ManpowerGroup Inc (MAN) 2005 Q4 法說會逐字稿

Good morning and welcome to Manpower's 2005 fourth-quarter and year-end earnings conference call.

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

During the presentation, we will have a question-and-answer session. (OPERATOR INSTRUCTIONS).

Today's conference is being recorded.

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

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

Sir, you may begin.

Thank you.

Good morning and welcome to the fourth-quarter and full-year conference call for 2005.

I am joined here this morning by Mike Van Handel, our Chief Financial Officer.

We will go through the results in general and then discuss the segments in more detail, as we normally do.

Mike will then get on and give you a year-end wrap-up of the numbers on the income statements, as well as anything else that affected the balance sheet.

Additionally, Mike will spend some time covering the outlook for the first quarter in 2006.

Before we move into the conference call, I'd 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 in the other Securities and Exchange Commission filings of the Company, which information is incorporated herein by reference.

Thanks, Mike.

The fourth quarter and full year 2005 was a solid performance by the organization.

Several of the geographies had a record-setting year.

We finished the quarter up 8% in constant currency at $4.1 billion.

On a full-year basis, we exceeded 16 billion in revenues, something we are quite proud of, an increase of 8% in U.S. dollars and constant currency -- both were the same.

Our gross profit for the quarter was 18.7%, slightly exceeding the top end of our guidance.

Gross profit for the full year was 18.3%.

The operating profit for the quarter was $132 million, reflecting a 30 basis point increase to 3.2%.

For the full year, operating profit increased 11% in constant currency to $436 million.

Earnings per share for the quarter came in at $1.01, $0.17 above the midpoint of our guidance.

Of this amount, $0.11 was due to some tax planning, and we will discuss that later in the call.

We were also negatively impacted by currency.

And I think most of us had anticipated that.

It came out to be $0.06, compared to our overall estimate of a negative $0.05, so we had to pick up one more penny from operations, if you will.

On a constant currency basis, earnings per share was up 47%.

We finished the year at $2.87, which included a negative currency impact on a full-year basis of $0.02.

We experienced positive trends in the fourth quarter in several of the geographies we operate in.

Our growth rate in billable hours increased in the U.S., France and several of the European countries.

Our revenue for Jefferson Wells reached its seasonal peak a bit earlier than we had expected.

And there was more projects coming off on the year-end close than we had anticipated.

And therefore, revenue fell in line with our -- I'm sorry -- and Right's revenue fell in line with our expectation.

Based on the current trends in the fourth quarter, we anticipate a first quarter of earnings per share between $0.36 and $0.39.

Currency is expected to have a negative impact of $0.03, and we will now be baking in the stock options.

That has a negative impact of $0.03 also.

So for the first quarter, we will have a $0.06 negative impact due to the currency and stock options.

Our gross profit declined 7 basis points from 18.76% to 18.69%.

While we are still experiencing pricing pressures in some of the EMEA markets, in other markets, such as the U.S. and Japan, we have been able to stabilize and improve our gross margin.

That does not mean that the pricing pressures have gone in those markets; it just means that we have been able to stabilize it in our book of business.

The gross margin also continues to benefit from our investment in permanent recruitment services.

For the quarter, permanent recruitment fees were up 32% on a constant currency basis.

The gross margin was also favorably impacted by nonrecurring items in France.

While these items had a favorable impact on gross margin, the impact on the operating profit and the operating profit margin were really not material.

We also will cover this a little bit later once we get to France, and Mike will cover some of it in his portion.

Now I would like to move on to the segment detail, beginning with the U.S.

The U.S. had a very strong fourth quarter from a profit perspective.

Revenue growth for the quarter was 3.2%, coming in at $534 million.

Revenue finished approximately flat for the year at 2 billion.

The expenses, however, were nicely controlled, and gross margin expanded on a full-year basis.

We are on track when it comes to defining the right terms and conditions that we have with our clients and prospects.

The strategy we stated several quarters ago was to grow the top line with profitable revenue.

Achieving a higher top-line growth without that kind of discipline would be easy.

The U.S. organization is not taking the easy route.

They are staying disciplined.

Operating unit profit for the quarter as a result was $23 million or 4.3% -- a very strong performance -- an increase of 110 basis points over 2004.

On a full-year basis, operating unit profit came in at $69 million versus 2004's $49 million, nearly 40% -- or a 39% increase in profitability.

The U.S. finished the entire year at 3.4% operating margin -- 100 basis points over prior year.

I think you can see that back when we had said one of our goals for the staffing side was to have each of our units finish at 3.5%, given the slow growth that we're seeing in the U.S., though it is accelerating a bit, 3.4% is quite an accomplishment.

Also, the U.S. franchise organization had sales of 1.2 billion, bringing the total U.S.

Manpower brand staffing sales to 3.2 billion for the year.

This does not include other things we are doing in the U.S., which would be Jefferson Wells, well over $350 million, and Right Management as well.

Throughout the fourth quarter, we saw a modest acceleration in revenue and average daily sales growth.

The average daily sales number was pushed up nicely by office business, with average daily sales increasing from 9.9% in October to 11.8% in December.

This is the first time in several years that we've seen within an entire quarter our office portion of business increase at that type of rate.

We are still not performing as well as we'd like to in the technical and professional area, where sales dropped off.

Now, the sales drop-off is primarily due to some major projects with key clients that have come to an end.

This does not mean that they are not using our service any more; it's just that they're not using it at the same level.

Where they might have had 100 people, they now have 50 because the project is coming to a close.

Similar to the third quarter, we're seeing an improvement in light industrial business, though it's not as robust as it has been in the past.

I don't think that surprises anyone.

This reflects what we've seen in the overall economy.

Also in 2004, we were seeing some very good growth rates.

So not only is it the improvement in the economy, but there's also, as we all know, some productivity that is still occurring in the manufacturing area.

Overall, we see revenue trends in the U.S. continuing as we look to the beginning of the year, which is always a difficult time, since we're not quite sure how fast companies are going to start up for the year.

But given that, we're seeing the trend continue, with sales up 4 to 5% in the last three weeks.

Now moving on to our French operation, our French operation's revenue were up 7% for the quarter in constant currency, achieving revenue of EUR1.2 billion.

Operating unit profit for the quarter was EUR40 million with a margin of 3.4%.

Included in France's fourth quarter are two nonrecurring items that net to a positive credit of EUR1.8 million.

First, we settled a payroll tax audit covering 2001, 2002 and 2003, resulting in a provision reversal, including the impact of the associated profit sharing of EUR14 million.

And second, we had a restructuring charge of EUR12.2 million.

This restructuring primarily related to the reduction in staff in the head office, support function and the regional structure.

Based upon French labor laws, we will be carrying the cost for the staff that will be released through this restructuring through the second quarter of 2006.

Therefore, you won't see any impact due to this restructuring and cost reduction until the second half of 2006.

Excluding the impact from nonrecurring items, our gross margin in France was up slightly on a sequential basis, but was down 20 basis points from the prior year.

While the gross margin appears to be stabilizing, we continue to face difficult pricing environment in France.

On a full-year basis, revenue in dollars was 5.5 billion for France, in euros, 4.5 billion, an increase of 6%.

Our operating unit profit for the year came in at EUR135 million, compared to EUR143 million last year, resulting in an operating unit profit of 3% or a decline of 40 basis points.

This margin decline, as I talked about earlier, is primarily due to the pricing pressures that we experienced throughout the year.

The market overall has picked up slightly over the last several months.

We're seeing growth rate in the first few weeks of the year similar to what we ended in the quarter, with about a 6 to 7% growth range.

Margin pressures are still in the market, but we're hopeful that we'll be seeing less aggressive pricing from the market than we've seen in 2005.

Additionally, we have not observed any large number of office openings from any of our competitors, which means that the capacity in the industry is being filled in, which should benefit us as well.

Moving on to EMEA, Europe, Middle East and Africa had an outstanding performance in the fourth quarter and full year.

For the fourth-quarter revenues in U.S. dollars, they were up 1.5 billion, 11% in constant currency.

On a full-year basis, revenue was also up 11% at 5.6 billion, which make it our largest revenue-producing segment.

We were able to maintain a good gross profit margin while managing expenses appropriately, which gave us an operating unit profit of $54 million, an increase of 43% in constant currency, which resulted in a 3.7% operating unit profit margin, compared to 2.9% last year.

On a full-year basis, we were able to produce 154 million of operating unit profit, a 37% increase in constant currency.

This resulted in a 40 basis point expansion in operating unit profit, which ended up to be 2.7%.

There were several very good performances within EMEA, some of them the usual performance, which is great to see the momentum continuing.

To highlight a few, Elan in the fourth quarter grew 17%;

Germany, 26%; the Nordics, 21;

Italy, 16.

From a profit perspective, those same organizations also did quite well, with Elan increasing profit over 50%, Italy 35% and Germany over 60%.

The difficultly we had in the quarter, and for that matter for the year, was our performance in the UK.

The UK operations revenue dropped 7% in the fourth quarter as demand for our services continued to weaken.

We are currently working on a reorganization plan for the UK to better align our organizational structure, the office network, with our current revenue levels.

This will result in the closure of some offices and the release of some staff in the first quarter of 2006.

Revenue trends in EMEA region were strong throughout the quarter in a number of geographies, which leads us to a projected growth rate for the first quarter in the 12% range.

Moving on to Jefferson Wells, Jefferson Wells had revenue in the quarter of 96 million, a decline of 7% over the prior year.

Operating unit profit for the quarter was 4 million, resulting in an operating unit profit margin of 4.6%.

Revenues fell short of the expectations, and clearly this is unacceptable to us.

As the seasonal peak for demand for the year came about a month earlier than expected, additionally, the month of December was impacted by a number of engagements that ended early.

We always expect December to be a weaker month, but this year, the falloff in revenue in the last two weeks was much greater than expected.

I think you can feel confident that we are working on this to make sure that the sales engine and the revenue line of Jefferson Wells is picked up so that we do not have to disappoint, as we have in this quarter.

With softer revenues, the utilization rate of our permanent workers fell dramatically, negatively impacting our gross margin and operating margin.

Also impacting operating margins was our investments in new markets and an unusually high medical claim experience under our self-insured plan.

So many things hit us at one time in the fourth quarter.

As we look forward to 2006, we expect utilization to get back to a normal level, with a seasonal ramp-up in revenues later in the first quarter.

We also expect our medical claim experience to return back to more of a normal level.

Jefferson Wells finished the year with revenues up 13% to $386 million, operating unit profit of 33 million or 8.6%.

The full-year operating margin fell below normal levels as a result of the below-normal staff utilization levels coming off of the tremendous growth we have experienced in 2004.

Additionally, investments in new office openings and infrastructure to support our future growth added to the operating margin drag.

I want to break out a few of the various business lines within Jefferson Wells -- internal controls business grew at 14%; financial operations or finance operations at 5%; and our tax practice grew at 86% for the year.

This balance of business, we are convinced, will serve us well as we move into the future.

Our client base continues to expand, growing by over 50% in 2005.

Furthermore, we are seeing continued penetration in existing accounts, as our clients are buying more service offerings from us.

There is no question that our clients are recognizing the value that Jefferson Wells brings, and this gives us the level of optimism we need as we go into 2006.

Right Management finished the quarter with revenue of 97 million, a reduction in constant currency of 5%.

We continue to manage expenses well and adjust our cost base as necessary.

This resulted in a severance cost in the quarter of 2 million.

We anticipate further severance costs in the first quarter 2006 as we complete our reorganization plan.

The operating unit profit came in at 3 million or 3.4% operating margin.

On a full-year basis, revenues were down 6% in constant currency to 406 million, with a profit of 24 million, similar to last year.

While we hear and continue to get business from several companies, either through downsizing or mergers and acquisitions, we have yet really to see the candidate flow that would generate the higher revenues that we are anticipating.

This business is a highly fixed cost business.

We continue to work on the infrastructure in order to make sure that as revenue moves, we're able to adjust our cost base appropriately.

We have continued to increase our market share through the fourth quarter.

It is our belief that we increased our market share not only throughout the fourth quarter, but also on a full-year basis.

However, the outplacement industry has gone through much more of a severe downturn than anyone, including us, would have anticipated.

We continue to see the strength in the organization from a service level perspective.

There is no better organization when it comes to service after we get a contract.

We are also continuing to see the synergies between Manpower and the benefit of having both organizations under one umbrella.

The other operations segment performed extraordinarily well.

The fourth-quarter revenue was up 12% in constant currency to 547 million.

Gross profit moved up 100 basis points, and we reduced our costs 50 basis points, resulting in an operating profit margin of 19 million, a 91% increase in constant currency.

This resulted in a 3.6% operating unit profit margin for the quarter.

On a full-year basis, we came in at $2.1 billion in revenues, an increase of 15% in top-line on a constant currency bases.

This resulted in $62 million of profit, an increase of 32% over 2004 in constant currency.

Japan grew at 6% on the top line in constant currency, but more importantly, the bottom-line performance grew a multiple of that.

We continue to work on our cost base and our pricing in Japan, and the hard work is paying off.

Canada, Mexico and Argentina all put in very strong performances, as well as Australia.

All four of these countries have worked very hard and the teams there have been extremely diligent in gross margin, top line and expense control, which has resulted in the strong quarter for this segment, as well as a strong year for this segment.

Overall, it was a strong quarter, and for that matter, a strong year.

The organization worked very well and was able to make up for the profit reductions we experienced at Jefferson Wells and in France.

As we look to the first quarter, we are anticipating that our earnings will be between $0.36 and $0.39.

And at this point, we're looking at positive trends.

But the trends are too early to determine how robust they may be throughout the entire first quarter, and for that matter, the rest of the year.

With that, for a bit more detail on some of the financials, I'd like to turn it over to Mike.

Okay.

I'd like to begin by discussing our balance sheet and our cash flow, and then make some comments on some of our more detailed items in our earning statement, and then finally some comments on our outlook for the first quarter of 2006.

We ended the year with a strong balance sheet.

Total debt outstanding at the end of the quarter was $735 million, an improvement of $21 million from the third quarter and $167 million from the prior year.

We closed the year with cash of $455 million, bringing our net debt position to $280 million, or $44 million lower than the third quarter.

Our overall financing ratios remain solid, with debt to total capitalization at 26%.

In addition, we have available credit lines totaling $754 million that are for general corporate purposes.

Free cash flow, defined as cash from operations less capital expenditures, was a healthy $77 million for the quarter, bringing our total free cash for the year to $195 million, compared to $119 million the prior year.

Capital expenditures on a full-year basis were $78 million, compared to $68 million the prior year.

These investments supported ongoing refurbishment of branch offices, as well as the addition of over 100 new offices throughout the course of the year.

Our accounts receivable went down $20 million compared to the prior year.

This reduction was primarily the result of weaker foreign currencies compared to the prior year.

On a constant currency basis, accounts receivable increased $356 million, which reflects the higher level of sales activity.

Our DSO for the fourth quarter increased by about a half a day compared to the prior year.

During the quarter, we repurchased 300,000 shares of stock, bringing the total repurchases to $5.3 million for the year.

Turning to the earning statement, as Jeff mentioned, our operating profit came in at $132 million for the quarter.

While we had some nonrecurring items in France and Right, the net impact on operating profit was negligible, about $100,000.

We had effectively a credit, if you will, in the France of EUR1.8 million or $2.1 million, and then a restructuring charge in Right of $2 million, so the net is 100,000 positive -- so really not significant at all at the operating profit margin line.

Interest and other expense was 6.9 million in the quarter, compared to 8.9 million in the prior year.

This reduction is primarily due to a $2.6 million gain on the sale of an equity interest.

Our income tax rate for the quarter was 28.9%, as our tax provision was positively impacted by the reversal of the valuation allowance related to some tax loss carryforwards we were able to utilize with some effective tax planning that we completed in the fourth quarter.

As we discussed in prior quarters, we will begin expensing the cost of equity-based pay prospectively in accordance with Statement 123R in the first quarter of 2006.

As we expense this cost, the earnings charge in the fourth quarter would have been $0.02 per share and $0.10 for the full year.

I will discuss the impact on 2006 earnings in just a few minutes.

You'll note for the full year our diluted earnings per share was $2.87.

If you were to add up the individual quarters that we reported, you would arrive at accumulated earnings of $2.93.

The reason for this difference is due to the seasonality of our earnings, with the second half of the year earnings being much higher than the first half, along with the timing of our share repurchases and our convertible redemption in the first half of the year.

Lastly, I'd like to talk about our first-quarter forecast for 2006 in a bit more detail.

In general, we expect overall revenue trends that we experienced in the fourth quarter to continue into the first quarter.

We are forecasting constant currency revenue growth to range between 8 and 10% for the quarter.

We anticipate currency will negatively impact revenue growth by 6%, resulting in forecasted U.S. dollar growth of 2 to 4%.

Constant currency revenue growth for the U.S., France and EMEA segments are expected to be in line with or slightly higher than fourth-quarter trends, reflecting additional billing days in some markets, as Easter falls in the second quarter this year, compared to the first quarter of 2005.

Revenues of Jefferson Wells are expected to be modestly higher compared to the fourth quarter, for an increase of between 5 and 7% on a year-over-year basis.

Revenues for the Right segment are expected to decline year on year between 3 and 5% in constant currency, or 7 to 9% in reported U.S. dollars.

Revenue growth in the other segment is expected to remain solid at 10 to 12% in constant currency or 7 to 9% in U.S. dollars.

The gross profit margin and operating profit margin are expected to be similar to the prior year.

However, remember that our SG&A costs will include the cost of expensing stock options and other equity-based pay, which is estimated to be 4.5 million in the quarter or $0.03 per share.

Of this amount, 1.1 million will be recorded as corporate expense in the first quarter and the remainder will be charged off to the operating segments and included in their operating profits.

For the full year, we expect the cost of expensing options to be $18 million or $0.10 per share.

We'll begin the year with an estimated tax rate of 36.5%.

And this will result in earnings per share ranging from $0.36 to $0.39 in the quarter, with a negative currency impact of $0.03 per share.

It is important to note that in the seasonally small first quarter, the impact of currency and option expensing is much more dramatic than later in the year.

If we were to adjust the midpoint of our guidance range to reflect earnings in constant currency and adjust for options expensing, our forecasted earnings at the midpoint of the guidance range would represent a 24% year-on-year gain.

As we look to the first quarter, we are anticipating a few nonrecurring items which have not been included in our earnings guidance as they're not yet finalized.

During the first quarter, we expect to close on the sale of our noncore payroll business in Sweden.

This will result in a gain on the sale.

Additionally, as Jeff mentioned previously, we anticipate incurring some restructuring costs in the UK and within Right Management as we look to realign our management structure.

It is expected that these items will result in a net gain overall, but again, they have not been included in our guidance as the amounts are not determinable at this stage.

Jeff?

Thanks, Mike.

What I'd like to do now is to just spend a few minutes on this conference call to give you more of a strategic insight into 2005 and particularly where we are going in 2006.

Being that it is the end of the year conference call, I just think it is good to spend a little time reflecting on the overall strategies of the organization and maybe move out of some of the tactical sides of the business.

Each year, it is our goal to raise the bar -- to set our sights high, to be aspirational, but then to execute extremely well. 2005 was a record-breaking year.

The revenue of 16 billion exceeded any other year that the Company has had.

Operating profit of 436 million exceeded any other year that we have had.

The earnings per share of $2.87 exceeded any other year that we have had in the past.

This was achieved despite a relatively modest market growth.

So you can see the leverage in the business, as well as how we're operating underneath the top line.

We were able to grow our top line by 8%, but you can see that we've worked very hard to increase our operating profit and earnings per share at a faster rate than our revenue, so that you can see that underneath, there is a tremendous amount of work that's being done by the team across the world.

We stayed focused on our vision and strategies.

And I thought I'd give you just an update on both of these, because there have been some changes.

Our vision prior to about 60 days ago was to be the best company in the industry to supply higher-value staffing services and to be the center for quality jobs and work.

We have used that guiding vision to expand our business and rally our entire employee population around the world to drive and set the bar as high as we can.

We've made a gigantic leap forward in the new vision statement, which is, we lead in the creation and delivery of services that enable our clients to win in the changing world of work.

It's a statement that we've gotten into the hands of our people.

They've gone through training and set up the expectations of what this means.

And its meaning is some very simple things -- which is, of course, we lead, but even simpler than that, it's about our clients winning, whether it be Jefferson Wells, Right, Elan or Manpower.

In today's world, it's not just about value-added extras.

While some of that may be important, at the end of the day, it all boils down to -- do our clients win by using our services?

And in the changing world of work, whether they use Jefferson Wells, Elan, Right Management, our team of 27,000 people around the world are focused on our clients winning.

When our clients win, needless to say, you as the shareholder will win.

We still have five strategies.

The revenue strategy, efficiency and organization and culture are unchanged.

What we did do was take out acquisition and the technology strategy.

This is not to say that we will never do another acquisition.

We will.

But when we put it into the strategy in place nearly five years ago, it was unheard of from Manpower's perspective, and we wanted to really signal that we were going to be changing the business.

I am hopeful that all of you as shareholders understand how we make an acquisition, how disciplined we approach it and how it must be added into our overall strategy in the long run of what we are attempting to do in the organization.

The same could be said about our technology strategy -- still important; however, seven years later, the world has changed.

Technology now needs to be part of our efficiency strategy -- ways for us to improve the speed and quality of our resources throughout the operations.

So we are folding technology into the efficiency strategy.

To replace those two, technology and acquisition strategies, we are replacing them with innovation and thought leadership.

What we are hearing from our clients is about wanting to get better access to our innovation -- better access to what we're doing across the globe.

How can we replicate in what we're seeing on a local basis and replicate that around the world to our clients?

It creates an expanded capability that we will target and can target what's next in this world of work and what they are struggling on with companies in their own organizations across the world.

Thought leadership, which Manpower has been known for for decades, is being taken up several levels.

It's about anticipating the future dynamics of the workforce and contributing to the design and social employment systems on a global basis.

Our work with the Chinese government, the Indian government, our work with associations and other important bodies -- this week, we are very prominent at the World Economic Forum -- are all important parts of how we at Manpower and the Manpower group of companies will be viewed and are viewed by our clients.

These five strategies are our focus.

The revenue strategy, as you can see, by expanding our gross profit margins and by our growth in specialty business, with our margins from 11% total gross profit margin in 1999 to 30% in 2005.

This is the way we're showing that revenue is about having our clients' needs and goals met by engaging Manpower or one of our many companies that they can do business with.

It's about our clients winning, as I talked about.

And it's about you as a shareholder winning.

We made a commitment to you that we will move our operating profit on a percent basis to 4%.

In 2005, we hit 2.7%, which was not a gain over 2004.

But I would ask you to dig a little bit deeper into the numbers.

The U.S. moved from 2.4 to 3.4%.

EMEA moved from 2.3 to 2.7%.

Our other operation segments, which include very important operations, moved from 2.5 to 2.9.

And Right moved from 5.7 to 6.0.

We saw pressures in France, so therefore it moved from 3.4 to 3.0.

And at Jefferson Wells, we have some more work to do to make sure that we are out selling this machine that we have, which is an incredible machine.

That margin, the Jefferson Wells margin, came off of a very successful year in 2004, so it moved from 15.1 to 8.6.

So when you dig deeper, you can see how we are driving forward our operating profit margin. 2006 is a pivotal year for us.

We are confident we will make progress in getting closer to our 4% target.

In 2006, you'll see some visible signs in Manpower, making sure that our clients and our prospects understand the broad offering that we have and the value that we bring in helping them win in their marketplace.

What will not change, however, is the core values on which Manpower is built -- the reliability, the integrity, the trustworthiness that our clients say they count on us for.

It's what really keeps our people focused on the mission, is to know that when you deal with Manpower, you are dealing with the best.

I can't imagine how this sense of pride and respect won't drive us to the place where we are able to raise the bar once again a year from now, knowing that we have put another fine year in place for our shareholders.

With that roundup, I would now like to open it up for questions.

(OPERATOR INSTRUCTIONS).

Kelly Flynn, UBS.

Good job, you guys.

A couple of questions just about kind of SG&A spending and future growth.

First of all, could you just detail more office expansion expectations for '06 and maybe drill down a bit on regions and if permanent placement plays a role, touch on that?

And then the second one relates to the restructurings you mentioned in France and the UK.

You did mention the delayed timing on realizing benefits in France.

But could you detail some timing on benefits in the UK?

And also if you can quantify what types of benefits you might realize, that would be great.

Go ahead, Mike.

And thanks, Kelly.

In terms of the overall office opening plan, we opened over 100 offices in 2005, and we will be looking to open more offices in 2006.

And I think from a strategic standpoint, pretty much along the same lines -- most of our office opening were in Eastern Europe, as well as Asia.

And then, in the more mature markets, we are opening more offices on the specialty side as we try to expand the specialty business.

So that is the primary focus of where we are opening offices in 2005 and what we expect for 2006.

As I think many of you know, we go into the year with a plan, but we dial that plan up or down depending upon how the year goes.

So we don't have a set number in terms of number of offices that we would open.

I would expect something, again, above 100 offices, certainly as we go into 2006.

But as the economy dictates, we will be prepared, we know exactly where we do want to open offices -- we will be prepared to turn that up or turn it down.

So that's how we would think about office expansion.

On the permanent recruitment side, in 2005, we added over 700 permanent recruiters, and expect to continue that investment.

That has paid off quite nicely, our overall permit recruitment fees being up over 30% on a full-year basis.

Therefore, we think we still have great opportunity, in really just about all of the markets we're in, as our clients are looking for us to provide permanent recruitment services, as well as temporary services.

So that will continue to be an investment platform for us as well.

On the restructuring side, we did talk about the UK -- or the France restructuring as part of the prepared comments and the fact that we do expect to see some benefits coming in the second half of the year as the severance for those people and the termination results for the end of the first half the year.

As we look toward the UK, we still are in the early stages of developing that plan.

Therefore, I don't want to go into that plan in detail on the call.

But we would expect that it will involve some office closure, as well as some staff reduction, and we would see some benefits, certainly later on in the year, related to that restructuring as well.

Jim Janesky, Ryan Beck & Co.

When you drill down into permanent placement, specifically within France and EMEA, could you just give us an idea what the trends are there, and also let us know what percent of gross profit roughly perm is Company-wide and where you could see that going?

Let me cover that first part, Mike.

In France, as we had talked about, we were anticipating that 2005 would be a year where we would be able to break even.

In other words, it was new to the marketplace.

We wanted to add a number of consultants.

We had talked about adding 150 consultants and we have added 150 consultants.

We are seeing that the market is responding to the service.

And we are seeing confidence from our people that this is a service that is absolutely required and necessary in the French market.

So we would see that, which is a very small percent of the gross profit, given the size of our French operation, we would see that improving in 2006.

And we think the trends are good and the momentum is good, particularly since we started to see a bit of a pickup in some of the economy in France.

EMEA, which is a much more mature market in permanent placement, we also see some very good trends and that is really our largest presence in permanent placement and has been for some time, with Brook Street and what we are doing in the UK.

But it's moved into Italy and Germany and many other parts of EMEA.

So we too see that as some pretty good trends.

Right now, as a percent of GP, we would be running about 7% as a percent of GP.

And we have stated before that our goal is to not get above 15.

Now, if we end up getting 13 or 14, we've looked at where we are from an economic perspective and a cycle perspective, because we think it's a great value-added service to our clients.

We think it's a wonderful way to generate some profit and be very relevant in the marketplace.

But we don't want to turn our Company into a permanent recruitment company.

So we would see it topping out at about 15%.

We made progress with the 32% increase in '05.

But '06, '07, we've got more progress that we can do.

So therefore, we are quite optimistic about this as a profit generator for us.

Just as a quick follow-up to that, Jeff, do you think that the margin improvements that you have been experiencing in your various segments -- has it been more disciplined growth, or as you've seen the percentage of perm shift?

Or do we just have a long way to go where perm can improve margins?

I think clearly, the permanent recruitment has helped.

However, when you look at the geographies with the significant margin expansion, the U.S. and EMEA, even the other segments, I think what you are seeing there really is good revenue discipline overall in terms of getting the right type of business with the right customers on the right terms, as well as some good expense leveraging.

I think the organization did a very good job in 2005 of focusing on expenses, managing efficiency and productivity.

Certainly, I am never happy with where we are from a productivity side.

So we are going to continue to drive that.

And I think we still have opportunity there.

But I think we've made some good strides forward.

So permanent recruitment certainly helps, but I think there are some other elements that weight in even more.

Greg Cappelli, Credit Suisse.

Just back to Jefferson Wells for a second.

Maybe you can just provide a little bit more color on how much of the falloff in business was execution?

I know you mentioned that internally versus just industry trends, which were out of your control.

And then Mike, if you could just talk about the margin that is embedded in the 1Q guidance there -- it fell to the 4% range.

I'm wondering what you're thinking in 1Q?

I will cover the first and Mike, you can cover the second.

As I said in my prepared remarks, Jefferson Wells has a great footprint.

We are confident in our ability to deliver the service.

When we deliver the service, we've got some just incredible loyalty among our clients.

The fact of the matter is I am immensely disappointed in our ability to go out and sell the service.

So it is about revenue.

Now again, within our mantra, it would have to be the right revenue.

But the fact is when you have a model the way we have it, you slip revenue off, you drop it off 3, 4 million from where you thought, and you've got now your utilization, which is a major drag.

So the fact is that we've got to get out of our offices.

We've got to get out and make the sales calls and make sure that they are hearing about the services we have.

Some of the one-time things with the health care -- those were substantial, when you look at a company that small.

Wells will come back, I'm not concerned about that.

I'm not concerned about the core of Jefferson Wells.

I just want them out of their offices and selling.

And that is where our focus will be.

And Greg, to the second part of your question, from an operating margin standpoint, so in the fourth quarter, we ended up at 4.6% in that business.

I do see that expanding as we get into the first quarter, certainly back above 5%.

I don't think it will get quite to last year's level, which was 8.7%.

And as we are managing our revenue line, one of the things we are of course focusing on is utilization, as this model, of course, has a bench model.

And the fact that revenue is not there means we have to adjust our cost basin, and we are currently in the midst of doing that.

That will take the month of January to do that.

So I would envision that our gross margin as a result will improve as we make our way through the quarter, as well as our operating margin.

So I think it will take us a little while to adjust our cost base to get to that right operating level.

So while I expect an improving operating margin in the first quarter, I would not expect it to be quite at what I would consider normal levels for that business.

Brandt Sakakeeny, Deutsche Bank.

Actually, question on Right.

Obviously, the employment has been strong, so the outsourcing business is soft.

But the M&A business has been particularly strong, and I'm just curious what exactly from the sales targeting standpoint are you doing?

And I guess with respect to sort of taking charge of that, are you closing offices or reducing headcount?

Can you just be a little more specific there?

Sure.

You are right.

The economy has been strong, so you're not seeing a tremendous amount of the traditional layoffs, the large events where we might have 1000 people or 500 people.

You are seeing M&As.

And we're seeing a couple of things in there.

One is that through an M&A and some of the traditional industries that do that, finance for one, banking, sometimes what we are seeing is that this might be the second or third time that a person has been downsized, if you will.

And therefore, they will use our services, but they will use it at a different level, because they don't need the same type of services they might have had going in through the first time.

Also, there is -- it is a very global organization.

In Japan, the economy is picking up dramatically.

We were getting some good revenue and profitability out of Japan three years ago.

But with the economy in Japan, that has really made a very big difference to our overall profit.

We've been able to adjust our costs and work effectively along those lines.

And Mike, I'm sorry, just a quick housekeeping item -- in the interest and other expense line, you talked about an equity sale.

Could you just explain what that was and the impact again?

I didn't get the number right.

Yes, we had equity investments in a UK company that did some assessment work.

And we ended up disposing of that, and that resulted in a gain of $2.6 million.

Jeff Silber, Harris Nesbitt.

Just wanted to get a little bit more color on what was going on in both the UK and the Australia/New Zealand regions with revenues down?

Is it more of a macro issue?

Or is there anything else structurally that we need to know about?

I will cover the Australia and let Mike -- I'm sorry, I will cover the UK.

What we are seeing in the UK is somewhat more of a macro issue.

The UK has been a little bit more sluggish in the last year.

I would say that because of our book of business, which is skewed to very large accounts, the highest percent of any major country that we have, that has made it even a bit more difficult for us.

So as the UK is, from an economic perspective, not going through a bad time, but going through a bit of a soft patch, you're seeing a lot of chewing on one another in the industry.

But for our environment, it's even more difficult, because what you are seeing is the severe pressure from the large accounts.

And since that part of our business is as high as 70%, it puts more pressure on us.

Part of what we're doing in looking at the UK business is not to unload that 70%, because in fact, it's good business, but to balance it off.

We've been so preoccupied with some of those accounts that we've left the rest of the market and some of the higher-margin side of the market get away from us.

And that's been a bit disappointing.

And that's what the focus on our UK team is.

Mike, if you want to comment on Australia?

Yes.

On Australia, we'd also put it on the macro side in terms the economy -- just seemed to be softening up a little bit.

The demand for our services clearly seems to be decreasing a bit.

And that does seem to be market-wide.

When we look at Australia overall, they've really had an excellent year, profits overall being up over 26%.

And we really have an excellent management team there, doing a great job, managing margins as well as managing the expense side.

So we've got a good team their.

They had a good year.

But it does look like we are seeing a little bit of softening on the market at this point in time.

I don't think it's anything too serious yet.

But we are seeing just a little bit of weakness come through in the fourth quarter.

And I would not put Australia and the UK in the same category.

I think it is slight weaknesses in Australia, but not so severe that we can't make it up with other things, as you can see, and the way we were able to generate the profit.

And just one quick follow-up.

I know you have not finalized your office opening plans, but do you have a rough estimate for capital expenditure guidance for '06?

Yes, I think we will be up a bit more than we were this year.

I would say I would look to something in the call it 90 to $100 million range.

Andrew Steinerman, Bear, Stearns.

Mike, could you just give us a comment on French operating margins and sort of just go through all the pieces and what it would take to get stabilized kind of on a year-over-year basis?

And is that sort of maybe a second half of this year event, given the comments that you talked about restructuring?

Because although perm, you said, a very small percentage of your gross profit, is this a notable item that can help us stabilize?

I think when you look at France overall, operating margin for this year came in at 3%.

So we did see a little bit of a decline, a 40 basis point decline compared to last year.

And really what you are seeing there is the pricing pressure that we felt throughout the year.

We've talked a bit about that on earlier calls.

The marketplace really had seen a lot of growth from some of the medium-sized companies within that market adding a lot of offices, a lot of capacity and becoming quite aggressive from a pricing standpoint.

So we have tried to defend ourselves and defend our pricing as best as we could.

But overall, there's a little bit of weakness in the marketplace.

And that does seem to be stabilizing a bit.

So we are encouraged that we are seeing some stability there.

So we are starting to anniversary some of those price declines.

So as we move into 2006, I do see this as being less of an issue.

And certainly, as we start to see revenue now strengthen a little bit, that as well will put more volume into the French market.

And so I think that also is encouraging and should help alleviate some of that pressure.

I don't think it ever goes away in France, but certainly it will help alleviate some of that pressure.

And of course, a little bit revenue line will get a little bit more operating leverage as well.

So I look at 2006 as a year that certainly I think the operating margins should stabilize.

If we get a little bit of help on the revenue line, we can see some operating margin leverage.

The perm business should help a little bit, but I think it is still not quite large enough that it's going to have a significant impact.

But I think if we look out a few years, I think it certainly can.

And as I look out more medium term towards France, clearly it's a market where we should have an operating margin north of 3.5%.

Just with this softness in top line, the market has just come in a little bit in terms of what we can achieve there.

But certainly, it has opportunity to be much stronger than where it is today.

And could you review -- do you think Manpower right now is still growing above the market, obviously, relative to set numbers?

It seems to be the case.

And just review why you think Manpower has grown above the market in France and how sustainable that is.

I think a couple of things.

In terms of growing a little bit stronger than the market, what we are seeing today, we think we're growing about 1 to 2% better than the market.

A couple of reasons for that.

Our focus really has been on the retail segment, as it would, within the market overall.

And we are seeing growth on that retail side in the lower teens.

So we're getting very good growth in the retail side.

We've had some specific sales initiatives -- sales programs within the branch offices.

We've done some advertising, so -- specifically targeted.

So I think we're doing some things to drive that sales engine within France.

And that's helping us get just a little bit more market share.

It's not dramatic, but we're growing just a little bit faster than the market overall.

And I think it really relates to some of these specific initiatives that we've put in place, really in the first quarter and second quarter of 2005.

So that is more than the fact that I think Manpower is underexposed to orders relative to the industry.

Yes, I think we are slightly on a relative basis, that's correct.

I think we are running a little less than 8% of our revenues -- maybe 6% of our revenues in auto.

And some of the major competitors are double-digit.

That sounds all right to me.

Thank you so much.

Chris Gutek, Morgan Stanley.

It seems like the macro environment in continental Europe has been slowly improving.

And I know you guys aren't economists necessarily, but you are in a pretty unique position, given your dialogue with your various customers, and your own forward-looking hiring surveys.

So in that context, could you talk about, not just for the first quarter but more for the full year of '06, what you are seeing and hearing in some of your major market segments in Continental Europe and what you're hearing from customers, and how much confidence that gives you about the outlook for the full year for your business?

Okay, so I will start the way you started -- I am not an economist.

And you can listen to your own Stephen Roche, who is at [Davels] right now talking about European markets.

And he might have a better perspective.

When we do talk to the clients, and let me just take some of the major geographies with France and Germany, one, I think the election in Germany helped, and it created a bit of buoyancy in the market.

We do not see Germany as robust, but gaining a little confidence.

France is starting to get some industrial production numbers moving up.

And our clients are very cautiously optimistic, but it's better than being pessimistic.

Italy -- it's a little hard for us to look at, because I still think what we're seeing in Italy is secular growth overriding economic growth.

So we have a little bit of a distorted view in Italy.

When we move to The Netherlands, we think The Netherlands has started to get a little bit more wind in their sails.

Go a little further north, and you look at Sweden and Norway -- clearly, the oil prices are helping Norway, and we're starting to see good growth there.

And Sweden has taken a while to recover from the telcom challenges.

But they are past that now as an economy, and they are starting to roll nicely.

So it's hard for me to put it in any kind of real quantifiable term, but we would say that we are coming off of a year at, what, like 11% constant currency in EMEA outside of France 2005? 11% growth is a pretty good number in constant currency.

Some of that is driven secularly.

So you would have to subtract a little of that out if you wanted to look at the economies.

And we think the economies are improving slightly.

So we'd like to see that a little bit more robust.

But they are in the same position that the U.S. is in, which is they are more agile and that as soon as they feel a hiccup, they are going to pull back.

Right now, we don't see a hiccup, but you can get a hiccup in second quarter or third quarter, and they pull back quickly.

But right now, I would say they, across with the UK in a bit more of a challenging spot, but other than that, it is relatively positive.

Mike, anything to add to that?

No.

Does that help at all, Chris?

Yes, that was a great answer, actually.

Just a quick follow-up to that, and it is do you have enough confidence, or maybe it's a bit premature, but to start maybe opening offices a bit more aggressively or adding capacity?

Or is it, again, a little bit premature at this point?

Well, we will continue to open offices in Italy.

We will look at opening offices in Germany.

When you get to the other markets, Sweden and Norway, where we have been there for years and have over 50% market share, France, we would be looking at opening offices, but they would be specialty offices.

They wouldn't be geographic offices because we have enough of those.

So we will pick and choose on this.

We will go where there is good secular growth.

But we think that there's some just dynamite opportunities still in China and India that need us to put some time in there.

We will be opening offices with Jefferson Wells.

And that costs us a little bit more.

So I wouldn't be surprised if you looked at Manpower's staffing side of the business, France included, in Europe, and we open 100 offices throughout continental Europe, because of some of the specialty offices and some of the Italys and Germanys still expanding.

I'll add to that, Chris, in terms of just from expansion, when you look at our traditional business, what we are finding is that given the size of our footprint and the strength of our network, we can drive growth by adding people and going to slightly larger offices in many of the markets.

So the model may slightly be shifting a bit here in terms of what our growth opportunity is within the traditional side.

We don't need to open that many more offices.

We can drive growth by adding to the size of offices, and our experience has been -- our recent experience has been that that would enable to drive a higher ROI as a result.

Next question, please.

Last question.

Michel Morin, Merrill Lynch.

We've talked a lot about the improvement you are seeing, slight improvement you're seeing in Europe in the economy.

I'm was wondering in Japan, I was a bit surprised to see you go to the other segment.

Also, the entire group did very well, but Japan in particular, that 6%, given what we've seen on the macro front, I was a bit surprised that we didn't see a bit of a pickup there.

Can you update us on what you're seeing there?

Yes, I think it's a very good observation.

What I did say in my prepared remarks was that we grew the bottom line at a multiple of that.

So we are not satisfied with the 6%.

We need to get more aggressive in the Japanese market.

But what we didn't want to do was to get aggressive before we had our pricing strategy and our infrastructure issues resolved.

We're close to resolving those, so we can come out to the market and be more aggressive.

That market has more than 6% to give us.

But we didn't want to just chase it while we had some of these other things.

There was a -- I don't not know the appropriate term, Mike, the health care subsidy cost -- we had some things piling into us in the first and second quarter.

What we said and what our Japanese organization said was let's get that fixed, look at our profitability line, which it was a multiple increase to the top line.

Now we're looking more outwardly to capture some of that market.

And you said you are growing at a slower rate than the market.

Do you have a sense as to what kind of market growth rate there is right now?

We have a difficult time in Japan because there is no industry body that comes out with a really good number.

I would just say that based on what we're seeing in the market, we are not happy, nor is the Japanese team happy with 6%.

But we understand why.

So I would suspect we'd be lower 50% from a growth perspective in that market.

All right, thank you all.

As usual, if there is any questions, Mike will be available for calls.

Hopefully, the visuals that we have that will be on our -- and are already posted on our website help you understand the business a little bit more.

And we look forward to talking to you next quarter.

Thanks.