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Netherlands – Randstad sees strong growth in Europe tempered by margin pressure in Netherlands and UK

28 April 2011

Revenues were up by +22% from 3.04 billion Euro in Q1 2010 to 3.7 billion Euro in Q1 2011 at Randstad Holding (RAND:AEX), the world's second largest staffing firm. Interim results for the first quarter ended 31 March 2011, reveal that organic revenue growth was +17%, or +15 % per working day. The net addition of acquisitions/disposals (primarily FujiStaff with 123 million Euro revenue) was +4%. Currency movements added +1%. Permanent placement fees increased by +15% organically. Permanent fees made up 1.8% of revenue and 9.6% of gross profit (9.2% in Q1 2010).

Organic revenue growth per working day was fairly stable throughout the quarter and reached 15% in March. In 2010 revenue growth improved through the quarter from -5% in January to +4% in March.

In Q1 2011 gross profit amounted to 670.6 million Euro. Organic growth in gross profit was +12%. The gross margin was 18.1% compared to 18.9% in Q1 2010.

The temporary margin declined by -0.6% year-on-year. The decline is caused by mix effects. The inhouse businesses grew strongly, whereas growth in the higher margin professionals businesses was significantly slower. Secondly, the change in the French subsidy system for low wage labour had an effect of around 0.2% on the temporary margin. Finally, in some markets like The Netherlands and Belgium, price pressure is still apparent. Some large contracts were renegotiated and price increases, to offset higher cost prices, follow in a more gradual pace.

The growth in permanent fees had no impact in the mix. Other mix changes, such as strong growth in the relatively lower gross margin payrolling businesses, had a negative impact of -0.2%.

In Q1 2011 operating expenses amounted to 561.9 million Euro, up +12% compared to Q1 2010 and down -2% sequentially. The consolidation of FujiStaff added +4% (approx. 20 million Euro) to the cost base. On an organic basis operating expenses were up +8% year-on-year.

Net income was up by +82% from 21.8 million Euro in Q1 2010 to 39.7 million Euro in Q1 2011.

Average headcount amounted to 27,210 for the quarter, up +9% year-on-year and up +1% sequentially. Organically, average headcount was up +5% year-on-year and down -1% sequentially. Productivity was up +7% as Randstad continued to make use of overcapacity in the network. At the end of the quarter the group operated a network of 4,185 outlets, around the same level as in the previous quarter.

In Q1 2011 EBITA increased by +44% to 108.7 million Euro, with the EBITA margin reaching 2.9% compared to 2.5% in Q1 2010. Organic EBITA growth was +40%. FujiStaff contributed +3.7 million Euro to EBITA in Q1 2011.

In The Netherlands, revenue was up by +7% organically from 654.3 million Euro in Q1 2010 to 701.3 million Euro in Q1 2011. The growth of the Dutch staffing market was around +10%, in line with the previous quarter.

Randstad was back at market growth in a competitive environment. Growth at Tempo-Team was somewhat behind market. Revenue at Yacht continued to decline at a stable single digit rate. Inhouse gained further momentum with +24% growth. Both Tempo-Team, especially in professionals, and Yacht were affected by their exposure to the public sector. Randstad overall exposure to the Dutch public sector came down to 13% of revenue (Q1 2010: 18%), based on a revenue decline of -19%, which has stabilised.

Revenue growth in the private sector was +13%. This was predominantly driven by growth in the industrial and technical segments, while growth in the administrative segment further strengthened. Based on the aforementioned mix effects and some gross margin pressure, the Dutch EBITA margin reached 5.6% compared to 6.2% in Q1 2010.

In France, revenue increased organically by +22% from 644.3 million Euro in Q1 2010 to 765.6 million Euro in Q1 2011. Strong momentum was maintained and Randstad continued to gain market share. Manufacturing continued to act as a main growth driver whereas other sectors, including white collar, showed low double-digit growth. Inhouse revenue grew by +90%, partly driven by ongoing transfers, enabling more focus on specialties and the SME segment in the branches. Growth in professionals was +10% and in line with the previous quarter. Permanent fees were up +25% organically.

The 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 ongoing, whereas those with smaller accounts were completed. It remains the group's expectation that the full year impact, from lower subsidies, on the French gross margin will amount to 0.5%. The EBITA margin amounted to 2.1% compared to 1.3% in Q1 2010, based on strong operating leverage.

In Germany, revenue increased organically by +29% from 350.7 million Euro in Q1 2010 to 451.6 million Euro in Q1 2011. Growth continued to be strong against a more challenging comparison base. Solid demand across all industrial segments helped to drive growth in staffing and inhouse, while growth in the administrative segment followed at a slower pace.

The rebranding of Team BS into Tempo-Team was successfully completed. The combined staffing and inhouse business performed in line with the market. In professionals, the IT segment showed solid double-digit growth, whereas the aerospace and engineering segment remained slow. The combined EBITA margin increased to 5.7%, compared to 4.3% in Q1 2010.

In Belgium and Luxembourg, revenue increased organically by +20% from 280 million Euro in Q1 2010 to 334.7 million Euro in Q1 2011. Randstad and Tempo-Team outperformed the market in a competitive environment. Randstad gained market share in both the industrial, especially through inhouse, and the administrative segments.

Revenue from non-staffing services such as service cheques and HR Solutions showed low single digit growth. The EBITA margin rose to 4.2% (2.9% in Q1 2010) based on strong operating leverage.

In the United Kingdom, revenue increased organically by +4% from 190.6 million Euro in Q1 2010 to 205 million Euro in Q1 2011, as a consequence of a decline in the public sector of -27% offset by growth in private sector revenue of +22%. Randstad overall exposure to the public sector came down to 25% of revenue compared to 36% in Q1 2010 as demand declined in education, care and public sector administration.

Randstad's inhouse business maintained a solid growth. Permanent placement fees were up +7% despite the impact from the public sector. Growth was driven by good performance in graduate recruitment, construction & engineering, HR, IT and media. The EBITA margin was 1.4%, compared to 2.2% in Q1 2010.

In Portugal and Spain, revenue increased organically by +8% from 192.8 million Euro in Q1 2010 to 207.4 million Euro in Q1 2011. Economic circumstances remain challenging in this region.

In Spain revenue growth continued at a single digit rate. Staffing performed in line with last year and inhouse gained further momentum.

The Portuguese business grew by +10% organically, with solid demand in automotive. The EBITA margin increased to 1.7%, compared to 1.3% in Q1 2010.

In other European countries revenue increased by +30% from 155.5 million Euro in Q1 2010 to 212.1 million Euro in Q1 2011, with growth in permanent fees of +30%. In Italy, revenue was up over +30% organically, ahead of the market.

The Swiss business gained further momentum and showed double-digit growth.

The Polish and Scandinavian businesses showed solid growth, while this was also the case in Turkey and Greece.

The integration of recently acquired businesses in Hungary and the Czech Republic was completed ahead of schedule. In both countries Randstad clearly benefits from the enlarged position. For the region the EBITA margin rose to 2.1%, compared to 0.6% in Q1 2010.

In North America, revenue increased organically by +19% from 389.6 million Euro in Q1 2010 to 476.1 million Euro in Q1 2011, against a more challenging comparison base.

Permanent fees were up +14% organically. The demand for temporary labour remained strong in the US. The US staffing and inhouse business grew by +21% organically. The revenue mix improved as growth is building momentum in the administrative segment as well as in permanent placements.

Organic revenue growth in the US professionals businesses was +16%. IT, engineering and life sciences were the main growth drivers. US managed services continued its strong performance following new contracts and higher volumes with existing clients.

The Canadian business showed solid performance in both staffing and professionals. The EBITA margin for the region improved to 2.2%, compared to 1.5% in Q1 2010.

In Rest of the World (RoW), revenues grew organically by +14% from 181.2 million Euro in Q1 2010 to 346.2 million Euro in Q1 2011.

Randstad's combined Japanese business grew +1% on a like-for-like basis, while FujiStaff revenue was in line with last year. The financial impact of the earthquake on the Japanese business was limited in the first quarter. The EBITA margin for FujiStaff was 3.0% and included 1.0 million Euro additional costs related to the earthquake. The integration of Randstad and FujiStaff is progressing according to plan.

On an organic basis, the combined business in Australia and New Zealand grew by +4% with permanent fees up by +2% compared with last year. Growth in the professionals businesses remained strong. The financial impact of the earthquake in Christchurch and the floods in Queensland was limited.

India and China showed solid growth, in line with previous quarters.

In Latin America, the performance of the Argentinean and Brazilian businesses further improved.

Mexican revenue remained under pressure. For the combined region, the EBITA margin reached 1.4% compared to 0.3% in Q1 2010.

Ben Noteboom, CEO of Randstad, commented "we saw continued strong growth in many markets like Germany, France and North America during the quarter."

"Efficiency and market shares increased further in many countries. All segments showed good growth. To benefit from the improving market conditions, we will increase our investment in the professionals segment, where we have started a growth accelerator plan. With continuing economic improvement, we look to the coming quarters with confidence."

"The most notable aspect for this quarter, however, is how our people in New Zealand and then in Japan dealt with the consequences of the earthquakes. Their resilience in the face of such major adversity has been exemplary."

In early trading Randstad's shares were up by +0.33% to 38.53 Euro.


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