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 Belgian analysts here in the room, and representatives from the Dutch press. Also here in the room is our full Executive Board, François Béharel, Linda Galipeau, Leo Lindelauf, Jacques van den Broek, and on stage, of course, Ben Noteboom and Robert Jan van de Kraats. 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 Noteboom, followed by the financial update by Robert Jan van de Kraats, and we'll end with a Q&A. I will now hand over to Ben.
Good morning. Welcome to our Q2 results presentation. I think a lot of things happened if you want a good quarter given the market. First of all, of course, we're at the end of the term where we promised EUR 70 million to EUR 100 million cost savings, which we promised at the end of Q2. We ended up at EUR 143 million. 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, et cetera. 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, of course, we've seen this big change, where in quite a few markets, we show a big uptake 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 at 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 EUR 15 million to EUR 20 million synergies plus tax advantages, savings. Robert-Jan 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, EUR 200 million on top of EUR 460 million. We're 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 a 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 3 by now, with good progress and actually continuing good growth organically. Austria, obviously, we were not there. Poland, a 25% addition to what we had, 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 USG a couple of years ago. A bit of an odd company that didn't actually fit in our operations. We could sell it at the right price, we thought. Looking at the results Q4, slide seven. EUR 200 million less sales. Obviously, the gross margin, stable more or less, but of course helped by the CICE. We've had quite a few discussions.
Whenever I visit the branch, there's always a story about, "Yeah, we're doing well because this client or that client," or, "We're doing bad because this client or that client." Yeah, 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 this regulation will be canceled. We anticipate a 1.9% increase in margin for the rest of the year. Obviously, next year, the amount will increase even more. That helps. 0.4 more working days. Again, in June, a lot of markets where we saw growth. Germany, Spain, and Portugal, 6% and 6.5% 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 Sourceright, so the MSP RPO, but also low margin business if you look at the results, with still a relatively big loss that actually will get better over time because part of it is due to provisions for invoices more than 182 days old. That looks promising. Italy growth, 4% growth in June. Doing well. Switzerland, 8%, 9% growth. Poland growth. Australia actually back in growth. The profitability prospect for Australia are looking better for this month as we look at it. 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 at a loss because we are investing a lot to gain big market share in this very promising market. Gross margin, I mentioned. The CICE had an effect. Gross margin expansion in North America. 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. Europe as a whole, still a bit difficult, obviously, being very big in France, where we see really a bad market, still -12%, -13%. A difficult market if you look at the economic situation, cost of labor, et cetera. We are big in Holland. That's stable at the -3%, -4%.
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. Again, we have other countries where we can compensate for that. Operating expenses up a bit from Q1. A big part is bonuses, and an even bigger part is marketing, but still too low. That's why I'll get back to the boost plan in a minute, which results in an EBITDA addition of EUR 10 million compared to last year, more, EUR 146, which actually makes us, well, happy is too big a word, but I think it's a solid quarter. If you look at the trends, the next slide, obviously Europe still -5%, it's clear. North America, but also top line getting at 0 or better.
Japan and emerging markets obviously growing, but the impact is still too small. Again, you see the monthly developments. We'll also share with you later the exit rates of the quarter. 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, especially staffing, are doing well, are well organized. We're also getting better at the professionals. Of course the focus still is on the investment in the IT system, because we had to come from seven systems into one.
By that, of course, we can gradually decline the cost of the back office. It'll 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, we can do it in Q&A. Linda is real expert by now. It's not easy to be an expert, so she can give you the answers. 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 in spend under management. Globally, we landed 30 contracts for RPO and MSP in Q2, which is a very encouraging number. It's going to be an important part strategically of the business, obviously.
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. 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 CICE, of course, is intended to help increase employment. It can be done by very many different ways.
We will also do our part to actually make that happen. Since this is our profession as such anyhow, shouldn't be difficult to actually explain what we do to increase employment. 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 are now executing. Again, the social plan means that we will have voluntary leavers until September. At the same time, we are combining 265 branches into 65, which of course also will give a considerable saving because we don't need 265 branch managers. That process we are pushing, and actually we have accelerated the execution of that. It will take less than 10 months for sure, and we will try to do it even faster.
As you can imagine, it's a huge operation to close 265 and find and actually staff 65 branches at the same time. We are doing our part. We are reducing cost, and we will be reducing cost even more. We have some backwind from the subsidies. As all the other companies, I think in France, 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." They started court cases. Obviously, it will not happen. We will not pay those. There's no reason to. Even the government actually wrote letters saying that the employer is the owner of that subsidy. We are pretty optimistic about that sort of court cases, but it is a distraction. We have had the Dawn Raid, 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 have been actually pretty thorough everywhere, but for sure in France, given the history of the 2004 case that we bought when we acquired Vedior. Of course, that even actually put our management more on its toes. 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. 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 Pixid, the VMS system. There's a European ruling that actually describes how we should use that. Again, we are confident that the outcome will be positive, but it will take a couple of years.
Obviously, since 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 three, minus four, minus five, minus three. 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. We see also some decline, obviously, in some other segments. Finance has declined also compared to Q1. Food industry has declined. 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, that helps. Focus on client profitability also in Holland. We see Randstad Netherlands performing very well, actually flat. Tempo-Team being more exposed to blue collar and also to industries, if you look at the more cyclical industries like logistics and food, they suffer more, -8%. Yacht is stable but profitable. Stable at -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 are now having the first still relatively small positive results of the fact that we have the risk of sickness ourselves, 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 and somebody falls ill, you have to pay for two years. Since we now have that risk ourselves, we had 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 24 months, 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 accountants and with some of our financial people because it doesn't make sense. The cost per month will stay the same. We now have a provision, it'll show as a positive the coming months, then it'll go to zero because the actual cost will stay the same. Anyhow.
IFRS, there are many other names you could actually come up with IFRS, something with confusing, no transparency. There's no R in there for ridiculous, I would be in favor. Yeah. We're going to have a bigger reorganization in Tempo-Team. We had one, obviously it was not thorough enough. We're going to cut 165 jobs. Not in the field again, it's the management structures and back office. It's a big reorganization that actually is going to take Tempo-Team on a truly competitive cost level again. They're a bit too high. Profitability is still okay, 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 the 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. Again, after the effects of the reorganization in 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 West. By the way, every CLA in Germany has shown considerable increases in salaries. 3%, 4% is common. We were a bit above that, again, 7%. That means the biggest change is the price effect more than the volume. 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 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. 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.
It's always difficult to forecast what's going to happen in summer, whether or not factories close down or not, stuff like that. Far, so good. 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. We're going to cut people here, unfortunately, but there's no alternative. We are in the midst of negotiations, 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, 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. 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, it 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. 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 cost, again, 3% FTE is down, the back office is going well. 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. Again, improvement in all businesses. This is promising, unless again, macroeconomics would destroy markets. Iberia, bit of a funny story, obviously. Funny in the sense of positive.
Revenue minus 1% for the quarter and plus 6% in June, it was plus 6% in Spain and plus 6.5% in Portugal. 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 6 point something, so we rounded up to plus 7% 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 turn the corner, but we'll see. Costs down EUR 4 million. 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 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 margin. We are very selective. We have shed or not renewed contracts with clients because we couldn't make money or couldn't make enough money. Germany, again, single minus means 1 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 a bite 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, 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 Yacht profiles yet. Health and social work still down in most markets, except for U.K., I think. That leaves me to hand over to Robert Jan for the financial results and the 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 1 year here. The transaction was completed at the end of 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. The impact on the balance sheet is roughly EUR 136 million on the asset side, just for your spreadsheets, EUR 136 million on the asset side, EUR 76 million on the liability side. That means net assets of around EUR 60 million, out of which EUR 40 million is working capital. The P&L will be consolidated as from Q3.
The purchase price allocation is planned for the 3rd quarter. That means we're going to allocate 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 badwill, 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 of the Uniman business in Switzerland, which is a very tiny negative synergy. The anticipated cost synergies amount to EUR 15 million-EUR 20 million, are expected to materialize as from Q3 onwards, and the integration costs are anticipated to amount to EUR 15 million, 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 the forward analysis of the potential to 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 the one-offs, EUR 5 million in this quarter. Amortization and impairment being a little lower than last year. That's 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. There is some currency impact on this line included, as always.
Tax at around 31%. 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. Always, the second quarter is the worst effectively, in terms of cash generation of the company. It generates typically negative free cash flow. That is because of the regular annual payment of holiday allowances, in, for example, the Netherlands and Belgium. Q2 also typically has more revenue than the first quarter of the year. As such, we have some working capital investments. Also, our payable side was managed a little bit better here. DSO, as you can see on the third bullet, is one day down. That's roughly EUR 60 million of impact. 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 an argumentation we typically run into internally when we talk to our opcos. We've looked at 2014. 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 EUR 91 million compared to EUR 221 million last year. 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 at 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 EUR 0.51. This is the segment performance, and I can inform you that next year we intend to expand it a little into separate HRS. As you can see here, EUR 258 million 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 the French subsidies, which to quite a degree are supporting our ongoing investments in employment in the French market. 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. 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, that's always an interesting one, especially if you get into the subsidies in the French market.
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. In between, effectively, there are two relevant boxes here. The first one was Q1 this year, in which we had a 0.4%, so 40% negative pricing temp margin impact, pricing and mix. The remainder, and that's the positive, was a 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. 0.2% plus 0.3% is 0.5%. That's the number you see in the press release. 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. I think I should 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 Q2 last year until now, you live a sequential life. I think that's important to realize. We also have our internal discussions sometimes about that. That's why we show you the sequential development at the top page here. How did we move from the first quarter to the second quarter? EUR 592 million to EUR 601 million. Hardly any currency impact. 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 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. That's a pretty solid phase and also a phase that might take a while. The second phase is when we start to add people. Only the third phase is where we start to add back office, offices and so forth. I think that is typically the way to look at it. 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-over-year, so it should be in the lower box.
This is where we compare the cost of Q2 last year with the current level, which results in the more than EUR 140 million 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 EUR 40 million relating to the USG acquisition. 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 Group, but it kicked in now. 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 EUR 60 million other non-cost cash items.
That is where we should receive from the French government the subsidies, but it takes a while. 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. That means it requires a working capital investment, a substantial working capital investment. We're now in the first year, but if this grows according to the current pattern, after a few years, it will be between EUR 200 million and EUR 300 million of financing. 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. The EUR 60 million in here is a quarterly impact. The outlook for the company, I'm going to give you the rates as well. Revenue per working day was at -2.6%. Beginning of April, it looked like March, but 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. What we see in the beginning, in the early part of July, is in line with the development of the month of June. The exit rates for the Netherlands, -5%. For France, it was -14%. Germany, +2%. Belgium, -8%. The U.K., +2%. Iberia, +7%, and that's a plus both for Portugal and Spain. North America, -2%.
Rest of Europe, +12%, the rest of the world, +11%. 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 small decline, then we got into more severe declines in the second half of the year. The comparison base is clearly changing. We'll have one day more. We did have a difference of 0.4 days in Q2, now we're moving to one additional working day in Q3 compared to last year. We already made the statement, EUR 15 million-EUR 20 million of additional marketing investments, which includes some of the regular seasonality in spend because it's not a flat line through the year.
We'll have the consolidation of USG People and the purchase price allocation, including the assessment of badwill. 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 EUR 131 million in Q4.
Our strategic key priorities remain, as you can see here, capturing profitable growth, also focus 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 completed in terms of planning and people that want to participate here in the third quarter. We'll have clarity about what and when exactly. The Belgium discussions are ongoing, USG People 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 24th of November.
We have decided, given some feedback that we have received, that the agenda might be too limited. I think we have full clarity in the market about what we're doing, how we're doing it. 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 experience the business, how we run it. We'll get back to you with further detailed plans. That's my contribution, now we'll move to Q&A.
I have one thing to correct. I made a mistake. I am sorry. I mentioned 165 jobs at Tempo-Team. That was Belgium, obviously. I confused them. It is a considerably lower number than that. My apologies for the confusion.
We will start with the Q&A. In terms of order, we will first do the analysts here in the room. We will do the analysts on the line from the U.K. and France, and then, in the end, we will address also the questions, if any, from the Dutch press who are in the room here as well. Let us start with the analysts here in the first row. Margo?
Good morning. Three questions from my side. The first one, can you shed some light on your discussion with clients in recent weeks in your big markets with negative growth, France, Netherlands, and Belgium? What is their vision and attitude approaching the month of September? Can you elaborate a bit on the guidance of considerable tax synergies from the USG deal? Thirdly, when do you expect to end the negotiations in Belgium? What is the timing for the completion of this restructuring?
I think on your final question, the intent is to finalize this in Q3. Execution will be then also in Q3, we hope. Again, it all depends on negotiations. If the unions find reasons to do that differently, we cannot control it. It is the famous law, I know, I think, which prescribes a very tedious process.
Jacques, go ahead as well.
Hello. Jacques van den Broek here. As Ben mentioned, due to the law right now, of course, it's our wish, certainly because it's an insecure situation for people to end it as soon as possible. There's constructive dialogue with the unions, and we cannot really say, Margo, when this will be concluded. 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, if we talk to the truck producer I mentioned earlier, they are pretty bullish. Financial institutes are more negative. It's a very mixed picture, both per sector and per geography. It's difficult to give you a clear view that you actually could apply all over the world. On the tax synergies, I think, Robert-Jan?
Yeah, Margo, if we would have known, we would have loved to share it with you, of course. Typically, this is about sizable amounts, given sort of the historical performance. The real question is how do you feel about making up for those, repairing those, and compensating those with future profits? That's an analysis we're going to do, and I cannot share the size of that at this point in time. Sorry.
Okay, next question, Hans.
Yes. Good morning, Hans. Two questions from my side. First, looking at Germany, you're talking about easing of the gross margin. Could you a little bit elaborate what you see and experiences with the equal pay? Is there any some different, some more detail? Are there, let's say, other impacts besides the sickness leave? You should also see that the price pressure is maybe coming down a little bit there. Could you give some flavor on that? Secondly, with respect to development in April across the board, you see deterioration compared to March, but is that 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. Could you give some flavor on that also?
On your second question, to start with, 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 for all other industries and the increases 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 18 months, they get more expensive, and you get contracts and stuff.
We'll see if that has an effect, but then it would mean replacing them by new ones. We don't expect a big effect there so far. On the margins, we see that all the extra costs related to equal pay had quite a heavy impact on our margin, and we see that effect going down. Next to the sickness, which is 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. That means, by definition, margins should improve. Unless, of course, we will suddenly see big margin pressure from competition, which we don't see at the moment.
Sorry. Yeah. Marc Zwartsenburg, ING. First of all, I want to clarify. The July growth similar to June. The -2.6, is that also the growth rate then for July? Is that what you mean with the statement, stable trend?
Yes.
Okay.
We look at volumes. The weekly data which we intensively follow is our volumes, and that's what we base our judgment on.
Okay. Then on SG&A, normally you're given rather specific guidance or at least a qualitative guidance for the next quarter. There are a couple of factors impacting there. You've got marketing spend, you've got 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?
Yeah, Marc, we didn't do that for the last quarter either. I understand your question. I think you should assume that given the fact we're going to include the elements that we have mentioned, that will show a limited increase. The impact of the reorganizations will not really be in Q3. That will be after Q3.
Did you say a limited increase in SG&A?
Sorry?
Limited increase.
I said a limited increase. Yeah. USG, of course, it's like EUR 60 million a year if you look at gross profit and OPEX. Effectively, that will have one-fourth of that you'll see coming through the P&L, both in GP and OPEX.
How much of the marketing could be
That's something to be decided, but it wouldn't be logical to see a little more out of the investment into Q4.
Okay. Final question on the Netherlands. Could you explain a little bit on your remark on gross margin easing visible in the Netherlands? How we should see that? Is it easing, becoming less negative, less pressure, or do we see already a stable trend or an improving trend? Because if you look to the ABU figures, I think even the trend is a little bit positive over the last few periods. Perhaps on the savings from Tempo-Team, could you give an indication what the savings will be?
Yeah. As I mentioned on the savings, I can't because we are negotiating, 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. Price plays a minor role. I think the price effect, Gerard, was 0.2%, or something like that. Yeah. That's very limited. What we see now is we see the first benefit for our eigenrisicodragerschap, so the sickness risk we carry, and again, that effect is going to increase. The positive effect is going to increase. All in all, it looks as if there's room for a slight improvement in margin.
David at Rabobank. Good morning, gentlemen. First of all, on the trends in specifically the Netherlands and France. The exit rate is a bit worse than the overall quarterly rate. For example, Manpower was flagging a slight improvement in both markets. Is it your own performance or maybe a different view on the market? Secondly, on your recovery ratio, 85% in Q2. The top line, of course, was still in decline. Could we assume a higher ratio, even significantly, maybe even when you would see top-line growth again at group level? Thirdly, on the U.S. professionals, the -5% in June exit rate. Are there any specific actions planned to improve that ratio? Thanks.
We start with Linda on the U.S. professionals.
Yes.
Recovery ratio at the end.
Decline in June 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. What we watch there is we watch very closely starts versus terminations. Kind of net change in contractor levels and assignment levels, and those are positive. 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. 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.
Yeah, 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.
Yeah. 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 the trend that we're going 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 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.
Yeah. Maybe François can comment a bit on the volume development in France.
In fact, yes. In terms of volume, we are below the market since several quarters, but it's choice. Even if we are big crisis in France, we consider that it's very important to continue to follow our withdraw plan. We began in one year ago. We continue to choose good customers on the good level of gross margin. It's a choice.
For the Netherlands, again, we see mix back if you look at our own companies and segments, actually. The good news, I think, is that we are really doing as we promised. 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. In that way, that's what's happening. Again, 1% or 2%, more or less, through a month, in my view, compared to last year, is not a trend. It's stable, in my view, Holland, the volume development so far, I don't see any dramatic changes going south there.
You have follow-up, David, or?
Has it already been answered?
Yeah, I think so. I tried to do that.
It has been. Okay.
It doubled the level of Q2.
Yeah. I'll repeat it once more. We have the ongoing re-organization plan being 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.
David, the cost base also reduced already Q3 last year, so that also play a role in the comparison base when calculating the recovery ratio if you want to look forward.
Teun Teeuwisse, ABN AMRO. First of all, on your increased marketing spend, I 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? 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? 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, micromarketing, but we now have version 2.0. 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 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.
If you look at the EUR 20 million, my guess is that the split will be 60-40, if you would make that split. Is that about right, Frans? 60 on the big campaigns and 40% on the micromarketing. That might well take up to and including Q1 next year before we execute all of those. It'll take some time.
The DSO and CICE. The DSO, the mix effect is rather limited. I understand the question. We have somewhat lower revenues in France. At the same time, we have an increased level of revenues in Iberia, which comes with higher DSO. There's a very limited mix effect. Most of it is a reduction of overdues. That means payment date passed and should've been paid. 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 quarter was about EUR 22 million, and the net effect was about EUR 15 million. About two-thirds is your net profits from the CICE. Will it be the same with the additional 2% that you get next year?
No, the analysis is that we'll have 190 basis points impact on the French gross margin in the second half of the year. That to be multiplied by 1.5 if you go from 4% to 6%. Assuming the current spend, that's sort of an assumption. Of course, that could change along the way, depending on what is happening, the negotiations, and so forth.
Okay. We'll move to Arun. I think we can move to the line.
Morning. Arun from Kempen. One question on your outlook statement. I think in the press release, you refer to the easier comparison base, and I checked my notes. I think last year during Q3, you went from 0% to -5% in the quarter. Then taking into account the fact that the U.S. will have its first year anniversary of shedding those low profitable contracts, is it unthinkable that in Q3 you will have the inflection point of reverting to growth for the company as a whole? That's my first question. Second question is on the USG deal. You referred to having restructuring charges, which are unquantified, but you do receive more value than you pay for the asset. Is there really a cash out to be expected or can you self-subsidize that from the working capital that you received?
On the inflection point, again, it's forecasting the growth of the market, Arun. That's a bit difficult. We saw that September was the weakest month in Q3 last year, if you look at the third quarter. It's through the quarter also still a mixed picture. We don't know. Again, the trends 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. Far, the volumes we've seen in July, as Robert Jan shared with you, are in line with what we've seen in June, more or less. Some minor changes, but more or less overalls. That again looks promising. 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, et cetera. Those are things that we do not have in the weekly reports, more and more, but less reliable. So far so good. It's difficult to see. The inflection point depends on market developments, obviously.
About the U.S. having its first anniversary in terms of shedding unprofitable contracts. Will we get back to market levels in the U.S. next quarter?
Yeah, we see it actually in quite a few countries. We see the same in England, U.K., where we actually shed a lot of contracts, a big volume. There we are getting closer to that point where it actually is changing. On top of that, we have the Randstad Sourceright growth that actually is almost equal to what we lost in in-house. That in the end would result in the U.K. to a bigger volume growth, but not necessarily translated in a lot of profit because MSP as such is not yet a very profitable activity. U.S. is an ongoing process. Again, these processes, of course, if everything stays the same, you would be right. But we keep on, of course, having to renegotiate contracts.
Every time, again, you have to take the decision whether or not you want to have the business at that margin or not. 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. Let me just share with you the details. We have stated EUR 15 million of integration costs, which will be spent in the first 12 months. That's-
15.
15. I also shared with you the impact on the balance sheet. I said that we have a net asset value of EUR 60 million 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 Randstad, we provide for any receivable older than 182 days 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. As such, derived from that, we'll have the badwill settled as well. The EUR 15 million will be spent over the first 12 months. At the same time, we'll start to see the synergies coming in, but they will not perfectly net out. That's not what we expect.
There typically is a timing difference, but in the end, after a year, we more or less will be there.
Any other questions? Okay. We'll move to the line. I think we only have one question on the line. 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. Just on the gross margin, I don't know whether, sorry, 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? I know that you tend to provide for working day effects.
Tom, EUR 10 million in Q2 that relates to Q1. EUR 10 million.
EUR 10 million. Okay. In terms of the working day effect in Germany on gross profit, I know you tend to provide a bit for working day effects on the gross margin, but was there a gross margin benefit year-over-year because of working day effect?
Yeah, there always is, but it's limited. It's a few tenth of a percent.
Okay. Just in terms of the outlook for the U.S. market, maybe if you could give a few more comments on clerical versus industrial. 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. If we start in the general staffing segment, industrial versus clerical, the market feels
Okay. 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. 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 on EBITDA. 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. 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. Sorry, just to repeat the Q1, you said EUR 10 million for what was taken in Q2 related to Q1?
Correct, Tom. EUR 10 million related to Q1 processed into the Q2 results.
Okay, great. All right. Thanks very much. Thank you.
Okay, Tom, you don't have to feel alone. We have two more questions on the line. Operator?
Rory McKenzie from UBS is online with a question.
Morning. Just two from me, please. Firstly, can you remind me how much the incremental benefit you expect from previous course of restructuring, particularly in France? In addition to the USG savings, how much will the SG&A fall by from here? Secondly, on the French subsidy. From here, how much of an increase do you expect in that subsidy for 2014? Are there any additional investments you need to make that are required by the legislation in France?
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, EUR 28 million, of which most related to personal expenses. We always have the ambition to recover that within 12 months. You can obviously understand that in the French market, that's a bit more of a challenge than in other markets. It might be at the high end of it, but that is our plan. As from the moment of spending, 12 months later, we aim to have the money in the bank, more or less. Your second question is about the French subsidies, I think I mentioned it already.
In 2014, the base will go up from 4% to 6%, it will be 1.5 times the impact in the second half of the year. 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. Still, our ongoing discussions and negotiations and political opinions and whatever happens in the market, might have an impact on this.
Are there any additional investments you need to make in back office or admin costs that are needed for legislation, or are you happy with the cost base that is there?
This is whatever we feel is necessary into the market, but not back office typically.
Thank you.
The last question from the line, and then we move back to the room.
Olivier Lebrun from Natixis is online with a question.
Yes, good morning. Two question, please. The first one relates to the U.S. market. For H2, do you anticipate the same rate of termination of contracts as in H1, or were you able to grow more in line with the market? 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? In Iberia, the staffing market-
Do you think a strong recovery of the staffing market in Iberia during the summer is realistic?
Again, it's a comparable. We look at compared to last year's summer, the exit rate of June was promising.
Of course, the comparable base hasn't changed that much. That's to be expected that I 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 this shedding of contracts?
Yeah. Again, the shedding of contract is a continuum because it keeps on happening because we keep on negotiating new contracts. Every new contract, we have to decide whether or not we want to actually be a supplier at that specific margin. 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." Shedding the contracts and renegotiating is an ongoing process. It'll be with us forever.
Okay, thank you.
Okay. We fit one more in. Andy Grobler on the line. Operator, last question.
Andy Grobler from Credit Suisse is online with a 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. The Affordable Care Act is moving forward, so the effects of it, many of the costs employers are starting to incur already for having insured individuals on their payroll. That is kicking in. 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, I expect the impact to be zero.
Just one or two of the agencies had hoped that this was going to have a positive impact on business just as more companies geared up for the change.
Yeah.
Had you sort of put yourself in position to try and benefit from this or not? Were you pretty neutral?
Oh, 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. I think the effect of that and the understanding of that is already well ingrained as people have worked their way through the act. 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 analysts here in the room, Hans? Then we'll move to the questions from the press, if any.
Yes. Follow-up on question on France. Looking at the impact of the CICE, do you see any already elaborated after Q1, but maybe you have now somewhat more longer experience. Do you see any impact on the competitive environment? You already indicated that you, 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. Could you give some light on what you see on the competitive environment?
I can do it. 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 CICE actually, what should happen to the CICE 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 a indirect rebate for clients. That's not the effect. We'll stay very strict. I think we estimate that we've lost about EUR 70 million-EUR 100 million, François, 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 use the right delivery models. We've seen big growth in in-house in France. Actually, not in this quarter, but we think it'll ramp up again because there's a lot of new clients and again, transfers are still happening. That makes us more efficient. We are developing the professionals, but obviously, that market is down, so that doesn't help. 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. In 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?
Yeah. There was no interference with the press.
Okay. I think we're done with the Q&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.