Earnings Call: Q2 2013

Jul 25, 2013

Ladies and gentlemen, good morning. Welcome to our Q2 and Half Year Results 2013. We have a small group here in the room. We have Dutch analysts and Belgium analysts here in the room and representatives of the Dutch press. Also here in the room is our full Executive Board Francois Berger, Linda Gellipau, Leo Lindlau, Jacques van der Bruck and on stage of course Ben Notebaum and Roger van der Kraatz. Online we have our U. K. And French analysts and of course our investors and employees who are also listening to this call all a very warm welcome. The agenda for today is as usual we'll start with the operational update by Ben Notebaum followed by the financial update by Robert Jean van De Kreuz and we'll end with a Q and A. I will now hand over to Ben. Good morning. Welcome to our Q2 results presentation. It's been a if you want a good quarter given the market, I think a lot of things happened. First of all, of course, we were at the end of the term where we promised 70,000,000 to €100,000,000 cost savings, which we promised at the end of Q2. We ended up at €143,000,000 So we more than I think actually realized what we had intended to do. We concluded the deal with USG. I'll get back to that in a minute. I think we've been actually improving on all aspects of the company. I think every field we look at we've really seen improvements. There's been a lot of hard work by everybody, every department, every support, every country and I think a lot of things have been achieved. We've also seen a bit of a funny quarter because both April and May actually were typified by quite a few holidays, which resulted in bridging days etcetera, etcetera, which in the end made the statistics more difficult to compare with last year than usually even more than last year. If you look at June, course, we've seen this big change, while in quite a few markets we saw a big uptick compared to the rest of the quarter. We'll get back to that a bit later. EBITDA improved obviously. DSO went down. Profitability, we looked at client profitability as we said instead of market share that for sure resulted in like for example in The U. S. Small decrease in top line, but an increase in gross margin. So the strategy is working well. Cost we mentioned, again capturing growth opportunities, especially looking at the MSP and RPO where we landed actually a high number of new contracts. So that's all I think going as it should go. Looking at the USG deal, we intend to realize €15,000,000 to €20,000,000 synergies plus tax advantages savings. Robert John is going to come back to that in detail. Just to illustrate again what it means strategically obviously, it's a big improvement relatively for most of these markets, especially in Spain €200,000,000 on top of $460,000,000 which we were already number one in Staffing, but it probably makes us number one overall. But next to that lots of synergies, big opportunity to get a better position in a market that actually has turned the corner, 6% growth in June very promising. Italy, we were suffering a bit from subscale branches. This for sure helps us to increase the average number of FTEs per branch, again next to the savings as usual. Switzerland, a 10% increase, which makes us I think a clear number three by now with good progress and actually continuing good growth organically. Austria, obviously, were not there. Poland 25% addition to what we have and Luxembourg small. We should remark of course that we sold a small company called Uniman to the founder of that company who had sold it to USD a couple of years ago, a bit of an odd company that didn't exactly fit in our operations and it was and we got we could sell it at the right price we thought. Looking at the results Q4 slide seven. So €200,000,000 less sales obviously. The gross margin stable more or less, but of course helped by the CCA. We've had quite a few discussions. Whenever I visit the branch there's always a story about, yes, we're doing well because this client or that client or we're doing bad because this client or that client. Yes, it's true. There was something that causes an increase or a decrease in results. Obviously, the CICE and the way we had to account for it did have an effect. The effect will be actually continuing until the regulation would be canceled. So we anticipate a 1.9% increase in margin for the rest of the year. And obviously next year the amount will increase even more. So that helps. So zero point four more working days. And again in June, lot of markets where we saw growth Germany, Spain and Portugal 66.5% growth U. K. 2% in spite of the fact that we canceled a lot of contracts in in house. We've seen a big decline there over the last year. The effect is slowly fading out, but still had quite a big impact. A big part of that revenue actually was compensated by Randstad Source Rights, so the MSP RPO, but also low margin business if you look at the results, but still a relatively big loss that actually will get better over time because part of it is due to provisions for invoices more than one hundred and eighty two days old. So that looks promising. Italy growth 4% growth in June doing well Switzerland 89% growth Poland growth Australia actually back in growth and the profitability prospects for Australia are looking better for this month as we look at it. So all in all quite a few areas where we see improvement actually not on this list is Scandinavia where we see Sweden more than 70% growth. Latin America obviously where we have big growth especially in Brazil, but also in Argentina. Brazil still had a loss because we are investing a lot to gain big market share in this very promising market. Gross margin I mentioned, so the CICE had an effect. Gross margin expansion in North America, so we see a small decline in bottom line, but an above market increase in gross margin. Again, I'll get back to those countries in a minute. And Europe as a whole still a bit difficult. Obviously, being very big in France where we see really a bad market still minus 12% minus 13% a difficult market if you look at the economic situation cost of labor etcetera. We are big in Holland that's stable at the minus 3% minus four We are big in Belgium where I think we have sort of the same problems as there are in France if you look from a macro perspective. That of course in the end makes the mix a bit more difficult. But again we have other countries where we can compensate for that. Operating expenses up a bit from Q1. A big part is bonuses and even bigger part is marketing, but still too low. That's why I'll get back to the Boost plan in a minute, which resulted in EBITDA addition of €10,000,000 compared to last year more 146 which actually makes us well happy is the bigger word, but I think it's a solid quarter. If you look at the trends, the next slide, obviously Europe still minus 5,000,000 it's clear. North America, but getting also top line getting at zero or better. Japan and Emerging Markets obviously growing, but the impact is still too small. And again, you see the monthly developments. We'll also share with you later the exit rates of the quarter. Then you'll see what happened in those markets. Specifically in North America, again focus on the quality of our revenue, which we've been doing for quite a while now with good results. The effect is that we have canceled low margin contracts that we have repositioned the company by now in the segments where we can make money. We have the right operational focus and execution. All the aspects of the company and especially staffing are doing well, are well organized. And we're also getting better at the professionals. But of course, the focus still is on the investment in the IT system, because we had to come from seven systems into one. And by that of course we can gradually decline the cost of the back office. It will take a bit more time but we're getting there and getting more efficient. The CARE Act has been delayed with one year. If you want to have more details and we'll can do it in Q and A. Linda is real expert by now. It's not easy to be an expert. She can give you the answers. And again gross profit up. Professionals down 6%, but perm growing. Perm of course in Staffing up 19%. Again this is one part of the conscious positioning of the company. MSP, solid growth and spend under management. Globally, we landed 30 contracts for RPO and MSP in Q2, which is a very encouraging number. So it's going to be an important part strategically of the business obviously or it is important and going to get more and more important. Canada up 1% with a solid profitability improvement and EBITDA margin up to 5%, which is I think if you look at it is an all time high for sure. Maybe at the very beginning when we had three branches it was difficult, but looking at the last let's say decade or even more this is an all time high and I think there's more to come. France, again difficult market. Of course, the French solution to high labor cost is subsidies. They increased the VAT to pay for the subsidies which for our industry is not bad short term, but obviously fundamentally for the economy I don't think that's the solution. The CCA of course is intended to help increase employment. It can be done by very many different ways. So we will also do our part to actually make that happen since this is our profession as such anyhow. It shouldn't be difficult to actually explain what we do to increase employment. So the gross margin is up quite a lot. If you would exclude CICE, it's more or less stable. Cost went down. We finally it always takes a bit of time got an agreement on the social plan, which we're now executing. Again the social plan means that we will have voluntary levers until September. At the same time, we are combining two sixty five branches into 65, which of course also will give a considerable saving because we don't need two sixty five branch managers. So that process we are pushing and actually we have accelerated the execution of that. It will take less than ten months for sure and we'll try to do it even faster. But as you can imagine that's it's a huge operation to close two sixty five and find and actually staff 65 branches at the same time. So we are doing our part. We're reducing cost and we'll be reducing cost even more. We have some backwind from the subsidies. As all the other companies I think in France, we also have there are some commercial parties in the market that actually go to big clients and say we can get you the subsidies back from your suppliers. So they started court cases. Obviously, it will not happen. We will not pay those. There's no reason to. Even the government actually wrote a letter saying that the employer is the owner of that subsidy. So we are pretty optimistic about that sort of court cases, but it is a distraction. We've had the dawn rate as you might also all have read. We were and are pretty optimistic. We have the most thorough implementation of the non compete policies we have in France. We've been actually pretty thorough everywhere, but for sure in France given the history of the 2004 case that we bought when we acquired Vidor of course that even actually put our management more on its toes. So we are very confident that we execute exactly according to those procedures. We can never guarantee that there's not one individual that made a stupid mistake. But if you look at the systematic implementation of what we should do, we are very confident that we are 100% compliant. The other part of investigation is the Pixit, the VMS system. There's a European ruling that actually describes how we should use that. So again, we are confident that the outcome will be positive, but it will take a couple of years. And obviously since it's very low, we think it's a low probability of happening. But if it happens the amounts can be high. We have to share it with you to inform you on possible consequences. The Netherlands, again, the flat market keeps on going minus 3%, minus 4%, minus 5%, minus 3% not much happening. We do see some segments actually improving quite a lot. In Holland, again like last quarter automotive especially truck manufacturers are doing very well. We see growth in IT. We see a double digit growth in government, but lower level jobs still not at professionals. And we see also some decline obviously in some other segments. Finance has declined also compared to Q1. Food industry has declined. So it's a mixed bag, but also some highlights. Continued growth at in house and payroll services, actually doing very well payroll. Payroll obviously reduces the average gross margin, but is above average profitable. So that helps. Focus on client profitability also in Holland. We see Randstad and Netherlands performing very well actually flat. Tempur team being more exposed to blue collar and also to industries if you look at the more cyclical industries like logistics and food. So they suffer more minus 8%. Yacht is stable but profitable stable at minus 13% but profitable. We now see the effects of the social security changes easing in the margin as we also see in Germany by the way. We're now having the first still relatively small positive results of the fact that we are now we have the risk of sickness ourselves and the positive effects are going to increase through the year because that's going well. We had to take a provision because as some of you might know in Holland if you are an employer somebody falls ill you have to pay for two years. Since we now have that risk ourselves, have to provide for the fact that we still have to pay for a number of people from the old situation which of course is going to go to zero in twenty four months and our own obligation is going to go up. Because of accounting rules we have to take the provision. I've had many fights with the consultant with the accountants and with some of our financial people because it doesn't make sense. The cost per month will stay the same. So we now have a provision and it will show as a positive in the coming months and then it will go to zero because the actual cost will stay the same. But anyhow, IFRS there are many other names you could actually come up with IFRS, but something a bit confusing no transparency. There's no R in there for ridiculous, but I would be in favor. We're to have a bigger reorganization in Tempoti. We had one, but obviously it was not thorough enough. We're to cut 165 jobs not in the field again. It's in management structures and back office. So it's a big reorganization that actually is going to take Tempur team into a truly competitive on a truly competitive cost level again. They're a bit too high. Profitability is still okay, but not good enough given the fact that we are in Holland and that we know we can make considerably higher profits than we've done. Would we adjust EBITDA margin for these funny provisions we had to take? We would have been at a 5.5% EBITDA, which is we think a good result. And again after the effects of the reorganization and tempo team, there's room to improve. Germany, growth in June. Revenue change for the whole quarter at 0%. A significant price effect because of the equal pay obviously. We've had actually considerable price increases to implement in the market. In the former Eastern Germany considerably higher than in The U. S, but still by the way every CLA in Germany has shown considerable increases in salaries 3%, 4% is common. We were a bit above that, but again 7%. So that means the biggest change is the price effect more than the volume. But again it's a situation in all of Germany. IT again growing well. Engineering doing a bit less well going down actually. We see the effect in the gross margin easing, which also makes us positive about the gross margin development for the rest of the year. Q1, we had a record level of illness, which of course immediately has an effect on the gross margin. That effect also of course is not there unless we expect a few more flus or whatever then we don't see this repeating. Actually I think I don't think we've ever seen such a high sickness level at least not as long as I remember than what we've seen in Q1. FTE slightly down. Productivity went up. EBITDA margin to 4.6 with 1.6 more working day which has an effect in Germany. So all in all a fairly positive picture if you would project it for the future. Again gross margin we think is improving. Market is now at zero. So it's to forecast what's going to happen in summer whether or not factories closed down or not stuff like that. So far so good. So we'll see what happens. Belgium, difficult market as we said of course because of the automatic inflation compensation for everybody. Labor is expensive also in our organization. Next to that we have a very good organization. That means turnover is also low. That has an effect on your average cost for personnel. It's time to actually take some real big measures. So we're to cut people here unfortunately, but there's no alternative. We are in the midst of negotiations so we can't share too many details with you. We have to wait until negotiations are done and then we can give you the exact amounts. We'll issue a press release when we know when we have an agreement so that you can actually you will be informed as soon as possible. U. K. Improving trend. Again in The U. K. We lost 30%, 40% of revenue in in house most of it on purpose because margins were too low it was not profitable. Then we still see an effect that one of the biggest clients actually the biggest client is growing a lot at a low margin but still profitable but on the gross margins has its effect. Continued growth in Professionals, getting better every day. The organization is shaping up well all the steps we've taken and it took quite a while because the history was one of a complicated structure is paying off. Focus is paying off. Strategic plans are in place. Execution is getting better. Field steering is being executed a lot better than in the past. So a lot of good signs. MSP and RPO are growing fast. Perm fee is still down. Although in the city we do see that funny enough. And we also see it down, but we see the temps the interim going up. Focus on costs again 3% FTE is down and the back office is going well. So the processes in total if you look at the company are for sure improving a lot as we speak. EBITDA margin 1%, 1.4% more working day. And again improvement in all businesses. So this is promising. And as again macroeconomics would destroy markets. Iberia a bit of a funny story obviously, funny in the sense of positive. Revenue minus 1% for the quarter and plus 6% in June and in it was minus plus 6% in Spain and plus 6.5% in Portugal. So an improving trend. Professionals showed continued growth actually. That actually has been growing for quite a while. It's still very small, but growing rapidly. Portugal the same. It was six point something. So we rounded up to plus seven in June doing well, especially in call centers. Manufacturing and automotive going up. Personally, I'm pretty optimistic about the economy in Spain medium term. Costs really have come down of labor. We see bigger companies starting to invest again. The feeling I have is that they turned the corner, but we'll see. Costs down €4,000,000 and EBITDA margin at 2.6% versus 0.9% last year, which for sure is an excellent performance. Still a long way to go. If you look at the developments per industry, just to give you an idea of what's happening, I already mentioned a few of them. Manufacturing U. S. Down. That doesn't have to be the market. But again, we've been very selective. We only take blue collar if we can do it in house and at the right margins. So we are very selective. We have shared or not renewed contracts with clients because we couldn't make money or couldn't make enough money. Germany, again single minus means one digit double minus or double plus means double digit. France manufacturing down obviously. In Holland it's flat. Automotive flat in most markets growing in Holland. Again as I mentioned mainly truck producers actually the business is booming in that sector. Transport sector is doing well in The U. S. And in Holland, which usually abide for the fact that markets are getting better. We'll see if it's also the case this time. Services down in France double digit, single digit in Germany and flat in the other markets. Financial Services down in most markets. IT Services a mixed picture. Public sector double digit growth in Holland, but again the lower level functions not the yard profiles yet. And Health and Social Work still down in most markets except for U. K. I think. So that leaves me to hand over to Robert Jan for the final financial results and outlook. Thank you. Good morning. To start with a few remarks on the USG business. The USG acquisition, it's almost unavoidable effectively. It is unavoidable to not be EVA positive in one year here. The transaction was completed at the June. The revenue of the combined businesses was flat in that quarter where even Spain showed growth. It has been included in the balance sheet as you might have read. And the impact on the balance sheet is roughly €136,000,000 on the asset side just for your spreadsheets €136,000,000 on the asset side €76,000,000 on the liability side that means net assets of around €60,000,000 out of which €40,000,000 is working capital. And the P and L will be consolidated as from Q3. The purchase price allocation is planned for the third quarter. That means we're going to allocate sort of the gap between what has been paid and what is the book value of the acquisition to various items and it is anticipated that we'll record a significant amount of bad will, which is a funny word in many ways, but it means you're getting a higher financial value than the purchase price paid. We have a divestment included in of the Uniman business in Switzerland, which is sort of a very tiny negative synergy, but the anticipated cost synergies amount to 15,000,000 to €20,000,000 are expected to materialize as from Q3 onwards and the integration costs are anticipated to amount to €15,000,000 and these will be incurred in the next four quarters. We also have an amount of additional tax synergies in scope, which you can imagine is dependent on sort of the forward analysis of the potential to sort of recover that. That is also an ongoing analysis, which we'll come back to. The income statement of the company second quarter of the year most of this has been elaborated upon by Ben already. So I'm not going to go into the upper part of it. You can see the integration cost and some and the one offs €5,000,000 in this quarter. Amortization and impairment being a little lower than last year. That's sort of the typical routine in line with the previous quarter. Net financial income and cost that's a summary of a couple of items, but it is clear that the interest payments in this quarter are lower than the same quarter last year. And there is some currency impact on this line included as always. Tax at around €31,000,000 sorry 31%, but I'll get back to that one. The key financial points. The first one is extremely important, of course, free cash flow much better than last year, much better than last year. And that is always the second quarter is the worst effectively in terms of cash generation of the company. It generates typically negative free cash flow and that is because of the regular annual payment of holiday allowances in for example The Netherlands and Belgium. And Q2 also typically has more revenue than the first quarter of the year. As such, we have some working capital investments. Also our payables side was managed a little bit better here. DSO, as you can see on the third bullet is one day down. That's roughly €60,000,000 of impact. But we can also to some degree manage the payable side. We were a little unfortunate in terms of our receivables collecting the money because at the end of the quarter there was a weekend and typically companies tilt the payments over the weekend into the next week which is the next month. That is in sort of an argumentation we typically run into internally when we talk to our opcos. We've looked at twenty fourteen. Fortunately, no weekends at the end of the quarter. So hopefully that's going to be helpful. The leverage ratio of the company at 1.8, up from 1.5 in the first quarter. Sequentially, that's a normal movement. Actually, it's a little bit better because of the first point mentioned. Payment of dividend was limited relatively to €91,000,000 compared to €221,000,000 last year and that's due to the stock dividend option, which was selected by more than 60% of the shareholders. We did include most of the cash out for the USG acquisition as you can see in the cash flow statement. Effective tax rate of 31%, which sort of is in line with the guidance. It's very much depending on where does the profit come from. As you know, The U. S. Typically charges high corporate income tax rates. Diluted EPS €0.51 This is the segment performance and I can inform you that next year we intend to expand it a little to sort of separate HRS. As you can see here €258,000,000 of revenues this quarter out of the Staffing segment as a separate segment and then we'll share the details with you. Staffing 3.4% return showing also the focus on revenue quality, especially in North America. We see stable trends across Europe. Ben elaborated upon those and the positive impact of these French subsidies, which to quite a degree are supporting our ongoing investments in employment in the French markets. In house at 4.5% also improved growth led by North America, The Netherlands and Iberia and also here some impact of the CICE. Professionals at 4.5% now. It's the highest performing segment equal to in house and that's how it should be. It should be the highest clearly. Lower demand we see across Europe and North America, good growth in The U. K. And mainly in education and engineering and IT, a decline in perm fees in Europe and a decline in the rest of the world also in Australia. The gross margin bridge, it's always an interesting one especially if you get into the subsidies in the French market. And if you look at the bridge here what it shows you is how did we get from Q2 to Q2 this year, last year, this year. And in between effectively there are two relevant boxes here. The first one was Q1 this year in which we had an 0.4%, so 40% negative sort of pricing temp margin impact pricing and mix. And then the remainder and that's the positive was an 0.2%, so 20 basis points impact from the French subsidies. In the second quarter, it was 0.1% in the temp margin and it was 0.3% in the subsidies adding up. So 0.2% plus 0.3 is 0.5%. That's the number you see in the press release. And the negatives do relate to what we see here, the latest changes in The Netherlands and in Germany partly compensated by margin expansion in North America and of course the French subsidies. Moving on to the operating expenses for the company. And then I think I should sort of note at the beginning that if you have a stable decline and you move up a little that might still be negative territory, but effectively it's growth. Because in real life you don't live from year Q2 last year until now, you live sequential life. And I think that's important to realize. We also have our internal discussions sometimes about that. And that's why we have we show you the sequential development at the top page here. How did we move from the first quarter to the second quarter five ninety two to $6.00 1,000,000 hardly any currency impact. And as you can see some investments in the European area, North America, Rest of the World mainly this is marketing and this is bonus accruals. Typically, if we would go into a growth sort of scenario from here, which is to be seen, but if it happens, we typically get three phases if you look at the expense base. Typically, the first phase is where we add marketing and bonus and commissions. And that's a pretty sort of solid phase and also a phase that might take a while. Then the second phase is when we start to add people. And only the third phase is where we start to add sort of back office, offices and so forth. So I think that is typically the way to look at it. So this is in some areas, we do see growth and that's also why you see our marketing and our bonus expenses going up. On the right hand side of the page, you see the recovery ratio. Of course, that's year on year, so it should be in the lower box. And this is where we compare the cost of Q2 last year with the current level, which results in the more than €140,000,000 savings over four quarters. DSO is down by one day. I mentioned it already. This is the balance sheet of the company. Working capital, it includes €40,000,000 relating to the USG acquisition. And a change here is that we've moved from short term borrowings into long term and that is because we replaced the existing credit facility of Randstad that ran for a while into the new one which was already organized at the time we acquired SFN, but it kicked in now. So now again there is long term commitment for financing. The seasonal net debt increase, I already elaborated upon that one. Not much to say, I would say. One element that requires a little attention, the €60,000,000 other non cost cash items that is where we receive from the we should receive from the French government the subsidies, but it takes a while. And I just wanted to use a few seconds to explain that. We do earn those subsidies, which are to be spent partly. But before we cash them in, it takes a while because they can either be offset to taxes being paid, corporate taxes being paid, corporate income taxes being paid or after three years they'll be paid anyhow. So that means it requires a working capital investment, a substantial working capital investment. And we're now in the first year, but if this grows sort of according to the current pattern after a few years it will be between EUR 200 and 300,000,000 of financing. So it will always be settled, but the timing can be dependent on the corporate income tax payments. It's our analysis that most of it will be settled because it's a significant amount. Most of it will be settled after three years. And the €60,000,000 in here is the quarterly impact. The outlook for the company and I'm going to give you the rates as well. Revenue per working day was at minus 2.6%. April, it looked like March, but then the second half was a little worse. Working days were very difficult to assess given the bridging days. May a bit better. June better again. And what we see in the beginning in the July is in line with the development of the month of June. And the exit rates for The Netherlands minus 5% for France it was minus 14% Germany plus two percent Belgium minus eight The U. K. Plus 2%, Iberia plus 7% and that's a plus both for Portugal and Spain, North America minus 2%, rest of Europe plus 12%, and the rest of the world plus 11 And I'm looking at I think one, two, three, four, five pluses here, which is so far so good I would say. Comparison base is going to get a little easier. Last year first quarter was close to zero. Second quarter was a small decline and then we got into more severe declines in the second half of the year. So the comparison base is clearly changing. We'll have one day more. So we did have a difference of zero point four days in Q2 and now we're moving to one additional working day in Q3 compared to last year. We already made the statement 15,000,000 to 20,000,000 of additional marketing investments, which includes some of the regular seasonality and spend because it's not a flat line through the year. We'll have the consolidation of USG and the purchase price allocation including the assessment of Badville. And we have also included the payment of the tax liabilities, which we have carried on for quite a long time, but the settlement is coming near of €131,000,000 in Q4. Our strategic key priorities remain, as you can see here, capturing profitable growth, also focused on revenue quality, improving the business mix perm and professionals. Field steering continues to be top of the page, so input steering, client profitability, delivery models again, making sure we match the clients with the right delivery model and we continue to have a focus on cost. We do still have in the pipeline the reorganizations in France, which have to be sort of completed in terms of planning and people that want to participate here in the third quarter. So then we'll have clarity about what and when exactly the Belgium discussions are ongoing and the USG synergies will start to have an impact here as well. I have one additional thing to mention to you that is that we originally scheduled our Investor Day for the November 24 and we have decided given some feedback that we have received that the agenda might be too limited. I mean we I think we have full clarity in the market about what we're doing, how we're doing it. So we have decided to cancel the Investor Day, but instead of that to invite you to operational visits in the fourth quarter and the first quarter of the year in order to sort of to experience the business how we run it. And we'll get back to you with further detailed plans. That's my contribution and now we'll move to Q and A. I have one thing to correct. I made a mistake. I'm sorry. I mentioned 65 jobs at Tempulte and that was Belgium obviously. I confused them. It's a considerably lower number than that. My apologies for the confusion. So we'll start with the Q and A. In terms of order, we'll first do the analysts here in the room. Then we'll do the analysts on the line from The U. K. And France. And then in the end, we'll address also the questions if any from the Dutch press who are in the room here as well. So let's start with the analysts here in the first row. Marco? Good morning. Three questions from my side. The first one, can you shed some light on your discussion with clients in recent weeks in the markets or in your big markets with negative growth of France, Netherlands and Belgium? What is their vision and attitude approaching the month of September? And then the second question, can you elaborate a bit on the guidance of considerable tax synergies from the USG deal? And then thirdly, when do you expect to end the negotiations in Belgium? And what's the timing for the completion of this restructuring? The final I think on your final question is that the intent is to finalize this in Q3. Execution will be then also in Q3 we hope. But again it all depends on negotiations. So if the unions find reasons to do that differently, we can't control it. It's a famous I think which prescribes a very, very tedious process. Jacques van den Broek here. As Ben mentioned, due to the law of Renault, of course, it's our wish certainly because it's an insecure situation for people to end it as soon as possible. But there's constructive dialogue with the unions and we cannot really say, Mahal, when this will be concluded. So really there's a wish, but there's also a process. I would think it will be favorable if you will be good with fast enough because also people are insecure and that's a situation you don't like to have. Client discussions, it depends obviously in what industry they are. Again, we talk to the truck producers I mentioned earlier, they are pretty bullish. Financial institutes are more negative. It's a very, very mixed picture both per sector and per geography. So it's difficult to give you a clear view that you would actually could apply all over the world. On the tax synergies, think, Robert Jan? Yes, Macho. If we would have known, we would have loved to share it with you of course. And typically, this is about sizable amounts given sort of the historical performance. But the real question is how do you feel about making up for those, repairing those and compensating those with future profits. And that's an analysis we're going to do and I cannot share the size of that anymore any at this point in time, sorry. Next question Hans. Good morning. Hans Bajos, Kepler Cheuvreux. Two questions from my side. First, looking at Germany, you're talking about easing of the gross margin. Could you elaborate what you see and experiences with the equal pay? Is there any some different come to some more detail? And are there, let's say, other impacts beside the sickness? Did you also see that the price pressure is maybe coming down a little bit there? Could you give some flavor on that? And secondly, with respect to development in April across the board, Is it deterioration compared to March? But these are purely explained looking at the number of the decline per working days is it purely explained by the bridging days impact? So it's a little bit difficult precisely to calculate it. Can you give some flavor on that also? Yes. On your second question, Stavart, we indeed saw that it was not a linear development through the month and indeed bridging days play a role there. That's all we can say. Germany equal pay so far we've not seen actually a decline in volume, which to be honest as I also shared I had expected because usually if we see new legislation like that you see it happening. I'm sure that the fact that the CLAs and for all other industries and the increase there play a role because of course that works positively if you look at price elasticity. About 40% of our population is affected by this change in legislation. We've not seen again any change in the behavior of clients. We'll see how it develops over time because once they've worked eighteen months they get more expensive and you get contracts and stuff. So we'll see if that has an effect, but then it would mean replacing them by new ones. So we don't expect a big effect there so far. On the margins, we see that the all the extra costs related to equal pay had quite a heavy impact on our margin and we see effect going down. So next to the sickness, which is a one off if you want, the fundamental burden on the margin because of the extra costs calculated because of equal pay is stabilizing and slowly going down. So that means by definition margin should improve unless of course you will suddenly see big margin pressure from competition, which we don't see at the moment. Mark Wattsberg, ING. First of all, I want to clarify the July growth similar to June. Is that so the minus 2.6%, is that also the growth rate then for July? Is that what you mean with the statement, stable trend? Yes. And we look at volumes. Weekly data which we intensively follow is our volumes and that's what we base our judgment on. Okay. And then on SG and A. Normally you've given rather specific guidance or at least a qualitative guidance for the second for the next quarter. Now there are a couple of factors impacting there. You've got marketing spend. You got the USG included and perhaps some higher bonuses and some seasonal related factors. Could you give us a little bit of more flavor on what you expect for the cost base in the third quarter? Marc, we didn't do that for the last quarter either, but I understand your question. And I think you should assume that given the fact that we're going to include the elements that we have mentioned that will show a limited increase And the impact of the reorganizations will not really be in Q3, that will be after Q3. Did you say a limited increase in SG and A? Sorry? Limited increase. Said a limited increase, yes. And USG, of course, is going to it's like €60,000,000 a year if you look at gross profit and OpEx. So effectively, that will have onefour of that you'll see coming through the P and L both in GP and OpEx. And how much of the marketing could be? That's something to be decided, it wouldn't be logical to see a little more out of the investment into Q4. Okay. And then a final question on The Netherlands. Could you explain a little bit on your remark on gross margin easing feasible in The Netherlands? What how we should see that? Is it easing and becoming less negative, pressure? Or do we see already a stable trend or an improving trend? Because if you look to the ABO figures, think even the trend is a little bit positive over the last few periods. And perhaps on the savings from 10/14, could you give an indication what the savings will be? Yes. As I mentioned on the savings account because we are negotiating. So that means during that process we can't reveal numbers unfortunately. I'd like to but we can't. The margin again we've seen that because actually the change in margin was mainly due to the changes in social security charges more than price. Prices plays a minor role. Think the price effect by that was 0.2% Leo or something like that. So that's very limited. So what we see now is we see the first benefit for our Eiryzhikode Raraswap. So the sickness risk we carry and again that effect is going to increase. The positive effect is going to increase. So all in all it looks as if there's room for a slight improvement in margin. Davout, Eurobank. Good morning, First of all on the trends in specifically The Netherlands and France, the exit rate is a bit worse than the overall quarterly rate. And for example, Manpower is flagging a slight improvement in both markets. So is it your own performance or maybe a different view on the market? Then secondly on your recovery ratio 85% in Q2, but the top line of course was still in decline. So could we assume a higher ratio even significantly maybe even when you would see top line growth again at group level? And then thirdly on The U. S. Professionals the minus 5% in June exit rate. Are there any specific actions planned to improve that ratio? Thanks. We'll start with Linda on The U. S. Professionals. Yes. So the decline in June and the decline versus the decline during the quarter, we did see notable improvements, I would say, in the major businesses, which are IT and Accounting and Finance. Those two businesses make up the bulk of the revenue. And what we watch there is we watch very closely starts versus terminations, so kind of net change in contractor levels and assignment levels and those are positive. So all in all the trend is not certainly as robust as we'd like it, but it's pointing in the right direction. A lot of the trend we've seen so far is segment related. So we had we were overweight in terms of the financial services sector. And so it took us some time to recover from that and to balance our portfolio a little bit more and that's what's going on now. So, yes, there were very specific actions, measured actions to diversify a little bit more. So we were not as exposed to movements in one sector. Yeah. And then the question about the recovery ratio relative to the trends in The Netherlands and in France. First of all, I want to point out that the minus 14% in France, it doesn't have to be sort of the trend that we're to see in the next month because there is never a linear line. There's always some erratic behavior. Second point to make here is that we have no other reorganization plans currently sort of being prepared. We are going to execute the ones that we have shared with you. And field steering will lead us adjusting the front office wherever necessary both up and down. Yes. Maybe Francois can comment a bit on the volume development in France. In fact, yes, in terms of volume we are below the market since several quarter. But it's choice even if we are big crisis in France, we consider that it's very important to continue to follow our withdrawal plan we began in one year ago. So we continue to choice good customer on the good level of gross margin. So it's a choice. For Netherlands, again, we see a mixed bag. If you look at our own companies and segments actually, the good news I think is that we are really doing as we promised and that is looking at profitability. Profitability has improved and will improve more because we are looking at the right segments and we are developing the right segments and we are actually refusing the wrong contracts. So in that way that's what's happening. Again one or 2% more or less through month in my view compared to last year is not a trend. So it's stable in my view all on the volume development so far. So I don't see any dramatic changes going south there. Your follow-up David or? Is it already been answered? Yes, think so. I tried to It has been. Answer Okay. It's double the level of Q2. Yes, I'll repeat it once more. We have the ongoing reorganization plan sort of finalized and being executed. There's nothing else that we additionally are about to announce. And field steering will lead the way in adjusting the front office. That's what I said. I think that's a yes. Thanks. The cost base also reduced already in Q3 last year. So that also play a role in the comparison base when calculating the recovery rates if you want to look forward. Yeah. Tony Thiess, ABN AMRO. First of all, on your increased marketing spend, know you do a lot of research into this. What do you expect that the impact on your revenues or market share will be? And when that will impact your revenues or market share? And then on DSO, you obviously showed a decline in your DSO. Can you indicate what the underlying effect has been and what mix effects have been in that number? And then finally on the CICE, next year we will see another increase in the CICE. Can we expect that your net impact from that will be similar to what you have right now? Marketing impact, we have different sorts of marketing plans ready to be executed. Part of it is to actually boost the brand in general more. The effect of that is always that we get more efficient in the end if our name recognition goes up, but that's difficult to measure because that takes a longer period of time. The other action we have is what we used to call and still call micro marketing, but we now have version two point zero. That means we attack a specific city in general and we'll be even more specific this time. So we'll go for example for, I don't know, IT people in Manchester as an example. In general, we've done dozens of those in the past. The effect has always been that we in 85% of the cases that we saw the money we spent actually coming back in extra gross margin within six months. And if you look at the €20,000,000 my guess is that the split will be sixty-forty if you would make that split. Is that about right, Frans? 60% on the big campaigns and 40% on the micro marketing. But that might well take up to and including Q1 next year before we execute all of those. It will take some time. And then the DSO and CSA. The DSO, the mix effect is rather limited. So I understand the question. We're taking out we have somewhat lower revenues in France, but at the same time, we have an increased level of revenues in Iberia, which comes with higher DSO. So there's a very limited mix effect. Most of it is a reduction of overdues. So that means sort of payment date passed and should have been paid. So that's internal discipline. The CICE will go up from a base of 4% to 6% next year. What I meant is your gross impact this year is about this quarter was €22,000,000 and the net effect was about €15,000,000 So about two thirds is your net profits from the CCA. Will that be the same with the additional 2% that you get next year? The analysis is that we'll have 190 basis points impact on the French gross margin in the second half of the year, sort of and that to be multiplied by 1.5% if you go from 4% to 6%. Assuming the current spend, that's sort of an assumption. And of course, that could change along the way depending on sort of what is happening, the negotiations and so forth. We'll move to Arun. I think now we can move to the line. Good morning. Arun, Borges Kempen. One question on your outlook statement. I think in the press release you referred to the easier comparison base. And I checked my notes, think last year during Q3, you went from zero to minus five in the quarter. And then taking into account the fact that The U. S. Will have its first year of anniversary of shedding those low profitable contracts, is it unthinkable that in Q3 you will sort of have the inflection point of reverting to growth for the company as a whole? That's my first question. Second question is on The U. G. Deal. You referred to having restructuring charges which are unquantified, but you do receive more cash than the actual you do receive more value than you pay for the assets. So is there really a cash out to be expected? Or can you sort of self subsidize that from the working capital that you received? On the inflection point, yes, again, it's forecasting the growth of the market, Arun. So that's a bit difficult. We saw that September was the weakest month in Q3 last year, if you look at the third quarter. So it's through the quarter also still a mixed picture. So we don't know. Again, the trend we see in June looks promising for quite a few markets. To be honest, we had the same in March and then it didn't materialize in April. So far the volumes we've seen in July as Robert John shared with you are in line with what we've seen in June more or less. So minor changes, but more or less overall. So that again looks promising. And this is almost the end of the month. So maybe the reliability of the volume in July at least looks promising. Of course, what is not included is for example perm placements etcetera, etcetera, because those are things that we do not have in the weekly reports, more and more, but less reliable. But yes, so far so good. It's difficult to see. The inflection point depends on market developments, obviously. U. Its first anniversary in terms of shedding unprofitable contracts. So will we get back to market levels in The U. S? We see it actually in quite a few countries. We see the same in England, U. K. Where we actually as you said a lot of contracts, a big volume. There we are getting closer to that point where it actually is changing. And then on top of that we have the source right also source right growth that actually is almost equal to what we lost in in house. So then in the end, we would result in The U. K. To a bigger volume growth, but not necessarily translated in a of profit because MSP as such is not yet a very profitable activity. U. S. Is an ongoing process. But again, these processes of course, if everything stays the same you would be right. But we keep on of course having to renegotiate contracts. And every time again you have to take the decision whether or not you want to have the business at that margin or not. So it's a continuum, which you cannot say now is the inflection point where the big change is. Arun, I was trying to understand your question because I don't think you're mixing up cash and the bookkeeping positions. But let me just share with you the details. We have stated €15,000,000 of integration costs, which will be spent in the first twelve months. That's a one-five. One-five. Also shared with you the impact on the balance sheet. And I said that we have a net asset value of €60,000,000 preliminary, because we're still going through the closing balance sheet audits and that will help us to finally assess the positions. Let me just give you one example. At Randstadt we provide for any receivable older than 182 fully. That's one of the standards that needs to be applied to the USG data as well. And then we'll come to a final net asset value and as such derived from that we'll have the bad debt settled as well. The €15,000,000 will be spent sort of over the first twelve months. At the same time, we'll start to see the synergies coming in, but they will not sort of perfectly net out. That's not what we expect. There typically is a timing difference, but in the end after a year more or less will be there. Any other questions? We'll move to the line. I think we only have one question on the line. So operator, if you can let Tom ask his question. Tom Sykes from Deutsche Bank is online with a question. Thank you very much. How very lonely it can be sometimes. But just on the gross margin, I don't know whether, sorry, you asked you mentioned it earlier in the call, but did you give the amount for how much the extra subsidy you took in France in Q2 related to Q1 was? And then I know that you tend to provide for sort of working day effects Dom €10,000,000 in Q2 that relates to Q1, 10,000,000. Euros 10,000,000, okay. And in terms of the working day effect in Germany on gross profit, was there any I mean, I know you tend to provide a bit for working day effects on the gross margin, but was there a gross margin benefit year on year because of working day effects? There always is, but it's limited. It's a few tenths of a percent. Okay. And then just in terms of the outlook for The U. S. Market, maybe if you could give a few more comments on clerical and industrial. And I know that you may be not looking at contracts which are lower gross margin or don't provide the right return. But if you could maybe provide some comments on what you're seeing in terms of market demand please? Yeah. Linda will give you some insights there Tom. Thanks. Yeah. So if we start in the General Staffing segment, so industrial versus clerical, the market feels okay. So I'd say that there's definitely I wouldn't call it robust demand, but there's definitely good stable demand development in The U. S. I know some of the market figures coming out are showing the market going the other way, but I'd say it feels quite stable. Permanent development is quite positive. So we are seeing ongoing good demand for permanent placement, which of course is very helpful when it hits our books because of the higher margin in EBITDA. So I'd say that's very good. In Professionals, we've seen a little bit of a weaker demand. There's no question that it feels a bit softer. But again, I'd say that it's not problematic. It's stable, but softer than some of the demand we've seen I'd say in the last four or five quarters. Okay. Thank you very much for that. And sorry just to repeat the Q1, so you said €10,000,000 for what was taken in Q1 related Q2 related to Q1? Correct, Tom. 10,000,000 related to Q1 processed into the Q2 results. Okay. Great. Thanks very much. Thank you. Okay. Tom, you don't have to fill in. We have two more questions on the line. So operator? Rory McKenzie from UBS is online with a question. Good morning. Just two for me please. Firstly, you remind me how much the incremental benefit you expect from previous quarter restructuring particularly in France? So as in addition to the USG savings, how much will the SG and A fall by from here? And then secondly on the French subsidy. From here how much of an increase do you expect in that subsidy for 2014? And are there any additional investments you need to make that are required by the legislation in France? Yeah. Your first question the French reorganization, we already made the point that we still have to come to a final conclusion. However, in the fourth quarter of last year we provided I think €28,000,000 of which most related to personnel expenses. And we always have the ambition to recover that within twelve months. And you can obviously understand that in the French market that's a bit more of a challenge than in other markets. So it might sort of be at the high end of it, but that is our plan. So as from the moment of spending twelve months later, we aim to have the money in the bag more or less. Your second question is about the French subsidies. And I think I mentioned it already. In 2014, the base will go up from 4% to 6%. So it will be 1.5 times the impact in the second half of the year and the impact in the second half of the year is 190 basis points improvement in the French gross profit as a result of this. This is on a net basis. And still our ongoing discussions and negotiations and political opinions and whatever happens in the market might have an impact on this. But are there any additional investments you can make in kind of back office or admin costs are needed for legislation? Or are you kind of happy with the cost base that is there? No. This is sort of whatever we feel is necessary into the markets, but not back office typically. Okay. Thank you. So the last question from the line and then we move back to the room. Olivier Lebrun from Nataxis is online with the question. Yes. Good morning. Two questions please. So first one relates to The U. S. Market. For H2, do you anticipate the same rate of termination of contracts as in H1? Or will you able to grow more in line with the market? And the second question is about Iberia. Do you think a recovery of the staffing market during the summer is a realistic option? Thank you. Sorry, could you repeat the last part of your second question please? So in Iberia Do you think a strong recovery of the staffing market in Iberia during the summer is realistic? Again, it's a comparable answer. We look at compared to last year's summer. The exit rate of June was promising. And of course, we the comparable base hasn't changed that much. So that's to be expected. Don't expect a big change in trend, but I don't know. We'll see. It's difficult to answer. The other question was on The U. S. If we see more Yes. Again the shedding of contract is a continuum because it keeps on happening, because we keep on negotiating new contracts. And every new contract we have to decide whether or not we want to actually be a supplier at that specific margin. So it's a continuous process. It's not that it happened at one point in time with all the contracts and we said as from July 1 these are all gone. So sharing the contracts and renegotiating is an ongoing process. So it will be with us forever. Okay. Thank you. Okay. We fit one more in Andy Grobler on the line. Operator last question then. Andy Grobler from Credit Suisse is online with the question. Hi, good morning. Just one question from me on The U. S. With the Affordable Care Act having been delayed a year, what impact do you think that's going to have on your business and staffing markets more broadly? I expect it to have no impact. The delay has been on the employer mandate only. So the Affordable Care Act is moving forward. So the effects of it, the so many of the costs employers are starting to incur already for having insured individuals on their payroll that is kicking in. So I would say that it's a non event. We do expect it to kick in next year. I think it was a delay based on the rather the administrative heaviness of the act. And I so I expect the impact to be zero. And just one or two that the agencies had hoped that this was going to have a positive impact on business just as more companies geared up for the change. Yes. Were you had you sort of put yourself in position to try and benefit from this or not? Or were you pretty neutral? No. I'd say we do expect it over time to have a positive impact. I'm not sure that the delay changes that because again some of it is a cost calculation, but a lot of it is a complexity of carrying a contingent workforce on an employer's own payroll. So and I think the effect of that and the understanding of that is already well ingrained as people have worked their way through the act. So I would say that the positive impact will not be changed by the delay in the employer mandate piece. Okay. Thank you. Okay. Were there any final questions from the analyst in the room? Hans? And then we'll move to the questions from the press if any. Yes. A follow-up question on France. Yeah, looking at the impact of the CSA, do you see any already elaborated after Q1, but maybe you have somewhat more longer experience. Do you see any impact on the competitive environment? You already indicated that you're, let's say, shedding or let's say a little bit more focus on client profitability and therefore you're losing some volume compared to the market. So could you give some light on what you see on the competitive environment? I can do it too. We France has always been a very competitive market and still is because again if you look at the structure of the market, a lot of very large volume contracts with blue collar that by definition actually generates a competitive market that isn't changing. The fact whether or not the CCA actually what should happen to the CCA is very clear. It's intended for the employer and we are the employer. So we intend to keep that money and to use it ourselves instead of using it as a sort of indirect rebate for clients. That's not the effect. We'll stay very strict. I think we estimate that we've lost about 70,000,000 to €100,000,000 Francois by now on being in France, because we were tough on and are tough on the contract. We'll maintain that strategy, because there's no alternative in France. We've done a lot of things. We've actually made the company a lot more efficient. We used the right delivery models. We've seen big growth in in house in France, actually not in this quarter, but we think it will ramp up again because there's a lot of new clients and again transfers still happening. That makes us more efficient. We are developing the professionals, but obviously that market is down. So that doesn't help. But in the mix over time, we'll improve. We see that we've boosted perm and our market share in perm is considerably higher than our market share in staffing, if you look at the French market. So and that mix is where the continuous improvement actually should happen and should keep on happening. That won't change. But it is and has been a price competitive market. Okay. Any questions from the people from the press? There was no arrangement to pass here. Okay. I think we're done with the Q and A session and that concludes the meeting. Thank you all for coming to the head office here and thank you for joining on the line. See you back in October at our Q3 results and have a great holiday.