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
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 20% 2 Operational EBIT commitment 2016 2015 3 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
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 FY16 2016 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 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. 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: - -2.2m PLN SEP 16 vs. SEP 15 - -4.4m PLN Q3 16 vs. Q3 15 Year-to-Date Indirect Costs are growing much slower than Revenue line: - Indirect Costs 2016 vs. 2015 14% - Revenues 2016 vs. 2015 19% 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 2015 2016 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 % CZECH REPUBLIC 3,6 % TOP 25 8 2 1 1 7 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 Services Industry Market CAGR 2015-2019 [Value/Volume] Market size and value forecast 2016-2019 Poland, Hungary, Czech, Slovakia 15.1%/9.1% 10.4%/6.5% 8.9%/5.3% 4 200 3 700 3 200 2 877 2019 F vs. 2015 = 156% 4 001 2 500 3 608 2 000 3 234 1 500 3.9%/2.6% ~90% Group Revenue 5.4%/2.5% 2 700 2 200 1 700 1 671 1 880 2 238 2 549 1 000 500 1 200 2012 2013 2014 2015 2016 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
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
Statement of Comprehensive Income 3Q 2016 vs. 3Q 2015 Comments Specification [t PLN] 3Q 2015 3Q 2016 Net revenues from sales of products and services Dynamic 2016/2015 1 525 886 1 819 173 19,2% Cost of products, goods and materials sold 1 365 136 1 620 361 18,7% Gross profit (loss) on sales 160 750 198 812 23,7% Selling costs 33 785 34 065 0,8% General and administrative costs 75 600 109 637 45,0% Profit (loss) on sales 51 365 55 110 7,3% Other operating revenues 17 095 14 630-14,4% Other operating expenses 10 273 14 720 43,3% Profit (loss) on operating activities 58 186 55 020-5,4% Financial revenues 1 989 2 039 2,5% Financial expenses 21 016 24 821 18,1% Gross profit (loss) 39 159 32 238-17,7% Income tax 12 134 13 392 10,4% Net profit (loss) 27 025 18 845-30,3% 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) 1 520 977 1 685 234 11% Indirect Costs (organic) excl. Transformation Costs 200 402 211 747 6% 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
Capital Group Results Revenue and EBITDA Revenue [m PLN] EBITDA [m PLN] 2 500 120 Q4 Q3 Q2 Q1 2 000 1 500 1 000 500-1,819m PLN 610,8 515,6 616,0 548,8 488,3 611,3 269,5 502,6 187,9 238,8 390,0 186,1 182,8 221,4 474,5 591,9 345,9 170,6 188,7 2012 2013 2014 2015 2016 Q4 Q3 Q2 Q1 100 80 60 40 20-37,4 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 10,2 2012 2013 2014 2015 2016 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 2013-2015 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
Scale of our Operations 45 000 40 000 35 000 Comments 30 000 25 000 20 000 15 000 10 000 5 000-1Q'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 3Q'16 WESTERN EUROPE (GB, BE) - - - - - - - - - - - - 19 38 134 118 147 156 166 BALKANS (RO, SLO, CRO, TR) - - - - - - - - 74 86 134 222 186 191 261 1 171 1 274 1 378 1 355 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 1 245 778 594 404 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 2 032 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 9 679 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 27 055 Total Group employment level again exceeded 40.000 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
Financial Ratios 3Q 2016 vs. 3Q 2015 Financial ratios 3Q 2015 3Q 2016 Profitability ratios Change 2016-2015 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 44 45 1 Turnover ratios Turnover of receivables ratio 48 47-1 Turnover of liabilities ratio 7 6-1 Debt ratios Net Debt / EBITDA 2.56 2.79 0.23 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
Balance Sheet 3Q 2016 vs. YE 2015 Source: The Company As at [t PLN] Dec 31st 2015 Sep 30th 2016 FIXED ASSETS 588 600 584 775 Intangible assets 64 596 60 120 Goodwill 466 899 469 867 Tangible fixed assets 32 989 32 887 Real property investments 1 607 1 587 Other financial assets 25 25 Other long-term assets 4 605 4 651 Other long-term financial assets 3 330 2 736 Deferred tax assets 11 794 12 059 Prepayments 2 756 842 CURRENT ASSETS 531 910 559 939 Inventory 17 243 21 101 Trade and other receivables 407 959 407 600 Other financial assets 16 046 27 331 Other short-term assets 8 932 11 901 Cash and other pecuniary assets 57 904 57 483 Prepayments 23 826 34 522 TOTAL ASSETS 1 120 510 1 144 714 Total assets remained stable compared to 2015. 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 2016. Trade and other receivables remained stable though total revenue increased by 19%. As at [t PLN] Dec 31st 2015 Sep 30th 2016 EQUITY 329 158 368 381 Share capital 6 509 6 509 Supplementary capital 312 423 342 233 Capital from the valuation of options -35 131-35 131 Net profit (loss) 27 616 8 767 Exchange rates balance -25 786-19 495 Minority Interest 43 526 65 498 LIABILITIES AND PROVISIONS FOR LIABILITIES 791 352 776 333 Long-term liabilities 291 504 242 102 Long-term credits and loans 147 725 146 218 Deferred income tax liabilities 3 296 2 474 Other provisions 1 475 2 708 Other liabilities 139 007 90 702 Short-term liabilities 499 849 534 231 Trade and other liabilities 387 300 443 129 Short-term credits and loans 84 031 61 351 Other provisions 28 518 29 750 TOTAL LIABILITIES 1 120 510 1 144 714 Equity 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 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
Statement of Cash Flow 3Q 2016 vs. 3Q 2015 As at Sep 30th [t PLN] 2015 2016 Comments Net profit (loss) 18 135 8 767 Total adjustments 558 43 077 Cash flows from operating activities 18 693 51 844 Inflows 5 060 1 281 Outflows 185 698 24 094 Cash flows from investing activities -180 639-22 813 Inflows 145 612 17 085 Outflows 16 680 46 538 Cash flows from financing activities 128 932-29 453 Increase (decrease) of cash and its net equivalents -33 013-421 Cash balance at the beginning of the period 72 488 57 904 Cash balance at the end of the period 39 475 57 483 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 2015. 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