Adecco delivers another solid performance in Q2 2014Download this Document
Adecco delivers another solid performance in Q2 2014
Further margin expansion driven by price discipline and good cost control
Q2 2014 highlights
• Revenues up 5% year-on-year in constant currency
• Gross margin 18.1%, up 20 bps
• SG&A excluding restructuring costs up 3% yoy and down 1% sequentially, both in constant currency
• EBITA excluding restructuring costs EUR 228 million, up 18% in constant currency
• EBITA margin excluding restructuring costs 4.6%, up 50 bps
• Net income attributable to Adecco shareholders up 15%, basic EPS up 18%
Key figures Q2 2014
in EUR millions
Constant currency growth
EBITA excluding restructuring costs
Net income attributable to Adecco shareholders
Zurich, Switzerland, August 7, 2014: the Adecco Group, the world’s leading provider of Human Resources solutions, today announced results for Q2 2014. Revenues were EUR 5.0 billion, up 5% in constant currency. The gross margin was 18.1%, an increase of 20 bps versus the prior year. SG&A excluding restructuring costs was up 3% yoy and down 1% sequentially, both in constant currency. The EBITA margin excluding restructuring costs was 4.6%, up 50 bps compared to the same quarter last year. Net income attributable to Adecco shareholders was up 15% to EUR 145 million and basic EPS increased by 18% to EUR 0.82.
Patrick De Maeseneire, CEO of the Adecco Group said: “In the second quarter our colleagues delivered another good performance. Revenue growth continued at a similar level to the first quarter. Growth remained steady in Europe, led once again by our Industrial business, and as expected we saw a pick-up in activity in North America. The Group exited the quarter with revenue growth of 5% in June, in constant currency and adjusted for trading days. Our EBITA margin development in Q2 2014 was again encouraging, expanding by 50 bps despite the unfavourable timing of bank holidays. We continue to be very focused on reaching our EBITA margin target of above 5.5% in 2015. Based on the good progress on our six strategic priorities, recent trends and continued favourable economic conditions expected going forward, we remain convinced we will achieve this target.”
Q2 2014 FINANCIAL PERFORMANCE
Q2 2014 revenues of EUR 5.0 billion were up 1% year-on-year, or up 5% in constant currency. Currency fluctuations had a negative impact on revenues of approximately 4% and there was no material impact from acquisitions and divestitures. By business line, constant currency growth was 5% in General Staffing, with Industrial up 8% and Office flat, and 2% in Professional Staffing. Permanent placement revenues amounted to EUR 89 million, up 8% in constant currency. Revenues from Career Transition (outplacement) totalled EUR 74 million, up 9% in constant currency.
Gross profit amounted to EUR 905 million, an increase of 2% or 6% in constant currency. The gross margin was 18.1%, up 20 bps year-on-year. Temporary staffing had a 30 bps positive impact on gross margin, driven by our continued strict approach to pricing as well as the effect of the French CICE (tax credit for competitiveness and employment). The permanent and outplacement businesses had a neutral effect while other activities had a negative impact of 10 bps.
Selling, General and Administrative Expenses (SG&A)
SG&A was EUR 681 million, down 1% compared to Q2 2013. Restructuring costs were EUR 4 million, compared to EUR 2 million in Q2 2013. SG&A excluding restructuring costs was EUR 677 million, up 3% year-on-year in constant currency. Sequentially, SG&A excluding restructuring costs was down 1% in constant currency. FTE employees increased by 1% to 31,500 and the branch network decreased by 3% compared to Q2 2013.
EBITA was EUR 224 million. EBITA excluding restructuring costs was EUR 228 million, up 18% in constant currency compared to the prior year. The EBITA margin excluding restructuring costs was 4.6%, up 50 bps year-on-year.
Amortisation of Intangible Assets
Amortisation of intangible assets was EUR 9 million compared to EUR 10 million in Q2 2013.
Operating income was EUR 215 million compared to EUR 190 million in the same period last year.
Interest Expense and Other Income/(Expenses), net
Interest expense was EUR 20 million compared to EUR 19 million in Q2 2013. Other income/(expenses) net, was an income of EUR 4 million in Q2 2014 compared to nil in Q2 2013.
Provision for Income Taxes
The effective tax rate was 27% compared to 26% in the prior year.
Net Income Attributable to Adecco Shareholders and EPS
Net income attributable to Adecco shareholders was EUR 145 million compared to EUR 126 million last year. Basic EPS increased to EUR 0.82 from EUR 0.69.
Cash flow, Net Debt and DSO
Cash flow generated from operating activities was EUR 130 million in Q2 2014 compared to EUR 17 million in the same period last year. In Q2 2014, cash flow generated from operating activities included EUR 109 million of cash proceeds from the sale of a portion of the CICE receivables. In Q2 2014, capex was EUR 18 million and the Group paid dividends of EUR 291 million and paid EUR 52 million for treasury shares. Net debt at June 30, 2014 was EUR 1,262 million compared to EUR 1,028 million at March 31, 2014. DSO was 54 days in Q2 2014, compared to 53 days in Q2 2013.
Q2 2014 SEGMENT PERFORMANCE
Note: all revenue growth rates in this section are year-on-year on an organic basis, unless otherwise stated
In France, revenues were flat at EUR 1.2 billion. Industrial, which accounts for approximately 85% of revenues in France, grew by 2%. In Office, revenues decreased by 16%, while in Professional Staffing the decline was 5%. Permanent placement revenues in France were up 5%. EBITA was EUR 74 million and the EBITA margin was 6.1%. This is a 200 bps increase compared to the EBITA margin excluding restructuring costs of 4.1% in Q2 2013. As in Q1 2014, this quarter CICE had a positive effect year-on-year, due to the increase in the rate of the credit from December 1, 2013 and the reassessment we made in Q3 2013 of CICE relating to prior periods and going forward.
In North America, revenues were EUR 927 million, an increase of 3%. In North America, General Staffing accounts for approximately half of revenues. In Industrial, revenue growth was strong at 10%. In Office, revenues declined by 5%, driven by continued weak demand from clients in Financial Services. Revenues in Professional Staffing grew by 2%, with growth of 3% in IT, 5% in Finance & Legal and 6% in Medical & Science. Engineering & Technical declined by 1%. Permanent placement revenues in North America were up 10%. EBITA was EUR 53 million, which includes restructuring costs of EUR 4 million related to the move to a single headquarters in North America. EBITA excluding restructuring costs was EUR 57 million, with the margin increasing by 100 bps to 6.2%.
In the UK & Ireland, revenues increased by 3% to EUR 502 million. Approximately two-thirds of revenues come from Professional Staffing, which grew by 7%. This included revenue growth of 9% in IT and 3% in Finance & Legal. Within General Staffing, the majority of revenues are in Office, which declined by 3%. Permanent placement revenues in the UK & Ireland increased by 13%. EBITA was EUR 12 million with a margin of 2.5% compared to 1.8% in Q2 2013.
In Germany & Austria, revenues grew by 7% to EUR 413 million. Growth was driven by Industrial, which accounts for approximately 70% of revenues and which grew by 11%. Demand from clients in the automotive and equipment manufacturing sectors continued to be good. Revenues in Professional Staffing fell by 6%. EBITA was EUR 10 million, with a margin of 2.3% compared to 3.7% in Q2 2013. This decrease was primarily due to the timing of bank holidays, with Easter Friday falling in March last year and in April this year.
In Japan, revenues were EUR 259 million, up 2%. Revenues declined by 1% in Office, which accounts for approximately 75% of our revenues in Japan. This was offset by solid revenue growth of 7% in our smaller Professional Staffing business, which comprises IT and Engineering & Technical. EBITA was EUR 14 million and the EBITA margin was 5.5% compared to 6.3% in the prior year.
In Italy, revenues were up 18%, helped by good demand from manufacturing clients. Profitability continued to be strong with an EBITA margin of 6.4%.
In Benelux, revenues increased by 8% and the EBITA margin strengthened to 3.4%, up 90 bps year-on-year.
In the Nordics, revenues were up 7%. In Norway the environment remains challenging but the revenue trend is improving, whilst growth continued to be strong in Denmark. In the Nordics the EBITA margin declined by 60 bps to 3.5%, negatively impacted by the timing of bank holidays in Sweden.
In Iberia, revenues were up 21%, driven by further strong demand from export-oriented clients. The EBITA margin was 4.4%, up 140 bps year-on-year due to strong operating leverage.
In Australia & New Zealand, revenues fell by 18%, still negatively impacted by client losses in the second half of 2013. This resulted in significant deleveraging and weak profitability.
In Switzerland, revenues were flat compared to Q2 2013. Profitability was strong, with the EBITA margin increasing by 100 bps to 8.5%.
In the Emerging Markets, revenue growth was 12%, with strong growth in Eastern Europe & MENA, up 23%. The EBITA margin for Emerging Markets was 3.0% compared to 3.1% in Q2 2013.
In LHH, Adecco’s Career Transition and Talent Development business, revenue growth slowed to 5%. This was driven by lower growth in North America, which accounts for approximately 50% of LHH revenues. The EBITA margin for LHH remained strong at 28.4%.
In the second quarter, revenue growth continued at a similar level to the first quarter. Growth in Europe remained steady, led once again by our Industrial business. Iberia and Italy continued to deliver the strongest revenue growth, whilst France was still flat. In North America we saw a pick-up in activity as expected, and Emerging Market growth remained robust.
The Group exited Q2 2014 with revenue growth of 5% in June, in constant currency and adjusted for trading days. Based on the current economic outlook and the trends we see within our business, we expect demand for flexible labour to increase further over the course of 2014.
Given these trends, we will continue to invest selectively where we see organic growth opportunities and where productivity is already at a high level, whilst maintaining our overall focus on tight cost control. SG&A in Q3 2014 is expected to be at a similar level to Q2 2014 on a constant currency basis and excluding restructuring costs.
We continue to be very focused on reaching our EBITA margin target of above 5.5% in 2015. Based on the good progress on our six strategic priorities, recent trends and continued favourable economic conditions expected going forward, we remain convinced we will achieve this target.
SHARE BUYBACK PROGRAMME
In September 2013, the Company launched a share buyback programme of up to EUR 250 million on a second trading line with the aim of subsequently cancelling the shares and reducing the share capital. To date, the Company has acquired 2.8 million shares under this programme for EUR 162 million.