Earnings Call: Q3 2016

Oct 25, 2016

Good morning, ladies and gentlemen, and welcome to the Randstad Q3 2016 Results Call. My name is Seb, and I'll be the coordinator on your call today. I will now hand you over to Jacques van den Broek, CEO to begin. Good morning, ladies and gentlemen. This is Robert Jan van der Krafft, CFO of Randstad Holding. I'm going to take you through the presentation on the Q3 results and then we'll be available for Q and A and that will be the team consisting of Jacques, Chris Hoeiting, Linda Gallipo and we are also supported by Arun Ramboeust and Dafit Hayur here. The Q3 results of Randstad, please note that Q3 seasonally is the most relevant quarter of the year. Typically, it's the best quarter of the year and then the next one in line would be Q3 and then Q2 and then Q1, that's the seasonal pattern in our business. Now moving on to Slide 5 with the resilient trends. I think that sort of describes it rather well for Q3. We have seen top line growing at the Group level by 4%, which is feeling somewhat like a hovercraft for quite a while now. More than 3 years, we have seen growth in the range of 1% to 6%, 7% even. And that feels like a bit sitting in the hovercraft a little higher, a little lower for quite a while now. But in many ways, this is a rather satisfying growth development in the 3rd quarter. Gross margin down slightly by 10 basis points, but firm fees up as you can see here in the box in the middle to the left, an important indicator, how much do we see as a drop through from our additional gross profit into EBITDA? That's an indicator we use for our financial steering. The ambition is to have it at a level of around 50% and we have arrived at 53% for the last four quarters. So that means Q3 and then going back another 3 quarters. Adjusted net income up to 193, percent, but more relevant, the return on invested capital at 18% now. The balance sheet looks good too, leverage ratio of 0.6 compared to 0.5 last year. At the end of the year, including the Monster transaction, if that one comes through in Q4, we still anticipate to be below one time EBITDA. Over the last four quarters, we have realized EBITDA of 4.6%, which is an improvement of 20 basis points. And another key point here, the volumes in October so far indicate a continuation of a trend. We always measure volumes by week and we're looking at the October week now, which confirm the trend that we have also seen in the month of September. In Q3, we have processed the acquisition of Obitifolaboro in Italy, Kireo in Japan and a small Vattwago in Germany. Monster is expected to be closed in Q4. And the acquisition of OC is still running as you can read in our press release and we anticipate closing of that in Q1 next year. Slide 6, the P and L of Randstad, stable mid single digit growth. This is where you can see the leverage coming through. Gross profit this time $1,000,000,000 And if you look at the conversion of gross profit into EBITDA, it's an easy calculation this time, 27.1 percent, which is an improvement compared to the 26.7% in the previous year. So good organic growth over the last 4 quarters at 5%, gross profit at 4% for the last 4 quarters as well and the last four quarters operating expense of 3% and this confirms the operating leverage that has come through at the bottom line. Next slide 7, regional split, also again resilient performance. And you can see it here, I think this picture describes it rather well, this hovercraft feeling. We've seen a slight improvement in quite a few markets in the last quarter. We'll see what happens after this, but for now at least we have enjoyed it. If I move to North America on Slide 8, solid profitability here. Revenue was up 1% compared to Q2 where it was flat. Specifically, the U. S. Staffing and In House Business revenue growth was up by 2% and this also includes growth in the Staffing business in the Blue Collar segment. U. S. Professionals revenue down 3%, still working on that. Canada improved from 2% in the previous quarter to 5%, which is clearly ahead of a challenging market. And all of this brings us to a strong EBITDA margin of 6.5%, which is also confirmed in the graphics to the right hand side. Slide 9, the Netherlands still affected by the payrolling business, revenue grew by 2%, which is just a touch lower than Q3 sorry, than Q2 at 3%. We continue to see the decline of the government payrolling business, which was announced last year and which has been kicking in for the last quarters. Pricing pressure clearly continues in the Dutch market and our client reviews on profitability have made us decide to either let go some clients or to continue with these prior clients at somewhat reduced pricing. Closing the gap to market takes a bit of time here. Firms up 26%, quite an improvement. Again, like other markets, this is the result of our strategic focus on this segment through a standardized concept rolled out throughout the world. And also in the Netherlands, we can now see the effect of that. It is coming from a small base, but it's excellent growth. The combined Staffing and House business grows by 3%. That's an improvement. The Professionals is down by 4% compared to the previous quarter with a lot of growth. This is clearly not satisfactory, but we also should point out that the comparables of last year are a bit challenging in this quarter. The Professionals business working hard on getting its commercial focus organized in order to gain market share again and come back to good growth rates. The EBITDA margin at 5.1 sorry, 5.8% compared to 6.1%. France on Slide 10, actually solid across the board, continued mid single digit growth here, revenue of 5% compared to 4% last quarter, Staffing and House doing well, but especially professionals and perm growing significantly. Perm includes the effect of using big data tools. This is quite a good performance, we would say. Also at the EBITA margin line, 5.9 against 5.8. Underlying some developments of some statements in the space of CICE and the outlook for that continues to be good. Germany on Slide 11, steady growth and improved profitability. Here we see growth at 5% level continuing and also SME continues to outgrow large clients, staffing of professionals up 1 by 4, the other by 8 and increased profitability here as well, 5.9 now. Belgium on Slide 12, it's closing the gap to the market. Revenue up by 5% now, Some of that explained by the comparables of last year. Q2 was still a negative. Staffing in house also over here growth at 5% compared to the decline previously. Gross profit up clearly by 8%, which is the result of strong focus on client profitability. We're gearing up for more growth in this market and the EBITDA margin arrived at 5.9%. In Iberia, we also see improving results across the board, I would say, both Spain, Portugal doing quite well, revenue growth in all segment and also the perm business expanding rapidly with a good return at the bottom line 4.8%. The U. K, no visibility on impact of Brexit. On Slide 14, actually revenues improved slightly and also firm improved a bit. EBITDA margin at 1.8 percent now. Yes, firm is down by 4%, but relative to Q2, it improved slightly. So whatever impacts from the Brexit, nothing clearly visible as we speak. If you look to the graph at the right lower corner, the EBITDA margin over time is continuing to improve. Slide 15, the other European countries. Italy, the first one to mention that revenue growth very solid at 15%, improvement compared to Q2. And also the focus on specialties and firm up by 33% is clearly paying off. The acquisition of Objetivo Laboro is on track with substantial upside in terms of value creation. It has an impact on the group consolidated numbers, however, because it comes in with a lower gross margin, a lower EBITDA and higher working capital and that's what we see coming through on all these lines in the consolidated numbers. Switzerland, they turned the corner a while ago and it clearly continues here. In the Nordics, the integration of profits is well on track. So we're happy to see that moving on. EBITDA at 4.5% and this is impacted by M and A. As I mentioned, especially the Italian acquisition comes in with a lower than average EBITDA contribution. The rest of the world on Slide 16, also here growth accelerated. In Japan, growth arrived at 5%, firm even grew by 44% and that clearly contributed to the EBITDA margin improvement from 1.5% to 2.7%. Also Australia grew also in in house and in firm, very helpful. Moving on to Slide 18, the income statement of Randstad. If you look at the column organic percentage, you see revenue growth by 4%, gross profit 3%, operating expense by 2%, and that is the operational leverage that helps us both for this quarter and for the last four quarters to it clearly contributes to the improvement of EBITDA. Integration costs and one offs that have been included here have been taken out of underlying EBITDA are relating to M and A to RISE Smart to an adjustment of IT. We have changed our focus here. We are moving our data centers and data communication into a shared service center. We have moved that and we have outsourced that. And as a result of that, we have some obsolete IT that is being depreciated in one go here. The amortization and impairment has declined compared to last year, but following the recent acquisitions, this will increase again. Slide 19, performance by revenue category, staffing in house and professionals. And staffing, clear focus on delivery models through central delivery as much as possible, but also withdrawing, as I mentioned, from some low margin business, 5.3% EBITDA now, a clear improvement. In house, both growth at the revenue line and EBITDA of 10%. This is rather straightforward. Expansion comes in and immediately sort of fits the overall model and arrives at 5.3% now. Professionals operational leverage helps us there. Revenue growth of 2% and EBITDA growth of 3%. Gross margin bridge on slide 20. The temp margin down by 10 basis points and the impact of permanent placements and HRS is roughly 0. Firm fees grew by 7% organically, which compares to 11% in the previous quarter, 7% in the first quarter. This has been a high growth area last year. We did see quarters with 13% growth. Staffing perm is outperforming professionals perm here. And there is an immaterial impact from acquired companies here because it kind of nets out the positive contribution from profits in the Nordics and the negative contribution from Italy and again a positive smaller contribution from Japan. Operating expenses on Slide 21, the biggest impact comes from M and A. That's not M and A expenses, but this is the contribution of acquired targets to the cost base of Randstad. If we exclude it and look at it organically, OpEx is down sequentially by €8,000,000 So the previous slide compared last year Q3 with this year Q3 at operating expenses, we look at the sequential development from Q2 this year to Q3 this year. There is a minor unfavorable impact of foreign exchange of 1,000,000 dollars included here. The balance sheet net debt, dollars 561,000,000 leverage ratio, 0 point 6%. At the bottom, you can again see the return on invested capital being 18%, quite good. Day sales outstanding and working capital both are slightly impacted by the acquisition in Italy. We have included in this balance sheet a receivable for CICE for just north of €300,000,000 It's a receivable of the French state. On Slide 23, free cash flow, the overview. Here we have a bit of impact of timing here, the change of working capital, but nothing specific that is of any relevant meaning. We do have net capital expenditures, however, that are a bit higher than normal, which clearly a one off and it relates to specific projects. The outlook finally on Slide 24. Organic revenue growth was 4.2% in Q3 and September revenue grew by 4%. And as I said, the volumes that we see early October indicate a continuation of the growth rate in Q3. Looking at the month of September, the exit rates here, the exit rates for the Netherlands is low single digit for France, mid single digit for Germany, mid single digit Belgium, mid single digit U. K. Flat Iberia, mid single digit North America, I'm going to give you the precise number because it's 1%, that's more clear for you the rest of Europe low double digit and the rest of the world high single digit adding up to 4%. Gross margin for Q4 is expected to remain at least stable sequentially. We hope this provides some guidance for you. And also, we expect a minus sequential increase of operating expenses on an organic basis. In Q4, we do not just expect to be sure that we'll have 1.1 less working day versus last year. And as I mentioned previously, with regards to the balance sheet, we do anticipate including the acquisition of Multisibor to see a leverage ratio of below 1.0 times EBITDA. Well, this concludes the points that we felt were relevant to elaborate on. We're now moving to Q and A and I ask you to limit the number of questions you have to 2 megs per person at least in the first round. Thank you. Operator? And the first question comes from Chris Gallagher from JPMorgan. Chris, please go ahead. A couple of questions. The first on France, you don't seem to necessarily have seen the margin pressure that one of your peers recently has seen. Can you explain what you think of the market there in terms of pricing and also any impact of CICE might have next year? And the second question then is just around IT costs. At the CMD last year, you talked about wanting to reduce those by about 20% over time, and you signed the BT deal. So do you have any view on the timing or phasing of those particular savings? Thank you. Yes. Thank you, Chris. Good morning, Chuck. The group here. Well, actually, it's an interesting picture. We're very happy with our French performance. We actually said goodbye to some quite low margin clients and still we saw ourselves at market in September. With a better business mix. You've seen our growth in SME and in perm. So there's absolutely price pressure, but we've made the right choices we think and therefore it doesn't show in our results. Yes. And Chris, following up on the IT savings, last year at the Capital Markets Day, we indicated that we would be able to save over time some €50,000,000 from the IP expenses. This is you're now referring to the first step, which is the shared service center and the outsourcing of our data centers and data communication. That's a small part of it, and we expect see the first savings. But again, that's a small contribution coming in, in the course of 2017 and more meaningful in 2018. Okay. Thank you. And just to follow-up on the first question in terms of the changes in CICE, how do you think that plays out next year when you look at gross margins in front? Yes. Well, there's more than rumors, we think, but still to be confirmed is that the percentage of CICE goes up from 6% to 7% in the current program. No news on any prolonging, of course, after the elections, but that could prove to be good news. But yes, then we need to wait and see if that is confirmed in December through the French government. Thank you very much. The next question comes from Nicholas De La Grange from Bank of America. Nicholas, please go ahead. Good morning, guys. Just a quick follow on from the CICE question just then. I mean, it looks like the CICE is going to increase to 7% of wages next year. I know we have to still wait for confirmation. What would be your view on the impact that that could have on French margins per share? Do you think that will be sufficient to offset any kind of persistent gross margin pressure that you're seeing across the market there? And then I wondered if you had a view on CICE post 2017 given that most of the candidates for the presidential election have indicated a preference for switching CICE to a more permanent reduction in social charges? Thanks. Yes. I think it would be in a way bad news if wages would be increased in France. I think France in itself has a labor cost problem to start with, also still quite high unemployment. So we think it's too early. In general, as you probably know, in mainland Europe, these wage increases are far less volatile up or down as they are in Anglo Saxon markets. I've got no view on anything post election. As you know, we don't know who's going to be elected, let alone what the program is going to be. The only thing I do know is that CICE is widely regarded as one of the most successful projects of the Hollande administration currently with good effects on the French economy. Okay. And just one quick follow on on the margins again. The midterm target of 5% to 6%, I guess is still valid, but the macro has been unhelpful to you over the last 12 months or so. Are you still comfortable with that 5% to 6% aspiration? And do you think you'll get there this cycle? And if so, what conditions would you need just to see operating leverage kind of kick in again and see the margins start rising? Yes. That's a relevant question. And the answer is yes, we still feel comfortable when we made the point I think 2 years ago at the Capital Markets Day, we indicated it would require high single digit growth. Actually, it's 1 year ago, October to November 2015. And we said it requires high single digit growth. That's not what's coming through. And that effectively means it's taking a little longer, but it doesn't mean the target should be off the table. Thank you very much. The next question comes from Tom Sykes from Deutsche Bank. Tom, please go ahead. Yes, good morning everybody. I just wondered if you could pick out the main points for why the leverage wasn't a little bit better, please? Because obviously Q2, you had 3% organic growth and 10% organic EBIT growth. In Q3, you've accelerated, but your organic EBIT growth is 5%. And I know you said in other Europe, you added lower margin business, but organically, your other Europe EBIT is down versus being up 30% in the last quarter? And then obviously Belgium, you've alluded to some extra costs going in. Can you please just explain why there's not the leverage while you're accelerating, please? Hi, Thomas. It's Arun here. I think the only thing what is different compared to previous quarters is that on a group level, the gross margin is down 10 basis points, right, whereas in previous quarters it was up. And we explained why that happened, but that sort of has an impact on the overall operating leverage of the company, right. That is the big difference. And we as management felt that we are too happy with the results. So this question we wanted to pass on to Arun. Fine. But can you pick out the specifics in other Europe? I mean, it's obviously becoming a more meaningful division for you now with all the acquisitions that you've added. Why would that be organically why would other Europe be organically down? I mean, are you adding low gross margin business? Is that you obviously pick out the gross margin. Are you alluding to the fact that you can't add business at a decent gross margin? I don't know. You're alluding, but you pick out what the reason is. No, no. But you talked specifically about Auto Europe. And in Auto Europe, as we indicated in the presentation, there's impact from acquisitions in the EBITA margin development, right? We add 2 companies Organically, your EBIT is down in other Europe, isn't it? Yes. Let me take that one offline, okay, to get back to you. But on the reported number, it has impacted by the acquisitions of BT Valparo and profits. Let me get back to you on the organic number, okay? Okay. And then can I just ask on the U? S? What is the relationship between how quickly you grow in MSP and then how quickly your U. S. Revenues organically might benefit from that? Because you haven't picked out what your spend under management has done year on year in this quarter. It was up over 30% last quarter. Is there a is that a positive lead indicator for your own organic growth you think in the U. S? Yes, that's a good question. Over time, it should be. Right now, if you look at the organic growth in the U. S. Staffing business, it's actually mass customized, it's leading the way. So it's not growth. I mean our growth remains solid in RIS, but it's actually mass customized growth, where we're seeing an acceleration. So although both the MSP and the mass estimates continues to do well, those numbers are unrelated at the moment. Okay. Thank you. And I'm really sorry, but can I just clarify that one percent U? S. Sorry, North American growth? Is that also the same that Canada and the U. S. Are the same as they were in Q3? Or has there been further acceleration in Canada, please? Q2. In the exit rate, sorry. And the exit rate you gave us, 1% for September. I just wondered where Canada was versus that North American 1%. Hold on one second. The U. S. Seems a bit stronger than Canada in that exit rate, but let me take that one off line. I'm looking at the headline number. Okay. All right. Thanks very much. Thank you. The next question comes from Toby Riggs from Morgan Stanley. Toby, please go ahead. Hi there. Could you sort of expand the comments on pricing pressure that we heard about in France to the Benelux market, which is the market you guys have flagged is also under pressure. And I think it's also one where you said you were preparing for growth particularly well. I think it's Belgium where you said you're preparing for growth. And then my other one would be, you talked about some accelerating depreciation on some IT platforms. Could you quantify that? And given that we are shifting to more technology driven models and that's involving sort of a change, I guess, in the level of investment and the types of investment guides you're making, How much more of that will be? And how much would a potential acquisition of a new technology platform change the strategy around that? Yes. Toby, I'll take your second question first. IT, the effect is roughly €4,000,000 included in the one offs in the P and L. And it's too early to give you an answer to your question because the cooperation with Monster would give us a new platform to rethink our strategy from. So that is something we'll address later. Okay. Fine. You said Benelux, but we flagged the fact that in Belgium, very happy with our profitability, a little bit less happy with our growth rate. So we allowed Belgium management to invest a little bit more at the front end to increase growth. It looks like that's kicking in. So that's really a deliberate strategy to get close to the market. In Belgium, we don't experience price pressure as much as we do in, for example, the Netherlands. Okay. And the pricing pressure continues in the Netherlands, yes? Yes, it does. Thank you. The next question comes from Yves Franco from KBC. Yves, please go ahead. Good morning, gentlemen. A question on the Netherlands. Past quarters, your margin excluding the the payrolling effects, your margin was down around 100 bps. It surprised positively for me now this quarter. Can you talk about what changed on the pricing or other things? Because you report strong pricing pressure while the ABU figures report a positive 1% effect of price mix over the past quarters? The first question. And the second one, the UK market Manpower reported to see to even see some opportunities in the perm space in the U. K. Market, while one would expect that, given the uncertainty around Brexit, that would be the 1st market to suffer versus the 1st of the 10th staffing market. Are you seeing the same thing? And yes, how are clients how are you perceiving the behavior of clients so far in the UK? Thanks. On the Netherlands, pricing pressure continues. You still see that the larger accounts and the bigger tenders are still under pressure. We are, of course, having a lot of revenue in that sector. So that's the reason why there is still a pressure, although it's if you compare Q2 to Q3, you see it stabilizing. Yes. But how do you compare then you're reporting pricing pressure while the AB figures don't? But I think we're more exposed to the bigger tenders in the bigger countries. Okay. I understand. The next question comes from Hans. No, no, no. We still have to respond to the UK technology. Yes. On the UK, indeed our perm numbers have been under some pressure. We are largely seeing that in the F and A sector where we still had quite a robust retail F and A perm practice and that's definitely under pressure. Where we're getting firm growth is more in RPO contracts, the larger scale firm contracts that's doing quite well, but those come at a lower price point than the retail market. So it's primarily the shift between models that's causing us. Okay. But so far, as reported by peers, you don't see any business confidence deterioration so far in the UK, no? Correct. Okay. Sorry. Next question comes from Hans Ploegers from Kepler Cheuvreux. Hans, please go ahead. Yes, good morning, everybody. Two questions from my side. First, looking at the U. S, could you give some indication or breakdown of volumes and price impact in the 1% growth in North America talking about? And secondly, on Germany, still continued growth. Can you give some feeling on segments besides you were indicating SME, which gives us some feeling on, let's say, specific industries, which are, let's say, different trends? And also on the Germany professional, any in let's say also there any segments where you see stronger growth or less change in trends? Yes, Hans. Good morning. I'll answer the German question. We're very happy that started like 2 quarters ago that SME is outgrowing large clients, very much a result of our improved activities in the market that has been going on for 2 years now in Germany and that's reaping results. We're very happy there. That, of course, means that the growth in large clients in general is a bit more sluggish to flat. Manufacturing sees good growth. Automotive declined partly because of closings in Q3, but partly also because our automotive clients have hired more people. There is this gentleman's agreement that after 2 years people get hired. It's something they just they arrange with their workers' council. And then transport and distribution with solid growth. So pretty much what you normally see in the first phases of a growth market. So quite happy with our Q1 performance. In Professionals, it's mostly our freelance IT business that shows double digit growth and that carries the growth in our Professionals business in Germany. And the closing charge, they relate to holiday closing? Yes, it's more seasonal than it is driven by the economy. The U. S? Yes, the U. S. It's a complicated question because where our growth is coming from. So right now, overall in the U. S. Market on the commercial staffing side, we're seeing just a little bit north of 2% wage inflation, and we have which we are paying, but and we see stable, slightly positive gross margin. So, however, the fact that our general staffing business is growing faster than our professional staffing business, means that we are making our revenue was lower in our high bill rates and higher in our lower bill rate. So that's sort of offsetting the volume versus price impact that we're seeing. But overall, there's definitely wage inflation of about 2% and temp margins remain good. So one follow-up on Germany. Looking at the mix changes, should expect slightly better growth also looking at the strong growth in professionals, looking at slightly better operational leverage. Are you already investing to support the growth in Germany? Or is there still some spare capacity there? No. The growth in the IT freelance business doesn't come in at a higher level than the performance or the profitability in our staffing business. So that's not so much an investment question. Okay. Thanks. The next question comes from Paul Sullivan from Barclays. Paul, please go ahead. Yes, good morning, everybody. Just a couple for me. Are you seeing any signs of wage inflation coming through in Europe currently? That's the first question. Secondly, the strong growth in Rest of Europe and Rest of the World. Is that do you think that is more market or Randstad driven? What's your feeling there in terms of the performance? And then just finally, on the professional business in Holland, any time frame for improving performance? Or do you think we've got a couple of quarters, 2 or 3 more quarters of decline to work through there before it starts to turn around? Thank you. I will take the first the last one, sorry, on the Professionals business in the Netherlands. It's a bit of a complicated story. Robert John mentioned already the comparables. So if you look at the Q3 2015 and Q2 2016, as it was a bit overstated in the reported growth because there was a delay in billing and there was a healthcare revenue shift from Yaw to Ramza Tempo team. And this results also ended the underlying growth in Q3 2016 is actually not 4 as reported or reported minus 4, but it's 4. So it's a bit overstated in the Q3 2015 and the Q2 2016, but understated in Q3 2016. So the picture is a bit better than the reporting gives you the impression. Secondly, there's a reason of course, because you we shifted from a 360 model to a split model in Q2 2015 with the new Yaw. What you see there is that people make a choice for recruitment either sales. And in a few quarters' time, they either underperform, either they regret the choice. So we see outflow of consultants and these are replaced by junior new consultants and it typically takes 3 quarters to get to full productivity. So the coming quarters, hopefully, we will see improvement in terms of growth. Yes. So no wage inflation in Europe yet. That's early days. No, actually in the Rest of World and the Rest of Europe, it's a bit us. So Italy with 15 percentage is the organic growth rate. So this is excluding Abutiliv La Bora. We're very happy with our performance. That's quite above market. Switzerland is also above market. Japan is above market and Australia is above market. So yes, I don't regret to say it's us. And wage inflation in Europe is minimal. It relates to collective labor agreement adjustments, but it's low end of the range. Great. Thank you very much. The next question comes from Mark Swartzberg from ING. Mark, please go ahead. Yes, good morning. Thank you for taking my questions. First, coming back on the Netherlands. We see the gap with the market being rather stable in Q3 versus Q2. We see some improvement in margins. And would that in terms of strategy, looking to the growth versus margins, would you now perhaps take a sort of a Belgian approach that you put a bit more investments into the front end to get back to market, to repair for the lost payrolling business? And on the back of that, could you also give a bit more detail on Yaltz, what's going on, the story of Chris, just what he mentioned on plus 16 and all of that. I didn't really get that, what happened there. Could you give perhaps the picture for Yort and what you expect in terms of margin development there going forward? If you had the layoffs in there and the change of model, when should that phase out and should we see some improvement in margins there? So that's my first question on the Netherlands. First of all, if I I will repeat that, let's say, the underlying growth rate for Joost. In Q3 2015, it's 13%, in Q2, 2016, it's 8%, in Q3, 2016, it's 4% due to delayed billing and healthcare, as I mentioned. So that's the reason there. If you look at the verticals compared to market, I think in engineering and finance, we are more or less at market or probably a bit below. In IT, we continue strong growth of 23% in Q3. In Q2, there was also double digit. So that's going in the right direction. If you look at the margin development, I think we are not unhappy with the margin development in Europe specifically. We have to work a bit on the mix in terms of interim professionals freelance. And as you know, freelance has a bit lower margin, but we will work on that and it will come through in the coming quarters. If you look at the staffing business, if you exclude actually the payroll, then we are close to 6% in staffing and in house in terms of growth. So that's close to the 7% reported in September of ABU growth ABU growth. So we are just below market, something to do with that we also let go of some unfavorable margin contracts. So that's the reason why the margin is stable. In terms of investments, would you say we push a bit harder on top line to repair, say, the gap from the payable? Or is that not the strategy? Yes. We try to invest, of course, where we have to invest. So in other businesses growing at 10%, so we're still investing there. And of course, we are investing firm, and that's why we also grow it to 25%. But the focus remains that we want to get closer to market, but it takes some time because of the headwinds we have with the payroll industry. Yes. Well, that's very clear. Then my second one. Robert, you mentioned something on the leverage ratio. I didn't get it completely. Was that including also the cash out for Aussie? Or is that expected in Q1 next year? Yes, that's expected Q1 next year. So it includes the Monster outflow for the acquisition. So below 1.0x EBITDA. Yes. And maybe on that last one, digitization. Is there a plan B if Monster, because it's still a few days, a bit early days, but what if you don't reach your targeted tender ratio? Would is there a plan B that you say then we have to go a different route and more in line with what Menpa was saying last week that they have a different approach to digitization. Mark, too early. Our offer runs until Friday midnight. It's a good offer. It has the support of the Board of Monster Worldwide and we'll know more at the end of Friday. Got you. Okay. Maybe a last one on Germany, if I may. Do you expect some impact from legislative changes that kick in for the 1st January? Is that going to impact? Do you see any clients reacting to that? We the legislative changes probably won't kick in the 1st January, Mark. So the new bill on temporary labor and freelancing is being read in the Bundestag last week. So that means that it's getting closer and closer to final. But then as you know, in Germany, the law is sort of the basis for negotiations. So then negotiations start on the tariff Vertega. So it's a bit early to really know what the end effects will be, but we'll keep you posted as we get more clarity. That was the final question, Mark, right? Yes, yes. Thank you for taking all my questions. The next question comes from Konrad Zomer from ABN AMRO. Konrad, please go ahead. Hi, good morning. My first question is on Monster. Can you share with us why you sound so confident you will be able to close this deal in the Q4? And my second question is on Obiotivo Lavoro. From memory, revenues of that company before you acquired it were down sequentially for quite a few quarters. Can you confirm that is because they were so busy talking with you? Or do you think that might be something to do with their business profile in the Italian market? On OL, you see that Randstad Italy is growing at a very high pace, double digit as mentioned before. OL is more on the flat growth ratio, but that's also the market in Italy. So we're performing actually very well at Randstad Italy. OL is compared to market more or less flat. And we will, of course, try to improve that growth of OL when we go to the integration. And Konrad, on Monster, in the documentation, you can read that we thought quite well about our offer. And so I stick to the comments that I just gave. We'll know more on Friday. Okay. Well, if I can just ask one more question on Monster then. We've seen the revenue declines at Monster in the last few years. Do you think that if they become part of Randstad that the opportunities that some of your bigger competitors have to keep using Monster that they remain unchanged? Or would it make sense for some of them to move to another online job board, if I could say it like Yes, Conrad, these are sensitive details and you should assume like in previous acquisitions where we built quite a track record that we took everything into account when coming up with our valuation. And from that, we have to draft our pricing. So we have included whatever we thought was rightful to include. And Konrad, we're very happy to talk to you about the plans with Monster if it's part of the Rasal Group. So stay tuned. Okay. I understand. Thank you very much. The next question comes from Biren Luna from NIBC. Biren, please go ahead. Good morning, gentlemen. I also have a question about Monster. This transaction actually quite surprised me given your strategy in U. S. Professionals. You also say that for now you will not acquire, let's say, anymore, at least for the time being, in U. S. Professionals or at least overall, I think that was one of your ambitions to step up. I mean, can you I mean, I heard your comment towards Konradz in saying, I'd be happy to talk about more when Monster is part of Ramza. But can you please elaborate a little bit more about the strategic rationale? Why you intend to buy Monster? And what the further expectation and developments you anticipate for your U. S. Professionals business? No, the answer is no. So you've seen us issue the press release. That's the information that we're ready to give now, and we don't think it's the right moment to elaborate, assuming not in a quarterly call, on a company that's not ours yet. So again, like Kundera, stay tuned, more to follow if the deal is concluded. And behind our M and A strategy, we've identified sort of 3 dimensions. 1 was to improve our footprint in the staffing space. Secondly, we said we have we see an opportunity to improve our footprint in the professional space in selected markets. And finally, we said we have to gear up our digital capabilities. These three were drivers for our M and A and that's why this at least from that perspective fits in. All right. I eagerly anticipate money is coming from you on this deal. We do too. Thank you. Thank you. The next question comes from Suhasini Varanasi from Goldman Sachs. Please go ahead. Hello, good morning. One thing on tempth gross margin, please. With the pricing pressure that you mentioned and the effect of negative 10 basis points impact, when I compare it to the last four quarters, where you have seen either an improvement in the temp gross margin or stable gross margins, Should we understand that the market conditions have now tightened and probably this pricing pressure is here to stay? Yes. This is the question that we very much understand. We looked at it ourselves. It's fully explained by the recent M and A. So the acquisition in Italy came in with lower than average gross margin and earnings. And the Japanese one came in as well with higher, but that's less significant in size. It's roughly 1 sixth of the size of the Italian acquisition. Okay, understand. Thank you. And when it comes to perm business, growth appears to have moderated a little bit in Q3. Do you find that maybe the macro has is just a reflection of the macro conditions that have changed? We're happy to get your views on what you're seeing out there in the market on firm. Well, we remain clearly focused on this. We remain with quite some expectations here. Last year, we have seen 13% growth in, I think, Q2, Q3 and Q4 and the Q1 was 17% growth. So the comparables aren't easy, but we continue to have quite an ambition in this space. Thank you. Thank you. The next question comes from Matthew Lloyd from HSBC. Matthew, please go ahead. Good morning, gentlemen. I just want to follow-up on this subject of price pressure. And I was trying to understand if we take perhaps the temp margin, how much of that is the markup or the gross margin over wage on placement moving? And how much of it is rolling in Evermore Ancillary Services, RPO, onboarding, all of those sorts of things. And is that largely why the SME margins are better? Yes. That's a tough and somewhat broadly formulated question. The temp margin we're talking to is pretty much like for like temp margin and clean, which is again as Robert Tschow alluded to negatively influenced by the objective of La Vora margin. By the way, as Chris said, objective of La Vora will start integrating and creating synergies as of Q1 next year. So then the overall improvement of objective of La Vora will increase again. But yes, not much happening. And RPO is not included in the debt market either. So that's why we mentioned it's rather clear. We have a follow-up question from Mark Yes, sort of, yes, sort of, yes. On SG and A, yes, you had quite a beat there on your guidance. Can you explain this what has driven that? Because your growth is accelerating, also guiding for more or less flattish development going into Q4. What is driving that? And how should we look to that SG and A going into next year? Well, you see some IT cost savings kicking in. Is that going to drive your conversion ratio towards 50% perhaps next year? Yes. Mark, with relatively limited growth and uncertainty when we exited Q2 into Q3, We organizing our OpEx development becomes more and more relevant. So we have been managing it very tightly throughout the quarter, and that's what you see coming through. And as you know, in our business, we can manage it roughly on the short term. So our operational leverage through the incremental conversion ratio is a very relevant indicator in our business. And perhaps a final one, the gross margin impact from policy for you, perhaps that should be a positive for gross margin next year. Could you indicate how much basis points that would add roughly? You can follow the results of OC. They're also stock listed. So you can make the calculation. And they clearly contributed positively both to GM gross margin and EBITDA. Yes. All right. Thank you very much. Are you sure, Mark, no further questions? No, this is it. Operator? We have no further questions. So I'll hand back to you to conclude the call. Excellent. Thank you so much. Well, thank you for joining us in this call, and we're looking forward to connect again. That will be next year, February. We have decided not to have a Capital Markets Day in the month of November because we have insufficient things to share with you at that point in time. But one way or another, we'll make sure that we'll plan to be back with you on that as soon as possible. The publication of our 4th quarter result is planned for February 14 next year. Thank you so much. Have a good day. Bye. This concludes the call, ladies and gentlemen. Thank you all for joining and enjoy the rest of your day.