Randstad NV

AEX:RAND

Earnings Call Transcript 2021-Q4

[Operator]

Hello, and welcome to the Randstad Fourth Quarter and Annual Results 2021 Call. My name is Josh, and I will be your coordinator for today's event. Please note that this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Jacques van den Broek, CEO; and Henry Schirmer, CFO, to begin. Thank you.

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

Yes. Thank you. Good morning, everybody. I'm here, as said, with Henry and also Bisera and Akshay from Investor Relations. So great to share my final quarter with you. 32 quarters, and well, what a quarter to end it with. Very proud of this quarter, so also very happy to share with you. This morning, I had a question. Yes, how did that happen? Well, we had a hand in this. But happy to share that with you. So let's immediately go to Slide 6. Yes. As said, proud. The COVID pandemic is far from over, by the way, but certainly more manageable. And I think we've demonstrated -- not we, but also our industry, but also in particular, we're resilient, more relevant than ever in getting people back to work. Please remember that in the midst of COVID, we had in 6 weeks 150,000 people that lost their job and look where we are now. So yes, happy with that. And how did that happen? Well, we created our #newways program, enabled our consultants to work digitally and effectively support clients. So we had roughly some 50% more commercial activities per consultant because of this program. And we worked especially in sectors that show the greatest demand. Biggest difference between the financial crisis and the COVID crisis was there were quite some sectors that were doing, yes, better as a result of it. All were stable. So totally different setup where our revenue is coming from than 2 years ago. At the end of 2020, thanks to the hard work and dedication of our colleagues around the world, we're already seeing significant improvements. Remember, December '20, we sent out a press release that growth was better than expected and we took it from there. We also quickly regained the lost revenue of 2020. It was actually a plan. We can share that with you now, a plan we had to, this year, regain all the revenue we lost in 2019. On the back of the financial crisis, it took us 5 to 6 years to gain back the revenue lost, which, by the way, as a percentage was way more, 27%; this was 12%. But still of a bigger company, right? So a lot of work. So yes, we end up already 5% above that record year 2019 with increasing distance, by the way, to 2019 and consistently outperforming. It's not just that we did well, but we also did way better than many markets. One of the main reasons, I said, has been our ability to track the changes in the labor market. Henry calls this fish where the fish are, including talent scarcity and mismatches and responding to it quickly and adequately. It's clear that through our continued focus on people, but underpinned by data increasingly and technology, we're playing a key role in helping our clients manage their talent strategies and plan for the future. As I said, the traditional model of recruiting is under pressure. I said it at the Capital Markets Day, you need someone, you put out a job posting, people react and you make a selection. That's increasingly tough and we can help to show you what's still available. We welcome thousands of new colleagues, some 7,000 now compared to '20 in '21. We invested in the biggest talent engine in the world. Some 188 million people connected with our websites, including Monster, across the globe looking for advice, looking for information and looking for jobs. In December, we also welcome new employees through our acquisition of Hudson Benelux in Belgium. We think we concluded that at our Capital Markets Day, but again, we're very well positioned in an attractive market with structural growth opportunity. And we saw the benefits of these investments, of course, in our performance. Back to the fourth quarter. We delivered another strong quarter with group revenue and EBITDA reaching record levels. Perm, very strong with 69% growth and 36% ahead of 2019. Perm really surprised us, honestly. So I always work under this specific cycle, so to say, blue collar, white collar, professionals and perm. At the moment, it's all over the place. We were already quite surprised at the beginning of 2021 when we got signals from large American international clients in our Sourceright business that they had very aggressive hiring plans. And still because we're still -- we added 1,700 people in Q4, around 1,000 were in our Sourceright business. And that business -- those costs come immediately with revenue. We saw Monster back to growth. Last time Monster grew was in 2011, so way before we acquired it. And we think we've turned the corner. We have revamped our talent, our seeker part of the business. We are finalizing this year our client part of that technology. And then at the end of 2022, Monster will be a job board with the newest tech stack in the business, which will definitely help to still reach out to people. On a full year basis, strong ICR 44%, but Henry will, of course, talk about the numbers. Here, I would like to thank all the colleagues around the world for their enthusiasm, commitment and dedication because majority that we hired has been inducted virtually. And I know and we all know at this business, the fun is working with your colleagues face-to-face. So hopefully, we can get more of that in the coming months. So let's look at our major markets. North America, strong market outperformance, 14% up year-on-year and 14% also up on 2019. By the way, we're very proud of the fact that all our companies are above 2019. And the performance in general, by the way, is very broad-based. Perm also doing very well here. New records, 48%, up versus 2019. So a remarkable achievement in a talent-scarce market. Staffing and Inhouse grew 11%, outperforming the market with the Staffing business performing particularly well across the board. What we've seen here is, we mentioned that to you, that in September we saw issues with people coming back to work because of the COVID packages. Well, because of the fact that the federal part of that is out. That has eased, but now we still -- we see not just in the U.S., still some COVID hiccups, so to say, Omicron hiccups, people being ill, not serious, fortunately, most of the time, but it still puts a bit of a damper on our, call it, revenue at the end of the day. U.S. Profs, 14%. IT performing very well. This business was less impacted by COVID or Omicron because of, yes, still the working from home. And then, yes, also a star in our North American business is Canada, 28% in Q4, 21% versus 2019, very much outperforming the market. Our Canadian team is -- and we've seen that across the globe but also a homegrown team, people coming in very young going into an impressive management team with a strong culture. And also Canada and the leader of Canada, Marc-Etienne Julien, is the global benchmark we have internally in perm. So Marc-Etienne leads what we call SWAT team of excellent performance internationally in perm and they went around the Randstad globe to help us do perm better. Marc-Etienne also really said we need to invest more aggressively, and it's the first time that we really in this upturn outperformed dedicated perm players. So well done MEJ, as we call them, thanks. France. Yes, France also very much fish where the fish are. I saw some recent numbers that the automotive temporary market is still 30% down, 3-0. So we had to go to other sectors. We again outperformed the market with good momentum throughout the quarter. COVID measures are being phased out. But at the same time, we do see volume being high, but also people working a bit less hours because of sickness. So in that sense, it's slightly more difficult to navigate. Perm also doing well, 13% growth and above 2019. Staffing and Inhouse, 9% growth. Strong demand across all sectors, particularly logistics and the food industry. Profs very robust with our OC business reaching record profitability. So Jérôme and team well done. Very nice addition to our portfolio, not just in France but also in Germany and in Belgium. So international business, 6.6%, exceptionally strong. What you sometimes see, by the way, at the end of the year, we have a slight -- a positive spike. So don't take this as a given for the years to come, but very happy with the performance in the quarter. Our Dutch business. Yes, again, outperformance, 25% market share, but then sizable outperformance. All brands performed very well. Yes, we do play an important role in the Netherlands, specifically in COVID with testing, with vaccination, with call centers and I'm very proud to say that we played an important role here because of the thousand people that are working in that sector. Yes, none of them had an education to do this and they come from the event sector, the leisure sector, from airlines. So yes, very happy with that performance. As said, Staffing and Inhouse, 15% up. Good new client wins in our Inhouse business. And EBITA strong at 6.6%. Again, a little bit like France. Might be over the estimate, but still, and the average that we see is still strong. Germany, 15% up, strong momentum, pretty much broad-based. Sectors like e-commerce and logistics also here continued driving recovery. Still facing supply chain issues, of course, in the automotive industry as we see in quite a few markets. EBITA at 3.2% so an improvement. But the team under the guidance of Richard is very motivated, and we know this that Germany in the years to come will again return to group average earnings. We believe in this biggest economy in Europe. Italy, yes, sort of a new eternal star. We have this bet internally and Marco Ceresa, the leader of Italy, said that he wanted to be bigger than, yes, basically everybody. But at least they've passed Belgium. I think they've passed Germany also. Yes, so Marco, well done. Italy is one of those markets, which we mentioned this, has structurally lower penetration rate. So a lot of potential. The market -- the labor market as such is being modernized, and this will very much help. As you can see, it had great returns. 32% growth, which is also 32% above 2019 and a very strong EBITA margin. Belgium, yes, stable operator. I mentioned already the Hudson acquisition and that shows the business that we have now. So 1,300 people in Belgium with us are working in Staffing and Inhouse: consultants, managers, branch managers. 900 are now in other services with Hudson. So more perm, outplacement, assessments, selling labor market data, HR consultancy. So very much the portfolio, call it, total talent portfolio where we can assist our clients with. So welcome, Ivan De Witte and team at Hudson. Iberia, Spain, very strong performance, 23% growth and 17% above 2019. I mentioned I think on the back of Q2 that we saw a very strong client pipeline in Germany -- sorry, in Spain. And yes, increasingly above 2019 throughout the quarter. So very well done. Retail, food, health care also, by the way, supply chain constraints here also with our -- some of our automotive clients. Perm doubled in revenue. We invested a lot in professionals. We're now a market leader in professionals in Spain, too. And RPO doing well, which results in a strong EBITA performance. Rest of Europe, somewhat of a mixed picture, you can see it here. But still also all up above 2019 with a stable EBITA margin. Rest of the world, another eternal star, but it's not so much a staff, of course. It's a big region. But yes, firing from all cylinders, above 2019 with 20%. Japan, very strong performance. Our cross Staffing and Professionals. Perm doing well, and we continue also there to invest in growth. LatAm, 6% year-on-year, but remember, this is 29% above 2019. And we're also developing more into RPO business here. So Brazil mostly is a very successful RPO business. Australia and New Zealand, a very strong 35% up, 24% (sic) [ 29% ] above 2019, driven by our perm business, again an outperformance. Here, we had a management change. So Nick Pesch took over from Frank who went to France. So Nick and team again, very well done, man. India already doing very well. In India, the challenge was growth, certainly, but also profitability. So getting into parts of the market, which are profitable. So overall, a very good 4.9% EBITA here. Our Global Businesses, yes, I mentioned Sourceright already. So RPO has a growth of 153%, and this is not because this is a very small business. It's a business globally run by Mike Smith, who never a dull moment, I think, Mike, but my guy. Well, are you performing? And yes, we're still adding people, as I said, but this comes with business. Monster, I already talked about. So very happy, hard work here. But the more and more we see the technology becoming stable with a good candidate experience, the more we're going to invest in marketing because, of course, this is a marketing machine and this will help our biggest talent engine. So concludes my remarks before I give over to Henry on what this means in numbers. Just some numbers. When I started in this business in 1988, we had EUR 860 million of revenue and most of the profits were coming from the Netherlands. We had one business line called Staffing and we had 10 countries. Today, well, you see where we are. But what am I most proud of? Most proud I am of the fact that we are a predominantly still a family business. So our cultures and our values and our long-term growth and purpose is still very much alive now with more than 40,000 people. And I'm very, very proud that we could maintain and modernize and keep that as the core guiding principle for our people. Our digital strategy, we started the Randstad Innovation Fund in 2014 to really capture the unknown. And we know where to go. And Sander can pick this from where I'm now leaving this up of. And yes, world #1. Why not still 6% market share? A lot of room to grow, but we're still there. So also very proud of that. But then back to the numbers, Henry.

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

Yes. Well done, Jacques. Really impressive track record you have. Yes. Good morning, everybody. Once again, very excited to report back on yet another exciting set of numbers. The strong top and bottom line momentum continues. Revenue growth in quarter 4 came in at 16% year-over-year and 12% compared to quarter 4 2019. And we do experience a great momentum across all geographies and concepts. Our perm business grew 69% in the quarter. And our RPO business topped the ranking table with 153% growth. Let me also point out that we did experience some disruption triggered by COVID and ongoing supply chain challenges. Obviously, we did our best not to let it impact our business in a material way, but we will watch this closely in the months to come. Showing up competitively in the marketplace is part of who we are, and hence, we take note that we are continuing to gain market share in significant parts of our portfolio. This is especially noteworthy as also reported gross margin showed up strongly, 20.4%, a 90 basis point improvement year-over-year and 50 basis points up sequentially. Definitely all supported by our strong perm and RPO growth. Inflation does play a bigger role in our numbers and we certainly take appropriate pricing very seriously, utilizing relevant market insights, applying strong discipline to execute it in a timely fashion, and of course, supporting our teams with the right tone from the top. And talking about tone from the top, we see our OpEx line guided by 3 main objectives: firstly, to fully support ongoing profitable growth momentum; secondly, to secure appropriate firepower to digitally transform our business; and thirdly, and not lastly, safeguarding economies of scale showing up strongly in our bottom line. I think it's fair to state that we delivered on all 3 objectives in quarter 4. EBITA came in at an all-time high, EUR 335 million at 5% EBITA margin, up 30 basis points sequentially and representing a full year incremental conversion ratio of 44%, fully in line with guidance. Integration and one-offs came in at EUR 11 million cost this quarter. This mainly reflects some fine-tuning of operational structures across some geographies and integration costs from our recent acquisitions. Lastly, on that page, the reported effective tax rate amounted to 24.6% for the full year '21 and in '22, we expect ETR to be between 24% and 26%. With that, let's turn the page and look at our gross margin bridge. So here on Page 14, reported gross margin came in at 20.4%, a 90 basis points improvement year-over-year. And as you can see in the graph, the temp margin had a 30 basis points negative impact, primarily driven by geo mix and some COVID-related productivity issues. The middle blue bar reflects the margin effect of a strongly growing perm business. 60 basis points improvement year-over-year. And our perm business continued to do very well and increased by 69% year-over-year and is up 36% versus 2019. With the next bar on the right, our business reported under HR Solutions improved our overall gross margin also by 60 basis points year-over-year. Here, our excellent growth momentum in RPO plays a key role. But last but not least, Monster did grow in quarter 4. Of course, it's too early to declare victory, but anyway, well done, Monster team. Whilst our gross margin path remains difficult to predict, smart, value-based pricing is fully back on the agenda as is strategic mix management and winning [ must-customized ] digital support. And with that, let me go to Page 15 and talk about OpEx. Organic OpEx came in at EUR 1.044 billion, EUR 71 million higher sequentially, excluding ForEx and M&A, mainly to fully support and benefit from an ongoing strong demand but also reflecting significantly accelerated RPO growth at attractive EBITA margins. Of the net 1,770 FTEs added in quarter 4, a significant number of consultants have been hired to support the strong RPO and perm growth. And as mentioned earlier, excellence in conversion is a non-negotiable operating principle at Randstad and requires sailing as close to the wind as possible for the best outcome in terms of growth and profitability. As reported also in the last quarters, we continued to work relentlessly to identify less productive spend to support our investments into growth and winning capabilities. That productivity journey has become part of our DNA and will provide ongoing self-help to secure sufficient fuel for growth and market-leading profitability. And with that in mind, let's now move on to our cash flow and balance sheet on Page 16. Our free cash flow for the quarter came in strongly at EUR 211 million. On a full year basis, we generated free cash flow of EUR 590 million, and it's purely a function of significantly improved EBITDA and very tightly managed operating working capital. DSO was stable sequentially at 51.6 on the last 4 quarters moving base, however, improved by 1.3 days year-over-year. The very solid quarter 4 top and bottom line performance concluded an overall strong year, expanding our revenue line by 20% to over EUR 24.6 billion, generated an adjusted EBITA of close to EUR 1.1 billion yielding a 16.8% return on capital employed and an EPS increase of 71%. Right. As indicated at the recent Capital Markets Day, we first wanted to focus on a strong finish to the year before talking about dividends. I think we've done that. But now looking at our balance sheet at the year-end with EUR 179 million of net cash, a leverage ratio of minus 0.1%, excluding IFRS 16, we, of course, do see space to provide for an attractive dividend, including additional cash returns. Hence, we proposed, subject to shareholder approval, a regular dividend ordinary share of EUR 2.19, which equates to 50% of adjusted net income and we also propose to pay a special dividend of EUR 2.81 per ordinary share, totaling EUR 5 ordinary share and representing a dividend of EUR 920 million over book year '21. With our dividend proposal, we reiterate the importance for Randstad to act as a reliable, responsible, long-term oriented company which seeks to simultaneously support all stakeholders. In that context, I'd like to thank all our stakeholders for their support throughout the last year. And that already brings me to my last chart, the conclusion and the outlook on Slide 17. As explained, the volume recovery is sustained throughout the fourth quarter and is broad-based across our portfolio. At the same time, visibility remains limited with ongoing macroeconomic uncertainty. Quarter 4 '21 organic revenue per working day increased by 16% year-over-year. In January, organic sales growth was broadly in line with that. The development of volumes in early February indicates continued positive momentum. In quarter 1, we are steering towards an ICR of around 30%, which is setting us up well to continue our journey to convert dynamic, market-leading top line growth into accretive profitability and cash flow. Quarter 1 '22 gross margin is expected to be modestly lower sequentially and operating expenses to be modestly higher sequentially. And lastly, I would like to mention that there will be a positive 0.8% working day impact in quarter 1 this year. Well, that concludes our prepared remarks and we are now happy to take your questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of Paul Sullivan from Barclays.

[Paul Daniel Alexander Sullivan, Director & Analyst]

Three for me. Firstly, can you just talk about wage inflation and the contribution to growth that you've seen and how you see it evolving through this year? And then -- can you give us some color on how you think the ICR will progress as we go through the year? And your 40% to 50% long-term target, is that still viable? Or should we expect it to sort of, as the market normalizes, to sort of trend towards that sort of conversion ratio? And then, finally, Jacques, if I can indulge you, what do you see are the biggest opportunities and challenges for your successor?

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

I would propose I start and get the first one out of the way. Thanks for your question. The wage inflation, we -- I've mentioned that in my remarks, we definitely see higher wage inflation, but definitely more pronounced in the U.S. than in Europe. It's very hard to call out a number, but it's just important to note. We're always very, very vocal about it, that we do very well in an inflationary environment. We looked at -- I always talk about my magic spreadsheet last 20 years. Whenever inflation was kicking in, we will definitely be able to price. And now we have, at our, disposal even more data. So we're tracking more than 300 job-country combination to really make sure we're not missing the beat because -- of course, timing is also very, very important. So more U.S., more Europe, I personally expect that to sustain for a while. And yes, very hard to really call out and expect number. On the second one, IC [indiscernible], let me really be very, very clear. Long term, 40% to 50% remains our golden rule. It's very, very important. We are selling flexibility, and hence, the agility in our business needs to be there. But there are quarters like the first one we are now facing where we definitely continue to invest into very, very strong growth we're seeing. But we also are experiencing, Jacques mentioned that, very, very good momentum in RPO and in perm. And that, as you know, take the RPO business is probably converting at about, yes, closer to 10% rather than our 20%, 25% we have. That has a dampening effect on ICR as well as inflation also has a slightly dampening effect. So therefore, let me reassure you, we're absolutely still in for value creation but we will find a kind of good balance between top and bottom line. Jacques on the third one?

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

Yes. Opportunities. Life is full of opportunities. It's mostly what we presented to you at the Capital Markets Day. So I hope we made it quite clear that we are in a structural growth business with still being market leader with a 6% market share. So lots of opportunities. We also think the current market and the current labor market is an opportunity, we saw this coming. We're building this biggest talent engine in the world. So I think personally that we can take this data to clients and have a very strong and rich conversation about what's still out there, and therefore, be the only one that they can rely on. We also think that we -- in the broad sense of the word, just 3% of all the matches in the labor market are being done by the sector of which we have 6%. Clients will find it increasingly tough to, on the short term, but also on the midterm, navigate this labor market. And then they find us. I think it's no coincidence that this RPO business shows this massive growth. Clients increasingly find this a challenge. A challenge for us is very much that technology bring technology to a different way of working and harvest technology into even faster growth and even more productivity because the consultant gets supported by artificial intelligence. Talent is being interviewed and confronted by technology, by chatbots. They are in the calendar of the consultant and how do you organize your work with. But the good news, if you know someone's bio, he comes from a business which very much helps clients with technology to improve the processes. So he is very well positioned to help here and take us to the next level. The basis is there, but it's far for finished. So it's a challenge, but it's also an opportunity, as always.

[Operator]

Our next question comes from the line of Sylvia Barker from JPMorgan.

[Sylvia Pavlova Barker, Analyst]

Two questions for me, please. Firstly, on the gross margin impact from temp. Could you just maybe talk a little bit more about that mix within the temp business? How much of that might be kind of Inhouse and may be higher volume kind of temp impact in that and what we might expect within the temp piece as we get -- as we go through Q1. Then secondly, on perm, obviously, that is running quite well above kind of previous peaks and that will partially be driven by wage inflation. But as we think about how that normally plays out and obviously this cycle is a bit different, at what point do you think that kind of starts to normalize some extent? And then the final question. On the gig economy and the tech stack you're using for that, could you maybe talk a little bit about the technology that you might have, which other peers might not and how that's helping you on contracts like the Just Eat takeaway contract that you've discussed?

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

Let me get quickly to the first one. The gross margin, it's rather simple on temp. It's sort of 1/3-2/3 logic. We have about 20 basis points of the 30 basis points decline we've seen. It's just geo and business mix. So you have -- just let me pick, for example, Italy and Australia, 35% growth with lower gross margins, but good productivity in general. Then you have a strong growing Inhouse business. So let me reassure you, pricing is stable in that part. And yes, it's just the mix. Nothing major in there.

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

Sylvia, perm, normalized is an interesting word. But I mentioned already that what we're seeing now does not adhere to the way I look at cycles. And that might be the labor market, absolutely. But it's also us. That's why I gave Marc-Etienne and his SWAT team such a compliment because we're a better firm than we were 10 years ago. We are, in general, becoming a more global business where we share best practices and not leave it to the individual timing of countries because then you might be too late. And we have our Sourceright business. Sourceright business where, with Rebecca Henderson, we created a board position for international clients and global businesses and that has helped us also to drive these into a more aggressive proactive business. So I don't know. Again, it's the visibility that's as always a few weeks. But yes, we're changing as a company. I looked at 10 years of Randstad because I'm getting nostalgic, I don't know why. But if you look at the percentage of perm that we did in those days compared to now, it's definitely way more. So I don't know the cycle, but I know we're going to take more of it than we used to. Gig, there's a few things you need to service a gig client. The first one is tech. And in general, you can say that some parts of this tech stack can be -- yes, how do you call it, copied. At the same time, you need international presence. You really need to know labor markets. So we are also helping just the takeaway. They know their planning. They know they're opening up in a certain city. They know how many people they roughly need, but they're growing so fast that they also don't know that really. And then, again, we help with the data of what the potential is in that market. But finally, you also need people because certainly, Jet, which I think is a benchmark on employing people in the gig economy, and they do want a human moment certainly at the beginning of work and throughout work to make people feel at home. But yes, they work on the street, so to say, and connect with them after a few days or even weeks. So this combination of tech, international presence and people and then the knowledge we have of large-scale recruiting, which, of course, we perfected within Inhouse, it's probably tough to copy.

[Operator]

Our next question comes from the line of Hans Pluijgers from Kepler Chevreux.

[Hans Pluijgers, Head of Research of Benelux]

A few questions from my side. First of all, on the pricing environment. You indicated that Q4 underlying in the temp side was stable. But looking at it going forward, everything equal, let's say, what do you expect underlying base, also a bit more focused on value-based pricing, on the temp margin? Do you see -- let's say, expect some improvement there going forward? .And then, secondly, on the investment. You indicated, yes, you're investing quite a lot. But how much are you ahead of, let's say, the cycle already investing, especially in perm and RPO. So when do you expect that the way you see there are some operational leverage and productivity improvement coming through? And then, lastly, on the time to hire. How do you see, let's say, the time to hire evolving? Do you see, let's say, the candidate shortage really start to have an impact on your time to hire. And especially also on the average contract period, especially in the U.S., do you see any developments or changes there in what you've seen compared to what you've seen over, let's say, at the beginning of the year?

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

Yes. Maybe I'll start in on pricing. I mean there's hardly on my agenda, a topic which is now more prominent than pricing. So -- we've seen, in general, an inflationary environment outside. We read in the papers every day. So pricing is super, super important and we feel we are absolutely on top of it. And we're on top of it, in terms of culture, in terms of muscle to do it. It's something, which sits very deep in the DNA of our operating companies, but also with the data we now have to really kind of supporting it. In a way, it has 2 levers. The first one is always price for margin. So that, in a way, the same unit gives more dollars in a way per transaction. But then actually, there is value-based pricing. Pricing for scarcity is very, very important, which gives us credibility towards our customers and also, yes, it makes it so much easier to get into those, yes, sometimes tough discussions. And yes, pricing, we talk about weekly about it here in the business. From the top it's there. And with making a prognosis on the year to come, it doesn't make a lot of sense. We take it really week by week. We take our data and then we steer it. On the investment, back to this, Hans, we do already see operational leverage definitely in there. Of course, when you add 7,000 people in '21, not everybody is on full productivity. So -- and that gives me pleasure as CFO. It would be boring if we say we are perfect already. So we definitely can drive a bit more productivity in there. But we also want to ride the momentum we currently have. So therefore, we're definitely not cutting it off too early.

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

Yes. It's not as model, as you might see it. It's not like a cycle. So we're being approached by clients who say, yes, I need a few thousand people in the coming quarter. And we're trying to say, yes and then we need to put some extra people on there. So there's no cycle at the moment, honestly. And is it a quick pickup after COVID? Is it structural scarcity? Is it clients increasingly saying, I don't want to do this. I don't know. On pricing to other things to mention, I said already, we were becoming more of a global business in our IT environment, as we showed you at our Capital Markets Day. But this also goes for pricing. So we have a pricing group under the guidance of Chris Heutink, our colleague, where we bring everything to the table that we know on pricing. And then, finally, it's around data. So we used to say it's very tight out there and then the client believed us or they don't. Now we have a full data set in every country, in every profile. And then clients tend to believe us. And if they don't believe us, we wish them a great day and we go to other clients. So that's also very important. We don't give our account managers, you need to land the deal. No, you have a good conversation. And that goes directly into time to hire. So we are advising our clients again with data on what's out there. And we want to talk about a full talent strategy, not just the people they hire, but also their own workforce. And if they work with us and if they develop that strategy, the time to hire will be acceptable. Of course, through Monster, through data anyway, we see times to hire per company. And yes, we can also go to clients. And we do that, like, hey, your job opening is now open for 2 months. Let's have a conversation. So yes, time to hire is a choice, so to say.

[Hans Pluijgers, Head of Research of Benelux]

Okay. On the last one, do you see, let's say, that changing time to hire? Or do you expect going forward that due to candidate scarcity, that's really starting to kick in? Do you see any impact?

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

Yes. There's going to be -- in the labor market, there's going to be winners and losers. So you really, really -- it's going to be increasingly a candidate market. So you need to be able to train your own workforce to make it easier to get external workforce in. You need to be creative in the type of organization in HR. And yes, so in general, it's under pressure. As I said, traditional model of recruiting is going to be under pressure so you need to find new ways, different ways, more proactive ways to still get the right people.

[Operator]

Our next question comes from the line of Andy Grobler from Credit Suisse.

[Andrew Charles Grobler, Analyst]

Just a couple from me, if I may. Firstly, on the dividend. Good to see that being announced this morning. What are the plans going forward? There was a bit of uncertainty, at least in my mind, a bit of uncertainty post the Capital Markets Day about how much would be allocated to capital returns and how much would go on M&A. If you could update, that would be fantastic. And then, secondly, in the U.S., the gap versus the market increased over the course of the year. Could you just talk through why that was the case and what your expectations are through the remainder of this year.

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

Right. Let me start with the dividend question. Thanks, Andy, for asking it. Yes. So at the Capital Markets Day, we made a few remarks. The first one was we wanted to concentrate on delivering a strong year, which we did. You've seen that we've ended the year with an extraordinary strong balance sheet, EUR 179 million of net cash. And then actually, when we considered the dividend, we definitely felt that it's appropriate to reward our shareholders with a good dividend. Our proposal is at the share price, we currently see about 8% which some people would say is very, very strong. Some would probably say it's a strong start at the north of 5%. And we also look at the outside world. Definitely, it's still very, very volatile out there. So what we did is we wanted to, on one hand, give a good reward for shareholders but also remain flexible on our balance sheet. And yes, on dividend, what we said I just want to reiterate, that we feel we have the right to, also next to very strong organic growth, look whether there is opportunity out there with a bit of M&A. But yes, mainly focused further on organic and if we see something coming along like Cella, we are very, very happy with, it's a fantastic company we've acquired, then we will do that. But nothing dramatic on that front.

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

Yes. And on the American market, yes, we're very well invested in the American market. So we have room to grow, certainly in perm. So again, record revenues there. So again, also in the U.S., you see this subtle shift. A large part of the Sourceright success is also American success. So probably 2/3 of our Sourceright business is in the U.S. So although we put it in global business, it's very much American success. So we have momentum, and yes, going to continue to ride that wave.

[Operator]

Our next question comes from the line of Marc Zwartsenburg from ING.

[Marc Zwartsenburg, Head of Equity Research]

First, following up a bit on the scarcity argument. Can you maybe -- because the growth is impressive still, Jacques and Henry, and you would think with scarcity that it's getting more and more difficult to find people. How do you explain that you are still able to grow that fast? Is there any indicators in the business that you say, okay, indeed, the time to hire is getting longer or that it is getting more difficult or the costs to recruit are getting higher? Or is it more that discussed to you driving more clients to you that still explains that you're up the curve? Can you give me a bit of a feel for, yes, what your feel is about scarcity in terms of being a risk for growth or an opportunity? That's my first question.

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

Yes, sure. Yes, we saw this coming, Marc. You've heard me talk a lot about the biggest talent in the world, structural scarcity, putting out the numbers towards Dutch policymakers. So this didn't surprise us. We knew that the traditional model of recruiting was going to come under pressure. We invested a lot in digitization, buying Monster to really know what's out there. And I still vividly remember a few years ago when I did a run in the Hague, in the government center with 50-plus people to show the potential of people 50-plus in the labor market. We're aging, but people can and will and should work more. So with that data, yes, we go to clients and we influence them and sometimes they take us up on that information. Sometimes they take another supplier who is not going to play both because most of the traditional suppliers don't have that database. So they also go into the market to find someone. That's not going to fly. So yes, I almost believe that if we can't find anything, then nobody can. But the client needs to play ball. The candidates need to play ball. We had 400,000 people trained last year. But people are also reluctant to change jobs, really to go to different sectors. We do a lot of research. There are still -- white-collar jobs are disappearing. People need to move to other sectors. So that's still the long-term opportunity where we're very well placed. So yes, so far, so good, Marc. And we think it adds to our competitiveness as a company. And I do agree with you that some clients find this cumbersome, expensive, takes too long. And then, yes, we're there.

[Marc Zwartsenburg, Head of Equity Research]

Yes. And then maybe coming back to the investments in growth. Last year at the half year results, you already mentioned we put on a bigger quote. We invested early to because COVID recovery, you bet on it that it would come earlier, that there will be a faster recovery cycle. Well, we see the benefits from that in the top line. Do you get now the feeling that the investments that you've done that you now are maybe going back a bit more in the coming quarters to the normal field steering way of investing without the additional bigger quote, as you would call it, on top. Or should we expect indeed like the guidance for Q1 that the ICR is more around the 30% level for the coming quarters? How do you look at that?

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

Yes. Look, I don't want to talk too much about the quarters beyond quarter 1 because, as you know, and I learned that from the best, Jacques, sitting next to me, visibility is limited. But yes, look, we still see very, very strong growth momentum and it would be foolish not to benefit from it and we're supporting that. We'll be supporting that also with a very, very clear expectation within our business that we want to turn growth into profitability, into cash and into value creation. And it's a delicate balance we need to strike. We also see that very strong RPO growth, 135% in quarter 4. If you do the math, Marc, you see that kind of -- it comes with very strong gross margins, but also with higher OpEx. So optically, it's kind of -- it looks a bit different the RPO business than our normal temp business. And I wouldn't say we put on an even stronger quote. We definitely want to drive all the kind of new hires, every investment into good profitability but we also want to keep on riding that momentum we have, supported by probably slightly more marketing. We're definitely not dialing back on our digitalization efforts. And it's always a triangulation, we will make sure that we will create a lot of value with the top line we have.

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

That's it. Of course, we discussed this many times. We can, in the short term, always maximize profitability. If we turn down the tap fully, yes, then our EBITA percentage goes up. We're not there yet. Of course, the market is going to be a bit more normalized because we saw this momentum, benefited from it. But we take it as it comes. And definitely, this whole RPO thing and there's many more opportunities still left and right. I mentioned in Spain, in 1 year, we went to market leadership in Professionals and doing the same in Argentina, in Brazil. Yes, so there's many, many opportunities out there and we take, yes, what we think is the right middle ground, also, yes, resulting in a great divi. And yes, that's what it is. It's exciting times, actually.

[Marc Zwartsenburg, Head of Equity Research]

They certainly are, Jacques. And then maybe a final quick one on Germany. We haven't talked about it in a long time -- for a long time, but we see an acceleration there. Have you seen the trough? Do we see really now some signs of life or green shoots or how you will call it, maybe also in automotive that you feel that Germany is also back to recovery mode?

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

Well, not because of the traditional sectors that drove the German economy. I said this before, and I was the canary in the coal mine in 2018, I think German automotive was late to see the electric challenges and they are beefing up. But yes, they're behind the Koreans, for example. That won't change that much. We -- our growth is very much from different sectors. As I said, e-commerce also in Germany becoming a big business. But as we are talking about, yes, business mix in general. We still, also in Germany, want to make the change towards more white collar, more perm, more pros and then get to group average. So very happy with the pivot of the German team. We believe in Germany. We didn't, in 2018, scale down on infrastructure. You talked about field steering. Well, we wanted to keep that company in place. And I think we've turned the corner, yes, but not because of the traditional sectors in Germany in the economy doing great yet.

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

You need to allow me as a guy from...

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

Where are you coming? Okay. Based on objective.

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

No, look. Here, the glass is definitely half full. We see green shoots in automotive even.

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

So you decided...

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

No. The numbers speak for myself.

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

Okay, okay. okay. I just heard from my colleague here that we see green shoots in Germany, which is good because it's an important economy, yes.

[Marc Zwartsenburg, Head of Equity Research]

Good. On that positive note, I would like to thank you, Jacques, for all these -- all your support for the analysts, and we'll definitely have a drink to your impressive career, but not behind the screen.

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

Yes. Thank you.

[Operator]

Our next question comes from the line of Konrad Zomer from ABN AMRO.

[Konrad Zomer, Research Analyst]

Just a few questions. The first one is on the ICR. You already indicated that you don't really want to comment on anything after Q1. And with earnings just below, that only makes sense, I guess. But it almost feels like your target of 40% to 50% is more like the outcome of something that you can't really predict than a specific target that you want to meet at all times. So I wonder if you could indicate how flexible are you to just navigate around the 40% to 50% ICR target like, for example, you're currently doing for Q1? And then my second question related to what Marc just said about Germany. Can you indicate what the global exposure to the automotive sector is for Randstad at the moment in terms of percentage of revenues? And my final question is on wage inflation again. Can you, without giving numbers because they might be hard to collect on a global scale, but intuitively would you guess that your internal wage inflation for your own consultants is going up faster than the wages that you have to pay out to your temps across the world?

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

The last one is definitely not the case, Konrad. Inflation is a mixed picture. It's more aggressive in the U.S. It's less aggressive in Europe because of collective labor agreements and what have you. And as Henry already pointed out a few times, inflation is generally good. But it's not like our cost is higher because our people are getting more expensive than the revenue development, that sort of thing, if that's behind your question.

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

Then there was a question around automotive. I have my cheat sheet of 5% to 10%. I think it's closer to the 5% than to the 10%. And then the first one was ICR, right?

[Konrad Zomer, Research Analyst]

Yes. Correct.

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

If it's a delta goal or just a result of what we do.

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

No. Actually, I mean, we've chosen the word careful. We say we're gearing steering towards 30%. So we are in control of what we want to show and what we feel is appropriate to support the growth of the business, the transformation of the business, the marketing support within there. And then looking also at our stimulations. We are constantly running what business mix are we expecting at what kind of growth and how much value is being created by doing that. And we feel in quarter 1, if we were to steer it at around 30%, what our intention is, we're setting us up for another very strong year subject to actually momentum stays, et cetera, et cetera, all safe harbor statements applied. But it's -- please read in it a sign of strength rather than anything else.

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

And when we -- what I said earlier, when we made the choice internally here to gain back the lost revenue, and of course, we give our people guidance on a sort of a minimum ICR. And then they, on the back of that, they make their investments. What we've seen this year is that it really panned out even better than we would have expected. So that's good. But ICR is just, yes, you call it a clock on our dashboard.

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

Konrad, one more to say. Quarter 4 came in at 5% EBITA margin, right? In 2019, it was 4.9%. I guess, if I remember that correctly more than EUR 30 million more in quarter 4 profit delivery in there. So we now get into kind of operational leverage with a much higher top line. Good ROIC, 16.8%, you've seen that. So we have all of that in check. That organic growth strategy we have with double-digit growth turning into good profitability is paying out. And we continue exactly that with probably a slight touch more an eye on productivity in '22 because of inflation, because of the importance of pricing and so forth. So that is what we do. So no change at all.

[Operator]

Our next question comes from the line of Anvesh Agrawal from Morgan Stanley.

[Anvesh Agrawal, Equity Analyst]

I got 2 questions really and I was disconnected, so apologies if you answered that already.First, on the Netherlands vaccination contribution to your revenue, also the COVID support contribution to the revenue. Can you kind of help us quantify that? And is that line sort of starting to fade out now or the revenue from your support to the COVID activity still continues? And then second is on the gross margin, really. I mean given where the firm is and the strength in the RPO business, are we sort of looking at a structurally higher gross margin base versus pre-pandemic going forward, which then can offset any pressure you have from the lower conversion margin in the near term? Or sort of how should we think about the gross margins for the business overall going forward?

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

Yes. COVID in the Netherlands, of course, and we all hope that this business will go down in the course of the year. But you should remember that, of course, there are quite some businesses that disappeared as a result of COVID. Anything around airlines, events, leisure, catering, which is also a business that we're good at. By the way, a large part of the people we have currently in COVID comes from these sectors. So we're very much trying to pivot them back. So I'm not going to give you the details, but we're very happy that we can contribute in a sizable way to the back-to-work recovery of this country.

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

Yes. Your question about RPO is spot on, Anvesh. That strong RPO growth, 135% in quarter 4, that has an impact on our overall G&A shape because it comes with dramatically higher gross margins, but also with higher OpEx ratios in terms of revenue.Therefore, just technically, the conversion is probably half of what we see normally in the business. And when you see very strong growth, I think we're growing from EUR 30 million to EUR 90 million in quarter 4 alone, that has an impact on the conversion mix as it were. It sounds all quite technically, but the most important one, the bottom line, it gives us very, very good profitability. And therefore, it's really a good business case for us investing in it.

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

And by the way, the EUR 30 million to EUR 90 million is GP. It's not revenue.

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

Yes.

[Anvesh Agrawal, Equity Analyst]

Yes. And if I understand correctly, that's sort of -- I mean, given there's a bit of a contracted revenue in there, so it should continue to carry through at least in sort of Q1, Q2, right?

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

Yes. We still could see momentum. I don't want to talk about Q2, you know us. But we see good momentum in January, first week of February.

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

In general, by the way, in this business.

[Anvesh Agrawal, Equity Analyst]

Well, that's very clear. And Jacques, it's been a pleasure interacting with you for all these years. So thank you very much and all the best.

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

Same here, Anvesh.

[Operator]

Our next question comes from the line of Thomas Tuki from Jefferies.

[Thomas Truckle, Equity Associate]

It's Thomas Truckle here of Jefferies, just standing in on behalf of Kean Marden. I just have 2 questions, if I may, the first of which, regarding the personnel expenses. I can see those have gone up 9% sequentially, but head count has only gone up 4% sequentially. So there's a 5% differential there. Are you able to share how much of that is from wage inflation and if there are any other factors that are causing that differential? And then the second question I'd like to touch on is just regarding EBIT margins. I know on the slide we can see that the Netherlands and Germany have seen EBIT margins progress and improved on the prior year, but we look at Italy and Belgium and those have gone backwards. Can I just understand the factors that are driving those differences in regions.

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

Yes. So backwards is not the right word. I mentioned already that sometimes in Q4, we have some positive stuff finishing the year. So those markets are all good in terms of profitability. Sometimes it's a bit higher, sometimes it's a bit lower. It's not a structural thing. Although they're going up in Germany, we want to be a structural thing. But that's been the only one. Also, the Netherlands, very strong finish of the year. But then you have some moving panels, which, in a quarter make it sometimes a bit more positive than the going rate. But all the countries you mentioned are above 6%. So we're happy with everything they do.

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

On the first one, Thomas, I don't want to go into too much detail, but when you think what's different '21 over '20 when you make the comparison, that's definitely based on very, very strong performance there. Slightly more bonus in the numbers, which is -- which has a bit of an impact on PE being paid.

[Operator]

Our next question comes from the line of Dominic Edridge from Deutsche Bank.

[Dominic Edridge, Research Analyst]

Just a couple for myself. Firstly, just in terms of your own recruitment and taking people on, can you just discuss how the market is developing? I'm assuming it's obviously a lot stronger now than it was, and in terms of are you seeing much churn in your own workforce currently? And then just looking at the incremental margin, again, apologies for going back to it. Is it right to think that your own compensation structure still allows you to outpace and still generate that 40% to 50% incremental margin over the longer term. And then just a second question just to clarify. If I look at sort of France and Germany, obviously, they are the 2 markets that are still below -- it's 2 major markets that are still below 2019 levels. If you adjust it for the automotive sector, do you think they would be much more similar to the other markets that you have and really it's just a mix effect that we're seeing there?

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

Yes. Well, of course, those markets might be below 2019, but we aren't, as you might have picked up. So that's really about -- yes, automotive is down, so you go to other sectors. Yes. And of course, if you have a sector which is negative and you take them out, yes, then you're not negative. But that's, of course, not the reality. So yes, what can I say? Our own recruitment, yes, well, we're very happy not just from a growth perspective that we started very early in recruiting. So we were able to find 7,000 people on top of the people we had. So that's tougher also for us at the moment, of course. Good news is churn is not higher than we would have expected. At the same time, the majority of the people we took in, we inducted them virtually and that's not good, of course, because the whole fun is being with a team in a branch. So we hope that we can get very quickly back and show people what a fun job this is to work with your colleagues, but also get trained by your more experienced colleagues, of course, and going to your clients physically. So the job hopefully in 2022 is way more fun for everybody. We're a successful company, of course. That always helps to keep in people. So yes, but big challenge also for everybody here to make that visible for everyone.

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

Yes. On ICR, let me just kind of reiterate what I've said. In our industry, but definitely for Randstad, it's very, very important to keep on hanging on to the 40%, 50% ICR over a longer term and longer term can be also multi-years. So not making a statement about '22 now.It can be at times we should be at 78% when you come out of a slump and you have capacity on board. If you have periods with very, very strong growth, that might be slightly lower and then also there might be quotes in there where you just decide to invest a little bit more. But yes, 40%, 50% is still our golden rule and it serves us well and will serve us also going forward.

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

But again, not the goal to run our business. We're predominantly a growth business. We want to be big. We want to make a difference in life. We want to touch 500 million people. We do that within a certain, call it, operational bandwidth marker called it earlier field steering. And ICR is one of those.

[Operator]

Our next question comes from the line of [ Martin Verbeek ] from [indiscernible].

[Unknown Analyst]

It's [ Martin Verbeek ] from [indiscernible]. A couple of questions from my side. First of all, let's get back to your dividend proposal and particularly the room you had for your special dividend. Not suggesting that you should have used the whole room to leverage up to 1. But why did you opt for this amount also taking into account the statement you just made that you will continue to focus particularly on organic growth, maybe a couple of other ones, thereby suggesting that those investments will be well below your free cash flow, and therefore, next year, you will have even more cash and even a lower leverage ratio? That's the first one. And then, secondly, according to me, there are some changes announced in Spain according to a staffing legislation. What kind of impact would it have on your business?

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

Do you want to start with Spain, Jacques?

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

Yes. I can start with Spain. It's still a bit of a moving target, [ Martin ]. What the law is mostly aimed at is reducing the amount of temporary contracts. What the Spanish government wants to have is more what they call security for people. The good news is that we also are able to give these contracts. So it might be that we can play an important role in this change. So at the moment, I'm leaning towards the positive side of things, but it's early days.

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

Just on dividend. It's, as I said before, a triangulation of a couple of factors taking into account the market environment volatility we are still seeing out there and also being paid for a bit of risk management in there, but also providing an attractive return. And going through those considerations, we came up with a proposal. It's not an algorithm-based cutoff. That decision might be next year different. But yes, I hope that it kind of -- it lends well with shareholders, all stakeholders involved and is an expression of our strong year.

[Operator]

And the last question on the line comes from Sylvia Barker from JPMorgan.

[Sylvia Pavlova Barker, Analyst]

I just wanted to check if you could give us an updated figure for your exposure to e-commerce, kind of logistics and warehousing, as a proportion of revenue or gross profit and how that compares to last year. So growth you've seen year-on-year.

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

Yes. So I think what we would call transport and distribution, that includes e-commerce and food retail, is about 20% exposure in there. And we've seen very, very strong growth in line with company growth.

[Sylvia Pavlova Barker, Analyst]

Okay. So the growth within that segment was not necessarily higher than, let's say, your 16% in Q4?

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

No. It's more or less in line with.

[Operator]

Thank you very much. We have no further questions on the line. So I'll turn you back over to the hosts.

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

Yes. Thank you much. Lot of questions. So it was fun to answer those. And yes, there are still some appointments in the coming weeks. Hopefully, it's still face to face. Thank you all for supporting us by keeping us honest and be critical on our performance and the consistency in all that. But it's been a fun ride, and you're going to talk to Sander also and getting to know him in the next quarter, which, of course, will also be a great quarter. But that's not a prediction. Thank you very much. Bye-bye.

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

Thanks, everybody.

[Operator]

Thank you very much for joining today's call. You may now disconnect your handsets.