Adecco delivers on gross margin improvements and cost cuts

Q1 2009 FINANCIAL PERFORMANCE

Revenues Group revenues in Q1 2009 were down 26% to EUR 3.7 billion compared to Q1 2008. Organically, revenues declined by 28%. In the first quarter of 2009, permanent placement revenues were EUR 53 million, a decline of 45% in constant currency and outplacement revenues amounted to EUR 88 million, an increase of 65% in constant currency.

Gross Profit The gross margin improved by 40 bps to 18.5% compared to Q1 2008. The gross margin in the temporary staffing business was 50 bps lower in Q1 2009 compared to Q1 2008, partly due to lower utilisation in Germany and Sweden, where temporary employees are on Adecco's payroll, while the decline in the permanent placement business also impacted gross margin negatively. The growing contribution of the outplacement business more than compensated the negative impact on the gross margin of the temporary and permanent staffing businesses.

Selling, General and Administrative Expenses (SG&A) In Q1 2009 SG&A was reduced by 7% compared to the same period last year. Organically and adjusted for EUR 36 million restructuring expenses, SG&A declined by 15%. Organically, FTE employees were reduced by 12% (-4,600) compared to Q1 2008, while the branch network was reduced by 11% (-700 branches). At the end of the first quarter of 2009, the Adecco Group operated a network of over 6,000 offices with more than 31,000 FTE employees.

EBITA In the period under review, reported EBITA was EUR 43 million, a decline of 80%. Organically and adjusted for EUR 36 million restructuring expenses, EBITA declined by 66% to EUR 79 million. The adjusted EBITA margin was 2.1% in Q1 2009. This compares to an EBITA margin of 4.3% in the prior year.

Amortisation of Intangible Assets Amortisation in Q1 2009 amounted to EUR 13 million compared to EUR 10 million in first quarter of 2008.

Operating Income In Q1 2009, the company reported operating income of EUR 30 million, a decline of 85%, which compares to EUR 205 million in Q1 2008.

Interest Expense and Other Income / (Expenses), net The interest expense amounted to EUR 9 million in the period under review, EUR 5 million less than in Q1 2008. Given the recent bond issuance of EUR 500 million, the interest expense is expected to amount to approximately EUR 60 million for the full year of 2009. Other income / (expenses), net was EUR 3 million in Q1 2009 compared to EUR 2 million in the first quarter of 2008.

Provision for Income Taxes The effective tax rate for the first quarter of 2009 was 3%, compared to 28% in the same period last year. The tax rate for Q1 2009 was lower due to the favourable settlement of tax audits and expiration of statute of limitations in certain jurisdictions.

Net Income attributable to Adecco shareholders and EPS Net income attributable to Adecco shareholders in Q1 2009 was down 83% to EUR 23 million compared to EUR 137 million in Q1 2008, resulting in a margin of 0.6%. Basic EPS was EUR 0.13 (EUR 0.78 for Q1 2008).

Balance Sheet, Cash flow, and Net Debt The operating cash flow generated in Q1 2009 amounted to EUR 205 million. The Group invested EUR 26 million in capex. Net debt declined to EUR 445 million at the end of March 2009 compared to EUR 617 million at the end of 2008. DSO improved by 2 days to 55 days in the first quarter of 2009.

Currency Impact In Q1 2009, currency fluctuations had a positive impact of approximately 1% on revenues and on operating income.

GEOGRAPHICAL PERFORMANCE

(The pie charts are visible in the PDF version of the report)

Revenues in France declined by 32% (-33% organically) to EUR 1.1 billion in Q1 2009, compared to Q1 2008. Pricing remained rational, in Adecco's biggest market in terms of revenues. Excluding EUR 12 million costs associated with headcount reductions and branch closures, EBITA declined by 87% to EUR 7 million compared to Q1 2008. The adjusted EBITA margin was 0.6%, compared to 3.4% a year ago.

In the USA & Canada, revenues declined by 26% in constant currency to EUR 584 million in Q1 2009. Organically, revenues were down 25%. The decline was mostly driven by the strongly decelerating Office and Industrial businesses, while revenues in Human Capital Solutions increased substantially. EBITA declined by 12% in constant currency, whereas the EBITA margin increased by 100 bps to 5.6%, due to the positive contribution of the Human Capital Solutions business.

In Germany, Q1 2009 revenues declined by 32% to EUR 263 million, while EBITA was down 85% compared to the same period a year ago, resulting in an EBITA margin of 2.2% (Q1 2008: 9.7%). Besides negative operating leverage, the impact of the lower utilisation led to the reduction of the EBITA margin in the quarter under review.

In the first quarter of 2009, Japan's revenues declined by 10% in constant currency to EUR 418 million. EBITA declined by 7% in constant currency, corresponding to an EBITA margin of 7.0%, up 20 bps compared to Q1 2008. The excellent profitability continues to be driven by superior cost management.

In the UK & Ireland, revenues in Q1 2009 declined by 31% in constant currency. The region posted a small loss at the EBITA level. Besides company specific issues, for which measures to improve the situation are taken, the weak permanent placement business continued to negatively impact results.

Italy faced a sharp decline in demand with revenues falling 45% in Q1 2009. At the EBITA level, Italy posted a loss of EUR 13 million, mainly as a result of EUR 18 million costs associated with headcount reductions and branch closures. FTE employees were reduced by 21% since December 2008. Revenues in the Benelux declined by 14% or 22% organically, while in the Nordics, revenues declined by 32% in constant currency and in Iberia by 42%.

Emerging Markets revenues grew by 3% in constant currency and organically. The corresponding EBITA margin was 2.4% in the period under review.

BUSINESS LINE PERFORMANCE

(The pie charts are visible in the PDF version of the report)

In Q1 2009, Adecco's revenues in the Office and Industrial businesses declined by 33% in constant currency to EUR 2.6 billion. In the Industrial business, revenues declined by 38% in constant currency, driven by weak demand in France where revenues were down 36%, Germany which declined by 41%, Italy by 50%, and by the USA & Canada where revenues decreased 35% in constant currency. In the Office business, revenues declined by 21% in constant currency. While Japan was down 10% in constant currency, the revenue decline was more pronounced in the USA & Canada with a decline of 30%, in the UK & Ireland where revenues were down 32% and in the Nordics by 33%, all in constant currency. In France, revenues were down 25%.

In the Professional Business[5] segment, revenues in Q1 2009 declined by 9% in constant currency and by 13% on an organic basis. The gross margin improved by 260 bps to 30.0%, mainly driven by the Human Capital Solutions business.

In Information Technology (IT), Adecco's revenues decreased 6% in constant currency and by 16% organically. In the USA & Canada revenues were down 21% and in the UK & Ireland down 22%, both in constant currency.

Adecco's Engineering & Technical (E&T) business was down 22% in constant currency. Whereas the USA & Canada faced a revenue decline of 23% in constant currency, revenues in Germany declined by 8% in the first quarter of 2009.

In Finance & Legal (F&L), revenues declined by 27% in constant currency and by 32% on an organic basis. Weak demand in the USA & Canada was the main reason for the decline.

In Q1 2009, revenues in Medical & Science declined by 9% and in Sales, Marketing & Events (SM&E) by 5%, whereas revenues in Human Capital Solutions (HCS) were up 45%, all in constant currency.

MANAGEMENT OUTLOOK

The business environment in the first quarter of 2009 was exceptionally difficult and the near future continues to look challenging. Consequently, management adheres to a proactive, cost-focused approach in order to protect margins and remains fully committed to its value-based strategy. Despite significant pressure on revenues, price discipline remains a key priority throughout the organization.

Near term, management expects no reversal of current conditions and sees no clear signs of stabilization yet. During Q1 2009 revenues continued to decelerate, with an exit rate in March of approximately 31%, organically and adjusted for trading days. Developments are closely observed and actions to further adjust the cost base continue to be taken as necessary in order to protect the profitability. Already initiated structural changes and headcount reductions are well on track and the remaining EUR 14 million of the initially planned EUR 50 million restructuring costs are expected to be incurred in the second quarter of 2009.

Recent EUR 500 million bond issuance On April 21, 2009 Adecco placed a 5-year EUR 500 million bond with a coupon of 7.625%, issued by Adecco International Financial Services B.V. and guaranteed by Adecco S.A. The proceeds further increase the Group's financial flexibility with respect to the refinancing of the outstanding zero-coupon convertible bond as well as for general corporate purposes. The 5-year EUR 500 million bond was issued within the framework of the recently established Euro Medium Term Note programme and trades on the London Stock Exchange.

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