Adecco Group AG

SIX:ADEN

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, welcome to the Q1 2023 Results Investor and Analyst Call and Live Webcast. I'm Andre, 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 Benita Barretto, Head of Investor Relations. Please go ahead, madam.

[Benita Barretto, Head, IR]

Thank you. And good morning, everyone, who's on the line. Thank you for joining us today for our investor and analyst call. With me, I have our CEO, Denis Machuel; and CFO, Coram Williams. Before we begin, we want to draw your attention to the disclaimer on Slide 2. We will reference both GAAP and non-GAAP financial results and operating metrics on today's call. 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.

[Denis Machuel, CEO]

Thank you, Benita, and a warm welcome to all of you who have joined the call today. Let's turn to Slide 3, which provides highlights from the quarter. Our Simplify, Execute and Grow agenda to accelerate strategic implementation and to improve the operational and financial performance of the group was announced in November last year.

In Q1, we delivered effectively against this plan. And today, the group is reporting strong market share gains, revenue growth and gross margin. The Adecco business achieved broad-based market share gains with almost all geographies beating major competitors and relative revenue growth leadership of 600 basis points in Q1. Adecco grew revenues in double-digit terms across APAC, Germany, LATAM and EEMENA.

In Akkodis, the AKKA integration is well progressed, and there is strong momentum in the strategically important consulting business. Here, we have a healthy pipeline. And in Q1, we secured several exciting multiyear contracts that validate the industrial logic of combining Modis and AKKA.

In LHH, career transition delivered a record revenue result. It was the dominant industry player with significant wins in the U.S. and the U.K., mainly from the tech sector. In contrast, recruitment solutions was challenged, particularly by market conditions. We will return to these highlights in more detail later.

And let's now move to Slide 4, which provides a snapshot of Q1's financial performance. Revenues were €5.9 billion, up 8% in reported terms and up 3% year-on-year on an organic trading days adjusted basis. Gross profit of €1.3 billion was 5% higher organically year-on-year. Gross margin was very strong at 21.3%, an expansion of 20 basis points year-on-year.

EBITA, excluding one-offs, was €184 million with a robust margin of 3.1%. Adjusted EPS was €0.72, 5% lower year-on-year, reflecting mainly higher amortization due to AKKA. Net debt to EBITDA ended the period at 2.7x. This leverage stems from the acquisition of AKKA and is in line with management expectations, and the cash conversion ratio was robust at 47%.

Let's turn to Slide 5. The market for Talent Services was very dynamic this quarter as the top left chart shows, the group's flexible and outplacement activities were resilient through Q1, lowered by a moderate 2% on a year-on-year basis. And as the bottom left chart illustrates, demand for flexible placement varied by region, with growth in APAC contrasted by easing activity in EEMENA and the Americas.

In addition, end markets are behaving differently. The tech sector is in a downturn in the U.S. and logistics remains subdued. Yet other sectors, including autos, consulting and manufacturing are growing strongly and demand for perm and our placement activities is normalizing from post-pandemic extremes.

Overall, the group is successfully driving growth and taking share versus its major competitors in this dynamic market. With our value-add ecosystem of talent services, whereby the group makes approximately 50% of gross profit in flexible placement and around 25% of gross profit from less cyclical or countercyclical services, we are well positioned to capture opportunities in a rapid and agile manner.

Let's look at a few examples. The Adecco business renewed and expanded a material contract with a global logistics player this quarter, gaining share in this critical sector. Why did Adecco win? It was the only partner offering global capabilities, a collaborative commercial approach, fair and consistent pricing in all countries and exceptional delivery standards.

The Adecco business will also start a strategic partnership with a German multinational manufacturer of luxury vehicles to support increased digital demand for the company, including by establishing IT hubs close to manufacturing sites for IT/OT collaboration. The win evidences the strength of our ecosystem.

Global footprint, plus Adecco's strong local presence, plus a Akkodis domain expertise in autos and cloud infrastructure. Finally, we highlight career transitions multiple wins in the U.S. tech sector due to its global leadership position and best-in-market outplacement offering.

With this, I hand over to you, Coram, for a more detailed review of the Q1 results.

[Coram Williams, CFO]

Thank you, Denis, and good morning to everybody on the call. Let me give you the context within each of the GBUs, beginning with Adecco on Slide 6. Adecco's revenues reached €4.4 billion, a 3% increase year-on-year on an organic trading days adjusted basis. Results from APAC and DACH were notably strong with APAC record revenues at record levels.

France grew moderately, while Southern Europe and EEMENA was solid. Northern Europe and the Americas were mixed. Adecco firmly delivered on its ambition to gain market share with revenue growth 600 basis points ahead of major competitors in Q1, and growth was underpinned by resilience in flexible placement where revenues rose 3%.

And Adecco grew very strongly in higher value-add services with Perm up 19% and Outsourcing up 13%. Gross margin was stable reflecting favorable solutions mix and dynamic pricing. The robust 3.5% EBITA margin includes a positive impact from the FESCO joint venture, with income this quarter boosted by government payments that in 2022 were received in the second quarter period.

The benefit from FESCO was offset by a lower contribution from Adecco North America and select investment to drive growth. Productivity was up 5% sequentially, while FTEs were 2% lower sequentially.

Moving to Slide 7, which shows Adecco at the segment level. France delivered moderate revenue growth, up 1% in the quarter, in line with the market. Growth was robust in flexible placement and kappa, training and perm activities were strong.

In sector terms, autos, health care, IT and manufacturing was supportive, while logistics and construction were soft. In Northern Europe, revenues were down 1%. Revenues from U.K. and Ireland were up 1% with strong growth in finance and construction mitigated mainly by subdued activity in logistics.

Revenues were 2% lower in the Nordics weighed by lower manufacturing activity and 2% lower in the Benelux. Overall, the region's growth outpaced the market. The DACH regions performance was strong with revenues up 9% and the successful turnaround of the German business continues to deliver.

German growth was an excellent 13% with over 30% growth in professional services and strength in autos and logistics. DACH's EBITA margin softened in the first quarter due primarily to investment in headcount to fuel further growth in professional services and perm.

Revenues in Southern Europe and EEMENA rose 4%. In both Italy and Iberia, revenues were 2% higher, and EEMENA revenues were up 16%. Autos, retail and consulting were all good, while logistics was soft.

In the Americas, revenues decreased by 1% year-on-year. Latin America revenues were 18% higher with Argentina, Brazil and Mexico performing notably well. In North America, revenues were 8% lower, with an uncertain macroeconomic environment impacting the Adecco U.S. business.

Encouragingly, Adecco U.S. revenue developments were ahead of competition in a challenging market. The business also delivered continuous improvement in voluntary turnover, fill rates and sales intensity levels during the quarter. That said, the EBITA margin was impacted by lower volumes. Given the altered trading backdrop, management reduced head count by approximately 10% at quarter end. Overall, the team is staying the course in implementing the turnaround plan.

Turning to APAC. Revenues were up 10%. Japan was up 10%, and both Asia and India grew by 13%. In Australia and New Zealand, revenues were flat, weighed by the end of a large government contract.

Turning now to Akkodis on Slide 8. The business delivered a solid quarter with revenues up 4% year-on-year on an organic trading days adjusted basis. By region, North EMEA rose 8%, with Germany up 7% and Data Response up 10%, benefiting from high utilization levels and good project management.

In South EMEA, revenues were up 3% with France up 6%. On a sector basis, autos and life sciences were notably strong across EMEA. The repositioning of Germany to improve its growth trajectory and margin in a market that is impacted by talent scarcity and where major customers are going through their own significant transformations is on track.

Management has continued to optimize Germany's organizational structure and adapt office locations and centers of excellence. In addition, they remain firmly committed to attracting and upskilling talent and developing offshore resources.

Turning to North America. Revenues rose 1% with this staffing-orientated business impacted by the U.S. tech sector slowdown. Growth in the strategically important consulting line was excellent with revenues nearly doubling year-on-year. Management is also well underway adapting U.S. operations given the altered backdrop.

Revenues in APAC were up 5%, with Japan up 10%, supported by increased engineers and high utilization rates. Akkodis' EBITA margin was 4.9%, down 180 basis points year-on-year, mainly due to the timing of AKKA's consolidation.

Let me elaborate a little on this. AKKA's profitability in first quarter periods is back-end loaded. In 2022, therefore, the margin was flattered by the consolidation of the March month only. While in 2023, we have a full quarter of contribution. The EBITA margin also reflects lower volumes in North America partly mitigated by continued synergy delivery and high utilization in APAC and EMEA.

Looking forward, we expect Akkodis' margin to benefit, particularly in H2 from further synergies and favorable seasonality.

Let's turn to Slide 9. Akkodis' integration is well progressed, and the business is now operating and reporting as one. The left-hand graph shows the composition of Akkodis as of today. We've created a geographically balanced portfolio with 20% of revenues from North EMEA, 30% from South EMEA, 30% from North America and 20% from APAC. Moreover, the business is scaled, generating €3.7 billion of revenues in 2022 once adjusting for the transfer of AKKA' U.S. operations to Adecco U.S.

Akkodis is on track to deliver 2023 targeted synergies of €50 million to €55 million and is securing attractive revenue synergy wins. Akkodis has won synergistic contracts with a total value of approximately €160 million, up from €90 million at the end of Q4 and the pipeline has good momentum.

Let me highlight one of these recent wins. The Akkodis team secured a multiyear contract in China to provide on-site digital and software as well as product development services to a significant German auto manufacturer. This win was made possible due to Akkodis' scale and combined tech and engineering expertise as well as deep domain expertise in autos, including the ability to support the project with the Akkodis' German-based specialists. The group remains confident in the business' ability to deliver on its AKKA synergy targets.

Let's turn to Slide 10 and LHH. Revenues in LHH were flat year-on-year. Recruitment Solutions revenues decreased 16% year-on-year, with fees from Perm 20% lower on a tough comparison period. The segment continues to face headwinds in the U.S. While recruitment Solutions gross profit was 16% lower, excluding the U.S., gross profit was only 3% lower.

Having rightsized the U.S. business, productivity for Recruitment Solutions U.S. is now close to market levels. Notwithstanding, management remains focused on driving further improvement. Moving to the countercyclical career transition unit. This was a record quarter, with revenues 63% higher year-on-year, led by the U.S. and U.K. and tech sector demand.

Learning and Development revenues were 8% lower. Ezra grew revenues by 45% and bookings accelerated strongly. Subdued results from both general assembly and talent development impacted growth. Pontoon's revenues were flat, weighed by subdued tech demand. The U.S. tech sector downturn also hurt revenue developments in Hired.

LHH's EBITA margin of 6.9% was 60 basis points lower year-on-year, but up 130 basis points sequentially. The positive impact of higher volumes in career transition was outweighed by lower contributions across the rest of the business unit due to both lower volumes in procyclical units and continued investment in high-growth digital businesses.

Let's turn to Slide 11. Here, we review the drivers of the group's gross margin and EBITA on a year-on-year basis, starting with Q1's gross margin. Currency translation effects had a net positive impact of 15 basis points and M&A activities a negative effect of 15 basis points.

Flexible Placement had a positive impact of 10 basis points. Permanent Placement had a 20 basis point negative impact. Career Transition had a 70 basis point positive impact. And Outsourcing, Consulting and Other was 40 basis points negative, mainly due to the ramp down of vaccination contracts, particularly in APAC.

In total, the gross margin was up 20 basis points on an organic and a reported basis. At 21.3%, the group has sustained its gross margin at market-leading levels. The key drivers of the robust EBITA margin, which is 30 basis points lower year-on-year are: firstly, a 20 basis point favorable contribution from the timing of FESCO JV income. Second, a 25 basis point unfavorable impact from the timing of AKKA's consolidation, as I explained before. And third, a 15 basis point impact from the lower contribution of Adecco North America.

Moving to Slide 12 and starting with cash flow. The group's cash conversion ratio was robust at 47% in Q1, while cash flow from operating activities recorded an outflow of €116 million. Days sales outstanding were up 1 day year-on-year due to changing business mix. Q1's cash generation was hindered by unfavorable net working capital movements.

On a year-on-year basis, there are 3 main drivers. First, customer collections were positive. Second, there was an outflow in payables from both AKKA's integration and from timing impacts across other payables. As a reminder, the group's gross payables balance is nearly €5 billion in size such that a variation of this magnitude is quite normal.

Third, other working capital developments, for example, cash tax payments were unfavorable. The chart on the slide shows the group's cash generation has seasonality and is H2 weighted with the dividend distributed in Q2. Further, the business absorbs working capital in line with its growth rate. On a full year basis, the group expects good cash generation supported by disciplined working capital management.

Net debt-to-EBITDA ended the period at 2.7x. This leverage stems from the acquisition of AKKA and is in line with management expectations. Importantly, our financing structure is solid. Leverage is not constraining the business' ability to invest organically in growth and pay the dividend. The group's interest costs are very serviceable with 78% of net debt fixed at attractively low rates, no financial covenants on any outstanding debt and an undrawn €1 billion revolving credit facility. The group remains firmly committed to deleveraging.

Let's turn to Slide 13 and the group's outlook. The group exited the quarter with growth at 3%. And as the chart shows, with nearly 40% of segments growing at 4% or above. Volumes in April were resilient, and the market for talent services remains dynamic. The group is well positioned to capture market share opportunities in a rapid and agile manner.

Q1 benefited from the timing of FESCO JV income, which will not repeat in Q2. Further, in Q2, the group expects both gross margin and SG&A expenses as a percentage of revenues to be broadly in line with Q1 levels.

And with that, I'll hand back to Denis.

[Denis Machuel, CEO]

Thank you, Coram. And let's now turn to Slide 14. Positive change is underway as the group's Simplify, Execute and Grow agenda progresses. Since the Q4 result called in February, we've reached more milestones. Of note, the group's new strategic accounts framework is operational. Moreover, work to streamline our operating model and simplify our internal processes led by our task force has begun in earnest.

In 3 key countries: the U.S., France and Japan, we are executing G&A savings plan with clear action levers and assigned owners. Q2 focus areas include accelerating development of the group's MSP/RPO offering, now under new leadership. And the task force which supports delayering and improved speed will continue its work with key countries and with the corporate functions.

We are highly confident in the group's ability to achieve it's €150 million G&A cost reduction goal, including delivering savings in the H2 period.

Let me conclude with Slide 15. The group has delivered effectively against plan this Q1 with broad-based market share gains, strong revenue growth and gross margin. Our priorities for accelerating performance improvements through the remainder of 2023 are unchanged. We are committed to delivering growth and market share in all GBUs and reducing costs significantly.

We will be focused on profitable growth and improved productivity. We expect underperforming units to improve continuously, and we will accelerate momentum in digital. We will also realize the targeted year 2 synergies from AKKA. As we advance the Simplify, Execute and Grow agenda, we will create a simpler organizational structure with empowerment and accountability at the local level, maintain a relentless focus on performance and secure the first tranche of G&A cost savings. And we hope you will join us to discover more about the group's priorities and progress at our Capital Markets Day on 7 November in London.

Thank you for your attention. And let's now open the lines for Q&A.

[Benita Barretto, Head, IR]

Operator, we're ready for the first question, please.

[Operator]

[Operator Instructions]. Your first question comes from the line of Kean Marden with Jefferies.

[Kean Marden, Jefferies]

I had quite a few questions, but there are around 3 main areas, if you just bear with me. So first of all, to me, I'm just wondering if you characterize the first quarter and the better organic revenue growth momentum, do you feel that's mainly at the moment because Adecco is over-indexed to some sectors that are now performing better than they did in 2022? Would you really sense a cultural change in the organization where you're more agile at identifying vacancies and candidates?

And then secondly, just on the U.S., did the headcount reductions at the end of the first quarter? Did that influence the volume chart that you put up on Slide 5? Or is that just the timing of Easter? I'm just wondering more broadly, what other changes are planned by the new head of Americas.

And then finally, for Coram on working capital. Could you just confirm that the AKKA invoice discounting facility utilization was still €200 million at the end of the quarter? And are we likely to see another working capital outflow in the second quarter or does some of these timing effects that impeded Q1 reverse and we get a bit of a tailwind from that?

[Denis Machuel, CEO]

Thank you, Kean. And as far as the -- our Q1 revenue, and as you know, we like the dynamic that we've created over time. And -- is there a cultural change? I think -- I would say that the growth mindset is there in all geographies. We have a growth strategy and the empowerment that we've put in place helps us be very forensic in the way we add or remove resources according to market conditions.

So this creates a very, I would say, a very local dynamic, but we've put the right incentives in place, we really adjust our headcounts according to market conditions. And yes, there is agility because we're very local in the way we deliver our business. At the same time, I believe that we have a good development because we also have a good balance between what we do with large accounts, what we do with small and medium and because we have a strong pricing dynamic.

So I think it's a combination of everything that provides that -- the quality of our revenue. We're -- yes, I think we're agile. Our systems, particularly our digital interfaces, is quite efficient to attract people and that -- I think that delivers results.

As far as the U.S., definitely -- again, we are adjusting the U.S. slows down. We've adjusted our resources. Definitely, what we see is we are more than closing the gap with competition. We were lagging behind sort of big time a few quarters ago. We are now performing better even though our performance is linked to the slowdown of the market. So I think I must say that our turnaround plan is progressing. We still have a lot to do, but I'm encouraged by the progress.

The new leader has refreshed his senior leadership team. He is really focusing on optimizing and revitalizing our branch network. We've also simplified and delayered our organization. And we see still improvement in fill rate, in commercial efficiency, in voluntary turnover. So I think there is a good dynamic, but we still have a long way to go to take the U.S. to the full performance. We will be profitable in H2 in the U.S.

[Coram Williams, CFO]

And let me pick up on the questions you raised on working capital, Kean. I might just add one thing to Denis' answer. I mean I'm absolutely aligned that I think there has been a cultural shift in terms of the way that we think about growth.

But I'd also point out that you see a very broad-based growth in terms of territories, but more importantly in terms of sectors. So autos is up, consulting is up, manufacturing is up, health care is up. It's across the board. So it's not one particular sector that is driving. It's very broad-based.

On the working capital, the -- to pick up on the point about factoring, it's actually a little bit less than €200 million in Q1, and it's not a major driver of the outflow that we've seen in Q1. Just to remind you, we did see collections being up, but the AKKA negative impact is really about payables. AKKA typically had a cash outflow in Q1, and it's driven a lot by lower billings and higher payables coming through in Q1.

There's also some other working capital timing, year-end fell on a Saturday, which meant some of the payables flowed through early in January. And we also have timing on cash tax. So that's really to give you a little bit more color on what happened in the quarter.

Those timing effects, I think, will unwind. But, and this is really important to remember when you're modeling your Q2 cash flows, we pay the dividend in Q2, and that is around €400 million. So there will be an outflow in Q2, which means that net debt-to-EBITDA will rise moderately in Q2.

The key point though is the timing of the cash flows for the rest of the year. We typically have a strong H2 in terms of cash generation. You saw that last year. We would expect it to come through again this year, and that will allow us to delever, and we are firmly committed to doing so over time.

[Kean Marden, Jefferies]

They are really helpful. If I may, if we had to collect up the timing impact in Q1 and then reverse it in Q2, should analysts plug in something like €40 million, €50 million, just to try and put a ballpark figure around this?

[Coram Williams, CFO]

I'd put a little bit -- I'm not going to give you a precise figure, but I put a little bit more in than that. If you think about the way that I'm describing it, we've got about €150 million rise in collections and then the 2 other factors are similarly sized in terms of leading to the outflow. So I'd go a bit higher than that.

[Operator]

The next question comes from the line of Suhasini Varanasi with Goldman Sachs.

[Suhasini Varanasi, Goldman Sachs Group]

Just one for me, please. On the outlook, you've indicated that you expect SG&A as a percentage of sales to be in line with 1Q. The wording is perhaps a bit different to your usual commentary. So please, can you help us understand on an absolute basis, how you expect SG&A to evolve in Q2 versus 1Q sequentially higher or lower or in line? And also on the FESCO JV, please, can you help us understand what the expected income will be for 2Q?

[Coram Williams, CFO]

Okay. I'll take both of those. I mean just on SG&A, I think it's really important to understand the way that we're managing this. So we're managing in a very agile and targeted way. Where we see pressure in markets, we are reducing SG&A, and we've touched on that, for example, in the U.S., but there have been a couple of other territories where we have reduced it, and that's primarily about reducing headcount.

You see that in terms of the sequential numbers, which are down 2%. But we also have to invest because there are parts of the business which are really performing strongly. And so when we think about Q2, I think you should expect us to continue to calibrate according to market conditions. And that's why we're giving you the guidance on the basis of the percentage of sales because it's very much driven by what happens on the top line.

And clearly, the key area where we probably will have to put a bit more cost in is LHH career transition because that has been very strong in Q1, and we think will continue to be strong in Q2. I think if you're looking at the shape of SG&A for the rest of the year, the €150 million cost savings program is something that we progressed very well. We're feeling very comfortable and confident in our ability to deliver that.

And you will start to see the benefits of that flow through in H2, but in Q2, it's about adjusting SG&A to suit the market conditions and that's why it's important that we guide on the back of percentage to sales.

On FESCO, I might just take a moment to explain what's happened here because the Chinese business, like a number of our businesses around the world, does receive incentives and support from governments to drive employment, particularly in the flexible space. In most businesses, that comes through, through the year, whereas actually in China, it tends to be paid in a relatively short space of time, and normally, that happens in Q2.

That happened this year in Q1. We've quantified the impact for you so that you can see that. And that means that you should model a contribution in Q2 probably a €5 million to €6 million. And the reason it has this impact is that actually that Chinese business is a very, very big business. So 2 million workers. It's growing very nicely, and so we wanted to call out the impact to allow you to model the sequential effect.

[Operator]

The next question comes from the line of Anvesh Agrawal with Morgan Stanley.

[Anvesh Agrawal, Morgan Stanley]

You already answered my question on SG&A, but I still got 2 left. First, Coram, just on cash flow. Because of wage inflation, is it like a structurally driving a higher working capital consumption because obviously, the payable seems to be remain -- remaining elevated?

And then related to that, I think you previously talked about sort of €700 million of underlying operating free cash flow adjusted for one-offs and everything. Is that sort of still achievable given the current dynamics of working capital and the margin provision?

And the second question for Denis really, I mean, in Q4 presentation, you talked about finalizing the operating model by the end of Q2. And then you obviously had a new head of technology joining in. So wondering where you are in that process of the operating model? And are you still sort of -- can deliver that within the framework of the current exceptional cost and stuff like that?

[Coram Williams, CFO]

Let me start with your question on working capital. I want to be really clear, this is just a timing effect. This is not a structural change in our cash flows or something that's happening to payables or receivables. Please remember the gross balances in both of those captions are almost €5 billion. So small changes in timing can actually produce between quarters quite big movements.

And as I mentioned, year-end was on a Saturday. So that tends to have an impact on when exactly you pay. So it's not a structural change in our working capital requirements. And I wouldn't link it to wage effects. Obviously, if we grow, and we are doing, that does mean we absorb working capital in the short term, but there hasn't been a change in the structural characteristics of that.

[Denis Machuel, CEO]

And with regards to your question, Anvesh, on the operating model. So overall, even beyond tech, yes, we're -- as we said, we are streamlining the organization, we are reempowering the teams, we are reducing global structures, and this is happening and the design is being finalized and everything will be set in Q2. So -- and after that, we will execute the downsizing and all the adjustments that we need to make.

Hence, what we will see -- start to see in H2 as the flow-through of that savings plan. So yes, we are in line on our, let's say, redesign of the organization and adjustments. So it's well underway. And it's true for the overall organization, particularly all the enabling functions and the operations. It's true also for IT and digital. We've made progress. We are adjusting our operating model. And the -- we are finalizing the recruitment of a new CDIO. So I think things progressed well on this way.

[Coram Williams, CFO]

And Anvesh, I realize I didn't answer your question on the €700 million. So I just want to come back to that. Our expectations in terms of full year cash conversion, excluding one-offs, not in any specific year, but on a sort of regular underlying basis still is at €700 million. There's no structural change to that. You do have to think about the one-offs.

So we are aiming -- where we've guided for, we're aiming to do better than that, but we do need some of that one-off cost investment in order to drive the G&A savings program. So I hope that's helpful.

[Denis Machuel, CEO]

And maybe one additional comment on these one-offs. It's -- this is a significant program that we run. And my goal is to -- once we've done that, is to keep these one-offs to the minimum level. So that's a very important objective from my side.

[Operator]

The next question comes from the line of Rory McKenzie with UBS.

[Rory McKenzie, UBS]

It's Rory here. Just two, please. Can you break the 3% year-over-year organic day-adjusted growth into volume and pricing? And just in your outlook statement, you comment that volumes were resilient in April, but I guess that excluding wage and fee inflation volumes were down maybe 3% year-over-year in Q1. So I just want to clarify what you meant by the outlook comment?

And then secondly, within LHH, a really good contribution from the outplacement wins in Q1 to offset the fall in recruitment. And can you remind us on how long we would typically expect revenue from those contracts to run for? And so when you comment that you expect more strength ahead in our placement, does that require or point to ongoing commercial wins?

[Coram Williams, CFO]

Thanks, Rory. I'll take both of those. Just in terms of volumes and price. I mean let me maybe first make a comment on wage inflation and what we're seeing in -- across the business. And I think it will then help answer the question on volumes. So in terms of wage inflation, it's still present and that's primarily because we still see talent scarcity across majority of our markets.

It's running low- to mid-single digits across the business, a little bit higher in some and a little bit lower in others, but I think that's a good broad brush assumption, so low- to mid-single digits. That tells you that our volumes in Q1 were just marginally down.

So I wouldn't go as far as the number that you quoted, but they are down just slightly. So I hope that gives you a sense in Q1. The other point I'd make about Q1 as a quarter and also the exit rate is that it was very, very stable. And you see that consistently through the quarter and an exit rate, which is very much in line with what we delivered in Q1.

In terms of LHH, it's a little bit difficult to generalize because it does depend on which particular territory you're in, what the size of the program is, how quickly we service the program and how quickly the candidates are then actually outplace. So it's hard to give you a generalization, but I think the way to think about it is that wins that we made at the back end of Q4 and in Q1 will continue to benefit Q2 with modest impact going into Q3. So hopefully, that helps. It was very much U.S., U.K. and tech sector focused, but there are some other areas in which we have won business.

[Denis Machuel, CEO]

And to complement what Coram said, I must say, we have a pretty healthy pipeline on that. So there's probably more to come. We will look at how we transform this. The fact that we've won all -- almost all major contracts, particularly in tech in the U.S. and U.K., gives us a good level of confidence in terms of us transforming the pipeline. So yes, I think we'll see sustained activity there.

[Rory McKenzie, UBS]

Great. No, that's very helpful. And just 1 follow-up on LHH. Obviously, there's quite a big kind of mix shift happening within the revenue composition of that business, and you're also rightsizing recruitment solutions as well. How should we think about the EBIT margin evolution over this year as I guess this mix shift keeps taking hold?

[Coram Williams, CFO]

I think it's challenging to give precise numbers simply because there's quite a lot of ifs about what happens to the 2 big markets that we're playing in. Ultimately, they are a hedge. So when CT is performing strongly, typically, that means that recruitment solutions is less strong, and you see that in this quarter. I think we would expect to drive further productivity improvement in Recruitment Solutions, particularly in the U.S.

We're now broadly back to market levels, but there's probably more we can do. And I think that gives us some protection in a difficult market. The other thing you need to think about when you're looking at the LHH margin is the investments that we're making into digital. So Ezra is growing really nicely, 45%. It's holding its own, actually doing better than a lot of the venture-funded players in that space.

But it does have an impact negatively on the margin in the short term because we're investing to fuel that growth. So I think longer term, we would expect LHH to improve on where it's at the moment, but the exact trajectory will depend on the way in which the top line plays out.

[Operator]

The next question comes from the line of Konrad Zomer with ODDO BHF.

[Konrad Zomer, ODDO BHF]

Another one on LHH. I think the career transition revenue development is obviously really, really strong. And I was wondering how much excess capacity do you have in that business, i.e., how scalable is it if there were to be more major contract wins in the second half of this year because the economy continues to weaken in the U.S. Do you immediately need to add more headcount yourselves or can you just benefit from the fact that you may have held on to more people in the prior few years? How scalable is that business?

[Denis Machuel, CEO]

Yes. Thanks, Konrad, for your question. So it is scalable and -- but it's -- I would say it's smartly scalable. First, we've kept over time our sales force really to -- and our sales team to be constantly in contact with the clients to -- and that is generating the pipeline and the conversion.

In terms of how we deliver, it is scalable because as we get the new contracts on board, I mean we can scale our delivery teams, and that's what we've done, that's why you've seen also an increase in people. But this is very -- we can really adjust that with the volume.

So we use quite a lot of external consultants to help accompany the people that are being exited. So -- and this is something we -- that delivers immediately in terms of top line. And as -- if we were to reduce or have less volume, then we would downsize.

So I mean, the scalability and agility of that business is great and the margins are very, very solid. So I think this combination makes that business in the times we know very efficient.

[Coram Williams, CFO]

And just to add from -- to link this back to my point on SG&A, it's one of the areas that we do have to put a bit more cost into in Q2 to fuel and service the growth. But as Denis said, it's very scalable, and it generates very healthy margins.

[Operator]

[Operator Instructions]. The next question comes from the line of Oscar Val with JPMorgan.

[Oscar Val Mas, JPMorgan Chase & Co.]

Most of my questions have been asked, but 2 more. The first one, just a quick one on the restructuring. You previously talked about €100 million for the full year, Q1 was lower. Could you just remind me of the phasing of those one-offs, given you've talked about looking to kind of do more redesigns of the organization going forward?

And then the second question is just around, I guess, white collar versus blue collar. Could you comment on what you've seen in Q1 in terms of your office versus industrial? And I think the reason for this question is, how do you think about some of the white-collar jobs going forward if there's a threat from AI on secretarial or administrative jobs?

[Coram Williams, CFO]

Let me just pick up on the point about the phasing of one-offs from restructuring, and then I think Denis will pick up on sort of white/blue collar and AI. So we guided for the full year to €100 million of one-off costs relating to the G&A program. That -- those are the costs that we need to really deliver on our €150 million ambition to save on run rate in G&A by the middle of 2024.

That program is going well. We are making very good progress. As we mentioned in the presentation, a number of areas that we've identified and we are confident that we will start to deliver benefits in terms of reduced SG&A and particularly G&A in H2. What that means is that the majority of that €100 million will be spent in H2 as we are executing on that program.

I think we've given you Q2 guidance of €20 million. So that allows you to model the quarter. But the big chunk of those costs comes in H2. One other thing to just highlight, don't forget the AKKA-related integration costs. because they are separate to the €100 million. And my final point on this, just to reinforce something that we said earlier, obviously, we are aiming to bring those one-off costs in lower than the €100 million. We'll be more precise as we progress through the year. But I think for the moment, modeled the €100 million and put the majority of it in H2.

[Denis Machuel, CEO]

Right. And regarding both white collar and blue collar. First, we see a pretty good dynamic because overall, I mean, talent scarcity is there to last both for blue collar and white collar. This is an overall trend, driven by demographics, driven by personal choices and driven by talent scarcity. And this goes across the board.

Now we -- if you look at the way AI impacts, we believe that many, many blue-collar jobs will remain because they cannot be replaced by AI. Will blue collar have to adapt to AI? Certainly. Same thing for white color, by the way. Because, yes -- and the digital revolution is already there. So that's part of the skills gap that we see. And that's where we have a big role to play in upskilling, reskilling and training all these people and providing them the sort of ready to work because they've been trained.

So that's very true for blue collar. It's also true for white collar. Are some clerical jobs being probably reduced by AI? Probably. We also know, and as we've seen with digital that as much as some jobs are being automatized, some new jobs are being created. So the big fear that we had 10 years ago that digital will sort of cancel a lot of these positions and jobs -- I mean digital has created a lot of other jobs.

We believe that the AI revolution is -- will also have probably the same impact. And if we look at how we use AI, personally, we've seen the interest in AI and how we accelerate the efficiency of our matching algorithms, we've seen in our chatbots, et cetera. But actually, we've continued to put people because you just have people that are more efficient and more powerful in the way they deliver the service to the client, thanks to AI.

So I think it's a mix thing, but we look at the future eyes wide open. So we are not naive with AI, but we believe that as much as there are some impacts on the job markets, there is going to be also a positive impact. People will need to manage AI, right? And so we're quite positive in a way AI can also bring efficiency to -- also to our business.

[Operator]

Ladies and gentlemen, that was the last question for today's conference. I would now like to turn the conference back over to for any closing remarks.

[Denis Machuel, CEO]

Well, thank you very much, and thank you for attending this call. If I want to summarize, we are quite pleased with the progress that we've made, quite pleased with the growth that really we're delivering. It's bang on our strategy and our Simplify, Execute and Grow plan. We are committed to delivering the G&A savings. We were accelerating wherever we can, adjusting to market conditions and fixing the places where we are still underperforming.

So looking forward to our next interaction. And don't forget November 7 -- to put November 7 in your calendar because it's going to be our Capital Markets Day. Thank you very much for attending the call. Looking forward to our next interaction. Have a great day.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for Chorus Conference Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.