Global economy worries prompt staffing group Adecco to lower sights

[ZURICH] Wariness about the sluggish economic backdrop, particularly in Europe, has forced the world's biggest staffing group to lower its profitability expectations.

Switzerland's Adecco said on Monday it expected an average margin target for 2016-2020 of 4.5-5.0 per cent. That is down from approximately 5.2 per cent for 2015, a goal it had already cut from above 5.5 per cent in November.

The target is for earnings before interest, tax and amortisation (EBITA) and excluding one-offs. It also contrasts with some of the company's rivals - Dutch staffing agency Randstad and US-based ManpowerGroup - which posted faster underlying growth last year.

Adecco had been counting on acceleration in European economic growth that did not materialise, forcing it to pare expectations.

Even so, new chief executive Alain Dehaze said he aims to grow revenues organically "at least in line with main peers" and deliver operating cash flow conversion of around 90 per cent on average for the 2016-2020 period.

In the first two months of the fourth quarter, revenues increased by 5 per cent organically and adjusted for trading days, with a similar trend in December, Adecco said.

That is slightly above the 4 percent organic revenue growth achieved in third quarter, it said, resulting from a "slight uptick" across many regions in Europe, in particular France.

Growth in North America remained stable, the company said.

Adecco kept its policy to pay out 40-50 per cent of adjusted net earnings and a commitment to pay at least a stable dividend "barring seriously adverse economic conditions," it said, stressing its commitment to an investment-grade debt rating.

Mr Dehaze said Adecco would continue looking for"buy-and-build" takeover targets.

Its shares, which have dropped as much as 16 per cent since early December, gave up early gains to trade lower on the day. "The strategy update seems like a more pragmatic and balanced approach to running the business," Barclays analysts said. "Given prior re-investment concerns, this should reassure, returning the focus of the investment case to what it has been historically - a largely macro call." Analysts said the fitness of the economy itself remained the biggest wild card for performance.

While strong industrial data from France - its biggest market - proved promising for Adecco, analysts said worries over a US industrial slowdown presented a downside risk.

REUTERS