The Adecco Group ((ADEN:VTX), reported revenue growth of 6% to €5,692 million in Q1 2018 compared to the prior year quarter, organically and trading days adjusted. This is a slight slowdown from the 7% growth achieved in Q4 2017 with deceleration in North America, UK & Ireland General Staffing and Italy. Furthermore, Adecco’s gross profit and EBITA came under pressure due to a number of underlying and non-underlying factors.

Alain Dehaze, Group Chief Executive Officer, commented: “In Q1 2018, we continued to invest in the transformation and digitalisation of the Adecco Group, within the framework of our Perform, Transform and Innovate agenda. On the Perform pillar, underlying revenue growth remained good, including an acceleration to 10% in France, where we are again growing in-line with the market. The EBITA margin was negatively impacted by several non-underlying factors and ongoing investments in our strategic initiatives. These effects will reduce during the remainder of 2018. In addition, we will further intensify our focus on driving strong productivity growth from recent headcount investments. GrowTogether is also on track to deliver EUR 50 million of benefits in the second half of 2018.”

Permanent placement revenues were up 18% organically with particularly strong performances in North America, France and Japan. The Adecco Group’s revenue growth of 6% compares to 7% organic growth achieved by Randstad and 5% (in constant currency) by ManpowerGroup, its two closest rivals. Currency movements had a 5% negative impact on revenues compared to last year while the number of working days in the quarter had a negative impact of approximately 1% and M&A had a small positive impact.

Gross profit was €1,033 million in Q1 2018, down 4% on a reported basis but up 1% organically. The gross margin was 18.1%, down 70 basis points (‘bps’) year-on-year due to a wide number of factors. Currency fluctuations had a 20 bps negative impact while M&A had a ten bps positive impact. On an organic basis, the gross margin was therefore down 60 bps. Temporary staffing gross margin was down 60 bps, impacted by a number of non-underlying factors. The unfavourable timing of bank holidays had a negative impact of approximately 25 bps while unusually high sickness rates (flu epidemic) and strikes in Germany were blamed for an additional ten bps negative impact. The underlying decline in temporary staffing gross margin in Q1 2018 was 25 bps, driven by pricing and mix effects (-10 bps), and a reduction in CICE (Competitiveness and Employment Tax Credit) in France (-15 bps). Career transition (Lee Hecht Harrison) had a 20 bps negative impact on gross margin, and permanent placement had a 20 bps positive effect, all on an organic basis.

SG&A excluding one-offs was €819 million, an organic increase of 8% compared to Q1 2017. In explaining the increase, the company highlighted investments in strategic initiatives which contributed approximately 2% of the year-on-year increase. These investments related to the GrowTogether initiative, including the roll-out of new IT infrastructure in France, North America, the UK and Japan, as well as investments in the Group’s digital ventures, including Adia and YOSS. FTE employees were up 4% organically compared to Q1 2018, while branches also grew 4% organically.

The GrowTogether initiative includes new front-office solutions that are fully integrated with customer facing platforms and time-capture to collection process digitisation. The initiative is in an investment phase in H1 2018, but the company expects €50 million of productivity savings for the full-year 2018.

EBITA was €194 million, down 18% organically. EBITA margin excluding one-offs was 3.8%, down 100 bps compared to Q1 2017. The reduction in EBITA margin year-on-year was driven by lower gross margin and the impact of investments in strategic initiatives, which reduced EBITA margin by approximately 25 bps year-on-year. Notable organic declines in EBITA were seen in Germany Austria and Switzerland (-128%), Benelux and Nordics (-43%), North America, UK and Ireland General Staffing (-24%) and the Lee Hecht Harrison outplacement business (-20%). Italy and Iberia were the only regions where EBITA improved (+23% and+33% respectively).

By region, revenue growth in France, Benelux and Nordics and Italy was offset by declines in North America, UK & Ireland, and Germany, Austria, Switzerland.

BPO revenues which comprise Managed Service Programmes (MSP), Recruitment Process Outsourcing (RPO) and Digital declined by 5% on a constant currency basis to €38 million.

In France, the Group’s largest market, revenues were €1,315 million, up 10% organically and trading days adjusted, closing the gap to the market growth rate. Revenues increased by 10% in General Staffing, which accounts for over 90% of French revenues, and grew by 4% in Professional Staffing. Revenue growth was broad-based, driven by manufacturing, logistics and automotive.

In North America, UK & Ireland General Staffing, revenues were €677 million, down 1% organically and trading days adjusted. North America General Staffing, which accounts for approximately 75% of revenues, was down 2%. UK & Ireland General Staffing represents approximately 25% of revenues and was up 1%, or up 2% trading days adjusted, decelerating due to the annualization of large contract wins in the prior year in e-commerce and local government. Professional staffing revenues in North America, UK & Ireland Professional Staffing were EUR 856 million, down 3% or down 2% trading days adjusted. North America Professional Staffing represents approximately 65% of revenues and was flat. Growth in engineering & technical, finance & legal and medical & science was offset by a decline in IT. UK & Ireland Professional Staffing represents approximately 35% of revenues and was down 7%, or down 6% trading days adjusted, mainly due to a decline in IT.

In Germany, Austria, Switzerland, revenues were €525 million, down 1% or up 2% trading days adjusted. In Germany & Austria, revenues were down 3% or down 1% trading days adjusted, impacted by the ongoing merger of the Adecco and Tuja general staffing brands, and regulatory changes. In Switzerland, revenues grew by 10% or by 15% trading days adjusted.

In Benelux and Nordics, revenues were €511 million, up 7% or up 10% trading days adjusted. In the Nordics, revenues were up 6% or up 10% trading days adjusted, led by double-digit growth in Norway, while growth in Sweden was slightly negative, or flat trading days adjusted, against a tough prior year comparable. Revenues in Benelux were up 8% or up 10% trading days adjusted. Growth continued to be double-digit in the Netherlands while in Belgium growth was a high-single-digit, both trading days adjusted.

In Italy, revenues were €477 million, up 17% or up 19% trading days adjusted, decelerating after five quarters of very strong growth while Iberian revenues were €273 million, up 13% or up 15% trading days adjusted.

In the Rest of World region, revenues were €57 million, up 4% organically or 6% trading days adjusted. Revenue growth was 13% in Australia & New Zealand, 14% in Latin America, 5% in Eastern Europe & MENA. While Asia was down 1% and India was down 14%, all trading days adjusted.

The Adecco Group provided further information on its €335 million acquisition of General Assembly originally announced in April. General Assembly is a provider of up-/re-skilling and lifelong learning.  Among the synergies Adecco expects an enhanced value proposition for Lee Hecht Harrison; access to a pool of highly-skilled talent for Professional Staffing & Solutions brands and the ability to leverage “multiple workforce megatrends to expand into a high-growth, high-margin adjacent market.

In its management outlook, the Group announced that revenue growth in March and April 2018 combined was 5-6%, organically and trading days adjusted. In Q2 2018, bank holiday phasing will be favourable and is expected to positively impact Group gross margin by approximately 15 bps compared to Q2 2017.

As of last trade, The Adecco Group traded at CHF 63.14 (€52.90), down 3.4% on the day and set a 52-week low during today’s trading session. Based on its current share price the company has a market value of CHF 11.31bn billion (€ 9.48 billion).