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RANDSTAD: Public sector depresses growth in the NL and UK

RANDSTAD: Public sector depresses growth in the NL and UK

25.7.2011 10:02

Randstad will publish its 2Q11 results on Thursday 28 July and host an analyst meeting at 13.00am.

Sales are expected to come in at € 3,962m. Organic growth is expected to slow from 17% in 1Q11 to 12%. Currency and acquisition effects add 2%. In last week’s press release, Randstad said that organic revenue growth per working day reached 11% in 2Q11. As 2Q11 had one more working day compared to 2Q10 and an additional day enhances organic growth by 1.5%, organic growth in 2Q11 should reach 12%, in line with our and CSS forecast.

The recovery in the Netherlands and UK continues to lag due to public sector. Dutch and UK sales are expected to increase by 4% organically in 2Q11. In both countries, solid growth in private sector sales is offset by declining sales in the depressed public sector. Sales growth is contracting in North-America, Belgium, France and Germany due to sharp growth acceleration from 1Q10 to 2Q10. Organic growth is set at 14% in North-America, 12% in Belgium, 11% in France and 18% in Germany.

We are looking for a gross profit of € 721m, reflecting a margin of 18.2%. Gross margin set to decline 80bps y/y. The 80bp contraction inthe gross margin to 18.2% has several causes: i) a negative 40bp effect from the temp margin, which is driven by negative mix effects (the lower-margin in-house business is still growing much more strongly than the higher-margin professional staffing business) ii) a negative 20bp effect from other mix changes, iii) another 20bp drop from the scrapping of the French subsidy system for low wage labour and iv) no effect from the growth in perm fees

Underlying operating expenses including depreciations are set at € 573m, which leads to € 148m REBITA and a REBITA margin of 3.7%. The REBITA margin is set to improve by 20bps y/y thanks to Germany, Belgium, North-America and ‘Other Europe’. The REBITA margin in the Netherlands, UK and the ‘Rest of the world’ business should remain stable due to the slow recovery in the first two countries and the crisis in Japan in the RoW. The French REBITA margin is still lower compared to 2Q10 due to the cancellation of the French low wage subsidy system at the beginning of theyear.

We project financial costs of € 8.5m, tax of € 33m, and net profit and adjusted net profit of € 66.5m and € 94.1m.
CSS stands at € 3,950m sales with 12% organic growth, € 720m gross profit, 18.2% gross margin, € 150m REBITA, 3.8% REBITA margin and € 97m adjusted net profit.

Conclusion:
Ahead of the results, we keep our Buy rating and € 48 target price. Dutch and UK figures are still affected by the public sector exposure. In all other markets, growth remains solid. The news that in the US organic growth per working day reached 14% in 2Q11 is encouraging.


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