ManpowerGroup Inc (MAN) 2002 Q2 法說會逐字稿

Hello and welcome to the Manpower second quarter earnings release. Today's conference call is being recorded for instant replay purposes. If anyone has any objections , you may disconnect at this time. I would now like to introduce today's conference host, Chairman and Chief Executive Officer for Manpower, Mr.Jeff Joerres. Sir, you may begin.

Thank You and good morning and welcome to the second quarter conference call for 2002. Michael Van Handel, Chief Financial Officer is with me today. He will go over the result in general and then, of course, we will discuss it much more in some of the detail break down. I think this quarter is almost more than others, I would like to spend more time in the segment detail because I think it is important for you to get a picture as to how we did what we did and also where to going. Mike will cover some of the financial items that affected the second quarter and also some inside in to some of the financial that may affect us on a full-year basis. As usual, before we get into the details of the conference call, I would like Mike to read the Safe Harbor Language.

Okay, this conference call includes forward-looking statements which are subject to risks and uncertainties. Actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors could cause actual results, to materially differ from those in the forward-looking statements can be found in the company's annual report on Form 10-K and in other Securities and Exchange Commission filings of the Company which information is incorporated here and by reference.

Thanks Mike. The second quarter of 2002 was a quarter that we absolutely started to see the US operations have solid times of turn around. Particularly in the light manufacturing area. We noted on our last quarter's conference call that the second quarter was going to be an important quarter. An important quarter for us to get a much better understanding of the direction for the balance of the year and while I believe based on what we were able to see in the second quarter, that we can do that for the US. I would also like to add that, some of the countries in Europe, we could do that for to get a better direction, but also when we move into some of the other countries in Europe as we talk about, they have not quite shown the true balance for 2002. In no country are we seeing any rapid or further rapid deterioration in billable hours, which I think is very important. But we can also be able to see clear direction in an upward way, so that we can predict in any responsible way the balance of the year for our European or Asian operations. While we are in recovery mode for most of our operations we are still very cautious of the outlook. Therefore, we are keeping our costs very much under control and approaching the balance of the year with caution, not only from that expense or cost perspective but also from an investment perspective. We continue to invest, but we continue to look at it in a much more selective way.

We finished the quarter with total revenues of 2.6 billion in US dollars and a total of 2.9 billion for the total sales. Our revenue was down 0.7 percent in US dollars, or 3.3 percent in constant currency, on an organic constant currency basis revenues were down 5.7 percent. We definitely kept our costs in line which resulted in a 51 million, little over 51 million dollars of operating earnings. After interest and a change to our interest rate which Mike will talk about in more detail that resulted in an earnings per share of 33 cents. Our guidance for the second quarter was the land between 23 and 27 cents, so we were able to exceed the guidance primarily based, in improvement in revenue and if you look

will compare negatively the prior year, which came in at 45 cents in 2001 and 49 cents if you were to exclude goodwill amortization. However, we are clearly seeing and that particularly in the US that the turn around seems to be stable and moving forward.

The second quarter was a bit stronger than we had anticipated primarily due to the US numbers of revenue, but also the French numbers of revenue and if you look at how our French organization was able to perform with an outstanding job in moving revenue forward. I will cover this entire a little bit more detail when we get into the segment break down. Now, the other area of focus that we talked about for several quarters is gross margin and as we had anticipated, our gross margin is more difficult to hold onto, the further we move into the down turn. This was evident in the second quarter with our gross profit coming in at 18 percent, which is 20 basis points reduction on a sequential basis. As we indicated on our last quarter's call, we expected a year-over-year decline in gross margin this quarter and it is primarily because we are near the anniversary of the improvements that we made in our French gross margin beginning in the second quarter last year when many of the margin initiatives that we have started really started to take hold. Having said that, it is probably more meaningful based on where we are to look at gross margin on a sequential basis. Usually we see a slight sequential increase in gross margin from the first quarter to the second quarter, just having to do with seasonal things and the seasonal nature of our business. Last year was actually quiet unusual with the 50 basis points step up first quarter to second quarter and this quarter we experienced a slight decline of 20 basis points and it is really it is for two reasons. First, it had to do with our business mix in the geography that we were receiving more at the top line and receiving and experiencing the growth and second, we have seen some slight decline in our core GP in some of our countries and I will cover both of those also, as we get further into some of the segments.

We feel we will continue to see gross margin pressure but no substantial erosion for the balance of year. With the plans that we have in placed regarding our mixed business, our discipline on pricing, and I want to underline that in all regions of the world, we believe, we are still in very good shape when it comes to our gross margin. An important part of managing through this period of time, of course, is also the vigilance on the cost while continuing to invest in the future. And I believe, we have been able to do that and we have done that by reducing our cost basis by 4 percent in constant currency. This is the first time in several quarters, in fact, year-over-year basis with an SG&A, as the percent of revenue coming in at 16 percent versus last year with 16.1. So you can see that either the top line continues to improve as we manage our expenses, I might want to rate this one down with the yellow marker and say this may be the inflection point. This quarter, may be that inflection point from deleveraging to leveraging. The countries, of course, that are more matured US, France, and much of Europe are able to get a much better leverage than some of the smaller ones where we actually worry less about leverage and more about opening operations and investing in systems and processes. Some of the organizations that would fill into that category would be Jefferson Wells, Japan, South-East Asia, and Empower. While our revenues are down slightly in constant currency, 3 percent approximately, you can see the trends for many of our businesses are in the upward inclined. Our US business finished the first quarter, at 21.5 percent down. But more notably, as I talked about on the call last time, we finished margin at 16.5 percent down.

In the second quarter, our US operation was a little lower at 9 percent down and to give you a better perspective on trend, in the month of June, we were 3.7 percent down in average daily sales. So you can see where the trend if you would have matched that out to where our

hours and where our sales are going. Also, quite similar in France. A little different and I will talk about that, but in France we have finished the first quarter in constant currency at 14 percent down

and in constant currency we finished the second quarter at 6 percent down. If you then look at the overall company revenue, we finished up at 1 percent in June in U.S. dollars. So, clearly as I stated a few times there is a trend for recovery and improvement. Given these trends we believe that we will be able to earn between 43 and 47 cents in the third quarter. With this estimate we are calculating approximately 4 cents for positive currency translation, estimating currency rates is a bit of a moving target. In fact, when we first did the estimate the Euro was not that

and now it is at parity. So in estimating the rates it is moving a bit but right now we think it could be between 4 and 5 cents positive in the third quarter. We will just have to keep watching it like all of you are watching it. As I did it earlier in the conference call we believe we have fairly good information in trends in the US and less stable trends in Europe, which makes it such a large part of our overall business therefore we believe the 43 to 47 cents is very appropriate for the third quarter. There could be upside to that and there can be down side to that and maybe in one of the questions we will talk about some of the sensitivities of what the top line means to us.

I would now like to get into a little bit more detail on the segment results as I think it really gives you the best information of the state of the business and how we are viewing the trends. As I had mentioned before the US did not see improvement on the top line, which was very much expected, and I would hope the US organization feels very good about what they have been able to do. A lot of hard work and a long time of seeing trends not as strong as this. We actually did a little bit better, a little bit more than we had anticipated finishing the quarter little bit more than 9 percent down but as I mentioned earlier we are finishing June, just under 4 percent down. The US revenues, which made up of several different categories does deserve a little bit of a break down. As we mentioned in the first quarter we were seeing light manufacturing show the most significant signs of improvement and that continued in the second quarter. With light industry being 5 percent down in the second quarter versus 16 percent down in the first quarter and on a year-over-year growth in light industry it is actually in June, 3 percent positive so you can see the real push coming from the manufacturing, which is very typical at this time and what we have talked about for several quarters. Interestingly and again congratulations to the US operation. Manpower professional is also improving. Sales were down 17 percent in first quarter and sales were down 8 percent in the second quarter. Manpower professional has made up to several units in the units that clearly is leading the way as engineering. Our engineering side of the business is actually showing positive growth from the quarter. Finance and IT are also showing good increases, but just not as dramatic as what we are seeing in the engineering area.

are showing modest improvement in the US as we are seeing improvement sequentially both month-over-month and quarter-over-quarter and we have just are not really seeing some of the year-over-year improvements yet, which is very typical about from placement and sourcing. Gross profit margin in the US continued to lie prior to the year, but by a similar amount as last two quarters, so while it is not improving it is clearly not getting worse at this point and we have a concerted effort to continue to manage that pay bill gap and given the economic trends that we have seen in the US and the extended time that we have been down in this downturn I feel as though the US organization has done a very good job in holding up growth margins. That is not saying that we do not want more, because we do, but they are doing a nice job. As I mentioned before I would also like to reiterate again given where we are in the US and the end of the cycle. It is very difficult to hold on to the growth margin year-over-year and some cases in sequential basis and I want you to take note of this; this does not indicate to you that we are not anticipating any dramatic reductions in growth profits, because we are not, but to see a gradual decline is anticipated. So to sum up the second quarter for the US, it looks like a classical recovery. While the environment has changed from 92 or 81, the newspapers of course are reporting very different things now than they did in the past but when you look at the billable hours and when you look at the segments in the job categories that are recovering and recovering in the way that they are it looks very similar to other recoveries. Now having said that I want everyone to really listen closely now. Of course, we are living in a different time, so outside forces can change what now looks to be a classical recovery. There are things that can change, there is a cloud with

and those sorts of things, but following that, looking at history from where are now, it defenitely looks like classical recovery. Now, looking onto France, which performed quite well given the economic environment. Our revenues in France in constant were down 5.6 percent finishing the quarter, over I million rodat

currency we are down 5.6 percent. Finishing the quarter over one billion Euros in revenue and then an operating profit percent of 3.5, a model for our organization. During a downtime fighting with pricing fighting with de-leveraging to be able to produce a 3.5 percent EBIT is a very very good accomplishment. We have done a nice job expense managing with SG&A as a percent of revenue declining year-over-year.

Revenue line in France came in slightly stronger than we expected and this is primarily due to our business outside of the Paris region and this is primarily due to the type of business that is much more prevalent outside of Paris region, which is like manufacturing, food processing. Whereas inside the Paris region we will see much more technology and office work, which accompanies a higher growth margin. In many ways this echoes some of the same things that we are seeing the US, where light manufacturing and processing is leading the comeback. This business mix, if you will, where we are seeing much more in the light manufacturing and food processing coming back sooner, also affected our gross profit margins. The business outside of Paris tends to be at a lower gross margin because of the nature of the work. That mix is giving us a bit of a distortion of what is happening in the gross margin and France. We continue to be vigilant in how we are pricing business, however pricing is becoming much more aggressive as we move later into the cycle. I also think that it is important you understand what is happening inside the quarter. As I said earlier the quarter in constant currency we finished at 5.6 percent down in revenue, what happened inside the quarter was that we were seeing pretty good steady improvement in year-over-year trend basis throughout the first quarter. And the beginning of the second quarter and then it plateaued off and it did it in a relatively consistent way over the last five or six weeks which leads us to be more cautious than what we would have been just eight weeks ago where we were seeing a trend upwards. Now we are seeing a trend sideways. Could it stay sideways? Yes I think it can for a little while, I do think it is more likely to an inch up as opposed to inch down. So we are optimistic that based on what we have given you in our estimated earnings range that this should be factored in to how you come and derive your numbers.

I now would like to move on to the UK segment. As I talked about last quarter the UK escaped much of the early part of the downtime cycle, which was mostly experienced in mainland Europe. And now the downturn is moving into the UK. We started to see some of it last quarter; we are seeing a bit more of it this quarter. In the US, the entire UK segment, the entire segment in US dollars I should say,the entire UK segment was down 10.1 percent with revenues over 330 million dollars. Our GP very similar to last quarter suffered this quarter based on sluggish term placement concerning market, which affected all three units some more than others, but Brook Street, Elan and Manpower PLC were all affected. The top line was most affected by specific accounts that were serviced under the Manpower brand, in that case one of our largest and most profitable contact that has filed bankruptcy and therefore all of our workers had been put out under that contract. We do not feel as though we have any outstanding receivables problems, that is the major challenge, so we are not concerned with that, so it is just a more going forward loss of business. Additionally there were two other large contracts that did not have the gross margin that we found acceptable and we moved ourselves from those accounts entirely or minimized our business greatly in that business. As a result, we are under, I would anticipate the overall market growth would be, when you compare that with Brook Street or Elan, we are much more in line if not exceeding market growth. In fact, Elan has been awarded four substantial accounts recently that will have an impact on the third and fourth quarter with most of the impact coming in 2003. Glaxo, SmithKline, Piaggio, Dallas and

are all going to be very good customers for us.

Okay, thanks. As usual, I will begin by disussing the balance sheet it's important to keep in mind that we translate months and balances denominated in foreign currencies that the exchange the rate at the end of the month. This is significant this quarter as the Euro is up 13 percent at June 30th compared to March 31st. This of course results in higher translated values for both assets and liabilities.

Accounts receivable at June 30th were 2 billion 227 million compared to 1 billion 847 million at March 31st, of this 380 million dollars increase more than half or 195 million relates to changes and exchange rates alone. The balance of the increase relates to higher business volumes.

For example in France the sequential increase in quarterly revenues was 138 million in constant currency that compares to 6 to 62 million dollars sequential increase using the same exchange rate in the prior year. This ramp-up in revenues of course shows as up as cashed usage in our cash flow statement. Our French DSO's are one day better than prior year, but are still in excess to 70 days, which is typical for the French market. Our company wide basis we're able to sustain the improvements in the year saw that we achieved in the prior year as our DSO remained at 65 days compared to 66 days over last year.

Total that at the end of June was 919 million and cash was 249 million, which brings our net debt position to 670 million dollars. Total that increase by 92 million dollars since the end of March, the majority of this increase relates to changes in foreign currency rates as the Euro notes and several other credit facilities we have it denominated in foreign currency, so you get the exchange rate impact that I mentioned earlier.

Consistent with the last two quarters, we did not have any

outstanding under our half balance sheet as at securitization program. We also bring you up to date on our zero coupon convertible bonds, as many of you are aware, we issued the bonds for 240 million dollars in August of last year. The holders of the bond may request to redeem the bond on the 1st, 3rd, 5th, 10th and 15th anniversary.

possibilities and the in the event of a put we have to have adequate credit facilities in place to redeem the bond. You may have noticed earlier this morning that we issued a press release related to the bond, we were required to give the bond holders an indication of what we would use cash or stock in the event if a

would occur.

In that press release we indicated that we would use cash, if the need did arise. Turning to the cash flow, our cash flow from, our cash from operating activities was 38.1 million for the six months end of June or an increase of 7.7 million in the second quarter, as I explained earlier cash was used in the quarter to fund an increase accounts receivable of a 185 million dollars related to the pick up and business activity. Capital expenditures for the month were 16.9 million dollars and depreciation and amortization was 17.9 million.

Next I would like to cover estimated effective tax rate. Currently we estimate our tax rate for the year to be 38.5 percent; as a result we've adjusted our tax provision to bring the year to date effective rate to 38.5 percent, which is resulted in a tax rate of 39.1 percent in the second quarter.

As you might imagine, operating in 61 countries and numerous tax jurisdictions, our tax calculation is really complicated, the increase in the estimate tax rate is the result of reduction in the amount of foreign tax credit carry forwards, we know think we will be able to utilize during the year. While this estimate tax rate could change again before the end of the year this is our best estimate at this point of time. Impact of the higher and forecasted tax rate on the quarter was to reduce earnings by 2 cents and this higher tax rate also had a 2 cent may have impact on our third quarter guidance now that we just gave you.

Last thing, I would like to discuss is an issue which is received, recently received a lot of attention that's accounting for stock options. Similar to many other companies our policies meant to fully disclose the earnings impact of stock options in the foot notes

record the expenses related to those options as you charge to the earnings statement. We're currently reviewing our option expense policy and watching the legislative development, just to get you a sense in 2001, the earnings impact to stock options would have been 6 cents per share using a Black-Scholes evaluation methodology. With that I will turn it back to Jeff.

Thank you Mike. Now is the time that would be appropriate to open the questions, maybe I just another reiteration so we get in as many as we can in you know ask one question, if it is a great follow-up, we'll accept it but lets try to get more people asking questions than one person asking multiple questions, so with that I would ask the operator to open it up for questions. Either people cannot get into questions or we did such a fine job and articulating what is going on, so, is the operator with us.

Yes, this is the operator and I am seeing our first question come from Mark Marcon.

Okay. Good morning Jeff and Mike. Congratulations on a great quarter. I think the reason there aren't any questions is because you got to press the star one and I am not sure that was announced.

Thanks for the note

all week.

I just figured that out, I am an all-purpose analyst. Two quick questions if I might, since, forgive the instructions here, one with regards to the improvement that you are seeing in the US, obviously we are getting all sorts of conflicting messages out there. Is part of it this from the strategy in terms of , you know that targeting the retail sector to a greater extent, going after, you know,additional client segments, is that part of which is driving the improvement.

It's a good question and I think that based on where we are in the cycle right now. I believe it is too early to put too many of the increases in the category of the targeting the retail business. We get some pretty detailed numbers that show retail versus contract and while we seem to be making some ground, what we noticed most in this increase in the second quarter is very much a increase across all geographies and the increase in middle size, medium size accounts, of course the late manufacturing types of accounts, we are seeing some major accounts. Now I asked for fifty people or hundred people or a hundred and fifty, while we haveassignments may not be indefinite their 60 ,90 days assignments, until we can, they can determine whether the demand is there. So, I would put the increase in the US in a couple of categories. One, our team has done a great job, going out and knocking on doors. Our new head of sales what he is doing and how they're doing it, really moving it forward. Then the real question is, if we are out there that much and we have that broad base of customers, I think, what your seeing is one of the macro trend than any specific strategy. I would like to see that the strategy in the third and fourth quarter starts to kick in and you really start to see acceleration, based on all the hard work we have done in the last twelve months.

Right, then one thing you mentioned on the call is that you are going to be a little bit more cautious, going forward not only in terms of expenses but also in terms of investments. Can you give us a perspective in terms of how many offices you are looking at opening over the course of this year, and how that may have changed relative to your previous plans?

Yes. That is a great question. We opened a few offices this quarter, and we have a plan to open, right now potentially based on what's happening in some of those markets, potentially in excess of a 100 offices for the balance of the year and what I have asked the managers to do is to continue down that path but know before you sign anything check with Mike to see how it's going. So we will open offices, we will make investments but rather than say, alright we have got a plan of extra number of offices, a 100 plus offices, don't talk to us, just go open them. I am saying, go down the path but know that we may tweak and tune and move it depending what we think it would be more profitable to open that office 3 months from now, because you can't get any thing during a bad time in those first two months anyway. So, I did say we were going to be cautious and I try to use that word because we just don't have enough of this fog that is lifted in some of the European areas and Asia, to say let's just pour out the investments because we know that they will pour back to us quickly. So, we will be opening offices, we are still investing in technology, we are still investing in training and developing our people. It is just the degree in which we do that; we will be looked at carefully over the next 2 quarters.

How many did you open in the first half?

Not many, it's one of those, I don't have with me in my note, probably under twenty.

Twenty and I am assuming that the offices will be opened in the usual countries Italy, Spain, Japan.........

France.........yes.

Okay great.

We will probably do some in the US as well.

Great, thank you very much.

Question comes from Andrew Steinerman

Hi, guys. Congratulations on the super job in a still tough environment here. Just a quick clarification, when you say France has started move side ways, I think you mean that the year-over-year trend have a sort of stopped narrowing, you don't mean the sequential growth has stopped, because this is seasonal time to see demand in France, right?

Absolutely, thanks for the clarification. We are absolutely looking this on year-over-year, that's how we measure this stuff. Its going sideways year-over-year and we are just now coming into probably the next four, five maybe eight weeks were the comparables get a little bit better, because it was the France, was hit a little bit harder in the third quarter and fourth quarter, than I think we're in the first and second.

Now ,we will be in easy accountables for everything soon.

That will be fun.

Mike, could you just dive a little bit into our third quarter guidance and what possible revenues functions might be associated with those EPS assumptions?

Sure. I will take the opportunity. Andrew, just to put a little bit caviar on it. Most you know. This doesn't, how we based our revenue assumptions. Really, is looking backwards that what we have got backlog of orders to look at .So, it is a little bit difficult which is why we are in an environment were we really only like to look at, one quarter going out in and in the level of precision in this environment can be little bit difficult and I think as you saw in this quarter, a percentage or two of the revenue can have fairly dramatic impact on the bottom line. So, I just point that out just so people understand and investors understand that given our leverage model, we're fairly sensitive to revenue growth and revenue growth can be difficult in this environment to estimate. Of all of that, as we look at the second half, we are the third quarter rather, we are looking at a constant currency basis, revenue to be in the flattish range on a consolidated basis, year-over-year, what that is in US dollars will depend a whole lot upon where the currencies are, so that's why I'll talk about it in constant currency, because I think its a little easier, as we then look down in the some of the major segments, we, certainly as Jeff mentioned, will anticipate continued improvements in the US , anticipate towards a mid-single digit range in the third quarter. In the case of France, I would expect on a constant currency on a Euro basis, if they like they would be flat or flattish in that range, in the third quarter, compared to the prior year. Again, as Jeff, mentioned the comparables get a little bit easier as we get further out into the quarter, so, I wouldn't expect that the come September, I would likely to go positive year-over-year in France revenues.

Greg at First Boston.

Just wanted to follow-up on a point that you just made Mike, relative to a couple of percentage points changes in revenue and the impact of it that they can have in the bottom line. As you look out, I know you are not offering up on 2003 guidance, unfortunately for us. I'm leaving that up to us. Could you comment on, you know, what you look for as you look out in terms of your ability to re-leverage the business model, as opposed to the de-leveraging that is going on and Jeff, you made the comment that this could be an infection point?

Well, certainly, what we look at is our productivity levels and efficiency levels that we had prior to, this client and our focus is on the turning back at those levels of productivity. How quickly, we get there will depend a lot upon, how quickly the top line revenue comes back, in search to grow, but each market is going to be a little bit different, as you could imagine given the steep decline in US, there we would expect to see that expenses can come on a little bit slower, as we start to recover, because effectively, we much more de-leveraged that in the few other markets. So, that's tried to give you

, but that's how we think about it, that's how we look at it, its how do we return back to those productivity levels on a branch by branch basis and how do we get back to which, generally just getting back to SG&A, you know the percentage of GP or as a percentage of revenue back to normalize levels which you know you have to go back, more than a year to see those type of ranges.

Right, Hopefully, this is a couple of follow-ups, but if you take that and try to put some, not direct numbers to, but some feel through it, if you look at by market, which of the market did you make a comment relating to that, which is the market, you have the most opportunity to grow without, you know investing significant dollars over the close of the next 12 months.

Its in the US, its probably the market with the greatest opportunity and that because they really have formed that furthest and the hardest. So, that would be the market with the greatest opportunity and that in the, I think, else where in Europe I think, if you look at all of our metric in Europe they would also be relatively weaker as well. I do want to add this. I think all of the areas have done a good job controlling cost overall, but there is, when you look at the metrics across the board even when you get into Asia and Japan I think all of those have some opportunity. I think the one clear standoff will be the US though.

Okay, thank you.

Our next question comes from Adam Waldo.

Yes, good morning Jeff and Mike, Adam Waldo Lehmann Brothers. Just turning to this issue, of variable contribution margin which I thing every one is trying to get at different ways. Is it fair to say that as we look at the business, if you can sustain an 18 percent gross margin and your looking at sort of if you will grow in the office base 3 or 4 percent year-over-year in the first twelve, six possibly 18 months of

recovery that went out annually. But the variable contribution margin on incremental revenue might be high single digit range or put it another way, like would you give us a different point of reference.

Yes, I think, would just still we get off the top of my head I would want to look at that in a little bit more detail and that's going to depend a lot upon how the revenue picks up. I think, looking at it a different way of course if we see a recovery of, what is called a normalized recovery being 15 percent low from the top line, which I don't know if that's normalized or not but we have been looking to try and manage our expenses trying not to drill any faster than that 15 percent rate and probably more in the 10 percent range, coming out of that in the first couple of years. May be that gives you a bit of a feel now. That's kind of a broad metric. In some countries it's going to be, there is going to be a wider disparity like the US where I just mentioned why we would expect the expanse growth particularly early in that technical recovery to be even less than two thirds of the revenue growth. But some of the other countries that haven't evolved which is much needed can be a little bit more. So like, hopefully it gives you

.

I think that puts a very fine point on it. Are you in, what would you to give, any preliminary comments as to what your office base growth target might be for 2003 or would you rather complete the year end planning process December before commenting broadly on that.

If you comment broadly, I can do that, when you move back into what we were doing in 1999 and 2000. Opening offices at a certain phase. I think that, we believe there is a great opportunity still within Europe, still within some of our major countries to get back to that kind of growth rate. So that is kind of 1 in between 200 and 350 depending on the economic times and basically where they were focused. Because if they had focused heavily in one or two countries it is harder to do because it takes management time open those. So, very broad brush, put that in parenthesis, don't write it down and squeeze me three quarters from now when we are at 182 or something like that.

Okay, so the way that we might think about the modulem recovery is, if we are targeting is for the 15 percent revenue growth we would rather, the office space if you will call it, 6 to 8 percent we will be targeting in effect 79 percent. Same office revenue growth. Is that a fair preliminary range?

Feels like you did the math transfer than I did.

Trying to do it in back of the envelope.

Okay, thanks guys.

Alright.

Our next question comes from Randy, Bear.

Hi, Randy Mell from Bear. Congratulations Jeff and Mike on the, on the solid quarter on the improvement. Hmm..could you discuss the volume and gross margin trends within the national account segments across the various regions that is...it seems like they are seeing some pressure in the UK, couple large contracts you have lost due to price, I am just wondering you know how that looks in other areas.

Well, I will go through some of the major regions, that the US as for a long time has been experiencing some pretty tough pricing pressures. Our team has done a great job by articulating how Manpower is better than anyone else and therefore we had a chance to price it a little bit better, having said that it is the tail end of the cycle when, when the most intention pressure comes and we're seeing more...a little bit more re-bidding than we have seen before, we have seen more difficult and pretty clever some times tactics to try to get our pricing down. So, the US has some real pressure, they seem to have gotten into a step and groove that they can really explain why Manpower is better than anyone else and get a little bit better price.

When we move into France, we arre really, we do not believe is that we are feeling a lot of pressure under new tenders, we are feeling is that we have, we have much more pressures in our current account saying we love you but we will go out to tender if we have to unless you reduce the rate and that really has just happened in the last sixty days. I feel as though that the multinationals in France have operated in a very rational way because they are looking at it more from a long-term. It is some of the local firms that are looking at how I keep an office open and therefore they are getting very aggressive in price but later does goes into cycle.

The UK, yeah, there is some pricing pressures there, but when you have some large large accounts that make up a large book of your business and that one is the one that actually wants to do some pricing action. It looks a little bit more severe. We have an opportunity to look at Brook Street and Brook Street, yeah, they are feeling some price but it is not that kind of pricing that do really worrying and as though the industry is going in the wrong direction. So, I consider it one more step up in pricing pressure, step up I believe we can handle, it will be difficult to do, we could see a little sequential slippage not much or we could see some sequential stabilization, so it is out there, it is a little bit more intense but I think we are well positioned.

Actually not out of the woods but probably close.

Yeah, you know except the problem is as soon as we are out of the woods, we are just in another forest then because pricing pressures is part of what is happening. It just not be

Jefferson Wells, they were in go go mode for 5 years, they could not open an office without it succeeding and that is a real credit to their business model and their people and now we had a slow down and the slow down is really project based and as you know we have bench sitters sitting at Jefferson Wells. So, I think you would see that the philosophy we have taken with Jefferson Wells is consistent with the philosophy we have taken in Manpower in general, which is let us make cuts where they are appropriate, let us not take out the infrastructure, this is short term, the business model is going well, so we continue to open offices, we open offices maybe with a slightly different model to minimize some of our expense, but we have asked Jefferson Wells and I think the management team is more than up to the task to say manage those expenses to keep your business plan to keep opening offices and as a result, we have you know have not, we have seen top line stabilize, we have seen utilization decrease as a result of a little bit of the decline that has happened and the bottom line is break-even to loss, depending on the month.

Okay so you did open offices in the quarter?

That's correct.

And then one last little housekeeping, what was the miscellaneous expense of about two and a half million in the quarter?

Well, you know, there's nothing big that I would point to in there say in a number of countries it would be things like small fixed asset write-offs those type of things, so there's nothing in there, major items that I would point to but we technically always have something on that line and some times we can pick up little gains, other times there are a little expenses but nothing that I would highlight.

Okay, thank you.

Our next question comes from Mark Marcon.

Well, a follow-up. One thing, with regards, are you seeing any changes you know from a regulatory perspective, where there's some noise about a 35-hour workweek being loosened in France? Wondering if you've got any comments there and then we'll go to follow-up.

We're going to continually have to look at regulatory item. And the 35 hour workweek is actually a pretty large one for us, the new government's in and our Managing Director Jean Pierre, is very close in leading things in the industry and has already met with some of the, the US term would be undersecretaries, regarding the topic. There is a loosening to allow overtime with the maximum number of overtimes, there probably will be a discussion that will take away what I call, I'm not sure there's an actual perfect term but the five categories of minimum wage, because there's multiple categories and minimum wage depending on when you entered into 35 hour. So there will be some simplicity, which should help in our administration, but I do not see it really affecting a whole lot currently as we look forward into the 35-hour workweek that we've seen. Regulatory items, there is the EU directive we'll continue to work on that, we believe there's some weak stances associated with that and that our industry can work together quite effectively to why that shouldn't be there but it will be a difficult one. And outside of that will be a working tome directive in the UK or some of the things in the US which are very

and stable oriented, I'm not really that concerned about the regulatory but we do need to keep a close look on it at all times.

Okay. Great. With regards to your comments, you mentioned that you would talk about pricing pressures and you know that even when we come out of this part of the business, you've done a great job, you know, this far in terms of managing expenses despite the fact that you've got a slight decline in terms of revenues you know, you did take operating expenses down as a percentage of sales. What I'm wondering about is what can you continue to do over the long term, not just through SG&A leverage but in terms of changes in processing things have changes in models, you know to reduce the expense structure on a permanent basis as a main part, can you talk a little bit about that as we look out?

Sure I will, and you don't want to get me started on this but that is one of the five strategies. So I'll stop on the half hour discussion but when we talk about efficiency in the five strategy its not necessarily about taking cost out but its about being more efficient, so what we've done is we've looked at the choke points within the organization, the choke points, the bottlenecks at the branch offices, at the regional offices, at the home offices and are really looking at the different ways to intake our candidates, different ways to connect with our candidates. Couple that with our e-commerce strategies and actually couple that also with some of the, what we would call dashboard metrics, that Mike is driving down, not only in home offices but in branches, all driving towards better productivity and we're just going to start seeing that .I know I was just talking to the head of the US, she's got a very concerted effort to try to move down these metrics far as she can into the organization and that will drive productivity. Also know that the expenses we've taken out are not all cost cutting. These are fundamental ways, we've changed some structures in the US, we've changed some structures in France, we've changed a fair amount of structures in the UK, all with the forward looking that as we move out of this we become much more efficient and time will tell on that but that's what the plan is.

I mean what about the economic environment. What do you think you can get operating cost as a percentage of sales down to?

Well we have got some targets that we had listed you know there is percent of GP, we are looking at 80 percent and I don't think I want to change that number now and that is the large

and I feel as though we have got plans to get that.

All right, Thank you.

All right. Last question.

Okay, next question is from Kelly

.

Thanks, something you guys drove down on what you said your professionals, particularly in the U.S. clearly said year-over-year declines are narrowing but maybe in accounting in IT and also if you could on permanent placement to speak to you know the sequential trend I cant understand and seen an inflection point in any of those categories and Jeff if you could just maybe share any insight you have on you know the largely

that you expect to see ,that will be great.

Right.

Thanks.

Okay. Well Kelly to the professional is I had mentioned did move up and it did moved up nicely and inside there on in majority. I don't want to say `The largest ` in this true asset but a big part of it was our engineering work but IT was not that far behind. So on a sequential basis we are seeing some acceleration more so than what we are seeing on a year-over-year basis. Some of this is based on some new acquisitions of accounts and very strategic accounts that deal with engineering and IT and are asking us first ride of refusal for us first for us to sign, to assign for all of those . I believe it will take a while to lose out entirely but projects have been delayed for many, many months if not quarters and we are starting to see some of that break through. We are also seeing that while pricing is an issue if not is strong of an issue in some of the midsize accounts that we are dealing with. Though accounting for us also has gone up. The demand it's just smaller than what it has been doing in the engineering and IT. I would look to the third quarter to see continued improvement but no breakout. I really don't think it will be a break out where we just cannot find enough people to fill all the orders. I think we are looking at 2 or 3 before that happens.

Okay, then what about I think you mentioned that the conversions were about flat but you know what do you see in sequentially and in terms of

.

Sequentially we are actually seeing it move up a little. So sequentially it is moving up year-over-year, it is still a little down but over the last 6 months sequential sourcing and firm placements are continuing to go up and that is also not just in the U.S. but in U.K. as well.

Okay , great. Thank you so much.

All right. Thank you. We appreciate you all attending the call. We try to keep it to to an hour, which it is. So thank you for listening to the call.