Financial press Release

Adecco weathers the storm with strong cost reductions

Download this Document

Adecco weathers the storm with strong cost reductions

The pressure on the revenue decline rate has eased in most markets over the course of Q2 2009
 
Q2 HIGHLIGHTS (Q2 2009 versus Q2 2008)
  • Revenues of EUR 3.6 billion, down 31% (-32% in constant currency)
  • Strong SG&A reduction of 21% adjusted1 and in constant currency
  • Restructuring costs amounted to EUR 54 million in Q2 2009 as Adecco initiated further measures
  • Adjusted EBITA[2] margin at 2.4%
  • Operating income impacted by EUR 192 million impairment charges on goodwill and intangible assets
  • Strong operating cash flow of EUR 282 million in H1 2009
  • DSO improved by 5 days to 53 days in Q2 2009
  • Adecco agrees to make a recommended cash offer of 62 pence per share for UK-based staffing firm Spring Group plc
 
Key figures
in EUR millions
Q2 2009

reported
Q2 2009
reported
growth
Q2 2009
adjusted[1]

 
Q2 2009
adjusted[1] growth
in constant currency
Revenues
3,591
-31%
3,591
-32%
Gross profit
640
-36%
640
-34%
EBITA
32
-90%
86
-68%
Operating income / (loss)
(173)
-157%
 
 
Net income / (loss) attributable to
Adecco shareholders
(147)
-169%
 
 
 
Zurich, Switzerland, August 11, 2009: Adecco Group, the worldwide leader in Human Resource services, today announced results for Q2 2009. Revenues declined by 32% on a constant currency basis to EUR 3.6 billion. SG&A was reduced by a strong 21% on an adjusted basis and in constant currency. The adjusted EBITA margin was 2.4%. Operating cash flow was EUR 282 million in H1 2009, compared to EUR 238 million in the prior year. DSO improved by 5 days to 53 days in the second quarter.
 
Patrick De Maeseneire, Chief Executive Officer of the Adecco Group, said: "The pressure on the revenue decline rate has eased in most markets over the course of Q2 2009. In spite of the revenue decline, the pricing environment in our major market France remained rational and temp gross margins in the US were sequentially pretty stable. Our considerable efforts to adapt the cost base are starting to pay off. SG&A was reduced by 21% on an adjusted basis and in constant currency. The adjusted EBITA margin reached 2.4% in Q2 2009, up 30 bps sequentially. We expect business conditions to remain demanding. However, our initiatives in terms of structurally optimising our cost base, combined with our value-based strategy, position the Adecco Group well, not only in the current environment, but more importantly when the upswing materialises."
 
 
Q2 2009 FINANCIAL PERFORMANCE
 
Revenues
In Q2 2009, Group revenues were down 31% to EUR 3.6 billion compared to the prior year's second quarter. On a constant currency basis, revenues declined by 32%, and by 33% organically[3]. Permanent placement revenues amounted to EUR 44 million in Q2 2009, a decline of 56% and outplacement revenues totalled EUR 84 million, an increase of 57%, both in constant currency.
 
Gross Profit
The gross margin in Q2 2009 was at 17.8%, a decline of 30 bps on an adjusted basis. Last year's gross margin was 19.3% on a reported basis and 18.1% on an adjusted basis. The lower gross margin in the temporary staffing business, partly impacted by lower utilisation in Germany and Sweden, where temporary employees are on Adecco's payroll, and the negative impact on gross margin from the weak permanent placement business, was only partially compensated by the positive contribution of the outplacement business.
 
Selling, General and Administrative Expenses (SG&A)
In the second quarter of 2009, SG&A declined by 21% on an adjusted basis and in constant currency compared to the prior year's quarter. SG&A was reduced by 12% on a reported basis compared to Q2 2008. SG&A declined sequentially by 8% adjusted and in constant currency. FTE employees were reduced by 19% (-6,800) organically compared to Q2 2008, while the branch network was reduced by 13% (-900 branches). At the end of the second quarter of 2009, the Adecco Group operated a network of more than 5,800 offices and had over 29,000 FTE employees. FTE employees at the end of Q2 2009 declined by 7% compared to the end of the first quarter 2009.
 
Restructuring costs amounted to EUR 54 million in Q2 2009 (France: EUR 29 million, Benelux: EUR 10 million, Iberia: EUR 10 million, Other: EUR 5 million), higher than the previously indicated EUR 14 million for Q2 2009, since the first French social plan was successfully implemented with a FTE employee reduction of 700 instead of the originally planned 600. Additionally, the Group recorded the first restructuring expenses with respect to the Adia social plan in France (350 FTE employees) announced in June 2009. Furthermore, the Group decided to integrate Alta Gestion into Adecco Iberia which will lead to headcount reductions and an optimisation of the branch footprint. These additional initiatives will further improve the cost structure of Adecco.
 
EBITA
In the period under review, the adjusted EBITA decreased to EUR 86 million, a decline of 68% in constant currency. The adjusted EBITA margin was 2.4% in the second quarter this year, up 30 bps sequentially. This compares to an adjusted EBITA margin of 5.0% in the prior year. Reported EBITA was EUR 32 million, a decline of 90% compared to Q2 2008.
 
Amortisation and Impairment of Goodwill and Intangible Assets
Amortisation of intangible assets in the second quarter of 2009 amounted to EUR 13 million compared to EUR 12 million in Q2 2008. In addition, the Group impaired EUR 192 million on goodwill and intangible assets in Q2 2009. The German market was severely impacted by the economic downturn, resulting in a EUR 125 million impairment of goodwill for the German operations. Further, EUR 67 million relate to impairment on intangible assets of which EUR 61 million relate to Tuja in Germany and EUR 6 million to the discontinuation of the Alta Gestion brand in Iberia.
 
Operating Income / (Loss)
In Q2 2009, the Adecco Group reported an operating loss of EUR 173 million, impacted by the impairment charges on goodwill and intangible assets of EUR 192 million. This compares to an operating income of EUR 304 million in the second quarter of 2008, which was positively impacted by the modified calculation of French social charges of EUR 54 million.
 
Interest Expense and Other Income / (Expenses), net
In the period under review, the interest expense amounted to EUR 15 million, EUR 1 million less than in Q2 2008. Other income / (expenses), net was EUR 1 million in Q2 2009 compared to EUR 7 million in the second quarter of 2008. Lower interest income and a gain on disposal of a business in Q2 2008 are the main reasons for the decline. Interest expense is expected to amount to approximately EUR 60 million for the full year 2009.
 
Provision for Income Taxes
In Q2 2009, the Group recorded a tax benefit of EUR 40 million compared to a tax expense of EUR 81 million in Q2 2008. The effective tax rate in Q2 2009 was 21% compared to 28% in Q2 2008. The effective tax rate in Q2 2009 was positively impacted by a change in the mix of earnings and the successful resolution of prior years' audits. This was substantially offset by the negative impact of the goodwill impairment charge, which is not tax deductible.
 
Net Income attributable to Adecco shareholders and EPS
The Company posted a net loss attributable to Adecco shareholders of EUR 147 million in the second quarter of 2009, impacted by the impairment charge on goodwill and intangible assets, which compares to net income attributable to Adecco shareholders of EUR 212 million in Q2 2008, which had been positively impacted by the modified calculation of French social charges. The basic EPS in Q2 2009 was a loss of EUR 0.85, compared to income of EUR 1.21 in Q2 2008.
 
Cash flow, Net Debt[4] and DSO
The operating cash flow generated in the first half of 2009 amounted to EUR 282 million (H1 2008: EUR 238 million). The Group paid dividends of EUR 173 million and invested EUR 54 million in capital expenditure. Net debt at the end of June 2009 was EUR 611 million, slightly lower than the EUR 617 million at the end of 2008. DSO improved by 5 days to 53 days in the second quarter of 2009, driven by France, USA & Canada, Germany, UK & Ireland and Iberia.
 
Currency Impact
In Q2 2009, currency fluctuations had a positive impact of approximately 1% on revenues and no impact on EBITA.
 
 
GEOGRAPHICAL PERFORMANCE
 
(The pie charts are visible in the PDF version of the report)
 
In France, revenues declined by 34% to EUR 1.2 billion in Q2 2009. Costs associated with headcount reductions and branch closures amounted to EUR 29 million in the quarter under review due to an additional 100 FTE employees leaving the Group under the first social plan and the recently announced Adia reorganisation. On an adjusted basis, EBITA declined by 73% to EUR 19 million in Q2 2009. The adjusted EBITA margin was 1.6% in Q2 2009, compared to 4.0% in the previous year.
 
In the second quarter of 2009, revenues in the USA & Canada declined by 29% in constant currency to EUR 543 million. As a result of the positive contribution from the Human Capital Solutions business, EBITA declined by 6% in constant currency and the EBITA margin increased by 130 bps to 5.3%.
 
In Germany, second quarter revenues declined by 44% to EUR 229 million. At the EBITA level, Germany posted a loss of EUR 3 million. This compares to an EBITA of EUR 44 million and a corresponding EBITA margin of 10.8% in the same quarter last year. Lower utilisation, also due to fewer trading days, as well as certain one-time costs, negatively impacted the results in the period under review.
 
In Q2 2009, Japan's revenues declined by 24% in constant currency to EUR 332 million. EBITA declined by 22% in constant currency and the EBITA margin was 8.2%, up 20 bps compared to Q2 2008. Excellent cost management and price discipline are the main reasons for the strong result.  
 
In the UK & Ireland, revenues in Q2 2009 were down 31% in constant currency. In terms of EBITA, the region posted a small loss.
 
Continued weak demand in Italy led to a revenue decline of 48% in Q2 2009. Italy recorded an EBITA of EUR 7 million, corresponding to an EBITA margin of 4.4%. Cost cutting measures executed in the previous quarter started to show positive effects. Revenues in the Benelux declined by 20% or 27% organically, while in the Nordics, revenues declined by 39% in constant currency and in Iberia by 42%.
 
Emerging Markets revenues held up well, only declining by 2% in constant currency. The EBITA margin was 3.2% in the period under review, which resulted in an EBITA of EUR 9 million. Growth in constant currency remained positive in Latin & Central America, North East Asia and India.
 
BUSINESS LINE PERFORMANCE
 
(The pie charts are visible in the PDF version of the report)
 
In the Office & Industrial business, Adecco's revenues in Q2 2009 were EUR 2.6 billion, a decline of 38% in constant currency. Revenues in the Industrial business declined by 41% in constant currency. Revenues were down by 37% in France, by 51% in Germany, by 53% in Italy and in the USA & Canada by 41% in constant currency. In the Office business, revenues were down by 28% in constant currency. Japan's decline accelerated to minus 24% in constant currency, while the decline rate stabilized in the USA & Canada with revenues down 28% and in the UK & Ireland where revenues were down 33%, both in constant currency. In France, revenues declined by 32%.
 
In the Professional Business[5] segment, revenues in Q2 2009 declined by 15% in constant currency and by 18% on an organic basis. The gross margin improved by 110 bps to 29.1%, driven by the Human Capital Solutions business.
 
In Information Technology (IT), Adecco's revenues decreased 10% in constant currency and by 17% organically. In the USA & Canada revenues in Q2 2009 were down 24% and in the UK & Ireland down 19%, both in constant currency. In France, revenues rose by 6% organically.
 
Adecco's Engineering & Technical (E&T) business was down 29% in constant currency. The USA & Canada faced a revenue decline of 25% in constant currency, while revenues in Germany also declined by 25% in the second quarter of 2009.  
 
In Finance & Legal (F&L), revenues declined by 33% in constant currency and by 37% on an organic basis. Weak demand in the USA & Canada was the main reason for the decline.
 
In Q2 2009, revenues in Medical & Science (M&S) declined by 14% and in Sales, Marketing & Events (SM&E) by 12%, whereas revenues in Human Capital Solutions (HCS) were up 36%, all in constant currency.
 
 
Adecco agrees to make a recommended cash offer of 62 pence per share for Spring Group plc
 
The Adecco Group announces that it has today agreed to make a recommended public offer for the entire issued and to be issued share capital of Spring Group at 62 pence in cash per Spring Group share. Spring Group is a UK listed company, with sales of £517 million in 2008 and a net cash position of £40 million at the end of 2008. The acquisition will be structured as a UK scheme of arrangement of Spring Group and the total consideration payable will be approximately £108 million. Patrick De Maeseneire comments: "Spring Group offers an excellent strategic fit and substantial synergy potential for Adecco in the UK staffing market. With this transaction, Adecco will strengthen its position in the fragmented UK market and further increase its professional staffing exposure. After the successful completion of the transaction, Adecco intends to offer the current CEO of Spring Group, Peter Searle, the position of country manager of the combined operations of Adecco UK & Ireland and Spring Group. With his significant operational expertise and proven track record in the staffing industry, Peter will strengthen the management capabilities of Adecco in the UK & Ireland." Further information on this transaction is available at http://www.adecco.com/InvestorRelations/Pages/Disclaimer2009Q2.aspx
 
Management outlook
 
Although market conditions in the quarter under review continued to be demanding, the sharp acceleration of the revenue decline rates, witnessed in the previous quarters, appears to have stabilised over the course of the quarter and into July 2009 in most markets.
 
Management continues to focus its efforts on further structurally optimising the cost base while sticking to its value-based strategy. This approach, combined with our strong balance sheet, position the Adecco Group well in the current environment and for the future.
 
Looking ahead, management anticipates no material pick-up of business activities, and has therefore initiated further restructuring measures.
 
Concretely, after the successful execution of the first social plan at Adecco in France and the additional measures announced in June to further optimise the structural cost base and to reduce headcount by approximately 350 employees (FTEs) at its subsidiary Adia, as well as additional measures taken in Iberia, Adecco expects to incur approximately EUR 40 million of restructuring costs in the second half of 2009 for various countries. With these measures, the Adecco Group will have significantly improved its cost base both structurally and in alignment with the demanding market conditions.
 
 
 
 
Forward-looking statements
Information in this release may involve guidance, expectations, beliefs, plans, intentions or strategies regarding the future. These forward-looking statements involve risks and uncertainties. All forward-looking statements included in this release are based on information available to Adecco S.A. as of the date of this release, and we assume no duty to update any such forward-looking statements. The forward-looking statements in this release are not guarantees of future performance and actual results could differ materially from our current expectations. Numerous factors could cause or contribute to such differences. Factors that could affect the Company's forward-looking statements include, among other things: global GDP trends and the demand for temporary work; changes in regulation of temporary work; intense competition in the markets in which the Company competes; changes in the Company's ability to attract and retain qualified internal and external personnel or clients; the potential impact of disruptions related to IT; any adverse developments in existing commercial relationships, disputes or legal and tax proceedings.
 
About the Adecco Group
The Adecco Group, based in Zurich, Switzerland, is the world's leading provider of HR solutions. With over 29,000 FTE employees and more than 5,800 offices, in over 60 countries and territories around the world, Adecco Group offers a wide variety of services, connecting more than 500,000 colleagues with over 100,000 clients every day. The services offered fall into the broad categories of temporary staffing, permanent placement, outsourcing, consulting and outplacement. The Adecco Group is a Fortune Global 500 company.
 
Adecco S.A. is registered in Switzerland (ISIN: CH0012138605) with listings on the SIX Swiss Exchange (ADEN) and on Euronext in France (ADE).
 
 
There will be a media conference call at 9 am CET as well as an analyst conference call at 11 am CET, details of which can be found on our website in the Investor Relations section at http://webcast.adecco.com
 
 
Adecco Corporate Investor Relations
Investor.relations@adecco.com or +41 (0) 44 878 89 89
 
Adecco Corporate Press Office
Press.office@adecco.com or +41 (0) 44 878 87 87
 
 
[1] Adjusted is a non US GAAP measure and excludes the negative SG&A impact associated with restructuring costs for headcount reductions and branch optimisation of EUR 54 million in Q2 2009, as well as the impact of the modified calculation of French social charges in 2005, which positively impacted Q2 2008 with EUR 61 million on gross profit and EUR 54 million on EBITA.

[2] EBITA is a non US GAAP measure and refers to operating income before amortisation and impairment of goodwill and intangible assets.
[3] Organic growth is a non US GAAP measure and excludes the impact of currency, acquisitions and divestitures.

[4] Net debt is a non US GAAP measure and comprises short-term and long-term debt less cash and cash equivalents and short-term investments.

[5] Professional business refers to Adecco's Information Technology, Engineering & Technical, Finance & Legal, Medical & Science, Sales, Marketing & Events and Human Capital Solutions business.
 
 
The full report (in English) including tables can be downloaded from the following link:
 

Get Financial Updates