ManpowerGroup Inc (MAN) 2008 Q4 法說會逐字稿

Welcome, and thank you for standing by.

(Operator Instructions).

Today's conference is the Manpower's fourth quarter earnings conference call.

I would like to turn the call over to Jeff Joerres.

Sir, you may begin.

Good morning, and welcome to the fourth quarter and full-year conference call for 2008.

With me is our Chief Financial Officer, Mike Van Handel.

Together, we'll go through the fourth quarter results.

I'll spend some time reviewing the dynamics of the market, where we see some of the trouble spots, and then we'll get in to a little bit more detail on the segments.

Mike will then discuss the items that have been affected on the balance sheet, as well as any kind of cash flow items.

Before I move into the call, Mike, if you could read 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 & Exchange Commission filings of the Company, which information is incorporated herein by reference.

Thanks, Mike.

The fourth quarter ended about as we anticipated during our December conference call.

Now, we did see large amounts of plant shutdowns that dramatically affected the outcome of the quarter.

In addition, we continued to see eroding markets, reduced industrial production, as well as reduced consumer confidence and business confidence, and of course the shakiness in the banking system.

All of these are weighing heavily on our business.

However, as you would expect, our (inaudible) transition business is going gangbusters.

On an additional positive note, our brand is the strongest it has ever been.

We're getting great feedback from our clients and prospects regarding our offerings.

In fact, we have recently won two significant tenders at the right price.

Other discussions we are engaging with, with several large global and national companies, are far more than what we had just two months ago; and in fact, we see this as a real advantage.

Much of this is based on our network, our trustworthiness and our experience.

Clients are asking for more sophisticated offerings, and we can deliver that.

As difficult as this period may be -- and while we do have some adjustments that we will be needing to make -- we will not dismantle our organization.

We are actually excited in some ways about the opportunities that this environment can bring us.

In the fourth quarter, however, we did experience deleveraging based on the declining line as we progressed throughout the quarter.

Now, we have taken action; however, we are not going to take action that would have a high risk of deteriorating our network to the point of degrading any kind of service or value that we offer our clients.

In the fourth quarter of 2008, we achieved revenue of $4.6 billion -- up(Sic-see press release) 18% in US dollars, 10% in constant currency.

We experienced some of the largest declines in revenue in France, Italy, and Spain.

Our gross profit was $954 million, or 20.8%.

This resulted in an operating profit of $149 million or 3.2%.

Net earnings were $79 million, or $1.01 per share.

Adjusting for several one-time items, our operating unit profit was 2.7% -- right in the middle of the guidance range we gave earlier -- and underlying earnings were $0.89 per share, which includes $0.10 of unfavorable currency impact.

The fourth quarter did have a few items that were unusual in nature, and I thought it might be best to highlight those right now.

It involved the reorganization charge of $37 million or $0.35 per share, which included the consolidation and closing of approximately 200 offices of our 4,500 offices.

The spread of those offices were across several geographies; no one geography was injured because of this reduction in network.

We have rationalized our footprint without impacting access to our offices for our candidates or presence in a market where a client would want us to be in; and also, with an eye on maintaining this valuable asset of our network, which will benefit us immensely on other side of this downturn.

In addition to the offices, we reduced our staff costs throughout the organization.

We removed almost 1,700 people from the organization.

In addition to the restructuring charge, we had a positive impact from a business tax refund in France of $48 million, which had a favorable impact on earnings of $0.36.

We also had a positive impact from recoverable 2005 payroll taxes in France of $15 million, $0.11 per share.

On a full-year basis, we had record revenues.

As you recall, in the first half of the year we still had momentum in our European segment, our largest segment, which helped us drive a razor-thin increase of .5%(Sic-see press release) in constant currency, or 5% in US dollars, to $21.6 billion.

System-wide sales, which include sales of our franchise offices, came in at $22.7 billion.

Our gross profit for the year increased by 2% in constant currency to over $4 billion.

480 million of that came purely from Permanent Recruitment gross profit, which improved our overall gross profit percent on an annual operating profit, which was impacted by a number of one-time items, declined 38% to 509 million, down 43% in constant currency.

Our earnings per share declined 52% to $2.75.

If we exclude the one-time items of reorganization costs, recoverable 2005 payroll taxes, the business tax refund, the impairment charge and legal reserve, our underlying earnings are $4.75, which includes $0.37 of favorable currency impact for the year.

Given the difficulty of the economy and what we have experienced, our mix of business, which has improved but still skewed towards industrial, and some of our largest customers in France -- being automotive OEMs -- the declines are right in line with what we were anticipating.

As we move into the first quarter, we continue to see the impact of the deterioration in the fourth quarter spilling into the first quarter, and most likely beyond.

As you know, the first quarter for us is a seasonally weak quarter, and we will be doubly difficult because of the dramatic drop in the economy and its impact on the labor market.

Let me spend just a few minutes on our gross margin for the quarter -- which was as I mentioned earlier 20.8%, more than 200 basis points improvement over 2007.

This was positively affected by our pricing and geographical diversity, as temporary gross profit margins were up 72 basis points.

Additionally, we are seeing a positive effect from the stronger growth and increasing gross margins in Right Management, which is doing extremely well in this market.

The balance of the increase was comprised of the two nonrecurring tax items in France.

Throughout the quarter, we continued to see deterioration in many of our markets, and stabilization in some.

Some of the largest deteriorations came in France, Germany, and Italy.

We saw some stabilization in Japan and the Netherlands.

The US also took a step down in the quarter, partially because of the softness around the holiday time, but as well as this continued weakness in manufacturing.

As we look at the current trends in revenue, we project a difficult first quarter.

First quarter revenues are even more difficult to predict because of the shutdowns and the slowness in bringing those closed facilities back; therefore, we see revenues down in excess of 15% in constant currency, or in excess of 20% a reported basis based on our current exchange rates.

Given the current environment, this is the best information we can give you, and we believe it would be cavalier of us to use such limited visibility to guide to an earnings per share range; therefore, we will not be giving you an earnings per share guidance for the quarter.

Moving on to our US business, the US business continued to be challenged in this difficult environment.

This is the 10th quarter of negative organic revenue growth, which creates a strain on the operating unit profits because of the deleveraging.

While we have made some adjustments to our network, our network remains strong, and we will continue to be creative in maintaining this valuable asset.

We are anticipating our fourth quarter revenues were to be down about 2 to 4%, and they came in slightly weaker than that at minus 5%.

On a organic basis, revenues were down 15% in the quarter, which is weaker than the 10% down we saw in the third quarter.

Our operating unit profit was down 97% due to the deleveraging impact, with a small profit if you exclude the $2.4 million of reorganization costs.

Our Permanent Recruitment business was flat with prior year, but down sequentially 22%.

We are still seeing activity in Permanent Recruitment; but as you can imagine, it is much slower and sporadic, as our clients are trying to adjust their workforces to the current environment.

January is off to a slow start.

Year on year weekly revenue growth trends improved as we made it through the first month, but we are currently running about 17% behind prior year.

Permanent Recruitment is also running down in excess of 50% on a organic basis; therefore, we are not disillusioned that the first quarter will be a trying quarter for our US operations.

Manpower Professional in the US continued to see relatively better trends compared to the Core Staffing part of the business.

Revenues were down 3%, and we secured some very substantial wins in the quarter; therefore, while we will still see some draining off of the IT in engineering and many areas of our large accounts, there is a chance that some of that can be substituted with the new business at good margins, therefore stemming the tide a bit in Manpower Professional that we've seen over the last 90 to 120 days.

Our French operations revenue came in at $1.4 billion, down 28% in US dollars, 21% in constant currency.

Our gross profit percentage was up on a year-over-year basis, as our pricing is strong -- in fact, maybe slightly too strong.

Demand our services declined substantially, since 70% of our business is associated with industrial production.

As you may know, industrial production in France has been declining dramatically over the last few -- several months.

Additionally, we lost almost all of our contract employees at Peugeot and Renault in the fourth quarter, which put additional strain on the revenue and profitability numbers for the quarter.

Our operating unit profit was down 28% in constant currency, after excluding the nonrecurring items in both years.

The French market is a difficult environment; and given the precipitous drop in revenue and our current outlook, we expect to see further pressure on our operating unit profit margins.

We are consolidating offices in France, particularly in the Paris region where we've had several offices within sight line of one another.

We were able to consolidate several of these offices and specialize them by skills, like IT or sales and marketing, making it less confusing for our candidate and more efficient for us.

We were on the path to do this regardless of the difficult environment, but of course we accelerated our plans given this environment.

We have not seen any improvement, really, in January; in fact, the market has deteriorated slightly further, with revenue being down about 30% in January.

Our Permanent Recruitment business in France was also affected.

The market in France is still a relatively good market for recruitment; though if the consumer confidence and business confidence continues in this direction, we would, of course, see further pressure on the Permanent Recruitment business, as well as our Core Staffing business..

We have -- we are having several conversations with key clients regarding innovative ways to help them in this downturn; and some of the discussions are focused on our Manpower Business Solutions Business, which is very exciting for us.

As you may have seen in a press release yesterday, the Competition Counsel in France has decided to levy a fine against us and our competitors for anti-competitive conduct in 2003 and 2004.

Based on the facts in the case, we believe the fine is unwarranted, and we plan to appeal with vigor this decision.

In the meantime, we will be required to pay the fine of EUR42 million.

This amount has been fully accrued for, with reserves taken this year and in the fourth quarter of last year.

Our Other EMEA segment revenues declined 4% in constant currency,19% in US dollars -- a dramatic slowing compared to the 8% constant currency growth that we experienced in the third quarter.

On a full year basis, revenue was up 8% in constant currency, to a record $7.4 billion for the Other EMEA segment.

As you'll recall in the first half of the year, in constant currency growth we grew 16%, so it's been a very rapid decline in the fourth quarter.

We have seen this for the most part across the board, with the largest declines coming from: Spain, down 34%; the UK, 12% down in constant currency.

Elan continued to grow in constant currency, up 3%.

Elan finished up 26% at 1.3 billion of revenue.

Brook Street was also up at 7% for the quarter, and finished up 10% for the year.

While Sweden was down 11% in revenue and more than that in profitability, it is a country where we have some tail of responsibility to our contractors if they are let go of a contract prior to the agreed termination.

The German market was down 8%; the Dutch market was up 19%.

On an organic basis, the Dutch revenues were down 6%.

As we look to the first quarter for our Other EMEA segment, we will see further weakness, as we have not sensed any stabilization.

Recently, we have heard slightly more positive news coming out of Germany because of the stimulus package that has been put in place.

(Inaudible) sense is that the sentiment will soon reverse back into a more realistic view until the stimulus package has time to filter through the system.

Gross profit in Other EMEA was slightly up over the prior year, primarily as a result of some social security tax credits in Holland.

Permanent Recruitment business was down 19% in constant currency; but so far, we have been able to maintain our pricing.

Our view is that we will keep our price discipline, but we suspect we will be feeling more market pressure as we move throughout the year.

In Italy, our revenue was down 26% in US dollars -- 18% in constant currency -- to $301 million.

Italy finished the year up 9% in dollars and 1% in constant currency.

The gross profit was well-maintained, and in fact increased slightly, though we were anticipating some pressure on pricing with Italy, as we've seen in other countries.

In Italy, we are making minor changes to our footprint.

Our operating unit profit was down 28% in US dollars and 21% in constant currency to $24 million, an operating profit margin of 8.1%.

We finished this year with operating unit profits of $120 million and a 7.9% operating unit margin -- a very good year despite the weakening market conditions.

Italy is primarily made up of small, medium-sized businesses, and much of them manufacturing.

We are seeing this slow down in the Italian marketplace.

However, because of the nature of the small, medium-sized businesses, we are hopeful that we may not see too much more deterioration in that marketplace.

However, in these uncertain times, we would not be baking stability into our current forecast, but are anticipating some leveling off at a slightly lower level over the next two quarters.

Jefferson Wells continued to see revenue decline, down 22%.

Much of this is based on companies not wanting to do anything that is considered discretionary in this economy.

Revenues were at $64 million, and it put tremendous pressure on our operating leverage, which resulted in a loss of $14 million.

We have made several changes at Jefferson Wells, and will continue to monitor those changes to see their effect on the cost basis, as well as on revenue.

We will also continue to explore our model to ensure that it is relevant given the current economic environment.

Moving on to a bright spot, it's Right Management, with revenues up 20% in constant currency to $123 million, and profitability up 50% in constant currency to $17 million.

Our gross profit margins continued to increase.

Our deferred revenue and backlog continue to increase, and our market share continues to increase.

The decisions we made and the moves we made regarding Right Choice -- a new offering in the marketplace -- refootprinting to a downsized, much more realistic real estate footprint, is paying off handsomely and will continue to pay off in greater numbers as we move in to the first and second quarter.

We're also continuing to focus on our organizational consulting services; clearly, assessment leadership, development, and coaching is under more pressure given the current environment.

However, we are still getting positive feedback from the market.

Several companies are having initial conversation about positioning themselves for the other side, as they have stripped out so much of their capabilities within the organization.

We believe it gives us a very good opportunity to leverage the organizational consulting portion of Right in a very positive light.

Our Other Operations segment, revenues were up 1% in constant currency to $710 million.

However, because of the deleveraging in several markets and investments in emerging markets has put pressures on this segment, operating unit profit was only $2 million for the quarter.

Revenue was stable in Japan, but gross profit and operating unit profit were down, primarily due to the increases in Social Security costs for our associates that we were unable to pass on to our clients in the current market environment.

Currently, there is a tremendous amount of public pressure on the contracting business in Japan, as there has been some tragedies within the temporary contractors -- exclusively really in the day labor market, which we are not in.

This has caused the Japanese market to pause regarding their enthusiasm for the contingent staffing industry.

Our team there, led by Darryl Green, has done an outstanding job of being the voice of the industry, and we believe that Japan holds some very good long-term secular trends for us.

And in fact, the stabilization that we have seen in the last few weeks would say that the first quarter could show some signs of stabilization in the Japanese market.

We saw a decline in China of 18% and a growth in India of 31%.

We will continue to monitor these emerging markets, and have added a new emerging market, Vietnam, as we just received the appropriate licensing and are eager to participate in that market.

Our Middle East operations are feeling the pinch as well, particularly Dubai, from the real estate market and the lack of liquidity.

We are as optimistic as ever about how we will be able to approach this market.

We are trimming some of our investments plans just to make sure that they are in sync with the marketplace, and until we have some more visibility on the marketplace.

The fourth quarter of 2008 was a difficult quarter for us.

I do not say this lightly, but we are undaunted and confident about what we are able to do in the future.

That does not mean that we are not making difficult decisions and that this isn't a difficult time.

It is, and it will become more difficult; however, our balance sheet is an important part of our confidence, s we continue to grow our cash position and have very secure lines of debt.

Our pricing continues to hold, and our team of 33,000 people around the world is the best they have ever been.

They have managed through recessionary times before, and they will view this environment as an opportunity to further strengthen the Manpower brand and take market share from our weaker competitors.

With that, I would like to turn it over to Mike to give a bit more color on the financials.

Thanks, Jeff.

I would like to begin today by discussing cash flow.

As I've discussed previously on these calls, while earnings may come under pressure in a weakening economic environment, our cash flow is expected to be strong due to the liquidation of accounts receivable.

This certainly was the case in the fourth quarter.

On a full-year basis, free cash flow, defined as cash from operations plus capital expenditures, was $699 million, which is more than double the prior year free cash flow.

Our free cash flow for the fourth quarter alone was $320 million, which is almost three times the prior year amount.

This increase in free cash flow is primarily attributable to the liquidating of accounts receivable due to slowing revenue trends.

During the quarter, our accounts receivable decreased by $660 million to $3.6 billion.

Some of this reduction is seasonal, and some is due to currency; but a big part results from slowing revenue trends.

Our Company-wide DSO remains in good shape, and is down four days from the third quarter.

On an aggregate basis, our accounts receivable portfolio is well diversified and of good quality.

Our bad debt provision for the year is $23.4 million, which is up only 5% over the prior year in constant currency, and is only 0.1% of revenues.

Also benefiting fourth quarter cash flows was the business tax refund that Jeff discussed.

We used cash of $125 million for share repurchases that were completed in the first nine months of the year.

We currently have one million shares available for repurchase under our current authorization; however, we discontinued purchasing shares in September, as we are focused on maintaining strong liquidity.

Cash used for acquisitions was $242 million, most of which came in the first nine months of the year.

Of this amount, $120 million was used to acquire Vitae, a specialty professional services firm in the Netherlands; and the balance was used primarily for US franchise acquisitions.

Now let's turn to the balance sheet.

Given our strong cash flows, cash increased to $874 million at quarter end.

Our total debt decreased to $953 million, bringing our net debt down to only $79 million.

While our balance sheet and liquidity remains strong in this environment, I thought I would spend a few minutes reviewing the detail of our credit facilities.

Of the $953 million of total debt, $697 million was comprised of two Euro notes which mature in 2012 and 2013.

These notes have fixed interest rates until maturity, but are below 5%.

Our revolving credit facility allows for $625 million of total borrowings, of which $140 million was drawn as of quarter end, leaving an additional $482 million of availability.

The amount drawn reflects a EUR100 million borrowing, which has been swapped in to a fixed interest rate of 5.71% until 2010.

This facility matures in November of 2012.

It has two financial covenants, a debt to EBITDA ratio, and a fixed-charge ratio.

Under the first ratio, we are required to maintain a debt to EBITDA ratio of less than 3.25 times on a trailing 12-month basis.

We currently have significant room under this covenant, as our ratio is 1.2 times at the end of the fourth quarter.

The fixed charge ratio requires us to cover rent and net interest expense by two times or more.

We also have room under this covenant, as our ratio is currently at 3.4 times.

We also have a one-year accounts receivable securitization program, which matures in July of 2009.

We currently have $64 million drawn on this facility.

The interest rate under this facility is variable, and it is set at the time of each issuance.

In addition, we have $52 million outstanding under various uncommitted credit and overdraft facilities that are at our subsidiaries.

These facilities are at various interest rates and various maturity dates.

Currently, there is an additional $325 million available under these lines; however, our total borrowings under these lines are limited to $300 million.

So as you can see, our capital structure remains solid, and I believe we have the financial strength and liquidity to effectively manage through the economic turbulence.

This gives us a unique competitive advantage, as many of our smaller competitors could go out of business, creating market opportunities for us.

Additionally, in times like these, our clients are looking to partner with someone they know has the strength to provide services for the long term.

That also is a real advantage for us.

Now let me take a few minutes to recap the year.

As you heard throughout the call, there were a number of unusual items impacting our reported results.

If you take a step back and look at our underlying earnings and cash flows, I believe the Company had a strong performance during the year, especially when considering the weak economic environment in the second half.

Earnings per share without nonrecurring items was $4.75, a decrease of 3% on revenue growth of 5% to $21.6 billion.

Our liquidity increased markedly, with free cash flow of almost $700 million for the year.

Normally at this stage of the call, I would give you detailed revenue guidance by segment and overall earnings guidance.

Given the extreme difficulty in forecasting client demand for our services in this environment, we have decided to temporarily suspend that practice.

As Jeff mentioned earlier, given the December trends and the trends we have seen so far in January, we do believe revenues will be down in excess of 15% in constant currency in the first quarter.

While we have taken several actions and expect to take further actions to align our cost base with the demand for our services, you expect that our operating profit margin will come under pressure due to the deleveraging of our fixed costs.

With that deleveraging, along with the first quarter being seasonally the slowest quarter of the year, it is likely that we will report a loss for the first quarter -- again, depending upon revenue trends on a market by market basis.

At this point, however, I would expect that we would return to profitability in the seasonally stronger second quarter.

I should also note that I expect free cash flow to be positive in the first quarter before considering the EUR42 million payment for the French competition case.

The last thing I would like to mention is that we anticipate a realignment of our reporting segments starting with the first quarter of 2009.

Given the organizational changes in management responsibility, we expect components of the Other Segment to be combined with the US to comprise an America segment, and the remaining components will be reported as Asia-Pacific.

Naturally, we will reclassify the historical data when we report our first quarter, so that those of you who are maintaining models can update them accordingly.

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

Thanks, Mike; and with that, we'll open it up for questions.

(Operator Instructions).

One moment for the first question.

Our first question comes from Mark Marcon with [Baird].

Your line is open.

You may ask your question.

Good morning.

I was wondering if you could give some clarification, Mike and Jeff, with regards to just the expectation for loss in Q1.

Is that inclusive or exclusive of any charges?

Are you just talking about that as an operating loss?

Yes, Mark, good morning.

That really is -- just looking at it as an operating loss, as we look at trends as we see them today, of course.

Those trends can change, but we don't see any dramatic change probably coming over the next couple of months.

So as you know, the first quarter is quite a seasonally low quarter for us, so there's only so much we can do with our expense base.

I clearly expect expenses to be done sequentially from the fourth quarter into the first quarter, and I also expect expenses to be down given some of the reorganizational moves we have made on a year on year basis.

But just given the low seasonal quarter, I think that will result in a loss in the quarter; and as I said in my prepared remarks, I do expect to return to profitability in the second quarter, as typically the second quarter, of course, seasonally things pick up, and our gross profit contribution will go up sequentially in the second quarter, and we will not have to add, really, too many more expenses to support that higher gross profit, if you will.

And Mark, this is Jeff.

I just want to add one other thing, which is, as I think you can appreciate, one of the challenges in looking at this is where revenue may be off a little bit more depends an awful lot on then how it creates an OUP ripple affect, because where we have countries that have already deleveraged quite a bit, we have taken out cost.

If those countries tend to lose a little bit more revenue, there is not as much you can do to do that, if what we do is, as those kind of stabilize a bit more and some of the others do it, then we are in a different category.

But we wanted to make sure that all of you understood that in an environment like this, when you look at some of the deleveraging that has already happened, we are very comfortable that we are keeping our network -- we've made some changes to it -- but we want to keep our network in place, and not worry too much about the seasonally low quarter to try to manage that to profitability when we would rather be looking at, you know, two, three, and fourth quarter.

Sure.

Can I just ask a quick follow-up?

Can you just talk a little bit about the charges that you took in Other EMEA and Jefferson Wells, and what the anticipated benefits of those could be, or exactly what the restructurings did and what the -- what the expense savings would ultimately end up being, so that we could get a better sense for how much revenue could decline, and you could still go back to generating a reasonable level of profit?

What I want to do is, I'll just start with in general in the highest level of restructuring, and then Mike can give a little bit more betail.

We looked at the restructuring in a very focused way, and we said, okay, there are offices and others that we have to take care of in order to make sure that our presence is there; and then we actually went and looked on a location by location basis across the 80 countries and 4,500 locations, and said what we want to do is to do some legitimate consolidation.

As I mentioned in my prepared remarks, the best example would be in Paris, where you might have some, literally, in sight line of others, and we think we can operate more efficiently in an office of eight to ten people, instead of two or three offices with two to three people.

We then said, let's take a look at this and see how we can do this without having one country suffer a massive blow to the network, because we believe in the network.

So that was the premise of it; and then, Mike, you may want to put a little bit more color on it from there.

Sure, sure.

Just to recap, Mark, our overall restructuring charge in the quarter was $37 million; and as we mentioned on the call, it did impact each of the segments to some extent.

Of that $37 million, about $20 million of that relates to severance cost, and about $17 million relates to office closures, which were slightly in excess of 200 offices, or about 5% of the overall network.

You know, when you look at cost savings, certainly, we will more than exceed this from a run rate basis of -- very quickly in terms of savings, so that return will come back to us; and very quickly, as savings -- as we go out through the year.

I think the other important thing is, there are certainly other cost moves we are making as well, both just on each of the non-personnel costs, if you will, as well as attrition; and we're not -- we're not necessarily -- in many cases we're not replacing people as they are leaving the organization, so we are able to adjust our cost base without associated restructuring costs.

So while we do have some restructuring costs in the quarter, and that will result in substantial savings going forward, there are other moves we are making as well.

Thank you.

Our next question comes from Andrew Fones, UBS.

Your line is open.

You may ask your question.

(Inaudible) from the restructuring, and how much of that was seen in the fourth quarter, please?

Thanks.

Andrew, I didn't catch the first part of your call, if you could try one more time, please.

Yes.

I was wondering what the annualized cost savings were from the restructuring you took in the fourth quarter, and how much of those savings you actually saw during the fourth quarter?

Thank you.

Right.

Right.

Yes, I think we covered the first part of the question with what Mark had to say.

In terms of that savings coming through in the fourth quarter, really, minimal savings specific to that restructuring.

Really, the fourth quarter was about making the reductions and getting alignment, and to some extent, not all of the savings will come immediately in the first quarter as -- in some of our markets, certainly European markets, it takes a little bit longer on the people side to get things in place.

Okay.

Thanks, and then the 70 basis point increase in the growth margin, I think you mentioned that the -- that in the Dutch market you saw Social Security tax credit.

Should we expect that trend to continue, or would you expect the gross profit to revert to prior levels?

Well, certainly those credits did help the overall gross margin year-over-year, not -- certainly not to the full 70 basis points that you identified on the schedule.

I think when -- even when we take those credits out, we still are seeing overall positive increase on our temporary business on the gross margin line.

Certain markets we're seeing stability on pricing, and there are certain markets where we're actually seeing some improvement based upon some the mix, and some of the initiatives we continue to drive; but there are some markets where we are starting to see a little bit of pressure on the overall gross margin as well -- just at the beginning stages, which would not be unusual in this type of marketplace.

Yes, I -- this is Jeff -- I just want to time in -- chime in.

You know, we have been very disciplined in our pricing.

I think if you look at our year-over-year gross margin percentage, you can see that kind of discipline, even taking out some of the one-times.

You know, at a time like this, it is the balance that's just right.

You know, a real good example is -- you know, we have a very good understanding of, for example, the French market, market share within the French market, and we are trailing market share right now in France; and I think it really has to do with two things, is we have held on to price in a much more stingy way than our competition, and we are probably losing a little share.

In addition to that, we have a very large contract in number of people -- or used to have a large number of people at some of the automotive.

So we are going to review our pricing, but I don't want that taken out of context.

We're not reviewing it to start diving; we'rer reviewing it to just make sure that we have it right in balance, and are staying relevant, and kind of, if you will, surgically take the right opportunities.

So we're talking about that, but we're talking about it with the cautiousness of making sure that we don't remargin the industry, even though in France there's a major competitor who is getting very price aggressive, and in the US there are some in a few other markets.

So we're going to hold on to that, but we're also going to make sure that we take the right approach to it.

So our gross margin, I think, has helped in this quarter.

We'd like to see a maybe -- you know, we would take a slightly less gross margin and a little bit more revenue, but we're going to be working on that over the next probably next two to three quarters.

Okay, thanks.

Yes.

Our next question from Phil Stiller, Citigroup.

Your line is open.

Hi, thanks.

This is Phil on for Ashwin.

I just wanted to clarify that he 15% guidance or guideline for first quarter revenue, that's the year-over-year number?

Yes, so it's year-over-year -- and just to let me clarify, in the prepared remarks, we said we would expect at least -- revenue to be at least 15% down in the first quarter, and, you know, I would maybe add to that, that likely in constant currency could move closer to -- towards 20%.

If you look at what we saw, December clearly fell off.

Our overall contraction on an average daily basis in constant currency in December was down about 15%, which is why we did the call right before Christmas.

Certainly, what we saw is further deterioration in many of our markets coming through in January, so things did step down a little bit.

That said, we're seeing -- at least at the moment, the last several weeks -- in many of our markets, some stability in the contraction rate, if you will; meaning that the contraction rate over the last few weeks hasn't become worse, if you will, so there are some signs of stability.

Whether it steps down from here, only time will tell, or whether -- whether we start to see some improvement, but at least for the moment, things seem to be settling in a little bit.

So my sense would be -- you know, we haven't rolled up January yet, it's still early days in February -- my My would be we're going to see overall constant currency revenue growth in the -- for January, probably approaching 20% down year on year, something of that order.

And when you put that into dollar reported terms, we're probably looking at something like 7 to 9% worse than that just because of where the Euro and the pound have been trading.

The Euro right now is trading about 14% off of where it was a year ago, and the pound is even worse than that; so we're getting that -- we'll have the currency impact as well that will impact the first quarter.

And January has just been a very difficult month to look at trends because there were a lot of slow startups.

In Italy, many of the manufacturing companies didn't come back until the 9th or 10th -- some of the same in France.

The US was extending it.

So we really think for us to get a little bit better read on the first quarter, we would really like to look at the first two weeks of February, which has a little bit more of a truer picture.

So, you know, that will give us a better picture; but right now, as Mike had said, we're looking for it in the range that he had suggested.

Okay.

And then just moving to cash flow, can you guys talk about where your expectations are for the seasonality of cash flow, and then cash expectations for 2009?

Sure.

As I said earlier on the call, you know, in slower revenue times, certainly cash flow is -- becomes more positive.

The first quarter and first half of the year tends to be a little bit stronger cash flow for us, just because of seasonality and somewhat of the seasonal liquidation, if you will, of receivables coming out of the stronger second half of the year.

Then as you get in to the third quarter, business seasonally continues to pick up, which will tighten a little bit on the cash flow side, and then -- and then come back in a little bit, if you will -- or off a little bit -- in the fourth quarter.

I do expect, at least at this point, that we would see positive cash flow -- free cash flow -- throughout the year, but there will be some seasonal impact.

From a CapEx standpoint, we're looking at that.

We haven't issued any direct guidance, but I would expect that cash CapEx will be below 2008 levels overall, which as you saw earlier, came in on the order of $93 million.

Okay.

Thanks, guys.

Our next question from Andrew Steinerman, JP Morgan.

Your line is open.

Hi, gentlemen.

Could you just talk about maybe just directionally where you think gross margins will end up year-over-year in the first quarter, including mix, including, you know, Temp?

All right.

Thanks, Andrew.

There's a couple of things in the first quarter that when you look at the breakdown of the gross margins, it comes in a few different areas.

One is, you know, just the core improvement that we have seen in our staffing business, and I think we will continue to see that, but it will be a smaller amount.

The other is the Permanent Recruitment fees that are generating in the gross margin.

First quarter, we think, is going to be a much slower quarter.

We have been seeing some numbers in the neighborhood of -- Mike, help me out here -- kind of sequentially a reduction in Permanent Recruitment of 30-some -- a little more 30%?

Yes, and year-over-year, we would be looking for something in that magnitude, maybe a little more more.

Year-over-year, we would probably be looking closer to 50% down on the Perm Recruitment side.

Couple of factors that I need to mention there.

One is the Australian Defense Force, which is a key contract that we no longer have going into the first quarter of this year.

We did have it last quarter, so that's impacting our numbers.

But overall, in general we're seeing a drop in all of our markets on the Perm Recruitment side, which you would expect in a market like this.

So certainly that will have some impact on our -- on our gross profit margin.

Without the Perm impact, Andrew, I don't expect that we'll see, you know, all in -- with all of the other components of mix excluding Perm, I don't think we will see a dramatic change year on year in terms of where our Temp gross margin is.

Right.

And then overall, including the other segments -- and obviously I'm particularly thinking about Right -- do you think our gross margins will again be up year-over-year?

Clearly.

Right is -- you know, their book of business is the strongest it has been.

And as that book of business increases, you get a very serious leverage effect on the gross margin and operating profits.

Came in -- fourth quarter came in a little over 13%, I think, if I recall, for Right Management; and, you know, we would see that continuing to increase as the volumes come in and we're actually more efficient in our delivery vehicles.

So Right Management came in at about $17 million in profit in the fourth quarter, and I think we could see some good quarters in the future.

Okay.

So overall, gross margin in the first quarter year-over-year should still be up, right?

Well, if you put it all together, Andrew, given what I said about the Perm business, I think we could see it year on year to be slightly down, with the drag from Perm, but -- but at this point, I would say slightly.

Okay.

And could you just remind us in the fourth quarter of the year, how much Perm was, either as a percentage of gross profit dollars or any other way you want to talk about it?

I was $460 million of gross profit dollars for the year.

Okay.

Give you a sense for -- as a percentage.

You can do the math.

Okay.

Thank you very much.

You bet.

Our next question from Kevin McVeigh, Credit Suisse.

Your line is open.

Great, thanks.

Hey, Jeff, Mike.

Hey.

Without the laboring kind of the loss, could you kind of frame out where you think a potential low to medium end of the range is?

And if not, maybe just quantify what you would typically see in a normal seasonal sequential ramp, you know, in normal times, or maybe just quantify what you are seeing given the current economic outlook as you go from the first quarter to the second quarter?

Sure, Kevin.

I think, you know, on the first part of your question in terms of giving a range, I think I would prefer not to do that, because I think a lot of that has to do with which markets.

And we tried to give you as best of a view as we could in terms of what we think could happen on the revenue side; but understand, you know, that's on a consolidated basis, and market by market there is a fair amount of uncertainty, and it is quite difficult to forecast even a couple of months out on a market by market basis.

And depending upon where -- where that -- where the declines come, that can have a significant impact on operating profit, just giving the different delivering characteristics of each of the market, where they are, how long they have been down already, et cetera.

I think Jeff touched on that earlier, so I'm going to -- I'm going to step by the question in terms of overall earnings and maybe go to your second question, which is in terms of just sequential impact or trends.

And typically, you know, going from the first quarter to the second quarter, we would see, you know, something on the order of maybe 10% sequential pickup in gross profit, but that could be a little bit less this year.

But as I said earlier, you know, as we look at the seasonal ramp in our expenses, if GP is going up by 10%, we clearly at this stage have some capacity in the network.

We would not anticipate expenses going up much at all to support that additional GP, if you will.

Got it.

And then just in terms of (inaudible), it seems like even given the runoff in revenue, you have done a real good job maintaining the operating profit.

And Jeff, it sounded part of that was due to pricing.

As you think about that in '09, you know, and sequentially, do you think there is going to be more of a deleveraging effect than what you would typically see?

Yes, you know, that's a really good question.

I think the French team has done a phenomenal job of -- if you look at the last three quarters and what we've seen in the last three quarters -- of adjusting expense and doing some consolidation, and just doing the right things across the board without hurting the network too much, well, as that goes on -- like you have seen in the US, which is in its 10th quarter -- month --

Quarter.

Quarter.

Tenth quarter of negative, and what happens is that you -- the network, you either decide to dismantle your network, or you decide to deleverage more.

I think you'll start to see some of that in France -- not as much in the first quarter, but clearly much more than what you had seen in the first quarter.

And then as we move into the second, if we can start to see any kind of stabilization, it's not so bad; but further deterioration -- this comes down to keeping the network in in place.

And I want everybody to know, that, you know, we think about this every day.

We have different algorithms and ways of looking at this, and sensitivities, and it really comes down to our reluctance to pull out of Teluth, for example.

Teluth is going to be a very -- and is a very good market.

We can't pull out of there.

So French team has done a great job, will continue to do some great work; but clearly at the trends that we're seeing coming out of the industry numbers -- which aren't quite accurate because there is such a skewed toward the top number of players -- then I think you will start to see some real pressure on the OUP line over the next few quarters.

Mike, anything to add to that?

No.

All right.

Thank you.

Okay, thanks.

Our next question comes from Matt [Galadi], Barclays Capital.

Your line is open.

Good morning.

This is Matt [Galadi] on behalf of Gary Bisbee.

Just touching on France a little bit further, Perm seems to be holding up somewhat, and you know, with the cost savings initiatives underway, how long do you think margins can be maintained at current levels if revenue continues to drop at these rates?

And secondly, could you briefly comment or provide an approximate range for the expected impact of FX translation within the first quarter?

Thank you.

I'll cover the first one, you know, on the margin, and, you know, we -- we'll look first at the gross margin.

The gross margin, Perm is holding up, and it is holding up partially because our team is doing outstanding work.

We think we are now, you know, the largest from a market-share perspective of Permanent Recruitment provider, and we're continuing to gain some momentum in process.

Having said that, as the economy continues to struggle, we are seeing some of that tail off.

So I think Perm will still have a positive contribution to the margin -- gross margin line -- but it's going to be minimized because of the volume will be down.

So I think that will help offset further deterioration down at the net income line -- the operating profit line -- but I think the first quarter could still be pretty good.

When it comes to the FX, Mike, you want to cover some of the FX impact?

Sure, sure.

Clearly, translation rates are moving around pretty quickly these days.

I think I mentioned earlier, right now the Euro is down about 14% against our first quarter average a year ago.

A year ago, the first quarter average was $1.50 on the Euro exchange rate, and certainly the pound is a bit weaker.

If I consolidated all of the currencies on the revenue line right now, I would expect the FX impact to be something on the order of 8, maybe 9%, something like that.

And of course, you know, that impacts our expenses in a similar way.

Great.

Thank you.

Our next question from Vance Edelson, Morgan Stanley.

Your line is open.

Thanks a lot.

Just a strategic question for you.

How does the economic slowdown impact the pace at which you can shift the focus for the Company more towards small and medium-sized businesses, more towards specialized services, which believe you want to accomplish to some extent over time?

Is there an opportunity now to accelerate that transition as your traditional large industrial customer base naturally shrinks due to economic conditions?

Vance, it's a key to what we're trying to do.

And in the prepared comments, I -- you know, they weren't just words.

I write carefully into there, and they are lined up with what the strategy is that we are using in the Company; and I'm saying, without sounding inappropriate, we're really pretty excited about this timeframe.

That doesn't mean get in every day and say, "Oh, this is great, we're having the time of our life".

This is hard work.

But if you look at how we have set our organization up in 2008, in 2007, what we have done for example in growing Elan almost on a 25% compounded growth rate over the last two to three years -- what we have done with refooting Right Management -- how much more we have opened Manpower Professional.

Off of the top of my head -- so I'll give you a CEO number, not a CFO number -- Manpower Professional grew somewhere in the neighborhood of about 15% this year, that's off of a relatively smaller base, and we had a higher growth in the first half.

So our specialty business and our growth in the specialty business can absolutely be helped, and a couple of ways it can be helped.

One is, we are building our infrastructure, and we are continuing to do that.

It is one of the major projects that we're spending on in the Company now.

Secondly, what we are seeing small boutique, medium-sized firms are running out of the ability to finance payroll, and the large companies -- mid-size and large companies -- wanted a trusted, dependable player.

That's us.

So we're going to take market share, and we're going to do it in the right way.

So I think on the other side of this, we will not only have built a infrastructure -- which we have been working on for several years -- but we'll also be grabbing market share.

I mentioned in my prepared remarks that there were a few significant wins we have made.

And we were not the low bidder, and the majority of that win comes in the area of professional and specialty services.

So we're looking at this as an opportunity; and in fact, we think that in some ways, we wouldn't mind it getting uglier and harder for a little bit longer, because it's a really going to put some stress on organizations.

With our balance sheet and our with our infrastructure in place, we think we can absorb some of that and really take advantage of it.

So, you know, it is a real push within the Company, it is the memo that went out to all of our employees today.

I talked about that, and the opportunities we have.

So, you know, it's not a strategy we just made up.

It's a strategy that we have had in place for several years, and I think now it is going to pay off.

Thanks.

Appreciate the color.

Yes.

Our next question is from Jeff Silber from BMO Capital Markets.

Your line is open.

Hey, Jeff.

Hi, how are you?

Good.

How are you doing?

Good.

You mentioned the temporary suspension of guidance.

I'm not going to ask you for a date of when you think you'd reinstitute that, but what do you need to see in order to get a little bit more comfortable to provide current quarter guidance in the future?

Thanks.

Well, I'm sitting in my office right now looking out a window, and I can see about 75 feet because it's snowing -- that's the way it feels right now for us to do guidance.

So we need a little bit of visibility that says, you know, things that we look at -- the PMI, the ISM, the consumer confidence, industrial production numbers -- something that says the banking system isn't just got a little blurp here -- clients who -- one of the things we look at is if somebody asks for 25 contractors, and the next day they want five.

That's still meaning that there is a lot of flux, and a lot of flexibility in the system.

So once we start to see that -- and frankly, once we start to see our operations give us a forecast, and three weeks later have it be spot on, then we start to feel like we have got some stability in this.

So to pick a time frame, can't do it.

I think we want to do, is to say at the end of the first quarter, what's the world look like?

And do we feel as though we can do something that is actually helping you, not hurting you?

If we could give you a forecast right now that we think would help you frame up what we're doing, we would do it in a second.

If we had to put a date on it, I would think it would be pretty unlikely that we would do it at the end of the first quarter, and hopefully by the end of the second quarter and into the third quarter, we have got a little bit more visibility.

Okay, I appreciate the candor.

Thanks.

Just a couple of quick numbers questions.

Mike, if you do have an operating loss in the first quarter, will there be a tax benefit associated with that, and roughly what percentage should we be using for that quarter and for the rest of the year?

Yes, that gets actually pretty complex, Jeff, as I think you know, as I -- just given the 80 countries we're in and the different foreign tax credits and all of the elements that do work through.

I would expect to see a tax benefit, although it's somewhat predicated on the amount of loss and where that comes from.

But right now, I guess my --

And where profit is coming from.

Right, exactly.

So right now, my best information would be to say that there would be a tax benefit.

I'm going to hold off on giving you a percentage, because given the smaller amounts of percents sometimes can get a little bit unwieldly.

Okay, that's fair.

And also just going back to the fourth quarter, what was the change in revenues organically for the entire Company?

Yes, I think in terms of acquisitions, they put in about 1% of -- added about 1% of revenues overall, and that would be our specialty acquisition in the Netherlands, as well as some of the US franchise acquisitions that we have made throughout the course of the year.

Okay.

Great.

Thanks so much.

Last question, please.

And we do have a question from Mark (Inaudible) from ING.

Your line is open.

Yes, good morning, Mark (Inaudible), ING.

Couple of questions.

First of all, I might have missed it, could you give me the Perm year on year trend in Q4, and also the start of this year?

Mark, you said on the Perm?

Perm --

Yes, the Perm (Overlapping speakers ) --

Year on year or sequential?

Year on year.

Year on year, please.

Year on year in the fourth quarter, Perm was down about 10%; and as we get in to the first quarter this year, we did talk a little bit about that.

I think it's -- I think we could be -- look, in many of our markets, I think we're going to be down in the 30 to 40% range.

On an aggregate basis, that could approach 50% because of the large amount of Perm Recruitment we did for the Australia Defense Force in 2008.

Okay.

And then looking to the cost line, it seems to be down 1 or 2% in the fourth quarter organically in constant currency.

First of all, is that the correct estimate?

And what will there be -- what can we expect for Q1 in terms of a year on year trend there?

Right, right.

I think your numbers are in the ballpark.

I would expect on a sequential basis and a year on year basis, we will see further decrease in cost sequentially going into Q1 from Q4.

I think you are going to see something in the lower double-digit range in terms of sequential cost reduction, but certainly that's something we are actively working on right now, so that will work its way through the quarter.

Okay.

And then maybe on Germany, a question we still have there.

Potentially an idle time risk there, are you already seeming some impact of idle time in Germany on your gross margins?

Well, right now what we have seen in Germany, our top line, while it has gone down, it has not gone down real dramatic; so as a result, the idle time and the expense of that associated -- and the same with Sweden -- you know, does impact us.

But right now, it's not an major element; and actually what we're seeing in Germany is not good news, but not a continuous drop off the cliff either.

So we're looking at the idle time not being a large cost component in the second quarter -- I mean, I'm sorry -- in the first quarter, but we'll continue to look at that.

And then on the Netherlands, you had the tax credit there on your gross margin; could you maybe give us a feeling of how big the impact was on your gross margin from the tax rate there?

On the overall gross margin?

Yes.

In the ballpark of 30 basis points or so.

30 basis points.

And then last question, also in the Netherlands, you have mentioned to see some stabilize there in the trend; but would you say that it's maybe a Manpower trend or is it the market trend?

Because I can't imagine that you are taking maybe some market share from (Inaudible) there?

Yes, I think we are taking some market share right there, and I think our team has been doing some of that, actual,y for about the last two years.

So when we talk about stabilization, we're not making a market comment -- we're looking at our own numbers.

Okay.

Thanks very much.

All right.

Thank you, all.

Today's call is concluded.

All parties may disconnect.