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Randstad Announce Strong Final Quarter of the Year; Revenue up 22% and EBITA up 52%

Strong Final Quarter of the Year Revenue up 22% and EBITA up 52%
Full Year 2010 Revenue up 14% and EBITA up 61%

Key points Q4 2010

Revenue up 22% to 3,891 million organic growth1 per working day 17%

Underlying2 EBITA3 reached 161.5 million (52%), with the EBITA margin4 reaching 4.2% (vs. 3.3% in Q4 2009)

Adjusted net income5 attributable to holders of ordinary shares 109.5 million diluted EPS6 0.64 (36%)

Leverage ratio (net debt/EBITDA) improved to 1.5

Key points full year 2010

Markets recovered with strengthening growth throughout the year in almost all markets

Revenue of 14.2 billion compared to 12.4 billion in 2009 organic growth per working day 12%

Clear improvement in EBITA margin from 2.5% to 3.6%

Adjusted net income attributable to holders of ordinary shares 336 million (62%) diluted EPS 1.96 (62%)

Strong footprint in Japan established by the acquisition of FujiStaff
Proposal to pay dividend of 1.18 per ordinary share

"Growth has accelerated throughout the year", says Ben Noteboom, CEO of Randstad. "Not only did we see our inhouse and staffing services perform very strongly, in many markets the professionals segment has started to improve as well. We have gained market share through the year in many important regions due to the continuing efforts of our people. I would like to thank them for their contribution in the special year of Randstad's 50th anniversary. Market prospects look bright, we see good growth opportunities. At the same time, we will maintain our focus on efficiency. It is very satisfying to be able to propose to pay our shareholders dividend again. We are looking forward to a great year in the world of work, delivering value to our clients, candidates, employees and other stakeholders."

Significant progress towards our targets
In 2010, Randstad achieved significant progress towards its operational and financial targets. After focusing on the integration of Vedior and weathering the economic downturn in 2008 and 2009, the year 2010 was all about recovery and profitable growth.

Strong commercial focus, backed by enhanced marketing campaigns in several countries enabled market share gains in almost all regions, especially in Germany, North America, Iberia, Italy and the Nordics. In France we gained momentum throughout the year, resulting in growth ahead of the market in the second half of the year. The only region where we were below the market is the Netherlands, partly based on margin protection and business mix.

Increased focus on field steering, copy-pasting specialties, the rollout of the professionals concept and improved cross-selling should all help to drive outperformance against our markets in 2011.

Operating leverage in the business was strong, resulting in solid profitability improvements. The EBITA margin rose to 3.6%, compared to 2.5% in 2009. We continue to strive for a 5-6% EBITA margin through the cycle and we are fully committed to realize enhanced returns in 2011.

Our financial position further strengthened. The net debt position improved to 899.3 million. In combination with increased profitability, the leverage ratio improved to 1.5, well within our target range of 0 to 2. This enables us to pay dividend on ordinary shares. We propose a dividend of 1.18 per share, in line with our dividend policy.

Summary of Group financial performance

In Q4 2010, revenue increased by 22% to 3,891.1 million. Organic revenue growth was 17%, the net addition of acquisitions/disposals (primarily the 105 million revenue contribution from FujiStaff) was 3%, while currencies added the remainder. In October and November growth per working day was 17%, while it was 16% in December. Permanent placement fees increased by 20% organically. Perm fees made up 1.5% of revenue and 7.6% of gross profit (7.1% in Q4 2009).

In 2010 revenue improved by 14% to 14.2 billion. Organic growth amounted to 12%, strengthening from a 1% decline in Q1 to 17% growth in Q4. Recovery followed a classical pattern. Our combined inhouse businesses returned to growth in Q1 2010. Our staffing businesses grew as of Q2 2010, whereas professionals turned the corner in the same quarter and showed clear growth as of Q3 2010. Our US staffing and inhouse businesses started to recover first, followed by the more industrial oriented countries in continental Europe such as Germany, France, Belgium and Poland. The more white collar and public sector geared markets in the UK and the Netherlands returned to growth later in the year.

Gross profit
In Q4 2010, gross profit amounted to 736.7 million. The gross margin amounted to 18.9% compared to 19.1% in Q4 2009. The temp margin declined 0.3% YoY, including mix effects. Sequentially the temp margin is stable. The growth in perm fees added 0.1%. Mix changes in HRS (strong growth in the relatively lower gross margin parts of our HRS offering) had a negative impact of 0.2%. A change in French tax law (see note 4 on the front page) added 0.3%.

For the full year underlying gross profit amounted to 2,658.7 million, with the gross margin coming down from 19.5% to 18.8%. During the year pressure on the temp margin eased, while growth in perm fees started to add to gross margin. The negative mix effects in HRS have become smaller during the year as well. The French tax impact was stable throughout the year.

Operating expenses
In Q4 2010, operating expenses amounted to 575.2 million, up 15% compared to Q4 2009 and up 6% compared to the previous quarter. The consolidation of FujiStaff added 3% (approx. 15 million) to the cost base. Organic growth in operating expenses was 10% YoY and 3% sequentially.
At the end of the quarter we operated a network of 4,195 outlets, 80 more than in the previous quarter, largely influenced by the consolidation of FujiStaff. Average headcount (measured by FTE) amounted to 26,970 for the quarter, up 5% YoY and up 4% sequentially. Organically the increase was 2% YoY and 1% sequentially. Growth in the number of FTEs has been significantly below revenue and gross profit growth, allowing for considerable productivity improvements.

For the full year underlying operating expenses amounted to 2,149.1 million, compared to 2,098.5 million in 2009. Whereas operating expenses were below last year in the first half of the year, the cost base began to increase in the second half to support the fast growth in our business.

In Q4 2010 underlying EBITA increased by 52% to 161.5 million, with the EBITA margin reaching 4.2% compared to 3.3% in Q4 2009. Organic EBITA growth was 39%. FujiStaff contributed 5.4 million to EBITA in Q4 2010. For the full year underlying EBITA increased by 61% to 509.6 million. The EBITA margin improved to 3.6%, compared to 2.5% in 2009.

Net finance costs
In Q4 2010, net finance costs reached 2.6 million versus 9.8 million in Q4 2009. This amount is relatively low as net finance costs benefited from foreign currency effects and the quarterly adjustment of the valuation of minority stakes (referred to as deferred consideration business combinations on the balance sheet). Cash interest spend was 3.6 million. For the full year, net finance costs amounted to 23.8 million compared to 48.9 million in 2009. The improvement is largely based on lower average net debt through the year and lower interest rates, especially in the first half of the year.

In Q4 2010, the effective tax rate before amortization of acquisition-related intangibles and one-offs amounted to 29%, equal to the rate of the previous quarter and in line with guidance. In addition, the improved profitability and good outlook for our US operations triggered a change in the valuation of deferred taxes of 60 million. As a result we had a tax income of 28 million in Q4. We expect the effective tax rate before amortization of acquisition-related intangibles to be in the range of 29-32% in 2011.

Net income and EPS
In Q4 2010, diluted EPS increased by 36% to 0.64 (Q4 2009 0.47), following a 37% increase in adjusted net income attributable to holders of ordinary shares. For the full year 2010, net income amounted to 288.5 million compared to 67.6 million in 2009. Full year adjusted net income attributable to holders of ordinary shares increased by 62% to 335.9 million ( 207.2 million in 2009) and diluted EPS rose by the same percentage to 1.96 (2009 1.21).

Cash flow
In Q4 2010 free cash flow amounted to 202.6 million compared to 167.5 million in Q4 2009. Cash flow remained strong on the back of improved operating results and tight working capital management. The moving average of DSO improved to 55 days compared to 56 days at the end of Q3 2010 and 58 days at the end of 2009. Quarterly free cash flow was larger than the cash amount of 124.3 million spent on acquisitions (primarily FujiStaff), enabling a further net debt reduction. Over the full year free cash flow amounted to 309.3 million compared to 698.1 million in 2009. In 2009 cash flow was stimulated by fiscal items of 232 million in total and by the unwinding of working capital related to the revenue decrease.

Balance sheet
At the end of Q4 2010 net debt amounted to 899.3 million compared to 1,014.7 million at the end of Q4 2009 and 946.5 million at the end of Q3 2010. The leverage ratio (net debt end of period divided by the EBITDA of the past 12 months) improved to 1.5, compared to 1.8 at the end of Q3 2010 and 2.5 at the end of Q4 2009. The ratio is well within our target range of 0 to 2. The covenants of the syndicated facility allow a leverage ratio of up to 3.5.

Fourth quarter 2010 by geography

The Netherlands
Revenue was up 4% organically compared to flat revenue in the previous quarter. The Dutch market is more late cyclical than other markets due to the relatively higher weight of the services segment in the overall economy. The market gained some momentum during the quarter, with improved growth in staffing segments and a more limited decline in the professionals segment. Tempo-Team and Randstad continued to be somewhat behind market, lagging the growth in the industrial segment. However, both showed growth and solid profitability. The decline in revenue at Yacht, which is active in the more late cyclical and more public sector geared professionals segment, eased to a single digit figure, while gross margin improved sequentially because of reduced idle time. The EBITA margin reached 6.8%, compared to 7.2% in Q4 2009.

Revenue increased organically by 21%, compared to 19% in the previous quarter. Strong momentum was maintained and we were ahead of the market. Manufacturing continued to act as a main growth driver but improvements can be witnessed now in all sectors, including white collar. Inhouse revenue more than doubled. We now have approximately 100 inhouse locations. Over the past quarters more than 250 specialty units have been created in existing branches, improving our exposure to this part of the market as well. Growth in professionals was double digit. Perm fees were up 18% organically. The EBITA margin amounted to 2.9% (or 1.6% excluding the 10.4 million business tax reclassification) compared to 0.1% in Q4 2009. The changes in the French subsidy system regarding low wage labor have been applicable to the December payroll which was processed in January. This had a negative impact on the December gross margin of approximately 1 full percent as this could not yet be passed on to clients.

Organic growth reached 32%, compared to 40% in the previous quarter. Growth continued to be strong against a more challenging comparison base, as the recovery started in Q4 2009. A continued strong pickup across all industrial segments helped to drive growth in staffing and inhouse. In professionals, the aerospace segment remained slow while engineering showed some growth. Results of Yacht Teccon further improved. Growth in the IT business remained very strong. The combined EBITA margin reached 7.5%, compared to 7.1% in Q4 2009.

Revenue increased by 17% organically, equal to growth in the previous quarter. Randstad outperformed market growth, beating the market in the industrial segment especially through inhouse. Tempo-Team was still somewhat below the market, as it is less exposed to the fastest growing automotive and industrial segments. For both Randstad and Tempo-Team growth in white collar gained momentum, whilst non-staffing services such as service checks and HR Solutions lagged. The EBITA margin improved to 6.3% (5.1% in Q4 2009).

On an organic basis revenue increased by 9%, equal to growth in the previous quarter. Revenue in inhouse maintained solid momentum, whilst staffing revenue was under pressure based on slow demand from the public sector. Revenue in the professionals segment still contracted YoY based on reduced temp revenue. However, backed by growth in perm fees, gross profit increased in finance, ICT, HR and media. For the whole UK permanent placement fees were up 5%, as improvements in aforementioned segments were partly offset by reduced placement fees in education and healthcare. Costs were relatively high and included restructuring and integration charges of approximately 3 million and costs for the national marketing campaign above the regular marketing budget of approximately 1 million. The EBITA margin was -2.0%, compared to 0.8% in Q4 2009.

Revenue increased by 9%, compared to 6% in the previous quarter. Economic circumstances remain challenging in the region. In Spain we performed better than the market. Inhouse showed strength towards the end of the year. The Portuguese business grew at about 10%, with solid demand in automotive. Based on strong execution Portuguese DSO was reduced within a difficult climate. Quarterly operating expenses included rebranding costs of a little over 1 million. The rebranding program is now finalized. The EBITA margin reached 3.3% compared to 4.1% in Q4 2009.

Other European countries
The other European countries showed solid growth across the board. In Italy, revenue was up over 30%, clearly ahead of market. Our Polish and Scandinavian businesses continued to show strong growth, while this was also the case in Turkey, Hungary, and Greece. The Swiss business generated double digit growth as well. The integration of recently acquired businesses in Hungary and the Czech Republic is well ahead of schedule. For the combined region the EBITA margin reached 3.3%, compared to 3.0% in Q4 2009.

North America
Revenue increased by 21% on an organic basis, compared to 23% growth in the previous quarter. The mix improved as our combined US staffing and inhouse business, our professionals business and our Canadian business all had about the same growth rate. In the US, we performed better than the market as demand for temporary labor remained strong. Growth in the US professionals business continued to accelerate. IT, finance & accounting and life sciences were the main drivers while US managed services also showed strong growth due to new customer wins and an increase in volumes in existing accounts. The Canadian business strengthened during the quarter, with a strong performance from both staffing and professionals. North American perm fees were up 34% organically. The North American EBITA margin improved to 4.6% compared to 2.6% in Q4 2009.

Rest of the world
The Australian business grew 11% with perm fees growing over 40%. In Latin America, the Argentinean, Brazilian and Chilean businesses showed growth well ahead of 20%. Mexican revenue declined in Q4 due to phasing of revenue at a large client. India and China showed solid growth. Our Japanese business showed a single digit increase of revenue over the full quarter. FujiStaff was consolidated as of 20 October 2010. FujiStaff revenue increased by 4% over the full quarter, while the EBITA margin was approximately 5%. For the combined region, the EBITA margin reached 1.4%, compared to -0.2% in Q4 2009.

Fourth quarter 2010 by revenue category

Staffing revenue increased by 13%, equal to the growth rate in the previous quarter. Increased demand is still largely driven by demand from industrial clients. However, administrative segments are gaining momentum in several regions.

Inhouse services showed the strongest improvement, with organic growth reaching a level of 51%, compared to 55% in Q3 2010. Growth is primarily driven by a pickup in demand from our client base in the industrial and logistical segments. Growth also includes client gains and transfers from staffing to inhouse, for example in France, where we are transferring clients from the former Vediorbis network.
In line with classical patterns, the professionals segment is lagging the other segments but after recovering in Q2 2010, growth is gradually strengthening. Revenue improved by 9% organically, compared to an 8% increase in Q3 2010. The US professionals business turned in solid growth, based on a strong performance in IT, finance & accounting and life sciences. The Canadian business also improved, driven by IT and engineering. The UK and Dutch professionals businesses both still declined, impacted by the late cyclical nature of the services based economies they operate in, as well as by the relatively large dependency on the lagging government sector.

In October, 2010, we successfully completed the offer for Japanese FujiStaff, by obtaining a 95% stake. FujiStaff has been consolidated as of October 20, 2010. Delisting occurred in January 2011, resulting in full ownership.In October, 2010, we used our option to increase our stake in Indian Ma Foi from 83% to 100%. In January, 2011, we sold Hughes Castell Hong Kong. The financial impact of the latter two transactions is immaterial.

The past two years we did not pay dividend on ordinary shares as our financial policy did not allow for it. At the end of 2010 our leverage ratio (net debt/EBITDA) amounted to 1.5, well within our target range of in between 0 and 2. We therefore propose to pay a dividend on ordinary shares of 1.18, in line with our dividend policy. The dividend amount is based on the maximum pay out of 60% of net profit attributable to holders of ordinary shares before amortization of acquisition-related intangible assets and goodwill and one-offs.

Changes to the Supervisory Board
After serving the statutory maximum of three four-year periods, Frits Goldschmeding will step down from the Supervisory Board at the next AGM in March. Randstad Beheer, the vehicle holding the shares of Frits Goldschmeding and his relatives, has nominated Jaap Winter as a member of the Supervisory Board. Jaap Winter is a partner of the Amsterdam based law firm De Brauw Blackstone Westbroek N.V. He is a professor of corporate governance at the Duisenberg school of finance in Amsterdam and professor of international company law at the University of Amsterdam. He was a member of the Dutch corporate governance committee and is currently a member of the European Corporate Governance Forum. Jaap Winter is a member of the supervisory board of the Mauritshuis and a board member of Stichting Comit voor het Concertgebouw.
In accordance with its profile and by-laws, the Supervisory Board proposes to appoint Jaap Winter as a member of the Supervisory Board for a four-year term, taking his extensive experience, notably in the field of corporate law and governance into consideration. Further information about the nomination right of Randstad Beheer can be found on page 76 of the annual report 2010 (PDF on the corporate website as of today).

The trends as witnessed in Q4 2010 have so far continued into 2011. In January, revenue per working day increased by 14%. Recovery in our businesses remains robust, even against a more challenging comparison base. We continue to see solid growth rates in all our inhouse businesses, based on recovery in manufacturing and logistics. Staffing shows healthy growth across our markets, including recovery in administrative segments in various regions. Growth in the more late cyclical professionals business is gradually strengthening, despite the still lagging UK and Dutch professionals businesses. Increased focus on field steering, copy-pasting of specialties, the rollout of the professionals concept and improved cross-selling should all help to drive outperformance against our markets in 2011. We will continue to invest in people and outlets to support our growth. Based on seasonal patterns we expect operating expenses in Q1 2011 to be in line with the level of Q4 2010. We are fully committed to realize enhanced returns in 2011 and face the near future with confidence.


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