05/05/2022 - Adecco Group AG: 2022 First Quarter Results Release

AD HOC ANNOUNCEMENT pursuant to Art. 53 Listing Rules of SIX Swiss Exchange Group press release, Zurich, Switzerland, May 5, 2022

Q1 22 RESULTS

Improved revenue growth and market share, with strong progress in gross margin

HIGHLIGHTS

• • Revenues +5% yoy organic TDA1, led by Modis +14%, LHH Recruitment Solutions +15%, Adecco APAC +15%

• • Adecco's investment plan drives overall relative revenue improvement of +400 bps sequentially

• • Gross profit +9% organic yoy; Permanent Placement +62%

• • Step change in gross margin to 21.1%, +100 bps, driven by portfolio shift, positive mix and pricing

• • EBITA excluding one-offs2 €185 million; solid 3.4% margin, lower yoy, as anticipated, due to Adecco's investment plan, the absence of non-recurring benefits and a moderated contribution from LHH Career Transition

• • Operating income €146 million; Net income €92 million; Basic EPS €0.56, 28% lower yoy

• • Full ownership of AKKA expected May 12, 2022; good line of sight on 100% of 2022 targeted synergies, of which >50% secured to date; first revenue synergies delivered in client wins

Alain Dehaze, Adecco Group CEO, commented:

"With a concerted focus on gaining market share, the Group delivered improved growth this quarter. The targeted investment in headcount that we have deployed in Adecco is showing results, with notable improvement in several key regions, and LHH Recruitment Solutions continued to capture the strong market demand. The Group also delivered strong progress on gross margin through portfolio changes, favourable mix, and pricing actions.

The Group acquired control of AKKA at end February, and together with Modis, they have already secured our first combined client wins. The integration plan is well on track, and we look forward to operating as Akkodis from mid-May.

Looking ahead, supported by improving productivity and agile investment in sales capacity, management is confident the Group will deliver higher growth and stronger margins in the second half of 2022."

KEY FIGURES

EUR millions, unless otherwise stated

Q1 21

CHANGE

Reported

Organic

Revenues Gross profit

EBITA excl. one-offs2 Operating income Net income / (loss)4 Basic EPS Adjusted EPS5 Gross profit margin EBITA margin excl. one-offs

4,971 +10%

998 +15%

207 -10%

146

182 -20%

+5%1 +9% -11% -21%3

92

124 -26%

0.77 -28%

0.76

0.88 -14%

20.1%

3.4%

4.2%

+100 bps -80 bps

+70 bps

Cash flow from operating activities Cash conversion ratio2

Net debt/EBITDA excl. one-offs2

114

(59)

117%

0.3x

Unless otherwise noted, all growth rates in this release refer to same period in prior year. 1 On an organic and trading days adjusted basis. 2 For further details on the use of non-GAAP measures in this release, please refer to the 2021 Annual Report. 3 In constant currency terms. 4 Attributable to Adecco Group shareholders. 5 Please see page 14 for the description of this non-GAAP measure. 6 Adjusted for the acquisition of AKKA (Proforma).

Financial performance

Revenues

First quarter revenues of EUR 5,446 million were up 5 percent organic and TDA (10 percent reported). Currency translation effects had a net positive impact of 200 basis points and M&A activities a net positive impact of 200 basis points. The number of working days had a positive impact of 100 basis points.

At the Business Unit level, organically and TDA, Adecco's revenues were up 4 percent (5 percent reported), LHH revenues rose 1 percent (3 percent reported), while Akkodis' revenues grew 14 percent (47 percent reported, including AKKA's contribution).

Compared to the prior year, in terms of service lines, Permanent Placement was up 60 percent organically (64 percent reported), while Outsourcing, Consulting & Other Services was up 23 percent (43 percent reported, with the large differential driven by AKKA's contribution), Training, Upskilling & Reskilling services up 5 percent (9 percent reported) and Flexible Placement services up 2 percent (4 percent reported). Strong performance in these services lines was partly offset by the counter-cyclical Career Transition services, which were 34 percent lower (24 percent lower reported).

Q1 REVENUES (CHANGE YEAR-ON-YEAR)

Group, by growth driver

Organic, TDA +5%

TDA +1.0%

Currency +2.0%

M&A +2.0%

Group

+10%

Group, by Global Business Unit

Group, by Service Line

ReportedOrganic,

ReportedOrganic

TDA

Adecco LHH Akkodis

+5% +3% +47%

• +4% Flexible Placement

  • +4% +2%

• +1% Permanent Placement

  • +64% +60%

• +14% Career Transition

  • -24% -34%

  • Outsourcing, Consulting & Other Services

  • +43% +23%

  • Training, Upskilling &

• +9% +5%

• Reskilling

  Group

  +10%

  +5%Group

  +10%

  +5%

  Gross profit

  Gross profit was EUR 1,151 million, up 9 percent organically (15 percent reported) in the first quarter period. Gross margin was 21.1 percent, up 70 basis points organically (100 basis points reported), at record levels for the Group. Performance was driven by portfolio shift, mix and pricing.

  On an organic basis, gross margin reflects expansion of 130 basis points in Permanent Placement and 30 basis points from Other Services (Outsourcing, Consulting and Training, Upskilling & Reskilling). Career Transition was 80 basis points lower and Flexible Placement, absent non-recurring benefits from the prior year period, 10 basis points lower. Currency effects were 15 basis points positive and M&A activities 15 basis points positive.

Selling, General & Administrative expenses (SG&A)

SG&A excluding one-offs was EUR 969 million, 15 percent higher organically (21 percent reported). Number of branches stood at 4,333, 2 percent lower year-on-year organically. The Group expanded its investment in sales capacity and digital, with Full-time Employees ("FTEs") increased to 35,346, up 13 percent organically. On a reported basis and mainly due to the acquisition of AKKA, FTEs in March 2022 were 37,979.

EBITA

EBITA excluding one-offs was EUR 185 million, compared to EUR 207 million in the prior period.

The EBITA margin excluding one-offs was 3.4 percent, 80 basis points lower year-on-year, as anticipated. Margins mainly reflect Adecco's higher investments in sales capacity, the absence of non-recurring benefits compared to the prior year period and lower contribution from LHH Career Transition.

One-off charges were EUR 19 million, mainly due to AKKA integration and related costs that were recorded at the corporate level, higher than the EUR 6 million recorded in the prior year period.

The FESCO Adecco JV in China contributed EUR 3 million, from EUR 8 million in the prior year period.

Amortisation of Intangibles

Amortisation of intangible assets was EUR 20 million in the quarter, from EUR 19 million in the prior year period.

Operating income

The Group generated an operating income of EUR 146 million, 20 percent lower, due to the afore mentioned performance drivers.

Net income and EPS

Net income attributable to Adecco Group shareholders was EUR 92 million, 26 percent lower. The result reflects lower operating income, interest expense of EUR 10 million, and other income/(expenses), net of EUR 8 million, including charges for early redemption of AKKA debts. Income taxes amounted to EUR 34 million, with an effective tax rate of 26.1 percent.

Basic EPS was EUR 0.56, 28 percent lower compared to the prior year period's EUR 0.77. Adjusted EPS, which is the Group's net income excluding a total EUR 33 million for amortisation of intangibles, one-off costs and exceptional tax items, divided by basic weighted-average shares outstanding, was EUR 0.76, 14 percent lower compared to the prior year period's EUR 0.88.

Cash flow and net debt

Cash flow from operating activities was EUR 55 million in the quarter, compared to EUR 114 million in the prior year period. Cash flow was impacted by less favourable net working capital and lower net income, due to the afore mentioned performance drivers. DSO was 51 days, the same level as in Q1 2021. The rolling last four quarters cash conversion ratio was 79 percent, compared to 117 percent in Q1 2021, a solid result reflecting normal working capital increase to support the Group's growth.

Proforma net debt was EUR 1,811 million at end March 2022, from EUR 227 million at end March 2021. The Net Debt to EBITDA ratio, excluding one-offs, and adjusted for AKKA was 1.6x. The increase is mainly related to acquiring control of AKKA Technologies in February 2022. As a reminder, the Adecco Group issued EUR 1,500 million of senior and subordinated debt in H2 2021 at attractive terms to finance AKKA's acquisition. In addition, the Group has no covenants on any of its outstanding debts, and strong liquidity including an undrawn EUR 900 million revolving credit facility.

Global Business Unit results

Unless otherwise noted, all growth rates in this section refer to the same period in the prior year, with revenues stated on an organic and trading days adjusted (TDA) basis, and EBITA or EBITA margins stated excluding one-offs.

ADECCO

EUR millions, unless otherwise stated

RevenuesAdecco

France

Northern Europe

DACH

Southern Europe & EEMENA

Americas

APAC

EBITA margin excl. one-offs

CHANGE (bps, yoy)

(70)

(160)

(110)

+280

(10)

(160)

(90)

Revenues were 4 percent higher, led by APAC, Southern Europe & EEMENA and France, while the DACH region was robust. These positives were partially offset by lower contributions from Northern Europe and the Americas. Permanent Placement revenues, up 64 percent, were very strong, while in Other Services, Outsourcing was a highlight, up over 30 percent. Flexible Placement activities, up 2 percent, captured strong growth in manufacturing, including food & beverages, and solid growth in retail. The business faced a challenging comparison in logistics and soft demand in autos and energy.

Gross margin was strong, reflecting positive solutions mix and pricing strategy. FTEs were up 14 percent year-on-year, and 720 people were added relative to Q4 21, which pushed up SG&A expense. The EBITA margin was solid at 3.7 percent and 70 basis points lower, mainly reflecting higher investment in FTEs and the absence of non-recurring benefits when compared to the prior year period. The conversion ratio was approximately 23.5 percent.

The business delivered encouraging incremental returns from its balanced and agile investment plan, which is focused on increasing headcount to capture opportunities in structurally growing sectors and geographies. Relative revenue improvement was approximately 400 basis points sequentially.

Segment results

Adecco France

• • France delivered strong revenue growth, with quarter end growth rates above market levels. Manufacturing, consumer and retail sectors were particularly dynamic. Demand was softer in energy, logistics and autos.

• • EBITA margin was 160 basis points lower, with positive operating leverage offset by investment in headcount and further weighed by the absence of non-recurring benefits compared to Q1 21.

Adecco Northern Europe

• • Revenues from UK & Ireland were 19 percent lower, considering a tough comparison period from exceptional contract wins in logistics in the prior period, and which concluded in Q3 2021. Excluding this impact, revenues from the region were 4 percent higher. In the Nordics, revenues were up 9 percent, while in Benelux, revenues were flat.

• • EBITA margin was 110 basis points lower, due to the absence of support scheme benefits that flattered the prior year period, partly mitigated by favourable solutions mix and strong pricing.

Adecco DACH

• • Revenues in Germany was 1 percent better, supported by strong activity across retail, manufacturing and chemical sectors, while Switzerland & Austria grew 8 percent. Performance in Germany was hampered by continued rebalancing in the logistics sector, without which growth would have been up in double-digit terms, and further headwinds in autos.

• • EBITA margin expanded 280 basis points, mainly due to mix benefits.

Adecco Southern Europe & EEMENA

• • Strong revenue growth reflected 15 percent growth in Italy and 7 percent growth in Iberia, while EEMENA was 13 percent lower. Growth was led by manufacturing, consulting and F&B sectors, partly mitigated by a tough comparison in logistics, particularly in EEMENA.

• • The EBITA margin of 5.5% mainly reflects positive solutions mix, as well as higher levels of investment in headcount to support future growth.

Adecco Americas

• • In Latin America, revenues were 4 percent lower, due to legislative change in Mexico having a negative impact. At the same time, revenues grew in very strong double digit terms excluding Mexico.

• • In North America, revenues were 8 percent lower.

  • o Legacy sector exposures and talent scarcity continued to hinder performance in Adecco US.

  • o On a sequential basis, however, the turnaround plan delivered further improvement. The business observed better trends in key operational metrics such as visits/FTE, order fill rate and employee productivity.

• • The EBITA margin moved lower, with gross margin gains driven by favourable solutions mix outweighed by investments in headcount and IT.

Adecco APAC

• • The region reported broad-based and very strong revenue growth at 15 percent, boosted by strong demand for Outsourcing and Permanent Placement activities. Flexible Placement was also strong, particularly in Australia and Japan, and, on a sector basis, in logistics and healthcare.

• • The EBITA margin reflects favourable solutions mix, lower G&A spend, and higher investment in headcount to capture further growth.

LHH

EUR millions, unless otherwise stated

Revenues

Q1 21

CHANGE (bps, yoy)LHH

446

+3%

+1%

(120)

Recruitment Solutions

+15%

Career Transition & Mobility

-35%

Learning & Development

+3%

Pontoon & Other

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