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Adecco Group announces underlying progress in Q3

Adecco has announced revenue growth of 2% organically driven by strong performance in permanent placements, where revenues were up 19% organically. Net income attributable to Adecco Group shareholders was €270 million.


“As we communicated during our September investor seminar, trading in Q3 2018 was challenging, with growth slowing in a number of European markets. Against this backdrop, overall the Group delivered a solid performance. Organic revenue growth was 2%, including improved performances in Japan and Rest of World, and another quarter of significant outperformance in France, our largest market. Our businesses responded decisively to the slowdown in market growth, making the appropriate cost adjustments to protect our margin. And while ongoing strategic investments and the transformation of our German business impacted the headline EBITA margin, we made good progress in improving underlying profitability.


GrowTogether is now scaling up and delivering real results in the markets where it is most progressed, such as the US, UK and France. We will deliver the EUR 50 million productivity savings target in 2018, on the way to EUR 250 million in 2020. And as we do so, we are further differentiating our solutions, building a digitally-enabled offering that will support future growth. As the Group’s digital transformation builds momentum, it is the passion and commitment of our colleagues around the world that is making it a reality. Creating a positive and inspiring work environment is vital to our success. I am therefore delighted to report that the Adecco Group ranked in the top five ‘World’s Best Workplaces’, for the second year running, according to the recently published 2018 Great Place to Work® survey.” Said Alain Dehaze, Group Chief Executive Officer.


Q3 2018 revenues were EUR 5,996 million, up 2% on a reported basis compared to Q3 2017. Currency movements had a negative impact of approximately 1% year-on-year, while M&A had a positive impact of approximately 1%. On an organic and trading days adjusted basis revenues increased by 2%. The number of trading days in the quarter were unchanged versus the prior year. Organic growth was broad-based across service lines, with the exception of the counter-cyclical career transition business. Temporary staffing revenues increased by 1% to EUR 5,219 million, permanent placement revenues rose 19% to EUR 145 million, career transition revenues were EUR 80 million, down 6%, and outsourcing and other activities revenues grew 6% compared to the prior year, all on an organic basis. By business line, revenues were up 2% in General Staffing, up 1% in Professional Staffing, and up 3% in Solutions, all organically.


Gross Profit
Gross profit was EUR 1,124 million in Q3 2018, up 3% on a reported basis and up 1% organically. The gross margin was 18.7%, up 20 bps year-on-year. M&A had a 30 bps positive impact, mainly driven by General Assembly and Vettery, while currency fluctuations had a negligible impact. On an organic basis, the gross margin was therefore down 10 bps compared to Q3 2017. This included a 30 bps negative impact from temporary staffing, due to the reduction in CICE in France (-15 bps) and adverse price/mix effects (-15 bps); a 10 bps negative impact from career transition; and a 30 bps positive effect from permanent placement. Outsourcing and other activities had a negligible impact.


Selling, General and Administrative Expenses (SG&A)
SG&A excluding one-offs was EUR 822 million, up 7% year-on-year on a reported basis, of which 5% related to SG&A investments in acquired companies (General Assembly and Vettery). Currency effects reduced SG&A by approx. 1% year-on-year. On an organic basis, SG&A excluding one-offs was down 4% sequentially and up 3% year-on-year. FTE employees were up 1% organically yoy. Branches were up 3% organically, due to growth in Onsite locations. In Q3 2018, one-offs comprised restructuring costs of EUR 2 million and General Assembly integration costs of EUR 2 million.


EBITA was EUR 298 million. EBITA excluding one-offs was EUR 302 million, down 6% year-on-year on a reported basis and down 2% organically. EBITA margin excluding one-offs was 5.0%, down 40 bps versus Q3 2017. Strategic initiatives investments had a 30 bps negative impact year-on-year, and ongoing business transformation in Germany had a 20 bps negative impact, partly offset by underlying margin improvement in other regions. GrowTogether programme savings are on track to achieve the EUR 50 million target for 2018. The conversion ratio (EBITA excluding one-offs divided by gross profit) was 26.9% in Q3 2018, down 250 bps compared to Q3 2017. On an organic basis, the conversion ratio was down 100 bps year-on-year, impacted by strategic investments.


Note: all revenue growth rates in this section are year-on-year on an organic basis, unless otherwise stated


In France, revenues were EUR 1,457 million, up 5%, delivering continued outperformance in a slowing market. Revenues increased by 5% in General Staffing, which accounts for over 90% of revenues, and grew by 8% in Professional Staffing. Revenue growth was broad based, and was driven by manufacturing and automotive. Permanent placement revenues were up strongly, growing 30%. EBITA was EUR 95 million. The EBITA margin was 6.5%, compared to 6.8% in the prior year. Improved product mix and productivity improvements partly offset the impact of strategic investments and a reduction in the CICE tax credit from 7% to 6% of gross wages (approx. 60 bps impact).


In North America, UK & Ireland General Staffing, revenues were EUR 736 million, flat year-on-year. North America, which accounts for approximately 75% of segment revenues, was flat. Growth was impacted by volume reductions at a few large clients and improved towards the end of the quarter as new client wins ramped up. UK & Ireland represents approximately 25% of segment revenues and was down 1%, reflecting generally soft market conditions and a strong growth in the same period of the prior year. Permanent placement revenues were up 5% in North America and up 6% in UK & Ireland. Overall EBITA excluding one-offs was EUR 27 million, representing an EBITA margin of 3.6%, compared to 3.3% in Q3 2017, benefiting from GrowTogether productivity improvements, which more than offset digital investments.


In North America, UK & Ireland Professional Staffing, revenues were EUR 851 million, down 2%. North America represents approximately 65% of revenues and was down 3%. Growth in Finance & Legal and Medical & Science was offset by a decline in IT and Engineering & Technical. UK & Ireland represents approximately 35% of revenues and was up 1%. Permanent placement revenues increased by 21% in North America and by 28% in UK & Ireland. Overall EBITA was EUR 46 million with a margin of 5.4%, stable year-on-year. Underlying margin improvement offset investments in the recently acquired Vettery business.


In Germany, Austria, Switzerland, revenues were EUR 549 million, down 2%. In Germany & Austria, revenues were down 6%, driven by a slowdown in the market, impacted by weakness in the automotive sector and regulation changes, and the consolidation of the Adecco and Tuja general staffing businesses. In Switzerland, revenue growth was 10%, or 12% trading days adjusted. For the region, EBITA was EUR 26 million, with an EBITA margin of 4.8%, compared to 6.9% in Q3 2017. The margin decline was driven by lower productivity, higher bench costs and investments associated with the consolidation of General Staffing operations under one brand in Germany.


In Benelux and Nordics, revenues were EUR 518 million, down 2% or down 3% trading days adjusted. Revenues in Benelux were down 5% or down 6% trading days adjusted. Growth slowed significantly in both the Netherlands and Belgium, due to softer market conditions and reduced demand at a few large clients. In the Nordics, revenues were up 2%, with double-digit growth in Norway partly offset by a low-single-digit decline in Sweden. EBITA was EUR 18 million; an EBITA margin of 3.6%, compared to 4.6% in Q3 2017. The margin was negatively impacted by client mix and negative operating leverage.


In Italy, revenues were EUR 484 million, up 6%, decelerating in-line with the market trend, after eight quarters of double-digit growth. The EBITA margin was 8.6%, up 40 bps year-on-year, positively impacted by improvement in the temporary staffing gross margin and strong growth in permanent placement. In Japan, revenues were EUR 323 million, up 4%, with growth continuing to be led by strong performances in professional staffing and permanent placement. EBITA was EUR 22 million and the EBITA margin was 7.0%, up 60 bps year-on-year. Positive business mix and improved pricing more than offset ongoing strategic IT investments.


In Iberia, revenues were EUR 281 million, down 1% or flat trading days adjusted, slowing in-line with the market trend. The EBITA margin was down 50 bps to 4.9%, due to increased IT investments and the timing of cost reductions as revenue growth slowed.


In Rest of World, revenues were EUR 683 million, up 6% organically or up 7% trading days adjusted. Revenue growth was 13% in Australia & New Zealand, 17% in Latin America, 7% in Eastern Europe & MENA, while Asia was down 2% and India was down 14%, all trading days adjusted. Rest of World EBITA was EUR 28 million with an EBITA margin of 4.0%, up 30 bps compared to last year’s EBITA margin, a result of continued focus on client profitability.

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