SD Worx achieves positive profit results despite corona crisis

SD Worx, a leading European HR & payroll services provider, achieved a consolidated turnover of EUR 743.3 million (-3.2% compared to 2019) and a normalised EBITDA of EUR 77.3 million (+15.3% compared to 2019) in 2020. The normalised EBITDA includes investments in digital transformation for an amount of EUR 11.8 million.

“SD Worx People Solutions, our traditional Payroll & HR segment, has realised overall positive results”, says Filip Dierckx, Chairman of the Board of Directors of SD Worx. We have signed important deals with customers, which leads to recurring income and a normalised EBITDA that is evolving well. We keep on investing in an even broader offering to meet the demands of our customers. SD Worx Staffing & Career Solutions, our segment that focuses on staffing and flexible work, has been negatively impacted by the corona crisis. Our revenue trend recovered consistently during the second half of the year and we are confident that the segment for flexible work will revive further as soon as the economy fully recovers from Covid-19 pandemic.” 

Within the consolidated turnover of EUR 743.3 million, SD Worx People Solutions – which today provides payroll and HR services to more than 70,000 customers across the world –increased its turnover from EUR 505.1 million in 2019 to EUR 529.3 million in 2020 (+4.8%).The turnover rose with 2.3% on an organic like-for-like basis. A combination of strong sales results and low churn proves the resilience of the revenues, despite difficult economic circumstances. Normalised EBITDA excluding investments in digital transformation grew from EUR 77.6 million in 2019 to EUR 85.4 million in 2020 (+10.1%). Continued investments in operational excellence and digitization have resulted in increased profit margins.

“It is our ambition to become Europe’s number one player with a strategy based on customer centricity and innovative solutions to manage the entire HR lifecycle”, says Kobe Verdonck, CEO of SD Worx People Solutions. “Changing legislation as a result of the corona crisis led to exceptional situations, a strong increase of customer questions and extra workload. I want to explicitly thank our colleagues for their extreme efforts to support our customers in these difficult times. We achieved positive results both by growing organically and through acquisitions. We welcomed Adessa and Pointlogic to our group and we acquired all shares of GlobePayroll. Also without these acquisitions, our revenue and EBITDA increased. We are also expanding our geographic scope: we recently opened an operations center in Poland and have now offices in twelve countries. Also, we signed a regional partnership in January with ADAM HCM so we can deliver services to customers in Mexico, Central America, South America, and the Caribbean. As a result, we now serve customers in 150 countries across the world.”

SD Worx Staffing & Career Solutions focuses on the market for flexible work, and provides services relating to temporary work, secondment, recruitment & selection, career guidance, outplacement and specific payroll for temps. This segment realised in 2020 a turnover of EUR 216.8 (-18% compared to 2019) and a normalised EBITDA of EUR 5.0 million (-40% compared to 2019). EBITDA including normalisations increased from EUR 3.7 million to EUR 3.9 million, due to strong cost control.

“The corona crisis had a negative impact on our sector, that was already under pressure”, says Christophe Petit, CEO of SD Worx Staffing & Career Solutions. “In the markets where we are operating, up to 17% less interim hours were performed last year compared to 2019. We were also affected at the beginning of the crisis, but thanks to the resilience, creativity and perseverance of our teams, we could limit the initial impact. We expect that 2021 will be a challenging year too. At the same time we clearly observe that companies show an increasing interest in our ability to manage the full HR lifecycle, by combining products and services from different entities in our group with our own core activities. As a result, we are considerably growing our customer base and expect to continue to do so this year.”

In 2020, additional pension provisions have been accounted for using the projected unit credit method, of which EUR 9.2 million (EUR -8.1 million in 2019) results from non-cash adjustments to actuarial assumptions (reduced discount rate) when calculating the defined benefit obligation. In IFRS, the impact of these changes to actuarial assumptions would be recorded in other comprehensive income. Please remark that all defined benefit plans have been closed to new entrants several years ago. 

Restructuring cost and integration costs amount to EUR 4.3 million and have decreased by EUR 4.4 million compared to 2019, as the Vio and Flexpoint acquisitions then merged to one brand under the SD Worx Staffing Solutions umbrella and as SD Worx People Solutions incurred some restructuring costs after the appointment of a new leadership team, which led to a change in the organization structure. In 2020, the integration costs mainly relate to measures focused on creating synergies between the People Solutions and Staffing Solutions segment, such as sharing office locations and support units.

Other non-recurring costs mainly relate to transaction costs and advisory fees for the group’s M&A activities (EUR 0.5 million) and provisions for non-committed share plans for the group management (EUR 2.1 million).

Depreciations on tangible and intangible assets of EUR 20.2 million have been recorded per year-end 2020 and are mainly related to the group's investments in software and other digital solutions.

As in line with BE GAAP accounting policies, the goodwill arising on business combinations are amortized on a 10-year basis. Total goodwill amortizations amount to EUR 32.9 million in 2020. In IFRS, this consolidation goodwill would not be amortized but tested for impairment on an annual basis.

In the financial year 2019, an exceptional goodwill impairment of EUR 13.0 million was recorded to account for the changed market environment in the Staffing & Career Solutions business. As per June 2020, an impairment loss of m€2,2 was recorded in the interim financial statements on the Staffing & Career Solutions cash generating unit due to prudent assumptions taken about the impact of Covid-19 on the industry. As per year-end 2020, the economy and temping business has recovered at a faster pace than originally assumed. Additionally, due to the BE GAAP amortizations recorded on the consolidation goodwill in the second semester, the carrying amount of the Staffing & Career Solutions cash generating unit has further decreased to an even lower net book value. As a consequence, the impairment loss recorded in the June 2020 interim financial statements has been reversed.

A positive financial result of EUR 2.6 million was realised in 2020, mainly due to the sale of financial investments under discretionary management which resulted in a realised gain of EUR 6.3 million. Financial expenses largely relate to the interest costs of the subordinated EUR 80 million bond issued in June 2019 and the committed EUR 125.0 million revolving credit facility.

Tax charges increased by EUR 1.4 million to EUR 10.2 million in 2020, predominantly due to a higher taxable result.

The net result, recorded at EUR 0.5 million, increased significantly compared to 2019 due to the aforementioned increase in operating profit, a decrease in non-recurring costs and non-cash impairments on goodwill. 

The net result, excluding actuarial pension adjustments and goodwill amortisation, increased from EUR 20.0 million in 2019 to EUR 41.2 million in 2020.

“With a cash position of EUR 172.7 million as of 31 December 2020, committed outstanding credit lines and a growing operating cash flow as compared to last year, SD Worx is ready to continue its growth story in 2021," said Filip Dierckx, Chairman of the SD Worx Board of Directors.