Sales Group sales for the second quarter of 2006 were EUR 5.1 billion, a 13% increase compared to the same quarter last year. Organically, excluding the impact of currency and acquisitions, revenues were up 10%. In the quarter there was a negative impact of 2% from fewer trading days compared to the same period last year.
Gross margin improved 50 bps to 17.2% versus the second quarter of 2005, as a result of the growing contribution from the professional staffing and permanent placement business and improved gross margins in the temporary business. Acquisitions contributed a 40 bps enhancement to the Group's gross margin. In the Office and Industrial business, Adecco enhanced gross margin to 15.6% (Q2 2005: 15.2%), while in the professional business gross margin was raised to 25.3% (Q2 2005: 24.8%).
Selling, General and Administrative Expenses (SG&A)
SG&A were up 13% for the quarter on a reported basis. SG&A as a percentage of sales dropped 10 bps to 13.2% (Q2 2005: 13.3%) and by 40 bps when excluding acquisitions. Organically SG&A grew 7%, the office network 6% (+400 offices) and FTEs 5% (+1,700 FTEs) compared to the same quarter last year.
Operating income for the second quarter 2006 was EUR 202 million, an increase of 29% (24% organically). Operating income margin improved to 3.9% versus 3.4% for the same period last year.
Interest Expenses and Other Income / (Expenses), net
Interest expenses were EUR 12 million in the period, which is EUR 1 million less than in the second quarter 2005. Interest expenses are expected to be approximately EUR 55 million for the full year 2006. Other Income / (Expenses), net were EUR 3 million. This is a EUR 6 million improvement versus the same quarter last year mainly due to lower hedging expenses.
Provision for Income Taxes
The effective tax rate in the second quarter was 29% compared with 28% in the same period last year. For the full year 2006, Adecco continues to expect an effective tax rate of approximately 29%.
Net Income and EPS
Net income was up 35% to EUR 135 million in the second quarter of the year (Q2 2005: EUR 100 million), which represents a net income margin improvement of 40 bps to 2.6%. Basic EPS was EUR 0.72 (Q2 2005: EUR 0.54).
Balance Sheet, Cash-flow, and Net Debt
The Group generated EUR 241 million of operating cash flow in the first six months of 2006, compared with EUR 66 million in H1 2005. The main reasons for this increase are a higher net income as well as the timing of cash payments due to an additional trading week in previous periods. Net debt increased by EUR 483 million to EUR 907 million at the end of June 2006 compared to the year end of 2005. This increase was mainly due to the purchase of DIS AG (EUR 552 million net of cash acquired) and treasury shares (EUR 43 million) as well as the payment of dividends (EUR 79 million net of withholding tax), partially compensated by the operating cash flow. In the first six months of 2006 DSO improved 1 day to 59 days compared to same period last year. DIS AG was consolidated as of March 31, 2006.
Currency fluctuations had a minor impact on the second quarter's revenues and operating income.