ManpowerGroup Inc (MAN) 2004 Q4 法說會逐字稿

Good morning and thank you for standing by.

Welcome to the Manpower 2004 4th quarter and year ending earnings conference call.

All parties will be in a listen-only until the question and answer portion of the conference.

Today's call is being recorded.

If anyone has any objections you may disconnect at this time.

I would like to turn the call over to your host, Mr. Jeff Joerres, Chairman and CEO.

Sir, you may begin.

Thank you.

Good morning to all, and welcome to the 4th quarter and full year conference call for 2004.

As usual, I'm joined here by Mike Van Handel, our Chief Financial Officer.

We'll go over the results in general and then discuss the segments in more detail.

Mike will give you the year-end wrap-up of the numbers on the income statement as well as anything that affected the balance sheet for the 4th quarter, and actually for the full year.

So, again, as usual, before we move into the conference call, I would like to have Mike read the Safe Harbor language.

Thank you, Jeff.

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

Thanks, Mike.

The 4th quarter and full year was a very solid and good performance for Manpower.

Really across almost the entire company across the board of the different units and geographies.

In fact, in almost all geographies and business lines we saw solid growth.

Very good leverage and strong profitability.

No surprise to anyone, we're seeing an environment where demand is being measured -- and we have talked about this before, but companies are hiring people and hiring is going on here and across the world, they are bringing on additional staff but they are doing it at a much more conservative and more of a trickle approach, if you will, than unabated flow of talent coming into an organization.

We entered the 4th quarter anticipating $0.69 to $0.73.

We finished the quarter at $0.73.

This was aided by $0.04 of currency $0.02 additional cents than we originally anticipated.

On a full year basis we finished up 53 percent in earnings per share over 2003.

Ending at $2.59.

Remember, we have some reoccurring items, so those reoccurring items in 2003 totaled $0.19 and those impacted the 1st and 3rd quarters of the year 2004.

Our revenue for the 4th quarter was up 16.1 percent in constant currency, finishing over $4 billion.

On a full-year basis we were up 14.1 in constant currency.

Finishing the year at nearly 15 billion in revenue.

As I mentioned this came from a lot of segments within the business operations.

The U.S. on a full year, 4.9 percent up, France 2.8 in constant currency, Emea, they rang the bell, absolutely outstanding year, up 21 percent in the 4th quarter and 18 percent on a full year basis.

Both those numbers are in constant currency.

Of course, Jefferson Wells also put in a stellar performance.

On a full year basis up nearly 150 percent.

Right Management came in just under our revenue projections but had a more difficult time than we had anticipated on the profitability side.

I will talk more about that when we get into the segments, as many of you know Rights is a segment so we'll cover that detail.

Other operations were up 16 percent in constant currency for 2004.

And 17.2 percent for the 4th quarter.

We maintained our gross profit.

In fact the 4th quarter we were up 60 basis points.

On a full year basis we were up 120 basis points.

When we take out the amount that would be attributed from the acquisition of Right Management , our full year gross margin percent improved by 20 basis points.

That can be attributed by a fine effort across the world of making sure that we sell to the right customers, the right kind of business and, of course, at the right price.

We had good expense control.

SG&A coming in at 15.9 percent of revenue for the quarter and 16 percent for the year.

If we exclude Right which has a different cost structure, our SG&A improved by 60 basis points to 14.9 in the quarter and 30 basis points to 15.1 for the full year.

Clearly, we're seeing the results of our productivity initiatives and the operating leverage.

We've been able to achieve with some good revenue growth.

Not great revenue growth, but good revenue growth.

This contributed to an operating profit margin of 2.9 percent in the 4th quarter, and 2.7 percent for the full year.

That's a 60 basis point improvement for the year, or 50 basis point improvement if we exclude the impact of Right.

The operating profit for the quarter was 117 million and for the year 396 million.

A record year for us.

Increase in constant currency for the full year was 43 percent.

We made that 396, as I said was a record year, and it really is driving towards our overall goal, which no one in our organization is forgetting that we are making the commitment to all of to you get our operating profit margin to that 4 percent.

We made great strides in many parts of the business to position ourselves for expansion for that operating profit margin in the future.

Net income for the year was 246 million, a 78 percent increase over last year.

For the quarter we reached nearly 70 million in net income, a 39 percent increase over last year.

As we move into the 1st quarter we anticipate achieving an earnings per share of $0.34 to $0.37 reflecting an increase in operating profits in the range of 12 percent.

It is, of course, difficult to forecast on a full year basis since there are so many factors having to do with the economy and how it affects our business.

Burt as we look at the full year, we anticipate operating profits to improve in excess of 15 percent.

Now, on to the segment detail, the U.S. 4th quarter revenues, as I mentioned earlier were up to 517 million, up 3.9 percent.

Recall that we have trans personnel that we sold in the 2nd quarter of 2004.

That represents a bit over 2 percent.

So in total we were up 6 percent in revenues.

The gross margin expanded in the 4th quarter by several basis points.

We had good expense control, which led us to profitability of 16.8 million, a 3.2 percent operating profit percentage.

A performance that the U.S. should be very proud of.

On a full year basis we exceeded 2 billion in revenue, on top of that our U.S. franchise organization had sales of 1.2 billion, bringing the U.S. organization staffing only to 3.2 billion.

On a full year basis the U.S. came in just under $50 million of operating profit, a 46 percent increase over 2003.

And a 70 basis point improvement in operating profit margin.

Let's take a little bit closer look at what happened in the quarter.

In October and November -- and I'm taking out trans personnel, we were above 7 percent in average daily sales.

Then in December, we were much more sluggish at 2 percent.

The holiday period actually hit us harder than we anticipated.

We were anticipating since the holidays fell on the weekends that it would probably be less of an effect on us, when, in fact, what we had seen in the last week of December was a very quiet work period.

We're not anticipating this as an overall trend, meaning a general slowdown.

But we have seen around holiday times that companies are shutting down for longer periods of time.

Generally what we have seen in recent quarters demand for manufacturing skill is increasing more dramatically than our other lines of business.

This is as a result of companies just need to get product out the door and they need people to do that.

That we are seeing less hiring tendency but an improved hiring tendency in the office environment.

While our office numbers have gotten better, they are still not in the area that gives us the boost that we need in the 4th quarter or for that matter as we go forward.

As we look to the 1st quarter we have a few weeks now under our belt.

Currently the 1st quarter in the U.S. shows signs of being up 4 percent organically, without trans personnel.

So that gives you some sense of what we are seeing in the U.S. right now.

The -- moving on to the French operations, we were able to achieve a 4.9 percent growth in Euro revenue, which resulted in almost 1.1 billion Euros for the 4th quarter an operating profit of 42.3 million Euros for a margin of 3.9 percent.

After adjusting for the 16.1 million of the long-time benefit we had last year 4th quarter, operating profits were up 5.5 percent in constant currency on a stable operating margin for the quarter.

For the full year, the French operations finished the year at $5.2 billion in revenue, a 12.7 percent increase over 2003 and 4.2 billion in Euros, a 2.8 increase over last year, constant currency.

Operating profit for France for the year was 143.5 million Euros or 3.4 percent operating profit.

Slightly down from last year after adjusting for the one-time benefits in the 4th quarter of last year.

If we were to adjust for those one-time benefits the French organization would be down year-over-year 60 basis points and operating profit percent for the full year.

Our market in France in many ways is similar to what we had experienced in the U.S. where you are seeing GDP growth, maybe a little less than what you would have expected but yet the labor market is being very measured and controlled.

As we move into the 1st quarter we have seen a continuation of what we were seeing in the 4th quarter for revenue trends.

So solid revenue on a relative basis but not really anything accelerating.

Price pressures continue to exist as it's one of the most, if not the most difficult markets to operate when it comes to price pressures.

On a positive front, we are investing in the permanent placement market in France.

I talked about this before, and the legislation has passed allowing temporary service companies in France to participate in the permanent placement market.

Previous to January of 2005, the only organization who was allowed to do permanent placement was a government organization.

So it wasn't just a restriction on our industry.

It was a restriction on all industries except the government industries and as a result it may take a bit longer to appreciate the value of the permanent placement service; however, we do see this as a very good opportunity for the longer term.

We were the first out in the market.

We are already receiving orders, and we are putting permanent dedicated perm placement recruiters and consultants in place, actually following the models that we have done and executed very well in other European countries.

Needless to say, it's far too early to determine how successful or what kind of impact it would have on 2005.

Though we do believe that we have a good opportunity of having the investments of additional people that we must put in play, be offset by the profits generated.

We would suspect that in about another two quarters we would have a much better fix on the market, and what kind of profit contribution we might be seeing from -- in future quarters generated from the perm placement business.

Now, on to Emea.

Emea, of course, is Europe minus France and the Middle East and our operations in South Africa.

And they just had an outstanding quarter.

For the quarter revenues exceeded $1.4 billion, a 31.8 percent increase in dollars, and a 21 percent increase in constant currency.

On a full year basis, Emea's revenues exceeded $5 billion, a 29.7 percent growth of dollars, 18 percent growth in constant currency.

The gross margin profit margin improved in the 4th quarter due to an improving business and mix, mix business.

And we're seeing the effects of higher permanent placement fees.

SG&A expenses were well controlled.

We were able to leverage the top line revenue through these productivity gains.

Actually, SG&A was down 100 basis points. 50 basis points excluding the 5.6 million for the one-time closure costs in the 4th quarter of 2003.

This resulted in a $41.3 million operating profit for the 4th quarter. 142 percent increase over 2003 or 122 percent in constant currency.

Our full year basis Emea was able to generate $115 million of operating profit, 104 percent increase in constant currency.

Improving the operating profit margin a full percentage point to 2.3.

Some of the highlights of the market continue to be Italy and Germany.

Italy in the 4th quarter grew in excess of 20 percent, Germany grew at about 15 percent.

Both of those numbers were in constant currency.

In addition to those performances, Manpower UK grew nearly 18 percent in constant currency.

Elan has had a very good growth rate through 2004, which grew 38 percent in constant currently in the 4th quarter and for the full year exceeded about a half a billion dollars in sales with a growth rate in constant currency of 25 percent.

Also of note are good performances from Holland, which grew 20 percent in constant currency and Belgium which grew 29 percent in constant currency.

In the 4th quarter and as we move into 2005, we will continue to open offices, particularly in Italy and Germany, and in 2004, we opened a fair amount of offices in the Brook Street brand to approach the retail market and the permanent placement market in a more substantial manner.

The next segment I would like to talk about is Jefferson Wells.

Jefferson Wells put in an extraordinary performance once again.

Revenues 102.9 million, up 174 percent for 2003.

They finished the full year at 341 million, up nearly 150 percent in top line.

More importantly, they were able to contribute 12.8 percent in operating unit profit or $13.2 million of operating profit in the 4th quarter.

Jefferson Wells finished the year at $51.4 million of operating unit profit with a margin of 15.1 percent.

While our 4th quarter forecast called for a modest sequential improvement in revenue we actually saw a slight decline.

This difference is primarily attributed to four of our larger accounts which cut back their resource requirements a bit sooner than we had anticipated.

As you look at the sequential growth from the 3rd quarter to the 4th quarter, you should also keep in mind that the 4th quarter had three less billing days and the third -- than the 3rd quarter or 5 percent.

Also, December is a heavy vacation month for Jefferson Wells, given our permanent staff model.

We made it a point to try to have our professionals take that vacation time.

We felt as though we were very much in this for the long haul and wanted to make sure that we were not burning out the professionals, as they had put in very heavy loads in the 3rd and 4th quarter.

The operating margin for the quarter was roughly in line with our expectations.

The 4th quarter has a seasonally lower operating margin, as we are impacted, this is what I talked about earlier the vacation and holidays of the permanent staff.

We have seen just a few weeks of January, and it would give us a positive indication that we would be on the path of revenue to be in excess of 95 million for Jefferson Wells in the 1st quarter.

We will continue to invest.

We believe it is absolutely imperative for the business to invest in quality methodologies, additional office openings, people development and many of you have seen our investment in the branding campaigns that we have.

We continue to be extremely optimistic in the way this industry is moving, and the way Jefferson Wells is positioned.

Truly, as "the" premier provider with the most amount of experience and the largest footprint in network.

We clearly see that controls and independence is not going to be slowing down.

Our book of business is a good balance, a good mix of business.

It included internal controls, financial staff augmentation, and, of course, tax work.

On to Right Management we were about as we had expected in the 4th quarter for revenue at 106.9 million and for the full year 431.

We came in with a loss in the 4th quarter as we had over 4 million of one-time items.

These items include office closures and severance related to the M-Power integration.

And also included the association -- associated costs for the retirement of the former CEO.

For the full year we finished with operating unit profit margin of -- of profit of 24.5 million, and a margin of 5.7 percent.

Clearly, this is not acceptable to us; however, we do not believe that Right Management is broken in any way, needs to be fixed other than some clarity and focus.

We have seen that Right Management has been able to surpass the growth in the marketplace and therefore we are quite optimistic about 2005.

We have taken out tens of millions of dollars of cost out of the organization, and continue to create the clarity and the focus that's required.

True strength of Right is an exceptional field network and quality.

The best reputation in the industry.

And that's not waivered and as a result we have been able to capture market share and in some cases in a sizable way.

Also, the combination of the $150 million of organizational consulting globally connected with the strongest global capabilities in career transition is unsurpassed in the industry.

This positions us very well for 2005.

We've also seen the synergies between Manpower customers and Right customers and on a much more accelerated pace than we've seen in the past.

We are winning substantial pieces of business such as Honeywell, Tyco, Cingular and Seimens, all of these wins on the backdrop of the two organizations working together and disciplined pricing.

This gives us reason to be optimistic that we will be improving our performance in 2005.

The other operation segment which includes primarily Japan, Canada, Mexico, other parts of Asia, and South America, have revenues of 499.8 million, up 20.8 in U.S. dollars. 17.2 in constant currency.

On a full-year basis the other operation revenues were 1.8 billion, or a 16 percent increase in constant currency.

Our operating unit profit for the quarter, was 10.3 million or 2.1 percent.

On a full year basis we felt pretty good coming in with operating profit of 46 million but for the last two quarters we have not been pleased with our performance in Japan where we've seen some margin erosion based on increased social cost.

This clearly is an area where we'll be focusing on in 2005.

Canada continues to do well with revenue growth rate and constant currency of 6 percent and profit up 45 percent.

They were also -- they were a major contributor to this unit as was Argentina.

Australia continues to do well, doubling their profits from last year.

The management there has done an extraordinary job in pulling together and focusing the organization.

As a result, we are well-positioned for 2005 in Australia.

As you may recall from last year, the 1st quarter, that we hit a bit of a bump in Australia because of the work with the Australian defense force where we do the recruiting for them and most of that recruiting happens in the 1st quarter.

Also in the other country segment, other operation segment, Mexico put in another fine year with good improvements and profit and top line.

Overall, it was a very good year with net income up 78 percent, operating earnings up 53 percent.

On a revenue increase of 23 percent.

We were able to balance the business and we were able to stay focused and passionate about where we are going and, therefore, we feel optimistic as we move into 2005.

That's the segment breakdown.

What I would like to do now is turn it over to Mike for a little bit more detail on the financials.

Okay.

Let me begin by making some comments with regards to our balance sheet and cash flow and then discuss a few details on our 3rd quarter earnings and finally our outlook for the 1st quarter 2005.

Our balance sheet was very solid at the end of the year with net debt declining by $64 million during the quarter to $370 million.

All of our credit ratios improved in the quarter and our total debt to total capitalization was 29 percent at year end.

As of year end we had borrowing capacity under our various debt facilities of almost $900 million.

Clearly we have a financial strength to support investments and growth opportunities as we move into 2005.

Accounts receivable increased 5.4 percent from the 3rd quarter to $3.2 billion, most of this increase was due to changes in currency rates, as DSO declined sequentially by one day.

On a year-over-year basis DSO increased by approximately one day.

Free cash flow, defined as cash from operations minus capital expenditures was $120 million compared to $168 million last year.

Free cash flow declined year-over-year despite the increased earnings due to the increase in working capital needs to support our higher revenue growth.

Capital expenditures increased in the 4th quarter to $25.2 million, as we opened the greater number of offices.

Capital expenditures for the full year were $67.9 million.

Next I would like to discuss some of the detail items impacting earnings in the 4th quarter.

Our corporate expense was about as expected at $15.4 million.

This increase is primarily the result of providing the operating regions with more centralized global IT support as well as external advisory fees related to Sarbanes-Oxley compliance and other matters.

Our effective tax rate was 35.8 percent, just shy of our 36 percent estimate.

The tax rate on a full-year basis is 33.5 percent, however, it becomes 36 percent after adjusting for the previously discussed nonrecurring items in the 1st and 3rd quarters.

As I discussed last quarter, we have adopted the recently issued EITF which requires that our convertible debentures be included in the diluted earnings per share calculation.

As such, our weighted average shares on a diluted basis were 97.5 million for the quarter, and 96.8 million for the full year.

In performing the diluted earnings per share calculation, the after-tax interest expense of the convertible debenture needs to be added to net earnings before dividing by the weighted average shares.

This after-tax cost was $1.25 million in the quarter and $5 million for the full year.

Similarly for 2005, the quarterly interest addback after tax is 1.3 million, and the annual amount is 5.1 million.

Similar to prior quarters we continue to follow APB number 25 and accordingly do not expense the cost of equity based pay.

As we expense this cost under statement 123 our earnings charged for the quarter would have been $0.02 per share and for the full year $0.09.

We plan on adopting the new standard and expensing these costs beginning in the 3rd quarter of 2005.

Currently we estimate that this will reduce our earnings per share by $0.06 in the 2nd half of 2005.

I would like to spend a little bit more time than usual discussing the assumption underlying our 1st quarter guidance.

While this is the first time we are giving guidance on the 1st quarter I recognize that our guidance range of $0.34 to $0.37 is lower than many of the analysts were estimating.

Our year-over-year constant currency growth rate is expected to be in the 10 to 12 percent range.

Based upon current exchange rates, currency would add another 3 percent to that growth.

This constant currency growth rate is somewhat lower than the 16 percent we achieved in the 4th but there are a number of factors to consider.

As you will recall, we acquired Right Management in January of last year therefore we anniversaried that acquisition in the 1st quarter.

Right added almost 3 percent to the 4th quarter growth.

You should also be aware that there are two to three less billing days in many of our European country compared to the prior year due to how the holidays land this year, such as Easter.

Once you fact factor these items in, you will see that we are not calling for deceleration in the growth rate but rather a continuation of the fairly solid growth we had seen in the last several quarters.

We expect our gross margin percent may slightly decline sequentially reflecting the usual seasonal impact but it's -- but expect it will be up on a year-over-year basis, as gains and business mix in the Emea region, and the higher gross margin at Jefferson Wells will more than offset the continuing price pressure we're seeing in France and the declines we are seeing in Japan.

Our SG&A costs, as a percentage of revenue, will likely be up slightly from the prior year.

This increase partly reflects the deleveraging impact of less billing days in some countries, but more importantly, reflects more aggressive investment in new office openings and the addition of permanent recruiters in the 4th quarter of 2004, and 1st quarter of 2005, compared to prior year periods.

These investments reflect our improving confidence in many of our market economies.

Normally investments of this nature may not be noticed but in a smaller quarter like the 1st quarter they can move the needle.

We expect we will get back to improving SG&A leverage in the 2nd quarter, as these investments begin to pay for themselves, and expect improved expense ratios on a full-year basis.

Our operating profit margin then would be in a range similar to last year.

Interest and other expense also should be similar to the prior year after adjusting operator year of the nonrecurring gain of $14.2 million.

Our estimated income tax rate for the year is 36.5 percent, just slightly higher than the 36 percent rate we had in 2004 when excluding the nonrecurring items.

I estimate the fully diluted weighted average shares to be 98 million and again, remember to add back the 1.3 million of after-tax interest expense on the convert to net earnings in doing the calculation.

Let me also make a few additional comments on each of the segments.

In the U.S. we expect revenue growth similar to the 4th quarter, and remember that we don't anniversary the trans personnel disposition until July, so the reported growth is about 2 percent below our actual growth.

Similar to the 4th quarter.

We expect our operating margin to be similar to last year, with similar gross margins.

While we anticipate increases in workers' compensation and state unemployment tax in the range of 15 percent on average, we believe we will be able to recover these cost increases in our pricing.

In France we expect revenues to continue their midsingle digit constant currency growth trend as we saw in the 4th quarter.

We expect a modest decline on operating margin, reflecting a continuation of the pricing pressure we have seen in recent quarters.

For Emea we expect mid-teens constant currency revenue growth and operating margins similar to the prior year.

Currency should add 4 to 5 percent growth to both France and Emea revenues.

Jefferson Wells revenue could decline a bit sequentially with the continued tail off of some of the Sox work but may still be almost double prior levels we expect operating margins in the low teens.

Revenue for the rates segment could improve in the mid single digits sequentially as M&A activity in the U.S. market is picking up and the 1st quarter is typically seasonally stronger.

Operating margins are expected to be in the upper single digits.

The other operations segment, we expected the year-over-year revenue growth in the low teens slightly lower than the 4th quarter due to fewer billing days.

We expect the operating margins to approximate the 4th quarter which is below the prior year as the increased social costs in Japan will continue to pressure the 1st quarter margin.

Jeff?

Thanks, Mike.

Thank you for the detail on the financials.

As I have done in the past, since it is a conference call that is a roundup for the year, I would like to spend a few minutes talking about the organization in a more strategic manner, and really looking at the five strategic elements that we put in place that we govern ourselves by and that we drive ourselves by.

And to give you a sense of how we are positioned in the future.

As an any of year, our yardstick for success is how well we're able to establish higher watermarks for future success.

We were able to do that in 2004.

We stayed focused on those five strategies I talked about and therefore it's important to give you a bit of a rundown of each of those.

The five strategies again are revenue, the kind of revenue, customers, balance of the business, efficiency, both the DSO and our office efficiency, technology, organization and culture, and what do we do with acquisitions.

In the area of revenue, it's about the appropriate kinds of revenue and that balance and mix of that revenue.

We were able to achieve that and I firmly believe we were able to turn a corner in 2004.

We finished the year with operating profit coming from just the three specialty areas of Right, Jefferson Wells and Elan of nearly $100 million.

This was not in place at all three years ago.

This, of course, does not exclude or -- I'm sorry this doesn't even include the specialty areas that we have been working on in an organic way with Manpower Professional, with tertiary branches in France and many other of the specialty businesses that we are doing across the world.

Additionally, we put a tremendous amount of investment in firm placement in 2004.

We added nearly 450 dedicated people throughout the world just to focus on perm placement.

It's already taking root.

It's improving the mix of our business, holding up our gross margin and we were able to finish the gross margin in 2004 120 basis points above that in 2003.

When it comes to efficiency we have been able to improve the productivity of our branch offices and you are seeing some of the evidence of that in the SG&A metrics.

We have also been able to maintain our DSO and generate strong cash flows.

In the area of technology, we have installed PeopleSoft financials in some of our locations on a global basis and will continue to roll that out.

We have consolidated data centers.

We have taken out over $10 million on an annual basis in the telecom costs in the -- in the organization alone to date.

Our global IT group has done an outstanding job in rationalizing our spend, increasing the speed of our offering and driving the future of how we are going to approach our technology area.

Our organization and culture is alive and well.

As many of you have followed us for a long time, you know we are very much a valued-based entrepreneurialship environment.

This does not mean that we don't move as one.

In fact we do.

We have secured more global accounts, more global international business than anyone else in our industry.

And we do that, as acting as one, similar systems, similar methodologies.

And not only is it with just Manpower organization, but it is the entire Manpower family of companies, Jefferson Wells, Right Management, Elan and Brook Street.

The engagement of our 27,000 employees across the world is one of the highest levels it's ever been as long as we've been doing surveys on an annual basis.

This is extremely important as we are in a service industry.

So much of our business is done on a local basis and it must be done with passion on a local basis.

Therefore, this engagement of our employees at the highest level it's ever been is a great prospect for the future.

The last strategy is that of acquisition.

We made a major one in 2004 with Right Management.

We were able to integrate on power, take out costs and have synergies associated from a customer perspective with Right.

Jefferson Wells was able to contribute over $50 million, an acquisition that we made just a few years ago not making anywhere near that amount of money.

And Elan has been -- has had its best year ever since we purchased them in 2000.

This overall is giving us the balance of business we've talked about, the ability to approach a market in a unique way.

We are looking to acquire franchises, if any of them become available but other than that, we would see no major acquisitions on the forefront. 2004 was a very good year for us.

As I mentioned before, it was a year that we turned the corner.

We turned the corner of being able to show that we can offer the highest quality services in our core areas and that our complimentary, giving us this better balance of business, both geographical and from a gross margin perspective.

We continue to focus on our brand, the integrity, the credibility of our brand and we believe that coupled with the passion of our people will drive 2005 to be a successful year.

The days, 2005, of course, is going to have its challenges, and every year, I believe, will, as we go forward.

The days of being able to have an easy year are gone.

Competitive forces and the forces that are driving our customers dictate that we must stay on our toes and be willing to sprint for long periods of time and our organization has proven that they can do that.

So that's the roundup of the five strategies.

I just want you to know that we stay focused on that and continue to drive the organization that way.

So with that, we would like to open it up for questions.

Thank you.

At this time we are ready to begin the formal question-and-answer session.

If you would like to ask a question, please press star, one on your touch-tone phone.

You will be announced prior to asking your question.

To withdraw your question, you may press star, two.

Once again, if you would like to ask a question, please press star, one.

One moment, please.

Our first question comes from Greg Cappelli from Credit Suisse First Boston.

You may ask your question.

Good morning, Jeff and Mike.

Hi, Greg.

I guess the question would be on the SG&A, maybe just a little bit more color on the 40 basis point increase there year-over-year.

It sounds like it was a combination of continued investments and things like Jefferson Wells but also Right Management.

Could you maybe just quantify a little bit more where the increase came from?

Sure.

Sure, one of the things you do have to keep in mind is with Right Management they do have a different cost structure.

So when you look at on a consolidated basis, our SG&A increase percentage-wise, you are seeing the impacts of Right Management.

If we take Right Management out of the picture, our overall SG&A is at 14.9 percent, which would compare last year to 15.5.

Last year, we did have some nonrecurring write-downs.

So, in fact, the 14.9 compares to about a 15.2 percent on a clean basis, if you will.

In fact we picked up about 30 basis points of SG&A leverage in the 4th quarter, I think when you peel all the noise back, we did, and I think, as you look to the geographies, Emea certainly saw very good leverage, the U.S. saw very good leverage as well.

So I think we're still on track, as I commented the 1st quarter, given some of the investing we are doing we are not anticipating an improvement in SG&A leveraging in the 1st quarter, but I think we'll get back on track as we have been now for several quarters to seeing some SG&A leverage in the balance of 2005.

Okay.

That's helpful.

Thanks.

Quick question on Jefferson Wells, the 95 million that you talked about in the quarter I guess that would be down sequentially for the 2nd quarter in a row.

Do you think the business has actually peaked and you mentioned some cutbacks in Sarbanes-related work.

Is that work you are -- you have a plan and you are trying to transition into certain other areas?

Yeah, let me emphasize a few comments Jeff made on the call earlier.

You know, as we look at the -- moving from the 3rd quarter to the 4th quarter, we had four very large accounts that started trimming back their Sarbanes work in the 4th quarter.

They are successful programs and started pulling back a little bit, a little bit sooner than we anticipated.

If you take those accounts out of the mix we would have seen a sequential increase of about 12 percent.

Clearly there's still market demand out there.

I will also point out that Jefferson Wells had a very fast ramp up, and perhaps a bit faster than the market overall in this space in the 2nd quarter, year-on-year -- or the 2nd quarter sequentially they are up 50 percent and in the 3rd quarter up 44 percent.

So they had a very rapid ramp up and I think what we are seeing is particularly in the 3rd quarter a lot more accounts coming on that were purely Sarbanes we are starting to see some of that come off a little bit.

But, as we look into 2005, we -- we're still very optimistic about -- about that marketplace and that business, and what Jefferson Wells can do.

You know, you clearly have the nonaccelerated powers, the smaller companies, those that don't have calendar year-ends coming in.

Our existing Sarbanes clients still looking for -- looking for additional services, whether it be to continue on the remediation path or whether it be process improvement type work.

So that work will still -- will still be there, and -- but I think we're just seeing a little bit of a tailing off, if you will of some of the -- of a few of the accounts that we have.

Mike, I'm just assuming that when you said the four -- the large accounts pulled back some, was that primarily because they finished the majority of the implementation for 404?

That's exactly right. e're still doing business with all four but it was a matter of just pulling back a little bit on the amount of resources that they found necessary as they got closer to year-end.

I think you can see how the sustainability and growth because I consider Jefferson Wells very much a growth story, and will be for a long time.

One of those Sarbanes customers have now -- will have us continue to do some remediation work, work into 2005, but they have shifted almost as many dollars over to an entirely different project having to do with controls and the implementation of a new ERP system.

So you can see when we have this tax and financial operations, staff augmentation and the controls work, that this is not a one trick poney that when Sarbanes starts to settle down the world of this is going to shrink.

It was a good business before Sarbanes, it's a better business after and it has given us a great opportunity to accelerate our branding.

And was head count about the same in the quarter Jeff, for Jefferson Wells?

Yeah, a little lighter because we used some contract work in there so we churned those off.

But the permanent staff headcount was about the same.

Thank you, guys.

If I could ask, perhaps, limit yourself to one question, with the follow-on, if necessary just to make sure we get through as many callers, as possible.

Our next question comes from Jim Janesky from Ryan Beck and Company.

You may ask your question.

Yes, good morning, Jeff and Mike.

I would like to, if we could, just spend a little bit of time on permanent placement.

Can you give us an idea of what percent of revenues it is now?

Where do you see that going and what type of time frame?

I will let Mike go into the details, but the way we gauge it is really as a percent of gross profit.

We think it is a better number to be looking at.

Sure.

How much of it would be a percent of gross profit.

We do track that, and, in fact, we, if you will, plan on modulating that, so that it doesn't become too big of a portion of the business, but enough that it carries its own weight and also offers the services that our customers are looking at and we have set some of those targets.

So Mike, you may want to go through what it is now and the things we are looking at.

Sure.

Sure.

As a percentage of gross profit we would be slightly over 5 percent on a consolidated basis.

What you would see, of course, is within different markets, that concentration may be higher or less, as Jeff mentioned earlier, France is just on the early stages, was just effectively legalized for to us do permanent placement work.

So there's a big market that we really haven't touched yet.

So good opportunity there.

But Emea, outside of France, their percentage of overall perm work would be higher than the overall average.

So -- but clearly it's an opportunity we see good growth for, as we're working with our customers, talking with our customers, the demand -- the temporary staffing and the permanent recruitment really is blending together in terms of how they are looking at buying the overall -- buying the permanent placement business as well, and I think as we look at -- as we look at that overall percentage, we would be looking to move that up to 10 percent, and then beyond.

I don't think from an overall mix standpoint we would ever want it to get beyond the 15 percent of our gross profit, just given the nature of that business but certainly we would like to -- like to move it in that direction.

If you look at overall, certainly we have seen that business accelerate as we mentioned earlier.

We have been investing in permanent recruitment within the U.S. -- within the U.S. market itself.

We have seen growth in excess of 40 percent this year on the perm side, and in the Emea market in constant currency we have seen growth in excess of 30 percent.

You can see that business is starting to come on and we're -- we're investing to take advantage of that opportunity.

Okay.

And this 10 percent plus of revenues, 2nd half of '05 into '06 would be a time frame, is that appropriate to look at?

Yes, 10 percent of gross profit.

Gross profit, I'm sorry.

And I think that you would have a hard time thinking about that in 2005, and the reason is, is that I really think we need at least two quarters to see what is that potential in France?

Because it's such a big market for us.

We have great infrastructure there.

That will really gauge more of the time frame in which we would be getting to that 10 percent plus.

So, it wouldn't happen in 2005.

I think we could maybe start to tickle that number the end of 2006.

Yes that was intended to be a bit of a longer term or medium term goal, Jim, because as you know, it's a big shift and a big number, so clearly we expect our staff in gross profit to continue to grow at a fairly good clip as well so that to move that percentage, it takes a bit of time to do that.

But needless to say, there's good opportunity there.

Okay.

Great.

Thanks for the detail.

Our next question comes from Brandt Sakakeeny from Deutsche Bank.

You may ask your question.

Thanks.

Good morning, Mike and Jeff.

A question about Jefferson Wells from a margin standpoint, can you just talk to office expansion in '05 and if you compare the margins at Jefferson Wells versus sort of competitors which are in the 20s.

What are the key differences in the margin structure and the cost structure in the business relative to the competition?

Thanks.

From an office expansion perspective, you would see us expand.

We are already in London and would you see it expanded into continental Europe, multiple offices.

You would also see expanding in the U.S.

When we look at some of the margin differences we don't focus a lot on the competitors, per se.

We do look at some of our strategies internally as to what we are doing and one of the real core strategies we have had over the last year, is that we are not increasing our bill rate.

And we have not increased our bill rate because we really believe it's part of our branding message to make sure that companies know that we are not taking them for a ride during this critical time.

If were not able to do that we would have been able to substantially increase our net.

We really believe that while we wanted that money, that we think a longer term strategy is important.

We really pegged Jefferson Wells the way we see the investments in offices, the investment in quality systems, the quality assurance systems, training for our professionals, is more between 10 and 15 percent than something that is 15 to 20 percent.

We'll continue to look at the model, see where leverage comes and you saw leverage, you know, really expanding in the 3rd quarter, but that was revenue popping up so quickly that you saw just incredible leverage.

So we really peg it more between 10, 15, consistent investments, build the brand and dominate the market.

That's our strategy in simple terms.

Okay.

And just as a follow-up, so have you seen gross margin pressure, just because of rising pay rates in that business and you are having to absorb that in the short term?

No, we have said to our clients that there are rising pay rates which they are aware of that because of the shortage of the talent in there that we do pass that along in the bill rate.

But it doesn't create, of course more margin for us.

It just creates the ability to make sure that we don't have any margin deterioration.

Got it.

Great.

Thank you.

Our next question comes from Randy Mehl from Robert W Baird.

You may ask your question.

Yes, good morning, Jeff and Mike.

First is just a clarification on the 15 percent ebit growth target.

Is that up to 396, no end number?

Yeah, that's -- I think you are referring to adjust commentaries in terms of looking at the overall year, we still would see a 15 percent or better growth rate and that would be off the 396 million number, yes.

Okay.

Appreciate the clarification.

And then Jeff, you made a comment early on about the employment environment being more of a trickle-in and I assume that relates to both the U.S. and Europe.

The U.S. performance seems to reflect that steadier growth, but Emea is taking off here and I'm just wondering, I understand where the -- where the strength is by what you said about the geographies, but what is different about Europe right now and could we see some acceleration there in '05?

I think we can see some continuation of what we have seen in '04.

What you are seeing is -- is -- you've got secular growth happening in Europe, where you really don't have secular growth happening in the U.S.

You have economic growth or a little bit of market share gain here or there.

So what's happening in Europe is that they too are being measured in their hiring, but they are -- they are being measured in their hiring of full-time staff, not as much temporary staff.

I would also say that on a European basis, we've just cracked the nut a little bit more on retail sales and getting out into the marketplace, and think that's given us a few points.

So, it's a fair statement.

You know, I'm not sure if it's -- 18 percent growth in constant currency is a trickle.

You are pretty close to a good flow.

You are speaking mostly of the U.S. and France.

Okay.

And just as it relates to that, Elan was up huge, and I'm wondering -- my understanding is that the IT environment has been better but not that much better.

I mean is this a big initiative for you that you are rolling out offices, for Elan or how is that growing as quickly)

Yes, Elan is growing nicely.

I believe we came in at 38 percent growth for the 4th quarter in dollars and I think what you are seeing is a couple of things.

One is during the down turn, we invested in a pan European office opening strategy that was painful for us and now that's being paid off.

We're also seeing many of the companies want to be buying services in the IT contracting area on a pan European basis which gives us a bit of a differentiation in the way we are selling.

So Elan is clearly out in front of the marketplace.

A good management team there, and our office openings are proving to be paying off for you, the shareholders.

Very good.

Thank you.

Yep.

Our next question comes from Marta Nichols from Banc of America Securities.

You may ask your question.

Thank you.

Jeff, just a clarification.

You just said 38 percent growth for Elan in dollars but before you said constant currency.

It's constant currency, sorry.

Numbers are hard enough --

I know you guys have too many numbers.

I wanted to drill down, actually on another of Randy's points.

The margin issues, I guess you outlined for the 1st quarter but if you look at your full-year comments related to the 15 percent operating profit growth target, can you just reconcile that with your comment about long-term targeted margin of 4 percent because we exited '04 well below that 4 percent target, indicating you have got a lot of running room but it sounds like is 15 percent minimum growth this year is kind of the goal.

That wouldn't imply a whole lot of operating leverage in 2005, so how do you get to that 4 percent?

Is this year an investment year and we see more of the expansion longer term?

Well, a couple of comments Marta.

I don't think the 15 percent was intended to be a stake in the ground for what we will do in 2005.

I think it was intended to be a message that, as we see things today, certainly we see good earnings growth for 2005, and that should continue.

Could we do better?

Certainly we may.

But I think -- I think it was more intended as more of a general, we should be able to do 15 percent and maybe better than that.

You know, when you look at overall leverage for the year, we do anticipate we're going to pick up a little bit on the SG&A side, and should be able to pick up a little bit on the GP side as well.

We are, some of that will be dictated by how Jefferson Wells performs.

I think there are a lot of question marks there.

If Jefferson Wells is able to get through the 1st quarter and pick up a little bit of steam, then we anticipate seeing a little bit better operating margin from them and they'll help contribute as well.

You know, similar to the U.S., there's a lot of leverage opportunity in the U.S.

So we're still -- it's a long way of saying that we are still on track for looking at that 4 percent overall operating margin target, as we have said in the past, we do, that 130 basis points that we need from where we stand at the end of '04, we do see roughly half of that coming on the G.P line, and roughly half of that coming on the SG&A line through leverage and overall productivity enhancement.

So we're not backing off on that.

Okay, that's great.

And then just a final question.

I wonder if you could put on your economist hat on.

The gross numbers that have been coming out of Germany in particular but also some other countries in Europe like Holland and Belgium have been pretty impressive and yet France is still growing relatively slowly.

We're seeing some pickup in the set statistics on the temp data there.

But I'm just curious, from your perspective, what are you seeing that's really different?

Is it secular growth differences?

Or are there other issues that are driving some of your other countries in Europe faster than France?

Well, France didn't get hurt as badly as Germany.

So while France went through a difficult time, they never really bottomed as hard as Germany.

So, we could see in 2005 GDP growth of under 2 percent in France, and we look at Germany still having to solve through and work through some problems as well as Holland, but I think what you are seeing in Belgium, in Italy, and in Germany, is much more of a secular appreciation and growth, whereas in France, we are really seeing a measured economic growth with labor being a component of that.

If I could maybe just add a bit to that, Marta.

I think you would also see that in many of those Emea markets we are outperforming the marketplace.

We have very strong execution in those markets.

We have been aggressive in opening offices, as well.

So I think there are a few other factors as well that play in.

In France, where they are performing quite well, as well, we are more in line with market, obviously that's a bigger marketplace.

So taking market share, or gaining market share is much more difficult than and I think that's one of the other factors that you are seeing playing in as well.

Okay.

Great.

Thanks.

Our next question comes from Jeff Silber from Harris Nesbitt.

You may ask your question.

Good morning.

In December you disclosed an investigation in your French headquarters, along with some of the other companies in this space.

I was wondering if you could give us a little bit more color on that and what we might be expecting over the next few months on that issue.

Thanks.

It's hard to tell on the timing.

We have not heard anything back from the authorities and it takes a while.

We are cooperating fully and gave all of the information that was requested, and now we're waiting to hear back from the authorities.

We are still not aware of anything.

We are doing our own investigation, that is not complete.

So there really is no new news and I suspect that the process, at least as I have seen by many other companies and other industries that have gone through it could be 18 months, two years, three year process.

But right now, so no real update, other than we don't have anything else to tell.

All right and if I could just ask a quick follow-up.

Was there any extra spending in the quarter on that specific issue?

And are you anticipating any additional spending for this issue going forward?

Yeah, there was extra spending but it's a rounding error.

You know a couple of attorneys in that are doing our investigation, and that's about it.

But nothing of any sizable amount.

All right.

Appreciate the color.

Thanks.

Next question comes from Craig Peckham from Jefferies.

You may ask your question.

Hi.

Thanks for taking the question.

I just wanted to, I guess, drill down a little bit more on Jefferson Wells and some of the sequential revenue trends there.

Understanding some of the dynamics that influenced the 4th quarter.

I just want to try to get around my arms around, Jeff, I think you said $95 million is what kind of revenue expectation you would see there in the 1st quarter.

Trying to discern how much of the sequential decline is related to the four clients you referenced or maybe there's some billing day issues in the 1st quarter.

Maybe could you distill that a little bit better for us.

Well, I think there are a couple of -- a couple of issues, Craig.

You know, one of the -- one of the factors is we use -- we use 95 million as kind of a safe number, thinking we should see it come back and what you see in Jefferson Wells is the normal dip around the holidays and now we are seeing business start to come back but it is a bit of a guess as to exactly how rapidly that will come back.

So I'm going to put a bit of a caveat saying that it's -- we are in a pretty difficult time to really give a good estimate of -- with any precision, even on the 1st quarter, because while we have some indications from our customers, we're about -- we're really just seeing the first few weeks of January, and certainly January has been building up as we have gone through the month.

So it's a bit difficult.

So I don't want to make it sound like it's any more of a science than what it really is.

Okay we didn't use the Craig computer to come up with that 95.

Yeah.

But given some of the tailing off that we saw in December, and knowing our customer mix, we feel it's reasonable that we might see some continuing tail off, but we also anticipate that we're going to get some new business coming in the doors as well.

Okay.

And I wondered if you could update us on share repurchase.

It doesn't appear that there's any activity last quarter, maybe you could flesh that out as we look forward here.

Yeah.

Clearly, I think as most of you know, we have put a 5 million share repurchase program in place.

We think that is an efficient way to return cash to the shareholders and as we look at our overall cash picture we think we may have some excess cash as we move into -- into 2005.

You know, we didn't buy back any shares in the quarter.

We have a number of -- or a few issues that we were working on, one being the French investigation, and we didn't think it was prudent to be in the marketplace at the time that a few of these matters were occurring.

Therefore we didn't go in and purchase at that time.

But we did, of course put the program in place with the intent of using it.

So I would expect you are going to see some activity as we go into 2005.

Okay.

And just to put a final point on that you are at a process or a stage in that investigation that would allow you to -- to buy back stock right now.

Yeah, I don't think that would limit us at this point in time.

As I think you would understand, in the first few weeks of that, we're trying to understand exactly what the implications are and some of the background, therefore, just from a conservative standpoint, felt it was better to just hold off.

Okay.

Thank you.

Your next question comes from Kelly Flynn from UBS.

You may ask your question.

Thanks, guys.

Recognizing that this is preliminary, I wanted to talk in more detail about the 15 percent baseline operating increase you guys referenced.

Can you give us any help as far as what type of revenue growth and margin that would coincide with and maybe just a little bit of directional color on each of the regions, particularly in light of the Q1 guidance which shows no leverage in the U.S., Emea or France.

What is kind of moves the needle there as we progress?

Thanks.

Well, I will cover kind of the top line and give Mike a chance to figure out how he's maybe not going to answer that question in total.

Okay.

What we wanted to do was to make sure that you understood, as we look out over our 2005 quarter by quarter and see how things leverage, ramp, include seasonality, ramp up in Jefferson Wells, do certain things with our expense program, that we said, okay, 1st quarter, you are right.

You are right, Kelly, it didn't have the kind of leverage in it.

It's a very small quarter and you take a few things out and the leverage drops pretty hard.

We looked at it and we said we want to make sure that the shareholders understand that the 1st quarter you don't extrapolate that out.

You have got to look at how things would be building either building in the area of Jefferson Wells, Emea additional leverage, Asia some better leverage, the U.S., if you tick up their top line just a few points here and there.

They have got good expense controls in there.

So I'm not sure if we want to fill out a model for the year because we don't want to get into the -- the practice of doing a full year kind of estimate, but I think it -- we feel right now, based on where the economy sits, what's happening in the world that 15 percent would be a little bit of a hard sled as it always is, but it's very much within our grasp and our plan shows that there's a good possibility of doing that or more.

Yeah, let me just underscore, again what Jeff said, I mean, that 15 percent was not intended to be hard guidance by any stretch.

I think it was intended to be the fact, recognizing that our 1st quarter was probably our guidance was a bit lighter than some of of you expected.

We still expect 2005 to be a positive year overall.

And I think as you look at that leverage story, Kelly, I just want to make sure you captured some of the comments in my guidance.

What we're seeing, what we are doing in the 4th quarter of 2004 and the 1st quarter of 2005, we're opening offices and we are adding permanent consultants.

When you look at what we did a year ago in both of those periods, very few office openings and we weren't adding permanent consultants.

So you have some costs that are coming in that are investment costs, that really are holding back the leverage that ordinarily you would see in the 1st quarter.

As I said, ordinarily, in many quarters that may not move the needle, in the 1st quarter it does move the needle a bit.

So that's what you are seeing.

Now, naturally we could have held off on those investments and tried to get some leverage in the 1st quarter so it would make -- so it might look a little bit better to readers of our financial statements, but, that's not how we are going to run the timing of when we see the opportunities.

So that's why, as I mentioned as we get further into the year, those investments will start to pay off and you are going to start to see leverage in a number of these markets and improving operating margin in a number of -- in a number of the markets.

Where we'll be held back a little bit probably from the operating margin, is, when look at, for instance, the 3rd quarter for Jefferson Wells, they had an extremely high operating margin and we are not going to be able to repeat that this year and the reason that was so high was because they ramped so quickly.

The utilization on the GP line was extremely high and the SG&A leverage was unusually high as well, because we -- we couldn't put the costs in really to keep up with the revenue structure.

So hopefully that gives you a little bit of color on what we are seeing.

Okay, can you just maybe give us a little bit more color on Right Management because that seems to be the one that has the biggest wild card.

You gave fairly decent guidance for Q1.

Do you think it's -- I mean how comfortable are you guys that you can stay in the Q1 margin as you progress through '05?

Well, I think, you know as we look at Right, obviously, it's -- it's going to depend a little bit how that top line moves.

I think we are -- we are encouraged with some of the M&A activity that we are going to start to see a little bit more improvement in topline revenue growth, we have spent 2004 taking a lot of the costs out that were there to support a higher revenue base.

So, I would expect as we move into the year that we are going to see overall better operating margins when we close the year out.

The 3rd quarter, I would expect will be a lighter operating margin year.

Similar to 2004.

Similar in that it will be lighter operating margin year not necessarily at the same level.

So I think you will see that seasonal decline, but overall for the year I would -- I would clearly expect a higher operating margin, it may not hit double digits for the year given that seasonality in the 3rd quarter but clearly better than what we saw in 2004, would be my expectation right now.

Okay.

Thanks a lot.

Okay.

Last question, please.

Our last question comes from Leon Smith -- I'm sorry, Leon Young from Smith Barney.

You may ask your question.

Hi, this is actually Pete Carillo for Leon.

Most of the questions I think have been asked.

A couple of clarifications real fast and I guess I think I know the answer to this but in terms of the way '05 is laying out, we were sort of thinking is a seasonality issue as to why your guidance came in a little bit lighter for the 1st quarter than most of us had?

Or is it actually something to be taken out of the air, compared to sort of what is the consensus right now?

I think it's two factors.

I think there's a couple of things that may not have been fully considered.

But seasonality always plays into our 1st quarter.

The unique factors that we have this year, I think, is the level of our investment is heavier in Q4 and Q1 relative to the year earlier periods, and then the other element is the timing of the holidays, particularly the Easter being in the 1st quarter this year compared to last year.

You know, that impacts the billable days, especially in Europe, for us.

And that will move the overall revenue growth a couple of percentage points, which we currently feel on the operating leverage side.

Okay.

And on the tax rate clarification, did you say - you made some comment about adjusted tax rate?

Was it 36.5 for the year?

I didn't quite catch what you were saying.

Obviously there are a number of factors being a multinational that go into the tax rate calculation, and -- but as we look at -- as we start every year out we do a forecast and update that forecast through the course of the year.

Currently we're looking at -- we're forecasting a 36.5 percent rate, as we look out through the year.

Each quarter we will update that, as things move but right now that's our best estimate.

Okay.

Great.

Thanks.

All right, thank you all.

I appreciate you spending the time with us.

And Mike will be available for questions and you can, of course, get the transcript.

Thank you.

Thank you.

This concludes today's conference.

Thank you for joining.