ManpowerGroup Inc (MAN) 2013 Q4 法說會逐字稿

Thank you for standing by.

Welcome to the ManpowerGroup fourth-quarter and year-end earnings conference call.

(Operator Instructions)

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

Sir, you may begin.

Good morning, and welcome to the fourth-quarter 2013 conference call, as well as full year.

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

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

Mike will then spend some time going through the details of the segments as well as forward-looking items for the quarter and any implications at all to the balance sheet and cash flow as well as restructuring that occurred during the fourth quarter.

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

Good morning, everyone.

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

These statements are based on Management's current expectations or beliefs.

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

Any forward-looking statement in today's call speaks only as of the date of which it is made and we assume no obligation to update or revise any forward-look statements.

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

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

Thanks, Mike.

The fourth quarter was another strong quarter for us.

We entered the quarter with good momentum from driving efficiency and productivity and slight upward trends in revenue.

Both revenue and the effects of efficiency and productivity came in at the higher end of our estimates.

While we continue to experience cautiousness among our clients throughout the world, there is no doubt that we are seeing a modestly more positive environment on the revenue line in all of our major geographies.

We were able to exceed our expectations in profitability, primarily because of the slightly better revenue performance and solid expense management.

In the United States dollars, our revenue came in at $5.3 billion, for the quarter, and slightly over $20 billion for the full year.

On a quarterly basis, our revenue increased 1%.

The first time in seven quarters that we have experienced positive growth.

We achieved a gross profit margin of 16.9%, slightly above forecast due to some additional CICE credits, which Mike will discuss in a minute.

We had strong cost controls over our costs, which resulted in an operating profit before restructuring of $194 million, an increase of 46% in constant currency and 3.7% operating margin, up 120 basis points.

Our earnings per share came in at $1.25 or $1.49 before restructuring charges, up 64% in constant currency.

For the full year our operating earnings before restructuring were $601 million an increase of 29% in reported US dollars and constant currency.

Our operating profit margin showed strong expansion of 70 basis points to 3%.

Earnings per share on a reported basis was $3.62, up 47% in US dollars and a constant currency, and before restructuring was $4.44, up 51% in US dollars and constant currency.

We executed extremely well in the forth quarter, which gives us confidence as we move into 2014.

We are still quite cautious regarding revenue expansion; however the trends are pointing more positively in most of our major geographies.

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

As Jeff mentioned, we had a strong earnings performance in the quarter with earnings per share coming in at $1.25 including restructuring costs, or $1.49 before restructuring cost.

Earnings guidance was $1.18 to $1.26 before restructuring charges, and therefore we exceeded the mid point of our guidance by $0.27.

I'd like to take a few minutes to unpack the factors that pushed us above the mid point of our guidance range.

First, operationally our results were $0.17 better than forecast, partially as a result of stronger than expected revenue growth in Europe and strong expense control.

Consolidated revenues increased 1% in constant currency, which is at the high end of our guidance range.

We were able to leverage this additional revenue and related gross profit down to the bottom line, resulting in strong operating profit margin expansion of 120 basis points to 3.7% before restructuring.

In addition, the quarter also benefited from more than expected CICE income tax credits.

This was due to the accrual of an additional month of CICE based upon the timing of month end payrolls and reassessment of required reserve amounts.

Our income tax rate was also lower than expected in the quarter coming in at 34.6% compared to our forecasted range of 38% to 39%.

That adds $0.07 to earnings.

Foreign currency ended up being $0.01 favorable compared to an expected unfavorable impact of $0.01 thus helping quarter by $0.02 over our guidance.

Lastly, weighted average shares were lower than forecasted, which also added $0.01.

Restructuring charges came in at $26.5 million in the quarter, quite a bit above the $12 million to $17 million forecast.

As we reached the final quarter of our cost recalibration plan, we made one last push to ensure that we had identified all cost savings opportunities.

Similar to last quarter, the restructuring charges impacted each of the operating regions, with the Americas incurring $6.6 million, Southern Europe $2.7 million, Northern Europe $10.2 million, Asia Pacific Middle East $2.3 million and Right Management $4.7 million.

These restructuring charges weigh down the OEP margin performance of each of the segments and therefore I will later review the segment performance prior to the restructuring charges.

On a full-year basis, restructuring charges were $89.4 million or $65.3 million after income taxes, an impact of $0.82 per share.

Our gross profit margin came in slightly stronger than expected at 16.9%.

This was primarily due to the additional CICE credits I mentioned earlier, which added about 30 basis points to our fourth-quarter gross margin.

Excluding this impact, Manpower Staffing gross margin was up 10 basis points over the prior year.

This improvement was primarily driven by Southern Europe, which had the benefits of the CICE tax credits this year in France and a stronger gross profit margin in Italy.

This was offset by slight declines in the Americas and Asia Pacific Middle East.

Manpower Staffing gross margins in Northern Europe were stable with the prior year.

During the quarter we did not see any significant changes in market pricing.

While pricing pressure continues in many markets, we remain disciplined and are selective on new opportunities.

Our Experis interim gross margin was stable in the quarter with gains in the Americas and Asia Pacific Middle East, offset by margin declines in Southern Europe and Northern Europe.

Permanent recruitment softened in the quarter, down 7.3% in constant currency compared to the prior year.

This is slightly weaker than what we saw in the third quarter, which is down 4.6%.

This weakening trend was primarily due to the Americas region, which I will discuss later in my segment review.

The decline in permanent fees had a negative impact of 10 basis points on overall gross margin compared to the prior year.

The gross margin on our talent-based outsourcing business was also down in the quarter impacting our overall gross profit margin by 10 basis points.

Now, let's take a look at gross profit by business line.

Our Manpower brand gross profit, which is comprised of traditional staffing and recruitment services in the office and the industrial verticals comprised 68% of gross profit in the quarter.

Manpower's gross profit was up 4% in the quarter driven by growth in Southern Europe and Northern Europe offset by slight decline in the Americas and Asia Pacific Middle East.

Our Experis brand comprised 17% of gross profit in the quarter.

Approximately 70% of our Experis business is IT with the balance in engineering, accounting and other professional services.

Similar to last quarter, our Experis gross profit margin was down 4% in constant currency.

The primary contributor to this decline was Northern Europe, which is down 7% in constant currency.

While we have seen improving trends in the UK in the quarter, these have been offset by weaknesses in Sweden and the Netherlands.

Our ManpowerGroup Solutions business was 9% of gross profit in the quarter and consists of Recruitment Process Outsourcing, MSP, Talent Based Outsourcing, Borderless Talent Solutions and Strategic Workforce Consulting.

Our gross profit was down 8% in the quarter on a revenue increase of 1%.

Our market leading MSP business had a very good quarter with gross profit up 7%.

Our RPO gross profit declined 7% in constant currency, primarily as a result of weaker demand in the Asia Pacific Middle East segment.

Account Based Outsourcing also contributed to the decline in gross profit as a result of the lower gross margin I discussed earlier.

Our Right Management business comprised 6% of gross profit in the quarter and declined by 1% in constant currency, which I will discuss later in my segment review.

Our SG&A expense in the quarter was down $720 million or $693 million before restructuring charges.

This is a reduction of $54 million in constant currency or 7%.

Much of this expense reduction was driven by our cost recalibration plan, which resulted in significant productivity gains, as SG&A expense as a percentage of revenue dropped to 13.2% from 14.3% the prior year, down 110 basis points in the quarter.

On a full-year basis, our SG&A expense was $2.855 billion, including the $89.4 million of restructuring charges, or $2.765 billion before restructuring costs.

This represents a reduction in SG&A expense of $214 million or 7% in constant currency for the year.

Of this $214 million, $152 million is directly attributable to our cost recalibration under our simplification plan.

This overall savings resulted in significant productivity gains, as SG&A expense as a percentage of revenue improved to 13.7% from 14.4%, a 70 basis point improvement for the year.

Now that we have concluded the year, let's step back and take a look at the results of our cost recalibration under our simplification plan.

As a reminder, we introduced our simplification plan in the fourth quarter of 2012.

Simplification plan focused on recalibrating our costs in four specific areas: organization, programs, technology, and delivery.

The focus of this program was not about cost cutting but rather about doing our business in a different way to simplify our organization and processes so we can focus on what is most important, which is selling high-value employment solutions to our clients.

This is a recalibration of our costs, meaning that we do not expect these costs to come back when volumes increase.

So where did we end up under the program?

We initially targeted savings in our 2013 P&L of $80 million and the final result is a savings of $152 million.

We planned to reduce our SG&A run rate by $125 million.

We exceeded that target, exiting this year with a run rate reduction of $192 million.

Said in another way, of the $192 million of annual cost reduction, we recognized $152 million in 2013 and the $40 million balance will be recognized as a reduction in the 2014 earnings statement.

We had estimated 2013 restructuring charges between $50 million and $60 million, but incurred $89 million as we were able to identify more recalibration opportunities than anticipated.

This brings our total restructuring charges under the program to $116 million, as we incurred $27 million of restructuring in the forth quarter of 2012 related to the plan.

This concludes the primary elements of our simplification plan.

As we look to the next few years, we will continue to evolve and enhance our delivery channels and drive greater productivity and efficiency through our virtual and physical offerings.

These more efficient delivery channels will allow for further productivity gains, enable us to drive higher incremental margins on new revenue growth as we drive for our 4% EBITDA target.

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

Revenue in the Americas was in line with forecast at $1.1 billion an increase of 1% in constant currency or a decline of 2% in US dollars.

OEP in the quarter was $39 million or $46 million before restructuring charges.

This represents a strong operating profit growth of 29% in constant currency and an operating margin expansion of 90 basis points.

Staffing gross margin in the Americas was stable compared to the prior year, but the overall gross margin declined slightly due to a 5% constant currency decline in permanent recruitment fees.

SG&A expense was down for the prior year due to the cost recalibration plan and was a primary contributor to the OEP margin expansion.

Now, let's turn to the US market, which comprises two-thirds of the Americas' segment revenues.

US revenues came right in as forecasted at $751 million, which is flat with the prior year.

Our US OEP showed very strong growth in the quarter up 38% over the prior year or $31 million before restructuring charges.

Our US Management team continues to keenly focus on price discipline, which resulted in an improvement in staffing gross profit margin of 10 basis points over the prior year.

Our overall US gross profit margin was slightly down from the prior year as permanent recruitment fees were down 3% in the quarter.

While we experienced softening of the permanent recruitment trends in October and November, growth rebounded in December, which is up 9% year over year.

Our SG&A expense in the quarter was down 10%, which is the primary contributor to the expanded operating profit margins.

Turning to the brands in the US, our Manpower business represents 57% of US revenues.

Manpower trends in the US continue to improve, as revenue grew 1% in the fourth quarter compared to a 1% decline in the third quarter.

Manpower's revenue growth continues to be masked by the fact that we had one large client project in the prior year that was completed in January of 2013.

Without this client, growth would have been up 4% in the quarter with strong growth our national accounts of nearly 12% and SMB growth of 3%.

These good revenue gains are partially offset by some declines in our large global accounts.

The decline in global accounts is in many cases due to pricing pressure on contracts that came up for rebidding where we opted not to participate.

Our Experis business represents 36% of US revenues and was down 4% from the prior year.

Within Experis, we continue to focus on price discipline and trading out lower-margin business for higher-margin business.

This has resulted in an improvement in our interim gross profit margin of 70 basis points.

While our pricing strategy has had some impact on Expiries IT revenue growth, we have seen improved revenue trends in both finance and engineering, which were both up 8% in the quarter.

Our ManpowerGroup Solutions business represents 7% of the US revenues and had a very good performance in the quarter, with revenue up 9% and business line contribution up 29%.

This strong performance was driven by strong growth in both RPO and MSP business lines.

Overall demand for our services in Mexico remains fairly soft; however revenue growth did improve to 1% in constant currency.

Our staffing margins in Mexico improved slightly in the quarter.

SG&A expenses were well managed under the recalibration plan coming in 10% below prior year resulting in an OEP improvement of 18% in margin expansion of 70 basis points.

Consistent with the last few quarters, volumes in Argentina are down compared to the prior year but revenues are up due to the high inflation.

In the quarter we saw constant currency revenue growth of 13%.

That, combined with gross margin expansion and good cost control, resulted in OEP almost double that of the prior year.

Southern Europe had a very strong performance in the quarter with revenue growth reaching 3% in constant currency and revenues of $1.9 billion.

OEP in quarter came in at $94 million before restructure, which reflects an 83% improvement in constant currency and an OEP margin expansion of 210 basis points to 4.9% before restructuring.

During the quarter, Southern Europe improved its gross profit margin and did an excellent job reducing costs under our recalibration plan resulting in an SG&A reduction of 9% before restructuring.

Our largest operation within Southern Europe is France, which comprises 73% of revenue.

French revenues improved steadily in the quarter and were up 1% year over year.

It is the first time we've seen growth in France since the fourth quarter of 2011.

Our OEP in France came in at $70 million an increase of 80% over the prior year in constant currency.

SG&A expenses were well controlled, down 7% over the prior year, as we continue to streamline our operation and drive efficiencies.

Our gross profit margin expansion was also a strong contributor to the results of the quarter, which is primarily attributable to the CICE payroll tax credits.

Revenue in Italy came in at $282 million, which was flat in constant currency.

While the economy remains a challenge in Italy, we continue to find good revenue opportunities allowing us to maintain a stable top line.

Our OEP before restructuring came in at $19 million in the quarter for an increase of 89% in constant currency.

This good profit performance was primarily due to an expanding gross margin as a result of strong growth in permanent recruitment in Solutions business as well as strong SG&A expense reduction.

Our business in Spain represents 5% of segment revenues and had an exceptional performance in the quarter.

Revenues were up 24% in constant currency or 15% on an organic basis.

This is a nice acceleration from the 3% organic constant currency growth we saw in the third quarter.

Along with this growth, staffing gross margins were stable and SG&A expense was flat resulting in significant OEP growth and OEP margin expansion of 150 basis points.

Revenue trends in Northern Europe continued to improve in the fourth quarter and came in above our forecast at $1.5 billion an increase of 1% in constant currency.

OEP before restructuring was $56 million, an increase of 21% in constant currency.

OEP margins before restructuring expanded 60 basis points to 3.7%.

Our gross margin in the quarter was down slightly from the prior year as a result of a 9% decline in permanent recruitment fees.

Permanent recruitment continues to be soft across most markets in Northern Europe with a notable exception being the UK, which saw 11% growth in the quarter.

SG&A expenses were rigorously managed and were down 5% in constant currency before restructuring.

Within Northern Europe our Manpower brand comprises 75% of revenue, Experis 21% and ManpowerGroup Solutions 4%.

Revenue in our Manpower business improved slightly by 1% in constant currency while Experis was flat and ManpowerGroup Solutions Talent Based Outsourcing business was down 7%.

Experis revenue trends in Northern Europe continue to improve, primarily as a result of the UK market, which saw strong growth of 11% in the quarter.

Our UK business represents 32% of the Northern Europe segment.

Market conditions in the UK continue to gradually improve in the fourth quarter as we saw increasing demand for our services.

Revenue in the quarter was up 2% on a constant currency basis, but this includes the impact of a large client project completed earlier this year.

Removing the impact of this client from the prior year, underlying UK revenue growth was 8% in constant currency.

Our Nordic region represents 22% of Northern Europe segment.

Revenue trends in the fourth quarter remain stable with the third quarter, with overall revenues down 2% in constant currency or 6% on an organic constant currency basis.

Overall market demand in the Nordics remains weak and we continue to see aggressive price competition from some of our smaller competitors.

Our German business represents 12% of the Northern Europe segment.

Germany revenues continue to show improvement from the third quarter up 3% in constant currency or 7% in constant currency on an average daily basis.

Overall profitability improved in Germany as a result offer an expanding gross profit margin with better utilizations and strong SG&A expense reduction.

The Netherlands represents 10% of Northern Europe revenue in the quarter, was down 1% in constant currency following flat average daily growth in the third quarter.

As is typical of recoveries, we are seeing choppiness in the revenue growth line in the Dutch market.

Profitability in the Netherlands was very strong up 67% in constant currency on expanded gross profit margins and strong SG&A expense reductions.

Our Belgian operation also had a strong performance in the quarter.

Revenues were up 1% in constant currency and OEP was up 45% due to strong SG&A expense management.

Our Asia Pacific Middle East business represents 11% of total Company revenue, and was down 5% in constant currency to $590 million.

Our OEP in the region was $19 million before restructuring charges, a decline of 27% in constant currency.

The profit decline this year is somewhat magnified by the fact that in the prior year we had a provision release of $4 million related to a contract termination.

Our gross margin in this segment was slightly below the prior year as we continue to see pricing pressure in some markets and we had a decline in permanent recruitment fees of 8% in constant currency.

SG&A expenses were well managed, but we experienced some operating deleveraging due to the 5% revenue decline.

Within Asia Pacific Middle East our Japan operation represents 38% of segment revenue.

Revenue in Japan was down 6% in constant currency.

It was impacted by the run-off of a large client contract that began to wind down earlier this year.

Adjusting for this contract, revenues were down 1% in constant currency slightly weaker than the 1% growth we saw in the third quarter.

While we are seeing soft demand for staffing services, our permanent recruitment in Solutions business continues to make strong gains.

Our Australia business represents 25% of the segment, and revenues are down 4% in constant currency in the quarter.

While demand for our services remains soft in Australia, overall trends are fairly stable and the year-on-year revenue contraction rate continues to improve.

Our other markets in Asia had a combined revenue decline of 5% in constant currency.

The growth environment in this region continues to be mixed with good growth in India, Korea and Malaysia, but contracting growth in China and Hong Kong.

The decline in China is partially due to the change in staffing regulations earlier this year, which among other things restricts the amount of usage by out client and assignment length.

Overall profitability was down slightly in China, but the OEP improved as we exit relatively low-margin business under the new regulations.

Final segment is Right Management, which came in on forecast with revenues of $82 million down 2% in constant currency.

Within Right, two-thirds of our business is Career Management, which is down 4% in constant currency in the quarter.

The other third is the Talent Management, which is flat with the prior year.

Talent Management slightly improved over the last few quarters, as we are seeing early signs that companies are slightly more willing to invest in discretionary areas.

Right was able to deliver very strong OEP growth of 28% before restructuring charges, as we continue to streamline their delivery model.

OEP before restructuring came in at $11 million for a margin of 13.6%, up 330 basis points from the prior year.

Now, let's take a look at our cash flow and balance sheet.

Free cash flow, defined as cash from operations less capital expenditures, was very strong in the quarter at $274 million.

This was partially aided by the sale of a large portion of the CICE tax credit, that we earned in 2013, to a financial institution.

On a full year basis, our free cash flow was $352 million, an increase of 35% over the prior year.

Our accounts receivable day sales outstanding was fairly stable throughout the year.

We finished the year up half a day over the prior year.

Capital usage remains a primary focus of the organization and is well embedded in the incentive plans for our leaders throughout the world.

While we continue to see pressure on payment terms, particularly from larger clients, we have fully factored these costs into a client profitability analysis as we assess individual client returns.

Capital expenditures for the year came in at $45 million, a significant decline from the $72 million in the prior year.

This lower investment is appropriate as we continue to evolve our branch network and delivery channels.

Balance sheet was very strong at year end, with total cash of $738 million and total debt of $518 million bringing our net cash position to $220 million.

Our borrowings were in line with the prior quarter at $516 million and total debt to capitalisation in the quarter improved slightly to 15%.

Our credit facilities at the end of the year were similar to the third quarter.

We had $481 million outstanding under a fixed-term $350 million Euro note that matures in June of 2018 and $35 million outstanding under various country credit lines.

We also have a $600 million revolving credit agreement, which we did not utilize during the quarter.

Finally, let's take a look at our guidance for the first quarter of 2014.

Overall, we expect strong earnings growth on a continuation of the modest revenue growth that we saw in the fourth quarter.

On a consolidated basis, we expect revenue growth to range between flat to up to 2% over the prior year.

We expect similar revenue growth in constant currency, as a blended average currency rate this year is similar to last year.

From an operating segment perspective, we expect constant currency revenue growth to range between 1% and 3% for the Americas, Southern Europe and Northern Europe.

We expect year over year revenue declines between 4% and 6% in Asia Pacific Middle East and between 1% and 3% at Right Management.

We are forecasting our gross profit margin to range between 16.4% and 16.6%, and our operating profit margin to range between 2.1% and 2.3%.

We're estimating our income tax rate to be 44% resulting in earnings per share between $0.62 and $0.70 per share.

At this point we expect the impact from changes in currency rates between years to be neutral to earnings per share on a net basis.

As you compare our first quarter forecast earnings for the prior year, keep in mind that the first quarter of 2013 included $0.32 of restructuring charges.

Also keep in mind that the income tax rate in the first quarter of last year was unusually low as the Watsi tax credit for 2012 was recognized in the first quarter of 2013.

This added $0.09 to earnings per share in the first quarter of 2013.

With that I'll turn the discussion back to Jeff.

Thanks, Mike.

The fourth-quarter 2013 was a solid quarter for us, with operating profit increasing 46% and net earnings up 68%, both before restructuring.

In fact it was a good year for us given the environment, we executed extremely well and set ourselves up nicely for 2014.

The recalibration and simplification of the business has set us up nicely for stronger operating leverage than we have had in the past.

The well managed and strong execution momentum is coupled with a very soft breeze at our back, something that we have not felt for some time.

As we discussed in previous quarters, our ability to create more operating leverage based on a smaller revenue growth is an objective we've been shooting for.

Given our cost base, we do believe that the recalibration has achieved a lower operating leverage point for us.

We are still in a challenging revenue environment as 2013 came in 2% below 2012.

We do believe, as you can see from our revenue guidance that Mike shared with you, that revenue growth will remain slightly positive for the first quarter.

The magnitude of the uptick as well, as we go through 2014, is very difficult to predict, but there are many signs that would say that we should be able to have a slow revenue growth throughout the year but definitely revenue growth.

Within the quarter and the year, we had some key performances, our Dutch operation did extremely well in 2013, gaining market share and expanding profitability by 44%.

This is also true in Belgium where we have been able to not only gain market share but diversify our business and also increase profitability by 26%.

Brook Street in the UK and Spain also did very well given the economic environment.

Three of the largest of the five geographies, France, the US and Italy all did better, with the US improving profitability by 40% and also starting to experience revenue growth in Manpower, but we have yet to see satisfactory revenue growth in Experis.

France had a very good year, aided by CICE.

However, even without CICE, we did well as we were able to manage cost quite effectively and continue to gain market share throughout the year.

Our gross margin in the core staffing continues to be a challenge.

We anticipated the challenge and as a result, through recalibration, ratcheted back much of our costs and are able to obtain business at lower gross margins while still achieving higher net profits on that business.

A major area of focus in gross margin improvement is mix of business through Solutions and outcome-based pricing.

We continue to do quite well in this area as clients are looking for a packaged solution in many cases.

Our RPO business and MSP offerings are top in the industry.

We added 21 additional engagements in the quarter in RPO, and therefore we continue to plant a tremendous amount of seeds in the RPO area.

ManpowerGroup has been recognized for the third consecutive year by Everest Group Research Recruitment Processing Outsourcing Report as the leader in their peak metrics.

Also for the first time, Everest has put out a Top Performer List for Managed Service Provider and we surpassed the competition at each of the evaluation categories and emerged as the clear industry leader in this area, both extremely important to us as we look to the future of what our clients and prospects are looking for.

Throughout the year and the quarter, we continued to drive simplification in our business.

The mantra started at the beginning of the year, which was to simplify, to sell and win.

The four areas of simplification where: organization, programs, delivery, and technology have all been worked on with great progress being made in each of the areas.

We have more to do in the areas of delivery and a slight more to do in technology, and we will continue to work on them throughout 2014.

In 2013, we have made sizeable investments in Manpower delivery channels, Experis, and cross-border capabilities, Recruitment Process Outsourcing, and MSP offerings, as well as our sales leadership and sales force.

All of this is pointing to better momentum as we move into 2014.

Last year at this time on the conference call, I talked about stabilization and if a patient had stabilized, but was not off the recovery table yet.

I do believe that is fair to say that we could upgrade the patient status.

The labor market is clearly off the table and walking, albeit gingerly.

That doesn't mean that we are about to experience any robust recovery on a global basis, but we are seeing an environment in which confidence is starting to take hold.

As we move into 2014, we will continue to exercise our muscle in the area of recalibration where possible, but also in the areas of delivery and technology.

We will be focused on disciplined growth as growth is an important part of our 2014 strategic initiatives.

We are looking forward to 2014 with confidence and momentum.

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

(Operator Instructions)

Andrew Steinerman.

My first question has to do with the new growth in France.

Do you think that's a market rate of growth, or do you think Manpower has started to take share in the fourth quarter compared to my estimate that they've been more like a peer performer to the group throughout the early part of 2013?

France has some unique -- hi, Andrew.

France has some unique characteristics, as you know, in that the PRISM data comes out and it tends to be a very good proxy because of the way the industry is structured there.

Based on the PRISM data and the most recent December and what we've seen in the fourth quarter is, we most likely have been taking a bit market share.

The industry itself is still a bit muted.

It had a little bit of a slower December, and I think that's across the board.

The way Christmas fell was a confusing time for us in the industry because of that Wednesday.

I would say we're taking a little.

Also as you know, while that has leveled out somewhat in 2013, if you go back to 2011 and 2012, we've been taking market share in those years as well.

I think the team's performing well and we're quite focused on disciplined growth there.

Is there growth in France in early 2014?

Andrew, I think as you look at where we are in 2014, I'd say a little bit slower start in the French marketplace, starting off the year.

As we look to our guidance in the first quarter, we're looking for about the same type of growth, about 1% in constant currency in the first quarter similar to what we experienced in the fourth quarter.

I would say that January isn't in yet, but we've got a pretty good look on January.

I would say right now January would look to be flat to slightly down.

The overall atmosphere in the marketplace is certainly stabilized.

I think there is a little bit of optimism, even though there is also caution in the marketplace, no doubt.

We're looking for that to continue on a growth path here.

We're also looking at it to be a fairly modest growth path, if you will.

Just to round out France, Mike, could you just make a quick CICE comment about 2014?

Right, so the CICE tax credits increased from 4% of eligible wages up to 6% of eligible wages in 2014.

There is an increase in the amount of credits that are available.

We'll take the same view in 2014 that we did in 2013, which effectively these credits are intended for the employer and to be reinvested to some extent in programs to help employment.

That's our view as we enter into 2014.

That's how we're going to approach the marketplace.

Makes sense, thank you.

Hamzah Mazari

Just a question on the Q1 guidance.

Are you seeing any further deceleration in Asia Pacific, or is that just a large client winding down?

Any color on the weakness in Right Management?

I assume the higher tax rate you guys have at Q1 is just a mix of where you guys are earning income?

Yes, so a couple of things.

In terms of Asia Pacific, I would say I don't see any further deceleration.

It is primarily the impact of a client that we have winding down in the Japan market that's a fairly large part of that.

I would say the operating results overall in that part of the world are a little bit mixed.

We're seeing some growth in some of the markets and some softness in some of the other markets but I certainly wouldn't characterize it as increased deceleration overall.

As Mike mentioned in his prepared remarks, we're going through the change in the Chinese labor law, which is affecting the revenue.

Actually, it was revenue that was a little bit difficult revenue for us to swallow to begin with because it was a pretty low gross margin.

As that shifts around, it does some things with that top line that are a little misleading.

In the core part of China, what we're seeing is that it's a relatively stable market, perm recruitment is still moving in the right direction.

Our perm recruitment is a little bit off because we've lost a few key performers to opening up their own companies, which is just part of the factor of doing business in China.

Overall, in Australia, we have felt a little pressure in Australia, but it's not a major market.

If we go to the other markets in there, it's pretty strong.

Second question on Right Management, Right Management from a revenue perspective pretty much came in as expected in the fourth quarter.

Remember, you've got two pieces of business in there.

You've got the outplacement business, which is counter cyclical.

That's down a little bit on prior year, as would be expected as the economies are starting to show some signs of improvement.

Then, the talent management piece -- so that's 70% of the business, the talent management piece is 30%.

That's a little bit more discretionary spend.

We've actually seen that.

While that is still down slightly year on year, the contraction has smoothed out a little bit.

We're starting to see a little bit more opportunity there.

Overall, I think Right had a good performance in the quarter.

They managed expenses extremely well and overall good profitability from that perspective.

The revenue in the case of Right, also, we're seeing that in total numbers, our numbers are pretty solid, if not going up.

The size of the packages that our companies, our clients are engaging with us are a little bit down.

Part of that is just a natural thing that we have anticipated.

We're moving much more to the internet.

You get, really, a mix of how they're using us in the career management.

You might be looking at outside world and seeing some pretty good sized downsizing in companies.

We're participating in that, but the package numbers are a little bit down, so revenue is down slightly.

Very helpful.

Just a follow-up question and I'll turn it over.

Within Experis, you spoke of getting rid of some low-margin business.

Where are you within that process?

Is this late innings within that process?

Is this just a function of your book of business, or is there some execution issue?

Thank you.

Okay, so we've got two questions in there, because I'll have Mike handle the first quarter tax question that you asked also.

On the Experis side, we are anniversarying some of those accounts that weren't necessarily low margin.

They were large accounts of ours that projects had anniversaried.

They were coming off.

Most of that is now coming due for us, in other words we are anniversarying that, so that was a big part.

We continue to remain disciplined, but also we've got some execution things we have to work on within Experis, particularly in the productivity of recruiters and making sure we have the right match of the recruiters with the amount of orders out there.

The amount of orders out there seem fairly robust.

Our pipeline is good, so we've got to step up our execution.

I would say that we're off a little on our execution, but I'm confident in the direction that the team is making.

Mike, do you want to cover the tax for the Q1?

First-quarter tax rate, the overall guidance was 44%, which is certainly higher than prior year because we had some unusual WOTC tax credits come through in the quarter.

If you look at that 44% relative to -- on a full-year basis last year, our tax rate was just a hair under 40%, so a little bit higher.

That really has to do with the seasonality and the amount of pre-tax earnings that comes into the first quarter.

There's some items that, for instance, the business tax in France has a disproportionate impact on the effective rate in Q1 just because pre-tax earnings is less in Q1.

That's where we get to a little bit higher rate.

As I look out for the year right now, and it's a little bit hard given how mix can change and tax planning can impact it.

Right now, I would anticipate the overall tax rate for 2014 to be in that 40% range overall, right around where it was last year.

Again, a lot of moving parts there, but that's how I'm thinking about it right now and the 44% in Q1 is in that context.

Great thank you.

Next question please.

Sara Gubins.

You mentioned that France was flat to down a little bit in the beginning of the year.

Are you seeing similar trends in other major markets, or is there a lot of variation around that?

Yes, I would say there's a fair amount of variation around that.

I would say some markets are getting a little bit slower start.

Other markets are doing a little bit better, I think the US market is showing some incrementally better signs overall in the marketplace.

Some impact in some areas due to the cold weather within the US market.

Putting that aside, I would say overall the US market is doing a little bit better.

In many of the markets, the tone is a little bit better even though maybe the starting point is coming on a little bit slower.

Overall, I think things are still continuing in a favorable way as we get into the first part of this year.

Okay.

Following up on the earlier CICE discussion, how much of the CICE benefit is in the first-quarter gross margin?

How much is that contributing to the first-quarter gross margin?

As we look at the first-quarter gross margin we would expect there was some benefit in last year, we would expect incremental benefit this year.

As I mentioned earlier, the overall amount of CICE is about 50% more.

We do have some additional benefit coming through on the gross margin in the first quarter over and above what was recognized in 2013.

It wouldn't be the entire amount, as we are being cautious about what's happening with some pricing.

It's starting to now mature to the point where between pricing and small and medium size business and what we're doing to try to improve the employment market with some of those dollars, it's not completely mathematical.

Okay.

Do you have any expectation of further cost reduction related charges in 2014?

We're going to take very seriously, as we have and you've seen this year, I'm extremely proud of the team.

That's the extended team across all of the network of what we were able to do in 2013.

We look at 2014 there are some things, particularly in the delivery area, that we're going to continue to work on.

Delivery is really the sacred part of the business, so we're going to do that very slowly and methodically to make sure that we are making the market itself where we are introducing some of these new delivery multi-delivery channel strategies.

That will involve some consolidation at some level.

Some of the countries, it would just flow right through expense.

Other countries, where we might do it on a larger scale, there might be a little restructuring.

Then, there's a tiny bit left potentially in technology, particularly at the local level.

We've really tried very hard to get 2013 restructuring as the end game, but I think it would be probably trivializing what might happen in 2014 as we are able to sink our teeth into some new opportunities.

It would be know where near as big.

Great.

Last question, Mike, is there anything that's unusual around the number of days per quarter in 2014 that we should think about as we model?

No, nothing -- let me see if I've got that.

In the first quarter, some markets have one more day, some don't.

Overall, we've got less than 0.4 additional days in Q1 on a weighted average basis.

It has a slight impact on overall revenue growth, incremental.

As I look to Q2, we've got about half a day less, and Q3 is about the same as prior year, and Q4 is just slightly below prior year.

It's pretty consistent across -- no major shifts this year compared to the prior year.

Except I hope Christmas on Thursday is better than Christmas on Wednesday.

Paul Ginocchio.

Not to belabor the point, but just, Jeff, your outlook around 2014 didn't include the word guarded, yet you included it in your press release.

Is that just because of the slow start in France?

Is that why you said guarded?

Any other reason?

Paul, come on now.

You're making me sound like the Fed Reserve with forward guidance and using words a certain way.

I will say that I worked on that word for a long time.

To be real honest with you, if you look at what we had stated in our prepared remarks for the call, we use the word cautious in many areas.

I really felt cautious was not only over used in press releases, but was maybe signaling what it felt like before, and it's not.

We are feeling a bit more optimism, but we're going to be guarded about that optimism.

We aren't getting ahead of our skis on it.

The word was very much selected for a reason.

We looked at guarded being a better word than cautious, because cautious is what was used during all of this downturn stuff and connoted something different than we wanted in that word guarded.

Thanks for that.

I think I understand your growth relative to the market in Italy, I mean in the US, because of the contract in the UK, because of the contract in Germany, I guess because of the same-day issue or fewer days.

In Italy, it does seem like you're growing substantially less than the market.

Can you just address that?

I'm not sure if we are.

I think there are some competitive local players there.

When we come up against the major competitors, we go up and gown a little bit more fast from quarter to quarter.

So, it's not like you would see in France where it goes over a year or two -- or 18 months.

No, we feel very good about our market there.

Also, if you compare what we are doing on the top line compared to what we are doing on the bottom line, you can see that we're also being appropriately selective while being competitive.

Because our bottom line has improved very nicely in Italy in this difficult time.

Thanks.

One quick one for Mike.

In the UK and Japan, when do those contracts no longer become a drag?

Or start to subside, which quarters?

In the UK, we end up going out through -- into the third quarter is where you start.

In Japan, it was a gradual fading off, if you will.

We're going to somewhat feel it through the year, but certainly less in the second half of the year.

That was an account that moved over to a different way of doing business than more of an outsourcing arrangement based on the labor law that was put in place two years ago.

Thanks very much.

Next question please?

Gary Bisbee.

First question, I just want to get a sense how you're thinking about variable costs within SG&A?

The bridge for the year you had a $214 million decrease, and you said $152 million of that was structural cost savings.

Revenue for the year fell 2%.

If revenue grew 2%, would it be a reasonable assumption that the $62 million variable piece, the difference between the $214 million and the $152 million, would come back in 2014 or is it not quite that simple?

Yes, probably isn't that simple because there's so many different components to that.

Certainly, there's some capacity in the network and we could see some growth and hold back from an SG&A standpoint with that growth.

I certainly would like to leverage -- that 2% growth I'd like to leverage as much of that, if not all of that down to the bottom line.

There's some practical aspects, too, that in that you have things like merit increases and things like that coming through.

I think we would be able to get a fair amount of leverage coming through on that 2%.

The other thing to remember is we took out a total of $192 million on a run rate basis and $152 million actually hit the P&L in 2013, so we've got $40 million of that will help us out next year in 2014 as well.

What we're trying to do is, in the delivery strategy, is to work to replace the productivity, increase the productivity down at the branch level, so what has been reduced because of the lower volumes we would like not to bring back at the same rate because we're replacing it with a different way of doing business.

That's -- we're not counting a lot on that because we're going to do that carefully so we don't hurt our revenue line, but that's the ultimate strategy is to replace it so that it doesn't come back at the same rate.

Great.

Then the follow-up question.

On the Solutions business, there's been an awful lot of optimism and yet the business hasn't recently grown that much, I think because the Talent Based Outsourcing has offset the strength of the other segments there.

Can you just give us a sense?

What is the outlook for that and really what's the driver of the Talent Based Outsourcing?

Is that just a different way of doing temp, where you take some of the risk and it's project based so that would be macro drivers like the rest of the business?

How do we think about that?

Thank you.

Yes, you're right on.

If you were to parse out RPO and MSP, those are both growing at very good rates, in the high-single digit to low-double digit.

It's the TBO business, the Talent Based Outsourcing, which is a wrapper of more outcome-based pricing of the core business.

As volumes for clients go down, that business is shrinking because it really has large numbers in it.

Also if you look at it -- Mike, you could help me out, but I still believe it's about 60% of that line item, so it's a big part of our Solutions business.

Now it's gone down a little where we were maybe as high as 65%, because it has shrunk a little.

Absolutely, it's much more of a macro trend.

We haven't lost those accounts.

Companies still want to do business that way.

We have every confidence that it comes back as the core staffing business comes back.

I'll maybe just make one minor adjustment to that on the RPO side.

I have got the advantage of the numbers right in front of me.

We did see a little bit of a decline this quarter in RPO year on year.

That probably has to do with a large RPO business in Australia, so we saw a little bit of decline, but overall that business is very solid and performing well.

Thanks.

Tim McHugh.

One of the comments earlier you said about the extra month of the payroll credit and the CICE credit in France was, is that a catch up from -- in other words you didn't accrue as many months early in the year, or is that a -- where does that come from I guess?

Is that a pull forward from something that otherwise would have been in Q1 here?

That's a good question, Tim.

Effectively, the December payroll gets paid in January.

That effectively what we're doing is we're accruing the credits related to that December payroll in December.

That's the appropriate accounting guidance we got on that, which effectively gets us four months in the last quarter here is what happens.

Does that mean you only have two months in the first quarter?

We did have three months in the first quarter overall.

It wasn't clear at the end of last year, December, that we should have -- it wasn't all in the legislation.

So, we basically didn't accrue at the end of last year for the December 2012 payroll until it was actually -- the legislation came across.

Effectively what we've got is we're going to have 13 months really came in 2013.

As we now get into 2014, in the first quarter of 2014, we'll have three months in the first quarter of 2014.

Okay, great.

Thanks.

The only other question I had is just the cash balance.

You've had strong cash flow this year and are starting to build up.

Where's your thought process at this point relative to acquisitions versus repurchases?

We're going to stay very consistent.

We are interested in acquisitions, but they have to be very good acquisitions and they fit within us, so we continue to do what we can to look in the market.

We're not going to be overly eager just because we have a cash balance to do something on the acquisition front.

When we look at any share buyback, we have an authorization and we think that it would be prudent to offset any kind of equity that is creating some dilution, so we would look at that.

Then, just continue to look at the market as it rolls out.

While that cash balance is there, Mike and I keep looking at each other and saying, all right, we don't want to be overly eager.

We know we're a cyclical company, so we're going to be methodical about that cash and not get overly concerned about it building up just slightly.

Okay, thank you.

Jeff Silber.

Given where the Company is on its recalibration, I was wondering if you could tell us, going forward what the incremental margins are on your business, and if they differ dramatically by the different solutions that you offer?

Yes, Jeff, good question.

It really goes back to what we talked about in February when we had our Investor Day and what we expect on incremental margins.

As you know better than anyone, and I'm sure others on your call know, that the more revenue growth we have the better the incremental margins are going to be overall.

The way we had looked at and the way we laid it out in February, we said in order to get to our overall 4% target, we need about $3 billion more of revenue on where we were in 2012.

On that $3 billion of revenue, we think we can get incremental margins that would be on the order of low-double digit incremental margins effectively.

So, very good leverage on that incremental revenue.

When it comes down to on a quarter-by-quarter basis or year basis, it's a little bit tougher to see exactly what's 3% growth.

What's the incremental margin going to be?

Certainly, that is a key part of the story.

A key part of what we're trying to drive is managing that overall growth.

As you look at the different business lines, it depends a little bit upon business line.

It depends a little bit upon geography as well, because some geographies we have a little bit more capacity within those geographies and across business lines as well.

It's probably a tough answer to generalize.

I think I'd prefer not to generalize and try to get it down because there's so much that goes into that, but --

Suffice it to say we're better off than what we were in 2012.

Absolutely.

The cost structure, the leverage point is much lower.

I think we've done some work around the delivery model to help drive that efficiency.

We've got more work to do there to drive more productivity that we can get more volume through the network and our virtual offerings, so I think that's to come.

Okay, great.

Maybe on my follow up I can pinpoint you a little bit closer on numbers.

Can you give us what you're looking for in terms of capital spend and guidance for the year?

Are there any office openings planned across the world?

Thanks.

Sure.

From a capital expenditure standpoint, certainly this year was quite a bit down.

Overall we came in at about, I think the number was about $42 million in overall capital expenditures for the year, or maybe it was $45 million.

Something in that ballpark, so quite a bit down from the year before, which was in the low $70 million range.

I would suggest, starting the year out, that we would be thinking somewhere in that $50 million to $55 million range.

There will be opportunities to open offices overall in some of the markets, in some of the newer markets.

I would suggest that on a full-year basis I would expect we will exit the year with less offices, as we again continue to look at that our overall delivery model and driving efficiency and productivity.

Really technology just allows us to be more efficient from an office footprint standpoint.

On that basis down, although I do think there will be some opportunity for opening some new offices.

Of course, there's always the ongoing refurbishment to make sure that the offices we have are in first-class condition.

All right.

Great, thanks so much.

Last question, please.

Mark Marcon.

Thanks for squeezing me in.

With regards to Jeff's previous question, you mentioned the 4% EBITDA target.

You've clearly done more this year -- over delivered with regards to the simplification.

What are the implications for the incremental margins relative to what you were talking about back in February when the restructuring was a little bit lower?

Yes, when we looked at the overall plan back in February, we're looking at 70 basis points coming out of restructuring price.

I think it was 60 basis points.

We're going to be a little bit over 90 basis points, close to 100 basis points.

I'd say from that perspective, we're clearly well on our way.

Overall, we're looking for our overall gross margin to be up by about 30 basis points in that plan, primarily driven by perm growth and better mix of business, including more Solutions business.

Then the underlying staffing gross margin fairly stable.

I'd say what we've seen is a little bit more than anticipated pressure, continued pressure on the underlying staffing gross margin.

I do still think there's very good opportunity on the perm side and on the Solution side.

When I look at both of those pieces together, I think we're in good position overall to make sure that we meet the goal there.

Then, the last piece was just delivering productivity on that incremental revenue of 70 basis points.

That is still -- as I look at where we are and look at how we can drive good productivity on new revenue, I think that is intact at this point.

We would need, based on that waterfall chart we put in place in February, you'd need a little less than the $3 billion in revenue, but it really depends also on where it comes from and some of the margins that Mike talked about on gross margin.

Speaking of the perm and the gross margin improvement, you have gone from significant headwinds to, as you characterize it, a slight breeze to the back.

When would you expect that to fully translate to the perm side?

The market is a little bit harder to read than what its been in past recoveries, because I think we're on the fifth year of this recovery and I'm not quite sure it's the recovery yet.

The perm cycle versus the temporary cycle seems to be much more intermixed than its been before.

There's not a cadence in which we've seen before.

Also, we are so much larger as an industry and definitely as a Company in the perm business.

I believe that 2014 could have a pretty good year in perm in the US, because US has a little bit more buoyancy in the labor market.

I still think that perm in Europe might be a bit difficult because unless something comes out that frees up a little bit more confidence, I think we're still going to be under some -- in an environment where it will be hard to get at, but it will be there.

We don't see it going down, but it's not going to throw us into a 30 to 40 basis points improvement in our gross margin line because of perm.

We just don't see it coming.

Just to emphasize, Mark, one of the things as we talk about perm opportunity, as you're aware, we really built out the capability for perm recruitment back in 2005, 2006 era.

In fact perm recruitment came into the marketplace in France in 2005, so as we look at it we think there's very good opportunity.

The secular trends are very strong.

Clients are looking for us to provide that type of service much more so than they have in the past.

It is as you suggest, it's a bit of let's wait and see for the economies, particularly what's still meandering is Europe.

When that starts to turn, I do think there's good opportunity there for us.

Great.

Jeff, you talk to lots of CEO's of global companies and you travel quite a bit.

Are you seeing any initial signs of concern around what the well-publicized issues in some emerging markets?

It's interesting, I've had the opportunity, just come back from Davos, the World Economic Forum, where you get to meet a lot of CEOs.

There was talk about it, but yet everybody felt -- they're talking about it as if there's going to be some concern because there is some concern, but no one is really feeling it in any dramatic way at this point.

I would say it's stay tuned.

There's a lot of confusion that always happens at the end of the year and the beginning of the year because the seasonality of that.

I would say that there are some winners and maybe not as much winners that are happening in China, but that was happening before.

Overall, the Japanese economy and what's happening with some of their policies seem to be adding some energy to it.

I would say that there's optimism, but yet everybody is looking at some of the data and going okay we're going to be careful in this environment.

We believe that that's a pretty good environment for us because they are going to be careful and they'll be using us instead.

Great.

Thank you very much.

Thank you, everyone.

Appreciate it.