Earnings Call: Q4 2014

Feb 19, 2015

Okay. Good morning, everybody. Welcome to the Randstad headquarters. A special welcome to the analysts, journalists, our Board members and all the other Randstad employees. And also a special welcome to the people listening to our audio webcast. Today is the presentation of our Q4 and full year results. We have a very predictable pattern. Jacques will walk us through our CEO, Jacques van den Broek, will walk us through the highlights both strategically and the key highlights and then Robert Jan will take over on the financials. And we finish off with the Q and A. And of course, the fact that all our other Board members are present means they are welcome to support any questions you might have on the other opcos. Thank you very much. Final remark before Jacques starts. Our annual report is also published today. So for more details on our results, please refer to our website for more insight. Thank you very much. Jacques, the floor is yours. Let's see. So good morning, everyone, also from my part here in the room and everybody online both from financial community, but also our colleagues across the world. Yes, fourth quarter and full year, title says it all, solid performance in Q4 and a good start of 2015. So let me take you through a few highlights here. If you talk about our performance, by the way before I move on, just wanted to mention that our annual report is online. As the Dutch people will know, we're not going to get a prize this year again for the best annual report because we're not nominated there because we won two years ago. But still a lot of hard work by a lot of people here and very happy again with how it turned out. So please go online and check it. Continued profitable growth. We've seen quite a stable year. So after Q1 where we had a little over 2% growth, we have a pretty stable 4% growth throughout the year against a more challenging comparison base. So in that sense, there is strengthening and you see that also into January as we mentioned. Very happy with our result in permanent placements. We've seen an increasing growth here, so growth through the year 14%, 21% in Q4. And this is very broad based. So this is also in Europe, also in countries like France and in Germany and The Netherlands. So we provide 25,000 fixed jobs per quarter. And you can imagine at a growth rate of 21% that our impact on that part of the market is definitely increasing. Pretty stable operating expenses and that of course translates into a great incremental conversion rate for Q4 but also for the year, 77% for the full year and 96% for Q4. So a bit of a broad look at the markets. So Rest of the World doing very well. As you know these are investment areas for us. So in a way ahead of people making full productivity and making money, we invest in more people. You should think markets like India, China, Singapore, Hong Kong, where we are creating a top three position for the remainder of or for the midterm. So the BRIC countries currently are 6% of the total world market. They're expected into 2020 to be 9%. So it's an investment area, but we are a top three player in India today. We are a top three player in China today and we want to really invest and stay ahead of that market development. North America has been a very stable business for us throughout the year. As you know, economic numbers in The U. S. Are great and stable and going forward. So absolutely good. Europe, a mixed picture. Iberia, Italy, Switzerland, Poland doing very well. The Netherlands improving throughout the year. And yes, France still had a tough Q4, but a far better start of the year. And Germany remains sluggish. I'll get into that one definitely later. I mentioned emerging markets. Australia is not so much an emerging market. It's a mature market, but we grow more than 20% there. So very happy with that performance. On the top line, we need a bit more perm. Australia is an Anglo Saxon market, so permanent placement is very important there. That still needs a bit more growth. And then Japan, an acquisition from what is it now four years ago? Four, three. Very happy with our performance there. Welcome. So this is our strategic road map. We're going to come back on the road map. We presented this one to you at the Capital Markets Day, which is very much what we are building in the company, where we are improving in the company. So this is the slide I showed you in November. And a few highlights. Of course, starting at the bottom today, good improvement from 3.5% to 4.1% EBITA margin, good growth in revenue and a corresponding growth in EBITA. Our activity levels as mentioned, pretty consistent growth throughout the year. Activity level meaning phone calls to clients, visits at clients, candidate send outs or candidates propose to clients for fixed jobs, a 30% increase and we definitely see that into improving performance in many countries. Productivity up, perm as I mentioned and certainly SME in The Netherlands and in France picking up there. France a tough market, but still growth in SME, which is a strategic target for us in that market, which is a low margin market and we want to improve our business mix. So as a percentage less gross big clients and more SME. And in The Netherlands, very happy there. Our SME part of the business at Randstadt grew 15%, which is ahead of the Dutch market, again a result of very consistent commercial activities in that part of the market. And then of course, if the economy improves somewhat, you benefit from that development. As mentioned 60%, 70% cost savings in the back office to be realized in the next two years. You've seen us taking provisions to lay off people certainly in The Netherlands and in some other countries. In The Netherlands that is now behind us. So the two fifty people in head office, back office functions have left the company, have left the company, but will be in a setting where we're trying to find new jobs for them. In 2012, where people left us in The Netherlands, 80%, 80% of people found a new job in nine months. So definitely that's a target for us now for these two fifty people to help them to find a new job and we're optimistic on that happening. SourceRite. SourceRite is our business that takes care of the demand of large clients, organizing on their behalf staffing suppliers so that they have one point of entry. That's called MSP. And then taking part of their recruitment function, which we call RPO, recruitment process outsourcing. In Europe, we found that although we are geographically organized, the SourceRite business is better organized on a European level. Clients are increasingly international. We want to run as many of the recruitments within that business through our sourcing center in Budapest, which has a low cost and a high quality of the searches in there. So we think that's a good step towards organizational change to be better equipped for the developments in the market. Vertical approach, we've seen in our own business in The U. S. But certainly also with successful competitors that in the Professionals business they organize themselves in verticals, meaning that they can provide any profile from the low end profile to high end profile in IT and engineering and finance to one client. It makes you more attractive as a supplier. We're organized like that in The U. S. We are organizing ourselves in The Netherlands as we speak. So the three companies and professionals are being brought together in Q1 into one company. TTA, total talent architecture, our approach where we go to clients and we say we can improve your company, we can improve the way you treat people, you hire people, we can look at the productivity of your people. And that feeds into a growth in the MSP, RPO, but certainly also in the in house business. It's taking shape. We've created an international project team that's going to train our own people. As I mentioned in London, we're talking about roughly 1,000 clients worldwide, where really staff, flexible staff is a big item. And we're going to train around 150 people in our own organization to really be able to present our business in a strategically relevant way to our clients. There are going to be more on that one probably going forward, but this is where we are today. On the technological developments, as mentioned in London, our ambition is to be the most agile integrator of technology in our business. So any promising development in technology, in HR technology, we're going to bring into our processes to stay ahead of the game in this development for investments in our innovation fund. And of course, very happy on the M and A part that we're getting an increasingly solid balance sheet and Robert Chan will talk a little bit more on that one. So North America as I mentioned increasing performance. Our Staffing and In House business grows roughly two times market. So the market grows 4%, we grow 8%. That's definitely something we would like to have in all countries. That's not yet the case. We're very proud of our performance over there. But also if you see a gross profit growth of 8%, revenue growth of 10%. U. S. Professionals is the other way around, 5%. This is more a gross profit business, so perm is very important. U. S. Is picking up. Our financial business is doing very well, improved throughout the year. Our engineering business is also doing very well. Our biggest business, our IT Staffing business could still grow faster, had a good improvement in Q4, ended the year well. But yeah, they're getting there also consistent improvement throughout the year. Source Right, as I mentioned, spent under management that means the revenue we take care of on behalf of our clients has grown with 61%. So our impact and our presence with these clients has increased massively. Canada, a somewhat sluggish market compared to The U. S. We're in line with markets, but yes, it's modest growth as you can see. And then the result, a huge improvement. France, as I mentioned, difficult market minus 8%. But yes, the good thing in France is we started the year well. Quite surprisingly, the return from minus 8% in Q4 getting close to the 0% mark in January. This might be it's always difficult to see where this is coming from. This might be coming from the fact that politicians or the government in France has announced that there's going to be consistent support in terms of subsidies for the private sector. And this might mean that there's a little bit more, I call it trust, and people are investing a bit more. Temporary business is always ahead of the game. So still a tough Q4. As you know, we concentrate on profitable clients. So we do say no to clients who want to work with us at what we think is a too low margin. So despite the negative revenue growth, you can look at the EBITA development, which is quite good and that's a result of our strategy in that field. The Netherlands, ABFS paying off, activity based field steering. So the way we go to clients, more commercial contacts is paying off. I mentioned this sooner or I mentioned this earlier, Chris organizes his people every consultant one day a week in a call center calling clients, calling clients and that is paying off. Overall, Professionals up 13%. So our Professionals business that we're now combining is definitely off to a good start also. And permanent placement growing everywhere but certainly in The Netherlands. This is from a small base granted, but 53% up that's quite impressive. Slight up on costs. So the two fifty people of course are not in our financial numbers yet. That will be in 2015. And a good and stable EBITA margin, a rather high margin as a result of our business mix over there and also the fact that we contain our cost and certainly our margin and we grew in perm. Germany, effectively the most difficult one at the moment. Economy in Germany is okay ish, not great. But a lot has changed. Therefore you know as well and better a lot has changed in the temporary business. Temps went to equal pay. So the price of a product has risen and that has led to less demand. But also and that's funny, the thirteen week average calculation rules you see in gross margin, it effectively pays in Germany to be ill because then you might get more money than when you work. And it also pays to be on holiday, very technical but at least this hurts our top line with 3% to 4% and it also hurts our gross margin. This is sort of an anomaly in the system that's created in Germany. We like the fact that temps get paid better. We think that's long term good for the emancipation of the product in Germany. But this thirteen week calculation rule needs to go out we think because it sends the wrong message. Our workers' council, our own workers' council is actually against this system. We take out cost logically of course when the business is flattish, which it is, EBITDA margin decreased somewhat. But throughout the year, pretty solid picture still in Germany. Belgium, yes, a good development in the EBITA margin of course, strong operating leverage as a result of the cost we took out a year ago. Minus 1% in revenue impacted by strikes. There were like three national strike days in Belgium and that hurts us. So some of our clients were closed. Certainly in our in house business as you can see the growth went down from plus 13% to 5%. But that has picked up now. Belgium starts the year very well between 78% growth, so good. U. K, I called it another step. We're definitely not there in The U. K. But again, we doubled our profit second year in a row driven by a few businesses certainly our construction property and engineering business. I don't know if you've visited London lately, but it looks like Dubai with bad weather. There's a lot of cranes. There's building everywhere and we supply a lot of these people also with infrastructure, so new rail that sort of stuff. Finance and IT is not too great yet parts of finance is, other part isn't. But our education business is doing very well. And our perm fees up 16%. U. K. Is a perm business. Iberia, so Portugal, Spain really looks like the Spanish economy has turned the corner. So you see double digit growth. Could be higher, but we took out some business we didn't like too much that came with the USG acquisition because of risks or because of low margin. But again, a great start of Spain in the year plus 23%. So very happy also for our colleagues in Spain who had a very tough time in the last few years. The market halved as you might know. So happy there, but also Portugal doing fairly well. And you see the EBITA margin very good development. Quick run through the rest of Europe. Italy. Italy is an interesting one because the economy is not doing that great, but the company is or the country is becoming more flexible. So the penetration of flexible labor on every working Italian 0.7 was a temp. Now it's above one. So you actually see that the economy is not growing in Italy, but our sector is. So that's of course a development we like. Switzerland doing well. Poland doing well and a very good EBITA performance there. Rest of the world, Japan I mentioned good growth 8% in Q4. Australia doing well. Asia, lot of investments in China, Singapore, Hong Kong. Latin America also up, but we're still not making a lot of money here. For 02/15, we're going to create a somewhat better balance between growth and profitability. Quite a few of these markets are getting to a critical mass. We now have more than 500 people in China. And we also we know we can make increasing profits there. So $215,000,000 for this part of the world, it's still growth, but it's also making money. Yes, That's the operational update. And before I go on, for us this is definitely moment. Leo Lindelau worked thirty six years at the company. He started when he was 14. We are a company with values. So Randstad company values to know, to trust and to serve, striving for perfection and simultaneous promotion of interest. And you can talk a lot about that, but it's actually your leadership that sort of creates these values and strengthen these values. And Leo, you've always been the embodiment of the values in the company. You literally grew with the company. You emigrated. You emigrated from Limburg in The Netherlands to Amsterdam. So you took quite some risk. Personally, I'm very happy with the role you played in my first year as a CEO. We had a slightly new team, we had a young team and your coaching role has been tremendous there. So it's goodbye to the Executive Board. You still stay on for another year doing some tasks that we feel are very important for the company. So on this stage, thank you very much for everything you did for the company. And with all that, I give over to Roger. Thank you. Well, both of my colleagues have said something about the annual report, so I have to say something about it as well. Actually, I hope you're going to enjoy the fact that we have moved towards integrated reporting a step further again. We don't get a lot of feedback on it. So that's why I promote this now. Second point is that in the context of quite a few failures in the world, failures in companies, we have added to our risk management paragraph how we come to the conclusion that we are in control, not just that we are in control, but how we get there. So it's up to your evaluation. And the final point is that we also have included the new style audit opinion again like we did last year but a bit more extensive. So we need some feedback here to make sure that we know if this lands well. That is my contribution to the annual report. Looking at the income statement for the fourth quarter here, everything has more or less been addressed. Let me just address a few points specifically from a finance angle here. We have integration costs and one offs, 34,000,000. This is mostly The Netherlands was announced extensively. The second largest part is Germany, but it's only relating to reorganizations here. Last year actually €37,000,000 was Belgium mostly and integration costs relating to USG. It looks as if we have a rhythm of announcing reorganizations in the fourth quarter of the year. That's not the case. This is just a coincidence. If you look at the currency impact here for the final quarter, was roughly €15,000,000 at the gross profit line and then €13,000,000 at OpEx which leaves €2,000,000 positive at the bottom line. If you look at it for the full year it's the other way around because it's very much at the end of the year the dollar started to appreciate against the euro but for full year negative impact of €4,000,000 at the bottom line. So that's a different picture here. Final point here net finance costs. We have roughly €4,000,000 of interest expenses relating to our financing at Randstad, which is the result of our policy on floating interest rates. The remainder relates mostly to currency effects on our short term positions here bookkeeping. Looking at the segment performance staffing, in house professionals, if you look at the EBITA percentages improvements across the board, what sticks out here is the EBITA margin on in house. 5.8% is pretty good. Cost allocation is always a bit of an art rather than a science. So that might overstate it a little bit and staffing might be a little higher. But I think it continues to indicate that we have a very successful business here. And let me also point out in in house here the second bullet good growth continues in The Netherlands, Belgium, Iberia, North America and emerging markets mainly in the industrial and logistics segment. And this is typically if you're well positioned here and Jacques referred to it when looking at France, if you look at January France minus 1%, you're well positioned through in house in Industrial segment then typically you really benefit if activity levels are picking up. So this is really a strong pillar in the first phase of growth. If this continues and that I will get back to at the end. The gross margin connection between last year Q4 and last year being 2013, sorry, and Q4 twenty fourteen, actually the middle explains most of it. Jacques mentioned it already. Our micro strategy on permanent placement is working quite effectively and is clearly contributing to the gross margin. Operating expenses, this is not year on year. This is sequential. So Q3 to Q4, the trend here, mostly foreign exchange here. And if you look at the marketing expense that's an addition that is specifically related to campaigns. And it is also the seasonal pattern, FTE growth wherever we do see growth. So we follow that. We typically are in Phase one of growth. Phase one of growth means we try to do more with the same people paying extra bonuses and commissions, but then you get quickly to a level that you have to start adding some people, but only field. Relatively limited gross the productivity should improve. Incremental conversion is typically high over a period of four quarters. It typically ends up in the range of 70%, 80% if it is well distributed across the world. And The U. S. Has been growing for a longer period of time. So there you see different numbers. Then you move to the second phase of growth where you start to really add people on a larger scale. And then the incremental conversion, so incremental conversion indicating what is retained of additional gross profit in EBITDA and the rest is spent on OpEx. And then it starts to move towards the 50% area and only in the third phase of growth, which lasts long, you really start to add branches on large scale. You might start to add people in the back office, but that is really quite a phase ahead of us. We're not approaching that by any means. We are adding branches as we speak, but most of that is in the in house business and this is where we set up on-site of the client. Net debt, the balance sheet, yes, it looks quite nice. If we start at the bottom here 15.8% return on the invested capital gradually improved throughout the year to this level. So effectively this is like the economic return. If you look at where we put the money, it's mostly in goodwill and intangible assets €2,600,000,000 Operating working capital is €500,000,000 So that's the balance between the receivables from clients and the payables, for example, to the social security authorities, to tax authorities. And that is 2.8% of revenues. So if we grow our business, we typically on average, it depends and it differentiates per market, but we typically need 3% rounded of our revenues on working capital, which explains that growth from a financial standpoint is almost unlimited. There are no real limits to growth. We need to make sure we get the right receivables and we need to make sure they pay on time. We're doing a pretty good job there. But then this tells you that this is not an obstacle at all to any growth ambitions we have. The net debt level for 2022 that got quite a push at the end of the year because if you look at DSO, it's been rather stable. But towards the end of the year, our efforts to reduce it further were successful. We've looked at the January numbers to make sure it was not just December and also that month looks good. So it really indicates that we are rather successful here. If you take a look at the twenty fourteen full year charge for bad debt, so what hit the P and L, it was roughly €12,000,000 which is seven basis points of revenue. So across the board, our receivables management has been doing quite well. The free cash flow of Randstad, up significantly to 61%. We got a little help here because 2013, the fourth quarter here showed included an item of €131,000,000 which was a long lasting and a long standing payable to the Dutch government where we had a special arrangement and this was dealt with last year, so not in this year. But we have our contribution from EBITA, the change in working capital, so a positive here. Then we have our taxes paid. This is the provision. So we have provided in the P and L, which is spending in the New Year. That's why it's a positive here. If you look at our net additions, this is our CapEx €23,000,000 in the quarter, 63,000,000 for the full year roughly equal to depreciation in the company. Net finance cost, just elaborated on that one. So pretty solid story here. And if you then dive into it a little bit, this is reflecting the net debt levels of Randstad on this axis going from north of €2,000,000,000 to a decline and then acquiring here both SFN and Fuji staff and now reducing to a level of around €400,000,000 The blue line is the leverage ratio and is shown here. So we've had a few peaks north of the two that we consider to be our maximum and that was due to the volatility of our earnings. So we are very careful here in addressing this properly. And that translates also into our M and A policy going forward. We clearly are looking for bolt on acquisitions. We continue to do that in the countries where we operate. We're happy with the geographical footprint. We're not looking to add countries, but we're looking to become bigger in the countries where we operate or in the segments specifically where we operate. But we have a pretty strong sort of economic return policy here. And that means it's not that easy because the value of Randstad has increased and the value of many targets has increased. So effectively that translates to us not expecting that we're going to announce to you a deal anywhere very soon from this moment. But we continue to sort of look at relevant opportunities across the globe. Whenever they are available we'll be involved. So again back to this slide strong DSO performance really paying off here. Productivity is another key element here in our financial performance. This is gross profit earned by each and every FTE in the company, including the Board, everybody in the back office. So this is what we earn on gross profit and gross profit is the difference between revenues and the wages and etcetera benefits paid to flex workers. This is quite a high point here. After that, we did go through the crisis. We never really yet returned to the level pre crisis. And as you can see, we still haven't arrived at the level in the past. So in the meantime, we had some inflation, not a lot. So that should also be compensated for. So how do you get it up here at the very end? Well, there are a few components, activity based field steering, which means you get more GP out of the people in our company. That is what it should lead to. The second point is delivery systems. We are looking at making sure we deliver the clients in the right way, most efficient way. Large clients preferably through in house and not the branch network or central delivery. And the final point is what we announced last year adjustments to the head office and the back office on the back of our benchmarking exercise, which we are currently addressing globally. So that should help us to improve this number. And then very proud of course the dividend. We wanted to share this with you a bit of flashback. And of course, we had some difficult times during the crisis to protect the balance sheet. But across the board, you can see here the dividend improved towards the last ten years and now €1.29 It's a straightforward translation of the policy. The policy is between 4050% of adjusted net profit. And the range we choose the point in the range based on the balance sheet. Balance sheet good, high end of the range. That's the simple translation here. The default is cash. The choice is between cash and shares. Last year more than 60% of the shareholders took stock including the founder of Randstad. Yes, the outlook for the period going forward. Our organic growth in December sorry in Q4 was 3.4%. It was up 6.5% in January. We already made the point in the press release bridging days are always making the calculation a little bit more complicated. I'm not going to take away the positive news here. I'm just trying to make sure that the real underlying trend is visible. So if you look at the last week of the year, the December, in 2013 there were two December days, working days. And in 2013 sorry, 2014 there were three working days. That adds one day in the calculation if you calculate the profit the growth per working day. But that day is in between Christmas and New Year, not many people working. So this is where the formula is correct, but the outcome you need to think about a little longer. In January, it's the other way around. And that's why sort of our assessment is that the 6.5 might be a little high, but it's certainly north of five percent. So we do see the February volume. So don't plan at Randstad because we need to adjust. So we spend all our time and money in making sure we adjust everywhere in the world to whatever happens at a certain point. And that means we expand whenever necessary whenever opportunity is there. We follow we don't have a huge pipeline, but we follow the volumes every week at Board level. And if we look at the volumes in the month of February, they are in line with what we see in the month of January. At the very end of the month, we know the number in revenues, but we follow the people, the number of people working and we follow the volume of our permanent placement business every week. Please note that the first quarter is always the weakest quarter of the year. Many of you know, but the strongest quarter is Q3, then you have Q4, then '2, then one. It's always a soft start. It seems that many countries are closing down business around Christmas and then it picks up again. Same number of working days. We expect a moderate decrease in the underlying cost base sequentially, really moderate. But note please that as per the January 1, we have some salary increases across the globe. We clearly have growth in some parts of the company that we continue to invest in, be it in countries or in segments. The restructuring effects are coming through in the first quarter. So it starts to come in, in the course of January. So we'll see that moving on. And we do expect the FX sequentially to have an impact here on OpEx of as we state here of €23,000,000 assuming the level of the previous period. So a substantial impact here at the OpEx level. Well, and then we have our Annual General Meeting in April on the second. These are the exit rates of the month of January. Jacques referred to quite a few of them already, but I think across the board quite nicely. The Netherlands clearly sticking out. Germany was elaborated on by Jacques. And if you look at the Iberian situation, we even have the Iberian team sitting here or the Spanish team sitting here, quite nice performance in the month of January adding up to the 6.5%. And finally, this should be a bucket in which we have the balls that will help us to perform better. And just repeating it, the cost management, our ambition to save 30,000,000 to €35,000,000 in 'fifteen and 'sixteen in the head office, back office, our activity based field steering helping us to improve productivity, our assumptions that you gave estimates having been applied here. And then if we grow and if we continue to work on our strategy in permanent placement and Professionals and SME, we'll see the business mix improving also contributing to a better bottom line. And this is just stating again repeating what we shared with you. At the Capital Markets Day, our 5% to 6% ambition is within reach, making sure I use the right words, within reach for 2016. Thank you. We're now moving to Q and A. Okay. Let's start in the room first. Please stick to two questions. David go ahead. Yeah. Thanks, Erwin. Darth De Jure, Rabobank. First of all, on the excess capacity, could you highlight the markets where you see the most excess capacity? And maybe also broadly quantify that in percentages? And then secondly to The Netherlands, I remind that during the Capital Markets Day last year, you specified a margin of 6% to 7%. If you look at the current growth in The Netherlands, it looks much better than the pace in Q3 when you mentioned this or Q4. Is it right to assume also looking at the cost savings you announced that let's say it looks a bit on the conservative side your previous margin guidance also looking at the 6.1 you achieved for 2014? Thanks. Yes. David, your first question on excess capacity, we think we have excess capacity in the operating companies where we have just started to grow. The U. S. Clearly is in a different position. Japan is in a different position, but China and so forth. But clearly in Europe we have excess capacity and our estimates would be that is in between 1020%. And of course, you need to be a little lucky here because if you have excess capacity in Northern Germany and you grow well in Southern Germany that's very difficult to net out because that's quite a distance. Your second point was on The Netherlands the profitability. The savings that we announced in The Netherlands and I think Chris was also quite clear about it are also intended to make sure that we retain our competitive position and that we are able to continue our profitability around the level where it's now. And in the meantime to again get back to market share and eventually gain that. That's the policy here. A quick follow-up then. So basically you're saying that the gross margin underlying is coming down at a relevant level. Probably you will not be willing to quantify that, but it's not by 10 basis points down. It's more. Yes, in The Netherlands, sorry. Netherlands is a bit like what you see on a group level. So there's definitely pressure with large clients. We landed quite a few nice big clients in The Netherlands that helps us grow. But there's absolutely pressure. But then we have the growth in the SME. We have the growth in the perm business and that's offsetting. But yes, pretty stable as a result of all that gross margin. Yes. Looking at France for this year there's an additional relief expected from the so called family tax a lower contribution to that. How do you see that impacting the competitive environment? Currently already your profitability is at 5%. How do you see it going forward? It's already at historically high levels. And secondly on the cost and the incremental conversion ratio which was quite high in Q4 a clear pickup compared to Q3. You had indicated that you expect to come down. But first of all what were the drivers that it was so high in Q4 because I can't calculate it from the numbers? And secondly, how do you see that going forward? Do you still see the same trend or maybe a little bit more positive on that number? Well, let's do France first. We've been pretty consistent in maintaining our price levels and therefore we were below market. There is another relief coming in. That's one. But more importantly is the fact that the French government has stated that reliefs are going to be long term. So we think that will lead to more demand, so that's good. For 2015, we are going to be a bit more open to give some of the subsidies away if we get business for it because we've seen some mid sized players gaining quite some revenue on this one. So we're happy with the fact because that's easiest to manage for your people to say it's a no always and now it's a no but. On the incremental conversion ratio, please note that we have a seasonal pattern in our gross profit, but not the same seasonal pattern in our cost base. So for that reason, makes sense to look at the ICR for a period a little longer than just a quarter. It helps you if you look at it for a couple of quarters in a row. Actually Q1 last year was also high. So I would like to sort of refer back to the model that I explained high incremental conversion in the first phase of growth 70%, 80% then going back to 50% in a period which is typically starting from the second year of growth and only over time gradually converting to the level of EBITA. So for 2015, you should consider this to move from the high levels where we have been towards the 50%, but hopefully still staying north of it. It very much depends on the speed of growth. And there's also one specific thing on Q4 last year. If you might remember, we put marketing boost, it's around €15,000,000 We do still spend on marketing, but less than last year. So that's also a reason why you have a somewhat higher incremental conversion than you would normally see in the development that Robert Jan just painted. Yes. And if you take that one out, the ICR for the last quarter of twenty fourteen would still be north of 70%, in line with what I just explained. Hi. Konrad Zommer, ABN AMRO. Two questions. The first on The U. S. Can you update us on the potential impact that the integration of maybe the Professional business following SFN could have on top line growth? Second question on The Netherlands. You told us at the Capital Markets Day in November that your SME revenues at Randstad and L were up more than 20% in the last few months of last year and that Tempur team was still a little bit below that. Can you update us on the last few months and whether or not the margin difference between SME, Randstad and L and SME Tempur team is very big or not? Thank you. Okay. Well, on The U. We have an expert in the room. Could you clarify your question? Because the integration of SFN is sort of behind us, so I'm not sure what you mean. I'm talking about the integration of the Professionals business. I know that the general staffing business of SFN that that integration is fully behind you, but I seem to remember that there's still some final integration that needs to be done Yes. On that other part of the I wouldn't call it integration. I mean the business is fully integrated. We are in the process of upgrading the financial systems, so the back office systems of various professionals companies and also our source right companies. So that's sort of that's a separate activity. That is going forward. We're doing it within our regular operating budgets. It's probably a two year process, but it's nothing impact for our transformational. We hope over time also that that will play a role in bringing down our head office costs. So every time we bring in one of the companies, we are seeing decreases, but I think that's already been communicated the cost savings we anticipate around that. On The Netherlands, it's a pretty similar development we see at Tempur team and Onsop. Tempur team had somewhat easier comparisons in 2014. So therefore their growth was a bit higher. But they're also in the same way as Onsop is doing is investing a lot of time and effort in the SME and also the Tempur team that's paying off. And the margin differentials in that segment are not great. So it's similar. So we're happy with both. Yes. Two questions. First on Germany. Shark demand is still a difficult market, but if I take out the pricing impact, is it then fair to say that the trend moved from say minus 5% in Q4 to around minus 2% in January? Is that because your pricing component I think kicked in last year also in the first quarter. Can you perhaps give a bit more feel on what's going on in Germany? Because it seems to me underlying that there is some improvement. Underlying it's still pretty stable from a volume point of view. We are at minus 5%, minus 6% in volume which is already what we saw. And the price the level is decreasing between volume and price. Maybe to elaborate a bit on Germany, what we do see is that as a result of the price increases, the clients with strategic flexibility are not toning down. So they still need these people. It's an integral part of how they run their business, which are predominantly the large clients. The SME clients in Germany where it's a bit more of an ad hoc relationship, there we do see less demand. We think over time they will get used to the changes, but yes, an SME might whatever, they might have asked for a temp a year ago. And now if they ask for a temp, it's very, very much more expensive also because there was a minimum wage increase in Germany. So we do see some fallout there. Hope that it picks up, but we don't see the signs yet. So it's pretty stable in Germany. And unfortunately, no pickup yet in January compared to December in volume. Yes. Then my second question on The Netherlands. Robert Jan did you say that the profit did you expect profitability in 2015 to remain at the current level say the 6.2% you reported on 2014, while the target is towards 7%. You've got cost savings coming in. You've got productivity increases. So I'm a bit puzzled on what your statement actually means. So we're going to involve the expert here now. Chris is already preparing his notes. But I think Robert Jan makes the right comment in the question what was before because we also want to invest and we want to stay with the market. So we will see I think the range of 6% to 7% as declared also in London. So no changes there. To assume that you don't invest all the cost savings away and that there will be some operational leverage. You Yes. Would say with the open That's also fair. So we'll but we can talk about the percentage. The real ambition is to get a revenue volume out of this which is on which we get the percentage. Okay. Hi. Good morning, gentlemen. Yves Franco, Klemski Securities. Maybe on The Netherlands on your Professionals performance there. I seem to see a very large difference between your Randstadt and Tenpotine Professionals versus your Yacht. Where will we see this going as from 2015 when the reorganization will be completed? And what's explaining this big difference? And then the second question, still some an underlying stable margin in Europe, stable gross margin, but negatively affected by the mix. Is that a geographical mix both? Or do we see something some business lines there that are less profitable? Thanks. Okay. I'll take the last one and then Chris you do the Professional Business in The Netherlands. Yes, do see blue collar picking up. So it's the mix again. You see in house growing faster than Staffing and that's also overall the case in The Netherlands. But yes, we have a great conversion of course from gross margin. So that's the underlying gross margin pressure because of business mix, but still translates into a good return on EBITA. And when it comes to the growth of professionals and the difference between Jalt and Ransfield and Tempur team, I think I tried at least to explain also in London that Jalt is based actually on a lot of indefinite contracts, which makes it a bit more difficult to grow in certain markets. We are changing this. And Randstad and Tempur Pedic professionals is more based on the mix of contracts. So that's more short term and also more flexible contracts I would say. If you look at the quarter the last quarter, it is 13% of growth in Professionals in total and I expect actually to continue that growth rate. Yes. Also what you see is that Jalt is an established business and sometimes it's very difficult to take an established business and sort of recreate the buzz that's very necessary in our business. What you see and also Technologies and also Tempur team or Onsat professionals, it's sort of a younger organization with a lot of energy. And we also hope that by merging this we get a little bit more of this excitement into the total Professionals business also helping the former Jalt business mix up to a higher level. Thank you very much. Now we move to the call. Please can we have some questions from overseas please? The first question is from Tobey Reekes of Morgan Stanley. Tobey, please go ahead. Hi, guys. I've got a couple as well if I can. You talked about the drop through rates a little bit and I'm assuming you're moving into Phase two, so towards that 50%, I hope you're a little bit above this year. Can you clarify whether you're including restructuring benefit within that? Or should we think of that as an underlying number? And then the second one is on, I guess around the capital structure. You've obviously said you're targeting bolt ons. Could you give us an idea of what sort of size you mean by that? And if we're not expecting any deals sort of reasonably, when do you think the sort of cash on balance sheet becomes something you'll need to think about a bit more? And then as an extension to that, when do you actually get the cash from the CICE? I think it was deferred, wasn't it? So you should start getting that in the next couple of years. Thank you. Yes. Tobey, it's a bit difficult to hear what you were saying exactly, but let me respond to what I think I heard. You were talking about the drop through rate, which is effectively the incremental conversion ratio. And indeed it includes the savings from the restructuring, but it will bring us a bit higher in the range. And of course, you'd like to know precisely where we're going to end up in the range. Well, actually we don't know because it depends on the growth rates and the opportunities for investments that we're going to see. So I expect these savings to be relatively easy to identify going forward. Your second point is about M and A. And I think I heard you ask about the profile of acquisitions. Yes indeed bolt on as I said in the countries where we operate. So typically we would look at mid sized acquisitions here with a clear ambition to fit strategically to be able to manage it successfully and to maintain a strong balance sheet which means that the leverage ratio should not be north of two. And then I heard you ask questions about when will you arrive at a net cash position. Well, if the current rate continues, it's unavoidable that we're going to end up with a net cash position somewhere next year probably not at the end of the year if you just sort of extrapolate current developments. And please note that throughout the year the second quarter shows the highest net debt level due to dividend payout and payout of holiday allowances. But clearly 2016, if we won't if it will be silent so to say on acquisitions, the balance sheet will show a net cash position. And as we said, if that happens we'll come back to you. Okay. Sorry, just two points because I don't think I came through clearly. The first one is what do you mean by a midsized deal? Could you sort of quantify what that would entail? And then secondly, I think you get cash from the CSAY which was all deferred. When does that cash actually come into your cash flow? Yes. Midsize means a few 100 millions. And the CICE is paid after three years as from the moment it was sort of earned. So that means it starts to come in in 2017. Yes. May 2017 then we'll see the first payments coming in. The balance sheet at the end of twenty fourteen contained €170,000,000 of CICE. Thank you very much. The next question is from Chris Gallagher of JPMorgan. Chris, please go ahead. Good morning. I just wanted to clarify on what you've seen in January and February. When you talk about February being the same kind of volume levels as January, do you mean the 6.5 growth? Or do you mean the five around 5% underlying that you had mentioned? Yes. I meant volume and 6.5% is revenues because we don't measure revenues on a weekly basis. We look at volumes. What we can share with you is the volume development and that typically translate in more or less similar revenue levels given the fact that business mixes don't change that quickly. And I was referring to if you look at revenues then it should build from the north of 5%. I didn't say five I said north of 5% in January. Thank you very much. The next question is from Nicolas Delegrins of Bank of America Merrill Lynch. Your line is now open. Good morning, guys. Two questions please. The first one just on France. Can give us an indication of what the underlying pace of decline might be there? Because I'm just trying to interpret the weaker than expected 8% in the fourth quarter and the much better minus 1% in Jan. What was the holiday impact that you discussed at group level particularly acute in France? And then the second question is just on the tax rate guidance for 2015, 27% to 30%. Should we apply that going forward beyond 2015? Or are there specific reasons why it's going to be lower this year? Thanks. Okay. Well, on France, it's yes, we're approaching the zero line. So that means that currently as we see we're very close to the zero mark in our growth rate in France. So we're happy there. We also see the market getting back again. So yes, it looks like a you can never say stable and you can never say solid because you never know, but a good start of the year which is not due to any technical calendar effect, but looks like an improvement for ourselves. So we're currently growing around 20 to 0% in in house. Yes. The tax rate indication, we're trying to help you with your calculations. And now you're asking me to give you the tax rate beyond 2015. It's 27% to 30% effective tax rate for 2015. Beyond that, I can't give it to you. It's very much depending on the mix of growth. And if we grow rapidly in for example The U. S, the corporate tax rate goes up. If there's more growth in The Netherlands, it goes down. And that is currently this is our assessment with possible scenarios for 2016. You'll have to wait a little. Okay. Thanks. And just one quick follow on with France. I mean so if there's no particular calendar effect in January, that minus one is obviously a pretty strong number. And we've had the PRIZM data, which showed that the number of tents at work in Jan was minus 3%. So do you feel that you're no longer underperforming the market there? And does that have something to do with the comments you mentioned about being a bit more flexible on price discussions? No. We're definitely getting closer to market. That's true. Also there are some comparisons which are not too great in France. So we ended with slight growth in 2013 Q4. So therefore Q4 was a tough comparison base. And then we started to 2014 rather weak which continued throughout the year. So there is some easier comps there, but there's also improvement. Okay. Thank you very much. Our next question is from Tom Sykes of Deutsche Bank. Tom, please go ahead. Yeah. Morning, everybody. Just on the gross margin development in Q1, there's obviously quite a and specifically just on the temp gross margin. You spoke about what may be happening in The Netherlands, but there's quite a bit going on in terms of perhaps non wage effects in The U. S, the annualizing of CICE, other subsidies, Germany, etcetera. What's your view on where the overall temp margin or the basis point movement in the temp margin is going to come out at, please, in Q1 as it stands versus that minus 10 basis points in Q4, please? It looks like a pretty stable picture. So on the one hand, you do see pricing pressure with large clients and sometimes you go ahead with it, sometimes you don't. On the other hand, we do see in January the perm growth continuing. And as you've seen that offsets certainly in Q4 offset the margin going down in Staffing. So yes, pretty stable picture, Tom. Yes. But I mean okay. But it was really excluding the perm effect. And then when one looks at your perm growth, are you coming in at the market price point on perm too? Or are you being commercial in perm to try and build your market share? Because obviously it's still coming in at 100% gross margin that you might be a little bit cheaper than others. Where are you on your price point there? It would be a first in any service ad, Tom. You know as well we've never competed on price and we always compare compete on quality. So definitely not growing perm because of pricing. Now Robert Jan alluded to this being a micro strategy. Certainly perm in staffing, Linda's business in The U. S. Has done very well and has increased their perm as a percentage of gross profit from 3% to 7% close to 8% in her staffing business. The European businesses are taking on board the way they've done this and so far this is very successful. The European businesses also are at like 2%, 3% of total gross profit in perm. So these are basically the same profiles you see in Staffing, but we're training our people to sell both and it works very well. So it's a profitable business. It's not on price and it's growing and we don't see the end of it yet honestly speaking. Okay, great. Thank you. The next question is from Laurent Brunel of Exane BNP Paribas. Laurent, Two questions on my side. First, regarding your activity there. Can you update compared to what you said during your Capital Markets Day? So it was up 29% in the last six months. Is it really felt in Q4 please? And second a follow-up on France. I've understood that the growth is well the improvement is driven by your in house services. But can you maybe comment by segments? Is it the auto sector which is picking up or? Thank you. I understood your last question not your first. In house is of course by nature certainly in France a blue collar business. So it's in automotive, it's in food, it's in logistics. And there's not so much sectors because we just we open individual new branches and they could be everywhere because we course sell to many potential clients. So not one sector sticking out there. Just a second. Okay. And regarding my first question, it was regarding your activity level. So on the communicated on the 29% increase. Yes, yes, So activity levels, well of course it's driven by quite a few countries in 2014 which came from low levels. So in The Netherlands there's quite an increase. Also in Germany it's quite an increase. So normally this percentage increase should go down. That's not a problem because also here there's sort of a cycle. You start with increasing your productivity level sorry your sales levels Then you look at your conversion. So how much of these sales activities leads to more business. Then you look at the quality of the calls of your people. You look at the quality of your database. You look at the quality of your web presence and your candidate handling and then you take it from there. So I would expect the increase to go down, but at the same time the conversion to go up, but that's always a tough one to calculate. Okay. Thank you. Our next question is from Andy Grobler of Credit Suisse. Andy, your line is now open. Hi, good morning. Just a couple of quick questions from me. Firstly, France, you mentioned the French government has talked about more consistency in terms of subsidies. Do you think that also applies to CICE? And does that mean you're more optimistic I guess incrementally that CICE will be maintained into 2016? And then secondly just on finance charges. You noted the FX impact within Q4. Do you expect similar impacts through the start of 2015? Thank you very much. I'll take the last question first. The answer is yes. Yes. And yes, we're also absolutely certain that we'll get in 2016 because it's a three year scheme, it was announced as such. It's not necessarily the fact that the pure technicality of CICE as a support package will continue into the years after, but there will be probably different or similar support packages going forward. So the technicalities we don't know. But the government has been quite vocal and I met myself, I met with Walls personally, the Prime Minister. And they really want to support the private sector. But they do this in the French way, which is through subsidies. But yes, the fact that they are now so vocal and sure about it, we hope will help the confidence of investors in France, which is important. Okay. Thank you. The final question from the phone is from Angus Stains of UBS. Angus, please go ahead. Hi, guys. I was just hoping you could confirm that the conversion ratio guidance assumes constant currency. And if possible, maybe even give some indication of the relevant or the relative currency impacts on sales compared to costs compared to the net finance charge? It's constant currencies, yes. Roughly the formula is simple. If you look at Q1 twenty fifteen and you compare year on year taking the current levels then the impact at OpEx level is €38,000,000 then GP would be €43,000,000 leaving the €5,000,000 benefit at the bottom line. And I cannot sort of get you further details on the FX. It will continue to show up given the current trend in Q1. And this is bookkeeping. Economically, we aim at doing the things right, but bookkeeping forces you to present it in a certain manner. Fair enough. Thanks. Okay. Thank you very much. Maybe as a final question we have two questions left. But first give the floor to our old colleague, Pietijn. Pietijn go ahead. Yes. A couple of things not too difficult I think. Could you you've been very nice in quantifying the gross margin online of year on year developments for almost all regions. Could you shed a little bit of light for quantification on Germany and The Netherlands as well? I think that would be consistent. And secondly, could you elaborate a little bit more on how the volume development in Germany would go let's say beyond the soft patch? Mean we're at very low levels of unemployment. I mean is there still scope to see let's say high or double digit numbers growth going further into this cycle in Germany? Or you shed a little bit more on the longer term outlook for Germany? Okay. I'll handle both questions. So Peter, we don't give gross margin developments per country because we do give EBIT growth and basically everything else. Every country you give the development in gross profit. Okay. So Robert Jan will elaborate then. Well, Germany, politically, things are going not in the right way. So Germany was a sick man of Europe some fifteen years ago and then under Gerhard Schroeder, which probably he was still working with us, he visited some branches from Randstad to look at the model in The Netherlands. And that was effectively adopted by the social democrats in Germany. So the Hartz Law made Germany flexible, created a lot of jobs. But it wasn't good for the Social Democrat party. They lost a lot of votes. Now we see the Social Democrats party coming in again with a very old fashioned agenda bearing down on flexibility, increasing minimum wage in the Eastern part of Germany to 8.5 where it's as I mentioned €2.65 in Poland like 40 kilometers to the east. We think that's bad news. We think it's old fashioned. We're lobbying hard against it. But Merkel doesn't give a lot of pushback. So they had some dogmatic points and yes that's not great. So that won't help penetration rates as such. So Germany was the only country in Europe which in 2012 had a higher penetration rate than in 02/2008. So all what we lost in The Netherlands and France has not been gained back. It was in Germany. But yes, the last two years have in that sense not been great. So yes, remains to be seen. But certainly also in Germany, we concentrate on SME business, white collar business and perm business. Also changing our business mix a bit away from where we were to see some compensation there. Currently not enough. A little help from my side on gross margins. In The Netherlands, it's roughly flat. There are a couple of components here. Social securities have changed. But overall, it's just a little bit below, but not much. And if you look at Germany, it is below the previous year. And please refer to what Jacques explained on the legislative changes the thirteen week rule. I would say that on an annualized basis would be a cost of around €20,000,000 That's very substantial. And of course the margin as a percentage in Germany has gone down also because the price increases, but also the cost as a percentage has gone down. So in that sense they talk to each other. The margin nominally is pretty flat. So that's still okay. But as a percentage it goes down. Final question for Hans. Yes. Two questions if I may. First of all on Spain, we saw quite a pickup in January in growth rates, but of course, you indicated that you shed some let's say former business of USG operations. So is it let's say that the comps are becoming somewhat more easy? That's the main reason that you see a big jump or are there also underlying drivers that you really see that you're gaining clients and traction? And secondly on your dividend policy and M and A. So far we have let's say discussed it quite a few times over the last few quarters what you should do with your cash and increasing dividends. At that moment in time you always said well of course we have to look at M and A these kind of things. This time the statement was quite clear. If the balance sheet is strong we will be in the upside the top end of the range. So you are more clear. So that also means that you let's say see that M and A is becoming more difficult. You already indicated that prices are a little bit on the high end. Is that we believe that M and A is really becoming more difficult, so more difficult to get very interesting targets? Yes. That's exactly what I said. So it will be a bit more complicated. And the choice for dividend is clearly following the strength of the balance sheet. But we're looking at midsized deals as I explained and we'll continue to do so and we might identify one or more during the year. We'll see. And we'll get back to inefficiency in the balance sheet only when we have net cash in the balance sheet. And really we're a high service company of course and we've brought you just for today a specialist on Spain Rodrigo, RMD there. Can you comment on the Spanish developments? Yes. I would say on Spain it's a combination of things. Yes we are happy with the turnover rates we are seeing for first time in several years. I would say it's a combination of different things. First thing is in perm both professional and perm staffing. We have developed a model, the business model that is somehow is allowing us to beat the market quite consistently. That's the first part. The second is linked to USG because comparables are getting better now, because the divestment that previously Robjan mentioned were made at the beginning of last year. Third thing, we have been rebalancing the company in the second half of last year, again back to growth, because as you have seen we have got solid improvement in profitability. So we were feeling comfortable with that. And mainly through activity based field steering we have been rebalancing back to growth to catch the market moment that we are starting to see there. Against pretty serious comparables. Okay. Okay. Maybe okay. Sorry, if you can go ahead. One question please and then we move to coffee. Thank you very much. Sorry, one last question for me. The sickness thing in Germany, it was implemented in I don't know precisely when, but is it the first quarter you mentioned that there's such a severe gross margin impact. So is this the first time? Or was it also there previous quarters? Or should we see this as a how should we see this going forward in 2015 then? No. Of course, we mentioned the total effect for the full year, so that's why it's a big number. But I or we commented on the fact that this was a funny thing and that sickness was relatively high as normally you would see a sickness rate of in the summer at least of two point eight percent and we were above four percent in the summer. So then you know something's wrong. So it's a funny system. So you work with a client for a few months and then your wages go up. But that's not to say what you're going to make at the next assignment. If you then know there's going to be lower, something happens, I don't know, headache, whatever and you fall ill. In The Netherlands, we are privately insured. So we take the risk of illness ourselves and we got an operation in place to assist our people getting back if they're ill. In Germany, it's still pretty old fashioned. You can't even really call the temp. It's still the system we had in The Netherlands years ago. You go to a doctor, he says, oh, you don't look good. Please take two weeks and then come back. In temping, it's a day business. So we want you to be back if you're not ill the day afterwards. We cannot really touch those people. So that's why and the same in a way goes for holiday. You also go on holiday if your next assignment sort of is at the low end. So these are funny effects and we saw them coming in because people get used to it. We saw them coming in more. And yes, this is also going to be part of the game for $2.15. We're trying with our price increases to sort of offset this to clients. But yes, compared to the fact that also the bill rates went up, yes, that's going be tough. Okay. Thanks. Okay. Thanks, everybody. Thanks for showing up. I invite you all for some coffee and some refreshments. Thank you very much and see you next time.