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USG Changing Its Dynamics

USG Changing Its Dynamics

Rollout of new operating models strengthens competitiveness and lowers cost base by &euro 38 million financing structure optimised

Second-quarter 2013 results

Second-quarter 2013 highlights

• Revenue amounted to &euro 659.2 million (Q2 2012: &euro 720.2 million) revenue per working day was down 8% compared to the year-earlier period

• Underlying operating expenses were 9% lower than a year earlier

• Underlying EBITA1 totalled &euro 11.4 million (Q2 2012: &euro 20.1 million) EBITA margin: 1.7% (Q2 2012: 2.8%)

• Underlying net income was &euro 0.3 million (Q2 2012: &euro 5.3 million)

• Sale of General Staffing activities in six countries successfully completed

• The further optimisation of the business models and the simplification of the organisation will lower the annual cost base by &euro 38 million

• Financing structure optimised with &euro 60 million subordinated loan

“The sale of our General Staffing activities in six countries and of USG Energy completes an important transition in the first half of this year,” said USG People CEO Rob Zandbergen. “Our organisation is now focused on markets in which we have substantial scale and promising earnings potential. We will strengthen our competitive position by refining our positioning with a simplified management structure. We will further reinforce our services by developing a clearly distinct distribution structure and proposition for each brand, at the same time making our organisation more versatile and adjusting it to the changing dynamics in our markets. This will structurally lower the cost base. We have also optimised our financing structure by securing a &euro 60 million subordinated loan, for which three banks already are committed. Following the repayment of the &euro 115 million subordinated convertible loan in October 2012 our operation was fully financed with the syndicated bank facility. With the new non-convertible subordinated loan our financing structure is back in balance again.”

Revenue

USG People achieved revenue of &euro 550.0 million in the second quarter (Q2 2012: &euro 597.5 million). The number of working days in the second quarter was virtually unchanged from last year. The decline in revenue per working day compared to a year earlier was virtually unchanged compared to the previous quarter (Q1: -8.2%, Q2: -8.0%). In June revenue per working day was 6.3% lower than in the same month last year.

Gross margin

The underlying gross result totalled &euro 115.7 million in the second quarter (Q2 2012: &euro 132.8 million). As a percentage of revenue the gross margin was 21.0% (Q2 2012: 22.2%). The drop in gross margin compared to a year earlier was the result of mix effects and price pressure.

There was a shift in revenue towards large clients where the development of demand was more favourable than in the small and medium-sized business segment. This creates a negative mix effect given that larger volumes are supplied at lower margins, with large clients being more inclined to use low-cost delivery models such as in-house, outsourcing and payrolling service models. There was also an impact from a drop in revenue at units that provide higher margin services, such as USG Restart in France, USG Professionals and at our call centres. In addition to this change in the revenue mix, price pressure also drove down margins. There was a positive effect from the tax credit scheme in France in the form of a reduction in wage costs. The negative impact on the margin of the aforementioned changes in the mix and pricing was 1.2%. Furthermore revenue from recruitment and selection fell 16% to 1.1% of group revenue (Q2 2012: 1.2%). This had a 0.1% negative impact on the gross margin of the group. A difference in the number of public holidays in Germany compared to last year had a small positive impact of 0.1% in the second quarter.

In addition to the underlying gross margin the reported gross result includes a non-recurring charge of &euro 0.9 million related to the creation of a provision relating to own risk bearer status for payments under the Dutch sickness benefit (ZW) act.press release 3

Operating expenses excluding depreciation and amortisation of acquisition-related intangible assets

The underlying operating expenses fell by &euro 10.0 million compared to a year earlier to &euro 102.2 million (Q2 2012: &euro 112.2 million). Compared to the previous quarter underlying operating expenses were down by &euro 0.8 million (Q1 2013: &euro 103.0 million).

In addition to the underlying expenses a &euro 21.5 million charge for organisational changes under the simplification plan was recognised under reported expenses, with &euro 15.0 million of this amount relating to the integration of two head offices. This integration will reduce costs by an annual &euro 4.0 million from October 2013 and will not result in a one-time cash-out of the expected amount. In addition there was an amount of &euro 2.5 million in one-off expenses for the rebranding of the Professionals division and the launch of the USG Professionals umbrella brand, and an amount of &euro 1.1 million in expenses for the rollout of Secretary Plus and USG Professionals.

Amortisation of acquisition-related intangible assets

Amortisation of acquisition-related intangible assets amounted to &euro 4.0 million in the second quarter, slightly down from &euro 4.1 million a year earlier. Amortisation concerns brand rights, client portfolios and candidate databases valued at the time of acquisition.

Financing results

Underlying financing expenses improved to &euro 4.4 million from &euro 5.1 million in the same quarter of last year. An unrealised value adjustment of interest-rate derivatives was also recognised, equalling a positive &euro 2.5 million (Q2 2012: positive &euro 1.7 million). Reported financing expenses including unrealised value adjustments amounted to &euro 1.9 million compared to &euro 3.4 million in the same period last year.

Net income from the sale of activities

Net income from the sale of activities concerns the result of the General Staffing activities in Spain, Italy, Austria, Switzerland, Poland and Luxembourg that were sold in June. The total impact on the net result in the second quarter was &euro -3.1 million exclusive of potential deferred tax assets arising from the transaction.

Taxation

Tax in the second quarter was a positive &euro 5.1 million compared to a negative &euro 5.0 million a year earlier. This figure includes a &euro 1.6 million charge related to business tax in France. There was also a negative effect of &euro 0.7 million relating to unrealised losses and adjustments from previous years. Excluding the aforementioned charges income tax was a positive &euro 7.4 million, or 29.6% of the pre-tax result.

Balance sheet and cash flow

Working capital remained virtually stable in the second quarter, up &euro 1.6 million compared to the previous quarter. Factoring of trade receivables increased by &euro 13.7 million to &euro 117.5 million (Q1 2013: &euro103.8 million). Compared to the second quarter of last year factoring increased by &euro 3.4 million. The distribution of holiday pay in the second quarter was largely offset by the increase in factoring. Working capital including factoring was &euro -104.0 million at the end of the quarter.

The operating cash flow totalled &euro 6.2 million in the second quarter (Q2 2012: &euro-3.5 million). Net debt rose in the second quarter to &euro 194.5 million (Q1 2013: &euro 187.0 million). The senior leverage ratio (net debt / 12-month underlying EBITDA) was 2.5.

Second-quarter 2013 results by segment

General Staffing

General Staffing achieved revenue of &euro 323.1 million in the second quarter (Q2 2012: &euro 348.5 million). The decline in revenue per working day was unchanged from the previous quarter. In line with the trend of the market the decline in revenue in the Netherlands widened slightly to 10% from 8% in the previous quarter. Belgium reported a further improvement in the decline in revenue per working day from 6% in the previous quarter to 3% in the second quarter. In France the decline in revenue remained stable at 7%, mainly as a result of a drop in government projects at USG Restart. Start People reported a slight reduction in revenue decline. In June revenue per working day at General Staffing was down 6% compared to a year earlier.

The gross margin level declined compared to a year earlier as a result of mix effects and price pressure. Revenue from recruitment and selection was lower than last year and there was growth in in-house services, which have lower gross margins in line with the lower cost level. Underlying expenses were 10% lower than last year, which largely offset the decline in revenue and margin. EBITA amounted to &euro 9.1 million, down from &euro 11.1 million in the second quarter of last year. The EBITA margin was 2.8% (Q2 2012: 3.2%).

Specialist Staffing

The Specialist Staffing division generated revenue of &euro 188.8 million in the second quarter (Q2 2012: &euro 205.4 million). Revenue per working day fell by 8% compared to the year-earlier quarter (Q1 2013: -10%).

In the Netherlands the decline in revenue per working day continued to narrow from 6% in the first quarter to 4% in the second quarter. The revenue decline in Belgium remained stable at 13%. Germany reported a further improvement for the third quarter running, with the commercial initiatives undertaken earlier to close

the gap with the market having a catch-up effect. The decline in revenue per working day narrowed further to 10%, close to the contraction of the market, which stood at around 9% midway through the second quarter.

The gross margin level fell compared to the year-earlier period as a result of negative mix effects, including lower revenue from recruitment and selection, and price pressure. There was a slight positive effect compared to last year from there being one less public holiday in the second quarter, which had an impact in Germany in particular. Underlying expenses were reduced by a further 7% as a result of ongoing cost savings. EBITA amounted to &euro 4.7 million, down from &euro 7.4 million in the second quarter of last year. The EBITA margin was 2.5% (Q2 2012: 3.6%).

Professionals

Professionals saw revenue decline by 13% to &euro 38.1 million (Q2 2012: &euro 43.6 million). Demand was mainly weak in Finance, particularly in Belgium and France. Engineering also reported lower revenue. The revenue decline at ICT remained virtually stable, while Legal and Marketing, Communication & Sales saw an improvement and Marketing Communication & Sales returned to year-on-year revenue growth in the second quarter.

The underlying gross margin at Professionals declined as a result of mix effects, including lower revenue from recruitment and selection, and price pressure. Underlying operating expenses declined. EBITA amounted to &euro 1.9 million (Q2 2012: &euro 2.6 million). The EBITA margin came in at 5.0% (Q2 2012: 6.0%).

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