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World – Adecco’s Q3 results improve as Europe strengthens

06 November 2013

The world’s largest staffing firm, Adecco (ADEN: VX) reported revenue of €5.03 billion for the third quarter ending 30 September 2013, equating to no change (in constant currency) compared with a year ago and marking an end to five quarters of revenue decline. Gross profit for the period rose organically by +5% to €942 million, year-on-year.

SG&A as a percentage of revenues reduced to 13.3% from 14.0% in the same period last year.

Net income increased by a robust +61% organically to €190 million during Q3 2013. Basic earnings per share (EPS) increased by +71% to €1.06, reflecting net income growth and the impact of the share buyback programmes

Patrick De Maeseneire, CEO of the Adecco Group said: “We delivered a strong performance in the third quarter. With most European economies coming out of recession, we expect demand for flexible labour to increase. In Q3 2013 we returned to growth in many countries in Europe and the pick-up in Italy, Germany and Spain is especially encouraging. In France the rate of revenue decline reduced further, and North America continued to perform well.”

“Price discipline and the business mix resulted in a solid gross margin and we further reduced SG&A year-on-year. This drove strong profitability. After the flat revenue development in the quarter, the Group returned to growth in October, both in constant currency. Given recent trends and more favourable economic conditions expected from the end of 2013, we remain convinced we will achieve our above 5.5% EBITA margin target by 2015,” he concluded.

Adecco’s largest business region, France, reported revenue for the period of €1.3 billion, a fall of -5% in constant currency from a year ago. Permanent placement revenues were down -15% in the region. Speaking to Reuters, De Maeseneire blamed a slowness to implement labour market reforms for France's underperformance, but said he expected the country to return to revenue growth in the course of the first half of next year. During the quarter it was announced that Adecco, in conjunction with Manpower and Randstad, would be investigated by the French Competition Authority (CFA), the outcome of the investigation is still pending.

Revenues in North America grew by +3% in constant currency to €950 million during Q3 2013. General Staffing revenues grew organically by +1%, with solid growth in Industrial but a decline in Office. Professional Staffing revenues grew organically by +3%. Permanent placement revenues continued to develop, rising by +20% in constant currency.

In the UK & Ireland revenues rose by +1% in constant currency to €481 million. Permanent placement revenues fell organically by -6%, year-on-year. During the third quarter of 2012, London hosted the Olympics, which benefitted Adecco’s revenues but negatively impacted profitability due to sponsorship costs.

In Germany and Austria, revenue rose by +4% on an organic basis to €435 million. In Japan, revenue for the period fell organically by -5% to €273 million. In the Benelux countries revenues rose by +3% to €251 million, in constant currency. In the Nordics revenue fell by -1% to €203 million, on an organic basis compared with a year ago.

Across Iberia revenues were up +4% to €173 million, while in the Antipodes revenues dropped by -10% to €99 million, both on an organic basis. In Adecco’s home market, Switzerland, revenue fell by -4% to €109 million, in constant currency.

In the Emerging Markets, revenue growth was +8% in constant currency, with a further acceleration of the strong growth seen in Eastern Europe. Emerging markets are now estimated to comprise 38% of total temp hours sold by the company but only 9% of its revenue due to lower temporary pay rates in emerging economies.

In North America, Adecco’s revenue grew by +5% in constant currency, driven by the US IT Professional Staffing business, which grew by +8%.

General Staffing remains Adecco’s most profitable business segment. Revenue for the quarter was €3.8 billion, flat in terms of constant currency compared with a year ago. In the Industrial business revenues were up +1% in constant currency. In France, revenues declined by -4%, but grew by +5% in Germany and Austria, +7% in North America, and +9% in Italy. In the Office business, revenue fell -3% in constant currency. Organic growth of +9% was reported in the Emerging Markets, but declines were noted in Japan (-8%), North America (-5%), the UK & Ireland (-12%), the Nordics (-4%), and in France (-8%).    

Professional Staffing revenues rose +2% on an organic basis to €1.1 billion. Organic revenue growth was reported in North America (+3%), the UK & Ireland (+6%), and Japan (+5%). Declines were reported in France (-7%) and across Germany and Austria (-2%).

Organic growth of +4% was reported in the Information Technology business segment. 

Adecco’s Engineering & Technical business was flat in terms of constant currency. Organic revenue growth was reported in North America (+2%), in Germany and Austria (+1%), and in France (+11%). But in the UK & Ireland, revenue fell by -23% in constant currency.

In Finance & Legal, revenues were up +4% in constant currency. North American revenues grew by +4%, while the UK & Ireland reported growth of +7%, on an organic basis. Medical & Sciences reported a -11% drop in revenue in constant currency, with declines noted in North America (-2%), the Nordics (-3%), and in France (-24%).

Adecco’s Solutions business continued to perform well with +10% growth in constant currency. Revenue growth in MSP (Managed Service Programmes) and VMS (Vendor Management System) continued to be strong, posting double-digit growth in constant currency.

Looking forward, with most European economies coming out of recession, Adecco expects demand for flexible labour to increase. The company announced, “We have returned to growth in many countries in Europe and the pick-up in Italy, Germany, and Spain is especially encouraging. In France the rate of revenue decline has reduced further and North America continues to perform well. Emerging Markets again delivered high single-digit growth with a further acceleration in Eastern Europe. In constant currency and adjusted for trading days, we exited the quarter with revenues in September down -1% and the Group returned to growth in October.”

“Given these trends, we maintain our price discipline and cost control. At the same time, we continue to invest in organic growth opportunities and the consolidation of our IT platforms, whilst focusing on our strategic priorities. SG&A in Q4 2013 is expected to increase slightly compared to Q3 2013 on a constant currency basis and before one-off costs. As announced in March this year, we place to invest a total of €30 million in 2013 to further optimise the cost base, of which €16 million was invested in the first nine months of the year.”

“We continue to be very focused on reaching our EBITA margin target of above 5.5%. Given recent trends and more favourable economic conditions expected from the end of 2013, we remain convinced we will achieve this target by 2015.”

In trading today, the company’s share price rose strongly by +5.9% to CHF 70.00 (€56.91), an increase of +55.7% compared with a year ago. Based on its current share price, the company has a market value of CHF 12.5 billion (€10.2 billion)      

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