Adecco continues to deliver strong topline growth
Adecco continues to deliver strong topline growth
Strong EBITA margin progression on better revenues, stable pricing and cost control
Q3 HIGHLIGHTS (Q3 2010 versus Q3 2009)
Revenues of EUR 5.1 billion, up 36% (17% organically1)
Gross margin of 17.8%, up 10 bps (-70 bps organically and adjusted2)
SG&A increased by 28% (5% organically and adjusted)
EBITA3 before integration costs of EUR 239 million (38% organically and adjusted)
EBITA margin before integration costs at 4.7%, up 90 bps on an adjusted basis
DSO at 53 days in Q3 2010, equal to Q3 2009
Key figures Q3 2010
in EUR millions reported reported
Revenues 5,055 36% 17%
Gross profit 898 36% 11%
EBITA before integration costs 239 77% 38%
EBITA 230 70% 35%
Operating income 216 69%
Net income attributable to Adecco shareholders 128 42%
Zurich, Switzerland, November 9, 2010: Adecco Group, the worldwide leader in Human Resource services, today announced results for the third quarter of 2010. Revenues were EUR 5.1 billion in Q3 2010, an increase of 17% on an organic basis. The gross margin was 17.8%, up 10 bps compared to the prior years third quarter and down 70 bps organically and adjusted. SG&A increased by 28% or by 5% organically and adjusted. Sequentially and in constant currency, SG&A declined by 1%. The Q3 2010 EBITA margin before integration costs was 4.7%, up 90 bps compared with the adjusted Q3 2009 EBITA margin of 3.8%. DSO were at 53 days in Q3 2010, equal to Q3 2009.
Patrick De Maeseneire, Chief Executive Officer of the Adecco Group, said: We continued to see very good demand for our services across most markets and year-on-year organic revenue growth increased in the third quarter compared to Q2. Growth in our main markets France and North America remained very robust. At the same time, we increased the pace in Germany, Benelux, Italy, Nordics and Switzerland, all delivering strong double-digit revenue growth and good profitability. Demand remained very healthy in the industrial segment, while the office business returned to organic growth and our professional staffing business clearly accelerated. Pricing, in the temporary staffing business, stabilised since the beginning of the year. We achieved the same gross margin of 17.8% in Q3 2010 as in the previous quarter. Tight cost control, coupled with strong topline growth and a stable gross margin, resulted in excellent progression on profitability and we achieved an EBITA margin before integration costs of 4.7%. Revenues in September grew 17% organically and adjusted for trading days. In sum, we dont see signs of a slowdown and will continue to exploit the opportunities in the current environment, while keeping a tight grip on costs and maintaining price discipline.
Q3 2010 FINANCIAL PERFORMANCE
Group revenues in Q3 2010 were up 36% to EUR 5.1 billion compared to Q3 2009. Organically, revenues increased by 17%. Permanent placement revenues amounted to EUR 77 million in Q3 2010, an increase of 83% in constant currency (35% organically) and outplacement revenues totalled EUR 50 million, a decline of 29% in constant currency.
The gross margin in Q3 2010 was 17.8%, up 10 bps compared to the prior years third quarter, and down 70 bps organically and adjusted. The temporary staffing business had a negative impact of 50 bps on the gross margin in Q3 2010. The same holds true for the outplacement business which also negatively impacted the Groups gross margin by 50 bps. The permanent placement business positively impacted the gross margin by 20 bps in Q3 2010, while other activities added 10 bps.
Selling, General and Administrative Expenses (SG&A)
In Q3 2010, SG&A increased by 28% compared to Q3 2009. Adjusted and organically SG&A increased 5% compared to the prior years period but was down by 1% sequentially in constant currency, partly helped by seasonality. Integration costs amounted to EUR 9 million in Q3 2010. Organically, FTE employees remained at the same level compared to the third quarter of 2009. Sequentially, FTE employees increased by 2%, mainly due to hirings in the Emerging Markets and Germany. The branch network, on an organic basis, was reduced by 8% year-on-year (-480 branches). At the end of Q3 2010, the Adecco Group operated a network of more than 5,500 branches and had close to 32,000 FTE employees.
In the period under review, EBITA was EUR 230 million compared with EUR 135 million reported in Q3 2009. The third quarter 2010 EBITA margin was 4.5%, compared to 3.6% in the prior year. EBITA before integration costs was EUR 239 million and the margin was 4.7%, up 90 bps in Q3 2010 when compared to the adjusted Q3 2009 EBITA margin of 3.8%.
Amortisation of Intangible Assets
Amortisation of intangible assets amounted to EUR 14 million in the third quarter of 2010, compared to EUR 8 million in Q3 2009.
In Q3 2010, the Adecco Group reported operating income of EUR 216 million, which compares to EUR 127 million in Q3 2009.
Interest Expense and Other Income / (Expenses), net
The interest expense in the period under review amounted to EUR 17 million, same as in Q3 2009. Other income / (expenses), net was an expense of EUR 1 million in Q3 2010, again equal to the third quarter of 2009. Interest expense is expected to be around EUR 65 million for the full year 2010.
Provision for Income Taxes
The effective tax rate in Q3 2010 was 35% compared to 18% in Q3 2009. The Q3 2010 effective tax rate includes the impact from the change in the French business tax law. The effective tax rate in Q3 2009 was positively impacted by a change in the mix of earnings.
Net Income attributable to Adecco shareholders and EPS
Net income attributable to Adecco shareholders in Q3 2010 was EUR 128 million compared to EUR 90 million in the third quarter of 2009. Basic EPS was EUR 0.67 (EUR 0.52 for Q3 2009).
Cash flow, Net Debt4 and DSO
The operating cash flow generated in the first nine months of 2010 amounted to EUR 204 million compared to EUR 349 million in the same period last year. Given the growth in revenues, working capital needs increased in the first nine months of this year compared to the same period last year. The Group paid dividends of EUR 91 million and invested EUR 71 million in capital expenditure. Net debt at the end of September 2010 was EUR 958 million compared to EUR 110 million at year end 2009. The increase in net debt is mainly a consequence of the purchase price consideration for MPS Group. DSO were 53 days in the third quarter of 2010, equal to Q3 2009.
In Q3 2010, currency fluctuations had a positive impact on revenues of approximately 7%.
In Q3 2010, revenues in France increased by 19% to EUR 1.5 billion. EBITA was EUR 67 million in the quarter under review compared to EUR 47 million in Q3 2009. On an adjusted and organic basis EBITA increased by 34%. The EBITA margin was 4.4% in Q3 2010, up 50 bps compared to the adjusted prior years third quarter. The impact on Q3 2010 EBITA due to the new business tax law in France was EUR 19 million.
North America recorded a 58% constant currency revenue increase in Q3 2010 to EUR 994 million. Organically, revenues were up 20%. Excluding the outplacement business, revenues in North America were up 25% on an organic basis. While the outplacement business continued to weaken, profitability held up very well. General staffing generated 28% organic revenue growth, while professional staffing, excluding the counter-cyclical outplacement business reported solid double-digit revenue growth on an organic basis. EBITA was up 72% in constant currency and up 3% organically. Integration costs related to MPS amounted to EUR 6 million in Q3 2010. The EBITA margin in Q3 2010 was 4.8%. Acquisitions added 80 bps to the EBITA margin in Q3 2010.
In the UK & Ireland, revenues in Q3 2010 increased by 88% in constant currency to EUR 447 million, but declined by 1% organically. EBITA was EUR 11 million in the quarter under review and the EBITA margin improved to 2.4%, despite EUR 3 million integration costs related to MPS and Spring.
In Japan, Q3 2010 revenues declined by 7% in constant currency to EUR 340 million. EBITA declined by 25% in constant currency and the EBITA margin was 5.4% compared to 6.7% in Q3 2009. Slow demand in the late cyclical office segment, accounting for close to 80% of Adeccos revenues in Japan, continued to hold back growth.
In Germany & Austria, Q3 2010 revenues were up 30% (29% organically) to EUR 338 million. The strong development was driven by further acceleration in the year-on-year growth rate in the industrial and professional staffing businesses, the former growing strongly double-digit, and also the office business returned to growth. Germany & Austria generated EBITA of EUR 31 million in Q3 2010 compared to EUR 19 million in the prior years third quarter. The region achieved excellent profitability in Q3 2010 reporting an EBITA margin of 9.2%.
In Q3 2010 revenues in Benelux increased by 17% (13% organically), and in Italy revenues were up 34%. Revenues in Iberia increased by 7%, while in the Nordics revenues increased by 22% in constant currency.
Emerging Markets continued to develop strongly in Q3 2010 with revenues up 26% in constant currency, mainly driven by Eastern Europe and India. EBITA was up 10% in constant currency, while the EBITA margin was 2.8%.
BUSINESS LINE PERFORMANCE
In Q3 2010, Adeccos revenues in the Office & Industrial businesses were EUR 3.5 billion, up 18% in constant currency (17% organically). In the Industrial business, revenues were up 24% in constant currency, same growth rate as in Q2 2010. Growth was very strong in North America, where the year-on-year revenue trend improved from 37% in Q2 2010 to 40% in Q3 2010 in constant currency, in Germany & Austria where revenue growth improved from 33% in Q2 2010 to 39% in Q3 2010, and in Italy, where revenue growth accelerated to 40% in Q3 2010, up from 29% in Q2 2010. In France revenues grew 21% in Q3 2010 compared to 24% in Q2 2010 and in Iberia, the growth rate slowed to 3% in Q3 2010 from 8% in Q2 2010. In the Office business, revenues were up 5% in constant currency (3% organically), a further improvement compared to Q2 2010, where revenues were flat in constant currency (-2% organically). Revenues in Japan decreased by 6% in constant currency in Q3 2010, following a decline of 13% in constant currency in Q2 2010. North America increased by 19% in constant currency (14% organically) in Q3 2010 compared to 17% in constant currency (11% organically) in Q2 2010. Revenue growth in the Nordics was particularly strong with 30% in Q3 2010, up from 19% in Q2 2010, all in constant currency.
The Professional Business5 revenues in Q3 2010 increased 71% in constant currency (10% organically). The gross margin declined by 330 bps to 24.6%, solely due to the slowing outplacement business.
In Information Technology (IT), Adeccos revenues increased 108% in constant currency (12% organically). In North America, revenues in Q3 2010 were up 122% (-3% organically) and in the UK & Ireland revenues were up 259% (38% organically), all in constant currency.
Adeccos Engineering & Technical (E&T) business was up 63% in constant currency (27% organically). Revenue growth was particularly strong in North America with revenues up 110% in constant currency (49% organically), and revenues in Germany & Austria increased by 21% in the third quarter of 2010.
In Finance & Legal (F&L), revenues increased by 135% in constant currency (9% organically). Revenues in North America increased by 118% in constant currency and were up 1% organically.
In Q3 2010, revenues in Medical & Science (M&S) increased by 45% (6% organically), whereas in Sales, Marketing & Events (SM&E) revenues were up 11% (7% organically), both in constant currency. In the quarter under review, revenues in Human Capital Solutions (HCS) declined by 27%, in constant currency.
In the third quarter of 2010, organic year-on-year revenue growth further improved compared to Q2 2010. In September Adeccos revenue growth was approximately 17%, organically and adjusted for trading days. Growth in the later cyclical professional staffing business continued to accelerate, while the office business returned to organic growth in the third quarter of this year. October showed a similar pattern with no signs of a slowdown. This positive evidence of healthy demand in the industry increases managements confidence of continued good revenue development in the near future.
Excellent progress in profitability in the third quarter of 2010, shows that the increased exposure to professional staffing, the leaner branch network and optimised delivery channels are paying off. The acquired MPS Group, continues to contribute above expectations and targeted synergies are fully on track. Management carefully evaluates investments in high-growth segments and markets. Cost control and price discipline remain top priorities within the Adecco Group.
Management is delivering on its strategy and remains fully committed to achieve the mid-term EBITA margin target of above 5.5%.
Financial Agenda 2010/2011
Q4/FY 2010 results March 3, 2011
Annual General Meeting April 19, 2011
Q1 2011 results May 10, 2011
Q2 2011 results August 10, 2011
Q3 2011 results November 8, 2011