Ladies and gentlemen, good morning. Welcome to the Q1 Results 2018 Analyst Conference Call. I'm Irruna, the Cor's call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. After the presentation, there will be 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. Lende Haas, CEO and Mr. Hans Perfon Amstahl, CFO of the Adecco Group.
Please go ahead, gentlemen.
Good morning, and welcome to the Adecco Group's Q1 2018 results conference call. To present to you today, I'm joined by Alain de Haas, Group's CEO and Hans Bloes van Amstel, Group's CFO. Before we start, please take a look at the disclaimer regarding forward looking statements
in this presentation.
Let me give you a quick summary of today's agenda. Alain will first briefly present the highlights of the quarter. Hans will take over to review the financial performance and comment on the outlook. Alain will then discuss our strategic and operational progress and initiatives. We'll then open the lines for your questions.
And with that, Alain,
I hand over to you. Thank you, Nick, and good morning, ladies and gentlemen. Welcome to our Q1 2018 results investor call. I will immediately start with a slide on the key highlights. In the Q1, our positive revenue momentum has continued with growth of 6% organically and trading days adjusted.
To be noted is that in France, the growth improved to 10%, and we closed the gap to the market as we committed to last year. Also, another very solid performance in permanent recruitment with 18% growth. Gross margin was 18.1%, down 60 basis points organically, impacted by several non underlying items such as the timing of bank holidays, the higher sickness rates and strikes in Germany and the lower CECL subsidies in France. EBITA margin, excluding 1 offs, was 3.8%, down 100 basis points due to the lower gross margin, as I just mentioned it, but also investments in sales and recruiters and strategic investments in digital and IT, which had a 25 basis point impact. It is important to note that the margin trend will improve from the Q2 as bank holiday timing is favorable, the year on year impact of investments reduces and or productivity improves.
We are on the right track with our investments in the innovation and the transformation agenda. We made good progress with Grow Together, which is transforming the way we interact with our customers to create more value at
a lower cost to serve
and grow together will deliver the first €50,000,000 productivity savings in 2018. And we strengthened our solutions portfolio with the acquisitions of General Assembly 2 weeks ago and Vettery in February. And with this, I hand over to Hans for more insight on the financial performance.
Thanks, Helene. We will now discuss the financial performance in more detail, starting with our revenue growth. The underlying growth continued at 6%. We're pleased with the strong growth in France. We closed the gap to the market and improved the mix.
And in Italy and Spain, we saw good growth momentum. In North America General Staffing, we're seeing the first improvements coming from the new segmentation approach. On the other hand, we had slower growth in the UK following the strong double digit growth in Q1 of last year. Professional staffing in North America was stable and the U. K.
Results were down. The Brexit uncertainty remains. In Germany, our general staffing results are impacted by the merger of our Adecco and Tuya brands. The integration will strengthen our business to become a strong number 2. It is impacting the performance in the short term.
Our German professional staffing and permanent recruiting continued to perform well. And in Switzerland, we also delivered solid growth into the quarter. LSA's market share growth continues to be strong. Revenue is down, reflecting the countercyclical nature of the career transition business. Turning to the EBITDA margin, down 100 basis points in total, which included many elements.
So it's important we go through all the details. 1st, we had a negative 35 basis points impact from the timing of bank holidays and the unusual level of sickness and strikes in the Q1. The CCA reduction had a 15 basis point impact. Pricing and mix had a negative 10 basis point impact. This leaves a 40 basis point reduction in the EBITDA margin coming from higher cost.
This is explained by: 1st, we continue to make the right investments in Grow Together IT Technology and the Digital Ventures, which had a 25 basis point impact in Q1. This is in line with our guidance. The strategic investments will start to improve the profitability in the second half of this year. We will deliver the first go together benefits in the second half. The remainder 15 basis point margin reduction comes from lower productivity in the Q1.
Looking at the productivity in the Q1, we had a challenging comparison base. Recall, in Q1 of 2017, we delivered 6% growth with only a 1% increase in headcount. Needless to say, we expect to improve the productivity. Driving strong underlying operating leverage is a key pillar of our performance agenda. Therefore, we remain very focused on driving the productivity to get the right balance between the performance and the transform agenda.
Remember that the investments we're making today will drive productivity starting in the second half of this year. On the short term, implementing new systems and digital solutions has impacted our productivity in Q1. The investment will deliver higher profitability in the second half of twenty eighteen. Looking at the profitability at the country level. We're pleased with the underlying performance in France.
The headcount investments delivered strong growth with a good gross margin. The EBITDA margin was impacted by the CCA and the investments in IT and new digital solutions. In North America, UK General Staffing, we are building the foundation for profitable growth. This requires investments in capabilities and new front end client phasing tools to support the segmentation strategy. This impacted the margin into the quarter.
The German integration started. Half the margin decline comes from the less favorable bank holidays into the Q1. The balance comes from the impact of higher sickness rates and strikes, lower growth and double running costs during the integration. As you have seen, we took a €19,000,000 restructuring charge, mostly related to the German integration. This reflects the consolidation of the branch network and moving activities into the shared service center.
Both will improve our profitability going forward. Nanologues and Nordics was impacted by the bank holidays and client mix. The mix will improve in the quarters to come. We delivered strong profitable growth in Italy and Spain. Japan had a good quarter of profitable growth while we're investing in new IT technology.
Let's now look at gross margin. Reported gross margin is down 70 basis points. Acquisitions and divestitures had a positive impact of 10 basis points. Currency had a negative 20 basis point impact. This leaves a 60 basis point organic decline.
Permanent recruiting had a 20 basis point positive impact. This is offset by the lower LSH mix of 20 basis points. This means a 60 basis point reduction in temporary staffing gross margin. 25 basis points is due to less favorable timings of bank holidays, which had a significant impact in Germany and other regions where we operate the bench model. 10 basis points is due to higher sickness rates in the Benelux in Germany and the strikes in Germany.
While this was in line with market, the impact was unusually high in Q1. CCA had a negative 15 basis points impact. So altogether, this leaves a net 10 basis points from pricing and mix. In summary, the underlying gross margin trend actually improved slightly. On SG and A, it's good to recap the key message.
SG and A increased 8% organically year on year. Half the increase comes from the 4% headcount increase to support the growth. 2% of the 8% increase is explained by the strategic investments we're making in IT Technology, Grow Together and the Digital Agenda. The balance comes from wage rates inflation, higher bonus payments related to our permanent recruiting results and costs associated to the GDPR initiative. Cash flow.
1st quarter cash flow conversion was 75%. DSO were 53 days versus 51 days last year. The Easter timing and the growth mix impacted the average receivables. Timings of tax payments also impacted the Q1 cash flow. Turning to the outlook.
The exit rate is 5% to 6%. Timing of bank holidays will have a positive impact of around 15 basis points in Q2 versus last year, and we're on track to deliver the €50,000,000 Grow Together benefits in the second half of this year. Back to Alain to talk about our strategic and operational progress.
Thank you, Hans. Indeed, let's now look at our strategic and operational progress during Q1. First, an update on Grow Together, which is at the heart of our transformation agenda. We made good progress in the quarter with the rollout of our new integrated front office tools. During the Q1, we continued to deploy the InFO or the integrated front office platform, which integrates seamlessly with new customer facing portals.
In France, our candidate mobile application is now used by onethree of our associates, and we expect half to be using it by year end. So more online interactions and more efficient sales and recruiting processes will help drive consultant productivity and also improve the customer experience, which we measure with the Net Promoter Score. Another example is middle and back office process optimization. The time capture to cash collection process is being fully digitized. In the Netherlands, for example, this process will be completed by the end of 2018.
This increases efficiency and reduces errors, which should also help DSO. During the quarter, we also continued building our portfolio of digital solutions with 2 acquisitions: Vettery, about which we talked at our Q4 results and General Assembly, which I would like to present to you now. The world in which we live today is shaped by an acceleration of technological rate change, impacted by megatrends such as automation, artificial intelligence and digitalization. It is already impacting our clients who tell us that there is not enough supply of talent with the right digital skills. And disruption will also mean that at a global level, as many as 375,000,000 workers will need to reskill and transition to new roles by 2,030.
General Assembly was founded in 2011 to solve this skills gap, providing training in high demand digital skills like coding, data science, design and marketing. General assembly or GA is no ordinary education provider. It is specifically focused on bridging the gap between education and employment. GA works with thousands of hiring partners to develop courses that deliver the skill they need most. The result is excellent, excellent outcomes for both students and for very satisfied enterprise clients with a high NPS.
NGA has been highly successful. In 2017, the company achieved revenues of US100 $1,000,000 with 30% compound growth over 3 years, and another strong year of growth is anticipated in 2018. GA Solution panned both B2C and B2B segments, delivering training at its 20 global campuses, at enterprise client size, online and also via a blended model. Its origins are in B2C, but the strongest growth potential is in B2B, where GA has developed highly innovative solution for enterprises. For example, helping them to source and train new talent with its Talent Pipeline as a Service model and also to assess and upskill existing employees.
GA's focus on education to employment makes it a strong strategic fit with the Adecco Group. There is strong demand from our clients for upskilling and reskilling solutions, something we discussed at the Capital Market Days last year. And our clients are actively looking for partners to help overcome talent scarcity. In terms of specific revenue synergies, GE or GA will clearly enhance the value proposition of Liaqu Harrison. Carrier transition is evolving into workforce transformation.
Working with general assembly, LHH will have a unique value proposition. In Professional Staffing and Solutions, our brands will have access to high demand talent with potential to leverage general assembly's talent pipeline as a service model to create pools of highly skilled candidates to be deployed with clients. The General Assembly team also recognized the value to be part of the Adecco Group. GA will leverage our more than 100,000 enterprise client relationships, and we have already identified many opportunities. Access to our global infrastructure, data and comprehensive labor market knowledge will also further accelerate GA's development.
Finally, the acquisition of General Assembly fits well with all criteria for merger and acquisition. General Assembly operates in a fast growing market with attractive profitability and is adjacent to the services we currently offer. It is a natural fit with our existing solutions and allow us to leverage multiple workforce megatrends. It allows for the realization of significant revenue synergies. And with a very strong growth and margin potential, we expect the acquisition to be EVA positive by 2021 with very significant further value in the subsequent years.
Coming now to the concluding messages. In Q1, we saw a continuation of the positive revenue trends of 2017, which also continues into Q2 with growth of 5%, 6% in March April organically and adjusted for trading days. We closed the gap to the market in our largest country, France, and we have a clear strategy to improve the performance in general staffing in the U. S. And Germany, where we are making steady progress.
We continue to invest in the transformation and digitalization of the group. In our Transform Agenda, Grow Together is gaining momentum on its way to deliver €50,000,000 productivity savings this year and €250,000,000 in 2020. And our innovate agenda was strengthened with the acquisition of General Assembly, which will be a key differentiator for the Adeco Group. In the last 12 months, we have established businesses in a number of high growth, high value adjacent markets, including online staffing with Adia and this co created with Infosys in the freelance business with YOS co created with Microsoft but also in the digital permanent recruitment with Vetri and now in the upskilling and rescaling with general assembly. With these ventures, we are aiming to build high margin businesses of scale within the group to complement our core operations.
On the perform side, we expect the margin trend to improve in Q2 and the second half as one offs reduce and we start to get the productivity payback from our strategic investments. To finish, I would like to thank our more than 34,000 worldwide colleagues for their commitment and engagement. And I thank you for your presence, your attention. And now I would like to open the line for the questions.
The first question comes from Paul Sullivan from Barclays. Please go ahead, sir.
Yes. Good morning, everybody. Just a couple of related questions on margin trends. It looks like I mean, SG and A was clearly higher than expected in the Q1. So what's the conclusion from that?
Are you running a little bit behind schedule in terms of the cost and benefits from the various different programs? And how much visibility do you have on second half improvement? And maybe trying to look at that slightly differently, in terms of that organic growth rate in SG and A going forward, how should we expect that 8% in Q1 to evolve into Q2 and the second half? And then just finally to wrap that all up and to cut to the chase, I mean, the market is expecting broadly flat adjusted operating profit and margins for the full year on the base of mid single digit organic revenue growth. Do you still feel that is viable?
Thank you. Thanks.
I'll there's a lot into the question, so let me give it in different the slices. 1st, give you some more color on Q1, then give you where we see it going into the second half and how we will position Q2. I think, first, we're in the midst of a transformation, and what we are continuing to do is make the right investments to strengthen the future of the business. We're making good investments in IT, Grow Together and the Digital Ventures, and we're really excited about that. What we have been doing well in 2017 is offsetting the investments with operating leverage, and that continues to be our goal.
It is true that we did not do that in Q1. And I think there are a couple of reasons. 1, the comparison base is strong. We delivered very high level of productivity in Q1 of last year, 6% revenue growth with 1% FTE growth. We're implementing new systems and new solutions for our people in the branches.
That has impacted the productivity as well. And we saw also Germany, where we're in the midst of the integration. So there are a couple of things into the quarters. As I said in my introduction, we expect to do better. Our goal is to improve the productivity and the margin.
So there are 2 things which are important in that. 1, if we look at the second half, the good news is that the investments we're making will deliver the returns in the second half. The first Grow Together benefits will be delivered in the second half. And what that means, there will be €50,000,000 of true productivity coming through the bottom line into the second half of the next year, and that will come on top of the normal productivity and operating leverage. So we will expect the margin to improve into the second half.
So in Q2, we want to do better because I think Q1 had also a lot of one offs. Now we're still in the investment phase in Q222. We will expect SG and A to be up a little less than that plus 8%. But I think the key message is the comparison base. We this is the Q1, indeed, where the operating leverage was not through the level of 'seventeen.
That, we come back. But I think the real message is in the second half, go together with will deliver the benefits, and we will come back to a normal level of productivity.
And you sort of alluded to second half margins up year on year. Do we infer from that that the sort of full year expectation of flat on the basis of current revenue trends is still feasible?
I cannot give you a margin outlook given the nature of our business because there's a lot going on. I think what I can give you as hard line is that we will deliver €50,000,000 which equates in the second half to 40 basis points of true productivity on top of the normal operating leverage. There are other elements into the mix as well. There's CCA. The pricing environment is a little better in Q1, but that's where I would let you make the outlook.
But I think the solid line is that what we did not do in Q1, we will do into the second half plus to grow together benefits.
The next question comes from Tom Fagg from Deutsche Bank. Please go ahead, sir.
Yes, good morning, everybody. Excuse my bad cold. But you mentioned the other elements of the SG and A increase in Q1 building up to the 8%. And I just wondered whether you could go through some of those, please, because obviously, as you mentioned, your FTEs were up by 4%, but the SG and A up by 8%. You mentioned GDPR.
Could you maybe just break down what was what staff costs were doing versus non staff costs, please? And then I've got some questions on the on-site business. Should be annualizing, I think, a lot of the On-site growth. So that was clearly very fast in Q1 last year. And what I don't quite understand is that your branch network was said to be up 1% in Q1 and then up 4% in Q sorry, 1% in Q4 and then up 4% in Q1.
So was there any delayed increase in SG and A in taking on some of those on-site clients at all, which would affect your conversion? And when I look at that on-site business in totality, is it above or below group level profitability at the moment, please?
Can I maybe start with the first question? So SG and A was up 8%. I should say half of that 4% was the headcount increase. 2 out of the 8 were the strategic investments, which was in line with the guidance, which splits between Grow Together, IT and the Digital Ventures. The remaining 2% was wage rates inflation, the bonus payments for perm business, which was up 18% and some initiatives like the GDPR, I think the wage rates inflation was around a good 1%.
So the personnel costs without all the digging would be up 5% behind the 4%.
Okay. Thank you.
Now on your question regarding the On-site business because there were a couple of questions. So first of all, we had a strong performance of the On-site, 31% growth in the Q1. And this growth level is coming from, let's say, 3 growth drivers: 1st, migration second, increase of share of wallet and third, winning new clients. What you see in our figure regarding the branch network is that we consider a new on-site as also a new let's say, a new location. So that's what you see in these figures.
And that's why it is difficult to read exactly what is coming from outside, what is coming from the branch network reduction and so on. Now regarding the second part of your question regarding the profitability, the on-site margin is above the average gross margin we have in the large. So that's why it is so interesting for us to migrate, But it is below the group average.
Okay. And if you look at your conversion and whether there are any setup costs and how the profitability is in the first because there's obviously been quite a substantial amount of growth. I mean, I think you're up 20% in Q1 last year. So you must be up roughly 50% in the percent in the On-site business over the last 2 years in Q1. And that doesn't seem to have had a positive impact on your profitability or at least it's difficult for us to disaggregate that from everything else that's going on.
And it's the major driver for your sales growth and so one of them. And so therefore, is that generating the profitability that is expected? Or are there maybe one off costs in setting up the on-site and that on-site growth that are themselves going to fall away in the second half of this year, please?
It's good because I think your question is driven by because of where we are on our costs. That's not coming from the on-site business. The on-site business continues to drive back in line with expectation. I think why the productivity was a little less than we normally would expect, so the 3 things we said with a very tough comparison base in Q1. We are implementing new front end solutions in our branches as we speak as part of the Transform agenda.
That impacted our productivity. Germany, the integration of AdeccoTUYA. In the U. S, we're building capabilities on the segmentation. So those are more where between the normal conversion operating leverage we have, we are below where we want to expect.
That's we're coming back to in Q2. So for the second half, we will come back to the normal level of conversion productivity plus the grow together €50,000,000 That was the noise into the quarter. It was not related to the OpEx.
Okay. Perfect. And just one final question on FETTERI. What are the revenue and profit expectations for full year 2018, please?
At this stage, we don't have we don't give a precise guidance. As you know, we have now started to expand Victory 1st in the U. S. They were first in 9 cities in the U. S.
We are expanding them. We will also start in UK. So we are still at an early phase to provide guidance on this.
So would you be able to say what annualized run rate of revenue it actually generates? I mean, it's €80,000,000 that you spent on it. So just wondering what kind of revenues that actually generates.
I think we will, going forward over time, provide more disclosure to all our digital ventures, I think, where you can be reassured on that we as we have a call with them. We're on track to the targets we need to deliver to deliver the returns out of that investment. So February is the first thing we already did and the profitability, which they were very happy with, we integrated finance and the legal, which gives them immediate savings. So on the integration, we leave them alone on the front end. But on the back end, we're making already the integration.
That is giving us savings already. And in the call, see the management team thanked us for doing it. So that's good. So they're pleased with where we're integrating and where they can go on. And if I look at that growth booklet, it's in line with the economics we've set when we bought the business to deliver the targets we committed to.
Okay, great. Thank you very much, Antig.
Thank you, Scott.
The next question comes from Ale Oberhuber from MainFirst. Please go ahead.
Good morning, Ale, Hans and Nick.
Good morning, Ale.
Two questions from my side. First is regarding the investments. I mean, you mentioned all these investments. Is it also because the market is getting tougher, I. E, do you sense some price pressure in some of the markets?
And the second question is more housekeeping is regarding the tax rate that we could expect for this year and maybe also what we could expect from the DSO for the year, given that it increased 53% in Q1?
Okay. Now regarding the price pressure, I would say that in Q1, we saw the same pricing trends with large clients as in the previous quarters. As you know, this market remains a competitive market. But yes, there was a slightly improved pricing environment in the small and medium segment. You have heard the figures Hans quoted.
They are indeed, let's say, there is a slight improvement versus the previous quarter. But I would say that it is too early to call this a trend. And we see this price pressure release, especially in a number of countries where you have already a talent scarcity.
Okay.
And what we also see from the investments, which is good, that's why we're very confident on the benefits we will deliver in the second half. We get good traction on the tools we're holding out. An example, have what we're doing in the digital space with the candidates in France at the moment. It's not only getting us higher productivity, but also from the candidate engagements, the matching. We can, what I always say, fill the order faster and better with these tools, which should give us good growth and is also good for long term pricing.
So that's good. On your point on the tax rate, in the quarter, it came down. There were some discrete events. We get the benefits from the U. S.
Tax rate. For the fiscal year, we expect the tax rate of around 27%. DSO was slightly up into the quarter. Timing's played a little bit. What's important for us is three things.
I think there's always pressure from large customers. And with our continued focus on EVA in the branches, we'll make sure we're very disciplined on it because large customers. But what's very important is the quality of the receivables. So sometimes, it's one day up if you have large customers because the quality of the receivable is the most important thing. We have no overduce have we really checked that.
So it was a little higher, but I want you to be reassured that the oversight of the quality of the receivable remains. Q1 of last year was also a little bit low because it ranges between 51, 52, 53 days. So it's hard to give a precise answer, but Q1 was a little bit impacted by Easter. So we hope to drive that down.
Thank you very much.
You're welcome, Anna.
The next question comes from Hans Pueger from Kepler Cheuvreux. Please go ahead.
Yes. Good morning, gentlemen. One question from my side left. Looking at the cost savings, the first measure you have been taking in Q1, you already indicated a big part related to Germany. But could you give somewhat more detail where, let's say, those savings or let's say, those investments and restructuring charges have been spent on?
So what kind of savings are you also then looking for going forward? Is it mainly coming from purely from back office or marketing? Could you give some indication, first of all, where you spending on and where do you, let's say, expect it will come from on the savings side?
Yes. So in Germany, we're doing 2 things. We are integrating the branch network. We have Adecco and Tuya. So we're eliminating some of the overlap.
And with that, we can also put the segmentation strategy better to work. So that should give us growth going forward. The second thing we're doing is with the integration of Tuya, we're also moving activities into our shared service center of Adecco. Tuya was run relatively stand alone and now is getting integrated at the front and the back end. Therefore, we had a relatively large with this moisture rights restructuring cost.
That will have a payout of around 24 months. Germany is a little bit more expensive. Where will we get the savings? 1st, from the integration of the branch offices, the more effective and efficient branch network, and we'll get savings from the shared service center. But at the moment, we have a little bit double cost because while we're building up the capabilities in the shared service centers, we have people.
That will fall off in Q3. So we're in the midst of this integration, so we're building up the capabilities, and we will let that go. So Q3, the margin in Germany will improve. And I don't know whether you want to give some color on the growth or how we integrate. Decaturia, it strengthens the business because we now go to market with 1 connected commercial strategy under the app, a deck or two of them.
Those were 2 businesses, and now it's 1 business also at the front end.
Since the 1st May, we are operationally merged. So there is always a legal process in Germany where you have to agree with the workers' council and the unions about this merge process. This has been done. And now technically, operationally, since 1 May, we are working and acting as one company, Adeco in Germany. And with all what we are doing, putting the segmentation in place and merging the number 6 and the number 7, we are building the number 2 on the German market.
Yes. Are those costs mainly now related to people or also, let's say, to lease write down on lease cost and on the brand name? Or how should I see that?
No impact on the brand name. It's majority is people related costs. And Rico, when you do this, it's not always you want to hear this, but when you make such a transformation, you will really strengthen the business. But we need to also build new capabilities. So the change is a little bit more than a net change because you are strengthening the commercial ability, you move things into the shared service center.
But we will deliver better margin in Germany in Q3 because the first hard benefits from the cost savings will come. It's predominantly people related costs. I think it's good, while we're on Germany, to reemphasize that our Professional business is doing well. And also in permanent recruiting, we're doing well. So this is really zoomed to and echo to you.
The balance of our business in Germany is delivering solid results.
And then also going forward, we should mainly, let's say, assume that the savings will be people related? Yes.
Yes. Yes.
Yes, better productivity and conversion rates were coming from Germany. And you see that in the margin, we need to get the margin back.
The next question comes from Konrad Zomer from ABN AMRO. Please go ahead, sir.
Hi, good morning. Two questions, please. The first one on the targeted €50,000,000 of efficiency savings for the second half of this year. Can you share with us how we are going to see those efficiencies coming through? I mean, how specific will you be in telling us where you achieve these savings?
And my second question is on the U. S. You mentioned in the press release that the growth in IT recruitment in the U. S. Was negatively impacted by market developments.
Can you share with us if that's particularly related to the West Coast? Or is that a nationwide decline?
I can perhaps start with the U. S. But yes, what you see in the U. S. And in IT is that you have this shift of technology and sometimes both shift of technology and shift of geography.
One of the typical example is when you move from data center on premise to cloud, you need other type of capabilities. So our customers are reducing their capabilities in typical data center expert, and they are going to cloud. The question is where do they go to cloud, not per se in the U. S. This is a typical example of technological inroad, and that's what we see in the U.
S. It's not really a question of West Coast or East Coast. It is really a change in technology and thus in the needs of profile of talent.
Okay. On delivering, Hamzah, the targeted €50,000,000 I think the key line to watch is that the SG and A as a percent of sales is coming down and that the conversion ratio goes up beyond the normal operating leverage so that you deliver €50,000,000 real savings on top of normal operating leverage. That, I think, is the real line we will make very clear so that you see the results from the €50,000,000 coming to the bottom line. Now what do we do internally to make sure we realize that? Needless to say, we have a very targeted headcount tracking by function, by country with Grow Together with a more customer focus and candidate focus metrics, we're driving the productivity through the new tools we're bringing to the business.
And with digitalization, we're bringing new front office solutions, we're setting clear productivity targets and are putting that into people's budgets. So when we get new tools for digital timesheets, we know how much productivity we get, and we adjust the headcount. So we internally track it at that level of specificity by function, by country, and it also becoming more customer centric towards driving down the indirect spend, any function which is not customer facing that, that gets optimized. But for you, the outcome should be that you see €50,000,000 real savings on top of normal operating leverage, and we'll make sure that we report that, that you can really see we deliver better profitability with it.
Okay. Thank you very much.
Thank you, Van Gogh.
The next question comes from George Gregory from Exane. Please go ahead, sir.
Good morning. Could we possibly go back to the Slide 8, where you showed the EBITA margin evolution for the quarter? And you helpfully identified the various buckets. Could we just use that as a process of discussion for the duration of this year? Obviously, the non underlying effects, you've explained on the sickness and bank holidays, and we have guidance for the remainder of the year.
The 25 basis points of underlying, which is made up of CICE and base effects. How would you expect that to evolve for the duration of the year? And similarly, on the final bucket, the minus 15 bps, which you attribute to reduce productivity, how should we think about that for the duration of the year, please? So really, it's the minus 25 bps organic underlying and the minus 15 bps, please?
Yes. Maybe I'll give some more color already for the Q2. The bank holidays will be favorable in the Q2 by 15 basis points. So that will be a positive. CCA, we expect to continue at that same level of around 15 basis points.
What's not in the areas, but I want to just be disclosed. Currency, we expect to continue also at the similar level of Q1 and M and A. So and pricing and mix, our goal is to hope that we can keep that momentum we're getting into Q1, and that would take the gross margin for Q slowdown by around 20 basis points all inclusive. If we look at SG and A, two things. In Q3, 'four, as we said, we get back to normal productivity.
The Grow Together savings will come on top. In Q2, we still have the effect of a very lean base. We had very strong productivity also in Q2 of 2017. We're still in that investment base on the strategic initiatives. So it's fair to assume SG and A will be slightly below the Q1 level organically.
But we're still in Q2 a little bit in the investment base. And then in Q3, Q4, we will really come back to the productivity. So that minus 15 points should be a plus of growth together and normal operating leverage. And we'll show that with that transparency.
So just going back to the gross margin dynamics, the plus 10 net on M and A and FX. The M and A, is that beeline or what's the plus 10 bps on M and A?
That is factory sorry, Mullen, sorry, I apologize. That is Mullen. We bought Mullen last year, which is in the LSAs business.
Okay. And sorry, I understand the minus 25 bps, 25 bps on strategic initiatives. But the minus 15 bps, the other, would you expect that it sounds like you expect a similar headwind perhaps not quite as big in Q2. What happens to that minus 15 bps as we go into the second half? If we
go into the second half, that's become a positive again. So what you will see in the second half is that the operating leverage from the growth will be positive plus €50,000,000 of Grow Together savings.
Sorry. And on the very the final the third bucket where you had a you suffered 15 basis points in the Q1, the SG and A revenues other, that will be a positive in the second half?
Yes, because that was a little bit the outlier into the quarter is that what we have been doing in the past in the full year of 'seventeen, is the minus 25 of investments we always offset with operating leverage. That we didn't do for the reasons we discussed in Q1. Our expectation in the second half is that we will do that plus deliver the Grow Together benefits.
Very clear. Thank you.
The next question comes from Rajesh Kumar from HSBC. Please go ahead, sir.
Hi, good morning. Just on the productivity piece, could you give us some color on the difference between volume productivity and value productivity? I appreciate you're talking about revenue per head, but if you were looking at it from the lens of placements per head or number of temp plan off managed per head, how is that shaping up? And do you see any difference in the rate of wage inflation your temps are getting versus your staff are getting? And the second one is when you talk about 6% organic growth, that's a net figure of churn.
Was there any difference in the growth churn levels or the duration of contract stem tab in the quarter compared to previous years?
So on your question regarding the productivity, for sure, we are measuring both and we are looking at both because as we are in different businesses, we have different kind of metrics to measure this productivity. If you take the biggest business is the temporary staffing, yes, for sure, we look at the gross profit per FTE, but for sure, we look also at the number of 10s per FTE to make sure we don't take into account, especially in some countries where you have some inflation, that we don't fool ourselves in the target due to the inflation. So we look really at the 10ths per FTE. In the perm business, it will be different. In the perm business, it will be more on the gross profit per FTE.
So I think it gives you a color how we are doing it and how we exclude inflation from all metrics. Now to your second question,
with the investments from France are delivering us good growth, good growth momentum in Southern Europe. Germany, we're going a little bit through that period because of the integration. So we didn't see anything changing in that perspective. As a Lance said on the productivity, we have very targeted targets, which correct for inflation, but also take into account the investments we make between small, the earlier question, the long sides that goes to that level of granularity to make sure you really set the targeted productivity at the level you can manage the business.
Thank you. Appreciate that. On the first answer, I understand the process that you do look at Tempur head and gross profit per head for the perm side. The question was, do you see any meaningful differences in that productivity measure compared to the nominal measures you discussed in the slides earlier?
No. What we if you look at our productivity in Q1, if that's the question we saw, a very tough comparison base. We're implementing some systems which impacted our productivity in Germany, but not something our productivity in the perm business continues to be good. So it's for the reason we discussed. Thank you.
And then the second half will improve as we said.
Good. Last question.
The next question is a follow-up question from Hans Plueger from Kepler Cheuvreux. Please go ahead, sir.
Yes. Good morning, Hans Plueger. You mentioned that in H2, you will see the €50,000,000 on top of the normalized operational leverage. Could you give some feeling what you see as normalized operational leverage, let's say, with the current growth of between 5% to 6%? And you're talking about 2% to 3% OpEx growth?
Or can you give us some feeling on that?
Yes. I think I would take it back to our Investor Day, what we committed to. We in 'seventeen said we would offset the investments, which are constant at 25 basis points with operating leverage. That we haven't done in Q1. Our goal is to do that in the second half so that the investments are not impacting the margin negatively.
And then on top, to improve the margin, the Grow Together benefits will improve the margin structure by that 50 basis points. And that's all things equal because the CCH, there are all elements, but you will see a true improvement in the SG and A line.
Yes. Okay. But of course, that all depends, of course, on which level of growth you were talking about. So but give some, let's say, more or less a detailed feeling on it. Are you talking about, let's say, underlying growth in cost should be, let's say, half or less than half or more than half of, let's say, the current growth in top line, so the 5%, 6%?
Or can you give us some feeling on that because it all depends, of course, a little bit on the level of growth?
Yes. So we would see on 5% growth in operating leverage of around 20 basis points.
Okay. Thanks. Good.
The next question comes from Endy Grobler from Credit Suisse. Please go ahead, sir.
Hi, good morning. Just one for me, if I may. One off costs in the quarter were around EUR 20,000,000. I guess you've had one off costs most quarters for the past several years. I mean, what are your expectations for that line through the rest of this year and into next year, please?
Yes. Again, those you can only discuss because of regulation when you announce it like Germany, you have to go to the workers' council. If we look what we announced in the Investor Day, we said to get to the total transformation program, we read around EUR 200,000,000 euros till over the next couple of years. I think that depends a little bit how positive the economy is because if we can reorganize on growth, we could do a little better. If you get to a period where the growth is tighter, you would probably need more restructuring, but we will stay within that €200,000,000 That includes that €19,000,000 or €20,000,000 we made into the quarter.
For the year, I expect around EUR 60,000,000, which includes already that EUR 90,000,000 for Q1.
So €60,000,000 for this year and then the remainder of €100,000,000 plus next year. Is that the right way to think about it?
Yes. Sorry, I wasn't maybe €60,000,000 for this year. And then the total of what we said in the Investor Day, we stay within that amount.
Okay. Thank you very much.
With that, we'll draw the call to a close. Thank you very much, everyone, for joining and for your questions. And we look forward to seeing some of you at the roadshow. And otherwise, we look forward to speaking with the rest of you on Q2 call on 9th. Thanks very much.
Thank you very much.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.