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 ADECO Group Q3 Results 2025. 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, Head of Investor Relations. Please go ahead.

Good morning. Thank you for joining the EDECO Group's Q3 results conference call. I'm Benita Barreto, the Group's Head of Investor Relations, and with me are the EDECO Group's CEO, Denny Mashuel, and CFO, Coram Williams. Before we begin, please take note of the disclaimer on slide two. Today's presentation will reference both GAAP and non-GAAP financial results and operating metrics. This conference call will include forward-looking statements, which are based on current assumptions and, as always, present opportunities as well as risks and uncertainties. With that, I will now hand over to Denny.

Thank you, Anita, and a warm welcome to all of you who've joined the call today. So today I want to share an important leadership update, which also underscores the strength of our succession planning and our commitment to continuity. At the end of this year, Coram Williams will step down as Chief Financial Officer after five years of outstanding service. Coram has played an absolutely pivotal role in guiding the ADECO group through a period of significant transformation and strengthening our financial foundations. His disciplined approach and strategic insight have been absolutely instrumental in achieving the strong Q3 results we announced today. We warmly thank Coram for his tremendous contribution and wish him every success as he takes on a CFO role in the automotive sector in Germany, a move that reflects his passion for this sector and also brings him closer to his family. And I'm pleased to announce that Valentina Ficaio will succeed Corum as CFO effective January 1st, 2026. Valentina is a proven leader with deep knowledge of our business and strong financial and strategic acumen. She's been part of our global finance leadership team, most recently leading financial planning, controllership, and strategy, and has acted as Coram's deputy for the past three and a half years. Her appointment follows a rigorous selection process. and represents an internal promotion to the CFO role, which is a testament to the strength of our talent pipeline. This leadership transition is well planned and we remain focused on delivering sustainable growth, improving margins and creating long-term shareholder value. Let's now turn to our results and starting with slide four and an overview for the quarter. We gained significant market share this quarter with the group and ADECO leading key competitors by 375 and 300 basis points respectively. The group delivered 5.8 billion euros in revenues, 3.4% higher year-on-year on an organic trading days adjusted basis. Revenue trends improved sequentially across all GBUs. Additionally, we observed a strong performance from ADECO US with revenues increasing by 20% year-on-year. Gross profit reached 1.1 billion euros with a gross margin of 19.2%. While this represents a modest year-on-year decrease of 10 basis points on an organic basis, it is a 30 basis points sequential improvement fully matching our Q3 guidance. Gross margins benefited from reduced pressure in Akkodes, Germany, where the turnaround plan is progressing well. EBIT A excluding one offs was 195 million euros with a 3.4% margin. Disciplined execution drove good operating leverage with productivity up 8% year on year and higher in all GBUs. Adjusted EPS was 67 cents. Cash conversion was very strong at 110% and the group generated a solid operating cash flow of 200 million euros up 79 million euros from the prior year period. In summary, the group delivered a strong performance this quarter and remains on track to achieve the 3% EBITDA margin floor for the full year. Moving now to slide five. The group delivered a further increase in market share this Q3. In Q2, the group gained 205 basis points in market share and a deco gain in 130 basis points. In Q3, The group gained 375 basis points of share and ADECO gained 300 basis points. We have seen a consistent improvement in flex volumes year to date across the ADECO GBU. In Q3, we were encouraged to see volumes move clearly into modest growth territory with a meaningful uptake in demand from the largest ADECO countries. Now, as we move to slide six, you'll see case studies that demonstrate our strong wind momentum in the market. First, in the life sciences sector, ADECO and ACODIs were selected as the preferred suppliers for global solutions due to the group's global footprint and breadth of services. The client was impressed by our technology expertise, reporting quality, market insights, all of which are underpinned by strong data analytics. Second, Accodis was selected as a Tier 1 supplier to a leading German aerospace company. Our comprehensive suite of advanced system engineering solutions covering landing gear and system design and installation supports the client's strategic need for innovation to improve operational efficiency and sustainability. ACODIS's global presence, which maximizes responsiveness and cross-fertilization of ideas, was key to be selected. Third, LHH's ESRA won a multi-year contract with a leading US software provider for AI and human coaching services beating a major competitor. Ezra will coach over 27,000 employees, creating a measurable business impact. With that, I will now hand over to Coram for further details on the Q3 results.

Good morning, everyone, and thank you, Denis, for your kind words earlier. It's been an honor to be the CFO of the group over the last five years and a real pleasure to work with you and the talented teams that we have around the group. The Q3 results that we're announcing today show that the group is on a good path and affirm my decision to step back and pursue a new role in a sector I'm passionate about in my adopted home country. I'm really delighted that you and the board have chosen Valentina as my successor. She's been a strong member of my team, a brilliant deputy, and I have no doubt that she is the right person to drive the group forwards. With that said, I'd like to now focus on the Q3 results. First, let's discuss GBU developments, beginning with ADECO on slide seven. ADECO delivered €4.7 billion in revenues, up 4.5% year-on-year on an organic, trading days-adjusted basis, and up 2.8% sequentially. Flexible placement revenues increased by 4%. On an organic basis, outsourcing remained strong, with revenues up 12%. Permanent placement revenues were 7% lower, while MSP pontoon revenues rose 5%. By client type, revenue growth from SMEs was strong, up 5%. Gross margin was healthy, reflecting the client and solutions mix, particularly lower perm volumes. Pricing remains firm. Productivity improved by 5%, while selling FTEs decreased by 1%. The EBIT A margin improved 50 basis points year-on-year to 3.9%, reflecting higher volumes and operating leverage, aided by G&A savings and Agile capacity management. ADECO's drop-down ratio this quarter was north of 100%, a very strong outcome. Now let's move to ADECO at the segment level on slide eight. In ADECO France, revenues were 2% lower year on year, improved sequentially and outperforming the market, driven by robust growth across large clients. Growth in autos, financial and professional services, food and beverage, and the strategically important construction sector was strong. However, logistics presented some challenges. The EBIT A margin of 4% was 80 basis points higher year-on-year, with France benefiting from the execution of G&A savings plans. ADECO EMEA, excluding France, returned to growth with revenues up 3% year-on-year and taking market share. Looking at the larger markets, Revenues in Italy were flat, with strong activity in logistics and food and beverages offsetting weak autos demand. Iberia was strong, with revenues up 13%, reflecting strength in flex and outsourcing, as well as double-digit growth from SMEs. Food and beverage, financial and professional services, manufacturing and autos were strong. In the UK and Ireland, revenues declined by 4% year on year, a resilient result given the challenging market environment. While soft demand in logistics and the public sector impacted performance, the business continues to demonstrate adaptability. Revenues in Germany and Austria were flat year on year, reflecting a solid outcome in a demanding market. The manufacturing and automotive sectors performed robustly, supporting overall stability. The segment's EBIT A margin of 4.1% was 20 basis points higher year on year. The margin reflects client mix and good operating leverage, with productivity up in all territories and support from G&A savings. Turning now to slide 9. ADECO Americas delivered very strong revenue growth of 20% year-on-year. North America revenues increased by 20% year-on-year, improving sequentially and ahead of market trends. The result was driven by strength in flex across all client segments, including double-digit growth from SMEs. In sector terms, consumer goods, autos, manufacturing, and food and beverage were notably strong. This growth rate shows the continuing progress we're making with the turnaround of ADECO US. At the same time, we do have work to do on the business mix and cost to serve to restore margins further. In Latin America, revenues grew 21%, with all countries experiencing double-digit growth driven by demand for flex and outsourcing across SMEs and large clients. By sector, financial and professional services, logistics, and manufacturing were strong. The America's EBIT A margin of 2.5% increased 240 basis points year on year, reflecting higher volumes and operating leverage. Productivity improved while the segment continues to optimize costs. ADECO APAC remained strong. with revenues up 9% year-on-year and ahead of the market, led by strong demand from SMEs. Revenues rose 8% in Japan, 18% in Asia, and 14% in India. In Australia and New Zealand, revenues were 3% lower. In sector terms, financial and professional services, consumer goods, food and beverage, and defence were strong. The EBIT A margin of 4.7% reflects higher volumes, G&A savings, and modest investment incapacity to capture future growth opportunities. Let's now focus on ACODIS and slide 10. ACODIS' revenues were 3% lower year on year on an organic constant currency basis and sequentially improved. Consulting and solutions revenues were 1% lower organically. improving by 4% sequentially. By segment, EMEA revenues were 3% lower. France returned to growth with revenues up 1% and ahead of the market. Aerospace, defence and autos were strong. Revenues in Germany were 9% lower, driven by market headwinds in autos and despite good momentum in defence. Italy, Iberia and the UK performed well. North America revenues returned to growth, with revenues up 1%. The business has seen a modest improvement in tech staffing demand and delivered very strong growth in the strategic consulting and solutions segment, with revenues up 45%. APAC revenues were stable, with Japan and China up 2%. Revenues in Australia were 4% lower, reflecting a slow market backdrop. Kodas's EBIT A margin was 4.5%, 60 basis points lower year on year. Excluding Germany, the margin was 6.5%, an improvement year on year, reflecting solid utilization rates and good cost discipline. Germany's turnaround is progressing well. Given the market context, the level of targeted savings has risen to approximately 50 million euros. To date, an annualized savings run rate of approximately 36 million euros has been achieved, driven primarily by adjusting consulting headcount, which improves bench utilization, and G&A savings. Additional savings are expected in Q4. These actions will enable the unit to return to healthy run rate profitability by year end. Let's move on to LHH and slide 11. LHH executed well, with revenues returning to growth, rising 4% in the third quarter on an organic constant currency basis. The EBIT A margin reached 9%, up 240 basis points year on year, driven by higher volumes and strong operating leverage, with a 25% increase in productivity. Turning to LHH's segments, professional recruitment solutions revenues were 7% lower, with the unit taking share in tough recruitment markets. Recruitment solutions revenues were 5% lower, primarily due to an 8% decline in permanent placement. Gross profit was 6% lower, productivity remained flat, and billing FTEs decreased by 6%. RPO activities remained soft. Career transition performed very well, with revenues up 9%. US revenues grew by 7%, and revenues outside the US increased by 11%. The pipeline remains healthy across all geographies, supporting future momentum. Revenues in coaching and skilling rose 40%. ESRA delivered outstanding growth, with revenues increasing 59% to another record high. General Assembly returned to growth, with revenues up 48%, driven by strong momentum in its B2B business, which focuses on AI-related offerings. Let's turn now to slide 12, which shows the group's gross margin drivers on a year-on-year basis. Gross margin was healthy at 19.2%. 10 basis points lower year on year on an organic basis. Currency translation had a negative impact of 10 basis points. Permanent placement has a 25 basis point negative impact with headwinds in both ADECO and LHH. Career transition had a positive impact of 10 basis points. Outsourcing, consulting, and other services had a 10 basis point negative impact due to mix in outsourcing and ongoing pressure in ACODIS Germany. Additionally, training, upskilling, and reskilling had a positive impact of 15 basis points, driven by growth at ESRA and General Assembly. Let's look at slide 13 and the group's EBIT-A bridge. At 3.4%, the EBIT A margin, excluding one aught, was 10 basis points higher year on year, driven by a 10 basis point negative impact from currency translation, a 10 basis point negative impact from organic gross margin developments, a 40 basis point favorable impact from operating leverage, and a 10 basis point negative impact from ACODIS Germany. In Q3, SG&A expenses excluding one-offs as a percentage of revenues were 15.9%, 30 basis points better year-on-year, reflecting cost discipline with G&A expenses at 3% of revenues and Agile capacity management. Selling FTEs were 3% lower. Productivity in terms of direct contribution per selling FTE rose 8% with all GBUs improving year on year. Let's turn to slide 14 and the group's cash flow and financing structure. The last 12 months cash conversion ratio was strong at 110%. DSO remains best in class at 53.6 days. The group delivered cash flow from operating activities of 200 million euros in the quarter, a 79 million euro increase versus the prior year period. The cash result reflects strong working capital management partially offset by increased working capital absorption resulting from improved revenue performance. CapEx was 30 million euros and free cash flow was 170 million euros. an increase of €88 million compared to the prior year period. The Group benefits from a robust financial structure. We have strong liquidity, including an undrawn €750 million revolving credit facility. 80% of debts have fixed interest rates, and there are no financial covenants on any outstanding debts. The Group also has low interest expenses, with a net charge of €13 million in Q3. At the end of Q3, net debt was €2705 million, €220 million lower year on year. Since 2021, the Group's capital structure has included a €500 million hybrid bond, which rating agencies classify as 50% equity and 50% debt. Management is in the process of refinancing this hybrid bond, reaffirming its long-term role in the capital structure. In light of this planned refinancing and to align with rating agency methodology, the group will now apply 50% equity treatment to the hybrid bond when reporting its leverage ratio. This adjustment does not impact the group's credit rating or the net debt calculation. It does, however, ensure consistency and transparency in how leverage is assessed across stakeholders. Applying this methodology, the group's end Q3 leverage ratio was three turns. On an underlying basis, strong cash generation and EBITDA improvement in Q3 has reduced the group's net debt to EBITDA ratio, excluding one-offs, by 0.3 times sequentially. The group remains firmly committed to bringing the net debt to EBITDA ratio to 1.5 times or below by the end of 2027, absent any major macroeconomic or geopolitical disruption. Our capital allocation policy is clear on options for excess capital once we achieve this target. Let's move to slide 15 and the group's outlook. Based on Q4 volumes to date, the group expects revenue growth in Q4 to be in line with Q3's revenue growth year on year on an organic trading days adjusted basis. For Q4, the group expects gross margin and SG&A expenses, excluding one-offs, to be broadly stable sequentially. The group is focused on managing capacity with agility to balance share gain and productivity in mixed markets, in addition to securing G&A savings. The group is on track to deliver its full-year EVA margin commitment. And with that, I'll hand back to Denis.

Thank you, Colin. And let me conclude with slide 16 and key takeaways. In Q3, the group delivered a further increase in market share, with revenues improving sequentially across all GBUs. At the GBU level, we were encouraged by the strong growth in ADECO-US, evidencing traction with their turnaround plan. Yeah, causes Germany to run is progressing well with the unit expected to return to healthy run rate profitability by year end. In reaching a 3.4% EBITDA margin this quarter, we demonstrated good operating leverage. Cash generation was solid. We thank our teams for yet another quarter of rigorous execution. We look forward to sharing the evolution of our strategy and detailed value creation plans at our Capital Markets Day on 26th of November in London. With this said, thank you for your attention and let's open the lines for Q&A.

Ladies and gentlemen, we will now begin the question and answer session. I would like to remind everyone to ask a question. Please press the star button followed by the number one on the 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 Andy Grobler, BNP Paribas. Please go ahead.

Hi, good morning. I've got lots, but just a couple to start with, if that's all right. From a cost-based perspective, a couple of things here. As you move into Q4, what are the incremental savings that you expect to drive, and does that include turning that about 16 million lost in Germany into a positive. And how should we think about that as the right base going into 2026? If you could chat through that, that would be really helpful. And also just added to that, does that guide include the currency headwinds that you'll see in Q4? And then secondly, on cash flow, very strong performance through the quarter. Could you just talk through the drivers of that and whether you're seeing any pressure on payment terms as that has been incremental through this year? Thanks very much.

I think I'll let Coram answer most of these questions. I'm just going to say a word on payment terms. Yeah, definitely, I think we have pressure from our clients on payment terms. We resist actively due to this pressure. We are, I think we are very focused with our teams on managing these kind of negotiations. We see also our DSO remaining relatively solid, so I think we are able to, thanks to the strong relationship that we have with our clients, to resist to the maximum on the payment terms request. from our clients for all the other questions.

Thank you. Thank you, Denis. Thank you, Andy. Actually, let me start with cash, therefore, and build on Denis's answer. I mean, yes, we do see pressure on payment terms, but our DSO is at 53.6 days. It is quite clearly best in class at a moment where our peers see their DSOs going in the wrong direction. So I think it's very clear that we are managing that and managing it very effectively. On the cash flow itself in Q3, we tried to unpick the drivers. Fundamentally, you have good working capital management, which includes the point I'm making about keeping DSO very stable. but also payables where we've been managing those very tightly and have done for a number of quarters, which is partially offset by the working capital absorption that you see because of the growth that the business is delivering. And we know that's a feature of the way this operates. So when you put all of that together, then we're very pleased with the operating cash flow of 200 million. It's up year on year. and it has obviously helped us deliver that rolling 12-month cash conversion of 110%. On the cost side, yes, the guide includes FX movements. If you step back and look at what we're saying, we're guiding to SG&A being broadly stable. Typically, a seasonal movement between Q3 and Q4 actually increases SG&A a little bit, usually between 10 to 20 million. So that you can see by saying that we will hold it stable, we are confident we will continue to deliver savings. Part of that comes from a CODIS, as you mentioned. We have real estate optimization, which will flow through. But we also have further savings in other parts of the business that we've been activating through the year. You saw the benefits, for example, on the margins in France. There are other territories where we continue to manage this. By the end, and I'm now just moving on to a CODIS Germany, The restructuring there is progressing well. We have 36 million of run rate savings locked in. We've got clear plans for how we get to a run rate of 50 million. And that will deliver healthy run rate profitability for that business by the end of the year. And I think it's important to make the point that we are not presupposing an improvement in the top line of that business in the short term. We're managing the restructuring to make sure that we see healthy profitability based on the market conditions that we now see.

And just maybe one last word. And the top line in Aquadis Germany is being stabilized. So, I mean, we can go in details around you know, what we do very actively in Germany and our turnaround plan, but there's also an element of stabilization of the top line, of course. But thanks, Andy, for your questions.

Okay, thank you. And just to add, Coram, best of luck with the new role.

Thank you, Andy. I appreciate it.

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

Morning Denis, morning Coram. A few questions on my side if I may. So just first taking a step back and looking at your outlook for stable growth on the same corn base. It feels like, similarly to some of your competitors, you are assuming that the recovery of organic growth we've seen over the last few quarters is stalling a bit or kind of stabilizing so what makes you slightly more cautious compared to the sequential improvement we've seen over the last few quarters just wanted to understand if there was anything there and if so what part of the business which division do you think could improve remain stable or deteriorate in eq4 just to have a little bit of breakdown of that stable organic growth comment for q4 the second question is on the u.s organic growth obviously i mean very impressive can you just elaborate a little bit on this what are the drivers in terms of type of clients if you think it's a broad-based recovery or has it been driven by any specific contract win and on the market share gains in that country why do you think it is the case that you're winning volumes away from your competitors and then the last one would be just maybe a little bit of a teaser on on end of november then if you wanted to share with us a few of the topics you think could be important to address during the CMD.

Thanks. Thank you, Remy. I think I'm going to take the three questions. So on the outlook, actually, we're pragmatic. We're looking at our flex volumes data. And they are, let's say, they're nicely up here and here. They continue to do so, but we have only a few weeks uh, you know, of, of data. So, uh, we are definitely, we see, we see some momentum, we see an improving momentum in the CHH and ACODAS. Uh, but we are, you know, we, we, we've always been, I must say, we've always been relatively cautious when we see a trend, we talk about it, but, uh, you know, I don't want to over promise and create expectations. So we have, you know, uh, no volumes, as I said, nicely up, but it's, uh, It's not stalled, definitely. It's not stalling, it's just improving nicely, but this is reasonable. So it's not... I continue to be positive about what we have ahead of us. As far as the US, yeah, actually it's broad-based. It's also the result of our... Turn around, you know, and there's so much more to do. Let's be clear. And we are pleased with the growth. You know, we were plus 10% in Q2. We are now plus 20%. We've returned, you know, the U.S. to be profitable, which is good. We're growing ahead of the market. It's been systematic. It's been rigorous execution on how we improve branch profitability, how we see that the incentives that we've put in place in the branches that are boosting both Flex and Perm are delivering results. We're focusing on increasing the traction with MSP business. We are really, really focused on cutting our cost to serve to preserve our competitiveness. You know, we've moved into more centralized delivery, near-shore, offshore delivery. We have, you know, we've adjusted also our G&A costs. So, I mean, all that, it's a series of things that we've applied rigorously and systematically for now, you know, almost three years. And, you know, it starts to deliver results, which is good. The sales growth, is is broad based we grow large accounts uh you know plus 36 percent this year we also grow sme plus 12 percent so that means both drivers are are executing nicely we have a nice development of new accounts in branches if i look at the number of new accounts that we had in q2 versus in q3 versus q2 it's plus 19 so We also have a healthy development of new clients in branches. Okay. But we're not there yet. Let's be clear. We start from a low base, you know, because we, uh, what we've been through. So, so, you know, encouraging good people deliver. Uh, um, so it's, it's, as I said, it's encouraging, but I wouldn't call it impressive. It's good numbers. We've got to confirm over time. but I'm confident in what we're delivering. Now, as far as the CMD, well, you know, I think we're going to deep dive on some of the drivers that show that, you know, the proof points of the way the strategy is delivering results. So to give you more insights, more granularity in what the things that you do. And also, of course, we're going to focus on some of the transformative actions that we are layering on top of the way we run the business. We also, of course, as you can imagine, have a deep dive on ACODIS, because it's going to be Yo on stage to explain his value creation plan and how confident he is to improve both the top line and the margins at ACODIS. So this is what we're going to talk about. Great. Thank you very much. Thank you, Amy.

Your next question comes from the line of Suhasani Varanasi of Goldman Sachs. Please go ahead.

Hi, morning. Thank you for taking my questions. Just a few for me, please. On firm trends, the declines have been easing for a couple of quarters now. Can you maybe give some color on whether you're seeing things stabilizing at these low levels? The second one, just to clarify again on working capital, the strengths that were seen in Q3 Was there any timing effect that helped, especially on the payable side, that is potentially going to unwind in Q4? And the last one, on ACODAS restructuring, how much more should we expect on restructuring costs in the next quarter, please? Thank you.

Thanks, Racine. I'll take the question on PERM, and then, of course, we'll go on . So on PERM, yes, I mean, we've been You know, and it's an industry, it's a global industry challenge, and we see it, you know, both in ADECO and LHH. ADECO is minus seven on PERM, LHH is minus eight. So it's, you know, I wouldn't call it yet stabilized, definitely. I think it reflects fundamentally, it reflects the fact that there's little visibility for many of our clients. And when you don't have visibility because of the, let's be clear, the unpredictability of geopolitics and tariffs and things like this, clients do not dare to recruit permanently. When you recruit permanently, it's because you are confident on the things that you have ahead of you. Because even in markets like the U.S. where it's relatively easy to recruit and lay off, You don't do that if you don't have visibility. So I think an interesting point is we see this momentum on term coming up and that says something about the mindset of our clients. Though we have seen a little bit of pickup in September, particularly in the U.S., So that they are pockets here and there in the finance sector, particularly where we have seen a pickup. But it's still, you know, it's not massive. So I wouldn't call it a change in the trend. But, of course, on the mid-long term, I'm confident that PERM will come back because, you know, we will. This is a market that we like. You know companies even with AI that we need people that did we need experts to recruit? permanently, so that's that's You know, this is a this is a moment where we we're a bit low on that business But you know progressively I believe it recover, but not now Coram and I'll pick up on your other two questions so on the working capital side and

We had timing effects in Q3 24, if you remember, which did work against us and then helped in Q4 24. But there are no material timing effects in Q3 25 that will unwind in Q4. This is a pretty clean set of numbers. in cash terms in Q3. And I think, you know, to the point I made earlier, it's really all about tight working capital management. Payables, obviously we've mentioned, but also really ensuring that we manage that DSO in a best-in-class way. On the one-off costs, we're forecasting 25 million in Q4. Almost all of that will be related to ACODIS Germany, and it's a sign of how rapidly we are moving on this restructuring plan so that we can make sure that we get that business back to healthy run rate profitability by the end of the year.

Thank you.

Your next question comes from the line of Simon van Auken of Capital Chavarro. Please go ahead.

Hi, good morning. I have a question on the gross margin contribution from your adjacent services. We saw that trading upscaling and rescaling was up only 1% organically, but drove a 15 base points margin improvement. If I'm correct, then this segment has a gross margin of roughly 60% historically. Would you please elaborate how this segment is contributing to this improvement in gross margin? And has the gross margin in this segment moved up? Or where do you see the long-term potential for the gross margin of this segment?

Sure. I will pick that one up. It's really important to understand the underlying growth number that you've highlighted, Simon, because there is actually an exit in that number of something called the US ACODIS Academy. It's relatively small in the context of the group, but it does impact the growth rate in this segment. And on an underlying basis, training, upskilling and reskilling is up 28%, which I think gives you a real sense of how strong the growth is in Ezra, in GA and in the other parts of our business which contribute training services, etc. They do all, and certainly GA and Ezra have strong gross margins. You know, this is very much a characteristic of this type of business. I think it gives you a real sense of how much value is created there. And because of the growth rates, because those businesses are becoming material in the context of the group top line, they're having a material impact on the gross margin. And that's what's dropping through in Q3. I would expect those businesses to continue to contribute to positive gross margin.

Yeah, and then to your point, Coram, I think I'm very pleased with the momentum that we see in GA. GA is having a great pipeline and great development in how we can accompany our clients on their own AI evolution. There is a lot of appetite for the type of services that GA provides in terms of how we focus on services specialties, roles that are impacted by AI and we can embark our clients on the journey. In Ezra, there is a significant market potential and we are scaling this platform. It's really a platform business that we are scaling now with a really high gross margin. Ezra is extremely relevant in most of our client transformation, the cultural transformation, the AI transformation. So we have great expectations for the growth of that business moving forward with very, very healthy gross margins. Yes.

Thank you very much.

Your next question comes from the line of Rory McKenzie of UBS. Please go ahead.

Good morning. It's Rory here. Firstly, I want to ask about the growth outlook for both career transition and the training businesses after a very strong quarter. Career transition in particular had been bumping up against high competitors for a while, and clearly it's now jumped past that. So is that new contracts ramping up or anything else one-off in there? And so should we expect similar growth in Q4 and into the start of next year? And then secondly, given the other announcements today, I feel like I have to ask Coram about trends in autos specifically. So maybe when you look at the EDECA GBU and the strength this quarter, can you just talk about the performance of the global verticals like autos, logistics, manufacturing, and given all the contract wins you're kind of talking about, are there any commonalities in sectors you think you've targeted well or doing well in, and what lessons can you draw from that? Thank you.

Thanks, Rory. So as far as the growth outlook, I think we have, so we grew 9% this quarter in CT. We have a bit of a difference. The U.S. is growing 7%. The rest of the world is growing 11%. So But it's still very high numbers. The pipeline is still quite healthy. And to your question, it's mostly new clients that we win. I mean, we have a constant sales team on the field. I remind you that we are the world leader by far. And we have an excellent reputation. The way we've also digitized our business, the way we have now people on the platform, all the people that we accompany on the platform with very efficient AI support. And that's a good thing. And as I said, in training and upskilling, GA is growing 48%. Ezra is growing 59%. So are we going to sustain this super high level? I cannot promise, but definitely strong double-digit growth for SYNGA, no problem. And I would say for the moment, given the pipeline that we have in CT, I think we can expect modest growth, maybe mid-single digit or low single digit. Let's be clear, we are on very high levels and we've sustained these very high levels of revenue for quite some time. And now I... Over to Coram to speak about Autos.

Thank you, Denis. And you did make me smile, Rory, so thank you. But to be clear, I would have been happy to answer a question on Autos at any point during our discussions. So, a couple of points on this. Firstly, When we look at ADECO, the growth is very broad-based. We have a number of sectors which are all up across multiple countries, and I think it's a sign of the momentum that we have, the share that we're taking, and the way, as you know, that we have been managing the business with agility to really identify growth wherever we can. On autos in ADECO represents about 8% of the ADECO GBU. It's up 10% year on year. And we see growth in France, Spain, US, and Germany. Germany is up 3%, which is encouraging for me. but partially offset by the one country where we do see a bit of pressure right now, which is Italy. I think the key to this is that cars are still being produced. There is obviously impact from all of the changes that are happening, but there are still models that are doing well, and our teams are very effective at identifying which manufacturers to partner with, which sites, they should be targeting, and in particular, therefore, which models have momentum and will require flexible labor. And I think that is really strongly demonstrated by that ADECO Germany plus 3% number. Obviously, the other side of the autos coin for us is ACODIS. That is down 7% year on year. Interestingly, and I'll focus on the two big markets, France is up and we've had some really strong successes with a number of French manufacturers, which I think demonstrates the strength of the offering. In the short term, there continues to be pressure in Germany as the German OEMs are reconfiguring their product plans and looking to move the work outsourced and offshored. And that's what gives us confidence that longer term, the demand for the ACODIS services is there. And France is a really good proof point for that because that expertise is required.

And in Japan, with the also Japanese carmakers, ACODIS is also growing nicely. So it's also a complement. And it says something about the that the problem is more focused on the German OEMs than the rest, than the whole industry.

We manage these sectors, as you know, very forensically, but I think we're pleased with the progress that we see. And then the final comment I'll make is on logistics, which you flagged. That's around 9% of the ADECO GBU. It is down year on year, around 8%. That's almost a one percentage point headwind to the group as a whole. This is the nature of this sector. So logistics partners manage demand very carefully. They go through periods where actually they increase the number of temps that they use. They go through periods where they reduce and they insource. Actually, if we look at ADECO, there are some of our countries which are growing in logistics, for example, Italy and Japan. And there are several countries where Right now, we're declining slightly, such as France, Germany, and Spain. But that very much is the nature of that sector. And we're well positioned, and it will be healthy in the medium to longer term. And my final point, please remember the broad-based nature of what's happening in ADECO. It's really important.

Great. Thank you, Coram, and all the best.

Thank you, Rory. I appreciate it.

Your next question comes from the line of Michael Thoth of Bone Total. Please go ahead.

Yes, hi. Good morning. I just have a follow-up on the training, reskilling, and upskilling business. You said it's up 28% when you exclude the inorganic effect there. but still coaching, skilling LHAs up 40 and ESRA or GNA up 48. So what's actually dragging the whole thing down? I'm missing some part of that business. That would be the first one. The second question is regarding U.S. You said manufacturing is a driver. I was just wondering which type of manufacturing activities you're talking about and whether that's a trend that we should expect to continue in light of the whole repatriating of manufacturing to the U.S. And then finally, if you can make a comment on the ACODIS defense exposure and how that's working. Thank you.

So I think Colm will take the first question and I'll take the other two.

Yeah, and very quickly on this one, because I think we are very pleased with 28% underlying growth. And I think there is real strength in Ezra and GA and this offering as a whole. There are two pieces which are bringing that growth rate down from the 40 to 50% that you see in Ezra and GA. There is some more traditional coaching business, which is effectively being substituted by Ezra. That's an opportunity for us long term because the digital nature of Ezra's coaching platform actually expands the addressable market. And as we've talked about before, there is still a small piece of B2C business in General Assembly, which we are sunsetting and in the short term brings the growth rate down. So those are the two other pieces. But I think you'll agree the 28% underlying growth is a strong number.

And as far as the manufacturing is concerned, we're growing in the U.S., we're growing 11% on overall manufacturing, I would say, in the U.S., which is good. It's broad-based. I mean, there's a lot from the sort of mid-sized manufacturer that can serve a variety of industries to the larger piece. We exclude, if you want, in that category, we exclude the manufacturing that are purely sector related like automotive or aerospace or others. You know, so far we've seen, it's a series of quarters where we've seen manufacturing relatively solid in the US. Is it related to reshoring? I am not fully sure. We have seen some announcements. But before you build a new factory or before you change your production strategy, it takes a bit of time. Probably over time, given the promises that we've heard from so many companies to increase their investments in the US, this will be supportive of our manufacturing business. I would say it's probably a bit early. to link it to reshoring. It's just like we have, as I said, we have our salespeople really, really on the field, close to our clients, and making sure that we fill every job requisition that we receive. That's the point. The motto that we've had for several years now is, I don't care whether The economy is good or bad. Our markets are fragmented. If you are close to your clients, you can win share. And if you deliver faster than your competitor, then you gain share. And that's how we win. Now on the CODIS defense, yes, we see momentum. It's, you know, the overall, the aerospace and defense sector overall is growing 11% year on year. It's supported both by the aerospace dynamic and also with the pickup in defense. We say, I see it across the board. It's not yet, I mean, the full investment that has been announced, for example, in Germany is not fully in place, but we see a pickup. And let's be clear, we are a key tier one supplier for engineering services to all, all the major players, particularly in Europe. And, uh, that puts us in a very good place. They also want to consolidate, um, their, their tier one list. And we are, uh, in a very, very good place, uh, to, uh, you know, to continue to grow there.

Okay. Perfect. Thank you. And thanks Coram for the very transparent and clear communication over the years and all the best.

Thank you. I appreciate it very much.

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

Thanks very much. I just had two questions, please. Just on a CODIS, in terms of the U.S. and France, is anything to do on cost there, or is that just a case of waiting for end markets to get better, to continue to improve? And then the second question was just a clarification on the 1.5 times leverage target by the end of 27, and how we think about that with the new hybrid definition. So whether that, when we start to think about return of surplus capital, just which calculation you'll use related to the hybrid. Thanks.

I'll take the first one, and then Coram will be super happy to talk about the second one. um the yeah so us in france i mean we are first of all we are laser focused on our cost base to to to ensure our competitiveness we are also accelerating and you will talk about that at the cmd accelerating our you know offshoring uh capacity to to make sure that uh that we provide the best possible service to our clients there's a big need from our from our clients to uh for us to go offshoring so that's good we are, so we are super focused on the cost base. France is back to growth, right? 1%, which is good. And, and US, I mean, we have a great, great dynamic with, you know, in consulting and solutions, you know, we grow 45% and the tech staffing is improving. So, you know, it's sequentially. Okay. So, You know, if you go back to, you know, North America in Aquarius was minus 9% in Q1, minus 4% in Q2, and now plus 1% year-on-year. So it is, you know, it's improving. We're still working on our cost base. It's too high. We are accelerating, particularly on the tech staffing, we're accelerating the way we use offshore to recruit faster and at more competitive costs. So this is what we're doing. I think I'm positive on both markets.

Let me pick up on the net debt to EBITDA question. Just to reiterate why we're doing this, We introduced the hybrid in 2021 as part of our capital structure. Obviously, the rating agencies from day one have given us the equity credit on 50% of it. We are in the process of refinancing, which very much reinforces the long-term nature of this instrument in our capital structure. And therefore, it is the moment to align our reporting with rating agency methodology. It makes sense to do it. It is common practice. Many companies do this. And as you can see in the press release, we've been very transparent in terms of the numbers both before and after the change on the leverage ratio. the target remains at or below 1.5 times net debt to EBITDA. And it's important to remember it is at or below. And we are leaving it there for two reasons. One, it reflects our commitment to the investment grade credit rating. And obviously, that credit rating is assessed and calculated, including the hybrid, so it makes sense. And as we know, for a business of this size and this nature, the 1.5x is a good point where you reach efficiency on cost of capital. So we will leave the target where it is. We've been transparent in the move on the reporting change, and we are very committed to achieving that target. Thank you.

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

JAMES ROWLAND- Hi there. Thank you. So just on the very strong North American performance, which is obviously well ahead of market growth rates at the moment, does this sort of normalize back to market growth rates in the second half of next year, or even there on the tough comps? And I guess, can you just express your confidence that you could outperform the market on a sustainable basis there beyond that? Just on the CFO change, I'd just like to know whether this maybe presents an opportunity for any slight changes to how to think about the financial guidance or use of capital in the future. And then finally, are you confident you can hold on to the broader cost savings, the structural cost savings in the business to deliver ahead of the market organically next year? Thank you.

Thank you, James. So, yeah, I think North America, as I said, I mean, I don't think we'll grow 20% every quarter for the years to come. But, yeah, the objective is to always be ahead of the market. So are we going to normalize a little bit our growth? Probably. Do we want to be ahead of the market? Yes, that's the objectives, you know, that the incentives are. of our executives and people are linked to doing better than the competition. So definitely we will push hard to always be ahead of the market. Sometimes we get there, sometimes we don't, but that's the absolute focus of our teams. And it's not only in North America, it's everywhere. As far as the CFO change, I mean, we'll go in depth on this, the financial strategy and the guidance in the capital markets day, but you can expect continuity because this is what we've been told. I think what we have been saying, you've understood that this was a very smooth transition. It was well prepared. And so that's... That's the idea. It's all about the continuity. And yes, I mean, the structural cost savings, we will continue to be laser focused on cost, both to achieve and to secure our gross margin. So cost to serve is an absolute obsession, because this is how we deliver our competitiveness. That's why, and Christophe will talk about that in the CMD, that's why we've accelerated our talent supply chain delivery, because that works. And of course, we are absolutely laser focused on the GNA. And as you could see, we delivered on our promise to deliver the full savings, 174 million net of inflation. And we've kept that line. really strictly. So, you know, moving forward, our GNA will be less than 3.5% of revenue. That's the sort of the line we've set and we'll stick to it.

Thank you.

Thank you, James.

There are no further questions at this time. And with that, I will turn the call back to Denis Meshoual, CEO, for closing remarks. Please go ahead.

Thank you very much. And again, thanks again to all of you for having attended this call where I think we presented strong quarterly results. And these results, they evidence further the strength of our execution. So we believe we are leading a recovery in our key markets. That's encouraging. You know, while there is still a lot to do, all our turnaround plans are delivering according to our expectations. So that's encouraging for the future. We are on track, as you understood, to meet our margin commitment for the full year, and that was very important for us. And so, you know, we are looking forward to seeing you at the CMD in London. I mentioned what we're going to talk about, and it's going to be also the opportunity for you to say goodbye to Coram and also to meet Valentina. They'll be both on stage, as you can imagine, and also see with your eyes how we are living through a very smooth transition that we ensure the full continuity. So as you could hear, I'm confident in the future we're building a very strong group, and we'll talk a lot about that in the CMD. See you there. Thank you so much. Have a great day.

Ladies and gentlemen, this concludes today's call. Please thank you for participating. You may now disconnect your lines.