Adecco Group AG
SIX:ADEN
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
21.56
41.41
|
Price Target |
|
We'll email you a reminder when the closing price reaches CHF.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Ladies and gentlemen, welcome to the Q1 results 2020 analyst conference call and live webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Nicholas de la Grense, Head of Investor Relations. Please go ahead, sir.
Good morning, and welcome to Adecco Group's Q1 2020 Results Call. On the call today, we have Alain Dehaze, group CEO; Hans Ploos van Amstel, outgoing group CFO; and Coram Williams, our incoming CFO. As usual, before we start, please take a look at the disclaimer regarding forward-looking statements on Page 2. On today's agenda, first, Alain will give a brief summary of actions being taken across the business in response to the COVID-19 crisis, followed by an overview of the highlights of the quarter. Hans will then review the group's financial performance, providing some additional color to help you better understand how the crisis is currently playing out. Alain will then provide some brief closing comments before we open the lines for Q&A. So with that, I hand over to Alain.
Thank you, Nick, and good morning, ladies and gentlemen. Welcome to our first quarter results analyst and investor call. COVID-19 is at the forefront of everyone's mind. So I will begin there. I'm sure that you are all interested in the financial impacts, and we will come to that. But first, it is important to recognize that this is not only an economic crisis but a public health one. That requires a different approach to a typical downturn. And it means we have to perform across multiple dimensions. I would like to highlight some of the ways that we are responding to the crisis to support our employees, clients, candidates and communities. Our primary focus has been on securing the well-being and safety of our colleagues and associates and ensuring business continuity to support our clients. We mobilized more than 30,000 of our people to work from home with more than 28,000 still doing so today. Where we have offices still open, we have reconfigured workspaces and made protective equipment available to ensure that our colleagues, clients, candidates and associates are always safe. And we are continuing to help individuals find work and help our clients to meet their human capital needs. Remember that more than half the economy is still open, and we have more than 400,000 associates at work every day. We were recently able to help an e-commerce client hire more than 10,000 associates in just a few weeks, screening more than 60,000 applications in a fully virtual way. We are also making online learning resources and webinars available for free from LHH and General Assembly. And we are playing a leading role in helping the world get back to work safely, as a founding member of the human resource solutions industry alliance, to develop clear health and safety protocols for COVID-19. As you see, through the crisis, we remain operationally disciplined and focused on playing a positive role in society, in line with our purpose to make the future work for everyone. Coming to the first quarter results. While the first quarter was a challenging quarter due to COVID-19, the group delivered a solid performance. Performance in January and February was good with the rate of sales decline stabilizing and a number of businesses growing, for example, in Italy, Japan, Iberia, Rest of World, LHH and GA. From March, the quarter was overtaken by COVID-19 and the financial results clearly deteriorated. Nevertheless, we continue to improve our gross margin, up by 30 basis points organically in the first quarter, the seventh consecutive quarter of improvement. The EBITDA margin was impacted by the sudden slowdown in March, declining 80 basis points organically for the quarter. In the crisis environment, we maintained a disciplined approach to cost management without compromising our strategic investments. In GrowTogether, we launched our Integrated Front Office in Japan in the first quarter with further rollout in France and Spain in the second quarter. We leveraged the PERFORM method to drive engagement in a work-from-home environment. And we also continued to build our digital products pipeline to underpin 2021. On the Innovate pillar of our strategy, we continue to invest around 30 basis points of our margin in the Ventures. While the crisis clearly impacts the Ventures, too, we strongly believe it makes sense to continue to invest through the downturn to realize the significant long-term opportunity. Finally, in this uncertain environment, I would like to highlight the strength of our balance sheet and liquidity profile. Our net debt-to-EBITDA at the end of March was 0.3x with limited near-term refinancing needs. And we have EUR 1.4 billion of cash, supplemented by an undrawn revolving credit facility for EUR 600 million, and the countercyclical working capital dynamics of our business helped to offset any earnings headwinds. Nevertheless, as a prudential measure and considering the current environment, we decided to pause the share buyback. Before I hand over to Hans, perhaps just a few words on the changes to our Executive Committee. Today, we announced that Federico Vione, Regional Head of North America and U.K. and Ireland, General Staffing and LatAm, will leave the company. And I would like to thank him for the significant contribution he has made to the company over his 22-year career. I am pleased to announce that Corinne Ripoche, currently President of our Pontoon brand, has been promoted to Regional Head of North America, General Staffing and LatAm and will join the Executive Committee. Corinne will maintain her executive oversight of Pontoon. She has been with the group for more than 2 decades and has a strong commercial track record. We wish her every success in her expanded role. Of course, we have another important management change taking place at the headquarters. As we announced in January, Coram Williams has joined as our new Chief Financial Officer. And I'm very pleased to confirm that he has now started his new role as of 1st of May. Coram, welcome to the Adecco Group. We are very pleased to have you, and I'm personally looking forward to working closely with you as we navigate the current crisis and continue to position the company for future success.
Thank you, Alain. It's a real pleasure to be here. And I'm very much looking forward to getting to know all of you on the call as well as our shareholders over the coming days and weeks. I have to say, I do hope that we'll be able to do that in person in the not-too-distant future. But in the meantime, thank you.
Thank you, Coram. For sure, Hans is and will be supporting Coram's onboarding over the next month and will leave us at the start of June. I would like to thank him for everything he has achieved for the group over the last 5 years. We have moved forward a lot as a company. And Hans can take significant credit for that, including helping us to shape the Perform, Transform, Innovate strategy and the GrowTogether transformation program. We will miss you, Hans. But I know that you will stay close. And so it's not that, that we have to say goodbye. Now I will hand over to Hans for the final time to take you through the financial performance in more detail.
Thanks, Alain. Let's start with the revenue. Revenue was down 9% in Q1 on a trading day adjusted basis. January and February results were in line with expectations at minus 4%, similar to the fourth quarter. The impact of locking down the economy as a result of COVID-19 started to unfold in March with revenue down 19%. It started in Europe, where we experienced a sharp drop resulting in a 13% decline for the quarter, following the government shutdowns across many countries during the month of March. North America was down 9%, in line with Q4 of 2019. The improvement in the underlying trend was offset by the first impact of COVID-19 in late March. Japan remained strong and in the Rest of World, we saw continued growth in Latin America. Looking at the country revenue results in more detail on Slide 9. This time, we will provide more information on the April results for the key markets to give you further perspective on the COVID-19 impact. This way, you can more clearly follow the revenue development from Q1 going into the second quarter. France declined by 14% in Q1, primarily driven by client shutdowns in automotive, manufacturing and construction. Professional Solutions was more resilient and down 3%. The French government was very quick to implement stringent lockdown measures, shutting down more than half the economy almost overnight. As a result, we saw revenues drop sharply in the second half of March. In April, the revenue run rate was down between 50% to 60%.In North America and U.K. General Staffing, revenues were down 15%. In North America, we saw continued softness in the manufacturing sector. In the U.K., the exit of certain low-margin business and Brexit-related uncertainty impacted the results. COVID-19 started to impact later in March and continued in April with a decline in the 20% to 30% range. In North America and U.K. Professional Staffing, sales were down 13% in the quarter, mainly driven by the U.K. In the U.K., lower client demand ahead of the planned implementation of the IR35 regulation had a material impact. Although the regulation has now been postponed, the change came too late. Most of our clients had already taken actions. In the U.S., the professional recruitment brands, Finance and Office and Legal, reported low single-digit growth. Modis declined mid-single digits while the other professional brands were broadly stable. April indicates a decline in the 20% to 30% range in North America and the 30% to 40% in the U.K. In Germany, Austria and Switzerland, the rate of revenue decline deteriorated to minus 14%. Germany and Switzerland are impacted by lower demand from clients in the automotive and manufacturing industries. April indicates a decline between 40% to 50% in Germany and 30% to 40% in Switzerland.Let's turn to the Benelux and the Nordics, where the decline was minus 15%. Here, the shutdown which started in March, also continued to impact April with a decline in the 40% to 50% range in the Benelux and 30% to 40% range in the Nordics. In Italy, the revenue decline was 6%, in line with the fourth quarter results. We were off to a strong start, back to growth in January and February, but the results weakened fast in March following the lockdown. The April decline is between 40% to 50%. We had another strong quarter in Japan. Professional Solutions continued to lead the growth. April indicates a deceleration but still positive. Iberia growing at plus 1% with strong growth in January and February, reversed in March with April down 30% to 40%. In the Rest of World, the Australia decline is impacted by our decision to focus more on value over volume, continued strong growth in Latin America. Career Transition and Talent Development saw continued growth. First, LHH grew 3%, still outperforming competition. General Assembly delivered 7% growth. However, the nature of the shutdowns, and in particularly, the social distancing measures, do have an impact here. And we saw slower growth in March and into April. In summary, we have seen the results declining fast in March as a result of the shutdown measures. And as we entered Q2, in April, we saw our revenue declining further to around minus 40%, showing that the lockdown of the economy following the spreading of COVID-19 has a meaningful impact on the results.People use the word unprecedented a lot at the moment. Here, you see what it means. The 2009 downturn was quite extreme. At the trough, our temp volumes were down almost 35%. But the slowdown was more gradual. It took 6 to 7 months post the Lehman collapse to get to that level. This time around, it took 4 weeks to get to minus 40%. So the short-term impact of locking down the economy takes us beyond 2009. This means we're in an unprecedented economic situation. The good news is that we see a stabilization over the last 2 weeks of April. Some regions are still deteriorating, but the countries that went into lockdown first are showing a little improvement. Let's now turn to the gross margin on Page 11. The reported gross margin increased by 20 basis points. Currency had a positive impact of 10 basis points. The Soliant divestiture had a negative impact of 20 basis points, leaving the organic gross margin up 30 basis points. Temporary staffing had a negative 10 basis points impact, driven by higher bench costs related to COVID-19, mainly in Germany, leaving a stable underlying pricing and mix trend. Permanent recruiting had 10 basis point positive impact, Career Transition added 30 basis points.Let's now look at the EBITDA margin. The margin was down 100 basis points to 3%. The Soliant divestiture had a negative 20 basis point impact. Hence, the organic EBITDA margin was down 80 basis points. The 30 basis points improvement in gross margin was more than offset by the 110 basis points increase in the SG&A as a percent of revenue. The sudden decline in revenue in March following the lockdown clearly had its impact. It is important to remember that we kept investing in the strategic agenda. We continue to roll out new technology and developing new tools for future productivity to deliver on the GrowTogether initiative. And we continue to invest 30 basis points in growing the Ventures. Let's now turn to the profitability for the key markets. It is clear that the unexpected slowdown in March impacted the profitability across all key markets. The markets where we operate with the bench model were more impacted. This is the case for Germany, the Benelux and the Nordics. Here, higher sickness rates and lower client demand linked to COVID-19 increased the bench cost. Note that in North America, U.K. and Ireland Professional Staffing, the margin decline is mostly driven by the Soliant divestiture, which reduced the EBITDA margin by 130 basis points. In Japan, we continue to deliver strong profitability. The decrease was the result of investing in the rollout of the Integrated Front Office solution. Finally, in Career Transition and Talent Development, the continued improvement is coming from good operating performance at LHH and reduced losses at General Assembly. Let's look at the SG&A in more detail on Slide 14. SG&A was flat organically. Gross profit per FTE was down 4% due to the lower revenues. The sudden drop in March had its impact. Remember, we continue to invest in new technology and the Ventures. The GrowTogether initiative continued. We are rolling out new IT tools and GrowTogether supported the results. We remain committed to deliver on our productivity goals. Turning to the cash flow and the balance sheet on Slide 15. Good cash flow in the quarter, albeit below last year, driven by the lower profitability and the timings of some payments around the quarter end, which was more favorable in 2019. Continued strong focus on collection, this remains key. Days of sales outstanding were stable at 53 days. Cash conversion at 90%, net debt-to-EBITDA at 0.3x, stable when compared to December of 2019. We think it's important to also provide some further perspective on the capital structure and liquidity during this time of uncertainty. We continue to have a strong cash position with 90% of our cash centrally available. We also have the EUR 600 million revolver, which is currently undrawn and is committed to 2025 with no financial covenants. The debt maturity profile is well-faced with limited short-term refinancing needs. We want to also give you an update on the share buyback that we announced at the end of Q4. We have decided to pause the share buyback. Given the unprecedented situation, we felt it prudent to wait until we have better visibility. We also remain prudent in the valuation of our balance sheet. Therefore, we decided to impair the German goodwill because in the current environment, it's not possible to provide a reliable forecast to support the goodwill. We remain committed to drive Germany back to profitable growth. And it's worthwhile to mention that we made solid progress in the second half of 2019. And this continued over the January, February period. We saw in March that the global shutdown started to have a material impact on the German economy. Coming to the outlook. In April, we saw the full impact of the lockdown, leading to a revenue decline of around 40%. The latest weekly trend suggests a stabilization in the revenue decline at the group level. We have to be careful not to overreact to the lockdown impact in the short term. In the medium term, we have the flexibility and operating disciplines in place to adjust appropriately and we'll do so. We have a strong balance sheet and liquidity, all this supported by the resilient through-the-cycle cash flow characteristics of our business. And with this, I hand back to Alain for the closing comments.
Thank you, Hans. Indeed, coming now to the concluding messages. We entered the crisis from a position of financial and operational strength with a very good liquidity, a strong capital structure and a robust IT infrastructure, allowing us to continue to serve our customers remotely from day 1, thanks to the transformation work we have undertaken in the past few years. While the second quarter will be a difficult quarter, we are taking appropriate short-term measures to minimize the impact while ensuring we leverage the crisis to accelerate structural improvements. As we manage the crisis, we also remain focused on strategic continuity. We will not let COVID-19 distract us from our longer-term goals and our Perform, Transform and Innovate strategy. And we have not compromised on our investments in GrowTogether, IT and the Ventures. To end and most importantly, I would like to express my gratitude to our colleagues around the world for their continued work and dedication through this exceptionally challenging circumstances. And with this, I would kindly ask the operator to open the line for the questions.
[Operator Instructions] The first question comes from Andy Grobler from Crédit Suisse.
I've got several questions, but I'll just keep it to three. You mentioned that LatAm was still growing. I know relatively small part of the group. But how much of that is inflation versus volume? Second question, with further goodwill write-downs, and I think all of the goodwill now in Germany has been written off, what are your longer-term expectations for Germany once and hopefully we go back into normal times in terms of margins that can be achieved and how that kind of sits with the structural challenges many of your clients are facing? And then third, in terms of usage of staff furlough schemes, can you update us on how much you have used and also the extent to which you are supporting or potentially supporting some of the wages of temps that have gone on to those schemes for your clients?
Okay. Let's start first with the last question. So I think it's very interesting to see that many governments have leveraged the recipe Germany and Switzerland have applied during the crisis of 2008, 2009, I must say, very successfully. And now on all sites, we are also leveraging that type of scheme, not only in Switzerland and Germany, but also in many other European countries. And you have seen also that U.K., in the meantime, and the U.S. have developed a similar, let's say, type of scheme. Now regarding government subsidies and so on, I would say that the impact in the first quarter has been very limited. And in the second quarter, it's a very dynamic situation because it fluctuates from country-to-country. You see that some countries are now already starting to say, okay, like France, 1st of June, there will be a different treatment and so on. So it's quite difficult to give precise figures. What I can tell you is that this will not fully compensate for the revenue decline, but it helps to mitigate.
Yes. Maybe some follow-up, Hans here. Just quickly on LatAm, there is a combination of volume and pricing. These markets are more inflationary. But I would say it's about half-half. So we're building and strengthening the business in Latin America. And we're pleased with the results because we are really gaining traction with the management team. It used to be more of inflation. And now if you look what we're doing, it's volume plus inflation. So it's good growth. And to give some color to your question on where we're coming, I think Q1, we really managed for the right outcome. We are -- if you look at the margin we delivered and the continued investments we're making, I think we have shown the operating discipline but also staying true to the strategy and investing for the future. And Q2 will be the most difficult quarter, I would say, because it's the midst of the lockdown. So I think that will all be a difficult one. And then what we're working on at the moment, to answer your question, is we're going sector-by-sector now that the economy is opening up so that we are rebuilding the margin here when -- in the second half when the economy opens up.
And then on Germany, I would say we have taken a prudent -- or we have done an act of prudence because there was clearly a disconnect with our last business plan with this reality. And you see the state of the German economy and the state also of the auto industry in which we have a significant part of our business. And so when we looked at this, we said, "Okay, let's take this or let's amortize this goodwill." It doesn't prevent to think that the German market remains the biggest market in Europe, that on the longer term, there is no reason why we should not come back to the average profitability of the group. And we will continue to work on this, putting our strategy and our effort at work.
Okay. And just finally, Hans, thank you for all your time here, and best of luck with whatever the future may bring.
Thank you.
The next question comes from Paul Sullivan from Barclays.
A few for me. Firstly, could you just remind us of the split by vertical or job type and tell us what is still growing or broadly stable during this period? And then your conversations you're having with manufacturers about restarting activity, how should we -- and their plans for the temp use as they sort of get back into action? And how do we see sort of temporary staffing recover in that process? Secondly, on SG&A, can you -- I don't know if you can provide any sort of broad-brush guidance in terms of the speed of reduction that we should envisage. And how quickly can you get back to the sort of recovery ratio of around 50%? And then finally, do you think Adecco sort of comes through this process a dramatically or drastically altered company? I mean do you view this as sort of a once-in-a-lifetime opportunity to accelerate your plans to fully digitalize back and middle office and cut down on branch activity?
Okay. Good. So for question -- let's start with the first one regarding the verticals. What we see is that, yes, for sure, we have a lower activity almost everywhere. But there are clearly some sectors with weaker performance. Auto, definitely, manufacturing, construction, retail, hospitality, these are the segments of our markets which are the most hit by the lockdown in the various countries. On the other side, we see that we have also some segments growing. [ Full time ], I would say, the e-commerce, in general, is extremely, let's say, growing. And with the e-commerce, also the link with the logistics. Then food and beverage manufacturing also growing, food retail, growing and then health care and pharma. These are the verticals on both sides. Now regarding the restart, and probably you have seen the initiative we have taken as an alliance in the industry. Encouraging, especially the government, first, and our customers after, but first, the government to restart work in a safe and healthy environment. And we know that for big, multinational, international companies, they have their own health and safety department and so on. And I would say they don't expect us to guide them. But there are many small and medium enterprise, but there are also a lot of governments looking at the best way to restart. And so that's why we have taken this initiative, first, focusing on around 10 countries and 5 segment of industries. And gradually, we will enlarge our actions. This is also related to the speed of the opening of the market. Now coming to your third questions regarding the recovery. Clearly, we see that there are today around 30 million people in temporary unemployment scheme. We think that it is a very good mechanism, like we have seen in 2008, 2009 in Germany and in Switzerland. It's a very good mechanism to get back economies and companies at work. Normally, we should see the same effect in this crisis, even if the crisis is different. And in this, we have also our temps. And okay, we anticipate today a slow gradual recovery. There is still a lot of unclarity. And we need, for sure, the second quarter to get more clarity on this.
Yes. And then on your question on SG&A, we normally give some color always on the quarter to come. I hope you appreciate that with still where we're at in Q2, right, the lockdown that Q2 will be from an EBIT point of view, I would say, a difficult quarter for 2 reasons. I mean the revenue is down around 40%. And what we need to, while we're acting on cost and getting some benefits on the short-term measures, we should not overreact because, like you say, the economy will also gradually open up again. In doing so, we will use what we call from gross profit to SG&A recovery ratio of around that 50%. And we shouldn't forget we have GrowTogether. GrowTogether, we continue to invest in. We talked about accelerating. We have continued with it. We're rolling out in Japan the new technology. We're preparing for the rollouts in Spain and France. The candidate app has gone into Germany and the U.S. And we're continuing to build the product pipeline for future productivity. So we should come out when the business opens up and the economy reverts back to a more normal level that we continue to have good productivity as we always have done on top of that GrowTogether.
And then on your last question regarding the once-in-a-lifetime opportunity to accelerate change, I think it's a great topic and a great point. And we are -- indeed, we are reflecting and working on this. A few figures. You have seen that we had -- at the peak, we had 30,000 colleagues out of 34,000 working from home in a remote way. Even today, we have 28,000. So it means that thanks to the investment we have done in the past, we are able to serve our customer and our candidate in a fully remote way. Now the question is will it stay like this and don't we need any branch anymore? We don't think so. First of all, because -- first, there is a question of the productivity. And can you make sure that you are at least as productivity -- as productive in a remote way than you are on-premise? We are analyzing this. Second point, are you -- there is also the social value of working. I think our people, our customers, our candidates, it's nice that they are talking to chatbot and phone. But at some point of time, they want to meet the human face behind the candidates, behind the recruiters, behind the salesman and so on and the other way around of also our people need alignment and physical contacts. Now there are also external opportunities. I can give you 2 examples. In a few weeks' time, we have been able to put all the courses of General Assembly from on-premise to online. So this was an opportunity in a lifetime. And another example, and that's why you see that up-skilling and re-skilling is extremely demanded. We put some of the courses of General Assembly online, free of charge on the Friday. And in a few days, we had around 100,000 [ subscriptions ] for that, so really a huge demand promoting the General Assembly service offering.
Great. And just around his comments, Hans, it's been a pleasure, best of luck.
The next question comes from Matthew Lloyd from HSBC.
I will also say thanks a lot, Hans, everything. And enjoy your new career in the world of private equity. I've got a buy on Adecco. So come, feel free to put a bid in for Adecco anytime, it will make me very happy.
Matthew, thank you. Everything is recorded.
For the benefit of the tape, it was a gag. Just going forward, you touched upon the various productivity measures and things that the company has been putting in over the last few years, there's been a proper effort also on trying to get the right gross margin. As we go into recovery, which is really we don't know when it will be, but that's what people are likely to look at Adecco as an investment thought, how much more productive do you think the business is capable of being?And then a sort of second question, how much more agile do you think it's capable of being? Because presumably, much of the labor market demand will be a result of change, people working from home or people having nearshoring or it will be sort of a rotation in the labor market potentially quicker than it's sort of lots and lots of people being rehired. I wonder how much work you'd put into looking at how quickly you can move Adecco into the areas where there is demand.
Good. For sure, we are currently working and preparing the next phase of -- or the next strategic cycle. You know that we are in the third and the last year of our 3-year strategic cycle. And on the 2nd of December, if my memory get me wrong, we will have the Capital Market Day, and we'll have the pleasure to present you the new cycle and the content of this new cycle. And for sure, productivity and leveraging automation, artificial intelligence and so on will be part of it. We continue to work on this, you have heard. Even in this COVID-19 crisis, we continue to invest 30 basis -- around 30 bps in nurturing our Ventures, Adia, Vettery, General Assembly, because we think that there is more to gain. You have heard my example that I have given that we have selected out of 64,000 applications, we have put more than 10,000 people at work for one of our customers. We have done that in a limited number of weeks in a totally virtual way. So I would say that type of practice demonstrates what this industry and what our company is able to do today for big customers, but tomorrow for other ones. Now regarding agility, you are perfectly right because if I mentioned the 32,000 candidates, the 30,000 colleagues who were working at home at the peak period, I forgot to mention that we had 40,000 other external colleagues working for our customers also on our infrastructure from home. So when you speak about agility, it's not only the internal agility but also providing agile workforce solutions for our customers, allowing our associates to work from home for our customers. So this is -- this has been really something we have been able to leverage, especially in the IT engineering sector during this COVID-19 period.
Super. I'll also say welcome to Coram as well because everybody seems to have forgotten him.
Thank you very much.
He doesn't look frustrated, Matthew, no worries.
The next question comes from Anvesh Agrawal from Morgan Stanley.
And thanks, Hans, first of all, for all your work, and welcome, Coram. I've got three questions. The first is can you just give a bit more details on what led to the management change in North America and the U.K. General Staffing? It seems like you're again sort of back to managing those 2 businesses separately. So a few details on that would be good. The second, we entered this year with kind of incremental cost savings of close to EUR 100 million. And given the situation the way it is, what are your thoughts on that? Do you still expect to fully realize that, given you're investing 30 bps in Ventures at the same time? And finally, just on the tax rate, I mean, obviously, it's inflated by what's happening in France. But just sort of as a guidance, what level of revenue run rate you would need again for -- in France specifically for the tax rate to be normalized?
Good. Thank you for your question, Anvesh. First of all, regarding the management change in North America, U.K. and Ireland, LatAm. So first of all, we believe that the strategy we have been following and putting in place is the correct one. Remember, we split the -- between Adecco and the Professional Staffing. We put the segmentation in the General Staffing at work with a dedicated channel for large customers to on-site and the other channel for small and medium customers. We have also put technology at work to drive productivity. But I would say, however, we were -- we are not happy with the speed of the progress. And we need to improve both the operational and the commercial performance management. So that's why we did this change. We have made -- but on the other side, we have made progress on the technology agenda also. On the productivity side, you have seen we have a good margin structure. And the change are meant also for us as an opportunity to move faster. That's the point. Now regarding U.K. and Ireland General Staffing now moving to Christophe Catoir, we clearly see that separating, let's say, the General Staffing the professional business in North America and the U.K. has improved the strategy focus. So the split will remain. But it's a great opportunity to leverage the proximity of the U.K. to our largest General Staffing business with France. And so this will also allow, on one hand, the U.K. to benefit from the best practices in this largest market and also to Corinne Ripoche to give and have more focus on the Americas and specifically the U.S. Perhaps last point, by keeping also or by bringing together the oversight for MSP business, Pontoon and the U.S. General Staffing, we think that it will bring synergies. And that's what we are expecting from this movement, too.
Yes. So maybe some more color on your question on our productivity. Remember, we have the GrowTogether initiative. So I'll give some more color on that for the year, which delivered on its objectives in 2018 and '19. And if you look in the first quarter, I think we delivered the right margin. It's hard to say it's a good margin, given where we're at with the corona situation. But if you compare, I think we're delivering good set of productivity with that revenue decline, which is supported by GrowTogether. Let's not forget, we're investing 30 basis points into the Ventures. We are, in this quarter, rolling out new technology in Japan. We're preparing for the rollout in Spain and France while also building new products to support the productivity for the second half and the years to come. So if you look at the outset, the margin we delivered with the investments, which are underpinned there, you can see that GrowTogether continues. In the second half, I think, and when the business gets back to normality, you will see that, I would say, easily reconsult into the margin because the comparison is more flat -- so when it normalizes. But if you look at our margin this quarter with the investments we have been making in IT, which is more than in Q1 of last year, you'll see that, that is continuing, and we continue to drive that program. And I think that's good. I think that makes us separate from some others. I think some people have stronger balance sheets like us. And I think we're still in the fragmented business so that we continue to invest in the technology agenda. Driving to these new tools is a positive. The tax rate is a little complex. It is, if you strip out some of the discrete benefits, at around 45%, which is driven by the lower level of profitability in France because the business tax in France is as a percentage of your sales, so as percent of profit increases. But that again will normalize when the situation post corona normalizes to that 32%.
And maybe just a follow-up, how should we think about the cash tax rate in that scenario? Does that sort of also go up materially going forward or at least in 2020 or not at all?
In 2020, yes, because the business tax, we have to pay. But again, it will normalize as when our profitability normalizes.
The next question comes from Sylvia Barker from JPMorgan.
Just a couple for me, please. Can you hear?
Yes. Absolutely.
Great. Sorry. It's technology, so just making sure.
We have a good infrastructure.
Yes, working from home testing. LHH and GA, obviously, a bit of a kind of near-term issue with social distancing. But it sounds like you're back on digital. But especially on the outplacement side, obviously, that's a good kind of offset normally at these times. Is that still having any issues? Or do you think that the rest of Q2 and the rest of the year should be kind of back to normal? So if we think about the countercyclical nature, then that should be behaving as normal. And then maybe just checking, obviously, you mentioned that you're investing, other kind of smaller companies, you're now investing. Do you think that the second half of this year is a good time to actually start buying more, presumably a lot of the small players, especially [ gas perm ] and maybe some of the professionals will be struggling, given they don't have the same tools as you and maybe they're left behind?
I can start with the second one. So now regarding merge, acquisition and so on, that we have and we will continue to stick to our policy. We are always looking at opportunities when they are coming along. And we look at them with 3 criteria. First, it should accelerate the fulfillment of our strategy. Second, we should have synergies, tangible -- and I would say tangible and intangible synergies. And third, it should be EVA accretive in the period of 3 years. And so no change in the future regarding the path. We'll continue to look at these opportunities and according these 3 criteria. And if they are fulfilling these 3 criteria, for sure, we will explore them.
Yes. Some color on your question around SG&A, outplacement and where we see things. I would say that you should not forget that today, the economy is shut down and only gradually open up. So the short term, we have that difficult impact in Q2. And I think that's for all businesses. Because for GA, we have the classrooms also closed because that is impacting it. And Alain says it's on the short term, as some of that had the impact of what I call the social distance impact is on the short term. For sure, when the economy will surely but slowly open up, as it will open up, I think we're well positioned with the portfolio because there will be -- you see that today already, some companies will make it. But there's lots of the need for outplacement will surely be there when it opens up. The need for retooling because new skill sets are needed will continue. So the GA portfolio, which was delivering very strong growth in Q4 will pick up on its growth rate when the economy picks up. The need for flexibility because where people will place their production, logistics, there will be need for flexibility. So I think on the short term, we see still the impact of the shutdown. And when it gradually opens up, all the business offerings we're having, I think we're well placed then to capture some of these opportunities.
The next question comes from Alain Oberhuber from MainFirst.
All the best from my side, Hans, for your future, and welcome, Coram. Looking forward to meeting you. Alain Oberhuber, MainFirst. I have three questions. Regarding the patent, just to get a little bit more sense on it, you already highlighted it, Alain. But regarding the development, do I get it right that probably it will get worse than in April for the next months and then probably there is an improvement and the recovery in Q3? Did I understand you correctly on that side? The second question is regarding gross margins. In particular because of the outplacement business on Lee Hecht Harrison given that negative trend in April, could you also see negative gross margin development in Q2? And the last question is regarding at the last slide, Alain, you mentioned these new tools. Could you give more light to the new tools you're referring to?
Sorry, on the new tools, which one you meant?
Yes. On the last slide, you write here that there will be new tools to be launched in Q2...
Yes, yes, yes, okay. For 2021, yes, yes, yes, okay.
For 2020. Yes.
Yes. Now let's start with the development. And now what we have said and what we are saying is that in March, we had a minus 19%. And then it continued to drop down to a level of around 40% during the course of April. And with the visibility we have today, and even if there are still a lot of clarity, we see the early sign of a gradual stabilization around that in the second quarter. Now regarding the recovery, I think it's a little bit early to promote ourselves. Let's see first how we are navigating the Q2, how countries, especially countries, how and when they are opening. You have seen some has started, like Germany, like Switzerland, some will follow, or Italy had followed this week and France will open again next week. We will see what kind of recovery this back-to-work movement are giving. And then we'll have more color at the end of the Q2. Regarding the gross margin, I think Hans has prepared the answer for you on this.
Yes. So I think on Q2, our gross margin will, for sure, be down for 3 reasons. One, we will have higher bench costs in the temp business. We probably have a higher level of sickness rates as we saw already in March. I think on the short term, our GA business, which also has a positive gross margin, and LHH will be impacted because the social distancing measures in the U.S. are impacting the ability to do classroom training and outplacements. So the short term, we see a negative in Q2. I think Q2 will be 1 quarter in the midst of the shutdown. So I think it's not going to be a good quarter. But it's only 1 quarter because it's in the midst of that shutdown. I think in the second half and going next year, the need for outplacement, for sure, will come back and the need for retooling and reskilling. Remember, GA was growing 27% in Q4. And LHH had a good trajectory before we had the lockdown. So I think post the lockdown, that will come back to a level. And I think you read it in the newspapers, with these crises, there will be people who will win and there will be people who lose. So the environment for outplacements will definitely become more accretive. And with that, we'll be improving not only the gross margin but also our bottom line.
And then on the new tools, Alain, you will understand that we don't want to reveal all our kitchen, let's say, development. Yes, for sure, it will be related -- also related to the use of our data, the use of artificial intelligence. So I would say come on the 2nd of December, and I'm sure that we will be more -- let's say, more transparent of what we have produced this year in this range.
The next question comes from Konrad Zomer from ABN AMRO.
Two questions, please. The first one is on Germany. How easy is it for you to switch people from your bench to the support scheme of Kurzarbeit? And how easy is it to get them back if you want them to get them back? And related to that, can you maybe share with us what the percentage of your staff is that is currently on the bench? And my second question is on your SG&A. Can you share with us what the average timeline is between your revenues starting to come down and your SG&A expenses starting to come down? I know as you mentioned in your presentation, you shouldn't overreact in cutting costs too quickly. But given that the top line started to come down a lot, what's the average timeline do you think?
Let me start with that. I think, Konrad, what is important that, given the nature of what we see, which is a lockdown of the economy, we need to be prudent that we're not overreacting, as I say, because the comeback will be there and then you will severance people who you need back 3 months later, which is a little bit the complexity of the situation. Having said that, what we're doing now and we're doing that analysis, we're looking now that the economy is slowly opening back up, with what speed do we think Q3 and Q4 will come back so that we could adjust the cost accordingly. We have the ability to adjust our cost on the short term. The question we always need to answer, do we do that? Because is the revenue a [ shortened ] cut or a more structural cut? So it's not that it's driven by our ability to do it. We're a little bit, I'd say brutally, a trader in people. We need to take position on how the trading environment is improving. And we're doing that at the moment because we're cognizant of your question, so make sure the second half is [ back ]. So in Q2, we said that the economy is locked down, happens quite fast. It will gradually open up. So we now need to take position, what will happen in automotive, how do we see the leisure business, et cetera, et cetera. And then we take position on revenue and then we take position on the cost. So it's about taking position. The ability we have, it's just that we do that with the right foresight.
Now on Germany and the easiness to switch people from the Kurzarbeit to work and work to Kurzarbeit. I think it's a great system that Germany has developed. I would say from what we see, when there is work, it's rather easy to get the people back at work. And we have seen that in 2008, 2009. What is much more difficult is if there is no work and that you are asking your people to get another work eventually with other salary conditions and so on, this is what is then the challenge. And this is when then you see people reluctant to take another job. Eventually, falling ill, and we see that sickness rates then -- if I look at the current situation, we see that the sickness rates have also approximately doubles, which also dropped 1:1 to the EBITDA. We see also that some temps are not eligible for Kurzarbeit, so these workers are coming back and then has the effect on the bench -- the idle time or the bench cost. That's in a nutshell what I can tell you today.
The last question comes from Tom Sykes from Deutsche Bank.
Sorry, can you hear me now?
Yes, Tom.
So firstly, just on the buyback, will you be prepared to buy back shares whilst people are on short-time working schemes? And is there a limit to when you may buy back shares? Just on the sort of timing, the technicalities of the furlough short-time working and your engagement with unions and when social plans might kick in if you're going to structurally let go of people, can you engage with unions whilst you've still got people on short-time working? And would those social plans be able to kick in before the end of short-time working such that you don't have a short-term increase in costs?And on the social plans, would you be -- would you look at letting people go who were both on short-time working and not on short-time working? Or would you only let go of people that were on short-time working schemes, please? And then I've got another follow-up on gross margin, but I'll leave it there.
Thank you, Tom.
On the share buyback, we paused that because of the situation we're in, we feel it's prudent to pause that. What is different than some discussion about share buybacks? Let's not forget, these are the Soliant proceeds, which we, over time, return to our shareholders. So it's not like -- so I think then we have a credible reason once we have more visibility to this because it's the return of the proceeds of Soliant. We're not doing a share buyback like what is written in the newspaper. So I think the nature of it is quite different. On your other question, I'll give it to Alain. I don't know if you want to add. We have the flexibility to move from short- to long-term measures would be at the highest level my answer. There are some countries where you are prohibited to move, but then you can move from the people who are not on the short term. So one doesn't impact the other would be, I think, my answer.
Yes. It's very linked to the local regulation of the country. And every country -- if you take the U.S., the furlough has a period of -- first period of 13 weeks, potentially renewed a second time. In other countries, it's different. So it's very dynamic. Let's say, to give you an answer, we cannot give you a general answer, it will be country-by-country. What I can tell you...
If we just take France because I guess that's your largest region and probably the one where people may think there might be more difficulty in reaching a short-term resolution or at least historically it's not been a quicker impact or quick event to negotiate a social plan. Then if we're ending short-term schemes sort of June or whenever it is, more details on that would be good. But is there a risk that we've got social plans kicking in, say, Q4 or Q1 next year and they kick in after short-time working schemes end?
If you take the case of France, this will be definitely, let's say, the theoretical scheme because you cannot start a social plan when you have your people in the temporary unemployment scheme. I think more generally, people are in temporary unemployment scheme. They will go out and then companies will figure out how the demand look like. And then they will have to decide, "Okay, do I have to structurally adapt my workforce or not?" And provided I have to adapt my workforce, companies will start to trigger a social plan and it will take a certain period of time. It depends the amount of people, the size of the social plan you want to do because you have also -- you can -- you have also opportunity to do it in an easier way. But it will take some time. If you take the example of France, it will take more time than U.K. or the U.S., for example. So that's difficult to give a one answer on this question.
I appreciate that it's difficult. And could I just ask a very quick follow-up on the gross margin side? I think in the annual report, you obviously gave temp-perm Career Transition and then other. And then in that other is 10% to sales, 15% to gross profit, I think. And within that, you've obviously got GA, RPO and sort of other outsourcing. And so when we consider that kind of group in entirety, that feels like it's maybe not been declining as fast as your overall revenue so that's been a positive to your gross margin. How do you see the evolution of all of that together? I mean I know you've given a kind of view on GA that you think that's going to come back. But maybe kind of on the RPO side and the other outsourcing, which may be small but maybe has a few basis points impact on the gross margin, if it's not declining as much as, say, overall revenues in kind of call centers and warehouse management, et cetera.
I will give you an answer. It looks like in that also in this current period, these outsourcing activities and so on are quite more resilient overall. That's what we see today. But we should come back to you with more details. And Nick will do that. We will look at more details into your questions. Now before closing -- just a few words before closing the call. First of all, thank you, everyone, for joining the call and for your questions. It is clear that while the current environment is challenging, we entered the crisis from a position of financial and operational strength as a result of the transformation we had undertaken in the past few years. And we managed this first phase of the crisis with operational discipline and we have ensured strong business continuity for our customers. Our response continues to be guided by our COVID-19 key principles, people first, stay close to our customers and maintain our strategic focus while managing with agility. The second quarter will be a difficult quarter. But we expect it to be the trough. We will manage the short term diligently while maintaining our strategic focus, continuing to invest in our strategic priorities to ensure that the group emerge even stronger from the crisis. And finally, I would like to close by saying that we are a people-centric business. And it is thanks to the hard work and dedication of our committed employees and associates that we have maintained business continuity through the crisis. So to all colleagues and associates everywhere, for everything you have done, I thank you.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.