Adecco Group AG

SIX:ADEN

Earnings Call Transcript 2018-Q3

[Operator]

Ladies and gentlemen, welcome to the Q3 results 2018 analyst conference call. I'm Alona, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Nicholas de la Grense, Head of Investor Relations; accompanied by Mr. Alain Dehaze, CEO; and Mr. Hans Ploos van Amstel, CFO of Adecco Group. Please go ahead, gentlemen.

[Nicholas Edward de la Grense, Head of Investor Relations]

Thank you, and good morning, and welcome to the Adecco Group Q3 2018 Results Conference Call. I'm joined today by Alain Dehaze, Group CEO; and Hans Ploos van Amstel, Group CFO. As usual, before we begin, please review the disclaimer on Page 2 regarding any forward-looking statements in this presentation. On Slide 3, you'll see today's agenda. Alain will begin with the highlights of the quarter. Hans will follow with the review of the financial performance and a comment on the outlook for Q4. We'll then return to Alain with an update on GrowTogether, which is a key element of our Perform, Transform Innovate agenda. And finally, we'll open the lines for Q&A. Alain, over to you.

[Alain Dehaze, Group Chief Executive Officer]

Thank you, Nick, and good morning, ladies and gentlemen. Welcome to our third quarter 2018 results investors call. I will start with the slide on the key highlights. Trading in the quarter was in line with what we described at the -- in September investors seminar. Revenue growth slowed to 2%, driven by lower market growth in most European countries. And overall, we are pleased with the results in what is a challenging market environment. We had many example of success. In France, our largest business, we continued to outperform the market, and we delivered 5% organic growth with a strong margin, supported by operating discipline and price discipline. We also saw improved growth in Japan, and the rest of the world where our focus on driving for profitable growth is showing results. And we had another strong quarter in permanent recruitment with 19% organic growth. We also made excellent progress on GrowTogether, which is now scaling up and delivering tangible results. GrowTogether productivity savings offset a significant part of the margin from headwinds CICE from Germany and strategic investments. And the savings will continue to increase to the Q4 and into 2019. You'll see the benefits coming through in the margins of the countries where GrowTogether is further developed: the U.S., U.K. and France. We are very pleased with the underlying margin development, especially in light of the slowdown in top line growth. We recognize the importance of turning around Germany, which was a 20 bps drag on our margin year-on-year. Needless to say, fixing it is at the top of our agenda, and as we said at the investors seminar, it is taking us a bit longer.Lastly, I would like to highlight the impact of our recent acquisitions, which had a positive impact on the business mix and contributed to the overall gross margin increasing by 20 bps year-on-year. General Assembly and Vettery are high-value businesses in high-growth markets, and we are very optimistic about the contribution they will make in the years to come. And with this, I hand over to Hans for more insights on the financial performance.

[Hans Ploos van Amstel, Chief Financial Officer]

Thanks, Alain. We will now run through the financial performance in more detail starting with our revenue growth. Revenue growth slowed in the third quarter to 2% organically and trading day adjusted. The slowdown was in line with what we communicated at the investors seminar in September. It is clear that the European economy slowed over the summer period and into the fourth quarter. There's some one-off factors in there. For example, automotive was weak because of new regulations in Europe, but the slowdown was quite broad-based, so we keep watching it carefully. That being said, we believe that we're in a period of positive stability, more that we're in the period of positive stability.Looking at the individual regions. You can see that the slowdown was very much market-driven. Our growth was ahead or in line with the peers in most regions, with the exceptions being Germany and the Benelux. In our largest market, France, growth was strong at 5%, extending our market leadership and confirming the strength of our commercial strategy. If you take into account the CCA changes, you can see that the growth is coming through with a nice margin, confirming our strong cost and price discipline. In North America, U.K., Ireland General Staffing, the revenues were stable. North America was flat. We're encouraged by the growth trends in October. The U.K. decline of 1% reflected generally soft market conditions. Remember also that last year, we benefited from new clients wins delivering strong growth. In this quarter, the 2% decline in Professional Staffing in North America, U.K. and Ireland was in line with the Q2 results. Our U.S. retail business continued to perform well. The total results were held back by our IT enterprise business, which is still being impacted by a couple of large client losses. In Germany, our revenue growth underperformed in a slowing market. Professional Staffing and permanent recruiting delivered solid growth. In General Staffing, which is the largest business, the growth was negative. The market is softer with weakness in automotive, and there are also some negatives from regulation changes.But as we discussed at the investors seminar, the larger part of the slowdown was driven by the merger of our Adecco and Tuja brands. In the Benelux, growth slowed in both The Netherlands and Belgium due to softer market conditions and reduced amount at a few large clients. Therefore, we remain focused on diversifying the mix as we are too reliant on large customers in these markets. Italy decelerated in line with the market trend after 8 quarters of double-digit growth. Iberia also slowed with the market trend. Japan had a great performance on both the top line and the bottom line. Lee Hecht Harrison, which is a countercyclical business, was down 4% in the quarter. And our sales continued to outperform the peers and is gaining market share. We have a truly differentiated offer in career transition, and this is resonating well with our customers. And it will become even stronger with General Assembly's workforce transformation capabilities. The need for rescaling and retooling is there. Turning to the EBITDA (sic) [ EBITA ] margin, down 40 basis points in total. In more detail, the reduction of the CICE tax credit of 7% to 6% had a 15 basis points negative impact. Our strategic investments in digital and IT had a 30 basis points impact. The German transformation also impacted the results by 20 basis points. Recall that we're making investments in Germany to strengthen our recently merged General Staffing brands, Adecco and Tuja. We're making fundamental changes in our go-to-market strategy, and these take time to become established. It's fair to say that these changes will take us longer than originally anticipated as we already highlighted in September. Therefore, Germany will continue to impact the results in the short term. It is the right thing to do because it will strengthen the German business for the medium term and the long term, creating a strong #2 in the market. This leaves the 25 basis points positive margin improvement in the balance of the business, confirming our strong cost and price discipline and that the GrowTogether benefits are being delivered, particularly driving the margin in the U.S., the U.K. and France. Looking at the profitability at the country level. Continued strong profitability in France. Product mix, price discipline and productivity improvements helped offset the investments and the reduction in CICE. The lower CICE has a negative 60 basis points impact. North America, U.K. and Ireland General Staffing benefited from productivity gains from GrowTogether, which more than offset the digital investments. North America, U.K. and Ireland Professional Staffing delivered a strong margin. The improvement in the underlying margin paid for the investments in Vettery, keeping the overall margin stable. The 210 basis point margin decline in Germany, Austria, Switzerland was driven by lower productivity, higher bench costs and investments in the General Staffing business transformation in Germany. In Benelux and Nordics, the margin declined by 100 basis points, impacted by client mix and negative operating leverage. In Italy, the improvement in the temporary staffing gross margin and strong growth improvement in recruiting resulted in a 40 basis point margin improvement. Japan had a strong quarter with positive business mix and improved pricing more than offsetting strategic IT investments. Profitability in Iberia was impacted by the IT investments and the temporary misalignment of cost as revenue slowed in the quarter. In the rest of world, our strategy of focusing on client mix and quality of growth continues to deliver strong results with the EBITDA margin improving by 30 basis points. LHH maintains its strong margin leadership. The total career transition and talent development margin was impacted by the consolidation of General Assembly, which is still in an investment mode.Let's now look at gross margin and SG&A, starting with gross margin. The reported gross margin is up 20 basis points. M&A had a positive impact of 30 basis points, driven by Vettery and General Assembly. These are high-value, high-gross margin businesses. Currency had no impact this quarter. This leaves the organic gross margin down 10 basis points. Permanent recruiting had a positive 30 basis point impact. Career transition had a negative 10 basis point impact. This leaves a 30 basis point reduction in the temp gross margin. CICE had a negative 15 basis point impact. The remaining net 15 basis points is driven by pricing and mix, which is similar to the first half results. On SG&A, organic cost growth was 3%, slightly above sales and gross profit growth. If you look at the more precise and the rounded numbers, around 1/2 of that comes from the organic strategic initiative investments. The German integration also impacted the productivity. Looking at the headcount, the business did a very good job adjusting the cost to the lower revenue growth reality. Investments in acquired companies, General Assembly and Vettery, had a 5% impact on SG&A. It is important to look at our total conversion ratio, which both includes all the investments, which includes General Assembly and Vettery. And the German rec, the total conversion ratios continues to be very strong at 26.9%.Turning to cash flow. The average cash conversion for Q3 was 78%. This is similar to the second quarter conversion. Days sales outstanding was 54 days versus 53 days last year, and in Q2, a slight increase, but important to note that the quality of the receivables remains very high. We are very focused on the quality of our receivables. Net debt-to-EBITDA, excluding one-offs, was 1.1x at September 30, 2018, compared to 1.4x at the end of June. We expect leverage to be at around 1x at the end of the year as we continue to buy back stock in the fourth quarter.Turning to the outlook. Revenue growth in September and October combined was plus 1% organically and trading day adjusted. This confirms the exit rate was below the Q3 growth rate. Remember that for the fourth quarter, we have a slightly tougher comparison base. In France, we get no CICE for the month of December 2018. This is the outcome of the transition from CICE to a new system of Social Security reductions in 2019. Not getting the December month was unexpected. It's a one-off impact. Next year, we get the full 12 months. On the group gross margin, the impact is about 25 basis points in Q4. This is on top of the continuing impact of the reduction of CICE from 7% to 6%, which has been effective since the start of this year. In Q4, we will deliver the balance of the targeted EUR 50 million GrowTogether productivity savings for 2018. Before I hand back to Alain, I think it will be useful to give a few comments on CICE for 2019. The French budget has now been published. Some of the details are still to be confirmed, but we have a pretty good idea of what the impact will be. There are a lot of moving parts, but the key implications are: first, CICE will be transformed into a permanent reduction in social charges from January 1, 2019. The 6% CICE will be replaced by the 6% reduction in the employer's health insurance contributions. This is pretty much a 1 for 1 replacement of CICE. In addition, there will be an extra subsidy for lower salaries, which starts from October 1, 2019, so from Q4 of next year. This is worth up to 4 percentage points reduction for employees earning the minimum wage, and the reduction decreases to 0 at 1.6x the minimum wage. We cannot give the precise implications yet because we still don't know how this will be allocated over the wage brackets.From an EBITDA perspective, the new social charge reductions should be a slight positive versus the current CICE once the additional subsidies kick in from October 2019. This leaves a small gap for the first 3 quarters because of the impact of the employee profit-sharing. We're not talking about material amounts. At the net income line, however, the new subsidies are less favorable than CICE. CICE was nontax deductible. The new subsidies will be taxable. So we will effectively have to pay the 32% French tax rate on the value of the subsidies. Most of you already have this in your models. We will have to look at what measures can be taken to offset this impact. Price discipline and pricing will become even more important now that the net impact of the subsidies is reduced.With that, I would like to hand back to Alain to talk about our strategic and operational progress.

[Alain Dehaze, Group Chief Executive Officer]

Thank you, Hans. And indeed, now I would like to talk a little bit more about GrowTogether, which is a key pillar of our Perform, Transform and Innovate strategic agenda. With GrowTogether, we are transforming our core operation for the digital age to drive customer centricity, increase efficiency and create more differentiation in all solutions. It is already improving business performance, and we clearly see that in the quarter with the 25 bps underlying margin improvement despite the slowdown in sales.GrowTogether touches the entire value chain, covering 3 core activities: first, sales or finding the clients; then, recruiting or finding the candidates and filling the order; and finally, middle and back office, going from pan capture to invoice accounting and support functions. Specific initiatives are driving results already, and we are only at the beginning of this journey. I can give you some practical examples. The first one about the document digitization. We have taken initiatives in our French business, and this initiative is about process or the automation processing of more than 30 million paper documents. Also in the U.K., in the U.K., we have replaced multiple client relationship management system with a single sale for dot-com-based platform allowing each consultant to spend one additional hour a day on client-facing activities. My last example is coming from the chatbots. And the chatbots, being rolled out in the U.S. and Europe, enabled an average engagement increase of 400% compared to email, saving up to 20% of recruiters' time. As we invest in GrowTogether and roll out new tools and capabilities, we are driving true differentiation for the candidate and the client, establishing a real competitive advantage. And the productivity enhancements are lowering our cost to serve, with a target of reducing SG&A by EUR 250 million by 2020. So GrowTogether is about driving productivity, creating differentiation and improving the customer experience. Now coming to the concluding messages. We have an exciting strategic agenda to Perform and Transform and Innovate. On Perform, we delivered a solid quarter in a slowing market. We recognized the importance of fixing Germany. And even with Germany and all the investments we are making, we continue to deliver the best conversion ratio in the industry. On the Transform agenda, we are delivering the first benefits in line with our commitment. GrowTogether is scaling up and will continue to support productivity improvements in the quarters to come. We delivered the first EUR 50 million in 2018 on the way to EUR 250 million in 2020. And with General Assembly and Vettery, we are driving exciting innovation in our industry, which is confirmed by the positive reaction of our clients.To finish, I would like to thank all of our worldwide colleagues for their commitment and engagements. I'm pleased to say that the positive environment that they help create every day has once again been recognized in the Great Place to Work survey where we ranked in the top 5 for the second year running and the third year in the top 10. And with this, I would kindly ask the operator to open the line for the questions.

[Operator]

[Operator Instructions] The first question from the phone comes from the line of Anvesh Agrawal with Morgan Stanley.

[Anvesh Agrawal, Research Associate]

I got 3 questions. The first, can you just give a bit more clarity on the organic growth development throughout the quarter? I mean, September is the biggest month and you did 1% versus July and August, 2%, but still under Q3 at 2%. So I mean, something, something doesn't add up here. And then second, on the outperformance in France, which is substantial versus peers. Is there any particular contract that is driving that? Or do you attribute it entirely to your initiatives, therefore, it should continue? And finally, you flagged some large client losses in Benelux and North America. I mean, what drove it? Did you lose it to your peers on price? Or they were in-sourced? Or they were won by new tech startups?

[Hans Ploos van Amstel, Chief Financial Officer]

I will start. So what we saw, and I think that's the most important point, it's in line with what we discussed at the investors seminar, after the summer, we didn't see the growth picking up. So when we entered September and we saw that in October, you see that plus 1% trading day adjusted that there are some trading days impact in September versus October, which have an impact. But in total, I think the key message to walk away from that, we saw in July, August, still the growth a little lower than we saw in Q2. There were some growth. September, October, we see what we called that positive stability of plus 1%. And you have seen that in the March, we performed very strongly in France. There, you saw also the market flowing. You saw that in Southern Europe, and that is acting the key message that when we enter Q4, we see a plus 1%, and that's -- we call that positive stability.

[Alain Dehaze, Group Chief Executive Officer]

Good. And then on France and outperformance, yes, we are very pleased with this outperformance. It is also clear that in France, we have our strategy at work. We have -- remember, we put the 2 companies together, Adia and Adecco. We put the segmentation in place, the pricing strategy and pricing discipline, but also the perm. So we are really gaining market share in a very disciplined way. You can also look at our profitability. We have the strongest profitability among the peers. And it is not only in the dual temporary staffing where we have a broad-based growth, it's also in the perm. In the perm, we had 30% growth in Q2 in France. So no particular reason regarding a contract, it's really broad-based and in all the businesses. Then about your third question regarding U.S. and the Benelux, large client losses, price and so on. I think it's a little bit different. In the U.S., the volume was impacted by some reduction at a few large clients. And you know both in the Benelux and particularly in The Netherlands, but also in the U.S., we have a portfolio. A big portfolio is mainly driven by large customers. So as soon as some of them are delaying or their order and so on, you have impact. And in the U.S., we have some delay to the on-boarding of some new clients. The gross improved in the quarter, and we expect to be positive again in Q4. The Netherlands, it's a little bit of the same, change of, let's say, delay of ordering at this big customer, but no particular, let's say, big customer losses due to pricing reason, absolutely not.

[Anvesh Agrawal, Research Associate]

Okay. So just to be clear, your October growth on underlying basis was in line with September at 1%? You're not seeing any sequential slowdown?

[Alain Dehaze, Group Chief Executive Officer]

No, no.

[Operator]

The next question from the phone comes from Paul Sullivan with Barclays.

[Paul Daniel Alexander Sullivan, Director & Analyst]

A few for me. Firstly, on just gross margin. Lots of moving parts as usual, but seems to be a few more in the fourth quarter. Could you give us some help in terms of the bridge from Q3 to Q4 or year-on-year, however you want to do that? And similarly, in terms of SG&A in Q4, were you -- are you prepared to give us some guidance on that? And what proportion of the EUR 50 million savings has been delivered to date? And then finally, any thoughts on labor reform in Italy and any potential impact from that?

[Hans Ploos van Amstel, Chief Financial Officer]

Yes. Good questions, Paul, because we need have a lot of moving parts moving around. So first, I think what's important, what we discussed, we have what I call a wide month of no CICE in December, and that was a negative impact of twice the 5 basis points negatively for the group in Q4. On top of that, we have the recurring impact from the 7% to the 6%, which for the first 3 quarters was around 15 basis points negative. So the 2 together, I would say, a small 40 because December is a little bit, you could say, you can double count, but December is always a little smaller. But I would say the small 40 bps from CICE in France at a group level. M&A will be similar to Q3, plus 30 basis points. So that will be a positive. You've got a help from the bank holidays in Q4 by 10 basis points. And then we have some negative accrual impact last year in Q4, which we don't think we have in this Q4. That's another 10 plus. ForEx, we come to an outlook, but I would assume you could keep neutral. And then you can add the usual dynamics, which I have less visibility on, which would be how our perm business is developing, what will happen on the clear transition. And I think on the temporary pricing and mix, I think the run rate we're seeing will be a fair assumption to make. So that's on gross margin. On SG&A, couple of points. We will continue to invest in our digital transformation with GrowTogether and the New Ventures. There's a small refacing between Q3 and Q4 because we were a little bit more positive in this quarter versus the guidance. We said that we have 40 basis points strategic investments this quarter and 30 in Q4. I would put 40 basis points in Q4 for the strategic investments. Germany will continue to weigh on the productivity in Q4, that's still with us. The good news is that GrowTogether savings are coming, and that will help. So if you add that all up, then I would expect Q4 SG&A to be up 5% to 6%, including the M&A Vettery and GA, which is around 5 basis points. So we expect year-on-year, and I'm talking year-on-year, I'm not talking sequentially, that organic SG&A will be stable to plus 1%.

[Alain Dehaze, Group Chief Executive Officer]

Okay. Now on Italy, I do assume you know the detail of this new regulation, the reintroduction of the reason for use of temporary work contract, the reduction of maximum length from 36 to 24 months and the quantitative limitation to 30% of your labor force as temporary workers. Now this Dignity Decree is de facto in application since yesterday because it was 1st November. But as you know, 1st November is a holiday in Italy. So I was personally in Italy some weeks ago, I met customers, and there is still unclarity about the way customers will react towards of this Dignity Decree. I can only give 2 comments. First, especially in case of unclarity like today, customers are looking for flexible solutions like the one we are proposing. Second, we had different type of contract. And we have also, in Italy, the contract of temporary staffing with indefinite duration. So the same we have also now in France, for example. And I can imagine that there will be a way, let's say, to react to this Dignity Decree by adapting the type of contract we are proposing to our customers. So all in all, confident.

[Hans Ploos van Amstel, Chief Financial Officer]

One question you asked is also regarding -- added to the first point is GrowTogether. You can't be -- that was the good news in Q3. We're really delivering the results, and there's positive momentum we can talk. So I would say 45-55 between Q3, Q4 but not weighing a lot in Q4. I think one of the positive surprises we have until Q3 is that the GrowTogether savings are really starting to kick in, which is good news.

[Operator]

The next question comes from the line of Alain Oberhuber with MainFirst.

[Alain-Sebastian Oberhuber]

Alain Oberhuber, MainFirst. Could you give us a little bit of detail regarding the tax rate? I think it's pretty difficult for you to give us an indication, but it will clearly help particularly in the light of the new subsidies in France. And then just regarding September, October. Could you give us a hint, which markets performed better and which [least]? And my last question is regarding the auto manufacturing sector. When do you think we could see the bottom of that sector in Europe?

[Hans Ploos van Amstel, Chief Financial Officer]

I'll start with the tax rate. This year, our tax rate will be at around 27%. As you rightly point out, the CICE change to the social security reduction will have an impact on the taxes because we didn't need to pay taxes on CICE, whereas the subsidies will be taxed. We are now giving -- we're giving, normally at the end of Q4, an update on next year's tax rate, but what is -- I can give you, which is easy, is CICE was around EUR 200 million, and that will be taxed at around 32%. And we give the real tax rate because business mix at the end of Q4, but you can calculate that 200 times 32% will have a relevant effect on the tax rate for next year.

[Alain Dehaze, Group Chief Executive Officer]

Regarding the question on the market, Alain, as you know, we don't give -- we don't provide an exit rate by country and so on. What I can -- just what I can tell you is that basically when we look at Americas, the U.S. and we look at Japan, the trend is consistent with the previous quarters, no big change. The slow growth -- the slowing growth, as mentioned during the investors seminar, was coming from Europe, and that's what we see being -- and especially in the Southern European countries, France, Spain and Italy, where you have seen also some revision of the GDP figures. This is also confirmed by our figures. And then, sorry, I didn't catch your -- the last question about manufacturing. Can you please repeat your question?

[Alain-Sebastian Oberhuber]

Sure, Alain. Just regarding the development of the auto manufacturing sector. We see a downturn here. Could you give us maybe some or your best guess when we could see this downturn in the auto manufacturing sector, and particularly in Europe and specifically in Germany? Do you have any view already there?

[Alain Dehaze, Group Chief Executive Officer]

Yes. I think there are different elements in the slowdown of the auto manufacturing sector in Europe. First, it is linked to this new regulation regarding the control of the pollution. And that every new car having been manufactured before being entered in the market has to go into a test center to test the emission, and this is -- this new regulation is really blocking, let's say, the enter -- the entering of this new car into the market. And so you have -- especially in Germany, you have a huge parking with new car being produced, but waiting for -- to be controlled before putting -- being put on the market. So manufacturing auto is one point, but we see also that there is a slowdown, which is broad-based in the manufacturing and not just auto.

[Hans Ploos van Amstel, Chief Financial Officer]

Yes. With that last point, I think what's important to reiterate is that we see that positive stability automotive play, but it's not like we see in Q4 that, that would give us a...

[Alain Dehaze, Group Chief Executive Officer]

New dynamic.

[Hans Ploos van Amstel, Chief Financial Officer]

A positive. So that, I think, is important to mention.

[Operator]

The next question comes from the line of Chirag Vadhia with HSBC.

[Chirag Vadhia, Research Analyst]

I've just got 3. What is the headwind from temp-to-perm conversion on volumes? Secondly, how much growth you need in the SME segment to put the U.S. back into positive volume growth territory? And within this, what is the gross margin and conversion margin difference between the large account and SMEs? And why did you not move to SME focus earlier? Or if you did, why has that not particularly [worked]? And finally, are you comfortable with the cost-savings run rate? And do you think you can -- if you can sustain this?

[Alain Dehaze, Group Chief Executive Officer]

Sorry, your fourth question?

[Hans Ploos van Amstel, Chief Financial Officer]

It's on the cost. Maybe ask...

[Chirag Vadhia, Research Analyst]

So yes, it's -- just if you are comfortable with the cost-savings run rate and if you think this could be sustainable.

[Hans Ploos van Amstel, Chief Financial Officer]

Yes.

[Alain Dehaze, Group Chief Executive Officer]

Okay.

[Hans Ploos van Amstel, Chief Financial Officer]

Maybe we start there and then continue SME. And then I will give a little bit on the temp-to-perm and the volume. So we're very pleased with the cost progress we made into the quarter, we have with that revenue. So that shows that our people have a good grip on the cost, and that is important. The second point into the quarter, which is important, that the first benefits of GrowTogether are kicking in, which is pretty much driving also that underlying 25 basis points improvement in the operating leverage, whereas we firstly have low level of growth, whereas we were making adjustments into the quarter because we still have some markets where we need to adjust. So we believe that's sustainable because the GrowTogether benefits are driven from our initiative. We know everywhere we were bringing GrowTogether to life, both from the new [ perform ] methodology as well as the systems and the new technology we're bringing. So that should put us on track also forward on '19 to deliver on our GrowTogether savings.

[Alain Dehaze, Group Chief Executive Officer]

On the SME about the U.S., we have to separate the analysis according to General Staffing and then Professional Staffing. In the General Staffing, in the brand Adecco, you know that we have a big -- our portfolio is mainly large accounts, and I already commented that. And yes, we are doing some efforts to develop our SME portfolio. But as you know, it takes time. It takes time to gain these customers, and it is -- also it takes time to be able to compensate the large customers with many small customers. So it takes time. Then in the Professional Staffing, in fact, we have an excellent performance in all the, what we call, the retail business. The brand's special counsel [ Soliant et al ]. They are performing very well. But we have lost some large accounts in modest IT, where, there, we have, in the enterprise business, we have large accounts and we have lost some of them, which is giving this picture. But again, on the retail side, we are very pleased. We are also very pleased with the performance of the professional recruitment in the Professional Staffing, strong double digit, which is also typical of the maturity of the cycle, but very pleased with that, too.

[Chirag Vadhia, Research Analyst]

And sorry, what is the gross margin and conversion margin difference between the large accounts and the smaller SME ones?

[Hans Ploos van Amstel, Chief Financial Officer]

I think what is important, we're not going to give too precise because this goes a little bit. Also, our pricing is -- what is good to know I think on the whole segmentation, we have a more balanced mix between small and medium. That is really margin-accretive, and also from a growth point of view, is driving our market share. I think markets like Spain, Italy, France are good examples where we have a good mix between small and medium and large on Onsite. So it's definitely margin-accretive. So that at least it has a better pricing and that, with cost-to-serve, is improving the margin. You could ask why didn't we do that before in the U.S. I think what's great is that in the U.S., our small and medium is less than 15% of the business, whereas for the group, it's 35%. So it will help us drive profitable growth in the U.S. And if you look this quarter, the profitability in General Staffing in the [ U.S. ] region was up at 30 basis points to our margin structure. We need to drive more growth. And so October, we see a little bit more positive momentum. So we're very positive that through that segmentation, we will improve our market share and the profitability.

[Operator]

The next question comes from Simona Sarli from Bank of America.

[Simona Sarli, Research Analyst]

A couple of questions from my side. One is a follow-up on the GrowTogether. So if I understand correctly, as of Q3, you have already achieved the EUR 40 million to EUR 45 million of the total EUR 50 million. So the question is what might potentially drive a bit in Q4 to your total savings of EUR 50 million? And the second one is on Germany. So if you could please provide an update on where you stand with the reorganization of Tuja in General Staffing? So what are still the next steps for you? And how much of the sequential deceleration was purely related to auto?

[Hans Ploos van Amstel, Chief Financial Officer]

Yes. Maybe I'll start and clarify one thing, and I apologize if I didn't come out clear. When I said 45-55, I was referring to the percentage split of EUR 50 million. So a little less than 1/2 of the EUR 50 million got delivered in Q3 and a little over 1/2 of the EUR 50 million will be delivered in Q4. So just to clarify that. So -- and that confirms that there is -- that the programs, which we have put in place, are starting to work and are delivering the results. On the wake of auto, we should not overplay that. That was something which played into the quarter. But it's important to endorse that we saw in September, October this plus 1% and that we saw a broad-based slowdown. So we're not expecting that automotive impact into the quarter by the material difference of change when we go into Q4.

[Alain Dehaze, Group Chief Executive Officer]

Now regarding Germany, Simona, first of all, it has to be noted that not all the German business is challenged. So as I said earlier, we have a solid growth in Professional Staffing. We have also a strong solid growth in perm, but that's where the transformation is taking place at the General Staffing where we put the 2 staffing brands, Adecco and Tuja together. So the formal merger has started since the 1st of May. So Q3 was the first full quarter in which we have the 2 combined organization. Now where are we? We have consolidated branches and the support functions. We are implementing the so-called segmentation, so putting in place 2 different organization, one for the onsite and the other one for the branches. And you know that in this process, you have to carve out from the branches, the Onsite business, and put it in a dedicated organization. And then on the retail organization, the retail network, we are putting in place the, what the so-called, CCPM, which is our customer and candidate performance management, which is our commercial system, which is pushing the organization to increase their visit where we are measuring the number of visit, the efficiency and the intensity of the visit, which is a major cultural change. And we are putting there also a new front-office system for the 2 combined organization. So yes, it is like we said in September, it is taking time. It is also -- it will take longer than we anticipated. But on the other side, it is very important to drive this transformation and build the strong #2 we want to have on the German market. So convinced it is absolutely the right thing to do. We know the recipe because we have already applied the recipe in other countries. Remember France, but also Switzerland, Norway, Australia. We are applying the recipe, which has proven its results.

[Operator]

The next question from the phone comes from Michael Foeth from Vontobel.

[Michael Foeth, Head of Industrials Team]

I have one question left regarding the strength in your perm business, the 19% increase. Can you say how much of that strength was market-driven and how much relates to market share gains on your side, maybe differentiating France, North America and the U.K. a little bit? And then how sustainable do you think the growth in perm is, i.e., where do you think are we standing in that perm recruitment cycle?

[Alain Dehaze, Group Chief Executive Officer]

Yes. Indeed, we had 19% growth in this quarter following 3 quarters at 18%. I would say that the growth is broad-based between the General Staffing and/or dedicated brands, the professional recruitment brands, both strong growth in both businesses. Geographically, strong growth in the U.S., double digit. Double digit in U.K. You have heard 30% in France, but also Italy, Spain. So it is really strong, broad-based, broad-based.

[Michael Foeth, Head of Industrials Team]

And is the market growing at the same pace? Or are you gaining substantial market share?

[Alain Dehaze, Group Chief Executive Officer]

When we benchmark our figures, you will see it also when we benchmark our figures against the typical players in this market, the pure players, we are gaining market share.

[Operator]

The next question from the phone comes from the line of Hans Pluijgers with Kepler Cheuvreux.

[Hans Pluijgers, Head of Research of Benelux]

A few questions from my side. One follow-up on Germany. Of course, you already gave some, let's say, some indication how everything is progressing. But how do -- how long do you expect, let's say, the negative impact will continue? I assume also Q4 would -- how far maybe into next year we should calculate, which has a slight negative impact from Germany. And secondly, looking at the U.S., could you give some feeling how, let's say, there was a breakdown once between volumes and price. And how do you see, let's say, the average contract period per temp developing? Could you give us some feeling on that? And then on Q4 of 2017, could you give maybe some feeling how that, let's say, the development, the growth been through the quarter? What is, let's say, the strongest months? So could you give some feeling on how the trend was through Q4 of 2017? And then lastly on the one-offs, slightly somewhat lower than last quarter. You have indicated, let's say, it would be about 65 -- EUR 50 million to EUR 65 million for the full year. Previously, if there's anything changed in that, could you give some guidance for the one-offs for this year?

[Alain Dehaze, Group Chief Executive Officer]

Okay, good. Germany, how long, I will repeat what I had said during the investors seminar in London a little bit more than 1 month ago. It will take time. And what I said in London is that we were anticipating around 1 year of process, and I can only confirm what I have said in September. So 1 year from there. Now on the U.S. On the U.S., yes there is some wage inflation, depending -- blue collar, white collar, around 1% to 3% for blue collar, 2% to 4% for white collar. This is what we see today in the wage inflation. So it means that in some business, we have a volume, which is negative. The average contract period, let's say, this is very linked to the type of business we are in. It's logistics. What is for us more important at this stage is to look at how many customers we are winning and especially how the ramp-up or the so-called peak is going on in this fourth quarter, and there is a good traction on the ramp-up right now in the U.S.

[Hans Ploos van Amstel, Chief Financial Officer]

And on your other 2 questions, so if you look at Q4 last year, we said we needed to be mindful that we're having a stronger comparison base in Q4. If you look at how the growth developed last year over the quarter, I wouldn't read anything specifically into it. December was a little bit strong, but also had the trading days impact. And that those 2, as always, you cannot look at them as [1 or 1 less 2]. Because if you have less trading days, it can be here. So I wouldn't read anything. We had this just strong quarter in Q4 of last year on the growth. Restructuring so far, indeed, has been lower than we guided during our Capital Market Day of 2017, where we said we need around EUR 200 million to execute the whole GrowTogether initiative. It's hard to keep forward-looking guidance, specifically on the one-offs and potentially organization costs, but we were continuously focusing or strengthening the productivity. And we'll use that money when we need to execute on our GrowTogether program.

[Operator]

The next question comes from Tom Sykes with Deutsche Bank.

[Thomas Richard Sykes]

Just quickly. So on General Assembly, it looks like you're about mid-20s in revenue and probably about high single-digit loss in Q3. Would you maybe just be able to flesh out what your expectations are for General Assembly and whether you're putting anymore cost in or taking it out whether the losses would decline? In terms of the cost base, sorry, just to be clear on what you're saying for Q4, did you say total costs up 5% to 6% and organically up about 1%? And given that your temp gross profit now looks like it's probably organically flat to slightly declining, are you looking at any more, slightly more substantial cost savings across the group that might occur in Q1, Q2? And then just on Onsite, could you maybe, if possible, be able to give us a clue as to how fast Onsite is growing relative to the rest of the business, please?

[Hans Ploos van Amstel, Chief Financial Officer]

I'll start maybe with -- General Assembly is running in line with the plan. And essentially, it was the level on the investment thesis we set. What's good to see in the quarter is that General Assembly is driving the right level of growth we were looking for, so very pleased with the growth, but also already having some good momentum with the [ cross ] selling with some of our other customers, which is helping some of the growth. And the investments we're making are in line with what we agreed when we bought the business. On Q4, to clarify, your conclusion is right. The total SG&A will go up 5% to 6%, which includes General Assembly and Vettery, which account for 5% points, which gets you to the conclusion of the 1% organically. And on the temp gross margin, we see what we have been seeing. So it's not a change. CICE, we explained indeed, that the underlying pricing trend side is at around that 15 bps. Some of that is in Onsite, so we see modest growth because recall we have this positive stability. It's not in the quarter a high level of call-out on the growth on the Onsite.

[Alain Dehaze, Group Chief Executive Officer]

Yes. And on the Onsite, just to add this, yes, we have a double-digit growth on Onsite, and this is the best-performing segment to date.

[Thomas Richard Sykes]

Okay. And sorry, but just to...

[Alain Dehaze, Group Chief Executive Officer]

I'm looking at the time. I see that there are still 2 people in the queue.

[Thomas Richard Sykes]

No problem. I'll catch up with Nick.

[Alain Dehaze, Group Chief Executive Officer]

Yes, if you could offline...

[Thomas Richard Sykes]

No worries, it's fine. Don't worry.

[Alain Dehaze, Group Chief Executive Officer]

Thank you.

[Operator]

The next question comes from Matthew Lloyd, HSBC.

[Matthew Lloyd, Head of United Kingdom Small and Mid]

I'll try to be as quick as possible and apologies to Tom for cutting him off.

[Alain Dehaze, Group Chief Executive Officer]

Sorry.

[Matthew Lloyd, Head of United Kingdom Small and Mid]

It's all right. Very quickly, I've asked this question to about 8 to 9 people in the staffing industry, and I get very different responses. So some people get emotional, some people are slightly concerned. Is there an issue at the moment with large account getting the right fill rate, and therefore, you're -- because you're getting volume declines, but some wage rate inflation, which is perhaps less than one would expect given the demographic profile of the people you're placing. Have you got a problem with fill rates? And do think there's one in the industry causing a question about large account?

[Hans Ploos van Amstel, Chief Financial Officer]

Yes. I maybe give an answer to that. I'm happy you follow our business closely because fill rate is a very important statistic for us, not only with large clients. And I think it's an opportunity for us with new technology, and this is where I think we can really win with the locals. Because we see like in France with our new candidate portals, we can attract better candidates and fill the order faster. So this is, I think, one of the opportunities why I think we will be able to drive through growth. This is not a new issue always. If you look at the fill rate of the industry, and I've been a retailer, I always ask this question, and I think through technology, we do it already with people, on events, we do it with the new candidate portals. So I think it's an opportunity, and it will -- the people who really leverage technology will be -- coupled with talking to the people, it's an opportunity. And it's not a new phenomenon. I think people will probably -- that's why you get inconclusive answers, give you many stories. But it's a huge opportunity for us.

[Operator]

The last question comes from the line of Marco Strittmatter with Zürcher Kantonalbank.

[Marco Strittmatter, Analyst]

Just a quick one. Are you sticking to your EUR 200 million one-offs in total that you were talking about on the Capital Market Day last year? So is this still valid, the total restructuring charges of EUR 200 million? And then on the Capital Market Day 2018, you also mentioned the possibility of -- a possible additional cost in connection with the slower growth you are experiencing. Is this still something you are worried about? Or is this something we should be worried about?

[Hans Ploos van Amstel, Chief Financial Officer]

Yes. I'll -- first, yes, the EUR 200 million on the reorganization restructuring costs with GrowTogether for the coming years, we keep. So there's no change in the guidance. Where we are happy with the quarter, and that's better than the investors seminar in London, is that we've done a very good job on driving the productivity while the revenue slowed. I think this is why we have a little bit more positive earnings than what we have highlighted there. So our people have done very strong job on the cost discipline. And secondly, the GrowTogether savings, recall over the first half, we talked that we were in an investment phase. We're putting in systems. We were going to the Nordic. That Q3 had more benefits from GrowTogether, which is also positive. So I think we're giving a more positive message now than we did in September in the IR day with that. The cost discipline is there, and that GrowTogether is driving that to the next level. I think that is the positive of the quarter.

[Alain Dehaze, Group Chief Executive Officer]

Thank you very much to all of you. Before I give back to the floor to Nick, thank you for your great questions. We'll meet some of you during the road show. And if you have still open questions, don't hesitate to reach out to Nick offline. Happy to answer your questions.

[Nicholas Edward de la Grense, Head of Investor Relations]

Yes. So thanks everyone for joining us. The Q4 full year results will be on the 28th of February. We'll see some of you before then, but if not, have a very good Q4. And we'll speak to you in the New Year. Thank you. Bye.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.