Annual Report 2015

Investment story

We aim to present a clear and balanced view of our investment story – including our strategy and the drivers of our revenue growth, best-in-class margins, and strong cash generation – and to provide true, fair, and up-to-date information to all of our stakeholders.

Our investment story

The Adecco Group is the world’s leading provider of HR solutions. We offer a wide variety of HR services including temporary staffing, permanent placement, career transition, talent development, and outsourcing. We operate in over 60 countries and territories through a network of around 5,100 branches. Every day our more than 32,000 employees place around 700,000 associates at work. Every day we aim to satisfy their needs, along with those of our clients and social partners, and in so doing create value for our shareholders.

The HR services industry benefits from positive structural  trends offering good growth opportunities through-the-cycle. Our strategic vision helps us to capture these opportunities. At the same time, our experienced management team focuses closely on operational execution, underpinned by the Economic Value Added (EVA) approach (described in the chapter ’Our strategy’), which balances revenue growth, profitability, and asset efficiency. As a result, we are the global leader in HR services by revenues, with the highest profitability amongst our major competitors, and a strong track record of cash generation. We are confident that we are in good shape to further enhance our leadership position in the attractive HR services industry.

Revenue growth with structural and cyclical drivers

Cyclical drivers
Our temporary staffing and permanent placement services, which constitute over 90% of our total revenues, are cyclical and dependent on the level of economic activity in the countries where we operate. Demand for these services expands during periods of economic growth and contracts during recessions, with a highly leveraged effect – even modest levels of GDP growth can drive very strong growth in our temporary staffing and permanent placement revenues. On the other hand, career transition services are counter-cyclical, expanding during difficult economic periods and contracting during a recovery.

Structural drivers
Importantly, for all our service lines we see structural growth drivers alongside the cyclical forces. Companies are increasingly using temporary staff as a core component of their workforces, allowing them to adapt faster and better to changes in demand and thereby to maintain their competitiveness.

Regulation increasingly recognises the positive impact of agency work to increase the efficiency of labour markets and our positive role in the lives of individuals and societies. At the same time, the work style and behaviours of our candidates and associates are evolving. Flexible work schedules, mobile careers, and diversity of experiences are increasingly recognised as valuable alternatives to the traditional work paths.

With these main drivers, we expect temporary staffing penetration rates to increase over the course of the cycle. This is not just true for lower-skilled blue-collar and clerical workers but also for more highly qualified people. Here too we are well-positioned, having significantly improved and expanded our Professional Staffing offering in past years through acquisitions and organic initiatives. Today we are a leading player worldwide in the higher-growth, higher-margin professional staffing business.

For companies wanting to add permanent employees, our services are increasingly attractive in a world of structural skills shortages. We have made significant investments in recent years, creating permanent placement ‘hubs’ and building a strong base of experienced permanent placement teams with a culture of excellence, providing a firm foundation for accelerated growth in the coming years.

Demand for career transition and talent development services is also expected to grow over the course of the economic cycle. The effects of technological change and disruptive innovation will see ongoing restructuring activities in traditional businesses. Our global footprint and innovative solutions allow us to offer even more effective support to companies and their employees undergoing such changes, helping us to capture further market share in the growing career transition market. Skills shortages and companies’ increasing commitment to home-grown talent will continue to drive up demand for talent development services. Our innovative service offerings also provide more cost-effective solutions for use across all levels of seniority, creating further growth opportunities.

Best-in-class operating margins and strong operating leverage
Although revenue development hinges to a large degree on economic activity, we aim to achieve revenue growth through-the-cycle at least in line with our main peers, while practising price discipline and a continuous focus on our business mix in order to optimise gross profit. With our strategic priorities of Permanent Placement and Professional Staffing & Solutions, we are clearly investing in the growth of higher-margin businesses.

To maximise overall profitability in a cyclical business like ours, it is also important to manage our cost base strictly. Our approach is to be very proactive, to ensure that we deliver strong operating leverage and increasing returns in times of economic growth, while protecting profitability in downturns. Our strategy is focused on delivering leading profitability in all our markets, improving our average profitability over the course of an economic cycle, and achieving a higher peak and trough margin than in the previous cycle.

Consistent cash generation 
The Adecco Group requires limited capital investment for growth, helping to make the business highly cash-generative. The Economic Value Added (EVA) approach allows us to balance revenue growth and profitability, while incentivising our employees in the field to focus on the efficient use of capital in the operations by optimising our accounts receivable. This helps to maximise the operating cash flow of the business. At Group level and on average through-the-cycle, we target an operating cash flow conversion of above 90% (defined as Free Cash Flow (FCF) [1] before interest and income tax paid as a percentage of EBITA excluding one-offs).

Clear capital allocation principles 
Through our capital allocation principles, we are committed to maintaining an investment grade rating and a progressive dividend policy. As of 2016, we will consider buy-and-build acquisition opportunities that satisfy three criteria. Firstly, any acquisition must accelerate our strategic development, broadening and diversifying our offering. Secondly, we must achieve revenue and/or cost synergies with our existing activities. Thirdly, any acquisition must create value for our shareholders, delivering positive EVA within three years. The Adecco Group remains focused on the shareholder-friendly use of cash. At the end of the year, the Group’s financial position will be evaluated, and excess cash will be returned to shareholders.
Progressive dividend policy
Since 2011, our policy is to maintain a dividend pay-out ratio in a range of 40–50% of adjusted net earnings. In addition, we are committed to paying at least a stable dividend compared to the previous year even if the pay-out range is temporarily exceeded, barring seriously adverse economic conditions. For 2014, the Adecco Group paid a dividend of CHF 2.10 per share. At the next Annual General Meeting, the Board of Directors will propose a dividend of CHF 2.40 per share for 2015 for approval by shareholders. This amount represents an increase of 14% compared to the dividend paid for 2014 and is equivalent to a pay-out ratio of 45% of adjusted net earnings.

Experienced Management focused on operational execution and longer-term strategic vision
The strategy and objectives of the Adecco Group are determined by the Board of Directors, while the day-to-day operation of the business is managed by the CEO and the Executive Committee. The Executive Committee is composed of the CEO, CFO, and regional and functional heads with a total staffing experience of more than 160 years. Our management approach is to focus on operational execution and to monitor our key performance indicators closely. This is critical in a business where conditions can change very quickly. At the same time, we are working with a clear strategy expressed through our six priorities: Segmentation, Permanent Placement, Professional Staffing & Solutions, Digital, Engagement, and Thought Leadership.


[1]Free Cash Flow is calculated as cash flow from operations minus capital expenditures.