Results release
Q3 2020
STRONG PERFORMANCE IN AN UNCERTAIN ENVIRONMENT
Improving revenue trend and leading margin performance in Q3 2020
Summary and highlights
- Revenues down 15% year-on-year organically1 and trading days adjusted (TDA), and down 18% on a reported basis, with broad-based improvement as the quarter progressed
- September revenues down 14% organically and TDA, and October volumes showed further gradual improvement
- Gross margin up 20 bps yoy to 19.6% (up 40 bps organically), supported by strong performance of LHH (career transition), pricing discipline and reduced Covid-19 related impact
- Resilient EBITA2 margin excluding one-offs3 of 4.5%, with organic recovery ratio at 64%, supported by strength and balance of portfolio, and agile cost management
- Strong cash flow and balance sheet with cash conversion of 153% and net debt/EBITDA excluding one-offs at 0.5x
- Restructuring charge of EUR 89 million in Q3 2020, primarily related to real estate rationalisation and transformation of the Group's operations in Germany
- Continued investment and progress in the Group's strategic priorities
"While the market environment remained challenging in Q3, we saw a gradual recovery in business activity as lockdowns were eased. Against a backdrop of uncertainty, we continued to successfully navigate the crisis - putting the health and safety of our people first, delivering on the evolving needs of our clients, and supporting almost 150,000 associates back to work since the trough of the crisis.
The scale and breadth of our business and proactive account management approach has positioned us well to benefit from the increased demand in sectors such as e-commerce and logistics. Despite lower revenues overall, profitability was strong as we maintained price discipline and demonstrated agile cost management. The balanced portfolio we have built continues to be a differentiator, with LHH delivering double-digit growth and our outsourcing, consulting and up/re-skilling businesses proving more resilient than traditional staffing and recruitment. Cash flow continues to be a focus and was strong again in the quarter.
We have maintained focus on our strategy to Perform, Transform and Innovate. It is clear that recent investments in IT infrastructure and digital products have been enablers during this crisis and we continue to develop and roll out new technology and tools in line with our long-term transformation and product roadmaps.
Looking ahead, we are prepared for the recovery to be bumpy given the rapidly evolving Covid-19 situation. While much uncertainty prevails, we are confident in our ability to steer through these turbulent times and are focused on emerging stronger from the crisis, by maintaining focus on our strategic priorities. As an essential service provider, the Adecco Group also has an important role to play in supporting economies and individuals to get back to work.
I would like to thank our valued customers for placing their trust in us, and share my deep gratitude to our employees and associates for their continued hard work, endurance and tenacity."
Alain Dehaze, Group Chief Executive Officer
__________________________________________________________________
- Organic growth is a non-US GAAP measure and excludes the impact of currency, acquisitions and divestitures.
- EBITA is a non-US GAAP measure and refers to operating income before amortisation and impairment of goodwill and intangible assets.
3 In Q3 2020, EBITA included one-offs of EUR 89 million; in Q3 2019, EBITA included one-offs of EUR 16 million.
Q3 2020 results | adeccogroup.com | 3 November 2020 | Page 1 of 14 |
Key figures overview
Change | Change | |||||||
EURmillionsunlessstated | Q | Q | Reported | Organic | M | M | Reported | Organic |
Summaryofincome | ||||||||
statementinformation | ||||||||
MNIOP | MNKOP | |||||||
Revenues | #$%& | IJKLK | MNKO | NPJNII | NQJPRR | MNLO | ||
GrossSprofit | # | NJNPR | MNQO | MNPO | TJQTL | UJUIP | MNLO | MNRO |
EBITASexcludingSoneMoffs | TKK | MTPO | MNLO | PPL | QQL | MPTO | MULO | |
EBITA | TQT | MITO | MITO | UNQ | QUP | MIQO | MIQO | |
NetSincome/VlossWSattributableStoS | ||||||||
AdeccoSGroupSshareholders | % | NQL | MIIO | VTPQW | PQN | MNITO | ||
DilutedSEPSSVEURW | '# | NXNY | MIIO | VNXITW | TXLY | MNITO | ||
GrossSmargin | '( | NLXPO | TYSbps | PYSbps | NLXUO | NLXTO | NYSbps | TYSbps |
EBITASmarginSexcludingSoneMoffs | #'& | PXLO | VPYWSbps | VUYWSbps | UXTO | PXIO | VNUYWSbps | VNNYWSbps |
EBITASmargin | ') | PXRO | VNLYWSbps | VNKYWSbps | TXTO | PXTO | VTYYWSbps | VNKYWSbps |
Summaryofcashflow | ||||||||
andnetdebtinformation | ||||||||
FreeScashSflowISbeforeSinterestS | ||||||||
andStaxSpaidSVFCFBITW | () | TNN | QTR | ILR | ||||
FreeScashSflowSVFCFWS | ||||||||
NUQ | PIN | UKI | ||||||
NetSdebtR | #( | NJTPP | PRT | NJTPP | ||||
DaysSsalesSoutstanding | & | IU | IU | IU | ||||
CashSconversionQ | ||||||||
& | KPO | NIUO | KPO | |||||
NetSdebtStoSEBITDAKSexcludingSoneMoffs | '&x | NXNx | YXIx | NXNx |
- In Q3 2020, organic and trading days adjusted (TDA) revenues declined by 15%. In 9M 2020, organic revenues declined by 17%, or by 18% TDA.
5 Free cash flow is a non-US GAAP measure and comprises cash flows from operating activities less capital expenditures.
6 Net debt is a non-US GAAP measure and comprises short-term and long-term debt less cash and cash equivalents and short-term investments.
7 Cash conversion is a non-US GAAP measure and is calculated as last 4 quarters of FCFBIT divided by last 4 quarters of EBITA excluding one-offs.8 Net debt to EBITDA is a non-US GAAP measure and is calculated as net debt at period end divided by last 4 quarters of EBITA excluding one-offs plus depreciation.
Q3 2020 financial performance
Group performance overview
Revenues in Q3 2020 were down 15% year-on-year, organically and trading days adjusted (TDA), rebounding from the 28% decline of Q2 2020. The improved revenue trend reflected the reopening of economies across the Group's major markets, following the unprecedented Covid-19 lockdown measures imposed in Q2. The recovery that began in May continued through Q3 and into October. Permanent placement activity remained heavily impacted by the crisis, with revenues down 37% organically, while counter-cyclical career transition achieved strong organic growth of 20%.
Gross margin was 19.6%, an increase of 40 bps year-on-year organically, driven by the strength and diversity of the Group's portfolio, pricing discipline and reduced Covid-19 related costs relative to the prior quarter. EBITA margin excluding one-offs was 4.5%, down 30 bps organically, with the positive gross margin development and agile cost management, enhanced by the GrowTogether programme, contributing to the resilient EBITA margin performance. Cash flow was strong, with cash conversion at 153% and free cash flow of EUR 110 million, including the accelerated repayment of EUR 75 million tax and social security payments that had been deferred during Q1 and Q2 2020. The Group has no further outstanding payment deferrals and maintains a strong liquidity position, with EUR 1.5 billion cash on hand and an undrawn credit facility of EUR 600 million.
Q3 2020 results | adeccogroup.com | 3 November 2020 | Page 2 of 14 |
Revenues
Q3 2020 revenues were EUR 4,835 million, down 18% year-on-year on a reported basis and down 15% organically and trading days adjusted. Currency movements and divestments had a negative impact of approximately 2% and 1% respectively, while the impact from the number of working days was immaterial.
By service line, temporary staffing revenues declined by 17% to EUR 4,140 million; permanent placement revenues declined by 37% to EUR 89 million; revenues from career transition were up 20% to EUR 100 million; and revenues in outsourcing and other activities were down 2% to EUR 506 million.
Workforce Solutions (Adecco brand) revenues declined 14%; Professional Solutions were down 22%; Talent Solutions and Ventures grew by 3%. All compared to the prior year and on an organic basis.
Gross Profit
Gross profit was EUR 949 million in Q3 2020, down 17% on a reported basis and down 14% organically. Gross margin was 19.6%, up 20 bps compared to Q3 2019. Currency and M&A each had a negative impact of 10 bps. Therefore, on an organic basis, the gross margin was up 40 bps: positive contributions from career transition (+60 bps) and outsourcing and other activities (+10 bps) more than compensated for declines in permanent placement (-60 bps). The temporary staffing gross margin was up by 30 bps year-on-year, supported by positive price and mix effects and reduced Covid-19 related costs relative to the prior quarter.
Selling, General and Administrative Expenses (SG&A)
SG&A excluding one-offs was EUR 733 million in Q3 2020, down 14% year-on-year on a reported basis and down 11% organically. Average FTE employees were 29,389, down 14% organically year-on-year. FTEs increased 6% sequentially compared to Q2 2020, in response to recovering business activity. The number of branches was reduced by 6% organically year-on-year. Q3 2020 reported SG&A included one-offs of EUR 89 million, comprising restructuring costs of EUR 88 million and acquisition-related costs of EUR 1 million. Restructuring primarily related to real estate rationalisation and transformation of the Group's operations in Germany. In Q3 2019, one-offs were EUR 16 million, of which EUR 14 million were restructuring costs and EUR 2 million were acquisition-related costs.
EBITA
EBITA in Q3 2020 was EUR 131 million, which included EUR 4 million from the Group's FESCO Adecco JV in China. EBITA excluding one-offs was EUR 220 million, down 19% organically. EBITA margin excluding one-offs was 4.5%, down 40 bps year-on-year in reported terms and down 30 bps organically. The conversion ratio of gross profit into EBITA excluding one-offs was 23.2%, down 200 bps on a reported basis and down 170 bps organically year-on-year.
Amortisation of Intangible Assets and Impairment of Goodwill
Amortisation of intangible assets was EUR 19 million, compared to EUR 14 million in Q3 2019.
Operating Income
The Group generated an operating income in Q3 2020 of EUR 112 million, compared to EUR 258 million in Q3 2019.
Interest Expense and Other Income/(Expenses), net
Interest expense was EUR 8 million in Q3 2020, unchanged when compared to Q3 2019. Other income/(expenses), net was an income of EUR 2 million, compared to EUR 7 million in Q3 2019.
Provision for Income Taxes
In Q3 2020, the effective tax rate (ETR) excluding discrete events was 42%, compared to 31% in Q3 2019. The increase relates to the impact of the French Business Tax, which is a tax primarily based on sales but under US GAAP is recognised in income tax expense. In Q3 2020, discrete events had a favourable impact on the tax rate of 17%, resulting in an effective tax rate of 25%. In Q3 2019, discrete events had a favourable impact of 1% resulting in an ETR of 30%.
Q3 2020 results | adeccogroup.com | 3 November 2020 | Page 3 of 14 |
Net Income/(Loss) Attributable to Adecco Group Shareholders and EPS
Net income attributable to Adecco Group shareholders was EUR 80 million, compared to EUR 179 million in Q3 2019. Basic EPS was EUR 0.50 compared to EUR 1.11 in Q3 2019. The year-on-year decline in reported net income was primarily driven by higher restructuring charges compared to the same period in the prior year, related to real estate rationalisation and transformation of the Group's operations in Germany.
Cash Flow and Net Debt
Cash flow from operating activities was EUR 150 million in Q3 2020, compared to EUR 172 million in Q3 2019. Lower net income vs the prior year was offset by a positive working capital development, reflecting lower levels of business activity and strong collections. DSO was 51 days in Q3 2020, decreasing by 2 days compared to the prior year. The rolling last four quarters cash conversion ratio was 153%, compared to 84% in Q3 2019. Net debt was EUR 462 million at 30 September 2020, compared to EUR 519 million at 30 June 2020 and EUR 1,244 million at 30 September 2019. Net debt to EBITDA excluding one-offs was 0.5x, compared to 0.6x at 30 June 2020 and 1.1x at 30 September 2019.
Q3 2020 segment operating performance
Revenues and revenue growth
Revenues | Variance | ofrevenues | ||||||
EURSmillionsSunlessSstated | Q | Q | Reported | Organic | OrganicTDA | Q | ||
France | NJNUQ | NJULU | MNKO | MNKO | MNKO | TPO | ||
NXSAmericaJSUKS&SIXSGeneralSStaffingNY | ||||||||
RUQ | QPR | MNIO | MNTO | MNTO | NUO | |||
NXSAmericaJSUKS&SIXSProfessionalSStaffingNY | IUL | KUT | MUIO | MTKO | MTKO | NNO | ||
GermanyJSAustriaJSSwitzerland | ULY | PLT | MTNO | MTNO | MTTO | KO | ||
BeneluxSandSNordics | UIP | PKY | MTRO | MTRO | MTRO | QO | ||
Italy | PTK | PRU | MKO | MKO | MKO | LO | ||
Japan | UQQ | UKY | MNO | UO | PO | KO | ||
Iberia | TPL | UYQ | MNLO | MNIO | MNQO | IO | ||
RestSofSWorld | IKQ | RQR | MNUO | MRO | MRO | NTO | ||
CareerSTransitionS&STalentSDevelopment | NUQ | NTL | RO | LO | LO | UO | ||
AdeccoGroup | #$%& | &$%% | 3% | 3& | 3& | NYYO | ||
EBITA and EBITA margin excluding one-offs
EBITAexcludingone3offs | EBITAmarginexcludingone3offs | ofEBITA | ||||||||
EURSmillionsSunlessSstated | Q | Q | Q | Q | Variance | Q | ||||
France | RY | LI | IXTO | RXKO | VNRYWSbps | TPO | ||||
NXSAmericaJSUKS&SIXSGeneralSStaffingNY | ||||||||||
TY | TN | UXTO | TXLO | UYSbps | KO | |||||
NXSAmericaJSUKS&SIXSProfessionalSStaffingNY | NL | PU | UXRO | IXUO | VNQYWSbps | KO | ||||
GermanyJSAustriaJSSwitzerland | NN | TP | TXKO | IXYO | VTTYWSbps | PO | ||||
BeneluxSandSNordics | TN | TN | IXLO | PXPO | NIYSbps | KO | ||||
Italy | TR | UI | RXNO | QXIO | VNPYWSbps | NNO | ||||
Japan | TK | TR | QXPO | RXKO | RYSbps | NNO | ||||
Iberia | NY | NR | UXQO | IXNO | VNPYWSbps | PO | ||||
RestSofSWorld | TU | TI | PXYO | UXQO | UYSbps | LO | ||||
CareerSTransitionS&STalentSDevelopment | UN | TT | TTXKO | NRXPO | RPYSbps | NUO | ||||
CorporateS | VTLW | VPYW | ||||||||
AdeccoGroup | TTY | %% | #'& | #' | 6#7bps | NYYO | ||||
- TDA = trading days adjusted.
- 2019 N. America, UK&I General Staffing and N. America, UK&I Professional Staffing have been restated to conform with the current period presentation.
- See page 11 for a reconciliation of EBITA to EBITA excluding one-offs by segment.
- % of EBITA excluding one-offs and before Corporate.
Q3 2020 results | adeccogroup.com | 3 November 2020 | Page 4 of 14 |
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Adecco Group AG published this content on 03 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 03 November 2020 06:09:03 UTC