USG People reveal sharp improvement in profitability driven by higher revenue and lower costs
“In line with the outlook we issued previously, revenue and profit growth continued to improve in the first quarter," said Rob Zandbergen, CEO of USG People. "In the core countries both revenue and profitability improved on the back of our reinforced commercial focus combined with our lower cost base. The strategic initiatives and organisational improvements of recent years have considerably increased our operating leverage, with revenue growth of 4% producing a 130% increase in EBITA in the first quarter. We expect the recovery in our markets to continue. Each brand’s clear and distinguishing focus increases our ability to deliver innovative solutions to our clients and thus realise further revenue and profit growth.”
Key figures Underlying results (in millions of euros)
3 months ended 31 March
3 months ended
USG People realised revenue growth of 4% in the first quarter, with revenue increasing to &euro 542.8 million from &euro 524.4 million in the first quarter of last year. The number of working days was virtually unchanged from last year. There was a positive development during the quarter, with revenue in March up 5% compared to the same month in 2013. Growth was achieved in all the core countries in the first quarter. The Netherlands recorded the strongest growth, with revenue up 5.5% compared to a year earlier. This was a clear improvement on the growth in the previous quarter (Q4 2013: 2.3%) and once again outpaced growth in the wider market. Sector organisation ABU reported revenue growth of 3.4% for the Dutch market in the first three months of the year. In Belgium revenue rose by 2.2% compared to last year (Q4 2013: -3.6%), in line with the market. Demand for recruitment and selection continued to lag somewhat behind the early-cyclical activities, with revenue in this segment (1.1% of group revenue) down 5.1% on last year’s level.
The gross result rose 3% in the first quarter compared to last year and amounted to &euro 116.5 million (Q1 2013 underlying gross result: &euro 113.4 million). As a percentage of revenue the gross margin was 21.5% (Q1 2013 underlying gross margin: 21.6%).
On balance the gross margin fell by 0.1 percentage point compared to the first quarter of last year as a result of changes in the revenue mix and pricing effects. The change in the revenue mix had a negative impact on the margin level. Compared to last year the growth was greatest at large clients, where demand for efficient delivery models such as outsourcing and in-house concepts also increased. The lower organisational costs of these solutions mean that they can be delivered to our clients at a relatively low cost price. Lower revenue from the call centres, re-integration and recruitment and selection had a negative mix effect on the gross margin. The tax credit scheme (CICE) in France had a positive impact on the group margin. The tax credit was higher than last year, boosting the group gross margin by 0.3 percentage point.
The reported gross result in the first quarter of 2013 includes not only the underlying gross result 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 sickness benefit act (Ziektewet).
Operating expenses excluding depreciation and amortisation of acquisition-related intangible assets
The operating expenses fell by &euro 4.9 million compared to a year earlier to &euro 98.3 million (Q1 2013 pro forma underlying expenses: &euro 103.2 million). Compared to the previous quarter operating expenses remained virtually unchanged.
The implementation of the combination of brands and simplified organisational structure went according to plan. The quarterly cost savings related to this project amounted to &euro 2 million in the first quarter (&euro 8 million on an annual basis), In addition to the savings already realised in 2013. The annual salary adjustments effective from 1 January resulted in an increase in costs, which could be compensated almost entirely by the aforementioned cost savings.
In addition to the underlying expenses in the first quarter of 2013 the reported expenses also included a non-recurring charge of on balance &euro 0.7 million.
In the first quarter EBITA rose to &euro 14.7 million (Q1 2013 underlying EBITA: &euro 6.4 million). The EBITA margin came in at 2.7% against an underlying EBITA margin of 1.2% in the first quarter of last year. The rise in revenue in conjunction with a reduction in expenses created a strong leverage effect: EBITA rose by 130% year-on-year on revenue growth of 4%.
Amortisation of acquisition-related intangible assets Amortisation of acquisition-related intangible assets amounted to &euro 1.9 million in the first quarter, down from &euro 4.8 million in the year-earlier quarter which included an accelerated amortisation of &euro 0.7 million. The acquisition-related intangible assets concern brand rights, client portfolios and candidate databases valued at the time of acquisition.
The financing expenses continued their decline, falling to &euro 1.9 million in the first quarter, half the &euro 4.0 million in underlying financing expenses recorded in the same period of last year.
In addition to the aforementioned underlying financing expenses in the first quarter of 2013 an unrealised value adjustment to interest-rate derivatives was recognised equalling a positive &euro 2.5 million. Including this unrealised value adjustment reported financing expenses amounted to &euro 1.5 million last year.
Income tax expense Tax in the fourth quarter was a negative &euro 4.1 million compared to a negative &euro 0.4 million a year earlier. This figure includes a &euro 1.4 million charge related to business tax in France (Q1 2013 business tax charge: &euro 1.4 million). Tax as a percentage of pre-tax profit equalled 37.8% however, this figure was distorted by the effect of the business tax and the tax credit (CICE) in France which is not taxable under income tax.
Net result from divested activities and from discontinued activities The first quarter of 2014 did not include any results from divested or discontinued activities. In the first quarter of 2013 there was a net result of on balance &euro -17.0 million from the sale of activities and from discontinued activities.
Net income attributable to equity holders of the company Net income for the first quarter came in at &euro 6.8 million compared to an underlying net result of &euro -2.1 million in the year-earlier quarter. In contrast to the quarter under review the first quarter of last year also included non-recurring results. Including these non-recurring results the reported net result for the first quarter of 2013 was &euro -16.8 million. Net earnings per share for the first quarter of this year were &euro 0.08 (Q1 2013: &euro -0.21).
Balance sheet and cash flow Working capital increased by &euro 10.6 million in the first quarter compared to the previous quarter, mainly due to a reduction in trade receivables sold. Factoring of trade receivables declined by &euro 16.6 million in the first quarter to &euro 104.5 million (Q4 2013: &euro 121.1 million). Working capital including trade receivables sold was &euro -105.5 million at the end of the quarter (Q1 2013: &euro -105.6 million).
The operating cash flow totalled &euro -2.8 million in the first quarter (Q1 2013: &euro -10.5 million). Net debt amounted to &euro 187.4 million in the first quarter (Q4 2013: &euro 177.9 million). Net debt increased as a result of the fall in factoring, which is always lower in the first quarter in line with normal seasonal patterns. The total leverage ratio (net debt / 12-month underlying EBITDA) was 2.2 and the senior leverage ratio (net bank debt / 12-month underlying EBITDA) was 1.6, both well within the bank covenants.
First-quarter 2014 results by segment
General Staffing (Start People) General Staffing achieved revenue of &euro 316.2 million in the first quarter (Q1 2013: &euro 309.9 million). Revenue per working day rose 2% compared to the year-earlier quarter. The Netherlands still registered a 0.6% decline in revenue per working day, mainly due to weak demand for medical staff excluding medical there was a slight increase in revenue per working day. Medical accounts for a relatively large share of revenue at Start People compared to the market. Start People in Belgium reported a 6% rise in revenue per working day compared to a year earlier. Despite a sharp drop in revenue at the call centres Start People comfortably outpaced market growth: Federgon, the Belgian federation of HR service providers, reported a 2.5% increase in hours for the Belgian market in the first two months of the year. In France Start People saw revenue per working day rise by 2%, once again exceeding market growth (reported by sector organisation Prisme as 0.6% to the end of February).
EBITA rose to &euro 11.2 million from &euro 5.7 million in the first quarter of last year. The EBITA margin rose to 3.5% (Q1 2013: 1.8%). The gross margin as a percentage of revenue remained stable compared to last year. A higher tax credit in France (CICE) offset the negative effects from the revenue mix and pricing pressure. A drop in revenue at the call centres and at USG Restart, to which a 100% gross margin applies, had a negative impact on the margin. Operating expenses at General Staffing were down again as a result of brands being combined
Specialist Staffing (Unique, Secretary Plus)
Specialist Staffing generated revenue of &euro 187.5 million in the first quarter (Q1 2013: &euro 175.3 million). Revenue per working day rose by 7% year-on-year, with Unique in the Netherlands and Germany seeing continuing recovery. In the Netherlands Specialist Staffing realised strong growth of 16% compared to the same quarter last year, with Unique in particular reporting a strong improvement in growth. Demand at Secretary Plus was still lagging.
Belgium also reported continuing improvement. While revenue still declined slightly for the quarter as a whole, the turning point to growth was reached in the course of the quarter and in March Specialist Staffing reported growth of 2%. In Belgium, too, growth was strongest at Unique, which achieved growth of 5% in March. Demand for secretarial and medical staff was still weak in the first quarter. In Germany revenue grew by 3% in the first quarter. Here, too, recovery was most noticeable at Unique in the industry and office segments. Revenue in the technical segment and at Secretary Plus remained below last year’s level.
EBITA improved to &euro 7.6 million from &euro 5.6 million in the first quarter of last year. The EBITA margin also improved, reaching 4.1% of revenue (Q1 2013: 3.2%). The gross result rose compared to last year due to the increase in revenue. As a percentage of revenue the gross margin fell slightly due to negative mix and price effects. Underlying costs were lower due to the combining of brands.
Professionals (USG Professionals)
Professionals generated revenue of &euro 39.1 million (Q1 2013: &euro 39.2 million). Revenue per working day was virtually unchanged compared to the first quarter of last year. As from February there was a return to growth. Revenue in the Legal segment grew by 9%. At Engineering revenue was still 3% lower than in the year-earlier period and demand remained weak at Finance and IT.
EBITA amounted to &euro 0.7 million (Q1 2013: &euro 1.1 million). The gross margin was lower due to lower revenue from recruitment and selection, greater use of freelancers and price pressure. Expenses were virtually unchanged compared to the underlying expenses in the year-earlier period.