Hello and welcome to the Randstad Q4 and annual results 2021 call.
My name is Josh, and I'll be your coordinator for today's event. Please note that this conference is being recorded and for the duration of the call, your lines will be on listen only.
However, you will have the opportunity to ask questions at the end of the call.
This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator.
I'll now hand you over to your hosts, Jacques van den Broek, CEO, and Henry Schirmer, CFO, to begin. Thank you.
Yeah, thank you. Good morning, everybody.
I'm here, as said, with Henry, and also with Bisra and Akshay from Investor Relations. Great to share my final quarter with you. Thirty-two 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, how did that happen? Well, you know, we had a hand in this, but happy to share that with you. Let's immediately go to slide six. As said, proud.
The COVID pandemic is far from over, by the way, but certainly more manageable. 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 six weeks, 150,000 people that lost their job, and look where we are now. Yeah, happy with that. How did that happen? We created our New Ways program to enable our consultants to work digitally and effectively support clients. We roughly saw 50% more commercial activities per consultant because of this program.
Yeah, we worked especially in sectors that showed the greatest demand. Biggest difference between the financial crisis and the COVID crisis was that quite some sectors that were doing better as a result of it or were stable.
Totally different set of where our revenue is coming from than two years ago.
The end of 2020, thanks to the hard work and dedication of all our colleagues around the world, we're already seeing significant improvements. Remember, December 2020, 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 5-6 years to gain back the revenue loss, which by the way, as a percentage was way more, 27%. This was 12%, but still of a bigger company, right? A lot of work.
Yeah, 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, as 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 2021. 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 welcomed 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. 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. I always worked 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. Still, because we're still, we added 1,700 people in Q4, around 1,000 were in our Sourceright business. 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.
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. 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 the majority that we hired has been inducted virtually. I know, and we all know at this business, the fun is working with your colleagues face-to-face. Hopefully we can get more of that in the coming months. 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. Performance in general, by the way, is very broad-based. Perm also doing very well here. New records 48% up versus 2019.
A remarkable achievement in a talent-scarce market. Staffing and in-house 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.
Now we see, not just in the U.S., still some COVID hiccups, so to say, Omicron hiccups, people being, you know, ill, not serious, fortunately, most of the time. It still, you know, puts a bit of a damper on our, call it, revenue at the end of the day. U.S. Prof 14%, IT performing very well.
This business was less impacted by COVID or Omicron because of still the working from home. Then 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, growing into an impressive management team with a strong culture.
Canada, and the leader of Canada, Marc-Etienne Julien, is the global benchmark we have internally in Perm. Marc-Etienne Julien leads what we call SWAT team of excellent performers internationally in Perm. They went around the Randstad globe, to help us, you know, do Perm better. Marc-Etienne Julien also really said, "You know, we need to invest more aggressively," and it's the first time that we really in this upturn, outperform dedicated Perm players. Well done, MEJ, as we call them.
Thanks. France. Yeah, France also very much fish where the fish are. I saw some recent numbers that the automotive temporary market is still 30% down, 30. We had to go to other sectors.
We again outperform 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. In that sense, it's slightly more difficult to navigate. Perm also doing well, 13% growth and above 2019. Staffing and in-house, 9% growth, strong demand across all sectors, particularly logistics in the food industry. Professionals, very robust with our OZ business, reaching record profitability. Jérôme and team, well done. A very nice addition to our portfolio, not just in France, but they're also in Germany, in Belgium. You know, international business. 6.6%, exceptionally strong. What you sometimes see, by the way, at the end of the year, we have a slight positive spike.
Don't take this as a given for the years to come, but very happy with the performance in the quarter. Our Dutch business, again, outperformance, 25% market share, but then sizable outperformance. All brands perform very well. Yes, we do play an important role in the Netherlands, specifically, in COVID, with testing, with vaccination, with call centers.
We're very proud to say that we played an important role here because of the thousands of people that are working in that sector. None of them had an education to do this, and they come from the event sector, the leisure sector, from airlines. Very happy with that performance. As said, staffing out 15% up. A good new client wins in our in-house business.
EBITDA strong at 6.6%. Again, a little bit like France, slightly over the estimate, but still, you know, and the average that we see, but still strong. Germany, 15% up, strong momentum, pretty much broad-based. Sectors like e-commerce and logistics also here continued driving a recovery, still facing supply chain issues, of course, in the automotive industry, as we see in quite a few markets. EBITDA 3.2%, so an improvement.
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, yeah, sort of an eternal star.
We have this bet internally, and Marco Ceresa, the leader of Italy, said that, you know, he wanted to be bigger than yeah basically everybody. At least they've passed Belgium. I think they've passed Germany also. Yeah.
Mm-hmm.
Yeah.
Yeah.
Marco, well done. Italy is one of those markets which we mentioned this structurally lower penetration rate. A lot of potential. The market, the labor market as such, is being modernized, and this will very much help. As you can see, at great returns, 32% growth, which is also 32% above 2019 in a very strong EBITDA margin. Belgium, yeah, stable operator.
I mentioned already the Hudson acquisition and that shows the business that we have now. 1,300 people in Belgium with us are working in staffing and in-house consultants, managers, branch managers. 900 are now in other services with Hudson. More perm, outplacement, assessments, selling labor market data, HR consultancy.
Very much the portfolio, call it total talent portfolio, where we can assist our clients with. 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 Spain and increasingly above 2019 throughout the quarter.
Very well done. Retail, food, healthcare also, by the way. Supply chain constraints here also with some of our automotive clients. Perm doubled in revenue. We invested a lot in professionals. We're now market leader in professionals in Spain too. RPO doing well, which results in a strong EBITDA performance. Rest of Europe, somewhat of a mixed picture.
You can see it here, but still, also all up above 2019 with stable EBITDA margin. Rest of the world, another stellar, but it's not so much a star, of course. It's just a big region. Fi ring on all cylinders above 2019 with 20%. Japan, very strong performance across 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 an RPO business here. So Brazil mostly is a very successful RPO business. Australia and New Zealand, very strong, 35% up, 24% above 2019, driven by our perm business, again, in our performance. Here we had a management change.
Nick Pesch took over from Frank, who went to France. 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.
Overall, very good 4.9% EBITDA here. Our global businesses, yeah, I mentioned Sourceright already. RPO has a growth of 153%, and this is not because this is a very small business. This is a business globally run by Mike Smith, who you know, never a dull moment, I think, Mike. My guy, what are you performing? Yeah, we're still adding people, as I said, but this comes with business. Monster, I already talked about.
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 gonna invest in marketing because, of course, this is a marketing machine. And this will help our biggest talent engine. 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're predominantly still a family business.
Our cultures and our values and our long-term growth and purpose is still very much alive, now with more than 40,000 people. I'm very, very proud that we could maintain and modernize and keep that as, you know, the core guiding principle for our people. Our digital strategy, we started the Randstad Innovation Fund in 2014 to really, you know, capture the unknown.
We know where to go. Sander can pick this from where I'm now leaving off. Yeah, world number one, eh? Why not? Still 6% market share. A lot of room to grow, but we're still there, so also very proud of that. Then back to the numbers, Henry.
Yeah, well done, Jacques. Really, impressive track record. Yeah, 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 four came in at 16% year-over-year and 12% compared to quarter four 2019. 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 it 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% and 90 basis points improvement year-over-year and 50 basis points up sequentially.
Definitely also bolstered 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. Of course, supporting our teams with the right tone from the top. In talking about tone from the top, we steered our OpEx line guided by three main objectives. Firstly, to fully support ongoing profitable growth momentum. Secondly, to secure appropriate firepower to digitally transform our business.
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 three objectives in quarter four. EBITDA came in at an all-time high, EUR 335 million at 5% EBITDA margin, up 30 basis points sequentially, representing a full year incremental conversion ratio of 44%, fully in line with guidance. Integration and one-offs came in at EUR 11 million costs this quarter.
This mainly reflects some fine-tuning of operational structures across some geographies and integration costs from our recent acquisition. Lastly, on that page, the reported effective tax rate amounted to 24.6% for the full year 2021. In 2022, we expect ETR to be between 24% to 26%. With that, let's turn the page and look at our gross margin bridge.
Here on page fourteen. Reported gross margin came in at 20.4%. That's a 90 basis points improvement year-over-year. 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.
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. Last but not least, Monster did grow in quarter four.
Of course, it's too early to declare victory, but anyway, well done, Monster team. While 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 customize digital support.
With that, let me go to page 15 and talk about OpEx. Organic OpEx came in at EUR 1,044 million, 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 EBITDA margins. Of the net 1,770 FTEs added in quarter four, a significant number of consultants have been hired to support the strong RPO and perm growth.
As mentioned earlier, excellence in conversion is a non-negotiable operating principle at Randstad and requires us 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 continue to work relentlessly to identify less productive spend to support our investments into growth and winning capabilities.
That productivity journey has become part of our DNA and will provide ongoing self-help to secure sufficient fuel for growth and market-leading profitability. With that in mind, let's now move on to our cash flow and balance sheet on page 16. 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 four quarters moving base, however, improved by 1.3 days year-over-year.
The very solid quarter four 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 EBITDA 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 the strong finish to the year before talking about dividends. I think we've done that.
Now looking at our balance sheet at the year-end with EUR 179 million of net cash, a leverage ratio of -0.1, excluding IFRS 16, we of course do see space to provide for an attractive dividend, including additional cash return. Hence, we propose, subject to shareholder approval, a regular dividend per ordinary share of €2.19, which equates to 50% of adjusted net income.
We also propose to pay a special dividend of €2.81 per ordinary share, totaling €5 per ordinary share and representing a dividend of EUR 920 million for book year 2021. 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, we'd like to thank all our stakeholders for their support throughout the last year.
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. Q4 2021 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 one, 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. Q1 2022 gross margin is expected to be modestly lower sequentially and operating expenses to be modestly higher sequentially.
Lastly, I would like to mention that there will be a positive 0.8 working day impact in quarter one this year. Well, that concludes our prepared remarks. We are now happy to take your questions. Operator?
Thank you very much. If you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad now, please. Please ensure your line is unmuted locally and then you'll be introduced into the call. Star one on your telephone keypads now, please. Our first question comes from the line of Paul Sullivan from Barclays. Please go ahead.
Yeah, good morning, everyone. 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. Then can you give us some color on how you think the ICR will progress as we go through the year? You know, your 40%-50% long-term target, is that still viable or should we expect it to sort of, you know, as the market normalizes to sort of trend towards that sort of conversion ratio? Finally, Jacques, if I can indulge you, what do you see are the biggest opportunities and challenges for your successor? Thank you.
I would propose I start and get the first one out of the way. Good morning, Paul. Thanks for your question. The wage inflation, 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 are always very, very vocal about it, that we do very well in inflationary environment. We looked at what I was to talk about, my magic spreadsheet last 20 years. Whenever inflation was kicking in, we were definitely able to price. Now we have at our disposal even more data.
We're tracking more than 300 job country combinations to really make sure we're not missing the beat because, of course, timing is also very important. More U.S., more Europe. I personally expect that to sustain for a while. Very hard to really call out an expected number. On the second one, ICR, Paul, let me really be very clear. Long-term, 40%-50% remains our golden rule. It's very important. We are selling flexibility and hence, the agility in our business needs to be there. There are quarters like the first one we're now facing, where we definitely continue to invest into very strong growth we're seeing.
We're also experiencing, Jacques mentioned that, a very good momentum in RPO and in perm. That, as you know, the RPO business is probably converting at about closer to 10% rather than our 25% we have. That has a dampening effect on ICR as well as inflation also has a slightly dampening effect. Let me reassure you, we are absolutely still in for value creation, but we will find kind of good balance between top and bottom line. Jacques.
Yeah, opportunities. Life is full of opportunities. Mostly in what we presented to you at the Capital Markets Day. 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. 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. 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. 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 with by technology, by chatbots.
They are in the calendar of the consultant and how do you organize your work week? The good news, if you know Sander's bio, he comes from a business which very much helps clients with technology to improve the processes. He's very well positioned to help here and take us to the next level. The basis is there, but it's far from finished. It's a challenge, but it's also an opportunity as always.
Great. Thanks, Jacques, very much.
Thank you very much. Our next question comes from the line of Suhasini Varanasi from J.P. Morgan . Please go ahead.
Thank you. Hi, good morning, everyone. 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 in-house and maybe higher volume kind of temp impacting that and what we might expect within the temp piece as we go through Q1?
Secondly, on perm, obviously, that is running quite well above kind of previous peaks, and that will partially be driven by wage inflation. As we think about you know, 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 to some extent?
The final question, on the gig economy and the tech stack that 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.com contract that you've discussed? Thank you.
Let me get quickly to the first one. Morning, Suhasini.
The gross margins, it's rather simple on temp. It's sort of one-third, two-thirds logic. We have about 20 basis points of the 30 basis points decline we've seen is just geo and business mix. You have just let me take, for example, Italy and Australia, 35% growth with lower gross margins, but good for productivity in general. You have a strong growing in-house business. Let me reassure you, pricing is stable in that part. Yeah, it just makes nothing major in there.
Now, Silvia, perm, yeah, normalize is an interesting word. I mentioned already that what we're seeing now does not adhere to the way I look at cycles. That might be the labor market, absolutely, but it's also us. That's why I gave Marc-Etienne Julien and his SWAT team such a compliment because we're better at perm 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. We have our 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 this into a more aggressive, proactive business.
I don't know. It's the visibility, yeah, that's as always, a few weeks. We're changing as a company. I looked at 10 years of Randstad, because I'm getting nostalgic. I don't know why. If you look at the percentage of perm that we did in those days compared to now, yeah, it's definitely way more. I don't know the cycle, but I know we're gonna 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 copied. At the same time, you need international presence. You really need to know labor markets.
We are also helping Just Eat Takeaway.com. 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.
We help with the data on what the potential is in that market. 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. Yeah, they work on the street, so to say, and connect with them after a few days or even weeks.
This combination of tech, international presence, and people, and then the knowledge we have of large scale recruiting, which of course we perfected within in-house, it's probably tough to copy.
That's great. Thank you very much.
Thank you. Our next question comes from the line of Hans Pluijgers from Kepler Cheuvreux. Please go ahead.
Yes. Morning, all. A few questions from my side. First of all, on the pricing environment, you indicated that in Q4, underlying in the temp side was stable. Looking at it going forward, everything equal, let's say, what do you expect underlying based also, with you more focused on value-based pricing on the temp margin? Do you see, let's say, expect some improvement there going forward? Secondly, on the investment, you indicated, yeah, 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?
When do you expect that you see there some operational leverage and productivity improvement coming through?
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? Especially also on the average contract period, and 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, the beginning of the year?
May we start in on pricing? I mean, there's hardly a topic on my agenda which is now more prominent than pricing. We've seen in general an inflationary environment outside. We read it in the papers every day. Pricing is super important, and we feel we are absolutely on top of it. 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 support it. In a way, it has two levers.
The first one is always pricing for margin, so that in a way at the same unit gives more dollars in a way per transaction. But then actually there is value-based pricing. Pricing for scarcity is very important, which gives us credibility towards our customers and also makes it so much easier to get into those sometimes tough discussions. Pricing we talk about weekly about it here in the business. Tone from the top is there and but 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 investment, I beg to differ, Hans.
We do already see operational leverage, definitely in there. We of course, when you add 7,000 people in 2021, not everybody is on full productivity. That gives me pleasure as CFO. It would be boring if we say we are perfect already. We definitely can drive a bit more productivity in there, but we also want to ride the momentum we currently have. Therefore, we definitely not cutting it off too early.
Yeah. It's not as modelly as you might see. It's not like a cycle. We're being you know approached by clients who say, "Yeah, I need a few thousand people in the coming quarter." We're trained to say yes, and then we need to you know put some extra people on there. There's no cycle at the moment, honestly. Is it the quick pickup after COVID? Is it structural scarcity?
Is it clients increasingly saying, "I don't wanna do this"? I don't know. On pricing, two other things to mention. I said already we're becoming more of a global business in our IT environment, as we showed you at our Capital Markets Day. This also goes for pricing.
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. Finally it's around data. 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. You know, clients tend to believe us. And if they don't believe us, we wish them a great day, and we go to other clients. That's also very important. We don't give our account managers, you know, "You need to land the deal."
No, you have a good conversation. That goes directly into time to hire. We are advising our clients, again with data, on what's out there.
We want to talk about a full talent strategy, not just the people they hire, but also their own workforce. 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. We can also go to clients, and we do that. Like, "Hey, your job opening is now open for two months. Let's have a conversation." Time to hire is a choice, so to say.
Yeah. On the last one, do you see, let's say that changing time to hire, do you expect going forward that due to candidate scarcity, that's really starting to kick in? Do you see any impact to that?
Yeah. There's gonna be, in the labor market, winners and losers. It's gonna be increasingly a candidate market. 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. In general, it's under pressure. As I said, traditional model of recruiting is gonna be under pressure. You need to find new ways, different ways, more proactive ways to still get the right people.
Okay. Thanks.
Thank you very much. Our next question comes from the line of Andy Grobler from Credit Suisse. Please go ahead.
Hi. Good morning. Just a couple from me, if I may. Firstly, on the dividends, 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? Thank you very much. Well, let me start with the dividend question. Thanks, Andy, for asking it. Yeah.
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 extraordinary strong balance sheet, EUR 179 million of net cash. 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 strong. Some would probably say it's a strong start north of 5%. We also look at the outside world. It's definitely still very volatile out there.
What we did is, we wanted to, on one hand, give a good reward for shareholders, but also remain flexible on our balance sheet. 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 mainly focused further on organic. If we see something coming along like Cella, we're very happy with it. It's a fantastic company we've acquired, then we will do that. Nothing dramatic on that front.
On the American market, we're very well invested in the American market, so we have room to grow. Certainly in Perm. So again, record revenue is 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 two-thirds of our Sourceright business is in the U.S. So although we put it in global business, it's very much American success. So you know, we have momentum and gonna continue to ride that wave.
Thank you very much.
Thank you. Our next question comes from the line of Marc Zwartsenburg from ING. Please go ahead.
Yeah, thank you for taking my questions. Good morning, everybody. First on, you know, following up a bit on the scarcity argument. Can you maybe because the growth is impressive still, Jacques, Henry, and yeah you would think with the 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 cost to recruit are getting higher? Or is it more that the scarcity is driving more clients to you that still explains that you're up the curve?
Can you give me a bit of a feel for, yeah, what your feel is about scarcity in terms of being a risk for growth or an opportunity? That's my first question.
Yeah, sure. Yeah, we saw this coming, Marc. You've heard me talk a lot about the biggest talent engine in the world, structural scarcity, putting out the numbers towards Dutch policymakers.
This didn't surprise us. We knew that the traditional model of recruiting was gonna come under pressure. Invested a lot in digitization, buying Monster to really know what's out there. 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. With that data, yeah, we go to clients, and we influence them, and sometimes they take us up on that information.
Sometimes they take another supplier who's not gonna play ball because most of the traditional suppliers don't have that database, so they also go into the market to find someone. That's not gonna fly. Yeah, I almost believe that if we can't find anything, then nobody can. The client needs to play ball. The candidates need to play ball. We had 400,000 people trained last year. People are also reluctant to change jobs, really to go to different sectors. We do a lot of research.
There's still white-collar jobs are disappearing. People need to move to other sectors. That's still the long-term opportunity where we're very well placed. Yeah, so far so good, Marc, and we think it adds to our competitiveness as a company.
I do agree with you that some clients find this cumbersome, expensive, takes too long, and yeah, we're there.
Yeah. Maybe coming back to the investments in growth. Last year at the half year results, you already mentioned we put on a bit bigger coat. We invested early because COVID recovery, you bet on it that it would come earlier, that it would 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, with without the additional bigger coat, as you would call it, on top?
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?
Yeah. Look, I don't want to talk too much about the quarters beyond quarter one because as you know, and I learned that from the best, Jacques sitting next to me, visibility is limited. Yeah, 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're supporting that also with a very clear expectation within our business that we want to turn growth into profitability, into cash and into value creation. It's a delicate balance we need to strike. We also see that very strong RPO growth, 135% in quarter four.
If you do the math, Marc, you see that kind of it comes with very strong growth margins, but also with higher OpEx. Optically it's kind of, it looks a bit different, that RPO business than our normal temp business. I wouldn't say we put on an even stronger focus. We definitely want to drive all the kind of new hires, every investment into good profitability.
We also want to keep riding that momentum we have, supported by probably slightly more marketing. We're definitely not dialing back on our digitalization efforts. What I'd always say triangulation. We will make sure that we will create a lot of value with the top line we have.
Yeah, that's it. Of course, we discussed this many times. We can on the short term always maximize profitability. If we turn down the tap fully, yeah, then our EBITDA percentage goes up. We're not there yet. Of course, the market is gonna be a bit more normalized, because we saw this momentum benefited from it. We take it as it comes.
Definitely this whole RPO thing, and there's many more opportunities still left and right. I mentioned in Spain, in one year we went to market leadership in professionals doing the same in Argentina, in Brazil. Yeah. There's many opportunities out there. We take yeah, what we think is the right middle ground. Also, yeah, resulting in a great dividend.
Yeah, that's what it is. It's exciting times, actually.
There certainly are, Jacques. Maybe a final quick one on Germany. We haven't talked about it 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?
Well, not 'cause 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. They are beefing up, but yeah, they're behind. They're behind the Koreans, for example. That won't change that much. Our growth is very much from different sectors.
As I said, e-commerce also in Germany becoming a big business. As we are talking about, yeah, business mix in general, we still also in Germany wanna make the change towards more white collar, more profs, and then get to a group average. 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. I think we've turned a corner. Yeah. Not because of the traditional sectors in Germany in the economy doing great yet.
You need to allow me as the guy from Wolfsburg.
Where are you coming from?
To be, uh-
Oh, okay. Sorry. He's not objective. You don't have to project your voice here.
No, look. Here, the glass is definitely half full.
Okay.
We see green shoots in automotive even.
You decide the truth here, huh? Anyway.
No, the numbers speak for themselves.
Oh, okay. We see green. I just heard from my colleague here that we see green shoots in Germany.
It is.
Which is good because it's an important economy.
Yeah.
Good. On that positive note, I would like to thank you, Jacques, for all your support for the analysts, and we'll definitely have a drink to your impressive career and
Yeah. Thank you.
Not behind the screen.
No. You remember years ago, maybe we can have a schnitzel again. Remember that?
Yeah. It was great. Yeah. No, there you have.
Henry will join.
There you have a currywurst. Yeah.
All right. Thank you very much.
You.
Thanks, Marc.
Thank you very much. Our next question comes from the line of Konrad Zomer from ABN AMRO. Please go ahead.
Hi. Good morning, everybody. 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 visibility low that only makes sense, I guess.
It almost feels like your target of 40%-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. I wonder if you could indicate how flexible are you to just navigate around the 40%-50% ICR target, like for example, you're currently doing for Q1. And then my second question related to what Mark just said about Germany.
Can you indicate what the global exposure to the automotive sector is for Randstad at the moment in terms of a percentage of revenues? 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? Thank you.
Yeah. 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. As Henry already pointed out a few times, inflation is generally good. 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.
Okay. Yeah.
There was a question around automotive. I have on my cheat sheet 5%-10%. Think it's closer to the 5 than to the 10. The first one was ICR, right? Your-
Yes, that's correct.
If it's a deliberate goal or just a result of what we do.
No, actually, I mean, we've chosen the words carefully. We say we're steering towards 30%. 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.
Then, looking also at our simulations, 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. We feel in quarter one, 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 externally momentum stays, et cetera, et cetera. All safe harbor statements applied.
It's a sign of strength rather than anything else.
Yeah. When we made the choice internally here to gain back the lost revenue, then of course, we give our people guidance on a sort of a minimum ICR. Then they, on the back of that, 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. ICR is just how you call it, a clock on a dashboard.
Right. Yeah.
Konrad, one more to say. Quarter four came in at 5% EBITDA margin, right? In 2019 it was 4.9. I guess if I remember that correctly. More than EUR 30 million more in quarter four profit delivery in there. We now get into kind of operational leverage in with a much higher top line. Good ROIC, 16.8%, you've seen that. We have all of that in check. That organic growth strategy we have with double-digit growth turning into good profitability is paying out.
We continue exactly that with probably a slight touch more an eye on productivity in 2022 because of inflation, because of the importance of pricing and so forth. That is what we do. No change at all.
That's all very clear. Thank you very much. Thank you.
Thank you.
Thank you very much. Our next question comes from the line of Anvesh Agrawal from Morgan Stanley. Please go ahead.
Hey, good morning. I got two questions really, and I was disconnected, so apologies if you answered some of that already. First on the Netherlands vaccination contribution to your revenue, also the COVID support contribution to the revenue, can you help us quantify that? Is that line sort of starting to fade out now? Or the revenue from your support to the COVID activity still continues?
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?
Sort of how should we think about the gross margins for the business overall going forward?
Yeah. Anvesh, good morning. Yeah, COVID in the Netherlands, of course, and we all hope that this business will go down in the course of the year. 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 business that we're good at.
By the way, a large part of the people we have currently in COVID comes from these sectors. We're very much trying to pivot them back. You know, I'm not gonna give you the details, but we're very happy that we could contribute in a sizable way to the back to work recovery of this country.
Yeah. Your question about RPO is spot on, Anvesh. I mean, that strong RPO growth, 135% in quarter four, that has an impact on our overall P&L shape because it comes with dramatically higher gross margins, but also with higher OpEx ratios in terms of of revenue. Therefore, just technically, the conversion is probably half of what we see normally in the business.
When you see very strong growth, I think we are growing from EUR 30 million to EUR 90 million in quarter four alone. That has an impact on the conversion mix, as it were. It sounds all quite technical, but the most important one, bottom line, it gives us very, very good profitability, and therefore, it's really a good business case for us investing in it.
By the way, the 30-90 is GP, yes? It's not revenue.
Yeah.
Yeah. 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?
Yeah. We
Momentum.
Yeah. 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.
In general, by the way.
In general, yeah.
Not just this business. Yeah.
Well, that's very clear. Jacco, it's been a pleasure interacting with you for all these years, so thank you very much and all the best.
Same here, Anvesh. Hope to see you still in London. I think it's in January.
Will do, yeah. 100%.
Thank you very much. Our next question comes from the line of Thomas Truckle from Jefferies. Please go ahead.
Hi there. Yes, good morning, everyone. It's Thomas Truckle here with Jefferies, just standing in on behalf of Kean Marden. I just have two questions, if I may. First of which, regarding the personnel expenses, I can see those have gone up 9% sequentially, but headcount 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? Then the second question I'd like to touch on is just regarding EBIT margins. I know on the slides, we can see that the Netherlands and Germany have seen EBIT margins progress and improve on the prior year. We look at Italy and Belgium, and those have gone backwards.
Could I just understand the factors that are driving those differences in regions? Thank you.
Yeah. Backwards is not the right word. I mentioned already that sometimes in Q4 we have some positive stuff finishing the year. Those markets are all good in terms of profitability. Sometimes it's a bit higher, and sometimes it's a bit lower. It's not a structural thing. Although the going up in Germany, we want to be a structural thing, but that's then the only one.
Also, the Netherlands, very strong finish of the year. Then you have some moving parts which in a quarter make it sometimes a bit more positive than the going rate. All the countries you mentioned are above 6%, so we're happy with everything they do.
On the first one, Thomas, look, I don't want to go into too much detail, but when you think what's different, 21 or 20, when you make the comparison, that's definitely based on very strong performance, but in the bonus and the numbers, which has a bit of an impact on PE being paid.
Okay, that's great. Thank you.
Thank you very much. Our next question comes from the line of Dominic Edridge from Deutsche Bank. Please go ahead.
Hi there. Thanks for taking the question. 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. In terms of, are you seeing much churn in your own workforce currently?
Then just in, you know, looking at the incremental margin, again, apologies for going back to it. Is it right to think that, you know, your own compensation structure still allows you to outpace and still generate that 40%-50% incremental margin over the longer term?
Then just a second question, just to clarify, if I look at sort of France and Germany, obviously, they're the two major markets that are still below 2019 levels. If you adjusted for the automotive sector, do you think they would be much more similar to the other markets that you have? Really, it's just a mix effect that we're seeing there. Thanks so much.
Yeah. Well, of course, those markets might be below 2019, but we aren't, as you might have picked up. That's really about, yeah, automotive is down, so you go to other sectors. Yeah. Of course, if you have a sector which is negative and you take them out, yeah, then you're not negative. That's, of course, not the reality. Yeah, what can I say?
Our own recruitment, yeah, well, we're very happy, not just from a growth perspective, that we started very early in recruiting. We were able to find, yeah, 7,000 people on top of the people we had. You know, 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. 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.
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. Big challenge also for everybody here to make that visible for our people.
Yeah. On ICR, let me just kind of reiterate what I've said. In our industry, we definitely, for Randstad, it's very important to hold on to the 40%-50% ICR over a longer term. A longer term can also be multi-year. I'm not making a statement about 2022 now. It can be at times or should be at 78% when you come out of a slump and you have capacity on board.
If you have periods with very strong growth, it might be slightly lower, and then also there might be quarters in there where you just decide to invest a little bit more.
Yes, 40%-50% is still our golden rule, and it serves us well and will serve us also going forward.
Again, not the goal to run our business. We're predominantly a growth business. We wanna be big. We want to make a difference in life. We wanna touch 500 million people. We do that within a certain, call it operational bandwidth. Marc called it earlier, field steering. ICR is one of those. So.
Understood. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Maarten Verbeek from Degroof Petercam. Please go ahead.
Good morning. It's Maarten Verbeek of the IDEA!. A couple of questions from my side. First of all, I'd like to get back to your dividend proposal
Particularly, the room you had for your special dividend, I'm not suggesting that you should have used the whole room to leverage up to one, 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 add-ons, 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. Secondly, according to me, there are some changes announced in Spain. Spain, according to a staffing legislation. What kind of impact would it have on your business?
You want to start with Spain?
Yeah, I can start with Spain. Yeah. 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. It might be that we can play an important role in this change. At the moment, I'm leaning towards the positive side of things, but it's early days.
Yeah, just on dividend. It's as I said before, a triangulation of a couple of factors, taking into account the market environment volatility we still seeing out there, and also being paid for a bit of risk management in there, but also providing an attractive return. Going through those considerations, we came up with a proposal. It's not an algorithm-based cut off.
The decision might be next year different. Yeah, I hope that it kind of it lands well with shareholders or stakeholders involved, and it's an expression of our strong year.
Okay. Thank you.
Thank you very much. The last question on the line comes from Suhasini Varanasi from JP Morgan. Please go ahead.
Thank you for taking the follow-up as well. I just wanted to check if you could give us an updated figure for your exposure to e-commerce, kinda logistics and warehousing as a proportion of revenue or gross profit and how that compares to last year. What growth you've seen year on year? Thank you.
Yeah. I think what we would call transport and distribution that includes e-commerce and food retail is about 20% exposure in there. We've seen very, very strong growth in line with company growth.
Okay, thank you. The growth within that segment was not necessarily higher than, let's say, your 16% in Q4?
No, it's more or less in line with.
Okay. All right. Thank you very much.
Thanks, Suhasini.
Thank you very much. We have no further questions on the line, so I'll turn you back over to the hosts.
Yeah. Thank you, Marc. A lot of questions, so it was fun to answer those. Yeah, there are still some appointments in the coming weeks. Hopefully still face-to-face. Thank you all for supporting us by keeping us honest and be critical of our performance and the consistency and all that. It's been a fun ride. You're gonna talk to Sander also in getting to know him and in the next quarter, which of course will also be a great quarter. That's not a prediction. Thank you very much. Bye-bye.
Thanks, everybody.
Thank you very much for joining today's call. You may now disconnect your handsets.