Business review

Review of operational results

Revenues

In 2010, our revenues increased by 26% to EUR 18,656 million, and by 12% organically. Revenue growth was strongest in the industrial business, while Professional Staffing and the office business returned to growth only in the second half of 2010, following a normal cyclical demand pattern of our industry. Temporary hours sold were up 19% to 1.166 million. Permanent placement revenues amounted to EUR 288 million, an increase of 58% in constant currency, or 24% organically compared with the prior year. Outplacement revenues totalled EUR 223 million, a decline of 28% in constant currency. Acquisitions and divestitures had a positive impact of 10% on 2010 revenues. From a business line perspective, revenues in the Office & Industrial businesses were up 17%, or 13% organically, while Professional Staffing revenues increased by 59%, or 3% organically. Revenues in the Emerging Markets were up by 30%, and increased by 23% in constant currency.

Gross profit

Gross profit was up 26% to EUR 3,329 million, and by 6% adjusted and organically. The gross margin was 17.8%, 10 bps lower than in 2009. Adjusted and organically, the decline in the gross margin was 90 bps. The temporary staffing business had a negative impact of 50 bps on the gross margin. The weakening outplacement business negatively impacted the gross margin by 60 bps. The permanent placement business had a positive impact on the gross margin of 10 bps. Other businesses added 10 bps to the Company’s gross margin.

Selling, general and administrative expenses (SG&A)

Despite strong revenue growth, management maintained strict cost discipline during 2010. Investments in selected high growth markets and segments were only taken after careful evaluation by management. On the other hand, we clearly benefitted from the structural cost reduction measures implemented during 2008 and 2009 and we were able to achieve attractive operating leverage. SG&A increased by 11% and was flat on an adjusted and organic basis despite integration costs of EUR 33 million. Given our excess capacity in most markets after the economic downturn, the number of FTE employees increased organically by only 4% when comparing year-end 2010 with 2009, as hirings were mostly limited to Emerging Markets. The branch network, on an organic basis, was reduced by 4% when comparing year-end 2010 with 2009. Personnel expenses, which comprised 71% of total SG&A, increased by 14% to EUR 1,842 million in 2010, or by 10% in constant currency. On December 31, 2010, the number of branches and FTE employees exceeded 5,500 and 32,000, respectively.

EBITA

In 2010, EBITA increased by 142% to EUR 722 million. On an adjusted and organic basis, EBITA before integration costs increased by 40%. We made excellent progress in profitability as we benefitted from strong revenue progression, a higher exposure to Professional Staffing, integration synergies, price discipline and tight cost control. The EBITA margin before integration costs was 4.1%, up 100 bps compared with the adjusted EBITA margin of 3.1% in the prior year.

Operating income

In 2010, operating income increased to EUR 667 million. In 2009, Adecco Group reported operating income of EUR 65 million, affected by impairment charges on goodwill and intangible assets and restructuring costs.

Net income attributable to Adecco shareholders and EPS

Net income attributable to Adecco shareholders in 2010 was EUR 423 million, compared to EUR 8 million in 2009. Basic EPS was EUR 2.20 (EUR 0.04 in 2009).

Cash flow, net debt and DSO

Operating cash flow amounted to EUR 455 million in 2010. The strong growth in revenues required significant working capital in 2010 compared to 2009. Nevertheless, the Company generated a solid operating cash flow during the period, also attributable to the focus on EVA. The Group paid EUR 831 million, net of cash acquired for the acquisition of MPS, and spent EUR 105 million in capital expenditure. Dividends paid were EUR 91 million in 2010. Net debt at the end of December 2010 was EUR 751 million, compared with EUR 110 million at year-end 2009. In 2010, DSO were at 54 days, compared to 53 days in the previous year.

Outlook and Priorities in 2011

In January 2011, Adecco Group revenues increased by 17% compared to the prior year, on an organic basis and adjusted for trading days. Demand continued to be very healthy in France and North America, our two main markets, where the recovery already started in the second half of 2009. Growth also remained strong in Germany, Italy, Benelux, Switzerland and the Nordic countries. Japan returned to positive growth in January 2011. Based on these developments, management is confident of strong topline growth in the months ahead, albeit measured against higher comparables. We believe that the environment will stay favourable for flexible labour in 2011. Permanent jobs will be created but just enough to cover the new entrants into the labour market. Unemployment is likely to remain at high levels in most developed economies. Most economic growth and activity will be covered by flexible labour. In this environment, management’s focus remains on profitable revenue growth, achieved with price discipline and strict cost control. We will continue to invest where growth is strongest, but will evaluate returns carefully, with our value-based approach. This, together with the good results achieved in 2010, puts us in good shape to achieve our mid-term EBITA margin target of over 5.5%.