Randstad NV

AEX:RAND

Earnings Call Analysis

Randstad maintains stability amid challenging market conditions

In Q3, Randstad's revenues reached EUR 6.0 billion, down 5.9% year-over-year, reflecting subdued trading conditions, especially in the automotive sector. Despite these challenges, the gross margin stabilized at 19.5%, leading to an underlying EBITA of EUR 196 million, improving slightly on a sequential basis. The company anticipates stable trends in Q4 and aims for enhanced profitability as it continues to invest in its specialized talent strategy. Notably, Randstad acquired the health care-focused Zorgwerk, which is expected to drive future growth and is projected to be accretive within three years.

Reflections on Leadership and Strategy

Sander van't Noordende, the CEO of Randstad, opened the earnings call by reflecting on the legacy of the company’s founder, Frits Goldschmeding. He emphasized Goldschmeding's vision and commitment to sustainable value creation which still guides Randstad’s operational philosophy. This acknowledgment underscores Randstad’s commitment to long-term growth amidst market challenges.

Current Market Challenges

In the third quarter, Randstad experienced persistent subdued trading conditions across its primary markets due to a challenging macroeconomic environment. Specifically, the Manufacturing Purchasing Managers' Index (PMI) remained below 50, indicating a contraction in manufacturing activities, particularly affecting the automotive sector. This resulted in a year-over-year revenue decline of 5.9%, totaling EUR 6 billion. Although client and candidate confidence was low, some regions such as Spain, Italy, and Japan showed growth, helping to stabilize overall performance.

Financial Performance Insights

Despite macroeconomic headwinds, Randstad reported an underlying EBITA of EUR 196 million with an EBITA margin of 3.3%, representing a slight sequential increase. The company maintained cost discipline, leading to reduced operating expenses while navigating the challenges posed by reduced hiring activities and longer time-to-hire processes. The gross margin for Q3 was 19.5%, down 110 basis points year-over-year, primarily impacted by geographical service mix and specific operational challenges.

Operational Disciplines and Future Outlook

Looking towards Q4, management expects trends to stabilize and is focused on operational effectiveness by steering resources to high-demand sectors. The emphasis on managing indirect costs and optimizing operational activities underpins the company’s approach to capturing growth opportunities despite prevailing uncertainties. The anticipated trends suggest a marginal increase in profitability, aided by slight growth across various sectors during the holiday season.

Regional Performance Breakdown

Geographically, Randstad continues to see a mixed performance. In the Southern Europe region, particularly in Spain and Italy, the company's operational talent solutions grew by 7%. Conversely, the U.K. labor market softened significantly, with revenues down 11%. In the Asia-Pacific region, Japan achieved 4% growth, indicating a promising rebound, while Australia and New Zealand faced ongoing challenges, declining by 14%.

Strategic Investments and Acquisitions

Randstad’s acquisition of Zorgwerk, a digital marketplace for health care staffing, is poised to strengthen its position in the specialized talent sector. Expected to close soon, Zorgwerk generated approximate gross revenues of EUR 200 million in 2023, and Randstad anticipates that it will be EVA accretive within three years. This strategic move aligns with Randstad's ongoing efforts to invest in growth segments, aiming to enhance its specialized service offerings.

Dividends and Financial Health

In early October, Randstad paid a special dividend of EUR 222 million, highlighting its commitment to returning value to shareholders while managing cash flows effectively. Free cash flow for the quarter was up to EUR 258 million, reflecting seasonal inflows that align with expectations, reinforcing the company's solid balance sheet despite the operational challenges it faces.

Management Guidance and Market Sentiment

Both CEO Sander van't Noordende and CFO Jorge Vazquez communicated cautious optimism regarding market recovery. They don’t forecast drastic changes but instead monitor actual market conditions closely. With an acknowledgment of the complicated environment, they communicated strategies to cope with potential downtrends while continuing to capitalize on growth opportunities, particularly in sectors showing early signs of recovery.

Earnings Call Transcript 2024-Q3

[Operator]

Hello, and welcome to the Randstad Third Quarter Results 2024. My name is Saskia, 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.

[Alexander van't Noordende, executive]

Thank you very much, Saskia, for that introduction, and good morning, everybody. I'm here with Jorge and our Investor Relations team to share our Q3 update.

Before we talk you through our results, I'd like to spend a few moments to reflect on the passing of our founder, Frits Goldschmeding at the end of July. Because with Frits' passing, we lose a great visionary and a wonderful inspirational personality. What started as an idea 64 years ago in his dorm room has developed into the world's leading partner for talent for the best companies and organizations across the globe. And at the heart of all this success was Frits' unwavering focus on long-term and sustainable value creation reflected in Randstad's core values: to know, to serve, to trust. And today, these values are still the foundation of our strong people-focused culture.

Frits held the CEO position for 38 years not only growing the company, but shaping our industry by enhancing the role of flexible work and the rights of talent in the labor markets. Later, he served on our Supervisory Board. And over the past 3 years, I got to know him as a very, very committed shareholder. We will all miss him. He was an iconic entrepreneur, and we at Randstad will do everything we can to continue to grow and innovate the company in a way that Frits would be proud of.

Turning to our Q3 results. Overall trading conditions remain subdued across many of our markets. The challenging macroeconomic environment we saw in the second quarter continued in Q3. Manufacturing PMIs are below 50 in all our main markets, and especially the automotive industry is challenged these days.

Lower client and candidate confidence results in muted hiring activities and longer time to hire. However, in Q3, we've also seen stabilization as our portfolio has shown resilience. Spain, Italy and Japan continued to grow on the back of investments, while early cyclical businesses such as U.S. in-house, e-commerce and logistics have turned to growth this quarter. And I'm also pleased to see our increased level of commercial activities paying off. All of this contributed to revenues of EUR 6.0 billion, a decline of 5.9% year-over-year.

Our gross margin came in at 19.5%, and this reflects a combination of mix changes in both our geographic and service footprint as well as some country-specific headwinds.

But I'm pleased to say we maintained our usual discipline on costs, and these were sequentially lower, driven by our efforts on indirect cost, business mix and seasonality. This resulted in an underlying EBITA of EUR 196 million and an EBITA percentage of 3.3%, slightly up sequentially and equating to a recovery ratio of 37% over the last 4 quarters.

In Q4, we expect trends to remain stable. We maintain our focus on field steering and reducing indirect costs while ensuring we sustain sufficient field capacity to be ready for a market turn.

At the same time, we have continued to invest in our Partner for Talent strategy. As shared almost a year ago in our Capital Markets Day, our vision is to become the world's most equitable and specialized talent company.

Why specialized? Specialized because it's all about ensuring we provide clients and talent what they are looking for. Clients want specialized skills and delivery models. So the more we focus on the right specialization, the better we can help the right talent to find opportunities and add value to their careers.

Let me talk you through a few highlights here. First, growth through specialization. Following the implementation of our specialization framework, we're allocating additional capacity to our growth segments. Beyond our normal field steering, we invested over 300 FTEs this year in the structural market opportunities. For example, skilled trades and operational talent solutions in Spain, health care and professional talent solutions in Australia and digital talent solutions in Japan and Italy. And these are just examples. We're doing this across the globe.

Specialization is not only our focus for growth. It runs through everything we do: skills, sourcing strategies, business models and career tracks. And remember, specialization does not mean niche. We are all about specialization at scale. And a great example is our U.S. digital marketplace, which is continuing to go from strength to strength. Productivity is up and talent and client adoptions are very encouraging.

And lastly, this morning, we announced the acquisition of Zorgwerk, the leading digital marketplace in health care in the Netherlands. And we're excited about this because this acquisition ticks all our strategic boxes. It's all about specialization in a growth segment, underpinned by digital marketplace to create seamless experiences for clients and talent and, of course, be a true Partner for Talent.

Now let me unpack that for you. Specialization, Zorgwerk brings over 75,000 passionate health care professionals and a portfolio of more than 300 clients. This is as specialized as it gets, I would say.

Growth segments. Demand for specialized health care and care talent will continue to grow in the Netherlands. Today, 1 in 7 people are working in the ecosystem, and this is expected to grow to 1 in 4 in 2040.

Lastly, digital marketplace. Client schedule their shifts and talent selection via the Zorgwerk. It doesn't get more seamless than that, I would say. So Randstad and Zorgwerk, combined will be deep partner for talent in health care in the Netherlands as we can serve our clients across the full range of work arrangements as well as provide talent not only with work, but also with the required training. So we at Randstad look forward to welcoming the Zorgwerk team to Randstad.

So in summary, while challenging market conditions remained in Q3, we saw stabilization in our markets, underpinned by our diversified portfolio. We continue to focus on operational discipline, carefully balancing field capacity, indirect cost reduction and, of course, strategic investments. And against this backdrop, we're making great progress with our Partner for Talent strategy.

Before I hand over to Jorge, I would like to make a couple of remarks on our team. We announced last week that Chris Heutink will be stepping down as our COO and that Jesus Echevarria will be his successor starting January 1, 2025.

I would like to sincerely thank Chris for the more than 3 decades of service to Randstad. Throughout his impressive career, he has demonstrated an unwavering determination to deliver results and a very strong dedication to our people. And Chris has been instrumental in Randstad's journey to become a leading global talent company. We wish him every success in his future endeavors.

Jesus, as first is our MD of Spain and more recently in his role of Chief Talent and Client Delivery Officer, demonstrated an exceptional focus on operational excellence. Jesus always puts talents and clients' needs first. It's a great role model of Randstad values and he's passionate about the growth of our people. And I'm convinced that under his leadership, we will further accelerate our partner for talent strategy. Jorge, over to you.

[Jorge Vazquez, executive]

Thank you, Sander, and good morning, everyone. Let me pick up exactly where he left that is under three key overarching points about our financial performance this quarter.

First, full market recovery is pushed out, but trends are stable and in many ways, recognizable. On there other hand, macroeconomic more of the same, challenging conditions remain. On the other hand, underlying improvement in traditional early cyclical markets, and we still see late cyclical segments we don't bid before us.

Secondly, like we said operational discipline, balancing performance, field capacity and strategic investments, protecting today and the future.

Thirdly, as again you also mentioned, large steps in executing our strategy, but now let's look at the details and discuss the performance of our key regions.

Starting with North America, especially the United States. The macroeconomic environment remained little unchanged over the quarter as this cycle has experienced one of the most extended periods of retrained PMIs and weak staffing market data. However, on top of the comparables, we see various signs of underlying sequential improvement in the U.S., especially in the operational talent demand. Our revenue dropped by 9%, sequentially, still better compared to Q2, minus 13%, with perm declining 19% when it was declining 24% in Q2.

Our U.S. operational talent solutions declined by 3%, with growth actually already returning to logistics. More importantly, our larger clients in-house is growing 6%, and we see the tangible impact of our marketplace providing momentum as the general market is still in decline. U.S. professional talent solutions are still significantly down, facing challenging market conditions and in line with our perm.

U.S. digital talent solutions was down minus 14% as we see trends stabilizing. While the U.S. Enterprise Solutions was down 11% with good sequential improvements already in RPO. The EBITA margin stood at 3.6% but improved sequentially as productivity continues to improve.

Moving on now to Northern Europe on Slide 10. In Northern Europe, diverging sector trends impacted our business environment. We saw a sharp slowdown in automotive production while the broader industrial environment stabilized at lower levels. Growth came in overall at minus 8% and not better sequentially from Q2. However, despite this difficulty, we've maintained strong adaptability. We continue to adjust our operations in line with the current reality, and we positioned for more structural growth.

In the Netherlands, revenue sequentially improved to minus 7% in Q3 from minus 9%, remember, in Q2. Most sectors did stabilize, but again, the broader automotive sector saw softening demand. Operational talent solutions were down 8%, but on the other hand, here, our professional talent solutions continued to grow at 1%. The EBITA margin came in at 5.3%, again, showing strong adaptability.

Turning the page to Germany. Germany challenged economic environment has remained relatively unchanged over the summer and growth sequentially improved to minus 11% on easy comparables. Profitability returns, but is still impacted by idle time related costs, bench, sick days, fewer hours to work per EW as we see the average number of sick days structurally higher post-COVID. Remember, recovery will not be a straight as we refocus the business for growth in our four specializations and streamline operations driving efficiencies.

In Belgium, one of the three countries with tougher comparables, we saw revenues decline by 4%, with broader automotive weighing in the mix. However, we remain in line with the market, leveraging on the strength of a very well-diversified portfolio. Operational Talent Solutions were down 5% year-on-year, while professional talent solutions were up 3%. The EBITA margin came in 4.3%, once more showing strong productivity improvements.

Looking at the other Northern European countries, let me break it for you. Poland was down 4%, Nordics remained tough, down 22% and Switzerland was down 7%. EBITA margin for the Northern European and other Northern European countries came in at 3.1%.

Let's now turn to the segment Southern Europe, U.K. and Lat Am on Page 11. Here, I'm pleased to see the continued recovery in our most Southern European countries. As a key profit driver for the group, contracts have kept their Q2 momentum despite the automotive slowdown. We achieved an EBITA of EUR 105 million with a margin of 4.5% in the region. We are protecting field capacity to recover cyclicality. But as you heard from Sander as well, very important, we continue to invest in growth segments to structurally position us for more growth.

Italy maintain its growing momentum, plus 3%. Operational talent solutions continue to grow with 2%, and professional talent Solutions, one of our growth segments, were up 10%. As mentioned last time, we want to capture market opportunities and continue to invest where we see structural growth. This includes IT, health care and skilled trades. As a result, our professional talent solutions is up 8% to 10%. Despite this, Italy still shows -- despite all this investment still shows a solid EBITA margin of 5.5%.

France feels like [indiscernible] on the other hand at post Olympics blues. The current uncertainty around the budget and the ability to reform is delaying recovery. Markets have moved sideways, if anything else, resulting in a decline of revenue of 7%, similar to Q2. The operational talent solutions decreased by 4%, while the professional talent solutions was more impacted down by 10%.

Digital, in particular, is in double digit decline given its exposure to the broader automotive sector, and idle time here weighs in on the gross margin. As a result, EBITA came in at 3.9%, down 130 basis points year-over-year.

Further south, Iberia. Iberia revenue stabilized at a high level, growing by 6% this quarter. Q2 was 7%. Operational talent solutions grew by 7%, whereas professional talent solutions declined by 4% compared to last year. If we zoom in, Spain showed robust growth with double-digit 10% increase, mainly driven by strong performance in its operational talent solutions and RPO.

This progression also reflects the value of field steering discipline and again, the impact of growth segment investments with positions at this time, stronger in Spain in skilled trades, logistics and e-commerce.

Across other Southern European countries, U.K. and Latin America, let me break it down for you. U.K. was down 11% as U.K. labor markets softened in September. Latin America was actually up 2%, with Brazil, in particular, again, growing at 13%.

Now let's turn east to Asia Pacific on Slide 12. The Asia Pacific region continues to recover. Japan once more demonstrated solid performance, achieving 4% growth with strong profitability. Operation talent solutions were up 1%, whereas professional talent solutions delivered a decline of 2% year-over-year. Within that, our digital specialization though recorded double-digit growth in Q3 at plus 23%. We continue to see our investments from last quarter paying off, but there's still significant opportunity to position even more for structural growth in a market where we still believe we are underrepresented.

Australia and New Zealand saw sequentially improvement, although tension at low levels, declining still minus 14% in the quarter.

India grew by 8%, confirming the opportunity and benefits of focus in our portfolio. Overall, the EBITA margin for APAC was a strong sound 4.8% in the third quarter, reflecting softness in the Australia and New Zealand region.

Now this concludes the performance of our key geographies. So let's look at our group financial performance on Slide 14. As you can see, the group's revenue for the third quarter was EUR 6 billion, a decrease of 5.9% year-over-year organically. Sequentially, we see stability from Q2 into Q3, showing more and more of a normal seasonal pattern.

From a specialization point of view, we saw the following: our operational talent solutions continued to improve underlying and sequentially at minus 4%, professional talent solutions took a step back at minus 10%, reflecting tough white collar markets. Although still below the group average, digital enterprise also to continue to improve sequentially, now at minus 11% and minus 8%.

We'll cover gross margin OpEx later, but for now, the quarter's underlying EBITA was EUR 196 million, with a margin of 3.3% and strong operational discipline. Integration and one-offs were EUR 17 million this quarter, although not as elevated as in the first half of the year, we continue to rightsize and accelerate future fitting our organization and take action.

In the amortization and impact of intangible assets, there's nothing relevant to highlight. Net finance costs, as you can see, were EUR 23 million, slightly up from last year, mainly to do with an adverse FX impact.

Overall, the effective tax rates was 26%, in line with our guidance between 25% and 27% for full year.

Let's now look and unpack our gross margin on Slide 15. The third quarter gross margin was 19.5%, down 110 basis points versus last year and below our expectations. First of all, most of the disposal, just to make sure we compare like-for-like. Most disposal had a 20 basis point adverse impact as the net fee was de-consolidated in mid-September.

The temp margin itself declined 60 basis points, and it is important to note that half of this impact is related to the geographical mix and services mix as blue collar temp like in the United States and Southern Europe and lower temp margin countries, Spain, Italy, continue to outgrow even more the rest of the business. While negative here, remember, this has a reverse impact in our OpEx and conversion as discussed in the next slide.

On the other hand, absence and idle time-related costs are still elevated in certain pockets of our business. Specifically, this effect is the largest in Northern Europe as these are more exposed to the bench model. It combines higher insurance per employee working, higher absence or a bench rate above acceptable rates. I do expect these effects to diminish once we see demand returning and temporization normalizing across many sectors.

Perm remains still somewhat subdued 10% below the group average, and RPO came in slightly better, but it is definitely not a straight path recovery. Again, the cyclicality is weighing on us now, but cyclicality works in both directions and will support us strongly when the recovery comes.

That brings me to the OpEx bridge on Slide 15 and remember this brief sequential. Let me unpack it and as we continue to balance performance, growth and strategic investments. First of all, again, following the disposal of Monster, the cost budget was EUR 10 million lower this quarter. Excluding Monster impact, our FTEs are actually broadly stable sequentially, but OpEx is organically 3% down.

It's relatively simple. One, we benefit from normal seasonal effects in our personal expenses. Two, as always, OpEx moves in line with gross margin. We said internally moves hand in hand with gross profit because it reflects our services and geographies. For example, a more pronounced logistics and industry recovery than other areas for a higher ratio of temporary than permanent service comes with different OpEx requirements and expectations and therefore, requires adjustments elsewhere in our operations. Three, on our installed food capacity for recovery or reallocation to growth segments. It's crucial to be the first to present talent ready to work to clients as they start rehiring. This position us for a better moment in the cycle when that opportunity is there. Three, let's say, our weekly field steering data, we closely monitor our field capacity for recovery, and we adjust capacity if required. At the same time, protecting it where growth is.

Fourth, as mentioned last time, we do achieve all of this. But still, because we have a very prolonged recovery so far, we have continued to optimize our support services by reducing indirect costs. We are already seeing the impact of this, and we will continue to do so. All of these, we do was safeguarding our strategic investments. Overall, we operated in the last quarter -- last 4 quarters recovery rate of 37%, showcasing what can be done through operational discipline.

With that in mind, let's move on to Slide 17, which contains our cash flow and balance sheet remarks. Our free cash flow for the quarter was up EUR 258 million, reflecting a seasonal inflow that is in line with our expectations. We discussed this last quarter. DSO was 54.1 days, broadly in line sequentially with the geographical mix, particularly putting us some upward pressure. We do expect this to normalize as recovery continues. Overdues though, important are at historical lows or remain at historical lows.

Important this quarter, clear portfolio inorganic choices. Sander mentioned this, we have completed the merger between Monster and CareerBuilder from which we will have a minority stake in the joint venture. As far as the disposal is concerned, we have provided a joint venture with a fair share of liquidity to ensure a smooth start.

At the same time, looking forward-looking ahead, very exciting news about Zorgwerk. As mentioned, these acquisitions ticks all the boxes. It is all about specialization in the growth segment underpinned by a digital marketplace to create seamless experience for clients and talent and be a true Partner for Talent.

Zorgwerk generated in 2023 gross revenues of approximately EUR 200 million, and we consider an enterprise value of EUR 323 million. This bolt-on acquisition fits within our unchanged capital allocation strategy, and we expect it as always to be EVA accretive within 3 years. We are looking forward to working together with the Zorgwerk team and their thousands of qualified and dedicated professionals. We expect the deal to close in the coming period.

Lastly, we paid, of course, our special dividend in the first week of October, totaling EUR 222 million, which now brings me to the outlook slide on Page 18. Let me start with one comment. We see a continuation of stable trends going into the fourth quarter in the first weeks of October. On the one hand, macroeconomic conditions remain challenging and our visibility is limited. On the other hand, the growth is returning in a number of markets following the dynamics that we are used to in our industry.

With a more seasonal pattern emerging and diverging growth trends, we do, as we always do, we manage on actuals. We sell daily and weekly and the debt were necessary.

For Q4, we continue to capture growth opportunities where we can, balancing selective investments in strategic initiatives while safeguarding conversion through our set adaptability corridors on a rolling yearly basis.

Let me start with the given momentum. In the first week of October, we saw stable volumes compared to those we experienced as we exit Q3. There will be a slightly easy comparison base, again, as we go into Q4, we expect that approximately 1%, and there will be an additional 1 working day.

From a margin perspective, remember, as Monster was only partially de-consolidated during this quarter, we see this sequential impact, 50 basis points lower sequentially or 70 basis points in total year-over-year. The impact on operating expenses is about EUR 35 million to EUR 40 million sequentially, which is nearly equal to the gross profit amount. Removing that and looking at the line, we see Q3 2024 gross margin expected to be slightly up sequentially, reflecting stabilization in volumes.

Q3 '24, expenses of Q4 '24 expenses to be broadly stable underlying sequentially. This is, in reality, already reflecting an improvement as seasonality normally weighs in on the cost base towards the end of the year. Overall, it is actually quite simple. It should be a fairly similar quarter with a notch better profitability. And let me summarize before we open the Q&A.

While challenging market conditions remain in Q3, we did see a stabilization in some of our markets. Very telling, we continue to deliver on operational discipline, carefully balancing field capacity for the recovery in direct cost reduction and strategic investments. More importantly, against this backdrop, we are making strong progress on our strategic agenda and optimizing the business for when things return.

And from a financial perspective, as we repeat this internally, it is how strong you get out of a crisis that really matters, not necessarily how you went in. After downturns, we consistently generated more profit during growth than the profit lost during declines. This time, we are laser focused in our growth algorithm, and we're actually annualizing 1 year of our Capital Markets Day, and we see very clearly three parts for this: number one, continue to increase our operating leverage through delivery excellence; number two, continue to unlock scale benefits in our indirect costs; number three, continue to apply the capacity wisely, both organically and inorganically. These three choices reinforce each other. It's a flywheel. They are about more than recovering the subdued cyclical revenue, thereabout to finally, position us to structurally capture higher growth.

And with that, we conclude our remarks, Sander?

[Alexander van't Noordende, executive]

We're opening up for questions. Great job, Jorge.

[Jorge Vazquez, executive]

And we look forward now to take your questions. Operator?

[Operator]

[Operator Instructions] And first up, we have Simona Sarli from Bank of America.

[Simona Sarli, analyst]

So the first one is on SG&A, which decreased on a quarter-over-quarter basis quite substantially. But if I look at your number of FTEs, excluding Monster was stable. So I see that Monster explains only EUR 13 million of overall SG&A reduction. So I was wondering what is explaining the balance of that? And also, should we assume a EUR 35 million to EUR 40 million reduction in SG&A per quarter also in H1 of 2025? So that's the first question, please.

[Jorge Vazquez, executive]

Thank you. So first on the OpEx, I mean, there's two things. One is, of course, Q3 has a seasonal impact. And therefore, as we look into Q4, we are continuing to see the benefit of our push in particular on indirect costs and focused on making sure that these continue to support and therefore, underline. Even if we correct for Monster, we expect it to be stable into Q4.

At the same time, it is somewhat early for us to be calling out how we will evolve into Q1. What we will for sure do is we will enter the year we will end 2024 responsibly to make sure that we enter 2025 in the best prepared way for what we see. And that obviously means managing our actuals and taking into account what we see at the time.

Balancing ultimately indirect costs, we still are focused on that and busy in operating those with safeguarding a degree of capacity to make sure that we can recover if the opportunities allow.

[Alexander van't Noordende, executive]

Thank you, Simona. Let's take the next person with a question.

[Operator]

And we're moving on to Remi Grenu from Morgan Stanley.

[Remi Grenu, analyst]

Yes. I have two, if I may. So the first one is on your guidance. I guess one of your key peers have flagged that they are expecting some sequential deterioration in Q4 on the back of lower seasonal activity and some end-of-the-year closure at industrial facilities last thing longer. So that's probably diverging a little bit from your own comments on easier comp base and stable volumes. So can you maybe elaborate a little bit on what makes you more confident about the outlook for activity in Q4? And where you are seeing potentially further weakness and where you could have some positive offsets in the next quarter? So that's the first one. And the second one is just...

[Alexander van't Noordende, executive]

Remi, hold on, we're doing one question per person. If you have a question later, we can come back to you.

[Jorge Vazquez, executive]

So Remi, in terms of outlook, look, we don't guide, we don't necessarily forecast what we can see. What we say is, what we reflect is, we look at the terms we have entering into Q4. So the first weeks of October. And our teams pretty much know exactly what's expected within, let's say, what they see, what we go managing on actuals.

Based on that, we can basically look at Q4 and say if we are to continue to see this trend and continuation of Q3, we expect the quarter to be pretty much in line. Yes, some countries have a less seasonal effect in Q4. Other countries, actually, if you look at them, have a more kind of ramp up until Christmas and ramp up until, let's say, the festivities. So one, let's say, counterweights the other, and in that respect, we expect a notch higher profitability in Q4. So pretty inline with Q3, slightly better profit.

[Operator]

And we're moving on to Rory McKenzie from UBS.

[Rory Mckenzie, analyst]

My first question is I appreciate you highlighted parts of the business that were stabilizing or back in growth, I guess, against that some segments have deteriorated. Can you say in particular, how much of the group is your autos exposure nowadays? And how much of a drag was it within Q3? And also any view on if it worsened through the quarter, given some of the reports we've heard from the clients?

[Jorge Vazquez, executive]

Yes. So approximately, let's say, the broader automotive sector, Rory good morning, is 6%, 7% of the group, and it has come down indeed, especially, I would say, more firmly from Q2 to Q3 approximately 80%. So it has weighed both, I mean primarily in Europe, but it has weighed on us, yes. But again, these trends, on the other hand, it also means that we -- you heard it in my prepared remarks that other sectors are somewhat either improving or at least stable sequentially.

[Rory Mckenzie, analyst]

And any comment on the trends within the quarter? Did it end September particularly worse? Or is it quite stable within Q3?

[Jorge Vazquez, executive]

Was pretty stable within Q3. I mean most of the automotive news, if you heard if you follow the sector, we're actually quite -- I mean we're the was present throughout the quarter, so it was pretty much in line throughout the quarter. Yes.

[Operator]

And we're moving on to a question from Suhasini Varanasi from Goldman Sachs.

[Suhasini Varanasi, analyst]

I just had one question on gross margins, please. I think for the third quarter, you had talked about in the original outlook with the 2Q results that gross margins could be better modestly, sequentially, but actual numbers were a little bit lower. Can you maybe help us understand what changed was your expectations and gives you the confidence that underlying gross margins ex Monster can still improve in 4Q?

[Jorge Vazquez, executive]

Yes. So Suhasini, first of all, good speak to you. Yes, we were disappointed with the gross margin. And a few things we did not expect, let's say, such acute movement from Q2 to Q3, and that has impact. So let me again be clear on what they were, on one hand, indeed, perm continues to be quite subdued. You saw many of our, let's say, peers or specialized peers also somewhat more negative than they were, and that had impact.

In particular, our debt margin, we did not -- we saw even, let's say, more diverting trends in what we call blue collar also OTS versus of PTS or professional talent solutions. And that means indeed that our margins in some of these more large-scale operations are lower. Now the flip side of that, and that's, of course, what you also see is that automatically in terms of how we manage our business, it also means our operating expenses adjust. So that operational discipline gives us some sort of peace of mind in how to look at it.

Secondly, we also saw given a little bit the pronounced, let's say, cycle where we are in, an increase in signals rates higher than what we had expected, insurance premiums and higher medical costs overall as well as bench. But let's also kind of put one thing into perspective. It is as we move and as we progress, we continue to take all these inputs in several ways. So not only, let's say, the delivery, we softened part of it through OpEx. But if you look at bench as well, bench is a consequence to a large extent of sales. And therefore, it also impacts field steering.

So we're also not hiring in many places where we have higher bench. We are actually adjusting and making sure that we place the bench and we reskilled the bench to make sure that we address this as fast as we can in terms of partnering with our talents. And ultimately, as well as since some of it might be recovered in pricing. So yes, we were surprised. At the same time, we were busy and let's say, proud on how to operate within what we see in the markets.

Going forward into Q4, I mean, we know a lot of these trends we start basically normalizing as we progress. And from a divergence perspective in terms of different sectors, we expect seems to be slightly different in Q4. So we are comfortable in expecting a slight or broadly in line to slightly up gross margin in Q4. More important to me, our teams know very well what to do if that will not be the case and how to adjust further our operating expenses.

[Operator]

And from BNP Paribas Exane, we have Andy Grobler with our next question.

[Andrew Grobler, analyst]

I just wanted to ask about the U.S. large accounts business where you need to be taking share. Can you just talk through which subsectors you're winning in? And also within those end markets, if there is any sense that the markets themselves are seeing sequential improvement?

[Jorge Vazquez, executive]

Yes. So Andy, I'll start and then you -- so I mean, in the United States, in particular, we believe we are gaining market share. So I would say overall markets are necessarily doing better. We do see e-commerce logistics improving, and it is exactly in those sectors that we are performing better and gaining market share. And that I'll argue, it's basically down to two reasons. On one hand, we've been rolling out our digital marketplaces, and Sander probably will talk a little bit more about it in a minute. Clearly, this has an impact on our fuel rates. And the more we can feel the faster we can fuel the faster we can be a better partner for both talent and clients, it becomes a flywheel and we become a better provider in these clients.

On the other hand, at the same time, what this is also doing, and I remember, we talked about it in Q2, as we rolled out this now nationwide at scale, it's the only way we will work in the United States at the moment, it also means we are freeing up capacity. And some of this capacity, you saw our revenue increasing from Q2 into Q3. We are not necessarily increasing FTE to capture this, but what we are doing is referring up commercial activities. we are also signing new clients, and these clients are ramping up and therefore, building a stronger presence, particularly in the in-house sector in the United States. Sander, anything to comment?

[Alexander van't Noordende, executive]

I think you said it perfectly. It's working very well. The digital market.

[Jorge Vazquez, executive]

In short, it's working absolutely.

[Operator]

Moving on to Marc Zwartsenburg from ING.

[Marc Zwartsenburg, analyst]

One question, I believe. So yes, maybe coming also back to what Manpower said last week. So in their outlook, they basically assume they would have extended plant closures in Q4 and a slower holiday season. Is it something that you also foresee for Q4? Is it something you hear back from your clients? Or is it just the Manpower statement and not more than that?

[Alexander van't Noordende, executive]

Yes. It's not something, Marc, that we have heard explicitly in many places. I'm sure there is the occasional client that says we have a little bit less work in the coming period, but it's not something that has come through loud and clearly to us.

[Jorge Vazquez, executive]

We see -- yes. In Auto, there is a risk. I mean everyone has been reading the news and following the sector well. I mean I just disclosed quite openly like what our mix in auto is, at the same time, I guess, different companies, different mix, different exposures. Yes, we, overall, we see these trends continue from Q3 into Q4.

[Marc Zwartsenburg, analyst]

Yes, maybe, Jorge, just to confirm, but did you say on Q3 on the automotive sector, how much was it down, as you mentioned a number?

[Jorge Vazquez, executive]

It was down 8% sequentially from Q2 into Q3. And remember, it's about 6% to 7% of our exposure, let's say.

[Marc Zwartsenburg, analyst]

Yes, yes, I got that. And maybe a quick one on the savings because you pushed through still some very good indirect savings in Q3. Can you repeat that again in Q4, if needed?

[Jorge Vazquez, executive]

Yes, I would say if needed, and we at the same time, it's needed in the sense of we've had 2 years now of decline, we are learning on how to basically optimize how we support our businesses. These things reinforce each other. The more we simplify our delivery models, the more we can actually optimize how we support them. We continue to automate. We continue to look at location strategies.

But remember, because for our teams, it's important to always keep that in the back of our minds. We do this with the purpose of being able to reinvest part of this in what it matters in terms of strategic investments, invest in growth. So yes, what we started already in Q2, we continue into Q3, and this will continue to give us benefits into Q4 and 2025.

[Marc Zwartsenburg, analyst]

Yes. But you did a bit extra, I think, in Q3 because you came in below your own guidance. So you were able to do above extra?

[Jorge Vazquez, executive]

Yes. But a lot of those things were set in most already in Q2, Marc, right? And at the same time, remember, our OpEx expectations from a mix perspective are very clear. So our current business has a certain expectation, our operational term solutions in each one of the delivery models as expectations. So a lot of that is a reflection of making sure that our teams know exactly what's expected from them and what to manage to in its delivery model.

[Operator]

And we're moving on to Calin IlerGilen from Bank of America.

[Simona Sarli, analyst]

Actually, this is Simona Sarli from Bank of America. So on gross profit margin, please, one quick follow-up in Q4, you indicated a 50 basis points headwind from Monster. Is it reasonable to assume something similar also in the first half of the year and 30 basis points for Q3 of 2025? So purely like the technical guidance, please?

[Jorge Vazquez, executive]

Yes. So for -- so 50 basis points, so we de-consolidated Monster mid-September. So I would say year-over-year, Simona is 70 basis points, is a better number to take into account. Remember, our revenue from Monster is straight fees, so it's 100% gross margin. So that's why you see that impact.

[Operator]

And up next, we have a question from Konrad Zomer from ABN Amro, ODDO.

[Konrad Zomer, analyst]

It's actually on France. You mentioned in your prepared remarks that the current reforms are delaying a potential recovery. Can you be a bit more specific what you expect the higher taxes and the political plans could have on your staffing business in France, please?

[Alexander van't Noordende, executive]

Yes. Thank you, Konrad, for that question. It's a very good question. And you're right. I mean, our market momentum deteriorated a bit. I would say, overall, in France, everything is a little slower than it normally is in other countries. But this new government obviously has only just been installed. So they have some plans.

It's unclear what they are exactly, and it is also unclear to whether they will be accepted in the form that they are on the table just now. So I think it is too early to anticipate any consequences of that, other than to say you know about regulation and we navigate regulation, whatever it is in the budget or laws, so real top of it, but it's too early to say anything specifically just now.

[Operator]

And now we move on to the question from Sylvia Barker of JPMorgan.

[Sylvia Barker, analyst]

Two quick questions for me, please. Firstly, can you maybe just comment on how much profit you're making from German autos today? And then secondly, I guess one question that we get is just around kind of AI automating jobs, which is similar to what we saw, I guess, with the computer revolution years ago. But can you maybe just comment on how much of your revenue is coming from administrative type jobs today?

[Alexander van't Noordende, executive]

Well, Sylvia, we do one question per person. So Jorge will comment on the automotive, and then we'll go to the next.

[Jorge Vazquez, executive]

On the automotive, I mean we don't disclose profit per sector, Sylvia. And if anything, if I think about Germany at the moment, I think that the property is low. So -- unfortunately, automotive sector is not necessarily make a lot of property in Germany either because we are not doing a lot of profit there.

So if anything, it's about repositioning the company for structural growth segments and profits from that. We don't disclose it. I wouldn't necessarily assume, I mean, you have an idea of the size of it. You have an idea of our margins that was how we deliver. It does not necessarily change per sector. On the second one on AI.

[Operator]

And we now take a follow-up question from Rory McKenzie of UBS.

[Rory Mckenzie, analyst]

My second question is about the quarter of busy corporate activity you've had demerging one digital asset in Monster and acquiring another one in Zorgwerk. Where do you think digital fits into Randstad overall? I mean, Zorgwerk sounds like a good digital platform, but it's quite specialized within one area with its vetted candidate base. So what are you learning about how you broaden a digital offering organically? Or will you always need to buy in specialized platforms for different verticals and markets?

[Alexander van't Noordende, executive]

Great question, Rory. Let me take that. Let me just remind you that our strategy is, first of all, about specialization. Secondly, about putting talent at the heart of everything we do. Thirdly, about delivery excellence. And fourth, about underpinning all of that with the Randstad talent platform. So what we are doing here is we're building -- we're harmonizing our core systems, i.e., CRM, mid-office and back office. And on top of that, we will have specialized digital marketplaces. We will have multiple of those, not tens or hundreds.

The first big example that we have is in North America is our digital marketplace for operational talent solutions. We have one in France already in health care, and we now have the second one for health care in the Netherlands. We may have multiple ones there because health care is actually quite a specific marketplace in each and every country.

We have acquired Zorgwerk, which is all focused on digital talent, that is starting in North America. We have about 75,000 people in Latin America talent. We have added our India talent, and we have added our North American talent to that marketplace. So that's the one we focus for digital. So clearly, digital marketplaces, a number of specialized digital marketplace on top of the harmonized core of Randstad. That is the way we are growing here.

[Operator]

Thank you. And we have a follow-up from Suhasini Varanasi from Goldman Sachs.

[Suhasini Varanasi, analyst]

Just a follow-up on Monster, please. Just the rationale behind the disposal and some color around what made you decide to sell it today and create the JV. And maybe on the payment, which seems to be EUR 128 million via financial assets. Can you maybe provide some color on this? Is it contingent -- is the payment contingent on some performance metrics?

[Alexander van't Noordende, executive]

Yes. So Suhasini, let me take that. First of all, from a strategic point of view, we have set out to be the world's most equitable and specialized talent company. We do that under our partner for talent strategy, and we do that all under 1 name and that is Randstad. So from that perspective, Monster as a job board did not really fit in the strategy anymore. So that's why we decided to combine it with CareerBuilder to give it the best, I would say, positioned to be successful as an independent company going forward with CareerBuilder. I'm going to hand over to Jorge to say a couple more things about the technicalities of all that, if you will.

[Jorge Vazquez, executive]

Yes. So in, let's say, as an aggregated transaction, Suhasini, we did is in the context of Sander's introduction was to set up the company for success and realize these are two companies merging that want to achieve significant scales benefits. So that means one tech system that means more combined budget go-to-market strategy. And that also comes with structures to a certain extent, and then we actually announce them or they have announced them almost 2 weeks ago, 3 weeks ago. So in order to set up the joint venture for success, we have capitalized by approximately EUR 50 million overall.

In return, and that's what I just want to be clear. In return, we do get, let's say, loans or a seller note, we structured it, of EUR 128 million, which will indeed provide us with financial benefits going forward in the form of interest, and yes, and the low end to sell notes going forward. That benefit will be recorded in financial expenses and income. EUR 126 million, yes. The EUR 128 million loan, plus notes, plus the EUR 18 million loan we made. So it's actually in together, EUR 146 million.

[Operator]

And we now move on to a question from Martin Verbeek from [indiscernible].

[Unknown Analyst]

It's Mark [indiscernible] here. Looking at your net debt position today, taking into account the cash flow you will generate in Q4 and the cash out for your acquisition in Zorgwerk. Your leverage ratio will be more or less around 1x. We, therefore, only expect a regular dividend from Randstad and refrain from expecting a special dividend?

[Alexander van't Noordende, executive]

Let me say the following about that market. This is not the time of year that we decide about dividends. We only do that after we close Q4, so early next year, and we'll update you at the time that we have made the decision.

[Operator]

And we move on to questions from a follow-up from Marc Zwartsenburg from ING.

[Marc Zwartsenburg, analyst]

Yes, a follow-up, gentlemen, on the gross margin. All due respect, we had a bit of a miss on Q3 versus the guidance for the reasons you explained, Jorge. But do you now feel that you have a bit more predictability or visibility on the Q4 gross margin? Or is there still also quite an element of risk in there?

[Jorge Vazquez, executive]

We believe indeed that if we look at our mix, it is still pronounced. But if you look at it, that Q4 is likely to be slightly up in terms of overall gross margin. Again, taking into account, of course, the disposal of Monster. Partially perm in terms of comparables is improving, so it's still somewhat subdued, but it's likely to improve. PTS I did mention in the call in the country by country, there are signs of trends improving from a professional talent solutions.

So if we look at the mix and the pronouncement of that versus what we saw in Q3, that should give us a bit of a sustainability for Q4. It's not obviously a guarantee. I mean we cannot necessarily guarantee it. What I think we also need to reflect is if would that not be the case, then our OpEx and operational discipline will soften the reverse consequence of that.

[Operator]

And we take a question from Afonso Osorio from Barclays.

[Afonso Osorio, analyst]

Just a housekeeping one from me. On this acquisition you just announced Zorgwerk. I believe you mentioned before that you expect this to be completed in the upcoming quarter, is that Q4? And then just wondering on the margin profile of this business into 2025, and how accretive do you expect this business to be as we start looking into 2025 numbers, please?

[Jorge Vazquez, executive]

Yes. So we expect it to be -- yes, to be honest, before the 12 weeks, there is an approval process. So likely no impact in Q4. Of course, as soon as we know more and the deal is closed, that will be informed to -- an information to the market.

The business is accretive to Randstad. It is clearly an acquisition with a part for EVA accretion in 3 years, we know exactly what we want to leverage with this acquisition. I would say just kind of rough indication, low double digits profit margin, which is indeed accretive already to the earnings of the company.

[Operator]

And our final question for today comes from Andy Grobler from BNP Paribas Exane.

[Andrew Grobler, analyst]

A follow-up on Germany and kind of the other bench markets. We've seen sickness rates and absence rates go up post covenant they seem to be structurally higher, and that's weighed on gross margins. Is that now effectively a permanent reduction in your profitability in those regions? Or can you offset it through price or efficiency elsewhere?

[Jorge Vazquez, executive]

Yes. So a good question, Andy, and it's one that we are busy addressing. So let me -- first, one important bench is typically something we have more on our Randstad digital business. So that's like also not necessarily make it a read across to the whole of Germany or to the whole of France or the whole of Northern Europe. So it is. And in that respect, we are busy in placing this bench. So we just have to manage it. And again, there is a consequence to that in terms of also field steering and how we are not investing or investing. We see this as a consequence of sales. So there's a lot of effort in that respect, and it will be addressed.

Sick days rates and all of that, indeed, we are managing it. We also want to indeed maximize some part of enterprising and the other parts. We just need to manage it in our OpEx and making sure that our conversion remains in line with what we expect. So we don't want to translate this into structural profitability et cetera.

[Alexander van't Noordende, executive]

Thank you all for, thank you all for joining the call today. As we wrap up the call, we'd like to thank our over 640,000 Randstad people for their ongoing dedication and doing what they are best at, and that is delivering value to our clients. Thanks a lot.

[Operator]

Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.