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Swiss-based recruitment giant Adecco (ADEN: VTX) announced a gradually easing revenue decline during the second quarter of 2013 in line with its major global competitors Randstad and ManpowerGroup. Revenue fell -3% organically to €4.93 billion, down from €5.19 billion during the same period last year.
Improved profitability was delivered on the back of good cost savings with SG&A down -5% in constant currency though restructuring costs of €2 million were incurred. Compared to the same quarter in 2012, Adecco have 1,800 fewer employees and 280 fewer branches.
Gross profit fell -2% organically from €917 million in Q2 2012 to €884 million in Q2 2013 but gross margin was up 30 bps year-on-year organically, reaching 17.9%. Temporary staffing had a 25 bps positive impact on the gross margin while permanent placement had a neutral effect.
Operating income for the period rose +13% organically to €190 million, compared with €172 million a year ago. Operating income continued to decline in Benelux, Iberia, Australia & New Zealand, Switzerland, Japan, and the Nordics. Net income also increased quarter-on-quarter, from €113 million in 2012 to €126 million in 2013, equating to a rise of +12%.
Patrick de Maeseneire, CEO of Adecco Group, commented: “We delivered a strong performance in the second quarter. Labour markets are starting to stabilise around Europe and we see some more positive signs in our business. The gap to the market narrowed further in France, and North America continued to perform well. Price discipline and the business mix resulted in an improved gross margin and we further reduced SG&A year-on-year.”
“This drove a healthy expansion in our EBITA margin to +4.1%. We exited the quarter with revenues in June down -2% organically and adjusted for trading days. July showed a similar development and the steady improvement so far this year is encouraging for the second half outlook. Given recent trends and more favourable economic conditions expected towards the end of 2013, we are convinced we will achieve our above +5.5% EBITA margin target by 2015,” he continued.
In France, Adecco’s largest market, revenues of €1.2 billion were down -12% year-on-year, and, while they have continued to lose market share, the gap to the market hascontinued to narrow. Permanent placement revenues were down -21%.
In the UK & Ireland, revenues were €469 million, up +4% in constant currency. Permanent placement revenues were down -16% in constant currency. In the prior year, Q2 was affected by the London Summer Olympics, with a benefit to revenues but a negative impact on profitability due to sponsorship costs.
In Germany & Austria, revenues were €387 million, flat compared to Q2 2012. From a seasonal perspective, Q2 has in general been the weakest profitability of the year given the higher number of public holidays. In Switzerland, Adecco’s home market, revenues declined by -3% in constant currency.
In Italy, revenues were flat, while in the Benelux countries, revenues decreased by -2%. In the Nordics, revenues were flat in constant currency. As expected, profitability recovered after the soft start to the year. In Iberia, revenues declined by -2%, as the economic conditions continue to remain challenging.
Outside of Europe, the results continued to be mixed. In North America, revenues were €960 million, up +3% organically. Permanent placement revenues continued to develop well, up +10% in constant currency. However, in Japan, revenues were €283 million, down -9% in constant currency. Despite the revenue decline, profitability was healthy. In Australia & New Zealand, revenues fell by -10% in constant currency.
In the Emerging Markets, revenue growth was +8% in constant currency, with a strong growth acceleration in Eastern Europe. Adecco continues to invest in the region, primarily in permanent placement. Revenues of LHH, Adecco’s Career Transition and Talent Development business, were up +6% in constant currency to €83 million.
With regard to business line performance, General Staffing (Office & Industrial), revenues were €3.7 billion, a decrease of -4% in constant currency. In the Industrial business, revenues were down -5% in constant currency. In France, revenues fell by -13% and in both Italy and Germany & Austria the decline was -1%, while North America grew +3% in constant currency. In the Office business, revenues were down -2% in constant currency. Revenues were down -3% in North America, down -13% in Japan and down -5% in the Nordics, all in constant currency. In France, the decline was -8%, while in the UK & Ireland revenues were up +3% in constant currency.
Professional Staffing revenues were €1.1 billion, down -1% in constant currency but up +2% organically. Revenues in North America were up +4% organically. In the UK & Ireland revenues were up +3% in constant currency, in Germany & Austria up +3% and in Japan up +5% in constant currency. In France, revenues fell by -5%.
In Information Technology (IT), revenues decreased by -2% in constant currency but grew +3% organically. In North America, revenues grew by +8% organically, driven by the US IT Professional Staffing business which grew by +11% organically. Revenues in the UK & Ireland were up +3% in constant currency.
Adecco’s Engineering & Technical (E&T) business was up +3% in constant currency. In North America, revenues were up +3% in constant currency. In Germany & Austria revenues grew +2%, while in France revenues were up +13%. In Finance & Legal (F&L), revenues were up +2% in constant currency. Revenues in North America declined by -1%, but in the UK & Ireland grew by +7%, both in constant currency. Medical & Science (M&S) revenues were down -6% in constant currency. North America grew by +9% but the Nordics declined by -18%, both in constant currency, while revenues in France were down -23%.
Solutions continued to perform well, with 9% growth in constant currency. Revenue growth in MSP (Managed Service Programmes) and VMS (Vendor Management System) continued to be strong double-digit in constant currency and the growth rate further accelerated compared to Q1 2013.
Patrick de Maeseneire told Reuters, "We have reason to believe that we are at a kind of a turning point and that we will turn positive in the second half of the year," adding that the chemicals and logistics sectors were “driving the improvement”.
In France, Adecco’s gap to the market has been narrowing since the beginning of the year, and elsewhere in continental Europe rates of decline eased further. North America continues to perform well and Emerging Markets delivered high single-digit growth with a strong acceleration in Eastern Europe. Steady improvements have been noted so far this year creating an encouraging outlook for the second half of the year.
With results ahead of analysts expectations, in early trading today, the company’s share price rose +4.07% to CHF 62.60, up +44.86% compared with a year ago. Based on its current share price, the company has a market value of CHF 11.73 billion.