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Switzerland – Adecco sales decline further in Europe

06 November 2012

Adecco (ADEN:VTX), the world’s largest staffing firm, reported on Tuesday that sales continued to fall across Europe in the third quarter of the year with economic uncertainty  dragging down demand for staffing services, especially in France.

In the three months to September, total revenue fell -5% organically to €5.279 billion when compared to a year ago. Permanent placement revenue was down -10% organically to €85 million while Adecco’s outplacement business increased sales by +5% to €65 million. Previously in the second quarter, revenue had declined by -4% on an organic basis.

Rival companies Randstad and ManpowerGroup recently reported a slowdown in Europe as major staffing markets in the region such as France and the Netherlands continued to deteriorate in the last quarter.

Adecco’s European performance was mixed with sales decreasing sharply by -16% in its largest single market, France. Official data shows that that the French staffing market declined by -10.6% inSeptember so Adecco’s performance may be impacted by the ongoing consolidation of its major French brands. The company also stated that it was shifting its focus in France from large contracts to small and medium ones in order to improve profitability.

Elsewhere in Europe, Adecco sales outperformed the market in Germany while across Southern Europe revenue continued to fall. But business improved in the UK & Ireland (despite profitability being impacted by higher costs due to Olympics sponsorship) and the Nordic countries. 

The recruiter said it remained on track to reach its financial target. “While the outlook remains uncertain, a strong combination of businesses and a disciplined approach to pricing and cost control which will get us to our EBITA [earnings before interest, tax and amortisation] margin target of above 5.5% midterm,” said CEO Patrick De Maeseneire.

In the quarter, gross profit declined by -1% (in constant currency) to €947 million although the gross margin increased to 17.9% from 17.2% a year ago. Operating income declined by -12% in constant currency to €197 million with the operating margin decreasing to 3.7% from 4.1% year-on-year.

Net income in the quarter was down -18% to €118 million, compared to €145 million at the same time last year. Analysts in a Reuters poll had predicted net income to plummet by -25% to €109 million.

Europe remains weak

The firm’s most important market France saw revenue decline by -16% to €1.3 billion after major industries reported lower demand for temporary workers. Permanent placement revenues in the country were down -15%. Operating income declined -44% to €35 million. The company said it was on track to combine its Adecco and Adia brands under the single banner of Adecco, and faced €19 million of restructuring costs.

In the UK & Ireland, revenues increased +9% in constant currency to €517 million, however, permanent placement revenues were down -31%. Profitability was impacted by the sponsorship costs for the London Summer Olympics and operating income decreased by -73% to €4 million.

In Germany & Austria, sales fell -1% organically to €418 million although in constant currency sales were up +1% with the company facing restructuring costs of €1 million in the quarter. Operating income in the two countries was down -12% to €35 million.

In the Benelux countries, sales were down -3% to €245 million but still in line with expectations in the Netherlands, and slightly ahead in Belgium. Operating income decreased -3% to €12 million.

Southern Europe remained challenging with revenues in Italy declining by -14% in the quarter to €223 million. Operating income fell -23% to €13 million. Similarly in Iberia revenues fell by -12% to €166 million and operating income was down -14% to €5 million.

However, business was holding up in the Nordics where sales increased by a total of +6% to €215 million although Sweden posted a decline. Operating income in the region grew +110% to €10 million.

Outside Europe, Japan recorded a -5% organic fall in revenue to €379 million. In Australia & New Zealand, revenue was down -11% in constant currency to €132 million. In the Emerging Markets revenue was up +9% in constant currency to €466 million, driven my Latin America. In North America Adecco’s revenues increased by +3% organically to €977 million, flat in constant currency. 

General and Professional Staffing revenues still mixed

In the third quarter, revenues in the General Staffing business decreased by -7% organically to €4.0 billion. Sales in the Industrial business declined -10% organically. In France, general staffing revenues declined by -16% organically, and by -15% in Italy. In Germany & Austria sales were down -2% organically.

Professional Staffing revenues increased +2% in constant currency and grew +5% organically in the UK & Ireland. In France, professional staffing revenues declined by -9%.

In Information Technology, revenues were flat in constant currency and grew +2% organically. IT staffing revenues in the UK & Ireland grew by +6% in constant currency.

In the Engineering & Technical business, sales increased by +9% in constant currency and +3% organically, helped by good performances in Germany & Austria where revenues grew by +5%. Engineering and technical staffing sales were also up in France and the UK & Ireland.

Revenues in Finance & Legal declined -2% in constant currency, particularly in the UK where sales dropped -15% in constant currency. Sales were also down in Medical & Science by -1% in constant currency (-3% organically), falling across the Nordics and France.

In the quarter, revenues in the firm’s Solutions business increased +26% in constant currency and +8% organically with Adecco reporting revenue growth in MSP (managed service programmes) and VMS (vendor management systems).

The company reported that developments continue to be diverse across the different geographies. In September, revenues declined by 3% organically and adjusted for business days. Revenue growth at the beginning of the fourth quarter slightly weakened from the -5% organically seen in Q3 2012, driven by the UK, Germany, and the Emerging Markets. However, the revenue decline rate in France and Japan had stabilised.

In speaking to the media, the company suggested that if something changes or improves in Europe, it will only be from Q3 onwards next year. However, given that the business decline was not quite as bad as the financial market had feared, in early trading, the company’s share price improved by +3% to CHF 46.49, up +13.8% from a year ago and -6.1% below its 52-week high of CHF49.52 seen in March. Adecco has a market value of CHF 8.55 billion, making it the world’s largest staffing firm by both market capitalisation and revenue.  

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