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Adecco delivers record Q4 profitability with a 5.3% margin

•   EBITA margin excluding restructuring costs 4.8%, up 40 bps

•   Net income attributable to Adecco shareholders up 14%, basic EPS up 17%

•   Proposed 2014 dividend of CHF 2.10 per share, up 5% compared to last year

The Adecco Group today announced results for the full year and Q4 2014. Revenues in 2014 were EUR 20.0 billion, up 4% in constant currency. The gross margin improved to 18.5%, up 20 bps. SG&A excluding restructuring costs was up 3% in constant currency. The EBITA margin excluding restructuring costs was 4.8%, up 40 bps. Net income attributable to Adecco shareholders was up 14% to EUR 638 million and basic EPS increased by 17% to EUR 3.62. In recognition of Adecco’s strong cash flow and balance sheet, the Board of Directors proposes a dividend per share of CHF 2.10 for 2014, a 5% increase on the prior year. 

Patrick De Maeseneire, CEO of the Adecco Group said, “Market conditions in 2014 were rather mixed, but our colleagues showed again that they can adapt well to changing conditions, and delivered another strong performance. With 5.3%, we delivered our best-ever fourth quarter margin. This provides an excellent base as we head into 2015. In addition, revenue growth in constant currency and adjusted for trading days was 4% for January and February combined, a clear pick-up compared to the end of 2014. And since GDP growth is forecasted to accelerate in 2015, we expect a further positive development of demand for flexible labour going forward. Given our strong profitability in the fourth quarter, our good start to the year and the positive outlook, and with the continued good progress on our six strategic priorities, we remain convinced that we will achieve our EBITA margin target of above 5.5% in 2015.”

FY 2014 FINANCIAL PERFORMANCE

Revenues

Group revenues for 2014 were EUR 20.0 billion, up 3% or up 4% in constant currency compared to the prior year. Currency fluctuations had a negative impact on revenues of approximately 1%. Permanent placement revenues amounted to EUR 348 million, an increase of 11% in constant currency. Revenues from career transition (outplacement) totalled EUR 297 million, an increase of 7% in constant currency.

Gross Profit In 2014

gross profit was EUR 3.7 billion, an increase of 4% compared to 2013. In constant currency, gross profit increased by 5%. The gross margin increased by 20 bps to 18.5%, mainly driven by a positive business mix, a continued strict approach to pricing and the effect of the French CICE (tax credit for competitiveness and employment).

Selling, General and Administrative Expenses

(SG&A) SG&A increased by 1%. Excluding restructuring costs, SG&A increased by 3% in constant currency. SG&A in 2014 included restructuring costs of EUR 37 million, incurred in France (EUR 4 million), North America (EUR 18 million), Germany (EUR 14 million), and Emerging Markets (EUR 1 million). SG&A in 2013 included restructuring costs of EUR 33 million. In 2014, FTE employees were up 1% and branches declined by 2%. At year end 2014, the Adecco Group had worldwide over 31,000 FTE employees and a network of around 5,100 branches.

EBITA

In 2014, EBITA was EUR 928 million. EBITA excluding restructuring costs was EUR 965 million, and the margin increased by 40 bps to 4.8%. Amortisation of Intangible Assets Amortisation of intangible assets was EUR 37 million in 2014 compared to EUR 42 million in 2013.

Operating Income

Operating income in 2014 was EUR 891 million compared to EUR 779 million in 2013. 

Interest Expense and Other Income/(Expenses)

Net Interest expense was EUR 69 million compared to EUR 79 million in 2013, with the reduction mainly due to the repayment at maturity in April 2014 of a EUR 346 million bond with an interest rate of 7.625%. Other income/(expenses), net was an income of EUR 5 million in 2014 compared to an expense of EUR 2 million in 2013.

Provision for Income Taxes

The effective tax rate in 2014 was 23% compared to 20% in 2013. Discrete events had a positive impact on the tax rate of approximately 5% in 2014 and 8% in 2013.

Net Income Attributable to Adecco Shareholders and EPS

In 2014, net income attributable to Adecco shareholders was up 14% to EUR 638 million. Basic EPS was EUR 3.62, up 17% compared to 2013, reflecting net income growth and the impact of the share buyback programmes.

Cash Flow, Net Debt3 and DSO

Cash flow generated from operating activities amounted to EUR 785 million in 2014, compared to EUR 520 million in 2013. In 2014, the Group invested EUR 80 million in capex, paid dividends of EUR 291 million and paid EUR 281 million for treasury shares. Net debt at the end of December 2014 was EUR 975 million compared to EUR 1,096 million at year end 2013. In 2014, DSO was 53 days, one day less than in 2013. 

Q4 2014 FINANCIAL PERFORMANCE

Revenues

Q4 2014 revenues of EUR 5.2 billion were up 4% year-on-year, or up 2% in constant currency. Currency fluctuations had a positive impact on revenues of approximately 2%. By business line, revenues in constant currency grew by 3% in General Staffing, with Industrial up 4% and Office up 1%, and declined by 1% in Professional Staffing. Permanent placement revenues were EUR 87 million, up 14% in constant currency. Revenues from career transition (outplacement) totalled EUR 77 million, up 3% in constant currency.

Gross Profit

Gross profit amounted to EUR 976 million and the gross margin was 18.9%, up 60 bps year-on-year. Temporary Staffing had a 40 bps positive impact, permanent placement added a further 20 bps and the outplacement business had a 10 bps positive impact, while other activities had a 10 bps negative impact.

Selling, General and Administrative Expenses (SG&A)

SG&A was EUR 727 million, up 5% compared to Q4 2013. Restructuring costs were EUR 23 million compared to EUR 17 million in Q4 2013. SG&A excluding restructuring costs was EUR 704 million, up 2% year-on-year in constant currency. Sequentially, SG&A excluding restructuring costs was up 2% in constant currency. Compared to Q4 2013, FTE employees increased by 1% and the branch network was flat.

EBITA

EBITA was EUR 249 million and EBITA excluding restructuring costs was EUR 272 million. The EBITA margin excluding restructuring costs was up 50 bps to 5.3%, which is the strongest fourth-quarter margin in Adecco’s history.

Amortisation of Intangible Assets

Amortisation of intangible assets was EUR 10 million compared to EUR 11 million in Q4 2013. Operating Income Operating income was EUR 239 million compared to EUR 210 million in the same period last year. 

Operating Income
Operating income was EUR 239 million compared to EUR 210 million in the same period last year.

Interest Expense and Other Income/(Expenses), net

Interest expense was EUR 14 million compared to EUR 21 million in Q4 2013. Other income/(expenses), net was an expense of EUR 3 million in Q4 2014 compared to an expense of EUR 1 million in Q4 2013.

Provision for Income Taxes

The effective tax rate was 17%. Discrete events had a positive impact of approximately 11% on the tax rate. 

Net Income Attributable to Adecco Shareholders and EPS

Net income attributable to Adecco shareholders was EUR 185 million compared to EUR 174 million last year. Basic EPS increased to EUR 1.06 from EUR 0.98.

Cash Flow, Net Debt and DSO

Cash flow generated from operating activities was EUR 284 million in Q4 2014 compared to EUR 250 million in the same period last year. In Q4 2014, capex was EUR 25 million and the group paid EUR 81 million for treasury shares. Net debt at December 31, 2014 was EUR 975 million compared to EUR 1,149 million at September 30, 2014. DSO was 52 days in Q4 2014, one day less than in Q4 2013.  

In France, revenues were EUR 1.1 billion, a decrease of 5%. Industrial, which accounts for approximately 85% of revenues, decreased by 3%. The weakness in construction, our largest industry exposure in France, continued to weigh on revenues. In Office, revenues decreased by 23%, while in Professional Staffing the decline was 8%. Permanent placement revenues in France were up 17%. EBITA was EUR 74 million, which included restructuring costs of EUR 4 million. EBITA excluding restructuring costs was EUR 78 million and the margin was 6.8%. This is an 80 bps increase compared to the EBITA margin excluding restructuring costs of 6.0% in Q4 2013. In North America, revenues were EUR 1.1 billion, an increase of 6%.

In North America, General Staffing accounts for approximately half of revenues. In Industrial, revenue growth remained strong at 13%, while Office improved further with revenues up 5%. In Professional Staffing, revenues grew by 2%, with growth of 1% in IT, 9% in Finance & Legal 4 Organic growth is a non-US GAAP measure and excludes the impact of currency, acquisitions and divestitures. Press Release Page 5/13, Q4 and FY 2014, March 11, 2015 and 15% in Medical & Science, while revenues in Engineering & Technical were down 3%. Permanent placement revenues in North America were up 12%. EBITA was EUR 65 million, which includes restructuring costs of EUR 4 million related to the move to a single headquarters in North America. EBITA excluding restructuring costs was EUR 69 million, with the margin increasing by 150 bps to 6.5%. 

In the UK & Ireland, revenues decreased by 2% to EUR 524 million. Approximately two-thirds of revenues come from Professional Staffing, which declined by 2%. This was driven by a 2% decrease in IT, the largest business line within Professional Staffing. Within General Staffing, the majority of revenues are in Office, which also declined by 2%. Permanent placement revenues in the UK & Ireland increased by 9%. EBITA was EUR 13 million with a margin of 2.4% compared to the EBITA margin excluding restructuring costs of 2.5% in Q4 2013.

In Germany & Austria, revenues declined by 2% to EUR 415 million. In Industrial, which accounts for approximately 70% of revenues, revenues decreased by 2%, compared to growth of 2% in Q3 2014. This reflects weaker demand from clients in manufacturing sectors. Revenues declined in Office by 5% and in Professional Staffing by 1%. EBITA was EUR 4 million, which includes restructuring costs of EUR 14 million. EBITA excluding restructuring costs was EUR 18 million with a margin of 4.5%, up 60 bps compared to Q4 2013.

In Japan, revenues were EUR 259 million, up 1%. Revenues were flat in Office, which accounts for approximately 75% of our revenues in Japan. Our smaller Professional Staffing business, which comprises IT and Engineering & Technical, continued to grow. EBITA was EUR 15 million and the EBITA margin was 6.0% compared to 6.4% in the prior year.

In Italy, revenues were up 10%, helped by good demand in logistics and food. Profitability continued to be strong with an EBITA margin of 5.6%. In Benelux, revenues increased by 1% and the EBITA margin was down 60 bps to 5.6%, both against tough comparatives in the prior year.

In the Nordics, revenues were up 2%. In Norway and Sweden the environment remained challenging. In the Nordics the EBITA margin was 2.3% compared to the EBITA margin excluding restructuring costs of 2.9% in Q4 2013.

In Iberia, revenues were up 19%, with the improvement in demand continuing to broaden. The EBITA margin was 3.9% compared to 4.1% in Q4 2013.

In Australia & New Zealand, revenues returned to growth with an increase of 4%. The EBITA margin in Q4 2014 was 1.0%, up 20 bps compared to the prior year.

In Switzerland, revenues were up 1% compared to Q4 2013. Profitability was strong, with an EBITA margin of 9.3%

In the Emerging Markets, revenue growth was 10%, with continued strong growth in Eastern Europe & MENA, up 18%. EBITA of 21 million included EUR 1 million of restructuring costs. Excluding restructuring costs, the EBITA margin for Emerging Markets was 4.3% compared to 4.0% in Q4 2013. In LHH, Adecco’s Career Transition and Talent Development business, revenue growth was 2%. Profitability continued to be very strong, with the EBITA margin increasing by 380 bps to 31.3%.

MANAGEMENT OUTLOOK

In the fourth quarter, organic revenue growth slowed compared to the first nine months. This reflected some softness in parts of Europe, especially in France and Germany. Since the start of 2015, the trends in our businesses in Europe and Japan have become more positive, while growth remains robust in North America and in Emerging Markets.

Revenue growth was 4% for January and February combined, in constant currency and adjusted for trading days this was flattered slightly by the favourable timing of holidays in January, but the underlying picture shows a clear improvement compared to the end of 2014.

Based on these trends and the current economic outlook, we expect a further positive development of demand for flexible labour over the course of 2015. Given this picture, we will continue to invest selectively where we see organic growth opportunities and where productivity is already at a high level. At the same time, we maintain our focus on tight cost control.

In Q1 2015, SG&A is expected to increase slightly compared to Q4 2014 in constant currency and excluding restructuring costs, in line with the normal seasonal pattern. We continue to be very focused on reaching our EBITA margin target of above 5.5% in 2015. Economic growth slowed in the second half of 2014, but a pick-up of GDP growth is expected for 2015 and the start of the year suggests this is already beginning to happen.

Given this outlook and based on the good progress on our six strategic priorities and our continued price and cost discipline, we remain convinced we will achieve our target. ACQUISITION The Adecco Group today announces the acquisition of Knightsbridge Human Capital Services. Knightsbridge is the market leader in career transition and talent development services in Canada and the acquired business had revenues of CAD 56 million in 2014.

The combination of Lee Hecht Harrison and Knightsbridge establishes LHH as the market leader for Human Capital Solutions in Canada and reinforces LHH’s leadership position in key markets around the world. The enterprise value of CAD 80 million will be financed with Adecco’s existing financial resources and the acquisition is expected to be EVA-enhancing in the second year after closing. The transaction remains subject to customary closing conditions and is expected to close in Q2 2015. 

SHARE BUYBACK PROGRAMME

In November 2014, the Company completed the share buyback programme of EUR 250 million launched in September 2013 and started a new share buyback programme of up to EUR 250 million. The new programme is also 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. Under the current programme, the Company has to date acquired 825,000 shares for EUR 45 million.

PROPOSALS TO SHAREHOLDERS

Dividend pay-out: At the Annual General Meeting, the Board of Directors will propose a dividend of CHF 2.10 per share for 2014, for approval by shareholders. This represents a pay-out ratio of 49% of adjusted net earnings (assuming an exchange rate of EUR/CHF 1.07), in line with the pay-out range of 40-50% of adjusted net earnings. The total amount of the dividend distribution for 2014 is intended to be allocated from Adecco S.A.’s reserve from capital contributions to the free reserves and subsequently distributed to shareholders, and is therefore expected to be exempt from Swiss withholding tax. The dividend will be paid on May 5, 2015 to shareholders on the register as of April 29, 2015.

Cancellation of shares:

At the Annual General Meeting, the Board of Directors will propose the cancellation of all shares that have been purchased on a second trading line under the share buyback programmes during 2014. The total number of shares to be cancelled is 4,606,873 representing a reduction of share capital of 2.6%.

Board of Directors:

Following the divestment of Adecco shares by Jacobs Holding AG, Andreas Jacobs has decided not to stand for reelection to the Board of Directors. Since Andreas Jacobs joined the Board in May 2006 he has made a major contribution to the success of the Adecco Group. The Board of Directors and the Executive Management team would like to take this opportunity to thank Andreas Jacobs and the Jacobs Family for their longstanding and personal engagement to the success of the Adecco Group. The Board of Directors proposes to newly elect Kathleen P. Taylor and Jean-Christophe Deslarzes as members of the Board of Directors.

Kathleen P. Taylor (1957) is a Canadian national. She is currently Chair of the Board of Royal Bank of Canada and a director of the Canada Pension Plan Investment Board. Ms Taylor is the former President and Chief Executive Officer of Four Seasons Hotels and Resorts. Jean-Christophe Deslarzes (1963) is a Swiss national. He is currently Chief Human Resources Officer and member of the Executive Committee of ABB Group. Previously, Mr Deslarzes served as Chief Human Resources and Organization Officer and member of the Executive Board of Carrefour Group. 

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