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Good morning, and welcome to the Randstad Q3 Results 2018 Call. My name is Rosie, and I'll be your coordinator for today's conference. [Operator Instructions] I will now hand you over to CEO, Jacques van den Broek, to begin today's conference. Thank you.
Yes, thank you very much. Good morning, everybody. Jacques van den Broek here, together with Henry Schirmer and David Tailleur, to take you through our Q3 results and, of course, handle questions you might have afterwards.So I immediately start at Slide 6, which has a few of the headlines as far as we're concerned. So mixed growth. Some slowdown in Europe, but improvement in the U.S., still very strong in what we call Rest of the world, leading to an organic growth of close to 3%. And we're very happy with the fact that based on stable margin and good cost management, we've been able to improve our EBITA, both as a percentage, but also in absolute terms, with an ICR slightly above 50%.So where's the growth still coming from? Our Professionals business, doing very well in many markets; our perm still, like Q2, 13% up; yes, our North American business, very happy there. We do see good growth in our Staffing business being above market with 5%. Our Professionals business, all growing, and I'd say, the hard work we've done in our Professionals businesses and very happy with where they are. And also, our Canadian business, 10% of North America, back to growth, again.The Rest of the world, I flagged that already in the second quarter, is now annualized some EUR 2 billion, so the size of our German business, half of our U.S. business, but growing above average at very decent returns, so definitely a new area of strength for us as a company.The digital strategy. As many of you know, tomorrow, we'll have a breakfast where we'll go more in depth. But we just want to share a few highlights because next to managing the business as is on a daily basis, we're very much, of course, working on our growth for the coming 3 to 5 years. Some highlights here. Workforce scheduling, this is where we give a planning tool, free of charge, to our clients. We connect with them through app technology, they basically plan themselves. We do this in our current Inhouse businesses, but also towards clients which don't have an Inhouse because they don't want to buy that service or they're slightly smaller. It's now implemented in 9 countries. Basic starting country was France. They've now implemented it and have close to 300 clients, basically their existing clients, and they're now moving to prospects. So very much the moving towards prospects, we feel will fuel our growth into '19 and beyond.Data-driven sales, the support for our consultants where they know where demand is, where they can combine one visit with a client with another prospect that, on their mobile, shows that there's opportunity. We started this service or this development in our main markets, U.S., France and the Netherlands, but made in their home system in their back office. Now we have a system in Belgium that's going to travel around the world and that we will implement in 6 countries going forward, helping our consultants to be more effective in sales.Candidate engagement. As you know, we work under the assumption that clients will less and less be actively looking for jobs, so we really need to engage them very proactively. We call that dialogues. So in 12 countries, we now have various initiatives with chatbots, some off-the-shelf third party, some we made ourselves. Chatbot is very young technology, so we're still experimenting here. But there's a lot of traction going on, a lot of learning going on for us and our consultants.And then finally, again, aimed at candidates, video and digital assessments. This enables our candidates to connect with us wherever and however they want, either at home or through mobile. Now active in 21 countries, again, making us more accessible for candidates around the world, which we think is crucial going forward.Going to Slide 7, looking more in depth at markets. I already said how happy we are with a -- the return to positive growth of all our Professionals businesses in the U.S. Great compliment goes out from me to our colleagues. You know our Randstad Professionals business, so aimed at financial profiles, had a struggle. But we have seen consistent improvement throughout the year, now leading to positive growth in this quarter. Our Staffing and Inhouse business, 5% growth, above market. Inhouse still doing very well there. And our Canadian market, the Canadian market was hit by legislation, basically a variance of user pay in the Toronto area. But still, we bounced back into growth this quarter, and that leads to a stable above-average group return of 6.2%. Now the Dutch market, very disciplined on pricing, as you know. Nothing new there. But we're still closing the gap to market here. Our Staffing and Inhouse business is quite stable at a 2% growth; our Professionals business at 15% growth, above market absolutely; and perm for the group at 13% draws on our Dutch business, a growth of 9%, so an improvement there.We turn to Slide 8, our French business. What we see here is that the growth slowdown is in our large accounts, partly our own doing. As you know, we shed a large client in automotive. We do see weakness in this sector. That's most of the weakness we're seeing also in France. Our SME space is still growing. Roughly 50% of our branches still see positive growth. So it's a mixed picture but overall, a slight deceleration. And -- but again, here, like our Dutch business, for example, our Professionals business still up quite good, mainly driven by our medical business, Appel Médical. Our EBITA margin goes down as a percentage, but that's wholly or almost wholly due to the lower CICE subsidies we've got here and also the lower growth. Still in Q1, we still saw high growth. So we could, in a way, compensate it in absolute terms. That's tougher now.Our German business. Also automotive as a sector in Germany is even more important than it is in France. So you see the sequential drop from 6% growth into 2% minus into -- from Q2 to Q3. 75% is due to this automotive weakness, and you're seeing many of our clients going out with warnings on trade tensions, and also the fact that there's some unclarity about diesel legislation, which meant for them that they had to tone down their volume production. And of course, they use flexible labor also to battle their own cost here.So you see it in our Staffing and Inhouse business, predominantly. Again, Professionals, very stable in our German business. EBITA margin, going down as a result of this, and we will take out cost in this quarter in Germany to adjust to the lower growth.Belgium, again, a very stable performer in our markets, growth going down, but still above market. Also, here, again, very good perm. As you know, in many of our large Staffing businesses a few years ago, we started also selling perm through our Staffing consultants. Works very well for us as it does in Belgium and in many countries, and a quite stable and above group average high margin. Italy, very tough comps for last year this time around, probably around 25% growth. But still, 7% growth this quarter, again, strong perm growth, same story as Belgium and good returns.There has been some designed new legislation in Italy. It's actually too soon to call the actual effects. We don't see it yet in our markets, but we will definitely keep you updated once we know more.By the way, the same goes for France on the changes of CICE into another scheme. Too early to talk about the details here.We move to Slide 10, on Iberia. Our Spanish business, again, tough comps last year, high teens; good growth, 3%; great cost management there, where their EBITA percentage went up. Our Portuguese business, however, is down. Other European countries, again, tough comps almost everywhere, but still, an improvement in EBITA margin. So quite happy with the way our colleagues in all these markets are handling the current markets-driven [ census ].We move to Slide 11, on the Rest of the world. As I said, it's been a region for us. We're there now for a little bit more than 10 years. But certainly now, we do see this becoming a very, very important market sector or, call it, region for us. Our Japanese business shows good growth, but also this -- Japan is a market with low unemployment. And our management has become very diligent on pricing, so margin is increasing there. And also, our results then go up, also based on good growth in perm. Our Australia business, way above market as far as we can judge with 14%. It's well done there. Our Chinese business, up 6%; Latin America, which for us is predominantly Argentina and Brazil, growing at 30%, 35% in Q2. So stable there. Also, in this business, we see Sourceright. So RPO in the Brazilian business becoming a part of our sector. Most of this region is very much perm-led and, therefore, for the whole region, perm is up 16%, driving our results. Then we go to our global businesses, starting with Monster. As we mentioned in Q2, this business is financially under control for us. We are increasingly using the Monster database and the Monster capabilities for our Randstad consultants. You know that it's very much part of our strategy to create a bigger data lake, accessible for our consultants. And over time, also using the data out of this data lake to talk to our clients on trends we see in the labor market, availability of talents.But at the same time, that's investment, so the balancing act for Monster is very much the old business, the job postings being under pressure and the new businesses gaining traction in the Monster top line. New products, such as Monster Studios, which we launched at HR Tech in Las Vegas last month, where clients can basically present themselves through their own videos, their own clips to a tight labor market. And that was met with some quite enthusiasm. Also the resume builder, something we got from RiseSmart, where we allow our candidates to create a very effective social media profile, and they're paying for that. So that's great, very promising stuff, but still a lot of work to be -- to really, yes, revamp this business as such. Then we go to Sourceright. On the first instance, you might say, okay, so 14% growth in Q2. We're now 8%. We do feel that in Q4, given the pipeline of clients and new clients that we're currently landing here, we're very optimistic that the growth here will increase in Q4. So that's very much what we see currently around the globe. And with that, I take you to Henry to update you on the financials.
Okay. Thanks, Jacques. So it's my pleasure now to take you through the financial results and then move to Q&A after that. We'll go straight to the P&L here on Page 13, so we look down -- revenue down to EBITA quarter 3 year-over-year. And as discussed by Jacques, we reported a competitive revenue growth of 3% in light of growing macro and staffing markets in Europe. It was good to see, again, the strength of our portfolio coming through. Perm in Rest of the world grew double digit with excellent conversion, and North America accelerating growth. Gross margin came in at 19.8%, down 30 basis points, underlying stable and slightly ahead of guidance. Operating expenses are up 1% year-over-year, well monitored and under control. And we've been able to adjust the cost base quickly to changing market conditions, in other words, to gear it up to capture further growth opportunities. And last, but not least, EBITA came in at EUR 299 million with a 5% EBITA margin, 10 basis points up year-over-year.Quarter 3 was a pretty clean quarter with just 0.3 extra working days, hence, not an awful lot of tailwind from that side. Let me also point out that the incremental conversion rate for the last 4 quarters was about 50% and even higher in quarter 3. So now on Page 14, we show the gross margin in a bit more detail. So for the gross margin, it's a solid story. On the left, you see the quarter 3 '17 gross margin of 20.1% and the very right part shows quarter 3 '18, gross margin of 19.8%. As mentioned, the gross margin came through, underlying stable, ahead of guidance and 30 basis points below last year. The fact that year-over-year, the gross margin is showing up lower is, again, mostly related to mix. The bar on the left shows the impact of our temp gross margin, which is 20 basis points gross margin dilutive. And 10 of the 20 basis points are due to lower CICE payments in France, and the remainder of the 10 basis points related to price mix, fully in line with the last quarters. The bar in the middle shows the positive impact of our fast-growing perm business, 13% growth driving 20 basis points positive mix. It's all fee income and, therefore, gross margin accretive. And lastly, the red bar on the right represents HR services, including Monster. And as stated before, Monster is a 100% fee business, still in decline and, hence, it shows a negative mix in the bridge. Also here, a few technical effects.Also, going forward, there will be quite some mix effects at play. We always have an eye on gross profit in relation to OpEx to ensure enough benefits showing up in EBITA. It's reassuring that the underlying price environment is stable and even improving in some areas, like France and Japan.On the next page, Page 15, operational expenses. As you know, operational expenses are always getting our full attention, but especially in France with economic uncertainty. And sequentially, we reported OpEx coming down from EUR 908 million from quarter 2 to EUR 892 million in quarter 3, with adverse ForEx impact of EUR 4 million to EUR 19 million organic net OpEx decrease. Costs are down 2% sequentially and just 1% up year-over-year, reflecting the flexibility there through our cost base. Also, productivity was stable year-over-year. Finding the right balance between tough cost management and investing for growth worked out well in quarter 3, and we do our best to do the same for the remainder of the year. It's one of the keys to drive the business for leverage going forward. Let me also close the chart with a confirmation that we are fully on track to deliver our cost-savings target of EUR 90 million to EUR 100 million annually by 2019, as presented to most of you at the Capital Markets Day in November 2017.So on Page 16, let me now shed some light on our meaningful cash flow and balance sheet. So we reported free cash flow for the quarter of EUR 220 million, an improvement by EUR 43 million in absolute terms and 24% up year-over-year. And the main driver for the good cash flow was an improved EBITA helped by reduced working capital requirements, which illustrates perfectly the countercyclical nature of working capital in our business and, hence, the resilience of our cash flow through economic cycles. The last bullet on the left shows days sales outstanding, which increased by 1.5 days on a 12-month moving average, mainly due to mix effects. Note, however, this is sequentially stable. And on the right hand of the chart, we illustrate here our strong balance sheet. Despite our special dividend payment of EUR 126 million in quarter 3, the net debt came in only EUR 30 million higher than last year, and we reported an improved leverage ratio of 1.2 versus 1.4.Most of you will know that quarter 4 is traditionally one of the strongest free cash flow quarters in the year. This time, it's also supported by CICE cash in of about EUR 100 million. Our guidance on taxes remains unchanged at 23% to 25% for effective tax rate and slightly north of 20% for the cash tax rate. And we reiterate our guidance for our higher free cash flow year-over-year.Now on Page 17, let me just summarize the key messages and provide you with an outlook for the full year 2018. Firstly, the quarter brought competitive top line growth, further EBITA progression and strong free cash flow conversion. Secondly, our digital strategy is well underway and embedded in our business. And it's not only helping to drive productivity. It also redefines our way we engage with customers and candidates. And thirdly, we are well positioned to deliver a full year EBITA margin ahead of last year's 4.6%. On the right side of the chart, I'd like to mention the fact that September and October so far grew at a similar pace as quarter 3. And as far as Germany and France are concerned, we do not expect to return to growth yet. Let me point out that the gross margin for quarter 4, we expect this to be modestly lower sequentially. We don't receive CICE for the month of December as they're replacing the subsidy, which starts in January 2019. We also expect OpEx to be broadly stable sequentially. In quarter 4, there will be an additional 1.1 day impact on number of working days. Well, that concludes our prepared remarks, and I hope it helped shed some light on our Q3 performance. We're now delighted to take the questions. Operator?
[Operator Instructions] Okay. We have a few questions coming through. And the first one comes from the line of Bilal Aziz from UBS.
Just 3 quick questions for me, please. Firstly, just on Germany and clearly, quite a lot of noise in the German labor market right now. You suggest that most of the weakness you saw was tied to the disruption in auto. So just trying to get a sense of the near-term outlook, given you still expect to be negative in the fourth quarter. And would you expect a small pickup if auto production bounces back? Or do you feel the general market is now also slowing? Secondly, in Italy, there'd been some regulatory changes over the summer. And have you seen that negatively impact the demand for temps within that region? And finally, on gross margins. Your underlying temp margin has seen a gradual improvement as we moved through the year. How much of that is pricing slightly getting better with wage inflation versus just mix moving around?
Okay. Yes, on Germany, we don't expect an improvement of this. So automotive, it's a sector that works with -- it's quite a planned sector, and they don't expect an improvement, as far as we can see always, for this year. That's also why in Germany, we take out cost accordingly. The rest of the market is quite stable, but the 18-months rule has a bit of an effect on temps being hired quicker. So not a lot of deceleration, but not -- definitely not an improvement for the rest of the year. So that's Germany for you. Italy, yes, we -- there's no effect yet on the demand, purely because of legislation. There must be, of course, more of an uncertainty in Italy. That's always very tough to call. We still see 7% growth on the 25% we saw last year. So all in all, still a pretty good picture for us in Italy.
Yes, just to chip in on margins in Italy. It's pretty stable gross margins. I guess, kudos to the Italian team that's very disciplined on price management, but then also turning that into EBITA with good OpEx control.
Yes. So on gross margin in general, it's partly ourselves. As we said, we do see -- we do say goodbye to some clients. So the fact that Henry said that gross margin in France is stable is also us proactively changing the mix, which comes, yes, at cost of terms of top line growth. But we do feel it's our role as a leader in this world, not in France, we're the #3, but still leading the way here on sensible pricing. We think that's important for the long-term sanity of the sector. In general, certainly in the U.S., but also in countries like the Netherlands and Japan, there is some pricing power, if you might call it like that, because of the scarcity. And again, we're very disciplined on pricing. In the Netherlands, we support this with data, so there is a pricing tool that our consultants discuss with clients, where based on the profile and based on the relative scarcity in a market, a price comes out. And that shows some good results for us in our Dutch business.
The next question comes from the line of Paul Sullivan from Barclays.
Just on gross margin and the sequential decline you're flagging for the fourth quarter. Presumably, that's all to do with the CICE transition. And is there a risk that, that could continue or be a drag into next year? And manpower, pretty specific in the CICE impact, say, as they saw it -- as they see it now running through next year. You're still sort of not commenting. I don't know whether you can comment on that. And then, secondly, in terms of the OpEx control we saw in the third quarter, how much of that is due to your sort of structural, more strategic cost reductions? And how much sort of was due to sort of nearer term, sort of short-term measures? And can that be repeated if growth slows more materially from here?
Thanks, Paul, for your questions. So clearly, on -- as far as the gross margin is concerned, we -- at this point in time, we [ adjust ] the visibility that CICE in December will not come. And we are -- we don't guide on CICE going forward. We'll need to await the news in quarter 4, and as soon as we have something to talk about, we will. So as far as OpEx is concerned, there's clearly measures we are taking now in the short term. You've seen that in quarter 3. We'll do the same in quarter 4. But then also going forward, we will have a very, very close eye on operational expenditures. We are clearly factoring in a slightly lower growth in -- for the next quarter and that will show up in OpEx as well.
And Paul, there's nothing new here. We've done it before in totally different scenarios. So our cost is very variable. We have variable pay. We have 25% turnover rates and all that. So we always look -- as Henry already said in his presentation, we always look closely at our cost every week. But of course, in these times of relative uncertainty, we're even closer on the ball. So we're confident that if necessary, we'll take the appropriate measures, but we don't want to kill cost -- we don't want to kill growth because there's still a lot of growth in our business.
The next question comes from the line of Matthew Lloyd from HSBC.
Couple of questions from me. One, sort of France and the CICE. We've picked up a couple of stories that some of the smaller guys are being a little bit less aggressive on pricing, certainly in the SME market, now that they don't have the CICE to fillip their profitability. Have you heard anything like that? Is that helping your SME business, the old Randstad business? And then a sort of another question about this sort of more dynamic pricing in the Netherlands. How quickly can that be rolled out to the rest of the business?
Okay. Yes, the latter one is a great question. It's depending a bit on the whole back office and also availability of labor market information in the market. I definitely -- we definitely have the plan to have a tool like this in our major markets, which is probably a year from now. It is something that is picked up by our Digital Factory as what we call a proven model. So we'll definitely take it as quickly as we can to other markets because we do feel it's very beneficial in the conversation that the consultant has with the clients. CICE, SME, I've not picked up on those rumors, and by the way, it doesn't help us either. We've been focusing on SME for a long time in France. We want to proactively change the weight of large clients towards SME in our French business. We've consistently done that. And also, the technological support, so the data-driven sales that I explained earlier, helps in the SME sales. So we're happy with our performance, still see growth there. We don't think it has anything to do with what you mentioned.
Okay. Good anyway. And just a final question. We've seen a number of reasonably high-profile RPO and MSP contracts either dramatically reduced in scale with slightly wider gross profit bands or indeed just completely ditched in the U.K. and in the States. Have you had any situations where clients have just said, "Look, the fill rates aren't good enough. We want to do something different?"
No, of course, we never had that, Matthew. Yes, and of course, although these contracts, similar to our Inhouse, are quite sticky, so we don't lose a lot of them. And we win way more than we lose, let me put it that way. And that's really a more than 80-20 situation. So our growth is very much on keeping what we have and landing new customers. Having said that, the U.K. is a business, but of course, Europe for us, mainland Europe is historically much more important and also in the U.S. And in Asia-Pac, we're doing quite well with our Sourceright business. But it's absolutely hard work also with our clients to educate them on what the labor market is all about. And again, the data we're having does help to educate our clients and also give them, whether international or global picture, where labor markets are going. So yes, it is labor intensive, but we're very happy with our Sourceright performance overall.
And the fill rates are holding up okay? Or are they sort of giving way a bit given...
No, no, not really. What you do see is that in markets like the U.S. and in certain profiles in Europe, is that people are hired quicker. So therefore, it's tough to keep your volume up, so to say. But fill rates, by and large, are holding up well, provided that the clients also wants to play ball on talking about training, talking about different profiles and that sort of thing.
The next question comes from the line of Tom Sykes from Deutsche Bank.
Just on the perm revenue growth. The gap between perm and the rest of the business is obviously quite wide at the moment. And in looking at each major region, it's well ahead of the temp growth. And yet your EBIT margins are flat to down in most major regions. So could you maybe just talk about the profit impact of your perm growth? And what level of cost you're putting in there and whether you expect that perm growth to persist? And then just on Monster, the revenue growth is obviously around about the same, but slightly less down year-on-year. I wonder in that Monster line, you do book where other parts of the Randstad Group will buy services from Monster. So I just wondered, can you make a comment, are the external sales seeing a slightly slower rate of decline? Or are they declining at the same rate, please?
Yes, was it -- the spend on Randstad within Monster is fairly limited, so that doesn't play a role -- a significant role in the Monster top line, so to say. As I mentioned in my presentation, the traditional part of Monster, so let's say, the job postings, that's hard work to keep that up. And again, you will see renewals all the time, so very tough to really predict this one. And as we, of course, don't provide visibility for our businesses, we don't for Monster. It's absolutely the same in terms of visibility. Perm, yes, Tom, so we add 20 basis points to our gross margin. So we're very happy there. What we see -- and I wouldn't say that's regardless of the economic situation, but our big incumbent businesses, our Staffing businesses, such as our French business, our Belgian business, our Italian business, our German business, are gaining a lot of momentum with what we call perm in Staffing, and we've not seen the end of that. So this will help our result going forward.
Okay. And so one follow-up on Germany. It looks like your corporate staff are up about 15% year-on-year. So what are the -- what's the scale of the actions that you're intending to take in Germany can lead to the level of OpEx that you think you need to save there?
We are taking out cost as we speak. We're still in discussion internally with our workers council. So we're not giving any complete guidance here. But of course, it's enough to safeguard our EBITA as a percentage. We are investing mostly in our Professionals businesses, beefing up perm there, and also in a model which we call group direct. As you know, our Professionals business is called group based on the company we acquired with Vedior a long time ago. And what we're doing here is we allow our clients to search our 90,000 freelance IT database directly. That comes with a marketing investment. It's sort of a mini Monster, but then homemade. And it comes -- but we do see improvement now, as in some 40 placements per month now. So that's an investment, deliberate investment in the future. But again, taking out cost in Germany, we'll update you fully after the Q1 presentation.
The next question comes from the line of Marc Zwartsenburg from ING.
First question is on the OpEx line. You're guiding for a broadly stable development quarter-on-quarter. But given that you're putting the brakes in Germany, the fact that maybe accruals might be lower or a bit of release of accruals, shouldn't we expect actually the cost base quarter-on-quarter to come down actually?
Yes, so when we give guidance, it's sequentially stable when we guide for something we're very, very confident on, and as we're working hard to repeating that. But at this point in time, we definitely see that it will be stable.
And on the German sector market, you'll see most of that into Q1. So we will see people leaving somewhere in November. So the actual cost effects in Germany will be fairly limited for the quarter. I think our German management was very short on the ball. We always have scenarios, as we might have talked to you about, what-ifs, so be very quick on it. But we wanted to see what happened after the summer to act. We concluded that we needed to act more on a different scenario, which was probably 3, 4 weeks ago, then we need to be in discussion with your workers council, because we're talking about people here, of course. We take out these people, and the full effect will be visible in Q1. So we'll have a good start in terms of costs in our German business, we think, reflective of what we're currently seeing as a revenue development.
Then maybe looking to your personnel development. The minus 3% in Q3, that's quite a significant number already. What is driving that? Is that, for a big part, still restructurings and integration savings? Or is this specifically in certain countries? And is that already a full tread number? Or is it just something from the last couple of weeks? Can you maybe give a bit of a feel there? And the positivity remains stable, so maybe also comment there, how you see the development going forward.
Yes, well, a significant part, of course, is still in Monster, and what we guided for that. And we do need -- we now see -- we still see markets which are growing. But in many markets, we also still feel that we can -- certainly, in Asia, for example, we still think -- still grow without adding people. So yes, there is always some upside in productivity, of course. But yes, at low growth, that's quite tough to achieve at the same time. But overall, the cost goes up less than the GP, so that's good at stable margins. So more than 50% ICR for the quarter, as Henry already stated. So working hard to keep that up.
And then maybe on the cash flow and your leverage ratio. Henry, can you take us through the moving parts? You already highlighted EUR 100 million for CICE. You're currently 20% up, I think, you mentioned in the call on the cash flow. With the market coming down a bit and maybe some working capital releases, should we see perhaps an almost EUR 500 million cash inflow in Q4? Or is that too wild, given the just-below EUR 400 million last year?
No, it's probably a little bit too much on the wild side, but it's not too far off. Yes, I mean, you -- it's pretty easy to make the calculation on the EBITA. Indeed, we'll see a release in working capital. CICE is coming in. There's about EUR 99 million in there. So it will be a very, very, very strong cash flow quarter in quarter 4. But I'm -- we're not in position to give you kind of an exact number on that.
And all cash that brings the leverage ratio back to 1, that will be paid out as a special dividend, that's...
Yes, absolutely. We're confirming our new capital allocation policy. We expect actually the leverage ratio coming below 1. And then indeed, we will return cash to shareholders. And how we return it, we'll go -- we'll have a closer look when we are there, whether it will be special dividend or share buyback.
The next question comes from the line of Anvesh Agrawal from Morgan Stanley.
I've got couple of questions. First, in your opinion, over the longer term, do you think a form of CICE change could actually lead to contract renegotiations with clients? Because I think you charge a multiplier of wages to client. And once the form changes, it will lead to a lower employment of -- lower cost of employment. So will the clients kind of continue to pay the same multiplier? And then the second, in the presentation, you mentioned that for the workforce scheduling tool, you kind of give free of charge to your clients. Then can you shed some light, how do you actually generate return from these investments?
Yes, absolutely. So CICE is part of life, so subsidies are part of life. So CICE is 1 of 4 subsidies which is -- are in the total cost price. So the discussion with large clients is not so much literally on the multiplier, but absolutely on what are the constituting elements in the cost price. So yes, absolutely, when there's a new system, it will lead to negotiations. But our management is very experienced there. We are very disciplined. So we're quite optimistic that any change will not lead to significantly lower result. But yes, we need to go back and explain to clients the change, that's true. And workforce scheduling, good question. So we give the tool free of charge. If it's in our Inhouse business, that means that our consultants become more productive, because the temps are planning themselves. That gives our consultants more time to do stuff which really matters. So walking around the floor, talking to clients, talking about the size of the pool, but maybe also picking up other businesses, other profiles, perm orders, that sort of thing. If it's a bigger client, where we have 4 or 5 consultants, we can probably do with less and, therefore, improve our productivity. So in our U.S. business, where we now have 77 Inhouse clients implemented with this tool, we do see on all elements of pool management that we see improvement. So we see better fill rates, lower churn in the pool, and that's all good news for clients. So -- and normally, then on the financing, we take market share, and we improve our productivity. In the situation where we give this service to new prospects, of course, it's quite clear. We get revenue, and we get a market share if we're already small there. So that's real new growth, which comes in at a decent return. And the investments for us are not great. So we made these apps in Portugal for Europe and in Malaysia for Asia. So that's relatively low cost for us. And the tool that we give free of charge is actually companies that we've invested in, in our Innovation Fund. As we said already quite a few times, on digital, it's not the only absolute cost. It's very much the sales and the different way of working that gives you more growth or higher leverage on the business you're having. So that's our strategy here.
Yes. Can I just ask one more, sorry? You said you expect EUR 90 million to EUR 100 million of cost saving next year. How much has been achieved to date?
Yes, we've got -- absolutely, we'll be confirming that. A big part of that sits in Monster, and we're well on the way to achieving that. We will not give kind of a very, very detailed view of where we are year-to-date.
And the second part is what we call global IT systems, where we bring our 450 databases to the cloud, which, apart from cost, gives us a lot of benefits in terms of database security and all that, and also makes the costs here variable for us, which is also good. But most of those savings will come through next year. And that's the second part of this EUR 90 million to EUR 100 million.
The next question comes from the line of Hans Pluijgers from Kepler Cheuvreux.
Some of my questions have already been asked. But I'm looking at the U.S. There -- could you give some indication on what you see with respect to volume and wage inflation impact on your sales trends? And do you see, let's say, any further increase in wage inflation driving your growth? And then going to France, in the previous quarter, you indicated it would, let's say, adjust your cost base somewhat. Could you already give some feeling what already has happened? And has there already been any impact in Q3? I assume not. But when do you expect those savings to filter through? And lastly, on Monster, yes, could you give some feeling, is it now at breakeven or slightly profit contribution? And looking at the current trends, yes, if the current trend continues, when do you expect that again to have additional measures to reduce cost?
Yes. U.S. wage inflation, it is happening in blue collar, around 2%, 3%. So we don't make exact calculations here, but let's say, of the 5% growth in Staffing, might be 1% wage inflation, slightly less. So it is there. It's not massive. On France, yes, well, this is a country where it's tough to take out cost massively. So France will be very organically. We're not going to any drastic measures, such as a social plan and all that. So as opposed to Germany, to take out cost in France will be slower than in any other market. But that's a deliberate choice we're making not to be stabilized in the business. Because as I mentioned, half of our branches are still growing. So it's a very mixed picture with very targeted negative growth in certain pockets of our business. On Monster, so Q3 is around breakeven. But what I said last time, it's not an absolute goal for us on a short term to break even when I have a small profit. The goal is very much to replace Monster or revamp Monster from a traditional job board to a very dynamic platform where clients can find their candidates, and we help them do so, and they also can improve their employer brand. If you stop -- it's very much a marketing play. If you stop investing in marketing, then your traffic goes down. So we're not going to do that. And that's why we say it's under control, which is very much for us the -- how do you call it, the balancing act of investing in the future and taking out cost which is not necessary.
Could you give maybe some feeling on Monster, what you see is still as part of sales to traditional business and what you see, let's say, is the new business?
No, not really, because then I'm putting the whole business out in the open, and there's also competition in many markets.
The next question comes from the line of Konrad Zomer from ABN AMRO.
I have just one question on the operational leverage of the business. You state in your presentation that you confirm the margin guidance for the full year. But just in general, if you are going to achieve any improvement of the underlying EBITA margin, up from the 4.6% last year, you stated before you needed some 4% to 5% organic revenue growth. Is the fact that you've confirmed your margin outlook, does that state implicitly that you still look for 4% to 5% organic revenue growth for the full year 2018?
Yes. Thanking -- thanks, Konrad, for your question. So indeed, we set a basis of 4% to 5% growth. We will show a step to -- from 4.6% to 5% to 6%. Even if it's much lower, we are confirming that we will be able to deliver that. So when you just make the calculation, and is that, let's see, the first 2 weeks in quarter 4, you see about the same growth and -- as in quarter 3. We'll probably be not below that. So -- but still, our guidance is pretty much in place.
Right. So just to confirm, even if your organic growth rate for the full year comes in at, say, somewhere between 3.5% and 4%, you still think that your adjusted EBITA margin will be higher than the 4.6% you reported last year?
Yes, that's correct. That's what we're working on, yes.
The next question comes from the line of George Gregory from Exane.
Three, please. Starting off with the Q4 guidance. It looks like you expect -- when I look at your gross margin and SG&A guidance, it looks like you expect your EBITA margin to be broadly flat year-over-year, yet you suggest CICE dropping out will have about a 20 -- in December, having a 20 basis point headwind in the fourth quarter. I'd just be interested to know what's driving that sort of 20 basis point operating leverage. Is it Monster? Is it perm? Is it temp? Just, if you could elaborate on that, please.Secondly, similar subject, CICE in 2019. As I'm aware, the budget is more or less confirmed now. We know CICE is converting to a payroll subsidy from January. We know the additional fee on subsidies don't kick in until October. So what is it exactly you're waiting on before giving us guidance, please? I would have thought you have enough info now. And finally, sort of aligned with the previous question. I think it was around this time last year when you gave guidance for some progression in the EBITA margin in 2018. Just wondered how you're thinking about 2019 and what sort of growth rate you would require to generate some progression. A broad range is fine.
Yes, let me take the first and the last one. So on Q4, we just spoke about that subsidy. We have a very, very close eye on operational expenditure in quarter 4, you're right. CICE in December, we spoke about. But for the rest of it, we see actually underlying gross margin being pretty stable. And if you take those 2 together, we will see, overall, for the full year, provided that the top line is relatively stable, that leverage for the year. For 2019, I'm afraid we're not in position to give you any guidance at this point in time, and that leaves Jacques to talk about CICE.
Yes, yes. And maybe a bit on Q4. Of course, we can talk about France as a sort of a benchmark for Q4. But we have many businesses that showed good growth. And they, of course, deliver improvements and results. And that carries our group results, our U.S. business, Asia-Pac business. So there's a lot of businesses that are doing still fairly well. Our Italian business, so it's a mixed picture and that also drives our results, fortunately. Yes, on CICE, so apparently, you know a lot, which is good. We don't. So at the moment, we have a formal write-up of the system. The French government tends to not have very straightforward systems. So the devil is in the details here. And the moment we know -- but then knowing is really in writing, in the details, the start date, how does it work, then we'll share with you. But we don't have it. So if you have it, please send us a copy. We're well prepared.
Okay. But what if -- so your -- but what you're saying, Jacques, is without knowing the detail, you can't sort of guide based on the conversion of CICE on the 1st of January and the deferral of -- or even the exclusion of any additional payroll tax cuts as you'd previously guided from October. That, alone, is not enough to give a range.
No. Because if you will now ask my colleague, François, he would not be able to give me an answer. So that's a very honest answer. We really don't know at this moment. So probably, it will come in, in a few weeks. But what I've seen with the systems, looking at this market for a long time, you first need actually a lot of, well, time yourself to really look into the details. The only thing I can say is how do we do it, these things? You know the drill. We're probably the ones that give the least away. So time will tell.
The next question comes from the line of Rajesh Kumar from HSBC.
Just a couple from me. On the CICE bit, it looks like everyone on the sell side has a calculation where they're able to do -- come up with a number. You and some of your competitors are not very keen to give out a number. What is it that we might be getting wrong? And there's clearly something you think is very uncertain, and the sell-side teams thought the answer is very certain. So there's a gap between our understanding and yours. Can you help us understand what that gap might be? The second one is, you referred to U.S. wage inflation in blue collar. You said 2% to 3%. That's quite helpful. Looking at the temp wage inflation data, that's 3.5% to 4.5%. Private employment payroll is up 3% to 4% -- or 3% to 5% in August and September. Is it a difference of your exposure which is causing lower wage inflation? Or is it a guesstimate number, hence, we should basically -- because you don't compute it, we should rely on BLS and other sources for that?
Yes, let me take the first one on CICE. We obviously do understand your keenness to get more clarity on CICE, and we are completely with you on that one. So we don't think it's good if we start speculating on it. So let me really -- let us wait until we see really all the detail, and then we would translate that into what we think about it. We felt that it would not be good to speculate, so please understand that. The second one on inflation.
Yes, Rajesh, on the wage inflation. So in general, it's always overestimated as the effect it has for us, which is mostly about the fact that with us, it's always a bit watered down. So wage inflation is the same amount of people staying in a job and then increasing their wage. But of course, we always put new people in there and sometimes -- or many times, they sort of come in at the lower wage scale or at the new wage scale. So it's always watered down. So if it's, on average, 4, then with us, it will be 1 to 2 or something.
On that wage inflation data, what I can tell you is that the people who are changing jobs, they have a higher wage inflation number. So that does not basically add up in my head.
Yes, that's a pity. But we -- that is the individual people getting individual jobs. What we see a lot in our Staffing business, there are predefined schemes, which don't necessarily mean that people go up automatically. It's all dependent where they're coming from. Sometimes they come from no jobs. Sometimes they come from a sector that pays lower. So for us, it's not as clear-cut as just running the numbers.
Okay. So it's -- basically, what you're saying is in the mix you're operating in, with the -- basically, with the bulk contracts you have in place, you are unable to benefit from that broader wage inflation data which is coming across from people who are changing jobs?
Well, that is sort of what I'm saying, but not really. So first of all, it's not about bulk contracts. So we have a very fragmented labor force. If, for example, logistics in our sector grows faster than life sciences or car manufacturing, then we have a different mix. So it's not like we have the same amount of people in the same job. So in a year, in a sector like ours, there's a lot of changes. So what I'm saying is, it's not as straightforward as that you should translate wage inflation into growth for our business. That's the only thing I'm saying. It's just too complicated for that.
Okay. So you've done some backed-out calculations which tells you your wage inflation is lower based on your mix.
Yes. Well, you're sort of, how do you call that, rephrasing my answers in a way that I don't recognize. So let me do it finally. Wage inflation should not be translated directly into growth numbers in our industry because it doesn't work that way, because we don't have a stable workforce as such.
Okay. But do you have a hard number backing it?
No, I don't have a hard number. I've got a guesstimate, which is probably in our Staffing business around 1% of the 5% growth. And the rest is more people at work, predominantly in our Inhouse business, which is doing very well.
We have no further questions, so I'll now hand the call back to Jacques for any concluding remarks.
So thank you. Let me thank you all for your questions, and very much looking forward to seeing most of you at the breakfast tomorrow. Thank you so much.
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