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Adecco has announced its full year 2009 results

Adecco has announced its full year 2009 results and continues to see an improving revenue trend.

Q4 2009 gross margin held up well sequentially as a result of strong price discipline

FY 2009 HIGHLIGHTS (2009 versus 2008)

Revenues of EUR 14.8 billion, down 26% (-27% organically[1])
Gross margin held up well, down only 20 bps to 17.8% on an adjusted[2] basis
Strong organic and adjusted SG&A reduction of -19%
EBITA[3] margin down 180 bps to 2.7% on an adjusted basis
DSO improved by 4 days to 53 days
Proposed dividend of CHF 0.75 per share
Q4 HIGHLIGHTS (Q4 2009 versus Q4 2008)
Revenues of EUR 3.8 billion, down 18% (-18% organically)
Adjusted gross margin down 60 bps to 17.4%
SG&A down 18%, adjusted and organically
Adjusted EBITA margin at 2.9%, down 70 bps
DSO improved by 4 days to 52 days
Key figures

in EUR millions

FY 2009reported

Q4 2009reported

FY 2009growthadjusted/organic

Q4 2009growthadjusted/organic

Revenues

14,797

3,785

-27%

-18%

Gross profit

2,649

665

-29%

-21%

EBITA

299

89

-57%

-33%

Operating income

65

81

Net income attributable to Adecco shareholders

8

42

Adecco Group, the worldwide leader in Human Resource services, today announced results for the full year and the fourth quarter of 2009. Revenues in 2009 were down 26%, or down 27% organically, to EUR 14.8 billion compared to EUR 20.0 billion in 2008. Gross margin held up well and was only down 20 bps to 17.8% on an adjusted basis. Rigorous cost management led to a strong organic SG&A reduction of 19%, on an adjusted basis. The 2009 adjusted EBITA margin was 2.7% compared to 4.5% a year ago. DSO improved by 4 days to 53 days in 2009.

Patrick De Maeseneire, Chief Executive Officer of the Adecco Group said: "The year 2009 has been exceptionally tough, but I am pleased to say that we have managed the downturn very proactively. We made the necessary cost reductions and structurally changed our branch network and delivery models. Our pricing discipline and our well-balanced service portfolio have led to an adjusted gross margin that was only down 20 bps to 17.8%. In the fourth quarter, trading conditions continued to improve in our major markets France and North America, but also in most other geographies we saw positive momentum. This positive trend continued into the first two months of the year, with France and North America returning to year-on-year growth in recent weeks. The substantially lower SG&A base, our disciplined pricing and the higher professional staffing exposure, will let us fully profit from the upturn."
FY 2009 FINANCIAL PERFORMANCE
RevenuesGroup revenues for 2009 were EUR 14.8 billion, a decline of 26% compared to the prior year. Organically revenues were down by 27%. Permanent placement revenues amounted to EUR 178 million, a decline of 49% compared to 2008, while outplacement revenues totalled EUR 298 million, an increase of 39%, both in constant currency.

Gross ProfitIn 2009, the gross margin was 17.9% compared to 18.4% in the prior year. On an adjusted basis, the gross margin was 17.8%, a decline of 20 bps compared to the adjusted 2008 gross margin of 18.0%.
Selling, General and Administrative Expenses (SG&A)SG&A declined by 15% in 2009 compared to the prior year. On an adjusted basis and organically, SG&A declined by 19% compared to 2008. At year end 2009 the Adecco Group had over 28,000 FTE employees worldwide, while operating a network of over 5,500 offices. Compared to year end 2008, FTE employees were down 20% on an organic basis, while branches were reduced by 16% organically.

EBITAIn 2009, EBITA amounted to EUR 299 million, a decline of 67% and down 57% adjusted and organically compared to 2008. The adjusted EBITA margin was down 180 bps to 2.7% compared to the adjusted EBITA margin of 4.5% in the prior year.

Amortisation and Impairment of Goodwill and Intangible AssetsAmortisation was EUR 42 million in 2009, compared to EUR 44 million in 2008. In addition, the company recorded an impairment of EUR 192 million on goodwill and intangible assets in Q2 2009. This includes a EUR 125 million goodwill impairment charge in Germany and EUR 67 million impairment on intangible assets, mainly for Tuja in Germany.

Operating IncomeOperating income in 2009 was EUR 65 million, down 91% compared to 2008, also negatively impacted by the higher impairment charges on goodwill and intangible assets.

Interest Expense and Other Income / (Expenses), netInterest expense was EUR 55 million in the period under review, which compares to EUR 58 million in 2008. Other income / (expenses), net was an expense of EUR 1 million in 2009 compared to income of EUR 19 million in 2008. Interest expense is expected to be around EUR 65 million for the full year 2010.
Provision for Income TaxesThe effective tax rate for 2009 was 5% compared to 30% in 2008. The 2009 effective tax rate was positively impacted by a change in the mix of earnings.

Net Income attributable to Adecco shareholders and EPSIn 2009, net income attributable to Adecco shareholders was down 98% to EUR 8 million (2008: EUR 495 million). Basic EPS was EUR 0.04 (EUR 2.82 in 2008).

Cash-flow, Net Debt[4] and DSOOperating cash flow amounted to EUR 477 million in 2009. The Group invested EUR 152 million in various acquisitions and spent EUR 91 million in capex in 2009. Additionally, in 2009, in connection with the placement of a three-year CHF 900 million mandatory convertible bond, the Group completed a prepaid forward sale of Adecco S.A. shares resulting in a EUR 587 million cash inflow and purchased a call spread option on Adecco S.A. shares for EUR 108 million. Dividends paid were EUR 173 million in 2009. Net debt at the end of December 2009 was EUR 110 million compared to EUR 617 million at the year end of 2008. In 2009, DSO improved by 4 days to 53 days compared with 2008.

Currency ImpactCurrency fluctuations had only a minor impact on revenues and operating income in 2009.
Q4 2009 FINANCIAL PERFORMANCE

Revenues Group revenues in Q4 2009 were down 18% to EUR 3.8 billion compared to Q4 2008. On a constant currency basis, revenues declined by 16% and were down 18% organically. In the fourth quarter of 2009, permanent placement revenues totalled EUR 41 million, a decline of 39%, while outplacement revenues amounted to EUR 61 million, up 5%, both in constant currency.

Gross ProfitIn Q4 2009, the gross margin was 17.6%. The adjusted gross margin was 17.4%, equal to the third quarter of 2009 and compared to an 18.0% adjusted gross margin in the same period last year. The temporary staffing business negatively impacted the gross margin by 60 bps in Q4 2009, mitigated by better utilisation rates in Germany and Sweden, while the decline of the permanent placement business had a negative impact on gross margin of 30 bps. This was only partially compensated by the 20 bps contribution of the outplacement business and by the 10 bps contribution from other activities.

Selling, General and Administrative Expenses (SG&A)SG&A in Q4 2009 was down 20% compared to the same period last year. Organically and adjusted SG&A declined by 18%. Restructuring costs totalled EUR 30 million in Q4 2009. The consolidation of Spring Group added EUR 9 million to SG&A and costs related to the recent acquisitions totalled EUR 4 million in the period under review. FTE employees, on an organic basis, declined by 21% (-7,200) when comparing to the same quarter last year, while the branch network was reduced by 16% (-1,000 branches).

EBITAIn the period under review, EBITA was EUR 89 million, a decrease of 28% or 33% organically and adjusted. The resulting adjusted EBITA margin was 2.9% in Q4 2009. This compares to an adjusted EBITA margin of 3.6% in the prior year.
Amortisation of Intangible Assets
Amortisation in Q4 2009 was EUR 8 million compared to EUR 12 million in the same quarter last year.

Operating IncomeIn Q4 2009, operating income was EUR 81 million. This compares to an operating loss of EUR 5 million in the fourth quarter of the prior year, primarily as a result of impairment charges to goodwill and intangible assets of EUR 116 million in Q4 2008.

Interest Expense and Other Income / (Expenses), netThe interest expense amounted to EUR 14 million in the period under review, EUR 1 million higher than in Q4 2008. Other income / (expenses), net was an expense of EUR 4 million in Q4 2009 compared to income of EUR 8 million in the fourth quarter of 2008.

Net Income attributable to Adecco shareholders and EPSIn the period under review, net income attributable to Adecco shareholders was EUR 42 million. This compares to a loss of EUR 22 million in the prior year, which was negatively impacted by the impairment charges. Basic EPS in Q4 2009 was EUR 0.22 (Q4 2008: basic loss per share of EUR 0.12).
Currency Impact
In Q4 2009, currency fluctuations had a negative impact of approximately 2% on revenues and on EBITA.

GEOGRAPHICAL PERFORMANCE

Revenues in France declined by 13% to EUR 1.2 billion in Q4 2009. This compares to a revenue decline rate of 27% in Q3 2009. EBITA increased by 56% to EUR 36 million, but on an adjusted basis, EBITA declined by 31% compared to the same period last year. The positive release of EUR 14 million due to a reassessment of existing accruals, offset restructuring costs of EUR 12 million. The adjusted EBITA margin was 2.7% in Q4 2009, up 20 bps sequentially and compared to 3.4% in the same period last year.

In North America[5], Adecco's revenues declined by 14% in constant currency to EUR 562 million in Q4 2009. EBITA declined by 12% in constant currency, while on an adjusted basis, EBITA increased by 3% compared to Q4 2008. The EBITA margin on an adjusted basis increased by 80 bps to 4.8%. The Human Capital Solutions business contributed 42% to adjusted EBITA in North America in Q4 2009, compared to 63% in Q3 2009.

In Germany & Austria[5], revenues were down 28% to EUR 261 million in the period under review. EBITA in Germany & Austria declined by 33% compared to Q4 2008. Adjusted EBITA declined by 44% in Q4 09, while the adjusted EBITA margin was 5.4% (Q4 2008: 6.9%).

In Japan, fourth quarter revenues declined by 29% in constant currency to EUR 295 million. EBITA declined by 38% in constant currency and the EBITA margin was 6.3%, a decline of 80 bps compared to Q4 2008. During Q4 2009, the revenue decline rate in Japan stabilised. The excellent profitability, despite lacklustre demand, is once again a result of the efficient delivery model, strict cost management and price discipline.

In the UK & Ireland, revenues in Q4 2009 were flat in constant currency compared to Q4 2008, but declined by 21% organically. At the EBITA level the region reported a loss of EUR 12 million, mainly due to integration costs related to the Spring Group acquisition of EUR 6 million and a sales tax accrual related to prior years of EUR 7 million. The integration of Spring Group is well on track.
In Italy, revenues declined by 28% in Q4 2009, and in Benelux by 13% (-19% organically). In the Nordics, revenues were down by 25% in constant currency, while in Iberia revenues declined by 16%.

Revenues in the Emerging Markets[5] returned back to growth of 5% in constant currency and by 7% organically, mainly driven by South America, Eastern Europe and India. The corresponding EBITA margin was 3.0% in the period under review.
BUSINESS LINE PERFORMANCE
In Q4 2009, revenues in Office and Industrial declined by 20% in constant currency to EUR 2.8 billion. In the Industrial business, revenues declined by 19% in constant currency, following a decline of 33% in Q3 2009. Most notable improvements in the year-on-year decline rates were evident in North America, from -30% in Q3 2009 to -14% in Q4 2009 in constant currency, in France from -29% to -14%, in Italy from -47% to -31% and in Iberia from -36% to -20%. In Q4 2009, revenues in the Office business declined by 22% in constant currency, an improvement compared to the third quarter of 2009, where revenues declined by 28%. In constant currency, revenues in Japan decreased by 28%, equal to the decline rate in Q3 2009. The decline rate improved in North America with revenues down 11%, after falling 22% in Q3 2009 and in the UK & Ireland the revenue decline rate improved from -29% in Q3 2009 to -16% (-18% organically) in Q4 2009, all in constant currency.

The Professional Business[7] revenues in the fourth quarter of 2009 declined by 6% in constant currency and by 16% on an organic basis. The gross margin declined by 120 bps to 26.3%.

In Information Technology (IT), Adecco's revenues increased 10% in constant currency but declined by 18% organically. Weak developments in North America led to a revenue decline in constant currency of 16%, whereas revenues in the UK & Ireland increased by 41% in constant currency but declined by 23% on an organic basis compared to Q4 2008.

Adecco's Engineering & Technical (E&T) business was down 18% in constant currency and declined by 19% organically. Revenues in North America declined by 12% in constant currency, while revenues in Germany & Austria were down by 18% compared to Q4 2008.

In Finance & Legal (F&L), revenues declined by 24% in constant currency and were down 27% organically. The main reason for the decline was weak demand in North America, where revenues were down 32% in constant currency.
In Q4 2009, revenues in Sales, Marketing & Events (SM&E) were down by 14%, whereas revenues in Human Capital Solutions (HCS) were up 5% and Medical & Science (M&S) declined by 5% (-8% organically), all in constant currency.

MANAGEMENT OUTLOOK
The positive development of the revenue trend observed during the fourth quarter of 2009, continued into the new year, with the main markets France and North America returning back to year-on-year growth in recent weeks. While visibility on demand in the coming months remains low, management is gaining confidence on the recovery of the industry. Management's focus remains on price discipline and strict cost control, while seeking opportunities to take advantage of improved market conditions.

In January, Adecco Group revenues were down 5% on an organic basis and adjusted for trading days compared to the prior year. Based on current developments, management expects a continued improvement of market conditions.

The structural measures taken to improve the cost base in the recent downturn coupled with the higher exposure to professional staffing through recent acquisitions best position the Adecco Group to take advantage of better economic conditions and to further enhance its leading market position in both general and professional staffing. As a result, management is committed to improve the EBITA margin to above 5.5% mid-term.Successful closing of the acquisition of MPS GroupOn January 19, 2010, Adecco successfully completed the acquisition of MPS Group, a leading provider of professional staffing services. This acquisition significantly enhances Adecco's position in the professional staffing business, particularly in North America and the UK. The integration of MPS Group has been initiated immediately after the closing of the deal. Adecco expects the transaction to be accretive on an adjusted EPS[8] basis in 2010. The acquisition will be EVA[9] positive within three years, in line with Adecco's value based strategy and financial discipline. Adecco expects to achieve EUR 25 million of annual synergies from the integration of MPS Group within two years. Integration costs are expected to amount to approximately one time the annual synergies.

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