Earnings Call: Q3 2013

Oct 31, 2013

Welcome to the Randstad Q3 twenty thirteen Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to your host, CEO, Ben Notebum and CFO, Robert Jan Van der Kraatz. You may begin. Good morning, ladies and gentlemen. Welcome to our third quarter twenty thirteen results. I'm joined here by Jacques van der Bruck, Leo Lindelau, Robert Jan van der Kraatz and our Investor Relations team. Before I hand over to Robert Jan, who normally host these calls, I have a personal message obviously. As many of you will have learned from our press release this morning, I'm stepping down as CEO of Randstad as per February 2834. If we include my interim period, I will have been in this role for eleven point five years and at this time for orderly succession. It's been an amazing period in my life as CEO. We, because it's not me obviously, but we, inherited the company with strong core values, but in not too good a shape. We also of course realized the great potential this company had. With our many dedicated colleagues, we've been able to unlock the potential and create a world leader in its field. We are the only one of the top three large firms in the world who have been able to roughly triple our global market share during this period. My motivation has always been to improve our role in performing a very worthwhile function for society. It is impossible not to think every day about how we provide work on a daily basis for over 500,000 people and how important that is for them. We also have quite a few supportive investors and part of our success we certainly also owe to their support. Continuity and orderly leadership transitions are very important to be able to fulfill our role also in the future. I'm proud to be able to say that we are in excellent shape to transfer the leadership as we inevitably must. There is a strong team in place and all the ingredients are there to build an even stronger Randstad. On a personal note, this pride is mixed with realization that I will certainly miss you all very much. But again, we'll have ample time to say goodbye. Jacques van den Broek who is sitting next to me here and I will use this period until the next quarterly results to make sure we will have the smoothest transition possible. Until that day, it's business as usual. So I'd now like to hand over to Robert Jan van den Kraatz to take you through the results. Thank you. Ben, thanks. Thanks, Ben. Moving to the Q3 update, looking at performance, the financial results and the outlook and then finally Q and A. On slide five, some key items on the third quarter, but the header says most of it back to growth in September and also the best third quarter since 02/2008. That's quite a good development. Looking at the numbers you can see over here. Since Q2, we've added USG, which was not consolidated in the second quarter. And by the way also the third quarter has three working days more. Organic growth during the quarter was negative minus 1.1%, but up in September 0.6%. The consolidation of USG more than offset was more than offset by the negative currency impact. And also on a year on year basis, we had one more working day. The gross margin as you can see 18.2% was flat. This was impacted by the French low wage subsidies, the CICE subsidies, which have an impact of roughly 200 basis points on the French business and roughly 0.4% at the group level. We also see improved gross margin expansion gross margins in North American market as a result of our focus on customer profitability or revenue quality and this is then set up by a decrease in Europe as a result mainly of legislative trend changes in The Netherlands and in Germany. OpEx up €11,000,000 sequentially and down €26,000,000 year on year. The €11,000,000 sequentially is mostly the result of adding USG roughly €13,000,000 and then the other items were somewhat higher cost in Europe reflecting our first investments in marketing and some bonus accruals, but also again set up by the foreign currency impact. EBITDA at €184,000,000 which is up 16% and that arrives at the margin of 4.2. On the next slide, you can see the gradual recovery in Europe. We have limited the scale a little so that you can see the differences group, Europe, North America and rest of the world since Q3 twenty eleven. We see growth in Germany, in Iberia, in The U. K, in Italy, in Switzerland, Poland, Norway and Sweden. Strong focus on profitability or revenue quality in the North American markets, which means that our key focus is on gross profit here. Continued growth in Japan and the other emerging markets and we have seen a move from minus 2.6 in July in revenue trend to 0.6 plus in September. So we are now finalizing seven quarters with either zero or negative growth and the first quarter was the first quarter of twenty twelve. And if we would refer to the longer term trends, the slide that you typically see from us, you can see that normally from here if things start to improve, let me say the typical scenario and as you know Randstad's visibility is very limited, but the typical scenario is that it offers opportunities for significant growth. North America, record profitability this quarter 5.5%. Gross profit is up by 2% year on year. Again, the focus on revenue quality here. Revenue is down minus 3%, which is equal to Q2, a little improvement towards the end of the quarter September at minus 2% and very limited impact from the government shutdown. Looking at the Staffing and In House segment and Professional separately, Staffing and In House gross profit up strong 4%, revenue down 4%. We see good performance in admin and perm, but at the same time we see significantly less demand in the banking and finance sector. U. S. Professional GP down, but September at zero September flat. Revenue was minus 3% in the quarter. We do see however an improving trend through the quarter, especially at IT. Perm is up 5% and we have taken some measures. We have simplified the management structure, reduced the layer in in the organization. EBITDA margin as I mentioned moved from 5.1% to 5.5%, which reflects good cost control and synergies from the SFN transaction. On slide eight, some words about France. It's a bit more of a difficult market in Europe, but also here we see improvements. It's a gradual recovery higher gross profit and some help from the low wage subsidies. Revenue down by 6% compared to last quarter. So last year minus 13% in between. If you look at the quarters, it has been very difficult in France. Q4 last year actually was at minus 14 So this is finally an improvement. Gross profit up by 10%. I have a few words to add by the way on revenue. We see an improving rate of decline also through the quarter and we also see growth at in house accelerating, which is driven by client wins and also transfers from our regular staffing business into in house. And professionals also slightly better at a level of minus 11%. And then gross profit up 10%, which includes the impact of the CICE subsidies. So effectively underlying the CICE subsidies the gross margin is roughly flat and part of the subsidies are being invested in employment. Costs are down by 4% year on year. FTE is down mainly due to natural attrition here 7% and this is something we anticipate to continue. We have a reorganization program which was announced at the end of last year, which now stands at a voluntary leave plan of 110 FTEs and we have started the process of merging branches. It's on track and we expect completion in the first quarter of twenty fourteen. This is about two seventy five branches being converted into larger branches, 65 in total. In Q4 twenty twelve, we announced this reorganization. The rule at Randstad is as from the moment cash goes out, we aim at returning this within twelve months. We already indicated at that time that given the fact that this is mostly management that the returns would take a little longer here. In the meantime, we have also released part of this provision because we can do it a little more efficient. So instead of €28,000,000 we're now sort of on track towards the €22,000,000 out of which €15,000,000 relates to people on which we have a return of €10,000,000 as you can read in the press release. The remainder relates to branches. These branches will be replaced by larger branches, so savings will take even longer to come in. The EBITA margin is up to 4.5% now which compares to last year's 2.5%. The Netherlands, slide nine, good profitability, a recovery rate showed 179%. This market by the way has been sort of hovering around this level for quite a while now. If we look back at 2012, we see quarters at minus 2%, minus 1%, minus 3%, minus 3% and also in 2013 minus 1%, minus 4%, minus four So it's been hovering around this level. Our focus here is on client profitability and efficient delivery models. The development in The Netherlands is also slightly better in the month of September. Randstad Netherlands is at minus 1%. Tempo team is at minus 9%. And this is also the result of the fact that we have some nonrecurring projects at in house services and also due to the focus strong focus on client profitability. The development at Jot improved to minus 9%. This was minus 13% in the previous quarter. We see the gross margin effects easing. We still are looking at slightly lower gross margins here, which is the result of higher social security charges, but we have some initiatives in place to deal with this. And this is for example a positive adjustment of self insurance taking some risks on our own book and managing these very tightly. We also are in the process of pricing increases to address the cost price increases and also implementing efficient delivery models wherever possible. Our costs are down 10% compared to last year's. This is mainly as you can see FTEs. We're also going through a simplification of the regional management structure at Tenpotine. And at the same time, we have started our additional investments in marketing campaigns. The EBITDA margin arrives at 6.5%, which is an improvement compared to last year. It includes one additional working day, a higher contribution from professionals including Jaltz, improved business mix, a growth of HRS and also in house and we have adjusted for a 2.6 restructuring charge at Tempoti. In Germany, we see growth strengthening. Last year at the end of the year, we were at minus five in Q3, minus nine and then it sort of grew to flat in Q2 and now it is at plus four in the third quarter. We also include here a significant price effect, which is sort of the result of the implementation last year Q4 of equal pay and some collective labor agreement increases. And as such because this was implemented last year, it will fade into Q4. We do see good growth in the IT business. And as I said, the collective labor agreement is included. Gross margin effects are easing here. It improved, but still not at the level it was, which is the result also of the adjustments in the collective labor agreement, the implementation of equal pay. The gross margin improved in our Staffing and in House business. Operating expenses are up by 1% year on year. FTEs are down 6%. We are adding however some FTEs in segments that do show growth. So we are investing in continued growth here and also bonus accruals are slightly up. And also in this country in Germany, have started our marketing investments. EBITDA margin now at 5.7% compared to 6.2% last year. And as you can see in the graph, there's a bit of a strong seasonal pattern in the German market. We do at this point in time by the way not really see an impact on the demand in the market of the recent changes in the collective labor agreements. In Belgium, strong focus on costs. Revenue at minus 6%. It's a difficult market. It's a relatively difficult market compared to other markets in Europe. And it might well be that the competitiveness of this market is under pressure. We're looking at a significant decline last year starting at minus 6%, ending in last quarter at minus 8%, beginning of the year at minus 9%, second quarter minus 8%, now minus 6%. We do see as such a somewhat lower rate of decline. The administrative segment is holding up relatively well, but in house so mostly blue collar is at a negative 17%, which is mainly automotive when we see an improving trend in our Professionals business here. We have a strong focus on profitability, on client profitability, field steering serves as well and as such FTEs are down by 11% and this is related to natural attrition and some smaller divestments. We are in the process of putting together a restructuring program of discussing a restructuring program, is aiming at a more efficient organization, reducing jobs specifically in management and support 130 and we have our discussions with social partners ongoing and hopefully there will be more clarity for our people in the fourth quarter. EBITDA margin stands now at 3.3%, which compares to 3.8% last year. And please note that in Q3 as announced at the time there were some subsidies relating to prior years included in the results. In The U. K, we see continued growth, strong cost control, Revenue now at plus 5% compares to plus 2% in the second quarter, but also comparing to quite a hefty 2012. So this is clearly an improvement. Revenue in September stands at plus 8%. We see continued growth in Professionals led by education, construction and finance. The decline in in house is persistent, but that is very much the result of our own selection process. We also continue to see good growth in MSP and RPO and our perm placement fees improved to a level of minus 2%, which was still minus 13% in the previous year. Unfortunately, these at the consolidated level are translated into euros and then the impact is not as strong as it is at the local level. Our focus is on that managing costs. Our costs are down as a result of FTEs down by 11% and our back office centralization is very well on track. And if you look at the graph here, the performance in The U. K, you can see a lower level of profitability. But again, here we have a very regular seasonal impact. So we consider this to be a regular pattern. Moving to the Iberian markets, also here we see improved profitability. In Spain, we're looking at revenues at 0% flat. This is somewhat impacted by selection of businesses of clients on the back of client profitability at the USG businesses in the portfolio. We clearly see an improving trend in manufacturing. We even see some movements throughout Europe into Spain. Some higher growth in professionals mainly perm and HRS. And we have announced a new organizational structure and the integration of the USG business is expected in the first half of twenty fourteen and this is perfectly on track. It's following the plan that we have produced before. In Portugal, we see revenues up by 4% compared to minus 2% in the second quarter. Good performance in the call centers and also continued growth in manufacturing and automotive. Good cost control EBITDA margin now at 3%. If one would compare to last year excluding USD, the improvement would be even 1%. By the way, if we include USD last year, we have one more working day. If I look at we don't have slides on the rest of the business, but just a few remarks. Japan and Italy continued their good growth and also solid profitability. In Australia, we still have challenging circumstances. Revenue development per industry on our next slide, this is what we see in those segments in those markets and partly that's the result of our selective process on the back of customer profitability. I'll leave that for your information. And then we are moving to the financials update of the transaction of USG. It's on track. It's completed in three countries Poland, Switzerland and Luxembourg. And also rebranding in Austria has been done because Randstad did not have any business in Austria. In Spain and Italy, we're on track as I just mentioned. The financial consolidation and the purchase price allocation has been completed. I'm sure you don't experience it very often, but we have a case of bad will here. And it sounds bad, but it's good. It's because we effectively and I mentioned this already at the end of the second quarter, we have acquired a business with net assets exceeding the purchase price. And as a result of this, there is a sort of positive impact in the P and L reflecting €29,000,000 So that's the difference between net assets and the purchase price. And we also have anticipated annualized pretax cost synergies of 15,000,000 to €20,000,000 as mentioned before. The first part of that has come in, in Q3 €1,200,000 The majority is anticipated to come through in the first half of next year and the total expected integration costs will amount to €15,000,000 of which by now we have incurred €4,000,000 We also have some additional tax synergies in scope as a result of identified net operating losses that can be compensated, which are valued at roughly €10,000,000 This is not annually. This is 10,000,000 Now we're moving to the income statement Q3. We have €4,300,000,000 of revenues coming to the 18,200,000,000.0 that was mentioned just before integration costs now at €4,000,000 which includes both USG and some SFN. It compares by the way to last year €16,000,000 which was partly integration costs at SFN, but mostly reorganization costs. I'll leave the page for your information further. And then moving to twenty eighteen Q2, the financial key points. Cash flow amounted to $310,000,000 compared to last year's $2.00 7,000,000 We have first of all contributing here somewhat higher level of profitability. DSO also improved by one day. And I just want to emphasize this, we have favorable timing effects on the payables and this will have an impact on Q4 as well. This time the end of the quarter was not a weekend, so that's also a little helpful. If you look at the underlying details by the way of free cash flow and you look at working capital and we benchmark that against some of our competitors' working capital, our financial expenses, but also our tax expenses you can see that we're doing rather well here. Leverage ratio now stands at 1.2, 1.23 to be precise, down from 1.8 in the second quarter. And this will also result in somewhat lower interest expenses again. We've also incurred an impairment in Australia. It's a non cash item. It was driven by the fact that our profitability has remained somewhat behind our expectations and this has resulted in a hit of $36,600,000 in the third quarter. The effective tax rate, again this is always a sort of a mixed bag of some issues together. We are looking at a slight increase compared to where we were at the first part in the first part of the year. For the full year, we are giving some guidance at 32%, which is equal to last year, but higher than the first part of the year. And this is the result of the three mentioned items here. We have had to pay some nonrecurring withholding tax because of dividend payments The goodwill impairment and bad will are not taxable and the mix of our profits throughout the world has changed slightly to countries with an above average tax rate. So this cocktail is the reason behind this development in the tax rate. Our guidance stands at 32%. Well, our segment performance on 2019, you can see the specific developments in Staffing with a decline of 5%, but the EBIT margin moving up again. The items that I have mentioned before in house also growth led by France NL. Germany and Iberia in The U. K. Remains in decline, but that is because of our selective process here. Professionals an improving trend across Europe and North America and good growth in The U. K. Mainly in education and IT. The gross margin bridge on slide 20, Again, I mentioned that already 18.2% at last year and still 18.2 And the reasons in between I mentioned at the bottom margin expansion in North America some impact of CICE, but also some negative impact in The Netherlands and Germany. So all in all a flat development. I mentioned already the perm fees are a little lower than last year, but this is not so much the underlying perm fees. It's very much the translation into euros coming from sterling and U. S. Dollars. Operating expenses on the next slide both sequentially the development at the top of the page, but also year on year. You can see sequentially the development of adding USG and somewhat lower FX effect and some organic changes in Europe, which is the result of marketing cost and some bonus accruals. The fact that FTEs are up in the third quarter is the result of USD inclusion, but also the seasonal pattern. Net debt down by significant €647,000,000 In the meantime, operating working capital at $466,000,000 net debt as I mentioned, it's been served well in the third quarter. In the fourth quarter, it's also included in our outlook page. We will pay a tax payable of €130,000,000 So this will be cash out. There will be some impact of the timing at the beginning of the quarter. So the advantage in crude Q3 will be slightly disadvantaged at the beginning of Q4. So we're not looking at massive changes in the net debt level in Q4. Free cash flow up, not a lot to say here. The other non cash items by the way are the CICE, because these are tax credits that means that we can only cash in after three years. Flipping to the outlook page. Here revenue development per working day was at 0.6 in September. We are having continued improvement into Q4. So we I think it's unavoidable if we're going to see growth in the fourth quarter. The comparison base is 2% easier into Q4, so that makes a difference as well. So that makes it even more unavoidable. By the way Christmas is a bit more advantageous in terms of planning than it was last year. So hopefully that provides with some impact as well. We have the same number of working days. We're going to make some additional investments in marketing again. Some €10,000,000 is anticipated as we speak. We also have €10,000,000 of annual cost savings relating to the restructuring plan in France and the payment of the tax receivable. Our key strategic priorities remain as they have been no change here. And the exit rates in our book in September are minus three in The Netherlands minus 4% minus three sorry in France. In Germany, we've taken the blended rate of August and September because the cutoff moment is always challenging. It's roughly plus 5%. In Belgium, it's minus 4%. In The U. K. Plus eight Iberia plus 1% in North America minus 3% the rest of Europe at plus 10% the rest of the world at plus 5% adding up to the 0.6 that was mentioned before. Okay. That completes the presentation. We're now moving to Konrad Zomer from Zomer Capital Management is online with the question. Hi, good morning. Two questions. The first one on The U. S. Lower revenues, but a great improvement in your margin. Can you indicate to us how long you can improve margins assuming revenues continue to contract? And related to that, you mentioned Dan Foley has left the business because of the performance in your Professionals business. Can you give us an indication what the margin development was in Q3 in your Professionals business please in The U. S? Yes. The optimization of business obviously if you look at total market and the market share we have there's a lot of room to improvement. However, it's not our ambition to keep on fine tuning our business until we have this one most profitable time left that's in the market. So obviously for next year our target has to be to have growth in line with market to start with and then we should exceed market. It's obvious that the position we should be in. We've taken some steps to actually improve our business to share with you the reason we see of the backdrop if you look at us our performance compared to markets. That is due to a fact of underinvestment in in good businesses. So we have management was trying to optimize profit a bit too much and underinvested, so actually didn't execute field steering good enough. That has now been corrected and we already see the first signs in September. So we are pretty optimistic. It always takes a little bit of time that we will be back at a top line development at least in line with market. We don't share the separate gross margin developments. Developments. What I would like to share with you is that it is a touch better than last year if you look at the gross margin percentage compared to last year. Okay. Maybe just a quick last question for me about JORT. You mentioned the profitability was relatively strong. Can you give us a feel for what the positive impact of JORT's profitability was on your overall Dutch EBIT margin which improved by 80 basis points over the quarter? Yes. That's a calculation that's I would have to do. Let me see fast. Anyhow, what we see is that the average that the profitability of I'll help you this way. The profitability of Jat in Q3 was a touch above the average of the company. Okay. That's clear. Thank you very much. Paul Sullivan from Barclays is online with a question. Yeah. Good morning. Good morning, guys. Just a few questions if I may. Firstly, in France, are you seeing or are you getting any pressure? Or are you seeing any signs of pressure to pass on some elements of the CCIE subsidy in any renewals that are coming up in terms of contracts? Do you still expect sort of a 10 to 15 bps gross margin uplift from it for next year? That's the first question. Secondly, could you just remind us of the sort of cumulative cost impact from all your various restructuring initiatives as you see them coming through in 2014? Just to give us a sort of a sense, I estimate about sort of 50,000,000 to €60,000,000 but I just want to get your sense on that. And then final question, obviously your net debt to EBITDA position is improving quite dramatically and will continue to improve. What are your thoughts on the timing and magnitude of M and A? And presumably acquisitions are still your preference over potential cash returns? Good morning. Jacques van den Broek here on question on France. Well, in France on margin and questions from clients on rebates. I've seen that for the last ten years when I was involved in France, so there's nothing new. Please remember that is a subsidy, but we already for quite some years had our Les Jimains which is also a subsidy. So discussions on margin are ongoing, but we're quite adamant. CICE belongs to the employer. We're the employer. So therefore the answer to those questions on our behalf is no. Okay, great. I'll answer the third question. Robert Jan will answer the second question on the savings. Obviously, the amortization is going down. As we've also shared in Q4, there will not be a big decline because of the fact we have to pay repay €131,000,000 that we owe the Dutch government. Our strategy hasn't changed. We've always shared with the market that we will return excess cash we have to shareholders unless we find a more value creating target for that money. In general, so far, we the biggest chance of creating more value is actually investing in the right businesses. We've also shared quite often the strategy we have. We want to have a bigger density of business since market share relative market share in the market correlates 100% with profitability. Two, we want to buy in markets where we have a strong management team that can handle the merger. Three, we a slight preference for more professionals business. Would we not find obviously the right targets at the right price in the right markets? Then as we said, we will return the money to shareholders. But indeed it's a second option. Paul, can you repeat your second question please? Well, just your thoughts on the cumulative cost savings from your various you've got three or four various plans running into next year. I just want to get your sense on the cumulative cost impact that you see from all of those in 2014 over 2013? Yes. The anticipated cost savings relate to the programs that are to be executed or in execution, so Belgium and France. And I would say that's around €30,000,000 on an annual basis. But that again you won't see coming through because in the meantime we'll make our investments whenever necessary if we see growth and also our marketing investments will continue. Okay. And please note that as from the middle of this year, USG has been included, which has an impact of €13,000,000 per quarter on the cost base. Great. Thank you. Robert Blantz from JPMorgan is online with the question. Good morning, Ben and Robert. The U. K. Saw good growth in education up 22%. Hayes also talked about education doing well. They thought it might not last. What's your view on education? And perhaps more generally, you mentioned the public sector is showing strong demand. Do you think that's going to be sustainable or accelerate? Thank you. Okay. Jacques van der Bruck again. We definitely think education will last. It should last for a long time on a more general note. Seriously looking at the business, it's a very seasonal business as Robert alluded to earlier. So in August schools are closed. The main part of the education business is really a day to day business. It's filling in people on the short term. So on the one hand, it's a volatile business difficult to predict. On the other hand, we started the academic year really well with again double digit growth. And at the same time, we're investing in this business to take more of this growth going forward. So quite optimistic on that one. Your more general question on the public sector, I cannot answer in detail, because really education is most of the business we have there. Thank you, Jack. Tom Sykes from Deutsche Bank is online with a question. Yeah. Morning everybody. Just a couple of questions on in house actually. I wondered if you could give a feel for the scale of transfers that were made into in house this year or in this quarter. And also could you say how much of the CICE benefit from France was actually felt in house please? Yes. The amount of transfer is no more than about 30% at this point in time. The big gains are the combination of new clients and higher market share at existing clients, which we usually see happening. The I don't think the percentage of CICE is different in house than in the other staffing business. So I think you can apply about the average margin that we have in France. So it's broadly flat last on one. Might be slightly more, but it really is a very small difference. Okay. So I mean, don't know exactly how much of your in house business is in France. So are you able to put a number on that at all please? Yes. We can give you an indication in a minute. Is big anyhow. Tom, you can find this in the annual report. Yes. It's in the range of $506,100,000,000 dollars I'll give you the details. There's no sheet. It's here. Yes. Between fifty million 20%. 5,000,000 and 600,000,000 ton. Okay. Thank you. And then just if I may on your ability to grow and retain gross margin. I mean, obviously, you're going to get a bit more of a CICE benefit next year. You're going to annualize part of the benefit this year though. And you've been cutting your way to profitability perhaps in some geographies and letting go of low margin business. How confident at this stage do you feel that if you get back into growth excluding the CICE benefit, you'll actually be seeing gross margin stability in Q4 and hopefully into Q1? Yes. Obviously, can't forecast this per quarter. If you look at what's happening in our main markets, of course, had two rather big setbacks in margin mainly due to social security charges. This happened both in Germany and in The Netherlands. As you've seen in Netherlands, as we said, we had a good plan I think to compensate for it, but obviously that takes some time. In Germany, we also needed some time to adjust all the charges etcetera we have in those countries. So in that respect, you look at the biggest bleeders, the bleeders we had in gross margin, I think those have been fixed. Then we look at normal market developments because that's in the question. If and I'm not pessimistic here, if we return market improving then we have always seen that with a delay you also see two effects. One is you see that the pricing power shifts that means we will have better margins at our clients not at the old levels but improved. And the other one is, of course, that the business mix improves because both perm and I think we have a fantastic opportunity here because we have probably 1,500 or something consultants more trying to sell perm than we had in the past. And we will have more professionals business later in the cycle. So that also will have a positive effect on our gross margin. The average gross margin is not necessarily reliable indicator of profitability, but if indeed the mix improves like that as I just described then obviously it inevitably will have an effect on the profitability. So in that way unless the market changes a lot, we are not pessimistic about being able to have a better profitability next year. Adding something to the CICE comments in general, I'd like to make sure that people understand the full picture here on sort of the net effect here, because we generate those provisions, but these are paid as a tax credit. That means it takes three years before the money arrives at Randstad. The second point is that because it's a tax credit, it also reduces the impact of the regular tax planning at Randstad. So in terms of let's say in the end the net sensitivity for CICE it's less than the result that's coming through at the gross profit line clearly. All right. Thank you. Just what I'm trying to get to on the in house business is that you obviously got a CICE benefit there. You're up by 13% in revenues, some of which are transfers and then you're up by 30% in EBIT. I was just trying to work out how much of would you have got gearing in the in house business if it wasn't for CICE? Or would you expect the revenue and profitability to be Yes. I think based on the information we gave you, the calculation is not so tough anymore. And to be honest, I don't want to be impolite. These are a lot for two questions I think. We think we move on to the next one. Thank you. Okay. That's fine. Thank you. Laurent Brunel from Exane BNP Paribas is online with a question. Good morning. Florent Brunel Exane BNP. Two questions if I may. First, looking at your top line development, mean, you see recovery in the end markets in Europe today? Or is it just the reflection of easier comps? And maybe can you say a word on October trends? And second, on the French social plan, when do you expect the payback for the €22,000,000 And can you elaborate a bit more on this organization please? Yes. On the first question, so what do we expect in October? What exactly was the point you're trying to get? Rates. Growth rates, yes, okay. If we are optimistic about Europe that was the question more or less. Yes. No, we are also the trends are positive. Again, we've seen growth in September. We see main markets improving and we used to have a very favorable mix at this point in time in the cycle. The mix is a little bit less favorable because obviously The Netherlands and Belgium and France are lagging behind a bit, but also improving. It's inevitable if one of the big engines like Germany is actually growing, if we see growth in Iberia, if we see growth in The U. K, if we see growth in Italy, it's inevitable that the rest of Europe would not follow. So again, unless there's a strange event that would actually drastically change the cycle, there's no we don't see any reason not to be optimistic. I mean, let's not get overexcited, but the trend is for sure positive. Maybe a bit more elaborate on France, because we just touched on the fact that we will have bigger branches in the metropolitan areas. But of course, we're doing much more in France. The French business, the old video business was organized in a different way than we do at Rand They were in silos in a way geared at certain profiles. We in the basis always have a geographical business and then specialties within the branches. We have now changed the French organization into these regionals. So five regionals Paris Metropolitaine and then the four other corners of the country. We do feel that's a type of organization which suits our purposes much more. So we're very optimistic about the outcome of that. At the same time, we're creating these bigger branches, which will definitely help. And then back to your question on the cost advantages, so it's going to be around €10,000,000 immediate return on less personnel. But as Robert Jan already mentioned, the impact of the change in branches is much more long term, because we had to really close the two seventy five small spaces. We had to open up 65 totally new one. So that's quite a long business plan if you may. So that will come into the P and L on a much more gradual basis. Okay. And just on France, the exit rate was minus three. Do you believe that you can return to positive growth very, very quickly? Mean, given the easier comps? Yes. Well, as we mentioned here, you also see it in the PRISM numbers. The market is improving. Although this is still largely fueled by comparisons as Robert Jan showed you earlier, we still had quite a tone down in Q4 last year also on permanent placement. So comparisons are good. It's not that we're seeing an absolute return to growth based on increased demand. Yes. Sure. Okay. Thank you very much. One more additional Tom. I overestimated the in house in France a bit. It's a touch below 500,000,000 That was still for Tom, but growing obviously. So we'll get to the 500 to 600,000,000 David Thijer from Habobank is online with the question. Yes. Good morning gentlemen. If I may a quick comment, Ben, thanks a lot for all your efforts last year and congratulations of course. So questions on Germany. I see a volume decline of let's say 4%, if I use the same calculation as you are preparing and 1% increase in SG and A. Is that a reflection of your say short term expectations in terms of same trends in Germany How only you? Okay. Well, David, the increase is mostly as mentioned on a general note marketing because Germany is definitely one of the companies where we have campaigns. And also, yes, on a positive note bonus accruals, so not so much headcount David. Just a short word on Germany what's going on, because as you know there's currently coalition talks between Angela Merkel CDU and the SPD. One major topic here is implementing a minimum wage which is supposed to be €8.5 for the whole of the country implemented to be implemented January 1 in the Western part. It's still a debate in which phasing this is going to kick in, in the Eastern part. So overall, we don't know yet the absolute effects of a new coalition in Germany. The system in Germany always works that politicians, politics, government gives guidance, but then it's up to social partners to work out the details. So there's some, yes, some unclarity still that we need to wait for probably the next few weeks. And do you see more downside or upside risk in this? Yeah. We in general think that there's of course long term upside in the fact that people are paid well although in Western Germany the impact will be limited because many people in our collective labor agreement are already above the minimum wage. So we're kind of neutral on this one. Okay. And then a quick one on The U. K. The perm is down by 2%. If I see some competitors reporting quite some growth, payout. A large part of it is ForEx. So again as mentioned, if you would look at fees in pounds, you probably see 7.5% growth, but then it translates into euros and then you're down. And Iberia is impacted by The U. Inflation, some percent that the market is doing a bit more? Sorry, didn't get the message there. Sorry, Iberia is doing 1%. I have the feeling that the market is growing by at least 5%. Is that the impact of The U. S. Integration? Yeah. Correct. That's what it is. It has to do with the selection of clients. And David just to make sure that we have The U. K. Perm fees clear, it's minus 2% in U. K. Sterling and improved from minus 13% and the month of September showed growth. Watsenburg from ING is online with a question. Yeah. Thank you. First of all, indeed congrats to you, Jacques. And we're looking forward to the farewell drinks invitation, Ben. Then two questions from my side. On SG and A, first I want to clarify a little bit on the French savings because I heard I think Robert Jan speak about €22,000,000 savings, but in the press release and also on the slides I read the €10,000,000 Is that because €10,000,000 is set for next year and there will be some phasing later on that it will eventually be a higher number? And then continuing on SG and A looking forward to Q4, there's some cost savings kicking in. Maybe you can elaborate a bit on what we should expect for Q4? And then we have some €10,000,000 more marketing spend and bonus accruals. Can you a little bit give a feel for the cost base for Q4 versus Q3 whether it will obviously be up I think, but is that a significant amount or a small amount? So then on SG and A. And my second question is on the CICE Act. Again coming back on that, I think Robert Jan you mentioned that underlying the impact was 200 basis points, but I thought it was two seventy. So maybe you can clarify what was the real impact of CICE in Q3 on the margin? Yes. I'll take your last question first, Marc. The $270,000,000 was Q2 which included an adjustment for Q1. So the €200,000,000 is just Q3 sorry the 200 basis points is just Q3. Yes. That's true. And now back to SG and A, the French development just to make sure that it's clear. What I mentioned was that originally we set aside 28,000,000 This was now reduced to 22,000,000 The €22,000,000 mostly relates to people roughly 15,000,000 That mostly relates as also Jacques pointed out to management. And we expect to see the savings relating to this investment of €50,000,000 to come in, in Q4 and the amount will be roughly €10,000,000 And that is because severance payments are a little higher than typical. And this is the annualized amount by the way €10,000,000 on an annualized basis. And please note again that severance pay is a little above average here. So typically and if I we've evaluated that reorganizations in Randstad return within twelve months not this one. And then the remainder relates to branch closures and movement to larger branches and that also was I think well explained by Jacques. We'll see savings coming in, but that will take longer. That's beyond 2020. Full churn will be a little lower than we normally have. Sorry, Marc? Yes. No, that's clear now. And then Q4, yes, I think your conclusion is right. We're going to see a slight increase of the cost relating to the items you mentioned, for example, the marketing. So I don't want to sort of pinpoint a precise amount, but just a few million more than it was in Q3. Clear. And maybe final one. The trend in Spain ex USG, was the growth there? And do you still track that? It was I think it's a quarter of the business. It's a few percent difference. I don't know the The U. E. Business was in decline and we were growing. So and it's about 25% of the business. Okay. So closer to 5% that David mentioned. Yeah. Too high. Too high. Yeah. Plus 2%. Spain excluding was 2% up by just 20%. Clear. Thank you very much. Jan De Vlijschawer from KBC Securities is online with a question. Good morning, Two questions from my side please. First one on the Dutch market. Your sales declined by 4% in the third quarter. This seems to be weaker than the market. Could you elaborate a bit more on this please? Is this due to your professional staffing business? Or is it because of your focus on client profitability? And then a second one, do you believe that if the positive trends continue in 2014 and growth accelerates gradually you reach your 5% margin target in the third quarter next year? Thank you very much. Yes. On the Dutch market, indeed the big effect is Yacht as we also shared with you it's minus 9%. So that doesn't help. Tempur team is also below market and Randstad is a bit better. Indeed, first of all, that's one. The yard numbers are not sorry, the professional market data are not in the data that are being released by the ABU every four weeks. So we think indeed we are at touch below market, but not a lot. The 5% for sure as we said is we need growth and we need a better mix. So it's a bit of a difficult question to answer. In the future if mix and growth are there indeed will reach the 5%. It's difficult to forecast the speed of the recovery of markets. So yes, maybe you think it's a bit I'm a bit of a coward, but I think it will be too crazy here to forecast that by let's say August year the market will have developed in such a way that we will be able to forecast 5%. But we are very confident we'll get there. Yes. As Chuck says, I could take risk this time, but that's not how it works. William Vanderpump from UBS is online with the question. Good morning, everyone. Just a question on Germany please. Could you comment on the gross margin pressure? Is that just the equal pay effect? Or is there anything else going on that you could describe to us? And just on Germany as well in terms of the growth rate, obviously good performance in the quarter and a solid exit rate. You commented on some pricing benefit dropping away. You've obviously got a much easier comp in the fourth quarter. Do you still see further acceleration in the German business continuing please? Yeah. Well, the pressure in the German market is actually more a percentage wise pressure, because as you see the bill rates go up with some 8%. Therefore, percentage margin drops, But at the same time also the percentage cost drops. So if you would go back to nominal margins, they have been quite stable and we're quite proud of our German management team on managing this quite massive change in the market really well with the good IT support they also created there. That's absolutely news in a way. At the same time, yeah, improvements are slightly kicking in. So volume wise, we're getting closer to the zero mark in the last few weeks. So actually positive again there. In comparison, the difference falls away. So these increases started in November. And there of course every quarter you'll see a slightly more tough comparison from an absolute bill rate point of view. So that was the point we were trying to make here. Okay. So you could I suppose if your price increases have all sort of annualized you could potentially drop back a bit closer to that volume number in the fourth quarter? As with many European countries and already explained by Ben, we're also optimistic about the German developments in Q4. All right. Thank you. Hans Juvekar from Kepler is online with the question. Yes. Good morning gentlemen. Two questions from my side. First of coming back on the gross margin in The U. S. If I make a quick calculation, I come out at improvement year on year by about 100 basis points. Is it a fair calculation? And it's slightly less than what we've seen in the previous two quarters an improvement in year end. Is that a good calculation? Can you give some feeling on that? And secondly looking at your in house, you also indicated that in principle the EBITDA margin for in house could be between 4% to 5%. You're currently already slightly above the 5%, of course partly supported by the CICE. But how do you see that in the longer term because you're still growing quite handsomely there? See maybe in the longer term also some potential for higher EBITA margins there. And the last question on working capital. You said payables had a positive impact. Could you give some flavor to that? What's happening there? And also in Q4 there would be a positive impact. It's positive or negative? No. The gross margin improvement in U. S. Is higher than you indicated. One, we're not going to share the gross margin levels mentioned before. The nice thing is of course we shared a 4% to 5% target for in house. Usually people don't get punished if they exceed their targets and the same is true for Onsat. Obviously, you should also realize indeed that we have the strongest season here. So in Q3, we always have the highest profitability. But of course, it largely also depends on the mix where would we see growth in in house compared to profit levels. There's a variation there. So it's difficult to forecast. But indeed we are very pleased with the 5.3%. And Robert Jan will get the working capital. Yeah. Hans, the working capital, the payables impact, I tried to give you clarity by indicating the end of year position. And this is a difficult one because it's relatively volatile and dependent on sort of events at the end of a period. But the point I made was we anticipate at the end of the year as a result of the free cash flow the payment of the tax amount of €130,000,000 at the end of the year and we expect a somewhat lower net debt level than at the end of Q3, but not too much. That is because of some of these payables will have a negative effect on Q4. So the benefit in Q3 will be reversed in Q4. So we don't want you to sort of plot last year's number directly on Q4 because that will be a little unfair. Okay. Thank you very much. Final question I guess. Arun Rambocos from Kempen is online with a question. Thanks for taking my question. I one left. Just quickly looking at the North American business, obviously quite satisfactory results. But if you look at the revenue trends compared to the ASA data, the American Staffing Association, which showed an acceleration, there is quite a sort of a widening gap. First of all, do you recognize the underlying accelerating trend in the American market? And secondly, can you give a guidance on when you think the gap versus runs in the markets will become narrower despite the satisfactory results obviously? Can you shed some comments on that? Thank you. Yeah. We look at the gross margin line, Arun, to see whether or not we are in line with market. And then you look at staffing, which of course is the ASA, then we are more or less in line with market. So we are not too worried about that development. In spite of that obviously over time, we also will need to catch up on top line developments. But again, the quality of our business has improved tremendously. The investment we've made in more permanent placement, more white collar in house blue collar only through in house if it's large scale etcetera, etcetera really has made a major difference leading to the record profitability we've had. The area where we are more behind market and I think where there's more emphasis necessary and we've also put it there now is in the development of the professionals. I think there we are more behind. Those are not included in the ASA numbers. But still we know we are behind market. Again, we've made some steps amongst other things change management. I already mentioned that it was clear that we underinvested in some businesses that actually had good growth opportunities. So next to better quality of business, which we did achieve in Professionals, we should have been able to capture more growth and we're now making the investments to make that happen ASAP. Okay. Can I sneak just one more in about the dividend policy? Maybe an unexpected question, but maybe a bit too early to discuss that part. But if I recall correctly, the dividend policy was changed last year December where it was guided to a 40% to 50% payout of the net of adjusted net profit, but it would come in at the lower end of this range. I mean given the development in your cash flow and in your net debt and the fact that markets are improving, what would make you change sort of going to a more higher end of that range? Is it already time to look at that? No, it's too early Arun. And just to make sure our policy is 40, but we have expanded the range up to 50 to take care of let's say special circumstances and that is an evaluation that will take place later. But obviously market circumstances have improved since you changed your policy and when you made your first comment about policy, right? Yes, correct. Because you're changing to sales, Arun? Okay. Thank you. Thank you, Arun. All right, operator. Thank you so much. I'm going to close the call now because I think we've dealt with the questions. Thank you so much for joining us at this discussion and we look forward to talking to you again either soon or at least in February again at the announcement of our Q4 results. Thanks. Bye. Thank you, and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.