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Netherlands – Randstad reports European slowdown but revenue up 10%

26 July 2012

The world’s second largest staffing firm Randstad (RAND:AEX) reported a mixed second quarter on Thursday as profits dropped and the European slowdown continued while markets in the Americas and Asia showed positive growth rates. The results did not meet analyst expectations and looking ahead, the recruiter is expecting a further organic decrease in the third quarter.

Group revenue in the quarter was up +10% to €4.3 billion year-over-year although in Europe revenue declined in all countries by a total of -4%. Overall, gross profit grew by +9% to €782.4 million, but the second-quarter gross margin dropped from 18.4% last year to 18.2%.

The recruitment firm also faced higher operating expense in the quarter which were up by +14% to €647.5 million. Earnings before interest, taxes and amortization (EBITA) fell by -12% to €134.9 million with the EBITA margin declining to 3.1% from 3.9% a year ago. The firm is facing particularly high margin pressure in Germany and the Netherlands where the Group recently announced job cuts.

In the quarter, operating profit declined by a sharp -51% to €55.7 million while net income dropped by -52% to €36.5 million. At the end of Q2 2012 net debt amounted to € 1.6 billion, up from €1.0 billion a year ago.

“We still see a mixed picture in an uncertain environment, illustrated by growth in North America, Asia and Latin America and a gradual slowdown in Europe,” said Randstad’s CEO Ben Noteboom.  “Our colleagues in the USA and Japan did particularly well this quarter, growing both revenue and profit. We continue to closely monitor the efficiency and productivity in our business. Our focus is on profitability above market share, and on stringent cost control.

Today the firm also welcomed regulatory changes in the Netherlands and Germany, saying these will have a positive impact on the industry. In Germany the larger unions in the metal and chemical sectors have settled on a new collective agreement, gradually adjusting pay for agency workers to those of permanent employees from November 2012. In the Netherlands the key change in the collective labour agreement will see temporary agency workers earning the same salary as permanent staff from day one, starting in January 2015.

“We have great confidence in the ability of our people to adjust and adapt as needed, as we have recently seen in the Netherlands and Germany. We welcome the changes in the collective labour agreements in these countries which enable our clients to maintain flexibility, while protecting the rights of our candidates,” Mr Noteboom said.

Staffing revenues in the quarter declined by a total of -6% to €2.6 billion with growth maintained in the US (+7%) while in Europe revenues declined by -8%. Revenue generated from Inhouse services were up +15% to €725.5 million. Professionals grew by +1% to €887.9 million due to slowing demand in Europe. Overall, the temp margin was -0.6% below last year, reflecting ongoing price/mix effects, the firm said. Perm fees declined by -9% and made up 1.8% of revenue and 9.7% of gross profit with growth seen across North America, China, Germany and Spain.

Global performance in Q2 2012

Across all European countries revenue declined in the second quarter. In FRANCE, revenue dropped by -5% to €831.9 million as revenue per working day contracted by -3%. Perm fees were -13% while the firm terminated some contracts in the quarter. The EBITA margin declined to 2.8% from 3.6% a year ago.

In its home market the NETHERLANDS, revenue fell by -3% to €698.8 million as revenue per working day contracted by -1%. But the Group said it performed “well ahead of the market” despite the “tough competitive environment.” The firm will cut jobs in the country to “create a more efficient and client-organized” company. Operating expenses were adjusted for restructuring costs of €6.1 million. The firm is expecting further costs of €6 million in the third quarter of the year. The Dutch EBITA margin declined to 4.3% in the second quarter from 6.8% a year ago.

In the UNITED KINGDOM revenue in the quarter was down by -8% to €198.1 million. “The competitive environment remained challenging in the UK, reflected in substantially lower temp margins and fees per placement,” the firm said. Staff was reduced by -4% when compared to the previous quarter. However, its Professional segment improved due to temporary staffing, led by engineering, finance and managed services. The EBITA margin declined to 0.6% from 0.8% a year ago.

In GERMANY slowing market conditions impacted revenue, which declined by -5% to €455.0 million. German revenue per working day contracted by -2% and gross margin pressure at the firm’s staffing and inhouse businesses continued due to more public holidays and higher salary costs. The firm is expecting restructuring costs of €9.5 million in the second half of the year. The IT segment performed well while engineering became under pressure. The German EBITA margin declined to 4.3% from 6.8% a year ago.

In BELGIUM & LUXEMBOURG revenue was down by -8% in the quarter to €321.8 million as revenue per working day was -6% below last year. The staffing business and blue-collar segment performed below the market while Professionals grew by +7%. The EBITA margin fell by -0.5% year-over-year to 4.2%.

In IBERIA revenue declined by -10% to €196.5 million and the firm said the “economic circumstances remained challenging.” Revenue per working day was -10% below Q2 2011 as lower demand in manufacturing and distribution led to a -9% fall in Spanish revenues. In Portugal, revenue contracted by -12% where the firm is merging Randstad and Tempo-Team. The EBITA margin dropped to 0.9% from 1.7% a year ago.

In OTHER EUROPEAN COUNTRIES revenue declined by -8% to €221.8 million. Revenue in Poland, Switzerland and Scandinavia declined in the quarter. In Hungary the firm lost a major contract adding pressure to the business while Turkey and Greece performed “solidly.” The EBITA margin was 2.6%, down from 3.3% a year ago.

In NORTH AMERICA the staffing firm performed well with revenue growing by +7% to €995.4 million. The gross margin also increased while the firm’s staffing and inhouse business grew by +5%. The firm also said that the integration of the workforce solutions company SFN, which the firm acquired last year, is on track.

In THE REST OF THE WORLD revenue also increased by +7% to €383.8 million with Japan performing particularly well. Japanese revenue was up by +5% while China also performed strongly. Sales remained flat in Australia and New Zealand. In Latin America, the Argentinian business expanded while Brazil maintained “strong” double-digit growth. However, Mexico was under pressure.

After announcing its financial results this morning, Randstad’s share price dropped by -2.5% to €22.27, down -29.0% from a year ago and -13.7% above the 52-week low of €19.59 set in September 2011. The firm has a market value of €3.93 billion.




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