Earnings Call: Q2 2016

Jul 26, 2016

Ladies and gentlemen, welcome to the Randstad Second Quarter Results 2016 Conference Call. My name is Chach, and I'll be coordinating your call today. I'll now introduce you to your host, Robert Jan Van de Keras. Robert Jan, please go ahead. Thank you. Good morning, ladies and gentlemen. Welcome to the Q2 2016 results call. I'm here together with Jacques van den Broek and our other colleagues of the Executive Board and with Arun Rambockers and some other staff supporting us. We're going to discuss the Q2 results. Q2a quarter, which was the 11th quarter with mid- or low single digit growth, which is rather atypical if one looks at it in a bigger perspective. It feels like being in a hovercraft on the water for quite a while now. It's also a quarter where we've seen significant volatility in our stock price and traditionally that volatility has been much higher than the one we see in EBITDA. And if one looks at our cash flow, it's even less volatility. I'll take you through the presentation, and at the end, we'll move to Q and A. Moving to Slide 5 right away, which shows some of the details underlying our 2nd quarter result with solid incremental conversion, so conversion from additional gross profit into EBITDA. Revenues up by 3% for working day and please note that our second quarter is seasonally typically the better quarter compared to Q1. Typically, the Q3 is the best of the year and also typically Q4 is somewhere in between Q3 and Q2. So that would normally be the rhythm. Also, please note that the comparables in Q2 are 1.1% tougher than they were in the previous quarter. So some impact from the comparables. Across the board, we have seen growth in Europe in quite some countries. We'll get back to that. North America has been flat, so at 0% and the rest of the world came in with 4% growth. If you look in the American market, look at the BLS data in the month of May and it explains most of the development there. Gross margin was up 20 basis points. Please note that we have been a little lucky in rounding it here. So this is an expression at the high end of what happened here. Underlying EBITDA improved to EUR 240,000,000. Dollars Foreign exchange had hardly any impact on the result. Here is the ICR for the last four quarters at 53%, the quarter itself at 50%. So that because we have a hard time assessing the world economy as many of you will also have. So we respond to actual data every week in our branches, in our offices, and then we aim at converting 50% of the additional gross profit into EBITDA. And of course, we aim at beating the market, be it in revenues or in profitability. Adjusted net income improved to €171,000,000 with a good return on invested capital at 18% now. DSO improved again 50.7 days, and please note that one day makes a difference of roughly €70,000,000 So it justifies our attention here. If you go back a couple of years, then this was in the high 50s and now we have arrived at the level of low 50s. Leverage ratio of 0.7 now. This is always the highest quarter in terms of leverage ratio and in terms of net debt typically if the circumstances remain equal. In Q2, dividend was paid, but also holiday allowances in the Netherlands and Belgium typically push up the net debt level. EBITDA margin now over the last 4 quarters 4.6 percent and we've been rather busy in the acquisition space. Of course, organic growth is our priority, but strategically, we do add acquisitions to strengthen our positions. We have absorbed in the Q1 an acquisition in the Nordics of profits, which was then included for 2 months. Now it's included for the full quarter. We also have closed acquisitions in Italy of Otivo Laboro and in Japan, Korea and Twago and these are going to come in the Q3 as from the 1st July. We have announced some additional M and A, which relates to Aussie, a French based player, which operates internationally. If you add it all up, the acquisitions that have been closed now and the one in the pipeline, then it adds up to 1.5 €1,000,000,000 The last 4 quarters on Slide 6, we have seen stable mid single digit growth like we have seen in quite a few quarters before that, in total, 11 now. And this shows the P and L, the €240,000,000 with an incremental conversion ratio underlying of 53%. Gross margin was up over the last four quarters by 10 basis points and our perm growth for this quarter 11%, but for the last four quarters, it stood at 9%. And the controlled growth of operating expenses by 3% organically resulted in this excellent incremental conversion. Slide 7, you can see the regional split of our growth. Europe grew 4%, which compares to 6% in Q1, and I'll get back to the various countries. But most of the growth we see in the segment with Manufacturing, Automotive, Logistics. North America was flat at 0 compared to 3% in Q1, rest of the world 4% and the group as such at 3%. North America on Slide 8, stable revenue but record profitability, we note. Revenue, stable gross profit as well. Perm fees showed very limited growth. U. S. Staffing and in house came in at revenue growth 1% compared to the 6% in the previous quarter. And we are we remain to work hard to improve our revenue growth in the professional space. SourceRite clearly improving, spend under management up now by 33%. Canada had difficult markets, but we remain ahead of this challenging market by recording 2% growth. Again, EBITDA margin 6 percent. If you look at the slide, the right upper corner slide, it shows you the trend. If we look at the month of July, we see a continuation in our volumes for the 1st 2 weeks of what we did see across the Q2. Slide 9, the Netherlands. Good underlying growth, but still suffering from the decline in the payrolling business. Revenue at 3%. Now the loss of the government, the payrolling business we have discussed extensively in the Q1 call, It should start to fade out gradually as from Q3, but it will take a while before it's completely absorbed in the comparables. Perm is doing quite well, up by 18% and our combined staffing and in house businesses do show growth, if one excludes the payroll business of 8%. Our professionals business also back again to double digit growth at 11%. EBITDA margin now at 5.5%, and we continue to work on our plans as discussed last time to bring us back in the 6% to 7% zone. France, growth impacted by strikes, especially in the distribution business, but a strong return at 5.9%, revenue up by 4% now, professionals growing nicely at 10% and perm, please note that 37% growth. For the sake of customer profitability, we again have decided to reject certain opportunities because we felt these would not add value. Germany on Slide 11, improving growth and profitability. It's nice to see our SME business now outgrowing our large clients. I would say this is a direct result of tight activity based field steering and it comes through nicely. The 5% growth that we see is mostly volume growth. So that is, I would say, confirming the fact that this is rather solid. EBITDA margin now at 5%, that's the result of good operational leverage. Belgium, further improvement in profitability to 6.3%. I would say that's a pretty attractive level. Revenue now minus 2. This is the Staffing and in house business. We suffered somewhat from the situation at the Brussels airport because we have significant business in that space. Gross profit improved by 4%, which is the result of a strong focus on client profitability. The gap with market in terms of revenues was reduced somewhat. Iberia, improving margins while continued growth 5% now. The in Spain, it's clearly a challenge. The customer profitability and creditworthiness of our clients is leading our selection here. Professionals growth gross profit was up by 13% and the perm growth was 42%, like in other countries, the result of a very specific strategy. Also, our Portuguese business improved by 5%, especially the gross profit has improved also customer profitability being a key focus in this market. The UK, Brexit impact limited so far. Of course, this was late Q2. It's rather difficult to identify any direct impact. At best, we have some anecdotal conversations or evidence with certain clients, but nothing really significant so far. Revenues at 0 compared to 1% in the previous quarter, but our EBITDA margin has improved to 3%. Please note that this is a rather specific market. We also discussed earlier today the fact that in the UK, we have twice as many staffing operators in the market than in the U. S, whereas that market has 5 to 6 times as many people living in it. So clearly a fragmented market with quite some competitive pressure. Our business in the UK has been adjusted over the last couple of years, less exposure to the Manufacturing segment, good exposure, for example, also to Education and Care. On the whole, the impact of the UK to the Randstad book is less than 4% of revenues and 2% of profits. Some other European countries, we do see continued growth in those markets, especially Italy. We've been busy with acquiring, but at the same time, we've been very busy in expanding our business organically. And I would say successfully also in the perm and specialty space, we do see interesting growth. Switzerland, it came from a low point last year. Q1 already 5% growth and now back at 10% in the Q2. Poland also a good indicator always growth at 30% now. And in the Nordics, we do see good work on the integration. It's well on track. And our Finnish business, which came with the acquisition, has been transferred to a Finnish player with whom we have now entered into an exclusive partnership to serve our clients also in the Finnish market. EBITDA margin improved in this space to 3.9%. So across Europe, we do see good growth in most of the markets. The rest of the world also mid single digit growth at 4%. Japan improved to 4% with excellent growth in the perm space, 65%. It shows what an opportunity it is and how it works out if you focus on it. Australia, New Zealand 4% growth now, but more importantly, the perm space showed growth of 26%. Overall in Asia, we did see 4% growth. Latin America up by 6%, but good focus on profitability here, which you see in the final bullet here, 1.9% EBITDA coming out of it now. Moving to Slide 18, the P and L, which effectively puts it all together. So all items that have been addressed now, integration costs and one offs related to some M and A and restructuring relatively limited. The rest is rather standard. So moving to Slide 19, while we have the performance by segment. Finally, professionals in the lead here with 5.8% return as it should be. In staffing, we led by a focus on customer profitability here and that very often results in changing delivery models, be it in house or central delivery, now coming in at 4.8 percent EBITDA margin. In house, we continue to see transfer of clients from staffing also to in house here to ensure the right delivery model is offered and an excellent return at 5.2%, I would say. And professionals, good focus on IT, Finance and Accounting and Engineering paying off here. Gross margin bridge to explain the jump from 18.7% to 18.9%. At the beginning, I already elaborated on the fact that this is also a rounding. But this effectively puts it all together, what we have said before, the temp business mix helping us here, M and A profits being added with a slightly higher gross margin, the perm business 11% now, which is it's now just north of 11% of gross profit and just north of 2% of revenue, so expanding nicely. And then in the HRS box, you see the impact of the Dutch payrolling business. Comparing our OpEx sequentially, so from Q1 to Q2, some changes, FX slightly, which was almost the same at the gross profit level. So at EBITDA, it was only an impact of roughly €1,000,000 negative. M and A is the addition of profits mostly. This is 3 months rather than 2 months included now. Marketing, the typical seasonal pattern, we spend more always in marketing in Q2 because business volumes are higher than we do in Q1. And then growth related investments in people in the field organizations in the EU. Moving to the balance sheet of Randstad net debt new at €634,000,000 leverage ratio 0.7. If you look at operating working capital here, it reflects growth. Net tax assets are lower. That's partly explained by the opening position last year, some specific issues, and it has reduced mostly because of the fact that we have used the American net operating losses. I mentioned already DSO solid working capital at 4%. This is the high point and throughout the year it will reduce to 3% again and the return on invested capital almost 18%. Our free cash flow rather standard again investments in operating working capital. This is typically a negative quarter due to the fact that dividend is paid, so nothing further out of the ordinary. Moving to the outlook for the full year on Slide 24. Organic revenue growth was 3% in Q2. In June, revenue grew by 2% and the volumes early July indicate a continuation of the Q2 growth rate. If I'm going to share now an indication of the June exit rates with you, In the Netherlands, that came out at low single digit France, mid single digit in Germany, mid single digit in Belgium, it was down low single digit in the UK, it was close to flat Iberia, mid single digit North America, flat the rest of Europe, high single digit and the rest of the world, mid single digit. So that's on the exit rate. We do anticipate the Q3 operating expenses to remain more or less stable sequentially on an organic growth basis on an organic basis, and this should be typical to the trend that we see in the month of July in our volumes. As of Q3, the acquisitions of the Italian company, Obiotivolavoro and Carrillo in Japan will be added. So that should be included in your spreadsheet. And we do not see a material working day impact for Q3. So that concludes what we believe should be elaborated upon. Now time for Q and A. Operator, up to you. Our first question is from Chris Gallagher from JPMorgan. Chris, please go ahead. I think we answered it already. One moment. Next question is from Nicholas De La Grange from Bank of America Merrill Lynch. Nicholas, please go ahead. Good morning, guys. Just one quick follow on from the exit rate comments you just gave and then a couple on M and A. So obviously, the June exit rate was a bit weaker than the volume trends in July. Were there any and you've just given us the June exit rates presumably by region. Were there any regions where there was a big difference between the exit rate and July that we should be aware of? And then the other question is on M and A. Obviously, it's been a very active 6 to 9 months. Can you talk about what the pipeline now looks like and whether the recent market sell off is actually helping or hindering progress there? And then I wondered if you could elaborate a bit on the recent Aussie acquisition, particularly in terms of the kind of the bench risk that you're taking on there? Because my understanding is that the majority of your contractors there are going to be on your permanent payroll. So what that means for margin volatility, etcetera? Thank you. Okay. Hi, good morning. Jacques here. On your so June was a tad lower, mostly because we saw that in France, many people were not able to get to work in May, but also to a lesser extent in June. We estimate this revenue and it turned out in June that in May people just worked less hours. So underlying the trend of France in revenue will be slightly stronger in July than is in June. 2nd effect was in Belgium, where we mentioned the fact that in June more May than June, but also the Saffentherme Airport opened up more fully for business, so that will help. So those are the 2 outliers in June. On OC, yes, sure. On the one hand, this is a business that has bench risk. On the other hand, we're working with people which are very hard to find, who have unique capabilities. Francois and I spent quite some time coming up to this acquisition, meeting with people. So we're very confident that this will be a very strong business for us, where the risk is more how do we find more people to do the work than the bench risk as such, which is the name of the game. If we look at the earnings of this company, they are very able to manage these bench risks. On the pipeline for M and A in the process of OC, we're now going through the formal approval steps with OC. That takes time, and that will result in the process taking a couple of months to finalize. So we'll see how that goes. On the rest of the pipeline, we've done quite a few transactions, but it doesn't mean that we'll continue this rhythm. We are looking at strategic additions that are relevant to the company. I would say the limitation that we clearly set ourselves is deleveraging of the balance sheet up to 2 times EBITDA. And I would say size should remain small to midsized. Nothing sort of earthmoving in terms of size. I hope that's That does. Just a clarification on the balance sheet point. Does the kind of deteriorating macro make you slightly more cautious than you would otherwise be in terms of taking leverage up to 2x? Or are you not concerned about that at this stage? Well, that's an interesting point, which, of course, we elaborate on ourselves and also in the Board. We have gone through severe testing in the past, and we've built in a lot of flexibility. You might remember our capability to reduce our cost by 30% in 6 quarters in 2,009. So we really have the whole toolkit available. So we've tested ourselves against various scenarios and we do not see any scenario which will bring us into any sort of sensitive zone. Our agreement with the banks allow us to go up to 3.5 times and following a significant acquisition, we even can go up to 4.25 times. So we are rather comfortable with all the scenarios that we have looked at. And given the experience of 2,009, we've looked at serious scenarios, I tell you. Okay. Thank you very much. Our next question is from Chris Gallagher from JPMorgan. Chris, please go ahead. Hello, good morning. A little bit on North America. You've seen staffing slow there. Is there any sectors or regions specifically? And if you strip out source right where MSP was up a lot, how does that change that number? Yes. Linda, coming in. Yes. Hi. Good morning. This is Linda. In terms of the sectors, what we've seen slowdowns, our RIS business for the last growing well above market. I think they're still above market, but we have seen other volumes moderate quite a bit. It seems to be stable. April was very strong, May June were a little softer. July is too early to tell, but the volume seems certainly not to be deteriorating, but certainly it is the blue collar sector in RIS that where the growth levels have been much more moderate than they have been over the past few years. In terms of source rights, yes, our MSP business is way up. Our payrolling business is also doing well. Our RPO business is having a bit of a tough year. This is largely related to a couple of large customers. So it's not an overall weakness. There are lots of new program wins and the underlying business remains very strong. We have a couple of large clients whose volumes are quite down this year and that is causing some pressure in the RPO revenue volume. Yes. So maybe as an add on to the MSP business, the fact that the spend on the management is up 33% is mostly due to new wins, not much to do with the market as such. We just manage more programs than we had last year at the same time. Okay. How do you think then your competitive environment in terms of RPO and SP, I think one of your competitors spoke about quite successful period in Q2 in terms of wins and RPO. So you think you have a better offering in MSP RPO? Or is it just simply a movement in a very short period of time and difficult to read much from? Yes. No, I mean, I would say we've had a tremendous win season. We've had lots of wins in RPO and in MSP. And again, the RPO number is really related to a real tough comparable in 2 large customers last year. So, it's not reflective of all the health of the business and certainly wins remain strong probably at their highest levels ever, I would say. Okay. I'm using them sorry, I just wanted to ask you, can you limit yourself to 2 questions to make sure that we address everybody's questions? Yes. Well, with that in mind, I will now ask the next one. Okay. Thank you. And I'm just adding one comment on the M and A. I don't anticipate that the balance sheet will be leveraged up to 2x EBITDA at the end of the year. That's not the speed we do the higher the higher end of the range. So midsize to small, that means €100,000,000 or so. You've seen the Japanese one up to the size of MAX, I would say, sort of €500,000,000 in that space. And then we do not expect to see the balance sheet leverage fully to the level of 2.0x at the end of the year, just to give you some guidance here. Please continue the Q and A. Our next question is from Toby Reeks from Morgan Stanley. Toby, please go ahead. Good morning, guys. 2, if I may. The first is on your expectations for Q3 SG and A, which is expected to be sequentially stable on an organic basis. Usually, wouldn't we, from a seasonal perspective, expect it to fall sequentially? And then the second one is on the U. S. You've been outperforming in the U. S. Due to the in house business. You're now tracking below the market. In house has slowed from 6% to 1%. What's the outlook there just around that in house business in the U. S, please? Thank you. The typical pattern from Q2 to Q3 is that Q3 is the stronger quarter and typically that goes with slightly higher expenses. But given the current development that we have discussed, we anticipate it to be close to flat. And by the way, let me also address the M and A side of it. Adding the companies as from the 1st July means that we do anticipate to see our cost base up by roughly €15,000,000 for the quarter related to those acquisitions. So it's €15,000,000 now? Yes, €15,000,000 correct. Yes. On the U. S, I'm not sure I understand the characterization of below the market. I think we are in line to slightly ahead. Again, we have to see how our like for like competitors come out, but based on reports so far, I don't think that's how we see it. What's very interesting is the in house business in our general staffing against very strong comparables. It is definitely still above market. It's just not as far above market as it is. Where we see the pressure is in our branch business. So, our traditional local branch business, particularly in the O and A sector, where there's very little structural growth, if anything, it's going a little bit the other way. So that's our white collar clerical business and that's probably where we see the most pressure. On the types of skills that we are servicing through in house is broadening and we do see quite good demand there and demand that remains very healthy. Okay. Thanks guys. We have a question from Tom Sykes from Deutsche Bank. Tom, please go ahead. Just on Belgium, would you be able to just say, perhaps excluding what unfortunately happened at the in the attacks, what's happening to the industrial business in Belgium, please? And then could you maybe give us an update on the Netherlands as to when you what's actually happening to the gross profit costs when you think the effect of the payroll in business will be less pronounced at the EBIT level, please? Yes. On Belgium, the attacks have not had any material effect on the blue collar business as such. What we do see is we're quite picky on the business we get as in any market, but also in Belgium. It's quite easy to go to grow through low margin blue collar business. But if it's really just a procurement play, then we normally don't play, so that has effect. As such, the Belgium market is still in good shape. We're still slightly below that market, partly deliberate, as you see in our profit development. But at the same time, we also think that our Belgium business can still grow a bit faster in SME as we see in France, as we see in the Netherlands, as we see in Germany. So we're very happy with our Belgium business. In general, we're not so happy with their commercial performance in the SME space. So that's one thing we're still working on. The market as such we think is quite good. The Dutch market, well, the payroll business plays on 2 elements, both top line, which will weed out over this year. But yes, also the leverage in this business is quite high. So we are growing again against the curve. We were very strong in the government business in payrolling, and we now growing into the private sector. So we do expect this business when the comparison leads out in 2017 to be a growing business again, but smaller in the total portfolio. So that will still have a dampening effect on our overall profitability in the Dutch business. So that's something we need to deal with. For example, by growing our perm faster, which 18% growth in this quarter definitely helps and we see a lot of upside potential there, for example. We'll probably update you as we've done last year more elaborately on our important markets in the Capital Markets Day, but we'll keep you abreast of things. Okay. But when you consider that you're growing against the curve, as you say, in the private sector, Your professional is doing quite well. Your overall top line is obviously going up, but you seem to be getting a little bit worse leverage now than before in the Netherlands. Is pricing incrementally where how would you characterize the pricing market there? Yes. Pricing is yes, pricing, Thomas, as we said, it's tighter. We've seen, let me call it, very creative pricing from USD presenting itself as still needs to come out. So we're happy that they will see that. We still needs to come out. So we're happy that they will see that. We see for example the European Commission being bought at a very low margin coming back to us in Belgium might be an early sign. But all in all, we do see, if you look back to 2.8, 2.9 and you've been also looking at the sector for a long time, there is commodity in margins, commoditization in margins, which we offset with our delivery models, as Chris presented last time. So there is this shift, yes, but we're confident, as we mentioned before, that we can still get good and above group average profitability in our Dutch business. Okay. Thanks, Jack. Thank you. Okay. Good luck. Our next question is from Paul Sullivan from Barclays. Paul, please go ahead. We've got George Gregory from Exane. George, please go ahead. Good morning. I wondered if you could maybe just clarify a few points on the deals. So firstly, the dates of consolidation of both Livoro and Kireo. And also, perhaps you could provide us with some high level numbers of Kireo, please? Thanks. Well, I mentioned it before, consolidation as from the 1st July, revenues together are roughly close to €500,000,000 and just north of €400,000,000 is the Italian acquisition and profitability of the combined businesses, I would say, just below the group average for now, but with the potential to clearly improve. That's why we were very enthusiastic about these deals. Okay. And the just to clarify on Livoro, you said around €400,000,000 I think Livoro did €436,000,000 last year. Is that down? Or was that just the rounding? Lavores in a growing market now a bit flat, although the Italian market is also not as exponential as it was. Although we as Randstad grow in May at 70%, so we are clearly outperforming the market. But you will see a bit less of revenue because we will divest a few of the foreign activities Oviso Global. So it will not be the €400,000,000 it will be a bit less because of this. Okay. And sorry, just your point on the profitability, I missed that point. This was Chris, by the way. He's responsible for the Italian business. And the combination that's exactly where we see the part of the synergies is that our track record in growth will support the expansion of this newly acquired business. That's the ambition. And in terms of profitability, I made the point that the acquisitions together come in just below the average of the group profitability with the potential to clearly catch up. And just to give you a bit of meat on those bones, we acquired in 2013 USD, which was roughly 20% more. In the Italian market, it came in at 1% operating profit or less. Look at our Italian business today, so there's a lot of synergies, head office, branches, that sort of thing. You shouldn't expect anything this year. So we will start recalibrating both businesses as of beginning of 2017. Okay. Thank you. Our next question is from Mark Swartzberg from ING. Mark, please go ahead. Yes. Thank you. Good morning all. Two questions from my side. First of all, could you give an indication on the comparison base with July over September last year? Because my feeling is that the comps are getting a bit easier. And also maybe Linda, can you give a bit of an indication how your blue collar or in house is trending into July? Do you see there some stabilization bottoming? Any feel for that will be great. And then the second one, since the M and A pipeline is more small to midsized acquisitions, generating quite some cash, is it already a topic in the board? And could you perhaps give a bit more flavor on what you would do if in case the market goes down to, say, mid single digit decline and that your EPS comes down to less than last year, which would it then be logical to assume that maybe on the dividend, you might provide some support and keep it at least steady versus last year as a sort of floor? Is that anywhere in the cards for next year? I know it's early, but if you have any flavor for that, that will be great. You're always early, Marc. We have I'll take that question and the one on Q2 Q3. We have a dividend policy, which is which describes that up to 2.0 times EBITDA, we have a policy that pays out cash with an option to take stock. If we get north of that, we'll promote stock. And if we get north of 2.5, it'll be stock. That's the policy we have. And within that policy, we'll make choices. Last year, on the dividend over last year, we decided that given the very low leverage ratio, it should just be cash. But I think the policy sets the sort of the framework for a good decision going forward. So most likely with circumstances as they are now and trends as they are now will be clearly below 2.0 times EBITDA, and that will bring us to the standard policy, which is cash as a default and optional stock dividend. Your question on Q3. Q3 last year showed a growth which was slightly lower again. So Q2 was a peak last year compared to Q1, it went up and now Q3 last year was lower again by just a bit more than 1% and throughout the quarter last year was kind of stable at the same level. On the U. S, Mark, the RIS business is off to a pretty good start actually going into July. It's a bit of a tricky comparable though because of the movement of July 4. So we have 2 weeks and again the numbers make us quite hopeful, but with the July 4 there makes it quite tricky. The other thing to know about the U. S. Is I would say we are at the most challenging recruiting market we've seen in a long time. So there's a demand side, which remains still quite good, but a supply side where we're definitely working to up our recruiting game, because I would say that on the supply side, it's not quite tricky. Tricky. But given the strong BLS data in June and your comforting statements on July, it seems that things are getting at least not worse. And but now I see that the ASR, the American Staff Association, then we're looking at the data and then the other now that one is trending the other direction. So how would you read that? Yes. I know the data is a bit schizophrenic. I think if you add it all up, it comes out looking a lot like our numbers. So looking pretty flat. Yes, I think it's sort of all over the place right now, but we beat it to a flat level. So maybe to elaborate a bit on what Linda was saying, what we this is the, call it, the negative effect of a positive market. So because of the relative scarcity and profiles people are tough to find, we do see a tendency that clients hire people quicker. So that means that our order duration goes down a bit. So that has we need to work harder to keep up the volume growth. So that an interesting one. That the firm business to be made. Yes, sure. Okay. Well, thank you very much. Thank you. Our next question is from Dennis Moreau from UBS. Dennis, please go ahead. Good morning, everybody. Denis Morro, UBS. My first question relates to France and to more specifically the automotive market. I'd like to know how big is this market to you and if you see any signs of decline at this stage. Peugeot has mentioned some reduction in their production plans for from September. So I'd like to know if you see any impact of that now. And my second question relates to the acquisition of Aussie. I'm aware that you can't say much given the bid underway, but M and A has been critical component of the strategy of this company. And so I'd like to know how much capital you plan to allocate for this company for its own M and A action? Or do you expect them to grow faster than in the past on the M and A side or at the same pace? Some color on that could be helpful. First of all, on automotive, it's an important sector, probably 10% to 15% of sales. Yes, Peugeot has announced that they will have they will close their plants for 2 or 3 days, I think. Good news for us is that Peugeot isn't a client. Yes, well, sometimes you got good news when you don't have a client. And they're not really in the high margin, to put it mildly. But anyway, apart from that, definitely OC, as you've seen, has been acquiring companies, which we do think is the part of the DNA, which we find attractive, certainly because these businesses are businesses which are in what they do, their core business is a bit new to us. So we will definitely allocate opportunities to them to buy. Having said that, we will first concentrate on organic growth for OC because as a company, a midsized company, they needed to do 2 things. So they bought, they invested and also needed to pay it out of their own cash flow and growth. So that's tough to balance. So for us, 1st, organic growth. And then afterwards, we'll concentrate on acquisitions again. But we're probably talking full to 2017 to make this change. So this is a bit early to say. And then honestly speaking, we will not, of course, divulge externally the kind of money we would give them. They would just be looking for good deals and then come to us. And then once we do a deal, we'll inform you. And We'll add the same financial discipline as we do for any other deal. Absolutely. Okay. Thank you. Our next question is from Konrad Zomer from ABN AMRO. Konrad, please go ahead. Hi, good morning. I have a question on your Professionals business, which I think delivered a very strong performance in the Q2. Could you rank for us what countries had the biggest contribution to your overall 100 basis point margin improvement in the quarter, please? Well, a pretty strong business, certainly France. So in France, our Appel Med business grew a lot as our Medical business grew a lot, certainly in perm, but also our expector business delivered a very good performance. Our Dutch business also quite solid. You see the turn in firm in our Professionals business in the Netherlands, which helped. And in general, we do see our European business, we've put businesses our European Professionals business together in what we call a community that definitely helps to talk about where to grow, how to grow. So we do see some early signs of improvement here. We're very happy and thank you for the compliment, Conrad. Okay. My pleasure. The second question is on the Professionals business by segment. Can you tell us about the Dutch market in particular? What happened in your engineering business, in your IT business and in your finance and accounting business just in terms of growth and margin development? Okay. I will give you this is Chris, by the way, from that. If you look at engineering, it's more or less a kind of a flat market. We are a bit below. It's always something to do with our comparables. Finance is probably for us, it's in Q2 a plus 5% margin more or less. Or our results or in performance. The market is also growing probably at the same page or pace or a bit higher. When you look at the ICT, which is the biggest growing market vertical, we are growing at 25%, where market is well close to 20%. And there's another vertical, which is exponentially growing that the legal and the social domain sector, where we are there's a shift, of course, from central government to the local government in the Netherlands, and we see a lot of growth there, also high double digit. Okay. Thank you very much. Our next question is from Rajesh Kumar from HSBC. Rajesh, please go ahead. Hi, good morning. Just following up on your commentary on North America earlier, you said people are getting a bit more tougher to find. Have you seen any impact on the gross margin as a result of that? The past? Where you see actual wage pressure, which is where the gross margin would be impacted certainly in the blue collar sector. We have seen some wage inflation of blue collar sector, but we have also instituted kind of parallel price increases. So we are not seeing any margin erosion as of yet, nor are we seeing any great margin expansion. So I would say that we are making sure that bill rates and pay rates fluctuate in a mirrored way, I would say. Sorry, that's almost counterintuitive. If it is more difficult to find people and you are a staffing company, you should be charging higher prices. Why would anyone expect price erosion? No, I think I'm going to hire you to go talk to many of our customers because I think that's a very helpful point of view and one we share. And yes, you make a very good point. Okay. And just a follow-up. For September, could you just give us some color on the shift patterns, what we know as of now? For September? Yes. I mean, you would have some indications from your client what shift patterns they are looking to put in place. Yes. Someone told me once, if you listen to your clients if you don't listen to your clients, you go bankrupt, if you listen to your clients also. So they are in the same uncertain environment that we are. And planning for September is very early days. It's end of July. September is always a reset. So no, there's no comments here. Visibility is fairly limited. It is normally certainly in this type of year and also in these environments. Sorry, no color for September. And we have organized for this, so we don't really have to think about it too long because we respond to actual data that we get every week. So that with our flexible structure that allows us to get the most out of it rather than plan well in advance for this. Thank you. Because probably we'll be wrong planning it. Okay. Understood. Thanks. Our next question is from Suhasini Varanasi from Goldman Sachs. Suhasini, please go ahead. Hi, thank you. One question, it's on Netherlands, please. You mentioned that you expect payroll impact to actually fade out slowly from Q3. But if I'm right, the impact started in Q1 and probably annualized in Q4. So are you maybe getting some positive benefit from somewhere else, which is why you're seeing the fading out? And perhaps can you remind us what was the actual impact from payroll in Q2? I think in Q1 you mentioned it was a 7% impact to Staffing and in house. Thank you. Well, Kees is looking at some details. But before he does that, my remark was that it gradually will fade out as from Q3 onwards. So to remind you, it started in the second half. Half last year, okay. Yes, yes, I'll just take the moving closer to the microphone. It started actually in the end of in the Q3, sorry, of 2015. We will see it all over the year because we mentioned in Q1 already that it will be an impact of more than EUR 100,000,000 in terms of revenue with high leverage on EBITDA. So that's I think you will see the FX still in 2016. Of course, in 2017, it will change in terms of comparables. We do see what Jacques was mentioning that we are getting some new contracts in the more private sector, but this is not offsetting for sure not this year the decline in the public. Thanks. And perhaps just one follow-up. Could you remind us what the impact was from common payroll from in Q3, Q4 last year? Our next question is from Paul Sullivan from Barclays. Paul, please go ahead. Hello. Can you hear me now? Hi. Good morning, everyone. Good morning. Just a very quick follow-up on the acquisition contributions. I mean profitability overall is broadly in line with the stuff you're going to consolidate in Q3. Does the same go for gross margin? Do you anticipate any sort of gross margin impact from M and A in the Q3? And then just on Germany, maybe you can provide a little bit more color on what's driving the good growth there. And I'd be interested to know whether you're starting to see any benefit from the migrant inflow we've started to see in the country over the last 6 to 9 months? On the M and A, the acquisition I mentioned that before, it's going to come in with somewhat below average profitability. So relative to the group returns, but with the potential to catch up, I would say at the gross margin level, the Japanese business is sort of is clearly in a higher segment as a result of which it comes in with higher gross margin, the Italian business with some lower gross margin. So most of the biggest part of it comes in with a slightly lower gross margin. And again, it's adding €15,000,000 €15,000,000 to the cost base in Q3. The other question was Germany. Yes, Germany, as Robert Kahn alluded to, we now see and that's I think if ever the first time that SME is really seriously outgrowing larger clients. By the way, you should take into account that SME is then the German, how do you call it, abbreviation. So this is nearly small, small companies. We historically, we've always been a large client business like really big internationals, automotive. We're now moving to actually a big sector of the German economy, which is really family owned company, midsized companies in local areas, which is definitely due to the fact that we upped our sales with 20% to 30% in terms of calls and visits per consultant. Took us a relatively long time, but of course, it came from nowhere, honestly speaking. So 1.5 years, and we saw yearly effect second half of last year and is now really coming through. So that helps a lot. And also what John said, most of the 5%, the larger part is actually volume development. So very happy there with our German performance. Inflow and migrants, not really. Okay. Thank you very much. Okay. Our next question is from Hans Flusche from Kepler Cheuvreux. Hans, please go ahead. Yes, good morning. A follow-up question on the U. S. I understand the average contract duration coming down somewhat. And can you give us a feeling, let's say, where you are in the cycle with respect to the average duration? And secondly, so how far away from PICO and or trough? And secondly, do you see any less structural changes in the average duration of contracts? Yes. I'm not sure where your duration question is coming from. I don't think we've seen any duration change. Yes. I mentioned the fact that people are getting hired quicker by our clients. That's right. So our order duration goes down and we need to work harder. We don't work with mathematical models to say where we are in a cycle loans. We're at peak penetration in the U. S. As opposed to Europe, which is still 15% below peak. So we might go into new things. We don't know. What you do see is stabilization currently, as we mentioned, of the growth in the U. S. So that's what we're seeing. Okay. Thanks. So operator, I think this was the last question. So ladies and gentlemen, I want to thank you for participating in this call. And we're going to end it now. And we're looking forward to again see you or meet you or at least talk to you in the next couple of months. And we'll have the Q3 call planned for the end of October, 25th October. Thank you so much. Bye. Ladies and gentlemen,