Randstad Holding's (RANJF) CEO Jacques van den Broek on Q2 2014 Results - Earnings Call Transcript

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 |  About: Randstad Holdings NV (RANJF)
by: SA Transcripts

Randstad Holdings NV (OTCPK:RANJF) Q2 2014 Earnings Conference Call July 31, 2014 4:00 AM ET

Executives

Jacques van den Broek – Chief Executive Officer and Chairman

Robert Jan van de Kraats – Chief Financial Officer and Vice-Chairman

Francois Beharel – President and CEO of Randstad Group France

Linda Galipeau – President of Staffing Business, USA

Analysts

Hans Pluijgers – Kepler Cheuvreux

Marc Zwartsenburg – ING

Yves Franco – KBC Securities

Konrad Zomer – ABN Amro

Paul Sullivan – Barclays

Chris Gallagher – JP Morgan

Toby Reeks – Morgan Stanley

Tom Sykes – Deutsche Bank

Laurent Brunelle – Exane BNP Paribas

Brajesh Kumar – HSBC

Unidentified Company Representative

Okay good morning everybody. Welcome to the Randstad headquarters. I would like to welcome all the people here in the room, analysts, investors, our board members over here and I will also do a special welcome for the people on the phone, investors and analysts that couldn’t make it over here, welcome to you guys.

And as a special request for the people from the press that are here. If you want to have – and if you are one of our Board members, please refer to Machteld Merens, over there after this call.

The agenda for today is as usual, first our CEO, Jacques van den Broek will start with an operational update followed by Robert Jan van de Kraats who will touch upon the financial performance, and then we go to the outlook and Q&A.

With that, I hand over to Jacques for the introduction. Thank you, Jacques.

Jacques van den Broek

New IR guy, shorter introduction, so just finishing my coffee, but anyway. Good morning everyone, dear analysts, dear investors, people on the phone, but also our colleagues. I was told there is no video streaming which is not necessarily a big thing here. You get the slides and you get the voice which is good enough I think.

Second quarter results, yes, we did a lot. You will see in the presentation that there are quite some green shoots in terms of growth. I want to mention our U.S. staffing business really well run business, it’s really picking up throughout the quarter and even into the third quarter.

Our Belgium business, which we are going to touch later upon, which is actually growing a bit faster than mentioned in the press release, but of course Belgium as a bell weather for Europe is good and also our Dutch business, very important for the company and also picking up through the quarter.

And our Chinese business, we now have 300 people in perm professionals in China which is our single biggest business already growing at 77.0% a really impressive performance.

Also very happy with the pick-up of what we call activity-based fuel saving we are a company. We introduced this within the company in mid-March, and if we look at, I am going to talk about it later, the pick-up in the company of this concept, is really impressive with our people. Of course, there is not good news everywhere. Our French business – the French economy as such of course is still struggling.

And our German business looks like economy is taking a bit of a pause there and growth is easy. Perm placement, also a green shoot. We grew 13% in globally improvement placement and this also in markets where the economy is not yet very hot, such as France again where we grow in terminal placement.

We are very happy with that result. And which you will also see in the presentation is the balancing act, at least as far as we are concerned between growth and profitable growth, because yes, we can grow faster, but not always we like the growth. And you will see this in quite a few markets that we make some deliberate choices.

So, again accelerating growth which is good 3.5% in Q1, 4.5% in the second quarter. Very important to mention I think the gross profit growth. In more and more countries, yes, we still talk about NPEs working but we also talk about gross profit growth.

Certainly in the Anglo-Saxon environments, the UK, the US, also Australia. I mentioned our Chinese business a perm business. So gross profit and the growth there is very important. And then you see like – a confession rate of 70%. We were quite surprised by the fact that this was picked up a sort of an absolute target where our conversion rate is not something we manage as a goal in itself.

For us this was an indicator of where we were as a company, growth in Europe, high conversion rate, but already for long-term growth in America, slightly lower growth rate, that’s all of a balancing act, but 7% is 70%, and you see the EBITDA margin.

The lines pretty clear. Most of them are going upwards. Rest of the world of course is a mix bag. I’ll comment on that one a bit later. Europe is growing up nicely and you see the pickup in North America which we like and of course, as you know this is our biggest business.

Back to the slides; we showed you in you in earlier quarters as the important slides on our priorities, and the slides that are and should be above the bed of all our colleagues worldwide.

On the right-hand side, you see total talent architecture. What was that again? Our change in approach towards large clients. We don’t go to clients anymore, this is a bit black and white of course like. We're Randstad. We are the second in the world. We are nice. We are everywhere. Why don’t you do business with us?

We now go the clients and we say we know you, we know your company, we know your sector and we can help you to become a better company with a better output of your people with more efficient HR processes. We've compared you against the benchmarks. We can show you where we did it. And it’s interesting for you to talk further on the topic.

This business fuels our MSP and our OPIO business and this works, where we have 30% more spend on the management globally than we had last year, and in the US we have more than 40% more spends on the management.

So very happy with that development. We also see the European markets maturing very quickly in the field of MSP certainly. And then again our in-house business, again a strong concept, still growing 15% globally. So very happy with that performance.

And then on the left-hand side where we put most of our efforts in currently and that is increasing the amount of activities in our markets, where markets are growing. We touch more clients, either by phone, either by a physical visit. Also to send out more candidates on perm jobs. That has definitely worked and that’s picking up. Bit has a time-lag.

So in all the interviews we had, the road shows we had, I've talked about the fact that this normally takes two to three quarters to really get you going in a high speed, but in some markets, we see that this is picking up a bit quicker.

A bit more on this one. I've mentioned the fact of the pick-up of this system of activity based fuel savings in our world and it definitely is picking up. We have some 30% more activities in the market compared to last year.

So if you make a weighted average on calls, on visits and then what we call candidate send-outs, candidate send-outs is the key operational indicator for your growth in perm. That h as increased with 30%, and some companies, certainly the Dutch Company, but also the German Company has higher increases in that.

We are very happy with that, but of course, it’s not like from day one today two that this gives you result. But still, there is a direct link in our company between the ability to do this and the results.

Again, our Spanish business doing really well, became market leader, grows in perm, it works. Our US staffing business, our Japanese business. Tempo-Team, Kees Stroomer is in the room. Tempo-Team, our second brand in the Netherlands, really strong on the pick-up of activity-based field steering and we see the performance.

So countries, North America, back to growth in Q2. US staffing and in-house, GP, gross profit, a growth of 10% and an improving trend throughout the quarter and also in this quarter of growth.

And perm what I can say, plus 33% and this is not a small business to begin with. And again in-house as the usual suspect, also growing in the US. In US, when we call, in-house, we also talk about Randstad’s Corporate Services which is the in-house flavor for head offices.

So this is, we are still on-site but we do all profiles, we do all perms. Very profitable parts of in-house and also growing double-digits. US crops, a mixed portfolio; very happy with the return in IT, IT our biggest business around $1 billion in US. Growth, over 3% in June.

So on a good trend there. Our engineering business, a smaller business, growing double-digits, our pharma business, small and growing double-digits, our only headache still in the US is our finance business. Our finance business historically is a mix of the three businesses we had in Vedior and the two businesses we acquired with SFN. It’s a strong portfolio. We can provide every level for our clients, but it still needs to come together. This takes time.

We have new leadership in place with Rebecca Callahan, who has a very successful track record in our Sourceright business. So absolutely convinced that she will turn the corner with this business. Sourceright I mentioned, and then in the Americas, the Canadian business, or also the Canadian economy is not great. And we are seeing that.

We see some improvement throughout the quarter; optimistic that it will improve a bit into Q3. The other good business there, we got good people there, but some headwinds economically. France, when I talk about profitable growth and the choices we make, France as you know has been an example.

Everybody talk about CICE, but of course in the early days, years ago, we already refused low margin clients. It’s definitely our ambition to create a better market in France and the only way to do that as a leading player is to strive for good relationships or profitable business relationships.

Again, we have roughly sacrificed 2% of growth which wasn’t attractive. We do see where this is going by the way. You see Greek synergy, mid-sized players, growing fast, so we know where the business is going.

We don’t think this is an effective long-term strategy and we are not doing it. Our targeted segments are in-house 25%, and this is the promise for the French market because we've got many more points of sales, and if the market picks up, we'll take market share as we did in 2010, 2011 and 2012.

Professional is a 0%, I think which in the market is pretty good and perm fees absolutely against market happy there. And you look at the EBITDA margin which again on the one hand is good, on the other hand also driven by CICE, so we always have a bit of a mix feeling about that results but, yes. It’s the result.

The Dutch business, yes, happy really. Dutch business is the business which had the biggest from minus to plus development in the quarter globally still negatively at the beginning and picking up rather quickly in June throughout the quarter. So you see it here and again, both Randstad and Tempo-Team into Q3 growing fast.

We are back to growth since 2008. We call this the Chris Heutink effect because Yacht was in my portfolio for two years and now it’s growing, so that helps. Thank you, Chris. But the whole professionals, because it's not just Yacht, also Randstad and Tempo-Team have professionals in their mix. Growing 12% which is definitely a sign of improvement in the market.

Again also here in the Dutch markets focus on client profitability, or probably a coincidence, but also roughly 2% of business we deliberately lost. There is in any market and also in the Dutch market a trend whereby some companies, in some sectors buy, yes, they sell to the lowest bidder and we know that.

Our gross profit up. And we're very happy with the results in the Dutch market. We see the margin being stable and by the way like – up and again perm 16% up.

If you talk about call it the potential for permanent placements, certainly in the staffing businesses then our benchmark is the US. In the US that business went up from like 3% of gross profit a few years ago to 8% now. So perm and staffing selling the same profiles we sell in staffing but then perm.

Our large Northern European businesses, our German business, our Dutch business, our Belgium business, have roughly 3% of gross profit. So they same starting point US as a few years ago. That concept is now being adopted in the Dutch market for example and we see the growth.

It works, and has lots of potential for growth there. Germany, it’s a challenging market. A lot has happened in Germany of course, already last year. There is an economical effect, there is a political effect and of course there is cost. The price effect is easy, so last year we started which eco pay implementation.

The price effect compared to last year is easing. Very happy again, consistent. This is about trying to manage a company worldwide. Perm growth of 37%, really picking up. So the German business is now putting in 65% more activities in the market for a person, for a week compared to last year.

So again the mix of course, this is in perm send-out. And you see the improvement there, it’s off a small base honestly speaking but we are getting there. You know, the German business has been a business which has grown with large clients, they are still and will always remain a large part of our business but we are now going to grow in white collar and into perm.

Good growth in the IT business and in our in-house business. The Tempo-Team business and again SME, that’s what we do with the 65% more activity. Regulatory changes, equal pay yes, equal pay didn’t hit volume in 2013, it’s hitting volume a bit now in Q2. Also there is a rule which is outside of a collective labor agreement where clients have said that after two years to their unions, they would do something with a temp.

So he or she has been working two years at the company, the objective of the unions then of course that these people are higher, we don’t know that’s happening yet, but at least. That’s kicking in now.

So since that gentlemen’s agreement you might call it, that two years as fast as we do see some pressure on temps working at the clients to be sent home by the way sometimes which we think is unfortunate., sometimes hired.

This is, the hiring is not the majority of this group of people, dampens our growth a bit. The growth – the decelerating growth to our Q2 seems to be stabilizing through July, so that’s – and well, a pretty gross margin.

Belgium, Belgium is, yes, back on track and if you look at the earnings in Belgium pretty good, I never compare with competition but we always were as a percentage below you will see in Belgium for years and I have looked at Belgium for 10 years. We are now above USG. For us that's a small success and also growth is picking up.

The growth in June you’ll see the exit rates for Belgium and it’s actually higher. We had an unfortunately low cut-off from June into July, also a bit estimates, sorry – from, yes, from April into June we are actually growing a bit faster than you’ll see in the exit rate. So proven growth in Belgium is 6% to 7% into June. So that’s a quite a good pick up.

UK, a mixed business. This is definitely also a business where you need to look at gross profit and perm fees. The gross profit up 7%, perm fees up 13% definitely driven by few good businesses.

Education, and construction property and engineering, we think not coincidentally the businesses that we invested in marketing in Q4 if you might remember, so that helps. Again here focus on client profitability in staffing and in-house which should damper on our top-line but improves our business over time. Yes, doubled our profits, but you know, we got a long way to go in the UK.

Iberia, very happy with our Spanish business, one of our strongly, more strongly led businesses. Made the integration of USG flawless, finished now. Our Spanish business is market leader, surpassed Adecco. It’s a long-tem goal and also focused on professionals and that’s a very impressive story in Spain.

They went from eight layer three years ago, probably number 7 eight now to a top three position and we are looking up, we not looking down. We are looking up probably we want to catch at least the number two in this business. It grew organically from zero people to 80 consultants. So, that’s a strong organic growth, professionals’ growth story.

Portugal, changed management there and at the same time changing the business from, yes, low margin to mid or high margin. So as far as working very hard with the new Portuguese management team on improving this business based on the strong market share we have, but also taking better business in this market.

You see the results, result in Spain has much improved, result in Portugal less so, so, very happy about Spain, Portugal, is work in progress. And then Italy, Italy, I think I know, is one of the countries a young market still started in 1998 where penetration which was below European levels is rising, because the economy is not that hot.

But we are growing 15% which is above market but it’s definitely also more pick up of our products there. Italy also building a professionals business, a specialty business, an RPO business. So this is coming to be a €600 million business, and again a richer portfolio over time.

Switzerland, very happy with the business outperforming the market. Poland, also the same story, and you do see the improvement in results. Japan, growth stable with 10% year-on-year.

We do have some call it legal headwinds, policy headwinds in Japan in our support business. Robert Jan is the expert. So if there is any questions, he will be happy to answer the, But growth, good growth. Japan is a business where you can have good earnings, good margins in staffing, so very happy with our Japanese business.

Australia improving on the top-line, still not enough perm, Australia as a bit comparable with the UK when I am probably a year back in developments in perm developments the market is not too great.

We got new leadership, very happy with Frank Ribuot, our new manger there and I think we are improving our business, I know we are improving our business in Australia. We are not there yet. China I mentioned, 67%.

Our Chinese colleagues always say, yes, we are doing well, but, yes we are not going to continue that way, which is okay because they still do. So we bring in a lot of people at the same time being Asia, you have also high turnover of people but still growing into now a more than 500 people business overall and as mentioned 300 in perm placements.

Latin America, we grow absolutely, but certainly in Brazil, we want to change the business from a staffing business into a perm business which is a much more attractive part of that business. So that's me, and then I turn to Robert Jan or RJ as we call him.

Robert Jan van de Kraats

Thank you, Jacques. Few additional remarks from a financial perspective. First of all, Q2 is always an improvement compared to Q1 sequentially, Q2 is the stronger quarter, but compared to Q3, it’s not as good as Q3 can be. So that’s typically the trend throughout the year. Q3 the best, Q4 a little below that, Q2 below Q4 and Q1 being the yes, the softest quarter.

This is the P&L, but underlying, I just like to point out that the growth throughout the quarter in revenues is 4.5. June came in at 3.6 and if you look at the sort of the value underlying at the gross profit development, gross profit improvement in Q2 was 6%. The gross profit improvement in June was also 6% and this is very much to focus than we have.

We are looking for revenues for sure but it needs to be of quality and there is a challenge, there is clearly a challenge in the French market and I’ll show you the exit rates later on, so you can see the June revenue rate being suppressed by the developments in the French markets.

The gross profit also includes a contribution from perm, as Jacques just referred to it, it’s 10% of gross profit right now, which is sort of coming back to historical levels, but it’s quite a while ago, it goes back to 2008.

Operating expenses here, seasonal patterns. We are including some sort of temping in our close base, some additional marketing spend, but I will get back to that. EBITDA the margin €174 million and if you look t the countries and just flip through it, there are now five of the largest populations that we have which are either returning at or just above 5%.

So that is quite a quality improvement I would say. Reported EBITDA at 173. Net finance expenses as you can see relatively low. It doesn’t include a relief of a provision due to the fact that we have negotiated the pretty favorable deal on acquiring a minority interest.

So, extremely helpful. If you look at the key financial points for the second quarter free cash flow rise at €82 million, it’s always in minus here, because it’s a challenging quarter always because of dividend payout holiday allowances. This is nothing different from the regular seasonal pattern that we see. But I will get back to it at the cash flow statement.

Leverage ratio, solid, improved to 1.3. Dividends, 0.95, just I think 66 €million or €67 million of dividend paid out. The effective tax rate at 30% roughly stable. And that includes the French business tax. EPS at 0.64 and the USG integration completed now. Synergies in line with expectations.

So, remember we acquired a €400 million revenue book, we’ll pay €20 million roughly. We added the integration expenses of around €20 million and are now generating €4 million quarterly synergies which add up to €16 million a year. We probably have a little upside to go here.

On top of that, we have one-off tax synergies of around €10 million. You don’t have to be an expert in economic calculations to find out that this is economically is a party time. So this is the final time we report on it because it’s considered to be completed then very much in line with the ambitions with the underlying ambition.

Looking at the various segments, you can see the focus on delivery models. You can see that we have been very selective in making sure that we move as we have done before, move business as much as possible to in-house where we by now have a 5.1% return.

Very, very high, it’s always an art to allocate cost properly. We look at that and that gives us the number of 5.1%. In the staffing business, you can see that although we only have 1% organic revenues growth, the EBITDA was up by 22%. And also professionals it’s closing the gap 4.5% in in-house last year equal to professional’s 4.5%.

This time the gap has been reduced from 0.6% to only 0.3% between professionals and in-house and that’s the way we should see and of course, professional is passing by the return on in-house over time.

Looking at the gross margin bridge 18.2% moving to 18.4% this quarter. We clearly see margin improvement also due to what Jacque elaborated on the focus in our business.

And the perm fees, we see margin expansion in North America, the Netherlands, very strong focus on client profitability. Again 6% GP growth, that is our key focus because there is a lot of business in selected markets available, but not at the right price or at the right condition.

We mentioned in the press release there are few payroll related favorable items which is like, sort of a regular events. There is always estimates in here and we always have some releases that were a little bigger this time and a few million more and that is included here as well.

Operating expenses, reconciling 613 this quarter with the last year’s 495. Some impacts from foreign exchange. An adverse impact but also the – you will see benefits coming through an additional €1 million compared with the previous quarter. So this is sequential comparison.

Marketing, we have invested more of that it’s a typical seasonal pattern and then we have some additional expenses due to commissions but also due to some temp labor in our own organization to support the somewhat higher level of business in Q2 compared to Q2 and then we continue to invest in our rest of the world business including the emerging markets.

Looking at net debt, down by €235 million a year-on-year solid leverage ratio, not going to go through it, but an attractive return by now of 13.3%. These are by the way also includes slightly, and that’s a very strong focus we have on overdues here and that’s a challenge in the market.

You might some read some articles about extended payment terms and supply chain finance and typically, these are not the solutions, the real solution for the problems because it generates a huge amount of work, a lot of contracting, legalities and so forth.

So we are very much on top of steering the wheel underlying these. Free cash flow, I mentioned in at the beginning at minus 82. There is nothing very, very specific here. If you look at the last four quarters to the right hand side of the slide, you can see that the last four quarters in 2013 were better than the last four quarters in 2014.

That relates mainly to the fact that we’ve paid off the Dutch tax authorities. It was a long-lasting item that was dealt with and so we should add to the Q3 we should add €131 million. You can also see that provisions, sort of flip from positive to negative. So we have been using over the last four quarters the provisions in Belgium and in France which leads to a negative cash developments here of €53 million.

So, a rather sort of stable pattern if you take that into account. Then we have refinanced the multi-currency syndicated credit facility. This is very opportunistic. I want to be very, very clear about this. This is not announcing, sort of pre-announcing any other ambition at this point in time. It’s just not the case.

We have financing in place. We always look at our competitors which are typically capital market finance which is typically more expensive. And if you look at the net finance expenses of comparable players even outside our industry you typically see high rates, we are bank financed and that is a bit opportunistic.

But we take out sort of the risk by having long-term financing in place. We were discussing a couple of the elements in the documentation. We did see an opportunity to refinance the whole picture and then we said, let’s put in the €1.8 billion, we could get a little more but we sort of took it down to €1.8 billion.

We currently pay like 1% of it’s floating and it’s floating because that’s the best touch with the cash flows our business. This is not an entrepreneurial division. This is just very factual trying to hedge the developments in our business.

And we were also looking at more favorable commissions. So we have been able to reduce the rates slightly, but you know it is still attractive and we also invest a little money all the time in having standby facilities available.

In case something happens sort of we can serve a feasible but we have now been able to get an arrangement which allows us to go beyond 3.5 EBITDA. Our internal target is 2. But external EBITDA is 3.5 times EBITDA and we have been allowed now in the new documentation to go to 4.25.

Just in case we have another 2009 perhaps repeat itself, we want to be on the safes side, but again there is no major or no relevant acquisition in the pipeline as we speak. So very happy with this opportunity and we just took it when it came along.

That brings me to the outlook for Q3. Organic revenue growth was 4.5 in June it was 3.6.

And I already mentioned the gross profit growth, we do see the gradual improvement continuing first time growth September last year and then it improved. It’s not very much the comparables that play a role here in the first half of the year because last year it was kind of stable at almost minus four in both quarters.

We do see the foreign exchange impacts continuing at the bottom-line it’s a limited impact, it was only sort of $3 million in the second quarter.

So the gradual recovery continues but we don’t see an acceleration of growth yet, but we also don’t see it getting weaker and I think that is the conclusion that you’ve be in place. This has to do with a focus, a strong focus on the quality of the business and that's what's leading us in our activity.

Same number of working days and again a moderate increases to cost bases because that’s the sequential pattern somewhat higher revenues always in Q3 when comparing Q2. Looking at the exit rates for the month of June, so we already mentioned June at 3.6 if you round it off it’s 4. In the Netherlands, it’s plus 4, France it’s minus 3.

This is the gross profit focus here. Germany at plus 1, That’s bit understated, Germany we always have to make estimate at the end of the quarter in the course of July you will then find up what the real invoicing was it was little higher, so I think this is a bit – as stated the same as like the Belgium it’s plus 3. It’s been a little higher. The UK at plus 3. Iberia at plus 6, North America continues at plus 3 the rest of Europe at plus 3 and the rest of the world at plus 8. In total, round it was plus 4. So that completes the presentation. We are now moving to Q&A. Arun?

Question-and-Answer Session

Operator

Thank you we have the normal procedure. We start with questions in the room. Please wait for a mike and after we finish here, we go to the webcast. Thank you. Please refrain yourself to two questions..

Unidentified Analyst

Thanks, on the trend of Tempo-Team, maybe not easy to quantify, could you say something about the impact of the Group and market for some public sector and also the efforts you are owned, let’s say efforts internally and they are paying off seeing into the top-line.

And then secondly, looking at the Netherlands, the gross margin is up or the gross profit is up 8% on flat sales of the gross margin is apparently up. Could you say a little bit more on let’s say what the impact has been of your perm and also the pricing impact. Let me see some positive pricing impact for example are at least now negative, thanks.

Jacques van den Broek

So Tempo-Team is improving throughout the quarter. This is very much an operational effort. So what Kees has done with his people is they sat down and they started calling in a call=center environment, so a very condensed environment.

All clients or ex clients that were in their database to just mention the fact that, well, they are there and if there was any demand and of course, we announced that, we have the feeling that that demand was coming back.

And, yes, Tempo-Team is doing that and the improvement in activity is then pays off. Most of marching sectors as such, Tempo-Teams seizes as the downward trend with large clients, the Tempo-Team also sacrificed business with large clients because of profitability reasons.

And they compensate that with different business, with better business. And as you know the challenge is always you get a better margin, but then you need to match that with a higher productivity and the good news is cautious when you start growing, you get the better conversion and then you get a better result.

So it's very much a business mix thing, David. And Tempo-Team also grows again in Perm which has an effect to us. So the total growth in perm falls directly to the margin because in the staffing businesses, so in Tempo-Team, but also in Randstad, we do this with the same people. So the conversion of that gross margin is absolutely good. Yes?

Unidentified Analyst

Question (Inaudible)

Robert Jan van de Kraats

There is…

Unidentified Analyst

…lying in the gross margin of what the Netherlands is seeing there?

Jacques van den Broek

Yes, well there is pressure in pricing, when I mentioned those who are in the Netherlands, we sacrifice close to 2% growth with clients we didn’t want to continue with both at Tempo-Team and in the Randstad. There is – that has been going on for a long time.

There is nothing special. There are clients who – and that’s their appreciation for the service we deliver, they think it’s a commodity. They have companies buying it from them and the only thing they do is just jolt down the margin and the lowest one gets it and whenever that.

Hans Pluijgers – Kepler Cheuvreux

Yes sir. Hans Pluijgers, with Kepler Cheuvreux. I’ve got two questions from my side. First of all on your presentation on page eight, with respect to the activity, you're indicating that the activity was up about 30% year-on-year. First of all, was that referring purely to perm or to the total business?

And secondly – if let's say that the increase is so significant, what was first of all at end of Q1 and how do you see it really converting into sales? How long it will take? And why not we are seeing already more from all the measures you have been implementing with respect to increase in activity?

And secondly a small question on Germany, deceleration of growth, you already said that the price impact from equal pay is diminishing. Could you split out the development in sales by volume and price please?

Jacques van den Broek

Yes, first of all to the activities, so, as I mentioned we introduced this in the company in mid-March, mid-March we had our General Managers Meeting and then we worked for two days with our General Managers on – with the guidance of the companies that we are ahead in this segment which again as I mentioned, in those days with US staffing and Spain. And they taught their colleagues on how to do this.

Also in perm, perm in staffing specifically, again based on the success we’ve had in the US, but also in Canada by the way, these colleagues taught their colleagues how to do this. They went back to their markets and they started implementing this. So, you might say that as of April, May, this started to have an impact in the activity level.

Yes, and then it's always difficult, because then you talk about conversion, conversion has to do with the market as such which is difficult of different market-by-market. It has to do with our top of mind since some companies you need to more phone calls to get a visit done in ours.

But in some markets, we got a quite return. So in the Netherlands, we have one in three. So, we have one in three, so three phone calls for one visit and when you have a visit and then the market is growing, you easily get an order.

So we call this a very rich funnel and easy funnel whereas for example in the US, it’s a tougher funnel and you need to call more. This goes back to investments in marketing that we talked a lot about in Q4.

So it’s a matter of time but certainly permanent placement is a business which is very transactional. It has to do with visiting a client, it has to do with one transaction, finding the client that needs to hire a temp.

So here we see a quite quick return on our activity levels. And then in temping it’s more gradual. So it has – as – and then it’s keeping it up and then we are keeping it up and then we are quite confident that this will have an effect, but, at the same time, you do have in some markets, our large clients just wanting less, less demand.

And sometimes we sacrifice them because, if you sacrifice one client, you want to replace this with a few small ones that takes time. So that’s the game we are currently playing. But there is a lot of things going on in the company in a good sense of the word. And then development volume in sales; so it was plus nine in Q1 and now it’s plus seven in Germany.

So, that’s so the price was 9% higher than volume in Q1. It’s now 7% and volume has gone down a bit. So volume was slightly above zero in Q1, it’s now slightly below zero in Q2. But as we see, it’s now a stabilizing picture.

Okay, next question Marc?

Marc Zwartsenburg – ING

Marc Zwartsenburg with ING. First of all, a question with regards to margin trends. Going from Q2 to Q3, last year I think it was a quite flat trends, but now also USG came into the equation, can you give us a little bit of a feel for how the seasonal trends pan out with the movements that you see in your higher margin business and also taking in account the timing of the activation of the (Inaudible)

Jacques van den Broek

I like to answer your question Marc. The answer is no because when we talk about margin, we need at least one month full report on margins and July we don’t have a month reporting yet. So as you know, there is a seasonal trend, but for example, it’s very pronounced in Belgium, it’s less pronounced in the rest of the markets.

So we expect it at least – compared to Q3 last year, that’s to have roughly the same development. I don’t see a reason why this should change sequentially, that’s very tough to say at this moment in time.

Marc Zwartsenburg – ING

Does USG has a big impact on that or on that or 10 basis points improvement?

Jacques van den Broek

No, it was in Q2, if you look at the slide of – which is number 22 you can see it was 0.1% impact in Q2. There is no reason to think that is going to be very different. So, underlying, of course it was consolidated, but that’s impact the of the consolidated USG business.

Marc Zwartsenburg – ING

Yes, and then concept will pull out?

Jacques van den Broek

We have shared some business, so underlying, it might even improve a little bit.

Marc Zwartsenburg – ING

And then another question on France actually, the trend there in June going to minus 3, what are you seeing in a market. Do you see different trends as your peers I would say, or is there any explanation with it? How do you see that’s continuing into July?

Jacques van den Broek

I have an expert in the room. And am actually an expert.

Francois Beharel

So, you're asking about the trend in June, so yes, the market is still negative. So, as Jacque mentioned, we are below the market due to a strategy to focus on profitability, we continue to consider discussions with customer. I would see that effect. So in the past, we decided to hard discussion and to continue even if we are able to improve our profitability.

So it’s still the same strategy. And we are saying that, it’s probably very dangerous to share part of what you say with customer. So the trend is still negative. We will see, we will hope an improvement probably in the market, but, you know.

CICE represents an opportunity for our customer to improve profitability, but we are not seeing new investments. So probably they are waiting for the new trend, additional, adding 10 additional CICE, €1 million additional wages, allowances, sorry.

So, probably they are the euro manual, the decrease to be sure on to be sure about the next investment. That’s what they have to do.

Marc Zwartsenburg – ING

So, now you are saying that because of your prices, CICE on your gap with your peers that the others are less disciplined?

Francois Beharel

No, CICE, we stabilize our price, we stabilize our pricing in temping.

Marc Zwartsenburg – ING

Now the answer is, yes.

Jacques van den Broek

The answer is yes. Yes, it’s a pity of course, because this is what the history has in the room. But (inaudible) is also a subsidy part in the bill rate in France, and competition, this is like 20 years ago, also competed this away. Again, we are bent on creating a better French market and I hope we are not the only one. I think Adecco is okay, the rest is questionable.

Marc Zwartsenburg – ING

So the trends are not (Inaudible)

Jacques van den Broek

Excuse me?

Marc Zwartsenburg – ING

So the trends in revenues were not changed in July?

Jacques van den Broek

No, no, no. As France is the outlier economically and both from a policy point of view. Our earnings are okay, we would like to grow faster, we will if the markets picks up, because of all the points of sales we have any announced with a good leverage then. Okay, next question please?

Yves Franco – KBC Securities

Thanks. Good morning. Yves Franco KBC Securities. Two questions from my side. Can you maybe a guidance on the OpEx or maybe on the incremental conversion ratio targeted in the next quarter, whether it will go down a bit?

And the second question, do you have some kind of targeted divisional split regarding SME and large accounts in the Netherlands? And can you tell us where you are right now with that split maybe?

Jacques van den Broek

Yes, on your first question on the incremental conversion ratio for Q3, we don’t have a target that we are sharing with you. We only gave it last time to give you some indication.

We have however explained sort of the phases in conversion, in incremental conversion and in our business if we have the first phase where growth just comes in, we typically have incremental conversion ratios of around 80%, so 20% is then spent on additional marketing on bonuses commissions.

And then over time, after a while, it typically declines towards 50% and then only in phase 3 that’s when you – so in phase 2 you start adding people.

That’s why it goes to 50 and phase 3 you start adding branches not being in-house and then it goes down of course gradually towards the regular level of EBITDA. But you have to look at it country-by-country. The US has been growing for quite a while.

You cannot expect a very high incremental conversion ratio after many, many years. Same in Japan, so the blend this time was 70% and it very much depends on the blend of the total portfolios. So, it will be high again, it will be north of 50, but we will see how much that will be.

Robert Jan van de Kraats

Yes, and then your SME thing, or question, our target is pretty simple. We want to work with as many clients as possible and within those clients we want to have the highest market share possible. But at the price we think it is agreeable for both, both the client and ourselves.

But you see economically is that, if you see more growth, is that the SME part picks up. Yesterday, in our meeting with the supervisory board here our Spanish operating management, Rodrigo Martin, and although for example the Spanish market is also growing.

He doesn’t see much demand yet in the SME, but we monitor it. In the Netherlands we do see it, in Belgium we see it. So there we see the pickup. In Germany, we’ve never been there. This is a bit black and white, but there we need to fight ourselves in, because there is a long tale of small German competitors in the SME space.

And the only way to fight yourself in, is to be there and to contact them and to visit them frequently. This doesn’t happen after the first call or the first visit you can imagine. So this takes time. So, in Germany, the SME part will definitely increase and the white collar part will increase. But that’s not, we are not like targeting a certain percentage here.

Yves Franco – KBC Securities

And maybe on the pricing question in the Netherlands, you still yesterday reported it was hard but stabilizing quarter-on-quarter, so, do you see the same trend? You gave up some market share in the Netherlands, but regarding pricing pressure you think it’s now at the bottom and will – pricing pressure will become less from now on or?

Jacques van den Broek

Pricing pressure is anecdotal. So, this is clients doing a tender and these are large clients and then everyone sort of jumps on these clients. Because we are a market leader, sometimes yes, I mean, our clients, this is not easing, this is not getting more or less.

So this is again anecdotal. You can see in the Netherlands and looking at our margin in the Netherlands is that we take the right steps to compensate for this and more. So, we are okay.

Robert Jan van de Kraats

Okay thank you, now we move to Konrad.

Konrad Zomer – ABN Amro

Konrad Zomer, ABN Amro, first question on Germany. Am I right in thinking that you provisioned for the working days throughout the year, which explain your really good margins in Germany in the second quarter?

And the second question is on the slide that got missing I think is the – your view on the different segments around the country. Can you share with us what you see in the – or modest business in Germany whether your growth rates come down in automotives? And if I can squeeze a quick one, in Japan, your EBITDA margin that you generate in Japan is that above or below the Group average?

Robert Jan van de Kraats

Yes, it’s roughly in line with the Group average. It typically is a little higher, but Jacque explained that we have some additional enforcement of compliance in the spot fields. And that is suppressing the growth a little bit in a very attractive segment, but anyway this is painful in Japan.

The real scarcity is not clients, but candidates and these people are then moving to smaller players where compliance is not as sensitive whereas we are fully compliant. So that is a challenge.

Then you asked about Germany, I’ll take that one right away, we take it as it comes. So we don’t make adjustments. We just follow the reality here. We are not provisioning.

Jacques van den Broek

And on the sectors, yes, we had to slight – yes, it’s not so scientific in a way. Automotive is not too bad. BMW is having record years, they are a good client of ours. By the way they are also the most attractive employer. So they are the one that runs that award. So people around the world, some 200,000 people have voted BMW as the most attractive employer. And they also sell a lot of cars.

So that helps. So it’s a bit from slightly up to slightly down. And so it’s not like anything is plummeting in Germany or any sectors are really plummeting. But it’s a bit, yes, it’s like a bit of a pause in a way. Policy-wise, we are not so happy with Germany.

And so what you now see is a very active and a bit dogmatic social democratic party which again is chasing the unproven scenarios of squeezing flexibility and then they think this will turn into fixed jobs which is not the case.

We issued a study, flexibility at work where we have scientifically proven or at least the universities we asked to do that is, when you squeeze flexibility, it does become fixed work, it becomes badly regulated flexibility.

So that’s not the way to go. What we also find worrying is, we totally approve a minimum wage as such, but what now you see is that the minimum wage in the Eastern part of Germany is going to €8.50.

And Poland which is 40 kilometers to the east is €2.65. This is an educated workforce with a good infrastructure. We think this is dangerous. We talk to the social democratic party. But, so far, they have the wrong policy. We think this is not the way to go. But okay, we are just facing the ground. We are lobbying actively, but yes, and again,

Unidentified Company Representative

Thanks, Konrad. We now move to the online questions. Please take over. Thank you.

Operator

(Operator Instructions) And our first question is from Paul Sullivan of Barclays. Paul, please go ahead.

Paul Sullivan – Barclays

Thank you. Yes, good morning everybody. Just a couple of questions. Firstly, on US professional. Can you give us a sense of timing or any timetable of the improvement that you are trying to get through in finance at the moment? And just what the market is doing in that particular vertical?

That's the first one. And then secondly, in the UK it did seem that contract terminations stepped up quite a bit. As you can see, the sort of renewal pipeline through the second half of the year, do you think that’s going to remain an ongoing drag through the second half in the UK or was there a specific spike in the second quarter? Thanks.

Jacques van den Broek

Yes, I’ll take your UK question and then Linda Galipeau will take your US question. Yes, we are actively shedding bad business in the UK. We – certainly in our in-house portfolio, we do have a group of clients that is not necessarily willing to pay what we would like them to pay and then we say good bye and as it – this is not a specific drag on Q2 or Q3.

And by the way, we affricate looking at the gross profit development and perm development in the UK because this is by far the most important part of our business we are focusing on. So, this is less on pure top-line.

Linda Galipeau

On the finance business in US professional, so first US professional exit rate in June was flat, so quite improvement in the quarter, the F&A business is a significant but it’s certainly not the largest business in the US. The US professionals’ numbers are very much driven by the IT segment.

So I think that’s important to note. The F&A business underperformed and their performance in June was in line with the quarter. So we’ve not seen an improvement yet, certainly the business is forecasting a solid improvement and given the new leadership I have every reason to believe that’s going to occur, but it’s yet to come through in the numbers.

It’s certainly the segment that isn’t most affected by the slowdown in the mortgage sector. That is a big user of flexible staffing, but I think at this point, its internal issues that are driving the low performance and that’s good because that’s easier to correct.

Paul Sullivan – Barclays

And just summing up on the UK, I mean 0 does that, this low single-digit you are reporting, is that a – is that likely to continue through the third quarter?

Jacques van den Broek

Sorry, I didn’t understand your question, can you repeat it?

Paul Sullivan – Barclays

The low single-digit that you are seeing in the UK, is that likely to continue in the third quarter? Do you see any sort of major shifts?

Jacques van den Broek

Top-line or gross profit?

Paul Sullivan – Barclays

Top line. Top line.

Jacques van den Broek

Top-line, okay. Again, I don’t know probably, because there is not much going on there, but our high single-digit growth in gross profits in the UK, we expect to continue and that’s good news.

Paul Sullivan – Barclays

That's clear. Thank you.

Operator

The next question is from Chris Gallagher of JP Morgan. Chris, please go ahead.

Chris Gallagher – JP Morgan

Good morning. I just had a quick question on the rest of the world. I was wondering when you would expect the margin to start improving in that segment.

Robert Jan van de Kraats

Yes, rest of the world is quite a cock tail, it’s a portfolio of countries we have significant investments in Brazil for example, where we expect to see the return is improving. So that means the investments on a net basis will start to decline.

We have ongoing investments in India. It’s quite a large operation. We run an operation with more than 1000 people in India and we will continue to invest for the next couple of quarters.

In China, actually, we are making too much profit. So, we need to speed up investments which you can imagine having being growing at the rate of 60%, 70%, 80% over the last quarters.

An organization cannot continue that too easily or accelerate beyond that level. So, we might continue to make a bit of a good return here. The Japanese business, it has the challenge in the spot field, but at the same time, it continues to grow in other fields.

So, no investments going on here and as Jacque mentioned, Australia, where we are focused on the perm business and that should start to give us returns. So, on a net basis, gradually, we should see this is improving, going forward in the next couple of quarters.

Operator

Our next question is from Toby Reeks of Morgan Stanley. Toby, please go ahead.

Toby Reeks – Morgan Stanley

Hi there guys. Could I ask a couple as well? The first is on leverage in the capital structure and I mean, it looks like you're going to have pretty much no debt by the end of 2015.

You've got an internal target of three times net debt to EBITDA and there aren't any acquisitions in the pipeline. Could you talk around your thought process of how that will pan out, particularly around the debt?

Robert Jan van de Kraats

Yes, these assumptions are not a logical so to say, it’s a method of scenarios testing and if you would follow the continued growth scenario, then indeed at the end of 2015, there will be either little or no debt left.

But we don’t know if that will happen first of all. Secondly, we don’t have any relevant M&A in the pipeline as we speak. First we might be looking at it in the course of the next quarters, we might start to look at it again. Again strategically, we are not cooking something sizable, very sizable, that’s not the share as per today.

The point is just, if you can get this kind of facility, at the relatively low cost, again, compare our financial expenses with the market, it’s very, very low. So we are making an investment here which is very acceptable, it’s rather opportunistic, it’s there. If we need it, we will use it, if not we are not going to use it.

And, getting to the underlying potential assumptions, this is not arranged in order to repurchase shares. That’s not the intention here. So, no pending sizable acquisitions, nothing in the cooks in terms of the global changing transactions, no repurchasing of shares being prepared. So that is sort of the underlying arguments here. But rather opportunistically, refining ourselves for the next five years.

Toby Reeks – Morgan Stanley

This is around the covenants being 4.5%. It’s just with your internal target too and then you're going to be 0% in 2015 and you don't have any M&A and you're not going to repurchase shares. I mean, is there scope for the dividend to increase? Or what's the thought process around that internally?

Robert Jan van de Kraats

Yes, again, this is, we try to disconnect transactions and financing as much as we can, we did see an opportunity in the market, because we typically spend a little money to keep sort of insurance options in there and we could combine it now.

If we save a few hundred then we just go for it and now we could sort of move the insurance options into the overall arrangements, that’s why we did it and again, this is financing that’s going to carry is for the next five years into 2019 and then it has two extension options that brings us into 2021. Something might happen in these years, but nothing in the cooks right now.

Toby Reeks – Morgan Stanley

Okay, so just to put the question in another way, I should just assume in my model that you turn cash positive in 2015, I shouldn't be assuming that you use that cash flow on, I mean, you've ruled out buybacks. You are saying there is nothing in the pipeline.

But I shouldn't assume that, you will look to return some of that if you go cash positive in a special dividend or something like that?

Robert Jan van de Kraats

Yes, well, we’ve studied it once more and if you go back to economic theory, share buybacks are not adding economic value unless the money is in the balance sheet for a long period of time and that’s a statement we have made before if Randstad arrives at a net cash position and it lasts for a while then.

We’ll certainly reconsider this at that point in time, because we are not going to keep cash in the balance sheet forever. But, that’s not the case at the moment, that will take a little while and then we will come back to it.

Toby Reeks – Morgan Stanley

Okay, clear. And the second one is, you touched on

Unidentified Company Representative

Sorry, I think we have to move on Toby. Next question please. Thank you for your questions.

Operator

The next question is from Tom Sykes of Deutsche Bank. Tom, please go ahead.

Tom Sykes – Deutsche Bank

I just wondered if you could detail the growth rate in the in-house business in North America please. Just it looks like it was going at about 15% in Q4 last year and it's about 7% now. I just wondered whether that was due to a lower level of transfers, Canada, or what's happening to the underlying, sort of, if you could give a view on that industrial maybe manufacturing business in the US?

And then also you just made the comment on MSP in Europe maturing quickly. I was just wondering whether you could expand on that and maybe which country you thought were adopting an MSP model more quickly than others please?

Linda Galipeau

So, on the US, the numbers we report are not net of transfers. So, in our IS what you are seeing is actually the underlying organic growth rate is improving, it’s accelerating fairly significantly. That has to do with two things.

Lots of new wins, new programs and a robust and many are saying renaissance of the manufacturing sector in the US. So the growth of the RIS segment in US is very positive. The comparative growth rates throw us off a little bit, because they include transfers. So, last year, the growth rates were primarily driven by transfers, this year.

The growth rate is driven by new wins and as you say, also the branch growth rate in the US general staffing is also up. So, I think that the interpretation is actually in acceleration not a deceleration. So I understand why that’s a bit confusing.

Tom Sykes – Deutsche Bank

Okay. And you would expect that to – is that bottoming out now, the in-house in North America should start reaccelerating again?

Linda Galipeau

Again, it’s not accelerating, the number is confusing because, it includes transfers. So you have to kind of look at the overall general staffing number to look at the health of the segment, because we move things back and forth between the branch segment and the RIS segment.

Tom Sykes – Deutsche Bank

Thank you.

Jacques van den Broek

Do you want to do the MSP one or not? So, I’ll do the MSP one.

Linda Galipeau

You do it because I missed the question.

Jacques van den Broek

Okay, yes well, good morning also to you Tom. Yes, well, MSP – we have a great team in US, an experienced team. And they are doing well and they are selling more programs. We sort of looked our new programs into Q1 and they are maturing in Q2, so that helps.

As you know our company well, when we have a strong concept, we multiply it across the world. So we now have a global team on MSP and RPO a Sourceright team and they share experiences also in our GCS team of course we sell around the world. And that fuels our growth.

MSP is still MSP is still surely in Continental Europe a pretty immature market, but lending to some coupe. In Germany, €150 million spend on the management, 33 locations is really a benchmark success. And yes, this business feeds on one client telling the other ones that they made a good choice.

So then you get a sort of a speed up. So pretty happy with the development there and we think it’s crucial, because if you look at the US, probably 85% of all corporates have a program in place, either MSP RPO or both and we want to be ahead of the curve in that development, certainly in Europe and ideally also keep up with this development in Asia.

Tom Sykes – Deutsche Bank

Do you feel like the speed of acceptance is moving up a little obviously given the reference client there, but in Continental Europe, obviously ex-UK and Europe where certainly the RPO model

Jacques van den Broek

Yes.

Tom Sykes – Deutsche Bank

And then maybe the MSP model has been there for a while. Has MSP in Continental Europe a bit more traction there?

Jacques van den Broek

Yes, well, we – in our total talent architecture approach, we don’t talk about MSP as a means, we talk about managing workforces. We talk about managing supply as we talk about compliance, we talk about a long-term HR visibility based on transparency in spend, and then you get to MSP.

So, yes, it’s being picked up and in Europe, if you look at the conferences which where we are and where we present. And the HR community is becoming more and more logical to start contemplating this and then again as more and more clients who already have adopted the similar model, then you get to speed up.

Tom Sykes – Deutsche Bank

Okay, many thanks, thank you.

Jacques van den Broek

Okay.

Operator

The next question is from Laurent Brunelle of Exane BNP Paribas. Laurent, please go ahead.

Laurent Brunelle – Exane BNP Paribas

Yes, good morning. Just a couple from me. Firstly, in Australia, could you elaborate a bit more on your good performance, which contrasts with your competitor's numbers? And is it the result of sales – your sales force initiatives?

And secondly, on France, do you expect similar performance in Q3 versus Q2 despite the circums? And then weak July, and what do you see in the construction segment please?

Jacques van den Broek

Francois will do the French – the question on France. On the first question, I heard good performance. So, thank you. But on which sector we are specifically aiming?

Laurent Brunelle – Exane BNP Paribas

Sorry, in Australia.

Jacques van den Broek

Oh, Australia?

Laurent Brunelle – Exane BNP Paribas

Yes.

Jacques van den Broek

Yes, well, I think good performances between brackets, so yes, we grow relatively fast in the large blue collar clients. We’ve not implemented in-house yet in Australia. We are doing that now in the second half of the year. So, I think we will benefit more from that.

So, our growth in the top-line, although, it’s always good to have that, it doesn’t translates yet into a great EBITDA performance. And they know that, so we have two strategies in Australia, one, as mentioned, moving large clients to in-house and the second one is grow faster in perm.

Definitely optimistic about what goes on in Australia. Not yet happy with the overall results. France?

Francois Beharel

France there is a trend about Q3. So, if we look at the trend in July last week, at professional union announced a downturn around for the week minus 4. So, I don’t know, if you feel really better.

Probably, once again, our company awaiting for the €10 billion additional CICE or subsidies to decide to invest or not. So, our – it’s doing very well. Automotive is getting a bit better, but due to a bad effect on the construction segment, it is doing very bad. So, I don’t know if Q3, but we hope that we will see. But we have no good time right now.

Laurent Brunelle – Exane BNP Paribas

Okay, thank you. And can you just repeat the exit rates in June for the rest of Europe at around 8%, but I think it's a wrong number?

Robert Jan van de Kraats

Wait, just checking the data now. Rest of Europe was plus 3%.

Laurent Brunelle – Exane BNP Paribas

Plus 3%?

Robert Jan van de Kraats

Yes.

Laurent Brunelle – Exane BNP Paribas

Compared to plus 20% in Q2?

Robert Jan van de Kraats

Plus 20% in Q2. We are now looking at the data.

Laurent Brunelle – Exane BNP Paribas

I mean, for other European countries. Is that correct?

Jacques van den Broek

Yes, we had an exit rate for Q1 of 2018 and now for Q2, it’s plus 3% in the rest of Europe.

Laurent Brunelle – Exane BNP Paribas

And maybe plus, when I looked at your performance with the European country, it was 20% up organically in Q2. And you are talking about an exit rate of plus 3%?

Robert Jan van de Kraats

We will we have a look at it and we’ll come back to this item. Just hold on. We will move to the next question and then we’ll come back.

Operator

The next question is from Brajesh Kumar of HSBC. Brajesh, please go ahead.

Brajesh Kumar – HSBC

Hi, good morning. Could you just give us some clear indication on what July growth rate you are indicating? It says, it's in-line with the quarter. So when you say in-line with the quarter, are you talking about April or June?

And second, you've talked about the funnel process in which people are taking decisions quicker. Which particular market is that happening and what do you think it means for the conversion ratio?

Jacques van den Broek

On your first question, yes, if it’s clear guidance says, so the revenue level projected for July is roughly the same as for Q1. So, yes, I think that’s pretty precise guidance. I cannot put any more light on that one. I didn’t understand your second question. So, could you repeat that one?

Brajesh Kumar – HSBC

So you are saying July is in-line with Q1, not Q2?

Jacques van den Broek

Yes.

Brajesh Kumar – HSBC

Okay.

Jacques van den Broek

Some 4.5% something like that.

Brajesh Kumar – HSBC

Okay. And the second question is basically the speed of hiring, which all markets have within…

Jacques van den Broek

Speed of hiring?

Brajesh Kumar – HSBC

Yes.

Jacques van den Broek

Okay. Yes, well, the speed of hiring that’s certainly in the US, in the UK it’s picking up a bit. But I would still, I would like to reiterate the fact that our growth in perm is also a deliberate effort and not so much that the speed of hiring, overall is increasing. So, we do see some better markets, but also some markets where this the result of deliberate sales effort.

Robert Jan van de Kraats

Okay, we are now going to come back to the question on the exit rate for the other European countries, that was a typo, so thanks for identifying it. It doesn’t change the total by the way and as a compensation I am going to give you the exit rates of the underlying countries.

For Italy, it’s about – so the exit rate was 19% for other Europe. And for Italy it was 15%, for Switzerland, it was just north of 13%, for Austria it was north of 50% and for – 50, yes and Poland 25%. That’s a pretty good return on that mistake, isn’t

Jacques van den Broek

That’s a pretty good return on that mistake, isn’t it?

Robert Jan van de Kraats

And Austria with the 50 growth, that’s partly both from USG.

Operator

And we have a follow-up question from Toby Reeks of Morgan Stanley. Toby, please go ahead.

Toby Reeks – Morgan Stanley

Hi guys. It looks like I get my second question also. And could you just – on the OpEx development that you're expecting as we go into next quarter, could you just talk around the marketing side of things? How much do you think that's going to pick-up? Is that the primary driver of the increase?

Robert Jan van de Kraats

Nothing, yes, nothing spectacular as in marketing boost like Q4. So a slight seasonal pick up, certainly in September, because September is always when you start the year again and then we have a lot of marketing offense plans to be in the market to support our people going out.

And certainly also in the Netherlands and outside the Netherlands we will again have, what we call the youth at work project where we are going to try and get a lot of unemployed youth back to work again like we very successfully did last year, So, very much looking forward to doing that again.

Toby Reeks – Morgan Stanley

Okay. So, it’s sort of a it's a similar progression that we saw in Q2 is that sort of the – is that what we should be looking at?

Robert Jan van de Kraats

Yes, comparable, yes.

Toby Reeks – Morgan Stanley

Okay, thanks.

Operator

We have no further questions coming through on the telephone lines.

Unidentified Company Representative

Okay, then we go back to the room where we have three final questions. Please limit yourself to one or two questions please. Thank you very much.

Marc Zwartsenburg – ING

Yes, two final questions from my side. First of all, Robert Jan, can you give us an indication how much the interest cost will go down on the back of the renegotiated loans on an annual basis based on current debt and current floating rate?

And the other question is about Germany. What do you see going on there in July, because you see some automotives working throughout the summer and expanding all the days, so is July getting a bit better because of companies not going on holiday?

Robert Jan van de Kraats

Not because of that, because it’s not – companies not going to holiday. You see when they have a lot of demand and it’s not that booming. So they just do what they usually do. We do see the comps are not decreasing the volume, so that’s good. Sorry, the volume development compared to the same period last year is flattening out, so where it was going one, two into the quarter. A bit down volume, volume is now stabilizing.

Jacques van den Broek

You can’t realize a lot of improvement on a relatively low amount of financial expenses. So, that’s the stacking point and the improvements have been marginal. So, if you take €60 million as the base for now.

Then I guess, we might be able to save €1million or so, €1 million plus. But it’s very much dependent on the underlying base rates of course, that is key. And these are very attractive as we speak.

Unidentified Analyst

So one question from my side on Iberia, there you see year-on-year only about €2.5 million improvement in your profitability while you organically acquired significant growth in the n the same time of course you saved about €4 million on the USG integration.

So what’s happening in the underlying? What’s the reason that you haven’t seen a better improvement in actual profitability?

Robert Jan van de Kraats

Yes, it’s combined Spain and Portugal. Spain is a very steady good improvement and in Portugal, we’ve made some adjustments to the portfolio the client base. Portugal is a growing market but also challenging, typically DSO is sort of at very high levels.

You have to think about 80, 90 days. Pricing can be unattractive. So we have made some choices here in the portfolios and that’s what you see coming through.

Jacques van den Broek

Peter (Inaudible). Welcome back.

Unidentified Analyst

Thank you, Jacques. Just I'll limit myself to one question, and that is regarding the permanent placement business. Of course seen a great growth there at this quarter, given the activity that you are putting out and that I expect that to grow further in the next coming quarters.

Where do you see this business strategically go to as a percentage of your gross profit? I know that this is not an exact question that at 2016 I want that 20%, because more on a broader level, how does this fit in your portfolio?

Jacques van den Broek

Yes, there is two things, two developments here. One is the development of growing more in perm in the business mix in our more established countries. So, comparison again, US staffing going from 3% to 8% and the Dutch business, the German business, the Belgium business still at 3%.

They could go up to 5% 6%. And a second developments of course is that we have more companies who sell perm, the Chinese business being one of them. We're also changing our Brazilian business, which in hindsight was too much built into, again a staffing business, large clients, low margin.

We don’t want to go there, certainly not in Brazil revamping that into perm business. So there is also a business effect. So, our highest point was 12% perm fees in the gross margin in 2008. I think, over time, but again, rightly shown this is just the number, 15% could be feasible. That again depending on developments, we know how it works.

Unidentified Company Representative

So, finally, I give the floor to Robert Jan

Robert Jan van de Kraats

Yes, so, I’d like to sort of finalize the Q&A. Thank you for joining us on the presentation. I’d like just to add one thing and that is that, the trends that we have seen now in Q2 and going into Q3, very much also confirming the fact that we believe the 5% to 6% EBITDA range is very feasible, depending of course, I mean, it’s a matter of timing, very much depending on the speed of growth.

It is also important in the context of my final point here, if I may, because we have one guy sitting here who has been with us. Jan Peter has been with us for – since 2004 for the last 10 years and he has been responsible for Investor Relations for the last three years.

Actually, a predecessor of yourselves is here Peter Jan and your successor sits here Arun. Your two other predecessors are in Singapore and in Tempo-Team and actually, you are going to follow the same path.

Jan Peter has been promoted to become the CFO of our Portuguese business. You just heard the question about it. So work to do. And we just, on behalf of everyone wanted to say, thanks a lot. We highly appreciated your conscious work, your dedication, your passion. It was an excellent period of time over the last three years. Thanks a lot.

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