Earnings call: Adecco Group reported a revenue of €5.7 billion

In the third quarter of 2024, Adecco Group AG (OTC:AHEXY ) (ADEN.SW) reported a revenue of €5.7 billion, marking a 5% decline on an organic trading days-adjusted basis and a 3% drop on an organic basis compared to the previous year. The company's earnings before interest, taxes, and amortization (EBITA) was €186 million with a margin of 3.3%, and adjusted earnings per share (EPS) stood at €0.68, a 3% decrease year-on-year in constant currency. Despite the downturn, Adecco (SIX:ADEN ) anticipates Q4 revenues, gross margin, and SG&A expenses to be consistent with Q3, with a focus on general and administrative (G&A) savings and market share growth, supported by initiatives like the GenAI powered business model.



Key Takeaways



Adecco Group AG's Q3 2024 revenue declined by 5% on an organic trading days-adjusted basis.Gross margin was at 19.4%, influenced by lower volumes and a tough year-over-year comparison.EBITA reached €186 million with a margin of 3.3%; adjusted EPS decreased by 3% to €0.68.Regional performance was mixed, with declines in France and Northern Europe, growth in Southern Europe and EEMENA, and a downturn in the Americas.Cash flow from operating activities stood at €216 million year-to-date, with a net debt-to-EBITDA ratio of 3.1 times.The company plans to repay €430 million in debt by December 2024 and aims to keep year-end net debt similar to the previous year's €2.59 billion.Adecco is focusing on G&A savings, market share growth, and digital transformation through partnerships and innovation.



Company Outlook



Q4 revenues, gross margin, and SG&A expenses expected to mirror Q3 results.G&A savings projected to reach a run rate of €171 million by year-end.Market share increased by 850 basis points relative to competitors since the "Simplify, Execute and Grow" agenda launch.Company aims for future growth despite sector-specific issues in the DACH region and France.



Bearish Highlights



Revenue declines across key regions, with France and Northern Europe experiencing significant drops.Operating cash flow decreased to €121 million in Q3 from €282 million the previous year.Anticipated revenue headwind of 100 basis points due to regulatory changes in France.



Bullish Highlights



Southern Europe and EEMENA regions saw a 2% revenue growth.Free cash flow increased to €82 million in Q3, with a positive outlook for future improvements.The company's creditworthiness reflected in a successful €300 million refinancing at a 3.4% coupon.



Misses



Adjusted EPS decreased by 3% year-on-year in constant currency.Cash flow from operating activities year-to-date was €30 million lower than the previous year.



Q&A Highlights



CEO Denis Machuel reassured that despite challenges, significant market share has been gained.CFO Coram Williams emphasized the stability of net debt and the potential for increased free cash flow.Management addressed concerns about the impact of regulatory changes and gross margin pressures.The company remains optimistic about the performance of career transition revenues and the U.S. small business sector.





Adecco Group AG continues to navigate a challenging economic landscape while maintaining a strategic focus on cost management and market share growth. With a stable outlook for Q4 and ongoing digital transformation efforts, the company is positioning itself for recovery and sustained performance in the future.



Full transcript - None (AHEXF) Q3 2024:





Operator: Good day, and welcome to the Adecco Group AG Q3 Results 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions] Finally, I’d like to advise all participants, that this call is being recorded. Thank you. I’d now like to welcome Benita Barretto, Head of Investor Relations to begin the conference. Benita, over to you.

Benita Barretto: Thank you. Good morning and thank you to everyone who's joined the lines today. I am Benita Barreto, I'm the group's Head of Investor Relations. And with me, we have the Adecco Group CEO, Denis Machuel; and CFO, Coram Williams. Before we begin, we want to draw your attention to the disclaimer on Slide 2. Today's presentation will reference GAAP and non-GAAP financial results and operating metrics. This conference call will include forward-looking statements. These statements are based on assumptions as of today and are therefore subject to risks and uncertainties. Let me now hand over to Denis and the results report.

Denis Machuel: Thank you, Benita, and a warm welcome to all of you who joined the call today. Let's turn to Slide 3, which provides an overview of this quarter's results. The group delivered €5.7 billion in revenues, 5% lower on an organic trading day’s adjusted basis, and 3% lower on an organic basis. We've also been encouraged to see volume trends stabilizing throughout the quarter. Overall, this is a solid revenue result, considering challenging market conditions and a high comparison base. Last year, revenues in the third quarter were up 3% and we delivered 835 basis points of relative revenue growth outperformance at the group level. The gross margin at 19.4% was resilient, with year-on-year development reflecting lower volumes, current business mix, and firm pricing. And in Q3, we delivered strong G&A savings, supporting the group EBITA of €186 million and a robust 3.3% margin. Adjusted EPS was €0.68 and basic EPS was €0.59, 3% lower year-on-year in constant currency terms. Net debt-to-EBITDA ended the quarter at 3.1 times, while cash flow from operating activities was €216 million year-to-date, with a healthy cash conversion ratio of 72%. We remain focused on delivering against our Simplify, Execute, and Grow agenda, and I will provide details on Q3's strong progress later in the presentation. But first, let me hand over to Coram, who will provide further insights into the Q3 results.

Coram Williams: Thank you, Denis, and good morning, everyone. Let's discuss the context within each GBU, beginning with Adecco on Slide 4. Adecco has demonstrated resilient performance, given market headwinds and a high comparison base. Revenues were €4.4 billion, 5% lower year-on-year on an organic, trading days-adjusted basis, and 3% lower on an organic basis. By service line, Flexible Placement revenues were 3.5% lower, Permanent Placement was 2.5% lower, and Outsourcing activities were up 1%. While Enterprise was soft, it was encouraging to see SMEs grow by 1% year-on-year. On a sector basis, retail was strong. Logistics were stable, if slowing sequentially. Demand was lower in autos, a solid outcome, given a high comparison base, and manufacturing remained subdued. Gross margin was healthy, mainly reflecting lower volumes and country mix. As Denis noted, we saw volumes stabilizing throughout Q3 and October 2024. The EBITA margin at 3.4% reflects limited operating leverage, partly offset by G&A cost savings. The business is selectively protecting its sales and delivery capacity to capture growth opportunities and gain market share, including by investing in higher value solutions such as Permanent Placement and Outsourcing, and improving delivery efficiency. Slide 5 shows Adecco at the segment level. Adecco faced a very high comparison from Q3’23 relative to competitors, which is weighing on this quarter's performance. However, year-to-date, the GBU has delivered nearly 200 basis points of market share, and management remains highly focused on driving gains. In France, revenues were 9% lower, in a market weighed by economic and political uncertainties. In sector terms, logistics, manufacturing, and healthcare were challenged. France's EBITA margin reflects lower volumes and negative operating leverage. Management remains focused on improving sales intensity, with new clients developing positively year-on-year and further on-site openings in the quarter. Given the current market backdrop, management continues to adapt and right-size the business. Revenues were 11% lower in Northern Europe. The region's revenues were 15% lower in the UK and Ireland, 9% lower in the Nordics, and 2% lower in Beaux. Consulting, construction, autos, and financial services were all challenged. DACH performance was soft, with revenues 6% lower. Germany was 8% lower, while Switzerland was 6% lower. Manufacturing and logistics were subdued, with logistics and autos decelerating sequentially. On a relative basis, the region gained good market share and is positioned firmly to weather autos' headwinds. Revenues grew 2% in Southern Europe and EEMENA. Revenues in Italy were 2% lower, while Iberia and EEMENA were both up 6%. In sector terms, logistics, retail, and food and beverages were strong, while autos were soft. Revenues were 6% lower in the Americas. LatAm was up 12%, with most countries up in double-digit terms. North America was 15% lower, reflecting a continued downturn in flexible placement demand from Enterprises, including specific client impacts. This was partly offset by a return to growth for SMEs. Management continues to focus on its turnaround through a branch revitalization program, MSP acceleration, further delivering, and near/offshoring to optimize cost-to-serve. The Americas EBITDA margin mainly reflects lower volumes and cost mitigation efforts, including double-digit headcount reductions in North America. In APAC, revenue growth was solid, up 4%, and the region again grew its market share. Japan was up 8%, Asia was up 5%, and India was up 14%. In Australia and New Zealand, revenues were 13% lower on a high comparison base. Let's move to Akkodis on Slide 6. Akkodis' performance reflects the ongoing downturn in tech staffing markets, and a robust and above-market performance in Consulting & Solutions. Revenues were 5% lower on an organic, trading-days-adjusted basis, and 3% lower on an organic basis. Consulting & Solutions revenues rose 2%. By segment, revenues in EMEA were soft, with France 2% lower, driven by easing demand in autos and aerospace. Spain and Italy were strong. Germany was 7% lower, reflecting a challenging auto sector and soft demand for software development expertise. Actions to right size are well underway. North American revenues were 15% lower, weighed by the continued downturn in tech staffing. However, revenues modestly improved sequentially, and Consulting & Solutions revenues rose by 26%. APAC revenues were a highlight, up 9%, with Japan and China up 12%, led by IT tech and autos. Australia was 1% lower, with Consulting & Solutions revenues up 12%. The EBITA margin at 5.1% reflects lower tech staffing volumes, partially offset by G&A cost savings. Importantly, the Consulting & Solutions margin was healthy at 6.8%. Let's turn to Slide 7 and LHH. Revenues in LHH were 7% lower year-on-year on an organic trading days adjusted basis, and stable sequentially. Recruitment Solutions revenues were 10% lower. Gross profits were 9% lower and 10% lower in the US on an organic basis, ahead of the market and stabilizing sequentially in a soft market. Career Transition was healthy in a solid comparison period, particularly in the US, with revenues 10% lower. The segment continues to take share, with new clients up 8% year-on-year and a solid pipeline. Learning and Development revenues were 7% lower organically. General Assembly continues to pivot to B2B, while its B2C franchise was challenged. And Direct performed very well, with revenues up 29% and an encouraging pipeline. Revenues in Pontoon were 8% higher, led by 25% growth in Direct Sourcing activities. The EBITDA margin of 6% reflects unfavorable mix, mainly from lower Career Transition activity, partially offset by strong G&A savings. Management continues to protect capacity in Recruitment Solutions to capture a future market recovery, while improving operational discipline and consultant tenure. Let's turn to Slide 8. On the left, we review the group's gross margin drivers. In Q3, on a year-on-year basis, and under the group's accounting policies effective January 1, 2024, currency translation and portfolio scope had a positive 5 basis point impact. Flexible Placement had an impact of 60 basis points, within which Adecco was 30 basis points lower, reflecting the GBU's current country mix, and Akkodis was 20 basis points lower. Permanent Placement had a 10-basis point impact, reflecting lower volumes. Career Transition had a 10-basis point impact, reflecting a tough comparison. Outsourcing, Consulting, & Other had a 15-basis point impact, mainly reflecting lower utilization in Akkodis. In total, the gross margin was 90 basis points lower on a reported basis. At 19.4%, it is a resilient result. Pricing remains firm, as we can see with Adecco's gross profit moving 5% lower, which aligns with its revenue development. On the right, we review this quarter's year-on-year drivers of the group's EBITA margin. At 3.3%, the EBITA margin was 70 basis points lower year-on-year. Gross margin developments were accompanied by a 5 basis point impact from operating leverage, and a 25 basis point positive impact from G&A savings, with G&A expenses down 10% year-on-year to 3.2% of revenues. Let's turn to Slide 9, and the group's cash flow and financing structure. Cash performance was solid, with cash conversion at 72% over the last 12 months. Q3 cash flow from operating activities was €121 million, compared to €282 million in the prior year period, driven by lower business income and unfavorable timing impacts of approximately €150 million, due to cash taxes of around €25 million, which we saw in H1 last year but which came through in Q3 this year, accounts receivable benefiting from good DSO, but the timing of quarter end impacting the full scope of collections by around €45 million, and accounts payable, with payments last year more back-end loaded than this year, of approximately €60 million. We expect the receivables and payables developments, which account for over €100 million, to reverse in the fourth quarter. Capital expenditures were €39 million in the quarter, from €33 million in the previous year period, while free cash flow was €82 million in the quarter. On a year-to-date basis, cash flow from operating activities was €216 million, €30 million lower than the prior year period. Free cash flow reached €117 million, €5 million higher year-on-year. Let me turn to the balance sheet. At the end of Q3 2024, net debt was €2,925 million. The net debt-to-EBITDA ratio, excluding one-offs, was 3.1 times. The group has a solid financial structure with fixed interest rates on 81% of its outstanding gross debts, no covenants on any of its outstanding debts, and strong liquidity resources, including an undrawn €750 million revolving credit facility. On October 2, the group successfully issued a €300 million senior note with a 3.4% coupon and 8-year maturity. The group plans to repay the €430 million debt maturing in December 2024. We therefore expect year-end gross debt to be lower than end 2023 levels. The group remains firmly committed to deleveraging, supported by productivity gains, G&A cost reductions, lower one-off charges, and lower capital expenditures. Let's turn to Slide 10 and the group's outlook. The group saw volumes stabilizing throughout Q3 and in October 2024. For Q4, the group expects its revenues on a year-on-year organic TDA basis, gross margin and SG&A expenses, excluding one-offs as a percentage of revenues, to be similar to Q3 2024 outcomes, including seasonality. Management is increasing G&A savings while selectively protecting sales and delivery capacity to capture growth opportunities and market share. Finally, the group expects its year-end net debt to be similar to the prior year-end level of €2.59 billion. And with that, I'll hand back to Denis.

Denis Machuel: Thank you, Coram. Let's now turn to Slide 11, where we show continued progress against the Simplify, Execute and Grow agenda. We remain absolutely focused on growing market share. We have a very strong track record of gains, with a relative revenue growth of plus 850 basis points since the introduction of Simplify, Execute and Grow, and plus 290 basis points year-to-date. We are confident we can gain more ground in the quarters ahead. Aligned with the simplification effort, the group's continued focus on cost discipline has secured further G&A savings, and we now expect a year-end run rate of €171 million. And aligned with our execution ambitions, the group is also building a GenAI powered business at pace. We are accelerating AI adoption to enhance efficiency and productivity, and investing in innovation, notably by expanding the Global Delivery solution. This solution delivers higher fill rates, lower time-to-fill, lower cost to serve, and a strengthened customer experience, thus creating a true competitive advantage. Currently in use with a handful of clients, the business is now on-boarding a further 20 clients. Now let's turn to Slide 12, which shows how the group is swiftly building a GenAI powered business. We recently introduced a new IT and digital roadmap for the group, which takes a dual-track approach. First, the group is upgrading its IT foundations by consolidating and simplifying its technology landscape. For example, we will shift to one front office system through data cloud integration from over 40 systems. We will streamline ERP technologies, establish a single global data center, and implement a single global web platform. We will leverage this foundation for the second part of the plan, accelerating investment in innovation and GenAI backed by a higher budget than previously. In particular, the group is expanding its Global Delivery solution and upgrading candidate interactions with exciting tools such as Career Studio and CV Maker. The group is rolling out a Recruiter GenAI suite that will deliver a step change in front office productivity and is readying to deploy new GenAI capabilities such as AI agents. The group has two primary strategic partnerships with, Salesforce (NYSE:CRM ) and Microsoft (NASDAQ:MSFT ), to support delivery of its digital plan. We recently expanded our Salesforce collaboration to accelerate and widen the use of artificial intelligence and data cloud technologies across the company. Additionally, we continue to partner with Microsoft to successfully develop the group's AI infrastructure and solutions at a global scale. In summary, the group's IT and digital roadmap will drive efficiencies, productivity, and competitive edge. Finally, let's move to Slide 13, which contains recent client success stories from our global business units. First, Adecco Italy recently became the primary talent provider for a global leader in the luxury goods sector. The team delivered a comprehensive talent solution encompassing temporary and permanent placement and training and assessment services for over 400 talents. The client highly valued Adecco's demonstrated expertise in large-scale staffing, its up-skilling capabilities that can address talent scarcity, and its deep sector expertise at the branch level. Second, Akkodis grew in Consulting with a new UK client leveraging its proven track record with Australian Police Forces. The client wanted an advanced analytics solution to improve policing outcomes, particularly the accuracy and speed of investigations. Adecco's Akkodis solution delivered this and proved capable of finding valuable new leads in cold cases. Finally, in LHH, an existing relationship with a Career Transition with a German life sciences client was leveraged to secure a multi-year global talent development contract. The client bought into LHH's comprehensive Learning & Development solution, which combines integrated assessment with EZRA's digital coaching platform. It will support more than 3,000 leaders as they adapt to the company's new operating model and leadership approach. To conclude this presentation, let me summarize the main points on Slide 14. Since launching Simplify, Execute and Grow, we've delivered a very strong share gain of 850 basis points, demonstrating the positive impact of this plan. The group continues to take a frugal approach to costs and the G&A savings run rate will reach €171 million by the end of 2024. We're also moving quickly to adopt AI and expand our Global Delivery solution, which improves fill rate and time-to-fill to more key clients. Finally, the group has firmly protected its sales and delivery capacity to capture growth opportunities and market share in the quarters ahead. Thanks a lot for your attention. And I think we're now ready for the questions. Operator?

Operator: [Operator Instructions] And your first question comes to the line of Andy Grobler from BNP Paribas (OTC:BNPQY ). Your line is open.

Andy Grobler: Hi, good morning. Three, if I may. The first one on the dividend, which wasn't mentioned today, but looking at consensus, leverage in 2026 is two times. Are you comfortable with that level as a kind of mid cycle leverage? And if not, what kind of specific areas of forecast are incorrect that would allow the dividend to be maintained and for leverage to be lower than that two times? Secondly, you talked about volume stabilization, which is a positive. In which areas are you seeing that? And I guess in which areas are you still not seeing sequential stabilization? And then thirdly, just within the free cash, there was €53 million of other charges. You noted €25 million from tax. What is the rest of that €53 million? Thank you.

Denis Machuel: Thank you, Andy. I'll take the second question. I think Coram will take the first one and the third one. And I'll start by the volume stabilization. Overall, we've seen, as we said, sequentially volume stabilizing. It's particularly true in Recruitment Solutions. It's particularly true in the US. It's also true in tech staffing in the US. So this is a good sign. It's also linked to the fact that we've protected capacity. As you know, we're really adjusting our sales teams to the volumes. And we're getting for any sign of rebound, getting ready for that. But I would say the trend is stabilizing and it's quite promising, I would say.

Coram Williams: Andy, let me pick up on your other two points. Just to take the factual one first. So on free cash flow, we've highlighted €25 million in timing differences, which explains the impact in Q3. But actually, the full amount is really the cash tax outflow. So you have to, €53 million is what's flowed out. That's what's shown on the face of the cash flow statement. The point we're trying to make with the €25 million is the difference in timing between H1 and Q3. And on the balance sheet, I think there are a couple of points here. I think the first thing is, we are guiding to net debt being stable, because we want to make the point that even in some tough markets, which have put profit across the industry under pressure, we are able to hold our net debt flat year-on-year. Volumes are stabilizing. We've been very clear in terms of the way that we are continuing to manage G&A costs with discipline. We've made a deliberate decision to protect selling capacity, which in turn means that we are well positioned to capture the rebound. And that will help drive growth, profitability, and free cash flow, which will help us delever over time. I think that's the key point. The balance sheet is sound, liquidity is strong, and the group does generate good cash flow through the cycle to both delever and pay dividends. And you know that our stated aim is to get to 1.5 times. That's our target over time, and we are absolutely committed to that.

Andy Grobler: Coram, can I just follow up on that? So I don't want to put words in your mouth, but from that, am I to understand that you think that you can grow your EBITDA more quickly than the market may have in expectations? When we look at 2026 consensus at two times, is that too short a period? Are you willing to give it longer to get to that 1.5 times, given where current markets are?

Coram Williams: Andy, I think it might be a bit early to give a forecast for 2026, but I think the key point is that we think that we have a path to delever over time. And as we've mentioned before, it's about driving productivity, it's about keeping CapEx under control, it's about continuing to manage our costs, and it's about reducing one-off costs. So we do believe that we can accelerate the top line and therefore the bottom line and translate that into cash flow, which helps us delever.

Andy Grobler: Okay, thank you.

Operator: Next (LON:NXT ) question comes from the line of Afonso Osorio from Barclays (LON:BARC ). Your line is open.

Afonso Osorio: Hello everyone, thank you for taking my questions. I have two, if I may. The first one is on your market share developments. I'm just looking at your Slide 5, and I believe this is the first time since a long time, I think it's Q4 2021, where you lost market share in your DACH GBU. So can you just contextualize this new development and what has gone below your expectations here in Q3? And then the second question is in France. First within that question, first, if you had any positive impacts from the Olympics, that's going to unwind in Q4. And then secondly, longer term, your expectation for the tax implication in 2025 and 2026? And just lastly, as a follow-up to my first one actually, on the volume stabilizing. I know visibility is super low, it's very difficult to see three to six months ahead, but volumes seem to have been stabilizing for quite a while now. And yet I think comps, yeah, I appreciate comps get tougher through the year, but is Q3 below your expectations? Was this what you were expecting to begin with since last time we spoke in August, or what has gone below your expectations overall in Q3 that we're not expecting back in August? Thank you very much.

Denis Machuel: Thanks, Alfonso. I think I’ll take most of them and Coram will be super happy to talk about the tax changes. So what about -- so the market share? Let's be clear, we've grown since we started the Simplify, Execute and Grow agenda, we've grown really significantly. Okay? 850 basis points since we started, relative performance since we started this execution plan. That's super solid. Since, year-to-date, we are 290 basis points above our main competitors. So that demonstrates the dynamic that we have. We have been this quarter impacted a bit more by autos in, particularly in France and Germany, where, of course, it had an impact. We've also been impacted in France by a change in legislation on the health care segment for nurses. And that has had also an impact because our exposure is a bit bigger. But I would say overall, we are still rock solid in the way we gain share. We are protecting capacity very, in a very granular way to make sure that we take whatever is available to us moving forward. So I am convinced that we can continue to gain share. On France, overall, the market has been a bit challenging, linked to the macroeconomics, and the political environment, and as well as the medical aspect that I was mentioning earlier. We’re still the world leader, we’re still the leader in France, we still innovate a lot in this country and I'm very, very positive about France, moving forward. We had a few large clients where we have volumes -- that reduced their volumes, particularly logistics in services. But I think France remains a strong asset to the group. There is no impact on the Olympics, we were not, it was neutral for us. We've -- we were not a main partner to the Olympics. So it has no impact one way or the other. And, as far as the volumes are, as I said, we've seen some sequential improvement in US Recruitment Solutions, in Adecco tech staffing. Overall, the volumes are stabilizing, it's true that volumes are still quite dynamic in APAC, still dynamic in LatAm, still dynamic in Spain, particularly. So that's, -- this is, this is, this is where we are. I think this what -- the Q3 we delivered was, was not a surprise to us, we know what we're doing. And I think we're heading for better perspective, as we move into the end of the year, and particularly 2025. As far as the tax changes in France, Coram?

Coram Williams: Let me pick up on that. I mean, the draft bill points to surcharges in 2024 and 2025. If it is passed, then it would cause the French corporation tax rate to be 36% in 2024 and 31% in 2025. And that means it would be retrospectively applied to 2024. But the timeline is very tight. It has to be finalized and approved and passed by various parts of the legislature before December 31. So I really think it's too early to be sure whether or not this goes through. Obviously, if it does, we'll update our guidance for you in our next call. But at this stage, it's not, it's not finalized. And there's still a lot to do.

Afonso Osorio: Thank you very much.

Operator: Your next question comes to the line of Suhasini Varanasi from Goldman Sachs. The line is open.

Suhasini Varanasi: Hi. Good morning. Thank you for taking my questions. Just a couple from me, please. I think given your comments on net debt for the year that you expect to be broadly similar and where consensus focus on profits will be for the year, the leverage I think at Q3 was 3.3 times net debt-to- EBITDA. And there are probably growing concerns in the market about the sustainability of the dividend given these leverage. So can you maybe provide some color on how and why you think your dividends will not be touched for 2024 and beyond? Then the second one is on the outlook. Given obviously the miss versus your guidance at 2Q results, the set of results today, how comfortable are you with the color that you've given today on revenues and gross margins? What are the key risk areas that you would probably highlight that could end up missing numbers again for 4Q? Thank you.

Denis Machuel: I think Coram will answer both questions.

Coram Williams: I'll take both of those. So on, net debt and leverage and the dividend, just to repeat the point that I made in response to Andy's question. We're guiding to stable net debt because we want to be clear that even in difficult market environments when the industry's profit is under pressure, we are able to hold that. And we do believe that because of what's happening in terms of stabilizing volumes, the way that we're managing G&A, the way that we're protecting sales capacity, we are well positioned to capture a rebound. And that will help drive free cash flow and bring leverage down. It's true that if you are looking out to the year end, then the net debt-to-EBITDA ratio will obviously be impacted by the lower profitability, likely to remain stable sequentially. But I think the fact that net debt is stable in absolute terms should give you comfort that our balance sheet is strong. On the dividend, the strength of the liquidity, the soundness of the balance sheet, that does mean, and the fact that the business is able to generate good cash flow through the cycle means we do believe we can delever and pay dividends. We recognize the importance of the dividend to our shareholders. Like every year, we will make the decision in February on the dividend in light of our full year results. On gross margin, I think it's important just to touch on what happened in Q3 and then maybe give you a bit of color on Q4. We were expecting a seasonal benefit in Q3. In fact, it stayed stable. Really, the main driver of that was flex, where the gross margin was lower than we'd anticipated, down 60 basis points. There's really two pieces to that. So as I mentioned in my script, about 30 basis points comes from Adecco. And it's really all about country mix. So we've seen lower volumes in the higher margin markets, and we've seen higher volumes in the lower margin markets. That is simply the state of the market that we see at the moment. And it's a temporary pressure point. And then the additional piece is the flow through of some of the ongoing pressures in the Akkodis talent business, which again is performing well versus the market, but the market is under pressure. I will re-emphasize that I think that the gross margin at 94% is a resilient one in this market. In terms of Q4, as we flagged in our guidance, we'd expect it to be similar on an underlying basis. There is always seasonality in the gross margin of minus 10 basis points to minus 20 basis points between Q3 and Q4. The main moving parts to that, I think we'd probably see FX and M&A being flat, Perm broadly flat because of the stabilization that we've seen, a little bit of pressure in CT&M because of the high comps that we face, so that's Career Transition maybe 5 basis points. A little bit of upside in Outsourcing Consulting & Solutions, 10 basis points to 15 basis points and I think we'll see Flex (NASDAQ:FLEX ) down 30 basis points to 40 basis points. And that's how you get to what we're guiding towards. I think it's a sensible guide, given stabilizing volumes and given the market environment that we face. I hope that helps.

Suhasini Varanasi: Yes, very helpful. Thank you.

Operator: Your next question comes from the line of Gian-Marco Werro from Zürcher Kantonalbank. Your line is open.

Gian-Marco Werro: Morning everyone, two questions is from my side. On free cash flow I want to focus on, so your cost cuts are nice and also impressive, I have to agree, but regarding your high leverage and also the worries about the stability of your dividend, the markets want to see free cash flow generation. I hope you agree with me on that one. Why do you allow then for this increase in uncertainty that we see today for example, also based on the shift in networking capital and the reduction of accounts payable, don't you have other measures to steer or stabilize your networking capital with €4 billion in trade receivables and €4 billion in trade payables that should somehow be possible in my view? And then the second question is the outlook for the free cash flow generation. You mentioned in your press release today that, yes, you increase your free cash flow year-over-year to-date. But in my view, the last two years are very, very low comparison base and historically, you achieved free cash flows of between €500 million and €600 million. And when do you expect -- all your cost cuts now being implemented, and also some improvements in CapEx and networking capital to really go through so that we see free cash flow levels of well above €500 million again? Thank you.

Coram Williams: Thank you, Gian-Marco, I'll take both of those. And just to pick up on your point on G&A cost reductions, because I think it is an important one, and we appreciate the way that you flagged it. We are up again in terms of run rate, so more than €170 million of run rate, which will flow through fully to the P&L in 2025. So we are continuing to focus on this. On the other side of the cost equation, on the selling side, we are protecting capacity. And I think it's really important because actually we could drive the margin and cash flow up in the short term by cutting harder into our selling resources. But we've chosen not to do that because as you know, in the immediate aftermath of COVID, we did that and we missed the recovery. So we have taken a very deliberate decision to really go hard after G&A and to protect selling capacity. That doesn't mean we're holding it flat in all markets, but it does mean that we are being selective and we are trying to make sure that we are well positioned for the rebound. So that's just a couple of comments on costs. On free cash flow. I think it is important to recognize that we are up year-on-year on a year-to-date basis, so €5 million. And that's with the €150 million of timing impact that we’ve tried to very clearly flag in Q3. And just to remind you, of that €150 million, over €100 million of it will come back in Q4. That is the accounts receivable where actually we've done a very good job on DSO. It's improved again, but the timing of the month end impacted our collections by about €40 million to €45 million and then the timing of accounts payable last year was much more Q4 weighted. This time we've seen more of them come through in Q3, and that's about €60 million. So that should give you confidence that actually the underlying position on free cash flow on a year-to-date basis is over €100 million better. Your point about €4 billion balances is well taken, but it actually also works the other way, because it means relatively small swings on those big balances can provide quite big in-quarter swings on a year-on-year basis. So it's why we're trying to be really crystal clear about what's impacted. And I think on the question about when do we get back to strong free cash flows. You know, the cost cuts have definitely helped this year, but you're not seeing the full impact of them in the P&L and in the cash flow. So we're expecting about a €100 million on the P&L this year. That full run rate of over €170 million comes through next year, so that's a nice €70 million boost. Our one-off costs are coming right down, which is another boost, and you see that our CapEx is under control. So there's a very clear plan for how we improve free cash flow, and we are really committed to driving that and bringing the leverage down.

Gian-Marco Werro: Okay, and the €500 million as a potential target for next year, is it too early to say or something that you say, well possible to achieve?

Coram Williams: Let's talk about 2025 targets at the full year. But you know, remember the extra €70 million of cost benefit flowing through, the one-offs coming down, ongoing discipline in CapEx, it will help us drive free cash flow up.

Gian-Marco Werro: Thank you, Coram.

Operator: Your next question comes from the line of Simona Sarli from Bank of America. Your line is open.

Simona Sarli: Yes, good morning and thank you very much for taking my question. I would say, at this point just one left. It is related to France. So what is the impact from the change in regulation in healthcare? So if you could quantify that in terms of organic revenue growth headwind? And does also this mean that you will need to readjust frontline capacity in this country for this segment? Thank you.

Denis Machuel: So thank you, Simona. I think definitely we've been more exposed to the healthcare sector than some other competitors, because we had a nice business there. The business is not gone. It's just that there's a volume decrease because of this -- the decision change. So it's about 100 basis points of revenue headwind. And what happens as well in France is we had a few large clients that were reducing their volume. So that explains our performance in Q3. I must say we're still very strong, very solid in France. And we also see some green shoots, we have -- we are gaining share in construction. We've developed a good business there. Our SME business is 200 basis points, growing above market. So that's, I think it's quite promising. And our Perm business is still growing, softly, but it's still growing. And as far as, do we need to adjust? We are, as we said, we're right-sizing in France. We've been right-sizing for several quarters as the volumes were declining because of the market. And we are just as per the capacity that we need. What we do in France is exactly as Coram said earlier, exactly what we do in many countries. We protect capacity wherever we believe that there's still a good dynamic or some volumes coming up and we're reducing where we think that there's not so much to be done.

Simona Sarli: Thank you very much. Apologies, just one more question if I may. So going back to your capital allocation and clearly your target to deleverage to 1.5 times in the medium term, would the script dividend being something that you would consider for, I don't know, like for the next year?

Coram Williams: I think I was clear on this that like every year we will make our decision on the dividend when we see the full year results and we'll announce it obviously with Q4 and full year.

Simona Sarli: Okay, thank you.

Operator: Our next question comes from Rory McKenzie from UBS. Your line is open.

Rory McKenzie: Oh, good morning. Two questions from me, please. Firstly, on the gross margin again, you came to Q3 guiding for that seasonal increase of 40 basis points or so from Q2, which also didn’t come through. From your comments, can we conclude that the temp mix was therefore about another 40 basis points wasn’t expected. I wanted to get just more details there. So how wide is the spread between countries? Is this Northern Europe at 22%, 23% and Southern Europe at high teens or something? And then can you talk about if you assume that mix remains a drag into Q4. And then kind of linked to the capacity and its gross margin point, you said that volumes are stabilizing and you're protecting capacity. I guess whether or not we think that those volumes do stay stable or markets worsen again, I guess all those volumes are now worth less than expected on average, given that gross margin mix. So do you see this as just a temporary volume difference between countries? Why do you think it normalizes? Or do you have to also consider the gross profit of those volumes when you think about capacity in the markets, if that makes sense? Thank you.

Coram Williams: It does. Thank you, Rory. Let me try and bring those two together because I think they're sort of two sides of the same coin. I mean just to go back to what I said about Q3 gross margin, about 30 basis points of the year-on-year pressure came from the particular mix. And you can see, you just have to look at the sales line to see that our higher gross margin countries are under more pressure because of the market environment. So it's really a correlation of that and it's why we've tried to quantify it for you at 30 basis points. It's not the full amount and that's important because there are other effects in Akkodis, particularly within the Flex talent staffing business of Akkodis. In terms of the spread on gross margins, and we don't unpack the gross margins by country, but you're probably roughly in the right ballpark if you're thinking of the kind of spread that you mentioned. On the question of the country mix and the impact on the revenues, I mean, yes, it is at the moment working against us. So our volumes are down less than our revenues are. There is wage inflation still. It is running at a lower rate than we have seen in previous quarters, but it is still low-single digits. And then the country mix works the other way. And, do we think that is permanent? No. It is absolutely a product of the bill rates in the countries and the fact that our higher bill rate countries are seeing revenue declines because of market conditions. And France is a really good example of this. We would anticipate that those markets come back over time and then actually this mix effect will work the other way.

Denis Machuel: And I will add that in areas that have been historically at low margins, we're also improving our margins. Even though they are lower than the average, and thinking particularly about APAC, where we've done significantly better than some years ago. So we also see some good signs about this region growing quickly, improving their margins at the same time. It's still dilutive, but still, I think it's going into the right direction.

Coram Williams: And maybe one other point, which I think is important on this, the spread between the bill rate and the pay rate is still positive. The multiplier is working in our favor. So this is purely a mix effect about where the volumes are coming from and what's happening in those particular markets.

Rory McKenzie: Okay, thank you both.

Operator: [Operator Instructions] Your next question comes online of Sylvia Barker from JPMorgan. Your line is open.

Sylvia Barker: Morning everyone, a couple for me please. First looking at Career Transition revenues, are we now normalizing back towards more €70 million, €80 million per quarter or do you think that remains elevated for a while longer? And just thinking about the EBITA margin on Career Transition, what's the mix now? You previously said that you had fewer large contracts and it was a lot of smaller contracts, maybe just a comment on the mix and any implications on the margin there? And then secondly, the receivables and payables, how much of that relates to more project-based business is, let's say, Akkodis, versus the more transactional businesses? Thank you.

Denis Machuel: I’ll take the first one and then Coram take the second one. So, regarding CT, we believe that we can still have some very good momentum. Let's be clear, 2023 was the best year ever and 2024 is going to be the second best year. So, even though we are a bit down, we are down on a very high comparative base. So, I think that's a business which is very solid. And to your point, this is a business that has been also diversifying itself, going from large clients into smaller ones, particularly in the US, we see good traction on the small business because, as it's interesting people, the smaller businesses now are more cautious about the way they separate with their people. They want to preserve their reputation. They want to make sure that people are accompanied. So we see very good traction there. So and of course the margins are much better with the smaller ones. So we have a strong pipeline. We still have a strong pipeline in large clients. There has been some recent announcement in the US of a large layoff plan which we've won and we still have to see these volumes flowing in, in the next couple of months. So and as I said, a good pipeline on small and medium companies. So all that is very, it will sustain the business at a reasonably high level for CT.

Coram Williams: And then on the question around AP and AR, I think it's really important to recognize that the Adecco revenues in the business. It is the lion's share of both our accounts receivables and our accounts payable balances. So this is not about Akkodis cash conversion coming under pressure. Akkodis is actually delivering decent cash conversion. The key point is on each is, on AR, we did a really good job of managing DSO. It's improved again. But the quarter end fell at the weekend. And that always has an impact on the timing of collections. That's about €45 million. And then on AP, it's literally about the phasing of some of those payables, which were more Q4 weighted last year, more Q3 weighted this year. And so it's timing, not some kind of mix effect relating to project-based or transactional businesses.

Sylvia Barker: Perfect. Thank you very much.

Operator: Your next question comes from the line of Remi Grenu from Morgan Stanley (NYSE:MS ). Your line is open.

Remi Grenu: Yes, good morning, gentlemen, two remaining on my side. Just the first one is on your Q4 outlook. I think that one of your competitors was a little bit more active in flagging that they expect some weaker seasonality in Q4 and potentially some impact from your facility being closed for a longer period of time at the end of the year. So I'm just wondering if you have baked. in your Q4 outlook, any weakness coming from any of that or what's been the discussion with clients, if you have any feel of whether this could materialize or not? So that's the first one. The second one is on your refinancing decision. I mean, you took the opportunity of the refinancing to decrease slightly the gross debt on the balance sheet. And my question is given the uncertainty in the short term and all the discussion that we've been having through the call on the dividend payment, etc., can you help us understand the rationale for lowering that gross debt and lowering a little bit the cash position, therefore, on the balance sheet? Thanks.

Denis Machuel: Thank you. I think the first one and then Coram will take the second one. I think what we've said is, we see Q4 more or less in line with Q3. We've seen volume stabilizing, and we expect that to more or less continue. Yeah, I mean, there's some plant closures. You've heard something in Germany with one big car maker. Are we saying that the market is, the rebound is there? No, it's not. Is it going to deteriorate? I don't think so. We are quite -- we're not hearing this from our client. We are, I think we see positively the next few quarters, maybe not the next one, but the ones after, we're quite -- we’re in a solid position. We can still take market share. So I look at the future with a very, very positive attitude.

Coram Williams: And then on the refinancing, just to maybe reiterate the point I made during our prepared remarks. We were really pleased with that issuance. It's €300 million, 8-year maturity, 3.4% coupon and I think the coupon is a very good reflection of our credit worthiness and the way that the debt markets view us. Our net debt is stable, our gross debt is coming down. I think this is all part of what you'd expect in terms of way that we're managing the balance sheet. We will have decent cash positions at year end, so we're not in any shape or form worried about that. And we have really strong liquidity through undrawn RCF. So the balance sheet is solid.

Remi Grenu: Understood. Thank you very much.

Denis Machuel: If there are no more questions, I will then wrap up this session by thanking you again for having attended it. As you heard, we've had robust quarter. We see some interesting volume that are stabilizing. We see modest sequential improvement in a few areas. We can't put a firm date on the rebound, but we're putting ourselves in a good position to accelerate when the rebound comes. With our Simplify, Execute and Grow agenda, we have a proven record on delivering on our promise. We keep fueling growth wherever it happens, like in APAC and in LatAm, we are adjusting with granularity our resources. We continue to improve the US, we continue to gain share and accelerate on our tech and digital investments, which are creating a leading edge for us. So thanks a lot for being with us today. And we see you in the next quarter. Thank you.

Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.

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Source: Investing.com