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Adecco confirms another quarter of strong EBITA margin expansion

The Adecco Group, the world’s leading provider of Human Resources solutions, today announced results for Q1 2015. Revenues were EUR 5.1 billion, up 4% in constant currency compared to the prior year. The gross margin was 19.1%, an increase of 50 bps. SG&A was up 1% in constant currency and excluding prior year restructuring costs. The EBITA margin was 4.6%, up 60 bps compared to the EBITA margin excluding restructuring costs in Q1 2014. Net income attributable to Adecco shareholders was up 45% to EUR 160 million and basic EPS increased by 49% to EUR 0.92.

Patrick De Maeseneire, CEO of the Adecco Group said: “In the first quarter revenue growth accelerated, helped by an improving environment in Europe. Conditions in France stabilised and we saw a pick-up in Benelux, while Italy, Iberia and Eastern Europe again achieved double-digit growth. And with 4.6%, we achieved our best-ever first quarter margin. In April, revenue growth was similar to the first quarter, in constant currency and adjusted for trading days. Based on the trends in our business and the current economic outlook, we expect revenue growth to accelerate in the second half of 2015, also helped by an easier comparison base. Given our strong profitability in the first quarter 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.”

Q1 2015 Financial Performance

Revenues
Q1 2015 revenues of EUR 5.1 billion were up 9% year-on-year, or up 4% in constant currency. Currency fluctuations had a positive impact on revenues of approximately 5%. By business line, revenues in constant currency grew by 5% in General Staffing, with Industrial up 5% and Office up 4%, and declined by 1% in Professional Staffing. Permanent placement revenues amounted to EUR 99 million, up 12% in constant currency. Revenues from Career Transition (outplacement) totalled EUR 86 million, flat in constant currency.

Gross Profit
Gross profit amounted to EUR 972 million, an increase of 12% or 5% in constant currency. The gross margin was 19.1%, up 50 bps year-on-year. Temporary staffing had a 30 bps positive impact on gross margin, driven by our continued strict approach to pricing and helped by a favourable one-time item in France. Permanent placement added a further 20 bps to gross margin. Selling, General and Administrative Expenses (SG&A) SG&A was EUR 736 million, up 1% in constant currency and excluding prior year restructuring costs. There were no restructuring costs in Q1 2015, compared to EUR 5 million in Q1 2014. Sequentially, SG&A was up 1% in constant currency and excluding the Q4 2014 restructuring costs. Compared to Q1 2014, FTE employees increased by 1% and the branch network increased by 1%.

EBITA
EBITA was EUR 236 million, up 21% in constant currency and excluding prior year restructuring costs. The EBITA margin was 4.6%, up 60 bps compared to the EBITA margin excluding restructuring costs of 4.0% in Q1 2014.

Amortisation of Intangible Assets
Amortisation of intangible assets was EUR 8 million compared to EUR 9 million in Q1 2014.

Operating Income
Operating income was EUR 228 million compared to EUR 171 million last year.

Interest Expense and Other Income/(Expenses)
Net Interest expense was EUR 14 million compared to EUR 20 million in Q1 2014. Other income/(expenses), net was an income of EUR 1 million in Q1 2015, the same as in Q1 2014.

Provision for Income Taxes
The effective tax rate was 25% compared to 27% in the prior year. Discrete events in Q1 2015 had a positive impact of approximately 2% on the tax rate.

Net Income Attributable to Adecco Shareholders and EPS Net income attributable to Adecco shareholders was EUR 160 million compared to EUR 110 million last year. Basic EPS increased to EUR 0.92 from EUR 0.62 in Q1 2014.

Cash Flow, Net Debt3 and DSO
Cash flow generated from operating activities was EUR 54 million in Q1 2015 compared to EUR 103 million in the same period last year. In Q1 2015, capex was EUR 20 million and the group paid EUR 26 million for treasury shares. Net debt at March 31, 2015 was EUR 1,059 million compared to EUR 975 million at year end 2014. DSO was 52 days in Q1 2015, one day less in constant currency than in Q1 2014. 

In France, revenues were EUR 1.0 billion, down 2%. Industrial, which accounts for approximately 85% of revenues, decreased by 1%. The weakness in construction, where we have a large exposure, continued to weigh on revenues. In Office, revenues decreased by 8%, while in Professional Staffing the decline was 4%. Permanent placement revenues in France were up 8%. EBITA was EUR 63 million and the EBITA margin was 6.0%. This is a 120 bps increase compared to 4.8% in Q1 2014. Q1 2015 included a favourable one-time item, which added approximately 60 bps to the EBITA margin in France.

In North America, revenues were EUR 1.1 billion, an increase of 4%. In North America, General Staffing accounts for approximately half of revenues. In Industrial, revenue growth remained strong at 14% while in Office revenues declined by 1%. In Professional Staffing, revenues were up 1%, with growth of 18% in Medical & Science and 6% in Finance & Legal, while revenues declined in IT by 1% and in Engineering & Technical by 6%. Permanent placement revenues in North America were up 13%. EBITA was EUR 59 million, a margin of 5.5%. This is an increase of 140 bps compared to the EBITA margin excluding restructuring costs in Q1 2014. 

In the UK & Ireland, revenues decreased by 1% to EUR 555 million. Approximately two-thirds of revenues come from Professional Staffing, which declined by 1%. This included revenue decline of 1% in both IT and Finance & Legal. Within General Staffing, the majority of revenues are in Office, which saw a flat revenue development. Permanent placement revenues in the UK & Ireland were up 6%. Gross profit in the UK & Ireland grew by 4% in the quarter. EBITA was EUR 12 million, with a margin of 2.2% compared to 1.9% in Q1 2014.

In Germany & Austria, revenues were EUR 413 million, down 2%. In Industrial, which accounts for approximately 70% of revenues, revenues decreased by 2%. Revenues declined in Office by 4% and in Professional Staffing by 3%. EBITA was EUR 26 million, with a margin of 6.3% compared to 6.5% in Q1 2014.

In Japan, revenues were EUR 274 million, up 7%. Revenues grew by 10% in Office, which accounts for approximately 75% of our revenues in Japan. In our smaller Professional Staffing business, which comprises IT and Engineering & Technical, revenues grew by 7%. Profitability was strong. EBITA was EUR 17 million and the EBITA margin was 6.3% compared to 4.8% in the prior year.

In Italy, revenue growth accelerated to 17%. Profitability improved by 80 bps to an EBITA margin of 5.6%, as we leveraged the investments made during 2014.

In Benelux, revenues increased by 6%, with solid growth in all three countries. The EBITA margin strengthened to 4.3%, up 90 bps year-on-year.

In the Nordics, revenues were down 5%. After a difficult second half in 2014, Sweden improved during the quarter. In Norway the market environment continues to be very challenging, adversely impacting profitability for the Nordics.

In Iberia, revenues were up 16%. The EBITA margin was 4.3%, up 110 bps year-on-year mainly due to strong operating leverage.

In Australia & New Zealand, revenue growth accelerated to 9%. The EBITA margin in Q1 2015 was -1.1%.

In Switzerland, revenues were up 2% compared to Q1 2014. Profitability remained good, with an EBITA margin of 6.9%, down 10 bps compared to the prior year.

In the Emerging Markets, revenue growth was 11%, led again by double digit growth in Eastern Europe & MENA. The EBITA margin for Emerging Markets was 3.9%, up 60 bps year-on-year.

Revenues of LHH, Adecco’s Career Transition and Talent Development business, were flat. This was impacted by negative growth in North America, which accounts for approximately 50% of LHH revenues. The EBITA margin for LHH remained strong at 31.5%, also flat compared to the prior year.

MANAGEMENT OUTLOOK
In the first quarter, revenue growth picked up again after the slowdown in the second half of 2014. The trends in our businesses in Europe and Japan have become more positive, while growth remains robust in North America and in Emerging Markets. In April, revenue growth was similar to the first quarter, in constant currency and adjusted for trading days. Based on the trends in our business and the current economic outlook, we expect revenue growth to accelerate in the second half of 2015, also helped by an easier comparison base. 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 Q2 2015, SG&A is expected to increase slightly compared to Q1 2015 on an organic basis, mainly due to costs for contractual obligations related to the management changes. We continue to be very focused on reaching our EBITA margin target of above 5.5% in 2015. In Q1 2015, we achieved our best-ever first quarter margin, following on from our record fourth-quarter profitability in Q4 2014. Given the positive 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.

SHARE BUYBACK PROGRAMME
In November 2014, the Company launched a share buyback programme of up to EUR 250 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 825,000 shares under this programme for EUR 45 million.

 

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