Earnings Call: Q3 2018

Oct 23, 2018

Good morning, and welcome to the Randstad Q3 Results 2018 Call. My name is Rosie, and I'll be your coordinator for today's conference. For the duration of the call, you'll be on listen only. However, at the end of the presentation, you'll have the opportunity to ask questions. I will now hand you over to CEO, Jacques Vandenbroek, to begin today's conference. Thank you. Yes. Thank you very much. Good morning, everybody. Jacques van den Buch here together with Henry Schemer and David Perieu to take you through our Q3 results and, of course handle questions you might have afterwards. So I immediately start at Slide 6, which has a few of the headlines as far as we're concerned. So mixed growth, some slowdown in Europe, but improvement in the U. S. And still very strong in what we call rest of the world, leading to an organic growth of close to 3%. And we're very happy with the fact that based on stable margin and good cost management, we've been able to improve our EBITDA both as a percentage, but also in absolute terms with an ICR slightly above 50%. So where is the growth still coming from? Our professionals business doing very well in many markets. A perm still like YouTube, 13% up. Yes, our North American business, very happy there. We do see good growth in our staffing business being above market with 5%. Our professionals business all growing. Let's say, the hard work we've done in our professionals businesses and very happy with where they are. And also our Canadian business, 10% of North America, back to growth again. The rest of the world, I flagged that already in the Q2, is now annualized some €2,000,000,000 sort of size of our German business, half of our U. S. Business, but growing above average at very decent returns. So definitely a new area of strength for us as a company. The digital strategy, as many of you know, tomorrow we'll have a breakfast where we'll go more in-depth. But we just want to share a few highlights because next to managing the business as is on a daily basis, we're very much, of course, working on our growth for the coming 3 to 5 years. Some highlights here. Workforce scheduling, this is where we give a planning tool free of charge to our clients. We connect the TEMs to app technology to basically plan themselves. We do this in our current in house businesses, but also towards clients which don't have an in house because they don't want to buy their service or they're slightly smaller. Is now implemented in 9 countries. Basic starting country was France. They've now implemented it at close to 300 clients. Basically, they are existing clients and they're now moving to prospects. So very much the moving towards prospects we feel will fuel our growth into 2019 beyond. Data driven sales, the support for our consultants where they know where demand is, where they can combine one visit with a client with another prospect that on their mobile shows that there's opportunity. We started this service or this development in our main markets, U. S, France and the Netherlands, but made in their home system in their back office. Now we have a system in Belgium that's going to travel around the world and that we will implement in 6 countries going forward, helping our consultants to be more effective in sales. Candidate engagement, as you know, we work under the assumption that clients will less and less be actively looking for a job. So we really need to engage them very proactively. We call that dialogues. So in 12 countries, we now have various initiatives with chatbots, some off the shelf third party, some we made ourselves. Chatbot is very young technology, so we're still experimenting here, but there's a lot of traction going on, a lot of learning going on for us and our consultants. And then finally, again aimed at candidates, video and digital assessments. This enables our candidates to connect with us wherever and however they want, either at home or through mobile, now active in 21 countries, again making us more accessible for candidates around the world, which we think is crucial going forward. Going to Slide 7, looking more in-depth at markets. I already said how happy we are with the return businesses in the U. S. A great compliment goes out for me to our colleagues. You know our Randstad professionals business, so aimed at financial profiles, had a struggle, but we have seen consistent improvement throughout the year, now leading to positive growth in this quarter. Our staffing and in house business, 5% growth above market, in house still doing very well there. In our Canadian market, the Canadian market was hit by legislation, basically a variance of user pay in the Toronto area, but still we bounced back into growth this quarter. And that leads to a stable above average group return of 6.2%. The Dutch market, very disciplined on pricing. As you know, nothing new there, but we're still closing the gap to market here. Our staffing and in house business is quite stable at a 2% growth. Our professionals business at 15% growth, above market absolutely. And perm for the group at 13%, but also on our Dutch business a growth of 9%, so an improvement there. We turn to Slide 8, our French business. What we see here is that the growth slowdown is in our large accounts, partly our own doing. As you know, we shared a large client in automotive. We do see weakness in this sector. That's most of the weakness we're seeing also in France. Our SME space is still growing. Roughly fifty percent of our branches still see positive growth. So it's a mixed picture, but overall slight deceleration. And but again, here like our Dutch business, for example, our professionals business still up quite good, mainly driven by our medical business, Apell Medical. Our EBITDA margin goes down as a percentage, but that's wholly or almost wholly due to the lower C state subsidies we got here. And also the lower growth is still in Q1, we still saw high growth. So we could in a way compensate it in absolute terms. That's tougher now. Our German business, also automotive. Automotive as a sector in Germany is even more important than it is in France. So you see the sequential drop from 6% growth into 2 minuteus into from Q2 to Q3. 75% is due to this automotive weakness. You've seen many of our clients going out with warnings on trade tensions and also the fact that there's some unclarity about diesel legislation, which meant for them that they had to tone down their volume production. And of course, they use flexible labor also to battle their own costs here. So you see it in our staffing and in house business predominantly. Again professionals very stable in our German business. EBITA margin going down as a result of this and we will take out costs in this quarter in Germany to adjust to the lower growth. Belgium, again, very stable performer in our market, growth going down, but still above market. Also here again, very good perm. As you know, in many of our large staffing businesses a few years ago, we started also selling perm through our staffing consultants, works very well for us as it does in Belgium, in many countries and a quite stable and above group average high margin. Italy, very tough comps for last year. This time around, probably around 25% growth, but still 7% growth this quarter, again strong perm growth, same story as Belgium and good returns. There has been some design new legislation in Italy. It's actually too soon to call the actual effects. We don't see it yet in our markets, but we will definitely keep you updated once we know more. By the way, the same goes for France on the changes of CICE into another scheme, too early to talk about the details here. We move to Slide 10 on Iberia. Our Spanish business, again tough comps last year, high teens, good growth, 3%, great cost management there, where their EBITDA percentage went up. Our Portuguese business, however, is down. Other European countries, again, tough comps almost everywhere, but still an improvement in EBITDA margin. So quite happy with the way our colleagues in all these markets are handling the current market circumstances. We move to Slide 11 of the rest of the world. As I said, it's been a region for us. We're there now for a little bit more than 10 years. But certainly now, we do see this becoming a very, very important market or sector or call it region for us. Our Japanese business shows good growth, but also this Japan is a market with low unemployment and our management has become very diligent on pricing. So margin is increasing there, and also our results then go up also based on good growth in perm. Our Australia business, way above market as far as we can judge with 14%, So well done there. Our Chinese business up 6%. Latin America, which for us is predominantly Argentina and Brazil, growing at 30%, 35% in Q2, so stable there. Also in this business, we see source rights. So RPO in the Brazilian business becoming a part of our sector. Most of this region is very much perm led and therefore for the whole region perm is up 16% driving our results. Then we go to our global businesses, starting with Monster. As we mentioned in Q2, this business is financially under control for us. We are increasingly using the Monster database and the Monster capabilities for our Randstad consultants. You know that's very much part of our strategy to create a bigger data lake accessible for our consultants. And over time, also using the data out of this data lake to talk to our clients on trends we see in the labor market, availability of talent. But at the same time, that's investment. So the balancing act for Monster is very much the old business, the job postings being under pressure and the new businesses gaining traction in the Monster top line. New products such as Monster Studios, which we launched at HR Tech in Las Vegas last month, where clients can basically present themselves through their own videos, their own clips to a tight labor market. That was met with quite some enthusiasm. Also the resume builder, something we got from Rysmart, where we allow our candidates to create a very effective social media profile and they're paying for that. So that's great, very promising stuff, but still a lot of work to be to really, yes, revamp this business as such. Let me go to source side. On the first instance, you might say, okay, so 14% growth in Q2 and now 8%. We do feel that in Q4, given the pipeline of clients and new clients who are currently landing here, they're very optimistic that the growth here will increase in Q4. So that's very much what we see currently around the globe. And with that, I take you to Henri to update you on the financials. Okay. Thanks, Jacques. So it's my pleasure now to take you through the financial results and then move to Q and A after that. Let me go straight to the P and L here on Page 13. So we look down revenue down to EBITDA quarter 3 year over year. And as discussed by Jacques, we reported a competitive revenue growth of 3% in light of slowing macro and staffing markets in Europe. It was good to see again the strength of our portfolio coming through. Perm and Rest of the World grew double digit with excellent conversion and North America accelerated growth. Gross margin came in at 19.8%, down 30 basis points, underlying stable and slightly ahead of guidance. Operating expenses are up 1% year over year, well monitored and under control, and we have been able to adjust the cost base quickly to changing market conditions and are still geared up to capture further growth opportunities. And last but not least, EBITDA came in at €299,000,000 with a 5 percent EBITDA margin, 10 basis points up year over year. Quarter 3 was a pretty clean quarter with just 0.3 extra working days, hence not an awful lot of tailwind from that side. Let me also point out that the incremental conversion rate for the last four quarters was about 0.5% and even higher in quarter 3. So now on Page 14, we show the gross margin in a bit more detail. So the gross margin is a solid story. On the left, you see the quarter 3 2017 gross margin of 20.1%, the very right part shows the quarter 3 2018 gross margin of 19.8%. As mentioned, the gross margin came through underlying stable ahead of guidance and 30 basis points below last year. And the fact that year over year, the gross margin is showing up lower is again mostly related to mix. The bar on the left shows the impact of our temp gross margin, which is 20 basis points gross margin dilutive and 10 of the 20 basis points are due to lower TCE payments in France as the remainder of the 10 basis points related to price mix, fully in line with the last quarter. The bar in the middle shows the positive impact of our fast growing perm business, 13% growth driving 20 basis points positive mix. It's all fee income and therefore gross margin increases. And lastly, the red bar on the right represents HR Services, including Monster. And as stated before, Monster is a 100% fee business, still in decline, and hence, it shows up negative mix in the bridge, also here a geotechnical effect. Also going forward, there will be quite some mix effect at play. We always have an eye on gross profit in relation to OpEx to ensure enough benefits showing up in EBITDA. It is reassuring that the underlying price environment is stable and even improving in some areas like France and Japan. On the next page, Page 15, operational expenses. As you know, operational expenses are always getting our full attention, but especially in times of economic uncertainty. And sequentially, we reported OpEx coming down from €908,000,000 in quarter 2 to €892,000,000 in quarter 3 with adverse ForEx impact of €4,000,000 and €19,000,000 organic net OpEx decrease. Costs are down 2% sequentially and just 1% up year over year, reflecting the flexibility there from our cost base. Also, productivity was stable year over year. Finding the right balance between tough cost management and investing for growth worked out well in quarter 3, and we do our best to do the same for the remainder of the year. It's one of the keys to drive the business for leverage going forward. Let me also close the chart with a confirmation that we are fully on track to deliver our cost savings target of €90,000,000 to €100,000,000 annually by 2019 as presented to most of you at the Capital Markets Day in November 2017. So on Page 16, quarter of €220,000,000 an improvement by €43,000,000 in absolute terms and 24% up year over year. And the main driver for the good cash flow was an improved EBITDA, helped by reduced working capital requirements, which illustrates perfectly the countercyclical nature of working capital in our business and hence the resilience of our cash flow through economic cycles. The last bullet on the left shows day sales outstanding, which increased by 1.5 days on a 12 month moving average, mainly due to mix effect. Note, however, this was sequentially stable. And on the right hand of the chart, let me go straight to our strong balance sheet. Despite our special dividend payment of €126,000,000 in quarter 3, the net debt came in only €30,000,000 higher than last year, and we reported an improved leverage ratio of 1.2 versus 1.4. Most of you will know that quarter 4 is traditionally one of the strongest free cash flow quarters in the year. This time, it's also supported by CICE cash in of about EUR 100,000,000 Our guidance on taxes remains unchanged at 23% to 25% for effective tax rate and slightly north of 20% for the cash tax rate. I reiterate our guidance for our higher free cash flow year over year. Now on Page 17. Let me just summarize the key messages and provide you with an outlook for the full year 2018. Firstly, the quarter brought competitive top line growth, further EBITDA progression and strong free cash flow conversion. Secondly, our digital strategy is well underway and embedded in our business. And it's not only helping to drive productivity, it also redefines our way to engage with customers and candidates. And thirdly, we are well positioned to deliver a full year EBITDA margin ahead of last year's 4 point percent. On the right side of the chart, I'd like to mention the fact that September October so far grew at a similar pace as quarter 3. And as far as Germany and France are concerned, we do not expect a return to growth yet. Let me point out that the gross margin for quarter 4 is expected to be modestly lower sequentially. We don't receive CICE for the month of December as a replacement subsidy with start to January 2019. We also expect OpEx to be broadly stable sequentially. In quarter 4, there will be an additional 1.1 day impact on number of working days. Well, that concludes our prepared remarks. I hope it helps to shed some light on our Q3 performance. We are now delighted to take the questions. Operator? Okay. We have a few questions coming through. And the first one comes from the line of Bilal Aziz from UBS. Please go ahead. Good morning, everyone. Just three quick questions from me, please. Firstly, just on Germany, clearly quite a lot of noise in the German labor market right now. You suggested most of the weakness you saw was tied to the disruption in auto. So just trying to get a sense of the near term outlook given you still expect to be negative in the Q4 and where do you expect a small pickup if auto production bounces back? Or do you feel the general market is now also slowing? Secondly, in Italy, there's been some regulatory changes over the summer. Have you seen that negatively impact the demand for temps within that region? And finally, on gross margins, your underlying temp margin has seen a gradual improvement as we moved through the year. How much of that is pricing slightly getting better with wage inflation versus just mix moving around? Okay. Yes, on Germany, we don't expect an improvement. These so automotive is a sector that works with it's quite a planned sector, and they don't expect an improvement as far as we can see always for this year. That's also why in Germany, we take out cost accordingly. The rest of the market is quite stable, but the 18 months rule has a bit of an effect on Themis being hired quicker. So not a lot of deceleration, but not definitely not an improvement for the rest of the year. So that's Germany for you. Italy, yes, there's no effect yet on the demand purely because of legislation. There must be, of course, more of an uncertainty in Italy. That's always very tough to call. We still see 7% growth from the 25% we saw last year. So all in all, still a pretty good picture for us in Italy. Yes. Just shifting on margins in Italy, actually pretty stable gross margins, But I guess kudos to the Italian team that's been very disciplined on price management, but then also turning that into EBITDA with good OpEx control? Yes. So on gross margin in general, it's partly ourselves. As we said, we do see we do say goodbye to some clients. So the fact that Henry said that gross margin in France is stable is also us proactively changing the mix, which comes at cost of terms of top line growth. But we do feel it's our role as a leader in this world, not in France with the number 3, but still leading the way here on sensible pricing. We think that's important for the long term sanity of the sector. In general, certainly in the U. S, there are also some countries like the Netherlands and Japan. There is some pricing power, if you might call it like that, because of the scarcity. And again, we're very disciplined on pricing. In the Netherlands, we support this with data. So there is a pricing tool that our consultants discuss with clients, where based on the profile and based on the relative scarcity in a market, a price comes out and that shows some good results for us in our Dutch business. Thank you very much. The next question comes from the line of Paul Sullivan from Barclays. Please go ahead. Yes, good morning. Just on gross margin and the sequential decline you're flagging for the Q4, presumably that's all to do with the CICE transition. And is there a risk that, that could continue or be a drag into next year? And Manpower were pretty specific in the CICE impact, say, as they saw it as they see it now running through next year. You're still sort of not commenting. I don't know whether you can comment on that. And then secondly, in terms of the OpEx control we saw in the Q3, how much of that is due to your sort of structural and more strategic cost reductions? And how much sort of was due to sort of nearer term sort of short term measures? And can that be repeated if growth slows more materially from here? Thank you. Thanks, Paul, for your questions. Good morning. So clearly, on as far as the gross margin is concerned, we at this point in time, we've just the visibility that TCE in December will not come, and we don't guide on this day going forward. We need to wait the news in quarter 4. And as soon as we have something to talk about, we will. So as far as OpEx concerns, there is clearly measures we are taking now in the short term. You've seen that in quarter 3, we'll do the same in quarter 4. But then also going forward, we will have very, very close eye on operational expenditure. We are clearly factoring in a slightly lower growth in for the next quarter, and that will show up in OpEx as well. Yes. And Paul, there's nothing new here. We've done it before in totally different scenarios. So our cost is very variable. We have variable pay. We have 25% turnover rates and all that. So we always look as Henry already said in his presentation, we always look closely at our cost every week. But of course, in these times of relative uncertainty, we're even closer on the ball. So we're confident that if necessary, we'll take the appropriate message. But we don't want to kill cost we don't want to kill growth because there's still a lot of growth in our business. Great. Thank you. The next question comes from the line of Matthew Lloyd from HSBC. Please go ahead. Good morning, gentlemen. A couple of questions from me. 1, sort of France and the CICE, we've picked up a couple stories that some of the smaller guys are being a little bit less aggressive on pricing, certainly in the SME market. Now they don't have the CICE to fill up their profitability. Have you heard anything like that? Is that helping your SME business, the old Randstad business? And then sort of another question about this sort of more dynamic pricing in the Netherlands. How quickly can that be rolled out to the rest of the business? Okay. Yes, the latter one is a great question. It's depending a bit on the whole back office and also availability of labor market information in the market. I definitely we definitely have the plan to have a tool like this in our major markets, which in probably a year from now, it is something that is picked up by our digital factory as what we call a proven model. So we'll definitely take it as quickly as we can to other markets because we do feel it's very beneficial in the conversation that the consultant has with the client. CCIE, SME, I've not picked up on those rumors. And by the way, it doesn't help us either. We've been focusing on SME for a long time in France. We want to proactively change the weight of large clients towards SME in our French business. We've consistently done that. And also the technological support, so the data driven sales that I explained earlier helps in the SME sales. So we're happy with our performance, still see growth there. We don't think it has anything to do with what you mentioned. Okay. Good anyway. And just a final question. We've seen a number of reasonably high profile RPO and MSP contracts either dramatically reduced in scale with slightly wider gross profit bands or indeed just completely ditched in the UK and in the States. Have you had any situations where clients have just said, look, the fill rates aren't good enough, we want to do something different? No, of course, we never have that, Matthew. Yes, of course, although these contracts similar to our in house are quite sticky, so we don't lose a lot of them. And we win way more than we lose, let me put it that way, and that's really a more than an eightytwenty situation. So our growth is very much on keeping what we have and landing new customers. Having said that, the U. K. Is a business, but of course Europe for us, Mainland Europe is historically much more important and also in the U. S. And in Asia Pac, we're doing quite well with our Shoreside business. But it's absolutely hard work also with our clients to educate them on what the labor market is all about. And again, the data we're having does help to educate our clients and also give them, when they're international, a global picture of where labor markets are going. So yes, it is labor intensive, but we're very happy with our store side performance overall. And the fill rates are holding up okay? Or are they sort of giving way a bit given the No. No, not really. What you do see is that in markets like the U. S. And in certain profiles in Europe is that people are hired quicker. So therefore, it's tough to keep your volume up, so to say. But fill rates, by and large, are holding up well, provided that the client also wants to play ball on talking about training, talking about different profiles and that sort of thing. Okay. Thanks a lot for your help. Okay. The next question comes from the line of Tom Sykes from Deutsche Bank. Please go ahead. Yes. Good morning, everybody. Just on the perm revenue growth, the gap between perm and the rest of the business is obviously quite wide at the moment. And then looking at each major region, it's well ahead of the temp growth. And yet your EBIT margins are flat to down in most major regions. So could you maybe just talk about the profit impact of your perm growth and what level of cost you're putting in there and whether you expect that perm growth to persist? And then just on Monster, the revenue growth is obviously around about the same, but slightly less down year on year. I wonder in that Monster line, you do book where other parts of the Randstad group will buy services from Monster. So I just wondered, can you make a comment? Are the external sales seeing a slightly slower rate of decline? Or are they declining at the same rate, please? Yes. The spend of runza within Monster is fairly limited. So that doesn't play a role, significant role in the Monster top line, so to say. As I mentioned in my presentation, the traditional part of Monster, so let's say, the job postings, that's hard work to keep that up. And again, you will see renewals all the time. So very tough to really predict this one. And as we, of course, don't provide visibility for our businesses, we don't for Monster. It's absolutely the same in terms of visibility. Perm, yes, Tom, so it adds 20 basis points to our gross margin. So we're very happy there. What we see, and I wouldn't say that's regardless of the economic situation, but our big incumbent businesses, our staffing businesses such as our French business, our Belgian business, our Italian business, our German business are gaining a lot of momentum with what we call perm in staffing. We've not seen the end of that. So this will help our result going forward. Okay. And so one follow-up on Germany. It looks like your corporate staff are up about 15% year on year. So what are the what's the scale of the actions that you're intending to take in Germany? Can you allude to the level of OpEx that you think you need to save there, please? We are taking out cost as we speak. We're still in discussion internally with our workers' council. So we're not giving any concrete guidance here. But of course, it's enough to safeguard our EBITDA as a percentage. We are investing mostly in our professionals businesses, beefing up perm there and also in a model which we call GOOB Direct. As you know, our professionals business is called GOOB, based on the company we acquired with Vadior a long time ago. And what we're doing here is we allow our clients to search our 90,000 freelance IT database directly. That comes with a marketing investment. It's sort of a mini monster, but then homemade. And it comes but we do see improvement now as in some 40 placements per month now. So that's an investment, a deliberate investment in the future. But again, taking out cost in Germany, we'll update you fully after the Q1 presentation. Okay. Many thanks indeed. Q4, sorry. The next question comes from the line of Mark Swartzberg from ING. Please go ahead. Yes. Thank you for taking my questions. The first question is on the OpEx line. You're guiding for a broadly stable development quarter on quarter. But given that you are putting the brakes in Germany, the fact that maybe accruals might be lower or a bit of release of accruals, shouldn't we expect actually the cost base quarter over quarter to come down actually? Yes. So when we give guidance sequentially stable, then we guide for something we are very, very confident on. And obviously, we're working hard to maybe beating that. But at this point in time, we definitely see that it will be stable. On the German effect, Mark, you will see most of that into Q1. So we will see people leaving somewhere in November. So the actual cost effects in Germany will be fairly limited for the quarter. I think our German management was very short on the ball. We always have scenarios as we might have talked to you about what ifs, so be very quick on it. But we wanted to see what happened after the summer to act. We concluded that we needed to act more on a different scenario, which was probably 3, 4 weeks ago, then you need to be in discussion with your workers' council because we're talking about people here, of course. We take out these people and the full effect will be visible in Q1. So we'll have a good start in terms of cost in our German business, we think reflective of what we're currently seeing as a revenue development. And then maybe looking to your personnel development, the minus 3% in Q3, that's quite a significant number already. What is driving that? Is that for a big part still restructurings and integration savings? Or is it specifically in certain countries? And is that already a full threat number? Or is it just something from the last couple of weeks? Can you maybe give a bit of a feel there? And the productivity remains stable. So maybe also comment there how you see that developing going forward? Yes. Well, a significant part, of course, is still in Monsterhead, what we guided for that. And we do need we now see we still see markets which are growing. But in many markets, we also still feel that we can certainly in Asia, for example, we still can still grow without adding people. So yes, there is always some upside in productivity, of course, but yes, at low growth, that's quite tough to achieve at the same time. But overall, the cost goes up less than the GP. So that's good at stable margins. So more than 50% ICR for the quarter, as Henry already stated. So yes, working hard to keep that up. And then maybe on the cash flow and your leverage ratio, Henri, can you take us through the moving parts? You already highlighted the €100,000,000 for CICE. You're currently 20% up. I think you mentioned in the call on the cash flow with the market coming down a bit and maybe some working capital releases. Should we see perhaps an almost $500,000,000 cash inflow in Q4? Or is that too wild given the just below EUR 400,000,000 last year? No, it's probably a little bit too much on the wild side, but it's not too far off. Yes, I mean, it's pretty easy to make a calculation on EBITDA. Indeed, we see a release in working capital fee sales coming in with about €99,000,000 in there. So it will be very, very strong cash flow quarter in quarter 4. But I'm not in position to give you kind of an exact number on that. And all cash that is that brings the leverage ratio back to 1 that will be paid out as a special duty? That's Yes, absolutely. We're confirming our new capital allocation policy. We expect actually the leverage ratio coming below 1. And then indeed, we will return cash to shareholders. And how we return it, we will have a close look when we are there, whether it will be special dividend or share buyback. Okay. Thank you very much. The next question comes from the line of Anish Agrawal from Morgan Stanley. Please go ahead. Hi, good morning. I got couple of questions. First, in your opinion, over longer term, do you think the form of CCA change could actually lead to contract renegotiations with clients? Because I think you charge a multiplier of wages to client and once the form changes, it will lead to a lower employment of lower cost of employment. Will the clients kind of continue to pay the same multiplier? And then the second, in the presentation, you mentioned that the works for scheduling tool, you kind of give free of charge to your clients. Then can you shed some light how do you actually generate return from these investments? Thank you. Yes, absolutely. So CICE is part of life. So subsidies are part of life, yes? So CICE is 1 of 4 subsidies which are in the total cost price. So the discussion with large clients is not so much literally on the multiplier, but absolutely on what are the constituting elements in the cost price. So yes, absolutely, when there's a new system, it will lead to negotiations. But our management is very experienced there. We are very disciplined. So we're quite optimistic that any change will not lead to a significantly lower result. But yes, we need to go back and explain to clients the change. That's true. And workforce scheduling, good question. So we give the tool free of charge. If it's in our in house business, that means that our consultants become more productive because the temps are planning themselves. That gives our consultants more time to do stuff which really matters. So walking around the floor, talking to clients, talking about the size of the pool, but maybe also picking up other businesses, other profiles, perm orders, that sort of thing. If it's a bigger client where we have 4 or 5 consultants, we can probably do with less and therefore improve our productivity. So in our U. S. Business where we now have 77 in house clients implemented with this tool, we do see on all elements of pool management that we see improvement. So we see better fill rates, lower churn in the pool and that's all good news for clients. So normally then on the financing, we take market share and we improve our productivity. In the situation where we give this service to new prospects, of course, it's quite clear. We get revenue and we get a market share of already small there. So that's real new growth, which comes in at a decent return. And the investments for us are not great. So we make these apps in Portugal, for Europe and in Malaysia for Asia. So that's relatively low cost for us. And the tool that we give free of charge is actually companies that we've invested in our innovation fund. As we said already quite a few times, on digital, it's not the absolute cost. It's very much the sales and the different way of working that gives you more growth or higher leverage on the business you're having. So that's our strategy here. Yes, that's great. Can I just ask one more, sorry? You said you expect €90,000,000 to €100,000,000 of cost saving next year. How much has been achieved till date? Yes. We've got absolutely, we're confirming that. A big part of that is sits in Monster, and we are well underway to achieving that. We will not give some of a very, very detailed view of where we are year to date. And the second part is what we call global IT systems, where we bring our 4 50 databases to the cloud, which apart from cost gives us a lot of benefits in terms of database security and all that and also makes the cost here variable for us, which is also good. But most of those savings will come through next year. And that's the second part of this €90,000,000 to €100,000,000 Thank you so much. That's clear. The next question comes from the line of Hans Plijers from Kepler Cheuvreux. Please go ahead. Yes, good morning, gentlemen. Yes, some of my questions have already been asked. But looking at the U. S, there, could you give some indication what you see with respect to volume and wage inflation impact on your sales trends? And do you see, let's say, any further increase in wage inflation driving your gross? Then going to France. In the previous quarter, you indicated you would adjust your cost base somewhat. Could you already give some feeling what already has happened? And has there already been any impact in Q3? I assume not, but when do you expect those savings to filter through? And lastly, on Monster, yes, could you give us some feeling is that now at breakeven or slightly profit contribution? And looking at the current trends, yes, if the current trend continues, when do you expect that again to have additional measures to reduce cost? Yes. U. S. Wage inflation, it is happening in blue collar, around 2%, 3%. So we don't make exact calculations here, but let's say of the 5% growth in staffing might be 1% wage inflation, slightly less. So it is there. It's not massive. On France, yes, well, this is a country where it's tough to take out cost massively. So France will be very organically. We're not going to any drastic measures such as a social plan and all that. So as opposed to Germany, the takeout of cost in France will be slower than in any other market, but that's a deliberate choice we're making not to destabilize the business because, as I mentioned, half of our branches are still growing. So it's a very mixed picture with very targeted negative growth in certain pockets of our business. On Monster, so Q3 is around breakeven. But what I said last time, it's not an absolute goal for us on a short term to breakeven or have a small profit. The goal is very much to replace Monster or revamp Monster from a traditional job board to a very dynamic platform where clients can find their candidates and we help them do so and they also can improve their employer brand. If you stop it's very much a marketing play. If you stop investing in marketing, then your traffic goes down. So we're not going to do that. And that's why we say it's under control, which is very much for us the how do you call it the balancing act of investing in the future and taking out cost which is not necessary. Could you give maybe some feeling amongst what you see still as part of sales, the traditional business and what you see, let's say, as the new business? No, not really, because then I'm putting the whole business out in the open and there's also competition in many markets. Okay, thanks. The next question comes from the line of Konrad Zomer from ABN AMRO. Please go ahead. Hi, good morning everybody. I've just one question on the operational leverage of the business. You stated in your presentation that you confirmed the margin guidance for the full year. But just in general, if you are going to achieve any improvement of the underlying EBITDA margin up from the 4.6% last year, you stated before you needed some 4% to 5 percent organic revenue growth. Is the fact that you confirm your margin outlook, does that state implicitly that you still look for 4% to 5% organic revenue growth for the full year 2018? Yes. Thanks, Carlos, for your question. So indeed, we set basis of 4% to 5% growth. We will show a step towards from 4.6% to 5% to 6%. Even if it's a notch lower, we are confirming that we will be able to deliver that. So when we just make the calculation and we said that the 1st 2 weeks in quarter 4, you see about the same growth. And as in quarter 3, we'll probably be a notch below that. So it's still our guidance is pretty much in place. Right. So just to confirm, even if your organic growth rate for the full year comes in at, say, somewhere between 3.5% 4%, you still think that your adjusted EBITDA margin will be higher than the 4.6% you reported last year? That's correct. That's what we're working on, yes. Thank you very much. The next question comes from the line of George Gregory from Exane. Please go ahead. Morning, chaps. 3, please. Starting off with the Q4 guidance. It looks like you expect when you look at your gross margin and SG and A guidance, it looks like you expect your EBITA margin to be broadly flat year over year. Yet you suggest CICE dropping out will have about a 20 basis point in December having a 20 basis point headwind in the Q4. I'd just be interested to know what's driving that sort of 20 basis point operating leverage. Is it Monster? Is it perm? Is it temp? Just if you could elaborate on that, please. Secondly, similar subject, CICE, 2019. As far as I'm aware, the budget is more or less confirmed now. We know CECL is converting to a payroll subsidy from January. We know the additional fee on subsidies don't kick in until October. So what is it exactly you're waiting on before giving us guidance, please? I would have thought you have enough info now. And finally, sort of aligned with the previous question, I think it was around this time last year when you gave guidance for some progression in the EBITA margin in 2018. Just wondered how you're thinking about 2019 and what sort of growth rate you would require to generate some progression? Abroad range is fine? Thanks. Let me take the first and the last one. So on Q4, we just spoke about that. Obviously, we have a very, very close eye on operational expenditure in quarter 4. You're right. So you say in December, we spoke about for the rest of it, we see actually underlying gross margin being pretty stable. And if you take those 2 together, we see overall for the full year provided that top line is relatively stable leverage for the year. For 2019, I'm afraid we're not in position to give you any guidance at this point in time. But at least just talk about CICE. Yes. And maybe a bit on Q4. Of course, we can talk about France as a sort of a benchmark for Q4. But we have many businesses that show good growth. And they, of course, deliver improvements in results and that carries our group results, our U. S. Business, Asia Pac business. So there's a lot of businesses that are doing still fairly well, our Italian business. So it's a mixed picture and that also drives our results fortunately. Yes, on CICE, so apparently you know a lot, which is we don't. So the moment we have a formal write up of the system, the French government tends to not have very straightforward systems. So the devil is in the details here. And at the moment we know, but then knowing is really in writing, in the details, the start date, how does it work, then we'll share it with you. But we don't have it. So if you have it, please send us a copy. We're well prepared. Okay. But what if so you're but what you're saying, Jacques, is without knowing the detail, you can't sort of guide based on the conversion of CICE on the 1st January and the deferral of or even the exclusion of any additional payroll tax cuts as you previously guided from October, that alone is not enough to give a range? No, because if you would now ask my colleague, Francois, he would not be able to give me an answer. So that's very honest answer. We really don't know at this moment. So probably it will come in a few weeks. But what I've seen with these systems are looking at this market for a long time, you first need actually a lot of, well, time yourself to really look into the details. The only thing I can say is how do we do with these things. You know the drill. We're probably the ones that give the least away. So time will tell. Fair enough. See you tomorrow. Okay. The next question comes from the line of Rajesh Kumar from HSBC. Please go ahead. Hello, Rajesh. Your line is now open. Please go ahead with your question. Good morning, gents. Sorry, mute was on. Just a couple from me. On the CICE bit, it looks like everyone on the sell side have a calculation which they are able to do and come up with a number. And you and some of your competitors are not very keen to give out a number. What is it that we might be getting wrong? I mean, there's clearly something you think is very uncertain and the sell side seems that the answer is very certain. So there's a gap between our understanding and yours. Can you help us understand what that gap might be? The second one is you referred to U. S. Wage inflation in blue collar. Said 2% to 3%, that's quite helpful. Looking at the temp wage inflation data, that's 3.5% to 4.5%. Private employment payroll is up 3% to 4% through 3% to 5% in August September. Is it a difference of your exposure, which is causing lower wage inflation? Or is it a guesstimate number? Hence, we should basically because you don't compute it, we should rely on BLS and other sources for that. Yes. Let me take the first one on CICE. We obviously, we do understand your keenness to get more clarity on CICE, and we are completely with you on that one. So we don't think it's good if we start speculating on it. So let me really let us wait until we see really all the detail, and then we will translate that into what we think about it. But before that, it would not be good to speculate. Please understand that. The second one on inflation? Yes, Richesh, on the wage inflation. So in general, it's always overestimated as the effect it has for us, which is mostly about the fact that with us, it's always a bit watered down. So wage inflation is the same amount of people staying in a job and then increasing their wage. But of course, we always put new people in there and sometimes or many times they sort of come in at the lower weight scale or at the new weight scale. So it's always watered down. So if it's on average 4, then with us it will be 1 to 2 or something. On that wage inflation data, what I can tell you is that the people who are changing jobs, they have a higher wage inflation number. So that does not basically add up in my head. Yes, that's a pity. But we that is the individual people getting individual jobs. What we see a lot in our staffing business, there are predefined schemes, which don't necessarily mean that people go up automatically. It's all dependent where they're coming from. Sometimes they come from no jobs. Sometimes they come from a sector that pays lower. So for us, it's not as clear cut as just running the numbers. Okay. So it's basically what you're saying is in the mix you are operating in with basically the bulk contracts you have in place, you are unable to benefit from that broader wage inflation data, which is coming across from people who are changing job? Well, that is sort of what I'm saying, but not really. So first of all, it's not about bulk contracts. So we have a very fragmented labor force. If, for example, logistics in our sector grows faster than life sciences or car manufacturing, then we have a different mix. So it's not like we have the same amount of people in the same job. So in a year, in a sector like ours, there's a lot of changes. So what I'm saying is, it's not as straightforward as that you should translate wage inflation into growth for our business. That's the only thing I'm saying. It's just too complicated for that. Okay. So you've done some backed out calculations, which tells you your wage inflation is lower based on your mix? Yes. Well, you're sort of, how do you call that, rephrasing my answers in a way that I don't recognize. So let me do it finally. Wage inflation should not be translated directly into growth numbers in our industry because it doesn't work that way because we don't have a stable workforce as such. Okay. But do you have a hard number backing it? No, I don't have a hard number. I've got a guesstimate, which is probably in our staffing business around 1% of the 5% growth, and the rest is more people at work, predominantly in our in house business, which is doing very well. Understood. That's very clear. Thank you. Okay. We have no further questions. So I'll now hand the call back to Jacques for any concluding remarks. So thank you. Let me thank you all for your questions and very much looking forward to seeing most of you at the breakfast tomorrow. Thank you so much. Thank you for joining today's conference. You may now disconnect your lines.