Good afternoon, ladies and gentlemen. Thank you very much for attending. It is great to see you all here. Also, to see some of my esteemed older colleagues from my days in broking. My name is Tom Tyler. I am the head of Corporate and Investor Access here at Bloomberg. My team and I here, we aim to enhance transparency and communication between investors, brokers, and corporates, and we do that through developing new technologies on the terminal, but also hosting events such as this. We are delighted to be able to do this today. I was at last year's event, and I sneakily thought that we could do just as good, if not slightly better job, from that location, and I hope that you have all appreciated the hospitality so far. Jacques did a great job this morning on TV.
I think all of the 350 million viewers who have access to Bloomberg Television probably enjoyed his performance immensely. Without further ado, I would like to hand it over to Arun, or is it just straight to Jacques? To Arun, who will take you through the proceedings for the rest of the day. Thank you very much and have a great day.
Thank you. All right. Thanks, Tom. Thanks for the introduction. Before I welcome everybody, I want to thank Bloomberg for allowing us to host this Capital Markets Day. Also, of course, I want to welcome everybody in the hall for coming to this Capital Markets Day. The Dutch people that have flown over. There are around 100 people in the webcast. A lot of Randstad colleagues also, welcome to them. We have quite a busy agenda. Before I go to the program, I want to say a special welcome to one person who turns 50 today, Maarten Verbeek from the Netherlands. Congratulations with your birthday on behalf of everybody. We have quite a busy agenda, but a condensed agenda as we did last year.
What we try to address in this year's Capital Markets Day is again talking about the changes in the HR landscape, how our strategic roadmap is addressing these changes and how we try to capture these changes. It is basically a nice evolution of what we showed last year, that is how our agenda looks. Last year we had a lot of people from our businesses itself to talk about developments in the industry, and our company. This year we have four board members present to talk about their end responsibilities, but also giving examples of what is happening in the HR landscape. We have an example, a demonstration of a product we developed, which we try to roll out further. That brings me to the agenda for today.
We start with our CEO, Jacques van den Broek, who will give you a strategy update talking about our roadmap. Our CFO, Robert-Jan van de Kraats, will talk about the financial strategy. After that, we will combine those two presentations in a Q&A session. After the Q&A session, the webcast will end. We have a coffee break. We continue with board member Linda Galipeau to talk about how we go from staffing to integrated talent solutions. That's a new element in our strategic roadmap, the talent. We have Christophe Montagnon from France who will show you and demonstrate a big data solution we've developed in France and how that makes life easier of our consultants in France and make them more productive.
We end the presentation with board member Chris Heutink, who talks about trends in global clients and in central delivery and delivery models. Of course, he will also give you an update on the Netherlands. That's the program for today. Before Jacques starts, I want to start with a short movie which shows you the way. Thank you.
At Randstad, we're passionate about making a real difference to the lives of people and businesses. Mariano from Philadelphia, a user experience professional, works from the comfort of his own home, thanks to us. Area360 in New Zealand, a mobile experience startup, was able to bring their content and stories to life due to us. Australia's Tyro Payments, with over 100 developers, continues to deliver software solutions because of us. These are just some of the lives we're impacting on a daily basis so that they can experience progress and achieve their best potential. The question is: How will we continue to make a difference in this ever-changing world of work, a world speeded up by technology and globalization, making it transparent, connected, and always on. The rise of the machine is creating new jobs and changing the skills required in others at an even greater speed.
It's only those who are agile and can adapt that will turn the tide to their advantage and progress. At Randstad, we have always been about supporting progress. We've always been here to fuel our client and talent's ambitions, to create opportunity, and to help realize their success. In the future, we will continue to do so, but with different means and priorities. To support progress, we will need to take giant leaps ourselves. Technology will play an even greater role than ever before. Connecting talent in the digital age means our consultants will have fundamentally different roles in a world where matching platforms and insightful applications will play an even greater role. Technology will allow us to offer new ways to connect talent from the totally automated to the very personal. We will offer pure online services to address different markets.
We will offer data-driven services to support career, life, and business choices. Whatever the means, we will endeavor to be the platform that facilitates and enables connections, connecting talent with opportunity, and engage with them in the way they'd expect in this digital age. Making the most of technology will allow us to be most human. Whilst there may be fewer moments of personal contact, each one will be richer. We will always be an invaluable career coach, an expert advisor, an objective and knowledgeable ally. Whilst the way we connect in the future might change, one thing remains the same: our fundamental belief that it's the power of genuine interest and trust that will drive talent and businesses forward. While our ambition is clear, we need to ask ourselves, are we changing fast enough?
Good afternoon. Great to see you all. For the people of Bloomberg, you've definitely outdone us in terms of location. Like it very much. What you see here, what we just showed you, is a movie we showed at our general management meeting just two months ago. There are two statements which are crucial. One is, by making the most of technology, we become the most human. That's crucial. We're aiming for the best match between tech and touch. The second one is, are we changing fast enough? We do want to make also our own people a bit edgy.
We sent them away, on the one hand, with a clear vision of where we want to go, and on the other hand, with, "Oh my God, I really need to step up." If you look back two years, we started with the first theme in 2014, which was improvement. We wanted to get back to basics. You remember our message? It's pretty basic. Get out there, sell more, connect more to clients, get to know your market better, be out there. The second one is excellence in execution. Speed up to the speed of growth in markets, and where possible, excel market growth. In a way, that's where we are today. You've seen our performance, we'll talk a bit more about it, but we're catching up. We're outperforming markets, sizable markets, tough markets such as France, we're quite proud. That's today.
The theme for next year and the years to come for us is exploitation and exploration. Exploitation, as in reinventing our core, reinventing staffing, Chris is going to talk to you about that, by staying relevant, by toning down costs, by using technology. Exploration, as in where can we lead the way in combining again tech and touch. That's the journey we're going to take you on this afternoon, basically. That's pretty much what we want to talk about. I thought the slides were on here, but it's lamps. The world around us is changing. Whenever we do road shows, people always say, "Well, is technology taking your space? What's happening?" It's a combination. Definitely. Global talent, we always say, quote from Linda, "There's no scarcity in personnel. They just live in the wrong place." We can play a role there.
Demographics, Japan is a big market. They're already going down. They need more women. Those are demographics, as in, I talked about this morning at Bloomberg, immigration. Immigration, of course, is a very complex topic, but at the same time, a lot of these people are employable. If you bring them to Germany, 3% unemployment, a lot of demand in mid-level profiles and high-level profiles. We need these people, and we need the legal systems to accommodate that. How do people connect? We're going to talk about it. We definitely feel that if we are ahead of the game, we can stay relevant. You also heard in the picture platform, a lot of people talk about, we want to be the Uber. We are the Uber.
We've been the Uber for 55 years, but it's relevant to stay the Uber, to stay relevant, to stay the platform of choice, to stay the platform where you go to when you want to look at your employability, when you move and your partner needs another job, when you want to calculate the money you can make in another region, and on the client side, of course, getting access to talent. We want to play basically everywhere. We've got the traditional agency model changing a lot. Chris will talk about that. More than 50% of our current business in the Netherlands doesn't come from the traditional agency anymore. How is the agency model changing? Specialization, very much. Clients are getting increasingly worried about the access to talent.
They see the increasing mismatch of their multigenerational workforce that needs to work until they're 67 or 68, and at the same time getting new people in. MSP/RPO in-house, clients do want partners who handle these topics for them from a cost point of view, from a compliance point of view, from an employer branding point of view. We're there. Outsourcing, not selling candidates, not selling hours, but selling solutions. We learn a lot. I think that's crucial in our company. What we're doing is we do trials, we invent, and then we take it to the other side of the Randstad world. U.S. is a big place for us in the outsourcing space. Europe has been a big place for us in the staffing space. U.S., again, is a big place for us in the specialty space.
I think we're better at being agile and learning, and we'll show you some stuff. Low-cost disruption. Our most exciting journey, I think, Linda, has been the innovation fund. I'm not that well-educated. I studied law a long time ago, but I've learned a lot about technology and what it does in our space, and Linda's going to talk a bit more about it. Of course, we've made quite some investments already. Our strategic roadmap, it's all there. I wanted to do a quiz then, of course, but Arun gave it away, so you cannot win the packages which are on there. Sorry. For the people listening in, there are packages, there are little presents for the people who are in the room. Sorry. Talent. Talent, I'll talk more about it and why it's on there.
We think it's crucial. That's why we've added it to our strategic roadmap. Let's go in them one by one. ABFS. Again, simple message, started in 2014. In our business, it's pretty clear, if you want to have so many people at work, you want to make so many matches, you need to be doing so many phone calls, so many visits. You need to propose so many candidates on a job. It's as simple as that. Maybe not so simple, because you need well-qualified databases. You need warm databases, where you go to the right clients at the right moment. You need management to really guide this. You need management to guide candidate inflow through social media. It's been a journey. It's been a re-education for some and an education for many.
We're not there yet. We're never going to be where we want to be. That's, of course, what makes it fun. Last year, we beefed up with 30%. In many markets, we're still doing 30% more than last year. For example, France, certainly in the SME space, doing much more than we did last year. The early movers, such as the U.S., for example, it's not about getting up to, again, 30%. It's more about then conversion. It's not just about the numbers. It's about effectiveness and visits translating into matches, and candidates proposed, again, resulting into matches. We're getting more, call it educated here. Perm, 14% growth. Perm and staffing is really a success for us, more than 20% growth. Again, learning from the U.S., they went from 3% to 7% of GP in perm and staffing. Talk about re-education.
We had local management who were in the business for 15 years who said, "There's no perm in Tennessee." Translated, this means there's no people being hired in Tennessee. Well, there are, right? Re-education of management. Sometimes having experienced people is very good. Most of the time it is. Sometimes it's sort of a bit of a liability and you need to, again, people need to reinvent themselves. SME picking up in the Netherlands, 20%-30%, right, Chris? We are going to talk about it. Also France, we think definitely ahead of market. Also, this is for the first time in our industry, or sorry, history, not in our industry, but in our history, our German business, as you know, is a large client business. Growing SME in Germany is really an education for our people, going out to small and mid-size companies.
We're not there yet. The first signs are good. Organization, 60%-70%, EUR 1 million cost savings. Robert-Jan's going to talk about it. Randstad Sourceright EMEA. Again, learning from the U.S. As you know, Europe, many countries, many languages. MSP and RPO, there's just a limited amount of people who can sell this. There's a limited amount of people who can make a solutions design. There's a limited amount of people who can install a technical tool. We created a European organization by using these people more effective. Don't underestimate what that means for us, because we're basically a geographically organized company. Also at the same time, I'm going to talk about this a bit later, using a recruitment center, a remote recruitment center in the solution. It's new. It shows growth in GP in Europe from a low base.
It's probably around 40% currently in the RPO, and to a lesser extent, the MSP space. It's really a young market for us. Vertical approach in professionals, again, from the U.S. Chris is probably going to show you what the ruthless adoption, because that's again, copy-paste. The ruthless adoption of the U.S. model in the Netherlands is bringing us in the growth in professionals. You know, honestly speaking, that professionals has been a struggle for us, still is, but we're getting there. A new IT strategy. We pay too much on the stuff that doesn't make a difference, and we don't invest enough in the stuff that does make a difference. That's roughly Robert-Jan's explanation later on. That's good enough? He always says I'm quite superficial on financial data, but that's why we are a team, right? TTA, introduced it last year.
It's now implemented in 10 countries. We definitely feel it fuels the growth in MSP and RPO. These are global numbers. In-house, past EUR 1 billion revenue in the last quarter. This is still growing in mature markets. Clients really like this. It's going from blue collar into white collar. It's going from country to country. This is really still a successful traveling circus, if you will. TTA, what is it? Well, we've, without doing it in 10 countries, we've trained 130 people, which is our own top management and sales directors. Already approached, but this slide is two weeks old, so it must have been 150 already. More than 100-plus clients approached and targeted. You might say just 100. Why is it not many more? Two reasons. One, we're talking big clients.
We're talking multiple tens of millions of potential revenue, and in many cases, in many countries. We want to have the right people at the table. With all due respect for HR or purchasing, they need to be there, but we want our own peers at the table. It's a very well-prepared sales call, if you will. It takes time. If there's not the right people at the table, we sort of postpone, which is tough for salespeople like me to postpone a sales call, but you only have one shot. Better 100-plus now than 500 superficially. What we try to do is really connect the client's issues and opportunities to what we have to offer. Is it cost? Is it compliance? Is it better than competition? We really analyze the potential he or she has. We know sectors really well.
As you know, our global client space sells in sectors. We know life sciences, we know financial, we know logistics, we know all sorts. We know finance. As I mentioned, where do you get in? Align it to the business strategy, and we're creating a massive database. Creating a massive database on global movement of people, local labor markets, legislative best practices, and from then on, we prepare ourselves to surprise the client, if you will. Many times when we do this well, the client says, "I've never been asked these questions before. Yes, by McKinsey & Company, but that was a very costly exercise, but not by you." Of course, at the end of the day, if it transpires into a solution, it heavily fuels MSP, RPO, and in-house. It's different per market.
In Europe, we really try to entice the client to be more strategically thinking about outsourcing. In the U.S., we're already far ahead of the game. In the U.S., as you might know, MSP is about contingent, RPO is about recruitment. Here, we really work with the client on potential data that shows the value of integrating these services and the providers with it to get a far more holistic view on his talent, his own talent, the talent he hires, and the talent he's about to hire. Again, that's a long-term thing, right? Collecting calculating a sales pipeline in ITM is really complicated, right? We hedge our bets. We choose our battles here, but the potential is huge. Again, we are different.
We're different from competition, that's what we are aiming to be, of course. Talent, why is this new? We talked long and hard about it, the heritage of our company is we're a staffing company. A staffing company, what kept us awake at night is the client. Because if you land the client, then the talent will follow. In the staffing space, low to mid-level profiles, you will almost always supply 70%-100% of the jobs if you do your job well. In the professional space, you might fill 5% or 10%. Getting access to talent in professionals, where you want to go, but also in perm, it's far more a candidate-led business. We've got some good stuff. We were not world-class there, it's heating up. Mismatched labor market and what have you. Linda's going to talk about that.
Sourcing centers, we've set up 6 sourcing centers across the globe, by also using our investments in our innovation fund, we want to create talent engagement programs. What does that mean? Randstad sort of never lets go. We're always connecting to you, by updating your profile, by taking tests, by looking at your employability, by meeting with your peers. It's relevant. You go back, by the way, when we then connect to you're like, "Okay, wait, Randstad's calling." Additional calling on the phone. Randstad is connecting. Let's see what they have. It's not a one-time thing. It goes on and on and on. We're also installing end-to-end marketing. What does that mean? That in every team level throughout the world, we can see where candidates are coming from.
We spend a lot of money on job boards, the effectiveness of these job boards vary hugely. We now educate our people on what they spent. You got a subscription, at the end of the day, if you get one client out of the subscription, then the price of one candidate is the price of the total subscription. Which are effective, which are not, at the same time, also beefing up our own database so that we need less job board spend. Our recruitment centers, the earliest example is the one in India. I call it the Knight Riders, right? Without the K for the older people among you. Because they work overnight. They validate profiles for the American colleagues, predominantly in our IT space.
Whenever they come in in the morning, there is a batch of pre-screened profiles that they can work on. Hugely improves their productivity. Relatively new ones are Kuala Lumpur for the Asia-Pac region and Budapest for the Hungarian region, or for Europe, basically, sorry. 23 languages, around 120 people, and they source. They source for the MSP and RPO programs, and they source for the European professionals businesses. This is still work in progress, by the way, because it also means that we need to reconfigure the way we set up our professionals teams in Europe. We need less recruiters because we got them in Hungary at half the cost, and by the way, because it is the only thing they do, probably they do it better. In Kuala Lumpur, same thing for the Asia-Pac region.
Improving productivity, getting better access, more professional access to candidates, effectively grow and make more matches. This is one that Linda is going to elaborate upon. If you are in the top end of this graph, you are where everybody is. You attract the candidates that are looking for a job, then you match them one time. Top end is like 30% of the total labor pool. The sweet spot is below the line. Sourcing the other 70% who is not looking, not just matching one time, but cultivate them, engage them, redeploy them. That is what we are really working on. You see that in our technology investments, either the stuff we do ourselves or the stuff we buy or use from the innovation fund, we are moving from the top space to the bottom space. Crucial already, but more important going forward. Tech.
We created the innovation fund to, we were a bit worried. Were we going to be disintermediated? Were we the travel industry? Were we the media industry? Were we whatever industry? Is something coming from the side, hits us, we were too late. What we see is a lot of bright ideas. These ideas are hard to scale, because you got an idea, you need legs. You need feet on the street to sell it. That is where we come in. Combining technology and using it with our people, combining it in our way of work, I cannot say this enough. We are going to talk about IT, but it is not about the money you spend in IT. It is how you put the technological tool in the process of your people, where they use it every day, then it works. That is very tough.
That is not about money, that is about management, that is about being analytical, that is about reconfiguring the way you do business. I am going to show you a few examples where we are doing this. RiseSmart. Very happy with the acquisition of RiseSmart. First of all, because it is a company that really shows what technology can do. Disintermediating a EUR 5 billion industry, we think. Also for me personally, I started semi-illegally the outplacement business in Randstad. Frits Goldschmeding did not like it because we are a staffing company. Frits Goldschmeding is our founder, by the way, for the uninformed, and I still did it. 1995. Been trying to get a global offering for years, did not work, now we are taking a quantum leap by redefining this space. Very happy with it. The stuff we do ourselves. The Sales Navigator.
Sales Navigator is a tool we use in the Netherlands that scrapes information about our clients, every morning gives our consultants warm leads. Something's going on at clients XYZ in your region, you might want to contact them. It goes on and on. It's connected to their postal codes, their sector, their database. Big data matching tool. Christophe is going to show you what this is. It's really beautiful because this is where you will physically see the combination of tech and the consultant, where the consultant can go to the client and say, "You're looking for a welder in the Alsace region in France." Okay, well, there's 50 welders in our database. We've got 20% market share. Roughly people are registered at three companies, so this is roughly 50%, 60% of all the welders. This is the demand for welders. This is what they're paying.
Let's go in our database and look for the welders for you. I've got three. This one is pretty good. You see he's done the tests, but he's, yeah, 20% more expensive. You don't get him, someone else will. This is a great guy, but he works 30 hours a week, which is still a lot in France because they work 35, but he's not a full-timer. Is that good enough for you? The third one is also okay-ish, but he lives 50 kilometers away. Is that a risk? Which one are you choosing? You better choose now because I've showed you what the market looks like. Okay, you like this one? Let's connect. You make the match where he is. I've done a demonstration, Christophe or no? Sort of? Yeah. Well, you'll see it in life. Hackathon. You probably know what a Hackathon is.
You lock up young people for 24 hours in a location and you ask them to come up with an idea that sort of demolishes your business model. That's what we did in Amsterdam. We do it in more countries. This is what it looked like.
A Hackathon is an event where, in this case, an organizer, Randstad, brings in all kinds of great talents and asks them to look at the organization thoroughly and critically. With the knowledge they have, which can be in programming or designing, to show what they have to offer in the best way, but also to come up with something that works. That means that what is invented also has to be actually built.
One warm applause for the hackers. Three, two, one.
In terms of participants, we mainly wanted a good mix of different qualities. We tried to ensure that each team had at least a few design talents and a few programming talents, so that you could build something that works and also looks nice.
We are making an app where colleagues can communicate with each other and where they can quickly find a replacement for a shift they can't work. We want to do a video intake. The intake interview that takes place here, we want the person to be able to do it from home on the couch.
[Foreign language] En je slaapt niet. Iedereen is vermoeid, dus dat wil nog wel eens tot kippenhoffen partijen leiden.
[Foreign language] Laat je werk even liggen en kom allemaal even deze kant op. Al is het maar voor één minuut.
[Foreign language] We hebben zojuist een soort tussenpresentatie gedaan. Sommige mensen kregen nu zoveel ideeën door de feedback vanuit de jury dat ze nu hun hele plan om gaan gooien.
[Foreign language] Ik heb eigenlijk nog nooit zo ver van tevoren een pitch voorbereid, dus we voelen de spanning langzaam opbouwen.
[Foreign language] Een fantastische prijs. Bekroning op het harde werk wat er is neergezet door het team. Randstad Match van Krijn, Tycho, Robin en Bram.
What happens is that three guys, 15, and 16 years old, designed something in 24 hours that is going to disintermediate what we do. Their idea was to create a video registering tool, which we've now built in the Dutch marketplace. I put them on stage at my general managers meeting half a year ago. One couldn't come because he wasn't allowed to go from school. Probably his grades weren't good. That sounded familiar to me. These people started talking, and my management went really silent because this is happening. That goes back to what I stated earlier: are we changing fast enough? Of course, it's just a tool, but it goes very fast. We do these hackathons in many more regions, and we want local management very much involved there. In which space are we playing?
This is a sort of redirection of the colorful slide I started with. Of course, we're in traditional staffing. This is still going to be a great business, as you see in our press release this morning. It's growing. It's all good. We think it has limited growth going forward. Limited for us is like 5%-10%. In some businesses, it's still huge, but for us, this is limited. We want to move, and we are, towards hybrid models, where you use a tool, and you sort of reconfigure your people differently. Of course, that's what we're already doing in our MSP and our RPO space and in-house still. In in-house, we sell something totally different. We sell a best-qualified, high-productive workforce at the lowest cost to handle with a planning tool, with a fingerprint registration tool so that you're full compliant.
It's a hybrid model. Linda will talk about this. This is also where the innovation fund comes in. Not so much the business models these people have, but the capability to create automated reference checking, automated referrals, manage a freelance database. We're going to put that in our businesses, trial and error, going forward. At the end of the day, we're also going to organize and run online platforms. What we, to a certain extent, is also in our current delivery models already. This is roughly what you're going to see to a certain extent also in Christophe's presentation. There's a lot of tangible technique behind the consultant. The consultant still does it. We already experimented with a fully automated model in 2000, 15 years ago. Clients didn't like it. The technique was sluggish in those days, but they wanted a bit of touch.
That's what we're trying to do. Where do you want touch? Are you willing to pay for a consultant, and why, where, and when? If not, no problem. We'll give you fully automated. M&A. Yes, we're working on an M&A strategy. Well, our strategy is there. We're working on the pipeline. What does that tell us? That we're working on a pipeline. Where are we working? Professionals, scale, like USG two years ago, where geographically, we become a bigger player. No additional geos, by the way. We sold Sri Lanka. Oh my God. We're in 38 countries now. With this, 90%-95% of the world market. Niche additions to service offering portfolio, and RiseSmart, of course, is a great example of those. Robert-Jan will elaborate where we are and what our going forward is. RiseSmart. Back to RiseSmart. What's RiseSmart?
You lose your job. You lose your job in the U.S., and in the U.S., your employer is then not really obligated to give you a package. If you lose your job in Europe, you meet a consultant, you cry a bit, take time, you do a lot of stuff, takes weeks, quite costly, and then you might find a job. RiseSmart has someone to give you that creates the social media profile, gets jobs pushed to you, and then 65% quicker you find a job. We think that's the future of this business. Linda will tell more about it, but I want to finalize before giving over with Robert-Jan to RiseSmart and what it does. Thank you.
Remember John? He used to work for your company. He really loved his job, and he never thought that layoffs could affect him. That's why he wasn't prepared to leave. Fortunately, you offered him outplacement through RiseSmart. With RiseSmart, John didn't have to waste any time looking for a new job. In less than a week, a certified professional resume writer wrote him a unique and customized resume, one that showcased his experience specifically to hiring managers in his industry. He also got a transition coach who used to work as a recruiter. They worked together over the phone because RiseSmart wanted to pair him with the right coach, not just the nearest one. They worked on networking and interviewing skills, and John never had to travel to an office to do it.
When John wasn't working one-on-one with his coach, he logged into RiseSmart's career transition platform, which helped him organize his job search in one place. Using an amazing technology called SmartMatch, RiseSmart dramatically reduced the time John spent looking for jobs. No more searching through job boards for the right match. SmartMatch filters and ranks millions of jobs and recommends the best ones based on John's resume and preferences in seconds. For those jobs that might be hiding on niche job boards and corporate career sites, John had a professional job concierge handpick highly targeted opportunities. So many jobs are landed through networking, RiseSmart's contact discovery engine showed John the people he should know to help him get the job, as well as phone scripts and email templates to help him start that conversation. With RiseSmart, John got a new job 63% faster than the national average.
A new job that gives him the opportunity to be one of your customers. He's told all of his friends and ex-coworkers how much he appreciated your taking care of him. If the opportunity ever arises to work with you again, well, he'll be keeping that position in mind.
It's a wonderful opportunity to copy/paste throughout the world, I would say. Hi, good afternoon. Can I get my presentation on the screen, please? Yeah. I'm going to talk to you about three items here. The current trading, the funnel update in terms of progress made, where do we stand, also future opportunities, as well as, finally, the capital allocation and the dividend policy. Talking about current trading, Arun, are you sure the numbers are the same on these three screens? Yeah. Okay.
It doesn't matter otherwise.
It's been a pretty good month here. I used to have a pointer that it did work, but it's not really coming through. Okay. The month of October, 7.7% growth. Not a bad month at all. Please note that our trends are typically erratic. It's never a real linear line. It goes up and back a little bit, but it's not bad at all, huh? You can make most of it yourself. You probably have seen it in the press release, but the volume trend in November is roughly equal to what we see in October. We said something similar in July. We do realize that, but please keep in mind that volumes and then taking into account mix and pricing arrives at revenues. We'll see what comes out of it.
It's been a rather good month, and I think underlying what we see across the world is that things have slightly improved again, and we do see growth in the blue-collar space also contributing here and continuing. In North American market, 5% versus 4% in Q3. The U.S. business up, but it also tells us that the Canadian business is not deteriorating further. Europe, countries up 8% versus 5% in Q3. France up eight here versus three. Keep in mind that last year, Q3 was -4 and Q4 was -8. That should help us a little bit in the months to come as well. The Netherlands continues nicely, double digit, 10%. Belgium catching up, and we always have this closing process at the end of the month with estimations. That's why it sometimes fluctuates a little bit, but it's clear that we're on right track here.
Iberia, Italy doing quite well, double digit as well. Germany in the positive space, but still very slow. In Q4, as we typically see, we expect a small sequential increase in SG&A. That was about current trading. This is the bowl that we ended with last year, the ice bowl, the bucket, the basket, whatever you want with the various bowls in it, and I'll be talking about those. Before doing that, the header, it says targets within reach, and I said the same last year. Targets within reach. That means the 5%-6% range is within reach. Let me also make some statements here. We have no clue what will happen in 2016. Honestly, we have no clue. We have no contract pipeline whatsoever which tells us what will happen next year.
That's why we have invested a lot in building an organization that adapts quickly to whatever happens, that expands quickly if growth accelerates, for example. Taking into account sort of certain numbers last year, we took into account the consensus that you provide us and calculated it into models with sort of the proper incremental conversion ratios, and that made us arrive at the very low end of the scale, as I expressed at the time. We have a bit higher growth this year than in your models, than in our model based on your consensus. The richness of that mix was a little different than it had been in the past. We are clearly moving into the right direction, but it's very much dependent on what's happening there. That's why we also have added that in our press release.
What is going to happen is depending on also on the sales mix and on the pricing. If you look at the normal cycle, by the way, in the past, and I'll have a slide on that, typically, what you would see normally is that things are accelerating. What are normal cycles these days? As a summary, I do understand your consensus, which makes you arrive at 4.9 at the moment for 2016. If the 7.7 of October continues into 2016 and on top of that, we get sort of the enhancement coming through in the gross margin as a result of business mix improvements, and we plot the right incremental conversion ratios against it, then we will arrive at the low end of the scale, the 5%-6%, the lower end of the scale, clearly, but it brings us there.
I'm going to address the various balls now in the bucket here, but before I do that, a few remarks here. More to come, it says here, over time, clearly. We're going to talk about activity-based field steering, not just me, but also my colleagues. The assumptions I addressed already in terms of growth. Perm and SME double-digit opportunity in terms of growth. I'll address the perm. SME as in, for example, the presentation of Chris, we'll get back to it as well. Now I'm going to move to one of the balls. Please keep this in mind, the colors here, because then you know where we are. You see, to the right upper corner, this is about the growth ball. This is organic growth in a historical context. What is a cycle? I don't know.
I just know that in the old days, we thought that a downturn was around -10, but we found out here it is different. We just don't know. This lasted six, seven years, and maybe that is normal, but we found out here that, I don't know what is normal, but we thought we were on our way up, and then we got this dip again. This is where we are now. This is eight quarters of low mid-single-digit growth. Relatively low. If you look at the U.S., it is above peak and still growing. Keep in mind that our product also, that our service also contains an outsourcing component. It means that we take over a lot of work of our clients, and outsourcing is clearly something that is extremely popular.
We have an opportunity in emerging markets that remains, with the current pay levels in those markets, it starts to contribute, it goes slow. It will take a few years before it makes a significant impact here. Europe, still significantly below the peak that we have seen in the past. This is the growth in historical context. Again, still orange, looking at growth here in the U.S. Blue is Randstad, orange-brown is market. Clearly recovered in the U.S., ahead of market now. I think professionals could even contribute a bit more. Very good, solid returns here. Excellent recovery. In the Netherlands, again, behind market for a while. We were ahead here. We recovered over here. Quite some pricing pressure in that market.
Randstad has proactively adjusted the cost base in the Netherlands, which allows us to be more competitive in that space, clearly on market now. In France, in the French market, behind market for a while and coming back here as well. Also with pretty decent returns. I think that shows quite a successful result coming from the strategy that we have implemented again. We look at activity-based field steering, green ball here. The total cost base of the company is EUR 2.5 billion, out of which roughly 60% relates to the personnel expenses in the field, and 40% is head office, back office is included, accommodation, IT, marketing, and general costs. If you look at the way we try to manage this is clearly activity-based field steering.
We have also implemented some other initiatives like management layer adjustments, span of control adjustments, support staff efficiencies, and also further centralization of sourcing and delivery models, something that we will talk about in the rest of our contributions. Zooming into activity-based field steering, what has it brought us so far? This shows you the productivity trend. The blue line is the change in gross profit, and the green line shows you the change in personnel expenses. Getting this sort of organized properly is important because then you have input and output directly linked to each other. It is always difficult to get it right, we tend to go up here normally. Because of activity-based field steering, we have been able to control it very tightly and make sure that we improve our productivity levels in the meantime.
I would say this is quite a good return on the strategic initiative of activity-based field steering. We don't have it right everywhere, honestly, because I know a story gets more convincing if you also show where it doesn't go right. This shows you where we still have improvements to go. These data points are our OpCos, not identified on this slide, but it clearly shows you that if we grow our activity levels up here, then typically the GP over FT, so the gross profit per FT is also improving. Over here, we are in the right space. If you grow it with less activities, that is fine too. On this side, we have more activities here, but no returns. That means, probably, we are addressing the wrong targets here.
We need to get it right here, or our companies are just too inactive, not showing enough sales efforts. This tells you that we are improving our activity levels. There is a direct correlation with the output, but in certain spaces in the company, we still have a way to go. This is art rather than science. This continuously requires leadership to focus on Change in ball here. Business mix. This is about perm. This shows you the perm as a percentage of gross profit. Typically, in the more developing markets, for example, China here, and this is the more established temp markets, for example, the U.S. staffing here, and the group as average. In 2014, perm made up 10% of our gross profit at group level. Actually, in Q3 2015, it was 10.5%. If we add RPO, it is even 12.9%, and that compares to 12% in 2007.
In 2007, our focus was solely on professionals. There was very little perm in the staffing space. Now, we have built a concept that sets the standard for being successful in perm in the staffing space, and that is clearly contributing to our growth here. If you look at the year-to-date performance in perm growth, the average growth of our competitors arrives at 13%. Randstad is at 15%, but if we add RPO, it is at 16%. This is clearly a success story that should continue. If you look at the various markets in which we operate, this is the growth over three years, 2013 to 2014, 110% growth in Iberia. Today, it is 8% of local GP, gross profit. In the Netherlands, growth of 54%, only 3% of gross profit. In France, 7% low growth. Think about what happened in that market. It was not easy.
In Germany, it is 4%. This tells you we have been growing, but the potential is still very, very significant, and it is clearly part of our focus. Cost, blue ball. EUR 60 million-EUR 70 million cost savings in 2015. That is what we told you last year. Far, we are at a level of roughly EUR 50 million savings, mainly in head office and back-office functions. We have gone through quite a few efforts, span of control and field support adjustments. We have an extensive internal head office benchmarking exercise, which I told you about last time. What it contains, it shows us in each and every OpCo that we have, what percentage of the total population is active in, for example, application maintenance or in receivables management or payables. That means we can compare.
If you, for example, have a lot of people in receivables management and the user is low, overdues is low, then typically you get a return on your investment. If that is not the case, something is wrong. That is what we are addressing here. We are looking at sustainable reductions. Also size and location of branches, the digital support we get and procurement have helped us here. On track, clearly towards the EUR 60 million-EUR 70 million at the end of the year. We need to move on. We are going to go a little further. Again, the 60% field staff, we continue to address it one way or the other, because we have OpCos where the level of central delivery is lower, Chris will talk about it, than elsewhere. We continue to have massive opportunities here, support staff, span of control, et cetera.
Back office also continuously being addressed through the benchmarking exercises. We have quite a few opportunities there, which we still need to address. At the same time, we are going to create a global IT infrastructure shared service center. Actually, we are currently starting to put that in place. So far in the past, Randstad has been buying its data communication solutions locally. It has data centers. Part of it is in the cloud already today, but not as much as we would like to. End user computing, clearly opportunities there. Even beyond that, we do develop our applications locally, and we think that over time, there are clearly opportunities in this space. We are going to start with an IT shared service center for infrastructure.
That we are going to put in place, we believe we are going to get savings of that, because we will use our procurement power to realize those savings. We made the point that over time, we will have those savings coming in. You can see that at the top again. In order to fill spreadsheets, it is helpful when you know when to put it in. I realize that. This is something where we still have to work out quite a few details. Probably, we are going to see some savings coming in next year. However, at the same time, we are going to make investments to ensure future savings as well. In our calculations, we assume this is going to kick in over time. In a couple of years, we will see the savings coming through.
In the meantime, we will realize savings, we will continue to invest in order to secure that we are really going to get the EUR 50 million into the box. In terms of increase in business systems, which drive GP, Jacques already referred to a few. Christophe is going to introduce you into the big data application that we have. These are examples, the idea here, and we are testing it, is to look if we can develop certain applications to support the front office in certain locations and then share it throughout the group. Have similar solutions across the company. EUR 50 million over time. These are sort of the updates that I wanted to provide you in the context of the ICE ball and the balls that we have been addressing. Finally, capital allocation and dividend. Very proud of this slide here.
It shows the Randstad free cash flow conversion, the average free cash flow expressed over EBITDA. 2009, 2014. You can clearly see that we have been rather successful here as a result of our interest policy, for example, but also working capital management and so forth, tax planning. This shows you the free cash flow conversion historically, and my attention is always drawn by this here, 2008, 2009. These were not the best years in our history. This is what the company does in the bad times. It releases working capital, and it clearly kicks in. If you look at it further, good development. Leverage ratio by now, Jacques mentioned it already, at 0.5. Our capital allocation priorities are the ones that we set as priorities. We continue to invest in organic growth. These are very important investments that, for example, are in the space of technology.
That's our first priority. M&A activities. I'll come back to it on my final slide. The next point is dividends. That clearly has been a substantial part of our free cash flow. We have discussed anti-dilution measures, which we have used with regards to performance shares, but not yet with regards to dividend. We have decided that share buybacks and special dividend for the time should not be considered because our proposal will be to pay a full cash dividend for the year 2015. Instead of giving the option, scrip dividend, we have decided. Later on to repair that dilution through share repurchase. We try to follow the KISS principle, keep it simple, make sure that our people are focused on all the other things. Don't spend too much time here.
For this time, for this situation, we have decided to propose that to the shareholders meeting. You might want to ask me right away, what about next year? Next year, I hope that our M&A strategy has resulted in some successful transactions. If not, we'll look at it again. For now, 40%-50% payout of the adjusted EPS. Of course, you'll challenge us to go to the high end of the scale. I'm aware of that. I'm sure there will be a question about it. We'll think about it carefully. Some key criteria when we're looking at acquisitions. It should strengthen our strategic position, the first point here, and Jacques already mentioned quite a few of these in the professional space, for example. We also like to look at a certain minimal size.
I'm not sure if that will be something we can hold onto in each and every situation, but that would be our preference, at least. These are guidelines. It should provide significant value creation. We do use DCF calculations. We make multiple scenarios because if you don't know what your revenue stream will be next year, it's very difficult to make valuations here. We like considerable cost synergies because it gives the best safety net in case of future bad scenarios. We typically leave tax and revenue synergies separately, and it should be EVA positive within three years. We showed to you the last three transactions, SFN, FujiStaff in Japan, and USG. The two first were EVA positive in two years, the USG transaction in two weeks. So far we have been doing relatively well. It should be manageable.
It should really be something that we can handle right away. Having said that, it's not that easy. It's not that easy. There are quite some markets where we have an ambition. We're number three in the U.S. space, number six in Japan, still a way to go, but better positions in these other geographies. We clearly have a priority here. I have to say, it's not that simple. This is how the board feels sometimes. It's the candy shop. I couldn't find a man, so this is Linda a few years ago, in the candy shop with a lot of money, looking for options to expand the company in the context that I just shared with you. It's not easy. Summarizing. A lot of work. I think we've made a lot of progress.
A way to look at our progress is also to use the Boston Consulting Group Matrix, where you look at the capability of a company to fund all its new initiatives by making sure the cash cows continue until eternity. That's how we look at it. We are doing everything to make sure that our cash cows keep on running, and that we are capable of making investments such as, for example, RiseSmart in the technology space, in the professional space, and so forth. That is what will be top priority for us. Thank you. Arun, you're taking over now.
Thank you. We now go to Q&A before we go to the coffee break. We have around 20, 25 minutes, so please feel free to fire on. David, go ahead. Please wait for the mic before you ask your questions. Thank you.
Thanks, David. First question on your top-line trends. Could you elaborate a little bit more on the trend you have been seeing in terms of volume and in terms of pricing and mix? At group level in the last months. You have been guiding for flat volume growth October versus September. Now it's on top line on sales, 2% more. Maybe a little bit more color on what's happening underneath and how volatile that can be. For example, is the trend in price mix more positive? It should also be expected for November and the months thereafter. Then secondly, if you look at the number of branches you have right now, when you talk about technology development, et cetera.
Would you agree that the number of branches looks a bit high and that you maybe could or should be more aggressive in reducing the number of branches? I'm talking about in-house. Thanks.
I'll do the branches. You go for it.
Yeah.
The development in the market in terms of volume is clear. I think in terms of pricing, my summary would be that we do see a few markets where pricing is good. I think in the U.S. typically one could say pricing is solid, is good. If you look at Southern Europe, it's not bad at all. In the French market, it's a bit more competitive, but still the returns, if you look at the three top players, are pretty good too. If you look at the Dutch market, at the German market, I would say there's clear pricing pressure across the board. We've been able to deal with it, as we just showed you, for example, in the Netherlands, and still maintaining a good return at the bottom line. I would say that's what we see happening across the globe.
Maybe a quick follow-up on If the volume growth is stable, your sales growth is accelerating, the price mix effect has been more positive in October than September. Is that indeed an upward trend in your view, or can it be quite volatile also the coming months?
I think what we see in October is in line. My summary that I just gave you is the same summary as we have seen in September and actually in Q3. This is how the markets are behaving. That's not really a change. In the meantime, you've seen our contribution from Perm. That has been good. It has been a little lower in Q4, that might have some impact.
Again, David, November looks pretty solid. That's still, if you will, a normal month. December is always tough. Where is Christmas? What are people going to do? Is the company going to go close down for two weeks, one and a half weeks? That makes an impact. It's tough to calculate. The second one is that this year we saw quite an uplift from Q4 into Q1, predominantly also in France. In that sense, nothing new. It's good as far as we're seeing. We're very happy with the fact that we are above market, the visibility is limited. On branches, on the one hand, it's not that we have too many branches because almost the only increase in branches that you're seeing is in-house branches. We opened up more than 50 in France, we booked them as branches.
Probably in the future, we probably need to think about shifting that a bit as in in-house branches and regular branches. In big cities, absolutely. You've seen the French process from 260 something branches into 70 in the cities. Chris can also tell you about what we've done in Amsterdam, what we're doing in Rotterdam and in the bigger cities in the Netherlands. Less branches, absolutely. Mid-size cities, that's a challenge for us because historically it was about the candidate also. It's not anymore about the candidate. Candidates we capture in a totally different way. It's about being part of the local fabric. We sell a lot, we've seen that, through the local fabric by being part of the local community. It's quite risky, we've seen that in some markets. If you close your branch, you lose that business.
Funny enough, it's about sales far more than candidates. Definitely, we're going to experiment a bit. It's too early to say that it's going to lead to a massive amount of branches less. Certainly in new markets like China. In Shanghai, we have two branches, one with 150 people and the other with 250. That was last month, I don't know. That's a reset. In the Europeans, it's a change. Organic, we think.
Yeah, adding to what Jacques said, it is part of our benchmarking exercise, also the accommodation cost. We are looking at where are we, how many sq m do we use, and what do we pay, and hopefully we're going to find some opportunities there, too.
Thanks.
Hi there. It's Toby Reeks from Morgan Stanley.
No, you're good.
I've got a couple as well. The first is on TTA. You sort of put up a slide showing how many clients you've targeted and approached. Could you give us any more sort of, I guess, metrics around how successful that's been? Then the second is on the margin. You gave us the parameters to get to the bottom of the range. Could you give us the parameters to get to the middle and then the top of the range, please?
I'll do the TTA one first.
Yeah.
TTA is a long-term thing. It's far less transactional. That's also something that our people needed to get used to. You're trained to go out and make a sale. Now TTA is about creating what we call a roadmap for the client going forward. As far as we're concerned, the proof is already in the growth we see in MSP and RPO and in-house because by and large that's a TTA sell. We talk about improvement. We talk about improvement in productivity of field staff, improvement in employer branding, improvement in recruitment processes. Then clients buy it from us because we tell a compelling story and we make an interesting business case around it. That's the early signs. Honestly speaking, we're still in the let's try this out for size.
Again, the U.S., totally different market, slightly more elaborate and therefore more complex approach because this is really about solutions design. We're talking about redesigning a couple of EUR 100 million project for the client. That's totally different than, "Oh, well, you tell a great story about recruitment. Why don't you come over and talk about it in Europe?" Early days. I've said it before, but I'll say it again, this is going to be part of the way we go to market for the years to come.
To keep your work as challenging as possible, I won't give you the outcomes, the results. I'll give you the input, okay? This is a difficult one. If we continue to see growth, for example, in a market that has been growing rapidly like the U.S. over the last five years, Linda, sort of, then returns, incremental conversion ratios are starting to get a little lower. In Japan, the same. If we get growth in other parts of our system, if, for example, Germany would start to contribute, we'll get it in at a very high incremental conversion ratio. That blend is relevant. Let me give you some additional perspective.
If we look at the companies that have been growing for a longer period of time, we see that this incremental conversion ratio of around 50, which is sort of the push we give, the ambition we set, is feasible for a longer period of time, for multiple years. Typically in the first year, we are aiming at a much higher incremental conversion, north of 50% clearly. You've seen us arriving at in the 70s in the first phase of growth. That phase lasts for a year. You move into the second phase where you really have to add people. Phase 1, you only add marketing costs, commissions, bonuses. In phase 2, you're really adding a lot of people. That phase, it's not going to last for a year or two years. It lasts longer. How long, that depends on the rate of growth.
It's different in every country. Only in phase 3 we'll be starting to add branches apart from in-house and head office people and systems and so forth. I think these are the ingredients, if you then plot various scenarios, you'll end up in the range from the low end up into the middle even, if growth really goes up dramatically, it needs to-
From the seven.
From the seven, certainly.
You need to get up from the seven to get to the middle.
I was very clear, I think. The seven brings us only to the very low end of the range. No doubt about it. We have to work hard, clearly. I want to be perfectly clear about that.
Two points to make on this one. It's easy for us to grow faster than we're doing. Because we've talked about this one or two years ago, it's profitable growth. We can lend many more clients. We have a role to play here. In many markets, we're a leader, and you've seen what happened in France when the leaders beat each other up over the head for 20 years on pricing. It's going nowhere. To a certain extent, the U.K. market is also a result of that. We have a role to play here. That's one. The second one is, don't concentrate on the EBITDA %. Again, our founder, Frits Goldschmeding, always said profit is the accidental result of doing a lot of things right. We've heard someone in the sector, if you concentrate too much on just the bottom line, you under-invest in the business.
At the end of the day, growth, profitable growth, outgrowing markets Please remember, our worldwide market share is around 5%. That's really our challenge. Balancing that and constantly putting people in and growing is crucial. Also because our people want to make a career within the company. Three of the people here made a career from the branch into the board. If we don't grow, then these people will not stay with us. There's lots of not just financial ratios for us to grow at a decent return. Is it 4.8, 5.1, 5.2? As long as we think it's the right balance between investing in long-term growth and profitable growth, then we're happy, you're happy, we think.
If you look at the last years, we have made jumps of roughly 40 basis points. From in 2014 relative to 2013, 40 basis points. In 2013 relative to 2012, a little bit more. If you eliminate the additional subsidies, also basically roughly 40 basis points. That is a rather normal rhythm. On top of that, you get the enrichment of the mix, our drive for efficiencies on top of that, and that sort of brings us to, again, the low end of the space. If you start to add in. By the way, in my model, you could see that typically sales growth accelerates in a cycle. If that would happen, you get a lot of productivity gains, and the leverage is pretty positive, and that should help us to get a bit higher.
That's not what we're going to see.
Not at all.
I thought I was managing that a bit.
You were managing that a bit.
Hi. It's Konrad Zomer, ABN AMRO. A question on your global infrastructure shared service center. Can you share with us what you think the total investment will be in that system, and will that be mainly OpEx or CapEx, or what the split will be? Where do you think it places you compared to your competitors? Do you think you just had to do it because you were running behind developments a little bit? Will this give you a competitive advantage? How should we place this in relation to your competition?
I think the answer to the second part of your question is that's a mix, clearly. I think we've seen a lot of trials in the market, and we have to make sure we get it right in one go. I think some are ahead, some are behind. In terms of what's going to happen, amounts too early to share, clearly. I guess given the fact that we're trying to get away from buying and owning, and we're moving to using, buying by the kilo. For example, the move from data centers into the cloud space, typically what you get is no CapEx, but much more operational expenses. Too early to share the details.
Please take into account what we're talking about. IT, those are two letters. We're talking about telco and database hosting. We got I don't know how many databases in the world with different levels of security and all that. The benchmark is not our own industry. The benchmark is other industries. We're not going to centralize or put in a shared service center anything that's local as in local payroll. At least that's not in scope now. It's the stuff which is readily available, and where through combining the way you buy it and using cloud and that sort of thing, sort of an MSP. It's not business critical. Of course, it needs to function, but it's not business critical. The stuff itself doesn't make you better. What we're going to use in front office investments, that's going to make us better.
What we're going to show you later on, investments in the innovation fund and that sort of thing. In the movie I showed you on the hackathon, Tine, the boy, he works for us, and he's still saying, "Why don't we have 500 software developers already for front-end stuff?" It's not about 500 developers, but that's going to be an investment. We're going to pay a bit more, but that's going to set us up front. We'll inform you on the stuff we're rolling out there.
Yeah.
Tom Sykes from Deutsche Bank. Just following up on the-
Can you speak up a bit, Tom?
Yeah, sure. Tom Sykes.
Yeah, I know you're Tom.
Tom Sykes from Deutsche Bank. Hello. On the comments you made on the tech spend, you're obviously investing in tech in the acquisitions as well. Whether you're putting it into depreciation through the CapEx line or you're putting it into goodwill through something like RiseSmart, you're still investing in tech, essentially. Do you think your acquisitions will be, as well as the innovation fund, skewed towards technology a bit more? Do you think that the competition from garage technology is cranking up as HR data becomes more digitized? Is that leading to a bit more competition for you? On a couple of questions with regards to the remarks you made on the U.S. You said that your outsourcing business was growing quite quickly in the U.S. You said your outsourcing business was growing quite quickly in the U.S.?
I said it was a valuable addition to our portfolio. It's also growing fast, right?
It was outsourcing, not placement.
Outplacement?
Yeah.
No, not placement.
No, Tom, I said something about outsourcing. I said part of when we just provide staffing employees to our clients, the clients don't have to have a big HR department dealing with these people. That's a sort of an outsourcing mindset as well. That's the point I made. I don't know if you're referring to that.
No, I was trying to work out whether there was any differentiation between the growth of MSP, RPO and what you might have seen in traditional staffing in the U.S. That was all I was trying to get at.
Okay.
When you consider your like-for-like gross margins now in the U.S., you said pricing was strong, where are you versus the sort of previous peak in terms of pricing in the U.S. now?
We're going to give you a presentation on the U.S. market to see if you can get your answers there. If I gather your question on tech, it's like, how do you use tech? Do you get it through acquisitions? Do you get it through investment? Do you get it through own investment?
Yeah, it just seems to be increasing as a proportion of your spend, be it through the P&L or be it through CapEx.
Okay.
Is that something that you expect to continue? Because you've given a lot of presentations on tech this morning and not that much on anything else.
Yeah. No, you got the message. That's good. Well, it's what Robert-Jan said. We're freeing up cost, which we think is non-critical, to at least use in the front end. Again, it's got to be money, right? It's not about putting a massive amount of money in to compete in tech. For us, what keeps us awake at night is really end-to-end marketing is a very simple tool to, at the end of the day, diminish job board spend, for example. Developing your own database better and also the attractiveness of your database and the tools to get people engaged in your database, that's not really about money. For us, it's far more a work in process point of view. Well, I don't expect at least to see massive CapEx because that's when we're going to develop it ourselves, right?
We don't feel that that's going to be huge. That's not our biggest challenge anyway.
No, if you look at our plan next year, the additional CapEx coming from the IT side is just a few million EUR.
You know what the biggest challenge for me is? If you were my senior management, we need to put you all through a basic training on technology, social media, and how to manage people in a digital age. That's my biggest worry. If you've been with me for 15 or 20 years and you've been managing a branch in a traditional sense of the word. That's really the biggest challenge out there for us, improving people or changing people.
Hey, it's Nick de la Grense from Merrill Lynch. Just a boring point of clarification first off, and then one other question.
Can someone put up the mics? I've had a medical test. I was okay for my age and hearing, but maybe I'm not great.
Sorry, I'll bring it a bit closer.
Okay.
Two questions. The first one is just clarifying the, well, it's not guidance for next year, but the building blocks to get to the margin, and then one on M&A. The statement this morning said that you would need mid-single digit organic growth next year to hit the bottom end of the guidance range, and then today in the presentation, you've been talking more about 7% or kind of growth in line with October. I was wondering what you mean by mid-single digit and whether we do need to see 7% all through the next year.
No, it's clear October.
Okay.
The statement said current growth rates in the press release. I don't know what you're referring to.
Yeah. You're like my supervisory board.
It says mid-single digit.
Don't push it. Come on.
The second one's on M&A. You've been talking about doing deals or seem to have been pretty open to doing deals for much of the last 18 months. You've done a few small ones. What makes you confident that over the next 12 months, the conversion of the pipeline will be higher? Because it sounded like certainly you were very hopeful that there would be more spend on M&A over the next 12 months. Thanks.
Well, we have a radar screen on, as we have for a long time. We have identified targets that are in a pipeline. There are a few that we believe if we could get to them, that do give us positive EVA, that is essential. We have identified a few players that we believe would sort of fit that profile, and then we need to hope that we'll make it work. I mean, there's a lot of emotions involved there. There's expectations that might shift during a process. We need to look at it. At least we have a pipeline that we're working on very concretely.
We're disciplined, right? We don't need to do acquisitions to become strategically relevant in a market where we're not competing. We've bought companies two years later at a lower price than when we first looked at them. We'll see.
Even in that context, this is a moment for clarifying something. Some of you remember the acquisition of Vedior. Some of you might find that we bought that a bit expensive. We only bought it after the share price had halved. We were completely ready to go when the share price was EUR 23. Then we took our time. Actually, we shelved the whole file, only when the banker of Vedior gave us a call, we sort of cleaned the file, freshened it up, then the stock price was not EUR 23, but EUR 12. Still, after that came 2009. If we would be good in predicting those cycles, we should be at your end, not here, huh?
This is how the team works, because if one of us is working on an acquisition, he gets really excited. He wants to do it. He comes in because he's just returned from the candy store. He comes in with his DCF, and we say, "Well, we don't know yet." We're always disappointing each other all the time. At the end of the day, you're disciplined on pricing. Let's hope we get ourselves excited, eh? We do a few acquisitions, but we'll see.
Andy Grobler from Credit Suisse. Just a couple of questions. The first one, you talked a lot about growth in online platforms that could grow 40-odd% CAGR over the next few years. What areas of the industry, the market, do you think that growth is really going to affect? Is it going to be professional, staffing, permanent, temp?
Yeah.
The second one, a bit more mundane. France accelerated very nicely through October. Were there any particular parts of the market in terms of verticals that really picked up.
Yeah
during October?
Yeah. Online platforms see different forms. Certainly in the professional space, we do see clients moving to portals, sometimes with qualified delivery, sometimes with unqualified delivery. They just put their jobs on. We see that a lot in the public sector in the Netherlands. Any freelancer, there's 1 million of them in the Netherlands, can register. Online platforms is both a business model and it's a tool. For us, it's a tool, less than a business model. Upwork, the biggest freelance company in the world, for them, it's a business model, right? They need to live on what happens on the online platform. For us, we have, for example, twago, which is also a freelancer marketplace. The business model is okay, but at the same time, we see that they got a lot of capabilities to manage a freelancer database.
For us, it might be the tool to get more candidates in. We're playing on both ends here. What you do see with, in this case, in Upwork, a freelancer platform, is they got a lot of first time transactions, but then they don't have a second transaction. That's a bit of a bother for their business model. These people sort of connect one time, pay Upwork, and then they connect a second time, and they don't pay Upwork. That's a drawback of this model. It's very anonymous. The tools in our model can be very valuable. We got a group, a company in Germany, is already one of the first movers in a predominantly online IT contracting database. Yeah.
Improvements in France in the space of in-house, blue-collar industrial. That's where it happens. Jacques already referred to the additional in-house locations that we have opened. That formula really is very successful in the French market.
Yeah. The second one is that we still, roughly 50%, a little bit less probably, of the in-house we do are spins from the branches. We've deliberately, all through 2014, replaced the people who went with the in-house client in the unit to get into the SME. It was an investment, but we're now seeing traction in that space, so that's why the SME is also growing in France, and that, yeah, works well for us in terms of outperformance in that market.
Taking that into an additional answer to a previous question. If we do this, we spin off our clients into in-house, and then we retain the population in the branch to address the SME segment of the market, then the ICR, the Incremental Conversion Ratio, gets under pressure. It clearly sets us up for future growth. That's the choices-
Yeah
we constantly have to make.
We're happy we did it in France, but if the market would still be flat, it was a wrong choice. This is what proves you a bit what kind of a gut feel ABFS at the end of the day also is.
Suhasini from Goldman Sachs. Hi. Just a couple of questions from me. You're focusing a lot on getting the higher growth from perm, MSP, RPO, and other solutions-based revenues. I'm curious to see how you see the revenue mix evolving over the medium term and perhaps the implications on margins. Would the benefits from these higher margin revenues basically just be used to offset the pricing pressure from temp staffing, or would you use this to change the revenue mix totally and get higher margins medium term? Where do you see these margins medium term?
Yeah.
Steady state?
That's a tough one to answer because we do see many different animals in MSP and RPO. RPO is a pretty straightforward model. There you make good money. Our EBIT in our U.S. business is quite high. It's above group average. We handle perm. In MSP, if you just handle the MSP, you get a fee, but you won't get rich off the fee. Well, do you deliver into the MSP where you need to create a different delivery model to deliver into these MSP, highly productive? You don't need to do the sales anymore. It's done through these recruitment solutions we have. The U.K. is a bit of a split model. There you see MSPs, but you also have direct delivery into the MSP. There is a bit of a mix, but we're historically relatively small in the U.K.
We do see that while the emerging model in Europe is more the direct delivery MSP/master vendor model because we leverage this off our current contingent situation. Big difference between European staffing space and the American is it's not fragmented. If we have 60% in staffing or 80% of market share, installing an MSP for staffing doesn't make sense. Installing it for professionals definitely makes sense. That's where it fuels our growth. Yeah, again, it's a mixed bag. Let's stay in touch in the coming years.
Yeah. To help you with the model a little bit, my summary at the end in thinking in this Boston Consulting Group Matrix, we are very much aiming that all the efficiency improvements help us to address the pricing in those markets, and that we can develop our question marks into stars separately from that. Over time, we hope to see an enrichment there of the margin.
Growing fast in European Sourceright is costing us money. This is a zero-sum game. Over time, because you've got all new programs, they are loss-making in the first year, roughly, give or take.
Yeah, Marc Zwartsenburg.
Yep.
There it is. Marc Zwartsenburg, ING. To follow up on margin and mix, I want to talk about professional mix. How should I see the strategy for the next, say, three years in terms of moving your mix more towards the spend of your clients? Of course, you have quite a challenging target for next year. You need 7% growth to get there. How do these investments probably needed in professionals bite you in terms of getting to a target? How should we see that in the next three years?
It's a good question. That's again, a balancing act. You invest in professionals by investing timely in the growth. You invest in professionals by learning from the successful way of organizing. That's, in this case, in the Netherlands, creating verticals. That's working for us. We got an organic improvement. You also grow professionals by selling more MSPs and RPOs. That's definitely investments, creating Sourceright APAC, creating recruitment centers. That's the balancing act, and that's why we also always say you can't really fully model it next year, like growth is good and then it's a case. If we firmly believe we need to invest more in building professionals, building recruitment models, getting more MSP contracts, we'll let you know. But then it fuels into a bigger growth into 2017 to 2018. That is a balancing act, absolutely.
For example, Spain, where we from scratch build a professionals offering, which is now number three or number two in the market, currently growing 65%. We're making a bit of money, but not much because we're investing ahead of the curve. That's one we allow. We're market leader in Spain. We want to go there. We don't do that in every market at the same speed. That's what we're constantly juggling.
Jacques, he challenges on having a target for next year. I need to address that point. Our target is to gain market share and to have a solid ICR. In the models with the sort of input revenue growth that we have discussed here, that results in us arriving at the low end of that range. That's the point I've made. We very much steer our companies on gaining market share and making sure that we have a good ICR that fits the phase the company is in.
No, that is clear. More the investments probably needed to expand-
Yeah.
-professional that would limit you there. Another question on M&A. You mentioned some bold on acquisitions looking out, say, 12 months, but I'm looking out a bit further. Was there any discussion in the boardroom when you put out, say, the dividend policy of putting out in full cash, in relation to Frits Goldschmeding's position as well? Did that form a discussion in the board, say, the longer term M&A plan and paying out 100% cash?
No.
There's not been a discussion.
No, we came up with this view, and then we discussed it with his people in his personal holding company, so to say, and they quickly concluded that this was the right way to go. That's how it went.
Okay. Can you please put it on? Thank you very much. This ends the Q&A for the first part and also the webcast. Thanks, everybody, for dialing in. We now go for a coffee break, I realize a lot of you have still have a lot of questions, so please feel free to contact the people involved at the coffee break. In my enthusiasm, I forgot to introduce a number of other Randstad colleagues which are around. Han Kolff, head of strategy, is there. Barry Koning, Group Treasurer, is in the back. Marten Merens, Director of Control. Please-
Communication
feel free to speak to him.
Communication.
Sorry. Of communication is there as well. I know. You're right. We have half an hour coffee break. Feel free to talk to our people. We have another Q&A session after the last presentation. See you back at 3:00. Thank you.