ManpowerGroup Inc (MAN) 2011 Q4 法說會逐字稿

Welcome and thank you for standing by.

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

After the presentation we will conduct a question-and-answer session.

(Operator Instructions)

I would now like to turn the meeting over to your host for today's call, Mr.

Jeff Joerres.

Sir, you may begin.

Good morning and welcome to the fourth-quarter 2011 conference call.

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

I will go through the high-level results for the fourth quarter and full year.

Mike will then spend some time going through the detail of the segments as well as the forward-looking items for the first quarter, and any implications at all to the balance sheet and cash flow, as well as the reorganization that we had done in the fourth quarter.

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

Good morning, everyone.

This conference call includes forward-looking statements which are subject to risks and uncertainties.

Actual results might differ materially from those projected in the forward-looking statements.

Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements can be found in the Company's annual report on Form 10-K and in the other Securities and Exchange Commission filings of the Company, which information is incorporated herein by reference.

Thanks, Mike.

The fourth quarter by many measures was a strong quarter when you look at some of the winds in our face that we had to deal with.

We continued at the same time to follow through with our execution, and it resulted in a very strong quarter.

We were able to meet our expectations of profitability, while experiencing slightly worsening revenue trends throughout the quarter.

Our revenue was up 6% in constant currency and 5% in US dollars to $5.5 billion in revenue.

We experienced the strongest revenue growth from our Asia Pacific region as well as profitability increases.

Our Asia-Pac region increased revenues in constant currency by 14% and more than doubled their OUP.

Our gross profit in the fourth quarter increased to $935 million and our operating profit came in at $150 million, while our net income increased 47% to $80 million before the reorganization charges.

Earnings per share were $0.78, including a $0.20 charge for reorganization.

On a full-year basis we achieved record revenues of $22 billion and sales of $23 billion.

Our operating earnings ended at $545 million before reorganization.

It was a hard-fought increase of 52%, and our earnings per share -- also before reorganization -- was $3.24, a 76% increase in constant currency.

We continue to drive for efficiency, with our SG&A as a percent of gross profit improving by more than 400 basis points.

We executed quite well in the fourth quarter.

We were able to maximize the strategies that we put in place and continue the execution from our operational perspective.

Now for additional information regarding the segments and a bit more detail, I will turn it over to Mike.

Okay.

Thanks, Jeff.

I will follow my usual format with some comments on the quarter followed by a discussion of each of our segments and then a review of our balance sheet and cash flow.

Lastly I will comment on our outlook for the first quarter of 2012.

As Jeff noted, our earnings per share for the quarter came in at $0.78 per share, which includes a charge of $0.20 related to reorganization charges.

Therefore on a pro forma basis, earnings per share was $0.98, exceeding our guidance range of $0.85 to $0.95 per share.

$0.08 of performance relative to the midpoint of our guidance relates to operational earnings exceeding expectations by $0.05, our lower tax rate adding $0.05, and our lower share count adding $0.01.

Currency impact was neutral, whereas our forecast expected a positive impact of $0.03 per share.

Revenue in the quarter came in at $5.5 billion, representing a 5% increase over the prior year.

Revenue growth in constant currency was up 6%, right in the middle of our guidance range of 5% to 7%.

Our fourth quarter revenue growth was aided by acquisitions completed in the second and third quarters, and this added about 1.5% to our growth rate in the fourth quarter.

Operating profit in the quarter was $130 million, or $150 million before reorganization charges.

Operating profit before reorganization costs was up a strong 29% in the quarter with a margin of 2.7%, 50 basis points above the prior year.

Our operating profit margin came in at the high end of our guidance range as a result of our gross profit margin also being on the high end of the range, while SG&A expenses were well controlled and came in about as expected.

Our gross profit margin came in at 17.1%, which was up 60 basis points sequentially, but down 30 basis points on a year-over-year basis.

The primary reason for the decline in gross profit margin was a 30 basis point decline in temporary recruitment gross margin.

This decline is about as expected, and relates to the higher unbillable bench time in a few markets and higher growth from large key accounts at lower gross margins.

The gross margin was also negatively impacted 10 basis points in the quarter as a result of contraction in the higher-margin outplacement business, and 10 basis points related to the impact from an acquisition in China earlier in the year.

Permanent recruitment fees had a good performance in the quarter, up 11% in constant currency, representing almost 12% of our total gross profit.

This favorably impacted our consolidated gross profit margin by 10 basis points.

Our market-leading RPO offering was a strong contributor, with fees up 23% in constant currency.

This is an area we continue to invest in as clients are recognizing the value of this ManpowerGroup Solutions offering.

Our selling and administrative expenses declined from $1.2 billion to $805 million in the quarter.

After adjusting for reorganization charges in both years and impairment charges in 2010, our SG&A expense is down slightly in constant currency on 6% revenue growth.

This reflects strong productivity in the quarter, as SG&A expenses, as adjusted, declined from 87.1% of gross profit to 83.9% of gross profit.

As I flagged on last quarter's conference call, we took a reorganization charge in the quarter of $20.5 million, or $16.3 million after-tax, resulting in a charge of $0.20 per share.

This reorganization charge primarily relates to office closure and consolidation costs and severance costs in Northern Europe in Right Management.

We expect this charge will result in savings in excess of $30 million in 2012.

Before we turn to the operating segments, I would like to review our gross profit by business line.

In line with our overall business strategy, we continue to invest in our higher-value service offerings, which now account for almost one-third of our total gross profit.

Within Experis, which accounts for almost 20% of total gross profit, we provide professional interim and permanent recruitment services primarily in the IT, finance, and engineering verticals.

Our Experis gross profit was up 6% in the quarter.

Our ManpowerGroup Solutions represents almost 10% of total gross profit and includes RPO, MSP, Talent Based Outsourcing, Borderless Talent Solutions, and strategic workforce consulting.

Our value-add solutions offerings continue to resonate extremely well with clients, with gross profit growing 25% in the quarter.

Within Right Management we offer outplacement solutions and talent management.

This comprises about 5% of total gross profit.

I'll discuss this later in the call as it is a separate segment.

Finally, our Manpower business, which includes temporary staffing and permanent recruitment services, is about two-thirds of our total gross profit.

Gross profit growth in this business moderated to 2% in the quarter with growth in the industrial skills and some contraction in the office skills.

While the growth of Manpower is currently impacted by economic factors, we remain bullish on our long-term prospects given the secular trends towards flexibility across the globe and the new opportunities presenting themselves in emerging markets, which have very low temporary staffing penetration levels.

Now, let's review our operating segments.

Revenue in the Americas came in about as expected at $1.2 billion for an increase of 5% in constant currency.

Operating unit profit in the Americas was $38 million, an increase of 35%, or 37% in constant currency, excluding reorganization charges in both years.

The operating unit profit margin before reorganization costs was 3.5%, an increase of 80 basis points over the prior year.

This higher OUP margin was a result of a higher gross margin and improved expense efficiency.

Our US business, which represents about two-thirds of the Americas segment, had a decline in revenues of 1% to $766 million, but an increase in gross profit as we continue to trade out lower-margin business for higher-margin business.

Our Manpower staffing business, which represents about 55% of US revenue, saw revenue contract 1% in the quarter as we continue to focus on price discipline and gross margin improvement.

Our staffing gross margin was up in the quarter as we have more than fully offset state unemployment tax increases with price adjustments.

The gross margin also benefited from some HIRE Act credits related to 2010 that we were still able to claim this year.

As we went through 2012 we have experienced further unemployment tax increases from many states, as expected, given the current unemployment levels.

We expect to fully pass on these tax increases through further price adjustments, and we have already repriced in excess of 80% of our business.

Our Experis business, which represents 40% of US revenue, was down 2% in the quarter.

While we are seeing some slowing in growth of professional services, the decline was primarily the result of a few large projects winding down in the financial services area and one large client making the decision to bring their business in-house.

Permanent recruitment was strong during the quarter, up 50% over the prior year.

This was driven by good growth across all three recruitment offerings -- direct hire, temporary to permanent conversions, and RPO.

SG&A expenses, excluding reorganization charges in both years, were down more than 2% as the US continues to drive productivity across their network.

Operating unit profit before reorganization charges was $28 million, up 38% for an increase of 100 basis points to 3.6%.

Our Mexico operation had an extraordinary performance in the quarter with revenues up 18% in constant currency and OUP up 28% in constant currency.

The OUP margin expanded by 30 basis points due to strong expense leveraging.

Revenue growth in Argentina was strong in the quarter, up 31% in constant currency.

But this was driven by inflation as billable hour volume is slightly down year on year.

Revenue in Southern Europe came in at $2 billion, right in line with the expected 6% constant currency growth.

Revenue growth on an organic constant currency basis was about 5%.

Operating unit profit came in at $43 million, an increase of 14% in constant currency, excluding the reorganization charges in the prior year.

OUP margin improved 10 basis points to 2.1%.

Gross margins in the quarter were up 20 basis points year-on-year which reflects our growth in higher-margin Solutions and SMB business.

Permanent recruitment fees, which represented about 9% of gross profit, were flat year-on-year.

Recruitment fees excluding the impact of the declining Pole Emploi contract increased 12% over the prior year.

Within Southern Europe, France represents three-fourths of the segment.

French revenues were up 6% in constant currency to $1.5 billion.

OUP in France was $21 million, an increase of 7% in constant currency, before the prior-year reorganization charges.

Gross margin in France was up over the prior year partly due to the higher-margin IT Solutions business we acquired and due to our sales focus on higher-margin SMB business.

Our team did a good job managing the lower payroll tax subsidies this year by passing these costs on to clients.

During the fourth quarter, we recovered over 90% of the lost subsidy.

For those clients who did not accept the price increase, we are doing a complete account profitability review, and in some cases we will exit the business if it is no longer profitable.

SG&A expenses were up 5% in constant currency in France, primarily as a result of the impact of acquisitions and acquisition-related costs.

Excluding these elements, expenses were up only 1%.

Revenue growth in Italy slowed quite dramatically in the fourth quarter, coming in at 5% in constant currency compared to 14% growth in the third quarter.

No question the sovereign debt crisis and local economic challenges have resulted in lower demand for our services.

Despite these top-line challenges, our team was able to produce OUP growth of 25%.

Our OUP margin increased 100 basis points to 6.4% as some pressure on the gross margin was more than offset by SG&A productivity.

The Spanish market is also feeling the impact of the economic crisis, with revenues down 5% year-on-year.

Revenue in Northern Europe came in slightly below expectation at $1.5 billion, an increase of 4% in constant currency.

OUP before the impact of $12 million of reorganization charges in the current year was $64 million, an increase of 1% in constant currency.

OUP margin was down 10 basis points as the gross margin was down year-on-year as a result of an increase in unbillable bench time in Germany and Holland and stronger growth in some of our lower-margin key accounts in the UK.

Permanent recruitment fees grew only slightly in the quarter, reflecting the slowing hiring trends across Europe.

Permanent recruitment gross profit represents 13% of segment gross profit.

SG&A expenses were tightly controlled and came in below the prior year.

Within Northern Europe we saw strong growth in our Nordics operation, which was up 8% in constant currency with an OUP increase of 28%.

Our Manpower UK business continues to deliver a very strong performance, with revenue growth of 12% in the quarter and OUP growth of 28% in constant currency.

We saw the most significant easing of demand in the German and Dutch markets.

Constant currency revenue in Germany contracted by 6%, or 2% on an average daily basis.

And the Netherlands contracted by 2%, but grew 3% on an average daily basis.

Demand for IT services remained strong during the quarter, with our Elan business up 10% in constant currency.

Growth in the UK market improved to 14%, whereas growth in mainland Europe softened from 14% last quarter to 4% in the fourth quarter.

Our performance in the Asia Pacific Middle East segment exceeded expectations on revenue and OUP.

Revenue came in at $695 million, an increase of 14% in constant currency, or 5% on an organic basis.

Operating unit profit was very strong, more than doubling to $22 million with an OUP margin of 3.1%.

This margin expansion primarily reflects very good cost control, with new revenue growth being addressed with the current expense base.

After three quarters of flat revenue growth, the Japan operation was able to achieve 3% constant currency revenue growth in the fourth quarter.

Much of this growth came from our higher-margin Solutions business, which resulted in strong OUP growth in excess of 40% for the quarter.

Revenue growth in Australia slowed in the quarter to 2%.

But OUP growth was strong, more than tripling that of the prior year.

Our business in China continues to do extremely well as we integrate the acquisitions made earlier in the year.

On an organic basis, revenues were up almost 60%.

Revenue for Right Management came in as expected at $80 million, a decline of 9% in constant currency.

The countercyclical outplacement business, which represents about 60% of Right's revenue, shows signs of stabilization but still contracted 8% on a year-on-year basis.

While we are seeing softening in a number of economies, we're not at the point where companies are making mass layoffs, which is what drives the outplacement business.

Our talent management business also declined about 8% in the quarter as we are seeing clients become more cautious on discretionary spend in the talent management area.

OUP for Right was about breakeven for the quarter before the $6 million reorganization charge.

This reorganization charge relates to streamlining our office and management structure to better align with current revenue levels.

We anticipate further charges related to this reorganization plan later in 2012 as we continue to drive a more effective cost base.

Now let's turn to the cash flow and balance sheet.

Free cash flow, defined as cash from operations less capital expenditures, was quite strong in the quarter, coming in at $125 million.

Free cash flow for the year was $4 million, which is down from the prior year due to one-time income tax payments made earlier in the year and a slightly higher DSO.

Our DSO for the quarter was 57 days compared to 56 days in the prior year.

This increase primarily relates to a shift in mix to key accounts with longer payment terms.

During the quarter, we repurchased 1.7 million shares of stock for $62 million, bringing our total purchases for the year to 2.6 million shares for $105 million, with an average purchase price just below $40 per share.

Currently, we have an additional 3.6 million shares authorized for repurchase.

Our balance sheet at quarter-end was very strong, and our credit facility provides us with good liquidity going forward.

We ended the quarter with total debt of $700 million, just slightly below the prior quarter due to currency changes.

Net debt was $120 million, an improvement of $20 million from the prior quarter.

Our leverage statistics remain comfortable, with total debt to total capitalization stable at 22%.

At year-end our $700 million of debt outstanding was primarily composed of two components, a EUR300 million note coming due in June of 2012 and a EUR200 million note coming due in June of 2013.

We expect to refinance the note coming due this year in the public debt markets or through our new revolving credit agreement that was put in place in October.

This agreement is an $800 million facility that currently has $798 million available for borrowing.

Finally I would like to comment on our outlook for the first quarter of 2012.

No doubt most of the markets we are in weakened through the fourth quarter, and we expect this softening trend to continue through the first quarter.

Assessing how weak the economies will get and how demand for our services will respond in these weaker economies is very difficult at best.

Nonetheless I offer the following thoughts based upon what we see today and the trends we expect in the last two months of the quarter.

Overall we expect revenue to be flat to slightly up against the prior year in constant currency.

Based upon where foreign currencies are today, this would suggest a revenue decline of approximately 2% on a reported basis.

I expect constant currency revenue growth to be flat to slightly up in the Americas and Northern Europe, and flat to slightly down in Southern Europe, all in constant currency.

Our Asia Pacific Middle East business will still benefit from good growth in emerging markets and modest growth in Japan, resulting in constant currency revenue growth between 7% and 9%.

We expect Right Management revenue to decline between 7% and 9% in constant currency, similar to the fourth quarter.

Our gross profit margin should range between 16.6% and 16.8%.

We expect the operating profit margin to range from 1.4% to 1.6%, which is down about 20 basis points from the prior year.

We expect our tax rate to be at 56% which includes the French business tax.

Excluding the French business tax, our tax rate will be at 38%, right in line with the prior year.

This will result in earnings per share in the range of $0.30 to $0.38 per share, with a negative currency impact of about $0.02.

We expect our weighted average share count to be 81 million shares, which reflects the share repurchases that were completed in the fourth quarter of 2011.

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

Thanks, Mike.

The fourth quarter was a very solid quarter.

We were able to achieve solid revenue growth and even better operating leverage.

In 2011 we clearly leveraged our capacity and footprint by adding an additional $3.1 billion in revenue, finishing the year just over $22 billion in revenue and $23 billion in sales.

As Mike talked about, our expense management as well as efficiency and productivity that we worked on throughout 2010 and 2011 resulted in an increasing operating profit percent by 70 basis points.

Clearly our geographical diversity and portfolio of offerings assisted our successful fourth quarter.

A few highlights geographically.

Mike mentioned the US operation.

The US operation did an outstanding job, with gross margin increasing by 100 basis points even given the setback of state unemployment tax.

Additionally, we were able to improve our operating profit in the US and the Americas region to 3.5% for the second quarter in a row, and on an annual basis over 3%, even given the fact that we did not have strong revenue increases.

Also, our Japanese organization deserves a strong callout, given the difficulties in the Japanese market.

We actually did extraordinarily well, with revenue increases in the fourth quarter of 3% in constant currency and profitability increase of over 40%.

And for the year, our profitability was up over 20%.

Much of this is attributed to our switch to Solutions and our mix of business.

Also our UK operation assisted in the quarter, with UK business up 12% and profit up 28% in the fourth quarter.

For the year, our UK business increased profitability more than 40%.

Our Solutions business worldwide is gaining momentum.

We were able to continue to expand our Managed Service Offering, both the MSP and vendor management, nearly $6 billion now, or annualized our underspend.

And we have substantially increased our RPO offering with 125 wins throughout the year.

Overall, a very good year for those two components of our ManpowerGroup Solutions business, and overall a very good year for ManpowerGroup Solutions, which came in over $1 billion in revenue and up more than 30% over 2010.

2011 was a very successful year for us in many more ways than just financially.

We set ourselves up to be an even stronger Company in several areas.

Differentiation, which is about how we articulate the value that we bring to our client, and building our brand and capabilities to do more while improving our gross margins.

Also, diversification, which is broadening our portfolio of solutions and services to provide more value to our clients while also improving our gross margins.

And efficiency and productivity, which is a way of categorizing how we evaluate our systems and processes to increase our speed and cost effectiveness.

In 2011, in all of these categories, we had a banner year.

We introduced the Human Age, a major thought leadership platform that continues to resonate with clients, the press, and internally.

Additionally, we enhanced and consolidated our brands.

This has gone extremely well.

We are confident that the underlying secular trends of our business are as strong if not stronger than ever.

Secular trends in the Manpower business, the classic staffing business, continue to ramp up in the mature markets and in the emerging markets.

In the mature markets, clients no longer question their requirement for agility and flexibility.

The only question is how much, when, and where.

The secular trends are even stronger within Experis.

Companies are beginning and knowing to become much more agile in their IT, engineering, and finance functions.

They are turning to more condensed projects, which in turn lend themselves to more interim resourcing.

Of those IT is clearly the strongest, and we are now starting to see a slight pickup in the finance area.

Our move to one trusted brand with a business model that is unique and certified by our locations is clearly differentiating us.

The size and scope of our operation is unparalleled, and what we are seeing is that it is eliminating much of the discussion about the small boutique firms and also eliminating the discussion of companies that have their own competing brands and are trying to market this to the same client with those different brands.

Right Management continues to struggle a bit with career transition business, as we are seeing companies with less people to out-place and therefore we are seeing a market move just a bit sideways.

We recently at the beginning of the first quarter started to see just a bump up in how the conversations are taking place and how companies are starting to plan for some potential downsize.

However, this has not translated yet into any increase in revenue in our career transition business.

At the same time, we are clearly seeing secular trends of the need and want for talent management, even with the immediacy of it weakening right now because of the economy.

We are the largest coaching business in the industry and are in the top five in the consulting when it comes to the workforce strategy part of our business.

This clearly has allowed us to raise the level of conversation with our clients and have the ability to offer high-impact, quick time-to-value solutions, which is clearly needed in today's world.

Our Solutions business is also experiencing solid secular trends.

Clients realize that in order for them to achieve their productivity and expense targets they must do business differently.

Our RPO, MSP, and permanent recruitment businesses are a great example.

Each of these offerings is growing because clients want to focus more on their core, while they recognize our strength in these areas.

The secular trends in the emerging markets are also very real.

Our growth in China was over 400% in 2011; and in India it was nearly 38%.

So we are seeing the emerging markets continue to move fast in a very fast cadence, and our presence that we have there is working very well as we have invested over the last three to five years.

Most recently we are seeing the payoff as it is increasing our profitability and our relevance in those markets.

2012 does hold potential challenges.

What Europe is going through does have a dampening effect on hiring.

It is also creating hesitation by companies outside of Europe.

Clearly we need to have a cautious outlook, primarily because of the European situation.

But this does not mean we are cautious about our ability to capitalize on our success in creating a stronger organization in 2012.

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

(Operator Instructions) Andrew Steinerman, JPMorgan.

Good morning, gentlemen.

I want to talk about your thoughtful strategy for purging business.

It sounded like it was primarily in the US; but I heard a touch of it perhaps may be coming in France.

I wanted to know if you felt like the purging process, which obviously has worked, is behind us or behind us soon.

And I also wanted to get a sense if you have any feelings on how the US market started at the beginning of this year.

Is it in any way fogged by purging?

Thanks, Andrew.

Yes, a couple things on that.

Purging is always something we take very seriously because what we don't want to do is to stomp away from business, and we are not.

We have a long discussion with our client, talking about values, what we are trying to do, why we are trying to do it.

And in the end, it may end up maybe because in the case of SUTA, which really prompted a lot of those discussions early on in 2011, which was there was just not going to absorb or let us pass along SUTA; so we had decided to give them a period of warning that we would need to move on.

It has worked well.

It is increasing our margin.

But more importantly, it is giving us time to work on other accounts.

So it is a strategy.

It is a strategy that we felt, based on the market gains that we had made in the last two years in the US market, that we were able to take that risk.

So we evaluate it even now.

My sense is it would be less aggressive in the US, but that still doesn't mean we are not going to do it, because we have to hold up the value of what our offering is.

And there are certain clients who just are looking for something very different.

So probably a little less in the US, but we would continue.

On the French side, what we've really been doing is spending the last 18 months working to the point where we would have the opportunity to be in a position to take some of those accounts that just are not the right accounts, the clients who are just not doing certain valuing.

And what we have seen now is, through a lot of hard work in our French operation, the deeper penetration into the small/medium size business part, a bit more of a share of wallet from some other large clients that we picked up because there might have been some quality problems on the competitors' side.

It is putting us in a position where we are probably 2, maybe 3 points ahead of the market in France.

And now we are considering -- okay, what do we do, how we do that?

But it will be very careful.

On the start of the US market, clearly there are two things if you look at -- as we look into the current first quarter to first month.

Mike talked a little bit about what we're thinking about with the US.

Yes, we haven't anniversaried all of those accounts that we might have given to another competitor.

Additionally, we had a book of business in Experis that was heavy on the finance and banking side, and there are a few projects that ran off where they decided to bring in-house.

So our trends in the US seem to be very much stabilizing, about what we predicted.

So I would say we are going to be very outwardly focused, meaning not overly aggressive in pricing, but outwardly focused to make sure that we pick up the right kind of market share.

Sounds good, Jeff.

Thanks.

Sara Gubins, Merrill Lynch.

Hi.

Thank you.

Good morning.

In France it looks like you held up better than the market overall in the fourth quarter.

I am wondering if you could give us some more details about what you are seeing there and how that is trending in the early part of this year.

I think we did, and some of it had to do with what I had spoken to Andrew about.

Is that when you try to make a different kind of sales structure, discipline, our operations down at the branch level in France have improved greatly over the last year in achieving their key performance indicators.

We focused on verticals and client segmentation.

So we have done all of those things.

Okay, and so far this year?

And now, what we have seen is that as we roll into this year, you have got to be really very much standing on guard.

There are some challenges in Europe, which might be an understatement or just so obvious.

But the fact is that France is in the middle of that.

There is an election in May.

There are some things that have come out.

So what we are seeing is actually not much worsening, but clearly we wouldn't see the first quarter having any kind of inflection point on the way up.

There could be some very devastating news that comes out three weeks or a month from now that none of us would be aware of.

But I would say that right now we are feeling fairly stable in France would be my view.

Mike, anything to add to that?

Yes, just maybe to put a little bit more specific color.

I think stable is the word as we look at the last four weeks in terms of where our monthly volume numbers have been running.

From a revenue perspective through January, I would estimate we are running down on prior year low to mid single digit, so clearly a little weaker than what we saw in December; but clearly it is not following off a cliff either at all.

So right now the last couple weeks have looked pretty similar.

Okay, great.

Then also focused on Europe, could you talk about what you are seeing in small business trends versus large?

Well, where we have the focus on small business, which Italy is -- does a lot, by nature of the marketplace, we have improved our small business presence.

And there doesn't seem to be as much of effect on the small business community in France.

Switching over to Italy, that small/medium-sized business is seeing some effect.

There is no doubt about it.

Italy is going through lots of changes right now in the banking system, in austerity programs, in lines of credit, as well as just consumer demand.

So we have seen the difference between the third quarter and the fourth quarter was probably the sharpest that we saw across Europe in the downturn, which happened in Italy.

We still see a little bit more coming down in Italy because that small/medium-sized business is affected.

The real question is -- can this get stabilized both from a confidence perspective and also from a technical perspective?

I think you would start to see that come back.

But it would be far too early to say when that would happen.

Okay, great.

Then just last question.

Any more detail on margin expectations in the first quarter by segment?

Thank you.

Yes, you know, we tend not to go into detail by individual segments.

Overall, we're looking for about 20 basis points down at the operating margin level.

As you look across the board I would expect probably each of the operating segments to be up just a little bit less than the prior year.

Asia-Pac might be pretty much in line with prior year, would be my sense for things.

What you are seeing there is effectively little top-line growth; gross margins should be pretty stable across most countries or most segments.

And then from an expense standpoint, we will have just a slight expense growth, probably overall less than 1% in constant currency; and that is really just reflecting some of the statutory salary increases and that type of thing.

So expenses are tightly controlled, and so just a very slight delevering in the first quarter given where we are expecting top line right now.

Thank you.

Paul Ginocchio, Deutsche Bank.

Thanks.

Just a question on the operating leverage.

It is pretty significant in where revenue is down.

Can we just talk a little bit where you are getting that, and then just maybe where the office closures were located?

Thank you.

Thanks, Paul.

Yes, I think from an overall operating leverage standpoint, clearly that is something that we have been focused on all year long.

Incremental margins in the fourth quarter were quite strong as we really focused on driving as much top line as we possibly could while just holding back the costs.

I guess when you actually look at it from a market standpoint, we are getting really good leverage and really got good operating leverage I would say across virtually all segments, and Asia-Pac really kicked in as well this last quarter.

I think when you look at it, it is a lot of focus on the fundamentals.

It is driving productivity in those offices, looking at all of our processes end to end, and how do we accelerate the intake process with our candidates?

How do we get them assessed and out on assignment much more quickly?

So it is really driving every process along the way.

So there is not one thing I would point out.

I would say it is just a continuation of our overall productivity and efficiency strategic driver that we have been driving on, and that is starting to show up in the results and really has throughout the year.

The first quarter is a little bit more sensitive, of course, just given the lower volume quarter.

So if revenues are a little bit stronger we will feel a little bit more leverage coming through; and of course it works on the opposite side as well.

On the office closure perspective, we really aren't moving out of any markets at all.

Primarily in Europe what we have found -- and we have been testing this now for about two years, and the test results was coming back quite positive -- is in some of the major cities we are doing consolidation.

So we have done it in Amsterdam.

We are looking at doing it in Berlin.

We have done it in London.

Instead of having the Starbucks strategy, if you will, we are moving more to a consolidated strategy given that people are clearly more mobile, meaning they will go outside their smaller area within a major city.

It gives us a chance to have more scale in that office.

It cuts down on our real estate, and it actually creates a much better dynamic in the office.

At the same time we have opened offices.

We have opened offices in China.

Some of them in -- in fact, the majority of them organic.

We have continued to look at opening offices and have opened offices in Brazil and a few other locations within South America.

So net-net, it is about even, if you will.

But there is no market that we are exiting from in any of the geographies that we operate in.

If you look at the reorganization chart, Paul, the $20 million, it's pretty much broken up.

About half of that is severance costs, about half of that is office costs, which the office costs would relate to lease commitments as well as fixed asset write-offs, leasehold improvements in those offices.

Well, and that -- to bring to that reorganization, it falls as Mike said into two areas, Right Management and Experis.

So let me describe both of those.

In the case of Right Management we are able to -- and by keeping the integrity of that brand, which is really important to us and the independence of that brand -- we have been able to co-domicile in some places where it really worked well in markets.

A lot of that taking place in Asia.

But also in the case of Experis, where we wanted to bring it into one brand on an operating model that would really differentiate ourselves in the market, there are some side benefits to that.

We don't have an Elan office, a Manpower Professional office, and a Vitae office; we now have an Experis office and we have been able to put that together.

In the US, we were able to take our Jefferson Wells office and turn that into the Experis finance.

So there is cost savings, probably -- what?

About half of those in the reorganization sit in that area on the Experis side.

We didn't do Experis for that intent, but we have the side benefit of being able to get some good consolidation of real estate, people, and management.

Let me just stick with this.

Was there a headcount number related to that severance?

And second, it doesn't sound like you have taken any capacity out or your ability to grow.

It sounds like it is just at the edges.

There was some headcount in there, particularly at the leadership level where we have done some management restructuring, particularly along those lines I just spoke about, in Experis as well as in Right Management.

But it probably is -- a lot of it is on the back-office and systems sides as well.

Yes, it would be in the neighborhood of 1% of our overall global headcount.

Thank you.

Jeff Silber, BMO Capital Markets.

Thanks so much.

I was wondering if you could talk a little bit about the pricing environment in some of your major markets across the world.

So pricing for the most part is -- all things relative -- is pretty stable.

That doesn't mean that we don't fight every day, and as you have heard in some cases walk away from some business.

But what we aren't seeing is any further ratcheting down.

There are a few markets that might be a little bit more competitive than others, but none of the real major markets.

So I would say pricing has become a bit more sophisticated.

And as a result, we are seeing less ridiculous.

Now we would see in France and a case in Italy where there is a local competitor who in a couple of those cases with a DSO of 75 days, I don't know how you can return an adjusted profit on that, based on that.

So that still happens, but that was happening before.

Our major account set, they are really looking for us to make the switch from what we are doing now, while not abandoning it in total, but what we are doing now, to more Solutions.

And that is why you saw our Solutions business going up.

They are saying -- we have already got you as far as we can on the so-called gross margin; what we would like you to do now is perform at a different level.

And that is why our Solutions business is growing so quickly.

All right, great.

As a follow-up, I wanted to focus a little bit on the UK.

At the beginning of last quarter, the components of the Agency Worker Directive came on full force.

Did you see any impact from those new regs on your business?

You're right.

The Agency Worker Directive in the UK started in October and was to be implemented throughout the year.

We have had lots of discussions and scenario plannings.

We have not seen much effect at all coming in through the end of this year.

We still have the first part -- maybe the first half of the first quarter where we could see some effects.

No doubt there are some clients that have made different decisions because of that parity pay; but it is a very small amount.

So at this point we do not see it affecting our UK numbers as we move into 2012.

I think what we are finding there, Jeff, our clients are really valuing flexibility; and flexibility is the priority now.

So it really hasn't had a big impact.

As Jeff said, perhaps a little bit along the edges, a few clients, but not a dramatic impact.

All right.

That's great to hear.

Thanks so much.

James Samford, Citigroup.

Great.

Thank you.

Just wanted to touch on the US again, and just the purging issue again.

How should we think about maybe an organic growth rate relative to clients you have exited?

And potentially when should we lap some of the larger efforts that you have made in terms of streamlining your client base?

Well, it depends on how the clients that we purge -- some of them have seasonality, so it is not just a straight anniversarying of when we left them in June or they left us, that come the next June that it perfectly lines up across those quarters.

I would say that when you look at it, if you were to look at 2%, some number like that, it might be it.

But it's -- and our view would be as we look into the future we are going to continue to do it, probably not at the scale we did in 2011.

But I just think it is a good business practice once we find out that there are just some clients, as we have a discussion with them, that they're looking for something different than what we would be offering.

So I would expect it to continue, but just not at the same level.

So as we look at 2012, our focus -- as it was in 2011 but even more intense -- our focus will be to really bring some of the Solutions we have out, some of the ways that we have implemented salesforce.com, our sales process.

So we are optimistic we're going to get back on the trail after we have kind of readjusted our business a bit, get back on the trail of getting up on top of the market.

If I -- just a quick follow-up.

I think you mentioned that you are pushing into more middle-market in the US as well, and I think you lost a large client this quarter.

How should then pan out this year?

Should that help diversify away from some of the large losses?

I think so.

While we may have lost a large client, we win many more large clients than not, so I would say 2012 will be an equal struggle to make that balance work.

Because we can pick up $100 million, $200 million, $300 million.

We have got a couple bids on the table right now that are in the final stages that are for a couple hundred million dollars.

So we are still going to have a very solid and growing book of what we would call key or large account business, but we are going to work our tail off to balance it through our metro market strategy and our SMB strategy.

Perfect.

Thanks.

Kelly Flynn, Credit Suisse.

Thanks, guys.

My question builds on Sara's earlier question about what you are seeing in Q1 so far.

Are you seeing markedly worse trends in January versus Q4?

Or does your guidance just imply that the Q4 trends continue in Q1?

I think you answered it for France.

But I just wanted you to specifically address US and Italy.

Sure, yes.

Good question, Kelly.

I think overall it does depend a little bit by market.

I think when you look to the US market and a few of the markets in Asia, what you would see is some stability going into the first quarter.

And there is enough noise in the first couple of weeks starting out the year that you don't know how much weight to put on it.

But I would say overall the US in January looks as good as December, if not a little bit improved on December overall from the couple weeks we have seen so far.

When you look to Italy, fourth quarter was up 4% in revenue terms.

It now is -- we're seeing contraction in that market.

So that market clearly has become a little bit weaker, and contraction would be in the mid-single digit level, something like that right now.

So again, not falling apart by any means, but certainly just some easing in overall demand.

So that is what we are seeing there.

Northern Europe would be a little bit mixed by marketplace, but I would say in general things have started out the year okay.

In some markets maybe about like December, other markets maybe just a touch softer, but overall I would say okay.

In terms of the overall guidance for the first quarter, anticipates that we probably will see a little bit further softening in February and March, but not dramatic further softening in February and March.

So that is how we're looking at it right now.

Okay, great.

Then if I could just ask a related high-level question of Jeff.

I know you are not an economist, but investors obviously seem a little bit more optimistic about macro in general and Europe specifically.

But it seems like from what you said in the press release about your guidance there are risks to the downside.

Just building on those two comments, what if any are the meaning positive signs on the cyclical front in Europe?

Or are you just not seeing any?

No, I -- so I am glad you brought it up, because as Mike knows, I rewrote that sentence about 25 times in the press release.

But I -- having come back from Davos, I came back with a just slightly different mindset.

And that is, that there is a real commitment that this difficult problem, whether it be some forms of fiscal union, or austerity, or the balance between austerity and growth, are actually being achieved.

And that the banks, which were also represented there, have had the time over the last year -- I mean if you think about it, it was last year at this time when Greece really announced that they were in a lot of trouble.

So while this has been long and drawn out and we would all like answers and fast action, it is not going to happen.

And it shouldn't happen, because it is a very complicated process.

So while there could have been this race for an answer, which is what was being driven in the October and November time frame, that was scaring a lot of people because it would have been pretty tough or draconian or not agreed to.

Where we are right now is that -- yes, this is going to be difficult.

Yes, there is a slowdown in Europe.

But my sense is right now is there is a lot less panic.

Optimism would be too strong of a word, but more of a satisfaction of -- we will make it through this without a major drop.

Now, having said that, I couldn't say that in the press release.

So what I said in the press release is -- look, things look pretty good, all things considered, but there is this wild card.

And if this wild card ends up coming apart for reasons that I would have no idea, but I could imagine, then of course the game changes.

And that was really what I was trying to get across in the press release, is that -- that is the wild card, and I think it is logical to consider it a wild card.

But given the backdrop it is actually less likely than it might have been 30 or 45 days ago.

Okay.

That's a great answer.

Thanks a lot.

Thomas Allen, Morgan Stanley.

Hi, guys.

Can you talk about your capital allocation strategy a little bit?

You bought back more stock this quarter than any time since 2008.

Should we view this as any change in your use of cash?

Then related, how you are thinking about the emerging market opportunity.

You made a number of acquisitions that were big enough to call out early last year, and they appear to be doing very well.

But are you happy with your footprint now, or could that grow?

Thanks.

Sure, Thomas.

So I think -- you know, clearly we are always tuned into our overall capital structure; and probably one of the primary things that we're looking to do is maintain an overall investment grade rating, just because that gives us more access to debt markets overall.

So whatever we do, it is in the context of that.

As we look at the world, on the acquisition front we're always looking at opportunities to either accelerate our professional and solutions strategy or expand within some of the emerging markets.

Those are the two things that we are always looking at, and so those are always possibilities and those are always on the board.

Dividends, of course, is part of one way to get cash back to shareholders, but then share buyback is the other way.

As we looked at things in the fourth quarter and where things stood from an overall cash standpoint, we did have cash we felt would be thoughtful to get it back to shareholders overall.

But clearly we do it in the context of the overall share price; but we don't think we are too smart that we're going to be able to pick the share price, pick the bottom etc.

But certainly in the levels that they are at today, we certainly felt that this was a good time to return some cash back to shareholders.

So I don't think it has been a dramatic change.

If you go back prior to 2008 you would have seen over a four-year period we returned about $1 billion of cash to shareholders, so this has always been part of the strategy.

I don't think there is anything new here.

Clearly in 2008, 2009, the depths of the recession we were certainly more focused on liquidity then, just given the fact that capital markets weren't very reliable.

So we backed off on any type of share repurchase strategy then.

But certainly we see the world in a different light today.

And I would just add, yes, we are happy with the acquisitions we have made.

We are a year behind, whether it be WDC in India, what we have done in the three in China.

They have integrated nicely; they have offered great management; they are working with our branding strategy.

So we are happy.

Having said that, we know that because you have a few good acquisitions doesn't mean you should start getting more aggressive, because that is when they start piling up bad ones.

So we are as disciplined as we have been in the past.

We don't need any acquisitions, so that gives us the advantage to really do some picking and choosing.

We are growing very fast organically in those emerging markets.

Primarily China and India is where you would see that, where if you looked at Hong Kong and a few of those, those aren't really emerging; they have been quite mature.

Both of those growing nicely; both of those have opportunities for us to take what we have done -- which has always been our strategy.

If you go all the way back to Elan where they were a $300 million revenue company and they were $1.2 billion last year.

So our strategy is still intact on that.

And as Mike said, if there are some good ones out there we will look at it, but we don't get overly eager on any of these.

Because we know that when you do them and you do a lot of them your stomach gets upset pretty quickly.

Okay.

That's great.

Thank you.

All right.

Last question.

Kevin McVeigh, Macquarie.

Great.

Thanks.

Hey, Mike or Jeff, do you have a sense of what percentage of your business in Europe on the manufacturing side is tied to exports?

Wow.

Here would be an answer, and Mike probably can calculate it.

No, I'm just kidding.

But here is where I would go.

It is, if you look at our business in Europe, it is running, with the exception of Sweden and probably Netherlands, it is running somewhere in the neighborhood of 60% light industrial manufacturing.

So you could almost do a proxy for what is happening in Europe if you took a European industrial output and said -- what percent of those are actually on export?

We would be in line with that, because we are big enough almost to represent the market.

That is the best answer I would have.

Struggled a bit with that one even, but that is about the best answer.

Great, thanks.

Then just not to press, do you have any sense, Jeff, of the GDP, your assumptions you are using as you build your business model for 2012?

We do look at that, and I have said this a few times before.

Each country has a little bit different correlation between GDP.

But I would also say that given the way the world is shaping up -- or not in some cases -- GDP may be less relevant from a correlation perspective than it was in the past.

Because if you get stimulus coming from government that is increasing GDP, but we don't participate in that kind of business, it is GDP that has no flow-through to us.

So yes, there are some correlations.

In France if we can get to that 1%, 1.2%, 1.3%, we tend to be in good -- in growth mode in the low single digits.

You get below that, we tend to go down.

I would like to think that is still true, but it is an election year; you don't know what is going to really happen from a quasi-stimulus perspective.

Super.

Thank you.

And then one more question.

We will take one more question.

Mark Marcon, Robert W.

Baird.

Good morning and congratulations on the good SG&A leverage.

I was wondering if you could talk a little bit about two things.

First, Northern Europe, specifically Germany.

What are you seeing there?

We're actually getting reports the EPO has been moving up over the last three months.

Sounds like some competitors are still seeing strong results.

How are you managing that over there?

And what are you seeing with the bench and managing that dynamic?

Then secondly in Asia-Pac, real nice surprise over the course of this year in terms of the improvement in the margins.

Are those sustainable?

Is there anything unusual that is occurring?

How should we think about the margin outlook longer term over there?

Okay, good.

Thanks, Mark.

On the Germany one, Germany's economy is growing and we are participating in that.

But we are being even more selective.

So when we look at Germany our strategy has been for the last 18 months -- and if you were to go back into our conference call you would be able to look at it.

We really wanted to make sure that we had our house in order, we were selecting the right kind of accounts, we were doing the right kind of profitability and not reducing our gross margin or our profitability.

In 2011, our profitability and Germany doubled.

So we really worked on, if you will, ourselves.

Not excluding ourselves from the market, but very much on ourselves.

When we look at 2012, you're going to see us much more aggressive in the marketplace.

That doesn't mean pushing price down, but really much more aggressive in the marketplace.

So we know.

We get tracking of it.

Also, I would say that there's two less days in December, so your average daily sales would come up with something different then minus 6, so that lessens that impact, if you will.

We look very closely at it.

I will be meeting with them next week.

This is an important topic for us, but we really wanted to get very, very solid profitability, high single digit sort of stuff.

And we felt that once we get on that kind of plane we can move in a much better way.

On the Asia-Pacific side, what you were seeing is the investments now paying off.

What you are seeing is where we had losses or very little ability to use scale to offset fixed costs, those are now turning around.

So in some cases we would have lower gross margins; factor of the market.

But we are still leveraging, so what you are really starting to see is us turning the corner from opening offices, investing in country managers, investings in head of marketings; and now that we have got that met you start to be accelerating it.

So I don't think those trends really go sideways on us at this point, because we still have some more leveraging to do over the next two to three years.

We have said in the past -- I think it was about a year ago maybe on this call; it might have been on the one before that -- was that we felt very optimistic about our position in Asia, our management team in Asia, and our offerings in Asia.

Almost more than half of -- I could be a little off -- more than half of our RPO engagements of the 125 additional that we secured in 2011 were in Asia.

So we have got very good Solutions business.

We produced 30% more profit in Japan, based on our Solutions business.

So we have got a runway here.

My sense is there will be a hiccup sometime in China.

Don't know when that would come; but even that may not be as big of an effect.

So we are looking at it being -- Mike, what did it come in as, at OUP percent?

It was 3 --

3.1%, I believe.

Yes, right.

So 3.1%.

So we are -- the team there is saying -- hey, we may be Asia but there is no reason why we shouldn't be at the same levels of others, and that is the trajectory that we are on.

That's fantastic.

If I could throw one more in, the $30 million in savings that are expected from the restructuring, how quickly do you think you will actually be able to realize those?

That is going to start to come in pretty quickly, Mark.

I would expect we'll probably see $6 million to $7 million of that in the first quarter.

So that is -- a lot of those actions have been taken, and we are moving out of, and have been working on that over the last quarter.

Fantastic.

Thank you.

All right.

Thank you.

This concludes today's conference call.

Thank you for your participation.