Earnings Call: Q2 2015

Jul 30, 2015

Thank you so much. Ladies and gentlemen, good morning. First of all, we have changed the logistics here, improved efficiency. So for the Q2 update, we no longer have a physical meeting. So you're all on the line, just a conference call. At my end, the team here includes Jacques, Linda, Chris and Arun and of course some others supporting us. And I'm going to move to Slide 5 right away, summarizing what we would call in Dutch a lekker cartel, which is a pretty strong quarter based on solid execution and Europe contributing to the growth now. These nine boxes do indicate the most relevant issues that we saw in Q2, solid revenue growth up to almost 7%. Now top line accelerated in Europe, both in the Netherlands and France, very much supporting this clearly. Also North America showed stable growth at the level of 5%. The gross margin improved, which is not atypical also in the quarter. And this was also supported by permanent placement fees, which were up 13%. And if one would include the RPO fees, which are reported under HRS, it would even be higher, it would arrive at 17% growth. The underlying EBITDA came out at EUR 215,000,000 and the organic last 4 quarters ICR is 61%. The ICR effectively is the drop through rate and it indicates the percentage of new gross profit of added gross profit that arrives at the EBITDA level, where we have a clear ambition that they should be around or preferably just north of 50 percent. Well, the 61% is a good result in this context. Adjusted net income up 31%. DSO again improved. Global MSP spend grew by 57% and we'll also address this when looking at North America, but also in other regions like Europe, we do see growth. RPO revenue up 36%. And if we look at the volume trends that we measure weekly in our business, we do see that the growth in July is at least in line with the Q2 results. And the outlook for Q3 applies across the board. Expected full year 2015 effective tax rate, we expect to improve compared to the previous indication and now arrive at a level between 26% 28 percent, which compares to a wider range of 27% to 30%. Moving to Slide 6, which shows you the P and L. I'm going to elaborate on a few of the bullets here. Organic growth rate at 6.7% versus 5.6% in Q1. And then one has to take into account that last year Q2 was 1% stronger than Q1. So the comparables are slightly tougher. Gross profit at 7.2 percent, again perm clearly contributing as I just mentioned. Operating expenses are up 4% organically and gross profit measured per FTE, which is a productivity indicator improving to 5.3%. And then EBITDA margin improved by 40 basis points last year's 4.1% to 4.5%. Slide 7 shows you the trend in our book, the run stop growth development and I think that the graph speaks for itself. It's clearly improving or continuing. The growth expansions that we see in Europe is clearly supported by the Netherlands and France, where France is now indicating above market. So in both countries, we have clearly bridged the gap that existed for a while. We do see stable growth that continues in North America, but also Australia and Japan continue to perform well. And then the emerging markets continue to show solid growth. Relative to market on Slide 8, strong performance. A key component of our ambition was communicated at the Capital Markets Day and it was key to us that based on activity based field steering, we should be able to close the gap and get ahead of the market. And then I think these indications for 3 of our main markets are speaking for itself loud and clear. Then addressing the various geographies on Slide 9, North America has solid growth rates. And then remember that last year Q1 was minus 1, Q2 was plus 2 and now it's stable at 5 going from Q1 in this year to Q2 in this year. Permanent fees up 16% compared to 8%, which is also a clear improvement and GP flat at 10%. If we look at the growth in our combined U. S. Staffing and in house business growth continued roughly at the same level 7 versus 8. And also the numbers into July confirm this trend. U. S. Professionals improved both at the gross profit line and at the revenue level. Randstad Stores Right net fee growth of 25%. Canada challenging market revenue down but ahead of market and all of this arriving at a pretty strong EBITDA margin of 5.9%. In the French market, we now see above market growth, revenue up by 4% compared to 0. If you look at Q4 last year, it was minus 8%, so a pretty strong improvement quarter after quarter. We now have growth after 13 quarters, 13 quarters, that's 3 years of decline. And of course, all of this gives some indication on the competitiveness of the French market. We clearly saw growth in our staffing and in house business, in house very successful 4%, professionals improved by 2%, a little less than the Q1 and perm continued to grow. Gross profit up by 3% and we do see the focus on SME also starting to contribute and our activity based field steering indicates 30% more commercial activities. The EBITDA margin now at a solid 5.6% and this is the result of us balancing client profitability with market outperformance. In the Netherlands, growth acceleration clearly continued into Q2 15%. Q1 was already at 10% from growth also at a pretty solid level. Our staffing businesses grew 15% in line with the market. Yacht now up 12%, a little less than the Q1. The restructuring in Yacht has now been completed. We have introduced our competencies, verticals, which is IT, Engineering and Finance. We also have introduced a new front office system, but we're still working on recruitment of certain people to serve our goals. EBITDA margin for the Netherlands as a whole at 6.5% now. Germany, that's a difficult different story subdued market. Revenue growth flat this time, that's an improvement compared to Q1, volumes still down, permanent placement growth of 26%. And if we look at the July numbers, it is something that does not make us pessimistic. It effectively sort of slowly continues as we have seen in the previous quarter. Gross profit at minus 1 percent compared to minus 6 percent in the Q1 and it continues to be impacted by the changes in the collective labor agreement that have been implemented a while ago. And especially the 13 week average calculation rule for sickness pay and holiday pay is having a negative impact. We have made some changes to the organization, which have resulted in a $3,800,000 restructuring charge. The EBITDA margin arrived at 4.6%. So I mean, this market, as I just said at the beginning, it's different. We can see our SME focus starting to contribute early stages. We also have made changes to our professional business is now under the leadership of the Group General Manager in Germany, but the additional regulation impact still comes through in the results. Belgium stable growth at 6% this quarter narrowing the gap to market clearly with a pretty good return at the EBITDA level 5.4%. Iberia, Slide 14. Spain growth continues. Iberia as a whole is up 8. In Spain, it's up 14% and we have a very strong focus on customer profitability, which includes credit terms, so payment terms and credit risks. And that really is a challenge. So sometimes we are disposing clients in this country in order to protect our customer profitability. Professionals continue to grow despite very tough comparables. Firm was growing. So all in all, this is a pretty strong performance in Spain. In Portugal, revenue was down. Again, also here the result of focus on client profitability, payment terms, etcetera. And we continue to see growth the call center business. EBITDA margin improved as a result of all of this to 3.8%. The UK on slide 15, flat revenue development gross profit, however, grew. It was stable at 5%. We continue to see strong performance in the construction business. Our perm fees up 5% and the EBITDA margin and growth to 2%. The other European countries, growth continues across the board. Italy, 16%, Switzerland, a difficult market, clearly the result of the currency changes, growth eased to 2% and we're making gradual adjustments to the organization. In Poland, a different story, growth eased to 2%, but clearly the result of scarcity and a very tough comparison base, scarcity of candidates I mean. We continue to invest in growth and we've added FTEs again. Rest of Europe now arrives at 3.3% EBITDA margin. The rest of the world then, stable growth at 12%. Japan improved from 2% to 6%. I know that in Q1 last year, the comparison was pretty strong due to the VAT changes. So we effectively continue to see good growth here. Perm also up 25%. Australia and New Zealand grew by 16%, perm by 31%. And we have divested a small Care business, which has resulted in a book profit. Asia, we do see growth at 9%, India now 14% China 20%. We continue to invest in growth across the region, but we also are focused on returns. Latin America, a bit mixed region. Brazil, of course, is a difficult one, but we do see, for example, Argentina improving 16% growth now. And as I just mentioned, our focus has shifted to growth, but also profitability. And as a result of that, we now have a return of 0 point 6% here. If you look at the financial results, the income statement as a summary here, it effectively summarizes the items I've just mentioned, integration costs and one offs that's both the German restructuring minus the book profit on the Australian disposal. Then the net finance cost clearly lower than the previous quarter, but very much normal here, EUR 4,000,000. The previous quarter, we had a non cash loss of EUR 20,000,000 due to translation effects. This time, it is minimal that effect. So I'm moving to Slide 20, the segmental performance. Staffing clearly improving its EBITDA margin by 50 basis points, good growth based on strong execution and improving productivity. And of course, the French improvement is also coming through here. In house, it continues to be very successful, a good story now. We continue to be focused on transfers of clients from the distribution network through the branches into our dedicated delivery through in house, which is typically a win win both for the client and for Randstad. Professionals, we do see improving business in the U. S, as I mentioned, but across the board, it's also somewhat suppressed by the restructuring in the Netherlands. The gross margin bridge from Q2 last year to Q2 this year, 18.4%, 18.7% in between, we have the temp margins slightly lower due to mix effects, a lot of industrial growth here, but also price pressure. And then the contributions from permanent placements, which grew and it's now 10.9% of GP. Actually, if one would add the RPO fees, it would be around 13% of GP, which would be a record level in the Randstad history. HRS also clearly contributing based on the growth of MSP and RPO. The operating expenses we are comparing on a sequential basis here from Q1 to Q2. First of all, the foreign exchange effect of EUR 6,000,000 and then we have the typical seasonal pattern, I would say, in the marketing spend. But then we have also added based on growth that we see, for example, North America, Iberia, Italy. So that's why you see organic additions in the EU, they should say Europe by the way, in North America and also in the rest of the world. Net debt, this is effectively the reported high point in our net debt level. This is a typical seasonal pattern in the Q2 of the year. We always pay holiday pay holiday allowances in the Netherlands, in Belgium, the dividend goes out of the door. As a result of that, we typically report the high point here and that's also the case today. Leverage ratio is 0.7 now, but I would say still a solid balance sheet, very solid balance sheet. DSO stands at 51.2 percent, now an improvement again. And working capital arrives at this high point of the year at 4.2 percent, normally it's around 3%. Return on invested capital, 15.1%, well ahead of the WACC. Slide 24, the free cash flow in the second quarter. I would say there's effectively nothing special to report here. The net additions in property, plant and equipment and software are mainly the results of our investments in indeed in software and some office equipment, nothing specific here. The dividend paid is stated a little lower on the page 94,000,000 euros and that is reflecting the record level of dividend that we paid in April based on our last year results. That brings us to the outlook. Organic revenue growth 6% 7% and June was up more than 6% and the positive volume trend has continued into July, which means that it appears to be at least in line with the quarter average. I've got some data for you on the geographies and sometimes our exit rates are a bit confusing due to the impact of estimation at the end of the quarter, which are always complex and working days effect. Sometimes we take out a working day because it's not officially a working day, but still we have some people working on these days and we love it. In order to give you the best possible indication, we provide you with the underlying exit rates for the month of June by geographic segments. In the Netherlands, June arrived at 13%, in France, June 4% for Germany at 0%, which is actually 0.1%. So it's not a very favorable rounding here. In Belgium, it was 7%, in the UK minus 1%, Iberia 6%, North America 5%, rest of Europe 8, and then the rest of the world 9, which adds up to more than 6. We also continue to expect a significant foreign exchange impact on revenues, gross profit, OpEx and then of course a little less at the EBITDA level, which was by the way EUR 11,000,000 in Q2. We remain on track to achieve our cost reductions and efficiencies that have been announced at the Capital Markets Day last year, which aims at €60,000,000 to €70,000,000 to be achieved in 2 steps in 2015, half of it, the other half in 2016 and we're well underway. We also not just expect, but we sure is going to have a similar number of working days for Q3 as last year. The Q3 gross margin is seasonally impact as always. That's a typical development in our book, for example, impacted by holiday workers in Belgium and that we always see coming through. So the Q3 gross margin should be slightly below the Q2 level. And by the way, in terms of the quality of the quarter, Q1 is the softest quarter, Q2 is clearly an improvement there, Q3 is ahead of Q2 normally and then Q4 fights for either the 2nd or third place with Q2. It very much depends on the impact of Christmas at the end of the year. Our cost base is expected to increase modestly sequentially. Operating expenses are going to be up on an organic basis. We have continued targeted investments in headcount in line with what I shared with you when discussing the OpEx for Q2 and the sequential foreign exchange impact is expected to be relatively limited. For 2015, as I said at the very beginning, we think the expected tax rate can be adjusted to 26% to 28% coming from 27% to 30%. On Slide 26, we've copied the slide that we used to summarize our discussions at the Capital Markets Day and it includes whatever you want to look at, this could be an ice ball, it could be a bucket or a basket, but it's about the balls in there. Top line growth was at the time sort of set at the level of consensus. Today, we're a little higher than that. Our cost savings, as I just mentioned, are clearly coming through. Our activity based field steering is doing a good job in terms of closing the gap with market and improving productivity and our focus on professionals, permanent placements and SME is helping and should continue to help the business mix. As a result of that, we believe we're very much on track towards the ranges as stated here, assuming that the trends of today will continue. And then finally, on Page 27, again, the same open at the same slide as the opening slide with what we believe are the highlights of Q2. We'll now move to Q and A. And I'd like to ask you to limit yourselves to 2 questions in each round. Thank you. Operator, please go ahead. The first question today comes from David Taylor from Rabobank. Please go ahead. Yes, good morning, gentlemen. First of all, on the EBITDA margin in Professionals, it was rather flat in the Q2. And in the Q1, I think it was up by 110 basis points. So maybe you could clarify that. And then on France, your staffing trend seems to be quite stable on revenues, but perm is more volatile looking from Q1 to Q3. Could you also give more color on that one, please? Thanks. Yes. The Professionals EBITA margin, I mentioned it David that we did see some impact coming through of the adjustments in the Netherlands that we are making. Of course, it increased the internal focus. So that has not supported the return of our professionals business. And we expect the impact to change towards the end of the year into a positive mode. Okay. And maybe a quick yes, sorry, a quick follow-up on idle time. Has that also increased significantly then in Q2? No, that's not the main issue. Okay. Thanks. Sorry. The other one, thanks. Now compared to Q1, of course, you know that May is not the strongest month here. We had, in that sense, less working days and that adds to idle time and it's more a seasonal thing than a business related thing. To France, yes, on perm, very happy with the trend, the growth trend as such. But there's 2 things here. 1 is, it's, of course, still from a relatively low base if you compare and perm is by nature volatile. June was a bit soft. It was also a very strong month within the quarter last year, so maybe comparison played a role here. But July looks pretty good again. So we do expect perm to be adding to our French results. Okay, great. Thanks guys. And it's not just guys here, it's also Linda here. The next question comes from Toby Reeks from Morgan Stanley. Please go ahead. I'll take it to you as well. Could you clarify that July is better than Q2? I think you said across the board regionally. Does that mean that all regions are doing better in or sorry, all regions are in line with Q2 or better in July? And then the second one, could you talk a little bit about the MSP and the RPO business? Could you give the absolute levels of revenue? And what size of contract comes under MSP? And are we looking at all new regional and global deals now being sort of MSP type transactions, please? Okay, Toby. The July trend, I'll just want to stick to what I said before. We see the volume trend in July, which we measure by week. We see it to be at least in line with the Q2 growth rates. And then I added per country. So it is across the board, it applies to every relevant geography that we do see this trend continuing and to be at least in line with Q2 growth. Very clear. Thank you. I think that is pretty explicit. Yes. And then we move to the RPO question. RPO question for the MSP. Tobi, raise it again, please. Just it's interesting to see that there's obviously a strong amount of growth coming from MSP and RPO. Could you give us the absolute levels of revenue you're making from those businesses? And secondly, what size of contract comes under the MSP? And are all the new large regional global deal MSP deals nowadays? Well, just to start with answering the last part of your question. No, not all the programs are global ones. So there's a large part of the business in the U. S, which is local U. S. Business. But there is absolutely also a lot of MSP with our larger clients, but truly global as in everywhere programs are still fairly limited. So that's one answer to your question. Hey, Toby. It's Roondi. On MSP RPO, we're only giving you sort of an annualized number. And the ballpark is roughly €300,000,000 to €400,000,000 of revenue combined for MSP RPO. Okay. Thank you, guys. Thank you. The next question is from Chris Gallagher from JPMorgan. Please go ahead. Yes. So just a quick question on the difference in the organic growth in Netherlands and the actual growth, which is 400 bps. And then second question, in North America, source rate was plus 25%. I'm just trying to understand how you're growing so much there. Are there some large contracts you've won? So sourced rights in the U. S, we're getting huge growth in 2 areas. First of all, RPO, which is up north of 20% and that is a combination of new accounts. I think we've had a record new account level this year, but also expansion of existing customers. Those are contributing. The same is true in MSP. We won a lot of new programs. Customers are now in 2nd and third generation MSP programs and are also looking to upgrade. So we've had some very significant wins there, but also the volumes within our existing clients continue to grow. So the good thing about the source right performance is it's across the board. And I think gives you an indication of also what's going on in the market because the MSP is a good bellwether for the revenue trends in the market overall. And just trying to get sort of the numbers right, the latest indication of the Dutch market was at 11% and our June underlying exit rate that I gave you earlier was 13%. So these are the numbers that we have here. Hope that clarifies. Yes. Sorry, I was talking about for your last quarter, the organic growth was 14%, the actual was 10%, the Netherlands? Yes. We don't recognize those numbers, that's one. But the other one is that you need to take into account that if you look at growth per working day in the Netherlands, certainly May was a very funny month, whereas for example, the 5th May was officially like a holiday, but we found out that a lot of people were working here. So that sort of portrayed a little bit too rosy picture of the growth per working day in the Dutch market. So that's why we give you the underlying trend, which is much more closer to reality actually. Okay. Thank you. The next question is from Nicholas Delegrantz from Bank of America Merrill Lynch. Please go ahead. Good morning, guys. 2 for me as well, please. Just firstly, in terms of restructuring, you took another small charge in Germany in the quarter. I was just wondering if you felt that there were further cost actions that could be taken elsewhere in the group following the restructuring program last year. And then the second one, some pricing trends. Obviously, the temp performance was a slight drag on gross margin. And you mentioned that pricing pressure was an element of that as well as mix. I was just wondering, has anything changed in terms of the pricing dynamics since the last quarter? And if so, which regions stand out? Thank you. Yes. Well, pricing is there's nothing materially changed. It's a pretty stable development in many markets. Everybody gets very excited in the business about large contracts and then there's some pricing pressure, which as you can see, we offset either through delivery models or through overall cost. The cost in Germany is our professionals business where Robuchan indicated we put our Randstad professionals business and our group freelance contracting business under one management. So we need less cost. So this is mostly branches and management that we're taking out here. There's also a market reason. As you might know, there's quite some legal, well, change or call it a clarification on the position of freelancers in Germany. This is going on for 2 years. So it's also healthy to position yourself if you call it in a sort of a vertical where you offer both temps, perm and by the way freelancers in the German market. So that's also a reason to put it under one management. And we if you look ahead, we'll be making some adjustments going forward. But I don't anticipate, let's say, very, very big amounts. We have charged 51,000,000 dollars in terms of the over the last four quarters in terms of restructuring, now $3,800,000 We'll probably see some more going forward, but I don't think anything extremely significant. The way we look at it is like an investment. So we evaluate any restructuring in terms of does it give us a return and we aim at having a return within 12 months. Mostly we are successful, not always completely, but this way we drive efficiency from restructuring. Okay. Thank you. And just one quick follow-up on that. You said that the payback on the $60,000,000 to $70,000,000 restructuring was going to be half this year, half next. That I was just wondering, is that still the case? And will that be more I'm guessing that's going to be more kind of second half weighted this year given the cost trends that we've seen so far. I suppose what I'm trying to say is I'm surprised that costs have grown as much as they did organically given the restructuring program. Well, there's nothing effectively specific other than the seasonal battery marketing cost and the additional investments we've made in FTEs across the board. So it should very much be in line. And if you look at the GP over FTE, in the meantime, our productivity has improved. So that's exactly the way we're steering the company. And then finally, the way to evaluate this is that our incremental conversion, so the drop through should be north of 50% and it arrives at 61%. So let's say, we're not surprised. Okay. Thank you. Thank you. The next question is from Paul Sullivan from Barclays. Please go ahead. Good morning, everybody. Yes, just really following up on that. Can you break out the cost reductions from the programs that you took out in the 2nd quarter specifically? And you talked about this over 50 percent ICR. As recovery picks up and you start to see signs of cross creep, how long do you think that's sustainable as Europe starts to accelerate? Yes. I think we provide a relatively high level of disclosure. We typically test that frequently. So I really think we should stick to the numbers that we have provided. In terms of the incremental conversion, some further indication that we can provide is that normally if a company starts to grow, that sort of the standard rule, 1st year we should realize a lot more by just adding some bonus commissions and marketing expense. So typically for a specific OpCo, the ICR should sort of be in the direction of 80%. That applies to most companies, but not all. For example, in the professional space, typically commissions and bonuses are slightly higher and that means the incremental conversion goes towards the 50%. But a lot of our businesses, we look at sort of with the standard rule of trying to get to 80%. And this typically lasts for 1 year. And of course, it depends on the speed of growth. But typically, as a standard rule, you could say it's a year. Then after that year, we're starting to add more people. And then the incremental conversion ratio typically goes to a level just north of 50%. And I think in most countries, that's what we started to see coming through. So we have seen growth in the U. S. For a long time. And I think it's pretty impressive if you look at the incremental conversion ratios, which still continue to be around 50% and that includes the professionals business today. The Japanese business has been growing for quite a while and we still see it at around that level and some others are contributing a bit higher level. At the same time, and that's my final comment here, life is not linear and life is not mathematic. So for example, in our French business, we see a very successful run of our in house business, which means that we're taking out the clients from the brands, moving it aside to in house. And that means we have to add some people because we want to keep the people in the brands in order to address the SME. So effectively, our leverage goes down slightly because of this strategic choice because we want to enjoy the opportunity to get to new clients from the brands as well. So then the leverage goes down a little. But the first indications I gave you, I think are very clearly reflected in the outcome now of 61% over the last four quarters. I hope this helps, Bo. Yes, it does. But in terms of you but you're not going to provide us with the gross cost savings you took out in the quarter? No. No. Okay. Can I just one follow-up? Can you provide any color on verticals in France, particularly construction? How is that doing? Everything is doing well except construction. Construction in France is heavily first of all, it's a cycle of course. 2nd of all, it's still driven a lot by public investments and they're not taking place at the moment. Okay. That's great. Thank you very much. The next question comes from Max Watsenberg from ING. Please go ahead. Yes. Good morning, guys and Linda. I want to drill down into your gross margin outlook because you're guiding for a slightly lower gross margin quarter on quarter. Last year, we saw a bit of an uplift. I think there was also some CICE in there. But could you perhaps give me a bit more color why the trend is not at least flattish to slightly up because mix improvements are feeding through, etcetera? Could you and on the back of that, I would like to also know the gross margin development in the Netherlands year on year? Well, Mark, we'll give you a response on your first question, okay? And that is the your assumption was right. So last year, some CICE impact in Q3, which improved the gross margin improvement in that quarter. So underlying but of course, this is spite of business, as you say, and we had to make estimations on how much we needed to cover our costs or to cover any discounts we would give. And all of that resulted in more positive outcomes last year as a result of which we did have an additional release. Could you quantify that 1? Sorry? Could you quantify the number? Yes. Market effectively, I think can be explained by explaining this difference. So normally it would be sequentially slightly lower gross margin last year as well. That is sort of the impact. Okay. Sorry, I didn't catch that, Arun. Arun said now it's up. So this is the problem. Sometimes you have a benefit, you have accruals and then you have to explain it that year and the year thereafter again. And Marc, I would urge you to look at the gross margin movement Q3 on Q2 on a group level last year, and you can see it was up. There was an unusual breaking of the seasonal pattern. Yes, I noticed that, but I wanted to get a bit more detail on how big that was because Constellation was not penciling it in for this year's quarter. But this is Yes, that's it. Mike, this is Mark. I'm going to say on the it's very much the customer profitability that's driving our decisions here. And I think the number that has been reported on Q2 clearly indicates that we are capable of matching the right delivery against whatever the client wants as a service, but also what the client wants as a price. Okay. Can I add another question? Do you have any client feedback whether they see any signs of weakening of order books related to China or any other weakness that they're seeing in Q3? Or is everything just as it was in Q2, no signs of weakening at all? We're looking around the table as you asked your question. This again is a bit like, there's a difference slight difference between financial markets and life. And so the slowdown in China in the financial markets is 2 weeks old. And not recently talked to clients, but on a serious note, we don't really see that. Okay. Clear. Thank you very much. The next question comes from Tom Sykes from Deutsche Bank. Please go ahead. Yes, morning everybody. I just wondered if you've got any comments on how higher percentage of gross profit you'd be prepared to take permanent recruitment and the combined level with RPO? And then just on your slides right at the beginning, I noticed you've chosen the ASA data and not the BLS data for market growth in the U. S. Is that something you think is accurate? Or do you think that it's an amalgam of the 2? I'll take the first one and then Linda will do the second one. Of course, we don't have a deliberate goal in mind on where we can take the perm percentage. We do have a deliberate strategy to increase perm and there's 2 elements which are really driving that certainly compared to the last cycle. One is the deliberate choice we make to grow Permian staffing. That's something we really never had, certainly not 8 years ago. So that's helping enormously in the percentage. And the second one, of course, is RPO, which again in 2007 was pretty nascent and now it's really matured and maturing. It's mature in the U. S, it's maturing in Europe. And certainly, Asia Pac is a large RPO market. So I don't know where it's going to get to. It also depends heavily on where staffing and the rest of our business is growing. So if but you can see there's a definitely and also quite quick an upward trend in this where staffing is growing and GP and perm as a percentage. So all is well on that front. No deliberate goal in mind. And probably underlying your question, Tom, you might sort of address the sensitivity of this business or the volatility of this business going through the cycle. And please note that what Jacques said these, the fact that we now have permanent staffing, that is a little less volatile because it is very often served by hybrid structures where we are more capable of making adjustments in a downturn than we would be in other parts of permit placement business. So the characteristics of Starling are a bit more favorable here. And finally, I forgot to mention that, but we also have quite a few new markets where we are concentrating on prudent growth that we never had such as China. I think going forward, Brazil will participate there. And also in relatively mature markets, but immature in terms of perm such as Spain, where you've seen our professionals business from scratch growing into the business it is today, which also gives the Randstad Group sort of new firm. You don't worry about increased cyclicality of your business? That's why I assume this was underlying your question and that's a good point. Well, I mean that's obviously it. We think we can make more adjustments in the staffing firm space and that's where we see a lot of growth at the moment. But you're right there. If this becomes a very big part, then we're a bit more sensitive. But I don't think it's going that fast. Let me put my philosophical hat on. You can also say that when at the end of a cycle people get hired more, so normally our staffing GP would go down then perm would be offsetting. So there's an up and a downside to it. Yes. Tom, we don't typically look too closely to the BLS data. I would say when evaluating our performance against the market, we usually look at a combination of the ASA and the FIA data. We find that BLS is quite jumpy, has strong revisions and is overly sensitive to light industrial only. We do not, however, recognize the big dip that's been communicated in the ASA data. I do believe we're outperforming markets and picking up share, but we do think that maybe the ASA data, this is a combination of the monthly data that's provided. So there may be I think a revision up. So we don't recognize that dip, but I would never refer to the BLS data. And the other thing in the ASA, things like conversions and perm obviously don't play a role. So sometimes there can be a little bit of a trade off there. It's not a gross profit number either, is it? Yes. There's a real tightening of supply in the U. S. So we are seeing clients hire a temporary employee, pay in conversion rate and place an order for new temporary employees. So there's this is definitely all about supply at the moment. The market continues to be strong. So I think that's not fully digested in that ASA data. Fair enough. Thank you very much. The next question comes from Yves Franco from KBC. Please go ahead. Good morning, gentlemen and Linda, of course. I'm wondering about the Dutch Professional segment because restructuring has been going on for some time and now a big hit was taken. Is this the some closure of the restructuring that has occurred in the quarter? And can we see an uplift again after that 2019 figure we saw in the Q1? And then secondly, on your margin developments in France and Iberia, these are quite strong, especially in France where you said that pricing would be somewhat more relaxed from your side guys, giving away some subsidies. And in Iberia, yes, I think your operating leverage is becoming somewhat limited there. Can you maybe explain what drove the is it again the strong increase in professionals there that drove the margins? Thanks a lot. Let me take the first question on professionals in the Netherlands. As we look back in the history, we see Q4 2014 as a quarter of construction, Q1 as rebuilding and Q2 of implementation. And you always get some issues and blockades, which you find out during the way. But I think we were very successful in restructuring the yacht into the new yacht. The growth in terms of sequential Q1 to Q2 has merely to do also with the working days. So working days were extremely unfavorable in Q2, especially for your business that's not very helpful. So but I think overall with the 12% growth, we can be very satisfied. Yes. Okay. Thanks. On On Iberia, well, you asked about incremental conversion rate, but what we are doing in certainly in Spain is we're also in the current market, which is quite positive. We're building this professionals business. So we are very aggressively hiring people. We went from effectively nowhere like 3 years ago to now a top 3 position. That comes at a cost. So again, this is probably if you talk about capital allocation where we didn't get any questions yet on that topic. But anyway, when we talk about capital allocation, should we also talk about investments in organic growth? And certainly in Spain, to a lesser extent in Italy, these are immature markets as we showed you at a meeting we dedicated to that part of Europe. So we think there's a lot of opportunity there to create a better business going forward in Spain. So yes, this again, we talk a lot about our CR and it's absolutely very relevant one, but we also play with it. Sometimes we make deliberate choices to lower it as Robert John, for example, alluded to in the French situation, Spanish situation is also that. But how much operating leverage sorry, Jacques, how much operating leverage are you still seeing in the Spain business because this has been growing for, I mean for some time already? And then in the slide you also mentioned strong operating leverage and I would Yes. In my model of 1st year high incremental conversion then moving to north of 50. Spain has been growing for a while now pretty aggressively. We have we started to grow with a very clean cost base. So not a lot of overcapacity. So the incremental conversion ratio in Spain in our books is a little below 50%. And that also serves the point Jacques made. We are in the meantime adding aggressively number of people to strategic investments here. Yes, fair amount, yes. In Portugal, Portugal always had a high ICR, but they had a high ICR out of a relatively low margin. So what we're doing in Portugal is given the fact that we have 30% of the market, we want to rebalance our portfolio more towards white collar and SME. That's an investment. At the same time, we're shedding some contracts. So that results in a relatively low ICR, again, changing the business towards a better future. Okay. And the French pricing, I think the conclusion would be incorrect to say that we are bridging the gap with markets based on pricing. And what we see is that growth is driven by a lot of commercial activities, activity based food steering. On top of that, our strong positioning in the industrial segment. Thirdly, as related to that, the Randstad in house setup, which is very successful. And if we have a client and it starts to grow in the industrial segment, we grow with it. And that's helpful. This year, there were was a slight addition to subsidies, which we have used very consciously in the SME segment or with clients in order to increase the size of our business. So they have been very effective in increasing the customer profitability. I think that's sort of the overall scope. Yes. Just to illustrate, we're currently growing in SME in France. So that also adds and is a good sign, I think, of what we're doing in the market. Okay. Thanks a lot. Thank you. The next question comes from Konrad Zomer from ABN AMRO. Please go ahead. Hi, good morning everybody. Just a question on the U. S. Professionals business. The 2% growth I think is very good number. But I was wondering if that's the start of a new trend. Do you think that you've turned the corner there? And can you tell us anything about the profitability of the U. S. Professionals business, whether or not it's below the average for the U. S. Business overall? Or any more detail would be very helpful? Yes. I hope it's a start of new trend. What we've seen is the biggest part of our U. S. Business is in IT. Our IT business was working hard, I'd say, over the last six quarters to get their performance into continuing. The Finance and Accounting business, same thing. We supply repair work and it is picking up steam. So we're very pleased with that. Our engineering business is suffering a little bit of the oil and gas flu, but that's relatively small for us. So yes, I mean, it's a strong market. So the market has never been the problem and the improvements that are made seem appear sustained. So that's yes, that's positive. The professionals business is more profitable than our overall U. S. Business. So, yes, I would so as the professional business grows that has a positive impact on our overall business. It's somewhat more profitable, I think, which is It is somewhat more profitable, yes. And did you also see like your margins in the U. S. Improved 90 basis points. Was the improvement in the EBITDA margin of the Professionals business similar to the improvement overall? It was also improving, Conrad. Yes. The improvement is broad based. I mean, the temp margins are improving, pay bill spreads are good, TUI is good, conversions are up from the side. Pricing is smart, also based on availability of candidates. Okay. Thank you. That helps. The next question comes from Hans Ploegers from Kepler Cheuvreux. Please go ahead. Yes, good morning, ladies and gentlemen. One question on France on the pricing environment. How do you see that going forward? We see already, let's say, pricing pressure picking up and how do you see, let's say, the margin development going forward? Do you believe we are close to big margins? You still see some underlying improvement. But assuming current trends in sales will continue, do you still see upside in the EBITDA margin? And secondly, a comment on the cost savings. Also again, assuming current trend in sales will continue, how do you see the net impact from the cost savings and underlying investments and normal inflation? Do you believe that costs will continue to go up? And could you give some feedback on that, how do you see that developing? If you, let's say, look into 2016 and the 2016, how do you see that cost level then? Let me do France and then RJ will follow-up. So yes, of course, our results of profitability, EBITDA as a percentage is good in France. We're happy with that. We're concentrating on growth in France. So that's why as Robert Jan already alluded to, we are investing in headcount when we open a new in house branch. We've opened roughly 20 new branches in the first half year. So that means we need to start the branch or we do that or we need to start the Innau's branch. We sometimes do that with the people who came from the branch or we replaced them. So we're investing there. We're concentrating on growth. We do think that the French market has momentum. We don't see a significant change from June into from Q1 Q2 into Q3. So far so good. Although as always August is there and yes, then it's everybody's on holiday. So there's again the reset in September, but so far so good. Yes. And then the cost development, if you look at 20 15, the cost reductions, which was roughly half of the program, most of that arrived in Q1. It was related to the Dutch restructuring. At the same time, of course, we had to process wage inflation. By the way, next to currency impact, wage inflation and we have started we've continued to add FTE. So I would say that is the picture 2015. If you look at 2016, I expect it to come in more gradual because it's not a big hit like the one that we had in the Netherlands in Q1. And on top of that, we'll continue to see wage inflation again, extension of FTE. So the real way also to measure this is to clearly look at the drop through rate, the ICR and the productivity measured over FTEs. And that of course, if we have a 1 on 1, I'm very much willing to show you where you can see it, but it's clearly coming through and we expect to see the same next year. Okay. Thank you. The next question comes from Matthew Lloyd from HSBC. Please go ahead. Good morning, gentlemen. A slightly longer term question. In the last sort of since about 2011, the share of the labor force in the Netherlands that's been temporary has been growing, but the share through agencies has been flat. So you seem to have been losing share as an industry up until perhaps last year and the beginning of this year. Do you think you can regain that lost market share as an industry? And what do you think caused it? Yes. There's a few elements there. One is the rise of the freelancer. Certainly, if you measure it in money, then most freelancers are at the upper end of the labor market. So you should think bill rate, well, €80 or something. If one freelancer comes in the market, so that sort of offsets like 3 regular temps. So that's a bit of a thingy. What we do see now, the relatively rapid growth of the Dutch market is absolutely to a certain extent the catch up effect. So I think we can expect the whole penetration rate of temps in the Netherlands to go up. Also in the U. S, we're at record numbers in terms of penetration. So we do see that in an upward cycle, a prolonged upward cycle penetration rates goes up again. Okay. Thank you very much. I would add a few things on that on the Netherlands. I think your observation is correct. There is a big bag actually of flexibility coming in. It's not only staffing anymore, it's everything. So that's a good point, I think, because we are also in all those business lines. So it is not only through an agency, it's much more than that. And next to that I think that the new developments in the law and legislation will give relatively better position to flexibility and also through the agency staffing. So that will give us in line as what Thiago is saying, I think a better perspective on the long term. Okay. Thank you. The last question is a follow-up from Hans Georges from Kepler Cheuvreux. Please go ahead. Yes. Hans Van. Maybe a little bit early, but looking at the new legislation in the Netherlands, you already indicated that the exit rate for Netherlands was 13% and your principal see that July per country is at least in line with Q2. But could you give some feeling, do you have seen any impact, let's say, from the legislation that maybe temps are being shedded somewhat? Or do you see that maybe also by segment? Could you give some feeling maybe if there's some difference? Could you give some indication what you're seeing there? No. I think it's what you mentioned in the beginning of your question. It's far too early to say. It's the 1st July when the law was implemented. So I think we can see probably at the end of year some effects and some probably negative, probably positive. You've seen in the news, but that's already a long time ago, actually a few months ago already, that there are some clients which were well probably doing something which was related to the legislation. In my opinion, it was not a correct observation. It's flexibility is everywhere and in every sector and clients are really flexible right now and that's why they probably just in terms of the cost savings are also cutting costs across the board. And I think it's nothing to do directly with the regulation. But as I said, it's 1st July. Let's get back to your question in Q4. Just one add on for Jacques. So too early to tell. The funny thing, by the way, as a result of the law is that the situation around fixed labor is less secure as in what can I expect if I hire someone whereas the situation with flex is very clear? So we'll see what that what the result will be. And maybe one follow-up on that because you said maybe at the end of the year we'll see some maybe some positive or maybe some negative impacts. What do you see potential as negative impacts and what potential is positive impacts of this new legislation? The negative effect normally is that there's less temps for us and the positive effect is that there's more temps. What do you want to know? Okay. But let's say how the effects could work from this new legislation? Yes. That's all the theoretical stuff. Let's look at results. We're currently seeing a good market in the Netherlands and let's hope that stays driven by economic factors, not so much the legal framework. So we'll update you probably at the Capital Markets Day, we might know more. Okay. Thanks. We have no further questions on the line. All right. Well, thank you so much for joining us on this call. We look forward to connect again at the end of October on our Q3 results. And on behalf of Linda and the guys over here, we wish you a nice summer. Bye.