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 a listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Mr. Nicolas de la Grenz, Head of Investor Relations, accompanied by Mr. Annette de Haas, CEO and Mr. Hans Bluf von Amstel, CFO of the Adecco Group. Please go ahead, gentlemen.
Thank you, and good morning, and welcome to the Adecco Group Q3 2018 results conference call. I'm joined today by Alain de Haas, Group's CEO and Hans Blost Van Amselstel, Group's CFO. As usual, before we begin, please review the disclaimer on Page 2 regarding any forward looking statements in this presentation. On Slide 3, 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 Grow Together, which is a key element of our perform, transform, innovate agenda. And finally, we'll open the lines for Q and A. Alain, over to you.
Thank you, Nick, and good morning, ladies and gentlemen. Welcome to our Q3 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 at the in September Investor Seminar. Revenue growth slowed to 2%, driven by lower market growth in most European countries.
And overall, we are pleased with the results in what is a challenging market environment. We had many example 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 also saw improved growth in Japan and the rest of the world, where our focus on driving for profitable growth is showing results. And we had another strong quarter in permanent recruitment with 19% organic growth.
We also made excellent progress on Grow Together, which is now scaling up and delivering tangible results. Grow Together productivity savings offset a significant part of the margin headwinds from CECL from Germany and strategic investments. And 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 Grow Together 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 bps drag on our margin year on 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 have a positive impact on the business mix and contributed to the overall gross margin increasing by 20 bps 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. And with this, I hand over to Hans for more insights on the financial performance.
Thanks, Helane. We will now run through the financial performance in more detail, starting with our revenue growth. Revenue growth slowed in the Q3 to 2% organically and trailing 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 Q4.
There are some one off factors in there. For example, automotive was weak because of new regulations in Europe, but the slowdown was quite broad based. So we keep watching it carefully. That being said, we believe that we're in a period of positive stability, more 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 funds, 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, UK, Ireland General Staffing, revenues were stable. North America was flat.
We're encouraged by the growth trend in October. The UK 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, UK 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 and there are also some negatives from regulation changes. But as we discussed at the Investor Seminar, the larger part of the slowdown was driven by the merger of our Adecco and Tuya 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. Therefore, 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 8 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. Liech Harrison, which is a countercyclical business was down 4% in the quarter. LS8s continued to outperform the peers and is gaining market share.
We have a truly differentiated offer in career transition and this is resonating well with our customers. And it will become even stronger with General Assembly's workforce transformation capabilities. The need for rescaling 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 Tuya. We're making fundamental changes in our go to market strategy and 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 Grow Together benefits are being delivered, particularly driving the margin in the U. S, the UK 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 lowest CCA has a negative 60 basis points impact. North America, UK and Island General Staffing benefited from productivity gains from Grow Together, which more than offset the digital investments. North America, UK Ireland professional staffing delivered a strong margin.
The improvement in the underlying margin paid for the investments in battery, 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 margins 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 the 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. LSH 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 and A, starting with gross margin.
To report the gross margin is up 20 basis points. M and A has a positive impact of 30 basis points, driven by battery and general assembly, which are high value, high end 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 TAM 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. On SG and 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 battery had a 5% impact on SG and A. It is important to look at our total conversion ratio, which both includes all the investments, which includes general assembly and battery and the German RAC, the total conversion ratio 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 2nd 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 1 offs was 1.1x at September 30, 2018 compared to 1.4x at the end of June. We expect leverage to be at around 1x at the end of the year as we continue to buy back stock in the Q4. Turning to the outlook. Revenue growth in September October combined was plus 1% organically and trading day adjusted.
This confirms the exit rate was below the Q3 growth rate. Remember that for the 4th 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 €50,000,000 go together productivity savings for 2018.
Before I hand back to Helene, I think it will 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: 1st, CCA will be transformed into a permanent reduction in social charges from January 1, 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 1, 2019, so from Q4 of next year. This is worth up to 4 percentage point reduction for employees earning the minimum wage and the reduction decreases to 0 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 1st 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.
So 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, now I would like to talk a little bit more about Grow Together, which is a key pillar of our perform, transform and innovate strategic agenda. With Grow Together, 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 bps underlying margin improvement despite the slowdown in sales. Grow Together touches the entire value chain covering 3 core activities: 1st, sales or finding the clients then recruiting or finding the candidates and filling the order and finally, middle and back office, going from time capture to invoice accounting and support sanctions.
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 process or the automation processing of more than 30,000,000 paper documents. Also in the U.
K, in the U. K, we have replaced multiple client relationship management system with a single self-service.combasedplatform, allowing each consultant to spend 1 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 enabled an average engagement increase of 400% compared to e mail, saving up to 20% of recruiters' time. As we invest in growth together and roll out new tools and capabilities, we are driving true differentiation for the candidate and the client, establishing a real competitive advantage. And the productivity enhancements are lowering our cost to serve with a target of reducing SG and A by €250,000,000 by 2020. So grow together 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 commitment.
Grow together is scaling up and will continue to support productivity improvements in the quarters to come. We delivered the first €50,000,000 in 2018 on the way to €250,000,000 in 2020. And with general assembly and battery, 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 engagements. I'm pleased to say that the positive environment that they help create every day has once again been recognized in the Great Place to Work survey, where we ranked in the top 5 for the 2nd year running and the 3rd year in the top 10.
And with this, I would kindly ask the operator to open the line for the questions.
We will now begin the question and answer session. The first question from the phone comes from the line of Anvesh Angrawal 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 August 2%, but still ended Q3 at 2%. So I mean something doesn't add up here.
And 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? And finally, you flagged some large client losses in Benelux and North America. I mean, what drove it? But did you lose it to your peers on price?
Or they were in sourced? Or they were won by new tech startups? Thank you.
I'll start. So what we saw, and I think that's the most important point and it's in line with what we discussed at the Investor Seminar. After the summer, we didn't see the growth picking up. So 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.
But in total, I think the key message to walk away from that, we saw in July, hold still the growth, a little lower than we saw in Q2. But it was some growth. September, October, we see what we call that positive stability of +1%. And you have seen in the markets, we performed very strongly in France. There you saw also the market slowing.
You saw that in Southern Europe. And that is, I think, the key message that when we enter Q4, we see a plus 1% and that we call that positive stability.
Good. Then on France and all outperforms. Outperformance, yes, we are very pleased with this outperform. It is also clear that in France, we have our strategy at work. We have remember, we put the 2 companies together, Adia and Adecco.
We put the segmentation in place, the pricing strategy and pricing discipline, but also the perm. So 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. And 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. So no particular reason regarding a contract. It's really broad based and in all the businesses. Then 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. And you know, both in the Benelux and particularly in the Netherlands, but also in the U. S, we have a portfolio a big portfolio is mainly driven by large customers.
So as soon as some of them are delaying their order and so on, you have impact. And in the U. S, we have some delayed of the onboarding of some new clients, but 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, but no particular, let's say, big customer losses due to pricing reason, absolutely not.
Okay. So just to be clear, your October growth on underlying basis was in line with September at 1%. You have not seen any sequential slowdown. No. That's correct.
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. On just gross margin. There's lots of moving parts as usual, but seems to be a few more in the Q4. Could you give us some help in terms of the bridge from Q3 to Q4 or year on year, however you want to do that?
And then similarly, in terms of SG and A in Q4, will you are you prepared to give us some firm guidance on that? And what proportion of the €50,000,000 savings has been delivered to date? And then 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. So 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 twice the 5 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 1st three quarters was around 15 basis points negative. So the 2 together are, I would say, a small 40 because December is a little bit you could say you can't double count, but December is always a little smaller.
But I would say a small 40 bps from CCA in France at the group level. M and A will be similar to Q3, plus 30 basis points. So that will be a positive. We get a help from the bank holidays in Q4 by 10 basis points. And then we had some negative accrual impact last year in Q4, which we don't think we have in this Q4.
That's another 10 plus. 4x, we can't do an outlook, but I would assume you could keep neutral. And then you can add the usual dynamics, which I have less visibility on, which would be how our current business is developing, what will happen on the career transition. And I think on the temporary pricing and mix, I think the run rate we're seeing would be a fair assumption to make. So that's on gross margin.
On SG and A, couple of points. We will continue to invest in go together and the new ventures. There's a small rephrasing 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 investments this quarter and 30 basis points in Q4. I would put 40 basis points in Q4 for the strategic investments.
Germany will continue to weigh on the productivity in Q4. That's still with us. The good news is that Grow Together savings are coming and that will help. So if you add that all up, then I would expect Q4 SG and A to be up 5% to 6%, including the M and A, battery and GA, which is around 5 basis points. So we expect year on year, and I'm talking year on year, I'm not talking sequentially, that organic SG and A will be stable to +1%.
Okay. Now on Italy, I do assume you know the details 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. Now this dignity degree is de facto in applications since yesterday because it was 1st November. But as you know, 1st November is a holiday in Italy. So I was personally in Italy some weeks ago.
I met customers, and there is still unclarity about the way customers will react towards of this dignity decree. I can only give 2 comments. 1st, especially in case of unclarity like today, customers are looking for flexible solutions like the one we are proposing. 2nd, we have different type of contract. And we have also, in Italy, the contract of temporary staffing with indefinite duration.
So the same we have also now in France, for example. And I can imagine that there will be a way, let's say, to react to this dignity degree by adapting the type of contract we are proposing to our customers. So all in all, confident.
One question you asked as well, sorry, that I didn't add it to the first point is grow together. It can't be deficit. The good news in Q3, we're really delivering the results and there's positive momentum we can talk. So 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 Grow Together 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.
Pretty difficult for you to give us an indication, but it will clearly help, particularly in the light of the new subsidies in France. And then just regarding September, October, could you give us a hint which markets performed better and which leased? And 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 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 are not giving we're giving normally at the end of Q4 our update on next year's tax rate. But what is I can give you, which is easy as CCA was around €200,000,000 and that will be taxed at around 32%.
And we give the real tax rate because business mix at the end of Q4, but you can calculate that 200 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 give we don't provide an exit rate by countries and so on. What I can 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 being in 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. And then sorry, I didn't catch your 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. Do you have any view already there?
Yes. 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. And 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. And this is this new regulation is really blocking the, let's say, the enter the entering of this new car into the market.
And so you have, especially in Germany, you have huge parking with new car being produced, but waiting for to be controlled before putting being put on the market. So 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.
Yes. With that last point, I think what's important to reiterate is that we see that positive stability automotive played, but it's not like we see in Q4 that, that will give us a new dynamic, a positive. So that said, I think it's 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 3. 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? And within this, what is the gross margin and conversion margin difference between the large account and SMEs? And why did you not move to SME focus earlier? Or if you did, why is that not particularly worked?
And finally, are you comfortable with the cost savings run rate? And do you think you can if you can sustain this?
Sorry, your fourth question, it's
on the cost. Maybe I'll ask.
Yes. So yes, 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. So 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 Grow Together are kicking in, which 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. We still have some markets where we need to adjust. So we believe that's sustainable because the Grow Together benefits are driven from our initiative. We know everywhere we were bringing Grow Together to life, both from the new Perform methodology as well as the systems and the new technology we're bringing. So that should put us on track also for 2019 to deliver all our growth together 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 we have a big our portfolio is mainly large accounts, and I already commented that. And 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 is also it takes time to be able to compensate the large customers with many small customers.
So it takes time. Then in the Professional Staffing, in fact, we had an excellent performance in all the what we call the retail business, the brand Special Counsel, Soliant and so on. They are performing very well, But we have lost some large accounts in MODIS IT, where there we have in the enterprise business, we have large account and we have lost some of them, which is giving this picture. But 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 digit, which is also typical of the maturity of the cycle, but very pleased with that too.
Thank you. And sorry, what is the gross 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 disclosed a little bit also our pricing, is 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. So it's definitely margin accretive. So 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%. So it will help us drive profitable growth in the U. S.
And if you look this quarter, the profitability in general staffing in the UNO region was up. We added 30 basis points to our margin structure. We need to drive more growth. In September, we see a little bit more positive momentum. So 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 Farley from Bank of America. Please go ahead.
Good morning, gentlemen. A couple of questions from my side. One is a follow-up on the Grow Together. So if I understand correctly, as of Q3, you have already achieved the EUR 40,000,000 to EUR 45,000,000 of the total EUR 50,000,000. And the second one is on Germany.
And the second one is on Germany. So if you could please provide an update on where you stand with the reorganization of Tuja in general staffing. So what are still the next steps for you? And how much of the sequential deceleration was purely related to auto?
Thanks. Yes. Maybe I'll start clarifying one thing and I apologize if that didn't come out clear. When I said EUR 45, EUR 55,000,000, I was referring to the percentage split of the EUR 50,000,000. So a little less than half of the EUR 50,000,000 got delivered in Q3 and a little over half of the €50,000,000 will be delivered in Q4.
So just to clarify that. So and that confirms that there is that the programs which we have put in place are starting to work and are delivering the results. On the weight of outflow, we should not overplay that. That was something which played into the quarter, but it's important to endorse that we saw in September, October this plus 1% and that we saw a broad based slowdown. So we're not expecting that automotive impact into the quarter, rather material difference or change when we go into Q4.
Now regarding Germany, Simona. First of all, it has to be noted that not all the German business is challenged. So as I said earlier, we had 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 Total Staffing where we put the 2 Staffing brands, Adeco and Tuya together.
So the formal merger has started since the 1st May. So Q3 was the 1st full quarter
in which
we have the 2 combined organization. Now where are we? We have consolidated branches and the support functions. We are implementing the so called segmentation, so putting in place 2 different organizations, one for the on-site and the other one for the branches. And 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.
And then on the retail organization, the retail network, we are putting in place the 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 visit, the efficiency and the intensity of the visit, which is a major cultural change. And we are putting there also a new front office system for the 2 combined organization. So yes, it is like we said in September, it is taking time. It is also or it will take longer than we anticipated. But 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.
So convinced it is absolutely the right thing to do. We know the recipe because we have already applied the recipe in all the countries. Remember France, but also Switzerland, Norway, Australia. We are applying the recipe, which has proven its results.
The next question from the phone comes from Michael Firth from Vontobel. Please go ahead, sir.
Yes. Hi, good morning. I have one question left regarding the strength 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 the UK a little bit? And then how sustainable you think the growth in perm is, I.
E, where do you think are we standing in that perm recruitment cycle?
Yes, indeed, we had 19% growth in this quarter following 3 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 UK. You have heard 30% in France, but also Italy, Spain.
So it is really strong broad based.
And 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 2 players, we are gaining market share.
Thank you.
You're welcome.
The next question from the phone comes from the line of Hans Pueger with Kepler Cheuvreux. Please go ahead.
Yes. Good morning, gentlemen. A few questions from my side. One follow-up on Germany. Of course, you already gave some, let's say, some indication how everything is progressing.
But how long do you expect, let's say, the negative impact will continue? I assume also Q4, how far maybe into next year we should calculate with a slight negative impact from Germany. And 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? And then on Q4 of 2017, could you give maybe some feeling on how that, let's say, the development, the growth went through the quarter? Was December, let's say, the strongest month? Okay, just some feeling on how the trend was through Q4 of 2017. And then lastly, on the one offs, slightly somewhat lower than last quarter.
You have indicated, let's say, that it would be about €65,000,000 to €65,000,000 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, little bit more than 1 month ago, it will take time. And what I said in London is that we were anticipating around 1 year of process, and I can only confirm what I have said in September, so 1 year from there.
Now on the U. S, yes, there is some wage inflation depending blue color, white color, around 1% to 3% for blue color, 2% to 4% for white cover. This is what we see today in the wage inflation. So 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 Q4. And there is a good traction on the ramp up right now in the U. S.
Having a year, we said that we need to be mindful that we're having 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. Those 2, as always, you cannot look at them as 101 as 2 because if you have less trading days, it can be had. So 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 200,000,000 to execute the whole Grow Together initiative. It's hard to give forward looking guidance, specifically on the one offs and potentially organization costs, but we will continuously focusing on strengthening the positivity. And we'll use that money when we need to execute on our Grow Together program.
Okay. Thank you. Okay. Thanks. Next to speed up.
The next question comes from Tom Sykes with Deutsche Bank. Please go ahead.
Yes, good morning everybody.
Just quickly, so on General Assembly, it looks like you're about mid 20s in revenue and probably about 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% to 6% and organically up about 1%? And given that your temp gross profit now looks like it's probably organically flat to slightly declining. Are you looking at any more slightly more substantial cost savings across the group that might occur in Q1, Q2?
And then just on On-site, could you maybe, if possible, be able to give us a clue as to how fast On-site is growing relative to the rest of the business, please?
I start maybe with
General Assembly is running
in line with the plan, and we will deliver on the investment thesis reset. It's good to see in the quarter is that General Assembly is driving the right level of growth we were looking for. So we're very pleased with the growth. We're also already having some good momentum with the cost selling with some of our other customers, which is helping some of the growth. And 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 and A will go up 5% to 6%, which includes general assembly and battery, which accounts for around 5% points, which gets you to the conclusion of the 1% organically. And on the 10% gross margin, we see what we have been seeing. So it's not a change. CCA, we explained to Nita, but the underlying pricing trend side at around that 15 bps. Some of that is in On-site, so we see modest growth because recall we are at this positive stability.
It's not in the quarter a high level of callout on the growth on the Onsites.
Yes. And on the Onsites, just to add this, yes, we have a double digit growth on On-site, and this is the best performing segment today.
Okay. And sorry, but
just I'm looking at the time, I see that there are still 2 people in the queue.
No problem. I'll catch up, Nick.
Thank
you. Yes. If you could offline
No worries. It's fine. Don't 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 and apologies to Tom for cutting him off. Sorry. It's all right. Very quickly, I've asked this question to about 8 to 9 people in the staffing industry, and I get very different responses. So some people get emotional, some people are slightly concerned.
Is there an issue at
the moment with large accounting getting the right fill rate and therefore, you're 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? And do you think there's one in the industry causing a question about large account?
Yes. I'll maybe give an answer to that. I'm happy you follow our business closely because field rate is a very important statistic for us, not only with large clients with and I think it's an opportunity for us with new technology. And this is 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. So this is, I think, one of the opportunities why I think we will be able to drive through growth.
That is This is not a new issue. Always if you look at the fill rate of the industry, and I've been a retailer, I always ask this question. And I think through technology, we do it already with people on events, we do it with the new candidate portals. So I think it's an opportunity, and it will the people who really leverage technology will be coupled with talking to the people. It's an opportunity.
And it's not a new phenomenon. I think people will probably that's why you get inconclusive answers, give you many stories, but it's a huge opportunity for us.
Okay. I'm conscious of time, so I'll
say thank you very much.
Thank you.
The last question comes from the line of Marco Stitmata with Societe, Continental Bank. Please go ahead.
Yes, thank you. Hello. I'll just ask a quick one. Are you sticking to your €200,000,000 one offs in total that you were talking about on the Capital Market Day last year? So is this still valid, the total restructuring charges of €200,000,000 And then on the Capital Market Day 2018, you also mentioned the possibility of 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? Thanks.
Yes. First, yes, the €200,000,000 on the reorganization restructuring costs would go together for the coming years we keep. So there's no change in the guidance. Where we are happy with the quarter, and that's better than the investor's seminar in London, is that we've done a very good job of driving the productivity while the revenue slows. I think this is why we have a little bit more positive earnings than what we highlighted there.
So people have done a very strong job on the cost discipline. And secondly, the growth together 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 Grow Together, which is also positive. So 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 Grow Together 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'll meet some of you during the roadshow. And if you have still open questions, don't hesitate to reach out to Nick offline. Happy to answer your questions.
Yes. So thanks, everyone, for joining us. The Q4 and full year results will be on the 28th February. We'll see some of you before then, but if not, have a very good Q4. We'll speak to you in the new year.
Thank you.
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