USG People - Revenue decline gradually easing
USG People - Revenue decline gradually easing
First-quarter 2013 highlights
• Revenue was &euro 640.7 million (Q1 2012: &euro 705.1 million), down 6% per working day compared to a year earlier
• Underlying operating expenses were down 9% on last year
• Underlying EBITA1 totalled &euro 9.4 million, due in part to 2.0 fewer working days (Q1 2012: &euro 19.1 million) EBITA margin: 1.5% (Q1 2012: 2.7%)
• Underlying net income amounted to &euro 0.6 million (Q1 2012: &euro 5.7 million)
• The balance sheet was strengthened considerably thanks to the proceeds from the sale of USG Energy
• Changes to the operational concepts to result in an additional annual cost reduction of at least &euro 25 million
“In the first quarter we took a number of essential steps in the implementation of our strategy,” said Rob Zandbergen, CEO of USG People, “The divestments we made in the first quarter have further improved the foundations for our future. Our financial position has improved and we can now focus all our time, resources and plans on realising our strategic objectives. As a result of the divestments our activities are focused on markets where we can realise sufficient share, distinct quality and the scale to achieve a good yield and create value throughout the cycle. We wish to thank our colleagues in Spain, Italy, Austria, Switzerland, Poland and Luxembourg to whom we will be bidding farewell for their unrelenting efforts for USG People and the pleasant collaboration.
The challenging market conditions in Europe persisted in the first quarter. We are persevering in our commercial focus and are constantly working to improve our cost structure. Markets are expected to gradually improve in the second half of the year and we therefore continue to invest in our people and brands to provide our clients with ever-improving services.”
USG People achieved revenue of &euro 640.7 million in the first quarter (Q1 2012: &euro 705.1 million). The first quarter this year had 2.0 fewer working days than last year (negative impact of 2.9%). Acquisitions had a positive impact of 0.6% on revenue. The quarterly decline in revenue per working day slowed year-on-year (Q1: 2013: -6.2%, Q4 2012: -11.4%). The drop in group revenue remained virtually unchanged throughout the quarter. Revenue per working day was down 6.2% in March from a year earlier.
The underlying gross result amounted to &euro 130.8 million in the first quarter (Q1 2012: &euro 152.6 million). The gross result was affected by fewer working days, which had a negative impact of approximately &euro 5 million. As a percentage of revenue the gross margin was 20.4%, the same level as in the previous quarter but lower than in the same quarter last year (Q1 2012: 21.6%) due to mix effects, pricing pressure and public holidays.
More revenue was generated from large clients where larger volumes are provided at lower margins, while demand for personnel in the SME segment remained low. This shift to large clients is causing a negative mix effect. The change in the client mix was accompanied by persistent pricing pressure. These developments had a negative impact on the gross margin of 0.9% compared to the first quarter last year. Revenue from recruitment and selection was down 20% to 1.1% of group revenue (Q1 2012: 1.2%). This had a negative impact of 0.1% on the gross margin of the group. In addition there was a 0.2% negative impact on the gross margin as a result of the less favourable timing of public holidays this year. A tax credit in France had a positive impact. In the first quarter the tax-credit act (CICE) came into effect in France as a measure to boost the economy. The scheme lowers labour costs for employees with a salary up to 2.5 times minimum wage. The tax reduction concerns a repayment of wage tax that is set off against income tax and a refund after three years of the part that cannot be set off. The discount must be used for training, innovation and other initiatives that benefit the development of employees.
The reported gross result includes not only the underlying gross margin but also a &euro 0.5 million non-recurring charge relating to the creation of a provision for own risk-bearer status with regard to benefits under the Dutch WGA (partial work disability resumption) act.
Operating expenses excluding depreciation and amortisation of acquisition-related intangible assets
Underlying operating expenses decreased compared to the first quarter last year by &euro 10.9 million to &euro 117.2 million (Q1 2012: &euro 128.1 million). The further reduction in expenses exceeded the amount of annual salary adjustments on 1 January, resulting in a drop also compared to the fourth quarter of 2012 of &euro 2.1 million (underlying expenses in Q4 2012: &euro 119.3 million).
In addition to the underlying expenses a net charge of &euro 0.7 million was recognised in reported expenses. This relates to the release of part of the &euro 1.0 million provision for the AMP case in Germany, costs of &euro 1.0 million for the rollout of Secretary Plus and Professionals and an amount of &euro 0.7 million for non-recurring costs.
In the coming quarters operational concepts as well as the organisation will be further geared towards the distinct services offered in the different market segments. The implementation of these changes strengthens operational and commercial excellence and will lead to annual cost reductions of &euro 25 million.
First-quarter 2013 results by segment
General Staffing achieved revenue of &euro 376.1 million in the first quarter (Q1 2012: &euro 408.1 million). The drop in revenue per working day improved to 5% from 10% in the fourth quarter of 2012. In the Netherlands revenue fell by 8%. The drop in revenue also improved in Belgium, from 10% per working day in the previous quarter to 6% per working day in the first quarter. France also reported a smaller decline, from 15% to 7%. First-quarter revenue per working day rose slightly in the other countries, which are being divested in 2013.
The gross margin fell compared to last year as a result of mix effects and pricing pressure due to the difficult economic conditions in Europe. Revenue from recruitment and selection was lower than a year earlier while growth was achieved in the in-house activities and in low-margin countries such as Spain. Lower underlying expenses largely offset the drop in revenue and margin. EBITA equalled &euro 7.1 million compared to &euro 9.5 million in the first quarter last year. The EBITA margin was 1.9% (Q1 2012: 2.3%).
Revenue at Specialist Staffing was &euro 209.6 million in the first quarter (Q1 2012: &euro 240.4 million). Revenue per working day fell by 10% compared to the same period last year (decline in revenue per working day in Q4 2012: 15%).
In the Netherlands the decline in revenue per working day slowed from 10% in the fourth quarter to 6% in the first quarter. In Belgium the decline slowed slightly from 14% to 13%. In Germany the revenue decline slowed further to 15% due to the execution of commercial action plans (decline in revenue per working day Q4 2012: 23%). In Italy revenue per working day was down 6% year-on-year.
The gross margin fell compared to a year earlier due to negative mix effects, pricing pressure and the less favourable timing of public holidays. Within the Specialist Staffing division revenue from recruitment and selection also fell sharply (down 25% or &euro 1.3 million). The impact of the public holidays was particularly pronounced in Germany (&euro -1.4 million) where the first quarter of this year had two more public holidays than last year. Underlying expenses were reduced further due to cost cutting. EBITA, depressed by the lower revenue from recruitment and selection and the impact of the public holidays, amounted to &euro 4.7 million compared to &euro 10.3 million in the first quarter last year. The EBITA margin was 2.2% (Q1 2012: 4.3%).
Revenue at Professionals fell to &euro 55.0 million (Q1 2012: &euro 56.6 million). Revenue based on the same number of working days was unchanged from a year earlier. Organically revenue per working day dropped by 5%. Growth was realised in the finance segment due to the addition of the Control Finance activities in the Netherlands, which were acquired in April last year. Demand weakened in the other fields in the first quarter.
The underlying gross margin at Professionals declined due to mix effects, including lower revenue from recruitment and selection, and as a result of pricing pressure. Operating expenses increased somewhat in the run-up to the expansion of the Professionals activities. EBITA totalled &euro 3.4 million (Q1 2012: &euro 4.8 million). The EBITA margin was 6.2% (Q1 2012: 8.5%).