Adecco SA Executive Insights: Gross Margin, U.K. Impact

On Tuesday, Adecco SA (VTX:ADEN) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Gross Margin

Paul Sullivan – Barclays Capital: Just a few questions. First of all, just on the gross margin, given the comps due you to think we could see further improvement year-on-year in the temp gross margin, i.e., above the 20 bps that you saw in the first quarter year-on-year. I’m not assuming your sense of a touch weaker revenue growth going through into Q2, that’s the first question? I mean, secondly, could you give us some more color or quantify the impact in the second quarter from the ending of some of those outsourcing contracts? Are there any margin implications we should be aware of there? Then just finally, exit rates in Italy and Iberia, give us a sense of those and any further thoughts on the cost cutting and margin development in Q2 in those markets?

Dominik de Daniel – CFO: Let me just start then with the temp gross margin, increase was plus 20 basis points in Q1 and in channel world it’s a positive trend because of the business mix. Now for the second quarter, you will not see this. Why is this the case? Because in second quarter we have – it is actually related for Germany, but it is a very big business for us. The first of May we have one more public holiday, last year we had five public holidays. This year we have six and this had quite some impact on the overall temp margin. So for Q2, because of this you will not see what you just asked whether it continues to enter what’s the temp margin from the level of the flat 20 basis points. But if you take as a (weight) in turnover, we are positive for the temp margin.

Patrick De Maeseneire – CEO: I might take your second question on Japan on the ending of the outsourcing contract, we always said that these outsourcing contracts because of the temping industry really didn’t pick up in the past years but that the outsourcing contracts contributes to 6% to 8% of our revenues in the past year. Two-thirds of these contracts are now approximately two-thirds are now finalized. So that’s going to be the impact. Now you have seen also in the past when we had revenue decline in Japan and much stronger than the numbers that we are talking about here that we always were able to bring our costs very well in line with the business and that we could always protect profitability there at good levels. Then on your third question on the exit rates in Italy and Iberia, we don’t – as you know, of these markets we don’t give the exact rates but I have clearly said in April that Italy was further declining. So you can imagine that the situation in Southern Europe is not good. And one of the reasons to be a touch weaker in April is because of Italy slowing down further in April.

Paul Sullivan – Barclays Capital: Your thoughts on margins in those markets?

Dominik de Daniel – CFO: Also if you look to both markets and Italy and Spain, I think we always managed the margins in a way that even by some let’s say more pressure on top line that we manage in a way which is acceptable. So I think we have proven that was an history and now we have no concern going forward.

Patrick De Maeseneire – CEO: You have seen also in Q1 that our EBITA margins still increased somewhat in Italy even if we are down 2%, so we can manage that up pretty well.

U.K. Impact

Michael Foeth – Bank Vontobel: Just one question you talked about the impact on the profit margins in the U.K. in the second and third quarter related to Olympics sponsoring. I was wondering if you could be bit more specific or quantify the impact in the U.K.

Dominik de Daniel – CFO: We’ll not say what is the exact amount. It is not material for the group, but it has impact on the U.K and you will see this in the lower EBITA margin in the U.K. definitely in the second and the third quarter related to that.