market reviews - France, Netherlands and Germany
France
The combination with Vedior has made France Randstad’s largest market by revenue and improved its position in the market from sixth to third, with an approximate 19% share. The two organizations complement each other very well, combining Randstad’s successes in developing specialties and the inhouse concept with Vedior’s scale and scope. Due to formal restrictions however, the integration of the businesses and the realization of synergies could not begin until Q1 2009, when the dual branding of the French staffing operations as Randstad Vediorbis will be implemented in the first phase of the integration.
Randstad’s existing strength in the major cities and focus on clients in the SME sector has been complemented by the extensive presence of Vediorbis in medium-sized towns and its significant market share in large accounts. In addition to the closure of the Randstad head office in February 2009, 72 staffing branches will be closed during the Randstad Vediorbis integration, regrouping the combined teams in larger branches and realizing further accommodation cost savings. The unit model will be progressively implemented across the staffing segment operation.
As Randstad and Vediorbis share the same market vision, the two networks had focused their respective strategies on the specialization of teams by business sector. The combination brings together Vediorbis’ successful multi-specialist approach and Randstad’s specialties concepts for the benefit of our consultants, clients and candidates. We will also be able to capitalize on Vediorbis’ relations with its major accounts to boost the growth of our unique inhouse services business, potentially increasing margins while offering our clients a more complete service with increased added value.
Vedior’s professionals businesses Appel Médical and Expectra are market leaders in the healthcare and service sectors respectively. Expectra’s leading position is reinforced by the existing Randstad Engineering and IT teams. Around a hundred specialist executive recruitment consultants will be brought together in a recruitment unit under the Randstad Search & Selection brand.
Despite the market weakening significantly during the second half of 2008, we continued to outperform and gain market share. Growth in staffing and inhouse services slowed during the second half of the year as large clients in the industrial, automotive and clerical sectors became more cautious. Our professionals activities performed well throughout the year, and while growth slowed in the accounting and engineering segments, continued strong growth in healthcare ran counter to the business cycle. Momentum in permanent placement, which is a relatively new market, was maintained with continued fee and market share growth. Combined with rigorous cost management, this enabled continued EBITA margin improvements in 2008. Overall, revenue declined by 4% organically, while the EBITA margin increased from 3.7% to 3.9%.
Given the deteriorating economy, 2009 will be a difficult year across our markets. Nevertheless, our professionals and recruitment business follow a later cycle than the staffing and inhouse businesses. The opening up of the public sector to temporary employment services should get underway in 2009, subject to final approval by the National Assembly. Although the process will be spread over several years, it will gradually increase the French staffing market. Randstad will be able to take advantage of its good relationship with the public authorities and its strong corporate and institutional image to benefit from this opportunity. This will not help in the short term however. In view of the adverse market circum¬stances at the end of 2008 and early 2009, we had to announce a social plan in January 2009. In addition to the 72 branch closures related to the merger, we plan to close another 85 branches and shed 489 FTEs.
Netherlands
The Randstad Group is the clear overall leader in the supply of HR services in its original and highly developed home market. The full range of service concepts is provided by several operating companies, including Randstad, Tempo-Team and Yacht. The integration and re-branding of the Vedior staffing business with Tempo-Team and Dactylo with Randstad were both successfully completed by October.
Organic revenue continued to grow in the first half of 2008, but declined in the second half of the year as market conditions worsened. Over the full year, revenue declined 2% organically. After a long period of growth, revenue in inhouse services began to contract in the summer due to pressure in the industrial and logistics sectors. The professionals segment continued to grow. Overall, healthy pricing combined with increased productivity and prudent cost management ensured continuous improve¬ments in the EBITA margin, which was 8.6% for the year (8.5% in 2007).
Combining Dactylo with Randstad improved our market position in the SME sector, especially outside the big cities, and the addition of the complementary new specialty businesses is strengthening our position in the professionals and search & selection segments. The integration resulted in the closure of almost 100 outlets and a reduction of 40 staff. Despite the economic situation, we see opportunities in 2009 in technical functions and in the education and healthcare sectors. New regulations in 2009, making it less expensive for companies to lay off employees younger than 45, will increase the market dynamic and will provide opportunities for both temporary staffing and search & selection.
Prior to adding the Vedior business, Tempo-Team was itself already number two in the Netherlands, and the combination increased its market share significantly. It has also strengthened our position in the administrative market, and a number of important specialty players have been added to the company. All clients and candidates were retained and many synergy benefits had been realized by the end of the year. From the original combined total of around 250 outlets, about 200 remained by the end of the year after combining some and closing others. In order to manage through the cycle, employee numbers and DSO are being reduced and increased focus is being given to growth and profitability in our specialty labels. We outperformed the market throughout 2008.
The professionals and interim management services provided under the Yacht brand produced continued revenue growth in the early part of 2008 despite scarcity in several segments, but this had stagnated by the end of the year. Yacht outperformed the professionals market however. The Vedior labels in the professionals area broadened and deepened our offering in several segments, such as healthcare (FunktieMediair), finance (Rekenmeesters), legal (Voxius) and ICT (Sapphire). Synergy benefits will be obtained in the areas of shared service centers, IT systems, procurement and legal services, and further synergies will be generated in marketing, mobility costs, offices and sales in 2009. We will continue to increase our flexibility through diversifying between freelance, project and permanent contracts.
Germany
While Randstad was already the HR services leader in Germany, with about a 13% market share, it had not been a very significant market for Vedior. The 65 employees and 14 outlets in the country at the time of the merger were integrated into the Randstad organization by the end of the year. As in many markets, as the economy weakened, the good revenue growth of the first half of the year turned into a decline by the end of the third quarter, resulting in 1% organic growth over the full year. The staffing markets were impacted by large industrial clients, especially in the automotive sector, scaling down their activities. A strong focus on productivity improvements early in 2008 had prepared us for the downturn in the second half of the year, when further internal and external staff reductions were made. Despite the economic situation, we continued to outperform the market during the year. In the professionals segment we faced a challenging environment in the engineering segment, especially in the aerospace linked business. The EBITA margin reached 6.7% compared to 7.8% in 2007. While we will be making the most of opportunities in the professionals segment and in specialties, the economic outlook for 2009 means we will continue to focus on the optimization of the branch network, productivity and staff numbers.