Connecting to LinkedIn...

W1siziisijiwmjavmdgvmdyvmtevntqvmdevnja0l1rjifdlynnpdgugsw1hz2vzicgxnykuanbnil0swyjwiiwidgh1bwiilcixmdawedqwmfx1mdazzsjdxq

Resilience and Agility in Q2 2020

Revenues in Q2 2020 declined by 28% year-on-year, organically and trading days adjusted (TDA), as a result of the lockdown measures put in place globally to contain the COVID-19 pandemic. 


The rate of revenue decline reached a trough in April, at -33% organically and TDA – somewhat better than initially expected. The trend improved through the quarter, with June at -26% organically and TDA and July showing further gradual improvement. Developments by geography broadly mirrored the progression of the pandemic. Permanent placement revenues were most impacted, down 45% organically, while counter-cyclical career transition was resilient, with organic growth of 2%. Gross margin was 18.8%, a decrease of only 10 bps year-on-year organically, thanks to the strength and diversity of the Group’s portfolio. EBITA margin excluding one-offs was 1.8%, down 250 bps organically, with agile cost management partly mitigating the significant decline in revenues. Cash flow was strong, with cash conversion at 145% and free cash flow of EUR 311 million. Certain tax and social security payments that were deferred in Q1 2020 were accelerated during the quarter as the trading environment improved: the net effect being an outflow of EUR 31 million in Q2 2020.


Revenues Q2 2020 revenues were EUR 4,181 million, down 29% year-on-year on a reported basis and down 28% on an organic and trading days adjusted basis. Currency movements and the number of working days both had a limited and offsetting impact, while divestments had a negative impact of approximately 1.5%. 


By service line: temporary staffing revenues declined by 30% to EUR 3,534 million; permanent placement revenues declined by 45% to EUR 84 million; revenues from career transition were up 2% to EUR 89 million; and revenues in outsourcing and other activities were down 8% to EUR 474 million. 


By brand: Workforce Solutions (Adecco brand) revenues declined 30%; Professional Solutions were down 23%, including Modis down 11%, Badenoch + Clark/Spring Professional down 29% and Other professional brands down 48%; Talent Solutions and Ventures declined 9%. All compared to the prior year and on an organic basis. Gross Profit Gross Profit Gross profit was EUR 786 million in Q2 2020, down 30% on a reported basis and down 28% organically. 


Gross margin was 18.8%, down 20 bps compared to Q2 2019. Currency had a positive impact of 10 bps while acquisitions and divestitures had a negative impact of 20 bps. Therefore, on an organic basis, the gross margin was down 10 bps: positive contributions from career transition (+70 bps) and outsourcing and other activities (+20 bps) mostly compensated for declines in permanent placement (-60 bps) and temporary staffing (-40 bps). 


The temporary staffing gross margin decline was driven by higher bench costs relating to COVID-19 and negative mix effects, as demand from large and onsite clients (with lower gross margins) declined by less than demand from small and medium clients. Selling, General and Administrative Expenses (SG&A) SG&A excluding one-offs was EUR 716 million in Q2 2020, down 17% year-on-year on a reported basis and down 16% organically. Average FTE employees were 27,660, a reduction of 19% organically year-on-year in response to the lower level of client demand linked to lockdowns in most countries. The number of branches was reduced by 5% organically year-on-year. Q2 2020 reported SG&A included one-offs of EUR 25 million, comprising restructuring costs of EUR 24 million and acquisition-related costs of EUR 1 million. In Q2 2019, one-offs were EUR 24 million, of which EUR 22 million were restructuring costs and EUR 2 million acquisition-related costs. 


EBITA EBITA in Q2 2020 was EUR 50 million, which included EUR 5 million from the Group’s FESCO Adecco JV in China. EBITA excluding one-offs was EUR 75 million, down 70% organically. EBITA margin excluding one-offs was 1.8%, down 270 bps year-on-year in reported terms and down 250 bps organically. The conversion ratio of gross profit into EBITA excluding one-offs was 9.6%, down 1,390 bps on a reported basis and down 1,300 bps organically year-on-year. Amortisation of Intangible Assets and Impairment of Amortisation of Intangible Assets and Impairment of Goodwill and Impairment of Goodwill Goodwill Amortisation of intangible assets was EUR 21 million, compared to EUR 13 million in Q2 2019. Operating Income/(Loss) Operating Income/(Loss) /(Loss) The Group generated an operating income in Q2 2020 of EUR 29 million, compared to EUR 228 million in Q2 2019.


“The public health and economic crisis linked to COVID-19 intensified during Q2, creating an extremely challenging market environment. The Adecco Group responded swiftly and proactively to secure the wellbeing and safety of our colleagues and associates, and to support our clients. In the face of these unique challenges our businesses demonstrated resilience, performing ahead of the market in a number of key countries including France, Italy, Spain and Japan. Throughout the first half the Group remained solidly profitable with strong gross margin performance despite the steep revenue declines. This is evidence of the disciplined cost management of our teams and the balanced portfolio we have built in recent years."


"Cash flow during the quarter was also strong. While mitigating the short-term impacts of the crisis we maintained a firm focus on our strategy to Perform, Transform and Innovate. The recent implementation of our integrated front office system (InFO) was an enabler of the growth in Japan and we continued the InFO roll out in Spain and France during Q2. We also digitised our PERFORM methodology to adapt to remote working. We see early signs of improvement as lockdowns ease, and we have supported almost 100,000 associates back to work since the April trough. Nevertheless, the recovery is likely to be gradual and potentially volatile, as much uncertainty persists. Finally and most importantly, I would like to sincerely thank our valued customers for their trust in us throughout this historic crisis, and express my gratitude to our employees and associates for their unwavering commitment and tireless ongoing work in remarkably challenging circumstances.” Alain Dehaze, Group Chief Executive Officer.


In France, revenues were EUR 793 million, down 44%, slightly better than the market decline. Widespread client shutdowns, particularly in the manufacturing, automotive, construction and logistics industries had a signifianct impact on demand. Revenues decreased by 45% in Workforce Solutions (Adecco brand), which accounts for over 90% of revenues. Professional Solutions were down 29%. Permanent placement revenues declined 45%. EBITA excluding one-offs was EUR 10 million with a margin of 1.3%, down 490 bps year-on-year. The business remained profitable, despite the strong decline in revenues and higher cost of sales linked to COVID-19, due to agile cost management. 


In North America, UK & Ireland General Staffing, revenues were EUR 540 million, a decline of 28%. North America General Staffing, which accounts for approximately 75% of revenues, was down 30%. The majority of client sectors declined, with client shutdowns in the manufacturing sector and retail having the largest impact on revenues. UK & Ireland General Staffing represents approximately 25% of revenues and was down 25%. Permanent placement revenues declined by 60% in North America General Staffing and by 77% in UK & Ireland General Staffing.
Overall EBITA excluding one-offs was EUR 8 million, with a margin of 1.3%, down 160 bps year-on-year. In North America, UK & Ireland Professional Staffing, revenues were EUR 546 million, down 28%. North America Professional Staffing represents approximately 60% of revenues and declined 25%. The decline was led by the professional recruitment brands (Finance, Office, Legal) and Entegee (Engineering), with Modis (IT) being more resilient. 


UK & Ireland Professional Staffing represents approximately 40% of revenues and declined 34%, impacted by lockdown measures and lower client demand ahead of the implementation of IR35 (regulation change that was subsequently postponed). Permanent placement revenues were down 58% in North America Professional Staffing and down 44% in UK & Ireland Professional Staffing. Overall EBITA excluding one-offs was EUR 9 million with a margin of 1.7%, down 340 bps year-on-year. The impact of the revenue decline, especially in permanent placement, and the divestment of the Group’s US healthcare operations from 1 January 2020 was partly mitigated by good cost control. 


In Germany, Austria, Switzerland, revenues were EUR 338 million, down 30%. In Germany & Austria, revenues declined 31%, or 30% trading days adjusted (TDA). The decline was led by lower demand from clients in the automotive and manufacturing industries. In Switzerland, revenues declined by 28%. For the region, EBITA excluding one-offs was a loss of EUR 15 million, with a margin of -4.3%, down 390 bps year-on-year.
Germany is a bench model business (associates are permanent employees of Adecco Group), hence the margin is significantly impacted by lower client demand and higher sickness rates linked to COVID-19, despite agile cost management. 


In Benelux and Nordics Benelux, revenues were EUR 301 million, down 36%, or down 35% TDA. In the Nordics, revenues declined 36%, or 37% TDA, with all countries declining double-digits. Revenues in Benelux were down 35%, or down 34% TDA with a similar rate of decline in both the Netherlands and Belgium, driven by lower demand in the manufacturing, automotive and logistics sectors. Overall EBITA excluding one-offs was EUR 4 million, with a margin of 1.4%, compared to 3.2% in Q2 2019. 


In Italy, revenues were EUR 375 million, down 24% or 23% TDA, ahead of the market. The decline was led by the manufacturing and automotive industries. Permanent placement was down 47%. EBITA was EUR 18 million and the margin was 4.7%, down 400 bps year-on-year, impacted by lower revenues and unfavourable business mix. 


In Japan, revenues were EUR 401 million, up 6%, or 5% TDA, with continued good growth in both Workforce Solutions and Professional Solutions. Permanent placement was down 6%. EBITA was EUR 37 million and the EBITA margin was 9.2%, up 150 bps year-on-year, supported by pricing, productivity improvement linked to the roll-out of the new Integrated Front-Office and favourable calendar effects. In Iberia, revenues were EUR 202 million, down 26%, driven by declines in the manufacturing and automotive industries. EBITA was EUR 3 million. EBITA margin declined by 300 bps year-on-year to 1.9%.


Photo courtesy of Canva.com

Articles similar to recruitment

Articles similar to financial