Good morning.
Hello, welcome to the Randstad third quarter 2020 results. My name is Molly, and I'll be your coordinator for today's event. Please note that this call is being recorded, and for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions. 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 would now like to hand the call over to your host, Jacques van den Broek, CEO, to begin today's conference. Thank you.
Yes. Thank you, Molly. Good morning, everybody. I'm here with Henry Schirmer and our IR department to present Q3. Well, you heard me say when we presented Q2 that I would have immediately signed up with those results when we were in the depth of the crisis somewhere early April, and that went for Q2, definitely goes for Q3. Let's immediately go to slide six. Yeah, so it's been a memorable quarter in many ways, and we continue to live in very challenging times, given COVID. Our key priority is and remains the health and safety of our employees, our candidates, our clients, and all our other stakeholders.
Again, we do feel and see that our Q3 results demonstrate our stronger operational agility and our highly experienced management teams, of which I want to give them an enormous compliment if they are listening in at the moment. At the same time, it also underpins the resilience of our diversified portfolio throughout the world. It shows, again, the counter-cyclical nature of our free cash flow. Despite facing these unprecedented times, we also celebrated our 60th anniversary last month. This normally, every five years is a big deal with events across the world, like physical events. We totally had to pivot, of course, towards a digital event with 35,000 people two weeks ago on a Tuesday, six live events. What a story, of course, it's been.
Frits Goldschmeding starting a business 60 years ago from a student room together with another student colleague. We are now the biggest HR services provider in the world, last year providing more than 2 million people with a job. We do believe that we're in an excellent position to further strengthen this global market leadership fueled and supported by our digital and growth initiative, newways. A little bit more on that one later. At the same time, with this position comes responsibility. We do remain committed to finding jobs for as many talent as possible in the coming months, with or without reskilling in the same or in different jobs or even sectors. We definitely feel that strong responsibility.
Very happy to state that in the depth of the crisis, 150,000 people lost their jobs while working through Randstad, and we've now brought more than 140,000 of these people back, which I think is important because there's a lot of societal debate about gig work and flex jobs, but we do take care of people. The sector, the well-regulated part of the sector, which is not just Randstad, many companies around the world, they do take care of people. On top of that, and stated already in last quarter, we signal an immediate need for reskilling and outplacement. What is interesting is that if you look at the long term of the labor market, white-collar jobs will be under pressure. Through COVID, more blue-collar jobs around airlines, travel, entertainment, different jobs are under pressure.
We already, even now, are feeling that same structural scarcity in tech jobs, in educational jobs, and in healthcare jobs. Interesting times, and I do urge everybody, if you're unsure about your job, go and have a talk. We're partnered with many companies. We launched our Boost program in the Netherlands to reskill people. Again, the pledge of 40,000 people to be reskilled in the U.S. You also see our integrated and digitally enhanced outplacement platform from RiseSmart really provides help here. We talked a lot about digital, and what is interesting is that with the same digital support, we are now handling a different market. The market has pivoted from a candidate-led market to a client-led market. Our data-driven sales, which used to provide our consultants with information to go to a client to say, "Well, this person is tough to find.
This is what you need to pay them," now gives them input on which clients and which sectors are wanting people. Then we go to those clients to set up a quick order fill. We install digital tooling so that with one push of a button, they can order people. A candidate, the same tooling towards candidates, was meant to get engagement. People are in a job to provide them with information on a better job. Now people are insecure. We send out messages like update your profile. If you're insecure, let us know, and we'll put you ready to find another job within the hour. Same digital tooling, but different usage. On the back of this, we've created our newways program. Newways for us is the term that basically goes for everybody.
Our clients need to find new ways, our talent need to find new ways. Even society as a whole needs to find new ways to cope with the new normal. At Randstad, we can benefit from it. We are mainly online, everybody, so we can reach out to maybe two times, three times as many clients and companies as we did before using technological tools. That's what our people are doing today, and we are absolutely convinced that that will lead to more outperformance in more markets going forward. Back to the third quarter. In line with our statements in July, top-line trends continue to gradually recover in most of our geographies, supporting the easing of country lockdowns at that stage. Momentum slightly improved throughout the quarter. September was the best month. It continued in the first weeks of October.
Every week in employees working, which is what we get every week, has been better than September. Good news on that front. At the same time, visibility, of course, remains limited with still ongoing macroeconomic uncertainty and recent signs of partial lockdowns again. We're pleased with our top line and EBITDA performance in Q3, and reflecting, and Henry will talk about that, a strong recovery rate of 53%. It's a balancing act. We want to bring back almost everybody to work at Randstad again. We want to protect employment, but at the same time, we continued to invest in technology. I'll share that later on in the presentation, where we are in that sense. I compare it in Q2, the situation with now, and it's a totally different situation. 2009 was a total financial crisis. Basically, everything was down.
If this is the trend, then 2020 is going to shape up for us to be a way better year than 2009 was. In 2020 now, there are sectors which are good, are stable, are even winning. Our good sectors are life sciences, logistics, food retail, anything online, health, testing, government support. For example, in the U.S., there is almost no infrastructure to handle unemployed people, so we support those exits. There are stable sectors such as IT, working from home. There are sectors which we already heard in Q2, which is airlines, travel, restaurants, catering, events. Automotive is very much hit in Q2, but we do see green shoots of automotive recovering left and right, for example, in our Polish business, but to a certain extent, also in our German business.
What we see now, despite the news about the virus, is that those economic sectors are still strong. There's one difference with Q2, and that's the value chain. In Q2, the value chain was broken. China was down. Parts for many of our clients were not going from China to Europe and within Europe. Many companies had to stop producing, not because of COVID, but because of a lack of parts. Let's move to the countries. A very solid performance for our North American business. As you know, our North American business is the biggest business we have. It's also by far the biggest market. Our staffing and in-house business really outperforms the market. Our in-house business has even been positive in September. Our American colleagues have sold in 2020, more than 55 new in-houses already.
You can imagine if they all come back to life, that is a big winner for us. Our U.S. prof business, very happy with our IT business, but our U.S. prof business is many businesses. Let me quote Karen Fichuk, our American board member, very happy with the performance of Karen and her team as said. Karen says, "We're very pleased with our performance in our technologies and life sciences business. We're addressing market shifts and buying trends in our professional businesses to continue to provide the right service and success for our clients and internal performance expectations. A key component of this focus will be the further alignment and focus on large customers in the non-technical and F&A space, as well as fueling additional investment and focus within our technologies offering." Our IT business, our technologies business, is currently performing so well that we are investing.
We are hiring extra people in this business to strengthen our situation and our presence in the U.S. You know we've talked about this before, and it does seem to reap the benefits. Of course, also a very stable EBITDA margin, because bear in mind, North America doesn't have any government support messages. Canada bouncing back well, that is very much also what you see in many other countries, opening the economy. France, quick rebound, probably one of the strongest ones from -41% to 16%. Wow, that was the most worrying. We had data points of -60% in March, but it is getting back. Here in-house is a very strong performer. Profs are very resilient. Our healthcare business is, of course, growing. We are by far market leader in France in healthcare.
As I said, we had Frank Ribuot coming on the last flight out of Australia into France. Frank is on a tour de France in France. Visiting all of our business, if possible, physically. That is by and large, still possible. Good for him. We do see a lot of positive energy in our French business. A notable recovery in automotive, manufacturing, and construction. Also our perm fees bouncing back from -52 to -20, I think in the given circumstances is a very strong performance. One thing I would like to mention on France is our Ausy business. The business is statement of work. They are very much exposed to tough sectors such as aeronautics and automotive. There, we still have some idle time issues, but still compared to Q2, a great result in our French business. Our Dutch business, great on the profitability.
I think you always, as a market leader, have the responsibility to keep a healthy pricing climate. That's what we're doing. In general, by the way, so far, pricing has been stable. Henry will talk more about that. It's a mixed picture, and we're very honest about that for a company within the Netherlands. Yacht, very stable, above-market performance. Tempo-Team is really the company that jumped on this newway program. If you look at their sales activities per person, three times more than in the early part of the year. They are in September above market. Very happy, great performance. At Randstad, I mentioned last year, we changed the management team. I spend a lot of time in the business, with our people, and I do see the positive momentum.
I do see the vibe within our Randstad team, but we still have a ways to go to outperform the market. They all know that, and I have all the confidence that they'll pull that off in the next quarters. Germany, 31% down, 21% now. I mentioned green shoots. There are some green shoots in automotive and manufacturing. We also think that is largely due to these value chain elements I talked about before. Let's see. What we also did, because we're not in survival mode as a company, we're still investing. There's a very successful back-office integration of all our labels in Germany. I think a major compliment that throughout this crisis, we're still building for the future, gathering more strength in the combination of our German businesses. Again, also positive momentum. Employees working in Germany are improving as we speak in October.
Our Belgium business, I mentioned how important it is for a market leader to maintain pricing discipline. Belgium does both. They are outperforming the market, and they also have pricing discipline. Look at their EBITDA performance. I think that is absolutely a stellar performance of our Belgium business. They've always been very reliable and a stable member of our family, but definitely this quarter, they showed what they're made of. Italy. We all remember, I think that Italy has been the first European country being very hit hard. Since then, we see a very speedy activity level recovery, very significant in Q3, but again, also in October. Our revenues were just down 10% and again, -33% in Q2. What a return. What is interesting to see is the more longer picture.
What we've seen in every crisis is after the crisis, penetration rates go up. We are already in talks with our clients on when they see momentum again, how they will manage that. Countries like Italy, but certainly also Spain, are countries with above European level penetration. Given our position there, and also the good results and the good pricing, we're very positive about the potential of our Italian business, of course, the second economy in Europe. Iberia, again, there's a theme here. Big bounce back -37% to -16%. Also our in-house business leading the way there. Spain is an important member in our newways program. They have a very diligent, digitally supported way to reach out to their market and we're using a lot, we're sharing a lot within our global business. That's what we see also.
You might say we're not seeing each other anymore, but in our company, online sharing and therefore sharing of best practices goes actually quicker than pre-COVID time. I'm not going anywhere anymore, but still we're very happy with that exchange of best practices. The trends. U.K., also, you see basically the same theme everywhere. I would like to mention Poland here because Poland is actually growing. Poland still, a lot of the Polish business is Western investment, automotive, that sort of thing. Growing and actually already finding tough again to find people. Then we have sort of almost eternal star, but it's like a little over a year now, which is the rest of the world. I really want to single out Argentina and Brazil this time.
We mentioned the sectors, and we also mentioned how we help our people through data-driven sales on where to go. Henry calls this fish where the fish are. Our Argentinian and our Brazilian business really pivoted their portfolio within Q2 and Q3, and they're actually growing, targeting growing sectors. Absolutely stellar performance. As you can see, overall, as a sector, as an area, as a region, at a very stable EBITDA. A few words on our global businesses. First of all, reshaping, reorganizing our business under Rebecca Henderson, all our global businesses under one roof is really paying off for us. What are we doing at Monster, and what is our goal? Just remembering here, because we went on investing. Monster has 20 times more traffic in the countries where they are than any Randstad business.
By investing in technology, and that investment will be ready Q1, Q2 next year, we capture that traffic. We lead these people into our database. You will have online questionnaires like, okay, you registered at Monster, but do you know Monster is a part of the largest HR services firm in the world? If you want us to support your career, please give us the go-ahead to manage your career and be part of our database. That's what we're doing at Monster. At the same time, we're investing in a self-service platform for smaller clients, therefore pivoting our people towards the clients that really matter. We're also going to sell job board functionality on our European and American websites, meaning for our clients that they can put up job ads on a job board of Monster, or Randstad, a Yacht, a Tempo-Team, wherever they do that.
At the same time, if it's not panning out and those job ads are not generating anything, we can come to them and get follow-up, maybe selection, different ways of approaching people. That is on the client side and on the candidate side. We want to build the biggest talent engine in the world. We're very happy with the fact that we kept on investing. More to come on this one. In our source side business, of course, RPO, perm heavily hit, but the pipeline in our MSP business looks very healthy. Last but not least, Dan and your team, big compliment. RiseSmart doubling in size.
As we speak, a lot of discussions going on with companies on how to face the future and have, if they can't support their people, a new job for people, and therefore RiseSmart is a very important part of our business. That's it for me. Henry, the numbers.
Thanks, Jacques. Good morning, everybody. Also from me, before going to the numbers, let me also share a few reflections first. Let me first start with saying the company could not have been in better shape facing this COVID challenge. Not only are we experiencing the highest level of engagement across the entire Randstad group, we're also benefiting from our deeply rooted value to care for all our stakeholders, be it customers, talents, employees, the communities we are operating in, and of course, for our shareholders. Secondly, building resiliency into the portfolio, be it through geographical concept or industry diversification, shields our company from too much exposure and works like a shock absorber for volatility. Our performance throughout the crisis definitely benefits from our strong portfolio and going forward, we are committed to develop this competitive advantage even further.
Lastly, the work done to introduce further optionality into the cost base in conjunction with the counter cyclical cash flow model injects an invaluable layer of financial security into the equation. Let me now provide some factual evidence of those points and dive into the quarter three results in more detail. Organic revenue growth for Q3 came in at -13%, compared to -25% in quarter two, with momentum further improving throughout the quarter. It does reflect the gradual relaxation of country lockdowns in most of our regions, and in combination with our relentless drive and focus to bring our talents back to work quickly. Gross margin in the period was down 120 basis points year-over-year, broadly in line with our expectations due to significant adverse impacts related to COVID-19 and mix effects.
We delivered another quarter of balanced cost management with Operating Expenses down 12% organically year-over-year. Our recovery ratio of 53% clearly benefited from our ability to get talents back into jobs faster than expected. In addition, throughout the entire COVID period, we were able to fully support investments into our digital journey, as we will also stay the course going forward. In general, we are spending the majority of time supporting the growth agenda, which makes it so much easier to drive productivity as a result of it. EBITDA came in at EUR 199 million, reflecting an EBITDA margin of 3.9%, at momentous improvement from Q2. On the next line, integration and one-off costs were EUR 26 million, significantly lower year-over-year, reminding of the fact that we addressed some structural cost challenges already ahead of COVID-19, clearly benefiting the cost base this year.
Please note that finance costs are zero this quarter, benefiting from favorable currency effects. With that, let me now go to the next page and talk about gross margin in a bit more detail. Here as you can see on the left, the temp margin was down 30 basis points year-over-year, which is an improvement to the 60 basis points dilution seen in Q2. Temp margin was still impacted by COVID-19 related effects like idle time and some adverse mix impacts given the pronounced recovery of our in-house business at lower gross margin. This is purely a technical effect as our in-house business has an above average EBITDA conversion. Please note that we observe a generally stable pricing climate across the board. The 34% decline of our perm business triggers a 60 basis points negative mix effect in gross margin in Q3.
It's broadly the same mix effect we've seen in quarter two. The same goes for the bar on the right, representing HR solutions, showing a 30 basis points negative impact on gross margin in the quarter. This mainly reflects mix effects related to Monster and Sourceright. Our gross margin path going forward remains difficult to predict in the short term, given many moving parts such as top-line developments, term trends, et cetera. With that, let me go to page 15 and talk about OpEx. As you can imagine, the sustained recovery in top-line, albeit still down year-on-year, more than ever requires a balanced approach towards cost management and resource allocation. Sequentially, we reported organic OpEx up EUR 33 million. Still with a very material year-over-year decline of 12%, amounting to more than EUR 100 million of cost reductions sourced across all cost categories.
Cost flexibility introduced through employment protection schemes like short-term working arrangements materially decreased from around EUR 15 million in quarter two to about EUR 15 million in quarter three, and therefore reflects only a minor part of the year-over-year benefit in the OpEx spreads. For quarter four, this is expected to be close to zero. As we mentioned before, we continued our structural approach to drive cost productivity and to utilize the power of One Randstad. Our cost optimization program announced in November last year could not have come at a better time and helped us gain more clarity of what makes the boat faster and what cost might not be crucial to winning 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. As mentioned in my introduction, we seek to stimulate a climate of entrepreneurship within the company where growth initiatives will be fully supported with appropriate investments. With that in mind, let's see how our cash flow and balance sheet is doing on page 16. As far as free cash flow is concerned, quarter three goes into the books as quite an atypical quarter, with some moving parts needing a bit of explanation. The free cash flow of EUR 494 million was supported by full monetization of the outstanding CICE amount of EUR 360 million, partly through regular CICE cash inflow of EUR 95 million related to the subsidies received in 2016 and partly through the sale of the outstanding receivable of EUR 265 million.
The CICE collection more than compensated the impact from lower EBITDA and some additional working capital requirement needed to support the sequential growth experienced in quarter three . Government relief measures had no material impact on free cash flow in quarter three , and debt collection and DSO has strengthened further. Overall, the business delivered another quarter of solid free cash flow, which confirms the resilience of our free cash flow generation through the cycle. As we said before, what started as a health crisis has developed into an economic challenge for many companies out there, and hence 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 move now your attention to the right side of the slide, zooming in on the strength of our balance sheet. Starting with our leverage ratio, it stands at a -0.3x per end of Q3, pre- IFRS 16x, through clear net cash position supported by the monetization of CICE and the utilization of selective use of deferred payment terms regarding Social Security liabilities. Stripping both effects out, our leverage ratio would still show a healthy +0.3x, which directly leads to the question of capital allocation and capital returns. It will not come as a surprise that we looked into the possibility of capital returns already this year. While the financial strength of the company is evident, we felt we had to apply a wider lens than just financials into the decision.
The very unfortunate resurgence of COVID infections is a stark reminder that this crisis is not yet over and is guiding us to fully focus on bringing back as many talents into the employment. Naturally, we will take stock of the overall situation at the announcement of quarter four results in February next year. Please rest assured that a very disciplined approach to capital allocation is an integral part of who we are as leaders of the business. We remain committed to our capital allocation policy and the circumstances of the health crisis and subsequent business environment in that regard is unique. Hence, we can only thank you for your trust, patience, and understanding. That gets me to my last chart, the conclusion and outlook. Stated before, the pace of revenue declines in the beginning of quarter three eased throughout the quarter in most of our markets.
We exited the quarter at a sales decline of 11% year-over-year per working day in September and did observe further positive momentum in the first weeks of October. At the same time, as just stated, we observed also the resurgence of COVID-19 infections and subsequent partly lockdown measures, and hence visibility remains limited. Our golden rule to aim for a 50% recovery ratio will also be applied going forward. For quarter four, we expect a recovery ratio of somewhere between 40%-50%, reflecting more aggressive investments in growth opportunities, largely offset by ongoing agile cost management. Please also be reminded that most furlough schemes will further unwind in quarter four. That concludes our prepared remarks, and we're now happy to take new questions. Back to you, Molly.
Thank you. If you'd like to ask a question, please press star one on your telephone keypad. Please ensure that your line is unmute locally. You'll then be advised when to go ahead with your question. The first question comes from the line of Paul Sullivan calling from Barclays. Please go ahead.
Yeah. Good morning, everyone. Thanks for a very comprehensive overview. Just to follow up, I'd be interested to know what clients are saying to you about the pace of return to work. There was a concern that furlough schemes would distort the recovery, but that doesn't seem to be the case. What are they talking about in terms of the use of flex and temp splits as we head into next year? Then just on the balance sheet, I appreciate the timing is a challenge. In terms of the bigger picture, do you still see 1x net debt to EBITDA, the appropriate level of gearing for the company, or does the crisis suggest that you should run the balance sheet slightly more conservatively, going forward? Thank you.
Good morning, Paul. I'll take the client one, and of course, Henry does the finance one. No surprises there. Well, my predecessor always said, "If you don't listen to your clients, you go bankrupt. And if you listen to your clients, you go bankrupt, too." Of course, for them, visibility is also limited. What we did is throughout the crisis, constantly kept in contact with them to, "How are you seeing the business? Do you need to take people out? We're there for you." At the same time, we also see sickness increasing sometimes at the client level, which of course, they need people from us. I'm absolutely sure, as I mentioned in my prepared remarks, that after this crisis, in many markets, we'll see contingent as a percentage, become a bigger part, certainly for the beginning of getting out of this crisis.
That's why we are so frequently in contact with all of our clients, and this is very much part of our neww ays program. Optimistic there.
Yeah. Thanks for your question regarding the balance sheet, Paul. Yeah, look, let me first say, of course, we will first focus on delivering another hopefully strong quarter in quarter four. Visibility is limited still. When we take stock after the year is finished, there is no automatic one-time leverage to be assumed. We will take stock of the situation we are in, where the markets are in, take the right decision serving all our stakeholders at the time.
Okay. Thank you very much.
The next question comes from the line of Sylvia Barker calling from JPMorgan. Please go ahead.
Thank you. Hi, good morning. Three questions, please. Firstly, I was hoping you can talk about how you set your recovery ratio guidance, and why, I guess, it was a lot better across all regions at least versus where we were and versus the overall group guidance. Had you assumed kind of a different operating leverage dynamic across the board? Was there any particular one-off? For example, Manpower talked about kind of a one-off benefit from outplacement, some across in France. Just trying to understand, especially given the guidance is, again, a little bit lower for Q4 versus Q3. Secondly, I'm interested to hear your experiences from countries under partial lockdown.
It doesn't seem like the partial lockdowns in France or the impact that we're seeing on leisure is necessarily having any impact on the temp market, but what about the Netherlands and how do you think about that going forward? Then finally, a bit more structurally, maybe for this cycle, it seems like there's quite a lot of sector migration. We're seeing structural declines in some sectors like autos or airspace, but then you're growing a lot in logistics. I guess, how easy is it for you to support that shift without putting extra costs in? Do you think that we might end up with a end market mix that might be faster growth, higher temp penetration, or is that too optimistic? Thank you.
I start with the first one. Thanks for the question, Sylvia, around recovery ratios. There's clearly the pace of the recovery has probably been better than what we all thought at the end of quarter two. It's a theme here. After the deepest point in April, there's pretty much a straight line week by week by week. We've also been vocal about it, that our exit rate was better than quarter three in the first weeks of October were very promising also. Whilst that is very hard to predict where that is going, that is by far the biggest impact on the recovery ratio. In addition to that, there is no one-offs. Actually, I would call our results with a very high quality, in terms of provisioning, et cetera. It's all rock solid. Yeah, we are a very commercial organization.
Our people across our teams across the globe, they look at top line and bottom line. While we are still investing, we probably are very aggressively focusing on the top line, on the front office investment and are very careful in how we spend our money in the not growth supporting areas. That has led to that good recovery ratio.
Yeah. One more word on the recovery ratio. For us, this is not carved in stone. We say 40% to 50% and if we can do 40% by investing in the right stuff, we'll do 40%. This is not the predominant KPI we would like to excel at. Certainly, in our newways program, we are investing. We are, in a way, bringing more people back than a pure recovery ratio focus would imply, and sell more and see if we can take more market share. On the partial lockdowns, what we're saying, and that's also what governments are saying in a way, is go to work, go home, and read a book or watch some Netflix. It is a social lockdown because a country like this, in Italy, people are quite disciplined. In Spain, France, and also Netherlands, less so.
Let's hope that we can continue to keep working because that's the most important thing for anybody. Then, yeah, you're less socially active for a month or so, and then the virus is out. Same thing goes for testing. Testing, testing, and testing, and maybe some testing. The infrastructures in all the countries you mentioned, also Netherlands, France, need to be beefed up massively. We're quite, by the way, active in that discussion, and we think it can be activated and improved and grown in such a way that you have same-day testing for everybody. We can't have school professors being home for four days because they're waiting for a test or people working at the police in essential services. We don't think it's necessary. We're advocating a very active public-private partnership to beef this up.
The shifting towards different sectors, fish where the fish are, for us, doesn't come at cost. We just pivot people to where they are. We're pivoting people sometimes from regular staffing profiles into the RiseSmart business to work on career counseling and outplacement. We're pivoting people towards healthcare to select testers throughout the country. Our people are pretty multi-skilled, and that works for us now. It comes at no cost.
Okay, thank you. In general, I guess the sectors in which you're growing now, would you say that they are, I don't know, less cost-focused as clients or do they use more temps or is it quite comparable? Just thinking about year one, year two, year three of the recovery, whether that is material in any way.
Yeah. As said, we've always observed a higher penetration rate after the crisis. We see a lot of upside in markets like Italy, Spain, probably even France. The world in general is moving towards way more flexible work, contingent work. I think we need social innovation also to facilitate that so that everybody, when they're at work, either in a fixed job or in a contingent job, they can take care of themselves. Again, lots of opportunities for us as a sector.
Thank you very much.
The next question comes from the line of Matthew Lloyd calling from HSBC. Please go ahead.
Good morning, gentlemen. Sorry. Don't worry, that's not a COVID cough, it's just a cough.
A cough is something different nowadays.
Exactly. The cough has become the most socially awkward moment.
Oh my God. Yeah.
A couple of quick questions. One, just to follow up on one of Sylvia's questions, have you changed your assumption on bad debt accrual during the year? Has that had any effect on sort of operating profitability? Secondly, could you hazard a guess at how much of the temp demand is directly sort of COVID-related? Are you putting people into shops and factories who are actually putting up sanitization stalls and things like that? Thirdly, my sort of hobby horse, how do you think work from home changes the labor market and what you do? Some of your competitors, most notably probably Robert Half, think that in the higher end white collar market, it might release quite a lot of candidates for jobs that they wouldn't have been prepared to travel to before.
If they only need to be there a couple of days a week, then maybe you get a sort of more churn in the labor market. Labor market churn figures have been unusually high for a recession.
Let me start with the first one quickly. No, we have not changed any policies. Actually, quite to the contrary, we've put much more focus on that area. We thought before COVID we were very focused. Now actually, we fill in the kitchen sink at debt collection, and actually we are making very good progress there. There is not a single sign of bad debt we've experienced. No change at all. Much more operational focus and that's clearly paying back.
Yeah. How much is COVID-related? It's not material in our numbers, but yeah, of course, it is an issue. As you know, in Q2, we started this alliance, Safely Back to Work, in 26 markets advising clients and governments what to do on Safety Back to Work. That, of course, generated demand for testers and cleaners and that sort of thing. As I mentioned, we're very active in the testing environment in quite a few countries. In the U.S., we actually provide people with work from home facilities. That brings me to the next question. For us, this is not new. It's just a speed up of a development we saw before. We think that many processes around work will be digitized 60%, 70% of job content for people will change. It's just going faster.
As an employer, you really need to facilitate the shift and absolutely, if you work from home for one company, the shift to another company is definitely easier than in the physical world. Also how you run a business, how you engage people. We mentioned the fact that we did an online event for our 35,000 people with, by the way, continuation throughout the rest of the year. That is stuff you need to do. How you motivate people who are working from home that you basically don't see a lot. Is it a USP for you? Many people will want to continue to work from home in some shape or form. Yeah, it's going to definitely change the labor market, but for us, not unsurprisingly.
Just a quick follow-up question. If I was a client and I phoned one of your offices for an IT person, how easy is it for your staff to suggest that there is actually somebody in a different city who would be a perfect candidate but would want to work from home? How ready are they for the acceleration that we may see in people wanting hybrid working? Could they offer me a candidate quickly?
Yeah. Well, phoning for a candidate is a very old profession there, Matthew, but anyway, I'll give you that. First question we would say is, do you want a candidate? Yeah, sorry. Do you really want a candidate? If you want a candidate, do you want to hire them? Do you want them permanent, contingent? Should we put the job on one of our platforms so that someone will perform it for you somewhere remote? Lots of possibilities. Of course, the answer to a question of a client is always yes. That's how we train people.
Thank you. For the job about my age.
I don't know your age. I'm just reacting on what you're saying.
You know how long I've been covering the company. You could probably guess, but don't worry. It's not new to me. I'm aware of it, so don't worry.
Yeah, I know. Welcome in my world. I'm 60 years. I was just invited for my mandatory flu shot because I'm very vulnerable, apparently. Live and learn.
I will. Thank you.
Good.
The next question comes from the line of Marc Zwartsenburg calling from ING. Please go ahead.
Yeah, good morning. Thank you for taking my questions and congrats on the quarter and of course on the 60th anniversary. My first question is, Jacques, you talked about client feedback a bit earlier on one of the questions, but if I then compare what I saw yesterday from Manpower, what I see today from you guys is a bit of contrast in terms of trends in the last couple of weeks. The key question then is it just market share wins or are they seeing a different sort of economy? The key question then remains, is it the economy really continuing to show that momentum or is it just you doing better than competition? That's my first question.
Of course, it's the latter, Marc.
No.
No. It's what I explained earlier in the call. Again, in 2009 everything was down. There was no financing, there was no consumer confidence, that sort of thing. That is 2009 compared to now. At the same time, there's a big difference between Q2 and Q3 and that's the value chain. Of course, I cannot vouch for what Manpower, how Manpower looks into the world. You should check with them. We see in October that every week in employees working is better than the week before and October as a whole is shaping up to be better than September. Ideally it's also market share. Certainly you notice our in-house business is a little over 20% of our business.
If that starts to shape up again and with 50 new clients for example in the U.S., but also quite a few in France for example, yeah, we're doing relatively well in tough environments. That's all I can say.
Okay. A question to come back on the capital return, Henry. You mentioned in your statements to remain committed to the capital return policy. At the same time, you also made an adjustment to the leverage ratio. Should we also in terms of thinking about the leverage ratio adjust for the CICE sold receivable of EUR 265 million? Should we strip that out and then return back to your capital return policy or how should we be thinking about this?
Not necessarily. Let me talk about dividend really more after we have the full year numbers then look into the business environment and make decisions of what is best at that point in time. Our capital allocation policy we've looked into that naturally again provides the right flexibility to give attractive returns and at the same time also keep enough capital allocation for supporting growth in the business. Let us put in another good quarter hopefully and then we come back on that question in all detail in February.
Okay. Maybe then following up on the selling of that CICE subsidy, what is the rationale behind selling it? If your balance sheet is so strong, what is then the key reason? You're also quite disciplined and always quite cautious about the M&A part of things. What is really driving that sale of that subsidy?
We need to go back to April when the business environment was very dire. We had a - 30% decline at that time. You didn't know where the thing is going and then you put a decision in motion and that's turned out to be at very attractive terms for us. I much rather have the cash in the bank, then a receivable on the balance sheet without any material costs at all. Therefore, no harm done. It will not disappear. It just gives us very good financial flexibility now.
Okay. The last one, I think yesterday, Manpower alluded also to tax rate changes potentially of France and the impact on the group. Is there something you can guide for Randstad as a group on the tax rate for next year?
Yeah. We had a very intense discussion internally. We feel we are better served to wait until the moving parts are settling down a little bit. Quite often you see tax benefits being announced and then somewhere in the overall it's probably not the entire material benefit coming through. Give us a bit of time. We will stay very close to it and as always, our IR department will also keep you posted what we see. In general, we also expect a positive momentum, but we don't want to guide on numbers yet.
Okay. All right. Well, thank you very much. That's it.
The next question comes from the line of Hans Pluijgers calling from Kepler Cheuvreux. Please go ahead.
Yes. Good morning, gentlemen. First question on KPIs. Of course, you indicated already that, let's say into October, the first weeks looking better, stronger than September on volumes. Could you a little bit maybe discuss on some KPIs and especially on new vacancies coming in. Is that also continue to improve? Secondly, looking at efficiency, then again, looking at your KPIs, for example, at fill rates, how do you see that developing? See you, let's say with the whole digital process there, your efficiency, especially your fill rates are improving. Could you elaborate on that and how do you see that developing going forward? Secondly, on the cost, if you make a quick calculation, and maybe I'm wrong, but you indicate a EUR 33 million sequential increase in your cost, in Q3. The impact of the furlough measures is about EUR 32 million reduction.
That means in principle, underlying costs are relatively stable. I can imagine that you're investing a little bit more. Can you give a little bit feeling on the other building blocks and maybe give some numbers there on how much more you invest and at the same time, where you do some additional cost savings, and especially also into Q4, what kind of amounts do you believe, let's say you will invest more in additional supporting growth?
I'll take the first two, Hans. If our employees working are improving, that means that we had more vacancies in, and we were also able to fill them. Fill rates in this point in time are slightly easier. Again, depending on where you are, by the way. That's a very general statement in a business in 38 countries with eight business lines. Fill rates in general, short term, it's a little bit easier compared to last year, this time, of course, where we were very low unemployment elsewhere. At the same time, we do see the underlying scarcity already coming in, hence our advocacy for massive reskilling of people, getting them out of certain sectors which are still hurt and they are in a government support scheme towards sectors where there's a demand with the training to boot.
Again, fill rates, okay-ish, vacancies, of course, improving, therefore, more people at work.
Yeah. Hi, Hans, good morning. I don't want to go into too much detail on each of the OpEx lines. What we really see after now six months COVID, that we have many levers we can pull on cost flexibility. The same we are doing now going forward. We absolutely committed to growth in the business. Whatever is needed to bring people back into the jobs, we will support with the right people. We look at two things. One is, are we still underutilized in our capacity? That's being used first, we also have pockets where we adding back people to really drive growth. That's all what we're all about. When we get that right, it's very easy, it feels to get the productivity levels right and the recovery ratios.
Don't push me into the very detail of each of the OpEx lines, but that's what we do, and we feel we have lots of flexibility in there.
What I mentioned, Hans, is our U.S. IT business. Very profitable business. Still a low market share. The business is doing well. It's a well-run business. We're hiring people. We're opening up new geographies because we do feel the momentum is there, whereas in many other businesses, we're still bringing back people that were on furlough. We take these measures where we see opportunities.
The next question comes from the line of Rory McKenzie calling from UBS. Please go ahead.
Morning, all. It's Rory here. Just two, please. More structurally on the cost base, you've talked about the change in the world of work and how it affects clients. How are you thinking about your own business? Could we see accelerated branch closures as you shift more to an online or virtual model? How would that affect your profitability? Secondly, in your remarks, you referenced a few areas where you were seeing good in-house contract wins. What's driving that? Is that a wider behavioral change we're seeing? Sort of a pipeline for further in-house wins, please.
Yeah. Good morning. Yeah, well, again, for us, COVID doesn't change what we have, our vision on the labor market and on client behavior, that sort of thing. Branch closures or the changing role of a branch, that is very much a discussion that we're having. Interesting is that from a candidate point of view, a branch has become less and less important over the years. From a client point of view, certainly in the SME space, being locally present is very important. You do see the physical presence of our branch, not in a high street, but maybe in a white collar industry park change. You also see that in major cities, instead of having 20 or 30 branches in Paris, we probably now have 10 branches. There are things going on. From a P&L point of view, that's not going to change today massively.
Yeah, in-house is the gift that keeps on giving. It's a very strong sector for us. It's very tough for competition to sort of imitate this sector. We also implemented workforce scheduling. Enhancing this offering digitally and clients pick up on that. This is very basic selling, going out, presenting the concept. Clients like it and they buy it.
Okay. Thank you. To those two points, does that change the competitive benefit from scale, I guess? I know it's been a challenging decade maybe to compete with small local staffing firms. Do you think that over the next kind of multi-year cycle, we'll start to see more notable gains for the larger staffing agencies?
Yes. We were quite vocal on that, and there's two things driving that. The first one is large clients, either local or global, want to work with less suppliers. Hence we created our Enterprise Group, aiming directly at some 160, 170 large multinationals, where we increasingly see they want someone to handle all their workforce globally, supported by the right tech. That's one. The second one is what I call the biggest talent engine of all. Within one or two years, again, scarcity will be back. Small companies, just looking for active job seekers and providing them to clients can't cope with a company like ours with more than 200 million profiles that we can, through technology, reach out to proactively to see if they are interested in a job change and/or reskill people towards different jobs.
We do think this will drive further consolidation of a market which is still fragmented there. We have a little over 6% market share. We would be happy with 10% in a few years.
Okay, sure. Thank you.
The final question comes from the line of Konrad Zomer calling from ABN AMRO. Please go ahead.
Hi, good morning. Congratulations on the anniversary and the quarter. Keep fishing where the fish are. Marc has already asked the questions I had in mind. No further questions from me. Thanks.
Thanks for the wishes, Konrad.
Thank you, Konrad.
We have no further questions coming through on today's call, so I'd like to hand the call back over to your host for any closing remarks. Thank you.
Yeah, thank you, Molly. It's been a pleasure to talk to you this morning. Well, normally I would say see you on the road, but we'll probably see you on the virtual road to discuss further how we are doing as a company. Bye-bye.
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