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 Commitments May 2016 and beyond 1 TOPLINE growth commitment +25% 2 FY EBIT commitment 2016 2015 3 EBIT restructuring commitment Mainly Germany and Poland 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
Key Topline Growth Contributors Revenue [m PLN] COMMENTS 1 300 27% -10,0 Acquisitions (Q4 15) contributed 40% ofthe growth in YoY revenues. 1 250 34,2 27,0 13,7 Core flexible employment markets of Work Service Poland and Work Service Hungary contributed additional 42% of the growth in YoY revenues. 1 200 1 150 37,8 High margin, specialized companies i.e. Exact Systems and IT Kontrakt added 27% of the growth in YoY revenues. 1 100 56,9 All others represent: In plus: WSCzech and Slovakia, Antal and Work Service Express (+13,7m PLN), In minus: WS Germany and WS Russia (-10,0m PLN) 1 050 1 000 89,8 42% 1203 The difference between bridge analysis and consolidated sales is the result of inter copany charges not reflected in disegregated business units. 950 900 977 40% Revenues [m PLN] WS PL WS HU WS DE WS RU WS CZ WS SK Exact Systems IT Kontrakt Antal Work Express H1'15 313,4 160,4 152,4 36,2 26,7 17,5 80,2 64,1 16,0 117,7 850 H1'16 370,3 198,1 150,2 28,0 27,0 22,6 114,4 91,1 17,9 123,9 DYNAMIC 118% 124% 99% 77% 101% 130% 143% 142% 112% 105% 800 Consolidated H1'15 Acquisitions WS Poland WS Hungary Exact Systems IT Kontrakt All Others Consolidated H1'16 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 4
Restructuring Germany Actions taken and first results TOPLINE INITIATIVES: New management, commercially oriented setup, including experienced external advisors and a professional sales executive. Increased sales firepower, as sales staff has been changed/hired. Operations Managers get proactive sales responsibility to better utilize labor resources. Introduced Sales Performance Management. Taking over 65% of competitor s business in 5 Fiege locations with an impact of 0,7m EUR EBIT still in FY16. New minimum wage level increase introduced by Federal Government as of June 1st: (+2.3% West / +3.0% East). MARGIN IMPROVEMENT: External staff efficiency is clear focus area for the whole organization. New conditions introduced for advance notice of employment changes (<20FTE 5 days, 20-40FTE 10 days, >40FTE 20 days). Rules for bookings and cancelations introduced, with an impact on efficiency. Introduced price increase on Fiege and non-fiege customers (i.e. BASF). Margin improved by 1.3pp compared to H1 15. BOTTOM LINE INITIATIVES: Development costs of Enloyd DE to be minimized as of H2 16 (c.a. 1m PLN loss in H1 16). Stabilized situation in critical location: Fiege Dieburg. Branch office back in black in H2 16. Decision to close other loss making branches of Fiege Fiege Buerstadt and Fiege ICD (impact already visible on FTE levels, however not reflected in H1 16 results as restructuring costs to be covered). 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
Restructuring Poland Actions taken and first results TOPLINE EFFICIENCY FACTORS: 1. Non-invoiced services are being corrected and invoiced properly according to binding contractual agreements. 2. Low profitability contracts are in the process of renegotiation/withdrawal. 3. Major project of annual price indexation and new trade terms for 2017 has been launched (Jul 16). 4. Increasing share of high margin contracts based on Ukraine sourcing, new sales margin higher than average. CANDIDATE CARE EFFICIENCY FACTORS: 1. Centralized call center to handle candidates/employees is to be launched as of Sep 16. 2. B2C Mobile Application under development, to be deployed as of Oct 16. 3. Re-launch of WWW with clear focus on candidate care, Oct 16. 4. New standard of Candidate Management in front offices (new procedures). INTERNAL PROCESSES EFFICIENCY FACTORS: 1. Merger of sales and operations structures. 2. Lean optimization and automatization: i.e. digital/remote employment contracts signature, digitalization of archive, new employee handling procedure. 3. Internal Headcount reduction by 78FTE til end of June, planned additional 20FTEs to be dismissed by the end of the year (~15% of internal staff). 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
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 7
P&L Statement H1 16 vs. H1 15 Comments Specification [t PLN] H1'15 H1'16 Net revenues from sales of products and services Source: The Company Dynamic 2016/2015 977 115 1 203 169 23,1% Cost of products, goods and materials sold 878 344 1 074 127 22,3% Gross profit (loss) on sales 98 771 129 041 30,6% Selling costs 22 705 23 252 2,4% General and administration costs 47 513 73 796 55,3% Profit (loss) on sales 28 552 31 993 12,1% Other operating revenues 12 260 10 803-11,9% Other operating expenses 7 922 10 624 34,1% Profit (loss) on operating activities 32 890 32 173-2,2% Financial revenues 1 889 1 583-16,2% Financial expenses 14 313 16 154 12,9% Gross profit (loss) 20 466 17 602-14,0% Income tax 7 256 9 590 32,2% Net profit (loss) 13 210 8 012-39,3% Revenues grew by 23%, and gross profit from sales increased by almost 31%. Gross profit margin increased by 0.6 pp compared to H1 15 driven by positive market environment and changes in product/customer mix. Increase in costs is driven mainly by: impact of consolidated costs of acquired entities (mainly CRS & Balkans) = 10,1m PLN, additional costs of integration and restructuring projects in Germany and Poland 6,2m PLN. Specification [t PLN] H1'15 H1'16 2016/2015 % change Revenues (organic) 977 115 1 113 325 13,9% Indirect Costs (organic) excl. Transformation Costs 130 344 144 293 10,7% After 6 months excluding impact of acquisitions and additional transformation costs Revenue growth is 3.2pp higher than Indirect Costs growth. EBIT value affected by a writedown (non-cash) of receivables in Germany. Adjusted EBIT (excluding write-off) increased by 7% compared to H1 15. Net Profit decreased by 64% due to higher level of financial expenses (due to higher utilisation of loans) and income tax expense. 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
Capital Group Results Revenue and EBITDA Revenue [m PLN] EBITDA [m PLN] 2000 1500 1000 500 0 610,8 515,6 548,8 488,3 611,3 269,5 502,6 187,9 238,8 390,0 186,1 182,8 221,4 345,9 474,5 591,9 170,6 188,7 2012 2013 2014 2015 2016 Q4 Q3 Q2 Q1 100 90 80 70 60 50 40 30 20 10 0 37,4 38,8 28,3 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 10,2 2012 2013 2014 2015 2016 Q4 Q3 Q2 Q1 Comments Cumulative 23% sales growth, is the result of a very strong dynamic in both the organic growth of the core, as well as in the consolidated entities acquired in the 2013-2015 period. Organic growth remains a solid engine of growth with 14% better like-for-like topline. Growth once again exceeds the expected market value growth in CY2016. Core business Work Service Poland grew organically by 19% year-on-year. Revenues growth (YoY) champions are Exact Systems (+43%), IT Kontrakt (+42%) and Work Service Hungary (+24%). 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 9
Scale of Our Operations 40 000 35 000 Comments 30 000 25 000 20 000 15 000 10 000 1Q'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 WESTERN EUROPE (UK, BG) 19 38 134 118 147 156 BALKANS (TR, CRO, SLO, RO) 74 86 134 222 186 191 261 1 171 1 274 1 378 CENTRAL EUROPE (CZ, SK, HU) 557 585 638 639 627 1 393 1 650 1 710 7 127 7 576 8 563 7 184 9 268 9 615 10 222 8 258 10 323 10 090 RUSSIA 1 910 1 946 1 646 1 665 1 822 1 220 1 365 1 392 1 790 1 505 1 560 1 377 1 297 1 209 1 326 1 245 778 594 GERMANY 77 154 231 236 217 378 402 464 437 478 2 828 2 231 2 396 2 207 2 457 1 991 1 930 1 884 POLAND 11 872 11 785 12 062 11 234 12 983 15 320 16 844 17 526 19 641 19 383 21 530 18 574 22 598 22 332 26 291 24 216 25 597 26 871 Total Group employment level again exceeded 40.000 FTE, mainly driven by the strong growth on core domestic market. Poland represents 2/3 of Group FTEs, growing by 5% QoQ and 20% YoY. Central Europe (CZ,SK,HU) stays strong and stable, contributing 25% of Group FTEs. Average Group employment level in H1 16 is 9% higher than in whole FY2015 and 14% higher v. H1 15. Drops of employment levels in Germany and Russia are the effect of organizational restructuring of Work Service Business Units in Germany and 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 10
Country/Region Split Revenue and Gross Profit Revenue [m PLN] Gross Profit [m PLN] 1 200 +23% +19% 180 Comments 1 000 800 600 400 200 150 120 90 60 30 Group Gross Profit grew by 19% YoY following Revenues which grew by 23%. Key Gross Profit growth contributors are Poland and Central Europe Region (Czech, Slovakia and Hungary). Germany due to the restructuring project registered a 6% drop in revenues vs. previous year but its Gross Profit remained stable. This resulted in a Gross Profit improvement in Work Service Germany of 1.3pp (18,8 %-> 20,2%). 0 H1'15 POLAND RUSSIA BALKANS H1'16 GERMANY CENTRAL EUROPE WESTERN EUROPE 0 H1'15 POLAND RUSSIA BALKANS H1'16 GERMANY CENTRAL EUROPE WESTERN EUROPE Gross Profit Margin is diluted by the enormous growth of mass margin businesses (Work Service Poland and Hungary), which grew even faster than high margin Business Units growth. 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
Financial Ratios H1 16 vs. H1 15 Financial ratios H1'15 H1'16 Profitability ratios Change 2016-2015 Comments Gross Margin 2.92% 2.66% -0.26% EBIT Margin 3.37% 2.67% -0.70% EBITDA Margin 3.94% 3.33% -0.61% NP Margin 1.35% 0.67% -0.68% ROA 1.43% 0.71% -0.72% ROE 3.88% 2.33% -1.55% Liquidity ratios Cash conversion cycle 43 46 3 Turnover ratios Turnover of receivables ratio 45 47 2 Turnover of liabilities ratio 6 6 0 Debt ratios Net Debt / EBITDA 2.12 2.77 0.65 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 Higher debt utilization drives financial costs increase. Receivables turnover ratio remained stable while revenue increase by 23%. 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 12
Balance Sheet H1 16 vs. H2 15 As at [t PLN] Dec 31st 2015 Jun 30th 2016 FIXED ASSETS 588 600 587 564 Intangible assets 64 596 60 753 Goodwill 466 899 471 139 Tangible fixed assets 32 989 33 635 Real property investments 1 607 1 642 Other financial assets 25 25 Other long-term assets 4 605 4 349 Other long-term financial assets 3 330 2 803 Deferred tax assets 11 794 12 056 Prepayments 2 756 1 161 CURRENT ASSETS 531 910 536 527 Inventory 17 243 20 539 Trade and other receivables 407 959 392 045 Other financial assets 16 046 29 254 Other short-term assets 8 932 11 653 Cash and other pecuniary assets 57 904 51 253 Prepayments 23 826 31 784 TOTAL ASSETS 1 120 510 1 124 091 Total assets remained stable in comparison to y.e. 2015. Fixed assets at the similar level as a result of : No significant acquisitions in H1 16 (no incremental goodwill recognized), Amortization of intangible assets with no major new investments in H1 2016. Trade and other receivables decreased even though total revenue increased by 23%. As at [t PLN] Dec 31st 2015 Jun 30th 2016 EQUITY 329 158 344 052 Share capital 6 509 6 509 Supplementary capital 312 423 341 944 Capital from the valuation of options -35 131-35 131 Net profit (loss) 27 616 3 053 Exchange rates balance -25 786-15 567 Minority Interest 43 526 43 244 LIABILITIES AND PROVISIONS FOR LIABILITIES 791 352 780 039 Long-term liabilities 291 504 257 713 Long-term credits and loans 147 725 136 556 Deferred income tax liabilities 3 296 2 372 Other provisions 1 475 2 514 Other liabilities 139 007 116 271 Short-term liabilities 499 849 522 326 Trade and other liabilities 387 300 419 916 Short-term credits and loans 84 031 72 535 Other provisions 28 518 29 875 TOTAL LIABILITIES 1 120 510 1 124 091 Equity remained similar to y.e. 2015 and increased mainly as a result of net profit for the period. 2015 result increased the value of supplementary capital. Decrease of long term liabilities is mainly a result of the transfer of 20m PLN bond liability which has now became a short term liability. No other significant fluctuations in equity or liabilities. 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
Cash Flow Statement H1 16 vs. H1 15 As at Jun 30th [t PLN] 2015 2016 Net profit (loss) 10 000 3 053 Total adjustments 18 277 35 138 Cash flows from operating activities 28 277 38 191 Inflows 10 741 753 Outflows 146 131 17 927 Cash flows from investing activities -135 390-17 174 Inflows 102 416 7 200 Outflows 11 424 34 868 Cash flows from financing activities 90 992-27 668 Increase (decrese) of cash and its net equivalents -16 121-6 651 Cash balance at the begining of the period 72 488 57 904 Cash balance at the end of the period 56 367 51 253 Comments Positive inflows from operating activites are mainly the result of continuous process of increasing Sales Margin and improvement in cash management. Lower level of outflows on investing activities are the result of no significant amounts of M&A outflows v H1 15 (which mainly Prohuman and Work Express) Outflows in H1 16 from financing activities are mainly the result of a decrease in the utilization of credit at the end of 1H as well as higher interest expense payments due to higher utilisation of credit intra-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 14