Earnings Call: Q4 2017

Feb 13, 2018

Hello, and welcome to today's Randstad 4th Quarter 2017 Results. And throughout this, all participants will be in listen only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present Robert Jan Van Der Kratz, CFO. Sir, please begin. Hi, good morning. Welcome to the discussion of the Q4 and full year 2017 results. It is an honor for me to present these results to you for the last time in my capacity as CFO of Brumsthal Holding, and it's especially an honor because these are record results. Next time, Henry Schirmer, my successor, will be in the lead next to Jacques van den Broek. He is up for nomination at the AGM at the end of March, and it's highly likely that he will be appointed. I'm going to take you through the presentation to discuss the key issues with you, and then we'll move to Q and A. And I'll start at Slide 5 right away, which effectively summarizes the Q4 and the full year, reflected by a strong conversion of a robust top line, a robust top line coming through in terms of market share gains across the board, but also with a clear focus on customer profitability. And that growth translated into a pretty solid development of our gross profit. And again, the drop through of new gross profit into EBITDA, as you know, our ambition is set at between $40,000,000 $50,000,000 And given the investments we are making in the digital space this year, we already announced we would arrive at the lower end of that range, and that's exactly what came out for the full year, 40%, whereas for the last quarter it was 49% and that should set us up for an improvement going forward into 2018. That should move us to the higher end of the range. Growth in the 4th quarter close to 9% and that is quite special also if one considers that out of the top three, 2 countries, the U. S. And the Netherlands are coming in with lower single digit growth. Still the Group comes in at close to 9%, which shows you the excellent composition, the spread of revenues throughout the company. Top line growth in Europe continued nicely at 11%. The capital allocation is building on the free cash flow. The free cash flow 2017 is up 26%. We'll get back to that, resulting in a solid leverage ratio of 0.9%. And we're going to discuss with you an updated capital allocation strategy, including a floor dividend and optional cash returns when the balance sheet is slightly under leveraged. Looking at 2017 full year, 8% organic sales growth, clearly ahead of the 5% in the previous year. EBITA margin for the full year stable at 4.6 percent, but that includes the effects of our investments in the digital space. The successful integration also came through of acquisitions in 2017. Then on the next slide, Slide 6, the summary of our P and L, same top line arriving in the Q4 with slightly less working days than the year before at a margin of 5.1% compared to 4.8% in the same quarter of last year. Our OpEx increased organically slightly, which was a bit more than our guidance and that is fully related to the excellent top line growth. Moving to the next slide before that, sorry, firm growth also on the previous slide, which I wanted to point out, 13% growth, better than Q3 with 10% growth. Slide 7, the regional split. This is where you see a longer term overview of what happened to our markets. You can clearly see You can clearly see the seasonality, but also the volatility in the developments. Europe continued to grow at the pace of 11%, which is equal to the previous quarter. North America improved to 1%, mainly because of Canada. It was flat in Q3. The rest of the world continued nicely at the pace of 10%, which includes Japan accelerating to 9%, resulting in the overall group growth of 9%. Moving to Slide 8, the summary on North America. Well, the top says it here, the top line improving conversion. If you look at the bottom line here, EBITDA margin improved from 5.7 percent to 6.0 percent. We had some support of favorable incidentals, which are related to releases of provisions, but underlying, I think given the growth, a good story and especially good to see Canada improving from 6% growth in the 3rd quarter to 10% growth in the 4th quarter. U. S. Profs also improved from a minus 2% to minus 1%. The IT business continues to do nicely in line with Q3 and F and A remains a challenge and an opportunity as such. Slide 9, the Netherlands. As we have discussed before, we have a strong focus here on client profitability. The key thing here is that there are quite some unprofitable deals in the market and we have been very selective. The Netherlands now grew 3%, which compares to 1% in Q3 on more or less similar comparison. So the gap to market is reducing. Again, client profitability is the key thing here. The fact that the EBITDA margin is down is purely related to somewhat lower incidentals at the end of the year and also the performance at Jolt resulted, Jolt, which is the professionals business in the Netherlands, resulted in somewhat higher bonuses. What we also enjoy to see here is the fact that our tech and touch strategy has been translated in the Netherlands into data driven sales tools as we presented to you at the Capital Markets Day, but also at the pricing pool, we clearly see the effects coming through. The overall pricing pressure in the Netherlands is somewhat easing compared to the beginning of the year also because of scarcity in certain segments in the market. France, also a strong conversion of a very sound top line. And what we see is strong revenue growth, excellent ICR, revenues that growth at 12%, which compares to 14% in the 3rd quarter, but again that is against somewhat tougher comps in the 4th quarter. We also see continued strong growth in the perm business, close to 40%, which is also driven by our successful big data tool. The EBIT, EBITDA margin, as you can see, up from 5.5% to 6.5%, which is reflected which is reflecting the operational performance and the conversion behind it, but also strong perm. Also the contribution of Osea is clearly coming through here and also some positive incidentals at the end of the year. Our pricing we assess the pricing impact in the French market to remain more or less stable at roughly minus 40 basis points. Worth to note, Ostea France grew by 10% in the 1st in the 4th quarter compared to 8% in the Q3. We also received our CICE in France, which relates to 2013. And as you know, in 2018, there will be a reduction of CICE from 7 to 6. We feel that the pricing power in the French market across the board is pretty strong. So we aim to recoup some of that and our sales growth should also support our performance here. We will see how it will work out in 2019, because there is still some clarity on the replacement of CICE, but it's clear that CICE will end in 2018. Germany, on the next Slide 11 that is. Outperformance in the German market continues, revenue growth stable at 10%. And as you can see, our SME focus also here and also, by the way, France and in the Netherlands continue to pay off. Also in Germany, strong growth of our perm business by 24 percent. The EBITDA margin is 20 basis points improved, whereas the working day impact in Germany was more severe than in other places of the company. Moving on to the Belgium business on Slide 12, remains ahead of the market. As you know, this is a key priority for us in Belgium. We have shown you excellent performance for a couple of years, but then slightly behind, we changed our efforts in this space. And for quite a few quarters now, we remain ahead of the market. Revenue growth improved from 9 percent to 10%. And as you can see, that is both based on staffing in house, but certainly also the professional business in Belgium doing quite well. The EBITDA margin slightly lower and in Belgium we typically had a lot of incidentals at the end of the year. We have improved the phasing of those throughout the year. So this is purely reflecting more accurate accounting. In Iberia on Slide 13, we see the momentum, the robust momentum continuing, revenues up by 15% compared 14% in the previous quarter. And please note that the comparables are 4% tougher here. The Spanish business clearly doing well, but also Portugal improving from 6% in Q3 to 12% here. The EBITA margin up by 10 basis points to 5.6%. Now we are providing a little bit more for bonuses at the end of the year. Then we're moving to one of our largest operations also Italy, strong top line and conversion. And please note that in 2016, we acquired Obiti Valavoro. It was integrated well. And now the total base is expanding by 26%, which is more or less in line with the Q3. But please note that the comparables are 11% more challenging. So this is quite a strong story that we continue to see. The strongest growth driver in Italy is in house, so mostly blue collar. The pricing impact also comes through a little bit still in the Q4, but I would say that the improvement of the EBITDA margin shows you that overall the storyline is strong, 6.3, an improvement of 60 basis points. Slide 15, other European countries. Overall revenue growth 12%, which is more or less in line with the 3rd quarter. The UK organic also we show growth, but the underlying gross profit growth is not as positive as you can see in the revenue line. Nordics continues to grow nicely. Switzerland doing very well and also Poland, which is a good indicator always continuing to show good growth. The EBITA margin in this mix in this cocktail of impact is stable at 3.3%. That brings us to the rest of the world on Slide 16. Overall, revenue continues to grow by 10%, especially Japan continues here contributes here. It grows from 6% to 9% with a significant increase in the EBITDA margin. Also Australia shows continued growth 8%. And overall in Asia, we do see our growth continuing with the exception of China, where we are resetting a bit of some parts of the business to focus on more profitable growth. Latin America continues to do nicely, 27%. That's an improvement compared to the previous quarter. And our focus on profitability here translates into an improvement of the EBITDA margin from 1.9% to 3.7%. The financial results, the income statement on Slide 18, it effectively summarizes what we have just discussed. So I'm not going to elaborate on many issues here. If you look at the tax rates, it's more or less flat. It's developing nicely. The cash tax rate remains at a level of around 20% and we have processed here, on the one hand, the reduced valuation of our deferred tax assets in the United States as a result of the tax measures taken there. And on the other hand, we have revalued the French tax losses going forward given the change of CICE. So that in overall has a relatively limited impact. And we feel that the developments in the U. S. Should not be a negative for Randstad. Slide 19, looking at it by revenue category, please note that global businesses do now include Monster because it's included in the organics for 2 months in the last quarter. So if you look at the global businesses for the full year, it reflects the developments at Monster, whereas in Q4, you can see the positive contribution, the small positive contribution of Monster coming through here. It turned to the positive in the Q4 and please note that there is a seasonal pattern at Monster, which means the first two quarters of the year should be a little softer also because of the investments we are making and that should then pay off in the second half of the year. Optimization plan, which is implemented optimization plan, which is implemented properly according to plan, and we feel business is on track of the plan that we have and the ambition for 2018 to end at breakeven is clearly a challenge, but it remains our objective for 2018. If we zoom into gross margin on Slide 20, not a very exciting picture, going from 20.0 to 20.1 with effectively no impact from temp or permanent placement. And as you can see, it's only the contribution from the last category that has some impact. On operating expenses, we are comparing on Slide 21 the sequential numbers, Q3 with Q4, the developments in between. And if I summarize this, then everything that's happening in the operating expenses is directly related to our organic growth, and that's how it should be, resulting in an ICR in the last quarter, as I said, of 49%. The balance sheet on Slide 22. Net debt now at around $1,000,000,000 leverage ratio better than consensus at 0.9 versus the guidance at 1.0. What we see happening here is a return on invested capital improving to close to 17% now. And as you know, that's a key priority for Randstad to see the returns on the additional investments over the previous years coming through. If you look at the capital side, we see DSO going up slightly, which is mostly the result of M and A impact. For example, OC and the that Oyu T. Valvoto are coming in with higher DSOs and that is clearly a focus for improvement. Also the fact that we have higher growth in the southern part of Europe creates an adverse mix effect, which is the 2nd largest component to explain it. We are a little unlucky that at the end of the quarter, there was a weekend and typically payments move into the next quarter, but we also see a lot of pressure from clients to pay later, which is something we are addressing also according to the European directive that clearly sets some guidance around this theme. But again, a good leverage at 0.9 strong balance sheet. The free cash flow on Slide 23, which is a very strong improvement, as I already indicated, we have some we've invested somewhat more in working capital on the receivable side, but we have been very effective also on the payable side, but I have to say sometimes timing of payables is also a bit of luck here. So that supports it here. Please note that net capital expenditures are in line with the previous year and that also includes Monster this year, which shows you that we have some synergies coming in through Monster, which we do now jointly rather than both separately. Other items, it includes the receivable of CICE where we received the money going back to 3 years ago. The net issue and purchase of ordinary shares, it relates to the performance share plan in the company. So overall, I think an excellent cash flow free cash flow for the year. Again, that connects to our story on the dividend. Slide 24, the outlook going forward. Organic revenue, as discussed, came in at 8 point 7% in the Q4. In January, revenue grew at around 7%. And please also note that January is always a more difficult month. Effectively, quite a bit of the business terminates before Christmas. It starts up at the beginning of 2018 again. It was a good start clearly. If we look at the revenue growth in 2017 in January, we're ahead of that. And also the development of volumes in the 1st part of February indicates a continuation of that growth rate. We expect the gross margin to be broadly stable sequentially. That might be a little lower than normal, but that is fully related to the 4th bullet point, which is the fact that last year we had more working days, 0.5 than we'll have in this Q1. The operating expenses are expected to increase slightly sequentially, again related to the marketing investments we're making and to our organic growth. If you look at gross profit growth per working day, if one excludes Monster, then we are also quite fine in line with revenue developments. Moving to capital allocation now on Slide 25, the ingredients here. One ingredient is our strategy, the outlook for M and A. We have 3 categories that have driven our M and A in the past. I'll start on the right hand side. In staffing, we've done some very interesting deals, but today's position is that we have propositions in most relevant markets, excluding Japan, the UK and Australia and those markets, the staffing space is not our priority. We'll have a look at it if there are options, but it is not our key priority. So we are pretty fine with our footprint in that space. We are also fine with our geographical footprint. There is no need to expand to additional countries. In the middle, professionals. We have an accelerator through OC. That is our key priority. Now OC should expand through organic growth and through bolt on M and A, which in size is relatively limited. So over time and also in some other parts of the business, what we expect to see is some small to midsized M and A in this space, so relatively limited. And the 3rd category that has driven our M and A is the Tech and Touch, the digital side of it, and that should come through mainly organic through our digital factory as was presented to you at the Capital Markets Day, and also the repair of Monster and the global rollout of it is our key priority for the next couple of years. So the summary is we focus on value creation on the basis of our current footprint, no large transformational M and A is in our books, in our pipeline going forward. And also specifically for 2018, we do expect very limited M and A in 2018. Let's summarize this to Slide 26. On the left hand side, the strategy on the right hand side, the impact for 2017 or on 2017 dividend. The adjusted capital allocation strategy, we will maintain, 1st of all, our policy of paying a cash dividend with a payout ratio of 40% to 50%. On top of that, we will implement a floor cash dividend of €1.62 per share, which is the average of the years 2014, 2015 2016. We have tested this against various scenarios, and we believe that even in difficult years, the fact that our working capital releases do compensate the decline in EBITDA justifies this. Then of course, there are always scenarios that one could think of that are even more severe and those are addressed by the conditions that we have put in place. So the conditions that we have put in place are looking at severe macroeconomic circumstances, then we'll readdress this, are looking at strategic fundamental changes that we today do not foresee. So they are very, very special if they happen and it also relates to our solvency and liquidity ratio. So in that context, we believe a cash dividend of €1.62 per share as a bottom as a floor for the future is the right level as a promise to the market. When the leverage ratio on top of this is below 1.0x EBITDA, We feel the balance sheet is under leveraged and that gives us the option for additional cash returns to our shareholders, which could then be translated into either special cash dividends or share buybacks where we have a preference for special cash dividends. The impact on full year 2017 payout in 2018 is that we will present a regular cash dividend of €2.07 per share, which is based on a 50% payout to the AGM at the end of March. On top of that, we will present the a proposal to return another $126,000,000 additional cash to shareholders over the full year 2017. That is a 0.69 special dividend per share, cash dividend per share to be paid out in Q3 at the end of Q3. The reason why we are splitting the payout is that it then more hedges with our cash free cash flow patterns and our net debt positions. So we feel this is an excellent proposal, again, directly related to the updated strategy as discussed with you in November. On Slide 27, you can see this is a 46 percent improvement if one includes the special dividend that will be paid out at the end of Q3. That completes our discussion, our elaboration of what we feel are the key points. We are now moving to Q and A. My request is please limit your Q and A to 2 questions per person. Thank you so much. Operator? Our first question is from the line of Kean Martin of Jefferies. Good morning, gentlemen. I think you highlighted, I think positive incidentals in 2 divisions and negative incidentals in 1 division in the final quarter. I wonder if you can share with us what the aggregate impact was on the group in total, please? Yes. That's only a few million. So that is relatively limited. Wonderful. And are they And to be clear, that's less than CHF 10,000,000, so but you're not that complete. And could you provide further disclosure at the divisional level? No. I think what we are our disclosure is at a pretty high level, and that's what we want to stick to. And First of all, also I would like to thank Robert Jan. This is your last call. Thank you for all your support to the analyst community, if I may speak for all. And then over to my questions. On the gross margin, Robert Jan, you're guiding for year on year decline of 30 basis points. Of course, there's half a working day less. But can you perhaps take us through a bit the building blocks, why it's down and what we should take into account in terms of the building blocks? Because you mentioned that pricing pressure is easing, and in particular, the Netherlands, for instance, you've got non serve perhaps then as a negative. But then on the same at the same time, you're guiding that gross profit per working day is actually now trending in line with the top line for the first time since many quarters. So can you perhaps give a bit more color on the gross margin guidance and what you expect going forward? Yes, Mark. Thank you for your kind words. And indeed, in Q1, I think you summarized it yourself, but the working day impact, the contribution of Monster, which is smaller now than it was before, The fact that our perm is growing nicely, but our revenues are also growing our regular revenues are growing fast as well. It's very much the cocktail of that. There's no specific element in the books that we need to share with you. It's relatively standard. Perhaps maybe it's far out, but would the gross margin be actually be better than in 2017 on a group level? Is that possible? Well, in the final quarter of the year, it is it has improved compared to the previous year, but that's reflecting the components. I don't think it's completely impossible, but I don't want to guide too far out. I think we are relatively heroic by already sharing with you what we expect for the next quarter. We show you the February developments, and that's what we can see as per today. We have no crystal ball that shows us any developments going into Q2 and Q3 and Q4. No. And then Marc, good morning. Jacques here. There's also some stuff which is in a way positive but also drives margin. So Robert Charles mentioned that in Italy, we have very, very strong growth in in house. So on the one hand, that drives your gross margin level at a group level down, but you know the conversion. So that's an important one. Europe, the European markets are on the one hand improving. So we do see based on our pricing tools but also discussions with clients that there seems to be a bit more pricing power, so that's a good sign. At the same time, we recently also walked away from a big client again in France who didn't go with the program. So that's also something we see. So it's a big company. There's a lot going on. But it's underlying a pretty stable pricing climate. That's good. And I think, Sjag's point on in house, I think for other people in the call, gross margin is not always the right indicator for profitability. If we grow our in house business, for example, in France, it comes in with slightly lower gross margins, but with great returns because of the high productivity that we can achieve from those clients. Okay. Then my second question on the digital rollout. Can you give us an update on the initial positives in terms of perhaps productivity or client wins or feedback from the rollout in France and Netherlands? Yes. Well, of course, the Capital Markets Day is not too long ago, so it's not like you see an enormous uptick within 2 months, including the festive months where still a lot of businesses are closed. We're running our projects at scale now. So Francois, I think, had a very strong presentation on workforce scheduling, UPlan, as we call it, which is now being rolled out to 6 other markets. We have the data driven sales system that we explained through Dominique Hermans in the Netherlands. That's also being rolled out as we speak. And then lastly, we have an amalgamate of tools that we call candidate engagement. So you should think chatbots, you should think matching engines, you should think unlocking our total data at Randstad and Monster better every day, and that shows results. But it's not like, okay, we've seen this spike from November into January, of course. But this is a big theme for us for 2018 2019 definitely. So this is what we do. Okay. Maybe a final one on the SG and A guidance, Robert Jarmot. What is sequentially up? What should we think of? On the operating SG and A, yes. On the OpEx charge for Q1, what Well, I think Q4 compared to Q3 is a similar indication there. We said it would be flat. It grew with the revenue development and Q1 will be very much linked to what happens to revenues. On top of that, we're making some investments in the marketing space. So, Marc, you know the numbers roughly. It's not going to be a massive difference. And if I may add, Marc, as for the OpEx growth, always be below the top line growth. In ICR, we are hitting at least 40% as target. Yes. That's the point I made before. We came in for 2017 at the lower end of our range, 40% to 50% because of our investments, especially in the digital space. For 2018, in line with the discussion you just had, Marc, we should see more impact coming through, positive impact coming through, which should lift the ICR to the higher end of the range. Cool. Yes, very good. Thank you very much. We are now over to the line of Paul Sullivan at Barclays. Please go ahead, Paul. Your line is open. Yes. Good morning, everybody. Just coming back on gross margins. I mean, with temp gross margin development? You start to see it stabilize and the underlying trends seem fairly supportive. And how do you see wage inflation sort of playing into that and starting to wash through your business? And then secondly, just in terms of the gap versus the market in Holland and the U. S, do you think there'll be scope to close that? And what are your thoughts about your performance versus market in 2018? Thank you. Okay. Let me start with your last questions. So in the U. S, we're actually ahead of market certainly in the staffing space. And also very fortunate that Robert John didn't mention that we're very happy with our performance in our technologies business. Our largest part of our professionals, it's USD 1,000,000,000 We're ahead of market also with our 6% growth in Q4. As far as we know, there's no real, real solid numbers of the market, but it feels as though we're ahead. So we don't recognize that we are below market in U. S. In the Netherlands, the gap is closing. Also, our growth rates in January in the Netherlands are increasing, so we're definitely closing the gap but still being very diligent on pricing in the Netherlands and in France. So on the one hand, absolutely, there's more pricing power, just what I explained to Mark, but we still walk away. We still have purchasing people who sort of, yes, didn't get with the program and sometimes competitors who didn't get with the program either. That's too bad. So we'll see. They might come back. But overall, you see it's stable pricing and I think that's as much guidance as we can give. And wage inflation in the U. S, that's where we see some of that for quite a while now between 2% 3%. In Europe, it is it's still hardly present. And one would expect it to come through, but companies have to pay it one way or the other by price increases or improved productivity. And so far, it has been relatively low. Yes. There are some things. So for example, you've seen maybe the strikes in January in Germany. This is pretty straightforward, 3% to 4% unemployment in Germany. Yes, then the unions ask for a rise. They've given well, that's been given to them. There is equal pay. So at some point, this will wash also through our bill rates. But yes, it's not to be seen yet. And using the opportunity of having the financial community on the line now, we also have clients that are not just discussing prices, as Sjoerd just explained, the procurement environment, but also payment terms. We even run into situations where clients are asking for 2 40 days of DSO and it seems that they felt they were entering a bank when they went to see the Randstad people and we had to explain them that that's not the business we are in. So it's really a matter of being selective in the market and making sure we do the right things. So you don't see I mean, we shouldn't get too excited and see a sort of I imagine this is a turning point in pricing discussions due to scarcity or a tightening market. Well, it will have it should come through on a very moderate scale. But please note that with the ICR that we just indicated, there should be an improvement at the bottom line coming through from 4.6% to a higher level, bringing us closer to the EBITDA margin target between 5% 6%. Great. Robert, thank you very much. We are now over the line of Suhasani Varanasi of Goldman Sachs. Please go ahead. Your line is open. Hi, good morning. Just one question for me, please. Monster, the declines have continued into Q4. Just wondered what's your view on how this revenue decline will stabilize going into 2018? I realize you're targeting EBITDA breakeven, but any comments and color on the revenue declines would be helpful. Well, the only color I can give you on the revenue at Monster is not so much the absolute number. So what Chris explained, for example, to you is that in U. S, we were selling job postings at very high rebates. That is revenue, but not necessarily the revenue we are targeting. So within Monster, there's also a change of revenue in towards more profitable value add revenue. So that's what we're trying to achieve. That's the change that's going through Monster and work in progress. I cannot give you any exact guidance on this because we have now we are investing in marketing. We are investing in technology so that we get more applies through mobile directly, which for us is effectively the way we would like to get traffic. And then that should wash through into revenue at a client level. But that's a work in progress. Cannot give you more exact numbers than the guidance we've given you and the content that Chris has given you at the Capital Markets Day. Okay. Thank you. Next question is from the line of Hans Plagas of Kepler Cheuvreux. Go ahead. Your line is open. Yes, good morning. First of all, looking at you gave the exit rate, but looking at January, can you give some feeling, are there, let's say, any major changes, let's say, by region in the growth rate? You already point out the Netherlands was slightly better, but are, let's say, some areas where there's somewhat more weakness? Could you give some feeling on that? And then secondly, on France, you said you aim to recoup the CICE. At the same time, I understand you say that pricing pressure is providing about 40 basis points pressure and is stable at that level, 40 basis points. So could you give some feeling how then you expect to recoup the decline in the GSE? Yes. On the exit rates, Hans, you can see on Slide 24 the bullets, the dots that we are showing to indicate the growth level and indeed the Netherlands going to mid single digit here, Germany being a little lower than the quarter, and Jacques already referred to it. The strikes in Germany have had an impact in that month. And in the French market, 3 dots continue, but I think as we have discussed also before, we are very selective in the French market. There are some large clients aiming at suppliers that will charge them effectively no gross margin or hardly a gross margin. So it's not just a low gross margin, it's no gross margin almost and as such also no returns and that's not the basis for us to do business. So we have a very strong focus on the SME segment, but that clearly has some impact, but we are very happy to absorb it. Yes. On France, so we grow in France, we grow in SME, we grow in perm. There is, on the one hand, also early days, but in France some pricing power and also we walk away. It's a big business. It's mixed. But given our growth, given the segments we're growing in, we do aim to recoup this CICE. There will still be clients who won't accept it. And then yes, well, we either take it or we walk away. So but given our, call it, current dynamics in France, the strong performance we're having in this country, we feel quite confident on this one. Maybe just one follow-up on the excess rate because the excess rate, of course, are for December, as I understand it properly. Then looking more specifically more, let's say, at the U. S, is it still around 0 or let's say, at 0 or is it already, let's say, a negative territory in January? If there's anything on the U. S, it's slightly upward instead of downward. Yes. And Hans, these are exit rates for January. So we always take the last month that we have available, the last full month that we have available, and this is January. Okay. Clear. We are now over to the line of Tom Sykes at Deutsche Bank. Please go ahead. Your line is now open. Yes, good morning. Thank you. I just wondered if you could give some views on the degree of term growth in France and how long you expect it to continue at the current rates of growth, please? And whether you could just say how much perm is on France? Would you also be able to give the size of the tax deferred tax write back in the U. S, please? And maybe just an adjunct to what you said about smaller companies doing quite well. It's just how would you sort of describe the mix of SME growth versus large accounts across your major markets at the moment? And to what degree have you perhaps pushed pricing in SME if you can't push it in large account, please? Tom, Jacques will do the tax write back and Sure he will. Why are you laughing, So let me take the tax one and then Jacques will do the other 2. The tax writeback, so the adjustment of the valuation of the deferred tax assets in the U. S. Is I'm just going to give you an indication, it's just north of EUR 50,000,000 and the increase in valuation in France is more or less the same amount. Yes, perm, it's very tough to say if we can continue this. Of course, 40% over 40%, that's not bad. As we've mentioned quite a few times, this is a part of the business that is, well, the best or the most elaborate currently fueled by tech. So our people hit the market, and you know perm is a volatile market. You really need to time your context right. They're doing that very well. And perm in general, you know this slide in our roadshow deck, it's still relatively small as a percentage of gross profit, although in France, it's now getting to 7%, 8%. But there's no objective reason for this not to continue. As long as we can grow, we'll grow. It's not like we have 50% market share, whatever, and we've been doing this for years and the maximum is in sight. So we're still optimistic on the potential of this growth. What we're not doing in SME is maximizing price in SME. We don't think that's good. At the end of the day, part of our pricing is also the fact that we are an efficient company, so we give a decent price both to small companies and to large companies. But given the fact that SME is a good segment, yes, it helps our overall margin mix, as we called it earlier in the call. So that's cool stuff, but we're not maximizing price. It's something we never do. We don't compete on margin either and we don't maximize short term results because, of course, there's also to a certain extent probably price elasticity. If you out price a certain segment, you also not do well. So we're trying to time this as good as we can and so far so good. By and large, our SME space outperforms our large client space in almost all markets, partly our ABFS steering and the fact that we aim for these markets, partly also where the market certainly in Europe is going. We're now in a phase where SME has a lot of demand, and we can help them there. And we're big, as you know, and very close to local communities and clients. Yes. And on perm growth in France, one addition of availability of candidates, it's pretty good and our access digital access to candidates supports that well. I think that's a very strong contributor to what happens in France. Okay. So thank you very much for that. Just a follow-up on the SME side there. So if we look at decline in gross margins in temp and you look at that between, say, SME and large accounts, I appreciate there's a whole kind of range of size of clients. But if you look at the SME space, would you say that gross margins are broadly similar to where we were, say, 'six, 'seven? Obviously, you've seen declines in large accounts, but how should we think about the difference between large account gross margins and SME gross margins now? Yes. I can't off the top of my head tell you that. By the way, SME is a very broad space. So an SME in Germany is a way larger client. Effectively, in Germany, what we call SME is not a large country or global client. In the Netherlands, these are really small companies because we've got a 26% market share, very dense network, same in Belgium. So SME and SME, in the U. S, we call SME roughly what's not an MSP client. So it's for that reason, I cannot give you, if I compare with 10 years ago, the margin for SME. As you know, 10 years ago, we were an €8,000,000,000 company. Today, we are whatever, a 23,000,000,000 company. So it's slightly incomparable both from business mix and also geographical point of view. So we use we have an SME definition per country to make sure that it's relevant to make to measure the performance in that country. All right. Okay. Thank you very much. Okay. Before taking the next question, which is Anvesh Agarwal at Morgan Stanley. Please do press 0 and then 1 on your phone keypad now. And while we're taking further questions, Anvesh, please go ahead. Your line is open. Hi, good morning, everyone. I have a couple of questions. The first is on the operational leverage. Now I noticed that the number of branches are like down circa 15% versus the peak levels of 2,007, 'eight. And then we also have your revenues are up considerably. However, if you look at the operating margins, they are kind of below the historical peak. So this tells you the story of the underlying pressure on the fee rate. So the question I have is how much room you have to further cut the operating costs? Are you able to improve the margin on a sustained basis going forward? Obviously, in 2018, you should have some operational leverage, but I'm kind of interested in longer term view on the margin. And the second, I've noted that you have sold off your APAC business of Monster in January. Can you please tell us the rationale behind that? And are there any other part of that business that you're planning to equidate? Yes. Let me start with selling off the APAC business. So when we bought Monster, of course, we did a quite elaborate analysis of all these businesses. And it turned out that, yes, the APAC business was not so much in scope for us going forward. Combination with our own businesses was not ideal. So we didn't see the longer term opportunity here. So that's why we decided to sell it off. We don't have any plans to sell off anything else of the Monster portfolio here. And we're very much looking mostly towards the leverage with the European markets and the American markets of the Monster portfolio and data. Yes. And then the leverage, the operational leverage, at the Capital Markets Day, we gave you an update on our cost savings, the programs that we have finalized, but also the ones that are running. The total potential is between €70,000,000 €80,000,000 It comes through IT and Monster and it will last for 2 years more or less. But all in all, I think the easiest indicator of this is the incremental conversion ratio. So additional growth of gross profit should drop through into EBITDA at the pace of between $40,000,000 $50,000,000 and we just indicated that for 2018 we are aiming at the higher end of that range. And if you realize that our regular conversion of gross profit into EBITDA is around 24%, 25%. You can see that operational leverage is significantly coming through here on the additional business. So that is what we follow tightly. Okay. Can I just ask I know you touched on this before, but I missed that? So can you tell us what was the write back on the U. S. What was the tax write back in the U. S? Roughly €50,000,000 €50,000,000 Okay. Thank you so much. So 5.0, yes. Yes. Okay. Thank you so much. We now go to the line of Konrad Zomer at ABN AMRO. Please go ahead. Your line is now open. Hi, good morning. My first question is on the special dividend. What has decided the exact amount of the €0.69 a share? And is that something that we could potentially calculate going forward if we get our leverage ratio right? And the second question is on the U. S. Professionals business. Can you tell us what specific actions you've put in place in the last, let's say, 6 months to get that business to positive revenue growth again? Sure. Let me start good morning, Konrad. Let me start with the U. S. Question. We changed management. So we have a way of how we think a successful business should be run for the IT business in the U. S. That's very much the mix of large clients, retail clients. As you know, as a company, we've got specific and different delivery models. What we saw under the former management in technologies in the U. S. Is that this was not rolled out as diligently and as systematically as we thought it should be. And then you don't grow all the angles. So if you leave too many very basic, if you leave too many large clients in your retail network, your retail network is dominated by these large clients and they don't have the delivery model to also benefit from this. We put someone in place who had the ability to implement this far better. And we see actually quite, yes, in a way, quick because he moved in early 2017. They're driving the performance. It is, in a way, an experienced company, so we didn't have to change a lot of people here, just run the business slightly differently using our good experiences. So that's what we did at Technologies. In our financial F and A business, what we also changed here is that if you look at the F and A business, in many aspects, certainly the ABFS part, it is very close to staffing. So that's why we brought this company closer to our staffing business, And we will expect and we do expect the improvement also coming through here, which again, yes, you know the drill with us it's about diligent activity based field stripping. We see improvement in this business, but it's coming from double digit decline now into single digit decline. There is improvement, and we hope to take that improving trend further throughout this year. And Konrad, on your question with regards to the special dividend, thanks for asking by the way. We're very proud that our financial strategy is so closely connected to our overall strategy. And the special dividend indeed, it's the calculation that you just referred to. So if we are below 1.0 times EBITDA, that creates the option. What we will take into account when making the final decision, of course, is to look at market circumstances and any M and A that has been announced and is in the pipeline. But basically, we're going to follow the rhythm of calculating it with these elements taking these elements into account. Let me also add that the reason why we prefer a special cash dividend above a share buyback is fact that it supports our liquidity or does not reduce our liquidity in the market. But just to clarify, the €0.69 it still includes a subjective element that you negotiate probably with your supervisory board. It could have been €0.75 and it could have been €0.65 It's not something that we could actually determine from your actual results. I mean, if I do if I try I tried to calculate it myself this morning looking at your EBITDA, looking at your net debt, and I struggle to get to €0.69 So that's why I asked the question. Well, I'll hand you over to the calculator now. Yes, Conrad, we can also do it offline, but it's the leverage ratio. So it's a straightforward calculation. Straightforward calculation. And David will discuss the details with you after the call. Okay. I appreciate that. Thank you very much. Yes, and a after the call. Okay. I appreciate that. Thank you very much. Yes, and a straightforward calculation. Okay. Our final question for today is over to the line of Andy Grobler of Credit Suisse. Please go ahead. Hi, good morning. Just two quick ones from me, if I may. Just on the gross margin bridge for Q4, you showed tempers as 0, but you've talked about underlying margins down a bit. So I guess the offset is M and A. Can you just break out how much of that was underlying, how much of it is M and A? And then secondly, just a follow-up from an earlier question in terms of wage growth. As you're going to talk to clients, is that a bigger part of the discussions, that expectation that in tighter markets, wages will have to go up through the course of the year and how clients are going to deal with that in the various routes that they can take? Thank you. Yes. Andy, good morning. Jacques here. On the wage growth, there is quite a divide between an Anglo Saxon market and a European market. So certainly, our staffing part, which in Europe is the biggest part of our business, is in many instances of our business, it's predefined by CLAs. So all our German business, a large part all our in house business, our large client business. So for the bulk of the people that we deliver, it's CLA based. So it's not a I can provide you this stamp and let's discuss the salary. Of course, that is the case in more niche jobs, and we do see wages going up there. So that's all good, but that's a limited part of our business and as such has a very limited effect on our total business going forward. In general, as these collective labor agreements get like in German one voted upon and as an improvement, over time you will see the improvement. But I would expect the 2018 results and growth being very much driven by the volume of people we have at work and not so much the wage effect. And Andy, on the temp margin, the right way of looking at it is that the temp margin underlying is stable. So what you see here is a cocktail of some pricing pressure in a few markets compensated by the growth and the mix of the business overall. So, it's underlying stable. Okay. So, just on that because you mentioned that it was still down in France. So Yes, correct. So for the temp margin as and you would have had Orsi and so forth within that number. So where is it going up underlying also? And the OC, OC is not temp margin. So OC is a business model which is outsourcing, so these people are on our payroll. So it doesn't when we're talking a stable margin in France, we're talking the margin going forward. And it's not declining. So that's good. In the Netherlands, it's also slowly decreasing, which again is a cocktail of walking away. Sometimes we still make a new contract at a lower margin. We don't walk away from everything and increasing margins through mix in the SME space. So Yes. And if you summarize it, sort of look at it from the helicopter, we have pricing pressure, but as I said at the beginning, it's not deteriorating. So the priority here is to make sure that we try to improve it. Secondly, the key thing is that we try to get the right ICR, the incremental conversion out of the growth. That is clearly top priority. It's relatively basic, but that sets the priorities for the management team here. Okay. Thanks very much. Thank you. As that was the final question in today's call, may I please pass it back to you for any closing comments at this stage? [SPEAKER JEAN FRANCOIS PRUNEAU:] Well, thank you so much for joining us in this call, and we're looking forward to meet you again at either the AGM at the end of March or at the Q1 presentation late April. Thank you so much. Have a good day. Bye.