Earnings Call: Q1 2016

Apr 26, 2016

Ladies and gentlemen, welcome to the Randstad Q1 2016 Results Call. My name is Laura, and I'll be the coordinator for your call today. I will now hand over to your host, Mr. Robert Jan van der Kraatz to begin. Thank you very much. Good morning, ladies and gentlemen. Welcome to our Q1 results call 2016. I'm here together again with Jacques van den Broek and Chris Huiting, my colleagues in Executive Board and also Arun, Investor Relations and some other of my colleagues supporting us in this call. I'll take you through a couple of slides to explain the Q1 results, and then we'll get to Q and A at the very end. I'll move to Slide 5 right away, which shows the highlights of this Q1. Revenue up by 5% organically, gross profit up almost 4% and top line growth of 6% in Europe, 3% in North America and 5% in the rest of the world. Please keep in mind that Q1 was roughly 2% tougher than the previous quarter in terms of comparables. Most of the growth we see in the world is in the Manufacturing segment. Also, one should keep in mind that seasonally, Q1 is the weakest quarter of the 4 quarters in the year. The gross margin was stable year on year at 18.4 percent permanent placement fees continued to grow and now 11.5% of gross profit. Underlying EBITDA improved by 10% to a 3.6% margin and important for us, the organic last 4 quarter incremental conversion ratio or the drop through rate of gross profit into EBITA arrived at 51%. A 35% improvement in net income and a very healthy ROIC, DSO again improved. The Profis acquisition was consolidated in the result for 2 months. The Randstad award was conducted successfully, very successfully in 25 countries, surveying 5,000 companies, an excellent moment to connect with our clients. And the last 4 quarter EBITDA margin now stands at 4.5%, which is a 30 basis points improvement. On Slide 6, the last 4 quarters, stable mid single digit growth. We could even say the last 10 quarters, consecutive quarters. It's a bit boring as a pattern. It's not typical in any way if one looks at the historical economical patterns, but this is what it is, 10 quarters now of consecutive mid single digit growth. If you look at the organic growth, it stands at 6.4% over the last four quarters. The gross profit growth also over the same period at 6.2%, percent, which is an improvement of 20 basis points, certainly supported by firm growth now over the last 4 quarters at 9%. And this then, combined with operating expenses of 4%, arrives us at the 51% incremental conversion ratio. On Slide 7, you can see the trends. The green line is going down a bit, but that is the Rest of the World. If you look at the European line, that is the sort of reddish line here. It grew 6% compared to 7% in Q4, but comparables have improved to last year already. So we see good contributions from France and Germany here, very helpful. North America was up 3%. The rest of the world, it increased by 5%, and the group assets grew by 5% on a 2% tougher comparison base. Also, this quarter included Easter, which in the previous year was in the 2nd quarter. North America on Slide 8. U. S. Staffing gaining market share again. Revenue growth up 3%, some impact of Easter here coming through, Perm 6 improved and also GP was up by 4%. And if you look at the underlying contributions here, firm growth 6%, a little lower The U. S. Staffing and In House Business revenue growth of 6%. That also had an impact on GP. And U. S. Professionals flat, all of these elements explain the GP improvement by 4%. Pricing was good in the American market. Run soft source rights, good increase of spend under management. And Canada, a very difficult market, revenue flat, slight improvement compared to the previous quarter, a very nice contribution EBITDA, 4.1%. Slide 9, the Netherlands impacted by payrollings. So underlying, we do see very healthy growth revenue at 6%. But if you look specifically at the staffing and in house business, then and one excludes the payrolling business, then it is 13% year on year growth here. Loss of the government payrolling, which is where a client, the government has decided to take people on their own payroll and terminate this business. So it's client specific. We continue to see pricing pressure in the market. The Professionals business, it was up 5% compared to 21% in the previous quarter. That requires us to boost commercial activities again, but also there is an impact here from the restructuring, which took place last year and also the comparables have been more challenging. EBITA margin now stands at 4.8% versus 6% in the previous year. We're looking at making some adjustments related to the reduction in the payrolling business, and we continue to invest in growth. 13% growth is rather significant. In the French business on Slide 10, we do see growth continuing ahead of market, nicely 9% up, combined staffing and in house stands at 8% compared to 10% in the previous quarter, professional improved to 12% and perm continues to show very nice growth at 27%. Gross profit, up by 5%. We do see like something like a cocktail of some elements here, pricing pressure. On the one hand, we have new insurance that hits us, which we cannot completely offset by charges to clients. We have some compensating subsidies that are starting to come in towards the end the quarter. EBITDA margin improved, also explained by the release of an accrual. In Germany, improving growth and profitability. Germany also, after quite a few quarters of either no growth or negative growth, It's now coming through again. Revenue growth at 5%, gross profit improved even more, 7%. Our focus through activity based field steering on the SME segment shows clearly results, which also are coming through in the Netherlands, so higher growth of the SME segment. EBITA margin at 3.7%, showing excellent operating leverage. Belgium, profitability improved again 5.6%. That's a very nice level of profitability, but that went at the cost of some revenue growth because we lost some large clients due to pricing. These were specific customer profitability based choices that we have made, but we continue to focus ourselves also on catching up with market again. Gross profit was flat, again, the result of client profitability focus. Iberia, Spain and Portugal, revenue up 8%, Spain at 9%, very good growth in the professional space continues. Perm also very nice at 36%, and we continue to invest in further growth. Also Portugal improved again after some quarters with clear choices on customer profitability, now at 4%, and the result is that also gross profit was up 10%, 3.9 percent EBITDA margin now. The UK, step by step over the last quarters, we've seen improvements coming through. Revenue up by 1% now, but even stronger at the gross profit line. EBITDA margin stands at 3.1%, which is operating leverage coming through. SourceRite clearly has a contribution in the UK. Slide 15, the rest of Europe. Italy, it nicely continues to grow double digit, 11%, with a strong focus on specialties and perm. Switzerland was a bit difficult over some quarters last year, but it continues to improve now at 5% Poland, double digit solid. And in Nordics, revenues were stable with consolidated profits and the EBITA margin now at 2.6, which is roughly in line with the contribution of profits. Rest of the world moderated growth across the board. Japan improved from 1% to 3% and perm also as a result of our specific micro strategy that you also see in other countries, nice growth of 38%, mostly in the staffing segment. Australia and New Zealand showed growth continued at 5%, but a nice contribution also here of perm. Asia shows growth of 5% in line and Latin America as a result of customer profitability somewhat reduced growth here. EBITDA margin just above 1%. The financials on Slide 18. Well, this is when you summarize all the previous comments, this is what comes out of it. Foreign exchange impact roughly 0 at the EBITDA line, which compares to a positive of SEK 5,000,000 in the previous year in the Q1. We had some one offs here, mostly M and A related. And then amortization and impairment, a bit lower, and that is the consequence of amortization of certain M and A related elements, and we just have a lower level of amortization in here. Net finance cost and associate, that's a plus, that's nice. It's always a combination of interest paid, but the interest rates are low, the debt is low, and we have some adjustments, some valuation adjustments here as well as some currency impact. Last year, that was a negative. The currency element now is positive. It's bookkeeping, but it is a positive. The tax rate relatively stable and in line with our previous announcement. Performance by revenue category. Staffing improved EBITDA margin from 3.2% to 3.6%, strong focus on delivery models. It has been on our agenda for quite a while and it continues to be very important. In house, we continue to transfer clients from staffing to in house. It's the best way to serve our large clients, low price lower prices, but high level of volumes and high productivity levels. The fact that the EBITDA margin is lower here is purely the result of improved cost allocation here. We've made some adjustments. Staffing and in house are very much together, and cost allocation is more art than science. Professionals at 4.5 percent EBITA margin and nice growth. We have a very strong focus on the verticals, IT, Finance, Accounting and Engineering here. The gross margin bridge, we went from 18.4% to 18.4%. So we have a positive from perm and a negative from HRS, which includes the Dutch government payrolling business. Not spectacular here. Slide 21, operating expenses. As you can see, a big red M and A. That's not the M and A cost. That is the addition of profits to our consolidation, and this is the 2 months of expenses that came in here. So in line with our announcement, a slight decrease sequentially in the cost base. We continue to invest across the board where we see growth. Net debt now on Slide 22 at roughly €300,000,000 and a leverage ratio of 0.3. Percent. Nothing specific. Working capital remains highly efficient. And at the bottom, you can see an improved return on invested capital. Underlying, if you make an adjustment for dividend, that's still the case, but the dividend was already taken out of invested capital in Q1 this year due to the Annual General Meeting taking place in March. So that reduced the invested capital base slightly, which was not the case last year. But even if one makes adjustments, then we still see an improvement in the return on invested capital. Free cash flow 2016 on Slide 23, rather standard, nothing spectacular. What you see here is the outflow related to the acquisition of Profis. I'd like to point out here also that typically in our seasonal pattern, again, Q1 is the softest quarter of the year. Q2 includes the outflow of dividend and payment of holiday allowances. So typically, at the end of Q2, we have a higher debt than at the end of Q1, and then that improves again in the second half of the year. That brings us to the outlook on Slide 24. Organic revenue was 5% in Q1. In March, revenue grew by 4.6%, which is better than slightly better than February, and it included Easter. Volumes that we measure every week in terms of people working in early April indicate a continuation of the exit rates of the quarter. If I look at the exit rates by country, then looking at the Netherlands, it shows us mid single digit growth rates. In France, we see high single digit in Germany, mid single digit in Belgium, flat in the UK, low single digit in Iberia, high single digit in America, low single digit, but that I should point out is roughly in line with the efforts for the quarter. Rest of Europe, high single digit and the rest of the world, mid single digit. So that brings it to roughly 5% in the month of March. Sequentially, the gross margin is expected to be seasonally higher, and there is expected to be a small positive impact from the fact that we have a bit more working days in the Q2, which is driven by Easter, which was in March this year versus April last year. In terms of operating expenses, we expect moderate seasonal increase as we continue to invest in growth. Then reflecting a bit on the margin ambition and the scenarios to get there, we started to share these with you in 2014 November at the Capital Markets Day. And in this slide, we have included some boxes, which provide an update as per today. So this bowl, the bucket, the basket, the ice bowl, whatever, it shows the bowls that do drive the performance of the company. The blue one cost, we announced that we were going through some significant cost savings, all on track. We've added 1 last year announcing that we're going to improve our IT spend through the implementation of shared service center. That project has now all been prepared in detail, and it's going to be implemented as from July. That will mean we're going to gradually transfer data centers and data communication into the shared service center, and we'll see some benefits coming in gradually as from 2017. Activity based field steering focused on improved growth and productivity, clearly helping us activities up 6 percent, which helps us to improve the conversion of our activities. So making sure we make calls that convert into visits, visits that it convert in to orders and so forth. If you look at the right hand side, you see that this field steering has helped us to drive our permanent basement business, our professionals and our SME. In the SME, we see double digit growth. In perm, we see 7% growth, very helpful. Then the orange bowl, when we discussed this last time, we put in a scenario of having high single digit sales growth in 2016, which then together with the activities in the other balls might bring us to the low end of the 5% to 6% range. That's not what we have seen over the last quarters, this high single digit sales growth, not at all. We have now seen 10 quarters of low mid single digit sales growth. So if we put that into a model as a scenario and look at the analyst consensus, which currently stands at 4.8, it is not impossible to get there. So as a scenario, we have no insight beyond what is happening in April. But as a scenario, just looking at it mathematically, that's not an impossible scenario. That brings me to Q and A, and I would want to ask you to limit your questions to 2 max. Thank you so much. Our first question today comes from Chris Gallagher from JPMorgan. Please go ahead. Good morning. I have two questions. The first around the pricing environment, specifically in Netherlands, France and Belgium. Can you give us the details on how you've seen that evolve? And then the second, on the U. K, have you had any discussion with clients with the upcoming referendum slightly to slow decisions? And what's your view on that outlook? Thank you. Yes. Let me take good morning, Jacques here. Let me take UK first. Of course, these discussions always lead to a bit of uncertainty, and uncertainty never helps economic development. You see the top line in the UK being rather modest to flat. So it probably plays a role, yes, but always tough to really scientifically ascertain, of course. Pricing environment. Yes, we're a market leader in the Netherlands, a market leader in Belgium, and we well, that's already 6, 7 years ago, decided not to play the pricing game in France, although we're the number 3 in that market. So that means that we make our choices. Robert Jan already alluded to it. Certainly, in the Netherlands, we've seen one of our competitors, I won't name names, but becoming Japanese soon, being quite aggressive last two quarters on price, yes. And then we take our decisions that leads to either discontinuation of client relationships, so less growth, or renewal of a contract at a lower price and that leads to a slightly lower margin. And Belgium is a bit the same. Belgium is you can see it very clearly, a top line which is quite modest. We were nearing the market in Q4. Again, we took some decisions not to renew contracts Q1. You do see that in our numbers, but Belgium is currently our country with the highest earnings and compare that to competition, and you'll see the difference. Operator? Ladies and gentlemen, we're waiting for the operator to help us organize your questions. Please hold on. We're still trying to connect to the operator. Next question is from the line of David Tullier of Rabobank. Please go ahead. Thank you. Yes. We are back. Good morning, gentlemen. First of all, on the Netherlands, EBITDA margin decline. Could you maybe provide a little bit more color on the impact of pricing pressure and the payroll business? Yes. And then secondly sorry, and secondly on France, there's a bit of two noises here. On France, the impact of the one off, could you quantify that? Thanks. Yes. I'll take the French one first. As I said, it's a bit of a cocktail. So on the one hand, we have pricing pressure. We have the additional cost of insurance, which is partly offset by some additional subsidies. On top of that, we have improved productivity clearly because of the high level of growth. And then the remainder relates to this cost accrual, which explains the biggest part of the improvement, but not all. I think that will guide you well, David. Yes. That's enough. Thanks. And then on the Netherlands, maybe. Yes, on the Netherlands. So the payroll business, it's a €350,000,000 business and we stand to lose a little over €100,000,000 due to the decisions the government is taking. And this is a highly leveraged business because it's highly automated, and we think we're going to lose anywhere between €8,000,000 to €10,000,000 EBIT there. So that's just something that happens that does then hurt our EBIT and also our top line growth, of course. And then there's a few other things. One is we are we carry our own costs in sickness of temps. We've been doing that for quite a while. And that also goes up and down a bit. We've seen a flu epidemic in the Netherlands in Q1, and that hurts our EBITDA. This is nonrecurring, so that helps. Second one is in great English, the Tonzitzieverguding, which is sort of a severance for temps, which now comes in into Q1. And it also has an effect, probably will have an effect throughout 2016 and then in the comparisons because it's a pretty stable number, will probably fall away. Yes, and then the last, there's pricing pressure, yes. And that's roughly equally spread, these items or The pricing pressure is a bigger bucket than the thickness and the transits you for footing, yes. And the other one I just explained, you can probably calculate that one yourself as a percentage, and the €8,000,000 to €10,000,000 Yes. That's fair guidance, Jacques. Okay. Thanks a lot, Bob. But maybe good to mention in essence. Another one, of course, is the funny mix development. So we take out cost or we invest in growth. And in the Dutch business, we do see 13% growth in the rest of the market. And we're not cutting cost there because yes, growth is very good. But in this payroll business, we cannot take out cost due to the high leverage. So that makes it a bit tough from a short term cost steering perspective, but we'll it will weed out over the year. Yes, we're looking at making some changes, but that will take a bit of time. Yes. Yes, that's fair. Thanks a lot. And the next question is from Paul Sullivan of Barclays. Please go ahead. Yes, good morning. Just last one on Holland. The perm performance was fairly weak. Is that a transitionary issue? And will that wash through as we go through the rest of the year? Or was it a drag that we should see continuing for a little bit longer? That's the first one. And then second one on M and A and the pipeline. I don't know where you can give us a little bit more color on your thinking in terms of future acquisitions or how you see the pipeline shaping up for the rest of this year. And in this choppy environment, does that put you off doing deals? Or actually, does it encourage you to do more deals? Okay. I'll take the Netherlands first. Perm is a mixed picture. It's actually quite good in our 2 staffing companies, again, from a low end, but you do see the trend we've seen in quite some markets is that we do want to perm in staffing to grow better, training our consultants to sell perm of the same profiles they sell camping in the market. That's still working very well for us. In our Professionals business, we do see a bit of, call it, post integration Blues. We integrated 3 companies in the Netherlands into 1 professionals company that went surprisingly well. We did it in Q2. Numbers in Q3 and Q4 were quite good. At the same time, we also changed roles a bit. So we went from 360 consultants selling and servicing like we have in staffing to split desks as we have in other professionals businesses. So we lost a few people on the front end. And as you know, perm then immediately reacts, and therefore, perm on professionals is lower than to be expected. But again, this will weed out over time. We're taking measures to improve growth again in Permian in our Professionals business in the Netherlands. But for Q1, it was not as good as the last quarter as Q4. On M and A, our strategy is unchanged compared to the previous quarters. You're right, the market is sometimes a bit difficult. We can find targets, but not always at the right price. Randstad has some firepower, so we are willing to use it. And you could see that coming through last year in the second half. We acquired RISE Smart in the outplacement space. And this the Q1, we have acquired PROFIST, which is nicely contributing here. And actually PROFIST provides sort of the profile that we really like. It comes in with expanding our staffing footprint, and it comes in with expanding our professional footprint. And these 2 are the priorities across the globe. We're using our DCF approach, where we typically look at modeling it according to various scenarios, but they all include a downturn to ensure that we don't just sort of base ourselves on hockey sticks and that drives our willingness to pay a certain price. So we continue to have a pipeline. We're working on it, and we're rather happy with the pace we're making. Hopefully, we're going to see some more coming through in the rest of the year. Size of transactions will be midsized. So typically, that will be anywhere between EUR 100,000,000 at the lower end and EUR 500,000,000 at the high end. Very clear. Thank you. Next question is from the line of Josh Pudel of Berenberg Bank. Please go ahead. Yes. Hi, good morning. The first question on is on the Netherlands. How much of your business there remains exposed to the government? And are there any further areas beyond payrolling which you think might be at risk? And then secondly, on Germany, you saw a decent acceleration in Germany in Q1, and that's despite the timing of Easter. What do you think is driving that acceleration? And what trends have you seen there so far in April? Yes. On Germany, we see good acceleration. What's we're very happy with the fact that Robert Jan already mentioned it, but I'd like to mention it again, is that in Germany, our SME is now really outpacing our large clients, which is definitely a first in Germany ever. So that makes us a stronger company. Yes, we've given you the exit rates. I think that's good enough in terms of transparency. So we're happy with our German performance. On the exposure of the Dutch business in the Netherlands with government, it's 15%. We don't expect this business to be at risk. The payrolling business is really like a central decision that has been taken. I'm not commenting on the motives for this, but yes, it happened quickly and this business has been quickly disappearing. So these people are being hired. We don't expect that in the like say real tempting part of this government business. We don't see any signs there. And this should be fully implemented in Q2. Yes. 1st May actually then we finish. Okay, great. Thank you. I don't see any reflection on other business. It's only payable. Thank you. Next question is from the line of Nicolas de la Carintha of Bank of America Merrill Lynch. Please go ahead. Good morning, guys. Two questions, please. Just a quick follow on, on Germany. I was wondering whether you could give us an indication of how much of the 5% was down to pricing versus volume. And then a question on the profits acquisition. I mean, it was had a positive gross profit impact or gross margin impact, a bit negative on the EBITA margin as we would expect. Is there scope to take synergies out of that business? Do you think that's going to be kind of a positive contributor to the same margins eventually? Thanks. Yes. The German breakdown between price and volume, that was your first question. We think that it's roughly half half. Volume contributes half and price contributes the other half. Your question on profits, you're right. It indeed has provides us with a positive contribution at the GM level, the gross margin, also because it comes in with a substantial contribution in permanent placement. At the EBITA level, it's roughly at par with what we show rest of Europe. Your question about the synergies, of course, there will be some synergies, but the main focus here is on driving growth. The company has been on our radar screen for the last 10 years. We always found it too expensive. It then showed the deteriorating results. And just when it started to come back a little, we were able to agree on the transaction. So we'll jointly try to drive growth here, which is the main focus in the especially in the Swedish market and in the professional space in the Scandinavian market. Maybe to add a bit of color, there's also like what we would call concept synergies. We definitely feel there's scope in their blue collar business and part of their white collar business to also implement our in house concept and therefore increase conversion. We do feel probably this is not a 2 16 thing, but the Swedish market certainly provides enough potential to have this business performing at group level in terms of EBITDA. Of course, the Norwegian part, which is the smaller part, is a bit hampered by the oil and gas development. So that remains to be seen. Yes, which was included in our DCF analysis. Yes. Perfect. Thank you very much. It's really helpful. The next question is from Toby Rex of Morgan Stanley. Please go ahead. Good morning, guys. It's very good to hear you've all survived the flu epidemic. Could I ask two questions? One is on the in house business. Is there a natural limit for growth in that business? How much farther is there to go? And I think you talked about margins when you were talking about margins, you talked about cost allocation being more of an art than a science. Could you sort of talk a little bit about that? What is what do you think is the actual margin there? And then secondly, on France, there's lots of talk in Les Deco and I guess around sort of the politicians talking about potentially becoming more aggressive against TEMP through subsidies or through taxation. Could you comment around that, please? It's very tough to talk to comment on politicians who talk in a newspaper. I can imagine. In heating up for of the watch campaign, you've heard us talk about this before, but no problem to reiterate. The French market has been always there always was subsidies have always been part of life there, quite stable. There seems to be nothing more permanent than a temporary measure. So on CICE, it's up to and including 2017. There's going to be elections in 2017 regardless of who wins these elections. Of course, we don't think immediately something will change, let's say, up to and including 2017. And then who's going to take away this? The overall sentiment in the French market on CICE is that it works. So unemployment is not really going down, but our market is growing. And if that continues, then normally unemployment should go down. That is recognized. So they do regard this as a system that works. So the socialist won't take it out. But then will the other party take it out, but that's bad news for the private sector. So we'll see. We'll see. But yes, it's still almost 2 years now. I think, aren't they that they're sort of more sort of thinking that the CICE was there to create low paid permanent jobs rather than temporary jobs and that's the issue. And I think Les Echo has been sort of talking about increasing the costs on temporary contracts and decreasing costs on permanent ones. You think that's all just posturing and the reality is we don't know where we are? And I agree, CICE is unlikely to go. It's just how it's allocated might change. You never know. What you're just stating is something that never works. So if anything, this leads to a lot of worse regulated jobs. So let's not hope they put that system in. This never works in no country. And very often language and actions are different. Your point on Ramskod in house services, today is roughly 20% of our revenue base. We see significant room to grow that further. We have quite a differentiated pattern in our own company, very high share of German revenues comes from in house, whereas other countries are much lower. So we still have a way to go in most of our operations. But we also can see it expanding this in house concept. We can we have a significant presence in the call center space, but it might even go further in the clerical space. And even we are looking at expanding it in the professional space. But it's just one of the delivery models. We have other options as well. For example, central delivery, which has been explained at the previous Capital Markets Day also. In the Netherlands, we serve large clients with in house, but we could also do through central delivery, building a team at the central point and then supplying that to the client without interfering with the expensive branch network. So it's one of the delivery models. And one very promising here to mention is also what we call Randstad Corporate Services. So in house is the single site, single profile or limited profiles, mostly starting at the bottom end to mid end of the pyramid. Randstad Corporate Services is named corporate because it's mostly at head offices. So it is a single site, but multi profile, multi service. We have a little over 30 locations now in the U. S. And effectively, if you look at the people we deliver, it's mostly professionals. So we think this is a very promising model because clients increasingly don't want to work with 40, 50 suppliers and professionals. The basic MSP model is also a bit old here. And RCS provides what our IS also does. So we take care of the workforce and provide a mid- to long term view on how this develops, including employer branding, productivity of people and automation of the transactional part of the service. So we do think that's very interesting. So in a way, this is in house for professionals. Okay. Sure. And then that comment around sort of allocation of costs, could you just talk about that a little bit, please? Yes. I think to simplify that, the margin ambition with our in house business model stands at between 4.5% 5%. We've been around 5% for quite a while. If you look at the last four quarters, we're now at 4.9%. The previous last 4 quarters in 2015 was 4.3%. Percent. So that comes through nicely. And the cost allocation remark that I've made is, how do you allocate cost in a business that is rather integrated because growth of in house is delivered through mostly through the branch network. So we develop a client in the branch network and then transfer the client when the client has grown to a certain level, then we transfer it into the in house structure. So allocation of head office costs, for example, and in the restructuring in the Netherlands at the beginning of last year, we looked at it again, how that worked out, and now we made some changes, which we believe help us to set the cost price better. And as a result, also the reporting is impacted. Nothing really big. But deciding on how to allocate cost, as I said, is more art very often than science. But we think this is better art. Okay. And to be clear, that's taking some cost out of the branches, putting that into the in house area. So is that right? It's the other way around. So we've reduced the return on in house by allocating a bit more of the cost to in house. Yes, from the networks, yes? Yes, correct. Okay, thank you. Next question is from the line of Marc Vassenborg of ING. Please go ahead. Yes. Thank you. Good morning, guys. I want to come back on France, on the cost accrual. Robert Jahn, I think you mentioned that most of the increase in France, I presume then talking about EBITA, is driven by this cost accrual. So is it fair to assume that the cost accrual release was around €5,000,000 in the quarter? And can you confirm that it is indeed one off? That's my first question. And then my second question on the Netherlands, the transition well, subsidy perhaps a better word. You said that will, Jacques, you mentioned will have an effect in 2016. It will fall away. Can you give us a bit of an indication how big in terms of basis points on the margin for the Netherlands that transitions of City Wire, say, for instance, in 2015? And then perhaps a final one, if I may. On the trend in March April, How reliable is that SEK 4.6 billion on March, the working day adjusted and the first indication on April since there's so many holiday impacts in there, the Easter timing, how reliable is that number? Can you perhaps provide a bit more color on that? Thank you. Okay. I'll do the yes, Marc, it's really not a transition subsidy because we're paying it. Okay. It's called a transition subsidy. Now so this is a severance for long term terms if you don't immediately find a job for them. We think it's around 20 basis points. What I was trying to say is a bit like what we've seen in Germany. So in the comparables, it will weed out at the end of 2016 because we do think it's a pretty stable number. It has to do with your mix of people. Of course, we're managing our own people to give these people as quickly a job as possible. But yes, sometimes you do need to pay this severance, and it's not a problem because it's the law. But it's a 20 basis points probably for the rest of the year. Mark, on the So it's a subsidy to the government, that's what it is. Yes, yes. You could also call it tax, but then we have a lot of All right. On your question on France, I explained it's the cocktail. So we have the pricing pressure, the increase in insurance costs and the subsidies and the productivity improvement. The latter offsets effectively the previous elements. And then delta in the margin was mostly the result of this accrual release, but your number is a bit too high. But mostly the result And it's one off, right? Right? It's one off, yes. Correct. Okay. Good, good. Thanks. Mark, keep in mind that we always have one offs in our business. We have releases because we accrue and then a decision is made or we meet certain requirements and then we pay less. So this is the name of the game in our business. On the March April trend, the 4.6 percent impacted by Easter. So that makes it that it should be a little higher. And we also looked in detail at the volumes in April, which give us a comfortable feeling about sharing the 4.6% with you. We're not worried by it at this point in time. Okay. And can you perhaps give us a bit feel for the comps through the quarter? You mean last year? Yes, correct. I thought you have all these details. I have a feel, but I just want to get a confirmation on it. What's going to be important is the Dutch market in May. As you might remember, last year, we had the 5th May, which was officially a holiday, turned out to be a day where most people work, except the government. Yes. Last year was 596. Yes. That's the May thing. Yes. So that's the May thing. So take that one out. Yes. All right. Yes. Great. Thank you very much. Yes. Next question is from the line of Hans Brejgals of Kepler Cheuvreux. Please go ahead. Yes, good morning, gentlemen. Two questions from my side on the U. S. First of all, looking at the general staffing side, slight dissolution growth. Could you give some indications on developments by, let's say, by industry segments? So what's manufacturing doing in the other segments through the quarter? And what do you see also with respect to the lengths, the average the contract lengths for temps in that segment? And secondly, on the Professional side, revenues led. Yes, working on to improve the professional business in U. S. I think the number is a little bit disappointing. Are you, let's say, going to take some additional measures here? What do you expect going forward on this side and the Professional side? Mark, I'll take your sorry, Hans, I'll take your last question first. Proft, in the U. S, you said it's a bit disappointing. Yes, we agree it should be higher. We've made changes in the past. Linda is not with us today, but she's working hard on getting our field steering organized properly. We also, in the meantime, integrate continuing to integrate part of the back office. So we feel we are pushing the right buttons, but success is coming through relatively slowly. Yes. And it's always a bit tough because when I tell you the sectors in the U. S, you will relate this to the market, but we have a whopping 3% market share in the U. S. So I wouldn't take what happens in our sectors as an indication for the market. You do see in the ASA numbers or the market numbers, there's a slight slowdown in this market. With us, what's mostly doing well still is our blue collar part. We do see but that happens if you see a slight slowdown, transport and distribution doing a bit less from high double digit to still double digit but lower. So it's a little bit less, but this is the 3rd year of growth. So we're not worried there. And no significant change in contract length in the U. S. I already mentioned that April is in line in the staffing business in the U. S. Roughly with the efforts of the Q1. Yes, we do see 2%, 3% wage inflation, and we do see good margins. So these are signs of, yes, still a good market. Good. Thanks. Next line, our next question from the line of Yves Franklowski, NVC. Please go ahead. Good morning, guys. Yves here from Belgium. Could you maybe give us what's on in Germany? Maybe what regulatory changes can be expected for the rest of the year? I guess, Adeco was talking about, again, some price increases in July June, July, which can offer some support, of course. And then second question, just read that the plans of the Dutch Social Minister of Social Affairs imposing also an official loan on the payrolling business has been canceled due to insufficient support in the Parliament, which was as expected. Does this give some will you now increase some marketing efforts in the private sector pay hauling business to recoup some of that lost revenue given that the probably there will be no stricter legislation? And how well was this anticipated by you to drop out? Because I guess the minister already mentioned that last year, half of last year, Yes, have you been immediately looking at some additional cost measures? Or is this 1Q dropout really striking for you? And are you now only starting at additional measures in the Dutch business? Thanks. Yes. I'll do Germany, and then Chris will follow-up with the Netherlands. I get a rebate from the KLM on flying to Berlin, so that's helpful. So I don't know. There's still there's a lot of different topics on the table with the German politicians currently. Of course, they were quite surprised with the Alternative v Deutschland, a slightly populist party that certainly in 3 states got quite some votes. I think they're still recovering from that. And then refugees is a hot topic, as you can imagine. And also on the table with a few more other topics is, well, the regulation on temping. So we actually don't know where it is currently. It's still in the pre phase of discussion. So very difficult to see. So no CLA is expected to come in, Jacques, in the case of 2017? There is a moment of increase again on the top of our head, 1st June, which is a regular one based on the current situation. And that's an opportunity for us to yes, hopefully, if we do it well, it's always very complicated. But we did well last April, and let's hope we do well again now. Okay, thanks. On the payroll question or the law, there's a difference between the Motihama, as we call it, that has to do with general payroll in the Netherlands. And that's where you mentioned that it's not supported by the 2nd chamber and also not by the rough established, but that's the way. But it doesn't matter. The Minister of Social Affairs, Mr. Asher, he announced this payroll ban for the public sector. So that's what we'll say. Secondly or thirdly, you asked us if we couldn't foreseen it. Yes, of course, we knew that this law was or just this measurement was coming in, although it's always a bit of a thing about how they deal with it. So different departments are dealing with it in different way. So it was a bit underestimated probably, but we were seeing it and we still see it and we make our we take our measures. Okay. And now that you know, Cliff, that the private sector won't be impacted there since the law will not be voted, will you increase your efforts a bit to recoup or to put some of the business back into the private sector? It would be logical. Yes, we are increasing our sales there already a long time actually to compensate also for the loss in the public sector. And secondly, we, of course, react on the pre launch measurements, which are announced. The new law, the DBR, so we sent out the press release, I think, 2 weeks ago that we are full in the sales mode also on the freelance contract. And is it can you give us a number how much of this lost public business can then be recouped on the private sector in the long term? That's probably difficult to Too early. Yes, of course. Thanks a lot. And the next question is from the line of Fofini Wabanavi of Goldman Sachs. Please go ahead. Hi, good morning everyone. Just a couple of questions from me. When I look at the growth in the Q1, it looks like the growth has swung quite crazily through the month. You had 6.6% in Jan, maybe close to 4% in Feb and then improved to 4.6% in March. Can you comment on what exactly drove this? Was it just a reflection of the underlying macro in the different countries? And secondly, in North America, when you reported the full year results, I think you talked of mid single digit exit rates in Jan, but ultimately you ended up with 3% growth in the quarter. So is it the macro slowdown which ultimately affected the growth there? Happy to hear your thoughts there. Thank you. Well, we always have erratic growth rates. They are never linear. The comparison with the previous year plays a role. So we don't really look at it month by month. Of course, we measure it month by month, but we look at it a bit for a bit longer period of time. So to us, this is a continuation of a trend. I have to say that and we pointed that out, the growth in the Professionals business in the U. S. Is below market, and we are not satisfied with that. The growth in our staffing business is ahead of market, and that's the way we like it. So the erratic picture throughout the quarter, I actually gave you just the Q2 last year growth rate, which explained that 5.96. That's what happens. Working day impact comes through this. So nothing specific, I would say. And we don't really analyze the macro trends underlying because we've built a company that responds to whatever happens in the market. Understand. And can you give me what is the split of professional versus general in staffing in the U. S. Given you had such different growth rates there? Well, staffing is a bit more than half and professional is a bit less than half At the gross profit line, it's roughly equal. Okay. Thank you. And on yes, understood. Thank you. Next question is from the line of Konrad Plummer of ABN AMRO. Please go ahead. Hi, good morning. My first question is on Belgium. You mentioned several large accounts being terminated. Can you give us an idea of what the impact could be for the remainder of the year? And my second question is still on the payrolling business. If you've lost something like, let's say, EUR 120,000,000, are you saying that the remaining payrolling business is not related to the government? Or is that related to both the government and the private sector, but you know that it's not at risk of you losing it? Okay. On the comment, the largest part, the vast majority of the business that's gone is the government. And there's one other private client that we've not lost, but they decided to in store. And for the rest of the payrolling is in the private sector, it's the growth market. So we have as Chris said to Yves, we don't give guidance that we actually don't know because payrolling is sometimes a long sales cycle. If we can how much we can recover in the private sector, we definitely don't feel that we're going to lose more. It's a very specific yes, you should call Lower Back Acher why they are doing this. So we actually don't know, but we never comment on our clients. But so we will have one more quarter where there's going to be a negative impact from the lost government payrolling business, which is the 2nd quarter? No. That will be throughout the year, but this EUR 100,000,000 to EUR 120,000,000 you're mentioning is full year. Sure, sure. Okay. I think, Chris, you also mentioned that it should all be done by the 1st May. No, no. Lotteryk Asher said, 1st May, people had to adjust to his measurement. This is the government department. So they're doing it already right now, and it will continue after 1st May in 2016. Right. Okay. Then on Belgium, what we didn't mention, but last year Belgium had, what is it, a little over 7% swing from Q4 into Q1. So Q1 had a growth of a little over 6%, but Q4 was slightly negative. So that's quite a swing. Yes, the clients we're not taking, of course, we're not commenting on clients we're not taking. But if they are and 1 or 2 are they're big and loss making, then that doesn't help. We also had a bankruptcy of 1 client in the Tempur team portfolio that's, of course, bombed in. Yes, that doesn't help. But again, we have a role to play here. We're the number 1 and 2 in the Belgium market with Randstad and Tempur team. And we took our decisions, and it shows in our profitability. And yes, hopefully, clients will come back once they see that there's also a different service to a different price. But Francois is working with the team, we'll be getting closer to market again. Yes, we look at it. Okay. Thank you. Next question is from the line of Tom Sykes of Deutsche Bank. Please go ahead. Yes, morning everybody. Just firstly on the U. S. And France, you've been taking market share for a little while there. Are there any particularly large contracts that are driving that? Or do you think you can continue to take market share in those two geographies? Then just on the MSP business or and source rights in general, it looks like your MSP business is spend under management up about 60%, maybe from a low level, but up about 60 percent in the last couple of years. What are you seeing happening to the rates or the percentage of spend under management that you can charge in, in MSP and VMS? And I know you've always said before, it's not a profit center for you, but how do you see that changing? And then just on the profitability of the U. S, sorry if this was answered earlier in the call, but you've gone from kind of 2.8 to 4.1 over the last couple of years, but your revenue is only up about 8%. You have a slightly high gross profit movement, particularly this year. Are there any one offs in the costs there? Or what are you seeing happening to non wage labor costs? And just come into your SG and A or gross profit, please? Okay. Those were 2 questions, Tom, or 14? It was kind of, yes, 2 rambling ones. Yes, yes, yes, yes, yes. Okay, good. Well, let's try to answer them then. Taking market share in the U. S, we in Staffing, we do it pretty much across the board, although certainly our in house worked well here. That's a double digit growth certainly into 2015, and we're already opening quite a few new clients this year. So yes, you know the story. It also works well here. Definitely not on price here. You can see our gross margin is actually quite healthily increasing in our staffing space. So it's sort of the ideal combination of taking market share and also having an overall higher margin. So very happy with that one. On the French one, yes, it's both actually. We do so France as opposed to the U. S, France already historically, of course, had quite a lot of large clients treated through the branch. And already for quite a few years now, We've we're transferring them, but more and more, we're also selling new clients. The concept is really like, which is not a surprise in France given the cost of labor. So a concept, which in house is that ups the productivity of people and lowers the transaction cost is a very popular contract as a way of service, by the way, sorry. And secondly, when we transfer a client to in house, we repopulate the branch with people who are going to work in the SME. We're also growing in the SME very healthily. So again, that's a good combination. The margin goes down slightly in France, but it's not so much the result of competitive pressure. It's more the result of not subsidies, but the other way around, new health care costs that go into margin, which is tough to offset. But then still overall a better return. So quite happy with our situation in France at the moment because the 9% growth comes at an 8% tougher comparable from Q4 to Q1. So that's quite impressive overall. And Tom, on OpEx in the U. S, nothing atypical. So we see sort of a regular trend in our OpEx also in our non voyage OpEx. No relevant releases or additions to provisions other than sort of the difficult ones. Okay. And how long can you continue to grow the EBIT at 20% organically on revenue of +3? Yes. That depends on the distribution across the country. We've made this point before when we showed you the 3 phases of growth, just the early stage where the incremental conversion typically could be up to 70%, 80%, then the second stage where we can grow a lot more with the existing base branches and back office. And then Stage 3 where we need to add the branch to the branch network, IT expenses, back office and so forth. Well, we're still in Stage 2. So we believe that we'll have some time to go with a relatively good incremental conversion ratio, but not north of 50%. It will be it is below at the moment, and it will reduce a little further. But we still see opportunity for further operational leverage. Yes. Maybe you elaborate a bit here. So we're very happy with our returns in staffing. We don't expect them to go up as a percentage of sales. We do grow a lot in perm. So our business mix within staffing is also slightly enriching, so that's good. But we're here, we're really betting on growth as much as we can. The other one is more business mix. So we mentioned that we're not happy with the growth rate of our Professionals business. So our business mix and the growth the mix of our growth should become more towards Professionals. This is internally because the market is quite good both in technologies and in non tech profs. So we should improve here, which from a market point of view provides us with an opportunity. But I'm well aware of the fact that this is not the first time we mentioned this. So it's also not automatically going to happen in Q2, to be honest. And the ICR at this point in time in North America is north of 40%. If we're going to see increased growth in the professional space, that is a business, and we've mentioned this before, which comes in with a relatively lower incremental conversion ratio due to commissions and bonuses. And we love it and we like a lot more of it. Okay. Thank you for those. And sorry, just the MSP question. You've grown really rapidly in stores right the last couple of years. Yes. Well, that's actually an interesting question, and I'm not going to answer it isolated in MSP. So what we've done is we've regrouped our business in the U. S, which is, of course, still partly the result of acquisitions we did into 1, as we call it, Talent Solutions Group. And this Talent Solutions Group sits MSP RPO. And the sales approach we have here is what we call integrated talent management. So the market in the U. S. Is very siloed. So you got MSP managing contingent going from neutral now to vendor positive, by the way. So that helps direct delivery, therefore, the return on MSP, not so much the fee we get for it, but certainly the ownership of clients and market share of clients. And then RPO is also a different silo. Tom, you know the market well, so you know that in the UK, that's a different picture. It's more integrated. And certainly in Europe, where we are an early mover, it's also a far more integrated total talent solution. And indications are now in the U. S. That we see more and more our portfolio with clients going from MSP to RPO to RIS to RCS. So a very promising development here, which I think also favors the bigger players in the market of which we want. Yes. And you see that more as a profit benefit now that you have the embedded client base that you can grow the market share with than you did before? It's a good position to have, whereas we don't see the actual profitability within the fee based MSP increase. But we do see because we sell it more integrated and we take the clients along on this journey, we do see a better return and a better market share on the client overall and more services that we deliver. Okay, great. Thank you very much. Next question is from the line of Peter Lorhn of FNS. Please go ahead. Good morning, Good to see you speak to you again. I have got one follow-up on the Dutch transition payment cost that you recorded, did I notice correctly that you said that this has 20 basis points impact and that this 20 basis points will be there, let's say, until this regulation stops? Yes. The 20 basis points, of course, will be there until this regulation stops, probably. It's always difficult, of course. It has to do with the overall development of the mix. But let's assume this stays. But then, of course, in the comparison next year, it will be out again because then it's a stable two basis points. So take it 4 quarters and then in 2017, we're stable again. Okay. But still 20 basis points lower also for next year? Well, not in the comparison, Pete Heineken. Okay. No, okay. All right. Okay. And this is something that really came to the fore this quarter because I thought this regulation already started in July 1 last year? Yes. But when it starts, it's not immediately people claiming it, yes? So it has some time before it really materializes. Okay. All right. Understood. Understood. And then with regards to the some comments that Robert Jan made regarding M and A and a few acquisition targets that are currently available. I mean, does that currently already has any impact on your thinking with regards to cash remuneration to shareholders? I have to ask it, Robert, you know. Yes. No change, healthy pipeline. Hopefully, we're going to see a few transactions coming through. And I hope our record dividend has be wise to you last month. Yes, yes. Absolutely, absolutely. That's been a good one. Those were my 2 questions. I think most of the other questions were already asked. So thank you very much. Thank you. Operator, I think this was the last question. So I want to thank everyone for joining us in this call. We are looking forward to talk to you again on July 26 to discuss the Q2 results. Thank you. Have a good day. Bye. Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.