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Netherlands - USG's gross profits down -2%, announces brand rationalisation

28 October 2011

Revenues were up by +2% from 833 million Euro in Q3 2010 to 853 million Euro in Q3 2011 at Dutch staffing firm USG People (USG:AEX).

Interim results for the three months ended 30 September 2011 reveal that gross profit was down by -2% from 179 million Euro in Q3 2010 to 176 million Euro in Q3 2011. The gross margin fell from 21.5% in Q3 2010 to 20.7% in Q3 2011.

Operating expenses were reduced by -3% from 140 million Euro in Q3 2010 to 136 million Euro in Q3 2011.

EBITA was up by +3% from 33 million Euro in Q3 2010 to 34 million Euro in Q3 2011.

Acquisition-related amortisation equalled 4.7 million Euro in the third quarter, down on underlying amortisation of 5.5 million Euro last year. In addition to the underlying amortisation last year's third quarter included accelerated amortisation of 2.7 million Euro. Amortisation concerns brand rights, client portfolios and candidate databases valued at the time of acquisitions.

Underlying net income was up by +15% from 12 million Euro in Q3 2010 to 13.8 million Euro in Q3 2011. Reported net income was down from 22.2 million Euro in Q3 2010 to 11.7 million Euro in Q3 2011.

Revenues generated by general staffing were up by +6% (+5% organically) from 561.3 million Euro in Q3 2010 to 593.1 million Euro in Q3 2011. Underlying EBITA was down by -6% from 21 million Euro in Q3 2010 to 19.8 million Euro in Q3 2011. The EBITA margin fell from 3.7% in Q3 2010 to 3.3% in Q3 2011.

Revenues generated by specialist staffing were down by -6% (-6% organically) from 197.2 million Euro in Q3 2010 to 186.1 million Euro in Q3 2011. Underlying EBITA was up by +11% from 12.8 million Euro in Q3 2010 to 14.2 million Euro in Q3 2011. The EBITA margin improved from 6.5% in Q3 2010 to 7.6% in Q3 2011.

Revenues generated by professional solutions were down by -2% (-2% organically) from 69.1 million Euro in Q3 2010 to 68 million Euro in Q3 2011. Underlying EBITA was up by +16% from 4.3 million Euro in Q3 2010 to 5 million Euro in Q3 2011. The EBITA margin rose from 6.2% in Q3 2010 to 7.4% in Q3 2011.

Revenues generated by other activities were stable at 5.6 million Euro in Q3 2011. Underlying EBITA was up from 200,000 Euro in Q3 2010 to 300,000 Euro in Q3 2011. The EBITA margin rose from 3.6% in Q3 2010 to 5.4% in Q3 2011.

In The Netherlands revenue fell slightly by -1% to 307 million Euro (Q3 2010: 311 million Euro). In line with the overall market, there was a decline in growth in the industrial segment. Market revenue growth in this segment fell back to +5%, from +17% in the first quarter and +9% in the second quarter. Growth in the administrative segment remained virtually stable compared with the previous quarters. Market growth in this segment amounted to +3% in the third quarter. Given the decline in the public sector this means that market growth in the private sector achieved robust progress.

Revenue decline in the public sector, which accounts for 15% to 20% of its Dutch revenue, slowed to a rate of 11% compared with last year (Q2: -25%). Start People achieved growth of +6% in the third quarter and outperformed the market. Revenue at Specialist Staffing was down by -10% on last year, whilst Professionals saw a revenue drop of -3%.

Gross margin was virtually unchanged compared with last year's third quarter. Operating expenses were -7 million Euro lower than last year and were down -5 million Euro on the previous quarter thanks to the optimisation of the Dutch operation's processes. Despite the slight drop in revenue this meant that USG People managed to improve EBITA in the Netherlands to 16 million Euro (5.2% of revenue) compared with 11.5 million Euro (3.7% of revenue) last year.

In Belgium revenue of 182 million Euro was generated, more or less unchanged compared to the same quarter last year (Q3 2010: 183 million Euro). In September revenue was up by +1% on a year earlier. Growth was mainly dampened by a slowdown in demand from clients in the industrial segment. At General Staffing revenue was down by -1% compared with last year and at Specialist Staffing revenue was unchanged. Professionals registered growth of +3% compared to last year.

The niche labels within Specialist Staffing and Professionals, such as USG Innotiv, Secretary Plus and Express Medical, continued to perform well.
The gross margin was slightly lower than last year as a result of mix effects at Start People due to a larger share of revenue coming from large clients and the workers segment. Operating expenses fell compared to both last year and the previous quarter. EBITA amounted to 14.5 million Euro (8% of revenue) and was down by -0.5 million Euro on last year's third quarter.

Revenue in France increased to 152 million Euro (Q3 2010: 137 million Euro). Year-on-year growth equalled +11%. The gross margin was lower than last year due to a reduction in social security subsidies (effective from December 2010). In addition there was a mix effect resulting from strong growth of large clients. EBITA equalled 3.5 million Euro (Q3 2010: 4.8 million Euro).

Revenue in Germany rose by +2% to 82 million Euro. The growth rate slowed compared to the previous quarter due to a weakening of demand in the industrial segment and a tougher comparison base as a result of the strong growth posted last year. The gross margin fell compared to last year due to mix effects, in addition to which the margin was also somewhat pressured as a result of higher salaries due to the tightness in the German labour market. Expenses were up on last year as a result of investments in expansion of the specialist business concepts, such as Unique Office and Secretary Plus.

EBITA amounted to 2.9 million Euro (3.5% of revenue) compared with 5.7 million Euro in the third quarter of 2010 (7.2% of revenue). A provision of 1.6 million Euro was taken in the third quarter to cover legal expenses. As disclosed in the annual report for 2010, USG People has instituted legal proceedings against a former director for breach of a non-competition clause which are expected to result in substantial compensation being paid to USG People. Excluding these costs, EBITA amounted to 4.5 million Euro (5.5% of revenue).

In the Rest of Europe, Spain reported revenue of 60 million Euro and growth of +8%. Italy generated revenue of 33 million Euro in the third quarter, up by +1% on last year. Growth in the other countries (Luxembourg, Austria, Poland, Spain and Switzerland) amounted to +11% (with organic growth at +3%). The combined revenue of the other countries totalled 37 million Euro.

As of 1 January 2012 USG People will make some major changes to its strategy and organisational structure. One of these changes will be to reduce the brand portfolio from almost 20 brands to five international brands, grouped into three product/market combinations. The Executive Board is taking this step in the further development of the organisation with the aim of introducing more focus.

The five brands will be shared as follows:
 
• General Staffing: Start People
• Specialist Staffing: Unique, Secretary Plus and Technicum
• Professional Solutions: USG Professional Solutions
 
USG People has prepared separate strategic plans for the three segments in order to respond to the trends and developments in the various markets.

Rob Zandbergen, CEO of USG People, commented "we have seen growth in the temporary employment markets slow, with growth coming in lower in the industrial segment in particular."

"The efficiency improvements implemented in our organisation already started paying off in the third quarter in the shape of a robust result. At 15.9%, operating expenses relative to revenue have never been so low, which has reinforced our competitive position. Now we are taking the next step in increasing our commercial strength. We are responding to the trends and developments in the market, which require an ever greater specialisation, with a differentiated strategy for three product/market combinations."

"From 2012 we are making changes to our organisation which will enable direct governance of our five international brands. This strategy will increase the focus in our multi-brand portfolio in order to align the business models and concepts to the diverse needs of both candidates and clients. And this will in turn translate into an improved growth potential and profitability for the group. 'People make the difference', whether we're talking work, ambitions or delivering solutions. Thanks to the new strategy USG People will also be able to make this difference, for all its stakeholders."

In its outlook statement, the company said, “Over the past few months we have seen a decline in growth in the industrial segment, against a backdrop of great political and monetary uncertainty. The debt crisis and government austerity policies are resulting in a drop in business confidence and are putting a brake on investment and spending. This is having repercussions on our markets and is translating into lower growth. Furthermore demand in the Dutch public sector remains muted as a result of the government’s spending cuts. We expect these developments to continue in the final quarter which will temper demand in the market. We will continue to focus sharply on costs and our tighter focus will allow us to take maximum advantage of our growth opportunities. In view of the current uncertainty in the market we are refraining from issuing guidance on the development of revenue and income”.

With this cautious outlook and results that were below analyst’s forecasts, in early trading, USG People's shares were down by -3.05% to 6.83 Euro.

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