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Hello and welcome to the Randstad first quarter 2019 results. My name is Molly, and I'll be your coordinator for today's event. [Operator Instructions]I will now hand you over to your host, CEO Jacques van den Broek, to begin today's conference. Thank you.
Yes. Thank you very much. Good morning, everybody. Another quarter, the first quarter of 2019. Good to talk to you all. I'm here in the room with Henry Schirmer and David and Steven from IR and Ingrid Pouw from communications to answer all your questions after the presentation.So let's dive right in and start on Slide 6. What we indicated in Q4, when we presented those numbers, was that our feeling was that, yes, the slowdown was more of a pause than sliding into recession. And that's actually what we're seeing in Q1. So markets in Europe are bouncing back slightly. The U.S. has -- for a long time already is quite robust. And our Rest of the world continues its great performance with a growth of 10%. Very happy with our EBITA conversion, very happy also with the fact that we've improved our gross margin compared to Q1 last year. And as you could expect also agile cost management, and that drives our EBITA margin up with 10 basis points. So in a no-growth environment, we're very happy with the fact that we can show an EBITA improvement. Also in these markets with relatively low growth it's also about, I'll call it, relative performance. Quite pleased with our outperformance in the Dutch market; the Belgian market; and even the German market, which I'll explain; and several other markets. And also, our French business, minus 4% in Q4 and back to market.Back to gross margin. So why the improvement? It's a mix of a few things. As you know, we have always been very deliberate on demanding a certain price for our service; and at the end of the day, if a client doesn't want to play ball also, say no to those clients. We've got improved pricing in the Netherlands; in Japan, which we already flagged in Q4 but continuing into 2019; but also in our French market and our U.S. market. So first of all, it starts with a strong focus from our management on pricing; very clear escalation rules on where to go from a pricing point of view, calculators on client level on where we make money and where we don't. So that helps. Then talked about it but rolling it out more aggressively, our digital pricing tools, where we not only show the client what the market is all about, specifically for certain job categories, but that also materializes into a proposed price, yes. And then lastly, new in the market, although relatively less growth, the demographics and scarcity in some markets lead to pricing power for us.Digital progress. I can spend more than an hour on this alone. We'll just take out a few. The first one we would like to highlight here is workforce scheduling and Youplan. This is where, for clients either already Inhouse clients or clients that have 20 to 50 temps, we provide them with a free planning tool. We equip our temps with app technology so they can plan themselves. We've already rolled that out in 13 countries, and we have more than 1,000 implementations going on. In our German market, despite the automotive slowdown, we've rolled out some 60 of these clients already in our German market. We think this has added some half -- or 50 basis points growth to our top line, and more to come because this is early days. In France, of course also, impact on our growth, always tough to calculate because there we started with our Inhouse clients, but we have implemented between 400 and 500 clients in France alone, so definitely a reason for us to decrease the gap and close the gap to market.In general, we are going to highlight this every time, digital is not about the tools. It's about what our people do with the tools. It's a changed way of working not just for our own consultants but also for our clients, but very happy with that performance. And then lastly, I would like to highlight Customer Delight. So Customer Delight is a solution developed in Belgium where we go to our stakeholders, our clients, our candidates but also our own staff to ask them what they appreciate. What in our service specifically do they appreciate? What do they appreciate less? And that gives very clear guidance to our people on what to do more of and what to do less. Not surprising probably is what all our stakeholders appreciate most is the human touch, is human attention. It's human follow-up whenever an assignment ends, for example.Our Belgian people have set this up in a scientific way. First, we go out and we ask those expectations. Then we develop a dashboard and we measure continuously. And then at a branch level, people can adopt their way of working directly compared to what clients and candidates appreciate. In our German -- I'm sorry, in our Belgian business we are above 8 in our appreciation from candidates, and not surprisingly that has led to an outperformance in the Belgian market. And we're rolling this now out to 9 other countries.Let's go to the next slides to a few of our geographies. The North American market, I mentioned it already, a quite stable performance, 3% growth, now solid at 2%; some slowdown in Staffing and Inhouse and mostly visible in our mass customized, but it's in line with the general market trend. Our U.S. profs business, a mixed picture here. Our biggest business is quite stable, IT, technology business, quite stable in low single-digit growth; our F&A white collar business still down, quite stable. But our smaller businesses, Randstad Corporate Services -- what is Randstad Corporate Services? This is a client at one location where we supply all staff, both contingent and perm. Doing well. And also, our life sciences, relatively small business but doing well. And therefore, we have an improved growth performance in our U.S. Professionals business. Overall, a good margin improvement in our U.S. business, as you can see, due again -- yes, like it is on a global level, by the way, good pricing. This is a market that gives us good pricing. Wage inflation is around 3% probably. And very tight field steering on costs.Our French business. I mentioned in the last call that I was very confident that our strong French management team could definitely in this market come back, and they've done so. Very happy with their performance. We were below market also because of saying no to very low-margin clients. We're now back at market very much driven by growth in SME and growth in our workforce scheduling and Youplan implementations. Again, very happy with our perm performance because these comparisons are very tough, very high double-digit growth last year but also our Professionals business still having good growth.Our home market, the Dutch market. Very happy with the fact that we are ahead of market. Because if you're at a market with better pricing, I think that's a great performance. Anybody can grow, but grow at a better margin, that's really a challenge. Very happy with our perm performance in the Netherlands, up 20%. And we were not happy with our perm performance last year in the Dutch market. What the Dutch team did is they visited their French colleagues to really detail out what was not going well in the Netherlands and in that sense shaped up, and it shows in performance. Perm is sometimes -- it's a volatile part, as you know, but you can beef it up relatively quickly, as they've done here. Our Professionals growth, very robust at 7%, lower than Q4, but the comps are like 5% up or so. Great performance there.The Dutch market is ahead of the rollout of the pricing tool. This is what they developed. What it looks like is we go to a client and we can show the client a sort of a heat map where you fill in the job. And then relative to the region and the scarcity in the region, you can talk to the client on the possibilities. Should you go for a younger profile? Should you go for an older profile? Should you go into training people who are not matching the profile? So we're probably going to train more than 30,000 people in the Dutch market alone to make them eligible for a placement at a client. Stable margin at 5.2%, including of course 1 working day less.The German market, yes. Sometimes -- I thought I would never say that, but I'm quite happy with the German performance at minus 10%. We're way above market. You've seen Manpower coming in at minus 23. So it's tough out there. Of the 10%, roughly 7%, so 17% of the decline, is automotive related. We saw the trend before the summer, so last year, around this time, prepared to take costs out. We did that in November. And therefore, we still have a good EBITA, given the circumstances because of proactive managing of costs. So again happy with our German performance. We don't see this market bouncing back any time before the summer, certainly not. So probably in the German market, as of September, we'll see more. Again, 60 workforce and Youplan clients rolled out. Our plan is to do 180 for this year. So this will help in a tough German market.Our Belgian business, challenging market. The market went negative, but we're still growing, actually a slight improvement on the back of Q4. So good outperformance. And this is with a market share of 26%, 27%. So quite a stable and impressive performance of our Belgian team. As I mentioned, they developed Customer Delight. What we also have been doing in Belgium is rolling out our data-driven sales tool, experimented, piloted in the Dutch, French and U.S. business. In Belgium, we have created the data-driven tool that can travel. We call it [ signal ] in Belgium. We now have full usage in Belgium for all consultants. They know where to go. It's mobile-enabled, so whenever they're visiting clients, they can see where the demand is in the immediate region. Combine that with showing what the labor market looks like, then the vision of a Randstad consultant is increasingly of a lot of added value and different from competition, and that leads to again outperformance.Italian business, bouncing back also, as you can see, 1% negative growth in Q4, 1% up this quarter. Very happy with that performance. Our Italian team, it's not too long ago that we did a massive acquisition here, but they keep it up. It's a company with a strong culture, good steering on actuals. Perm, also very impressive at close to 30% growth. And an improved EBITA margin. Very happy with our Italian performance, which as you know is a big business with more than EUR 1.5 billion revenue.Also to the Southwest of Europe, where Spain returned to growth, down 3%, now 3% up. And as you might have known, there's an increase in the minimum wage, which our Spanish team has passed on very successfully to clients. And therefore also a stable, high EBITA margin. Other European countries, yes, a mixed bag. Probably good to mention that in U.K. we had 5% growth in perm, which given all the Brexit turmoils is quite positive to mention. Also, our Polish business, which had a quite a negative top line in Q4, seems to be bouncing back. And overall a pretty stable EBITA return.Rest of the world, top performer last year, keeping it up. Of course, this is a big region. I would really like to single out India this time. India is a market where we've been already for more than 10 years. It's a tough market. Margins are low. And you really as a management team need to scope out the parts of the market, the clients that are willing to pay for our services. So I really want to give a big compliment to our Indian management team for pulling out the performance. Already we saw it in 2018, continuing into Q1 2019, so definitely an important part of our Rest of the world performance here.Then lastly, our Global Businesses. We present it as Global Businesses because increasingly we merge the possibilities of these markets -- of these businesses on behalf of our client. Sourceright, good double-digit growth; in EMEA and APAC really driving the performance there, where we very much go to clients and we show them not just on a one-to-one basis, like we do with our consultants, but also on a global basis what talent looks like, what the access to talent needs to entail and how we can organize that. Very promising part of our portfolio, where increasingly Monster is a part of that where we fuel demands from our client directly into the Monster database and back. And overall at Monster a pretty stable decline versus Q4. So all in all, pretty stable picture leading to an improved performance in our EBITA margin compared to last year and overall.So that said, good start of the year. And on that, the numbers and everything else, Henry?
Thank you so much, Jacques. So my pleasure now to take you through the Q1 financials, which were definitely satisfying. And please note that all figures are including IFRS 16 unless specifically stated otherwise. So as mentioned by Jacques, it was good to experience another quarter of competitive top line growth and further improved EBITA margin delivered against the backdrop of low economic growth in some of our main markets and given this less-working-day effect. Our Tech & Touch strategy works for both top and bottom line. And one of the key drivers of margin progression was our sound gross margin performance supported by value-based pricing initiatives to support our global footprint. And let me take you through the P&L in a bit more detail. So we already talked about the strength of our portfolio. Revenue in quarter 1 was slightly up year-over-year, as growth improved in several European countries, overall stabilizing sequentially, as mentioned in our quarter 4 call. We are pleased with another quarter of market share gains achieved in several of our largest countries.Now on the next slide. Gross margin came in strongly at 19.7%, up 10 basis points year-over-year and ahead of our guidance. And I will take you through it in more detail on the next slide. Operating expenses showing up slightly lower year-over-year, well monitored and under control. And our agile cost management continues to pay off, safeguarding our ability to support our most promising growth opportunities whilst adopting cost leverage through sometimes harsher market realities. EBITA, as you see, came in at EUR 227 million, with the 4% EBITA margins up 10 basis points year-over-year.So all in all, we see good quality for our quarter 1 results, as it's driven by healthy gross margins protecting our ability to continue to invest into our strategic growth initiatives. And as already mentioned, our incremental conversion rate for the last 4 quarters was about 78%, further building our strong track record of conversion. And as promised, on Page 14 we show you gross margin in a little bit more detail.We're at Page 14. Let me unpack the gross margin for you. As you can see, the temp margin reversed significantly and positively from a minus 40 basis points in quarter 4 last year to plus 10 basis points in quarter 1. Let me explain the underlying drivers. The price/mix effects turned positive as the result of structured management effort to strengthen our pricing capabilities, increasingly utilizing digital value-based pricing tools across our portfolio. And as the result, we're better able to benefit from tight labor markets. And in quarter 1, regions like the Netherlands, Japan and Spain benefited in a very significant way. It confirms our ability to price, with superior value delivered to our clients globally, and this has more than offset the negative impact of working days in quarter 1.The bar in the middle shows the positive impact of our growing perm business, 5% growth driving 10 basis points positive mix. It's all fee income and therefore gross margin accretive. And lastly, the bar on the right represents HR services and other, which shows minus 10 basis points effect on gross margin which is mainly the mix effect from Monster.And that gets me to the OpEx page on Page 15. Let me open that chart by stating that we brought our operational expenses aligned with some new economic realities already mid-last year, which helped us to secure some leverage in the bottom line. Excluding ForEx effect of EUR 3 million sequentially, we reported OpEx up by EUR 7 million but down EUR 10 million year-over-year. We continue our work to flexibilize the cost base to face -- resilience in the face of volatile markets and also improve our ability to steer our investments into places with the highest long-term return. So finding the right balance between tough cost management and nurturing our growth engines worked out well again in quarter 1, and we'll do our best to do the same for the rest of the year as well as the keys to drive the business for leverage going forward. Let me close that chart with the confirmation that we're fully on track to deliver our cost savings target of EUR 90 million to EUR 100 million annually for 2019.So moving on to Page 16, where we shed some light but only for our cash flow and balance sheet. We report in quarter 1 '19 a free cash flow of minus EUR 2 million, which is an improvement of EUR 23 million in absolute terms. The main driver for the good free cash flow was the change in the French subsidy system. Under the new system, we receive the subsidy without delays of the "more than 3-year" wait for CICE. The last bullet on the left shows days sales outstanding, DSO, which was virtually stable versus last year and quarter 4 2018 on a 12-month moving average.On the right hand of the chart, going straight into our strong balance sheet. Our net debt position decreased by EUR 86 million versus quarter 1 2018 to EUR 1.640 billion. And please note this includes the lease liabilities related to IFRS 16. As we reported to you, this is optically a slight upward effect on our leverage ratio. However, pre-IFRS 16, we arrive at 0.8 versus 0.9 last year, in quarter 1. The adjusted leverage ratio will also be the basis of our unchanged capital allocation policy going forward. And for 2019, we project to see a further improved free cash flow versus 2018.Let me also reiterate that the outstanding CICE receivable of EUR 491 million will be collected in the coming 4 years. We're also pleased to remind you that we will pay a special cash dividend of EUR 1.11 per share in quarter 4 '19, on top of the EUR 2.27 we paid already beginning of this month. That brings me to my final page on Page 17. Let me summarize the key messages and provide you with an outlook for quarter 2.Well, firstly, it was good to experience another quarter of competitive top line growth and to further improve EBITA margin in a low growth environment. We are especially pleased to be able to report positive gross margin trends. Our company-wide effort to fully utilizing our digital value-based pricing tools gained even more traction. This, combined with the early intervention on our cost base, has led to another quarter of EBITA margin progression. Secondly, our digital strategy is well underway and embedded in our business. It's not only helping to drive productivity. It also redefines our way we engage with customers and candidates, future-proofing our business.And thirdly, last but not least, while market conditions are uncertain, Randstad is very well positioned to capture growth opportunities in the future. Our portfolio is much more diversified than a couple of years ago, but even more importantly we are proud of working alongside the highly engaged and motivated Randstad team. And I'd like to thank them all for a very solid quarter 1 performance. On the right side of the chart, I'd like to mention the fact that March grew at a similar pace as quarter 1. And let me point out that the gross margin for quarter 2 is expected to be slightly above quarter 1. We also expect OpEx to slightly increase sequentially, both reflecting seasonal trends. Please note quarter 2 has an adverse 0.3 impact on number of working days.So that concludes my remarks, and I hope it helped shed some light on our quarter 1 performance. We would be delighted to take your questions. Back to Molly. Operator?
[Operator Instructions] The first question comes from the line of Bilal Aziz calling from UBS.
Just 2 quick questions from my side, please. Firstly, on gross margins. Can you please break out the negative impact from working days you had in the temp margin; and separately, if there was any reversal of the German sickness issue you had last year, which I think had a 10 bp strike in 1Q last year? Separately, just looking at France and your performance versus the broader market states that we get, how did that region perform as you went through the quarter? And are there any specific verticals that improved sequentially more so than the others?
Yes. I'll take the German sickness one, yes. There's something not great in the system in Germany, and that is it sort of pays to get sick. The system is such that if an assignment ends -- for example, we've got this 18 months rule and if you're then not hired, there are some people that don't want to take a new assignment actually, sometimes at a lower salary. So the German sickness is still relatively high, which is more of a system thing than a weather thing. So it didn't help, but fortunately, we took out all the costs, so therefore still an okay performance. On France, yes, it is pretty broad-based, automotive slightly better, manufacturing improved, but for us very much small- and medium-size businesses. So we sell a lot on the back of that, also supported by the digital tools we have in place. Inhouse is still doing well. And last but not least, but that also fuels Inhouse, by the way, our Youplan and workforce scheduling solution, which is actually attractive for any client in the French market regardless of the sector they're in. So yes, it's very much our own performance and not so much sector related.
Yes. Maybe I'll just chip in on the working day impact. We're calculating with about minus 10 basis points on -- impact on that quarter on gross margin.
The next question comes from the line of Kean Marden calling from Jefferies.
My first question just touches on perm, which I appreciate can be lumpy, but could you help us understand why North American perm decelerated so much from the fourth quarter into the first quarter of this year? And then a similar question but in reverse, why did Netherlands flip from minus 14% to plus 20%? And then secondly, on gross margins, the last 2 quarters, you've beaten your gross margin guidance, so I'm wondering if you can help us with a bit more detail about what assumptions you've included in your guidance for the second quarter sequential movement. And in particular, are you looking for price/mix to move further up from the 10 basis points improvement that you mentioned for the first quarter driven by the self-help initiatives?
Okay. I'll start with the perm one, the U.S. As -- well, you -- yes, you partly answered the question yourself by posing it, which is "a lumpy thing." The U.S. had a tough-to-explain slow start in Jan and February; looks better in March, so that's good. At the same time, there was 1 less Monday in the quarter, which doesn't help in perm. So those are 2 reasons. Again no predictions, but I don't expect it to bounce back to Q4 levels, but it will definitely bounce back to growth, as far as we're seeing it now. And the Netherlands, yes, very much their own performance. So perm is still an acquired taste in many markets, and you need to find the right way. It's always we've got a standard of working, but the way we approach it is sometimes slightly different per market. And as I mentioned, the Dutch colleagues went to France to further tweak with the French team, who's been quite successful over the last 4 years in perm, what they could improve, and apparently, it shows. So that's more related to our own performance than it is to market.
Yes. And then thanks for your question on gross margin. For quarter 2, actually nothing too fancy. We actually expect similar trends as in quarter 1, the working day effect will be slightly less dramatic, so that will help a little bit. But yes. Then in general just implementing with disciplined pricing, be very conscious about driving top and bottom line at the same time and using more and more our pricing tools in there. So that's where we try to continue the trends we see in quarter 1.
But presumably, as you roll out the pricing tools across the group, though, the price/mix tailwind should increase.
No. Actually, we're not guiding in that regard. So we take it quarter by quarter. We fight for every customer. And we're not guiding on gross margin going forward.
The next question comes from the line of Paul Sullivan calling from Barclays.
Just following up on the gross margin and pricing. How much of the pricing or the improved pricing backdrop would you say is just a function of the tight market versus some of these new tools you're rolling out? I'm just trying to gauge the -- sort of the proportion of the improvement that is more structural versus sort of cyclical. Then in terms on SG&A, you braced for a worse revenue environment, hence the margin beat. And if we see sort of revenue growth and the sort of positive stability in the sort of 0% to plus 1% going forward, could we say you -- sort of costs creep back into the second half? And then finally, it's been pretty quiet on the M&A front. Any thoughts on activity there?
Okay. Well, let's start with the last one. The core of our strategy is organic growth based on data availability and technological support of our people in their daily business, redefining the human moment we have with our clients and candidates based on technology. So that's the core of our strategy, so there's not going to be any sizable, as in earth-shattering, M&A. So a lull on that front. Pricing: Yes. We commented on what we're doing. So first of all, but that's not new, discipline on pricing, walking away from clients. We can grow faster than we're currently doing, but sometimes we're deliberately not doing that. We think it's important also to set the scene, as a market leader, on where the market is going. So that's one. The second one is the pricing tools. That's not just the pricing tool per se. It's also a much more impactful conversation with clients. So we always have, call it, the conviction and the drive of a consultant to talk to clients from the market. And now we increasingly have data, so we're quite confident that that will lead to good pricing. And that's about it, and I think that's quite a lot of guidance on what we're doing on pricing.
Yes. Just on OpEx, we do see a normal seasonal increase for OpEx, as our revenue will also increase with seasonality. And yes, we continue our work to look for opportunities to improve the OpEx level whilst still starting investments into future growth opportunities which are still plenty, yes. Even in a flat market, there are pockets of unbelievable growth everywhere, and we would like to support that.
Yes. And scope creep is a word that to me sounds like we're not watching things in this current environment. As always, we're very diligent on costs. And yes, the ICR for us is the guideline to balance growth and investing in growth and stable returns. So that's an ongoing management effort here.
The next question comes from the line of Tom Sykes calling from Deutsche Bank.
Just could you go, well, maybe just give your answer to the question earlier from Bilal on the sickness issue in Germany? You didn't actually say whether it was more negative or less negative than last year. And also, just is there an FX impact in your gross margin? And if so, could you say what that is? And also, just on temp-to-perm conversions, I believe you put those into your gross margin in temp. Could you say whether those were more or less benefits to gross margin, please?
Okay. Yes. The temp-to-perm conversion is very tough. We don't explicitly take that into our guidance and our reporting, so that's a tough one to answer, Tom. German sickness...
Would it go into price/mix?
Would it go into price/mix? Yes, everything goes into price/mix, Tom, doesn't it? Is that right? But maybe to answer your question differently: We do believe that the majority of our pricing increase is due to our own effort and not temp-to-perm or that sort of thing. There is something going on in our strategy regarding pricing. And very happy with the fact that that leads to results. The German sickness, if anything, is slightly lower, but last year, there was really, I call it, a flu thing going on. It's quite disappointing and -- that we still have this sickness, which again we think is a system error. We're lobbying very hard with workers councils and unions to -- in the next release of German collective labor agreements regarding our sector, to take this out because we think it's the wrong incentive.
And Thomas, maybe I can just confirm it's a limited impact on sickness. It's slightly positive but very limited.
Okay. And FX...
FX is about 10 basis points positive impact in there.
10 basis points positive on the gross margin, okay. And then just to follow up on the wage impacts. I just wondered if you could give the wage impact overall at the revenue level. And then also, is there -- and you obviously have the big increase in Spain, but is there a timing difference between when you pass on wage impacts at the revenue time -- revenue level, sorry, and the wage impact that you pass on to your own staff? And I know this happens every year, but was there anything particular in the different months when these things came in about -- yes, which would have given you an EBITA benefit in this quarter, too?
Yes. No. There's no specific EBITA benefit. We -- and Henry already commented on the quality of our numbers. So the EBITA improvement is like real. There's always effects. We don't calculate, which is very tough also, to have the full -- a wage inflation impact in there because we don't have a stable workforce. As you know, we're into temporary work, so there's a lot of changes there. In the U.S. we got a little bit more guidance. That's why I mentioned it in the presentation. There is also in Germany, yes, because we have these collective labor increases, but in other markets, it's not that regulated. In Europe in general wage inflation is still at the early days, so to say, but of course, it helps but -- yes. And that's about it, yes. We don't have the majority of our people at minimum wage, so the mandatory increase, it doesn't automatically translate. And you also need to discuss with clients. It's mostly equal pay, so it's also what happens with their own pay scales to really define what happens in our business, yes.
Well, just to briefly comment on Spain. So it's very disciplined execution of the change we've seen in the French market. So the team has done a great job there, but it also shows that our third our offering is well received by the customers, that we have the -- yes, the negotiation power to execute there.
The next question comes from the line of Marc Zwartsenburg calling from ING.
A couple of questions left. First of all, on the OpEx line. The -- all the results, top line better. Gross margin was a bit better. On OpEx it trended up a bit stronger than anticipated, in my view, but do you foresee any progress for the second half that you can still see OpEx perhaps flattening out a bit more than currently is the case, so squeeze out a bit more operational leverage? That's my first question. Then on -- in general, maybe for Jacques, do you feel, when you're talking to clients and also looking to your dashboards, that you really have passed a trough in Q1 and that things are getting a little bit better and that there is a bit more conviction of clients to hire more staff? And the final one, maybe also for you Jacques, can you also give a few maybe examples or indications how your digital investments now really add to productivity and translate into better conversion ratios? Can you -- yes, is any tangible? I know that Monster is throughout the whole organization, but can you give maybe a few tangible examples where you see some benefits?
Would you...
Shall I leap into the first part? Basically get it out of the way.
Yes, yes.
Marc, thanks for your questions. So on OpEx, it's really we -- I wouldn't say we take it quarter by quarter, but we do assume that we'll keep operating in a volatile environment going forward, so therefore we are very careful with investments. Having said that, competitive growth is a very high priority. And we -- so far, we've found a way to be -- to start with good execution there. And whenever we have kind of a bit left to still protect EBITA margin, we are investing further into our positive growth. And that is, I think, so far working. So maybe not comment for the remaining part of the year, but let us jointly assume that -- we just assume volatile environment. And we stay very close to the cost plan.
Is -- because the PMIs in the Q1 and the end of last year and beginning of the year, they trended really down. Was there not an reaction within Randstad to push a bit on the brake there and then maybe now to invest a bit more again? Is there any balance in that?
Yes, yes, we've -- I -- also we plan for the worst and hope for the best. We're disciplined, but we're seeing data coming through week by week, and we're very agile there. There is extremely good teamwork at Randstad. We stay very close altogether and making calls of how to navigate through the quarters. And we're also very, very clear, as far as strategy is concerned and as far as investment growth is concerned, so -- and then that balance, we are working.
And as you know, Marc, we run the company on actuals and not on PMIs. And we're all still aiming for relative outperformance, which we did in quite a few markets, so -- and you mentioned in your question "to squeeze out a bit more leverage." That is, of course, a part of running a business, but at the end of the day, for us, it's about profitable growth and the right balance there. The clients: My predecessor Ben always said, if you don't listen to your clients, you go bankrupt. And if you listen to your clients, you go bankrupt, too. So they are in an uncertain environment, where we help them, so they sometimes push on the brake. The worry for most clients is not so much the cost level or putting people to work or not. Increasingly, it's about still getting the people when they want it at the moment and in the region that they're operating in. So that's also a reason why we created the portfolio for Rebecca Henderson to really help navigate clients in this increasingly complex world of talent. And that's where we see a lot of traction. And so they are as -- again, as uncertain as we are; and looking for improvements to run their business better, and that's where we come in.On digital, maybe yes, also a bit the same theme. So our digital tools are not primarily geared at bringing costs down, yes. So our strategy is Tech & Touch, so redefining the human moment where it really makes the difference. So our data-driven sales tools mean that our consultants only talk to clients that have a need. Our candidate engagement tools -- so in 24 markets we now have video interviewing and analysis, so we make it very easy for our candidates to come in. And that means that the moment that a consultant touches a candidate, they are in a way further along in the process. You might say that increases productivity. We like to think, way more important, it improves candidate engagement and candidate-centricity, but still on productivity maybe almost all our temps in our major markets have their own app. So their schedule is on the app. Information is on the app. Communication is through the app, so that leads to quite some efficiency and again candidate-centricity and -- for our consultants. We work a lot with RPA, so robotic automation of our own administrative processes, and that helps. Our search engines and our access to the data, including the country where Monster is in, is improving. So our consultants have quicker, more reliable, more artificially driven improvements in the way they look for candidates. So that's all driving improvements, but again it's early days there. We do think there's more to come.
But you do see some improved matching statistics, for example, on your dashboard.
Yes, absolutely. So we always -- we want to -- you know our funnel, right? So you have the candidate part on the left side, the client part on the other side. And it leads to the match. And we're measuring all those statistics and where we support it through technology to improve the way we do business, partly to create more growth, I think deliberately create more growth over time, but yes, of course, also bring our overall cost to deliver down.
The next question comes from the line of Rajesh Kumar calling from HSBC.
I'm sorry to have the millionth follow-up question on the temp gross margins. Just looking at the numbers you presented, it seems like you've got a positive contribution from perm gross margin. And if you just back out the proportionate weight of temp revenues, temp margins have gone up as well. Can you give us some color on how much of that improvement is due to shift in mix from lower contribution from Germany versus your pricing effort, just in terms of order of magnitude rather than the precise numbers?
Yes. So a lot of negatives on perm of -- we have that 5% growth and we allocate about 10 basis points also from contribution in there.
Yes. So the growth -- the gross margin in Germany is actually above group average. So the fact that Germany grows less in a funny way has a negative effect on our overall gross margin at the group level.
When you used to report gross profits by geography, it used to be lower, so has it changed since?
No. That's not what I recognize.
Okay, okay.
So yes, I think nothing to -- actually, yes.
I think this is it. I think there's one thing you need to remember. We've improved our gross margin.
Yes. Well, I get that...
Yes. And we're working very hard to continue doing that. And we're very happy that it happens, and we hope to continue that.
But we also keep both feet on the ground, right? It's a very competitive market. So there is, yes, it needs to be earned every quarter, so don't take it that we declare victory on gross margins there. But it's good to see that the efforts we're making are -- at least in quarter 1 showed up positively.
And do you think your competitors are also [ pleased ], that they're trying to increase the prices? Or is it a very company-specific bottom-up effect?
Yes, we comment on our own performance, yes. And we leave it...
[indiscernible] market.
No. We leave it to competition to present their own numbers, yes.
The next question comes from the line of Konrad Zomer calling from ABN AMRO.
I have 2 questions, please. The first one, on the performance of your permanent business, which I think was very strong, particularly in countries like Italy, Spain but also the Netherlands. How can you square that with the general macro trend that volatility is quite high, uncertainty as well; and that at least historically a lot of companies were slightly more reluctant to recruit people on a permanent basis? And my second question is related to your policy on your special dividend in relation to IFRS 16. You obviously confirmed that it won't have an impact on shareholders. And you gave the 0.8 on a pre-IFRS basis. How are you going to present this going forward, i.e., your net debt obviously has gone up because of the changes, but how are we going to forecast your special dividend based on your leverage?
Yes. Do you like to take the first part, and I'll take...
Yes. No. I'm going to take the second one. It's -- I think that's really your ballpark, but let me start on perm. So thank you, Konrad, for the compliments. Yes. There is no general trend, of course. So first of all, we're very actively selling this. And on the one hand, there's the economics and cycle and that sort of thing, but there's also scarcity. So clients are prone, when they see a good candidate, to also hire him or her. And next to us going out there -- and increasingly, we've trained certainly in what we call temp -- in our, call it, mass-customized perm, yes, so the same profiles that we deliver in temp. We always ask both questions now very consistently, and yes, that leads to good growth. We're very happy. That's also why I gave our Italian and our Spanish but also our Dutch colleagues compliments. Because we don't feel this is just the market. We do feel these performances are better than market.
Yes, yes. And on that IFRS 16, you've -- I'm sure you've seen now our press statement and you've picked it up from there. It's absolutely right. There is no impact on revenues, gross profit underlying, diluted EPS or any of those measures. And at least for 2019, we keep on referring to our leverage ratio pre-IFRS to just keep the confusion out of the way. And then yes, our capital allocation policy remains to be intact. It's confirmed, and we just refer back to the old way of calculating it.
All right. And then probably, as from next year onwards, when we have like a full 4-quarter comparison base, you might change the absolute number without it having an impact on shareholder remuneration.
Yes. We will make that call somewhere in the course of the year, at least for '19. Don't -- it will be valid also for '20. If we make the change, indeed we will not make it an impact on our capital allocation policy.
The next question comes from the line of Anvesh Agrawal calling from Morgan Stanley.
I've got 3 questions. The first, at the beginning of the presentation, you talked about rolling-out of workforce scheduling and Youplan at multiple client locations. And as we understand, you provide these tools for free, so we're just wondering, how should we think about the implementation cost and whether it could have an impact on the operational leverage? And second, you have taken the cost action in Germany last quarter. And I understand the profitability is still good, but the margins still kind of declined Y-o-Y, so when should we expect the payback or the market conditions won't allow the flat margin going forward? And then finally, the restructuring in Monster has continued in this quarter as well, so just wondering. What is your outlook there?
Yes. So workforce scheduling and Youplan, yes, the implementation cost is fairly limited, so you shouldn't expect anything on SG&A being higher on the back of that. It just fuels our growth. So that's the good news actually. On Germany, yes, again given the market circumstances, we're quite happy with the performance, yes. And it remains to be seen how the rest of the year looks. We're not optimistic in Germany, as far as we can see now, towards the summer. What you sometimes see is there's a reset after summer, but for Germany, again relatively good performance, very happy there, but I'm -- we're not expecting any improvements in Q2 in Germany. And the third one was...
On Monster [ restructuring ].
On Monster. Yes, it's another restructuring. So part of that is that what we still saw in Monster is that from very small clients we still have manual sales. We're now building in an e-commerce platform where clients can have their own online job orders and place them onto e-commerce. So yes, that's why unfortunately we had to take out some people. There's no guidance for Monster for the rest of the year, as we don't do guidance on any business for the rest of the year.
Yes. And just to follow up on Germany. And I understand you're not expecting any improvement in performance, but on the margin side, given you have taken restructuring, should we expect some kind of improvement sequentially or like in Y-o-Y trends? Or do you think, given what the growths are, it's kind of difficult to maintain the margins there?
Yes, depending on the top line. And so yes. If it deteriorates further, it's going to be tougher and we need to again look at costs. If it's like this, then yes, we know where we are. And obviously, it bounces back at some point, which we're not seeing.
And Anvesh, please be aware, on Q1, EBITA margin in Germany also included the negative working day effect.
Okay. And can you quantify that, please?
I think it's a bit early days, but you can see at the group level it's about 10 basis points. And you can see how big Germany is for the group.
And in Germany, everybody is on our payroll, so in that market, it has a more pronounced effect.
The next question comes from the line of Suhasini Varanasi calling from Goldman Sachs.
Just a couple of quick ones on your medium-term strategy. The Tech & Touch strategy seems to be working out for you quite well, as we see in the first quarter results. How far do you think your competition is versus you guys? And the second one is on pricing pressure generally in Europe. Has that stabilized? Has that worsened? Because your growth is slowing down. Can you comment on that, please?
Yes. And yes, how far ahead are we on competition? The biggest question is always who is competition. So first of all, you need to sell to your clients. So your big clients, they always have the question, "Do I do it myself? Do I rely on a partner?" And again there are Google or LinkedIn. And there's all sorts of new competitors out there, so I don't really care that much how far ahead we are on competition. We have our own strategy. And I'm Dutch, so I also -- always think we're not going fast enough, but we try to do it ourselves, as fast as possible. And as you know, we have a 6% market share globally, so there's a lot of room to maneuver here. Pricing pressure has eased. We increasingly see clients -- and certainly again because we show them what markets look like in many geographies, not yet in all, but they are increasingly aware of what's out there. And it's all on the basic assumption that purchasing says, "Let's do another round of cost cutting. And if you don't do it, we'll pick someone else." That's a bit old. So that's -- yes, that looks pretty good. And it's because you mentioned, the cycle, yes. And then relatively new is that you have the cycle but there's less availability of people. And that structurally has that demographics mismatch in the labor market, so that gives us a lot of power. And also, I think we're attractive to clients to help them navigate this increasingly complex space.
The next question comes from the line of George Gregory calling from Exane.
Just one quick follow-up. I think someone earlier asked about the perm-versus-temp trend. I wondered whether you could perhaps indicate how the temp versus perm exited the quarter, please; and whether perm sort of continued to outgrow temp at a broadly similar rate as per Q1.
Yes, George, both are stable. So in that sense, it's the same thing. Into early days again, early days Q2, and throughout the quarter. So nothing spectacular happening there.
So perm is stable, Jacques. Or do you mean it's the growth rate is stable?
Growth rate is stable.
Yes.
The growth rate is stable, all right.
The final question comes from the line of Andy Grobler calling from Crédit Suisse.
Just one very quick one for me, hopefully, on -- just on France, where the margin was down year-on-year. There's lots of moving parts within the French market as of now. Can you try and split out what is driving the EBITA margin down? To what extent is it mix versus price or the changes to CICE would be helpful.
On the -- let me take those both. Actually, we are -- we have good numbers. So we -- obviously we do see a working-day impact. And then we have plus 20 basis points despite net profit sharing in the numbers.
So 20 basis points of the decline is the profit sharing.
Yes...
We need to clarify. So we have a negative impact of net profit sharing which is visible in the EBITA margin in France. And that's the vast majority of the EBITA margin decline year-on-year.
Okay. Perfect. And the expectation would be that that -- all else being equal, which it probably won't be, but that will continue Q2 and Q3. And then we get the change to the -- or the proposed change to the regulation in Q4. Is that the right way to think about it?
Yes, exactly. And then year-on-year it should be about neutral on a full year...
Yes.
We have no further questions in the queue, so I'd like to hand the call back over to your host for any concluding remarks.
Yes. So thank you all for calling in. Thanks for your questions.Again, we're happy with the start, but we keep both feet on the ground because -- you know us. And we're looking forward to meet with you, wherever you are, to further discuss our business.So I wish you all a great day. Bye-bye.
Thank you for joining today's calls. You may now disconnect your lines.