Adecco Group Ag Unsp/Adr

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the EDECO Group First Quarter 2025 results. 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the call over to Benita Barreto, the ADECA Group Head of Investor Relations. Please go ahead.

Good morning. Thank you for joining the ADECA Group's conference call today. I'm Benita Barreto, the Group's Head of Investor Relations. Denis Machuel, the ADECA Group's CEO, and Coram Williams, the CFO, are with me today. Before we begin, we want to draw your attention to the Discamer 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 joined the call today. Starting with slide three, which provides an overview of the Q1 results. The consistent and rigorous execution of our strategy is paying off. In the first quarter, we gained further market share with solid margin performance. The ADECO GBU was 130 basis points ahead of key competitors this quarter. Revenues were 5.6 billion euros, 2% lower year-on-year on an organic trading days adjusted basis and 3% higher sequentially. The group saw flex volumes improving through Q1 and we are pleased to see ADECO US return to growth. The gross margin of 19.4% was healthy. 40 basis points lower year-on-year, reflecting current business mix and firm pricing. EBITDA, excluding one-offs, was €132 million, driving a margin of 2.4%, 40 basis points lower year-on-year. The margin evidences agile capacity management and strong cost control, in addition to the favorable timing of fiscal income. Adjusted EPS was 48 cents, 20% lower year-on-year, mainly reflecting lower business income. Cash flow from operating activities was minus 144 million euros, while the cash conversion ratio was strong at 105%. Let's turn to slide four, where we look at some key wins driving market share gains which was 30 basis points positive at the group level this quarter on top of the 200 basis points delivered in 2024. First, close collaboration between ACODIS and ADECO resulted in a significant win with a German IT services provider. The client wanted project management and software development capabilities to support digital transformation. The client valued the group's coordinated delivery model with a single point of contact. Moreover, the client valued the high level of technical expertise offered, combined with our ability to scale and support during high workload periods. Second, the US LHH and Pontoon teams secured a major contract with a leading market research company thanks to a referral from ADECO. The client required strategic workforce planning and talent management capabilities. They saw value in LHH's global reach and end-to-end service offering as they needed offshore recruitment, HR sourcing, and outplacement services across multiple geographies. Moving to slide five, which highlights recent developments in the group's strategy to adopt AI solutions at pace. to accelerate profitable growth. As an example, we've launched pre-screening agents in ADECO UK, accelerating our agentic AI deployment and leveraging the Salesforce partnership and their agent force platform. The new agents enable a 24 seven exchange for candidates. They allow recruiters to quickly receive a high quality list of candidates that can then be considered for the interview stage and reduce the need for recruiters to make pre-screening calls to candidates. They also ensure higher quality automated data capture. This is very positive, and we are very confident in its scaling potential, which will improve customer experience and reduce cost to serve. And, Accodis Germany has launched new capabilities as part of its modular AI core platform suite, which numerous customers have used for over 10 years. The suite helps companies build AI models using low or no code with ready-to-use plug-in and agents. The new tools include a virtual assistant for brainstorming, intelligent analysis of documents and contracts, as well as code generation support and analysis. It is proven to deliver efficiency gains, cost savings, and faster project completion. Another important development this quarter has been the launch of Our Potential. This is an exciting new technology venture backed by investments from IDECO Group, the majority owner, and Salesforce. Our Potential is uniquely positioned to support companies. It will leverage AI and adjunct technology to help clients optimize workforce configurations and better distribute tasks between humans and digital workers, harnessing insights from the ADECO Group's rich labor data. We are convinced that our potential will deliver pioneering innovation at the speed and scale required in the world of authentic AI, and we look forward to updating you on its progress later this year. Let's turn to slide six, highlighting how the group navigates current macroeconomic uncertainty. To be clear, we are not directly impacted by shifting trade policy and we have not seen an impact from trade policies on our trading activities to date. The top left chart shows ADECO's flexible placement volumes in our largest countries from Q4 2024 to April this year. In percentage, year-on-year terms. Volumes improved through Q1, and modest positive momentum continues. When we talk to clients, most do not mention a direct impact, although we've seen some slowdown in client decision making, particularly in permanent placement. We'll continue to monitor developments very closely. and adjust our operations accordingly. Let me now hand over to Coram who will discuss the results in more detail.

Thank you Denis and good morning everybody. To follow up on Denis' remark, changing trade policies have not impacted the business to date. Our business model is resilient and we are committed to maintaining the 3% EBITDA margin floor annually. The group has a counter-cyclical cash flow profile and robust financial structure, which gives confidence in our ability to weather economic storms. Importantly, the group's cost base is highly flexible. During past periods of significant pressure, such as the global financial crisis and COVID-19, the group responded effectively, taking out SG&A expenses to deliver recovery ratios of 37% and 51% respectively. Most recently, we've been managing the business in a more granular way than during COVID, selectively protecting capacity where we continue to see opportunities to gain market share while delivering a sensible 43% recovery ratio. We're ensuring proximity and support to clients and looking for growth opportunities from strengthening MSP, statement of work engagements, and outsourcing activities. We're lowering cost to serve by centralizing tasks in hubs through digital delivery, automation, and the deployment of agentic AI. We're focused on delivering a CODIS Germany's turnaround and driving free cash flow with strict DSA management. We will remain agile with frontline capacity, driving productivity. Around 10% of recruiters are themselves on flexible placement contracts, and there is a 20% attrition rate for that population. This means we can move quickly to lower the largest area of expenditure in the business. Put simply, we are ready to adapt to changing circumstances if we see them. Let's look at Q1's results for each GBU, beginning with ADECO on slide 7. ADECO's revenues reached €4.4 billion, 1% lower year-on-year on an organic, trading days-adjusted basis, and 3% higher sequentially, with all segments improved. Adeko GRIP gained strong market share, with relative revenue growth 130 basis points above key competitors. Flexible placement revenues were 2.6% lower organically, with volumes improving through the period. Outsourcing remained solid, up 6% organically, while permanent placement revenues were 12% lower organically. Enterprise revenues remained soft, while SME revenues were robust, rising 3% organically. On a sector basis, retail and food and beverage growth was strong. Autos and manufacturing were weak, while logistics was soft. Gross margin was healthy, reflecting lower permanent placement volumes and firm pricing. The EBITDA margin was solid at 3.1%. and up 10 basis points year-on-year. The result reflects G&A savings, agile capacity management, and the favorable timing of FESCO income. Gross profit per selling FTE rose 2%, while selling FTEs reduced 4%. We're right-sizing in tougher territories, such as France, Germany, and the UK, And we're protecting or adding capacity where we see continued opportunity, such as in Spain, LATAM, and APAC. Moving to slide eight with ADECO's new segment structure. ADECO's European operations performed well given challenging markets. In France, revenues were 9% lower, reflecting continued and broad-based market headwinds. Pressure from a handful of large clients impacted revenue developments by approximately 350 basis points. Logistics and autos were challenged, while manufacturing and healthcare were weak. The EBITDA margin of 1.9%, 60 basis points lower year-on-year, mainly reflects lower volumes. Headcount was reduced 6% year-on-year. Stabilizing client impact, a strong pipeline, and restructuring actions will support future profitability. In EMEA, excluding France, revenues were 2% lower, with market share gains in most territories. Turning to the largest geographies, revenues in Italy were 1% lower, with autos and manufacturing weak while logistics were strong. Revenues in Iberia rose 5%, driven by strength in food and beverages and consumer goods. In Germany and Austria, revenues were 8% lower, reflecting ongoing headwinds in manufacturing and logistics. Autos were soft, but the business remains well positioned relative to competitors. In the UK and Ireland, revenues declined by 9%, with headwinds in consulting and construction. Recent large client wins are expected to drive stronger revenue momentum in the coming periods. The segment's EBITDA margin of 3% was 50 basis points lower year-on-year due to the current business mix and lower volumes partly offset by SG&A savings. Moving to slide 9. ADECO America's revenues were 4% higher and performance in North America significantly improved. Revenues were 2% lower in the quarter, driven by new large clients and robust SME growth, and the exit rate was strong, at plus 4%. On a sector basis, consumer goods and manufacturing were strong, while autos were weak. In Latin America, revenues grew 14%, led by Argentina, Colombia, and Brazil, although Mexico was subdued. by sector, retail, food and beverages, and logistics were all strong. ADECO America's EBA margin at 1.1% was 50 basis points higher year-on-year, reflecting higher volumes, good cost discipline in LATAM, and ongoing optimization of cost to serve in North America, with FTEs down 17% year-on-year. ADECO APAC saw continued strong growth and share gain, with revenues up 11%. Within the segment, Japan's revenues were up 10%, Asia's up 24%, and India's up 16%. On a sector basis, growth was led by retail and consulting, while manufacturing was robust. In Australia and New Zealand, revenues were 9% lower, reflecting softness in logistics. The EBIT A margin at 7.4% and 260 basis points higher year-on-year benefited from the timing of FESCO income. Excluding FESCO, the EBIT A margin was up 10 basis points, reflecting higher volumes and G&A savings. Let's look at slide 10 and ACODIS. ACODIS' revenues were 8% lower year-on-year on an organic, constant currency basis. Consulting revenues were 5% lower and staffing revenues 13% lower. By segment, EMEA revenues were 9% lower, reflecting increased pressure in Germany, where revenues were 15% lower, impacted by weaker demand in autos. Revenues in France were 6% lower, with autos and telecoms soft. Southern Europe performed well, with revenues in Italy up 5% and in Iberia up 13%, reflecting strength in life sciences and aerospace and defense. North American revenues were 11% lower, impacted by the continued downturn in tech staffing and despite growth of 12% in consulting. APAC revenues rose 3%, with Japan up 2%. This reflects robust growth in consulting, supported by high utilization rates. Australia was 3% lower, but up 2%, including the recently acquired Barhead Solutions business. The GBU EBITDA margin of 3.5% was lower year-on-year, reflecting lower volumes. There is meaningful pressure in Germany. coming from challenges in autos, with projects either stopped earlier than originally planned or where the planned start is postponed. The GBU's new president, Jo De Becker, is now firmly in role. Management is executing a turnaround plan in Germany to bring the unit back to profitability swiftly. Given current market dynamics, management will also continue to optimize operations in France and the U.S., Moving to slide 11 and LHH. Revenues in LHH were sequentially stable and 5% lower year on year on an organic constant currency basis. Professional recruitment solutions revenues were 7% lower, sequentially better and outperforming a tough market. Both placement activities and RPO remained soft. Gross profit was 5% lower, with gross profit in permanent placement 6% lower. Productivity rose 2%, with billing FTEs down 9%. Career transition and mobilities revenues were flat, a strong result given the very high comparison base. US revenues were resilient, the business grew well in France and the UK, and its global pipeline has improved. Coaching and skilling revenues were 4% lower, weighed by the progressive exit of General Assembly's B2C activities. However, B2B grew 45%, with a strong pipeline mostly related to AI upskilling programs. ESRA's revenues were up 5% organically, with a strong exit rate and record pipeline set to re-accelerate growth in upcoming quarters. LHH's EBIT A margin was healthy at 7.7%, reflecting geographic mix, lower volumes, and G&A savings. Management is focused on de-layering and right-sizing recruitment solutions, while continuing to drive growth in General Assembly's B2B business and in ESRA. Let's return to the group results on slide 12 and review the group's gross profit bridge. In Q1, On a year-on-year basis, currency translation had a positive impact of 5 basis points. Flexible placement had a negative impact of 10 basis points, reflecting ongoing country mix. Permanent placement had a 15 basis point negative impact, primarily reflecting lower volumes in a decade. Career transition had a 5 basis point positive impact. and outsourcing, consulting, and other had a 25 basis point negative impact, primarily due to challenges in a CODIS Germany. In total, the gross margin was 40 basis points lower at 19.4%, a healthy result given the current business mix. Moving now to slide 13 and the group's EBIT A bridge. The EBIT A margin, excluding one-offs, was 2.4%, 40 basis points lower year-on-year. This solid result, in spite of uncertain markets, reflects a 45 basis point negative impact from organic gross margin developments 30 basis point negative impact from operating leverage with SG&A expenses down 1% year-on-year due to agile capacity management and good cost discipline and a 30 basis point positive impact from the timing of FESCO JV income. This relates to the industry support fund from which we receive payments every year although the timing does move between quarters. We remain confident in the performance of FESCO and we anticipate a full year contribution of approximately 30 million euros, the majority of which we've received in the first quarter. Let's turn to slide 14 and the group's robust financial structure. The cash conversion ratio was strong at 105%. The ESO was best in class at 52.5 days, a half day lower year on year. Cash flow from operating activities was in line with normal seasonality at minus 144 million euros and 77 million euros below the prior year period. On an underlying basis, approximately two-thirds of the year-on-year differential was driven by working capital absorption for growth, with the remainder reflecting lower business income. End Q1 net debt was 2.7 billion euros. The net debt to EBITDA ratio, excluding one-offs, was 3.2 times, weighed by lower EBITDA. We remain firmly committed to bringing the net debt to EBITDA ratio to 1.5 times or below by the end of 2027, absent any macroeconomic or geopolitical disruption. The group has strong liquidity resources, including an undrawn €750 million revolving credit facility and low interest expenses. It has fixed interest rates on 80% of its outstanding gross debts, no financial covenants on any of its outstanding debts, and a well-balanced bond maturity profile. Moving to slide 15 and the group's outlook. Volumes improved through Q1, and modest positive momentum continues in Q2. For Q2, the group expects gross margin to be lower sequentially, reflecting normal seasonality. It expects SG&A expenses, excluding one-offs, to be modestly lower sequentially. Management is focused on managing capacity with agility to balance share gain and productivity in uncertain markets, in addition to securing G&A savings. Back to you, Denis.

Thank you, Coram. And let me finish today's presentation with slide 16 and today's key takeaways. First, we have delivered further market share gain with solid margins in the first quarter. Second, We've delivered on our commitment to return ADECO-US to growth during H1 2025, and we are swiftly executing a turnaround plan in Accodes Germany. And third, we have been and will continue to take a granular approach to operating expenses through agile capacity management and strict cost control to protect profitability. And with that, we'd like to thank you for your attention and to open the lines for Q&A. Thank you. Operator, up to you.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. As we enter the Q&A session, we ask that you please limit your input to two questions. At this time, I would like to remind everyone to ask a question. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment, please, for your first question. Your first question comes from the line of Suhasini Varanasi of Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for taking my question. Slide six. showed a pretty interesting trend. I was wondering if you could give some more color by the different GBUs on how the trends have evolved over March and in the second quarter to date. And at the group level, does this mean that you've maybe reached a break even on growth or potential for that in the second quarter? That would be my first question. The second question is generally on defense. earlier i think around the full year results you did talk about how there was incremental growth potential or you were seeing some increased interest from your clients how has that basically trended through the quarter please thank you i think quorum will take the first one and i'll take the second one

Thank you, Sureshini. Okay, so in terms of trends on volumes, I mean, you're right, the chart does show the modest positive momentum that we've seen. We saw that all the way through Q1. It continued after we did the call with you for the full year. And as you can see, it has continued into Q2. These are obviously flex volumes in the ADECO business, but that's a big driver of our revenues. It's been very broad-based, so we have seen consistent modest improvement across all of our major territories. That's continued in April and Q2 to date, and there's been no major shifts in those trends. The one very positive thing that I'll call out and reinforce is that obviously our North American business is now returned to growth. To your question about whether or not this means we're close to break-even, on volumes, yes, it does mean we're close to break-even. So it gives you a sense of the positive momentum that we see. Volumes in the other businesses vary. It's very dependent on which parts of the business that you're seeing. We continue to see good momentum in career transition areas. PERM is under pressure, as we know, in a number of our different business units, although our competitive performance in LHH has been very effective. And in ACODIS, there's more pressure in IT staffing. Consulting and solutions is very dependent on where you look in terms of geographies. So we've got growth in Asia Pacific. We've got growth in the US consulting business. Italy and Spain are strong. And as we mentioned, some pressure in Germany and France. So hopefully that gives you a sense of what we're seeing in terms of volumes.

Yes, that's very helpful. Thank you.

So with regards to the defense sector, it's going to be definitely one of the tailwinds that we can have for our business, and particularly for our coders. At the moment, Our defense represents approximately 5% of the group revenue. And of course, the majority of it is in . So we are really positive about the outlook. However, we are yet to see the full impact of that. We hear that things are going to come in Germany, particularly once the stimulus package is underway. I think there's going to be momentum. We don't see yet the full impact. The good news is we've renewed in France, where we also do quite a lot there, we've renewed 100% of our framework agreements with the major defense players, and that's good. We've won also a significant contract in Japan, which will give us also momentum there. I think we are in a good place. Our space in defense has grown 2% in Q1, so that's good. And there's much more to come. We are in a great place to serve the defense sector because we have great reference with very strong clients. We also believe, particularly in Germany, in the discussions that we have with the major defense clients, they want to see, they want to change the way they operate. And actually, The strong footprint that we have in OTO is going to help us bring methods and technologies and know-how into the defense sector. The defense sector has to think differently in the way they design the products and the systems. And all the knowledge that we have, particularly in Germany in OTOs, is transferable. with high added value to the defense sector. So much more to come on that, but we haven't seen yet, of course, an impact in Q1.

Your next question comes from the line of Andy Grobler, BNP Paribas. Please go ahead.

Hi, good morning. Can I start with a CODIS, please, in Germany? That has had a pretty rough ride over the past couple of years. How do you How do you recover that business and get it back to profitability? And can you just kind of talk through the competitive dynamics in that market at this point? Thank you very much.

Thank you, Andy. Well, yes, Arcodes Germany has been not the easiest ride of the past quarters. Two things here. You know, the business had a, you know, shift to be done from more of a legacy technology into more digital and smart industry business, and a high exposure to the auto sector. On this one, we're definitely suffering from the difficulties in the auto sector. The auto is almost 40% of the revenue of our business. that has impacted us significantly. We still have strong relationship with all major OEMs, but of course, given where they are, we see projects that are postponed, delayed, downsized, and that has an impact on our bench profitability. We have a low utilization rate, around 85%, so we have pressure points here. I would say, overall, to your question versus competition, we are more or less in the same relative position, everybody is suffering. In Germany, we have, of course, our bigger exposure to autos impacts us probably a bit more. We have and are executing a very strong action plan and turnaround plan. And I am very confident, just like we've been able to turn around, and we are turning around in the U.S., we will turn around at Codex Germany. What are we doing? First, uh, strong portfolio management. So there's going to be some business disposals on non-core, uh, assets. So that's one second. We have a restructuring plan on the way and it's, uh, it's, it's being executed and, uh, it's going to help us, uh, you know, right size the business. Uh, we, we have, we have a real estate optimization project that's going to help us on cost. We are accelerating our offshoring to make sure that we are more competitive, and that's also what our clients are asking, of course, particularly the car makers. And we're also diversifying our business. As I mentioned, the defense sector is promising. It's today, you know, around 10% of the business, but we believe that there is very good momentum. So I think this is... this plan is going to deliver. We ensure, we will ensure that we deliver profitable exit rates by the end of the year. It is absolutely feasible. And I am really confident in the way the team is focused on that. And the auto sector, moving forward, is going to be, again, a growth sector. The major car makers are doing very strong restructuring plan on their side, and they're telling us they will need more outsourcing. They need more flexibility, and they're telling us that we have to keep the know-how, because they will need it. Once they have done their own restructuring, they will need the flexibility and the competitiveness that we bring. So, in a nutshell, yes, we impacted, more or less in line with competition, probably more exposed to autos. We have a very strong action plan. We will exit Q4 in a profitable way, the German market, and with Germany.

And maybe just to complement very briefly, autos is a pressure point for ECODIS, but it is still a resilient sector for us with good prospects, as Denis mentioned. Across ECODIS, it's down about 5%, so I want to give you a sense of the scale. And whilst Germany is a challenge, We have a very clear turnaround plan, and the margins for ACODIS excluding Germany would be above 6%. Now, obviously, we recognize we have to fix Germany. And we will. Which we will. But we just want to give you a sense of how the rest of the GBU is doing.

Great. Thank you very much.

Your next question comes from the line of Simona Sarli of Falls of America. Please go ahead.

Yes, good morning and thanks for taking my questions. So first of all, a couple of follow ups on Accodis and specifically the reorganization in Germany. Can you talk a little bit more about the exit rate of Accodis in this region in March and also how should we think about overall the organic growth trajectory for the rest of the year? Secondly, A quick question on the one-offs. I remember that at year-end you were guiding for one-off for the year at 30 million euros. Are you still happy with that? And also for your guidance going into Q2, can you quantify a little bit of what you mean with a sequentially lower SG&A? Thank you.

Sure, I'll take those. I mean, on the exit rate in Germany, it was pretty consistent through Q1. And, you know, we are very focused on turning that business around with the restructuring plan that Denis talked about. But we don't see an immediate improvement in that. The challenges in German auto will persist for a little bit of time. On the one-offs, I think you'll notice if you look at the back of the deck on the financial framework that we have increased our expectations for one-off costs modestly for the full year. We were at 30 million when we spoke in Q4. We're at 50 million is our expectation for the full year now. And that really does reflect. our initial estimates on the cost of the German restructuring. We are being very disciplined around one-off costs. We brought them down considerably from where we were a couple of years ago, and we intend to continue that discipline, putting things above the line when we believe that they are simply straightforward capacity adjustments. A small increase in our expectations for one-offs to 50 million, but it's still well below the levels that we've been at previously.

Yeah, and you heard me say that and say it again on these one-offs. It's also a management mindset that we are instilling. There has been probably in the past too much of this magic money perception, which we're now stopping. And when the business is impacted by, you know, maybe not so good decisions, then they take it on the P&L. And I think that that message percolates well in the company now. We make people accountable for their decisions.

And then to pick up on your question around SG&A, I just want to step back for a moment and talk about what happened on SG&A in Q1. So our SG&A was down 1% year on year. You've seen that from the numbers. Our FTEs were down 6%, and that reflects the ongoing drive to make sure that our G&A costs are kept firmly under control and as well as the way in which we are managing our sales and delivery capacity. And I tried to give you some flavor as we were talking through the regions. There are areas where we've gone further than that because the markets are under pressure. There are areas where we've held capacity. And there are areas where we have invested because we see opportunities for growth and share gains. The differential between that headcount reduction of 6% and the SG&A being down 1%, there's a big driver, which is obviously the merit rises, the wage inflation that we give to our own teams at the beginning of the year. It varies by country. We peg it to inflation, but you should assume that it's running at about 3%. It happens at the start of every year, so it does create a differential in the first quarter between FTE movements and the SG&A number. But we also had a couple of minor timing and one-off expenses in SG&A in Q1. On the corporate side, timing of insurance charges, but also we did, as you've seen, a couple of small M&A deals. We had some fees relating to those which came through in Q1. And because we've been so effective at managing G&A, because we brought that base down, even relatively small amounts create a bit of a swing in percentage terms. And then on the selling side, Again, picking up on the point that both Denis and I made about restructuring, we had some modest restructuring charges go through our selling expenses above the line. Costs are firmly under control. So G&A remains tightly controlled. There are a couple of areas where we will continue to look for further G&A savings. We've spoken about France and the US. And we're managing selling costs with agility. In terms of the reduction that we'd expect from Q1 to Q2, it's really the absence of those one-time items. And you should work on the basis it's high single-digit millions of euros. So hopefully that gives you a steer.

Thank you. Your next question comes from the line of Remy Grenier of Morgan Stanley. Please go ahead.

Morning, gentlemen. Thanks for taking my questions. Two on my side. So if you could make a little bit of an update on how the restructuring is progressing in France and how much cost saving you expect to generate from that and what would be the timing there. And the second is to come back on that SG&A comment. I just want to understand the kind of 25 million bridge between your initial guidance, which was kind of pointing toward 950 and where you got. Surely the 3% inflation was an assumption that you've had to make for that 950. So trying to understand what this one of you are referring to, is that the entirety of the 25 million? And if so, should we expect that to... to completely revert next quarter. Thanks.

So, regarding France, I think the restructuring is well on the way and it's mostly behind us, so that's good. We, of course, continue to adjust to the market dynamics. The margin in France reflects mainly the lower volumes that we had. And even though the market is not that good at the moment, we are improving our performance relatively to the market. So we are reducing the gap. As you know, we've been a bit lagging behind for some time. We're now reducing the gap, and I'm quite positive that as we progress in the year, we will be above the market in terms of growth. That's positive. We also put a new leader in ADECO in France. He's put in place an improvement plan. We really focus on plant efficiency, on continuing to digitize our delivery platform. You know, we're improving fuel rates. We're focusing on new sectors, construction, nuclear. We've secured some large contracts, which makes me positive in the outlook of France moving forward. And, of course, we're really adjusting selling FTEs because, you know, the market in France is – is not the strongest one at the moment. So we are, again, adjusting capacity in a very granular way. So that's where we are.

And just picking up then on the follow-up question on SG&A, obviously the wage inflation was built into our guidance. That's something that we do every year. The one-offs we were not anticipating. These are small items, timing, as I mentioned, of insurance, advisory. and some modest restructuring charges. And as I said, assume it's around 10 million and that we would not expect those to repeat in Q2. So it doesn't explain all of the difference. The rest is really about the way in which we're managing the business. So we are very tightly controlling G&A. The savings that we've secured last year continue to flow through the P&L, but we do have some modest positive momentum in the business and we are adjusting selling capacity on a very dynamic and very granular way to make sure that we balance productivity and share gains. And you can see the benefits of that in terms of the sequential improvement on the growth rate from Q4 to Q1 and the ongoing share gains that we're delivering. So it's all about the agility with which we're managing capacity and we're responding to the momentum that we see and the market conditions that we're facing. To be very clear, We are firmly committed to our 3% EBITDA margin floor on an annual basis. So we recognize it doesn't happen every quarter because of the seasonality of the business. But even in a difficult environment, we are absolutely clear that we can secure that 3% floor. And you can get there in two ways. Get there by continuing to see momentum and capitalizing on it. and getting operating leverage as a result, or if market conditions or the momentum starts to soften, then we will adjust our sales and delivery capacity, and we will do so quickly. I mentioned in my remarks, we have flexibility built into the cost base. We have 10% of our sales and delivery capacity on flexible contracts. We have attrition rates of around 20%. We can adjust very rapidly if the momentum that we see right now starts to soften or stall.

And we're following very closely volumes on a weekly basis at a very granular level in each country, in each area of the country. Everybody is really briefed about that clear and granular understanding of what's happening on the market. It's so fluid that you need the people to be on it and to understand where it's moving, where it's stopping, where are the opportunities, where should we adjust. So everybody is really, really briefed on that surgical way of looking at the business.

Very clear. Thank you very much.

Your next question comes from the line of Will Kirkness, Bernstein. Please go ahead.

Thanks very much. Two questions, please. Firstly, just coming back to that 3% floor, I think, so if the first half sort of ends up in a 2.4, 2.5 area, that implies a decent pickup in the second half. I think last year maybe there was about 30 basis points. Is that just a factor that, you know, last year things were deteriorating and this year things are looking better, so it's a function of the top line? And then the second question was just coming back to the comment on the 350 basis points of pressure from large clients in the Deco Europe. I just wondered if that's a sort of volume thing or if it's price led and whether you could then talk a bit more about kind of fee rates versus wage growth more broadly. Thanks.

So I'll pick up on the first question and then he will pick up on the 350 basis points for large clients in France. Will, to your point, yes, it's absolutely a function of the top line. So as you rightly pointed out last year, the trajectory worked against us through the year, which meant there was less of a seasonal pickup in the second half margins versus the first half. as we've said we are seeing positive momentum in the business you saw the graph on slide six on flex volumes it shows what happened in q1 and it shows that that momentum of a modest nature but nevertheless there and broad based has continued into q2 and we are managing the business to make sure that we capitalize on that and we take market share If that continues, then that would obviously give us operating leverage and create stronger second-half margins. Obviously, if we face a situation where volumes start to soften, then we will take action very rapidly on our sales and delivery capacity. And as I've already said, the business is flexible in terms of its cost base, and we're managing this in a very flexible granular way. So I hope that gives you a sense. There are several ways in which we can get stronger margins in the second half, and we're fully committed to that 3% EVA margin flow.

Absolutely. And with regards to your second question, you know, the 350 basis points that you referred to is linked to France and some large clients' impact. If you remember well, we mentioned also in Q4 that we have our top three clients in having intrinsically negative impact because of their own business. I'll say a few words on pricing first. Pricing is solid. Pricing is firm. Of course, we are in competitive markets across the board, but overall, our pricing is really solid. We of course follow um you know bill rate uh the pay rate and the spread there is still slightly positive that that demonstrates that we hold on on pricing and they said the solid growth margin demonstrates that now if i go back to france we had this 350 basis points impact of a few last clients a handful and we also had a negative impact on healthcare due to a change in legislation in france so that has impacted Manufacturing, autos, logistics remain weak, but we have some better momentum in food and beverages and retail. We also won some significantly large contracts in France towards the end of the past year and the beginning of this year. That makes me very confident that, again, as I said earlier, that we're going to catch up on the market. And we've already reduced the gap versus market in Q1 versus Q4. And I am very confident that as we progress in the year, we will be above the market in comparative terms at some point in the year.

Maybe if I can just complement that by touching on your question about the relationship between fee rates and wage growth more broadly. There is a pretty much 100% correlation in the ADECO business because we take the wage rates and we apply a multiplier to get to the bill rate. As Denis mentioned, the spread between bill rate and and pay rate has been modestly positive again. The multiplier is stable in a decade, despite the country mix working slightly against us, which means we are seeing the benefits of modest wage inflation that's out there in the global economy flowing through in the top line. Okay, thanks very much.

Your next question comes from the line of Simone Lecheap of Jefferies. Please go ahead.

Yes, good morning. First of all, in the US, I have a kind of two-part question. First of all, in which extent the improvement is driven by easier comps and new business wins as opposed to some underlying volume improvement? And second part, in the US, you mentioned strong performance of consumer goods. Just wondering if this is driven by any pull forward of demand from U.S. consumer rate of tariffs. Secondly, you mentioned that you have not seen any tariffs impact overall, but you kept mentioning manufacturing and auto getting weak. So, yeah, just trying to reconcile this, and also we see Germany is very weak, so it does not seem to show any improvement. And lastly, just quickly on What's the driver for the NYSEP-HECO, Organigo, and APAC in Q1 as opposed to Q4? Thank you.

So on the U.S., and, you know, I think the main thing to the U.S. is the turnaround in the DECO is delivering results. The plan is delivering results. They still on the temp market, there's still a pretty low penetration penetration rate that, uh, you know, 1.59% in April, the U S market temp volumes are still negative. April was minus 4.6%. Um, our March was a bit, a bit worse at minus 5.1. So, I mean, the market is not fantastic. We, our performance, uh, our absolute performance is, is one of, uh, of, you know, that demonstrates improvement. we're at minus 12% in Q4, we are at minus 2% in Q1, and an exit rate at plus 4%. And it's a result of several things. You know, we had, and we mentioned in the past, that we had some large client losses, and they are behind us. But on top of that, we had some very nice large client wins. So it's not only a comp base, it's also that we've won some very large clients. That explains that in Q3 last year, we were at minus 16% on large accounts. We are now at plus 1% in Q1. The SME business is also getting traction. In Q3 last year, we were at minus 5%. In Q1 this year, we are at plus 3%. And it's linked to the branch revitalization program that is well underway. So there is momentum. We also have a good traction with MSPs the volumes that the ADECO business delivers through Pontoon, our MSP, is also improving. So there's a lot of things that we're doing and executing rigorously that put us in this situation. So I think it's really promising, and I'm quite positive it's going to happen in Q2 and Q3. On the... On the business side, the consumer goods that you mentioned, actually, we have a very strong dynamic in retail. We groomed 40% in retail, 11% in manufacturing. Autos is soft and negative. And all that, back to your question on tariffs, as Colin said, we don't see tariffs. Of course, we are not directly impacted at tariffs, but we don't see so far any visible impact on tariffs. It's quite early, and clients are more in a wait-and-see mode than anything. A few days after Liberation Day, we went really out to talk to so many clients, and we reached out to our top 100 clients to see where they were. And of course, there is a variety of situations. Some, you know, depending upon where they make their revenue, where they manufacture, they're depending upon their dependency on supply chains. But more or less, the uncertainty makes such that, you know, they're more waiting to see what's going to happen. Yeah, uncertainty is in everybody's mind. The only impact that we see so far from tariffs is the slow down in permanent recruitment because, of course, when you're uncertain, you don't necessarily bet on recruiting more people. On the other side, it brings some momentum, I believe, in the flex labor because even though you have some work to do, you flex your workforce. I don't think weakness in manufacturing and automotive sectors are linked to TAVs because they were already weak towards the end of this year. And if I look particularly in the automotive sector, it's broad-based and particularly linked to this, you know, particularly the German car makers that have to do their own aggiornamento to be ready for the quarters to come.

And if I pick up on APAC, revenues in our ADECO APAC business were up 11% with good share gains. It's very broad-based. So if I look at it on a territorial basis, Japan was up 10%, Asia up 24%, India up 16%. The only area of pressure was Australia, where it was down 9%. Australia is quite a tough market for the industry right now, and logistics is soft. But it's very broad based in terms of territories. SME growth was very strong. Enterprise was also good. And if we look at sectors, retail, IT tech, manufacturing, consulting, they all showed good growth. I think the key point about APAC is we are very well positioned there. And this is structural growth. And it's the same if you look at BATAM as well. We see very good growth, and we have a very good competitive position in those areas. And they are helping to drive the overall EDECO group growth rate.

Well, I like also in these two regions is they are not only do they grow, but they also improve their margins, which means we are able to improve the margins as well as continue to fuel this growth from capacity. I think that's, and you know, it now represents a significant piece of our revenue. So that portfolio, that geographic portfolio that we have puts us in a very strong position for the future.

Thank you. A quick follow-up on that. I think it was a 14% in Q1. Is there any higher inflation impact in this 14%?

No, I mean, a very modest amount in Argentina. But even if you were to exclude that, you'd still have strong double-digit growth. So it is competitive positioning, making sure that we're capitalizing on the growth opportunities in a number of territories and driving share.

And we have a very strong team there. There are wires.

Thank you very much.

Your next question comes from the line of Conrad Zomer of ABN AMRO. Please go ahead.

Hi, good morning all. I've got one question. It's about your ongoing improving momentum throughout Q1 and Q2 to date. Are you willing to share with us if that improving momentum also applies to your businesses in Italy, France and Germany, please?

So, yes, we are willing to share, and yes, it does apply to all of the businesses that you've mentioned.

Great. Thank you.

Your next question comes from the line of James Rowland-Clark of Barclays. Please go ahead.

Good morning. I've just got one question, please. I was intrigued by your comments about managing costs and capacity against your desire to take share. It seems, based on your presentation, that you're taking share in really most of your markets, or at least you've got plans to take share. Is it therefore fair to say that you're carrying a few more consultants than the market average relative to your market positions? Therefore, do you need or do you not need to add lots of capacity should the market improve? And then a follow-up to that would be, What does that mean for your gross profit to EBIT conversion ratio from here, even when the group returns to growth in the near future?

Thank you. So let me take the market share gains dynamic, and then Coran will be super happy to talk about the EBIT conversion ratio. You know, first of all, it's a mindset. Market share gain is a mindset, and that's what we've educated our teams for. is you win because when you win, you prove that you're relevant with your clients and you create a better future. We do that by selectively protecting capacity. And really, as I said earlier, you have super, super granular. We add more FTEs where we see the opportunity. And even though we've gained share, we've also improved productivity. We've improved productivity in ADECO. We've improved productivity in LHH. So, and then we reduced, you know, FTEs. So we gained share, but we also reduced FTEs in absolute numbers, not massively 1% from Q4 to Q1. So, you know, this is really a lot of, as I said, very surgical implementation of the plan to make sure that we capture everything that we have. That's one thing. The second thing is, it's also about the efficiency with our clients. The time to fill, the fill rate, the way we implement technology to be the first one to respond, to have the best profile in contracts where it's the fastest that replies, that wins, is critical. That's also how you gain share within contracts. We've also put specific incentives that balance nicely this growth mindset with profitability. We talked about the pricing. We're not sacrificing pricing. It's just more, it's the energy, it's the mindset and the competitiveness that make us win this market share. And, you know, if market improves, yes, we will add capacity. That's what we do. We will, you know, we will with the same granularity. It's not going to be across the board. It's not decided in Zurich. But they know, and you see that in APAC in Latam, you know, APAC will add a few more people, not many, because we still have some productivity to gain. But, of course, we are ready to capture every single positive opportunity.

And if I can complement that and pick up on the point about drop-down ratios. So as Denis described, we're being very granular and very forensic in the way that we're managing capacity. It's not that we have a blanket approach to this. It's not that headcount is going up everywhere or down everywhere. We are literally adjusting it country by country, sector by sector. We have protected capacity where we see opportunities. That's absolutely clear. Our recovery ratio, as I mentioned in the script in 2024, was 43%. That's a little bit lower than the 50% that we've steered to, particularly, for example, in COVID. And that means that in the early stages of a recovery, we don't need to add capacity. We can drive the productivity. And that means that the drop-down ratio will definitely be around 50%. It may even be just a little bit higher. It doesn't last forever, but it gives you a sense of how we're managing it. And the other aspect maybe to pick up on is you can see in our gross profit bridge where the pressure points are. A lot of it is about mix. Obviously, if we continue to see momentum, then you would expect to see some of those mixed pressures alleviate and the gross margin improve.

And definitely, if there is a market pickup, we believe that clients will again go more into a permanent recruitment. We are well positioned for that. And as you know, permanent recruitment has very nice course models.

Thank you.

There are no further questions at this time. With that, I will turn the call back over to Denis Mashouel, Chief Executive Officer, for closing remarks. Please go ahead.

Thank you. And thank you for listening to us and thank you for the exchange that we had today. Just a few things to keep in mind. Yes, there is uncertainty. But as you could see, it hasn't impacted our business so far. We are continuing to gain market share. We are executing our strategy with rigorous mindset. And we are able to prove that when there is an aerial focus with a turnaround plan, we deliver on the turnaround plan. This is what's happening in the US. This is what we're going to do in Germany, which has a pressure point at the moment. Overall, we'll do everything to capture every single opportunity. And as we said, we are super agile. If headwinds come, we will adjust. And if there are positive perspectives, we will inject capacity to continue to outperform. So thanks a lot for this exchange. And we look forward to exchanging again with you in Q2. Thank you very much and have a great day.

Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask you to please disconnect your lines.