Amsterdam, Thursday, February 02, 2006
Vedior achieves 30% increase in earnings per share for 2005
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Highlights for the Year 2005
 | Organic sales growth 7% |
| Organic operating income growth 11% |
| Pick up in demand in the Netherlands and other parts of continental Europe |
| Strong growth in the US, Australia and Latin America, and rapid expansion in India and Eastern Europe |
| Global network extended to 44 markets (2004: 37) |
| Earnings per share of €0.82*, a 30% increase from the prior year |
| Proposed dividend of €0.25, a 25% increase from 2004 |
Highlights for the Fourth Quarter 2005
| Operating margin improves to 3.8% (Q4 2004: 3.6%) |
| Strong growth in permanent placement fees; up 26% |
| Three acquisitions completed (making eight acquisitions for the year) |
CEO’s Statement
Zach Miles said,
“I am very pleased with the strong improvement in profits recorded for the year supported by our strategy of developing a diverse revenue stream.
We remain firmly focused on achieving our financial targets and expanding our range of services through organic investment and a disciplined acquisition programme.
During the year, we achieved strong increases in profitability in the US and Netherlands as well as our ‘Rest of Europe’ and ‘Rest of World’ regions.”
Annual Operational Review
In 2005, we achieved organic growth across all of Vedior’s major geographies with the strongest performances coming from the Netherlands, US and Rest of World regions. The French market continued its gradual recovery while the UK market, after several years of strong growth, weakened during the course of the year.
Sales and profitability improved in all of Vedior’s major sectors of operation with the exception of healthcare and education. The most notable improvements came from the accounting, IT and engineering sectors. This pattern represents a reversal of the situation four years ago, reflecting changes in each of these sectors. Our diverse business mix across different geographies and different recruitment sectors continues to prove an asset in a cyclical industry.
Vedior’s sales increased organically by 7% to €6,851 million in 2005 from €6,475 million in 2004. Organic growth is calculated by excluding currency fluctuation, the impact of acquisitions/disposals and adjusting for the number of business days.
The main drivers of Vedior’s growth in 2005 were a pick up in demand in the Netherlands and other parts of continental Europe including Spain, Portugal and Switzerland continuing strong growth in the US, Australian and Latin American markets combined with rapid expansion in newer markets such as India and Eastern Europe. Sales and operating profit in Australia were robust throughout the year in both the traditional and professional/executive sectors making it our 5th largest market in terms of profitability.
Vedior’s operating companies in emerging markets had an exceptional year with organic sales growth of 69% in India, 26% in Latin America and 95% in Central/Eastern Europe, Our presence in these developing economies provide the Group with access to fast-growing markets as well as the potential to capitalise on offshoring opportunities.
Demand for permanent placement continued to grow in most markets resulting in a 19% organic increase in placement fees. Permanent placement now represents 2.4% of Group sales compared to 2.0% of sales in 2004.
Gross profit was €1,227 million in 2005 compared to €1,141 million in 2004. Throughout 2005, Vedior experienced pricing pressure in a number of markets though this was more than compensated for by changes in business mix and increased permanent placement fees. The Group’s gross margin was 17.9% compared to 17.6% in 2004. The gross margin earned from the supply of temporary workers remained stable at 15.7%.
We continued to strive for greater operational efficiencies. As a result, our conversion ratio for the year (operating income excluding special items divided by gross profit) increased from 18.7% to 18.9%. Development of managed service offerings during 2005 has afforded greater commercial synergies among our brands particularly in the US, UK, Netherlands and Australia. These managed service initiatives take advantage of Vedior’s high performance culture to provide more efficient co-ordination and co-operation for the benefit of clients who wish to utilise services across more than one brand.
As a percentage of sales, costs increased slightly to 14.5% in 2005 compared to 14.3% in 2004 reflecting increases in personnel costs driven by sales growth and investment in new business start-ups. Cost increases were offset to some degree by a number of efficiency initiatives including back-office consolidation and ongoing procurement initiatives.
Operating income increased to €232 million. On an organic basis, operating income increased by 11% excluding special items. The operating margin (operating income excluding special items as a percentage of sales) was 3.4%, up from 3.3% in 2004.
Vedior has maintained profitability in markets and industry sectors representing 99% of total Group sales for two successive years. In the US, where we capitalised on healthy economic conditions, our operating margin increased from 4.3% to 6.2%, closer to the local operating margin target of between 7.0% to 8.0%. We also achieved a strong improvement in operating margins in the Netherlands.
Cash flow from operating activities increased to €113 million in 2005 from €111 million in 2004. Higher operating income was offset by additional working capital required to finance sales growth. Debtor days at the end of the year were 64 (2004: 63).
Strategy
Vedior’s primary objective is to achieve investment returns which are above average for the industry by focusing primarily on higher organic profit growth and improved operating margins. We intend to achieve this by increasing the proportion of our business in the professional/executive recruitment sectors, developing a more balanced earnings stream and improving our business mix through both organic and acquisitive growth.
We will continue to maximise the opportunities afforded by our multibranding approach utilising our strong local brands to attract the highest quality candidates, and also take advantage of our decentralised management structure which enables us to react quickly to local market opportunities.
We have also set financial targets based on increasing our operating margins. We believe these margins are achievable given favourable economic conditions without any fundamental adjustments to our business model.
The achievement of these targets would result in an overall Group operating margin (after corporate expenses) in the range of 4.6% to 5.6%. However, it is important to recognise that our industry is economically sensitive and favourable conditions in each market do not necessarily occur simultaneously.
Business Development
At the end of 2005, Vedior operated through a worldwide network of 2,276 offices which, on a net basis, is an increase of 31 compared to the prior year. The number of countries the Group operates in increased from 37 in 2004 to 44 by the end of 2005.
Acquisitions
During 2005, Vedior made eight acquisitions and continued its active programme of organic expansion. In line with our stated strategy, we acquired majority stakes in companies with local management keeping a minority interest.
Four of the acquired companies operate in the US in professional/executive recruitment including healthcare, accounting and finance, and legal recruitment. Two companies were acquired in the UK in the sales and retail sector and in aviation. We also acquired a group of companies providing temporary recruitment services, permanent placement, training and other
HR related services from offices in Bulgaria, Romania, Croatia and Serbia & Montenegro which extended our coverage to nearly all Eastern European countries. Finally, we acquired a provider of outsourced pharmaceutical sales and telemarketing personnel to complement existing operations in Finland.
In addition to these acquisitions, Vedior also made a number of small investments, including some where the Group holds a minority interest, during the course of the year. The combined consideration paid for acquisitions and investments in 2005 was €49 million.
Vedior continues to actively seek suitable acquisition opportunities in line with its objective to further diversify its business mix and increase the proportion of sales and profit derived from professional and executive recruitment. The ideal targets are smaller companies with excellent growth prospects which can be financed from the Group’s internal cash resources.
Organic expansion
Within established markets, Vedior continues to launch new sectors to broaden our service offering in local markets and also provide an excellent engine for long-term organic growth.
In the UK, two organic start-up operations commenced trading in 2005; Andrew Farr Associates operating in the accounting and finance sector while Supreme Education is a new and innovative initiative for the education recruitment sector.
Two important organic initiatives were launched in the Japanese market in co-operation with local partners. Vedior Career provides permanent recruitment services while Vedior Contec provides senior engineering personnel on a contract basis for construction projects.
During the year, we also opened new offices in Cyprus, Oman and Uruguay via established brands in neighbouring countries.
Disposal
We sold our minority holding in TriNet Group, Inc., a Californian-based provider of business process outsourcing services for payroll, benefits and human resources. Vedior’s gross proceeds from the sale of TriNet shares amount to approximately $43 million (€35 million) of which approximately $37 million (€30 million) was received at closing and the balance will be paid in instalments over the next two years. TriNet’s annual sales for 2004 were $44 million (€36 million) which, as a minority investment, were not consolidated within Vedior’s reported sales. TriNet’s contribution to Vedior’s 2004 net result was $3.1 million (€2.4 million). The net profit arising from this disposal was €15 million.
Recent Events
In January 2006, Vedior and TNT ended their joint venture in the Benelux with Vedior taking 100% ownership of the facilities management recruitment business, Mailprofs Uitzendburo operating in the Netherlands and Belgium, and TNT assuming 100% ownership of the outsourcing business, Mailprofs Postkamerbeheer. The joint venture operated on a 50/50 basis with each party reporting its share of revenues and profits in its consolidated results. For the full year 2005, Mailprofs Uitzendburo achieved sales of €14 million and Mailprofs Postkamerbeheer achieved sales of €10 million.
Yesterday, it was announced that Vedior had agreed to acquire a 66% interest in Talisman Software Holding SA, which services the information technology and business consulting sectors from a network of offices in Switzerland, Germany, Netherlands, and the UK.
Management Outlook
Vedior is experiencing growth in both the professional/executive and traditional parts of its business. We are convinced of the merits of our strategy and have confidence in the strength of our market position.
We will continue to seek improved operating efficiency while investing in new and profitable niche markets both organically and through acquisition.
We will benefit from the continuing strong recovery in the Dutch market as well as growth in other parts of continental Europe, including Spain and Germany. The established US and Australian markets continue to be buoyant while newer markets such as India, Latin America, Japan, Eastern Europe and the Middle East are also expanding rapidly and will increasingly contribute to the Group’s results.
In France, we expect the gradual recovery to continue supported by government initiatives to improve labour market flexibility.
In the UK, economic forecasts indicate an improving environment. Our companies have been positioned to capitalise on market opportunities.
Pricing pressure will remain a feature of some markets during 2006 driven by procurement initiatives in larger accounts and excess supply in certain sectors. However, this is partly cyclical in nature and improved business sentiment leading to increased demand should improve the situation in the higher skilled segments. Vedior will continue its policy of exiting low margin business.
Consensus GDP forecasts for 2006 are at a higher level than for 2005 in most of Vedior’s major markets or, as is the case in the US, still at a relatively positive level. A healthier economic environment combined with continuing structural growth driven by demographic changes, deregulation and increasing skill shortages will enable Vedior to take advantage of its leading market position in professional/executive recruitment and its diverse global network.
Given market trends, our firm priority in 2006 will be to build on the progress already made towards reaching the Group’s margin targets. As markets improve, Vedior will invest for future growth and establish a stronger platform for improved long-term profitability. Investment will be targeted primarily in the following areas:-
| Acquisition of fast-growing professional/executive recruitment companies in line-with our stated strategy focusing on North America, Germany, Japan and emerging markets in Asia and Latin America. |
| New start-up initiatives and development of existing brands worldwide including further expansion into the Middle East. |
| Continued roll-out of permanent placement activities in France and other markets. |
| Upgrade and expansion of infrastructure (technology, personnel and offices) particularly in continental Europe. |
| Enhancement of eBusiness functionality. |
| Improvement of managed service capability. |
For further information on these results, please join today’s live audio webcast at www.vedior.com/webcast starting at 9.00am (CET) or contact one of the following on +31 (0)20 573 5609 after the event:
Zach Miles, Chief Executive
Frits Vervoort, CFO
Jelle Miedema, Company Secretary
Investor Information at:
www.vedior.com/investor-relations/investor-relations.asp
ADDITIONAL INFORMATION
Dividend Payments
It will be proposed to the Annual General Meeting of shareholders that a dividend of €0.25 is paid on each (certificate of an) ordinary share, representing 30% of profits per share for the year (before special items). At the same meeting, it will also be proposed that a dividend of €6.00 (including interim payments) will be paid on each of the issued (depositary receipts of) preference B shares. The total dividend payment will be €42 million and will be distributed in cash (€) on 9 May 2006.
Redemption of Preference Shares
Vedior’s Annual General Meeting on 29 April 2005 approved the proposal to redeem the preference A shares effective 5 July 2005 and the preference B shares effective 1 July 2007. Subsequently, the preference A shares have been redeemed. One preference shareholder has recently started litigation against the Company opposing the decision to redeem the preference shares and claiming a reversal of the redemption on the grounds that the legal process was invalid. Vedior disputes this claim and is confident that the litigation will be decided in its favour.
Company Profile
Vedior is one of the world’s largest recruitment companies and is a full-service recruitment provider with a diversified portfolio of brands targeting a broad range of industry sectors.
From its global network of offices spanning Europe, North America, Australasia, Asia, South America and Africa, Vedior offers temporary and permanent recruitment as well as a number of complementary employment-related services such as outplacement, HR outsourcing, payrolling and training.
Vedior has a leading market position in the provision of professional/executive recruitment in sectors such as information technology, healthcare, accounting, engineering and education. We also have a significant global network providing administrative/secretarial and light industrial recruitment.
Financial Agenda
| 27 April 2006 |  | Publication of first quarter results |
| 28 April 2006 | | Annual General Meeting |
| 9 May 2006 | | Dividend made payable |
| 27 July 2006 | | Publication of second quarter results |
| 26 October 2006 | | Publication of third quarter results |
Conference calls to discuss results are scheduled for 9am (CET) on the day of publication.
Safe Harbour
APPENDIX
Q4 2005 Review
All growth percentages within this Review have been calculated on an organic basis excluding the impact of currency effects, acquisitions and disposals.
Sales increased by 7% to €1,794 million compared to the same quarter in 2004. Revenues from permanent placement increased 26% to 2.4% of sales compared to 1.9% of sales in Q4 2004. Professional/executive recruitment sales increased by 9% with a notable performance from the accounting sector which grew by 15%. Traditional recruitment sales grew by 6%.
Gross margin was 18.9% compared to 17.8% in Q4 2004. Excluding one-off gains, the Group’s temporary gross margin was stable with pricing trends improving in several markets.
Operating costs were 11% higher at €270 million mainly reflecting increases in personnel costs and investment in new business start-ups. Excluding one-off charges, sales grew faster than costs in all geographic markets apart from the UK.
Operating income (before interest and tax) was €68 million, a 12% increase over Q4 2004. One-off gains were offset by one-off charges in other parts of the Group. Operating income as a percentage of sales increased to 3.8% from 3.6% in Q4 2004. Net income increased 31% to €42 million from €33 million in the fourth quarter of last year.
In France sales grew by 4% (or 6% adjusted for one business day), operating income improved by 12% partially helped by a €4 million one-off gain (Q4 2004: one-off gain of €2 million). Professional/executive sales increased by 4% with strong growth in the engineering and accounting sectors. Healthcare sales increased by 2% following four consecutive quarters of decline.
In the UK, operating income declined by 13% with profitability impacted by continuing investment in new professional/executive businesses. Sales declined by 3% primarily due to a continuing slowdown in the light industrial and care sectors. Professional/executive recruitment sales increased with good growth in the accounting, engineering, legal and interim management sectors.
In the US, we achieved a strong increase in operating income; up 38%. Traditional recruitment continues to develop strongly with 37% sales growth. Accounting staffing sales increased by 19% while IT staffing sales grew by 6%.
In the Netherlands, operating income increased by 43%. Professional/ executive recruitment sales grew by 20%. Our largest traditional staffing brand, Vedior, grew sales by 25%.
In Vedior’s ‘Rest of Europe’ region, operating income increased by 20% and sales by 7%. Good performances were achieved in most markets, notably Belgium, Germany, Switzerland, Spain, Luxembourg and Central/Eastern Europe.
In our ‘Rest of World’ region, operating income increased by 31% and sales by 23%. Australia increased operating profit by 47% with sales up 19%. Professional/executive recruitment sales in Australia increased by 26% while traditional staffing increased by 13%. Elsewhere, Latin America continues to flourish recording a sales increase of 20% while our Indian operations maintain a high rate of development with 69% sales growth.
For detailed financial information, please
Download the complete PDF-file
For detailed financial information, please
download the Powerpoint Presentation for Media and Appendices
For detailed financial information, please
download the Powerpoint Presentation for Analysts