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.
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Latest Edition: February 3, 2012
Contains commentary and insight from NelsonHall analysts on key HR outsourcing industry developments that impact your sourcing decisions
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Kelly Services Announces Q4 2011 Revenues Up 5.3% to $1,396m
Kelly Services has announced Q4 2011 revenues, for the period ending January 1, 2012, of $1,396.3m, up 5.3% year-over-year.
Full year 2011 revenues increased 12.1% to $5,551m.
Revenues (and y-o-y growth) for Q4 2011 by segment were:
- Americas Commercial $675.6m (+4.5%, +5.0% constant currency (cc))
- Americas PT $243.7m (+6.0%, +6.2% cc)
- EMEA Commercial $238.8m (+4.2%,+3.2% cc)
- EMEA PT $44.9m (+8.9%, +8.1% cc)
- APAC Commercial $93.8m (-8.0%, -7.7% cc)
- APAC PT $12.3m (+38.4%, +40.3% cc)
- Outsourcing Consulting Group (OCG) $94.4m (+25.9%, +25.9% cc)
Revenues (and revenue growth) for full year 2011 by segment were:
- Americas Commercial $2,660.9m (+9.6%, +9.2% constant currency (cc))
- Americas PT $982.8m (+10.6%, +10.5% cc)
- EMEA Commercial $990.1m (+13.6%, +5.6% cc)
- EMEA PT $178.9m (+21.2%, +13.4% cc)
- APAC Commercial $397.6m (+11.9%, +4.1% cc)
- APAC PT $51.4m (+58.1%, +48.9% cc)
- Outsourcing Consulting Group (OCG) $317.3m (+24.5%, +23.6% cc).
Revenues from services in Q4 2011 by region and country were:
- Americas $996.8m (+6.5%, +6.8% cc)
- United States $883.8m (+6.5%, +6.5% cc)
- Canada $60.9m (+8.4%, +9.4% cc)
- Mexico $26.2m (-5.0%, +4.8% cc)
- Puerto Rico $25.9m (+14.2%, +14.2% cc) - EMEA $290.6m (+5.4%, +4.4% cc)
- France $71.2m (-1.5%, -0.8% cc)
- Switzerland $62.0m (+22.4%, +14.5% cc)
- Russia $33.4m (+18.9%, +20.7% cc)
- United Kingdom $29.1m (+2.1%, +2.6 % cc)
- Portugal $21.6m (-1.1%, -0.4% cc)
- Germany $20.1m (+5.0%, +5.7% cc)
- Norway $17.8m (+24.4%, +20.8% cc)
- Italy $17.7m (+3.3%, +4.0% cc)
- Other $17.7m (-25.9%, -24.5% cc) - APAC $108.9m (-4.4%, -4.0% cc)
- Australia $35.1m (-13.5 %, -15.7% cc)
- Singapore $24.4m (+1.5%, +0.3% cc)
- Malaysia $17.6m (+10.7%, +11.9% cc)
- India $13.3m (-21.5%, -11.2% cc)
- New Zealand $13.0m (+8.6%, +6.1% cc)
- Other $5.5m (+23.9%, +23.4% cc).
In Q4 2011 net earnings were $24.1m compared to $14.6m in Q4 2010.
Analyst comments:
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ManpowerGroup Announces Q4 2011 Revenues Up 5.3% to $5,484m
ManpowerGroup has announced Q4 2011 revenues, for the period ending December 31, 2011, of $5,484m, up 5.3% yoy (up 5.8% in constant currency).
Q4 2011 revenues (and revenue growth) by activity were:
- United States $765.9m (-1.4%) (-1.4% in CC)
- Other Americas $389.8m (+12.1%) (+18.3% in CC)
- France $1,511.0m (+5.4%) (+6.3% in CC)
- Italy $305.3m (+3.8%) (+4.6% in CC)
- Other Southern Europe $196.3m (+3.9%) (+6.5 in CC)
- Northern Europe $1,540.9m (+3.2%) (+3.8% in CC)
- Asia Pacific Middle East $695.0m (+18.2%) (+14.5% in CC)
- Right Management $79.8m (-8.2%) (-8.6% in CC) .
Full-year 2011 revenues (and revenue growth) by activity were:
- United States $3,137.3 (+12.7%) (+12.7% in CC)
- Other Americas $1,512.1m (+19.5%) (+18.4% in CC)
- France $6,179.1m (+18.6%) (+12.6% in CC)
- Italy $1,255.8m (+20.3%) (+14.2% in CC)
- Other Southern Europe $776.9m (+11.2%) (+6.8% in CC)
- Northern Europe $6,159.4m (+15.3%) (+9.3% in CC)
- Asia Pacific Middle East $2,661.7m (+24.0%) (+14.2% in CC)
- Right Management $323.7m (-13.6%) (-16.6% in CC) .
ManpowerGroup Solutions, which includes RPO, MSP and vendor management services, had gross profit growth of 25% in Q4 and 22% for full year 2011.
Full year 2011 revenue for ManpowerGroup Solutions was up 30% y-o-y. APME had the largest revenue contribution in RPO in 2011, led by the Australian Defense Contract. RPO contracts numbers awarded and closed in 2011 were led by North America, followed by APME, including China
Analyst comments:
Recent investments in Chine by ManpowerGroup include:
- Acquiring REACH HR to expand its presence in South China
- Acquiring Xi' an Fesco and partnering with the city of Kaifeng in Henan Province to expand its presence in west and north central China. Through its partnership with the city of Kaifeng, ManpowerGroup has access to millions of workers in North Central China, which is important to support China's infrastructure build-out of inland China
- Launching a workforce services strategy across China's manufacturing sector and announcing a partnership with China's Ministry of Industry & Information Technology to develop a talent exchange center.
Due to slow growth thus far in the quarter, largely attributed to uncertainty around Europe's debt problem, ManpowerGroup anticipates overall revenue growth in Q1 2012 of 1-3%, 0-2% in constant currency, with the highest growth anticipated in APME of 11-13%, 7-9% in constant currency.
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Fidelity Investments Launches Online Video Series on Pensions to Educate DB Participants
Fidelity Investments has launched an online video series on pensions to educate DB participants on their plan benefits. The videos are available through Fidelity's NetBenefits portal and include topics on:
- What a pension plan is versus a 401(k) plan
- How pension benefits grow
- When a participate can initiate payments
- Pension participation
- Payment information including tools to estimate payments
- Beneficiary elections after death.
Analyst comments:
This is the latest step Fidelity has taken to help its participants make more informed retirement decisions. Other resources include:
- Its myPlan tool, which offers online retirement advise based on answers to a few questions
- An educational video outlining tax implications and advantages of various pension payment options (i.e., annuity payments, lump sum payments)
- Its phone representatives who have recently received new training on retirement planning decisions and related questions.
Other HRO service providers have been launching similar initiatives to educate both DB and DC participants. Examples include:
- Aon Hewitt's DC advisory offering: providing online personalized advice and professional management with Financial Engines serving as a sub-advisor
- ADP's strategic advisory services group: helping clients maximize the value of in-depth benefits data and analysis
- Mercer's RetireTALK: an interactive website with hypothetical scenarios, to motivate and educate users on retirement planning.
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Morneau Shepell Acquires SBC Systems Company to Strengthen U.S. Presence.
Morneau Shepell has acquired SBC Systems Company, a provider of employee benefits administration systems, to strengthen its presence in the U.S. SBC's benefits platform is offered both onsite and through a SaaS model and provides:
- Self-service functionality
- Management reporting
- Workflow
- Integration with vendors and internal departments.
Through this acquisition, Morneau Shepell is now part owner of SBC Systems UK. Terms of the deal were not disclosed.
Analyst comments:
NelsonHall estimates that ~10% of Morneau Shepell's benefits administration revenues are generated in the U.S. 2011 estimated revenues for SBC were ~$7m. While this will not substantially increase Morneau Shepell's U.S. market share, it may be a catapult for cross-selling additional services to SBC's client base, particularly with its EAP offering.
Ancillary with this acquisition is that Morneau Shepell will expand into the U.K. and Europe through its joint venture with SBC Systems UK.
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Serco to Cut 500 Jobs in Management Overhaul
Serco is to axe ~500 jobs in the U.K. as part of a management overhaul and in order to globalize and integrate its BPO services. The cuts are likely to be focused on the company's HR and IT functions in the U.K..
Analyst comments:
Serco has been steadily extending its BPO business to other geographies and verticals to shield itself against large fluctuations in demand in its core U.K public sector market. Since 2008, the company has made ~$1.1bn worth of acquisitions overseas, including SI International in the U.S., Infovision and Intelenet in India, and, more recently, Excelior in Australia. Serco's Africa, Middle East, Asia and Australia (AMEAA) division grew by >40% in FY 2010/2011.
Serco's traditional front-line 'blue collar' service delivery business does not lend itself to automation on a large scale. As such it has not been able to achieve cost reductions through technology and off-shoring in the same way that other service providers have. However, by extending the range and reach of its offerings, the company can now take advantage of its off-shore resources to globalize and even industrialize some business processes. These are most likely to be used in Serco's new target verticals such as banking, retail and telecom, and most likely in India, Middle East and Australasia. Intelenet, alone, brought Serco 34 delivery centers in 7 countries. Serco is aiming to gain efficiencies by better aliging and globalizing its assets and resources.
Serco can also take advantage of its off-shore resources to provide back-office services to support its own ~100k strong workforce, which is why the HR and IT divisions in the U.K. are likely to go. Furthermore, with attitudes towards offshoring back-office functions in the U.K. public sector softening, Serco will be looking to tap into those resources to lower the cost of its services to the public sector while continuing to provide front-office services on-shore.
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ADP Announces Fiscal Q2 2012 Employer Services Revenues Up 7% to $1,827.1m
ADP has announced fiscal Q2 2012 revenues for the period ending December 31, 2011 of $2,583m, up 7% year-over-year, and up 6% organically.
Fiscal Q2 2012 revenues (and revenue growth) by activity were:
- Employer Services $1,827.1m (+7%, +5% organic)
- PEO Services $413.8m (+16%, +16% organic)
- Dealer Services $412.6m (+7%, +7% organic).
Within Employer Services:
- The number of employees on U.S. client payrolls increased by 2.8%
- Employer Services and PEO Services worldwide new business sales increased 14% in fiscal Q2 2012 and customer retention declined 0.2% due to a client loss
- Pretax margins declined 120 basis points due to acquisition activity, higher sales and implementation expenses, and investments in services and products.
ADP has revised its prior guidance for full year 2012:
- Employer Services and PEO Services new business sales growth of 12%, up from its prior forecast of 8%-10%
- Employer Services pretax margins up 30 bps, compared to prior forecast of 50 bps because of higher sales expense from an increased sales growth forecast, lower growth in average client funds balances, lost earnings from the sale of assets, and the impact of acquisitions closed
- PEO Services pretax margins with slight improvement, up from its prior forecast for flat margins
- Dealer Services revenue growth of 9%-10%, up from its prior estimate of 8%-9%.
Analyst comments:
ADP's acquisitions including Workscape continue to pay off, contributing to revenue growth in the form of new business. In fact, ADP had its highest sales record in terms of dollar value to date this quarter. Revenue growth was also from an increase in the number of employees on its clients' payrolls.
In addition to acquisitions, ADP has been making investments internally to enhance its offerings, recently launching an advisory service for its benefits administration clients.
Outside the U.S., sales in Canada, Australia, and Brazil were strong as ADP focuses on expanding its footprint in large and emerging markets. As part of this initiative, ADP recently acquired Randstad's payroll business in India (see separate article).
Its PEO Services segment saw a 13% increase in average worksite employees paid to ~251k.
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KnowledgePool Launches TrainerAdvisor Portal For Selection of Training Suppliers
KnowledgePool has launched TrainerAdvisor, a portal for selection of training suppliers.
TrainerAdvisor will be launched January 25 and contains over 12,000 training suppliers in just the U.K. Information obtained includes customer references and member feedback.
Analyst comments:
KnowledgePool is a U.K. based learning BPO (LBPO) pureplay provider, recently interviewed by NelsonHall as part of its latest LBPO market analysis, including vendor profiles. KnowledgePool does not perform delivery of courses itself, but rather provides vendor management of learning delivery. This allows KnowledgePool to maintain a supplier neutral stance and enable working with a wide range of learning delivery organizations as required by clients for reasons including:
- Impartial selection
- Consistent terms and conditions across a supplier base
- Discounted rates.
Between 85% and 90% of courses administered by KnowledgePool are instructor-led training (ILT).
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Pinstripe Awarded 21 RPO Contracts and Extensions in 2011
Pinstripe has been awarded 21 RPO contracts and extensions in 2011. Client sectors include:
- Technology
- Manufacturing
- Energy
- Financial services
- Consumer services
- Healthcare.
Analyst comments:
Two of the contract extensions, Johns Manville and Rayonier, were announced in June 2011. Johns Manville is a two-year extension and Rayonier is a three-year extension, both expanded scope.
Johns Manville, originally a two-year contract, is its second extension with Pinstripe for an additional two years. Original scope of services was for professional hiring; the expansion includes assistance with implementation of an ATS.
Rayonier was originally a three-year contract for professional hires for one division;the new three-year contract expands the services was to include all professional and hourly hiring for all divisions.
Pinstripe revenues were up 58% in 2011 year-over-year as compared to 2010.
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ADP Acquires Randstad's Payroll Business in India
ADP has acquired Randstad's payroll business in India from its Indian subsidiary, Ma Foi Randstad. Ma Foi offers managed payroll services and social benefits administration to ~350 multinational and domestic clients in India through a customizable payroll engine.
Over 200 employees will transfer to ADP. Terms of the transaction were not disclosed.
In 2009, ADP established a partnership with Ma Foi in India for its Streamline service.
Analyst comments:
Through this acquisition, ADP has taken its partnership with Ma Foi to the next level. The acquisition will provide ADP with a greater presence in India, which will be important in its larger strategy to expand its HRO business in large and developing markets. ADP's HRO revenues in India are small compared to most other countries, but acquiring an established provider in the region will help provide a quick boost.
HRO Insight: October 17, 2011
Contains commentary and insight from NelsonHall analysts on key HR outsourcing industry developments that impact your sourcing decisions
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ADP Acquires The RightThing to Expand RPO Capabilities
ADP has acquired The RightThing, a RPO provider and parent company of AIRS, which focuses on recruitment training and technology. Financial terms of the deal were not disclosed.
Analyst comments:
This is a strategic move by ADP that will benefit it in two significant ways.
This acquisition enhances ADP as a multi-process HRO (MPHRO) provider. While all MPHRO service providers offer some form of recruitment services, only ~40% offer end-to-end RPO. ADP now joins this group and puts itself in quite a unique and powerful position. Currently, ADP offers recruitment administration and technology, while The RightThing has end-to-end RPO capabilities including sourcing, onboarding, employment branding, etc.
In addition, this acquisition will position ADP as a leader in the North American RPO market in terms of revenue. In NelsonHall's recent Targeting RPO market analysis, The RightThing's 2010 revenues rank it first among providers in North America and fourth globally. The RightThing also has business in the U.K., Continental Europe, and Latin America, which ADP can build on.
While many MPHRO service providers have established partnerships with RPO specialists (e.g. IBM with KellyOCG and Manpower, Xchanging with Alexander Mann, Talent2 with Allegis Group) ADP is the first MPHRO provider to have acquired a RPO specialist. RPO will often not be included in a MPHRO contract because the buyer prefers to rely on a RPO specialist. An example of this is AstraZeneca who has a MPHRO contract for HR administration and payroll with NorthgateArinso on its euHReka platform and a separate RPO contract with The RightThing. This combination may be what ADP needs to grow its MPHRO business further and capture more MPHRO market share.
This acquisition is also beneficial to The RightThing, who will keep its strong brand name and be referred to as "The RightThing, an ADP company." Through this deal, The RightThing gains access to a huge (~500k) mid-market client base and has the ability to quickly expand in all geographic regions by leveraging ADP's global presence. The company also has a vast portfolio of HRO services from ADP it can now offer its clients.
The RightThing brings ~80 RPO clients to ADP who are mostly from the large market. It will continue to operate its business with its ~700 employees as it has under the ADP name. The deal has already closed with ADP and The RightThing operating as a single business unit.
In the immediate term, both companies will focus on cross-selling their respective services to their existing client base. ADP's fiscal year 2011 revenues, ending June 30, were ~$9.8bn. The combined entities are estimated to yield >$10bn in FY 2012.
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NorthgateArinso Launches euHReka 2.07 OnDemand HRMS
NorthgateArinso (NGA) has launched euHReka 2.07, the latest release of its SAP-based OnDemand HRMS. euHReka 2.07 is available in 51 countries and 33 languages. The new release includes succession planning and talent pool management capabilities. Other new features include:
- Flexflows: allows multiple users to collaborate on employee life events such as changes in personal details, entry re-entry to the organization, retirement, promotion/demotion, internal/external transfers, and leaves/suspensions; identifies where and when additional data and approval actions are required; and routes info to the appropriate person
- Paperless payslips, benefit statements, and reward statements
- Global employee management capabilities: keeps employee records such as time management and payroll across countries; responds to different legal and data requirements for a single employee; and supports expat management process
- Enhanced learning capabilities: allows for timely feedback from learners and automatically integrates learning time into timesheets
- User interface improvements: including "balloon on hover" navigation for easy access to additional details.
The new version of euHReka will be available to existing euHReka clients through automatically deployed updates.
Analyst comments:
NGA's euHReka was launched for BPO in 2003, and in March 2009, the company released euHReka OnDemand. euHReka is NGA's global platform that is targeted at large organizations. NGA clients utilizing the euHReka platform include AstraZeneca and Invensys. Another client on the euHReka platform is Fifth Third Bancorp, a client that NGA inherited when it acquired Convergys' HR Management (HRM) business in March 2010.
euHReka 2.08 is slated for release in H1 2012.
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Xafinity Launches Automatic Enrollment Offering for Pensions Administration in the U.K.
Xafinity has launched an automatic enrollment (AE) offering for pensions administration in the U.K. The AE offering:
- Identifies who to automatically enroll and when to enroll them
- Sets a course of action for all stakeholders
- Runs financial analysis on different scenarios and take-up rates based on employee data, and selects a strategy that supports corporate objectives
- Provides AE administrative services including member communications; employee identification; auto-enrolling, opting out, and re-enrolling employees; and reporting.
Analyst comments:
Xafinity is the first pension administration provider in the U.K. to announce an AE offering. NelsonHall expects other U.K. pension admin service providers such as Capita and Mercer to launch similar offerings in the near future to assist companies with complying with the AE requirement of the Pensions Act of 2008.
Xafinity recently established a partnership with NOW: Pensions, an independent multi-employer trust supported by ATP, Danish pensions provider, to facilitate AE.
Xafinity along with Equiniti make up the Equiniti Group, which was formed in 2010.
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Capita Awarded £105m Pensions Administration Contract by U.K. Pensions Regulator
Capita has been awarded a £105m pensions administration contract by the U.K.'s Pension Regulator to support its direct communications and transactional processes with employers for automatic enrollment of staff into workplace pension schemes.
Capita's primarily responsibilities for the Pension Regulator include:
- Communicating campaign messages to employers
- Communicating AE duty dates to employers
- Ensuring employers register with the regulator
- Operating a customer contact center
- Some enforcement activities such as administering compliance notices and penalties for non-compliance.
The contract is for 7 years with an option to extend for a further 3 years, beginning in October 2011.
Automatic enrollment (AE) into pension schemes will occur in phases between October 2012 and September 2016, based on employer size with large organizations starting first.
Analyst comments:
The AE requirement of the Pensions Act of 2008 will likely lead to an increase in outsourcing now that the first staging date, for large organizations, is just one year away. The new AE requirements will provide ample opportunities for benefits administration service providers including:
- Identifying eligible employees on an on-going basis
- Providing required communications
- Calculating and deducting appropriate contributions
- Managing opt-outs and opt-ins
- Recordkeeping and report generation.
Capita, who recently announced that it will acquire NorthgateArinso's pension business and its ~64 clients, will be looking to improve its market share in the pensions administration arena by expanding services with existing clients to include AE duties. NelsonHall currently ranks Capita as number 8 in the U.K. benefits administration market in terms of revenue.
Kelly OCG had a solid quarter and year. In Q4 RPO revenue was up 17% y-o-y and contingent outsourcing was up 46%. Full year 2011 RPO revenue was up 40% y-o-y, largely attributed to increased volumes of hiring by existing clients. In RPO growth can occur by increased hiring of current scope and if the client is highly satisfied, scope can be increased to include additional types of positions and geographies for MNC's.
Kelly OCG is seeing increased demand for new RPO clients in 2012 so expect for another good year of growth.