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Hello, and welcome to the Randstad First Quarter 2018 Results Call. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I am pleased to present, CEO, Jacques van den Broek. Please go ahead with your meeting.
Yes. Good morning, everybody. Good to talk to you. I am here with Henry Schirmer and our IR team to take you through our earnings call of the first quarter of 2018. Time flies.I'll move immediately to Slide 5. We think it's a good start of the year. Good growth, 7.5%, and quite some ongoing market share gains. Our eternal star Inhouse at 17% growth, so very happy with that. Also perm, 13% growth is also a quite good start of the year and broad-based also in the U.S., 8% growth, but more about that later.It's a bit of a tough call on the quarter because there's quite some one-offs and incidentals in there. So there's EUR 8 million ForEx expense, ForEx change, which, of course, we cannot do much about. But there is one less working day. And also, there is sickness, I'll talk more about that in our German and our Dutch business. As some of you might have experienced personally, there has been a flu epidemic which hurt our business. We think, overall, these 3 elements account for a EUR 15 million to EUR 20 million less EBITA. Still, if you then look underlying, we're quite happy with the quarter. Again, the growth, 7%, 2% increase in cost base, and you might wonder if we are under-investing in the business, which we're not. You need to take apart the business investments, 5% growth in our regular business, but it adds up with the cost savings in Monster to a 2% cost base, so very much looking at that.Stable margin development, 30 basis points down, not decreasing, we think. So overall, there's good underlying leverage in the business, meaning for us that for the rest of the year, we feel quite comfortable with the guidance we gave you at our Capital Markets Day on a mid-single-digit growth. Of course, we don't know for the rest of the year, but let's take that as a guidance, and an improvement in our EBITA percentage.Very proud of our French business, again, with everything I just mentioned, having a 10% increase in EBITA percentage despite CICE and all that, very good. OC in France doing very well with high single-digit growth, very happy with that new part of our company. The Dutch business growth increasing. So yes, in that sense, a good start. A theme which will be recurring throughout the presentation is our pricing discipline. You know we've been doing that in Germany and the Netherlands and in France for quite a while. But now that we have a sizable business in Italy, we also see that -- those choices recurring regularly. So in a way, you could say we could grow faster, but we're balancing growth and profitability here.Slide 6. As I mentioned, gross margin, 80 bps, so it looks like a margin pressure, but 50% is related to Monster, Monster's gross margin, so if Monster -- and I'll spend some more time on Monster later in the presentation, but if Monster has a negative growth, which it has, it looks like margin decline in our book, but on the rest of the business, a 30% -- a 30 basis points margin decline.OpEx, a slight increase. We said a clear increase, but a slight increase. ICR, 41%. We guided for 40% to 50% throughout the year, trying to get to the higher end of the range, so 41% for this quarter, again, with the calendar effects, happy with that one, and a stable 3.8% margin.And perm, 13% growth, stable for Q4, but we think a good result, and it has a positive effect of 10 basis points on our margin.Slide 7. The regional split, growth very much driven by Europe, but also Rest of the world. Outperforms the markets such as France, Belgium, Canada, Germany and Spain, again, with the mix of profitability and growth. Inhouse, I mentioned it in my introduction, 17% growth, 18% in Q4, so stable double-digit growth, meaning that the growth in Europe is still in this segment, which is, you might say, also partly early cyclical, certainly in southern Europe.Top line growth, 7.4%, 8.7% in Q4. Comps are pretty comparable. So good there, driven by Europe, 9% versus 11%, again, calendar effects here, but pretty stable. And U.S., yes, still a stable market, but you've seen a peer of us on minus -7, so happy there. I'll shed some more color on the North American market. The rest of the world, driven by mainly Japan, 11%, so a good contributor to our total book.Slide 8, North America. So our Staffing and Inhouse business is growing, our white-collar business less so. As I mentioned, perm up 8%, so a sign of what we see in the market. It's tough to get people, so clients are hiring quickly. We get a lot of questions on, okay, North American market, economy is doing well, why don't we see more demand? Yes. We do see a growth in the blue-collar part of our business, less in the white-collar. U.S. Profs, a mixed picture, although IT growth went down from 6% to 3%. We're still happy with the positive development here. Our U.S. Profs business is actually 3 businesses. It's a solution space, similar to OC, so where we sell a service, double-digit growth, very solid. We have our mid-market, so the retail part of IT staffing. This was a suffering part for a long time, now sees growth, happy with that, but on the other hand, there's always something. Our large clients which were growing last year, a few of our bigger clients in the financial sector predominantly have toned down spending in the first part of the year. We don't know if it's structural, but anyway, that's why growth goes down slightly, but still a good improvement. On the other hand, our financial and accounting business that we call Professionals is -- although somewhat improving, still it sees negative growth. Our Canadian business is doing very well, ahead of market, a clear market leader there. And overall, an improvement in EBITA.Let's move to the Dutch business, Slide 9. Accelerating top line. Happy with that one. Again, nothing new here. Strong focus on client profitability. Our SME growth is 15%. You might remember the presentation that Dominique Hermans gave at the Capital Markets Day, where we do support our people in the sales in this market through technology tools. Well, that is paying off, so that does well. Professionals business also up. And then yes, still the EBITA margin is slightly down, so this is back to my introduction, calendar effects, but also, certainly, sickness. In the Netherlands, we carry our own cost, so at around a 4% sickness percentage, we can cover that, but we went to 6% to 7% in February and also March, so it was high, but it was also prolonged. We do see this going down into April, so it will be less of a damper on our margin development because this goes into margin. Overall pricing pressure is stable. We do see, on the one hand, some pricing power due to scarcity, still some clients that want to buy at the cheap, so then we don't go there. We are nearing the market, still have underperformance, but we're closing the gap. One point we're not so happy with, and you might have seen it, at the perm development, although perm grows in quite some market, it does not in the Netherlands, so this is something we would like to improve going forward and action plans are in place.Going to the French market. You know we've sacrificed clients here. Still, 10% growth here, very happy with that. Professionals up 13%. And perm, for the third year in a row, a very, very hefty growth. So this is really -- and we -- it's not new for many of you. This is really a business where our Tech & Touch strategy is really working, and overall, an improved result, and we're very happy with our performance in France.Germany. Germany is probably, at the moment, the toughest market to call because there's a lot of things going on. There have been strikes. Unemployment is lower -- is low in Germany, so we have seen quite some strikes, predominantly in the metal-related sector, automotive also, to get better collective labor agreements. So we've seen closures. We cannot deliver our temps when there are strikes going on.Equal treatment, so the next phase of equal pay. After 9 months in a job, candidates need to get to equal treatment, so the bill rate goes up. We have seen around a 1% damper on our growth because of people being hired after these 9 months. So that's been a new element here. And lastly, sickness. So it's a slightly different system from the Netherlands, but in Germany, everybody's on our books. And sickness hurts us, first of all, because people are not working. Second of all, because we need to pay more. And we've had historic sickness levels in Germany. Again, going down in Q -- in April now, but still, hurt us in Q1, and this goes directly into the margin. And we had 2 less working days in Germany. So all in all, underlying from a volume point of view, quite a stable situation. We still see good growth, but a lot of things going on in Germany currently.Belgium, far less to mention, it's all good. It's above market, with great returns. So my Belgian colleagues will probably say, I'm selling them short, but a very stable performance in our Belgium business. Italy. Italy, on Slide 13, yes, the biggest grower last year and still 19% growth in Q1. This is very much a business where we balance profitability and growth. We can still grow faster here, but we balance this, and you see it in our EBITA performance, up 70 basis points, doing quite well.Iberia, comprised of Spain. Spain last year touched the EUR 1 billion mark, very happy there, and they continue to grow 13% into Q1. Perm also 13%, and at an above group average return. Portugal, from 12% to 6%. This looks like a slowdown in the market, but is again very much driven by calendar effects. A large part of our Portuguese business is actually call center business where we own infrastructure and we actually operate call centers, so this calendar effect hurts us a little bit more than in our regular business.Then to other European countries. On the U.K., well, still good growth, but it doesn't transpire that much into result, unfortunately, in the U.K. Not so much related to the U.K., but we closed our Middle Eastern business in Dubai. This was managed from the U.K. because it was originally U.K. businesses, was a loss making, a small business, so we closed it this quarter. And apart from U.K., all other markets, Nordics, Switzerland, Poland, also, all show good growth.Rest of the world, I mentioned it already. Japan, double-digit growth. The Japanese market is a very scarce labor market. Our management does really well on pricing, so the growth really transpires into good returns. Australia and New Zealand, while certainly our Australian business, slightly less growth, but still doing well. And we've seen a good ramp-up in our Chinese business, from a negative growth of 10%, this is predominantly a perm business into China, up 5%. So pretty good. And Latin America, although small, still shows good profitability.Then our 2 global businesses, first of all, Randstad Sourceright, showing double-digit growth here in actually all regions, slightly less in U.S., but still a very good returns, and double-digit growth in Europe and in Asia, so happy with that business, very much a business of the future for us. Then finally, Monster. So as you know -- well, first of all, we're very happy with the fact that we have created and we are creating this big data lake of 350 million profiles. Whenever you read something about the labor market and almost wherever you go, scarcity is hitting us, and there is a change in the labor market. So candidates are not going to look for jobs, jobs need to look for candidates, so we're very happy with the fact that we are creating this big data lake. At the same time, we've got 3 areas that we want to work on with Monster. The first one is repairing the company itself. The second one is Monster as a facilitator for Randstad growth and digitization. And the third one is new business by combining the strong points of 2 businesses.On, call it, repairing Monster. On the one hand, we're investing in growth, and we're going to continue to do that and we're investing in technology and marketing. What we found is that the Monster brand is still a very strong brand. We have created and implemented a mobile app to apply, and we see 30% more traffic. And traffic, at the end of the day, leads to business in this business model.We are creating new products. For example, a premium job app where we have a very customized campaign to look for the right candidates, not just in the Monster database, but also on social media, of course, with all privacy concerns. We've got a resume service, so it's a sort of an online career coach, comparable to the business model of RiseSmart, which is now on the Monster site. This is all getting a lot of traction, but at the same time, the traditional business is still going down, as you've seen, and we've not yet converted that trend.So hard work here, very happy with the Monster for Randstad. We have now integrated Monster technology, direct linkage to the database of Monster in the U.S., in the [ yard ] business of the Netherlands, in Germany and in the U.K., so that means that thousands of Randstad consultants and recruiters now have immediate access to this data. We know they make no matches because of that. We know they've got the access to more candidates. Funny enough, we cannot really measure that at the moment, because it's way too much administration to really see what people are coming from. But looking at our growth in many markets, we do see this helps. And we are rolling this out in the second half of the year into Italy, Switzerland, Sweden and in the other Dutch businesses. And again, I mentioned the Monster new job app, 30% more traffic and apps -- applications on jobs. What we're now working on, and we already have it in the U.K. and U.S., is when you apply through Monster, you immediately also apply through Randstad. So there is a lot going on. We're not saying it's not a lot of hard work, but still, we're very happy with Monster. And then finally, new business models. We are laying low here. What I can tell you is, at our Capital Markets Day, we talked about dis-intermediating small perm. And our business model we're currently trying to set up is really aiming at this dis-intermediating small perm. It sounds a bit confidential, but we never know who's listening in, so more to follow throughout the year.So that's it for me. And then moving to Henry for the financial results, and I'll be back with you for the outlook.
Thanks, Jacques. So let me go straight to Page 18, the income statements. As Jacques mentioned, our revenue grew by 7% organically, and our gross profit grew by 4%, impacted by the Monster mix effect. We will mention Monster a couple of times despite it's relatively small size, as the nature of the business is 100% fee based.OpEx was well under control with a 2% organic increase year-over-year, mainly driven by Monster cost savings. And this 2% was below the 5% of quarter 4 by doing continuous investments in digital. EBITA margin was stable at 3.8%, while our absolute EBITA grew 7% organically. Underlying ICR adjusted for sickness and working days was around 50%, and as a result, our adjusted net income grew by 6%.And lastly, on that page, the effective tax rate for quarter 1 came in at 24.2%, and we stick to our guidance of 24% to 26% ETR for the full year, probably more towards the lower end with a cash tax rate of about 20%.On Page 19, we take us through the gross margin bridge. As you see, the gross margin is down 80 bps year-over-year, of which 50 bps is due to the mix effect of Monster and 30 bps pressure on temp margins, facing headwinds of working days, higher sickness rate, and CICE changes year-over-year. However, underlying, we see a pretty stable price environment.We go straight to Page 20, the OpEx chart. You can see here, we have tightened cost control as OpEx was virtually flat through quarter 4 and just up 2% year-over-year. We faced ForEx tailwinds both year-over-year and sequentially, while investment in growth and digital were partially offset by our cost savings program. But we continue our balanced approach between doing the right investment in future growth and seeing the company as is.Then straight to net debt on Page 21. Net debt quarter 1 arrived at EUR 1.059 billion, down from EUR 1.129 billion last year. The leverage ratio was 0.9, down from 1.1. As you know, return on invested capital is a strong focus area for Randstad, rising to 17.6%. And as we shared with you at our quarter 4 results, we have a strong focus on organic growth, combined with selective M&A. We aim to further improve the ROIC of the acquisitions done in '16 and '17, which is progressing well so far.DSO was up to 53.8, largely impacted by the unfavorable combination of closing the quarter on the weekend and timings of Easter. Also, we faced the impact of unfavorable timings of payments, partially related to tax. And finally, there were ongoing adverse mix effects due to fast growth in high DSO countries, mainly in southern Europe.Please be reminded here that our quarter 2 will be impacted by a regular dividend payment, followed by the special dividend payment on the 27th of September.And then straight into the free cash flow chart on Page 22. Our free cash flow, I'm sure you've seen it already, was impacted by timings of payments around Easter worth about EUR 80 million, of about EUR 50 million is based on working capital and EUR 30 million is due to time differences in tax. The remainder of these are offset by an additional EUR 15 million absolute EBITA.Please, let me reiterate here that we will be very disciplined in all areas driving cash, as we confirm our full year 2018 outlook of an increase in free cash flow versus 2017. Jacques, back to you.
Yes. Thank you, Henry. So to bring us to the outlook, early days, but -- so we have pretty stable growth throughout Q1, and our volumes show people at work in early April, indicates a continuation of the Q1 growth rate, although there will be an adverse 2.9% comparison into Q2, mainly into the back end of Q2. In June last year, we grew quite high.Gross margin, broadly stable sequentially, and a moderate increase in underlying operating expenses, investing where we think we need to facilitate growth, but still, below the growth level, of course.And contrary to Q1, there will be a positive 0.4 working day impact in Q2, and also Q3 and Q4 will have a more favorable working day. Again, for the full year, we maintain the outlook of a further EBITA progression, assuming a mid-single-digit growth throughout the year, as we stated at our Capital Markets Day, and our ICR for the full year will be in between 40% to 50%, at the higher end of this range.And with that, we want to give over to you for questions and answers.
[Operator Instructions] And we have our first question from the line of Bilal Aziz from UBS.
Just 2 quick questions from me, please. And can you perhaps help us understand the building blocks of the gross margin going into the second quarter, particularly around the temp gross margin, given their potential working day impacts and with respect to price mix as well? And finally, tied to that, your latest expectations for how Monster evolves, both from a gross margin and EBITA level perspective going forward. And secondly, on wage inflation, just broadly, a bit of a mixed sort of bag in terms of expectations coming out from some of your competitors. What are you seeing in some of your key markets right now?
Yes. Well, nothing to add to what we just stated on both gross margin development into Q2 and Monster. It's not like we give you the quotes on the last week, and then this week it's slightly different. So we do see stable margin development, so we said 30 bps down, might be some tailwinds from working days, absolutely, but stable underlying. And Monster is what I just explained, so no new developments here since the last 2 weeks. On wage inflation, yes, we get a lot of questions there. We do see wage inflation in the U.S. around 1% to 2%. In Europe, not yet massively. We do see in some pockets really the jobs which are high in demand, so in the technical part, definitely. But yes, as you might know, still, a lot of wages in Europe are driven by collective labor agreements, hence the strikes, for example, in Germany. There will be some results probably going forward, but we don't think this will massively improve our growth. It always comes through very late in the game and very, how do you call it, general.
Bilal, if I may, to give you a bit more color on the gross margins. So most components will remain stable. Expect that the changes would be sickness, working day, and that's a tailwind. And then there was some tailwind from M&A in Q1, and that will be gone in Q2.
The next question comes from the line of Paul Sullivan from Barclays.
Just a couple from me. Firstly, the restructuring charges and integration costs you took, what is your expectation for the second quarter and second half of the year? Should we assume more of the same? And are they really truly exceptional? Because we are -- we saw restructuring charges all the way through last year relating to Monster. It looks like we could be seeing them again this year. So that's the first question. And then just secondly, your -- have you got any further thoughts on or any more information on how you feel CICE will change going through next year? And whether you could update us on the tax implications and the impact from the tax rate next year from CICE?
Yes. Paul, let me do the restructuring, so that will gradually come down throughout the year. Yes, there are real restructurings in below the line. And they are also significantly lower than previous years related to, of course, the M&A activity, which is really less.
On CICE, yes, there's a lot of talk. We don't think it's really worthwhile to elaborate on it if we don't have real plans yet. It does feel like there's going to be a change this year, but as you know, Macron is visiting the United States currently, so he's not working on CICE. And as soon we know, we'll fill you in, and also with the tax consequences.
And the next question comes from the line of Konrad Zomer from ABN AMRO.
My first question is on Monster. Q4 saw a very small operating profit for the first quarter since you acquired it. Can you tell us what the operating loss was in the first quarter, please? And also, do you think that Monster is on track to achieve an operating profit for the full year 2018? And my second question is on France. Can you tell us what the underlying organic growth rate of your French business was, excluding the OC business, which obviously did very well?
Yes. Paul, I'll do the French one. So actually, our French business is growing faster than the OC business. So the 10%, OC is high single-digit and then 10% for the whole portfolio. On Monster, in general, yes, we had a small profit in Q4. We also mentioned that we want to continue to invest. So Q1 saw a loss and is going to be -- well, we're not going to stop investing because we think that's the only way to, first of all, improve this business, and second of all, to also improve and also use the capability of Monster for Randstad. So there's a lot of investments in mobile, in combining databases and in marketing. We probably could arrive at a breakeven, but if then we should stop investing, we're not going to do that, so the development of the top line is going to decide for the rest of the year the actual underlying result. But we're not ruling out, this might be, again, a small loss. But then on the back of investments and not so much the business in itself not being in control.
But can you tell us how big the operating loss was in the first quarter? I mean, was it like a few million euros? Was it more than EUR 10 million?
Konrad, we can help you a bit. So if you look at global businesses, you see an EBITA swing of EUR 4 million year-on-year, which is, to a large degree, Monster. And we said last year Q1, Monster did a small loss, so a very small figure of last year versus the EUR 4 million change.
Okay. And then one other small question. Can you indicate to us what proportion of your U.S. Professionals business of your revenues you generate with large financial institutions?
Yes. Well, it's an important part, but it's not like more than half or something. It's -- I don't know, something between 20% to 30% probably -- sorry?
Yes, I wanted to say, maybe it's better too to check also, Konrad, and get back to you, all of you, and give you a broad range for that.
The next question comes from the line of Marc Zwartsenburg from ING.
I just want to come back on the gross margin again. You mentioned that you had the sickness rate and the working day impacts that should become a tailwind, but then, the M&A will drop out, but sequentially it doesn't really matter. So is the guidance then on the gross margin for the second quarter a little bit cautious given that mix effect should...[Technical Difficulty]
[Operator Instructions]
[Audio Gap]Through Inhouse, you get a mix effect still going forward. So it's tough to call. If you think it's cautious, then yes. There are some tailwinds here from a calendar effect and from a sickness effect, absolutely.
And then the line of thinking around the cost base throughout the year, given that the gross margin is what it is and your guidance for Q2 is sequentially flat and [ moving ] that forward, how should we look to the cost base going forward? Is -- because Monster is squeezing in, well, already quite a significant chunk of cost savings in Q1. How much more can you take out in the second half? And how much more room do you have to keep the cost base growing less than the top line?
In general for the group, or for Monster specifically?
Yes, for Monster, and then a little bit added to that, also, how I should think about the cost base going forward over the quarters.
Okay. Yes, well, for the group, of course, we always balance a growth with cost, so what I said, 5% cost increase in the regular business, and then going down to 2% basically on the cost savings on Monster. And yes, it largely depends on, first of all, our appetite for investments, which we're going to continue to do, and hopefully, also the stabilization of the top line in Monster so that you don't need to cut down on costs further because, at some point, you want to stop doing that, of course. So it's tough to say. We will take out some cost in Monster again in Q2, but no plans currently for the second half of the year.
And then Monster will still be breakeven in Q4? That's still maintained?
No, I just gave Konrad the answer, so I hope you were paying attention here.
Yes, but nothing has changed to that timing?
Well, honestly, of course, the top line in Q1 didn't materialize as planned, so we need to really counter that trend throughout the year.
And then the final one on the Netherlands. Can you explain to us why the margin in the Netherlands is down despite the top line accelerated a little bit to plus 5, and I recall, at the last call, that there was some better pricing [ visible ]? What happened there?
Yes. It's sickness, Marc.
So purely, the sickness impact?
Yes, and the calendar, of course, one working day less, and really historically high and long sickness. And as I mentioned, any sickness above 4% hurts us in the margin, both on the direct and indirect companies, by the way. Indirect, so our own people in terms of cost, but direct in terms of margin. This will be going down, so in that sense, we're quite positive about our result development in the Netherlands going forward. But yes.
Yes. Let me come back to the -- sorry, on U.S. Prof, finance and accounting, which is 15% to 20% of IT.
Okay. Maybe the final one on the pricing, Jacques. You mentioned a few positive signs you saw at Q -- when you mentioned -- well, in February, when we had the Q4 results. If you look underlying, it seems that there was some positive pricing. Is that still the case? Is that continuing? Is that strengthening?
Yes, absolutely. Yes, we do see some clients also coming back because they can't find the right people. So when you look at labor markets in the Netherlands and in France and Germany, yes, we don't think pricing will worsen, and at some point, hopefully, it will be slightly better, yes. But if you -- overall, if you -- in the gross margin, of course, we grow so much in Inhouse, that puts a bit of a damper on the overall gross margin. But we have great conversion, as you know, so that doesn't really hurt our result.
The next question comes from the line of Hans Pluijgers.
I have a few questions from my side. First of all, on the CICE, of course, you gave an indication what's happening for next year. But you also indicated that at the beginning of the year, you would really work on trying to recoup the decline from 7% to 6%. Could you give some indication how, let's say, the market is reacting to this? Then on the U.S. Professional business, yes, you were working on it for quite some time to improve the business. IT has been doing somewhat better in recent quarters, but at this time again, slightly slowed down, but that's explained. But are you taking additional measures with respect to the rest of the Professional business? Because that's still, let's say, lacking. What's your view on that? What's your feeling on that? And second -- and thirdly, on Monster, could you give some indication what the traditional business still is of the total Monster sales?
The last part is no. As you can -- we're not going to fully present the Monster business because there's also competition in the space, so sorry about that. And on CICE, what you see in our French results, and that's why we're so happy, despite the calendar effect also in France, we improved our percentage earnings despite CICE. So we are very, very happy there. That has to do with walking away from some clients, still growing, and the perm at 38%. So in that sense, we mentioned that we were confident that we would compensate the CICE going down in our results. And so far, so good in our French business. On U.S. Profs, so that -- the F&A part, we've closed it -- we've grouped that closer to our U.S. Staffing business, which is a well-run business, which has seen above-market performance. The process in financial staffing in Professionals is similar to Staffing in general. We are combining branches. We do see some early results here that combining our U.S. Profs F&A business and our Staffing business in similar sectors works. The negative development is also improving, but we're not there yet. This is, by the way, a much smaller business, so EUR 1 billion is technologies and EUR 300 million to EUR 400 million is F&A. Not there yet, but yes, we see some improvement.
The next question comes from the line of Tom Sykes from Deutsche Bank.
Just going back to your comments on Inhouse. Just wondered, how much of the Italy growth would you consider came from Inhouse, please? And obviously, you're getting quite strong leverage in Italy, and you mentioned leverage for the Inhouse business overall. But would you be able to just sort of say what your leverage is on non-Italy Inhouse growth, if possible? Because we've maybe seen some peers not generating much leverage there. Just wondering how you're getting on, please.
Yes, Tom. The Italian growth is pretty broad-based. But of course, what we've seen in earlier acquisitions -- in Obiettivo Lavoro, our new company, we go with the concept to our large clients, so we get a better conversion on clients, so that's very good. Yes. Our conversion of the overall Inhouse business has always been around 40%.
Okay. And you would consider that in the non-Italy business that you're getting around about that level or that's not at the moment what you're at?
So this is the group picture.
Okay. So Italy is a little bit higher than that. And then just on the -- but, sorry, back on Monster again. Where your -- the traditional business is going down, are you seeing anywhere that that's going to competitors with a similar business model? Or you -- it's just all disappearing to a different form of business model at the moment?
Yes. Again, I'm -- again, for confidentiality, I'm not going to bone out every part of the business and where it's going. By the way, a large part of Europe is growing, so this is very much happening in the U.S., which is a competitive market and a more mature market to begin with. So we see more of these things happening in the U.S. I don't know if it goes to competition or clients stop doing it or have their own job boards. That's tough to call. We don't analyze this to death, but at the same time, also bringing in new business needs to change the profile of the revenue of Monster going forward. But that's hard work.
Okay. And just in terms of your sort of forward visibility, because I guess, again, there's sort of a change between February and now, and that seems to have happened relatively quickly. Are there any large contracts that sit within that, that have particularly skewed the outlook in Monster? Or is it fairly broad-based change in view?
Yes. Tom, I am not -- I would like to remind you of the fact that Monster relative to our total book is quite a small company, so I think we see...
A high gross profit though.
Yes, whatever you want. But I think we have given you quite some transparency in this business, so you can follow.
Your next question comes from the line of Rajesh Kumar from HSBC.
I'm just trying to understand the divergence between your commentary that sequentially, pricing is getting better, but when you say a stabilizing gross margin quarter-on-quarter, that implies a Q2 decline of 60 to 80 bps. So what are the pieces which we need to think about? I mean temp gross margin impact was 30 bps in Q1. But what did the temp gross margin underlying did? And do you expect that to continue declining in Q2 itself?
Yes, again, I think we've answered those questions already. So not to repeat myself, we see quite a stable underlying margin development. We will have some tailwind from calendar and sickness in some markets. And a large part of the decline in margin is related to the decline of revenue in Monster, which is gross margin. And so yes, that's what it is.
And if I may add to this -- sorry. So the structural part of the gross margin decline, that's really mix effects and CICE. CICE, of course, is -- we expected, whether that's structural or not, but these 2 components, you will see in the coming quarters. And pricing is stable.
Yes. And we see a good conversion of the margin into results in Inhouse, and CICE fortunately is fully compensated in our French result.
So sequentially, you expect the temp gross margins to go up, but Monster and CICE and the Italian Inhouse mix to drag basically 100, 120 bps?
No, that's not the conclusion. Maybe we should take it offline. The temp margin outlook for Q2 is around minus 20, minus 30, again, because of the reasons I just mentioned to you, and on top of that, there is more a technical issue of Monster.
So is that an impact number you're giving or like-for-like temp gross margin number?
It's year-on-year, basis points year-on-year.
Is that impact number, which is contribution times the change? Or is it the change number you're giving?
Maybe we should discuss this offline, because I'm not sure if I understand you correctly, Rajesh. I will call you after the conference call.
Your next question comes from the line of Matthew Lloyd from HSBC.
I apologize for this, and I know you think you've answered it, but I'm not convinced that anybody thinks they understand the answer, so I'm going to try it in a slightly different way. Could you just refresh our memories on what the sort of the KPIs and the remuneration are for salespeople in Inhouse and people sort of working more normally out of the branch network? Because there does seem to be a point where you would expect a bit more for the gross margin expansion and perhaps a little bit more gearing. Is this that we're now paying people on volumes and speed and less on gross profit growth? Can you talk to us about the way in which the business is now structured and remunerated, and why we are seeing the patterns we are seeing? I accept the Monster bit and various other bits, but I think we're all sort of struggling to understand whether a stabilizing gross margin underlying starts to make for better numbers later in the year or whether there's something else going on.
Okay. Yes, there is nothing else going on. So we have a stable EBITA return in a quarter where we have one working day less and 2 large businesses of ours are hurt by sickness. The sickness will go away. The calendar effects will be reversed. Apart from the FX, you're looking at a EUR 15 million to EUR 20 million less result there. So that's why we said that we would -- we're confident that our EBITA as a percentage will improve throughout the year.
Okay. And just sort of the KPIs and remuneration within Inhouse and the branch network. Are we -- can you just refresh our memories on broadly what, if I'm the salesman in either of those 2 sort of structures, I get paid to deliver?
Yes. It's -- Inhouse is the least variable paid part of our business.
But the variable pay is based on volume fulfillment. What -- how does that work?
Yes. Overall growth and return.
Of sales or gross profit?
Yes. If you sell at a low margin, you get less return, of course. So it's more a volume business with tight pricing.
Okay. And your branch network?
And it gives us a very stable 40% return.
Okay, okay. And in the branch network?
Yes. We've got 4,500 branches in very different business lines, so that's tough to see -- that's tough to handle in this call, if you want to have a little bit more color there. But I don't quite understand what's the reason behind the question because then if the reason...
Well, as a rule, salesmen tend to do what you pay them to do. So if they're paid to drive up the gross margin or the total gross margin or the sales number, or if they're [indiscernible] quickly at high fill rates...
Okay. Now I get it, yes.
You tend to get -- I'm sure salesmen are all lovely, but if we make the assumption that they're mainly pecuniary in their motivations, then that's what you tend to get. So I'm trying to understand whether [indiscernible]...
Yes. No, no, no, okay, but that good. So that's why I said we're very tight on growth and profitability, as you can see, in our underlying market development, if you compare it to some of our peers. So that means that you can sell, but you sell within a price range. So it's for you to decide, within the price range you get, if you want to sell to a client. If you can sell a client but it's not within the price range that you need to decide upon, it goes to upper level. And for some clients, it goes all the way up to us. And not just on pricing, but also on liabilities and that sort of a thing. So therefore, it's both, so growth for us normally transpires into leverage because that's the pricing [ force ].
I've spoken to people in the industry that tell me that the sort the habit of going for trying to nudge up the markup or the gross margin is sort of -- the number of the players just isn't there and your people are habituated to sort of taking perhaps these RPO MSP contracts. And I've spoken to other people who say, no, no, no, we have dynamic pricing, and the guys get paid for -- and I have to say that the gross margin performance of the businesses tends to reflect that. Do you feel that there is room to pay the people more to -- or encourage the people or train the people to use dynamic pricing tools to charge for a forklift truck driver at higher gross margin because they are as rare at hen's teeth? Is that still a culture of the business?
Yes. It is even more than the culture of the business. We have data tools now that some of our businesses, for example, in the Netherlands use, and also in France, to show scarcity for certain profiles, and that then materializes into a price. So we're ahead of what you're now saying, driven by data. So that works well, and there we see a margin increase.
[Operator Instructions]
Okay. Maybe -- I have just been informed that, apparently, the slides didn't match with what we were talking about, but I hope you got the general message at the end. But my apologies for that. We have one more question?
We have a follow-up question from the line of Konrad Zomer from ABN AMRO.
Firstly, on CICE, I think that Manpower also talked about it last week in their Q1 result statement. The potential impact on your gross profit is -- it could be very significant if the change is bigger than what people expect at the moment. If the CICE contribution generates about EUR 100 million a year on an EBITA of about a EUR 1 billion, then that's quite a significant amount of money. When changes will be applied as from 2019 onwards, will you find out at a very early stage, because maybe Francois is having talks with the French government, or how are you being notified on these changes? Because I think it probably deserves a slightly bigger part of this conference call because it's such a big proportion of your profits. And the second question is for Henry. You've been in Randstad's, let's say, engine room for maybe about 6 months now. And I'm sure it's all great because the company is doing really well. But if you could highlight maybe one thing that you would think requires a bit of change or a bit of your input or I wouldn't say is disappointing to you, but if there is something that is likely to change because of your input to the company, could you maybe share that with us, please?
Konrad, I'll do the French one first. Of course, once we know what goes on, I think we'll spend time on it. First of all, we've had many discussions when CICE came into play if it was to be competed away and what Randstad would do. You've seen us quite consistent on -- well, not sharing a large part here because it legally belongs to us and it's a commercial thing. Once the system changes, we'll inform you, and we'll also inform you on how we're going to deal with it commercially, but yes, we've got nothing to talk about currently. So therefore, yes, it's not really a good moment to spend more time on it. But yes, we are quite confident that we will be informed as soon as possible. And then, when we know more, you will know more.
On the second one, thanks for your question. So I'm in week 4, so I've started April 1 in my new role, so hope you understand that I will not comment on that yet, but I'm very much looking forward meeting you all in person. And in a couple of months down the road, I'm sure we'll have a few observations to make.
Yes. That's it. Thanks, everybody, for calling in.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.