The Adecco Group (ADEN:VTX), reported revenue of €4.83 billion in the third quarter ended 30 September 2020, a decrease of 15% organically and trading days adjusted.

The 15% decline is a rebound from the 28% decline of Q2 2020. The improved quarter-on-quarter revenue trend reflected the reopening of economies across the group’s major markets, following the unprecedented Covid-19 lockdown measures imposed during the second quarter.

Currency movements and divestments had a negative impact on revenue of approximately 2% and 1%, respectively, while the impact from the number of working days was immaterial.

Revenue was above the €4.66 billion revenue forecasted by a company gathered consensus of analyst estimates.

Gross margin increased to 19.6%, driven by the strength and diversity of the group’s portfolio, pricing discipline and reduced Covid-19 related costs relative to the prior quarter.

The below data are all compared to the prior year and on an organic basis.

Adecco reported that temporary staffing revenue declined by 17% to €4.14 billion while permanent placement revenues declined by 37% to €89 million. Revenue from career transition was up 20% to €100 million and revenue in outsourcing and other activities were down 2% to €506 million.

Workforce Solutions (Adecco brand) revenue declined by 14%, while Professional Solutions were down 22%; Talent Solutions and Ventures grew by 3%.

The group’s 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.

The net income of €80 million beat the €71 million forecasted in a company gathered consensus of analyst estimates.

“While the market environment remained challenging in Q3, we saw a gradual recovery in business activity as lockdowns were eased,” Alain Dehaze, Group CEO, said. “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,” Dehaze said. “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 Lee Hecht Harrison 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.”

During the period, the Adecco Group announced changes to the Executive Committee. The group had said it will adopt a brand-driven organisational structure and align its country-based Adecco operations under the global leadership of Christophe Catoir. 

Revenue by geography

Having reported the steepest decline in Q2 2020, linked to the strictness of the local lockdown, France saw a strong recovery during Q3 2020 as the economy reopened. The year-on-year decline continued to be driven by lower demand from clients in the manufacturing, automotive and construction sectors while logistics, healthcare and pharmaceuticals were more resilient. Revenue decreased by 18% in Workforce Solutions (Adecco brand), which accounts for over 90% of revenue. Professional Solutions were down 21%. Permanent placement revenues declined 32%.

North America General Staffing was down 14%, led by lower demand primarily from clients in the manufacturing sector. UK & Ireland General Staffing saw a decline of 5%, supported by growing demand from retail and e-commerce clients. Permanent placement revenue declined by 18% in North America General Staffing and by 57% in UK & Ireland General Staffing.

North America Professional Staffing revenue declined by 21%. The decline was led by the professional recruitment brands (Finance, Office, Legal) and Entegee (Engineering), with Modis (IT) being more resilient. UK & Ireland Professional Staffing declined 37%, similar to the prior quarter, continuing to be impacted by regulatory changes (IR35) and Brexit-related uncertainty. Permanent placement revenue was down 43% in North America Professional Staffing and down 38% in UK & Ireland Professional Staffing.

In Germany & Austria, revenue declined by 21%. The decline was led by lower demand from clients in the automotive, manufacturing and aerospace industries. At the end of Q3 2020, the group initiated a significant restructuring of the German business, including structural changes to both the organisation and business mix, to create a path to a sustainable, appropriate level of profitability. This included the exit from certain parts of the aerospace sector linked to long-cycle demand, and from parts of the automotive sector, due to lower labour requirements for electric vehicles. These actions resulted in a restructuring expense of €61 million in Q3 2020. In Switzerland, revenue declined by 24% trading days adjusted.

In the Nordics, revenue declined 30%, led by Sweden. Revenue in Benelux was down 23%, with the Netherlands down 28% and Belgium down 18%. The declines were driven by lower demand in the manufacturing, automotive, retail and logistics sectors.

The decline in Italy was led by the manufacturing and automotive industries. Permanent placement was down 18%.

Japan saw continued good growth in both Workforce Solutions and Professional Solutions. Permanent placement was down 38%.

Revenue decreased by 3% in Australia & New Zealand, by 12% in Asia and by 41% in India, while revenue grew by 4% in Latin America and by 1% in Eastern Europe & MENA (Middle East and North Africa), all trading days adjusted.

In Career Transition and Talent Development, revenue was up 9% at €137 million. In Lee Hecht Harrison, revenue grew by 14%, while it declined by 6% in General Assembly. Growth in LHH’s counter-cyclical Career Transition activities accelerated strongly during the quarter, as client restructuring activity increased as a result of the crisis. General Assembly has seen strong demand for its online training offerings, but continues to be impacted by the closure of its campuses globally.

The rate of revenue decline in the third quarter improved through the quarter, with September down -14% trading days adjusted and volumes in October indicating a further gradual improvement.

The group said the tightening of Covid-19 restrictions across Europe has not materially impacted demand for the group’s services to date. Nevertheless, management recognises that the most recently announced lockdown measures are likely to slow the revenue recovery.

Adecco Chief Financial Officer Coram Williams told Reuters that the new restrictions announced by countries to check a resurgence of Covid-19 will slow but not prevent the gradual recovery in hiring.

"The new restrictions announced will slow the recovery, there will be an impact, but overall we don't think the situation is as tough as it was during the second quarter," Williams said. "Over time, we will still see a recovery. It won't be a straight line, it will be bumpy, but there will be an improvement in hiring," he said.

The group said it will continue to manage its cost base with agility, while maintaining investments in its transformation and in areas of growth. It added that the company is able to rapidly adapt to changing market conditions and continues to generate substantial free cash flow through the crisis.

Shares in The Adecco Group traded at CHF 48.05 (€44.87), up 4.46% on the day and 24.09% below its 52-week high of CHF 63.30 (€59.10), set on 27 November 2019. The company has a market cap of CHF 7.34 billion (€6.85 billion).