Adecco SA Q2 2010 Earnings Call Transcript

Adecco SA Q2 2010 Earnings Call Transcript
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Adecco SA (AHEXF.PK)

Q2 2010 Earnings Call Transcript

August 11, 2010 12:00 pm ET

Executives

Karin Selfors – Head, IR

Patrick De Maeseneire – CEO

Dominik de Daniel – CFO

Analysts

Jaime Brandwood – UBS

Tom Sykes – Deutsche Bank

Konrad Zomer – CA Cheuvreux

Andrew Grobler – Credit Suisse

Teun Teeuwisse – ABN Amro Bank

David Hancock – Morgan Stanley

Kean Marden – RBS

Toby Reeks – Bank of America/Merrill Lynch

Presentation

Operator

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Good morning or good afternoon. I am Stephanie, the conference call operator for this conference. Welcome to the Adecco Q2 2010 results analysts and investors conference call. Please note that for the duration of the presentation all participants will be in listen-only mode, and the conference is being recorded. (Operator instructions)

And this time, I would like to turn the conference over to Ms. Karin Selfors, Head of Investor Relations, accompanied by Mr. Patrick De Maeseneire, CEO of the group; and Mr. Dominik de Daniel, CFO of the group. Please go ahead.

Karin Selfors

Good morning ladies and gentlemen, I’m pleased to welcome you to Adecco’s second quarter 2010 results conference call. Today Patrick De Maeseneire, group CEO; and Dominik de Daniel, group CFO will lead you through the presentation, followed by a Q&A session.

Please now have a brief look at the forward-looking statement in this presentation. Let me give you a quick overview of today’s agenda, Patrick will present the operational highlights of the second quarter to you. Then Dominik will review the financial performance, Patrick will then reiterate our strategic priorities and give you an outlook on our business, before we open the lines for questions.

With that Patrick to floor is yours.

Patrick De Maeseneire

Thank you Karin. Good morning ladies and gentlemen. Welcome to our Q2 conference call. Let me start with the highlights of the second quarter. Business conditions in the second quarter of 2010 improved significantly, and we delivered strong growth in the majority of the markets we operate in. We achieved 13% organic revenue growth, driven by your main markets France and North America, but also Germany, Italy, Nordics, and the emerging markets delivered strong double-digit revenue growth.

Demand was particularly strong in the industrial segment, but also our professional staffing business returned to growth in the second quarter. Our gross margin in Q2 was 17.8%. We continue to focus on disciplined pricing, and also benefited from the increased exposure to professional staffing. Our measure to reduce the cost base in the downturn, coupled with strict pricing and top line growth, led to a strong double-digit increase of our EBITDA in Q2.

Before integration costs, the EBITDA was up 46% on an adjusted and organic basis, and our margin was 3.8%, up 100 basis points compared to the adjusted prior year’s Q2 EBITDA margin of 2.8%. Revenues in June were up approximately 16% organically and adjusted for business days.

To date, we see no signs of a slowdown of our business in the third quarter, and remain confident of strong revenue development near term. Indeed, our revenue growth in July developed in line with the one in June. We go now through the key numbers in more detail.

As you know, the new French business tax law is effective as of January 2010, and since this is the treatment going forward we opted to adjust 2009 for this impact. We also excluded the negative 54 million euro impact on SG&A related to restructuring costs incurred in last year’s second quarter.

Dominik will give more details on the adjustments in his part of the presentation. Revenues in the second quarter of 2010 were up 29% to 4.6 billion euro. Organically, revenues increased by 13%. Gross profit amounted to 835 million euro. Our gross margin was 17.8% as said, equal to Q2 2009, and down 110 basis points when adjusting Q2 2009 for the change in the French business tax law, and when excluding acquisitions.

SG&A increased by 8% and was flat organically and adjusted. In the second quarter, EBITDA before integration costs grew double digit, up 46% on an adjusted basis and organically. The EBITDA margin before integration costs was 3.8%, up 100 basis points year-on-year. Net income was 97 million euro in the quarter under review.

We now go to the organic revenue development by region. First of all, all regions are back to organic revenue growth, which hasn’t been the case since three years. North America achieved 15% organic revenue growth in Q2 2010, driven by strong growth in the general staffing business. When excluding the counter-cyclical outplacement business, North America was up 21% organically. In Europe, revenues in the second quarter were up 15% compared to the same period last year.

The revenue momentum accelerated in most countries, France, Germany, Italy, Nordics, and Iberia all grew double digit. Benelux and Switzerland also improved materially and returned to positive single-digit revenue growth. The European region was still held back by UK and Ireland, where revenues were down 3% organically. The rest of the world was up 4%.

Growth in Q2 2010 was still mitigated by Japan, where revenues were down 14%. The emerging markets on the other hand continued to deliver very strong results with revenues increasing 27% on an organic basis, up from 19% organic year-on-year revenue growth in Q1.

As mentioned before, the group’s gross margin was 17.8% in Q2 flat year-on-year and down 110 basis points organically and adjusted. For easier comparison, we adjusted the Q2 ’09 results to reflect the new French business tax law impact, which was 40 basis points. The temporary staffing business had a negative impact of 60 basis points on the group’s gross margin in Q2.

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