HRO Insight
NelsonHall's HR Outsourcing Insight newsletterprovides commentary and insight on key HR outsourcing industry developments and vendor actions which impact your sourcing decisions. Now complemented by HRO Insight blog - updated daily.
To sign up for HRO Insight, please complete the following form:
Past copies of HRO Insight newsletters and NelsonHall's HRO Insight database may only be viewed by subscribers to NelsonHall's HR Outsourcing program.
For further details contact Rob Hughes
Latest Edition: May 16, 2012
Contains commentary and insight from NelsonHall analysts on key HR outsourcing industry developments that impact your sourcing decisions
-
Morneau Shepell Announces Q1 2012 Revenues Up 22% to $103.9m
Morneau Shepell has announced Q1 2012 revenues for the period ending March 31, 2012 of CAD$103.9m, an increase of 21.7% year-over-year.
Analyst comments:
-
Towers Watson Acquires Extend Health for $435m to Add Exchange Services for Retirees
Towers Watson has signed an agreement to acquire Extend Health, Inc. for $435m to add private Medicare exchange services for retirees.
Extend Health will operate as a new business segment, Exchange Solutions, within Towers Watson with ~300 employees. Extend Health's clients include public and private sector organizations, including ~30 Fortune 500 employers and ~200k retirees.
This acquisition follows the partnership announced in August 2011, and is expected to close in less than 60 days.
Analyst comments:
During Towers Watson's earnings call last week, the company discussed the necessity of reinvesting back into the business for sustaining long-term growth. Following the merger of Towers Perrin and Watson Wyatt, the company was focused on integration and was therefore limited in pursuing large-scale acquisitions; it stuck with a few tuck-in acquisitions such as Aliquant. Towers Watson is now clearly ready to tackle some larger acquisitions, and is beginning with Extend Health.
Extend Health is a wise choice since health care exchanges will be significant in combating the rising cost of health care. However, the purchase price seems a little steep since Extend Health's FY 2011 revenue was $51.1m, and FY 2012 revenues are estimated to be ~$67m.
Clients on the proprietary ExtendRetiree exchange include:
- Honeywell
- FedEx
- Dole
- Union Pacific
- Avon
- Whirlpool
- GM
- Ford
- Caterpillar
- Eastman Chemical
- AGL Resources, Inc.
-
Kelly Services Announces Q1 2012 Revenues Up 1% to $1,355m
Kelly Services has announced Q1 2012 revenues, for the period ending April 1, 2012, of $1,354.8m, an increase of 1.2% (+1.9% in constant currency) year-over-year.
Revenues for Q1 2012 by segment were:
- Americas Commercial $669.3m (+2.4%,+3.0% constant currency (cc))
- Americas PT $250.1m (+4.0%, +4.1% cc)
- EMEA Commercial $213.0m (-8.0%, -5.7% cc)
- EMEA PT $42.2m (+2.0%, +4.7% cc)
- APAC Commercial $88.3m (-11.4%, -12.9% cc)
- APAC PT $12.8m (+12.0%, +10.3% cc)
- Outsourcing Consulting Group (OCG) $86.7m (+27.1%, +27.5% cc)
Revenues from services in Q1 2012 by region and country were:
- Americas $987.4m (+4.3%,+4.8% cc)
-- United States $858.5m (+2.2%, +2.2% cc)
-- Canada $59.5m (+0.2%, +1.8% cc)
-- Puerto Rico $25.9m (+17.3%, +17.3% cc)
-- Mexico $25.5m (+1.5%, +8.9% cc)
-- Brazil $18.0m - EMEA $263.0m (-5.5%, -3.1% cc)
-- France $62.8m (-10.3%, -6.3% cc)
--Switzerland $53.6m (+13.4%, +11.1% cc)
-- Russia $33.6m (-1.7%, +1.3% cc)
-- U.K. $27.7m (-10.9%, -9.1% cc)
-- Germany $18.7m (-7.9%, -3.8% cc)
-- Portugal $18.2m (-11.8%, -7.8% cc)
-- Norway $16.5m (+8.8%, +10.2% cc)
-- Italy $16.3m (-1.8%, +2.6% cc)
-- Other $15.6m (-32.7%, -29.0% cc) - APAC $104.4m (-8.7%, -10.3% cc)
-- Australia $33.9m (-7.1%, -11.4% cc)
-- Singapore $24.2m (-7.2%, -8.1% cc)
-- Malaysia $17.8m (+1.3%, +1.7% cc)
-- New Zealand $13.1 (+15.0%, +6.2% cc)
-- India $9.5m (-46.1%, -40.2% cc)
-- Other $5.9m (+11.3%, +11.1% cc).
Q1 2012 earnings from operations were $9.2m, a margin of 0.7%.
Analyst comments:
Overall revenue growth was in line, though slightly on the lower end, of similar providers reporting results thus far.
Growth in Q1 was mainly attributed to the small and midsize market. Q2 revenue growth is expected to be flat to 1% with the large market expected to increase demand in the second half of the year.
Kelly Outsourcing and Consulting Group (OCG) had a strong quarter as clients invested in BPO and RPO revenues were up 18% yoy led by EMEA. In 2011 KellyOCG signed RPO contracts with clients including:
- GE Capital Corporation, providing RPO in EMEA, APAC and the U.S.
- Hill Rom, providing RPO in the U.S.
- IBM Global Process Services, providing RPO in India
- Weatherford International, providing RPO in U.S., Canada and Mexico.
At the May 3 HROA Awards, KellyOCG and General Electric were named global recruitment customer relationship of the year.
-
Adecco Announces Q1 2012 Revenues Up 2% to €5,035m
Adecco has announced Q1 2012 revenues, for the period ending March 31 2012, of €5,035m, an increase of 2.4% (+1% in constant currency and -1% organically) year-over-year.
Q1 2012 revenues (and revenue growth) by geography were:
- France €1,268m (-10%) (-10% in CC)
- North America €964m (+5%) (+1%)
- U.K. & Ireland €459m (+12%) (+9%)
- Japan €431m (+23%) (+13%)
- Germany & Austria €400m (+12%) (+12%)
- Italy €232m (-2%) (-2%)
- Benelux €225m (-2%) (-2%)
- Nordics €198m (-1%) (-2%)
- Iberia €165m (-9%) (-9%)
- Australia & New Zealand €134m (+11%) (+3%)
- Switzerland €99m (-4%) (-9%)
- Emerging markets €382m (+13%) (+15%)
- Lee Hecht Harrison (LHH) €78m (+38%) (+35%).
Q1 2012 revenues (and revenue growth) by business line were:
General staffing €3,765m (0%) (-1%)
- Industrial €2,391m (-3%) (-4%)
- Office €1,374m (+6%) (+3%)
Professional €1,171m (+9%) (+6%)
- Information technology €597m (+11%) (+8%)
- Engineering & technical €286m (+13%) (+10%)
- Finance & legal €190m (+2%) (+0%)
- Medical science €98m (+2%) (+0%)
Solutions €99m (+31%) (+28%).
Analyst comments:
Overall revenue growth is in line, though slightly on the lower end, of similar providers reporting Q1 results thus far.
LHH, which provides career transition and career development services, had high overall revenue growth, but organically was down 1% yoy. In July 2011, Adecco Group acquired Drake Beam Morin, based in the U.S,. to enhance its career transition and talent development services, for €149m.
Solutions which includes RPO, MSP, VMS and Human Capital Solutions also had strong overall revenue growth, but was just up 1% organically. Limited growth was attributed to slowdown in the outplacement business, which in the bigger picture is a good thing meaning stability in the economy. MSP and VMS had strong double-digit growth in constant currency. RPO was not commented on separately but NelsonHall believes Adecco had a good Q1 as contracts that were signed in 2011 would have ramped up to generate revenue including:
- SI in the U.S.
- Dunn and Bradstreet in North America
- Gate Gourmet in North America.
-
HP Awarded 15-Year Payroll BPO and ITO Contract by UniCredit
HP has been awarded a major 15-year payroll and IT outsourcing contract by Italian financial services firm UniCredit Business Integrated Solutions SCpA.
Services to be provided by HP include:
- Payroll services for UniCredit active & retired employees in Italy and Austria
- Application transformation and modernization services to support UniCredit's ERP migration to a unified global implementation of SAP which will provide employee and manager self-service functions
- SAP hosting from a HP data center in Central Europe.
These services will be delivered via a jointly owned company called ES Shared Service Center SpA. HP has been working with UniCredit for ~10 years delivering a range of IT infrastructure and hardware services, primarily around the desktop.
UniCredit operates in 22 European countries and ~50 markets globally, with 9,500 branches and 160,000 staff.
Analyst comments:
This is not only a great win for HP's HR/payroll BPO business but also an important BPO contract in a region which has yet to widely adopt BPO.
The client was born as UniCredito Italiano in 1998 with the merger of several Italian banks. Since then the bank has made a number of acquisitions to expand its presence in Europe, including:
- Into Central Europe with the acquisitions in November 2005 of Hypo Vereinsbank Bank (HVB) itself the merger of two Bavarian (south Germany) banks and in December 2006 of Bank Austria (which is responsible Within UniCredit, Bank Austria for the growth region of Central & Eastern Europe).
- Into Eastern Europe, with the acquisitions in 2007 of ATF Bank in Kazakhstan and Ukrsostbank, and before that in 1999 of Polish bank Pekao.
In 2007, UniCredit merged with Capitalia Group, the third-largest Italian banking group, strengthening its position in Italy, but added considerably to its overhead costs.
A major driver for this outsource was the need for a platform to support globally standardized HR and payroll processes across the countries in scope (Italy, Austria plus a third country, serving, we estimate, ~98,000 employees). The client currently has three SAP HR platforms; HP has been tasked with harmonizing the systems. A single platform with optimized processes will mean not only harmonized optimized processes but also improved reporting on payroll. Even basic data such as employee numbers still eludes many large multi-national organizations operating with disparate payroll systems.
The BPO services in scope go beyond payroll, also including time & attendance, workforce admin, learning & development admin, mobility and ex-pat services. Service delivery is through a hub-and-spoke model comprising ~20-30% onshore delivery and 70-80% nearshore delivery, most probably using HP nearshore payroll capabilities in Poland. Cost savings from labor arbitrage was clearly also a major driver to outsourcing.
In a "lift & shift and then transform" model, HP has already started delivering payroll services to Unicredit employees in Italy and will serve Austria from June, while the platform transformation project will take until the end of 2015, with phase one due to be complete by 2013.
The contract involves the transfer or secondment of employees, mostly in Italy, but also in Austria to the new shared service center organization.
There are several possibilities for HP to expand the relationship over time, increasing the:
- Geographies in scope to include countries such as, for example, Poland
- Processes in scope, perhaps to activities such as F&A and check processing which are core capabilities of HP BPO.
NelsonHall believes this is the largest payroll BPO deal in the commercial sector to be announced this year; it will certainly go some way to replace the loss of the SPVA payroll contract with the U.K. MOD to CSC a month ago in what was ultimately a lowest cost selection.
For HP, as well as proving it remains a major player in 'payroll plus' BPO services, this should also be a great reference for its ability to deliver an end-to-end service combining AM, hosting and BPO.
-
Xafinity Claybrook Awarded Pensions Administration Software Contract by Pension & Benefit Services Limited in U.K.
Xafinity Claybrook has been awarded a contract for its Compendia platform for pensions administration by Pension & Benefit Services Limited (PBSL), a third party pension administration service provider in the U.K. PBSL supports 21,000 scheme members across 24 schemes.
PBSL is migrating its existing clients to the Compendia platform, which includes:
- Integrated workflow processes
- Automated calculations with data validations.
Analyst comments:
This is the first time Xafinity Claybrook is licensing its Compendia platform to another third party pensions administrator. Typically, pensions administrators either have a proprietary system such as Capita with HartLink or license a platform from a software provider as in the case of Mouchel with Heywood's Altair.
Xafinity Claybrook, part of Xafinity Group, supports ~10m scheme members with its software services. Xafinity Group's pensions administration division, Xafinity Paymaster, serves ~2.9m members. Xafinity Group is part of the Equiniti Group.
-
Towers Watson Announces Fiscal Q3 2012 Revenues Up 4% to $901.5m
Towers Watson has announced fiscal Q3 2012 revenues, for the period ending March 31, 2012, of $901.5m, an increase of 4% year-over-year (up 5% cc, up 4% organic).
Fiscal Q3 2012 revenues (and revenue growth) by segment were:
- Benefits: $520m (+2%, +3% organic)
- Risk & Financial Services: $219m (+6%, +2% organic)
- Talent & Rewards: $131m (+6%, +7% organic).
Fiscal Q3 2012 Benefits net operating income was $193m, a 37% margin.
Within its Benefits segment, including Retirement, Technology & Administration Solutions (TAS), and Health & Group Benefits, the company reported the following:
- Revenues for the Americas grew 6%, led by low double-digit cc growth in Health & Group Benefits from new client wins for strategy work including plan management and product sales
- Retirement revenues were flat organically; revenues for the Americas increased with new client wins for pension administration services and for strategic work; revenues for EMEA were down modestly from delayed project work due to delayed legislation and from a very strong fiscal Q3 2011
- TAS had mid-single digit cc growth from new client wins; additional growth was from demand for system modifications and new cost center clients.
Towers Watson has provided the following revenue guidance for FY 2012 of $3.45bn, and fiscal Q4 2012 of $855m-$870m with Benefits growth expected in the low to mid single-digit range of 4% cc. Specific guidance for the Benefits segment is:
- Retirement: low single digit growth
- TAS: mid-single digit growth
- Health & Group Benefits: low double digit growth
- NOI margin: mid 30% range.
Analyst comments:
Within the Benefits segment, revenue growth is driven by Health & Group Benefits, specifically plan management design due to cost pressures and regulatory uncertainty. Health care legislation has and will likely continue to create demand for strategy work regardless of the decisions from the Supreme Court.
The increase in strategy work within Health & Group Benefits will likely flow downstream to the Retirement and then TAS lines of business. Separately, the company continues to see an increase for pension administration services.
The company is planning to hire 362 additional employees across all its segments with the most in Benefits. The new hires within Benefits will be relatively proportional across each line of business. New hires will be distributed accordingly:
- 49% Benefits (72 for Retirement; 60 for TAS; and 40 for Health & Group Benefits)
- 38% Talent & Rewards
- 13% Risk and Financial Services.
Morneau Shepell is off to an excellent start this year, reporting record growth this quarter. In addition to its strong EAP and consulting segments, growth this quarter is from new client wins and contract expansions.
The company also began work on several outsourcing contracts it won in previous quarters as well as a large health management contract.