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adecco q2 net rises 11 pct, gross margin edges up UPDATE 3-Adecco Q2 net rises 11 pct, gross margin edges up
September 7, 2004 6:21am ET (Reuters)

(Adds fund manager comment, analyst quote, updates shares)

By Josiane Kremer

ZURICH, Sept 7 (Reuters) - Adecco's second-quarter net profit rose 11 percent, the world's biggest employment group said on Tuesday, as a one-off gain partly offset auditing costs related to an accounting crisis.

A 30 million euro gain on the sale of internet job search firm jobpilot partially made up for 41 million in accounting charges and adviser fees caused by the bookkeeping problems, bringing net profit to 95 million euros ($114.7 million).

Adecco's gross margin improved slightly to 16.8 percent in the second quarter from 16.5 percent in the first quarter and finance chief Jim Fredholm told reporters the firm aimed to enhance second half profit margins.

"We are very committed to increasing our margins and we are working very hard to increase our margins," he said on a conference call.

Analysts had worried that margins would come under pressure from price cuts as the company tried to retain customers after its image was tarnished by the bookkeeping upheaval.

"(The rise in the gross margin indicates) that the company's pricing policy to keep customers was less aggressive than we had anticipated," said Sarasin analyst Britta Simon.

Its shares were up 0.2 percent at 63.25 francs at 0935 GMT, in line with the broader market, around a quarter below levels seen prior to the accounting problems.

Adecco's handling of what proved to be essentially minor control problems with its accounting system snowballed into a financial crisis earlier this year, costing investors billions of dollars and the jobs of its chairman, finance chief and other senior executives.

"We are happy that after all the hustle and bustle there were no further surprises," said Rudi Buxtorf, fund manager at Coutts Bank Switzerland, which holds Adecco stock in his portfolio.

TEMP RECOVERY

Underlining a recovery in the job market as the global economic recovery picks up, revenues at Adecco rose 6 percent to 4.3 billion euros, bettering most analysts' forecasts.

Adecco is seen as an economic bellwether as companies tend to hire temporary staff before full-time employees.

Temporary staffing services firms have seen a boom in business as companies expecting a pick-up in business prefer to hire temporary staff to avoid costs associated with permanent hires.

Adecco expects the demand for temporary staffing to continue to strengthen into next year.

"We are pleased with the acceleration of sales growth across the globe," said Chief Executive Jerome Caille. "We are moving into the second half of the year with confidence," he added.

Underlining market momentum, rivals Manpower , Vedior and Randstad have reported strong second quarter earnings in the last few months.

CLASS ACTION

The jobs firm said an independent counsel had completed its investigation into the bookkeeping problems "without finding anything financially material" to the group. Analysts have said the damage to Adecco's image due to its poor handling of the issue is likely to be far greater than the financial cost.

The fees of various investigations triggered by auditors Ernst & Young's refusal to sign off on the firm's 2003 accounts have been estimated at around 100 million euros. The firm took a 36 million euro charge in the first quarter of the year and will book another 17 million in the second half.

Adecco still faces U.S. class action lawsuits over the issue and said the deadline to file suits was September 12.