q1 2013: good start of the year strong efficiency improvements.

Key points Q1 2013

• Revenue of € 3,832 million; organic growth1 per working day -/-3.7%
• Strong cost control, costs down € 24 million compared to Q4 2012
• EBITA margin of 2.4% compared to 2.7% in Q1 2012, impacted by 1.8 fewer working days
• Net debt reduced by € 165 million compared to Q4 2012, leverage ratio at 1.5
• Net income up 3% to € 29.7 million
• Diluted EPS down to € 0.33 per ordinary share

Financial performance

In order to measure underlying performance, we have adjusted the financials for integration costs and one-offs.

Revenue

The first quarter of 2013, which is seasonally the slowest quarter, was a relatively good start of the year. Revenue per working day was down 3.7%, compared to the year-on-year decline of 5.3% in the previous quarter. This quarter we had 1.8 fewer working days, which had an effect of around 3% on our revenue. The effect of disposals was negligible, and currency effects had a negative impact of 1%. As a result, revenue was 7.7% below Q1 2012. Revenue per working day fell by 5.2% in January and by 2.6% in March. The decline in perm fees was 4.9% (Q4 2012: -/-9.1%). Growth in perm fees was maintained across Asia and Latin America. Growth returned in North America. Demand for permanent placements remained weak across Europe and Australia, resulting in lower perm fee revenue. Perm fees made up 1.8% of revenue and 10.1% of gross profit (Q1 2012: 9.9%). The diversification of our services portfolio is supported by strong profitable growth in revenue from other services, such as payroll services, managed services and recruitment process outsourcing (RPO).

North American revenue was 3% below Q1 2012 (Q4 2012: 0%), and our focus here is on profitability. In Europe, revenue per working day declined by 5% (Q4 2012: -/-8%). The rate of decline eased across most countries. In the Rest of the World, our investments continued to pay off, and revenue grew by 6%. We achieved good performance in Japan and other Asian markets. In Australia, revenue declined by 11% (Q4 2012: -/-12%), however, the rate of decline eased to -/- 3% in March. In Latin America, our business grew by 29%, led by Brazil and Argentina.

Inhouse Services grew by 3% (Q4 2012: 2%). We continued to transfer business to Inhouse, while focusing on client profitability. The decline in Staffing revenue eased to -/-5% (Q4 2012: -/-9%), mainly due to a lower rate of decline in Europe. Revenue in Professionals was 4% below last year (Q4 2012: -/-4%). Good performance in the UK was offset by lower demand in continental Europe, North America and Australia. HR Solutions achieved strong profitable growth and shows that our policy of diversifying our service portfolio is successful.

Gross profit

In Q1 2013, gross profit amounted to € 683.6 million, down 9% compared to last year and reflects that we had 1.8 fewer working days (impact of approx. € 18 million). The organic change was -/-7% (Q4 2012: -/-5%). Currency effects had a negative impact on gross profit of € 8 million when compared to Q1 2012.

Gross margin was 17.8%, compared to 18.0% in Q1 2012. The temp margin was 0.4% below the level of last year (Q4 2012: -/- 0.2%). Gross margin enhancements in North America and France were more than offset by lower gross margins in the Netherlands and Germany. HR Solutions and other mix effects added 0.2% to the gross margin (Q4 2012: 0.1%). Perm fees had no impact on the mix. Our focus on profitability continues to pay off. Our gross profit in North America was at the same level as last year, despite the revenue decline and fewer working days. In Europe, the decline in gross profit was -/-11% (Q4 2012: -/- 9%).

Operating expenses

Operating expenses decreased by € 23.9 million compared to Q4 2012, of which € 9.3 million was due to currency effects and € 1.5 million to disposals of businesses. Marketing costs were € 8.0 million below the level of Q4 2012, which is in line with normal seasonal patterns. The remainder (€ 5.1 million) was a net result of restructuring programs and field steering, partly offset by wage inflation and higher bonus costs. Underlying operating expenses were adjusted for additional restructuring costs of € 1.1 million in Germany.

Average headcount (in FTE) amounted to 27,670 for the quarter, down 3% compared to Q4 2012. The reduction in FTEs in Q1, which follows the trend in gross profit, occurred mainly across Europe and North America. Productivity (measured as gross profit per FTE) was 2% ahead of last year. We operated a network of 4,449 outlets (Q4 2012: 4,496), 47 fewer than in the previous quarter.

EBITA

Underlying EBITA decreased organically by 16% to € 91.5 million, with an EBITA margin of 2.4%. Assuming the same number of working days, EBITA margin would have been the same as in Q1 2012. The recovery ratio (change in operating expenses/change in gross profit) was 71%, well above the targeted level of at least 50%.

We focus on capturing profitable growth and client profitability, while optimizing our delivery models and costs. Our field steering approach ensures adaptability of the field organization. In addition, we closely monitor the productivity and efficiency of our organization as a whole, including overhead and head-office costs. We will focus on the implementation of our strategic priorities, while completing various cost savings initiatives.

Amortization of intangible assets

Amortization of acquisition-related intangible assets amounted to € 40.8 million. The year-on-year decrease was mainly due to the fact that some of the brand names, acquired as part of the SFN acquisition, were amortized over 10 months.

Net finance costs

In Q1 2013, net finance costs reached € 5.5 million compared to € 7.4 million in Q1 2012. Net finance costs include the net interest expenses on our net debt position, as well as currency effects and adjustments in the valuation of certain assets and liabilities.

Interest expenses amounted to € 4.5 million compared to € 6.0 million in Q1 2012. Interest costs decreased in line with the decrease in net debt. Foreign currency changes had a positive impact of € 0.1 million compared to a gain of € 0.8 million in Q1 2012. The remaining negative effect of € 1.1 million (Q1 2012: € 2.2 million) was mainly due to adjustments in the valuation of certain assets and liabilities.

Tax

In Q1 2013, the effective tax rate before amortization and impairment of acquisition-related intangibles and goodwill, integration costs and one-offs amounted to 31% (FY 2012: 32%). Following the implementation of the Tax Credit and Competitive Employment Act ('CICE') in France the recoverability of the French deferred tax assets was reassessed. As CICE is expected to have a negative impact for income tax purposes, it triggered a lower valuation of French deferred tax assets.

Net income, earnings per share

In Q1 2013 diluted EPS decreased from € 0.39 to € 0.33.

Balance sheet

Operating working capital increased to € 562.8 million sequentially, which is a similar trend as last year. The moving average of Days Sales Outstanding (DSO) was 1.2 days lower than Q1 2012 driven by efforts to make further improvements in our invoicing and collection processes, as well as by changes in the country mix.

At the end of Q1 2013, net debt fell to € 930.6 million. This was partly due to the issue of preference shares C based on a capital contribution of € 140 million. The leverage ratio reached 1.5. The documentation of the syndicated credit facility allows a leverage ratio of up to 3.5, while we aim at a maximum leverage ratio of 2. The liability of € 131 million to the Dutch tax authorities will be settled when we complete the tax filing over 2012, most likely towards the end of 2013.

Free cash flow amounted to € 42.2 million, down 27% compared to last year. Over the past 6 months, we reinforced our focus on collecting trade receivables. This had already resulted in a strong cash flow towards the end of 2012. We made good progress again in the first quarter of 2013, but the timing of public holidays, especially Easter, slowed cash flow generation towards the end of the quarter. Cash flow from provisions mainly relates to the restructuring programs which were initiated in 2012. Other items include an amount which is caused by the implementation of the Tax Credit and Competitive Employment Act ('CICE') in France. Based on this law and our tax structure we will receive the tax credits after three years.

Net capital expenditures (which relate to office refurbishments and investments in IT equipment and software) were at a low level. This is a result of branch closures across the Group.

In January 2013, we issued preference shares C based on a capital contribution of € 140 million. The issue of ordinary shares of € 2.3 million relates to the exercise of stock options in the course of Q1 2013. We also initiated the purchase of ordinary shares. The aim is to offset the dilutive effect of the issue of ordinary shares from performance share plans for senior management. As announced on February 21, 2013, we purchased 295,560 ordinary shares at an average price of € 31.79.

Translation and other effects of € 10.6 million are mainly due to both currency effects on the valuation of drawings under the syndicated credit facility, which are denominated in currencies other than the Euro, and the Japanese syndicated credit facility.

Performance by geography - underlying

In this section, we discuss the underlying performance by country.

Revenue per working day was 3% below last year (Q4 2012: 0%). The first quarter had 1 working day less than last year. Revenue was 5% down in January 2013, while it was -/-3% in March. Our focus is on profitability. The gross margin continued to increase due to strong discipline, greater efficiencies in managing worker's compensation, an improved business mix and our focus on client profitability. Overall perm fees grew by 4% (Q4 2012: -/-5%). As a result, gross profit was at the same level as last year despite the decline in revenue and fewer working days.

Revenue of our combined US Staffing and Inhouse businesses fell by 4% (Q4 2012: -/-1%). Whereas the administrative segment and permanent placements continued to show good performance, we terminated some contracts in line with a stronger focus on client profitability and safety. Overall gross profit grew by 6% (adjusted for working days) which reflects our focus on profitability.

Our US Professionals businesses contracted by 5% per working day (Q4 2012: 2%). Growth continued in Pharma and Engineering. Revenue in IT and Finance was under pressure, mainly due to lower demand in the Banking and Finance segments. Perm fees returned to growth in March after a soft start of the year.

In Canada, revenue grew by 3% per working day (Q4 2012: 3%). Growth was led by Staffing, whereas revenue in Professionals was at the same level as last year. Good growth in Engineering and Finance was offset by lower demand in IT.

We remained focused on costs, and on realizing synergies. EBITA margin for the region reached 3.0%.

Integration SFN and synergies

Having completed the operational part of the integration, we are now focusing on IT migration. We will integrate all back-office IT systems in the US into one back-office IT system. In addition, we will implement one front-office system for all Professionals businesses. This will include the migration of most legacy Randstad Professionals front-office systems. We expect to have largely completed the IT integration for Technologies and Finance by the end of the year.

In Q1 2013, we incurred integration costs of € 1.7 million. Pre-tax cost synergies were € 8.8 million in Q1, 2013. Since the start of the integration process, we have realized synergies of around € 38 million and we incurred integration costs of around € 39 million. We aim to achieve synergies of at least $50 million (approx. € 40 million). Integration costs are expected to be in line with synergies. In addition to the pre-tax cost synergies, we have already realized tax synergies of $10 million.

Revenue per working day fell by 12% (Q4 2012: -/-14%), while it was -/- 11% in March 2013. The first quarter had 1.5 fewer working days. The slowdown was visible across all segments. Revenue of Inhouse Services grew by 8% following a number of client wins and continued transfers from Staffing (Q4 2012: -/-2%). Staffing was 14% below last year (Q4 2012: -/-15%). Our Professionals business contracted by 15% (Q4 2012: -/-17%). Our Healthcare business suffered from lower demand in hospitals. The rate of decline in IT and Engineering was similar to previous quarters, while Finance was slightly weaker than previous quarters. Perm fees were 16% below last year, mainly affected by weak demand in Professionals. The French gross margin increased by 80 bps, which is mainly a result of the implementation of the Tax Credit and Competitive Employment Act ('CICE') in France. This law aims at lowering the costs of employment for people earning a salary up to 2.5x the minimum wage. Tax credits become available, but in return they must be allocated to training, innovation, and other initiatives to advance the development of employees. Based on this new law and our tax structure, we anticipate that we will receive the tax credits in three years. We continued to adjust our organization based on our field steering model by making use of natural attrition of our staff. As a result, the number of FTEs was 8% lower than last year. We made good progress in our discussions with the social partners aimed at reaching agreement on a new organizational structure. This will be focused on five regions, each integrating the existing industry segments, and combining 275 branches in larger cities into 65 larger offices. The plan also involves a reduction of 163 management positions. We expect to complete these discussions with the social partners within a few months. The French EBITA margin reached 1.7% and reflects the impact of fewer working days.

Revenue per working day fell by 1% (Q4 2012: -/- 3%) in line with the Dutch staffing market. The rate of decline was stable throughout the quarter. The first quarter had two fewer working days. Randstad the Netherlands grew by 3% and benefited from good performance in Inhouse and Payrolling. Revenue at Tempo-Team contracted, due to focus on client profitability combined with lower demand in Professionals and certain specialty businesses. The combined Dutch Inhouse businesses grew by 22% (Q4 2012: 17%), which reflects our focus on client profitability and ensuring use of the right delivery models. Yacht's revenue declined by 13% (Q4 2012: -/- 13%). Although volumes remained fairly stable and utilization was under control, hours per week and bill rates were lower. Yacht achieved good productivity improvements. Despite fewer working days, it maintained its profitability level. The Dutch gross margin was impacted by some unfavorable effects from higher social security charges, as well as mix effects, such as high growth in Payrolling and Inhouse. The Dutch market remains highly competitive. Underlying operating expenses were 8% lower than in Q4 2012, partly driven by lower marketing costs. We adjusted the field organization based on our field steering model and the effects from the restructuring programs in Tempo-Team and Yacht became visible. As a result, the number of FTEs was 4% lower than in Q4 2012. Pressure on gross margin was partly offset by good productivity improvements, and the Dutch EBITA margin reached 4.7%. Last year's cost base included a book profit of € 2.0 million related to the sale of Smart Group.

German revenue per working day fell by 4% (Q4 2012: -/-9%), based on a gradually improving trend throughout the quarter. In March, revenue per working day fell by 1%. The first quarter had almost three fewer working days. The decline in volumes is mitigated by a positive price effect of around 6%. This is due to the implementation of equal pay and the wage increases in our Collective Labor Agreement (CLA), which occurred as of November 2012. So far, the implementation of equal pay in Germany (as of November 1, 2012) is in line with expectations; it has not yet resulted in significant changes in orders from clients, and the trend in our volumes follows a normal seasonal pattern. Inhouse Services grew by 5% (Q4 2012: -/-3%), while Staffing revenue fell by 8% (Q4 2012: -/-15%). This is partly due to our focus on implementing the right delivery models. Professionals revenue was flat (Q4 2012: +3%). IT grew by 5% after a slow start of the year. Engineering remained under pressure, and we adjusted the organization to achieve greater efficiencies. As a result, underlying operating expenses were adjusted for restructuring costs of € 1.1 million. Gross margin pressure in our Staffing and Inhouse businesses persists, which is due to the implementation of equal pay, higher sickness rates (reaching a peak in February) and fewer working days. We continued to focus on costs. The number of FTEs was 4% below the level of Q4 2012 and we achieved good productivity improvements. The underlying German EBITA margin reached 3.1%, impacted by fewer working days.

Revenue per working day was 9% lower than last year (Q4 2012: -/-8%). Revenue per working day was fairly stable throughout the quarter. The first quarter had 1.9 fewer working days. Revenue in Inhouse Services was 21% lower than last year (Q4 2012: -/-5%), while Staffing contracted by 6% (Q4 2012: -/-9%). Both segments were impacted by a slowdown in demand in the industrial segments. Professionals contracted by 2% (Q4 2012: -/-3%). Revenue from non-staffing services, such as service checks and HR Solutions, was at the same level as last year. The gross margin was stable compared to the previous year. We continued to focus on costs. Whereas the number of FTEs decreased by 5% sequentially, costs decreased by only 3% reflecting the impact of wage inflation. As a result, the EBITA margin was 3.1%.

Revenue per working day was 1% lower than last year (Q4 2012: -/- 7%), and the rate of decline eased gradually throughout the quarter. We had 2.4 fewer working days than in Q1 2012. Professionals grew by 14% (Q4 2012: 10%). Growth was led by IT, Education, Finance, and managed services & RPO, predominantly through temporary staffing. Education showed strong performance and grew by 11%, while Randstad Care continued to strengthen. The combined Staffing and Inhouse businesses contracted by 26% (Q4 2012: -/- 26%), mainly due to stronger focus on client profitability in Inhouse. Perm fees were 9% lower than in the same period last year (Q4 2012: -/-16%). Randstad Sourceright achieved good growth in managed services thanks to a number of client wins. Good cost control was maintained, and in line with the trends in our business, we reduced our staff by 8% compared to the previous quarter. We have made good progress in integrating our back-office organization.

Despite the challenging economic environment in this region, the rate of decline in revenue eased. Revenue per working day was 4% below Q1 2012 (Q4 2012: -/- 13%), while it ended the quarter 3% above March 2012. The competitive environment across Iberia remained challenging. Revenue in Spain was down 1% (Q4 2012: -/- 12%), mainly driven by increasing demand in manufacturing. Revenue grew by 4% in March, partly supported by good performance in hospitality. In Portugal, revenue contracted by 8% (Q4 2012: -/- 14%), while it was up 1% in March. We achieved good performance in our call-center business. Demand from the manufacturing and automotive segments remained low, but strengthened throughout the quarter. Good cost control was maintained in both countries, most notably in Portugal following the integration of Randstad and Tempo-Team.

Across other European countries, revenue per working day grew by 5% (Q4 2012: -/-1%). In Italy, revenue declined by 3% (Q4 2012: -/- 8%), while the rate of decline eased gradually throughout the quarter. The competitive environment remained challenging. Revenue at our Swiss business grew by 15% (Q4 2012: 8%), led by strong performance in Staffing. In Poland, revenue grew by 9% driven by strong performance in Staffing, Inhouse and permanent placements. In the Nordics, revenue grew by 18% (Q4 2012: 12%). Growth was led by solid performance in Sweden and Norway. Our revenue in the Czech Republic grew by 15%. Revenue in Hungary and Greece was under pressure. Turkey maintained its solid performance, especially in permanent placements. The EBITA margin for the region reached 1.6%.

In Japan, revenue grew by 6% (Q4 2012: 6%). Growth continued across all segments, especially logistics and retail. Outplacement had another strong quarter. As we achieved strong operating leverage, our profitability further improved. Revenue in Australia and New Zealand was 11% below last year (Q4 2012: -/-11%), but the region exited the quarter just 3% below March 2012. Good performance in Staffing was offset by continued weak demand in Professionals and permanent placements in particular. China grew by 26% based on strong performance in temporary staffing and Payrolling, while growth in permanent placements continued at a mid-single-digit rate. Growth in India was maintained at 10%. In Latin America, our Argentinean business further expanded while maintaining a strong focus on profitability. Our Brazilian business continued to grow rapidly. Our business in Mexico strengthened after a soft second half of 2012. Chile, which is mainly focused on permanent placements and Professionals, achieved solid growth in gross profit. The EBITA for the region reflects continued strong performance in Japan, offset by ongoing investments in Asia and Latin America, and challenging conditions in Australia.

Performance by revenue category - underlying

In this section, we discuss the underlying performance by revenue category.

Revenue per working day fell by 5% (Q4 2012: -/- 9%). In North America, Staffing revenue fell by 4% (Q4 2012: +6%) as we terminated some contracts in line with our stronger focus on profitability. In the Rest of the World region, revenue grew by 7% (Q4 2012: 6%). In Europe, Staffing revenue was down by 7% (Q4 2012: -/- 11%) reflecting the easing rate of decline. French and German Staffing revenue fell by 14% and 8% resp. (Q4 2012: -/- 15% and -/-15% resp.). Dutch Staffing revenue fell by 4% (Q4 2012: -/-5%), while in Belgium Staffing revenue contracted by 6% (Q4 2012: -/-10%). In the UK, revenue was around the same level as last year, mainly due to strong performance in managed services. The underlying EBITA margin reached 2.1% compared to 2.7% in Q1 2012. This reflects fewer working days and gross margin pressure across our European Staffing businesses offset by gross margin enhancements in North America and strong profitable growth in HR Solutions.

Inhouse Services, mainly focused on industrial and logistical clients, grew by 3% (Q4 2012: 2%). Revenue in North America was flat compared to last year (Q4 2012: 2%). In Europe, growth was led by the Netherlands (22%), Iberia (14%) and France (8%), as we transferred business from Staffing to Inhouse. Our German Inhouse business grew by 5% (Q4 2012: -/- 3%). In the UK we are focusing on client profitability, and revenue was 42% below last year. The EBITA margin reached 3.7%, compared to 3.4% in Q1 2012.

Professionals contracted by 4% (Q4 2012: -/-4%). Perm fees declined by 6% (Q4 2012: -/-15%). Revenue in North America contracted by 4% (Q4 2012: +2%), mainly as a result of lower demand in the banking and finance segment. Despite the revenue decline in North America and assuming the same number of working days, gross profit was just below last year. Our French business contracted by 15% (Q4 2012: -/-17%), mainly impacted by lower demand in our healthcare business. Revenue at our Dutch Professionals businesses contracted by 19% (Q4 2012: -/-21%). In the UK, revenue grew by 14% (Q4 2012: 8%), led by good performance in Education and Finance. Australian revenue contracted by 15% (Q4 2012: -/-15%), mainly due to low demand in permanent placements. The EBITA margin reached 3.7%, compared to 3.4% in Q1 2012.

Other information

Outlook

Revenue per working day was down 3% in March. The first weeks of April showed a continuation of the gradual improvement witnessed in the first quarter. Last year, growth per working day was flat in the first half year. The trend in revenue is in part offset by price/mix changes in gross profit, which requires to put more focus on client profitability and ensuring that we have the right delivery models in place to create higher value. Our strategic focus is also on better execution through our field steering model. This ensures adaptability of the organization and it enables growth in Professionals, permanent placements and our share in the SME segment in our markets. Cost control remains important, although we expect a limited cost increase in Q2 2013 related to higher marketing investments. Based on the strong efficiency improvements achieved over the last quarters we are well positioned for 2013.

M&A

On April 4, 2013, we announced our intention to acquire the staffing activities of USG People in Spain, Italy, Switzerland, Austria, Poland, and Luxembourg. The revenue of the combined activities is € 434 million (FY 2012). This transaction is subject to customary closing conditions, including obtaining approval from the European Commission. We are confident that we will close this transaction mid 2013.

Performance share plans and performance options

In February 2013, we issued 295,560 ordinary shares following the allocation of the performance share plans for senior management. These shares were repurchased in February to offset the dilutive effect. At the end of Q1, 2013, we had 284,463 as treasury shares. In addition, various performance options were exercised in the first quarter, which resulted in the issu