Hello, and welcome to Randstad First Quarter 2020 results. My name is Jose, and I will be your coordinator for today's event. Please note this conference is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Jacques van den Broek, CEO, to begin today's conference. Thank you.
Yes, good morning, everybody. Good to talk to you in these, let's call them interesting times. As many of you know, I'm all my life in this industry, lived through 2009, but this is a different one. Let's talk you through it. Henry is probably also somewhere, but of course, at home. He's going to be presenting also, as usual, after me. Then David and Steven are also on the call, so to say. Just a few weeks ago, we shared with you our first thoughts on the impact of COVID-19 on our employees, candidates, and clients. Situations have been changing by day since then. Today, we're here to share with you our thoughts on the Q1 results, but even more to share an update on COVID-19 from our perspective.
Given the unprecedented situation, as any else, Randstad's first priority is the health and safety of our employees, our candidates, clients, and other stakeholders. I'm going to come back on that one, by the way, in a minute. I would also like to take this opportunity to thank my Randstad colleagues for their incredible commitment and dedication with which they are responding to these difficult times. I once heard someone say that, in times of crisis, you get to know the real character of the company, and I'm very happy to be responsible with the executive board for this company and these people. As we speak, all our colleagues around the world are in remote daily contact with their clients and candidates, with full access to their database, underpinning our state-of-the-art digital infrastructure.
As you know, we pivoted last year towards all our infrastructure online, and that has worked very well for us. Very happy to be fully operational with more than 37,000 people as global market leader. Talking about health and safety, we, last week, announced the Safely Back to Work in the New Normal Alliance. What is this all about? What you see, of course, in a crisis like this is first you go down. You are in sort of a trough, and then you need to get out of it. How do you get out? We, together with McKinsey, I reached out to Adecco and Manpower to say, "What can we do to help societies get back to work?" As a sector, we have always worked on health and safety procedures in life sciences, in manufacturing, in transport and logistics.
For us, it's always about analyzing workspaces, providing protective material, checking on procedures, training people. That's nothing new. That's first and foremost what needs to happen. What we are doing, and we launched a position paper on that, which is on our website if you want to check it out, is we call upon governments, employees, employers, trade unions to create an alliance per country together with us to get people back safely to work. We're doing this in 12 countries, aiming at five sectors. That's working well for us. There's a lot of interest from this. What do we bring to the table? We bring to the table experience from other markets such as Taiwan, Asia, of course, where the crisis hit first. Also cross-sector.
We created a global grid where all these safety protocols can sort of be created, and nobody needs to reinvent the wheel. In a phase II where governments open up the economy, then as an industry, because it's not just the top three, we want this to be an industry thing per country. We can all go out and, together with our clients, implement this new normal in health and safety.
I'm very happy that we are, as an industry, part of the solution. Back to the first quarter. Initially, nothing wrong with developing in line with our expectation, with organic revenues, as we share with you, a -3% to -4% until the first half of March. Things changed very rapidly. It has driven an unprecedented deceleration in business activity. When we talk about how deep, well, we get a feeling for how deep.
Comparing it to 2009, we went very quickly down from -6% in December 2008, -9% January, to below -30% in March, with countries like Spain and Italy being hit with more than 50% negative revenue. We've seen this before, and a lot of our management has lived through this before. It stabilized throughout 2009, which was still a tough year with 27% - top line.
We get a feeling for how deep. We don't know how long, but definitely the project I just mentioned, we hope to help everybody get back to work sooner. A big difference, of course, there was also, and Henry will allude to it again, our balance sheet, totally different than 2009, but also government support schemes, of which we're also going to talk a little bit later. We do see the trend last two weeks of March, - 30%.
We do see the trend continuing into the first weeks of April, with an increasing number of key geographies in partial or full lockdown. as said in our headline, we do expect, as a result, Q2 to be more challenging with very limited visibility, because of course, it totally hinges on the amount of openness that a government will allow, which are tough choices. We totally recognize that. at the same time, it's not just that. It is also when everything is open and you have supply of services, of products, it remains to be seen what the demand will then be. please remember that we went into this, certainly in Europe already, with an economy that was slowing down. You remember Germany being quite tough for us already for 1.5 years.
Netherlands and Belgium, who entered this crisis with negative staffing markets as an indication of economic development. That is still the big question out there. Let me take you to some comments on individual countries and regions. North America in Q1 was not hit. As you can see, pretty much low negative growth. In Q1, no signs of deceleration. What we see now in the U.S. certainly, in the last few weeks, it is also going down. U.S. is a very mixed picture, very much a state-per-state thing. We heard yesterday that, for example, the state of Georgia, which is an important one for us because our head office is in Atlanta, we started our business in that region years ago, is opening up again.
It's going to be interesting to see, first of all, what that means for the health situation, and second of all, for the business situation. Too soon to tell. What is good about our U.S. business is half of our business is professionals business, so it's in IT. We see more of a deceleration in staffing businesses. Certainly perm, of course, way more. Yeah, in that sense, our North American business from a negative revenue point of view is better than Europe. Canada also locked down in Ontario and Quebec. Canada, still we don't know if we are eligible for government support. I'm going to talk about government support later, but it's very much a moving target with, for many countries, a new type of regulation that still needs to pan out and be clear in all the details.
On our French business, let me start with sharing my happiness about the fact that Frank Ribuot has moved from our Southeast Asian-Australian business to running our French business and also responsible for our Ausy statement of work business in France. I've worked directly with Frank for the last five years. Frank started his career many years ago in France, but has been in Asia, Southeast Asia for a long time, done very well for us.
I'm very happy that he is in France, but he started his business from home. He started running the business from home. That's a strange start, but happy that Frank is there to pick up our performance because our French business continued to perform very well again until mid-March, subsequently faced with almost complete standstill with a very strict lockdown. Next to the level of lockdowns in countries, we also see reactions.
as you know, in France, unions are very strong. They immediately took the choice to protect their people, which of course, is theirs to take. That meant that many businesses were closed very quickly in France, and therefore, that market is one of the worst hit. We shared with you when we talked about the postponement of the dividend a few weeks ago, about the data point we had from the Prism at - 70. It's not as bad for us. It's 50%, funny to say, but 50% down the second half of March, so not as bad. Yeah, still tough, of course.
Back on that thing with the unions, it does mean that, again, in going back to work in the project I mentioned, it's very important to involve the unions from the start so that they are part of the solution because they have an interest for their members. Our professionals business decelerated, of course, as well in France, but it was still growing and outpacing the market.
We have a big medical business also in there, and you can imagine that that is unfortunately in a way, but from a business point of view, good, doing relatively well. Our profitability was impacted adversely because it happened very quickly, and it's also tough to adjust cost, personnel costs, certainly in France. Our Dutch business, yeah, seems like a long time ago that we talked about the WAB law. Yeah, that also happened, and then COVID-19.
In general, there's still weakness in the industrial-related sectors. Professionals, Yacht, again, slightly down in revenue. Remarkable performance. We do think they are above market, so very happy with our performance at Yacht. In the Netherlands, we've been able to support our temps through the government scheme NOW until the end of May. For us, that fits perfectly into the values of our company. Employee protection is the highest priority for us. We're very happy that the government allows us to do this. They get paid 90% and the remaining 10% we pay. Very happy to do that. Despite the significant top-line impact, we managed to keep our EBITDA almost stable. We had strict cost control. We mentioned already, I remember that the initial call it margin, we kept really well in the change towards WAB. That has helped us.
we have a slight early days impact of this support scheme, NOW. yeah, very grateful again for the government support in many markets. Why? We want to, of course, have as many people continue to work with us. It's very much about protecting people's jobs and, in that sense, so far so good. Germany, 16%. Yeah. Well, Germany, we've seen, almost a perfect storm for 1.5 years now. It does mean that, of course, for our management, they're used to this. For them, it was less of a drop from a cliff. Again, we want to compliment also the German government on its prompt action to support business activity. For staffers, Kurzarbeit has been made available. As you know, we already had Kurzarbeit, so that system has easy access, making it possible again to protect employability in Germany.
However, German business, Swedish business, everybody is on our payroll, so in these circumstances, idle time and sickness eat into our margin. Our Belgium business, again, a very stable performer, but also revenue in the second half of March going down quickly. Part of Belgium also has a bit of a sentiment like France with unions going very quickly into lockdown.
We did see in some sectors quite a steep decline. We have a very diverse portfolio in Belgium. For example, we have mostly ladies, people that clean in private homes. Yeah, that was not possible, again, due to the protection for health reasons. We have several thousand people working in that business. That was a business that we had to immediately close here. Our management experience has taken direct measures in order to protect the profitability and recovery ratio .
Italy. Let me spend some time on Italy, because Italy in Europe was the first hit. It went from China, Singapore, and then all of a sudden, we heard about Northern Italy. We basically see Italy as a blueprint for the future trends in other countries. We have steering groups. All the OpCo leaders on the Asian business, in the European business, and in the U.S. business. We do see that the cycle of the virus and the cycle of lockdowns is quite similar. We share all those experiences internally. How do you keep a company working motivated eight to nine weeks from home? How do you manage your people there? That is an acquired taste, that is new. We learn very much from each other. Italy has been here, the bellwether for our European business.
It has been in complete lockdown since March 9, and again, this goes for all our management, but I do also want to talk here about our outstanding management team, how they weather the storm. They're motivated. They keep on running their business. Our EBITDA margin, however, was significantly impacted. Of course, an instant decline, high decline in revenues, higher sickness, and a complete standstill, but that goes for many markets, as you can imagine, in PERM.
Iberia, Spain, Portugal. Again, Spain, after Italy, but very, very hard hit. Of course, in many business we've had people who were sick ourselves, relatives who were sick, even deceased relatives. It is tough to manage a business amidst all this. Also, we were still growing in Spain. In the midst of March, we went from growth to double-digit decline, again, in two weeks. Never seen it.
Revenue is down by a modest 3%, but again, going into Q2, we will see the decline. Overall, profitability well under control. There will be government aid in Spain, but, the details of this, similar to Canada, for example, are still to be seen in Q2. Rest of Europe, not too much to tell. Of course, PERM in the U.K. being hit. We also have a big education business in the U.K. Schools closed, people at home. Again, in Sweden, similar to Germany, idle time hits us. The rest of the world, yeah, still in good shape. Our Japanese business still growing. Also, Australia, still growing into Q1. China is getting out of lockdown, as we speak. Yeah, where's the market? Very much my supply-demand thing.
People need to consume, and then China, of course, relies on the growth of predominantly Europe and to a lesser extent, U.S. That remains to be seen. Our global businesses, not so much going into the details, but our global businesses have really served us well. Why? What we've built out of our global businesses is a website that is called Help in Challenging Times for our clients. We enable our clients to do everything remote. We have offerings such as how do you manage an online workforce, still recruiting webinars, video interviewing. We made all of that available for our clients. Monster does free job posting for healthcare professionals. Very happy with that part of our business. Of course, Monster, being down, lack of hiring.
They go with PERM, so to say. Our SourceRight business down, but at the same time, good profitability in Q1 and a great pipeline in clients. Although, of course, being halted at the moment given the economic situation due to the virus. Let me end with a bit of color on government support schemes, lockdowns, and that sort of thing. As I said, North America, relatively late in the curve. Huge differences per state.
We call it a selective lockdown. Of course, California and New York, those surrounding states, very heavy hit. Georgia opening remains to be seen what that will mean. Reopening America, it is a plan. Again, time will tell if they strike the right balance between health and the economy, which I'm very aware is tough to do. France. France has a system, economic unemployment, that is pretty straightforward.
Again, we see less of a decline than the early signs we share with you in the Prism, but still a huge decline. The government support schemes are in place. Mentioned the Netherlands. Again, very happy. Also, we think that there's a lot of debate in society about flexible work, but it's about fixed work and well-regulated work. We think that the people we take care of will be better taken care of than gig workers or platform workers. It's going to be interesting after this is all over to start a debate on what that means for the labor market as a whole. Germany, again, we know the system, easily accessible. Belgium, very much like the French model, although there is support for flex workers. A bit independent of us.
They are to a certain extent being taken care of, so very happy with that one. Italy has something that is called the Cassa Integrazione, which is also a support up to 50% of wages, and the rest is for us. It's into our profits, but happy to do that because, again, we want to keep as many people employed with Randstad as we can. Spain, significantly impacted, similar lockdowns. Still, the government support system's unclear in the details, but we expect to have more clarity on that one. On that note, as an overview, to you, Henry.
Thanks, Jacques. Before jumping into the numbers, let me also share some thoughts from my side. Going into this global health crisis, our company could not have been in a better shape, and I've seen excellent spirit amongst our colleagues to weather the storm and adding another chapter to the success story of Randstad. Now, our deeply rooted value to care for our customers, talents, and employees, especially in times like these, is an invaluable guide for all our employees and will serve our shareholders well in the short and the long term. Given the unprecedented circumstances, we will provide you with more detail than normal, as we know that it's far from easy at the moment to read the market.
In the coming slides, in addition to covering quarter one numbers, I will spend a bit more time on how we steer our OpEx position, including impact of governmental schemes, and provide reassurance on our liquidity and solvency position. Let me now dive into the quarter one results in more detail. As mentioned by Jacques, our performance was in line with our expectations until mid-March, and then COVID-19 kicked in. Reported revenue growth for quarter one was -7.4, but only three to four minus down until mid-March. In line with our January communicated growth rate. Suddenly in the second half of March, our group revenues declined by about 30%. Gross margin in the period was down 30 basis points year-over-year due to significant adverse impacts related to COVID-19. I will get back to you on this on the next page.
Our OpEx came in at EUR 890 million, so 2% down organically year-over-year and ahead of our initial guidance after quarter four results. This already reflects first cost measures taken. However, the rapid decline in the second half of March made it tough to drive for deep adjustments. EBITDA margin came in at 3%, down 100 basis points year-over-year, reflecting the rapid deterioration of our gross profits in the second half of March.
On the next line, integration and one-off cost of EUR 22 million. This relates to pre-corona planned restructurings in various countries and some software write-downs. Amortization expenses were EUR 59 million, which is EUR 29 million higher than last year, reflecting the accelerated amortization of related intangibles with respect to Monster. Net finance cost in quarter one came in at EUR 15 million. A net increase of EUR 8 million, mainly reflecting currency differences and cash balances.
With that, it's probably time to talk more about gross margin. I'm now on page 15. As you can see on the left, the temp margin was stable year-over-year, following positive 40 basis points in quarter four. Like the revenue trend, our temp margin developed in line with our expectations until mid-March. COVID-19 had quite a significant adverse impact on our temp margin, amongst others, due to a significant increase in sickness in several countries, idle time, and agreements with clients to jointly protect employment.
We feel that our underlying temp margin was up year-over-year. The bar in the middle shows a decline of 10 basis points as perm fell by 10% in quarter one. The bar on the right represents HR solutions, which shows a - 20 basis point effect on the gross margin, mainly reflecting mixed effects of Monster. To watch out for periods to come definitely is the impact of sickness and idle time on our gross margin. With that, let's go to the OpEx bridge on page 16. The rapid decline of revenue in the second half of March made quarter one a very challenging quarter with respect to OpEx steering.
Sequentially, we reported OpEx down by EUR 18 million, a year-over-year decline of 2%. As you would've expected, we took instant cost measures, stopping all non-essential spending, instigating an all-out travel ban and hiring freeze, and also suspended executive bonuses over 2020. Overall, it was very good to see how the company came together, virtually of course, to face the fast-changing new reality of the market without hesitation, knowing what needs to be done to protect the company while serving our customers and talents in these testing times.
As quarter two will be the real test for agility of the cost base, we are confident we have the right answers to the challenges thrown at us. In that context, our cost optimization program, activated already in quarter one, could not have come at a better time. As stated during the analyst day in early December in London, the program is addressing our total cost base of EUR 3.6 billion and looking for ways to further unlock the power of One Randstad.
The context of the corona-related market decline has increased the need for accelerated results, helping to address the cost base already in quarter two. As we speak, we have already activated an enterprise-wide cross-functional team executing a wide range of savings opportunities, touching the cost base in a very significant way. The activity is spread across all businesses and line items.
They include appropriate field steering measures, procurement benefits, and the elimination of all non-essential spend. The program is structured by cost categories and involves senior management, supported by expert teams across the company. We will balance the short term with the long term, seek to protect employment, also with the use of governmental schemes, and safeguard profitability levels adequate to steer the business in a healthy fashion through the next period. As mentioned already by Jacques, we are on top of various furlough and other government schemes in all regions across our enterprise. With that, let me talk a bit more about the governmental support on page 17.
As far as those governmental support schemes are concerned, Jacques has mainly already walked you through the main markets, but I'm sure you will appreciate that it's quite a developing story, and we want to provide a guideline as we expect OpEx to relieve by some EUR 50 million in quarter two. Please take this sum as a rough estimate, as many schemes are still in development, shutdown scenarios impacting calculations can change quickly and benefits showing up in many different ways. Some parts of governmental schemes will have a positive impact on liquidity as they provide scope for adjusted payment schedules for taxes, VAT, and social security, just to name a few.
We are very grateful for those governmental programs and conscious about the high moral obligation it carries to ensure it is used exclusively to protect employment, which otherwise would have been in danger to be lost. With that, to the balance sheet. Also, more important maybe than normal. On page 18, this quarter, we specifically shed some light on liquidity and solvency, while providing more color on underlying fundamentals of our financing structure. For zooming in, let me share some comments on quarter one free cash flow, which was quite comparable to last year. While EBITDA was significantly lower year-over-year, we benefited favorably from positive working capital movements. The development of our receivables in the slowing growth environment provides a very significant liquidity protection, evidenced already in quarter one.
Cash tax payments were higher than what would have normally appropriate for the adjusted profitability level, and this effect will reverse in quarter two. The last bullet on the left shows day sales outstanding, which was down 0.8 days versus last year and the quarter four 2019 on a 12-month moving average, mainly driven by mixed effects. As first signs of changing payment patterns start to appear, we're further tightening our governance around credit risk management and deployed additional resources to support the cash collection process. Given the unprecedented circumstances, we feel it's important to provide reassurance with regards to solvability and liquidity of our business. Starting with our solvency position, our leverage ratio stands at 0.7 for end of quarter one, pre IFRS 16, which excludes our CICE receivable of EUR 389 million.
Furthermore, as already communicated, the cash dividend proposal has been withdrawn as a precautionary measure to help keeping the balance sheet in as strong as possible shape. Secondly, our liquidity position is in good shape also. Our cash position amounted to EUR 587 million by end quarter one, which is also a function of drawing EUR 550 million from our revolving credit facility.
As such, EUR 1.3 billion of our RCF of EUR 1.85 billion is undrawn at this stage. Part of our total debt, a portion of the EUR 474 million matures in 2020 and will hence be refinanced at the end of this year. We also look into options to liquidate our CICE receivable to further support our financing arrangements. Overall, our strong balance sheet provides loads of confidence to the business to weather this storm in a healthy way. My last slide, number 19.
This summary slide also looks a bit different than normal, reflecting the unprecedented market environment we are operating in. As stated, visibility in revenue trends is very limited. However, we do see a direct link between our top-line development and the intensity of the lockdown by geography. In the chart on the left, we highlight the simplified overview of the lockdown for our key geographies and the latest status. Although, as we all have witnessed during recent weeks, the status can change quickly. Some countries recently communicated to gradually lift some restrictions, while others are challenged with new waves of infections, which might lead to a tightening of restrictions. As far as quarter two outlook is concerned, lockdowns have intensified into the first week of April compared to the second half of March.
Our golden rule to aim for 50% recovery in downward cycles has served us well in the past and will also be applied in current circumstances. Given the depth of revenue decline in some geographies, the recovery ratio to be achieved in quarter two expected to be somewhere between 30% and 40%, already including the application of employment protection schemes.
As the management team, we want to steer the company through the global health crisis in the most responsible way, always being part of the solution. Be it helping our customers to return to work safely or supporting displaced talent, finding rapid ways back to employment. It sits in the very core of what brought us to be the leader in our industry, and what gives us the energy to come through this period in an even stronger fashion. that concludes our prepared remarks. We are now happy to take your questions. Operator?
Thank you. If you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. You will be advised when to ask your question. The first question comes from Anvesh Agrawal from Morgan Stanley. Please go ahead.
Hi. Good morning, everyone, and thanks a lot for the updated comments today. I just got two couple of structural questions clearly looking beyond the near-term numbers. First, with work from home accelerating and 75% of your cost base is employee related, do you see that as an opportunity in the long term where you can shift some of the consultants to working from home permanently and thereby kind of get some cost savings out of it?
Then also from an industry perspective, does this mean some of the delivery models like freelancing and statement of work can really accelerate? The second question is around in terms of your exposures to the sectors like retail, airports, and hotel, which probably will be under pressure for a longer bit of time. What are the new sectors that you think that will emerge after this crisis that can offset some of that pressure we will see in those traditional sectors?
Yes. Good morning. Yeah. You talk about a very interesting topic, and that is the new way of working. Not just for us, but also for society as a whole. We do see, for example, governments moving very quickly to online signing. In our business, there's a lot of paperwork still, and that is being very quickly removed, which we know also helps us, in general. Yeah, we're working from home. Works very well. Henry didn't say it, but I don't know if he's proud or ashamed, but anyway, we had the quickest close of the quarter ever, fully online. That means something, of course. We're going to evaluate that. Also quickly connecting to your clients. You can have way more connects to clients and candidates. We will definitely look at that. You specifically alluded to the branches.
As you know, we've talked about the function of a branch. Most importantly, it is still a presence in a market. It is a presence in a local market. Already in Asia, but also in bigger cities in Europe, we've moved to big platforms where people move in and out. You can basically work everywhere. On mid-size cities where there's a local sentiment, it's very important to be there. We'll still see those branches. Different, though. Not retail, not high street, very much white collar, industrial parks. Having said that, although accommodation is a big part of our cost, it's by far not comparable to personnel marketing and IT. Yeah, going to come back on that one. Of course, it is for us, a speed up of the vision we already had on the future way of working.
We also see that our clients now see that it's very helpful for them to also do way more online, for which we're very well suited. New sectors. Yeah, again people see that online is quickly becoming the standard. It's all speeding up. I don't see totally new sectors emerging. It's just a speed up of certain developments. Having said that, I also hear a lot from people that they do miss real human connection. The whole tech and touch still works for us. It's going to be a new balance. Tough to say how quickly, but we'll get back to you on that one.
Yeah. Maybe just if I can ask one more, which is bit more related to Q2, wherein I think, Henry, you said 30%-40% recovery rate. Is that for Q2? Sorry, I missed that part.
Yes. That's correct. Already in quarter two. Yeah, 30%, 40%.
With EUR 50 million of benefits from the government furlough schemes.
Yeah. You're absolutely right. Let me really clarify what I mean with benefits. Actually, it's a relief of OpEx, so most of the money is not actually hitting our P&L. It's actually-
Governments, which from my point of view, really are doing, broadly speaking, a very good job here. Providing the opportunity to actually keep employment in place, but actually helping us to actually care for those people. Therefore, actually it's not benefiting the shareholder in a way, it's really protecting employment. It's really important to understand.
That's clear. Thank you so much.
The next question comes from Tom Sykes from Deutsche Bank. Please go ahead.
Thanks. Yeah. Morning, everybody. Just to dig in a little bit more about the thinking that you have around your cost base and what you want to actually retain is that, I guess looking at the Italy numbers, I guess it's a bit difficult to read into the quarterly corporate staff numbers, but obviously you haven't changed your Italian staff much, so it looks like you're retaining your capacity as much as you can.
I just wondered what's your thinking about retaining capacity versus what you're seeing in the market and whether the market is reducing capacity, and whether you think therefore you can take that market share or will we be in a position where there will be more of the capacity around because there are more of these government support schemes. Is that something a bit different that we may expect in the recovery?
just in your experience of short time working and then how quickly temps can come back. Obviously last time around, I think if you look at the movement of your German temps versus Kurzarbeits, there wasn't a delay in temps coming back even when there was use of Kurzarbeit. are there any regulatory reasons as to why you wouldn't be able to use a temporary employee if you were an industry or a company, sorry, that was taking short time working?
Do you have to get all those people back into employment first? Because that wasn't something that I don't think we saw last time around. There was a lag between the temp market picking up and people coming down off short time working. It kind of happened simultaneously. Is there any effect there that might be a bit different at all, please?
Okay. Good morning, Tom. Yeah, great question. Certainly the first one. We aim to have as many headcount, and to keep as many headcount in the company as possible. First of all, because of our values, of course. We do feel we have a responsibility. We are the employer, so we want to protect employment. How that works is, you sort of, certainly in Europe, you calculate this down to the individual level. There are people who are in an in-house branch and the client is closed, so basically their job now is gone. Then you see if you can put them somewhere else because there are still growing sectors. If not, then there are different percentages of people being temporarily unemployed. It goes from 10% to 20% to 50%.
We have a lot of people, in a way, on idle time, partly supported by the government. For us, we created downward scenarios in Q1 because we saw it coming, and into Q2. We also, once we've seen the trough, we're going to create upward scenarios, and the challenge is very much to keep as many people employed as we can. Again, first of all, because who we are as a company, second of all, totally, to hit the ground running. Can't tell you a lot about competition. What we do see, certainly with smaller companies, is that the whole working from home, continuing to work with clients and to connect with clients fully, have everybody paid on time, that sort of thing. That is a challenge for many of our competitors.
What that will mean in the market, I don't know. You also know that companies who have more of a percentage of firm and a less globally spread business also will have issues to keep functioning with a certain headcount level. On recovery, it's not that we need to bring the people we have on our books back first, so to say, it is a pretty flexible scheme. In Germany, these people are on our books, so it's also in our interest to bring them back first, of course, because they are on idle time and that sort of thing. It is a pretty flexible scheme. It doesn't in any way hinder us in the upturn, so to say.
Thank you, Jacques. when you're looking at places like France or Spain and to the short time working there, is there anything, it's just difficult to know what is in the details of the legislation. if a company is, say, putting 10, 20% of its workforce into short time working, do you know, would they be allowed to hire a temp if they still had some people on short time working? Is there anything that would prohibit that in your view?
Maybe not legally, but they will definitely get pushback from unions. That's also not the way normally a company works. I think the first priority for our clients is to get their own workforce back and then have temps back. Again, different per market because some companies, they are so flexibly organized that they do need a certain amount of temps to start producing anyway.
Yeah.
I don't think there's a legal drawback, but again, and logically, by the way, I think all employees will first start to get their own people back. You might have a company that has 10 locations in France and they go back to work, and in one location, they're fully occupied and they need temps, and in another location they still have 60% of their own workforce. They can be hiring temps. It very much goes down to a location per location, which again, given our size, we're very well positioned to do that.
Sorry, just a quick follow-up to the first one. Is there any way you'd give us a view of potential headcount movement in corporate headcount?
No. We're all set for Q2, and we really take it week per week. When we talk about hitting the trough, we even look at volumes day per day now. Yeah.
Sure. Okay. All right. Thank you very much indeed.
Okay. Good Tom.
The next question comes from Hans Pluijgers from Kepler Cheuvreux. Please go ahead.
Yes. Good morning, gentlemen. On the gross margin, into Q2, I know that there are lots of, let's say, differences in the different government schemes, and you indicated that in Germany, people are on your payroll. In the Netherlands, that you also want to maintain as much of the temps as possible until the end of May. I understand in Netherlands, you still pay 10% of the total remuneration. In Germany, let's say about 60% is compensated by the state. Let's say, do you also there pay up for the difference? Could you give some indication on that?
Secondly on that, could you give some more, let's say, indication on what the impact on the gross margin will be in Q2 of all the different government measures and the things you yourself doing, just maintaining as much as possible the temps on your payroll? In which countries, let's say, is there support, let's say, from the government that's like in France, limited support for the flex workers, how do you handle there and what are the risks for your, let's say, your own gross margin in that kind of countries like Belgium, France and Spain for example?
Yeah. There's one question, and the answer would probably last an hour, Hans. Good morning.
Yeah, I know. Good morning.
Let me correct you on the 10%. It's not that we're paying the 10%.
Okay.
We're paying our people 100%, which is not to say the 10% comes fully on our books because, of course, first of all, and Henry alluded to this, we discuss with clients, if they want to keep these people, in some shape or form. The second one is we try to retrain people. We try to give them jobs, because it's not like they are fully out of work. You might say the 10% is a risk we're taking, which is not to say the 10% goes fully into uncovered cost, so to say. This is very much an entrepreneurial risk we're taking as Randstad. Again, compared to our values, where we do want to show that we take care of our people, even if they are flexible workers. That remains to be seen how that works.
All of this, all the government measures don't have a lot to do with gross margin. It's actually separate. This goes very much into P&L, into personnel cost and that sort of thing. Very early to say, Hans. We cannot give you any guidance on that. I think we're very transparent giving you guidance on the top line. Of course, gross margin in general is under pressure because of less perm. We see it a little bit in Q1, but we definitely will see that way more into Q2. Idle time, sickness, those are moving targets. Try to do it as best as possible, but that's the amount of clarity we can give you now.
Okay.
The next question comes from Simona Sarli from Bank of America. Please go ahead.
Good morning, everybody. I have a couple of questions. First of all, if you could please provide a rough estimate of your end market exposure. Secondly, if you could give an estimate of your monthly cash expenses. Third, if you can give an estimate of the restructuring costs that you are expecting for the full year in 2020. Lastly, I know that you have started to mention that, but if you could provide more details on the phasing of the cost optimization program for the EUR 120 million through the years. If there are additional levers that you could potentially implement in case the lockdowns should last longer than expected. Thanks.
Yeah. Thanks for your questions. I'm afraid I think I need to disappoint you with a little bit with my answers, but let me go through it. The end market exposures, let me just read it out. Manufacturing is 30%, transport and distribution 20%, business and IT services 10%, financial health 10%, public health and education 10%, automotive 7%, construction 3%, and leisure 3%. Take these numbers with a pinch of salt.
There might be IT people in automotive. There is a little bit of water in the wine here, but those are the kind of numbers we have, and they are quite varying across the portfolio. That's for your first question. The monthly cash exposure, we have a EUR 3.6 billion OpEx, and it's roughly a linear spread over the year. That's probably all I can say at this point in time.
As far as restructuring is concerned, far too early to say. In quarter one, we've reported some restructuring. It was totally pre-corona. That was just the normal stuff we do to see where we might feel our cost picture is not as optimal, and then we take our medicine. The phasing of the EUR 120 million program, also very, very tough to say. As you can imagine, we are throwing the kitchen sink at it, but with our values.
Actually quarter two is not the time to optimize profit. It's actually about caring for our customers, for our employees, for our temps. That will definitely surface in the short and the long term in our shareholders. We keep you posted. As soon as we have a better picture, we will give more detail. At this point in time, very tough to say.
Okay, thanks.
As a quick reminder, if you would like to ask a question, please press star one on your telephone keypad. The next question comes from Marc Zwartsenburg from ING. Please go ahead.
Yeah. Good morning, everybody. First question, Henry. The EUR 50 million relief from the government schemes, just to confirm it, I think you mentioned fully relieved OpEx. Is that correct?
Yeah. Hi, Marc. Good morning. Yes, that is correct. It is to a very, very large extent, it's relieving OpEx. If you compare it to, mention one more time, that is actually not benefiting our bottom line insofar as really exclusively used to protect employment which otherwise would be in danger to be lost. Therefore, we are sort of a middleman in between. We're very grateful for those governmental schemes, but I also mentioned the moral obligation it brings for us to deal with that with 100% integrity to really protect employment with it.
Yes, it's hitting. Therefore, it's relieving the OpEx line in quarter two. The EUR 50 million is a very, very, very rough number. It's really subject to so many variables. As we speak, there are governmental schemes in development. It's subject to revenue declines in some countries. In some countries, it's about lockdown scenarios. We felt that we had to give you some sort of guidance, but please take it with a pinch of salt. It's a very, very rough number.
This comes then on top of, say, the normals, the schemes that support, say, your temps, your cost of sales in the German market, like the Kurzarbeit, and that's a separate item? if you could explain how I should see it.
No. It's a mix of it. For example, if, say, in a country it would have been not allowed to let go of people and all of a sudden that government is calling a force majeure and say in the times we're living in it is allowed, but we are supporting those people with financial support, then, in the first scenario, we would have sitting on a higher cost and maybe having people on the bench, so it would really burden our P&L.
The second scenario with governmental support, we can relieve our OpEx. It's a very, very wide range of different scenarios we have here and therefore it's to make bits. The EUR 50 million is calculated without any of those governmental schemes and doing the normal thing, what would we normally do as Randstad, we would have probably be burdened with EUR 50 million higher OpEx.
It is also an OpEx item, so that's quite important for your recovery ratio in the end.
It is absolutely important for the recovery ratio. Without those government schemes, we would be feeling more pressure to let go of people to keep financial health of the company.
Maybe related to this, your recovery ratio guidance of 30%-40%. You have some relief indeed in your OpEx. What kind of cost cuttings or cost savings do you have on non-essential items and that kind of stuff? Because you take quite a small provision for restructuring if you compare it to Manpower. Can you give us a bit of a feeling what the savings from those other measures will be roughly going forward?
Yeah. I will not put a number on it, Mark, but actually what we do to a large extent is to see where can we really stop spending money to start with. To give you kind of a very stupid example, we just kind of finishing all our, I don't know, payments for Financial Times, that kind of stuff. There's probably more than 100 line items within there. We say, "Do we really need that at this point in time?" if the answer is no, if in doubt, take it out. That is sort of the golden rule. push it out. In marketing spend, I'm not saying that marketing spend is not necessary, but it's probably not necessary in quarter two. we're pushing that out. We're looking into how many software licenses do we really use from working from home.
There are many software licenses that are probably unused at the moment. We go back to software providers, software license providers, renegotiate those rates. Thus I could go on and on and on, and there's many small actions making quite a big difference. That kind of stuff is what we're doing. We also have seen that suspended effective bonuses, and therefore not providing for bonuses anymore. That is also a silly part.
Also, again, the normal stuff. If we put in a hiring freeze, we still have people that leave us, so we don't replace them. Variable pay, of course, if you make less revenue, you make less matches. Our perm business goes down massively, highly commission-driven business, so that cost automatically goes. On marketing again, so normally, in April, we would have our rounds of employer branding research. We still have that, but there will be a big client event in 30 countries. We're not doing that now. It's not even possible, by the way, so that's an easy choice.
Sure.
that's easily a few hundred thousand euro. yeah, many line items, and absolutely impressed with how our people stepped up to the plate. again, we have a lot of sharing among companies through our marketing community or our digital factory on how to do this intelligently and collectively.
Yeah. The energy, as you can imagine, is a total different one. We also, for example, look at our lease cars, many cars sitting idle on the street. It's much easier now to look into whether we should not prolong those contracts just for a year as a total company, and then renegotiate those rates with immediate impact. That kind of stuff.
People get a cost allowance. yeah, if you're all the month at home, you don't use your cost allowance. long list.
Yeah, it sounds all familiar. coming back to your top line, you mentioned some intensification of the lockdowns into April. Last night, of course, we had your colleagues from the U.S. reporting. They seem to be guiding to, say, a low 30ish level starting in April in terms of revenue decline and then stabilizing. Is it something you recognize? are they just trying to be quite precise, while actually you can't yet? How should I read that April statement?
Yeah. This is our April statement and not the Manpower one. Yeah, our top line was comparable in Q1, as you can see. We are in the same markets. I talked about how deep, and we do see stabilization in most European markets. Because if you're in a lockdown for a few weeks, you know which sectors are not hiring, you know which sectors are closed, you know which sectors are actually growing against the curve. You get a feel for what it is.
Yes.
We're not fully there because the latter part of Q2 is also that's different per market. let's say in the Dutch-Belgium business, there are events, there are summer things, there are peaks. normally, in this case, yeah, it sounds funny, but the Dutch flower garden, Keukenhof, would be open. That's a few hundred people for us. That's closed. that eats into Q2. I think we gave you quite some guidance.
I don't think it's a total outlier compared to what you saw yesterday. it's a bit of a mixed thing and then, yeah. looks familiar, let me put it that way. Stabilizing in Europe, yeah, we can, to a certain extent, adhere to that statement. U.S. is still early days. They are later in the cycle. Also Japan is a bit of an outlier because pre-Olympics, they said, "It goes on," and then post-Olympics, they are going quickly into sort of a lockdown. although it's in Asia, they are probably early cycle there.
Yeah. the final one, dividends, of course, it's canceled. looking at your strong cash flow developments, and perhaps if things go back to a bit more normal in the second half at some point, is there any way we might see then if you have some more visibility on the full year and your balance sheet position, cash position remains strong, that you might come up with a special dividend somewhere in the second half, or to the extent that the regular dividend is back but then postponed? Is it an item on the agenda?
Well, Marc, I don't think it's time now to speculate on dividends. It's really time for us to go through quarter two, to care for our customers and talents, employees, and maybe later in the year, when everything goes a little bit more back to normal, having those discussions, but it's totally not the time now to speculate about it.
Yeah. At the same time, there's something else, of course, there is government support and dividends. That's-
Yeah. That's true. All right. Thank you very much.
Okay, Mark.
The next question comes from Sylvia Barker from JP Morgan. Please go ahead. </edited_transcript
Sylvia, we can't hear you.
Oh, still on mute. Hi, morning. First question on the April to date trends. Could you maybe talk about professional staffing and whether that's still strong? How did general staffing and perm do relative to the second half of March? Secondly, on the EUR 50 million, obviously the programs are a lot bigger this time around. Can you maybe give us an idea of what that would've looked like in a similar quarter back in 2008, 2009? Within the EUR 50 that you see now, is that mainly France and Germany, or is that the wrong way to think about it? Finally, on Germany, as they're getting ready to reopen a lot of the industrial sites, what kind of conversations are you having with clients there? Thank you.
Okay. Sylvia, good morning. Yeah. Let's not talk about weeks. In general, profs are doing better than staffing, although at the same time, we do see less new orders in prof. It's also slowing down, but to a way lesser extent. If you, for example, talk about technologies in the U.S., these people can work from home. As long as the projects they're working on are not canceled, they sort of continue. That's good. In general, in the Netherlands, in France, wherever we have prof business, certainly if it's a staffing prof business and less a perm prof business, which IT is predominantly, then it's sort of a safety net. Also, our IT freelancer business in Germany is still doing fairly well. Staffing, again, finding the trough throughout Europe mainly, but still some up and down.
In the U.S., I think still some slowing down in the coming weeks. Anybody's guess at the moment. Comparing to 2009, the big difference was that we had to fire a lot of people. There were no government schemes. To protect also our long-term viability as a company, we had to fire more people. That is the big difference we hope compared to this crisis. Again, depending on how long it lasts. Yeah, in Germany, it's interesting because Germany, again, as I said, they were close to recession or in a recession before this happened. When clients are opening up, it's all about the demand. If everybody who comes out of a lockdown, the first thing they do is go to a car dealership and buy a car, Germany will be quickly out of the crisis.
If that's not the case, then the whole sluggishness in that sort of product will remain which will have its effects on the German economy. Questions with clients are very much, how many people do you want? Do you want temps, or can you cope in the first weeks or months with your own staff? That remains to be seen. It's not just COVID, it's also the economy and where it was two months ago.
Okay. Is it fair to say that they are being obviously very, very cautious kind of coming out of it? You've seen a lot of temps. Obviously, it was a weak market anyway, but you've seen a lot of temps gone because of COVID. The staffing levels they're thinking about are still 30%, 50% of maybe where they were before, given the PMIs were actually going up prior to that.
Yeah. Early days. We don't see currently a recovery in our German numbers. It's pretty stable. Automotive suppliers, by and large, don't make a ready supplier. They're built on specs from clients directly, so it directly relates to the orders they're having. That's where we are currently. Too soon.
Okay. All right. Thank you.
The next question comes from Konrad Zomer from ABN. Please go ahead.
Hi. Good morning. Two questions, please. The first one on your geographical performance. You mentioned France was down something like 50% for you. Is there any other country in your portfolio that is doing a lot worse than that at the moment? My second question is on your recovery ratio. Can you maybe help us with the normal period of time between your revenues coming down and your costs coming down from your experiences back in 2009, and if that has changed in the crisis that we're going through at the moment?
Yeah. Konrad, good morning. Fortunately, there is no country doing worse than France. Again, as said, it is not just COVID, it is also. Let me put it nicely. The way unions are reacting. We do see clients that actually could continue to work, but they're closed because the unions won't allow people to work. That has more of an effect. It is to a lesser extent in Belgium the case, and that doesn't help.
Again, talking about back to normal, you do need to implicate the unions. You do need to have them at the table from the first instance. Otherwise, you sort of get. You say, "We're opening up the country." Then in hindsight, they say, "Yeah, but not for us." These people are still paid, so people are paid. The incentive to go back is not financially that high.
You really need to be very open about it is safe to go back. That is what the government, what unions themselves, employers, and we try to contribute, need to create in France. Again, big difference between 2009 and now because, again, we were on our own. Banks were supported, you might remember We had to fend for ourselves, which was okay, and unfortunately then immediately need to go into restructuring, into firing people.
Fortunately, that's not the case. In a way, we have 100% of our workforce in headcount, a little bit less, let's say 95% of our workforce, 95% of our workforce, still active on call, but in varying forms of inactivity, partly financed by the government. We are carrying way too much cost compared to what we see in our revenue development, partly covered. Yeah, we try to strike the balance and hopefully, we can continue that way. That is very much a challenge for the coming months.
Thank you very much. That's very clear.
The next question comes from Suhasini Varanasi from Goldman Sachs. Please go ahead.
Hi. Good morning. Can you hear me?
Yeah, very well.
Great. Hope you're doing well and staying safe. I just had a couple of questions, please. On the recovery ratio of 30%-40%, it obviously excludes the EUR 50 million of benefits, that's been made clear. The question is, are you assuming that these government benefits, is there a timeline on when these benefits will end? Because I think in the U.K., they've extended the benefits scheme to the end of June. Therefore, what are you assuming for recovery ratio going into Q3 or Q4 if the declines continue, maybe not at the same level as Q2, but if the declines continue, what kind of recovery ratio should we be looking at for Q3 and Q4? I think in today's release, you mentioned going towards 50%. How do you get there, please?
Yeah. Good morning. in quite a few European countries, the system is not a new system. It's not a COVID-developed system. we're pretty confident that it will remain. again, what is remaining, of course, this is not just about us, this is about government finances and that sort of thing. The Dutch system, for example, is a system until the end of May. Again, this is a speculation but given the fact that the government has announced a longer shutdown, hopefully, and they were verbal on that earlier, they might extend it for another three months. again, very much a moving target. In Spain, there's also a sort of COVID-related variance on the system that was in place, again, around sort of an economic unemployment. remains to be seen. We don't know yet.
Again, the 50% recovery ratio and the financial return of our business is not the only thing which is important. I think Henry voiced it very well. It is also the balance between our own people and their employment. On Tom's question on taking market share in the upturn, yeah, and then shareholders have an interest, that's absolutely true, but we want to balance also the profitability of the company short-term versus the long-term health, but also the long-term responsibility we have to our employers. Very much on our plate. We take it almost week by week, and we'll inform you when the next moment is there.
Okay. Thank you.
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Yeah. Thank you, Mayank, very much. Thanks for calling in. I hope you're having as much fun as I have at home every day, and I wish you good health and everybody good health and your families good health, and hopefully we all return back to normal and normal work as soon as possible. Talk to you next time. Bye-bye.
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