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Adecco reports strong results for 2010

Adecco reports strong results for 2010

Double-digit revenue growth and strict cost control resulted in strong operating leverage

FY 2010 HIGHLIGHTS (2010 versus 2009)
Revenues of EUR 18.7 billion, up 26% (12% organically1)
Gross margin at 17.8%, down 10 bps (-90 bps organically and on an adjusted2 basis)
SG&A was flat on an organic and adjusted basis, driven by strict cost control
EBITA3 margin before integration costs at 4.1%, up 100 bps on an adjusted basis
DSO at 54 days in 2010 compared to 53 days in 2009
Proposed dividend of CHF 1.10 per share

Q4 HIGHLIGHTS (Q4 2010 versus Q4 2009)
Revenues of EUR 5.0 billion, up 32% (17% organically)
Gross margin of 17.9%, up 30 bps (-50 bps organically and adjusted)
SG&A increased by 19% (before integration costs 4%, organically and adjusted)
EBITA before integration costs of EUR 223 million (51% organically and adjusted)
EBITA margin before integration costs at 4.5%, up 110 bps on an adjusted basis

Key figures

in EUR millions

FY 2010 reported

Q4 2010
reported

FY 2010
growth
adjusted/organic

Q4 2010
growth
adjusted/organic

Revenues

18,656

4,993

12%

17%

Gross profit

3,329

894

6%

13%

EBITA before integration costs

755

223

40%

51%

EBITA

722

211

34%

43%

Operating income

667

197

Net income attributable to Adecco shareholders

423

141

Zurich, Switzerland, March 3, 2011: Adecco Group, the worldwide leader in Human Resource services, today announced results for the full year and the fourth quarter of 2010. Revenues in 2010 were up 26% or 12% organically, to EUR 18.7 billion. The gross margin was 17.8%, 10 bps lower than the prior year and down 90 bps organically and adjusted. Strict cost control kept SG&A flat on an organic and adjusted basis. The 2010 EBITA margin before integration costs was 4.1%, up 100 bps compared to the 2009 adjusted EBITA margin of 3.1%. DSO were 54 days in 2010 compared to 53 days in 2009.

Patrick De Maeseneire, CEO of the Adecco Group said: 2010 was a good year for Adecco. Most markets returned to strong double-digit revenue growth during the year. The growth was mainly driven by the industrial staffing segment, and also the later cyclical office and professional staffing segments returned to growth. Our discipline in pricing and cost control led to a strong increase in EBITA of 40%, on an organic adjusted basis, and before integration costs. Coming out of the downturn, our customers clearly value flexibility more than in the past and see it as a strategic component of their labour force. We therefore strongly believe that penetration rates of flexible labour will surpass the previous peaks of 2007 and 2008. We will continue to take advantage of the good business conditions, while managing our cost base diligently. This, together with the good results achieved in 2010, puts us in a good shape to achieve our mid-term EBITA margin target of over 5.5%.

FY 2010 FINANCIAL PERFORMANCE

Revenues
Group revenues for 2010 were EUR 18.7 billion, an increase of 26% compared to the prior year. Organically revenues were up 12%. Permanent placement revenues amounted to EUR 288 million, an increase of 58% in constant currency (24% organically), while outplacement revenues totalled EUR 223 million, a decline of 28% in constant currency.

Gross Profit
In 2010, gross profit was EUR 3.3 billion, up 26% compared to 2009. Organically and adjusted, gross profit increased by 6%. The gross margin was 17.8%, 10 bps lower than in 2009. On an organic and adjusted basis, the gross margin declined by 90 bps compared to the adjusted 2009 gross margin of 18.2%.

Selling, General and Administrative Expenses (SG&A)
SG&A increased by 11% in 2010 compared to the prior year. On an adjusted basis and organically, SG&A was flat compared to 2009. Integration costs related to Spring Group and MPS Group amounted to EUR 33 million in 2010. At year end 2010 the Adecco Group had over 32,000 FTE employees worldwide, while operating a network of over 5,500 branches. Compared to year end 2009, FTE employees were up 4% on an organic basis, while branches were reduced by 4% organically.

EBITA
In 2010, EBITA amounted to EUR 722 million, an increase of 142% and up 34% adjusted and organically compared to 2009. The EBITA margin was 3.9% compared to 2.0% in the prior year. EBITA before integration costs was EUR 755 million and the margin was 4.1%, up 100 bps compared to the adjusted EBITA margin of 3.1% in the prior year.

Amortisation and Impairment of Goodwill and Intangible Assets
Amortisation was EUR 55 million in 2010, compared to EUR 42 million in 2009. In addition, the Adecco Group booked an impairment charge of EUR 192 million on goodwill and intangible assets in 2009.

Operating Income
Operating income in 2010 was EUR 667 million, compared to EUR 65 million in 2009. Operating income in 2009 was negatively impacted by the impairment charges on goodwill and intangible assets and restructuring costs.

Interest Expense and Other Income / (Expenses), net
Interest expense was EUR 63 million in the period under review, which compares to EUR 55 million in 2009. Other income / (expenses), net was an expense of EUR 1 million in 2010, the same as in 2009. Interest expense is expected to be around EUR 65 million for the full year 2011.

Provision for Income Taxes
The effective tax rate for 2010 was 30% compared to 5% in 2009. The effective tax rate for 2010 includes the impact from the change in the French business tax law. This was partly offset by the positive impact from the successful resolution of prior years audits and the expiration of statutes of limitation. The 2009 effective tax rate was positively impacted by the change in the mix of earnings and the successful resolution of prior years audits, which was partly offset by impairment charges with no tax benefit.

Net Income attributable to Adecco shareholders and EPS
In 2010, net income attributable to Adecco shareholders was EUR 423 million (2009: EUR 8 million). Basic EPS was EUR 2.20 (EUR 0.04 in 2009).

Cash-flow, Net Debt4 and DSO
Operating cash flow amounted to EUR 455 million in 2010. The Group invested EUR 831 million for MPS Group and EUR 105 million in capex in 2010. Dividends paid were EUR 91 million in 2010. Net debt at the end of December 2010 was EUR 751 million compared to EUR 110 million at year end 2009. In 2010, DSO were 54 days compared with 53 days in 2009.

Currency Impact
In 2010, currency fluctuations had a positive impact on revenues of approximately 4%.

Q4 2010 FINANCIAL PERFORMANCE

Revenues
Group revenues in Q4 2010 were EUR 5.0 billion, an increase of 32% compared to Q4 2009. Organically, revenues were up 17%. Permanent placement revenues amounted to EUR 75 million, an increase of 77% in constant currency (44% organically), while outplacement revenues totalled EUR 50 million, a decline of 24% in constant currency.

Gross Profit
In Q4 2010, the gross margin was 17.9%, up 30 bps compared to the prior years fourth quarter and down 50 bps organically and adjusted. The temporary staffing business had a negative impact on the gross margin of 30 bps in Q4 2010. The outplacement business negatively impacted the gross margin by 40 bps, whereas the permanent placement business had a positive impact of 20 bps in Q4 2010.

Selling, General and Administrative Expenses (SG&A)
SG&A in Q4 2010 increased by 19% compared to Q4 2009. Integration costs totalled EUR 12 million in Q4 2010. Organically and adjusted and before integration costs, SG&A was up 4%, compared to the same period last year, and increased 4% sequentially in constant currency. Organically, FTE employees increased by 3%, compared to the fourth quarter of 2009. Sequentially, FTE employees increased by 1%, mainly due to hirings in the Emerging Markets and North America. The branch network, on an organic basis, was reduced by 5% (-280 branches) compared with the fourth quarter of 2009.

EBITA
In the period under review, EBITA was EUR 211 million compared with EUR 89 million reported in the fourth quarter of 2009. The Q4 2010 EBITA margin was 4.2% compared to 2.3% in the prior year. EBITA before integration costs was EUR 223 million and the margin was 4.5%, up 110 bps in Q4 2010 when compared to the adjusted Q4 2009 EBITA margin of 3.4%.

Amortisation of Intangible Assets
Amortisation in Q4 2010 was EUR 14 million compared to EUR 8 million in Q4 2009.

Operating Income
In Q4 2010, operating income was EUR 197 million. This compares to EUR 81 million in the fourth quarter of 2009.

Interest Expense and Other Income / (Expenses), net
The interest expense amounted to EUR 15 million in the period under review, EUR 1 million higher than in Q4 2009. Other income / (expenses), net was an expense of EUR 1 million in Q4 2010 compared to an expense of EUR 4 million in the fourth quarter of 2009.

Net Income attributable to Adecco shareholders and EPS
In the period under review, net income attributable to Adecco shareholders was EUR 141 million. This compares to EUR 42 million in Q4 2009. Basic EPS in Q4 2010 was EUR 0.73 (Q4 2009: EUR 0.22).

Currency Impact
In Q4 2010, currency fluctuations had a positive impact of approximately 6% on revenues.

GEOGRAPHICAL PERFORMANCE
Revenues in France increased by 19% to EUR 1.5 billion in Q4 2010. Growth in the industrial staffing segment remained strong. EBITA was EUR 60 million in the quarter under review compared to EUR 36 million in Q4 2009. On an adjusted basis EBITA increased by 20% in Q4 2010 year-on-year. The EBITA margin was 4.0% in Q4 2010, equal to the adjusted EBITA margin in Q4 2009.

In North America, Adeccos revenues increased by 54% in constant currency to EUR 953 million in Q4 2010. Organically, revenues were up 18%. Excluding the outplacement business, revenues in North America were up 21% on an organic basis. While revenues in the outplacement business remained weak, the EBITA margin was strongly double-digit. General staffing revenues grew by 25% organically, while professional staffing, excluding the counter-cyclical outplacement business, generated solid organic double-digit revenue growth. EBITA was up 89% in constant currency and up 9% organically and adjusted. Integration costs related to MPS amounted to EUR 8 million in Q4 2010. The EBITA margin in Q4 2010 was 5.1%. Acquisitions added 50 bps to the EBITA margin in Q4 2010.

In the UK & Ireland, revenues in Q4 2010 increased 41% in constant currency to EUR 411 million. Organically revenues declined by 1%. EBITA was EUR 4 million in the quarter under review and the EBITA margin was 1.1%. Integration costs related to MPS amounted to EUR 4 million in Q4 2010.

In Japan, fourth quarter revenues declined by 4% in constant currency to EUR 336 million. EBITA declined by 23% in constant currency and the EBITA margin was 5.0%, impacted by ramp up costs related to outsourcing contracts. Business in the later cyclical office segment, accounting for close to 80% of Adeccos revenues in Japan, remained slow.

In Germany & Austria, Q4 2010 revenues were up 33% (32% organically) to EUR 347 million. The strong growth continued to be driven by the industrial staffing business. Growth in the office segment and in the professional staffing business was also double-digit. Germany & Austria generated EBITA of EUR 26 million in Q4 2010 compared to EUR 12 million in Q4 2009. The EBITA margin improved strongly year-on-year to 7.4%, up 200 bps compared to the adjusted EBITA margin of 5.4% in Q4 2009.

In Q4 2010, revenues in Benelux increased by 19% (16% organically), and in Italy revenues were up 35%. Revenues in Iberia increased by 11%, while in the Nordics revenues increased by 23% in constant currency.

Emerging Markets continued to develop strongly in Q4 2010 with revenues up 20% in constant currency, mainly driven by Eastern Europe and India. EBITA was up 38% in constant currency, while the EBITA margin was 3.3%.

In Q4 2010, Adeccos revenues in the Office and Industrial businesses increased by 19% in constant currency (18% organically) to EUR 3.4 billion. The Industrial businesscontinued to be strong with revenues up 25% in constant currency, following an increase of 24% in Q3 2010. Growth remained strong in North America with revenues up 30% year-on-year in constant currency. In Germany & Austria revenue growth even accelerated from 39% in Q3 2010 to 43% in Q4 2010 and in Italy from 40% in Q3 2010 to 43% in Q4 2010. In France revenues grew 21% in Q4 2010, the same year-on-year growth rate as in Q3 2010, despite a tougher base. In the Office business, revenues increased 7% in constant currency (6% organically). This compares to 3% organic revenue growth in Q3 2010. Revenues in Japan decreased by 5% in constant currency in Q4 2010, following a 6% constant currency decline in Q3 2010. Revenues in North America, on the other hand, increased by 23% in constant currency (19% organically) in Q4 2010 after 19% constant currency growth (14% organically) in Q3 2010. Growth in the Nordics continued to be strong with revenues up 25% in constant currency in Q4 2010.

The Professional Staffing6 revenues in the fourth quarter of 2010 increased 53% in constant currency and by 10% on an organic basis. The gross margin declined by 160 bps to 24.8%, due to the slowing outplacement business.

In Information Technology (IT), Adeccos revenues increased 65% in constant currency (12% organically). In North America revenues were up 105% in constant currency (-5% organically). The new lead brand Modis grew 12% in North America. Revenues in the UK & Ireland increased by 81% in constant currency (21% organically).

Adeccos Engineering & Technical (E&T) business was up 54% in constant currency (22% organically). Revenue growth continued to be very strong in North America with revenues up 92% in constant currency (36% organically), while revenues in Germany & Austria increased by 16% in the fourth quarter of 2010.

In Finance & Legal (F&L), revenues increased by 129% in constant currency (11% organically). Revenues in North America increased by 127% in constant currency and were up 5% organically.

In Q4 2010, revenues in Medical & Science (M&S) increased by 50% (10% organically), whereas in Sales, Marketing & Events (SM&E) revenues were up 8% (5% organically), both in constant currency. In the quarter under review, revenues in Human Capital Solutions (HCS) declined by 22% in constant currency.

MANAGEMENT OUTLOOK
The revenue growth in Q4 2010 continued to be strong, despite a more challenging base. In January 2011, Adecco Group revenues increased 17% compared to the prior year, on an organic basis and adjusted for trading days. Demand continued to be very healthy in France and North America, our two main markets, where the pick up already started in the second half of 2009. Growth also remained strong in Germany, Italy, Benelux, Switzerland and the Nordic countries. Japan returned to positive growth in January 2011. Based on these developments, management is confident on strong topline growth in the months ahead, albeit measured against higher comparables.

We believe that the environment will stay favourable for flexible labour in 2011. Permanent jobs will be created but just enough to cover the new entrants into the labour market. Unemployment is likely to remain at high levels in most developed economies. Most economic growth and activity will be covered by flexible labour. In this environment, managements focus remains on profitable revenue growth, achieved with price discipline and strict cost control.

The integration of MPS Group has gone very smoothly so far, with results clearly above our initial expectations. We are well on track to complete the integration in 2011 and will even exceed the initially targeted synergies of EUR 25 million. The integration of Spring Group is complete and targeted synergies of EUR 13 million were slightly exceeded. The strong improvement in the EBITA margin in 2010 is evidence that the leaner cost base is paying off. We will continue to invest where growth is strongest, but will evaluate returns carefully, with our value-based approach. The Company is fully on track to reach an EBITA margin above 5.5% mid-term.

Purchase of own shares
Adecco currently holds 14.6 million treasury shares, which represent 7.7% of total shares issued. The company intends to purchase up to an additional 2% of issued shares, if and when opportune.

PROPOSALS TO SHAREHOLDERS

Dividend payout
At the Annual General Meeting, the Board of Directors will propose a dividend of CHF 1.10 per share for 2010, for approval by shareholders. This represents a payout ratio of 30% based on adjusted net earnings, at the top end of Adeccos traditional payout range of 25-30%. The total amount of the dividend distribution for 2010 is intended to be paid out of the capital contribution reserve, and is therefore expected to be exempt from Swiss withholding tax. The dividend payment to shareholders is planned on May 3, 2011.

Changes to the Board of Directors
Board members Francis Mer and Judith A. Sprieser are not standing for re-election. The Board of Directors expresses its appreciation of their long-standing engagement for the Adecco Group.

The Board of Directors proposes Mr. Didier Lamouche (1959) to be elected as a new member of the Board of Directors for a tenure of one year ending at the next Annual General Shareholders Meeting. Didier Lamouche is a French national. He is Chief Operating Officer and Vice Chairman of STMicroelectronics, a developer and manufacturer of semiconductor products with headquarters in Geneva. Previously, he was Chairman and Chief Executive Officer at Bull, a French IT group with a worldwide presence. Prior to that, he held the position of Vice President of Worldwide semi-conductor manufacturing at IBM Microelectronics having previously been CEO of Altis Semiconductor, a joint venture between IBM and Infineon. He is a graduate of the cole Centrale of Lyon, France, and holds a PhD in semiconductor technology.

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