Hello, welcome to the Randstad First Quarter 2018 results call. Throughout the call, all participants will be in a listen-only mode, afterwards, there'll be a question and answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present CEO Jacques van den Broek. Please go ahead with your meeting.
Yes. Good morning, everybody. Good to talk to you. I'm here with Henry Schirmer and our IR team to take you through our current earnings call of the first quarter of 2018. Time flies. I'll move immediately to slide five. We think it's a good start of the year. Good growth, 7.5%, quite some ongoing market share gains. Our eternal star Inhouse at 17% growth, very happy with that. Also perm, 13% growth, is also quite good start of the year, broad-based. Also in the U.S., 8% growth, more about that later. It's a bit of a tough call on the quarter because there's quite some one-offs and incidentals in there. There's EUR 8 million Forex expense, Forex change, which of course we cannot do much about. There is one less working day. Also, there's sickness.
I'll talk more about that in our German and our Dutch business. As some of you might have experienced personally, there has been a flu epidemic which hurt our business. We think overall, these three elements account for a EUR 15 million-EUR 20 million less EBITDA. Still, if you look underlying, we're quite happy with the quarter. Again, the growth, 7%, 2% increase in cost base. You might wonder if we are under-investing in the business, which we're not. You need to take apart the business investments, 5% growth in our regular business, it adds up with the cost savings in Monster to a 2% cost base. Very much looking at that. Stable margin development, 30 basis points down, not decreasing, we think.
Overall, there's good underlying leverage in the business, meaning for us that for the rest of the year, we feel quite comfortable with the guidance we gave you at our Capital Markets Day on a mid-single-digit growth. Of course, we don't know for the rest of the year, let's take that as a guidance. An improvement in our EBITDA percentage. Very proud of our French business, again, with everything I just mentioned, having a 10% increase in EBITDA percentage despite CICE and all that. Very good. OC in France, doing very well with high single-digit growth. Very happy with that new part of our company. The Dutch business, growth increasing. In that sense, a good start. A theme which will be recurring throughout the presentation is our pricing discipline.
You know we've been doing that in Germany and the Netherlands and in France for quite a while, but now that we have a sizable business in Italy, we also see that those choices recurring regularly. In a way, you could say we could grow faster, but we're balancing growth and profitability here. Slide six. As I mentioned, gross margin, 80 basis points. It looks like a margin pressure, but 50% is related to Monster. Monster is gross margin. If Monster, and I'll spend some more time on Monster later in the presentation, but if Monster has a negative growth, which it has, it looks like margin decline in our book, but on the rest of the business, a 30 basis points margin decline. OpEx, a slight increase. We said a clear increase, but a slight increase. ICR 41.
We guided for 40%-50% throughout the year, trying to get to the higher end of the range. 41 for this quarter, again, with the calendar effects, happy with that one, and a stable 3.8% margin. Perm, 13% growth, stable for Q4, but we think a good result, and it has a positive effect of 10 basis points on our margin. Slide seven, the regional split. Growth very much driven by Europe, but also rest of the world. Outperformance in markets such as France, Belgium, Canada, Germany, and Spain. Again, with the mix of profitability and growth. Inhouse, I mentioned it in my introduction, 17% growth, 18% in Q4, stable double-digit growth, meaning that the growth in Europe is still in this segment, which is, you might say, also partly early cyclical, certainly in Southern Europe. Top line growth 7.4%, 8.7% in Q4.
Comps are pretty comparable. Good there. Driven by Europe, 9% versus 11%. Again, calendar effects here, but pretty stable. U.S., yeah, still a stable market, but you've seen a peer of us on -7%, happy there. I'll shed some more color on the North American market. The rest of the world, driven by mainly Japan, 11%, a good contributor to our total book. Slide eight, North America. Our staffing and Inhouse business is growing. Our white-collar business less so. As I mentioned, perm up 8%, a sign of what we see in the market. It's tough to get people, so clients are hiring quickly. We get a lot of questions on, okay, North American market economy is doing well. Why don't we see more demand? We do see growth in the blue collar part of our business, less in the white collar.
U.S. profs, a mixed picture. Although our IT growth went down from 6%-3%, we're still happy with the positive development here. Our U.S. profs business is actually three businesses. It's a solution space similar to OC, where we sell a service. Double-digit growth, very solid. We have our mid-market, the retail part of IT staffing. This was a suffering part for a long time, now sees growth. Happy with that. On the other hand, there's always something. Our large clients, which were growing last year, a few of our bigger clients, in the financial sector predominantly, have toned down spending in the first part of the year. We don't know if it's structural. Anyway, that's why growth goes down slightly, but still a good improvement.
On the other hand, our financial and accounting business that we call professionals is, although somewhat improving still, it sees negative growth. Our Canadian business doing very well. Ahead of market, a clear market leader there, and overall an improvement in EBITDA. Let's move to the Dutch business, slide nine. Accelerating top line. Happy with that one. Again, nothing new here. Strong focus on client profitability. Our SME growth is 15%. You might remember the presentation that Dominique Hermans gave at our Capital Markets Day, where we do support our people in the sales in this market through technology tools. Well, that is paying off, so that does well. Professionals business also up. Still the EBITDA margin slightly down. This is back to my introduction. Calendar effects, but also certainly, sickness. In the Netherlands, we carry our own cost.
At around a 4% sickness percentage, we can cover that. We went to 6%-7% in February and also March. It was high, but it was also prolonged. We do see this going down into April, it will be less of a damper on our margin development because this goes into margin. Overall pricing pressure is stable. We do see on the one hand, some pricing power due to scarcity. Still some clients that want to buy at the cheap, we don't go there. We are nearing the market, still have underperformance, but we're closing the gap. One point we're not so happy with, and you might have seen it, the perm development. Although perm grows in quite some market, it does not in the Netherlands. This is something we would like to improve going forward, and action plans are in place.
Going to the French market. You know we've sacrificed clients here. Still, 10% growth here. Very happy with that. Professionals up 13%, and perm, for the third year in a row, a very hefty growth. This is really, and it's not new for many of you. This is really a business where our tech and touch strategy is really working and overall, an improved result. We're very happy with our performance in France. Germany is probably at the moment the toughest market to call because there's a lot of things going on. There have been strikes. Unemployment is low in Germany, we have seen quite some strikes, predominantly in the metal-related sector, automotive also, to get better collective labor agreements. We've seen closures. We cannot deliver our temps when there are strikes going on. Equal treatment. The next phase of equal pay.
After nine months in a job, candidates need to get to equal treatment, the bill rate goes up. We have seen around a 1% damper on our growth because of people being hired after these nine months. That's been a new element here. Lastly, sickness. It's slightly different system from the Netherlands, in Germany, everybody's on our books. Sickness hurts us, first of all, because people are not working, second of all, because we need to pay more. We've had historic sickness levels in Germany. Again, going down in April now, still, hurt us in Q1, this goes directly into the margin. We had two less working days in Germany. All in all, on the line from a volume point of view, quite a stable situation.
We still see good growth, but a lot of things going on in Germany currently. Belgium, far less to mention. It's all good. It's above market with great returns. My Belgian colleagues will probably say I'm selling them short, but a very stable performance in our Belgian business. Italy. Italy on slide 13. The biggest grower last year and still a 19% growth in Q1. This is very much a business where we balance profitability and growth. We can still grow faster here. We balance this, and you see it in our EBITDA performance up 70 basis points, doing quite well. Iberia, comprised of Spain last year touched the EUR 1 billion mark. Very happy there. They continued to grow 13% into Q1. perm also 13%, and at an above group average return. Portugal, from 12% to 6%.
This looks like a slowdown in the market, but it's again, very much driven by calendar effects. A large part of our Portuguese business is actually call center business, where we own infrastructure, and we actually operate call centers. This calendar effect hurts us a little bit more than in our regular business. To other European countries. On the U.K., still good growth, but it doesn't transpire that much into result, unfortunately. In the U.K., not so much related to the U.K., but we closed our Middle Eastern business in Dubai. This was managed from the U.K., because these were originally U.K. businesses. It was a loss-making, a small business, so we closed it this quarter. Apart from the U.K., all other markets, Nordic, Switzerland, Poland, all show good growth. Rest of the world. I mentioned it already, Japan, double-digit growth.
The Japanese market is a very scarce labor market. The growth really transpires into good returns. Australia and New Zealand, well, certainly our Australian business, slightly less growth, but still doing well. We've seen a good ramp-up in our Chinese business from a negative growth of 10%. This is predominantly a perm business into China, up 5%. Pretty good. Latin America, although small, still shows good profitability. Our two global businesses. First of all, Randstad Sourceright showing double-digit growth here in actually all regions. Slightly less in U.S., but still a very good returns and double-digit growth in Europe and in Asia. Happy with that business. Very much a business of the future for us. Finally, Monster.
Well, first of all, we're very happy with the fact that we have created and we are creating this big data lake of 350 million profiles. Whenever you read something about the labor market and almost wherever you go, scarcity is hitting us and there's a change in the labor market. Candidates are not going to look for jobs. Jobs need to look for candidates. We're very happy with the fact that we are creating this big data lake. At the same time, we've got three areas that we want to work on with Monster. The first one is repairing the company itself. The second one is Monster as a facilitator for Randstad growth and digitization. The third one is new business by combining the strong points of two businesses. On call it repairing Monster.
On the one hand, we're investing in growth, and we're going to continue to do that, and we're investing in technology and marketing. What we found is that the Monster brand is still a very strong brand. We've created and implemented a mobile app to apply, and we see 30% more traffic. Traffic at the end of the day leads to business in this business model. We are creating new products. For example, a premium job ad where we have a very customized campaign to look for the right candidates, not just in the Monster database, but also on social media, of course, with all privacy concerns. We've got a resume service, so it's a sort of an online career coach, comparable to the business model of RiseSmart, which is now on the Monster site.
This is all getting a lot of traction, but at the same time, the traditional business is still going down, as you've seen, and we've not yet converted that trend. Hard work here. Very happy with the Monster for Randstad. We have now integrated Monster technology, direct linkage to the database of Monster in the U.S., in the Yacht business of the Netherlands, in Germany and in the U.K. That means that thousands of Randstad consultants and recruiters now have immediate access to this data. We know they make more matches because of that. We know they've got access to more candidates. Funny enough, we cannot really measure that at the moment because it's way too much administration to really see where people are coming from. Looking at our growth, in many markets, we do see this helps.
We're rolling this out in the second half of the year into Italy, Switzerland, Sweden, and in the other Dutch businesses. Again, I mentioned the Monster new job app, 30% more traffic and applications on jobs. What we're now working on, and we already have that in U.K. and U.S., is when you apply through Monster, you immediately also apply through Randstad. There is a lot going on. We're not saying it's not a lot of hard work, but still we're very happy with Monster. Finally, new business models. We're laying low here. What I can tell you is at our Capital Markets Day, we talked about disintermediating small perm. Our business model we're currently trying to set up is really aiming at this disintermediating small perm. Sounds a bit confidential, but we never know who's listening in. More to follow throughout the year.
That's it for me. Moving to Henry for the financial results. I'll be back with you for the outlook.
Thanks, Jacques. Let me go straight to page 18, the income statement. As Jacques mentioned, our revenue grew by 7% organically. Our gross profit grew by 4%, impacted by it was Monster mix effect. We will mention Monster a couple of times despite its relatively small size, as the nature of the business is 100% fee-based. OpEx was well under control with a 2% organic increase year over year, mainly driven by Monster cost savings. This 2% was below the 5% of quarter four, by doing continuous investments in digital. EBITA margin was stable at 3.8%, while our absolute EBITA grew 7% organically. Underlying ICR adjusted for sickness and working days was around 50%, and as a result, our adjusted net income grew by 6%.
Lastly, on that page, the effective tax rate for quarter one came in at 24.2%, and we stick to our guidance of 24%-26% ETR for the full year. Probably more towards the lower end with a cash tax rate of about 20%. On page 19, let me take us through the gross margin bridge. As you can see, the gross margin is down 80 bps year over year, of which 50 bps is due to the mixed effect of Monster and 30 bps pressure on temp margins facing headwinds of working days, higher sickness rate, and CICE changes year over year. Underlying, we see a pretty stable pricing environment. Go straight to page 20. The OpEx chart. As you can see here, we are tight on cost control, OpEx was virtually flat versus quarter four and just up 2% year over year.
We faced Forex tailwinds both year over year and sequentially, while investment in growth and digital were partially offset by our cost savings program. We continue our balanced approach between doing the right investment in future growth and steering the company as is. Straight to net debt on page 21. Net debt quarter one arrived at EUR 1,059, down from EUR 1,129 last year. The leverage ratio was 0.9, down from 1.1. As you know, return on invested capital is a strong focus area for Randstad, rising to 17.6%. As we shared with you in our quarter four results, we have a strong focus on organic growth combined with selective M&A. We aim to further improve the ROIC of the acquisitions done in 2016 and 2017, which is progressing well so far.
DSO was up to 53.8, largely impacted by the unfavorable combination of closing the quarter on the weekend and timings of Easter. We faced the impact of unfavorable timings of payments, partially related to tax. Finally, there were ongoing adverse mixed effects due to fast growth in high DSO countries, mainly in Southern Europe. Please be reminded here that our quarter two will be impacted by our regular dividend payment, followed by the special dividend payment on the 27th of September. Straight into the free cash flow chart on page 22. Free cash flow, I'm sure you've seen it already, was impacted by timings of payments around Easter, worth about EUR 80 million. Of about EUR 50 million is based on working capital, and EUR 30 million is due to timing differences in tax. The remainder is DSO offset by an additional EUR 15 million absolute EBITA.
Please let me reiterate here that we will be very disciplined in all areas driving cash, and we confirm our full year 2018 outlook of an increase in free cash flow versus 2017. Jacques, back to you.
Thank you, Henry. That brings us to the outlook. Early days, but we have pretty stable growth throughout Q1 and our volumes show people at work in early April, indicates a continuation of the Q1 growth rate. Although there will be an adverse 2.9% comparison into Q2, mainly into the back end of Q2 in June last year, we grew quite high. Gross margin, broadly stable sequentially, and a moderate increase in underlying operating expenses. Investing where we think we need to facilitate growth, but still at below the growth level, of course. Contrary to Q1, there will be a positive point for working day impact in Q2, and also Q3 and Q4 will have a more favorable working day.
Again, for the full year, we maintain the outlook of our further EBITA progression, assuming a mid-single-digit growth throughout the year, as we stated at our Capital Markets Day. Our ICR for the full year will be in between 40%-50%, at the higher end of this range. With that, we want to give over to you for questions and answers.
Thank you. If you would like to register for a question, please press zero one on your telephone keypad now. If you want to withdraw that question again, you can do so by pressing zero two to cancel. Once again, that's zero one on your telephone keypad to register for a question. There'll be a brief pause while questions are being registered. We have our first question from the line of Bilal Aziz from UBS. Please go ahead. Your line is now open.
Good morning, everyone. Just two quick questions from me, please. Can you perhaps help us understand the building blocks of the gross margin going into the second quarter, particularly around the temp gross margin, given the potential working day impacts and with respect to price mix as well? Finally, tied to that, your latest expectations for how Monster evolves both from a gross margin and EBITA level perspective going forward. Secondly, on wage inflation, just broadly a bit of a mixed sort of bag in terms of expectations coming out from some of your competitors. What are you seeing in some of your key markets right now? Thank you.
Yeah. Well, nothing to add to what we just stated on both gross margin development into Q2 and Monster. It's not like We give you the quotes on last week, and then this week it's slightly different. We do see stable margin development. We set 30 basis points down. Might be some tailwind from working days, absolutely, but stable underlying. Monster is what I just explained. No new developments here since the last two weeks. On wage inflation, we get a lot of questions there. We do see wage inflation in the U.S. around 1%-2%. In Europe, not yet massively. We do see in some pockets, really the jobs which are high in demand. In the technical part, definitely. As you might know, still a lot of wages in Europe are driven by collective labor agreements. Hence the strikes, for example, in Germany.
There will be some results probably going forward, but we don't think this will massively improve our growth. It always comes through very late in the game and very, how do you call it, general.
Bilal, if I may, to give you a bit more color on the gross margin. Most components will remain stable. Expected, the changes would be sickness, working day, that's a tailwind, and then there was some tailwind from M&A in Q1, and that will be gone in Q2.
Sure, brilliant. Thank you.
The next question comes from the line of Paul Sullivan from Barclays. Please go ahead. Your line is now open.
Good morning, everyone. Just a couple from me. Firstly, the restructuring charges and integration costs you took. What is your expectation for the second quarter and second half of the year? Should we assume more of the same, and are they really truly exceptional? We saw restructuring charges all the way through last year relating to Monster, and it looks like we could be seeing them again this year. That's the first question. Just secondly, have you got any further thoughts on or any more information on how you feel CICE will change going through next year? And whether you could update us on the tax implications, and the impact on the tax rate next year from CICE. Thank you.
Yeah. Paul, let me do the restructuring. That will gradually come down, throughout the year. Yes, they are real restructurings and below the line, and they're also significantly lower than previous years related to, of course, the M&A activity, which is clearly less. On CICE, there's a lot of talk. We don't think it's really worthwhile to elaborate on it if we don't have real plans yet. It does feel like there's going to be a change this year. As you know, Macron is visiting the United States currently, he's not working on CICE. As soon as we know, we'll fill you in, and also with the tax consequences.
Okay. All right. Thank you.
The next question comes from the line of Konrad Zomer from ABN AMRO. Please go ahead. Your line is now open.
Hi, good morning, gentlemen. My first question is on Monster. Q4 saw a very small operating profit for the first quarter since you acquired it. Can you tell us what the operating loss was in the first quarter, please? Do you think that Monster is on track to achieve an operating profit for the full year 2018? My second question is on France. Can you tell us what the underlying organic growth rate of your French business was, excluding the OC business, which obviously did very well?
Yeah. Konrad, good morning. I'll do the French one. Actually, our French business is growing faster than the OC business. The 10%, OC is high single digits, then 10% for the whole portfolio. On Monster, in general, yes, we had a small profit in Q4, but we also mentioned that we want to continue to invest. Q1 saw a loss. We're not going to stop investing because we think that's the only way to, first of all, improve this business and second of all, to also improve and also use the capability of Monster for Randstad. There's a lot of investments in mobile, in combining databases and in marketing. We probably could arrive at a break even, but if then we should stop investing, we're not going to do that.
The development of the top line is going to decide for the rest of the year the actual underlying result. We're not ruling out this might be, again, a small loss. On the back of investments and not so much the business, in itself not being in control.
Can you tell us how big the operating loss was in the first quarter? Was it like a few million EUR? Was it more than EUR 10 million?
Konrad, we can help you a bit. If you look at global businesses, you see an EBITA swing of EUR 4 million year-over-year, which is to a large degree, Monster. We said last year, Q1, Monster did a small loss. It's a very small figure of last year, plus the EUR 4 million change.
One other small question. Can you indicate to us what proportion of your US Professionals business, of your revenue, do you generate with large financial institutions?
Yeah. Well, it's an important part, but it's not more than half or something. It's, I don't know, something between 20%-30%, probably. Sorry?
No, I wanted to say, maybe it's better to check also, Conrad, and get back to all of you.
Yeah.
Give you a broad range of that.
Okay. Thank you very much.
Yep.
The next question comes from the line of Marc Zwartsenburg from ING. Please go ahead. Your line is now open.
Yes. Good morning, gentlemen. I just want to come back on the gross margin again. You mentioned that you had the sickness rate and the working day impact that should become a tailwind, then the M&A will drop out. Yeah, sequentially, that doesn't really matter. Is the guidance then on the gross margin for the second quarter a little bit cautious given that the mix effect should
Hello, this is the operator. If you need to ask a question, I'm going to have to take your full name. Hello, is there anyone on this line? As there's no response, I will place you-
Well, through Inhouse, you get a mixed effect still going forward. It's tough to call. If you think it's cautious, then, yeah. There are some tailwinds here from a calendar effect and from a sickness effect, absolutely.
The line of thinking around the cost base throughout the year, given that the gross margin is what it is and your guidance for Q2 is sequentially flat and modeling that forward. How should we look to the cost base going forward? Because Monster is squeezing in, well, already quite a significant chunk of cost savings in Q1. How much more can you take out in the second half? How much more room do you have to keep the cost base growing less than the top line?
In general for the group or for Monster specifically?
Yeah, for Monster and then a little bit added to that also, how I should think about the cost base going forward over the quarters.
Okay. Yeah, well, for the group, of course, we always balance growth with cost. What I said, 5% cost increase in the regular business and then going down to two, basically on cost savings on Monster. Yeah. It largely depends on, first of all, our appetite for investments, which we're going to continue to do, and hopefully also the stabilization of the top line in Monster so that you don't need to cut down on cost further, because at some point you want to stop doing that, of course. Tough to say. We will take out some cost on Monster again in Q2. No plans currently for the second half of the year.
Monster will still be breakeven in Q4? Is it still maintained?
I just gave Konrad the answer, so I hope you were paying attention here.
Nothing has changed to that timing.
The top line in Q1 didn't materialize as planned, so we need to really counter that trend throughout the year.
A final one on the Netherlands. Can you explain to us why the margin in the Netherlands is down, despite that the top line accelerated a little bit to +5%?
Yeah.
I recall at the last call that there was some better pricing visible.
It's sickness, Marc.
Purely the sickness impact?
The calendar, of course. One working day less. Really historically high and long sickness. As I mentioned, any sickness above 4% hurts us in the margin, both on the direct and indirect employees, by the way. Indirect, so our own people in terms of cost, but direct in terms of margin. This will be going down. In that sense, we are quite positive about our result development in the Netherlands going forward.
Let me come back to Konrad's question, sorry, on US Professionals, finance and accounting, which is 15%-20% of IT.
Maybe the final one on the pricing, Jacques.
Yeah.
You mentioned a few positive signs you saw when you mentioned, well, in February when we had the Q4 results.
Yeah.
If you look underlying, it seems that there's some positive pricing. Is that still the case? Is that continuing? Is that strengthening?
Absolutely. Yeah. We do see some clients also coming back because they can't find the right people. When you look at labor markets, in the Netherlands and in France and Germany, we don't think pricing will worsen, and at some point, hopefully it will be slightly better. Yeah. The gross margin, of course, we grow so much in Inhouse that that puts a bit of a damper on the overall gross margin. We have great conversion, as you know, so that doesn't really hurt our result.
All right. Thank you very much.
Yep.
The next question comes from the line of Hans Pluijers. Please go ahead. Your line is now open.
Yes, good morning, gentlemen. Question for you, guys, from my side. First of all, on the CICE, of course, you can give an indication what's happening for next year, but you also indicated that at the beginning of the year, you would, let's say, really work on trying to recoup the decline from 7%-6%. Can you give some indication how, let's say, the market is reacting to that? On the US Professionals business-
Yeah, you would, let's say, working on it for some time to improve that business. IT, let's say, has been doing somewhat better in recent quarters. This time, again, slightly slowed down, but it's explained. Let's say, are you taking additional measures with respect to the rest of the Professionals business? Because that's still lacking. What's your view on that? What's your feeling on that? Thirdly, on Monster, could you give some indication what, let's say, the traditional business still is of the total Monster sales?
The last part is no. We're not going to fully present the Monster business because there's also competition in this space, sorry about that. On CICE, what you see in our French results, that's why we're so happy. Despite the calendar effect also in France, we improve our percentage earnings despite CICE. We're very happy there. That has to do with walking away from some clients, still growing, and the perm at 38%. In that sense, we mentioned that we were confident that we would compensate the CICE going down in our results, so far, so good in our French business. On US Professionals, so the F&A part, we've grouped that closer to our US staffing business, which is a well-run business, which has seen above-market performance. The process in financial staffing in Professionals is similar to staffing in general. We are combining branches.
We do see some early results here that combining our US Professionals F&A business and our staffing business in similar sectors works. The negative development is also improving, we're not there yet. This is, by the way, a much smaller business. $1 billion is technologies and $300 million-$400 million is F&A. Not there yet, yeah, we see some improvement.
Okay, thanks.
The next question comes from the line of Tom Sykes from Deutsche Bank. Please go ahead. Your line is now open.
Yeah. Morning, everybody. Just going back to your comments on Inhouse. How much of the Italy growth would you consider came from Inhouse, please? Obviously, you're getting quite strong leverage in Italy, and you mentioned leverage for the Inhouse business overall, would you be able to just sort of say what your leverage is on non-Italy Inhouse growth, if possible? Because we've maybe seen some peers not generating much leverage there. Just wondering how you were getting on, please.
Yeah. Tom, good morning. The Italian growth is pretty broad-based.
Okay.
Of course, what we've seen in earlier acquisitions, in Obiettivo Lavoro, a new company, we go with the concept to our large clients. We get a better conversion.
Yeah
On clients. That's very good. Yeah, our conversion of the overall Inhouse business has always been around 40%.
Okay. You would consider that in the non-Italy business that you're getting around about that level, or that's not at the moment what you're at?
This is the group picture.
Okay. Italy is a little bit higher than that. Sorry, back on Monster again. Where the traditional business is going down, are you seeing anywhere that that's going to competitors with a similar business model, or it's just all disappearing to a different form of business model at the moment?
Yeah. Again, for confidentiality, I'm not going to break out every part of the business and where it's going. By the way, a large part of Europe is growing. This is very much happening in the U.S., which is a competitive market and a more mature market to begin with. We see more of these things happening in the U.S. I don't know if it goes to competition or clients stop doing it or have their own job boards. That's tough to call. We don't analyze this to death. At the same time, also bringing in new business needs to change the profile of the revenue of Monster going forward. That's hard work.
Okay. Just in terms of your sort of forward visibility, because I guess, again, there's sort of a change between February and now, and it seems to have happened relatively quickly. Are there any large contracts that sit within that particularly skew the outlook in Monster, or is it fairly broad-based, the change in view?
Yeah, Tom. I would like to remind you of the fact that Monster, relative to our total book, is quite a small company. I think we've given you
Quite a high gross profit, though.
Yeah. Whatever you want.
Yeah.
I think we've given you quite some transparency on this business.
Okay. Fair enough. Thank you.
The next question comes from line of Rajesh Kumar from HSBC. Please go ahead. Your line is now open.
Hi, good morning, Jim. Just trying to understand the divergence between your commentary that sequentially pricing is getting better. When you say stabilizing gross margin quarter-on-quarter, that implied a Q2 decline of 60-80 bps. What are the pieces which we need to think about? I mean, temp gross margin impact was 30 bps in Q1.
What did the temp gross margin underlying did? Do you expect that to continue declining in Q2 as well?
Yeah. Again, I think we've answered those questions already. Not to repeat myself, we see quite a stable underlying margin development. We will have some tailwind from calendar and sickness in some markets. A large part of the decline of margin is related to the decline of revenue in Monster, which is gross margin. Yeah, that's what it is.
If I may add to that, Rajesh. Sorry.
Yeah.
The structural part of the gross margin decline, that's really mix effect and CICE. CICE, of course, is being expected, whether that's structural or not. These two components, you will see in the coming quarters. Pricing is stable.
Yeah. We see a good conversion of the margin into results in Inhouse. CICE, fortunately, is fully compensated in our French result.
Sequentially, you expect the temp gross margins to go up, but Monster and CICE and the Italian Inhouse mix to drag basically 100-120 basis points.
No, that's not the conclusion, but maybe we should take it offline. The temp margin outlook for Q2 is around -20, -30, again, because of the reasons I just mentioned to you. On top of that, there's more the technical issue of Monster.
Is that a impact number you're giving or like for like temp gross margin number?
That's year on year. Basis point year on year.
Is the impact number, which is contribution times the change, or is it the change number you're giving?
Maybe we should discuss this offline, because I'm not sure if I understand you correctly, Hayat. I will call you after the conference call.
Thank you.
Yeah, welcome.
The next question comes from the line of Matthew Lloyd from HSBC. Please go ahead. Your line is now open.
Good morning, gentlemen. I apologize for this, and I know you think you've answered it, but I'm not convinced that anybody thinks that they understand the answer. I'm going to try it in a slightly different way. Could you just refresh our memories on what the sort of the KPIs and the remuneration are for salespeople in Inhouse and people sort of working more normally out of the branch network? There does seem to be a point where you would expect a bit more sort of gross margin expansion and perhaps a little bit more gearing. Is this that we're now paying people on volumes and speed and less on gross profit growth? Can you talk to us about the way in which the business is now structured and remunerated and why we're seeing the patterns we're seeing?
I accept the Monster bit and various other bits, but I think we're all sort of struggling to understand whether stabilizing gross margins underlying starts to make for better numbers later in the year or whether there's something else going on.
Okay. Yeah, there's nothing else going on. We have a stable EBITDA return, in a quarter where we have one working day less, and two large businesses of ours are hurt by sickness. The sickness will go away. The calendar effects will be reversed. Apart from the effects, you're looking at a 15%-20% less result there. That's why we said that we're confident that our EBITDA as a percentage will improve throughout the year.
Okay. As to sort of KPIs and remuneration within Inhouse and the branch network, can you just refresh our memories on broadly what, if I'm a salesman in either of those two sort of structures, I get paid to deliver?
Yeah. Inhouse is the least variable paid part of our business.
Okay, the variable pay is based on volume, fulfillment. How does that work?
Yeah. Overall growth and return.
Of sales or gross profit?
Yeah. If you sell at a low margin, you get less return, of course. It's more a volume business with tight pricing.
Okay. In a branch network?
It gives us a very stable 40% return.
Okay. In the branch network?
We've got four and a half thousand branches and very different business lines. That's tough to handle in this call. If you want to have a little bit more color there. I don't quite understand what's the reason behind the question, because then.
As a rule, salesmen tend to do what you pay them to do. If they're paid to drive up the gross margin or the total gross margin or the sales number.
Okay. Yeah.
If they're paid to fulfill their duties quickly.
Oh, I get it. Yeah
at high fill rates, you tend to get I'm sure salesmen are all lovely, but if we make the assumption that they're mainly pecuniary in their motivations, then that's what you tend to get. I'm trying to understand whether-
Yeah. No. Okay. That's good. That's why I said we're very tight on growth and profitability. As you can see in our underlying market development, if you compare it to some of our peers. That means that you can sell, but you sell within a price range. It's for you to decide within the price range you get if you want to sell to a client. If you can sell a client, but it's not within the price range that you need to decide upon, it goes to upper level, and for some clients it goes all the way up to us, and not just on pricing, but also on liabilities and that sort of thing. Therefore, it's both. Growth for us normally transpires into leverage because that's the pricing policy.
See, I've spoken to people in the industry that tell me that the habit of going for trying to nudge up the markup or the gross margin is sort of, in a number of the players, just isn't there anymore. People are habituated to taking, perhaps it's RPO, MSP contracts. I've spoken to other people who say, "No, we have dynamic pricing, and the guys get paid for" I have to say that the gross margin performance of the businesses tends to reflect that. Do you feel that there's room to pay the people more or encourage the people or train the people to use dynamic pricing tools to charge for a forklift truck driver a higher gross margin because they're as rare as hens' teeth? Is that still a culture of the business?
Yeah, it's even more than a culture of the business. We have data tools now that some of our businesses, for example, in the Netherlands use, and also in France, to show scarcity for certain profiles, and that then materializes into a price. We're ahead of what you're now saying, driven by data. That works well. There we see a margin increase.
Okay. Thank you very much.
Okay.
I remind you, if you would like to ask a question, please press 01 on your telephone keypad now.
Okay. I've just been informed that apparently, the slides didn't match with what we were talking about, I hope you got the general message at the end. My apologies for that. Are we having one more question?
We have a follow-up question from the line of Konrad Zomer from ABN AMRO. Please go ahead. Your line is now open.
Hi. Thanks again. Firstly, on CICE. I think that Manpower also talked about it last week in their Q1 results statement. The potential impact on your gross profit could be very significant if the change is bigger than what people expect at the moment. If the CICE contribution generates about EUR 100 million a year on an EBITA of about EUR 1 billion, then that's quite a significant amount of money. When changes will be applied as from 2019 onwards, will you find out at a very early stage because maybe François is having talks with the French Government, or how are you being notified on these changes? I think it probably deserves a slightly bigger part of this conference call because it's such a big proportion of your profits.
Yeah.
The second question is for Henry. You've been in Randstad's, let's say, engine room for maybe about six months now. I'm sure it's all great because the company is doing really well. If you could highlight maybe one thing that you would think requires a bit of change or a bit of your input, I wouldn't say it's disappointing to you, if there's something that is likely to change because of your input to the company, could you maybe share that with us, please?
Konrad, I'll do the French one first. Of course, once we know what goes on, I think we'll spend time on it. First of all, we've had many discussions when CICE came into play, if it was to be competed away and what Randstad would do. You've seen us quite consistent on, well, not sharing a large part here because it legally belongs to us and it's a commercial thing. Once the system changes, we'll inform you and we'll also inform you on how we're going to deal with it commercially. Yeah, we've got nothing to talk about currently. Therefore, yeah, it's not really a good moment to spend more time on it. Yeah, we are quite confident that we will be informed as soon as possible. Then, well, when we know more, you will know more.
Konrad, on the second one, thanks for your question. I'm in week four, I've started April 1st in my new role, I hope you understand that I will not comment on that yet. I'm very much looking forward to meeting you all in person, and a couple of months down the road, I'm sure I will have a few observations to make.
Right. Okay. Thank you.
Yeah. That's it. Thanks, everybody, for calling in.
This now concludes our conference call. Thank you all for attending. You may now disconnect your line.