Adecco Group AG (AHEXF) Q3 2024 Earnings Call Highlights: Navigating Market Challenges with Strategic Resilience

• Adecco Revenue: EUR4.4 billion, 5% lower year-on-year on an organic, trading days-adjusted basis.
• Akkodis Revenue: 5% lower on an organic trading-days-adjusted basis.
• LHH Revenue: 7% lower year-on-year on an organic trading days adjusted basis.

Release Date: November 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Adecco Group AG (AHEXF, Financial) delivered EUR5.7 billion in revenues, showing resilience despite challenging market conditions.
• The company achieved a robust EBITA margin of 3.3%, supported by strong G&A savings.
• Adecco Group AG (AHEXF) has seen volume trends stabilizing throughout the quarter, particularly in Recruitment Solutions and tech staffing in the US.
• The company continues to gain market share, with a relative revenue growth of 850 basis points since the introduction of the Simplify, Execute, and Grow agenda.
• Adecco Group AG (AHEXF) is advancing its digital transformation by expanding its Global Delivery solution and accelerating AI adoption, enhancing efficiency and productivity.

Negative Points

• Revenues were 5% lower year-on-year on an organic trading days-adjusted basis, reflecting market headwinds.
• The gross margin decreased by 90 basis points year-on-year, impacted by lower volumes and country mix.
• Net debt-to-EBITDA ended the quarter at 3.1 times, indicating high leverage.
• The company faced a high comparison base from Q3 '23, affecting performance, particularly in the DACH region.
• Free cash flow was impacted by timing issues in accounts receivable and payable, with a EUR150 million unfavorable timing impact.

Q & A Highlights

Q: Are you comfortable with the leverage level of two times in 2026, and what areas of forecast might be incorrect to maintain the dividend and lower leverage?
A: We aim to keep net debt stable even in tough markets, focusing on managing G&A costs and protecting sales capacity to capture rebounds. Our target is to reach 1.5 times leverage over time, driven by growth, profitability, and free cash flow. (Coram Williams, CFO)

Q: Can you provide more details on the volume stabilization and areas where it's occurring?
A: Volume stabilization is particularly evident in Recruitment Solutions and tech staffing in the US. We are adjusting sales teams to be ready for any rebound, and the trend is promising. (Denis Machuel, CEO)

Q: What is the impact of the change in healthcare regulation in France on organic revenue growth, and will you need to adjust frontline capacity?
A: The healthcare regulation change in France has resulted in about a 100 basis point revenue headwind. We are right-sizing in France to adjust to market conditions while protecting capacity where there is potential for growth. (Denis Machuel, CEO)

Q: How do you view the sustainability of the dividend given the current leverage, and what are the risks to your Q4 outlook?
A: We believe our balance sheet is strong, and we can generate good cash flow to support dividends. We will decide on the dividend in February based on full-year results. For Q4, we expect similar outcomes to Q3, with stabilizing volumes and market conditions. (Coram Williams, CFO)

Q: Can you explain the rationale for lowering gross debt and cash position amid market uncertainty?
A: The refinancing decision reflects our solid balance sheet and liquidity position. We issued a EUR300 million note with an 8-year maturity and a 3.4% coupon, which demonstrates our creditworthiness. We maintain strong liquidity with an undrawn revolving credit facility. (Coram Williams, CFO)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.