Earnings Call: Q3 2014

Oct 30, 2014

It's your host, Robert Jan van der Kraatz to begin. All right. Ladies and gentlemen, good morning. Welcome to the call on the third quarter results for Randstad Holding. I'm sitting here together with a team including Jacques Arun from Investor Relations, but also Linda Gallipeau from our American Operations Operations. We're going to discuss the third quarter results. And since the crisis, this is the best quarter that we have seen, the best third quarter that we have seen. Moving to slide five right away and the header effectively says it all, it's continued stable growth. And it's important to realize that if one compares the organic growth, which came out at 4.2% in the third quarter compares to 4.5% in Q2. But if you look at the comparables of last year, the trend improved from minus 1% in Q2 last year sorry, from minus 4% in Q2 last year to minus 1% in Q3 last year, so a delta of 3%. And keeping that in mind, you could say that effectively the organic growth has continued at the same level. If you look at the month of September, it was slightly lower than the quarter. We know it also happened in June that these lines are never linear. It's sort of hovering around this level. Gross profit is a bit more stable. Throughout the quarter, it was around 6%. Gross margin improved and the strategic focus on our perm business including perm in our staffing business is clearly paying off resulting in a growth rate of 15% now bringing it to around 10% of gross profit. Professionals also showed growth at 9% and I'll get back to the segmentation later on, but resulting in good profitability. Operating expenses have increased by €6,000,000 if you take constant currency. And by the way the impact of foreign exchange at the bottom line is minus €1,600,000 at the EBITA line. We've seen headcount investments in selected countries or segments which are fully justified by growth. And the incremental conversion ratio that is the sort of EBITA that we have earned on the additional gross profit for which you know we have an ambition depending on the phase of growth where we are, but it arrived at a solid 66% for the group. And as such the EBITDA margin came out at 4.7%, an improvement compared to 4.2% last year. On slide six, you can see context in which we have operated throughout the quarter. The growth rates are clearly visible here. The developments are a bit different country by country or region by region. The North American market clearly catching up to a higher growth level, especially supported by our staffing business in The U. S. And then in Europe, we see sort of a growth rate that's hovering around the same level now for a while. And if you look at the bullet points underneath, you can see that the North America region and The Netherlands are showing accelerating growth in the third quarter, whereas we see stable growth in most European countries with the exception of France and Germany, which are the most challenging markets. They clearly are the most challenging markets and I'll get back to both. And we see double digit growth in emerging markets in Australia and we see growth at a stable level in the Japanese market in our Japanese business. On slide seven and eight, we have our sort of priorities and the approach, the strategy that we are following. I'd just like to point out that the details will be discussed at the Capital Markets Day on the November 20. So we'll get back to it by then. But very briefly for now, we serve our clients typically in the SME segment through the traditional model. It doesn't have to be, but this is sort of the standard whereas the large accounts we try to service through specific delivery models as you can see here. And the details as I said we'll discuss further including our total talent architecture approach. We're going to discuss that on the Capital Markets Day. On slide eight, the underlying sort of strategy, which makes us organize our work towards the growth to 5% to 6% EBITDA. In the middle, you've heard it many times now activity based field steering that drives the commercial activities of our consultants in the various operating companies. And to the right hand, you see our management framework, which makes sure we do that in a very concise manner, very much focused on accountability also with tight pricing guidelines and especially also focused on outperformance. And then if we do it right, for example, in operations like China and Spain, we put on the growth accelerator to accelerate the growth. I'm now moving to slide nine starting with a more detailed analysis of the various countries or regions. To start with North America, record profitability and strong growth. We're very proud of what we have achieved here. The incremental conversion ratio arrived at 60%. That's pretty high taking into account that The U. S. Staffing business has been growing for quite a while now. Effectively, it started in 02/2009. And then typically you have to start adding substantial cost to support the growth, but we still achieve productivity improvements here. Gross profit is up by 8% and the revenue trend is at 10% versus 6% in the second quarter. We do see in U. S. Staffing and in house good performance in manufacturing and logistics, which effectively continues compared to Q2, but now also admin is adding some power here and that creates the increase in our revenue growth. Also perm is strong here. It is strong across the group, but certainly in the American Staffing business. Moving to U. S. Professionals. Gross profit up here 3%. Revenue flat. That's also an improvement. Gradually we see things improving here and the strongest growth we see in finance and accounting where gross profit is up 8%, but also in engineering. Source Right, that's record profitability and our MSP spend under management has clearly increased by 43%. Also Canada has improved somewhat from minus 4% to flat and slightly ahead of market all resulting in an EBITDA margin of 5.7%. In France, this is a difficult market. We do see improving profitability. The recovery ratio is excellent. But I have to say that we consider this market to be very, very challenging. It was at minus 1% in Q2, now at minus 4% in Q3. If we look at the Staffing and In House segment, it's minus five But in In House, we are growing by 12%. We have a strong focus on client profitability. This is a challenge. We are clearly supported market. If you look at the EBITA margin by additional low wage subsidies, the continuation of that in the longer run is doubtful. And as such, we have a clear strategy on retaining those subsidies rather than sharing because it is highly likely that this will disappear. Professionals are at plus one compared to zero in the previous quarter, but also perm fees up here in the French market. It's not an easy market I said, so this is clearly the result of a micro strategy. Gross profit clearly improved and by now the branch restructuring has been completed. The numbers of outlets is down by 112% and we are now at roughly seven fifty branches in the French market with a record profitability here as well, but again supportive. The Netherlands, we're very happy to report that we are closing the gap to the market. The gap to the market is clearly the result of circumstances in the Dutch market. On the one hand, too little focus on the SME segment, which has been addressed and is clearly paying off. And on the other hand pricing pressure, some unrealistic pricing in the Dutch market both pricing itself, but also payment terms and we have been very critical towards selecting our targets. Revenue at plus 4% now compared to the previous quarter at 0%. Tempulteyn growing above market now plus 7% and we see that continuing. Randstad Netherlands at plus 3% with strong growth in the SME segments. But also professionals in this market show significant growth 16%. Also again here perm up 25%. We have a slight cost increase in the Dutch market. FTEs are up by 3% and that's a reflection of the investments in growth areas and we also spent a little more on marketing and that's a typical seasonal pattern in these opcos. EBITDA margin at 6.3%. As you know, are in the midst of a reorganization aiming at efficiency improvements roughly two fifty FTEs. And as we always aim for the payback period here is within one year. This is the result of integration, especially of back offices of the various operating companies. We already have shared service centers, but we're taking it to the next level now and this is the result. In Germany, another difficult market in Europe, we see continued market challenges. It's clearly an effect of deregulation. Randstad is at market, so this is a market issue. Revenue at plus 2%, but volumes are negative. The price effect is now 5%. Also here again perm growing at 29%. If you look into the details into the verticals, we see good growth in IT, but also in house in our Tempo team business. We have a strong focus on SME and being very selective in the delivery models that fit our clients. And we clearly see the impact of regulatory changes coming through. As a result of those, our cost price has increased. And in many cases, there's no margin on that increase of cost price. And it also confuses the market slightly. We now see sickness pay sometimes being higher than the salary that a flex worker can earn. And this happens in the example that a flex worker moves from one assignment to another against the higher hourly rate, but then turns sick and then the sickness is paid on the basis of historical earnings, which were at a higher level. So it can be very profitable to beat sick and that is of course a bad situation. Operating expenses were retained at a flat level and the EBITA margin is at 5.4%. Belgium, continued growth very strong cost control. It's the result of something similar we're now doing in The Netherlands, which happened in Belgium at the end of last year. A clear efficiency improvement here resulting in an incremental conversion ratio of 140. Revenue was strong 6% even better than Q2, but somewhat easing throughout the quarter. Clear improvement in in house, but also good growth in white collar. Professionals up by 14% here. Gross profit improved by 10% and the EBITA margin as a result of very strong operating leverage up to 4.9%. Slide 14, The U. K. We have a focus on profitability as such not so much on revenue. Revenue negative at minus 3%, but gross profit up by 8% and that's a result of an improved mix. Construction is still performing well like professionals. Finance and IT remain under pressure in this market. These are more difficult segments. So as a result of our focus on client profitability, we have seen some clients exiting and that we think is justified. Perm fees are up by 12%. It's roughly one third of our gross profit here, it's an important part of the business in The U. Percent due to investments in growth segments. In Iberia, we see stable growth. Incremental conversion is amazing 203%. So we do a lot more with effectively almost the same revenue growth in Spain at 9%. We see growth in automotive and manufacturing as well as in professionals and perm. The we also see some loss of revenue. We're slightly below market here. That is due to focus on profitability and this is mostly the result of our selective approach to the acquired portfolio of USG. Portugal growth at 9% also continued strong in the manufacturing and automotive sector. But we have a pretty strong focus on profitability and that includes an EVA approach here also because of very long payment terms in the Portuguese markets. Excellent EBITDA 4.8. Well, the selection of other European countries Italy continuing to do well Switzerland the same Poland still high growth FTEs investments continue professionals is up 96% starting to create a good base here as well. Overall, strong operating leverage resulting in a good return. In Japan, growth at 6% mainly in logistics and retail, but also admin as well. And also in our book we can see that going well. And we have this year we have quite some investments in growth in various segments. Australia and New Zealand clearly improving also at the bottom line profit contribution. Asia continuing to do well. China a growth a very significant growth of 54%. Now it really starts to count and results in additional profits. Latin America up by 13% and there we have a focus on productivity, but also on repositioning. We continue to invest significantly in those markets. Moving to the financial results and the outlook. Well, the P and L is just a reflection of everything that has been said so far. At the EBITDA level foreign currencies have an impact of €1,600,000 negative only. And then we have some integration costs some sorry some one offs which relate to restructuring 6,000,000 This is mainly The Netherlands and we expect more in the fourth quarter as we have announced in our press release. Net finance cost an increase and that is mainly due to foreign exchange as well. If you look at our syndicated loan facility, we now pay I think like 0.6% interest that you get if your reports are close to zero. Q3 twenty fourteen, the financial key points. Our free cash flow is slightly lower than last year in the quarter and that is completely the result of on the one hand some growth, but mainly DSO, which showed a very clear improvement in Q3 last year. So there was a substantial benefit recorded in that quarter. So if you take these two elements out that same benefit did not occur in this quarter in Q3 twenty fourteen. If you take those out, it's very comparable. Leverage ratio improved to 0.9 at the end of the quarter and interest expense was only €4,000,000 Tax rate, the effective tax rate amounted to 30%. Guidance for the full year remains 28.31 And the diluted EPS is now at $0.77 Return on invested capital almost 14%. Looking at the segments. Staffing improved. Please note the perm improvement here 20% clearly supporting the performance here. In house at a I would say still remarkable 5.3%. This is our lowest gross margin business. It includes growth in France and it pays an EBITDA margin of 5.3% in the third quarter, an excellent component of our business. Professionals is also catching up. That is good to see. I already referred to China just before, but also Belgium, The Netherlands, Iberia and Poland are contributing here 5.5% EBITDA margin now. We're not there, but it's clearly improving. The gross margin analysis on slide 22, not much to say here 18.2 to 18.5%, mainly an improvement as a result of permanent placement, but also margin expansion in The U. K. And Belgium and in the French market. As I said, perm fees now at almost 10% of GP. Operating expenses, this is a sequential analysis, whereas the previous one was Q3 last year against Q3 this year. We're now looking at Q2 this year compared to Q3 this year, so sequential. And then again the foreign exchange as you can see some marketing spending a little lower. And then organic investments in The EU and in North America, reflecting our investments in growth areas and also somewhat higher commissions due to growth in North America. I think all in all relatively moderate increase here. Net debt down by €129,000,000 year on year as you can see here. I think the data here are all in line with what I mentioned before. DSO more or less flat. We continue to see a push from large clients to extend payment terms. They effectively knock on our door as if we are a bank and we are not. So that must be a mistake some confusion here which we're trying to sort of put back on their plates. That is a challenge. That remains a challenge. There are by the way clear European guidelines here that no one really seems to take very seriously. So that is something that needs to be addressed by all of us. In the meantime, we continue to see improvement opportunities internally, which we are addressing structurally. Working capital as a percentage of revenue is at 3.5%, very moderate as well I would say. Well, the free cash flow which I mentioned before here two fifty million against $310,000,000 which was already explained. If you look at the last four quarters comparisons to the right hand side of the page, you can see that the change in operating working capital is now 7,000,000 compared to $233,000,000 last year which is growth. Income tax is paid, it's a lot more in the last four quarters than in the previous period of four quarters which is fully explained by the one off payment to the Dutch tax authorities. So all of this relatively easy to compare. And then finally the outlook Q4, we have included a page 27, which gives you the September exit rates. You can see in France it improved compared to the quarter to minus two. The Netherlands flat at 4%. Germany roughly in line at one now. Belgium as was already mentioned easing to three percent. Iberia at 6%, which is the result of some choices made. The U. K. Focus on gross profit minus six the rest of Europe at 12% North America 5% and the rest of the world at roughly the same level at 10%. If you look at the October development, every week we follow volumes and we can see that the volume of employees working and placements is roughly flat compared to sort of the average of the quarter of the third quarter. And typically that translates into revenues that behave in the same way. We anticipate a somewhat smaller foreign exchange impact. And again the comparison base continues to strengthen at minus one last year in Q3 moving to plus 2% in Q4, so a delta of 3% that has to be taken into account. Gross profit was stable throughout the quarter at 6% and we continue also in Q4 to focus on revenue quality, especially in markets like France. It's a similar number of working days in Q4 as last year and we again expect a moderate increase in the cost base sequentially, again investments in headcount, but only in selected markets. And the restructuring measures start to become effective in The Netherlands. We expect to see the full savings of just more than €20,000,000 in 2015. And we expect the foreign exchange impact on the cost base to be around €8,000,000 We're giving this indication in order to make sure that everybody understands the development. It's an upward effect €8,000,000 extra. And then again our Capital Markets Day where we hope to see you on November in London. We now move to Q and A. And I'd like to I want to ask you to restrict yourself to two questions each. Thank you. Operator, go ahead. Thank Our first question today comes from Nicolas Delegrantz from Bank of America Merrill Lynch. Nicolas, please go ahead. Good morning, guys. Thanks for taking the questions. First one on France and particularly on the wage subsidies, CSA. You mentioned on the call that you see them as being highly likely to disappear. I was just wondering if you could clarify if your kind of sentiment towards the subsidies has changed or whether that was just a general comment about subsidies in France generally being a temporary phenomenon. And I was particularly wondering whether you what you read from the recent French budget, made it sound like CICE was here to stay at least for the next couple of years. And then the second question is on just the estimated impact of pricing in Germany in Q4. Obviously, volumes have gone negative now. Was wondering if you could give an indication of what the price benefit might be. Thanks. Good morning. Jacques here. Well, subsidies in France are not a temporary phenomenon. I've looked at this market for fifteen years and there's always been subsidies. So is just another addition. What Robert Chan tried to get across is we're trying to build a long term business and competing with subsidies doesn't really belong in our book. That's not to say that CICE is going to disappear on the short term. As you know, this is a system which will run into 2016 and it's absolutely the case that government has announced that there will be a similar or a different, but with a similar effect package in place because this government believes in stimulating the economy with measures like this. So no short term disappearance of CICE. Impact of the wage effect in Germany is going to ease further into Q4. We expect it to be around 4%. And volume development in Germany currently is stable in October. Okay. Thank you very much. Our next question comes from David Theria from Rabobank. David, please go ahead. Yeah. Good morning, gentlemen. First of all, question on the dividend policy. I remind you, you mentioned the 40% to 50% payout a couple of years ago. And then also stating that it would be at the high end of the range, let's say, close to 50% if your balance sheet would be strong and if top line trends would be supportive. So should we use the 40% or the 50% for let's say the pending year as payout? And then also on the conversion ratio, which is at a group level quite decent at 67%. But in some countries, it's clearly below that level, if you would, for example, exclude the CCA impact in France. Are there more improvement programs scheduled as you have, for example, already planned for Belgium and The Netherlands? Thanks. Yes, David. You're a little early for dividends. I know. Yes, yes, yes. I think we try to give some guidance by setting out what drives us in our decision. So indeed the balance sheet is getting more comfortable. As you know, we're always looking at if there are opportunities to expand also by acquisitions, but nothing imminent right now. We'll see how the rest of the year works out and then we'll take all of that in account. But I think our sort of our decision of last year gave you some guidance. It's a bit too early. We haven't even discussed it with the Supervisory Board. So you have to do with sort of the behavioral analysis of what we have done in the past. And then the conversion ratio, indeed there are some countries where it could improve and we're constantly looking at ways to improve that. And we also indicated that we would like to go into a bit more detail on the Capital Markets Day here. Okay. That's a nice answer. Thanks a lot. Thank you. Our next question is from Toby Reicks from Morgan Stanley. Toby, please go ahead. Good morning, guys. One on the cost base. You're talking about a moderate increase in SG and A. I think a moderate increase was about CHF €6,000,000 on an underlying basis when you flagged it was going to be moderate in Q3. What the question I've really got is, you usually have a larger quarter for marketing expenses and you flagged that you would be doing a bit more marketing, I think, on the call in one or two. Should we assume that moderate increase includes the marketing expenses and that that €6,000,000 is about the right thing for Q4? And then I've got one more. Yes. That's indeed last year in the fourth quarter we had an increase in our marketing expenses. This year we're not going to have a similar increase. We're constantly looking at opportunities to support our commercial activities. So you should use last year as a base and then we expect very moderate growth on top of that. Okay. Fine. Thanks for that. And then one on gross margin, which sort of got a maybe two parts to it. Sorry about that. The first one is in terms of ACA, what are you guys expecting? What sort of an impact you're expecting from next year? And then the second one is in France, some of your smaller peers are obviously refunding some of the CICE. Can you confirm this? And what are you doing in that respect? And should we be looking for some gross margin pressure in France going forward? Thank you. All right. Toby, just as an addition to my previous reply, please note that the company is growing. And as a result of that that has some impact at OpEx. We're now moving to Linda who's here as the ACA expert of the company and she's going to respond to your question. Linda, please. Excellent. All right. Can you hear me? Yes. Okay. So in terms of ACA, so I'll start at the top line. There will be some, albeit quite small impact of ACA on the revenue line. We expect less than 1%, probably more in the neighborhood of 0.5% on the revenue line in The U. S. Market. So 05% to 1% on the revenue line, not more than that. And what does that relate to? Sorry, is that relating to people going more into temp working? Or is that more a technical impact of CICE coming in and So right now, I'm responding in a demand neutral way. So I'm saying like for like revenue basis just in terms of the cost increases and that being passed along to customers in a revenue neutral manner, which is how we're going to address it, you'll see that. Now the increased demand and the increased consolidation potentially in some of the larger suppliers like Randstad will have a yet to be seen effect. We expect it to be, yes, neutral to positive. I don't see why it would go the other way, but I'm talking on a like for like revenue basis. We expect it to be GP neutral and we expect it to be EBITDA neutral and a GP percentage neutral. So all costs are being passed along and there's nothing that we've seen so far to indicate that we're going to have any sort of margin pressure associated with ACA. And you've obviously, you've been having those conversations with your client base and they said they're happy to pay the incremental? Yes, happy to pay. Fully expected it and we've not had to the extent anybody is happy to pay. Fully expected it and comfortable with the price points that are being quoted, because you also see that they're seeing in their own business. ACA is something that impacts all employers. So I'd say of all of the conversations we've had over many years about this topic, this has been the smoothest. Toby, we of course, we hope to see some impact in the markets from complexity, but it's way too early to talk about that. Fine. And then going on the Yes. You were a little naughty asking three questions. Allow us for once. Can you repeat your CC question please? So I think some of the midsized players are refunding or not refunding are sort of prepared to give out some the CC. I'm sure you're seeing that and that's sort of why you guys are underperforming the market slightly. What are you guys just going to hold firm on that? You're not seeing any of the other larger players doing this, are you? Yes. You're right. Your analysis is right. We see the smaller players being more aggressive in these fields. You see some of the smaller players with double digit growth in France, which is clearly the result of more aggressive pricing. The behavior gets better when the competitors get bigger. But I think there is some sensitivities also with some of the larger players clearly resulting in the gap with market as we have reported it now. Yes. So and to elaborate on that, we mentioned in Q2 that we shed roughly 2% of business in this way. It's not like fully shedding clients, but they just broaden the panel of suppliers. And then yes, of course, you lose a bit of share there. Funny enough, we don't see we don't get these questions with our in house clients. So apparently, when you have a value added strategy for the client, they don't want to squeeze every dime out of you. So that's good to hear. It's also note what we've shared is increasing in Q3. We are now looking at annualized probably like 3%. Again, we don't care that much. We are the number four in number three in the market. So from a volume point of view, that's not really what we're looking for in France. Currently, upside is that we're growing in SME. We're growing in perm. So that's all good. And then, yes, if the market picks up again due to economic development, then again we'll outperform market as we did in 2010, 2011, 2012 based on the more than 100 points of sale we have in our in house. Okay. We live in hope and see you at the Capital Markets Day. Yes. Good. Looking forward to that. Our next question comes from Marc Swatzenerg from ING. Marc, please go ahead. Yes. Two questions from my side. First on The Netherlands. If I look to the margin development quarter to quarter from Q2 to Q3, it seems the development is less positive than last year. And also if I look to the leverage year on year over the quarter with 0% growth in EBIT. I do you mentioning I see you mentioning more marketing spend and some investments in FTEs, but it confused me a bit that at the same time you're running you're continuing with a slight restructuring here. I also thought that the growth should come from more focus on KPIs. So can you perhaps update me what's going on there exactly? And what has improved in terms of KPIs on the unit steering that drives the growth? Or that was the key driver for the growth in closing together the market? That's my first question. And do you want comment the benefits Yes. Of I'll address your first point and Jacques will take care of the commercial activities. The I understand your question. Last year the EBITDA margin was slightly higher in The Netherlands. You're right indeed a bit more investment in marketing. It becomes a bit of a science whereas we all know that at the end of the quarter you have to close the books and then you have to make estimates. And last year, I think there was a bit more favorable development in some of the social security items than we have now. So this is much more in that field than anything else. Moreover, you've also seen our growth reported in perm and that is one of these examples where we have made some serious investments to accelerate growth and that is also coming through in the Q3 earnings level. So it's I would say it's all marginal items that together sort of explain this difference. Yes. And as you know also compared to peers profitability in our Dutch market is not our problem. On the contrary, we're happy with our profitability in the Dutch market. Your question on okay, so you grow and then you're shedding two fifty people that's the right question. But what are we doing here? So we're doing the same thing we did in Belgium. So we are combining all the back offices of the two companies in Belgium. That went very smoothly. As you can see, there's good growth in our Belgium business. So it didn't hurt our front line. We're not touching our front line. We also did this, of course, in Spain and Italy last year as a result of the acquisition of USG, which is absolutely the same way of going about it. You combine two companies. And in both companies Italy and Spain, you also see a huge increase in our profitability as a result of a huge decrease in our cost base. So in The Netherlands, we've done the same thing, three companies and that results in two fifty people less combining one management board, one HR department, one finance department, one marketing department and one facilities department. There's two fifty people. We don't like that because at the end of the day we fire people. Having said that, yes, we are of course doing what we also do for our clients. So we're creating a mobility center. Last time we restructured in The Netherlands two years ago around 135 people. After nine months 80% of these people have found a job or we have found a job for them. So that's what we're going to do. So bad news for the two fifty people, but again optimistic on finding jobs for them. Mark, addition the cost base also includes our investments in our efforts in the SME markets. Yes. Fair enough. But if I see no progress on EBIT A growth the no growth in EBIT A, you see the top line finally accelerating a bit. And at the beginning of the year, the focus is really on improving KPIs and the discipline around that. And I also expect a little bit of leverage in terms of profitable growth soon as the growth kicks in a bit. Then I see that the number of FTEs indeed there are some investments made at the same time a big cost cutting program is running after that. That seems to be a little bit conflicting. So how much of the cost base will be sticky? And yes, if the growth is coming and we need immediately more investments then how should we think about EBITDA growth going forward? That's a bit what It's confuses a fair analysis and it should indeed return in improvements going forward, but not yet in this quarter. So I think your assumption is right. If you look at potential profitability of the Dutch market, it remains solid in our view and there is clearly still an improvement potential here which we expect to see coming through. So I fully understand your question, but it's a matter of timing. But it's not about pricing pressure, so that there is contracts coming in at lower prices, because as you also see the Abbe figures and you see volume growth above revenue growth also sends a bit of a message of pricing pressure continuing. That what's going on? There's definitely pricing pressure of course. We also said in Q2 that we also shared business in The Netherlands roughly 2% top line growth as a result of that. But on stickiness of course, so the two fifty people we're taking out will not come back if we grow. So because it's back office, they also rationalize the processes in there. So if we were to grow mid single digit next year and even the year after, these people will not come back. So it will result in a structurally lower cost base in The Netherlands. So that will definitely help leverage. And Marc, our gross margin is up in The Netherlands. So that counterarguments you're worried to some degree. You're right there is pricing issues, but we are selective. And I think it's working out relatively well. But need to see leverage coming through absolutely. Please don't worry about that. Mark, sorry I wouldn't like you to be worried. So, don't be worried. Well, the gross margin statement for Robert Jelten helps a lot. And then I had a second question on Germany. Can give us a little bit of a feel for the trends in October? Yes. They're roughly flat. So what we've seen is a gradual volume decline from a little bit positive in Q1 to 2%, 3% negative just before the summer. We're currently around five and it's staying that way. Five. So apart from economic circumstances, a little bit of a bit more color on the result of legal changes. So we have the two year rule, which we lobbied against because it's funny. It's repairing a problem that doesn't exist. If people have been working as a temp with a client for two years, there is a gentleman's agreement with unions and employers that something needs to happen with people. That either need to be replaced or hired. We calculate that this roughly puts a 2% negative effect on our volume. The other one is what Robert Jean mentioned the sickness percentage. Normally we have 2.8 sickness percentage in the summer. It's now a little over 4%. So that again is a negative volume development in a way of 3%. So there's a bit of economic. Feels different than France by the way and there's a little bit of legal. So that's where we are in Germany. So we're down 5% in volumes, flat on revenues and there's a 2% expected impact negative on volumes from the eighteen month rule. Was Yes. Yes. That's a good summary. Okay. Thanks. Our next question comes from Paul Sullivan from Barclays. Paul, please go ahead. Morning, everybody. Just a question on The U. S. And the sustainability of U. S. Staffing outperformance through the fourth quarter and into next year. And just following on from that, the gross margin staffing decline in The U. S, is that a function of mix or pricing? And then generally for the group as a whole, should we still expect the usual sort of fourth quarter sequential uptick in GM in Q4? Yes. So on The U. S, there has been a shift in mix over the last year. Certainly, the blue collar growth has been in the higher teens and the white collar growth has been in the low single digits. We are seeing continued stable growth trends from Q3 to Q4 in blue collar, so stable at a high place. And the white collar growth trends are accelerating as is typical. A lot of the white collar growth trends were negatively impacted by the mortgage sector. And as we kind of shed those comparables and as that sector rebounds a little bit, we expect to see an acceleration in the white collar growth trends. So I think there's some things improving that can offset anything that may flatten out. But right now, we've not seen any flattening out in the blue collar trends. And it will be very interesting to see as we go into next year the ACA effect because that has yet to be determined. And on the flip side, what we're seeing is an underlying improvement in our Professionals business, which again will serve as an offset when you look at the overall U. S. Roll up. So we do not forecast any declines at this point in The U. S. Overall growth rates. And your question on the group as a whole, we expect the typical seasonal pattern to continue. Circumstances are relatively normal. Actually if you look at the underlying trends, the composition of growth, it's pretty much driven by blue collar across the world. There's a lot of normal sort of normal patterns happening. And also the gross margin in Q4 hopefully is going to follow that route. So typically it comes out just a few points higher than the previous quarter. It is dependent of course on how Christmas is sort of developing. If in Germany factories are closing a little earlier or too early that has an impact. But normally that's the way it feels now. It should be according to the typical seasonal patterns. So it might be a little higher for Q4. Great. Thank you very much. Our next question is from Konrad Zommer from ABN AMRO. Konrad, please go ahead. Hi, good morning. My first question is on The Netherlands. Can you share with us what proportion of your revenues you generate in Professional Staffing? And whether or not the margin development in your Dutch Professionals business reflects the overall margin development of your Professionals business for the group I. E. Now that it's above the average for the group again, does that also relate to your Dutch business? And my second question is on the SME segment in Holland. Can you share with us whether you've seen specific evidence that that part of the market has actually picked up in recent months? And can you explain to us why your Professionals business was up 16% while JORT reported a 1% decline in revenues? Yes. So we're growing quite nicely in SME double digit actually. So that's a direct result of the pickup in calls and visits in this segment. So that's helpful. And also has of course an upward effect on our gross margin difficult to calculate by the way. We grow 16% in Professionals, which is mainly the Ronson and the Tempur team part, which is the mid to lower end of Professionals. And we invested a lot there. So we in The Netherlands, we're building an IT vertical similar to what we have in The U. S. That's a part of the investments we made in the Dutch market, which is also partly a result of headcount going up. We believe that we can grow there, but we are there in the investment phase. So it translates less into profit development. If you talk about Yacht, as you know Yacht segments grew a lot in the engineering segment, less so now talking companies like Philips and ASML, so you get the picture probably. Growing fast again in the government angle. But all in all, it's a rather flat development. We're not happy there. It's also a reason why we're going to combine the professionals business building the verticals and having a clearer and more commercially aggressive and a good sense approach to the professionals market at large in The Netherlands. Yeah. If you look at the share of the total portfolio, it's too little. That means it's below 20%, just below that. And the gross margin is behaving in line with the group as a whole. This relates to The Netherlands, right? Correct. Okay. Yes. It's correct. And just one small question on your exceptional costs. You had €6,000,000 in Q3. The press release about the restructuring mentions €22,000,000 Can we just conclude that the remaining 16,000,000 will be taken in Q4? Most probably, yes. Okay. Thank you. Our next question comes from Hans Pliegas from Kepler Cheuvreux. Hans, please go ahead. Yes. Good morning, gentlemen. Two questions from my side. First of all, looking at your activity levels after Q2 numbers indicated a clear indication of the improvement in the activity levels. Could you give some update on that what's happening there? And especially what's happening with the fill rates? You indicated a few months ago that it was up 30% of total activity levels. But how do you see those filtering through to your fill rates and to your number of jobs you're really getting in? And secondly, more in general on the competitive environment, you were a little bit talked on France. But could you give maybe some other indication on your other main countries how you see the competitive environment developing? Or do you expect anything changing in the near future there? Okay. Yes. Well, on fuel steering commercial activities, we see a similar increase. So we're again around 30% dipped a bit into the summer because there we have the combination of, of course, relatively high volumes and our clients and ourselves being on holiday to a certain extent, but certainly into September hitting the road again, so again 30% increase. I remember us having the discussion on conversion rates and conversion rates is very much in The U. S. They've been doing this for a longer time and they see good conversion rates and they're also a direct link between what you put in the market and the results you get, also in The Netherlands very well in SME. In Germany, however, this has been a company that has grown with large clients. They're now doing 40% to 50% more activities in the SME space, but then you get white collar demand. You need to also create a candidate funnel. That's something we're teaching our people. And therefore, we have a bit of a time lag in actually executing. So it's different country per country. Overall, 30% increase. Conversion rate differ a bit, not so much because of the market. We do see a bit of tightening in The U. S. So that you need to work harder to fill your jobs. Overall, yes, we will see the results coming in. Yes. And your question about the competitive field across the globe, I think we already addressed the behavior in the French market. In the Dutch market, we mentioned that it can be competitive. If you look at the Belgian market clearly also, I think the American market Linda is smart right now isn't it? Pricing. Yeah. What you're seeing in the American market is the tightening of the labor market. And I think that tends to be advantageous for pricing. So we are seeing tightening supply, especially across the blue collar and the professional segments. Yes. In Southern Europe, we see it continuing. I think everybody is sort of behaving relatively professional fairly. If you look at the Japanese market same tightening of the labor market finding candidates is the challenge. So I would say that is sort of the overall picture. The U. K. We mentioned there you need to be very, very selective in which clients to retain and which not. Go ahead. Coming back on the activity levels, you said it's still up 30%. If you look at your how do you see the link direct link with your sales? Of course, see also that your number of vacancies picking up quite significantly. But how do you see it filtering through to your sales? How do you and where do you see still clear room to improve on those activity levels floating through to your sales? There's always room for improvement. That's the biggest room in the world as you know. There is a direct link in perm. In perm, it's a very tight process. And if you do that well then you see a direct link in placements. So there we see really good conversion. In other markets, it's different. It's as Robert Jan always says, our job is an art not a science. So we don't have immediate also sometimes we don't have historic conversions. If we go much more into white collar and SME in Germany, we've done that's to an extent we've never done that before. So we don't have historic conversions. And then you can take it from another country. But in every country is different than even regions within countries. So I can't give you a direct link up. It is hard work teaching our people to improve conversions. Marketing needs to chip in here to get better candidates. IT needs to chip in here to get better web access and job boards. So it's a collaborative enterprise, but it always starts with increased activities and we're happy there. And in the end it should help us to outperform the competition. Sure. As we do in The U. S. For example. Okay. Thank you. Our next question is from Tom Sykes from Deutsche Bank. Tom, please go ahead. Thank you. Good morning, everybody. I just had a couple of extra questions on The U. S, please. And just on your industrial and perm revenues, I appreciate you've obviously got some acquisitions and sizable acquisition in there, but either on a sort of pro form a basis or sort of gut feel basis, where are your industrial revenues and your perm revenues versus their previous peak please? And what level of staff increase are you putting in directly related to perm activity in The U. S. Please? So yes, our perm revenues every quarter are at their peak. So the perm revenues we're seeing are in our staffing business still growing over 30% this quarter and our Professionals perm revenue is improving. So I think we currently are at peak levels. But because of the investments that we're making, we're watching productivity levels very closely. Those are at, I would say, optimal levels, but not we're not under capacity, meaning we're heading we're adding headcount in a very scientific and timely way, and that headcount in perm can translate very quickly into increased revenue levels. On our professional side, what we are seeing is a recovery. So our professionals business was understaffed. Our professionals business has a slightly longer time to productivity. So what we are seeing, especially in our finance and accounting business, is our repair efforts finally coming through and that's helping our perm levels. We're still slightly under market in professionals perm, so I think there's some good upside there. In terms of investing in headcount, I think this is something we got right this year that we had wrong in previous years. And it's particularly challenging this year. And I don't mean challenging hard, it's challenging in a good way. But because of the increase in blue collar the blue collar market, we've had to make quite a few investments. And the good news in blue collar is those investments return very, very quickly. This is a market with a short time to productivity. We have a very tight model. So people we bring in are profitable for us quickly. On the professional side, the time to productivity is a little bit longer. So we're seeing some of the people that we invested in, in the first quarter come to productivity now. And we still think we have some productivity upside in the professionals business and we're continuing to invest in the IT business in particular where our productivity levels are at peak levels and we have lots of opportunity for additional growth in the market. Okay. And just on the sorry, the industrial temping revenues, I guess, is what I was kind of leading to. So I don't know whether I've just misunderstood your last comment, but your industrial temping revenues compared to, say, the peak in 02/1927 and just kind of your gut feel relative to obviously, you've acquired some blue collar staffing revenues in there. Where do you think you are relative to that previous peak, please? We're definitely over the previous peak. We probably want to get back to the absolute number. We'd have to layer back in the SSN acquisition, but we're definitely high versus the previous peak. But also the market is over previous peak also. But again, Tom, our industrial revenue year on year in staffing is up 18% for the third quarter. I mean, that's pretty dramatic. And it is a market where we are seeing lots of different factors at play here. We're seeing demand. We're seeing our strong investments. We're up quite a bit compared to the market and that's for internal reasons that are very favorable and continue to be strong. But we're definitely past the peaks as is the market. So please realize that since 02/1927 we have added Vidyr and then we have added SFN. And finally the third component is that the company became successful. So that's quite a different base And at the then final, final is within the blue collar we also shared some unprofitable and or high liability clients. So we've not just grown a lot in volume, we've also grown a lot in quality in blue collar. Yes. Okay. Final, final. Thank you very much. Next question is from Yves Franco from KBC Securities. Yves, your line is now open. Hey, good morning. Two questions from my side. Regarding perm fees, at what percentage of your total revenue or gross profit is it now? And how high were historical highs on that? What's the target on this percentage? And then secondly, performance in France has been quite erratic now minus 2% Q1, minus 1% Q2, minus 4%. This quarter should we expect a deterioration of situation in Q4? Or does the higher exit rate at minus 2% in September signal a bit improvement? So what are you seeing in October so far? What is the guidance for France for Q4? Thanks. Yeah. France, no unfortunately you shouldn't read an improvement in France in the exit rate of September. It looks a bit better indeed, but we don't see an improvement. And honestly speaking, we also see a bit of, yes, call it growth in shedding our shedding the business. So from a volume point of view, we're not expecting too much. No decrease either, but no increase. If you look at current numbers on a weekly basis, France is pretty stable at around the exit level of September slightly lower, but that's what we're seeing. And the share of gross profit reflecting term fees, in the old days it was at 12% going back to the times Tom just addressed. Then it declined to a level of between 78% of gross profit and it's now approaching 10% again, so clearly improving. And how fast has this grown up again? Like last quarter it was seven still or Two, three quarters. Yes. So how fast? So it's certainly in Staffing if you're looking at a 20% increase that in a large part that's sort of new business. We didn't have that historically. So the larger part of our GP and perm was in our professional businesses in The U. K. And in The U. S. In better times. So it's partly also stuff we got from the market, which is new and we're very hopeful that if the market picks up further also in professionals then we will start growing faster in perm and professionals. So it's actually certainly the perm in staffing part. In U. S, we're already quite strong. But in Europe, this is like two, three quarters. So this is really in implementing the activity based field steering perm has been a very deliberate strategy within that. And that's one part of the strategy which is delivering quite quick actually. I was just informed that Laurent still is waiting to raise the question. So we'll take that as our last question. Okay. Thanks. Thank you. Laurence, your line is now open. Yes. Thank you very much. Good morning. So I will be probably the last one to ask questions. Quickly, first on the restructuring in The Netherlands. So when do you expect the finalization? And what's about the Professional segment please? And second on margins, given some investments expected in Q4, is it fair to assume that the incremental conversion rate should ease from the 66,000,000 achieved in Q3? Thank you. The restructuring in The Netherlands, I've already made that point. We expect the full impact to come through in 2015, so as from the beginning. The professionals restructuring is planned for later. Details are still known to be addressed as soon as possible. And you asked for the incremental the anticipated incremental conversion ratio in the fourth quarter. This is really details in the spreadsheet. And I have to say that if growth continues, it follows the normal pattern. It gradually, gradually goes down, but it should remain high. But it's too precise to share that with you right now. Okay. Great. Thank you very much. I think we've given you most of the ingredients to assess it. Thank you so much. Well, this completes our Q3 discussion on the results. And we thank you for participating. We hope to see you on November 20 in London. Thank you so much. Have a good day. Bye. Ladies and gentlemen, this concludes the Randstad Third Quarter Results twenty fourteen Conference Call. If you would like to hear any part of this call again, a recording will be made available shortly. Thank you for joining.