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Netherlands — USG People signals imminent turnaround in Dutch market

23 July 2010

USG People N.V. (USG.AEX), the staffing, secondment and HR services group, has today published second quarter and half year results for the six months ended 30 June 2010. All figures are underlying results excluding one-off effects.

Q2 revenues were up by +3% from 722 million Euro in 2009 to 747 million Euro in 2010. General staffing revenue saw month-on-month improvement during the course of the quarter. Q2 gross profit was up by +1% from 163 million Euro in 2009 to 164 million Euro in 2010. Q2 EBITA was up by +58% from 12 million Euro in 2009 to 19 million Euro in 2010 as costs were successfully held back to the same level as Q1 2010.

The gross margin declined from 22.6% in Q2 2009 to 22.0% in Q2 2010 but was only marginally lower compared to the prior quarter.

USG People reduced headcount and the number of branches in all markets with the exception of Belgium/Luxembourg. With less than half the sales of the Dutch market, Belgium/Luxembourg managed to deliver almost the same level of operating profit as the Netherlands in Q2 2010. The Company remains unprofitable in France, Spain, Germany and Italy.

H1 revenues were down by -3% from 1.47 billion Euro in 2009 to 1.43 billion Euro in 2010. H1 gross profit was down by -7% from 341 million Euro in 2009 to 317 million Euro in 2010. H1 EBITA was up by +26% from 23 million Euro in 2009 to 29 million Euro in 2010.

Rob Zandbergen, CEO of USG People, said "our revenue grew once again in the second quarter (this is after seven quarters of decline in revenue). The recovery gathered strength and we saw extremely strong growth in a few countries. The early cyclical general activities are growing faster than the late cyclical specialist and administrative activities. Since we once again succeeded in keeping our operational expenses virtually the same, the operational leverage worked well in the second quarter."

"Higher revenue translated into a substantially higher result. The EBITA more than doubled compared to the previous quarter. In the late cyclical Dutch market, the recovery lagged somewhat behind, as expected. Revenue in the Netherlands improved slightly compared to the previous quarter and indications from the field were increasingly positive. We are confident that the recovery in the Netherlands will also be more visible in the results in the third quarter."

"The merging of labels in the Netherlands, Spain and Germany announced earlier is going according to plan and will be completed in the third quarter. Assuming further improvement in our markets, we are now excellently positioned to profit optimally from the market recovery."

In The Netherlands H1 revenues were down by -16% from 690 million Euro in 2009 to 582 million in 2010. H1 EBITA was down by -58% from 32.7 million Euro in 2009 to 13.7 million Euro in 2010. The recovery at production and export-oriented businesses continued in the second quarter; consequently revenue at Start People increased slightly from the last quarter. Corrected for one less working day this year, the revenue was virtually equal to that of the second quarter last year. In the first quarter there was still a year-on-year decline of -14% at Start People. In the services segment and niche markets in which USG People has a strong position, gradual improvement was visible. The Company sees clear signs of recovery at these activities now. The gross margin was somewhat lower compared to the previous quarter because of mix effects.
 
The gross margin in the Netherlands has remained virtually stable since Q3 2009. The underlying costs also remained at virtually the same low level of previous quarters. The underlying EBITA was 7 million Euro (2.4%) compared with 12 million Euro (3.7%) in the second quarter last year. At Specialist Staffing, the decline in revenue further decreased compared to last year. There was however already a slight increase in revenue with respect to the previous quarter. Revenue was -17% lower than in the second quarter of 2009, while the decline in the previous quarter had still been -28%. For the second quarter, revenue at Unique was slightly higher than for the first quarter. The Company claims that the merging of Unique and Content is starting to bear fruit. Even though demand at the government, banks and insurers still lagged behind, Unique managed to improve its revenue slightly. Professionals booked a drop in revenue of -14% compared to last year, more or less in line with the previous quarter.

In Belgium/Luxembourg H1 revenues were down by -2% from 317 million Euro in 2009 to 310 million in 2010. H1 EBITA was up by +12% from 18.7 million Euro in 2009 to 21 million Euro in 2010. USG People’s revenue grew once again in the second quarter. Compared to last year, revenue was +3% higher. In the first quarter this was still -7% lower than in 2009. Just as in the Netherlands, it is mainly the production industry and transport sector leading the recovery in Belgium as well. In the second quarter, Start People and Unique achieved growth in revenue of +3% compared to last year. The growth at Specialist Staffing was +6% thanks to strong improvement in revenue at Secretary Plus and Express Medical. At Professionals, USG Legal Forces and USG HR Forces grew strongly while USG Innotiv (engineers and ICT) and USG Financial Forces continued to lag behind somewhat.

In France H1 revenues were up by +17% from 192 million Euro in 2009 to 224 million in 2010. H1 EBITA was up by +350% from a loss of -2.2 million Euro in 2009 to 5.5 million Euro in 2010. Continuing the ealier trend, France continued to be one of the frontrunners on the road to recovery in the second quarter. Revenue grew substantially and was +21% higher than in the second quarter of last year. The underlying gross margin and EBITA were higher in the second quarter due to a change in the treatment of business tax. Consequently the gross result and EBITA were 1.6 million Euro higher. The EBITA margin rose to 3.5% of revenue. The change in the attribution of the business tax has no effect on the net result.

In Spain H1 revenues were up by +2% from 88 million Euro in 2009 to 90 million in 2010. H1 EBITA was up by +60% from a loss of -6.2 million Euro in 2009 to a reduced loss of -2.5 million Euro in 2010. In Q2 2010, growth continued to lag behind. Although revenue was +5% higher than last year, virtually no month-on-month progress was achieved. Demand remained low as the result of the difficult economic circumstances in the country.

In Germany H1 revenues were up by +13% from 101 million Euro in 2009 to 114 million in 2010. H1 EBITA was up by +86% from a loss of -5.8 million Euro in 2009 to a reduced loss of -0.8 million Euro in 2010.

In Italy H1 revenues were up by +22% from 51 million Euro in 2009 to 62 million in 2010. H1 EBITA was up by +150% from a loss of -0.8 million Euro in 2009 to 0.4 million Euro in 2010.

In other countries H1 revenues were up by +32% from 37 million Euro in 2009 to 49 million in 2010. H1 EBITA was up by +106% from a loss of -3.2 million Euro in 2009 to 0.2 million Euro in 2010. In Q2, strong revenue growth was achieved in Poland (+83%), Austria (+65%) and Switzerland (+16%).

The total number of full-time employees decreased by -787 (-10%) compared to the same quarter last year with reductions coming mostly within the Netherlands and Germany. Meanwhile, USG People disclosed the details of a severance package for Herman van Campenhout who was appointed as CEO on 3 March 2010 and swiftly left the Company on 30 June due to lack of chemistry. Mr van Campenout received a settlement of 1,467,000 Euro or 17,058 Euro for each working day of his tenure.

USG People revealed details of its recent strategic developments as well as providing an insight into its future strategic direction. The Company's network has been reduced by -10% during the course of the past year as offices have been consolidated into bigger, more profitable and more flexible units. Brands have been merged in the Netherlands, Germany and Spain in an attempt to create a more adaptive cost structure while, at the same time, in France and Spain the focus has switched from pursuing scale and countrywide density to regional growth and a better higher margin business mix (more speciality and SME clients).

Going forward, the Company plans to expand in all its countries of operation aiming to build leading niche market positions through both organic and acquisitive growth. Its portfolio of brands will be limited (to approximately 10) while successful brands such as Secretary Plus, express Medical and Medi Interim will be internationalised. The focus on bigger and more flexible offices will continue aiming for increased sales activity and reduced administrative burden. With a more concentrated network, the Company also aims to maximise the use of new channels through the development of digital strategies.

The group comments on future prospects "the trends we saw in the staffing markets in the first half of the year were extremely positive. The continued improvement in market conditions increasingly point to a lasting recovery. There was once again growth in all countries except the Netherlands in the second quarter."

"The Netherlands did show some recovery, especially in the production industries and the transport sector, while the momentum for the services industry is improving gradually. If the current trends continue, we expect the revenue of USG People in the Netherlands to rise above zero in the third quarter and turn around into growth."
 
"In contrast to all these positive developments, however, uncertainty about the sustainability of the general economic recovery remains. Given these uncertainties, we refrain from issuing any concrete expectations for revenue and earnings for the 2010 financial year."

Echoing comments from Manpower yesterday, Mr Zandbergen told Reuters that "European companies were hiring more flexible staff thanks to increased demand but uncertainty about the sustainability was also helping staffing demand. I think companies have a flexible work force of about 10% of total staff. Now they say: I don't know what's going to happen, let's increase it to 20%".

In early trading USG's shares were down by -0.68% to 12.39 Euro.