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Randstad Announces its Financial Results for Q2 2011

Randstad Announces its Financial Results for Q2 2011

Strong growth against a challenging comparison base

revenue up 13% and net income up 36%

Key points Q2 2011

Revenue up 13% to &euro 3,915.0 million organic growth1 per working day 11%

Gross margin up 0.3% sequentially

Operating expenses sequentially up 1% to &euro 567 million

EBITA2up 24% to &euro 153.5 million, EBITA margin at 3.9%

Adjusted net income3 attributable to holders of ordinary shares &euro 101.1 million, up 31%

Diluted EPS4&euro 0.59, up 31%

Intended acquisition of SFN Group announced on July 20, 2011, expected to close late Q3

"This is the fifth consecutive quarter with double-digit growth", says Ben Noteboom, CEO of Randstad. "Our people have done a good job, with the fastest growth in Germany, France and North America. Clients are showing a high level of interest in inhouse services, and we see excellent growth there. Worldwide, the lingering uncertainties in the economy will lead to more interest in flexible solutions, more transitions and mobility on the employment market. As an HR services provider we help our clients to adapt to change and to continue being competitive and efficient. The big news is, of course, the prospect of being able to join forces in North America with our excellent colleagues from SFN Group. This is something we all look forward to. We believe that together we will be able to offer many North American and international clients, candidates, employees and shareholders even better opportunities than we would have separately. We look forward to shaping the world of work together."

In Q2 2011 revenue increased by 13% to &euro 3,915.0 million. Organic revenue growth was 12%, or 11 % per working day. The net addition of acquisitions/disposals (primarily FujiStaff with &euro 118 million revenue) was 3%. Currency movements had a negative impact of 2%. Permanent placement fees increased by 14% organically, in line with the previous quarter. Perm fees made up 1.8% of revenue and 9.7% of gross profit (9.2% in Q2 2010).

Throughout the quarter double-digit growth was maintained against a strong comparison base. Organic revenue growth per working day decreased slightly from 13% in April to 10% in June, while in 2010 revenue growth improved through the quarter from 12% in April to 15% in June.

Inhouse services, mainly focused on industrial and logistical segments, continued to show high growth rates, resulting in 29% organic growth. Staffing grew by 10% organically. Growth in the administrative segment built further momentum in various regions. Professionals grew by 7% organically compared to 6% in the previous quarter.

Franceand North America continued to show solid organic growth of 16% and 14% respectively. Despite the strong comparison base, Germany showed organic growth of 16%. Our Dutch business grew by 7% organically in line with the previous quarter. Randstad the Netherlands performed ahead of the market. Slow demand in the public sector continued to have a significant impact on our Dutch and UK businesses.

Gross profit
In Q2 2011 gross profit amounted to &euro 720.5 million. Organic growth in gross profit was 10%. The gross margin was 18.4%, up from 18.1% in the previous quarter (Q2 2010: 18.7%).

The temp margin improved 0.2% sequentially, but was 0.4% below last year. The sequential increase is mainly caused by a better mix in Staffing, partly offset by continued high growth in Inhouse services. Price pressure in countries such as the Netherlands and Belgium remained, but this effect was less pronounced. The change in the French subsidy system for low wage labor had a negative effect of around 0.1% YoY. The growth in perm fees contributed 0.1% to the gross margin. Growth in perm fees was led by North America and France.

Operating expenses
In Q2 2011 operating expenses amounted to &euro 567.0 million, up 7% compared to Q2 2010 and up 1% sequentially. On an organic basis operating expenses increased 6% YoY. The sequential increase is mainly caused by an increase in personnel expenses and marketing costs. Operating expenses included a gain of &euro 2.0 million related to the acquisition of Vedior.

Average headcount (measured by FTE) amounted to 27,450 for the quarter, up 10% YoY of which 5% is attributable to the acquisition of FujiStaff. We added 250 FTEs sequentially, predominantly in Germany, North America, France and Australia. This increase included 90 FTEs for the Professionals growth accelerator.

Productivity (measured as gross profit per FTE) was in line with last year. At the end of the quarter we operated a network of 4,183 outlets, around the same level as in the previous quarter.

In Q2 2011 EBITA increased by 28% to &euro 153.5 million, with an EBITA margin of 3.9% (Q2 2010: 3.5%). Organic EBITA growth was 27%. The financial impact of the earthquake in Japan was lower than expected and as such limited for the Group. The incremental conversion rate was 47%, in line with our target.

Amortization of intangibles
Amortization of acquisition-related intangibles amounted to &euro 39.1 million compared to &euro 38.6 million in Q2 2010. Following the acquisition of FujiStaff we recognized intangible assets, such as customer relationships, and candidate databases in the balance sheet, which resulted in an amortization charge of &euro 4.5 million. This additional charge was offset by lower amortization charges of intangible assets, mainly related to the acquisition of Vedior.

Net finance costs
In Q2 2011 net finance costs reached &euro 5.1 million versus &euro 8.0 million in Q2 2010. Interest expenses on our net debt position amounted to &euro 6.2 million compared to &euro 5.3 million in Q1 2011 (Q2: 2010 &euro 7.2 million). The sequential increase is caused by somewhat higher interest rates and a higher net debt position. Our net debt position increased compared to Q1 2011 as a result of payments of dividend and holiday allowances. Net finance costs also included foreign currency effects and adjustments in the valuation of certain assets and liabilities.

The effective tax rate before amortization of acquisition-related intangibles and one-offs amounted to 31% (2010: 29%), in line with our full-year guidance of between 29% and 32%. The increase compared to last year is mainly caused by a changed geographical mix with above average tax rates in countries with the highest growth. Additionally, as our results improve the relative effect of tax-exempt income resulting from tax efficiencies in the Group decreases.

Net income and earnings per share
In Q2 2011 diluted EPS increased by 31% to &euro 0.59 (Q2 2010: &euro 0.45), following a 31% increase in adjusted net income attributable to holders of ordinary shares.

Balance sheet
The moving average of DSO improved by 1.9 days to 53.8 days compared to Q2 2010 and was 0.3 day better than in the previous quarter. We remain focused on making continuous improvements in our invoicing and collection processes, while managing pressure on payment terms.


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