Ranstad, continued strong growth; revenue up 19% in Q3 2010

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Beleggingsadvies 28/10/2010 08:24
Key points third quarter 2010
- Revenue up 19% to € 3,781 million
- Organic growth1 per working day amounted to 16%; stable growth rate during the quarter
- Gross profit2 of € 698 million (+17%) with the gross margin reaching 18.5% (vs. 18.8% in Q3 2009)
- Operating expenses of € 545 million; organically up 3% QoQ and 7% YoY
- EBITA3 amounted to € 153 million (+64%); the EBITA margin reached 4.0% (vs. 2.9% in Q3 2009)
- Adjusted net income4 attributable to holders of ordinary shares € 102 million; diluted EPS5 € 0.59 (vs. € 0.42)
- Tender offer for Japanese FujiStaff successfully completed in October

""This month, we celebrated the 50th birthday of Randstad with all our employees around the globe, and the vitality and enthusiasm of our people was something I'm very proud of," says Ben Noteboom, CEO Randstad Holding. "And when we look at our performance in the market, we have achieved stable double digit growth through the quarter. The mix is shifting somewhat, in line with classical patterns. After the quick pickup in industrial demand earlier this year, we now also see improvements in clerical and professional segments in many regions. In addition, the number of permanent placements is increasing. Efficiency is also still rising. Therefore, we look to the coming quarters with renewed energy and confidence."

Summary of Group financial performance

Revenue
In Q3 2010 revenue grew by 19% to € 3,781.0 million. Organic growth was 16% with growth evenly spread over the quarter. Currency movements added 3%. The worldwide HR services markets show cyclical and structural growth trends, whilst the regular seasonal trend clearly reappeared as well. Our inhouse businesses, primarily targeting industrial and logistical segments, which were earliest to pick up, continued to show high and improving growth rates, resulting in 55% organic growth. In most regions staffing showed solid and improving growth too, leading to 13% growth for the segment. Encouragingly, the more late-cyclical professionals segment is now growing too (8% organic growth). Of the major regions, North America continued its strong recovery, with 23% organic growth over the quarter, whilst in continental Europe growth is led by Germany, with 40% organic growth over the quarter.
Following full completion of the merger and digesting major restructuring in previous quarters, market focus has now clearly improved. As a result we are now ahead of or at market in all major geographies except for The Netherlands, where our revenue was flat. Based on the traditional growth patterns of our industry we are convinced that the Dutch market will pick up as well whilst our relative performance should also improve going forward. Permanent placement fees grew by 24% organically. Perm fees made up 1.6% of revenue and 8.5% of gross profit (7.3% in Q3 2009).

Gross profit
In Q3 2010, gross profit reached € 697.9 million, up 17%. The gross margin amounted to 18.5% compared to 18.8% in Q3 2009. The temp margin declined by 0.4 percentage points. This is the result of volume coming in on contracts that were renewed last year, as well as mix shifts. Sequentially the temp margin is rather stable. The growth in perm fees added 0.2%. 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 2 on the front page) had a positive impact of 0.3%.

Operating expenses
Operating expenses amounted to € 544.9 million, up 8% YoY (+7% organically) and up 3% sequentially. At the end of the quarter we operated a network of 4,115 outlets, compared to 4,097 outlets at the end of Q2 2010. Average headcount (measured by FTE) amounted to 25,850, compared to 24,970 during Q2 2010. The majority of the additions in outlets (mostly inhouse) and personnel was in Germany and the US.

Amortization of acquisition-related intangibles amounted to € 45.3 million, compared to € 39.8 million in Q3 2009. The increase is caused by accelerated amortization of brands due to the successful rebranding of professionals businesses mostly in the UK and Australia. This will occur in Q4 2010 as well.

EBITA
EBITA improved by 64% from € 93.4 million to € 153.0 million, with the EBITA margin reaching 4.0% compared to 2.9% in Q3 2009.

Net finance costs
In Q3 2010, net finance costs were € 7.6 million, about equal to the € 7.2 million in Q3 2009.

Tax
The effective tax rate before amortization of acquisition-related intangibles amounted to 29%, equal to the rate in the previous quarter.

Net income & EPS
In Q3 2010, adjusted net income attributable to holders of ordinary shares increased by 40% to € 101.6 million compared to € 72.5 million in Q3 2009. Diluted EPS increased by 40% as well to € 0.59 (Q3 2009 € 0.42). Net income amounted to € 72.3 million compared to € 60.9 million in Q3 2009.

Cash flow
In Q3 2010, the free cash flow amounted to € 173.1 million, compared to € 359.0 in Q3 2009. Last year cash flow was boosted by fiscal items of € 232 million in total. The moving average of DSO improved from 57 to 56 days.

Balance sheet
At the end of Q3 2010 net debt amounted to € 946.5 million, compared to € 1,142.3 million at the end of Q2 2010. The sequential improvement in net debt is primarily caused by strong free cash flow as well as currency movements and the disposal of French Selpro. The leverage ratio (net debt end of period divided by the EBITDA of the past 12 months) improved to 1.8 compared to 2.4 at the end of Q2 2010, and is now within our target range of in between 0 and 2. The covenants of the syndicated facility allow for a leverage ratio of up to 3.5.

Acquisitions & divestments
On August 13, 2010, we announced that agreement had been reached with the founding shareholders of Japanese FujiStaff to acquire a majority stake. A tender offer was launched. On October 14, 2010, we declared the offer unconditional as the number of shares tendered provided for a 95% economic stake. In the fiscal year ending March 31, 2010, FujiStaff generated revenue of € 461 million. The cash outflow for the acquisition (approx. € 115 million) will be in Q4 2010. FujiStaff will be consolidated as of October 20, 2010.

As per September 1, 2010, we expanded our leading position in the Czech Republic through the acquisition of the temping business of Start People sro. On September 30, 2010, we expanded our Hungarian business through the acquisition of Profipower. The financial impact of these two deals is not material at Group level.

In September the divestment of our French subsidiary Selpro was completed. In 2009 Selpro generated revenue of € 63 million. On September 30, 2010, we divested Voxius, active in the legal segment in the Netherlands, through a management buy-out. Both businesses had been run independently and were not eligible for integration. The effect on EBITA of both divestments is deemed non-material at Group level.

Outlook
During Q3 2010 we recorded a stable organic growth rate of 16%. This shows that recovery in our businesses is robust. We continued to see solid growth rates in all our inhouse businesses, based on recovery in manufacturing and logistics. Staffing showed healthy growth across our markets, including recovery in administrative segments in various regions. After turning the corner in Q2 2010, growth in the more late cyclical professionals business has strengthened, despite the lagging UK and Dutch professionals businesses. These positive trends have continued into October. The comparison base will become more challenging as Q4 2010 progresses but based on the solid trends in our businesses we expect continued healthy growth in the coming quarter. As the leverage ratio (net debt/EBITDA) improved to 1.8 in Q3 2010, we reiterate that we expect to be able to pay dividend on ordinary shares over 2010.





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