Hello, welcome to the Randstad fourth quarter and annual results 2020 call. My name is Jess, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask questions. This can be done by pressing star one to register your question at any time. If at any point you require assistance, please press star zero on your telephone keypad, and you will be connected to an operator. I will now hand you over to your host, Jacques van den Broek, to begin today's call. Thank you.
Yeah, thank you. Good morning, everybody. It is a sunny day in Amsterdam, so let's hope that is symbolic for the year. You never know, right? We are here with Henry, Bisera, Steven, and, well, I think under the guidance of Bisera, we delivered a solid set of results. Let us take you through that. Well, as you all know, 2020 was a year like no other. I'm very proud of the way we responded to the challenges of the global pandemic, and I want to thank all our employees who reacted with agility and speed. We had our New Ways program to support our clients and talent. More on that one later. Responding quickly and effectively, of course, is business and I think we shaped up in that sense this year.
We generated a strong set of results in the fourth quarter and a solid and competitive performance for the year. Talk more about individual markets, we're quite ahead of some important markets. Our management team, diversified portfolio and disciplined cost management contribute to this outperformance. Since the low point in April, - 30%, our revenue trends recovered month -by -month into December. We've experienced a V-shaped recovery by year-end, in some markets, we even reported growth in the fourth quarter. It's not a V-shape as in the business we lost is back. It's a different V. As you know, sectors like hospitality, leisure, airlines, that all went very quickly away. The business we see now is different. It's more in logistics, it's in healthcare, different sectors.
Our Inhouse concept continues to show a strong performance and grew in the fourth quarter, not just because clients ask more temps, absolutely, but also because of new Inhouses, new sites. Again, a good setup for next year. Despite partially reinstalled lockdowns in some of our main markets, we've seen ongoing demand for essential services. Let me remind you what makes our Inhouse concept successful. Well, maybe I don't need to do that, but what is important is Inhouse caters for uncertainty. We operate a pool of temps on-site with the client in up times and down times. That's what we see a lot with clients at the moment, uncertainty, although a lot of business and demand. That is what our Inhouse business is all for. It is mainly in logistics and manufacturing, although we also see it in the professional space increasingly.
Our digital transformation helped us to pivot quickly to a virtual working environment. Within three days we were online. We continue to support our clients with these tools and safety protocols. I'm very proud, and more on that later, on the role we could play towards our clients, but also towards society as a whole, to keep as many people at work, but also to get many people back to work as quickly as possible. Based on our New Ways program, which uses digital support to have a lot of contacts with clients, we have some 150% more commercial activities per consultant. A lot of those online, but supported by digital tooling, digital marketing support. We also, through our data, can show our people where there's demand. Henry calls this fish where the fish are. Well, fortunately, we did quite some fishing and successful fishing in Q4.
Back to the fourth quarter. We already issued a positive trading update in December, as you know, but top-line trends continued to recover across all our geographies, and momentum significantly improved throughout the quarter. Several larger regions such as the U.S., France, Belgium, Germany being ahead of market, but also countries like Argentina, Brazil, and India delivered an outstanding performance. Again, certainly in Argentina and Brazil, for example, with a totally different business segment than they had last year or 2019. Activity momentum in December and January reached last year's pre-pandemic levels. Our industry fundamentals are reconfirmed to staffing penetration rates bouncing back quickly. We get a lot of questions, of course, but we do expect in the upturn, as we've seen in many post-crisis situations, that penetration rates are on the rise.
As you know, there's some markets like Italy and Spain which are below economic penetration rates. Might be a good time going forward. Very pleased with our top line and EBITDA performance, reflecting a recovery ratio of 61% in the quarter. Let's go to North America. Shed a bit more color on the markets. Very strong performance in North America. Revenue up 1%. Market numbers are still negative in the U.S., depending a bit on the statistic you look at. Perm still down, but also a good recovery there. Staffing and Inhouse growing. Our American Inhouse business is benchmark in terms of new locations, a gain, that helped us going forward, predominantly in logistics and food and retail. U.S. Profs, -6% . Our technologies business is -3% for the year, IT almost flat year-on-year.
Of course, stable sector as we see in many more countries because people continue to work from home. Our Canadian business also strong rebound from -12% to 5%, gradual and good recovery throughout the quarter. An EBITDA margin of 6%, so stable compared to last year, which we think very impressive, proves the agility of the cost base, and might I remind you that there was no government support of any kind in North America. Impressive all around. The French market, that exceeded our expectations, well ahead of market despite the severity of the lockdown. Strong demand from sectors such as food, retail. We're a market leader in healthcare, that has helped a lot, and logistics. Inhouse, again, growth here in the quarter.
There is something which you will see in many markets, is that the sectors which are down, such as restaurants, leisure, that sort of thing, are mostly part-time sectors. Where we see demand now are mostly full-time sectors. We see employees working. In general, they make more hours than they did last year, so that also helps our revenue going forward. As said, Profs, fairly resilient. Our healthcare business into strong growth. Our AUSY business in France was geared towards sectors which are not doing well, such as airline manufacturing, aerospace, aeronautics. That sector is still under pressure. We continue to see continued recovery in the perm fees, as you can see, -10% versus -20%. Not bad. A strong improvement in profitability versus Q3 through the improved productivity ratios and utilization.
In our professionals business, we do have people on our payroll, so that helps. A 50% recovery, which we think is a strong performance in France. In the Netherlands, we want to highlight something else, not just in the Netherlands. It is called strong social responsibility. You might ask yourself, what is that all about? Well, we've been very active, in healthcare, in testing, in tracing, working with governments, also in safely back to work. That is important. We also reskilled quite a lot of people in the Netherlands. We recently also announced a partnership with an educational institution because we do think there's a lot of work for people, but people need to reskill into different sectors. Our Randstad business is still below market, they are geared more towards hospitality, events, and travel, so they do carry that still with them, although they are getting closer to market.
Very strong performance from our Yacht business, almost at prior levels with a great profitability. As you can see, profitability held up really well. Germany. On the one hand, you might say easy comes, because Germany was a country due to automotive, which was already in negative territory last year. Still, - 21% in Q3, now -5% . We do think and we do know we're ahead of the market there. Germany did and performed very well on the New Ways program, so improved their commercial efforts. Good to mention is that we had a cooperation between Monster Germany and Randstad Germany, offering our clients free job posting. That led to a lot of leads for our general business, it's very much something strategically we're aiming for.
Belgium, strengthening market leadership. I think it's quite impressive if you have roughly 26% market share, that you still, for the full year, come out ahead of market. Again, Inhouse leading the recovery growth. Healthcare, pharma is a big sector in Belgium. We play there, and the same as I said earlier, logistics and retail. In Belgium, we see more hours per person due to the shift in sectors. Again, what can I say? What we do want to flag is the EBITDA margin at 7.1%. Very happy with that, but I wouldn't say that's the cruising altitude of Belgium. It's more around the 6% level. Still, for the quarter, not bad. Mentioned Top Employer award, a very successful online training program.
A lot going on, which is, as I might say, broader than just doing our business, which we think is good if you're the market leader in a country. Italy. Another clear recovery. This was, of course, the earliest hit country and, at some point, the most hit country. It still is, by the way. There's still lockdowns. As I want to do, and I did in general for all our management teams, want to thank them for holding on as well as they did. We also, as I said, Italy, low, probably 1.3% penetration levels. They will go up. There's a lot of room for growth, certainly in the pickup here. We have a good productivity improvement in Italy. We have that for the whole group, 4% productivity improvement in Q4, definitely also in Italy.
Italy is one of the countries, there are more, which will be very active in vaccination going forward in 2021. Spain, again, the trend of other Southern European countries. - 16% Q3, - 5% now. Good improvement. Again, Inhouse, there's a theme there. The New Ways initiative, Spain has been leading here in setting up that program, which we adopted globally. Portugal down only 3% as opposed to 13 %in Q3. Again, here, also more hours per employee due to the change in sectors. The rest of Europe, mixed picture. As you can see, the U.K. is still down. Also uncertainty around Brexit. Better than Q3, but still. I want to flag here Poland. Poland up 23%, which is a very strong performance. At the same time, Poland is also, you might say, the investment area, sort of an early indicator for an improved climate.
Very happy with our Polish performance. Rest of the world, mentioned this many times, but why not again? A solid performance. Almost back to growth, - 1%. As you can see, very good profitability improvement. I mentioned Latin America, predominantly Argentina and Brazil, very strong performances. India, a country which is hard hit by COVID, still putting up record numbers. Global businesses. As I mentioned before, this is a strategic play for us. As we speak, we're rolling out new technology for Monster. We will do that throughout 2021, which, if all goes well, will make Monster the job board in the world with the most recent technology.
There is still a lot of traffic going into Monster, and we do expect this traffic to stay, to also register themselves into the broad sense of our database of candidates, which we call building the biggest talent engine of all. You will see new websites going up at the moment in Europe, and then, at the end of the year or throughout the year in the U.S. We're very optimistic there. When we talk about our Sourceright business and predominantly our enterprise business, we recognize that clients are more open to what we call total talent discussions. They are uncertain about the future. Some of them have been hit, of course, by COVID, and they want to talk to us about the fitness of their company, the fitness of their own workforce, and how to handle work in the broad sense of the word.
Rebecca has presented this for you at our last Capital Markets Day, and we do see a lot of pickup here. This is not a short-term sell, it's a long sales cycle, but very promising for us. Given our global scale and our digital capabilities, we're an attractive partner to handle those kind of things for our clients, including, of course, our RiseSmart business, up 131%. 97% in Q3, not too shabby, but Q4, 131%. Again, strong pipeline going into 2021, actually this year. We're fully in investment mode as we are in line with what we see in the market, also in these businesses. What do the numbers look like? Henry, can I turn it over to you?
Absolutely. Thanks, Jacques. Good morning, everybody. 2020, in all respects, was a unique year, and we tried our best not only to manage the short-term result and long-term financial health, but also to demonstrate our commitment to our customers, talents, employees, and society at large. I guess as a result, we experienced the highest level of engagement across our Randstad team, and our customers honor us to be part of their journeys to recover from the impact of the pandemic. Let me now dive into the Q4 results in a bit more detail. As mentioned already by Jacques, the company delivered another strong quarter with competitive growth, overall very strong operational performance, and good cash conversion. Our focus to deliver accelerated profitable growth is paying off. We benefited from our diversified geographical footprint with excellent growth coming from the U.S. and rest of the world.
Also, our differentiated concepts such as Inhouse into deep market penetration in sectors like logistics, e-commerce, healthcare, and government performed well. Revenue in quarter four came in at -3.6%. The growth momentum continued to improve further throughout the quarter. The recovery of volume and revenue is broad-based and more and more business units enjoy positive growth. I'm especially pleased with the fact that we continue to achieve market share gains in significant parts of our portfolio while respecting the need to drive pricing discipline. Gross margin in the period came in better than expected, still down 50 basis points year-over-year. I will get back to this on the next page. With regards to OpEx, we delivered another quarter of balanced cost management with operational expenses down 4% organically year-over-year.
Our recovery ratio of 61% benefited from our ability to get talent back into jobs faster than expected. As you would expect from us, we continued investments into our digital journey and will also stay the course going forward. EBITDA came in at EUR 264 million at a margin of 4.6%. A momentous improvement from quarter three and not too far off from prior year's level. On the next line, integration one-off cost was EUR 32 million as we adjust our cost base to new market realities in some regions. Reported net income and EPS were impacted by an exceptional tax benefit of EUR 76 million, which is related to a revaluation of so far unused net operating losses. The underlying effective tax rate came in at 28.9% for the year 2020. For 2021, we expect an effective tax rate between 26% and 28%.
Now let me take you to the next page to talk about gross margin. Here we go. This is on page 14. The first red bar shows the temp margin, which is down 10 basis points year-over-year. Quite an improvement to the 30 basis point dilution we've seen in quarter three. The temp margin was definitely less impacted by COVID-19 related effects like idle time, and also slightly boosted by some working day tailwind. On the other hand, we saw some adverse mix impact given the pronounced recovery of our Inhouse Services business at lower gross margins. Offset by some typical year-end positive accrual effects, especially in a year like this. Most importantly, we can confirm a generally stable pricing climate across the board. The bar in the middle reflects a 30 basis point negative mix effect triggered by a 19% decline of perm activities.
That is a slight improvement versus the perm mix effect we've seen in quarter three. Lastly, HR solutions represent a negative mix on overall gross margin of 10 basis points, pretty much in line with quarter three. While our gross margin path remains difficult to predict, we reiterate the importance to safeguard attractive gross margins in all our business activities, also achieved through smart value-based pricing, strategic mix management, and winning mass customized digital support. That gets me directly to the OpEx bridge on page 15. As we talked about in our previous calls, our OpEx management tries to secure both the full and speedy recovery for our top line and uncompromised investments into our digital capability. In that context, we reported organic OpEx sequentially up by EUR 68 million, still 4% below last year.
In a bit more detail, this means that personnel expenses decreased by 11% year-on-year, which represents about 3,000 FTEs less on our payroll. This reflects the tight field steering, at the same time, solid improvement in our productivity measured as gross profit per FTE going up by 4% year-on-year. Cost flexibility introduced through employment protection schemes like short-term working arrangements materially decreased from around EUR 50 million in quarter two to about EUR 15 million in quarter three. In quarter four, this was close to zero. As part of our cost management initiatives, we took quite some short-term measures in 2020, which will show up either in part or full in the OpEx line in 2021 and onwards. You can think of travel entertainment costs, employee bonuses, fleet costs, and costs for accommodation, just to name a few.
However, more than EUR 100 million of structural cost reductions have already been identified across all cost categories, helping to support our top-line recovery at attractive conversion ratios, and we will continue to drive cost productivity and utilize the power of One Randstad going forward. Our cost optimization program announced in November 2019 helped us gain more clarity of what makes the boat faster and what cost might not be crucial to win in the marketplace. Our journey to drive productivity continues and is part of our DNA. We always like to operate from a position of strength, and as mentioned in my introduction, we seek to stimulate a climate of entrepreneurship within the company where smart growth initiatives can and will be fully supported with appropriate investment. With that in mind, let's now move on to our cash flow and balance sheet on page 16.
We generated a free cash flow of EUR 120 million in the fourth quarter, down EUR 304 million year-on-year. This reflects the investments in working capital driven by top-line momentum, partially offset by the favorable timing of working capital payments. Over the full year, we delivered a very strong record free cash flow of EUR 1.132 billion, up to EUR 117 million compared to 2019. The combination of the countercyclical movement of working capital and the CICE receivable sold to third parties in quarter three more than substituted a lower EBITDA generation. It goes without saying that the one-off elements impacting free cash flow in 2020 can't be taken into account for 2021. Very tight credit control and debt collection helped our DSO to improve year-on-year and through the COVID period.
As a result, we benefit from a very solid underlying free cash flow generation, again confirming the resilience of our free cash flow through the cycle. DSO shows no sign of weakness. We do expect it to increase slightly next year due to accelerated growth in parts of the business with a higher DSO exposure. What started as a health crisis has developed into an economic challenge for many companies out there. We are well-served to keep a very close eye on credit risk, debt collection, and risk management in general. In that regard, we continue to deploy additional resources to keep that risk in check. Let's now zoom in on the strength of the balance sheet.
Starting with our leverage ratio, it stands at a - 0.4x as of quarter four, pre-IFRS 16. A clear net cash position, though also supported by the monetization of CC. Our solid and healthy balance sheet position directly leads to the question of capital allocation and capital return. As we have ended the challenging year 2020 with a strong competitive performance, we feel confident that the time is right to reinstall dividend payments. We will propose to our shareholders a cash dividend of EUR 3.24 per ordinary share for 2020, totaling around EUR 600 million. This consists of a regular floor dividend of EUR 1.62 per ordinary share, representing a payout of 63% of basic underlying EPS. In addition, we propose a special cash dividend also of EUR 1.62 per ordinary share.
The proposal to pay a special dividend over the year 2020 should be seen in connection with Randstad's decision to withdraw its 2019 dividend proposal in March 2020 in order to focus on capital preservation as precautionary measure to ensure the company's resilience and stability during the COVID-19 crisis. With our dividend proposal, we reiterate the importance for Randstad to be seen as 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 the unwavering support throughout the last year. That brings me to my last chart, the conclusion and outlook on slide 17. As stated before, the pace of revenue recovery sustained throughout quarter four and is broad-based across our portfolio. Our volumes in January are reaching last year's pre-pandemic level and the improving momentum we saw in quarter four continued.
At the same time, visibility remains limited with ongoing macroeconomic uncertainty due to the COVID-19 pandemic. Every crisis creates new opportunities, and as such, we are establishing new benchmarks for frontline sales productivity, increasing utilization rates, and using best-in-class digital tools and data-driven demand projections for optimal sales impact. For quarter one, we expect gross margin to be modestly lower sequentially due to seasonality. OpEx, however, is expected to be broadly in line sequentially, reflecting more aggressive investments in growth opportunities, largely offset by ongoing agile cost management. Lastly, let me mention that there will be a - 1.2 working days impact in the first quarter. Well, that concludes our prepared remarks. We are now happy to take any questions. Back to the operator.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as you will be advised when to ask your question. Once again, that's star one if you would like to ask a question. The first question comes from the line of Andy Grobler from Credit Suisse. Please go ahead.
Hi, good morning, everybody. Just two from me, if I may. Jacques, you mentioned a few times about growth in sectors like logistics and retail. Can you just give us a bit more detail about how much they grew, what proportion of the business they represent, and the tailwind they provided to growth through 2020? I guess as an add-on to that question, to what extent do you think that additional demand in those sectors is going to prove sustainable through 2021 and 2022? The second question just on the dividend and the special dividend policy. Assuming hopefully that we're back to more normal times this time next year, would you expect to return to your previous policy of paying special dividends to take you to 1x net debt to EBITDA, post-dividend? Thank you very much.
Andy, good morning. Transport and distribution, this is very much the link with e-commerce, is around 20% of our business, growing 15%. This is a big alternative for lockdowns, Andy. People are shopping differently. We still see that in the beginning of the year. Good for us. We're positioned very well there. We are growing faster than market based predominantly on our Inhouse segment, as I mentioned, which has been a winner for us in the last 15 years. It's good timing. Pretty optimistic about that. We'll see. That's going to be the first half year. Second half year, if everybody is vaccinated, logistics might be a little bit less, people might go out and the old sectors might revive, that's still early days.
Based on what we're seeing right now, limited visibility, but optimistic about what we're seeing right now and not short term. A lot of business increasing is in testing and vaccinating, which of course will also be with us for the next six to nine months.
Jacques
Andy.
One follow-up on that, if I may. Sorry to interrupt. Part of the demand in logistics and retail and so forth is, I guess for you guys, is because of all of the uncertainty. Companies are just reacting, getting stuff in as quickly as they can to meet the demand. Do you feel from your clients there is a sense of change in how they're dealing with their contingent workforce, i.e., when things are more stable and they have a clearer view of what demand is going to be like on a 6- 12 month view, that they will continue with a bigger contingent workforce, or will they revert back to previous proportions?
Yeah. Always tough, huh? My predecessor said, if you don't listen to your clients, you go bankrupt. If you listen to them, you go bankrupt, too. What we've seen is they're uncertain. They're uncertain. Many of them have seen that they were not agile enough. We're talking more, as I mentioned in my prepared remarks, on the fact that they want to have a hard look at their total setup. I would say, if anything, more contingent than fixed, certainly on the short term, which we've seen in previous crisis also.
Okay. Thank you.
Andy, with regards to your question about dividends, let me first say that we're happy and thankful to be back in the position to pay dividends to start with. We've certainly not forgotten that all stakeholders contributed to secure the long-term health of the company. Hence our dividend decision, we feel is balanced reflection of the fact that we're still in the middle of a pandemic. While it's confident and upbeat, it feels a bit premature to declare victory on COVID-19. Our decision certainly seeks to serve simultaneously all stakeholders in the best possible way. Let me not speculate on what might come after. We now concentrate on putting another strong quarter in quarter one, and then we'll take it.
Okay. Thank you.
The next question comes from the line of Matthew Lloyd from HSBC. Please go ahead.
Good morning, gentlemen. Following up from Andy's question, you pivoted very quickly, it would appear, towards logistics and health work, and congratulations for that, it's impressive. How quickly could you pivot back? Secondly, slightly more longer term, how much of the improvement in margin do you think, in terms of productivity, do you think you can hold? How much of it is, look, we've digitized this business. It's a different business going forward, and how much of it is actually an effect of longer hours in certain sectors which are a bit more bulk in order?
Well, Matthew, thanks for the compliment. Always nice to hear. It's not so much pivoting. It is very much going where we see business. We have what we call a data lake. We sort of pick up the net every day, every week, every month in any market to see where the market is. What we're currently asking our people is to say, okay, how can we create even more momentum? We mentioned our New Ways program, which is very much around digitizing sales, supporting sales with digital means and data. If there's demand, like currently in testing and vaccinating, we're going to be there. There's business in logistics, great. When everybody's vaccinated, you will see the SME space bouncing back. We will be there again in what we call our market units in staffing. Yeah, let's see.
I think what we've proven, and I'm very happy with that, and I want to compliment all my colleagues on the call also, is how resilient they were, and they did pivot, and they did bounce back. That's what we're apparently good at as a company.
On the margins, how much of that do you think is digitization and you can keep that sort of effective productivity?
Productivity, we're very happy on the one hand with the 4%. You can also say, well, we brought in not enough people quickly enough. We're not going to optimize productivity in 2021 because we think this is a year to invest in growth. Productivity might be less, sales will be more. Again, if 2022 turns out to be a modestly growth year or whatever, then we're going to look at productivity again. Absolutely, on the one hand, automation and digital support increases productivity of people, but at the same time, we take it more as in it creates room to do selling and to go out in the market and to have good conversations with talent to be matched. In that sense, productivity enhancement is not a topic in itself for 2021.
One final follow-up. Some of your competitors have talked about taking market share. You've talked about taking market share. U.K.'s Companies House suggests that 6% of temp agencies in the U.K. went bust in 2020. Companies, don't know about branches. Do you think that you and perhaps some of the other larger players are taking market share disproportionately from small local players?
Yeah, we never analyze where we're taking it from. We always compare to the full market. The U.K., of course, is by nature a mom-and-pop business, so they fold quickly. If we talk about, for example, we talked about M&A, there's not going to be bargain buys because we're doing well, but in general, this sector is also doing okay-ish. Way less pessimistic than we expected early in the year. We're doing well, and I don't know where we're taking it from. What we do see, and I mentioned that in the Capital Markets Day when we had that, is that I do think that enterprise, digital investments, and global presence. T hose are attributes that, of course, the small businesses don't have, so l ong term, we do see some consolidation in the market.
Thank you very much.
The next question comes from the line of Suhasini Varanasi from Goldman Sachs. Please go ahead.
Hi. Good morning. Just one from me, please. I think it's very clear from your results that you are outperforming the market in some key countries. It's also very clear from your commentary that things like your IT and digital platforms are enabling you to target the verticals where you're seeing the growth. Maybe can you give some color on some of the other trends, please, like on Inhouse and outsourcing trends? What has been your customers' feedback? Has the trend accelerated through the crisis? What are you hearing from customers, please? Thank you very much.
Yeah. Good morning, Suhasini. Yeah, what I mentioned in my prepared remarks, I've seen, and all of us do a lot of sales, it's very easy to have boardroom access again to talk about total talent. Our proposal in enterprise is how do you organize work? That is very much top of mind for our customers, not just because of the crisis, but very much also on the availability of talent going forward and the mismatch of people in the marketplace. Some of our clients are worried about a large part of their workforce that might become redundant if not aggressively reskilled. At the same time, they're worried about finding the people they need to drive their growth. Well, those are very interesting topics for us.
That's the reason why we invested in digital, we also want to create this big data lake of talent. We know where to find them, we know how to skill them, we know what to pay them. That is very much top of mind. Inhouse is also such a solution. It's a no-hassle. We take care of everything. It's just a part of the business.
Thank you.
Your next question comes from the line of Hans Pluijgers from Kepler Cheuvreux. Please go ahead.
Morning all. A question on your guidance for the start of this year. You indicated that January are close to pre-pandemic levels. Can you maybe talk us through January? I can imagine, especially the numbers back to work data. Can you give some feedback, especially by the key four countries, France, Netherlands, the U.S. and Germany, do you see any important developments there? On your margin for the longer term, you already indicated something from Belgium that maybe the current level is a little bit on the high end. Italy doing very well on the margin side and some other countries. How do you see that for the longer term? Let's maybe follow up on our previous question. Do you believe, let's say, that in the long term, you could exceed previous peak margins on EBITDA level?
Is that something, let's say, you think is feasible in the longer term? How do you look at that based upon your current investments also in digital? The last more detailed question, you mentioned some accruals impact in gross margin in Q4. Could you give maybe some more detail on that, please?
Yeah. Good morning, Hans. I'll take the January question. January, of course, is always a tough month to really call. We had a week 53 last year, which wasn't really a week, so we're still comparing week one, week two and whatever. Yeah, we have slightly more people at work in January than we had last time this year. You can look at the arrows in our outlook to see which markets are improving, which markets are stable, and the like. I think that sort of answers your question. Positive start of the year, but let's hope we can keep it up.
Yeah. Hi. Morning, Hans. Let me take the question around margin. Let me start with your last one. I think it's probably fair to assume that the 19.5% in quarter four, what I said in my remarks, is also benefiting slightly from provision releases, especially in a year like that, where there are many, many moving parts, like idle time, sickness rates, etc. I think it's fair to say that probably over quarter two, quarter three, quarter four, there have been some balancing effects in there. Longer term, we definitely have not let go of our ambition to see the business between 5%-6% EBITDA margin. That's more an outcome than a real target. We are driving for more relevance in the market. We see that there is lots of growth potential for us.
If we pull that off, then the margin will solve itself. I'm also convinced of that.
Yep. Back to that one, Hans, and I mentioned it earlier, but a bit more in detail. We have this headcount steering. We bring in people at some level of productivity, we bring in new people. If we see momentum in the year, then we're going to bring in people sooner, so therefore investing a little bit more. Again, as I said, we're not going to maximize productivity and therefore profitability this year. If we have created this cruising altitude, then 2022 is another year. That's roughly underlying. As Henry said, we do think we're bouncing back professionals. We do, as we've always said, by the way, 5%-6% is in the cards. I don't wake up at night with a maximum profitability. That's not who we are as a company. We're a growth company.
That's how we became world market leader, but we're still small. That's our first and foremost goal, to bring as many people to work as possible. That's what keeps us awake at night, at a decent return, of course.
Okay, thanks.
The next question comes from the line of Marc Zwartsenburg from ING. Please go ahead.
Yes, good morning, gentlemen. A couple of questions from my side. First on, Jacques, you mentioned to make Monster the best job board in the world with the latest technology. You mentioned the 150% higher productivity for sale due to the digital investments. Could you perhaps also give a few examples or at least some numbers maybe, how you compare currently where you stand with Monster versus competition? Your digital initiatives, can you maybe share a few examples, what it did to your gross margins, probably the best natural way to look at it, in certain countries where you rolled out specific digital, like fishing where the fishes are, as you mentioned.
Yeah.
A bit more numbers to it to back up the digital story. That's my first question.
Monster is early days. What I'm saying is that, in 2021, we'll equip Monster with what we call Monster Next. New websites, easy access. Monster for us, of course, is not a job board on a standalone basis. It very much figures into the total Randstad strategy of having the best talent engine in the world. Having a few hundred million people in our database, because long term, nobody's going to look for a job anymore actively. You really need to approach people actively through technology. In our U.S. business on technology, there's now 1 million people, 1 million talent, that have been going through the conversation with the chatbot we developed. It's rated 4.5 out of 5, our talent appreciates this.
It's always tough to directly link it to performance, but we do see what it means for people, for our consultants, for talent experience. That's good. The problem, of course, is that 2020, in that sense, was not a stable year. You cannot really compare, in that sense, 2019. Now you support the business better. We do think it already drives some outperformance. Workforce scheduling, again, the whole tooling for Inhouse. The new clients we landed in the U.S., for example, 80% of them said that it was because a lot of things, but certainly also the technical tooling, which made it so easy for them and for us to manage that pool in a very transparent and visible way.
Lastly, I mentioned a few countries such as Argentina, Brazil, but also underlying in larger countries, this whole pivoting, fish where the fish are, providing our people with the right data set, sort of heat maps of demand, that really helps. Again, very tough to calculate it into a, this is what it brought. Also, given the somewhat typical year it's been. What is important, I think, and we're very happy with that, in 2020, we didn't stop investing. We didn't have to go into survival mode. We kept on investing in Monster, in digital, and we're very confident that this will help us going forward in a different market.
Yeah. Well, thank you very much. Maybe over to Germany, that of course, we talked about easier comps, but nevertheless, underlying still quite an improvement. Do you see certain segments like automotive, which is still a big sector there, do you see tangible signs of more structural improvement in those areas as well, just zooming in a bit on Germany?
Well, I wouldn't use the word structural with automotive. I do think there's two sectors which I think are up for a real reinvention. First one is airlines. What will they look like? What will business travelers do coming out of COVID-19? The second one is automotive. Of course, we already saw some upcoming huge changes on electrical, on self-driving, that has shaken up the world massively. The most successful car company is now a Korean one, let alone the American one, whose name I just forgot. Oh, Tesla. Those are big reshaping. I do think that the German car manufacturing are catching up, but it's very tough for me to say what it means for their sales. I don't think they know, let alone me. Compared to 2019, we do see some improvement. Again, the value chain was broken. That didn't help either.
Let me add one thing. I have to because I'm.
You're German, of course.
You know I'm German, and I'm born in Wolfsburg, believe it or not. I have to, otherwise I'm in trouble if I'm now not pitching in. There's definitely, I've heard from firsthand, lots of very, very strong positive exports going into China and into the Asian market. There is a recovery. How sustainable that will be, I'm totally with Jacques. There will be a big transformation. At the moment, the supply chains are back and also volumes are getting back more and more.
Yeah.
Yeah.
Thank you very much. Thanks for the color and congrats on the quarter. Thank you.
Thanks, Marc.
Thank you.
The next question comes from the line of Rory McKenzie from UBS. Please go ahead.
Morning, all. It's Rory here. Firstly, I wanted to ask about the guidance for a sequentially flat cost base, while you're also talking about growth investments. Can you just update us a bit more on where you are on the EUR 120 million savings program run rate? Also, maybe talk about how much you are planning to grow headcount now as we look into the start of this year. Secondly, a broader question. Unemployment is still, of course, quite high overall, but probably not in those specific sectors you're seeing good growth in. Could you talk about the pockets of wage inflation or wage pressures you're seeing, and what are your thoughts about that becoming a much broader issue for labor markets this year?
I'll take the last one, Rory. Wage inflation is always a bit of a, how do you call it, overstated thing in Anglo-Saxon markets. In mainland Europe, it goes way more sluggish because certainly in many of the main sectors, there are collective labor agreements. There's never this real up on that sense. In general, there's scarcity in the market. If you are in such a sector, you can create a good wage for yourself, in engineering, in technology, that sort of thing. Always helps us, but at the same time, we don't have a stable workforce, so it's not like we had 100,000 people, then a year later we have the same 100,000 people, and therefore wage inflation plays a role. It's sort of diluted if we bring in young people, if we bring in newly trained people at a different wage level.
Very tough for me to comment on that one. It's a big debate, certainly in mainland Europe, what the government support will mean for unemployment. Unemployment is very much in the affected sectors. What you've seen in the U.S., no government support, w ell, a bit. People became unemployed very quickly, in leisure, entertainment, restaurants, that sort of thing. If government, European governments, apart from the cost, that's more a monetary question, keep up the support all the way until everybody's vaccinated, then still people can bounce back into the roles they are having. We're actually advocating people not to wait for this. We are actively offering reskilling for this not to happen. Interesting space to watch in 2021.
On the first one, on OpEx, you've seen that our quarter for cost base is indeed EUR 35 million low organically year-over-year. Definitely our cost optimization program is a major driver of that. As I said before, we are really touching the entire OpEx base of about EUR 3.4 billion in all its dimensions. There's a company-wide program running with senior management being deployed to it, supported by cost experts. We really are more or less turning every stone and asking the question, does that spend help us to grow faster or is it not better deployed on the front line, in more people helping us, actually touching with customers or supporting talent? It goes into more than close to 100 dimensions, actually. I would never declare that being over. I said it's part of our DNA.
We have progress meetings pretty much every two weeks with quite a big group. We're celebrating those costs coming out, to be invested into growth. That's really important. Why are we guiding now for sequentially more or less in line with quarter four, as far as OpEx is concerned? Because we want to do exactly that. We want to really give ourselves space to grow. We want to be in front of the curve, to really get more competitive growth under our belt. So far it has served us very well.
Okay. That's helpful. Thank you both very much.
The next question comes from the line of Sylvia Barker from JP Morgan. Please go ahead.
Hi, morning. Firstly, just on logistics. I know that we've talked about it a bit, but the 20% at the group level, just wondering how that looks by region. Just wondering if it might be actually a lot higher in, let's say, North America, where obviously Inhouse did particularly well in this quarter. On the vaccines government COVID-19 revenue, is there any chance you can tell us how much that's contributing to growth at the moment? Finally, on hours worked. We've seen hours worked obviously go up in North America, but also you picked out a few other countries within the prepared remarks. Presumably that's not a massive impact relative to volumes, but is it adding 1% to your revenue growth at the moment, or is it less material than that? Thank you.
Well, Sylvia, those are great questions, a bit too granular. You're asking things that, well, I don't really know by heart, and/or I'm not really sharing. Certainly not in our U.S. business logistics. If you compare Europe, some European businesses have more logistics than the American business. It's not to say that purely Inhouse successes are only in logistics. It's also food and manufacturing and that sort of thing. Sorry about that, not really good answers to your question. You're going to make do with our general remarks.
Okay. In that case, could I follow up on costs, as we're not going to get anything on the growth ones?
Yeah.
Just on the EUR 120 again, obviously Rory asked on that, but how much of the EUR 120 have you taken as structural cost savings in 2020 already, and how much should we think about is still being worked on for 2021?
That is a very tough one to answer. Just give you one example, w e have very successfully transitioned and renegotiated travel fares, but if you not travel, there's zero benefit. As soon as we were to start, we're probably not going back to 100%. Every time we do, we would do it on a more cost-efficient base. It's really quite a mixed bag of things. As I said already, we are really looking into structurally addressing it, but sometimes it's not a rocket science solution. It's just a decision. Do we need it to make the boat faster, or is it better placed in the front line? We always ear to support growth in the business.
Okay. Should we think half of it at least, or you really can't quantify at this point?
No, I can't really put a number on it. Sorry.
Okay. Thank you.
The next question comes from the line of Anvesh Agrawal from Morgan Stanley. Please go ahead.
Hi. Good morning. Most of my questions are answered. Just got a couple of small ones really. What's your exposure in Mexico? Peer Manpower called it out specifically last week, saying pending any regulation change, there might be significant impact. Just wondering, what's your group exposure there? Can you just tell us what's the absolute level of Monster revenue you are at right now? Yeah, you made some comments at the beginning, but how should we think about that part of the business in terms of the growth or the revenue decline continues permanently?
Our Mexican business is very small, Anvesh. As a, call it expert, let me call myself an expert, on labor market policies, I think it's very bad legislation. Mexico has a large informal sector, if you then ban the legal part, so to say, you get more badly regulated work. It's not going to be a good law. If it happens, it will hurt us far less than it does Manpower and Adecco. Also, the result would then be certainly to go into RPO. That is a successful and profitable part of our Mexican business, and maybe into specialty staffing. We can easily pivot there. It won't show in our numbers.
Okay.
Yeah. Sorry. Sorry to interrupt you.
No.
Monster revenue, it's about, I would call it $250 million or to EUR 215 million-EUR 220 million.
Just on that. Should we continue to expect a sort of decline in top line, but you manage the cost base so it doesn't really impact the profit numbers? How should we think on that going forward?
You should not lose sleep over the real result of Monster. Again, for us, it paints a totally different picture. We're still in investment mode, overhauling the whole technology. We think it's very sensible to do that. That is probably still going to cost money this year. We'll take it from there.
Yeah, it's not material.
Okay. Then maybe just one more technical follow-up. Obviously, French business tax is changing. Can you quantify the potential benefits you would have in your numbers in 2021? Or that's baked in your guidance of 26%-28% of sort of tax rate?
I need to come back on that one. I'm always a little bit anxious to really qualify tax benefits because things are changing a lot. I'm more than happy to get back to you on that one.
Okay, no worries. Thank you.
The next question comes from the line of Konrad Zomer from ABN AMRO. Please go ahead.
Hi, good morning. One broader question. I think it's great to see you delivering on a very good quarter. In terms of investments, it seems like you've gone back into investment mode. Working capital has gone up. The operational expenses have gone up sequentially. Your corporate staff went up 4% sequentially. The way you look at it, because at some point in countries like France, Belgium, Germany, Holland, government support will come to an end. Are you now just back in full investment mode, like we've passed most of the pandemic and we're back on track? Are you still holding back because something really bad might happen once the government support schemes come to an end?
Good morning, Konrad. Well, there's two things. There's government support schemes, and there's vaccination. They play out differently, I think. As I mentioned earlier, governments would be intelligent to keep up support for the affected sectors as long as possible. These affected sectors are down because of the virus. People can't go into restaurants, can't travel, that sort of thing. If everybody's vaccinated, this will bounce back, and ideally then less people lose their jobs. It's less of our business. I can't answer your question with a yes or no. As you know, we go with the flow. What we're seeing is an improvement in our business. We're seeing outperformance. We're seeing momentum in many of our markets. We have a New Ways program so that our people are aggressive in sales.
As Henry said, we want to give them all the room to grow. We're making a bit of a bet on this to continue. Normally we would take headcount down into Q1, but as you've seen, we've not done that. If the momentum continues, we're going to put in more people, which is never a risk for us. We can tone down whenever we want to. As Henry said, we have 3,000 people less than a year ago, and we didn't fire anybody. We just didn't replace in many markets because that was not the right timing. At this moment, we're asking our people, our managers, where do you see momentum? When they say here and there, they can invest, and we'll see if that drives our growth. That's what we're doing.
Yeah, maybe one addition. I would call it in itself a very controlled bet because our business leaders are really pros. They're very commercial. They know that we need top and bottom line, there's very, very clear expectations of, say, the minimum returns we want to see, even investment models. It's also not that we, I don't know, put a big production line in there and then hope that volume will come. We really steer the business week by week. We have it really well in control. We are in investment mode.
I just noticed that your corporate staff in Germany went up about 17% in the quarter sequentially. Is there any particular reason why that has gone up so much?
Yeah, that is, I think, the effect of unfurloughing all people from short-term work Kurzarbeit into full-time employment.
I see. Okay. Maybe just one final question on your free cash flow. For the full year 2020, I think more than 10% directly came from government support. If that is likely to disappear this year, do you think that underlying your free cash flow could possibly still go up?
I've been very vocal about the fact that our cash flow benefited from two things. One, the TESE flow, and also there's EUR 120 million of governmental support in there, which by the way, has gone out already early days of January. Mentally, I always strip that out, and that gives you something like EUR 630 million really underlying free cash flow. Of course, what we would love to see in 2021 is that the composition of the free cash flow goes much more again into EBITDA generation. We will have then the opposite, the OWC, which goes out to support growth. We're not guiding on cash flow, but we are really on top of it. We manage very tightly our DSO, our credit risk, and keep a close check on it. With increased profitability, also the EBITDA will increase.
Investment in growth.
Yeah.
It could happen.
Okay. Thank you very much. Thank you.
Thanks. Bye for now.
The next question comes from the line of George Gregory from Exane. Please go ahead.
Good morning, everyone. Just one quick follow-up, please. I wondered if you could elaborate on Monster Next, and what additional capabilities you expect that to bring or the extent to which you expect it to improve the user experience. Thanks.
I think that's an excellent question, George, but I would like to table it for next quarter when we know more, we have more functionalities, we have more comparison. Hold your breath.
Okay. Thank you.
There are no further questions in the queue. I'll hand the call back to your host for any closing remarks.
Yeah. Thank you very much. Thanks everybody for calling in. Thanks for your questions. Although the sun is covered in clouds, we still are optimistic about the start of the year. Let's hope we can continue to be optimistic. See you next quarter or on the virtual roadshows. Bye-bye.
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