In defining our EBITA-margin targets, we have been fully aware of the challenges and opportunities presented by economic cycles. During the downturn in 2009, we achieved significantly better financial results than we did during the previous, much milder, downturn in 2001. In 2012 and 2013, we also showed that we can react quickly in adjusting the organization. This was in part due to our field steering model, which enables operational managers to monitor and manage our performance on a regular basis.
At its lowest point, our underlying EBITA margin was 2.5%, compared to 1.8% in the previous downturn (2001 and 2002). Despite a much more severe revenue decline, profitability was maintained in almost all countries, while during the previous downturn, profitability was dependent on the Netherlands only. We continue to apply lessons learned in the past.
how we manage through the cycle
In managing through the cycle, three factors are important: revenue, costs of services, and operating expenses.
Both our wide geographic spread and our diversified business mix help us to manage the risk of revenue volatility in a downturn. We continue to experience diverging trends for different countries and segments. These considerations confirm our belief that our strategy of diversification is effective.
cost of services
Cost of services are mostly flexible, consisting largely of salaries we pay to our candidates, wage taxes and social security premiums. In Germany and the Netherlands, the HR services sector has its own collective labor agreements with competitive labor costs. In return, the number of commitments we make to our candidates is limited.
In general, the more flexible the operating costs, the lower the risk. Personnel costs are the largest component in our cost base. Using our ABFS model, we know when and where we have to increase or reduce staff. In a downturn, savings are achieved through natural attrition (i.e., by not replacing consultants who leave the organization). In 2009, we managed to decrease our annualized cost base by € 800 million (i.e., 28%), 75% of which was mainly achieved through natural attrition in personnel. Bonus and commission schemes are equally flexible. Particularly in our Professionals businesses in the US and the UK, bonus and commission schemes form a far larger proportion of total compensation than in our traditional Staffing business, and associated costs move with the change in volumes. Another substantial cost item is accommodation costs. These are kept flexible by limiting lease terms to a maximum of five years. The average term is therefore only three years. The main way in which accommodation costs have been driven down has been to combine smaller branches into larger ones. Over the past few years, we have made IT costs flexible by outsourcing several functions. Where possible, a single national IT platform is used to lower fixed costs. We have also standardized our marketing tools by using a central photo database for all concepts, and we develop marketing campaigns and materials that are used internationally. Marketing investments are strategically important to maintain our brand awareness and to gain market share.