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Adecco reports growth and margin improvement in Q2 2018

Continued investments in strategic initiatives to strengthen competitive position Summary and highlights:


· Revenue growth 4% organically1 and trading days adjusted (TDA)

· Return to growth in North America General Staffing, +3% TDA

· Continued strong performance in permanent placement, revenues up 18% organically

· Gross margin 18.3%, stable year-on-year; trend in temporary staffing price and mix similar to Q1 2018 (-10 bps)

· EBITA2 margin excluding one-offs3 4.5%, down 30 bps, including strategic investments impact of -30 bps

· Net income attributable to Adecco Group shareholders EUR 170 million

· Revenues in June and July combined up 4%, organically and trading days adjusted

· Sale of Beeline stake announced in July; EUR 172 million after-tax cash proceeds


“In Q2 2018, underlying revenue growth was solid, at 4%, and the mix of growth became more balanced. North America General Staffing returned to growth, achieving its strongest performance since Q2 2015, mostly offsetting lower growth in certain European countries. And in France, our largest business, we significantly outperformed the market. Permanent recruitment also remained strong, reflecting the targeted investments that we have made. Gross margin stabilised in Q2. We maintained our price discipline and were increasingly able to reflect in our bill rates the additional efforts required to find candidates in talent scarce markets. EBITA margin was impacted by investments in our ‘Perform, Transform, Innovate’ agenda, and also by the ongoing consolidation of our general staffing businesses in Germany. In the second half of 2018, we expect the Group margin trend to improve, and we are on track to deliver the EUR 50 million of productivity savings previously indicated. The investments we are making to digitalise the Adecco Group will significantly strengthen our competitive position, allowing us to grow our market share in our core businesses, and also expand our solutions into attractive adjacent markets. As the Group’s transformation builds momentum, I am thankful to all of our colleagues around the world for their dedication and enthusiasm, and for embracing the many opportunities that the changing world of work offers.” Alain Dehaze, Group Chief Executive Officer.


Group performance overview

Revenue growth was 4% in Q2 2018, organically and trading days adjusted, after 6% growth in Q1 2018. The modest deceleration was due to lower growth in Italy, France, Iberia, and Benelux & Nordics, partly offset by an improved performance in North America, UK&I General Staffing. Permanent placement remained strong, with revenues up 18% organically. Gross margin was flat, compared to Q2 2017, on both a reported and organic basis. The underlying temporary staffing gross margin declined by approximately 25 bps, including the impact of lower CICE in France (-15 bps), and price and mix effects (-10 bps), similar to Q1 2018. EBITA margin excluding one-offs declined by 30 bps year-on-year, impacted by strategic investments and lower productivity in Germany, where the Group is making investments to strengthen its recently combined general staffing brands. Cash flow from operating activities was EUR 303 million, compared to EUR 237 million in Q2 2017, with rolling 4 quarters cash conversion at 78%. Q2 2018 results


Revenues Q2

2018 revenues were EUR 6,052 million, up 1% year-on-year on a reported basis. Currency movements had a 4% negative impact on revenues, compared to last year, while M&A had a small positive impact on revenues. On an organic basis, revenues increased by 5%, or 4% trading days adjusted. The number of trading days in the quarter had a positive impact of 0.5%. Organic revenue growth was broad-based across service lines, with the exception of the countercyclical career transition business. Temporary staffing revenues increased by 5% to EUR 5,259 million, permanent placement revenues rose 18% to EUR 147 million, career transition revenues were EUR 87 million, down 7%, and outsourcing and other activities revenues grew 8% compared to the prior year, all on an organic basis. By business line, revenues were up 6% in General Staffing, up 2% in Professional Staffing, and up 3% in Solutions, all organically.


Gross Profit

Gross profit was EUR 1,107 million in Q2 2018, up 2% on a reported basis and up 5% organically. The gross margin was 18.3%, flat year-on-year. Currency fluctuations had a 15 bps negative impact while M&A had a 15 bps positive impact. On an organic basis, the gross margin was therefore flat. Temporary staffing gross margin was down 15 bps, including a positive impact of approximately 10 bps from the favourable timing of bank holidays. The underlying decline in temporary staffing gross margin in Q2 2018 was 25 bps, driven by the reduction in CICE in France (-15 bps) and adverse price/mix effects (-10 bps). Career transition had a 15 bps negative impact on gross margin, permanent placement had a 20 bps positive effect whilst outsourcing and other activities had 10 bps positive impact, all on an organic basis.


Selling, General and Administrative Expenses (SG&A)

SG&A excluding one-offs was EUR 837 million, up 4% year-on-year on a reported basis. Investments in strategic initiatives contributed approximately 3% of the year-on-year increase in SG&A, including the ongoing roll-out of new IT infrastructure and investments in the Group’s Digital Ventures portfolio. On an organic basis, SG&A was flat sequentially and up 7% year-on-year. FTE employees were up 3% organically year-on-year in Q2 2018, mainly as a result of headcount additions in the second half of 2017. Branches increased by 4% organically, due to strong growth in Onsite locations. In Q2 2018, one-offs comprised restructuring costs of EUR 6 million and M&A-related expenses of EUR 5 million, associated with the acquisition of General Assembly.



EBITA was EUR 260 million. EBITA excluding one-offs was EUR 270 million, down 6% year-on-year on a reported basis and flat organically. EBITA margin excluding one-offs was 4.5%, down 30 bps compared to Q1 2017. The reduction in margin year-on-year was mainly driven by the impact of investments in strategic initiatives, which reduced EBITA margin by approximately 30 bps year-on-year. The conversion ratio (EBITA excluding one-offs divided by gross profit) was 24.5% in Q2 2018, down 190 bps compared to Q2 2017, impacted by investments.


In France, revenues were EUR 1,472 million, up 8% organically and trading days adjusted, ahead of the market growth rate. Revenues increased by 8% in General Staffing, which accounts for over 90% of revenues, and grew by 6% in Professional Staffing. Revenue growth was broad based, driven by manufacturing, logistics and automotive. Permanent placement revenues in France were up 16%. EBITA was EUR 87 million. The EBITA margin was 5.9%, compared to 6.6% in the prior year, due to the reduction in the CICE tax credit from 7% to 6% of gross wages (approx. 60 bps impact). Good cost control and operating leverage offset strategic IT investments.


In North America, UK & Ireland General Staffing, revenues were EUR 711 million, up 4% organically and trading days adjusted. North America, which accounts for approximately 75% of segment revenues, was up 3%; its strongest growth since Q2 2015. UK & Ireland represents approximately 25% of segment revenues and was up 7%, or up 6% trading days adjusted, driven mainly by large client wins. Permanent placement revenues were up 8% in North America and declined 4% in UK & Ireland. Overall EBITA excluding one-offs was EUR 21 million, representing an EBITA margin of 3.0%, compared to 3.1% in Q2 2017. The margin was impacted by ongoing investments in strategic initiatives, particularly in IT, which are expected to deliver productivity improvements from H2 2018.


In North America, UK & Ireland Professional Staffing, revenues were EUR 860 million, down 1%, or down 2% trading days adjusted. North America represents approximately 65% of revenues and was flat. Growth in Engineering & Technical, Finance & Legal and Medical & Science was offset by a decline in IT. UK & Ireland represents approximately 35% of revenues and was down 4%, or down 5% trading days adjusted, due to a decline in IT. Permanent placement revenues increased by 13% in North America and by 18% in UK & Ireland. Overall EBITA excluding one-offs was EUR 49 million with a margin of 5.6%, compared to 6.2% in Q2 2017. EBITA margin in Q2 2018 was negatively impacted by M&A (Vettery) and strategic IT investments.


In Germany, Austria, Switzerland, revenues were EUR 553 million, up 6% or up 4% trading days adjusted. In Germany & Austria, revenues were up 2% or flat trading days adjusted, impacted by the consolidation of the Adecco and Tuja general staffing brands, and regulatory changes. In Switzerland, revenue growth further accelerated to 21%, or 19% trading days adjusted. For the region, EBITA was EUR 10 million, with an EBITA margin of 1.8%, flat year-on-year, with the positive impact from trading days offsetting lower productivity in Germany.


In Benelux and Nordics, revenues were EUR 530 million, up 5% or up 4% trading days adjusted. Revenues in Benelux were up 3%. Growth slowed to low-single-digit in both the Netherlands and Belgium, due to a tougher comparison base and a focus on client profitability. In the Nordics, revenues were up 7% or up 5% trading days adjusted, with strong double-digit growth in Norway offset by a low-single-digit decline in Sweden, which was impacted by lower volume growth at a number of large clients. EBITA was EUR 13 million; an EBITA margin of 2.5%, compared to 3.0% in Q2 2017. The margin was negatively impacted by client mix and lower subsidies in Belgium.


In Italy, revenues were EUR 521 million, up 11% organically and trading days adjusted, decelerating in-line with the market trend, after seven quarters of very strong growth. The EBITA margin was 8.4%, up 30 bps year-on-year, positively impacted by strong growth in permanent recruitment and operating leverage.


In Japan, revenues were EUR 324 million, up 3% organically and trading days adjusted, with growth continuing to be led by professional staffing and permanent placement. EBITA was EUR 24 million and the EBITA margin was 7.4%, flat year-on-year, with positive price/mix effects offset by strategic IT investments.


In Iberia, revenues were EUR 287 million, up 6% or up 5% trading days adjusted, slowing mainly due to a more challenging year-on-year comparison base. The EBITA margin was up 20 bps to 5.6%, driven by business mix and operating leverage, partly offset by increased IT investments.


In Rest of World, revenues were EUR 685 million, up 5% organically and trading days adjusted. Revenue growth was 9% in Australia & New Zealand, 17% in Latin America, 4% in Eastern Europe & MENA, whilst Asia was down 6% and India was down 16%, all trading days adjusted. For the region, EBITA was EUR 25 million with an EBITA margin of 3.6%, up 50 bps compared to last year’s EBITA margin, due to operating leverage and continued focus on client profitability.

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