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Higher demand and improved profitability in Q3 2004

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Amsterdam, Thursday, October 28, 2004

Higher demand and improved profitability in Q3 2004

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Zach Miles, Vedior’s Chief Executive, said: “We are pleased with Vedior’s very strong performance and the continuing improvement in global operating conditions in most markets during the third quarter.

The growth in the US and UK is particularly pleasing with strong performances from both traditional and specialist sectors.

Our results also benefited from an improving gross margin trend and a pick-up in demand for permanent placement.”

HIGHLIGHTS FOR THE THIRD QUARTER

Sales up 9% at €1,727 million (organic growth of 8%)

Operating income up 65% at €86 million. Excluding special items, operating income was €63 million (organic growth of 20%)

Net income per share improved to €0.28 (2003: €0.16) or €0.20 excluding special items

Specialist staffing sales up 19% organically with strong growth in IT, engineering and accounting

Strong growth in permanent placement fees; up 28% organically

New niche specialist staffing services launched in the accounting, legal, sales/ marketing and scientific sectors as well as HR consultancy within a number of established markets

HIGHLIGHTS FOR THE FIRST NINE MONTHS

Sales up 8% at €4,827 million (organic growth of 7%)

Operating income up 43% at €181 million. Excluding special items, operating income was €158 million (organic growth of 18%)

Net income per share €0.55 (2003: €0.33) or €0.47 excluding special items

Net debt reduced by 13% to €594 million (Q3 2003: €680 million)

N.B. Organic growth is measured by excluding the impact of currency effects, acquisitions and disposals. For the nine months to September 2004, organic growth is adjusted for the number of business days in Q1. Operating income and Net income per share is before goodwill amortisation and special items.

Special items include profit on the disposal of the Group’s 51% interest in Niscom in Japan and the disposal of Sapphire in France. The 2003 annual sales of Niscom was €128 million and Sapphire France, €7 million.

Q3 2004 Financial Performance

Sales

Sales increased 9% (organic increase: 8%) to €1,727 million from €1,584 million in the same quarter in 2003. Currency fluctuations had no material impact. Permanent placement increased 28% organically to 2.1% of sales compared to 1.7% of sales in Q3 2003 led by increased demand in the US, UK and Australia.

Specialist staffing sales increased by 19% organically with notable performances from IT, engineering and accounting staffing sectors. IT staffing sales were up by 32% organically. Positive growth in all major markets (even within the weaker staffing markets), suggest IT staffing growth is structural in nature given pent up demand to upgrade and develop new systems following a period of lower investment in technology during the economic downturn.

Gross Margin

Gross margin was 17.4%, the same as the third quarter of 2003. Vedior still experienced some slight margin pressure, however, this was fully compensated by changes to our business mix. Markets with increased gross margins were the US, Belgium and Italy while the UK and the Netherlands experienced a decline. The temporary gross margin declined by 30 basis points.

Operating Costs

Operating costs were 6% higher on an organic basis at €237 million reflecting increases in personnel costs mainly in the fast growing markets of the US, UK and Australia. Once again, Vedior managed to control costs well while achieving a strong increase in sales. SG&A as a percentage of sales improved to 13.7% from 14.1% in Q3 2003.

Operating Income

Operating income (before special items, interest, tax and goodwill amortisation) was €63 million, a 20% organic increase from €52 million in Q3 2003. Operating income including special items was €86 million. The conversion ratio (operating income divided by gross profit) increased to 21.0% from 18.9% in Q3 2003 as Vedior continues to focus on improved operating efficiency. Currency fluctuations decreased operating income by 1%. Operating income as a percentage of sales was 3.7% compared to 3.3% in Q3 2003.

Net income and earnings per share

Net income (before goodwill amortisation and special items) increased 30% to €35 million from €27 million in the third quarter of last year. Earnings per share (before goodwill amortisation and special items) were €0.20, a 25% increase from €0.16 in Q3 2003. After special items, net income (before goodwill amortisation) was €47 million and earnings per share were €0.28.

Interest costs for the quarter amounted to €11 million and, for the first nine months of 2004, amounted to €32 million. The interest rate swaps entered into by the Company in 1999 will expire on 3 November 2004. Without these interest rate swaps, the interest rate costs for the quarter would have been €7 million and, for the first nine months of 2004, €20 million.
The tax charge includes €11 million relating to special items. The tax charge on income before special items is at an effective rate of 31%

Net Debt and Cash Flow

Net debt decreased by €35 million during the quarter to €594 million and by €86 million compared to the third quarter of 2003. Debtor days reduced by two days compared to Q3 2003 with particular improvement in our largest market, France. Cash flow from operating activities improved from €29 million in 2003 to €37 million in 2004 mainly as a result of higher operating income.

For Vedior, the operating result before goodwill amortisation and net result before goodwill amortisation are the most relevant internal and external measures of operating performance. Vedior’s goodwill mainly relates to the acquisition of Select in 1999 which, in accordance with Dutch accounting standards, is being amortised over a period of seven years.

In 2005, Vedior will adopt International Financial Reporting Standards (IFRS) which require that goodwill is no longer amortised on a systematic basis and will be tested for impairment annually. Had the Company adopted IFRS in 2004, there would have been no material adjustment for net income in the first nine months of 2004 other than the elimination of the charge for the amortisation of goodwill (For more detailed information, see Q2 2004 Media Release – Appendix A).

Q3 2004 Operating Performance by Geography and Industry Sector

France

Organic sales flat compared to Q3 2003.

Operating income improved by 4% on an organic basis.

Specialist staffing up 8% compared to Q3 2003 with strong growth in IT and engineering.

Disposal of Sapphire in France, a small IT solutions business that did not fit into Vedior’s staffing portfolio.

United Kingdom

Exceptional sales improvement; 27% organic growth over Q3 2003

IT sector particularly strong with sales up 78% organically. A large part of this increase is as a result of a new, potentially long-term, contract in the public sector

Engineering, legal and teleservices staffing also grew strongly.

Despite a small rally at the end of Q2 2004, Education staffing sales reversed by 12% this quarter due to falling vacancy levels as a result of ongoing government recruitment and restructuring initiatives.

Traditional staffing sales up organically by 15%.

United States

Organic growth accelerated to 29%, almost double the rate of growth in the previous two quarters of 2004.

Operating profit more than doubled organically driven by growth in both traditional and specialist sectors.

IT and accounting staffing organic sales growth of more than 30%.

Traditional staffing sales grew organically by 38%.

Healthcare staffing returned to growth with 11% organic sales improvement.

Netherlands

Traditional staffing is accelerating as the market recovers, growing by 3% this quarter.

The Vedior brand continues to outperform the market.

Specialist staffing slower to recover with organic sales decline of 9%, however, this too indicates an improving trend.

Operating income is down due to lower gross margins and changes to business mix.

Other Countries

Belgium grew sales by 9% organically and tripled operating income, the best performance in five years.

In southern Europe, Spain increased organic sales by 15% and Portugal increased organic sales by 20%.

Germany increased sales by 19% with a strong growth in operating income.

Australia increased sales by 14%, also with strong growth in operating income.

First positive sales growth in Switzerland for 13 quarters.

In Latin America, Argentina and Chile both increased sales organically by over 50%.

New acquisitions continue to show exceptional growth including India, Mexico and Poland where Vedior benefits from the ‘offshoring’ trend.

Business Development

Within a number of established markets, Vedior continues to launch new niche specialist staffing services such as accounting, legal, sales/marketing, and scientific as well as HR consultancy. These niches broaden our service offering in local markets and also provide an excellent engine for long-term organic growth.

During this quarter, Vedior has also launched a number of initiatives to better co-ordinate sales efforts across multiple service lines within a number of its major markets. Given its diverse business mix, Vedior is very well placed to provide services to those employers requiring staff across a multiple range of disciplines.

In India, Ma Foi has launched a career skills training academy. As the largest HR outsourcing and staffing services provider in India, Ma Foi aims to assist graduates to bridge the gap between qualification and employability in the IT, sales and healthcare sectors.

The sourcing of specialist personnel across borders to address local skills shortages is becoming an increasing feature of the staffing market and, with our depth by both geography and industry sector, Vedior is well positioned to benefit from this trend.

Vedior also disposed of two companies during the third quarter; Niscom in Japan (in which the Group held a 51% interest) and Sapphire in France which no longer met the Group’s overall strategic objectives. The proceeds from these disposals amounted to €42 million which has been received in the fourth quarter of 2004. The profit from the disposals of €23 million has been included as a special item.

Management Outlook

We expect the positive trends established for the first nine months to continue for the remainder of the year. The French market improved in October but visibility remains limited.

Net debt will reduce in the fourth quarter in line with normal seasonal inflows and with the proceeds from the disposals referred to above. This net debt reduction in addition to the expiration of the interest rate swaps will result in lower interest charges.

We will continue to seek improved operating efficiency while investing in new and profitable niche markets both organically and through acquisition.

The longer term prospects for our industry remain highly attractive given structural and demographic changes. Global economic forecasts for 2005 should result in further growth.

This media release includes forward-looking statements that reflect our intentions, beliefs or current expectations and projections about our future results of operations, financial condition, liquidity, performance, prospects, growth, strategies, opportunities and the industry in which we operate. Forward-looking statements include all matters that are not historical fact. We have tried to identify these forward-looking statements by using words including "may", "will", "should", "expect", "intend", "estimate", "project", "believe", "plan", "seek", "continue", "appears" and similar expressions or their negative.

These forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause our actual results of operations, financial condition, liquidity, performance, prospects or opportunities, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or suggested by these forward-looking statements. Important factors that could cause those differences include, but are not limited to our financial position and our ability to implement our business strategy and plans and objectives of management for future operations, our ability to develop, balance and expand our business, our ability to implement our longterm growth strategy (including through organic growth and acquisitions), our ability to make improvements to our capital structure, industry and market trends and volumes, including the speed and strength at which the staffing services industry and the sectors in which we operate, rebound from economic slowdowns and recessions, the effects of regulation (including employment and tax regulations), our ability to improve the efficiency of our operations and to reduce expenses in our operating companies and their network of offices, litigation and our ability to take advantage of new technologies.

In light of these risks, uncertainties, assumptions and other factors, the forward-looking events described in this media release might not occur. Additional risks that we may deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this media release not to occur. Except as otherwise required by applicable law, we undertake no obligations to update publicly or revise publicly any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this media release.

Notes to Editors:

Vedior is one of the world’s leading staffing companies. The Group operates in 37 countries with a network of 2,277 offices worldwide including Europe, North America, Australasia, South Africa, Latin America and Asia. Vedior provides a broad range of staffing services through distinct brand names targeting specific sectors including traditional administrative/light industrial sectors and specialist sectors such as information technology, healthcare, accounting, engineering and education. We offer temporary staffing, permanent placement and other employment-related services.