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World – Steady growth provides platform for operating margin improvement at Adecco

07 August 2014

Adecco (ADEN: VX) reported organic revenue growth across the majority of its markets during the second quarter ending 30 June 2014. Of the major markets, Australia & New Zealand was the only region to report a decline in organic revenue, year-on-year.

The company reported revenue of €5.0 billion during Q2 2014, an increase of +5% in constant currency from €4.9 billion last year. Gross profit increased during the period by +6% in constant currency to €905 million, up from €884 million in Q2 2013. Adecco achieved an operating income of €215 million, equating to year-on-year growth of +19% in constant currency from €190 million in 2013.

The +5% organic revenue growth in Q2 2014 compares to +6% in Q1 2014 suggesting a steady but not accelerating global operating environment. Currency fluctuations had a negative impact on revenues of approximately 4% so actual growth was +1% and there was no material impact from either acquisitions or divestitures.

Patrick De Maeseneire, CEO of Adecco Group, commented: “In the second quarter our colleagues delivered another good performance. Revenue growth continued at a similar level to the first quarter. Growth remained steady in Europe, led once again by our Industrial business, and as expected we saw a pick-up in activity in North America. The Group exited the quarter with revenue growth of +5% in June, in constant currency and adjusted for trading days.”

“Our EBITA margin development in Q2 2014 was again encouraging, expanding by 50 bps despite the unfavourable timing of bank holidays. We continue to be very focused on reaching our EBITA margin target of above 5.5% in 2015. Based on the good progress on our six strategic priorities, recent trends and continued favourable economic conditions expected going forward, we remain convinced we will achieve this target,” he added.

Organic growth reported across Europe

Adecco’s largest single market is France, which accounted for 24% of total company revenue. The company reported revenue of €1.2 billion during the period, unchanged on an organic basis compared with last year. The region’s Industrial business, which accounts for approximately 85% of regional revenue, grew by +2%. Declines, however, were reported in the Office (-16%) and Professional Staffing (-5%) businesses. Permanent placements in France were up by +5%, year-on-year.

"If we exclude France, continental Europe is up +10% and it's all driven by industrial which is the early cyclical business," De Maeseneire told Reuters.

The UK & Ireland, which accounted for 10% of total revenue, reported organic revenue growth of +3% to €502 million, up from €469 million last year. Approximately two-thirds of regional revenue was derived from Professional Staffing, which grew by +7%. Revenue growth of +9% was reported in the IT segment and +3% in Finance & Legal. Within the General Staffing business, the majority of revenues are derived from the Office segment, which declined by -3%. Permanent placement revenues in the UK & Ireland increased by +13%.

Organic revenue growth of +7% was reported across Germany & Austria, rising to €413 million from €387 million a year ago. Growth was driven by the Industrial business, which accounts for approximately 70% of revenues and which grew by +11%. Revenues in Professional Staffing fell by -6%.

Italy reported organic revenue growth of +18% during Q2 2014, with revenue rising to €289 million, compared with €244 million a year ago, supported by good demand from manufacturing clients. In Benelux, revenue rose by +8% to €240 million, up from €222 million last year.

Across the Nordics, revenues were up +7%, on an organic basis, to €216 million compared with €214 million in 2013. In Norway the environment remains challenging but the revenue trend is improving, whilst growth continued to be strong in Denmark.

Revenue in Iberia increased by +21% to €196 million, up from €163 million last year, driven by further strong demand from export-oriented clients. Revenue from the Swiss market remained flat on an organic basis at €104 million.

North American costs rise following consolidation of regional headquarters   

North America reported revenue of €927 million during the second quarter, equating to organic growth of +3%. The region incurred restructuring costs of €4 million related to the move to a single headquarters in Jacksonville, Florida. 

The regions’ General Staffing business accounts for approximately half of total North American revenue. The Industrial division reported revenue growth of +10%. In Office, however, revenues declined by -5%, driven by continued weak demand from clients in Financial Services.

Revenues from Professional Staffing grew by +2%, with growth of +3% in IT, +5% in Finance & Legal, and +6% in Medical & Science. Engineering & Technical declined by -1%. Permanent placement revenues in North America were up +10% compared with last year.

Asia Pacific results remain mixed

Revenue from Japan increased by +2%, on an organic basis, to €259 million during the second quarter. Revenues declined by -1% in Office, which accounts for approximately 75% of total revenue in Japan. The decline was offset by solid revenue growth of +7% in Adecco Japan’s smaller Professional Staffing business, which comprises IT and Engineering & Technical.  

The only region to report a fall in organic revenue was Australia & New Zealand, which declined by -18% to €85 million from €118 million in Q2 2013. The region is still suffering the negative effects of client losses during the second half of 2013, which resulted in significant deleveraging and weak profitability.

Organic growth of +12% was reported across Adecco’s Emerging Markets. Strong growth of +23% was reported in Eastern Europe and MENA.     

Revenue from LHH, Adecco’s Career Transition and Talent Development business (CTTD), rose by +5% on an organic basisThis slowdown was driven by lower growth in North America, which accounts for approximately 50% of LHH revenues.

By business segment, constant currency growth across all regions was +5% for General Staffing and +2% for Professional Staffing. Permanent placement revenue was €89 million, up +8% in constant currency. Revenue from Adecco’s Career Transition (outplacement) totalled €74 million, up +9% in constant currency. 

Looking forward, the company advised: “Based on the current economic outlook and the trends we see within our business, we expect demand for flexible labour to increase further over the course of 2014. Given these trends, we will continue to invest selectively where we see organic growth opportunities and where productivity is already at a high level, whilst maintaining our overall focus on tight cost control.”

According to Reuters this morning, the company says “smaller, bolt-on acquisitions to enhance technology might be possible.”

In trading today, the company’s share price fell by -2.5% to CHF 63.75 (€52.45), an increase of +8.9% compared with a year ago. Based on its current share price, the company has a market value of CHF 11.4 billion (€9.4 billion).    


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