USG People announce sharp improvement in profitability
Third-quarter 2014 highlights
• Revenue rose to &euro 623.8 million (Q3 2013: &euro 599.4 million) revenue per working day increased by 5%
• Underlying operating expenses continued to decline, falling 4% year-on-year
• Underlying EBITA rose by 25% to &euro 28.8 million (Q3 2013: &euro 23.1 million) underlying EBITA margin: 4.6% (Q3 2013: 3.9%)
• Underlying net income doubled to &euro 17.7 million (Q3 2013: &euro 8.9 million)
• Net debt declined to &euro 189.3 million (Q2 2014: &euro 205.8 million) leverage ratio improved to 1.9
“We achieved a robust result for the third quarter,” said Rob Zandbergen, CEO of USG People. “Revenue per working day grew by 5% and the EBITA margin rose to 4.6%. The profit margin is evolving towards our strategic target. Revenue growth weakened a little during the third quarter. Expenses were reduced further in the third quarter and were &euro 4 million lower than last year. Despite the more unpredictable economic growth we expect the recovery in our markets to persist and will continue to focus our attention on further improving profitability and providing the right solutions to facilitate growth at our clients as effectively as possible.”
in millions of euros
1Underlying results have been adjusted for non-recurring results. The comparative results for 2013 are based on the pro forma underlying results of USG People’s continuing activities. They do not include the results of business units divested in 2013.
USG People realised revenue growth of 4.1% in the third quarter, with revenue increasing to &euro 623.8 million (Q3 2013: &euro 599.4 million). The average number of working days was 0.3 lower in the third quarter than in the same period last year. Revenue per working day was up 4.9%. The acceleration of growth seen in the previous quarter did not persist in the third quarter. The tailing off of revenue on a number of large non-renewed contracts at Start People happened more quickly than expected while revenue on large contracts won recently will not be realised until later (Q4 2014 and Q1 2015). This realignment of the Start People client portfolio is expected to be finalised at the beginning of 2015. In September revenue per working day for the group was 2.0% higher than in the year-earlier month.
The underlying gross result rose to &euro 128.8 million in the third quarter (Q3 2013: &euro 127.9 million). As a percentage of revenue the gross margin was 20.7% (Q3 2013: 21.3%). The gross margin was affected by changes in the revenue mix, pressure on selling prices and the impact of public holidays.
In the last year growth has been greatest at large clients, and as a result the share in the revenue of large volume contracts with lower margins has increased compared to last year. This has continued to put pressure on prices. An increase in demand from the small and medium-sized business segment in the last months has as yet been unable to compensate for this. Revenue from recruitment and selection rose by 2% compared to last year. The share in group revenue remained stable compared to the third quarter of last year at 0.9% of total revenue. 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 30 basis points. The total impact of the aforementioned changes in the mix and pricing on the gross margin equalled a negative 50 basis points compared to the third quarter of last year.
There was a further negative impact of 10 basis points on the group margin as a result of an extra day of public holiday in Belgium this year.
The reported gross result in the third quarter of 2013 included not only the underlying gross result but also a &euro 0.3 million non-recurring charge relating to the creation of a provision for own risk-bearer status with regard to payments under the Dutch sickness benefit act (Ziektewet).
Operating expenses excluding depreciation and amortisation of acquisition-related intangible assets
The underlying operating expenses fell by &euro 4.0 million compared to a year earlier to &euro 96.4 million (Q3 2013: &euro 100.4 million). Compared to the previous quarter operating expenses were down by &euro 2.8 million (Q2 2014: &euro 99.2 million).
As well as the underlying expenses the reported expenses included a non-recurring charge of &euro 3.3 million. This related to organisational changes, mainly concerning the distribution network in the Netherlands and optimisation of the structure of USG Professionals. The changes will result in annual cost savings of &euro 3.5 million from 2015, of which &euro 2.0 million under the previously announced project United and &euro 1.5 million in additional structural cost savings.
The third quarter of 2013 included non-recurring gains and expenses of on balance &euro 5.9 million.
in millions of euros
Non-recurring gross result
Non-recurring operating expenses
Results of divested activities
Underlying EBITA amounted to &euro 28.8 million (Q3 2013: &euro 23.1 million). The EBITA margin rose to 4.6% from 3.9% in the third quarter of last year.
Amortisation of acquisition-related intangible assets
Amortisation of acquisition-related intangible assets amounted to &euro 1.4 million in the third quarter, down from &euro 3.4 million in the year-earlier quarter. The acquisition-related intangible assets concern brand rights, client portfolios and candidate databases valued at the time of acquisition.
The financing expenses declined to &euro 1.9 million compared to &euro 3.4 million of underlying financing expenses recorded in the third quarter of last year.
In addition to the aforementioned underlying financing expenses a positive financing result of on balance &euro 0.4 million was recognised in the third quarter of 2013. Including this result reported financing expenses amounted to &euro 3.0 million last year.
Income tax expense
Tax in the third quarter of 2014 was a negative &euro 8.0 million. This figure includes a &euro 1.9 million charge related to business tax in France. Furthermore there were taxes of &euro -0.8 million relating to previous years as well as an amount of &euro -0.3 million relating to unrecognised losses. Taxation as a percentage of pre -tax profit was distorted by the impact of the business tax and adjustments, as well as the tax credit (CICE) in France which is not taxable under income tax. Excluding these factors the group tax rate was 33.0%.
Net result from divested and discontinued activities
The net result from divested activities was a negative &euro 0.5 million in the third quarter. In the third quarter of 2013 there was net income of &euro 14.4 million from the sale of activities.
Net income attributable to equity holders of the company
in millions of euros
Underlying net income
Accelerated amortisation financing expenses
Unrealised revaluation derivatives
Net income of divested activities
Non-recurring tax effects
Reported net income
Earnings per share
Underlying net income rose to &euro 17.7 million from &euro 8.9 million in the third quarter of last year. Reported net income was &euro 13.6 million (Q3 2013: &euro 25.6 million).
Balance sheet and cash flow
Working capital declined by &euro 1.5 million in the third quarter compared to the previous quarter. Factoring of trade receivables increased by &euro 5.6 million to &euro 126.8 million (Q2 2014: &euro 121.2 million). Working capital including factoring was &euro -93.6 million at the end of the third quarter.
The operating cash flow rose to &euro 23.0 million in the third quarter (Q3 2013: &euro 4.8 million). As a result of the positive cash flow net debt fell to &euro 189.3 million (Q2 2014: &euro 205.8 million). The leverage ratio (net debt / 12-month underlying EBITDA) was 1.9.
Third-quarter 2014 results by segment
General Staffing achieved revenue of &euro 378.4 million in the third quarter (Q3 2013: &euro 366.2 million). Revenue per working day rose 4.5% compared to the year-earlier quarter.
In the Netherlands there was a 4% decline in revenue as the tailing off of revenue on a number of large non-renewed contracts at Start People happened more quickly than expected while revenue on large contracts won recently will not be realised until later (Q4 2014 and Q1 2015). This realignment of the Start People client portfolio is expected to be finished at the beginning of 2015. Excluding the impact of the non-renewed contracts growth of Start People in the third quarter equalled 4%. In September revenue per working day at Start People in the Netherlands was 6.8% lower than a year earlier.
Start People in Belgium reported a 12.2 % rise in revenue per working day compared to a year earlier. Growth was up on the previous quarter and once again outpaced the market. The Belgian market saw a weakening of growth in the labourer segment during the quarter. Revenue at Start People in Belgium was 12.0% higher in September than in the year-earlier period.
In France Start People managed to maintain its lead over the market. Revenue per working day rose by 7.9% in the third quarter (Q2 2014: 8.3%). Market growth in France in July and August was published as 1.5% revenue growth at Start People in September equalled 2.2%.
Underlying EBITA rose to &euro 18.3 million from &euro 18.0 million in the third quarter of last year. The EBITA margin was 4.8% (Q3 2013: 4.9%). The EBITA margin was depressed by mix effects, pricing pressure and an extra day of public holiday in Belgium. Expenses continued to fall compared to last year. Start People in France reported an improved EBITA margin of 5.4% (Q3 2013: 4.5%).
Specialist Staffing generated revenue of &euro 208.9 million in the third quarter (Q3 2013: &euro 197.1 million). Revenue per working day rose by 6.8% year-on-year. Unique reported growth of 7.6% while Secretary Plus saw revenue drop by 2.0% in the quarter compared to the same period last year.
In the Netherlands Specialist Staffing realised growth of 8.1% compared to the same quarter last year. Unique achieved growth of 8.6% after several successive quarters of exceptionally high double-digit growth. Revenue at Secretary Plus continued lower than last year, although there was further improvement quarter on quarter and in September the turning point to growth compared to last year was reached.
In Belgium revenue per working day at Specialist Staffing rose to 6.8% (Q2 2014: 2.9%). Compared to last year revenue at Unique was up 8.2% with Secretary Plus achieving an increase of 2.0%.
In Germany revenue per working day rose 4.0% in the third quarter (Q2 2014: 1.6%). Here the recovery was most pronounced at Unique in the industry and office segments. In the technical segment the shortage of technical staff and clients taking on candidates on permanent contracts continued to drag on growth.
Underlying EBITA improved to &euro 13.8 million from &euro11.4 million in the third quarter of last year. The EBITA margin also improved, reaching 6.6% of revenue (Q3 2013: 5.8%). An extra day of public holiday in Belgium had a somewhat negative impact on profitability compared to last year. Overall the number of public holidays was lower than in the previous quarter, which had a positive impact on profit levels, particularly in Germany.
USG Professionals generated revenue of &euro 36.5 million (Q3 2013: &euro 36.1 million). Revenue per working day was up by 2.0%. In the Netherlands there was growth of 1.2% compared to last year, while Belgium still reported a small decline of 1.6%.
Underlying EBITA amounted to &euro 0.6 million (Q3 2013: &euro 0.3 million). The gross margin remained more or less stable, as did the expenses. The results of the activities rolled out by USG Professionals outside the Netherlands and Belgium are fully recognised in this year’s reported expenses. The underlying expenses in the comparative figures for last year were adjusted accordingly.
The economic recovery is currently following a less predictable course in some of our markets. Our organisation is flexible enabling us to respond rapidly to changes in the market. We will keep expenses under control and will maintain our focus on commercial and operational excellence and on delivering the right solutions to our clients.
* Final quarter of 2014 based on most recent forecast for revenue mix