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Switzerland – Europe challenging for Adecco but Q1 results beat expectations

May 08 2012

Adecco (ADEN:VTX) said today that first-quarter results showed “solid profitability” although European business remained challenging as revenue in France, the firm’s largest market, declined by -10% when compared to last year. Organically, total revenue decreased by -1% to €5.03 billion although this still beat analysts’ expectations of €4.99 billion in a recent Reuters poll.

Revenue in the first quarter was down in a number of European countries, including Switzerland, Italy, the Benelux and Nordic countries as well as Iberia. But in the UK and Ireland the company performed well, seeing a +9% rise in sales while Adecco also claimed to gain market share in Germany and Austria.

Permanent placement revenues amounted to €90 million, an increase of +2% organically, while revenues from the counter-cyclical outplacement business declined by -3% to €68 million.

“We are off to a good start in 2012. Q1 2012 revenues are nearly at the same level as in Q1 2011, a solid result when considering the economic headwinds we face in Europe,” commented Patrick De Maeseneire, CEO of the Adecco Group.

Adecco Group, one of the “Big Three” recruitment firms dominating the global staffing market according to Staffing Industry Analysts’ research, reported Q1 gross profit of €916 million, up +2% from €854 million in Q1 2011 (an implied organic increase of +1%). This resulted in an improved gross margin of 18.2%, which was up 40 basis points organically from the same time last year. Both temporary and permanent staffing had a positive impact on the gross margin. Gross margins were helped by improved business mix namely a higher proportion of revenue coming from markets like Germany and a lower proportion of coming from markets like France, as well as growth in Professional staffing (+3% organically).

“The business mix is moving in the right direction […] We are convinced that our planned investments of €45 million in France will result in an even better offering for our customers and will ensure sustainable and leading profitability,” the firm said today.

In Q1 2012, operating income was €168 million, up from €158 million in the previous year. Looking ahead, the firm wants to build on strategic priorities and remains confident in achieving an EBITA margin of over 5.5% midterm.

Global performance in Q1 2012

In the first quarter, revenues in France were down -10% organically to €1.3 billion while permanent placement revenue also declined by -7% when compared to a year ago. The firm said it was “on track” to merge the networks of Adecco and Adia under the single Adecco brand. Included in the results of Q1 2012 are €3 million costs associated with the planned merger. Mr De Maeseneire said that “Given the economic outlook for France we are convinced that we are taking the right measures to ensure sustainable and leading profitability.” He was also reported in the Financial Times as saying that Adecco feared no adverse impact from François Hollande’s election as French president.

In the UK & Ireland, revenues rose +9% organically to €459 million, but permanent placement revenue was down -10% in constant currency, compared against a “very strong” first quarter in 2011. Integration costs relating to MPS amounted to €1 million.

In Germany & Austria, first-quarter results were ahead of the market as revenue increased by +10% organically to €400 million when compared to the previous year. General staffing grew +10% organically and professional staffing was up +14%. The results included €3 million restructuring costs.

Italy was one of the countries where revenue declined to €232 million, a reduction of -2% organically when compared to last year. The firm said demand was impacted by the economic uncertainties in the country.

In the first quarter, revenues in the Benelux countries also decreased by -2% organically to €225 million. This was in-line with the market in the Netherlands, but ahead of the market in Belgium.

Revenues in the Nordic countries dropped -2% organically to €198 million as revenue growth in Sweden was flat and down in Norway when compared to the same quarter last year.

In Iberia revenues also decreased by -9% organically to €165 million as economic conditions in the region affected business performance. In Switzerland revenue was down -9% organically to €99 million although profitability remained “solid.”

“Our revenue growth in North America continued to hold up well,” Mr De Maeseneire said. The firm’s second largest market saw turnover increase by +1% organically to €964 million and the firm said that profitability was “strong.”

In Japan, first-quarter revenue increased by +2% organically to €431 million, while in constant currency this was up +13%. Results of the acquired company VSN Inc. were included for the full first quarter of 2012 which contributed positively to the EBITA margin.

In the first quarter, revenues in Australia & New Zealand were up +3% organically to €134 million when compared to last year. 

Mr De Maeseneire said that “the Emerging Markets also continued their solid growth path” as revenue was up +15% organically and amounted to €382 million.

Performance by business segment in Q1 2012

Revenues in the General Staffing business (Office & Industrial) decreased by -2% organically to €3.8 billion while in the Industrial business this was down -4% in constant currency. Revenue growth in Germany & Austria remained strong, up +11% organically when compared to last year, but in France revenue declined -11% in Q1 2012 and in Italy this was down by -3%. Revenues in North America in constant currency “held up well” while in the Office business, revenues increased +3% in constant currency.

Professional Staffing saw revenue increase +3% organically with Germany & Austria, and the UK & Ireland delivering “double-digit revenue growth.” Revenue in North America was flat in constant currency, and down by -2% in France.

In the Information Technology segment, revenue increased +4% organically but in North America revenue declined by -7% in constant currency while the UK & Ireland market developed “strongly,” driven by project wins.

The Engineering & Technical business saw revenue increase +4% organically as growth was solid in Germany & Austria (+14%), as well as France (+9%). In North America, revenue declined by -1%.

In Finance & Legal, revenues were flat in constant currency while sales in North America increased +11% in constant currency. But the market remained “difficult” in the UK & Ireland where revenue declined by -18% in Q1 2012 in constant currency.

In Q1 2012, revenue in Medical & Science was down -2% organically while revenues in North America were up in constant currency. In the Nordic countries revenue declined as it did in France where turnover was down by -3% in the first quarter.

In the first quarter of 2012, revenues in Solutions were up +1% organically, mainly held back by the counter-cyclical outplacement business. Revenue growth in MSP (Managed Service Provision) and VMS (Vendor Management Systems) was “strongly double-digit” in constant currency.

Adecco exited the first quarter of 2012 with an organic revenue decline of 1% in March, adjusted for business days. Revenue developments in April were a touch weaker. North America continued to hold up well, while the revenue development in France remained similar as in Q1 2012. Elsewhere, the picture is also diverse. Within Europe, revenue growth in Germany & Austria and in UK & Ireland remained in positive territory, while Italy slowed further. In the Emerging Markets revenue growth continues to be robust. Commenting on expectations, Patrick De Maeseneire said, “We anticipate a similarly diverging picture geographically for the second quarter with North America holding up, but Europe remaining challenging”.

Adecco SA is a Swiss provider of human resource services, including temporary staffing, outsourcing, permanent placement, outsourcing, outplacement and career management, training and consulting. The firm operates in more than 60 countries.

After announcing its first-quarter results this morning, the company’s share price responded well and was up +3.0% at €40.44, down -30.7% from a year ago but +26.4% above the 52-week low of €31.9 set on 5 September 2011. This values the company at CHF7.43 billion or around €6.2 billion.


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