Earnings Call: Q1 2013

Apr 25, 2013

Good morning, ladies and gentlemen. Welcome to the conference call discussing the Randstad First Quarter twenty thirteen Results. Ben and I are here supported by quite some people including Jan Peter van Winson and Jacques van der Bruck. And I'm going to take you through the presentation and then we'll move to Q and A afterwards. And I'm sure you don't want me to elaborate on page two. So I'm moving on to slide five, which has the header that reflects the climate that we have experienced in the first quarter of the year. It was a good start of the year and strong efficiency improvements have supported the return of 2.4% EBITDA margin $92,000,000 for the first quarter. And organic growth through the first quarter improved slightly. Organic growth per working day was down 3.7%, which compares with 5%, just north of 5% for the fourth quarter. And this improvement was not the result of easing comparables. If you look at last year 2012, January was just below zero and March was just north of zero. We do see continued growth in Japan and the decline in Europe East. And please note that seasonally this is the smallest quarter of the year. We've got 1.8 fewer working days versus last year. Last year it was a leap year. It included an extra day in the month of February. And if we look ahead, Q2 will generate 0.4 more working days Q3 one point zero and Q4 will be almost flat, which leaves out most of the leap day that happened in 2012. We would love to see more of these years by the way, but it only happens once every four years. The gross margin expansion that we have noted in North America was offset by a lower gross margin in Europe, which was mainly reflecting legislative changes in Germany, The Netherlands and France. The decline in our business was to quite some degree compensated by good cost management. Operating expenses were down $24,000,000 sequentially, which includes $9,000,000 of foreign currency effects. And if one looks back at on a constant currency basis to Q2 twenty twelve, the decline by now is $43,000,000 for the quarter. The FTE reduction supporting this was 2,360 measured on a year on year basis and EBITDA arrived at 2.4% reflecting a recovery ratio of 71%. And I would not have been surprised to see the same EBITA margin at the bottom line if the working days effect would not have impacted us. Slide six, the trends. These are the non stop trends, the growth development slightly improving throughout the quarter. What we see here is a gradual improvement in Europe, which is the pink line here. At the end, you can see it going up somewhat. In North America, we have a strong focus on profitability, which resulted in a better gross profit level and better return. Please note that in North America through the quarter, we moved from minus 5% at the beginning to minus 3% in the month of March. We see continued growth in Japan and Emerging markets. And as mentioned, it improves through the quarter. Slide seven, North America, as I said, focus on profitability. And if you look at the bottom of the slide, you see the EBITA margin improving. So I would say this is strategy coming through. Revenue was down 3%. Q4 was flat and in the month of March it was minus 3%. Strong gross margin improvement both in Staffing and Professionals as a result of focus on client profitability and also perm contributed again positively. If we look at the components, the three components U. S. Staffing and In House down 4%, but gross profit up 6%. This is adjusted for working days. Good performance in the admin and perm business. U. S. Professionals down 5% and gross profit was just below last quarter. This reflects lower demand in finance and IT. We did have some projects being completed with our clients. And also here perm improved through the quarter. Canada continued its growth rate at 3%. So overall a pretty good quarter in our North American business. Slide eight is reflecting the usual integration process and synergies the progress made. We again made steps and to the right hand bottom of the page you see annualized cost synergies. Please note that these are euro amounts, so this reflects the ambition of at least US50 million dollars Slide nine, France. Ensuring adaptability, that's not easy in France. That's a rather lengthy process to adjust the organization and that doesn't make life easy in this country. Revenue is down 12%, still an improvement compared to Q4. We did see a stable trend through the quarter and in house showing growth, including transfers, whereas professionals was at minus 15% impacted also by perm. Gross profit down less 9%. The gross margin was up eighty percent eighty basis points, sorry. And this includes the impact of the low wage subsidies, the Finance Act or the CICE subsidies in France. And I have some information about this at the right bottom corner of this page. This is where you see the CICE low wage subsidies coming in and it is being settled in the corporate income tax. So that means the cash is only transferred when offsetting it against CIT payments. And given the developments in France, given the reorganizations running in France and the cost related to that, this means and you can see at the bottom here cash received after three years. It takes a while before cash comes in, so this has a substantial impact on working capital. It might well increase to a very substantial amount over time. On the right hand of this picture, you see training and innovation. It's yet a little unclear how much we're invest in training and innovation and we have also included that in our assessment, which we consider to be competitively sensitive. So I will not disclose the details, but it's clearly included in the 80% improvement in the gross margin. There's two more things to mention here. First of all, the Gain assets is not taxable because it's offset against CIT payments. The expenses in training and innovation deductible. So it's a pretty complex story here, but it supports the return in our French business. The mix in our gross profit had an impact because in house grew versus a decrease in professionals and as mentioned in perm. Costs were down 6% year on year. This is the result of field steering. It does not yet include the reorganization. And the reorganization looks at the new organizational structure and we are anticipating a start in the month of June. As I said, lengthy discussions always in a process like this. EBITDA margin at 1.7% also reflecting 1.5 fewer working days in France. In The Netherlands, the gross margin pressure continued, but this time it was very much the result of the higher social security charges. Price increases are being implemented, but in competitive environment and we do have various other initiatives in scope like we are retaining the cost of sickness of the flex worker and we believe that that will positively contribute to the bottom line. Also we're looking and implementing delivery model improvements to serve clients when prices are not at the level we would like to see them. Revenue is down 1% and this includes Yacht at minus 13 where we still see an improved utilization rate, but still a minus 13%, a significant minus 13%. Costs are down 8% versus the previous quarter, so on a sequential basis also including local market lower marketing costs, but also the restructuring programs that we have announced are starting to materialize as a result of which next to field steering FTEs is down by 4%. EBITDA margin at 4.7%. Last year, we reported a divestment, which included a book profit, so that supported the result. We've got two working days less and happy to see the recovery ratio in The Netherlands at 58%. In Germany, we see also an easing decline. Revenue is down 4%. This compares to 9% in the fourth quarter. It does include a significant price effect as stated here. But also through the quarter, we did see an improving trend towards the month of March. We don't believe there is a reduced demand yet from equal pay, but it has an impact on the gross margin. Professionals did slow, but we did see good performance in the IT business in this segment. Gross margin in Germany, there is some pressure here and it's quite a cocktail of elements. The implementation of equal pay does have an impact here and that is reflecting the fact that we charge it on to clients, but we do not generate the if it relates to sickness, we do not sorry, to holidays, we do not generate the gross the typical gross margin on this. And we do still have some discussions with clients on how to charge this. We also did experience a flu epidemic in the first quarter, higher sickness and we believe it impacted the gross margin by roughly 40 basis points. We've also changed the accounting method for surcharges during the holidays. Typically, we were taking those in the quarter in which the holidays appeared and now we are accruing throughout the year. And the three fewer working days in Germany clearly had an impact. Strong cost control, FTE is down by 4% and we have adjusted the results for an additional restructuring charge of €1,100,000 EBITDA arrived at 3.1%, the recovery ratio close to target at 49%. The focus in Germany is on client profitability and delivery models. Belgium, a difficult market, not easy at all taking into account the remark in the middle here, wage inflation. This country has an automatic wage inflation system, which increases the cost base by at least 3% to 4% and has a serious negative impact, but also I would say it makes the country less and less competitive. It's not a system that can continue forever. Revenues at minus 9% almost the same as in Q4, but stable through the quarter. Focus that we have is on profitability, client profitability supported by field steering, cost management and the EBITDA margin arrived at 3.1%. The recovery ratio tells you some of the story 39% need to do a little more here. The U. K, the positive trend continues. Internal discipline drives the results here. Field steering clearly supporting the improved profitability in The U. K. Revenue at minus 1% now compared to minus 7% in Q4. We do see an improving trend also here throughout the quarter and good growth in professionals including the public sector education. And we see a further decline in in house, but that is reflecting the focus, the internal focus, discipline. We continue to see good growth in MSP and RPO and perm fees are now at minus 9% compared to minus 16% in Q4. Back office centralization well on track and EBITDA now at 1.4% reflecting the improved business mix more professionals and two working days less in The U. K. Iberia finally a plus. It's only in the month of March. Revenue for the quarter in Spain was minus 1%. That compares to minus 4% in Q4, but March showed a plus of 4%. And this clearly is our own performance also in the market doing well. And Q4 still at minus 12%. That was quite a difficult quarter and minus 1% now feels somewhat better I can say. Trends are positively impacted by Easter because of hospitality business. The improving trend is also driven by manufacturing. You might all have read that some of the automotive manufacturers have moved or are moving activities to Spain because of more attractive conditions. And given the story on France that I just shared with you, this is understandable I would say. Professionals also showed continued growth. In Portugal, not an easy context, minus 14% in Q4, minus eight in Q1 and March now by 1% plus. Good performance in our call center business, which is a substantial part of our Portuguese business and a decline a continued decline in manufacturing, but also in automotive here. Costs down, good cost management, FTE is down by 12% resulting in an EBITDA margin of 2% with three fewer working days. In a rather competitive environment, everybody is searching for business and a very good recovery ratio as you can see. Looking at the revenue development per industry, per segment, these are run stop data. Well, I think the pluses and minuses speak for themselves. Food in The U. S. Is better than in Q4, but quite some sectors in negative territory, some of that also because of choices that Randstad has consciously made. In Germany, the minus at automotive is still a double minus, but it improved versus Q4. Moving on to the financial results now, the outlook on page 17. The income statement reflecting the numbers that I've just elaborated on. I'm just adding a comment here on amortization and impairment. It's less than the previous year. This is sort of reflecting bookkeeping rules and it's a little less because we have finalized some of the amortization. And as a result of that, the rhythm has changed now $41,000,000 in the quarter. Slide 18, summarizing the key financial points. Free cash flow at €42,000,000 versus 58,000,000 last year. It's a little lower profitability as stated at the beginning of my contribution. And we have a reinforced focus on the collection of trade receivables. It's always difficult at the end of a quarter. Typically, there's a weekend that has an impact. Eastern has more of an impact. And the Friday before Eastern, some of the banks were closed in some countries that has an impact on working capital. And also the timing effect on the French subsidies as I explained will have an impact. Leverage ratio at a comfortable 1.5% within the range. Clearly, DSO improved again one day year on year. The story continues. Our overdues are still close to 20%, so we believe there's still room to improve. We've issued the preference shares for $140,000,000 against 5.8% yield and which is fully committed long term capital, so cheap equity and it's used to reduce the net debt position. The effective tax rate amounts to 31%, again very little impact from the French subsidies because we are conservative taking that given the tax position in the French business. Diluted EPS now down to $0.33 compared to $0.39 in the first quarter of last year. Dividend cash $84,000,000 and we're going to issue as we have announced in separate press release 4,500,000 ordinary shares to cover the stock dividend, which compares to a dilution of 2.6%. Our segments, I would like to point out the EBITDA margin improvement in the in house business and in the professional business. So it's clear that clients selected clients that have been transferred to in house, it's reflecting win win. Both the clients are more satisfied. We free up the capacity in the branch and we serve them with high efficiency as you can see here. I'd like to mention in the Staffing segment the again improved profitability in the HRS segment, which includes outplacement, MSP, RPO. Gross margin bridge on slide 20. Last year first quarter and again the first quarter is different from Q4 sequentially comparing gross margins does not make sense. Q4 arrived sorry Q1 last year arrived at 18%. We're now at 17.8%. And as you can see in between, an additional 0.2% impact in the first quarter of this year, which is explained here in the boxes below. We have margin expansion, so a plus in North America. We have the benefit of the subsidies in France, but we have fewer working days compared to last year and the changes in social securities and the system in sort of the legislative context in Netherlands and in Germany. HRS continued to grow and contributed a positive 20 basis points here and perm fees now arrived at 10.1% of gross profit compared to 9.9% last year. It's been a while ago that we were above 10% of gross profit, so back to that level now, but still a way to go through the historical levels of 2007 where it was between 1213%. Operating expenses down on slide 21. Comparing the sequential development at the upper part of the slide, Q4 last year $616,000,000 and now at $592,000,000 And I would say next to foreign exchange and synergies disposals, the typical adjustments organic in Europe and organic in the rest of the world. FTEs are down by eight ninety people sequentially from Q4 to Q1. If we compare year on year, $38 and I already mentioned, if you go back to Q2, it was $635,000,000 on a constant currency basis. If you take Q1 as the base, so we are well ahead of our targets of 70,000,000 to $100,000,000 for within a year as from Q2 last year onwards. Impact of wage inflation plays a role here. So that is something that is hard to compensate, but we're working on it. Cost reduction initiatives, the slide that we always provide you here at the bottom slide 22, you see a plus this time in the flexibility. So out of the total of 13,000,000 it combines both an increased cost because of again the wage inflation and some adjustments including marketing here, which we anticipate to adjust going forward, but I'll get back to that. Moving on to the balance sheet elements here slide 23. Again DSO a good development one day down. Not much to mention here. We continue to see good performance on bad debts. So leverage ratio 1.5, I would say good balance sheet. Looking at the next slide, which is cash flow. It reflects somewhat lower EBITDA to start with the typical trend in working capital in the first quarter. Very little additions to CapEx, only $3,000,000 That's also because of the reduced infrastructure. Some impact of the French subsidies here in the free cash flow limited though. And in the lower part, you can see the purchase of ordinary shares, which was related to the purchase to the performance share plan and the issuance of preferred shares of $140,000,000 arriving at a net debt increase of €165,000,000 That brings me to outlook. Again, stable trend from minus 5% in January to minus 3% in March. Some signs of improvement in some countries, but please note again that there's never a linear trend here. It's always a bit erratic and our forward visibility is very limited. Comparison base is rather stable last year. Positive working day effect this time of zero point four days in Q2, which includes one point six days more in Germany. And there might be some impact of bridging days that are days in between public holidays and the weekends. We believe we're well positioned for 2013. The strong efficiency improvements that have been carried through create a foundation, a platform going forward and we'll also continue to see some of the cost reductions coming in. We anticipate a limited organic cost increase in Q2 due to higher marketing costs that might be a few tenths of a percent going forward. And that, of course, will depend on the developments in the market. And we'll also in the gross margin continue to see the impact of the legislative changes that have impacted Q1, which again will be compensated to the degree possible by price increases and good cost management. The USG closing process continues to move as announced in press release. So our key priorities are capturing profitable growth in North America, Asia and Latin America diversification of the portfolio field steering, it won't disappear from the plate client profitability focus and this is supported by delivery models and focus on cost. And now I'm going to move to the exit rates for the month of March and then we'll move to Q and A. March 2013 for The Netherlands was at minus one France minus 11%. Germany minus 1%. Belgium minus 11%. That looks a little bad, but that was especially because of developments in March 2012. So I think underlying it's kind of flat through the quarter. The U. K. At zero, Iberia plus three, and North America minus three, rest of Europe plus seven, rest of the world plus eight, percent and that brings the total to minus 3% for the month of March. We now move into Q and A. Please go ahead. Thank you. We will now begin the question and answer session. Margot Gorest from KBC Securities is online with a question. Good morning, My first question is on Germany. The EBITDA margin declined by around 40 basis points and you mentioned 40 basis point negative impact from the sickness rates in the first quarter. Could you also share the impact from equal pay and fewer working days please? And then my second question is on the North American business. Could you shed a little bit more light on the trends in the perm business please? Thank you. Yeah. Good morning, Marco. Jacques here on Germany. So the impact of the sickness rate as mentioned was 40 basis points. And it this was mainly January, February. So we do think this will not be recurring in Q2. So that's a good news. Your second part of the question is a bit more complicated because on the one hand you see the impact of equal pay increasing because after six weeks you see an increase for some people. We do see more and more collective labor agreements coming into play. There's now roughly some 40% of people touched, but we don't know yet what clients will do. As Robert Jan stated, we don't see less demand as a result of this system. So currently, you've seen the exit rates in Germany. We're looking at a roughly stable volume, but an increasing price effect a positive price effect. So that's roughly where we are in Germany currently. Yeah. Hello, Benoit. You look at the perm development in North America then we see that professionals is more or less flat. And we see an over 40% growth in staffing perm placements. So they are really doing very well. RPO. Including RPO indeed, again excluding RPO. So it's even more than that, but the RPO is a different tune. So it's getting better there actually again, but prices are flat, but staffing is doing very, very well. And you are outperforming the market there? I don't know. We don't have reliable data on perm placement in the markets. What we do know is if you look at our total North American performance that top line we are under market, we don't care. If you look at our gross margin line we are at least that market I'm sure because we really are improving there. Okay. Thank you. And maybe third question. What kind of measures are you taking in Belgium to improve the recovery ratio there? Yeah. Marco, it's Jacques again. So we're disappointed with the bottom line. And of course, yeah, as always it's about a focus on cost. What can we do in this trend which at first sight doesn't on the short term improve? Operator? Thank you. Paul Sullivan from Barclays is online with a question. Yeah. Good morning, guys. A couple of questions. Firstly, just on cost. Can just give a little bit more color on the development from here? Is the fourth quarter restructuring that you did, is that largely all reflected in the Q1 SG and A now? And then you've mentioned a slight step up in Q2. We should then see a step down in Q3 and because of the French business kicking in. Is that correct? Is that the way we should be looking at it? And in terms of the underlying cost inflation and any further investment, what are your thoughts on that? Can you still mitigate that? Or should we start to see a bit of cost creep as things in Europe improve? Well, the second yes, as I mentioned, the French restructuring will kick in a strong Q3. Yeah. So that's one point. It's we hope that we come to a conclusion in Q2. And we'll see an increase in marketing expenses as I mentioned in Q2. And I have to say the Q3 expenses will be a function of field steering. It depends on the trend that we'll see. And I can actually say I hope it's going to go up because that would reflect a positive business trend. So we should view unless things get worse, we should view Q1 definitely as the trough in cost? Yeah. It very much depends. If Q3 is going to show a negative a more negative development which we at this point in time do not see then we'll make sure we'll adjust the cost base. I think that is exactly the story that has come through in Q3 and '4. Randstad is adapting to whatever trend we see in the market. And we would we are just going to make sure to ensure that our marketing investments will be appropriate. That is a long term issue that we need to address. Okay. I mean just following on to that. In France the your ability to retain the gross margin from the tax rebate do you think I mean how do you view that over time? Is there a risk that it will be competed away? You never know, Ash. It all depends of course on market. That will be actually strange because we've got an explicit instruction from the French government stating clearly that the subsidies belong to us. Being the employer, we're spending the money where we should spend it on training, etcetera. So we are optimistic about the fact that we can retain a fair share of that money for Onsat. And then just okay, thanks. And then just finally on page 32 the outlets something just caught my eye, but the step up in Holland what was behind that? Yes. Were some a number of in house locations that were not actually counted for. So there was a correction for the in the past. It's not a big increase as you would conclude from looking at the numbers. Our apologies for that mistake. There's no debit and credit here. So sometimes you're not completely on the right mark. We'll give you that one. All right. Thanks guys. Cheers. Thank you. Next question? Matthew Lloyd from HSBC is online with a question. Good morning, guys. I just wanted a little help in understanding something. If I look at your French website, it shows 3,167 temp vacancies in April and eight thirty seven for March. Now I know a lot of the March vacancies will have been filled, but the same you see a similar level of step up in the CDD and in perm. Are you seeing a lot more vacancies coming in? Or is that the normal rate at which I would see that number? I'll answer it because everybody is smiling and pointing at somebody else. We don't know how this how the website actually refers to the actual number of vacancies. What we do know, if you look at ransal.com then you'll see our number of agencies which is an interesting indication. But I honestly don't know how they came to the 800 or nor to the 2,100. Okay. It seems extremely lower given the fact that we employ some 80,000 people in I accept that. It's probably got multiple vacancies for each thing. So if there's 10 people in the factory and stuff like that. Just one quick follow-up question. CDD, are you still booking that as a fee like its perm? Or are you starting as I think the law enables you to do now to start as anybody asked you to treat that like a temp placement for the one year fixed or the eighteen months? Is there a change in the CDD market? Jack here. Not yet visible in our numbers. If we have CDD, we still would quote it as recruitment. Thank you very much. Although we're happy with the opening to have more CDD in our own base as we also have in The Netherlands for example. We've been lobbying for this for quite a while. So we're happy on the development as such. Do you have salespeople out actually selling the concept of doing it to clients who use CDD? Because if I understand it correctly 70% of French jobs start at CDD? Yes. We have what we would call an integral selling model. So all our consultants sell all possibilities in terms of staffing and CDD on the same profiles. And then we let the client decide on what he wants. Okay. Thank you very much. I have two questions. I can I think someone should put on mute because we hear some rumors in the background? And the second question I have can you limit yourself to two questions please? Operator, please go ahead. Dionne Tuiz from ABM AMRO is online with a question. Yes. Good morning, I'll stick to two questions. First is on the cost reduction you mentioned. You mentioned an underlying cost reduction of 5,100,000.0 which is reduction from fuel steering and restructuring offset by wage inflation. Can you give a split for that what the reduction is from the fuel steering and restructuring? And what the wage inflation and bonus accruals would have been? And then my second question is on the profitability that you've shown in the Staffing in house and Professionals. We see in house and Professionals going up. Does that imply that the efficiency improvements that you've seen are not visible in the Staffing? So your first question on slide 22, the €13,000,000 cost reduction, so that's net after FX effect is broken down into restructuring and synergies. Synergies out of that is limited because we have stated that at the slide on SFN. So that's only a very limited amount. I think a bit more than €1,000,000 to change. So €6,100,000 includes the synergies, that leaves €5,000,000 roughly for restructuring and flexibility is the €7,000,000 That includes a reduction in marketing expenses, which we'll always see from Q4 to Q1. So I think that answers your question. And the second part? Yes. The effect, of course, of the reorganizations was mainly head office. That means it reduces the charges on top of, let's say, the operational results. And that's equal for all the operations all the countries, of course. And basically, means it's equal for relatively for in house professionals and staffing. The thing where of course staffing suffers is that both in Holland and Germany we saw lower profitability. That's the impact. So it's going to look better the rest of the year. All right. Sorry, on your first answer because I didn't fully understand it because in the press release for operating expenses, you mentioned that the marketing costs were €8,000,000 below the level of Q4 and that the remainder €5,100,000 was in the net result of restructuring and field steering. Yes. So the and the fact that we have marketing cost is compensated by the wage inflation that we referred to earlier. Okay. But can you split the €5,100,000 into the restructuring and field steering versus the wage inflation and higher bonus cost? No, Tony. That would be too detailed. Okay. Thank you very much. Thank you. Toby Reek from Bank of America is online with a question. Hi there. Can I ask one on gross margin? I think in the past you said you think you'll get 50% of the gross margin from the changes in France. Do you still stand by that? It sounds like you're a bit more positive. And on that French gross margin, I mean, you look at the long term, clearly gross margins have been coming down over time. What do you think just in the temp gross margin, do you think your ability is to actually raise that going forward? I mean, obviously, it's difficult to see over the short term, it does seem that getting back gross margin is much harder to see than giving it up. Yes. We took 05% in Q4 of the CCA. And of course, the margin to a large extent the development is due to mix effects because we see a bigger decline in Professionals than we see in other businesses. And Jacques is waving that he wants to add another point. Yes. And maybe also please take into account that on the subsidy level, we also saw a decrease of more than one percent two years ago due to the alleged amounts which we fully compensated. So it's quite an uphill or downhill ride however you look at it. Again, needs to come from business mix. We've invested a lot in units aiming at specialty businesses. That's also the basis for our reorganization larger branches in the cities to sell a more a broader portfolio not just blue collar more perm and specialties. And we're quite confident that over time that business mix will take our gross margin up, although France will always be a tough market from a gross margin point of view. I have to make a correction. We had no CCA in Q4. What we forecasted at the results of Q4, it would take it would have an impact of about 05% on our gross margin. It turned out to be a bit higher this quarter. We had zero in Q4. It's still uncertain. It's still in the Yes. Okay. And then the second one is on the cost base. Just picking up what you said earlier that I think you said that unless Q3 was more negative I. E. The revenue growth trajectory was more negative than Q2, you wouldn't be taking any more costs out. But I think in the last quarter you were sort of talking about further field steering restructuring programs that still have yet to be executed. Is it the case that as long as we are in negative territory you will continue to take out costs? Or are we actually seeing some of that cost coming some of that cost will start to come back in even if we are in negative territory? And then the other point is, could you actually quantify the increase in the marketing expenses on a sequential basis expected in Q2 please? Yes. Your first question, we need we are looking at this country by country and effectively within the country even at more detailed level. And we have shared with you that we've got field steering. And from the top we put pressure on it in case of growth we aim at return at an incremental conversion ratio of at least 50% and in a scenario of decline. So if that happens, we will be aiming at a 50% recovery ratio, which means a compensation of at least 50% of lost gross profit through cost reduction. So that will also apply to the scenarios that will happen in Q3. So that will drive our decisions. Okay. Very clear. And then quantifying the cost from marketing is sequential increase? Yes. I'm not going to give the exact number. The rough number? Yes. No. Let me finish first and then you can ask again. From Q1 to Q2, there's no additional actually initiatives. The increase will be actually more or less equal to last year. So it's a normal seasonal effect. In Q3, we plan to spend a couple of tens of revenue extra. Well, a couple of tens of extra on revenue is easy to calculate. Okay. Thank you. Next please. David Taylor from Rabobank is online with a question. Yeah. Good morning gentlemen. A follow-up on the CCA impact in France. If you look at the gross margin impact, how much does filter through into the EBITA margin? Is that to the full extent? Or is that let's say half of it? Maybe you can give some color on that. And then secondly, in terms of improvements in March and also into April and I'm purely looking at volume base, what kind of markets are improving at the volume level year on year compared to the Q1 trends? Thanks. Yeah. David, I'll take your question on the French subsidies first. I made the point in the presentation, the gross margin is up 80 basis points and that includes the contribution of the CICE. And that means it is already taking into account provisions for future investments, which is only an assessment at this point in time because we still don't have all the details that we need to come to a final conclusion. And that comes through at the bottom line. Ben? Okay. The full impact is feasible? Yeah. But again taking into account the provisions that we deem necessary, the accruals I should say that we deem necessary. And what was your second question David? On the volume trends because for example Germany is improving but that's more driven by price effects if I understand correctly. So let's say on a volume basis what kind of markets are improving the most into April? That's rest of Europe. For example, Sweden and what have you small markets. That's Spain as we said with growth in Q4. We see actually as you got the exit rates, which inflation in general is not very high with the exception of Germany and Belgium. So you could more or less actually take those trends and translate them to volume David. Okay. Okay. And maybe a quick follow-up on CICE again. For next year, there will be an impact of 6%. So could you share with us your thoughts on next year what the impact would be on the gross margin? Yes. David, that's exactly your assumption is right. It will move from 4% to 6%. It will be again offset through corporate income taxes. So the impact will increase in terms of working capital absorption and that's going to be a substantial number north of €100,000,000 clearly. And the way we're going to sort of see that coming through at the bottom line will be very dependent on the same issues that I've just shared with you. We need further details, which we don't have today. So thanks a lot guys. Of course, we'll we have an ambition here. You can imagine. Thanks. Yeah. Next please. Aaron Rambos from Kempen is online with a question. Yes. Good morning gentlemen. A couple of questions on The Netherlands. Can you talk about the difference between the private sector and the government vertical? Is there any sign of bottoming out in the government as well? And the other question was about looking going back to slide number 10, the comment made about pricing in a competitive environment. Why would you be able to raise prices in a competitive environment? What's behind that? Can you explain the rationale? And finally, can you update us on what the higher social charges are all about and what the impact was on the gross margin? And what kind of impact we should expect further in the year? Thank you. Yes. On your final question, it was 3% and that also then again refers back to price increases. We had to increase prices with anything between 4% and even 7% I think. So that was why and we managed to a certain extent, but not completely. That's the effect on the pricing and that's the pricing initiative. On government, as you can see, think it's slide 15, you see that we are growing. But it's still the same picture as we've seen in the last couple of quarters, whereas the growth is not in the Professional segment. It's in the Staffing segment. So we see Ransal de Neveso, for example, really growing. We've also taken share obviously. But that sector is doing better, but not for Professionals. And I hope to say in brackets not yet. So you're close to sort of 0% in the professional sector in public that's what you're saying? No, not yet. Decline in professionals in The Netherlands moved from a double digit decline to single digit decline, but a improvement. Okay. Thank you very much. You. Marc Sworsenburg from ING is online with a question. Yeah. Good morning, Two questions from my side. First, I want to drill a bit into the gross margin. Could you share with us the impact on the Dutch gross margin from the Social Security premiums? And you mentioned also the initiatives on sickness days. And following up on that on gross margin, what do you feel what could be the trend going into the second quarter? You have a little bit of tailwind from working days, but nevertheless, would you expect to see the gross margin trending up a bit? Or do you expect a more flattish trend into Q2? That's the first. And the second one on trends top line trends going on to the second quarter. You mentioned April seeing the gradual improvements continuing like seen in Q1. But you mentioned it's working day adjustment. I can imagine that only with three weeks in within week including Easter, It's hard to guesstimate the working day impact because people might have taken more holidays. Would you say that the trend is really improving? Or is it more like Manpower said a stable trend? Yes. I don't know what a stable trend is because Yeah. It's a similar rate in terms of volumes because if I mentioned if I hear you saying rest of Europe, Spain and some smaller countries seeing some improvements, but the big country is not, I would suspect that's more a flat line. Yes. I think the improvement in Sweden is something like 62%. So that's not small, but it's a small country. So the effect is small. That's why I referred to small. We just mentioned by the way your first question, I just answered to Arun. It's a 3% effect of social security charges. And the sickness actually again we of course obviously build a business case. And what we have had for years is an organization within our Dutch opcos that actually make sure that we reduce limit and the sick leave to a minimum and if people get sick to get them back to work ASAP. So we have eight years of reliable data. Based on that we built a business case that if we would take risk ourselves instead of being charged the average, we could make money. And there's no reason to actually not see that happening. Obviously, first quarter still had a limited impact because we're building up the provisions, etcetera. But that's going to have a positive effect. I don't want to quantify it yet, but I'm sure we can share more insight in the course of the year. But it's really sizable? It is sizable, yes, yes. And the 3% social security charge, how do we calculate that back to the margin? Well, actually that was of course 100% margin and then we compensated a bigger part of it by price increases. And I'm still working on that because that's always a process that takes a bit more time. Not every client is happy to increase his charges in the midst of a contract for example. So you need some time to compensate for that. Rob, what do you think the balance will be of the two? On balance because you also asked our expectation for the second quarter margin. Normally, of course, the margin goes up through the year based on different things. One of them is the different initiatives we have more efficient, better price management again, more working days as I said, etcetera, etcetera. So all these effects normally lead to a higher gross margin in Q2, three and four. And I don't see any reason why that would not happen this time. So you don't think that the EcoPay, the ramp up of that will mitigate a bit of normal seasonal trends? I think we'll still have the seasonal trends. I mean, we can have a few tens of a difference that's too early to call that. But again, I I think think we're doing a lot both on the pricing and on the efficiency internally to compensate for those effects. And of course, the gross margin in The U. S. Continues to expand. So that's also the opposite. Thank you very much. Thank you. Tom Sykes from Deutsche Bank is online with a question. Yeah. Good morning, everybody. Just a couple of questions on North America please. Firstly, do you have a view on how much more revenue you may shed in North America? And secondly, just if we if I suppose on the market data, if we look at it the number of temps is sort of back to peak, the penetration is back to peak. But one presumes the mix of that is different to where we were in 2007 and that we're now getting some signs of sort of clerical improving and you allude clerical improving. So would you expect that to push the penetration rate higher? And sort of what are you actually seeing in the clerical market please? Yes. I would expect the penetration rate to go up. And again, as rightly so, as you mentioned, the effect has doubled price times quantity, price is going up because penetration rates in professional markets is structurally increasing. The amount of revenue we want to share obviously is difficult to forecast because what we do is we go to a client and tell them listen we love you but we don't like you anymore. So we will stay good friends but we leave. And a number of them actually accept price increases. So it's difficult to actually call that number exactly. I'm also not too focused on that because I look at our gross margin development and that's favorable and that's what we're looking at a lot more than on the top line. Okay. Thank you very much. Thank you. Konrad Zomer from Berenberg Bank is online with a question. Hi, good morning. Two questions. First on the automotive business both in Germany and France. You mentioned at the time of the full year results that volumes were down at a double digit rate in January. And if we look at the numbers from the car manufacturers, they have been very poor, particularly for March. So we're slightly surprised you mentioned earlier that the automotive business in Germany had actually slightly improved throughout the quarter. Can you maybe share with us, is that a company specific thing? Or is that something you see different in the market? And my second question, I may have missed this earlier, but can you explain a little bit more what the working capital impact could be in France from this tax credit? And why it would have such an impact on working capital going forward? Yes. The remark in Automotive Germany was that the decline was less than it was in Q4. And as you can see on Slide five fifteen, I think it is you also see that for example automotive in The Netherlands and that's mainly truck manufacturers is actually double digit improving. But anyhow, Germany anyhow, it's a lesser decline than it was in Q4. That we didn't express that clear enough. And then obviously, Well, shape yes. No, I expected that to be a decline anyway. But it has actually in terms of the output and the production of the car manufacturers, the decline in March was actually a lot worse decline in January? Yes. Well, it can be maybe they work less efficient. I don't know. I don't have the insights on that detailed on the automotive. I'm sorry. Right. Okay. Seeing the quarter as a whole. Question about the working capital impact of the French subsidies, as I mentioned, it will grow to a level over time because next year it goes from 4% to 6% to an amount north of €100,000,000 and I still think below €200,000,000 but somewhere in between, so very substantial. And it will last three years before the money is collected. So before the cash flow arrives in the company. That's our assessment now. And this again relates to the tax position of the company. Okay. So effectively it means you have to pay tax before you can get the money. So if we come to the point that we're going to pay tax this will be the one to offset it against. Okay. Thank you. Thank you. LaBurne Olivier from Natixis is online with a question. Morning. Olivier, LaBurne, Natixis. My first question relates to The U. S. Staffing. Will the focus on profitability continue in Q2? And will it continue to affect the organic sales growth in Q2? Second question on France and on CICE. It is already possible to quantify the full year positive impact of CIC on gross margin in France please? The first question the answer is yes. And the second question and the answer is no. No. Obviously, we keep on focusing on profitability. That's clear. And again, I don't care about top line. I care about gross margin increases. We're doing very, very well here. We have shared some low margin contracts. Our perm is growing over 40% in Q1 in Staffing. The mix is better. There's more white collar. That's actually doing well. So we're very pleased about that. Yeah. On the CCA, we already mentioned that it's result of the calculation is a result of quite a few variables and a few of them actually we cannot forecast because it's behavior of clients, competitors, government, etcetera. And by the way also temps because if there's training available they have to go and follow trainings. So that's still too flexible mix to forecast it exactly. Okay. Thank you. Thank you. Final question, I guess. Yeah. We're getting to the final question now. Final question is from Hans Plejers from Chevreux. Yes. Good morning, gentlemen. Questions from my side. First looking at the gross margin, you indicated that at the EBIT level the workers less working day had an impact of about 30 basis points at least that I could read from your that you're saying that it would be let's say equal to last year. Is that correct that also gross margin the impact is about 30 basis points? And secondly looking at Yacht, clear decline in sales. You said the bill rates are clearly under pressure. But how long are you able actually to adjust your own capacity to keep going on with such a decline in hours worked and the bill rate? How flexible are you on that side? Yacht is simple because Yacht is profitable based on the reorganizations we have had. So we and obviously, we can still reduce costs. But the main thing and the main effort today is be more efficient in sales and recruitment. I think it's an ongoing increase in productivity that again now has led to a reasonable profitability. We're actually not unhappy there. It's quite an improvement. Yes. And the extra working days, if we would have had them, would have brought additional revenues, additional gross profit and that then comes through with a sort of controlled cost base at the bottom line and that was the base for my remark that I believe that it might have arrived at the same percentage as last year. So it's the contribution to gross profit rather than to the margin. If you would only look for example at Germany again, as we know the impact of three working days less is huge. So that sort of affects of course, but then you have to quantify them for the whole group. But anyhow, yes. But in principle that means that if you let's say the impact on EBITA level is about 30 basis points and also it would be also be at gross margin. Are you talking only about absolute numbers here? Yeah, correct. So gross profit rather than gross margin. That's what I concluded. It's more revenues with gross profit and good conversion to the bottom line. That's it. All right. One follow-up on Yacht with respect to because if the bill rates are under pressure, how able are you let's say to also reduce let's say your wage you pay to your temps or your second people? Is that still a bit because that debt of course and also the issue if you are able to do that? Otherwise it would come your let's say your gross margin would come under pressure. Exactly. That will again, we've taken provisions to reduce the number of people we employ permanently. In general, those were the people that were if you want not to adversely, but let's say overpaid if you would position them in the current market. So for those people, we could not get the right rates and or we could not get the jobs. So we've actually reorganized that. So we've done it on two sides. We reduced the number of people we cannot put to work or difficult on the right place and we've made the internal organization a lot more efficient resulting in again as I said a very reasonable especially given the fact that it's the first quarter very reasonable profitability for Yacht with a good outlook for the rest of the year. Okay. Thank you. All right. This is we're going to complete the call now. Thank you very much for joining us and we look forward to speaking to you again at the July when announcing the first half year result. Thanks again. Bye.