means that now in each market, we have dedicated teams and leadership for Operational, Professional, Digital and Enterprise. And these teams are focused on specific clients and talent needs, on innovating our offerings and, of course, on delivery excellence. This resonates with both clients and talent, focus works.

We've also completed the rollout of our digital marketplace and our Operational business in the U.S. We are now live in all 40 states that we operate in, resulting in an annual run rate of over EUR 1 billion. This makes us one of the leading digital marketplaces for operational talent in the United States. And it's great to see the first benefits coming through in terms of faster client ramp-ups, higher fill rates, talent retention and productivity.

And we welcome the team of Torc. Torc will be the marketplace for our digital talent services business. We've already onboarded our talent in Latin America and India, and we have begun the same process in North America where we are also gradually onboarding our clients. From a delivery excellence perspective, we almost tripled the size of our local talent and delivery centers, which now have around 1,000 people. And this is another way of specialization that allows for a better client and talent experience while enhancing productivity.

Finally, we announced the merger of Monster with CareerBuilder to create the third largest job board in the U.S. And as you will understand, combining the two companies will have significant scale benefits.

In summary, we have a very challenging yet stable market environment. We've had significantly more commercial activity with a strong focus on indirect costs to, first of all, keep field capacity at level; and secondly, to be able to invest in the execution of our partner for talent strategy. Let me now hand over to Jorge, he'll give a bit more color on the numbers for the quarter.

[Jorge Vazquez, executive]

Thank you, Sander, and good morning, everyone. So bringing us back, let's say, to the end of Q1 to our Q1 publication, where we last left it in April, we discussed early signs of stabilization and back then improving living indicators after a somewhat slow start of the year. Today, we are pleased to see indeed a gradual return to seasonality. We have more employees at work than we had in Q1 and we have a sequential uptick in revenue. At the same time, like Sander mentioned, somewhat disappointingly, we see that recovery has been slower than what we had originally expected. And as probably many of you have observed both in macro and labor market data. Progression in manufacturing PMI have stalled across key regions during the quarter, while industrial investments, and therefore, hiring levels are still reflecting a lower part of the cycle.

Our portfolio showed more pronounced trends. We see more countries improving, and you'll see it in a minute, and it's many going back to growth. On the other hand, we see especially in Northwestern Europe, elevating macro and market uncertainty resulting still in subdued hiring levels and therefore growth levels. From an end market perspective, we see operational talent solutions outperforming late cycle segments. And if we zoom in into our services, we see a similar pattern. Perm remains and RPO also remains tough with temporary staffing and outplacement showing more resilience. We'll go over these -- all of these in more detail just shortly.

We've been navigating these trends from a cost perspective, though. While we did make investments in growth and strategic initiatives, we managed this within our frame of adaptability. This means that productivity is addressed in the context of each market and overall indirect costs are more forcefully taken out. Our costs sequentially ended up lower, showcasing continued operational discipline. I am pleased to see further stabilization in our revenues and our ability to steer through this environment. Going forward, the balance is pretty much the same. With our diverse portfolio, strategic initiatives underway and continued operational discipline, we are putting ourselves in the best position for recovery.

Let us zoom in and let me now discuss the performance of our key regions on Page 8. Starting with North America, especially the United States. As I mentioned in our earlier conversations, the cycle is being one of the most extended periods of restrained PMIs and weak staffing market data. However, we do see more and more regular seasonality returning as well as some encouraging signs in our operational talent solutions. Our revenue dropped by 13%, slightly better compared to Q1, with perm declining still 24%, but however, Q1 at 40%, still creating pressure on our gross margin and EBITA margin in the region which, nevertheless, increased significantly from Q1.

Our U.S. operational talent solutions declined by 7% with sequential improvements in logistics and manufacturing. Most notably, our Inhouse is today, as we speak, returning to growth. U.S. Professional Talent Solutions were still down, facing challenging market conditions, in line with our perm. U.S. Digital Talent Solutions was also down 16%, while U.S. Enterprise Solutions was approximately down 16% as well. The EBITA margin stood at 3.4% with a recovery ratio of 47%. As Sander mentioned, and very importantly, we have completed the rollout of our digital marketplace, making us a leading digital marketplace for operational talent in the market. We also see early signs of benefits from our marketplace with increased productivity, higher fill rates with clients and better realization of our database, overall providing a better experience for our clients and our talents encouraging.

Moving on to North Europe on Slide 9. In Northern Europe, the business environment has not gotten any better. Q2 was a difficult quarter with a challenging macroeconomic uncertainty. Growth came in at minus 10% sequentially lower, and profitability was heavily impacted by Germany as we faced persistent headwinds. Despite the difficulties, we did maintain strong adaptability. And again here, as the new normalized level becomes clear, we have also adapted our teams and made a significant restructure charge this quarter in the region.

Zooming in a little bit into the countries. In the Netherlands, revenue decelerated to minus 9%. Most sectors did saw a softening demand, most notably automotive and manufacturing industries. As a result, our Operational Talent Solutions was down 10%. On the other hand, our Professional Talent Solutions are still growing. EBITA margin came in at 4.6%, showing again strong adaptability.

If we then turn to Germany. Its challenging economic environment has resulted in revenues still down minus 16%, showing no sequential improvement from Q1. Profitability was significantly down year-on-year, mainly due to less hours worked per EW and other incidental effects including still elevated sick leaves. While we do expect a better Q3, recovery is unlikely to be a straight line as we refocus the business for growth in our 4 specializations and streamline operations driving efficiencies.

In Belgium, we did see great improvements and growth returning in line with the traditional cyclical pattern. I am pleased that as a market leader, we have competitive growth again and leveraging on the strength of a very well diversified portfolio. Operational Talent Solutions was flat year-on-year while Professional Talent Solutions was up 3%. EBITA margin came in at 4.5%, again, showing good adaptability.

Other Northern European countries reflected mixed performance. Let me break it down for you. Poland saw stable trends being flat year-on-year. Nordics remained tough, down 26%, and Switzerland was down 12%. EBITA margin came in at 1.4%.

Now moving on to Southern Europe, U.K. and LatAm on Slide 10. And here, you see, speaking of diverging trends, we see a strong recovery in our most Southern European countries. Our businesses in Southern Europe have shown resilience and strong adaptability with countries returning to growth. We achieved an EBITA of EUR 117 million with a margin of 4.8% in the region. We are investing in growth, increasing capacity in some units to enable a standard ramp-up period in 2024.

France's revenue was down by 7% compared to last year due to softening demand in most sectors. While we saw businesses taking a pause following the uncertainty around the elections, delaying the recovery. However, please note, compared to its neighbors, France was in a late cycle last year. We were actually increasing from Q1 to Q2. The Operational Talent Solutions decreased by 8% year-on-year, while the Professional Talent Solutions was down by 2%. France ended the quarter with an EBITA margin of 4.4%, again, showing strong adaptability.

If we go slightly east, Italy has returned to growth for the full quarter, growing plus 3% after already encouraging signs in March. The Operational Talent Solutions grew 4%, while the perm decline also 4%. As mentioned last time, we want to capture the market opportunities and we will continue to invest in areas of growth. Despite this, Italy still shows a solid EBITA margin of 6.3%.

For the South Iberia, Iberia revenue continued to improve, growing by 7% this quarter, Q1 at 4%. Operational Talent Solutions again grew by 7%, whereas Professional Talent Solutions started growing as well by 9% compared to last year. Notably, Spain in particular showed robust growth with a double-digit 10% increase, mainly driven by strong performance in its Operational Talent Solutions and also RPO. This progression reflects our ongoing efforts and investments again to capitalize on market opportunities and enhance our regional presence.

Going into the other Southern European countries, U.K. and Latin America, Revenue and profit performance was mixed. UK was still down 7%, though sequentially improving. Latin America overall was flat, with Brazil notably growing at 10%.

And now let's move on to Slide 11, Asia Pacific. The Asia Pacific region also shows a mixed growth trend with more challenging macroeconomic conditions at the beginning of the year. Nevertheless, Japan demonstrated a solid performance, achieving 2% growth with strong profitability. Operational Talent Solutions were down 1%, whereas Professional Talent Solutions delivered growth of 2% year-over-year. Our digital specialization recorded once again double-digit growth in Q2 at plus 14%, and I'm very proud of this consistent performance. There remains considerable potential in the world's second largest staffing market, and we continue to ramp up investments over the third quarter in line with the growth segments identified.

For the South, Australia and New Zealand saw continued softening in demand, declining 17% in the quarter. India on the other hand grew by 2%, showing resilience and continued focus on improved portfolio. Overall, the EBITA margin for APAC was at 3.8% in the second quarter, reflecting softness in the Australian and New Zealand region. And that concludes the performance of our key geographies.

So now let's walk you through the group financial performance on Slide 13. The group revenue for the second quarter, as Sander already highlighted, was EUR 6.1 billion, which is a decrease of 7.5% year-over-year organically. Sequentially, we did see an improvement from Q1 into Q2, showing more and more of a normal seasonal pattern. From a specialization point of view, we saw the following: our Operational and Professional Talent Solutions were broadly in line with the group average, declining 6% and 8%, respectively. Our Digital and Enterprise Talent Solutions more exposed to North America and life cycle segments declined more than the group average. Monster came in at minus 15%, broadly in line with the previous 2 quarters. As Sander alluded to already, we announced that Monster will start forming a joint venture combining its job Board business with CareerBuilder. We are excited for this new venture, and our teams expect this transaction to close in Q3 with no material financial impact.

We'll cover gross margin and OpEx later. But for now, the quarter underlying EBITA was EUR 181 million with a margin of 3% and adaptability. Integration and one-offs were EUR 45 million this quarter. Of this, EUR 3 million approximately is related to M&A integration costs, the remaining EUR 42 million are restructuring expenses. The majority are rightsizing in direct costs in North Western Europe primarily. We'll talk more about this in a few minutes when we discuss our OpEx development.

In amortization and impairment of intangible assets, there's nothing relevant to highlight. Net finance costs in Q2 were EUR 20 million, slightly up from last year, resulting mainly from a higher net debt position. 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 and look in detail at our gross margin bridge on Slide 14. A few things about margin. The second quarter gross margin was 19.8%, down versus last year. The overall temp margin declined by 40 basis points and brings a combination of headwinds. We saw a divergence of various geographical growth trends. We just went through them in more detail. And these start playing in the mix, 10 basis points year-on-year. We also saw that sickness remained high, especially in Northern Europe as well as some minor, and in particular, this quarter, incidental impacts in Germany that will not support another 10 basis points.

Lastly, our business mix. And you can see there, with Operational Solutions growing faster than other specializations had a negative impact of approximately 10 basis points. Furthermore, if you go further to the right in the chart, perm remains subdued despite easier comps. Perm declined by 18%, reaching EUR 129 million. And this decline was more significant than the temp business that shows more resilience, therefore hurting the gross margin by approximately 30 basis points. Additional RPO was a bit better on easier comps, but still declined by 19%, again higher decline or stronger decline than our temp business, which explains again another 10 basis points negative impact of HR services.

Monster explains the remaining 10. Perm and RPO account for approximately 17% of the group's gross profit in the second quarter. Remember, permanent RPO has been more prone to the recurring data and the time to hire was also longer in some markets given both the election and macroeconomic uncertainty. This cyclicality is weighing on us, but cyclicalities work in both directions and will support us strongly when the recovery comes, which now brings me to the OpEx bridge on Slide 15. And remember, this one is a sequential bridge from Q1 to Q2.

In short, as we saw data moderating into Q2, we continued our discipline on operating expenses and reacted to everyday's reality, resulting in the last 4 quarter recovery ratio of 44%, well in line with our range of adaptability and well instilling to the company. Our headcount is broadly in line, allocating resources to growth areas such as Italy, Spain and Japan. In the second quarter, therefore, we were able to keep our cost base broadly in line with Q1, carefully balancing our strategic investments, investments for growth without losing focus on the overall net adaptability. As we talked about in the previous 2 quarters, we continue to address our indirect cost base. Examples include the management of IT and marketing spend and organization of our functions.

As things normalize, we continue to adapt and to the realities that we live in. A tangible example is our real estate strategy in the U.S. We harmonized our accommodation footprint significantly over the course of this first half of this year. Going forward, we are committed to lower our cost base going into Q3. Again, we continue to balance our performance, strategic investments and field capacity. And due to the rightsizing of our cost base, I expect the degree still of restructuring costs for the remainder of the year. As a reminder, we aim to have always a 12-month payback period for our restructuring.

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 up EUR 16 million, reflecting low -- positive EUR 16 million, reflecting lower profitability and seasonality. DSO was 53.8 days broadly in line with Q1. The geographical mix does put some upward pressure on our DSO over the past quarters, which we expect to normalize as more late cycle regions continue to recover. We continue to apply strict capital discipline throughout the whole organization.

As Sander mentioned, we have also acquired Torc in May, and we're very happy with welcoming our colleagues. And with this power, let's say, the AI power marketplace under now Randstad digital business. Lastly, we completed the fifth tranche of our share buyback program announced in February 2023. Today, we are announcing that this EUR 400 million buyback program has now been finalized, and it is our intent to cancel the shares. Please remember, our special dividend of EUR 1.27 per share is due to be paid beginning of October.

And that brings me to the outlook on Slide 17. You heard it from Sander, we remain cautious going into Q3. On one hand, macroeconomic conditions remain challenging and our visibility is typically limited. On the other hand, sequentially, we did see a stabilization. We have more people at work and the return to normal seasonal patterns. We see growth returning in more and more markets following the dynamics that we are used to in our industry. With a more seasonal pattern in emerging and diverging growth strengths, we do, as we always do, managing on actuals, daily and weekly steering and adapt where we find necessary.

For Q3, we continue to capture growth opportunities where we can, balancing selective investments in strategic initiatives while safeguarding conversion through our adaptability corridors on a rolling year basis.

Now let me first start with the activity momentum. In the first week of July, we see a stable volume to those experienced as we exit Q2. There will be, however, an easier comparison base, I would say, approximately 2%. There will be an additional 1.1 working days, but these do fall in summer months. Q2 2024 gross margin is expected to be broadly in line sequentially. Q2 '24 operating expenses are expected to be slightly -- Q3, excuse me, operating expenses are expected to be slightly lower sequentially while still protecting field capacity in many markets, protecting strategic initiatives; and three, investing selectively in headcount guided by field steering principles.

So to summarize. We saw stabilization in the second quarter with normalizing seasonality. Our portfolio with diverse and balanced exposure geographically and in terms of services allows us to benefit from different parts of the cycle. We've shown again our capability to adapt and how much that is built in operational rigor in our teams. We have the best teams to operate the cycle, and therefore, we are confident to deliver on adaptability and execution of our strategy, positioning us better as a partner of our talent in a more pronounced future recovery.

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

[Operator]

[Operator Instructions] We will take our first question from Suhasini Varanasi from Goldman Sachs.

[Suhasini Varanasi, analyst]

I have three, please. You've spoken about your plans to reduce indirect costs in Q3. Are there any numbers that you could put around it? How should we think about one-off costs below the line, please? That's my first one.

Second, Paris Olympics, is it expected to provide any benefits for you in Q? And the third question is on free cash flow.

[Alexander van't Noordende, executive]

Suhasini, can you speak up a little bit. We couldn't hear the second question.

[Suhasini Varanasi, analyst]

Paris Olympics, any benefits from that?

[Alexander van't Noordende, executive]

Paris Olympics, thank you. Okay. And the third one?

[Suhasini Varanasi, analyst]

Third one is on free cash flow, please. Working capital is normally countercyclical. And yet despite the revenue declines, you are seeing negative working capital, what has changed in this cycle versus previous cycles, please?

[Jorge Vazquez, executive]

So let me actually start to make things funny, let me start with the last one, and then we go into the other one. So on the cash flow, to be honest, there's nothing really changing. We -- of course, our DSO and our receivables is a function typically of the last 3 months' revenue. Our revenue is increasing from Q2 -- from Q1 into Q2. So you see a little bit of buildup of working capital. And remember, normally, the seasonal pattern of Randstad is the first half of the year is, let's say, either not cash flow generative or very small -- very little cash flow generation. And on [ buying ] front of our capital generation, which is between 90% to 100% of our cash flow is generated in the second half of the year. And we see certainly that behavior panning out. So also there's no change whatsoever from a free cash flow capability of the industry and company.

Then on the one-off costs, look, they've been high. But you also have to understand that things have normalized for us, and it became clear to our teams what we say this normalization means. We continue to learn, let's say, from how we change since COVID. Sander mentioned, we've rolled out specialization throughout the organization. We continue to digitize a lot of our processes. We are also, let's say, creating global delivery centers for our clients but also for us. So we will continue to use the opportunities we now have in our hands, in our books to basically make sure that we address our indirect costs as much as we can to exactly protect field capacity and direct those to strategic investments and power in the market.

In that respect, I mean, it's always difficult to tell you what will be the exact level. I would say the levels I see in Q2 given that we were disappointed from where we were in Q1, are relatively high. So I mean that -- I think it's fair to say these levels are quite high. At the same time, what we always strive to do, and I mean you followed us for a while, is our teams know very well what's expected in terms of the range of adaptability. And we reconfirm that it's always our ambition between 30% and 50% recovery ratio. So that is basically what we'll be striving to do throughout the rest of the year.

In terms of Paris Olympics?

[Alexander van't Noordende, executive]

Yes. Well, let me say few words about Paris Olympics. Of course, we are very pleased to be partnering and glad to be partnering with Paris Olympics on the recruiting and temporary labor needs, which is great. We have hired a significant number of people for their organization over the past quarters, I would say. And they're going to be working a lot of people on the Paris Olympics, not only with the organization of the Olympics, but also with some of their partners in catering, media, et cetera. So all very exciting, specifically in the bigger scheme of things, in the scheme of France relevant of course, but temporary in the bigger scheme of things, we should probably not expect too much of it in terms of revenues, et cetera.

[Operator]

We will take our next question from Rory McKenzie from UBS.

[Rory Mckenzie, analyst]

And firstly, your temp volumes in the index were down 6.8% for the year, which means that I think for the first time since 2019, there's been a net negative impact from price mix overall. I understand that obviously, perm and RPO are still in steep declines. But that had been in the past, offset by tailwinds from wage inflation. So I guess the question is, is wage inflation now really fading away to a minimal amount? What are you seeing on that point?

And then secondly, can you talk about what's driving the higher gross margin outlook sequentially? Is there any benefit from normalizing sickness, for example? And then thirdly and finally, can you just talk more about the rationale behind the Monster move? And what makes you think that there's a better home for Monster to be combined with CareerBuilder? And also, can you just run through the impact on your accounts as it gets deconsolidated?

[Jorge Vazquez, executive]

So on the wage inflation, it's a good question. I think, let's say, after what we've seen in 2022, 2023 even, we now see things normalizing overall. And the normal, let's say, wage inflation supports that we typically had over the last 10 to 15 years, which what we should start normalizing and converging towards, and we see that. Now it is still a labor market with mismatches. So depending on the profile, depending on the geographies, there are different considerations taken into account. But at the higher level, wage inflation is normalizing and becoming part of the normal trend that we've always seen.

In terms of gross margin, let me break it down a little bit to you. So we expect gross margin to sequentially increase from Q2 to Q3. Part of that is relatively easy explained. So Q2 margin, as I mentioned, was impacted by incidentals, especially a high sickness level, but also, let's say, incidentals in Germany, in particular. So taking into account Q2 is a quarter with a lot of holidays, public holidays. So how we account for this also has an impact on, say, our gross margin. As we go into Q3, a lot of these things will normalize. That alone will support an improvement in the gross margin in the temp margin.

But also let me be clear, if you look a little bit deeper into the numbers, the growth rates of RPO and perm will start, let's say, annualizing, so placing significantly easier comparables as we move from Q2 into Q3. And if you look at the actual amounts that we've invoiced in Q2, I mean, you see EUR 129 million of perm in Q2 versus EUR 130 million, EUR 131 million in Q1. So it's quite stable already. RPO, it's the same amount, EUR 79 million to EUR 80 million, pretty stable. So things have stabilized and, therefore, just annualizing comparables from one quarter into the other will start supporting our margin.

[Alexander van't Noordende, executive]

A few comments on Monster from my side. Rory, it's fairly straightforward. I mean, you look at the market as well as we do, and you have seen that the job board market is a very competitive place to be these days. And it's a technology game, so operating at scale is really important in such a market, especially when the market is under pressure as it is we say. So by combining CareerBuilder and Monster, we can realize significant synergies, first of all, in technology, but of course, also in sales and marketing. So it's a scale/synergies type of game, which makes total sense.

[Jorge Vazquez, executive]

Yes. From a P&L impact, Rory, sorry, was your last question. We expect to be quite limited. We'll talk more about it, of course when we actually close the deal, which we are expecting to be probably the first half of September. But then we'll be able -- overall, I mean, minimum, not material impact in our P&L.

[Operator]

We will take our next question from Sylvia Barker from JPMorgan.

[Sylvia Barker, analyst]

Firstly, on the trend in July, clearly you're referencing the easier comps, and that's maybe down to 100 to 120 basis points on that 7.5%. Could you maybe clarify, you're running it down 5-ish, 5.5%? And then second question, on the cost base, could you maybe comment around the number of FTEs and number of branches trend that you expect to see into Q3? And then finally, on Torc, could you maybe talk around the strategy on that and where you see that getting to in terms of, I guess, candidates being put on to the marketplace within the course of the year?

[Alexander van't Noordende, executive]

Sylvia, let me start with the Torc one because that's a very exciting platform and group of people that have joined Randstad. The name of the game going forward is making sure we are engaged not only for one assignment, but for the longer term with as many talented people in technology as possible. And in order to do that, you need a platform. You need a platform that is a destination for people to find assignments, it's a destination for people to learn, and it's a destination for people to engage with each other. And all of that, that's what Torc is doing for us.

So it's our intent to put our talent services business in digital, our staffing business, if you will, all on the Torc platform starting in North America, then moving to other parts in the world. Because we think having a platform in the middle is good for a seamless client experience. Clients can put in their assignments and also for seamless talent experience and for maximum matching, I would say. So that's the game plan going forward. Jorge, over to you on the other two questions.

[Jorge Vazquez, executive]

So Sylvia, first on the trends in July, I mean, first of all, Q2 was a bit of a choppy quarter, probably the best or happy news for it. Probably many of you have seen and have read and written about some market data that came out. You saw April starting in a way, then May decelerating or showing a little bit of contradictory data, then June kind of normalizing, again, in line with the overall quarter. What we see in the first weeks of July is that overall quarter trends prolonging into July. So that is basically what we see and what we are navigating, though it is diverging trend, right? So it is a bit of a kind of different trends geographically, but in broad pretty much.

If I look at your second question, FTE and branches, I'll need to zoom out a little bit. So FTE, look, we see many signs that are coherent with a lower part of the cycle or basically just a tipping point. In the sense of certain of our countries are already returning, temp is more resilient than others. We see some positive signs on Inhouse. We see perm still a little bit hit. So logically speaking, where we see opportunities for growth, and again, having worked hard to kind of guarantee good recoverability and adaptability for the last 2 years, we are now investing in FTE.

At the same time, just looking at Q2, you heard today we're investing in Spain, we're investing in Italy, we're investing in Japan. Looking at Q2 overall, we see that we actually decrease FTE from Q1 to Q2. So overall, that doesn't mean that where we have too much field capacity or capacity installed, we will also know that. So if you look at Northwestern Europe, we're still finding ourselves 10%, 15% low from where we would like to see ourselves. There, we clearly have too much installed capacity, and we'll need to continue to address this. So overall, it will be playing market-by-market, making sure we're ready to capture growth.

Branches, a little bit the same. You saw some of our restructuring costs has been addressing a combination. So Sander talked about, I say, our excitement, especially in the United States, we have all our business now in, let's say, manufacturing and logistics, all our, let's say, staffing business going through a digital marketplace. That does mean we can look at our accommodations and look at it from, okay, what type of work we want to do in physical places versus in more combined offices, Sander alluded to talent centers and delivery centers. All that lies for us to basically continue to reduce a little bit our expenditure in accommodation.

But I want to be clear. It's not about exiting markets. So we're not necessarily exiting markets. We are consolidating locations and we are choosing what type of accommodation we need to have in each one of these markets. But the tendency is to continue to decrease.

[Operator]

We will take our next question from Afonso Osorio from Barclays.

[Afonso Osorio, analyst]

I just have two, please. The first one, I'm trying to quantify the impact of your sickness rates -- high sickness rates in Q2. I think you mentioned 10 basis points, though I think that was Germany. Was this just an April situation? Or did you see the same trend in May and June? And I guess just a follow-up to Rory's question earlier like in terms of normalization in Q3 on the sickness rate, is that what you're seeing? And what kind of positive impact would that be on the gross margin sequentially?

And then number two, just on Germany, obviously, continues to be a drag. It's a good performance, the minus 16% organic. I mean, comps get somewhat tougher in the second half. So should we expect broadly similar performance or slightly worse on growth for Germany in the second half? And then as a follow-up to that, on the margin in Germany, I mean, now like negative margin in Germany. So what are you doing to improve operating margin in Germany going forward back to the mid-single-digit range you used to do before? So those are my two questions.

[Alexander van't Noordende, executive]

Okay. Afonso, thank you very much. Let me start with Germany. First of all, I mean, a bit more context. Germany, of course, as a country is in a very tough situation these days. As you would expect, we've implemented our specialization framework in Germany, which was I would say, a bit more of a profound exercise in Germany than in most of our markets, meaning we have integrated temp team into Randstad operational, and we have combined the professional business of Randstad with the professional business of group. And that's now all under the Randstad Professional brand name. We've worked spans and layers by combining regions and branches, similar along the lines what Jorge just mentioned, and we have created a national account and sales team to go after the big deals more -- deliver the peak.

So we think we got our homework done. The teams are lined up for future success. So things should get better from here. That's the way we look at Germany these days, better in terms of revenues and of course, in terms of margin. Now over to Jorge to talk a bit about gross margin and the sickness, I guess.

[Jorge Vazquez, executive]

Afonso, so overall, I mean, every quarter has its own peculiarities. I broke it down quite specifically on our gross margin. But, let's say, to give you a little bit more color, while we are confident from Q1 into Q2, I think from -- Q2, excuse me, into Q3, time flies, we see indeed that in Q2, we had a specifically lower gross margin in Germany, but also in Northern Europe, in general, you saw it in our temp margin. That has been with prolonged -- especially in the beginning of the quarter prolonged sickness level, so coming from the, say, carnival winter into Q2.

And overall, in particular, given the high level of public holidays. And remember, in Germany that has a bigger effect for us because a lot of the employees are accounted for very specifically different to other countries. That had an impact and created incidental impact in Q2. Going into Q3, we expect that to recover from that, and therefore, sequentially, monetarily higher in Q3.

[Operator]

We will take our next question from Remi Grenu from Morgan Stanley.

[Remi Grenu, analyst]

Just one remaining on my side. I just wanted to focus a little bit on France and what has happened. I understand that the phasing at group level in Q2, you saw a little bit of a better June. But what happened in France more specifically and especially since the snap election being called and the political uncertainty. And if you are having any discussion with clients or from your expectants of historical precedent, what would you say could be, if any, the impact on the next few quarters, if we were to remain in the kind of political uncertainty environment in this country?

[Alexander van't Noordende, executive]

Yes. So thank you, Remi, for that question. I would say the situation in France is probably a combination of things. First of all, the GDP growth in France these days is less than 1%. That's one thing. The PMIs were ticking up, but then we went back down during the quarter, especially on the industrial activity. Maybe there is some impact from the elections or the aftermath of the elections and the Olympics, which sort of seems to pause things a bit over the summer more so than we normally see in France, especially on the perm side. So I would just summarize to say clients are a little bit on the fence, for confidence reasons, but also maybe for practical reasons, given the Olympics. I think that's the summary. That's where we are. We'll see what happens after December. But generally, in France, things get a little better after the summer.

[Operator]

[Operator Instructions] We will take our next question from Marc Zwartsenburg from ING.

[Marc Zwartsenburg, analyst]

Jorge, first of all, I would like to come back on the working capital item because you mentioned first half always a bit cash out. But the gap with last year is quite significant, and it follows revenues -- but yes, revenues are not, yes, not going to be that much lower in the second half, hopefully. But I see last year first half, actually revenues came down -- went up, sorry, and you had less of a cash outflow than now with a declining revenue base. So I'm still a bit puzzled why that working capital is such a significant outflow in the first half, while the top line actually came down. So DSOs must have gone up quite a bit. Give a bit more color, maybe .

[Jorge Vazquez, executive]

Absolutely. So thanks, Marc, first of all, So let's take a step back. So if you look -- first of all, I'm going to be absolutely clear. So the trends we normally see from a seasonality pattern in working capital and free cash flow generation is what we are seeing this year. Last year, of course, we were declining significantly revenue from quarter-to-quarter. And this year, we are stabilizing, which is calibrating or increasing even as we saw from Q1 to Q2. That means that from a receivables perspective and DSO approximately of 58 days, let's say, the last 3 months' revenue is quite important in terms of how much receivables we build and the delta we built from one quarter to the other. We don't see any changes on payment terms. We don't see -- we have our, let's say, overdue is actually at a record low level. So things are very, very well controlled from a capital perspective -- capital protection perspective. .

And then zooming out, what we've always seen in the industry is also on growth years or stabilized years is the first half of the year always investing or at least not generating capital. We have many pension things. We have many holiday components, we have PAT components. So a lot of tax components, a lot of the large outflows in terms of working capital and cash happened typically on the first half of the year with, I would argue, 80% to 100% of our cash flow generation always happening in the second half of the year. This year, in particular, I would argue -- or this quarter in particular, what happened, and we saw actually the exact reverse of days in the first days of July, so the quarter finished in the weekend, the first weekend -- the first days of July, we already saw a significant inflow of capital from receivables being paid in the first days of July. So there's nothing specific to highlight apart from coming back to the normal seasonality because the company has stabilized, and we're going back into the normal seasonal pattern.

[Marc Zwartsenburg, analyst]

Okay. So for the full year, with revenues likely still down quite a bit, should we see a positive working capital inflow or still negative?

[Jorge Vazquez, executive]

We would see a strong cash flow. Obviously, the normal cash flow generation pattern of Randstad for the full year with probably working capital being a little bit of a mix on the regions where we are growing or we're still somewhat in decline. Again, please also take into account the sequential pattern as much to take the year-on-year capital. So we need to celebrate the fact that we're going back into revenue growth and not necessarily on a decline rate versus last year.

[Marc Zwartsenburg, analyst]

Okay, okay. And then maybe on digital, that's down 14% in the quarter. Can you give a bit more color maybe why digital is still so much down? Is that specific declines? Is that start-up stuff? Can you give a bit more color on the digital segment, please?

[Alexander van't Noordende, executive]

Marc, this is Sander. It's The Market And the actions that clients are taking. So first of all, our Talent Services business is in the spot where clients take actions first. The contractors that are doing the small stuff at clients, they are let go, if you will, first -- as the first ones. Then the second -- there are two key trends that are happening, and there's a lot of vendor consolidation going on, which generally also has a tendency to stall activity at the clients. And then there is clients moving more and more of their work to places like India and Romania. And we have centers there, and we're building them at the rapid pace. I think we have more than 1,500 people now working in India for Randstad Digital clients. But as you are well aware, the revenues that come with those talents are also at the lower level. So it's sort of the combination of the two that results in the minus 15%.

[Marc Zwartsenburg, analyst]

That's very clear. And then maybe on the -- sure, Jorge. Go ahead.

[Jorge Vazquez, executive]

A quick check. Last year, just to be clear, we also built working capital from Q1 to Q2. So just -- so it is kind of the normal...

[Marc Zwartsenburg, analyst]

Maybe it's a bit more the Q1 where we had a huge cash outflow, well, the revenues were down. Maybe that explains a bit where -- that there's a bit of timing effect at the end of the year.

[Jorge Vazquez, executive]

Yes, indeed.

[Marc Zwartsenburg, analyst]

And then maybe on the corporate cost. So it's still increasing, you're investing. That's all clear. How should we think about that going forward, also keeping in mind that you're trying to work hard on bringing the indirect costs down? I can imagine that also assumes that on the headquarter, there might be some trimmings? Or should we look at that going forward?

[Jorge Vazquez, executive]

Yes. So Marc, overall, I would say, from a corporate cost perspective in concrete, I would say, stabilization now for the rest of the year. But I would always say, I mean, again, our point is we strive to be quite consistent. It's in the culture of the company. So this happens throughout the organization to, either on the way up or the way down, be quite clear of what's expected from a conversion into profit and managing our OpEx in that respect. And that's typically the 30% to 50% recoverability of incremental conversion. And within that, we do make choices. So we are investing indeed in our strategic agenda. With this, we can reduce some of our indirect cost sales where we can optimize a lot of how we work. We can also protect field capacity as long as the net result of that brings us to a good recoverability ratio for the full year.

[Marc Zwartsenburg, analyst]

Okay, okay. And then a final one, if I may. Now we are bottoming or stabilizing on the volume side. Gross margin may be now also maybe troughed, let's hope so. But yes, if I then look at the market, is it now time maybe to put the balance sheet to work and look at M&A now that everybody is still in a tough spot, not seeing the recovery yet? Is this a time maybe to make a move? Maybe someone you can comment on it.

[Alexander van't Noordende, executive]

Great question, Marc. Let's say, we have our strategy and we're looking for M&A candidates that fit our strategy. And if they are available, and we have a few in the pipeline, then we'll make our moves. Making a move because things are cheap, so to speak, is never a good thing to do because we want to make sure we deploy the capital of our shareholders in the most careful way. But yes, we're looking at acquisitions and plus the ones that are 100% part of our strategy. And that means specialization -- supporting one of our specializations.

[Marc Zwartsenburg, analyst]

And maybe a bit of a follow-up, looking to Torc. Would there be synergies to have a similar platform in Europe that you can merge things? Or can you just organically roll out Torc throughout the group? How should we...

[Alexander van't Noordende, executive]

The Torc platform, we can -- that is the platform for our Digital business and for Randstad Digital, we can roll that out in due course in Europe and in other markets in Australia. In general, I would say, we are very excited about digital marketplaces. As you have seen in North America, the rollout has been quite smooth. We're definitely looking to have more platforms in the mix or to roll out the platforms that we have, so to cover a bigger chunk of our business by platform for seamless talent and client experience so that our consultants can spend more face-to-face time with our clients and with our talents.

[Operator]

We will take our next question from Konrad Zomer from ABN AMRO ODDO.

[Konrad Zomer, analyst]

I've only got one question, which is on your EBITA margin. I think that today's results show that we're willing to sacrifice short-term profitability for midterm recovery potential. But my question is how do you look at your EBITA margin as a steering guide? Because you're looking at slightly lower OpEx in Q3, your revenues are still likely to be down. Is it fair to say that the 3.0% you reported today is probably the low point of the year? Or are you willing to sacrifice more near-term profitability in order to prepare yourself for the recovery that at some point is likely to reoccur?

[Jorge Vazquez, executive]

Yes. Konrad, let maybe try to be short on the answer. So thanks for the question. It's a very good question. Yes, we've been balancing for the right reasons because we are excited to, what, let's say, a lot of the things we're building on the portfolio we have today and the specialization like Sander highlighted organization by specialization can mean to us in the recovery. But things have been normalizing. And I can tell you, no one in the organization is happy. No one, let's say, throughout the whole world of Randstad is happy. We're seeing a 3.0% EBITA margin. .

We understand also there's an impact on mix, things have gone a little bit deeper than we expected in perm, even in RPO and other areas. At the same time, yes, this should be the lowest. We have a lot of things ongoing to start, let's say, bringing up fast. The clear explanation or the clear guide is always our recovery ratio and incremental conversion. So teams know what's expected from them. Within that, we do not take the eye off the ball when it comes to EBITA margin. So we need to balance, but we're not there yet.

[Operator]

We will take our next question from Sylvia Barker from JPMorgan.

[Sylvia Barker, analyst]

Just a quick follow-up. You obviously basically called for a turning point in the top line trends. And one of the comments you made was the positive signs on Inhouse. Could you maybe just elaborate a little bit more on what these positive signs have been and what end markets in particular?

[Alexander van't Noordende, executive]

Yes. So Sylvia, thanks for the question. So Inhouse, first of all, we have won a significant number of deals, more deals than last year. And I'm talking specifically North America here. And then also in North America, we see some of our clients ramping up the number of people they are using. So the Inhouse story, North America helped, of course, also by the Randstad app. Because, again, the fulfillment and the ramp-up is so much easier with the technology than in the old situation. It's absolutely helpful. So the fact that Inhouse is moving in the right direction in North America is a very positive sign, I would say.

[Sylvia Barker, analyst]

And are these industrial customers? Or...

[Alexander van't Noordende, executive]

Yes. The Inhouse customers are generally manufacturing and logistics.

[Jorge Vazquez, executive]

Yes, Sylvia.

[Operator]

It appears there are no further questions. At this time, I will hand over back to Sander for any additional or closing remarks. Please go ahead.

[Alexander van't Noordende, executive]

Yes. thank you, Adip. Before we wrap up the call, I would like to thank our over 640,000 Randstad people for their ongoing dedication and doing what they are best at, and that's delivering value to our clients. And for those of them in the Northern Hemisphere, if you still have some vacation ahead of you, have a great vacation and see you back in Q3.

[Jorge Vazquez, executive]

Thank you, everyone.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.