ManpowerGroup Inc (MAN) 2006 Q4 法說會逐字稿

Good morning and welcome to Manpower's 2006 fourth quarter and year end earnings results conference call. [OPERATOR INSTRUCTIONS]

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

Sir, you may begin.

Thank you and good morning.

Welcome to the fourth quarter conference call and also it's the full year conference call, so we'll sprinkle in a little of that as we go throughout the call.

This morning as usual, with me is, Mike Van Handel, our Chief Financial Officer.

Together we'll go through the results in general, discuss a little bit more on the segment details.

When I'm finished, Mike will give you more detail on the year end wrap up of the numbers, income statement, as well as the finishing balance sheet, some of the things that we had done on the balance sheet in 2006.

Mike will also cover -- I cover a little bit, Mike will cover in more depth the outlook for the first quarter of 2007.

Before we get into some of that detail, Mike, if you could go over the Safe Harbor language.

Good morning, everyone.

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 10K and in the other Securities and Exchange Commission filings of the Company, which information is incorporated here and by reference.

Great.

Thanks, Mike.

The fourth quarter of 2006 was a very nice capstone to 2006.

I-- there's no other way to really put that.

When you look at the performance throughout the year and then how we ended it up, you can use different words, but the great performance, solid performance.

The organization across the board performed outstanding, finishing the quarter with revenues of $4.7 billion, up 16% in U.S. dollars, 9% in constant currency.

Revenue in constant currency was as expected, but most importantly with very few exceptions, we're seeing momentum continuing.

Nearly all geographies had record setting years, both from a revenue perspective, and then more importantly, as you can see, what we're getting out of the leverage, we really had a very good profitability year and quarter.

Our gross margin for the quarter was 18.4% and for the year 17.9%, up slightly from 2005 showing good improvements in the business mix, additional service lines, like permanent recruitment made a big, big difference.

Our operating profit was $170 million, up 30% in U.S. dollars and 22% in constant currency.

This includes the charge of $6.9 million for severance cost included in Right Management segment.

We concluded the fourth quarter with an operating profit margin of 3.6%, up 40 basis points.

Our operating profit margin before Right severance costs was 3.7%, which is at the high end of our guidance range.

Earnings per share was $1.90, which includes income from a discontinued operations of $0.75.

Mike will cover some of that and we have that of course in the printed financials.

This income primarily relates to the sale of a Nordic Facility's Management Services business that we deemed as not as strategic as we wanted it to be, couldn't scale it the way we wanted to scale it.

Had actually owned that firm for a few short years and made the decision that it would be best for our shareholders to actually capture the value that we created and return it back to you.

Earnings per share from continuing operations was $1.15.

You exclude the Right Management severance charges, the earnings per shares from continuing operations is $1.21.

This includes positive $0.06 of currency, $0.02 more than we had anticipated.

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

Our growth rate in billable hours across France, Asia, and our all-important European operations all increased nicely.

We saw a decelerating trend in our billable hours in the fourth quarter in the U.S., and we continue to see just a little hesitation in the U.S., but really nothing dramatic.

Nothing that we're hearing in any big way from our clients or from our field.

In fact, most recently in the last few weeks, because we do get the January numbers coming up to here, we started to see some real stabilization in the U.S.

Our revenue from Right Management came in slightly ahead of expectation, and Jefferson Wells fell just short of our plan.

Therefore, we closed out 2006 in positive terms.

Based on the current trends in the fourth quarter, we anticipate our first quarter 2007 of earnings per share between $0.57 and $0.61.

Currency is expected to have positive impact of $0.04 for the quarter.

On a consolidated basis, our gross margin improved slightly in the quarter, 18.38 from 18.35 a year ago.

However, prior year quarter benefited 45 basis points from a nonrecurring payroll tax settlement we had in France.

Excluding this item, our gross margin was up 48 basis points in the quarter.

We are still experiencing good margin improvement in many of our major markets and are not experiencing any ridiculous pricing pressures.

We continue to see good improvements in permanent recruitment with our total placement fees up 40% in constant currency.

We continue to invest in the future permanent recruitment as well as we added 200 additional recruiters in that-- in the fourth quarter alone.

Business mix had a negative impact of 32 basis points on gross margin.

Primarily this comes from the growth of Jefferson Wells and Right not keeping up with the growth of the core business, which affects it in turn by 32 basis points.

Now moving on to some of the segment detail, U.S. first.

Our revenue in the U.S. was slightly weaker than we had anticipated.

We experienced somewhat of a plateauing at the end of the third quarter.

So when we went into the quarter we thought that we would really anticipate seeing that stable but level of revenue.

What we actually saw in the fourth quarter was a slight contraction in revenue in the fist two months, then followed by stabilization in December.

We then had a chance to look a little at January and what we were seeing is some continuing trends that don't give us any major alarms that would go off that would say that we would see revenue dropping in any kind of precipitous way.

Revenue finished at $528 million.

Gross margin was up substantially given our very good growth in perm recruitment and favorable workers' comp experience.

Expenses well controlled, teams doing a great job on that, giving us an operating profit of $27 million, an increase of 15%.

So a top line, as we had experienced, with a little bit slightly weaker than we had anticipated and great bottom line.

So you can see the team is managing extremely well.

This resulted in a 5.1% operating profit, up 80 basis points.

A truly impressive operating unit profit margin for the U.S.

On a full year basis, revenue for the U.S. was $2.1 billion, profit, $87.4 million, 4.1% operating of profit margin for the year.

When you see a year like that without much growth, truly an outstanding performance and I think all of you should feel as though we're really setting ourselves up for, even if we get a little growth coming out of '07, that we can get some very good leverage.

Systemwide sales for the U.S. came in at $3.2 billion for the year.

The U.S. business was mixed from region-to-region, some doing better than others.

But really regardless of the region, what we saw were some declines in office skills, while light industrial maintained relatively stable throughout the quarter.

We continue to see increases in the work that we've done in Manpower Professional payoff with an increase of 15% in revenue for the quarter.

This is a trend that not only helps our gross margin, but also improves our overall profitability and relevance to the market.

Our French operation, very good quarter finishing the quarter at $1.6 billion in revenue up 8% in constant currency, 17% in U.S. dollars.

Gross margin improved, something we haven't seen for some time, and expenses were well under control, which gave us an 18% constant currency increase in operating unit profit to $61 million.

Our operating unit profit came in at 3.9%, up 40 basis points from last year.

The French market is a very good market for us.

The team there's extremely dedicated, fantastic team has done a great job of improving the mix of business in specialty, key account, and what we're trying to do in the local staffing business, and I'll talk a little bit about that later.

The market also seems to be more rational in pricing, which gives us-- which should give us some very good benefit as we move into 2007.

Overall, growth trends were fairly stable throughout the quarter and we continued that stability into, if not a little increase actually into the weeks of -- first few weeks of January.

Our EMEA segment, the one carrying all the water right now.

Europe, Middle East and Africa minus France, stellar performance, revenue exceeded our expectations, up 14% in constant currency, 24% U.S. dollars to $1.8 billion.

We were able to leverage our investments we've made over the last several years by opening offices as well as adding permanent recruitment staff.

All of this yielded an operating unit profit of $81 million, up 44%.

So 14% top line, 44% on the bottom line, 55% on the bottom line if you count it in U.S. dollars.

This leverage allowed to us produce an operating profit margin of 4.5%, up 90 basis points in the fourth quarter of 2005.

Throughout the EMEA segment, there was some very good performance, some of the usual performers and some new highlights that we were adding some growth in EMEA throughout that segment. some of the highlights: Nordics' grew at 21%, constant currency.

Italy, 24%;

Elan,16%;

Germany at 11%, and a real standout for the quarter was the Netherlands with has had a very good growth throughout the entire year with annual growth rates at 28%, fourth quarter growth rate of 29%.

Spain came in at a 14% growth in the fourth quarter, and additionally, as many of you know we've done some reconstructive surgery, if you will, on Manpower U.K.

They had a slight decline of 1% in revenue, but showed some very strong improvement in profitability.

In fact, they earned more profit in the fourth quarter of 2006 than we had in all of 2005.

So the turnaround for the U.K. is well underway.

Can't forget about eastern Europe and countries like Belgium, who all had outstanding performances, whether it be a mature market like Belgium, where we are taking market share and capturing the imagination of our clients, or eastern Europe where we are growing at big growth rates, 50%, 60%, 70% growth rates and making money in many of those countries as we expand rapidly.

Revenue in EMEA region was strong throughout the quarter, which leads us to a projected constant currency growth rate for the quarter in the range of about 14%.

Moving to Jefferson Wells, for the quarter we came in at $85 million, down 12% year-over-year basis, something we're not happy about, but we understand and we look at that revenue mix and feel confident that we're on the right path.

Our operating profit for the quarter was $6 million, up 41% over last year.

Our OUP margin was 280 basis points up to 7.4%.

The revenue, as I talked about, which we are not happy about at all.

At the same time, we can understand it as we break it down.

The contraction we experienced in the quarter continues to tail off from the SOX business.

If we exclude the SOX business, our growth in our other business lines was a strong 21% year-over-year.

While we expect SOX to continue to tail off a little, we do believe it will have much less of an impact than our growth rate in 2007 as it's becoming a smaller mix of our business.

As we look at 2007, we expect to see continued strong growth in our nonSOX services.

As a result, we expect to return back to positive, total revenue growth in the second quarter of 2007.

Jefferson Wells finished the year at $373 million, 3% down from '05.

Quite an accomplishment continued -- when you look at the continued drop throughout the year of the internal controls Sarbanes work.

In fact on a full year basis, revenue growth for the nonSOX business was almost 50%, or if you exclude the large Katrina contract, above 35%.

So as you can see, the fundamental growth of our core business lines are healthy.

We had a very good year from an expansion perspective.

We opened six offices, four of them internationally and these offices and expansions will service well immediately into 2007.

Moving to Right Management, finished the quarter slightly ahead of expectations with revenue nearly $100 million at $99 million, down 2% in constant currency, but up 2% in U.S. dollars.

We continue to manage expenses well and adjust our cost base, which resulted in severance costs the quarter of $6.9 million, essentially eliminating our operating unit profit.

Without that exceptional item, Right Management had good performance with operating unit profit margin 7.4%.

So we really feel confident that we've got-- getting the right footprint and the right model as we move forward.

While we've had to continue to adjust the business based on the marketplace changes, we are confident of our direction.

Right Management continues to add a very positive overall direction for the entire Corporation.

We're looking closely at refining the candidate flow and improving the experience of the transition to our outplaced candidate into 2007.

Right Management and Manpower have worked together very effectively.

We've talked about these things before, but what I'd like to do is to give you just a few key examples, and you must know that we have a multitude of these.

One of the best is a large Nordic bank that is moving multiple transaction processing centers to one major center, not located in any of the four countries they currently operate in.

We're able to combine the outplacement services of Right, closing down the four centers, and the staffing services of Manpower and Manpower Business Solutions by opening up the new center.

Our proposal was immensely compelling and no other company was making this type of offer.

And therefore, we were able to win the business hands' down and save the Company a tremendous amount of money.

Another good example is how Manpower -- one of Manpower's largest staffing clients is reducing their severance by effectively using Right Management and Manpower together.

We have the opportunity to see the business coming into the organization, their utilization and their capabilities, and we also have the opportunity to review the list of those that are being proposed to be transitioned out through a more effective use of the work force breaking down some of the silos, we were able to achieve cost avoidance by reducing the severance cost by several million dollars with the use of our services from Right Management.

Both of these examples show we are changing the industry and presenting our clients a much more holistic answer to some difficult problems.

As we look to the first quarter for Right Management based on our deferred revenue and candidate backlog, we are confident Right Management will continue to show improved performance over the prior year.

The other segments operation performed extremely well.

Revenue reached $618 million in U.S. dollars, 15% constant currency and U.S. dollar -- and in U.S. dollars.

The other operation generated $21 million in operating unit profit with an increase of 10% in constant currency and U.S. dollars.

This resulted in a 3.4% operating unit profit margin, down 20 basis points.

Much of this is attributed to the continued investment that we are making in China and India as we are expanding rapidly.

Japan in the fourth quarter grew its top line 8% in constant currency and was able to show also that we could grow the bottom line very nicely and expand our operating unit profit.

In Japan, we continue to expand our sales presence and focus on filling more orders as it is a very difficult environment based on a profound skill shortage that we are seeing in almost all locations throughout Japan.

Not to be missed, Mexico and Argentina, a few of our secret weapons, if you will, continue to do extremely well.

Constant currency growth in Mexico, 19%.

Argentina, 41%.

Both are doing very good things from an operational perspective and have extremely large presences.

So these are not countries where we have 2% or 3% market share, we have closer to 40% and 60% market share.

Also, we're beginning to see a good traction in Brazil as we put a lot of time and effort into it.

Growth rates now are nearly 40% in Brazil, much of this coming from our improved capability of permanent recruitment.

Overall, it was a good quarter for Manpower and an exceptional year.

We were able to generate outstanding leverage from our major operating units as well as continue to invest strategically and heavily in emerging markets ranging from eastern Europe, Asia, and some parts of Central and South America.

Between the operational excellence and expanding our market presence, 2006 was a very good year.

As we look to the first quarter, we are anticipating that our earnings will be between $0.57 and $0.61.

At this point, we are seeing positive trends in almost all of our major operating units except the U.S., where we are seeing stable but slightly negative revenue trends.

Needless to say, it is too early to determine how far we will see these positive trends beyond the first quarter, but we are quite comfortable and confident as we speak now.

With that as the overview, I'd now like to turn it over to Mike to cover some more of the financial details.

Thank you, Jeff.

I'd like to begin today by discussing the details around our fourth quarter earnings.

As Jeff mentioned, fourth quarter results were strong with revenue growth at 9% in constant currency, just as we expected, and the operating profit margin at the high end of our guidance range if you exclude the Right severance.

Our operating profit margin for the year came in at 3%.

If we exclude the nonrecurring reorganization cost and severance costs and project [tighten] costs incurred during the year, our operating margin was 3.2%, which is an increase of 50 basis points during the year.

Clearly, 2006 was an important year in making progress toward our 4% overall operating profit goal.

As you look to the operating-- our operating plans for 2007 and 2008, we remain confident our goal will be achievable.

Earnings statement presentation has become a bit more complicated in the quarter as we have separately presented income from discontinued operations as required by the accounting rules.

This income for the quarter primarily relates to the sale of our Nordic Facilities Management Services business, which occurred in late December.

Included in the $64.8 million of income are two components.

First, a $64.1 million gain on the sale net of taxes, and second, the $800,000 of net earnings from the business during the quarter.

Under the accounting rules, the operating results of the sold units are removed from the continuing operations above and are presented as discontinued operations.

Therefore, the fourth quarter revenues of $59.8 million and the operating unit profit of $1.9 million related to the Nordic Facilities Management business have been excluded from the reported revenues and operating profit from continuing operations.

Likewise, the prior year amounts have been restated to exclude the sold unit results from continuing operations and reported income of $700,000 reflects the net of tax operating results for the fourth quarter of 2005.

On a full-year basis, we filed the same treatment.

However, the full year also includes the disposition of our Nordic payroll processing business, which occurred in the first quarter.

Another presentation change we made relates to the reclassification of certain expenses previously included in selling and administrative expenses to cost of services.

These reclassified expensed include our business tax and profit sharing in France and we believe this revised presentation is more appropriate given the nature of these expenses.

A reclassification was made for all reporting periods and resulted in a reduction of our gross margin in the fourth quarter of 2006 to 18.4% from 19.1%, and a reduction in 2005 to 18.3% from18.8%.

On a full year basis, gross margin declined in 2006 to 17.9% from 18.6% and in 2005 to 17.9% from 18.5%.

There's no impact on operating profits or operating profit margin since this reclassification occurred above the operating profit line between SG&A and cost of services.

The final presentation change we made in the quarter was a reclassification within our operating segments in order to keep them aligned with recent Management changes.

Within the segments, we reclassified certain eastern European operations from the France segment to the EMEA segment, and we removed our Russia operations from the other operations segment to the EMEA segment.

Because these operations are relatively small, they did not have a material impact on the segments.

Naturally, this reclassification was made for all previously reported periods as well.

As you may be aware, we filed revised financial statements with all of these reclassifications for the previous periods as part of our 8K filing today.

If any of you have trouble accessing the 8K, let me know and I can send the restated numbers directly to you.

A few other items worth mentioning on our earnings statement, our Corporate expense and interest and other expenses.

Corporate expenses increased to $23.2 million from $15.9 million.

This increase reflects the further centralization of certain functions we are leveraging on a global basis, such as IT, HR, and marketing.

As we look to 2007, I expect our Corporate expense run rate to remain more at this level.

Interest and other expenses increased to $14.1 million from $7 million.

This increase is attributable to miscellaneous expense items, such as fixed asset write offs and minority interest and consolidated subsidiaries.

Net interest was stable between years.

Lastly, with regards to the earnings statement, let me note that we began expensing the cost of equity-based compensation in January of 2006 in accordance with statement 123R.

Accordingly, the earnings charge for the fourth quarter of this year was $0.03 per share bringing the charge for the year to $0.11 per share.

We implemented the statement on a prospective basis, and therefore we have not restated the prior year quarters for this expense.

These costs are recorded in each of the operating segments, as well as in Corporate expenses.

Now let's turn to the balance sheet, which continues to remain strong at the end of the year.

We close the year with cash of $688 million and debt of $823 million, bringing our net debt to $135 million.

Our total debt to total capitalization declined slightly to 25% at the end of the year.

Free cash flow defined as cash from operations less capital expenditures, was very strong for the year at $279 million.

Free cash flow increased 46% as a result of higher earnings and good working capital management.

Accounts receivable were $3.8 billion at the end of the year, similar to the end of the third quarter.

Accounts receivable number of days sales outstanding were stable with the prior year with 64 days.

During the year, we repurchased 4 million shares of stock for $236 million and currently we have an authorization outstanding to buy 5 million additional shares.

Proceeds from the sale of business were $133 million, which primarily includes recent sales in Nordic Facility Management business, and the sale of the payrolling business in the first quarter.

Lastly, I would like to discuss our forecast for the first quarter of 2007.

We anticipate that the strong revenue growth trends that we have seen throughout last year will continue into 2007.

Specifically, we are looking for revenue growth of 8% to 10% in constant currency in the first quarter.

We expect constant currency revenue growth for the U.S., France, and EMEA to be in a range similar to the fourth quarter.

Jefferson Wells' revenues are expected to be down 4% to 6% as the rate of contraction is slowing as the SOX tail subsides.

Right Management revenue is expected to be flattish in constant currency, and the other operations segment is expected to increase between 11% and 13% in constant currency.

The other operations expected growth rate is slightly below the fourth quarter trend as some markets have one or two less billing days compared to the prior year.

We expect the gross profit margin to range between 17.8% and 18%, with gross margins expected to be stable to up in all segments compared to the prior year.

We expect our operating profit margin to range between 2% and 2.2%, which also reflects improvement over the prior year.

We estimate our tax rate to continue in the range of 36.5% and this results in earnings per share range of $0.57 to $0.61 with $0.04 of positive currency.

Jeff.

Thanks Mike.

At this point we would normally open it up for questions, but before we do that, what I'd like to do is at the end of the year conference call is to put some things in perspective.

The way we look at our strategic initiatives, the progress we've made on those initiatives, and the outlook and focus on the ongoing strategic side.

Not off-- not about the numbers, but how are we positioning ourselves.

Quarter-by-quarter, we talked about the numbers and introduced a few of these concepts along the way, but it's important for our shareholders to understand that while we drive for results in this Company with a tremendous amount of vigor and passion, we are at the same time working on what we internally call Multiple Horizons out as as far as 10 years to ensure that we continue to position ourselves for successes in the future.

Each year we set our goals high.

We continue to raise the bar from the financial perspective, but we also look at expanding our brand in the marketplace, which we did exceptionally in 2006.

From nearly all perspectives, 2006 was an exceptional year.

Revenue nearly $18 billion, systemwide sales well over $19 billion.

Our operating profit of $532 million is a 24% increase over 2005.

The financial flexibility from an improved free cash flow, better mix of business, and appropriate investments in high growth areas are all results of a very focused and vision and execution of our strategies.

Manpower vision.

We lead in the creation and delivery of services that help our clients win in the changing world of work.

Everyone has a vision statement, but Manpower absorbs it through all of their 30,000 people across the world.

It truly is the rudder of how we make decisions and how we move forward.

At the end of the day if we can help our clients to win in their competitive marketplace and prove it, document it, then they will view us as a valuable partner.

The five strategies underneath the vision, the revenue strategy, efficient-- efficiency, innovation, thought leadership and organization and culture have been constants since almost five, six years now, maybe a little bit -- almost, seven, eight years.

We've made a few modifications of them to keep it contemporary and make sure that it's driving it.

And what we are able to do is take those five strategies and really drive our Multiple Horizon planning process that we use.

We are focused on leveraging the combined assets of the Company to generate breakthrough leverage as we move into 2007 and into 2008.

We believe then that we will be able to position ourselves further out into the future to be truly the relevant factor in the talent marketplace for the individual and become a global reference point for clients, whether they be large, small, really working with them to struggle through these difficult talent and labor challenges that are going to be tough now and even more acute five years from now.

To break down some of the strategies.

Within the revenue strategy, we are driving items to enhance the mix of our revenue.

We have a strong and impressive ability to service key accounts of all sizes, local, regional, national, and massive global ones.

However, we have not taken advantage of our ability to service local businesses, the small businesses.

We have made a real decisive decision to delineate.

In other words, split our key account and retail, what we call retail business, physically.

We did this in an experimental way in 2005 in a few of our European markets.

We have now matured the model and have expanded it aggressively throughout '06 in Europe, and we are going to continue that expansion throughout the world.

The Dutch market, which had tremendous numbers, growing 29% in the fourth quarter, 28% on a full year basis, is the first country to have that split completely done as they were our experimental country.

Some great prospects lie ahead for us in that area.

The revenue strategy also dictates that we expand specialty lines of business.

You've heard this now for five or six years, the acquisition of Elan, the acquisition of Right, the acquisition of Jefferson Wells and how have we used our capital to expand those.

We've opened offices, built infrastructure, and built a very high-- a very, an intense culture of a high level of services, particularly at Jefferson Wells.

The same is true for Right Management.

We refoot printed Right Management.

We've worked hard to have Right Management and Manpower work together to create a unique set of offerings that no one else in the industry can do, and we're seeing many wins, as I mentioned earlier in the call just a few of them.

Not to be forgotten, or lost in this also, is how we've rebranded Manpower Professional, adding many, many more dedicated stand alone offices, recruiters, consultants, and managers.

Manpower Professional here in the U.S., as you can -- heard earlier gained revenue by 15%, similar gains we're seeing across the world.

We are adding very specialized recruiters and consultants, and we're also driving, besides the Manpower Professional, our emerging markets and continuing to invest in those emerging markets.

As we continue to invest we take advantage of the best of Manpower, sharing whether it be the permanent recruitment or staffing side.

We are confident that the emerging markets will pay off.

Some in 2007, but we're really talking about 2008 and 2009.

Within our efficiency strategy, we put in place a project to reduce our nonpersonnel spend and make sure that the expenses that are going on out there, if they're not adding to the value of our clients and our organization, they're cut out.

We've reinvested these hours in two areas, one, back to you as the shareholder.

Bust also back into client-facing people only who can drive our revenue, drive our mix of business and we are well on our way in 2007 with the plans to do that.

Our efficiency strategy a also one of continuous improvement.

The use of IT is critical, and some of the things we've done on our website, some of the things we've done in introducing our new direct talent, which is a portal to bring people into our organization, has been launched successfully in India and we will now be moving it across the world.

When it comes to thought leadership and innovation, whether it be what we've done with our series of white papers, how we've worked with associations and commercial partners, across the world we have improved the image of Manpower dramatically.

We've been able to measure this in our five major locations, and without getting into any competitive detail, the rebranding and the effort that we put into the innovation and thought leadership is paying off big, and we are having more and more direct and sophisticated conversations with high level people within organizations.

We have outproduced our competition as much as 1,000% in thought leadership and innovation as measured by articles, not advertisements, written about Manpower in the area of thought leadership and innovation.

Under the Oregon culture strategy, we have spent a lot of time in the compensation process to align our team across the world, driving economic profit, return on capital, making the decisions where to open offices.

As a result, we're gaining momentum across the markets that have the best returns.

Another major element in the organization and culture is what we've done in the area of CSR.

It is a deep part of the culture of Manpower.

It creates the passion and energy within the organization, whether it be our work force development programs in the U.K., our training and vocational centers in India, or what we're doing in the area of human trafficking, or how we're handling refugee training.

It is a source of intense engagement for our 30,000 people across the world.

In a Company like Manpower where our doors open every day and our brand is defined every day, the level of engagement of our team cannot be underestimated as a key competitive advantage.

2006 was a pivotal year for Manpower.

We created what we call internally Volume II of Manpower, not a new chapter, but a new book.

The recreation of the brand, the intensity of execution, the investments in emerging markets, the alignment of Management has all created momentum that we believe, given an economy that continues to cooperate, will allow us to expand rapidly and even more rapidly than what you've seen in the past.

We've defined all of those elements that we need, we have invested in them, and now we're maturing them.

And all of this is intended to build sustainable organization with increased profitability.

We have not taken off our eyes to taken the eyes off of our commitment to you, which is the 4% operating margin.

We said also when we get there, it would be done correctly.

It wouldn't be done in a wobbly fashion.

It would be done in a fashion that was based not on cost cutting, but on aligning the costs that drive real sustainable revenue.

We've changed our business fundamentally and we believe 2006 was an important year to establish the credibility that we can make that commitment and go beyond that commitment.

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

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from Jeremy Davis.

You may ask your question and please state your company name.

Hi it's Greg and Jeremy from Credit Suisse.

How are you guys?

Good how are you?

Doing well.

Just looking for perhaps a little bit more color on the U.S. market.

I know you said you saw some stabilization, or at least some signs of it in January.

Any color you can give in terms of which areas, either of the country we're struggling, and which industries perhaps might be struggling, or how you might characterize that?

And then I guess any areas that are still particularly weak that we need to be aware of?

Well I will give it my best shot.

Clearly I have information down to every branch and every line of service in the U.S. for the weeks leading up to where we are now in January.

If I were to discuss that in detail with you, I think you would be more confused than anything.

And I think that's an important point.

So we've got to look at the U.S. right now as a mix of things.

The west is doing well, the mid-west is doing well.

Some of the south is not doing as well.

But when we look at all of that, when we take the trends and we can do the trends weekly, by line of business, and by region, I think the best is to talk about it from a macro perspective.

One is is that when we see January, we look underneath and we look at it in two ways, of course, revenue and billable hours.

What we are seeing is continued expansion in Professional.

We are gaining momentum, we've put in a lot of effort and time into that.

So we think that what we might be seeing is a little bit more of our effort than the actual market that's out there, but that market is still pretty good.

Office is still getting battered, and companies are just reluctant to add anyone who they don't need to add five months after they were told to add it.

And I think that's what we're seeing a little on office.

When you combine what we would have light industrial and industrial, you're actually seeing some pretty good favorable trends with it ticking up slightly as we moved into January.

January can be a little bit of a mixed bag.

How companies start out at the beginning of the year, which industries are most aggressive, so you don't want to read too much into it.

But our sense is, is that there's nothing euphoric about January's first few weeks and we're not depressed about January's first few weeks.

We'd like to get a few more under our belt to see where it goes.

But if you look at Mike's guidance on the U.S., it says that there's some real stability there, is what we're looking for as we move into the rest of the quarter.

Okay, great.

And on the perm placement front, you added 200, I think you said, recruiters in the quarter, and just curious about your outlook on that business right now, if you plan to continue to add to that in '07, and what sort of magnitude, if so?

Yes, overall that business has been growing well throughout the year.

For the fourth quarter, our permanent recruitment business was up 40% globally in constant currency, specific to the U.S., the U.S. was even stronger than that.

And if you look at it on a full year basis, we were up 39% in constant currency.

So really full year and fourth quarter are running about the same.

So you can see that the trend really has continued on quite nicely throughout the year.

And given what we're seeing really in all of the markets where perm recruitment has held on really straight across the board, we're looking to continue to invest and to continue to expand in that.

So as we look into next year, I'd anticipate we will certainly will continue to add recruiters and I would expect right now probably more recruiters than we had this year, so-- or than we added in 2006.

So I think the opportunity certainly is there and we're positioned to take advantage of it.

Okay, great.

And just a last question, just some commentary around the severance at Right Management.

If that is complete now, if you have-- if you're staffed at a level that you're comfortable with or if we should expect anything else going forward?

The severance related to some head count reductions in Europe and we felt that this would position us well and really right size our cost structure, if you will, as we look into 2007.

So at this point in time, we feel our cost structure is overall where it needs to be.

There's always opportunity for enhanced productivity and efficiency.

We're always looking to drive that and we'll continue to drive that, but at this point, we think we've got the cost structure where it needs to be.

Okay, great.

Thanks, guys.

Thank you.

Our next question comes from Andrew Steinerman.

You may ask your question and please state your company name.

Hi.

Andrew Steinerman, Bear Stearns.

I'd like to talk about the U.K. market, which is a pretty important market for me.

You mentioned that you thought the turnaround is well underway.

It's about a year after we started, but revs are still down 1% in the fourth quarter, constant currency the same as the third quarter.

Aren't we starting to anniversary the purging, and make a comment about how you think the health of U.K. commercial staffing market is doing, besides for just anniversarying purging.

Is that market, particularly light industrial, staffing, starting to pick up?

The U.K. market, for one, is when we did the restructuring, which you're right, it's now being anniversaried.

But the strategy of approaching certain accounts and seeing what we can do with our book of business takes a little longer than just the restructuring.

Right.

So what you're still seeing is working through some of those accounts, which is why you're seeing that minus 1 there.

When we look at where we have reconstructed our business and done a better job on our mix of business, we are seeing some pretty good growth.

The U.K. market is not on fire, it's a difficult market, but it's a market where, almost in a sad way, we had ourselves skewed so far to one point, if we can just get within market alignment from a profit perspective and a business mix perspective, it has a very profitable affect on the overall mix, they're a $1 million company for us.

Right.

So we see the U.K. market as okay.

Nothing on fire, but okay.

Elan operates 50% of their business in the U.K. market, and they're actually seeing some pretty good trends in there.

So we would look at the U.K. market as solid and stable enough for us to really execute on our reconstruction plan and have it be not a drag on our European numbers, but actually in some ways slightly additive.

Right.

And could this market start to grow for you?

Well, I think you're going to-- you're not going to be seeing these negative numbers like this throughout all of 2007.

But we are unafraid to make hard decisions that would take out, maybe, a 50 million Pound account.

It's still the right thing to do, and that might give us a little bit of a lumpy revenues throughout '07.

But barring that, we think we can grow that market, we're confident we can grow our market percent in there if we were able to make sure that the key accounts that aren't priced right participate appropriately with us.

Right.

And Jeff, when you made these type of changes in the late 90s in the U.S. and elsewhere, you really did see a change from a competitive standpoint and from a client standpoint that has led to a more rational pricing today.

Do you feel like your moves in the U.K. have led to a similar education process, or is the U.K. market just too difficult to educate and Manpower just has to play its best hand?

I wouldn't want to say that the U.K. team or business is not trainable.

So it is a tough one.

Right.

There's a lot of players in that market.

Sure.

All of the major players, when they look at their book of business, they don't like their book of business.

Right.

And as a result, I think if we continue to take the lead on this and really do it in a way that the client understands why we're doing this -- this isn't about our profitability, this is about being able to be profitable enough to really deliver some outstanding services.

And I think the U.K. market will move.

Right, it just--

It will move only on the margin.

Just one more time, hammer it home for us, the client, how receptive have they been to your message in the U.K.?

So far the clients have been quite receptive.

We have not been able-- we have not had to get rid of as many clients as we had thought we might of.

Cool.

Now that doesn't mean that they're saying, "oh, we've been waiting for you to give us a price increase", but they realize that they're asking us to do some pretty sophisticated things.

And as a result, if we can combine some things with Right Management, which is very strong in the U.K--

Sure.

And do some things with Manpower, we're bringing in something that isn't just about a price increase, it's about a value increase.

And that's what is so exciting about what we're doing, is this kind of combination of things.

You go in and just do a professional graveling job for a price increase.

Yes, we try to do that in our business.

Sounds like a great job.

Thank you so much.

Thanks, Andrew.

Thank you.

Our next question comes from Jim Janesky.

You may ask your question, please state your company name.

Hi, yes Jim Janesky, Ryan Beck.

Jeff, you'd-- while you outlined in specific detail some of your longer term strategies from a bigger picture perspective, can we look at specific geographies maybe in the next six months or so, where you see maybe the two or three biggest opportunities, and will they come in the form of market growth, you taking market share or margin expansion?

Sure.

Let me kind of answer that in two parts.

I will answer your question directly, which is six months, but then I would prefer to also bring it up three years.

Because that's the strategic part of this.

Over the next six months, and we're not economists so we put a little disclaimer in there, but over the next six months if you look at what the traction we've built in Italy, what we're doing in Belgium, what we're doing in the Netherlands, what we're doing in Sweden and Norway, those components -- and Germany, which is going well, our growth rates we're starting to see move up a little, these are huge growth drivers for us.

They have good margin on them and you're going to start to see then -- you could potentially see those countries that I named off all have higher margins, dramatically higher margins than U.S., France, and the U.K.

So when we look at the next six months, so let's call it basically 2007. 2007 really is about continuing that momentum on a European basis and driving a lot of that higher margin, good operating profit kind of businesses.

And we feel as though that the momentum, the office openings we've done, there should be no reason why we shouldn't do that.

On the U.S. front over the next six months, we've gotten much better at Manpower Professional, and you're going to be hearing more about that, and we've gotten much better at recruitment, if you can get-- perm recruitment.

If you can get a little wind behind our back on some billable hours in the core business, you start to see some leverage.

So that's the next six months.

What I want to do is try to make sure that the shareholders who have been with us a long time, and many of you know our shareholders, our top shareholders have been with us for seven, eight years.

What I'm positioning is that when we look at out three years from now, the investments we've made in eastern Europe and how we're doing it, what we've done in India and China, how we're reconfiguring Japan, which is a mature market that needs to be redeveloped, if you will, that's where I get the real excitement that one of our next horizons are those emerging markets that can actually generate some very sizable profits and market presence for us.

So that's how I look at what we're trying to do in there.

Then when you look at some of the specialty businesses on how we've opened up offices in Jefferson Wells, reconstruct the business underneath, I get a little excited here.

I won't put a time frame on it, which doesn't get me in trouble, but I see Jefferson Wells as a $1 billion company.

I mean there's that much opportunity out there.

So you take a $1 billion company, put that at a 10% margin, that adds something to our bottom line.

So that's why we get jazzed up about what we call our Next Horizon, the horizon that we're building now while we're generating profits from our current markets where we're investing.

And I think between emerging markets, Jefferson Wells, Manpower Professional, we're feeling pretty good about our three to five year horizon.

Okay.

And a, excuse me, a quick follow up question on the U.S.

You talked about you have tail winds in the perm and the Professional side, but I think you used the word headwinds in some of the other areas.

What are you clients telling you are causing those headwinds, is it nervousness about the economy?

Is it--?

It's something we ask a lot.

We talk to our clients and when I talk to the field, it's really interesting.

The reason that we have these headwinds is not because of a trepidation, if you will, about a looming economy, it's about a business now that is being run extremely tight and sophisticated.

So as a result, companies are not battening the hatch in preparation for the storm.

What they're doing is they're continuing to exercise their company to improve their fitness and their diet and how they're performing.

And that means that they're being very judicious about how they add people.

So we hear more about that than, oh, my goodness, the sky is falling, we've got to start cutting it back.

We don't hear much of that at all.

Okay, thanks.

Mike, quick question, was your EPS outlook $1.14 to $1.18 for the fourth quarter?

That included $0.04 for currency and the Right severance costs?

It was $1.14 to $1.18 with $0.04 of currency.

It did not anticipate the Right severance costs.

That was a decision we made in December, so we do not anticipate the Right severance in our guidance.

Right.

Okay thank you.

Thank you.

Our next question comes from T.C. Robillard.

You may ask your question and please state your company name.

Thank you.

It's Banc of America Securities.

I just wanted to get some clarification or some more color on the Right Management piece.

I know it's a small portion of your business, but considering that it's the counter cyclical piece, if you will, and it saw probably one of its better topline quarters in the last six quarters, or at least an improving trend, two questions on that.

One, can you give us a sense as to how much of that business is international versus U.S.?

And secondly, is there any color you can give us on what was driving that?

Is it a lot of M&A activity that's driving that, or are you starting to see some regions where companies are starting to pare back head count?

Yes, it would be an interesting question to muse on, about is that any kind of indicator?

When we look at that book of business, about 75% of it would be the classical career transition.

We have done a lot of work in Europe and our European team has done a great job.

So part of what you're seeing from the revenue growth is coming from Europe, not as much the U.S.

And these are not wholesale downsizings.

What we're seeing, and a great example would be Motorola in the U.S., when they announced 3500 people being asked to leave the company.

This is not because it's an economic downturn, it's because product life cycles are moving so fast and so squashed that it's a talent turn, if you will.

So what we're seeing, whether it be a large pharmaceutical that has done a merger and acquisition or any other company, really what we're seeing is companies are now, not shy about redoing their company during times when they're good.

They used to just let it all hang out there and then drop them all off.

So it's more of a continuous flow.

So where we're seeing the revenue come from, and it was a strong quarter, is more from just reconstruction of companies, not downsizing because of lack of demand for their products.

We are seeing Europe, which is done doing very well from an economic perspective doing the same things, revamping where their plant is.

They move it from Germany to Romania, they move it from Denmark to Estonia.

And as a result, we're getting some great opportunities for career transition.

I would say that's what's driving the majority of what we're seeing in growth at Right right now.

Okay great, thank you for the color.

Mike, just two quick questions for you.

One, can you address, obviously a real significant cash balance, can you address kind of the uses of that?

Are you going to accelerate the buyback, maybe add to that buyback?

And then secondly, on your guidance for the fourth quarter, did that include the Nordic division that you sold, which I think was roughly about $0.01 in terms of actual earnings?

Good questions.

I didn't think anybody was actually going to get to that one.

I'll take your last question first.

The fourth quarter guidance did include that earnings, because we were a little bit unsure exactly when that disposition was going to occur.

So in effect, there's $0.01 of earnings that sits down in the discontinued operations line that in the $1.14 to $1.18 I thought was actually going to be above in continued earnings, so there's $0.01 down there for you as well.

In terms of the cash balance, we did close the year out with a sizable cash balance, over $600 million.

We do have -- I should remind those that maybe newer to the story, from a structural standpoint, roughly $300 million of that cash is structural.

That really is here today, gone tomorrow as we pay our payrolls and there's always a constant churn of cash.

So there certainly is some available cash.

We will use that for a variety of means if we do have acquisitions that come up that fit within the strategy, within the specialty side.

That is an opportunity that could present itself or we do buy back franchises as they become available as well.

So those are some opportunities.

To the extent that we don't have any needs in those areas, we do look to share buybacks, which is why last year we did buy back 4 million shares of stock.

We do have a 5 million share buyback authorized and approved and certainly we will consider that as we look at our overall cash balance and cash needs going into this year.

Great.

Thanks so much for the commentary.

Thank you.

Our next question comes from Kelly Flynn.

You may ask your question and please state your company name.

Thanks.

I'm with UBS.

Just revisiting the [temp] trends in the U.S., I know you gave a lot of color, but can you give the actual exact growth rates by month, including January?

Kelly, Kelly, Kelly.

It's such an important issue right now.

You always like those numbers, don't you?

Yes.

It helps our economists too.

We have those, clearly.

Let me just kind of give it in a kind of overview way.

If you were to look at it, you would see, for example, in the area of kind of light industrial, industrial, you started October in pretty good shape, positive.

November, not quite as positive, and then December, a little bit more positive.

And I'm not using positive, necessarily, as all pluses.

I'm just talking about trend data.

Office is where you saw some things like down in October, down a little bit more in November, and down the same in December as November.

It was the Professional that we continue to see things that are -- I had mentioned the 15% growth rate.

We started the quarter at 13.5%, we ended the quarter at 19%.

So you can see we're gaining some momentum on that.

So I think that's enough to kind of chew on without getting too much detail.

It's not that I don't want to give you the detail, I think the detail doesn't necessarily give you a great picture.

There's not smooth things in there.

It's pretty lumpy.

But you can see why we've said, we went into the quarter feeling like it was down, but feeling all right.

It just tailed a little and stabilizing and coming back slightly.

And January would show about those same kind of numbers.

Okay.

And then what about perm?

I know you said U.S. was better than the 40%, but could you give similar color for perm?

Your [Robert] half said that perm was weak in January year-over-year.

Did you experience the same thing?

Well we would have a slightly different mix of business with the [mid-west], but I think as we look at our perm numbers across the quarter and into January, things are continue to be quite solid and stable.

So growth in perm has not really wavered a bit through out.

Okay.

And then a different question.

On the miscellaneous charge you mentioned in other, can you give more detail on that?

Yes.

What I did highlight there was that there are some -- as I look at what is in there, there's nothing that stands out that I would point to and say, here's a one off or a big one time item.

We did have a few more fixed asset write-offs than usual in this quarter.

The other thing that we had within, that we do include on that line is we do have some subsidiaries that we own more than 50%, so we're consolidating them, but yet we don't own 100%.

So the extent there's a portion of unowned, that's minority interest that comes through as an expense, if you will.

And the more successful -- the more profitable those minority interest subsidiaries are, we book the profit above in operating profits, but then we have the expense side related to the minority interest that comes through.

And that was a little bit higher in the quarter.

So it was a number of those elements that came through that added to that miscellaneous expense item.

I think as I look to 2007, if I just look at that interest and other line and I exclude interest, I think that numbers probably going to get back into the $2 to $2.5 million range, is more of a norm I think for us.

Okay and then one last one.

A lot of the economists are talking about the warmer weather in December and also January.

I know you guys aren't economists, but I imagine you've experienced some results from that as well.

What are you seeing on that front and do you think as it's gotten colder it could hurt February?

Well, February tends to be a cold month.

Right.

Colder than normal.

On a year-over-year basis, I don't think that you would see a change.

In December, what you probably saw and what we saw was maybe a little bit more activity leading up to the Christmas season in some of our warehouse business and a few things like that, because it have a pretty good season for that.

But I would say that the warmer weather might have just added to a more positive atmosphere in the northern states.

That's about it.

Okay.

Thanks a lot.

Okay, one last question.

Thank you.

Our last question comes from Chris Gutek.

You may ask your question, please state your company name.

Thanks.

Morgan Stanley.

Jeff, not to beat the dead horse in the U.S. economy, but I want to ask a little bit more of a forward looking question.

The economy seems to have picked up a bit since the softness last summer, and yet your U.S. business is just stable with sort of no year-over-year growth.

What does the scenario look like, if any scenario would exist, where you could actually see material growth at this point in the macro cycle in the U.S. business?

Well I'm not necessarily sure if I agree with the premise, because the pickup that you're seeing or hearing about in the U.S. is very recent.

It's really been only the last 30 days.

So result, what we were seeing in the second half of '06 I think was very much tied to what we were seeing in the overall macro picture.

Having said that, what you see and what we're feeling is is that as we see this pickup and some good housing numbers are coming out, durable goods numbers were pretty good.

There is no way that I'm not confident that as those things get a little bit better, we are relevant to the market, we have 1,000 offices in the U.S.

And as a result, we should be able to pick some up on the top line.

The first quarter is always a seasonally very slow quarter, so it's a smaller revenue quarter, so you don't see that.

I think what we would need to then to be looking for, is as we continue to see some indications of the economy getting better in the U.S., I think you would see the benefit of that in the second and third quarter.

We have added salespeople, hundreds and hundreds of them in the U.S.

We've added direct hire consultants, hundreds of them in the U.S.

So I think we're well positioned and we're also doing some of the key account and retail or local business split in the U.S.

So, our view is is that what we've been able to do from a profitability side in the U.S., is absolutely none of our competitors have been able to touch that.

So we have got ourselves perfectly aligned.

We continue to invest.

Now we get a little wind at our back, and I think we can get some operational leverage that we deserve and the U.S. should be able to see some better leverage on the bottom.

That is-- that statement I'm making is contingent upon the economy.

I think we can do some things that are outside of the economy.

I think you see us that 15% increase in Manpower Professional is fighting things, if you will, that's above the economy because we're focused on it, and to be honest, we're not as big in that.

So the numbers have -- the law of large numbers doesn't apply as much to the Professional as it does to other parts of the business.

On that issue of the leverage in the domestic market, if you put aside the mixed shift towards Professional as well as the shift towards perm, how are the margins comparing year-over-year in the more core industrial and clerical segments?

It's actually quite favorable.

Not anything big, we're talking some basis points here or there.

Workers' comp, SUDA, right clients, right terms, how we're taking the business, how we're letting business go.

That is business as usual for us now.

That is not new things in the U.S.

So we saw margin expansion in the U.S., gross margin expansion in the U.S. to a pretty impressive number and we think that that is a combination of many things, which is us, the market, and our mix of business.

If I just add to that, Chris.

So in the fourth quarter, the U.S. picked up 80 basis points on the operating margins, and I think it's important to characterize, while we're doing some great things around perm and some great things around Specialty, really a lot of that 80 basis points is the core business that we have.

Because on the perm side, we continue to ramp up permanent recruiters.

So while we're adding to gross margins and getting more fees, we're also adding to our expenses as we're ramping up, so that's not adding tremendously to our overall operating margin.

And on the Specialty business, the Professional business, it is good to see that growth pick up yet, but it's still of a size where it's not having a dramatic impact on the overall operating margin.So--

And it's still has a lot of investment.

And it's still-- we're still investing there as well.

So when you look at the operating margin in the U.S., we just have a lot of good things happening, I think from both the efficiency standpoint and an overall pricing standpoint across the core of the business.

Great.

Thanks, guys.

All right, thank you all for attending.

Mike, any final comments?

No.

Thank you very much.

Thank you.

Thank you.

And this does conclude today's conference.