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Q3 2003 Third quarter net income before amortisation up 28% in EURO year over year, up 34% in local currency

Group Sales for the third quarter down 3% at EUR 4.2 billion (up 2% in local currency); operating income before amortisation up 19% at EUR 163 million (up 25% in local currency); NIBA[1] up 28% at EUR 105 million (up 34% in local currency)

Chéserex, Suisse, Oct 22, 2003 


  • Group Sales for the 9 months down 6% at EUR 12.1 billion (up 1% in local currency); operating income before amortisation up 5% at EUR 411 million (up 14% in local currency); NIBA[1] up 17% at EUR 257 million (up 26% in local currency)
  • Group operating costs for the third quarter down 15% (down 9% in local currency) due to continued tight cost control in all operational areas resulting in further productivity improvements
  • Operational gearing continues to improve at Group level in the third quarter demonstrated by growth in operating income before amortisation of 25% on a revenue increase of 2%, all in local currency
  • Cash-flow generated from operations was EUR 291 million for the 9 months, up from EUR 199 million last year
  • Net debt reduced by EUR 93 million during the quarter and EUR 319 million from the beginning of the year, a reduction of 23%, to EUR 1.1 billion
  • Under US GAAP operating income for the 9 months was EUR 408 million (EUR 387 million in 2002) and net income for the same period was EUR 254 million (EUR 216 million in 2002)
  • Currency effects reduced reported salesoperating income before amortisation and NIBA[1] by 5%, 6% and 6% respectively in the third quarter
CHESEREX, SWITZERLAND, October 22, 2003 - Commenting on the results Jérôme Caille, Adecco Group Chief Executive Officer said:
"I am again pleased with the results we have achieved this quarter, measured in local currency. We have extended the improvement in operational gearing across the Group, converting a 2% growth in sales into an operating profit increase of 25%, measured in local currency. The economic environment remains challenging but we are pleased to have achieved the return to positive sales growth that we had in the first quarter. We have also maintained our focus on reducing operating costs producing a further improvement in operating margin quarter over quarter of 40 basis points to 3.8%."
Group sales for the third quarter were up 2% year on year in local currency at EUR 4,249 million, but sales were down 3% in EUR due to adverse exchange rate movements.
In the Adecco Staffing division, which represented 90% of group revenues, sales grew by 3% in local currency. Sales in Europe were up 1% with growth in France, Spain, Italy and the UK offset by declines in Netherlands, Germany, Switzerland and Belgium.
In North America, sales were up 3%, principally due to the USA where sales grew by 4%.
In Asia/Pacific sales were up 11%, with a 12% increase in Japan.
In the Ajilon Professional Division, which represented 9% of group revenues, sales were down by 4% in local currency, down 12% in EUR, but continued narrowing the sales gap compared with 2002.
In the LHH/Career Services Division, which represented 1% of group sales, sales were down by 11% in local currency, down 21% in EUR reflecting the reduction in demand for outplacement services expected at this stage of the economic cycle.
Gross Margin
Overall this quarter gross margins came in lower than last year, mainly due to mix change, currency change and continued low margins in the USA. At the Group level, gross margin was down by 107 basis points (bp) to 16.7% from 17.8% in the third quarter of 2002.
Of this difference 15bp was due to currency mix changes and 17bp from changes in business mix among the divisions; lower average fees mainly due to mix changes for permanent placement accounted for 20bp of the difference and lower temporary staffing margins accounted for 55bp (of which 34bp attributable to US Adecco Staffing, mainly where additional costs for worker's compensation and state unemployment insurance were incurred and 21bp due to all other changes, including the mix of higher and lower margin business).
Operating Costs
The Group reduced operating costs this quarter by 9% when measured in local currency and by 15% when measured in EUR. The ratio of operating costs to sales this quarter improved to 12.9% of sales compared with 14.7% last year. We have reduced full time equivalents (FTE) by around 2,500 or 8% from year ago levels despite servicing about the same volume of business, reducing the branch network by only 3%, and thus improving productivity. We have also maintained tight control over all other operating costs.
Operating Income before Amortisation
Operating income before amortisation was EUR 163 million this quarter, up 25% in local currency, representing a return on sales of 3.8%, which is 70 basis points better than last year's level. Operating income before amortisation measured in EUR was up 19% due to adverse currency changes.
NIBA[1] increased in the quarter by 34% in local currency over last year to EUR 105 million.
Interest expense reduced by EUR 5 million due to the reduced level of debt and lower financing costs. The tax rate provision this quarter was 27% compared with 29% in the third quarter of 2002.
NIBA[1] measured in EUR was up 28%.
Net Debt and Cash Flow
Net debt at the end of the quarter was EUR 1,090 million, including off-balance sheet debt. This represented a reduction of EUR 93 million during the quarter and a reduction of EUR 319 million or 23% from the level at the beginning of the year. Strong cash flow from operations of EUR 106 million in the third quarter contributed to this reduction.
Felix Weber, Adecco Group Chief Financial Officer, commented: "We further reduced our cost base by 9% in local currency this quarter building on the 2% and 6% reductions achieved in Q1 and Q2.
Strong operating cash flow of EUR 291 million contributed to the reduction of net debt, which year to date has now been cut by EUR 319 million to only EUR 1.1 billion. We are effectively managing our working capital and have reduced DSO by 1 day to 59 days compared to last year"
Adecco Staffing Division
Adecco Staffing is the number 1 in the world, ranked number 1 in 11 of the 13 most important staffing markets.
This quarter, we again managed to extend operating gearing converting sales growth of 3% in local currency into a profit improvement of 20% (sales down 2% and profit up 16% in EUR, respectively), despite the pressure on gross margin.
  • Adecco France achieved a turnaround in sales with 3% growth compared with a decline of 3% in the previous quarter, principally due to market share gains. Profitability continued to improve due to maintained gross margins and further cost reductions.
  • Sales in Adecco USA grew by 4% in local currency (down 9% in EUR), but profitability was again affected by higher costs for workers compensation and unemployment insurance. Operating costs have been further reduced but these reductions do not cover the loss of gross margin.
  • Adecco UK sales were up 5% and profits were ahead of last year
  • Adecco Japan gained market share with sales growth of 12% in local currency (down 2% in EUR) and demonstrated operational gearing with 18% growth in profit in local currency (up 3% in EUR).
  • Adecco Italy sales were up 5% in EUR, a significant improvement over the previous quarter.
  • In Germany, one of the key markets for the future, sales were down by 8% but profitability improved significantly from last year's levels. We also continued to lead industry efforts towards a more favorable regulatory environment.
  • Adecco Spain sales growth slowed to 2% due to seasonal factors whilst operational gearing was maintained with gross margin up 3%, costs down 17% and profit up by 46%.
Ajilon Professional Division
Ajilon Professional is ranked world number 3 in the professional staffing market.
Ajilon continued to close the sales gap measured in local currency with sales for the quarter down 4% compared to last year at EUR 390 million. Operating income before amortisation was down 7% in local currency at EUR 14 million (down 18% in EUR).
LHH/Career Services Division
Lee Hecht Harrison (LHH) is ranked number 2 in the world outplacement and career services market. This division contributed 11% of group profit on only 1% of group sales in the nine months. Sales for the quarter of EUR 47 million were 11% less in local currency (21% in EUR).  We cut operating costs by 10% (20% in EUR) and thereby limited profit reduction to 13% in local currency (24% in EUR) at EUR 14 million.
jobpilot /e-HR Services Division
At jobpilot, we achieved a breakeven result with a positive sales and profit growth in the last month of the quarter. We continue to develop and leverage successfully synergies with other Adecco Group companies.
Accounting for Stock-Based Compensation
Effective for the current year Adecco will adopt Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation". For future stock-based compensation transactions such as grants of stock options or restricted stock this change in accounting policy will result in expenses being amortised through the income statement over the vesting period. The effect of this change on the financial statements for the first 9 months was not material.
The outlook for the world economy remains uncertain. We have continued to reduce cost in response to gross margin decline and have thereby improved profitability. We will continue to fine tune our operating cost structure in response to changes in the marketplace but will do so without damaging our branch network or endangering our market position. Our strategy in these conditions is to leverage our strong market presence and low cost infrastructure to grow market share and drive sales.
US GAAP Results
For the nine months ended September 28, 2003, the Adecco Group reported under US Generally Accepted Accounting Principles (US GAAPrevenues of EUR 12.1 billion, operating income of
EUR 408 million, which includes EUR 3 million amortisation of intangibles and a net income of EUR 254 million.
According to Chief Financial Officer, Felix Weber, "Adecco continues to consider operating income before amortisation and net income before amortisation (NIBA) to be the most relevant benchmarks of the Adecco Group's financial performance, as management believes that this represents a better measurement of the operational performance.
Statements made in this press release, other than those concerning historical information, should be considered forward-looking and subject to risks and uncertainties. The Adecco Group's actual results may differ materially from the results anticipated in these forward-looking statements as a result of certain factors as set forth in the Adecco Group's reports on Form 20-F made pursuant to the Securities Exchange Act of 1934.  For instance, the Adecco Group's results of operations may differ materially from those anticipated in the forward-looking statements due to, among other things: our ability to successfully implement our growth and operating strategies, fluctuations in interest rates or foreign currency exchange rates, changes in economic conditions, changes in the law or government regulations in the countries in which the Adecco Group operates, instability in domestic and foreign markets, our ability to obtain commercial credit, and changes in general political, economic and business conditions in the countries or regions in which the Adecco Group operates. In addition, the market price of the Company's stock may be volatile from time to time as a result of, among other things: the Adecco Group's operating results, the operating results of other staffing service providers, and changes in the performance of global stock markets in general.
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