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Ladies and gentlemen, welcome to the Randstad Q4 Annual Results 2016 call. My name is Laura and I'll be coordinator for your call today. I will now hand over to your host, Robert Jan van de Kraats, CFO, to begin.
Ladies and gentlemen, good morning. Welcome to our results discussion, Q4 2016 and full year 2016. I'm here together with Jacques van den Broek and David Tailleur, and some other colleagues who will be supporting us to share the results with you. Please also note that our annual report is now available online on our website. I'm going to take you through some of the slides and then we'll end with Q&A. I'm moving to slide five right away, which shows the highlights of Q4, the improving momentum in Europe. Clearly this was not a bad quarter at all. We've seen accelerated growth in Europe and the rest of the world, and the U.S. remains in positive territory. We've also made clear progress on our recent acquisitions, and also 2017 shows a relatively good start in line with Q4. Moving to slide six. The P&L.
A strong top line finish of the year. A good organic growth for the year, 5%, an improvement in the EBITDA margin to 4.6% from 4.5%. If you look at Q4 specifically, we've seen growth accelerating a bit, as I just referred to, which has resulted in additional investments in our OPEX to serve these trends. Also, our year-end closing, which typically brings some incidentals, showed a little less incidental this year compared to last year. One point to note also is our perm growth of 4% in the quarter is a little less due to the effect of having less Mondays. Q1 shows a good start, January, so we think we are roughly at high single digit as a comparison base. We've now seen more than three years of growth in our book. As you know, we always aim at an incremental conversion ratio of around 50%.
The first year we aim at a conversion ratio between 70 and 80, which we have shown. It goes to around 50. Given the fact that we have now been growing for more than three years, the range is towards 50%. The regional split on the next slide, seven. Improving momentum in Europe. It's always a little difficult to read the month of December given the holidays, because all working days this time had a full impact due to the timing of these days. Across the board, as you can see, in the rest of the world, in Europe, clearly a good momentum, and North America is keeping up. North America on slide eight. Stable growth trends. Revenue growth at 1%, perm somewhat down. Again, please note the effect that I just referred to. U.S. staffing, it shows that we're holding up nicely also versus market here.
U.S. professionals revenue down, which probably is close to market at least. If we look at IT, that seems to improve a little bit. F&A remains challenging. Canada doing well. Revenue up by 4% again, that clearly is market outperformance. Our EBITDA margin improved, which is effectively the same improvement as for the full year. The Netherlands on slide nine. Focus on customer profitability. That's the key theme here. The payrolling business, the impact of the loss of the central government as a client, will be dealt with at the end of Q1, so it still comes through here. Revenue remains at 2% growth. Pricing pressure clearly continues, that's also why our focus is on customer profitability. SME growth 12%, clearly outpacing our large clients. Perm up double digit. Our combined staffing and in-house business shows 3% growth and professionals down.
Please note that Q4 last year showed 19% growth, which is a challenging comparable base. Also we have quite a few young consultants in our organization which are going through their learning curve. The EBITDA margin flat, I think that's a good reflection of our focus here. France on slide 10. Accelerating top line, 10% growth now. We see this level of growth in a few European countries, it's very good to see this in France also, which most probably is better than market. Our combined staffing business at 9%, also professionals. Across the board. Something to point out here is the effect of big data. Our digital efforts, we can see them coming through. Amongst these is perm growth in France, 21%, clearly fueled by that. Our EBITDA margin improved to 5.5. Again, the same delta roughly as for the full year.
As you know, we're working on the transaction of Ausy. We now have control of the company. We own 93% of the shares. We're working on the next step and are confident that we'll complete this. On CICE, some questions. We have various scenarios. Whatever the political changes will be, it's clear that France needs some support on the low wages in order to be competitive. Please also note that at Randstad, we have net operating losses in France which are not valued given the fact that CICE is not taxed. If anything would change here, these would come into force. All too early to say at this point in time. Please also note that in Q3 2017, this year, we will receive the first part of the CICE, which is in the balance sheet, roughly EUR 70 million.
Germany also showing double-digit growth on slide 11, improved from 5% in the previous quarter. Especially our SME segment is doing well. Our professional business performing quite well and the EBITDA margin lower this time, which is due to the release of, as you can read here, holiday accruals and fewer working days. Also the effect of the new regulations coming through, in higher sickness rates, which is rather unfortunate. There is additional regulation being discussed in the German market. We expect it to come through, and we also expect it not to have a relevant impact. On Belgium, slide 12, record profitability, which is quite a nice combination with the fact that we are closing the gap with the market. We've been behind market for a while due to focus on customer profitability.
Now that gap is being closed, and that comes in with record profitability, which I think is an excellent sign. Also, the gross profit level, a good improvement. The EBITDA margin now at 7.6, which I would say is rather high. Part of the delta can be explained by the higher release of Social Security accruals at the end of 2016 compared to previous years. Iberia, slide 13. Strong growth on higher margins. Clear acceleration also here, 10% growth. That seems to be the name of the game. In Spain, we see 12% growth, and in Portugal, 7%. That's a pretty good result. Also, our EBITDA margin improved by 30 basis points. Full year, it even improved by 40 basis points, which is reflecting good productivity. The U.K., on slide 14, the Brexit impact continues to be limited for as far as we can analyze.
The revenues were up by 2%, but our perm fees were down. CPE, the construction space, is performing well. Our EBITDA margin lower this time, which is also the result of the fact that we have lower perm. On a full year basis, the EBITDA margin improved by 10 basis points to 2.5. Slide 15, the other European countries. We are especially happy with the performance of Italy. Organic revenue at 26%, and our recent acquisition completed in the summer of last year, Obiettivo Lavoro, the integration clearly on track, but also, we've shared with you that business growth was a key priority in this company. It's back to growth in January. We're very proud to have achieved that on such short notice. Also, the businesses in Switzerland, Poland are doing well. In the Nordics, our Proffice integration is also completely on track.
Rest of the world, slide 16. Growth clearly picking up. In Japan, it continues at 5%. Australia is a clear improvement. As you can see, also the other regions are doing well. We have changed the focus, as we have shared with you before, on profitability here. As a result of that, the EBITDA margin has improved. Now some words on the recent acquisition of Monster. The slide on page 17 is one that we're going to use going forward. We'll share that more frequently with you, and I'll elaborate on part of it, and Jacques will elaborate on another part of it. We have given you some time indications at the top, and these are the components that will support us getting value out of our transaction.
Please note at the bottom that the Monster underlying EBITDA 2016 was around zero, and for Q1, we expect a small adverse impact. First box, corporate cost synergies. These are annual synergies. Corporate cost synergies, that means taking out the head of the company, the listing and so forth. We are going to see annual savings of $7 million per year. Also, the way the transaction has been structured and financed, it will result in tax synergies of around EUR 70 million per year. These are key value components that will support the economic value realization of this transaction. It is clear that there was a downward trend when we acquired the company. This was known. It doesn't show real loss of clients, but it shows lower spend. That is something we need to work on. I'm now transferring to Jacques to comment on the other boxes.
Yeah. Good morning, everybody. Let's talk a bit about Monster. What have we done? November 1st, we had a big global kickoff, across the globe. We met with the Monster teams. Lots of excitement and positive energy there. We went into a long period of analysis. What works well with Monster and where would we want to improve? What we share with you is that the business that Monster is in is very much going to a solution sell. It goes from duration job postings that are not interactive with the client, to pay per click and pay per candidate. Monster has that, but it's still, we think, a too limited part of their business, and we're very much strengthening that. We're going in full investment mode there, to improve Monster and make it a bigger and better Monster.
We made some direct organizational changes, as Robert Jan already pointed out, to capture some synergies. On the slide that says, "Why Monster?" There's three levels that we see us using and embarking upon with this project. The middle one is very much accelerate digitization. I shared with a part of the analyst community last November what our strategy is on digitizing our traditional business, and Monster is speeding that up. Their platform and technology will definitely help us there. We're very bullish and very enthusiastic about the social media aggregation, the TalentBin that they have in there. Search engine optimization. If you're not in the top three on Google searches, you don't exist in a way. As Monster has an SEO department, with us that's limited, we're going to use that. Very much mobile.
We've got a vision that in the future, every worker will have two logos on their mobile, which is the Monster logo and the Randstad logo, where we will communicate together. This is very much a project. It's on the way. It will take the better part of 2017. The first one is something we already found out in our RIF journey, in our innovation fund journey, is that there are a lot of, we would call them non-traditional players who, fueled by technology, create business models in our space. We very much, together with Monster, will build businesses over time that compete with traditional business models and at the same time will also reposition Monster in a way. Sounds a bit cryptic, but there's more to come here at the rest of the year.
The last one, a trend we've seen already for quite a while, it's around the passive job seeker. More and more, around 70% of job seekers are not really actively looking for jobs. Although technology can find these people, that's something else than engaging these people. Again, the access to talent is crucial for us going forward. You know Monster has 300 million profiles. They've got the knowledge to give us access to talent. This is a program, again, that we've embarked upon together with Monster, which will definitely put both companies in a better space to find the talent that needs to be found. After the first three months, we conclude there's lots of excitement and energy. It's definitely hard work. Of course, as you know, Monster as a company had negative revenue. We can't change that all of a sudden.
It's again, hard work, but we're not afraid of it, neither at Monster nor at Randstad. The work has just begun, and we will keep you posted.
All right. Thank you, Jacques. This is a way that we think we can share some insights with you. Many others are still in progress. We'll keep on updating you on the back of this journey. Moving to the financial results and the outlook. Slide 20, the income statement. All of this has been addressed, I think, in the previous comments, with the exception of integration cost one-off. Please note that we have some restructuring projects for EUR 16 million across the board in the company. M&A took out roughly EUR 10 million, of which Monster clearly is the largest, and we also spent EUR 10 million on integration of both Monster, Obiettivo Lavoro, and Proffice in this quarter. The amortization and impairment has increased due to the item relating to India, but also because of new M&A being included here.
The net finance cost and associates is rather low, I would say. In the press release, you can read that it includes the fair value adjustment of which the bookkeepers are rather proud because it's sort of science here. For the press, you look at the net income here, which I think is indeed, of course, it is a relevant number. Please note that net income includes the elements that I just referred to. It is better to look at the adjusted number, EBITDA, the underlying EBITDA. That's where the improvement is clearly visible. On slide 21, we share with you the performance by revenue category. Also here, I would recommend to look at the full year effect, where you see clear improvements in every segment. In-house last year in the fourth quarter did have a one-off, which hit the performance.
Moving to the gross margin bridge on slide 22. We have a reset here, and that is because of the inclusion of Monster, which clearly comes in with a lot of gross profit. As a result of that, the numbers are changing. Roughly, if you look at the 40 basis points decline in the temp margin, the explanation is lower incidentals that I referred to at the beginning, 10 basis points. Pricing pressure, mainly in the Netherlands and France, having an impact of 10. The rest is resetting the mix. The operating expenses bridge. Please note this is sequential rather than comparing year-on-year. The big box here is M&A. That's not our expense to do M&A. No, these are the operating expenses that come with the acquired companies.
I think the story here on the slide clearly shows you that we are investing where we have growth. The balance sheet on slide 24. Net debt, rather comfortable at a leverage ratio of 0.8. I think little to say other than that DSO has gone up, which is contrary to the trend that we have shown you over the last years. This is the result of the inclusion of the acquisitions of Obiettivo Lavoro and Monster. We think especially the Italian context is a challenge to work on and improve. By the way, the return on invested capital, a little lower this time, which is clearly fully related to our recent M&A activity. Our free cash flow on slide 25, it shows a decline of the free cash flow in Q4 and also for the full year. I have a few notes to make here.
One is the fact that we have working capital investments related to M&A, which is again, Obiettivo Lavoro, Monster. It's the increasing DSO and the fact that we have accelerated our sales growth. This is investments in working capital. Roughly EUR 50 million is explained by that. Then 2015 was rather favorable on the cash tax rate line. Now it's more normalized. That explains another EUR 30 million. Some comments on the net capital expenditures, as you can see here, a bit higher, which is related to some projects that we have concluded in 2016. In terms of 2017 CapEx, I would say that our 2016 CapEx, including the acquisition, will serve as the high end of the scale for 2017. Moving to the outlook on slide 26. On your request, it's all printed here now. The organic revenue growth, again, 6.6% in the quarter.
January was between five and six growth. The Q1 comparison is a little easier. Volumes, we measure volumes every week of the number of people that we have at work in our organization. Those volumes indicate a clear continuation of the trend that we have seen in January. This trend, as you can see here, is expressed on the slide. One plus means low single digit, double is mid, triple is high single. North America, low single digit, the Netherlands also. France and Germany, clearly high single digit, as is Italy, including the acquisition here. Belgium, single digit. Iberia in the middle. Rest of Europe, single digit, rest of the world is now at mid-single digit. We have revised our geographical presentation here, which will also be announced after this call in a separate press release, restating the 2016 data.
It's an update on the website. You can see the details on our website for 2016 in order to prepare you for 2017. The gross margin in Q1 is expected to slightly decline year-on-year, which is the result of pricing and acquisition. For Q1, we expect a roughly stable underlying operating expense base sequentially on an organic basis. In Q1, there's also, it's not expected, it's certain, a 1.5 favorable working day impact due to Easter. Finally, a few words on dividends. We have a dividend proposal included, which is a record high. The proposal will be to pay a EUR 1.89 dividend per share, which is 13% improvement. It's a payout of 50%, and it is clearly reflecting the strong financial position of the company, and it will be a full cash dividend.
In order to give you some guidance going forward, we've also fine-tuned our dividend policy. We will make an amendment to that, which will imply that everything remains the same with one exception, up to 1.0 times EBITDA, we will not provide the option for stock dividend. It will be cash only dividend. It's a small change, but we think it is relevant, and it also fits the anticipated strength of the balance sheet throughout 2017. That concludes our comments. Please note that on the 30th of March, we'll have our annual general meeting starting at 15:00 hours. Thank you. We are now moving to Q&A.
Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question today comes from Toby Rees from Morgan Stanley. Please go ahead.
Hi, guys. I've got a couple if I can. The first is, on the Monster side, very interesting to give some details, so thanks for that. You said the Monster platform and technology will enable us to speed up the digitization process. I think when you announced the deal, you said it was going to be run as a standalone. Is that the case still? Do you intend to use that platform more, I guess, centrally for the rest of Randstad? Secondly, could you update on how you're going to account for depreciation within your Monster integration? That's my Monster question.
The second one is, could you give us an indication of what your expectations are around CICE, how it might change, i.e., the payment moving potentially from a deferred tax credit to a tax reduction, and what that would mean in terms of your conversations with customers? Thank you very much.
Thank you. The depreciation element, it will just be following Randstad accounting principles. We'll apply the same standards as we do for the rest of the group.
Okay. Thank you.
Yeah. If I may, a quick follow-up on that. The capitalized internally developed software
That will be below the EBITA line in accounting. That part.
Yeah. That's what you have to do when you acquire a company, the opening balance. For the rest, for new investments, we'll follow the same rhythm as for the Randstad group.
Now, Toby, a good question on Monster.
Yeah.
No, Monster is very much a separate company, and the strategy within Monster is very much to invest in, again, what we call solution selling. Pay per click, pay per candidate, will remain a standalone company. Having said that, the knowledge this company has can be used to speed up Randstad. We're not going to have shared platforms. It's very much a standalone company from a technological point of view. On CICE, that's a tough question. As you know, election's coming up. Again, there's never been a subsidy canceled in France.
Yeah.
CICE is big, but we got many more subsidies in the cost price in France.
Only at it.
CICE is widely regarded as one of the successful measures of the Hollande regime. Our numbers are great.
One of the few.
Excuse me?
One of the few.
One of the few.
Yeah, one of the few, but still. The system might change, but as Robert Jan said it is a way to keep costs low at the blue collar and low end of the labor market. In that sense, it's necessary.
Sorry to jump in. If it moved to a, in the past, we talked about it moving to a sort of straight tax reduction. Would that mean that you would have to re-engage with your customers and renegotiate contracts, or is that not the case? Have you handed a lot of the CICE back to your customers already, or is that the wrong way to think about it?
The latter we haven't. As you might remember, we were the last to do this when CICE was still sort of a project. We were very adamant that we would do nothing. That cost us some market share, but deliberately so. When it was then put in a law for a longer period of time, of course, we had to play the game. No, a large part, we keep. Certainly, if the system changes, we need to go again renegotiate with clients. Yeah, that's the name of the game for as long as we've been in this business. We'll see.
Please note, financially, this subsidy has to be pre-financed for three years. That, I would say, is a substantial amount of money for us now, EUR 380 million. It also does not allow us to make use of our net operating losses. That's also the flip side of it. Any changes to that might be beneficial.
Thanks for answering.
Our next question today comes from Paul Sullivan from Barclays. Please go ahead.
Yeah, good morning, everybody. Firstly for me, just on the gross margin, the 40 basis points. I know there's lots of moving parts there, but underlying, are you seeing any signals that higher growth is coming at an increasing cost? That's the first question. Secondly, can you give us a sense of the organic run rate at Monster as it exits and as it enters 2017? You're talking about a small loss, operating loss in the first quarter. Do you think your sort of run rate of zero that you were running at in Q4 at the EBITDA level for Monster is sensible for fiscal 2017 as a guide? My final question is just North America. When the underlying economy doesn't appear to be too bad, why do you think staffing growth is so stubbornly low?
Do you think you are starting to see signs across the wider market of pressure coming through from new entrants or sort of online-only platforms taking share?
Paul, thanks for your four questions. I forgot to say that we prefer people to stick to two. We'll answer these ones now. Gross margin, does it come at a higher cost? No, we think the trend is flat. We indeed see, we've seen now over a few quarters the decline in the margin by 10 basis points roughly, maybe a little, just around that, a bit more, a bit less, but that's what it is. No big change here. Pricing pressure, especially in the Netherlands branch. Organic run rate of Monster, minus 15. I made the point of a small operating loss in Q1. I think that's the base to work with for 2017. That's especially why we're mentioning it. In the meantime, we have a lot of projects that Jacques referred to, which should set us up for a great future.
Jacques is now going to take the next one.
Yeah. On the U.S., indeed on the one hand, you see a good economic base. On the other hand, you see low growth. We're very happy with our own growth. As you've seen, quite some staffing companies posting negative numbers, Manpower, TrueBlue. We see growth very much on the back of our sales success in in-house, quite a lot of new clients. That's good. Your other question is very interesting and goes back to my statements on Monster, and that is new entrants. For example, you've seen Robert Half put in not great numbers, and we do see new companies, for example, Hired.com. They're not just a startup with low revenues and a lot of investments. They already have sizable revenue. These new models are definitely gaining traction in the U.S. marketplace, which we think is the most developed one globally.
That's also why we have embarked upon our own tech and touch strategy.
Thank you very much. Very clear. Thank you.
Our next question today comes from Chris Gallagher from JPMorgan. Please go ahead. Apologies. Our next question comes from Marc Zwartsenburg from ING. Please go ahead.
Yes, thank you. Two questions. First of all, on your statement of limited M&A, Robert Jan, can you give us an indication what it means, limited M&A? Is that, say, south of max EUR 1 billion in terms of deal size? Not one acquisition, but all the acquisitions together. That is for the ballpark figure. That's my first question. The other one is on the tax line. Can you give us a bit of guidance on the tax line for say, 2017, 2018, including that Monster will have a huge impact due to the tax synergies you're expecting of EUR 70 million. That's it. Thanks.
On the limited M&A. Well, it will certainly be below a few billion EUR.
No.
No?
EUR 1 billion, I mentioned. One.
Marc. I understand, Marc. It will be way below that. Just to be clear, as you know, we have a reputation that we don't like stretched balance sheets, so it's going to be significantly below that number. It should be relatively small and bold on M&A.
Okay.
If we then the tax line, I think we have indicated 24%-27%?
Yeah.
% as an indication for the effective tax rate for 2017.
That will not change due to the inclusion of Monster?
Marc, it's David here. I think you're referring to the cash tax rate also.
Yeah.
That was volatile through the years, so that will probably be flattish versus 2016.
Okay. Thank you very much.
I think, as you know, as we try to give you a wide range, and then we work hard to be at the best end of the range. That needs to come through in 2017.
Especially the cash taxes are important now that you're steering. The CICE cash is coming in. That's a good one. I have more questions, actually. Can I put in one more?
Chris did not put in one. You can do.
On the U.S. Indeed, in Q4, you saw some volatile picture around the staffing companies reporting. You see on the jobs figures for January. The lead indicators are pointing to a slight improvement, if I'm correct. Is there anything that you see within your business, perhaps in your manufacturing or in your E&S segment, that indicates that indeed the trend in the U.S. might improve a little bit over January into February?
If we would analyze our own mostly manufacturing and blue collar, the like for like clients are actually going down a bit. Our growth is very much fueled on the back of new clients. In that sense, we don't see any improvement yet in January, February. Having said that, our own numbers again, in staffing in January look okay-ish, but not a steep incline in growth.
Okay. All right. Thank you very much.
Marc, I will add some comments to your previous question on the tax synergies to give you some clarity. Through tax planning, this comes in, and it takes a few years to really hit the P&L and the cash flow as well. Given the lengthy term, we have 20 years to offset this. It's an extremely highly certain amount of money, the synergies that we just referred to. The cash tax rate we believe will be around 20, 22%.
20, 22%. Okay.
Hope that helps.
Yeah. Thank you very much.
Our next question today comes from George Gregory from Exane BNP Paribas. Please go ahead.
Morning, everyone. If I could just clarify a few of the numbers on Monster, please. I think you gave a tax synergy number of $17 million and corporate cost synergies of $7. Are they both US dollars? Secondly, I think in the statement you said that Monster's contribution to EBITDA was $4 million. I think on the call you just said that the contribution for the entirety of the year was zero in underlying EBITDA. If you could just clarify that point. Finally, I think you mentioned that you'd be capitalizing the internally developed software and amortizing that below the underlying EBITDA line. Could you just clarify that point and specifically why, if that is the case, why you'd be amortizing the internally developed software below the EBITDA line, please? Thanks.
Yeah, it's US dollars. First question. Second question. Indeed, there was a positive contribution, but it's very much related to the consequences of bookkeeping. I think the right data point is the zero for full year and Q1, a small adverse impact, as I said. Finally, on CapEx. The scientists behind IFRS have thought that it's a good idea to restate the balance sheet, the opening balance sheet, as a result of which you'll get some relief on depreciation going forward of the old investments. Any new investments will work through as we do always, as we have always done at Randstad. It will be capitalized and then coming through at the depreciation line. There will be some relief
In the P&L as from the beginning, due to the fact that things have been reallocated in the balance sheet and not being depreciated anymore. The annual impact of that at the beginning will be around EUR 15 million.
EUR 15 million a year?
15. Just at the beginning, because the amount will quickly reduce.
Understood. Thanks. Sorry, just one quick follow-up. The EUR 17 million tax synergies, for how long do you envisage that running for?
Well, that's quite a long period of time. 15 years, we think that will last.
Great. Thank you very much.
Thank you. As I said and answered the previous question, it will not kick in as from day one. It will take a few years to kick in.
Great. Thanks.
Our next question today comes from Suhasini Varanasi from Goldman Sachs. Please go ahead.
Hi. Two questions from me, please. Germany, growth has been very strong. Given the unemployment levels over there and the regulations changes that are happening, is this something that is sustainable? I know you had the exit rate of high single digits, generally speaking about your market, any color on that? That would be great.
Yeah. Germany benefited certainly in Q4 from the calendar effect mentioned in December. Still, we do see mid-single digit. Yeah, it's outperformance. We are very happy with that. Also SME, again, outgrows large clients. That works. Indeed, looking at the labor market, when you, for example, look at the southern part of the country, there is 3%, 4% unemployment, maybe even lower in some pockets. Certainly, the better qualified people are tough to find. Yeah.
Okay.
So far so good. Happy with our performance in Germany. Also, permanent placement is improving. 11% growth in professional. Yeah, it's a good year and again, a good start of the year.
Okay.
We didn't mention it that much, but sickness is a bit of an issue. It still pays to be sick in Germany. We have around 1% more sickness rate than you would humanly expect. We would like to work on that, either in the new CLA. That's longer term. That's still something that we. Not just us, any player in the market. Yeah.
Understand.
Apart from that, good in Germany. Yeah.
Thank you. Second question is on EBITA margin for 2017. I realized on the SG&A, there are quite a lot of moving parts. You've talked about synergies from Monster in a lot of detail. Are there any other synergies from other M&A, like, for example, Obiettivo or Proffice that are yet to come in 2017? How is that going to get offset by the additional investments, and therefore, SG&A for 2017 and implied EBITA margin?
Our focus for 2017, that actually helps to serve the previous question on significance of M&A. Our focus will be on returns from past acquisitions. That's the key theme now, integration and returns. We should see those coming through in our performance. Please note that most acquisitions were, I think, acquired at an affordable price, and that was the effect of underperformance of those companies.
Yep.
We see opportunities to lift the performance of the acquired companies at least to the average level of the returns at Randstad, and we're working hard to achieve that as quickly as possible. As I tried to share with you in my presentation, all of these acquisitions are well on track now. Even the Italian one, I would say, significantly ahead.
Okay.
Maybe a bit more color, of course, on synergies. Not all acquisitions are synergy-prone. Obiettivo Lavoro very much so it's rebranding, coupling two companies. Proffice is in a way, to a certain extent, a reverse takeover. It's rebranding, which is investment in the new brand. These are more revenue and concept synergies, where, for example, we bring our in-house to their blue-collar clients. Monster is very much a project. It's a company in itself, but also it's our investment into digitization. Ausy and BMC improve our business mix. Again, not so much the synergies, but very much buying more professionals DNA and to shift the business mix in Europe more towards professionals as it is in the U.S. Again, different goals with different acquisitions.
Understand. How will investments balance this out? I mean, incremental investments in digitization, for example.
Yeah, that's too soon to tell.
Yeah, that's why I gave you some indication that the 2016 CapEx would be the high end of the scale for 2017.
Okay. Thank you very much.
Our next question today comes from Konrad Zomer from ABN AMRO. Please go ahead.
Hi. Good morning. A question on the integration of BMC in the Netherlands. In the professionals area, you saw revenues decline by 8% in the final quarter. Is that, do you think, in line with what happened to the professionals market in Q4 in the Netherlands? Do you think that purely because of the integration of BMC, you will be able to accelerate the track back towards performance in line with the market? Thank you.
Yeah. Those are, for us, separate topics. BMC is in a niche, a big niche, which is the government professionals. We will combine our own business, which is roughly EUR 30 million, relatively small within Yacht with BMC. It's less of an integration. We will keep the brand because it's very well-known amongst candidates and amongst clients. Again, that's sort of a reverse integration here. At Yacht, it's a different one. What we've seen as we put together the business in 2015, led to a surprisingly good performance. We created a split model. We went from 360 consultants to sales and recruiters. What we've seen throughout 2016 is that quite a few people in the sales side didn't perform as we would like, so we replaced them.
We're now at Yacht, we're having a relatively young set of consultants, and this takes time to ramp up. These are two separate topics. The -8 is partly the comparison with the +19 last year. We think it's below the professionals market. Yeah, that's where we are.
Konrad with government sector segment, the local public sector mainly, that's where they are active.
Yeah. Just on BMC, it seems that the growth rate that the company has been able to achieve was higher than what Randstad was able to achieve in the Dutch market. Do you think that will continue, or do you think that will move towards your level of growth?
Again, this is incomparable. BMC is growing in a certain niche also. Our part of that business is growing, that's good. We want our professionals business to grow faster and BMC can keep on growing.
Management is retained for one and a half years, I believe so.
Yeah.
Okay. Thank you very much.
Okay.
Our next question is from Chris Gallagher from JPMorgan. Please go ahead.
Hello. Sorry, I got cut off earlier. A couple of questions. The first around CICE. What would be the impact on your tax rate if CICE was removed or changed to a normal subsidy? Also staying on France, one of your competitors mentioned that there were some cost increases in France through 2017, which more or less offset increase in CICE. How do you see that? Thank you.
Okay. The latter, yes, there are cost increases. François always tries to explain to me which they are, but sometimes they're very complicated. No, the increase in CICE positively offsets these increases in cost.
The impact on tax which I refer to, I have to stick to the fact that it's material relevant as an indication because it's all highly technical and uncertain, but it's not a rounding error. It's clearly significant then.
Okay.
Good.
Yeah. That's helpful. I made one more on Ausy. You mentioned, obviously, you've now taken control of that company. Organic growth there has been declining through the year. Do you think you can do anything to improve that going forward?
Yeah. Again, that's early days. As Robert Jan mentioned, we've got quite a sizable part of the shares. Hopefully we can start to squeeze out soon and be fully owned. Then we'll more formally get in discussion with them to see where we can help to improve the growth.
Okay, clear. Thank you, gents.
Our next question is from Rajesh Kumar from HSBC. Please go ahead.
Hi. Good morning, gents. When you earlier made a comment about Hired.com, do you see Hired.com and such businesses coming head to head with you on placements and temporary recruitment? Do you see your customers telling you that, "Oh, we are not going to recruit from you, but we are going to recruit via Hired.com?" Are you drawing the inference looking at the high growth rate of such businesses?
No. You see many of these incumbents and they got a technology tool, but then they've got a few clients, but it doesn't really gain traction. Hire has humans in contact with candidates, talking to them about the next step in their career and presenting them in a privileged high-touch way to clients, with still very strong algorithms to, in a way, facilitate the first contact with these candidates. We do think that's a model going forward. That's partly the basis of our own tech and touch strategy, where of course we've got the touch already and increasingly we'll have the tech. It's not like clients will say, "We're not going to work with you." It's all about who presents the right candidates first.
You're saying they're able to produce candidates before you?
That's not what I'm saying. I'm saying that hire.com has a model that gains traction in the U.S. As you know, the U.S. marketplace is very fragmented. I also mentioned that on the back of the question from one of your colleagues. This is a model, and if you are in future still traditionally just doing the old way of either perm or professional staffing, you might have an issue going forward, and that's why we have formulated our own strategy. We do think Hire is an example of those new players.
I understand what you're saying. I just want to clarify if it is at your expense, you know that for sure, or is that something you're assuming?
The last.
Okay. Thank you.
Our next question today comes from Peter Leuner from NIBC. Please go ahead.
Hey, good morning. Peter Leuner, NIBC. Just a couple of follow-up questions, please. One is on the tax synergies for Monster. Did I hear correctly that you're expecting for 15 years an annual synergy of EUR 17.17 million?
Yes, sir. Correct. Actually, thanks for asking.
Yeah, that puts the purchase price in a little bit of a different perspective. The second one is on Dutch professionals and the related impact from the ZZP. You mentioned, I think, in the opening statement that you expect that impact to tail off during the first quarter or after the first quarter of 2017. What do you expect of the new regulation going forward? Are you repositioning your payroll business now for the new changes in the business, or do you expect some of that business to come back? How do you view that going forward?
Freelance is an increasingly relevant part of our business. We do see clients, not just in the Netherlands, but also, for example, in Germany, being quite aware of the whole governance issues. A few years ago in Germany, we already saw bankruptcy of the number two freelance broker, which of course hurt clients. Our brokerage is growing very fast. It's also a business we do in Yacht. You don't see it that much because it's a fee-based product. Laws come and go. Certainly on freelancers, we don't know yet. A freelancer is always worried about two things. Is my stuff and my paperwork in order, and where's my next assignment? That's where we play a role.
Clients are also saying, "Where can we find the freelancers, and how can we manage it compliantly?" What we do see is some early signs that twago, our marketplace there on freelancers, can play an interesting role going forward in this whole field.
Okay. You do not expect that business that you lost to rapidly come back now that the regulation has changed?
Oh, you mean the payrolling business?
Yeah.
The government payrolling business. I don't know. It was a call by the current government. We'll have elections, but I don't expect them to beef it up quickly. We're growing in the private sector in our payroll business at the moment.
We now have more civil servants, right?
Yeah, we do.
Very good. I guess. All right.
Yeah.
All right. Thank you very much.
Okay. Talk to you.
Thank you so much.
As a reminder, ladies and gentlemen.
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Well, that's great. Well, thank you for joining us at this call. We now will return immediately to work on returns from our acquisitions and on our organic growth. Thank you so much. Hope to see you on the 30th of March, and if not, we'll have our results announcement Q1 end of April. Thank you so much. Bye.
Thank you for joining this morning's call, ladies and gentlemen. You may now disconnect your line.