Classical recovery patterns in final quarter of a difficult year
Key points Q4 2009
. Revenue of € 3,180 million; organic growth1 per working day -18% (from -21% in October to -13% in December)
. Gross profit amounted to € 606 million (-26%) with the gross margin coming down from 21.0% to 19.1%
. EBITA2 reached € 106 million (-40%), with the underlying EBITA margin reaching 3.3% (vs. 4.6% in Q4 2008)
. Adjusted net income3 attributable to holders of ordinary shares € 79.9 million; diluted EPS4 € 0.47 (-35%)
. During the quarter US staffing and inhouse services returned to growth for the first time in 3 years

Key points full year 2009
. The integration of Randstad and Vedior was successfully completed
. Revenue of € 12.4 billion compared to € 17.0 billion in 2008; organic growth1 per working day -26%
. Operating expenses reduced by 22% to € 2,098.5 million, backed by natural attrition, synergies and restructuring
. Adjusted net income3 attributable to holders of ordinary shares € 207 million (-57%); diluted EPS4 € 1.21 (-62%)
. Net debt reduced by € 626 million to € 1,015 million; leverage ratio 2.5 (FY 2008: 1.8, Q3 2009: 2.4)
. In line with our financial policy to strive for a leverage ratio below 2.0, it is proposed to further strengthen the balance sheet and not to pay dividend

"Our markets have stabilized and classical recovery patterns are visible", says Ben Noteboom, CEO of Randstad. "If recovery continues we should do very well. Clients worldwide realize that they need efficiency in the way they employ people, more than ever before. Our company emerges from the downturn with much improved debt levels and well adjusted cost levels. We can offer an unparalleled range of services to our clients as the expertise of our people is very much still in place. We have ample capacity to benefit from renewed growth in all major global markets. Whether it is in staffing, in managed services or in the placement of professionals, we have an excellent position from which to start building again, and our new Randstad group is ready for the future."

Extracting the value of the new Randstad
Now that the integration has been completed, we focus on extracting the value of the new Randstad. The number of opportunities to reach our targets, based on organic growth, is large. We have established a good track record in copying and pasting best practices since 2003, especially in staffing, staffing specialties and inhouse services. We will continue to do this, now over the enlarged footprint, and extend this process to the professionals segment.

Our inhouse services offering has been one of our key growth areas over the last ten years. We believe that at least 15% of the total staffing market is suitable for inhouse services, offering significant early potential for growth in many countries as the economy recovers. We also see strong opportunities offering a broader range of specialties in more countries. In addition, we have been capturing best practices in the professionals segment. Now we can implement them in the existing professionals businesses in order to improve growth and profitability. Once that is successful, we can use these best practices to invest in growth and broaden the professionals offering in many markets. With our full range of services we are placed well to benefit from the trend among clients to look for fewer suppliers, not only in staffing but now also in the professionals segment.

From an operational point of view, the merger can be considered a success already. We achieved higher synergies than planned, € 40 million of annual tax savings (initial target € 20 million) and € 100 million in cost synergies (initial target € 80 million), and we achieved them well ahead of schedule. However, due to the adverse market circumstances, we will not achieve our goal of the deal becoming EVA-accretive (a return on investment above the weighted average cost of capital) by 2010. Based on the successful integration we feel confident that, assuming a continued economic recovery, the required return will be reached in about 3 years as the considerable capacity remaining across the Group will be utilized to stimulate productivity improvements.

Gross profit
In Q4 2009, gross profit amounted to € 605.9 million. The underlying gross margin amounted to 19.1% compared to 21.0% in Q4 2008. The underlying temp margin declined by 1.2%. The mix effect, based on changes in geographical mix, turned negative and amounted to -0.1%. The reduction in perm fees had a negative effect of about 0.7% on the total gross margin. Currency and other mix effects (relatively stable HR Solutions fees) together had a positive impact of 0.1%.

For the full year gross profit amounted to € 2,414.2 million, with the gross margin coming down from 20.8% to 19.5%. During the year pressure on the temp margin increased, based on commercial pressure across many geographical areas. The negative impact of the reduction in perm fees started to fade somewhat towards the end of the year.

Operating expenses
In Q4 2009 we maintained our strong focus on cost containment. Underlying operating expenses amounted to € 499.8 million, 22% lower than in Q4 2008 and 1% below the level of the previous quarter. As guided, the sequential decline in operating expenses was only limited mainly due to the timing of marketing campaigns, which were geared towards Q4 2009. The reported operating expenses have been adjusted for a total of € 10.0 million. On the one hand we corrected for net restructuring charges of € 13.4 million. On the other hand we took out a book profit on the sale of a subsidiary for an amount of € 3.4 million.

At the end of the quarter we operated a network of 4,129 outlets, 52 less (-1%) than in the previous quarter, and 21% less (organic) than at the end of Q4 2008. Average headcount (measured by FTE) amounted to 25,580. This was 24% lower than in Q4 2008 and 3% below the level of the previous quarter. As we did not leave important regions, the commercial strength and future growth potential remain in place.

During the year we have swiftly adjusted our cost structure. For the full year underlying operating expenses amounted to € 2,098.5 million, 22% lower than in 2008. The savings are based on full realization of the projected synergies, natural attrition and restructuring.

EBITA
For the full year underlying EBITA decreased organically by 60% to € 315.7 million. The EBITA margin amounted to 2.5% (versus 4.9% in 2008), and due to the severity of revenue contraction below our target of minimal 4% in a normal downturn. In Q4 2009 underlying EBITA came down by 39% to € 106.1 million, with the margin reaching 3.3% compared to 4.6% in Q4 2008.

Net finance costs
For the full year, net finance costs amounted to € 48.9 million, compared to € 71.7 million in 2008. In Q4 2009, net finance costs reached € 9.8 million versus € 19.0 million in Q4 2008. These improvements are largely based on the significant net debt reduction over the past few quarters and a sharp reduction in short-term interest rates, as our debt is financed using floating interest rates.

Tax
The tax rate in the profit and loss account amounted to -2% for the quarter and -52% for the year. The underlying rates of the various components have not materially changed. For the full year the tax rate on amortization, which shows as a benefit on the tax line, was constant at 31%. The tax rate on the underlying profit before tax (before amortization) amounted to 20% for the full year (versus guidance of 20-22%). The full year rate after one-offs amounted to 13% (versus guidance of 13-15%).

Net income & EPS
In 2009, net income amounted to € 67.6 million compared to € 18.4 million in 2008, which was heavily influenced by impairments. Full year adjusted net income attributable to ordinary shareholders came down by 57% to € 207.2 million (€ 477.6 million in 2008). As the average diluted number of ordinary shares increased, diluted EPS decreased by 62% to € 1.21 (2008 € 3.21). In Q4 2009, diluted EPS decreased by 35% to € 0.47 (2008 € 0.72).

Cash flow
Over the full year free cash flow was strong and amounted to € 698.1 compared to € 672.7 million in 2008.
At the start of the year we generated a significant cash flow based on the usual unwinding of working capital in case of sequentially declining revenue. The moving average of DSO improved from 59 to 58 days, which also supported operating cash flow. Our clients' pursuit to pay later is offset by additional focus on the internal processes and a positive effect from regulation changes in France. In Q4 2009 free cash flow amounted to € 167.5 million.

Balance sheet
At the end of Q4 2009 net debt amounted to € 1,014.7 million compared to € 1,641.0 million at the end of Q4 2008 and € 1,166.8 at the end of Q3 2009. The leverage ratio (net debt end of period divided by the EBITDA of the past 12 months) moved up marginally to 2.5 in comparison to 2.4 at the end of Q3 2009 (1.8 at the end of Q4 2008). The covenants of the syndicated facility allow a leverage ratio of up to 3.5.



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