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Revenues were up by +12% from 3.8 billion Euro in Q3 2010 to 4.2 billion Euro in Q3 2011 at Randstad Holding (RAND:AEX), the world's second largest staffing firm. Organically (excluding the impact of currencies, acquisitions, disposals and re-classifications) revenues were up by +7%.
Gross profit was up by +10% from 697.9 million Euro in Q3 2010 to 764.9 million Euro in Q3 2011. Organically, gross profit was up by +4%. The gross margin was 18.1%, down from 18.4% in the previous quarter and 0.4% below last year. The YoY decline is caused by a continued decline in the temp margin (0.5%) which has been partly offset by a 0.2% contribution from the newly acquired SFN Group. Perm fees did not have impact on the change in gross margin. Other mix changes, like high growth in the low margin payrolling business, had a negative impact of 0.1%.
Underlying EBITA (adjusted for one-offs and integration costs) was up by +14% from 153 million Euro in Q3 2010 to 175.1 million Euro in Q3 2011. Organically, underlying EBITA was up by +8%.
EBITA was slightly below analysts' forecasts of 178 million Euro, the average of five analysts in a Reuters poll, with estimates ranging from 171 million to 184 million Euro.
In The Netherlands, revenue was up by +4% organically per working day, broadly in line with the previous quarter. Organic growth per working day in September was +3%. The growth of the Dutch staffing market, which does not include professional staffing such as provided by Randstad’s Yacht brand, was around +5%. Randstad Netherlands continued to perform ahead of the market, while revenue of Tempo-Team was flat compared with last year. Revenue at Yacht continued to decline, but at a low single digit rate. In its private sector business Yacht achieved low double-digit growth. Both Yacht and Tempo-Team, especially in Professionals, continued to be affected by their exposure to the public sector. The overall exposure to the Dutch public sector remained stable at 13% of revenue (Q3 2010: 16%), following a decline of -8% y-o-y. Revenue growth in the private sector reached +6%.
Price pressure was stable, while the group sees ongoing high growth in lower margin activities, which is not yet offset by growth in the administrative and Professionals segment. As a result, the Dutch EBITA margin reached 6.4% compared with 6.8% in Q3 2010.
In France, a strong performance was maintained and the group continued to gain market share. Revenue increased organically by +9%, which was stable throughout the quarter and compared with +16% in the previous quarter. Automotive and manufacturing continued to be the leading growth sectors, while construction and logistics were lagging. Inhouse services grew solidly by +54%. Transfers of clients from Staffing to Inhouse continued, while the group accelerated growth at existing clients. In Inhouse, the group now operates from over 100 locations. Professionals grew by +10%. Growth was led by healthcare and engineering, whereas finance staffing was under pressure. Permanent fees were up +23% organically. The negative impact on the French gross margin from the changes in the subsidy system regarding low wage labour was in line with expectations and did no longer have a significant impact on the French gross margin. In Q3 2011 the group added 95 FTEs, predominantly in Staffing and Inhouse services. In Professionals, the group gradually expanded the number of FTEs as part of the Group’s growth accelerator plan. The EBITA margin reached 3.6% against a strong comparison base. The group has started reviewing client profitability, which has not had an effect yet but it could, going forward, gradually impact growth and contribute to profitability.
In Germany, against a strong comparison base and a tighter labour market, revenue grew by +10% organically. Revenue per working day was stable throughout the quarter and continued at the same level as in the previous quarter. Revenue growth per working day in September slowed to +6%. The combined Staffing and Inhouse business performed slightly behind the market with volume growth slowing to a low single digit rate towards the end of the quarter. The Industrial segments continued to drive growth. In Professionals, the IT segment maintained its strong momentum. Engineering showed moderate growth. In Q3 2011 the group added 80 FTEs, mainly in Staffing and Inhouse. The combined EBITA margin increased to 7.4% based on strong operating leverage and good cost control.
In Belgium & Luxembourg, revenue increased by +3% organically, or +4% when adjusted for working days. Growth of the combined Staffing and Inhouse business performed slightly lower than the market as the group remained strict on client selection criteria. Randstad continued to focus on growth in the white collar segment resulting in market outperformance in this segment. Growth of Professionals was at the same level as in the previous quarter. Revenue from non-staffing services, such as service checks and HR Solutions, showed low single digit growth. In Q3, 2011 the group added 70 FTEs mainly in the Staffing businesses. The EBITA margin increased to 4.3%.
In the United Kingdom, on an organic basis revenue increased by +2%, in line with the previous quarter. The overall exposure to the public sector came down to 17% of revenue compared to 22% in Q2 2011, partly driven by the seasonal pattern in the education business. The demand in construction and public sector administration remained challenging, while the decline in healthcare and education seemed to have stabilised against an easier comparison base. The decline in the public sector of -25% was partly offset by growth in private sector revenue of +11%, primarily driven by continued strong growth in the combined staffing and inhouse business, of which Inhouse services grew by +25%. Permanent fees were -8% below last year, mainly caused by lower demand in the City-oriented businesses. Strong performance was maintained in engineering and graduate recruitment. Based on the aforementioned mix effects, the EBITA margin declined significantly to 0.2%, compared to 1.2% in Q3 2010.
In Portugal and Spain, economic circumstances remained challenging. Nevertheless, revenue still grew by +3% organically, compared with +5% in the previous quarter. The region exited the quarter with flat revenue versus last year. In Spain the combined staffing and Inhouse business achieved low single digit growth, predominantly driven by solid performance through Inhouse services. The Portuguese business grew by +5% compared with +7% in the previous quarter. Strong operating leverage and good cost control in both countries resulted in an EBITA margin of 3.3%, compared to 2.4% in Q3 2010.
The other European countries maintained solid double-digit organic growth, with growth in permanent fees of +30%. In Italy, revenue was up +21% organically, ahead of the market. The Swiss business continued to show low double-digit growth. The Polish and Scandinavian businesses grew solidly, although slower than in the previous quarter. In Turkey, Hungary and the Czech Republic strong growth was maintained, fuelled by permanent fees. In Greece profitability improved. For the region the EBITA margin was 3.6% in line with last year.
In North America, revenue increased by +25% or +10% organically, compared with +14% in the previous quarter. Permanent fees in North America were up by +30% organically. SFN Group contributed 118 million Euro of revenue in the period as of September 2, 2011. The combined US staffing and Inhouse business grew by +2% organically, against a strong comparison base, while growth was also impacted by focus on client profitability. The revenue mix strengthened further as the group maintained focused on expansion in the administrative segment and permanent placements. Inhouse services continued to grow at +16%. Organic revenue growth in the US professionals businesses was +15%, and held up well compared to the previous quarter. IT maintained solid double-digit growth, while in engineering and healthcare growth accelerated. Finance and accounting was under pressure. The rebranding of the US Professionals businesses is on track and in line with expectations. The group continued to add FTEs in the US businesses, mainly in US Professionals. Canada continued its solid performance in both staffing and professionals. The EBITA margin for the region improved to 4.7%, compared with 3.8% in Q3 2010, based on a strong operating leverage.
In the Rest of the World, revenue of the combined Japanese business was just below last year. The industrial segment showed strong growth, mainly as a result of activities associated with the recovery from the earthquake earlier this year, while the administrative segment remained behind. The rebranding in Japan is well on track. Revenue of the combined business in Australia and New Zealand grew by a low single digit rate and improved throughout the quarter. Growth in Professionals remained strong and FTEs were added as part of the Professionals growth accelerator. The Staffing business was behind. India and China showed solid growth, in line with previous quarters.
In Latin America, the performance of the Argentinian and Mexican businesses further strengthened while Brazilian and Chilean revenues were under pressure. For the combined region, the EBITA margin reached 0.9% compared with 0.5% in Q3 2010. The EBITA in Q3 2010 was impacted by acquisition-related expenses of about 2 million Euro related to the FujiStaff transaction.
Staffing revenue grew by +9%, or +5% organically, down from +10% in the previous quarter. Growth in the major countries slowed sequentially, partly impacted by the continuing transfer of clients from Staffing to Inhouse, like in France and Spain. In the US and Belgium the group has also exited some low margin contracts. Growth in Germany and France held up reasonably well at around +9% and +6% respectively. Belgium slowed to +3% partly driven by low demand over the summer. Overall demand is still largely driven by industrial clients, while growth in the administrative segments remained moderate. As a result, the EBITA margin reached 4.2%.
Inhouse services, mainly focused on industrial and logistical clients, continued to show double digit growth against a strong comparison base. Organic growth reached +18% compared with +29% in the previous quarter. Besides the ongoing transfers from Staffing, the group accelerated growth at existing clients, and continued to add new clients in the UK and US. The EBITA margin reached 4.7%.
Professionals grew by +10%, or by +7% organically, which is in line with the previous quarter. The US professionals business showed strong growth in IT, engineering and healthcare. Canada performed solidly, driven by IT and engineering. Overall growth in the North American region was +15% compared with +17% in the previous quarter. The French business grew steadily, especially in permanent placements. Growth in Australia remained strong and Randstad expects further investments to benefit from good market conditions.
The Dutch professionals businesses still declined although the impact from low demand in the public sector became smaller. The decline in the UK business accelerated mainly as a result of the slowdown in the City-oriented business and continued low demand in the public sector business. In both countries, growth outside the public sector strengthened. The EBITA margin reached 4.7% equal to last year. Profitability improvements are hampered by low contributions from The Netherlands and the UK while in other countries strong performance was maintained.
Divestment of Compliance Inc.
In October the group agreed to sell the business of Compliance Inc., a small US based company. Compliance is a legal project outsourcing company that supports law firms and corporate legal departments by supplementing their full-time staff. This business no longer fits with Ranstad's core expertise for which reason the group decided to divest its business. This transaction does not have a material impact on Randstad's earnings nor on its financial position.
Ben Noteboom, CEO of Randstad, commented "our people have done a great job in realising good growth once again. Across the board profitability improved and we managed our costs well. We extend a warm welcome to our new colleagues in North America where the integration with SFN Group is in full swing. Combined with the rebranding of the Professionals businesses in the US, we will approach the largest market in the world with an integrated and enhanced service portfolio, for example in Recruitment Process Outsourcing."
"On industry level, the final quarter of this year sees the implementation of the European Union Agency Work Directive. An important step in lifting restrictions and improving the position of agency work. All the more relevant as private employment agencies play a pivotal role in social and economic progress, job creation, and assisting customers, governments and candidates to maintain their competitive advantage during changes in the employment market."
Despite the slower growth, in early trading Randstad's shares were up by +0.7% to 25.83 Euro.