Randstad generates 16% growth in Q2 2010, boosted by accelerating global staffing markets

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Beleggingsadvies 29/07/2010 08:37
Key points second quarter 2010
. Revenue up 16% to € 3,468 million
. Organic growth1 per working day amounted to 13%; improving from 11% in April to 15% in June
. Underlying2 gross profit3 reached € 649 million (+9%) with the gross margin coming down from 20.0% to 18.7%
. Underlying operating expenses of € 529 million; flat YoY or +6% QoQ (of which +2% caused by currencies)
. Underlying EBITA4 amounted to € 119.7 million (+79%); the EBITA margin reached 3.5% (vs. 2.2% in Q2 2009)
. Adjusted net income5 attributable to holders of ordinary shares € 77.2 million; diluted EPS6 € 0.45 (vs. € 0.27)
. Based on current trends we expect to be able to pay dividend over 2010

"Growth has continued to accelerate through the quarter" says Ben Noteboom, CEO Randstad Holding. "It is great to see that by the end of this quarter we employed around seventy thousand candidates more than in the same week a year ago. Across all countries our people are doing a great job coping with big jumps in industrial placements, enabling our clients to step up capacity. We now also see corresponding recoveries in administrative and professionals segments. Some key economies like the USA, Germany and France are clearly growing and our businesses in these countries are taking the lead in stimulating our growth. Similar patterns are emerging now elsewhere in Europe and Asia Pacific. The late cyclical Dutch market traditionally lags a little, but the trends are positive here as well. With productivity at the highest level since 6 quarters, we face the future with increasing confidence. Based on current trends we expect to be able to pay dividend over 2010."

Interim Directors' Report
Summary of Group financial performance

Revenue
In Q2 2010 revenue grew for the first time since Q3 2008 with growth reaching 16%. Organic growth was 14%, while currency movements added 2%. Organic growth per working day was +13%, with the trend improving through the quarter from +11% in April to +15% in June. We see signs of cyclical and structural growth trends in our markets, whilst the regular seasonal trend, hardly noticeable last year, reappeared. Recovery is broad-based and is following traditional patterns. Our inhouse businesses, primarily targeting industrial and logistical segments, which were earliest to pick up, continued to show high and improving growth rates. In most regions staffing is showing good growth too. The more late-cyclical professionals segment has returned to slight growth as well. Of the major regions, North America continued its strong recovery, with 22% growth over the quarter, whilst in continental Europe growth is led by Germany, with 40% growth over the quarter. The Dutch and UK operations, active in more late cyclical service economies, are at the other side of the spectrum with -5% and +1% respectively. Permanent placement fees grew by 16% organically, with the trend improving from +9% in April to +21% in June. Perm fees made up 1.8% of revenue and 9.2% of gross profit (8.0% in Q2 2009).

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http://www.ir.randstad.com/releasedetail.cfm?ReleaseID=493565

Gross profit
In Q2 2010, gross profit reached € 659.7 million. Adjusted for one-offs of € 10.6 million, largely based on the refund of Dutch social security premiums relating to prior years, the underlying gross profit amounted to € 649.1 million. The underlying gross margin amounted to 18.7% compared to 20.0% in Q2 2009. The temp margin declined by 1.3 percentage points. This is the result of volume coming in on contracts that were renewed last year, as well as mix shifts. The industrial segments moved much faster than the administrative and professionals segments, while the geographic mix has a slightly negative impact as well. The 1.3% difference in the temp margin also includes a negative effect of 0.3% caused by the decline in professionals revenue at Yacht the Netherlands combined with increased idle. The growth in perm fees added 0.1%. Mix effects in the HRS business (for instance reduced salary slip processing and outplacement fees) had a negative impact of 0.4%. A change in French tax law (see note 3 on the front page) had a positive impact of 0.3%.

Operating expenses
Operating expenses amounted to € 536.0 million. Adjusted for restructuring charges of € 6.6 million, as we continue to optimize the organization, underlying operating expenses reached € 529.4 million. Underlying operating expenses were approximately equal to the level of Q2 2009 and up 6% sequentially (+4% on constant currencies). About € 10 million of the sequential increase is related to currency movements, approximately € 10 million to increased commissions and bonus accruals, and approximately another € 10 million is related to regular expansion (investments in for instance people, marketing and IT). At the end of the quarter we operated a network of 4,097 outlets, compared to 4,113 at the end of Q1 2010. Average headcount (measured by FTE) amounted to 24,970 compared to 24,900 during Q1 2010. We will continue to contain costs where appropriate, and selectively invest in growth areas.

EBITA
Underlying EBITA improved by 79% from € 67.0 million to € 119.7 million, with the EBITA margin reaching 3.5% compared to 2.2% in Q2 2009.

Net finance costs
In Q2 2010, net finance costs were € 8.0 million, compared to € 13.8 million in Q2 2009. This improvement is largely based on the significant net debt reduction over the past few quarters and a sharp YoY reduction in short-term interest rates as it is our policy to use floating interest rates for debt financing.

Tax
The effective tax rate before amortization of acquisition-related intangibles amounted to 29%, slightly higher than the 28% of Q1 2010, as a result of geographic mix changes.

Net income & EPS
In Q2 2010, adjusted net income attributable to holders of ordinary shares increased by 68% to € 77.2 million compared to € 46.0 million in Q2 2009. Diluted EPS increased by 67% to € 0.45 (Q2 2009 € 0.27). Net income amounted to € 55.9 million compared to a € 11.6 million in Q2 2009.

Cash flow
In Q2 2010, the free cash flow amounted to € 105.4 million negative, compared to € 56.1 million negative in Q2 2009. The moving average of DSO improved from 58 to 57 days but revenue growth still required investment in working capital. Free cash flow followed a regular pattern as it is usually negative in Q2 due to, for instance, the payment of holiday allowances in the Netherlands and Belgium.

Balance sheet
At the end of Q2 2010 net debt amounted to € 1,142.3 million compared to € 996.0 million at the end of Q1 2010. The sequential increase in net debt is primarily caused by the seasonally negative free cash flow (see paragraph above) as well as currency movements. The leverage ratio (net debt end of period divided by the EBITDA of the past 12 months) amounted to 2.4 compared to 2.3 at the end of Q1 2010. The covenants of the syndicated facility allow for a leverage ratio of up to 3.5.



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