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Hudson losses deepen in “harsh” markets

08 May 2013

US based Hudson Global Inc. (NASD: HSON) reported yesterday that first-quarter revenue fell -16.8% in constant currency to $165.7 million from $200.6 million in the same period last year with the Asia Pacific region hit worst.

Gross profit tumbled -22.6% to $56.7 million compared to Q1 2012.

The company has continued its restructuring programme in the first quarter, resulting in restructuring charges of $2 million, primarily in Europe. During 2013, the company expects to incur total restructuring charges of up to $4 million.

Adjusted EBITDA for the quarter was a loss of $4.9 million compared with adjusted EBITDA loss of $0.9 million in the first quarter of 2012.

"Global market conditions continue to be harsh," said Manuel Marquez, chairman and chief executive officer at Hudson. "As we expected, this had an impact on our first quarter 2013 results. Notwithstanding this, we are confident we are making good progress on our strategy. We believe our critical foundational work will ultimately allow us to better withstand the economic down cycles and serve as an engine for stronger performance in the future."

Revenue fell across all geographies in the first quarter and the company struggled in territories where its peers had generally performed better, most notably the Americas and Asia Pacific. However, compared to other large international staffing firms, Hudson has a relatively high proportion of revenue derived from permanent recruitment (45% of total gross margin) and ‘talent management’ activities (15% of total gross margin) and current demand is generally weaker in these segments compared to temporary staffing.

In Europe, the Company’s largest region (responsible for 44% of total revenue) revenue fell -10% in constant currency to $72.3 million. Hudson operates across 15 European countries including the four largest staffing markets UK, France, Germany and the Netherlands. Gross margin was down -15% in constant currency compared with the first quarter of 2012. The UK showed signs of stabilization with smaller declines in temporary recruitment and strong growth in Legal eDiscovery, though Talent Management was softer. In continental Europe, reduced hiring activity continued to impact permanent recruitment, down -29% in constant currency. Actions taken to address costs across Europe resulted in SG&A and headcount reductions of -11% and -16%, respectively, from the same period a year ago, offsetting 70% of the gross margin decline from the period a year ago.

In Asia Pacific (responsible for3 4% of total revenue), revenue fell -23% in constant currency to $56.2 million with the Company blaming economic uncertainty and increasing hesitation from clients. In this region, Hudson operates in Australia, Hong Kong, China, New Zealand and Singapore. Gross margin declined -26% in constant currency with a -34% decline in permanent recruitment gross margin accounting for most of the overall gross margin drop. Talent Management gross margin declined -10% in the quarter against the prior year quarter as some client projects were delayed. Actions taken to reduce costs resulted in an SG&A decline of -19% and headcount decline of -20% from the same period last year, offsetting 67% of the gross margin decline from the period a year ago.

In the Americas region where the company operates in the US and Canada (responsible for 22% of total revenue), revenue fell -18% to $37.2 million. Gross margin decreased -31% with declines in both temporary contracting and permanent recruitment. Legal eDiscovery continued to see lower demand levels with gross margin down -33% from the period a year ago, while RPO gross margin decreased -37% compared with the first quarter of 2012 driven by softer hiring trends. Actions taken to reduce costs delivered SG&A and headcount reductions of -26% and -25%, respectively, from the same period a year ago, offsetting 83% of the gross margin decline.

Given current economic conditions, Hudson expects that second quarter 2013 revenue will continue to decline by between -12% to -17% against the second quarter of 2012 at prevailing exchange rates.

Following the results announcement, the company’s share price took a hit ending the day down -9.68% at $2.80. This is +9.38% above its 52-week low of $2.56, set on the 1 May 2013 but 34.43% below a year ago, which means the company is valued at €91.35 million.

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