Kelly Services Inc (KELYA) 2008 Q3 法說會逐字稿

Good morning, and welcome to the Kelly Services third quarter earnings conference call. (OPERATOR INSTRUCTIONS) Today's call is being recorded at the request of Kelly Services. If anyone has any objections, you may disconnect at this time. I would now like to turn the conference meeting over to your host, Mr. Carl Camden, President and CEO. Sir, you may begin.

Thank you, Alex, and thank you all for joining us on Kelly Services 2008 third quarter conference call. Let me briefly review today's agenda. I will lead off with a few comments on how the current economic situation is affecting the labor market and then we will turn our attention to Kelly's earnings and third quarter operating results by segment, and following that Patricia Little, our Executive Vice President and CFO, will provide more detailed financial commentary and, finally, I will make a few closing comments before opening the call for questions.

Let me remind you that any comments made during this call, including the Q&A, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments. Please refer to our 2007 10-K for a description of risk factors that could influence the Company's actual future performance. In addition, we also make reference to non-GAAP performance measures. Please refer to the schedules attached to our press release for information on the performance measures and comparison to our reported financial results.

As our headline numbers show, we have just concluded a very difficult third quarter. The combined widespread economic slowdown and anxiety over the worst global financial crisis in decades has led to businesses reducing expectations and, as a result, companies are slowing their capital spending and most germane to us, scaling back their hiring plans. Consequently, demand for temporary staffing is declining at an accelerating rate. In the US, September saw the ninth straight month of overall job losses, almost 160,000 jobs. In fact, jobless claims are now as high as they were immediately post 9/11.

The unemployment rate is 6.1%, the highest in five years, and since January the US economy has lost 760,000 jobs compared to a creation of 2.1 million jobs in '06 and 1.1 million in '07. The declines in demand for temporary staffing have been even sharper and more prolonged. Temporary employment has posted 18 consecutive months of year-over-year declines with September's drop being the highest in this cycle. More notably, the rate of decline in professional and technical staff enquickened and placement and other fees were down as well.

Outside of the US we are now seeing economic contraction and higher unemployment rates elsewhere in the world, including both western Europe and Asia. While it's true that Kelly isn't overly exposed to the most volatile sectors, heavy manufacturing, construction, or financial services, we cannot escape the fact that we are and will continue to be influenced by the pervasive economic instability we are facing, especially in the US. As we have said before, ours is a cyclical business and there can be no question that deteriorating global economic conditions were a significant depressant to our third quarter earnings performance.

In addition, we recorded a $23.5 million pretax charge substantially related to several wage an hour class action lawsuits. On an after-tax basis, the charge was $14.5 million or $0.42 per diluted share. As you may be aware, class action and collective litigation involving workplace issues have grown exponentially in recent years. At Kelly, we are taking proactive steps to lessen the future risks of similar litigation. I want to stress although the legal charge had a negative impact on our third quarter results, these lawsuits did not affect core business operations or long-term strategy. Netting it all out, we had a quarterly net loss from continuing operations of $0.33 per share, excluding the legal charge we would have earned $0.07 per share. That includes the $0.45 per share earned in third quarter of 2007 excluding restructuring charge.

Now let's take a closer look at the results of our individual business segments beginning with America's commercial which is 44% of revenue. Reported revenue in America's commercial declined over 9% in the third quarter, an accelerated slowing from the 6% drop seen in the first half of the year. Intra quarter, year-over-year revenue was down 8% in July, 9% in August and 11% in September. Historically, we typically have a seasonal increase in hiring beginning in late July and continuing through November. However, this year the seasonal increase started much later in the quarter and at a slower rate than normal.

Further, revenue and both commercial and professional and technical for the month of September was adversely affected by hurricanes. We estimate the negative impact to America's commercial to be roughly 1 percentage point. Our combined temp to perm and direct placement fees reported a 14% year-over-year decrease for the quarter, well below the 4% decline we saw in the second. The largest contributor to this decline was our temp to perm fees. Combined fees exhibited much volatility. July was down 15%, August held flat and September was down 24%.

Sequentially, in 2008 third quarter placement fees were about 7% lower than in the second. Our gross profit rate had been holding up pretty well under these rate challenging economic conditions. For the previous nine consecutive quarters our gross profit rate equaled or exceeded the prior year. For the current quarter, the gross profit rate was 15.4%, 30 basis points lower than the same period last year. Sequentially, this was also a 30 basis point decline from the second quarter. The drop was primarily the result of fewer favorable worker compensation adjustments from prior years. We remain focused on maintaining good expense control in our America's commercial segment, reducing spending this quarter by over 2% compared to last year.

Without jeopardizing our long-term prospects, we continue to prudently minimize spending through targeted staff reductions, lower incentive compensation and by reducing expenses not related to sales generation and order fulfillment. However, negative expense leverage on the 9% revenue decline resulted in year-over-year operating earnings for America's commercial being down about 47%.

Next is America's professional and technical, which is about 16% of company revenue. Revenue dropped by 3%, again slower than the 1% growth in the first quarter. In tri quarter quarter, year-over-year revenue was down 2% in both July and August and 6% in September. During the quarter, the slowing economy began to affect more of our PT businesses and we also estimate that the hurricane effects added 2 percentage points to September's revenue drop. Our engineering business was particularly hard hit.

With regard to professional, which represents about 25% of America's PT revenue, year-over-year revenue was down 2%, about the same as in the second quarter. Earnings were also down compared to the same period last year. This performance was principally driven by decline seen in our finance business resulting from cut backs in hiring and less outsourcing. On the other hand, our healthcare business reported nice revenue growth in earnings increases and our law business reported improved revenue in earnings performance over the second quarter.

Next is our technical businesses representing about three-quarters of PT revenue. Technical revenues were down 4% in the quarter and earnings were also down compared to last year. During the third quarter, as I mentioned, our engineering business was adversely affected by the hurricanes reporting lower quarterly revenue. On a positive note, our science business continued to post solid earnings year-over-year while earnings in our IT business improved as well.

Combined temp to perm and direct placement fees for professional and technical were down 16% compared with the same period last year and slower than the flat performance seen in the second quarter this year. The largest contributor to this decline was our [PT] direct placement fees. Intraquarter combined fee performance showed accelerating declines of 8% in July, down 13% in August and down 25% in September. The lower year-over-year fee performance was concentrated in the finance and law businesses while most of the other technical businesses reported low single digit declines in placement fees. Sequentially, third quarter placement fees were about 9% lower than in the second.

For the entire segment, the gross profit rate dropped 70 basis points to 17.0% in the quarter as compared to 17.7% for the same period last year. This gross profit rate decline was primarily due to the lower fees. For the quarter the expense increase was 1% our lowest rate of increase of the year in this segment. As I mentioned earlier, we are carefully managing our expenses, including making staff reductions in some of the hardest hit business, lower incentive compensation and limiting expense increases to strategic initiatives that will fuel long-term growth. In a difficult environment, PT earnings were down 24%. Despite the headwinds, we are pleased that several of our individual businesses are still delivering solid revenue and earnings performance.

Let's turn now to our operations outside of the Americas beginning with EMEA which comprises 28% of our revenue. EMEA commercial continued to slow in the third quarter with reported revenue increasing 6% compared with the 10% increase in the second. On a constant currency basis revenue was up 1% and excluding the acquisition of Randstad Portugal, constant currency revenue was down 2%. For the remainder of my EMEA discussion, all revenue results will be discussed in constant currency.

By month during the quarter, excluding the acquisition, July was down nearly 3%, August was flat and September was down 4%. With the general economic conditioning worsening during the quarter in Europe, our business there was negatively impacted especially in the UK and to a lesser extent, western Europe. Revenue in the UK was down 8% in the quarter and with the exception of Italy and Norway which exhibited modest growth, wester Europe plus Scandinavia was down roughly 3% on an organic basis.

On the other hand, in eastern Europe we continue to see strong sales performance with revenue growth of nearly 50% largely driven by our strong performance in Russia. Continuing the slowing trend in fees in seen in the second quarter, reported fee revenue for the third was flat year-over-year. By month, July was down 1%, August was up 5% and then September down 3%. The quarterly GP rate increased by 60 basis points to 17.8%. This improvement was due to a receipt of a $2.4 million related to the 2005 payroll taxes in France.

Excluding the Portugal acquisition, expenses increased 10% due to additional investments in new EMEA branches in eastern Europe and costs associated with the closing of eight commercial branches in western Europe. We anticipate these closures will reduce operating costs by more than $2 million annually. EMEA commercial reported an operating profit of $4 million for the quarter and that's a decrease of about $700,000 compared to the same period last year.

EMEA professional and technical, which is about 3% of total company revenue, also slowed during the quarter growing 3% compared to 6% growth in the second. Particularly strong growth was seen in France, Germany and Switzerland. Th e gross profit rate in this segment was relatively flat compared to last year.

PT expenses increased by 18% reflecting our investments in this region, particularly western Europe, where late in the quarter we completed the acquisition of Toner Graham, a specialized account and financial recruiting company headquartered in the UK. Including this acquisition, expenses grew by 15% for the quarter. As an aside, for the entire EMEA region expenses were down 1% sequentially compared to the second quarter and excluding acquisitions expenses were down 5%. EMEA PT operating earnings were over $400,000 compared to over $1 million last year.

Our APAC region, which comprises 8% of total company sales experienced a more rapid slowing this quarter. We attribute this to the deteriorating economic landscape of the region and additionally the political climate in countries such as Malaysia, New Zealand, and Thailand has further fueled uncertainty in the region causing companies to become more cautious slowing down their hiring plans.

Commercial revenue in APAC grew by 5% year-over-year during the third quarter compared with 17% growth in the second. On a constant currency basis, revenue increased 2%. The gross profit rate year-over-year remained about the same.

Earnings from commercial operations declined 84% during the third quarter on a year-over-year basis compared to a 66% decline in the second due to our continued investments in the region. Exhibiting considerable slowing as well, PT revenue for the third quarter in APAC grew almost 15% year-over-year compared to a nearly 60% increase in the second. On a constant currency basis, revenue increased by roughly 10%. The gross profit rate declined to 31.2% from 33.3% achieved in the same period last year. On a year-over-year basis earnings from operations for APAC PT showed modest improvement.

On a combined basis with more pronounced slowing in the region we are focusing on proactively managing our operating expenses to bring them more in line with current revenue trends. Expenses for the region during the quarter were up 12% year-over-year but declined 6% compared to the second quarter. Despite a careful eye on expenses, we will continue to make selective strategic investments in this region for the long term.

Our final segment is our out sourcing and consulting group representing 4% of total company revenue. OCG revenue increased by 32% in the third quarter compared to the same period last year. This was down from the 60% year-over-year revenue increase we reported in the second quarter. All three regions of OCG, while still showing positive year-over-year growth, are now feeling the affects of the economic slow down. The negative affects are most visible and our executive placement unit in Asia, which experienced a sequential drop in fee revenues of nearly 6% from the second quarter. Our recruiting process outsourcing practice, RPO, in Europe also declined showing a 29% reduction in revenues in the quarter compared to the second.

On a positive note, we continue to see very solid growth from the (inaudible) group, our career transition unit, and Kelly vendor management services with third quarter growth rates versus last year of 82% and 45% respectively. OCG's total gross profit rate was 31.1% compared to 26.9% for the same period last year. This improvement continues to be the result of improved margins in our RPO unit combined with revenue growth in our fee based business units.

In response to declining, we have slowed our investment activities for the quarter. Expenses were up just over 2% sequentially compared to the second. This increase is primarily attributable to the roll outs of our new Kelly Connect and the relaunch of our independent contractor services business unit. On another more timely note, just this morning we have announced the joint agreement with IBM to provide a globally integrated solution RPO solution.

Year-over-year, earnings were down $1.8 million compared to the same quarter last year resulting in a slightly better than break even quarter for the division. All three OCG units showed lower earnings than a year ago. The Americas earnings drop was primarily a result of our investment in new services. Declines in Europe and Asia were the result of delays and implementation and corresponding revenue streams from new client wins. This coupled with softness in the European RPO and Asian executive placement business had a severely significant negative impact on these two region's results. However, with our servicing infrastructure for these programs already in place, we should see immediate leverage as clients ramp up. Now I will turn the call over to Patricia who will cover quarterly results for the entire company.

Thank you, Carl. Before I get into the details, as Carl noted, we took a pretax charge of $23.5 million or $0.42 per share for litigation expenses in the third quarter. Of the $0.42, $0.40 was for continuing operations and $0.02 was for discontinued operations. Additionally, you may recall that we recorded a restructuring charge of $2.5 million or $.05 per share in the third quarter of 2007. All of the comparisons referenced this morning are for continuing operations, excluding last year's restructuring charge.

For the quarter revenue totaled $1.4 billion, a decrease of 2% compared to last year. That's down from the 3% growth rate we reported in the second quarter. On a constant currency basis revenue decreased by 4% compared to last year. As Carl discussed, this reflected a revenue fall off in the Americas which more than offset smaller increases in EMEA and APAC. Our gross profit rate was 17.6%, an increase of 30 basis points compared to last year. The increase is primarily due to OCG margins and to the French payroll tax offset by the nonrecurrence of workers comp benefits in the Americas from last year. As you would expect in this economic environment we are focusing attention on expenses.

Let me spend a few minutes on SG&A and expenses in general. On a year-over-year basis, excluding the litigation charge, selling, general and administration expenses are up 6% due to investments in EMEA, APAC, and OCG. Currency rates also contributed to the increase accounting for 2 points of the 6% increase. SG&A expense decreased by 2% in our Americas commercial segment and by 12% in our corporate headquarters due to lower incentive compensation. Compared to the second quarter, SG&A expense, excluding the litigation charge, was down slightly.

Let me give you a couple of examples of the types of things we are doing to reduce expense without affecting customer or employee service. First, we re-engineered our forms and marketing distribution with our vendors. This allowed us to close a warehouse and reduce inventory and waste. We expect savings of about $1 million a year from this action. Second, we are in the process of customizing our broadband service to the needs of our branches. This action will lead to ongoing savings in the range of $1 million to $2 million annually. Our focus on expenses is to reduce ongoing costs in order to allow us to continue to strategically invest in the future and avoid cuts which would hamper our ability to leverage up when the global economy turns around.

Our loss from operations, which includes the $22.5 million of litigation expense, totaled a loss of $14.5 million compared to income from operations of $23.2 million last year. Without the litigation expense, we would have had operating earnings of $7.9 million. The effective tax rate in the third quarter was 21.2%. This compares to 30.5% in the third quarter of 2007. The unfavorable change in the rate is primarily due to market losses on our management retirement plan assets which are not deductible for tax purposes. Diluted loss per share from continuing operations totaled $0.33 per share compared to adjusted earnings from continuing operations of $0.45 in 2007. As I said, the litigation charge was worth $0.40 per share leaving $0.07 of earnings per share before the charge.

Turning to the balance sheet, I will provide a few highlights. Cash remains strong totaling $114 million. Of course, we have been keeping a closer eye on our investments over the last months. We remain comfortable with our conservative investment policy which emphasizes goals of maintaining the principal and liquidity of invested cash. Accounts receivable totaled $914 million and increased approximately $10 million compared to the prior year. Our receivables continue to increase faster than sales due to the significant growth in our vendor management business. As we have said before vendor management service billings are not included in revenue but are included in accounts receivable.

For the quarter our global DSO was 51 days, one day better than the prior year. Debt increased to $115 million compared to $98 million at year end as a result of our acquisitions of Randstad Portugal and [Toner Graham]. We have carefully maintained a conservative capital structure with limited and prudent use of debt financing. At the end of the third quarter, debt to total capital remained conservative at 13%. On October 10, we closed and funded a three-year syndicated term loan facility of $24 million at favorable terms. The funds were used to refinance the short-term borrowings related to our two acquisitions. As a result, $75 million of the total $115 million of debt is now long-term and we have available capacity of $136 million on our multicurrency revolving line of credit.

Turning to our cash flow. Net cash provided by operating activities was $86 million compared to $50 million last year. The improvement was primarily related to improved working capital driven by salary and wage payment timing. In times like these it is a very strong comfort and a corporate advantage to have a strong balance sheet that demonstrated ability to borrow and positive cash flow. I will turn it back over to Carl for some concluding thoughts.

Thank you, Patricia. Prior to the mid September melt down, some business leaders and economists were suggesting that this downturn might be short lived. While we all hope that would be true, the current reality obviously tells us otherwise. The slow down has persisted and a turnaround does not seen imminent. Government and industry leaders, economists, businesses, consumers are struggling to answer questions like how long will this recession continue, how deep will it get and how do we all manage through this turbulent time. For Kelly, the answer lies in continued commitment for our strategy for long-term growth. We will continue to minimize risk for the short-term and to take actions that we believe will create value for shareholders in the long-term.

In times like these it is important to manage expenses carefully and take necessary steps to reduce costs where we can. As Patricia discussed, we made progress during the quarter and we will look for additional cost saving opportunities without diminishing our ability to compete. In key growth areas around the world we will continue to invest confident that cautious investment will yield benefits in the long run. Amidst all the turmoil, our overarching goal remains unchanged, to position Kelly as the staffing company of choice and that means growing globally, expanding our progressional and technical services to meet demand, and increasing fee income through outsourcing and consulting offerings. We believe that our long-term strategy is good and that good things are worth fighting for.

Although this period is extremely challenging as a company, we are in a stronger position today than we were in the last downturn. Kelly has become more geographically diverse. We have broadened our business mix and response to employment trends. We maintained operating profitability in all of our segments and our deliberate decision to maintain a strong balance sheet with low debt enables us to better manage through even through the economic downturns. So while the short-term is admittedly a bit gloomy for our industry, I believe the long-term outlook for Kelly and the industry is bright. This will end our formal comments. Patricia and I will now be happy to answer your questions. Alex, the call can now be opened.

(OPERATOR INSTRUCTIONS) We have a question from the line of Tobey Sommer with SunTrust Robinson. Please go ahead.

Thank you. I wanted to ask a question about the upcoming election in just a couple weeks. When you look at the legislative agendas that granted may be limited somewhat by the financial constraints of the crisis we are undergoing right now. What things do you see on the horizon for the industry and for Kelly that could be beneficial?

All the questions I was expecting, Tobey, that wasn't high on the list. Let me sort through the answers here for you. Good question. First off, I think that one of the greatest impediments for growth in our industry has been the lack of healthcare coverage and availability. While I think that both candidates have various healthcare proposals, I had hoped this election would provide a very strong [empotice] for healthcare reform.

I do think funding concerns in the federal government may limit that. I'm hopeful that in terms of a generic uplift for the industry that in either case we will get to a position of having more accessible healthcare coverage for folks. I think that some of the rhetoric that I have heard from both parties on a desire to cut back on free trade and so on I think could dampen, if it was actually executed which I have my doubts, export activities, that happens to be one of the stronger areas of the American economy, I would fret about that. Labor policies by the democratic administration have not been particularly aimed by the Obama campaign have not been particularly aimed at the staffing industry. In fact, there are a fair number of staffing representatives from whom he draws counsel and I think that there is an understanding of that. I don't think for the next year or two we would see significant legislative outcomes of any type affecting the industry.

Thank you. I wanted to -- regarding the healthcare potential opportunity, what proportion -- isn't there a small percentage of temporary people that you place that generate a disproportionately large percentage of the revenue?

Correct. For most staffing firms that are broadly mixed, not so much some of the more industrial firms anywhere from 20% to 25% of the temporaries would account for 70% to 80% of the total hours billed. That group is the group that is obviously most concerned to access to healthcare.

Right. Thank you. I wanted to ask you a question about Europe and Asia, just kind of shifting gears to the quarter itself and what you saw in early October. Were there any areas in those markets, particularly relative to perm, whether it is temp to perm conversion or direct hire that were positive in terms of the surprise or was it frankly kind of a universal surprise at how quickly the deceleration manifested itself?

I was in my search for good positive uplifting news. There was no particular segment inside Europe and Asia. You heard us talk about in the US some still strong growth in healthcare as an example. There weren't particular disciplines in Europe and Asia that really popped as somehow withstanding the trend and increasing placement fees.

I will ask one last question and get back in the queue. Regarding the fairly resilient growth in eastern Europe led by Russia are there, in your opinion, enough structural reasons that those markets could show what's called above average performance if this global slow down continues to gain momentum?

As long as above average doesn't always necessarily mean a commitment to positive, yes. I think that the resource extraction economy and the USSR -- I'm sorry and Russia -- that was a throw back to my youth -- I think the resource extraction economy in Russia is still solid, will do fine no matter what happens during the cycle. Eastern Europe in general still continues to be a source of well trained professionals with a fair amount of movement in that. I think we will see looking at eastern Europe versus western Europe, you will continue to see stronger growth there.

Thank you. I guess I will ask one more question, if I could. You mentioned two cost cutting items, warehouse and broadband initiative. Are those merely examples of things that you have on your priority list or does that exhaust the list that you currently have on the table?

It would be disappointing if it exhausted the list. Those are just examples, Tobey. I do have to let others pop onto the call.

Thank you so much.

(OPERATOR INSTRUCTIONS) We do have a question from the line of Thomas Robillard with Banc of America. Please go ahead.

Great. Thank you. Guys, my upfront apologies here with the overlapping of staffing calls just literally joined here. I wanted to get a sense and if I'm being repetitive, tell me to reread the transcript. I know you are not giving guidance and I'm sure you have probably been asked this question. If we are trying to get a sense with how rapidly the slow down is globally and how much things, particularly in September, have slowed in a variety of US and European markets, how can we think much your ability to adjust on the cost side as you look to balance the depth of the downturn as well as the length of the downturn? Can we get to a point where we saw at some point for you guys in your recent history where you had a slight loss back in early '03 or based on what you have been able to do with restructuring in the US and I'm sure at some point in your European markets, will you be able to mountain at least some level of profitability through the downturn?

I would just note, I don't think we had a slight loss in '03. It was close one quarter. I can't make forward comments. I don't think how long this particular downturn will reside. You follow the industry. You know as well as we do as you are bringing down expenses you never bring down expenses sufficient to cover off the GP decline. You are merely mitigating some of the damage that is taking place. We are good at that and we will continue to do so.

In terms of what -- how this -- how and when it all bottoms out, I'm as interested in knowing Banc of America's view as to when an upturn happens and how it happens and that's the defining parameter for what the long-term impact of the slowdown is. Kelly will continue to take expense reductions as we talked about. You saw a sequential decrease in expenses this quarter. We will continue to look at holding down expense growth. How well that plays out depends on how long and sharp the downturn is. Inside the transcript, Thomas, you'll see month by month breakdown for all of the segments.

That's perfect. Just, unfortunately, Banc of America's view probably would be incrementally disappointing as our economists basically expect [GDP] contraction in the US and have lowered numbers for the rest of the world for all of '09. I guess maybe another thing to ask is where do you see opportunities for investment? I think one of the interesting parts is just how -- the pace of the slow down here. My guess is here it really damages a lot of weaker competitors where as the last downturn you probably could have had people hold on longer than many would have thought. Does this give you guys an opportunity not for basic share gain but also where do you think there are going to be opportunities in markets for you to invest through this downturn?

I never look down on basic share gain which is a always a goal to continue to drive that. We noted during the conversation units that were exceptions and were growing well here at Kelly scientific resources we noted as an exception, Kelly healthcare. The OCG business we noted had slowed a lot from the second quarter down to a mere plus 30% growth. There are units that are obviously still doing well, still growing.

In particularly if you look inside the outsourcing and consulting unit we talked about our BMS and our RPO business growing very, very robustly. In fact, in the transcript you will see and you will also find out on the wire an announcement today of a strategic partnership to provide a global end to end integrated RPO offering between IBM and Kelly Services. There are areas like that that we will continue to invest in. In terms of what may or may not come up in acquisitions, Kelly has always responded to those opportunistic opportunities and will continue to do so.

That's great. I appreciate the comments. Thanks, Carl.

(OPERATOR INSTRUCTIONS) We do have a question from the line of Michel Morin with Merrill Lynch. Please go ahead.

Good morning. I was wondering and again apologies also if I missed this. Typically as the growth rate slows the business will tend to throw off quite a bit of cash flow, so I was just wondering how you are thinking about your use of that cash flow?

One, I hope the businesses don't decline and I don't have to sort all of that out. Staffing industry is one that, in general, you are correct, as year-over-year sales declines, cash increases, and again you probably missed some of the commentary from Patricia on the balance sheet, but we will maintain a healthy war chest to see us through no matter what the economy throws at us or for how long. After that, we have always said we would look at, and I just answered Thomas' question, we would look at opportunistic events as they came up.

We will continue to invest in some of the strategic businesses like OCG that we had talked about before, and that's been basically what we have talked about in the past and wouldn't make any other comments until we get a much better handle on both the shape of this downturn and what type of cash is being generated. I always remind people who answer those questions that while the industry does generate cash in the downturn, it then chews up a significant amount of cash in the upturn. Companies that get themselves in trouble often don't get themselves in trouble until the upturn because they used up all that cash that was being generated during the downturn.

Got it. Going back the last couple of years you've rationalized your branch network in the UK and in the US, I don't know if you addressed this already, but do you have any plans to do a further round of branch rationalizations?

One comment on future plans, again in the transcript earlier we talked about having shut down eight branches inside western Europe and that generating now post disclosure $2 million and expense saved. We will always look at branches on an individual basis, continuously especially in this type of a downturn to see if it makes sense to continue to operate them. In terms of talking about a broader program, I have no comments to make on forward actions.

All right. Thanks very much.

(OPERATOR INSTRUCTIONS) We do have a question from the line of Tobey Sommer with SunTrust Robinson. Please go ahead.

Thank you. Carl, I wanted to ask you a question and you may or may not have seen anything at this point. Have you noticed anything from a demographic basis, any changes in behavior among the older individuals that you either place -- I know you are kind of in the catbird seat relative to your exposure in Japan and the older population and retirement may impact the labor force and some dynamics there.

For Kelly in all of the industrialized world, Japan, western Europe and North America, I think -- I can't remember now if we have talked about this on prior calls, but in all cases the proportion of our core temporary employees who are over the age of 50 has continued to steadily increase year after year, that being a very much a way to stay involved in the work force without having to be a permanent employee or a full-time employee. That trend hasn't slowed down. In fact, in a -- in this downturn we have seen probably a lifting of candidate population from that group. I'm not certain if that's what you were looking for, Tobey.

All governments in western Europe, Japan and to a much lesser degree, although they should be in the US, are becoming increasingly focused on declines in the workforce. The Japanese market, as you know, declining about 400,000 this year, about a third of western Europe now in declines on their work force and it is becoming a matter of government policy to encourage people to work longer but, of course, they have to do so in a way that doesn't damage retirement benefits. Temporary staffing is becoming one of the avenues that the governments are beginning to favor. Even in Japan where you're seeing some fairly strong legislative initiative by the government against day labor types of staffing, they are still encouraging, in fact, professional and technical and longer term assignment-based employment.

Thank you very much.

Thank you, Tobey.

(OPERATOR INSTRUCTIONS)

Thank you, Alex, and thank you all for participating.

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