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Announcement:

Moody's changes outlook on Adecco's Baa3 rating to stable from positive

Global Credit Research - 27 Jun 2012

Paris, June 27, 2012 -- Moody's Investors Service has today changed to stable from positive the outlook on the Baa3 long-term ratings of Adecco S.A. and its guaranteed subsidiaries.

RATINGS RATIONALE

"The stabilisation of the outlook follows the company's announcement of a EUR400 million share buyback programme, expected to start in mid-July 2012," says Knut Slatten, an Analyst in Moody's Corporate Finance Group and lead analyst for Adecco. The programme, which will be funded with incremental debt, occurs at a time when Adecco is facing an increasingly challenging operating environment in some of its key markets, exemplified by the 10% decline in organic growth the company recorded in France -- its largest market -- during the first quarter of 2012, though to some extent offset by increases in other geographies. "We would expect the uncertain economic climate to exert pressure on Adecco's profit margins for the remainder of the year and, together with the announced share buybacks, contribute to an increase in its net debt, preventing the company from reaching the thresholds set for an upgrade in the near term," adds Mr. Slatten.

Adecco's Baa3 rating continues to be supported by (i) the company's scale as one of the world's largest staffing companies; (ii) its brand strength and globally diversified network; and (iii) the solid cash flow generation it delivers. However, these positive factors are mitigated by the company's highly competitive industry environment and cyclicality of operations. Moody's cautions that the uncertain macroeconomic outlook in several of Adecco's key markets is contributing to relatively low visibility in terms of its future performance and the company may be vulnerable to an intensified downturn in the economy.

The stable outlook reflects Moody's expectation that Adecco's credit metrics will weaken in 2012 on the back of a challenging operating environment in several key markets in Europe that is only partly mitigated by stronger performance elsewhere. However, Moody's takes comfort from Adecco's ability to generate strong free cash flows and considers the company to be solidly positioned in the Baa3 category.

WHAT COULD CHANGE THE RATING UP/DOWN

As well as being dependent on the evolution of the macro-economy, the trajectory of Adecco's improvement in 2013 will be determined by its financial policy, including the pace at which the company executes its share buyback programme. Upward rating pressure could develop if Adecco's credit metrics were to improve such that the company's debt/EBITDA ratio moves below 2.5x and its ratio for retained cash flow (RCF)/net debt were to exceed 30% on a sustainable basis. In addition, for upward rating pressure to develop, Moody's would also expect Adecco to maintain a sufficient liquidity cushion to cover its operating needs at least over a one-year horizon and deal with any potential refinancing in a timely manner.

Conversely, negative rating pressure would increase if debt/EBITDA were to move above 4.0x on a sustainable basis.

The principal methodology used in these ratings was Global Business & Consumer Service Industry Rating Industry Methodology published in October 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Based in Zurich, Switzerland, Adecco is one of the world's largest personnel services company, with revenues of EUR20.5 billion in 2011. The company had a global network of more than 5,500 branches in more than 60 countries at year-end 2011.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.

Knut Slatten
Analyst
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changes outlook on Adecco's Baa3 rating to stable from positive
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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