ManpowerGroup Inc (MAN) 2003 Q4 法說會逐字稿

Good morning and thank you for standing by.

At this time, all participants are in a listen-only mode.

After the presentation, we will conduct a question and answer session. (Operator Instructions).

Today's conference is being recorded.

If you have any objections you may disconnect at this time.

Now I will turn the meeting over to Mr. Jeff Joerres, Chairman and Chief Executive Officer.

Thank you.

Good morning and welcome to the fourth quarter and full year conference call for 2003.

I want to take this opportunity first of all to welcome the new shareholders as a result of exchanging the Right Management shares for Manpower shares.

We take your trust and confidence very seriously and will work diligently to return value to you.

With me today is Michael Van Handel, our Chief Financial Officer.

We will go over the results in general and then discuss the segment in more detail.

Mike will give you a year end wrap up of the numbers, the income statement as well as anything that affected the balance sheet really in the past and going forward.

Mike will also spend some time giving you a sense of how the Right Management acquisition will positively affect our financial results going forward.

Before we move into the main part or the body of the conference call, I would like to have Mike read the safe harbor language.

Good morning, all.

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 that 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 the other Securities and Exchange Commission filings of the company, which information is incorporated herein by reference.

Thanks Mike.

We entered the first quarter of 2003 anticipating a continuation of growth trends we saw late in the third quarter.

In fact, we saw modest improving trends throughout a number, if not all of the geographies.

We are, as you may read, in a stronger environment for hiring as companies have begun to see more demand for their products and services.

We entered the fourth quarter anticipating 49-53 cents, or $1.61 to $1.65 for the full year.

Factoring in 87-cent favorable impact for currency, we finished the fourth quarter at 63 cents, but that includes a 3-cent more favorable currency impact as well as a net 8 cents for the subsidies accrual adjustments for France and some office closures and a call center closure in EMEA.

After adjusting for these items, we fell within the expected range.

So overall the fourth quarter behaved very similarly to the way we had anticipated.

For the year, we finished at $1.74; our revenue for the fourth quarter was 3.3 billion, up 15.9 percent in U.S. dollars and a 2.8 percent increase in constant currency.

For the year, our revenue was $12.2 billion, up 14.8 percent in dollars and 2.2 in constant currency.

Acquisitions really had a negligible effect, so it is not even worth looking at.

We finished the quarter with a gross profit margin of 18.2 percent and the year at 17.5.

Our gross margin for the quarter before the subsidy adjustment, which is really the way to look at it, was 17.7 percent, moving up 50 basis points on a sequential basis.

This is primarily due to the seasonal effect, but we also continue to close the gap against the prior year.

We are seeing a stabilization in pricing, though I'm a little bit liberal on that.

There is still pressure out there, but we are a little bit more used to it and the market is still reacting quite competitively and we see this across most geographies.

Pricing is still a challenge, particularly in the large accounts and medium accounts.

There is a bit more of an interest and understanding of the quality and performance of our services.

The selection that we're offering, the assessment (indiscernible) match to candidate while before it wasn't being appreciated as the business continues to move up slightly, companies are looking at the real productivity quotient that we offer compared to others in our industry.

Our SG&A in the quarter, excluding the office and call center closure costs, was broadly (ph) in line with what we had anticipated, up 5 percent over prior year on a currency basis.

While watching costs closely at the same time, we continue to open offices throughout the year and some of those costs came into the fourth quarter.

For the entire year, we opened over 100 offices, so that is net new office openings, so including those that we may have closed based on some locations that where were not quite right, particularly in the UK where we see a much longer lease rate, we had decided that now would be the right time to do that.

We have also been able to take on those additional infrastructure costs, while at the same time, being much more efficient in other parts of our business.

Our SG&A as a percent of revenue improved significantly after the year to 15.4 from 15.8 the prior year.

We believe that we've been able to bring that down -- we will be able to bring that down even further as a percent of revenue as we begin to see a little bit more leverage on the topline.

Our operating earnings for the quarter was $89.1 million with a margin of 2.7 percent.

Excluding the subsidy and the office closure adjustments, our margin was 2.4 percent, right in line with our expectations.

In constant currency, operating profit finished the quarter down about 12.8 percent.

For the full year, our operating earnings were $257.9 million on a margin of 2.1 percent.

Overall in the two major geographies, France and the U.S., we did see improving revenue trends within the quarter which was different than what we were seeing last year.

Last year if you recall, we experienced a strong October November with a tailing off in December, which led us to a softer first quarter in 2003, whereas the fourth quarter of 2003 almost reversed itself from 2002.

We saw a bit of a softer beginning in the fourth quarter but then finished stronger in the latter part of the quarter.

When I get into the segments, which is what I will do now, I will give you a little bit more color on that.

And as you know, it is sometimes best to look at it from a line of business, so that is how I will do that.

Let's begin that with the U.S. U.S. revenues were 497.9 million, up slightly from last year.

On an annualized basis, the U.S. finished the year at 1.9 billion in revenue, up 1.8 percent over 2002 with the second quarter of 2003 really being a good strong quarter for the US.

I might note that with the combination of Right Management and our other brands, the U.S. geography now accounts for about approximately $2.3 billion in revenue, and then you also should consider on top of that, over $1 billion of sales from our franchise network bringing the U.S. geography for 2003 to in excess of $2.3 billion in systemwide sales.

As I mentioned in the general remarks, it is important to look at the detail of the business to get a good sense of how the revenue was building up and what is happening during the quarter.

The United States average daily billable sales in October were down 4 percent; in November, they were flat and in December, they were up 4 percent.

December is always a difficult month, however the holidays, both Christmas and New Years, fell on better days for us.

We'd prefer no holidays actually, but they fail on better days -- a Thursday versus a Wednesday.

Our lines of service also improve with the leading indicator of manufacturing increasing substantially, and I think this is a key.

In October, our industrial and light industrial business was up 1 percent year-over-year of course.

November it was 6 percent and December, it was 15 percent.

We have not seen that same kind of growth in our office business, which continues actually to be in negative territory.

So we're seeing companies still really suppressing what they want to do in hiring, just based on the nervousness and frankly some of the experiences of false starts and recoveries before.

To add to that, interestingly, our U.S. franchise network reported a sales increase of 13 percent in the quarter and continued strong sales gains in the first quarter.

It is stronger than our branches and this really reflects the fact that our franchisees have more of an industrial mix in their business.

It also indicates that much like many recoveries, it is still spotty, stronger in some geographies than the other.

As we moved into the first few weeks of January in the U.S., business stepped down a little bit as the branch sales are currently running about flat to prior year.

So while the labor market appears to be strengthening, you can see that there is still some chop in the water.

This pause is really not unusual in a recovery period.

It tends to take steps and plateaus and steps up, but the fact that it happened in the beginning of January, we are cautioned by those first two weeks.

Adding to that, there is the continual challenge of the state unemployment taxes and the difficult workers compensation environment.

We are working diligently to minimize the effects of both of those as we move forward.

I would now like to move onto our French operations.

Once again, they put in a tremendous and a very strong year.

We entered the quarter knowing it was going to be difficult to maintain our gross margins, but in fact, we held onto them and we finished the fourth quarter with revenues over EUR1 billion, up about 0.2 percent, or 19.2 percent increase in U.S. dollars to 1.2 billion.

For the year, revenues exceeded EUR4 billion, up 0.9 percent.

Our core gross profit margin for the quarter was stable with last year, which is a real focus of ours and I would suspect as we have seen over the last few months, we are probably slightly below the industry from a billable hour perspective, but we are comfortable with that because it fits squarely in the range of what we want to do with our pricing.

For the full year, gross profit percentage was basically unchanged from last year.

All of this was done in an environment where we had to keep costs down low and our organization was able to do that.

In the fourth quarter, we generated about EUR53.1 million in operating profits.

This includes the favorable adjustment from the government payroll tax subsidies of $16.1 million.

Excluding this adjustment, our operating profit for the quarter was a good and solid 3.9 percent.

For the year, we were able to produce an operating profit margin of 4 percent, or 3.6 percent before the adjustment.

A real outstanding job was done not only in the fourth quarter, but the full year (indiscernible) our French operation.

Now we saw improving trends in the quarter very similar, the fourth quarter very similar to what we were seeing in the U.S., so it's more than just the U.S. moving forward.

Our average sales in October were negative; in December, they were positive.

So far in the first few weeks of January, we are seeing just slightly weaker trends than what we were seeing in December, again, very similar to what we were seeing in the U.S.

EMEA, which you all know, includes the UK operations, finished the fourth quarter with revenue of 1.1 billion (indiscernible) up 16.7 percent, or a 2.5 percent increase in constant currency.

We were able to increase our gross margins sequentially, which had a favorable impact on our operating margin.

Our SG&A cost increased during the quarter, primarily as a result of the 5.6 million closing cost of the related call center and just a handful of offices that I talked about earlier.

Our operating profits for the quarter was 17.1 million with a margin of 1.6.

Operating margin would have been improved to 2.1 if it had not been for those additional office closing costs.

Despite the difficult and tough economic conditions, the highlight in the group of EMEA really continued to be Germany.

In the fourth quarter, we grew 16 percent in constant currency on the top line with an excellent contribution to the bottom line.

For the year, Germany finished with double-digit revenue gains, so we continue to see good execution and some secular momentum that we believe will carry into 2004. (indiscernible) and Elan (ph) also improved nicely with mid-single digit currency growth and top line in the quarter.

Holland continued to be a challenging market as the top line moved down 9 percent in the quarter compared to the prior year.

This was an improvement, however, from the declines we were seeing in the second and third quarters.

Revenue growth improved in the UK as we were able to show some modest growth in constant currency.

Most of that really came from Brook (ph) Street and Elan;

Manpower brand for the most part is flat year-over-year.

Overall, we have been seeing slight, and I would have to underline slight, improvements across the euro zone, and as a result feel as though there has been a bottoming in Europe.

But if we continue to see the high euro, we might see some plateauing as exports of course become more expensive and potentially hurt production in that region.

A real standout is the revenue in our other operations segment.

They continue to be strong, up 25 percent or 13.7 percent in constant currency.

Japan continued to do well, nearly double-digit growth in top line and a much stronger bottom-line contribution.

Canada, Mexico also had exceptional years with very good solid topline growth and profits that more than doubled from that of 2002.

Jefferson Wells (ph) also showed a strong fourth quarter improvement, growing 12 percent sequentially.

They have secured several large new contracts, not only in the Sarbanes-Oxley area, but also in risk, internal audit work and finance and accounting.

Blue-chip companies like Boeing, Washington Mutual, U.S.

Bank, Philip Morris and many others have decided on Jefferson Wells and we're being very confident of the kind of momentum we're moving into 2004 with.

For the year, the segment was close to 1.7 billion in revenue, up 12.4 percent in constant currency.

Gross profit moved up overall.

And as a result, operating profit more than doubled in the fourth quarter and more than quadrupled for the year at 27.8 million in profit.

The next segment is a new segment for us, and that is Right Management.

The Right Management acquisition closed on the 22nd of January and it is absolutely all systems full ahead.

We've established the synergy plan and the synergy team is working very diligently to fold Manpower into the organizational consulting of Right and are already working on some cross-selling opportunities.

We realize cross-selling opportunities will really be for a few top customers, let's say the top 40 or 50 customers, but we are moving after those already, as well as we're moving into much more of an in-depth, go to market strategy plan.

From a business perspective, they finished 2003 as we had expected with revenues of 451 million for the year.

Also expected, we're seeing a bit of a plateau in the use of career transitioning.

However, the organizational consulting group finished the year strong with good trends as we see more companies beginning to use the so-called discretionary dollars to ensure that their organization is extremely well positioned for the recovery, whether it be coaching of key leaders within organization or companies looking at purchasing the feedback mechanisms, research, as well as talent management systems that we have at Right.

At this point, we couldn't be more pleased with Right Management.

I got a chance to meet hundreds of Right Management people from around the world and it has given me a really personally a tremendous encouragement as the two organizations' values and cultures are so well aligned.

And also the way we deal with customers and how we truly still believe that quality is what makes a difference at the end of the day.

There will be as always in situations like this bumps in the road, but based on what we have known over the last several months and some of the things that we newly discovered together, I'm extremely optimistic of the outcome.

We will continue to create value and bring to the market something that no one else can do right now, and that is a competitive advantage for eyes.

Overall, it was a solid quarter for us while challenges still exist and the visibility as much as I would like to say has increased, it's still fairly weak.

This is the strongest and the most meaningful that we have seen of any kind of trend for some time, which leads us to our estimate for the quarter of between 23 and 27 percent.

So with that, what I would like to do is turn it over to Mike so he can give you a little bit more detail on the financial items as well as the Right acquisition.

Thanks.

I'd like to cover three main topic today.

First, a review of our December balance sheet and cash flows.

Second, I'd like to provide you with a bit more detail on the underlying assumptions in our guidance, and then lastly, I will cover the favorable impact of the Right acquisition as it's expected to have our financial statements.

Let's start with the balance sheet.

As we begin, it's important to keep in mind that the impact of currencies on our balance sheet amounts.

As you know, we translate months and asset liability balances at exchange rates in effect at month end.

Compared to last December, the dollar weakened against most currencies.

For example, the euro was 20 percent higher this December 31st compared to last year.

This results in higher values for several of the balance sheet line items.

Our balance sheet strengthened during the quarter as a result of strong cash flows and remains in excellent shape.

Cash at the end of the year was $426 million and total debt was $842 million, bringing our net debt to $416 million.

This is a reduction of $99 million from last quarter.

Our credit ratios remain stable, including net interest coverage which is at a comfortable 7.7 times on a trailing twelve month basis.

Our debt to total capitalization improved markedly during the year to 39 percent from 45 percent at the end of last year.

We finished the year with accounts receivable of 2.6 billion, which is up from 2.2 billion to prior year.

Of this increase, 330 million reflects the changes in foreign currency rates.

Our DSO closing out the year was at the same level as last year.

The quality of our portfolio remains high and we were able to improve our accounts receivable aging during the year.

Our free cash flow, defined as cash from operating activities less capital expenditures, was exceptional during the quarter at $111 million, bringing the total free cash to $168 million for the year.

This marks the third year in a row with free cash flow above $150 million.

Last year was 169 million and the year before that was 194 million.

Naturally free cash flows benefited by the fact that we were not required to invest in more working capital to support significant growth.

Certainly if business does accelerate, I would anticipate adding working capital to support growth, but of course this would be a positive trade-off as I can assure you the incremental ROI on this capital will be wall worth the investment.

Capital expenditures for the year were 55.5 million, just slightly below last year and well below our normal reinvestment rate.

Normally I would expect capital expenditures to range between 0.7 and 1 percent of revenues.

I do expect it will fall somewhere in that range for 2004.

Next, let me give more color on our guidance for the first quarter.

As Jeff said, we're estimating earnings per share to fall between 23 and 27 cents.

This includes a positive impact of 4 cents from currency and 3 cents from the accretion from the Right acquisition.

I'd like to isolate the impact of Right later in the call so that you can more easily see how this historical Manpower business is expected to perform.

So the following comments reflect Manpower before considering the Right acquisition.

As you can see from the last quarter, we have reported gradually improving constant currency revenue trends with the year-over-year growth trend improving about 1 percent sequentially each quarter.

Our estimates for the first quarter assume this gradual trend will continue as we go into the first quarter, resulting in constant currency growth slightly below mid-single digit -- constant currency growth slightly below mid-single digit range, or mid-teens growth in dollars, again before considering the Right impact.

We're looking for the three main operating segments -- U.S., France and EMEA -- to grow between 2-4 percent in constant currency, which represents an improvement from the growth rates that we are currently seeing.

We expect the other operation segments to continue to deliver strong growth in the low-double digits.

We expect our gross margin and operating margin percentages to look similar to last year.

We estimate our tax rate for 2004 to decline to 36 percent, reflecting some effective tax planning that began in the latter half of 2003.

Our weighted average shares for diluted earnings per share calculation are estimated at 80.6 million in the first quarter before considering the dilutive impact from our comfortable debentures.

As many of you are aware, up to now, our convertible bonds have not impacted our diluted shares for EPS purposes.

These shares become dilutive if our stock price is above certain levels for a portion of the quarter.

That threshold is around $47 for the first quarter and increases to $48 in the fourth quarter.

Based upon our recent share price, my guidance will consider these shares dilutive going forward.

Interestingly, there is no dilutive impact from the convert in the first quarter since it is a small quarter.

However for the year, dilution will be 10 cents per share based on current consensus earnings levels.

To arrive at that, you add back $7.8 million of interest costs related to the converts, or about $5 million after taxes and add 6.1 million shares to the diluted weighted average share count.

So all that was before considering impact of Right.

As you know, we have completed the acquisition of Right on January 22nd, exchanging 8.8 million shares of Manpower for shares of Right.

Accordingly, we will begin including the results of Right's operations from that point forward.

As we indicated at the time of the announcement in December, we expect accretion for 2004 of 3-5 percent.

And as I said earlier, we expect to get 3 cents of that in the first quarter.

As you might expect, the accretive impact of Right will be greater in the first half of the year as Manpower's earnings levels are relatively higher in the second half of the year.

From a revenue standpoint, they will add between 2 and 3 percent to our consolidated revenue in the first quarter.

On the gross profit line, they will add about 100 basis points improvement to the Company total.

On the operating margin, I expect that will add about 30 basis points in the quarter after considering amortization of intangibles.

Currently, we're estimating annual amortization of 12.5 million, or about 2.4 million in the first quarter, but that amount is subject to revision based upon evaluation.

We estimate we will incur incremental net financing costs of $1 million in the first quarter as we will pay down their debt and fund associated transaction costs.

Our tax rate estimate will remain at 36 percent for the combined growth and incremental shares included and diluted earnings per share are 8 million for the partial first quarter.

Note that for a full quarter, the incremental diluted shares are 10.2 million, representing 8.8 million of shares exchanged plus an estimate of 1.4 million per dilutive stock options.

So as you can see, the addition of Right has a number of favorable impacts.

Consequently as we look to the overall financial targets that we've set for the company, we will move our key EBITDA margin target of 3.5 percent up to 4 percent, representing our new improved business mix.

With that, I'll turn things back to Jeff.

Thanks, Mike.

That was some pretty heavy stuff.

What we wanted to do was to give all of you as much information as possible.

We've attempted to be as transparent as possible, so hopefully you feel as though that type of information is useful.

I'm going to ask that you indulge us a little bit more.

As I did last year, I spent a few minutes just wrapping up the conference call because it is a year end conference call and so I would like to talk about some of the things that we did in 2003.

What timbers did we put into place in 2003 that really give us a greater sense of confidence as we move into 2004 and for that matter beyond.

Those of you have been following us for sometime know that we run the organization based on five key strategies.

These strategies have served us very well because they allow enough flexibility within the geographies and businesses that we operate to really optimize and innovate within a local environment, but at the same time, they steer us down a path to achieve the objectives set forth that we've given to you as shareholders regarding both our financial and market position.

Those five strategies are revenue, which are the best customers, the geographies, the lines of business; efficiency, what are we doing in our offices and what are we doing with our capital efficiencies.

Since Mike and I are both on an EVA type plan and we really believe that generating economic profit for all of you is important.

Technology is the third one, organization and culture is key to our organization and me personally, and then where necessary, acquisitions.

So let me just highlight a few of those areas.

Much progress was made in all those areas in 2003.

We increased our presence dramatically in permanent placement in Europe, affecting our revenue strategy.

We've been hiring and training people to take the permanent placement market by storm, not just to wade into it, but do it by storm in several of the geographies.

This also happened in Australia, the U.S. and Canada.

We believe that our customers are absolutely looking for more out of this service, whether it be a temporary to permanent conversion or peer search.

We're getting many, many more offers and tenders to participate in that business and it fits very nicely because no one in the industry has the same kind of assessment tools and training tools that we have.

We currently did do more business in 2003 than we did in 2002.

We also opened offices as I mentioned earlier, over 100 offices.

Those offices are really focused on gaining more of a local business, noncontract business.

Those offices were primarily opened in Europe where we see a much greater opportunity than some of the other geographies.

We believe these will pay dividends in 2004 and as we see expansion in the marketplace and definitely in 2005.

We've talked about balancing our businesses as part of the revenue strategy and we're now seeing the growth that we've expected in Jefferson Wells, Elan and Manpower professional.

We're very much in-line with the strategy based on the productivity increases we're seeing in light manufacturing and frankly of small, and I would underscore small, portion of that work moving offshore.

Therefore, we've balanced our business with some of these others that we've acquired and have grown or acquired and then grown very rapidly organically.

Second (indiscernible) talk about is efficiency and that's really about productivity and efficiency in the home offices and field offices, as well as the efficiency of our capital. 2003, we implemented and completed the implementation of our new back office system at all branch offices in the U.S.

We improved our efficiency, accuracy and quality.

Additionally, we have completed Phase II of our front office system in Europe, which we consider to be the cornerstone for our front offices throughout the world.

We also have been able to gain efficiency by improving payroll administration processes, primarily in the U.S. but also other countries.

Right now, we have over 50 percent of our U.S. temporaries on some form of electronic time slip, which has been able to drive our cost down by nearly 40 percent.

Additionally as Mike mentioned, we were able to maintain our accounts receivable steady at 65 days.

Technology has been a very important part for us to add value to our customers and improve our efficiency and we've been able to continue to do that.

Our alter source (ph) product, which is our e-commerce products that does the order transaction between our customers and our offices and many of our candidates is the leading one in the industry.

There's more volume running through that product than any other in the industry.

We made it stronger in 2003 by making the bold move of joining a relationship with PeopleSoft, turning our alter source product over to PeopleSoft and now having those two products combined absolutely creates the best in the industry, and will be generally available to the industry in whole.

This will allow the industry to operate more efficiently and in turn, allow Manpower to operate much more efficiently.

We will continue to see areas of technology that we will be rolling out, add-ons to this product on a global basis, as well as others, for example, on the candidate side.

One of our five strategies is about acquisition.

Not any kind of acquisition; we don't make many of them.

We want them to enrich and catalyze the core of our business, not to acquire companies that just do more of what we do.

We know how to do that.

We can open those organically and that is where we get the good return on invested capital.

There's no doubt the acquisition of Right, which was completed on the 22nd of this month, fits squarely into that category.

Right has the values, the culture and fits very well with the vision of Manpower, leading the industry, having a cohesive strategy for large customers, midsize customers and for the smallest of customers.

The Right organization is a premier organization, the largest of its kind in the world.

Coupled with our organizational consulting group, which will absorb the Manpower (ph) Group, makes it a unique one-of-a-kind offering 00 no one else in the world has an organizational consulting group that spreads geographically across the globe and is focused on the management of talent and aligning people with that strategy.

So we are excited about it.

We look to the future and we are really not anticipating any other acquisitions of this type in the near future or for that matter, as far out as I can ,see other than what might be the usual franchise acquisitions that we do in the United States.

2003 was a very solid year for us organizationally.

We approached the market in a thoughtful and professional way.

We've been able to maintain our gross margin, add to our business while not detracting from the core part of our business, and continually building the strength of the Manpower brand, credibility and the trust of the brand.

And then and when you are in a people business and in the staffing business, that is so important. 2004 is of course of not void of uncertainty.

We're currently seeing positive signs in billable hours, but we have learned over the last three years that at a moment's notice, it can turn in any direction.

We're prepared for that, the way our cost is currently structured, the team is compensated and the professionalism of the team on a global basis; we know that no matter what the economy throws at us, we are going to be able to respond like no one else in the industry.

So that is my wrap-up for 2003 and why we continue to be optimistic.

SO what I'd like to do now is to turn this over to questions and open it up for questions.

(Operator Instructions) Greg Cappelli, Credit Suisse First Boston.

Hi, Jeff and Mike, it's Greg and Josh.

I just wanted to follow up on your comments on January so far.

And obviously, a good reason to continue to have what sounds like relatively cautious guidance.

But could you talk more how France is coming along as we exit January here versus the U.S.?

And then maybe in the U.S., you talked about still a little bit choppy here, in terms of which areas and geographies?

Sure.

France and the U.S. in many ways look like there is a bit of a parallelism.

We were running nicely in December, showing a little bit of momentum with nothing fantastic.

In fact in that way, not as much as the U.S..

As we entered -- we have three weeks of data in January, you get a little noise in there because of the holidays and where it starts and where it doesn't start.

But what we have seen is that nothing dramatic kind of hanging right around from a revenue perspective right around that zero line, a little bit less than that.

I suspect that the industry from a headcount perspective is going to be a little below zero and we are little bit less than that because we're holding the pricing up.

We were seeing Paris continuing to lag, which we are very strong in the Paris region.

We are seeing the north, which is much more in line with some of the agricultural and food processing sorts of things has been historically leaning in the fourth quarter fairly stronger, and we have seen that just kind of modulate a little bit, not get terrible, and I don't want anyone to think that we're thinking this is the sky is falling, but it is something we believe you should know.

If you juxtapose that with the U.S., you still see manufacturing doing fairly well in the first part of January, but not as well as it was in December.

So what is happening is that it has not had enough to offset what we might have been seeing in the declines in the office area.

From a regional perspective, the Southeast seems to be growing well, our west growth is growing well, but we're getting a lot of pricing pressures out there.

And we look across the board of the GP percents of us and other companies and you can clearly see the strategies are a little different and we're not going to change our strategies.

It sounds like your strategy for the gross margin there though is paying some dividends, even if you're giving up some revenue there.

We believe so because the math does not work that well the other way.

And we are not missing the market by much.

And I say this with some caution, but I feel as though quite easily if we wanted to go to the different pricing, we could be there.

But that is not really what it is about over the next 18 months and two years, which is how we look at the business, not just the next quarter.

So Mike, do have anything to add to that?

Anything else Greg?

One final one.

To the extent that you can, any impact that you have felt from the Adeco (ph) situation, either here or overseas?

I would say the biggest impact I have felt is I get awful lot of calls from journalists, and we've turned them down.

We don't know any more than you do.

The market is a very competitive marketplace, so no doubt there is a lot of activity going on out there.

But it would be way too early and premature to say anything else.

Thanks a lot.

Fred McCrea, Thomas Weisel Partners.

Good morning gentlemen.

Maybe we can turn the attention and follow-up on your comments, Jeff, in terms of the U.S. market and the split in the clerical and manufacturing, where you're seeing pockets of strength on the industrial side.

It sounded like particularly coming from the franchise business (indiscernible) what accounts (indiscernible) split between company-owned stores and franchises?

Right now, you would be seeing -- it would be like a third of topline if you were to count it as sales instead of revenue, would be coming from the franchises.

The franchises would have much more than 50 percent of their business in the industrial area, whereas the branches would have less than 50 percent of the business.

And if you were just to carry that out and make them neutral, you would see growth rates about the same.

So you're releasing a mix of business drive that difference between the franchises and the branches.

Is that something that you guys are purposely trying to do in terms of your company-owned stores is drive more clerical business?

I think some of that is just historical of where the geographies have landed and where some major manufacturers are.

Many times, our franchises are in smaller areas where manufacturing is much more of the mainstay than downtown Chicago or New York or Boston or Miami where more of the branches are.

We don't have anywhere near the number of franchises we had before, and you will see that number continue to go down over the years.

Thanks so much I will follow up off-line.

Jim Janesky (ph), Janney Montgomery Scott.

Good morning.

This is Jim Janesky.

Jeff can you going back as a follow-up to Greg's question on just general trends in January and as we move throughout the quarter, can you kind of compare it to what you would expect at this point in an employment recovery?

So for example, it being slightly flat to down a little bit, is that appropriate even for the month of January at this point in the employment recovery, or is it weaker or better than you would expect?

I will compare it to some of the history that we have, but I would also put a caveat on the there that says we are really in some unchartered water.

You and I have been talking about this for three years now, and I'm not going to say second half.

I'm done saying second half.

But when you look at it, you definitely see a recovery that is more soft (indiscernible), one that moves up-and-down.

And what it does that, because there is what we would call digestion where you bring some people on, you see if the demand matches it, and then you move from there.

Now what also is a little bit, another force that is pulling this together is that January is a month where sometimes companies step back and say -- how was that last year, what should we be doing, where should it be moving.

And so I would characterize it more as a pause.

But I think you all should know that and we've factored a growth into the numbers, as you can hear from Mike, we're in the U.S. and France talking about positive first-quarter topline growth.

So I would say not unusual.

We're not running around here saying, oh my goodness, what has happened.

What we're saying is we need a few more weeks to understand what is happening and where the trends are going and we're going to have to stay on guard on expenses and continue to hit the market very hard.

Okay.

And then on the Right Management numbers as we move throughout the year, I guess based upon your accretion, that would be about 5-8 cents for the year.

Do you expect you -- you said there is a plateauing of course in the outplacement business.

You actually expect a year-over-year decline there and expect that to be offset by a year-over-year growth in the non-outplacement businesses?

If you take their revenue trends overall for the second half of 2003, they were running overall down about in the low teens level, about 13 percent behind prior year.

So we're still seeing some of that career transitioning business come off its peak.

I think we could see a similar type of contraction in the first half of 2004.

And then I would expect that as we make our way through the year certainly to level off and plateau.

With that being said, it is a very difficult business as well to forecast, and certainly there are a number of positives in the career transitioning side.

As we start to look at M&A business that is coming back much more rapidly, that certainly will drive a certain amount of career transitioning business.

And at the same time, we're still reading about significant numbers of layoffs yet.

So the business is certainly still healthy, but I think there is some peak that still is going to run off.

When you look at the organizational consulting side specifically, we are seeing some firming in that business, both on the Right Management side as well as on M-power side.

So I think there is some opportunity for that business to improve as companies are getting more confident and able to spend more of those discretionary dollars going forward.

Mike, what kind of stock cost saving assumptions have you made in that accretion?

I have not really baked any synergies in there.

We do expect there will be a limited number of synergies, but also, the other factor offsetting that is we likely will have some modest amount of integration costs.

So I guess you can say it I've considered both of those factors and they're both in the 3-5 percent -- how's that?

Okay, great, thanks.

Randy Mehl, Robert W. Baird.

Good morning, Jeff and Mike and thank you for the detail around Right and the guidance, that was helpful.

Just to clarify, it sounds like the office closures hit the EMEA segment and the reversal of the tax accruals helped France.

Is that correct?

And then what was the source of such an increase in the corporate expense line?

Let me take those.

Randy, you are correct in the first assumption.

The subsidy adjustment did come in the France segment which was positive on a pre-tax basis, $16.1 million and it would have hit the GP line on what we have characterized as office closure costs of 5.6 million within the EMEA segment and would have impacted the SG&A line.

Important to be sure we have that in context.

There was really, truly just a small handful of offices that we closed as well as a call center.

And so it wasn't a significant office closure.

What was the last part of your question?

The corporate expense ticked up quite a bit from the prior quarter and I'm wondering what the source of that was.

Yes.

If you look at our corporate expense, our run rate did step up from Q3 going into Q4.

Two primary things.

One was some tax planning, which we concluded or at least almost concluded in the fourth quarter.

And you can see that in our effective rate coming down next year, so there is some professional services, consulting service cost on the corporate expense line, and also some global e-commerce costs as well that you are seeing come through there.

Those are the two big items.

There's a handful of smaller items that add up to a little bit, but those are the big items in that category.

One follow-up on the Right Management contribution.

I would have expected, given that it does trail off throughout the year, that maybe the first quarter would be bigger than 3 cents.

And I'm just wondering -- are you handling transaction cost in the first quarter, is that flowing through that number?

Most of the transaction costs will be capitalized under the GAAP accounting rules.

So effectively, no.

What is in there is the goodwill amortization costs, which we are estimating at 2.4 million, or I should say the intangible amortization costs of 2.4 million.

And then also financing costs as we will be -- we effectively paid down their debt and will fund the transaction costs, so there will be some interest financing costs related to that and we've estimated that in the assumption of a million.

Okay, thank you very much.

I appreciate that.

Adam Waldo, Lehman Brothers.

Good morning, Jeff and Mike, and congratulations on a nice end of the year.

If we can turn back to fourth quarter just for a second.

Mike, could you give a little bit more quantification of the expense impact in the fourth quarter from the office reductions and call center closure in the UK, in terms of the impact operating expense and EPS?

Yes.

In terms of operating expense, it impacted -- 5.6 million was the pre-tax SG&A impact that fell to the operating profit margin.

On an earnings per share -- from an earnings-per-share standpoint, that reduced us by 4 cents.

Were there any unusual items during the fourth quarter with respect to either AR write-downs or reserve increases as we saw last year at the corporate expense line?

Nothing else unusual.

We do our usual year-end assessment of reserves, and certainly, there changes, but nothing that would fit the unusual mark, and that is what I tried to do with these two items because they did stand out as being somewhat material.

I wanted to at least give you those so that you could analyze those in the context of the overall results for the quarter.

Thanks, that's very helpful.

And as you look forward with respect to the OpEx reduction you made in the UK, how should we think about the impact on a full year basis to the UK OpEx space?

I don't anticipate a significant impact going forward, in terms of what those cost reductions will be.

Clearly, those offices before considering those expenses were bringing some profits as well, as well as the call center.

So in terms of significantly impacting on a go-forward basis, I don't not anticipate a dramatic impact.

Finally, Jeff, I wonder if you could just broadly outline for us your thought process with respect to net office expansion in 2004, given the operating environment.

What have you all built into your initial plan, and how would you think about variable planning through the year as revenue might trend higher?

It is a very good question, because as you know when you look at it from a macro perspective, it could be very misleading.

You have to look at what is going on in the marketplace and I'll take the one that would have the biggest impact on that, and that is Japan.

Because on March 1st, Japan opens up their law to allow for industrial and light industrial work, which means we will have to have offices located in the right places and offices really focused just on that.

So what we have done is developed a plan that we can either if you will turn the volume up or down based on what we are seeing in the marketplace.

So we saw a little of those office openings in the fourth quarter, we will see more of them in the first quarter.

And in fact, that will affect the first quarter results a bit in that other operations segment as we invest in that.

You would see maybe a few offices in Europe, maybe a few more in Southeast Asia.

So while we might be looking at an average year during normal times somewhere between 300 and 500 offices to be opened up, I think when you look at 2004, you would see something less than that because we don't want open them too early and yet not open them.

So it is kind of that balance between.

But as you know because you've followed us for a long time, we really have been pretty held fast and have not closed offices.

So we have been able to grow our network over the last three years strategically, in the right areas, so we need to just keep adding to it but we're not going to be pulling any big stocks out and having massive office openings.

Jeff, if you'll allow me to try to just pin you down a little bit more on this, so as we were talking about this on the last couple of quarterly conference calls, you all were thinking about approaching 2004 with a view towards 3 percent plus or minus net office expansion for the year.

Are we talking about something like that in '04 as you (indiscernible)?

And can you maybe give us a sense for how much that might vary in this early stage recovery year?

That's about what we're looking at.

Why don't I give you a little bit more of how that varies and what it does as a financial, I'll let Mike cover that.

The way we approach is we do identify markets where we think there will be opportunities.

So we start the year out oftentimes with a plan that would be a normalized plan.

And then based upon how the year progresses, we'll dial that down or, in some cases, dial that up.

So as we look at the year, we certainly have more offices that we can open where we think there's opportunity but in many markets, we're waiting to see how the economy develops.

One of the few contradictions where that would be -- Japan where clearly, there's a real opportunity here that is not economic related and therefore we certainly will be on the front end of that.

Certainly.

Thank you very much.

Andrew Steinerman, Bear Stearns.

It's Andrew Steinerman.

I wanted to make sure everybody knew that.

My question has to do with SG&A.

This is SG&A not including the other corporate expense line.

And I know you have to back out the 5.6 million that you just spoke about for office closings.

And if I take out as a percentage of revenue, I get about 15 percent, even though obviously we showed some nice acceleration on constant currency revenue across the board, I would've expected maybe we get a little bit more leverage on that line, given that in the third quarter where we had lower cost of currency revenue growth, that was about 14.4.

Perhaps you're stepping up investments for continued acceleration.

Why didn't we see more leverage on that line just in this quarter?

I think it is always difficult looking at it at a macro level.

But certainly when you think about leverage, you do need to think about it on a constant currency basis as you mentioned and not in dollars terms.

But as we look at the quarters going from the third quarter to the fourth quarter, our SG&A excluding some other things that we talked about earlier, our SG&A really landed about right on plan.

We always do see a step-up from Q3 to Q4, just because of the significant amount of leverage in France that we get with the larger third quarter relative to the fourth quarter.

So some of the pieces underneath you have to look at to understand what happens at the top.

When you then compare our fourth quarter this year to last year, I actually have corporate expense in front of me included.

So on an adjusted basis on 15.3 percent versus 15.1 percent.

But last year's numbers were a little bit lower.

As you may recall, we had cutback on some costs and some advertising costs and such in France last year, so that actually made the prior year number, the 2002 number, look a little bit more favorable.

So I guess is a long way of saying, Andrew, what we're seeing I think is pretty much typical of what I would expect, certainly as I look forward and think about more constant currency growth, the leverage opportunity, clearly that has not gone away.

We still feel very strongly that we have a very strong network of offices in place to deliver and provide greater efficiency and certainly do have capacity going forward.

Just to be specific on that word capacity, do you think we have to hire a lot of people at Manpower to meet the accelerated demand, or do we feel like we have excess capacity in our people as well?

I think we have excess capacity in our people as well.

I think it will depend a little bit market by market.

Given how the various economies have fallen and how business has adjusted, you would see different productivity metrics today in the U.S. market, for instance, which has fallen quite dramatically compared to the French market, which has had a much softer recession.

So you would not get the same response in each market.

But in general, I would see a productivity opportunity within the human resource component as well.

Thank you for all of those clarifications.

Brandt Sakakeeny, Deutsche Bank.

Thank you.

Jeff, can I just talk again about the Japanese market for a minute.

Did you give some quantifiable data on that, in terms of growth?

And I think you said to Adam's question that the law actually allows for industrial staffing effective January 1.

What has been the impact of that?

I know we're still very early, but can you talk to that as well?

Thanks.

Let me clarify.

What I said, Adam, was March 1.

So it takes effect March 1 and we have gone back and forth on this.

There are many different ways to look at this.

One way to look at it is to say that in many of the mature markets, industrial, light industrial would make up 40-50 percent of our work.

So you could go on the real bullish side and say, well, I guess we're going to double our business.

We're not quite there yet (indiscernible) what goes into effect March 1st in Japanese law is that the mission or temporary assignment can't go longer than a year.

And for many people listening on this call who are familiar other markets, that is a long time.

But in the Japanese market, that is not a very long time after one year of going through this change.

So when we anniversary this in March 2005, we're hopeful and would suspect that the government would change it to a three-year duration, which then we would see more accelerated growth as we have seen in other areas where they have liberalized their law on this.

Having said that, we see a potential for some good opportunities.

So we are going to be opening offices.

As we said before, we kind of have a dial strategy to make sure that we're opening them ahead of time, but just ahead of time and we can take it back, depending on how well or how poorly it is received.

So it is hard to quantify and say that Japan is going to be up X-percent next year.

We will have had a much better idea -- we will have a better idea at the end of the first quarter, even though it has not been done because customers are already talking to us.

We will have an infinitely better idea by the end of the third quarter or something like that.

Thanks.

And I think (indiscernible) was quoted in the press talking about some positive fallout from the issues at Adeco, albeit it still very early.

Any comment on that?

Have you seen or have been approached by large clients looking potentially to switch business?

In uncertain times and in a difficult and competitive marketplace, those things arise, whether it is from what might be the challenges or not the challenges.

And what have I have asked our team here to do is as usual.

We go after everybody's customers, and that's what the market is.

We will go after all 24,000 of our competitors.

So it is early, it's hard to tell and really inappropriate for me to comment.

Okay, thanks.

Kelly Flynn, UBS Warburg.

Thanks.

I have a couple of questions, and the first one is a follow-up on Japan.

Jeff, do you have any color or estimates on the size of the addressable market?

And then maybe could you speak to the key competitors and what advantages or disadvantages you may have down the line and trying to grow your business?

And I guess what I'm getting at there is -- is it true that the companies that have more of a native presence there may have a better shot of gaining market share aggressively?

Thanks.

That's a good question, because the market already has, if you will, some services that look similar to it, and it's really more a quasi-contract manufacturing.

And therefore, it is not completely new.

That contract manufacturing lacks some of the flexibility and nimbleness that we would have.

So we look at key competitors at least now when we have done the analysis of the market, as possibly being that segment of it and determining how we can approach that segment.

Our Japanese team, which is a very good team, is not just getting ready for this now; it has been going on for 18 months.

They have had some of their key managers spending time in the U.S. and France and in the UK looking at all of the tools for assessing people, how we bid on tenders, how we construct and what is our go-to-market strategy.

So we will have competitors, but I believe when it comes to that type of work and the professionalism that we can show versus, others I am confident that we're going to make a very good run at it.

The market will just take a little time to understand what's the difference between us, some of the contract manufacturers and then of course their own staff.

We believe that there is some receptiveness to their own staff being moved out just because the price pressures are abounding.

So that is how I would answer that.

What about just a follow-up on that.

My understanding is Right has a very strong presence in Japan.

Is this a country in which you may be able to realize more selling synergies than elsewhere?

Absolutely.

They have a very strong presence in Japan, a great network and as companies look to take their work and say I need to do this on a temporary environment, that will create career transitioning opportunities.

So our two country managers are already getting together and looking at that as a way of maybe being able to put an offer together that is compelling and again that no one else can really do.

I have a follow-up on the SG&A.

I'm sorry to be beat a dead horse here.

To follow-up on what Andrew said, it sounds like even your Q1 guidance doesn't bake in any leverage year-over-year, whereas your top line is clearly growing.

Is there anything one-off in there similar to what we saw in the fourth quarter, or is that just kind of a mix shift?

And then maybe just to clarify, Mike, when you give that 4 percent margin target, can you tell us what's the gross profit margin assumed and the SG&A margin as well?

Thanks.

In terms of the first quarter in SG&A costs, when we look at that, the first quarter is always a difficult quarter because it is such a small quarter.

Unless we really see some movement on the top line, I don't know if you necessarily see any leverage.

One of the things that certainly happens in the first quarter are things like salary increases and those type of elements as you start up the new year.

So you have a number of those type of new costs that come in.

So while you are right, we're not seeing any leverage in the first quarter, we're not anticipating much of a significant year-over-year ramp-up.

So I think it is a combination of being a smaller quarter and some additional costs that are coming in as well.

As we look to overall targets for the Company, we would look to on our overall gross profit margin, we would be looking for right to likely move that up something on the order of 100 basis points, maybe a little bit more.

So as we ordinarily would talk about our gross profit margin, our gross profit targets before we would be talking in the 18-18.5 range, I think you can probably add something like 100 basis points to that, and I guess you (indiscernible) for SG&A to get the answer of where that range comes out as well.

Okay, thank you for your patience.

One last question, please.

Marta Nichols, Bank of America.

Good morning and thank you.

Jeff, I wanted to go back to your comments about the dilution from the convertible.

You had said that it is going to be likely 10 cents dilutive for the year, but that nothing would impact the first quarter.

Can you just review with us why that is?

Sure I could, but I will let Mike have that one.

You summarized it appropriately.

Based upon the consensus earnings level that is out there for the year, which of course we have not given guidance our for the year, but based upon the numbers that are out there, it would be 10 cents dilution.

The way that you arrive at that is on an annualized basis where adding back $7.8 million of interest cost on a pre-tax basis or 5 million after-tax, so that is what you add back to the net income.

And then add to the share account an additional 6.1 million of shares.

So when you then take that down on a quarterly basis, effectively allocating that interest cost by quarter, what you will see in effect is there really is no impact in the first quarter, and then it begins to ramp up as we get into the second, third and fourth quarter, you see more dilution as you get out to the course of the year.

But if you run those numbers through the model, I think you will see how that (indiscernible) each quarter.

Sorry about that, Mike, I did not mean to steal your thunder.

I will throw another one in your direction to make up for that.

You also mentioned on the corporate expense line there were two impacts.

I guess it was the tax planning consulting costs and some global e-commerce costs in the fourth order that ramped that up.

Will both of those go away in the quarters in 2004?

As we look to 2004, the tax planning will be winding down in the first quarter, so I don't see that substantial impacting.

As we think about global IT, we are doing more of our IT type of work centrally as we're trying to leverage some of our costs on a global basis.

So what we will see is a modest shift of IT costs from the regional segments, if you will, into the corporate line.

So what you will see is a bit of a shift in costs as opposed to a net increase in costs.

So as you think about or as you see things lay out for next year, I would expect the run rate in corporate expense, which for 2003 on a normalized basis, has been more in the 9 million range, I would expect that to step up a little bit as we make our way through 2004.

Finally, one of you, I guess Jeff, can you speak to the German performance?

It has been continually stellar through all of 2003 and it really seems to run counter to what is going on economically there.

And clearly, the benefits of hiring temporary staff (indiscernible) must be having some effect.

I know you've attributed a lot of the strength in management as well.

Is there anything else to attribute the strength to, and do you anticipate that it's sustainable through 2004?

We do feel as though it's sustainable for 2004, and we do have a good management team that has really gotten their feet on the ground and had some momentum, but that momentum is really caused by some of those secular changes that we talked about.

So some of the others maybe in the market are in a little different position than we are.

But I would say that those secular changes are ones that are nothing landmark, they're just loosening things up a little bit more.

And as German companies continue to deal with the difficult environment, they are finding ways to try to be more flexible and we're one of those answers.

And I don't see that reversing in 2004.

Does it have anything like in France to do with your vertical exposure because you are more exposed to one or another part of the economy?

I'm not sure.

I haven't looked at it that way.

We are a bit more exposed to the manufacturing area, though we have gotten very strong in some of the office and have some very large multinational customers at our office and German customers that are office focused.

So the mix of business is really not as skewed as it is in France.

It is probably somewhere between France and the US.

Okay, perfect.

I thank everyone.

We appreciate your time.

We took a little longer on this call.

That 10 minutes longer was just the year end summary that we do, so we appreciate you spending time with us and thank you.