q4 2012: solid final quarter of a challenging year strong cost control, good free cash flow.

Key points Q4 2012

• revenue down 3% to € 4,234.5 million; organic growth1 per working day -/-5% (-/-5% in January 2013)
• strong cost control, costs down € 22 million compared to Q3 2012
• EBITA margin of 3.7%, at the same level as Q4 2011
• solid cash flow generation: free cash flow up € 152.3 million to € 368.7 million, leverage ratio at 1.7
• (non-cash) impairment on goodwill of € 139.8 million

Key points FY 2012

• revenue up 5% to € 17.1 billion and underlying EBITA of € 562.9 million
• adjusted net income attributable to holders of ordinary shares4 of € 365.9 million
• proposed dividend € 1.25 per ordinary share, in shares or cash, based on a payout ratio of 59%

Financial performance

In order to measure underlying performance we have adjusted the financials for integration costs and one-offs. This press release covers the quarterly results. An analysis of our full year results is included in our annual report in the section 'performance'. Our online annual report can be viewed via: http://www.randstadannualreport.com

Revenue

It was a solid final quarter of a challenging year. Divergent trends across the world remained in place. Growth continued in Asia and Latin America, and the rate of decline in Europe stabilized. Growth slowed in North America, mainly due to our focus on client profitability and low demand in banking and finance.

Revenue per working day was down 5.3% compared to the year-on-year decline of 3.6% in the previous quarter. The effect of working days and disposals was negligible and currency effects had a positive impact of 1.4%. Revenue per working day contracted by 6% in October and 5% in November and December, while it was 5% in January 2013.

The decline in perm fees was -/-9.1% (Q3 2012: -/-6.6%). Growth in perm fees was maintained across Asia and Latin America, while demand weakened in North America. Perm fees made up 1.5% of revenue and 8.0% of gross profit (Q4 2011: 8.2%). 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 at the same level as last year compared to 4% growth per working day in Q3 2012. We maintained good growth in gross profit. In Europe, revenue per working day declined by 8% (Q3 2012: -/-7%). The decline in France (-/-14%) and Germany (-/-9%) accelerated compared to Q3 2012, although the rate of decline was fairly stable throughout the quarter. Revenue trends in the UK strengthened, with Education returning to growth and Finance achieving double-digit growth. In the Rest of the World, Japan and India grew by 6% and 10% respectively, while revenue in China and Hong Kong was under pressure. Australia witnessed challenging market conditions and revenue declined by 12% (Q3 2012: -/-7%). In Latin America our business grew by 31%, led by Brazil and Argentina. Inhouse services grew by 14%, or 2% (Q3 2012: 3%) taking into account the transfer of the on-site business of SFN. Staffing revenue contracted by 9% (Q3 2012: -/-9%), influenced by lower demand across Europe and North America. Revenue in Professionals was 4% below last year (Q3 2012: -/-3%). Good performance in the UK, Germany and North America was offset by lower demand in France, the Netherlands and Australia.

Gross profit

In Q4 2012 gross profit amounted to € 772.2 million, down 4% compared to last year. The organic change was -/-5% (Q3 2012: -/-6%). Currency effects added € 13 million to gross profit compared to Q4 2011.

The gross margin was 18.2%, compared to 18.3% in Q4 2011. The temp margin was 0.2% below the level of last year (Q3 2012: -/- 0.4%). Price/mix effects were more or less similar to the previous quarter. Perm fees had no impact on the mix. HR services and other mix effects added 0.1% to the gross margin (Y-o-Y). Our focus on profitability starts to pay off. Our gross margin in North America maintained its momentum and gross profit grew by 4%. In Europe, the decline in gross profit eased to -/-9% (Q3 2012: -/- 11%). The Dutch gross margin was under pressure due to higher social security charges, while in Germany we incurred additional costs reflecting the recent wage increases and the implementation of equal pay. In Southern Europe we faced increased margin pressure.

Gross profit was adjusted for restructuring costs in the Netherlands of € 1.6 million and for non-recurring social security benefits in France of € 6.9 million, which related to previous years. Last year's gross profit was adjusted for restructuring costs of € 3.2 million, mainly in the Netherlands.

Operating expenses

We continued to adjust our cost base in line with the trend in our revenue and gross profit. Operating expenses decreased by € 21.8 million compared to Q3 2012, of which € 9.6 million due to currency effects. Cost savings across Europe of € 20.7 million (constant currencies), were offset by limited cost increases in North America and Corporate. In the Rest of the World we added around € 5.8 million (constant currencies), which was due to our ongoing investments across Latin America and Asia. In Japan and Latin America we incurred some unfavorable items, which was more than offset by favorable items in a few other countries, like the UK, Switzerland and Italy. Cost savings were realized through a combination of field steering, stringent cost control and restructuring programs.

Since Q2 2012, operating expenses reduced by € 30 million (constant currencies), or € 120 million annualized. As a result of all the actions taken in the second half year of 2012, we achieved the targeted range of € 70 - 100 million by the end of Q4 2012. Operating expenses were adjusted for € 59.1 million, including restructuring costs of € 55.4 million (€ 28.2 million related to France) for various programs across Europe, integration costs of € 6.0 million, a book profit from the sale of subsidiaries of € 5.5 million and impairment of buildings of € 3.2 million. Last year's cost base was adjusted for restructuring costs of € 22.0 million, integration costs of € 8.0 million and costs related to divestments of € 3.6 million.

Average headcount (in FTE) amounted to 28,560 for the quarter, down 2% versus Q3 2012. The reduction in FTEs in Q4, which follows the trend in gross profit, occurred mainly across Europe. In North America, headcount reduced by 60 FTEs compared to Q3 2012. Productivity (measured as gross profit per FTE) was 5% ahead of last year. We operated a network of 4,496 outlets (Q3 2012: 4,567), 71 fewer than in the previous quarter, as we continued to optimize our branch network in countries such as the UK (-/-28) and the Netherlands (-/-38).

EBITA

We achieved the same EBITA margin in Q4 2012 as last year. The underlying EBITA decreased by 5% to € 156.2 million, with an EBITA margin of 3.7%. Currency effects added € 2.1 million to EBITA.

We focus on capturing profitable growth, client profitability, optimizing our delivery models and costs. Our field steering approach ensures adaptability of the field organization. In addition, we closely monitor productivity and efficiency of the whole organization, including overhead and head office costs. In 2013 we will focus on the implementation of our strategic priorities, while completing the various cost savings initiatives.

Amortization of intangibles

Amortization of acquisition-related intangible assets amounted to € 41.5 million, slightly below the level of Q3 2012. The year-on-year decrease is mainly caused by the fact that (part of) the brand names, which were acquired as part of the SFN acquisition, have been amortized over 10 months.

Impairment goodwill

Goodwill, which was paid in acquisitions, is allocated to segments based on our management structure. In our case these segments are geographical areas. In a few segments, like the UK and Iberia, revenue contracted and profitability has not recovered in line with expectations. As a result, goodwill had to be impaired for an amount of € 139.8 million (non-cash items). For most other geographical areas sufficient or substantial headroom is available to cover variations in estimates and assumptions. For France and Australia there is limited headroom available.

Net finance costs

In Q4 2012 net finance costs reached € 5.7 million compared to a gain of € 6.3 million in Q4 2011. 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 € 5.7 million compared to € 7.3 million in Q4 2011. Interest costs decreased in line with the normal seasonal decrease in net debt, while interest rates increased slightly. Foreign currency changes had a negative impact of € 1.3 million compared to a gain of € 4.0 million in Q4 2011. The revaluation of liabilities related to arrangements with owners of acquired companies resulted in a gain of € 3.6 million (Q4 2011: € 11.7 million). The remaining negative effect of € 2.3 million (Q4 2011: € 2.1 million) was mainly caused by adjustments in the valuation of certain assets and liabilities.

Tax

In 2012, the effective tax rate before amortization and impairment of acquisition-related intangibles and goodwill, integration costs and one-offs amounted to 31.6% (2011: 30.4%). The increase compared to last year is mainly caused by a changed geographical mix with higher profitability in countries with above average tax rates, and lower profitability in countries with below average tax rates. In Q4 2012, we had a tax charge of € 12.9 million caused by the non-deductibility of the impairment of goodwill of € 139.8 million. In Q4 2011, we had a tax income of € 30.6 million. This was caused by a change in the valuation of deferred tax assets of € 51.2 million, partly offset by the non-deductible goodwill impairment of € 125 million. For 2013, we expect a tax rate of between 28% and 31%. This excludes any potential impact from the implementation of the Tax Credit and Competitive Employment act in France ('CICE').

Net income, earnings per share

In Q4 2012 diluted EPS decreased from € 0.69 to € 0.60.

Balance sheet

Operating working capital decreased by € 281.4 million sequentially, mainly a result of reinforcing our focus on credit collection and supported by phasing of payments of liabilities. The moving average of Days Sales Outstanding improved by 2.0 days compared to Q4 2011 and by 0.8 days sequentially. The improvement was driven by our reinforced focus on making further improvements in our invoicing and collection processes, and the changes in the revenue mix.

At the end of Q4 2012 net debt reduced by € 341.7 million to € 1,095.7 million. As expected, net debt decreased sequentially as a result of the solid free cash flow generation, while currency movements contributed as well. We also put more emphasis on efficiency in our cash management processes. The leverage ratio reached 1.7. The documentation of the syndicated credit facility allow 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 authority will be settled when we complete the tax filing over 2012, most likely in the second half year of 2013.

Refinancing process

Over the last 18 months Randstad has made good progress in securing various forms of financing with different maturity profiles (short-, medium-, and long-term). In total, we secured financing of around € 1.6 billion, which is available for the next 4 years. The most recent step, in January 2013, was the issue of 50.1 million preference shares C based on a capital contribution of € 140 million. Since we aim at a total funding capacity of € 1.8 billion we are still in discussions with a small group of banks to secure bilateral credit lines of up to € 200 million. We had already secured a forward start syndicated credit facility of € 1,420 million as of May 2013; the majority of this facility runs until May 2017. Furthermore, Randstad secured a Japanese syndicated credit facility of 8 billion Japanese Yen (€ 70 million).

On February 13, 2013, Randstad has launched standby facilities with a small group of banks. The facilities offer Randstad the opportunity to sell accounts receivable of selected European entities with a maximum of € 275 million. Randstad considers the facilities as an insurance policy to be able to strengthen the balance sheet if needed. Randstad is entitled to activate the facilities, which run up to 24 months, at any time. However, we anticipate that these facilities will not be activated if current trends in the business persist.

Free cash flow increased by € 152.3 million to € 368.7 million, up 70% compared to last year. For the full year, our free cash flow was 7% up compared to 2011. Since the summer we reinforced focus on collection of trade receivables. Besides normal seasonal patterns in working capital, it resulted in strong cash flow generation in Q4 2012.

Net capital expenditures, which relate to office refurbishments and investments in IT equipment and software, were lower than last year. This is a result of the branch closures across the Group. Last year, capital expenditures included additional investments in the Dutch IT infrastructure.

In Q4, 2012 we increased our stake in GULP to 100%, while we completed a number of divestments. The net effect was a cash outflow of € 36.1 million.

Translation and other effects of € 22.2 million are mainly caused by currency effects on the valuation of drawings under the syndicated credit facility, which are denominated in currencies other than euro.

Performance by geography - underlying

In this paragraph we discuss the performance by country in the fourth quarter. In our online annual report, in the section 'country performance', we discuss the performance in 2012 by country. Our online annual report can be viewed via http://www.randstadannualreport.com.

Organic revenue per working day was at the same level as last year (Q3 2012: +4%). Revenue was 1% down in December and in January 2013 it was -/-5%. Our focus is on profitability. The gross margin continued to expand due to strong discipline, an improved business mix and our focus on client profitability. While revenue growth was flat, gross profit expanded by 4% compared to Q4 2011. Overall perm fees declined by -/-5% (Q3 2012: +9%), partly influenced by the effects from hurricane Sandy and delays in hiring towards the end of the year, especially in the banking and finance segment.

Revenue of our combined US staffing and inhouse business contracted by 1% (Q3 2012: +4%). Whereas the administrative segment and permanent placements continued to show good performance, we terminated some contracts based on a stronger focus on client profitability and safety. Inhouse services, including all of the on-site business of SFN, grew by 2% (Q3 2012: +2%). Overall gross profit grew by 6% and we achieved a solid profitability level in 2012.

Our US professionals businesses grew by 2% per working day (Q3 2012: 4%). Growth continued in Pharma and Engineering. Revenue in IT and Finance was around the same level as last year, mainly due to lower demand in the banking and finance segment. Randstad Sourceright saw solid double-digit growth in managed services and recruitment process outsourcing.

In Canada, revenue grew by 3% per working day (Q3 2012: 4%). Growth was led by Engineering, and Staffing and IT Professionals continued to grow at a low single digit rate.

We remained focused on costs, and realizing synergies. The EBITA margin for the region reached 5.3%.

Integration SFN and synergies

The integration process is on track. The integration of the staffing business was practically completed in Q3 2012. The integration of the professionals businesses progressed in line with expectations. In Q4 2012, we incurred integration costs of € 6.0 million. Since the integration process began we have incurred integration costs of € 37.8 million. Pre-tax cost synergies were € 8.2 million as of Q4, 2012, which included € 0.7 million for Canada. We aim at realizing synergies of at least $50 million, or € 40 million. Integration costs are expected to be in line with synergies. Next to the pre-tax cost synergies, we have already realized tax synergies of $10 million.

As we have almost completed the operational part of the integration our focus is now on the IT integration. 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 complete the majority of the IT integration for Technologies and Finance by the end of the year.

Revenue per working day contracted by 14% (Q3 2012: -/-11%), and by -/- 15% in December. In January 2013, revenue contracted by 13%. In Q4 2012, we had around 1 working day more than in 2011. The slowdown was visible across all segments. Revenue of Inhouse Services was 2% below last year (Q3 2012: +6%), mainly affected by lower demand in the automotive segment. Staffing was 15% below last year (Q3 2012: -/-12%). Revenue in our Professionals business contracted by 17% (Q3 2012: -/-17%). Our Healthcare business suffered from lower demand following some additional cost saving measures by the government. The rate of decline in IT and Finance was similar to previous quarters. Perm fees were at the same level as last year (Q3 2012: -/-9%), mainly as a result of an easier comparison base when compared to Q4 2011. The underlying French gross margin was 1.0% above last year (Q3 2012: -/- 0.2%) due to the change in the calculation method for subsidies. This led to a shift of subsidies towards the second half of the year when compared to the method used in 2011. We continued to adjust our organization based on our field steering model by making use of natural attrition of staff. As a result, the number of FTEs was 4% below the previous quarter. We have started a discussion with the social partners to reach agreement on a new organizational structure focused on five regions, each integrating the existing industry segments, and to combine 275 branches, in larger cities, into 65 larger offices. The plan involves a reduction of 163 management positions. We expect to complete the discussions with the social partners within 6 months. We have adjusted gross profit for social security benefits of € 6.9 million, which were related to prior years, and operating expenses were adjusted for restructuring costs of € 28.2 million. This is a combination of personnel-related costs and costs to cover branch closures. As a result of the aforementioned effects, the French EBITA margin reached 3.5%.

Revenue per working day contracted by 3% (Q3 2012: -/- 3%) in line with the Dutch staffing market. In December revenue contracted by 4%, while it was -/- 1% in January. Randstad the Netherlands outperformed the administrative segment, while Tempo-Team outperformed the industrial segment. Tempo-Team implemented a new restructuring program focused on integrating a number of smaller specialty businesses and optimizing its branch network. Yacht's revenue declined by 13% (Q3 2012: -/- 6%). Although volumes remained fairly stable and utilization was under control, hours per week and bill rates were lower. Yacht implemented a restructuring program to achieve greater efficiency in the organization. The Dutch gross margin was impacted by some unfavorable effects from higher social security charges, and mix effects, such as high growth in payroll services. The Dutch market remains highly competitive. Underlying operating expenses were significantly lower than in Q3 2012. We adjusted the field organization based on our field steering model and the effects from the restructuring in Randstad the Netherlands came to fruition. As a result, the number of FTEs was 3% lower than in Q3 2012 and the underlying Dutch EBITA margin reached 5.4%. Gross profit was adjusted for € 1.6 million and operating expenses were adjusted for € 17.0 million. Last year's EBITA was adjusted for € 18.8 million of restructuring costs, of which € 2.6 million was adjusted in gross profit.

On an organic basis, German revenue per working day contracted by 9% (Q3 2012: -/-5%), based on a stable rate of decline throughout the quarter. In January, revenue contracted by 7%. The decline in volumes is mitigated by a positive price effect of around 8%. This is caused by the voluntary implementation of equal pay by larger clients and the wage increases in our 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 and has not yet resulted in significant changes in orders from clients. Inhouse Services contracted by 3% (Q3 2012: +2%), while Staffing revenue contracted by 15% (Q3 2012: -/-13%). Growth in Professionals was 3% (Q3 2012: 11%), mainly driven by continued strong performance in IT. Engineering remained under pressure. Gross margin pressure in our Staffing and Inhouse business persists but the effect further reduced compared to previous quarters. We incurred additional costs following the wage increases and the implementation of equal pay. Operating expenses were 4% lower than last quarter, due to good cost control and the effects from the restructuring program which was implemented throughout 2012. The German EBITA margin reached 5.1% against a relatively good Q4 2011. Underlying EBITA was adjusted for additional restructuring costs of € 0.5 million and a book profit related to the sale of a smaller subsidiary of € 5.6 million. Last year's cost base was adjusted for € 3.6 million related to the divestment of the aerospace business of Randstad Professionals.

Revenue per working day was 8% below last year (Q3 2012: -/-7%). Revenue in Inhouse Services was 5% below last year (Q3 2012: -/-1%), while Staffing contracted by 9% (Q3 2012: -/-10%). Both segments were impacted by a slowdown in demand in the industrial segments. Revenue was down 7% in January. We aim at improving our business mix, while focusing on client profitability. Professionals contracted by 3% (Q3 2012: +2%). Revenue from non-staffing services, such as service checks and HR Solutions, was at the same level as previous year. The gross margin was stable compared to the previous year. Belgium implemented a restructuring program aimed to achieve greater efficiencies across the organization and due to the closure of a number of smaller branches. In Luxembourg, Tempo-Team merged into Randstad. Operating expenses were, therefore, adjusted for restructuring costs of € 5.5 million. We continued to focus on costs. Underlying operating expenses were 4% lower than the previous quarter and the number of FTEs decreased by 4% sequentially. As a result, the EBITA margin was 4.4%. Last year's EBITA was adjusted for restructuring costs of € 2.9 million.

Revenue per working day was 7% below last year (Q3 2012: -/- 9%). We had one working day more than in Q4 2011. Professionals grew by 10% (Q3 2012: 1%). Growth was led by Education, Finance and managed services, predominantly through temporary staffing. Education showed strong performance and grew by 9% and Randstad Care strengthened after we exited certain market segments. The combined Staffing and Inhouse business contracted by 26% (Q3 2012: -/- 21%), mainly due to stronger focus on client profitability in Inhouse and lower demand from existing clients. Perm fees were 16% lower than the same period last year (Q3 2012: -/-22%). Randstad Sourceright achieved good growth in managed services thanks to a number of client wins. The competitive environment remained challenging, reflected in lower temp margins and fees per placement. Good cost control was maintained and in line with the trends in our business, we reduced our staff by 3% compared to the previous quarter. Operating expenses were adjusted for € 1.5 million of restructuring charges as we continued to streamline the organization and € 0.1 million was related to the sale of smaller activities. Underlying EBITA included some favorable payroll related items. Last year's cost base was adjusted for € 1.9 million of restructuring costs.

Economic circumstances remained challenging in this region. Revenue per working day was 13% below Q4 2011 (Q3 2012: -/- 12%), while it ended the quarter 11% below December 2011. The competitive environment across Iberia remained challenging. Revenue in Spain was down 12% (Q3 2012: -/- 12%), mainly driven by lower demand in manufacturing and distribution. In Portugal, revenue contracted by 14% (Q3 2012: -/- 13%), while it was -/-10% in December. Demand from the manufacturing and automotive segments remained weak. Good cost control was maintained in both countries. Operating expenses in Iberia have been adjusted for restructuring costs of € 1.0 million related to organizational changes in Spain and the merger of Randstad and Tempo-Team in Portugal. Last year's EBITA was adjusted for € 1.6 million, of which € 0.6 million in gross profit.

Across other European countries revenue per working day contracted by 1% (Q3 2012: -/-5%). In Italy, revenue declined by 8% (Q3 2012: -/- 9%). The competitive environment became more challenging in recent months. Revenue at our Swiss business grew by 8% (Q3 2012: 2%), led by improved performance in Staffing and Professionals, while Inhouse maintained good growth. In Poland, revenue was around the level of last year, a strong performance following the deliberate termination of a large contract in Q4 2011. In the Nordics revenue grew by 12% (Q3 2012: -/-10%). Growth was led by solid performance in Sweden, and growth in Professionals across the region remained strong. Our revenue in Hungary and Czech Republic was 3% and 4% behind last year, respectively. Greek revenue came under pressure and was 23% below last year. Despite that, they maintained their profitability level. Turkey maintained its solid performance, especially in permanent placements. Good cost control was maintained across the region. Italian and Swiss EBITA included certain favorable items.