Adecco Group Ag Unsp/Adr

Good morning. Thank you for joining the ADECA Group's conference call today. I'm Benita Barreto, the Group's Head of Investor Relations. With me today are the ADECA Group's CEO, Denny Machuel, and CFO, Coram Williams. Before we begin, we want to draw your attention to the disclaimer on slide two. 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 Denny and the results report.

Thank you, Benita, and a warm welcome to all of you who've joined the call today. Let's turn to slide three, which provides an overview of the quarter. The group delivered 5.7 billion euros in revenue, flat year on year, on an organic training days adjusted basis. We are pleased to have delivered another quarter of strong share gains and clear outperformance in tough markets, many of which are contracting. The gross margin of 19.8% was 20 basis points higher sequentially and 100 basis points lower year on year. It is a healthy result that reflects the current business mix and firm pricing. Excluding one-offs was 157 million euros with a resilient margin of 0.8%. When excluding the impact of the timing of fiscal JV income, the margin is 10 basis points lower year-on-year. Adjusted EPS was 59 cents, 18% lower year-on-year, mainly reflecting lower business income. Net debt to EBITDA ended the quarter at 2.7 times, in line with management expectations. And cash performance improved, with free cash flow of minus 93 million euros, better by 72 million euros year on year, and a cash conversion ratio of 73%. Overall, the group demonstrated strong operational progress in the first quarter. Moving now to slide four. and an update on the G&A savings program. The group has committed to cutting G&A expenses by 150 million euros net, equivalent to a 15% reduction and sustaining costs at or below 3.5% of revenues per annum after that. In the first quarter, the group delivered 26 million euros in net savings versus the 2022 baseline a 13% reduction. As the right chart shows, savings have been delivered by the three global business units, corporate and across the groups shared functions this Q1. We will continue to execute methodically to capture further savings as we progress through the second quarter. We announced a new organizational structure to streamline leadership roles and group functions this March and it will be fully operational by mid-year. Further, local level optimization, particularly in continental Europe, is underway. We've also taken a couple of portfolio actions to support savings generation. We will incorporate Hired into LHH recruitment solutions, providing customers full access to LHH's more comprehensive integrated offering. In ADECO France, management has exited specific outsourcing contracts which were not reaching our profitability targets. We remain on track to deliver the group savings target of around 150 million euros net and in run rate terms by mid 2024. Let's turn to side five and digital developments. Since launching our own Spark AI initiative last year, the group's efforts to harness the transformative power of generative AI have been accelerating. In 2023, the group created many AI-powered initiatives centered on improving productivity and efficiency, such as CVMaker. Out of this, in 2024, we focus on scaling 20 initiatives that offer significant long-term potential. Let me cover three of these now. For largest clients, we're developing our global talent supply chain solution to drive consistent delivery and a better customer experience. Using GenAI, we aim to improve fill rates and recruiter productivity by double-digit percentage. For candidates, in partnership with Microsoft, we are developing an AI-powered career co-pilot. This platform is a career companion that transforms how candidates identify options for their career. It is in a beta phase in two US states with both active candidates from our database and via social media. We learned from live feedback before launching an expanded pilot later this year. Finally, the group is working on a recruiter co-pilot, which aims to automate a significant proportion of the recruitment process. We've completed three proof of concept tests and this quarter plan to run a more robust version of the tool in the US and in the UK. While in early stages, We believe that these types of products have exciting potential to drive efficiencies and to make the group's talented technology solutions offering unbeatable in the market. Let's turn to slide six and the grow agenda. The left side shows that the group has achieved relative revenue growth ahead of its key competitors for several consecutive quarters. This performance has been underpinned by cultural change in the group, including a relentless focus on customer satisfaction, rigorous performance management, and line incentives. The right side highlights two recent client wins. The U.S. ADECO team leveraged an existing professional services relationship with a major U.S. medical device manufacturer to upsell Pontoon's MSP offering. The client particularly valued our expertise in onsite models, our robust processes, and the opportunity to optimize their supply chain and better align contractual terms. Second, the U.S. ADECO and ACODIS teams successfully collaborated to present a unique integrated driver onboarding and support services solution to a large mobility company. The group's HR services know-how at scale and in-house technical expertise were key to winning this contract. Let me now hand over to Coram, who will provide details on the Q1 results.

Thank you, Denis, and good morning to everyone. Let's discuss the context within each GBU, beginning with ADECO on slide seven. ADECO's revenues reached 4.4 billion euros, 1% higher year on year on an organic trading days adjusted basis. ADECO gained further market share with relative revenue growth 600 basis points ahead of key competitors. Revenues were flat in flexible placement. In outsourcing, revenues rose 6%, while in permanent placement, revenues rose 1% organically. On a sector basis, growth was strongest in retail and logistics, led by large customers. Autos were robust, while manufacturing was weak. Gross margin was healthy, albeit weighed by current geographic mix, for example, EE MENA, Australia, and India. Sector mix, for example, logistics and autos, and solutions mix. Pricing was firm, supported by our dynamic pricing strategy. The EBIT A margin at 3% was 50 basis points lower year-on-year, reflecting current mix and a 25 basis point impact from the timing of FESCO JV income, which is influenced quarter-to-quarter by government payments. G&A savings and better productivity partially offset these impacts. Gross profit per selling FTE rose 2%, while selling FTEs reduced 4%. reflecting the agility with which we manage the business. Slide 8 shows a deco at the segment level. In France, revenues were 7% lower in a challenging market environment. Logistics, manufacturing, chemicals and retail were weak. France's EBIT A margin reflects lower volumes and the exit of specific outsourcing contracts. which were not reaching our profitability targets. Importantly, the exit of these contracts does not have a material impact on France's revenues, but costs associated with the exit were incurred in the quarter. Revenues were 6% lower in Northern Europe. Market conditions were tough, but the region performed well compared to competitors. Revenues from the UK and Ireland were 2% lower, and in Benelux, 1% lower. Revenues were 12% lower in the Nordics, weighed by the impact of regulatory change in the construction sector. In sector terms, financial services were weak and manufacturing was soft. The region's performance was strong, with revenues growing 7%. Germany's revenues rose 8%, strongly outperforming the markets. Logistics and autos were strong on a sector basis, and professional services were solid. The region's EBITDA margin was driven by fewer working days. In Southern Europe and IEMINA, revenue growth was strong, with Italy up 2%, Iberia up 17%, and IEMINA up 13%. The region continued to take share, with strong growth across logistics, autos, and food and beverages. In the Americas, revenues were 1% lower. LATAM was up 25%, led by Colombia and Brazil. North America was 12% lower, reflecting subdued demand for temp workers across many sectors, including IT tech and autos. Despite this headwind, the business outperformed its competitors, and management is staying on course with its turnaround plan. The region's EBITDA margin reflects operating leverage in LATAM and an ongoing focus on cost management in North America, partially offset by calibrated investment in the U.S. network to drive future growth. Turning to APAC, revenue growth was very strong, with Japan up 10%, India up 12%, and Asia up 4%. In Australia and New Zealand, revenues were 57% higher, boosted by a significant new government contract. The timing of FESCO JV income drove the EBITDA margin differential. Let's move now to ACODIS and slide 9. The CODIS's revenues were 2% lower year-on-year on an organic, trading days adjusted basis. Staffing revenues were 20% lower, challenged by the continued downturn in tech staffing activity. However, consulting revenues were solid, up 5% year-on-year. But by segment, Northamere revenues were 3% lower, weighed by weaker demand for software development expertise. Revenues in data response were 8% lower and in Germany, 3% lower. Germany's result was impacted by the repositioning of operations in the smart industry and elevated sickness rates. South EMEA revenues were up 1%. Revenues in France were 1% lower, with strength in autos and aerospace outweighed by easing demand in financial services and telecoms. Importantly, France's result reflects success in moving some activities to offshore delivery centres. North American revenues were 14% lower, reflecting the continued downturn in tech staffing, particularly in permanent placement. Consulting revenues grew 39%. APAC revenues rose 6%, with Japan up 8%. Growth in consulting and solutions and high utilization rates supported performance. Despite lower volumes, ACODIS' EBIT A margin expanded 100 basis points to 5.8%, reflecting services mix and synergies. We highlight that the quarter's consulting and solutions EBIT A margin was around 7%. Cost synergy delivery is substantially complete, so management is focused on revenue synergy capture to support the delivery of 2024 synergies of around €75 million. Let's turn to slide 10, an LHH. Revenues in LHH were down 5% year-on-year on an organic, trading days-adjusted basis. Recruitment solutions revenues were 16% lower, with the segment continuing to face challenging market conditions, particularly in the U.S., across both permanent and flexible professional placement. Gross profit was 19% lower, with the U.S. 20% lower. That said, there were signs of stabilization in U.S. permanent professional recruitment activity sequentially. Career transitions revenues were up 9%, a very strong result given a demanding comparison period and reflecting further share gains. Canada, the UK, the US, and France all grew well, and the pipeline is solid. Learning and development revenues were 10% lower organically. General assembly and talent development were challenged by their end markets In Ezra, revenues were up 64% organically, and the business exited the quarter with a strong pipeline. Revenues in Pontoon were 8% higher, led by growth in direct sourcing activities. MSP and RPO continued to be challenged by the tech sector downturn. LHH's EBITDA margin was 50 basis points higher year-on-year, at 7.3%. with the impact of lower volumes fully mitigated by current segment mix and good cost discipline. Let's turn to slide 11 to review the group's gross margin drivers. In Q1, on a year-on-year basis and under the group's accounting policies effective from January 1, 2024, currency translation and M&A had a neutral impact. Flexible placement had a negative impact of 50 basis points. of which approximately 25 basis points reflect the ADECO GBU's current geographic and client mix and the remainder GBU mix. Permanent placement had a 40 basis point negative impact, reflecting lower volumes, while career transition had a 10 basis point positive impact. outsourcing, consulting, and other had a 20 basis point negative impact due to changes in ADECO outsourcing and lower volumes in pontoons, MSP, and RPO services. In total, the gross margin was 100 basis points lower on both an organic and reported basis. At 19.8%, it is a healthy result in challenging markets. Further, as the right side chart shows, The margin was slightly improved from Q4's reported 19.6% result under the group's new accounting policies. Moving to slide 12, and EBIT A drivers. On the left, we review the drivers of the group's EBIT A margin this quarter on a year-on-year basis. The 30 basis point differential reflects a 100 basis point negative impact from gross margin developments, 40 basis points positive impact from operating leverage, with gross profit per selling FTE down 2% versus a reduction in selling FTEs of 5%, a 50 basis point positive impact from G&A savings, with costs down 12% year-on-year, and a 20 basis point negative impact from the timing of FESCO JV income. Let's turn to slide 13. and the group's cash flow and financing structure. As you will recall, the group's cash flow generation is seasonal, with Q1 and H1 usually being cash-out periods and H2 being a cash-in period. On a year-on-year basis, cash performance improved this quarter. Operating cash flow was up 49 million euros year-on-year at minus 67 million euros. Networking capital was 74 million euros favourable year on year. Positive payables development was partly mitigated by unfavourable calendar impacts on VAT receivables and on DSA, which was 53 days, one day more than in the prior year period. CapEx was 26 million euros and free cash flow was minus 93 million euros, a 72 million euro favourable development year on year. The rolling cash conversion ratio of the last four quarters was 73%, which is a robust result. Let me now touch on the financing structure. Net debt to EBITDA was 2.7 times at the end of Q1, in line with management expectations. Leverage is not constraining the business's ability to invest organically in growth and pay dividends. the group remains firmly committed to deleveraging, supported by productivity gains, G&A cost reductions, lower one-off charges upon successfully delivering our savings program, and lower capital expenditure. Let's turn now to slide 14 and the group's outlook. Volumes in the quarter to date have been stable when compared to Q1 24 levels. You should also note that revenue developments in Q2 24 will reflect a slightly tougher comparison period. The group anticipates continued market share gain in a challenging macroeconomic environment. It is managing its resources with agility, focusing on productivity and G&A savings. In Q2 24, the group expect its gross margin to be broadly in line with Q1 24 levels. Despite seasonality, SG&A expenses, excluding one-offs as a percentage of revenues, are expected to improve modestly versus Q124. And with that, I'll hand back to Denis.