Adecco Announces Third Quarter Net Income before Amortisation up 28% in EURO Year over Year, up 34% in Local Currency.

Business Editors

CHESEREX, Switzerland--(BUSINESS WIRE)--Oct. 22, 2003

Adecco (NYSE:ADO)

Highlights:

-- Group Sales for the third quarter down 3% at EUR 4.2 billion

(up 2% in local currency); operating income before

amortisation up 19% at EUR 163 million (up 25% in local

currency); NIBA(1) up 28% at EUR 105 million (up 34% in local

currency)

-- Group Sales for the 9 months down 6% at EUR 12.1 billion (up

1% in local currency); operating income before amortisation up

5% at EUR 411 million (up 14% in local currency); NIBA(1) up

17% at EUR 257 million (up 26% in local currency)

-- Group operating costs for the third quarter down 15% (down 9%

in local currency) due to continued tight cost control in all

operational areas resulting in further productivity

improvements

-- Operational gearing continues to improve at Group level in the

third quarter demonstrated by growth in operating income

before amortisation of 25% on a revenue increase of 2%, all in

local currency

-- Cash-flow generated from operations was EUR 291 million for

the 9 months, up from EUR 199 million last year

-- Net debt reduced by EUR 93 million during the quarter and EUR

319 million from the beginning of the year, a reduction of

23%, to EUR 1.1 billion

-- Under US GAAP operating income for the 9 months was EUR 408

million (EUR 387 million in 2002) and net income for the same

period was EUR 254 million (EUR 216 million in 2002)

-- Currency effects reduced reported sales, operating income

before amortisation and NIBA(1) by 5%, 6% and 6% respectively

in the third quarter

Commenting on the results Jerome Caille, Adecco Group Chief Executive Officer said:

"I am again pleased with the results we have achieved this quarter, measured in local currency. We have extended the improvement in operational gearing across the Group, converting a 2% growth in sales into an operating profit increase of 25%, measured in local currency. The economic environment remains challenging but we are pleased to have achieved the return to positive sales growth that we had in the first quarter. We have also maintained our focus on reducing operating costs producing a further improvement in operating margin quarter over quarter of 40 basis points to 3.8%."

Sales

Group sales for the third quarter were up 2% year on year in local currency at EUR 4,249 million, but sales were down 3% in EUR due to adverse exchange rate movements.

In the Adecco Staffing division, which represented 90% of group revenues, sales grew by 3% in local currency. Sales in Europe were up 1% with growth in France, Spain, Italy and the UK offset by declines in Netherlands, Germany, Switzerland and Belgium.

In North America, sales were up 3%, principally due to the USA where sales grew by 4%.

In Asia/Pacific sales were up 11%, with a 12% increase in Japan.

In the Ajilon Professional Division, which represented 9% of group revenues, sales were down by 4% in local currency, down 12% in EUR, but continued narrowing the sales gap compared with 2002.

In the LHH/Career Services Division, which represented 1% of group sales, sales were down by 11% in local currency, down 21% in EUR reflecting the reduction in demand for outplacement services expected at this stage of the economic cycle.

Gross Margin

Overall this quarter gross margins came in lower than last year, mainly due to mix change, currency change and continued low margins in the USA. At the Group level, gross margin was down by 107 basis points (bp) to 16.7% from 17.8% in the third quarter of 2002.

Of this difference 15bp was due to currency mix changes and 17bp from changes in business mix among the divisions; lower average fees mainly due to mix changes for permanent placement accounted for 20bp of the difference and lower temporary staffing margins accounted for 55bp (of which 34bp attributable to US Adecco Staffing, mainly where additional costs for worker's compensation and state unemployment insurance were incurred and 21bp due to all other changes, including the mix of higher and lower margin business).

Operating Costs

The Group reduced operating costs this quarter by 9% when measured in local currency and by 15% when measured in EUR. The ratio of operating costs to sales this quarter improved to 12.9% of sales compared with 14.7% last year. We have reduced full time equivalents (FTE) by around 2,500 or 8% from year ago levels despite servicing about the same volume of business, reducing the branch network by only 3%, and thus improving productivity. We have also maintained tight control over all other operating costs.

Operating Income before Amortisation

Operating income before amortisation was EUR 163 million this quarter, up 25% in local currency, representing a return on sales of 3.8%, which is 70 basis points better than last year's level. Operating income before amortisation measured in EUR was up 19% due to adverse currency changes.

NIBA(1)

NIBA(1) increased in the quarter by 34% in local currency over last year to EUR 105 million.

Interest expense reduced by EUR 5 million due to the reduced level of debt and lower financing costs. The tax rate provision this quarter was 27% compared with 29% in the third quarter of 2002.

NIBA(1) measured in EUR was up 28%.

Net Debt and Cash Flow

Net debt at the end of the quarter was EUR 1,090 million, including off-balance sheet debt. This represented a reduction of EUR 93 million during the quarter and a reduction of EUR 319 million or 23% from the level at the beginning of the year. Strong cash flow from operations of EUR 106 million in the third quarter contributed to this reduction.

Felix Weber, Adecco Group Chief Financial Officer, commented: "We further reduced our cost base by 9% in local currency this quarter building on the 2% and 6% reductions achieved in Q1 and Q2. Strong operating cash flow of EUR 291 million contributed to the reduction of net debt, which year to date has now been cut by EUR 319 million to only EUR 1.1 billion. We are effectively managing our working capital and have reduced DSO by 1 day to 59 days compared to last year"

Adecco Staffing Division

Adecco Staffing is the number 1 in the world, ranked number 1 in 11 of the 13 most important staffing markets.

This quarter, we again managed to extend operating gearing converting sales growth of 3% in local currency into a profit improvement of 20% (sales down 2% and profit up 16% in EUR, respectively), despite the pressure on gross margin.

-- Adecco France achieved a turnaround in sales with 3% growth

compared with a decline of 3% in the previous quarter,

principally due to market share gains. Profitability continued

to improve due to maintained gross margins and further cost

reductions.

-- Sales in Adecco USA grew by 4% in local currency (down 9% in

EUR), but profitability was again affected by higher costs for

workers compensation and unemployment insurance. Operating

costs have been further reduced but these reductions do not

cover the loss of gross margin.

-- Adecco UK sales were up 5% and profits were ahead of last year

-- Adecco Japan gained market share with sales growth of 12% in

local currency (down 2% in EUR) and demonstrated operational

gearing with 18% growth in profit in local currency (up 3% in

EUR).

-- Adecco Italy sales were up 5% in EUR, a significant

improvement over the previous quarter.

-- In Germany, one of the key markets for the future, sales were

down by 8% but profitability improved significantly from last

year's levels. We also continued to lead industry efforts

towards a more favorable regulatory environment.

-- Adecco Spain sales growth slowed to 2% due to seasonal factors

whilst operational gearing was maintained with gross margin up

3%, costs down 17% and profit up by 46%.

Ajilon Professional Division

Ajilon Professional is ranked world number 3 in the professional staffing market.

Ajilon continued to close the sales gap measured in local currency with sales for the quarter down 4% compared to last year at EUR 390 million. Operating income before amortisation was down 7% in local currency at EUR 14 million (down 18% in EUR).

LHH/Career Services Division

Lee Hecht Harrison (LHH) is ranked number 2 in the world outplacement and career services market. This division contributed 11% of group profit on only 1% of group sales in the nine months. Sales for the quarter of EUR 47 million were 11% less in local currency (21% in EUR). We cut operating costs by 10% (20% in EUR) and thereby limited profit reduction to 13% in local currency (24% in EUR) at EUR 14 million.

jobpilot /e-HR Services Division

At jobpilot, we achieved a breakeven result with a positive sales and profit growth in the last month of the quarter. We continue to develop and leverage successfully synergies with other Adecco Group companies.

Accounting for Stock-Based Compensation

Effective for the current year Adecco will adopt Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation". For future stock-based compensation transactions such as grants of stock options or restricted stock this change in accounting policy will result in expenses being amortised through the income statement over the vesting period. The effect of this change on the financial statements for the first 9 months was not material.

Outlook

The outlook for the world economy remains uncertain. We have continued to reduce cost in response to gross margin decline and have thereby improved profitability. We will continue to fine tune our operating cost structure in response to changes in the marketplace but will do so without damaging our branch network or endangering our market position. Our strategy in these conditions is to leverage our strong market presence and low cost infrastructure to grow market share and drive sales.

US GAAP Results

For the nine months ended September 28, 2003, the Adecco Group reported under US Generally Accepted Accounting Principles (US GAAP) revenues of EUR 12.1 billion, operating income of EUR 408 million, which includes EUR 3 million amortisation of intangibles and a net income of EUR 254 million.

According to Chief Financial Officer, Felix Weber, "Adecco continues to consider operating income before amortisation and net income before amortisation (NIBA) to be the most relevant benchmarks of the Adecco Group's financial performance, as management believes that this represents a better measurement of the operational performance.

Statements made in this press release, other than those concerning historical information, should be considered forward-looking and subject to risks and uncertainties. The Adecco Group's actual results may differ materially from the results anticipated in these forward-looking statements as a result of certain factors as set forth in the Adecco Group's reports on Form 20-F made pursuant to the Securities Exchange Act of 1934. For instance, the Adecco Group's results of operations may differ materially from those anticipated in the forward-looking statements due to, among other things: our ability to successfully implement our growth and operating strategies, fluctuations in interest rates or foreign currency exchange rates, changes in economic conditions, changes in the law or government regulations in the countries in which the Adecco Group operates, instability in domestic and foreign markets, our ability to obtain commercial credit, and changes in general political, economic and business conditions in the countries or regions in which the Adecco Group operates. In addition, the market price of the Company's stock may be volatile from time to time as a result of, among other things: the Adecco Group's operating results, the operating results of other staffing service providers, and changes in the performance of global stock markets in general.

About Adecco

Adecco S.A. is a Forbes 500 company and the global leader in HR Solutions. The Adecco Group network connects 650,000 associates with business clients each day through its network of 28,000 employees and 5,800 offices in 67 territories around the world. Registered in Switzerland, and managed by a multinational team with expertise in markets spanning the globe, the Adecco Group delivers an unparalleled range of flexible staffing and career resources to corporate clients and qualified associates.

The Adecco Group comprises four Divisions, Adecco Staffing, Ajilon Professional, LHH Career Services and Jobpilot e-HR Services. In Adecco Staffing, the Adecco staffing network focuses on flexible staffing solutions for global industries in transition, including automotive, banking, electronics, logistics and telecommunications; Ajilon Professional offers an unrivalled range of specialized branded businesses; LHH Career Services encompasses our portfolio of outplacement and coaching; Jobpilot e-HR focuses on online recruiting activities for the Adecco Group.

Adecco S.A. is registered in Switzerland and is listed on the Swiss Exchange (ADEN / trading on Virt-x: 1213860), NYSE (ADO), Euronext Premier Marche (12819).

Further information can be found at the Investor Relations page at www.adecco.com.

(1) Net income before amortisation

                     Selected Financial Highlights

EUR millions                   Three months ended         % change
                              --------------------     ---------------
                              September  September
                               28, 2003  29, 2002      EUR   Constant
                              ---------  ---------     ----  --------
Net service revenues            4,249      4,385        -3%        2%
Operating income before
 amortisation                     163        137        19%       25%
Net income before amortisation    105         82        28%       34%
Net income                        104         80


EUR millions                   Nine months ended          % change
                              --------------------    ----------------
                              September  September
                              28, 2003   29, 2002     EUR    Constant
                              ---------  ---------    -----  --------
Net service revenues           12,115     12,821        -6%        1%
Operating income before
 amortisation                     411        390         5%       14%
Net income before amortisation    257        219        17%       26%
Net income                        254        216
-------------------------------
Net income per share
              Basic              1.36                 1.16
              Diluted            1.34                 1.14

Net income per share before
 amortisation
              Basic              1.38                 1.18
              Diluted            1.36                 1.16

Weighted average shares   186,703,342          186,495,125
Diluted shares            193,453,847          192,934,530


Net income before amortisation is not meant to portray net income or
cash flow in accordance with U.S. generally accepted accounting
principles. Amortisation is a non-cash charge to operating income;
however, net income before amortisation does not represent cash
available to shareholders. This may not be comparable to similarly
entitled items reported by other companies.



        Net Service Revenue by Division and Geographical Split

Net Services Revenues            Three months ended      % Change
                                 --------------------  --------------
EUR millions                     September  September
                                 28, 2003   29, 2002   EUR   Constant
                                 ---------  ---------  ----  --------
By Division
Adecco Staffing                    3,806      3,875     -2%       3%
Ajilon Professional                  390        445    -12%      -4%
Career Services                       47         59    -21%     -11%
e - HR & Others                        6          6     12%      11%
----------------------------     -------    -------   -----   -------
                Total              4,249      4,385     -3%       2%
============================     =======    =======   =====   =======

By Region
Europe                             2,771      2,772      0%       1%
North America                        976      1,104    -12%       0%
Asia Pacific                         407        404      1%      10%
Rest of World                         95        105     -9%       5%
----------------------------     -------    -------   -----   -------
                Total              4,249      4,385     -3%       2%
============================     =======    =======   =====   =======

        Net Services Revenues     Nine months ended      % Change
                                 --------------------  --------------
EUR millions                     September  September
                                  28, 2003   29, 2002  EUR   Constant
                                 ---------  ---------  ----  --------
By Division
Adecco Staffing                   10,734     11,169     -4%       2%
Ajilon Professional                1,196      1,430    -16%      -6%
Career Services                      166        212    -22%      -8%
e - HR & Others                       19         10     99%      98%
----------------------------     -------    -------   -----   -------
                Total             12,115     12,821     -6%       1%
============================     =======    =======   =====   =======

By Region
Europe                             7,712      7,857     -2%       0%
North America                      2,912      3,407    -15%       2%
Asia Pacific                       1,202      1,202      0%      10%
Rest of World                        289        355    -19%       9%
----------------------------     -------    -------   -----   -------
                Total             12,115     12,821     -6%       1%
============================     =======    =======   =====   =======

Additional information available upon request.