Good morning, welcome to the Randstad first quarter results 2017. My name is Natalie, and I'll be your coordinator for today's call. You will have the opportunity to ask a question during the presentation. You can do so by pressing star 1 on your telephone keypad at any time. I'll now hand over to your host, Robert-Jan van de Kraats. If you'd like to go ahead, Robert.
Thank you so much. Ladies and gentlemen, good morning. Welcome to the discussion on the first quarter results 2017. At this end of the line, we have Jacques van den Broek and David Tailleur next to myself. We're going to take you through some clarifying slides, and we'll move to Q&A at the end. Going to take you to slide five right away. Q1, as it says, sound organic growth continues. This was not a bad quarter at all. In Q4, we were relatively happy with the 6.6% growth that we did see in that quarter. Just note, we are always adjusting for working day impacts. Exactly the working day analysis was a difficult one, given the holiday season at the end of the year.
It's always a bit difficult to calculate exactly which day really has impact as a working day, because it could be a working day, but not always people are at work. The fact that we were a little soft on January, we said between 5%-6%, and now coming in at 6.4%, indicates that trends have continued in a solid manner. The gross profit was up 6.4%, which compares to 5.5% in Q4. Top line grew by 8% in Europe, which is a clear contributor to the overall growth of the company, and we see growth in Europe across the board. 1% in North America. Actually, if one would adjust for the new classification, last quarter was a slight touch softer than 1%. The least to say here is that it continues.
9% in the rest of the world, which compares to 10% in Q4. A good thing also, perm growth is accelerating to 11%. This time, if you look at the contribution of perm in the staffing space and perm in the professional segment, in the previous quarters, normally staffing was outgrowing professionals. This time it's the other way around. Also North America improved from -3% to 6%. Gross margin arrived at 20.4%, which is an underlying stable gross margin. The underlying EBITDA of EUR 2,209 million is 16% up, an EBITDA margin of 3.8%. EUR 209 million includes both the synergies of recent acquisitions as well as our investments in the digital space. The adjusted net income improved by 21%, especially free cash flow was good news, a significant improvement of 91%. We'll get back to that at the slide on free cash flow.
The balance sheet, good, comfortable with 1.1 leverage ratio. March organic sales growth was in line with Q1. Is April. It is a continuation of the trend. All acquisitions well on track and Monster transition is in full swing. Next slide six. If you look at the upper part of the P&L, our quality of earnings is always impacted by incidentals. At the end of a quarter this time, it is very little. It is below the average level, something to note. The Q4 organic incremental conversion ratio of 39%, it indicates a transitional year due to acquisitions and our digital investments, our organic digital investments. Balancing these investments with growing returns is essential for our management agenda. We're putting both at the level of priority number one.
Our organic growth over the last four quarters at a nice 5% now, and the gross profit level at 4. I'm moving to the next slide, the regional split, strong momentum in Europe, slide seven. What you see here is the underlying trends in our various markets. I already referred to it, but across the board, I would say good growth. Please note that Q4 last year, it says here Q2, but it should be No, I think it's correct. Sorry. Holiday impact was included in Q4, that might disturb the slide a little bit. North America on slide eight. Top line is picking up slightly. Revenue, 1% compares to 1% in Q4. I already referred to it. Like for like, it's a bit above Q4 and perm clearly improved. U.S. staffing in-house revenue growth 2% stable and professionals from a negative four to negative two.
Canada, strong performance at 6% and the EBITDA margin is slightly down, which is reflecting the underlying mix. If you look at U.S. staffing compared to the market, it's holding up very nicely and adjusted for Randstad Sourceright growth, it accelerates a bit in the professional space. Growth in U.S. is mainly driven by the industrial segment. In the Netherlands on slide nine, actually, we're not unhappy with the outcome of Q1 in the Netherlands. A pretty solid EBITDA margin performance. Revenue at 1% growth. In the market, we do see pricing pressure continuing, our customer profitability focus helps us to deal with this. The gap with market is explained on the one hand by the fact that we still have the impact of the loss of the payroll and business with the government.
On the other hand, it is very consciously selecting contracts with clients. Deselecting, I would say, because of lack of customer profitability. Perm is up by 45%, which is clearly an improvement. Also, the result of the strong focus, the micro strategy that's applied here. Staffing in house business is up to professionals, has improved from a negative eight to 3% down now. This is organic, by the way. EBITDA margin is now 5.4 compared to 5.1, and that is explained not just by the acquisition of BMC, it's also underlying improvement. In France, on slide 10, we see robust growth continuing. We're also not unhappy with the current status, the political status. Hopefully, this will lead to an outcome for the French market, which will strengthen the macroeconomy. Revenue at Randstad is up 9%.
We have heard about discussions amongst our clients, but the market shows good growth. Randstad does. Combined staffing and in-house at 8%, but also professionals accelerated now for the second quarter at 17%, and perm grew nicely at 37%. This is where you see the impact of our tech strategy coming through. The EBITDA margin arrives at 5.4%. Also in this market, we are selective because we do see some competitiveness on pricing, and we are selective and following our principle of profitability first. As I said at the beginning, France, it is nice to see our technology coming through, and it is fueling both the growth in perm but also in professionals. At this stage, our position in the permanent placement market is number 2. We are very proud of that achievement. Just a few words on OC.
We have now included 2 months of business from OC. We see no disruption of the business trends. In Germany, strong focus on the SME segment as we have in the Netherlands, and it is paying off. 10% growth in Q4, now 9%. Again, working days are difficult to calculate. SME doing quite nicely. Staffing in house up, but also professionals up. We do see an improvement from 3.7% to 4.1% in the EBITDA margin. The higher bank holiday provision is having an impact. We spread the impact throughout the year, but even if one would adjust for that, then the results there show a relevant improvement. Underlying, clearly a positive development. Most proud we are of what is happening in Belgium. Slide 12, top line growth acceleration, good performance at the EBITDA line as well.
This is where you see the impact of activity-based field steering, I would say of tight activity-based field steering. The steering of our commercial activity. Randstad was behind market for a while, and the gap has more than been closed as we speak now. Revenue at 10% growth, accelerating from 5% previously. We are clearly happy with this performance relative to the market data. It looks as if we are a few percent ahead of the market. EBITDA margin 5.7%. As I said at the beginning, always impact of incidentals. In Belgium, last year's performance was supported by incidentals, this year not. The underlying improvement is clearly significant. Iberia, another good example on slide 13. I would say excellence continued. Strong growth on the higher margins. We are selective in these markets, but still coming through with 8% growth.
In Spain, we are at 9%, in Portugal at 6%, and an EBITDA margin improving from 3.9% to 4.2%. Get some questions on wage inflation here, but no impact. Pretty good results here. Italy. Maybe this is the third example of commercial success because it now includes Obiettivo Lavoro. You might remember we acquired this company when it was in decline. Now that trend has been reversed, it is contributing to the growth of the company. Revenue growth now 23%, well ahead of market. Strong growth by the in-house segment, which typically services the industrial clients. The EBITDA margin arrives at 5% compared to 4.8%. I would say a clear improvement even when excluding synergies. Other European countries across the board, we do see growth just in the U.K., which has been a difficult market for not just ourselves, but in general, revenue growth was -4%.
We don't really see any sort of direct impact from Brexit. Of course, lots of discussions here. The other countries, Switzerland 21%, Poland doing quite well at 9%. Also in Nordics, the Proffice integration continues to be on track, and you see a reversal back to growth now. The rest of the world, overall up 9%. Japan doing quite nicely. Across the board, we see growth with a clear improvement of the EBITDA margin, partly caused by the acquisition of Careo in Japan, but underlying also a measurable improvement. On slide 17, our recent acquisitions. RiseSmart, one and a half years ago, 2015. This is to accelerate. These are the 3 categories, by the way. The first category, the first column, is that we are strengthening our position in the staffing market.
The second column is the strengthening of our professionals footprint, the third column is to accelerate our digital strategy. While RiseSmart was clearly contributing only to the digital strategy. Working hard to roll it out. It's a small company, but rolling it out in the U.S. and also beyond that. Things are underway, clearly. Proffice, that was to improve our footprint in the staffing market. We might have put a small V in the professionals column because almost a third of the business is professionals. If you look at our ambition to be EVA positive in three years, it's clearly in line, moving nicely. Obiettivo Lavoro, it's just strengthening our staffing footprint. Having said that, it's clearly ahead of our target to be EVA positive after three years. It's doing very nicely. The same applies to Careo.
It's a smaller company, but giving us a footprint in the Japanese, the high-end staffing and low-end professional space ahead of our target in terms of EVA. Monster, it's early stages. We have informed you last time about our plans. Over the last two months, things have again continued. We have streamlined the commercial side of the company, strengthened commercial management, we have, as you can see in the one-offs, we have absorbed some restructuring costs relating to necessary changes in the organization. We are confidently moving into the right direction here. BMC, a recent acquisition in the Netherlands, in the professional space, also clearly underway towards a positive EVA contribution after three years. I'm even a bit more optimistic than just being underway.
Ausy, the most recent one in the professional space in France, in Belgium, in Germany, and in the U.S., that should help us to accelerate our professionals' spread in Europe. That's very early stages. As I said, no negative impact on the business trends. I move to the financial results. The income statement on slide 19. We've addressed most elements here now. Just the integration cost and one-off, the EUR 18 million that relates partly to M&A. The transaction cost. We also have EUR 7 million that relates to integration and EUR 8 million to restructuring, of which most is Monster. On slide 20, the performance by revenue category. As we announced, we would restate the categories, which we have done. We have updated you on the restated 2016 numbers well in advance.
I would say if you have any detailed questions on this, I would refer to David Tailleur preferably offline. Slide 21, the gross margin bridge. This is where you see an improvement, clearly, but most of that comes in because of Monster, the inclusion. The temp margin shows an impact of minus 30 basis points, which is roughly stable. The temp margin decline is stable. The perm fees grew 11% organically, and the effect of Monster is now three months in the first quarter compared to two months in Q4. That also has an impact on the total. Again, also here, we have a little less incidentals than the comparables of last year, Q1. On slide 21, the operating expenses bridge. This again is not year-on-year. This is sequential from Q4 to Q1.
As you see, M&A, again, it's not the cost of bankers in our transactions. It's the additional cost of the acquired companies coming in. I would want to point out the EUR 7 million organic global businesses. That's a EUR 7 million increase, and it includes a EUR 5 million reclassification. With the fact that we have separated the business, we have reclassified EUR 5 million that goes from GP into OPEX because that's a more proper way of reflecting it. Things have been streamlined across the board. That one should be excluded. I would say operating expense growth, a little higher than anticipated, but also reflecting the trend in business and revenues. As I said, our continued ambition to build our digital base as foundation. Net debt stands at EUR 1.1, which is equal, by the way, to the leverage ratio, also 1.1.
I want to point out the seasonal pattern here that we typically see. Q1, it goes up a little bit, and Q2, we pay dividends and holiday allowances. At the end of Q3, it always goes down towards the low point at the end of this year. Working capital as a percentage of revenues, it includes Obiettivo Lavoro here, the Italian acquisition, which came in middle of last year. As you can see in DSO, it's declining. That's exactly the ambition we have, effectively a synergy from applying the Randstad strict best practice also to this business in order to reduce DSO. Free cash flow. That was a pretty positive result here. As you can see, 91% improvement.
Let me just summarize that by saying that it is the effect of a higher EBITDA, better management of working capital, as I just referred to, and different timing of cash taxes. I don't think the 91% is going to be the example for the full year, but we clearly anticipate an improvement here. Also, at the lower part here, you see the acquisitions coming through, and in Q2, you'll see the dividend payment. Going out. Finalizing with the outlook on slide 25. Organic revenue growth was 6.4% in Q1, and we see that continuing both in March and in April. We measure our volumes every week, and on that, we base this conclusion. The gross margin in Q2 is expected to be slightly up, which is sequentially driven by seasonality. This is a normal picture.
For Q2, we expect a moderate increase in the underlying operating expenses. On top of that, this is driven by the extra marketing investments that we are going to do for Monster. As you know, we are having a negative trend in the Monster revenue base when we acquired the company, this is one of the investments we are making to change that. By the way, the Monster contribution to the Q1 results was in line with what we said before, a few million EUR negative. In Q2, there will be an unfavorable working day impact. Q1 included a favorable working impact of this amount, in Q2 it will be reversed. This supported our results slightly in Q1. It will be negative in Q2. Actually, we have limited visibility in our business, but we're pretty sure this is going to happen.
This is related to the Easter in April. We also continue to expect M&A activity to be limited in 2017. Limited means no relevant deals, for example, nothing north of EUR 100 million. We are very much focused on making value creation come through for the acquisitions that we have completed over the last year. We plan to host the Capital Markets Day, November 21 in London, where we will certainly elaborate further on our digital strategy and the impact it has on our business. On the right-hand, you can see the qualification of the exit rates per region, it looks, David, like a lot of pluses. But I think that is properly reflecting the trend we have experienced throughout Q1 and into April. Thank you. We are now moving to Q&A.
Thank you, gentlemen. Ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad now. If you change your mind and wish to withdraw your question, hit star two. When preparing to ask a question, please ensure your phone is unmuted. Our first question is from Nicholas Delagrange from Bank of America Merrill Lynch. If you'd like to go ahead.
Morning, guys. I'll restrict myself to two. The first one was just in terms of costs. Organic cost growth was 7% in Q1, which I think is the highest level it's been in quite a few years. I was just wondering, when you talk about moderate sequential increase for Q2, should we expect that SG&A growth will be continuing at that kind of organic range? If you could just provide a bit more color on that, and maybe where incremental conversion rates will go for this year. The second question is on capital allocation. Obviously, the free cash flow generation is very strong, you've been very clear that you're not going to do any major M&A this year. I'm just wondering if that changes in any way your existing priorities in terms of investing versus returns to shareholders. Thanks.
The first question. By the way, thanks for asking two. Nicholas, the 7% cost growth for Q2 underlying, we anticipated to be less. On top of that, we are currently considering an additional investment in Monster in order to strengthen the commercial track record. Underlying less than the 7%. Again, I made that comment at the beginning. Top of the management agenda is doing two things at the same time, making sure that we are having a good conversion, and on the other hand, making sure that we strengthen our technology base because we think long-term that is extremely important. Both priorities have equal weight here.
On the free cash flow, you're right, the balance sheet is relatively comfortable, and towards the end, it will improve at the end of the year, given the fact that we have a low-level ambition on M&A. We are happy with having little debt or less debt in the balance sheet. We do not anticipate any further changes other than the one we communicated recently, which was the dividend policy adjustment to just cash dividend when the leverage ratio is below 1.0. If, however, Randstad over time arrives at a very comfortable level, we'll entertain another discussion with the supervisory board and ultimately with the shareholders. Nothing decided as at this point.
Would it be fair to say that you would want to be in a kind of net cash position before you would consider buybacks or specials or something like that?
Yeah. Well, I don't want to be too precise here.
Okay. Sure.
That's why I'm referring to comfortable. We clearly understand that we have to serve our investors, and so we'll have a good look at that when we get closer to the zero. We don't necessarily have to be there before starting to think about it, because we can predict relatively nicely. Our cash flow is less volatile than our revenues and EBITDA through the cycle.
Just one other question on the cost, going back to that. The extra marketing expenses for Monster, I appreciate you probably don't want to give us the exact number, but is that a double-digit millions amount or is it relatively modest?
Well, let me stick to saying that I wouldn't be discussing it if it wouldn't be a significant number, so it has to be, but we're not finalized yet, so I can't share it.
Okay. Thank you very much.
Our next question is from Paul Sullivan from Barclays, if you'd like to go ahead.
Yeah. Morning, everyone. Couple from me. Firstly, on Monster, do you think minus 16 is the trough in terms of the growth trend there? How quickly do you anticipate the changes that you're making and the step up in marketing that you're going to put through over the next few months coming through and impacting the revenue trends there? That's the first question. Then secondly, on France and the inevitable CICE scenario, with Macron looking a step closer and his comments about replacing CICE, what are your initial thoughts there? Presumably, you're closer to it than we are. It'd be interesting to gauge what your thinking is there now.
Okay. Good morning, everybody. Jacques here. Yeah, we hope, of course, that it's a trough, a job board. Monster is very much a marketing game. We need to invest to sort of compensate for revenue going down and, yeah, we'll see. At least this is where we're going to start, and it's tough to call now if this is the trough. That's really tough to see. It's also a change of business mix within Monster. We think that Monster really was too much reliant on what we call long duration job postings, and it needs to go way more into pay per click and pay per candidate. It's a little bit more than just having a reverse to trend. There's also a change of revenue. It's very much in full swing. It'll take time and tough to predict now.
Paul, your question on the CICE in France. Yeah, this is a very difficult thing. Effectively, the way we look at it, no change compared to the possibilities that we did foresee. The different scenarios, we've analyzed those, and we have prepared for those. We think, underlying, if you look at the profitability of the large players in the French market, there is clearly a discipline in the market. Nothing else to add to that. I'm just adding one comment to the investment we will be making in Monster. In many ways, this should have been part of goodwill because you're buying a company in decline. We checked with Deloitte, but they did not allow us to put it there. Next question.
Our next question is from Toby Reeks from Morgan Stanley. If you'd like to go ahead.
Hi, guys. I've got two questions. The first is around monthly trends. Should we interpret your January growth of 5%-6% in the quarter, 6.4% as an acceleration through the quarter? The second one is going back to Nick's question on Incremental Conversion Rates and digital investment. In December, Jacques described search and match strategy using algorithms and web scraping aimed at the SME and professional market being trialed in France and the Netherlands. Could you talk about that more in detail, i.e., where is that increased investment going? Is it to those two specific areas? Will it accelerate? What are your competitors doing? Have you had any success in the Netherlands? Because I think you're trialing it both France and the Netherlands. What do you expect in terms of the Incremental Conversion Rate going forward relating to that? Thank you.
Yeah. Your first question, Toby, Q2 last year is a little easier to compete with. The April trend, the fact that comparables are a little more relaxed, it's not a bad outlook at all. Let me stick to that.
Okay.
On the digital investment, there's two things. One is it's a bit of a challenge. We like to be as transparent as possible as a company, but we also don't want to give away our manual on where we are going because competition also listens in to these calls. You've heard us announce our partnership with CornerJob, which is an online staffer in France. An online staffer, they invest a lot in terms of marketing to attract traffic on the site. They can, in a way, click through to Randstad to make a legal combination, either a perm, but certainly also a temp. Because if you go to an online staffer, CornerJob, you can find someone, but then you need to hire them or make them a temp. That's what we take care of.
That's very much a partnership, which is interesting, but early days to see if we can really get this moving. What we do see in our trials in full online offerings is that the candidates are quite quick to adopt. Clients are a little bit slower to adopt. We also see this, for example, Tempo-Team in Belgium. It works like a charm, but there's still not a change of clients who change from their incumbent supplier to the new online model. That'll take time. What Robert-Jan also stated is what we see very much in France in our perm business, both in professionals and in staffing. The fact that we supply our consultants with big data support. Every morning they see who's looking for the kind of profiles that they have to offer.
They can also work on creating the right profile together with the client as they are sitting at the table. We do see a speed up in the growth trend. Again, we mentioned the fact that we're going to have a Capital Markets Day in November, and we hope to shed a little bit more light on that.
Just to be clear, what you're seeing at the moment is the stuff we saw in December, i.e., using the big data, web scraping, that sort of stuff and presenting.
Yeah. That's definitely where we are. We hope.
Rather than the online staffing models. Yeah.
Yeah. Well, there's two versions there. One, we are digitizing our current business.
Yeah
both in what we call search and match. We do see some good results in France, and also in job scheduling. Our in-house account unit business will definitely tell you a little bit more on that one in November, because that seems to be shaping up nicely. Then we've got new business models, creating new spaces and new markets purely online, and also direct in France is very much a trial in depth, a piece of our strategic roadmap.
Okay. Thanks very much, guys.
Our next question is from Tom Sykes from Deutsche Bank. If you'd like to go ahead.
Yeah. Morning, everybody. Just firstly on the gross margins, could you just remind us whether your temp to perm conversion fees go in the perm business or go in the temp gross margin, and how they've been trending, please? Then just on the in-house business, your organic growth has moved up from 10% to 15%. There may or may not be a bit of Easter effect in there, but could you speak about what your like for like growth and indeed outlook is for the in-house business, please? Maybe whether you've got a substantial backlog or not of customers that you think you can move from a branch to an in-house delivery model, please.
Yeah. Good morning, Tom. Well, on temp to perm is in the perm numbers. That's not really the driver of growth. The driver of growth is really pure perm. As you know, we've really adopted the model developed in our American staffing business where we trained our consultants in the temp field to also start selling perm. That's working very nicely for us and is gaining a lot of traction also in our European business, where in our German business, our Dutch business, you see huge double-digit growth. That looks good, but it's from a low base. That's very much driving perm. Also, we see mostly in our European business that perm in our professionals business, in our Dutch business, but certainly in our French business, is really gaining a lot of traction. It's really, I would say, pure perm growth.
Yeah, in-house, funny enough, it keeps on surprising us. Still, the market is picking this up very nicely. Not so much as a result of economic recovery. It's really the concept. For example, in the U.S., we see still growth, not so much the growth in like for like clients, but very much new clients. Over 44.0% growth in our Italian business. The in-house concept has been in this market for more than 10 years. We do see clients in Italy adopting quicker and quicker, the usage of creating a strategically flexible workforce so that works good for us. Still also in our French business, it's gaining up. It's gaining traction still. It's not so much because of the backlog that we still have in transferring. It's very much purely sales.
As you know, because we've talked about this concept for quite a while, it's new clients, but also existing clients taking market share and existing clients having, over time, a higher penetration, a higher flexibility because the concept is quite steady and foolproof. They just get more temps in the mix.
Okay. If the current economic environment continues as it is, and particularly in Europe, then you're confident of sustaining the sort of 15% growth that you saw in in-house? Or is there something-
Yeah.
a little kind of above market about that growth rate?
Yeah. I wouldn't see it gaining more traction than now because we've got some markets, for example, Italy, have such a high growth that even we are not that confident that we can keep that up.
Sure.
Still, good double-digit growth, as we see it in the coming months. Yeah.
Okay, great. All right. I'll leave it there. Thank you.
Okay.
Our next question is from Hans Pluijgers from KBC Securities. If you'd like to go ahead.
Yes, good morning. Hans Pluijgers. Going back on the gross margin question. I look at, let's say, also the acceleration in in-house growth, and at the same time looking at the development in the gross margin, the 30 basis points pressure, how much explained by, let's say, the shift to in-house, so to other delivery models? I make a quick calculation that I can estimate about 20 basis points of that drop is explained by that shift. Is that a fair number, do you think? Then also coming back on the trends for the quarter. Also there make a quick calculation, then in principle, February growth should have been higher than in March. Is that a fair assumption? Also looking into Q2, could you a little bit elaborate on what you see on the U.S. there? There you see the market numbers picking up.
Is that also a trend you leave to see?
Yeah, Hans. Your last question, February, I think we are pretty high standard with our disclosure. Growth has been at the quarterly level also in March and April, and I think that provides with a good base for further analysis. On the Randstad in-house question, just again, pricing pressure does not deteriorate. It remains as it was, mainly in the Netherlands and a bit in France. Please remember that part of the growth of in-house is conversion from clients from the regular staffing branches into in-house, where it typically moves with a low gross margin. In in-house, we then match it with a very high level of productivity, and as such, have good returns. I would not overestimate the impact of that.
No, to elaborate a bit on that, it's not as simple a mix as you now portray it, because large clients, generally that's where the price pressure is. There's upside in the SME growth. 15% growth in SME comes at a higher margin, so that's upside. Then in-house, we already mentioned. That's very much a mix as we call it. You had another question which was on? Quickly on the U.S. to the market, they're picking up slowly. The U.S. has easier comps into Q2. That will help. We don't see a real pickup in the market as such. If there's anything to describe currently in the U.S. market, it's really a bit of uncertainty. I don't know if it has to do with politics, but it's a bit of wait and see attitude we see.
On easier comps, and as we already showed, our IT business is doing better than Q4, let's hope that they can keep up that trend. I would say our staffing business is growing probably slightly ahead of the market. In professionals, we still have some opportunities. Jack already referred to IT. We made some changes in the organization in professionals, of which we expect to see the return coming in in the next quarters. Okay, thanks.
Our next question is from David van der Zande from KBC Securities. If you'd like to go ahead.
Yes, good morning. Thank you for taking my question. I've got two. First, on your global businesses. Could you please explain us the dynamic in term of margin decline, especially at Sourceright? Also, maybe if you can tell us when you expect Monster to be breakeven, basically. Then second question on Belgium. Do you think that your performance compared to the market can last throughout 2017? Thank you.
Let's end with Belgium. We're happy with where we are. As you know, we've got 6 weeks visibility, roughly until the summer. This also goes for Belgium. We're very happy with the way our colleagues are running the business in Belgium because it's the ideal mix of market top line outperformance and results improvement. That's about as sweet spot as you can get. We hope to keep it up, but we got no visibility beyond the summer. I can't answer that one. David, your question on global businesses, the margin decline here, the operating margin. That is the result of the inclusion of Monster. That brings me to your other point, Monster breakeven. We're taking this by quarter. Actually, last time we included a slide with boxes that show you the progress we're making.
We'll include that one again when sharing with you the Q2 results there. It's going step by step, and we'll keep you posted quarter by quarter. It's clear that we have an ambition to reverse trends as soon as possible and making sure that we get to positive territory, and we're putting everything in place to get there. Then, on the other part of our global businesses, which is our Sourceright business, both our MSP and our RPO business are growing ahead of global market. It's a good double-digit growth, which also comes if you have a lot of new clients, the first year working with a client comes at almost no return because you need to put a team in place and that sort of thing.
In this business, a bit similar to in-house, a lot of new clients always puts a short-term damper on profitability, but it has a good long-term outcome. We're very optimistic about the development of that part of our global business.
Should we expect more detail on the profit development, let's say from a theoretical point of view, at the CMD?
Yeah.
On the Sourceright, I mean.
Yeah. We can do that.
Thank you.
Our next question is from Konrad Zomer from ABN AMRO, if you'd like to go ahead.
Hi, good morning. Two questions, please. The first one on Ausy in France. Now that it has become a full part of your company, we know it's going to remain a separate entity. Is there anything that your remaining French business will notice from the fact that Ausy is now part of Randstad in terms of cost synergies, in terms of maybe revenue benefits or anything? Is the growth rate of Ausy still clearly above your other French business? The second question is, on the 45% growth in perm in the Dutch business. We know it's from a low base, but just to clarify, is that also a reflection of the fact that clients in your Dutch business are more confident to recruit on a permanent basis as opposed to on a temporary basis, i.e., is there a certain bit of cannibalism taking place? Thank you.
Okay. Yeah, we never use the word cannibalism. We always use the word we try to grow as fast in everything that we sell. I do think in the Netherlands, you do see unemployment going down. Our efforts on perm, which already delivered in the last two years in quite a few markets, are now certainly in Europe and also in the Netherlands, very well timed. For example, Yacht has a negative top line, but is growing in gross profit as a result of the perm efforts. We never did a lot of perm within Yacht, but that's now gaining a lot of traction. We think it's both. We are ahead of the Dutch market in perm, absolutely, although the numbers are pretty tough to get. I think the timing in the market is good.
On Ausy will definitely benefit from us combining client contacts, that sort of thing. Also, the fact that our French business is probably, as we mentioned already, the strongest business we have on supporting our people with perm. Sorry, perm. Yeah, well, the result is better perm, but with technology. In France, all our temps have got their own app technology where we communicate with them. That sort of thing will definitely also be brought to Ausy. We've got, as we mentioned, a European prof community. On a quarterly basis, we sit together with the large European prof businesses, and Ausy will be a part of that. We're going to exchange client info, best practices, technology, that sort of thing. That will definitely help. The growth rate in the French part of Ausy is not high at the moment.
They've got issues with getting the right candidates because that market is heating up and it's scarce to begin with. We also think we can help there to improve the growth in the French Ausy business slightly. Yeah. This is relatively a stable picture compared to the previous announcement, in line. Yep.
Okay.
May I just clarify, David here. The growth of Ausy is just working days is quite stable versus Q4.
All right. Yeah, thanks. Just one quick follow-up. Your EBITA margin of your U.S. professionals business, is that higher than the average you report on North America?
The EBITA margin?
Yeah.
Yeah. Yes. Yeah.
Okay. Thank you.
Our next question is from Rajesh Kumar from HSBC. If you'd like to go ahead.
Hi, good morning, gents. Trying to understand what you exactly mean when you talk about price pressure. Do you mean that customers come out and say, we'll offer you lower markup on each temp or perm placement, or do they ask for a lower margin on HR type of services, or is it a mixed thing? It would really help us understand your comments about the price pressure you made earlier.
Yeah. Okay. Price pressure is a tender at a large client, and they ask people to quote. They want a lower margin. Then, yeah, that's price pressure. Yeah. On top of it, Rajesh, it could be that they are asking for extended payment terms or additional risk absorption by us, where effectively in the tender, which is very often online, you have to sort of put a cross in the box, and if you don't do that, you don't proceed. Well, we are protecting our business and our profitability, so sometimes we accept not to proceed.
Okay. You're telling us that all these contracts are open book. They can see what operating margin you're making, what gross margin you're making.
No, that's not what we're saying. What we're saying is you might have a 15% gross margin or a multiplier on the gross wage of a temp. That's how we normally present our prices. They just ask the market if anyone can go lower or end. We see that a lot with private equity-owned. You might have a 30-day payment term, they want to extend it to the next year. We get some funny questions sometimes when they want to extend it to 60 or 90 days. We've even seen 180 days. That's also pricing pressure and also risk in general. Not pricing related, but very much also reason sometimes not going there. It's around liabilities where a client will say, "Well, we make X product.
If anything goes wrong, you're to blame." That's a liability we really don't want to get into. Yeah, mostly in blue collar, by the way, it is. That's the playing field then. At the end of the day, that amounts to pricing pressure. Certainly in the markets where we have a leading position, Netherlands, Belgium, Germany, and although we're not leading in France, we're leading in that respect, I think, we then shy away from going with these clients.
That sounds very sensible. When you look at your entire EBIT, are we talking about 50% of EBIT, which is undergoing this dynamic, or you're talking about 20% of? In terms of customer exposure, these are large contracts, blue collar. I'm assuming they are at least 20%-30% of your total earnings. Or is it true across the board, across SME, across all sorts of customers?
Well, probably, Rajesh, it is like your own business. One way or another, you have to get your pricing right. If we look across the globe where we have, let's say, more intensive pricing discussions and pressure, that mainly relates to the Netherlands and to France, which adds up to like 30% of the business of the group. Within that 30%, it is not every segment, it is selective segment. It is not a very big part, but it is a relevant part of our business on which we are pretty critical and are willing to let deals go. There is a sort of a consistent thing. Businesses, services commoditize over time. That is also why a reason for our second touch strategy. The second one is related to economic development. Although Europe is recovering now, it has been in decline for quite a while.
In America, with a better economy in the last three, four years, you see that pricing improved. We do see unemployment coming down in quite some markets. Hopefully pricing pressure eases, but that is not what we are seeing currently yet.
Finally, we are training our people on getting the right price, which in itself is an interesting training to participate in.
Thank you.
Hope this helps. Thanks.
We have a follow-up question from Toby Reeks from Morgan Stanley. If you'd like to go ahead.
Hi, guys. Sorry, I know it's only two, just coming back on the incremental conversion ratio, you didn't answer that question. Could you give us some guidance around where you see that trending over the next two to three years, please?
Well, Toby, that's also interesting territory. Typically, when a growth initiates, then the first phase, we do show ICRs in the regular business of around 70%, even low 70s. Then it gradually changes. Phase one is effectively where we are selling more with the same people and the same infrastructure, we pay more bonuses and commissions and marketing. That phase is over. We are now in phase two, which is where we are adding people on a significant scale in the front office mainly, and hardly in the back office. That's why the incremental conversion exceeds the conversion ratio. This phase typically lasts for a few years because the final phase, and this is all theoretical, the final phase is where you have to add all the costs pro rata, and that's where we are not.
We should still be, let's say, between 25%, which is the conversion for the group as a whole, and sort of 50%. That's why we indicated to you that most probably this year, we should aim at being around just the 40% level, preferably aiming even a little higher. We made that point. That's pretty ambitious. At the same time, we are expanding our digital base, where we believe we should accelerate. That's what we are doing as we have explained, and actually as Monster explains. These two things are coming together. I made the point that both the ICR and the digital expansion of the company have equal priority. Getting to a 40% ICR for 2017 will be very challenging, let me be clear.
One way or another, we should show progress made, and that means we have to manage our cost base properly, so it should not be too far off from that.
Okay. That's very helpful. Thanks, guys.
This is the management dilemma, Toby, that we are going through.
It's a tightrope, guys. It's a tightrope.
Yeah, exactly. When growth accelerates, this gets a little easier. With these growth rates, it's a bit more complicated.
One more on this one, it's also around speed. If we read through some of your reports, you see that we are slightly ahead of competition in digital development, the market is moving fast, we also want to capture as much of the momentum as we have, sometimes that involves a little bit more investment. We'll see for the next two years how that turns out.
Okay.
It's exciting.
Thank you.
It's exciting. Yeah.
Our next question is from Steve Wolf of Newell Security. If you'd like to go ahead.
Morning, guys. I was wondering, could you give us more color on the trading conditions you're seeing in the U.K.? You mentioned no change since Brexit. I just wondered how that's panned out during Q1 of these conditions there revenue-wise. It's still a little soft at minus 4%. Thanks.
Yeah, this is not very exciting space. Honestly, it's quite stable. It's not deteriorating further. It is what it is. When we talk a bit wait and see in the U.S., that's very much also the attitude we're seeing in the U.K. It's, of course, a very intransparent situation economically. We'll see.
Yeah, I think from a capital standpoint, it's by no means the bleeder. This is a significant position, wait and see. By the way, there are twice as many suppliers in this space in the U.K. as there are in the U.S. It is a complicated market.
No sort of thoughts per industry. Is there anything that stands out?
No.
No, absolutely not.
Okay. Thanks, guys.
Thank you.
Gentlemen, we have no further questions registered. I'll hand the presentation back to you.
Well, perfect. Thank you so much for joining us on this call, and we are looking forward to connect again either during our roadshows or at the end of July for our Q2 discussion. Thank you so much. Have a good day.
Ladies and gentlemen, this concludes today's call.