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A good start for Adecco into 2008

Further strengthens operating margin in Q1 2008

Zürich, Switzerland, May 6, 2008 

Q1 HIGHLIGHTS (Q1 08 vs. Q1 07)
  • Revenues of EUR 5.0 billion, up 1% (1% organically[1]) 
  • Operating income of EUR 205 million, up 8% (9% organically)
  • Strong operating income margin improvement of 30 bps to 4.1%
  • Basic earnings per share (EPS) of EUR 0.78, up 8%
In EUR million (except EPS)
Q1 2008
Q1 2008
Reported growth
Q1 2008
Organic[1] growth
Gross profit
Operating income
Net income
Basic EPS
Zurich, Switzerland, May 6, 2008 : The Adecco Group, the worldwide leader in Human Resource services, today announced results for the first quarter of 2008. Earnings per share increased 8% to EUR 0.78. Revenues were up 1% organically to EUR 5.0 billion compared to Q1 2007. The operating income margin further improved 30 bps to 4.1%.
Dieter Scheiff, Chief Executive Officer, Adecco Group said: "Adecco started well into 2008. We continued to improve the operating margin by 30 bps to 4.1%. Gross margin expanded further, particularly in the professional staffing business and through good growth of our permanent placement business, while we carefully managed our costs. We continue to be well on track to reach over 5% EBITA margin by 2009."
"For 2008 we expect modest revenue growth for the Group. While growth rates in the European and the Japanese markets are decelerating, they are still on a solid path. Demand in the US remains weak, whereas the Emerging Markets continue to grow strongly."
Group revenues for Q1 2008 increased 1% to EUR 5.0 billion compared with Q1 2007. On an organic basis, Adecco grew revenues by 1%, negatively impacted by 2% fewer trading days. Permanent placement revenues grew 11% in constant currency to EUR 98 million in the quarter.
Gross Profit
The gross margin improved 30 bps to 18.1% compared to the first quarter of 2007 as a result of a higher gross margin in the temporary staffing business and the growing contribution of the permanent placement business. The acquisition of Tuja added 10 bps to the Group's gross margin. 
Selling, General and Administrative Expenses (SG&A)
SG&A remained flat in the period under review (organically also flat), reflecting a decrease in SG&A as a percentage of revenues of 10 bps to 13.8%. Organically, Adecco grew the number of FTEs by 1% (+300 FTEs) compared to the same quarter last year. At the end of the first quarter Adecco operated a network of 6,900 offices with 37,000 FTEs.
Amortisation of Intangible Assets
Amortisation increased to EUR 10 million from EUR 4 million in the same quarter last year due to the acquisition of Tuja, which was consolidated as of August 2007.
Operating Income                    
Operating income for the first quarter 2008 was EUR 205 million, an increase of 8% (9% organically) compared with Q1 2007, while the operating margin improved to 4.1% versus 3.8% .
Interest Expense and Other Income / (Expenses), net
The interest expense amounted to EUR 14 million in the period under review, which compares to EUR'13 million in Q1 2007. For the full year 2008, the interest expense is expected to be approximately EUR 55 million. Other income / (expenses), net was EUR 2 million in Q1 2008 compared to EUR 9 million in Q1 2007. Lower interest income is the main reason for the difference.
Provision for Income Taxes
The effective tax rate for the first quarter of 2008 was 28% compared with 27% in the same period last year, when the company benefited from a tax release. For 2008 Adecco expects an underlying effective tax rate of approximately 28%.
Net Income and EPS
Net income was up 3% to EUR 137 million in the first quarter of 2008 compared to EUR 133 million in Q1 2007, reflecting a net income margin of 2.7%.  Basic EPS was EUR 0.78 (EUR 0.72 for Q1 2007), which is an increase of 8% versus the same quarter a year ago.
Balance Sheet, Cash-flow, and Net Debt[2]
The Group generated EUR 91 million of operating cash flow in the first quarter of 2008, invested   EUR'22 million in capex and purchased treasury shares for EUR 218 million. As a result the net debt position increased to EUR 1,069 million at the end of March 2008 compared to EUR 866 million at the end of 2007. In Q1 2008 DSO improved by 1 day to 57 days compared with Q1 2007.
Currency Impact
Currency fluctuations had a negative impact of 3% on revenues and operating income in the first quarter of 2008, mainly due to the weakness of the US dollar and the British pound. 
In France , Adecco grew revenues by 2% to EUR 1.6 billion driven by growth in the Industrial business. The operating income increased 5% to EUR 55 million, which reflects an operating margin improvement of 10 bps to 3.4%. Good performance in the permanent and outplacement business is the main reason for this improvement.
In USA & Canada, Adecco's revenues declined by 4% in constant currency to EUR 703 million in Q1 2008. The decline was most significant in the Industrial business, while Adecco experienced a more moderate decrease in the Office business. Engineering & Technical and Human Capital Solutions increased revenues. Operating income increased 9% in constant currency, while the operating margin increased 60 bps to 4.7% compared to Q1 2007.  Additional expenses in connection with the investments to improve customer mix and cost efficiency were compensated with favourable bad debt and social cost developments.
In the UK & Ireland, revenues declined 9% in constant currency, negatively impacted by 3% fewer trading days. Ongoing restructuring, particularly in the Information Technology, Industrial and Engineering & Technical business lines, led to a declining business. Operating income declined 8% in constant currency. The operating income margin remained flat at 3.0%.
In Germany revenues grew 58% in the first quarter of 2008 and 6% organically to EUR 386 million. Organic growth was driven by good demand in the Industrial business. Operating income grew 32% compared to Q1 2007, corresponding to an operating margin of 9.7% (Q1 2007: 11.6%). 4% fewer trading days in the period under review was the main reason for the lower profitability.
In Japan , revenues in constant currency grew 5% in the first quarter of 2008. A healthy pricing environment, strong growth in the permanent placement business and good cost management led to a 90 bps operating margin improvement to 6.8% from 5.9% in the same period last year.
Italy grew revenues by 7% and increased the operating margin by 60 bps to 7.0% in the first quarter of 2008. In Iberia revenues increased by 1%; however growth was negatively impacted by 4% fewer trading days. Operating margins declined by 10 bps to 6.0%. In the Nordics, revenues increased by 8% in constant currency, while revenues in the Benelux declined 1%. Emerging Markets grew revenues by 14% in constant currency.
Q1 2008 Revenues in percent
Q1 2008 Gross profit in percent
(The pie charts are visable in the PDF version of the report)
Adecco grew revenues of the Office and Industrial businesses by 4% in constant currency to
EUR 3.9 billion in Q1 2008 (0% organically) and increased the gross margin by 30 bps to 16.3%. The Industrial business increased revenues by 6% in constant currency (1% organically) driven by strong demand in Germany and Italy. France's revenues increased 2%, while USA & Canada decreased 12% in constant currency. In the Office business, revenues remained flat in constant currency with solid growth in Japan and the Nordics, while declining in France and in the USA & Canada.
In the first quarter of 2008, revenues in the Professional Business[3] grew 1% in constant currency (0% organically). Gross margin in the Professional Business improved 110 bps to 27.4% mainly driven by Human Capital Solutions, as well as the Information Technology business.
In Information Technology (IT), Adecco's revenues decreased 7% in constant currency. Continued customer portfolio optimization led to a 19% revenue decline in the UK & Ireland, while revenues in the USA & Canada remained flat.
Adecco's Engineering & Technical (E&T) business was flat in constant currency. In USA & Canada, Adecco increased revenues by 4% in constant currency, while revenues in the UK & Ireland declined 19%. Demand in Germany remained strong.
In Finance & Legal (F&L), Adecco increased revenues by 2% in constant currency in the first quarter of 2008. The declining business in USA & Canada was more than offset by strong revenue growth in the emerging Finance & Legal businesses in Germany, Nordics and Italy.
In the first quarter of 2008 revenues in constant currency in Sales, Marketing & Events (SM&E) and Medical & Science (M&S) grew 5% and 25% respectively (M&S 22% organically). Revenues in Human Capital Solutions (HCS) increased 13% in constant currency.
Management continues to be confident that the focus on value based management and professional and specialized business fields will allow Adecco to continuously improve the operating margin to over 5% by 2009.  At the same time the Group remains committed to deliver revenue growth of at least 7-9% per annum on average for the coming years and to increase return on capital employed (ROCE[4]) to above 25% in 2009, assuming a favourable macroeconomic environment. ROCE was 21.7% in 2007.
As the economic environment is not favourable in certain parts of the world and remains generally uncertain, Adecco anticipates revenue growth for 2008 below the long-term target of 7-9%. Management expects the market in the USA & Canada to remain weak, while still anticipating moderate growth in Europe and Japan.
Update on share buy back
In November 2007 Adecco's Board of Directors decided to purchase Adecco shares for up to EUR'400'million by the end of 2008. Since the start of the program Adecco has purchased 9.9 million shares for a total consideration of EUR 342 million. The shares are intended to be used for future acquisitions or to minimize potential dilution related to the outstanding convertible bond. Currently Adecco holds 13.2 million treasury shares.
Financial Agenda 2008
  • Q2 2008 results  
August 12, 2008
  • Q3 2008 results
November 4, 2008
Forward-looking statements
Information in this release may involve guidance, expectations, beliefs, plans, intentions or strategies regarding the future. These forward-looking statements involve risks and uncertainties. All forward-looking statements included in this release are based on information available to Adecco S.A. as of the date of this release, and we assume no duty to update any such forward-looking statements. The forward-looking statements in this release are not guarantees of future performance and actual results could differ materially from our current expectations. Numerous factors could cause or contribute to such differences. Factors that could affect the Company's forward-looking statements include, among other things: global GDP trends and the demand for temporary work; changes in regulation of temporary work; intense competition in the markets in which the Company competes; changes in the Company's ability to attract and retain qualified temporary personnel; the resolution of the French anti-trust procedure and any adverse developments in existing commercial relationships, disputes or legal and tax proceedings.
There will be a media conference call at 8 am CET as well as an analyst conference call at 10 am CET, details of which can be found at our Investor Relations section at .
[1] Organic growth is a non US GAAP measure and excludes the impact of currency and acquisitions.
[2] Net debt is a non-US GAAP measure and comprises short-term and long-term debt less cash and cash equivalents and short-term investments
[3] Professional business refers to Adecco's Information Technology, Engineering & Technical, Finance & Legal, Medical & Science, Sales, Marketing & Events and Human Capital Solutions businesses.
[4] ROCE = (Operating income - 30% income tax)/average invested capital; invested
   capital = assets - liabilities excluding cash and interest bearing liabilities.
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