Ladies and gentlemen, welcome to the Q3 Results 2018 Analyst Conference Call. I'm Iruna, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Nicholas de la Grense, Head of Investor Relations, accompanied by Mr. Alain Dehaze, CEO, and Mr. Hans Ploos van Amstel, CFO of the Adecco Group. Please go ahead, gentlemen.
Thank you. Good morning, and welcome to the Adecco Group Q3 2018 Results Conference Call. I'm joined today by Alain Dehaze, Group CEO, and Hans Ploos van Amstel, Group CFO. As usual, before we begin, please review the disclaimer on page two regarding any forward-looking statements in this presentation. On slide three, you'll see today's agenda. Alain will begin with the highlights of the quarter. Hans will follow with a review of the financial performance and a comment on the outlook for Q4. We'll then return to Alain with an update on GrowTogether, which is a key element of our Perform, Transform, Innovate agenda. Finally, we'll open the lines for Q&A. Alain, over to you.
Thank you, Nic. Good morning, ladies and gentlemen. Welcome to our third quarter 2018 results investors call. I will start with the slide on the key highlights. Trading in the quarter was in line with what we described in September investor seminar. Revenue growth slowed to 2%, driven by lower market growth in most European countries. Overall, we are pleased with the results in what is a challenging market environment. We had many examples of success. In France, our largest business, we continue to outperform the market, and we delivered 5% organic growth with a strong margin, supported by operating discipline and price discipline. We had another strong quarter in permanent recruitment with 19% organic growth.
We also made excellent progress on GrowTogether, which is now scaling up and delivering tangible results. GrowTogether productivity savings offset a significant part of the margin headwinds from CICE, from Germany and strategic investments. The savings will continue to increase through the Q4 and into 2019. You see the benefits coming through in the margins of the countries where GrowTogether is furthest developed, the U.S., U.K., and France. We are very pleased with the underlying margin development, especially in light of the slowdown in top-line growth. We recognize the importance of turning around Germany, which was a 20 basis points drag on our margin year-over-year. Needless to say, fixing it is at the top of our agenda, and as we said at the investor seminar, it is taking us a bit longer.
Lastly, I would like to highlight the impact of our recent acquisitions, which had a positive impact on the business mix and contributed to the overall gross margin increasing by 20 basis points year-on-year. General Assembly and Vettery are high-value businesses in high-growth markets, and we are very optimistic about the contribution they will make in the years to come. With this, I hand over to Hans for more insights on the financial performance.
Thanks, Alain. We will now run through the financial performance in more detail, starting with our revenue growth. Revenue growth slowed in the third quarter to 2% organically and trading day adjusted. The slowdown was in line with what we communicated at the investor seminar in September. It is clear that the European economy slowed over the summer period and into the fourth quarter. There's some one-off factors in there. For example, automotive was weak because of new regulations in Europe, the slowdown was quite broad-based, we keep watching it carefully. That being said, we believe that we're in a period of positive stability. Looking at the individual regions, you can see that the slowdown was very much market driven.
Our growth was ahead or in line with the peers in most regions, with the exceptions being Germany and the Benelux. In our largest market, France, growth was strong at 5%, extending our market leadership and confirming the strength of our commercial strategy. If you take into account the CCA changes, you can see that the growth is coming through with a nice margin, confirming our strong cost and price discipline. In North America, U.K., Ireland, general staffing, revenues were stable. North America was flat. We're encouraged by the growth trend in October. The U.K. decline of 1% reflected generally soft market conditions. Remember also that last year we benefited from new client wins delivering strong growth. In this quarter, the 2% decline in professional staffing in North America, U.K. and Ireland was in line with the Q2 results. Our U.S. retail business continued to perform well.
The total results were held back by our IT enterprise business, which is still being impacted by a couple of large client losses. In Germany, our revenue growth underperformed in a slowing market. Professional staffing and permanent recruiting delivered solid growth. In general staffing, which is the largest business, the growth was negative. The market is softer with weakness in automotive, there are also some negatives from regulation changes. As we discussed at the investor seminar, the larger part of the slowdown was driven by the merger of our Adecco and Tuja brands. In the Benelux, growth slowed in both the Netherlands and Belgium due to softer market conditions and reduced demand at a few large clients. We remain focused on diversifying the mix as we are too reliant on large customers in these markets.
Italy decelerated in line with the market trend after eight quarters of double-digit growth. Iberia also slowed with the market trend. Japan had a great performance on both the top line and the bottom line. Lee Hecht Harrison, which is a counter-cyclical business, was down 4% in the quarter. LHH continued to outperform the peers and is gaining market share. We have a truly differentiated offer in career transition, this is resonating well with our customers. It will become even stronger with General Assembly's workforce transformation capabilities. The need for reskilling and retooling is there. Turning to the EBITDA margin, down 40 basis points in total. In more detail, the reduction of the CCA tax credit from 7% to 6% had a 15 basis points negative impact. Our strategic investments in digital and IT had a 30 basis points impact.
The German transformation also impacted the results by 20 basis points. Recall that we're making investments in Germany to strengthen our recently merged general staffing brands, Adecco and Tuja. We're making fundamental changes in our go-to-market strategy, these take time to become established. It's fair to say that these changes will take us longer than originally anticipated, as we already highlighted in September. Therefore, Germany will continue to impact the results in the short term. It is the right thing to do because it will strengthen the German business for the medium term and the long term, creating a strong number 2 in the market. This leaves a 25 basis points positive margin improvement in the balance of the business, confirming our strong cost and price discipline and that the GrowTogether benefits are being delivered, particularly driving the margin in the U.S., the U.K., and France.
Looking at the profitability at the country level. Continued strong profitability in France. Product mix, price discipline, and productivity improvements helped offset the investments and the reduction in CCA. The lower CCA has a negative 60 basis points impact. North America, U.K., and Ireland general staffing benefited from productivity gains from GrowTogether, which more than offset the digital investments. North America, U.K., Ireland professional staffing delivered a strong margin. The improvement in the underlying margin paid for the investments in Vettery, keeping the overall margin stable. The 210 basis point margin decline in Germany, Austria, Switzerland was driven by lower productivity, higher bench cost, and investments in the general staffing business transformation in Germany. In Benelux and Nordics, the margin declined by 100 basis points impacted by client mix and negative operating leverage.
In Italy, the improvement in the temporary staffing gross margin and strong growth in permanent recruiting resulted in a 40 basis point margin improvement. Japan had a strong quarter with positive business mix and improved pricing more than offsetting strategic IT investments. Profitability in Iberia was impacted by the IT investments and a temporary misalignment of cost as revenue slowed in the quarter. In the rest of world, our strategy of focusing on client mix and quality of growth continues to deliver strong results with the EBITDA margin improving by 30 basis points. LHH maintains its strong margin leadership. The total career transition and talent development margin was impacted by the consolidation of General Assembly, which is still in an investment mode. Let's now look at gross margin and SG&A, starting with gross margin. The reported gross margin is up 20 basis points.
M&A had a positive impact of 30 basis points, driven by Vettery and General Assembly. These are high value, high gross margin businesses. Currency had no impact this quarter. This leaves the organic gross margin down 10 basis points. Permanent recruiting had a positive 30 basis point impact. Career transition had a negative 10 basis points impact. This leaves a 30 basis point reduction in the temp gross margin. CCA had a negative 15 basis point impact. The remaining net 15 basis points is driven by pricing and mix, which is similar to the first half results. From SG&A, organic cost growth was 3%, slightly above sales and gross profit growth. If you look at the more precise unrounded numbers, around half of that comes from the organic strategic initiative investments. The German integration also impacted the productivity.
Looking at the headcount, the business did a very good job adjusting the cost to the lower revenue growth reality. Investments in acquired companies, General Assembly and Vettery, had a 5% impact on SG&A. It is important to look at our total conversion ratio, which both includes all the investments, which includes General Assembly and Vettery, and the German drag. The total conversion ratios continues to be very strong at 26.9%. Turning to cash flow. The average cash conversion for Q3 was 78%. This is similar to the second quarter conversion. Day sales outstanding was 54 days versus 53 days last year and in Q2. A slight increase, but important to note that the quality of the receivables remains very high. We are very focused on the quality of our receivables.
Net debt to EBITDA, excluding one-offs, was 1.1 times at September 30, 2018, compared to 1.4 times at the end of June. We expect leverage to be at around one times at the end of the year, as we continue to buy back stock in the fourth quarter. Turning to the outlook. Revenue growth in September and October combined was +1%, organically and trading day adjusted. This confirms the exit rate was below the Q3 growth rate. Remember that for the fourth quarter, we have a slightly tougher comparison base. In France, we get no CCA for the month of December 2018. This is the outcome of the transition from CCA to a new system of Social Security reductions in 2019. Not getting the December month was unexpected. It's a one-off impact. Next year, we get the full 12 months.
On the group gross margin, the impact is about 25 basis points in Q4. This is on top of the continuing impact of the reduction of CCA from 7% to 6%, which has been effective since the start of this year. In Q4, we will deliver the balance of the targeted EUR 50 million GrowTogether productivity savings for 2018. Before I hand back to Alain, I think it would be useful to give a few comments on CCA for 2019. The French budget has now been published. Some of the details are still to be confirmed, but we have a pretty good idea of what the impact will be. There are a lot of moving parts, but the key implications are: first, CCA will be transformed into a permanent reduction in social charges from January 1st, 2019.
The 6% CCA will be replaced with a 6% reduction in the employer's health insurance contributions. This is pretty much a one-for-one replacement of CCA. In addition, there will be an extra subsidy for lower salaries, which starts from October 1st, 2019, so from Q4 of next year. This is worth up to four percentage point reduction for employees earning the minimum wage, and the reduction decreases to zero at 1.6 times the minimum wage. We cannot give the precise implications yet because we still don't know how this will be allocated over the wage brackets. From an EBITDA perspective, the new social charge reductions should be a slight positive versus the current CCA, once the additional subsidies kick in from October 2019. This leaves a small gap for the first three quarters because of the impact of the employee profit sharing. We're not talking about material amounts.
At the net income line, however, the new subsidies are less favorable than CCA. CCA was non-tax deductible. The new subsidies will be taxable. We will effectively have to pay the 32% French tax rate on the value of the subsidies. Most of you already have this in your models. We will have to look at what measures can be taken to offset this impact. Price discipline and pricing will become even more important now that the net impact of the subsidies is reduced. With that, I would like to hand back to Alain to talk about our strategic and operational progress.
Thank you, Hans. Indeed, I would like to talk a little bit more about GrowTogether, which is a key pillar of our Perform, Transform, and Innovate strategic agenda. With GrowTogether, we are transforming our core operation for the digital age to drive customer centricity, increase efficiency, and create more differentiation in our solutions. It is already improving business performance, and we clearly see that in the quarter with the 25 basis points underlying margin improvement despite the slowdown in sales. GrowTogether touches the entire value chain covering three core activities. First, sales or finding the clients. Recruiting or finding the candidates and filling the order. Finally, middle and back office, going from time capture to invoice accounting and support functions. Specific initiatives are driving results already, and we are only at the beginning of this journey. I can give you some practical examples.
The first one about the document digitization. We have taken initiative in our French business, and this initiative is about the automation processing of more than 30 million paper documents. Also in the U.K. In the U.K., we have replaced multiple client relationship management system with a single salesforce.com-based platform, allowing each consultant to spend one additional hour per day on client-facing activities. My last example is coming from the chatbots, and the chatbots being rolled out in the U.S. and Europe enable an average engagement increase of 400% compared to email, saving up to 20% of recruiters' time. As we invest in GrowTogether and roll out new tools and capabilities, we are driving true differentiation for the candidate and the client, establishing a real competitive advantage. The productivity enhancements are lowering our cost to serve with a target of reducing SG&A by EUR 250 million by 2020.
GrowTogether is about driving productivity, creating differentiation, and improving the customer experience. Now coming to the concluding messages. We have an exciting strategic agenda to Perform and Transform and Innovate. On Perform, we delivered a solid quarter in a slowing market. We recognize the importance of fixing Germany, and even with Germany and all the investments we are making, we continue to deliver the best conversion ratio in the industry. On the Transform agenda, we are delivering the first benefits in line with our commitments. GrowTogether is scaling up and will continue to support productivity improvements in the quarters to come. We deliver the first EUR 50 million in 2018 on the way to EUR 250 million in 2020. With General Assembly and Vettery, we are driving exciting innovation in our industry, which is confirmed by the positive reaction of our clients.
To finish, I would like to thank all of our worldwide colleagues for their commitment and engagement. I'm pleased to say that the positive environment that they helped create every day has once again been recognized in the Great Place to Work survey, where we ranked in the top five for the second year running and the third year in the top 10. With this, I would kindly ask the operator to open the line for the questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question from the phone comes from the line of Anvesh Agarwal with Morgan Stanley. Please go ahead.
Hi. Good morning. I got three questions. The first, can you just give a bit more clarity on the organic growth development throughout the quarter? I mean, September is the biggest month, and you did 1% versus July and August 2%, but still ended Q3 at 2. Then second, on the outperformance in France, which is substantial versus peers, is there any particular contract that is driving that or do you attribute it entirely to your initiatives, therefore it should continue? Finally, you flagged some large client losses in Benelux and North America. I mean, what drove it? Did you lose it to your peers on price, or they were insourced, or they were won by new tech startups? Thank you.
I'll start. What we saw, I think that's the most important point, it's in line with what we discussed at the investor seminar. After the summer, we didn't see the growth picking up. When we entered September, and we saw that in October, you see that plus 1% trading day adjusted. Now, there are some trading days impact in September versus October, which have an impact. In total, I think the key message to walk away from that
We saw in July, August still the growth, a little lower than we saw in Q2, there was some growth. September, October, we see what we call that positive stability of plus 1%. You have seen in the markets we perform very strongly in France, there you saw also the market slowing. You saw that in Southern Europe. That is, I think, the key message that when we enter Q4, we see a plus 1%, and we call that positive stability.
Good. On France and outperformance. We are very pleased with this outperformance. It is also clear that in France we have our strategy at work. Remember, we put the two companies together, Adia and Adecco. We put the segmentation in place, the pricing strategy and pricing discipline, also the perm. We are really gaining market share in a very disciplined way. You can also look at our profitability. We have the strongest profitability among the peers. It is not only in the general temporary staffing where we have a broad-based growth, it's also in the perm. In the perm, we had 30% growth in Q2 in France. No particular reason regarding a contract. It's really broad-based and in all the businesses. About your third question regarding U.S. and the Benelux, large client losses, price, and so on. I think it's a little bit different.
In the U.S., the volume was impacted by some reduction at a few large clients. You know, both in the Benelux and particularly in the Netherlands, also in the U.S., our portfolio is mainly driven by large customers. As soon as some of them are delaying their order and so on, you have impact. In the U.S., we have some delayed of the onboarding of some new clients. The growth improved the quarter, and we expect to be positive again in Q4. The Netherlands is a little bit of the same. Change of, let's say, delay of ordering at this big customer, no particular, let's say, big customer losses due to pricing reason. Absolutely not.
Okay. Just to be clear here, October growth on underlying basis was in line with September at 1%.
Yeah.
You have not seen any sequential slowdown. Fine.
No.
That's all. Thank you.
The next question from the phone comes from Paul Sullivan with Barclays. Please go ahead, sir.
Good morning, everybody. A few from me. Firstly, on just gross margin. There's lots of moving parts as usual, but seems to be a few more. In the fourth quarter, could you give us some help in terms of the bridge from Q3 to Q4, or year-on-year, however you want to do it? Similarly, in terms of SG&A in Q4, are you prepared to give us some firm guidance on that? What proportion of the EUR 50 million savings has been delivered to date? Finally, any thoughts on labor reform in Italy and any potential impact from that? Thank you.
Yes. Good questions, Paul, because you need a lot of moving parts moving around. First, I think what's important, what we discussed, we have what I call that white month of no CCA in December, and that will have a negative impact of 25 basis points negatively for the group in Q4. On top of that, we have the recurring impact from the 7 to the 6, which for the first three quarters was around 50 basis points negative. The two together are, I would say, a small 40 because December is a little bit, you could say, you can double count, but December is always a little smaller. I would say a small 40 basis points from CCA in France at the group level. M&A will be similar to Q3, +30 basis points. That will be a positive.
You get a help from the bank holidays in Q4 by 10 basis points. We have some negative accrual impact last year in Q4, which we don't think we have in this Q4. That's another +10. Forex, we can't do an outlook, but I would assume you could keep neutral. You can add the usual dynamics, which I have less visibility on, which would be how our perm business is developing, what will happen on the career transition. I think on the temporary pricing and mix, I think the run rate we're seeing would be a fair assumption to make. That's on gross margin. On SG&A, a couple of points. We will continue to invest in our digital transformation with GrowTogether and the new ventures.
There's a small rephasing between Q3, Q4 because we were a little bit more positive in this quarter versus the guidance. We said that we have 40 basis points strategic investment this quarter and 30 in Q4. I would put 40 basis points in Q4 for the strategic investment. Germany will continue to weigh on the productivity. In Q4, that's still with us. The good news is that GrowTogether savings are coming, that will help. If you add that all up, I would expect Q4 SG&A to be up 5%-6%, including the M&A, Vettery, and GA, which is around 5 % . We expect year-on-year, and I'm talking year-on-year, I'm not talking sequentially, that organic SG&A will be stable to +1%.
Okay. On Italy, I do assume you know the detail of this new regulation, the reintroduction of the reason for use of temporary work contract, the reduction of maximum length from 36 to 24 months, and the quantitative limitation to 30% of your labor force as temporary workers. This Dignity Decree is de facto in application since yesterday, because it was 1st November, but as you know, 1st November is a holiday in Italy. I was personally in Italy some weeks ago. I met customers, and there is still unclarity about the way customers will react towards this Dignity Decree. I can only give two comments. First, especially in case of unclarity like today, customers are looking for flexible solutions like the one we are proposing. Second, we have different type of contract. We have also in Italy the contract of temporary staffing with indefinite duration.
The same we have also now in France, for example. I can imagine that there will be a way, let's say, to react to this Dignity Decree by adapting the type of contract we are proposing to our customers. All in all, confident.
One question you asked us also that I didn't add it to the first point is GrowTogether. It can't be deposited. The good news in Q3, we're really delivering the results and there's positive momentum we can talk. I would say 45/55 between Q3, Q4, but not weighing a lot in Q4. I think one of the positive surprises we had into Q3 is that the GrowTogether savings are really starting to kick in, which is good news.
That's fantastic. Thank you very much.
The next question comes from the line of Alain Oberhuber with MainFirst. Please go ahead.
Good morning, Alain and Hans. Alain Oberhuber, MainFirst. Could you give us a little bit insight regarding the tax rate? I think it's pretty difficult for you to give us an indication, but it will clearly help, particularly in the light of the new subsidies in France. Just regarding September, October, could you give us a hint which markets performed better and which least? My last question is regarding the auto manufacturing sector. When do you think we could see the bottom of that sector in Europe?
I'll start with the tax rate. This year, our tax rate will be at around that 27%. As you rightly point out, the CCA change to the Social Security reduction will have an impact on the taxes because you didn't need to pay taxes on CCA, whereas the subsidies will be taxed. We're giving normally at the end of Q4 our update on next year's tax rate. What is I can give you, which is easy, is CCA was around EUR 200 million, and that will be taxed at around 32%. We give the real tax rate because business makes at the end of Q4, but you can calculate that EUR 200 million times 32% will have a relevant effect on the tax rate for next year.
Regarding the question on the market, Alain, as you know, we don't provide an exit rate by countries and so on. Just what I can tell you is that basically, when we look at Americas, the U.S., and we look at Japan, the trend is consistent with the previous quarters. No big change. The slowing growth, as mentioned during the investor seminar, was coming from Europe, and that's what we see, and especially in the Southern European countries, France, Spain, and Italy, where you have seen also some revision of the GDP figures. This is also confirmed by all figures. Sorry, I didn't catch the last question about manufacturing. Can you please repeat your question?
Sure. Excuse me, Alain. Just regarding the development of the auto manufacturing sector. We see a downturn here. Could you give us maybe some, or your best guess for when we could see this downturn in the auto manufacturing sector, particularly in Europe and specifically in Germany?
Yeah.
Do you have any-
View already there?
Yeah. I think there are different elements in the slowdown of the auto manufacturing sector in Europe. First, it is linked to this new regulation regarding the control of the pollution. You know that every new car having been manufactured before being entered in the market has to go into a test center to test the emission. This new regulation is really blocking, let's say, the entering of this new car into the market. Especially in Germany, you have a huge parking with a new car being produced, but waiting to be controlled before being put on the market. Manufacturing auto is one point, but we see also that there is a slowdown, which is broad-based in the manufacturing and not just auto.
With that last point, I think what's important to reiterate is that we see that positive stability, automotive plate, but it's not like we see in Q4 that will give us.
A new dynamic.
A positive. That I think is important to mention.
Thank you.
The next question comes from the line of Chirag Wadia with HSBC. Please go ahead.
Good morning. Thanks for taking my questions. I've just got three. What is the headwind from temp-to-perm conversion on volumes? Secondly, how much growth do you need in the SME segment to put the U.S. back into positive volume growth territory? Within this, what is the growth margin and conversion margin difference between the large account and SMEs, and why did you not move to SME focus earlier? If you did, why has that not particularly worked? Finally, are you comfortable with the cost savings run rate? Do you think if you can sustain this? Thank you.
Sorry, your fourth question?
It's on the cost.
Sure, yeah. Just if you are comfortable with the cost savings run rate, and if you think this could be sustainable?
Yes.
Okay.
Maybe we start there and then come to the SME and then we'll give a little bit on the temp to perm and the volume. We're very pleased with the cost progress we made into the quarter. We have with that revenue, so that shows that our people have a good grip on the cost, and that is important. The second point into the quarter, which is important, that the first benefits of GrowTogether are kicking in. This is pretty much driving also that underlying 25 basis points improvement in the operating leverage, whereas we virtually have the low level of growth. Whereas we were making adjustments into the quarter, because we still have some markets where we need to adjust. We believe that's sustainable because the GrowTogether benefits are driven from our initiative.
We know everywhere where we're bringing GrowTogether to life, both from the new Perform methodology as well as the systems and the new technology we're bringing. That should put us on track also for 2019 to deliver on our GrowTogether savings.
On the SME, about the U.S., we have to separate the analysis according to general staffing and then professional staffing. In the general staffing, in the brand Adecco, you know that our portfolio is mainly large accounts, and I already commented that. Yes, we are doing some effort to develop our SME portfolio, but as you know, it takes time. It takes time to gain these customers, and it also takes time to be able to compensate the large customers with many small customers. It takes time. In the professional staffing, in fact, we have an excellent performance in all what we call the retail business. The brand Special Counsel, Soliant and so on, they are performing very well.
We have lost some large accounts in Modis IT, where in the enterprise business, we have large account, and we have lost some of them, which is giving this picture. Again, on the retail side, we are very pleased. We are also very pleased with the performance of the professional recruitment in the professional staffing. Strong double digits, which is also typical of the maturity of the cycle, but very pleased with that too.
Thank you. What is the growth margin and conversion margin difference between the large accounts and the smaller SME ones?
I think what is important, we're not going to give too precise because that discloses a little bit also our pricing. What is good to know, I think, on the whole segmentation, wherever we have a more balanced mix between small and medium, that is really margin accretive and also from a growth point of view, is driving our market share. I think markets like Spain, Italy, France are good examples where we have a good mix between small and medium, and large and on-site. It's definitely margin accretive. That it is. It has a better pricing and that with the cost to serve is improving the margin. You could ask why didn't we do that before in the U.S.? I think what's great is that in the U.S., our small and medium is less than 15% of the business, whereas for the group it's 35%.
It will help us drive profitable growth in the U.S. If you look this quarter, the profitability in general staffing in the U.S. region was up. We added 30 basis points to our margin structure. We need to drive more growth. In October, we see a little bit more positive momentum. We're very positive that through that segmentation, we will improve our market share and the profitability.
Thank you.
Okay, next.
The next question comes from Simona Salali from Bank of America. Please go ahead.
Good morning, gentlemen. A couple of questions from my side. One is a follow-up on the GrowTogether. If I understand correctly, as of Q3, you have already achieved EUR 40 million-EUR 45 million of the total EUR 50 million. The question is, what might potentially drive a bit in Q4 to your total savings of EUR 50 million? The second one is on Germany. If you could please provide an update on where you stand with the reorganization of Tuja in general staffing. What are still the next steps for you? How much of the sequential deceleration was purely related to auto? Thanks.
Yeah. Maybe I start clarifying one thing, and I apologize if that didn't come out clear. When I said 45/55, I was referring to the percentage split of the EUR 50 million. A little less than half of the EUR 50 million got delivered in Q3, and a little over half of the EUR 50 million will be delivered in Q4. Just to clarify that. That confirms that the programs which we have put in place are starting to work and are delivering the results. On the weight of auto, we should not overplay that. That was something which played into the quarter, but it's important to endorse what we saw in September, October, this +1%, and that we saw a broad-based slowdown. We're not expecting that automotive impact into the quarter or the material difference or change when we go into Q4.
Regarding Germany, Simona, first of all, it has to be noted that not all the German business is challenged. As I said earlier, we have a solid growth in professional staffing. We have also a strong, solid growth in perm, but that's where the transformation is taking place at the general staffing, where we put the two staffing brands, Adecco and Tuja, together. The formal merger has started since the 1st of May. Q3 was the first full quarter in which we have the two combined organizations. Where are we? We have consolidated branches and the support functions. We are implementing the so-called segmentation, so putting in place two different organizations, one for the on-site and the other one for the branches.
You know that in this process, you have to carve out from the branches the on-site business and put it in a dedicated organization. Then on the retail organization, the retail network, we are putting in place what the so-called CCPM, which is our customer and candidate performance management, which is our commercial system, which is pushing the organization to increase their visit, where we are measuring the number of visits, the efficiency, and the intensity of the visit, which is a major cultural change. We are putting there also a new front office system for the two combined organizations. Yes, it is like we said in September. It is taking time. It will take longer than we anticipated. On the other side, it is very important to drive this transformation and build the strong number 2 we want to have on the German market.
Convinced it is absolutely the right thing to do. We know the recipe because we have already applied the recipe in other countries. Remember France, but also Switzerland, Norway, Australia. We are applying the recipe which has proven its results.
Thank you.
The next question from the phone comes from Michael Foeth from Vontobel. Please go ahead, sir.
Yes, hi, good morning. I have one question left regarding the strengths in your perm business, the 19% increase. Can you say how much of that strength was market-driven, and how much relates to market share gains on your side? Maybe differentiating France, North America, and U.K. a little bit. How sustainable you think the growth in perm is, i.e., where do you think are we standing in that perm recruitment cycle? Thank you.
Yes, indeed, we had a 19% growth in this quarter following three quarters at 18%. I would say that the growth is broad-based between the general staffing and/or dedicated brands. The professional recruitment brands, both strong growth in both businesses. Geographically, strong growth in the U.S., double-digit in U.K. You have heard 30% in France, but also Italy, Spain. It is really strong growth-based.
Is the market growing at the same pace, or are you gaining substantial market share?
When we benchmark our figures, you will see it also when we benchmark our figures against the typical players in this market, the pure players, we are gaining market share.
Okay. Thank you.
You're welcome.
The next question from the phone comes from the line of [Hans Pluijgers with KBC]. Please go ahead.
Yes. Good morning, gentlemen. A few questions on my side. One follow-up on Germany. Of course, you already gave, let's say some indication how everything is progressing, how long do you expect, let's say the negative impact will continue? I assume also give forward how far maybe into next year we should calculate with a slight negative impact from Germany. Secondly, looking at the U.S., could you give some feeling how, let's say, there was a breakdown was between volumes and price, and how do you see, let's say, the average contract period per temp developing, could you give some feeling on that? On Q4 of 2017, could you give maybe some feeling how that, let's say the development, the growth went through the quarter?
Was December, let's say, the strongest month, or could you give some feeling on how the trend was through Q4 of 2017? Lastly, on the one-offs, slightly clearly somewhat lower than last quarter. You have indicated, let's say that it would be about EUR 50 million-EUR 65 million for the full year previously. Is there anything changed in that? Could you give some guidance for one-offs for this year?
Okay, good. Germany, how long? I will repeat what I have said, during the investor seminar in London a little bit more than one month ago. It will take time. What I said in London is that we were anticipating around one year of process, and I can only confirm what I have said in September, one year from there. On the U.S., yes, there is some wage inflation, depending blue collar, white collar, around 1%-3% for blue collar, 2%-4% for white collar. This is what we see today in the wage inflation. It means that in some business we have a volume which is negative. The average contract period, let's say this is very linked to the type of business we are in. It's logistics.
What is for us more important at this stage is to look how many customers we are winning and especially how the ramp-up or the so-called peak is going on in this fourth quarter. There is a good traction on the ramp-up right now in the U.S.
On your other two questions, if you look at Q4 last year, we said that we need to be mindful that we're having a stronger comparison base in Q4. If you look at how the growth developed last year over the quarter, I wouldn't read anything specifically into it. December was a little bit strong, but also had the trading days impact, and that those two, as always, you cannot look at them as one or one as two, because if you have less trading days, it can be half. I wouldn't read anything. We had just a strong quarter in Q4 of last year on the growth. Restructuring so far indeed has been lower than we guided to in our capital market day of 2017, where we said we need around EUR 200 million to execute the whole GrowTogether initiative.
It's hard to give forward-looking guidance, specifically on the one-offs and potential reorganization costs, but we will continuously focusing on strengthening the productivity. We'll use that money when we need to execute on our GrowTogether program.
Okay.
Okay.
Thank you.
Thanks.
Next. We have to speed up.
The next question comes from Tom Sykes with Deutsche Bank. Please go ahead.
Yeah. Morning, everybody.
Morning, Tom.
Morning. Just quickly, on General Assembly, it looks like you're about mid-20s in revenue and probably about a high single-digit loss in Q3. Would you maybe just be able to flesh out what your expectations are for General Assembly and whether you're putting any more cost in or taking it out, whether the losses would decline? In terms of the cost base, sorry, just to be clear on what you were saying for Q4, did you say total costs up 5%-6% and organically up about 1%?
Given that your temp gross profit now looks like it's probably organically flat to slightly declining, are you looking at any slightly more substantial cost savings across the group that might occur in Q1, Q2? Just on Onsite, could you maybe, if possible, be able to give us a clue as to how fast Onsite is growing relative to the rest of the business, please?
I start maybe with General Assembly is running in line with the plan, we will deliver on the investment thesis we set. It's good to see in the quarter is that General Assembly is driving the right level of growth we were looking for. Very pleased with the growth. We're also already having some good momentum with the cross-selling with some of our other customers, which is helping some of the growth. The investments we're making are in line with what we agreed when we bought the business. On Q4, to clarify, your conclusion is right. The total SG&A will go up 5%-6%, which includes General Assembly and Adecco, which account for around 5 percentage points, which gets you to the conclusion of the 1% organically. On the temp gross margin, we see what we have been seeing, it's not a change.
The CCA, we explained in detail, the underlying pricing trends right at around that 15 basis points. Some of that is in Onsite, we see [modest growth] because recall we had this positive stability. It's not in the quarter a high level of pull out on the growth on the Onsite.
Yes. On the Onsite, just to add this, yes, we have a double-digit growth on Onsite, and this is the best performing segment to date.
Okay. Sorry, just to
I'm sorry, Tom. I'm looking at the time. I see that there are still two people in the queue.
No problem. I'll catch up, Nick. Thank you.
Yes. If you could offline catch up.
No worries. It is fine. Do not worry. Thank you.
Thank you.
The next question comes from Matthew Lloyd, HSBC. Please go ahead.
Good morning, gentlemen. I'll try to be as quick as possible. Apologies to Tom for cutting him off.
Sorry.
It's all right. Very quickly, I've asked this question of about eight or nine people in the staffing industry. I get very different responses. Some people get emotional, some people are slightly concerned. Is there an issue at the moment with large account and getting the right fill rate? Therefore, because you're getting volume declines, but some wage rate inflation, which is perhaps less than one would expect given the demographic profile of the people you're placing. Have you got a problem with fill rates? Do you think there's one in the industry causing a question about large account?
Yeah. I maybe give an answer to that. I'm happy you follow our business closely because fill rate is a very important statistic for us, not only with large clients. I think it's an opportunity for us with new technology. This where I think we can really win with the locals because we see, like in France with our new candidate portals, we can attract better candidates and fill the order faster. This is, I think, one of the opportunities why I think we will be able to drive through growth. This is not a new issue. Always, if you look at the fill rate of the industry, I've been a retailer, I always ask this question. I think through technology, we do it already with people on events. We do it with the new candidate portals.
I think it's an opportunity. The people who really leverage technology will be coupled with talking to the people. It's an opportunity. It's not a new phenomenon. I think people will probably, that's why you get inconclusive answers, give you many stories. It's a huge opportunity for us.
Okay. I am conscious of time, so I will say thank you very much.
Thank you, Matthew.
The last question comes from the line of Marco Strittmatter with Zürcher Kantonalbank. Please go ahead.
Yes, thank you. Hello. Also just a quick one. Are you sticking to your 200 million one-offs in total that you were talking about on the capital market day last year? Is this still valid, the total restructuring charges of EUR 200 million? On the capital market day 2018, you also mentioned a possible additional cost in connection with the slower growth you are experiencing. Is this still something you are worried about or is it something we should be worried about? Thank you.
Yeah. First, yes, the EUR 200 million on the reorganization restructure costs will GrowTogether for the coming years we keep. There's no change in the guidance. Where we are happy with the quarter, and that's better than the investor seminar in London, is that we've done a very good job of driving the productivity while the revenue is low. I think this is why we have a little bit more positive earnings than what we had highlighted there. Our people have done a very strong job on the cost discipline. Secondly, the GrowTogether savings. Recall over the first half, we talked that we were in an investment phase. We're putting in systems. We were going through the learning. That Q3 had more benefit from GrowTogether, which is also positive.
I think we're giving a more positive message now than we did in September in the IR day with that. The cost discipline is there, and that GrowTogether is driving that to the next level. I think that is the positive of the quarter.
Okay. Thank you.
Thank you very much to all of you. Before I give back the floor to Nick, thank you for your great questions. We will meet some of you during the road show. If you have still open questions, don't hesitate to reach out to Nick offline. Happy to answer your questions.
Thanks, everyone, for joining us. The Q4 and full year results will be on the 28th of February. We will see some of you before then, but if not, have a very good Q4, and we will speak to you in the new year. Thank you. Bye.
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