Good morning, ladies and gentlemen, and thank you for standing by. My name is Calvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Adecco Group First Quarter 2025 results. 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. Thank you. I would now like to turn the call over to Benita Barretto, the Adecco Group Head of Investor Relations. Please go ahead.
Good morning. Thank you for joining the Adecco Group's conference call today. I'm Benita Barretto, the Group's Head of Investor Relations. Denis Machuel, the Adecco Group CEO, and Coram Williams, the CFO, are with me today. 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. Starting with slide three, which provides an overview of the Q1 results. The consistent and rigorous execution of our strategy is paying off. In the first quarter, we gained further market share with solid margin performance. The Adecco GBU was 130 basis points ahead of key competitors this quarter. Revenues were EUR 5.6 billion, 2% lower year-on-year on an organic trading days adjusted basis, and 3% higher sequentially. The group saw flex volumes improving through Q1, and we are pleased to see Adecco US return to growth. The gross margin of 19.4% was healthy, 40 basis points lower year-on-year, reflecting current business mix and firm pricing. EBITDA, excluding one-offs, was EUR 132 million, driving a margin of 2.4%, 40 basis points lower year-on-year.
The margin evidences agile capacity management and strong cost control, in addition to the favorable timing of fiscal income. Adjusted EPS was EUR 0.48, 20% lower year-on-year, mainly reflecting lower business income. Cash flow from operating activities was EUR -144 million, while the cash conversion ratio was strong at 105%. Let's turn to slide four, where we look at some key wins driving market share gain, which was 30 basis points positive at the group level this quarter, on top of the 200 basis points delivered in 2024. First, close collaboration between Akkodis and Adecco resulted in a significant win with a German IT services provider. The client wanted project management and software development capabilities to support digital transformation. The client valued the group's coordinated delivery model with a single point of contact.
Moreover, the client valued the high level of technical expertise offered, combined with our ability to scale and support during high workload periods. Second, the US LHH and Pontoon teams secured a major contract with a leading market research company, thanks to a referral from Adecco. The client required strategic workforce planning and talent management capabilities. They saw value in LHH's global reach and end-to-end service offering, as they needed offshore recruitment, HR outsourcing, and outplacement services across multiple geographies. Moving to slide five, which highlights recent developments in the group's strategy to adopt AI solutions at pace to accelerate profitable growth. As an example, we've launched pre-screening agents in Adecco U.K., accelerating our agentic AI deployment and leveraging the Salesforce partnership and their Agentforce platform. The new agents enable a 24/7 exchange for candidates.
They allow recruiters to quickly receive a high-quality list of candidates that can then be considered for the interview stage and reduce the need for recruiters to make pre-screening calls to candidates. They also ensure higher quality automated data capture. This is very positive, and we are very confident in its scaling potential, which will improve customer experience and reduce cost to serve. Akkodis Germany has launched new capabilities as part of its Modular AI Core Platform Suite, which numerous customers have used for over 10 years. The suite helps companies build AI models using low or no code with ready-to-use plugins and agents. The new tools include a virtual assistant for brainstorming, intelligent analysis of documents and contracts, as well as code generation support and analysis. It is proven to deliver efficiency gains, cost savings, and faster project completion.
Another important development this quarter has been the launch of Our Potential. This is an exciting new technology venture backed by investments from Adecco Group, the majority owner, and Salesforce. Our Potential is uniquely positioned to support companies. It will leverage AI and agentic technology to help clients optimize workforce configurations and better distribute tasks between humans and digital workers, harnessing insights from the Adecco Group's rich labor data. We are convinced that Our Potential will deliver pioneering innovation at the speed and scale required in the world of agentic AI, and we look forward to updating you on its progress later this year. Let's turn to slide six, highlighting how the group navigates current macroeconomic uncertainty. To be clear, we are not directly impacted by shifting trade policy, and we have not seen an impact from trade policies on our trading activities to date.
The top left chart shows Adecco's flexible placement volumes in our largest countries from Q4 2024 to April this year, in percentage year-on-year terms. Volumes improved through Q1, and modest positive momentum continues. When we talk to clients, most do not mention a direct impact, although we've seen some slowdown in client decision-making, particularly in permanent placement. We'll continue to monitor developments very closely and adjust our operations accordingly. Let me now hand over to Coram, who will discuss the results in more detail.
Thank you, Denis, and good morning, everybody. To follow up on Denis's remark, changing trade policies have not impacted the business to date. Our business model is resilient, and we are committed to maintaining the 3% EBITDA margin floor annually. The group has a countercyclical cash flow profile and robust financial structure, which gives confidence in our ability to weather economic storms. Importantly, the group's cost base is highly flexible. During past periods of significant pressure, such as the global financial crisis and COVID-19, the group responded effectively, taking out SG&A expenses to deliver recovery ratios of 37% and 51%, respectively. Most recently, we've been managing the business in a more granular way than during COVID, selectively protecting capacity where we continue to see opportunities to gain market share while delivering a sensible 43% recovery ratio.
We're ensuring proximity and support to clients and looking for growth opportunities from strengthening MSP, statement of work engagements, and outsourcing activities. We're lowering cost to serve by centralizing tasks in hubs through digital delivery, automation, and the deployment of agentic AI. We're focused on delivering Akkodis Germany's turnaround and driving free cash flow with strict DSA management. We will remain agile with frontline capacity driving productivity. Around 10% of recruiters are themselves on flexible placement contracts, and there is a 20% attrition rate for that population. This means we can move quickly to lower the largest area of expenditure in the business. Put simply, we are ready to adapt to changing circumstances if we see them. Let's look at Q1's results for each GBU, beginning with Adecco on slide seven.
Group's revenues reached EUR 4.4 billion, 1% lower year-on-year on an organic trading days adjusted basis, and 3% higher sequentially with all segments improved. Adecco Group gained strong market share with relative revenue growth 130 basis points above key competitors. Flexible placement revenues were 2.6% lower organically, with volumes improving through the period. Outsourcing remained solid, up 6% organically, while permanent placement revenues were 12% lower organically. Enterprise revenues remained soft, while SME revenues were robust, rising 3% organically. On a sector basis, retail and food and beverage growth was strong. Autos and manufacturing were weak, while logistics was soft. Gross margin was healthy, reflecting lower permanent placement volumes and firm pricing. The EBITDA margin was solid at 3.1% and up 10 basis points year-on-year. The result reflects G&A savings, agile capacity management, and the favorable timing of fiscal income. Gross profit per selling FTE rose 2%, while selling FTEs reduced 4%.
We're right-sizing in tougher territories such as France, Germany, and the U.K., and we're protecting or adding capacity where we see continued opportunity, such as in Spain, LATAM, and APAC. Moving to slide eight with Adecco's new segment structure. Adecco's European operations performed well given challenging markets. In France, revenues were 9% lower, reflecting continued and broad-based market headwinds. Pressure from a handful of large clients impacted revenue developments by approximately 350 basis points. Logistics and autos were challenged, while manufacturing and healthcare were weak. The EBITDA margin of 1.9%, 60 basis points lower year-on-year, mainly reflects lower volumes. Headcount was reduced 6% year-on-year. Stabilizing client impacts, a strong pipeline, and restructuring actions will support future profitability. In EMEA, excluding France, revenues were 2% lower, with market share gains in most territories.
Turning to the largest geographies, revenues in Italy were 1% lower, with autos and manufacturing weak while logistics was strong. Revenues in Iberia rose 5%, driven by strength in food and beverages and consumer goods. In Germany and Austria, revenues were 8% lower, reflecting ongoing headwinds in manufacturing and logistics. Autos were soft, but the business remains well-positioned relative to competitors. In the U.K. and Ireland, revenues declined by 9%, with headwinds in consulting and construction. Recent large client wins are expected to drive stronger revenue momentum in the coming periods. The segment's EBITDA margin of 3% was 50 basis points lower year-on-year due to the current business mix and lower volumes, partly offset by SG&A savings. Moving to slide nine, Adecco America's revenues were 4% higher, and performance in North America significantly improved.
Revenues were 2% lower in the quarter, driven by new large clients and robust SME growth, and the exit rate was strong, at +4%. On a sector basis, consumer goods and manufacturing were strong, while autos were weak. In Latin America, revenues grew 14%, led by Argentina, Colombia, and Brazil, although Mexico was subdued. By sector, retail, food and beverages, and logistics were all strong. Adecco America's EBITDA margin at 1.1% was 50 basis points higher year-on-year, reflecting higher volumes, good cost discipline in Latin America, and ongoing optimization of cost to serve in North America, with FTEs down 17% year-on-year. Adecco APAC saw continued strong growth and share gain, with revenues up 11%. Within the segment, Japan's revenues were up 10%, Asia's up 24%, and India's up 16%. On a sector basis, growth was led by retail and consulting, while manufacturing was robust.
In Australia and New Zealand, revenues were 9% lower, reflecting softness in logistics. The EBITDA margin, at 7.4% and 260 basis points higher year-on-year, benefited from the timing of fiscal income. Excluding fiscal, the EBITDA margin was up 10 basis points, reflecting higher volumes and G&A savings. Let's look at slide 10 and Akkodis. Akkodis's revenues were 8% lower year-on-year on an organic, constant currency basis. Consulting revenues were 5% lower and staffing revenues 13% lower. By segment, EMEA revenues were 9% lower, reflecting increased pressure in Germany, where revenues were 15% lower, impacted by weaker demand in autos. Revenues in France were 6% lower, with autos and telecoms soft. Southern Europe performed well, with revenues in Italy up 5% and in Iberia up 13%, reflecting strength in life sciences and aerospace and defense.
North American revenues were 11% lower, impacted by the continued downturn in tech staffing and despite growth of 12% in consulting. APAC revenues rose 3%, with Japan up 2%. This reflects robust growth in consulting supported by high utilization rates. Australia was 3% lower but up 2%, including the recently acquired Barhead Solutions business. The GBU EBITDA margin of 3.5% was lower year-on-year, reflecting lower volumes. There is meaningful pressure in Germany coming from challenges in autos, with projects either stopped earlier than originally planned or where the planned start is postponed. The GBU's new President, Jo Debecker, is now firmly in role. Management is executing a turnaround plan in Germany to bring the unit back to profitability swiftly. Given current market dynamics, management will also continue to optimize operations in France and the US. Moving to slide 11 and LHH.
Revenues in LHH were sequentially stable and 5% lower year-on-year on an organic, constant currency basis. Professional recruitment solutions revenues were 7% lower, sequentially better and outperforming a tough market. Both placement activities and RPO remained soft. Gross profit was 5% lower, with gross profit in permanent placement 6% lower. Productivity rose 2%, with billing FTEs down 9%. Career transition and mobilities revenues were flat, a strong result given the very high comparison base. U.S. revenues were resilient. The business grew well in France and the U.K., and its global pipeline has improved. Coaching and skilling revenues were 4% lower, weighed by the progressive exit of General Assembly's B2C activities. However, B2B grew 45%, with a strong pipeline mostly related to AI upskilling programs. Ezra's revenues were up 5% organically, with a strong exit rate and record pipeline set to re-accelerate growth in upcoming quarters.
LHH's EBITDA margin was healthy at 7.7%, reflecting geographic mix, lower volumes, and G&A savings. Management is focused on delayering and right-sizing recruitment solutions while continuing to drive growth in General Assembly's B2B business and in Ezra. Let's return to the group results on slide 12 and review the group's gross profit bridge. In Q1, on a year-on-year basis, currency translation had a positive impact of 5 basis points. Flexible placement had a negative impact of 10 basis points, reflecting ongoing country mix. Permanent placement had a 15 basis point negative impact, primarily reflecting lower volumes in Adecco. Career transition had a 5 basis point positive impact. Outsourcing, consulting, and other had a 25 basis point negative impact, primarily due to challenges in Akkodis, Germany. In total, the gross margin was 40 basis points lower at 19.4%, a healthy result given the current business mix.
Moving now to slide 13 and the group's EBITDA bridge. The EBITDA margin, excluding one-offs, was 2.4%, 40 basis points lower year-on-year. This solid result, in spite of uncertain markets, reflects a 45 basis point negative impact from organic gross margin developments, a 30 basis point negative impact from operating leverage, with SG&A expenses down 1% year-on-year due to agile capacity management and good cost discipline, and a 30 basis point positive impact from the timing of fiscal JV income. This relates to the industry's support fund, from which we receive payments every year, although the timing does move between quarters. We remain confident in the performance of fiscal, and we anticipate a full-year contribution of approximately EUR 30 million, the majority of which we've received in the first quarter. Let's turn to slide 14 and the group's robust financial structure. The cash conversion ratio was strong at 105%.
The SO was best in class at 52.5 days, a half day lower year-on-year. Cash flow from operating activities was in line with normal seasonality at EUR -144 million and EUR 77 million below the prior year period. On an underlying basis, approximately two-thirds of the year-on-year differential was driven by working capital absorption for growth, with the remainder reflecting lower business income. End Q1 net debt was EUR 2.7 billion. The net debt-to-EBITDA ratio, excluding one-offs, was 3.2 times, weighed by lower EBITDA. We remain firmly committed to bringing the net debt-to-EBITDA ratio to 1.5 times or below by the end of 2027, absent any macroeconomic or geopolitical disruption. The group has strong liquidity resources, including an undrawn EUR 750 million revolving credit facility and low-interest expenses.
It has fixed interest rates on 80% of its outstanding gross debts, no financial covenants on any of its outstanding debts, and a well-balanced bond maturity profile. Moving to slide 15 and the group's outlook. Volumes improved through Q1, and modest positive momentum continues in Q2. For Q2, the group expects gross margin to be lower sequentially, reflecting normal seasonality. It expects SG&A expenses, excluding one-offs, to be modestly lower sequentially. Management is focused on managing capacity with agility to balance share gain and productivity in uncertain markets, in addition to securing G&A savings. Back to you, Denis.
Thank you, Coram. Let me finish today's presentation with slide 16 and today's key takeaways. First, we have delivered further market share gain with solid margins in the first quarter.
Second, we have delivered on our commitment to return Adecco US to growth during H1 2025, and we are swiftly executing a turnaround plan in Akkodis, Germany. Third, we have been and will continue to take a granular approach to operating expenses through agile capacity management and strict cost control to protect profitability. With that, we would like to thank you for your attention and to open the lines for Q&A. Thank you, operator. Up to you.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As we enter the Q&A session, we ask that you please limit your input to two questions. At this time, I would like to remind everyone to ask a question. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again.
One moment, please, for your first question. Your first question comes from the line of Suhasini Varanasi of Goldman Sachs. Please go ahead.
Hi, good morning. Thank you for taking my question. The slide 6 showed a pretty interesting trend. I was wondering if you could give some more color by the different GBUs on how the trends have evolved over March and in the second quarter to date. At the group level, does this mean that you have maybe reached a break-even on growth or potential for that in the second quarter? That would be my first question. The second question is generally on defense. I think earlier, I think around the full-year results, you did talk about how there was incremental growth potential or you were seeing some increased interest from your clients. How has that basically trended through the quarter, please? Thank you.
I think, Coram, we take the first one, then I'll take the second one.
Thank you, Suhasini. Okay, so in terms of trends on volumes, I mean, you're right, the chart does show the modest positive momentum that we've seen. We saw that all the way through Q1. It continued after we did the call with you for the full year. As you can see, it has continued into Q2. These are obviously flex volumes in the Adecco business, but that's a big driver of our revenues. It's been very broad-based, so we have seen consistent modest improvement across all of our major territories. That's continued in April and Q2 to date. There has been no major shifts in those trends. The one very positive thing that I'll call out and reinforce is that obviously our North American business has now returned to growth.
To your question about whether or not this means we're close to break-even, on volumes, yes, it does mean we're close to break-even. It gives you a sense of the positive momentum that we see. Volumes in the other businesses vary. It's very dependent on which parts of the business that you're seeing. We continue to see good momentum in Career Transition. Perm is under pressure, as we know, in a number of our different business units, although our competitive performance in LHH has been very effective. In Akkodis, there's more pressure in IT staffing. Consulting and solutions is very dependent on where you look in terms of geographies. We have growth in Asia-Pacific, growth in the US consulting business. Italy and Spain are strong. As we mentioned, there is some pressure in Germany and France.
Hopefully that gives you a sense of what we're seeing in terms of volumes.
Yes, that's very helpful. Thank you.
With regards to the defense sector, it's definitely going to be one of the tailwinds that we can have for our business, and particularly for Akkodis. At the moment, our defense represents approximately 5% of the group revenue. Of course, the majority of it is in Akkodis. We are really positive about the outlook. However, we are yet to see the full impact of that. We hear that things are going to come in Germany, particularly once the stimulus package is underway. I think there's going to be momentum. We don't see yet the full impact. The good news is we've renewed in France, where we also do quite a lot. We've renewed 100% of our framework agreements with the major defense players.
That's good. We've won also a significant contract in Japan, which will give us also momentum. I think we are in a good place. Our space in defense has grown 2% in Q1, so that's good. There's much more to come. We are in a great place to serve the defense sector because we have great reference with very strong clients. We also believe, particularly in Germany, the discussions that we have with the major defense clients are they want to see they want to change the way they operate. Actually, the strong footprint that we have in auto is going to help us bring methods and technologies and know-how into the defense sector. The defense sector has to think differently in the way they design the products and the systems.
All the knowledge that we have, particularly in Germany and in autos, is transferable with high added value to the defense sector. So much more to come on that, but we have not seen yet, of course, an impact in Q1.
Your next question comes from the line of Andy Grobler, BNP Paribas. Please go ahead.
Hi, good morning. Can I start with Akkodis, please, in Germany? That company has had a pretty rough ride over the past couple of years. How do you recover that business and get it back to profitability? And can you just kind of talk through the competitive dynamics in that market at this point? Thank you very much.
Thank you, Andy. Yes, Akkodis Germany has been not the easiest ride of the past quarters. Two things here.
The business had a shift to be done from more of a legacy technology into more of the digital and smart industry business and a high exposure to the auto sector. On this one, we're definitely suffering from the difficulties in the auto sector. The auto is almost 40% of the revenue, so that's of our business. That has impacted us significantly. We still have strong relationships with all major OEMs, but of course, given where they are, we see projects that are postponed, delayed, downsized, and that has an impact on our bench profitability. We have a low utilization rate around 85%. We have pressure points here. I would say overall, to your question versus competition, we are more or less in the same relative position. Everybody's suffering in Germany. We have, of course, our bigger exposure to autos impacts us probably a bit more.
We have and are executing a very strong action plan and turnaround plan. I am very confident, just like we've been able to turn around, and we are turning Adecco in the U.S., we will turn around Akkodis, Germany. What are we doing? First, strong portfolio management. There are going to be some business disposals on non-core assets. That is one. Second, we have a restructuring plan underway, and it is being executed, and it is going to help us right-size the business. We have a real estate optimization project that is going to help us on cost. We are accelerating our offshoring to make sure that we are more competitive, and that is also what our clients are asking, of course, particularly the car makers. We are also diversifying our business. As I mentioned, the defense sector is promising.
It's today around 10% of the business, but we believe that there's very good momentum. I think this plan is going to deliver. We will ensure that we deliver profitable exit rates by the end of the year. It is absolutely feasible, and I am really confident in the way the team is focused on that. The auto sector moving forward is going to be, again, a growth sector. The major car makers are doing very strong restructuring plan on their side, and they're telling us they will need more outsourcing. They need more flexibility. They're telling us that we have to keep the know-how because they will need it. Once they have done their own restructuring, they will need the flexibility and the competitiveness that we bring.
In a nutshell, yes, we're impacted more or less in line with competition, probably more exposed to autos. We have a very strong action plan. We will exit Q4 in a profitable way, the German market, Akkodis, Germany.
Maybe just to complement very briefly, autos is a pressure point for Akkodis, but it is still a resilient sector for us with good prospects, as Denis mentioned. Across Akkodis, it's down about 5%. I want to give you a sense of the scale. Whilst Germany is a challenge, we have a very clear turnaround plan, and the margins for Akkodis, excluding Germany, would be above 6%. Obviously, we recognize we have to fix Germany.
We will.
We just want to give you a sense of how the rest of the GBU is doing.
Great. Thank you very much.
Your next question comes from the line of Simona Sarli of Bank of America. Please go ahead.
Yes, good morning and thanks for taking my questions. First of all, a couple of follow-ups on Akkodis and specifically the reorganization in Germany. Can you talk a little bit more about the exit rate of Akkodis in this region in March? Also, how should we think about overall the organic growth trajectory for the rest of the year? Secondly, a quick question on the one-off. I remember that at year-end, you were guiding for one-off for the year at EUR 30 million. Are you still happy with that? Also, for your guidance going into Q2, can you quantify a little bit what you mean with a sequentially lower SG&A? Thank you.
Sure. I'll take those. I mean, on the exit rate in Germany, it was pretty consistent through Q1.
We are very focused on turning that business around with the restructuring plan that Denis talked about. We do not see an immediate improvement in that. The challenges in German auto will persist for a little bit of time. On the one-offs, I think you will notice if you look at the back of the deck on the financial framework that we have increased our expectations for one-off costs modestly for the full year. We were at EUR 30 million when we spoke in Q4. We are at EUR 50 million as our expectation for the full year now. That really does reflect our initial estimates on the cost of the German restructuring. We are being very disciplined around one-off costs. We brought them down considerably from where we were a couple of years ago.
We intend to continue that discipline, putting things above the line when we believe that they are simply straightforward capacity adjustments. A small increase in our expectations for one-offs to EUR 50 million, but it is still well below the levels that we have been at previously.
You heard me say that, and I will say it again on these one-offs. It is also a management mindset that we are instilling. There has been probably in the past too much of this magic money perception, which we are now stopping. When the business is impacted by maybe not so good decisions, then they take it on the P&L. I think that message percolates well in the company now. We make people accountable for their decisions.
To pick up on your question around SG&A, I just want to step back for a moment and talk about what happened on SG&A in Q1. Our SG&A was down 1% year on year. You have seen that from the numbers. Our FTEs were down 6%. That reflects the ongoing drive to make sure that our G&A costs are kept firmly under control, as well as the way in which we are managing our sales and delivery capacity. I tried to give you some flavor as we were talking through the regions. There are areas where we have gone further than that because the markets are under pressure. There are areas where we have held capacity, and there are areas where we have invested because we see opportunities for growth and share gain.
The differential between that headcount reduction of 6% and the SG&A being down 1%, there's a big driver, which is obviously the merit rises, the wage inflation that we give to our own teams at the beginning of the year. It varies by country. We peg it to inflation, but you should assume that it's running at about 3%. It happens at the start of every year. It does create a differential in the first quarter between FTE movements and the SG&A number. We also had a couple of minor timing and one-off expenses in SG&A in Q1. On the corporate side, timing of insurance charges, but also we did, as you've seen, a couple of small M&A deals. We had some fees relating to those which came through in Q1.
Because we've been so effective at managing G&A, because we brought that base down, even relatively small amounts create a bit of a swing in percentage terms. On the selling side, again, picking up on the point that both Denis and I made about restructuring, we had some modest restructuring charges go through our selling expenses above the line. Costs are firmly under control. G&A remains tightly controlled. There are a couple of areas where we will continue to look for further G&A savings. We've spoken about France and the US, and we're managing selling costs with agility. In terms of the reduction that we'd expect from Q1 to Q2, it's really the absence of those one-time items. You should work on the basis. It's high single-digit millions of EUR. Hopefully that gives you a steer.
Thank you.
Your next question comes from the line of Remi Grenu of Morgan Stanley. Please go ahead.
Morning, gentlemen. Thanks for taking my questions. Two on my side. If you could make a little bit of an update on how the restructuring is progressing in France and how much cost saving you expect to generate from that and what would be the timing there. The second is to come back on that SG&A comment. I just want to understand the kind of EUR 25 million breach between your initial guidance, which was kind of pointing toward EUR 950 million, and where you got. Surely the 3% inflation was an assumption that you've had to make for that EUR 950 million. Trying to understand what this one-off you're referring to is, is that the entirety of the EUR 25 million? If so, should we expect that to completely revert next quarter? Thanks.
Regarding France, I think the restructuring is well on the way, and it is mostly behind us. That is good. We, of course, continue to adjust to the market dynamics. The margin in France reflects mainly the lower volumes that we had. Even though the market is not that good at the moment, we are improving our performance relatively to the market. We are reducing the gap. As you know, we have been a bit lagging behind for some time. We are now reducing the gap, and I am quite positive that as we progress in the year, we will be above the market in terms of growth. That is positive. We also put a new leader in Adecco in France. He has put in place an improvement plan. We really focus on client efficiency, on continuing to digitize our delivery platform. We are improving fill rates.
We're focusing on new sectors, construction, nuclear. We've secured some large contracts, which makes me positive in the outlook of France moving forward. Of course, we're really adjusting selling FTEs because the market in France is not the strongest one at the moment. We are, again, adjusting capacity in a very granular way. That's where we are.
Just picking up then on the follow-up question on SG&A, I mean, obviously, the wage inflation was built into our guidance. That's something that we do every year. The one-offs, we were not anticipating. These are small items, timing, as I mentioned, of insurance, advisory, and some modest restructuring charges. As I said, assume it's around EUR 10 million and that we would not expect those to repeat in Q2. It doesn't explain all of the difference.
The rest is really about the way in which we're managing the business. We are very tightly controlling G&A. The savings that we've secured last year continue to flow through the P&L, but we do have some modest positive momentum in the business, and we are adjusting selling capacity in a very dynamic and very granular way to make sure that we balance productivity and share gains. You can see the benefits of that in terms of the sequential improvement on the growth rate from Q4 to Q1 and the ongoing share gains that we're delivering. It is all about the agility with which we're managing capacity, and we're responding to the momentum that we see and the market conditions that we're facing. To be very clear, we are firmly committed to our 3% EBITA margin floor on an annual basis.
We recognize it does not happen every quarter because of the seasonality of the business, but even in a difficult environment, we are absolutely clear that we can secure that 3% floor. You can get there in two ways. Get there by continuing to see momentum and capitalizing on it and getting operating leverage as a result. Or if market conditions or the momentum starts to soften, we will adjust our sales and delivery capacity, and we will do so quickly. I mentioned in my remarks, we have flexibility built into the cost base. We have 10% of our sales and delivery capacity on flexible contracts. We have attrition rates of around 20%. We can adjust very rapidly if the momentum that we see right now starts to soften or stall.
We're following very closely volumes on a weekly basis at a very granular level in each country, in each area of a country. Everybody is really briefed about that clear and granular understanding of what's happening on the market. It's so fluid that you need the people to be on it and to understand where it's moving, where it's stopping, where are the opportunities, where should we adjust. Everybody is really, really briefed on that surgical way of looking at the business.
Very clear. Thank you very much.
Your next question comes from the line of Will Kirkness of Bernstein. Please go ahead.
Thanks very much. Two questions, please. Firstly, just coming back to that 3% floor, I think. If the first half sort of ends up in the 2.4%-2.5% area, that implies a decent pickup in the second half.
I think last year, maybe the difference was about 30 basis points. Is that just a factor that last year things were deteriorating and this year things are looking better? It is a function of the top line. The second question was just coming back to the comment on the 350 basis points of pressure from large clients in Adecco Europe. I just wondered if that is a sort of volume thing or if it is price-led and whether you could then talk a bit more about kind of fee rates versus wage growth more broadly. Thanks.
I will pick up on the first question, and Denis will pick up on the 350 basis points for large clients in France. To your point, yes, it is absolutely a function of the top line.
As you rightly pointed out, last year, the trajectory worked against us through the year, which meant there was less of a seasonal pickup in the second half margins versus the first half. As we have said, we are seeing positive momentum in the business. You saw the graph on slide six on flex volumes. It shows what happened in Q1, and it shows that that momentum of a modest nature, but nevertheless there and broad-based, has continued into Q2. We are managing the business to make sure that we capitalize on that and we take market share. If that continues, then that would obviously give us operating leverage and create stronger second half margins. Obviously, if we face a situation where volumes start to soften, then we will take action very rapidly on our sales and delivery capacity.
As I have already said, the business is flexible in terms of its cost base, and we are managing this in a very granular way. I hope that gives you a sense. There are several ways in which we can get stronger margins in the second half, and we are fully committed to that 3% EBITA margin floor.
Absolutely. With regards to your second question, the 350 basis points that you referred to is linked to France and some large clients' impact. If you remember well, we mentioned also in Q4 that we have our top three clients having intrinsically negative impact because of their own business. I will say a few words on pricing first. Pricing is solid. Pricing is firm. Of course, we are in competitive markets across the board, but overall, our pricing is really solid.
We have, of course, follow bill rate versus pay rate, and the spread there is still slightly positive. That demonstrates that we hold on on pricing, and they said the solid gross margin demonstrates that. Now, if I go back to France, we had this 350 basis points impact of a few large clients, a handful. And we also had a negative impact on healthcare due to a change in legislation in France. That has impacted. Manufacturing, autos, logistics remain weak, but we have some better momentum in food and beverages and retail. We also won some significantly large contracts in France towards the end of the past year and the beginning of this year. That makes me very confident that, again, as I said earlier, that we're going to catch up on the market. We've already reduced the gap versus market in Q1 versus Q4.
I am very confident that as we progress in the year, we will be above the market in comparative terms at some point in the year.
Maybe if I can just complement that by touching on your question about the relationship between fee rates and wage growth more broadly. There is a pretty much 100% correlation in the Adecco business because we take the wage rates and we apply a multiplier to get to the bill rate. As Denis mentioned, the spread between bill rate and pay rate has been modestly positive again. The multiplier is stable in Adecco despite the country mix working slightly against us, which means we are seeing the benefits of modest wage inflation that is out there in the global economy flowing through in the top line.
Very clear. Thanks very much.
Your next question comes from the line of Simon Le Chipre of Jefferies. Please go ahead.
Yeah, good morning. First of all, in the U.S., I have kind of a two-part question. First of all, to which extent is the improvement driven by easier comps and new business wins as opposed to some underlying volume improvements? And second part, in the U.S., you mentioned strong performance of consumer goods. Just wondering if this is driven by any pull forward of demand from U.S. consumer ahead of tariffs. Secondly, you mentioned that you have not seen any tariff impact overall, but you kept mentioning manufacturing and auto getting weak. Yeah, just trying to reconcile this. Also, we see Germany, France, it is very weak, so it does not seem to show any improvements. Lastly, just quickly on what is the driver for the nice uptick of organic growth in APAC in Q1 as opposed to Q4. Thank you.
On the U.S., and I think the main thing to the U.S. is the turnaround in Adecco is delivering results. The plan is delivering results. They're still on the temp market. They're still a pretty low penetration rate at 1.59% in April. The U.S. market temp volumes are still negative. April was -4.6%. Our March was a bit worse at - 5.1%. I mean, the market is not fantastic. Our performance, our absolute performance is one that demonstrates improvement. We're at - 12% in Q4. We are at - 2% in Q1 and an exit rate at + 4%. It's the result of several things. We had, and we mentioned in the past that we had some large client losses, and they are behind us. On top of that, we had some very nice large client wins. It's not only a comp base.
It's also that we've won some very large clients. That explains that in Q3 last year, we were at -16% on large accounts. We are now at +1% in Q1. The SME business is also getting traction. In Q3 last year, we were at -5. In Q1 this year, we are at +3, and it's linked to the branch revitalization program that is well underway. There is momentum. We also have good traction with MSPs. The volumes that the Adecco business delivers through Pontoon, our MSP, are also improving. There are a lot of things that we're doing and executing rigorously that put us in this situation. I think it's really promising, and I'm quite positive in what's going to happen in Q2 and Q3.
On the business side and the consumer goods that you mentioned, actually, we have a very strong dynamic in retail. We grew 40% in retail, 11% in manufacturing. Autos is soft and negative. All that, back to your question on tariffs, as Coram said, we do not see—of course, we are not directly impacted at tariffs, but we do not see so far any visible impact on tariffs. It is quite early, and clients are more in a wait-and-see mode than anything. A few days after Liberation Day, we went really out to talk to so many clients, and we reached out to our top 100 clients to see where they were. Of course, there was a variety of situations, some depending upon where they make their revenue, where they manufacture, depending upon their dependency on supply chains.
More or less, the uncertainty makes such that they're more waiting to see what's going to happen. Yeah, uncertainty is in everybody's mind. The only impact that we see so far from tariffs is the slowdown in permanent recruitment because, of course, when you're uncertain, you don't necessarily bet on recruiting more people. On the other side, it brings some momentum, I believe, in the flex labor because even though you have some work to do, you flex your workforce. I don't think the weakness in manufacturing and automotive sectors are linked to tariffs because they were already weak towards the end of this year. If I look particularly in the automotive sector, it's broad-based and particularly linked to this—particularly the German carmakers that have to do their own adjournamento to be ready for the quarters to come.
If I pick up on APAC, revenues in our Adecco APAC business were up 11% with good share gains. It is very broad-based. If I look at it on a territorial basis, Japan was up 10%, Asia up 24%, India up 16%. The only area of pressure was Australia, where it was down 9%. Australia is quite a tough market for the industry right now, and logistics is soft. It is very broad-based in terms of territories. SME growth was very strong. Enterprise was also good. If we look at sectors—retail, IT tech, manufacturing, consulting—they all showed good growth. I think the key point about APAC is we are very well positioned there, and this is structural growth. It is the same if you look at Battam as well. We see very good growth, and we have a very good competitive position in those areas.
They are helping to drive the overall Adecco Group growth rate.
What I like also in these two regions is they not only grow, but they also improve their margins, which means we are able to improve the margins as well as continue to be a bit more to fuel this growth with strong capacity. I think that is—and it now represents a significant piece of our revenue. That portfolio, that geographic portfolio that we have puts us in a very strong position for the future.
Thank you. A quick follow-up on that. I think it was up 14% in Q1. Is there any hyperinflation impact in this 14%?
No. I mean, a very modest amount in Argentina. Even if you were to exclude that, you would still have strong double-digit growth.
It is competitive positioning, making sure that we're capitalizing on the growth opportunities in a number of territories and driving share. We have a very strong team there. They're our warriors.
Thank you very much.
Your next question comes from the line of Konrad Zomer of ABN AMRO. Please go ahead.
Hi, good morning, all. I've got one question. It's about your ongoing improving momentum throughout Q1 and Q2 to date. Are you willing to share with us if that improving momentum also applies to your businesses in Italy, France, and Germany, please?
Yes, we are willing to share, and yes, it does apply to all of the businesses that you've mentioned.
Great. Thank you.
Your next question comes from the line of James Rowland Clark of Barclays. Please go ahead.
Hi, good morning. I've just got one question, please.
I'm just intrigued by your comments about managing costs and capacity against your desire to take share. It seems, based on your presentation, that you're taking share in really most of your markets, or at least you've got plans to take share. Is it therefore fair to say that you're carrying a few more consultants than the market average relative to your market positions? Therefore, do you need or do you not need to add lots of capacity should the market improve? A follow-up to that would be, what does that mean for your gross profit to EBIT conversion ratio from here, even when the group returns to growth in the near future? Thank you.
Let me take the market share gains dynamic, and then Coram will be super happy to talk about the EBIT conversion ratio. First of all, it's a mindset.
Market share gain is a market share gain is a mindset, and that's what we've educated our teams is you win because when you win, you prove that you're relevant with your clients and you create a better future. We do that by selectively protecting capacity. Really, as I said earlier, we're super, super granular. We add more FTEs where we see the opportunity. Even though we've gained share, we've also improved productivity. We've improved productivity in Adecco; we've improved productivity in LHH. Then we've reduced FTEs. We gained share, but we've also reduced FTEs in absolute numbers, not massively, 1% from Q4 to Q1. This is really a lot of, as I said, very surgical implementation of the plan to make sure that we capture everything that we have. That's one thing. The second thing is it's also about the efficiency with our clients.
The time to fill, the fill rate, the way we implement technology to be the first one to respond, to have the best profile in contracts where it's the fastest that replies, that wins, is critical. That's also how you gain share within contracts. We've also put specific incentives that balance nicely this growth mindset with profitability. We talked about the pricing. We're not sacrificing pricing. It's just more it's the energy, it's the mindset, and the competitiveness that make us win this market share. If market improves, yes, we will add capacity. That's what we do. We will with the same granularity. It's not going to be across the board. It's not decided in Zurich, but they know. You see that in APAC, in LATAM. APAC will add a few more people, not many, because we still have some productivity to gain.
Of course, we are ready to capture every single positive opportunity.
If I can complement that and pick up on the point about drop-down ratios. As Denis described, we're being very granular and very forensic in the way that we're managing capacity. It's not that we have a blanket approach to this. It's not that headcount is going up everywhere or down everywhere. We are literally adjusting it country by country, sector by sector. We have protected capacity where we see opportunities. That's absolutely clear. Our recovery ratio, as I mentioned in the script in 2024, was 43%. That's a little bit lower than the 50% that we've steered to, particularly, for example, in COVID. That means that in the early stages of a recovery, we don't need to add capacity. We can drive the productivity.
That means that the drop-down ratio would definitely be around 50%. It may even be just a little bit higher. It does not last forever, but it gives you a sense of how we are managing it. The other aspect maybe to pick up on is you can see in our gross profit bridge where the pressure points are. A lot of it is about mix. Obviously, if we continue to see momentum, then you would expect to see some of those mix pressures alleviate and the gross margin improve.
Definitely, if there is a market pickup, we believe that clients will again go more into permanent recruitment. We are well positioned for that. As you know, permanent recruitment has very nice gross margins.
Excellent. Thank you.
There are no further questions at this time.
With that, I will turn the call back over to Denis Machuel, Chief Executive Officer, for closing remarks. Please go ahead.
Thank you. And thank you for listening to us, and thank you for the exchange that we had today. Just a few things to keep in mind. Yes, there is uncertainty, but as you could see, it has not impacted our business so far. We are continuing to gain market share. We are executing our strategy with a rigorous mindset. We are able to prove that when there is an area of focus with a turnaround plan, we deliver on the turnaround plan. This is what is happening in the US. This is what we are going to do in Akkodis Germany, which has a pressure point at the moment. Overall, we will do everything to capture every single opportunity. As we said, we are super agile.
If headwinds come, we will adjust. If there are positive perspectives, we will inject capacity to continue to outperform. Thanks a lot for this exchange, and we look forward to exchanging again with you in Q2. Thank you very much, and have a great day.
Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask that you please disconnect your line.