wall street eyes staffing rebound...dec05 feb06 apr06 jun06 aug06 oct06 dec06 feb07 apr07 jun07...

© 2013 Crain Communications Inc

Wall Street Eyes Staffing Rebound

Paul Ginocchio, Managing Director, Business Services and Education Equity Research, Deutsche Bank

Concurrent Session: Operations & Finance Track

TUE, FEB 26 10:15 AM CONGRESSIONAL

Sponsored by:

Deutsche Bank

Wall Street Eyes Staffing ReboundPaul Ginocchio, CFABusiness Services & Education Equity ResearchDeutsche Bank SecuritiesSIA Executive Forum 2013, Orlando

All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 072/04/2012

February 26, 2013

Paul Ginocchio, CFASIA Executive Forum

Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Source: Deutsche Bank Securities

Key Takeaways and Agenda

2

2010 DB Blue template

KEY TAKEAWAYS FROM MY PRESENTATION1. Learn how Wall Street thinks about Staffing2. Understand what investors look and pay for in a staffing company (growth &

efficiency)3. Key operating metrics which are correlated with efficiency

AGENDA1. Introduction and Jargon2. Staffing stock performance for the last 7 years in 4 slides3. Where are we in the staffing and economic cycle4. How this cycle is different from the last cycle + ACA5. What investors look for and pay for in staffing companies6. The conversion ratio7. Drivers of staffing agency efficiency


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Part 1: Bio and coverage universe

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Paul Ginocchio started with Deutsche Bank in London in November 1998 to initiate coverage of the Business Services sector on a pan-European basis. During Paul's over four years in London, he was consistently ranked in the top 3 individually by Reuters and also received runner-up recognition in Institutional Investor's survey. Paul moved to New York in February 2003 to initiate coverage of the Advertising & Publishing sector. He covered US newspapers, yellow pages, magazines, advertising agencies and marketing services and was ranked 3rd in II in 2007. In fall 2008, Paul returned to covering Business Services and in 2012 was second in Institutional Investor's All-America research survey after being third the prior year. He was also #1 in his sector in 2010 in the FT-Starmine awards for earnings estimates. Previous to Deutsche Bank, Paul worked for PwC in Valuation Services and was based in Chicago and London. He received a B.A. in Economics from North Carolina State Univ. in 1991, an MBA at Indiana Univ. (Distinction), and is a Chartered Financial Analyst (CFA).

Staffing Consulting / Info Services Education

Robert Half (RHI, Buy) Huron Consulting (HURN, Buy) Grand Canyon Education (LOPE, Buy)

TrueBlue (TBI, Buy) Towers Watson (TW, Buy) American Public Education (APEI, Buy)

Manpower (MAN, Buy) Equifax (EFX, Hold) DeVry (DV, Buy)

On Assignment (ASGN, Buy) Corporate Exec. Board (CEB, Hold) Corinthian Colleges (COCO, Hold)

Kforce (KFRC, Hold) FTI Consulting (FCN, Hold) Capella Education (CPLA, Hold)

Resources Global (RECN, Hold) Advisory Board (ABCO, Hold) Bridgepoint Education (BPI, Hold)

ITT Education Services (ESI, Sell)

Apollo Group (APOL, Sell)

Strayer (STRA, Sell)

New Oriental (EDU, Buy)Source: Deutsche Bank Securities


Feb 26, 2013

Deutsche Bank

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Financial jargon to be used in today’s presentation

4


Correlation = Measure of the effect of a change in one variable on the value of another variable

Gross Profit = GP ($ mark up)

EBIT = Operating Profit, aka Earnings Before Interest and Tax

EBITDA = Earnings Before Interest, Tax, Depreciation, and Amortization

PE = Price to Earnings ratio (most commonly cited valuation metric)

EV/EBITDA = Enterprise Value / EBITDA (Enterprise value is the market value of all equity and debt minus cash)


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Source: Factset and Deutsche Bank Securities

Part 2 Downturn: Staffers typically underperform when economy is decelerating & temp penetration declining

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MAN +17%

KFRC -2%SP500 -17%RHI -35%TBI -36%RECN -41%ASGN -48%

Four of six staffing stocks under performed from peak of temp penetration in Dec 2005 (1.97%) to the trough in temp penetration in Sept 2009 (1.33%)


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Temp penetration rose 28% from 1.34% in July 2009 to 1.72% in Dec 2010,which means temp penetration rose 0.02% a month on average

Early cycle: Investors like the staffing companies as they typically outperform early in the economic cycle

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ASGN +93%

KFRC +66%

TBI +42%MAN +31%SP500 +27%RHI +23%RECN +23%


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Mid-cycle slowdown: Recession fears & temp penetration near previous peak = under performance

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SP500 +15%

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KFRC -27%

MAN -41%

RECN -29%

Temp penetration rises only 9% from 1.72% in Jan’11 to 1.88% in Sept’12 (+0.008% / month)


Feb 26, 2013

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This time its different: Outperformance due to belief of an improving economy and ACA

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ASGN +18%

KFRC +25%

TBI +15%

MAN +42%

SP500 +4%

RHI +35%

RECN -10%

Temp penetration was 1.88% in Sept 2012 and is now 1.90% in Jan 2011


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Source: Bureau of Labor Statistics and Deutsche Bank Securities

Part 3: Where are we in the cycle?

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Based on last two cycles, we are approaching the peak in terms of number of temps (4.4% below all time peak in number of temps of 2.676m in April 2000 with 2.558m currently) and temp penetration rate (1.90% currently vs 2.03% in April 2000)

We are 45 months into this economic expansion versus 80 months of expansion in last cycle, ~120 months in the cycle before that, and 39 avg. months in all US business cycles back to 1854

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Temporary Help Services, SA (in Thousands) [LHS]

Temp Penetration Rate [RHS]


Feb 26, 2013

Deutsche Bank

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Source: BLS and Deutsche Bank Securities

Where are we in the cycle?

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Temp usage as a percent of incremental jobs created peaked at much higher levels in this cycle versus last, and has been steady at 10-15% of all new jobs since May 2011

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Temp Jobs Created as % of Total Jobs Created Since Trough in Non Farm Payrolls

Current Cycle (Mar 10 - Jan 13) Previous Cycle (Sep 03 - Jul 06)


Feb 26, 2013

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68.2% of all readings in a normal distribution should fall between the two bandsSource: Bureau of Economic Analysis and Deutsche Bank

Where are we in the cycle?

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Wages as a percent of nominal GDP are currently around 0.3 standard deviations below the 60-year relationship. This should mean stronger labor volume growth this cycle versus last.

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Working off excess labor during the up-cycle which muted growth

Hoarding labor at start of last temp cycle

Workforce cut aggressively


Feb 26, 2013

Deutsche Bank

Temp penetration: Bulls versus Bears


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Bulls

Greater incremental usage

ACA is game-changer

Growing economy almost always drives increased temp penetration

Temp penetration grew peak to peak last cycle ex IT

Bears

We are near peak penetration

6-7 months of temp penetration stagnation

ACA will cause a recession and temp penetration will fall

No exec will risk their company by using more temps to avoid incremental ACA costs


Feb 26, 2013

Deutsche Bank

Part 4: ACA should drive temp penetration to record highs


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Healthcare reform creates four opportunities for Temporary Staffing firms Lower wage, higher churn employee opportunity

13.3m workers making between $20-60k who do not have insurance from their employer. If 5% of these workers are made temp, adds 25% more temps to the US temp market.

Less than 50 FTE opportunity 21m workers at companies with between 20 and 99 total employees.

Interpolating, this means 2.5m workers between 45 and 55 employees (50,000 companies). If half of the companies make a workforce change due to the ACA and each hires three more temps, it would add 3% more temps to US temp market. RHI cites 130,000 companies (40-50 EEs)

Quality of the temp labor pool increases Everyone will have access to healthcare coverage, even those with pre-

existing conditions, so more people will chose to be temps Help companies reduce their administrative burden


Feb 26, 2013

Deutsche Bank

What Towers Watson is telling and hearing from large companies


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Jane Jensen, Senior Healthcare Consultant and lead Acturary on HC reform and HC reform consulting strategy for clients1. Ms. Jensen recommends to large employers to use more temps within a

range of solutions that includes: part-time, temps, outsourcing, and restructuring employee healthcare benefits

2. One of Ms. Jensen’s two dozen clients is heading down the path of using significantly more temps

Potential Negatives1. Companies may focus on restructuring healthcare benefits first (2014?),

and workforce restructuring second (2015?)2. Large companies first response to HR reform is to move workers to part-

time, the secondary response is to increase temps/outsource


Feb 26, 2013

Deutsche Bank

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Source: Bureau of Labor Statistics, Staffing Industry Analysts, and Deutsche Bank estimates

US temp penetration last cycle impacted by IT

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While IT staffing contracted, Non-IT staffing grew 26% peak to peak with a likely 10% rise in peak temp penetration

BLS data shows temp wages grew about 9% from ‘00 to ’06

IT temps were likely down 23% peak to peak, which we believe caused the overall temp penetration rate to be flat peak to peak


Feb 26, 2013

Deutsche Bank

Temp penetration stagnating right now (but its done this before)


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What are your theories why temp penetration has been flat for 8 months?

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Months of StagnationJun12 to Jan13 Dec10 to Aug11

Temp penetration spiked 0.16% from July’11 to July’12

Do we see another spike?


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Source: Company data and Deutsche Bank Securities

Part 5: Staffing company differences - Exposures

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Investors typically looking to gain exposures to something they think

will outperform or underperform, for example:

Manpower Group Robert Half

Generalist (~64% of GP) vs Professional (~80%) Light Industrial (~48%) vs Acc’t & Finance (~65%)

Large Clients (~55%) vs SME Clients (~80%)

Temporary (87% of GP) vs Permanent (22% of GP)

European (65%) vs US (72%)


Feb 26, 2013

Deutsche Bank

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What investors pay for?

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The easiest answer is successful strategies within a given exposure. We believe successful strategies are defined by:

Higher organic revenue growth = market share gains

Strong incremental margins = good operating leverage….

…which leads to better EPS growth


Feb 26, 2013

Deutsche Bank

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How do investors determine a successful strategy?

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Organic revenue growth

compared to peers with similar exposures

versus the market

Conversion ratio

versus the peer group

versus last cycle for the company


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Source: Dice, Wanted Analytics, Monster, Company data and Deutsche Bank Securities

IT Staffing Organic Revenue Growth

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On Assignment has shown the fastest revenue growth since 2H10

Kforce has been slower growing, but this is likely due to its larger contract exposure

Manpower (not shown above) has been showing recent declines in its US IT staffing business

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DICE - Contract Positions YoY

KFRC - IT Organic grow th

M EI - Science & Tech YoY

Wanted Analytics IT YoY

RHI - Tech Rev Grow th YoY

ASGN - IT & Engineer YoY


Feb 26, 2013

Deutsche Bank

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Light Industrial Staffing Organic Growth Rate

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TrueBlue has been growing its US blue collar business faster than most peers for over a year

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Spherion Corporation

Kelly Services

TrueBlue

Barret Business (ex PEO)


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Source: Company data, Factset and Deutsche Bank Securities

The Market pays for Organic Revenue Growth

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• The correlation between TrueBlue’s stock price and its organic revenue growth since January 2008 is 62% (which means 62% of TBI’s share price change is explained by the change in organic revenue growth)

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Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Source: Adecco data and Deutsche Bank Securities

Part 6: Conversion Ratio

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Conversion Ratio = EBIT / Gross Profit Conversion Ratio 25% = $5 EBIT / $20 Gross Profit This is the “true” operating margin of the firm as it excludes the pass through costs, which are salaries of the temps and government taxes

It measuresthe efficiencyof SG&A

Personnel Cost73%

Premises Expenses

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Marketing3%

Depreciation3%

Consultants & Associates

3% Bad Debt Expense1%

Adecco 2011 SG&A Breakdown


Feb 26, 2013

Deutsche Bank

Comparison of Randstad's Three Operating Divisions

Mass-Customized In-House Professional

Euro mil l ions 2005 2006 2007 2005 2006 2007 2005 2006 2007Sales 5,463 6,479 6,687 909 1,222 1,935 288 518 616 GM 1,204 1,412 1,562 124 168 272 79 153 197 SG&A 924 1,051 1,132 92 105 162 60 104 145 EBITA 280 362 430 32 63 110 19 49 52 Working Capital 333 268 234 30 47 122 20 32 42 PP&E 54 69 78 1 1 2 3 7 12

Total Branches YE 1,660 1,937 1,855 527 666 944 48 67 87 Avg. Corporate Staff 11,310 12,620 13,600 1,160 1,310 2,010 440 910 1,400 Avg. Flexworkers 214,300 257,100 291,000 37,000 50,000 72,400 3,100 5,200 5,800

Gross Margin 22.0% 21.8% 23.4% 13.6% 13.7% 14.1% 27.4% 29.5% 32.0%SG&A / Revs 16.9% 16.2% 16.9% 10.1% 8.6% 8.4% 20.8% 20.0% 23.5%EBITA Margin 5.1% 5.6% 6.4% 3.5% 5.1% 5.7% 6.6% 9.5% 8.5%

Conversion Ratio 23.2% 25.6% 27.5% 25.6% 37.3% 40.4% 24.0% 32.2% 26.6%

EBITA / Avg. Op. Assets 86% 100% 132% 88% 159% 128% 79% 160% 113%

Temps / Branch 129 133 157 70 75 77 65 78 67 Temp / Consultant 19 20 21 32 38 36 7.0 5.7 4.1 Consultants / Branch 6.8 6.5 7.3 2.2 2.0 2.1 9.2 13.6 16.1 Revs / Flexworkers 25,500 25,200 23,000 24,600 24,400 26,700 93,000 99,600 106,200 Revs / Branch 3,291,000 3,345,000 3,605,000 1,725,000 1,834,000 2,050,000 6,006,000 7,731,000 7,080,000 Revs / Consultant 483,000 513,400 491,700 783,800 932,600 962,800 655,200 569,200 440,000 EBIT / Branch 168,400 186,600 231,500 60,000 93,800 116,400 393,800 732,800 602,300 EBIT / Consultant 24,700 28,600 31,600 27,200 47,700 54,700 43,000 54,000 37,400

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Source: Historical company data and Deutsche Bank estimates

Conversion Ratio

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Any well executed strategy can produce a strong conversion ratio


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template


Comparison of Conversion Ratios over time

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ASGN regained its crown as the most efficient temp staffing company, after new management arrived in late 2004

ASGN was back to peak efficiency in 2011 while the peers were still 30% below


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Source: Company data, Factset, and Deutsche Bank Securities

The market pays for an improving conversion ratio

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• On Assignment’s share price is 64% correlated to its conversion ratio

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Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Note: Share prices are indexed to October 2007 market peakSource: Factset, and Deutsche Bank Securities

Staffing company stock price performance since 2007 market peak

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On Assignment’s IT staffing exposure and conversion ratio improvement have led to outperformance

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ASGN: +283%

KFRC: +27%TBI: +14%

RHI: +31%

S&P 500: +1%

MAN: -16%

RECN: -41%


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Source: Company data, Staffing Industry Analysts, Factset, and Deutsche Bank Securities

Market liked On Assignment’s Apex Systems deal partly due to Apex’s successful strategy (part I)

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2004 2005 2006 2007 2008 2009 2010 2011IT industry Revs ($ millions) 15,800 17,400 19,000 20,500 19,800 15,800 17,900 20,600IT industry rev growth YoY 10.5% 10.1% 9.2% 7.9% -3.4% -20.2% 13.3% 15.1%Apex revs ($ millions) 120 182 301 398 402 383 547 705Apex rev growth YoY 46.3% 51.7% 65.4% 32.2% 1.0% -4.7% 42.8% 28.9%Apex market share 0.8% 1.0% 1.6% 1.9% 2.0% 2.4% 3.1% 3.4%Apex growth / IT industry growth 4.4x 5.1x 7.1x 4.1x -0.3x 0.2x 3.2x 1.9x

Apex has been an incredible market share gain story

Since Apex has come out of hyper-growth mode, conversion ratio has spiked higher


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Note: Share prices are indexed to 3/15/12 opening pricesSource: Factset and Deutsche Bank Securities

Market liked On Assignment’s Apex Systems deal partly due to Apex’s successful strategy (part II)

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Not many stocks go up 25% when the company acquires and doubles the size of its revenue base

Price of Apex Systems also attractive, in our view at ~9x 2011 EBITDA (after subtracting the $100m value of the tax shield), or ~6.5x our ’12E

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Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Part 7: How public companies drive efficiency

30


In review, there are two key fundamental drivers of staffing share prices:

Organic revenue growth

Operating Efficiency (margins)

In this next section we are going to discuss the key drivers of operating efficiency

Defining and determining drivers of market share gains is a huge topic and one where I likely can’t find statistically significant drivers


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template


2011 EBIT per Employee: The dominant metric

31


Since >70% of SG&A costs are personnel, EBIT per employee is a key performance metric.


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template


2011 EBIT per Employee vs Conversion Ratio

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Correlation = 67% Strong relationship between EBIT per Employee and Conversion Ratio

$38.9k $29.8k $25.6k $25.0k $24.5k $23.0k $20.1k $19.3k $19.1k $17.6k $16.9k $7.2k

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Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Source: Company Data and Deutsche Bank Securities

What drives EBIT per Employee?

33


Each of On Assignment's divisions have very different characteristics Bill rate, gross margin (mark up), assignment length, temps per internal employee

These characteristics generate very different levels of GP per employee

Brand On Assignment On Assignment Oxford Vista On Assignment On Assignment Apex

Staffing discipline nm Life Sciences IT/Engineering Physician Allied Health Nursing ITLTM Temp Rev($m) as of 3/2012 $1,368 $164 $285 $88 $54 $44 $733Percent of revenue 100% 12% 21% 6% 4% 3% 54%Branches* 125 45 14 5 24 2 49Rev per branch ($m) $11 $4 $20 $18 $2 $22 $15Internal Employees 2,380 290 600 200 138 52 1,100Temporary employees 11,370 2,200 1,500 270 800 300 6,300Bill rate per hour $64-$65 $35 $116 $190 $37 $69 $60Length of Assignment (months) 3.7 4.5 5 1.5 2.5 2.25 5Gross margins (temp) 29.5% 33.5% 34.8% 31.1% 32.0% 22.0% 26.4%Client size na Large Medium Large Large Large LargeGP per temp assignment na $7,400 $28,300 $12,400 $4,100 $4,800 $11,100Temps per client na 2.4 <2 1 1.7 2.5 10.9Temps per Internal Employee na 7.6 2.5 1.4 5.8 5.8 5.7Revs per Internal Employee na 565,500 475,000 440,000 390,100 851,100 666,400GP per Internal Employee na 189,400 165,300 136,800 124,800 187,200 175,900


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Source: Company Data and Deutsche Bank Securities

Comparison of EBIT per employee drivers - Example

34


Brand On Assignment On Assignment

Staffing discipline Life Sciences NursingLTM Temp Rev($m) as of 3/2012 $164 $44Percent of revenue 12% 3%Branches* 45 2Rev per branch ($m) $4 $22Internal Employees 290 52Temporary employees 2,200 300Bill rate per hour $35 $69Length of Assignment (months) 4.5 2.25Gross margins (temp) 33.5% 22.0%Client size Large LargeGP per temp assignment $7,400 $4,800Temps per client 2.4 2.5Temps per Internal Employee 7.6 5.8Revs per Internal Employee 565,500 851,100GP per Internal Employee 189,400 187,200

Nursing and Life Sciences are highest GP per internal employee divisions at On Assignment….

…but have very different drivers.


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template


What drives EBIT per Employee

35


Bill RatePay Rate

Gross ProfitTemp Cost

GP per PlacementTaxes / Workers Comp

Length of Assignment GP per Employee

Temps per Employee

EBIT per EmployeeEmployee Salary

Branch Costs Cost Per EmployeeOverhead per Employee

Employees per Branch

In the following slides we are going to look at the drivers I can analyze


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template


Drivers of EBIT per Employee: Temps per Employee

36


2011 Temps per employee vs EBIT per Employee: correlation = -10%

Negative correlation could highlight professional more profitable than generalist staffing

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EBIT per Employee [LHS] Temps per Employee [RHS]


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Note: Correlation excludes Michael Page due to Michael Page’s 80% perm GP exposureSource: Company data and Deutsche Bank Securities

Drivers of EBIT per Employee: Gross Margin

37


2011 Gross Margin vs EBIT per Employee: correlation = 31%

$38.9k $29.8k $25.6k $25.0k $24.5k $23.0k $20.1k $19.3k $19.1k $17.6k $16.9k $7.2k

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EBIT per Employee [LHS] Gross Margin [RHS]


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Note: Correlation excludes Michael PageSource: Company data and Deutsche Bank Securities

Drivers of EBIT per Employee: Employee per Branch

38


2011 Employee per Branch vs EBIT per Employee: correlation = 37%

Seems to be a definite industry trend to increase branch size, it creates culture and continuity. Internet has also increased geographic reach of branch.

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Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Source: Company data and Deutsche Bank Securities estimates

EBIT per Employee over time

39


EBIT PER EMPLOYEE ($000s) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 '11 vs '07 '11 v '10

Manpower NA 12.0 16.8 16.3 20.0 23.0 20.9 4.9 12.9 19.1 -17% 48%

Adecco NA 22.5 24.8 23.2 32.1 36.8 33.0 15.8 31.9 33.2 -10% 4%

Randstad 9.2 14.4 26.3 27.3 38.4 46.4 32.8 13.3 25.4 24.2 -48% -5%

USG People 17.9 2.0 8.1 17.6 32.6 30.7 25.3 7.9 12.3 13.8 -55% 12%

Vedior 14.8 15.2 17.5 19.3 21.1 24.5 NA NA NA NA NA NA

Kelly Services NA 1.1 3.9 6.6 9.2 6.1 4.4 (5.9) 5.5 7.2 17% 30%

SFN Group NA 0.9 NA NA NA NA NA NA NA NA NA NA

True Blue NA 11.8 22.0 31.1 31.0 27.7 22.1 5.5 12.1 19.3 -30% 59%

Generalists Avg 13.5 9.2 17.0 20.4 27.2 28.5 23.1 6.9 16.7 19.5 -32% 17%

Robert Half NA 2.7 28.1 37.8 38.4 33.4 29.1 5.8 11.8 23.0 -31% 94%

MPS Group NA 18.2 23.4 34.1 42.4 42.4 32.9 7.1 NA NA NA NA

CDI NA NA 4.9 11.2 11.9 29.1 19.5 1.7 8.9 29.8 2% 236%

Kforce NA 7.0 8.1 22.7 30.6 33.4 24.4 15.4 21.2 24.5 -26% 16%

Resources Global 54.1 57.4 141.5 151.7 118.0 99.4 95.1 5.6 41.1 45.3 -54% 10%

On Assignment 49.6 6.3 (30.5) 0.9 24.2 52.2 45.7 20.6 20.2 38.9 -26% 93%

ComSys NA 26.8 25.0 41.4 50.8 59.3 44.1 29.8 NA NA NA NA

Michael Page NA 17.0 32.0 41.9 57.5 67.6 40.1 8.1 34.0 27.2 -60% -20%

Hays NA NA NA NA NA 54.6 40.2 19.0 26.8 39.5 -28% 47%

Sthree NA NA 41.1 49.1 62.5 59.7 40.5 18.6 21.5 26.1 -56% 22%

Specialists Avg 51.8 19.4 30.4 43.4 48.5 53.1 41.2 13.2 23.2 31.8 -40% 37%

Total Average NA NA 25.5 31.2 37.9 40.4 30.9 9.8 19.0 22.3 -45% 17%


Feb 26, 2013

Deutsche Bank

$38.9k $29.8k $25.6k $25.0k $24.5k $23.0k $20.1k $19.3k $19.1k $17.6k $16.9k $7.2k

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EBIT per Employee 13E P/E [RHS]

22/02/2013 16:03:06 2010 DB Blue template

* Note: Correlation excludes Michael Page due to Michael Page’s 80% perm exposureSource: Company data and Deutsche Bank Securities

EBIT per Employee to PE

40


77% correlation = Very strong relationship between PE (value of company) and operating efficiency


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template


Conclusions

41


The market obviously pays for growth and margins

As our examples showed, sometimes stocks are more correlated to organic growth while others are more correlated to operating efficiency

Investors are going to judge you versus the market and your closest peers, particularly in terms of revenue growth

Gross margins do not tell the whole story

Companies can have great conversion ratios with low gross margins, and can have bad conversion ratios with high gross margins

A successful strategy will produce a high conversion ratio, in our view

Drivers of the conversion ratio (EBIT per employee) that I would focus on: Employees per Branch - more controllable than pricing (gross margin)

Length of assignment – may enable higher temps per employee

E-mail me if you would like to get on my research distribution list [email protected]


Feb 26, 2013

Deutsche Bank

22/02/2013 16:03:06 2010 DB Blue template

Important DisclosuresAdditional Information Available upon RequestDisclosure Checklist Company Ticker Price (02/ 22/ 13) Disclosure Adecco ADEN.VX CHF 53.90 14 Hays plc HAS.LN 97 pence 14 Kforce KFRC $14.49 2 ManpowerGroup MAN $54.90 14, 17 Michael Page Int' l plc MPI.LN 430 pence 6,14 On Assignment ASGN $20.68 7 Randstad RAND.AS Eur 32.76 none Resources Connection RECN $12.58 2 Robert Half Int' l RHI $35.36 none TrueBlue TBI $18.83 none

1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees.

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in securities issued by this company or derivatives thereof.5. The research analyst (or, in the US, a member of his/her household) is an officer, director, or advisory board member of this company.6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company.7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services

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calculated under computational methods required by German law (data as of the last trading day of the past month).11. See footnote headed Special Disclosures for any other relevant disclosures.14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year.15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-

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For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com.

42



Feb 26, 2013

Deutsche Bank


Buy: Based on a current 12-month view of total shareholder return (TSR = percentage change in share price from current price to projected target price plus projected dividend yield), we recommend that investors buy the stock.

Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock.

Hold: We take a neutral view on the stock 12 months out and, based on this time horizon, do not recommend either a Buy or Sell.

Notes:

1. Newly issued research recommendations and target prices always supersede previously published research.

2. Ratings definitions prior to 27 January, 2007 were:

Buy: Expected total return (including dividends) of 10% or moreover a 12-month period

Hold: Expected total return (including dividends) between -10%and 10% over a 12-month period

Sell: Expected total return (including dividends) of -10% orworse over a 12-month period

Equity Rating Key Equity Rating Dispersion and Banking Relationships

43

Analyst CertificationThe views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Paul Ginocchio, CFA


Feb 26, 2013

Deutsche Bank


Regulatory Disclosures

1. Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the “Disclosures Lookup” and “Legal” tabs. Investors are strongly encouraged to review this information before investing.

2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank’s existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.

3. Country-Specific Disclosures

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44


Feb 26, 2013

Deutsche Bank

Global DisclaimerThe information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Deutsche Bank makes no representation as to the accuracy or completeness of such information.Deutsche Bank may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within Deutsche Bank, including strategists and sales staff, may take a view that is inconsistent with that taken in this research report.Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. 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