WORK SERVICE GROUP. 3Q 16 Results Management Presentation E X P E R T A N D S T R AT E G I C H R A D V I S O R 1

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Doreen Dennis
6 years ago
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1 WORK SERVICE GROUP 3Q 16 Results Management Presentation E X P E R T A N D S T R AT E G I C H R A D V I S O R 1

2 EXECUTIVE SUMMARY E X P E R T A N D S T R AT E G I C H R A D V I S O R 2

3 EBIT restructuring commitment Gross Margin improved Indirect

3 Management Board Commitments May 2016 and beyond 1 TOPLINE growth commitment 20% 2 Operational EBIT commitment EBIT restructuring commitment Gross Margin improved Indirect Costs lowered E X P E R T A N D S T R AT E G I C H R A D V I S O R 3

4 3 EBIT restructuring commitment Gross Margin Price up initiatives results are in line with expectations Price up initiative is expected to bring results of ~1.5pp gross margin increase in 2017 Group wise. No client losses so far. Real life examples: Customer X = 0.2PLN/hour (22%) Customer Y = 0.1PLN/hour (12%) Customer Z = 1.5pp (13%) Costs Successfully executed cost optimization plan Costs optimized, stabilized and under control as freeze is still being kept. Extensive headcount reduction across the Group. ~10% of Group Employment reduced >150 head count dismissed till SEP 16 WS Germany Business Unit is still being restructured Restructuring program is working, delivering first positive results since FY15. Q3 16 with black numbers on EBIT line. ~1.0m PLN EBIT in SEP 16 Group Structure Simplifying structure of 70 subsidiaries Three processes are in progress, six subsidiaries to be merged/assimilated. Significant tax cost improvement. 1.0m PLN to Net Profit still in FY forecasted Operational EBIT comparable to last FY results E X P E R T A N D S T R AT E G I C H R A D V I S O R 4

Key Performance Indicators Gross Margin and Indirect Costs 19% 18% 17% 16% 15% 14% 13% 12% 11% 10% Gross Margin [%] and Indirect Costs [%] 18,57% 15,74% 16,07% 13,08% 12,31% 12,02% H1'16 Q3'16 SEP'16

5 Key Performance Indicators Gross Margin and Indirect Costs 19% 18% 17% 16% 15% 14% 13% 12% 11% 10% Gross Margin [%] and Indirect Costs [%] 18,57% 15,74% 16,07% 13,08% 12,31% 12,02% H1'16 Q3'16 SEP'16 Gross Margin IC/REV COMMENTS Gross Margin: Continuous improvement of Gross Margin since beginning of FY16 is a combined effect of: - renegotiations / withdrawal of low profit contracts i.e. price up initiative, mainly in WS Czech, WSHungary,, WSGermany and Exact Systems - product mix, as high margin business lines are growing faster than mass margin, increasing their share in topline. In WS Poland process is still in progress, full results are expected in 2017 due to customers decision making process dynamics. As a result, margin is expected to be durably improved by c.a. 1.0pp. Candidates market is supporting price up initiatives. Customers value specialized personnel services more on difficult labor market. No customer loses so far (!). Indirect Costs: Along with margin improvement program, Management Board introduced extensive cost cutting plan, started as of Q2 16. Despite dynamically growing the business (~20%), results are already visible on the level of IC to Revenue ratio. Full effect of cost optimization is expected in Q4 16/Q1 17 as main part was related with decreasing internal headcount costs so payoffs and release period costs have to be covered in Q3 16. Source: The Company E X P E R T A N D S T R AT E G I C H R A D V I S O R 5

Key Performance Indicators more on Indirect Costs COMMENTS Indirect Costs to Revenue Indirect Costs: Cost cutting plan results are visible in short and medium term perspective.

6 Key Performance Indicators more on Indirect Costs COMMENTS Indirect Costs to Revenue Indirect Costs: Cost cutting plan results are visible in short and medium term perspective. Year on Year comparison is proving positive trend in cost optimization. This Trend will be maintained, as not all elements of plan has been utilized yet due to certain processes inertia. Absolute number impacts on Indirect Costs levels based on IC/REV from 2015 applied on running 2016 Revenue base are: m PLN SEP 16 vs. SEP m PLN Q3 16 vs. Q3 15 Year-to-Date Indirect Costs are growing much slower than Revenue line: - Indirect Costs 2016 vs % - Revenues 2016 vs % Annualized Cost Cutting plan is expected to exceed 15m PLN in FY17. 14% 13% 13% 12% 12% 11% 13,34% 13,08% 13,03% 13,11% 12,31% 12,02% H1 Q3 SEP Source: The Company E X P E R T A N D S T R AT E G I C H R A D V I S O R 6

Market Reports Strengthening Leadership Position 2015 market share (CEE 5*): Work Service 2015 value market share: 10 WORK SERVICE 14,66 % MANPOWER 12,52 % ADECCO 10,75 % POLAND 25,8 % HUNGARY 21,7 %

7 Market Reports Strengthening Leadership Position 2015 market share (CEE 5*): Work Service 2015 value market share: 10 WORK SERVICE 14,66 % MANPOWER 12,52 % ADECCO 10,75 % POLAND 25,8 % HUNGARY 21,7 % CZECH REPUBLIC 3,6 % TOP RANDSTAD 9,18 % SLOVAKIA 5,2 % TRENKWALDER 7,6 % RUSSIA 3,0 % Source: Interconnection Consulting *CEE 5: Poland, Czech Republic, Slovakia, Hungary, Russia E X P E R T A N D S T R AT E G I C H R A D V I S O R 7

Market Reports Excellent perspectives for Personnel

Market size and value forecast 2016-2019 Poland, Hungary,

200 2012 2013 2014 2015 2016 F 2017 F 2018 F 2019 F - Value

8 Market Reports Excellent perspectives for Personnel Services Industry Market CAGR [Value/Volume] Market size and value forecast Poland, Hungary, Czech, Slovakia 15.1%/9.1% 10.4%/6.5% 8.9%/5.3% F vs = 156% %/2.6% ~90% Group Revenue 5.4%/2.5% F 2017 F 2018 F 2019 F - Value [m EUR] Employees [thousands] Source: Interconnection Consulting, Countries size not into scale E X P E R T A N D S T R AT E G I C H R A D V I S O R 8

9 FINANCIALS E X P E R T A N D S T R AT E G I C H R A D V I S O R 9

10 Statement of Comprehensive Income 3Q 2016 vs. 3Q 2015 Comments Specification [t PLN] 3Q Q 2016 Net revenues from sales of products and services Dynamic 2016/ ,2% Cost of products, goods and materials sold ,7% Gross profit (loss) on sales ,7% Selling costs ,8% General and administrative costs ,0% Profit (loss) on sales ,3% Other operating revenues ,4% Other operating expenses ,3% Profit (loss) on operating activities ,4% Financial revenues ,5% Financial expenses ,1% Gross profit (loss) ,7% Income tax ,4% Net profit (loss) ,3% Revenues grew by 19%, and gross profit increased by almost 24%. Gross profit margin increased by 0.4pp compared to 3Q 15 driven by positive market environment, price ups and product/customers mix changes. Increase in costs is driven mainly by: impact of consolidated costs of acquired entities (mainly CRS & Balkans) = 14,1m PLN, additional costs of integration and restructuring projects in Germany and Poland 6,2m PLN. Specification [t PLN] 3Q 15 3Q 16 Dynamic 2016/2015 Revenues (organic) % Indirect Costs (organic) excl. Transformation Costs % After three quarters excluding acquisition impact and additional transformation costs - Indirect Costs growth is 5.1pp lower than Revenues growth. EBIT value affected by receivables written-off in Germany. Adjusted EBIT (excluding write-off) increased by 5% compared to 3Q 15 (non cash operation). Net Profit decreased by 30% due to higher level of financial expenses and income tax expense. Source: The Company E X P E R T A N D S T R AT E G I C H R A D V I S O R 10

11 Capital Group Results Revenue and EBITDA Revenue [m PLN] EBITDA [m PLN] Q4 Q3 Q2 Q ,819m PLN 610,8 515,6 616,0 548,8 488,3 611,3 269,5 502,6 187,9 238,8 390,0 186,1 182,8 221,4 474,5 591,9 345,9 170,6 188, Q4 Q3 Q2 Q ,4 66,8m PLN 38,8 28,3 26,8 23,6 19,9 15,7 18,3 19,5 19,6 12,5 9,4 9,6 9,6 18,0 19,0 20,4 8,6 10, Comments Accumulated positive trend in sales at the level of 19%, as a combined effect of organic growth and consolidation of all entities acquired in the period. Organic growth remains solid engine of growth with 11% better like-for-like topline (again beating the expected market value growth in CY2016). Core business Work Service Poland grew by 17% year on year organically. Year on year Revenue growth champions are Exact Systems (30%), IT Kontrakt (39%), Work Service Hungary and Work Service Slovakia (21%). Source: The Company E X P E R T A N D S T R AT E G I C H R A D V I S O R 11

12 Scale of our Operations Comments Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 3Q'16 WESTERN EUROPE (GB, BE) BALKANS (RO, SLO, CRO, TR) RUSSIA GERMANY CENTRAL EUROPE (CZ, SK, HU) POLAND Total Group employment level again exceeded FTE. Year on year employment level is comparable, however revenue/fte grew by 19%. Poland represents 2/3 of Group FTEs. Central Europe stays strong and stable, contributing 24% of Group FTEs. Average Group employment level in Q3 16 is 9% higher than average FY15. Rump up of employment levels in Germany is an effect of organizational restructuring of Business Units Work Service Germany. E X P E R T A N D S T R AT E G I C H R A D V I S O R 12

13 Financial Ratios 3Q 2016 vs. 3Q 2015 Financial ratios 3Q Q 2016 Profitability ratios Change Profit on Sales Margin 3.37% 3.03% -0.34% EBIT Margin 3.81% 3.02% -0.79% EBITDA Margin 4.38% 3.67% -0.71% NP Margin 1.77% 1.04% -0.73% ROA 2.65% 1.65% -1.00% ROE 7.70% 5.12% -2.58% Liquidity ratios Cash conversion cycle Turnover ratios Turnover of receivables ratio Turnover of liabilities ratio Debt ratios Net Debt / EBITDA Comments Lower level of profitability ratios due to consolidated costs of recent acquisitions, set up of new structures, as well as lower profitability ratios in Germany. Increase of G&A costs. EBIT & EBITDA margin affected by one-off receivable written of in Germany (H1 16). Higher proportion of debt financing in capital mix drives financial costs increase. Receivables turnover improved by one day whilst revenue increased by 19%. Y-o-Y Increase of net debt/ebitda ratio is mainly a result of continued M&A activity and significant organic growth of the Group which requires additional sources of financing Source: The Company E X P E R T A N D S T R AT E G I C H R A D V I S O R 13

14 Balance Sheet 3Q 2016 vs. YE 2015 Source: The Company As at [t PLN] Dec 31st 2015 Sep 30th 2016 FIXED ASSETS Intangible assets Goodwill Tangible fixed assets Real property investments Other financial assets Other long-term assets Other long-term financial assets Deferred tax assets Prepayments CURRENT ASSETS Inventory Trade and other receivables Other financial assets Other short-term assets Cash and other pecuniary assets Prepayments TOTAL ASSETS Total assets remained stable compared to Fixed assets at a similar level as a result of : No significant acquisitions in 3Q 16 (no incremental goodwill recognized), Amortization of intangible assets stable with no major investments in Trade and other receivables remained stable though total revenue increased by 19%. As at [t PLN] Dec 31st 2015 Sep 30th 2016 EQUITY Share capital Supplementary capital Capital from the valuation of options Net profit (loss) Exchange rates balance Minority Interest LIABILITIES AND PROVISIONS FOR LIABILITIES Long-term liabilities Long-term credits and loans Deferred income tax liabilities Other provisions Other liabilities Short-term liabilities Trade and other liabilities Short-term credits and loans Other provisions TOTAL LIABILITIES Equity increased mainly as a result of net profit for the period result increased the value of supplementary capital. Decrease of long term liabilities is mainly a result of reclassification 45m PLN bond liability which has became a short term. No other significant fluctuations in equity or liabilities noticed. E X P E R T A N D S T R AT E G I C H R A D V I S O R 14

15 Statement of Cash Flow 3Q 2016 vs. 3Q 2015 As at Sep 30th [t PLN] Comments Net profit (loss) Total adjustments Cash flows from operating activities Inflows Outflows Cash flows from investing activities Inflows Outflows Cash flows from financing activities Increase (decrease) of cash and its net equivalents Cash balance at the beginning of the period Cash balance at the end of the period Positive inflows from operational activity are mainly result of continuous process of increasing Sales Margin, improvement in cash management and consolidation of financial results of new operational cash generating entities in Lower level of outflows on investing activities are the result of 2015 basis with significant amounts of M&A outflows in FY15 (mainly Prohuman and Work Express). Outflows from financing activities are mainly a result of decrease in the utilization of credit lines at the end of Q3 as well as higher amount of interest expenses due to higher utilization of debt during Q1-Q3 period. Source: The Company E X P E R T A N D S T R AT E G I C H R A D V I S O R 15

WORK SERVICE GROUP. H1 16 Results Management Presentation E X P E R T A N D S T R AT E G I C H R A D V I S O R 1

WORK SERVICE GROUP. H1 16 Results Management Presentation E X P E R T A N D S T R AT E G I C H R A D V I S O R 1 WORK SERVICE GROUP H1 16 Results Management Presentation E X P E R T A N D S T R AT E G I C H R A D V I S O R 1 EXECUTIVE SUMMARY E X P E R T A N D S T R AT E G I C H R A D V I S O R 2 Management Board