WORK SERVICE CAPITAL GROUP Q3 2014 LEADING CEE HR STRATEGIC PARTNER
CHAPTERS FROM LIFE OF WORK SERVICE Q3 2014 OCT 2014 SEP 2014 SEP 2014 Start of consolidation of German Joint-Venture with Fiege Logistik Stiftung & Co. KG based in Greven (Work Service owns 51% of Joint- Venture company). Transaction closed and registered as of September 2014. 79M PLN revenue 5.6M PLN EBIT Capital injection: successfully closed private placement: - 5M shares issued - International Blue Chip funds joined our shareholder base - Price 16.50 PLN - 82.5M PLN capital raised - The demand from investors covered the primary supply by 3x. Consequent execution of portfolio mix development strategy on foreign markets: Germany, Slovakia, Hungary. Hungary: launch of Exact Systems and Permanent Recruitment (new brand Enloyd) Germany: launch of Permanent Recruitment (new brand Enloyd). Slovakia: launch of Permanent Recruitment under existing brand of Antal International. Cross-border people exchange: international recruitment structures established in each EU based country organizations with Work Service core business Hungary, Czech, Slovakia. 2
1 FINANCIALS Q3 2014 3
Q3 2014 WS CAPITAL GROUP RESULTS 1400 Revenue of Work Service S.A. [m PLN] COMMENTS: 1200 1000 800 600 400 200 0 488,3 269,5 187,9 175,1 238,8 390,0 143,6 186,1 158 134,6 182,8 221,4 145,5 119,4 345,9 101,5 139,3 170,6 188,7 2010 2011 2012 2013 2014 EBITDA of Work Service S.A. [m PLN] Q4 Q3 Q2 Q1 Vigorous positive trend is driven by combined effects of organic growth and consolidation of all entities acquired in 2013/2014 (German JV for the first time in Q3). Sales synergies and portfolio mix development resulted in a combined 40% YoY revenue growth on a like-for-like basis in the acquired companies. WS also contined to deliver very strong momentum on an organic basis, with a 22% like-for-like annualized organic sales growth, which is more than twice higher then the market growth rate (by value) in CY2014. 70 60 50 40 30 20 10 0 23,6 19,9 15,7 10,3 11,8 9,4 12,5 18,3 9,2 8 9,6 9,6 7,1 6,1 4,5 6,3 8,6 10,2 18,0 2010 2011 2012 2013 2014 Q4 Q3 Q2 Q1 7% 6% 5% 4% 3% 2% 1% 0% Source: The Company 3.6% 3.8% 3.1% 3.1% 5.8% 5.6% 6.0% 5.8% 5.4% 5.2% 4.8% 5.0% 4,9% 5.3% 5.0% 5.4% 4.8% 4.3% 4.4% 5.2% 4.7% 4,4% 4,9% 4,4% 08 09 10 11 12 1Q13 1H13 3Q13 4Q13 1Q14 2Q14 3Q14 ROS EBITDA ROS EBIT 4
Q3 2014 FINANCIAL RESULTS BY COUNTRY Revenue [m PLN] Gross Margin [m PLN] 1 200 1 000 800 600 400 200 200 +89% 180 160 +94% 140 120 100 80 60 40 20 0 3Q 2013 3Q 2014 0 3Q 2013 3Q 2014 Poland Russia Germany Czech Slovakia Turkey Romania Hungary Poland Russia Germany Czech Slovakia Turkey Romania Hungary 5
SCALE OF OUR OPERATIONS Group employment size in FTE (Full Time Equivalent) 35 000 30 000 25 000 20 000 15 000 10 000 5 000-1Q'11 2Q'11 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 Hungary 5 091 5 423 6 160 Turkey 74 86 134 Germany 25 24 41 53 77 154 231 236 217 378 402 464 437 478 2 828 Slovakia 305 229 192 262 346 373 427 403 419 604 648 691 852 965 1 072 Czech 188 240 167 174 211 212 211 237 208 789 1 002 1 019 1 184 1 188 1 331 Russia 1 848 1 883 1 934 1 995 1 910 1 946 1 646 1 665 1 653 1 538 1 585 1 392 1 790 1 505 1 560 Poland 10 078 10 296 10 869 11 291 11 872 11 785 12 062 11 234 12 983 15 320 16 844 17 526 19 641 19 383 21 530 COMMENTS: Record quarter, ~35.000 FTE s. German JV consolidated for the 1st time this quarter. +71% vs. YA, +19% vs. Q2 14, all countries grew quarterly employment levels vs. YA. 6
SALES STRUCTURE 3Q 2014 Revenue by Product Category Revenue by industry Strategic HR consulting 0.04% Source: The Company Outsourcing 23.83% Temporary Work 74.71% Personnel Consulting 1.42% Source: The Company INDUSTRY 2013 [%] 2014 [%] 2014 [k PLN ] Other services 23.65 32.40 396 644 Automotive 22.09 23.05 282 164 BPO/SSC/CC 15.34 11.39 139 479 Other industries 11.46 12.03 147 305 Financial and insurance services 10.15 6.97 85 356 Electronics 5.22 4.56 55 869 FMCG 6.75 5.46 66 839 Engineering 2.00 1.14 13 971 Sales and distribution 1.54 1.73 21 200 Administration and other 1.80 1.25 15 332 TOTAL: 100.0 100.0 1 224 159 Work Service Group strategy is to emphasise faster growth of sales of high margin services such as: outsourcing, personnel consultancy and strategic HR consultancy. Strongly diversified (by industries) revenue structure makes Work Service immune to a downturn in the economic situation in any single industry. 7 7
FINANCIAL RATIOS 3Q 2014 vs. 3Q 2013 Financial ratios 3Q 2013 3Q 2014 Change 3Q'14-3Q'13 Profitability ratios Return on sale 10.55% 11.26% 0.71% Retun on EBIT level 4.44% 4.37% -0.07% Return on EBITDA level 4.98% 4.89% -0.09% Return on NP level 2.32% 2.48% 0.17% ROA 3.41% 3.53% 0.12% ROE 6.61% 11.46% 4.85% Cash conversion cycle Liquidity ratios 43 47 4 Turnover of receivables ratio Turnover ratios 49 50 1 Turnover of liabilities ratio 8 6-2 Debt ratios Net Debt / EBITDA 1.91 1.75-0.16 COMMENTS: EBIT and EBITDA margins remained at the same level as in the comparable period in 2013 Receivables and liabilities turnover ratios remained at a similar level to the comparable period in Q3 2013, even though the scale of operations increased significantly. This shows the group is able to manage effectively the net working capital to create positive cash flows from operating activities as reflected in the cash flow statement. Source: The Company 8
P&L STATEMENT Q3 2014 vs. Q3 2013 Specification 3Q 2013 3Q 2014 Dynamic 2014/2013 Net revenues from sales of products and services 648 968 1 224 159 189% Cost of products, goods and materials sold 580 471 1 086 305 187% Gross profit (loss) on sales 68 497 137 854 201% Selling costs 12 620 26 431 209% General and administrative costs 26 412 57 274 217% Profit (loss) on sales 29 464 54 149 184% Other operating revenues 5 664 5 296 94% Other operating expenses 6 290 5 944 95% Profit (loss) on operating activities 28 837 53 501 186% Financial revenues 245 1 365 558% Financial expenses 12 061 16 863 140% Gross profit (loss) 17 021 38 003 223% Income tax 1 987 7 639 385% Net profit (loss) 15 034 30 364 202% Source: The Company COMMENTS: Revenues grew by 89%, while margin I (gross profit from sales) increased by 101%, which denotes improvement of profitability resulting from product and geographical diversification. Increase in SG&A is driven by several factors, of which the most important are: 1) impact of consolidated costs of acquired entities, 2) additional costs of integration, 3) private placement preparation costs, 4) costs of acquisitions related services. Net Profit increased by 102% (even faster than EBIT, which grew by 86%), which considering the increase in the % tax rate, shows a considerable % reduction in the cost of debt servicing in relation to the scale of operations. 9
BALANCE SHEET ASSETS 3Q 2014 vs. 3Q 2013 As at September 30th [k PLN] 2013 2014 FIXED ASSETS 212 957 414 058 Intangible assets 25 341 42 233 Goodwill 164 033 338 959 Tangible fixed assets 16 818 22 061 Real property investments Other financial assets 25 25 Other long-term financial assets 428 1 291 Deferred tax assets 6 150 9 276 Prepayments 161 211 CURRENT ASSETS 226 985 445 914 Inventory 5 287 12 155 Trade and other receivables 180 375 320 924 Other financial assets 12 747 26 480 Cash and other pecuniary assets 8 661 59 346 Prepayments 19 916 27 009 TOTAL ASSETS 439 942 859 972 COMMENTS: Total assets grew by 95% as a result of: Fixed assets growth of 94%. This was mainly the result of the acquisition of shares in Work Express, Prohuman 2004 Kft. and Fiege entities and the goodwill recognized on these transactions. Value of currents assets grew by over 96%. This was mainly an increase in cash and cash equivalents which grew by more than 500%, and trade receivables which grew by 78%. This proves the Group has an increasingly cash generative structure. Source: The Company 10
BALANCE SHEET LIABILITIES 3Q 2014 vs. 3Q 2013 As at September 30th [k PLN] 2013 2014 EQUITY 227 456 265 034 Share capital 5 995 6 004 Supplementary capital 201 111 223 644 Net profit (loss) 12 672 19 926 Exchange rates balance -3 043-14 425 Minority Interest 10 721 29 885 LIABILITIES AND PROVISIONS FOR LIABILITIES 212 486 594 938 Long-term liabilities 93 430 141 552 Long-term credits and loans 88 486 8 582 Deferred income tax liabilities 557 2 123 Retirement and similar benefits liabilities Other provisions 270 369 Other liabilities 4 116 130 478 Short-term liabilities 119 056 453 386 Trade and other liabilities 106 227 301 890 Short-term credits and loans 11 324 123 820 Other provisions 1 505 27 676 TOTAL LIABILITIES 439 942 859 972 COMMENTS: Increase in equity & liabilities by 95% is the effect of: Increase in equity by 17%. This is mainly the result of net profit growth for the period, as well as minority interests which reflect the results of companies acquired in the previous periods. Increase in short term liabilities relates mainly to the liabilities of recently acquired and consolidated entities as well as credits and loans. Increase in long term liabilities by 52%, is the effect of current liabilities related to the purchase of shares in Work Express Sp. z o.o. and Prohuman 2004 Kft. Source: The Company 11
STATEMENT OF CASH FLOW 3Q 2014 vs. 3Q 2013 As at September 30th [k PLN] 2013 2014 Net profit (loss) 12 672 19 926 Total adjustments -53 140 36 767 Cash flows from operating activities -40 469 56 693 Inflows 1 006 1 077 Outflows 40 857 119 013 Cash flows from investing activities -39 851-117 936 Inflows 130 749 102 654 Outflows 50 611 20 357 Cash flows from financing activities 80 138 82 297 Increase (decrese) of cash and its net equivalents -182 21 054 Cash balance at the begining of the period 8 843 38 292 Cash balance at the end of the period 8 661 59 346 Source: The Company COMMENTS: Positive inflows from operational activity are mainly the result of a continuous process of increasing the Sales Margin, improved cash management and the consolidation in 2014 of the newly acquired cashflow generative entities in the financial results. In addition net profit increased by 57%. Higher outflows on investing activities are the result of the acquisition of new subsidiaries (Prohuman 2004 Kft., Work Express and Fiege entities). Positive inflows from financial activity are due to the increased value of credit lines available as well as the new bond program. 12
STATEMENT OF CASH FLOW 3Q 2014 vs. 3Q 2013 [m PLN] Positive inflows from operational activity besides 57% increase in net profit are the result of a continuous process of increasing the Sales Margin, improved cash management and the consolidation in 2014 of the newly acquired cashflow generative entities in the financial results. 80,0 60,0 Operating Cash Flow 56,69 Investing Cash Flow Financing Cash Flow 80,14 82,30 Final Cash Balance 59,35 40,0 20,0 0,0 8,66-20,0-40,0-60,0-40,47-39,85-80,0-100,0-120,0 Source: The Company Outflows on investing activity are the result of the acquisition of new subsidiaries (Prohuman 2004 Kft., Work Express and Fiege entities). -117,94 2013 2014 Positive inflows from financial activity due to increased value of credit lines available as well as a new bond program. 13
FINANCIAL RESULTS ACQUISITIONS (1/3) REVENUE AND EBIT TOTALS REVENUE [m PLN] EBIT [m PLN] 450,0 400,0 350,0 +40% 35,0 30,0 +26% 300,0 25,0 250,0 200,0 150,0 308,1 432,5 20,0 15,0 23,1 29,2 100,0 10,0 Q3 2013 Q3 2014 Q3 2013 Q3 2014 COMMENTS: Numbers represent all acquisitions: Work Express (PL), Antal International (PL), ProHuman (HU), Worksess/Uniserv (DE, Q3 only) Growth of acquired companies is driven by sales synergies effect and results of successful integration processes 14
2 WORK SERVICE INTRODUCTION 15
WORK SERVICE IS CEE-5 MARKET LEADER Our latest* Net Promoters Score is 37. 50% of our Strategic Customers would highly recommend us (Promoters). * NPS survey, April/May 2014 16
WE ARE A STRATEGIC HR ADVISOR Comprehensive HR COST OPTIMIZATION Solutions Labor FLEXIBILITY Solutions Labor MOBILITY Solutions HR CONSULTING Solutions OUTSOURCING Vocational TRAINING & EDUCATION Solutions 17
WE ARE A HIGH MARGIN SERVICES EXPERT Revenue split by Service Category 1H 2014 Vision 2017 Mass Margin Services 73% 50% FLEXIBLE EMPLOYMENT High Margin Services 25% 45% OUTSOURCING Very High 1.2% 3% PERSONNEL SELECTION Margin Services 0.05% 2% HR CONSULTANCY Source: The Company 18
CUSTOMERS ARE OUR MARKET RECOGNITION 19
WORK SERVICE CAPITAL GROUP 20
MARKET LANDSCAPE TOP 5 CEE-5 Competitors Work Service Market Position Market Share Growth 12-13 2014 CEE-5 value shares Market Leader +13.3% #9 +1.0% +1.0% +3.3% TOP20 #10 #1 #9 #1 n/a -17.0% n/a Source: Temporary Staffing in CEE 5 2014, IC Market Tracking 21
TOTAL PERSONNEL SERVICES MARKET 2010-2017 CEE-5 Market Value [m EUR] and Volume [1.000 employees] HIGHLIGHTS: Source: Temporary Staffing in CEE 5 2014, IC Market Tracking Market value will grow faster than market volume (10.8% vs. 6.7%). 22
2013 MARKET SIZE - VOLUME Source: CIEET 2014 23
WE OPERATE IN A VERY ATTRACTIVE REGION 24
REGION OF WORKFORCE MARKET INBALANCE Opportunity: facilitation of work force market WORKFORCE DEMAND 5.1% WORKFORCE SUPPLY 9.7% 6.7% 13.9% 4.9% 8.3% 7.2% 25
REGION OF SALARY ARBITRAGES Net average salaries Labor cost per hour [EUR] 45 40 35 40,1 38,438,0 34,4 33,2 31,431,431,3 30 28,1 25 20 20,9 15 10 10,3 8,5 7,6 7,4 5 4,6 0 Source: Eurostat 2013 26
WHAT IS OUR BUSINESS MODEL? Work Service Capital Group Brand Umbrella ORGANIC GROWTH ACQUISITIONS PORTFOLIO MIX DEVELOPMENT FACILITATE WORKFORCE MARKETS Integrate & Synergize 27
1. ORGANIC GROWTH Opportunity: CEE is a market with high potential for growth Average agency work penetration rate in 2012 Source: Ciett, 2014 28
2. ACQUISITIONS Complete full HR platform in Region of Berlin-Moscow-Istanbul #1 - #3 MARKET LEADERS 2014 GEOGRAPHICAL FOOTPRINT NICHE HIGH MARGIN SERVICES 2013 29
3. PORTFOLIO ROLL OUT Roll-out full HR Solutions suite throughout our geographical footprint Finance sector personnel outsourcing IT Specialists contracting Merchandising/Sales outsourcing Quality Control outsourcing Medical service personnel leasing Permanent recruitment Cross-boarder people exchange 30
3. PORTFOLIO ROLL OUT PRODUCT/BUSINESS LINE BRAND PL RU CZ SK DE HU RO TR Mass Margin Services Very High Margin Services TEMPORATY STAFFING PERSONNEL SELECTION X-BOARDER PEOPLE EXCHANGE OUTSOURTCING QC High Margin Services OUTSOURCING IT OUTSOURCING FC OUTSOURCING M&P Geographical expansion of high margin business lines is driver of further group margin growth. Roll out of proven business models, using proven management teams throughout geographical footprint. 31
3 BUSINESS ACTIVITIES (DETAILED) 32
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TEMPORARY WORK Temporary Work Service is conforming employment level to dynamically changing needs. 01 Lowering labor costs, due to adjusting employment level accordingly to working hour needs, based on flexible employment forms. Securing workforce resources in peak seasons. 02 03 Supporting planned and unplanned production orders. Guarantee of business processes continuity due to sick leave minimization, lowering personnel rotation, discipline and working time controlling. 04 35
TEMPORARY WORK Our service is your guarantee of business continuity with optimal labor cost structure. We are securing your business. Lowered costs of selection, recruiting and personnel rotation. Full transfer of legal and administrative responsibility. Optimization of employment structure and forms. Minimizing costs of overtimes, weekend shifts, sickness leave, disable people local fees. 36
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OUTSOURCING Our personnel or functional outsourcing allow you to focus your competencies on strategic tasks. Lowered costs of other than core business activities. Access to know-how, excellence and talented stuff of services operator. Non-core activities transfer to experts. Increased flexibility of business model and costs related to outsourced services. 38
OUTSOURCING Quality control IT Outsourcing Sales and merchandising Medic Staff and child care Maintenance, administration, cleaning Payroll and HR Admin Qualified services for financial institutions 39
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PERSONNEL SELECTION Within Personnel Selection Services we offer: Permanent placement: Other: Top Management (directors, board members) Mass recruitment High Level Management (head of sales, head of marketing/pr, logistic director, chief accountant) Special high volume Recruitment Projects within limited time framework (Sales, Call Center, BPO/SSC) Mid and low level management (product manager, regional manager etc.) Multi location, redundant positions Specialists (i.e. engineering, IT) Greenfield investments projects Non-managerial competencies specialists (marketing specialist, accountant etc.) High volume international recruitment including cross-boarder candidates relocation 41
HOW DO WE REACH CANDIDATES? Advertisement: pracuj.pl, gumtree.pl, goldenline.pl, facebook.pl, infopraca.pl, money.pl SMALL LOCALITY Local media advertising Access to reputation leaders Pay it forward action Transportation it s not your problem Recruiting office? We are everywhere LARGE AGGLOMERATIONS Mass media campaigns Social networking Huddles, agglomerations Contact with employers of similar profile, reducing Staff at the time IN CASE OF NEEDS: Mobile Recruiting Offices Recruiting Bus College and Academy Recruitment Actions Candidates Database Sourcing Tests, Screenings and Interviews 42
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HR CONSULTANCY Our Strategic HR Consultancy competencies: HR Function Audit - Employees shortage - Sickness leave - Overtimes - Weekend shifts Competence Studies, Behavioral Interviews Mass Employment Reductions Outplacement Assessment Center Development Center Employees Satisfaction and Engagement Surveys Employees Evaluation Systems Compensation and Benefits Models Employer Branding Disable People local fees (PFRON) Restructuring Personnel taking over (23 ) Interim HR MANAGER+ SMART SCAN Process Audits IN HOUSE Solutions 44
CONTACT DATA Adam JENKINS Work Service International President Head of Investors Relations adam.jenkins@workservice.pl Work Service S.A. Sky Tower Gwiaździsta Str. 66 53-413 Wrocław, PL Mob. +48 508 040 140 45