Adecco Group Ag Unsp/Adr

Ladies and gentlemen, welcome to the ADECO Q2 Results 2024 Conference Call and Live Webcast. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Benita Barret, the Head of Investor Relations. Please go ahead, madam.

Good morning, and thank you for joining the ADECO Group's conference call today. I'm Benita Barreto, the Group's Head of Investor Relations, and with me are the ADECA Group 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 5.8 billion euros in revenues, 2% lower on an organic training days-adjusted basis. We delivered another quarter of strong share gains and clear outperformance in challenging markets. The group grew 375 basis points ahead of its key competitors on top of 775 basis points in the Q2 period last year. The gross margin of 19.4% was 70 basis points lower year-on-year. It is a robust result that reflects the current business mix and firm pricing. We've delivered an above-target 162 million euros of G&A savings run rate. And in Q2, G&A expenses were 19% lower than the 22% baseline. supporting the group's EBITDA of 179 million euros and 3.1% margin. Adjusted EPS was 0.64 cents, 1% lower year-on-year on a constant currency basis. Net debt to EBITDA ended the quarter at three times, a 0.2 times reduction compared to the prior year's period. Cash performance improved, driven by good working capital management. Cash flow from operations was plus 162 million euros, better by 82 million euros year on year, and the cash conversion ratio was 84%. As part of the group's ongoing commitment to sustainable growth, we are pleased to announce that the Science-Based Target Initiative has approved our 2030 and 2050 net zero emission targets, including detailed year-on-year reduction paths. Let's now move to slide four in our strategic progress. We've consistently delivered against the simplify, execute, and grow plan, which was established to drive better, faster execution, and improve financial performance. So, to highlight a few achievements, the group has made significant strategic investment over the last two years, gaining substantial market share and positioning itself close to leading the market in revenue terms. These investments include, for example, adding capacity to consistently capture growth opportunities in ADECO, APAC, or Southern Europe, as well as the latest technologies, such as AI-assisted coaching in ESRA. We've also protected capacity in more talent markets, where appropriate, ensuring we are well-positioned to capitalize swiftly on a future recovery. By simplifying the way we work with strong execution, we have delivered 162 million euros in GNS savings, net and in run rate terms above the 150 million euros target. In gross terms, this is an absolute reduction in spending of over 200 million euros and over 20%. The organization has been right-sized The move to shared service centers accelerated and procurement policies tightened. Within strengthened group guardrails, we've empowered decision-making and accountability by those closest to customers at the GBU and local levels. We have activated a value-driving tech roadmap with clear architecture, project prioritization, and balance between global and local needs. With this, We plan to simplify the group's system landscape and increase capacity for innovation and disruptive technologies, harnessing data and AI to enhance our competitive edge. Last but not least, in HR, we are driving a group-wide values and culture initiative to support a collaborative, transparent, and high-performance culture with an absolute focus on clients, and candidates moving now to slide five and more color on the gna savings program since announcing the 150 million euros net target in q4 2022 the group has methodically worked to achieve it supported by the task force which has worked with the gbus countries and functions to identify actions and improve the speed of delivery this disciplined execution has enabled us to overachieve. As of mid 2024, we've delivered 162 million euros in savings, net and in runway terms, versus the 2022 baseline. 109 million euros of savings have come from simplifying and consolidating corporate and enabling functions, including by shifting administrative tasks to offshore shared service centers for finance and HR. 53 million euros of savings have been delivered from GBU and country structures, mainly by eliminating duplication and reducing the number of organizational layers. G&A headcount has decreased by 12%, while non-personal costs cuts have driven 66 million euros of savings. For the Q2 period, G&A savings represent a 19% reduction versus the 2022 baseline, bringing G&A expenses to 3.4% of revenues. Looking forward, we have a clear plan to sustain G&A expenses below 3.5% of revenues per annum. Let me now hand over to Colin, who will provide details on the Q2 results.

Thank you, Denis, and good morning to everyone. Let's discuss the context within each GBU, beginning with ADECO on slide six. ADECO has demonstrated resilience in challenging markets and delivered a solid performance. It took further market share with relative revenue growth of 220 basis points in the period at a market-leading profitability level. Revenues were €4.5 billion, 2% lower year on year on an organic trading days adjusted basis. Flexible and permanent placement revenues were both 2% lower, while outsourcing activities were up 15%. On a sector basis, growth was strong in retail and solid in logistics. However, demand was weak across the autos, manufacturing, and IT tech sectors. Gross margin was healthy, with pricing firm. Gross profit per selling FTE rose 2%, while selling FTEs reduced 4%, reflecting the agility with which we manage the business. The EBIT A margin at 3.4% was 10 basis points lower, reflecting lower volumes, geographic and solutions mix, substantially offset by better productivity, G&A savings, and the favorable timing of FESCO JV income. Slide 7 shows ADECO at the segment level. In France, revenues were 8% lower in a challenging market. The decline was broad-based with notable softness in manufacturing and logistics. France's EBITDA margin mainly reflects negative operating leverage. Management remains focused on improving sales intensity and right-sizing to drive performance improvement. Revenues were 11% lower in Northern Europe, including 12% lower in the UK and Ireland, 13% lower in the Nordics and 1% higher in Belux. The region performed well compared to competitors. In sector terms, autos, consulting and manufacturing were subdued. DAX performance was robust, with revenues growing 1%. Germany was up 1%, reflecting a tougher market environment while strongly outperforming competitors. Logistics, IT tech, and retail were strong, while autos were slightly lower, mainly due to base effects. In Southern Europe and IEMINA, revenues grew 4% ahead of competitors. Iberia was up 10%, IEMINA was up 7%, and Italy was flat. Logistics, food and beverage, and retail were strong. In the Americas, revenues were 5% lower. LATAM was up 13%, led by Columbia. In North America, revenues were 14% lower, reflecting continued market headwinds in flexible placement with lower demand from large enterprises. On a sector basis, retail was strong, while IT tech and autos were notably weak. The region's EBITDA margin reflects lower volumes, right-sizing efforts, and calibrated investment in the US network to drive future growth. In APAC, revenue growth was strong, up 14% and firmly ahead of the market. Japan was up 11%, India up 13%, and Asia up 7%. In Australia and New Zealand, revenues were 41% higher, boosted by a significant government contract that started in Q3 23. The EBIT A margin of 6.6% includes an impact from the favourable timing of the industry support fund at FESCO. On an underlying basis, the margin improved 10 basis points, mainly reflecting higher volumes, the current business mix and disciplined cost management. Let's move to ACODIS and slide eight. ACODIS's revenues were 2% lower year on year on an organic trading days adjusted basis. Staffing revenues were 17% lower, challenged by the ongoing tech staffing market downturn. Consulting revenues were solid, up 4% year on year. EMEA was robust if mixed. Revenues in South EMEA were up 5%, with France up 5%, reflecting good auto activity and strength in Spain and Italy. In North EMEA, revenues were 6% lower. The CODIS NXT, formerly Data Response, was 7% lower, reflecting weaker demand for software development expertise. Germany was 3% lower, due to more challenging market conditions, particularly in autos. North America revenues were 14% lower, weighed by the continued downturn in tech staffing. Solutions revenues rose 30% organically. APAC revenues rose 9%, with Japan up 7% led by tech staffing. Australia rose 9%, with consulting up 34% organically. the EBIT A margin at 4.9% was 30 basis points lower year-on-year. This result mainly reflects seasonality and market challenges in the US and Germany, partially offset by disciplined cost management. By service line, staffing margins were under pressure, while consulting margins were broadly stable year-on-year. Let's turn to slide 9 and LHH. Revenues in LHH were 7% lower year-on-year on an organic, trading days-adjusted basis. Recruitment solutions revenues were 13% lower, with the segment continuing to face market headwinds. Gross profits were 13% lower, and US gross profits were 17% lower, both modestly improving sequentially. Productivity improved. with FTEs reduced by 8% year on year as management exited low performers. At the same time, the team is protecting capacity and selectively hiring experienced consultants to capture a future rebound in market activity. Career transition was healthy in a strong comparison period, with revenues 10% lower and good growth in Canada and France. It continues to take share with over 2,000 new clients here to date and its pipeline remains solid. Learning and development revenues were 1% lower organically. Ezra performed very strongly with revenues growing 45% organically and a strong pipeline. General Assembly continued to pivot towards B2B while talent development was subdued. Revenues in pontoon was 7% higher, led by growth in direct sourcing activities. LHH's EBIT A margin of 7.5% was 10 basis points lower year on year. The margin reflects lower volumes and changing mix, substantially countered by organizational optimization and good G&A savings. Let's turn to slide 10. On the left, we review the group's gross margin drivers. In Q2, on a year-on-year basis, and under the group's accounting policies effective January 1, 2024, currency translation and portfolio scope had a five basis point positive impact. Flexible placement had a negative impact of 20 basis points, mainly driven by the ADECO GBU's current geographic mix. Permanent placement had a 30 basis point negative impact, reflecting lower volumes, while career transition had a 10 basis point negative impact, reflecting a strong comparison period. Outsourcing, consulting and other had a 15 basis point negative impact, mainly driven by lower volumes in pontoons, MSP and RPO services. In total, The gross margin was 70 basis points lower on a reported basis. At 19.4%, it is a robust result, reflecting current mix and firm pricing, as we can also see in gross profit developments year-on-year, with the group down 5%, but ADECO only 2% lower, in line with its revenue development. On the right, we review the year-on-year drivers of the group's EBITDA margin this quarter. At 3.1%, the EBITDA margin was stable year-on-year. Gross margin developments were fully offset by a 5 basis point positive impact from productivity improvement, a 45 basis point positive impact from G&A savings with costs down 11% year-on-year, and 20 basis points positive impact from favourable timing of FESCO JV income. Let's turn to slide 11 and the group's cash flow and financing structure. As you will recall, the group's cash flow generation is seasonal, with H1 usually being a cash out and H2 usually being a cash in period. Cash performance improved, with cash conversion at 84% over the last 12 months, from 73% in Q1. Q2 operating cash flow was up €82 million year-on-year at plus €162 million. It benefited from favourable working capital development of €116 million, supported by good working capital management. DSO improved by half a day year-on-year to 52.5 days. Free cash flow was 100 million euros higher year on year, at 128 million euros, supported by lower capital expenditures. Let me touch on the financing structure. Net debt to EBITDA was three times at the end of Q2, reflecting a seasonal peak due to the dividend distribution, and 0.2 times lower year on year. The group has a solid financial structure, with fixed interest rates on 81% of its outstanding gross debts, no financial covenants on any of its outstanding debts, and strong liquidity resources, including an undrawn €750 million revolving credit facility. The group remains firmly committed to deleveraging, supported by productivity gains, G&A cost reductions, lower one-off charges, now that we've delivered the savings programme, and lower capital expenditure. Let's turn to slide 12 and the group's outlook. Revenue developments in Q3 2024 are expected to be similar to those in Q2 2024 on a year-on-year trading days adjusted basis with market conditions likely to remain challenging. The group will focus on sustaining G&A savings whilst continuing to position capacity to capture growth opportunities and market share. In Q3-24, the group expects its gross margin to improve sequentially, in line with a normal seasonal movement of 40 to 50 basis points. The group expects a modest reduction in SG&A expenses, in the region of 15 to 20 million euros, from the 969 million euros reported this Q2-24, excluding one-offs. And with that, I'll hand back to Diniq.

Thank you, Colin. Let's turn to slide 13. In Q2, the group continued to progress its strategy and execute in a methodical, disciplined way. The efforts have significantly strengthened the business. We've delivered strong share gains for eight consecutive quarters. We've over-delivered on savings, achieving 162 million euros savings net in runway terms. Looking forward, we'll further progress to simplify, execute and grow agenda. We have a clear plan to sustain G&A expenses below 3.5% of revenues per annum. Moreover, we are determined to continue outperforming the sector and are managing frontline resources with agility to enable us to benefit swiftly when labor markets improve. Thank you for your attention and let's now open the lines for Q&A. Operator, we are ready for the first question.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch-tone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and 2. Anyone with a question may press star and 1 at this time. Our first question comes from Suhazini Varanasi from Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for taking my questions. I have two, please. When you think about the original guidance on gross margins for 2Q that you gave with the 1Q results in May, it was supposed to be broadly in line with the 1Q levels of 19.8% versus where you actually landed up, which was 40 basis points lower. Can you maybe discuss what changed versus your original expectations and the degree of confidence you have on the gross profit guidance for the next quarter? Second question, in July, your credit rating on your debt was changed. The outlook, I think, was changed from negative to stable, and this raised some concerns, I think, among your credit investors. So do you have any plans to accelerate the deleveraging process on the balance sheet to help allay some of those concerns there? Thank you.

Good morning, Susini. This is Coram. I'll cover both of those questions. On gross margin in Q2, we did guide for broadly in line and obviously came in a little bit lower than that on 19.4%. We think that is a healthy result. And probably the two things that were slightly lower than we'd expected were PERM. where it was down 30 basis points and we'd guided towards 10, and flex, which was down 20 when we'd guided towards being down 10. So these are not major movements. And I think the key point about gross margin is that it's really all about the current business mix right now. It's about the pressures that we continue to see in PERM. It's the geographic mix in ADECO with the lower gross margin countries. growing faster than the higher gross margin countries, but there is nothing structural happening in our gross margin. It's all about mix. Our pricing is firm. The spread between bill rate and pay rate was up again year on year in Q2. And as I mentioned in my script, the ADECO gross margin was down by the same amount as the revenue line, again a signifier that our pricing is firm and we're using dynamic pricing where it's appropriate to capture the value of the services that we bring. So I have good confidence that we will improve sequentially in the way that we've described for Q3. On the S&P change, I mean, let's be clear. We still have a very high investment grade credit rating. It is BBB plus BAA1. The only thing that S&P moved was the outlook. And as is clear from their report, the reason that they did that was not about the execution of the business, which actually they commended. It's about the macroeconomic challenges that we continue to face. Our balance sheet is strong. We've got no financial covenants, no outstanding commercial paper, strong liquidity. And as I outlined in my remarks, we've got a very clear plan for deleveraging. And we do that through productivity improvements, the flow through of the G&A savings, which we've delivered above target savings. lower one-offs now that we're largely through our G&A cost reduction, and lower capex. And there's tangible progress that you're seeing in the Q2 numbers because our operating cash flow is up over $80 million, our free cash flow is up $100 million, and our leverage has actually come down year on year in a seasonally high leverage quarter.

Thank you very much. The next question comes from Andy Grobler from BNP Paribas. Please go ahead.

Hi, good morning. Two from me as well, if I may. Firstly, just sticking with cash flow, DSOs improved during the quarter. To what extent do you think that improvement is sustainable or is there further to go on that metric? And then secondly, just from a demand perspective, given some of the macro benefits uncertainties that surround us. Are there any signs of a change in behavior from your clients, either positive or negative in recent weeks? Thanks very much.

Thanks, Andy. I'll take the first one and Daniil will pick up on the second one. We're really pleased with our DSO performance. We've had a real focus, as you know, on cash flow. You're seeing the tangible results of that in the Q2. And one of the levers that we've got is obviously around DSO. And a half-day improvement in DSO for the group is worth somewhere between $35 and $40 million of cash. So this is a real focus for us. And you can see for the market and the industry as a whole, actually DSO is going the other way. So I think our focus is paying off. We will continue to really home in on this to make sure that we drive further benefits in operating cash flow. We've incentivized on operating cash flow as a metric, which means that management is really homing in on it. And we believe it's sustainable.

And on the demand, as we said in our outlook, we don't see any major changes in the Q3. We said that our revenue development will be more or less in line in Q2. So we expect the regions that have been performing, and there are several in this past quarter to continue. I think we have good traction in APAC, good traction in Latin America, good traction in Southern Europe, Eastern Europe. So we have some signs that there are some supportive economies around. Of course, there are places where markets are more challenging and we adapt our capacity to that. So I think we are very agile in making sure that we adjust our resources. One thing that interesting to look at is The trends in recruitment solutions at HH, particularly in the U.S., and also the tech staffing in the U.S. What we've seen, I mean, these are difficult markets. As you can see, we're down. But sequentially, we've seen signs of stabilization. And so on these things, we believe that we are at a trough. Let's be clear, we haven't seen an infection yet, but we don't think it's going to get worse. And we are positioning ourselves for the rebound. That's what Cora mentioned in his remarks as well. We are protecting capacity. We've recruited some good people, particularly in LHH, to make sure that, you know, we're ready to accelerate as soon as the markets restart. Excellent. Thank you.

Next question comes from Simona Sarli from Bank of America. Please go ahead.

Yes, good morning again. Thanks for taking my questions. So first of all, on a gross profit margin, you have indicated that it will be sequentially up with the normal seasonality pattern, so the plus 40, 50 basis points, quarter over quarter. If you can please explain how comfortable you are with that, especially in the context where your main competitors are actually being a little bit more conservative and indicating only like a small improvement of up to 20 basis points. Secondly, on the reduction in GNA of 15 to 20 million, how much of that is related to temporary readjustments in capacity and how much more it will be sustainable instead in the medium term? And lastly, on your CAPEX guidance for 2024, you are cutting that from €180 million to €150 million. So part of that is, of course, related to Q2, but for the balance of that, what is guiding this reduction? Thank you.

Thank you, Simona. I will take all three of those questions. On gross margin, as I mentioned, we are confident that we will see the sequential improvement in line with seasonality. Clearly, that implies there's no major change in trends, and that's very consistent, I think, with our revenue guidance. And I can't comment, obviously, on... what competitors are going towards, but I would say we have a slightly different mix. So we are confident in our view on gross margin, and I think it is consistent with what we're saying about the trends that we see in the market. On SG&A, the 15 to 20 million reduction, Obviously, part of that is the flow through of the additional run rate, the over delivery on G&A savings that we've seen at the end of Q2 and that will flow through in Q3 and Q4. But there's a small amount of it where we're expecting to adjust capacity. To be clear, you've seen us do this all the way through the last few quarters, where there are opportunities for investment to drive growth and to take share. then we will increase our selling capacity. And where we find markets that are challenged, obviously we reduce selling capacity. We have flexibility in that part of the cost base. But as Denis mentioned, we also protect capacity to make sure that we can really capture rebound. you've got to be a bit careful because the base moves around. So there'll probably be a little less G&A saving in Q3 and a little bit more in Q4. And then finally on CapEx, I mean, a big driver of this is obviously that Q1 and Q2 were lower than we had been anticipating and certainly lower than this time last year. Part of that is because we had elevated CapEx levels in 2023 because of the contract that we won in Australia, the big government outsourcing contract. But it also reflects, I think, the focus that we've got on making sure that all aspects of our cash flow are managed effectively and that we're being disciplined in the way that we manage our capex spend. It doesn't mean we're slowing down the investment that we need. That's not the case. But it is about being disciplined and making sure that we are spending what is appropriate.

Thank you. And can I please offer just a clarification on the gross profit margin? Because clearly in Q2, you came in a little bit softer than expected in PERM and also in FLEX. In order to deliver these 40 to 50 basis points of sequential improvement, are you therefore assuming that there are going to be any improvement in both in PERM and FLEX?

No, so I think you've got to distinguish between the sequential improvement, which is effectively in line with seasonality, but that obviously would put us 50 or so basis points down year on year. And just to clarify where that's coming from, it's probably about 15 bps on career transition, because obviously while that business is still at pretty high levels, We can't sustain given the comps that we've got in the second half of last year. a little bit of downside around 10 basis points on OCS, outsourcing and consulting, largely because of the mix in pontoon, and a 20 to 30 basis point year-on-year decline in flex because of the geographic mix in ADECO. So please just be careful about distinguishing what we're saying on sequential and what that means year-on-year.

Thank you.

The next question comes from Reni Grenou from Morgan Stanley. Please go ahead.

Good morning and thanks for taking my questions. I've got a few. The first one is that there seems to be a clear divergence in performance between Southern Europe and Northern Europe and North America on the other side, which have been weaker. So if you could give us more flavor on what's driving that and if you have any discussion with clients which would give an idea of what are the underlying drivers of that divergence. That's the first question. The second one is on what's your view on the outlook in the U.S. in the context of what we've seen in terms of data, the labor market, what we're loosening, and your comment on temp activity in that country being subdued. So, yeah, it would be interesting to have a view on the outlook there. And then the last question relates to the work in capital improvement. My understanding was that this divergence in performance was driving, between southern and northern Europe, was also driving a negative working capital effect, because in southern Europe, the working capital might be a little bit higher than in northern Europe. So just correct me if I'm wrong on that, and if that's the case, I think it would be interesting to have a bit better view on what's driving that improvement in DSO, and if it has offset that potential negative mixed effect in Europe.

Denis will take the first two and I'll pick up on the working capital piece, Remy.

Absolutely. Thanks, Remy. So, first of all, on the geographies, definitely, I mean, I would say the major factor for the difference is the macros in these countries. We definitely have a good dynamic in Southern Europe. Italy is flat versus, you know, the Northern Europe down. We have Spain, which is growing strongly. We have, you know, other parts of the world, as I mentioned earlier, that are quite solid. So I think it's many macros. And, you know, clients are, you know, there's no major difference in client conversations than what we had before. They adapt to their own markets. So North America is a market where There has been, you know, post-COVID, there was a lot of recruitment, you know, after the great resignation, there was a lot of recruitment, and companies are sort of staying, you know, at their level of improvement that they need. that they had just after this big effort that they made in 2022 to recruit. So at the moment, it's more or less stable. The temp market in the U.S. is at a historic low. The temp penetration is quite low, and it's across the whole temp industry. So, yeah, we hear the, you know, increasing unemployment in the U.S. labor market. It's difficult to anticipate what's going to happen in the next quarters. Of course, the political uncertainty creates economic uncertainty that necessarily doesn't help. What we know is the plan that we have in the U.S., is delivering and that's what matters to us. As you know, we have a turnaround plan that is underway and it is delivering results. So we believe that quarter after quarter, we are in a good place to capture any type of rebound. Now it's too early to say whether this, when this is gonna come.

And let me pick up on the working capital point I mean, Remy, you're right that when a business is growing, it absorbs working capital and when a business is declining, then it tends to release. So, you know, all other things being equal, you'd have very modest absorption of working capital in Southern Europe and a modest release of working capital in Northern Europe. And obviously, if I step back, that's true for the group as a whole. So our sales line is down slightly, obviously a very strong competitive performance, but that does mean that there has been a modest release of working capital. But, and this is really important, that DSO management, the 0.5-day improvement, is a big driver of our operating cash flow. it's worth 35 to 40 million of the 80 or so million upside. And then on top of that, at the free cash flow level, you've got the capex benefits. So I think it's really important to recognize, yes, there are working capital characteristics at play here, but we've done a very good job for managing that and improved DSO in challenging markets.

Okay, and if I can just follow up on the environment in the U.S. and that comment around temp penetration being at a low level there, is it something that you would consider as normal even where we are in the cycle and the current environment, or is there any structural reason which explains the decline in penetration or any of the overdrivers?

I don't think it's structural. You know, we are in a cyclical business. Again, there was some good momentum some years ago. And then, you know, post-COVID, as I said, companies have reopened the doors. There was an inflow of people. And now it's more. So we had a historic high, if I go back two or three years ago. And then now we're, you know, companies are recalibrating. The political uncertainty doesn't help. So that's where I explain it. where the industry is at the moment.

Okay, understood. Thanks very much.

The next question comes from Rory McKenzie from UBS. Please go ahead.

Good morning. It's Rory here. Three questions, please. Firstly, on this point on the market share gains, I know you focus on the recent year-over-year growth trends, but I think your organic revenue itself declines sequentially in Q2, pretty similar to peers. and is now back below the 2019 level. So it's hard for us to really see any gains this cycle overall. Are you trying to tell us that you've won more contracts or more wallet share, and that will be more visible should markets actually turn? And then secondly on capacity, again, you talk about protecting capacity, but I think your organic headcount is also now back below the 2019 level, and you're suggesting small further cuts in Q3. whereas some peers have kept headcount at much higher levels. So how confident are you that you can capture a rebound overall? And also, are you still confident in the usual recovery drop-through rate? I guess the concern would be that a lot of costs might need to go back in to support a recovery. And then just finally a quick one on the FESCO JV. That subsidy you received in Q2, was that all cash in this quarter? and also what's the outlook for Q3 and Q4 JV income? Thank you.

Denis will take the first and the second, and then I'll pick up on Fesco JV.

Okay, so definitely when you look at the growth rates of main competitors, when you look at the market dynamic, we are getting share. This is it. You know, we're, yes, our revenue is declining. It's obvious, you've seen it, you know, minus 2% in the DECO, particularly, but our relative revenue growth is plus 120 basis points. So, you know, our markets are fragmented. So even though our revenue is declining, we are taking a bigger share of the market. This is it, you know. So we are, you know, For the eighth consecutive quarter, the growth pillar of our strategy, of our simplified equity plan is delivering. So you highlight the two elements of us getting market share. Yes, with clients, we increase our share of wallets because we are more efficient in the way we deliver our service. Particularly in the temp business, You know, speed is of the essence. So our systems, you know, the digitization that we've put in our business, the way we interact with our associates, with our candidates, you know, the faster, the better we are able to interact with them, the better we are able to provide the clients with the necessary people. So that's how we can share our wallet, particularly with the large accounts. The onsite business is getting traction. That's also a way to gain share. And on top of that, we have focused our teams on prospects, on reaching out to new clients, and we've won also more contracts. So those two things are definitely levers that explain why we've gained shares. And the omni-channel that we have implemented in several countries, being the digital channel, the branch, and the way we serve our large clients with career centers, all that helps us be better than our competitors.

On the, so Rory, this is Coram. Let me pick up on this point. and add to Denise's answer on the sort of protecting capacity. I think I understand the point that you're making, but I think it's really important to recognize if I compare Q2 24 gross profit with Q2 19 gross profit, it's not down, it's actually slightly up. And we are being very dynamic in the way that we manage capacity. So we added headcount in Q2 in Southern Europe We added into APAC, we added into LATAM, and you can see that we're fueling the growth. And where there are pressures in the market, obviously we are reducing headcount, but we are being very cognizant of the need to protect capacity and not cut to the bone. And there was a data point that I gave you in my script, which is if you look at recruitment solutions, particularly in the U.S., which is down mid-teens, our headcount is down 8%. So we have been very careful to make sure that whilst we are managing to the recovery ratio, We are not cutting capacity that will prevent us from being well positioned to capture the recovery. That is a very clear part of our strategy, and we manage according to the gross profit per FTE. And just on that data point, it's also up. So if I look at Q2 2020, We're at 32.2. If I look at Q2 2019, we're at 28.4. So there's been a productivity gain as well during that period. So understand the challenge, but we are being very careful in terms of the way that we're managing this. We're driving productivity and we're protecting capacity to make sure that we continue to gain share, particularly when the recovery comes. On FESCO, I want to just be clear on this one. The Industry Support Fund is something that happens every year. It is a way of incentivizing employment in China. We have a very good business in China. It's growing nicely. It's got good profitability characteristics even without FESCO. the industry support fund, but we never quite know when in the year that subsidy is going to come. It came in Q1 of last year, Q2 of this year, so we would not expect further subsidies in Q3 or Q4, and that means you should work on a contribution from the FESCO JV of around 5 million per quarter in Q3 and Q4. The cash has been received in FESCO, but obviously we receive a dividend from FESCO later in the year.

So I hope that helps. Yes, that does. Thank you. Just to come back on that point you made on the capacity point quorum, obviously we're struggling to deal with the aggregate metrics, and you have the sub-details, which maybe help more, but I guess most profit going from Q219 to Q224 has seen a very large acquisition contribution and a unique inflation cycle. So I guess it's hard for us to pick out from that if there's any real structural expansion or rebound potential in the group, if you see what I mean. But maybe we could follow that up at a different time. Thank you.

No problem. Look at the data points that we're providing in terms of, because I think recruitment solutions is the best example of this. We could have cut that capacity further. We could have driven a higher short-term margin, but we have very deliberately chosen not to leave all capacity, but to focus on performance management to exit weaker performers and and to retain a strong sales base, which will really allow us to grow when that market comes back, which it will. Thank you.

The next question comes from Afonso Orozio from Barclays. Please go ahead.

Hello, good morning, guys. Thank you for taking my questions. I have just a few last questions, if I may. Firstly, on growth, just wondering if, How you finish the quarter, if it was probably the same April, May, and June. So the exit rate in June would be interesting to know. And then what you've seen so far this quarter, so July and beginning of August. And then secondly, Paul, among the pricing environment, I think you touched briefly earlier in Suhasini's question. If you can expand a little bit on your spread in Q2. And you say it was quite strong in Q2, so I was just wondering if region by region, that was probably the same, or if there's weakness or strong performances in specific countries. And then finally, on the exceptional charges, I note the 58 million so far this year. You're still going for the 19 million for the full year, so just wondering what's left to do here in the second half on the exceptional front. Is it a function for the reduction in sales force? And if so, where are you making these adjustments? And then just lastly, if I may, on the regional growth dynamics. I note here like Italy, which has been super strong for you recently, now flat growth, and also UK deteriorating a little bit as well in Q2. So if you can comment a little bit on those two countries and what you expect for the second half. Thank you.

No problem. Alfonso, I'll take the first three, and then I think Denis will comment on Italy and the UK. On sales in the quarter and into July, there are, as you know, some really big trading day adjustments on a month-by-month basis because of the timing of Easter, because of the timing of public holidays, et cetera, in Q2. So it's actually really difficult to talk about the phasing of the months within the quarter. And July itself... is not a particularly important month because it's the lead-in to the summer vacation. So I think the key point on revenue is that we've seen some pretty consistent trends, some areas of growth, some areas of pressure, and as Denis has described, in some of those key areas such as recruitment solutions and tech staffing, we have seen stabilisation and very modest sequential improvement on a quarter by quarter basis. So it's why we are guiding towards similar revenue development in Q3. On pricing, I think we've demonstrated that we've been very effective on this over a number of quarters. We are very focused on dynamic pricing to capture the value of scarcity where we see it. The spread between bill rate and pay rate in Q3 was up 3% for the G12 countries, which is a good result. And in terms of are there big movements within the countries, no, it's pretty consistent because this is an area of focus for us and there's real discipline in terms of the way that we're managing pricing. On the one-offs, absolutely, we are sticking to the 90 million of guidance for the full year. The reason we're running slightly ahead of guidance at the half year is obviously that we actually took extra actions to deliver the 162 million of run rate savings versus the 150 million target. So this is one area where us being slightly above our guidance Actually, I think it's a good sign in terms of the actions that we've taken. There's always a little bit more that we can do on G&A. It won't be of the same order of magnitude that you've seen. We are now largely done with our G&A savings program. So any further one-offs will be about the adjustments to capacity that we will make. But we are sticking to the $90 million of guidance for the full year.

Yeah, and on Italy and UK, I think it's mainly a market trend. We've seen in the UK some of our large clients having some decline. We have lower volumes on our on-site clients in the UK. We see PERM or so slowing down. But it's more or less in line with the market. In Italy, Same thing, I think we have a mixed situation, but it's more or less a slowdown on market. What's striking is the difference between Italy and Spain. Spain, the economy is good, and we have excellent performance, but it's mainly linked to, I would say, market conditions. Okay, thank you very much.

The next question comes from Silvia Barker from JP Morgan. Please go ahead.

Thank you. Hi, good morning. Two questions for me, please. Firstly, just to understand the point around reaching a trough in part of your own market. So you mentioned recruitment solutions and IT staffing. I guess if you look at the numbers on PERM, the decline was better in Q2 than Q1, but on a, let's say, two-year stack basis, it was still a bit weaker. So what, I guess, what end markets within that are you seeing reach a trough specifically? Then secondly, on Germany plus one, can you just update us on the logistics contracts that you won and how much the contribution from larger contracts that you have won and are transitioning, and how much is the underlying decline within Germany. Obviously, a much better performance than the end market overall. And then finally, U.S. 10 volumes at all-time lows. That was quite an interesting place to be. If you look at your portfolio, can you just help us with some – you know, thoughts around what, again, what markets and industries are driving that today. Thank you.

So, yes, so on the recruitment solutions and tech staffing, definitely we've seen a stabilization in many countries. We've seen a stabilization in the U.S. We've seen a stabilization in France. So I think we're – we believe – that we've, again, we're probably at the lower end of the cycle. Now, as I said, it's difficult to anticipate that things are gonna get better soon, but we mentioned in the past that some clients who are more cautious Some candidates were also more cautious. There were people dropping in the process in the past couple of quarters because of probably the economic uncertainty that doesn't help, and that has driven the decline. Now, as we said, we see signs of stabilization. That's quite positive.

Let me pick up on the second and third question. So on Germany, I'm saying this with a smile, but I'm not sure I quite accept that stripping out a contract win and market share gets you to an underlying number. Because at the end of the day, that's how we run the business. We have to win it. And we're very pleased with our performance in Germany. Clearly, some of that came from logistics. But also, I think we saw an autos segment, which whilst it was down slightly, low to mid single digits, that's on the back of a comp in 2 in 23 where we were up 34%. And I think others in the industry have found it much heavier going in autos. So I think the German business is actually doing a very good job of winning share, taking share, and you can also see there is obviously an improvement in the margin in that business, which reflects the operating leverage and cost savings that we've driven there. I will step back, though, and say there will be some headwinds in Q3 for the group as a whole because of logistics. We have some very strong comps. We did win a lot of business, not just in Germany, in Q3 of last year. And it'll be difficult for us to replicate those growth rates. And I think you should work on the basis that it's probably a headwind in the ADECO GBU of about a percentage point. So I hope that gives you a steer. On the US temp volumes, I mean, Denis touched on the market environment, which is clearly impacted by macroeconomic uncertainty. I think in terms of sectors that have done well, we've seen retail, which has been very positive. We've seen good traction in the small and medium enterprises. As both of us mentioned in our remarks, the larger enterprises have been a bit more subdued. And then IT tech has been soft and autos have been weak. So it's a bit of a mixed picture in terms of sectors. I think the key point on the U.S. is that we continue to drive the turnaround. So we're really focusing in difficult markets or making sure that we've got good sales intensity, that we've got really strong performance management, the right branch network, and we are positioned to capture the growth when the market comes back, which it will.

And to give you to complement with some of what Colin said, you know, he's talking about small and medium businesses. You know, there is an overall market which is declining double digits. Our SME business is only minus one year on year, minus 1%. So that shows that there are places where, particularly if you put the right energy, if you revitalize the branches as we're doing, you can outperform the market. Perfect.

Thank you very much, Bob. The next question comes from Kian Morgan from Jefferies. Please go ahead.

Thanks. Morning. Most of mine have been asked, so I have two very quick ones for Coram, if I may. Just first of all, did your receivables factoring utilization remain unchanged in the second quarter, which I seem to recall was about 120 million euros? Do you have any initiatives under consideration that are likely to assist with deleverage in the second half over and above the normal working capital discipline? So being here, things maybe like asset disposals, like property or social security, receivable books.

Thank you, Keane. No major changes in factoring in Q2. The 120 million is a full year number. It moves around a little bit, as you'd expect, in line with sales, but it was not a big driver of the working capital benefits. As I mentioned, I think the key thing here is the way that we've been managing DSO and that 0.5-day improvement year on year. In terms of the initiatives to delever in H2 beyond working capital, I mean, there's nothing that we're considering like a disposal or, you know, last year you saw some small property sales. I'm not going to see anything like that, I don't think, in H2. But I think the key point is if you think about our four components of our plan for deleveraging, productivity, G&A cost savings, lower one-offs and lower capex, you will see more traction on a number of those in H2 than we've seen in H1. So G&A flow-through increases in H2 because of the run rate. We see lower one-offs because we're now largely through the G&A initiative, and we continue to get the benefits of lower capex. So it's organic, but we're very confident in our plan

Very helpful. Good luck with the next talk once again.

Thank you. The next question comes from Gianmarco Berro from ZKB. Please go ahead.

Morning, Denise and Coramon. Congrats to their strong operational improvement and walking the talk. Two questions from my side. The first one is on your business in France. We talked on many industries but maybe you can also give us a bit more details and Also, your outlook for development in France. Recently, you mentioned that it might be relatively quiet now around the Olympics, but after the Olympic Games, we might see some changes, of course, also from a political perspective. I would just wonder about your view here in this core market. And then on the other side, also for LHH, You mentioned that you're ready to accelerate the business. Is that mostly, you are mostly referring here to the recruitment solution business where you see improvements or do you also see some triggers or operational improvements maybe also in learning and development, general assembly, for example, that we currently overlook where you are working on something to Maybe also grow your business further. Thank you.

Thank you. So, yes, on France, so the overall market is down. We are a little bit below the market trend, and I'm not happy about that, as you can imagine. several quarters, several years I would say, larger players have been more impacted than smaller ones. We have a clear action plan to reduce the gap versus the market. We are adjusting to this downside market. So we're balancing capacity, we focused our cost base and our cost base as flexibility. And we adjusted to market conditions. Our pricing, so there are some good things in France. Our pricing plan is showing improvements. We've reduced the volume gap versus the market in Q2 versus Q1. We are a bit suffering from some of our large clients that have structural issues you know, elements where they reduce their temp workers services. So we're really focusing on improving the delivery to our last clients through our career centers, and this is getting good traction. And we are accelerating our on-site development. We've improved our sales efficiency on the SME segment between April and June. So there are things that give us some positive perspective. However, the French market is going to be still difficult for the quarters to come. Political uncertainty obviously doesn't help. Macros. uh the olympics on our side won't have a big impact we were not part of the big sponsors was we felt it was too expensive uh and uh so um uh you know we'll have to look at whether uh let's be clear we can look at after the olympics whether the business that's going to grow is it is it going to be the ct business or is it going to be the recruitment solutions business in both case we are in a good place to capture whatever happens. We are really adjusting our cost to the situation at the moment. That's a big focus on it. I want to improve our margin in France in the coming quarters. We have a plan on that. We have some positive signs that this is going to happen. On LHH, yes, definitely, if I, you know, LHH and the big thing is, of course, the U.S. That's what has the biggest impact. As I said, the stabilization is happening in recruitment solutions. That's good. No signs of positive inflection yet, but it's, I'd say, it's a bit reassuring for the future. We have The career transition, even though it's minus 10 in a revenue, it's still at a very high level. Minus 10 euros compares to a very, very high level. Last year, when we had all the tech restructuring plans that we were accompanying, we had captured almost all of them. So that's good. We're still winning business. And particularly in France, we have more traction in CTE. So I'm still positive in terms of the overall level of activity that Citi has. And as you know, that feeds our gross margin in a very nice way. You know, I'm very pleased with what Ezra is doing. We're growing 45%. We have great traction. And that is going to continue. It really captures a lot of interest from clients that want to do a cultural change. They have so many transformations to do. And then on GA, yes, we see operational improvements. We are shifting GA from a B2C business into a B2B business that has better margins, more sustainability. And so I believe that GA will really have, you know, a path to, you know, better results in the quarters to come.

Many thanks and all the best.

Thank you. Thank you. The next question comes from Conrad Thomer from ABN AMRO. Odo, please go ahead.

Hi, good morning. Thanks for taking my questions. The first one, on the North American business, can you share with us what percentage of your revenues is with the Magnificent 7, please. The second question is on leverage. I think you've done a really good job in terms of getting the G&A savings in, in gaining market share. The free cash flow was up significantly. You've showed to investors that you're able to control your cost base very well. However, on a structural basis your leverage has not really come down in the last few years despite the fact that you keep telling us that you're very adamant to bring it down. I'm just wondering with all the low-hanging fruit done and most of the G&A expenses now completed, do you not think it becomes more difficult to bring your leverage down going forward? And then my last question, I'm sure you've heard the stories in the market, partly fueled by comments you may have made yourself about the dividend not necessarily being sacrosanct anymore. And obviously, we had the stories about potential disposals, particularly ACODIS. Is there anything... on this platform that you would like to share with us on your view on these sort of stories, please. Thank you.

So, Denis will pick up your first question, and then I'll touch on your second and third questions.

Right. So, with regards to, you know, the Magnificent Sevens, They are our clients. Obviously, we don't communicate on the numbers, but it's not massive. It's not material. Obviously, they are our clients because we have to play with them. I mean, as you know, the CT business has been really surfing on the Magnificent 7 restructuring two years ago, one year ago, and we work with our three GPUs, actually. But there's nothing that, you know, the percentage is not massive.

And let me pick up on leverage dividend and the CODIS. And, Conrad, we appreciate your comments about what we've done on G&A and operating cash flow and free cash flow. It's been part of a very, very disciplined process operational execution. And I think you can see that we have developed a track record for gaining share, lowering costs and driving cash, operating cash and free cash flow. Leverage is actually down 0.2 times in Q2. And I think that's important because it shows that this effort is starting to pay off. And we've been clear that we would accelerate our deleveraging in the second half of this year and into 2025. And there's a very clear reason for that, which is up until now, the G&A savings have not been at full flow. They're in significant in order to access them. And as you know, CapEx has been running slightly above the natural level for the business. So I think what we're seeing is very consistent with the way that we've described our path for deleveraging. And we've always said that we get through the G&A program in order for all to flow through cash, along with discipline on our work and capital management. So we are confident we can delever. Our balance sheet is sound. And therefore, we believe we have the financial flexibility to delever and continue to pay dividends. Denis, I think, is going to comment on the market speculation on ACODIS.

Well, actually, I'm not going to comment. We don't comment on rumors. What I can say very clearly is ACODIS is core to our strategy. You know, the future at work strategy is based on three pillars, the three GPUs, ADECO, ACODIS, and LHH. that are complementary to each other, and that provide our clients with an array of services that serves every type of need that they can have on talent and technology. This is what makes us unique, and that makes us super strong, and that makes us win market share. We are committed to our future at work strategy, and CODIS is core to it. That's clear. Thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Denise Matthews for any closing remarks.

Thank you very much, and thank you to all of you who attended the call. Just wanted to sum up where we are. I believe, again, that we have a solid strategy, and this strategy resonates with our clients. Over the past two years, we have strengthened the company, and we have strengthened our execution. We have a proven capacity to execute on our plan, simplify, execute, and grow. We are, as you know, we are adjusting our resources to market conditions. We have a positive view on the future, and we are ready to capture every single business opportunity that will be ahead of us. So, you know, we're ready, and I'm really positive to whatever can happen. In the future, we're solid. Thank you very much for being with us today. Looking forward to our next exchange.

Have a great day.