Hudson Highland Group Investor Presentation 1
Forward Looking Statements Please be advised that except for historical information, the statements made during this presentation and in these slides constitute forward-looking statements under applicable securities laws. Such forward-looking statements involve certain risks and uncertainties, including statements regarding the company's strategic direction, prospects and future results. Certain factors, including factors outside of our control, may cause actual results to differ materially from those contained in the forward-looking statements, including economic and other conditions in the markets in which we operate, risks associated with acquisitions, competition, seasonality and the other risks discussed in our filings made with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this presentation. The company assumes no obligation, and expressly disclaims any obligation, to review or confirm analysts' expectations or estimates or to update any forward-looking statements, whether as a result of new information, future events or otherwise. 2
Hudson Highland Group Hudson (89% of Q3 05 GM) - permanent and contract professional staffing, and human capital solutions (HCS) Highland (11%) - retained executive search Worldwide capabilities from over 110 offices in over 20 countries Approximately 3,800 employees 3
Product Offerings Q3 2005 Gross Margin $135.2 M Perm Perm Contingent and retained search, professional mid market to executive level 55% Temp 35% 10% HCS Short to long term contract placements Focused on specialty staffing IT, Legal, and A&F Temp HCS Assessment, career development, training and coaching Competency and performance mgmt Outsourcing and re-integration 4
Diversified Global Operations Q3 2005 Revenue $356.6 M Q3 2005 Gross Margin $135.2 M Asia Pac 32% Asia Pac 32% 34% 39% 34% 29% Europe North America Europe North America 5
Industry Specialization Represents Hudson s 3 Major Regions (2004 GM of $280m) Accounting & Finance 19% IT 22% Legal 12% Engineering 7% Sales & Marketing 6% HR 4% Other 30% Includes Hudson North America, UK, and Australia. Other primarily includes Office Services, Technical and Operations, Commercial, and Trade. 6
Strategy Increased Predictability Increase proportion of specialized contract staffing revenue Build contracting business in continental Europe Globalize HCS Geographic Opportunities Strong growth in North America and Asia Grow high margin specialty staffing (IT, Legal, A&F) Operating Leverage Continue to improve productivity Significant profit improvement since spin-off from Monster Target 25 50% of incremental GM to EBITDA 7
Hudson North America $US in Millions Business Overview Key Drivers in 2005 and 2006 Temp-focused specialty staffing (79% of GM YTD) complemented by midmarket permanent placement Practice groups focused on IT, Legal, and A&F (+70% of GM) Continuing shift to solutions focus in IT, Legal and A&F Increase productivity through volume Strong GM growth in 2004 (30%), Q1 2005 (60%), Q2 2005 (30%) and Q3 2005 (27%) $5 2004-05 EBITDA (1) $4.0 $4.7 $4.6 $5.1 GM % improved to 26.3% in Q3 2005, up from 25.5% in previous quarter $3 ($0.9) $1 $2.0 $2.8 Temp GM % steady at 21.3% in Q3 2005 vs. 21.4% in previous quarter -$1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 (1) EBITDA is a non-gaap measure defined as earnings before interest, income taxes, depreciation and amortization. 8
Hudson Europe EBITDA has improved in 2005 vs. 2004 Hudson UK Q3 2005 GM (60% of Hudson Europe) Regional GM Split is 60% perm, with the balance split evenly between HCS and temp Temp practice predominantly based in the UK, focused primarily on Finance, IT&T and Legal 63% Perm GM % of 42.3% in Q3 05 vs. 37.5% in Q3 04 Expansion via organic growth and strategic acquisitions HCS 3% 34% Temp $5 $3 $1 -$1 -$3 2004-05 EBITDA (1) $2.5 $5.8 $3.3 $3.5 ($0.3) $0.7 ($2.7) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Hudson Continental Europe Q3 2005 GM (40% of Hudson Europe) Perm 49% HCS 47% 4% Temp (1) EBITDA is a non-gaap measure defined as earnings before interest, income taxes, depreciation and amortization. 9
Hudson Asia Pacific $US in Millions Permanent placement contributes approx 60% of gross margin, with 30% Temp, 10% HCS Market leader in Australia and New Zealand $12 $10 $8 $6 $6.4 $7.8 $7.5 $6.8 $10.1 $8.7 12% 10% 8% 6% Strong productivity improvements in ANZ market continue, consistent profitability GM % of 36.8% in Q3 05 vs. 35.7% in Q3 04 $- $4 $2 $2.1 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 EBITDA (1) EBITDA Margin 4% 2% 0% Growth opportunity in Asia and market leadership positions in Singapore and Shanghai (1) EBITDA is a non-gaap measure defined as earnings before interest, income taxes, depreciation and amortization. 10
Highland Partners $US in Millions Successfully repositioned as profitable North American boutique with additional offices in London and Sydney for global execution Specializes in recruiting at the C-level and board of director level Highland Partners Revenue $64.0 $61.7 $60 $50 $40 $30 $20 $10 2004 average billings per partner near $1m $0 2003 2004 Primary focus on profitability $2 $1 ($0.0) $0 2004-05 EBITDA (1) $1.5 $1.6 $0.6 $0.5 $0.7 Highland Partners EBITDA (1) $0 $(0.1) -$5 2003 2004 -$10 -$15 -$20 -$1 -$2 ($2.1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 -$25 -$30 -$35 $(30.8) (1) EBITDA is a non-gaap measure defined as earnings before interest, income taxes, depreciation and amortization. 11
Financial Overview 12
Delivering Operating Leverage Initial Efforts Paying Off Significant leverage exists in our business model Target 25 50% of gross margin growth to flow to EBITDA Given restructuring of the business, we have been ahead of this plan so far YTD Q3 2005 leverage of 48% based on regional leverage of: - Hudson North America 32% - Hudson Europe 59% - Hudson Asia Pac 54% Quarterly 2004 leverage over 80% in every quarter 13
Selected Financials $US in Millions Q3 05 Q3 04 Var ($) Var (%) Revenue 357 315 42 13.2% Gross Margin 135 116 19 16.1% SG&A 127 119 8 6.5% EBITDA (1) 9 (2) 11 463.7% Gross Margin % 37.9% 37.0% Temp GM % 18.5% 17.6% (1) EBITDA is a non-gaap measure defined as earnings before interest, income taxes, depreciation and amortization. A reconciliation of EBITDA to operating income (loss) follows. 14
Selected Financials $US in Millions YTD 05 YTD 04 Var ($) Var (%) Revenue 1,074 912 162 17.8% Gross Margin 405 341 63 18.5% SG&A 382 349 33 9.4% EBITDA (1) 22 (8) 30 380.3% Gross Margin % 37.7% 37.4% Temp GM % 17.9% 17.2% (1) EBITDA is a non-gaap measure defined as earnings before interest, income taxes, depreciation and amortization. A reconciliation of EBITDA to operating income (loss) follows. 15
EBITDA Reconciliation to GAAP $US in Millions Q3 05 Q3 04 YTD 05 YTD 04 Adjusted EBITDA (1) 9 1 23 (5) Reorg Recovery (Cost) 0 (3) (0) (3) M&I Recovery (Cost) - 0 0 0 EBITDA (1) 9 (2) 22 (8) D&A (4) (4) (14) (14) Goodwill Impairment - - - - Operating Income (Loss) 4 (7) 9 (22) (1) Adjusted EBITDA is a non-gaap measure defined as earnings before interest, income taxes, depreciation, amortization, and also excludes merger and integration costs, business reorganization, and impaired goodwill. EBITDA is a non-gaap measure defined as earnings before interest, income taxes, depreciation and amortization. 16
Global Contributions EBITDA Improvement (1) YTD 05 v 04 2004 v 2003 HH Americas + $10.9m + $29.3m HH Europe + $14.5m + $40.0m HH Asia Pac + $7.7m + $23.0m (1) EBITDA is a non-gaap measure defined as earnings before interest, income taxes, depreciation and amortization. 17
2005 Outlook Expect to Continue to Make Progress toward our Goals Expect FY 2005 revenue growth of 12 15%, resulting in FY 2005 EBITDA of $30 34m, based on regional revenue growth of: 30 35% in Hudson North America 10 15% in Hudson Europe 0 5% in Hudson Asia Pacific 0 5% in Highland Partners Goal to build a sustainable, profitable business, regardless of revenue growth As presented October 25, 2005 in our Q3 2005 earnings release. 18
2005 Outlook Expect to Continue to Make Progress toward our Goals Target long term EBITDA margins of 7 10% Expect at least 2% EBITDA margin for FY 2005, given current economic conditions Expect 3.5 4% EBITDA margins for FY 2006, given current economic conditions Expect FY 2006 revenue growth of no more than 10% As presented October 25, 2005 in our Q3 2005 earnings release. 19
Financial Appendix 21
Revenue Growth, Q3 $US in Millions Hudson North America 31% Hudson Europe 2% Hudson Asia Pacific Highland Partners 8% 12% Q3 05 Q3 04 $- $20 $40 $60 $80 $100 $120 $140 Consolidated revenue growth of 13% in Q3 05 vs previous year. 22
Revenue Growth, Q3 YTD $US in Millions Hudson North America Hudson Europe 39% 11% Hudson Asia Pacific Highland Partners 1% 10% YTD Q3 05 YTD Q3 04 $- $100 $200 $300 $400 Consolidated revenue growth of 18% YTD Q3 05 vs previous year. 23
EBITDA Margin, Q3 Hudson North America Hudson Europe Hudson Asia Pacific Highland Partners HHGP Q3 05 Q3 04-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% EBITDA is a non-gaap measure defined as earnings before interest, income taxes, depreciation and amortization. A reconciliation of EBITDA to operating income (loss) is included in the presentation. 24
EBITDA Margin, Q3 YTD Hudson North America Hudson Europe Hudson Asia Pacific Highland Partners HHGP YTD Q3 05 YTD Q3 04-2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% EBITDA is a non-gaap measure defined as earnings before interest, income taxes, depreciation and amortization. A reconciliation of EBITDA to operating income (loss) is included in the presentation. 25