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Switzerland - Adecco beats analysts’ estimates and moves closer to EBITA margin target

10 May 2011

Reported revenues were up by +24% y-o-y (+18% organically) to 4.9 billion Euro in Q1 2011 at Adecco SA (ADEN:VTX), the world's largest Human Resources services group.

Permanent placement revenues amounted to 86 million Euro, an increase of +35% in constant currency or +26% organically, while outplacement revenues totalled 50 million Euro, declining by -22% in constant currency.

In Q1 2011, gross profit amounted to 854 million Euro and the gross margin was 17.4%, down -60 basis points (bps) compared to the prior year's first quarter and down -80 bps organically. Temporary staffing had a negative impact on the gross margin of 40 bps in Q1 2011, whereof 20 bps related to the French payroll tax subsidy cut. Whereas permanent placements had a positive impact of 10 bps in Q1 2011, the outplacement business negatively impacted the gross margin by 40 bps, and other activities had a negative impact of 10 bps.

Selling, General and Administrative Expenses (SG&A) in Q1 2011 increased by +14% compared to Q1 2010 to 682 million Euro. Integration costs totalled 3 million Euro in Q1 2011 (Q1 2010: 5 million Euro). Organically SG&A was up +6%, compared to the same period last year, and increased +1% sequentially in constant currency and before integration costs. Organically, FTE employees increased by +4% (+1,200) compared to the first quarter of 2010. Sequentially, FTE employees were flat. The branch network, on an organic basis, increased by +1% (+40 branches) compared with the first quarter of 2010. At the end of the first quarter of 2011, the Adecco Group had over 32,000 FTE employees and operated a network of close to 5,500 branches.

In the period under review, EBITA was 172 million Euro compared with 113 million Euro reported in the first quarter of 2010. The Q1 2011 EBITA margin was 3.5% compared to 2.8% in Q1 2010. EBITA before integration costs was 175 million Euro, up +43% organically and the margin was 3.6%.

In Q1 2011, operating income was 158 million Euro. This compares to 100 million Euro in the first quarter of 2010.

Interest Expense amounted to 15 million Euro in the period under review, the same as in Q1 2010. Other income/(expenses), net was an expense of 1 million Euro in Q1 2011 also equal to the first quarter of 2010. Interest expense is expected to be around 70 million Euro for the full year 2011.

In Q1 2011, currency fluctuations had a positive impact of approximately 4% on revenues.

In France, revenues increased by +23% to 1.4 billion Euro in Q1 2011. Growth in the industrial staffing segment remained strong especially automotive, chemicals, manufacturing and construction . Permanent placement revenues were up +39% in Q1 2011. The withdrawal of the payroll tax subsidy at the beginning of 2011 led to a 70 basis points reduction in gross margin for the quarter. EBITA was 37 million Euro in the quarter under review compared with 27 million Euro in Q1 2010, an increase of +37% year-on-year. The EBITA margin was 2.6% in Q1 2011, up +20 bps compared to the prior year's first quarter. Revenues in March grew by +22% adjusted for trading days suggesting consistent demand during the course of the quarter.

In the UK & Ireland, revenues in Q1 2011 increased +10% in constant currency to 411 million Euro. Organically revenues increased by +3%. The Company saw improving trends in IT and financial services. Permanent placement revenues continued to grow strongly at 40% on an organic basis. EBITA was 8 million Euro in the quarter under review and the EBITA margin was 1.8%. Integration costs related to MPS amounted to 1 million Euro in Q1 2011 (Q1 2010: 2 million Euro related to Spring and MPS).

In Germany & Austria, Q1 2011 revenues continued to develop very strongly increasing by +38% to 356 million Euro. Growth remained strongest in the industrial staffing business particularly automotive, industrial, manufacturing and electronics sectors. The office segment and the professional staffing business also further accelerated and continued to show double-digit growth. Germany & Austria generated EBITA of 29 million Euro in Q1 2011 compared with 13 million Euro in Q1 2010. The EBITA margin improved significantly year-on-year to 8.1%, up +300 bps compared with the EBITA margin of 5.1% in Q1 2010. Revenues for March increased by +33% given higher comparisons for the equivalent month in 2010.

In Q1 2011, revenues in Benelux increased by +18% (+17% organically), and in Italy revenue growth remained very strong with +38% in the quarter under review.

Revenues in the Nordic countries increased +23% in constant currency, while in Portugal and Spain revenues increased by +11%. The Company grew revenues organically by +26% in its home market of Switzerland.

In North America, Adecco's revenues increased by +28% in constant currency to 921 million Euro in Q1 2011. Organically, revenues were up +17%. General staffing revenues grew by +23% in constant currency, while professional staffing continued to generate double-digit organic revenue growth. Permanent placement revenues increased +14% organically. EBITA was up +64% in constant currency and up +46% organically. Integration costs related to MPS amounted to 2 million Euro in Q1 2011 (Q1 2010: 3 million Euro). The EBITA margin in Q1 2011 was 3.7% with acquisitions adding 10 bps.

In Japan, first quarter revenues were back to growth of +1% in constant currency to 352 million Euro. The EBITA margin was 5.5% in the quarter under review. Outsourcing contracts won last year, positively contributed in the quarter under review. Demand in Japan for temporary staffing overall remained slow. The financial impact on Adecco's business in Japan due to the earthquake and the tsunami was minor in Q1 2011 and also going forward the impact is expected to be very limited.

Emerging Markets continued to perform strongly in Q1 2011 with revenues up +9% in constant currency, mainly driven by Eastern Europe and India. EBITA was up +22% in constant currency and the EBITA margin was 2.7%. Emerging markets now represent 7% of Adecco’s revenues but are responsible for 31% of all temporary hours sold. India is, by far, the Company’s most important emerging market responsible for 45% of revenue in this region.

Revenues of Lee Hecht Harrison (LHH), Adecco's outplacement and career development business, amounted to 57 million Euro, a decline of -23% in constant currency, in the quarter under review. EBITA totalled 11 million Euro and the EBITA margin was 19.8%. Since 1 January 2011, this business is reported as a separate segment.

In Q1 2011, Adecco's revenues in the General Staffing business (Office & Industrial) increased by +21% in constant currency to 3.8 billion Euro.

The Industrial business continued to perform strongly with revenues up +27% in constant currency. Growth remained robust in North America, despite a tougher base, with revenues up +22% year-on-year in constant currency. In France, year-on-year revenue growth even accelerated to +25% in Q1 2011. The same holds true for Germany & Austria, where revenue growth accelerated to +48% in Q1 2011. Italy grew +46% in Q1 2011.

In the Office business, revenues increased +11% in constant currency. Revenues in Japan returned to positive territory and grew +2% in constant currency in Q1 2011. In North America revenues were up +23% in constant currency. Growth in the Nordic countries continued to be strong with revenues up +23% in constant currency in Q1 2011.

The Professional Staffing (Information Technology, Engineering & Technical, Finance & Legal and Medical & Science businesses) revenues in the first quarter of 2011 increased +21% in constant currency and by +10% on an organic basis. Organic revenue growth was particularly strong in Germany & Austria and France, whereas North American revenues continued to grow at a double-digit organic rate in Q1 2011.

In Information Technology (IT), Adecco's revenues increased +18% in constant currency (+9% organically). In North America revenues were up +23% in constant currency (+2% organically). Revenues in the UK & Ireland increased by +18% in constant currency (+12% organically).

Adecco's Engineering & Technical (E&T) business was up +22% in constant currency (+14% organically). Revenue growth continued to be strong in North America with revenues up +36% in constant currency (+23% organically), while revenues in Germany & Austria increased by +19% in the first quarter of 2011.

In Finance & Legal (F&L), revenues increased by +26% in constant currency (+5% organically). Revenues in North America increased by +33% in constant currency and were up +8% organically.

In Q1 2011, revenues in Medical & Science (M&S) increased by +25% in constant currency (+14% organically).

In the quarter under review, revenues in Solutions (Human Capital Solutions, Managed Service Programmes, Recruitment Process Outsourcing and Vendor Management Systems), declined by -11% in constant currency (-14% organically), mainly driven by the counter-cyclical outplacement business, which declined by -22% in constant currency.

Patrick De Maeseneire, CEO of the Adecco Group, said "we achieved yet again strong double-digit revenue growth in Q1. After +17% organic top-line growth in Q3 and Q4 of last year, revenues are up +18% organically this quarter, and this despite an increasingly higher base."

"While our growth continues to be mainly driven by the Industrial business, the Office business now grows at double-digit rates as well. Growth in Professional Staffing is encouraging, but the Industrial business clearly still drives the strong top-line development."

"Our main markets, France and North America, maintained very robust growth rates in Q1. Our businesses in Germany, Italy and the Netherlands had outstanding growth, clearly above the market. Japan and the UK & Ireland returned to positive organic growth this quarter."

"We continue to focus on strict pricing and cost control and with the progress achieved to date, we are well on track to reach our mid-term EBITA margin target of over 5.5%."

In early trading Adecco's shares were up by +0.43% to 58.95 Swiss Francs.

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