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Switzerland – Adecco profits slip but markets stabilising

07 May 2013

The world’s largest recruiter Adecco (ADEN:VTX) said the decline in first-quarter revenue started to stabilise with the firm expecting better economic conditions towards the end of the year, the company reported Tuesday.

In its management outlook, the firm said organic revenue decline in March eased to -4%, similar to April. “North America continued to hold up well,” the firm said, as revenue grew by +2% organically. “In France the gap to the market narrowed since the beginning of the year, but conditions remained challenging. Elsewhere in Europe revenue growth stabilised or improved slightly. In the Emerging Markets revenue growth continued to be solid.”

But the recruiter posted a sharp drop in Q1 profits as trading remained difficult across much of Europe and major staffing markets such as Australia and Japan. The also firm faced significant restructuring costs of €11 million in the quarter of which over half (€6 million) is related to France.

Revenue in the quarter totalled €4.6 billion, down -7% organically or down 5% organically and adjusted for trading days. This is the fifth consecutive quarter where revenues have contracted and the company remains -18% below peak revenues achieved in 2007. Gross profit fell -9% at constant currency and amounted to €821 million. The gross margin was 18.0%, down -0.2% from the previous year due to weaker temporary staffing margins.

The company was unable to reduce costs at the same pace as the deterioration in revenue despite a -5% reduction in both headcount and offices, resulting in EBITA (earnings before interest, taxes and amortisation) of €127 million, down -30% from €182 million in the prior year. The EBITA margin dropped by -0.8% to 2.8%. Operating income fell -31% to €116 million.

Adecco CEO Patrick De Maeseneire remained positive. “Considering the economic headwinds in Europe, we achieved a solid first quarter,” he said. “Revenues are starting to bottom out in Europe with the gap to the market narrowing in France.”

“Measures taken to align the cost base with revenue developments are evident in the reduction in Selling, General and Administrative Expenses year-on-year and our profitability remained solid. We remain focused on our six strategic priorities and on reaching our above 5.5% EBITA margin target. Given recent trends and more favourable economic conditions expected towards the end of 2013, we are convinced we will achieve this target by 2015.”

Dutch competitor Randstad last month reported quite similar results with the firm also saying revenue decline was starting to ease in the quarter. ManpowerGroup, the third-largest staffing firm in the world, also saw first quarter revenues slip with the company expecting slight improvements this year. Compared to its closest peers, Adecco has been underperforming in the important French market and also clearly lost considerable ground in Japan.

Europe still difficult in Q1

In the firm’s largest single market, France, revenues totalled €1.1 billion, down -17% (or -15% adjusted for trading days) compared to the previous year. The firm said the gap to the market narrowed despite a -24% decline in permanent placement revenues. 

In the UK & Ireland, revenues were flat at constant currency (+4% in constant currency and adjusted for trading days) and reached €456 million. Permanent placement revenues fell -26% in constant currency.

In Germany & Austria, revenues declined -8% organically (-4% organically and adjusted for trading days) to €373 million. The recruiter blamed this on the timing of bank holidays and generally lower demand. In Switzerland revenues fell -9% in constant currency (-5% in constant currency and adjusted for trading days).

Revenues in Italy declined -6% (-4% adjusted for trading days) while in the Benelux countries, revenues fell -9% (-6% adjusted for trading days). The company suggested that revenue development was below the market in the Netherlands, but ahead of the market in Belgium.

In the Nordics, revenue dropped -6% in constant currency (-1% in constant currency and adjusted for trading days) with the firm noting declines in Sweden and Norway. In Iberia, revenues fell by -9% (-5% adjusted for trading days), as economic conditions in the region remained difficult.

Markets outside Europe showed mixed results. In North America, revenues increased +2% organically (+4% organically and adjusted for trading days) to €888 million. But in Japan, revenues were down a sharp -21% in constant currency (-15% in constant currency and adjusted for trading days) to €292 million. The company attributed the weak performance to the completion of several outsourcing projects during 2012.

In Australia & New Zealand, revenues were down -11% in constant currency (-8% in constant currency and adjusted for trading days) to €117 million. In Emerging Markets, revenue grew +4% in constant currency (+8% in constant currency and adjusted for trading days) to €449 million, mainly driven by Latin America.

Demand for staff remains weak, MSP and VMS grows

In the quarter, the firm saw revenue decline in its largest business segments. The General Staffing business (Office & Industrial) reported a -9% fall in revenue at constant currency to €3.4 billion. Revenues in the Industrial business were down -10% in constant currency with weaker performances seen in France, Italy, Germany and Austria.

Professional Staffing revenues fell -4% in constant currency (-2% organically) with North America reporting growth and France posting a further decline. In Information Technology, revenues were down -7% in constant currency (-2% organically).

Revenue in the firm’s Engineering & Technical business was down -1% in constant currency despite revenue in this segment growing by +10% in France. In Finance & Legal , revenues dropped -2% in constant currency.

The Medical & Science business posted a -4% revenue fall at constant currency while Adecco’s Solutions business posted growth of +5% in constant currency, driven by MSP (Managed Service Programmes) and VMS (Vendor Management System).

In early trading, given the suggestion of a bottoming market, investors were inspired enough to raise the company’s share price by over +1% to CHF 51.30. Based on this stock price, the firm has a market value of €7.8 billion (CHF 9.6 billion).




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