Annual Report • Dec 31, 2011
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Annual Report 2011
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We inspire individuals and organisations to work more effectively and efficiently, and create greater choice in the domain of work, for the benefit of all concerned. As the world's leading provider of HR solutions –abusiness that has a positive impact on millions of people every day – we are conscious of our global role.
CLIENTS EVERY DAY 2
BRANCHES IN OVER 60 COUNTRIES&TERRITORIES 1
| 21.1 20.0 14.8 18.7 20.5 | ||
|---|---|---|
| . | ||
| . | la a | |
2011 EBITA split by segment in %
1 Year-end 2011 2 Average 2011
in CHF
| SWX Europe | ADEN | Share price in CHF | |
|---|---|---|---|
| Bloomberg | ADEN VX | • Year-end | 39.35 |
| Reuters | ADEN.VX | • Average | 49.84 |
| ISIN | CH0012138605 | • High/low | 66.05/32.15 |
| for the fiscal years in EUR millions (except shares) | 2011 | 2010 | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|
| Statement of operations data | |||||
| Revenues | 20,545 | 18,656 | 14,797 | 19,965 | 21,090 |
| Gross profit | 3,566 | 3,329 | 2,649 | 3,673 | 3,927 |
| EBITA 4 | 814 | 722 | 299 | 908 | 1,081 |
| Net income attributable to Adecco shareholders | 519 | 423 | 8 | 495 | 735 |
| Other financial indicators | |||||
| Cash flow from operating activities | 524 | 455 | 477 | 1,054 | 1,062 |
| Free cash flow 5 | 415 | 350 | 385 | 948 | 971 |
| Net debt 6 | 892 | 751 | 110 | 617 | 866 |
| Key ratios (as % of revenues) | |||||
| Gross margin | 17.4% | 17.8% | 17.9% | 18.4% | 18.6% |
| SG&A ratio 7 | 13.4% | 14.0% | 15.9% | 13.8% | 13.5% |
| EBITA margin | 4.0% | 3.9% | 2.0% | 4.5% | 5.1% |
| Per share figures | |||||
| Basic EPS in EUR | 2.72 | 2.20 | 0.04 | 2.82 | 3.97 |
| Diluted EPS in EUR | 2.72 | 2.17 | 0.04 | 2.71 | 3.80 |
| Cash dividend in CHF | 1.80 8 | 1.10 | 0.75 | 1.50 | 1.50 |
| Number of shares | |||||
| Basic weighted-average shares | 190,671,723 | 192,113,079 | 177,606,816 | 175,414,832 | 185,107,346 |
| Diluted weighted-average shares | 190,805,080 | 195,596,325 | 177,613,991 | 184,859,650 | 195,279,053 |
| Outstanding (year-end) | 170,448,401 | 174,702,026 | 174,079,431 | 174,188,402 | 182,647,293 |
3 SMI and Basket of competitors (Manpower, Randstad and Kelly Services market capitalisation weighted in CHF) relative to Adecco's share price: 1.1.2011 = CHF 61.25.
4 EBITA is a non-U.S. GAAP measure and is defined herein as operating income before amortisation of intangible assets and impairment of goodwill and intangible assets.
5 Free cash flow is a non-U.S. GAAP measure and is defined herein as cash flow from operating activities minus capital expenditures.
6 Net debt is a non-U.S. GAAP measure and comprises short-term and long-term debt, less cash and cash equivalents and short-term investments.
7 Excluding amortisation of intangible assets and impairment of goodwill and intangible assets.
8 Proposed by the Board of Directors.
The year 2011 started with continued improving economic conditions. As the months progressed, natural disasters, political unrest and the sovereign debt crisis led to volatile equity, bond and currency markets. In such a challenging environment, every day our 33,000 employees worldwide work with around 700,000 associates on assignment at more than 100,000 clients. By providing flexible HR solutions to the changing needs of our clients, we increase their competitiveness; by providing meaningful work for our associates, we help them achieve their work and career aspirations.
We achieved solid growth and industry-leading profitability. We reinforced our leadership position in the HR industry. Our revenues increased by 10% organically to EUR 20.5 billion. The strength in the early cyclical Industrial business continued and was yet again the key growth driver in 2011. The gross margin of 17.4% is a good result when taking into account that business mix trends unfavourably impacted the Group's gross margin and that the negative impact of reduced government subsidies in our largest market, France, had to be compensated throughout the year. Nevertheless, through the combination of sound topline development, pricing discipline and strict cost control, we delivered solid profitability. EBITA amounted to EUR 814 million, up 14% organically. The EBITA margin increased by 10 bps to 4.0%. Net income attributable to Adecco shareholders was EUR 519 million, up 23%. We generated strong operating cash flow of EUR 524 million in 2011 up 15%; our balance sheet is in a very healthy state, and our debt has no near term refinancing needs.
At the Annual General Meeting, the Board of Directors will propose a dividend of CHF 1.80 per share for 2011, for approval by shareholders. This represents an increase of 64%, compared to the dividend paid for 2010 and is equivalent to a pay-out ratio of 45% based on adjusted earnings. Given Adecco's solid financial position and strong cash flow generation, it was decided to increase the pay-out range from the Group's traditional pay-out range of 25-30% to 40-50% of adjusted earnings. This range is seen as sustainable going forward.
In 2011 we continued to work towards our EBITA margin target of above 5.5%. The integration of MPS Group was successfully completed during the course of 2011. Initially targeted synergies of EUR 25 million were clearly exceeded and profitability developed ahead of expectations. After almost two years of internal focus on integrating MPS, we missed some revenue growth opportunities, mainly in the US IT segment. Corrective measures have been taken and we are confident of a return to market growth.
With the acquisition of Drake Beam Morin Inc. (DBM) in 2011, we took global leadership in the career transition and talent development services sector. We are now present in all of the five largest career transition markets in the world and we are in a position to offer our customers a global solution of services. At the beginning of 2012, we acquired VSN Inc. in Japan, which was a rare opportunity for us to expand in Professional Staffing in the world's second-largest staffing market. These bolt-on acquisitions are an excellent fit with our global priority to increase the share of higher-margin businesses.
We have also made substantial progress in the execution of our mid-term strategic priorities. The Group's retention rate continued to be a strong focus and we launched the Adecco Academy training initiative to invest in our own people and culture, as well as to further enhance our service quality. Our investments in IT were stepped up and we continued on our path to standardise, centralise and simplify our processes
from client- or candidate-related interactions all the way through to back-office optimisation. In General Staffing, we continued to better segment our client base and tailor our offering to best capture market opportunities. The trend of companies to outsource a part or the entire management of their contingent workforce persisted. We further developed our leading MSP, RPO and VMS offerings and won a number of important new client contracts. We continued to invest in the Emerging Markets and entered new countries such as Vietnam. Our joint venture in China, FESCO Adecco, already has over 125,000 associates on assignment every day and we will continue to invest as the untapped growth potential is still immense.
The value of flexibility, talents and skills that the Adecco Group offers to businesses and individuals, throughout their business and working life cycles, is appreciated more than ever. Companies increasingly focus on efficient HR strategies and require services on a regional as well as on a global level.
Manufacturing continues to move to the East and inventory-tosales ratios have been falling, proving that the made-to-order trend has even intensified. This requires a flexible, but capable and continuously trained workforce. Although we still remain below prior peaks in many markets, we are certain that the structural shift towards more flexible workforce solutions will lead to higher penetration rates for our industry in the majority of markets where we operate.
Our global reach and agility mean that the Adecco Group is solidly positioned for the future. In an environment of economic uncertainty we will continue to build on our strengths – our leading global position and diverse service offering. We will continue to take advantage of growth opportunities, with a strong focus on disciplined pricing and cost control to optimise profitability and value creation.
With the death of Henri Ferdinand Lavanchy our Company lost the founder of Adia. Henri Ferdinand Lavanchy was a visionary entrepreneur, the pioneer who first introduced the concept of temporary work in Switzerland with his ground-breaking ideas. By founding Adia in 1957, he laid the foundation for what became together with Ecco the world's leading provider of HR solutions, Adecco. The needs and ambitions of both employees and employers were always foremost in his mind. As a Group we will continue to live up to his values and we will keep his memory alive with great honour.
Our sincere thanks go to all our stakeholders, especially to our clients, our associates and our employees as well as our shareholders for their continued support and confidence in the Adecco Group.
Rolf Dörig Chairman of the Board of Directors
Patrick De Maeseneire Chief Executive Officer
Interview with Patrick De Maeseneire, CEO
2011 was all about the US and European sovereign debt crisis, slow economic growth and continued high unemployment rates in most countries in the western world. What were your challenges and highlights? The uncertain environment you just described actually led to continued very good demand for our services. We achieved double-digit revenue growth for the second consecutive year. Our clients opted to make use of flexible labour, rather than adding permanent employees – a move that makes a lot of sense during such volatile times. Our lower-margin General Staffing business continued to outgrow the higher-margin Professional Staffing business and, coupled with the limited scope to increase prices, we needed to maintain a very tight lid on costs to protect our EBITA margin.
Are you satisfied with the progress on your six strategic priorities during 2011? Yes. We made good progress on all fronts. Retention of our own people continued to be a strong focus. We further developed on the IT front and have centralised the IT organisation. We continued to build on our leadership position in Professional Staffing, and with the acquisition of DBM we became the global leader in career transition and talent development management. The integration of MPS was successfully completed during 2011 and we achieved several important client wins with our MSP, RPO and VMS offerings. In fact, our VMS business Beeline signed on a record number of new clients in 2011. Improved segmentation of our client base and more efficient delivery models, especially in General Staffing, were a strong focus in 2011 and will continue to keep us busy also in 2012. And we continued to invest in the Emerging Markets. So, overall I am satisfied with our progress, though of course, we still have a lot of work ahead of us.
With the acquisition of MPS Group in 2010 you strengthened your exposure to Professional Staffing. Is it a concern that your General Staffing business continued to outgrow the Professional Staffing segment, especially in the USA? What was different about this recovery is that the General Staffing business, especially the Industrial segment, was growing very strongly for longer, before the Office business and Professional Staffing started to pick up. In other words, the typical recovery lag of the Office segment and also the Professional Staffing business was much longer this time. This is a reflection of the structural growth in our industry and companies having added more flexible human resources rather than permanent positions. Regarding our US Professional Staffing business, I am of course not pleased with the fact that we are lagging somewhat behind the market in terms of our revenue growth, especially in the IT segment.
What is the reason for the lag in revenue growth in IT in the USA? The integration of MPS was a success – we clearly exceeded our original synergy targets. But we were too focused internally, integrating back offices and merging branches, while the market started to pick up. Having been late in adding additional resources has meant that we have not been able to fully participate in the market growth. We have addressed the situation and hired more resources during the second half of 2011. We should close the gap to the market growth in 2012.
Is the EBITA margin target of over 5.5% mid-term still feasible, even if we face another recession in 2012? We are absolutely convinced that we will reach this target mid-term. We have increased the higher-margin Professional Staffing and Solutions businesses to above 20% of our total revenues and structurally reduced our cost base. In the meantime, our revenues have developed very well with two consecutive years of double-digit growth. While we have had some headwinds on gross profit, due to the business mix and reduced government subsidies in France, we have done an excellent job on the cost side.
It looks increasingly likely that Europe could enter into a recession again in 2012. GDP projections for the USA are also rather muted. How do you see Adecco developing in such an environment? Given our low level of visibility on revenue development, we have to manage our costs very strictly. Looking at recent trends, we clearly see that our clients are in a wait-andsee mode and are not adding resources in general. From today's perspective, a mild recession in Europe in 2012 indeed looks likely. We are prepared for such a scenario. We will protect our profitability, as we did in 2008 and 2009 during a much harsher downturn than what we expect today. The USA seems to be holding up fairly well for now, so that should help from a Group perspective.
You have taken the worldwide lead in career transition and talent development services. How do you see this business developing? With the recent DBM acquisition, we have strengthened our position in the counter-cyclical career transition business. This move has also considerably expanded Lee Hecht Harrison's existing geographic footprint, enhancing services for our clients internationally. This business typically picks up in economically weaker times.
The Emerging Markets are one of your six strategic priorities. What are your projections for the Emerging Markets in the
near future? The Emerging Markets account for 7% of the Group's revenues. Already in 2011 around 30% of our temporary workers were employed in the Emerging Markets. And these numbers do not include the more than 125,000 temporary workers we place through our joint venture FESCO Adecco in China, where we hold a 49% minority stake. The lower salaries are the reason why today the Emerging Markets only account for 7% of the Group's revenues. Growth and wage inflation in these countries will increase their importance to Adecco's topline in the mid-term.
The social media have spread rapidly around the globe and are impacting the way people communicate and behave. What are your thoughts on how this will impact the HR industry and Adecco in particular? Social media and the Internet have changed the way people search for jobs and how clients advertise open positions. Nowadays, open job positions are advertised on corporate websites, Facebook, Twitter, LinkedIn and other sites visited by millions of job-seekers every day. At Adecco we use these tools to find new candidates and to send them specific open job opportunities that match their skills. In the USA, for example, 80% of first-time contacts at our Adecco-branded business come in via social media platforms. But the role of finding the right job for associates and the perfect person for our clients cannot be done successfully without human interaction. This is where we excel. We know the associates and their skills; we know the needs of our clients and we find the right fit.
There is a lot of talk about structural growth in your industry and increasing penetration rates. Why are you convinced of the growth opportunity for your company? We are in a constant dialogue with our clients and see their challenge to remain competitive. Our clients' demand has become more and more cyclical with peaks and troughs and goods are often only produced when ordered. This means that companies increasingly need to have a certain percentage of flexible human resources. Our clients value the services we offer and we clearly experience a trend where employers want to manage their staff more strategically and efficiently. This makes us confident that, in addition to the cyclical growth component of our industry, there is a lot of structural growth potential to be captured.
We have been witnessing what is often referred to as a jobless recovery with on-going high unemployment, but at the same time there are major skill shortages. How can we address the skills gap and what is Adecco's role in helping companies and governments adapt? Today we talk of a financial, political or a debt crisis, but for me the underlying crisis is a labour crisis. If we don't solve this, we won't solve the economic crisis. We have to re-industrialise the mature markets. This means bringing back production sites to Europe and the USA. At the same time, we have to stay competitive on salaries and make sure we make the right investments in training people for lifelong employment. At Adecco we help people take their first steps on the employment ladder. And we partner with governments to assist in the training and work placement of people particularly at risk of workforce exclusion.
So, Adecco's role in society at large does make a difference to people's lives? We play a key role in providing employment, creating jobs that otherwise would not exist and increasing the efficiency of labour markets. Every day we help hundreds of thousands of people find work and build their careers. Work is central to personal, family and social well-being. Work provides a sense of purpose and belonging, fostering our dignity and helping us to set lifelong goals. As the world's leading HR solutions company, we are conscious of our role and responsibility.
Our industry increases the efficiency of labour markets, raises the competitiveness of companies and creates jobs that would not otherwise exist.
Lifelong employment for everyone, adapted to personal, family, generational and geographical needs and abilities is the aim of our industry. HR services companies help people find a permanent, fixed-term or temporary job as well as enhancing their employability through career counselling, education and continuous training.
In 2011, the global staffing market grew approximately 7%1 to EUR 265 billion1 . This compares with an estimated increase of 11% to EUR 248 billion in 2010 1 . Professional Staffing accounted for around 30%1 of the market in 2011 and increased 5%1 yearon-year, while General Staffing was up 8%1 compared to 2010 and represented 70%1 of the global market in 2011.
The USA represented the single largest market for HR services measured by revenues in 2011, with a share of approximately 31%1 , followed by Japan with 17%1 and the UK with 8%1 . Europe as a whole represented 36%1 of the global staffing market in 2011, whereas the Emerging Markets accounted for 11%1 . The major markets developed diversely in 2011 and varied between a revenue decline of 6%1 and growth of 22%1 . The market in Japan continued to decline, while growth in the UK was still subdued. A more restrictive legislative proposal (see page 25) in Japan held back demand for temporary staffing services. In the UK, a sluggish economy, characterised by being largely service-driven, and cuts in government spending led to a substantial decline in demand for temporary staffing services.
Competitive landscape The global HR services market is highly fragmented and the competitive landscape varies considerably from one country to another. There were 125,000 registered private employment agencies worldwide in 2010 according to Ciett2 . The three biggest markets measured by revenues – the USA, Japan and the UK – show a very high degree of fragmentation, with Japan showing the largest number of staffing companies, followed by the USA and UK. The French market, by contrast, is highly concentrated. The top three listed staffing companies dominate the French market with a combined market share of around 70%1 , measured by revenues. Looking at the global picture, the three largest listed staffing companies represent 20%1 of global turnover. The Adecco Group is the largest HR services company worldwide and has leading positions in Europe, North America, Asia/Pacific and Latin America. Consolidation in the staffing industry is on-going, particularly in fragmented markets. The trend of large multinational companies to outsource part or all of their HR processes continued and led to further consolidation in the industry. Partnering with a Managed Services Provider (MSP), to manage the company's contingent workforce spend, typically results in higher volumes for fewer suppliers. Moreover, consolidation is also driven by General Staffing companies seeking a stronger foothold in the Professional Staffing markets in order to diversify their product offerings and to enhance their position in this more profitable and faster-growing segment.
1 Adecco estimate. 2010 estimates revised.
2 Ciett = International Confederation of Private Employment Agencies
Adecco is the world's leading provider of HR solutions. We are conscious of our role towards all stakeholders in the markets where we operate. We maintain a constant dialogue with clients and workers as well as with societal, governmental and business stakeholders to create more and better work opportunities for individuals worldwide. Economies, enterprises and individuals all have to cope with seasonal, cyclical and structural market changes and as a labour market intermediary, we help them to adapt to these challenges.
Economies As an HR services company we turn available work into jobs and thereby support economic growth. Labour market transparency is increased through our deep understanding of companies' needs and people's work or education aspirations to provide the needed match of supply and demand. We increase labour market participation by enhancing employability of workers, creating new work solutions and fostering geographic and occupational mobility. As a result, our industry provides economies with the needed flexibility for increased competitiveness and sustained economic growth.
Individuals For individuals, we offer legally recognised and regulated work opportunities, facilitate on-the-job training and enhance occupational and geographic mobility. HR services companies create stepping-stone opportunities also for under-represented groups to gain work experience and to secure complementary incomes (e.g. students, families, retirees). By offering flexible work solutions we increase work options and enable workers to improve their work-life balance. Individuals benefit from a greater choice of work and from improved employability.
Enterprises The Adecco Group offers enterprises all its HR services both locally and globally. We provide companies with flexible HR solutions to help them weather peaks and troughs in demand, thereby maintaining and increasing their competitiveness. Our expertise in workforce management and the rapidity of execution makes us a valuable partner for enterprises to manage their complex workforce planning as well as risks. We also provide access to talents or improve skills of workers. Through improved flexibility, companies are in a position to protect core activities and cope with unpredictable changes in the market environment.
As established by Eurociett's 'Adapting to Change' study, HR services companies are an engine of job creation and deliver jobs ahead of the classic job creation curve. In fact, temporary jobs are created even at very low levels of GDP growth, when no permanent jobs are generated. The study highlights that temporary work does not substitute permanent work, as 74% of enterprises would not consider hiring permanently as an alternative to taking on temporary workers. 62% of responding businesses would not have created jobs if they had no access to HR services companies, such as the Adecco Group.
HR services companies are a stepping stone for the unemployed and young people to (re-)enter the job market. According to the study, 35% of temporary workers in Europe are below the age of 25 and use temporary work as their first opportunity to gain work experience. The Ciett Economic Report 2011 revealed that on average 37% of all temporary workers are officially registered as unemployed before finding a temporary job. Twelve months after having finished work on a temporary basis, only 15% of temporary workers are registered as unemployed again. Temporary work is recognised as an effective channel to find work with the possibility of eventually gaining a permanent position.
2011 global HR services market
% of Adecco revenues Market share1 in % Market position1 France 30 31 1 North America 18 4 2 UK & Ireland 88 1 Japan 734 Germany & Austria 792 Benelux 553 Italy 5 18 1 Nordics 4 13 2 Iberia 4 25 2 Australia & New Zealand 244 Switzerland 2 16 1 Emerging Markets 75 1 LHH 1 18 1
'Adapting to Change' underlines that services offered by our industry contribute to reducing undeclared work. There is an inverse correlation between the level of illegal economic activity and the level of temporary work penetration: countries with a high penetration rate of temporary workers have lower levels of undeclared economic activity.
To maximise the benefits of HR services in delivering greater labour market efficiency, relevant regulation should balance flexibility with security, for both workers and businesses. Adecco is supportive of international instruments that provide guidelines to properly regulate private employment services, such as the ILO3 Convention at global and the EU Directive at European level.
ILO Convention 181 Along with its accompanying Recommendation n°188, ILO Convention 181 encourages the effective operation of services provided by private employment agencies, and especially temporary work agencies. The convention was adopted in 1997 and recognises the role HR services companies play in a well-functioning labour market and emphasises the protection of the workers using their services. As ILO Convention 181 only provides the framework within which HR services companies should operate, member countries implement it in accordance with their national labour legislation. To date, ILO Convention 181 has been ratified by 23 countries. Adecco supports efforts at national level with national legislators to ratify ILO Convention 181. In October 2011, on the occasion of the ILO Global Dialogue Forum, Adecco led the Ciett delegation to promote a constructive dialogue between social partners to promote workers' rights in our industry.
EU Agency Work Directive The EU member countries were set the deadline of December 5, 2011 to implement the EU Agency Work Directive adopted in November 2008. Key elements of the Directive are the recognition of agency work, the removal of unjustified restrictions against the use of temporary work and the establishment of the equal treatment principle (unless national collective labour agreements with social partners set exceptions to the principle). Since the end of the transposition deadline in December 2011, the industry is faced with a heterogeneous implementation of the Directive across the EU. Adecco, Eurociett and national associations continue to advocate for the correct implementation of the Directive, focusing on the appropriate regulation and lifting of unjustified restrictions.
Across the globe, Adecco encounters considerably different regulatory schemes and drives the efforts of national associations to improve labour market efficiency. In most markets where Adecco operates, company representatives are engaged in the dialogue with national authorities to foster appropriate labour market regulation and define the proper regulatory environment for the provision of private employment services. In 2011 Adecco was a founding member of the Staffing Federation in India, the Association of Private Employment Agencies in Russia and the Staffing Association in Vietnam. In these regions, much emphasis is placed on setting up the proper regulation of the industry, in order to differentiate properly regulated agencies from rogue providers.
3 International Labour Organization
Penetration rates, the number of full-time equivalent associates (temporary workers) divided by the total active working population, differ significantly across the markets globally. The key growth drivers for the penetration rates and, hence, our industry are appropriate regulation, the business environment, the need for flexibility, the move of production to the East and sociodemographic changes. In 2011, the UK enjoyed one of the highest penetration rates in temporary staffing, around 3.1%1 , but significantly below the prior peak penetration rate of 4.7%2 in 2008. In Germany a new peak penetration rate of 2.2%1 was reached in 2011. In the USA, the world's largest staffing market, the penetration rate stood at 1.7%1 , in Japan at 1.4%1 and in France at 2.2%1 , all still below historical peaks. In the BRIC and other developing countries, penetration rates continued to increase but remained below 1%1
Business environment Growth in our industry, in particular for temporary staffing services, correlates with GDP development. Compared with temporary staffing, which usually picks up shortly after GDP trends start to improve, unemployment rates are typically a late-cyclical indicator. Uneven business trends in 2011 highlighted the importance of a flexible workforce in adapting to fluctuations in demand and workforce needs. Many industries and regions still offer immense untapped potential for HR services, and the structural growth drivers for the industry remain fully intact.
Need for flexibility Greater flexibility in dealing with peaks and troughs in demand is achieved by companies employing temporary workers as a part of their workforce. In almost all developed countries, 2011 again augmented the need for flexible labour due to the uncertain economic development. More made-to-order production also resulted in an increased need of companies for flexible staffing levels. The inventory-to-sales ratio continued to decrease as witnessed in all businesses in the USA, where the ratio declined by 16% between 1992 and 2011. This trend is expected to continue and should further drive demand for our services.
Move of production to the East Moving production to low-cost countries will continue to impact the geographical mix of our industry. As companies move East, the need for HR services and local staffing know-how in the Emerging Markets is increasing. Given the low salary levels, the Emerging Markets today still represent a minor portion of the total revenue potential for the staffing industry. However, in terms of volumes, this region already represents a substantial share.
Socio-demographic changes The impact of socio-demographic changes on the labour market is becoming increasingly
apparent. With declining birth rates in developed countries and people living longer, the scarcity of talent will hinder economic growth. In the USA an extra 25 million workers will be needed by 2030 while Europe will seek 35 million additional workers by 2050, according to 'Adapting to Change'. The staffing industry can help to narrow this gap by accessing additional demographic groups (e.g. students, families, retirees), by taking full advantage of its global presence and pool of candidates and by facilitating mobility. Meanwhile, lifestyle changes are having a positive impact on our industry. Today, people increasingly want to explore new assignments on a more frequent basis and are ready to move where the opportunities are. This fits well with the trend in many companies to look for greater flexibility, better job-profile matches and higher acceptance of temporary employees in the skilled workforce, in order to overcome the growing talent shortages in many industries. It exemplifies that our business is not just about recruitment, but also about training and providing lifelong learning to increase employability.
Appropriate regulation The regulatory framework of labour markets in individual countries has a significant influence on the size of HR services markets and growth rates. The appropriate regulation of the HR industry, and in particular the temporary labour market, balances flexibility with security for companies and workers alike, and drives the efficiency of labour markets. Each market requires appropriate regulation to increase transparency and allow HR services companies to play their role in creating jobs and increasing labour market participation.
Austerity measures applied by most developed countries will hinder GDP growth in 2012 and Europe is expected to suffer most. In such an environment companies will be hesitant to hire permanent labour and rather hire staff on a temporary basis to remain flexible. The need for flexibility, sociodemographic changes and appropriate regulation offer attractive structural growth potential for our industry in the coming years in the developed countries. Economic growth in the Emerging Markets is expected to continue, albeit at slightly lower rates, driven by increased domestic demand and continued foreign investments. The move of production to the developing countries and the need for flexibility will further increase the penetration rates of temporary staffing in the Emerging Markets. In 2012, flexible HR solutions will continue to prove their value and many industries and regions offer untapped growth potential. Structural growth drivers for the industry remain fully intact and temporary staffing penetration rates are set to surpass prior peaks in the future.
As the world leader, Adecco offers the full range of HR solutions which are tailored to meet the evolving needs of clients and associates around the globe.
Adecco Group's business can be viewed from different perspectives: by service, by business line and by segment. In this chapter we describe our services and solutions together with the business lines and brands through which we deliver these services. A review of our 2011 performance by segment can be found in the chapter 'Our results' on page 20.
Temporary staffing In 2011, 91% of revenues and 76% of gross profit of the Adecco Group stemmed from temporary staffing services, which include general and professional skill sets, as described in the section 'Our business lines and brands' on page 13. Companies increasingly use temporary staffing services to quickly adapt to seasonal and cyclical
fluctuations as well as structural changes in the economy. Employers can manage the market dynamics by adding either flexible resources, by hiring temporary workers, or fixed resources, by adding permanent employees. But enterprises are similarly challenged to decide how to fill the gap when employees retire, change jobs or are absent (e.g. maternity leave, sickness or unpaid leave). For individuals seeking employment, we provide work opportunities and experience that increase their employability.
As a labour market intermediary, we make contact with candidates through our existing database, or the Internet, including various social media tools, but we also make use of traditional contact channels like our branches. We conduct interviews and match the client's requirements with the candidate's skills and needs to ensure a perfect match. Adecco performs all administrative tasks, like contract handling and payrolling. We always strive to find consecutive assignments for our associates to ensure they are continuously employed.
Permanent staffing Permanent placement services accounted for 2% of revenues and 9% of gross profit of the Adecco Group in 2011. When employers are confident on the economic development and their need to fill certain key positions, they hire staff on a permanent basis. We have access to a wide range of top talents, including the hard-to-reach professionals who are not actively looking for a job. We search for candidates, screen the CVs, conduct interviews and assessments. We are committed to finding the right people for the client's business and will only propose candidates who have passed our in-depth screening process to ensure a perfect fit. We support our associates in ensuring that they reach their career goals, guiding them in selecting the right role for their skills and aspirations.
| TEMPORARY AND PERMANENT STAFFING SERVICES | HR PROCESS MANAGEMENT SOLUTIONS | ||
|---|---|---|---|
| General Staffing | Professional Staffing | Workforce Management Solutions |
Career Transition & Talent Development Solutions |
| · Office · Industrial |
· Information Technology · Engineering & Technical · Finance & Legal · Medical & Science |
· Managed Services Programmes (MSP) · Recruitment Process Outsourcing (RPO) · Vendor Management System (VMS) |
· Outplacement · Leadership Development · Career Development · Change Management Solutions · Training · Consulting |
Career transition services (outplacement) Revenues generated from career transition services represented 1% of Adecco's total revenues and 5% of gross profit in 2011, including the results of acquired Drake Beam Morin Inc. (DBM)1 . We assist clients in the effort to reorganise their workforce due to mergers and acquisitions or when pressured to downsize as a result of reduced business activity. During the transition phase we support affected employees with training and facilitate their move to the next step in their career. We have the capabilities and expertise to manage an entire process be it for a few people or thousands. We ensure that affected employees are engaged in transition activities and that retained employees remain productive, committed and focused on their work. It often happens that some areas of an organisation are downsizing while others are recruiting. We reduce transition and recruiting costs by redeploying employees affected by a downsize to areas in need of talent.
Outsourcing, talent development services and others 6% of revenues and 10% of gross profit of the Adecco Group in 2011 stemmed from outsourcing, talent development and other services. Outsourcing includes clients transferring processes and capabilities to the Adecco Group through Managed Service Programmes (MSP), Recruitment Process Outsourcing (RPO) and Vendor Management Systems (VMS). These workforce management solutions are described in the next section 'Solutions' on page 15. Talent development services include training, assessment, change management solutions and leadership programmes. We assist our clients in engaging and retaining their people, developing their leadership strength and helping their managers become more effective, proactive coaches.
In 2011, General Staffing made up 78% of the Adecco Group's revenues. Given the relatively lower-margin nature of the business, we typically offer tailored solutions to retail and large clients with the aim to build longer-lasting relationships with associates and clients. An efficient delivery model for us is key to optimising our own costs and being competitive. General Staffing includes the two business lines Office and Industrial, as described below.
Office Office represented 26% of revenues of the Adecco Group in 2011. We are specialised in the temporary and permanent placement of administrative and clerical staff. In order to provide the right combination of personnel and technical skills, we mainly focus on the business areas Administrative/Clerical, Assistance, Customer Service, Human Resources, Import/Export, Project Management, Purchasing, Secretarial/Personal Assistant and Sales, Marketing & Events. Main brands in this segment include Adecco Office and Office Angels.
Industrial The Industry segment accounted for 52% of Adecco's revenues in 2011. We serve our clients in the temporary and permanent placement of staff mainly in sectors such as Automotive, Manufacturing, Construction, Hospitality, Transportation and Logistics. Main brands include Adecco, Adecco Industrial and Tuja.
Professional Staffing accounted for 21% of Adecco's total revenues in 2011. With the 'experts talk to experts' approach we establish relationships with line managers at enterprises to better understand the skills sets of candidates needed. This ensures successful matching of candidates' profiles with clients' needs for positions requiring higher qualifications. In turn, expert points of contact enable us to offer high-level assignments for candidates and to attract talented, qualified and sought-after individuals. Professional Staffing includes the business lines Information Technology, Engineering & Technical, Finance & Legal and Medical & Science as described below.
Information Technology The Information Technology segment represented 11% of the Group's revenues in 2011. At Adecco, our Information Technology experts partner with clients to integrate, structure and streamline their IT services and activities. Among others, we provide temporary assignments and permanent positions for IT Developers, Programmers, Consultants, Project Managers, Systems Engineers or Analysts and IT Support for any industry. Main brands include Modis and Computer People.
Engineering & Technical In 2011, we generated 5% of the Group's revenues in Engineering & Technical. In the field of Engineering & Technical our associates take on assignments and projects on a temporary or permanent basis for key industries such as Electronics, Automotive and Transportation, Energy, Oil & Gas, Utilities, Medical Products, Aerospace, Chemicals and Raw Materials. Main brands include Adecco Engineering & Technical, Entegee and euro engineering.
Finance & Legal 3% of revenues of the Adecco Group in 2011 stemmed from the Finance & Legal business line. In a rapidly changing world, new standards, systems and regulatory requirements are emerging all the time. Finance & Legal specialises in the temporary and permanent placement of talented accounting, finance and legal professionals that work in sectors including Accounting, Finance, Banking, Legal, Construction, Property, HR, Architecture, Management and Marketing & Communication. Main brands include Badenoch & Clark and Accounting Principals.
Medical & Science The Medical & Science segment represented 2% of Adecco's revenues in 2011. We recruit and place doctors, nurses, therapists, pharmacists and other allied healthcare professionals on a permanent or temporary basis in the field of Clinical Research, Regulatory Affairs, Pharmacists, Medical Writers, Laboratory Research Scientists and Sales & Products Support. Our main brands include Soliant and Adecco Medical.
Solutions accounted for 1% of revenues of the Adecco Group in 2011 including revenues generated in Workforce Management, Career Transition and Talent Development Solutions as described below.
Workforce Management Solutions As a provider of Managed Service Programmes (MSP), clients increasingly ask Adecco to manage all or parts of their contingent workforce. There are clear advantages in outsourcing the management of contingent labour to us: one single point of contact, speed, enhanced recruitment process and transparency. We can manage the contingent workforce solutions, programme management, reporting and tracking, supplier selection and management, order distribution and even consolidated billing.
Clients can also keep the management of their contingent workforce in-house by using our market-leading Vendor Management System (VMS) called Beeline. This web-based tool is used to manage vendors and to track every step in the sequence. Our powerful, fully automated solution provides robust workforce analytics capabilities, as well as score carding to help improve the quality of candidates and overall vendor performance. The Beeline software interfaces seamlessly with common office and enterprise ERP solutions and is known throughout the industry for its leading functionality and ease of use.
Our Recruitment Process Outsourcing (RPO) solution is suited to companies that want to outsource their recruitment process for permanent employees. The entire process includes the search for candidates, CV screening, interviews and candidate assessment. We can take care of the whole or part of the process or act as a partner for all the permanent recruitment needs. We reduce costs and complexity for our clients and ensure that they get the right people, with the right skills at the right time.
Career Transition and Talent Development Solutions In our Lee Hecht Harrison (LHH) branded business, we focus on delivering career transition (outplacement), leadership development, career development and change management solutions for organisations committed to developing the best talent and becoming employers of choice. Following the acquisition of DBM1we are the world's leading career transition and talent development services provider. While LHH historically had a strong presence in the USA and in France, through the combination with DBM we also attained leading positions in the UK, Canada and Brazil, which are among the largest markets in the career transition and talent development services sector.
As the global leader in HR solutions, we at the Adecco Group offer the full range of HR services. We have the capability to serve individuals and enterprises with all these services, locally and globally alike. This makes us unique.
The strategy of the Adecco Group is to be alongside each phase in the life cycle of our associates and clients. As the world's leading provider of HR solutions, in over 60 countries we offer all HR services to more than 100,000 clients1 and every day we place around 700,000 associates1 at work.
Candidates & Associates We support job seekers from their very first career steps: giving them an opportunity to start to build up valuable skills and to gain the work experience required by the job market. We help people identify roles that will allow them to re-enter the working world and provide them with the training to do so. A temporary job can often lead to permanent employment. Adecco offers talent development services, including training, coaching and counselling, to enable all our associates to reach their professional goals and potential. Our Career Transition services help individuals move into new roles in cases of redundancy, by assisting with the preparation of a CV, setting up interviews and final placement. We aim to accompany our associates throughout every phase in the worker life cycle.
Clients When a great idea is ready to be turned into a business, we support our clients through the start-up and growth phases by finding the right people, with the right skill sets to contribute to the company's success. Growth and expansion can also mean mergers and acquisitions, human resources need to be carefully managed and maintained, and changes may need to be made to the organisation: Adecco has the services and skills to support clients through all of these phases and more.
Once the client's company structure matures, we help to manage the attrition of people or to optimise business processes through outsourcing solutions. Should circumstances require a client to downsize operations, we help by deploying staff to increase business efficiency and effectiveness. Whatever the phase in the client life cycle, Adecco strives to provide an HR solution.
Top management carries out frequent operational and financial reviews with the country and regional heads of Adecco's markets and business segments to ensure that the Group's strategy remains on track and is embedded in the local operations. While we selectively invest in high-growth segments and markets, we continue to practice stringent cost management to ensure a sustainable improvement in profitability. In addition, the application of the 'Economic Value Added' (EVA) concept continues to be a core pillar of our day-to-day operations and strategy, ensuring discipline with respect to client contract pricing, cost containment and evaluating business opportunities.
To ensure alignment of the Adecco Group's overall strategy throughout the decentralised organisation, firm central control and effective management tools are required. The EVA concept not only helps us to ensure that the interests of our shareholders are met, it also makes sure that our daily decision-making processes are geared to value generation. The Adecco Group's value-based management approach has long moved beyond profitability based on pure accounting criteria as a measure of value creation. We also take capital intensity into consideration and application of the EVA concept enables us to maximise shareholder returns. EVA is deeply embedded in our daily operations, fostering consistent and dependable pricing policies, ensuring the use of the most efficient delivery channel and serving as a basis for performance-related incentives.
1 Average 2011
Where we apply 'Economic Value Added' We apply the EVA concept in the following areas: incentive plans, contract pricing and acquisitions.
How we calculate 'Economic Value Added' EVA is a measure of a company's financial performance based on residual income. According to this concept, value is only created if EBITA after the deduction of taxes is greater than the minimal required rate of return on the invested capital, equal to the Company's weighted average cost of capital (WACC). The calculation is based on the Adecco Group's net operating profit after taxes (NOPAT). Invested capital is defined as total assets, excluding cash and including gross acquired goodwill and other gross acquired intangibles since the introduction of
the EVA concept, while deducting non-interest-bearing liabilities. We apply a 10% cost of capital across all our entities, while the actual WACC in the reporting period was below 10%.
Put simply, the concept allows us to find the right balance between revenue growth, market share, pricing and cost structure and invested capital. It enhances our ability to make the right choices with respect to client relationships, acquisitions, strategies, incentive schemes and targets.
We aim to reach an EBITA margin above 5.5% mid-term – a new peak for Adecco. In 2011 the EBITA margin was 4.0% and improved 10 bps compared with 2010. The target was set at the beginning of 2010, after having increased the share of the higher-margin Professional Staffing business to above 20% of our total revenues. Moreover, we used the recession in 2008/2009 to structurally reduce our cost base. In the meantime, Adecco Group revenues developed very well with two consecutive years of double-digit growth. While we faced headwinds on gross profit, due to the business mix and reduced government subsidies in France, we have done an excellent job on the cost side since the upturn. From today's perspective, we are fully on track to reach our targeted profitability level mid-term.
The strategic focus of Adecco Group's management is on Retention, Information Technology (IT), Professional Staffing, Segmentation, Solutions and the Emerging Markets.
• Professional Staffing: Already today, Adecco is the global leader in Professional Staffing worldwide, but it remains an essential part of the Group's strategy to increase the share of revenues generated from Professional Staffing. This segment, with higher growth and margin potential, accounts for approximately 30%2 of the global staffing market. Midterm, Adecco aims to raise its share of revenues generated from Professional Staffing. Demand for higher-margin Professional Staffing, where penetration rates are still significantly lower than in the General Staffing segment, will be driven by scarcity of talent and higher wage growth for qualified personnel.
• Segmentation: Optimising the segmentation of our client base and increasing the efficiency of delivery models, especially in General Staffing, was a strong focus in 2011 and will continue to be firmly in our sights also in 2012. We aim to increase business with retail and medium-sized clients, to better diversify the business mix.
2 Adecco estimate.
The set-up of our organisation is a key success factor for our business. We are organised in a geographical structure plus the global business Lee Hecht Harrison (LHH):
Italy
Switzerland • Emerging Markets
• Nordics • Iberia
• Lee Hecht Harrison (LHH)
• Australia & New Zealand
Our staffing business is a local business since HR markets are local markets. Every country has its own characteristics in terms of client needs, client structure, demographics, culture and regulations. The heads of each country or region have operational responsibility for both the General and the Professional Staffing business lines. We are convinced that, for the staffing business, decentralisation is the right way to manage a global staffing organisation and to promote local entrepreneurship. On the other hand, our Career Transition and Talent Development Solutions business (LHH) globally benefits clients with its unparalleled service offering. Clients increasingly require these services in multiple countries and our organisation structure perfectly fits this need.
The Board of Directors (BoD) determines the overall strategy of the Adecco Group and supervises the management. The CEO is responsible for the implementation of the strategic and financial plans as approved by the BoD and represents the overall interests of the Adecco Group. The Executive Committee consists of the Group's CEO, Chief Financial Officer, Chief Sales Officer, Chief Human Resources Officer and eight Regional Heads representing all countries where Adecco operates.
To measure the effectiveness of our strategy from a financial perspective, we closely monitor the following KPIs:
We also measure non-financial goals. Retaining our own employees is a strategic priority of management. We review the retention rate quarterly and use the Great Place to Work® survey to further improve our attractiveness as an employer. We conduct the Global Satisfaction Survey among clients, associates and employees on a regular basis –adialogue with those people who determine our success. It provides us with feedback on our brand promise, brand voice, processes and KPIs, and allows us to constantly improve. By increasing client, associate and employee satisfaction we enhance the creation of value.
Adecco offers a complete range of HR solutions and services along the life cycle of clients and workers in more than 60 countries around the world. This means we provide solutions to enterprises and individuals globally. We are the largest provider of General and Professional skills and through our network we place around 700,000 people1 at work every day. We partner our associates and our clients, finding the best fit for the skills and aspirations of talents to the evolving needs of enterprises. Coupled with our global reach and decentralised management approach, which fosters entrepreneurship and enables adaptation to local market conditions, we are a trusted and reliable partner for all stakeholders.
In 2011 we continued to focus on executing our strategy. Industrial staffing remained the growth driver of our results. With the performance achieved to date we remain on track to reach an EBITA margin above 5.5% mid-term.
Highlights for the Adecco Group In 2011 we faced overall good business conditions. Whereas we experienced strong momentum in the first half of the year, tougher comparables and the economic uncertainty related to the sovereign debt crisis in Europe and the USA led to slower growth in the second half of 2011.
Our main markets, France and North America, accounting for 48% of total revenues, respectively grew 10% and 8% organically. Germany & Austria and Italy had very strong growth, both more than 20% in 2011, also driven by their export oriented exposure. The UK & Ireland and Japan, returned to organic growth in 2011. The Emerging Markets continued to expand strongly double-digit.
From a business line perspective, growth was still strongest in the Industrial segment. Growth in Professional Staffing was held back by the IT segment in North America. In 2011, revenues stemming from Professional Staffing and Solutions represented 22% of Group revenues compared to 23% in 2010. The slightly lower proportion of Professional Staffing and Solutions in 2011 compared to 2010 is mainly a result of faster revenue growth in Industrial and Office (General Staffing) in 2011, with growth rates of 13% and 9% respectively. In our Solutions segment, the counter-cyclical career transition business reported an organic decline, while growth in MSP, RPO and VMS was strongly double-digit.
The uncertain and rather muted economic development across the globe meant that companies lacked the confidence to hire human resources on a permanent basis, which fostered demand for flexible workforce solutions. In the automotive, industrial and manufacturing sectors we experienced the
strongest demand for staffing services. From a business mix perspective this led to higher growth in the lower-margin Industrial business. Also, we generated higher revenue growth with larger clients and less so with small or medium size clients. This again led to higher growth in the lower margin businesses. Lastly, the precarious debt situation in many countries led to austerity measures that also impacted the HR industry in 2011. In the UK & Ireland, for example, this meant significantly reduced demand for staffing services in the public sector. In France, which is our largest market, the government decided to reduce subsidies granted to employers for their typically lower-skilled employees earning low wages. In order to compensate for the subsidy shortfalls, we needed to raise prices for our services throughout 2011. From a profitability perspective, we therefore experienced some headwinds in 2011. We delivered double-digit revenue growth in 2011 for the second consecutive year, benefiting from a structural shift in demand towards more flexible workforce solutions and we were able to maintain the EBITA margin, through price discipline and tight cost control. This despite the unfavourable business mix and the subsidy cuts in France.
In 2011 we successfully completed the integration of MPS Group which we acquired in January 2010. Initially targeted synergies of EUR 25 million were clearly exceeded. With the acquisition of MPS Group, Adecco attained the worldwide lead in Professional Staffing.
Included in our results since September 1, 2011, is Drake Beam Morin, Inc. (DBM), a career transition (outplacement) and talent development services company. Combining Adecco's Lee Hecht Harrison (LHH) business with DBM created the world's leading career transition and talent development services provider. Having joined forces with DBM considerably enhances LHH's existing geographic footprint. With a strong presence historically in its main markets of the USA and
| in EUR millions | 2011 | 2010 | variance |
|---|---|---|---|
| Revenues | 20,545 | 18,656 | 10% |
| Gross profit | 3,566 | 3,329 | 7% |
| Gross margin | 17.4% | 17.8% | |
| SG&A | (2,752) | (2,607) | 6% |
| EBITA | 814 | 722 | 13% |
| EBITA margin | 4.0% | 3.9% | |
| Net income attributable to Adecco | |||
| shareholders | 519 | 423 | 23% |
| Basic EPS | 2.72 | 2.20 | |
| Diluted EPS | 2.72 | 2.17 | |
| Operating cash flow | 524 1 |
455 | 15% |
| Dividend per share in CHF | 1.80 1 | 1.10 | 64% |
France, LHH through this acquisition also attained a leading position in the UK, Canada and Brazil, which are among the largest markets in the career transition and talent development services sector. This move strengthens Adecco with an effective counter-balance to the temporary and permanent staffing business, given the counter-cyclical nature of the career transition sector.
• In April 2011, we lengthened the maturity profile of our debt and took advantage of favourable market conditions. EUR 500 million fixed rate notes due in 2018 with a coupon of 4.75% were issued and the proceeds were partly used to refinance an aggregate nominal amount of EUR 311 million of outstanding notes, consisting of EUR 167 million of the EUR 500 million 4.5% notes due 2013 and EUR 144 million of the EUR 500 million 7.625% notes due 2014.
Revenues In 2011, our revenues increased by 10% to EUR 20,545 million, or by 10% organically. Temporary hours sold were up 9% to 1,261 million. Permanent placement revenues amounted to EUR 344 million, an increase of 19% or 18% organically when compared with the prior year. Career transition (outplacement) revenues totalled EUR 206 million, a decline of 8% or 16% organically. Acquisitions had a positive impact of 1% on 2011 revenues. From a business line perspective, revenues in the General Staffing business (Office & Industrial) were up 12%, also in constant currency, while Professional Staffing revenues increased by 5% or also 5% organically. Revenues in Solutions were flat, or down by 6% organically. Whereas the counter-cyclical career transition (outplacement) business was down, revenues in MSP, RPO and VMS were up in solid double digits.
Gross Profit was up 7% to EUR 3,566 million, and by 6% organically. The gross margin was 17.4%, 40 bps lower than in 2010. Organically, the decline in the gross margin was 60 bps. While pricing continued to be rational overall and we continued to practice strict price discipline based on our EVA (Economic Value Added) approach, we were confronted with a declining gross margin largely due to the strong growth in the lower margin Industrial staffing segment, which negatively
1 Proposed by the Board of Directors.
2 Organic growth is a non-U.S. GAAP measure and excludes the impact of currency and acquisitions.
impacted the business mix. The temporary staffing business had a negative impact of 50 bps organically on the gross margin, whereof a negligible impact related to the French payroll tax subsidy cut. The outplacement business negatively impacted the gross margin by 20 bps organically. The permanent placement business had a positive impact on the gross margin of 10 bps organically.
Selling, general and administrative expenses (SG&A) Strict
cost discipline was maintained during 2011 with selective investments in growth markets and segments only after careful evaluation. SG&A increased by 6% or by 4% organically. Integration costs for MPS and DBM amounted to EUR 20 million in 2011 (EUR 33 million for MPS and Spring in 2010). The average number of FTE employees increased by 5% or by 4% organically when comparing 2011 with 2010. Hirings were mostly concentrated in the Emerging Markets, Germany and North America. The average branch network was up 2% or by 1% on an organic basis when comparing 2011 with 2010. Personnel expenses, which comprised 71% of total SG&A, increased 7% in constant currency to EUR 1,954 million. On December 31, 2011, the number of branches and FTE employees exceeded 5,500 and 33,000 respectively.
EBITA In 2011, EBITA increased by 13% to EUR 814 million. On an organic basis, EBITA increased by 14%. The EBITA margin before integration costs was 4.1%, flat when compared with the EBITA margin before integration costs in the prior year. We were able to defend our EBITA margin, despite facing headwinds from a gross margin perspective. The unfavourable business mix, due to the strong growth in lower-margin businesses, was largely compensated by very tight cost control.
Operating income In 2011, operating income increased 14% to EUR 763 million.
and EPS Net Income attributable to Adecco shareholders in 2011 was EUR 519 million, compared to EUR 423 million in 2010. Basic EPS was EUR 2.72 (EUR 2.20 in 2010).
Cash flow, net debt and DSO Operating cash flow amounted to EUR 524 million in 2011. The Group paid EUR 148 million, net of cash acquired, for the acquisition of DBM, and spent EUR 109 million in capital expenditure. Dividends paid were EUR 149 million in 2011. Net debt 3 at the end of December 2011 was EUR 892 million, compared with EUR 751 million at yearend 2010. In 2011, DSO was at 55 days, compared to 54 days in 2010.
Year-on-year revenue growth continued to soften during Q4 2011, albeit compared against a strong fourth quarter in 2010. In January 2012, Adecco Group revenues were down 1% compared to the prior year, on an organic basis and adjusted for trading days. Within Europe, revenue growth in Germany & Austria remained double-digit in January 2012. Most other countries slowed further going into the new year. In North America, revenues were up slightly year-on-year in January 2012, adjusted for trading days, while revenue growth in the Emerging Markets continued to be healthy.
3 Net debt is a non-U.S. GAAP measure and comprises short-term and long-term debt, less cash and cash equivalents and short-term investments.
players hold a total market share of 70%5 . Adecco is the market leader in France, with a market share of 31%5 . France is a key market for our Company, where we generated 30% of our total revenues in 2011. Since August, the Regional Head is Alain Dehaze who previously led Adecco's operations in Benelux and the Nordics. 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, but continues to deliver very solid revenue growth. 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. Until now, given the rigid structure of the public sector, using private agencies for temporary staffing has evolved only slowly. However, the public sector 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. Emerging Markets 5%
Adecco's business in France experienced strong growth in the first six months in 2011. A tougher comparison base and the uncertainty related to the European debt crisis led to slower growth in the second half of the year. Revenues increased 10% compared with the previous year. Growth was driven by the Industrial segment, which increased 11%. EBITA increased by 10% to EUR 220 million. The EBITA margin was 3.6%, flat compared to the prior year. The flat EBITA margin development is mainly the result of higher growth in the lower-margin large
The Adecco Group is solidly positioned for the future. In an environment of economic uncertainty we will continue to build on our strengths – our leading global position and the diversity of our service offerings. We will continue to take advantage of growth opportunities, with a strong focus on disciplined pricing and cost control to optimise profitability and value creation. Besides the structural changes and related investments of EUR 45 million in France, which would mainly be incurred in the second half of 2012, management expects additional costs of EUR 10 million in the first half of 2012, to further optimise the cost base in other European countries and to protect profitability. We are committed to our strategic priorities and we have the right offering to achieve our EBITA margin target of above 5.5% mid-term.
Country revenue split by business line
| Office Industrial Professional Staffing & Solutions |
General Staffing |
||
|---|---|---|---|
| in EUR millions | 2011 | 2010 | variance4 |
| Revenues | 6,066 | 5,494 | 10% |
| EBITA | 220 | 199 | 10% |
| EBITA margin | 3.6% | 3.6% |
Within Europe, France is a key market for staffing, with an approximate share of 7%5 of the global market. While the staffing industry in general shows a high degree of fragmentation, the French market is significantly concentrated: the three major
4 In constant currency. 5 Adecco estimate.
account business, negatively impacting the client mix. Since January 2011, the subsidies for employees earning low wages have been reduced. To offset the negative impact on our gross profit, we needed to renegotiate the contracts with our clients and for the full year 2011, we managed to minimise the negative impact to less than 10 bps on the Gross Margin. Pricing remained rational in the market.
In order to further strengthen the Group's position in France and to ensure sustainable profitability, Adecco is informing and consulting the French Works Councils on its plans to unite the networks of Adecco and Adia under the Adecco brand. Combining the expertise of both general staffing businesses under a single roof would facilitate an even better offering for clients, candidates and colleagues. At the same time, the cost base would be further optimised through the planned reduction of over 500 full-time equivalents (FTEs), further branch network consolidation and introducing the shared service centre concept. Adecco expects to invest approximately EUR 45 million, the majority of which would be incurred during the second half of 2012.
The US market, which represents 31%5 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 4%5 . From a regulatory perspective, this market is amongst the most liberalised in our industry.
The region represented 18% of the Group's total revenues in 2011. The share of revenues generated in the Professional Staffing segment is amongst the highest when compared with our other markets. Professional Staffing and Solutions revenues were roughly 50% of total revenues while 50% stemmed from the General Staffing segment. 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 in 2008 and 2009, over 600,000 were recovered by the end of 2011. As a result, the penetration rate increased from the trough of 1.33%6 in 2009 to 1.81%6 at the end of 2011. Growth in 2011 was strongest in the Office business with 20% constant currency growth, but also the Industrial segment held up very well with 7% constant currency growth despite running against a tough comparison base in 2010. Professional Staffing was up 8% in constant currency or by 3% organically, held back by the IT segment. The integration of MPS was successfully completed during the first half of 2011 and the targeted synergies were clearly exceeded. In IT Professional Staffing, our revenue growth lagged behind the market in 2011. The main reasons were the intense focus on the MPS integration and insufficient internal resources to capture the market potential. Hiring of additional specialised consultants started in summer 2011 and is expected to show a positive contribution in 2012.
Overall, revenues in the region amounted to EUR 3,646 million, up 10% in constant currency, or 8% organically. EBITA increased by 20% to EUR 161 million, or 28% on a constant currency basis. The EBITA margin was 4.4%, 60 bps above the prior year. Integration costs related to MPS amounted to EUR 4 million in 2011 and EUR 20 million in 2010.
The focus in North America in 2012 will be on Professional Staffing, notably the IT segment, and closing the gap to the market in terms of growth, without sacrificing profitability. Furthermore, we will continue to expand our successful General Staffing business.
Country revenue split by business line
Representing 8%5 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. With a market share of 8%5 we are the market leader in the UK.
In 2011, our revenues amounted to EUR 1,707 million, up 6% in constant currency and up 5% organically. This represented 8% of the Group's total revenues. From a business mix perspective, roughly 66% of our revenues stemmed from the Professional Staffing segment, while 34% were generated in General Staffing. EBITA increased by 46% to EUR 32 million. In constant currency, EBITA increased by 50%. The EBITA margin was 1.9% in 2011, up 50 bps compared with the prior year. Integration costs related to MPS amounted to EUR 2 million in 2011 and EUR 13 million in 2010 (for Spring and MPS).
Whereas the UK recovery was lagging behind other countries in 2010, the market returned to low single-digit growth in 2011. Austerity measures in the UK meant reduced government spending in temporary staffing. This led to a strong doubledigit decline in our revenues generated in the public sector, which represented approximately 10% of our total UK & Ireland revenues in the last quarter of 2011. After strong growth in the permanent placement business in 2010, the good momentum continued in 2011 with revenues up 22% in constant currency, but we are still clearly below prior peaks.
In a challenging business environment we successfully completed the integration of MPS in 2011 and slightly exceeded the targeted synergies. Going forward, we will continue to focus on leveraging our market-leading position and enhancing our profitability. Top priorities remain the continuing improvement of service delivery models and a systematic approach to client attraction and retention.
Country revenue split by business line
The Japanese market is the second-largest staffing market in the world, representing roughly 17%5 of the global market. This market has had robust growth since the beginning of liberalisation in 1996. Fragmentation is high, with the five largest players representing less than 20%5 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.
In 2011 the Japanese market remained in negative territory. Adecco has a high exposure to late-cyclical office and clerical business and approximately 90% of our total Japanese revenues are generated in this segment. The demand for temporary staffing services in Japan was still negatively impacted by an uncertain regulatory environment. Since early 2010, the Japanese government had considered revising the regulations on temporary staffing. At the beginning of March 2012, a draft legislation was passed in the House of Representatives and is expected to be passed in the House of Councilors. The enforcement is expected several months after the completion of further necessary legislative steps. Anticipated changes could include a minimum assignment length. In addition, the Labour Ministry will be ordered to clarify the rules for the 26 predefined skill categories where temporary staffing will be allowed, as well as providing clarity on outsourcing services. It is anticipated that customer hesitancy to use temporary agencies will diminish over time as regulatory uncertainties are removed. The impact on Adecco is expected to be limited and manageable. In 2011, thanks to outsourcing contracts won at the end of 2010 and during 2011, we more than compensated declining trends in the temporary staffing business. The earthquake and tsunami had only a very limited impact on our business, since our exposure to the affected industries is very minor.
Against a still declining market in Japan, our revenues for the full year 2011 increased 4% in constant currency, to EUR 1,406 million. Management continued to excel in terms of cost control and execution. While EBITA increased by 16% to EUR 80
million or 12% in constant currency, the EBITA margin was 5.7% in 2011, up 40 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. 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 9% of our revenues stem from the Professional Staffing segment, while roughly 91% are generated in General Staffing.
The outlook for the Japanese staffing market is expected to remain muted due to the still unclear situation with regards to the proposed regulatory changes for temporary staffing services. Adecco, however, believes that the structural growth potential is unchanged. The acquisition of VSN Inc. in January 2012 will double the contribution of Professional Staffing to the company's revenues in Japan and reinforce the strong market position.
Country revenue split by business line
| Office Industrial Professional Staffing & Solutions |
General Staffing |
||
|---|---|---|---|
| in EUR millions | 2011 | 2010 | variance4 |
| Revenues | 1,544 | 1,231 | 25% |
| EBITA | 110 | 82 | 34% |
| EBITA margin | 7.1% | 6.7% |
Globally and within Europe, Germany is a key market for staffing, with a roughly 7%5 share of the total global market. Our market share, in what we continue to view as one of the most attractive markets, is 9%5 , making us the number two in Germany. In 2011, the German economy witnessed good economic growth and withstood the European debt crisis. The prior peak penetration rate (the number of temporary employees as a percentage of the overall workforce) of 1.9%7 , reached in
7 Source: Ciett (International Confederation of Private Employment Agencies).
2008, was surpassed during 2011 and it is a reflection of the strong cyclical recovery and structural growth the German temporary staffing market offers. Also mid-term, Germany remains an attractive structural growth market in our view, as greater acceptance of temporary staffing and the need for flexibility will result in higher penetration rates. Companies strive to further increase their flexible workforce and the European Directive requires the lifting of all restrictions on temporary agency work. This offers additional revenue potential for our industry. What's more, in the German construction sector, which today is still closed to temporary labour, restrictions should eventually be lifted.
Germany's exposure to export-oriented sectors such as the capital goods industry and the automotive sector, coupled with resilient domestic consumption, resulted in aboveaverage GDP growth in a European context. In 2011, our revenues in Germany & Austria increased by 25% to EUR 1,544 million. The improvement in revenue growth in Germany & Austria was the highest within the Adecco Group. From a business line perspective, Professional Staffing revenues represented approximately 16% of our revenues in Germany & Austria, while General Staffing contributed 84%. Compared with 2010, EBITA increased by 34% to EUR 110 million. This resulted in an EBITA margin of 7.1%, up 40 bps compared with the prior year.
The comparatively higher profitability in Germany is attributable to the fact that temporary employees are on our own payroll –aregulation particular to the German and Swedish markets, where temporary employees are effectively permanent employees of the staffing firm. Employing associates on a permanent basis 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 2012, our focus will be on further developing our business with small and medium enterprises. We aim to achieve this through better segmentation and with an optimised delivery model. We are the leader in Professinal Staffing and our organisation is well positioned to benefit from both the structural and cyclical growth potential in the German market. At the same time, we will further work on increasing our profitability, through strict price discipline and strong cost control.
Further information on countries and regions can be found in the Financial Review, starting on page 43.
Our people are our most important resource. We ensure that they are selected through a consistent and fair process and appropriately trained and developed in line with their own wishes and skills. This will create a workforce best suited to develop Adecco and sustain our growth in the future.
To remain the leader in our industry, it is one of our main priorities to help our employees progress in their careers according to their individual aspirations and potential. Their development contributes to the success of our business every day.
Talent Management is a critical component of the HR strategy within the Adecco Group and is a collaborative effort between the Group initiatives that are run at a company-wide level and the in-country programmes that are created and administered locally. Our ultimate goal is to attract and retain the best talent and to ensure that our leaders are able to continue to deliver on the overall Adecco Group strategy.
The four components of the Adecco Group Talent Management framework are: identification of high potentials, development, performance management and finally succession planning.
The Group Talent Management strategy goes beyond the identification of talent and works to develop the depth and strength of our talents. As such, we have expanded the existing leadership programme with IMD business school in Switzerland (run since 2004) by designing and delivering a programme with INSEAD business school in France for our senior leaders. The addition of the MBA Highlights programme, as of the end of 2011, gives us a comprehensive Group leadership development offering.
Training and development has high priority at Adecco and we are committed to ensuring that our employees have a continuous learning experience regardless of their level or position. The Adecco Academy runs the Group's global development programmes spanning multiple levels. The programmes are organised under three pillars: leadership, service and sales, operations.
We have placed an increased emphasis on ensuring that we know the development needs of our high potentials. We target our development programmes to these individuals and on the areas they need to focus on in order to progress to becoming our leaders of tomorrow. More than 600 of Adecco's senior managers have completed a leadership programme at INSEAD or IMD.
The Senior Leadership Program has been designed and developed in cooperation with the INSEAD Business School in France and takes senior leaders through a series of experiential activities, individual and group reflection as well as group work. Participants practice and hone their leadership skills in a team context.
The I3 Leadership Development Program has been developed in conjunction with IMD business school in Switzerland to deliver cutting-edge theory and experiences to best equip Adecco leaders to live the values of the Group and grow throughout their careers.
The MBA Highlights Program, developed and run in cooperation with INSEAD, broadens knowledge of a range of topics such as Strategy, Corporate Finance and Innovation with an overall theme of value creation.
Value Focused Selling (VFS) is a workshop which goes beyond basic sales techniques and delivers a tried and tested approach focused on consultative selling methodologies. The course teaches effective ways to engage clients in order to understand what is important to them and how to customise solutions to those wants and needs.
High Intensity Training (HIT) is a programme that teaches the basics of sales, recruiting, order maintenance and operational efficiencies. The programme discusses global best practices and works through techniques to adapt them locally. Learning techniques include large group discussion, role play and culturally adapted small group discussions.
Service Excellence Course (SEC) is designed for employees who have access to and impact on our customers. The participants work through a series of discussions, activities and experiences to learn how to adapt a common customer service framework to the key interactions they have with their customers. 100 branch managers attended the first SEC in October 2011 and by the end of 2012 another 1,100 will have done so.
Short-Term Exchange Programme (STEP) In addition to vocational training, Adecco has developed a Short-Term Exchange Programme, which gives our top performers at branch level the opportunity to gain work experience in another country. This is done through an exchange with another colleague doing the same job. This programme, which started in 2011, is very successful, and to date employees from nine countries have benefited from this experience with many more exchanges in the pipeline.
Our core values – team spirit, customer focus, responsibility and entrepreneurship – were rolled out across the Group in 2010. They define the areas where we aim to excel and are a distillation of the fundamental attitude and character of our organisation. On Group level, the Win4Youth initiative is a global manifestation of our values and is now being run for the third consecutive year (you can read more in our corporate social responsibility section on page 30).
Our retention rate of 75% is among the best in the industry, particularly in the major markets. Retention is a strategic priority for Adecco and is tracked on a quarterly basis across the Group. Almost 65% of our colleagues remain in the company for more than two years and approximately 44% for more than five years. In France – our largest market – close to 60% of our employees stay with us for more than 5 years and in Italy this figure is close to 70%.
Our goal is for Adecco to be recognised as an employer of choice, not just in our own industry, but alongside other world-leading companies. The Great Place to Work Trust Index© is an employee survey tool that measures the level of trust, pride and camaraderie within workplaces, a survey in which we have participated since 2004. The overall result for the Group improved by 11% in 2011, versus the prior year. The greatest improvement was seen in the dimensions respect and camaraderie. Through the Great Place to Work survey we
Female managers
Employees per region 2011
Europe 62% North America 21% Asia Pacific 13% South America 4%
are able to measure the engagement levels of our employees year over year. Based on the results we have developed action plans which we share on a regular basis across the Group.
In 2011 DIS AG in Germany ranked 1st on the Best Workplaces list in Germany and fourth on the European Best Workplaces list. In addition, Adecco Denmark, Adecco Netherlands and Tuja Germany were on the Best Workplaces lists in their respective countries. Office Angels, Adecco and Spring were on the Sunday Times Best Companies to Work For list in the UK. The secret to these successes is our open company culture which is firmly based on our Group values and our leadership principles; cool head, warm heart, working hands.
At Adecco we foster a culture of equal opportunity, good training and career possibilities regardless of gender, age, disabilities or ethnic background. We see diversity as a great competitive advantage. Over time the demographics of our candidates and clients have changed and today are very different from only a few years ago. It is important for us to follow this development closely and create a workforce that is diverse and can understand the changing needs of our customers. In the Great Place to Work survey we scored very highly on the aspect of diversity in all countries.
With large and rising numbers of unemployed across the country, Adecco Spain decided to take action. In October 2011 all 1,500 employees took part in a huge initiative to give a helping hand to job-seekers by taking their know-how and offer of advice onto the streets. The Adecco brand colour featured strongly and they called it – REDvolución.
Diversity awards received in North America in 2011:
In essence it all comes down to our employees. They are and will remain our most important resource. Only through developing our employees and assisting them in their growth can we ensure the future success of our company.
We unlock potential for individuals, businesses and economies reinforced by our CSR strategy centred upon Excellence, Integration and Skills. For more information, read our latest CSR report:
At Adecco, we unlock potential in the domain of work for the benefit of all stakeholders. Thanks to the commitment of more than 33,000 employees, around 700,000 associates work through Adecco every day, amounting to more than 3 million people in the workforce each year.
Their income supports many families' lives. Their talent, skills and efforts contribute to the productivity and sustainable success of over 100,000 Adecco clients. Employment reduces the welfare burden and enables people to contribute to society at large. At the same time, it gives individuals independence, a purpose and may even fulfil a dream.
Helping individuals and clients throughout their career and business life cycle and optimising our positive impact without compromise is our Corporate Social Responsibility (CSR). The Corporate Governance Committee and the CEO oversee our CSR strategy which is focused on three pillars in the world of work: Integration, Skills and Excellence.
A range of specific programmes and activities underpin each pillar and are the designated responsibility of management throughout our business operations. We submit our Communication on Progress (CoP) on a yearly basis to the UN Global Compact and apply the Global Reporting Initiative GRI Guidelines for our CSR reporting. In 2011, the Adecco Group became a constituent of the Dow Jones Sustainability Indexes (DJSI) World and Europe.
The effectiveness, efficiency and choice that we bring to the world of work are exemplified by a number of highlights presented here.
Integration Integrating people into the workforce through temporary work is a central part of our business. Jobs offer people work experience and an income. Consecutive assignments provide people with diverse work experiences and environments and enhance their adaptability to different roles and teams. In many cases, they are a stepping stone to a permanent position for individuals who otherwise could become marginalised. 37% of all temporary workers are officially registered as unemployed before working with an agency. This proportion falls to less than half that level (15%) twelve months after working as an agency worker 1
Adecco is involved in various public-private initiatives such as the ILO Global Business and Disability Network relaunched in 2011 and the Golden Workers project. The latter was started in October 2011 and is one of several initiatives that have been undertaken by the EU Commission in support of the 'Year of Active Ageing and Solidarity between Generations 2012'. The main goal of Golden Workers is to identify emerging technologies and socio-economic trends, new models of extending professional active life and novel application scenarios in the area of Information and Communications Technology (ICT) for active ageing at work.
A centrepiece of our integration efforts is the IOC and the IPC Athlete Career Programmes. The International Olympic Committee (IOC) and the International Paralympic Committee (IPC) Athlete Career Programmes are designed to help highperforming athletes, as well as Olympians and Paralympians, to address their education, life skills and employment needs in order to enhance their prospects for success beyond competition. The focus of Adecco's role is to provide career development and job placement support to help ease the challenges that athletes face while they transition into the workforce. Adecco also works with employers to help them identify and understand the qualities athletes can bring to their business. The programmes have been in place since 2005 (IOC) and 2007 (IPC) respectively, reaching out to more than 8,500 Olympic and Paralympic athletes around the world. New landmarks were achieved in 2011 with the participation of more than 2,000 athletes in the programme. Adecco has hired athletes from 13 countries, being a strong believer in the transferrable skills athletes can bring to the corporate world. Strengthening
1 Source: Ciett Economic Report 2011.
Adecco Group: three main global programmes in our strategic areas
| Stakeholders | Global programmes |
|---|---|
| Employees Customers & Shareholders Society |
Excellence Excellence Awards Adecco Academy |
| Integration IOC Athlete Career Programme IPC Athlete Career Programme |
Skills Win4Youth
the Olympic Movement's responsible approach to athletes, the IOC in cooperation with Adecco also delivered career development advice to over 250 young athletes and volunteers during the 1st Winter Youth Olympic Games in Innsbruck in January 2012.
As Official Recruitment Services Provider to London 2012, Adecco UK is working as an integral part of the London Organising Committee of the Olympic and Paralympic Games (LOCOG) to achieve the commitment for the Games to be the most diverse and inclusive ever. By the time the Games start, Adecco UK will have recruited 7,000 people.
Skills The acquisition and on-going development of skills is a passport to employment, income and a sustainable career. Providing and guiding our associates, as well as employees, to suitable training and development opportunities is an essential part of our business approach.
Helping disadvantaged people acquire the skills they need is a real passion that unites the Adecco Group. This is highlighted by the participation of 16,500 employees in our 2011 Win4Youth initiative. At more than 2,300 events in 63 countries, our employees and 4,000 clients cycled a total of 1,565,528 kilometres. Over 84,000 kilometres of this total were achieved during our worldwide Solidarity Day raising funds for the victims of the Japanese earthquake and tsunami.
For every5kilometres completed – on road bike or even spinning machine – the Adecco Group donated USD 1 to a grand total which was shared between three foundations: Brazil – Social Circus in Rio de Janeiro; Philippines – The Cebu boys home; and in Greece we supported 'The Smile of the Child' dedicated to providing community homes giving shelter and safety to children. The highlight of the 2011 project – which built upon a running-themed Win4Youth project in 2010 – was the successful cycling ascent of Mont Ventoux in France by 74 employees from around the world.
Excellence Striving for and measuring excellence is central to our ethos and operational practices. It enables us to sustain
our business success and industry leadership but at the same time furthers our team spirit and maximises our positive contribution to society. Since October 2011, the Adecco Academy has been running our Group development programmes aimed at excellence in leadership, services & sales and operations.
In 2011, we ran our third Adecco Group Excellence Awards. Eight winning teams were recognised and rewarded for outstanding results achieved through applying our four core values of team spirit, customer focus, responsibility and entrepreneurship. Whilst Adecco Eastern Europe was the overall winner, Adecco Spain received an award in recognition of the highest retention rate – one of Adecco Group's key strategic priorities. Other winners included Adecco South America, Adecco Italy, Adecco US Staffing, Tuja Germany, Adecco Brazil and one of our international account teams.
Many of our advances in the social, economic and environmental aspects of the CSR arena were reflected in internationally recognised assessments in 2011. The Dow Jones Sustainability Index (DJSI), in cooperation with Sustainable Asset Management (SAM), recognised the Adecco Group as one of the sustainability leaders in the Industrial Goods and Services sector based on performance across economic, environmental and social criteria. Additionally, Adecco retained its inclusion as a member company of the FTSE4Good Index, the responsible investment index calculated by global index provider FTSE Group in its Semi-Annual Review 2011. We were named among the top 250 companies on the 2011 Newsweek Green rankings. This is in step with our increased focus on environmental performance which we track through the 'myclimate' emission measuring platform and our involvement in the Carbon Disclosure Project (CDP). Through our participation in the World Economic Forum as a strategic partner, we support the Forum's commitment to improving the state of the world by creating greater choice in the domain of work and by unlocking potential in individuals, enterprises and society in general.
For more information visit csrr.adecco.com.
Identifying, mitigating and managing risks is part of our culture. Furthermore, our risk management process is used to identify business opportunities, to improve our services for clients and associates and to increase the value of the Adecco Group.
The process The risk management process at the Adecco Group has strategic and organisational dimensions. Besides analysing, managing and mitigating risks, the aim is also to identify business opportunities. The risk assessment process includes an estimation of the likelihood of risk occurrence, potential impact on the financial results and an assessment of the effectiveness of existing internal controls. When existing controls need further improvements, action plans are established and implemented to mitigate the risk to an acceptable level. All countries perform risk assessments on a regular basis and report their results to Group Management. The results are discussed in the Risk Management Steering Committee to determine whether the countries' assessments are plausible also from a Group perspective. Risks identified at country and corporate level are treated as opportunities for improvement. In this sense, the risk management process is a vital part of daily activities within the organisation. The Group's financial risk management activities are also covered on page 104 in the Financial Review. This section focuses on describing where key risks emerge and the actions Adecco takes to manage and mitigate those risks.
Economic environment As a general rule, demand for HR services is sensitive to changes in the level of economic activity. When the global economy accelerates, demand for temporary and permanent placement services increases; when the economy slows down, so does demand. On the other hand, the impact of the level of economic activity on the career transition (outplacement) business is counter-cyclical in nature. Demand for career transition services rises in difficult economic times and decreases when the economy improves. In all our businesses, fluctuations in revenue and profitability need to be managed through tight cost control in order to ensure financially sound results.
How do we handle changes in economic activity? Given the low level of visibility for the staffing business, it is important that management at country level is constantly aware of economic developments in order to adapt the cost base to revenue trends. Corporate and regional management need to maintain an active dialogue so that capacity can be adjusted as and when necessary. Close monitoring of monthly results and updated forecasts ensure a rapid response to business developments. Our focus on EVA supports this approach.
Client attraction and retention The Adecco Group's business potential and long-term prospects depend on attracting and retaining clients. Client satisfaction, as a result of our services rendered, is a key indicator for client retention and therefore needs to be monitored closely.
How do we ensure client attraction and retention? The active use of the client Global Satisfaction Survey, which is carried out twice a year, is a valuable tool to monitor client satisfaction within countries and regions. The Adecco Group uses the results to train and support salespeople, to draft and execute sales action plans, and to further enhance services to meet client needs. In parallel, we continue to improve our delivery channels and to optimise sales processes, leading to enhanced client attraction, greater client satisfaction and ultimately to increased revenue growth prospects.
Associate attraction and retention We depend on our ability to attract and retain associates who possess the skills and experience to meet clients' staffing needs. With talent shortages in certain sectors and intense competition for skilled individuals, providing suitably qualified associates is a challenge. Our continued success depends on our ability to offer associates attractive assignments and conditions in order to attract and retain them.
How do we address associate attraction and retention? Key to retaining associates is being able to offer consecutive assignments with attractive wages and training modules to
improve their skills and qualifications. Our Global Satisfaction Survey also addresses associates and is designed to help us identify their needs. The findings are continually evaluated and implemented in our solutions of servicing qualified people to keep up with changing client needs and emerging technologies.
Employee attraction and retention The effectiveness of our operations depends on the commitment of key corporate personnel, local managers and field staff. Local relationships and the quality of services are vital to our ability to attract and retain business. The loss of top personnel, with valuable operational experience in the global HR services industry or with strong customer relationships, may cause significant disruption to our business.
How do we respond? Retaining and hiring the right people and placing them in the right job can significantly influence Adecco's business prospects. The annual Great Place to Work® survey gauges employees' satisfaction with their workplace. Compensation packages need to be competitive and closely aligned with Company targets. EVA, as a performance-based incentive concept, is applied at almost all levels and regions of the organisation. Adecco endorses the view that frequent, honest and transparent communication, as well as a clear strategy from top management, is essential in ensuring employee satisfaction.
Information technology IT plays a pivotal role in today's business operations. The growing dependency on IT makes the potential impact of disruptions even greater. Key IT-related risks include failure of the IT infrastructure, leading to loss of service or a leakage of confidential business information, among others.
What mitigating measures do we take? We continue to improve our existing IT process risk management, including monitoring, security and compliance, coupled with continual assessment of our global security and IT infrastructure (network, database, application). Furthermore, we have a contingency plan based on a detailed, country-by-country assessment of our exposure to a severe IT disruption. A review of agreements with IT service providers and enhancement of service-level and contract management are embedded in the IT processes, as is the steady improvement of user security awareness. Continuous investments in our IT platform further increase the efficiency and quality of our services.
The private employment services industry requires appropriate regulation with the ultimate goal of enhanced quality standards. The triangular relationship (Private Employment Agency, Associate & Client) is a widely accepted employment form and officially recognised by the EU in its directive (2008/104/EC) on temporary agency work, as well as by the ILO with its convention on private employment agencies (n° 181).
What can Adecco do to avoid inappropriate or unbalanced regulation? Adecco is a founding member of Ciett, the International Confederation of Private Employment Agencies and the authoritative voice representing the interests of affiliated agency work businesses. We play an active role in Ciett's approach to take the staffing industry forward through informed and influential dialogue with key stakeholders. At regional and local level we are involved either via our own company representatives or through associations and federations. We are also a Strategic Partner of the World Economic Forum. The ultimate goal of our initiatives is to improve working and employability conditions whilst ensuring the competitiveness and growth of businesses and economies.
Adecco S.A. shares are registered in Switzerland (ISIN: CH0012138605) and listed on the SIX Swiss Exchange (ADEN). Adecco is a constituent of the Swiss Market Index (SMI), Switzerland's most important stock market index, containing the 20 largest and most liquid Swiss stocks.
Equity story The Adecco Group is the world's leading provider of HR solutions, offering a wide variety of services including temporary staffing, permanent placement, career transition (outplacement), talent management, outsourcing and other services. We have more than 33,000 full-time employees and place around 700,000 people at work every day through a network of over 5,500 branches in more than 60 countries and territories.
Our core competences include providing flexible workforce solutions and matching clients' needs with candidates' skills. In an environment of cyclical and seasonal changes in demand, we help our clients to adapt their workforce needs accordingly. More customisation and made-to-order impact the production cycle and reduce the predictability of our clients' business development. We help our customers manage their business cycles by providing them with the required human resources with the right skills, at the right time. We help smooth seasonal impacts on businesses through flexible workforce solutions allowing for rapid adaptation to peaks and troughs of demand during the year. Thanks to our global presence we can deliver geographic mobility and organise work migration to match clients' needs with candidates' skills to meet the diverse needs of labour markets.
Our temporary and permanent placement businesses, which constitute over 90% of our total revenues, are cyclical and dependent on the level of economic activity in the countries where we operate. These businesses expand during periods of economic growth and contract during recessions. On the other hand, our outplacement business, where we offer career transition services, is counter-cyclical and expands during difficult economic periods. Our profitability is dependent on the revenue level, business mix, country mix, pricing and the way we manage our cost base. While revenue development to a large degree hinges on economic activity, we actively practice price discipline to optimise gross profit and we consistently manage our cost base very tightly to protect profitability in downturns and to deliver increasing returns in upturns.
Through selective acquisitions we continue to improve our business mix and increase our exposure to higher growth and higher-margin professional staffing businesses. While our business offers operating leverage, we limit financial leverage and will always aim to maintain our investment grade credit rating. The application of the 'Economic Value Added' (EVA) concept ensures that the interests of our shareholders are met and that our daily decision-making processes are geared towards value creation. We have never ceased to pay dividends to our shareholders over the past several years, even in economically very challenging times, and our dividend pay-out ratio has ranged between 25% and 30% of adjusted earnings. For 2011, given Adecco's solid financial position and strong cash flow generation, it was decided to increase the pay-out range to 40-50% of adjusted earnings. This range is seen as sustainable going forward.
We are confident that we are in good shape to enhance our leadership position in the HR services industry and are on track to achieve our EBITA margin target of above 5.5% mid-term.
Investor Relations The Adecco Group Investor Relations team focuses on providing transparent and consistent information and interactive communication. We strive for an open dialogue with the financial community, the media and all key stakeholders, to enhance understanding of the business as well as to explain the implied risks and opportunities.
The Adecco Group is committed to providing regular updates on key value drivers, business strategy, threats and opportunities, as well as key ratios used by the Group to track its own performance.
The Investor Relations team is dedicated to providing true, fair and up-to-date information to every interested stakeholder, so that the share price reflects the inherent value of the Company.
In addition to the release of our comprehensive quarterly results – which management discusses with the financial
Distribution of broker ratings in 2011* in %
* At quarter end.
community via a conference call and webcast – we also offer meetings with management and investor relations at roadshows, industry or market conferences, and at our Headquarters. In addition, we strive to ensure clear and transparent communication of other price-sensitive information through press releases and comprehensive content on our website. At the same time, we respect the legal obligations relating to confidentiality and disclosure, and make every effort to guarantee equal distribution of price-sensitive information.
In keeping with this strategy, we maintained an efficient and open dialogue with the market through our Investor Relations activities in 2011, devoting 52 days to market communication around the time of our quarterly results releases. We participated in 11 broker conferences and 35 roadshows in Europe, North America and Australia during 2011.
In addition, the Investor Relations section on the Adecco website, investor.adecco.com, aims to provide the investment community with a broad source of up-to-date information at all times.
Coverage Adecco's share price development is closely monitored by the financial community. The majority of the financial analysts covering Adecco perceived the Company's strategy, results and valuation as positive in the first half of 2011. After reporting strong Q4 & FY results for 2010, at the end of March 2011, 53% of the analysts recommended to buy the stock, 30% had a neutral view and 17% recommended selling. Peak confidence was reached in June 2011, with 58% of analysts recommending to buy, 29% were neutral and 13% recommended to sell the shares. Fears over a renewed global recession and Euro-related uncertainties led to a more cautious view from the analysts' side, resulting in downgrades during the summer months and early autumn. At the end of October 2011, 52% of analysts recommended to buy the stock, 44% had a neutral view, while 4% of analysts recommended selling. The year 2011 ended with 52% of the analysts being positive, 36% being neutral and 12% being negative on Adecco shares, mostly
driven by increased fears over economic developments in 2012, but also due to slightly weaker Q3 2011 results than expected by the financial community.
Over 25 brokers are covering Adecco, maintaining regular contact with Group management and the Investor Relations department. They include: ABN Amro, Bank am Bellevue, Bank of America Merrill Lynch, Bank Vontobel, Barclays Capital, Berenberg, Cheuvreux, Citigroup, Credit Suisse, Deutsche Bank, Exane BNP Paribas, Goldman Sachs, Helvea, HSBC, ING, Jefferies, JP Morgan Cazenove, Kepler, MainFirst, Morgan Stanley, Natixis, Rabo Bank, Royal Bank of Canada, Société Générale, UBS and Zürcher Kantonalbank.
Dividend history The Company steadily increased its dividend from CHF 0.60 for 2002 to CHF 1.50 for 2007, a level it maintained for 2008. Even during the severe recession in 2009, thanks to the healthy financial position of the Company, Adecco was in a position to pay a dividend of CHF 0.75 per share, in line with the historical pay-out ratio of 25% to 30% of adjusted earnings. For 2010 a dividend of CHF 1.10 per share was paid, equivalent to a 30% pay-out ratio based on adjusted earnings. At the Annual General Meeting, the Board of Directors will propose a dividend of CHF 1.80 per share for 2011, for approval by shareholders. This represents an increase of 64%, compared to the dividend paid for 2010 and is equivalent to a pay-out ratio of 45% based on adjusted earnings. Given Adecco's solid financial position and strong cash flow generation, it was decided to increase the pay-out range from the Group's traditional range of 25-30% to 40-50% of adjusted earnings. This range is seen as sustainable going forward.
Adecco share price in CHF during 2011
Performance report After a share performance of 7% in 2010, the Adecco share price started the year at CHF 61.25. Markets remained stable in January on the back of the continued economic recovery and by mid-February the shares reached the all-year high of CHF 66.05.
After a positive response to the strong fourth quarter and full year 2010 results, the political instability in Northern Africa and the aftermath of the earthquake in Japan weighed on equity markets and the share price declined to CHF 56.90 by mid-March. As these uncertainties diminished and following the recovery in the equity markets, the share price reached the level of CHF 59.45 after the announcement of the solid Q1 2011 results in early May.
Weaker than expected GDP developments and fears related to the sovereign debt crisis in the USA and Europe resulted in declining equity markets as the likelihood of a potential economic double-dip increased. For the first time, Standard & Poor's downgraded the credit rating of the USA in early August from AAA to AA+ and increased investors' worries about the future prospects of the global economy. This also negatively affected the Adecco share price. Adecco's Q2 2011 results, released in mid-August, showed continued solid revenue growth but could not dampen worries over worsening economic conditions. The de-coupling of share price performance versus company results, as a consequence of expected grim economic conditions, had Adecco shares reach their lowest level in 2011 of CHF 32.15 at the beginning of September.
The further measures announced by European leaders to contain the spread of the debt crisis, and better than feared economic data from major economies, led to a recovery of equity markets. The Adecco share price increased by 40% from the trough in early September to CHF 45.17 by the end of October.
Following the Q3 2011 results, which were somewhat lower than the financial community expected, and worries on staffing sector developments in the light of economic uncertainties, the share price fell to CHF 34.95 at the end of November.
Over the year 2011, the Adecco shares declined 36% and closed at CHF 39.35 on December 31, 2011, compared with CHF 61.25 on December 31, 2010. Adecco shares underperformed the Swiss Market Index (SMI) by 28% (in CHF), but outperformed a basket of key competitors1 in the staffing industry by 8%. Adecco's market capitalisation, based on issued shares, was CHF 7.4 billion at the end of 2011, compared with CHF 11.6 billion a year earlier.
Shareholder base Adecco has a broad investor base of over 18,000 shareholders. At the same time, the shareholder base is concentrated, with 61% of all issued shares held by institutional investors, 29% held by insiders and Adecco S.A., and only 4% held by retail investors. Some year-on-year changes were observed within the group of institutional shareholders. North American institutional shareholders increased their holdings in Adecco to 30% of shares issued at the end of 2011 compared with 27% at the end of 2010. The percentage held by European institutions declined by 5% to 30%, while the percentage of holdings by institutions from the rest of the world declined to 1% from 2%.
| in % of shares issued | 2011 | 2010 | 2009 |
|---|---|---|---|
| Institutional: | |||
| • Europe | 30% | 35% | 37% |
| • North America | 30% | 27% | 23% |
| • Rest of World | 1% | 2% | 2% |
| Retail | 4% | 4% | 4% |
| Insider and treasury | 29% | 26% | 29% |
| Unassigned | 6% | 6% | 5% |
| as of year-end 2011 | in % of shares issued |
|---|---|
| Group represented | |
| by Jacobs Holding AG | 18.7% |
| Treasury shares | 9.9% |
|---|---|
| Executive Management and Board of Directors2 | 0.1% |
| 2011 | 2010 | |
|---|---|---|
| Shares issued | 189,263,506 | 189,263,506 |
| Treasury shares | 18,815,105 | 14,561,480 |
| Shares outstanding | 170,448,401 | 174,702,026 |
| Weighted-average shares3 | 190,671,723 | 192,113,079 |
| Basic earnings per share in EUR | 2.72 | 2.20 |
| Diluted earnings per share in EUR | 2.72 | 2.17 |
| Dividend per share in CHF | 1.804 | 1.10 |
| Year-end share price in CHF | 39.35 | 61.25 |
| Highest share price in CHF | 66.05 | 66.15 |
| Lowest share price in CHF | 32.15 | 46.22 |
| Year-end market capitalisation5 | ||
| in CHF m | 7,448 | 11,592 |
| Price/earnings ratio6 | 11.9 | 22.3 |
| Enterprise value7 /EBITA |
8.6 | 13.9 |
2 Not included are shares held by one member of the Board of Directors, who is part of the Group represented by Jacobs Holding AG.
in millions, except share and per share information
The information in this discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the notes thereto that are prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and are included elsewhere in this Annual Report and with the disclosure concerning forward-looking statements at the end of this section.
Statements throughout this discussion and analysis using the term "the Company" refer to the Adecco Group, which comprises Adecco S.A., a Swiss corporation, its consolidated subsidiaries, as well as variable interest entities for which Adecco is considered the primary beneficiary (for further details refer to section "Principles of consolidation" in Note 1 to the consolidated financial statements).
The Company is the world's leading provider of human resource solutions including temporary staffing, permanent placement, outsourcing, career transition (outplacement), and other services. The Company had a network of over 5,500 branches and over 33,000 full-time equivalent ("FTE") employees in over 60 countries and territories at the end of 2011. In 2011, the Company connected on average on a daily basis over 700,000 associates with over 100,000 clients. Registered and headquartered in Switzerland and managed by a multinational team with expertise in markets worldwide, the Company delivers a broad range of human resource services to meet the needs of small, medium, and large business clients as well as those of associates.
The HR industry is fragmented and highly competitive. Customer demand is dependent upon the overall strength of the labour market as well as an established trend towards greater workforce flexibility. More liberal labour market laws, particularly for temporary staffing, are beneficial for the industry and have been a driver for greater workforce flexibility. The business is also strongly influenced by the macroeconomic cycle, which typically results in growing demand for employment services during periods of economic expansion, and conversely, contraction of demand during periods of economic downturn. Due to the sensitivity to the economic cycle and the low visibility in the temporary staffing sector, forecasting demand for HR services is difficult. Typically, customers are not
able to provide much advance notice of changes in their staffing needs. Responding to the customers' fluctuating staffing requirements in a flexible way is a key element of the Company's strategy, which it addresses through its diverse HR services network.
Anticipating trends in demand is also important in managing the Company's internal cost structure. This coupled with the ability to maximise overall resources and to enhance competitive advantage through the Company's wide variety of services and locations while maintaining high standards of quality to both clients and associates are key components in achieving profitability targets during any part of the economic cycle.
Since January 1, 2011, the Company is organised in a geographical structure plus the global business Lee Hecht Harrison ("LHH"). This structure is complemented by business lines. The geographies consist of France, North America, UK & Ireland, Japan, Germany & Austria, Benelux, Italy, Nordics, Iberia, Australia & New Zealand, Switzerland, and Emerging Markets. The business lines consist of Office, Industrial, Information Technology, Engineering & Technical, Finance & Legal, Medical & Science, and Solutions. The classification of a specific branch into a business line is determined by the business line generating the largest revenue share in that specific branch.
Revenues and gross profit derived from temporary staffing totalled 91% and 76% in 2011 and 92% and 77% in 2010 of the respective consolidated totals. Temporary staffing billings are generally negotiated and invoiced on an hourly basis. Temporary associates record the hours they have worked and these hours, at the rate agreed with the customer, are then accumulated and billed according to the agreed terms. Temporary staffing service revenues are recognised upon rendering the services. The temporary associate is paid the net hourly amount after statutory deductions on a daily, weekly, or monthly basis. Certain other employer payroll-related costs are incurred and the net difference between the amounts billed and payroll costs incurred is reported as gross profit.
Revenues and gross profit derived from permanent placement, outsourcing, career transition (outplacement), and other services totalled 9% and 24% in 2011 and 8% and 23% in 2010 of the respective consolidated totals. The terms of outsourcing and outplacement services are negotiated with the client on a project basis and revenues are recognised upon rendering the services. For permanent placement services, the placement fee is directly negotiated with the client and revenues are recognised at the time the candidate begins full-time employment, or as the fee is earned. Allowance provisions are established based on historical information for any non-fulfilment of permanent placement obligations. Career transition (outplacement) and permanent placement services provide significantly higher gross margins than temporary staffing.
The Company monitors operational results through a number of additional key performance indicators besides revenues, gross profit, selling, general, and administrative expenses, and operating income before amortisation and impairment of goodwill and intangible assets and uses these measures of operational performance along with qualitative information and economic trend data to direct the Company's strategic focus.
These indicators include the following:
Permanent placements the number of candidates placed in permanent job positions.
Average fee per placement the average amount received for job placement services.
The Company's quarterly operating results are affected by the seasonality of the Company's customers' businesses. Demand for temporary staffing services historically has been lowest during the first quarter of the year.
The financial results of the Company are presented in Euro, which the Company uses as its reporting currency in recognition of the significance of the Euro to the Company's operations. In 2011, 52% of total revenues were generated in the Euro zone. Amounts shown in the consolidated statements of operations and consolidated statements of cash flows are translated using average exchange rates for the period or at transaction exchange rates. In 2011, the average exchange rate for the Japanese Yen, Swiss Franc, Australian Dollar, and Norwegian Krone which comprised 7%, 2%, 2%, and 2% of total revenues, respectively, strengthened against the Euro, whereas the US Dollar and the British Pound which comprised 16% and 8% of total revenues, respectively, weakened against the Euro when compared to 2010. The Canadian Dollar which comprised 2% of total revenues was stable. The Company's consolidated balance sheets are translated using the year end exchange rates. At year end 2011, the Japanese Yen, Australian Dollar, US Dollar, Swiss Franc, British Pound, Canadian Dollar, and Norwegian Krone all strengthened against the Euro when compared to 2010.
in millions, except share and per share information
The Company uses non-U.S. GAAP financial measures for management purposes. The principal non-U.S. GAAP financial measures discussed herein are net debt, constant currency, and organic growth comparisons, which are used in addition to, and in conjunction with results presented in accordance with U.S. GAAP.
Net debt, constant currency, and organic growth comparisons should not be relied upon to the exclusion of U.S. GAAP financial measures, but rather reflect additional measures of comparability and means of viewing aspects of the Company's operations that, when viewed together with the U.S. GAAP results, provide a more complete understanding of factors and trends affecting the Company's business.
Because net debt, constant currency, and organic growth comparisons are not standardised, it may not be possible to compare the Company's measures with other companies' non-U.S. GAAP financial measures having the same or a similar name. Management encourages investors to review the Company's financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.
Management monitors outstanding debt obligations by calculating net debt. Net debt comprises short-term and long-term debt less cash and cash equivalents and short-term investments.
The following table highlights the calculation of net debt based upon financial measures in accordance with U.S. GAAP:
| in EUR | 31.12.2011 | 31.12.2010 |
|---|---|---|
| Net debt | ||
| Short-term debt and current maturities of long-term debt | 236 | 217 |
| Long-term debt, less current maturities | 1,190 | 1,088 |
| Total debt | 1,426 | 1,305 |
| Less: | ||
| Cash and cash equivalents | (532) | (549) |
| Short-term investments | (2) | (5) |
| Net debt | 892 | 751 |
Constant currency comparisons are calculated by multiplying the prior year functional currency amount by the current year foreign currency exchange rate. Management believes that constant currency comparisons are important supplemental information for investors because these comparisons exclude the impact of changes in foreign currency exchange rates, which are outside the Company's control, and focus on the underlying growth and performance.
Organic growth figures exclude the impact of currency, acquisitions, and divestitures. Management believes that organic growth comparisons are important supplemental information because these comparisons exclude the impact of changes resulting from foreign currency exchange rates fluctuations, acquisitions, and divestitures.
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.
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.
The segment breakdown of revenues is presented below:
| Variance % | ||||
|---|---|---|---|---|
| Constant | ||||
| in EUR | 2011 | 2010 | EUR | 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 |
| LHH2 | 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%.
in millions, except share and per share information
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.
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'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.
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'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.
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.
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.
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.
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.
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.
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.
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.
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.
The business line breakdown of revenues is presented below:
| Variance % | ||||
|---|---|---|---|---|
| Constant | ||||
| in EUR | 2011 | 2010 | EUR | 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.
2 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%.
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.
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.
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.
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 millions, except share and per share information
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 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.
The Company's Solutions revenues increased by 3% in constant currency or declined by 6% organically.
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:
| % | |
|---|---|
| Gross margin 2010 | 17.8 |
| Temporary staffing | (0.5) |
| Permanent placement | 0.1 |
| Outplacement | (0.2) |
| Acquisitions | 0.2 |
| Gross margin 2011 | 17.4 |
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:
| 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.
Amortisation of intangible assets decreased to EUR 51 in 2011 from EUR 55 in 2010.
in millions, except share and per share information
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:
| Variance % | ||||
|---|---|---|---|---|
| 2011 | 2010 | EUR | Constant currency |
|
| in EUR | ||||
| 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'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'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'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'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'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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
in millions, except share and per share information
The Company is solidly positioned for the future. In an environment of economic uncertainty the Company will continue to build on its strengths – its leading global position and the diversity of its service offerings. The Company will continue to take advantage of growth opportunities, with a strong focus on disciplined pricing and cost control to optimise profitability and value creation. Besides the structural changes and related investments of EUR 45 in France, which would mainly be incurred in the second half of 2012, management expects additional costs of EUR 10 in the first half of 2012, to further optimise the cost base in other European countries and to protect profitability. The Company is committed to its strategic priorities and has the right offering to achieve an EBITA 1 margin target of above 5.5% mid-term.
1 EBITA is a non-U.S. GAAP measure and refers to operating income before amortisation of intangible assets.
Currently, cash needed to finance the Company's existing business activities is primarily generated through operating activities, bank overdrafts, commercial paper, the existing multicurrency credit facility, and, when necessary, the issuance of bonds and other capital instruments.
The principal funding requirements of the Company's business include financing working capital and capital expenditures. Capital expenditures mainly comprise the purchase of computer equipment, capitalised software, and the cost of leasehold improvements.
Within the Company's working capital, trade accounts receivable, net of allowance for doubtful accounts, comprise approximately 80% of total current assets. Accounts payable, accrued salaries and wages, payroll taxes and employee benefits, and sales and value added taxes comprise approximately 74% of total current liabilities. Working capital financing needs increase as business grows.
Management believes that the ability to generate cash from operations combined with additional capital resources available is sufficient to support the expansion of existing business activities and to meet short- and medium-term financial commitments. The Company may utilise available cash resources, secure additional financing, or issue additional shares to finance acquisitions.
Cash and cash equivalents decreased by a total of EUR 17 to EUR 532 as of December 31, 2011. The decrease was mainly due to the acquisition of DBM in August 2011 for EUR 148, net of cash acquired, the repayment of EUR 214 of long-term debt, the EUR 149 payment of dividends, purchase of treasury shares of EUR 178, settlement of derivatives of EUR 57, and capital expenditures of EUR 109. This was mostly offset by the generation of EUR 524 in operating cash flows and the EUR 330 net proceeds from borrowings of long-term debt.
Cash flows from operations are generally derived from receipt of cash from customers less payments to temporary personnel, regulatory authorities, employees, and other operating disbursements. Cash receipts are dependent on general business trends, foreign currency fluctuations, and cash collection trends measured by DSO. DSO varies significantly within the various countries in which the Company has operations, due to the various market practices within these countries. In general, an improvement in DSO reduces the balance of trade accounts receivable resulting in cash inflows from operating activities. Cash disbursement activity is predominantly associated with scheduled payroll payments to the temporary personnel. Given the nature of these liabilities, the Company has limited flexibility to adjust its disbursement schedule. Also, the timing of cash disbursements differs significantly amongst various countries.
The following table illustrates cash from or used in operating, investing, and financing activities:
| in EUR | 2011 | 2010 |
|---|---|---|
| Summary of cash flows information | ||
| Cash flows from operating activities | 524 | 455 |
| Cash used in investing activities | (317) | (1,020) |
| Cash used in financing activities | (224) | (385) |
Cash flows from operating activities increased by EUR 69 to EUR 524 in 2011 compared to 2010. This increase is primarily attributable to the increase in net income, net of non-cash items mainly related to tax benefits. DSO increased to 55 days for the full year 2011 compared to 54 days for the full year 2010.
Cash used in investing activities decreased by EUR 703 to EUR 317 in 2011 compared to 2010. In 2011, the Company acquired DBM for a consideration, net of cash acquired of EUR 148 while in 2010 MPS was acquired for a consideration, net of cash acquired, of EUR 831. The Company's capital expenditures amounted to EUR 109 in 2011 and EUR 105 in 2010. Cash used in financing activities totalled EUR 224, a decrease of EUR 161 when compared to 2010. In 2011, the Company issued long-term debt of EUR 330, net of issuance costs and repaid long-term debt of EUR 214, whereas in 2010 long-term debt repayments amounted to EUR 478. The debt repayments in 2011 primarily consisted of the partial repayments of the 5-year Euro medium-term notes due in 2014 and the fixed rate notes due in 2013 resulting from the exchange and tender offers for outstanding notes in April 2011. In 2010 debt repayments primarily consisted of repayment of the guaranteed zero-coupon convertible bond. In addition in 2011, the Company's net decrease in short-term debt amounted to EUR 9, whereas in 2010 short-term debt increased by EUR 156. Additionally, the Company paid dividends of EUR 149 and EUR 91 in 2011 and 2010, respectively. Furthermore, in 2011, the Company acquired treasury shares in the amount of EUR 178 while in 2010 net cash inflows from treasury shares transactions amounted to EUR 28.
in millions, except share and per share information
As of December 31, 2011, the Company's total capital resources amounted to EUR 5,940 comprising EUR 1,426 in debt and EUR 4,514 in equity, excluding treasury shares and noncontrolling interests. Long-term debt, including current maturities, was EUR 1,266 as of December 31, 2011 and EUR 1,137 as of December 31, 2010 and includes long- and medium-term notes, and medium-term loans. The borrowings, which are unsecured, are denominated in Euros and Swiss Francs. The majority of the borrowings outstanding as of December 31, 2011 mature in 2013, 2014, and 2018. During 2011, the Company increased its short- and long-term debt including foreign currency effect by EUR 121.
The Company maintains a French commercial paper programme ("Billet de Trésorerie programme"). Under the programme, the Company may issue short-term commercial paper up to a maximum amount of EUR 400, with maturity of individual paper of 365 days or less. As of December 31, 2011 and December 31, 2010 EUR 145 and EUR 151, respectively was outstanding under the programme, with maturities of up to six months. The weighted-average interest rate on commercial paper outstanding was 1.31% and 1.09% as of December 31, 2011 and December 31, 2010, respectively.
In addition, the Company maintains a committed multicurrency revolving credit facility. The five-year revolving credit facility, which was renewed in October 2011 and contains two 1-year extension options at the discretion of the lender, has been issued by a syndicate of banks, permits borrowings up to a maximum of EUR 600 and is used for general corporate purposes including refinancing of advances and outstanding letters of credit. The interest rate is based on LIBOR, or EURIBOR for drawings denominated in Euro, plus a margin between 0.6% and 1.3% per annum depending on certain debt-to-EBITDA ratios. Utilisation fee of 0.25% and 0.5% applies on top of the interest rate, if drawings exceed 33.33% and 66.67% of total commitment, respectively. The letter of credit fee equals the applicable margin, and the commitment fee equals 35% of the applicable margin. As of December 31, 2011 and December 31, 2010, there were no outstanding borrowings under the credit facility. As of December 31, 2011, the Company had EUR 529 available under the credit facility after utilising EUR 71 in the form of letters of credit.
Furthermore, as of December 31, 2011, the Company had uncommitted lines of credit amounting to EUR 477, of which EUR 15 was used.
Net debt increased by EUR 141 to EUR 892 as of December 31, 2011. The calculation of net debt based upon financial measures in accordance with U.S. GAAP is presented on page 42.
Under the terms of the various short- and long-term credit agreements, the Company is subject to covenants requiring, among other things, compliance with certain financial tests and ratios. As of December 31, 2011, the Company was in compliance with all financial covenants.
For further details regarding financing arrangements refer to Note 7 to the consolidated financial statements.
The Company manages its cash position to ensure that contractual commitments are met and reviews cash positions against existing obligations and budgeted cash expenditures. The Company's policy is to invest excess funds primarily in investments with maturities of 12 months or less, and in money market and fixed income funds with sound credit ratings, limited market risk and high liquidity.
The Company's current cash and cash equivalents and shortterm investments are invested primarily within Europe and the USA. In most cases, there are no restrictions on the transferability of these funds among entities within the Company.
The Company's contractual obligations are presented in the following table:
| in EUR | 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total |
|---|---|---|---|---|---|---|---|
| Contractual obligations by year | |||||||
| Short-term debt obligations | 160 | 160 | |||||
| Long-term debt obligations | 76 | 342 | 358 | 1 | 489 | 1,266 | |
| Interest on debt obligations | 67 | 56 | 32 | 24 | 24 | 30 | 233 |
| Operating leases | 199 | 136 | 105 | 79 | 97 | 51 | 667 |
| Purchase and service contractual obligations | 161 | 6 | 3 | 3 | 173 | ||
| Total | 663 | 540 | 498 | 107 | 121 | 570 | 2,499 |
Short-term debt obligations consist of bank overdrafts and borrowings outstanding under the lines of credit and the commercial paper programme. Long-term debt obligations consist primarily of the EUR 333 fixed rate notes due in 2013, the EUR 356 5-year Euro medium-term notes due in 2014, and the EUR 500 7-year Euro medium-term notes due in 2018. These debt instruments were issued partly for acquisitions, to refinance existing debt, optimise available interest rates, and increase the flexibility of cash management.
Future minimum rental commitments under non-cancellable leases comprise the majority of the operating lease obligations of EUR 667 presented above. The Company expects to fund these commitments with existing cash and cash flows from operations. Operating leases are employed by the Company to maintain the flexible nature of the branch network.
As of December 31, 2011, the Company had future purchase and service contractual obligations of approximately EUR 173, primarily related to acquisitions (refer to Note 19 to the consolidated financial statements for further details), IT development and maintenance agreements, marketing sponsorship agreements, equipment purchase agreements, and other vendor commitments.
The Company plans to invest approximately EUR 110 in property, equipment, and leasehold improvements for existing operations in 2012. The focus of these investments will be on information technology.
Further planned cash outflows include distribution of dividends for 2011 in the amount of CHF 1.80 per share to shareholders of record on the date of payment. The maximum amount of dividends payable based on the total number of outstanding shares (excluding treasury shares) as of December 31, 2011 of 170,448,401 is EUR 252 (CHF 307 – based on CHF/EUR exchange rate of 1.22 as of December 31, 2011). Payment of dividends is subject to approval by shareholders at the Annual General Meeting.
The Company has entered into certain guarantee contracts and standby letters of credit that total EUR 661, including the letters of credit issued under the multicurrency revolving credit facility (EUR 71). The guarantees primarily relate to government requirements for operating a temporary staffing business in certain countries and are generally renewed annually. Other guarantees relate to operating leases and credit lines. The standby letters of credit mainly relate to workers' compensation in the USA. If the Company is not able to obtain and maintain letters of credit and/or guarantees from third parties, then the Company would be required to collateralise its obligations with cash. Due to the nature of these arrangements and historical experience, the Company does not expect to be required to collateralise its obligations with cash.
in millions, except share and per share information
The Company has reserves for taxes that may become payable in future periods as a result of tax audits. At any given time, the Company is undergoing tax audits in different tax jurisdictions, which cover multiple years. Ultimate outcomes of these audits could, in a future period, have a material impact on cash flows.
Based upon information currently available, the Company is not able to determine if it is reasonably possible that the final outcome of tax audits will result in a materially different outcome than that assumed in its tax reserves.
As of December 31, 2011, the Company's long-term credit rating was Baa3 with positive outlook from Moody's and BBB stable outlook from Standard & Poor's.
The Company is exposed to market risk, primarily related to foreign exchange, interest rates, and equity market risk. Except for the equity market risk, these exposures are actively managed by the Company in accordance with written policies approved by the Board of Directors. The Company's objective is to minimise, where deemed appropriate, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. It is the Company's policy to use a variety of derivative financial instruments to hedge these exposures in the absence of natural hedges.
Given the global nature of the Company's business, the Company is exposed to the effects of changes in foreign currency exchange rates. Consequently in order to preserve the value of assets, equity, and commitments, the Company enters into various contracts, such as foreign currency forward contracts, swaps, and cross-currency interest rate swaps, which change in value as foreign exchange rates change.
Depending on the amount of outstanding foreign currency forward contract hedges and the fluctuation of exchange rates, the settlement of these contracts may result in significant cash inflows or cash outflows.
The Company has also issued fixed rate long- and mediumterm notes. Accordingly, the Company manages exposure to changes in fair value of fixed interest long-term debt through the use of derivative instruments. The terms of the interest rate swaps generally match the terms of specific debt agreements. Additional discussion of these interest rate swaps is located in Note 11 to the consolidated financial statements.
The Company is committed to maintaining the highest standards of ethical business conduct. The Company's Chief Human Resources Officer and the Head of Group Compliance Reporting oversee worldwide business ethics and compliance practices and report regularly on these topics, depending on the nature of the irregularities, to the Audit Committee or to the Corporate Governance Committee. In addition, the Company's Head of Group Internal Audit reports directly to the Audit Committee.
The Board of Directors and management of the Company are responsible for establishing and maintaining adequate internal control over financial reporting. Management has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2011. In making this assessment, management used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that, as of December 31, 2011, the Company's internal control over financial reporting is effective.
The Company's internal control system is designed to provide reasonable assurance to the Company's management and the Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statements preparation and presentation. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The preparation of the financial statements in accordance with U.S. GAAP requires management to adopt accounting policies and make significant judgements and estimates. There may be alternative policies and estimation techniques that could be applied. The Company has in place a review process to monitor the application of new accounting policies and the appropriateness of estimates. Changes in estimates may result in adjustments based on changes in circumstances and the availability of new information. Therefore, actual results could differ materially from estimates. The policies and estimates discussed below either involve significant estimates or judgements or are material to the Company's financial statements. The selection of critical accounting policies and estimates has been discussed with the Audit Committee. The Company's significant accounting policies are disclosed in Note 1 to the consolidated financial statements.
Various accruals and provisions are recorded for sales and income taxes, payroll-related taxes, pension and health liabilities, workers' compensation, profit sharing, and other similar items taking into account local legal and industry requirements. The estimates used to establish accruals and provisions are based on historical experience, information from external professionals, including actuaries, and other facts and reasonable assumptions under the circumstances. If the historical data the Company uses to establish its accruals and provisions does not reflect the Company's ultimate exposure, accruals and provisions may need to be increased or decreased and future results of operations could be materially affected.
in millions, except share and per share information
On a routine basis, governmental agencies in the countries in which the Company operates may audit payroll tax calculations and compliance with other payroll-related regulations. These audits focus primarily on documentation requirements and the support for payroll tax remittances. Due to the nature of the Company's business, the number of people employed, and the complexity of some payroll tax regulations, the Company may be required to make some adjustments to the payroll tax remittances as a result of these audits. The Company makes an estimate of the additional remittances that may be required and records the estimate as a component of direct costs of services or SG&A, as appropriate. The estimate is based on the results of past audits, with consideration for changing business volumes and changes to the payroll tax regulations. To the extent that actual experience differs from the estimates, the Company will increase or decrease the reserve balance.
In most states of the USA, the Company is self-insured for workers' compensation claims by temporary workers. The provision recognised is based on actuarial valuations which take into consideration historical claim experience and workers' demographic and market components. Workers' compensation expense for temporary workers is included in direct costs of services. Significant weakening of the US market, changes in actuarial assumptions, increase of claims or changes in laws may require additional workers' compensation expense. Improved claim experience may result in lower workers' compensation premiums.
The Company makes judgements as to its ability to collect outstanding receivables and provides allowances for the portion of receivables when collection becomes doubtful. Provisions are made based on a specific review of significant outstanding invoices. For those invoices not specifically reviewed, provisions are recorded at differing percentages, based on the age of the receivable. In determining these percentages, the Company analyses its historical collection experience and current economic trends. In the event that recent history and trends indicate that a smaller or larger allowance is appropriate, the Company would record a credit or charge to SG&A during the period in which such a determination is made. Since the Company cannot predict with certainty future changes in the financial stability of its customers, additional provisions for doubtful accounts may be needed and the future results of operations
could be materially affected. As of December 31, 2011 and December 31, 2010, the Company has recorded an allowance for doubtful accounts of EUR 107 and EUR 115, respectively. Bad debt expense of EUR 16 and EUR 12 was recorded in 2011 and 2010, respectively.
Deferred tax assets and liabilities are determined based on temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are also provided for the future tax benefit of existing net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to be in effect in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded against deferred tax assets in those cases when management does not believe that the realisation is more likely than not. While management believes that its judgements and estimations regarding deferred tax assets and liabilities are appropriate, significant differences in actual experience may materially affect the Company's future financial results.
In addition, significant judgement is required in determining the worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. Many of these uncertainties arise as a consequence of intercompany transactions and arrangements. Although management believes that its tax positions are supportable, no assurance can be given that the final outcome of these matters will not be materially different from amounts reflected in the income tax provisions and accruals. Such differences could have a material effect on the income tax provisions or benefits in the periods in which such determinations are made.
The carrying value of goodwill and indefinite-lived intangible assets is reviewed annually for impairment at a reporting unit level. The annual impairment test is performed during the fourth quarter based on financial information as of October 31. In interim periods, an impairment test will be performed in the instance that an event occurs or there is a change in circumstances which would indicate that the carrying value of goodwill or indefinite-lived intangible assets may be impaired.
In step one of the goodwill impairment test, the goodwill of the reporting units is tested for impairment by comparing the carrying value of each reporting unit to the reporting unit's fair value as determined using a combination of comparable market multiples, additional market information, and discounted cash flow valuation models. If the fair value of the reporting unit is lower than the carrying value of the reporting unit, step two is performed to measure the amount, if any, of impairment. In step two, the fair value of all assets and liabilities of the reporting unit is determined, as if the reporting unit had been acquired on a stand-alone basis. The fair value of the reporting unit's assets and liabilities is then compared to the fair value of the reporting unit, with the excess, if any, considered to be the implied goodwill of the reporting unit. If the carrying value of the reporting unit's goodwill exceeds this implied goodwill value, that excess is recorded as an impairment charge in operating income. No impairment was recognised in 2011 or 2010.
Indefinite-lived intangible assets are tested by comparing the fair value of the asset to the carrying value of the asset. In the event that the carrying value exceeds the fair value, an impairment charge is recorded in operating income. No impairment charge was recognised in 2011 or 2010 in connection to indefinite-lived intangible assets.
Determining the fair value of a reporting unit and, if necessary, its assets (including indefinite-lived intangible assets) and liabilities requires the Company to make certain estimates and judgements about assumptions which include expected revenue growth rates, profit margins, working capital levels, discount rates, and capital expenditures. Estimates and assumptions are based on historical and forecasted operational performance and consider external market and industry data.
Differences between the estimates used by management in its assessment and the Company's actual performance, as well as market and industry developments, changes in the business strategy that may lead to reorganisation of reporting units and the disposal of businesses could all result in an impairment of goodwill and indefinite-lived intangible assets.
Definite-lived intangible assets are evaluated for impairment by first comparing the carrying amount of a definite-lived intangible asset with the expected undiscounted future cash flows from the operations to which the asset relates. The asset is regarded as not recoverable if the carrying amount exceeds the undiscounted future cash flows. The impairment loss is then calculated as the difference between the asset's carrying value and its fair value, which is calculated using a discounted cash flow model. No impairment charge was recognised in 2011 or 2010 in connection with definite-lived intangible assets.
In order to determine the ultimate obligation under its defined benefit pension plans, the Company estimates the future cost of benefits and attributes that cost to the time period during which each covered employee works. Various actuarial assumptions must be made in order to predict and measure costs and obligations many years prior to the settlement date, the most significant ones being the interest rates used to discount the obligations of the plans and the long-term rates of return on the plans' assets. Management, along with thirdparty actuaries and investment managers, reviews all of these assumptions on an ongoing basis to ensure that the most reasonable information available is being considered.
in millions, except share and per share information
In the ordinary course of business conducted around the world, the Company faces loss contingencies that may result in the recognition of a liability or the write-down of an asset. Management periodically assesses these risks based on information available and assessments from external professionals.
The Company is currently involved in various claims and legal proceedings. Periodically, the status of each significant loss contingency is reviewed to assess the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, a liability for the estimated loss is recorded. Because of uncertainties related to these matters, accruals are based on the best information available at the time. As additional information becomes available, the potential liability related to pending claims and litigation is reassessed and, if required, estimates are revised. Such revisions in the estimates of the potential liabilities could have a material impact on results of operations and the financial position of the Company.
Information in this Annual Report may involve guidance, expectations, beliefs, plans, intentions or strategies regarding the future. These forward-looking statements involve risks and uncertainties. All forward-looking statements included in this Annual Report are based on information available to the Company as of March 13, 2012, and the Company assumes no duty to update any such forward-looking statements. The forward-looking statements in this Annual Report are not guarantees of future performance and actual results could differ materially from the Company's current expectations. Numerous factors could cause or contribute to such differences. Factors that could affect the Company's forward-looking statements include, among other things:
in millions, except share and per share information
| For the fiscal years (in EUR) | 2011 | 2010 | 2009 | 2008 | 2007 |
|---|---|---|---|---|---|
| Statements of operations | |||||
| Revenues | 20,545 | 18,656 | 14,797 | 19,965 | 21,090 |
| Amortisation of intangible assets | (51) | (55) | (42) | (44) | (27) |
| Impairment of goodwill and intangible assets | (192) | (116) | |||
| Operating income | 763 | 667 | 65 | 748 | 1,054 |
| Net income attributable to Adecco shareholders | 519 | 423 | 8 | 495 | 735 |
| As of (in EUR) | 31.12.2011 | 31.12.2010 | 31.12.2009 | 31.12.2008 | 31.12.2007 |
| Balance sheets | |||||
| Cash and cash equivalents and short-term investments | 534 | 554 | 1,460 | 581 | 563 |
| Trade accounts receivable, net | 3,725 | 3,541 | 2,560 | 3,046 | 3,773 |
| Goodwill | 3,455 | 3,273 | 2,657 | 2,666 | 2,646 |
| Total assets | 9,354 | 8,879 | 7,831 | 7,530 | 8,254 |
| Short-term debt and current maturities of long-term debt | 236 | 217 | 456 | 56 | 357 |
| Accounts payable and accrued expenses | 3,545 | 3,472 | 2,716 | 3,053 | 3,476 |
| Long-term debt, less current maturities | 1,190 | 1,088 | 1,114 | 1,142 | 1,072 |
| Total liabilities | 5,543 | 5,312 | 4,717 | 4,732 | 5,374 |
| Total shareholders' equity | 3,811 | 3,567 | 3,114 | 2,798 | 2,880 |
| For the fiscal years (in EUR) | 2011 | 2010 | 2009 | 2008 | 2007 |
| Cash flows from operations | |||||
| Cash flows from operating activities | 524 | 455 | 477 | 1,054 | 1,062 |
| Cash used in investing activities | (317) | (1,020) | (278) | (210) | (941) |
| Cash flows from/(used in) financing activities | (224) | (385) | 652 | (800) | (424) |
| Other indicators | |||||
| Capital expenditures | 109 | 105 | 92 | 106 | 91 |
| As of | 31.12.2011 | 31.12.2010 | 31.12.2009 | 31.12.2008 | 31.12.2007 |
| Other indicators | |||||
| Net debt (in EUR) 1 | 892 | 751 | 110 | 617 | 866 |
| Additional statistics | |||||
| Number of FTE employees at year end (approximate) | 33,000 | 32,000 | 28,000 | 34,000 | 37,000 |
1 Net debt is a non-U.S. GAAP measure and comprises short-term and long-term debt, less cash and cash equivalents and short-term investments. The calculation of net debt based upon financial measures in accordance with U.S. GAAP is presented on page 42.
in millions, except share and per share information
| As of (in EUR) | Note | 31.12.2011 | 31.12.2010 |
|---|---|---|---|
| Assets | |||
| Current assets: | |||
| • Cash and cash equivalents | 532 | 549 | |
| • Short-term investments | 2 | 5 | |
| • Trade accounts receivable, net • Other current assets |
3 14 |
3,725 424 |
3,541 351 |
| Total current assets | 4,683 | 4,446 | |
| Property, equipment, and leasehold improvements, net | 4 | 313 | 291 |
| Other assets | 14 | 310 | 291 |
| Intangible assets, net | 2, 5 | 593 | 578 |
| Goodwill | 2, 5 | 3,455 | 3,273 |
| Total assets | 9,354 | 8,879 | |
| Liabilities and shareholders' equity | |||
| Liabilities | |||
| Current liabilities: | |||
| • Accounts payable and accrued expenses: | |||
| • Accounts payable | 541 | 546 | |
| • Accrued salaries and wages | 904 | 888 | |
| • Accrued payroll taxes and employee benefits | 887 | 850 | |
| • Accrued sales and value added taxes | 470 | 461 | |
| • Accrued income taxes | 65 | 48 | |
| • Other accrued expenses | 14 | 678 | 679 |
| • Total accounts payable and accrued expenses | 6 | 3,545 | 3,472 |
| • Short-term debt and current maturities of long-term debt | 7 | 236 | 217 |
| Total current liabilities | 3,781 | 3,689 | |
| Long-term debt, less current maturities | 7 | 1,190 | 1,088 |
| Other liabilities | 6, 14 | 572 | 535 |
| Total liabilities | 5,543 | 5,312 | |
| Shareholders' equity | |||
| Adecco shareholders' equity: | |||
| • Common shares | 8 | 118 | 118 |
| • Additional paid-in capital | 8 | 2,459 | 2,602 |
| • Treasury shares, at cost | 8 | (706) | (532) |
| • Retained earnings | 2,080 | 1,561 | |
| • Accumulated other comprehensive income/(loss), net | 8 | (143) | (184) |
| Total Adecco shareholders' equity | 3,808 | 3,565 | |
| Noncontrolling interests | 3 | 2 | |
| Total shareholders' equity | 3,811 | 3,567 | |
| Total liabilities and shareholders' equity | 9,354 | 8,879 |
The accompanying notes are an integral part of these consolidated financial statements.
in millions, except share and per share information
| For the fiscal years ended December 31 (in EUR) | Note | 2011 | 2010 | 2009 |
|---|---|---|---|---|
| Revenues | 16 | 20,545 | 18,656 | 14,797 |
| Direct costs of services | (16,979) | (15,327) | (12,148) | |
| Gross profit | 3,566 | 3,329 | 2,649 | |
| Selling, general, and administrative expenses | 6 | (2,752) | (2,607) | (2,350) |
| Amortisation of intangible assets | 5 | (51) | (55) | (42) |
| Impairment of goodwill and intangible assets | 5 | (192) | ||
| Operating income | 16 | 763 | 667 | 65 |
| Interest expense | (71) | (63) | (55) | |
| Other income/(expenses), net | 13 | (6) | (1) | (1) |
| Income before income taxes | 686 | 603 | 9 | |
| Provision for income taxes | 14 | (166) | (179) | (1) |
| Net income | 520 | 424 | 8 | |
| Net income attributable to noncontrolling interests | (1) | (1) | ||
| Net income attributable to Adecco shareholders | 519 | 423 | 8 | |
| Basic earnings per share | 15 | 2.72 | 2.20 | 0.04 |
| Basic weighted-average shares | 15 | 190,671,723 | 192,113,079 | 177,606,816 |
| Diluted earnings per share | 15 | 2.72 | 2.17 | 0.04 |
| Diluted weighted-average shares | 15 | 190,805,080 | 195,596,325 | 177,613,991 |
The accompanying notes are an integral part of these consolidated financial statements.
in millions, except share and per share information
| For the fiscal years ended December 31 (in EUR) | 2011 | 2010 | 2009 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Net income | 520 | 424 | 8 |
| Adjustments to reconcile net income to cash flows from operating activities: | |||
| • Depreciation and amortisation | 144 | 142 | 123 |
| • Impairment of goodwill and intangible assets | 192 | ||
| • Bad debt expense | 16 | 12 | 16 |
| • Stock-based compensation | 12 | 5 | 1 |
| • Deferred tax provision/(benefit) | (52) | 5 | (76) |
| • Tax impact of treasury shares valuation in Adecco S.A. | (22) | ||
| • Other, net | 19 | 25 | 19 |
| Changes in operating assets and liabilities, net of acquisitions: | |||
| • Trade accounts receivable | (151) | (667) | 577 |
| • Accounts payable and accrued expenses | 17 | 460 | (393) |
| • Other assets and liabilities | (1) | 49 | 32 |
| Cash flows from operating activities | 524 | 455 | 477 |
| Cash flows from investing activities | |||
| Capital expenditures | (109) | (105) | (92) |
| Proceeds from sale of property and equipment | 4 | 1 | 1 |
| Acquisition of DBM, net of cash acquired | (148) | ||
| Acquisition of MPS, net of cash acquired | (831) | ||
| Acquisition of Spring, net of cash acquired | (94) | ||
| Cash settlements on derivative instruments | (59) | (51) | (35) |
| Other acquisition and investing activities | (5) | (34) | (58) |
| Cash used in investing activities | (317) | (1,020) | (278) |
| Cash flows from financing activities Borrowings of short-term debt under the commercial paper programme 919 295 Repayment of short-term debt under the commercial paper programme (927) (145) Borrowings of short-term debt under the multicurrency revolving credit facility 346 Repayment of short-term debt under the multicurrency revolving credit facility (341) Other net increase/(decrease) in short-term debt (1) 1 Borrowings of long-term debt, net of issuance costs 330 Repayment of long-term debt (214) (478) Prepaid forward sale of Adecco S.A. shares Purchase of call spread option on Adecco S.A. shares Dividends paid to shareholders (149) (91) Proceeds from sale/(purchase) of treasury shares (178) 28 Cash settlements on derivative instruments 2 |
2009 |
|---|---|
| (43) | |
| 612 | |
| (223) | |
| 587 | |
| (108) | |
| (173) | |
| (3) | |
| Other financing activities (6) |
3 |
| Cash flows from/(used in) financing activities (224) (385) |
652 |
| Effect of exchange rate changes on cash 41 |
33 |
| Net increase/(decrease) in cash and cash equivalents (17) (909) |
884 |
| Cash and cash equivalents: | |
| • Beginning of year 549 1,458 |
574 |
| • End of year 532 549 |
1,458 |
| Supplemental disclosures of cash paid | |
| Cash paid for interest 56 95 |
22 |
| Cash paid for income taxes 180 98 |
96 |
The accompanying notes are an integral part of these consolidated financial statements.
in millions, except share and per share information
| Additional | Treasury | Accumulated other | Non | Total | |||
|---|---|---|---|---|---|---|---|
| Common | paid-in | shares, | Retained | comprehensive | controlling | shareholders' | |
| In EUR | shares | capital | at cost | earnings | income/(loss), net | interests | equity |
| January 1, 2009 | 118 | 2,140 | (558) | 1,394 | (301) | 5 | 2,798 |
| Comprehensive income: | |||||||
| Net income | 8 | 8 | |||||
| Other comprehensive income/(loss): | |||||||
| • Currency translation adjustment, net of tax | 30 | 30 | |||||
| Total comprehensive income | 38 | ||||||
| Tax impact of treasury shares valuation in Adecco S.A. | (22) | (22) | |||||
| Prepaid forward sale of Adecco S.A. shares | 587 | 587 | |||||
| Purchase of call spread option on Adecco S.A. shares | (108) | (108) | |||||
| Stock-based compensation | 1 | 1 | |||||
| Treasury shares transactions | (3) | (3) | |||||
| Cash dividends, CHF 1.50 per share | (173) | (173) | |||||
| Acquisition of noncontrolling interests | (3) | (3) | |||||
| Other | (1) | (1) | |||||
| December 31, 2009 | 118 | 2,597 | (561) | 1,229 | (271) | 2 | 3,114 |
| Comprehensive income: | |||||||
| Net income | 423 | 1 | 424 | ||||
| Other comprehensive income/(loss): | |||||||
| • Currency translation adjustment, net of tax of EUR 6 | 94 | 94 | |||||
| • Pension-related adjustments, net of tax | (6) | (6) | |||||
| • Change in fair value of cash flow hedges, net of tax | (1) | (1) | |||||
| Total comprehensive income | 511 | ||||||
| Stock-based compensation | 5 | 5 | |||||
| Treasury shares transactions | 28 | 28 | |||||
| Cash dividends, CHF 0.75 per share | (91) | (91) | |||||
| Acquisition of noncontrolling interests | (1) | (1) | |||||
| Other | 1 | 1 | |||||
| December 31, 2010 | 118 | 2,602 | (532) | 1,561 | (184) | 2 | 3,567 |
| Comprehensive income: | |||||||
| Net income | 519 | 1 | 520 | ||||
| Other comprehensive income/(loss): | |||||||
| • Currency translation adjustment, net of tax | 56 | 56 | |||||
| • Pension-related adjustments, net of tax of EUR 6 | (17) | (17) | |||||
| • Change in fair value of cash flow hedges, net of tax | 2 | 2 | |||||
| Total comprehensive income | 561 | ||||||
| Stock-based compensation | 12 | 12 | |||||
| Vesting of RSU awards | (4) | 4 | |||||
| Treasury shares transactions | (178) | (178) | |||||
| Cash dividends, CHF 1.10 per share | (149) | (149) | |||||
| Other | (2) | (2) | |||||
| December 31, 2011 | 118 | 2,459 | (706) | 2,080 | (143) | 3 | 3,811 |
The accompanying notes are an integral part of these consolidated financial statements.
in millions, except share and per share information
The consolidated financial statements include Adecco S.A., a Swiss corporation, its consolidated subsidiaries as well as variable interest entities in which Adecco is considered the primary beneficiary (collectively, "the Company"). The Company's principal business is providing human resource services including temporary staffing, permanent placement, outsourcing, career transition (outplacement), and other services to businesses and organisations throughout Europe, North America, Asia Pacific, South America, and Africa. At the end of 2011, the Company's worldwide network consists of over 5,500 branches and more than 33,000 full-time equivalent employees in over 60 countries and territories.
Since January 1, 2011, the Company is organised in a geographical structure plus the global business Lee Hecht Harrison ("LHH"), which corresponds to the primary segments. This structure is complemented by business lines. The segments consist of France, North America, UK & Ireland, Japan, Germany & Austria, Benelux, Italy, Nordics, Iberia, Australia & New Zealand, Switzerland, Emerging Markets, and LHH. The business lines consist of Office, Industrial, Information Technology, Engineering & Technical, Finance & Legal, Medical & Science, and Solutions. The classification of a specific branch into a business line is determined by the business line generating the largest revenue share in that specific branch.
The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and the provisions of Swiss law.
The reporting currency of the Company is the Euro, which reflects the significance of the Company's Euro-denominated operations. Adecco S.A.'s share capital is denominated in Swiss Francs and the Company declares and pays dividends in Swiss Francs.
The Company's operations are conducted in various countries around the world and the financial statements of foreign subsidiaries are reported in the applicable foreign currencies (functional currencies). Financial information is translated from the applicable functional currency to the Euro, the reporting currency, for inclusion in the Company's consolidated financial statements. Income, expenses, and cash flows are translated at average exchange rates prevailing during the fiscal year or at transaction exchange rates, and assets and liabilities are translated at fiscal year end exchange rates. Resulting translation adjustments are included as a component of accumulated other comprehensive income/(loss), net, in shareholders' equity. Exchange gains and losses on intercompany balances that are considered permanently invested are also included in equity.
The consolidated financial statements include 100% of the assets, liabilities, revenues, expenses, income, loss, and cash flows of Adecco S.A., its consolidated subsidiaries and entities for which the Company has been determined to be the primary beneficiary under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, "Consolidation" ("ASC 810"). The consolidated subsidiaries include all majority-owned subsidiaries of the Company except for the variable interest entity Adecco Investment (Bermuda) Ltd ("Adecco Investment") – see below. Noncontrolling interests for entities fully consolidated but not wholly owned by the Company are accounted for in accordance with ASC 810 and are reported as a component of equity. Intercompany balances and transactions have been eliminated in the consolidated financial statements.
The Company records investments in affiliates over which it is able to exercise significant influence using the equity method of accounting. The cost method of accounting is applied for investments in entities which do not have readily determinable fair values and over which the Company is not able to exercise significant influence (generally investments in which the Company's ownership is less than 20%).
The Company accounts for variable interest entities ("VIEs") in accordance with ASC 810 which requires the consolidation of a VIE in which an entity is considered the primary beneficiary. The primary beneficiary of a VIE is the enterprise that has both the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. An entity is required to perform a qualitative and a quantitative analysis to determine whether it has controlling financial interest in a VIE.
in millions, except share and per share information
On November 26, 2009, Adecco Investment, a wholly owned subsidiary of the Company which is not consolidated, issued CHF 900 Senior Secured Limited Recourse Mandatory Convertible Bonds ("MCB") due on November 26, 2012. The bonds will convert at maturity into shares of Adecco S.A., or at the option of the holders or Adecco Investment, the bonds may be converted into shares of Adecco S.A. at any time 41 days after November 26, 2009 until the 30th dealing day prior to the maturity date. The number of shares to be delivered at maturity will be calculated based on the closing price of the shares of Adecco S.A. As of December 31, 2011, the minimum conversion price is CHF 48.95 per share (CHF 50.50 per share at issuance of the MCB) and the maximum conversion price is CHF 58.74 per share (CHF 60.60 per share at issuance of the MCB). The conversion prices will be adjusted for further dividend payments on the shares of Adecco S.A. during the lifetime of the MCB. As of December 31, 2011, the maximum number of shares to be delivered is 18,386,108 (17,821,782 shares at issuance of the MCB) and the minimum number of shares to be delivered is 15,321,757 (14,851,485 shares at issuance of the MCB). If the holders or Adecco Investment exercise their conversion option prior to maturity, the conversion will occur at the maximum or the minimum conversion price, respectively. The bonds have an annual coupon of 6.5%, which can be deferred in case no dividend payment is made on the shares of Adecco S.A.
Adecco Investment entered into a prepaid forward contract ("prepaid forward") with the Company, where it originally acquired 17,821,782 shares of the Company for EUR 587 (CHF 887), net of costs. The strike price of the prepaid forward is adjusted for dividend payments on the shares of Adecco S.A. and the number of shares deliverable under the prepaid forward amounts to 18,386,108 as of December 31, 2011. Adecco Investment will receive the shares of Adecco S.A. from the Company with the settlement of the prepaid forward. The shares can be delivered out of treasury shares or conditional capital at the discretion of the Company. Adecco Investment financed the coupon payments with EUR 108 (CHF 164) from the sale of a call spread option ("call spread option") to Adecco Financial Services (Bermuda) Ltd, a wholly owned consolidated subsidiary of the Company. The call spread option gives the Company the right to benefit from appreciation of the shares underlying the prepaid forward between floor and cap defined in the agreement. The call spread option is settled in shares, reducing the net number of shares the Company has to deliver in combination with the prepaid forward. In addition, in 2009 the Company made a payment of EUR 8 (CHF 12) to Adecco Investment, which was treated as a deemed capital contribution. The number of shares underlying the prepaid forward, the call spread option, and the MCB are subject to anti-dilution provisions. The bondholders only have recourse against the prepaid forward. Subsequently, Adecco Investment granted a loan of EUR 116 (CHF 176) to the Company, of which EUR 69 (CHF 89) have been repaid by December 31, 2011.
The Company has a variable interest in Adecco Investment related to the call spread option. The assets of Adecco Investment consist of the prepaid forward and a loan to the Company of EUR 76 (CHF 92) as of December 31, 2011 and EUR 119 (CHF 148) as of December 31, 2010. The call spread option only absorbs variability caused by changes in the fair value of the shares to be delivered by the Company under the prepaid forward and therefore the Company is not exposed to any overall variability due to the call spread option. The prepaid forward and the call spread option are recorded as equity instruments in the Company's consolidated financial statements. The Company also owns the common shares of Adecco Investment in the amount of USD 10 thousand and a deemed capital contribution of EUR 8 (CHF 12), which is not a variable interest because these investments are not at risk as they were loaned back to the Company. As of December 31, 2011 and December 31, 2010, the Company had an investment in Adecco Investment with a carrying amount of EUR 5 recorded within other assets. The Company does not consolidate Adecco Investment because it does not have an obligation to absorb any losses or the right to receive any benefits which do not result from an equal and offsetting gain or loss incurred by the Company through the prepaid forward and the loan agreement described above.
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgements, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to allowance for doubtful accounts, accruals and provisions, impairment of goodwill and
indefinite-lived intangible assets, contingencies, pension accruals, and income taxes. The Company bases its estimates on historical experience and on various other market specific assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.
The Company generates revenues from sales of temporary staffing services, permanent placement services, outsourcing services, career transition (outplacement), and other services. Revenues are recognised on the accrual basis and are reported net of any sales taxes. Allowances are established for estimated discounts, rebates, and other adjustments and are recorded as a reduction of sales.
Revenues related to temporary staffing services are generally negotiated and invoiced on an hourly basis. Temporary associates record the hours they have worked and these hours, at the rate agreed with the customer, are then accumulated and billed according to the agreed terms. Temporary staffing service revenues are recognised upon rendering the services.
Revenues related to permanent placement services are generally recognised at the time the candidate begins full-time employment, or as the fee is earned. Allowance provisions are established based on historical information for any non-fulfilment of permanent placement obligations.
Revenues related to outsourcing services (including Managed Service Programmes ("MSP"), Recruitment Process Outsourcing ("RPO"), and Vendor Management System ("VMS")), career transition (outplacement), and other services are negotiated with the client on a project basis and are recognised upon rendering the services. Revenues invoiced prior to providing services are deferred and recognised in other current liabilities until the services are rendered.
The Company presents revenues and the related direct costs of services in accordance with ASC 605-45, "Revenue Recognition – Principal Agent Considerations" ("ASC 605-45"). For sales arrangements in which the Company acts as a principal in the transaction and has risks and rewards of ownership (such as the obligation to pay temporary personnel and the risk of loss for collection and performance or pricing adjustments), the Company reports gross revenues and gross direct costs. Under arrangements where the Company acts as an agent as is generally the case in most MSP contracts, revenues are reported on a net basis.
The Company provides services in the normal course of business at arm's length terms to entities that are affiliated with certain of its officers, Board members, and significant shareholders through investment or board directorship.
Marketing costs totalled EUR 81, EUR 68, and EUR 58 in 2011, 2010, and 2009, respectively. These costs are included in SG&A and are generally expensed as incurred.
Cash equivalents consist of highly liquid instruments having an original maturity at the date of purchase of three months or less.
The Company's policy is to invest excess funds primarily in investments with maturities of 12 months or less, and in money market and fixed income funds with sound credit ratings, limited market risk, and high liquidity.
Trade accounts receivable are recorded at net realisable value after deducting an allowance for doubtful accounts. The Company makes judgements on an entity-by-entity basis as to its ability to collect outstanding receivables and provides an allowance for doubtful accounts based on a specific review of significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing percentages based on the age of the receivable. In determining these percentages, the Company analyses its historical collection experience and current economic trends. Where available and when cost effective, the Company utilises credit insurance. Accounts receivable balances are written off when the Company determines that it is unlikely that future remittances will be received, or as permitted by local law.
Property and equipment are carried at historical cost and are
in millions, except share and per share information
depreciated on a straight-line basis over their estimated useful lives (generally three to five years for furniture, fixtures, and office equipment; three to five years for computer equipment and software; and twenty to forty years for buildings). Leasehold improvements are stated at cost and are depreciated over the shorter of the useful life of the improvement or the remaining lease term, which includes the expected lease renewal. Expenditures for repairs and maintenance are charged to expense as incurred.
The Company capitalises purchased software as well as internally developed software. Internal and external costs incurred to develop internal use computer software during the application development stage are capitalised. Application development stage costs generally include software configuration, coding, installation, and testing. Costs incurred for maintenance, testing minor upgrades, and enhancements are expensed as incurred. Capitalised software costs are included in property, equipment, and leasehold improvements, net. Capitalised costs are amortised on a straight-line basis over the estimated useful life commencing when the software is placed into service, generally three to five years. As of December 31, 2011 and December 31, 2010, the net book value of capitalised software costs amounted to EUR 104 and EUR 81, respectively.
Goodwill represents the excess of the purchase price in a business combination over the value assigned to the net tangible and identifiable intangible assets of businesses acquired less liabilities assumed. In accordance with ASC 350, "Intangibles – Goodwill and Other" ("ASC 350"), goodwill and indefinite-lived intangible assets are not amortised. Rather, the carrying value of goodwill and indefinite-lived intangible assets is tested annually for impairment.
Goodwill is tested on a reporting unit level using a two-step impairment test. Reporting units may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. In step one of the goodwill impairment test, the carrying value of each reporting unit is compared to the reporting unit's fair value as determined using a combination of comparable market multiples, additional market information, and discounted cash flow valuation models. If the fair value of the reporting unit is lower than the car
rying value of the reporting unit, step two is performed to measure the amount, if any, of impairment. In step two, the fair value of all assets and liabilities of the reporting unit is determined, as if the reporting unit had been acquired on a stand-alone basis. The fair value of the reporting unit's assets and liabilities is then compared to the fair value of the reporting unit, with the excess, if any, considered to be the implied goodwill of the reporting unit. If the carrying value of the reporting unit's goodwill exceeds this implied goodwill value, that excess is recorded as an impairment charge in operating income.
Indefinite-lived intangible assets are tested by comparing the fair value of the asset to the carrying value of the asset. In the event that the carrying value exceeds the fair value, an impairment charge is recorded in operating income.
In accordance with ASC 805, "Business Combinations" ("ASC 805"), purchased identifiable intangible assets are capitalised at fair value as of the acquisition date. Intangible assets with definite lives, primarily customer relationships, are generally amortised on a straight-line basis over the estimated period in which benefits will be received, which generally ranges from one to nine years.
The Company evaluates long-lived assets, including intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10-35-15, "Impairment or Disposal of Long-Lived Assets" ("ASC 360-10-35-15"). The asset is regarded as not recoverable if the carrying amount exceeds the undiscounted future cash flows. The impairment loss is then calculated as the difference between the asset's carrying value and its fair value, which is calculated using a discounted cash flow model.
In recording severance reserves for ongoing benefits, the Company accrues a liability when the following conditions have been met: the employees' rights to receive compensation are attributable to employees' services already rendered, the obligation relates to rights that vest or accumulate, pay
ment of the compensation is probable, and the amount can be reasonably estimated. For one-time termination benefits which require employees to render services beyond a "minimum retention period", liabilities associated with employee termination benefits are recorded as employees render services over the future service period. Otherwise, liabilities associated with employee one-time termination benefits are recorded at the point when management has taken a decision to terminate a specific group of employees, the employees have been notified of the decision and the type and amount of benefits to be received by the employees is known. Liabilities for contract termination and other exit costs are recorded at fair value when a contract is formally terminated in accordance with the contract term, or the Company ceases using the right conveyed by the contract.
The Company accounts for income taxes and uncertainty in income taxes recognised in the Company's financial statements in accordance with ASC 740, "Income Taxes" ("ASC 740"). ASC 740 prescribes a recognition threshold and measurement attribute for the financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Current liabilities and assets are recognised for the estimated payable or refundable taxes on the tax returns for the current year. Deferred tax assets and liabilities are determined based on temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and include the future tax benefit of existing net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to be in effect in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded against deferred tax assets in those cases when management does not believe that the realisation is more likely than not. While management believes that its judgements and estimates regarding deferred tax assets and liabilities are appropriate, significant differences in actual experience may materially affect the Company's future financial results.
In addition, significant judgement is required in determining the worldwide provision for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. Many of these uncertainties arise as a consequence of intercompany transactions and arrangements. Although management believes that its tax return positions are supportable, no assurance can be given that the final outcome of these matters will not be materially different from amounts reflected in the income tax provisions and accruals. Such differences could have a material effect on the income tax provisions or benefits in the periods in which such determinations are made.
In accordance with ASC 260, "Earnings per Share" ("ASC 260"), basic earnings per share is computed by dividing net income attributable to Adecco shareholders by the number of weighted-average shares for the fiscal year. Diluted earnings per share reflects the maximum potential dilution that could occur if dilutive securities, such as stock options, non-vested shares or convertible debt, were exercised or converted into common shares or resulted in the issuance of common shares that would participate in net income attributable to Adecco shareholders.
in millions, except share and per share information
In accordance with ASC 815, "Derivatives and Hedging" ("ASC 815"), all derivative instruments are initially recorded at cost as either other current assets, other assets, other accrued expenses, or other liabilities in the accompanying consolidated balance sheets and subsequently remeasured to fair value, regardless of the purpose or intent for holding the derivative instruments. For derivative instruments designated and qualifying as fair value hedges, changes in the fair value of the derivative instruments as well as the changes in the fair value of the hedged item attributable to the hedged risk are recognised within the same line item in earnings. Any cash flow impact on settlement of these contracts is classified within the consolidated statements of cash flows according to the nature of the hedged item. For derivative instruments designated and qualifying as cash flow hedges, the effective portion of the changes in the fair value of derivative instruments is initially recorded as a component of accumulated other comprehensive income/(loss), net, in shareholders' equity and reclassified into earnings in the same period during which the hedged transaction impacts earnings. The ineffective portion of the change in fair value of the derivative instruments is immediately recognised in earnings. The cash flow impact on settlement of these contracts is classified according to the nature of the hedged item. For derivative instruments designated and qualifying as net investment hedges, changes in the fair value of the derivative instruments are recorded as a component of accumulated other comprehensive income/(loss), net, in shareholders' equity to the extent they are considered effective. These gains or losses will remain in equity until the related net investment is sold or otherwise disposed. The cash flow impact on settlement of these contracts is classified as cash flows from investing activities.
For derivative instruments that are not designated or that do not qualify as hedges under ASC 815, the changes in the fair value of the derivative instruments are recognised in other income/(expenses), net, within the consolidated statements of operations. Any cash flow impact on settlement of these contracts is classified as cash flows from investing activities.
The Company accounts for assets and liabilities which are required to be accounted for at fair value in accordance with ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820"). Fair value is defined by ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level fair value hierarchy that prioritises the inputs used to measure fair value. The hierarchy requires entities to maximise the use of observable inputs and minimise the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
The Company measures fair value using unadjusted quoted market prices. If quoted market prices are not available, fair value is based upon internally developed models that use, whenever possible, current market-based parameters such as interest rate curves and currency rates. The Company also utilises independent third-party pricing services. When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.
In October 2009, the FASB issued new accounting guidance on revenue recognition on multiple-deliverable revenue arrangements. This guidance amends the requirements for separating the elements in the arrangement and also changes the allocation method of the arrangement consideration. The guidance is effective for fiscal years beginning after June 15, 2010.
The Company adopted this guidance on January 1, 2011 and its adoption did not have a material impact on the Company's consolidated financial statements.
In May 2011, the FASB issued new accounting guidance on Fair Value Measurement. This guidance modifies certain principles for measuring fair value, clarifies existing concepts and requires additional disclosures. This guidance is effective for fiscal years beginning after December 15, 2011. The Company will adopt this standard on January 1, 2012 and does not expect it to have a significant impact on the consolidated financial statements.
In September 2011, the FASB issued Accounting Standards Update ("ASU") 2011-18, "Intangibles – Goodwill and Other" ("ASU 2011-18"). Under the amendments of ASU 2011-18, an entity is permitted to make a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the two-step impairment test for that reporting unit. The Company will adopt this guidance on January 1, 2012 and does not expect it to have an impact on the consolidated financial statements.
Certain reclassifications have been made to prior years' amounts or balances in order to conform to the current year presentation.
| Other disclosures | required by Swiss law | ||
|---|---|---|---|
| in EUR | 2011 | 2010 |
|---|---|---|
| Personnel expenses | 1,954 | 1,842 |
The detailed disclosures regarding the executive remuneration that are required by Swiss law are included in Note 7 to Adecco S.A. (Holding Company) financial statements and in the Remuneration Report.
The fire insurance value of property, equipment, and leasehold improvements amounted to EUR 696 and EUR 642 as of December 31, 2011 and December 31, 2010, respectively.
in millions, except share and per share information
The Company made several acquisitions in 2011, 2010, and 2009. With the exception of the MPS Group ("MPS") acquisition, the Company does not consider any of its 2011, 2010, or 2009 acquisition transactions to be material, individually
or in the aggregate, to its consolidated balance sheets or results of operations.
The following table illustrates the aggregate impact of the 2011 and 2010 acquisitions:
| in EUR | 2011 | 2010 |
|---|---|---|
| Impact of acquisitions | ||
| Net tangible assets acquired | (6) | 205 |
| Identified intangible assets | 55 | 306 |
| Goodwill | 131 | 503 |
| Deferred tax liabilities | (19) | (107) |
| Noncontrolling interests | 1 | |
| Total consideration | 161 | 908 |
In August 2011, the Company acquired all outstanding common shares of Drake Beam Morin, Inc ("DBM") for EUR 148, net of EUR 8 cash acquired. As a result of this acquisition, EUR 128 and EUR 53 of goodwill and intangible assets, respectively, were recorded. DBM is a leading global service provider operating through several countries and offers strategic human resources solutions helping organisations align their workforces to meet changing business needs. The purchase price was funded with internal resources. DBM was consolidated by the Company as of August 31, 2011, and the results of DBM's operations have been included in the consolidated financial statements since September 1, 2011. The goodwill of EUR 128 arising from the acquisition consists largely of the synergies and economies of scale expected from combining operations of Adecco and DBM.
In January 2010, the Company acquired all outstanding common shares of MPS for EUR 831, net of cash acquired. MPS is one of the largest professional staffing firms in North America with also a strong position in the UK, and is a leading provider of specialty staffing, consulting, and business solutions across various professional business lines such as information technology, finance and accounting, legal, engineering, and healthcare. The purchase price was funded with the prepaid forward sale of Adecco S.A. shares (for further details refer to Note 1) and with internal resources. MPS was consolidated by the Company as of January 31, 2010, and the results of MPS's operations have been included in the consolidated financial statements since February 1, 2010.
The following table summarises the estimated fair value of the MPS assets acquired and liabilities assumed at the date of acquisition:
| in EUR | ||
|---|---|---|
| Fair value of assets acquired and liabilities assumed | |
|---|---|
| Cash acquired | 70 |
| Trade accounts receivable, net | 206 |
| Other current assets | 28 |
| Deferred tax assets | 31 |
| Other assets | 30 |
| Intangible assets: | |
| • Marketing related (trade names) | 161 |
| • Customer base | 137 |
| • Other | 8 |
| Goodwill | 497 |
| Current liabilities | (151) |
| Other liabilities | (9) |
| Deferred tax liabilities | (107) |
| Total fair value of assets acquired and liabilities assumed | 901 |
The goodwill of EUR 497 arising from the acquisition consists
largely of the synergies and economies of scale expected from combining operations of Adecco and MPS. Approximately EUR 149 of tax deductible goodwill was recognised with the MPS acquisition.
Most of the marketing related intangible assets (trade names) are considered to have infinite lives and are not amortised.
Customer base intangible assets acquired have estimated average useful lives of five to nine years and are amortised on a straight-line basis over their useful lives.
The MPS goodwill and intangible assets were assigned to the following segments:
| in EUR | North America | UK & Ireland | Germany & Austria | Benelux | Other | Total |
|---|---|---|---|---|---|---|
| Goodwill | 380 | 74 | 6 | 12 | 25 | 497 |
| Intangible assets | 246 | 52 | 2 | 4 | 2 | 306 |
MPS revenues and net income attributable to Adecco shareholders included in the 2010 consolidated operating results since the acquisition date amount to EUR 1,183 and EUR 31,
respectively. Amortisation expense, net of tax for MPS intangible assets included in the 2010 consolidated results of operations since the acquisition date amounts to EUR 15.
in millions, except share and per share information
The following unaudited pro forma information shows consolidated operating results as if the MPS acquisition had occurred on January 1, 2010 and January 1, 2009:
| in EUR | 2010 | 2009 |
|---|---|---|
| Pro forma consolidated operating results | ||
| Revenues | 18,747 | 15,992 |
| Net income/(loss) attributable to Adecco shareholders | 419 | (5) |
| Basic earnings per share | 2.18 | (0.03) |
| Diluted earnings per share | 2.16 | (0.03) |
The 2010 pro forma net income attributable to Adecco shareholders includes the MPS January 2010 net loss of EUR 4, which considers additional amortisation of definite-lived intangible assets, net of tax of EUR 1. The 2009 pro forma net loss attributable to Adecco shareholders includes the MPS net loss of EUR 13 which considers adjustments for amortisation of definite-lived intangible assets, net of tax of EUR 14, acquisition costs of EUR 7, and interest expense of EUR 2. The pro forma results of operations do not necessarily represent operating results which would have occurred if the acquisition had taken place on the basis assumed above, nor are they indicative of future operating results of the combined companies.
In October 2009, the Company acquired 100% of the outstanding shares of Spring Group Plc ("Spring"), for EUR 94, net of
cash acquired. As a result of this acquisition, EUR 52 and EUR 11 of goodwill and intangible assets, respectively, were recorded. Spring is a multi-branded recruitment services provider with operations in the UK, Europe, USA, and Asia Pacific. Spring's three core businesses – Professional Staffing, General Staffing, and Managed Solutions – cover a broad range of industry sectors and clients ranging from market leading multinationals to small and medium sized enterprises. The Spring acquisition was financed with available cash.
Total acquisition related costs expensed in 2011, 2010, and 2009 amounted to EUR 2, EUR 7, and EUR 5, respectively and are included in SG&A within the consolidated statement of operations.
| in EUR | 31.12.2011 | 31.12.2010 |
|---|---|---|
| Trade accounts receivable | 3,832 | 3,656 |
| Allowance for doubtful accounts | (107) | (115) |
| Trade accounts receivable, net | 3,725 | 3,541 |
| 31.12.2011 | 31.12.2010 | ||||
|---|---|---|---|---|---|
| in EUR | Gross | Accumulated depreciation |
Gross | Accumulated depreciation |
|
| Land and buildings | 48 | (21) | 49 | (18) | |
| Furniture, fixtures, and office equipment | 157 | (126) | 149 | (124) | |
| Computer equipment and software | 737 | (558) | 729 | (571) | |
| Leasehold improvements | 272 | (196) | 259 | (182) | |
| Total property, equipment, and leasehold improvements | 1,214 | (901) | 1,186 | (895) |
Depreciation expense was EUR 93, EUR 87, and EUR 81 for 2011, 2010, and 2009, respectively.
The changes in the carrying amount of goodwill for the years ended December 31, 2011 and December 31, 2010 are as follows:
| North | UK & | Germany & | |||||||
|---|---|---|---|---|---|---|---|---|---|
| in EUR | France 1 | America 1 | Ireland | Japan 1 | Austria 1 | Benelux 1 | Italy 1 | Other 1 | Total |
| Changes in goodwill | |||||||||
| January 1, 2010 | 233 | 515 | 145 | 27 | 1,243 | 83 | – | 411 | 2,657 |
| Additions | 4 | 382 | 74 | 6 | 12 | 25 | 503 | ||
| Currency translation adjustment | 67 | 7 | 7 | 32 | 113 | ||||
| December 31, 2010 | 237 | 964 | 226 | 34 | 1,249 | 95 | – | 468 | 3,273 |
| Additions | 1 | 1 | 129 | 131 | |||||
| Currency translation adjustment | 31 | 7 | 3 | 11 | 52 | ||||
| Other | (1) | (1) | |||||||
| December 31, 2011 | 236 | 996 | 233 | 37 | 1,250 | 95 | – | 608 | 3,455 |
1 Since January 1, 2011, LHH is reported as a separate segment and presented in Other above. The 2010 information has been restated to conform to the current year presentation.
in millions, except share and per share information
As of December 31, 2011 and December 31, 2010, the gross goodwill amounted to EUR 3,638 and EUR 3,454, respectively. As of December 31, 2011 and December 31, 2010, accumulated impairment charges amounted to EUR 183 and EUR 181, respectively, impacted only by fluctuations in exchange rates.
The Company performed its annual goodwill impairment test in the fourth quarter of 2011 and the fourth quarter of 2010 and determined that there was no indication of impairment.
In 2009, the Company performed its annual goodwill impairment test in the fourth quarter, and determined that there was no indication of impairment. However, in the second quarter of 2009, the Company performed an interim impairment test based on management's revised five-year projections for sales and earnings as general economic conditions and the short-term outlook of the Company's business had worsened in the second quarter of 2009 compared to the first quarter of 2009 and the end of 2008.
Step one of the goodwill impairment test which comprised discounted cash flow valuations for all of the Company's reporting units led to the conclusion that there was no indication for impairment of goodwill except for the reporting unit Germany. Accordingly, the Company proceeded to step two of
the goodwill impairment test for the reporting unit Germany. In step two the fair value of all assets and liabilities of the reporting unit is determined as if the reporting unit had been acquired on a stand-alone basis. The fair value of the reporting unit's assets and liabilities was then compared to the reporting unit's value as determined in step one with the excess considered to be the implied goodwill of the reporting unit which resulted in the recognition of a non-cash impairment charge related to goodwill of EUR 125 in the second quarter of 2009. The impairment charge can be attributed to worsening economic conditions and the short-term outlook for the Company business in Germany at that time, which negatively impacted the fair value determination of the unit for goodwill impairment purposes.
In determining the fair value of the reporting units, the Company uses a detailed five-year plan for revenues and earnings and for the long-term value a long-term growth rate of 2.0% to 2.5% depending on the long-term growth prospects of the individual markets. For each reporting unit projected cash flows are discounted to their net present values. Discount rates used during the Company's goodwill impairment tests in 2011, 2010, and 2009 ranged from 6.5% to 14.0%.
The carrying amounts of other intangible assets as of December 31, 2011 and December 31, 2010 are as follows:
| 31.12.2011 | 31.12.2010 | ||||
|---|---|---|---|---|---|
| in EUR | Gross | Accumulated amortisation |
Gross | Accumulated amortisation |
|
| Intangible assets | |||||
| Marketing related (trade names) | 424 | (32) | 417 | (27) | |
| Customer base | 395 | (213) | 336 | (166) | |
| Contract | 22 | (4) | 20 | (3) | |
| Other | 2 | (1) | 2 | (1) | |
| Total intangible assets | 843 | (250) | 775 | (197) |
The carrying amount of indefinite-lived intangible assets was EUR 390 and EUR 386 as of December 31, 2011 and December 31, 2010, respectively. Indefinite-lived intangible assets consist mainly of trade names.
No definite-lived intangible assets have a residual value. The estimated aggregate amortisation expense related to definitelived intangible assets for the next five years is EUR 48 in 2012, EUR 39 in 2013, EUR 35 in 2014, EUR 26 in 2015, EUR 19 in 2016, and EUR 36 in 2017 and afterwards. The weightedaverage amortisation period for customer base intangible assets is five to nine years.
The 2011 and 2010 annual impairment testing for indefinitelived intangible assets performed in the fourth quarter concluded that there was no indication of impairment.
The 2009 annual impairment testing for indefinite-lived intangible assets performed in the fourth quarter concluded that there was no indication for impairment. However, in the second quarter of 2009, the Company concluded that the fair value of certain trade names was lower than their carrying value. Consequently,anon-cash impairment charge to indefinite-lived intangible assets of EUR 11 was recorded. The impairment charge consisted of the write-down of trade names in Germany which was a result of the decrease in short-term sales projected at that time and in Iberia where the usage of one of the trade names was discontinued.
Furthermore, in the second quarter of 2009, the Company concluded that the carrying value of some of the definite-lived customer base intangible assets exceeded their fair value. Consequently a non-cash impairment charge of the definitelived intangible assets of EUR 56 was recorded. The impairment charge was related to the decreased value of the Tuja customer relationships in Germany and was mainly attributed to the decrease in sales and earnings of the entity projected at that time for the short-term.
In October 2008 and June 2009, the Company announced it had launched restructuring plans in France to structurally improve the French business and to adapt the cost base to market developments. In addition, the Company incurred restructuring costs in 2009 in Italy, Iberia, Benelux, UK & Ireland, North America, Germany & Austria, and other countries.
Total restructuring costs incurred by the Company in 2009 amounted to EUR 121. No significant costs were incurred in 2011 or 2010 in connection with these plans. Restructuring expenses are recorded as SG&A and represent mainly costs related to headcount reductions and branch optimisation.
The following table shows the total amount of costs incurred by segment in connection with these restructuring programmes:
| Restructuring costs | |
|---|---|
| France | 49 |
| North America | 7 |
| UK & Ireland | 9 |
| Germany & Austria | 6 |
| Benelux | 14 |
| Italy | 19 |
| Other 1 | 17 |
| Total restructuring costs | 121 |
in EUR 2009
1 Includes restructuring costs of EUR 15 in Iberia.
Adecco Financial Review 2011 77
in millions, except share and per share information
The changes in restructuring liabilities for the period ended December 31, 2011, December 31, 2010 and December 31, 2009 are as follows:
| Restructuring | |
|---|---|
| in EUR | liabilities |
| January 1, 2009 | 34 |
| Restructuring expenses | 121 |
| Cash payments | (98) |
| Write-off of fixed assets | (6) |
| December 31, 2009 | 51 |
| Reversals of restructuring expenses | (5) |
| Cash payments | (34) |
| Write-off of fixed assets and other | (2) |
| December 31, 2010 | 10 |
| Reversals of restructuring expenses | (2) |
| Cash payments | (4) |
| December 31, 2011 | 4 |
As of December 31, 2011 restructuring liabilities in connection with these plans of EUR 1 and EUR 3 were recorded in accounts payable and accrued expenses and in other liabilities, respectively.
The Company's short-term debt consists of borrowings under the French commercial paper programme and under other lines of credit.
In August 2010, Adecco International Financial Services BV, a wholly owned subsidiary of the Company, established a French commercial paper programme ("Billet de Trésorerie programme"). Under the programme, Adecco International Financial Services BV may issue short-term commercial paper up to a maximum amount of EUR 400, with maturity of individual paper of 365 days or less. The proceeds are used to fund short-term working capital and borrowing requirements. The
paper is usually issued at a discount and repaid at nominal amount at maturity. The discount represents the interest paid to the investors on the commercial paper. The programme is guaranteed by Adecco S.A. As of December 31, 2011 and December 31, 2010, EUR 145 and EUR 151, respectively, were outstanding under the programme, with maturities of up to six months. The weighted-average interest rate on commercial paper outstanding was 1.31% as of December 31, 2011 and 1.09% as of December 31, 2010.
To support short-term working capital and borrowing requirements, the Company had available, in certain countries where it operates, uncommitted lines of credit amounting to EUR 477 and EUR 452 as of December 31, 2011 and December 31, 2010, respectively. As of December 31, 2011 and December 31, 2010, bank overdrafts and borrowings outstanding under these lines of credit amounted to EUR 15 and EUR 17, respectively. As of December 31, 2011, the uncommitted lines of credit are in various currencies, have various interest rates, and have maturities of up to one year. The weighted-average interest rate on borrowings outstanding was 2.8% and 9.1% as of December 31, 2011 and December 31, 2010, respectively.
The Company's long-term debt as of December 31, 2011 and December 31, 2010 consists of the following:
| Principal at | Fixed | ||||
|---|---|---|---|---|---|
| in EUR | maturity | Maturity | interest rate | 31.12.2011 | 31.12.2010 |
| 7-year guaranteed Euro medium-term notes | EUR 500 | 2018 | 4.75% | 489 | |
| 5-year guaranteed Euro medium-term notes | EUR 356 | 2014 | 7.625% | 358 | 500 |
| Fixed rate guaranteed notes | EUR 333 | 2013 | 4.5% | 341 | 516 |
| Medium-term loan, payable in instalments by 2012 | 76 | 119 | |||
| Other | 2 | 2 | |||
| 1,266 | 1,137 | ||||
| Less current maturities | (76) | (49) | |||
| Long-term debt, less current maturities | 1,190 | 1,088 |
In April 2011, Adecco International Financial Services BV, a wholly owned subsidiary of the Company, completed tender and exchange offers for the outstanding EUR 500 5-year guaranteed Euro medium-term notes due 2014 ("5-year notes") and EUR 500 fixed rate guaranteed notes due 2013 ("fixed rate notes"), collectively "old notes" and issued new EUR 500 7-year unsubordinated fixed rate notes guaranteed by Adecco S.A. due April 14, 2018 ("7-year notes"). The purpose of the transaction was to lengthen the Company's debt maturity profile and to take advantage of favourable market conditions.
The 7-year notes were issued within the framework of the Euro Medium-Term Note Programme and trade on the London Stock Exchange. The notes were issued at a price of 99.453%. The interest on the 7-year notes is paid annually in arrears at a fixed annual rate of 4.75%.
The exchange and tender were priced at 103.06% for the fixed rate notes and at 111.52% for the 5-year notes. In relation to the tender of the old notes, the Company recognised a loss of EUR 11, included in other income/(expenses), net. In addition, a loss of EUR 10 relating to the exchange transaction is deferred and will be amortised to interest expense over the life of the 7-year notes.
On April 28, 2009, Adecco International Financial Services BV, a wholly owned subsidiary of the Company, issued EUR 500 unsubordinated notes guaranteed by Adecco S.A. due April 28, 2014. The 5-year notes were issued within the framework of the Euro Medium-Term Note Programme and trade on the London Stock Exchange. The proceeds further increased the Company's financial flexibility with respect to the refinancing of the guaranteed zero-coupon convertible bond and were used for general corporate purposes. The interest is paid annually in arrears at a fixed annual rate of 7.625%.
In April 2011, EUR 71 nominal value of outstanding 5-year notes were exchanged for the 7-year notes and EUR 73 nominal value of outstanding 5-year notes were tendered for cash. This transaction reduces the nominal value of the outstanding principal of the 5-year notes to EUR 356.
The Company has entered into fair value hedges of the 5-year notes, which are further discussed in Note 11.
On April 25, 2006, Adecco International Financial Services BV, a wholly owned subsidiary of the Company, issued EUR 500 unsubordinated fixed rate notes guaranteed by Adecco S.A. due April 25, 2013. The proceeds were used to refinance the DIS acquisition and for general corporate purposes. Interest is paid on the fixed rate notes annually in arrears at a fixed annual rate of 4.5%.
In April 2011, EUR 84 nominal value of outstanding fixed rate notes were exchanged for the 7-year notes and EUR 83 nominal value of outstanding fixed rate notes were tendered for cash. This transaction reduces the nominal value of the outstanding principal of the fixed rate notes to EUR 333.
The Company has entered into fair value hedges of the fixed rate notes, which are further discussed in Note 11.
in millions, except share and per share information
As of December 31, 2011, the Company had a Swiss Franc denominated loan payable of EUR 76 (CHF 92), including EUR 4 (CHF 5) representing capitalised interest on the loan from inception to the last roll-over date, to its wholly owned nonconsolidated subsidiary, Adecco Investment (for further details refer to Note 1). As of December 31, 2010, the Swiss Franc denominated loan payable by the Company to Adecco Investment amounted to EUR 119 (CHF 148), including EUR 2 (CHF 2)
capitalised interest on the loan from inception to the last rollover date. The subordinated loan carries interest rate of 3-month CHF LIBOR plus 1.5% per annum. During 2011 and 2010, the Company repaid instalments of EUR 48 (CHF 59) and EUR 21 (CHF 30), respectively. The remaining loan balance is repayable in instalments of EUR 49 (CHF 59) and EUR 27 (CHF 33) on June 1, 2012 and November 26, 2012, respectively.
Payments of long-term debt are due as follows:
| in EUR | 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total |
|---|---|---|---|---|---|---|---|
| Payments due by year | 76 | 342 | 358 | 1 | 489 | 1,266 |
In October 2011, the Company renegotiated the existing EUR 550 multicurrency revolving credit facility. The new fiveyear revolving credit facility of EUR 600 contains two 1-year extension options at the discretion of the lender and is used for general corporate purposes including refinancing of advances and outstanding letters of credit. The interest rate is based on LIBOR, or EURIBOR for drawings denominated in Euro, plus a margin between 0.6% and 1.3% per annum, depending on certain debt-to-EBITDA ratios. Utilisation fee of 0.25% and 0.5% applies on top of the interest rate, if drawings exceed 33.33% and 66.67% of total commitment, respectively. The letter of credit fee equals the applicable margin, and the commitment fee equals 35% of the applicable margin. As of December 31, 2011 and December 31, 2010, there were no outstanding borrowings under the credit facility. As of December 31, 2011, the Company had EUR 529 available under the facility after utilising EUR 71 in the form of letters of credit. As of December 31, 2010, the Company had EUR 470 available under the facility after utilising EUR 80 in the form of letters of credit.
The summary of the components of authorised shares as of December 31, 2011, December 31, 2010, and December 31, 2009 and changes during those years are as follows:
| Outstanding shares |
Treasury shares |
Issued shares 1 |
Conditional capital |
Authorised shares |
|
|---|---|---|---|---|---|
| Changes in components of authorised shares | |||||
| January 1, 2009 | 174,188,402 | 15,075,104 | 189,263,506 | 19,566,804 | 208,830,310 |
| Treasury shares transactions | (108,971) | 108,971 | |||
| December 31, 2009 | 174,079,431 | 15,184,075 | 189,263,506 | 19,566,804 | 208,830,310 |
| Treasury shares transactions | 622,595 | (622,595) | |||
| December 31, 2010 | 174,702,026 | 14,561,480 | 189,263,506 | 19,566,804 | 208,830,310 |
| Treasury shares transactions | (4,253,625) | 4,253,625 | |||
| December 31, 2011 | 170,448,401 | 18,815,105 | 189,263,506 | 19,566,804 | 208,830,310 |
1 Shares at CHF1par value.
Authorised shares and appropriation of available earnings As of December 31, 2011 and December 31, 2010, Adecco S.A. had 4,166,804 shares of conditional capital reserved for issuance of common shares to employees and members of the Board of Directors upon the exercise of stock options. In addition, as of December 31, 2011 and December 31, 2010, Adecco S.A. was authorised by its shareholders to issue up to 15,400,000 shares of conditional capital in connection with the issuance of financial instruments, principally convertible bonds. The shares represent conditional capital authorised without time limitation and remain available for share issuance upon conversion of financial instruments issued or to be issued in the future.
Adecco S.A. may only pay dividends based on the requirements of the Swiss Code of Obligations, Articles of Incorporation and based on the shareholders' equity reflected in the stand-alone financial statements of Adecco S.A., the holding company of the Adecco Group, prepared in accordance with Swiss law. As of December 31, 2011, the stand-alone financial statements of Adecco S.A. included shareholders' equity of CHF 6,646 (EUR 5,464), of which CHF 189 represent share capital and CHF 6,457 represent reserves and retained earnings. Of the CHF 6,457 balance, the statutory legal reserve for treasury shares of CHF 1,092 as well as an amount of CHF 38 representing 20% of share capital are restricted based on the Swiss Code of Obligations and cannot be distributed as dividend.
ling EUR 149, were allocated from Adecco S.A.'s reserve from capital contributions (subaccount of general reserves) to free reserves and subsequently distributed to shareholders. For 2011, the Board of Directors of Adecco S.A. will propose a dividend of CHF 1.80 per share outstanding for the approval of shareholders at the Annual General Meeting of Shareholders to be allocated from Adecco S.A.'s reserve from capital contributions to the free reserves and subsequently distributed to shareholders. The statutory reserve from capital contributions is classified as additional paid-in capital in the consolidated balance sheet.
During 2009, the Company sold a prepaid forward on Adecco S.A. shares for EUR 587 (CHF 887), net of costs and purchased a call spread option for EUR 108 (CHF 164) from its wholly owned, non-consolidated subsidiary Adecco Investment as described in Note 1. The prepaid forward and the call spread option are indexed to and settled in the Company's own shares and therefore are accounted for as equity instruments included in additional paid-in capital. The strike prices of both instruments are reduced whenever the Company makes a dividend distribution by a fraction determined as follows: (share price excluding dividend minus dividend per share) divided by (share price excluding dividend). In 2011 and 2010, the strike prices of both instruments were reduced due to the dividend distributions made by the Company.
The initial and current terms of these contracts are as follows:
| Sold prepaid forward | Purchased call spread option | |||||
|---|---|---|---|---|---|---|
| Initial | 31.12.2011 | Initial | 31.12.2011 | |||
| Forward/Strike Price | CHF 50.50, received on November 26, 2009 |
CHF 48.95 | Lower call price = CHF 50.50 Upper call price = CHF 60.60 |
Lower call price = CHF 48.95 Upper call price = CHF 58.74 |
||
| Number of shares to which the contract is indexed |
17,821,782 initial underlying shares |
18,386,108 underlying shares |
17,821,782 initial underlying shares |
18,386,108 underlying shares |
||
| Maximum number of shares to be delivered |
17,821,782 subject to dividend and other anti dilution adjustments |
18,386,108 subject to dividend and other anti dilution adjustments |
2,970,297 subject to dividend and other anti dilution adjustments |
3,064,351 subject to dividend and other anti dilution adjustments |
In 2011, upon approval at the Annual General Meeting of Shareholders, dividends for 2010 of CHF 1.10 per share, total-
in millions, except share and per share information
In 2011, the Company acquired 4,355,000 treasury shares for a total consideration of EUR 178. Furthermore in 2009, the Company acquired 116,487 treasury shares for a total consideration of EUR 3.
As of December 31, 2011, the treasury shares are intended to be used for the settlement of the prepaid forward and the Company's outstanding employee stock option plans and long-term incentive plan (for further details refer to Note 9).
In 2011 and 2010, the Company awarded 4,697 and 5,356 treasury shares, respectively to the Chairman of the Board of Directors as part of his compensation package (refer to section 3.1.1 "Board of Directors' compensation and shareholding" within the Remuneration Report). In addition, in 2011, 96,506 shares were used to settle restricted share unit ("RSU") awards under the long-term incentive plan and 172 shares were used to settle stock option exercises. In December 2010, 580,624 treasury shares were used upon the exercise of call options on Adecco S.A. shares which were entered into in connection with the employee tradable stock option programme. In 2010, 33,529 shares were used to settle stock option exercises and 3,086 treasury shares were sold.
No dividends are distributed in relation to treasury shares.
Accumulated other comprehensive income/(loss), net The components of accumulated other comprehensive income/(loss), net of tax, are as follows:
| in EUR | 31.12.2011 | 31.12.2010 |
|---|---|---|
| Currency translation adjustment | (110) | (166) |
| Unrealised gain on cash flow hedging activities | 2 | |
| Pension-related adjustments | (35) | (18) |
| Accumulated other comprehensive income/(loss), net | (143) | (184) |
As of December 31, 2011, the Company had non-vested share awards and options outstanding relating to its common shares under several existing plans. Compensation expense of EUR 12, EUR 5, and EUR 1 was recognised in 2011, 2010, and 2009, respectively in connection with the non-vested share awards granted in 2011, 2010, and 2009. No compensation expense was recognised in 2011, 2010 or 2009 in connection with the stock option plans as all options outstanding are fully vested. The total income tax benefit recognised related to stock compensation amounted to EUR 4 in 2011, EUR 1 in 2010, and was less than EUR 1 in 2009.
Performance share awards were granted in March 2011 and 2010 to the members of the Executive Committee and in March and April 2009 to the members of the Executive Committee and to a further group of senior managers (21 individuals in total) under the Company's long-term incentive plan ("LTIP"). The awards contain an undertaking to deliver a number of Adecco S.A. shares to the participants of the plan after the end of the performance period (end of performance period for the 2011, 2010, and 2009 awards: December 31, 2013, December 31, 2012, and December 31, 2011, respectively). For 2011 and 2010 awards, the requisite service period represents three calendar years starting on January 1, 2011, and January 1, 2010, respectively, and for 2009 awards, it coincides with the performance period. The delivery of the shares will be made provided and to the extent that the predefined market and performance targets are met.
The targets for awards granted in 2011 and 2010 relate to:
The targets for awards granted in 2009 relate to:
In addition, service condition awards (restricted share unit awards: "RSU awards") were granted in 2011 and 2010 to the members of the Executive Committee and to a further group of senior managers (251 individuals in total in 2011 and 233 individuals in total in 2010) under the LTIP. The vesting of the RSU awards is not subject to performance targets, but to forfeiture provisions. Provided that the employment relationship continues, RSU awards will vest in equal portions over a period of three years at the anniversaries of the date of grant. For RSU awards, the requisite service period represents three calendar years starting on January 1, 2011 for the 2011 awards and January 1, 2010 for the 2010 awards. RSU awards granted to French employees cliff-vest at the second anniversary of the date of grant and their requisite service period represents two calendar years starting on January 1, 2011 for 2011 awards and January 1, 2010 for 2010 awards.
Participants who terminate their employment with the Company at their own will and those who receive notice of termination for cause before the end of the performance period (in case of performance share awards) and before the end of the vesting period (in case of RSU awards), will no longer be entitled to the vesting of the awards. In case of an involuntary termination without cause before the end of the performance period a time-weighted pro rata portion of the unvested performance share awards granted in 2011 and 2010 will vest at the regular vesting date, depending on the level of target achievement. Performance share awards granted in 2009 are not subject to the time-weighted pro rata reduction. In case of an involuntary termination without cause before the end of the vesting period a time-weighted pro rata portion of the unvested RSU awards will vest at the regular vesting date.
The fair value of the relative, absolute, and additional TSR awards (collectively "TSR awards") is estimated on the date of grant using a binomial model. This model runs a very large number of share price simulations based on various parameters (share prices, volatilities, dividends, maturity, correlation, etc). The average result of these simulations provides the probability that the Company's TSR targets will be achieved. The implied volatility was determined by reference to the implied volatilities of various listed options in the listed option market ("Eurex") and interpolated by calculation models. The expected dividend yield is based on expectations for future dividends from research analysts as well as implied dividend yields obtained from option prices traded in the Eurex. The risk-free rate is extracted from the Swiss government bond yield curve, which is constructed by interpolation out of the observed trading prices of various Swiss government bonds. The assumptions used are as follows:
| 2011 | 2010 | 2009 | |
|---|---|---|---|
| Assumptions used for the estimation of the fair value of the TSR awards | |||
| Implied at-the-money volatility | 27.6% | 28.7% | 54.2% |
| Expected dividend yield | 2.0% | 1.5% | 3.8% |
| Expected term (in years) | 2.8 years | 2.8 years | 2.8 years |
| Risk-free rate | 0.88% | 1.08% | 1.06% |
in millions, except share and per share information
Since the probability of the market condition being met is considered in the fair value of the TSR share awards, the compensation expense is recognised on a straight-line basis over the requisite service period regardless of fulfilment of the market condition, taking into account estimated employee forfeitures.
A summary of the status of the Company's TSR non-vested share plan as of December 31, 2011, December 31, 2010 and December 31, 2009, and changes during those years are as follows:
| Relative TSR awards | Absolute TSR awards | Additional TSR awards | ||||
|---|---|---|---|---|---|---|
| Number of shares |
Weighted average grant date fair value per share (in CHF) |
Number of shares |
Weighted average grant date fair value per share (in CHF) |
Number of shares |
Weighted average grant date fair value per share (in CHF) |
|
| Summary of the TSR non-vested share awards | ||||||
| Granted | 210,836 | 15 | ||||
| Forfeited | (58,771) | 15 | ||||
| Non-vested share awards outstanding as of December 31, 2009 |
152,065 | 15 | ||||
| Granted | 24,267 | 23 | 24,267 | 14 | 24,267 | 8 |
| Forfeited | (4,473) | 15 | ||||
| Increase in percentage of guaranteed awards | (1,875) | 15 | ||||
| Non-vested share awards outstanding as of December 31, 2010 |
169,984 | 16 | 24,267 | 14 | 24,267 | 8 |
| Granted | 20,645 | 22 | 20,645 | 15 | 20,645 | 10 |
| Forfeited | (2,343) | 22 | (2,343) | 14 | (2,343) | 9 |
| Non-vested share awards outstanding as of December 31, 2011 |
188,286 | 17 | 42,569 | 14 | 42,569 | 9 |
1,875 relative TSR share awards were modified in 2010 to guarantee their vesting irrespective of the achievement of the targets. Such awards were reclassified to the service condition awards category. The incremental expense related to the modification was not significant.
discount for not being entitled to any dividends over the vesting period. The compensation expense of such service condition share awards is recognised on a straight-line basis over the requisite service period, taking into account estimated employee forfeitures.
The fair value of the RSU share awards is determined based on the grant date market price of the Adecco S.A. share less a A summary of the status of the Company's RSU non-vested share plan as of December 31, 2011 and December 31, 2010, and changes during those years are as follows:
| Weighted | ||
|---|---|---|
| average grant | ||
| date fair value | Number | |
| per share (in CHF) | of shares | |
| Non-vested share awards outstanding as of December 31, 2011 | 461,694 | 55 |
|---|---|---|
| Forfeited | (19,866) | 54 |
| Vested | (96,506) | 57 |
| Granted | 269,319 | 55 |
| Non-vested share awards outstanding as of December 31, 2010 | 308,747 | 56 |
| Forfeited | (16,739) | 57 |
| Granted | 325,486 | 56 |
The fair value of the EPS share awards was determined based on the grant date market price of the Adecco S.A. share, and assumes that the EPS performance conditions of the plan will be met. Compensation expense is recognised over the requisite service period for the awards expected to vest, according to the internal EPS projections. The estimate of the number of awards expected to vest is reassessed at each reporting date, and the new estimate is recognised, to the extent the estimate changes, taking into account the service already rendered.
A summary of the status of the Company's EPS non-vested share plan as of December 31, 2011, December 31, 2010, and December 31, 2009, and changes during those years are as follows:
| Weighted | ||
|---|---|---|
| average | ||
| grant date fair | ||
| Number | value per share | |
| of shares | (in CHF) | |
| Summary of EPS non-vested share awards | ||
| Granted | 120,771 | 35 |
| Forfeited | (32,250) | 35 |
|---|---|---|
| Non-vested share awards outstanding as of December 31, 2009 | 88,521 | 35 |
| Forfeited | (2,454) | 35 |
| Increase in percentage of guaranteed awards | (1,875) | 35 |
| Non-vested share awards outstanding as of December 31, 2010 | 84,192 | 35 |
| Non-vested share awards outstanding as of December 31, 2011 | 84,192 | 35 |
1,875 EPS share awards were modified in 2010 to guarantee their vesting irrespective of the achievement of the targets. Such awards were reclassified to the service condition awards category. The incremental expense related to the modification was not significant.
Certain awards were granted in 2009, in addition to those described above, which are guaranteed to vest irrespective of the EPS and TSR conditions being met, provided that the requisite service has been rendered.
A summary of the status of these service condition share awards, including the impact of the TSR and EPS awards modified in 2010 as described above, as of December 31, 2011, December 31, 2010, and December 31, 2009, and changes during those years are as follows:
| Weighted | ||
|---|---|---|
| average | ||
| grant date fair | ||
| Number | value per share | |
| of shares | (in CHF) | |
| Summary of the service condition non-vested share awards | ||
| Granted | 22,500 | 36 |
| Non-vested share awards outstanding as of December 31, 2009 | 22,500 | 36 |
| Increase in percentage of guaranteed awards | 3,750 | 36 |
| Non-vested share awards outstanding as of December 31, 2010 | 26,250 | 36 |
| Non-vested share awards outstanding as of December 31, 2011 | 26,250 | 36 |
As of December 31, 2011, the total unrecognised compensation expense related to non-vested share awards amounted to EUR 12. The cost is expected to be recognised over a weighted-average period of two years. The total fair value of RSU awards vested in 2011 amounted to EUR 4. The excess tax benefits resulting from vesting of RSU awards in 2011 were not significant, and were reported as cash flows from financing activities. No awards vested in 2010 or 2009.
in millions, except share and per share information
Under several option plans, options vested and became exercisable in instalments, generally on a rateable basis up to four years beginning on the date of grant or one year after the date of grant, and have a contractual life of three to ten years. Options were typically granted with an exercise price equal to or above the fair market value of the Adecco S.A. share on the date of grant. No options have been granted since 2004.
Certain options granted under the plans were tradable on the SIX Swiss Exchange. The options were granted to employees or members of the Board of Directors of the Company and gave the optionee a choice of selling the option on the market or exercising the option to receive an Adecco S.A. share. If the option holder chose to sell the option on the market, the options could be held by a non-employee or non-director of the Company. As of December 31, 2010 and December 31, 2009, the number of stock options outstanding sold on the market was 106,391 and 935,852, respectively. There were no tradable stock options outstanding as of December 31, 2011. The trading and valuation of the tradable options were managed by a Swiss bank.
The Company used the Black-Scholes model to estimate the fair value of stock options granted to employees. Management believes that this model appropriately approximates the fair value of the stock option. The fair value of the option award, as calculated using the Black-Scholes model, was expensed for non-tradable stock options on a straight-line basis.
A summary of the status of the Company's stock option plans as of December 31, 2011, December 31, 2010, and December 31, 2009, and changes during those years are presented below:
| Weighted | ||||
|---|---|---|---|---|
| average exercise price |
Weighted average |
Aggregate | ||
| Number | per share | remaining life | intrinsic value | |
| of shares | (in CHF) | (in years) | (in CHF millions) | |
| Summary of stock option plans | ||||
| Options outstanding and vested as of January 1, 2009 | 4,070,125 | 76 | 1.5 | |
| Forfeited | (113,350) | 81 | ||
| Expired | (2,194,056) | 81 | ||
| Options outstanding and vested as of December 31, 2009 | 1,762,719 | 68 | 1.2 | |
| Exercised | (614,153) | 60 | ||
| Forfeited | (22,582) | 81 | ||
| Expired | (686,425) | 71 | ||
| Options outstanding and vested as of December 31, 2010 | 439,559 | 76 | 1.1 | |
| Exercised | (172) | 60 | ||
| Forfeited | (6,278) | 73 | ||
| Expired | (329,969) | 76 | ||
| Options outstanding and vested as of December 31, 2011 | 103,140 | 78 | 1.0 |
The aggregate intrinsic value as of December 31, 2011 of the outstanding stock options in the table above is zero and represents the total pre-tax intrinsic value (the difference between the Company's closing share price on the last trading day of 2011 and the exercise price, multiplied by the number
of in-the-money options) that would have been received by the option holders had all option holders exercised their options on the last trading day of 2011. This amount changes based on the fair market value of Adecco S.A. shares.
In accordance with local regulations and practices, the Company has various employee benefit plans, including defined contribution and both contributory and non-contributory defined benefit plans.
The Company recorded an expense of EUR 60 in both 2011 and 2010 1 , and EUR 46 1 in 2009, in connection with defined contribution plans, and an expense of EUR 36, EUR 30, and EUR 25, in connection with the Italian employee termination indemnity arrangement in 2011, 2010, and 2009, respectively.
The Company sponsors several non-qualified defined contribution plans in the USA for certain of its employees. These plans are partly funded through Rabbi trusts, which are consolidated in the Company's financial statements. As of December 31, 2011 and December 31, 2010, the assets held in the Rabbi trusts amounted to EUR 53 and EUR 51, respectively. The related pension liability totalled EUR 70 and EUR 66 as of December 31, 2011 and December 31, 2010, respectively.
Certain employees in Sweden are covered under the ITP multiemployer pension plan (employer identification number 55927) administered by a union. The data available from the administrator of the plan (Alecta) is not sufficient to determine the projected benefit obligation or the net assets attributable to the Company. Consequently, this plan is reported as a defined contribution plan. As of December 31, 2011, Alecta managed approximately EUR 54,600 of plan assets on behalf of 1.9 million private individuals and 32,000 client companies.
As of December 31, 2010, total assets managed by Alecta amounted to EUR 55,700. Total contributions made by all plan members to this plan in 2010 amounted to EUR 2,700. The information on total contributions made by all plan members in 2011 has not yet been published by Alecta. Contributions made to this plan by the Company amounted to EUR 2 in 2011 and EUR 3 1 in both 2010 and 2009.
The Company sponsors defined benefit plans principally in Switzerland, the Netherlands, and the UK. These plans provide benefits primarily based on years of service and level of compensation, and are in accordance with local regulations and practices. The defined benefit obligations and related assets of all major plans are reappraised annually by independent actuaries. The measurement date in 2011 and 2010 for all defined benefit plans is December 31. Plan assets are recorded at fair value, and consist primarily of equity securities, debt securities, and alternative investments. The projected benefit obligation ("PBO") is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation ("ABO") is the actuarial present value of benefits attributable to employee service rendered to date, but excluding the effects of estimated future pay increases.
Actuarial gains and losses are recognised as a component of other comprehensive income/(loss), net, in the period when they arise. Those amounts are subsequently recognised as a component of net period pension cost using the corridor method.
The components of pension expense, net, for the defined
benefit plans are as follows:
Swiss plan Non-Swiss plans in EUR 2011 2010 2009 2011 2010 2009 Components of pension expense Service cost 11 98222 Interest cost 333554 Expected return on plan assets (6) (5) (4) (4) (5) (4) Amortisation of prior years service costs (1) (1) Amortisation of net (gain)/loss 3 12 Pension expense, net 8 7 10 43 1
1 Restated.
in millions, except share and per share information
The following table provides a reconciliation of the changes in the benefit obligations, the change in the fair value of assets,
and the funded status of the Company's defined benefit plans as of December 31, 2011 and December 31, 2010:
| Swiss plan | Non-Swiss plans | |||
|---|---|---|---|---|
| in EUR | 31.12.2011 | 31.12.2010 | 31.12.2011 | 31.12.2010 |
| Pension liabilities and assets | ||||
| Projected benefit obligation, beginning of year | 129 | 102 | 103 | 89 |
| Service cost | 11 | 8 | 2 | 2 |
| Interest cost | 3 | 3 | 5 | 5 |
| Participants contributions | 31 | 35 | 1 | 1 |
| Actuarial (gain)/loss | 8 | 3 | 17 | 7 |
| Benefits paid | (34) | (42) | (3) | (2) |
| Foreign currency translation | 4 | 20 | 1 | 1 |
| Projected benefit obligation, end of year | 152 | 129 | 126 | 103 |
| Plan assets, beginning of year | 128 | 99 | 86 | 77 |
| Actual return on assets | (1) | 7 | 13 | 7 |
| Employer contributions | 12 | 11 | 2 | 2 |
| Participants contributions | 31 | 35 | 1 | 1 |
| Benefits paid | (34) | (42) | (3) | (2) |
| Foreign currency translation | 4 | 18 | 1 | 1 |
| Plan assets, end of year | 140 | 128 | 100 | 86 |
| Funded status of the plan | (12) | (1) | (26) | (17) |
| Accumulated benefit obligation, end of year | 148 | 126 | 116 | 96 |
The following amounts are recognised in the consolidated balance sheets as of December 31, 2011 and December 31, 2010:
| Swiss plan | Non-Swiss plans | ||||
|---|---|---|---|---|---|
| in EUR | 31.12.2011 | 31.12.2010 | 31.12.2011 | 31.12.2010 | |
| Pension-related assets | 7 | 4 | |||
| Pension-related liabilities | (12) | (1) | (33) | (21) | |
| Total | (12) | (1) | (26) | (17) |
As of December 31, 2011, the Company recognised a net loss of EUR 22 and EUR 13 for Swiss defined benefit plans and for non-Swiss defined benefit plans, respectively, in accumulated other comprehensive income/(loss), net. The expense to be amortised from accumulated other comprehensive income/ (loss), net, into earnings, over the next fiscal year amounts to EUR 3 for the Swiss defined benefit plan and to EUR 2 for the non-Swiss defined benefit plans. As of December 31, 2010, the Company recognised a net loss of EUR 10 and EUR 8 for Swiss defined benefit plans and for non-Swiss defined benefit plans, respectively, in accumulated other comprehensive income/ (loss), net.
For plans with a PBO in excess of the fair value of plan assets as of December 31, 2011 and December 31, 2010, the total PBO was EUR 208 and EUR 154, respectively, and the fair value of the plan assets was EUR 162 and EUR 133, respectively.
Certain of the Company's pension plans have an ABO that exceeds the fair value of plan assets. For plans with an ABO that exceeds the fair value of plan assets, the aggregated ABO was EUR 196 and EUR 147 as of December 31, 2011 and December 31, 2010, respectively, and the fair value of the plan assets of those plans was EUR 162 and EUR 133, respectively.
The overall expected long-term rate of return on plan assets for the Company's defined benefit plans is based on inflation rates, inflation-adjusted interest rates, and the risk premium of equity investments above risk-free rates of return. Longterm historical rates of return are adjusted when appropriate to reflect recent developments.
The assumptions used for the defined benefit plans reflect the different economic conditions in the various countries. The weighted-average actuarial assumptions are as follows:
| Swiss plan | Non-Swiss plans | ||||||
|---|---|---|---|---|---|---|---|
| in % | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |
| Weighted-average actuarial assumptions | |||||||
| Discount rate | 2.3 | 2.5 | 3.0 | 4.1 | 4.5 | 4.9 | |
| Rate of increase in compensation levels | 2.5 | 2.5 | 2.0 | 2.1 | 2.6 | 2.9 | |
| Expected long-term rate of return on plan assets | 3.8 | 4.3 | 4.5 | 4.1 | 4.3 | 4.6 |
The Company has established an investment policy and strategy for the assets held by the Company's pension plans which focuses on using various asset classes in order to achieve a long-term return on a risk adjusted basis. Factors included in the investment strategy are the achievement of consistent year-over-year results, effective and appropriate risk management, and effective cash flow management. The investment policy defines a strategic asset allocation and a tactical allocation through bands within which the actual asset allocation is allowed to fluctuate. The strategic asset allocation has been defined through asset-liability studies that are undertaken at regular intervals by independent pension fund advisors or by
institutional asset managers. Actual invested positions change over time based on short- and longer-term investment opportunities. Equity securities include publicly-traded stock of companies located inside and outside Switzerland. Debt securities include corporate bonds from companies from various industries as well as government bonds. Alternative investments include interest rate risk management funds (liability driven investments) and foreign exchange forwards used to hedge the foreign exchange risk of alternative investments. Real estate funds primarily consist of investments made through a single real estate fund with daily pricing and liquidity.
in millions, except share and per share information
The Swiss and non-Swiss pension plans' target weightedaverage asset allocations as of December 31, 2011, and the actual weighted-average asset allocations as of December 31, 2011 and December 31, 2010, by asset category, are as follows:
| Swiss plan | Non-Swiss plans | ||||||
|---|---|---|---|---|---|---|---|
| Actual allocation | Actual allocation | ||||||
| in % | Target allocation range | 31.12.2011 | 31.12.2010 | Target allocation range | 31.12.2011 | 31.12.2010 | |
| Weighted-average asset allocations | |||||||
| Equity securities | 15–40 | 27 | 30 | 5–25 | 17 | 20 | |
| Debt securities | 20–60 | 39 | 34 | 25–55 | 46 | 42 | |
| Real estate | 5–25 | 15 | 12 | 0–10 | 0 | 0 | |
| Other | 5–60 | 19 | 24 | 25–40 | 37 | 38 | |
| Total | 100 | 100 | 100 | 100 |
The fair values of the Company's pension plan assets as of December 31, 2011 and as of December 31, 2010 by asset category are as follows:
| Swiss plan | Non-Swiss plans | |||||||
|---|---|---|---|---|---|---|---|---|
| in EUR | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total |
| Asset category | ||||||||
| Cash and cash equivalents | 1 | 1 | 1 | 1 | ||||
| Equity securities: | ||||||||
| • Switzerland | 17 | 17 | ||||||
| • Rest of the world | 20 | 20 | 17 | 17 | ||||
| Debt securities: | ||||||||
| • Government bonds | 12 | 12 | 29 | 29 | ||||
| • Corporate bonds | 42 | 42 | 17 | 17 | ||||
| Alternative investments: | ||||||||
| • Commodity funds/private equity | 5 | 1 | 6 | |||||
| • Liability driven investments ("LDI") | 25 | 25 | ||||||
| • Alternative investment funds | 20 | 20 | 9 | 9 | ||||
| Real estate funds | 22 | 22 | ||||||
| Other | 2 | 2 | ||||||
| Total | 119 | 20 | 1 | 140 | 98 | 2 | 100 |
| Swiss plan | Non-Swiss plans | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| in EUR | Level 11 | Level 2 1 | Level 3 1 | Total | Level 1 | Level 2 | Level 3 | Total | |
| Asset category | |||||||||
| Cash and cash equivalents | 1 | 1 | |||||||
| Equity securities: | |||||||||
| • Switzerland | 18 | 18 | |||||||
| • Rest of the world | 20 | 20 | 17 | 17 | |||||
| Debt securities: | |||||||||
| • Government bonds | 11 | 11 | 21 | 21 | |||||
| • Corporate bonds | 32 | 32 | 15 | 15 | |||||
| Alternative investments: | |||||||||
| • Commodity funds/private equity | 6 | 1 | 7 | 1 | 1 | ||||
| • Liability driven investments ("LDI") | 22 | 22 | |||||||
| • Alternative investment funds | 5 | 20 | 25 | 6 | 6 | ||||
| Real estate funds | 15 | 15 | |||||||
| Other | 1 | 2 | 3 | ||||||
| Total | 107 | 20 | 1 | 128 | 84 | 2 | 86 |
1 Restated.
A reconciliation of the change in the fair value measurement of the defined benefit plans' consolidated assets using significant unobservable inputs (Level 3) during the year ended December 31, 2011 is as follows:
| in EUR | Swiss plan |
|---|---|
| Private equity funds | |
| Balance as of January 1, 2011 | 1 |
| Actual return on plan assets | |
| Balance as of December 31, 2011 | 1 |
The Company expects to contribute EUR 13 to its pension plan in Switzerland and EUR 5 to its non-Swiss plans in 2012.
Future benefits payments, which include expected future service, are estimated as follows:
| Non-Swiss | ||
|---|---|---|
| in EUR | Swiss plan | plans |
| 2012 | 44 | 2 |
|---|---|---|
| 2013 | 12 | 3 |
| 2014 | 11 | 2 |
| 2015 | 10 | 3 |
| 2016 | 10 | 3 |
| Years 2017–2021 | 37 | 26 |
in millions, except share and per share information
The Company conducts business in various countries and funds its subsidiaries in various currencies, and is therefore exposed to the effects of changes in foreign currency exchange rates. In order to mitigate the impact of currency exchange rate fluctuations, the Company assesses its exposure to currency risk and hedges certain risks through the use of derivative instruments. The Company has also issued fixed rate long-term notes. Accordingly, the Company manages exposure to changes in fair value of fixed interest long-term debt through the use of derivative instruments.
The main objective of holding derivative instruments is to minimise the volatility of earnings arising from these exposures in the absence of natural hedges. The responsibility for assessing exposures as well as entering into and managing derivative instruments is centralised in the Company's treasury department. The activities of the treasury department are covered by corporate policies and procedures approved by the Board of Directors, which generally limit the use of derivative instruments for trading and speculative purposes. Group management approves the hedging strategy and monitors the underlying market risks.
The following table shows the carrying value and the fair value of non-derivative financial instruments as of December 31, 2011 and December 31, 2010:
| 31.12.2011 | 31.12.2010 | ||||
|---|---|---|---|---|---|
| in EUR | Carrying value | Fair value | Carrying value | Fair value | |
| Non-derivative financial instruments | |||||
| Current assets: | |||||
| • Cash and cash equivalents | 532 | 532 | 549 | 549 | |
| • Short-term investments | 2 | 2 | 5 | 5 | |
| • Trade accounts receivable, net | 3,725 | 3,725 | 3,541 | 3,541 | |
| Current liabilities: | |||||
| • Accounts payable | 541 | 541 | 546 | 546 | |
| • Short-term debt | 160 | 160 | 168 | 168 | |
| • Current maturities of long-term debt | 76 | 76 | 49 | 50 | |
| Non-current liabilities: | |||||
| • Long-term debt | 1,190 | 1,236 | 1,088 | 1,158 |
The Company uses the following methods and assumptions to estimate the fair value of each class of non-derivative financial instruments:
• Long-term debt, including current maturities The fair value of the Company's publicly-traded long-term debt is estimated using quoted market prices. The fair value of other long-term debt is estimated by discounting future cash flows using interest rates currently available for similar debt with identical terms, similar credit ratings, and remaining maturities. Refer to Note 7 for details of debt instruments.
The following table shows the notional amount and the fair value of derivative financial instruments as of December 31, 2011 and December 31, 2010:
| Notional amount | Fair value | ||||
|---|---|---|---|---|---|
| in EUR | Balance sheet location | 31.12.2011 | 31.12.2010 | 31.12.2011 | 31.12.2010 |
| Derivative assets | |||||
| Derivatives designated as hedging instruments under ASC 815: |
|||||
| • Interest rate swaps | Other assets | 425 | 375 | 13 | 18 |
| Derivatives not designated as hedging instruments under ASC 815: |
|||||
| • Foreign currency contracts | Other current assets | 1,071 | 373 | 48 | 14 |
| • Cross-currency interest rate swaps | Other current assets | 209 | 16 | ||
| • Cross-currency interest rate swaps | Other assets | 42 | 244 | 4 | 20 |
| • Interest rate swaps | Other assets | 50 | 2 | ||
| Derivative liabilities | |||||
| Derivatives designated as hedging instruments under ASC 815: |
|||||
| • Interest rate swaps | Other liabilities | 50 | (1) | ||
| Derivatives not designated as hedging instruments under ASC 815: |
|||||
| • Foreign currency contracts | Other accrued expenses | 787 | 1,133 | (38) | (49) |
| • Interest rate swaps | Other liabilities | 50 | (1) | ||
| • Interest rate swaption | Other liabilities | 50 | 50 | (1) | |
| Total net derivatives | 43 | 2 |
In addition, accrued interest receivable on interest rate swaps of EUR 10 was recorded in other current assets as of December 31, 2011 and December 31, 2010. Accrued interest payable on cross-currency interest rate swaps and interest rate swaps of EUR 2 and EUR 1 was recorded in other accrued expenses as of December 31, 2011 and December 31, 2010.
The fair value of interest rate swaps, foreign currency contracts, cross-currency interest rate swaps, and interest rate swaption is calculated by using the present value of future cash flows based on quoted market information. The Company adds an adjustment for non-performance risk in the recognised measure of fair value of derivative instruments as well as a liquidity charge represented by the bid-ask spread of the outstanding derivatives. The non-performance adjustment reflects the Credit Default Swap ("CDS") applied to the exposure of each transaction. The Company uses the counterparty CDS spread in case of an asset position and its own CDS spread in case of a liability position. As of December 31, 2011 and
December 31, 2010, the total impact of non-performance risk and liquidity risk was a loss of EUR 4 and EUR 3, respectively.
Interest rate swaps with a notional amount of EUR 300 that contain a receipt of fixed interest rate payments and payment of floating interest rate payments have been designated as fair value hedges of the EUR 333 fixed rate guaranteed notes due 2013 issued by Adecco International Financial Services BV. The outstanding contracts have an original contract period of four to seven years and expire in 2013.
Interest rate swaps with a notional amount of EUR 125 that contain a receipt of fixed interest rate payments and payment of floating interest rate payments have been designated as fair value hedges of the EUR 356 5-year guaranteed Euro medium-term notes due 2014 issued by Adecco International Financial Services BV. The contracts have an original contract period of three to five years and expire in 2014.
in millions, except share and per share information
The gain and loss on the hedged fixed rate notes attributable to the hedged benchmark interest rate risk and the offsetting
loss and gain on the related interest rate swaps, both reported as interest expense for 2011 and 2010 are as follows:
| in EUR | Location of gain/(loss) on derivative recognised |
Gain/(loss) on derivative recognised in earnings |
Location of gain/(loss) on related hedged item |
Gain/(loss) on related hedged item recognised in earnings |
||||
|---|---|---|---|---|---|---|---|---|
| Derivative | in earnings | 2011 | 2010 | Hedged item | recognised in earnings | 2011 | 2010 | |
| Interest rate swaps | Interest expense | (5) | 2 | Long-term debt | Interest expense | 5 | (2) |
In addition, the net swap settlements that accrue each period are also reported in interest expense. No significant gains or losses were recorded in 2011, 2010, and 2009, due to ineffectiveness in fair value hedge relationships. No significant gains or losses were excluded from the assessment of hedge effectiveness of the fair value hedges in 2011, 2010, or 2009.
The effective portion of gains on cash flow hedges that was recognised in other comprehensive income/(loss), net, amounted to EUR 3 for 2011. No significant gain or loss was recognised in other comprehensive income/(loss), net, in 2010 in connection with cash flow hedges. As of December 31, 2011 and December 31, 2010, the gain relating to cash flow hedges included as a component of accumulated other comprehensive income/(loss), net, amounts to EUR 2 and below EUR 1, respectively. No significant gains or losses were recorded in 2011, 2010, and 2009, due to ineffectiveness in cash flow hedge relationships. In 2011, 2010, and 2009, no significant gains or losses were excluded from the assessment of hedge effectiveness of the cash flow hedges. No significant reclassifications into earnings of gains and losses that are reported in accumulated other comprehensive income/(loss), net, are expected within the next 12 months.
As of December 31, 2011 and December 31, 2010, the net loss relating to net investment hedges included as a component of accumulated other comprehensive income/(loss), net, amounted to EUR 74 and EUR 72, respectively, resulting from net investment hedges terminated in 2005. No reclassifications of losses reported in accumulated other comprehensive income/(loss), net, into earnings are expected within the next 12 months.
The Company has entered into certain derivative contracts that are not designated or do not qualify as hedges under ASC 815. Forward foreign currency contracts and crosscurrency interest rate swaps are used to hedge the net exposure of subsidiary funding advanced in the local operations' functional currency. Contracts are entered into in accordance with the written treasury policies and procedures and represent economic hedges. Gains and losses on these contracts are recognised in earnings and are included in other income/ (expenses), net, in the accompanying consolidated statements of operations.
In connection with these activities, the Company recorded a net loss of EUR 1 in 2011 and a net loss of EUR 3 in 2010, as follows:
| in EUR | Location of gain/(loss) on derivative recognised |
Gain/(loss) on derivative recognised in earnings |
Location of gain/(loss) | Gain/(loss) on related hedged item recognised in earnings |
|||
|---|---|---|---|---|---|---|---|
| Derivative | in earnings | 2011 | 2010 | Hedged item | on related hedged item recognised in earnings |
2011 | 2010 |
| Cross-currency interest rate swaps |
Other income/ (expenses), net |
(6) | 20 | Loans and receivables to/ from subsidiaries |
Other income/ (expenses), net |
4 | (21) |
| Foreign currency contracts |
Other income/ (expenses), net |
(11) | (80) | Cash, loans and receivables to/ from subsidiaries |
Other income/ (expenses), net |
12 | 78 |
In addition, in 2011 the Company recorded in other income/ (expenses), net, a gain of EUR 3 in connection with not designated interest rate swaps and a release of fair value adjustment on part of the debt tendered in April 2011 and a loss of EUR 1 in connection with not designated interest rate swaption. No significant amounts were included in other income/ (expenses), net, for 2010 and 2009 in relation to interest rate swaps and swaption not designated as hedging instruments under ASC 815.
In 2009, the Company recorded a net expense of EUR 2 in connection with the forward-starting foreign currency swaps and forward-starting cross-currency interest rate swaps entered into in 2009 to hedge the US Dollar to the Swiss Franc exchange rate over the period between the announcement and the closing of the MPS acquisition in January 2010. The contracts consummated at the closing of the MPS acquisition in January 2010 to hedge the US Dollar loans advanced to the US subsidiary to finance the acquisition.
Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash investments, short-term investments, trade accounts receivable, and derivative financial instruments. The Company places its cash and short-term investments in major financial institutions throughout the world, which management assesses to be of high credit quality, in order to limit the exposure of each investment.
Credit risk with respect to trade accounts receivable is dispersed due to the international nature of the business, the large number of customers, and the diversity of industries serviced. The Company's receivables are well diversified and management performs credit evaluations of its customers and, where available and cost-effective, utilises credit insurance.
To minimise counterparty exposure on derivative instruments, the Company enters into derivative contracts with several large multinational banks and limits the exposure in combination with the short-term investments with each counterparty.
in millions, except share and per share information
The following table represents the Company's assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2011 and December 31, 2010, consistent with the fair value hierarchy provisions of ASC 820:
| in EUR | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| December 31, 2011 | ||||
| Assets | ||||
| Available-for-sale securities | 2 | 2 | ||
| Derivative assets | 93 | 93 | ||
| Liabilities | ||||
| Derivative liabilities | 42 | 42 | ||
| December 31, 2010 | ||||
| Assets | ||||
| Available-for-sale securities | 2 | 2 | ||
| Derivative assets | 62 | 62 | ||
| Liabilities | ||||
| Derivative liabilities | 51 | 51 |
For the years 2011, 2010, and 2009, other income/(expenses), net, consist of the following:
| in EUR | 2011 | 2010 | 2009 |
|---|---|---|---|
| Foreign exchange gain/(loss), net | (1) | (3) | (2) |
| Interest income | 5 | 3 | 5 |
| Proportionate net income of investee companies | 1 | ||
| Other non-operating income/(expenses), net | (11) | (1) | (4) |
| Total other income/(expenses), net | (6) | (1) | (1) |
In 2011, other non-operating income/(expenses), net include a loss of EUR 11 related to the tender of the 5-year notes and the fixed rate notes (refer to Note 7 for further details).
Adecco S.A. is incorporated in Switzerland and the Company operates in various countries with differing tax laws and rates. A substantial portion of the Company's operations are outside of Switzerland. Since the Company operates worldwide, the weighted-average effective tax rate will vary from year to year depending on the earnings mix by country. The weightedaverage tax rate is calculated by aggregating pre-tax operating income or loss in each country in which the Company operates multiplied by the country's statutory income tax rate. Income before income taxes in Switzerland totalled EUR 215, EUR 114, and EUR 162 in 2011, 2010, and 2009, respectively. Foreign source income/(loss) before income taxes amounted to income of EUR 471 and EUR 489 in 2011 and 2010, respectively, and a loss of EUR 153 in 2009. The provision for income taxes consists of the following:
| in EUR | 2011 | 2010 | 2009 |
|---|---|---|---|
| Provision for income taxes | |||
| Current tax provision: | |||
| • Domestic | 26 | 26 | 16 |
| • Foreign | 192 | 148 | 61 |
| Total current tax provision | 218 | 174 | 77 |
| Deferred tax provision/(benefit): | |||
| • Domestic | 5 | (2) | 21 |
| • Foreign | (57) | 7 | (97) |
| Total deferred tax provision/(benefit) | (52) | 5 | (76) |
| Total provision for income taxes | 166 | 179 | 1 |
The difference between the provision for income taxes and the weighted-average tax rate is reconciled as follows for the fiscal years:
| in EUR | 2011 | 2010 | 2009 |
|---|---|---|---|
| Tax rate reconciliation | |||
| Income taxed at weighted-average tax rate | 128 | 138 | (23) |
| Items taxed at other than weighted-average tax rate | 58 | 22 | (29) |
| Non-deductible expenses | 11 | 16 | 11 |
| Net change in valuation allowance | 4 | 3 | 11 |
| Non-deductible impairment of goodwill | 38 | ||
| Adjustments to deferred tax assets due to rate changes | (2) | 3 | |
| Tax on undistributed earnings | (31) | 1 | |
| Other, net | (2) | (1) | (10) |
| Total provision for income taxes | 166 | 179 | 1 |
In 2011 and 2010, the reconciling item "items taxed at other than weighted-average tax rate" includes the impact from the change in the French business tax law. Effective as of January 1, 2010, the French government introduced a new business tax law, which requires a portion of the business tax to be computed based on added value and consequently, under U.S. GAAP, this component previously reported as costs of services and SG&A is classified as income tax in 2011 and 2010. Furthermore, in 2011, 2010, and 2009, the reconciling item "items taxed at other than weighted-average tax rate" includes EUR 31, EUR 27, and EUR 13 positive impact related to the settlement of tax contingencies.
In 2011, the reconciling item "tax on undistributed earnings" includes a benefit of EUR 31 in connection with the reversal of a deferred tax liability 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. As of December 31, 2011 and December 31, 2010, a deferred tax liability of EUR 16 and EUR 45 has been provided for non-Swiss withholding taxes and additional Swiss taxes due upon the future dividend payment of cumulative undistributed earnings. In 2011 and 2010, the Company has not provided for Swiss income taxes on one of its Swiss subsidiaries' undistributed earnings as such amounts are permanently reinvested. As of December 31, 2011 and December 31, 2010, such earnings amounted to approximately EUR 2,773 and EUR 2,695, respectively. It is not practicable to estimate the amount of taxes that would be payable upon remittance of these earnings.
in millions, except share and per share information
Temporary differences that give rise to deferred income tax assets and liabilities are as follows:
| in EUR | 31.12.2011 | 31.12.2010 |
|---|---|---|
| Temporary differences | ||
| Net operating loss carryforwards and capital losses | 218 | 237 |
| Tax credits | 27 | 20 |
| Depreciation | 9 | 14 |
| Deferred compensation and accrued employee benefits | 101 | 86 |
| Allowance for doubtful accounts | 14 | 16 |
| Accrued expenses | 66 | 55 |
| Intercompany transactions | 26 | 25 |
| Other | 30 | 20 |
| Gross deferred tax assets | 491 | 473 |
| Unrecognised tax benefits provision, net | (33) | (45) |
| Valuation allowance | (125) | (120) |
| Deferred tax assets, net | 333 | 308 |
| Intangible assets book basis in excess of tax basis | (147) | (151) |
| Tax amortisation in excess of financial amortisation | (91) | (66) |
| Undistributed earnings of subsidiaries | (16) | (45) |
| Other | (26) | (12) |
| Deferred tax liabilities | (280) | (274) |
| Deferred tax assets, net of deferred tax liabilities | 53 | 34 |
Management's assessment of the realisation of deferred tax assets is made on a country-by-country basis. The assessment is based upon the weight of all available evidence, including factors such as the recent earnings history and expected future taxable income. A valuation allowance is recorded to reduce deferred tax assets to a level which, more likely than not, will be realised.
in the change of the valuation allowance is an increase of EUR 4 for 2011 and prior years' losses and EUR 3 for losses generated by acquired companies prior to acquisition. This was partly offset by a decrease of EUR 2 related to unrecognised tax benefits and reversal of prior years' losses and related valuation allowance.
Valuation allowances on deferred tax assets of foreign and domestic operations increased by EUR 5 to EUR 125. Included The following table summarises the deferred tax assets and deferred tax liabilities reported by the Company as of December 31, 2011 and December 31, 2010:
| in EUR | Balance sheet location | 31.12.2011 | 31.12.2010 |
|---|---|---|---|
| Deferred tax assets – current | Other current assets | 161 | 152 |
| Deferred tax assets – non-current | Other assets | 106 | 110 |
| Deferred tax liabilities – current | Other accrued expenses | (20) | (6) |
| Deferred tax liabilities – non-current | Other liabilities | (194) | (222) |
| Deferred tax assets, net of deferred tax liabilities | 53 | 34 |
As of December 31, 2011, the Company had approximately EUR 732 of net operating loss carryforwards and capital losses. These losses will expire as follows:
| in EUR | 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | No expiry | Total |
|---|---|---|---|---|---|---|---|---|
| Expiration of losses by year | 2 | 9 | 3 | 13 | 11 | 120 | 574 | 732 |
The largest net operating loss carryforwards are in the UK, Germany, Netherlands, France, and Brazil and total EUR 529 as of December 31, 2011. The losses in the Netherlands begin to expire in 2018. The losses in the UK, Germany, France, and Brazil do not expire. In addition, tax credits of EUR 27 are predominantly related to the US operations and begin to expire in 2018.
As of December 31, 2011, the amount of unrecognised tax benefits including interest and penalties is EUR 287 of which EUR 197 would, if recognised, decrease the Company's effective tax rate. As of December 31, 2010, the amount of unrecognised tax benefits including interest and penalties was EUR 291 of which EUR 244 would have, if recognised, decreased the Company's effective tax rate.
The following table summarises the activity related to the Company's unrecognised tax benefits:
| in EUR | Unrecognised tax benefits |
|---|---|
| Balance as of January 1, 2009 | 289 |
| Increases related to current year tax positions | 25 |
| Expiration of the statute of limitations for the assessment of taxes | (5) |
| Settlements with tax authorities | (8) |
| Additions to prior years | 2 |
| Decreases to prior years | (59) |
| Foreign exchange currency movement | (1) |
| Balance as of December 31, 2009 | 243 |
| Increases related to current year tax positions | 35 |
| Expiration of the statute of limitations for the assessment of taxes | (16) |
| Settlements with tax authorities | (6) |
| Additions to prior years including acquisitions | 27 |
| Decreases to prior years | (56) |
| Foreign exchange currency movement | 16 |
| Balance as of December 31, 2010 | 243 |
| Increases related to current year tax positions | 26 |
| Expiration of the statute of limitations for the assessment of taxes | (14) |
| Settlements with tax authorities | (3) |
| Additions to prior years including acquisitions | 33 |
| Decreases to prior years | (60) |
| Foreign exchange currency movement | 5 |
| Balance as of December 31, 2011 | 230 |
in millions, except share and per share information
In 2011, the item "decreases to prior years" includes EUR 57 related to a settlement of contingencies with a corresponding offset to net operating losses carryforwards and a favourable impact of EUR 31 to the income tax expense. Furthermore, in 2011 the item "additions to prior years including acquisitions" mainly relates to changes in estimates due to current year audit activity and pre-acquisition contingencies. In 2010, the item "decreases to prior years" includes EUR 51 related to a settlement of contingencies with a corresponding offset to net operating losses carryforwards and a favourable impact of EUR 27 to the income tax expense. Furthermore, in 2010 the item "additions to prior years including acquisitions" mainly relates to changes in estimates due to current year audit activity and pre-acquisition contingencies. In 2009, the item "decreases to prior years" includes EUR 53 related to a
settlement of contingencies with a corresponding offset to net operating losses carryforwards and a favourable impact of EUR 13 to the income tax expense.
The Company recognises interest and penalties related to unrecognised tax benefits as a component of the provision for income taxes. As of December 31, 2011 and December 31, 2010, the amount of interest and penalties recognised in the balance sheet amounted to EUR 57 and EUR 48, respectively. The total amount of interest and penalties recognised in the statement of operations was a net expense of EUR 9, EUR 22, and EUR 2 in 2011, 2010, and 2009, respectively.
The Company and its subsidiaries file income tax returns in multiple jurisdictions with varying statute of limitations. The open tax years by major jurisdiction are as follows:
| Open tax years | |
|---|---|
| Country | |
| Australia | 2001 onwards |
| Canada | 1999 onwards |
| France | 2006 onwards |
| Germany | 2002 onwards |
| Italy | 2003 onwards |
| Japan | 2005 onwards |
| Netherlands | 2005 onwards |
| Spain | 2007 onwards |
| UK | 2008 onwards |
| USA | 2010 onwards |
In certain jurisdictions, the Company may have more than one tax payer. The table above reflects the statute of limitations of years open to examination for the major tax payers in each major tax jurisdiction.
Based on the outcome of examinations, or as a result of the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognised tax benefits for tax positions taken regarding previously filed tax returns could materially change in the next 12 months from those recorded as liabilities for uncertain tax positions in the
financial statements. An estimate of the range of the possible changes cannot be made until issues are further developed or examinations close.
Significant estimates are required in determining income tax expense and benefits. Various internal and external factors may have favourable or unfavourable effects on the future effective tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, results of tax audits, and changes in the overall level of pre-tax earnings.
The following table sets forth the computation of basic and diluted earnings per share:
| 2011 | 2010 | 2009 | ||||
|---|---|---|---|---|---|---|
| in EUR (except number of shares) | Basic | Diluted | Basic | Diluted | Basic | Diluted |
| Numerator | ||||||
| Net income attributable to Adecco shareholders | 519 | 519 | 423 | 423 | 8 | 8 |
| Interest on convertible bond, net of tax | 2 | |||||
| Net income available for earnings per share calculation |
519 | 519 | 423 | 425 | 8 | 8 |
| Denominator | ||||||
| Weighted-average outstanding shares | 172,394,340 | 172,394,340 | 174,151,587 | 174,151,587 | 174,091,286 | 174,091,286 |
| Weighted-average shares deliverable under prepaid forward |
18,277,383 | 18,277,383 | 17,961,492 | 17,961,492 | 3,515,530 | 3,515,530 |
| Weighted-average shares | 190,671,723 | 190,671,723 | 192,113,079 | 192,113,079 | 177,606,816 | 177,606,816 |
| Incremental shares for assumed conversions: • Convertible bond |
3,417,413 | |||||
| • Employee stock-based compensation | 133,357 | 65,833 | 7,175 | |||
| Total average equivalent shares | 190,671,723 190,805,080 | 192,113,079 195,596,325 | 177,606,816 | 177,613,991 | ||
| Per share amounts | ||||||
| Net earnings per share | 2.72 | 2.72 | 2.20 | 2.17 | 0.04 | 0.04 |
The weighted-average shares include 18,277,383, 17,961,492, and 3,515,530 shares for 2011, 2010, and 2009, respectively deliverable under the prepaid forward with Adecco Investment. The exercise price of the prepaid forward is reduced proportionally for each dividend distribution to common shareholders, as described in Note 1, which represents participation rights of the prepaid forward.
Stock options of 392,108 in 2011, 1,583,834 in 2010, and 4,027,697 in 2009 were excluded from the computation of diluted net income per share as the effect would have been antidilutive. The effect of the convertible bond, comprising EUR 6 of interest expense add-back and 7,569,582 additional incremental shares, was excluded from the computation in 2009 as the effect would have been anti-dilutive.
Since January 1, 2011, the Company is organised in a geographical structure plus the global business Lee Hecht Harrison ("LHH"), which corresponds to the primary segments. This structure is
complemented by business lines. The segments consist of France, North America, UK & Ireland, Japan, Germany & Austria, Benelux, Italy, Nordics, Iberia, Australia & New Zealand, Switzerland, Emerging Markets and LHH. The business lines consist of Office, Industrial, Information Technology, Engineering & Technical, Finance & Legal, Medical & Science, and Solutions. The classification of a specific branch into a business line is determined by the business line generating the largest revenue share in that specific branch.
The Company evaluates the performance of its segments based on operating income before amortisation and impairment of goodwill and intangible assets, which is defined as the amount of income before amortisation and impairment of goodwill and intangible assets, interest expense, other income/(expenses), net, and provision for income taxes. Corporate items consist of certain assets and expenses which are separately managed at the corporate level. Segment assets include current assets, property, equipment, and leasehold improvements, net, other assets, intangible assets, net, and goodwill, but exclude investments in subsidiaries and intercompany balances. The accounting principles used for the segment reporting are those used by the Company.
in millions, except share and per share information
Revenues derived from temporary staffing represented 91% in 2011 and 92% in both 2010 and 2009 of the Company's revenues. The remaining portion was derived from permanent placement, outsourcing, career transition (outplacement), and other services.
| North | UK & | Germany & | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| in EUR | France 1 | America 1 | Ireland | Japan 1 | Austria 1 | Benelux 1 | Italy 1 | Other 1 | Corporate | Total |
| 2011 segment reporting | ||||||||||
| Revenues | 6,066 | 3,646 | 1,707 | 1,406 | 1,544 | 961 | 1,032 | 4,183 | 20,545 | |
| Depreciation | (18) | (16) | (8) | (8) | (8) | (6) | (3) | (19) | (7) | (93) |
| Operating income before amortisation and impairment of goodwill and intangible assets |
220 | 161 | 32 | 80 | 110 | 44 | 60 | 189 | (82) | 814 |
| Amortisation of intangible assets | (51) | |||||||||
| Impairment of goodwill and intangible assets |
||||||||||
| Operating income | 763 | |||||||||
| Interest expense, and other income/(expenses), net |
(77) | |||||||||
| Provision for income taxes | (166) | |||||||||
| Net income | 520 | |||||||||
| Capital expenditures | (23) | (19) | (3) | (4) | (9) | (5) | (4) | (32) | (10) | (109) |
| Segment assets | 1,638 | 2,122 | 729 | 329 | 1,820 | 301 | 199 | 1,791 | 425 | 9,354 |
| Long-lived assets 2 | 107 | 119 | 23 | 38 | 32 | 18 | 7 | 126 | 47 | 517 |
| North | UK & | Germany & | ||||||||
| in EUR | France 1 | America 1 | Ireland | Japan 1 | Austria 1 | Benelux 1 | Italy 1 | Other 1 | Corporate | Total |
| 2010 segment reporting | ||||||||||
| Revenues | 5,494 | 3,488 | 1,630 | 1,295 | 1,231 | 889 | 842 | 3,787 | 18,656 | |
| Depreciation | (16) | (17) | (10) | (5) | (8) | (6) | (3) | (16) | (6) | (87) |
| Operating income before amortisation and impairment of goodwill and intangible assets |
199 | 134 | 22 | 69 | 82 | 41 | 38 | 211 | (74) | 722 |
| Amortisation of intangible assets | (55) | |||||||||
| Impairment of goodwill and intangible assets |
||||||||||
| Operating income | 667 | |||||||||
| Interest expense, and other income/(expenses), net |
(64) | |||||||||
| Provision for income taxes | (179) | |||||||||
| Net income | 424 | |||||||||
| Capital expenditures | (42) | (13) | (1) | (8) | (7) | (3) | (3) | (21) | (7) | (105) |
| Segment assets | 1,564 | 2,192 | 704 | 281 | 1,801 | 320 | 194 | 1,461 | 362 | 8,879 |
| Long-lived assets 2 | 104 | 111 | 27 | 45 | 24 | 15 | 6 | 82 | 59 | 473 |
| North | UK & | Germany & | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| in EUR | France 1 | America 1 | Ireland | Japan 1 | Austria 1 | Benelux 1 | Italy 1 | Other 1 | Corporate | Total |
| 2009 segment reporting | ||||||||||
| Revenues | 4,717 | 2,121 | 947 | 1,338 | 1,023 | 796 | 681 | 3,174 | 14,797 | |
| Depreciation | (14) | (12) | (11) | (4) | (9) | (6) | (4) | (16) | (5) | (81) |
| Operating income before amortisation and impairment of goodwill and intangible assets |
56 | 31 | (13) | 95 | 31 | 5 | 5 | 156 | (67) | 299 |
| Amortisation of intangible assets | (42) | |||||||||
| Impairment of goodwill and intangible assets |
(192) | |||||||||
| Operating income | 65 | |||||||||
| Interest expense, and other income/(expenses), net |
(56) | |||||||||
| Provision for income taxes | (1) | |||||||||
| Net income | 8 | |||||||||
| Capital expenditures | (31) | (9) | (8) | (5) | (7) | (7) | (2) | (19) | (4) | (92) |
| Segment assets | 1,337 | 1,442 | 434 | 241 | 1,736 | 297 | 160 | 1,189 | 995 | 7,831 |
| Long-lived assets 2 | 80 | 81 | 34 | 30 | 27 | 23 | 7 | 52 | 36 | 370 |
Information by country is as follows:
| Rest | ||||||||
|---|---|---|---|---|---|---|---|---|
| France | USA | UK | Germany | Japan | Italy | Switzerland | of the world | Total |
| 6,144 | 3,182 | 1,694 | 1,503 | 1,407 | 1,035 | 482 | 5,098 | 20,545 |
| 5,588 | 3,099 | 1,615 | 1,197 | 1,297 | 844 | 399 | 4,617 | 18,656 |
| 4,806 | 1,947 | 931 | 990 | 1,343 | 683 | 342 | 3,755 | 14,797 |
| 121 | 126 | 23 | 32 | 39 | 7 | 38 | 131 | 517 |
| 116 | 107 | 27 | 23 | 46 | 6 | 52 | 96 | 473 |
| 92 | 79 | 34 | 26 | 30 | 7 | 30 | 72 | 370 |
Revenues by business line are as follows:
| in EUR | Office | Industrial | Information Technology |
Engineering & Technical |
Finance & Legal |
Medical & Science |
Solutions | Total |
|---|---|---|---|---|---|---|---|---|
| Revenues | ||||||||
| 2011 | 5,301 | 10,642 | 2,176 | 1,009 | 722 | 384 | 311 | 20,545 |
| 2010 3 | 4,871 | 9,403 | 2,049 | 956 | 705 | 360 | 312 | 18,656 |
| 2009 3 | 4,467 | 7,694 | 1,113 | 610 | 322 | 245 | 346 | 14,797 |
1 Since January 1, 2011, LHH is reported as a separate segment and presented in Other above. The 2010 and 2009 information has been restated to conform to the current year presentation.
2 Long-lived assets include fixed assets and other non-current assets.
3 The 2011 information includes certain changes in the allocation of branches to business lines. The 2010 and 2009 information has been restated to conform to the current year presentation.
in millions, except share and per share information
The Company leases facilities under operating leases, certain of which require payment of property taxes, insurance, and maintenance costs. Operating leases for facilities are usually renewable at the Company's option.
Total rent expense under operating leases amounted to EUR 215 in both 2011 and 2010, and to EUR 223 in 2009. Future minimum annual lease payments under operating leases are as follows:
| 2012 in EUR |
2013 | 2014 | 2015 | 2016 | Thereafter | Total |
|---|---|---|---|---|---|---|
| Lease payments by year 199 |
136 | 105 | 79 | 97 | 51 | 667 |
As of December 31, 2011, the Company had future purchase and service contractual obligations of approximately EUR 173 primarily related to acquisitions (refer to Note 19 for further details), IT development and maintenance agreements,
marketing sponsorship agreements, equipment purchase agreements, and other vendor commitments. Future payments under these arrangements are as follows:
| in EUR | 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total |
|---|---|---|---|---|---|---|---|
| Contractual obligations by year | 161 | 6 | 3 | 3 | 173 |
The Company has entered into certain guarantee contracts and standby letters of credit that total EUR 661, including those letters of credit issued under the multicurrency revolving credit facility (EUR 71). The guarantees primarily relate to government requirements for operating a temporary staffing business in certain countries and are generally renewed annually. Other guarantees relate to operating leases and credit lines. The standby letters of credit mainly relate to workers' compensation in the USA. If the Company is not able to obtain and maintain letters of credit and/or guarantees from third parties then the Company would be required to collateralise its obligations with cash. Due to the nature of these arrangements and historical experience, the Company does not expect to be required to collateralise its obligations with cash.
In the ordinary course of business, the Company is involved in various legal actions and claims, including those related to social security charges, other payroll-related charges, and various employment related matters. Although the outcome of the legal proceedings cannot be predicted with certainty, the Company believes it has adequately reserved for such matters.
The Company's Board of Directors, who is ultimately responsible for the risk management of the Company, has delegated its execution to Group management.
The risk management process is embedded into the Company's strategic and organisational context. The process is focused on managing risks as well as identifying opportunities. The Company's risk management process covers the significant risks for the Company including financial, operational, and strategic risks. All countries perform the risk management process on a regular basis and report their results to Group management. The Company's risk management activities consist of risk identification, risk assessment, risk response, and risk monitoring.
The Company's Risk Management Steering Committee supports the countries when identifying risks. The defined risk categories are divided into externally and internally driven risks. The Risk Management Steering Committee has defined 16 overarching risk categories, which can have a significant impact on the Company's results. Those key recurring risk categories are, amongst others, economic trends/situation, client attraction/retention, associate attraction/retention, employee attraction/retention, financial reporting, IT environment,
change in regulatory/legal and political environment, integration risk, and fraudulent activities. All identified risk categories have to be assessed by all countries within the Company.
The risk assessment includes the following steps: estimation of the potential risk impact on the financial results, assessment of the likelihood of the risk occurrence, assessment of the effectiveness of existing internal controls, and development of action plans needed to mitigate the risk to an acceptable level.
The risk assessment is aligned with the Company's decentralised organisational structure. The countries report to Group management a comprehensive risk assessment, including mitigating actions. At the Group management level, the individual country results are reviewed and discussed with the countries before being categorised and consolidated. Risk monitoring is performed at Group level on a regular basis.
The financial reporting risk includes the failure to comply with external reporting requirements due to failure of internal controls and lack of knowledge of financial reporting requirements relating to accounting and reporting. The Company has implemented a Group Policy environment as well as an Internal Control System in order to mitigate the risk of failure to comply with financial reporting requirements. The Company's Internal Control System is designed to provide reasonable assurance to the Company's management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of its published consolidated financial statements.
The financial market risk primarily relates to foreign exchange, interest rates, and equity market risk and is further discussed in Note 11. Except for the equity market risk, these exposures are actively managed by the Company in accordance with written policies approved by the Board of Directors. The Company's objective is to minimise, where deemed appropriate, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. It is the Company's policy to use a variety of derivative financial instruments to hedge these exposures in the absence of natural hedges.
The Company concluded that the risk management process has worked properly throughout 2011.
In January 2012, the Company acquired all outstanding common shares of VSN Inc ("VSN"), a leading provider of professional staffing services in Japan, for an enterprise value of EUR 90 1 . The purchase price was funded with internal resources. VSN was consolidated by the Company as of January 6, 2012, and the results of VSN's operations have been included in the consolidated financial statements since January 2012.
On February 8, 2012, Adecco S.A. issued CHF 350 unsubordinated fixed rate notes due February 8, 2016. The 4-year notes were issued within the framework of the Euro Medium-Term Note Programme and trade on the SIX Swiss Stock Exchange. The proceeds will be used for general corporate purposes. Interest is paid on the fixed rate notes annually in arrears at a fixed annual rate of 2.125%.
On March 1, 2012, the Company announced that in order to further strengthen the Group's position in France and to ensure sustainable profitability, the Company is informing and consulting the French Works Councils on its plans to unite the networks of Adecco and Adia under the Adecco brand. Combining the expertise of both general staffing businesses under a single roof would facilitate an even better offering for clients, candidates, and colleagues. At the same time, the cost base would be further optimised through the planned reduction of over 500 full-time equivalent ("FTE") employees and further branch network and shared service centre consolidation. The Company expects to invest approximately EUR 45, the majority of which would be incurred during the second half of 2012.
The Company has evaluated subsequent events through March 13, 2012, the date the financial statements were available to be issued. No other significant events occurred subsequent to the balance sheet date but prior to March 13, 2012 that would have a material impact on the consolidated financial statements.
1 Based on an exchange rate of 101.36 JPY/EUR.
As statutory auditor, we have audited the accompanying consolidated financial statements of Adecco S.A. and subsidiaries, which comprise the consolidated balance sheets as of 31 December 2011 and 2010, and the related consolidated statements of operations, cash flows, changes in shareholders' equity, and notes thereto, for each of the three years in the period ended 31 December 2011.
The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Swiss law, Swiss Auditing Standards and auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated financial statements, referred to above, present fairly, in all material respects, the consolidated financial position of Adecco S.A. as of 31 December 2011 and 2010, and the consolidated results of the operations and the cash flows for each of the three years in the period ended 31 December 2011, in accordance with accounting principles generally accepted in the United States and comply with Swiss law.
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
Ernst & Young Ltd
Robin Errico Thomas Stenz (Auditor in charge)
Zurich, Switzerland 13 March 2012
Licensed audit expert Licensed audit expert
in millions, except share and per share information and compensation table data
| As of (in CHF) | 31.12.2011 | 31.12.2010 |
|---|---|---|
| Assets | ||
| Current assets: | ||
| • Cash and cash equivalents | 45 | 18 |
| • Receivables from subsidiaries | 52 | 85 |
| • Accrued income, prepaid expenses, and withholding taxes | 19 | 28 |
| Total current assets | 116 | 131 |
| Non-current assets: | ||
| • Investments in subsidiaries | 10,323 | 10,206 |
| • Loans to subsidiaries | 3,236 | 3,036 |
| • Provisions on investments in and loans to subsidiaries | (843) | (618) |
| • Treasury shares | 912 | 874 |
| • Intangible assets | 135 | 137 |
| • Other assets | 11 | 10 |
| Total non-current assets | 13,774 | 13,645 |
| Total assets | 13,890 | 13,776 |
| Liabilities and shareholders' equity | ||
| Liabilities | ||
| Current liabilities: | ||
| • Amounts due to subsidiaries | 224 | 246 |
| • Short-term liabilities to related parties | 92 | 61 |
| • Other current liabilities | 62 | 76 |
| Total current liabilities | 378 | 383 |
| Non-current liabilities: | ||
| • Long-term debt to subsidiaries | 5,945 | 5,411 |
| • Long-term liabilities to related parties | 900 | 987 |
| • Provisions and non-current liabilities | 21 | 16 |
| Total non-current liabilities | 6,866 | 6,414 |
| Total liabilities | 7,244 | 6,797 |
| Shareholders' equity | ||
| Share capital | 189 | 189 |
| General reserves: | ||
| • Reserve from capital contributions | 1,505 | 1,696 |
| • Other reserves | 407 | 407 |
| Reserve for treasury shares | 1,092 | 874 |
| Retained earnings | 3,453 | 3,813 |
| Total shareholders' equity | 6,646 | 6,979 |
| Total liabilities and shareholders' equity | 13,890 | 13,776 |
Certain reclassifications have been made to prior year amounts and balances to conform to the current year presentation.
in millions, except share and per share information and compensation table data
| For the fiscal years ended December 31 (in CHF) | 2011 | 2010 |
|---|---|---|
| Operating income | ||
| Royalties and license fees | 396 | 430 |
| Dividends from subsidiaries | 142 | 23 |
| Release of provisions on loans and investments, net | 37 | |
| Interest income from subsidiaries | 126 | 88 |
| Interest income from third parties | 14 | 15 |
| Financial income | 58 | |
| Other income | 17 | 14 |
| Total operating income | 695 | 665 |
| Operating expenses | ||
| Interest expense to subsidiaries | (255) | (264) |
| Interest expense to related parties | (2) | (3) |
| Interest expense to third parties | (4) | (2) |
| Charge to provisions on loans and investments, net | (230) | |
| Taxes | (5) | (10) |
| Financial expense | (236) | (164) |
| Other expenses (including depreciation of CHF 3 in both 2011 and 2010) | (105) | (118) |
| Merger loss and loss on sale of investments | (38) | |
| Total operating expenses | (837) | (599) |
| Net income/(loss) | (142) | 66 |
in millions, except share and per share information and compensation table data
| in CHF | 31.12.2011 | 31.12.2010 |
|---|---|---|
| Guarantees | 2,273 | 2,096 |
| Letters of comfort | 105 | 93 |
| Other | 11 | 11 |
| Total contingent liabilities | 2,389 | 2,200 |
Adecco S.A. has irrevocably and unconditionally guaranteed the 7-year Euro medium-term notes of CHF 608 (EUR 500) due 2018 and accrued interest of CHF 21, the 5-year Euro mediumterm notes of CHF 433 (EUR 356) due 2014 and accrued interest of CHF 22, and the fixed rate notes of CHF 406 (EUR 333) due 2013 and accrued interest of CHF 13 issued by Adecco International Financial Services BV,awholly owned subsidiary of Adecco S.A.
Adecco S.A. has irrevocably and unconditionally guaranteed outstanding commercial paper of CHF 177 (EUR 145) issued by Adecco International Financial Services BV,awholly owned subsidiary of Adecco S.A.
Adecco S.A. has guaranteed or co-issued an amount of CHF 96 utilised from the revolving credit facility in the form of letters of credit as of December 31, 2011. Approximately CHF 501 of the credit facilities issued to several subsidiaries in Europe, North America, South America, Asia, and Australia have been guaranteed. Additionally, Adecco S.A. has provided guarantees and letters of comfort amounting to CHF 101 relating to government requirements for operating a temporary staffing business and to operating leases of its subsidiaries mainly in the USA.
Adecco S.A. is jointly and severally liable for the liabilities of the Swiss VAT group. As of December 31, 2011, the Swiss VAT group liability amounted to CHF 11.
Long-term liabilities to related parties include a consideration of CHF 900 received for the prepaid forward sale of Adecco S.A. shares ("prepaid forward") in November 2009 in connection with the Senior Secured Limited Recourse Mandatory Convertible Bonds ("MCB") issued by Adecco Investment (Bermuda) Ltd ("Adecco Investment"), a wholly owned subsidiary of Adecco S.A. which is not consolidated in the consolidated financial statements of the Adecco Group (refer to Note 1 and Note 8 to the consolidated financial statements).
As of December 31, 2011, the maximum number of shares to be delivered at any time until November 26, 2012 amounts to 18,386,108 (17,821,782 shares at issuance). The number of shares is adjusted for dividends paid between issuance and conversion. Adecco S.A. is allowed to deliver treasury shares held at the time of exercise instead of issuing new shares of Adecco S.A. out of the approved conditional capital. In both 2011 and 2010, Adecco S.A. recorded expenses of CHF 5, relating to the amortisation of capitalised costs incurred in connection with the prepaid forward. There is no further impact on the statements of operations.
In addition, the short-term and the long-term liabilities to related parties include a loan payable of CHF 92, including CHF 5 representing capitalised interest on the loan from inception to the last roll-over date, to Adecco Investment. The loan carries interest rate of 3-month CHF LIBOR plus 1.5% per annum. The loan is repayable in instalments of CHF 59 and CHF 33 on June 1, 2012, and November 26, 2012, respectively.
The reserve for treasury shares held by Adecco S.A. is transferred to/from retained earnings. As of December 31, 2011 and December 31, 2010, all treasury shares held by the Adecco Group are held by Adecco S.A.
| Carrying value (in CHF millions) |
Number of shares |
Average purchase/sale price per share (in CHF) |
Highest price per share (in CHF) |
Lowest price per share (in CHF) |
|
|---|---|---|---|---|---|
| January 1, 2010 | 854 | 15,184,075 | |||
| Disposals/utilisation for option exercises | (38) | (622,595) | 60 | 60 | 56 |
| Reversal of prior years write-down | 58 | ||||
| December 31, 2010 | 874 | 14,561,480 | |||
| Purchase | 224 | 4,355,000 | 51 | 61 | 33 |
| Utilisation for stock-based compensation settlement | (6) | (101,375) | 60 | 60 | 60 |
| Write-down | (180) | ||||
| December 31, 2011 | 912 | 18,815,105 |
In 2011, Adecco S.A. acquired 4,355,000 treasury shares for a total consideration of CHF 224 (EUR 178).
As of December 31, 2011, the treasury shares are intended to be used for the settlement of the prepaid forward and the outstanding employee stock option plans and long-term incentive plan (for further details refer to Note 9 to the consolidated financial statements).
In 2011 and 2010, Adecco S.A. awarded 4,697 and 5,356 treasury shares, respectively, to the Chairman of the Board of Directors as part of his compensation package (refer to section 3.1.1 "Board of Directors' compensation and shareholding" within the Remuneration Report). In addition, in 2011, 96,506 shares were used to settle restricted share unit ("RSU") awards under the long-term incentive plan and 172 shares were used to settle stock option exercises. In December 2010, 580,624 treasury shares were used upon the exercise of call options on Adecco S.A. shares which were entered into in connection with the employee tradable stock option programme. In 2010, 33,529 shares were used to settle stock option exercises and 3,086 treasury shares were sold.
In 2011, the carrying value of treasury shares designated for the long-term incentive plan was written down by CHF 17 to the December 2011 average share price and the carrying value of the remaining treasury shares was written down by CHF 163 to the minimum strike price of the prepaid forward. In 2010, the write-down of treasury shares recorded in 2009 was reversed to the acquisition cost resulting in a gain of CHF 58.
in millions, except share and per share information and compensation table data
| General Reserves | |||||||
|---|---|---|---|---|---|---|---|
| in CHF | Share capital |
Reserve from capital contributions |
Other reserves | Free reserves | Reserve for treasury shares |
Retained earnings |
Total |
| January 1, 2011 | 189 | 1,696 | 407 | 874 | 3,813 | 6,979 | |
| Allocation from reserve from capital contribu tions to free reserves for dividend distribution Dividend distribution |
(191) | 191 (191) |
(191) | ||||
| Net movement in reserve for treasury shares | 218 | (218) | |||||
| Net loss | (142) | (142) | |||||
| December 31, 2011 | 189 1 | 1,505 | 407 | 1,092 | 3,453 | 6,646 |
1 Common shares of CHF 189,263,506 at CHF1par value.
On April 19, 2011, Adecco S.A. held its Annual General Meeting of Shareholders in Lausanne.
Conditional capital
As of December 31, 2011, Adecco S.A. had conditional capital under Art. 3quater of the Articles of Incorporation of Adecco S.A. of 15,400,000 shares, for a maximum aggregate amount of CHF 15 for issue of a maximum of 15,400,000 registered shares, which shall be fully paid by the exercise of option and conversion rights to be granted in relation to bond issues or other obligations of Adecco S.A. or affiliated companies. The shares represent conditional capital authorised without time limitation and remain available for issuance upon conversion of any financial instruments that Adecco S.A. or its subsidiaries have issued or may issue in the future.
As of December 31, 2011 and December 31, 2010, Adecco S.A. had 4,166,804 shares of conditional capital reserved for issuance of common shares to employees and members of the Board of Directors upon the exercise of stock options under Art. 3ter of the Articles of Incorporation of Adecco S.A. These shares shall be fully paid up by the exercise of options rights which the Board of Directors has granted to the employees and to the members of the Board of Directors of Adecco S.A. or of its affiliated companies. During 2011, Adecco S.A. did not issue any shares.
Pursuant to Swiss tax legislation, the reserve from capital contributions amounting to CHF 1,505 and CHF 1,696 as of December 31, 2011 and as of December 31, 2010, respectively, is presented separately within general reserves. Any dividend distribution made out of the reserve from capital contributions (or from free reserves allocated from reserves from capital contributions) after January 1, 2011 is not subject to Swiss withholding tax. Only capital contributions made after December 31, 1996 qualify for the tax exemption and are classified in the reserve from capital contributions.
In 2011, upon approval at the Annual General Meeting of Shareholders, dividends for 2010 of CHF 1.10 per share, totalling CHF 191 (EUR 149), were allocated from Adecco S.A.'s reserve from capital contributions to free reserves and subsequently distributed to shareholders. For 2011, the Board of Directors of Adecco S.A. will propose a dividend of CHF 1.80 per share outstanding for the approval of shareholders at the Annual General Meeting of Shareholders to be allocated from Adecco S.A.'s reserve from capital contributions to the free reserves and subsequently distributed to shareholders.
Adecco S.A. has only registered shares. Not all shareholders register with Adecco S.A.'s share register. The following figures are based on information from the share register as of
December 31, 2011, on shareholders' disclosures or on other information available to Adecco S.A.
35,313,579 and 34,866,019 shares in 2011 and 2010, respectively, held by a shareholder group with pooled voting rights, consisting, as notified to the Company on August 26, 2011, of Jacobs Holding AG, Zurich, Switzerland; Jacobs Stiftung, Zurich, Switzerland; Renata I. Jacobs, St. Moritz, Switzerland; Lavinia Jacobs, London, UK; Nicolas Jacobs, Kusnacht, Switzerland; Philippe Jacobs, London, UK; Nathalie Jacobs, Kusnacht, Switzerland; Christian Jacobs, Hamburg, Germany; Andreas Jacobs, Hamburg, Germany; Verein Jacobs Familienrat, Zurich, Switzerland; Sentosa Beteiligungs GmbH, Hamburg, Germany (controlled by Christian Jacobs, Hamburg, Germany); Niantic Finance AG, Zurich, Switzerland (controlled by Andreas Jacobs, Hamburg, Germany); Jacobs Venture AG, Baar, Switzerland; and Triventura AG, Baar, Switzerland.
9,403,368 shares as of February 8, 2011 held by Group Franklin Resources Inc., Ft. Lauderdale, USA, with pooled voting rights, consisting of Franklin Advisers, Inc., San Mateo, USA; Franklin Templeton Investments (Asia) Limited, Hong Kong; Franklin Templeton Investments Corp., Toronto, Canada; Franklin Templeton Investment Management Limited, Edinburgh, UK; Franklin Templeton Portfolio Advisors, San Mateo, USA; Templeton Asset Management Ltd, Hong Kong; Templeton Global Advisors Limited, Nassau, Bahamas; Templeton Investment Counsel, Ft. Lauderdale, USA.
10,163,580 shares in 2011 and 2010, held by Akila Finance S.A., Luxembourg, controlled by Philippe Foriel-Destezet, Gstaad, Switzerland.
9,394,718 shares as of March 7, 2011 held by Artisan Partners Limited Partnership, Milwaukee, USA, which is controlled by its general partner, Artisan Investment GP LLC, a limited liability company organised under the laws of the state of Delaware, USA. The sole member/partner of Artisan Investment GP LLC is Artisan Partners Holdings LP (also a limited partner of Artisan Partners Holding LP). Artisan Partners Holdings LP is the sole limited partner of Artisan Partners Limited Partnership. Artisan Partners Holdings LP is controlled by its general partner, Artisan Investment Corporation. The sole shareholder of Artisan Investment Corporation is ZFIC Inc., a corporation organised under the laws of the state of Wisconsin, USA, and with two shareholders, each owning 50% of the voting stock of ZFIC Inc., i.e. Andrew A. Ziegler and Carlene M. Ziegler (c/o Artisan Partners Limited Partnership, Milwaukee, USA).
9,660,727 shares as of May 11, 2011, and 9,309,349 shares as of December 3, 2010, held by Harris Associates L.P., Chicago, USA.
Refer to Note 3 for details on shares held by Adecco S.A.
For further detailed information, refer to the links listed under item 1.2 "Significant shareholders" of the Corporate Governance Report.
Adecco S.A. may only pay dividends from unappropriated available earnings, the general reserves, or other reserves distributable in accordance with Art. 675 of the Swiss Code of Obligations.
Companies whose principal purpose consists of participations in other companies may freely use the general reserves to the extent they exceed 20% of the paid-in share capital. Pursuant to Art. 671 para. 1 of the Swiss Code of Obligations, 5% of the annual profits shall be allocated to the general reserves until they have reached 20% of the paid-in share capital. In addition, pursuant to Art. 671 para. 2 and para. 4 of the Swiss Code of Obligations, companies whose principal purpose consists of participations in other companies shall allocate to the general reserves the following: (1) any surplus over par value upon the issue of new shares after deduction of the issue cost, to the extent such surplus is not used for depreciation or welfare purposes; (2) the excess of the amount which was paid-in on cancelled shares over any reduction on the issue price of replacement shares. The general reserves amounted to CHF 1,912 and CHF 2,103 as of December 31, 2011 and December 31, 2010, respectively, thereby exceeding 20% of the paid-in share capital in both years.
The amounts indicated in this paragraph include honorariums (fees), salaries, loans, bonuses, and compensation in kind (according to market value at time of conferral). The members of the Board of Directors are compensated in cash. The Chairman is partially compensated with Adecco S.A. shares. The amount conferred to the members of the Board of Directors
in millions, except share and per share information and compensation table data
for the fiscal year 2011 amounted to CHF 5.0. The total of all compensation conferred for the fiscal year 2011 to all members of the Executive Committee, including bonus payments for 2011 due in 2012, and awards granted in 2011 under the LTIP, at grant date fair value, amounted to CHF 26.0. Not included are bonus payments due for 2010 but made during 2011 as this information was disclosed in 2010.
Further information on the compensation of the Board of Directors and the Executive Committee of the Adecco Group can be found in the Remuneration Report.
Individual compensation and shareholding for 2011 and 2010 are presented in the following tables:
For the year 2011
| Social contributions 1 |
||||
|---|---|---|---|---|
| in CHF (except shares) | Office/ compensation period in 2011 |
Net compensation for term served |
Old age insurance/ pensions and others |
Shareholding as of December 31, 2011 2 |
| Name and function | ||||
| Rolf Dörig, Chairman | since Jan. 2011 | 1,800,0003 | 237,123 | 35,000 |
| Thomas O'Neill, Vice-Chairman | since Jan. 2011 | 427,690 | 53,061 | 6,000 |
| Jakob Baer | since Jan. 2011 | 320,984 | 39,282 | 5,101 |
| Alexander Gut | since Jan. 2011 | 377,069 | 53,656 | 11,940 |
| Andreas Jacobs | since Jan. 2011 | 450,000 | 714,915 4 | |
| Didier Lamouche | since Apr. 2011 | 211,781 | 30,823 | |
| Francis Mer | until Apr. 2011 | 107,571 | 11,722 | n.a. |
| David Prince | since Jan. 2011 | 290,002 | 9,998 | 5,539 |
| Wanda Rapaczynski | since Jan. 2011 | 400,000 | 7,700 | |
| Judith A. Sprieser | until Apr. 2011 | 100,000 | 100,000 | n.a. |
| Subtotal | 4,485,097 | 535,665 | ||
| Total | 5,020,762 | 786,195 |
1 Including Directors' and Company's social contributions.
2 Indicating the number of registered shares held, withapar value of CHF1each. The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities of Adecco S.A.
3 CHF 300,000 of the total net compensation was paid with Adecco S.A. shares.
4 Refer to Corporate Governance Report, section 1.2 "Significant shareholders" and Note 5 regarding shares held by a group of which Andreas Jacobs is a member. One or more members of this same group, considered as related party/parties to Andreas Jacobs, as of December 31, 2011, held equity related securities of Adecco S.A. according to notified managemet transactions.
| Social contributions 1 |
||||
|---|---|---|---|---|
| in CHF (except shares) | Office/ compensation period in 2010 |
Net compensation for term served |
Old age insurance/ pensions and others |
Shareholding as of December 31, 20102 |
| Name and function | ||||
| Rolf Dörig, Chairman | since Jan. 2010 | 1,800,0003 | 246,088 | 30,000 |
| Thomas O'Neill, Vice-Chairman | since Jan. 2010 | 427,596 | 52,760 | 2,000 |
| Jakob Baer | since Jan. 2010 | 428,123 | 51,630 | 4,601 |
| Alexander Gut | since May 2010 | 189,095 | 25,446 | 840 |
| Andreas Jacobs | since Jan. 2010 | 450,000 | 714,9154 | |
| Francis Mer | since Jan. 2010 | 428,123 | 51,630 | |
| David Prince | since Jan. 2010 | 297,000 | 3,000 | 2,416 |
| Wanda Rapaczynski | since Jan. 2010 | 300,000 | 2,000 | |
| Judith A. Sprieser | since Jan. 2010 | 300,000 | 2,000 | |
| Subtotal | 4,619,937 | 430,554 | ||
| Total | 5,050,491 | 758,772 |
1 Including Directors' and Company's social contributions.
2 Indicating the number of registered shares held, withapar value of CHF1each. The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities of Adecco S.A.
3 CHF 300,000 of the total net compensation was paid with Adecco S.A. shares.
4 Refer to Corporate Governance Report, section 1.2 "Significant shareholders" and Note 5 regarding shares held by a group of which Andreas Jacobs is a member.
in millions, except share and per share information and compensation table data
| in CHF | Patrick De Maeseneire, CEO1 | Total Executive Committee 2 |
|---|---|---|
| Gross cash compensation 3 : |
||
| • Base salary | 1,800,263 | 9,214,661 |
| • Annual bonus | 1,620,000 | 6,131,195 |
| Compensation in kind 4 | 120,000 | 1,137,987 |
| Social contributions 5 : |
||
| • Old age insurance/pensions and others | 332,160 | 2,354,279 |
| • Additional health/accident insurance | 38,114 | 117,014 |
| Other cash payments, including severance payments | 1,883,245 | |
| Total conferred | 3,910,537 | 20,838,381 |
| Share awards granted in 2011 under the long-term incentive plan (LTIP) 6 : |
||
| • RSU awards | 1,213,242 | 4,194,197 |
| • Relative TSR awards | 130,987 | 452,850 |
| • Absolute TSR awards | 87,246 | 301,625 |
| • Additional TSR awards | 58,776 | 203,200 |
| Social contributions on awards, estimated 5 | 49,237 |
1 Highest conferred individual compensation in 2011.
2 In 2011, the Executive Committee consisted of Patrick De Maeseneire, Dominik de Daniel, Alain Dehaze, Theron I (Tig) Gilliam Jr., Peter Searle, Andreas Dinges, Mark Du Ree, Federico Vione, Enrique Sanchez, Sergio Picarelli, and Christian Vasino (all since January 2011), Martín Alonso (since August 2011), and François Davy (until June 2011). Notice periods of up to 12 months apply. For one member of the Executive Committee, severance payments of approximately CHF 0.9 million would be due in case of termination of the employment contract by the employer. For certain members of the Executive Committee, based on mandatory local law, severance payments may become due in case of termination.
3 Including employee's social contributions.
4 Car allowance for private use, car lease financed by the Company, membership fees, housing allowance, relocation, education, health insurance, representation allowance. Includes tax equalisation payments to a member of the Executive Committee, partly refundable to the Company in the future.
5 Employer's social contributions.
• Included are the awards granted to François Davy in 2011. Not included are the awards granted to Martín Alonso in 2011 in his function before he became a member of the Executive Committee.
| in CHF | Patrick De Maeseneire, CEO1 | Total Executive Committee 2 |
|---|---|---|
| Gross cash compensation 3 : |
||
| • Base salary | 1,800,000 | 9,631,381 |
| • Annual bonus | 2,160,000 | 8,649,131 |
| Compensation in kind 4 | 120,000 | 1,217,944 |
| Social contributions 5 : |
||
| • Old age insurance/pensions and others | 351,416 | 2,087,315 |
| • Additional health/accident insurance | 36,841 | 80,228 |
| Total conferred | 4,468,257 | 21,665,999 |
| Share awards granted in 2010 under the long-term incentive plan (LTIP) 6 : |
||
| • RSU awards | 1,425,770 | 5,069,246 |
| • Relative TSR awards | 155,863 | 554,169 |
| • Absolute TSR awards | 95,167 | 338,388 |
| • Additional TSR awards | 57,586 | 204,746 |
| Social contributions on awards, estimated 5 | 48,550 | |
| Total conferred including LTIP | 6,202,643 | 27,881,098 |
1 Highest conferred individual compensation in 2010.
3 Including employee's social contributions.
4 Car allowance for private use, car lease financed by the Company, membership fees, housing allowance, relocation, education, health insurance, representation allowance. Includes tax equalisation payments to a member of the Executive Committee, partly refundable to the Company in the future.
5 Employer's social contributions.
6 Value in CHF of Adecco S.A. shares awarded in 2010 under the LTIP 2010 (grant date: March 16, 2010).
Valuation of the share awards granted:
• The per-share value of awards granted in 2010 amounts to CHF 50.55 and CHF 56.79 for RSU awards, CHF 20.52 and CHF 23.06 for relative TSR awards, CHF 12.54 and CHF 14.08 for absolute TSR awards, and CHF 7.58 and CHF 8.52 for additional TSR awards (lower values: French participants).
2 In 2010, the Executive Committee consisted for the full year of Patrick De Maeseneire, Dominik de Daniel, François Davy, Theron I (Tig) Gilliam Jr., Peter Searle, Andreas Dinges, Mark Du Ree, Alain Dehaze, Federico Vione, Enrique Sanchez, Sergio Picarelli, and Christian Vasino. Notice periods of up to 12 months apply. For two members of the Executive Committee, severance payments of approximately CHF 1.9 million (including bonus entitlement) and CHF 0.9 million, respectively, would be due in case of termination of the employment contract by the employer.
in millions, except share and per share information and compensation table data
For 2011, the variable portion of cash compensation (annual bonus) to the CEO amounted to 90% and for the other members of the Executive Committee ranged between 24% and 90% of the base salary. The variable portion of compensation consisting of share awards (including RSU awards; at values as indicated in the previous table) to the CEO amounted to 83% and for the other members of the Executive Committee ranged between 32% and 69% of the base salary. The CEO has reached 90% of the STIP bonus base, and the other members of the Executive Committee have reached between 32% and 128% of the STIP bonus base.
No compensation payments were made to other former members of Governing Bodies in relation to their former offices.
In 2011, no Adecco S.A. shares were allocated to current or former members of Governing Bodies, except for part of the Chairman's compensation paid with Adecco S.A. shares (refer to compensation table on page 114).
As of December 31, 2011, the members of the Board of Directors, including parties closely linked, reported to hold 786,195 shares; not included are the shares held by a group of which Andreas Jacobs is a member (refer to Note 5 and section 1.2 "Significant shareholders" of the Corporate Governance Report). For the individual share ownerships of the Board of Directors, refer to the table "Board of Directors' compensation and shareholding" and section 1.2 "Significant shareholders" of the Corporate Governance Report.
The members of the Executive Committee, including parties closely linked, reported share ownership as indicated in the following table:
| Share ownership as of December 311 |
Patrick De Maese neire |
Dominik de Daniel |
Alain Dehaze |
Theron I (Tig) Gilliam Jr. |
Peter Searle |
Andreas Dinges |
Mark Du Ree |
Martín Alonso 2 |
Federico Vione |
Sergio Picarelli |
Christian Vasino |
François Davy 3 |
Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 8,959 | 32,873 | 1,366 | 1,364 | 910 | 1,434 | 50 | 867 | 1,024 | 3,358 | 2,962 | 100 | 55,267 |
| 2010 | 590 | 29,978 | 50 | n.a. | 1,050 | 1,000 | 100 | 32,768 |
1 Indicating the number of registered shares held, withapar value of CHF1each.
2 Became a member of the Executive Committee in 2011.
3 Ceased to be a member of the Executive Committee in 2011, shareholding indicated as per date of departure.
The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities in accordance with the requirements of the SIX Swiss Exchange.
Stock options outstanding, as granted since the merger of Adia and Ecco in 1996, exercised by, lapsed from, and held by the members of Governing Bodies in office as of December 31, 2011 and as of December 31, 2010, are presented in the following tables (no stock options were granted since 2004):
| Last year of expiry detail | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Year of grant | Martín Alonso |
Federico Vione |
Christian Vasino |
Strike price (CHF) |
Granted | Exercised | Lapsed | Held by Martín Alonso |
Held by Federico Vione |
Held by Christian Vasino |
| Stock options held | ||||||||||
| 2003 | 2012 | 2012 | 2012 | 78.50 | 36,500 | 3,200 | 26,000 | 6,000 | 800 | 500 |
As of December 31, 2010
| Last year of expiry detail | ||||||||
|---|---|---|---|---|---|---|---|---|
| Year of grant | Federico Vione |
Christian Vasino |
Strike price (CHF) |
Granted | Exercised | Lapsed | Held by Federico Vione |
Held by Christian Vasino |
| Stock options held 2003 |
2012 | 2012 | 78.50 | 6,500 | 3,200 | 1,500 | 800 | 1,000 |
One option entitles the holder to purchase one Adecco S.A. share under the conditions as outlined in the respective plan.
Options shown as "held" in the tables above are included as part of the total options outstanding presented in the table appearing in the Corporate Governance Report, section 2.7 "Convertible notes and options" and Note 9 to the consolidated financial statements.
For additional information on stock options, refer to the Corporate Governance Report, section 2.7 "Convertible notes and options".
in millions, except share and per share information and compensation table data
Awards granted 2011
Share awards held as of December 31, 2011 granted on March 16, 2011 under the LTIP:
| December 31, 2011 | RSU awards | TSR awards 1 | Total |
|---|---|---|---|
| Patrick De Maeseneire | 21,983 | 17,757 | 39,740 |
| Total Executive Committee | 72,536 | 56,967 | 129,503 |
Share awards held as of December 31, 2011 and December 31, 2010 granted on March 16, 2010 under the LTIP:
| December 31, 2011 | RSU awards | TSR awards 1 | Total |
|---|---|---|---|
| Patrick De Maeseneire | 16,737 | 20,277 | 37,014 |
| Total Executive Committee | 56,528 | 66,390 | 122,918 |
| December 31, 2010 | RSU awards | TSR awards 1 | Total |
| Patrick De Maeseneire | 25,106 | 20,277 | 45,383 |
| Total Executive Committee | 90,135 | 72,801 | 162,936 |
Share awards held as of December 31, 2011 and as of December 31, 2010 granted on March 16, 2009, and April 1, 2009 under the LTIP:
| December 31, 2011 | EPS awards 2 | TSR awards | Total |
|---|---|---|---|
| Patrick De Maeseneire 3 | 22,500 | 22,500 | 45,000 |
| Total Executive Committee | 70,042 | 109,137 | 179,179 |
| December 31, 2010 | EPS awards 2 | TSR awards | Total |
| Patrick De Maeseneire 3 | 22,500 | 22,500 | 45,000 |
| Total Executive Committee | 80,912 | 128,945 | 209,857 |
1 Split into relative TSR, absolute TSR, and additional TSR awards (one third each).
2 For EPS awards refer to the description of the long-term incentive plan for the awards granted in 2009 as described on pages 189 and 190 of the Annual Report 2009.
3 Special conditions: grant date April 1, 2009, vesting of 58% of the awards granted is guaranteed, subject to continued employment.
No member of the Board of Directors has received any additional honorariums in 2011.
In 2011, the Company did not grant any guarantees, loans, advances or credits to members of the Board of Directors or to members of the Executive Committee, including closely linked parties.
The detailed disclosure regarding risk management required by Swiss law is included in Note 18 to the consolidated financial statements.
On February 8, 2012, Adecco S.A. issued CHF 350 unsubordinated fixed rate notes due February 8, 2016. The 4-year notes were issued within the framework of the Euro Medium-Term Note Programme and trade on the SIX Swiss Stock Exchange. The proceeds will be used for general corporate purposes. Interest is paid on the fixed rate notes annually in arrears at a fixed annual rate of 2.125%.
in millions, except share and per share information
| in CHF | 2011 | 2010 |
|---|---|---|
| Available earnings | ||
| Available earnings of previous years | 3,813 | 3,840 |
| Net income/(loss) | (142) | 66 |
| Net movement in reserve for treasury shares | (218) | 38 |
| Dividend distribution for 2009 | (131) | |
| Total available earnings to be carried forward | 3,453 | 3,813 |
| in CHF | 2011 | 2010 |
|---|---|---|
| General reserve from capital contributions |
||
| General reserve from capital contributions of previous years | 1,505 | 1,696 |
| Dividend distribution of CHF 1.10 per share for 2010 | (191) | |
| Proposed allocation from reserve from capital contributions to free reserves and proposed dividend distribution of CHF 1.80 per share for 2011 |
(307) 1 | |
| Balance to be carried forward | 1,198 | 1,505 |
1 This represents the amount of dividends payable based on the total number of outstanding shares (excluding treasury shares) of 170,448,401 as of December 31, 2011.
As statutory auditor, we have audited the accompanying financial statements of Adecco S.A., which comprise the balance sheet, statement of operations and notes, for the year ended 31 December 2011.
The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company's articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the financial statements for the year ended 31 December 2011 comply with Swiss law and the company's articles of incorporation.
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.
We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company's articles of incorporation. We recommend that the financial statements submitted to you be approved.
Ernst & Young Ltd
Robin Errico Thomas Stenz (Auditor in charge)
Zurich, Switzerland 13 March 2012
Licensed audit expert Licensed audit expert
| Name of legal entity | Country | Registered seat of legal entity |
Ownership | Type 1 | Currency of share capital |
Share capital in thousands |
|---|---|---|---|---|---|---|
| Adecco Argentina S.A. | Argentina | Buenos Aires | 100% | O | ARS | 44,526 |
| Adecco Industrial Pty Ltd | Australia | Melbourne | 100% | O | AUD | 5 |
| Adecco Coordination Center NV | Belgium | Brussels | 100% | F | EUR | 1,332,468 |
| Adecco Personnel Services NV | Belgium | Brussels | 100% | O | EUR | 16,651 |
| Adecco Financial Services (Bermuda) Ltd | Bermuda | Hamilton | 100% | F | USD | 12 |
| Secad Ltd | Bermuda | Hamilton | 100% | H | CHF | 44 |
| Adecco Employment Services Limited | Canada | Toronto, Ontario | 100% | H/O | CAD | 90,615 |
| Modis Canada Inc. | Canada | Toronto, Ontario | 100% | O | CAD | 18,684 |
| Adecco Holding France SASU | France | Villeurbanne | 100% | H | EUR | 601,200 |
| Adecco France SASU | France | Villeurbanne | 100% | O | EUR | 85,317 |
| Adia SASU | France | Villeurbanne | 100% | O | EUR | 83,293 |
| Adecco Medical SASU | France | Villeurbanne | 100% | O | EUR | 230 |
| Altedia SAS | France | Paris | 100% | O | EUR | 3,118 |
| Adecco Beteiligungs GmbH | Germany | Düsseldorf | 100% | H | EUR | 25 |
| Adecco Personaldienstleitungen GmbH | Germany | Düsseldorf | 100% | O | EUR | 31 |
| DIS Deutscher Industrie Service AG | Germany | Düsseldorf | 100% | O | EUR | 12,300 |
| TUJA Zeitarbeit GmbH | Germany | Ingolstadt | 100% | O | EUR | 40 |
| euro engineering AG | Germany | Ulm | 100% | O | EUR | 540 |
| Adecco India Private Limited | India | Bangalore | 100% | O | INR | 20,903 |
| Adecco Italia SpA | Italy | Milan | 100% | O | EUR | 2,976 |
| Adecco Ltd | Japan | Tokyo | 100% | O | JPY | 5,562,863 |
| Ecco Servicios de Personal SA de CV | Mexico | Mexico City | 100% | H/O | MXN | 101,854 |
| Adecco International Financial Services BV | Netherlands | Utrecht | 100% | F | EUR | 2,500 |
| Adecco Holding Europe BV | Netherlands | Utrecht | 100% | H | EUR | 18,807 |
| Adecco Personeelsdiensten BV | Netherlands | Utrecht | 100% | O | EUR | 227 |
| Adecco Detachering BV | Netherlands | Utrecht | 100% | O | EUR | 18 |
| Adecco Norge AS | Norway | Oslo | 100% | O | NOK | 51,000 |
| Adecco TT SA Empresa de Trabajo Temporal | Spain | Madrid | 100% | O | EUR | 1,759 |
| Eurocén Europea de Contratas S.A. | Spain | Madrid | 100% | O | EUR | 661 |
| Adecco Sweden AB | Sweden | Stockholm | 100% | O | SEK | 3,038 |
| Adecco S.A. | Switzerland | Chéserex | H | CHF | 189,264 | |
| Adecco management & consulting S.A. | Switzerland | Lausanne | 100% | S | CHF | 500 |
| Adecco Invest S.A. | Switzerland | Lucerne | 100% | H | CHF | 100 |
| Adecco Ressources Humaines S.A. | Switzerland | Lausanne | 100% | O | CHF | 7,000 |
| Spring Group Plc | United Kingdom | London | 100% | O | GBP | <1 |
| Adecco UK Ltd | United Kingdom | Borehamwood | 100% | O | GBP | 99,600 |
| Ajilon (UK) Ltd | United Kingdom | Borehamwood | 100% | O | GBP | 10 |
| Office Angels Ltd | United Kingdom | Borehamwood | 100% | O | GBP | 2,657 |
| Olsten (U.K.) Holdings Ltd | United Kingdom | London | 100% | H | GBP | 4,213 |
| Modis Europe Limited | United Kingdom | London | 100% | H | GBP | 206 |
| Badenoch and Clark Limited | United Kingdom | London | 100% | O | GBP | 3,878 |
| Hy-phen.com Ltd | United Kingdom | London | 100% | O | GBP | 2,574 |
| Adecco, Inc | United States | Wilmington, DE | 100% | H | USD | <1 |
| Adecco USA, Inc | United States | Wilmington, DE | 100% | O | USD | <1 |
| Entegee, Inc | United States | Burlington, MA | 100% | O | USD | <1 |
| Accounting Principals, Inc | United States | Jacksonville, FL | 100% | O | USD | <1 |
| Lee Hecht Harrison LLC | United States | Wilmington, DE | 100% | O | USD | n/a 2 |
| Modis, Inc | United States | Jacksonville, FL | 100% | O | USD | <1 |
| MPS Group, Inc | United States | Jacksonville, FL | 100% | O | USD | <1 |
| Drake Beam Morin, Inc | United States | Wilmington, DE | 100% | O | USD | <1 |
1 H – Holding; O–Operating; S–Services; F–Financial.
2 Subsidiary is registered as a Limited Liability Company ("LLC"). No shares have been issued as LLCs have membership interests rather than shares.
This Corporate Governance disclosure reflects the requirements of the Directive on Information Relating to Corporate Governance, issued by the SIX Swiss Exchange as amended on October 29, 2008. The principles and the more detailed rules of Adecco S.A.'s Corporate Governance are defined in Adecco S.A.'s Articles of Incorporation, its Internal Policies and Organisational Rules, and in the Charters of the Committees of the Board of Directors. Adecco S.A.'s principles take into account the recommendations set out in the Swiss Code of Best Practice for Corporate Governance as amended on September 6, 2007.
Statements throughout this Corporate Governance disclosure using the term "the Company" refer to the Adecco Group, which comprises Adecco S.A., a Swiss corporation, its consolidated subsidiaries, as well as variable interest entities for which Adecco is considered the primary beneficiary.
Corporate Governance information is presented as of December 31, unless indicated otherwise, as the statutory fiscal year of Adecco S.A. is the calendar year.
The Corporate Governance information included in this report is presented in Euro, except for information on shares, share capital, and dividends, which is provided in Swiss Francs. Income, expenses, and cash flows are translated using average exchange rates for the period, or at transaction exchange rates, and assets and liabilities are translated using the year end exchange rates.
Adecco S.A. is a stock corporation (société anonyme) organised under the laws of Switzerland with its registered office at Chéserex, Switzerland. The Company's principal corporate office is the office of its management company, Adecco management & consulting S.A., at Sägereistrasse 10, Glattbrugg, Switzerland.
Adecco S.A. is listed on the SIX Swiss Exchange (symbol ADEN, security number 1213860; ISIN CH0012138605). As of December 31, 2011, the market capitalisation of Adecco S.A., based on the number of shares issued, including treasury shares, and the closing price of shares on the SIX Swiss Exchange amounted to approximately CHF 7.4 billion. On March 1, 2012, this market capitalisation amounted to approximately CHF 9.3 billion.
The Company is the world's leading provider of human resource solutions including temporary staffing, permanent placement, outsourcing, career transition (outplacement), and other services.
Since January 1, 2011, the Company is organised in a geographical structure plus the global business Lee Hecht Harrison ("LHH"). This structure is complemented by business lines. The geographies consist of France, North America, UK & Ireland, Japan, Germany & Austria, Benelux, Italy, Nordics, Iberia, Australia & New Zealand, Switzerland, and Emerging Markets. The business lines consist of Office, Industrial, Information Technology, Engineering & Technical, Finance & Legal, Medical & Science, and Solutions. The classification of a specific branch into a business line is determined by the business line generating the largest revenue share in that specific branch.
The Company provides services to businesses and organisations located throughout Europe, North America, Asia Pacific, South America, and Africa.
As of January 1, 2012, the Company's Executive Committee was composed as follows:
The Company comprises numerous legal entities around the world. The major consolidated subsidiaries are listed on page 126 of this Annual Report. No subsidiary has shares listed on a stock exchange; however,awholly owned subsidiary which is not consolidated has issued mandatory convertible bonds, as further described in section 2.7 "Convertible notes and options".
As of December 31, 2011, the total number of shareholders directly registered with Adecco S.A. was 18,716. The major shareholders and their shareholdings were disclosed to the Company as listed in the following table. The table lists the significant shareholders highlighted in bold letters and their latest disclosures regarding their percentage of voting rights.
Please note that percentages of shareholdings refer to the date of disclosure unless indicated otherwise and may have changed in the meantime.
For further details pertaining to the below listed disclosures refer to Internet: http://www.six-swiss-exchange.com/shares/ companies/major_shareholders_de.html?fromDate=19980101 &issuer=1432 and http://www.adecco.com/InvestorRelations/ CorporateGovernance/Pages/DisclosureOfShareholding.aspx or http://ir.adecco.com.
| Date of Adecco | Percentage of voting | |
|---|---|---|
| Investor | publication | rights as disclosed |
| Adecco S.A. | 20.11.2009 | 8.86% purchase positions of which 8.02% equity, 14.75% sale positions 1 |
| Akila Finance S.A. | 09.12.2005 | 5.44% equity 2 |
| Artisan | 11.03.2011 | 4.96% equity 2 |
| 07.03.2011 | 5.01% equity | |
| 23.02.2011 | 4.99% equity | |
| 23.02.2011 | 5.01% equity | |
| Group BlackRock Inc. | 19.05.2011 | Falling below threshold of 3% |
| Franklin Resources Inc. | 10.02.2011 | 4.97% equity 2 |
| 27.01.2011 | 5.37% equity | |
| Harris Associates L.P. | 13.05.2011 | 5.10% equity 2 |
| Jacobs Group | 30.08.2011 | 18.97% purchase positions of which 18.74% equity 2 |
| 29.04.2011 | 18.33% equity | |
| Och Ziff Group | 20.12.2010 | 3.04% purchase positions |
| Sonata Securities S.A. | 13.01.2011 | Falling below threshold of 3% |
1 For information on treasury shares held by Adecco S.A. as of December 31, 2011, refer to Note 3 to Adecco S.A. (Holding Company) financial statements. 2 For the shareholding in 2011 refer to Note 5 to Adecco S.A. (Holding Company) financial statements.
As of December 31, 2011, Adecco S.A. is not aware of any person or legal entity, other than those stated above, that directly or indirectly owned 3% or more of voting rights in Adecco S.A., as defined by the Swiss disclosure requirements. Adecco S.A. is not aware of shareholders' agreements, other than those described in the above mentioned disclosures, between its shareholders pertaining to Adecco S.A. shares held.
According to Art. 20 of the Swiss Stock Exchange Act, any investor who directly, indirectly, or together with another person acquires, holds or disposes of voting rights in Adecco S.A., for his own account, and thereby attains, falls below, or exceeds the thresholds of 3, 5, 10, 15, 20, 25, 331 ⁄3, 50 or 662 ⁄3% of the voting rights, whether or not such rights may be exercised, must notify Adecco S.A. and the Disclosure Office of the SIX Swiss Exchange. Such notification must be made no later than four trading days after the obligation to disclose arises.
As of December 31, 2011, there were no cross-shareholdings exceeding 5% of a party's share capital.
As of December 31, 2011, Adecco S.A.'s share capital registered with the Commercial Register amounted to CHF 189,263,506 divided into 189,263,506 fully paid up registered shares with a nominal value of CHF 1 each.
Adecco S.A. has no authorised capital in the sense of the Swiss Code of Obligations.
The conditional capital of CHF 4,166,804 divided into 4,166,804 registered shares with a nominal value of CHF 1 each is reserved for further exercise of option rights granted to employees and members of the Board of Directors of Adecco S.A. or of its affiliated companies. The subscription rights of shareholders as well as the preferential option subscription rights of the shareholders are excluded. The exercise conditions depend on the respective underlying stock option plan; the share capital will only be increased if and when the holder of the option exercises such stock option, unless treasury shares are used.
The conditional capital of CHF 15,400,000 divided into 15,400,000 registered shares with a nominal value of CHF 1 each is reserved for the exercise of option or conversion rights granted in relation to financial instruments such as bonds or similar debt instruments of Adecco S.A. or its affiliates. The subscription rights of the shareholders regarding the subscription of the shares are excluded. The shareholders' preferential bond subscription rights in the issue of the bonds or similar debt instruments may be limited or excluded by the Board of Directors. The conditional capital is available for share issuance upon conversion of financial instruments issued or to be issued in the future (refer to section 2.7 "Convertible notes and options").
For details on the terms and conditions of the issuance/creation of shares under conditional capital, refer to Art. 3ter and 3quater of the Articles of Incorporation (Internet: www.aoi.adecco.com).
Adecco S.A.'s capital structure as of the dates indicated below was as follows:
| Issued shares | Conditional capital | Reserves 1 | Retained earnings | ||||
|---|---|---|---|---|---|---|---|
| in CHF millions, except shares | Shares | Amount | Shares | Amount | Amount | Amount | |
| January 1, 2009 | 189,263,506 | 189.3 | 19,566,804 | 19.6 | 3,011 | 3,534 | |
| Changes | 4 | 306 | |||||
| December 31, 2009 | 189,263,506 | 189.3 | 19,566,804 | 19.6 | 3,015 | 3,840 | |
| Changes | (38) | (27) | |||||
| December 31, 2010 | 189,263,506 | 189.3 | 19,566,804 | 19.6 | 2,977 | 3,813 | |
| Changes | 27 | (360) | |||||
| December 31, 2011 | 189,263,506 | 189.3 | 19,566,804 | 19.6 | 3,004 | 3,453 |
1 Reserves include both the general reserves and the reserve for treasury shares.
Details of Adecco S.A. general reserves and retained earnings are included in Note 4 to Adecco S.A. (Holding Company) financial statements.
Adecco S.A. shares have a par value of CHF 1 each. All shares are fully paid registered shares and bear the same dividend and voting rights. Pursuant to Art. 7 of the Articles of Incorporation (Internet: www.aoi.adecco.com), the right to vote and all other rights associated with a registered share may only be exercised by a shareholder, usufructuary, or nominee who is registered in the share register as the shareholder, usufructuary, or nominee with right to vote.
As of December 31, 2011, there were no outstanding participation certificates.
Adecco S.A. has not issued bonus certificates ("Genussscheine").
Each Adecco S.A. share represents one vote.
Acquirers of registered shares are recorded in the share register as shareholders with the right to vote upon request, provided that they declare explicitly to have acquired the registered shares in their own name and for their own account (Art. 4 sec. 2 of the Articles of Incorporation; Internet: www.aoi. adecco.com). Upon such declaration, any person or entity will be registered with the right to vote.
The Board of Directors may register nominees with the right to vote in the share register to the extent of up to 5% of the registered share capital as set forth in the Commercial Register. Registered shares held by a nominee that exceed this limit may be registered in the share register if the nominee discloses the names, addresses, and the number of shares of the persons for whose account it holds 0.5% or more of the registered share capital as set forth in the Commercial Register. Nominees within the meaning of this provision are persons who do not explicitly declare in the request for registration to hold the shares for their own account or with whom the Board of Directors has entered into a corresponding agreement (refer to Art. 4 sec. 3 of the Articles of Incorporation; Internet: www.aoi.adecco.com). The Board of Directors may grant exemptions to this registration restriction (refer to Art. 4 sec. 6 of the Articles of Incorporation; Internet: www.aoi.adecco.com). In 2011, there were no such exemptions granted.
Corporate bodies and partnerships or other groups of persons or joint owners who are interrelated to one another through capital ownership, voting rights, uniform management, or otherwise linked as well as individuals or corporate bodies and partnerships who act together to circumvent the regulations concerning the nominees (especially as syndicates), are treated as one nominee respectively as one person within the meaning of this article (refer to Art. 4 sec. 4 of the Articles of Incorporation; Internet: www.aoi.adecco.com).
For further information regarding the procedure and conditions for cancelling statutory privileges and limitations on transferability of shares, refer to the Articles of Incorporation; Internet: www.aoi.adecco.com.
Information provided in this section is in millions, except share and per share information.
On November 26, 2009, Adecco Investment (Bermuda) Ltd. ("Adecco Investment"), a wholly owned subsidiary of the Company which is not consolidated, issued CHF 900 Senior Secured Limited Recourse Mandatory Convertible Bonds ("MCB") due on November 26, 2012. The bonds will convert at maturity into shares of Adecco S.A., or at the option of the holders or Adecco Investment, the bonds may be converted into shares of Adecco S.A. at any time 41 days after November 26, 2009 until the 30th dealing day prior to the maturity date. The number of shares to be delivered at maturity will be calculated based on the closing price of the shares of Adecco S.A. As of December 31, 2011, the minimum conversion price is CHF 48.95 per share (CHF 50.50 per share at issuance of the MCB) and the maximum conversion price is CHF 58.74 per share (CHF 60.60 per share at issuance of the MCB). The conversion prices will be adjusted for further dividend payments on the shares of Adecco S.A. during the lifetime of the MCB. As of December 31, 2011, the maximum number of shares to
be delivered is 18,386,108 (17,821,782 shares at issuance of the MCB) and the minimum number of shares to be delivered is 15,321,757 (14,851,485 shares at issuance of the MCB). If the holders or Adecco Investment exercise their conversion option prior to maturity, the conversion will occur at the maximum or the minimum conversion price, respectively. The bonds have an annual coupon of 6.5%, which can be deferred in case no dividend payment is made on the shares of Adecco S.A.
Adecco Investment entered into a prepaid forward contract ("prepaid forward") with the Company, where it originally acquired 17,821,782 shares of the Company for EUR 587 (CHF 887), net of costs. The strike price of the prepaid forward is adjusted for dividend payments on the shares of Adecco S.A. and the number of shares deliverable under the prepaid forward amounts to 18,386,108 as of December 31, 2011. Adecco Investment will receive the shares of Adecco S.A. from the Company with the settlement of the prepaid forward. The shares can be delivered out of treasury shares or conditional capital at the discretion of the Company. Adecco Investment financed the coupon payments with EUR 108 (CHF 164) from the sale of a call spread option ("call spread option") to Adecco Financial Services (Bermuda) Ltd., a wholly owned consolidated subsidiary of the Company. The call spread option gives the Company the right to benefit from appreciation of the shares underlying the prepaid forward between floor and cap defined in the agreement. The call spread option is settled in shares, reducing the net number of shares the Company has to deliver in combination with the prepaid forward. In addition, in 2009 the Company made a payment of EUR 8 (CHF 12) to Adecco Investment, which was treated as a deemed capital contribution. The number of shares underlying the prepaid forward, the call spread option, and the MCB are subject to anti-dilution provisions. The bondholders only have recourse against the prepaid forward. Subsequently, Adecco Investment granted a loan of EUR 116 (CHF 176) to the Company, of which EUR 69 (CHF 89) have been repaid by December 31, 2011.
The Company issued in the past stock option plans whereby employees and members of the Board of Directors received options to purchase shares. No stock options under these plans were granted after 2004. The purpose of the plans was to furnish incentives to selected employees and members of the Board of Directors, to encourage employees to continue employment with the Company, and to align the interests of selected employees and directors with those of the shareholders. Upon exercise of stock options, Adecco S.A. may deliver either shares from its conditional capital, of which up to 4,166,804 shares are reserved for this purpose, or from its treasury shares. The Nomination & Compensation Committee was responsible for making proposals, based upon the recommendations of the Executive Committee, to the Board of Directors regarding the individuals to whom options were granted, the size of the option grant for each optionee, the
conditions, the exercise price, and the grant date. The Board of Directors had to approve all the option grants as well as the conditions thereof. The exercise price for one share was generally fixed at or above the fair market value at the date of grant. Depending on the conditions of the plans, options vested with certain waiting periods of up to five years, and are subsequently exercisable over a number of years. All options may be exercised at any time within the exercise period except for limitations set forth in the Company Insider Trading Statement of Policy and by regulatory authorities. The Board of Directors may modify, amend, suspend, or discontinue the plans.
Summary of the status of the stock options held based on above-mentioned plans as of December 31, 2011:
| Number of shares |
Weighted average exercise price per share (in CHF) |
Weighted average remaining life (in years) |
Aggregate intrinsic value (in CHF millions) |
|
|---|---|---|---|---|
| Summary of stock option plans | ||||
| Options outstanding and vested as of January 1, 2011 | 439,559 | 76 | 1.1 | |
| Exercised | (172) | 60 | ||
| Forfeited | (6,278) | 73 | ||
| Expired | (329,969) | 76 | ||
| Options outstanding and vested as of December 31, 2011 | 103,140 | 78 | 1.0 |
The aggregate intrinsic value as of December 31, 2011 of the outstanding stock options in the table above is zero.
For further details, refer to Note 9 to the consolidated financial statements.
For information pertaining to the share awards granted under the long-term incentive plans ("LTIP"), refer to Note 7 to Adecco S.A. (Holding Company) financial statements and the Remuneration Report.
• Vice-Chairman
As of December 31, 2011, the Board of Directors of Adecco S.A. consisted of eight members.
The following sets forth the name, year of birth, entry date, terms of office, nationality, professional education, and principal positions of those individuals who served as members of the Board of Directors as of December 31, 2011:
and retail banking from 2000 onwards. In 2002, he held the position of Chairman, Switzerland. Rolf Dörig was Chief Executive Officer of the Swiss Life Group from November 2002 until May 2008, when he was elected to the Board of Directors.
• Rolf Dörig is Chairman of the Board of Directors of Swiss Life Holding AG1 , Vice-Chairman of the Board of Directors of Kaba Holding AG1 , Chairman of the Board of Directors of Danzer AG, member of the Board of Directors of Walter Frey Holding AG, all in Switzerland. Furthermore, Rolf Dörig is a member of the Board Committee of economiesuisse, Switzerland.
Andreas Jacobs has been an independent entrepreneur since 1992, with a stake in several European and North American companies. From 1991 to 1993, he worked as a consultant and project manager at Boston Consulting Group in Munich, Germany.
Chairwoman of the Corporate Governance Committee
• Member of the Corporate Governance Committee
• Member of the Nomination & Compensation Committee
• Andreas Jacobs is Executive Chairman of Jacobs Holding AG, Chairman of Barry Callebaut AG1 , Minibar AG, Jacobs Venture AG, Triventura AG, and of Niantic Finance AG, all in Switzerland. He is Chairman of Maine Chance Farms Pty Ltd., South Africa. Furthermore, he is a member of the Board of Directors of various smaller private companies.
University in Budapest, Hungary. She is a member of the International Advisory Board of The Brookings Institution, Washington, D.C., USA. She is a member of the Polish group in the Trilateral Commission.
1 Listed company.
• Member of the Audit Committee
• Chairman of the Audit Committee • Member of the Corporate Governance Committee
Monetary Fund's External Audit Committee (from January 2008 until November 2010).
Jakob Baer
• Member of the Corporate Governance Committee
Didier Lamouche
• Member of the Corporate Governance Committee
Chairman and Chief Executive Officer at Bull, a French IT group with a worldwide presence. Since January 2011, he has been Chief Operating Officer and Vice-Chairman of the Corporate Strategic Committee of STMicroelectronics 1 Switzerland. Furthermore, since December 2011, he has been President of the Executive Board and CEO of ST-Ericsson S.A., Switzerland.
• Didier Lamouche was a member of the Board of Directors of STMicroelectronics from 2006 to 2010. Didier Lamouche was a non-executive Director of the boards of various listed (Atari 1 , France) and non-listed companies (CAMECA, France), and is a member of the Board of Directors of Soitec S.A.1 , France.
1 Listed company.
Except those described in section 3.1 "Biographies of members of the Board of Directors", no permanent management/consultancy functions for significant domestic or foreign interest groups and no significant official functions or political posts are held by the members of the Board of Directors of Adecco S.A. The Board of Directors assesses the independence of its members.
As of December 31, 2011, all members of the Board of Directors were non-executive. The members of the Board of Directors do not have important business connections with Adecco S.A. or with any of its subsidiaries or affiliates.
The Company provides services in the normal course of business at arm's length terms to entities that are affiliated with certain of its officers, members of the Board of Directors, and significant shareholders through investment or Board directorship.
Section 3.3 of the Directive on Information Relating to Corporate Governance of SIX Swiss Exchange has been deleted from the Directive without replacement.
Pursuant to the Articles of Incorporation, the Board of Directors consists of five to nine members (Art. 20 sec. 1 of the Articles of Incorporation; Internet: www.aoi.adecco.com). Members of the Board of Directors are elected for a term of office of one year, until the date of the next Annual General Meeting of Shareholders, and may be re-elected for successive terms (Art. 20 sec. 2 and 3 of the Articles of Incorporation; Internet: www.aoi.adecco.com). Adecco S.A.'s Articles of Incorporation do not limit the number of terms a member may be re-elected to the Board of Directors. Candidates to be elected or reelected to the Board of Directors are proposed by the Board of Directors to the General Meeting of Shareholders.
The Board of Directors holds the ultimate decision-making authority of Adecco S.A. for all matters except those reserved by law or the Articles of Incorporation to the shareholders. It determines the overall strategy of the Company and supervises the management of the Company. The Board of Directors operates under the direction of the Chairman and the Vice-Chairman who are appointed by the Board of Directors. As of December 31, 2011, the Board of Directors is composed of eight non-executive members. The agenda of the Board of Directors' meetings is set by the Chairman. Any member of the Board of Directors may request that an item be included on the agenda. Members of the Board of Directors are provided, in advance of meetings, with adequate materials to prepare for the items on the agenda. The Board of Directors recognises the importance of being fully informed on material matters involving the Company and seeks to ensure that it has sufficient information to make appropriate decisions through, at the decision of the Chairman, inviting members of management or other individuals to report on their areas of responsibility, conducting regular meetings of the respective committees (the Audit Committee, the Corporate Governance Committee, and the Nomination & Compensation Committee) with management, and retaining outside consultants and external auditors where appropriate, as well as through regular distribution of important information to its members. Decisions are taken by the Board of Directors as a whole, with the support of its three committees. The Chairman has no casting vote. If a member of the Board of Directors has a personal interest in a matter, other than an interest in his/her capacity as a shareholder of Adecco S.A., such member shall abstain from voting, where adequate. Amongst others, the Board of Directors has established Statements of Policy on Insider Trading as well as on Conflicts of Interest. The compliance with all Statements of Policy is closely monitored.
Each committee has a written charter outlining its duties and responsibilities, and regularly meets with management and, where appropriate, outside consultants. Committee members are provided, in advance of meetings, with adequate materials to prepare for the items on their agenda.
In 2011, the Board of Directors held twelve meetings and phone conferences.
Attendance at meetings and phone conferences during 2011:
| Full Board | Audit | Corporate Governance |
Nomination & Compensation |
|
|---|---|---|---|---|
| of Directors | Committee | Committee | Committee | |
| Number of meetings in person | 5 | 4 | 4 | 4 |
| Number of phone conferences | 7 | 5 | 1 | |
| Average duration: | ||||
| • Meetings in person | 4 hrs | 3 hrs | /4 hr 3 |
/2 hrs 1 1 |
| • Phone conferences | /2 hr 1 |
1 hr | /4 hr 3 |
|
| Rolf Dörig | 12 | 3 1 |
1 1 |
|
| Andreas Jacobs | 11 | 3 | 5 | |
| Wanda Rapaczynski | 11 | 4 | 3 | |
| Thomas O'Neill | 12 | 3 | 11 | 2 |
| Alexander Gut | 12 | 9 | 4 | |
| David Prince | 12 | 9 | ||
| Jakob Baer | 11 | 4 | 4 | |
| Didier Lamouche 2 | 6 | 1 | ||
| Francis Mer 3 | 2 | 2 | 3 | |
| Judith A. Sprieser 3 |
1 Guest, without voting right.
2 Member of the Board of Directors since April 19, 2011.
3 Member of the Board of Directors until April 19, 2011.
The Board of Directors has discussed and assessed its own and its members' performance. The Board of Directors concluded that the Board performed well and has the necessary resources and capacities available.
The AC's primary responsibility is to assist the Board of Directors in carrying out its responsibilities as they relate to the Company's accounting policies, internal controls, and financial reporting practice, thus overseeing management regarding the:
their conduct of the annual audit and interim reviews, and their engagement for any other services (refer to section 8. "Auditors"); and
• The Company's compliance with legal and regulatory requirements relating to accounting, auditing, financial reporting, and disclosure, or other financial matters.
In 2011, the AC held nine meetings and phone conferences. For specific subjects, the CEO represents the Executive Committee in the meetings. The Chief Financial Officer ("CFO"), the Head of Group Accounting, the Head of Group Internal Audit, and the partners of the external auditors typically participate in the meetings.
As of December 31, 2011, the members of the AC were:
| Name | Position |
|---|---|
| Alexander Gut | Chairman of the AC |
| Andreas Jacobs | Member |
| David Prince | Member |
The CGC's primary responsibility is to assist the Board of Directors in carrying out its responsibilities as they relate to Corporate Governance principles. The CGC is charged with developing and recommending appropriate Corporate Governance principles and independence rules to the Company, including principles and measures on Corporate Responsibility as well as reviewing and reassessing such principles and rules to
ensure that they remain relevant and in line with legal and stock exchange requirements. Recommendations as to best practice are also reviewed to ensure compliance.
In 2011, the CGC held four meetings. For specific subjects, the CEO represents the Executive Committee in the meetings. The Chief Human Resources Officer and the Head of Group Compliance Reporting typically participate in the meetings.
| Name | Position |
|---|---|
| Wanda Rapaczynski | Chairwoman of the CGC |
| Jakob Baer | Member |
| Alexander Gut | Member |
| Didier Lamouche | Member |
The NCC's primary responsibility is to assist the Board of Directors in carrying out its responsibilities as they relate to the Company's nomination and compensation matters. The NCC is mainly responsible for the following functions:
Reviewing and approving the objectives relevant to the compensation of the Executive Committee and a further group of senior managers;
Assuring talent management including retention and succession planning; and
In 2011, the NCC held five meetings. For specific subjects, the CEO represents the Executive Committee in the meetings. The Chief Human Resources Officer typically participates in the meetings. Members of the management do not participate in NCC meetings when their individual compensation matters are discussed.
As of December 31, 2011, the members of the NCC were:
| Name | Position |
|---|---|
| Andreas Jacobs | Chairman of the NCC |
| Thomas O'Neill | Member |
| Wanda Rapaczynski | Member |
In addition to the determination of the overall strategy of the Company and the supervision of management, the Board of Directors addresses key matters such as acquisitions, longterm financial commitments, management structure, risk management, budget approval, compensation policy, corporate identity policy, guidelines, and policy statements. The Board of Directors approves the strategy and objectives of the Company and the overall structure of Adecco developed by the CEO together with the Executive Committee. With the support of the AC, it reviews and approves the statutory financial statements of Adecco S.A. and the consolidated accounts of the Company. The Board of Directors also considers other matters of strategic importance to the Company. Subject to the powers reserved to the Board of Directors, the Board of Directors has delegated the coordination of the day-to-day business operations of the Company to the CEO. The CEO is responsible for the implementation of the strategic and financial plans as approved by the Board of Directors and represents the overall interests of the Company vis-à-vis third parties.
The Board of Directors' instruments of information and control vis-à-vis management consist of the following main elements:
• Chief Executive Officer
• Chief Financial Officer and Head of Global Solutions
• Regional Head of France
The following sets forth the name, year of birth, year of entry to the Company, nationality, professional education, and principal positions of those individuals who served as members of the Executive Committee of the Company as of December 31, 2011.
Theron I (Tig) Gilliam Jr.
• Regional Head of North America
• Regional Head of UK & Ireland
• Regional Head of Germany&Austria
USG People, the Netherlands, in 2005, he became Chief Operating Officer of USG People, with overall responsibility for operations, including the integration of Solvus. From September 2007 until joining Adecco, he was CEO of the staffing services company Humares, the Netherlands.
• Alain Dehaze is Vice President of the Board of the European Confederation of Private Employment Agencies (Eurociett). He is a member of the Board of the International Confederation of Private Employment Agencies (Ciett).
• Regional Head of Japan & Asia
• Regional Head of Northern Europe
Martín Alonso
• Regional Head of Italy, Eastern Europe & India
• Andreas Dinges is a commercial judge at the district court in Dusseldorf, Germany. He is a member of the board of the Bundesverband Zeitarbeit Personal-Dienstleistungen, Germany.
• Martín Alonso joined Adecco Spain in 1993 as Branch Manager. In 1998, after having held various operational positions, he was appointed Finance Manager for Adecco Spain and Portugal. From 2003 to 2005, he was the Regional Finance Manager for Adecco Central Europe. As of 2007, he also took on the role of Operational Manager for Adecco Portugal. From 2009 to June 2011, he held the position of Finance Manager for Iberia & South America.
Federico Vione
1 Listed company.
Christian Vasino
• Chief Human Resources Officer
• Regional Head of Iberia & South America
Sergio Picarelli • Chief Sales Officer
Enrique Sanchez
after appointed Chief Operating Officer of Adecco Staffing Division Worldwide. From 2005 to 2009 he served as Country Manager of Adecco Italy & Switzerland (Switzerland until the end of 2008). From January 2009 until his appointment as Chief Sales Officer, he served as Chief International Sales Officer of the Adecco Group.
Except those described above in 4.1 "Biographies of the members of the Executive Committee", no further permanent management/consultancy functions for significant domestic or foreign interest groups and no significant official functions or political posts are held by the members of the Executive Committee of Adecco S.A.
There are no significant management contracts between the Company and external providers of services.
Please refer to the Remuneration Report.
Please also refer to the Articles of Incorporation (Internet: www.aoi.adecco.com).
Swiss law allows any shareholder to obtain information from the Board of Directors during the General Meeting of Shareholders provided that no preponderant interests of Adecco S.A., including business secrets, are at stake and the information requested is required for the exercise of shareholders' rights. Shareholders may only obtain access to the books and records of Adecco S.A. if authorised by the Board of Directors or the General Meeting of Shareholders. Should Adecco S.A. refuse to provide the information rightfully requested, shareholders may seek a court order to gain access to such information. In addition, if the shareholders' inspection and information rights prove to be insufficient, each shareholder may petition the General Meeting of Shareholders to appoint a special commissioner who shall examine certain specific transactions or any other facts in a so-called special inspection. If the General Meeting of Shareholders approves such a request, Adecco S.A. or any shareholder may within 30 days
ask the court of competent jurisdiction at Adecco S.A.'s registered office to appoint a special commissioner. Should the General Meeting of Shareholders deny such a request, one or more shareholders who hold at least 10% of the equity capital, or shares with an aggregate nominal value of at least CHF 2 million, may petition the court of competent jurisdiction to appoint a special commissioner. Such request must be granted and a special commissioner appointed if the court finds prima facie evidence that the Board of Directors breached the law or did not act in accordance with Adecco S.A.'s Articles of Incorporation. The costs of the investigation are generally allocated to Adecco S.A. and only in exceptional cases to the petitioner(s).
Adecco S.A. may only pay dividends from unappropriated available earnings, the general reserves, or other reserves distributable in accordance with Art. 675 of the Swiss Code of Obligations.
Companies whose principal purpose consists of participations in other companies may freely use the general reserves to the extent they exceed 20% of the paid-in share capital. Pursuant to Art. 671 para. 1 of the Swiss Code of Obligations, 5% of the annual profits shall be allocated to the general reserves until they have reached 20% of the paid-in share capital. In addition, pursuant to Art. 671 para. 2 and para. 4 of the Swiss Code of Obligations, companies whose principal purpose consists of participations in other companies shall allocate to the general reserves the following: (1) any surplus over par value upon the issue of new shares after deduction of the issue cost, to the extent such surplus is not used for depreciation or welfare purposes; (2) the excess of the amount which was paid-in on cancelled shares over any reduction on the issue price of replacement shares. The general reserves amounted to CHF 1,912 million and CHF 2,103 million as of December 31, 2011 and December 31, 2010, respectively, thereby exceeding 20% of the paid-in share capital in both years.
In 2011, upon approval at the Annual General Meeting of Shareholders, dividends for 2010 of CHF 1.10 per share, totalling CHF 191 (EUR 149), were allocated from Adecco S.A.'s reserve from capital contributions to free reserves and subsequently distributed to shareholders. For 2011, the Board of Directors of Adecco S.A. will propose a dividend of CHF 1.80 per share outstanding for the approval of shareholders at the Annual General Meeting of Shareholders to be allocated from Adecco S.A.'s reserve from capital contributions to the free reserves and subsequently distributed to shareholders.
The Articles of Incorporation do not limit Adecco S.A.'s duration.
Adecco S.A. may be dissolved and liquidated at any time by a resolution of a General Meeting of Shareholders taken by at least two-thirds of the votes allocated to all issued shares (Art. 27 of the Articles of Incorporation; Internet: www.aoi.adecco. com). Under Swiss law, Adecco S.A. may also be dissolved by a court order upon the request of holders of Adecco S.A. shares representing at least 10% of Adecco S.A.'s share capital who assert significant grounds for the dissolution of Adecco S.A. The court may also grant other relief. The court may at any time, upon request of a shareholder or obligee decree the dissolution of Adecco S.A. if the required corporate bodies are missing. Adecco S.A. may also be dissolved following bankruptcy proceedings.
Swiss law requires that any net proceeds from a liquidation of Adecco S.A., after all obligations to its creditors have been satisfied, be used first to repay the nominal equity capital of Adecco S.A. Thereafter, any remaining proceeds are to be distributed to the holders of Adecco S.A. shares in proportion to the nominal value of those Adecco S.A. shares.
Adecco S.A.'s share capital is fully paid up. Hence, the shareholders have no liability to provide further capital to Adecco S.A.
Under Swiss law, holders of Adecco S.A. shares have preemptive rights to subscribe to any issuance of new Adecco S.A. shares in proportion to the nominal amount of Adecco S.A. shares held by that holder.Aresolution adopted at a General Meeting of Shareholders with a supermajority may suspend these pre-emptive rights for significant and material reasons only. Pre-emptive rights may also be excluded or limited in accordance with Adecco S.A.'s Articles of Incorporation (Internet: www.aoi.adecco.com).
For further details refer to section 2.6 "Limitations on registration, nominee registration, and transferability".
Pursuant to the Articles of Incorporation, a shareholder may be represented by (i) the shareholder's legal representative, (ii) a third person who needs not be a shareholder with written proxy, (iii) a corporate body of Adecco S.A., (iv) an independent proxy, or (v) a depository (Art. 17 sec. 2 of the Articles of Incorporation; Internet: www.aoi.adecco.com). At a General Meeting of Shareholders, votes are taken by poll.
There is no provision either in the Articles of Incorporation or under Swiss law requiring a quorum to be present for a General Meeting of Shareholders except for the one according to Art. 27 of the Articles of Incorporation. The General Meeting of Shareholders shall constitute a quorum regardless of the number of shareholders present and regardless of the number of shares represented (Art. 18 sec. 1 of the Articles of Incorporation; Internet: www.aoi.adecco.com).
There are no quorums in Adecco S.A.'s Articles of Incorporation which require a majority greater than set out by applicable law except for the case of a dissolution where at least a two-thirds majority of the votes allocated to all issued shares is required (refer to Art. 27 of the Articles of Incorporation; Internet: www. aoi.adecco.com).
In addition to the powers described above, the General Meeting of Shareholders has the power to vote on amendments to Adecco S.A.'s Articles of Incorporation (including the conversion of registered shares to bearer shares), to elect the members of the Board of Directors, the statutory auditors and any special auditor for capital increases, to approve the Annual Report, including the statutory financial statements and the annual group accounts, and to set the annual dividend. In addition, the General Meeting of Shareholders has competence in connection with the special inspection and the liquidation of Adecco S.A.
Notice of a General Meeting of Shareholders must be provided to the shareholders by publishing a notice of such meeting in the "Swiss Official Gazette of Commerce" ("Schweizerisches Handelsamtsblatt") at least 20 days before the meeting. The notice must state the items on the agenda and the proposals of the Board of Directors and the shareholders who demanded that a General Meeting of Shareholders be called or asked for items to be put on the agenda. Admission to the General Meeting of Shareholders is granted to any shareholder registered in Adecco S.A.'s share register with voting rights at a certain record date, which will be published together with the invitation to the General Meeting of Shareholders in the "Swiss Official Gazette of Commerce" ("Schweizerisches Handelsamtsblatt").
Under Swiss corporate law, an ordinary General Meeting of Shareholders shall be held within six months after the end of each fiscal year. Extraordinary General Meetings of Shareholders may be called by the Board of Directors or, if necessary, by the statutory auditors. In addition, an extraordinary General Meeting of Shareholders may be called by a resolution of the shareholders adopted during any prior General Meeting of Shareholders or, at any time, by holders of shares representing at least 10% of the share capital.
The Swiss Code of Obligations is applicable to the right to request that a specific item be put on the agenda of a General Meeting of Shareholders and discussed and voted upon. Holders of Adecco S.A. shares with a nominal value of at least CHF 1 million have the right to request that a specific proposal be discussed and voted upon at the next General Meeting of Shareholders.
Shareholders will be registered in the share register of Adecco S.A. until the record date defined in the invitation to a General Meeting of Shareholders to be published in the "Swiss Official Gazette of Commerce" ("Schweizerisches Handelsamtsblatt"). Only shareholders who hold shares registered in the share register with a right to vote at a certain date, or their representatives, are entitled to vote. There are no specific rules regarding the granting of exemptions from the above deadline.
The Articles of Incorporation of Adecco S.A. do not contain opting-up or opting-out clauses in the sense of Art. 22 and 32 of the Federal Act on Stock Exchanges and Securities Trading ("SESTA"). Therefore, pursuant to the applicable provisions of the SESTA, if any person acquires shares of Adecco S.A., whether directly or indirectly or acting together with another person, which, added to the shares already owned, exceed the threshold of 331 ⁄3% of the voting rights of Adecco S.A., irrespective of whether the voting rights are exercisable or not, that person must make an offer to acquire all of the listed equity securities of Adecco S.A. There is no obligation to make a bid under the foregoing rules if the voting rights in question are acquired as a result of a donation, succession or partition of an estate, a transfer based upon matrimonial property law, or execution proceedings or if an exemption is granted.
Adecco S.A.'s Articles of Incorporation do not contain any provisions other than those mentioned in this report (refer to section 2.6 "Limitations on registration, nominee registration, and transferability") that would have an effect of delaying, deferring, or preventing a change in control of Adecco S.A.
There are no change of control clauses in place in favour of members of the Board of Directors or members of the Executive Committee.
One member of the Executive Committee is promised a severance payment in case of termination of his employment contract: refer to footnote 2 of the 2011 Executive Committee's compensation table within Note 7 to Adecco S.A. (Holding Company) financial statements and within the Remuneration Report.
Each year, the Annual General Meeting of Shareholders of Adecco S.A. elects the statutory auditor. On April 19, 2011, the Annual General Meeting of Shareholders elected Ernst & Young Ltd, Zurich, as statutory auditor of the Company for the business year 2011.
Ernst & Young Ltd has served the Company as its Independent Auditor since 2002. Robin Errico has acted as lead auditor since 2008. Thomas Stenz has been the global coordinating partner since 2011. Dominick Giuffrida acted as global coordinating partner from 2008 to 2010.
The total fee for the Group audit of the Company and for the statutory audits of the Company's subsidiaries for the fiscal year 2011 amounted to EUR 5.8 million.
For the fiscal year 2011, additional fees of EUR 0.1 million were charged for audit-related services such as advice on matters not directly related to the Group audit and other services. Fees for tax services were not significant, and fees for other services (mainly in connection to the issuance of comfort letters) amounted to an additional EUR 0.1 million.
The AC oversees the Company's financial reporting process on behalf of the Board of Directors. In this capacity, the AC discusses, together with the Independent Auditor, the conformity of the Company's financial statements with accounting principles generally accepted in the United States and the requirements of Swiss law.
The AC regularly meets with the Independent Auditors, at least four times a year, to discuss the results of their examinations, and the overall quality of the Company's financial reporting. During 2011, the Independent Auditors attended all meetings and phone conferences of the AC. The Independent Auditors regularly have private sessions with the AC, without the CEO, the CFO, or any other member of the Executive Committee attending. The AC assessed with the Company's Independent Auditors the overall scope and plan for the 2011 audit of the Company. The Independent Auditors are responsible for expressing an opinion on the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States and the requirements of Swiss law. Further, the Independent Auditors are required, under the auditing standards generally accepted in the United States, to discuss, based on written reports, with the AC their judgments as to the quality, not just the acceptability, of the Company's accounting policies as applied in the Company's financial reporting, including the consistency of the accounting policies and their application and the clarity and completeness of the financial statements and disclosures. Further, the Independent Auditors are responsible for expressing opinions on the standalone financial statements of Adecco S.A.
The AC oversees the work of the Independent Auditors and it reviews, at least annually, their qualification, performance and independence. It discusses with the Independent Auditors the auditors' independence from management and the Company, and monitors the audit partner rotation. The AC considers the compatibility of non-audit services with the auditors' independence and pre-approved all audit and non-audit services provided by the Independent Auditors. Services may include audit-related services, tax services, and other services.
The AC proposes the Independent Auditors to the Board of Directors for election by the shareholders and is responsible for approving the audit fees. Each year a proposal for fees for audit services is submitted by the Independent Auditors and validated by the CFO, before it is submitted to the AC for approval.
The Annual General Meeting of Shareholders for the fiscal year 2011 is planned to be held on April 24, 2012, at Beaulieu Lausanne Centre de Congrès et d'Expositions, in Lausanne, Switzerland. The venue details will be published in the "Swiss Official Gazette of Commerce" ("Schweizerisches Handelsamtsblatt") at least 20 days before the meeting.
Adecco S.A. provides quarterly media releases on the Company's consolidated and divisional results as per the following agenda:
| May 8, 2012 | Q1 2012 results; |
|---|---|
| August 9, 2012 | Q2 2012 results; |
| November 6, 2012 | Q3 2012 results. |
For further investor information, including inscription to push and pull services, refer to Internet http://ir.adecco.com.
To order a free copy of this Annual Report and for further information, please refer to the contact addresses listed on the inside back cover of the Annual Report (Internet: http://ir.adecco.com).
Determination of remuneration principles and compensation
Adecco's Remuneration Report reflects the requirements of section 5 of the Directive on Information Relating to Corporate Governance, issued by the SIX Swiss Exchange as amended on October 29, 2008. Adecco S.A.'s principles regarding remuneration take into account the recommendations set out in the Swiss Code of Best Practice for Corporate Governance as amended on September 6, 2007. In addition, the Remuneration Report comprises information as required under the Swiss Code of Obligations (Art. 663bbis and 663c para. 3), which is included in Note 7 to Adecco S.A. (Holding Company) financial statements. For further information regarding Adecco's Corporate Governance refer to the Corporate Governance Report.
Statements throughout this Remuneration Report using the term "the Company" refer to the Adecco Group, which comprises Adecco S.A., a Swiss corporation, its consolidated subsidiaries, as well as variable interest entities for which Adecco is considered the primary beneficiary.
In order to maintain its competitive positioning as a global employer, the Company reviews market conditions on a continual basis. Compensation is dependent on outside influences including geographical location, industry, competition, and general business climate. Therefore, the Company's country organisations conduct regular local salary surveys and review country-specific economic data to determine their merit increase guidelines. In general, compensation of the Board of Directors and of the members of the Executive Committee is reviewed annually to ensure that competitive pay is maintained and undesired fluctuations are minimised.
The Company's compensation programmes, which include equity based compensation elements, are approved by the Board of Directors ("Board"). The Board has entrusted its Nomination & Compensation Committee ("NCC") with providing recommendations to the Board, taking into account proposals of the Chief Executive Officer ("CEO") and the Chief Human Resources Officer, regarding the remuneration principles and general compensation philosophy of the Company, and with reviewing and approving the objectives relevant to the compensation of the Executive Committee and a further group of
senior managers. The NCC is composed of independent Board members only (for further details on NCC composition, tasks, and activities refer to the Corporate Governance Report, section 3.5.3 "Nomination & Compensation Committee").
The remuneration of the Board is determined by the full Board, upon recommendation from the NCC. The compensation of the Executive Committee is authorised by the full Board, upon recommendation from the NCC. The members of the Executive Committee do not attend meetings of the NCC and of the Board when matters concerning their own compensation are being decided. The compensation of the other employees of the Company is authorised by the responsible members of management, based on the remuneration principles and general compensation philosophy of the Company. The findings and decisions of the NCC are reported to the Board by the Chairman of the NCC.
In order to ensure that compensation is in line with market standards, the NCC commissioned international independent external consultants (Towers Watson AG, Zurich, Switzerland) to provide a compensation benchmark analysis for 2011. Members of the Executive Committee with global responsibility (CEO, Chief Financial Officer ("CFO"), Chief Sales Officer, and Chief Human Resources Officer) were benchmarked against comparable functions in terms of revenue and number of employees under scope in a selected reference group of 23 Swiss companies of different industries. Companies in the financial service industry were included in the assessment for the CFO and for the Chief Human Resources Officer only.
The compensation packages of members of the Executive Committee with geographical responsibility were benchmarked against the packages of comparable functions in terms of revenue and number of employees in the respective countries of residency. More than 250 companies worldwide active in different industries, and which can be considered potential employers of the individuals in question were included in the benchmark. Out of these companies, for each region, a specific peer group was determined. In the course of 2011 changes in geographical responsibilities occurred, resulting in modifications of the compensation for the new Regional Heads of France and Northern Europe. Towers Watson has been commissioned in 2011 with additional Human Resources related survey work of minor scope and with a mandate related to the North American operations.
The compensation model applied for 2011 remained unchanged compared to the one applied for 2010. Minor modifications were introduced regarding the short-term incentive plan bonus base and the long-term incentive plan target bonus base amount for the Executive Committee and for a further group of senior managers (as further explained in section 2.3 "Elements of the Executive Committee's compensation"). Compensation levels of the members of the Executive Committee slightly decreased compared to 2010, mainly due to lower achievements under the short-term incentive plan.
The Company's compensation philosophy seeks to recognise and reward performance. Taking into consideration Group and business unit contributions as well as individual contributions, the compensation programmes are designed to attract, retain, motivate, and reward employees in order to support the achievement of the Company's financial and strategic objectives and also to ensure that the total compensation opportunity is internally consistent and externally competitive.
It is the Company's aim to align its compensation philosophy with the shareholders' interests and to foster collaboration between countries, units, and departments. The compensation is to be fair and competitive and therefore the base salaries are aligned at a median level of the relevant peer companies used in the benchmarked analysis, taking into consideration additional responsibilities beyond the typical scope of the function. The positioning at the median results from considering factors such as revenues, employees under scope, and, if listed in Switzerland, market capitalisation. The Company strives to recognise and reward team performance. Thus, as a general rule, individual quantitative targets are not used for bonus purposes in the current compensation programmes. Economic Value Added ("EVA") targets, defined in line with the Company's strategic long-term projections, are used for the short-term bonuses. EVA is a measure of a company's financial performance, based on residual income. According to this concept, value is only created if operating income after the deduction of taxes is greater than the minimal required rate of return on the invested capital, equal to the company's weighted average cost of capital ("WACC"). The calculation is based on the Company's net operating profit after taxes ("NOPAT"). Invested capital is defined as total assets, excluding cash and including gross acquired goodwill and other gross acquired intangibles since the introduction of the EVA concept, minus non-interest bearing liabilities. The Company applies a 10% cost of capital across all its entities, while the actual WACC in the reporting period was lower. Long-term incentive plans are in place to increase the focus on long-term objectives.
The members of the Board of Directors are compensated with an annual fixed cash fee whilst the Chairman is compensated for a fixed portion of his remuneration with Adecco S.A. shares (see section 3.1.1 "Board of Directors' compensation and shareholding"). When determining the members' and the Chairman's compensation, the Board of Directors takes into account, at its own discretion, the various functions and responsibilities within the Board of Directors and its committees as well as the recommendation of the NCC.
The compensation model includes fixed and variable elements, whereby for the determination of the variable part of the compensation, no other targets than the ones mentioned in the description of short- and long-term incentive plans are relevant:
Base salary: the annual base salary represents payment for due job performance and is determined by the Company, based on the findings of the benchmark studies (see section 1. "Determination of remuneration principles and compensation"), taking into account comparable functions and positions, considering amongst other elements, the number of employees reporting to the function, revenues generated under the function, additional responsibilities beyond the typical scope of the function. The base salary rewards employees for performing day-to-day responsibilities and reflects job characteristics, seniority, experience and skill sets. It is paid in cash, typically in monthly instalments, and is set according to local practice designed to provide the Company's employees with fixed compensation to ensure an appropriate standard of living relative to that offered by reference companies. The annual base salary also serves as the basis for determining the variable compensation.
Social charges, pension plan contributions, and fringe benefits: social charges and pension plan contributions are awarded based on local regulations and practices. Fringe benefits include amongst other items car allowance for private use, car lease financed by the Company, membership fees, house allowance, relocation, education, health insurance, representation allowance, and tax equalisation payments (for one member of the Executive Committee).
Short-term incentive plan ("STIP"): the STIP is a cash incentive programme (annual bonus). For members of the Executive Committee with geographical responsibility, 35% of the STIP bonus base is related to the EVA of the Company and 65% is related to the EVA for the relevant financial year at geographical level. For the members of the Executive Committee who do not have direct responsibility for a specific geographical area, the entire STIP is based on the EVA of the Company for the relevant financial year. The STIP bonus base for members of the Executive Committee ranges between 60% (2010 programme: 50%) and 100% of the participant's base salary, and has been determined by the NCC upon proposal of the CEO and of the Chief Human Resources Officer taking into account the participant's function and responsibilities. For 2011, the entitlement to the STIP based bonus is limited at 150% (2010 programme: 120%) of the STIP bonus base, resulting in a cap at 150% (2010 programme: 120%) of the base salary for the highest paid member of the Executive Committee.
Long-term incentive plan ("LTIP"): under the LTIP, performance share awards were granted in 2011 to members of the Executive Committee. Performance share awards contain an undertaking to deliver a number of Adecco S.A. shares to the participants of the plan after the end of the performance period (end of performance period for the 2011 awards: December 31, 2013), provided and to the extent that certain employment conditions and performance targets are met. In addition to the performance share awards, as a further component, restricted share unit awards ("RSU awards") have been awarded in 2011. The LTIP target bonus base amount is defined as a percentage of the participant's base salary. Such percentage depends upon the participant's function and responsibilities and has been determined by the NCC upon proposal of the CEO and of the Chief Human Resources Officer. For members of the Executive Committee, the percentage ranges between 60% (2010 programme: 45%) and 120% (2010 programme: 120%) of the participant's base salary. 65% of the LTIP target bonus base is allocated to RSU awards and 35% to performance share awards, i.e. total shareholder return ("TSR") awards. Of these 35%, half is allocated to relative TSR awards and half is allocated to absolute TSR awards. Furthermore, an additional 17.5% of the LTIP target bonus base is allocated to the additional TSR awards. Certain country specifications apply for participants in France.
The LTIP is subject to certain reclaim provisions in case benefits were acquired by involvement in fraudulent behaviour or intentional misconduct.
In 2011 and in 2010, performance share awards granted consisted of relative TSR awards, absolute TSR awards, and additional TSR awards. The additional TSR awards will vest if relative and absolute TSR performance reach a certain level of achievement.
The performance targets relate to the change in Adecco S.A.'s shareholder value, measured as the total shareholder return taking into consideration reinvested dividends. At the end of the performance period, the performance is measured, determining whether and to which extent the performance targets have been achieved. Any TSR performance adjustments are at the discretion of the NCC. Upon approval of the NCC, the awards vest accordingly in favour of the respective participants, and all restrictions on the awards are lifted (for the awards granted in 2011: not before March 15, 2014). Those awards which do not vest, lapse immediately.
Participants who terminate their employment with the Company at their own will, and those who receive notice of termination for cause before the end of the performance period, will no longer be entitled to the vesting of the awards. In case of an involuntary termination without cause, a time-weighted pro rata portion of the unvested performance share awards will vest at the regular vesting date depending on the level of target achievement.
The maximum number of performance share awards under the LTIP that may vest in favour of the members of the Executive Committee after the end of the performance period is indicated in the table under section 3.5.2 "Share awards".
Relative TSR awards measurement principles: the Adecco S.A. TSR over the performance period of approximately three years is compared with the weighted-average TSR of a predefined group of peers. The composition of the peer group is determined by the NCC and, for 2011, comprised the following companies: Alten, Altran Technologies, Assystem, Brunel International, CDI Corporation, Hays, Kelly Services, Kforce, Manpower Group, Meitec, Michael Page International, On Assignment, Pasona Group, Randstad Holding, Resources Connection, Robert Half International, Robert Walters, SFN Group (formerly Spherion Corporation; performance measured up to Q3 2011), Sthree, Temp Holdings, TrueBlue, and USG People. The performance targets for the relative TSR awards have been determined by the NCC as follows: with an Adecco S.A. TSR lower than the weighted-average TSR of the peer group, there will be no entitlement to a vesting of the relative TSR part of the award. With an Adecco S.A. TSR that exceeds the weighted-average TSR of the peer group, the participants will be entitled to the vesting of performance share awards to the following extent: if the positive difference between Adecco S.A. TSR and the weighted-average TSR of the peer group is between 0 and 5 percentage points, awards will vest in a linear mode between 0% and 100% of the number of awards granted. The entitlement is capped at 100% of the relative TSR part of the award.
Absolute TSR awards measurement principles: in case the performance of the Adecco S.A. TSR, measured as the compound annual growth rate ("CAGR") in Adecco S.A.'s shareholder value, including reinvested dividends, exceeds a certain target over a period of approximately three years, awards will vest in a linear mode between 50% and 100% of the number of awards granted depending on the level of target achievement and overachievement. The performance targets for the absolute TSR awards have been determined by the NCC. These targets are set for a specific business year and are considered highly confidential as they would allow competitors to understand the objectives of the Company. They are not published in order to protect the business secrets.
Additional TSR awards measurement principles: if at the end of the performance period, the performance target of the absolute TSR awards is fully achieved and the performance target of the relative TSR awards is overachieved, additional TSR awards will vest, depending on the degree of overachievement of the relative TSR awards target. If the positive difference between Adecco S.A. TSR and the weighted-average TSR of the peer group is between 5 and 10 percentage points, additional TSR awards will vest in a linear mode between 0% and 100% of the number of awards granted.
RSU awards contain an undertaking to deliver a number of Adecco S.A. shares to the participants of the plan. The vesting of the awards is not subject to performance conditions but to employment conditions. Provided that the employment relationship continues, RSU awards will vest in equal portions over a period of three years at the anniversaries of the grant.
Participants, who terminate their employment with the Company at their own will, and those who receive notice of termination for cause before a vesting date, will no longer be entitled to the vesting of the RSU awards. In case of an involuntary termination without cause, a time-weighted pro rata portion of RSU awards will vest at the regular vesting date.
The maximum number of shares under the RSU award part of the plan that may vest in favour of the members of the Executive Committee is indicated in the table under section 3.5.2 "Share awards".
The NCC has decided to continue the existing compensation programme for the Executive Committee, as described under section 2.3.1 "Compensation programme 2011 for the Executive Committee".
The amounts indicated in this paragraph include honorariums (fees), salaries, loans, bonuses, and compensation in kind (according to market value at time of conferral). The members of the Board of Directors are compensated in cash. The Chairman is partially compensated with Adecco S.A. shares. The amount conferred to the members of the Board of Directors for the fiscal year 2011 amounted to CHF 5.0 million. The total of all compensation conferred for the fiscal year 2011 to all members of the Executive Committee, including bonus payments for 2011 due in 2012, and awards granted in 2011 under the LTIP, at grant date fair value, amounted to CHF 26.0 million. Not included are bonus payments due for 2010 but made during 2011 as this information was disclosed in 2010.
Individual compensation and shareholding for 2011 and 2010 are presented in the following tables:
For the year 2011
| Social contributions 1 |
||||
|---|---|---|---|---|
| in CHF (except shares) | Office/ compensation period in 2011 |
Net compensation for term served |
Old age insurance/ pensions and others |
Shareholding as of December 31, 2011 2 |
| Name and function | ||||
| Rolf Dörig, Chairman | since Jan. 2011 | 1,800,0003 | 237,123 | 35,000 |
| Thomas O'Neill, Vice-Chairman | since Jan. 2011 | 427,690 | 53,061 | 6,000 |
| Jakob Baer | since Jan. 2011 | 320,984 | 39,282 | 5,101 |
| Alexander Gut | since Jan. 2011 | 377,069 | 53,656 | 11,940 |
| Andreas Jacobs | since Jan. 2011 | 450,000 | 714,915 4 | |
| Didier Lamouche | since Apr. 2011 | 211,781 | 30,823 | |
| Francis Mer | until Apr. 2011 | 107,571 | 11,722 | n.a. |
| David Prince | since Jan. 2011 | 290,002 | 9,998 | 5,539 |
| Wanda Rapaczynski | since Jan. 2011 | 400,000 | 7,700 | |
| Judith A. Sprieser | until Apr. 2011 | 100,000 | 100,000 | n.a. |
| Subtotal | 4,485,097 | 535,665 | ||
| Total | 5,020,762 | 786,195 |
1 Including Directors' and Company's social contributions.
2 Indicating the number of registered shares held, withapar value of CHF1each. The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities of Adecco S.A.
3 CHF 300,000 of the total net compensation was paid with Adecco S.A. shares.
4 Refer to Corporate Governance Report, section 1.2 "Significant shareholders" and Note 5 "Significant shareholders" to Adecco S.A. (Holding Company) financial statements regarding shares held by a group of which Andreas Jacobs is a member. One or more members of this same group, considered as related party/parties to Andreas Jacobs, as of December 31, 2011, held equity related securities of Adecco S.A. according to notified managemet transactions.
| Social contributions 1 |
|||||
|---|---|---|---|---|---|
| in CHF (except shares) | Office/ compensation period in 2010 |
Net compensation for term served |
Old age insurance/ pensions and others |
Shareholding as of December 31, 20102 |
|
| Name and function | |||||
| Rolf Dörig, Chairman | since Jan. 2010 | 1,800,0003 | 246,088 | 30,000 | |
| Thomas O'Neill, Vice-Chairman | since Jan. 2010 | 427,596 | 52,760 | 2,000 | |
| Jakob Baer | since Jan. 2010 | 428,123 | 51,630 | 4,601 | |
| Alexander Gut | since May 2010 | 189,095 | 25,446 | 840 | |
| Andreas Jacobs | since Jan. 2010 | 450,000 | 714,915 4 | ||
| Francis Mer | since Jan. 2010 | 428,123 | 51,630 | ||
| David Prince | since Jan. 2010 | 297,000 | 3,000 | 2,416 | |
| Wanda Rapaczynski | since Jan. 2010 | 300,000 | 2,000 | ||
| Judith A. Sprieser | since Jan. 2010 | 300,000 | 2,000 | ||
| Subtotal | 4,619,937 | 430,554 | |||
| Total | 5,050,491 | 758,772 |
1 Including Directors' and Company's social contributions.
2 Indicating the number of registered shares held, withapar value of CHF1each. The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities of Adecco S.A.
3 CHF 300,000 of the total net compensation was paid with Adecco S.A. shares.
4 Refer to Corporate Governance Report, section 1.2 "Significant shareholders" and Note 5 "Significant shareholders" to Adecco S.A. (Holding Company) financial statements regarding shares held by a group of which Andreas Jacobs is a member.
| in CHF | Patrick De Maeseneire, CEO1 | Total Executive Committee 2 |
|---|---|---|
| Gross cash compensation 3 : |
||
| • Base salary | 1,800,263 | 9,214,661 |
| • Annual bonus | 1,620,000 | 6,131,195 |
| Compensation in kind 4 | 120,000 | 1,137,987 |
| Social contributions 5 : |
||
| • Old age insurance/pensions and others | 332,160 | 2,354,279 |
| • Additional health/accident insurance | 38,114 | 117,014 |
| Other cash payments, including severance payments | 1,883,245 | |
| Total conferred | 3,910,537 | 20,838,381 |
| Share awards granted in 2011 under the long-term incentive plan (LTIP) 6 : |
||
| • RSU awards | 1,213,242 | 4,194,197 |
| • Relative TSR awards | 130,987 | 452,850 |
| • Absolute TSR awards | 87,246 | 301,625 |
| • Additional TSR awards | 58,776 | 203,200 |
| Social contributions on awards, estimated 5 | 49,237 |
1 Highest conferred individual compensation in 2011.
3 Including employee's social contributions.
4 Car allowance for private use, car lease financed by the Company, membership fees, housing allowance, relocation, education, health insurance, representation allowance. Includes tax equalisation payments to a member of the Executive Committee, partly refundable to the Company in the future.
5 Employer's social contributions.
• The per-share value of awards granted in 2011 amounts to CHF 49.12 and CHF 55.19 for RSU awards, CHF 19.70 and CHF 22.13 for relative TSR awards, CHF 13.12 and CHF 14.74 for absolute TSR awards, and CHF 8.84 and CHF 9.93 for additional TSR awards (lower values: French participants).
• Included are the awards granted to François Davy in 2011. Not included are the awards granted to Martín Alonso in 2011 in his function before he became a member of the Executive Committee.
2 In 2011, the Executive Committee consisted of Patrick De Maeseneire, Dominik de Daniel, Alain Dehaze, Theron I (Tig) Gilliam Jr., Peter Searle, Andreas Dinges, Mark Du Ree, Federico Vione, Enrique Sanchez, Sergio Picarelli, and Christian Vasino (all since January 2011), Martín Alonso (since August 2011), and François Davy (until June 2011). Notice periods of up to 12 months apply. For one member of the Executive Committee, severance payments of approximately CHF 0.9 million would be due in case of termination of the employment contract by the employer. For certain members of the Executive Committee, based on mandatory local law, severance payments may become due in case of termination.
| in CHF | Patrick De Maeseneire, CEO1 | Total Executive Committee 2 | |
|---|---|---|---|
| Gross cash compensation 3 : |
|||
| • Base salary | 1,800,000 | 9,631,381 | |
| • Annual bonus | 2,160,000 | 8,649,131 | |
| Compensation in kind 4 | 120,000 | 1,217,944 | |
| Social contributions 5 : |
|||
| • Old age insurance/pensions and others | 351,416 | 2,087,315 | |
| • Additional health/accident insurance | 36,841 | 80,228 | |
| Total conferred | 4,468,257 | 21,665,999 | |
| Share awards granted in 2010 under the long-term incentive plan (LTIP) 6 : |
|||
| • RSU awards | 1,425,770 | 5,069,246 | |
| • Relative TSR awards | 155,863 | 554,169 | |
| • Absolute TSR awards | 95,167 | 338,388 | |
| • Additional TSR awards | 57,586 | 204,746 | |
| Social contributions on awards, estimated 5 | 48,550 | ||
| Total conferred including LTIP | 6,202,643 | 27,881,098 |
1 Highest conferred individual compensation in 2010.
3 Including employee's social contributions.
4 Car allowance for private use, car lease financed by the Company, membership fees, housing allowance, relocation, education, health insurance, representation allowance. Includes tax equalisation payments to a member of the Executive Committee, partly refundable to the Company in the future.
5 Employer's social contributions.
6 Value in CHF of Adecco S.A. shares awarded in 2010 under the LTIP 2010 (grant date: March 16, 2010).
Valuation of the share awards granted:
• The per-share value of awards granted in 2010 amounts to CHF 50.55 and CHF 56.79 for RSU awards, CHF 20.52 and CHF 23.06 for relative TSR awards, CHF 12.54 and CHF 14.08 for absolute TSR awards, and CHF 7.58 and CHF 8.52 for additional TSR awards (lower values: French participants).
2 In 2010, the Executive Committee consisted for the full year of Patrick De Maeseneire, Dominik de Daniel, François Davy, Theron I (Tig) Gilliam Jr., Peter Searle, Andreas Dinges, Mark Du Ree, Alain Dehaze, Federico Vione, Enrique Sanchez, Sergio Picarelli, and Christian Vasino. Notice periods of up to 12 months apply. For two members of the Executive Committee, severance payments of approximately CHF 1.9 million (including bonus entitlement) and CHF 0.9 million, respectively would be due in case of termination of the employment contract by the employer.
For 2011, the variable portion of cash compensation (annual bonus) to the CEO amounted to 90% and for the other members of the Executive Committee ranged between 24% and 90% of the base salary. The variable portion of compensation consisting of share awards (including RSU awards; at values as indicated in the previous table) to the CEO amounted to 83% and for the other members of the Executive Committee ranged between 32% and 69% of the base salary. The CEO has reached 90% of the STIP bonus base, and the other members of the Executive Committee have reached between 32% and 128% of the STIP bonus base.
No compensation payments were made to other former members of Governing Bodies in relation to their former offices.
In 2011, no Adecco S.A. shares were allocated to current or former members of Governing Bodies, except for part of the Chairman's compensation paid with Adecco S.A. shares (refer to the table in section 3.1.1 "Board of Directors' compensation and shareholding").
As of December 31, 2011, the members of the Board of Directors, including parties closely linked, reported to hold 786,195 shares; not included are the shares held by a group of which Andreas Jacobs is a member (refer to section 1.2 "Significant shareholders" of the Corporate Governance Report and to Note 5 "Significant shareholders" to Adecco S.A. (Holding Company) financial statements). For the individual share ownerships of the Board of Directors, refer to the table in section 3.1.1 "Board of Directors' compensation and shareholding" and section 1.2 "Significant shareholders" of the Corporate Governance Report.
The members of the Executive Committee, including parties closely linked, reported share ownership as indicated in the following table:
| Share ownership as of December 311 |
Patrick De Maese neire |
Dominik de Daniel |
Alain Dehaze |
Theron I (Tig) Gilliam Jr. |
Peter Searle |
Andreas Dinges |
Mark Du Ree |
Martín Alonso 2 |
Federico Vione |
Sergio Picarelli |
Christian Vasino |
François Davy 3 |
Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 8,959 | 32,873 | 1,366 | 1,364 | 910 | 1,434 | 50 | 867 | 1,024 | 3,358 | 2,962 | 100 | 55,267 |
| 2010 | 590 | 29,978 | 50 | n.a. | 1,050 | 1,000 | 100 | 32,768 |
1 Indicating the number of registered shares held, withapar value of CHF1each.
2 Became a member of the Executive Committee in 2011.
3 Ceased to be a member of the Executive Committee in 2011, shareholding indicated as per date of departure.
The members of the Board of Directors and the Executive Committee are required to disclose to the Company direct or indirect purchases and sales of equity related securities in accordance with the requirements of the SIX Swiss Exchange.
Stock options outstanding, as granted since the merger of Adia and Ecco in 1996, exercised by, lapsed from, and held by the members of Governing Bodies in office as of December 31, 2011 and as of December 31, 2010, are presented in the following tables (no stock options were granted since 2004):
| Last year of expiry detail | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Year of grant | Martín Alonso |
Federico Vione |
Christian Vasino |
Strike price (CHF) |
Granted | Exercised | Lapsed | Held by Martín Alonso |
Held by Federico Vione |
Held by Christian Vasino |
| Stock options held | ||||||||||
| 2003 | 2012 | 2012 | 2012 | 78.50 | 36,500 | 3,200 | 26,000 | 6,000 | 800 | 500 |
| Last year of expiry detail | ||||||||
|---|---|---|---|---|---|---|---|---|
| Year of grant | Federico Vione |
Christian Vasino |
Strike price (CHF) |
Granted | Exercised | Lapsed | Held by Federico Vione |
Held by Christian Vasino |
| Stock options held | ||||||||
| 2003 | 2012 | 2012 | 78.50 | 6,500 | 3,200 | 1,500 | 800 | 1,000 |
One option entitles the holder to purchase one Adecco S.A. share under the conditions as outlined in the respective plan.
Options shown as "held" in the tables above are included as part of the total options outstanding presented in the table appearing in the Corporate Governance Report, section 2.7 "Convertible notes and options" and Note 9 "Stock-based compensation" to the consolidated financial statements.
For additional information on stock options, refer to the Corporate Governance Report, section 2.7 "Convertible notes and options".
Share awards held as of December 31, 2011 granted on March 16, 2011 under the LTIP:
| December 31, 2011 | RSU awards | TSR awards 1 | Total |
|---|---|---|---|
| Patrick De Maeseneire | 21,983 | 17,757 | 39,740 |
| Total Executive Committee | 72,536 | 56,967 | 129,503 |
Share awards held as of December 31, 2011 and December 31, 2010 granted on March 16, 2010 under the LTIP:
| December 31, 2011 | RSU awards | TSR awards 1 | Total |
|---|---|---|---|
| Patrick De Maeseneire | 16,737 | 20,277 | 37,014 |
| Total Executive Committee | 56,528 | 66,390 | 122,918 |
| December 31, 2010 | RSU awards | TSR awards 1 | Total |
| Patrick De Maeseneire | 25,106 | 20,277 | 45,383 |
| Total Executive Committee | 90,135 | 72,801 | 162,936 |
Share awards held as of December 31, 2011 and as of December 31, 2010 granted on March 16, 2009, and April 1, 2009 under the LTIP:
| December 31, 2011 | EPS awards 2 | TSR awards | Total |
|---|---|---|---|
| Patrick De Maeseneire 3 | 22,500 | 22,500 | 45,000 |
| Total Executive Committee | 70,042 | 109,137 | 179,179 |
| December 31, 2010 | EPS awards 2 | TSR awards | Total |
| Patrick De Maeseneire 3 | 22,500 | 22,500 | 45,000 |
| Total Executive Committee | 80,912 | 128,945 | 209,857 |
1 Split into relative TSR, absolute TSR, and additional TSR awards (one third each).
2 For EPS awards refer to the description of the long-term incentive plan for the awards granted in 2009 as described on pages 189 and 190 of the Annual Report 2009.
3 Special conditions: grant date April 1, 2009, vesting of 58% of the awards granted is guaranteed, subject to continued employment.
No member of the Board of Directors has received any additional honorariums in 2011.
In 2011, the Company did not grant any guarantees, loans, advances or credits to members of the Board of Directors or to members of the Executive Committee, including closely linked parties.
Ageing workforce The next few decades will see substantial demographic changes due to the ageing of the workforce. This development will reshape all aspects of our lives, including businesses, workplaces, health and education systems, requiring active intervention by all concerned.
Associate A person who works for Adecco on a temporary basis.
Branch Where we offer our products and services to candidates and clients.
Compound average growth rate (CAGR) The average growth rate over multiple periods.
Candidate Any person interested in becoming an associate or having a permanent placement.
Career management Addresses the needs of both employers and employees throughout their working lives.
Career transition Also referred to as outplacement. The support provided to the employees in an enterprise that is undergoing change, particularly restructuring. Career transition services help affected employees to move into new employment. Change management The development of a planned
approach to changing a method of management or business practice in an organisation. Typically, the objective is to maximise the collective efforts of everybody involved in the change.
Ciett The International Confederation of Private Employment Agencies. Ciett is the authoritative voice representing the interests of agency work businesses.
Client A buyer of Adecco Group's HR services.
Contingent workforce A group of provisional workers who are employed on a non-permanent basis.
Days sales outstanding (DSO) The average number of days that a company takes to collect revenue after a service has been delivered.
Decentralisation Significant decision-making delegated throughout the organisation, down to regional, national and local management levels.
Deregulation The removal of regulations and restrictions that hinder the effective functioning of, in the case of Adecco, the labour market.
Employee A person who works within the Adecco Group. ERP Enterprise Resource Planning is an enterprise-wide information system that integrates and controls all the business processes in the entire organization. The Adecco VMS, Beeline, integrates with such systems.
Eurociett The European Confederation of Private Employment Agencies represents the common interests of the staffing industry in Europe.
Total or partial outsourcing of HR duties (e.g. payroll, recruiting, training, benefits, employee orientation, staffing).
ILO International Labour Organization. It is a specialized agency of the United Nations and the international organization responsible for drawing up and overseeing international labour standards.
Inventory-to-sales ratio Calculated by dividing the Inventory Balance at the end of the year by the Total Sales for that year. The inventory-to-sales ratio helps identify whether inventory is growing unnecessarily.
Key performance indicator (KPI) A parameter used to determine whether the desired input or outcome has been achieved. Leadership development Companies may implement programmes that instruct and guide employees on how to become leaders in both their professional lives and their communities.
Lifelong learning In an era of rapidly evolving knowledge and ever-increasing globalisation, patterns of working, learning and living need to change with the times. Lifelong learning is a continuous process of formal and informal learning to keep employees up to date.
Made-to-order The production of goods only when they have been ordered, as opposed to maintaining an inventory.
Managed Services Programmes (MSP) Is contingent thirdparty Labour Management Outsourcing where the core solution provided to a client is Business Process Outsourcing with the utilisation of a Vendor Management System (VMS). On-site A model of service delivery where an Adecco repre-
sentative (potentially a team) responsible for client management is physically present at the client's facility. Outplacement See career transition.
Outsourcing The practice of using external workers and/or machinery for certain business tasks.
Payrolling Adecco administers payrolling services, but is not involved in the search and placement process.
Permanent placement The placement of a candidate (potentially an associate) for an indeterminate period.
Recruitment Process Outsourcing (RPO) Is the transfer of operational responsibility for one or more recruiting functions for permanent labour (including recruitment administration) from the client to a services provider.
Retail business Service rendered to small account clients. Retention The ability of an organisation to retain its employees.
Skill shortage Is an economic condition in which there are insufficient qualified candidates/employees to fill the marketplace demands for employment at any price.
Solutions Refers to Adecco's Career Transition & Talent Development and its Workforce Management solutions. Succession planning The process by which successors
are identified for key positions throughout an organisation. According to Adecco, the process should focus not only on the top levels of the company, but also on other vital roles throughout the organisation. Succession planning should take into account the strategic vision and culture of the organisation.
Talent development Empowering individuals to advance their careers and reach their full potential.
Talent management Talent management requires that a company recognises the individual strengths and weaknesses of its employees or workforce, as well as striving to revise and improve the talents and skills of its workforce.
Temporary placement The placement of human resources for non-permanent employment needs. Placements may be definite or indefinite.
Training The development of a company's human capital. TWA Temporary work agencies.
Vendor Management System (VMS) A web-based application for automating the procurement of contingent staff. Adecco's VMS is Beeline.
The evolution of the Adecco Group is characterised by productive acquisitions, organic growth, industry innovation and global expansion, creating a story already spanning over 50 years. In 1996, the founding companies Adia and Ecco merged to form the global leader.
Adia SA is founded in Lausanne, Switzerland, by Henri-Ferdinand Lavanchy. The firm grows rapidly in its home country before expanding abroad.
Philippe Foriel-Destezet founds Ecco in Lyon. By the early 1980s, Ecco is the largest supplier of temporary personnel in France.
In the 1960s, Adia opens offices in various European countries and then in 1972 takes a first step overseas, with a branch in Menlo, California. In 1974, Lavanchy recruits Martin O. Pestalozzi and a phase of expansion by acquisitions begins. In the next twelve years, Adia buys over 85 companies, tripling in size and gaining footholds in more than a dozen countries. These include France (1975) and the UK (1977), where it buys the market leader: Alfred Marks Bureau Ltd.
Adia continues to expand overseas, including Australia, New Zealand, Japan, Hong Kong and Canada. Meanwhile, Ecco is focusing on its home market. By the mid-1980s, it is the market leader in France and a decade later world no. 2. The growth of both companies is part of a wider trend: temporary staffing becomes the world's third-fastest growing industry in the 1980s.
Revenues topping USD 1 billion in 1986 make Adia the European leader. Its success is partly down to a focus on quality and high-value services. The 1990s see a growing trend towards specialised skills, e.g. accounting and word-processing, including in-house training programmes.
Further acquisitions from the late 1980s onwards strengthen the presence in highly skilled, specialised fields. Also, moves are made into socially related programmes for mature workers in the USA, promoting the
benefits of temporary work for retirees and the value for companies of tapping into their experience, skills and dedication. In 1991, recognising the importance of the industry's role in job creation and its growth potential, Klaus J. Jacobs invests in Adia on the way to becoming its majority shareholder.
Adia and Ecco merge to form Adecco. Two of the world's top three personnel services firms, with complementary geographical profiles, merge to form a strong global leader with annualised revenues of over EUR 5.4 billion. Operations are combined to form a global network of 2,500 branches. The new company has an exceptional range and quality of services. The core staffing business places around 250,000 people in work each day.
The 1997 acquisition of TAD Resources International strengthens Adecco's technical and IT staffing business in the USA. In 2000, Adecco acquires the IT and generalist staffing
business of the Olsten Corporation to become the no. 1 staffing services business in the USA and worldwide leader in the IT sector. The merged companies' revenues reach over EUR 11.6 billion, reflecting organic growth and successful acquisitions. Partnerships with Monster.com and Jobs.com mark Adecco's intent to be at the forefront of harnessing the web in the recruitment process.
To keep at the forefront of the trend towards increasing demand for professional and expert services, Adecco consolidates its business under three operating divisions: Adecco Staffing; Ajilon Staffing/Managed Services; and Career Services/e-Business. Legislative change in Germany creates a more favourable environment for the growth of temporary staffing, reflecting greater acceptance of the industry's positive role in generating employment and economic growth.
The acquisition of PeopleOne Consulting in India signals Adecco's commitment to play a leading role in the industry's development in Emerging Markets. As a result of the delay in the audit of the 2003 financial statements in early 2004, the Group strengthened its financial reporting and governance structure.
In 2005, Klaus J. Jacobs assumes the Chairman and CEO roles, initiating a strategy review. The Group's focus on professional staffing services intensifies. To create a strong platform for growth, Adecco's existing operations are realigned into global business lines defined by specific occupational fields, complementing the established office and industrial offering with professional staffing lines.
Acquisitions of Altedia and HumanGroup strengthen Adecco's involvement in professional segments in Europe. In 2006, the acquisition of DIS AG in Germany gives Adecco leadership in the German professional staffing industry. Adecco adopts a dual strategy focused on professional and general staffing.
The Annual General Meeting of Shareholders approves the nomination of Jürgen Dormann as Chairman of the Board. Rolf Dörig becomes Vice-Chairman. As planned, Klaus J. Jacobs hands back his mandate. Adecco acquires Tuja Group, an industry leader in Germany, one of the world's fastest-growing temporary staffing markets.
Adecco acquires the professional staffing businesses DNC in the Netherlands and IT specialist Group Datavance in France. Country operations take greater responsibility for growing professional business as the dual professional and general staffing model becomes further embedded.
September 11: Klaus J. Jacobs, co-founder and Honorary President of the Adecco Group, passes away. Jürgen Dormann, who contributed to the successful turnaround of the Group and its long-term strategy, steps down as Chairman of the Board at the end of the year. He is succeeded by Rolf Dörig on January 1, 2009.
January 1: Rolf Dörig starts his term as Chairman of the Board of Directors of the Adecco Group. June 1: Patrick De Maeseneire becomes Chief Executive Officer of the Adecco Group.
Adecco acquires Spring Group in the UK, bolstering the Adecco Group's UK professional and general staffing business, and tables an offer for MPS Group, a leading professional staffing firm based in the USA.
The acquisition of MPS Group is officially closed. With MPS's strength in North America and the UK, the Adecco Group also becomes the world leader in professional staffing.
Adecco sets up a joint venture in Shanghai with leading Chinese HR services company Fesco. FESCO Adecco begins operations on January 1, 2011, with over 100,000 associates and a well-established local and multinational client base.
Adecco aquires US-based Drake Beam Morin Inc., taking the worldwide lead in career transition and talent development services.
Adecco announces the acquisition of VSN Inc., a leading provider of professional staffing services in Japan. The acquisition expands the professional staffing exposure in the world's second-largest staffing market.
Henri Ferdinand Lavanchy, founder of Adia, passes away. In 1996 Adia merged with Ecco to become the world's leading provider of HR solutions, Adecco.
Registered office Adecco S.A. (Holding) CH-1275 Chéserex
Contact details Adecco management & consulting S.A. Sägereistrasse 10 P.O. Box CH-8152 Glattbrugg T +41 44 878 88 88 F +41 44 829 88 88
Adecco Corporate Press Office T +41 44 878 87 87 F +41 44 829 89 24 [email protected]
Adecco Corporate Investor Relations T +41 44 878 89 89 F +41 44 829 89 24 [email protected]
Adecco on the Internet ar.adecco.com adecco.com
Imprint Publisher: Adecco Group, Glattbrugg Design: MetaDesign, Zurich Photographer: Anita Affentranger, Zurich / Rui Camilo, Wiesbaden Print: Linkgroup, Zurich
March 2012
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