Adecco increases sales and profits in 2004

March 16, 2005
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Adecco increases sales and profits in 2004

"2004: a tough start of the year ended positively", CEO says

2004 Full Year Highlights:
  • Revenues of EUR 17.2 billion, with a 6% growth for the year and acceleration to 14% in Q4
  • Gross margin stabilization for the year with improvements in Q4 at Adecco Staffing and Ajilon
  • Net income of EUR 332 million, up 9% above last year, up 20% on an underlying basis
  • Adecco US: profit turnaround, normalised audit and SEC investigation terminated
  • Net debt [1] reduced by EUR 625 million to EUR 299 million; regained investment grade status
  • Dividend increase of 43% to CHF 1.00 per share proposed (2003: CHF 0.70)
Q4 2004 Highlights (Q4 04 vs Q4 03):
  • Revenues of EUR 4.7 billion, up 14% (16% in constant currency)
  • Gross margin increases at Adecco Staffing by 20bp and Ajilon Professional by 60bp
  • Operating income margin increases to 3.9% (2003: 2.4%)
  • Net income of EUR 105 million, up 105% (2003: EUR 51 million)

[1] Net debt is a non-US GAAP measure and comprises short-term and long-term debt (and off balance sheet debt in 2003 only of EUR 36 million relating to the UK securitisation) less cash and cash equivalents and short-term investments
Chéserex, Switzerland - March 16, 2005: The Adecco Group, the worldwide leader in Human Resources services, announced today results for the fourth quarter and full year 2004.
Jérôme Caille, Adecco Group Chief Executive Officer, said: "In the fourth quarter, our double-digit sales growth combined with improved gross margins at Adecco Staffing and Ajilon brings the year 2004 to a successful end. In the full-year, we achieved satisfactory sales growth in parallel with stabilizing margins in the business units, despite handling the additional challenges of the 2003 reporting delay. This result reflects our strong relationships with our clients, our own people, and our associates. In addition, we have substantially improved our internal controls - in particular at Adecco US - and further reduced net debt, providing a solid foundation to support our business expansion going forward. We enter 2005 with confidence and momentum. All three of Adecco's divisions are well placed for future growth," said Caille.
Group sales for the fiscal year of 2004 were EUR 17.2 billion, a 6% increase compared to the fiscal year of 2003. Sales for the fourth quarter of 2004 were EUR 4.7 billion, a 14% increase over the fourth quarter of 2003.
Gross Margin
Fourth quarter gross margin increased at our two major divisions: Adecco Staffing (15.2% vs. 15.0% in 2003) and Ajilon (24.1% vs 23.5% in 2003). Full year gross margin was stable at Adecco Staffing (15.0%) and increased at Ajilon (24.2% vs 23.7% in 2003). The business mix effect of lower LHH Career Services division revenues was the driver of the group gross margin decline by 10bp (16.7% vs. 16.8% in 2003) in the fourth quarter and by 30 bp for the full year (16.7% vs. 17.0% in 2003). Provision releases in France for social charges affecting gross margin in the fourth quarter were EUR 26 million (2003: EUR 55 million) and for the full year were EUR 38 million (2003: EUR 61 million).  In North America there were no significant changes in provisions affecting gross margin in the fourth quarter or the year (vs. EUR 34 million increase in Q4 2003).
Operating Costs
As a percentage of sales, operating costs were reduced to 12.8% (2003: 14.2%) in the fourth quarter including expensing of costs associated with the financial reporting delay of EUR 2 million (2003: EUR 6 million) and expensing of stock options of EUR 5 million (2003: EUR 6 million).
Operating Income
Operating margin improved by 150bp to 3.9% in the fourth quarter (2003: 2.4%).  For the full year operating income margin was stable at 3.1% (2003: 3.1%). The costs of the 2003 financial reporting delay reduced operating income margin by 40bp for the year.  Before these costs, operating income margin increased to 3.6% (2003: 3.2%) for the full year.
Provision for income taxes
The effective tax rate for the full year was 36.5% compared with 29.2% last year. The provision for income taxes increased by EUR 46 million to EUR 174 million this year. The increase in the 2004 effective tax rate was mainly due to expenses associated with the 2003 financial reporting delay receiving a lower tax benefit, and changes in the mix of income being taxed at higher tax rates.

Net income and EPS
Net income was up 9% to EUR 332 million in 2004, a basic EPS of EUR 1.77 for 2004 compared to EUR 1.63 for 2003. Net income and basic EPS figures include EUR 30 million gain on sale of jobpilot in April 2004 and EUR 83 million of costs related to the 2003 financial reporting delay. Excluding these two principal effects underlying net income increased by 20%.
Balance sheet, cash-flow, and net debt
The Group balance sheet was significantly strengthened during the year. Cash-flow for the year was strongly positive principally due to higher cash inflows from operations during the fourth quarter, which benefited from an extra week of trading. The Group repaid EUR 300 million of gross debt in the fourth quarter and ended the year with cash and short term investments of EUR 1.2 billion. Net debt was significantly reduced by EUR 625 million to EUR 299 million during the year. Both Standard & Poor's and Moody's rate Adecco's debt as investment grade.
Currency impact [2]
Currency fluctuations in the fourth quarter reduced reported sales by 2% but increased operating income by 5% due to the strengthening of the Euro against the US Dollar together with the turnaround in the Adecco US from a loss to a profit. Over the full year, the currency impact reduced sales and operating income by 3% and 1%, respectively.
[2] All percentage comparisons are expressed in Euro unless stated otherwise
53rd accounting week impact
The fiscal year 2004 includes 53 weeks compared to 52 weeks in 2003. The additional sales of the extra week were EUR 214 million which generated operating income of approximately EUR 10 million. Excluding the extra week and in constant currency, sales increased 11% and 8% for the quarter and full-year respectively.
Divisional performance
Adecco Staffing Division
For the year the division accounted for EUR 15.3 billion or 89% of group revenue and 85% of total contribution generated by operating units. The seven geographical regions discussed below account for over 84% of the division's revenues. Overall, the division achieved revenue growth of 5% for the full year, and 9% for Q4, excluding the impact of the 53rd week. The division's operating income rose 24% and operating margins for the year increased by 60bp to 4.1%, and in Q4 by 130bp to 4.5%.
Q404 sales growth in constant currency for key Adecco Staffing business units were as follows:

Ajilon Professional Division
In the Ajilon Professional Division, which represented 10% of group revenues and 12% of total contribution generated by operating units, sales for the year were up 7% to EUR 1.8 billion with a 51% increase in operating income reflecting improving gross margins and operational gearing.
This good operating performance continued in Q4 with Ajilon Professional revenues increasing by 16% and operating income ahead by 191%. Q404 sales growth in constant currency for key Ajilon Professional business units were as follows:
LHH Career Services Division
In the LHH Career Services Division, which represented 1% of group sales and 3% of total contribution generated by operating units, revenues fell by 27% over the year, but the rate of decline slowed in Q4 to -13% (-15% on a 13-week basis), showing improvement over prior periods. This reflects general market conditions. Operating margins at 17.0% remained the highest in the Group.
Dividend and AGM
The Board of Directors will propose a dividend increase of 43% to CHF 1.00 per share (2003: CHF 0.70) for the approval by shareholders at the Annual General Meeting, which is scheduled for May 26, 2005 in Lausanne. The proposal implies a dividend payout ratio on Net Income before extraordinary costs of the 2003 financial reporting delay and the gain on sale of jobpilot of 32%, in line with historic payout ratios. The dividend for the shares is planned to be paid on June 8, 2005, and the dividend for the ADRs is planned to be paid on July 12, 2005.
Litigation and regulatory matters; termination of SEC investigation
The staff of the US Securities and Exchange Commission recently notified Adecco that its investigation has been terminated and that no enforcement action has been recommended.  In addition, the SWX Swiss Stock Exchange closed its preliminary investigation into Adecco's compliance with applicable accounting and regular reporting requirements without any sanctions, while Adecco has appealed a reprimand, the lowest level of sanction without monetary penalty, issued in relation to the ad hoc publicity rules. Class action lawsuits in the USA are still pending, although Adecco believes that there is no merit to the allegations, has filed a motion to dismiss, and will continue to defend itself vigorously. The previously announced US state unemployment tax review and French antitrust investigation are also ongoing.
There can be no assurance that the resolution of any of these matters will not have a material adverse effect on Adecco's consolidated financial position, results of operations, or cash flows.
The key drivers for the industry are global GDP trends in developed and emerging markets and labour market flexibility as a result of more favourable regulation. These indicators are at present broadly positive for the staffing services market in 2005. With our continuing focus on profitable sales growth through the expansion of our branch network and extension of our service lines, we look for further organic sales growth and margin improvements at or above market levels in 2005.
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. (the "Company") as of the date of this release, and we assume no duty to update any such forward-looking statements. Factors that could affect the Company's forward-looking statements include, among other things: global GDP trends; the demand for and changes in legislation of temporary work; the assertion and resolution of US unemployment tax assessments and the French anti-trust investigation; the resolution of the US class action litigation; other regulatory enquiries relating to the 2003 financial reporting delay; any adverse developments in existing commercial relationships, disputes or legal proceedings; and intense competition in the markets in which the Company competes.
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. Please refer to the Company's Annual Report on Form 20-F for the year ended December 28, 2003, and other reports filed with or submitted to the U.S. Securities and Exchange Commission from time to time, for a further discussion of the factors and risks associated with our business.
About Adecco
Adecco S.A. is a Fortune Global 500 company and the global leader in HR Solutions.  The Adecco Group network connects up to 700,000 associates with business clients each day through its network of 30,000 employees and over 6,000 offices in 71 territories around the world.  Registered in Switzerland, and managed by a multinational team with expertise in markets spanning the globe, the Adecco Group delivers an unparalleled range of flexible staffing and career resources to corporate clients and qualified associates.
The Adecco Group comprises three Divisions: Adecco Staffing, Ajilon Professional and LHH Career Services.  In Adecco Staffing, the Adecco network focuses on flexible staffing solutions for global industries in transition, including automotive, banking, electronics, logistics and telecommunications; Ajilon Professional offers an unrivalled range of specialised branded businesses; LHH Career Services encompasses our portfolio of outplacement and coaching consultancy businesses.
Adecco S.A. is registered in Switzerland (ISIN: CH0012138605) and listed on the Swiss Stock Exchange with trading on Virt-x (SWX/VIRT-X:ADEN), the New York Stock Exchange (NYSE:ADO) and Euronext Paris - Premier Marché (EURONEXT: ADE).
Adecco Corporate Investor Relations or +41 (0) 44 878 8884
Adecco Corporate Press Office or +41 (0) 44 878 8832      
Cubitt Consulting or +44 (0) 207 367 5100    
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