ManpowerGroup Inc (MAN) 2009 Q1 法說會逐字稿

Welcome to the first quarter earnings release of Manpower, Inc.

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

(Operator Instructions).

Today's conference is being recorded.

If you have any objections, you may disconnect.

Now, I'd like to turn the meeting over to Mr.

Joerres, Chairman and CEO of Manpower, Inc.

Sir, you may begin.

Good morning, and welcome to the first quarter conference call for 2009.

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

Together we'll go through the first quarter results.

I'll spend some time on the overview of the business, as well as some of the economic trends and indicators; then also discuss in a little bit more detail the segments.

Mike will go through and discuss the balance sheet, as well as cash flow and any restructuring that occurred during the quarter.

Before I move into the call, Mike, if you could read the Safe Harbor language?

Okay.

Thanks, Jeff.

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 any other Securities and Exchange Commission filings of the Company, which information is incorporated herein by reference.

Thanks, Mike.

The first quarter of 2009 was a difficult quarter; but of course, difficulty was anticipated.

As we entered into the first quarter, we were concerned with our clients extending the shutdowns of their facilities and continuing that into the beginning of the year.

This did occur.

Also, our largest market from a geographical presence perspective, Europe, experienced dramatic drops in the fourth quarter, and this continued into the first quarter.

This rapid revenue decline put pressure on our cost structure.

We've reduced cost and will continue to evaluate our cost basis.

We've made several, and made an awful lot of expense reductions, but are committed to making sure that we keep our network strong and useful to clients and candidates, and to position us for a recovery.

Our revenue for the first quarter was $3.6 billion, down 22% in constant currency, 32% in US dollars.

We were able to increase our gross margin.

I will break that down a little bit more later in the call.

And we are proud of the work that we've done to maintain our gross margin, as we have been able to maintain our pricing strategy in an environment where, frankly, we are seeing some very aggressive pricing.

Selectively, we have made decreases in our prices in some deals to ensure that we retain an important client relationship; but we do not and have not participated in a broad-based price reductions that we've witness from some of our competitors.

At the same time, we are seeing deterioration, as is expected, with our Permanent Recruitment business.

Overall, our gross profit was down 21% in constant currency, 31% in US dollars, resulting in an operating profit of $6 million, down 93% in constant currency, 96% in US dollars.

Earnings per share came in at $0.03, which included a restructuring charge of $0.06.

There are highlights for the first quarter.

One that I would like to point out is our success in Asia, particularly Japan.

Our Japanese team has done a great job in going after the market in a very focused manner, from a sales perspective, not pricing.

And we've been able to reshape ourselves from an expense perspective in Japan, as well as across all of Asia Pacific.

In addition to Asia, Right Management is hitting the ball out of the park.

This is their time because of the nature of career transition business, so there is a lot that can be attributed to the cycle that we are in with Right Management.

But it goes much deeper than the cycle.

All the work that has been done in the past and what we've done with branding has allowed to us take market share and position ourselves as the unquestionable leader in out placement and organizational consulting services.

We generated $29 million of profit in the first quarter of Right Management.

On the downside, we've experienced a rapid decline in the French market in the first quarter.

Many of you who follow the publicly available data in France are not surprised by this decline.

Let me move into gross margin and break that down a bit for you.

As I had said, we did a nice job holding our own in the classical temporary help part of the business, only losing ten basis points of gross margin.

We are feeling pressure, particularly in Europe, and I'm now starting to see the same pressure in the US where there are some opportunities we just don't feel comfortable in taking.

For example, one large financial institution in the US, where the business went for something less than a 5% gross margin and with extended payment terms.

We do not believe this is good for the client, and we definitely do not believe this is good for our long-term financial health.

Our permanent recruitment business, which is down 40% in constant currency, unfavorably impacted our gross margin by 43 basis points.

Both of these declines were more than offset by Right Management.

The gross margins gains due to the business mix are particularly attributed to Right Management based on the volume that is going through the system, yielding an overall improvement in gross margin compared to the first quarter of 2008.

It is a difficult environment.

We are seeing markets continuing to find the bottom; and in some cases, we may feel that it is the bottom.

Of course, this may prove to be fleeting, as there are more shocks that could hit the system and throw this all off balance.

We point to some leveling in the US and French markets.

However, it is too early to the call.

The downturn clearly will last longer than any that we've seen before, which does put short-term pressure on us.

While we are challenged in the current economic environment, we are confident that we are well-positioned operationally and financially for the current and future environment.

Giving that as a backdrop, we would anticipate the second quarter to still be difficult for us.

We have taken out over $400 million of annualized SG&A cost -- Mike will spend a little bit more time on that -- and we feel as though this is the appropriate amount, given the current environment.

We will continue to look for some costs to come out of the business, but we do not want to do that at the expense of driving business into a state of anorexia.

Now, we are seeing signs of stability in some of our markets.

We are anticipating second quarter revenues will be down between 37 and 39%, or 26 to 28% in constant currency.

Despite this decline, we expect to remain profitable in the second quarter.

Now let me spend a few minutes on the Americas segment.

As we mentioned in our last call, we have reclassified some segments based on management responsibility.

Jonas Prising, who had run Canada and US, now has responsibility for all of the Americas; so we have grouped the segment together that way.

This does not mean that you will receive less information on the US operation, but we do want to give you a view of how we look at the business.

The Americas business is down 15% in constant currency to just less than 600 million US, with an operating unit loss of $10 million.

The US represents 63% of this segment, and we saw a revenue decline of 21%, or 28% excluding acquisitions.

As I mentioned earlier, we are seeing some leveling at a fairly low level within the US; but albeit, it is leveling.

And we were -- if you were to look at the 52 sequential weeks leading through the first week of April, year over year revenue was down between 20 and 22%.

While we could easily get another step down, this is the longest string of stability we've seen in several quarters.

Our light industrial business in the US, as expected, has suffered the most; and we are expecting, of course, this then, in turn, to recover first.

Mexico has been down shifting, with a 10% drop in revenue.

Argentina, which is our next largest unit in the Americas after Mexico and the US, is seeing less of a drop in top line; and in fact, at this time, it's been much less contaminated by what we are seeing in the rest of the world.

Our Manpower Professional business within the Americas, largely comprised of business in the US, is down 16% in our permanent -- business was down 41% in constant currency.

Both of these have had very different drivers to them.

We are seeing a large part of our Manpower Professional business being affected by very large accounts who are reducing their contractors more dramatically than what we are seeing coming out of the medium-sized accounts.

We are, at the same time, improving our presence in Manpower Professional, building the brand and building the infrastructure, which we are confident will improve our recovery on the other side of this downturn.

Our permanent recruitment business, we are going to ensure that we keep the core infrastructure in place and we are comfortable with doing that.

This is also true for our RPO business.

As you know, we have invested in our US and global RPO offering over the last two years; and while the near term outlook may be challenging, we believe we are well-positioned to deliver a superior quality service to our clients when the recruitment markets return.

While we have adjusted our core base in this area, we have been very careful to maintain an infrastructure -- and in some cases, actually improve our infrastructure -- to maintain a leadership position.

Our French operations have experienced a dramatic downturn through the end of 2008 and the beginning of 2009.

Our revenue in constant currency is down 37% to $960 million for the quarter.

This precipitous drop makes it very difficult for to us take cost out at a similar pace in order to maintain a satisfactory level of profit.

Our operating unit profit was $1 million.

Seasonally, this is a difficult quarter; but also, it was the size of the drop and the speed of the drop that made this first quarter so particularly difficult.

We are seeing, similar to the US, light industrial market in France be very much affected, which coincides with the severe drop in industrial production you've been hearing from the French market.

In so many ways similar to the US, our revenue decline over the last few weeks have been relatively constant at a difficultly low number of 39% down -- but it has been constant.

But what we haven't seen is any more drop; and at the same time, we haven't seen any more up -- increase.

As we move into the second quarter, it may be some time that we would see the seasonal uptick, as well as some inventory replenishing.

Our permanent recruitment business in France, which was holding up relatively nicely in the fourth quarter, has begun to feel pressure.

We are the leader in the permanent recruitment market in France.

However, we are experiencing the result of an overall sluggish market.

In the first quarter, we were down 31%, which was the first time we have not seen year over year growth in permanent recruitment.

As we mentioned in our last call, we were fined 42 million Euros by the French Competition Counsel.

While we are appealing the case, we were required to pay the fine last week.

Included in the second quarter results is the reversal of the EUR3 million, or $3.9 million, of reserves previously recorded related to the case.

I now want to cover the EMEA segment.

In this case, we have also included Italy, since it reports into the same management structure.

In EMEA, similar to other geographies, we are experiencing price pressure.

Revenues were down -- revenues were $1.5 billion, down 18% in constant currency, with a $2 million profit line at the OUP line.

While you break -- when you break down the country revenues, you can see that Italy has followed very much the same path as France, which is a very precipitous drop, primarily based on the declining demand in light industrial.

Elan, however, was up 1% in constant currency, which is quite an accomplishment in this environment.

In the Nordics, where we are seeing some difficulty in the Swedish operation, primarily based on the decline in the automotive and telecommunications sectors, revenues were down 21% in constant currency.

We continue to do well in the Netherlands and gain market share; and at a very competitive basis and comparable basis, we feel we are doing equally well, if not better, than our competition in the UK.

Included in the Netherlands' result for the quarter was a $4.9 million reversal of an acquisition earn-out provision that was no longer deemed necessary.

Our Asia Pacific segment, as mentioned earlier, was -- has done really great work in fighting against a lot of trends in that area.

That doesn't mean that we won't have a difficult upcoming second quarter; but if you put it in context, our first quarter was very good.

Constant currency revenues were down 7% to 425 million.

We were able to produce 12 million operating unit profit, yielding an operating unit profit margin of 2.8%.

In that 12 million, however, is a $3.9 million credit related to the termination of some defined benefit pension plans.

An important element is what we've done in Japan, where we've been able to hold on to our revenue by ensuring the completion of many of our contracts, and we're working with many of our key clients to embed the appropriate strategy for this flexibility.

Also in Japan, we have realigned our cost base and are much more sales-focused.

This has allowed to us gain market share in a declining market with revenue down 4% in constant currency.

As expected, one of the more difficult areas in the region was Australia/New Zealand.

Much of that can be attributed to the loss of the Australian Defense Force business, which we have yet to anniversary.

We are also having a lot of pressure out of the poor economic conditions in New Zealand.

The whole of the Asia Pac region is immensely important to us.

Saudi Arabia, Egypt, United Arab Emirates, India, China, Vietnam and other areas will continue, and we continue to see as major growth areas for us in the future.

We are maintaining sizeable presence in these markets.

While we have cut back on a few expansion plans, we have not exited these markets or reduced our footprint to a point where we would not be able to maintain our industry leadership position in these key emerging markets.

We believe that these markets will act as growth catalysts for us on a Company-wide basis as we look out three to five years.

Moving on to Right Management, Right Management has done extremely well.

The crew transition outplacement business is very strong.

We continue to see more candidates than we've ever seen before.

Our revenue is up 43% in constant currency, yielding an operating unit profit of $29 million, and an OUP margin in excess of 20%.

Breaking down the regions, we are seeing the US lead the way; however, Western Europe is also using our services at an accelerated pace.

And as we look into the second quarter, we see a continuation of this exceptional growth in our career transition business.

We are using this as an opportunity to ensure that we strengthen our organizational consulting business, which was about 30% of the business.

With the accelerated growth of career transition, it is now about 15% of the business.

We are ensuring that our brand is the most up-to-date brand that it can be so that as the outplacement business cycle comes to an end, we can replace that business with some of the core competencies of assessment, training, coaching and some of our other core services.

This is greatly dependent upon the brand; and what we've done in exercising that brand and relaunching and energizing the Right brand are just now in the first quarter.

We put an awful lot of work into it, and we believe this will pay off handsomely as we start to see a more positive economic cycle.

Jefferson Wells -- the Jefferson Wells revenue was $53 million, down 32%, and is absolutely going through difficult times since so many projects, whereas before were not considered to be discretionary are, given the environment; and therefore we are not getting a great reception from many of our clients and prospects.

We are pushing hard as they are pushing off much of their work.

We have, however, secured good government work, particularly at the state level; and we see this as a major opportunity to us, so we will continue to pursue this.

We will continue to look at the cost structure of Jefferson Wells, but we do not want to bring it to a point where we destroy our ability to deliver the quality that Jefferson Wells is known for.

The first quarter was a difficult quarter for us.

Some of it was well-understood.

Other parts of it are more difficult; and what we are seeing in some of our largest markets is a very, very fast pace in drop.

As I mentioned earlier, we have seen that leveling off in some of our key markets, and we would like to think that as we move into the second quarter that we will continue to see not only the seasonal effect, but the effects of this leveling off.

Also, we do have Easter falling into the second quarter this year compared to the first quarter, which will impact the number of billing days in several markets, and revenue by slightly more than 1%.

As difficult as this time is, we are looking at it with a real sense of opportunity.

You've heard me say that before; but now that we are starting to get a sprinkling of good news, I can say it even with more confidence.

That opportunity is for us to gain market share -- not through aggressive pricing, but through our ability to offer the client a much more reliable high-quality service with a financially strong Company that they can see themselves, and see how we manage in local markets, national markets and on a global basis.

With that, I would like to turn it over to Mike to discuss a little bit more of the financial details.

Okay.

I'd like to begin today by discussing a few components of our earnings statement, followed by cash flow and then our balance sheet; and finally, our outlook for the second quarter.

Selling and administrative expenses in the quarter were $664 million compared to $836 million in the previous year.

This represent a year over year decline of 21%, or 9% on a constant currency basis.

Sequentially, SG&A expenses were down 14% in constant currency from the fourth quarter of 2008, which excludes the impact of reorganization expenses in both quarters.

Our cost realignment efforts began in the third quarter of last year; and since that time, we have taken out over $400 million of annualized costs on a constant currency basis, representing in excess of a 13% reduction.

During the last two quarters, we have appropriately focused our attention on reducing expenses and rebalancing our cost structure with the lower business volumes.

As Jeff mentioned, at the same time, we've been careful to preserve our highly-valued network of offices, our high-quality workforce and the strong Manpower brand.

Since the third quarter, we have reduced the number of offices by 350 to 4,200, representing an 8% reduction.

In many cases, these office closures represent consolidations within markets where we are combining nearby branches rather than exiting markets.

We've been diligent to ensure that we have not exited markets that we believe will be critical to our growth strategy when we eventually see the other side of this economic cycle.

Since our third quarter, we have also reduced a number of full-time equivalents by 13%, or 4,500 people.

Related to these cost reductions was a reorganization charge of $6.9 million in the first quarter of this year and $37.2 million in the fourth quarter of last year.

Both of these amounts are included in SG&A and represent $0.06 and $0.35 on an earnings per share basis, respectively.

At this point, we do not anticipate further reorganization costs; but that will depend to some extent upon whether we see significant further declines in client demand for our services.

Our provision for income taxes was a credit for this quarter, and was unusually high on a percentage basis due to valuation allowances that we reversed as a result of effective tax planning.

This tax planning will enable to us utilize net operating losses that were previously reserved on our balance sheet.

Now let's take a look at cash flows.

Free cash flow, defined as cash flow from operations less capital expenditures, was very strong at $241 million for the quarter.

As expected in a downturn, we are experiencing positive cash flow as a result of liquidating working capital due to slowing business trends.

This is a favorable counter-cyclical aspect of our business through the large amount of accounts receivable we carry on the balance sheet.

As business growth slows, we are in effect liquidating or receiving payment on accounts receivable at a faster rate than we are adding new accounts receivable to the balance sheet In addition to the cyclical factors favorably impacting cash flow, we also had other fundamental improvements in working capital management.

Our DSO for the quarter improved by four days compared to the prior year.

Much of this improvement came from a reduction in DSO in France.

The French government passed a law that was effective January 1 requiring all companies to pay invoices within sixty-day terms.

This has impacted the payment terms for a number of our clients, and we estimate the overall favorable cash impact to be in excess of $70 million, of which more than $55 million came in the first quarter.

Additionally, we are beginning the implementation of transitioning our temporary staff from weekly payroll to monthly payroll in France.

Upon the completion of this transition in the third quarter, we expect a positive cash flow impact in excess of $60 million.

Through the first quarter, we realized a cash flow benefit of $25 million.

As you can see, these two cash items in France will significantly help our cash flow this year, contributing in excess of $130 million.

While this is important for this year, it is even more important going forward, as it represents a favorable structural change in our cash flow for years to come; and of course, when business picks up on the other side of this cycle, the impact of these two changes will be even greater.

Our capital expenditures in the quarter were $9 million compared to $24 million in the prior year.

This reduction represents a lower level of expenditures in our branch network, which is due to fewer new branch openings and fewer refurbishments.

While we expect capital expenditures will increase slightly in future quarters, we are planning to invest less than $50 million on a full year basis, or almost a 50% reduction compared to 2008.

Next, let me turn to the balance sheet.

Our balance sheet strengthened during the quarter, and we currently have total cash of $1 billion.

Our total debt at the end of the quarter was $854 million, resulting in overall net cash of $147 million.

This compares to a net debt of $79 million at the end of 2008, and therefore represents an improvement of $226 million in net cash.

Our debt to total capitalization improved slightly and also remains in good shape at 26%.

In summary, I believe our overall capital structure is solid and we are well-positioned to withstand this weak economic environment.

Now let me spend a minute reviewing our credit facilities at the end of the quarter.

As I mentioned, we had total debt outstanding of $854 million, with available borrowings under committed and uncommitted lines of $827 million.

Of the $854 million of total debt, 663 million is comprised of two Euro notes which mature in 2012 and 2013.

These notes have fixed interest rates and prematurity that are below 5%.

Our revolving credit facility allows for $625 million of total borrowings, of which $158 million was drawn as of quarter end, leaving an additional $461 million of availability.

The amount outstanding reflects a EUR100 million borrowing, which has been swapped to a fixed interest rate until July 2010, and a short-term advance of $25 million.

While we could pay these bonds off at any time, our intention at this point is to maintain the swap borrowings until the swap expires in 2010.

This facility matures in November of 2012.

We also have an accounts receivable securitization facility, which provides us with $100 million of liquidity; however, no amounts were borrowed at quarter end.

This facility is an annual facility which matures in July 2009.

During the second quarter -- this quarter -- we will assess whether we would like to renew this facility based upon relative cost considerations.

Our (inaudible) notes are not restricted by financial covenants.

However, our revolving credit facility has two primary 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 twelve-month basis.

We currently have significant room under this covenant, as our ratio was 1.3 times at the end of the first quarter.

Our fixed charge ratio requires us to cover rent and interest expense by 2 times or more -- again, on a trailing twelve-month basis.

As of the end of the first quarter, we were well in compliance with the ratio of 3 times.

As we look to the latter half of 2009, both of these ratios may come under pressure, depending upon economic conditions and revenue trends.

If this were to occur, we would amend our revolver agreement, which would provide us relief under these covenants.

Naturally, any amendment would result in additional bank fees and likely impact the cost of any future borrowings.

I should also note that given our current cash position of $1 billion, the revolver is not needed.

However, we do believe it adds incremental flexibility to our capital structure.

Finally, let me discuss our outlook for the second quarter.

As you know, we elected not to give guidance for the first quarter of this year due to the significant uncertainty in revenue trends, particularly as we started out the year.

While the current environment continues to make forecasting extremely difficult, I believe we have seen enough stability in recent weeks, allowing us to give you a better picture on our current view of the business.

In providing this guidance, I will refer to the newly-reclassified segments, as this is how we forecast and report our numbers internally.

For those of you who are interested, we have restated each of the quarters for 2007 and 2008 to be consistent with this classification; and you can find those restated quarters as an appendix to our investor presentation located on our website, or in the 8-K we filed this morning.

Currently, we expect second quarter revenues to be down between 37 and 39% compared to the prior year, or 26 to 28% in constant currency.

This reflects a further decline from the 22% contraction we saw in the first quarter; but as you can see, the pace of decline is clearly moderating.

In fact, in some of our markets such as the US, France and Jefferson Wells, the rate of decline has stabilized over the last several weeks.

Therefore, we have forecasted the rate of revenue contraction in these markets in line with recent run rates.

We are not calling for improving trends in these markets; but at least for the moment, things don't appear to be getting worse.

Although we have seen declines moderate in many of the newer markets as a region, we expect revenues to weaken slightly further as we move into the quarter.

EMEA was also impacted by the Easter holidays falling into the second quarter, which we anticipate will negatively impact revenues in the EMEA by about 3%.

In Asia Pacific, we also expect revenues to weaken a bit further in the second quarter, as the Japan market is still searching for the bottom.

Our Right Management business had a stellar first quarter, and we are expecting similar revenue levels and profit performance in the second quarter.

Our gross margin is expected to be in the range of 18.5 to 18.7%, which is right in line with last year.

Similar to the first quarter, we expect some loss in margin from permanent recruitment, as we expect it will be down in excess of 40% in constant currency.

However, the strong growth in the higher margin right business should more than offset the margin decline from permanent recruitment.

We expect our SG&A costs will be stable sequentially, and down in excess of 25% from the prior year, or 13% in constant currency.

This results in a positive operating profit with a margin in the range of 0.4 to 0.8%.

Given the relatively low level of pretax earnings, our percentage tax rate is very difficult to estimate.

A relatively small change in deductible items or business mix can have a large impact on the tax rate.

For planning purposes, we are estimating a rate of 37% at this time.

This results in an earnings per share range of between $0.01 and $0.15.

Now, I recognize this is a very wide range, so it is important that you understand why.

Given the current expense base of the business, any increase or decrease in revenue and resulting gross profit drops almost directly to the bottom line.

Said another way, we will not need to add SG&A cost to support incremental revenue.

On the other hand, we don't expect significant reductions to our cost structure if revenues are slightly weaker than forecasted.

With that, I would like to turn things back to Jeff.

Thank you, Mike.

And with that, we will open it up for questions.

(Operator Instructions).

Our first is from Mr.

Kevin McVeigh of Credit Suisse.

Your line is open, sir.

Great, thank you very much.

Nice job in a very tough environment.

Hey, Jeff, I wonder if you could talk to pricing a little bit in France?

It seems like you've done a real good job there in particular and over the last quarter, so I would have thought you were looking to maybe -- you know, and if this isn't the right context, let me know -- just not be as aggressive, but it seems you have been able to really hold in the pricing in a very tough environment.

I wonder if you could give us some thoughts on that as you work your way through the rest of this year.

Yes.

Thanks, Kevin.

I did mention on the last conference call that we were relatively confident that we were losing a little market share from the industry because we were holding on price a little bit more.

We have tried to be as vigilant; but at the same time, for certain large accounts where they might be our current client or something that we need to take, we are having to participate at a level that we may not be as comfortable with.

But the team is holding their own; and when we look at us compared to the market on a market share basis, factoring in that we had a bit more of a skew towards some of the automotive business than some of our other competitors, our team there is doing a very good job.

You know, the challenge in this environment is, is how long it lasts and how ridiculous some of the pricing may get.

But right now, the team is doing a good job.

We are feeling the pressure, and we are making sure that we are knowing every single account that is requiring something that might be unreasonable; and as a result, we have a process of who gets to approve these and how far up it goes, so that we really know the impact of -- the longer term impact -- on gross margin in the business.

So I think it's -- France is a difficult environment; but you could also take that same question and overlay it to almost all of our other geographies in the way we are trying to do it and the way that we are trying to maintain some of our pricing.

Mike?

Kevin, I would also just add -- just to support that a little bit further -- we did see a slight increase in our staffing gross margin in the French market as well, so I think the team in doing a very nice job in what's a pretty difficult environment right now.

Great.

And then just real quick, as you think about the different regions -- and Jeff, you talked about a level of revenue where the detrimental margins get real meaningful -- are we kind of at that point across all the regions, or are there some areas where there's some -- a little bit of room given the cost actions you've taken?

Well, I mean, you know, so much is dependent upon -- as Mike had talked about with the guidance that we gave -- there's so much dependent upon that top line; so the costs that we've taken out, we believe -- other than where there might be a certain amount of staff that we took out based on billable hours or lack of billable hours in a specific office -- the balance of the cost, we really believe, we've been able to take out some office structure, consolidate, combine these, so that they are out.

Now, are there some countries -- particularly some of the higher margin countries -- that felt it a little later, the downturn?

There might be a little bit more work on there; but I think where we are right now is, we are feeling as though our SG&A line, with some maybe a little tweaking and tuning, is where we feel it should be given the current environment that we are in.

Great.

Thank you.

Our next is from Vance Edelson with Morgan Stanley.

Your line is open.

Hi, thanks a lot.

Just on the office closures, how easy is it for adjacent offices to pick up the slack?

I'm guessing it's not as simple as just transferring responsibility, or else the closed office wouldn't have existed in the first place.

So are there particular challenges there?

Yes.

Vance, it is a really good question, because it's much more complicated than taking two profit center code numbers, and six digit code number and turning it into one.

So a very in-depth analysis is done about who is the candidates coming into those offices; who are the clients, and what is the sales staff?

Now, different countries have had very different strategies that have evolved and grown over many, many years -- in some cases, decades.

If you look at where the majority of the consolidation occurs, we actually have -- we actually go through a report that says how many kilometers is it away from the office we are consolidating; because we are fooling ourselves if we think a 20-kilometer distance is consolidation.

That's a closure.

So the consolidations we are really talking about, in some cases in Ile de France where you've got the Paris region in there, you might have had line-of-sight consolidation, where you could actually see one office from another, and was a good strategy to create a hunger and aggressiveness in the market.

So we are looking at those.

Others we are looking at kind of in a US term, somewhat of a suburb into a city; and that's where we are going to be very careful, because someone to drive 10 miles into a city from a suburb is probably taking us out of some of those markets.

So consolidation have been careful, mostly located in places like Italy and France where we've done that; and then where we've actually taken out of markets -- small, very micro markets -- what we've done is an analysis of profitability of when would it be profitable, has it ever been profitable, what are the NAIC codes in that area, and who are the kinds of businesses, and are those growth businesses in those areas?

And then we made decisions based on that information.

Okay.

Great.

So in some cases it's safe to say there's a plan to eventually reopen the office, whereas in other locations there might actually be permanent savings?

I would say that the majority and goal is that almost all them are permanent savings.

Having said that, we are in a market in someplace in Kentucky and we closed it, and all of a sudden one of our clients opens a facility back up in there, we will go back in there.

But our sense is these are not being closed to be reopened in the next six months.

Otherwise, we don't -- on a cash basis we don't save any money.

On an earnings basis it looks good, but that's not our goal.

Okay.

Got it.

And just considering the healthy cash balance, could you comment on consolidation opportunities and what you are seeing in terms of valuations out there?

Is that something that you are actively monitoring?

Oh, I think it's our responsibility to monitor it.

We are not interested in much right now.

Our view is, is there is still too much looking back at twelve-month highs; and also, you know, I'm not sure what you do with some of those businesses.

We do have a lot of cash.

We would use them for strategic acquisitions, if in fact we felt as though it was the right time or the right company; but right now, we don't see any of those occurring.

We do believe, and have stated several times, that our specialty business is immensely important.

We continue to grow that.

So we will monitor all of those, but right now you could be buying something that you could get for half price in another six months.

Okay.

I will leave it there.

Thanks a lot.

Thanks, Vance.

Our next from Paul Ginocchio with Deutsche Bank.

Your line is open.

Thank you.

I just wanted to -- maybe you could delve into the US and France's stabilization team, and just talk about the various disciplines -- blue color, clerical and professional -- and what you are seeing by -- through -- with each of those disciplines?

Thanks.

Yes, Paul, it's Mike.

As you know, in France, it's primarily light industrial.

Most of the market is, anyway, about 75% of the mix of the business.

So what we are seeing there clearly is the light industrial side starting to level off; and as we said earlier, over the last five weeks or so, things really started leveling down at about -- you know, revenue-wise at about 38% below where we were a year ago.

So not a level we want to be at, but things have to stabilize before they can improve, and hopefully that's what we are starting to see -- at least the last several weeks would suggest that.

You know, when you look at the US, there we've got a bit broader mix of business, where we've got -- a little less than 50% is on the light industrial side, and then 30% office and then the professional side.

Amongst those, light industrial clearly has been the weakest, followed by office and clerical and then professional.

When you look at stability across -- I think what we are seeing really is stability across both light industrial, and to office to a lesser extent.

And, of course, we haven't seen as much volatility.

So again, I think it's -- I think what we are seeing is fairly broad-based across our markets in terms of our overall stability; and in the US, that's been what we've really seen for the last five or six weeks --

In fact, it's now six because we got some numbers yesterday, and it just echoed what we had been saying before, which is in the US, it's not a lot of fun where it's stabilized, but it is stabilized.

It is primarily stabilizing in the core part of light industrial.

What's interesting, as many of you know from a cycle perspective, light industrial is also what will come back first.

So we've got a little bit more of a microscope on there right now, and I can tell you that we have not seen it coming back.

So let's not interpret stabilization with a come back.

It's more of a real bottom seems to be forming.

It's now, can we hang on to this bottom into the next few months so that we can start to see a little bit of a tickle on the upside?

Should we -- just if I could sneak another one in, though -- if you look at April versus March in the typical seasonal pick up, is it still pretty weak relative to trends?

I mean, can you compare to it a year in the past that will give us a little bit of help understanding the seasonal pick up or lack thereof?

Sure.

Whenever we really talk, we are talking on a year over year basis anyway, so it kind of takes in some of that.

So you are looking at that 21, 22, 23% kind of down, and it's just hanging around right in that category.

So on a number of people out on assignment, we have not really seen that seasonal pick up yet.

And typically, Paul, in the US, the seasonal pick up for us starts to show itself a little bit more toward mid-May and into June.

So we are not quite at that point.

In the case in France, there's a -- there's -- you start to see a little bit of a seasonal pick up maybe a little bit sooner in the quarter, and it looks like it's still -- just a couple of weeks into it, it looks like we might be seeing just a little bit of a seasonal uptick.

But my sense would be -- and my guidance would envision -- that we are not going to see as much seasonal ramp in France in the second quarter as we would perhaps typically going from Q1 to Q2, but we will see how that plays out.

It's still, as I said earlier, a pretty difficult market to forecast at the moment.

Thanks very much.

Thanks, Paul.

Our next from Sarah Gubins with Merrill Lynch.

Your line is open.

Yes, this is David (Inaudible) for Sarah.

Just two questions really quick.

What would be the benefit of the additional $6.9 million in reorganization expense in the first quarter in terms of the impact on the second quarter G&A?

Sure, yes.

That -- that expense effectively pays for itself over the next, say, second and third quarter; so I don't anticipate a whole lot of benefit second quarter yet, but as we get further through the year -- it primarily relates to severance costs, so as we get further through the year, it will pay for itself with two quarters in.

So you might be looking at $1 million to $2 million, something like that.

Okay.

And then, what was perm as a percentage of revenues or a percentage of gross profit?

And could you also give us a sense for perm globally in terms of the decline year on year?

Sure.

Perm as a percent overall of GP is just under 10% right now; so a year ago, it was running around 13% in the first quarter.

Now, typically the first quarter is a little bit stronger quarter for us on perm, particularly last year with the Australian Defense Force.

So that's where we are as a percentage of the overall mix.

On a constant currency basis in the first quarter, perm GP was down about 40%, and on a US dollar reported basis down about 49%.

All right.

Thank you very much.

Sure.

Our next, from Jeff Silber with BMO Capital Markets.

Your line is open.

Thanks so much.

I'd like to go back to gross margins.

You talked about the pricing side of the equation.

Can you talk a little bit about what's going on on the wage side?

Are you able to cut wages on the temp side?

And if so, in which areas?

Well, there is wage pressure; but without knowing the exact percent, I can get pretty close; and that is, you are not looking at a major percent of our business that is based on a bill rate.

And when you base it on a bill rate is when you can actually create that spread by reducing the pay rate.

Many of our contracts are a mark up over pay; so while we may be either forced to reduce pay in order to maintain our position in the account or reflect what that account has done with their own permanent staff, that really doesn't improve our GP.

It moves with it.

So while there -- while we have had pay actions taken with our associates, that is not really a big driver of the improvement of the gross margin.

Okay.

And again, are there any regions or lines of business where you were able to do that a little bit more than others?

Well, clearly in the professional side.

So when you look at Elan, Manpower Professional, Jefferson Wells -- which is a little different because of a bench model -- that is where you can create a little bit more of a spread, and we have been doing that.

So -- and we've been doing that to be really reactive to the market.

I mean, we view ourselves as a spot market when it comes to labor; and if that wage is going down in the general market, then we would be bringing our wages down as well.

You know, without getting into too much detail, those are conversations we really have to have in an in-depth with our clients, because it is a lot about the employer brand and what's happening.

But it's the professional side where you would see the majority of that, or very high-end administrative call center level three kind of support desks.

And really, that is a US phenomenon.

In Europe, you can't touch that kind of stuff really.

Okay, that's helpful.

And just to follow up, we've been reading a lot about the potential benefits of the stimulus plan here in the US I just wondered what your thoughts are there, and if you see or you might see any similarities in other regions across the world?

Well, first let me say I don't think we are seeing any impact on the stimulus plan when it comes to our business, because it's a little bit further down the chain.

It may be coming, but right now there's a lots of conversation.

We did mention in our prepared remarks some of the things that Jefferson Wells is able to do at a state government level; and that's really not in the job creation, it's just really the controls and auditing of dollars that are coming into the state.

Now, we are seeing other countries take a little different views.

And we are starting to see, for example, in France where they are stimulating the auto industry by maybe dropping sales tax on autos, those sorts of things, which does then either maintain or create some level of jobs.

So I think when it comes to job creation, which would affect us, any kind of stimulus package is really still a couple of quarters out in real job creation.

Okay.

Thanks so much.

Our next from Jim Janesky with Stifel Nicolaus, your line is open.

Yes, hi, Jeff and Mike.

I guess my question really comes down to why.

Why are you hearing that there is stability in some of your very key markets?

Are companies feeling better about -- better about the outlook as we progress through 2009?

Obviously, there's been discussions over whether or not the TARP plan and stimulus package can have a positive effect on the US economy; but again, it's very contradictory in terms of some of the economic data that has come out.

Now, that doesn't really affect France.

So I'd be interested to hear what your clients are telling you.

Well, there's two things.

First of all, how we are using the word stability is purely looking at a five to six-week trend of the number -- both the number of people out on assignment and the actual revenue number.

And that's how we are looking at it.

So every week we get our number.

Mike and I stare at it; and what we are seeing is stability in there.

So our comment on stability is really our weekly numbers, where we are giving you, in France and the US, weekly numbers that we can give you, and they would show stability.

It's 21 minus, 20 minus, 22 minus, 21 minus, 20 minus.

That's the way it would look, some number like that.

Okay.

So when we were putting the notes together, we said, "Look, there's something there." Now, you do triangulate that with go visiting clients, and clients are not about to fall on their sword any more.

That doesn't mean they put the sword back in the sheath.

I mean, they are still concerned about it; but they, too, are feeling as though maybe it's a bottom.

But I just want to re-emphasize when I use that word -- and I use it now -- we are very well-prepared and cognizant of the fact that this may just be a shelf that we are on and there is more to come.

So you don't really pick stability until you start to -- real stability -- until you start to see the up, and we've not seen the up.

I do think it's quite interesting to see that France and the US have a bit of a synchronicity, and France just got into it about a year late, but they caught up in four months.

So that, to me, paints a little different picture.

While I still belief there could be the lagging effect -- US happens, then Europe and then Asia -- I think that lag may actually be reduced as the amount of business that has dropped down so dramatically in Italy and France, for that matter.

Now, France -- Italy is a little different.

I still think we're -- while we are bouncing a little, I wouldn't put that in the stable category yet.

Okay.

Thank you.

All right.

Our next from Andrew Steinerman, JP Morgan.

Your line is open.

Hi, it's Andrew.

Jeff, I don't mean to be a skeptic on the stability point, but how much of the stability do you think is caused by easier year-over-year comps?

Oh, I think there's a little to that, but we've had easier year-over-year comps for the US for two years and it hasn't helped us.

So you know, again, I would ask those on the call, do not take away the fact that we are calling any type of stable environment right now.

We are trying to articulate what we are seeing in our numbers.

So while the comparables always have something to do with it, I really think it's a little bit more than that, particularly when you look at France, which hasn't even anniversaried the tough part.

So France, you would be seeing -- that really didn't happen until about -- what, Mike?

About October.

So France wasn't even close to that.

The US -- I mean, they've anniversaried stuff for two years now and they haven't seen stability.

Right.

That's a great point.

And just one more comment in France.

You happened to throw out in your dialogue before, stimulus maybe across the sales tax and orders.

I remember last quarter you pointed out orders was particularly troublesome; I think you might even have said it went near zero.

Could you just make a quick comment on the first quarter, how did French auto temp business do?

Yes, the auto business -- which we are being quite cautious in -- the auto business did still start to see some drops in the quarter, but we are seeing some leveling in that.

We have people in it.

It didn't go completely to zero.

And between the automotive parts suppliers, as well as the OEMs, their inventory is so low and they have now started to sell some cars.

I wouldn't say we are seeing an up, but we are not seeing any further deterioration in the automotive sector.

Okay, super.

Thanks for all the comments.

Okay.

Thanks, Andrew.

Our next from Gary Bisbee from Barclays Capital.

Your line is open.

Hi, guys, good morning.

I guess one of the things you mentioned in the US about the professional business was you were seeing large customers reduce the number of contractors.

I guess I wanted to ask from your perspective, how are you doing in that consolidation?

Are you gaining some business in some places, and additional losing in others?

Yes, I would say overall you've got to kind of define business; and that is, we are gaining business as it is defined as new accounts.

But we are still losing revenue, because if we have a very large account who is taking out 500 engineers because they are in the aerospace and aero industry, that's pretty hard to make up.

So our book of business is getting stronger from a platform, but we have some very large accounts who are in industries right now that are a bit more strained, and therefore we are losing contractors maybe faster than we are gaining, which is where you are getting that negative number.

But we are actually spreading our client base out, and -- which gives us a real good feeling for where this will go once we get to the other side.

Okay.

And then, just wanted to make sure I caught all of the sort of one-time-ish things in the quarter.

Obviously, you had the charge that was in the press release, and did I hear you correctly that there was a $4.9 million reversal of previously accrued earn out in the Other EMEA segment?

And I think the other one was a $3.9 million pension credit, and I didn't catch where that was?

Yes, the $3.9 pension credit in Japan -- and I'm not sure if you mentioned, the other element that also came through was related to the French competition case we had, and an accrual that we were able to reverse there as well for $3.9.

So effectively, if you take all of those, that totals up to $12.7 million positive to SG&A in the first quarter against a restructuring charge of $6.9 million.

You know, if you want to put those in the same category -- not that they -- they don't relate to the same thing, of course, but if you total all of those up, you would net out to $5.8 million of what would be one-time type of items that would have impacted the first quarter.

And the restructuring charge, is that -- what line item in the sort of segment operating profit would that fall in?

Is that in corporate expense or --

The majority of that is in SG&A expense.

There is a little bit that falls in the corporate expense line, but not too much there.

But would it be spread across the different regions and --

Oh, yes.

Where the restructuring occurred is where we take it.

Yes, yes.

And pretty much every region, with only a couple of exceptions, felt some of that restructuring charge in the quarter.

Okay.

And just the last question, in terms of the cash, I mean, it sounds like, given that both the stuff you mentioned in France or the working capital, and just the normal declining revenue, strong working capital generation of cash, sounds like you will continue to have good cash flow for at least a couple more quarters.

I guess given that, any interest or inclination to return to some buybacks or to pay down the line of credit -- even though I realize it's a small piece of the debt -- or are you just likely to the stay with the status quo in the near-term?

Well, our cash position is quite strong, you know, at $1 billion; and in the first quarter, our cash flow is -- was quite strong.

A couple of things coming in the second quarter that I will just point out.

One is, as Jeff mentioned earlier, we did pay the fine related to the competition case, which in US dollar terms is about $55 million.

That will come in the second quarter.

However, that should pretty much be offset by some other positives related to the structural changes in France on the DSO and the payroll transition to monthly payroll.

So that will balance each other out.

And then as we look to the balance of the year, while revenues should pick up seasonally from here, you know, earnings will as well; so I would expect that we would have some positive cash flow from here.

So I think from a cash side, we are in good position.

But we are focused on maintaining our liquidity and our strong balance sheet at this point in time, so we would not be considering share buybacks at this juncture.

And so that's how we see it.

Could we pay off the -- some of the debt under the revolver?

That's a consideration.

Not really any big advantage to that, since it's swapped out anyway, but it's something we could do.

And as I said on the call, as it relates to the revolver, we could easily pay that down if we thought it made economic sense.

And we look at that on a regular basis, to look at the interest rate differential to see if that's sensible for us.

Okay.

Thank you.

Our next is from Mark Marcon, Robert W.

Baird.

Your line is open.

I had a question going back to the comments about stability; and I know you are not calling a bottom, and it could be a shelf.

Thank you, Mark.

But just curious, when you are looking at those stable numbers, is that predominantly on the revenue side?

Because if it is, that would suggest that the volume might be getting a little bit better because pricing has come in.

No.

What -- well, we do look at that; but the number that I like to look at most is people out on assignment.

Okay.

So that's the number that to me really -- because it takes out all -- everything else.

Right.

So it's number of people out on assignment last week, and that really is --is correlated right now -- very closely correlated into the revenue side, because we haven't done much in the pricing and there hasn't been much in the way of -- in wage inflation -- in fact, the opposite.

So I think when we're saying stability and looking at those five, now six-week numbers, it's really people out on assignment; it's within hundreds -- I mean, it's that close that we've been seeing.

Okay.

And are you seeing a stabilization in terms of the trend among some employers, just in terms of ordering a certain number of temps -- say a couple of weeks out -- and then actually coming through and not reducing that order?

Yes, because the environment in general, I think, has gotten a bit more stable.

So we are not seeing volatility in orders and then unfilled orders.

It's much more consistent.

Great.

And then, what -- you know, if we look at some of major markets -- and you made some comments about some of your competitors on the pricing side -- how challenging is it -- how difficult do you think it's going to be to maintain the gross margins as the cycle unfolds, and assuming that things aren't going to -- we're not going to have a V-shaped recovery and that things are going to be tough for some period of time?

Yes.

Well, you know, our sales teams would say it's quite difficult; and I think there is some difficulty in there.

Our view is, is that there are still enough clients who understand that when you do something like that you really jeopardize an awful lot of the ability to service at a certain level.

So -- and every country has little different characteristics to it.

Where you have a country where they might have four suppliers, they might have somebody in very low, and they end up never filling in the orders because they can't; and whatever they can, I guess the client can win on.

In the US and UK and others where you have more lead suppliers to actually get more efficiency out of it, those are the ones that get more impacted.

So I would say if we project out and said we are exactly where we are now for several quarters, you will start to see some erosion on the gross margin line on pricing.

There is no doubt about it.

We are seeing erosion, interestingly enough -- which is not as scary of erosion -- in the SMB business.

And the reason I say that is, you can take an SMB business and you can get that pricing back faster, because it's not on contract, It's typically one-off.

So some of that is happening in our Company -- we are doing that strategically -- and it's happening in the competitors.

That doesn't have the same effect of remargining the industry, whereas some of the larger accounts really can do some remargining and really mess around with your overall net operating profit.

Okay.

And then, can you just give some comments with regard to some of the -- what have historically been faster growing emerging markets, in terms of what you are seeing there?

We are getting some reports, for example, out of China that would suggest that maybe things are turning around over there.

And obviously, your business is quite small over there; but are you seeing anything that would indicate that, either in China or India?

Well, you know, I think China and India -- actually, in India we are starting to feel as though there's a little bit more positiveness.

It is still on a relative basis to them.

They have felt a fairly dramatic GDP drop.

But in India, there are still many companies -- worldwide, not just US, but Western Europeans -- that are moving there and expanding there.

So the Indian market, while it's still quite difficult, we see that having a little bit more life in it.

The China market, I think, is getting slightly better; but really hard to call it on that one, because there still is a lot of challenge in the manufacturing world and people moving back into the agricultural.

But when you go to the major cities -- the Guangzhou, Shanghai, Beijings, we are seeing a little bit more bounce in their step, but I would still say it's difficult.

We are in positive territory, but it's a difficult environment.

Understood.

Thank you very much.

All right.

Last question, please.

Yes, our last is from Ashwin Shirvaikar with Citigroup.

Your line is open.

Thanks for taking my question.

The question is, you know, unfortunately again on the stability comment.

If revenues stabilize continue to be at these levels for awhile, say a couple more quarters you see them at these levels, is there anything you can do to sustain or improve the level of profitability?

In other words, are there any short-term benefits on the cost side that go away?

So when you look at our cost basis -- and just take your hypothesis, which isn't what we are saying may happen -- and that is it just stabilizes out at a certain kind of revenue level, you get some seasonal effect out of there, which does help, and I think that creates some more profitability; but if I'm going to the SG&A line, while we can do some things, even at stabilization, if stabilization is there, for us to really move that net income line, we have to do some major things with our branch network, and that's not what we are prepared to do right now, particularly if we are getting into an environment where it looks like it may be -- more of it is over than yet to come.

So I don't think you would see a lot of effect in stabilization resulting in an increased operating profit other than the real seasonal effect -- which does make a big difference because it fills in an infrastructure, and the GP drops to net profit on a much faster basis in a seasonal environment like that.

Mike, anything to add to that?

No, I think that's a good summary.

Okay.

Thank you all.

Again, thank you, everyone, for participating in today's conference call.

You may disconnect now at this time.