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Sweden – Proffice profits under pressure due to tough home market

03 May 2012

Proffice (PROEB:STO), one of Scandinavia’s largest staffing firms, benefitted from last year’s record-breaking rise in revenues as net sales in the first quarter of 2012 increased by +9% to €135.0 million (SEK1,200 million) from €123.3 million (SEK1,096 million) in Q1 2011. But it emerged today that growth slowed in Sweden, the firm’s largest geographical division, due to a tougher economic climate.

“Profitability in Q1 was affected by continued efforts to build structural capital by implementing our Group-wide enterprise resource planning (ERP) system in Sweden, along with higher guaranteed wages due to lower growth rates,” said Lars Kry, CEO at the firm.

In the first quarter, Proffice acquired minority shares in Dfind IT, something which gives the firm “a strong position in a business area with high demand in the Nordic market. Our specialist companies in the Finance and Industry/Logistics areas are growing considerably more than the market,” Mr Kry added.

But despite the overall growth, operating profit declined by -13% to €4.5 million (SEK40 million) in the first quarter of 2012 from €5.2 million (SEK 46million) a year ago. This resulted in a lower operating margin, which dropped by -0.9% to 3.3%. Profit after tax also decreased to €2.9 million (SEK26 million) from €3.7 million (SEK33 million).

In Sweden, which accounts for 78% of consolidated net sales, first-quarter net sales increased by +9% to €930.0 million (SEK930 million) from €95.6 million (SEK850 million). But operating profit was down to €5.7 million (SEK51 million) from €6.4 million (SEK56 million) a year ago, resulting in a lower operating margin of 5.5%, compared to 6.6% in Q1 2011.

Mr Kry said that the Swedish staffing market “is highly competitive, and the growth rate slowed during the quarter. Despite this, several of our business areas continue to show good earnings. Industry/Logistics in Sweden grew 38% year-on-year and sees strong demand ahead. Our initiatives in the Finance business area resulted in a sales increase of 35% in Q1 year-on-year.”

In the first quarter, profitability in Sweden was down to 5.5% from 6.6%. “Direct and operational costs associated with implementation of our new ERP system in Sweden encumbered profitability and liquidity in Q1 and will also affect the next two quarters,” according to Mr Kry.

In Norway, unemployment is lower than in Sweden and the labour market is more stable there, Mr Kry said. Hence sales were up +12% in the first quarter and the operating margin improved during the period to 1.6% from 1.4%.

The firm also said that business activity in Denmark and Finland have stabilised. In Denmark, previously implemented cuts resulted in a “balanced operation” with low costs while operations in Finland are “on track” and also shows stable development.

“We are currently experiencing a tougher economic climate with slower growth. Our business model continues to work well, but now we must also be able to quickly reorganise to meet a lower growth rate. Changing our enterprise resource planning will give us large competitive advantages in the long term,” Mr Kry said.

Proffice is a Sweden-based company, providing solutions within temporary staffing, permanent placement, consulting and outplacement. The temporary staffing division provides skilled personnel for short or longer assignments while the recruitment operational area offers recruitment consultants with experience in specialist areas. The firm has approximately 100 offices in Sweden, Norway, Denmark and Finland with a number of subsidiaries.

According to Staffing Industry Analysts’ research, Proffice is the second largest staffing firm in Sweden and the third largest staffing firm in Scandinavia

The market did not react overtly joyful at today’s results as the firm’s share price was down -5.8% to SEK22.60, down -31.5% from a year ago but +22.8% above the 52-week low of SEK 18.40 set on 26 September 2011. The company is valued at around €168.7 million. 

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