The Adecco Group (ADEN:VTX), reported revenue today of €5.93 billion for the second quarter ended 30 June 2022. Revenue was up 4% organically and by 3% on an organic and trading days adjusted (TDA) basis. Including the AKKA acquisition (now merged with Modis and rebranded Akkodis), revenue increased by 13%.

Gross profit was up 7% on an organic basis but EBITA fell 28%. EBITA excluding one-offs was €205 million, compared to €237 million in the prior period. One-off costs were €41 million, mainly due to the AKKA integration and related costs that were recorded at the corporate level, as well as some property related charges in LHH.

Net income was down 47% to €77 million. The result reflects lower operating income, interest expense of €12 million, and other income/(expenses), net of €11 million. According to Reuters, investors were disappointed by the net profit figure which missed forecasts of €112 million.

Denis Machuel, who was appointed Group CEO in Q1 2021, said, “The group made progress this quarter in several important areas, the Akkodis integration is fully on track and the combined business delivered healthy growth, Adecco improved its market share performance and showed some encouraging signs of turnaround in the US, and the LHH Recruitment Solutions business and digital ventures including Ezra and Hired continued to perform strongly. At the same time, it is clear that there is further opportunity for performance improvement to reach our full potential.”

Rival Randstad reported its second quarter results last week with revenue up 9% organically.

Chief Financial Officer Coram Williams told Reuters, that the jobs market has become more competitive as more staff voluntarily quit their jobs after the pandemic, leaving many companies understaffed.  The battle for talented employees has also driven up wages, Williams said.

“There is a real scarcity of talent across the globe," Williams said. "This is a key driver of wage inflation, along with inflation generally. There is strong wage inflation, although this varies," he added. "In continental Europe it is low to mid single digits, but elsewhere it is high single digits."

SG&A excluding one-offs was €1.06 billion, 16% higher organically (29% reported, including AKKA as

well as an unfavourable currency impact of 5%). The group continued to invest in its growth capacity, particularly headcount additions in Adecco. On an organic basis, full-time employees were up 16% year-on-year.

Compared to the prior year, in terms of service lines, Permanent Placement was up 36% organically (42% reported), while Outsourcing, Consulting & Other Services was up 22% (76% reported, with the large differential driven by AKKA’s integration), Training, Upskilling & Reskilling services were 6% higher (12% reported) and Flexible Placement services grew 1% (4% reported). Strong performance in these services lines was partly offset by the counter-cyclical Career Transition services, which were 32% lower (19% lower reported).

Revenue by segment

Unless otherwise noted, all growth rates below are on an organic and TDA adjusted basis.

In Adecco France, hospitality & catering, manufacturing and healthcare were strong, while logistics and construction were subdued.

In Adecco Northern Europe, revenue from UK & Ireland fell 11%, considering a tough comparison period from exceptional contract wins in logistics in the prior period. Excluding this impact, revenue from the region was 4% higher. In the Nordics, revenue was up 4%, while in Benelux, revenue was 3% lower.

Within Adecco DACH, revenues in Germany were 4% lower. A rebalancing in healthcare and logistics was partially mitigated by strong growth in autos and manufacturing. Switzerland & Austria grew 15%.

In the Southern Europe and EEMEA region, revenue growth was led by Italy, up 9%, and Iberia, up 6%, with manufacturing and food & beverages growing particularly well. The EEMENA region was 8% lower, challenged by a tough comparison in logistics.

In the Americas, Latin America, revenue fell 1%, due to a legislative change in Mexico having a negative impact. Excluding Mexico, revenue grew in high double-digit terms. In North America, revenues were 5% lower. Revenue momentum in Adecco US improved for the second consecutive quarter, evidencing traction in the US turnaround plan.

Within APAC, the region reported revenue growth of 14%. Growth was broad-based, with revenues up 11% in Japan, 12% in Australia & New Zealand and 12% in India. Flexible Placement (temporary staffing) was strong, particularly in Australia and Japan, led by logistics, IT tech and consulting. Revenues were boosted by very strong growth in Outsourcing and Permanent Placement services.

Within LHH, Recruitment Solutions performed very well and gained market share in permanent placement, delivering good returns from prior investments in sales capacity. Career Transition & Mobility revenues were 31% lower, with demand for outplacement services remaining limited. Learning & Development grew well, and Ezra’s revenues were up 68%. Pontoon delivered moderate growth while Adecco’s digital Permanent Placement brand, Hired, saw revenues advance by 77%.

In Akkodis, Modis Americas grew 18%, while EMEA was up 9% and APAC up 9%. Growth in the Americas and EMEA was driven by Talent Services. In APAC, the business benefited from growth in Consulting in Japan and Australia.

Revenue by Service Line

Machuel said, “In my first month as Group CEO I have spent considerable time visiting our markets, engaging with our operations, listening to our clients, and meeting with our people. I am convinced we have excellent businesses and fantastic people across the organisation. Identifying the levers and then executing on them to improve performance is my absolute priority. The group continues to focus on executing against its strategy, delivering productivity improvements from the investments we have made, and growing our market share by being the partner of choice to our clients and the talent we serve.”

Looking ahead, the group’s trading momentum indicates continued healthy demand for talent services, with a June exit rate of 4%, and July volumes modestly above Q2 levels, whilst recognising the challenges from the current macroeconomic environment.

In the third quarter, the group expects to achieve solid revenue growth on a year-on-year basis. Gross margin is expected to trend around Q2 2022’s reported level and SG&A expenses to stabilise. Management also expects to deliver productivity improvements.

News of the group’s lower than anticipated profits saw Adecco Group set a new 52-week low during today's trading session when it reached CHF 31.20 (€31.90). Over this period, the share price is down -37.05%. Shares recovered during the morning and last traded at CHF 33.34 (€34.09), up 0.73% on the day. The company has a market cap of CHF 5.59 billion (€5.71 billion).