Posted tagged ‘Kelly Services’

Recapping the Not-so-Dog-Days of HRO’s 2010 Summer

October 5, 2010

One of the biggest HRO stories of 2010 will be the flurry of big and small acquisitions in the benefits administration space. The three big acquisitions – ACS and ExcellerateHRO, ADP and Workscape, and Aon and Hewitt – have recently closed.

As acquisition mania played out, many HRO deals were getting done, and this week, as the weather has finally, thankfully, started to cool, I’m taking a look at some of the deal activity over the long hot summer.

There were not a lot of announced deals in benefits administration, but a Hewitt summary indicates plenty of activity was still quietly going on. Hewitt won new awards across the span of benefits administration in the large and mid-market, including several in defined benefits and defined contributions. But the greatest activity was in health and welfare, and for point solutions like dependant audits and flex spend accounts.

While not necessarily matching North America in total contract value, the U.K. and Europe were also quite active in HRO. Logica was awarded a £10m payroll and pensions HRO contract extention by U.K’s Metropolitan Police, with new scope this time around including increases in employee and manager self services and electronic pay slips. And Midland HR won a deal for its iTrent HR platform including HR administration, employee and manager self-service, payroll, talent management and workforce planning.

In RPO, CPH won a contract with Opal Telephone, and Alexander Mann was awarded  a contract for recruitment and contingent labor by Cobhan. On the continent, HRO activity included HR administration and payroll deals by Reat and HR Access in the mid-market.

ADP parlayed existing payroll services for KAO, a Japan-based consumer products manafacturer, into extended HR administration and payroll services across Asia Pacific including China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand, Vietnam and Japan. In addition, ADP won a global managed payroll services contract with BT that will cover more than 40 countries in North America, Europe and Asia Pacific when fully implemented.

It was refreshing to see a spate of learning contract awards won by Expertus, General Physics, Intrepid and The Learning Associates. However, as most of the learning outsourcing activity was in the public sector, we still need to see more of an uptick in the private sector before we can say learning is fully on the road to recovery.

RPO maintained its lead position as the most active single service area, with the greatest increase in revenues and new contracts. RPO activity was highest in the U.S., followed by the U.K., and was spread nicely across providers including Alexander Mann, CPH, Kelly Services, Manpower, PeopleScout and SourceRight. Several of the awards were for contingent labor or combined RPO, with the contingent labor focuses indicating that employers are still cautious about a full return to permanent hires.

There were no announcements of the HRO mega-deals of yore, but it was very nice to see the increased activity levels across many HRO service lines and service providers. Now that the cooler weather of fall is here, we’ll  hopefully see an even more serious return to getting business done before the end of the year!

Linda Merritt, Research Director, HRO, NelsonHall

“What a Difference a Day (plus 364) Makes” for Staffing and RPO

May 13, 2010

As I read Kelly Services’ Q1 2010 financial results yesterday, the song “What a Difference a Day Makes” popped into my mind. Add 364 more days (although for service providers it likely felt more like 2548 in dog days) and in year-over-year financials comparisons, staffing and RPO providers are finally seeing some rays of sunshine. And these rays – even though they don’t yet call for sun block with a 30 SFP – indicate a strengthening economy and thus good news for everyone.

While wider HRO results were mostly flat in Q1 2010, staffing and RPO provider revenues were mostly up. For example, in year-over-year comparisons, providers including SeatonCorp, Manpower, Kelly Services, SFN Group, Adecco and Kenexa all reported positive growth, with overall revenue growth ranging from single digits to a high of mid 20 percent. And specifically in the RPO space, KellyOCG’s revenue was up 13.5 percent and SourceRight Solutions’ was up 13.4 percent.

However, not all providers saw positive growth. For example, Netherlands-based Randstad’s revenues were nearly flat (down 0.5 percent) in Q1 2010 and Q1 2009 comparisons. But the company did experience strong year-over-year improvement, as its revenues decreased 28 percent in Q1 2009. Randstad’s results, as well as those from some other providers which experienced overall revenue increases in Q1 2010, indicate that staffing growth has not yet returned across Europe. Yet similar to other staffing providers, Randstad saw growth return in the U.S., Latin America and Australia.

The providers’ Q1 financial results confirm the findings of NelsonHall’s recently-released HRO Confidence Index, referenced in my April 22 blog, in which providers cited RPO revenue growth of 4.6 and 4.4 pipeline growth on a 1-5 scale.

Q2 2010 is also off to a good start. For example, KellyOCG was awarded a multi-year RPO contract by Novartis Pharma France on April 21, and Manpower and Vietnam’s Techcombank entered into a two-year end-to-end (including job profiling, on-boarding and staff development) RPO contract.

While I don’t believe we will see pre-recession hiring levels in 2010, I feel that the tide has turned and we will continue to see quarterly year-on-year growth in staffing and RPO for the remainder of 2010.

Gary Bragar, Lead HRO Analyst, NelsonHall

Quarterly Earnings Announcements – A Bellwether of the State of the HRO Industry

August 20, 2009

Just as our regular trips to doctors and dentists provide us with our own health updates, HRO providers’ quarterly earnings announcements serve as a bellwether of the health of the industry. With the most recent round of quarterly earnings reports: Diagnosis = Sick, Prognosis = Improving.

For example, in the RPO/staffing space, overall revenue among AMN Healthcare, Kelly Services and Randstad was down year over year ranging from -29 percent to -36 percent. The primary reason for this plummet is that most RPO/staffing revenue is dependent on hiring for both permanent jobs and temporary positions, and the recession has led to a drastic cut in hiring volume at many client companies.

While this sounds relatively bleak, we can inject a dose of positive news here:

•  RPO revenue, part of overall staffing company revenue, has not declined as steeply as traditional staffing due to renewals and expansion of existing services contracts, as well as new contract signings

•  Though overall results are steeply down year over year, declines in Q2 2009 revenue in comparison to Q1 2009 are lower. And in a bit of an anomaly, Kenexa’s revenue increased from $38.5 million in Q1 2009 to $39.5 million in the second quarter of 2009

•  On earnings calls, companies are reporting the initial signs of stabilization and stating that the worst of the economic storm is behind them, but are not quite prepared to say when revenue will increase again, other than a rather nebulous “should pick up by mid-2010”

Non-staffing/recruiting and transactional services providers fared better, but are also experiencing some revenue declines. For example, in ADP’s case, its fiscal Q4 2009 (for the period ended June 30, 2009) revenues were -0.5 percent in Employer Services, +6.6 percent in PEO Services, and -9.5 percent in Dealer Services. It jumped over RPO and staffing providers’ quarterly revenue reports because, as in payroll and benefits, revenue is commonly generated by number of employees paid. While headcount is down at many client companies, the decline is not nearly as steep as the reduction in hiring volume.  New business has also helped ADP offset declines in volume, For example, in May 2009 it was awarded a contract for managed payroll services by Swiss Re to support 10,000 employees in approximately 25 countries.

Aon’s revenue was down only -4 percent constant currency (comparisons excluding the impact of changes in foreign currency exchange rates). Further, it reported a modest increase in benefits administration outsourcing. As for its RPO business, in June 2009 it was awarded a large sub-contract by Lockheed Martin to perform hiring for the Transportation Security Administration (TSA), which may enable it to be one of the few RPO providers to achieve double-digit growth in 2009.

And TALX, a provider of services to HR, payroll and tax departments, reported an increase of 12 percent in Q2 2009 revenue. As found in our recent Q2 2009 Outsourcing Confidence Index, the strongest revenue growth will continue in the more transactional areas of HR outsourcing, including payroll services, which in part explains TALX’s revenue increase.

One of the customer-valued strengths of outsourcing is variable pricing that moves with volumes. Non-leveraged customer-specific customized services can tolerate only limited volume movement and trap costs for both the client and provider. For the newer SaaS and PaaS (Platform as a Service) models, which are typically priced on number of employees served and number of processes delivered, and to a greater degree in RPO which can have wide volume swings, the service providers pick up the risk of ensuring scalability and must be able to quickly keep operating expenses as closely aligned with volumes as possible. Providers with a mix of service offerings, including those where volumes move more slowly, or even move against the market, are showing less volatility. For example, for ADP, payroll is a more constant/consistent service, and for Aon, additional benefits outsourcing offset declines as customers look to increase services like absence management and dependent audits to reduce benefit spend.

Yes, the HRO industry has been ill, but a dose of economic recovery will help it regain its health.

Gary Bragar, Lead HRO Analyst, NelsonHall