ManpowerGroup Inc (MAN) 2007 Q4 法說會逐字稿

Good morning, and thank you for standing by.

Welcome to the Manpower fourth quarter and full year earning results conference call.

All parties will be in a listen-only mode until the 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'll turn the meeting over to your host for today, Mr.

Jeff Joerres, Chairman and CEO.

Sir, you may begin.

Thank you.

Good morning to all for our fourth quarter conference call and full year conference call for 2007.

As usual, with me this morning is Mike Van Handel, our Chief Financial Officer.

I'll go through the results in general, discuss the segments in a bit more detail.

Mike will go through a better understanding of the income statement, balance sheet and a lot of the items that affected the fourth quarter.

Additionally, I will spend some time looking at not only the fourth quarter and full year but some of the first quarter of '08.

Mike, before we do that could you read the conference -- or, I'm sorry, the Safe Harbor language?

Sure.

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

Thanks, Mike.

Fourth quarter 2007 was another string of very solid quarters for Manpower.

Our revenue of $5.6 billion was up 20%; in U.S.

dollars, 9%.

The revenue achievement for the most part came from continued strength in Europe, strong performance in Asia.

So congratulations to the Asian team.

I know a lot of work's been done there.

And then strong performance in Right Management as they also have done a lot of things in working their footprint and some of the product offerings.

However, we continue to see softness as you'll see in the U.S.

market.

Our gross margin, 18.6%, a 26 point -- basis point improvement, continued to be positively affected by our geographical diversity and spread of business.

Our operating profit, $223 million, up 32% in U.S.

dollars and 18% in constant currency.

Have to break that down a little.

This includes a $23.3 million favorable adjustment for the French payroll tax.

It also includes a $15 million legal reserve that we put in place related to the French competition case.

And then also, a $4 million restructuring charge for Jefferson Wells.

Stripping all that out, kind of netting it all down, a $219 million operating profit, a really impressive performance for the organization.

Our operating profit margin was up 40 basis points to 4%, great performance.

This resulted in an earnings per share increase of 42% to $1.63; 27% increase in constant currency.

We continue to see positive trends in the major majority and major business units and geographies.

Clearly, we're going to be vigilant and continue to monitor any of the trends to ensure that we pull the appropriate levers at the right time if there are any further slowdowns.

However, we also believe, and those of you who have been with us for a while, we know that this is some opportunity time also so we'll continue to invest where appropriately in emerging markets and continue to expand there.

Our revenue of $20.5 billion is record-breaking.

Our total system-wide sales of $21.9 billion, 15% increase over our system-wide sales in 2006.

We finished the year with operating profit of $825 million, slightly over a 4% margin.

Let's take out that French subsidy, that brings it to an earnings of $676 million, a margin of 3.3%.

Our earnings per share came in at $5.73, an increase of 65% in U.S.

dollars, 53% in constant currency.

Excluding the French subsidy, earnings per share was $468 million, up 27% dollars, 17% constant currency.

The organization has done a great job across all the units.

Where there is growth we're taking advantage of it, and where there's slowing we're managing it very effectively.

As we look to the current trends into the first quarter we see our revenue growth between 15% and 17%.

That would give us a range of earnings per share of about $0.78 to $0.82 with an $0.08 positive impact.

Our gross margin, as mentioned earlier, continued to make good progress.

The improved gross margin came from several different areas.

We saw slight improvement, positive, of course, from the French payroll tax.

We look at that as short term.

Temporary -- the core temporary help business, the recruitment business, actually experienced an increase of 8 basis points.

Improvement came from good, solid pricing as well as a good mix in geographic presences.

Many of our fastest growing operations are our highest gross profit margin operations.

And we also continue to see a good strong impact from our permanent recruitment business.

Our permanent recruitment business is up 42% over last year, 29% in constant currency.

We're still feeling the negative effects of our gross profit margin from declining revenue at Jefferson Wells, however.

Prepare to move on to the U.S.

The U.S.

is still seeing a challenged and potentially difficult environment.

It's an environment that has not necessarily gotten weaker and I'd like to underscore that.

But at the same time, we can't say that there's any kind of U-shaped curve here because it's not getting any stronger.

We entered the quarter actually expecting revenues to be down about 3% to 5% when in fact they're actually down about 8% with revenues of $488 million.

December, which is always a difficult month to predict, was down a bit more than we had anticipated.

However, we actually saw it starting to come back in the first three weeks of January.

I would also like to put the same caveat on that, which is January is also a difficult time to predict because it's hard to tell how organizations are bringing their staff back or not bringing their staff back, but, the fact that we've seen a little bit of stabilization to slightly up in January, at least gives us some confidence that we're not really dropping off of any kind of cliff, if you will.

Gross margin from the U.S.

business was up slightly on a year-over-year basis, primarily because of the lower direct costs, such as workers' compensation and state unemployment tax.

Costs are being managed, as you would anticipate.

But we are seeing some deleveraging on our expense base.

The margin for the quarter finished at 3.8%.

Still, a healthy margin for the drop in top line that we've seen over the last five quarters, including the fourth quarter of 2007.

The U.S.

finished the year at 4.1% operating unit profit margin, similar to the prior year.

So a strong performance given the deceleration in revenue.

We are seeing in Manpower Professional and experiencing positive trends.

Revenue was up 9% on a year-over-year basis in the quarter and we continue to see solid growth.

Part of that is our focus.

However, it's more than just the focus.

In general, it's true, that is a healthier part of the labor economy right now.

Now moving on to France.

French operation had a very good quarter.

Revenue was up 5% in constant currency, which is about the middle of the range of what we anticipated, 18% increase in U.S.

dollars to nearly $2 billion in revenue.

For the quarter, operating profit of $82 million is up 34% in U.S.

dollars and 20% in constant currency.

This includes an adjustment related to the French payroll tax adjustment and the legal reserve that I mentioned earlier.

When combined, these items -- there's a net positive impact of a little over $8 million on the French OUP, about a 50 basis point impact on our 4.4% operating unit profit margin, which was up 50 basis points from last year.

Netting all those out, our operating unit profit margin was flat on a year-over-year basis while our operating unit profit was up 20% in U.S.

dollars and 7% in constant currency.

We have seen a slower start to the beginning of the year, but we continue to see positive revenue gains in France.

We continue to monitor the effects of any changes in the 35 hour workweek, as well as the potential liberalization of employment law within France.

The movement of the numbers, though, have been so minor so that it's currently difficult to discern any effects from the change in the 35 hour workweek.

Clearly, we'll keep you updated if we do see any.

We did record, as mentioned earlier, $15 million legal reserve which is associated with the dialogue that we've had recently with the competition council within France.

This goes back to an investigation initiated by the government in 2004.

While we've only had initial discussions, there has been enough of a definitive assessment on our part so -- and not tremendously definitive, so we'll continue to take a look at that.

But nevertheless, we believe that based on the information that we have now, it would be fiscally prudent to put this reserve on our balance sheet.

However, we're not sure of the time frame of when this may be pursued more and when there may be any kind of final resolution.

We continue to be cautiously optimistic about the French market.

Our permanent recruitment business is up 72%.

Our work is beginning in earnest and we are capturing also more of the small, medium sized business marketplace, if you will, in France.

A strategy for the entire company.

In that market, in our French market in 2007, we were up 15% in small, medium sized businesses so we are showing that we can expand our client set and we believe there's more to be done in 2008.

Moving on to EMEA, EMEA clearly was the highlight of the quarter.

The EMEA segment, revenue was $2 billion, up 33% in U.S.

dollars, 20% in constant currency.

We're seeing very good leverage within the region and many of our largest operations continue to produce very good revenue results.

Operating unit profit of $90 million is up 40% in U.S.

dollars and 25% in constant currency.

This resulted in operating unit profit margin of 4.6%, a 20 basis point improvement.

We continue to see strong performances from many of the same operations we've had performing well over time, Nordics, 38% up, with Sweden leading the group, up nearly 50% in U.S.

dollars, 35% in constant currency.

We continue to see good results from Norway, revenues up 29% in dollars, 9% constant currency.

Elan, our IT staffing company, performed very well with revenue up 49% in U.S.

dollars, 38% in constant currency.

We recall the last conference call and the conference call before that, we talked about what we had in the pipeline and felt confident that what was in the pipeline in Elan would start to really show its effects in the turnover line and clearly it's done that.

We're also seeing margin expansion and good leverage within Elan because of that revenue expansion.

Similar to what we've seen in the U.S., the professional services area, in this case primarily IT, continued to show strong growth.

So Elan, we believe, continues to do quite well.

Shifting to our U.K.

operation, they also performed well.

Revenues were up 21% in U.S.

dollars and 14% in constant currency, a marked improvement over a year ago.

We've done a lot of work in the U.K.

market and we believe that what we have done over the course of 2007 has really been important work for us.

While the U.K.

still has a lower operating unit profit percent than the balance of Europe, our management there has just done a tremendous job and we continue to see a nice growth within the U.K.

market.

Germany, as all of you know, one of our major operations, grew at 41% in U.S.

dollars, 25% in constant currency.

While we have seen some moderation in our German growth rates over the last several weeks, we are still experiencing good growth.

On an annual basis, revenue grew at 40% in 2007 in U.S.

dollars and 28% in constant currency.

Netherlands, a shining star within the organization, is up 25% U.S.

dollars, 11% constant currency.

In Eastern Europe, we're experiencing growth rates ranging from 20% to 100% in U.S.

dollars, and we will continue to invest in these operations.

And we've also become much more active in a program that we put in place called Cross Border Connections, which is facilitating skilled labor in moving from within the Euro zone, of course, primarily from eastern Europe into Western Europe.

We believe that not only in 2008 but well beyond this will be an important offering for Manpower.

Italy, Italy is doing very well, revenue up 26% in U.S.

dollars, 12% in constant currency.

Operating unit profit is quite substantial at $34 million, up 84% in constant currency and 108% in U.S.

dollars.

Italy finished the year very strong with total revenue of $1.4 billion, up 23% in dollars and 13% in constant currency.

Operating unit profit for 2007 came in at $104 million, and a margin of 7.4% for the entire year.

A tremendous performance and a performance that actually got better in the fourth quarter with operating unit profit margin of 8.3%.

So a very solid margin for our Italian operation.

Moving on to Jefferson Wells, we actually did slightly better than we had anticipated on the revenue line.

We were expecting a decline of 6% to 8% but in fact we were down 4% to $81 million.

On a sequential basis, we were down 5%, which actually reflects the usual slowdown in December.

Within the operation, we had decided to restructure in order to be more agile in the marketplace.

What we're doing is we're moving many of the functions that were in the cities territories to a regional territory.

This resulted in a charge of $4 million that we took in the fourth quarter and I'm confident that you'll see a positive impact from this in 2008.

On a full year basis, Jefferson Wells came in at $332 million, 11% down from last year, and profits suffering as we continued to invest organically overseas.

We continue to open offices overseas and add additional service lines.

We believe it is the right thing to do, particularly given the balance of the business so it's a good opportunity for us.

We made this decision and thought it would be important, given that we do have all this financial flexibility and the performance in other parts of Manpower.

Those investments we're looking forward to start seeing kicking in in 2008.

Right Management, if we move to that segment, had a very good fourth quarter.

Revenue of $111 million is up 13% in U.S.

dollars, 6% in constant currency.

As you know, we've done a lot of work on refootprinting the organization and coming up with innovative breakthrough offerings, like our Right Choice offering, which I mentioned for a few quarters now.

And with that, and a great effort from the team, we've been able to see our operating unit profit of $12 million for the quarter.

Our operating unit profit margin of 10.5% is much closer to where we believe that that percentage should be for Right Management.

We're especially pleased with the growth occurring within the area that we see strategically important to Right Management and to Manpower.

Many organizations are challenged with the attraction and development of talent at almost all levels within the Company.

Right Management is focusing on serving those clients' needs through our organizational consulting group within Right Management, such as assessment, leadership development and coaching, which has fueled a 16% growth on a year-over-year basis.

Global clients such as Lenovo, French Telecom, P&G, Barclays have all looked to Right with the responsibility to work across their organization, globally in most cases, on the critical area of talent development.

These are substantial wins and very much in line with our strategy within the Manpower group and Right Management of bringing these assets together and creating a much more compelling proposition for our clients to help them win.

We continue and believe that we will continue to see positive trends as we move into the first quarter.

Our other operations segments, they did quite well.

Revenue of $720 million is up 17% in U.S.

dollars, 10% in constant currency.

Our operating unit profit of $27 million is up 28% in U.S.

dollars, yielding a 30 basis point improvement in our operating unit profit margin to 3.7%.

Our Japanese organization grew at 12% in U.S.

dollars, and we are seeing continued growth and energy in that marketplace.

We have become much more aggressive in that marketplace in office openings, securing candidates, so we're looking forward to a successful 2008 in Japan.

Our other Asian operations, primarily if we were to call out India and China, are still seeing very solid top line growth and we're looking to capitalize that top line growth and monetize some of that on the bottom line as we move into 2008.

I thought I would give you just a quick update on some of the new labor law situations in China which mandate a new minimum wage and legislated a form of a bench model for the staffing industry.

Actually, as we sit here at the end of January, beginning of February, it's really yet to take any foothold within the marketplace as there's more discussion happening and occurring with the government to see how this can be done without too much disruption to the system.

We at Manpower and the Manpower team in China are fully ready to implement all aspects of what the Chinese government is asking for.

And we are well-positioned with strong relationships with our clients there and a very solid relationship with the government regarding our licensing and that's happened by really proving our capabilities in training and development for our candidates which is a key economic development piece for the Chinese labor market.

In the fourth quarter of 2007, it was a record setting quarter.

We did experience, as anticipated, some chop in the water in some of the markets, primarily in the U.S.

market.

What we are seeing in the U.S.

market will change dramatically over the -- what we are seeing in the U.S.

market will not change dramatically over the next quarter.

It's difficult to imagine, if you will, how we could predict out into 2008 beyond the first quarter, which we haven't.

We view what is happening in the U.S.

economy as different from what happened in 2000 and 2001.

In 2000 and 2001 there was more of a traditional effect on the labor market.

What I mean by that is there was a slowing of demand for goods and services by our clients and therefore we were very much part of being a leading indicator as labor and staff was being whittled out of businesses in order to adjust for the slowing demand.

In the current environment, which is really much more based on a slowing housing market and some challenges within the financial industry, that means that there is not really an immediate effect or impact on the labor market.

That doesn't mean there won't be, of course, as it works through the system, but it doesn't have the immediacy as it did in 2000 and 2001.

We are seeing cautious approaches from our clients as they read the press and are challenged potentially in some of their situations.

On a global front we are seeing some signs of moderation in Germany and the Netherlands and slightly in Italy.

However, it's not of the size that would indicate that we would modify our 2008 plan at this time.

I recognize it would be helpful to give more of a full year view.

However, I really believe it would be trivializing the complexity of the global markets that we're in, which is very different than where we were before.

If you just go back to 2000 and 2001, we were making somewhere in the neighborhood of $20 million in profit, maybe a little less in Italy, and today we're making over $100 million so our balance in geography also is dramatically different.

We've always kept our hands on the appropriate levers during times like this and we will continue to do that.

Whether it be what we do with office openings, discretionary spending or other SG&A elements, you can count on us to doing the right things to maximize what we can do in 2008, but never short stop where we're going from a longer view perspective.

We will continue to expand in emerging markets.

Adding additional offices, in fact, in these emerging markets are relatively easy since we have the majority of the assets already on the ground so it is a slight marginal increase in expenses.

Having said what I have just talked about with the market, we are looking for earnings per share in the range of $0.78 to $0.82 with an $0.08 positive impact from currency in the first quarter of 2008.

That completes my segment detail and kind of general rundown.

What I would like to do now is to have Mike talk in a little bit more depth on the financials.

Great.

Thank you, Jeff.

I would like to begin today by giving you a little bit more detail on our fourth quarter performance relative to our previously issued guidance back in October.

Fourth quarter revenue growth in constant currency terms was 9.4% which is toward the higher side of our guidance and a bit stronger than the 8.5% growth we reported in the third quarter.

Our operating profit margin came in at 4%, which included a benefit of 10 basis points from non-recurring items.

If you exclude these non-recurring items, our operating profit margin was 3.9%, which is also at the high end of our guidance range.

Our strong operating profit margin performance was due to strong margin expansion in EMEA, Asia-Pac and Right Management.

Earnings per share for the quarter was $1.63, significantly exceeding our guidance of $1.50 to $1.54.

While much of this outperformance comes from strong operational results, there are a number of non-operating items to consider.

The currency impact on the quarter was $0.17 favorable.

That compares to our earlier estimate of $0.10 as the Euro became stronger relative to the dollar during the quarter.

Additionally, as Jeff discussed earlier, there were a number of non-recurring items, including a favorable adjustment related to the French payroll tax change of $0.18, a charge for a legal reserve for the French competition case of $0.18 and then a restructuring charge related to Jefferson Wells of $0.03.

You'll note that the two French items had a net positive impact on operating profit of $8.3 million, but the net impact on earnings per share was zero.

This is because we did not record a tax benefit on the legal reserve but we did tax effect the payroll tax adjustment.

Therefore, on an after tax basis these two items netted each other out.

In reviewing our earnings statement detail you'll also note that our corporate expense was $30.5 million compared to $23.2 million in the prior year.

This increase was a result of our decision to accelerate the pace of investment in several global strategic initiatives, given the strength of our underlying operations in the fourth quarter.

Our net interest expense in the quarter came in at $6.8 million, compared to $8.2 million in the prior year.

This lower net expense was a result of higher interest income, which is due to higher cash balances and higher interest rates earned on those cash balances.

In summary, our reported earnings per share of $1.63 was $0.11 above the midpoint of our guidance.

Of this amount, $0.04 relates to the non-recurring items and currency just discussed and the remaining $0.07 relates primarily to favorable operational results and lower net interest expense.

Next, let me turn to the balance sheet.

The balance sheet continues to remain in good shape at year-end with $538 million of cash and $915 million of borrowings, resulting in net debt of $377 million.

Our total debt to total capitalization remained stable during the quarter at 26%.

Our accounts receivable at year end are $4.5 billion, which represents an increase of $642 million over the prior year.

Of this increase, $322 million represents higher business volumes and $320 million represents changes in currencies between years.

Our days sales outstanding improved one day, compared to the prior year, which is consistent with the third quarter improvement.

Free cash flow, defined as cash from operations less capital expenditures, was $341 million for the year, an increase of 22% over the prior year.

Capital expenditures for the year were $92 million, which includes the cost of new branch openings as well as normal refurbishments to our network of 4,500 offices.

Share repurchases for the year totaled 6.1 million shares for a total purchase price of $430.5 million.

Of this amount we paid $419 million in 2007, and $11.5 million was paid in early 2008.

In the fourth quarter, we purchased 1.2 million shares for $71.2 million.

As of year-end, we had 3.3 million shares available for repurchase under the latest Board authorization.

Cash used for acquisitions during the year totaled $123 million which primarily relates to the acquisition of U.S.

franchises.

Of this amount, $23 million occurred in the fourth quarter.

Next, I would like to turn to our outlook for the first quarter of 2008.

Based upon current trends we are expecting a continuation of good revenue growth in the first quarter, ranging from 15% to 17% in dollars or 7% to 9% in constant currency.

We expect our strongest growth to come out of Europe with our EMEA segment growing between 14% and 16% in constant currency and Italy growing between 9% and 11% in constant currency.

We expect our U.S.

business to be in line with prior year, which is aided by acquisitions in the second half -- which were completed in the second half of 2007, but also increasing business from a few large accounts.

We expect revenue in France to be in the range of 2% to 4% in constant currency, which is slightly below the 5% growth rate in the second half of 2007 as 2008 has started out a little bit slower.

Jefferson Wells revenue is expected to be in line with prior year and on a sequential basis.

We are finally getting to the point where our growth in the non-SOX business at Jefferson Wells is beginning to overtake the declines in our SOX business.

We expect to a continuation of growth in both Right and the other segment with Right growing between 4% and 6% and the other segment growing between 8% and 10% in constant currency.

We expect our gross profit margin to improve slightly over the prior year ranging from 17.7% to 17.9%, reflecting our continued efforts towards higher value business mix.

Our operating profit margin is expected to range between 2.1% and 2.3% and our tax rate is estimated to be 37.5%.

This results in earnings per share range of $0.78 to $0.82, with an estimated $0.08 of positive currency impact.

This assumes weighted average shares outstanding of $81 million (sic) in the first quarter.

Finally, I would like to briefly summarize the year which was a very strong performance for the Company by many measures.

Revenue for the year is $20.5 billion, an increase of 17%.

Our earnings per share for the year is $5.73, an increase of 65% over the prior year.

If we exclude the impact of the French payroll tax change and legal reserve on 2007 and the impact of reorganization costs in both years, our pro forma earnings per share would be $4.89, compared to $3.70 the prior year, which reflects a 32% increase in dollars, or a 23% increase in constant currency.

Now let me turn it back over to Jeff.

Thank you.

Operator, if you could open it up for questions?

Thank you.

(OPERATOR INSTRUCTIONS).

Our first question comes from Mr.

Mark Marcon, RW Baird.

Good morning.

Congratulations on a great year.

Thanks, Mark.

Wondering, with regards to France, can you give us a little more color on a couple of elements?

One element would be, it looks like we've had at least the preliminary approval with regards to the changes in terms of some of the contracts that would inject more flexibility into the overall labor market.

What do you think that impact is going to be?

And then the other question is, what do you think the impact is going to be with regards to Randstad acquiring Vedior, does that create some dislocations that would increase the opportunity for you to gain share and in addition to that, would you suspect that the pricing environment could get even more favorable?

Okay.

So the first one, which I addressed slightly in some of my opening comments is a little hard to ascertain.

So those of you who may not follow it as closely, what basically has happened now for a few months is that individuals and companies are not penalized, if you will, for working more than 35 hours.

In fact, there is some relief when it comes to any of the social charges.

So we're looking at that very closely and we're hearing some clients that would say that they're increasing some of the work and individuals are increasing some of the work that they're performing.

However, when I look at trends and I actually take a trend over all of '07 and I can do that weekly, so if I take a weekly trend over '07 and a weekly trend so far into '08, it's pretty hard to see any kind of bump in there that would say it's caused by that.

However, I want to make sure that people know that I would suspect and I've said it before, there could be some pushdown in our revenue, based on that.

But there's actually some other things going on in the marketplace right now which is there is some caution in the marketplace, so we're getting it in some client conversations regarding using staffing a bit more, so there could be some waiting and what we're going to do is every week we look at that and spend a fair amount of time looking at the implications of it.

But so far, it's really been on the margin and I say that only because I can't see it.

Mike, anything to add to that?

I would agree entirely.

And maybe just a bit more of a clarifying on my comment, we did start the year out a bit slower in France and in fact, the number of temps out on assignment starting out the year was below the prior year in the first couple of weeks.

But that trend has been improving through the month and now we're back at about the rate we were in the fourth quarter in terms of number of temps out on assignment.

So the trend, it's only four weeks into the year so it's hard to say what the trend is, but again, even though we started the year out a little bit slower, that certainly doesn't seem to relate to any changes per se that we're seeing from a regulatory standpoint.

What I was referring to was more the change in terms of the regulations as it relates to the CDI and the CDD.

Yes.

And I guess I could bring it down to say it's still much of the same.

You know, the CDD is something that actually could work to our advantage as looking at CDDs, because CDD is twice the size of the market as is temporary staffing.

So we just have not been able to ascertain.

We're having conversations with clients.

We're hearing about some of these things.

But the fact is we really haven't felt much at all.

Did they change anything that would positively or negatively impact the staffing industry?

Was there any change with regards to vacation allocations or anything along those lines?

Not that I am aware of.

And any changes they make, interestingly, also, will help us on the SG&A side because we employ 5, 6,000 people in France as well.

So right now best answer I can give is we're not seeing it but we think there could be something there but it seems to be pretty minor right now.

And the clients aren't saying this is going to change how we conduct our business?

That's correct.

We're not hearing now we've got a strategy change to the right because of this, we're not hearing that.

That's the main question.

On the Randstand deal, Randstad is a very small player in France so it's really about Vedior, and we view this as we frankly do in most of the territories as an opportunity while there is some challenge in bringing organizations together to talk about our focus, our culture, our strategy and we're looking towards trying to pick up some market share.

We are not going to do that on pricing and I think that in general, Randstad has stronger pricing policies than would Vedior, so could be a positive.

But there's still just a lot of noise in the channel, a lot of noise in the Street without much activity because it actually hasn't even been approved yet by the EU.

Historically when we've seen mergers like this like when Audia and Echo got together initially or Olsten and Adecco, you've historically picked up share, is that not correct?

Right.

Because it's pretty hard.

You have two offices next to each other and you combine them, one plus one does not equal two in the staffing business.

We're aware of that.

We've got our lists.

We know where everything exists and we're going to go after getting more business.

Great.

Thank you.

All right.

Next question, please.

Brandt Sakakeeny, Deutsche Bank.

Hi, Jeff and Mike.

Question on rate.

We've seen a couple quarters of very good performance.

Your first quarter guidance looks good.

Could you add a little color.

Was its the management changing that occurred earlier.

Is it sort of the softening of the economy helping to give you a tail wind there?

That's a really good question.

We have worked now for about three years and I think there's two things that make a big difference.

One, there has been a real structural shift within that business of a lot less people coming into our offices and getting, if you will, full service career transition business, which left us with a tremendous amount of overcapacity and real estate and potentially in some cases consultants.

Over 2006 and 2007, and may even look back to '05, what we've done is refootprinted the business and we also introduced a new product offering that allows you to do things either in our office or in home or in a coffee shop called Right Choice.

Those two elements, so having a better SG&A footprint as well as an innovative offering has really brought forward the profitability and in many cases the revenue enhancement.

When we look at preliminary industry reports in the U.S., the reports which will come out more finalized in the next week or so, we are looking at 1, 2% growth in that market.

So we're not seeing the wholesale thousands of people coming out.

Clearly, it's nice that we have some segments or sectors that are in a little bit more of a strain, so we are servicing them.

But I don't think that this is a -- we're not getting inundated with tens of thousands of sessions at hotels taking people out of businesses.

It just isn't the environment right now.

Right.

Thanks.

That's helpful.

Mike, can I just get a couple quick modeling questions.

Option expense for the quarter?

Actually, I don't have that detailed number here.

I will send that to you.

Okay.

Great.

And then just interest expense for the first quarter and maybe can I get it for the full year?

Your view?

In terms of 2008?

Yes.

Well, clearly, it will depend upon cash flow.

I mean, I think the overall net interest we would be looking in the range in the first quarter of 9 to $10 million, something like that for net interest expense.

And as we go on through the quarter, you know, it will depend a lot upon acquisition activity, share repurchases, but you probably could use something of that nature, at least for your preliminary modeling across the board and then we'll see how it moves from there.

Final question, just share count at the end of the year?

81 million.

Yeah, the weighted average shares for next year is 81 million.

The actual count in shares at year end, I will send that number to you as well.

Congratulations.

Kelly Flynn, Credit Suisse.

Hi, Jeff and Mike.

Couple questions.

Just back to Europe, I guess and France specifically, can you give a little more detail on -- you said you're seeing some signs of caution there.

Is that to clarify, is that economic related, do you think or do you think it's related to some of the secular themes that you mentioned?

And then also, can you just call out certain countries in Europe where you might be seeing more signs of caution on the economy and any color there would be helpful and then I have a follow-up?

Okay.

When we talk about a little bit of caution or softness when we look at the French market, we are really saying more about economically.

What we're hearing from our clients there is we're going to be cautious.

There is a -- now that Sarkozy has settled in, there is a little bit of reality about what is happening in durable goods growth, what is happening in potential GDP growth and those are softening slightly.

When we look at our business, as Mike nicely laid out for you in December, beginning of January and then the end of January and as of last week, we are starting to see that come back closer to the 2007 levels.

So we're basically saying caution just because we're right on the margin.

You don't say caution if you're going from 15% growth to 13.

But when you're at five and you're looking at three or where we guided down just a few percentage points, we just wanted to put some caution in there.

Mike, you want to cover some of the EMEA locations where we're seeing a bit more challenge?

We talked a little bit in Germany, Netherlands, some in Italy.

When you look at EMEA within our businesses, we're seeing very good growth really almost across the board in the quarter and would expect such going into next quarter.

When you look underneath and look at some of the specific markets and the market rate of growth, you growth, we are seeing a little bit of slowing in those markets, in some of those markets, like Germany, for instance, last -- third quarter we were up -- we grew 36% in constant currency.

This quarter we grew 25%.

So you can see the market is slowing a bit.

The Netherlands would be similar.

In the third quarter we were up 17%, this quarter we were up 11%.

Both of those cases I think we're taking some market share.

We're executing very well in those markets but we're also -- while we're still taking some share, we're slowing down as the market is slowing down a little bit as well.

But so I wouldn't say there's -- you would say we're coming off some extremely good growth rates and those are moderating a little bit.

But we're still seeing some good growth in the EMEA market overall.

I want to add also, we're anniversarying some pretty big numbers.

Germany popped in a few quarters, they were in the high 30s, low 40s.

So yes, there is some slowing in there.

We want to really kind of dig underneath the covers and see is it -- how much are we anniversarying, how much it difficult and how much it actually happening in the economy.

Just to follow up on the U.S.

economy, you probably saw during the call, the payrolls are down 17.

I appreciate what you said about this downturn being different, being more driven by mortgage and financials more broadly but to the extent payrolls are a glimpse of the overall economy, it would seem that the weakness has broadened.

How would you kind of position that versus your company?

Would you say Manpower you think has less exposure to financials than subprime read-through than the overall economy does or do you think it's just kind of tough to read the payroll numbers, given revisions, et cetera.

Clearly, revisions are tough.

It's also tough to read the payroll data since I don't have it in front of me.

Right.

Given what you've said, I think it's really interesting because we can do a juxtaposition of that number, which is based on December, and our December.

We didn't see very much difference between December and November if you took out some of the noise of the holidays in there.

I think our view would be, and as I said in my comments, this clearly can affect the labor market and it is.

It's just that it's coming from a little different perspective so we're more of a collateral as opposed to a -- as a leading in this situation.

So we're still not hearing from a core part of our clients, which is still a lot of manufacturing, light industrial, office within the manufacturing, no one's pulling the rip cord yet that we've heard, other than those in few targeted segments and we do not have a lot in the financial services area, particularly in that part of the financial services area.

We do have call center work in mortgage companies and others, but that activity actually tends to be fairly stable right now.

Okay.

Thanks a lot.

Michel Morin, Merrill Lynch.

On Italy, can your margins go any higher in '08?

I asked the question to our Italian operation differently.

I said when will they go higher.

There is some opportunity, but that is a well-performing organization.

The opportunity would come from some blend in business.

Maybe a little permanent, some Manpower professional that we would be putting in there.

When you get a margin at that level, we have some countries performing slightly above that within the EMEA region, but I would hate to put ourselves in a position that says there's a lot of expansion left in that number.

Put the company at that number and I'd be happy.

Right.

Two very quick ones.

In EMEA, looks like a lot of the upside came from the U.K.

and I know you mentioned it briefly in your prepared remarks.

Wondering if there was anything specific that happened.

You went from 1% growth to 14 in the quarter.

And then on the U.S.

I was wondering if you could quantify the impact of the contribution from the franchises, ideally on both but certainly on the top line, if possible.

I'll take the U.K.

The U.K., they're executing well.

We simplified the business.

We restructured it.

We brought some offices in line.

The management team has done a great job in communicating.

The market data there is not out yet but we really think we're on top of a little on the market.

We think that we're going to continue to do that for some time.

So I would say in our U.K.

operation, some of it is the energy and the focus that we have in there.

We also just have not really heard from that client set or our management team there about slowing business, so as we moved into the January and had discussions with them, they're feeling as though it's still pretty good, not robust but still pretty good.

So the U.K.

market doing a great job there.

We are a little bit lower in OUP so we've got to be working on some pricing and balance of business there, increasing Manpower Professional, those are the areas we're working on there.

Mike, you want to talk about the effects and -- ?

Sure.

So the U.S.

business was down about 8% on a reported basis, if I remove the acquisitions, the franchise acquisitions, we would be down about 14% on an organic basis.

Now, one element in that 14%, we did have one large account that moved its business in-house, if you will.

We didn't lose the business to a competitor but they moved their business in-house and if I take that out, we were down about 10% year on year on an organic basis.

So that's probably a bit more of a realistic number.

For third quarter were down about 9% year on year, so effectively the fourth quarter looked a lot like the third quarter, just from a trend standpoint.

And then these moving items impact the operating profit line, I'm just noticing the margin being down quite a bit.

Right.

Right.

Yeah, in terms of the operating profit side, from a profit standpoint, there really was very little impact at all and also from a margin standpoint.

What you're seeing in the U.S.

effectively is the operations fundamentally are strong.

What we're seeing is a bit of what I'll call normal deleveraging with some of the top line contraction.

Effectively, that was occurring through the course of the year.

It just didn't show up at the operating line because we had fairly significant gains in the first three quarters of the year on the gross margin line.

As you certainly will recall, we're picking up very good gains from state unemployment tax and workers' compensation and those gains came on the gross margin line and we're starting to anniversary those in the fourth quarter.

So in the fourth quarter, gross margin line, we're only picking up a little bit from workers' comp and state unemployment and therefore it's not offsetting some of the delevering that is occurring on the overall expense base.

Certainly the U.S.

business is managing expenses very carefully.

They're driving productivity very hard.

But when you have this level of contraction, there is an amount of delevering of the business because we're not going to go out and do a wholesale closedown of offices or anything like that.

So that's what you're seeing there.

Okay.

Great.

Thanks very much.

Thanks, Michel.

Allen Zwickler, First Manhattan.

First and foremost, you guys are doing a pretty good job.

Nice to hear from you.

I like to keep my comments occasional.

All right.

We got to make sure your head can still go through the door, right?

Come on, Allen.

Having said all of that, what is your mix of business today in U.S.?

I mean, maybe it's appropriate, given what's gone on to just maybe spend a moment or two just to understand what that mix is and whether some of the clients in the U.S., you're getting some big international business, which offsets the fact that you have to be in the U.S.

I mean, if you wouldn't mind maybe just giving us a little color on that, because that might help the overall picture.

There's a couple different ways to look at mix and I think it's best for Mike to handle some of that.

But we look at mix in kind of two different dimensions.

One is the types of services that we are providing with Manpower Professional and some of the Manpower business solutions side of it and then we look at the classic part of the business and the other mix we look is what is being skewed or which skewing do we have, if any, regarding what we call strategic clients and then small, medium sized businesses.

Mike, if you could put some color on some of that?

Sure, sure.

In terms of strategic clients, we probably still have about 55% in that group, and about 45% which would be more the small, medium businesses.

And that has stayed fairly consistent over the last year.

The growth rates in both those have kind of bobbed and weaved a little bit but no dramatic change.

We have roughly 20% would be on the professional specialty side within the U.S.

market, 35% would be more traditional office, clerical and about 45% would be industrial and light industrial business.

So that's how the mix overall changes.

Perhaps the other -- that's covering the staffing side of it.

The other point I would make is on the permanent recruitment of course has been much more of a core strategy to the U.S.

business, as it has been for the company overall and today, about 8% of our business mix is on permanent recruitment.

That's -- I should say about 8% of gross profit margin in the case of permanent recruitment.

And just one other quick item.

And I may have missed this.

What did you say your growth rate was in Asia in general and Japan?

I think you said it but maybe you midwesterners talked a little too fast for me.

Maybe I didn't slur my words well enough for you New Yorkers.

We had 12% in growth in U.S.

dollars in our Japanese organization.

8% constant currency.

We had 10% constant currency growth for the segment and 17% U.S.

dollar growth for that segment as well.

And have you broken out how large Japan is at this point?

Japan would be --

Roughly.

Annually, they would be running at about 800 million.

They're roughly 5% of the company overall.

Thanks, guys.

Just under.

Thank you.

Thanks, Allen.

Gary Bisbee, Lehman Brothers.

This is [Brian McGuire] on for Gary.

A couple questions.

On the other operations, I was -- last quarter I think you talked about China and India having about 60 offices in each country.

I was wondering if you could update us on progress, building out the infrastructure there.

Yeah, what we've done in both of those, and those offices are right now marginally about the same, we're opening some in China and what would be called Tier 2 cities.

What we're really doing right now in China is adding to those offices, adding staff, looking at productivity.

As you can imagine in China and India, there really is a talent shortage for the population that we are looking at placing, which is more of the skilled engineering, IP, managerial.

So what we are filling in our footprint slightly, but I think the bigger expansions that we're doing is with staff within the current footprint.

Okay.

And then on that note, have you been able to make any progress with the -- recently you got the authorization to provide temporary staffing services in China.

Can you give us an update on how the transition to that sort of a business is going?

Well, we are interested in that business and we are expanding that part through those same offices.

We are going to be careful so we do not get into environments where the margins are so low, because we would be competing against state-owned companies.

So yes, we think that there is good opportunity.

I mentioned in my comments that new law providing within the staffing industry is a little bit of a slow uptake, primarily because the bench model mandate.

We are ready to do the bench model mandate and actually endorse it.

We are still seeing good growth in China and some very good prospects.

Just one more.

Back on Italy, I think last quarter you mentioned the strong margins there were partially -- were largely a result of the mix of small clients versus large clients.

Is that still the case for why the margins are strong again this quarter?

And if so, do you anticipate that mix staying pretty constant as it is now or seeing some shift back to large clients?

We would see that mix being constant.

That's really a depiction of the Italian market which is filled with a lot of very strong medium sized businesses and maybe not as many large, multi-nationals.

So we don't really see that mix changing.

That is our emphasis.

In Italy also, we have a very process and a much more of a refined process, based on the client set and based on us which allows us to really leverage our gross margin dollars much more, so our net to gross percentage is very high because we're able to have a very streamlined process in Italy.

Okay.

Great.

Thanks, guys.

Thank you.

Last question, please.

Jeff Silber, BMO Capital Markets.

Thanks for letting me sneak in.

You mentioned the impact of some of the acquisitions in the fourth quarter.

Can you tell us what you're looking for in terms of first quarter guidance excluding acquisitions and do you think you'll be repurchasing more franchises during the course of 2008.

I'll handle the repurchasing.

I think that there are several of our franchises who we have been working with and will be doing acquisitions.

We consider it to be the right thing to do for them and us.

There are other franchises who are performing extremely well and we love them to death.

But I think you'll see in 2008 additional franchise acquisitions.

Yep.

And then in terms of the first quarter, I would expect a similar impact overall on the fourth quarter, about 6%.

I would anticipate that the acquisitions are going to add 6 or 7%, so in our guidance which was flattish, that would indicate that on an organic base social security, we look to be down roughly 7% year on year without the acquisitions.

So slightly better than the fourth quarter.

We do have a pipeline of some business that's coming in that looks pretty strong with some -- a few of our larger accounts, so that's how I would characterize the first quarter.

Great.

Then just a follow-up.

Shifting back to the side of the business, I think you said it was 80% in gross profit.

Can you tell us what that is in France and are there any other regions where it represents a disproportionate amount of your business?

Thanks.

Sure.

In France, of course France was legalized in 2005, so we're still on the early stages.

But it's been growing quite nicely.

As Jeff mentioned in his call for the year, it's been up 72% in constant currency so it's getting some real traction there.

Now as a mix, as a percentage of gross profit in the fourth quarter, we're at 5 -- just a hair over 5% overall.

Compared to the other -- Manpower on a consolidated basis in the fourth quarter was at 11%.

Perm was 11% of overall GP.

EMEA would be mid-teens and our other operations would be in the upper teens and that really has to do with two factors, Australia, we do the work for the defense force there which is a a lot of perm recruitment business and then also within China and India, those today are more permanent recruitment type markets.

Is there any area where we'll continue to see that increase as a sizable area besides France?

I think there's good opportunity really across the company since we're still in the early stages here.

Certainly the U.S.

market has a lot of continued potential.

Overall, we've set as kind of a rough target or guideline for the company that we would have about 15% of our gross margin would be coming from perm recruitment business.

That may not be 15% across each of the segments but that's the overall target and generally we think there's good opportunity across the marketplace for that level of business and certainly clients are looking to us to provide that value.

Okay.

Thanks so much.

In fact, I would add to that, Jeff, that the numbers are still coming in but I think it would be safe to say that we'll be slightly over 150,000 people that we placed in 2007 through our permanent recruitment business.

So it's of size and we built it quickly and we're looking at that 150,000 saying now we're much more relevant to our clients.

We have a good balance of business and we definitely plan on continuing to grow that.

So thank you all for attending the fourth quarter full year conference call.

As usual, if there's any questions we are available.

Thank you.