strategy
Our strong operational performance in difficult conditions in 2008 is thanks to the consistent dedication and motivation of our people around the world. Our strategy of pursuing sustainable growth has a clear, proven track record. However, there can be no complacency in a world economy that continues to deteriorate and in a highly competitive global HR services environment. We will continue working on our performance and managing through the cycle by remaining focused on our strategic goals. Our strategic agenda has a number of primary components, which are visualized in the diagram below.
Our operational performance and profitability is underpinned by the building blocks of our strategy. We aim to successfully complete the integration of Vedior and fully realize the synergies we have communicated by the end of 2009. Fully leveraging the opportunities provided to us by the key factors that drive growth in our markets enables us to achieve our target of making continuous market share gains. Continuing to maintain a solid EBITA margin throughout the cycle is vital for further growth. Maintaining a sound financial position ensures continuity.
Strategic building blocks
Strong concepts
All our service concepts are based on best practice and proven procedures, ensuring efficient working methods and excellence in service delivery. They can rapidly be replicated and leveraged in other markets, and are relatively easy to adapt to meet specific needs. The consistency of our service concepts and quality around the world means our international clients know they can trust Randstad to meet their needs anywhere.
Progress in 2008
Staffing and specialties In many countries our staffing consultants have a dual role, not only serving their clients but also recruiting the candidates and making the match. This sets us apart from many competitors with separate sales and recruitment forces. Furthermore, we preserve and document knowledge in our business concepts, in order to ensure that clients receive an offering that has been proven to work. Our service offering in staffing includes many specialties, specific market segments on which dedicated units focus, such as healthcare, transport, airports and contact centers. Specialties leverage our extensive branch network, our brands and front and back-office processes to make an above-average contribution to EBITA.
The merger with Vedior has strengthened our network significantly and has improved our market position in almost all European countries. We have become a key player in the UK and France, the two largest European markets. The merger also provided a strong business in Australia.
While continuing to focus on the market, the integration of our staffing businesses has been a clear priority in order to preserve the synergies. We started the year well in staffing, but against the background of the economic turmoil, revenue started to decline in most geographies in the third quarter. For the full year, pro forma organic revenue declined by 2%, with an increase of 4% in the first half, followed by a 8% decline in the second. The steepest revenue declines were recorded in the US, Spain and France. Gross margin continued to be strong, due to scarcity in administrative, healthcare and several other segments, and to continuing growth in permanent placement in key territories such as the Netherlands and France. Consultant numbers were reduced to align costs with volume developments. The number of offices was also reduced, primarily as part of the merger synergies.
Professionals and Search & Selection The combination with Vedior has broadened and deepened our activities in a wide range of professionals sectors and geographies. We now have a broader offering than any of our competitors. This diversified business mix is extremely helpful, especially in the worsening economic climate. Most of our operating companies offer both professionals on a temporary basis as well as through permanent positions (Search & Selection). For this reason, we describe progress in these two offerings together here.
For the year as a whole, organic revenue growth in professionals amounted to 4%, with 6% growth in the first 9 months of the year and 6% contraction in Q4 2009. The best performing sectors were healthcare and education, which correlate less closely with overall economic conditions. Engineering started the year strongly, and continued to grow in the US (offshore industry-related) but slowed down in the UK in the second half (construction industry-related) and in mainland Europe. IT continued to perform well across the board, including the US, with the exception of the UK, where a large low-margin contract was phased out. The financial crisis naturally had a significant impact on the finance & accounting sector. Permanent placement was hit hardest in this respect, but we saw increased volume in temporary placements with some clients as uncertainty persisted.
In line with our strategy we are defining best practices for our service offerings in the professional segment as well, enabling us to apply these across our markets. We completed the process of defining best practices in the important engineering sector with our major operating companies by the end of the year. After a period of testing the concepts we have developed together, we aim to roll them out in a ‘copy-and-paste’ process later in 2009. Definition of best practices in the IT and finance & accounting sectors is scheduled for early 2009, with the other sectors following later. Through this approach we aim to speed up expansion. The creation of a brand family (see ‘Superior brands’) and the possibility of establishing shared service centers – an option we are studying in the UK for example – can help to increase profitability going forward.
HR Solutions Derived from and developed out of Randstad’s extensive experience in HR services (and therefore the reason why the results are included in the staffing segment), our HR Solutions offering is designed to free up the time of our client HR managers, enabling them to concentrate on their company’s essential strategic HR issues. Until 2008, this area of our business had focused mainly on payroll management and HR administration outsourcing, HR consultancy services, outplacement and career management. The Vedior merger has reinforced our HR Solutions service portfolio with strengths in vendor management and recruitment process outsourcing, areas that are becoming increasingly important.
We reassessed growth ambitions and potential for our Dutch payroll business during the year. The trend towards outsourcing in the Netherlands is developing at a slower pace than expected, and the development of additional tools is a lengthy process, while pricing for basic payroll services is under pressure. This affects the growth potential of the business portfolio we had established in recent years. This reassessment has resulted in an impairment of € 85 million.
Progress in vendor management is encouraging. We merged our offerings in this field in the US, with Vedior providing the track record and client experience and Randstad contributing the network of larger clients. We are preparing for a further global rollout in 2009.
Inhouse services Our inhouse services continued to gain market share in the areas in which the offering is active, such as the industrial and logistics sectors. Clients clearly continue to recognize the added value of dedicated on-site workforce management under more difficult market circumstances. The efficiency and productivity improvements we bring can actually help our clients even more in the current climate. We opened 30 new inhouse locations during the year, bringing the total to 974, which is about 19% of all our outlets combined.
However, revenue per client was lower on average than last year. As we have a very high market share at the clients we serve, in most cases our volumes breathe with their output. The latter decreased on average, and this impacts our productivity.
The only country where our market share decreased was the US, where we lost a few large clients at the start of the year. New clients, where as usual volume ramped up only gradually, were won during the year. In total our inhouse revenue decreased by 2% in 2008 on an organic basis including a 21% decrease in Q4 2008.
We see good potential for the rollout of the inhouse offering among the client base of Vedior, and this will be a focus area for 2009.