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Hello, and welcome to today's Randstad fourth quarter 2017 results.[Operator Instructions] Today, I am pleased to present Robert-Jan van de Kraats, CFO. Sir, please begin.
Hi. Good morning. Welcome to the discussion of the fourth quarter and full year 2017 results.It is an honor for me to present these results to you for the last time in my capacity as CFO of Randstad Holding, and it's especially an honor because these are record results. Next time, Henry Schirmer, my successor, will be in the lead, next to Jacques van den Broek. He is up for nomination at the AGM at the end of March, and it's highly likely that he will be appointed.I'm going to take you through the presentation to discuss the key issues with you, and then we'll move to Q&A.And I'll start at Slide 5 right away, which effectively summarizes the fourth quarter and the full year, reflected by a strong conversion of a robust top line coming through in terms of market share gains across-the-board but also with a clear focus on customer profitability. And that growth translated into a pretty solid development of our gross profit and again the drop-through of new gross profits into EBITA. As you know, our ambition is set at between 40 and 50. And given the investments we are making in the digital space this year, we already announced we would arrive at the lower end of that range, and that's exactly what came out for the full year, 40%, whereas for the last quarter it was 49%. And that should set us up for an improvement going forward into 2018 that should move us to the higher end of the range.Growth in the fourth quarter, close to 9%. And that's quite special also if one considers that, out of the top 3, 2 countries, the U.S. and the Netherlands, are coming in with lower single-digit growth. Still the group comes in at close to 9%, which shows you the excellent composition, the spread of revenues throughout the company. Top line growth in Europe continued nicely at 11%. The capital allocation is building on the free cash flow. The free cash flow in 2017 is up 26%, we'll get back to that, resulting in a solid leverage ratio of 0.9. And we're going to discuss with you a -- an updated capital allocation strategy including a floor dividend and optimal cash returns when the balance sheet is slightly underleveraged.Looking at 2017 full year, 8% organic sales growth, clearly ahead of the 5% in the previous year; EBITA margin for the full year stable at 4.6%, but that includes the effects of our investments in the digital space. The successful integration also came through of acquisitions in 2017.Then on the next slide, Slide 6, the summary of our P&L, same: top line arriving in the fourth quarter, with slightly less working days than the year before, at a margin of 5.1% compared to 4.8% in the same quarter of last year. Our OpEx increased organically slightly, which was a bit more than our guidance, and that is fully related to the excellent top line growthMoving to the next slide -- or before that. Sorry. Perm growth, also on the previous slide, which I wanted to point out, 13% growth better than Q3 with 10% growth.Slide 7, the regional split. This is where you see a longer-term overview of what happened to our markets. You can clearly see the seasonality but also the volatility in the developments. Europe continued to grow at the pace of 11%, which is equal to the previous quarter. North America improved to 1% mainly because of Canada. It was flat in Q3. The rest of the world continued nicely at the pace of 10%, which includes Japan accelerating to 9%, resulting in the overall group growth of 9%.Moving to Slide 8, the summary on North America. Well, the top says it here, the top line; improving conversion, if you look at the bottom line here. EBITA margin improved from 5.7% to 6.0%. We had some support of favorable incidentals which are related to releases of provisions, but underlying I think, given the growth, a good story and especially good to see Canada improving from 6% growth in the third quarter to 10% growth in the fourth quarter. U.S. profs also improved from a minus 2% to minus 1%. The IT business continues to do nicely, in line with Q3. And F&A remains a challenge and an opportunity as such.Slide 9, the Netherlands. As we have discussed before, we have a strong focus here on client profitability. The key thing here is that there are quite some unprofitable deals in the market, and we have been very selective. The Netherlands now grew 3%, which compares to 1% in Q3 on more or less similar comparisons, so the gap to market is reducing. Again, client profitability is the key thing here. The fact that the EBITA margin is down is purely related to somewhat lower incidentals at the end of the year. And also, the performance at Yacht resulted -- Yacht, which is the professionals business in the Netherlands, resulted in somewhat higher bonuses. What we also enjoyed to see here is the fact that our Tech & Touch strategy has been translated in the Netherlands into data-driven sales tools, as we presented to you at the Capital Markets Day, but also the pricing tool. We clearly see the effects coming through. The overall pricing pressure in the Netherlands is somewhat easing compared to the beginning of the year also because of scarcity in certain segments in the market.France, also a strong conversion of a very sound top line. And what we see is a strong revenue growth; excellent ICR; revenues that -- growth at 12%, which compares to 14% in the third quarter, but again that is against somewhat tougher comps in the fourth quarter. We also see continued strong growth in the perm business close to 40%, which is also driven by our successful big data tool. The EBITA margin, as you can see, up from 5.5% to 6.5%, which is reflected -- which is reflecting the operational performance and the conversion behind it but also strong perm. Also, the contribution of OC is clearly coming through here, and also some positive incidentals at the end of the year. Pricing, we assess the pricing impact in the French market to remain more or less stable at roughly minus 40- basis points. Worth to note OC France grew by 10% in the first -- in the fourth quarter compared to 8% in the third quarter.We also received our CICE in France which relates to 2013. And as you know, in 2018, there will be a reduction of CICE from 7 to 6. We feel that the pricing power in the French market across-the-board is pretty strong, so we aim to recoup some of that and our sales growth should also support our performance here. We'll see how it will work out in 2019 because there's still some unclarity on the replacement of CICE, but it's clear that CICE will end in 2018.Germany, on the next slide, 11 that is. Outperformance in the German market continues, revenue growth stable at 10%. And as you can see, our SME focus also here and also, by the way, in France and in the Netherlands continue to pay off. Also in Germany, strong growth of our perm business by 24%. The EBITA margin is 20- basis points improved, whereas the working day impact in Germany was more severe than in other places of the company.Moving on to the Belgium business on Slide 12. Remains ahead of the market. As you know, this is a key priority for us in Belgium. We have shown you excellent performance for a couple of years but then slightly behind. We changed our efforts in this space, and quite a few quarters now, we remain ahead of the market. Revenue growth improved from 9% to 10%. And as you can see, that is both based on Staffing/Inhouse but certainly also the professional business in Belgium doing quite well. The EBITA margin, slightly lower. And in Belgium we typically had a lot of incidentals at the end of the year. We have improved the phasing of those throughout the year, so this is purely reflecting more accurate accounting.In Iberia, on Slide 13, we see the momentum, the robust momentum, continuing; revenues up by 15% compared to 14% in the previous quarter. And please note that the comparables are 4% tougher here. The Spanish business clearly doing well but also Portugal improving from 6% in Q3 to 12% here. The EBITA margin, up by 10- basis points to 5.6% now. We are providing a little bit more for bonuses at the end of the year.Then we move into one of our largest operations also, Italy, a strong top line and conversion. And please note that, in 2016, we acquired Obiettivo Lavoro. It was integrated well. And now the total base is expanding by 26%, which is more or less in line with the third quarter, but please note that the comparables are 11% more challenging. So this is quite a strong story that we continue to see. The strongest growth driver in Italy is Inhouse, so mostly blue collar. The pricing impact also comes through a little bit still in the fourth quarter, but I would say that the improvement of the EBITA margin shows you that overall the storyline is strong, 6.3%, an improvement of 60- basis points.Slide 15, Other European countries; overall revenue growth 12%, which is more or less in line with the third quarter. And the U.K. organic also we show growth, but the underlying gross profit growth is not as positive as you can see in the revenue line. Nordics continues to grow nicely. Switzerland doing very well; and also Poland, which is a good indicator always, continuing to show good growth. The EBITA margin in this mix, in this cocktail of impact, is stable at 3.3%.That brings us to the rest of the world on Slide 16. Overall revenue continues to grow by 10%. Especially, Japan continues here -- contributes here. It goes from 6% to 9%, with a significant increase in the EBITA margin. Also, Australia shows continued growth, 8%. And overall in Asia we do see our growth continuing, with the exception of China where we are resetting a bit of -- some parts of the business to focus on more profitable growth. Latin America continues to do nicely, 27%. That's an improvement compared to the previous quarter. And our focus on profitability here translates into an improvement of the EBITA margin from 1.9% to 3.7%.The financial results, the income statement on Slide 18. It effectively summarizes what we have just discussed, so I'm not going to elaborate on many issues here. If you look at the tax rate, it's more or less flat, and it's developing nicely. The cash tax rate remains at a level of around 20%. And we have [ processed here ], on the one hand, the reduced valuation of our deferred tax assets in the United States as a result of the tax measures taken there. And on the other hand, we have revalued the French tax losses going forward given the change of CICE so that in overall has a relatively limited impact. And we feel that the developments in the U.S. should not be a negative for Randstad.Slide 19, looking at it by revenue category. Please note that Global Businesses do now include Monster because it's included in the organics for 2 months in the last quarter. So if you look at the Global Businesses, for the full year, it reflects the developments at Monster, whereas in Q4 you can see the positive contribution, the small positive contribution of Monster coming through here. It turned to the positive in the fourth quarter. And please note that there is a seasonal pattern at Monster which means the first 2 quarters of the year are -- should be a little softer also because of the investments we are making, and that should then pay off in the second half of the year. Monster in general is -- we have a launched a successful cost optimization plan, which is implemented properly according to plan. And we feel business is on track of the plan that we have and the ambition for 2018 to end at breakeven. It's clearly a challenge, but it remains our objective for 2018.And we zoom into gross margin on Slide 20, not a very exciting picture going from 20.0% to 20.1%, with effectively no impact from temp or permanent placement. And as you can see, it's only the contribution from the last category that has some impact.On operating expenses, we are comparing on Slide 21 the sequential numbers Q3 with Q4, the development in-between. And if I summarize this, then everything that's happening in the operating expenses is directly related to our organic growth, and that's how it should be, resulting in an ICR in the last quarter, as I said, of 49%.The balance sheet, on Slide 22: net debt now at around EUR 1 billion, leverage ratio better than consensus at 0.9 versus the guidance at 1.0. What we see happening here is return on invested capital improving to close to 17% now. And as you know, that's a key priority for Randstad, to see the returns on the additional investments over the previous years coming through. If you look at the capital side, we see DSO going up slightly, which is mostly the result of M&A impact. For example, OC and the -- and Obiettivo Lavoro are coming in with higher DSOs, and that is clearly a focus for improvement. Also, the fact that we have higher growth in the southern part of Europe creates an adverse mix effect, which is the second largest component to explain it. We were a little unlucky that, at the end of the quarter, that was a weekend, and typically payments move into the next quarter. But we also see a lot of pressure from clients to pay later, which is something we are addressing also according to the European directives that clearly set some guidance around this theme. But again, a good leverage at 0.9, strong balance sheet.The free cash flow, on Slide 23, which is a very strong improvement. As I already indicated, we have some -- we've invested somewhat more in working capital on the receivables side, but we have been very effective also on the payables side. But I have to say, sometimes, timing of payables is also a bit of luck here. So that supports it here. Please note that net capital expenditures are in line with the previous year. And that also includes Monster this year, which shows you that we have some synergies coming in through Monster which we do now jointly rather than both separately. Other items, it includes the receivable of CICE, where we received the money going back to 3 years ago. The net issue and purchase of ordinary shares, it relates to the performance share plan in the company.So overall, I think an excellent cash flow, free cash flow, for the year. Again, that connects to our story on the dividend.Slide 24, the outlook going forwards.Organic revenue, as discussed, came in at 8.7% in the fourth quarter. In January, revenue grew at around 7%. And please also note that January is always a more difficult month. Effectively, quite a bit of the business terminates before Christmas. It starts up at the beginning of 2018 again. It was a good start. Clearly, if we look at the revenue growth in 2017, in January, we're ahead of that. And also, the development of volumes in the first part of February indicates a continuation of that growth rate.We expect the gross margin to be broadly stable sequentially. That might be a bit lower than normal, but that is fully related to the fourth bullet point, which is the fact that last year we had more working days. 0.5 then, we'll have in this first quarter. The operating expenses are expected to increase slightly sequentially, again related to the marketing investments we're making and to our organic growth. If you look at gross profit growth per working day, if one excludes Monster, then we are also quite fine, in line with revenue developments.Moving to capital allocation now on Slide 25, the ingredients here. One ingredient is our strategy, the outlook for M&A. We have 3 categories that have driven our M&A in the past. I'll start on the right-hand side, in Staffing. We've done some very interesting deals, but today's position is that we have top positions in most relevant markets, excluding Japan, the U.K. and Australia. And those markets, the staffing space is not our priority. We'll have a look at it if there are options, but it is not our key priority. So we're pretty fine with our footprint in that space. We're also fine with our geographical footprint. There is no need to expand to additional countries.In the middle, Professionals. We have an accelerator through Ausy. That is our key priority now. Ausy should expand through organic growth and through bolt-on M&A, which in size is relatively limited. So over time and also in some other parts of the business, what we expect to see is some small- to mid-sized M&A in this space, so relatively limited. And the third category that has driven our M&A is the Tech & Touch, the digital side of it. And that should come through mainly organic through our Digital Factory, as was presented to you at the Capital Markets Day. And also, the repair of Monster and the global rollout of it is our key priority for the next couple of years.So the summary is we focus on value creation on the basis of our current footprint. No large transformational M&A is in our books, in our pipeline going forward. And also specifically for 2018, we do expect very limited M&A in 2018.Let's summarize this to Slide 26, on the left-hand side the strategy, on the right-hand side the impact for 2017 -- or on 2017 dividend.The adjusted capital allocation strategy. We will maintain, first of all, our policy of paying a cash dividend with a payout ratio of 40% to 50%. On top of that, we will implement a floor cash dividend of EUR 1.62 per share, which is the average of the years '14, '15 and '16. We have tested this against various scenarios, and we believe that even in difficult years the fact that our working capital releases do compensate the decline in EBITA justifies this. Then of course, there are always scenarios that one could think of that are even more severe, and those are addressed by the conditions that we have put in place. So the conditions that we have put in place are looking at severe macroeconomic circumstances. Then we'll readdress this, but I'm looking at strategic fundamental changes that we today do not foresee, so they are very, very special if they happen. And it also relates to our solvency liquidity ratio. So in that context, we believe a cash dividend of EUR 1.62 per share as a bottom, as a floor for the future is the right level as a promise to the market.When the leverage ratio, on top of this, is below 1.0x EBITDA, we feel the balance sheet is underleveraged. And that gives us the option for additional cash returns to our shareholders, which could then be translated into either special cash dividends or share buybacks where we have a preference for special cash dividends. The impact on full year 2017 payout in 2018 is that we will present a regular cash dividend of EUR 2.07 per share, which is based on a 50% payout, to the AGM at the end of March. On top of that, we will present the -- a proposal to return another EUR 126 million additional cash to shareholders over the full year 2017. That is a EUR 0.69 special dividend per share, cash dividend per share, to be paid out in Q3, at the end of Q3. The reason why we are splitting the payout is that it then more hedges with our cash -- free cash flow patterns and our net debt positions. And so we feel this is a excellent proposal again directly related to the updated strategy as discussed with you in November.On Slide 27, you can see this is a 46% improvement if one includes the special dividend that will be paid out at the end of Q3.That completes our discussion, our elaboration of what we feel are the key points. We're now moving to Q&A. [Operator Instructions] Thank you so much.Operator?
[Operator Instructions] Okay, our first question is from the line of Kean Marden at Jefferies.
I think you highlighted, I think, positive incidentals in 2 divisions and negative incidentals in 1 division in the final quarter. I'm wondering if you can share with us what the aggregate impact was on the group in total, please.
Yes. That's only a few million, so that is relatively limited.
Wonderful. And as a...
And just to be clear: That's less than EUR 10 million, so -- you're not confused.
And could you provide any further disclosure at the divisional level?
No. I think what we are -- our disclosure is at a pretty high level, and that's what we want to stick to.
And over to the line of Marc Zwartsenburg of ING.
First of all, also I would like to thank Robert-Jan. This is your last call. Thank you for all your support to the analyst community, if I may speak for all. And then over to my questions: On the gross margin, obviously, and you're guiding for a year-on-year decline of 30- basis points. Of course, there's -- and there's a half a working day less, but can you perhaps take us through a bit the building blocks why it's down and what we should take into account in terms of the building blocks? Because you mentioned that pricing pressure is easing and in particular the Netherlands, for instance. You've got Monster perhaps then as a negative and -- but then on the same -- at the same time, you're guiding that gross profit per working day is actually now trending in line with the top line for the first time since many quarters. So can you perhaps give a bit more color on the gross margin guidance and what you expect going forward?
Yes, Marc. Thank you for your kind words. And indeed, in Q1, I think you summarized it yourself, but the working day impact, the contribution of Monster, which is smaller now than it was before; the fact that our perm is growing nicely but our revenues are also growing -- our regular revenues are growing as -- fast as well. So it's very much a cocktail of that. There's no specific element in the books that we need to share with you. It's relatively standard.
Perhaps. And maybe it's far out, but would the gross margin be -- actually be better than in 2017 on a group level? Is that possible?
In the final quarter of the year, it is -- it has improved compared to the previous year. That's -- but that's reflecting the components. And I don't think it's completely impossible, but I don't want to guide too far out. I think we are relatively heroic by already sharing with you what we expect for the next quarter, which show you the February developments. And that's what we can see as per today. We have no crystal ball that shows us any developments going into Q2 and Q3 and 4.
No. And Marc, Jacques here. There's also some stuff which is -- in a way, both of this will also drive margins. So Robert-Jan mentioned that in Italy we have very, very strong growth in Inhouse. So on the one hand, that drives your gross margin level at a group level down, but you know the conversion. So that's an important one. Europe, the European markets are, on the one hand, improving. So we do see, based on our pricing tools but also discussions with clients, that there seems to be a bit more pricing powers, but that's a good sign. At the same time, we recently also walked away from a big client, again in France. We didn't go with the program. So that's also something we see. So it's a big company. There's a lot going on, but it's underlying a pretty stable pricing climate [ that's there ].
And I think Jacques' point on Inhouse. I think, for other people in the call, gross margin is not always the right indicator for profitability. If we grow our Inhouse business, for example, in France, it comes in with slightly lower gross margins but with great returns because of the high productivity that we can achieve on those clients.
Great. Then my second question, on the digital rollout, can you give us an update on initial positives in terms of perhaps productivity or client wins or feedback from the rollout in both France and Netherlands?
Yes. Well, of course, the Capital Markets Day is not too long ago. So it's not like you see an enormous uptick within 2 months, including the festive months where still a lot of businesses are closed. We're running our projects at scale now. So François, I think, had a very strong presentation on workforce scheduling, Youplan as we call it, which is now being rolled out to 6 other markets. We have the data-driven sales system that we explained through Dominique Hermans in the Netherlands. That's also being rolled out as we speak. And then largely -- and then lastly, we have an amalgamate of tools that we call candidate engagement. So you should think chatbots. You should think matching engines. You should think unlocking our total data at Randstad and Monster better every day. And that shows results, but it's not like, okay, we've seen this spike from November into January, of course. But this is a big theme for us for 2018 and '19 definitely. So this is what we do.
Okay. Maybe a final one, on the SG&A guidance, Robert-Jan. What is sequentially up? What should we think of?
On the...
Adjusted...
Operating SG&A guiding, yes. On the OpEx guidance for Q1, what is...
Yes, yes, well, I think Q4 compared to Q3 is similar indication. And we said it would be flat. It grew with the revenue development, and Q1 will be very much linked to what happens to revenues. On top of that, we're making some investments in the marketing space. So Marc, you know the numbers roughly. It's not going to be a massive difference.
And if I may add, Marc. And so the OpEx growth will always be below the top line growth. And ICR, we are hitting at least 40% to start.
Yes. That's the point I made before. We came in, for 2017, at the lower end of our range, 40% to 50%, because of our investments, especially in the digital space, for 2018. In line with the discussion you just had. Marc, we should see more impacts coming through, positive impacts coming through, which should lift the ICR to the higher end of the range.
We are now over to the line of Paul Sullivan at Barclays.
Just going back on gross margins. I mean, with the markets becoming a little bit tighter, do we dare take a slightly more positive view on temp gross margin development? You starting to see it stabilize. And the underlying trends seemed fairly supportive. And how do you see wage inflation sort of playing into that and starting to wash through your business? And then secondly, just in terms of the gap versus the market in Holland and the U.S., do you think there'll be scope to close that? And what are your thoughts about your performance versus market in 2018?
Okay, let me start with your last questions. So in U.S. we're actually at a market certainly in the Staffing space. And also, very fortunate that -- Robert-Jan did mention that we were very happy with our performance in our technologies business, our largest part of Professionals. It's USD 1 billion. We're ahead of market also with our 6% growth in Q4. As far as we know, there's no real, real solid numbers in the market, but it feels as though we're ahead. So we don't recognize that we are below market in U.S. In the Netherlands the gap is closing. Also, our growth rates in January in the Netherlands are increasing, so we're definitely closing the gap but still being very diligent on pricing in the Netherlands and in France. So on the one hand, absolutely there is more pricing power, just what I explained to Marc, but we still walk away. We still have purchasing people who sort of, yes, didn't get with the program and sometimes competitors who didn't get with the program either. That's too bad. So we'll see. They might come back, but overall you see it's stable; pricing. And I think that's as much guidance as we can give.
Then wage inflation in the U.S. That's where we see some of that for quite a while now between 2% and 3%. In Europe it's still hardly present. And one would expect it to come through, but companies have to save one way or the other by price increases or improved productivity. And so far, it has been relatively low.
Yes. There are some things. So for example, you've seen maybe the strikes in January in Germany. This is pretty straightforward. You have 3% to 4% unemployment in Germany, yes. Then the unions ask for a rise. They have given -- well, that's been given to them. There is equal base, so at some point this will wash there also through our bill rates, but yes, that's not there to be seen yet.
And using the opportunity of having the financial community on the line now: We also have clients that are not just discussing prices, as Jacques jus explained here the procurement devices, but also payment terms. And we even run into situations where clients are asking for 240 days of DSO. And it seems that they felt they were entering a bank when they went to see the Randstad people. And we had to explain them that that's not the business we are in. So it's really a matter of being selective in a market and making sure we do the right things.
So you don't see -- I mean you'd be -- we shouldn't get too excited and see a sort of -- and imagine this is a sort of a turning point in pricing discussions due to during -- due to scarcity or a tightening market.
Well, it will have -- it should come through on a very moderate scale, but please note that with the ICR that we just indicated there should be an improvement at the bottom line coming through from 4.6% to a higher level and bringing us closer to the EBITA margin target between 5% and 6%.
We are now over to the line of Suhasini Varanasi of Goldman Sachs.
Just one question from me, please. Monster, the declines have continued into Q4. I just wondered. What's your view on how these revenues declines will stabilize going into 2018? I realize you're targeting EBITA breakeven, but any comments and color on the revenue declines will be helpful.
Well, the only color I can give you on the revenue at Monster is not so much the absolute number. So what Chris explained, for example, to you is that in U.S. we were selling job postings at very high rebates. That is revenue but not necessarily the revenue we are targeting. So within Monster there's also a change of revenue into towards more profitable, value-add revenue. So that's what we're trying to achieve. That's the change that's going through Monster and, yes, work in progress. I cannot give you any exact guidance on this because we have -- now we are investing in marketing. We are investing in technology so that we get more applies through mobile directly, which for us is effectively the way we would like to get traffic, yes. And then that should wash through into revenue at a client level. But that's a work in progress. I cannot give you more exact numbers than the guidance we've given you and the content that Chris has given you at the Capital Markets Day.
Our next question is from the line of Hans Pluijgers of Kepler Cheuvreux.
First of all, looking at you gave us the exit rate, but looking at January, could you give some feeling? Are there less any major changes, let's say, by region in the growth rates? You already point out the Netherlands was slightly better, but are there, say, some areas where there's somewhat more weakness? Could you give us some feeling on that? And then secondly, on France you said you aim to recoup the CICE. At the same time, I understand you say that pricing pressure is providing about 40- basis points pressure, and it's stable at a level of 40- basis points, so could you give some feeling how then you expect to recoup the decline in CICE?
Yes...
Yes, on the exit rates, Hans, you can see on Slide 24 the bullets, the dots that we are showing to indicate the growth level and indeed the Netherlands going to mid-single digit here, Germany being a little lower than the quarter. And Jacques already referred to it, the strikes in Germany have had an impact in that month. And in the French market, the 3 dots continue, but then I think, as we have discussed also before, we are very selective in the French market. There are some large clients aiming at suppliers that will charge them, let's -- effectively no gross margin or hardly a gross margin. So it's not just a low gross margin. It's no gross margin almost and, as such, also no returns. And that's not the basis for us to do business. So we have a very strong focus on the SME segment, but that clearly has some impact but we're very happy to absorb it.
Yes. On France, so we grow, okay? In France we grow in SME. We grow in perm. There is, on the one hand, also early days, but in France some pricing power. And also we walk away. It's a big business. It's mixed, but given our growth, given the segments we're growing in, we do aim to recoup the CICE. There will still be clients who won't accept it. And then yes, well, we either take it or we walk away, so -- but given our, call it, current dynamics in France, the strong performance we're having in this country, we feel quite confident on this one.
Maybe just one follow-up on the exit rate because the exit rate, of course, are for December, as I understand it properly. Then looking more specifically more, let's say, at the U.S., is that still around 0 or, let's say, at 0? Or is it already, let's say, in negative territory in January?
If there's anything on the U.S., it's slightly upward instead of downward.
Yes. And Hans, these are exit rates for January. So our -- we always take the last month that we have available, the last full month that we have available. And this is January.
We are now over to the line of Tom Sykes at Deutsche Bank.
I just wondered if you could give some views on the degree of perm growth in France and how long do you expect it to continue at the current rate of growth, please? And if you could just say how much perm is on France. Would you also be able to give the size of the tax, deferred tax, write-back in the U.S., please? And maybe just an adjunct to what you've said about smaller companies doing quite well, just how would you sort of describe the mix of SME growth versus large accounts across your major markets at the moment? And to what degree have you perhaps pushed pricing in SME if you can't push it in large accounts, please.
Tom, Jacques will do the tax write-back. And yes, I'm sure he will.
Yes. Why are you laughing, Tom? Why are you laughing?
Tom, let me take the tax one. And then Jacques will do the other two. And the tax write-back: So the adjustment of the valuation of the deferred tax assets in the U.S. is -- I'm just going to give you an indication. It's just north of [indiscernible] million. And the increase in valuation in France is more or less the same amount.
Yes, perm, it's very tough to say if we can continue this. Of course, 40%, over 40%, that's not bad. And as we mentioned quite a few times, this is a part of the business that is, well, the best or the most elaborate currently fueled by tax. So our people hit the market. And you know perm is a volatile market. You really need to design your context right. They're doing that very well. And perm in general, you know this slide in our road show deck, it's still relatively small as a percentage of gross profit, although in France it's now getting to 7%, 8%, but there's no objective reason for this not to continue. As long as we can grow, we'll grow. It's not like we have 50% market share, whatever. And we've been doing this for years, and the maximum is in sight. So we're still optimistic on the potential of this growth. What we're not doing in SME is maximizing price in SME. We don't think that's good. At the end of the day, part of our pricing is also the fact that we are an efficient company. So we give a decent price both to small companies and to large companies, but -- given the fact that SME is a good segment, yes, it helps our overall margin mix, as we called it earlier in the call. So that's good stuff, but we're not maximizing price. It's something we never do. We don't compete on margin either. And we don't maximize short-term results because, of course, there's also to a certain extent probably price elasticity. If you outprice a certain segment, you also not do well, so we're trying to time this as good we -- as we can; and so far, so good. By and large, our SME space outperforms our large client space in almost all markets, partly our ABFS steering and the fact that we aim for these markets; partly also where the markets, certainly in Europe, is going. We're now in a phase where SME has a lot of demand, and we can help them there. And we're big, as you know, and very close to local communities and clients.
Yes. And on perm growth in France, one addition: availability of candidates. It's pretty good. And our access, digital access, to candidates supports that as well. I think that's a very strong contributor to what happens in France.
Okay. Just to follow up on the SME side there. So if we look at the decline in gross margins in temp. And do you look at that in between, say, SME and large accounts whilst appreciating there's a whole kind of range of size of times? But if you look at the SME space, would you say that gross margins are broadly similar to where we were, say, '06, '07? Obviously, you've seen declines in large accounts, but how should we think about the difference between large account gross margins and SME gross margins now?
Yes, I can't, off the top of my head, tell you that. By the way, SME is a very broad space, so -- and SME in Germany is way larger clients. Effectively, in Germany what we call SME is not a large country or global client. In the Netherlands these are really small companies because we've got a 26% market share, a very dense network, same in Belgium, so SME -- and SME in the U.S., we call SME roughly what's more than MSP clients. So it's for that reason I cannot give you, if I compare with 10 years ago, the margin for SME. As you know, 10 years ago, we were an 8 billion company. Today, we're, whatever, a [ 23 billion ] company. So it's slightly incomparable both from a business mix and also geographical point of view.
So we use, we have an SME definition per country to make sure that it's relevant to make -- to measure the performance in that country.
Before taking the next question, which is Anvesh Agrawal at Morgan Stanley, [Operator Instructions].
I have a couple of questions. The first is on the operational leverage. Now I noticed that the number of branches are, like, down circa 15% versus the peak levels of 2007, '08. And then we also have -- your revenues are up considerably. However, if you look at the operating margins, they are kind of below the historical peak. So this tells you the story of the underlying pressure on the fee rates. So the question I have is how much room you have to further cut the operating costs. Or are you able to improve the margin on a sustained basis going forward? Now obviously, in 2018, you should have some operational leverage, but I'm kind of interested in longer-term view on the margin. And the second, I've noted that you have sold off your APAC business of Monster in January. Can you please tell us the rationale behind that? And are there any other part of that business that you're planning to liquidate?
Yes, let me start with selling off the APAC business. So when we bought Monster, of course, we did a quite elaborate analysis of all these businesses. And it turned out that, yes, the APAC business was not so much in scope for us going forward, combination with our own business. It was not ideal. So we didn't see the longer-term opportunity here, so that's why we decided to sell it off. We don't have any plans to sell off anything else of the Monster portfolio here. And we're very much looking mostly towards the leverage with European markets and the American markets of the Monster portfolio and data.
Yes. And then the leverage, the operational leverage. At the Capital Markets Day, we gave you an update on our cost savings, the programs that we have finalized but also the ones that are running. The total potential is between EUR 70 million and EUR 80 million. It's comes through IT and Monster. And it will last for 2 years, more or less, but all in all I think the easiest indicator of this is the incremental conversion ratio. So additional growth of gross profit should drop through into EBITA at the pace of between 40 and 50. And we just indicated that, for 2018, we are aiming at the higher end of that range. And if you realize that our regular conversion of gross profit into EBITA is around 24%, 25%, you can see that operational leverage is significantly coming through here on the additional business. So that is what we follow tightly.
Can I just ask? I know you touched on this before, but I missed that, so can you tell us what was the write-back on the U.S. -- what was the tax write-back in the U.S.?
Roughly EUR 50 million...
EUR 50 million, okay.
[indiscernible]. So 5-0, yes.
We now go to the line of Konrad Zomer at ABN AMRO.
My first question is on the special dividend. What has decided the exact amount of the EUR 0.69 a share? And is that something that we could potentially calculate going forward if we get our leverage ratio right? And the second question is on the U.S. Professionals business. Can you tell us what specific actions you've put in place in the last, let's say, 6 months to get that business to positive revenue growth again?
Sure. Let me start -- Konrad -- let me start with the U.S. question. We changed management -- so we have a way of how we think a successful business should be run for the IT business in U.S. That's very much the mix of large clients, retail clients. As you know, as a company, we've got specific and different delivery models. And what we saw under the former management in technologies in the U.S. is that this was not rolled out as diligently and as systematically as we thought it should be. And then you don't grow all the angles. So if you leave too many -- very basic. If you leave too many large clients in your retail network, your retail network is dominated by these large clients. And they don't have the delivery model to also benefit from this. We put someone in place who had the ability to implement this far better and we see actually quite, yes, in a way, quick because he moved in early 2017. They are driving the performance. It is, in a way, an experienced company, so we didn't have to change a lot of people here, just run the business slightly differently using our good experiences. So that's what we did in technologies. In our financial -- F&A business, what we also changed here is that, if you look at the F&A business, in many aspects, certainly the ABFS part, it is very close to Staffing. So that's why we brought this company closer to our Staffing business and we will expect and we do expect the improvement also coming through here, which again, yes, you know the drill with us, is about diligent activity-based field steering. We see improvement in this business, but it's coming from double-digit decline, now into single-digit decline. There is improvement, and we hope to take that improving trend further throughout this year.
And Konrad, on your question with regards to the special dividend. Thanks for asking, by the way. We're very proud that our financial strategy is so closely connected to our overall strategy. And the special dividend, indeed it's the calculation that you just referred to, so if we are below 1.0x EBITDA, that creates the option. What we will take into account when making the final decision, of course, is to look at market circumstances and any M&A that has been announced and is in the pipeline. But basically we're going to follow the rhythm of calculating it with these elements and taking these elements into account. Let me also add that the reason why we prefer a special cash dividend above a share buyback is the fact that it supports our liquidity or does not reduce our liquidity in the market.
But just to clarify, the EUR 0.69, it still includes subjective elements that you negotiate probably with your Supervisory Board. It could have been EUR 0.75, and it could have been EUR 0.65. It's not something that we could actually determine from your actual results. I mean, if I do -- if -- I tried to calculate it myself this morning, looking at your EBITDA, looking at your net debt; and I struggled to get to EUR 0.69. So that's why I asked the question.
Well, I'll hand you over to the calculator now.
Yes, Konrad, we can do -- also do it offline. But it's leverage ratio...
So it's a straightforward calculation.
Straightforward calculation...
And [ David ] will discuss the details with you after the call. Yes, and a straightforward calculation.
Okay, our final question for today is over to the line of Andy Grobler at Crédit Suisse.
Just 2 quick ones from me, if I may. Just on the gross margin bridge for Q4, you showed temp as 0, but you've talked about underlying margins down a bit, so I guess the offset is M&A. Can you just break out how much of that was underlying? How much of it is M&A? And then secondly, just a follow-up from an earlier question in terms of wage growth. The -- as you go in to talk to clients, is that a bigger part of the discussions and expectation that in tighter markets wages will have to go up through the course of the year and how clients are going to deal with that and the various routes that they can take?
Yes, Andy. Jacques here. On the wage growth, there is quite a divide between an Anglo-Saxon market and a European market. So assuming you have Staffing part, which in Europe is the bigger part of our business, is -- in many instances of our business is predefined by CLAs. So all our German business, a large -- all our Inhouse business, our large client business -- so for the bulk of the people that we deliver, it's CLA based. So it's not a "I can provide you this temp, and let's discuss the salary." Of course, that is the case in more niche-y jobs. And we do see wages going up there, so that's all good, but that's a limited part of our business and as such has a very limited effect on our total business going forward. In general, as this collective labor agreements get, like in German one, voted upon, and there's an improvement, over time you will see the improvement. But I would expect the 2018 results and growth being very much driven by the volume of people we have at work and not so much the wage effects.
And Andy, on the temp margin, the right way of looking at it is that the temp margin underlying is stable. So what you see here is a cocktail of some pricing pressure in a few markets compensated by the growth and the mix of the business overall. So it's underlying stable.
Okay. So just on that because you mentioned that it was still down in France. So...
Yes, correct.
At the -- so on -- for the temp margin as a -- and you will have had OC and so forth within that number. So where is it going up underlying? Who was up...
Andy, Ausy is not temp margins. So Ausy is a business model which is outsourcing, so these people are on our payroll. So it doesn't -- what we're talking stable [ margins ] in France, we're talking the margin going forward. And it's not declining, so that's good. In the Netherlands it's also slowly decreasing, which again is the cocktail of walking away -- sometimes, we still are making new contract at a lower margin. We don't walk away from everything. And increasing margins through mix in the SME space. So...
Yes, yes. And if you summarize and sort of look at it from the helicopter: We have pricing pressure, but as I said at the beginning, it's not deteriorating. So the priority here is to make sure that we try to improve it. Secondly, the key thing is that we try to get the right ICR, the incremental conversion, out of the growth. That is clearly top priority. It's relatively basic, but that sets the priorities for the management team here.
As that was the final question in this call, may I please pass it back to you for any closing comments at this stage.
Well, thank you so much for joining us in this call. And we're looking forward to meet you again at either the AGM at the end of March or at the Q1 presentation late April.Thank you so much. Have a good day. Bye.
[indiscernible]. So thank you all very much for attending, and you can now disconnect.