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Netherlands - Randstad sees fifth consecutive quarter with double digit growth

28 July 2011

Revenues were up by +13% from 3.47 billion Euro in Q2 2010 to 3.91 billion Euro in Q2 2011 at Randstad Holding (RAND:AEX), the world's second largest staffing firm.

Interim results for the second quarter of 2011 reveal that actual gross profit was up by +9% from 659.7 million Euro in Q2 2010 to 720.5 million Euro in Q2 2011.

EBITA was up by +24% from 123.7 million Euro in Q2 2010 to 153.5 million Euro in Q2 2011. Underlying EBITA (excluding one-offs) was up by +28% from 119.7 million Euro in Q2 2010 to 153.5 million Euro in Q2 2011.

Staffing revenues grew +10% organically, down from +16%3 in the previous quarter mainly caused by a strong comparison base, especially in France, Germany and North America. Demand is still largely driven by industrial clients, while growth in the administrative segments gradually strengthened. The staffing gross margin was up quarter-on-quarter, which reflects a better mix and less pronounced effect from price pressure in some regions. The EBITA margin improved to 4.1% compared to 3.6% last year. All regions showed strong operating leverage. German gross profit included specific wage cost related gains amounting to 3.5 million Euro, related to previous years.

In-house services, mainly focused on industrial and logistical clients, continued to show solid growth against a strong comparison base. Organic growth reached +29% compared to +41% in the previous quarter. The transfer of clients from staffing to in-house continued, for example in France, while Randstad continuously added new clients as well. Strong growth was maintained in all geographies. The EBITA margin reached 3.8%. Belgian gross profit was impacted by specific wage cost related costs of 2 million Euro, which were related to previous years.

Professionals continued to improve gradually and grew +7% organically, compared to +6% in the previous quarter, and +4%4 in Q4 2010. The US professionals business showed strong growth in IT and Engineering, while Finance & accounting strengthened, especially in permanent. Canada performed solidly, driven by IT and engineering. Overall growth in the North American region was +17% compared to +16% in the previous quarter. The French business grew steadily, especially in permanent placements. The UK and Dutch professionals businesses both still declined, which is mainly caused by the relatively large exposure to the public sector. In both countries, growth outside the public sector strengthened. Growth in Australia remained strong and Randstad expect further investments to benefit from good market conditions. The EBITA margin reached 4.8% compared to 4.2% last year.

In Q1 2011 Randstad launched the professionals growth accelerator plan. This plan is designed to benefit from improved market conditions in professionals. In addition to regular expansion Randstad aims to recruit over 500 consultants in various countries over the next two years based on a gradual approach and the field steering model. In Q2 2011 Randstad added 90 FTEs and the total net investment amounted to 800,000 Euro. In Q3 the group will continue to hire staff and the net investment is expected to amount to around 2 million Euro.

In the Netherlands revenues were up +7% organically, or +3% when adjusted for working days. The growth of the Dutch staffing market was around +6%. Randstad Netherlands performed well ahead of the market. Tempo-Team remained behind the market, while revenue at Yacht continued to decline at a single digit rate. In-house services continued to grow solidly with +15%. Both Tempo-Team, especially in professionals, and Yacht continued to be affected by their exposure to the public sector. Overall exposure to the Dutch public sector remained stable compared to Q1 2011 at 13% of revenue (Q2 2010: 16%), caused by a revenue decline of -17% year-on-year. Revenue growth in the private sector remained strong at +11% and was predominantly driven by growth in the industrial and technical segments, while growth in the administrative segment gradually strengthened. The Dutch EBITA margin increased to 6.5% compared to 5.7% in Q2 2010.

In France strong performance was maintained. Revenues increased organically by +16%, which was stable throughout the quarter and compared to +22% in the previous quarter. Manufacturing continued to act as a main growth driver whereas other segments, including white collar, built further momentum. In-house revenue grew by +71%, partly driven by ongoing transfers, enabling the branches to focus more on specialties and the SME segment. Growth in professionals remained strong, especially in IT and Engineering. Permanent fees were up +38% organically and improved across all sectors. The negative impact on the French gross margin from the changes in the subsidy system regarding low wage labour was in line with expectations. Negotiations with large accounts are still ongoing, with the majority completed successfully. Randstad expects that the full year impact from lower subsidies on the French gross margin will not exceed 0.5%. In spite of the impact from the lower subsidies, the EBITA margin increased to 3.6% compared to 3.5% in Q2 2010.

In Germany revenues growth reached +16% organically. Against a strong comparison base and tighter labour market, growth per working day slowed from +23% in March to +8% in June, whereas revenue growth reached +46% in June 2010. Continued strong demand across all industrial segments helped to drive growth in staffing and in-house, while growth in the administrative segment strengthened. The combined staffing and in-house business performed in line with the market. In professionals, the IT segment showed double-digit growth, while engineering showed moderate growth. Aerospace remained difficult. The combined EBITA margin increased to 6.8%, compared to 5.4% in Q2 2010. In Q2 2011 German gross profit included specific wage cost related gains amounting to 3.5 million Euro, which were related to previous years.

In Belgium and Luxembourg revenues increased by +10% organically, compared to +20% in the previous quarter. Randstad and Tempo-Team performed in line with the market. In-house services grew by +21%, while growth in the white collar segment stabilised compared to the previous quarter. Revenue from non-staffing services such as service cheques and HR Solutions showed low single digit growth. The EBITA margin came down to 4.7% (5.2% in Q2 2010) and was mainly caused by specific wage cost related items in gross profit, which amounted to 2 million Euro and were related to previous years. In spite of this effect, strong operating leverage was maintained.

In the United Kingdom, on an organic basis, revenues increased by +2%. The overall exposure to the public sector came down to 22% of revenue compared to 25% in Q1 2011 as demand further declined in Healthcare and public sector administration, while the decline in Education seemed to have stabilised. The decline in the public sector of -30% was partly offset by growth in private sector revenue of +14%, predominantly driven by continued strong growth in the combined staffing and in-house business. In-house services maintained momentum and grew by +33%. Permanent fees were -7% below last year, mainly caused by lower demand in the City-oriented businesses. Based on the aforementioned mix effects, the EBITA margin amounted to 0.8%, compared to 2.0% in Q2 2010.

In Spain and Portugal revenues grew by +5% organically, compared to +8% growth in the previous quarter. Economic circumstances remain challenging in this region. In Spain revenue growth continued at a low single digit rate. Staffing performed in line with last year, while in-house services continued to grow solidly. The Portuguese business grew by +7%. The EBITA margin increased to 1.7%, compared to 1.1% in Q2 2010.

The other European countries showed solid double-digit organic growth, with growth in permanent fees of +25%. In Italy, revenues were up +31% organically, ahead of market. The Swiss business continued to show double-digit growth. The Polish and Scandinavian businesses showed solid growth, as was Turkey. Greece continued to grow at a single digit rate. In Hungary and the Czech Republic strong growth was maintained. For the region the EBITA margin was 3.3% compared to 1.9% in Q2 2010.

In North America revenues increased by +14% organically, compared to +19% in the previous quarter. Permanent fees were up by +25% organically. The demand for temporary labour remained strong in the US. The combined US staffing and in-house business grew by +10% organically, against a strong comparison base.

The revenue mix continued to improve as Randstad gained momentum in the administrative segment as well as in permanent placements. Organic revenue growth in the US professionals businesses was +17%, up from +13% in the previous quarter and now clearly ahead of growth in our staffing and in-house business. IT, Engineering and Life Sciences were the main growth drivers.

Finance and Accounting improved, particularly in permanent placements. US managed services continued its strong performance following some new contracts and higher volumes with existing clients. Towards the end of the second quarter the rebranding of the US Professionals businesses was started. Canada showed solid performance in both staffing and professionals. The EBITA margin for the region improved to 4.2%, compared to 3.1% in Q2 2010, based on a strong operating leverage.

Rest of the World: Revenues of Randstad's combined Japanese business was broadly in line with last year. The financial impact of the earthquake turned out to be lower than expected as volumes recovered more quickly than anticipated. The integration of Randstad and FujiStaff was successfully completed by the end of the quarter, well ahead of schedule. Following the integration, the rebranding has now started. Revenue of the combined business in Australia and New Zealand was in line with previous year. Growth in Professionals remained strong and headcount was added as part of the Professionals growth accelerator.

The staffing business was somewhat under pressure. India and China showed solid growth, in line with previous quarters. In Latin America, the performance of the Argentinean business further improved. Brazilian and Mexican revenues were under pressure, while Professionals in these markets maintained its momentum. For the combined region, the EBITA margin reached 0.5% compared to 1.2% in Q2 2010.

Acquisitions: In April 2011, Randstad increased the share in the Brazilian company RHI from 51% to 100%.

The intended acquisition of SFN Group was announced on July 20, 2011. The combination enables Randstad to become the third largest player in the highly fragmented North American HR Services industry.

Randstad expects a cash outflow, related to this transaction, of around 575 million Euro, which includes the consideration to be paid, transaction costs and part of integration costs.

Ben Noteboom, CEO of Randstad, commented "this is the fifth consecutive quarter with double-digit growth. Our people have done a good job, with the fastest growth in Germany, France and North America. Clients are showing a high level of interest in in-house services, and we see excellent growth there. Worldwide, the lingering uncertainties in the economy will lead to more interest in flexible solutions, more transitions and mobility on the employment market."

"The big news is, of course, the prospect of being able to join forces in North America with our excellent colleagues from SFN Group. This is something we all look forward to."

"We believe that together we will be able to offer many North American and international clients, candidates, employees and shareholders even better opportunities than we would have separately. We look forward to shaping the world of work together."

In early trading Randstad's shares were up by +0.36% to 31.04 Euro.



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