Good day and welcome to the Adecco Group AG Q3 Results 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Benita Barretto, Head of Investor Relations, to begin the conference. Benita, over to you.
Thank you. Good morning, and thank you to everyone who's joined the lines today. I am Benita Barretto. I'm the Group's Head of Investor Relations, and with me we have the Adecco Group CEO, Denis Machuel, and CFO, Coram Williams. Before we begin, we want to draw your attention to the disclaimer on slide two. Today's presentation will reference GAAP and non-GAAP financial results and operating metrics. This conference call will include forward-looking statements. These statements are based on assumptions as of today and are therefore subject to risks and uncertainties. Let me now hand over to Denis and the results report.
Thank you, Benita, and a warm welcome to all of you who've joined the call today. Let's turn to slide three, which provides an overview of this quarter's results. The Group delivered EUR 5.7 billion in revenues, 5% lower on an organic trading day-adjusted basis and 3% lower on an organic basis. We've also been encouraged to see volume trends stabilizing throughout the quarter. Overall, this is a solid revenue result considering challenging market conditions and a high comparison base. Last year, revenues in the third quarter were up 3%, and we delivered 835 basis points of relative revenue growth outperformance at the Group level. The gross margin at 19.4% was resilient, with year-on-year development reflecting lower volumes, current business mix, and firm pricing, and in Q3, we delivered strong SG&A savings, supporting the Group EBITDA of EUR 186 million and a robust 3.3% margin.
Adjusted EPS was $0.68, and basic EPS was $0.59, 3% lower year-on-year in constant currency terms. Net debt to EBITDA ended the quarter at 3.1 times, while cash flow from operating activities was EUR 216 million year-to-date, with a healthy cash conversion ratio of 72%. We remain focused on delivering against our Simplify, Execute, and Grow agenda, and I will provide details on Q3's strong progress later in the presentation. But first, let me hand over to Coram, who will provide further insights into the Q3 results.
Thank you, Denis, and good morning, everyone. Let's discuss the context within each GBU, beginning with Adecco on slide four. Adecco has demonstrated resilient performance given market headwinds and a high comparison base. Revenues were EUR 4.4 billion, 5% lower year-on-year on an organic trading days-adjusted basis and 3% lower on an organic basis. By service line, flexible placement revenues were 3.5% lower, permanent placement was 2.5% lower, and outsourcing activities were up 1%. While enterprise was soft, it was encouraging to see SMEs grow by 1% year-on-year. On a sector basis, retail was strong. Logistics were stable, if slowing sequentially. Demand was lower in autos, a solid outcome given a high comparison base, and manufacturing remained subdued. Gross margin was healthy, mainly reflecting lower volumes and country mix. As Denis noted, we saw volumes stabilizing throughout Q3 and October 2024.
The EBITA margin at 3.4% reflects limited operating leverage, partly offset by G&A cost savings. The business is selectively protecting its sales and delivery capacity to capture growth opportunities and gain market share, including by investing in higher-value solutions such as permanent placement and outsourcing and improving delivery efficiency. Slide five shows Adecco at the segment level. Adecco faced a very high comparison from Q3 2023 relative to competitors, which is weighing on this quarter's performance. However, year-to-date, the GBU has delivered nearly 200 basis points of market share, and management remains highly focused on driving gains. In France, revenues were 9% lower in a market weighed by economic and political uncertainties. In sector terms, logistics, manufacturing, and healthcare were challenged. France's EBITA margin reflects lower volumes and negative operating leverage.
Management remains focused on improving sales intensity, with new clients developing positively year-on-year and further on-site openings in the quarter. Given the current market backdrop, management continues to adapt and right-size the business. Revenues were 11% lower in Northern Europe. The region's revenues were 15% lower in the UK and Ireland, 9% lower in the Nordics, and 2% lower in Benelux. Consulting, construction, autos, and financial services were all challenged. DACH's performance was soft, with revenues 6% lower. Germany was 8% lower, while Switzerland was 6% lower. Manufacturing and logistics were subdued, with logistics and autos decelerating sequentially. On a relative basis, the region gained good market share and is positioned firmly to weather autos' headwinds. Revenues grew 2% in Southern Europe and EEMENA. Revenues in Italy were 2% lower, while Iberia and EEMENA were both up 6%.
In sector terms, logistics, retail, and food and beverages were strong, while autos were soft. Revenues were 6% lower in the Americas. LATAM was up 12%, with most countries up in double-digit terms. North America was 15% lower, reflecting a continued downturn in flexible placement demand from enterprises, including specific client impacts. This was partly offset by return to growth for SMEs. Management continues to focus on its turnaround through a branch revitalization program, MSP acceleration, further delayering, and near-shore offshoring to optimize cost to serve. The Americas' EBITA margin mainly reflects lower volumes and cost mitigation efforts, including double-digit headcount reductions in North America. In APAC, revenue growth was solid, up 4%, and the region again grew its market share. Japan was up 8%, Asia was up 5%, and India was up 14%. In Australia and New Zealand, revenues were 13% lower on a high comparison base.
Let's move to Akkodis and slide six. Akkodis's performance reflects the ongoing downturn in tech staffing markets and a robust and above-market performance in consulting and solutions. Revenues were 5% lower on an organic trading days-adjusted basis and 3% lower on an organic basis. Consulting and solutions revenues rose 2%. By segment, revenues in EMEA were soft, with France 2% lower, driven by easing demand in autos and aerospace. Spain and Italy were strong. Germany was 7% lower, reflecting a challenging auto sector and soft demand for software development expertise. Actions to right-size are well underway. North American revenues were 15% lower, weighed by the continued downturn in tech staffing. However, revenues modestly improved sequentially, and consulting and solutions revenues rose by 26%. APAC revenues were a highlight, up 9%, with Japan and China up 12%, led by IT tech and autos.
Australia was 1% lower, with consulting and solutions revenues up 12%. The EBITA margin at 5.1% reflects lower tech staffing volumes, partially offset by G&A cost savings. Importantly, the consulting and solutions margin was healthy at 6.8%. Let's turn to slide seven and LHH. Revenues in LHH were 7% lower year-on-year on an organic trading days-adjusted basis and stable sequentially. Recruitment solutions revenues were 10% lower. Gross profits were 9% lower and 10% lower in the U.S. on an organic basis, ahead of the market and stabilizing sequentially in a soft market. Career transition was healthy in a solid comparison period, particularly in the U.S., with revenues 10% lower. The segment continues to take share, with new clients up 8% year-on-year and a solid pipeline. Learning and development revenues were 7% lower organically. General Assembly continues to pivot to B2B, while its B2C franchise was challenged.
Ezra performed very well, with revenues up 29% and an encouraging pipeline. Revenues in Pontoon were 8% higher, led by 25% growth in direct sourcing activities. The EBITA margin of 6% reflects unfavorable mix, mainly from lower career transition activity, partially offset by strong G&A savings. Management continues to protect capacity in recruitment solutions to capture a future market recovery, while improving operational discipline and consultant tenure. Let's turn to slide eight. On the left, we review the Group's gross margin drivers. In Q3, on a year-on-year basis and under the Group's accounting policies effective January 1, 2024, currency translation and portfolio scope had a positive 5 basis point impact. Flexible placement had an impact of 60 basis points, within which Adecco was 30 basis points lower, reflecting the GBU's current country mix, and Akkodis was 20 basis points lower.
Permanent placement had a 10 basis point impact, reflecting lower volumes. Career transition had a 10 basis point impact, reflecting a tough comparison. Outsourcing, consulting, and other had a 15 basis point impact, mainly reflecting lower utilization in Akkodis. In total, the gross margin was 90 basis points lower on a reported basis. At 19.4%, it is a resilient result. Pricing remains firm, as we can see with Adecco's gross profit moving 5% lower, which aligns with its revenue development. On the right, we review this quarter's year-on-year drivers of the Group's EBITA margin. At 3.3%, the EBITA margin was 70 basis points lower year-on-year. Gross margin developments were accompanied by a 5 basis point impact from operating leverage and a 25 basis point positive impact from G&A savings, with G&A expenses down 10% year-on-year to 3.2% of revenues.
Let's turn to slide nine and the Group's cash flow and financing structure. Cash performance was solid, with cash conversion at 72% over the last 12 months. Q3 cash flow from operating activities was EUR 121 million compared to EUR 282 million in the prior year period, driven by lower business income and unfavorable timing impacts of approximately EUR 150 million due to cash taxes of around EUR 25 million, which we saw in H1 last year but which came through in Q3 this year. Accounts receivable benefiting from good DSO, but the timing of quarter-end impacting the full scope of collections by around EUR 45 million, and accounts payable with payments last year more back-end loaded than this year of approximately EUR 60 million. We expect the receivables and payables developments, which account for over EUR 100 million, to reverse in the fourth quarter.
Capital expenditures were EUR 39 million in the quarter, from EUR 33 million in the previous year period, while free cash flow was EUR 82 million in the quarter. On a year-to-date basis, cash flow from operating activities was EUR 216 million, EUR 30 million lower than the prior year period. Free cash flow reached EUR 117 million, EUR 5 million higher year-on-year. Let me turn to the balance sheet. At the end of Q3 2024, net debt was EUR 2,925 million. The net debt to EBITDA ratio, excluding one-offs, was 3.1 times.
The Group has a solid financial structure with fixed interest rates on 81% of its outstanding gross debts, no covenants on any of its outstanding debts, and strong liquidity resources, including an undrawn EUR 750 million revolving credit facility. On October the 2nd, the Group successfully issued a EUR 300 million senior note with a 3.4% coupon and eight-year maturity.
The Group plans to repay the EUR 430 million debt maturing in December 2024. We therefore expect year-end gross debt to be lower than end 2023 levels. The Group remains firmly committed to deleveraging, supported by productivity gains, G&A cost reductions, lower one-off charges, and lower capital expenditures. Let's turn to slide ten and the Group's outlook. The Group saw volumes stabilizing throughout Q3 and in October 2024. For Q4, the Group expects its revenues on a year-on-year organic TDA basis, gross margin, and SG&A expenses, excluding one-offs as a percentage of revenues, to be similar to Q3 2024 outcomes, including seasonality. Management is increasing G&A savings while selectively protecting sales and delivery capacity to capture growth opportunities and market share. Finally, the Group expects its year-end net debt to be similar to the prior year-end level of EUR 2.59 billion. And with that, I'll hand back to Denis.
Thank you, Coram. Let's now turn to slide 11, where we show continued progress against the Simplify, Execute, and Grow agenda. We remain absolutely focused on growing market share. We have a very strong track record of gains, with a relative revenue growth of plus 850 basis points since the introduction of Simplify, Execute, and Grow, and plus 290 basis points year-to-date. We are confident we can gain more ground in the quarters ahead. Aligned with the simplification effort, the Group's continued focus on cost discipline has secured further G&A savings, and we now expect a year-end run rate of EUR 171 million, and aligned with our execution ambitions, the Group is also building a GenAI-powered business at pace. We are accelerating AI adoption to enhance efficiency and productivity and investing in innovation, notably by expanding the global delivery solution.
This solution delivers higher fill rates, lower time to fill, lower cost to serve, and a strengthened customer experience, thus creating a true competitive advantage. Currently in use with a handful of clients, the business is now onboarding a further 20 clients. Now let's turn to slide 12, which shows how the Group is swiftly building a GenAI-powered business. We recently introduced a new IT and digital roadmap for the Group, which takes a dual-track approach. First, the Group is upgrading its IT foundations by consolidating and simplifying its technology landscape. For example, we will shift to one front-office system through data cloud integration from over 40 systems. We will streamline ERP technologies, establish a single global data center, and implement a single global web platform.
We will leverage this foundation for the second part of the plan, accelerating investment in innovation and GenAI backed by a higher budget than previously. In particular, the Group is expanding its Global Delivery Solution and upgrading candidate interactions with exciting tools such as Career Studio and CV Maker. The Group is rolling out a Recruiter GenAI Suite that will deliver a step change in front-office productivity and is ready to deploy new GenAI capabilities such as AI agents. The Group has two primary strategic partnerships with Salesforce and Microsoft to support the delivery of its digital plan. We recently expanded our Salesforce collaboration to accelerate and widen the use of artificial intelligence and data cloud technologies across the company. Additionally, we continue to partner with Microsoft to successfully develop the Group's AI infrastructure and solutions at a global scale.
In summary, the Group's IT and digital roadmap will drive efficiencies, productivity, and competitive edge. Finally, let's move to slide 13, which contains recent client success stories from our global business units. First, Adecco Italy recently became the primary talent provider for a global leader in the luxury goods sector. The team delivered a comprehensive talent solution encompassing temporary and permanent placement and training and assessment services for over 400 talents. The client highly valued Adecco's demonstrated expertise in large-scale staffing, its upskilling capabilities that can address talent scarcity, and its deep sector expertise at the branch level. Second, Akkodis grew in consulting with a new UK client, leveraging its proven track record with Australian police forces. The client wanted an advanced analytic solution to improve policing outcome, particularly the accuracy and speed of investigations.
Akkodis's Akkodis solution delivered this and proved capable of finding valuable new leads in cold cases. Finally, in LHH, an existing relationship with Career Transition, with a German life sciences client, was leveraged to secure a multi-year global talent development contract. The client bought into LHH's comprehensive learning and development solution, which combines integrated assessment with Ezra's digital coaching platform. It will support more than 3,000 leaders as they adapt to the company's new operating model and leadership approach. To conclude this presentation, let me summarize the main points on slide 14. Since launching Simplify, Execute, and Grow, we've delivered a very strong share gain of 850 basis points, demonstrating the positive impact of this plan. The Group continues to take a frugal approach to costs, and the G&A savings run rate will reach EUR 171 million by the end of 2024.
We are also moving quickly to adopt AI and expand our global delivery solution, which improves fill rate and time to fill to more key clients. Finally, the Group has firmly protected its sales and delivery capacity to capture growth opportunities and market share in the quarters ahead. Thanks a lot for your attention, and I think we're now ready for the questions. Operator.
If you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. That is star one if you wish to ask a question. And your first question comes to the line of Andy Grobler from BNP Paribas. Your line is open.
Hi, good morning. Three, if I may. The first one on the dividend, which wasn't mentioned today, but looking at consensus, leverage in 2026 is two times.
Are you comfortable with that level as a kind of mid-cycle leverage? And if not, what kind of specific areas of forecast are incorrect that would allow the dividend to be maintained and for leverage to be lower than that two times? Secondly, you talked about volume stabilization, which is a positive. In which areas are you seeing that? And I guess, in which areas are you still not seeing sequential stabilization? And then thirdly, just within the free cash, there was EUR 53 million of other charges. You noted EUR 25 million from tax. What is the rest of that EUR 53? Thank you.
Thank you, Andy. I'll take the second question. I think Coram will take the first one and the third one. And I'll start by the volume stabilization. Overall, we've seen, as we said, sequentially volume stabilizing. It's particularly true in recruitment solutions. It's particularly true in the US.
It's also true in tech staffing in the U.S. So this is a good sign. It's also linked to the fact that we've protected capacity. As you know, we're really adjusting our sales teams to the volumes, and we're getting for any sign of rebound, getting ready for that. But I would say the trend is stabilizing, and it's quite promising, I would say.
Andy, let me pick up on your other two points. Just to take the factual one first. So on free cash flow, we've highlighted €25 million in timing differences, which explains the impact in Q3. But actually, the full amount is really the cash tax outflow. So the €53 is what's flowed out. That's what's shown on the face of the cash flow statement. The point we're trying to make with the €25 is the difference in timing between H1 and Q3.
On the balance sheet, I think there are a couple of points here. I think the first thing is we are guiding to net debt being stable because we want to make the point that even in some tough markets, which have put profit across the industry under pressure, we are able to hold our net debt flat year on year. Volumes are stabilizing. We've been very clear in terms of the way that we are continuing to manage G&A costs with discipline. We've made a deliberate decision to protect selling capacity, which in turn means that we are well positioned to capture the rebound. And that will help drive growth, profitability, and free cash flow, which will help us delever over time. And I think that's the key point.
The balance sheet is sound, liquidity is strong, and the Group does generate good cash flow through the cycle to both delever and pay dividends. And you know that our stated aim is to get to 1.5 times. That's our target over time, and we are absolutely committed to that.
And Coram, can I just follow up on that? And I don't want to put words in your mouth, but from that, am I to understand that you think that you can grow your EBITDA more quickly than the market may have in expectations? And when we look at 2026, consensus at two times, is that too short a period? Are you willing to give it longer to get to that one and a half times, given where current markets are?
Andy, I think it might be a bit early to give a forecast for 2026, but I think the key point is that we think that we have a path to delever over time. And as we've mentioned before, it's about driving productivity. It's about keeping CapEx under control. It's about continuing to manage our costs, and it's about reducing one-off costs. So we do believe that we can accelerate the top line and therefore the bottom line and translate that into cash flow, which helps us delever. Okay. Thank you.
This question comes to the line of Alfonso Azarre from Barclays. Your line is open.
Hello everyone. Thank you for taking my questions. I have two, if I may. The first one is on your market share developments. I'm just looking at your five.
I believe this is the first time since a long time. I think it's Q4 2021, where you lost market share in your Adecco GBU. So can you just contextualize this new development and what has gone below your expectations here in Q3? And then the second question is in France. First, within that question, first, if you had any positive impact from the Olympics that's going to unwind in Q4? And then secondly, longer-term expectation for the tax implication in 2025 and 2026? And just lastly, just as a follow-up to my first one, actually, on the volume stabilizing. I mean, I know visibility is super low. It's very difficult to see three-to-six months ahead. But volumes seem to have been stabilizing for quite a while now.
Yet, I think comps, yeah. I appreciate comps get tougher through the year, but is Q3 below your expectations? Was this what you were expecting to begin with since last time we spoke in August, or what has gone below your expectations overall in Q3 that we're not expecting back in August? Thank you very much.
Thanks, Alfonso. I think most of them, and Coram will be super happy to talk about the tax changes. What about the market share? Let's be clear. We've grown since we started the Simplify, Execute, and Grow agenda. We've grown really significantly, okay? 850 basis points since we started relative performance since we started this execution plan. That's super solid. Since year to date, we are 290 basis points above our main competitor. That demonstrates the dynamic that we have.
We have been this quarter impacted a bit more by autos, particularly in France and Germany, where, of course, it had an impact. We've also been impacted in France by a change in the legislation on the healthcare segment for nurses, and that has had also an impact because our exposure is a bit bigger, but I would say overall, we are still rock solid in the way we gain share. We are protecting capacity in a very granular way to make sure that we take whatever is available to us moving forward, so I am convinced that we can continue to gain share. On France, overall, the market has been a bit challenging linked to the macroeconomics and the political environment, and as well as the medical aspect that I was mentioning earlier. We're still a world leader. We're still the leader in France.
We still innovate a lot in this country, and I'm very, very positive about France moving forward. We had a few large clients where we have volumes that reduce their volumes, particularly in logistics, in services, but I think France remains a strong asset to the Group. There is no impact on the Olympics. We're not. It's neutral for us. We were not a main partner to the Olympics, so it has no impact one way or the other, and as far as the volumes are, as I said, we've seen some sequential improvement in US recruitment solutions, in Adecco tech staffing. Overall, the volumes are stabilizing. It's true that volumes are still quite dynamic in APAC, still dynamic in LATAM, still dynamic in Spain, particularly, so this is where we are. I think this is what the Q3 we delivered was, not a surprise to us.
We know what we're doing, and I think we're heading for better perspective as we move into the end of the year and particularly 2025. As far as the tax changes in France, Coram?
Let me pick up on that. I mean, the draft bill points to surcharges in 2024 and 2025. If it is passed, then it would cause the French corporation tax rate to be 36% in 2024 and 31% in 2025, and that means it would be retrospectively applied to 2024, but the timeline is very tight. It has to be finalized and approved and passed by various parts of the legislature before December 31st, so I really think it's too early to be sure whether or not this goes through. Obviously, if it does, we'll update our guidance for you in our next call.
But at this stage, it's not finalized, and there's still a lot to do.
Very clear. Thank you very much.
Your next question comes to the line of Suhasini Varanasi from Goldman Sachs. The line is open.
Hi. Good morning. Thank you for taking my questions. Just a couple from me, please. I think given your comments on net debt for the year, which you expect to be broadly similar and where consensus forecasts on profits will be for the year, your leverage, I think at Q3 was 3.1 times net EBITDA. And there are probably growing concerns in the market about the sustainability of the dividend given this leverage. So can you maybe provide some color on how and why you think your dividends will not be touched for 2024 and beyond? Then the second one is on the outlook.
Given obviously the miss versus your guidance at 2Q results with these set of results today, how comfortable are you with the color that you've given today on revenues and gross margins? What are the key risk areas that you would probably highlight that could end up missing numbers again for 4Q? Thank you.
I think Coram will answer both questions.
I'll take both of those. So on net debt and leverage and the dividend, just to repeat a point that I made in response to Andy's question, we're guiding to stable net debt because we want to be clear that even in difficult market environments, when the industry's profit is under pressure, we are able to hold that.
We do believe that because of what's happening in terms of stabilizing volumes, the way that we're managing SG&A, the way that we're protecting sales capacity, we are well positioned to capture a rebound. And that will help drive free cash flow and bring leverage down. It's true that if you are looking out to the year-end, then the net debt to EBITDA ratio will obviously be impacted by the lower profitability, likely to remain stable sequentially. But I think the fact that net debt is stable in absolute terms should give you comfort that our balance sheet is strong. On the dividend, the strength of the liquidity, the soundness of the balance sheet, that does mean, and the fact that the business is able to generate good cash flow through the cycle means we do believe we can delever and pay dividends.
We recognize the importance of the dividend to our shareholders. Like every year, we will make the decision in February on the dividend in light of our full year results. On gross margin, I think it's important just to touch on what happened in Q3 and then maybe give you a bit of color on Q4. We were expecting a seasonal benefit in Q3. In fact, it stayed stable. Really, the main driver of that was Flex, where the gross margin was lower than we'd anticipated, down 60 basis points. There's really two pieces to that. So as I mentioned in my script, about 30 basis points comes from Adecco. And it's really all about country mix. So we've seen lower volumes in the higher margin markets, and we've seen higher volumes in the lower margin markets.
That is simply the state of the market that we see at the moment, and it's a temporary pressure point. And then the additional piece is the flow through of some of the ongoing pressures in the Akkodis talent business, which again is performing well versus the market, but the market is under pressure. I will re-emphasize that I think that the gross margin at 19.4% is a resilient one in this market. In terms of Q4, as we flagged in our guidance, we'd expect it to be similar on an underlying basis. There is always seasonality in the gross margin, -10 to -20 basis points between Q3 and Q4.
The main moving parts to that, I think we'd probably see FX and M&A being flat, PERM broadly flat because of the stabilization that we've seen, a little bit of pressure in CT and M because of the high comps that we face. So that's career transition, maybe five basis points, a little bit of upside in outsourcing, consulting, and solutions, 10-15 basis points. And I think we'll see Flex down 30-40. And that's how you get to what we're guiding towards. I think it's a sensible guide given stabilizing volumes and given the market environment that we face. I hope that helps.
Yes, very helpful. Thank you.
Your next question from Gian Marco Werro from Zurich Cantonal Bank. Your line is open.
Morning, everyone. Two questions from my side. On free cash flow, I want to focus on.
Your cost cuts are nice and also impressive. I have to agree. But regarding your high leverage and also the worries about the stability of your dividend, the markets want to see free cash flow generation. I hope you agree with me on that one. So why do you allow then for this increase in uncertainty that we see today, for example, also based on the shift in working capital and the reduction of accounts payable? Don't you have other measures to steer or stabilize your working capital with EUR 4 billion in trade receivables and EUR 4 billion in trade payables? That should somehow be possible, in my view. And then the second question is the outlook for the free cash flow generation. You mentioned in your press release today that, yes, you increase your free cash flow year over year year to date.
But in my view, the last two years are very, very, very low comparison base. And historically, you achieved free cash flows of between 500 and 600 million. And when do you expect all your cost cuts now being implemented and also some improvements in CapEx and working capital to really go through so that we see free cash flow levels of well above 500 million again? Thank you.
Thank you, Gian Marco. I'll take both of those. I mean, just to pick up on your point on G&A cost reductions, because I think it is an important one, and we appreciate the way that you flagged it. We are up again in terms of run rate, so more than 170 million of run rate, which will flow through fully to the P&L in 2025. So we are continuing to focus on this.
On the other side of the cost equation, on the selling side, we are protecting capacity, and I think it's really important because actually, we could drive the margin and cash flow up in the short term by cutting harder into our selling resources, but we've chosen not to do that because, as you know, in the immediate aftermath of COVID, we did that and we missed the recovery, so we have taken a very deliberate decision to really go hard after G&A and to protect selling capacity. That doesn't mean we're holding it flat in all markets, but it does mean that we are being selective and we are trying to make sure that we are well positioned for the rebound, so that's just a couple of comments on costs.
On free cash flow, I think it is important to recognize that we are up year on year on a year-to-date basis, so 5 million. And that's with the 150 million of timing impacts that we've tried to very clearly flag in Q3. And just to remind you, of that 150, over 100 of it will come back in Q4. That is the accounts receivable, where actually we've done a very good job on DSO. It's improved again, but the timing of the month-end impacted our collections by about 40-45 million. And then the timing of accounts payable last year was much more Q4 weighted. This time, we've seen more of them come through in Q3, and that's about 60 million. So that should give you confidence that actually the underlying position on free cash flow on a year-to-date basis is over 100 million better.
Your point about €4 billion balances is well taken, but it actually also works the other way because it means relatively small swings on those big balances can provide quite big in-quarter swings on a year-on-year basis. So it's why we're trying to be really crystal clear about what's impacted. And I think on the question about when do we get back to strong free cash flows, the cost cuts have definitely helped this year, but you're not seeing the full impact of them in the P&L and in the cash flow. So we're expecting about €100 million on the P&L this year. That full run rate of over €170 million comes through next year. So that's a nice €70 million boost. Our one-off costs are coming right down, which is another boost. And you see that our CapEx is under control.
So there's a very clear plan for how we improve free cash flow, and we are really committed to driving that and bringing the leverage down.
Okay. And 500 million as a potential target for next year, is it too early to say or something that you say, well, possible to achieve?
Let's talk about 2025 targets at the full year. But remember the extra 70 million of cost benefit flowing through, the one-offs coming down, ongoing discipline in CapEx. It will help us drive free cash flow up.
Thank you, Coram.
No problem.
Your next question from Simona Sarli from Bank of America. Your line is open.
Yes. Good morning, and thank you very much for taking my question. I would say at this point, just one left. It is related to France. So what is the impact from the change in regulation in healthcare?
So if you could quantify that in terms of organic revenue growth headwind? And does also this mean that you will need to readjust frontline capacity in this country for this segment? Thank you.
So thank you, Simona. I think definitely we've been more exposed to the healthcare sector that we have been than some other competitors because we had a nice business there. The business is not gone. It's just that there's a volume decrease because of this legislation change. So it's about 100 basis points of revenue headwind. And what happens as well in France is we had a few large clients that were reducing their volume. So that explains our performance in Q3. I must say we're still very strong, very solid in France. And we also see some green shoots. We are gaining share in construction. We've developed a good business there.
Our SME business is 200 basis points growing above market. So I think it's quite promising. And our PERM business is still growing. Softly, but it's still growing. And as far as do we need to adjust? We are, as we said, we're right-sizing in France. We've been right-sizing for several quarters as the volumes were declining because of the market. And we adjust as per the capacity that we need. What we do in France is exactly as Coram said earlier, exactly what we do in many countries. We protect capacity wherever we believe that there's still a good dynamic or some volumes coming up. And we're reducing where we think that there's not so much to be done.
Thank you very much. Apologies. Just one more question, if I may.
So going back to your capital allocation and clearly your target to deleverage to 1.5 times in the medium term, would the scrip dividend being something that you would consider for, I don't know, for the next year?
I think I was clear on this, that every year we will make our decision on the dividend when we see the full year results, and we'll announce it, obviously, with Q4 and full year.
Okay. Thank you.
Your next question from Rory McKenzie from UBS. Your line is open. Good morning.
Two questions from me, please. Firstly, on the gross margin again, you came into Q3 guiding for that seasonal increase of 40 basis points or so from Q2, which obviously didn't come through. From your comments, can we conclude that the temp mix was there for about another 40 basis points worse than expected?
I guess I really wanted to get just more details there. So how wide is the spread between countries? Is this Northern Europe at 22-23% and Southern Europe at high teens or something? And then can you talk about if you assume that mix remains a drag into Q4? And then kind of related to the capacity and this gross margin point, you said that volumes are stabilizing and you're protecting capacity. I guess whether or not we think that those volumes do stay stable or markets worsen again, I guess all those volumes are now worth less than expected on average, given that gross margin mix. So do you see this as just a temporary volume difference between countries? Why do you think it normalizes?
Or do you have to also consider the gross profit of those volumes when you think about capacity in the markets, if that makes sense? Thank you.
It does. Thank you, Rory. Let me try and bring those two together because I think they're sort of two sides of the same coin. I mean, just to go back to what I said about Q3 gross margin, about 30 basis points of the year-on-year pressure came from the particular mix. And you can see you just have to look at the sales line to see that our higher gross margin countries are under more pressure because of the market environment. So it's really a correlation of that. And it's why we've tried to quantify it for you at 30 basis points. It's not the full amount.
That's important because there are other effects in Akkodis, particularly within the flex talent staffing business of Akkodis. In terms of the spread on gross margins, and we don't unpack the gross margins by country, but you're probably roughly in the right ballpark if you're thinking of the kind of spread that you mentioned. On the question of the country mix and the impact on the revenues, I mean, yes, it is at the moment working against us. Our volumes are down less than our revenues are. There is wage inflation still. It is running at a lower rate than we have seen in previous quarters, but it is still low single digits. The country mix works the other way. Do we think that is permanent? No.
It is absolutely a product of the bill rates in the countries and the fact that our higher bill rate countries are seeing revenue declines because of market conditions. And France is a really good example of this. We would anticipate that those markets come back over time, and then actually this mix effect will work the other way. And I will add that in areas that have been historically at low margins, we are also improving our margins. Even though they are lower than the average, I'm thinking particularly about APAC, where we've done significantly better than some years ago. So we also see some good signs about this region growing quickly, improving their margins at the same time, still dilutive, but still, I think it's going into the right direction. And maybe one other point, which I think is important on this.
The spread between the bill rate and the pay rate is still positive. The multiplier is working in our favor. So this is purely a mix effect about where the volumes are coming from and what's happening in those particular markets.
Okay. Thank you both.
As a reminder, if you wish to ask a question, please press star one. Your next question from Sylvia Barker from J.P. Morgan. Your line is open.
Good morning, everyone. A couple for me, please. First, looking at career transition revenues, are we now normalizing back towards more 70-80 million per quarter, or do you think that that remains elevated for a while longer? And just thinking about the EBITDA margin on career transition, what's the mix now? You previously said that you had fewer large contracts, and it was a lot of smaller contracts.
Maybe just a comment on the mix and any implications on the margin there. And then secondly, receivables and payables, how much of that relates to more project-based businesses, let's say Akkodis, versus the more transactional businesses? Thank you.
I'll take the first one, and then Coram will take the second one, so regarding CT, we believe that we can still have some very good momentum. Let's be clear. 2023 was the best year ever, and 2024 is going to be the second best year. So even though we are a bit down, we are down on a very high comparative base. So I think that's a business which is very solid. And to your point, this is a business that has been also diversifying itself, going from large clients into smaller ones, particularly in the US.
We see good traction on the small business because, as it's interesting, the smaller businesses now are more cautious about the way they separate with their people. They want to preserve their reputation. They want to make sure that people are accompanied. So we see very good traction there. And of course, the margins are much better with the smaller ones. So we have a strong pipeline. We still have a strong pipeline in large clients. There has been some recent announcement in the U.S. of a large layoff plan, which we've won. And we still have to see these volumes flowing in in the next couple of months. And as I said, a good pipeline on small and medium companies. So all that is very it will sustain the business at a reasonably high level for CT.
Then on the question around AP and AR, I think it's really important to recognize that given the weight of the Adecco revenues in the business, it is the lion's share of both our accounts receivable and our accounts payable balances. So this is not about Akkodis cash conversion coming under pressure. Akkodis is actually delivering decent cash conversion. The key point on each is on AR. We did a really good job of managing DSO. It's improved again, but the quarter-end fell at the weekend. And that always has an impact on the timing of collections. That's about EUR 45 million. And then on AP, it's literally about the phasing of some of those payables, which were more Q4-weighted last year, more Q3-weighted this year. So it's timing, not some kind of mix effect relating to project-based or transactional businesses.
Perfect. Thank you very much.
Your next question comes from Rémy Grenouilleau from Morgan Stanley. Your line is open.
Yes. Good morning, gentlemen. Two remaining on my side. Just the first one is on your Q4 outlook. I think that one of your competitors was a little bit more active in flagging that they expect some weaker seasonality in Q4 and potentially some impact from industrial facilities being closed for a longer period of time at the end of the year. So I'm just wondering if you have baked in your Q4 outlook any weakness coming from any of that, or what's been the discussion with clients, if you have any feel of whether this could materialize or not. So that's the first one. The second one is on your refinancing decision. I mean, you took the opportunity of the refinancing to decrease slightly the gross debt on the balance sheet.
And my question is, given the uncertainty in the short term and all the discussion that we've been having through the call on the dividend payment, etc., can you help us understand the rationale for lowering that gross debt and lowering a little bit the cash position therefore on the balance sheet? Thanks.
Thank you. I'll take the first one, and then Coram will take the second one. I think what we've said is we see Q4 more or less in line with Q3. We've seen volume stabilizing, and we expect that to more or less continue. Yeah. I mean, there's some planned closures. You've heard something in Germany with one big car maker. Are we saying that the market is the rebound is there? No, it's not. Is it going to deteriorate? I don't think so. We are quite we're not hearing this from our clients.
I think we see positively the next few quarters, maybe not the next one, but the ones after. We're quite in a solid position. We can still take market share. So I say I look at the future with a very positive attitude.
And then on the refinancing, just to maybe reiterate the point I made during our prepared remarks, we were really pleased with that issuance. It's EUR 300 million, eight-year maturity, 3.4% coupon. And I think the coupon is a very good reflection of our creditworthiness and the way that the debt markets view us. Our net debt is stable. Our gross debt is coming down. I think this is all part of what you'd expect in terms of the way that we're managing the balance sheet. We will have decent cash positions at year-end, so we're not in any shape or form worried about that.
And we have really strong liquidity through undrawn RCF. So the balance sheet is solid.
Understood. Thanks very much.
If there are no more questions, I will then wrap up this session by thanking you again for having attended it. As you heard, we've had a robust quarter. We see some interesting volume that are stabilizing. We see modest sequential improvement in a few areas. We can't put a firm date on the rebound, but we're putting ourselves in a good position to accelerate when the rebound comes. With our Simplify, Execute, and Grow agenda, we have a proven record on delivering on our promise. We keep fueling growth wherever it happens, like in APAC and in LATAM. We are adjusting with granularity our resources. We will continue to improve the US.
We continue to gain share and accelerate on our tech and digital investments, which are creating a leading edge for us. So thanks a lot for being with us today. And we see you in the next quarter. Thank you.
That does conclude our conference for today. Thank you for participating. You may now all disconnect.