Hello, welcome to the Randstad Half Year Results 2018. My name is Molly, and I will be your coordinator for today's event. Please note for the duration of the call, your lines will be on listen only. You will have the opportunity to ask questions later in the call by pressing star one on your telephone keypad. If you need assistance at any time, please press star zero and you will be connected to an operator. I will now hand over to your host, Mr. Jacques van den Broek, to begin today's conference. Thank you.
Thank you very much. Good morning, everybody. Jacques van den Broek here, together with Henry Schirmer and David Tailleur to talk you through our second quarter results. Let me immediately go to slide six. We think it is a good all-around performance. Very happy with our conversion into an increased EBITDA as a percentage. Organic growth 5%, as we already guided for in Q1. We were facing a tough comparison going from 6% growth in Q1 to 9% growth in Q2, predominantly in Southern Europe. Going from 7.5 to five, stable growth rate there. EBITDA EUR 283 million, 4.7%, which is up from 4.5% last year. Looking forward, of course, our visibility is limited here, we still remain on our guidance of the Capital Markets Day with a mid-single 4% to 5% growth, increasing our EBITDA as a percentage. Very well online there. Some highlights.
Of course, as you know, almost an eternal highlight, also this year, our in-house business again up 12%. PERM 14%. That is the highest we have seen in quite a while. Comes from a very broad-based business, our Sourceright business, also very much rest of the world. Latin America, Southeast Asia, also strong on PERM. What is interesting about rest of the world development is last year our growth was very much driven by Southern Europe, which effectively was a first where the U.S. business and the Dutch business were growing less, still we had a very high growth. What you see now is the rest of the world is around EUR 2 billion on an annualized basis in terms of revenue. We have been investing a lot in growth in this area. Now they also deliver above average group return.
Very happy on this development, which I think increases our global footprint and global presence as a company. A few words on digital. As you know, I can talk on this one for a long time, it is a queue call. Nevertheless, mentioning a few highlights. Workforce scheduling. This is the service where for relatively large users of Flexwork, we offer a planning tool. We create a dedicated pool of temps who through an app technology, homemade, they can plan themselves and the client can also do automated planning. Working very well. Started in France, as you know, where we now have concluded more than 200 clients, we are now rolling it out into eight countries. The U.S. showing the first traction here also with some 40-plus clients already transferred. We think this will very much help our growth in 2019 and beyond. Data-driven sales.
What was that again? This is a tooling that helps our consultants to look where there's demand. This is a solution we've tested in the Dutch business, in the French business, and in the U.S. business. It leads, in general, to an above-average growth in the SME part. At the same time, the system also offers information on cross-selling. People in the different business lines in the country will know the contacts their colleagues have had with this company. That, of course, also leads to more sales into different business lines. As said, these tools were developed in these three markets, in the three systems of these countries. We've taken now a best-of-breed system. We're developing that in Belgium, and this system, through our digital factory, will travel. We're going to roll this out in the rest of 2018 into six other countries. Last, talent engagement.
As you know, our strategy is people will decreasingly look for jobs need to look for people. We're well on our way to create a data lake of more than 300 million profiles throughout the world, where we can find people where people might not even be looking for jobs. Of course, Monster is a very big part of that. I'll talk a little bit later around Monster. The development I would like to mention here is the video and digital assessments that we've now rolled out into 21 countries, and going very well, helps the what we call customer experience of our candidates. Moving to the next slide, talking a bit through the regions and the countries. North America. Some good news here on the top line. As you see, our staffing and in-house business grew 5%, up from 2%.
We're quite ahead of market in blue collar. Again, through in-house, but also in general, blue collar. White collar is improving, although the white collar market in the U.S. is still somewhat sluggish. As we mentioned before, we think this is also the early signs of digitization, also disintermediating certain jobs with overall good top line. Our U.S. profs also improving. Our technologies business is around 3%, 4% growth at market currently. Our white collar business, which you know had a tough time, is now closing in on the zero mark, very happy with that development. Our Canadian market, we're doing very well above average growth and number one in that market now, but hit by legislation. In Ontario, which is a big part of our business, minimum wage was increased with 20%, that leads to less demand. It hits volume.
We've seen that also in Europe. When you go into equal pay or steep increases in hourly rates or salaries, it leads to a bit of a damper on volume. That's what we're seeing in our Canadian business, which is 10% of our North American business overall. Then you see a somewhat less EBITDA margin, very much driven by temporary effects, very U.S.-centric also. Higher workers' comp, high healthcare cost. We are self-insured here. We're also investing, we'll feel that that will definitely be good going forward if this trend continues. The Dutch business, quite consistent picture here. Very much concentrating on keeping the market sound, still walking away from clients. Overall, pretty stable margin development. Happy with our professionals growth, 15%. A stable EBITDA percentage. You might say professionals growing 15%, should that have an upward effect?
A part of this business is where we manage freelancers. Freelancers is 15% of the current workforce in the Netherlands. We are a big broker of freelancers, so it is revenue, but the profitability of that is slightly below par of the professionals business. Still good business, but overall, not the drive we see in professionals. Also, we invested a lot in PERM here, which is not as materializing yet as we would see, but still maintaining the investment because we do feel there's potential in the Dutch market. Our French business. Moving to slide eight. Oops. Yeah. Slide eight. Yeah, there we are. Our French business, been the rock star for a long time. Was one of the markets where we faced tougher comps, 5% tougher comps, Q1 to Q2. Growth has been less, certainly less, than Q1. It's a mix.
For us, it's also walking away from some contracts, as you know, but it's also strikes, bridge days. Overall, there is a slowdown in growth. Because it has been so steep, we have been overinvested a bit in the market here. As you know, we're very tight on headcount steering, very much going forward in France, we will adjust. Professional still up good. CICE, we commented in the first quarter that we would offset the decrease in CICE with growth, which we did with the 10% growth we had in Q1. In Q2, unfortunately, that's not possible. Going forward, adjustment in cost in France. Germany, solid performance. There is, due to equal treatment, volume growth is not spectacular. Bill rates increased, so still a good revenue growth.
Professional is quite stable, a very good improved performance also because of the acceleration of PERM in our German business, which grew 29% in Q2. Very happy with that. We go to probably the company we are most happy with, almost always, which is our Belgian business. Very solid performer, as you can see. Above market. High market share and still above market with a revenue growth of 7%. Staffing and in-house, you can see. Again, an uptick in EBITDA margin and 35% growth. A little bit less than Q1, but still 35% growth in PERM. Across the board, a very solid performance of our Belgian business. Italy, again, tougher comps here. 6% tougher comps Q1, Q2. Still we're also disciplined on clients, disciplined on profitability. We probably could grow faster in Italy, but we take a measured approach here.
A lot of talks about legislative changes in Italy. Still too early to call. Good EBITDA development in our Italian business. Again, 10% growth on the spectacular growth of last year. Iberia, 8% tougher comps. You very much see that the comp story is a Southern European story, as you know. Here you see a great management of cost. Iberia saw this coming, reacted quickly, and you see as relatively lower growth, still an EBITDA improvement as a percentage. Very well done here in our Spanish business. The rest of Europe growth, sometimes tough comps also here. For example, our Swiss business, but still doing well. Pretty stable picture. Profitability hampered by our U.K. business, which sees negative PERM probably related to the Brexit fears. Then, as already mentioned in my opening statements, rest of the world.
A Japanese business, very, very profitable business for us. 9% growth in the top line, but also a permanent placement in professional is doing very well. Australia and New Zealand, we're thinking of above-market performance here. Our Chinese business are doing very well. Also our Singaporean business, we moved to market leadership here. This is a small business, but it's a PERM business with a very, very nice return. It all helps. Latin America, of course, overall, still a young market, but doing very well. In Mexico, Brazil, Argentina are our main countries here. Also doing very well in our Sourceright business, our RPO business. That brings me to our global businesses, Sourceright and Monster. Sourceright, great quarter. We are now above EUR 1 billion of managed spend in the quarter. We think, because there's quite a lot of data on this market, we're outperforming the market.
What we see in the technological, the data-driven, scarce talent space is that clients are increasingly looking for us to manage their total talent, as we call it. Monster. Still stable on the top line. Decrease, unfortunately. An increased usage of the Randstad of the data of Monster. Going back to Sourceright is an early adopter of the data of Monster. What happens here? We have talent advisors. They go to clients, and they show them what the labor market looks like to really get into quick delivery, if still possible, in a local labor market. They use the Randstad data, but they also use the Monster data. That definitely gives us an edge in this market. That is happening in more markets in Europe. This has been one of the goals with Monster.
Again, back to my opening statements, Monster was very much for us to get the biggest data lake available in the staffing sector and to really help our clients to find people. I told this morning at a press interview, if we can't find him, nobody can. We also help our clients to adjust the profile where needed if the right profile is not available anymore. Doing very well. Next to that, we're working, as we mentioned also earlier, on new business models. Not telling you a lot about it, but you should think that we are creating, as we call them, talent-centric pools of scarce profiles. Enriching the profiles of the people we have in the Monster database. Effectively, this could lead to a direct permanent placement with a client.
We're going to introduce this in the U.S. market in the second half of the year, and we'll keep you posted on the developments here. As mentioned, also financially, Monster is very much under control. We reiterate our guidance that we gave for the first quarter. That's it for me on the overall performance, and I give over to Henry Schirmer for the financials.
Thanks, Jacques. It is my pleasure to take us through the financial results and then move to Q&A after that. Let us go straight to the P&L on page 13. Here we go. Here we look at revenue down to EBITDA quarter 2 year-over-year. As discussed by Jacques, we reported a solid revenue growth of 5% against a tough comparator in quarter 2 last year. Just as a reminder, in 2017, top-line growth was 6% in quarter 1 and jumped to 9% in quarter 2, and stayed pretty much there for quarter 3 and quarter 4. Quarter 2 this year is the quarter where it gets slightly tougher to show very strong growth year-over-year. It was also good to see the strength of our portfolio coming through. PERM in-house and rest of the world grew double digits with excellent conversion.
On the next line, gross margin came in at 19.8%, down 60 basis points and ahead of guidance. Operating expenses are up 2% year-over-year and well monitored and under control. It is clearly something I noted during my onboarding visits to Randstad locations in many parts of the world. Randstad is a commercially savvy organization with a very clear understanding how to drive top and bottom line. Last but not least on that page, EBITDA came in at EUR 283 million, 4.7% EBITDA margin, 20 basis points up year-over-year. As far as working days are concerned, quarter 2 was a pretty clean quarter. It is just 0.4 extra days, not an awful lot of tailwind from that side. I guess I should not leave the page without mentioning that ICR for the last four quarters was about 50%. It was even higher in quarter 2.
Our business demonstrates that it is willing and able to build a strong track record of conversion. On page 14, I would like to take you through gross margin in a bit more detail. Yes, it is up. Here we go. The left bar in blue shows the quarter 2 2017 gross margin of 20.4%. At the very right bar, also in blue, shows the quarter 2 2018 gross margin of 19.8%. As I said on the prior page, the gross margin came through ahead of guidance and 60 basis points below last year. The fact that year-over-year the gross margin is showing up lower is mostly related to mix. Let me lay that out in a bit more detail. The first red bar on the left shows the impact of our temp gross margin, which is 30 basis points gross margin dilutive.
However, 10 of the 30 basis points are due to lower CICE payments in France. The remainder of 20 basis points is mainly down to our fast-growing in-house business, which is actually converting very well into EBITDA, very much in line with the last quarter. The bar in the middle, 10 basis points, is a positive impact for our fast-growing PERM business. It is all fee income and therefore gross margin accretive. Lastly, the red bar on the right represents HR services, Monster including Forex impact. The decline is primarily driven by Monster 100% fee business, as you know, still in decline and it shows up as a negative mix in the bridge. It is a pure technical effect. As our business gets more diverse using different delivery models and concepts, there are quite some mix effects at play here.
We always have an eye on gross profit in relation to OpEx to ensure enough benefits showing up in EBITDA. It is also reassuring that the underlying pricing environment is stable and even improving in some areas, like in France and Italy. Please note that we do naturally expect gross margin for quarter 3 coming out slightly lower sequentially due to the holiday season. That brings me to the OpEx bridge on page 15. Also here, let me lay out for jumping in what it shows. The left blue bar is quarter 1 2018, showing EUR 897 million. On the very right-hand side of the bridge, also in blue, we show quarter 2 2018 with EUR 908 million. The first part of the bridge shows the Forex impact on OpEx, which is EUR 7 million.
The middle red bar is the organic net increase of OpEx of EUR 6 million, then a EUR 2 million benefit in other. I am sure you have picked up out of the press release, organic OpEx increased by 1% or EUR 6 million sequentially and 2% year-over-year. Also, productivity measured as gross profit per FTE was 2% higher year-over-year on an organic basis. Let me say, we are constantly looking for the right balance between capacity for growth and smart choices to secure productivity, which actually worked out well in quarter 2. We do our best to finding the right balance for the remainder of the year. It will be key to drive the business for leverage going forward. We are operating in volatile and uncertain markets, in the absence of visibility, we will certainly drive for agility and resilience.
Let me close that chart with the confirmation that we are fully on track to deliver our cost savings target of EUR 90 million-EUR 100 million annually by 2019, as presented at the Capital Markets Day in November 2017. We are going to the next page, covering the P&L and taking a closer look at the gross margin and OpEx. It is now time to shed some light on free cash flow and the balance sheet on page 16. It is quite simple. In our Q2, our free cash flow improved by EUR 87 million versus quarter 2 last year. The main driver for the improved free cash flow year-over-year was the much lower working capital outflow, partially related to the reversal of unfavorable timing for payments in quarter 1 2018. We spoke about it in the first quarter.
This more than offsets the adverse effect of incidentally higher tax prepayments in quarter 2 2018 and tax payments made in relation to the Careo acquisition in Japan. This one-off Careo tax payment will slightly drive up our cash tax rate. However, it will be beneficial on our ETR for the full year. Therefore, we guide for a slightly lower range from 23%-25% compared to the 24%-26% we guided before. The next bullet shows day sales outstanding, which increased by two days on the 12-month moving average, mainly due to mix effect. If I may now ask you to have a look at the right side of the chart covering the balance sheet. Net debts came in at EUR 49 million lower than last year, and we report a leverage ratio of 1.3 versus the 1.5 we showed last year.
Most of you will know that the second quarter is traditionally where net debt is at its highest point in the year. We have accumulated dividend payments and payments of holiday allowances, and from now onwards, we should see the balance sheet deleveraging throughout the year. Seasonally, H2 is also the time of stronger cash flows, and we iterate our guidance for higher free cash flow year-over-year. Just be reminded that in September, the special dividend will be paid out at EUR 0.69 per share. Let me now summarize the key messages and provide you with an outlook for the full year 2018 on page 17. Firstly, the quarter brought solid top-line growth and strong margin conversion. EBITDA improved by 20 basis points year-over-year. Secondly, our Tech and Touch strategy is well underway and embedded in our business.
I'm glad I could see it during my onboarding visit. It's alive and kicking, and it's touching many parts of the business in many various ways. Thirdly, we are well positioned to deliver a full year EBITDA margin ahead of our last year's 4.6%, provided we see at least 4%-5% top-line growth. On the right side of the chart, I'd like to mention the fact that June grew at a similar pace at quarter two, about 5%, and the development of volumes in early July indicate a continuation of the Q2 growth rate. To wrap up, I already mentioned the gross margin for Q3 is expected to be slightly lower sequentially given seasonality trends. We also expect OpEx to be broadly stable sequentially. That concludes our prepared remarks, and I hope it helps to shed some light on our Q2 performance.
We will be delighted to take your questions. Molly, back to you.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. Please ensure that your telephone line is unmuted locally. You'll then be advised when to ask your question. The first question comes from the line of Marc Zwartsenburg, calling from ING. Please go ahead.
Good morning, gentlemen. First, a question on Monster. Can you perhaps give a bit of an indication what you expect for the second half in terms of top-line performance there? Should we expect some bottoming there given that comps are getting easier, but perhaps also because the business is improving, or do you have some data points there? In terms of profitability, we're getting closer to breakeven. Will we already see breakeven result in Q3 or is that still scheduled for Q4? That on Monster. The second one is on growth. With unemployment moving lower and lower, is scarcity already getting an issue in certain regions like Germany or France or in the Benelux? Maybe you can also shed a few words on U.S., what you're seeing there in terms of top-line performance and slight acceleration.
ManpowerGroup hinting to a slight improvement, although a different trend there. Can you give us a bit of feel for what you see in terms of off cycle in the U.S.? Lastly, on the gross margin, should we, going forward now, see the mix improving a bit and also the pricing improvement? In which regions do you see that happening? Thank you.
Good morning, Marc. Good to talk to you again.
Good morning, sir.
Monster is very much the play between the traditional business at Monster, which is the online ads from newspapers. We commented also that when we bought Monster, that Monster was a bit too slow to adopt to the new job boarding revenue, which is very much solution based. We are heavily investing in solution-based selling, very targeted social media searches, pay per candidate, pay per click. That business is growing, but at the same time, the traditional business is not growing. It's very much going to be the trade-off between those two, which will define the top line for the second half of the year and the next year. We'll let you know. At the same time, the business is financially very much under control.
We've taken out cost again, but we're also at the same time investing to make it possible for the Randstad companies also to better benefit from the Monster database. We invested a lot in mobile applications within Monster. We had the Jobr app that Monster already had in its portfolio, but not implemented at the front end. That's now implemented in every Monster country, and it drives one-third of current applications. That's important for Monster. It's also important for Randstad. Scarcity. Yeah, well, actually, we're very happy with the fact that we have this data-driven strategy. As you know, we can now show in our major markets what the labor market looks like. Effectively, nobody can do this.
We can discuss with the client if the profile is still available, if it's available, where it's available, if it's available at what price they need to pay for it, either perm or as a contingent worker. If it's not available in the region, should we do something with training? We're training across the board with more than 25,000 people annually just in our Dutch business. If not available regionally or through training, should they come from abroad? That's very much a discussion with clients. That goes into your gross margin question. Yeah. This is also what clients need to pay for. If not, if they still do the old procurement play, then it's not going to happen with us. Scarcity is a relative thing. If we can't find them, nobody can.
In U.S., good top line development absolutely in staffing. We are way above market, fortunately, in blue collar. Does this signal a return to growth of the U.S. economy? I don't really know, so far so good.
on also the break-even level, is that still scheduled for Q4 or should we expect that earlier?
Just very much what we said in the Q1 call. We don't expect break-even. Q4 might be, but it might also be a small loss. These are choices. These are choices we also make on the investment level.
Marc, let me just add here. We iterate our guidance for about EUR 5 million-EUR 10 million loss on Monster, and that would actually come with an abating of the losses we've seen in the first half for the second one.
EUR 5 million-EUR 10 million is for the full year, you mean?
Yeah. For full year. We just want to signal we're in control here as far as finances are concerned.
Maybe one small follow-up, Jacques, if I may, because you mentioned something on some disintermediation on the prof level in the U.S. Can you perhaps paint us a bit what the picture is there, what you're seeing there?
When we comment on the future of digitization, we always say, it's not going to be the Armageddon, that digitization takes a lot of jobs. There are jobs, if they are pretty routine, certainly in white collar, they are to a certain extent being disintermediated. We see this in our sales funnel in white collar. We also see it in the white collar market development in the U.S. We also see it to a lesser extent in our Dutch business, which some large administrative clients who just want less white collar because part of these jobs are being offshored or automated. Yeah. It's not a scientific proof yet, but it is very much an early sign we're seeing in the market.
You're active in that field as well?
In which field?
Where these disintermediating companies are active, that the competition is popping up. Is it also you're taking part of that cake?
It's not disintermediating as such in different ways to get people. This is just jobs disappearing. I mentioned this, I was in Silicon Valley last week and their receptionists are not like real people. They are iPads on a stick.
Yeah.
These people are sitting in Seattle. You work at a bank, you know what goes on, heavily invested in IT also to automate back office processes. Of course, has predominantly an effect on white collar jobs.
Okay, clear. Thank you very much.
The next question comes from the line of Suhasini Varanasi calling from HSBC. Please go ahead.
Hi, this is Suhasini from HSBC. A couple of questions from me, please. In terms of organic growth slowdown, is it just tough comps or is there a factor of pricing discipline basically, resulting in letting go some of your contracts? Is there a factor of slowdown in underlying markets? In terms of temp gross margin, you said mix and pricing. What will lead that to reverse? Do you expect that to reverse or this will be the new base we should be considering going forward? Lastly, on pricing. Historically, you were able to charge higher prices when there's a situation of labor scarcity. Do you see such situations in any parts of your business or any regions or something like that?
The first one. Henry will take the second one. Yeah. Well, of course, we grew 7.5% in Q1. We're growing 5% in Q2 at a 3% tougher comparison. It's mainly tough comps. We could grow faster. We could grow faster in France. We could grow faster in Germany, Italy predominantly because, yeah, we're still disciplined on pricing and that shows also in our result development.
Hi, Srini. On gross margins. There's clearly pricing discipline in the business. On temp margin, on your question, with something like strong in-house growth, it comes at slightly lower gross margins, but it's actually converting really well into EBITDA. Just looking at gross margins is just kind of only one part of the picture. Pricing overall, I've been actually. I come from FMCG. Pricing is a big part here. Here I've seen good pricing tools, where we scout for price for scarcity, and use it also as a good sales tool in getting deals done. Yes, I've seen us pricing for scarcity.
Okay. So far, you said like the prices remain stable. You believe that this scarcity-driven price are yet to come or you think it's already started in some parts of the business?
In some parts of the business, I see that we are pricing for scarcity. Yes.
Okay. Thank you.
Does it move the needle yet? Probably not. There's pockets there for sure.
Sure. Thank you. Thanks a lot.
Just another reminder, if you would like to ask a question, please press *1 on your telephone keypad and ensure that your telephone line is unmuted locally. The next question comes from the line of Simona Sallow, calling from Bank of America. Please go ahead.
Good morning, gentlemen, thank you very much for taking my questions. I have three of them, please. The first one is on gross margins, if you could please provide more color on the building blocks of the gross margin going into Q3 in terms of temp, PERM, gross margin working day impact, pricing, and Monster. The second question is regarding OpEx. If you could please give an update how much your OpEx was increasing with and without Monster, and also if there is a chance to quantify the SG&A for Monster. Last question is on Italy and what you think it might potentially be the impact from the Dignity Decree for yourself and the overall staffing industry, if you think that this might potentially increase the candidate turnover and thus the acquisition cost in the industry. Thanks.
Yes, Simona, good morning. I'll take the Italian question. There's a lot going on, but it's too early to tell what the effect on our business will be. It's still very much in design. We'll let you know as soon as we know more.
Yeah. Let me take the first part of the gross margin question, and then I'll ask David to take the tougher part, if you may. I don't like to completely take apart the gross margin here. As far as guidance is concerned for quarter three, it is pretty stable as we see it going forward. We see seasonality-wise, a tad gross margin going down. When you just compare last year with 24 in quarter two, then that came down in quarter three to 21. Actually, the dilution we expect going forward is also going down a little bit, but I don't think it does make sense to completely take it into part. David, take the other part.
Yeah. Also, we don't know, of course, because it's also which market are growing more. We do have some markets with quite a steep seasonal effect, the Belgian market, the French market, the Dutch market. It's very tough to predict. As Henry said, you shouldn't concentrate on the absolute level of gross margin in our business. It's very much the ICR, which is currently doing very well.
Yeah. Simona, it's David here. Let me give you a bit more color on the temp margin and the other constituents. Price mix, we don't quantify, but this is mainly mix, which is about 20 basis points. CICE is still about 10, and Monster, the 40 basis points. That's the biggest part of the 40 basis points in HRS is Monster, and that includes EFIC, which is a smaller part of that 40 basis points. There's a bit of working day effect as well, and the part we mentioned in Q1, strike, sickness, et cetera, are not showing up as a year-on-year impact in Q2. Hopefully that helps.
As a quick follow-up, if I look, for example, last year, right, where your gross margin went down from 20.4% to 20.1%, I would assume that it was mostly related to seasonality. Should I assume something along these lines also this year with roughly a 30 basis points dilution quarter-over-quarter coming from seasonality, or will it be less than that in your view?
From our view, that will be less than that.
Okay. Thank you. Also in terms of OpEx, which is an indication that you were already giving in Q1, is there a chance that you can give an indication how much of your OpEx was increasing with and without Monster?
Yeah, David.
I can take that one. Without Monster, it was between 4% and 5% organically. Including Monster, the OpEx growth was about 2%.
Your OpEx was still increasing 4%-5% despite a slowdown in organic growth.
We continue to invest in the future as well, definitely.
Okay. Thank you very much.
Welcome.
The next question comes from the line of Konrad Zomer, calling from ABN AMRO. Please go ahead.
Hi, good morning, gentlemen. My first question is if you could explain to us why there was a EUR 7 million positive currency effect on your operating expenses, particularly why that was positive and not negative. The second question is your margin development in the rest of the world was very favorable. Can you maybe split that out by geography a little bit more? My last question is on CICE, the 10 basis points of negative impact on your gross margin in Q2. Can you maybe remind us what you expect the full year 2018 impact of CICE will be, please?
All right. Hi, Konrad. Thanks for the questions. The first one Sorry, what was the question again?
7%.
The EUR 7 million of positive effect.
Yeah, absolutely. That actually is a Forex effect relating to an intercompany fund transaction. It's just internal financing, and if you're interested, we can take you through the details in a one-to-one there. The second one, we had really good conversion in rest of the world business, but it's also fair to say that there are small incidentals in there which have helped driving good EBITDA margin. The third one on the CICE, David, you would like to talk about it, was total CICE effect on gross margin. 10 basis points this quarter.
Now, it's tough to say what the outlook is because, Konrad, it very much depends on our growth for the rest of the year in France, and that's currently tough to call. We don't know. Of course, the higher we grow, the less you have the seasonal effect or the CICE effect, and you can compensate. We'll let you know in the coming quarters. For the rest of the world, it's pretty broad-based, but what you should take into account, most of these businesses, with the exception of the Australian and the Japanese business are PERM businesses. If they all deliver quite strongly, which they have in Q2, it gives us a good return. Some businesses are small, but they all contribute now. It's pretty much across the board here.
Okay. Thank you very much.
The next question comes from the line of Tom Sykes calling from Deutsche Bank. Please go ahead.
Yeah. Morning, everybody. Just firstly, on the U.S. business, you mentioned that it was going to be a temporary effect of workers' comp, healthcare and your investment on the operational gearing. How quickly would you expect that to reverse, please? Just a point on the data strategy is that I think one of the earliest places you put it in was in France. I remember the presentation we had in London some time ago, and currently you seem to be a bit below market and your operating margin's going down in France. Why should we believe that that data strategy is going to enable you to take profitable market share, please?
Hi, Tom. Thanks for your question. On the U.S. margin, that's right. We see those temporary effects of workers' comp, but also exceptionally high healthcare costs, which we don't hope to repeat. There's clear expectation that we see margins coming back in quarter 3 and quarter 4. To what extent remains to be seen. We have our eyes on the ball there, and it's clearly the expectation that margins will come out better than in quarter 2.
Would that be, you think back to flat year-on-year or you may be able to get margins actually up year-on-year in the U.S.?
I don't want to say.
Okay.
It also depends pretty much on the growth we see going forward.
Okay.
Rest assured that we are very close to steering there.
Okay. Thank you.
Back to digital and profitable market share. We started in France. What you see here is we started in our in-house business. By the way, that still shows good growth. We also have a sort of better productivity here. We're now moving to what we call the U-plan clients, so the small to mid-size clients that we implement this tool. Over time we take market share because we squeeze out competition. That takes some time. That's also why I mentioned that the growth effect of all these investments will definitely be seen in 2019 and beyond.
Okay, thank you. When we look at the ICR, just on in-house versus staffing, obviously you're growing a little bit more slowly in the in-house business in Q2 versus Q1 year-on-year. Do you just bet down a bit more with clients? Is the ICR actually going up a bit with in-house clients? Would you be able to confirm whether you're actually seeing an improvement in just staffing EBITA? I know you don't tend to split that out, but if it's possible to give some guide as to where the ICR on in-house is versus the ICR of the group, that would be great, please.
Point of in-house is the conversion rate.
Yeah, exactly.
All right. It's the conversion rate from gross margin into EBITDA. We don't do ICRs per business line.
Okay.
Effectively, of course, if we have got a new in-house client, for example, in the first year, the ICR is actually negative because you set up shop and you invest a lot in that client, and then overall it increases if you take market share. If a client is flat or going slightly down, then the ICR in in-house, if you cannot take out people, actually it goes down. That's why we manage ICR very much at a group level, at least at a country level, but also as a group level, as in where are we investing? The fact that the ICR this quarter was very good is also because we see broad-based growth, not so much just in-house, but also in our rest of the world business, in staffing, absolutely, in SME staffing. That helps a good ICR.
Sorry, just final one. Just be specifically on in-house. As that growth is slowing a little, are you actually seeing the profitability come up a little then? Is that fair to say?
Why should that be? No.
Well, no, you just said that initial stages of growth, sometimes it's lower margin, if not profitable. As you've gone from 17% to 12% growth there, is there any improvement in profitability? It's just you've bed down clients. If not, don't worry. It's fine. I'll leave it there. Thank you.
Tom, let me answer your question. At the 20 basis point increase in the EBITDA margin is broad-based, it's visible to a large degree, both in staffing and in-house and professionals.
Okay, great. Many thanks, David.
The final question comes from the line of George Gregory, calling from Exane. Please go ahead.
Hi there. I've got a few, please. Three, please. Firstly, you mentioned some incidentals in the rest of world. I wondered if you could give a range or quantify those. Secondly, corporate expenses have been tracking down Q2 and Q1. Wondered if that was a trend you'd expect to sustain in the current range for the remainder of the year. Finally, on CICE, thinking ahead to 2019. Wondered if you could give any thoughts in terms of the likely expected net impact on your earnings, taking into account any potential increase in the subsidy on the lower band of minimum wages, lower salary bands offset by the loss of tax deductibility, please. Thanks.
Let me try to cover all three, George. The first one on incidentals actually is, I would call it the non-material amount. Think about EUR one million or EUR two million here. On the corporate cost, actually, there is an impact that we've allocated out more costs to our operating businesses. It's more or less flat underlying. The third one, actually, there's no news on the CICE one. There's nothing we can add to what we've already discussed in quarter one, and we will keep you posted as soon as we find out more about it.
Okay. Thank you.
We have no further questions in the queue. I'd now like to hand the call back over to your host for any concluding remarks.
Absolutely. Thanks everybody for calling in. Thanks for your questions. I wish you all a great and lovely summer as you see when you look outside. Hope to see you soon in September to discuss further on our numbers.
Thank you.
Thank you for joining today's call. You may now disconnect your handsets.