Adecco delivers strong performance in Q2 2013
Adecco delivers strong performance in Q2 2013
Gradually easing revenue decline, improvement in profitability
Q2 2013 HIGHLIGHTS
Revenues down 3% organically
Gross margin of 17.9%, up 20 bps (30 bps organically)
SG&A down 3% organically and excluding restructuring and integration costs
EBITA excluding restructuring and integration costs of EUR 202 million, up 7% organically
EBITA margin excluding restructuring and integration costs of 4.1%, up 40 bps
Net income up 12%, basic EPS up 17%
To date, 8.9 million shares acquired for EUR 361 million under current share buyback programme
New share buyback programme of up to EUR 250 million planned
Adecco Group, the world’s leading provider of Human Resources solutions, today announced results for Q2 2013. Revenues were EUR 4.9 billion, down 3% organically. The gross margin was 17.9%, an increase of 20 bps versus the prior year and up 30 bps organically. Continued strong cost control resulted in 3% lower SG&A, organically and excluding restructuring and integration costs. The EBITA margin excluding restructuring and integration costs was 4.1%, up 40 bps compared to the same quarter last year. Net income was up 12% to EUR 126 million and basic EPS increased by 17% to EUR 0.69.
Patrick De Maeseneire, CEO of the Adecco Group said: “We delivered a strong performance in the second quarter. Labour markets are starting to stabilise around Europe and we see some more positive signs in our business. The gap to the market narrowed further in France, and North America continued to perform well. Price discipline and the business mix resulted in an improved gross margin and we further reduced SG&A year-on-year. This drove a healthy expansion in our EBITA margin to 4.1%. We exited the quarter with revenues in June down 2%, organically and adjusted for trading days. July showed a similar development and the steady improvement so far this year is encouraging for the second half outlook. Given recent trends and more favourable economic conditions expected towards the end of 2013, we are convinced we will achieve our above 5.5% EBITA margin target by 2015.”
Q2 2013 FINANCIAL PERFORMANCE
Q2 2013 group revenues of EUR 4.9 billion were down 5% year-on-year, or down 3% organically. Currency fluctuations had a negative impact on revenues of approximately 2%. Permanent placement revenues amounted to EUR 86 million, a decrease of 3% in constant currency. Revenues from counter-cyclical Career Transition (outplacement) totalled EUR 71 million, up 6% in constant currency.
Gross profit amounted to EUR 884 million and the gross margin was 17.9%. Gross margin was up 20 bps year-on-year, or up 30 bps organically. Temporary staffing had a 25 bps positive impact on the gross margin and the impact was up 10 bps from the outplacement business. Permanent placement had a neutral effect whilst the impact from other activities was down 5 bps organically.
Selling, General and Administrative Expenses (SG&A)
SG&A was EUR 684 million, a decrease compared to Q2 2012 of 7% or -5% in constant currency. Restructuring costs were EUR 2 million, compared to restructuring and integration costs in Q2 2012 of EUR 9 million. SG&A excluding restructuring and integration costs was 3% lower year-on-year organically. Sequentially, SG&A was flat in constant currency and when excluding restructuring costs. Organically, FTE employees decreased by 6% (-1,800) and the branch network decreased by 5% (-280 branches), compared to Q2 2012. At the end of Q2 2013, the Adecco Group had over 31,000 FTE employees and operated a network of around 5,200 branches.
EBITA was EUR 200 million, representing an EBITA margin of 4.1%. EBITA excluding restructuring and integration costs was EUR 202 million, up 7% organically. The EBITA margin excluding restructuring and integration costs was 4.1% compared to 3.7% in Q2 2012, an increase of 40 bps year-on-year reflecting both the improved gross margin and cost reduction measures.
Amortisation of Intangible Assets
Amortisation of intangible assets was EUR 10 million.
Operating income was EUR 190 million.
Interest Expense and Other Income / (Expenses), net
Interest expense was EUR 19 million, the same as in Q2 2012. Other income / (expenses), net was zero in Q2 2013 this compares to an expense of EUR 14 million in Q2 2012, which was negatively impacted by the sale of a business in North America. In July 2013, Adecco successfully issued EUR 400 million 2.750% notes due 2019. As a result, interest expense for the full year 2013 is now expected to be around EUR 80 million (previously around EUR 75 million).
Provision for Income Taxes
The effective tax rate in the period under review was 26%, compared to 19% in Q2 2012. In both years, the tax rate was impacted by the successful resolution of prior years’ audits and tax disputes and the expiration of the statute of limitations in several jurisdictions.
Net Income attributable to Adecco shareholders and EPS
Net income attributable to Adecco shareholders was EUR 126 million, an increase of 12%. Basic EPS increased by 17% to EUR 0.69, reflecting net income growth and the impact of the share buyback programme commenced in July 2012.
Cash flow, Net Debt3 and DSO
Cash used in operating activities was EUR 11 million in H1 2013, compared to operating cash flow of EUR 81 million generated in the same period last year. In H1 2013, capital expenditure was EUR 36 million and the Group paid dividends of EUR 266 million and paid EUR 218 million for treasury shares. Net debt at June 30, 2013 was
EUR 1,482 million, compared with EUR 972 million at December 31, 2012. DSO in Q2 2013 was 53 days, one day less than in Q2 2012.
In France, revenues of EUR 1.2 billion were down 12% year-on-year, with the gap to the market continuing to narrow. Permanent placement revenues were down 21%. EBITA was EUR 47 million, impacted by restructuring costs of EUR 2 million. EBITA excluding restructuring costs was EUR 49 million, with the margin of 4.1% increasing by 80 bps year-on-year. This was helped by the effect of CICE (the tax credit for competitiveness and employment), for which we applied the same methodology this quarter as in Q1 2013.
As announced on July 11, 2013, Adecco Group was informed that the French competition authority has commenced an investigation of the company and certain of its competitors in France with regards to alleged violations of French competition law. Adecco is fully cooperating with the authority.
In North America, revenues were EUR 960 million, up 3% organically. General Staffing revenues were flat in constant currency, with growth in Industrial and a small decline in Office, while Professional Staffing revenues grew by 4% organically. Permanent placement revenues continued to develop well, up 10% in constant currency. EBITA was EUR 49 million, an increase of 14% in constant currency. The EBITA margin increased by 70 bps to 5.2%, driven by leverage of previous investments in our IT and MSP/VMS businesses.
In the UK & Ireland, revenues were EUR 469 million, up 4% in constant currency. Permanent placement revenues were down 16% in constant currency. EBITA was EUR 8 million, and the EBITA margin was 1.8% (Q2 2012: 0.7%). Note that Q2 2012 was affected by the London Summer Olympics, with a benefit to revenues but a negative impact on profitability due to sponsorship costs.
In Germany & Austria, revenues were EUR 387 million, flat compared to Q2 2012. EBITA was EUR 15 million and the EBITA margin was up 20 bps to 3.7%. From a seasonal perspective, Q2 has in general the weakest profitability of the year given the higher number of public holidays.
In Japan, revenues were EUR 283 million, down 9% in constant currency. Despite the revenue decline, profitability was healthy. EBITA was EUR 18 million and the EBITA margin was 6.3%, up 30 bps year-on-year.
In Italy, revenues were flat with a strong EBITA margin of 6.7%, up 120 bps year-on-year. In the Benelux, revenues decreased by 2% and the EBITA margin was 2.5%, compared to 3.3% in Q2 2012. In the Nordics, revenues were flat in constant currency. As expected, profitability recovered after the soft start to the year, with an EBITA margin in Q2 2013 of 4.1%, down 10 bps year-on-year.
In Iberia, revenues declined by 2%. In Australia & New Zealand, revenues fell by 10% in constant currency. In Switzerland, revenues declined by 3% in constant currency.
In the Emerging Markets, revenue growth was 8% in constant currency, with a strong growth acceleration in Eastern Europe. The EBITA margin was 3.1%, down 20 bps year-on-year, as Adecco continues to invest in the region, primarily in permanent placement.
Revenues of LHH, Adecco’s Career Transition and Talent Development business, were up 6% in constant currency to EUR 83 million. EBITA was EUR 24 million and profitability remained strong, with an EBITA margin of 28.3%.
BUSINESS LINE PERFORMANCE
In General Staffing (Office & Industrial), revenues were EUR 3.7 billion, a decrease of 4% in constant currency. In the Industrial business, revenues were down 5% in constant currency. In France, revenues fell by 13% and in both Italy and Germany & Austria the decline was 1%, while North America grew 3% in constant currency. In the Office business, revenues were down 2% in constant currency. Revenues were down 3% in North America, down 13% in Japan and down 5% in the Nordics, all in constant currency. In France, the decline was 8%, while in the UK & Ireland revenues were up 3% in constant currency.
Professional Staffing revenues were EUR 1.1 billion, down 1% in constant currency but up 2% organically. Revenues in North America were up 4% organically. In the UK & Ireland revenues were up 3% in constant currency, in Germany & Austria up 3% and in Japan up 5% in constant currency. In France, revenues fell by 5%.
In Information Technology (IT), revenues decreased by 2% in constant currency but grew 3% organically. In North America, revenues grew by 8% organically, driven by the US IT Professional Staffing business which grew by 11% organically. Revenues in the UK & Ireland were up 3% in constant currency.
Adecco’s Engineering & Technical (E&T) business was up 3% in constant currency. In North America, revenues were up 3% in constant currency. In Germany & Austria revenues grew 2%, while in France revenues were up 13%.
In Finance & Legal (F&L), revenues were up 2% in constant currency. Revenues in North America declined by 1%, but in the UK & Ireland grew by 7%, both in constant currency
Medical & Science (M&S) revenues were down 6% in constant currency. North America grew by 9% but the Nordics declined by 18%, both in constant currency, while revenues in France were down 23%.
Solutions5 continued to perform well, with 9% growth in constant currency. Revenue growth in MSP (Managed Service Programmes) and VMS (Vendor Management System) continued to be strong double-digit in constant currency and the growth rate further accelerated compared to Q1 2013.
Labour markets are starting to stabilise around Europe and we see some more positive signs in our business. In France the gap to the market has been narrowing since the beginning of the year, and elsewhere in continental Europe rates of decline eased further. North America continues to perform well and Emerging Markets delivered high-single-digit growth with a strong acceleration in Eastern Europe. We exited the quarter with Group revenues in June down 2%, organically and adjusted for trading days. July showed a similar development and the steady improvement so far this year is encouraging for the second half outlook.
Given these trends, we maintain our price discipline and cost control. At the same time, we continue to invest in organic growth opportunities and the consolidation of our IT platforms, whilst focusing on our strategic priorities. SG&A in Q3 2013 is expected to be similar to Q2 2013 on a constant currency basis and before one-off costs. As announced in March this year, we plan to invest a total of EUR 30 million in 2013 to further optimise the cost base, of which EUR 13 million were invested in H1 2013.
We continue to be very focused on reaching our mid-term EBITA margin target of above 5.5%. Given recent trends and more favourable economic conditions expected towards the end of 2013, we are convinced we will achieve this target by 2015.
New share buyback programme
In June 2012, the Company launched a share buyback programme of up to EUR 400 million on a second trading line with the aim of subsequently cancelling the shares and reducing the share capital. To date, the Company has acquired 8.9 million shares for a total consideration of EUR 361 million under this programme. After completion of the current programme, the Company intends to launch a new share buyback programme of up to EUR 250 million. The new programme will also be executed on a second trading line with the SIX Swiss Exchange with the aim of subsequent cancellation of the shares and reduction of the share capital, after formal shareholder approval.