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Switzerland — Adecco returns to organic revenue growth across all regions

11 August 2010

Reported Q2 2010 revenues were up by +29% year-on-year to 4.6 billion Euro at Adecco SA (ADEN:VTX), the world's largest Human Resources services group. Organically, group revenues were up by +13%.

The gross margin at 17.8% was stable compared to Q2 2010 but down 110 basis points when adjusted for the new French business tax law effective from January 2010 and excluding acquisitions.

Interim results for the second quarter of 2010 published today reveal that organically and adjusted EBITA before integration costs increased by +46% to 175 million Euro in Q2 2010 when compared to Q2 2009. The EBITA margin increased by 100 basis points on an adjusted basis to 3.8%. The Company has a mid-term EBITA margin target of above 5.5%.

In Q2 2010, revenues in France increased by +20% to 1.4 billion Euro mainly driven by automotive, chemicals and manufacturing. EBITA was 53 million Euro in the quarter under review, which compares to a loss of -10 million Euro in Q2 2009. On an adjusted and organic basis EBITA increased by +52%. The EBITA margin was 3.8% in Q2 2010, up 80 bps compared to the adjusted prior year's second quarter. Pricing stabilised sequentially during the quarter. The impact on Q2 2010 EBITA due to the new business tax law in France was 18 million Euro.

In the UK & Ireland, revenues in Q2 2010 increased by +84% in constant currency to 411 million Euro, but declined by -3% organically. The Company sees improving trends in the financial, healthcare and automotive sectors. Permanent placement revenues increased +37% organically. EBITA was 5 million Euro in the quarter under review. Integration costs related to MPS and Spring amounted to 4 million Euro in Q2 2010.

In Germany & Austria, Q2 2010 revenues were up +21% (+20% organically) year-on-year to 290 million Euro, which compares to a revenue decline rate of -4% in Q1 2010. Germany & Austria generated EBITA of 14 million Euro in Q2 2010, a significant improvement from the 4 million Euro loss posted in the prior year's second quarter. In Q2 2010 the EBITA margin was 4.6%. The positive development was driven by strong double-digit revenue growth in the industrial staffing business but the later-cyclical Professional Staffing also returned to positive revenue growth.

In Q2 2010 revenues in Benelux increased by +12% (+8% organically), and in Italy revenues were up +25%. Revenues in the Nordics increased by +14% in constant currency, while in Spain and Portugal revenues increased by +11%.

Emerging Markets delivered continued strong growth in Q2 2010 with revenues up +27% in constant currency, driven by South America, Eastern Europe and India. EBITA was up +12% in constant currency, while the EBITA margin was 2.6%.

North America recorded a +51% constant currency revenue increase in Q2 2010 to 925 million Euro. Organically, revenues were up 15%. General staffing generated 25% organic revenue growth, while professional staffing, excluding the counter-cyclical outplacement business, also returned to solid double-digit revenue growth on an organic basis. In Q2 2010, the outplacement business weakened considerably compared to the prior year, but profitability held up very well. Excluding the outplacement business, revenues in North America were up 21% organically. EBITA was up 44% in constant currency and down 4% organically. Integration costs related to MPS amounted to EUR 3 million in Q2 2010. The EBITA margin in Q2 2010 was 4.9%, down 30 bps compared to Q2 2009. Acquisitions added 50 bps to the EBITA margin in Q2 2010.

In Japan, Q2 2010 revenues declined by -14% in constant currency to 314 million Euro. EBITA declined by 45% in constant currency and the EBITA margin was 5.2% compared to 8.2% in Q2 2009. Demand remained subdued also impacted by Adecco's large exposure to the late cyclical office segment, but costs remained well controlled.

In Q2 2010, Adecco's revenues in the Office & Industrial businesses were 3.1 billion Euro, up 16% in constant currency (+15% organically). In the Industrial business, revenues were up by +24% in constant currency, following a +5% increase in constant currency in Q1 2010. Growth was most significant in North America, where the year-on-year revenue trend improved from +13% in Q1 2010 to +37% in Q2 2010 in constant currency, in Germany & Austria from -1% to +33%, in Italy from +1% to +29% and in France from +9% to +24%.

In the Office business, revenues were flat in constant currency (-2% organically), a further improvement compared to Q1 2010, where revenues declined by -11% in constant currency (-12% organically). Revenues in Japan decreased by -13% in constant currency in Q2 2010, following a decline of -24% in Q1 2010. North America increased by +17% (+11% organically) in Q2 2010 compared to +10% (+7% organically) in Q1 2010 and in the UK & Ireland the revenue decline rate improved from -9% (-14% organically) in Q1 2010 to -4% (-11% organically) in Q2 2010, all in constant currency.

The Professional Business revenues in Q2 2010 increased by +57% in constant currency (+2% organically). The gross margin declined by -420 bps to 25.1%, mainly driven by the slowing outplacement business.

In Information Technology (IT), Adecco's revenues increased by +85% in constant currency (flat organically). In North America, revenues in Q2 2010 were up by +103% (-7% organically) and in the UK & Ireland revenues were up by +217% (+14% organically), all in constant currency.

Adecco's Engineering & Technical (E&T) business was up by +54% in constant currency (+20% organically). Revenues in North America increased by +101% in constant currency (+43% organically), and revenues in Germany & Austria increased by +9% in the second quarter of 2010.

In Finance & Legal (F&L), revenues increased by +122% in constant currency (+5% organically). Revenues in North America increased by +110% in constant currency and were up by +2% organically.

In Q2 2010, revenues in Medical & Science (M&S) increased by +52% (+8% organically), whereas in Sales, Marketing & Events (SM&E) revenues were up by +7% (+3% organically), both in constant currency. In the quarter under review, revenues in Human Capital Solutions (HCS), which includes the Lee Hecht Harrison outplacement brand, declined by -28%, in constant currency.
Patrick De Maeseneire, Chief Executive Officer of the Adecco Group, said "business conditions in Q2 2010 improved considerably. We delivered strong growth in our main markets France and North America. Also Germany, Italy, Nordics and the emerging markets posted strong double-digit revenue growth."

"Demand was particularly strong in the industrial segment, but also our professional staffing business returned to growth in the second quarter. As expected, pricing in the temporary staffing business is stabilising and we achieved a gross margin of 17.8% in Q2 2010, thanks to continued strict price discipline and our increased exposure to professional staffing."

"Costs were tightly controlled in Q2 2010 and remained flat organically and adjusted. As a result, we achieved an EBITA margin before integration costs of 3.8%, an improvement of 100 bps compared to the adjusted prior year. To date, we see no evidence of a slowdown in our business and demand is robust across most markets. Revenue growth in June was approximately 16%, organically and adjusted for trading days. While keeping a tight grip on costs and pricing, we are very well positioned to take advantage of the current growth opportunities."

As it enters the third quarter, the Company saw the same Revenue trends in July as it experienced in June.

The group says further in a statement "throughout the second quarter of 2010, the revenue trend improved strongly for the Adecco Group. To date there is no evidence of a slowdown of business in the third quarter of 2010. Despite current concerns about the sustainability of the economic recovery, developments in the staffing industry continue to signal healthy demand and management is confident of strong revenue development near term. Revenue growth in June was approximately 16%, organically and adjusted for business days and July showed a similar growth pattern."

"The acquired businesses, Spring and MPS, are delivering results exceeding expectations and the integration and achievement of targeted synergies are well on track. The increased exposure to the higher margin professional staffing business coupled with a leaner branch network and optimised delivery channels position Adecco very well to benefit from the much improved business conditions. Price discipline and cost control remain priorities within the company, while selective investments in high-growth segments or markets are screened very carefully."

In an interview with Dow Jones, Patrick De Maeseneire went on to say, "we could do bolt-on acquisitions in niche or emerging markets for a total amount of 100-150 million Euro if opportunities arise. But don't expect anything big".

Adecco plans to request the delisting of its shares from NYSE Euronext in Paris and expects that its listing will be terminated in the second half of 2010. The rationale for delisting is primarily based on low average daily trading volumes and Adecco's continued focus on cost optimisation. Adecco's shares will continue to trade on the SIX Swiss Exchange.

In early trading Adecco's shares were down by -2.79% to 54.05 Swiss Francs.



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