ManpowerGroup Inc (MAN) 2012 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 until the question-and-answer session.

(Operator Instructions)

Now, I will turn the call over to your host, Mr. Jeff Joerres.

Mr. Joerres, you may begin.

Good morning, and welcome to the fourth quarter 2012 conference call as well as the full year.

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

I'll go through the high level results for the quarter and the full year.

Mike will then spend 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 did in the fourth quarter and more that we will be doing in the first quarter and possibly beyond.

Before moving into the call, I'd like to have Mike read the Safe Harbor language.

Good morning, everyone, and welcome to today's call.

This conference call includes forward-looking statements which are subject to known and unknown 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 companies annual report on Form 10K and in the other Securities and Exchange Commission filings of the company, which information is incorporated herein by reference.

During our call we will reference certain non-GAAP financial measures which we believe provide useful information for investors.

We include reconciliation of those measures, where appropriate, to GAAP on the Investor Relations section of our website at manpowergroup.com.

Thanks, Mike.

Despite the difficult headwind's, the fourth quarter was a relatively strong quarter for us.

We continued to drive forward with our cost initiatives, resetting our cost basis, as well as bringing on the appropriate revenue.

In other words, profitable revenue.

We continue to be more selective regarding the type of client and pricing, particularly in the US and Europe.

We were able to significantly exceed our expectations of profitability, primarily because of the slightly better revenue performance and lower expenses than we had anticipated.

In US dollars we came in at $5.2 billion for the quarter and $20.7 billion for the full year.

Quarterly basis, our revenue decline was 5.1% in dollars and a minus 3.5% in constant currency.

For the year, we came in at a 6% decline in US dollars and a 1.4% decline in constant currency.

We were able to somewhat stabilize our gross profit margin and came in at the high end of the expected range at 16.9%.

We've experienced stabilization in the staffing side, particularly in the US and France, while we've seen declines in some of the northern European countries that have most recently been hit by more fledgling economies.

Our operating earnings at $105 million was down 17% in constant currency or 11% before reorganization charges.

Earnings per share was $0.68 in the quarter, or $0.91 excluding reorganization costs, a 7% decline in constant currency.

For the full year, we came in at $412 million, down 17%, or 9% down before reorganization charges.

We executed well in the fourth quarter, however we have set the bar high for ourselves to continue to maintain the profitable revenue growth as well as drive down our cost base.

Now, for additional information regarding the segments, I'd like to turn it over to Mike.

Thanks, Jeff.

As Jeff mentioned, our earnings per share in the quarter came in significantly stronger than expected at $0.91 per share before reorganization costs compared to our guidance mid-point of $0.76 per share.

Of this $0.15 out-performance, $0.13 came from the operations, $0.01 came from other expense, and $0.01 came from lower weighted average shares due to share repurchase's in the quarter.

Our income tax rate came in at 31%, before French business tax, just as expected and currency was a negative $0.01 impact as expected.

From an operations standpoint, revenues were down 3.5% in constant currency, slightly better than expected.

Our gross profit margin came in at the high side of our range at 16.9%.

SG&A expenses were tightly controlled.

And, we are starting to realize the benefits of the second quarter restructuring resulting in a year-on-year SG&A decline of 3.7% in constant currency.

The combination of better gross profit margin and lower SG&A resulted in an operating profit margin of 2.5% before restructuring which exceeded the top end of our guidance.

Our reorganization costs in the quarter were $26.6 million or $18.3 million after-tax.

This brings our total reorganization costs for the year to $45.4 million, or $32.1 million after-tax, for an earnings per share impact of $0.40.

This, combined with the legal provision in the second quarter of $0.08 per share, brings our total non-recurring items for the year to $0.48.

Reorganization charges this quarter relate to the simplification plan we discussed on last quarter's conference call.

We will be executing this plan throughout 2013, and therefore, I expect further charges in subsequent quarters.

We are estimating at this stage that these restructuring actions will result in a reduction in our SG&A run rate in excess of $125 million by the time we exit the fourth quarter of this year.

We expect the simplification plan to impact all segments of our operations as well as our global functions.

The plan will be focused around four broad areas, organization design, programs, delivery models, and technology.

The reorganization charge in the fourth quarter was comprised of $11.5 million in Northern Europe, $2.8 million in Southern Europe, $1 million in the Americas, $0.5 million in Right, and $0.4 million in Asia Pacific Middle East.

In addition to charge of $10.4 million is included in corporate expense in the quarter.

This $26.6 million total charge will result in annual run rate savings of $52 million, of which I expect to realize $13 million in the first quarter of this year.

Our gross profit margin in the quarter decreased to 16.9% from 17.1% a year ago.

Our temporary recruitment business contributed 30 basis points to this decline while our permanent recruitment contributed 10 basis points to the decline.

This was offset by relatively stronger growth in our higher margin Manpower Group solutions and out-placement business both of which favorably contributed 10 basis points.

Of the 30 basis points decline on the temporary recruitment side, about 20 basis points relates to a one-time HIRE Act credits in the US in the prior year.

The remaining 10 basis points decline primarily relates to our Manpower business in Germany and Sweden due to higher unbillable vacation and bench time.

Our permanent recruitment business represented 11.7% of gross profit in the quarter and was down 7% in constant currency.

While we saw declines in permanent recruitment in Manpower and Xperis, our market leading RPO offering under Manpower Group Solutions, was up 24% in the quarter.

Now, I'd like to take a look at our gross profit growth by business line.

Our Manpower business, which represents traditional staffing and recruitment services in the office and industrial verticals, represents about two-thirds of the companies gross profit.

During the quarter Manpower's gross profit was down 7% in constant currency, similar to the third quarter.

Our Xperis business was 17% of gross profit and is roughly comprised of 70% IT services, 10% accounting and finance, 10% engineering, and 10% other professional services.

Our Xperis gross profit was down 10% in constant currency with a decline of 6% in interim staffing and 24% in permanent recruitment.

Interim staffing was down 5% in IT and engineering, 3% in finance, and 18% in other skills.

Manpower Group Solutions represents 11% of gross profit and consists of recruitment process outsourcing, MSP, talent based outsourcing, borderless talent solutions, and strategic workforce consulting.

Demand for market leading solutions offerings continues to be very strong with growth in the second quarter of 7% in constant currency.

This brings our total Manpower Group Solutions business to $1.1 billion for the year.

We believe our Solutions business provides us with a unique offering in the market and we are excited for the future growth opportunity.

Right Management represents 6% of gross profit in the quarter and was up 12% in constant currency as a result of strong out-placement growth.

I'll discuss Right Management later in my segment review.

Our SG&A expense declined from $805 million last year to $772 million this year.

Both periods were impacted by reorganization charges as well as currency.

Excluding these items, SG&A expense was down $28.5 million compared to the prior year which is a decline of 3.7% in constant currency year-over-year.

We have maintained tight cost control in our growing operations and have been able to reduce expenses in our contracting operations.

We have focused on optimizing our office footprint in the year which stands at 3,453 offices at year-end, which is 8% below the prior year.

As part of our simplification plan we believe there is further opportunity to optimize our delivery footprint.

Our permanent headcount at year-end stands at 27, 800 which is a reduction from the prior year of about 4%.

Now, let's turn to the performance of our operating segments.

Revenue in the Americas came in slightly better than expected at $1.2 billion which is flat with the prior year in constant currency and US dollars.

Operating profit in the quarter was $36 million which is down 11% in constant currency, if you exclude non-recurring items in both years.

This resulted in an OEP margin of 3.1%, or 3.2% before reorganization charges, down 30 basis points from the prior year.

The gross profit margin in the Americas was up year-on-year primarily as a result of the 15% growth in permanent recruitment.

Our US business, which represents 65% of the Americas segment, had revenues of $751 million in the quarter down 2% from the prior year.

While revenues remain below the prior year, we are seeing gap begin to narrow as we begin to anniversary business that was purged last year due to lower pricing.

Our gross profit margin was up over the prior year despite some non-recurring HIRE Act credits in the prior year due to better pricing and 8% growth in permanent recruitment.

Operating unit profit was $22.2 million before $500,000 of reorganization charges representing a decrease of 20% compared to the prior year.

Within the US, our Manpower business represents 57% of revenue.

Manpower revenues were flat with the prior year in the quarter.

Average daily revenue growth in our small-medium business improved to 8% in the quarter whereas our larger key accounts declined 8%.

This decline in our key accounts is moderating as we are anniversarying revenue loss from pricing decisions we took last year.

Our Manpower gross profit margin was up 50 basis points, excluding the prior year HIRE Act credits, reflecting strong price discipline.

Our Xperis business represents 37% of US revenues.

Xperis revenues were down 7% in the quarter, an improvement from the 12% year-on-year decline we saw in the third quarter.

Within Xperis, our small-medium business accounts improved to 2% growth and our larger key accounts declined 11%.

As we mentioned last quarter, we are seeing reduced demand from some of our larger key accounts as some of their IT projects wind down.

Our gross profit margin on Xperis improved during the quarter as we have a number of initiatives focusing on widening the pay bill gap.

Approximately 70% of our Xperis revenues are in the IT area.

IT revenues were down 3% due to the lower demand from our larger strategic clients.

IT revenue from our small-medium business was up 7%.

Demand for our accounting and finance skills remain soft in the quarter, down 23%.

Our US Manpower group solutions had an exceptional quarter with gross profit growth of 17%.

Our MSP business grew 26% and recruitment process outsourcing grew 7%.

Our Mexico operation contributed positive constant currency growth of 2% in the quarter with a resulting 8% growth in OEP and in expanding OEP margin.

Growth in Argentina remains challenged as we did not see the usual seasonal ramp in business in the quarter.

Revenues were down 5% in constant currency or 16% on a reported basis.

We also saw good growth in Canada and Brazil during the quarter.

Revenue in Southern Europe was slightly weaker than expected coming in at $1.8 billion, a decline of 8% in constant currency or 12% on a reported basis.

Our gross profit margin was slightly up in the quarter and expenses were down year-on-year.

However, we continue to experience operating deleveraging with operating unit profit of $28 million, a decline of 31% in constant currency or 24% excluding reorganization charges.

This represents a 30 basis point decline in OEP margin excluding non-recurring items.

Our French operation represents about 75% of the Southern Europe segment.

During the quarter we experienced further softening of demand for our services in the French market.

French revenues came in at $1.3 billion, a decline of 9% in constant currency or 10% in organic constant currency.

The French market continues to be price competitive but we remain disciplined in our approach to pricing.

Our staffing gross profit margin in the quarter was stable with the prior year.

Our permanent recruitment fees were stable with the third quarter but down 31% year-on-year.

If we exclude the Pulapol contract from the prior year, permanent recruitment fees were down 10% from the prior year.

We continue to work to reduce the cost base in France with SG&A down 6% compared to the prior year.

We look to further reduce expenses through office consolidation and attrition as we look to enhance our OEP margin by better aligning our cost base with our lower revenue levels.

Revenue in Italy was down 8% in constant currency or 12% in reported US dollars.

Revenue contraction in Italy has stabilized as revenue on an average daily basis was down 11% in the fourth quarter, similar to the third quarter.

Profitability in Italy was impacted in the quarter as we took a specific bad debt provision of $3 million for a client that declared bankruptcy.

Spanish market continues to remain soft in the quarter with revenues down 9% in constant currency, and average daily basis revenues were down 10%, similar to the third quarter.

Revenues in Northern Europe were slightly better than expected at $1.5 billion, a decrease of 3% in US dollars and constant currency.

Our gross profit margin was down from the prior year as pricing remains competitive.

Additionally, we were impacted by higher vacation and lower bench utilization in Germany and Sweden which also negatively impacted the gross margins.

Our permanent recruitment business remained soft, down 13% from the prior year.

However, up slightly from the third quarter.

SG&A expenses were well controlled in the quarter and declined 6% in constant currency excluding reorganization charges.

This resulted in operating unit profit of $34 million, a decrease of 28% in constant currency before non-recurring items.

The operating unit profit margin came in at 2.3%, a decline of 100 basis points from the prior year before reorganization charges, as a result of the gross margin decline and operational deleveraging.

Within Northern Europe, Manpower comprised 76% of revenue and Xperis 21% of revenue.

Manpower is up 2% in constant currency primarily as a result of positive growth in the UK and Norway.

Our Xperis business was down 20% in constant currency as we experienced softening demand for IT skills across most markets in Northern Europe.

Within Northern Europe, the UK is the largest operation representing 26% of revenue.

Revenue in the UK was up 4% in constant currency, just a touch weaker than what we saw in the third quarter.

Our Nordics operation represents 24% of Northern Europe and had revenue decline of 5% in constant currency.

We continue to see soft demand within the Swedish market but continued positive growth in Norway.

Revenues in Germany were down 6% in constant currency, about in-line with the third quarter on an average daily basis.

Revenue in the Netherlands remains soft, down 10% in constant currency.

Also similar to what we saw in the third quarter.

Revenue in Belgium also remains weak with a decline of 7% in constant currency.

Our Asia Pacific Middle East segment had a very strong fourth quarter.

Revenues in the quarter came in at $698 million, an increase of 1% in constant currency.

This drove very strong operating unit profit growth of $28 million, an increase of 33% in constant currency.

The strong performance was a result of significant expense reductions.

The quarter was also aided by the reversal of the $4 million contract termination provision which was no longer deemed necessary.

Japan experienced modest growth of 1% in constant currency in the quarter.

The demand for traditional staffing services under the Manpower brand continues to contract.

However, we continue to find good opportunity in the professional and solutions market.

The economy in Australia continues to languish resulting in softer demand for our services.

Revenues in the quarter were down 7% in constant currency, however profitability remains strong.

Revenue growth in the other emerging markets in this segment remain solid, up 10% in constant currency.

Our business in China and India continue to grow nicely and contribute to the bottom line.

Right Management had another good quarter with revenue of $85 million, up 7% in constant currency.

Similar to last quarter, growth was driven by increasing demand in our out-placement business which was up 16% in the quarter.

Our talent management business continues to run slightly behind prior year, as companies continue to hold back on discretionary spend.

Operating unit profit for the quarter came in at $8 million for a margin of 9.7%.

This represents a significant improvement from the prior year as we have successfully aligned our costs infrastructure with the revenue levels.

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

Free cash flow, defined as cash from operations less Capital Expenditures, was very strong in the fourth quarter resulting in free cash flow for the year of $260 million.

The strong cash flow in the fourth quarter was somewhat due to the timing of cash receipts at the end of the third quarter which straddled quarter end and resulted in weak third quarter cash flows.

You may recall this discussion from our last quarter call.

Improved collections also favorably impacted free cash flow as our DSO improved by 1 day to 53 days.

Capital Expenditures for the year came in at $72 million and relate primarily to office moves and refurbishment's of our branch network.

During the year, we repurchased 3.6 million shares of stock for a total of $138 million.

This represents approximately 5% of the shares outstanding.

And, for the two year period of 2011 and 2012, we repurchased 8% of the shares outstanding.

During the fourth quarter, we repurchased 2 million shares for $77 million.

As of year-end, we have 8 million shares authorized and available for repurchase.

The balance sheet remained strong at year-end with very good liquidity.

Total cash at year-end was $648 million and total debt was $770 million resulting in net debt of $122 million.

Total debt to total capitalization was 24% in the quarter.

Our net debt to trailing 12 months EBITDA was less than 1 times.

Our total debt of $770 million at quarter end was comprised of our EUR350 million with a fixed interest rate of 4.5% maturing in June of 2018, and a EUR200 million for the fixed interest rate of 4.86% maturing in June of this year.

Our $800 million revolving credit agreement remains untapped at year-end and we will likely use this facility, along with available cash, to retire the EUR200 million in June.

Finally, I'd like to review our outlook for the first quarter of this year.

As you consider revenue for the first quarter, it is important to keep in mind that most of our markets have one to two less billing days this year compared to the prior year which results in 1.5 less billing days on a consolidated basis.

This results in about 2.5% less revenue in the first quarter on a reported basis compared to revenue on an average daily basis.

We are forecasting first quarter reported revenue to decline between 6% and 8% which is very similar to the decline we saw in the fourth quarter on an average daily basis.

Currency rates on average are not significantly different from where they were a year ago, and therefore we are forecasting our constant currency revenue decline to be similar to the reported revenue decline.

We expect revenues in the Americas and Asia Pacific Middle East to be flat to slightly up on an average daily basis, and we expect Right to have growth in the low single digits.

We expect most markets in Europe to continue their declines, but we do not see the rate of decline decreasing significantly from what we experienced in the fourth quarter.

We expect to continue to see positive average daily revenue increases in the UK and Norway.

We expect our gross profit margin to range from 16.6% to 16.8%.

This is a slight increase over the prior year but slightly down from the fourth quarter due to the typical seasonal dip.

Our operating profit margin before reorganization charges is expected to range from 1.4% to 1.6%.

This is slightly lower than the 1.8% in the previous year.

And, this deleveraging is primarily the impact of having lower than normal revenue due to the lower number of billing days this year.

We are estimating our tax rate in the first quarter to be 41% which includes the French business tax.

Our tax rate will be favorably impacted in the first quarter as we will be recording the 2012 US Watsi tax credit.

This credit is recognized in January of 2013 as the tax bill was not signed until 2013 even though it was retroactive to January of 2012.

Excluding the French business tax and the Watsi tax credit, our underlying income tax rate is estimated to be 36% in the first quarter and that is also our best estimate for the full year of 2013.

We are forecasting our earnings per share before the reorganization charges to range from $0.40 to $0.48.

The currency impact will be negligible if rates stay where they currently are.

We expect to incur additional reorganization charges in the first quarter related to our simplification plan.

We expect those charges will range between $20 million and $25 million before income taxes.

With that, I'd like to turn things back to Jeff.

Thanks, Mike.

The fourth quarter was a good quarter for us.

We achieved a bit better revenue than we had anticipated and good expense management, which gave us a significantly better operating profit than we had anticipated.

We clearly had some economic winds in our face.

However, despite that, we were able to achieve revenue of $20.7 billion for the year, down 1% in constant currency.

And, as Mike talked about, our expense management contributed nicely to our fourth quarter results.

Additionally, we took action in the fourth quarter which resulted in a reorganization charge.

The charge will allow us to go into 2013 with some of our work in the cost area completed.

We have much more work to do and we will continue to take swift action to reset our cost basis throughout the world.

During the fourth quarter there were some real success stories.

Canada, UK, particularly Brook Street, Norway, China, India, all had very strong top line growth and solid profitability.

Australia, which is in a very difficult marketplace, was actually able to achieve a very strong bottom line.

And, Right Management did quite well producing top line growth of 6.5% in constant currency and an operating unit profit of 9.7%.

Much more in-line with where we are taking the business.

And, we are confident as we move forward that we will be able to maintain that level, even in a slower career management or out-placement environment.

Clearly, we are in a challenging environment.

But we, however, at this time, do not see it worsening.

We've been able to stabilize gross profit with the US and France core staffing business.

As Mike mentioned, we have a lot of work to do in this area, but the stabilization of those two markets, at least at this time, gives us the ability to continue to drive in the right direction.

We are challenged in Northern Europe from a gross margin perspective, as some of those markets have a much higher gross margin and we are still experiencing a slight downward pressure.

Our solutions business continued to move nicely with some great wins in RPO where we've been able to capture 120 new engagements this year.

And, we have nearly $7.7 billion of annual spend under management in our managed service offering for both MSP and vendor management.

With our increased RPO wins and over 125 wins last year the secular trends in the area of permanent recruitment and RPO and our performance position us well for the recovery.

Right Management has done very well in reducing costs and refootprinting our real estate, but more importantly becoming a leading offering in the virtual as well as call center approach to out-placement.

Information Week awarded us for great technology in the area of the virtual space that we call Right Choice.

We've also been able to increase our cross-selling with other parts of the organization in all geographies.

We've been able to do quite well against the competition as we have a very high take away rate, and have every intention of continuing to do that.

We're looking forward to continuing to find good cost synergy's between all of the brands which will allow us again to recalibrate our cost basis.

We believe that there have been some stabilization across almost all of the geographies, particularly Europe.

It may prove to be fleeting, but we believe over the year 2013 we will be able to see a modest recovery in many of the marketplaces.

Clearly, the patient is not off the recovery table yet but continuing to have better vital signs.

Last quarter I spoke about four areas that we were focusing on, one, the correct revenue.

The revenue with the right profitability, the right kind of business mix and geographies, as well as the right client characteristic.

Two, was to continue strong growth in the solutions area which in the fourth quarter revenue and gross profit increased by 7%.

Three, aggressively simplifying many parts of the organization, create the right agility and speed that would allow us to move forward regardless of economic challenges.

Four, to drive much more, where we can, in the right countries efficient delivery models.

All of these activities were acted upon in the fourth quarter.

And, as a result, you are seeing some of the reorganization costs.

In many areas we still have more to do.

We are confident our execution and focus in these four areas will give us the ability to have much more time to sell and drive the value from the assets that we've created as well as return much more to the shareholders.

The first element that we acted upon was to reduce our Global Headquarters and create an environment where many of the assets and the brands that were put in place moves into run mode.

In other words, pushed closer to the client into the geographies.

This will drive much more accountability down into the field level, which will not only drive the value from the assets, but will also reduce the cost and support.

As Mike mentioned, we will be taking additional actions which will result in some first quarter restructuring.

In the area of simplification we are taking action in four different areas.

Simplification of the organization, delivery, programs, and our IT structure.

All these areas have plans around them, and as a result we are moving very quickly.

Our goal is to have the majority of the work done by the first half of the year.

It is important for us to do this as we are continuing, as I mentioned, to experience some economic headwind's.

At the same time, we are seeing some strong secular trends.

Secular trends in the area of Manpower, Xperis, Right, Manpower Group Solutions, and emerging markets are all there.

In many cases the voice of these positive secular trends have been drowned out by the cyclical nature of what is occurring, particularly in Europe, but it cannot be underestimated.

The conversations we are having with our clients and prospects for the need for agility is translating to much more of an outcome-based solutions environment as well as the use of temporary staff to create the agility that is required within many of the countries and companies that we are doing business with.

On a legislative front, we have seen, for the most part, positive legislation whether it be in France, Italy, a change in government in Japan, or what we're even seeing in the US.

The German environment we believe will sort itself out.

Two of the new union CLAs were effective November 1. It is still too early days, but so far, what we have not seen is any kind of significant volume decrease from our clients as we pass on the higher wage cost through the increased bill rates.

We are looking forward to executing even in a more finally tuned way in 2013 and are confident about our ability to deliver solid shareholders returns.

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

(Operator Instructions)

Mr. Kevin McVeigh.

Great, thanks.

Jeff, Mike, real nice job in, obviously, a tough environment.

Wanted to just get a sense of -- you're really doing a great job in France holding a lot of margin.

How much of that is price discipline versus cost management as we think about the business in Q4 and then into Q1 as well?

Well, thanks, Kevin.

A large part of it is the price discipline and some of the things that we're doing on the accounts that we don't want to take.

Additionally, I would say, where I've been most pleased is that as we're able to, on the margin if you will, do a little bit better on the revenue line, we're not doing it through taking on bad business, which is still out there.

At the same time, there's that balance, meaning that while we're taking on good business and we're making sure that we are getting what we can out of the contracts, we are also reducing expense.

Now, our current plan is to not go through a social plan within France, but continue to work through attrition and making sure that we have all of the right performers in the right spot.

So, as a result, you might see a few things going through the P&L instead of through restructuring.

But we actually think that that's much better for what we -- our plans are in that market.

So, we're going to stay very disciplined on expenses, disciplined on pricing.

And then also, a few of our acquisitions, though small, have added incrementally a positive on the margin side.

Very small, I mean, it really is the other two actions that were prime drivers behind it.

But it's a lot of little things in a market like that, make a big difference because of its size.

Understood, and then, Mike, not to get too deep into 2013, but SG&A on a total level for '13, how should we think about that relative to '12 given the cost actions?

It sounds like we're going to take about $125 million annualized by Q4, but what does that mean for full year if we were to think about just SG&A progression?

Yes, so, as I said, the restructuring we've done already so far, which we've taken a charge of $26 million for in the first quarter, that will get us about $52 million out of SG&A for the full year in 2013.

And that really starts up in the first quarter.

So, about 25% of that $52 million, $13 million, will come in the first quarter.

So then, as you look out -- so that's $52 million, if you will, of the $125 million that we expect to get by the time we exit the year, so there's another $70 million that we'll be working on through the course of the year.

And certainly that -- obviously, that's not going to come all Q1.

It will come through the course of the year.

So, you'll see that phased in -- the remaining $70 million phased in.

So, that's how I'd think about how that restructuring is going to work through the balance of the year.

And no doubt we're going to continue to be managing costs tightly.

And we'll see where the revenue line goes.

If there's some revenue opportunities that we need to invest in, we, of course, will invest in those markets in those specific areas.

But it will be with precision as we need to support the business.

On the other hand, if we find the top line weakening further, you can expect that we will more aggressively go after expenses as well.

But the whole simplification plan really is about -- we've invested in our brands last year.

We've invested in our solutions and our Experis on the professional side.

Really, now, it's about executing and really driving the overall business and driving performance, and getting out of our way a little bit on some of the other overheads, and really just pushing things forward.

Understood, thanks.

Ms. Kelly Flynn.

Thanks, you got me this time, Mike, thank you.

I had a couple questions, one about France.

First of all, you obviously spoke many times to stabilization.

But the results themselves really didn't show stabilization.

And I'm wondering if you could just explain why you're saying it's stable.

And then, what constant-currency and same-day growth is implied in the Q1 guidance?

Thanks -- just for France.

Sure, yes.

I think when we look at France overall, France was one of the -- from a revenue perspective, France was one of the markets in the fourth quarter that did get a little bit weaker on a year-on-year basis compared to where it was in the third quarter.

So, overall, average daily revenue in France was down about 10% in the fourth quarter, was down about 5% or so in the third quarter.

So, we did see that market get a little bit weaker as we got through the quarter.

As we start out the first quarter, it seems to be trending about where it was in the fourth quarter.

So, in terms of our first-quarter guidance at this point we're not expecting it to get dramatically weaker, at least that's not what's assumed in the guidance.

We'll see where things actually go in the market, but at this point we're not anticipating it to get dramatically worse.

As opposed to some of the other markets across Northern Europe, they actually -- fourth quarter looked a lot like the third quarter when you actually put it on an average daily sales basis.

So, France was one of the few markets that actually in Europe looked a little bit worse.

And so, that's why, overall, I would still say things are stabilizing.

When you look at our first-quarter guidance overall, on a year-on-year basis, the decline is -- on an average daily sales basis, the decline in the first quarter our guidance is similar to the decline that we've seen in the fourth quarter.

And that's the first time that you would have seen our guidance not get incrementally worse on a year-on-year basis when we go from one quarter to the next quarter, you'd have to go back to somewhere in 2010.

So, I think it's too early to call a bottom, but certainly, I think in terms of things getting less worse, I think that is the case.

And then when you look at gross margin, I think there's positives there as well as we've seen in many of the markets, some stabilization.

We've anniversaried some of the declines.

And it's still a competitive market, don't get me wrong; I think there still is pressure out there.

But I think it's easing just a bit in most of the markets.

The two markets we called out on the prepared remarks really had more to do with bench issues and utilization issues given the declines in the market.

And that's certainly what can bring some pressure overall in margins as well, as we still see some volume declines.

You've got a lot of competitors scrambling for whatever business that's out there.

Battle is not over yet, but I think it's easing a little bit.

Okay, and thank you.

And then, just a similar question on Italy to what I asked on France.

Is it fair to say it really didn't improve in the quarter, that the improvement was all from days impact?

And then, for Q1, you're assuming a stable decline?

Is that fair for Italy, too?

Yes, that's fair for Italy, too.

If you take Italy on an average daily basis, both Q3 and Q4 was down about 11% in constant-currency terms, average daily.

So, it's about the same, and as we looked to Q1, I'm assuming we're going to continue to run at that same year-on-year decline.

Okay, perfect.

Thank you very much.

Yes.

Ms. Sara Gubins.

Hi, thank you.

Could you talk about how you're thinking about gross margins for the year?

It's nice to see that you're expecting the potential for some improvement in the first quarter.

And I'm wondering if you think we'll see that continue throughout the rest of the year?

Sure, I think it's -- obviously, when you look at our gross margin, there's a number of factors that are playing in.

And I think there's some opportunity for some improvement.

But at this stage, I'm thinking that when you break the pieces apart, you look at perm recruitment right now, it's running a little bit behind prior year, about 7% in the fourth quarter.

If we start to see some pick up in the economy, I would expect that to turn.

And, therefore, perm may not weigh on the overall gross margin as it has been the last few quarters, and perhaps could add a little bit incrementally.

I think when you get to the overall staffing gross margin itself, you got a couple of elements that are playing in there that are not really pricing.

But when you look at the -- for instance, the German collective labor agreements, as we pass those incremental wage costs on, effectively we keep the same dollar gross margin, if you will, but our margin percentage goes down.

And so, there's some factors like that that will play in a little bit negatively.

So, I think from an overall -- just the staffing gross margin, I would be thinking about flattish.

It might be slightly up, it might be slightly down, but I don't see a dramatic move.

And then, you've got perm playing in there, and then you've got the Right out-placement business depending upon where the economies are.

So, assuming the economies don't get much worse, and might start to turn a little bit here, that's how I would look at the picture.

And if we get -- if things get a lot better or get incrementally worse, I think there clearly is impact on the gross margin as a result.

Okay, thank you.

And then, so there are a lot of moving parts in the French -- potential French legislative changes.

Can you give us an update on where we stand on these, and when you're expecting to get some more definitive news on what changes we might see this year?

Thank you.

You're right, there are a lot of moving parts in there.

And when you get down to it, we're really looking at the end of the first quarter where we might be able to get some better sense of what's really in and what's really out.

Right now there's some great benefits to employees, really more transportability from one position to another.

There is the ability for companies to negotiate some working time and wages.

And then there is a taxation that is put on what would be called short-term CDI contracts, less than three months, not to be confused with temporary contracts.

So, we see that as a positive.

We have a lot of training dollars, protection dollars, holiday pay already in our contracts.

So, I think this is a way to try to get more security into the workers' hands.

And have less short-term contracts without that, and possibly some more temporary ones.

There's some taxation things that -- what level of eligible wages will they use?

How much, when will it be paid back, how will it be paid, how does this work with the bench model?

Those things, right now, are all in pencil, as opposed to pen.

And we should be able to get at this, a much better understanding, by the beginning of the second quarter, hopefully by the end of the first quarter.

Okay, thank you.

Yes.

Mr. Paul Ginocchio.

Thanks.

Just for clarification, can you just give me what the mid-point of your guidance is on a same-day organic -- or same-day constant-currency basis for the first quarter?

And how that compares to the fourth, and what that fourth-quarter number was?

Thanks.

And then, second, on the tax rate, what do you have -- just maybe some more clarity on the first quarter.

Is there any benefit from the changes to the French labor market in that tax rate?

And how do we think about the difference between the reported tax rate and the underlying tax rate beyond the first quarter?

Thanks.

Okay, Paul, you've got a lot in there.

So, average daily sales, mid-point of guidance in constant currency, it would be about 4.5% down in the first quarter, which, if you did the same math for the fourth quarter, we would see something similar.

So, as I said, we're expecting about the same type of revenue decline going from Q4 to Q1, which is, as I said earlier, the first time we didn't see it incrementally worse going from one quarter to the second quarter.

And we'll see how that plays out.

Obviously, right now it's just a forecast, but we'll see how that plays out overall.

When you look at our tax rate overall, our underlying rate of 36%, as I said in my prepared remarks, excludes the French business tax and then the US Workers' Opportunity tax credit related to 2012.

So, effectively, our all-in tax rate we're estimating at 41% in the first quarter.

So, without that US Worker Opportunity tax credit, it would probably be -- in the low-50%s would be typical in the first quarter, and that's what I would expect.

And I think as you look at a full-year tax rate, again, you get to this underlying tax rate, without the French business tax, I think that's going to be somewhere in that 36% range for this year.

And then, you have the French business tax on top of that.

And I pull that French business tax out separately because that number does not move with pre-tax.

So, as pre-tax either goes up or goes down, it impacts the effective rate.

So, I think it's better to pull it out and think about it separately.

So, that's the way I would think about it.

The business tax, of course, runs about 1.3% of overall revenue.

I think to your second -- I think implied in your question, Paul, was, I think what you're getting at, was the tax refund that's being discussed in France, what they refer to as the CICE tax refund, which is really a refund related to social taxes that amounts to, in 2013, about 4% of eligible wages.

And eligible wages are from the minimum wage rate, which is referred to as SMIC times 2.5 times would be eligible wages.

And most of our employees would, and associates, would qualify in that band.

So, that's the type of tax credit that's being discussed, hasn't been finally approved yet.

The details are still being worked on and discussed, and therefore, we don't have pure clarity on how that works.

It looks like it's going to be a refund that could be offset against taxes paid.

However, for us, depending upon how that works, that refund could actually be several years out before we actually get the cash.

And so, that's something that's being looked at.

The whole idea with the refund is to reinvest into further employment and reduce labor costs.

So, clearly that's -- we'll be looking at that and how we do that effectively.

At this point, we do not see this as something that would be reflected in lower bill rates to clients.

Clearly, we'll see what happens in the marketplace, but our view is -- this is really about managing the overall workforce and improving on the workforce and improving on the quality of service.

There's some provision in the bill that would allow us to develop a bench model for some of the workers in France.

And that would be where some of these investment dollars would go to.

So, at this point, there still is a lot to be figured out in terms of what this means.

There isn't anything that specifically impacts our tax rate, per se, within the first quarter.

There are some assumptions in terms of how it impacts other elements within the first quarter, but there's no impact on the tax rate, per se.

Okay, thanks, Mike.

Mr. Gary Bisbee.

Hi, guys, good morning.

Jeff, you've talked the last couple quarters about thinking about a slower long-term growth rate, or at least next few years' growth rate in Europe, and ways to drive profitability despite that.

And I think that's really all these efficiency efforts you've talked about.

But can you give us, maybe, a couple of tangible examples of the types of things you're thinking about, and where you are in the process of implementing these changes to allow that?

Sure.

The first changes we took were in the headquarters, and will be in the regional locations where we really had many programs that have great value to the Company and great returns to the shareholders.

But what we were doing was probably keeping that support system across-the-board in place too long, and not driving it into what we internally call run mode in the Company.

So, the way I've described it in the Company is we had a lot of support systems in here, and what we need now to do is we've been doing this long enough, so let's take those out, put them into the field, and turn it more into revenue-getting as opposed to support.

So, that affected a fair amount of the programs that we are trying to simplify, because now we're looking at the programs and saying -- okay, what do we really need, how do we do that, how do we make them simpler?

In addition to that, we had a fair amount of rogue IT systems, which sometimes works really well.

We're trying to, and have, put a lot of governance on that.

So, we're going to be able to reduce the costs in there.

So, when you look at that simplification in the four areas of organization programs, delivery and IT, we're going through systematically all of those and really looking at how we can make this a much faster, agile, so you can move up and move down.

I mean, it's what we are telling our clients.

And what we need to do is to make sure that, given this potentially longer, or prolonged, slow growth as opposed to rebounding up catapulting growth, we've got to be set for it.

So, when Mike talks about the $125 million that we're looking at taking out, almost all of that fits into those four programs.

Okay, thanks.

And then the follow-up -- what's causing the US Experis business to continue to lag the way it is?

And I guess I'm referring specifically to the key accounts.

Is part of that the fiscal cliff, and now the ongoing uncertainties over deficit reduction?

Is that having an impact to your customers?

Because there's so many positive things we hear about different trends and technology, that it seems odd that it would just be a bunch of projects ended, and so now we've got to keep going until we lap that, and that's going to be a drag.

How big an impact is this?

Well, there is some hesitation out there.

So, it's not as robust we would see as it was last year.

And last year we did take some accounts out.

Some accounts just wound down that were major -- lots of contractors out on assignment in the finance industry, some in the pharmaceutical industry.

We're starting to pull those back.

So, you're going to see us get that back, not only as we anniversary it.

I would say that it's probably not as positive as it was out there last year.

But it's still -- there's a lot of opportunity, and we're a bit behind in where we want to be.

I'm confident in the team, how they're driving it, the actions we have put in place.

So, it's going to take us a little time to claw some of those back.

But our backlog looks good and our pipeline is solid.

So, we're optimistic to get that back.

Gary, your point is right -- it's really more on the key account side.

The SMB side, within Experis on the IT in the US, was up 7% year on year.

So, that's running pretty well.

But we do have these clients that have wound down, and it is specific to our client mix.

But we can't use that as an excuse.

We got to get out there, we've got to chase it and find new business to fill that up.

And that's what the team is trying to do.

Great.

And then, just one last quick one.

I saw a release the other day of a contract in Norway that was healthcare, I think it was nurses or doctors.

Is that a new area of focus, or is that just a pretty small thing that's specific to that or a couple of other markets?

We do have healthcare as one of the verticals within Experis.

But we do it in a very limited way, and most of it is outside the US.

So, the healthcare that we have, whether it be nurses, higher-end physicians' assistants, are all outside the US.

And we're more comfortable in that because of the way the liabilities and laws work.

So, we do have that, we have it in probably 8 to 10 countries between Europe and Asia.

We're looking closely at it.

We've got some work in the US, but it's such a small amount, it's not worth mentioning.

But it's on our radar screen to see when we want to get into that, and at what levels we want to get into it.

Great, thank you.

Mr. James Samford.

Great, thank you.

Just a couple questions on domestic policy, and, in particular, focusing on the Affordable Care Act.

And a lot of talk about the secular trend towards more temps as clients look at transitioning some of their permanents either to temps or just focusing on recruiting temps instead of perm.

How are you thinking about that, and the implications for your business?

And the second question would be on just general manufacturing renaissance trends.

Is that really a zero sum game if the US really just starts to pull from the other regions?

And perhaps how would you participate in that?

Thanks.

On the healthcare, there is still some things to be worked out.

What we have determined was that as it sits right now and as we would implement it, particularly with the 12-month look back, it will affect our temporary workforce.

But not anywhere near as dramatic as what it could have been with, of course, a three-month look back.

So, we're in pretty good shape on that.

We are having a lot of conversations with clients about their work with what would be called contract work, short-term contract, supplemental work, intern work, those sorts of things, and saying -- maybe we can recast that.

Maybe you can allow us to have a more flexible labor model where we have a fair amount of those workers, particularly in transaction centers, call centers, that might be working 29 hours a week, which would be under the 30-hour that, that would kick in some of the costs associated with those healthcare.

So, right now, we are going through the analysis of that.

I would say -- if you just take the headlines of it, this is opportunity for us.

It's opportunity for us and a lot of the clients that we deal with that might have large staffs that are currently contract staffs that they no longer want to be trying to understand all of the intricacies of this, and let us do that.

As well as the savings of now not having to recruit those people, manage those people, all of that.

So, on net, I would say we definitely look at it as positive.

On the manufacturing renaissance, we are participating in that.

And I don't believe, as we've heard most of the clients talk, that it is a zero sum game.

What it is, is what they have done in other parts of the world, whether it be India or the Philippines or, for that matter, anywhere else, they are really looking at opening another facility back into the US.

So, the facility that is in the historically labor-arbitraged environment is really being -- the strategy is to use that for domestic use.

Or to stop the growth of that, and have the balance of the growth here now that the wages have some closer to parity.

And there is a sense in many clients' minds that we think it's the right thing to do.

We've max'ed that out.

We would like to see the opportunity come into the US.

So, manufacturing call centers, transaction processing centers, they are coming back.

A renaissance -- I think if it's a renaissance, it's a burgeoning renaissance.

I mean, it's going to take a little bit of time yet.

This isn't going to be wholesale thousand-person centers being set up.

They're going to set up the new ones, the core part of it, and then let it expand from there, and we are participating in that.

And just a quick question on -- would you see the affordable care act activities that you're doing, would you see that in incremental activity on the Right Management side?

Is that where you'd see it, in terms of the conversations and potentially helping clients think through their staffing?

Well, clearly, it goes to one of our offerings, which is the strategic workforce consulting, about -- what are you really doing with this workforce?

But the majority of the opportunity, from a revenue perspective, falls into Manpower, where we have the ability to manage a 29-hour workforce, do flexible staffing, different kind of shift environments, many shifts, crossover shifts.

Things that can really maximize that labor market and the talent that's in the labor market.

So, from a revenue perspective, it falls mostly in Manpower.

From a Manpower Group on how we can continue to assist our clients in figuring out this changing world of work and how do they win in that.

There is some -- that really falls into the Manpower Group Solutions, which is outcome-based pricing, as well as our consulting offering, to say -- how do you really do this over the next three to five years?

Thank you.

Mr. Andrew Steinerman.

Hi, gents.

Looking at my global flexible staffing model, it looks like Manpower in France is still gaining share relative to the market, but by not as big of a gap as the prior three quarters.

The fourth quarter being still a gain, but less than first through third.

Do you think any of the office consolidation that you're doing in France is infringing on the prior market share gains?

And how do you think about Manpower France's position relative to the market?

We really try to do a very robust, deep analysis of consolidations, and how much it affects revenue and, in turn, profitability.

We don't believe that much of that slowdown in market share gains would be coming from that.

In many cases, we were consolidating an office that was maybe three, four blocks away, and we still have the sales coverage, which is what's going to be generating the revenue.

I would say what's happening is, is that we just continue to make sure we're selective on that.

Some of what was happening was, as one of our competitors was combining brands, and more companies in there, they had to get rid of one of them.

And we ended up getting a lot of that business.

But some of that consolidation is done, so now it's a different kind of opportunity we have going forward.

When we look at market share, we're not focused on market share.

We're focused on sales activities, sales pipelines, sales leads.

At the end of the quarter, however, it comes out on market, it's interesting.

But we're not -- we have no market share conversations' presence other than an analysis through our data people of what's happening.

We are driving it more by sales opportunities, pipeline, salesforce.com, where the industry is, how much on site, all the things that really drive our profitability, and then we let the chips fall from there.

Perfect, thank you very much.

Last question.

Mr. John Healy.

Thank you.

Just a couple housekeeping questions.

Mike, when you look at the cost-reduction efforts for this year, should we think that the geography that you're going to be focusing on, those efforts on, would it be similar to how you allocated the spend throughout the first quarter -- or in the fourth quarter going into the first quarter?

And then, also, I didn't maybe hear this, but did you mention what capital spending might be for this year?

Yes, in terms of savings and where they come from, we started at the headquarters, which is why you see the biggest piece of the $26 million over $10 million of that coming on the corporate side.

So, that's what you'll see about -- of that coming through the first quarter on corporate expense, you'll see about $6 million or so coming through there.

And then, as we go through the year, it is going to be across geographies.

And I think you'll see Northern Europe, Europe overall, but Northern Europe in particular we'll see maybe a little bit more than what we might see in the Americas and Asia Pacific/Middle East.

But really it is across all geographies.

The one comment Jeff made earlier in the specific case of France -- we don't anticipate a social plan at this point, so we may not see as much restructuring.

But we will see some office optimization and managing costs down through attrition as well.

So, I think you could expect it to come across most of those geographies.

And then, in terms of CapEx for the year, I don't envision any substantial change overall.

We came in this year at about $72 million overall.

I think it's something in that $70 million-ish range, I think is -- if you put a range of $65 million to $75 million around it, I think that would be a safe number for you for this year.

Thank you, guys.

Thanks, that was a relatively short one, so if we have one more question, that would work.

Mr. Mark Marcon.

Thanks for squeezing me in.

Obviously there have been a lot of organizational changes, including leadership changes.

I was wondering if you could give us a preliminary reflection on how those are going through, what's the energy level, engagement level within the Organization, positives, negatives, anything that relates to change?

Sure, that's a good question, and you and others on this call know that we've got a very engaged team from the top to the bottom.

So, any time you make changes that some people are maybe no longer participating in something that they believe to be very important to how they live their lives.

And others, it becomes very difficult when you go through the discussion about what simplification means, where we need to take this, compress cycles, prolonged, maybe more tepid growth.

The logic in how we've laid it out from a communication side, inside, whether it be my writings, some of the people reporting to me writings, videos that have gone out, face to face meetings.

I would have to say that while people may not appreciate -- may not like that they may not be able to participate in our future success, they understand it, they get it, and they're huge supporters of us.

When you then take it down to where it really -- where all of the money is made, and 27,000 people in the field, they're energized.

What they're saying is -- that's great.

Let's simplify this, let's focus on selling, can I take out this?

And a message I just wrote this morning that went out to everybody said -- look, if you think that you're doing something that's too complicated, not adding value, speak up to your manager, we'll get it fixed for you.

So, this is becoming energizing in the Organization.

And, at the same time, it has been difficult.

These are people that many of us have worked with for 20 years or more, or 15 years.

But it was done, as you would imagine, in a respectful way, the right way, with good communication.

So, I would say difficult work, we're through many of those difficulties, and we're on to becoming energizing of us making real big strides instead of small incremental steps.

Great.

And then, can you talk a little bit about the reorganization in terms of the cost cutting?

Is there any revenue pool that you would say could be negatively impacted by those changes?

It's a good question.

So, if you look at simplification is what we've talked about, and you've heard that from the external market, inside the organization it's two words, not one.

It's not simplification, it's simplification to sell.

So, what we are doing is looking at revenue-producing jobs and actually putting more resources in there, trying to make sure the resources are given the kinds of help that they need both in the field, in region, as well as headquarters.

So, we did not do a -- let's cut costs by 10%.

We find that to be a completely useless exercise; the costs will find their way back in.

We are going through and saying -- what do we want to keep, what do we want to make tradeoffs on, and how do we make sure the sales engine gets the support, the energy, and the focus?

So, even my time, when I looked at a pie chart of the time, I wasn't selling enough.

So, I've committed to the Organization X number of sales calls every quarter; I'm going to be reporting on it with sales chatter.

And I've got to make my quota as well.

So, inside the Organization, the message is simplify to sell.

Outside the Organization, it's really about simplification in those four areas.

Great.

Appreciate the color.

Okay.

Thank you, all.

Thank you.

That concludes today's conference call.

Thank you for participating.

You may now disconnect.