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Europe – Business outlook improving for Adecco

25 November 2013

The 2014 business outlook for Europe is becoming more positive as improvements in the operating performance, supported by a modest macroeconomic improvement, have been visible across the board, says Moody's Investors Service.

Some business-to-business (B2B) companies are increasingly reporting a return to organic growth or a deceleration of sales declines for their European operations. Moody's expects the European operations of several companies, including Adecco S.A. to report positive organic growth by year end.

Knut Slatten, an Assistant Vice President in Moody's Corporate Finance Group, commented: "Compared with the downturn in 2008-09, European B2B services companies have been able to protect profitability… Adecco has restructured their European operations and now has a leaner structure… Adecco [has also] favoured profitability over revenues by giving up loss-making contracts."

Pressure on organic growth persists in France, a key market for a number of rated B2B services companies, but the effect on profit will be mitigated by the new French tax credit measure (CICE). France is among the largest markets for many of the services companies. Whilst the operating environment remains challenging, profitability will be helped by the recently introduced tax credit; benefitting companies with a high number of low-to-medium salaried employees, such as Adecco.

A return to economic growth would particularly benefit companies with high operating leverage like Adecco. European services companies tend to have substantial fixed costs because of their greater proportion of personnel expenses. Moody's expects that Adecco will grow EBITDA more quickly than revenues as they should be able to accommodate faster growth rates without significantly adding to costs.

Moody’s findings are in line with Staffing Industry Analysts’ forecast for 2014, which shows GDP growth rising and overall sector improvement. 

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