The Adecco Group (ADEN:VTX), reported revenue today of €6.04 billion in the third quarter ended 30 September 2022, an increase of 6% organically and trading days adjusted.

The 6% revenue increase is lower than the estimated global inflation rate of 8.8% in 2022. The company told Reuters that wage inflation was supporting sales growth, with the company seeing price increases in the mid-single-digit range.

Gross profit was up 5% organically in the third quarter period. SG&A excluding one-offs was 12% higher organically.

One-off costs were €23 million, mainly due to AKKA integration and related costs that were recorded at the corporate level. AKKA is a global engineering and technology consulting group. Adecco Group first announced it was acquiring Akka in July 2021.

The group posted an operating income of €164 million, 16% lower than the previous year. On a constant currency basis, operating income was down 15%.

Denis Machuel, Adecco Group CEO, said, “The group made strong progress this quarter, as we delivered on our commitment to return to a growth leadership position in the Adecco business. Our Akkodis GBU (Global Business Unit) continued to perform well and the AKKA integration, including synergy capture, remains firmly on track. In LHH, our digital investments showed positive momentum with both Ezra and Hired reporting healthy growth.”

Adecco’s revenue growth was supported by good momentum in France, in addition to strong results from DACH and APAC. Northern Europe and Southern Europe & EEMENA both delivered solid growth, while the Americas were more mixed

Revenue by segment

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.

France delivered revenue growth of 7% in the quarter, with volumes consistently outperforming the market, supported by QAPA’s performance and growth from the company’s onsite business. In sector terms, manufacturing, autos, and healthcare were strong, while logistics was soft.

In Adecco Northern Europe, revenues from UK & Ireland were 10% higher, benefiting from strong growth in education and finance as well as better dynamics in logistics. In the Nordics, revenues were only up 4%, led by Sweden, while in Benelux, revenues were 3% lower.

Revenues in Germany were 11% higher, showing a good return on investment, supported by a strong upturn in autos, and strength in manufacturing and logistics. Switzerland & Austria grew 17%.

Solid revenue growth was achieved in Italy and Spain, both up 6%. The EEMENA region (Eastern Europe, Middle East and North Africa) edged up 1%. Manufacturing and consulting were strong, while logistics was weaker.

Latin American revenue was up 14%, led by Argentina and Brazil and reflecting diminished headwinds in Mexico, which saw a significant regulatory impact in September 2021. In North America, revenues were 4% lower.

The APAC region reported revenue growth of 9%. Revenues were up 12% in Japan, and 18% in Asia. In Australia & New Zealand, revenues were 9% lower on a tough comparison period. End-market growth was broad-based, with IT Tech, retail, manufacturing, and finance sectors developing notably well.

Within LHH, recruitment solutions revenue was flat, reflecting easing, albeit still positive development in Permanent Placement, and subdued activity in Flexible Placement. Gross profit for the segment was 7% higher, led by Permanent Placement fees, which advanced 14%.

Career Transition & Mobility revenues were 11% lower, showing improvement on a sequential basis and an improved project pipeline in the US. Learning & Development grew 2%, with professional development brand Ezra up 47%. Pontoon delivered 6% growth, led by MSP, while the company’s hiring platform, Hired, grew revenues by 22%.

Consulting brand, Akkodis, delivered revenue growth of 8% in the quarter. On a segment basis, Modis Americas grew 13%, with very strong growth in activities. APAC grew 11%, with particular strength in staffing as well as telecoms, manufacturing, and electronics sectors. Revenues in EMEA were flat but with solid growth in core markets including France and Germany.

AKKA contributed €404 million of revenues in the period and, on a stand-alone basis, grew in high-single-digit terms, with DataRespons, the IT service management brand, a highlight.

Following a review of operations, Akkodis management are working to accelerate the transition of the German business to Smart Industry, with a focus on attracting and retaining talent, adapting the location of branches, addressing the services mix, including by moving mechanical engineering activities offshore, and by streamlining SG&A costs. These measures are expected to improve the growth trajectory and profitability of the German business.

Adecco Group added that part of AKKA’s US operations, with annual revenues of approximately USD 250 million, will be transferred to Adecco US, effective 1 January 2023. The assets being transferred are staffing activities in order to strengthen the strategic focus of both Akkodis and Adecco.

“The AKKA integration continues to progress well. Around 60 revenue synergy initiatives have been secured since acquisition, with an expected revenue impact in 2023 of over €40 million. The year-end total synergy run-rate, in EBITA terms, is projected at over €40 million,” the group stated.

Revenue by service line

The group reported that its trading momentum indicated continued healthy demand for talent services, with a September exit rate of 6%. However, the group saw marginally lower volumes in October, reflecting the current macroeconomic environment. In the fourth quarter, both gross margin and SG&A expenses (excluding one-offs) are expected to be broadly in line with Q3 2022’s reported levels.

Machuel said, “Looking ahead, we are determined to accelerate growth across all GBUs, and bring our EBITA margin back to a leading level. With these priorities in mind, today I am unveiling a detailed operational plan to sharpen execution at the Adecco Group. Termed “Future@Work Reloaded”, the plan will accelerate implementation of our existing strategy, strengthen resilience in the face of external headwinds, and improve both operational and financial performance. I firmly believe in the quality of our assets, and with this plan, commit to unlocking our potential and driving the group to achieve a ~6% EBITA margin.” The Q3 EBITA margin was 3.6%.

Shares in Adecco Group last traded at CHF 30.57 (€30.19), down 1.77% on the day and 15.88% above the 52 week low of CHF 26.38 (€26.06) set on 10 October 2022. The company has a market cap of CHF 5.23 billion (€5.16 billion).