Randstad NV

AEX:RAND

Earnings Call Transcript 2019-Q4

[Operator]

Hello, and welcome to the Randstad 2019 Q4 and Full Year Results Call. My name is Mahan, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand over to your host, Jacques van den Broek, CEO, to begin today's conference. Thank you.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes. Thank you, Mahan. Good morning, everybody, here from Diemen. I'm in the room with IR, Steven and David and Henry to take you through our Q4, but of course, also the full year.Let's jump immediately to Slide 6. And I think the heading says it all, performing today and preparing for tomorrow because that is what we're doing. We are running the company, of course, on actuals, but at the same time, creating through a digital transformation, a bright future. And that goes hand in hand, and I think we can look back on a good year in that sense. So we're satisfied. Solid set of numbers in ongoing definitely uncertain macroeconomic situations, predominantly, we think, in Northern Europe.Before going into the quarter, I want to take you back to the entire year. A theme already for the full year has been the resilience of our portfolio. The rest was great throughout the year. Europe, yes, certainly. Germany was tough for the full year. But at the same time, the U.S. was stable despite some slowdown in our industrial part, but we're very happy with the performance of our Professionals business over there.If you look at our total portfolio, we have a EUR 50 million, 5-0 million, less EBITA in Germany, and we run quite a set of investment activities in digital and IT. And still, overall, as a percentage, the same EBITA. Professionals throughout the world also showed very good results. Our Dutch business, Yacht, record year with an 8% dividend -- an 8% EBITA. OC doing very well and also Randstad Technologies in the U.S. But overall, many smaller Professionals business is also doing very well. So you know, certainly the ones that have been following us for quite a few years, is that we were struggling at some point in Professionals, but we're very happy with the part it is -- the very profitable part it is of our business.Then to digital transformation, digital transition. I want to highlight a few things. We talked about it at the Capital Markets Day, of course, but still, maybe not everybody was there.Let's start with workforce scheduling. Midsized clients, where we install a self-planning tool on premises, and we equip all the temps in the pool with their own app technology so they can plan themselves. We now have more than 1,800 sites live in 15 Randstad countries, which helps us, certainly, in -- for example, a market in Germany to have growth, underlying growth with, of course, some challenged clients in the automotive sector. But also in France, if you look at our top line numbers there, definitely helps.Data-driven sales, where we equip our people with the knowledge to go to clients when there is a need and to share with them labor market data relevant to the job we're looking for on behalf of the client. This results in more visits, some 25% more client contacts in the pilot groups where we have been testing this.Customer Delight, again, a data-driven support system, if you will, where we go out to all our stakeholders, our candidates, our clients, to find and to find out what they appreciate in the service most, which -- well, not surprisingly, is mostly the human touch, staying in touch throughout their assignment. Certainly also, for example, when their assignment ends. A system that has been developed in Belgium, now been rolled out to 10 countries and counting.What I really like about this Customer Delight is that it directly influences the behavior of our consultants. So every day, almost, they get confronted with the demands and what their stakeholders appreciate. And they can adjust what they're doing or do more of some specific actions or less. And last, but certainly not least, value-based pricing. This goes hand in hand with data-driven sales because next to sharing data or the availability of certain profiles, there's also a pricing tool. So you can imagine that if we have -- if our consultants have a really data-driven, fact-based conversation with our clients, that they are willing to pay more. And even in markets where, like the Netherlands, we see negative growth, our pricing for the people we deliver to our clients has actually increased. Value-based pricing is not a quick fix. You need a big set of data, external labor market data, our internal data. So this takes time to go from country to country, but we are preparing for 2020 to take this to Belgium, France, the U.K. and the U.S. And it has a clear tangible positive impact on our gross margin.Then to our team. We are for -- to a large part, a new team, very happy with the fact that René Steenvoorden will be proposed at the next AGM to step up to the Board.IT, data, digital is crucial for our strategy. Maybe 10 years ago it was a qualifier to be in this game. But today, it is a part of what we do. It's a part of what our consultants are doing, and René will lead an increasingly global effort on IT.Then Rebecca Henderson moved up to the Board very much towards global clients' enterprise, which we shared with you at the Capital Markets Day. Enterprise clients that have spent EUR 500 million at least on contingent and perm and want to be serviced throughout the world. A little bit more on that one later.Karen Fichuk, taking care of our North American business, will hit the ground running. She has a background in data-driven sales. So how applicable can that be to what we're doing.And then, well, as we mentioned in the press release, François Béharel was up for a third consecutive nomination as a B member, that will not be prolonged. This is on the agenda of our AGM. So therefore, we also would like to mention that today. François and I, of course, through many years, have worked together well. We're currently discussing the handover of his EB duties.And then, of course, looking back on the year, I know a lot of colleagues are listening in, and I want to thank everybody at Randstad throughout the world for their great effort and the great job they did throughout this year. And of course, we'll be coming for the full year -- the jury is still out, the [indiscernible] still needs to present our numbers in a few weeks, but we're quite sure that we are the #1 HR service provider for the full year, which, of course, is still a landmark moment. We're very happy with that. So back to Q4. Solid performance, challenging environment. The growth slightly eased in Q4 compared to Q3, predominantly driven by, as we call it, Northern Europe, Germany, as you can see, permeating into the Netherlands, already saw that in Q3, but it's aggravating into Q4. And also Sweden, a market which we don't talk too much about, but also a market that has large automotive clients and also has everybody on the payroll. The Swedish model is like the German model. So weathering those trends is a tough act.Overall, the trend is stabilizing but still negative. The North American growth, as I mentioned, it has suffered slightly, mainly in industrial. We are also understaffed there, in the Staffing business, predominantly, so we brought in 100 more producers in our Staffing business.So also, perm, yes, the development of perm is always a sure sign of confidence in the economy, down 5%. The January growth rate, we quoted it at minus 3.5%. It is broadly stable, although the Netherlands, where, many of you know, there's a new law, the labor market imbalance, if you would translate it. We suspect quite a few clients already in Q4 taking out people. But yes, into January, we do see also a slowdown -- a further slowdown in the Netherlands, although the good news is that the cost -- and the cost of flexibility increases in 5% to 6%. We've been able to pass it on quite well. So for the gross margin, it won't make much of a difference. It might even be good news.And then in France, you've seen us growing in Q4, but definitely, the effects of the strike, which you also see in the prism -- in the labor market data or the temp data over there. We don't expect ourselves to grow in France as we see it now in Q1. So those 2 have a bit of a downward effect on our growth rate. Overall, pretty stable. The U.S. even sees slight uptick into Jan.So we took market share, also important for us, relative performance. Even in Germany here, with the minus 15%, we're doing better than market and quite a performance. France and Italy also doing well. Rest of the world going well, yes.And then finally, of course, the free cash flow. We shared that with you. Record free cash flow, certainly in Q3, also looking very good in Q4, a big achievement for all of our people in the operation, but certainly also in finance department, and therefore, giving our shareholders a EUR 4.32 per share, which is 28% more compared to last year. But 5 years ago, it was a little over EUR 1. So quite a lot happening there, which is consistent with our story that, of course, top line is very important. But we are also a value-creating company for the long term with quite stable and increasing returns.Let me take you to Slide 7 to give you a bit more color on the individual regions and countries. So U.S. Staffing. Inhouse, for example, doing very well in terms of new clients, also driven by our workforce scheduling tool. But yes, we do see less demand with these clients. And at the same time, as I mentioned, we want to put in more producers. We've put in 100 more. So we expect ourselves to be closer to market into '20. That's definitely a theme. In general, we want to invest more in the U.S. market. As you know, we're the #2 with a 3.5% market share. So we do see a lot of potential in this market. Very happy with our Profs, the RT business, the technologies business, which is a predominantly staffing and perm business, but also a solutions business, similar to OC, where we provide a service to clients, doing very well, a well-run business. Very happy with our results there.Canada, a stable operator in our business, slightly less growth, but still growth, with ongoing good profitability. For the full year, our U.S. EBITA went up. Our North American EBITA went up 10 basis points, slight pressure in Q4, but that's mostly one-off stuff that fall positive or negative in a quarter. So therefore, we'd like to look at the full year.Mentioned France. I remember some 1 or 2 years ago when France didn't do too well, voicing my confidence in the team and the way it's run and also the digital tooling, where we do a lot of experiments also in France. Well, it looks good. Again, here, workforce scheduling, some 500-plus clients. As you might know, we started this new service in France, and we have 500 clients that use this service.Professionals, OC doing well. But also, we have a healthier business in France that shows a double-digit growth. Here also, the EBITA looks very good here as sort of the opposite approach, very good for the full year, but 6.1% for the full year compared to 5.5% and some tailwind for CICE. And I said a positive growth for Q4, but given also the strikes, we don't have less people in terms of volume at work compared to Q4, but they work less hours because it's quite tough to get to work, and we do think -- we do hope that this will ease out soon because everybody in Europe needs to work longer, but that's more my personal opinion.The Netherlands. The Netherlands is our home market, and it's a mixed bag, so to say. Yacht, our Professionals company, had a record year, 8% EBIT on a little over EUR 500 million revenue, including the acquisition we did 2 years ago. Doing very well. A company active in the government sector, filing interim management in mostly the social domain of the Dutch government and municipalities. So that's doing well. Also Tempo-Team, our second Staffing brand, hit the EUR 1 billion revenue mark. Very happy with their performance.And then yes, Randstad, on the one hand, being the market leader, most present in large automotive trucks, that sort of businesses and also the value chain into Germany in automotive. But yes, we also think we could have done a bit better ourselves. So we also changed some management positions in Randstad, hopefully creating also new momentum getting into this market. The Dutch colleagues are very well supported through technology. So a bit similar to France, we'll get back, so to say. Very good profitability. Of course, that's also something we achieve as a -- or strive for. As a market leader, we want to set the pace and the tone in that market. As you can see, a good and increasing profitability.Then on the new labor market law, where the Dutch government aims to make fixed work less fixed and flexible more fixed, meaning our price goes up. And again, with good pass-on of the cost, a little bit of pressure on the volume. Of course, partly related to the economic circumstances, partly to the law. It's early days. We need to see how this pans out. But certainly, from a price point of view, margin outlook is pretty solid in the Netherlands. Then to Germany, stable, I would say. We hoped that in November, although that was an easy comps, we would see a bit of light at the end of the tunnel. Actually not -- and also currently into the new year, it's not deteriorating. That's what I can say, but it's not bouncing up either. As you know, our people have been in [Foreign Language], which is German for working 10% less per week. Governments support the scheme, but that would end on the 1st of July this year. We didn't see that was good enough in terms of cost containment so that's why we were -- yes, it was necessary to take out another 300 colleagues in Germany. Not happy about that one. What I would like to say is we're very happy with the cooperation of the workers' council. We're the only company in Germany in our sector with our own workers' council. And they've worked very well, very constructively with us on -- in these tough times. Then we've launched a commercial program because at the same time we want to sell more. So they call it back to basics. And in Q4, our commercial efforts have been 30% to 40% more than last year. So very happy with the fighting spirit of our German colleagues. Q4 from an EBITA point of view, looks weak, but for the full year, it was 2.6%. Please remember that, in Germany, where everybody is on our contract, negative top line, certainly double digit. It's just in terms of idle time. And so compared to other countries, that hits us a bit more.Going to Belgium, yes. What can I say? It stabilized. And actually, here, you see the negative growth of 3% slightly easing. So helpful there. Again, this is -- I think Professionals up 10%, which is mostly the -- historically a part of OC. We merged our Randstad business and our OC business and Professionals. Doing very well. Also here, Q4, from an EBITA point of view, looks very good. Absolutely happy with that. For the full year, it is a stable picture at a little above 6%.We never talk much about it, it's a small country, Luxembourg, which is run out of Belgium. It's, if you will, a regional Belgium from a managerial point of view. We appointed a new MD there, Marc Lebrun, internal development, and I got a bet that Marc, that he is going to become the #1 in Luxembourg, like many office colleagues have done before him. So Marc, if you're listening in, give it your best shot. I'm counting on you.Italy, also one of our companies that had a great year. This is one I have mentioned where we undercut a bit in the amount of people, producers we put into our U.S. business. I think in Italy we called it well. As in France, leaving people into the business, trying to catch a wave in the market. And that although a slight negative growth, better than market, great perm growth at 20% and a stable high dividend. So very happy with our Italian performance for the full year and also for the quarter.Then we go to the southwest to Iberia. The Spanish market actually growing. Very happy with that performance. As we said, so most of the more negative growth is definitely in Northern Europe. Southern Europe, France, Iberia, Italy actually looks better.Rest of Europe, pretty much stable pictures compared to Q3, so not a lot changes there. The EBITA margin is very much impacted by the result in Sweden. Again, as I mentioned earlier, everybody is on our contract. So a downturn hits us, certainly, if it's at big clients where there's not a lot of offsetting these people into the market, so that's what it is. Rest of the world, 10% of our total sales, as we mentioned earlier, very good growth. Of course, this morning already in press got a lot of questions on corona. Our Chinese business, which is a small business, everybody is working from home. And also, this week, in Singapore, it was ordered by the Singaporean government that everybody ideally should work from home, which we're doing. We do have the technology to support that. So it's a bit improvising, but that's what we're doing in these 2 markets. As far as we can see now, we don't see any fallout in terms of no ready supply or anything, no major mentioning with our clients that is already hurting them. So, so far, so good. Of course, well, if you talk about that, when you talk about a virus that actually people are dying, so of course, that's not a great situation. But from an economic point of view, so far, so good in the region for us.And then finally, spent a lot of time on that one in the last quarter, but still to get back to you, what are we doing in our global businesses. It's very much fueled by the enterprise fuel. So enterprise, large clients throughout the world. We are creating for them, also for our [ midsec ] clients, certainly, for them, the biggest talent engine in the world. This is where Monster fits in. Monster has around 200 million people logging into Monster. We're updating the technology so that they leave their resumes, and this will become a big machine, a big machine where all Randstad databases, all Randstad websites will form one talent engine to use and to fuel the data we use with clients because, funny enough, almost regardless of the economic situation, many people, many jobs are tough to find, and tough jobs are tough to fill. And that's where we come in. So still, this is also where, of course, most of our investments come in.So hard work but doing well. What we -- what you do see, you might ask. Okay. Sourceright is down. Where is that coming from? Well, we do have in our MSP business some large clients in the U.S. and the U.K. They've toned down their hiring a bit. But our pipeline looks very strong. We mentioned Tania de Decker presented a new contract with a client. That's a recent win. And we are very confident that throughout 2020, we'll land more deals.EBITA margin up, mostly improvements at Monster, costs taken out. And finally, not mentioned here, but I would like to mention the RiseSmart, our digital outplacer, where we are rolling out that platform to many more markets. We did an acquisition in Australia. You might remember rolling it out to Sweden, Italy, Netherlands, Belgium, creating a global offering on this product. Growing double-digit and fast in the U.S. And also, we enlarged, we enriched their portfolio. So not just outplacement, but very much also career coaching. Maybe you remember Rebecca talking about the fact that with our large enterprise customers, we increasingly talk about the fitness of their own workforce. So instead of just talking about bringing people in, we also look at the employability long term of the fixed workforce for our clients, which is very much a theme in the U.S. and into Europe. So a lot going on there. Very much a investment platform for the future of Randstad.And with that, I hand over to Henry.

[Henry R. Schirmer, CFO & Member of Executive Board]

Thanks, Jacques. So I'm on Page 13. So in general, a strong year for us. So let me dive into the quarter 4 results in a bit more detail. As mentioned by Jacques, the company delivered another solid operating performance and continued volatile markets. And we are pleased to show strong gross margins, controls, quality OpEx and excellent cash conversion.While being mindful of market uncertainty, our healthy gross margin performance provided room for continued selective investments, securing competitive growth. And as you know, it's important for us to balance short-term performance with positioning the company well for the long term. So before I run you through the P&L in more detail, let me point out that our growth numbers are not adjusted for hyperinflation accounting in Argentina, as the impact for the group is very minor.So revenue in quarter 4 was down 2.8%, with around half of the decline coming from automotive. Europe remains challenging, but is showing some signs of stabilization, while the industrial and manufacturing side in the U.S. experiencing some slowdown. And this is important that we can rely on our strong portfolio. Globally, our Professionals' businesses are performing well and we enjoyed continued strong growth in Japan, Australia, Brazil and India. And equally important is the fact that we could continue to achieve market share gains in several of our countries without losing focus to further drive pricing discipline.So the wider use of value-based pricing in the context of ongoing tight labor markets helped delivering another quarter of robust gross margin performance, 20%, up 20 basis points year-over-year and is motivating us to roll out the concept even more aggressively.As you know, there are also some supportive mix effects at play, which I will lay out in the gross margin section.Operating expenses were up 1% year-over-year, reflecting our ability to support our most promising growth opportunities whilst going through continued efforts to adapt our cost levels to harsher market realities.And also, we continue to invest in our digital capabilities to further future-proof Randstad and kept on funding our most promising growth opportunities across the group.As you expect from us, it's all been done with focus on tight field steering. Personnel expenses are down 1% and FTEs are also down 2% year-over-year. EBITA came in at EUR 292 million, with a 4.9% EBITA margin. And this reflects the 30 basis points decrease year-over-year, but underlying sound quality set of results, with significantly fewer incidentals in quarter 4 year-over-year.On the next line, integration of one-off costs were EUR 38 million. The majority of charges taken are sitting in the Netherlands, where booking -- where we booked the transition fee provision related to the implementation of the balanced labor market act in addition to a regular restructuring charge. Also included was a restructuring in Germany, as already discussed by Jacques. The remainder is used to adjust our cost base to new market realities in several regions. Clearly, we are taking actions where we need to.Net finance costs in quarter 4 came in at EUR 12 million, a net increase of EUR 7 million, mainly driven by the full amortization of the capitalized transaction costs related to a syndicated loan. This is a noncash incidental effect. Underlying interest expenses were broadly in line with last year.Our tax rate for quarter 4 and full year 2019 was at the low end of our guidance. The full year 2019 tax rate amounted to 26.1%, with our guided range of 26% to 28%. For the next year, we guided tax rate of between 25% and 27%. So midpoint, in line with 2019. So there's always quite some moving parts, and it's good to see -- moving parts -- so it's good to see the qualitative results coming through. As promised, on Page 14, we show the gross margin in a bit more detail. So here we go, Page 14. Let me unpack the gross margin for you. So as you can see on the left, the temp margin continues in positive territory in quarter 4, actually up 40 basis points year-over-year, following positive 30 basis points in quarter 3. And in line with prior communication, we benefited from the CICE change in quarter 4 last year, but also created upside through our value-based pricing approach across our portfolio, benefiting from tight labor markets.Regions like the U.S., Netherlands, France, Japan and Spain benefited in a significant way, and it confirms our ability to price for superior value delivered to our clients globally. Please also note that our gross margin trend was sound without any tailwind from perm this quarter, actually a slight headwind, with perm fees down by 5%.The next bar on the right represents HR solutions, which shows a negative 20 basis points effect on the gross margin, mainly reflecting those mix effects of Monster.Please note that we also faced some headwinds from incidental effects year-over-year, underpinning the sound quality of our underlying results in this quarter.Turning straight into the OpEx bridge on Page 15. As Jacques already mentioned, when it comes to OpEx steering, we always try to find a smart balance, especially adjusting the cost base to the macro environment whilst securing enough funding to capture the many growth opportunities we continue to see in the marketplace. Sequentially, we reported organic OpEx down by EUR 3 million, which is a year-on-year up 1%. And please note, this primarily comprises selective investments related to the strategic digital road map and some other strategic growth areas. As mentioned, personnel expenses were down year-on-year 1% and full-time equivalents minus 2%, underpinning a tight field steering.Let me close this chart with the confirmation that our cost optimization plan of EUR 120 million is in progress and has my full attention. As stated during the Analyst Day in early December in London, we're addressing our total cost base of EUR 3.6 billion and looking for ways to further unlocking the power of One Randstad. The Randstad team is hungry to drive and invest and to accelerate its growth and therefore, prepared to challenge cost and performance paradigms in order to free up trapped resources and further flexiblizing our cost structures. We will balance our short term and the long term, protecting profitability whilst creating additional capacity to drive growth into the future. And we will see benefits of the program coming through this year, supporting our ambition to protect EBITA margins in tough market conditions and safeguarding strategic investments required to see continued competitive growth with attractive shareholder returns.So now to the free cash flow, one of my favorite charts, as you can imagine. So on Page 16, let me shed some light here what it all means for our cash flow and balance sheet. And of course, the dividend proposal. We reported in quarter 4 2019 a strong free cash flow of EUR 424 million, leading to a record-high full year 2019 free cash flow of EUR 915 million. This is a year-on-year improvement of almost EUR 300 million in absolute terms. And key driver for the good free cash flow in 2019 was undoubtedly good working capital performance, reflecting our growing top line growth, but also hard driven tight DSO management. The development of our receivables and a slowing growth environment provides another proof point of the countercyclical nature of our business model. Let me also clearly point out that we benefited from the change in the French subsidy system and from a reversal in tax payments done in 2018. Going forward, we expect another EUR 389 million CICE receivables, boosting our free cash flows over the next 3 years.The last bullet on left shows days sales outstanding, DSO, which was slightly down versus last year in Q3 2019 on the 12-month moving average. As mentioned, our dedicated DSO management is delivering good returns and will continue to be a top priority for us.On the right-hand of the chart, going straight into our strong balance sheet. So our net debt position improved by EUR 263 million versus quarter 4 2018 to EUR 1.377 billion, which includes our lease liabilities of EUR 621 million. Please note that pre-IFRS 16, our leverage ratio arrived at 0.7 versus 0.8 last year in quarter 4, on the better end of our guidance. This adjusted leverage ratio is basis of our capital allocation strategy. All in all, we propose a record-high total cash dividend per share of EUR 4.32, a year-on-year increase of 28%, close to EUR 800 million in total. This includes an ordinary dividend of EUR 2.09 per share, reflecting a 50% payout ratio of underlying EPS and an additional special cash dividend of EUR 2.23 per share, fully in line with our capital allocation policy. So that already brings me to our conclusions and outlook on Page 17. So 2019 was not an easy year to navigate. However, we managed to stay true to our core belief that strong operational performance creates a foundation and headroom to further build a state-of-the-art Randstad partner for talent, employees and customers realizing their true potential. And we are pleased to have generated EUR 950 million record-high free cash flow, enabling us to propose a very high -- record-high, nearly EUR 800 million cash dividend to shareholders, an increase of 28% year-on-year.January growth trends, as Jacques mentioned, indicated some signs of deceleration at group level. Our revenue decreased by 3.5% year-over-year, mainly reflecting weaker-than-usual return to work in the beginning of the year. Recent weeks clearly indicate a more stable trend. Please be aware that, in the vast majority of our regions, we experienced stable top line trends anyway. We are energized and confident to continue our drive for healthy gross margins. So we're definitely well positioned to monetize the added value for our services in tight labor markets, with our pricing tools gaining further traction. We do see quarter 1 2020 gross margin to be higher than last year, however, slightly lower sequentially given seasonal effects. And we expect OpEx slightly lower versus quarter 4 2019, reflecting tight field steering and the first effects of our cost optimization program. While market conditions are uncertain, Randstad is well positioned to capture growth opportunities into the future. The quality of our portfolio, strong customer relations and best access to scarce talent is giving us the confidence to thrive also in tougher market conditions.That concludes our prepared remarks, and I hope to have to shed some light on quarter 4 and full year results. So we're now delighted to take your questions. Back to Mahan.

[Operator]

[Operator Instructions] So we already have a few questions in the queue. The first one being from the line of Paul Sullivan from Barclays.

[Paul Daniel Alexander Sullivan, Director & Analyst]

Just a couple for me. Firstly, I mean, in terms of the January trends, it sounds like it -- the deterioration was all France-related. Is that the right way to look at it? And within that, is that largely strike-related? And do you have any sort of visibility as you -- as we've sort of gone through into February as to whether that's starting to ease off?And then just on the SG&A, I don't know whether you can provide a little bit more granularity on the sort of SG&A guidance for the first quarter. And how we should think about the cost savings coming through? And then related to that, restructuring charges for Q1 and for the rest of the year?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes, Paul. I'll take the top line question. It's not just France. If you talk about the deceleration, definitely, France because of the strike. Of course, no visibility into Feb because I think everybody is still surprised that people hit the streets. So who am I to predict this?But it's also the Netherlands because of the new law. We do see less people at work here, which is normal. We've seen that in many markets where you went to a legal change and the cost price went up higher. Then people also tend to get hired by the client. So on average, in our Dutch business, we have, on an annual basis, 12,000 people that go after a temp assignment into fixed employment. In January, see 2,500. So just for a month, there's a little bit more than what you would expect because of the annual average. So the law, in that sense, is having some effect, although not as massively as you -- some might expect. But early days there.So definitely, France and Netherlands, sort of -- yes, creating this slight downtick in top line.

[Henry R. Schirmer, CFO & Member of Executive Board]

Yes. Paul, thanks for the question regarding SG&A. So let me start saying that we actually pride ourselves to be very, very tight on-field steering. And I want you to see 2020 in the same vein. So come back to that, the EUR 120 million cost savings plan.The first priority for us is protect our EBITA margins also in tough market conditions. So we will not let go of that pride and that muscle we have. And therefore, also in quarter 1, we will do the utmost to steer the business in line with our top line trend.Just to give you a little more color. Obviously, we are addressing the total cost base of EUR 3.6 billion, utilizing the benefit of One Randstad. Please forgive me if I don't give you a phasing into quarters, nor will I lay out the restructuring costs going forward. But there are many parts of that cost-savings program which will not actually trigger restructuring charges. They are procurement-related. They are just performance-related. And therefore, don't lose too much sleep about big restructuring charges coming from a new way. I would probably say more or less in line with what we had in the past.

[Operator]

The next question in the queue comes from the line of Suhasini Varanasi from Goldman Sachs.

[Suhasini Varanasi, Equity Analyst]

Just one for me, please. When you think about Monster, can you give us an update on what you're seeing there? And when do you expect the declines to ease off? I think it's still down double digits in the fourth quarter.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Monster showed a slight profit with stable decline still in the traffic.

[Suhasini Varanasi, Equity Analyst]

I see. But the revenue is down, right?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes, yes, yes.

[Suhasini Varanasi, Equity Analyst]

Okay. And do you expect to stabilize this year?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes. As I said -- and it's okay that you ask a specific question on Monster, but Monster is now very much part of a total, call it, global business strategy that we're running. So we do expect to see a totally different Monster in line with a more holistic Canada strategy going forward. So yes, optimistic about what we're doing at Monster, but I cannot guide for what this will mean for the top line amount. So -- but it will also be a different business mix. So for example, we have still a lot of people selling into very small clients, where we're going to put in an e-commerce strategy. So that will be a totally different also way of producing the Monster service. So it's a little bit more than just watching the traffic. At the same time, we're investing in technology. We still see relatively high bounce rates of people that contact us. So we expect, through better technology, more candidate-friendly technology that more people will stay on site, leave their resumes. So yes, optimistic about the future for Monster here.

[Henry R. Schirmer, CFO & Member of Executive Board]

Just want to add, if I may. So for 2020, we foresee no significant impact on financials as we had also in '19. So it's very well controlled, and it's not material at all.

[Suhasini Varanasi, Equity Analyst]

Understand. And maybe just one add-on. Going into 2020, it looks like, okay, you started off the year with slightly weaker top line trends compared to 4Q and also compared to 2019. But you are talking about value-based pricing that's probably going to help the gross margins and the SG&A. So effectively, even if you have to be top line, you're still going on margin protection going into 2020? Is that the right way to think about it?

[Henry R. Schirmer, CFO & Member of Executive Board]

Yes, absolutely.

[Operator]

The next question in the queue comes from the line of Sylvia Barker from JPMorgan.

[Sylvia Pavlova Barker, Analyst]

Firstly, could I ask, on Germany? Do you have any thoughts about the margin development into 2020? Maybe provide a little bit of color around the timing of the 300 FTE cuts. And then on the back to basics again in Germany, are you kind of selling more into Staffing or Professional? And then secondly, on workforce scheduling, would you say that you're ahead of competitors? Or are the offerings you have kind of in line with what you've seen elsewhere in the market?And within the 15 countries that you have, what's the kind of penetration within the actual temps using the app?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Okay. Well, the answer to your last question is yes because we started 3 years earlier. And of course, this happens on the back of our excellent track record in Inhouse, yes, so which has never been -- well, competition, funny enough, has never been able to imitate. So yes, we're ahead there. It's still early days, actually. So I think the 1,800 clients is early days. We still see for this more pool-based, heavily tech-supported way of servicing for large clients, still an enormous market. We always said it would be 15% of our total sales from 5, 6 years ago. We now see that it's 25% of total sales. It's also permeating into Professional segments, not just started -- it started in blue collar and warehouses. So we see a bright future for this service, which, as mentioned earlier, it has a relatively low margin, but it has by far the highest conversion into EBITA, around 40%. So it's also very profitable for us.On back to basics, this is very much a program within Randstad. So our Staffing brand. So indeed, we're selling into staffing here. And the cost takeout of the 300 people will be visible in 2020.

[Sylvia Pavlova Barker, Analyst]

Okay. So the 300 people were taken out kind of end of 2019 and into the beginning of 2020?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes. No, in December, actually. They...

[Sylvia Pavlova Barker, Analyst]

In December?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes, yes, yes.

[Operator]

[Operator Instructions] And the next question comes from the line of Hans Pluijgers from Kepler Cheuvreux.

[Hans Pluijgers, Head of Research of Benelux]

A few questions from my side. First of all, looking at the Netherlands. And I know it's a little bit early days, but you're talking about price impact, let's say, increases. So you can pass it on. But at the same time, also volume impact. Could you give maybe some feeling what kind of volume impact you're seeing? You already mentioned 2,500 leaving, but what's the implication for the total volume?And then coming back on the gross margin. Yes, good development in the sales mix. Of course, Professionals, little bit help in equity, maybe give some additional feeling on -- yes -- what's the split between sales and mix? And do you see anything changing there, especially looking at the pricing such as price mix impact?And thirdly, on SG&A also going forward. Yes, of course, you're very much focused on keeping the margin stable to protect the margin. But let's say, how do you see, let's say, going forward, in case sales remains under pressure due to development? The implication also for restructuring, do you, let's say, have to take really more tough measures to reduce costs? So also including some additional charges, if you have to take it down further? Could you give maybe some feeling on that?And sir, secondly, on that, on digital tool investments, of course, you have done a lot over the last few years. Do you believe that you have to further increase those investments or, let's say, can you remain now quite stable at the level we've seen for last year?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Well, thank you for your 2 questions, Hans.

[Hans Pluijgers, Head of Research of Benelux]

Sorry about that.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes. We are -- it is indeed early days in the Netherlands from the -- from a point of view of volume. So clients, we spend a lot of time -- actually, a law like this is a good opportunity to have a good in-depth talk with your clients on how they manage their total workforce. So that has happened. But yes, it's complicated. It's a lot of information for clients to digest. The pricing, that seems solid because we went to all our clients, and we were able to pass it on rather well. So that's good. For the volume, it's very tough. There might be clients who in February, say, "Okay, well." They see a bill, the price has gone up, they take a look at it again. So that's really too early days for us.On digital, it's not -- like we shared, it's not like we need to throw more money at it to speed it up. It's very much making things robust, let our consultants work with it. Having said that, if we do see that we can speed up, for example, the implementation of value-based pricing of other elements, we will not hesitate, but only if we can manage it from a cost point of view. So I wouldn't see a massive change in our SG&A because of that. Henry?

[Henry R. Schirmer, CFO & Member of Executive Board]

Yes, on gross margin, obviously, we've seen in quarter 4, temp margin up 40 basis points. It's pretty much half the price mix, 20 basis points. And yes, we do see pricing being stable now over many, many months. And also going forward, we are very, very hopeful and confident that, that trend will continue.The question on SG&A, with regards to restructuring, same answer I gave to Paul. We have very strict policies here. If we do restructuring, you want to see a payback within a year. And that is our benchmark. So therefore, if we see a benefit, a proposal coming through, we will fund it with a very, very strict expectations on return internally.

[Operator]

The next question comes from the line of Anvesh Agrawal from Morgan Stanley.

[Anvesh Agrawal, Equity Analyst]

I just got 2 questions. First, in the U.S., where you earlier said that you previously undercut the staff and now adding the consultants there, but equally cautious that U.S. is a very tight labor market. So the new consultants you have added, have they come in at a higher cost? And we can kind of -- do we need to think about the negative impact on the operating cost because of that? And secondly, just on Netherlands, if you can provide a bit more detail on the provisioning you have done within the one-off charges you have taken this quarter and how it's likely to pay out on the cash side? What's the cash impact of that?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes, it is not that we had to hike the salaries of the consultants, and therefore, it has an impact. We're talking about 100 people, I don't know, a total of -- I don't know, maybe 2,000 or something. So that's not going to be visible. Of course, it's an investment. So you start with slightly lower productivity, but please remember that we have a 3.5% market share in the U.S. We have a good track record of outperforming the market in Staffing. So we're very confident that our management will make these people productive as quickly as possible.On the provisioning, so because of the law in the Netherlands, we used to pay a transition allowance for people after 1 year of working through us. That has now become on the first day. So therefore, we had to take a provision for everybody that's working with us sort of retroactively. So that's what this provision is. We might not fully use it. That remains to be seen, but it's really a one-off.

[Henry R. Schirmer, CFO & Member of Executive Board]

Yes. In addition to that, we have also provided for a cost adjustment based on the weaker top lines in the Netherlands, which was a part of...

[Anvesh Agrawal, Equity Analyst]

Okay. Fine. So just to be clear on that. So in -- on this provision, even if, let's say, the volumes come back, you don't need a higher provision going forward or?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

All because of this law, that's really a one-off for the current temping pool or the people that work through us. Yes.

[Operator]

The next question in the queue comes from the line of Tom Sykes from Deutsche Bank.

[Thomas Richard Sykes]

Firstly, just on the price/mix. Could you maybe just outline how strong an effect growth out of SMEs has been on your mix? And on a like-for-like basis, are you seeing the same price increases or ability to pass on prices to large accounts as you are to SMES, please? And I've got a follow-up, please, on the dividend.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

After.

[Henry R. Schirmer, CFO & Member of Executive Board]

Yes. Why don't you ask your question on the dividend?

[Thomas Richard Sykes]

Okay. Yes, just so -- obviously, on the capital allocation policy, you will have, by the end of this year, spent somewhere just short, I think, of about EUR 750 million on special dividends. And why are you dividend-ing back instead of investing into the business and perhaps broadening the business mix? You've clearly -- maybe a mixed result on Monster, but your result on OC has been -- looks like it's been quite successful. So why didn't you spend that EUR 750 million on business mix instead of dividend-ing back what is largely a CICE subsidy benefit, please?

[Henry R. Schirmer, CFO & Member of Executive Board]

Right. So let me start with your first question on the GM. I'm afraid we are not detailing that out further, Tom. I think we already been quite transparent on the numbers we're providing. And so as dividend is concerned, I think we've been very transparent and consistent with regards to our capital allocation strategy. And what we would like to demonstrate is our capital discipline and the value we are creating for shareholders here. It's actually total dividend we will pay out in '20 over '19 is actually -- expect EUR 792 million. And I can also reassure you, we do not feel constrained by the capital allocation policy to invest into our strategic priorities. So I think we can do both. We're driving organic growth. Should we see value-adding M&A coming our way, and we are obviously looking, we will do that, but don't believe we feel constrained about that policy.

[Thomas Richard Sykes]

Okay. But in terms of your acquisition policy then maybe going forward, should we assume that these are still largely going to be traditional staffing or perm businesses or close adjacencies? Or do you think you may consider a slightly more broader outlook? I mean, I guess, again, coming back to OC, which does seem to be successful, seems to be a growth and more stable business model that more success on that side of the M&A would perhaps be a good thing.

[Henry R. Schirmer, CFO & Member of Executive Board]

Yes. No, actually, we stay very, very focused on driving value organically. And in addition, as I said, if we see an opportunity to, I don't know, add to -- add market share in countries where we probably are slightly weaker or accelerating our technology footprint, we would do that, but we have an organic strategy to create value.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes, and Tom, we do acquire out of OC. I wouldn't rule out an acquisition in the American statement workspace. So thanks for the compliment, and we do like the space. It's a different space, although, of course, it's still very close to what we do. We have a 6% market share in Staffing. We have a very low market share in statement of work. So within that core, we like to grow organically as quickly as possible, with bolt-on acquisitions, very much our strategy. Yes, and then organic growth is a cheap way to grow. And then you throw off a lot of capital, which we think is attractive for our shareholders.

[Operator]

You have 2 more questions in the queue. The next one being from the line of Marc Zwartsenburg from ING.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Yes. First of all, on the Netherlands, going back to that one. You're at minus 10% in Q4, suggesting a bit at December and Jan, maybe it's trending at, say, minus 15%. Correct me if I'm wrong. But it seems that you're not ahead of the market at the moment, while you are the bigger player there, suggesting that I think with the new law, you would be able to gain market share because the little ones might be struggling even more from that regulation. The other one is your digital tools.Just thinking a bit on market share developments going forward, would you expect to be ahead of market in 2020 within the new law? And am I correct in thinking that you're down around 15% in December, Jan? That's my first question.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes. Well, minus 15% is the pessimistic case. Market share, we take a lot of market share, Marc, while still protecting our EBITA as a percentage. I think you should look into the EBITAs of competitors in the Netherlands to get a bit of a feeling how impressive 6% is. Again...

[Marc Zwartsenburg, Head of Benelux Equity Research]

It definitely is, Jacques. Sorry to interrupt, but you're currently -- you were ahead of the market. Now you're more in line with market. So is this something that you're more or less -- more disciplined than the other players while they're panicking ahead of the new regulation?

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes, I don't know. I sort of alluded to the fact that we are not fully, fully, fully happy with our performance at Randstad. So we change management most of the time where we're not too happy, and so we changed our top team at Randstad in the Netherlands. So I think that is an answer to your question.

[Marc Zwartsenburg, Head of Benelux Equity Research]

Okay. And then the next question, going back to the OpEx. How much of the EUR 120 million is already achieved in 2019? And how much of that can we expect in 2020? And should we think of the additional EUR 38 million of provision that most of that will also come as a saving on top of that number in 2020?

[Henry R. Schirmer, CFO & Member of Executive Board]

Actually, there's -- I would say, none of the EUR 120 million is in -- is already taken in '19. So we expect that to drop in as run rate savings in '20 and '21. And the EUR 38 million, I mean, part of that -- the EUR 70 million is part of the -- that product market balance which will not give you the return on our classical restructuring like we have in Germany, also partly in the Netherlands where we're adjusting our cost base.

[Marc Zwartsenburg, Head of Benelux Equity Research]

And that provision for the new regulation, that is more a phasing thing, yes?

[Henry R. Schirmer, CFO & Member of Executive Board]

No. Yes, actually, that is a charge we had to take to reflect the actual obligation put on staffing companies to reflect the liability due to the new law.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

For the transition payment, which, as I said, normally kicks in after 1 year. We now had to -- for our full -- well, working population, we had to retroactively for everybody who's in less than a year. Yes, take it as a provision. So we'll see how that pans out, but it's a totally different one, as Henry said, than just taking out producers.

[Marc Zwartsenburg, Head of Benelux Equity Research]

If I may, can I ask one on -- also on the free cash flow, Henry? What are the larger items besides, obviously, how the EBITA will develop, but the larger items in your free cash flow for 2020 in terms of cash taxes, the cash outflow provisions and CICE, those kind of items? Can you give us a bit of a feel for the sustainability of your free cash flow in 2020?

[Henry R. Schirmer, CFO & Member of Executive Board]

On those large building blocks, I think I -- a fair working assumptions there, they're broadly stable. So CICE comes in another year. Obviously, we had the benefit of an additional CICE year because the new regime started in 2019, but there will be EUR 389 million of CICE coming in the next 3 years. So a portion of that is dropping in. CapEx is broadly in line with 4% in '19. Could be, I don't know, a few million up or down. Also, cash taxes paid will be broadly in line as far as we can see it at the moment. Of course, there's -- there might be delta, depending on the top line on the EBITA generation.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes. So Marc, actually, we hope that the free cash flow will be far less because we start growing like hell in the second half of the year, but we don't see it yet.

[Marc Zwartsenburg, Head of Benelux Equity Research]

I hope so too.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Yes.

[Henry R. Schirmer, CFO & Member of Executive Board]

Okay. Thank you. Thanks, Marc.

[Operator]

So we have one last question in the queue from the line of Konrad Zomer from ABN AMRO.

[Konrad Zomer, Equity Research Analyst]

Two questions, please. First, can you give us a bit more background on the fact that François Béharel will not be appointed for a third term on the Executive Board? And secondly, your attitude towards 2020. Because I think it -- I know you manage on actuals and you don't manage on expectations. But I guess, if you look at the consensus organic growth rate for this year at minus 0.8%, January might be slightly disappointing to some of us despite you explained it very well. Now that you entered the new year, what's your attitude towards 2020 overall? Because I guess economic growth forecasts are still positive. A lot of people do not expect a recession. I guess you don't expect a recession. But in terms of managing your business going forward, are you still in, let's say, cost-savings mode? Or are you secretly hoping for a year of positive organic growth?

[Henry R. Schirmer, CFO & Member of Executive Board]

Yes. So let me get the second one out of the way, immediately, Konrad. So actually, our attitude to 2020 is we are starting the year with confidence and with really good spirits. I think we have a good strategy in place. And everybody is hungry to get into the growth opportunities we have. Therefore, we need money and funding, and we've energized the entire organization around protecting EBITA margins first. But whilst we're doing that, also making sure that we are finding investment money to outgrow our competition as we did it in the last few years. So that's the attitude.

[Konrad Zomer, Equity Research Analyst]

Okay. Yes, that's interesting.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

And then, yes, so the François mention is a very factual one. It -- this is also because the agenda of our AGM goes out. So I don't have anything else at this moment to talk about. We are currently discussing with François, with his EB how to handle his EB duties. So we'll inform you if we know more. On 2020, actually, I do have a feeling for the year, it's the year where the company turns 60. There -- I don't know if you know that, but as always, when we launch a big culture program where -- with all our 38,000 consultants we talk about who we are as a company, where we're going to, and their role into it, which we think, with all the millennials in our company, is very important. We always see a lot of increased employee satisfaction. And certainly, all the change we were going through as a company, we think it's a great moment to share with our people what we're doing, what the opportunities are for them towards all the stakeholder. So we're very much looking forward to that. Next to that, I'm turning 60, looking less forward to that. But that's also how we look into 2020.

[Konrad Zomer, Equity Research Analyst]

Well, that's a happy anniversary to both of you, then.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Absolutely, absolutely. Thank you.

[Henry R. Schirmer, CFO & Member of Executive Board]

Thanks, Konrad.

[Operator]

We have no further questions in the queue. Thank you for joining today's call. You may now disconnect your handsets.

[Jacques van den Broek, Chairman of the Executive Board & CEO]

Thank you.