Hello, welcome to the Randstad third quarter results 2019. My name is Jess, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be an opportunity to ask questions. This can be done by pressing star one to register your questions any time. If you need assistance at any point, please press star zero on your telephone keypad, and you will be connected to an operator. I will now hand you over to your host, Jacques van den Broek, to begin today's call. Thank you.
Yes, thank you, Jess. Good morning, everybody. Jacques van den Broek here, in Diemen with Henry and Steven and David, taking you through our third quarter already of 2019. Let's go immediately to slide six. It's uncertain macroeconomic circumstances, you all know that, but still we're satisfied with our good set of numbers, very much in line with what we shared with you on how we're managing this business. Our organic growth slightly eased in Q2. Again, main culprit here, if you might call it that, is the industry-related, very much the automotive. If we look at our 2.5% decline in Q3, we can attribute 55.0% to automotive, predominantly in the German market, but certainly also in the Dutch and Belgian one. Europe, in terms of economic growth, is most challenging.
The revenue decline in the whole of Europe of 4% has stabilized versus Q2, be it on slightly easier comps. Our North American growth, predominantly in our industrial related areas, in our in-house businesses, softened slightly versus Q2. I'll spend a little bit more time on that, of course, when we go through the countries. Rest of the world, and also our global professionals businesses, it's very good to see, of course, that both through our global presence, but also through our portfolio per country, we do weather top line pressure well. Most of our professionals businesses in quite a few markets still show growth. Given the exit rate of September, we feel that the recent trends will probably persist, although, as always, it's tough to call, certainly in these uncertain environments. Our EBITDA margin is slightly down, although our margin was robust.
Our gross margin has been robust throughout the year. At the same time, I mentioned it also before in the second quarter, we don't want to optimize short-term result. We still want to catch growth where we can catch growth and, of course, definitely still invest in our digital transformation. Within those markets, very happy to mention that in our French business, our German business, and our Italian business, we perform better than market. Rest of the world, as mentioned, doing very well. Tough comps, because this region really started becoming an important one for us last year. At some point, comps catch up with you. Actually, so far so good. Gross margins doing quite well. Several countries, the Dutch, the French, the Japanese, the U.S. market, which is a mix.
It is, and we mentioned that before, our focus on pricing, supported by our digital pricing tools. At the same time, it is tough to find people, even in many markets in Europe, and the mix effects of our blue-collar market doing slightly less growth. Highlight for us this quarter, very much our free cash flow. Already part of our story for a long time. If we grow less, we need less working capital. We're also very diligent on DSO. Henry will spend, of course, some more time, but a record high of 468. Very proud of what we're doing here. On our digital strategy. Very happy to announce the proposed nomination of René Steenvoorden as Chief Digital Officer to our executive board. As you've seen, we are changing also our top team towards the new priorities.
Historically, those were always countries and regions, but next to that remains important, of course, is very much digital and also clients, international clients and international businesses. More on that one later. In general, digital strategy progressing well. What I would like to highlight is our workforce scheduling clients. Some 1,600 clients now active with this digital tooling. What we found is that out of the 22 new in-house clients we landed, for example, just in this quarter in the U.S., 88.0% said that they did so because of the tooling and the digital support that we provide them. Let's go to slide seven, a little bit more in depth in the regions. North American business, staffing in-house down 4%. This is a mixed thing. We do see, and this is always a good indicator, with our in-house businesses, less demand.
They are uncertain, and they just have less temps with us. At the same time, we also under-invested a bit in this business, as we said. We're addressing that, but at the same time, this takes time to bring in people, to train people. Still one or two quarters out, but addressing this issue. This, again, in general, in these environments where you see 1% negative growth, 2% negative growth, it's tough to call. We want to be on the safe side, ideally not to go too fast in cutting costs. There's always this balancing act. Quite happy with our U.S. profs performance. Our IT business grew 4% in top line, but grew 7% in GP. We think we are slightly ahead of market, which is a long time ago. Our F&A business, a mixed picture, still negative in the staffing part, but 13.13% growth in perm.
Also some good news from that area. Our Canadian business was hampered by a legislative change a year ago, but is bouncing back, good, but also a further progress in profitability. Overall perm, 4%, still good perm growth, again, showing the tight labor market in the U.S. Our EBITDA margin, stable, high. 6.2 is high in our book. At the same time, we are investing in staffing, but there's also the slower top-line growth at very decent pricing. I mentioned in-house already earlier, but we will have a record amount of openings in our in-house businesses, 62 new clients this year. It doesn't show, but certainly going forward, having more of these clients will create a bigger base for us. Still, remember, in the North American market, we have a 3.3% market share, so lots of room to grow very profitably.
Our French business, quite proud of our French business, both on the top line and also the profitability level. Absolutely uncertain macroeconomics, but we do see a difference in automotive in Germany and France. Germany really impacted by trade wars, China, the German automotive sells internationally, French automotive sells in Europe. Absolutely also pressure there, but less compared to Germany. 1% down on market, better than market. As you know, our French business is and has been an early mover in workforce scheduling, in digital adoption in general, and that shows. Our professionals business, very sound growth. This is our Ausy business in France, but also our healthcare business and also Expectra really contributing not just to growth, but also to profitability because this business comes in at a higher EBITDA. The Netherlands.
Yeah, I want to spend a bit more time in the Netherlands because, of course, you asked us some questions on what goes on in the Netherlands. Well, first of all, on the top line, very much the automotive that also has already in Q2, but certainly now permeates into the Netherlands. In the Netherlands, we make cars, we make buses, we make trucks, and that is under pressure. This morning, Tata Steel announcing cutbacks. They are also active in automotive. Professional, still robust in general. Here, our portfolio pays off, but at the same time, perm is under pressure, and that does show that the Dutch economy is undergoing a little bit of uncertainty. Still good profitability, but slightly less than last year. We will be aligning our cost base further in the Netherlands based on this top-line development.
Let's talk a bit about the WAB, which in English would say, towards a balanced labor market. What the Dutch government tries to do is make fixed labor less fixed and flexible labor a little bit more fixed, if you will. What they're trying to do is increase the cost of flexible labor, therefore hoping that clients will hire more people. Honestly, we've seen many of these laws before. They never really pan out because companies need to be flexible. The risk is that you get to a different, less well-regulated flexibility. Time will tell. What is happening here is that due to higher unemployment benefits, flexible labor will be more expensive. Also, there is a, call it, transition allowance of people when they lose their job. That was already in place in the market and that was after two years of working as a temp.
It is from day one. We're all for improving the position of flex workers, of course, but what we'll see here is that the cost of well-regulated flex work is more expensive. It's a bit tough to call how much more expensive, but let's say anywhere between 6%-9%. That's quite something. We've seen that before, of course, in many more markets. In Germany, the cost of labor has gone up. We've seen it in Canada recently and also in the U.K. when they went to equal pay. We've seen it before. Short term, you will see some pressure on volume, we think. At the same time, clients are not very much aware of what goes on. We're hosting webinars. We're talking about how you manage your total workforce.
There are clients, I'm also talking to clients, as many of you know, who by managing the total workforce better, you can probably offset the cost. Time will tell. Lots of work going on, but this is what's happening in the Dutch market as we speak. Very tough to have projections on this one as of January. You can ask, but again, it's tough to see. It's going to be the result of many discussions with many clients. Germany. Still challenging. Goes from minus 15 to minus 14, but on 5% easier comps. We're definitely not out of the woods yet. Some signs of stabilization in automotive, but we also see industrial segments in general coming down to some degree. Not much to say there. We got some questions on the Kurzarbeit.
As you know, we have all our people in the field on 10% less working hours per week, and we can do this up to the 1st of July next year. Time will tell if this is enough given the conditions in Germany. We don't see it going up yet, honestly speaking. Belgium market, robust profitability. Very happy with our Belgium business. Although at the same time, also their top line is related to automotive. Our exposure to automotive and related is some 10% of our EUR 2 billion of revenues in Belgium. We have a 26% market share, so it does hit us. As you can see in the profitability, again, we can weather that storm. Belgian business is a very diversified portfolio also. It has professionals in the mix. Ausy is also in Belgium. In that sense, well done by our Belgian colleagues.
A country we're also particularly proud of is our Italian business. Compared to five years ago, it's probably three times as big. It's performing above market. Our Italian business is actually the benchmark when we talk about training people. As you know, we don't own training companies. We don't have the strategic ambition to own training companies, but we do a lot in training. We have now, in our Italian business, trained 30,000 people, and going forward. Very helpful. These are mainly small training, so seven hours on average. I'm very proud personally. Well, we're out of Formula One, as you know, but for the last five years, every year, we provide 50 to 70 young engineers and technicians to Toro Rosso. Very popular job, 3,600 CVs, and then at the end of the day, 50 people come out.
Again, almost 6% EBITDA out of our Italian business. Well done there. Iberia, still growth. Well-run business, Spain. Improved profitability. Portugal down. A large part of our Portuguese business is a call center business, which sees some dampers in revenue. Certainly overall, our Iberian performance, a very stable portfolio with increased returns. Rest of Europe. Rest of Europe, very quickly said, of course, totally different countries. U.K., stable picture for a long time. Brexit, it is now down 2%. It was stable in Q2. Not much happening there. Insecurity. Nordics, 7%. Swiss growth above market, stable. Our Polish business also slightly down. At the same time, good cost containment. There is consistency there, an improved EBITDA margin in this region. Going to the rest of the world, definitely a highlight, has been for quite a few quarters.
It not hinges around any specific countries. Japan, absolutely doing well. 19% growth in India. Brazil, Mexico, very happy with the performances over there. Really, really helpful for our overall results. Going to global businesses. What I shared with you last time is the fact that for me, global businesses very much represents what the rest of the world was five years ago. We are investing, we're creating something new. We have put and nominated Rebecca Henderson in our board to run our enterprise businesses, our large businesses through Sourceright, but also RiseSmart and Monster are part of that portfolio. We've created, this quarter, an enterprise group. What does that mean? Our enterprise group addresses large clients throughout the world. Clients with EUR 500 million to more than EUR 1 billion in spend.
These clients are increasingly worried about the future, how they get talent, how they reskill their own workforce for the future, how they use technology, to get people in, to assess people, to test people, to train people. We help them. I call this. We answer the question for these clients on how we organize work. What we're doing here is we're mobilizing our full suite of services towards these clients. In their IT part, engineering part, we have our statement of work business. We've got data. Monster is very much a part of this. We can show clients where people still are, how clients stack up on social media, how they also can use job posting and that sort of work. We have advisory.
Very much helping our clients as we do in-house for a long time, how they set up their workforce now and in the future at the lowest cost and the highest quality. This is an investment area, very much an investment area, and Monster is very much part of that investment area. As you've seen in Monster, the top-line revenue, certainly the old job postings are still going down for us, and that's why we decreased cost. Out of the EUR 35 million we mentioned as a one-off, 40% is related to staff, although not client facing. Then we have real estate. What we've seen is that by putting people together, so Randstad people with Monster people, we get a very much a better grasp of the total labor market.
That's why we took this decision in Monster. Sourceright, the biggest call it company within our global businesses, sees a good and strong acceleration from Q2 into Q3. A good and healthy client pipeline. Overall, even though in an adverse economic situation, very optimistic about the future of our enterprise group as a whole, because in this area, there's not a lot of companies that can play. On that note, Henry.
Thank you so much. Thanks, Jacq. Good morning, everybody. It's my pleasure now to take you through the Q3 financials. As mentioned by Jacq, the company delivered another sound operating performance in continued volatile markets. The strong gross margin, controlled OpEx, and excellent cash conversion are setting us up with confidence for the remainder of 2019. While being mindful of market uncertainty, our healthy gross margin performance provided room for continued selective investments to secure competitive growth. As you know, it's important for us to balance short-term performance with positioning the company well for the longer term. Let me run you through the P&L to provide you a bit more detail. Before I start, let me point out that our growth numbers are not adjusted for hyperinflation accounting in Argentina, as the impact for the group is very minor.
Revenue is down minus 2.5% with around half of the decline coming from automotive. Europe remains challenging but is showing some signs of stabilization, while the industrial and manufacturing side in the U.S. is experiencing some slowdown. It's very good that we can rely on our strong portfolio with our global professional and rest-of-the-world business showing sound growth. Equally important is the fact that we could continue to achieve market share gains in several of our countries while being very disciplined about pricing. The wider use of value-based pricing in the context of ongoing tight labor markets helped delivering another quarter of robust growth margin performance. 20.1% up 30 basis points year-over-year is motivating us to roll out the concept even more aggressively to more markets.
Obviously, there are also some supportive mixed effects at play, which I will lay out in the growth margin section. Operating expenses were up 1% year-over-year, reflecting our ability to support our most promising growth opportunities whilst going through continued efforts to adapt our cost levels to harsher market realities. Tight field steering is a given. Personnel expenses are down 1%, FTEs are down 2% year-over-year. EBITDA came in at EUR 298 million with a 5% EBITDA margin. On the next line, integration and one-off costs were EUR 62 million, reflecting several items. Firstly, about EUR 35 million is reserved for realizing additional synergies with Monster, while it's also adjusting the cost structure overall. Another EUR 16 million is related to the transfer of the Dutch pension plan to a third-party provider, as already announced in our Quarter Two press release.
The remainder is used to adjust our cost base to new market realities in several regions. Clearly, we're taking actions where we need to. As always, quite some moving parts, and it's good to see the qualitative results coming through. We're also appreciating the fact that we had some tailwind from one extra working day in quarter three. Now on Page 14, let me unpack the gross margin for you. As you can see on the left, the temp margin continues in positive territory in quarter three, being up 30 basis points year-over-year. We're experiencing ongoing healthy pricing trends as a result of a structured management effort to utilize labor market data, feeding our value-based pricing tools across our portfolio, and as a result, we're better able to benefit from tight labor markets.
Regions like the U.S., Netherlands, France, Japan, and Spain benefited in a significant way. Confirms our ability to price for superior value delivered to our clients globally. Please note that our gross margin trend was sound without any payment from perm this quarter. Our perm fees were down by 1%, driven by increasing uncertainty at our clients, specifically in Europe. However, it is fair to say, one additional working day always shows up positively in gross margin. Lastly, the bar on the right represents HR solutions, which shows a neutral effect on the gross margin. It was Monster mixed effect was offset by a positive Forex effect in other growing HR service businesses.
As I highlighted before, in volatile markets, we see some significant shifts in growth rates per region and concept, and hence keeping a close eye on gross profit in relation to OpEx is key to ensure benefit is showing up in EBITDA. That brings me to the OpEx bridge on Page 15. Here, as Jacq already mentioned, when it comes to OpEx steering, we always try to find a smart balance, so swiftly adjusting the cost base to the macro environment while securing enough funding to capture the many growth opportunities we continue to see in the marketplace. Sequentially, we reported organic OpEx down by EUR 11 million, which is year-over-year up 1% against tough comparables. Please note that this primarily comprised selective investments related to the digital roadmap and other strategic growth areas.
As mentioned, personnel expenses were down year-on-year 1%, and full-time equivalents were down -2%, underpinning a tight field steering. Finding the right balance between tough cost management and nurturing our growth engines remains the key priority, and given the tougher macro environment, we will tighten our belts accordingly. Let me close this chart with the confirmation that we're fully on track to deliver our cost-saving targets of EUR 90 million to EUR 100 million annually by the end of this year. Now on Page 16, let me shed some light what it all means for our cash flow and balance sheet. We reported in quarter three a record free cash flow of EUR 468 million, which is an improvement of EUR 248 million in absolute terms.
A main driver for the good free cash flow is strong working capital performance, reflecting our slowing top-line growth while benefiting from tight DSO management and also a favorable timing of the quarter end. The development of our receivables and slowing growth environment perfectly illustrates the countercyclical nature of our business model. Please do not forget that the change in the French subsidy system is leading to an instant cash inflow. The last bullet on the left shows day sales outstanding, which was slightly down versus last year in quarter two 2019 on a 12-month moving average. As mentioned, our dedicated DSO management is delivering good returns and will continue to be a top priority for us. On the right hand of the chart, going straight into our strong balance sheet.
Here, our net debt position improved by 479 million versus quarter three 2018 to 1 billion 595 million, which includes our lease liabilities of EUR 634 million. Please note that the pre-IFRS 16, our leverage ratio rises to 0.8 versus 1.2 last year in quarter three, whereby last year's special dividend payment happened in quarter three, and this year it's being paid in quarter four. This adjusted leverage ratio will also be the basis for our unchanged capital allocation strategy going forward. Our focus now is already turned to land a strong quarter four. I would call the outlook for the full year 2019 free cash flow very healthy. Finally, let me reiterate that the outstanding CCA receivable of EUR 491 million will be collected in the coming four years, of which about EUR 105 million will be received in this quarter.
That already brings me to the last page, on page 17. Let me summarize the key messages and provide you with an outlook for quarter four 2019. Firstly, it was good to experience a quarter of sound operating performance. Competitive top-line trends, robust gross margins, and balanced cost management delivered against the backdrop of low economic growth in some of our main markets. September trade is in line with quarter three, and we are energized to continue our drive for healthy gross margins, and we are definitely well-positioned to monetize the added value of our services and tight labor markets with our pricing tools gaining further traction. We see quarter four gross margins to be better than last year. However, slightly lower sequentially given working day effects and OpEx broadly stable sequentially.
While market conditions are uncertain, Randstad is very well positioned to capture growth opportunities in the future. The quality of our portfolio, strong customer relations, and best access to scarce talent is giving us the confidence to thrive also in tougher market conditions. That concludes our prepared remarks, and I hope it helps shed some light on quarter three. We would be glad to take your questions. Jess, back to you.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally as you will be advised when to ask your question. We do currently have a few questions in the queue. If you would like to take the first question.
Yeah, sure.
The first question comes from the line of Hans Kluge from Kepler Cheuvreux. Please go ahead.
Yes, morning, gentlemen. First, looking at France. You are a little bit performing better than the market. Also looking at the exit rate, let's say, going for about stable growth. What's the key reason that you think you're outperforming the market? Are there any segments you're doing better than the market? How, let's say, have you seen the market performing through the quarter? Secondly, on the Netherlands, let's say that the slowdown in growth is that, let's say, mainly driven by demand or is also issues on the supply side? Looking at Monster, could you give maybe some feeling, the old business, how big that is still of total sales of Monster? My last question, you indicated that you are, let's say, in line to achieve the EUR 90 million-EUR 100 million cost savings.
I assume that let's say most part is already done, so not much we should, let's say, expect for Q4. Is that correct?
Yeah, Hans, thanks for your two questions. Actually four.
Sorry. Yeah.
Yeah.
Sorry about that.
France, outperformance. Our French business, as I mentioned in my presentation, is one of the businesses which, from a digital point of view, is furthest enhanced. Our people have what we call data-driven sales tools, so they can go out to clients at the right moment in time and talk to them on the basis of local market data and what kind of people are available. That makes them better salespeople. Still very much in-house. In-house driven by this workforce scheduling tool, which was developed first in France, an early mover there. Finally, we said goodbye to Renault, big client, and that comparison is also easy. That mix brings us to an outperformance. Also our professionals businesses, OC, high single-digit growth in France, and also our medical business doing quite well. That's the total mix that brings us to an outperformance.
In the Netherlands, no. Although people are tough to find, Hans, so the margin that we're getting is good for our business. It is really demand driven, again, predominantly in automotive related sectors, and in the broad sense, industrial. On Monster, no, not really sharing that information. What is old and new, that's very tough, so I cannot really answer that question for you.
On your last one, Hans. Hi, good morning. I hope you understand we focused on delivering quarter four in a strong fashion, also in terms of cost savings. We've performed well, and we are on track to realize our ambition. I think we've demonstrated one more time in quarter three that we take actions where we have to, obviously going forward also, always look to improve productivity.
Okay, thanks.
The next question comes from the line of Paul Sullivan from Barclays. Please go ahead.
Yeah, good morning, everybody. Just firstly from me, could you give us a bit more color on the payback you expect from the additional restructuring you've announced today and the SG&A guidance in light of that? For the year, is your expectation of flat margins still achievable given the revenue decline? Secondly, do you have any flexibility in the 50% payout for the ordinary dividend, given the potential for EPS decline? Can you avoid a headline cut in the ordinary, even though the overall cash return through specials or buybacks may be very similar to last year? Thank you.
Hi, thanks, Paul, for your questions. On the first one, payback, we normally seek to have a payback below one year time, and that would be what we're also steering against with that restructuring we've announced. On the second one, obviously, we're not giving guidance on full EBITDA margin, but we've said all along that we have an ambition to protect EBITDA margin as much as we can, and we're already having all hands on deck on quarter four to bring another strong quarter. On dividend, please allow us to also first concentrate on quarter four, and we will talk dividend once we know how the year ended. We'll get back as we always do in quarter four results.
Great. Thank you. Can I just follow up on the restructuring? Should we be braced for any more restructuring in this quarter if we see a similar revenue print to Q3?
There's nothing in the pipeline. I think for the time being, we've made our adjustments. As I learned one of my first week when I was here from Jacq, we are managing the business on exits. Should we see a further deteriorating of conditions, we definitely do what's necessary to adjust the cost base. At this point in time, we don't see any more coming through.
Paul, what you also see, of course, in Q4, you're not just from a cost point of view, managing Q4. You're also preparing for Q1, which also is seasonally lower. That's very much what we're doing in Q4. We'll let you know.
Great. Thank you.
The next question comes from the line of Konrad Zomer from ABN AMRO. Please go ahead.
Hi, good morning, gentlemen. My first question is on the OpEx development in the third quarter. As you showed, it was up 1% despite the revenue decline, and you said it was to fund growth initiatives in your portfolio. Can you maybe be a bit more specific as to in which specific countries you've raised your OpEx? My second question is on the potential of a special dividend. You've said all along that the change to IFRS 16 is not going to change the capital allocation policy of the company. You showed the 0.8 net debt to EBITDA today. Is that actually the number we should focus on in terms of calculating this potential special dividend, or should we look at a slightly higher level related to your post IFRS 16 numbers? Thank you.
All right. On the first one, on OpEx, actually, we're not providing a breakdown, but what we definitely do is we're managing business for its long-term health. If we have programs in terms of digital investments where we see good returns, we maintain those and ring-fencing those in our attempts to adjusting the cost base. What you're seeing, that is why we gave those two proof points. There is very tight field steering with actually personnel costs going down 1% and FTEs 2%, but we are maintaining those. It wouldn't make sense to break it out into countries. Because we're also developing assets for the entire business. On your second one, special dividend, you're absolutely right. IFRS 16 will not have an impact on our way we are calculating leverage.
Please note that the 0.8, compared to the 1.2 last year, is also influenced by the dividend payment. In last year, we had the special dividend payment in quarter three. This year, we made the payment already in quarter four in the beginning of October. Therefore, the comparison looks a little bit too positive. We are looking at the leverage ratio as we did last year, pre IFRS, so it will not have an influence.
Yeah, based on your question on special dividends, so you know our capital allocation policy, which is unchanged also for this year. We'll get back to you once we know the full year results and what that entails.
Okay. Just one quick follow-up. Can you share with us what your proportion of your Dutch business is related to automotives? I presume VDL is quite a big customer.
Yeah.
Belgium, what is it for the Netherlands?
It's a little bit less than 10%. High single digit.
All right. Thank you very much.
The next question comes from the line of Anvesh Agrawal from Morgan Stanley. Please go ahead.
Hi. Good morning. I just got a couple of follow-ups on Monster really. First of all, given the amount of restructuring you're taking and your payback expectation, assuming that the top line trends of Monster kind of remains negative, but can we at some point expect the business to turn kind of profitable versus slightly negative on operating profit right now? The second is just like, if I look at the outlets by region, then within the global businesses, your outlets are still growing sequentially in Q3 and year-on-year. Given the amount of restructuring you've taken on Monster, that kind of doesn't really add up. Maybe if you can give some details there, please.
Yeah. We expect Monster to be profitable in Q4. That's the first answer to your question.
Yeah. As far as outlets concerns, mainly driven by in-house locations in the U.S. where we've had some nice gains on client activity.
Okay. That's it. Thank you.
The next question comes from the line of Suhasini Varanasi from Goldman Sachs. Please go ahead.
Hi. Good morning. Just a couple from me, please. One is on the gross margin. It's quite impressive that the margins have expanded by 30 basis points in the third quarter. Can you talk about the competitive landscape on what exactly that you have on the digital side that differentiates your product and you're able to command better pricing in the market? The second one is on the U.S. What has incrementally changed? Sorry, I may have missed that, but what has incrementally changed between Q2 and Q3 in the U.S. that has led to the weakening macro market there? Thank you.
Well, what has led to weakening macro is called a trade war in the U.S. We do see clients who trade in, call it industrial markets. In industrial, they have less demand, we see that both in our franchise business. As you might know, Suhasini, we have a franchise business which also for us is a bit of a market indicator. You also saw the BLS coming down a bit to 1% growth. On a side note, it's small, but still there was a strike at General Motors, we took out people, not at General Motors, out of the supply base. That didn't help. That's what happening in the U.S.
Again, slight weakening and at the same time we also under-invested in headcount, Our headcount is lower than our growth compared to last year, and that's not what we like to do, better balance. Also, bringing in more people as we speak in the U.S. On our gross margin, digital support. What we have is a tool in the Netherlands now rolling out to Germany, where the consultant can go to the client and on her handheld iPad or whatever, they can show the local labor market for the relative job they're talking about. The scarcity of that profile, they can talk about what is being paid for a profile, Then they can talk the client through that. There is a pricing tool adjusted to it, which in the Dutch market is a pricing tool for staffing, for secondment or direct perm.
That conversation is working well for us and for our consultants, and it results into better pricing. Also early days because it's a small group in Germany, but also we see the same effects there. That's why also why Henry said we're going to roll out these tools as quickly as we can. To be able to do that, we need a certain data set on local labor markets. That's the only inhibition for the speed of rollout. You'll see this tool certainly in 2020 in way more markets.
Thank you very much.
The next question comes from the line of Tom Sykes from Deutsche Bank. Please go ahead.
Yeah. Morning, everybody. First question was just on the gross margin. Presumably, your gross margin isn't just the difference between what you're billing out and what you're paying the temps or just your markup. You've got some non-wage costs in there. I was just wondering what was happening to non-wage costs, your ability to manage sickness, sort of absence, any other sort of non-wage costs that are going in there, and what might be the movement in those year-on-year and perhaps kind of where they are versus history, if you like, as a proportion of sales. Have those come down? Are they similar to history or where do we stand on those, please?
Yeah, Tom, good morning. If anything, it sort of strengthens our margin story because what we see in Germany also because of the downturn, we see actually more sickness. We see slightly more sickness in the Netherlands. That's also because low unemployment and you put people in, but the pressure in workforces is high nowadays. It's not like we have a better margin because of our non-wage costs or accompanying wage costs went down. It's actually the reverse. Our margin is higher because of the pricing tools, the different business mix and diligence on walking away from clients who don't want to pay. Yeah, it's very much so.
Okay. How big are non-wage costs as a proportion of sales, please? I'm trying to think about those. Just ballpark in aggregate as the impact on gross margin.
I cannot even give you the city the ballpark is in, let alone the ballpark. No. Sorry.
Okay. Why is that?
Why is that? Yeah. It's not something we manage on a global scale. It's very different country per country. It's also driven by legislation, so it changes every year in every country. I can talk to you about themes in certain markets, way more in the Netherlands. It's a big bag of costs that we tightly manage, but it's 38 times different in 38 countries.
Thank you. Without knowing it, you're still saying that it's not a benefit to your gross margin?
What I said was that where I know it, where it's a big part, it actually went up, so to say, because of sickness. Yeah.
Okay. Thank you. Just on the growth in the staffing business, I think in your annual report, you said it's ballpark 50/50 between light industrial and non-light industrial. I just wondered if you could make some comments on what's happening in light industrial versus non-light industrial, and whether you're seeing any impacts of weakness in the clerical market at all, please.
Yeah, clerical markets is okay-ish. It's more light industrial for us, certainly in the U.S. Light, yeah. Light is very broad term, but it's mostly logistics, that sort of industries. Nothing too specific. As you know, we got 3.5% market share in the U.S., so it's not like we're hinging on one sector.
Right. I think just overall excluding in-house and professionals, you say it's about 50/50 light industrial versus clerical. At the moment, you're not seeing any spillover effects from weakness in manufacturing to weakness elsewhere. You're just seeing.
No, not really. No.
Okay. All right. Many thanks.
Okay.
The next question comes from the line of Rajesh Kumar from HSBC. Please go ahead.
Hi. Good morning. Thanks for taking the question. On the temporary margin contribution. You're seeing a 30 basis point contribution on gross margin. What does that equate to in terms of like for like temp gross margin improvement? Could you give us some color on, say, in a quarter, how many times on average you would be renegotiating the margins? Just trying to understand how much of the margin lift you're getting is coming from the actions taken in the quarter versus over the last 6 months. Just in terms of the competitive landscape, have you seen any of your competitors change their tack on how they approach pricing? Are they getting more competitive or are they adopting digital solutions which make them more disciplined? Any color on that would be quite helpful.
Yeah. Well, you ask some tough questions, Rajesh. What we normally do is we negotiate the margin for one-to-one assignments, of course, when the assignment is in. I cannot say on a global scale what that means. What I do know is what we can measure when we have these supporting digital tools is that per match, we see an increase in margin. That works very well.
Okay.
Competitive landscape is partly tough. You see ManpowerGroup with a 40 basis points drop in gross margin. That's a lot. The digital tools are working well for us. Our pricing policy is unchanged as long as I can remember. We have this basis where we don't want to go under, and if it's too low, we just walk away. It's not like deteriorating or anything. I would call it a pretty stable environment overall from a competitive point of view.
Thank you. The temp margin, how much is it up? Is it similar to the 30 basis points contribution or is it a bit more than that?
We're showing 30 bps because we believe it is 30 bps. Obviously, it's helped by an extra working day. Margin is not helped this time by exceptional firm growth. I think we've laid it out as much as we can, but just give one more color on a value-based pricing and pricing in general. I think we make very conscious efforts across all our countries to put the pricing, the ability to price, and conscious decisions around pricing as part of our tooling for our business. As we speak, we're building our muscle, supported by digital tools, but also by just general discipline, looking at pricing. That, I think, also gives good returns so far.
Got it. Thank you.
There are currently no further questions in the queue. As one final reminder, if you would like to ask a question, please press star one. Andrew, do you have another question in the queue? This comes from the line of Maarten Verbeek from The IDEA!. Please go ahead.
Morning. It's Maarten of The IDEA!. One question about your cash flow, which was extremely, very strong in Q3. Has some of the part of this free cash flow been brought forward, so which you should have expected in Q4 and now dropped into Q3? Otherwise, what are your projections for Q4? Will it be as strong as the last quarter of last year?
Yeah. Good question, Maarten. Thanks for that. Actually, we've said also in our notes that actually timing was helpful in quarter three. We had, in 2018, actually the quarter ended one day earlier. We have now in the quarter three, the benefit of getting money in and paying it out actually on the first day of October. That has an effect also in quarter four then. If you just look at how the calendar lies, 2018 the year ended on a Monday, 2019 the year will end on a Tuesday. Tuesday is quite a material payday for us. There will be some readjustment coming through. That will not take away from a very, very big cash flow in quarter three we have.
Could you quantify the impact in Q3?
No, we don't do that.
Okay. Thank you.
There are no further questions in the queue, so I'll hand back over to your host for any concluding remarks.
Jess, thank you very much. Thanks everybody for joining this morning. We're on our way to finish the year as well as we can, and hope to see you on the roadshows or wherever we meet. Bye-bye.
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