Annual Report 2011

Adecco Group –
Operating and financial review and prospects
in millions, except share and per share information

3. Operating results

3.1 Overview

Overall, 2011 saw a healthy business environment and a growth in demand for HR services. Revenues increased in 2011 by 10% to EUR 20,545 when compared to 2010.

Operating income before amortisation of intangible assets increased by 13% from EUR 722 in 2010 to EUR 814 in 2011.

Operating income increased by 14% to EUR 763 in 2011 compared to EUR 667 in 2010.

Net income attributable to Adecco shareholders increased to EUR 519 in 2011 compared to EUR 423 in 2010.

3.2 Revenues

Revenues increased by 10% to EUR 20,545 in 2011 and by 11% in constant currency. On an organic basis, revenues increased in 2011 by 10%. This increase was driven primarily by an increase in temporary staffing volume as temporary hours sold rose by 9% to 1,261 million. Permanent placement revenues were EUR 344 in 2011, which represents an increase of 19% versus 2010, or 18% organically. Career transition (outplacement) revenues were EUR 206 in 2011 which represents a decrease of 8%, or 16% organically.

In France, Germany & Austria, Italy, and Emerging Markets revenues increased organically by double digit percentages.

Segment performance

The segment breakdown of revenues is presented below:

Download xls sheet

 

 

 

Variance %

in EUR

2011

2010

EUR

Constant
currency

 

 

 

 

 

Revenues [1]

 

 

 

 

France

6,066

5,494

10

10

North America [2]

3,646

3,488

5

10

UK & Ireland [2]

1,707

1,630

5

6

Japan

1,406

1,295

9

4

Germany & Austria

1,544

1,231

25

25

Benelux

961

889

8

8

Italy

1,032

842

23

23

Nordics

795

731

9

5

Iberia

734

728

1

1

Australia & New Zealand

510

431

18

9

Switzerland

474

392

21

7

Emerging Markets

1,434

1,256

14

18

LHH [2]

236

249

(5)

(3)

Adecco Group [2]

20,545

18,656

10

11

[1]Since January 1, 2011, LHH is reported as a separate segment. The 2010 information has been restated to conform to the current year presentation.

[2]In 2011, revenues changed organically in North America by 8%, UK & Ireland by 5%, LHH by -13%, and Adecco Group by 10%.

France

Revenues in France increased by 10% to EUR 6,066 in 2011. Temporary hours sold grew by 7% and temporary staffing services bill rates increased by 3% versus 2010 in constant currency. In 2011, France accounted for 30% of the Company’s revenues.

North America

Revenues in North America increased by 5%, by 10% in constant currency, or by 8% organically, to EUR 3,646 in 2011. Temporary hours sold grew by 9% and bill rates increased by 1% versus 2010 in constant currency. North America contributed 18% to the Company’s revenues in 2011.

UK & Ireland

UK & Ireland’s revenues increased by 5% or by 6% in constant currency, to EUR 1,707 in 2011. Revenues increased by 5% on an organic basis versus 2010. Temporary hours sold increased by 1% and bill rates grew by 3% in constant currency. UK & Ireland generated 8% of the Company’s revenues in 2011.

Japan

Revenues in Japan increased by 9% or by 4% in constant currency, to EUR 1,406. Temporary hours sold decreased by 7% and bill rates remained unchanged in constant currency. Revenues in outsourcing were up 92% in constant currency. In 2011, 7% of the Company’s revenues were generated in Japan.

Germany & Austria

Germany & Austria’s revenues increased by 25%, to EUR 1,544 in 2011, reflecting a 21% increase in temporary hours sold and a 3% increase in bill rates. Revenues in Germany & Austria accounted for 7% of the Company’s revenues in 2011.

Benelux

In the Benelux countries, revenues increased by 8% to EUR 961 in 2011. Temporary hours sold increased by 7% and bill rates increased by 1%. The Benelux revenues in 2011 accounted for 5% of the Company’s revenues.

Italy

In Italy, revenues increased by 23% to EUR 1,032 in 2011 as temporary hours sold increased by 21% and bill rates grew by 1%. Italy accounted for 5% of the Company’s revenues in 2011.

Nordics

Revenues in the Nordic countries increased by 9%, or 5% in constant currency, to EUR 795. Temporary hours sold increased by 8% and the bill rates remained unchanged in constant currency. Revenues in outsourcing declined by 31% in constant currency. The Nordics revenues in 2011 accounted for 4% of the Company’s revenues.

Iberia

In Iberia, revenues increased by 1% to EUR 734. The temporary hours sold decreased by 4% and the bill rate increased by 3%. Revenues in outsourcing increased by 6% compared to 2010. In 2011, Iberia contributed 4% to the Company’s revenues.

Australia & New Zealand

In Australia & New Zealand, revenues increased by 18% or by 9% in constant currency, to EUR 510 in 2011. Australia & New Zealand contributed 2% to the Company’s revenues in 2011.

Switzerland

In Switzerland, revenues increased by 21% or by 7% in constant currency, to EUR 474. Switzerland revenues represented 2% of the Company’s revenues in 2011.

Emerging Markets

In the Emerging Markets, revenues increased by 14% or by 18% in constant currency, to EUR 1,434. The Emerging Markets represented 7% of the Company’s revenues in 2011.

LHH

Revenues of Lee Hecht Harrison (“LHH”), Adecco’s career transition and talent development business, amounted to EUR 236, a decrease of 5% or 13% organically. LHH represented 1% of the Company’s revenues in 2011.

Business line performance

The business line breakdown of revenues is presented below:

Download xls sheet

 

 

 

Variance %

in EUR

2011

2010

EUR

Constant
currency

 

 

 

 

 

Revenues [1]

 

 

 

 

Office

5,301

4,871

9

9

Industrial

10,642

9,403

13

13

General Staffing

15,943

14,274

12

12

 

 

 

 

 

Information Technology [2]

2,176

2,049

6

8

Engineering & Technical [2]

1,009

956

6

9

Finance & Legal [2]

722

705

2

6

Medical & Science [2]

384

360

7

7

Professional Staffing [2]

4,291

4,070

5

7

 

 

 

 

 

Solutions [2]

311

312

0

3

 

 

 

 

 

Adecco Group [2]

20,545

18,656

10

11

[1]Breakdown of staffing revenues into Office, Industrial, Information Technology, Engineering & Technical, Finance & Legal, and Medical & Science is based on dedicated branches. Solutions include revenues from Human Capital Solutions, Managed Service Programmes (“MSP”), Recruitment Process Outsourcing (“RPO”), and Vendor Management System (“VMS”). The 2010 information has been restated to conform to the current year presentation.

[1]In 2011, revenues changed organically in Information Technology by 6%, Engineering & Technical by 7%, Finance & Legal by 1%, Medical & Science by 5%, Professional Staffing by 5%, Solutions by -6%, and Adecco Group by 10%.

General Staffing

The Company’s Office and Industrial businesses, which represented 78% of total revenues in 2011 increased by 12% in constant currency to EUR 15,943 in 2011.

In the Office business, revenues overall increased by 9% in constant currency. Revenues in constant currency increased in Emerging Markets (19%), North America (20%), Japan (4%), Nordics (3%), and France (2%), whereas revenues decreased in constant currency in UK & Ireland (–1%). Japan, Emerging Markets, North America, Nordics, UK & Ireland, and France generated more than 80% of the revenues in the Office business.

In the Industrial business, revenues increased by 13% in constant currency. Revenues increased in France (11%), Germany & Austria (30%), Italy (25%), Benelux (11%), and in North America (7%). France, Germany & Austria, North America, Italy, and Benelux accounted for over 80% of the revenues in the Industrial business.

Information Technology

In Information Technology, the Company’s revenues increased by 8% in constant currency, or by 6% organically compared to 2010. Revenues increased organically in UK & Ireland (10%) and Australia & New Zealand (13%), whereas revenues declined organically in North America (–3%). UK & Ireland, North America, and Australia & New Zealand contributed over 80% to the business line’s revenues.

Engineering & Technical

Revenues in the Company’s Engineering & Technical business line increased by 9% in constant currency, or by 7% organically, compared to 2010. Revenues increased in Germany & Austria by 15%, and increased organically in North America by 8%. Over 75% of the business line’s revenues were generated in North America and Germany & Austria.

Finance & Legal

In Finance & Legal, the Company experienced a revenue expansion of 6% in constant currency, or 1% organically. Organically revenues increased in North America by 5%, but declined in UK & Ireland (–12%) when compared to 2010. North America and UK & Ireland contributed around 75% to the revenues of the business line Finance & Legal.

Medical & Science

Medical & Science revenues grew by 7% in constant currency or by 5% organically. Revenues increased organically in North America (11%) and France (11%), whereas in the Nordics revenues declined by 28% compared to 2010. France, North America, and Nordics accounted for over 80% of the business line’s revenues.

Solutions

The Company’s Solutions revenues increased by 3% in constant currency or declined by 6% organically.

3.3 Gross profit

Gross profit increased by 7%, or by 8% in constant currency to EUR 3,566 in 2011. Excluding acquisitions, which had a positive impact of 20 basis points (“bps”), gross margin was down 60 bps. Lower gross margins in the temporary staffing business (–50 bps) and the lower contribution of outplacement (–20 bps) were the main drivers behind this decline.

The change in gross margin in 2011 compared to 2010 is as follows:

Download xls sheet

 

%

 

 

Gross margin 2010

17.8

Temporary staffing

(0.5)

Permanent placement

0.1

Outplacement

(0.2)

Acquisitions

0.2

Gross margin 2011

17.4

3.4 Selling, general, and administrative expenses

During 2011, the Company maintained its emphasis on cost control. Selling, general, and administrative expenses (“SG&A”) increased by 6%, same in constant currency or 4% organically, reflecting a decrease in SG&A as a percentage of revenues of 60 bps to 13.4% from 14.0% in 2010.

Compensation expenses, which comprised approximately 70% of total SG&A, increased by 7% in constant currency to EUR 1,954 in 2011. The average FTE employees during 2011 increased by 5% (organically 4%) to over 32,500 and the average number of branches during 2011 increased by 2% (organically 1%) to over 5,500. At year end 2011, the number of FTE employees and the number of branches exceeded 33,000 and 5,500, respectively.

The following table shows the average FTE employees and the average branches by segment:

Download xls sheet

 

FTE employees

Branches

 

2011

% variance

2011

% variance

 

 

 

 

 

Segment breakdown (yearly average)

 

 

 

 

France

6,229

0

1,388

3

North America

6,838

6

949

(4)

UK & Ireland

2,831

5

356

(2)

Japan

1,948

(6)

133

(8)

Germany & Austria

2,579

13

497

3

Benelux

1,567

4

343

1

Italy

1,578

7

429

0

Nordics

1,051

4

193

4

Iberia

1,513

4

398

7

Australia & New Zealand

519

(1)

67

(11)

Switzerland

424

1

98

(4)

Emerging Markets

4,200

21

472

9

LHH

1,311

(7)

200

25

Corporate

238

9

 

 

Adecco Group

32,826

5

5,523

2

Marketing expenses were EUR 81 in 2011, compared to EUR 68 in 2010. Bad debt expense increased by EUR 4 to EUR 16 in 2011.

3.5 Amortisation of intangible assets

Amortisation of intangible assets decreased to EUR 51 in 2011 from EUR 55 in 2010.

3.6 Operating income

Operating income before amortisation of intangible assets increased by 13% from EUR 722 in 2010 to EUR 814 in 2011 and by 14% organically. Operating income increased by 14% to EUR 763 in 2011 compared to EUR 667 in 2010.

The segment breakdown of operating income is presented in the following table:

Download xls sheet

 

 

 

Variance %

in EUR

2011

2010

EUR

Constant
currency

 

 

 

 

 

Operating income

 

 

 

 

France

220

199

10

10

North America

161

134

20

28

UK & Ireland

32

22

46

50

Japan

80

69

16

12

Germany & Austria

110

82

34

34

Benelux

44

41

5

5

Italy

60

38

60

60

Nordics

18

38

(51)

(53)

Iberia

24

27

(11)

(11)

Australia & New Zealand

18

12

53

42

Switzerland

50

40

24

11

Emerging Markets

43

36

19

24

LHH

36

58

(39)

(37)

Corporate expenses

(82)

(74)

 

 

Operating income before amortisation of intangible assets

814

722

13

14

Amortisation of intangible assets

(51)

(55)

 

 

Adecco Group

763

667

14

16

France

France’s operating income increased by 10% to EUR 220 in 2011. The operating income margin was 3.6% in 2011, unchanged from 2010.

North America

North America’s operating income increased by 20%, or by 28% in constant currency, to EUR 161 in 2011. The operating income margin was 4.4% in 2011, an increase of 60 bps compared to 2010. Integration costs relating to the MPS acquisition were EUR 4 in 2011 and EUR 20 in 2010.

UK & Ireland

UK & Ireland’s operating income increased from EUR 22 in 2010 to EUR 32 in 2011. The operating income margin was 1.9% in 2011, an increase of 50 bps compared to 2010. Integration costs related to the Spring and MPS acquisitions were EUR 2 in 2011 and EUR 13 in 2010.

Japan
Japan’s operating income increased in 2011 by 16%, or 12% in constant currency to EUR 80 and the operating income margin increased by 40 bps to 5.7% compared to 2010, mainly due to a higher gross margin.

Germany & Austria

Germany & Austria’s operating income increased by 34% to EUR 110 in 2011 and the operating income margin was 7.1%, an increase of 40 bps compared to 2010, mainly due to increasing revenues and lower SG&A as a percentage of revenues.

Benelux

In the Benelux countries, operating income increased to EUR 44 in 2011. The operating income margin decreased by 20 bps to 4.5% in 2011 compared to 2010.

Italy
In Italy, operating income grew by 60% to EUR 60 in 2011 and the operating income margin expanded by 130 bps to 5.8% compared to 2010, mainly due to a strong increase in revenues and lower SG&A as a percentage of revenues.

Nordics

Operating income in the Nordics decreased by 51% or 53% in constant currency to EUR 18 in 2011. The operating income margin decreased by 280 bps to 2.3% in 2011 compared to 2010. The 2011 results were negatively impacted by the exit of the nursing home outsourcing business in Norway.

Iberia

In Iberia, operating income decreased by 11% to EUR 24 in 2011. The operating income margin decreased by 50 bps to 3.2% in 2011 compared to 2010.

Australia & New Zealand

In Australia & New Zealand, operating income increased by 53%, or 42% in constant currency to EUR 18 in 2011 compared to 2010. The operating income margin increased by 80 bps to 3.5% in 2011 compared to 2010, mainly due to increasing revenues and lower SG&A as a percentage of revenues.

Switzerland

In Switzerland, operating income increased by 24% or by 11% in constant currency to EUR 50 in 2011 compared to 2010. The operating income margin grew by 30 bps to 10.5% due to increasing revenues and lower SG&A as a percentage of revenues.

Emerging Markets

In the Emerging Markets, the Company experienced an increase in operating income of 19% or 24% in constant currency to EUR 43 in 2011. The operating income margin was 3.0% in 2011, 10 bps higher compared to 2010.

LHH

In 2011, operating income in LHH decreased by 39% or by 37% in constant currency to EUR 36. The operating income margin was 15.1% in 2011 compared to 23.5% in 2010. Included in the 2011 results are integration costs relating to the DBM acquisition of EUR 14.

3.7 Interest expense

Interest expense increased by EUR 8 to EUR 71 in 2011 compared to EUR 63 in 2010, mainly due to higher average interest rates on outstanding debt.

3.8 Other income/(expenses), net

Other income/(expenses), net, which include interest income, foreign exchange gains and losses, proportionate net income of investee companies, and other non-operating income/(expenses), net, amounted to an expense of EUR 6 in 2011, compared to an expense of EUR 1 in 2010. This increase is mainly due to the EUR 11 loss recognised in connection with the exchange and tender offers for outstanding notes completed in April 2011 (for further details refer to Note 7 to the consolidated financial statements).

3.9 Provision for income taxes

The provision for income taxes was EUR 166 in 2011 compared to EUR 179 in 2010. The effective tax rate for 2011 was 24% compared to 30% in the prior year.

The Company’s effective tax rate is impacted by recurring items, such as tax rates in the different jurisdictions where the Company operates and the income mix within jurisdictions. Furthermore, it is also affected by discrete items which may occur in any given year, but are not consistent from year to year.

The 2011 effective tax rate includes the reduction in deferred tax liabilities of EUR 31 related to distributable earnings of the Company’s Japanese subsidiary following the ratification of the Swiss-Japanese Tax Treaty, which resulted in a reduction of withholding taxes payable upon distribution of dividends to Switzerland. Furthermore, the effective tax rate in both years includes the positive impact from the successful resolution of prior years’ audits and the expiration of the statutes of limitations.

3.10 Net income attributable to Adecco shareholders and EPS

Net income attributable to Adecco shareholders for 2011 increased to EUR 519 compared to EUR 423 in 2010. Basic earnings per share (“EPS”) was EUR 2.72 in 2011 compared to EUR 2.20 in 2010.