Business review

Country reviews

FTE employees and branches at year-end by geography

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FTE employees

 

 

Branches

 

 

 

2010

2009

% variance

2010

2009

% variance

 

 

 

 

 

 

 

Geographical breakdown

 

 

 

 

 

 

(year-end)

 

 

 

 

 

 

France

7,017

6,910

2

1,552

1,659

(6)

North America

7,169

5,208

38

1,063

950

12

UK & Ireland

2,771

2,081

33

358

353

1

Japan

2,049

2,177

(6)

146

171

(15)

Germany & Austria

2,356

2,279

3

471

515

(9)

Benelux

1,570

1,485

6

346

348

(1)

Italy

1,552

1,461

6

422

428

(1)

Iberia

1,493

1,499

0

380

387

(2)

Nordics

1,041

1,009

3

192

204

(6)

Australia & New Zealand

548

495

11

78

83

(6)

Switzerland

455

442

3

105

106

(1)

Emerging Markets

3,858

3,051

26

457

395

16

Corporate

229

217

6

Adecco Group

32,108

28,313

13

5,570

5,599

(1)

France

Within Europe, France is a key market for staffing, with an approximate share of 8% [1] of the global market. While the staffing industry in general shows a high degree of fragmentation, the French market is much more concentrated: the three major players hold a total market share of 70% [1]. Adecco is the market leader in France, with a market share of 31% [1]. France is a key market for our Company, where we generated 30% of our total revenues in 2010. Approximately 90% of revenues stemmed from the General Staffing business, the largest part of which comprises blue-collar industrial staffing. Professional Staffing still represents a minor part of our business in France.

Steady deregulation of the temporary staffing industry in France has opened up opportunities for our Company. Since 2005, permanent placements have been permitted, which has led to strong growth in that segment. In 2009, the French parliament voted in favour of opening up the public sector to temporary staffing services, paving the way for temporary staffing in hospitals, as well as in state and local administrations. Not unexpectedly, given the rigid structure of the public sector, using private agencies for temporary staffing has evolved only slowly up to now. The public sector, however, represents an attractive long-term opportunity for the industry. Apart from the increased need of companies for a more flexible workforce, the opening of the public sector to temporary staffing is seen as a driver for higher peak penetration rates in the French market.

Adecco’s business in France experienced robust growth throughout 2010. Revenues increased 16% compared with the previous year.

France was the first core European country to return to positive growth as early as Q1 2010. Growth was particularly driven by the industrial segment, which increased 19%. EBITA increased strongly by 214% to EUR 212 million. The EBITA margin was 3.8%, 240 bps above the prior year’s level. On an adjusted basis, EBITA increased by 35%, and the corresponding margin increased by 50 bps. The significant improvement in profitability is the result of the pick-up in volumes and the structurally improved cost base, leading to attractive operating leverage. The measures we implemented during 2008 and 2009 in order to structurally reduce the cost base in France meant SG&A in 2010 increased only 1% on an adjusted basis. At the same time, price discipline remained a priority. Pricing stabilised in the French market in 2010. Despite the strong development of the topline, FTE employees only increased by 2%, comparing year-end 2010 with 2009, while the number of branches declined by 6%.

Priorities for our French business in 2011 include further improving client segmentation, with a special focus on the Office segment. We will also focus our efforts on developing the public sector and Professional Staffing.

North America

The North American market, which represents 27% [1] of the global staffing market, is the largest worldwide. It is highly fragmented, and while we are the largest publicly listed player, our market share is only about 5% [1]. From a regulatory perspective, this market is amongst the most liberalised in our industry.

The region represented 19% of the Group’s total revenues in 2010. The share of revenues generated in the Professional Staffing segment is amongst the highest when compared with our other markets, also thanks to the acquired MPS Group. Professional Staffing revenues were roughly 51% of total revenues while 49% stemmed from the General Staffing segment. As was the case in France, North America returned to positive organic growth in Q1 2010, after three years of declining revenues. The region’s growing demand for temporary jobs was in stark contrast to the slow progression in the creation of permanent positions and a persisting high level of unemployment. Of the approximately 900,000 temporary staffing jobs lost during the recession, close to 500,000 were recovered throughout 2010. As a result, the penetration rate increased from the trough of 1.3% to 1.7% at the end of 2010. Growth was strongest in the early-cyclical industrial segment, but also the Office business returned to organic growth as early as Q1 2010. Professional Staffing showed a strong recovery in growth in Q2 2010, mainly driven by the Engineering & Technical segment. On the contrary, the counter-cyclical outplacement business weakened considerably throughout 2010, but profitability held up very well, still generating high double-digit EBITA margins.

Overall, revenues in the region amounted to EUR 3,609 million, up 56%, or 14% organically. The EBITA margin was 4.8%, flat compared with the prior year. EBITA increased by 55% to EUR 174 million. On an organic and adjusted basis, EBITA declined by 6%, mainly due to the declining outplacement business. Integration costs, related to MPS Group, amounted to EUR 20 million in 2010. The EBITA margin before integration costs was 5.4%, a 30 bps increase compared with the prior year’s adjusted figure. Acquisitions had a positive impact on the North American EBITA margin of 50 bps.

A key focus for us in 2010 was the completion of the MPS Group acquisition and the subsequent integration. Acquiring MPS Group was an important step in our strategy to strengthen the higher-margin Professional Staffing business. Through the cycle, growth rates in Professional Staffing are poised to outgrow the General Staffing segment due to a combination of lower penetration rates, scarcity of qualified personnel and higher wage growth. To date, the integration of the MPS Group has progressed very well and we expect to exceed the targeted EUR 25 million synergies. We are particularly pleased with the financial performance of MPS Group in 2010, as the business achieved strong revenue growth and better than anticipated profitability.

The acquisition of MPS also enhanced Adecco’s Managed Services Provider (MSP) and Recruitment Process Outsourcing (RPO) offering through the leading technology platform Beeline. Having the flexibility to offer services, technology or combined programmes is increasingly becoming a strategic advantage within the HR industry, as clients seek to outsource HR processes and streamline their supplier relationships.

As the leader in HR solutions, Adecco Group is in pole position to expand its staffing share in existing client accounts, realise management fees for managing clients’ overall workforce spend, expand upon new relationships and become the strategic partner of clients in managing their staffing, recruitment and HR solutions needs.

The focus in North America in 2011 will be the completion of the integration of MPS Group. Furthermore, we will continue to grow our General and Professional Staffing businesses.

UK & Ireland

Representing 10% [1] of global staffing revenues, the UK is the third-largest market in the industry worldwide. As in the USA, the UK staffing market is highly fragmented and the labour market is fairly liberalised. Through the acquisition of Spring and MPS, we have taken the lead in the UK with a market share of 8% [1] in 2010. With these moves, we strengthened our management capabilities in the UK, added scale and expanded our Professional Staffing offerings.

In 2010, our revenues amounted to EUR 1,630 million, up 72%, or down 4% organically. This represented 9% of the Group’s total revenues. From a business mix perspective, roughly 65% of our revenues stemmed from the Professional Staffing segment, while 35% were generated in General Staffing. Profitability in the UK & Ireland was markedly improved in 2010. This was achieved thanks to a more favourable business mix, increased scale and synergies from the integration of the acquired businesses. EBITA amounted to EUR 22 million. Before integration costs of EUR 13 million, the EBITA margin was 2.2%, a 180 bps increase compared with the prior year’s adjusted figures.

The recovery in the UK lagged behind other European markets. The lower exposure to early cyclical segments, a high share of government business (roughly one-fifth of the total UK & Ireland revenues) and a very competitive environment pressured our business. While overall revenue growth, organically, remained in negative territory, we experienced strong organic revenue growth in the Information Technology segment. Likewise, the permanent placement business increased strongly with revenues up 27% organically, albeit from low absolute levels.

In the highly challenging UK business environment, we continued to focus internally on optimising our own business and achieving the targeted synergies. Spring has been successfully integrated into the Adecco Group and the targeted synergies of EUR 13 million were slightly exceeded. We have combined the regional headquarters in a single location and have moved to a joint front and back-office platform.

Going forward, we will focus on leveraging our market-leading position and enhance our profitability. Our top priorities in the UK are clear: capitalising on the successful integration of Spring Group, ensuring that achieved synergies will stick, completing the integration of the UK-based activities of MPS, continued improvement of service delivery models and a systematic approach to client attraction and retention.

Japan

The Japanese market is the second-largest staffing market in the world, representing roughly 23% [1] of the global market. This market had robust growth since the beginning of liberalisation in 1996. Fragmentation is high, with the five largest players representing less than 20% [1] of the market, while the remainder is dominated by numerous small regional staffing firms. Adecco is currently the fourth-largest player in the Japanese market.

The Japanese staffing market lagged behind other markets in 2010. Specifically for Adecco, the delay in the recovery of revenue growth is also related to our high exposure to the late-cyclical office and clerical business. Approximately 80% of our total Japanese revenues are generated in this segment. Demand for temporary staff was also impacted by government proposals to restrict the use of temporary employees. The proposed regulation is foreseen to be implemented in three steps by 2014. From 2014, the government aims to ban temporary staffing in all sectors except in 26 pre-defined skill sets. These restrictions would mostly apply in the manufacturing industries and the impact on Adecco would be limited and manageable, as 95% of our business is included in the exemptions. The proposed legislation nevertheless caused hesitancy among clients with regards to the use of temporary staff. Consequently, our business continued to post declining revenues compared to the previous year, although the revenue trend showed signs of stabilisation during the course of 2010.

For the full year, our revenues in Japan declined by 3%, down 12% in constant currency, to EUR 1,297 million. Despite challenging market conditions, management continued to excel in terms of cost control. While EBITA declined by 27% to EUR 69 million or 34% in constant currency, the EBITA margin was 5.3% in 2010, down 180 bps compared to the previous year. We continued to be the cost leader in the market, delivering the highest profitability compared with our mainly local peers. Our efficient service model is the main differentiating factor in the Japanese market. During the past few years we have modified our traditional branch model, mainly in major urban areas, by separating the sales and recruitment processes. The aim was to attract a higher number of candidates in a market characterised by supply shortage as well as to improve client service. Our presence at high-traffic locations enables us to funnel a large number of candidates into an efficient screening process.

The sales process, on the other hand, is centralised in contact centres in various cities, while a comprehensive database hosting client and candidate information forms the link between the job and the contact centres. In terms of the business mix between Professional and General Staffing, approximately 16% of our revenues stem from the Professional Staffing segment, while roughly 84% are generated in General Staffing.

So far, the Japanese staffing market has not yet shown signs of revival. However, Adecco has recently won long-term outsourcing contracts, which will positively influence revenue growth as of the beginning of 2011.

Germany & Austria

Globally and within Europe, Germany is a key market for staffing, with a roughly 6% [1] share of the total global market. Our market share, in what we continue to view as one of the most attractive markets, is 10% [1], making us the number two in Germany. Given that liberalisation of this market took place as recently as 2004, penetration rates are still low, at approximately 1.7% [1], in a fragmented and high-margin market. In the medium term, this offers structural growth opportunities for us as greater acceptance of temporary staffing and the need for flexibility will result in higher penetration rates.

In 2010, the German economy witnessed a strong recovery from the severe downturn. Germany’s exposure to export-oriented sectors such as the capital goods industry and the automotive business, coupled with improving domestic consumption, resulted in above-average GDP growth in a European context. In 2010, our revenues in Germany & Austria increased by 20% to EUR 1,238 million. Despite the widespread use of the short-term work concept during 2009 and into 2010, the improvement in revenue growth in Germany & Austria was among the highest within the Adecco Group. The number of employed persons reached the highest level since the re-unification in 1990, whereas the number of unemployed dropped below the 3 million mark to a level not seen since 1992. The staffing industry benefitted from these favourable trends: rising demand for personnel coupled with scarcity of qualified professionals and an increasing share of flexible workers within the workforce drove demand for temporary staffing solutions.

From a service perspective, Professional Staffing revenues represented approximately 17% of our revenues in Germany & Austria, while General Staffing contributed 83%. Compared with 2009, EBITA increased by 166% to EUR 84 million. This resulted in an EBITA margin of 6.8%, up 320 bps compared with the adjusted prior year’s figure.

As of July 1, 2010, a new three-year collective wage agreement for temporary employees came into effect. The agreement was signed by the BZA temporary staffing association and the major unions, effectively ensuring a minimum wage for temporary staff of the main staffing agencies, thus increasing the attractiveness of the temporary staffing sector. At Adecco, the minimum wage affects mainly lower skilled people, whereas the majority of our associates earn above the minimum wage.

The comparatively higher profitability in Germany is attributable to the fact that temporary employees are on our own payroll – a regulation particular to the German and Swedish markets, where temporary employees are effectively permanent employees of the staffing firm.

Employing temporary associates permanently is in stark contrast to most other European countries, where the employment contract signed with temporary staff is limited to the duration of a certain assignment at the client. While having the temporary associates on our own payroll is to some extent a liability during economically difficult times, it also allows for premium pricing to factor in this risk, resulting in higher overall operating margins.

In 2011, our focus will be on further developing the Adecco brand in the small and medium enterprise segment with an optimised delivery model and management structure. A key priority will be to selectively invest in all major brands in Germany (Adecco, DIS, Tuja) in order to participate in the attractive growth dynamism of the German market. We aim to achieve strong operational leverage as our organisation is well positioned to benefit from both the structural and cyclical growth potential and from increasing demand for our Professional Staffing services.

Further information on countries and regions can be found here.

 

[1]Adecco estimate