Financial press Release

Adecco sees stabilising revenue trends in Q1 2013

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Press Release


Adecco sees stabilising revenue trends in Q1 2013

A solid first quarter on the back of a resilient gross margin and good cost control

First quarter 2013 HIGHLIGHTS

  • Revenues down -5% organically1 and adjusted for trading days
  • Gross margin at 18.0%, down 20 bps (-10 bps organically)
  • SG&A down 3% organically and excluding restructuring and integration costs
  • Restructuring costs in Q1 2013 amounted to EUR 11 million, of which EUR 6 million related to France
  • EBITA2 excluding restructuring costs at EUR 138 million
  • EBITA margin at 3.0%, down 80 bps compared to Q1 last year, excluding restructuring and integration costs
  • Net income attributable to Adecco shareholders of EUR 67 million
  • To date 7.5 million shares purchased for EUR 299 million under current share buyback programme

 

Key figures Q1 2013

in EUR millions

reported

 reported

growth

constant currency

growth

Revenues

4,556

-10%

-8%

Gross profit

821

-10%

-9%

EBITA before restructuring and integration costs

138

-29%

-27%

EBITA

127

-30%

-29%

Operating income

116

-31%

-29%

Net income attributable to Adecco shareholders

67

-40%

 

Zurich, Switzerland, May 7, 2013: Adecco Group, the world’s leading provider of Human Resources solutions, today announced results for the first quarter of 2013. Revenues were EUR 4.6 billion, down 7% organically or down 5% organically and adjusted for trading days. The gross margin was 18.0%, a decrease of 20 bps versus the prior year and down 10 bps organically. Continued strong cost control resulted in 3% lower SG&A organically and when excluding restructuring and integration costs. The Q1 2013 EBITA margin excluding restructuring costs was 3.0%, down 80 bps compared to Q1 last year. Net income attributable to Adecco shareholders was EUR 67 million.

 

Patrick De Maeseneire, CEO of the Adecco Group said: “Considering the economic headwinds in Europe, we achieved a solid first quarter. Revenues are starting to bottom out in Europe with the gap to the market narrowing in France. North America continues to hold up well driven by both General and Professional Staffing. Price discipline and the business mix resulted in a resilient gross margin, despite the negative impact from fewer trading days in Q1 2013. Measures taken to align the cost base with revenue developments are evident in the reduction in SG&A year-on-year and our profitability remained solid. We exited the first quarter with revenues down 4% in March, organically and adjusted for trading days, and April showed a similar trend. We remain focused on our six strategic priorities and on reaching our above 5.5% EBITA margin target. Given recent trends and more favourable economic conditions expected towards the end of 2013, we are convinced we will achieve this target by 2015.”

 

Q1 2013 FINANCIAL PERFORMANCE

 

Revenues

Group revenues in Q1 2013 were EUR 4.6 billion, down 10% or down 8% in constant currency. Organically, revenues were down 7% (-5% organically and adjusted for trading days). Permanent placement revenues amounted to EUR 81 million, a decrease of 9% in constant currency, while revenues from the counter-cyclical Career Transition (outplacement) business totalled EUR 71 million, up 5% in constant currency.

 

Gross Profit

In Q1 2013, gross profit amounted to EUR 821 million and the gross margin was 18.0%, down 20 bps compared to the prior year’s first quarter. Organically the gross margin was down 10 bps in the quarter under review. Temporary staffing had an organic 25 bps negative impact on the gross margin, partly due to timing of the bank holidays. This in particular impacted temporary staffing margins in Germany and Sweden, where temporary employees are on Adecco’s payroll. Organically, permanent placement and other activities had a neutral impact on the gross margin, whereas the impact was +15 bps from outplacement.

 

Selling, General and Administrative Expenses (SG&A)

SG&A in Q1 2013 amounted to EUR 694 million, a decrease of 5% or 4% in constant currency compared to Q1 2012. SG&A was 3% lower year-on-year on an organic basis and excluding restructuring and integration costs. Restructuring costs were EUR 11 million in the quarter under review, of which EUR 6 million related to France, EUR 1 million for other countries and EUR 4 million for the consolidation of several data centres in North America. In the prior year’s first quarter, costs related to the integration of DBM totalled EUR 3 million and EUR 8 million related to restructuring costs for various European countries. Sequentially, SG&A was flat in constant currency and when excluding restructuring costs. Organically, FTE employees decreased by 5% (-1,800) compared to the first quarter of 2012 and the branch network decreased by 5% (-280 branches). At the end of the first quarter of 2013, the Adecco Group had over 31,000 FTE employees and operated a network of over 5,200 branches.

 

EBITA

In the period under review, EBITA excluding restructuring costs was EUR 138 million and the margin was 3.0%, compared to the Q1 2012 EBITA margin of 3.8%, excluding restructuring and integration costs. EBITA was EUR 127 million compared with EUR 182 million in the first quarter of 2012. The Q1 2013 EBITA margin was 2.8% compared to 3.6% in Q1 2012.

 

Amortisation of Intangible Assets

Amortisation in Q1 2013 was EUR 11 million, compared to EUR 14 million in Q1 2012.

 

Operating Income

In Q1 2013, operating income was EUR 116 million. This compares to EUR 168 million in the first quarter of 2012.

 

Interest Expense and Other Income / (Expenses), net

The interest expense amounted to EUR 19 million in the period under review, compared to an expense of EUR 18 million in Q1 2012. Other income / (expenses), net was an expense of EUR 2 million in Q1 2013, compared to income of EUR 3 million in the first quarter of 2012. Interest expense is expected to be around EUR 75 million for the full year 2013.

 

Provision for Income Taxes

The effective tax rate in the period under review was 29% compared to 27% in Q1 2012.

 

Net Income attributable to Adecco shareholders and EPS

In the period under review, net income attributable to Adecco shareholders was EUR 67 million. This compares to EUR 112 million in Q1 2012. Basic EPS in Q1 2013 was EUR 0.37 (Q1 2012: EUR 0.59).

 

Cash flow, Net Debt3 and DSO

Cash used in operating activities was EUR 28 million in the first quarter of 2013 compared to operating cash flow of EUR 137 million generated in the same period last year. Q1 2013 was impacted by social security payments relating to prior years and by lower collection of receivables at the end of March, given the timing of Easter. The Group invested EUR 20 million in capex and paid EUR 69 million for treasury shares. Net debt at the end of March 2013 was EUR 1,070 million compared to EUR 972 million at year end 2012. DSO was 54 days in the first quarter of 2013, as well as in the first quarter of 2012.

 

Currency Impact

In Q1 2013, currency fluctuations had a negative impact on revenues of approximately 2%.

 

SEGMENT PERFORMANCE



 

Revenues in France amounted to EUR 1.1 billion, down 17% (-15% adjusted for trading days) compared to Q1 2012. The gap to the market narrowed. Permanent placement revenues were down 24%. In the quarter under review, EBITA was EUR 21 million, compared to EUR 27 million in Q1 2012. Excluding restructuring costs of EUR 6 million incurred in Q1 2013 and EUR 3 million in Q1 2012, the EBITA margin was 2.5%, up 20 bps compared to Q1 2012, helped by the impact of “CICE” (Tax Credit and Competitive Employment Act).

 

In North America, Adecco’s revenues increased 2% organically (+4% organically and adjusted for trading days) to EUR 888 million in Q1 2013. General Staffing revenues increased 2% in constant currency and Professional Staffing revenues grew by 2% organically. The North American IT Professional Staffing segment grew 5% organically year-on-year in Q1 2013. The Medical & Science business was again up strongly, by 14% in constant currency.  While Engineering & Technical was flat year-on-year, Finance & Legal declined by 4%, both in constant currency.  Permanent placement revenues continued to develop well, up 14% in constant currency. EBITA was EUR 32 million in the quarter under review. Excluding EUR 4 million restructuring costs incurred for the consolidation of several data centres, the EBITA margin was at 4.0% in Q1 2013 compared to 4.3% a year ago.

 

In the UK & Ireland, revenues were flat in constant currency (+4% in constant currency and adjusted for trading days) at EUR 456 million. Permanent placement revenues were down 26% in constant currency. EBITA was EUR 8 million in Q1 2013 and the EBITA margin was 1.8% compared to an EBITA margin of 2.4% in Q1 2012.

 

In Germany & Austria, Q1 2013 revenues declined by 8% organically (-4% organically and adjusted for trading days) to EUR 373 million, compared against the high base of last year (Q1 2012: +10% year-on-year organic revenue growth). EBITA amounted to EUR 18 million in Q1 2013 and the EBITA margin was 4.9% compared to the Q1 2012 EBITA margin, excluding restructuring costs, of 8.3%. Results in the period under review were impacted by the timing of the bank holidays and lower utilisation.

 

In Japan, revenues were down 21% in constant currency (-15% in constant currency and adjusted for trading days) to EUR 292 million, still impacted by the completion of several outsourcing projects during 2012. EBITA was EUR 13 million and the EBITA margin was 4.5%, down 130 bps compared to the first quarter of 2012.

 

Revenues in Italy declined 6% (-4% adjusted for trading days). EBITA amounted to EUR 11 million and the EBITA margin was 4.9% compared to 5.4% in Q1 2012.

 

In Q1 2013, revenues in Benelux decreased by 9% (-6% adjusted for trading days). Revenue development was below the market in the Netherlands, but ahead of the market in Belgium. In the period under consideration, EBITA was EUR 4 million and the EBITA margin was 1.8%.  In Q1 2012, excluding restructuring costs of EUR 1 million, the EBITA margin was 3.9%.

 

Revenues in the Nordics were down 6% in constant currency (-1% in constant currency and adjusted for trading days). Revenues decreased in Sweden and Norway, but increased in Denmark, year-on-year in constant currency. The EBITA margin in Q1 2013 was -0.6%, also impacted by the timing of bank holidays.

 

In Iberia revenues declined by 9% (-5% adjusted for trading days), as economic conditions in the region remained difficult. Revenues in Australia & New Zealand were down 11% in constant currency (-8% in constant currency and adjusted for trading days). In Switzerland revenues declined by 9% in constant currency in Q1 2013 (-5% in constant currency and adjusted for trading days).

 

The Emerging Markets grew 4% in constant currency (+8% in constant currency and adjusted for trading days) to EUR 449 million, mainly driven by Latin America. The EBITA margin was 2.9%, down 20 bps when compared to the same period last year.

 

Revenues of Lee Hecht Harrison (LHH), Adecco’s Career Transition & Talent Development business were EUR 79 million, up 3% in constant currency compared to Q1 2012. EBITA was EUR 21 million and profitability remained strong, as the EBITA margin reached 26.9%. In Q1 2012, excluding integration costs of EUR 3 million related to DBM, the EBITA margin was 30.2%.

 

BUSINESS LINE PERFORMANCE



 

Adecco’s revenues in the General Staffing business (Office & Industrial) decreased by 9% in constant currency to EUR 3.4 billion. Revenues in the Industrial business were down 10% in constant currency. In France, revenues declined by 18% in Q1 2013 and in Italy by 6%. Germany & Austria was down 10% organically year-on-year.  In constant currency, revenues in Industrial in North America grew 3% in Q1 2013. In the Office business, revenues were down 8% in constant currency. Revenues in Q1 2013 in Japan were down 25%, in the Nordics down 13% and in North America and UK & Ireland flat, all in constant currency.

 

Professional Staffing4 revenues decreased 4% in constant currency (-2% organically). Year-on-year revenue growth in North America was 2% organically in Q1 2013. In the UK & Ireland, revenues were flat in constant currency. Revenues in France were down 7%.

                                                                 

In Information Technology (IT), revenues were down 7% in constant currency (-2% organically). In North America, revenues grew by 5% organically, driven by the US IT Professional Staffing business, which grew by 9% organically. Revenues in the UK & Ireland were flat in constant currency.

 

Adecco’s Engineering & Technical (E&T) business was down 1% in constant currency. In Germany & Austria revenues declined by 2%, while in France revenues grew by 10%. In North America revenues were flat in constant currency.

 

In Finance & Legal (F&L), revenues were down 2% in constant currency. Revenues in North America declined 4%, while the UK & Ireland grew by 7% in Q1 2013, all in constant currency.

 

In Q1 2013, revenues in Medical & Science (M&S) were down 4% in constant currency. While revenues in North America were up 14%, revenues in the Nordics declined by 16%, both in constant currency. Revenues in France were down 23% in the quarter under review.

 

In the first quarter of 2013, revenues in Solutions5 were up 5% in constant currency. Revenue growth in MSP (Managed Service Programmes) and VMS (Vendor Management System) continued to be strongly double-digit in constant currency.

 

MANAGEMENT OUTLOOK

 

The Group exited the first quarter of 2013 with an organic revenue decline rate of 4% in March, adjusted for trading days. Revenue developments in April were similar. North America continued to hold up well. In France the gap to the market narrowed since the beginning of the year, but conditions remained challenging. Elsewhere in Europe revenue growth stabilised or improved slightly. In the Emerging Markets revenue growth continued to be solid.

 

Given these trends, we maintain our price discipline and cost control. At the same time, we continue to invest in organic growth opportunities and the consolidation of our IT platforms, whilst focusing on our strategic priorities. SG&A in the second quarter of 2013 is expected to be similar to Q1 2013 on a constant currency basis and before one-off costs. As announced in March this year, we plan to invest a total of EUR 30 million in 2013 to further optimise the cost base, of which EUR 11 million were invested in Q1 2013 and the remainder will be incurred during the rest of 2013.

 

We continue to be very focused on reaching our mid-term EBITA margin target of above 5.5%. Given recent trends and more favourable economic conditions expected towards the end of 2013, we are convinced we will achieve this target by 2015.

 

Update on the share buyback programme

 

In June 2012, the Company launched a share buyback programme of up to EUR 400 million on a second trading line with the aim of subsequently cancelling the shares and reducing the share capital. The share buyback commenced in mid-July 2012. To date, the Company has acquired 7.5 million shares under this programme for EUR 299 million.

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