Adecco SA: improving results for the third quarter 2004

The Adecco Group announced today results for the third quarter of 2004, which include revenues of EUR 4.5 billion and net income of EUR 102 million. For the nine months the Adecco Group reported revenues of EUR 12.5 billion and net income of EUR 227 million. Commenting on the results, Jrme Caille, Adecco Group Chief Executive Officer, said: These are solid results. Gross margin has stabilized and operating income margin is at the highest
level since 2001. Adecco Staffing is recovering well and continues to demonstrate operational gearing, while Ajilon Professional’s sales growth further accelerated and its operating income margin increased. The increase in permanent placement and temp gross margin offset the gross margin
decline resulting from the deceleration in LHH. We are cautiously optimistic about our prospects for 2005.

Sales

Group sales for the third quarter rose 5% to EUR 4.5 billion, a 7% increase in constant currency compared to the same period last year. This represents a 1% decline in the growth rate compared with Q2, which is due to a lower number of business hours in Q3 compared to Q2. On a like-for-like basis, the sales growth rate was maintained in Q3 2004.

1 Unless stated otherwise

Adecco SA, Q304 results Page 2 of 4

Gross Margin

Year on year gross margin at group level remained stable at 16.6% in Q3 2004. Excluding the LHH Career Services division, gross margin improved 30bp this quarter compared to last year’s third quarter. Ajilon Professional reported solid gross margin improvements in Q3 2004 compared to Q3 2003. Adecco Staffing USA remains focused on efforts to increase gross margin, and achieved a solid margin increase in the third quarter compared to the same period a year ago.

Operating Costs

As a percentage of sales the operating cost ratio remained stable at 12.7% in the third quarter, excluding costs associated with the 2003 financial reporting delay of EUR 3 million. Operating costs rose 7% in constant currency in Q3 2004 compared to Q3 2003, primarily due to investments in branch expansion and new hires in fast growth geographies. Stock options expensing and higher Sarbanes-Oxley and compliance costs accounted for 2% of this increase, while costs associated with the 2003 financial reporting delay accounted for 1% of the increase.

Operating Income

Operating margin improved by 10bp to 3.9% in the third quarter compared to the same quarter last year. Operating income was up 7% at EUR 174 million.

Net Income and EPS2

Net income was down 2% to EUR 102 million in the third quarter, a basic EPS of EUR 0.55 for Q3 2004 compared to EUR 0.56 for the third quarter last year, principally as a result of an increase in the effective tax rate from 27% in Q3 2003 to 36% in Q3 2004 relating to treatment of the reporting delay
costs. For the nine months, net income was down 11% to EUR 227 million. Basic EPS for the nine months was EUR 1.21 compared to EUR 1.36 for last year’s nine months.

Cash Flow and Net Debt

Cash flow from operations was EUR 163 million in the nine months, which represents a decrease of EUR 126 million compared with the same period last year. This decrease reflects primarily cash disbursements relating to the financial reporting delay, an increase in accounts receivable due to the
cancellation of the UK securitisation program, and an increase in working capital to support sales growth. Net debt was further reduced by EUR 157 million in the nine months to EUR 767 million.

Currency Impact

Currency fluctuations reduced reported sales by 2% and operating income by 1% in the third quarter. In the nine months, the negative currency impact was 3% and 1% for sales and operating income, respectively.

Adecco Staffing Division

In this quarter, the division accounted for 89% of group revenue and 87% of total contribution generated by operating units. The quarter saw a year on year increase in sales of 7% in constant currency to EUR 4 billion, with all regions delivering positive sales growth in constant currency. Contribution in this quarter grew 16% in constant currency to EUR 186 million, resulting in a 40bp contribution margin increase compared to the third quarter of 2003.

Adecco France grew sales by 2% in the quarter. Contribution progressed in line with sales as a result of strong cost controls and stable margins.

Adecco North America sales rose 4% in constant currency in the third quarter. Despite some sales growth deceleration, efforts to restore gross margin led to encouraging gross margin enhancement in Q3 2004 compared to the same quarter last year.

Adecco UK grew sales by 5% in constant currency, but with contribution dilution as a result of a change in the methodology for accruing vacation expense, as disclosed in Q2.

Adecco Japan grew sales by 15% in constant currency. Investments in branch expansion and additional costs for social charges limited the contribution growth to 3%.
Adecco Italy grew sales by 13%. Combined with effective cost management, this increase led to 140bp improvement in return on sales in Q3 2004 compared to the same period last year.

2 EPS: Earnings per share
Adecco Germany grew sales by 19%, accelerating from a 2% decline posted in Q1 2004 and an increase of 15% in Q2 2004. This performance was achieved together with strong profitability. Developments in Germany continue to reflect the very positive market conditions following the labour market deregulation.
Adecco Iberia delivered sales growth of 7% and continued to improve gross margins and profitability as a result of the extension of its service offering into HR solutions.
Adecco Benelux sales continued to accelerate with a 17% sales increase in Q3 2004 and excellent operational gearing.

Ajilon Professional Division

In the Ajilon Professional Services Division, which represented 10% of group revenues, sales for the quarter were up 10% in Euro and 12% in constant currency to EUR 454 million, as the division continued to build momentum. Contribution was up 48% in Euro and 53% in constant currency to EUR 23 million, a 5.1% return on sales, representing a 140bp improvement over the third quarter of 2003. Amongst the major business units, Ajilon UK Consulting continued sales acceleration to 29% at constant currency in Q3 2004 together with 70bp gross margin increase.

LHH Career Services Division

In the LHH Career Services Division, which represented 1% of group sales and 2% of contribution generated by operating units, revenues fell by 24% in Euro and 19% in constant currency to EUR 35 million, due to continuing cyclical deceleration in demand. Contribution declined by 68% (down 66% in constant currency) to EUR 4 million. Despite cyclical deceleration, LHH continued to deliver the highest profitability rate in the Group. Revenue growth in this counter-cyclical business is positioned to resume as M&A activity picks up.

Class Action Litigation

Adecco is defending this action vigorously and recently filed a motion to dismiss the consolidated class action complaint. At this stage, the Adecco Group cannot predict when the class action litigation will be resolved or whether the ultimate resolution of this matter will have a material adverse effect on the Adecco Group’s consolidated financial position, results of operations or cash flows.

U.S. State Unemployment Tax Reviews

As previously disclosed in the half-year report 2004, some states have advised Adecco US and other companies that they are reviewing the unemployment tax rates applied as a result of some past business reorganizations in the U.S. As of this date, Adecco US has not yet received any assessments from any state. Liability, if any, will depend on the resolution of future assessments and cannot be reasonably estimated at this time but may be material to the Adecco Group’s consolidated financial position, results of operations or cash flows. Adecco US is cooperating with the authorities and intends to evaluate and, as appropriate, defend any such assessments.

Outlook

We expect positive sales growth to continue this year in line with market developments and we are cautiously optimistic about our prospects for 2005. Our focus on margin enhancement will remain strong, supported by expansion of permanent placement activity and professional staffing. Our aspiration is to further improve gross margin at Group level through price discipline and management of the business mix.

Forward-looking statements

Information in this release may involve guidance, expectations, beliefs, plans, intentions or strategies regarding the future. These forward-looking statements involve risks and uncertainties. All forward looking statements included in this release are based on information available to Adecco S.A. (the Company) as of the date of this release, and we assume no duty to update any such forward-looking statements. Factors that could affect the Company’s forward-looking statements include, among other things: the outcome of investigations by governmental agencies or stock exchanges; the assertion and resolution of US unemployment tax assessments; the pace of economic recovery in various regions and the demand for temporary staffing; the impact and result of any litigation (including US class action litigation); any adverse developments in existing commercial relationships, disputes or legal proceedings; volatility of the Company’s stock price; intense competition in the markets in which the Company competes; and negative reactions from the Company’s shareholders, creditors or vendors with respect to any of the foregoing matters. The statements in this release are not guarantees of future performance and actual results could differ materially from our current expectations. Numerous factors could cause or contribute to such differences. Please refer to the Company’s Annual Report on Form 20-F for the year ended December 28, 2003, and other reports filed with or submitted to the U.S. Securities and Exchange Commission from time to time, for a further discussion of the factors and risks associated with our business.