ManpowerGroup Inc (MAN) 2014 Q4 法說會逐字稿

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

(Operator Instructions)

Now I will turn the conference over to Mr. Jonas Prising.

Thank you.

You may begin when ready.

Good morning and welcome to the fourth-quarter 2014 conference call.

With me are our Chief Financial Officer, Mike Van Handel, as well as our Executive Chairman, Jeff Joerres.

I will start our call by going through some of the highlights for the quarter and then Mike will go through the details of each segment, the relevant balance sheet items, cash flow, and forward-looking items for the next quarter.

I will cover some of the additional follow-ups on our progress after that, but before we go any further into our call, Mike will be 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 10-K and in the other Securities and Exchange Commission filings of the Company, which information is incorporated herein by reference.

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

During our call today, we will reference certain non-GAAP financial measures, 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.

We saw solid performance in the fourth quarter, exceeding our expectations.

It was encouraging to see revenue growth rates in constant currency higher than what we had anticipated and the pause we saw in September and early October appears to have been just that, as the growth rate for the quarter was in line for what we saw in the preceding quarter.

Gross margin performance was also at the high end of our expectations, and this in combination with good cost control, resulted in earnings that exceeded our estimates.

Our revenues were $5.1 billion in the fourth quarter, up 5% in constant currency from prior year.

We managed this revenue and gross profit growth in a disciplined way, with our operating profit increasing to $193 million, an increase of 16%, or 9% growth in constant currency, excluding prior-year restructuring charges, an operating profit margin increase of 10 basis points.

This resulted in our earnings per share coming in at the high end of our estimates, at $1.47, which is 18% above the prior year or 7% constant currency growth without prior-year restructuring charge.

We had some significant currency headwinds and the anticipated effect of $0.08 in fact rose to $0.13 in the quarter.

This currency headwind on reported results is something we will probably have to contend with also going forward, but I would like to remind investors that as our revenue and costs line up for each country, it is a pure translation effect and does not reflect the actual performance in our countries, nor does it significantly affect our operating margin.

This should eventually have a positive effect in a number of our European countries, as a weaker currency makes their economies more competitive in the global context, and can be one additional factor to kick-start growth and generate demand for our services.

We had anticipated that the market conditions in Europe, in particular, would continue to be somewhat mixed, and we did indeed see a number of countries continue to improve while others stayed stable.

Emerging markets were slightly better than anticipated and the US market continued its path of good growth.

The global recovery continues to be buffeted by various geopolitical events, and underlying economic growth in Europe in particular remains very anemic, which means the pace of the recovery will continue to be slow and protracted in that particular region, whereas the US market continues to show good growth.

As I mentioned on our call last quarter, this is not my preferred scenario in terms of global market growth in recovery, but having said that, we believe the value of our services can be even more important during this time of uncertainty and seen as the preferred form of flexibility.

We did see examples of this in a number of countries over the course of this year.

Italy is experiencing negative economic growth, but despite that, the team drove 8% constant currency revenue growth.

In Spain, as the economy returned to growth this year, our performance was very strong, growing 24% organically in constant currency.

Our permanent recruitment in Europe grew by 9% organically in constant currency and 20% in the fourth quarter.

These are examples of where the need for flexibility and hiring expertise can drive good demand for our services despite lower economic growth rates.

I am hopeful that we will see the same occur in other countries, as well, once economic growth picks up.

We have also driven good diversification in our mix within brands, as well as for specific solutions and offerings, which shows our clients are increasingly seeing the value of our broad portfolio of strong and connected brands.

As I step back and I think about 2014 from a macro perspective, it turned out to be a year that was not as strong as many had anticipated a year ago, but in reality was better than how most people perceive it now.

Let me give you some examples.

Although unemployment in Europe is still very high in many countries, it actually came down somewhat in both the European Union and in the Eurozone during 2014 and it is projected to decrease somewhat also in 2015.

Unemployment fell significantly in the US, and although economic growth rates in some emerging markets were lower, they're still at a healthy level, meaning labor markets were reasonably stable.

We survey many employers through our Manpower employment outlook survey every quarter and the results for the survey, which ask 62,000 employers in 42 countries what their hiring intentions are for the coming quarter, tell us that employers in 38 out of 42 countries intend to maintain or slightly increase their workforce during the first quarter of 2015 compared to the same time last year.

As I look at those indicators, I am hopeful that will continue to see slowly improving economic global overgrowth, which will not be enough to materially reduce high unemployment levels in some countries, yet will require hiring to occur, and thus provide us with opportunities for growth in 2015.

We will ensure that we have those opportunities in clear sight and will add resources, recruiters and salespeople, should we need them in specific markets or brands.

Mike and I will provide some more details and thoughts on our view of the market as we go through the rest of the call.

As always, our results for this quarter are thanks to the hard work and dedication of our team helping clients find the best talent in this dynamic and uncertain environment.

As you know, we are committed to helping our clients win in this changing world of work and also provide meaningful and dignified work for millions of our associates across the our brands and geographies.

This dual purpose is what gives us our passion for the business and it will help move the business forward also in 2015.

With that, I would like to turn it over to Mike for some additional information and detail on the segments.

Thanks, Jonas.

As Jonas mentioned, our fourth-quarter revenue growth in constant currency was much better than expected going into the quarter.

Our constant currency revenue growth of 4.8% was very similar to what we saw in the second and third quarters of this year.

This, of course, follows on after four quarters of improving revenue growth, which began in the third quarter of 2013.

While we continue to see mixed growth performances across the various European countries, it is encouraging to see that revenue growth for the combined European region was stable in the fourth quarter at 5% in constant currency.

Our earnings per share came in at the high end of our guidance range at $1.47.

Compared to the midpoint of our range, our operations contributed much more than expected, adding $0.10 per share.

I'll talk about operational performance shortly in my segment review.

We also picked up $0.01 per share due to a lower share count, as a result of share repurchases in the quarter.

Other expense was $0.01 more than expected due to a write-down of an investment in a joint venture.

Our income tax rate was slightly higher than expected at 35.6% versus 35%, which also reduced earnings per share by a $0.01.

Of course, currencies were weaker than expected relative to the dollar, resulting in a negative earnings per share impact of $0.13 in the quarter compared to a forecasted negative impact of $0.08 per share.

Our gross profit margin came in at the high end of the expectations, at 17%.

The primary driver of this improvement was permanent recruitment, which added 30 basis points to our overall gross profit margin.

Growth in our permanent recruitment business further accelerated in the quarter and was up 24% in constant currency.

Permanent recruitment was 12.6% of our total gross profit in the quarter and 12.8% for the year.

This percentage is at an all-time record for the Company and is a strong validation of the investments we've made in this area.

We believe we are well-positioned for continued growth in this area in the future as business confidence grows and permanent hiring improves.

Our staffing gross margin was slightly down compared to the prior year, which is primarily due to a shift in business mix.

Our overall gross margin was also impacted negatively by mix, as our higher gross margin Right Management business contracted in the quarter.

Now let's take a look at our business line performance.

In line with our strategy, we continue to see stronger growth from our higher margin professional and solutions businesses.

We experienced gross profit growing by 11% in constant currency and ManpowerGroup Solutions' gross profit growing by 19%.

At the same time, we continue to see good opportunities within our Manpower brand.

Manpower represents two-thirds of our gross profit.

Within Manpower, about 60% of the mix relates to light industrial skills, which continues to see the best growth in many of our countries, since they are in the early stages of economic recovery.

Light industrial revenues were up 6% in constant currency in the quarter.

The other 40% of our Manpower revenues relate to office, clerical, and other specialty skills.

Revenues related to these skills were slightly up over the prior-year quarter.

Experis represents 19% of total gross profit, and within Experis, two-thirds is comprised of IT skills, with the balance comprised of finance, engineering, and other specialties.

During the quarter, gross profit growth accelerated to 11% in constant currency, with interim staffing and project solutions growing 7%, similar to last quarter, and permanent gross profit accelerating to 30% growth.

Our ManpowerGroup Solutions contributed 10% of growth profit in the quarter.

ManpowerGroup Solutions is comprised of our market-leading RPO and MSP offerings, as well as Talent Based Outsourcing and Borderless Talent Solutions.

Our clients continue to find high value in our Solutions offerings, as we continue to see robust demand in these areas.

Gross profit growth at ManpowerGroup Solutions accelerated to 19% and was driven by strong double-digit growth in each of our solutions offerings.

Right Management contributed 5% of our gross profit and was down 14% in constant currency, primarily as a result of the counter-cyclical nature of the career management business.

I will discuss Right Management later in my segment review.

Our SG&A expense, excluding prior-year restructuring items, increased 4%, or $27.8 million in constant currency, to $675.5 million.

On a full-year basis, our SG&A expense was up 42.8% or 1.5% in constant currency, to $2.768 billion.

We have maintained tight controls around SG&A expenses and the expense increase primarily relates to increased incentives, due to better operational performance, and selective investment in people where we see market growth opportunities.

Roughly one-half of our headcount increase in the year was due to the addition of more permanent recruiters.

As we look forward, we continue to see further opportunity for improved operational leveraging.

We continue to revise and modify our delivery models within our field network to provide our clients with greater value at a lower and more efficient cost.

Now let's take a look at the operational performance of our segments.

For comparative purposes, I have excluded prior-year restructuring charges in my comments to give you a true picture of performance.

The Americas, which represents 23% of total revenue, had a strong performance in the quarter, with revenues up 7% in constant currency to $1.2 billion and OUP up 24% in constant currency to $55 million.

OUP margin expanded 60 basis points to 4.7%.

This operating profit margin expansion was driven by a higher gross profit margin resulting from an acceleration in permanent recruitment growth to 20% over the prior year in constant currency.

Also contributing to the margin expansion was very strong SG&A leverage.

Our US operation, which represents two-thirds of the Americas segment, had revenues of $790 million, up 5% over the prior year, similar to the growth we saw in the third quarter.

Operating unit profit increased 32% to $40 million and operating profit margin increased 100 basis points to 5.1%.

Our gross margin was up slightly over the prior year, as permanent recruitment fees were very strong, accelerating to 21% growth over the prior year.

SG&A expenses were very well controlled and were flat with the prior year, resulting in good operating leverage to the bottom line.

From a brand perspective in the US, Manpower represents 45% of gross profit, Experis 38%, and ManpowerGroup Solutions 17%.

Manpower's revenue growth was up 6% in the quarter, similar to the third-quarter growth rate.

Gross profit margin was down slightly from the prior year, as we continue to some areas of pricing pressure in the market.

The overall business line contribution was up, however, as we achieved strong leveraging with expenses below prior year.

ManpowerGroup Solutions in the US delivered strong revenue growth of 21% in the quarter.

Both our RPO and MSP service offerings performed exceptionally well in the quarter, as clients are demanding these higher-value solutions.

Our Experis brand, which represents 38% of gross profit, had revenue growth of 1% in the quarter.

Our IT business within Experis was up 2% in the quarter, while engineering and accounting and finance contracted year-on-year similar to the third quarter.

Experis gross profit was up 5% in the quarter, with expanding gross profit margins, as we continue to see improved pricing and shift the business mix to higher margin clients.

SG&A expenses were well controlled, resulting in an increase in business line contribution.

Our Mexico operation represents 12% of the Americas segment, with revenues of $136 million.

Revenues were flat with prior year in constant currency as the market continues to drift sideways.

Our Argentina business represents 5% of the Americas revenue and continues to be a challenging environment.

Revenue was up 24% in constant currency, which was primarily driven by inflation.

[Fill the lara] volume was down 9% compared to the prior year.

Also within the Americas, we saw strong growth in Colombia, which was up over 50%, and a strong performance in Central America, which saw growth of 15%.

Turning to our Southern Europe segment, which represents 36% of Company revenue.

Southern Europe had a very good performance in the quarter with revenue growth coming in at the high end of expectations, up 3% in constant currency to $1.8 billion.

OUP grew 7% at constant currency to $92 million with an increase in OUP margin of 20 basis points to 5.1%.

The improved margin in Southern Europe was a result of a higher gross margin, which was partially driven by strong growth in permanent recruitment fees of 23%.

Our largest operation within Southern Europe is France, representing 70% of segment revenues.

Revenue in France was $1.3 billion, a decline of 1% in constant currency, which was in line with forecasts.

While we saw contracting year-on-year revenue trends in September and October, revenue trends improved in November and December to be flat with the prior year.

OUP in France grew despite the contracting revenue by 6% in constant currency to $68 million, and OUP margin expanded 40 basis points to 5.4%.

Driving the expansion in OUP margin was an improved gross profit margin, which is attributable to strong permanent recruitment fee growth of 24% in constant currency, and subsidies related to the newly implemented Responsibility Pact.

Revenue growth in Italy was very strong in the quarter, increasing 15% in constant currency to $296 million.

Gross margins were stable as slight pricing pressure on staffing margins was more than offset by strong growth in permanent recruitment fees, which were up 24% over the prior year.

SG&A costs were well-controlled, resulting in $19 million of OUP, up 9% over the prior year.

Similar to last quarter, Spain saw very strong growth in the quarter, up 26% in constant currency.

Gross margins were up nicely in the quarter, as our Management team continues to do an excellent job driving higher-value professional and solutions business within the market.

SG&A expenses were well-controlled, resulting in OUP growth above 50%.

Northern Europe represents 29% of Company revenue, and had revenue of $1.5 billion, up 7% in constant currency, which was above the high end of our guidance range.

While revenue growth still remains a bit patchy across Northern Europe, we have seen strong accelerating growth in the UK and The Netherlands.

OUP was up 9% in constant currency to $54 million, and the OUP margin was 3.6% Our gross profit margin was down slightly compared to the prior year, partly due to shifting business mix, with more growth coming from the UK, which has a lower gross margin.

Gross margin has also been impacted by pricing pressure that we are seeing in some markets.

We have been maintaining a strong price discipline, which has resulted in us walking away from a few clients.

Offsetting this gross margin pressure has been strong growth in permanent recruitment fees.

Permanent recruitment fees were up 36% in constant currency and 19% organically.

We have seen the strongest growth in perm fees the region come from the UK, which was up 45% organically in constant currency.

Within Northern Europe, Manpower represents 74% of revenue; Experis, 22%, and Manpower Group Solutions, 4%.

We saw good revenue growth across all brands, with Experis being the strongest, up 12% in constant currency.

We continue to see the strongest demand for our services within the UK market.

Our UK team has done an excellent job driving strong, profitable growth across all brands.

In the UK, revenue growth was up 17% in constant currency and permanent recruitment fees were up 45% organically.

This is a market we continue to invest in more recruiters as we see growing opportunity for 2015.

We also saw improving trends in the Netherlands, which was up 12% in constant currency compared to 9% growth in the third quarter.

The German market remained stable, with 3% constant currency growth.

In the Nordics, growth trends continue to improve in Sweden.

The growth, however, was more than offset by further contraction in Norway due to their weakening oil-based economy.

On a combined basis, the Nordics revenue contracted 1% in constant currency, similar to last quarter.

Revenues in Belgium were down 1% from the prior year in constant currency.

Revenues in the Asia-Pacific Middle East exceeded the high end of our forecast range, coming in at $567 million, up 3% in constant currency.

OUP growth was very strong, up 22% in constant currency to $21 million.

OUP margin increased 60 basis points to 3.8%.

The improvement in OUP margin was driven by a higher gross profit margin resulting from strong growth in permanent recruitment of 15% in constant currency.

Additionally, SG&A was very tightly controlled, with a very modest increase in the quarter.

Japan is the largest operation within the Asia-Pacific Middle East segment, accounting for 35% of revenue.

Revenue growth in Japan was up 1% over the prior year, an improvement from the 1% contraction we saw the third quarter.

The labor market in Japan remains tight which limits growth opportunities, but with highly focused those initiatives in place, we expect to see improving revenue trends as we move through 2015.

Revenue growth contracted slightly in Australia due to the continued challenge macro environment.

Nevertheless, we were able to improve our gross margin on both the staffing and permanent recruitment side.

This resulted in very strong OUP growth.

Other markets in Asia-Pacific and the Middle East were up 8% in constant currency.

We saw very strong growth, in excess of 20%, in a number of markets, including Korea, India, Taiwan, Singapore, Philippines, and the Middle East.

Our business in China continued to contract against the prior year, as the impact of regulations introduced last year continues to take hold, as well as impact from the softer demand environment.

Our Right Management business had revenues of $70 million in the quarter, a contraction of 12% in constant currency.

Within Right, 61% of the business is comprised of the countercyclical career management revenue, which declined by 18% in constant currency.

The balance of the business is comprised of talent management and coaching, which was stable with the prior year.

SG&A expenses were reduced from the prior year, but not enough to offset the decline in revenue and gross profit resulting in operational deleveraging, and a decline in OUP to $6 million, and OUP margin to 9%.

Next I would like to discuss our cash flow and balance sheet for the quarter.

Free cash flow, defined as cash from operations less capital expenditures, was a strong in the quarter, coming in at $183 million.

This resulted in free cash flow for the year of $255 million.

This is down from the prior year, primarily because in 2013, we sold our CIC receivable from the French government, and in 2014 we did not.

This will be something we consider in 2015 as cash needs arise.

Our accounts receivable days sales outstanding improved sequentially and was stable with the prior year.

Capital expenditures, which primarily relate to branch office leasehold improvements and computer hardware, increased to $51 million in the year.

During the year, we repurchased 2 million shares of stock, or about 2.5% of the outstanding for $143 million.

Of this amount, we repurchased 1.1 million shares in the fourth quarter for $70 million.

This leaves 6 million shares available for repurchase under our current authorization.

Turning to our balance sheet, our total debt outstanding at quarter-end was $469 million and total cash was $699 million, resulting in an overall net cash position of $230 million.

Our credit ratios remain strong, with total debt-to-total capitalization of 14%.

At year-end, our total debt outstanding was comprised of EUR350 million of notes due June 2018 and various other short-term lines totaling $46 million.

Our revolving credit agreement stands at $600 million and had no borrowings outstanding at quarter-end.

Next, I'd like to take a look at our outlook for the first quarter.

With 85% of our revenues coming from outside the United States, there is no question that the relative strengthening of the dollar over the last few months will have an adverse impact on our US reported dollar revenue and earnings.

Let me begin by discussing our outlook for the first quarter in constant currency terms, to give you a true picture of our expected financial performance.

In constant currency terms, we expect revenue growth trends in many countries and in total to be similar to the fourth quarter, resulting in constant currency revenue growth between 3% and 5%.

We expect gross margin and operating margins to be stable to slightly up over the prior year.

Our tax rate is expected to be slightly higher than the first quarter of the prior year, at 41.5%.

Our weighted average share count is expected to be 79.6 million, lower than the prior year, given the share repurchases in 2014.

This should result in earnings per share on a constant currency basis in the range of $0.88 to $0.96 per share, compared to $0.86 in the prior year.

Given the volatility in exchange rates, it is impossible to forecast exchange rates for the first quarter; however, based upon where exchange rates are today, we expect a decline in reported US dollar revenue growth from 8% to 10%.

Using these same exchange rates, our reported US dollar earnings per share is expected to range from $0.73 to $0.81 per share.

If we look at the impact of currency on a full-year basis for 2015, based on where exchange rates are today, we expect reported revenues and earnings per share to be negatively impacted by slightly more than 12%.

Lastly, I'd like to give a progress update on our journey to 4% that we mapped out with investors in February 2013.

As we close out 2014, we have a EBITDA margin of 3.6% on revenue of $20.8 billion.

This represents an improvement of 120 basis points since 2012, on essentially the same level of revenue.

Of this improvements, 20 basis points came from gross profit margin expansion and 100 basis points came from a decline in SG&A expenses.

Of that 100 basis points, 90 basis points came from our simplification and cost recalibration plan implemented in 2013.

The remaining 40 basis points required to achieve our goal will come from leveraging new growth was enhanced productivity and efficiency.

The timing of this will be predicated on the pace of revenue growth; however, once we achieve our 4% goal, we will assess our businesses and set further financial goals at that time.

As we look to 2015, there is no question that we will have a significant foreign currency headwind.

Based upon current exchange rates, revenue growth will be negatively impacted by approximately 12% for the year.

While currency impacts are translated revenue and earnings per share, it should not have a meaningful impact on operating profit margins.

Our focus for 2015 will be to continue to drive constant currency revenue growth and expansion in the underlying operating profit margin.

With this as the objective, we will improve the financial metrics of the business, and we will be well-positioned for enhanced reported US dollar earnings when foreign currencies eventually strengthen.

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

Thanks, Mike.

The fourth quarter was a strong quarter for us.

With focus on our strategic priorities and disciplined execution, we delivered results that exceeded our expectations.

As you can tell from my comments earlier in the call, we expect the slow economic growth environment to endure.

And there is certainly clouds on the horizon that create uncertainty, but there are also some positive factors that we should not overlook.

Europe is the region that has yet to come back from the recession in a meaningful way.

The prospect of lower oil prices, a significantly weaker euro, and finally, last week's launch of significant stimulus by the European Central Bank, are all factors which can be helpful to restart the economic growth engine.

Time will tell, but we believe that these factors should eventually have a positive effect on demand for our services in the European region.

As we have discussed before, this is the kind of uncertain environment where clients really value expertise and flexibility, which can be very beneficial for a long-term opportunity.

We are seen as the workforce experts with solutions that help client companies achieve much great organizational agility in the face of this turbulent and fast-moving environment.

They intend to build companies that are much more agile and able to rapidly seize the advantage of transient competitive advantage and we're there to help them do just that, with our broad global portfolio of services and solutions.

We believe this is a secular growth opportunity for us on top of the cyclical growth we should expect when some country struggling right now see growth return.

Our unrivaled global footprint, with market-leading coverage of emerging markets; our strong global brands that can be combined to form unique and innovative workforce solutions; and our particular strength in the solutions business with RPO, MSP, and other talent-based solutions, make me hopeful that notwithstanding any shorter-term market turbulence, we are well -positioned for continued success as the leading global workforce solutions Company.

In summarizing the fourth-quarter results, we are pleased that we drove better-than-expected constant currency revenue growth and saw operating margin improvements.

We may see continued currency fluctuations, but our natural hedge, in terms of having all revenue and operating costs in the country aligned to the same currency, means we can still make progress on our operating margins and that is exactly what we are committed to do.

We will pursue growth opportunities with disciplined pricing and strong execution, as we're determined to improve our performance even under these uncertain conditions.

With our strong Management team committed to driving profitable growth and focusing on what matters most to achieve our objectives, we're pleased with the progress we have made in 2014 and are looking forward to continue on the same path in 2015.

With that, we've come to the end of our prepared remarks and I would ask the operator to start our Q&A session.

(Operator Instructions)

Anj Singh, Credit Suisse.

First off, wanted to get your thoughts on the QE.

I'm wondering when do you anticipate that we might start to see an impact in your business.

I'm not sure if there's a strong precedence to look to, but our economists suggest that economic benefits may start rolling in by Q3.

I'm wondering if that is consistent with your view of the world and if you've started to see any turn in sentiment from your client base?

We're not economists, so we are happy to take the opinion of what your economist says.

The question is, what is the impact of QE because there's some debate around that, but in the European region, you also have the impact of lower oil prices and a weaker euro.

So you actually have three factors working in sync to try and animate growth and make it come back and little bit faster.

We know it's going to happen with a lag and the question is going to be to what effect, how big is it going to be, how big is the impact, and when does it happen?

But we are hopeful that all of those three factors should have a good impact on stimulating growth in Europe.

Okay.

Thanks for that.

Then trying to get a better sense of your operating margin guidance, you came in above the high end of your range at Q4, and despite the acceleration in some markets implied in your Q1 guidance, you're expecting operating margin to be flattish at the midpoint.

Is that all due to the seasonally weaker Q1 or are there any other assumptions in that guidance?

When you look at it, Q1 is the seasonally weaker quarter, as you mentioned, and with constant currency revenue growth toward the mid-single-digits, with a smaller quarter, sometimes it's hard to get leverage.

As I look out and look at the full-year basis, if we would stay in that 4% to 5% growth rate that we are currently at, I would expect to see some leverage as we get through the year.

It really is just a matter of being a smaller quarter.

When you look at each of the staffing segments, both the Americas, Southern Europe, also Northern Europe, we're expecting some leveraging coming out of there.

We do expect that Right Management will have a bit of delevering and that is part of also what is impacting the smaller seasonal quarter.

Understood.

Thanks for the color.

Andrew Steinerman, JPMorgan.

I'm going to ask about France.

I think I heard you right, Mike, but maybe I am going to ask for a little more specification after a softening in September and October, you called November and December improved, and also you called it flat.

What does flat mean?

Is that year-over-year?

How does January trends look for French temporary help at Manpower?

Hi, Andrew.

When you look at France, we had looked for the quarter for revenue to be flat to slightly down, and it came down at 1% year-on-year in constant currency.

So really right about as expected.

But when you look at the monthly trends, where we saw the real softness was in September and October, both September and October contracted a little bit, about 2% to 3% on a year-on-year basis.

Then we saw November and December on a year-on-year basis become flat.

That was encouraging.

As we look out to the first quarter, my view on the first quarter is that we are going to see France flat to slightly up.

So we are -- it saw a bit of a pause, it took a little bit to get out of the summer doldrums, if you will, but it looks like things are slowly coming back overall.

Just as a reminder, for the full year, we saw about 1% growth in France.

We did see growth there in the first three quarters, we saw growth of about 2% year-on-year in constant currency.

So we're slowly moving our way back to positive growth there.

All right.

Why do think now is the time that we're moving our way back to positive growth?

That is always a good question.

I'd like to think that there's a little bit more confidence in the marketplace.

Where that's coming from, I'm not sure, but to Jonas's earlier points, just given what we're seeing with the weaker euro, that helps.

QE could help and the lower oil prices.

So it's always sometimes a little difficult to say why you move a little bit.

But we do sense there is just a touch more confidence in the marketplace.

Things are still fairly somewhat fragile there and a bit cautious there, but it is starting to feel just a little bit better.

To that, Andrew, I'd add that the French team now has a consistent track record over a number of quarters of performing very well.

We have a very good team with solid plans in place.

We're able to manage the business in a good way.

They execute well, good pricing discipline, perm is coming back a bit, and we're having some good performance coming out of the French market, despite all the uncertainties that Mike talked about.

Well done.

Thanks.

Manav Patnaik, Barclays.

The first question I had was you mentioned the permanent contribution to gross profit was at its record high, at 13% or so.

I was just wondering, internally, how do guys think about where you want that to get to and how you get there?

When you look at overall Firm, we do think about perm as a percentage of gross profit, and for the year overall, we came in at 12.8%, which is the highest we've been as a percentage of GP overall.

So we've seen some very good growth, and growth in perm accelerated in the quarter up to 24% overall and we had seen 17% growth last quarter.

So really seeing some good strengthening, and across the board, frankly.

Our US market, we saw 21% growth there coming off of 14% in Q3.

France was up 24%.

The UK organically was up 45%, so we're seeing some broad-based growth in permanent recruitment.

Couple thoughts there, That is an area we have invested in, both the RPO side of recruitment, but also our direct hire side of recruitment.

So it's an area that we have been investing.

We've seen opportunity.

There has also been a secular change from our clients' perspective in terms of how they're looking at recruiting and using us to fulfill those needs.

That has worked out very well, and as we look forward, we do see good opportunity there.

Directly to your question, where can it get to, it moves up into the mid- to upper teens.

Overall, strategically, I don't think we want to get it to above 20%.

That probably introduces a little bit more volatility into the mix overall, but we've got a long runway before we get there.

And as I look forward over the next few years, that's a great opportunity for growth for us.

Somewhat tied to that, a couple of years ago, several years ago now rather, you obviously did a deal that give you some more presence in there.

How do you look at the opportunity, I know you said good opportunity, is that mainly organic or do you have the M&A at the back of your head, too?

From a perm side, really most of our growth has been organic.

When I talk about investing, it is really been investing in people, recruiters, and capability across the network.

We've sprinkled in a few acquisitions that have added some perm to the business, but it has been primarily organic.

As I look forward, organic is going to be the primary growth driver.

Okay.

Fair enough.

Thank you, guys.

Paul Ginocchio, Deutsche Bank.

One for Mike and one for Jonas.

Mike, you took a lot of costs out in the last couple of years.

I am just wondering if there's -- does SG&A have to grow this year, even if let's say revenue is flattish, would SG&A still be up in that scenario or is there any more room to keep it flat?

Then second, Jonas, can you give us the puts and takes on French gross margins in 2015 relative to 2014?

Thanks.

In terms of SG&A growth, of course, we're always driving efficiency and looking to reduce SG&A wherever possible.

That continues to be a top priority for the Organization and we've given in tighter metrics and a stronger mindset and culture across the Organization.

That is helpful.

As we see some growth here, when you think about what is happening, we are seeing some markets that are seeing tremendous growth and we do need to add some resource in some of those markets to take advantage of that growth.

Not to would be clearly a mistake.

So I would say, if we get -- as you are seeing today with that 4% to 5% revenue growth range, we are adding a little bit of SG&A, and where that SG&A is being added is primarily people and it's primarily in those markets that are seeing the good growth.

Meanwhile, of course, we've got a few markets that are little bit tougher that might be -- where we might be pulling back on some resource overall.

But overall, we're looking at adding a little bit of cost, but clearly not at the same rate of GP and not at the same rate of revenue.

We do think there is opportunity to drive efficiency and leverage even at a lower growth rate, and of course, as top line accelerates a little bit more, we expect more leverage to come through, as well.

Mike would 3% be a good operating leverage break-even point?

Would that be a good assumption or you can't pinpoint it?

As a generality, yes.

The difficulty is, in a 3% you have got some markets that are positive that you are leveraging and probably a few markets that are negative that you are delevering and they may not always quite work together.

But as you saw in the fourth quarter with 4%, we're getting just a touch of leverage.

My guidance in the first quarter at 4% is the midpoint.

We're getting a touch of leverage come through there.

Then, of course, you have got the countercyclical Right Management that it is delevering a little bit.

But, Paul, that's probably -- if I was going to generalize, that is a good place to be overall.

Maybe if I'll just add on to that area, our simplification plan was very successful and has reset the cost base.

As part of that, it becomes part of our culture to always look for continued efficiencies in everything that we do.

So we will continue to look at that.

I would say that the major area where we still believe that there is going to be good opportunities are delivery models, which is less about a project or a big bang, but more of a market evolution to make sure that we find delivery models that deliver talent to our clients with a better quality and in more efficient ways.

That's the area where we will continue to work on and we will continue to drive efficiencies in that area.

To come back to you question, we talked about the French margins, so I will let Mike talk about one aspect of it.

But the part that I am the most excited about in France is to see permanent recruitment.

We overall improved our gross profit margins in France, and a big contributor to that was also the perm recruitment fees, which grew by 24% in France, which is a very nice growth in constant currency.

The other part that related to subsidies, that are part of the newly implemented Responsibility Pact, Mike, maybe you can talk a little more about the impact as it relates to those subsidies.

The Responsibility Pact, of course, is effective for this year.

There's a couple of components to that, that have an impact on our direct costs.

One of those is just lowering -- or increasing, I should say, the subsidy amount for low-wage workers.

Those are workers in that category from minimum wage up to 1.6 times minimum wage.

So we do have a little bit of increase in subsidies there.

Then also the family welfare portion of taxes for those lower wage workers was reduced from 5.25% down to 3.45%.

So a little bit less in from that perspective, as well.

Offsetting that, there has been some change in methodology in terms of calculating those subsidies, also some increase in pension costs.

As I look at the gross margin overall for France, or at least the staffing portion of gross margin, I think we're going to see it stable to this year.

We have seen some pricing pressure through last year on the SMB side and so also this Responsibility Pact, some of these increased subsidies, will help offset some of that we saw as some pressure on SMB.

Needless to say, our team there is very focused on gross margin and very price-disciplined.

They've done an excellent job, 2014, and I expect that's going to continue again here in 2015.

Thank you.

Tim McHugh, William Blair.

Just the balance sheet, someone asked you early about perm acquisitions, but more broadly.

You continue to build cash.

I know you started to buy back shares, but how do you think about 2015 in terms of buyback activity, as well as just looking at inorganic opportunities for growth at this point in the market?

As we look at our overall balance sheet position, we do have a strong balance sheet and strong cash position.

A portion, I always like to remind investors, while we have $600 million plus of cash, about two-thirds of that is what I will call working capital or structural cash.

So it is maybe not quite as much as would appear on the surface, but nevertheless we do have sufficient cash there.

As we look at 2015, we will continue the strategy that we've had, which we look at share repurchase in combination with dividends as a way to get cash back to shareholders.

We look at the share repurchase side of that opportunistically.

Right now today we have 6 million of shares authorized still to be purchased.

We don't have a set time frame on that, but I expect as we go through the year, likely, you will likely see some activity there.

Beyond that, of course, we're always looking at acquisition opportunities.

There's nothing we feel we have to do, but as we look at the professional and specialty side of our business, those are always areas that we are looking at expanding and accelerating our growth in those areas, so that will continue to be part of the core strategy, which it has been the last several years.

Okay.

This is a nitty-gritty numbers, but in the world right now it matters.

Can you talk about how currency, when you talk about the impact here, did you -- there's a big difference even between where it was at the start of the year and where it was a week or two ago.

When you say the currency impact for Q1, just so we can model it, at least for the euro or on the pound, what type of numbers were you assuming in your guidance?

The euro I assumed the $1.12, which at the moment, the screen says $1.13 and change so that one moved just a hair, and then the pound, $1.50, and it's trading right around there, right now today.

So the rates that you are seeing there are pretty current rates.

Okay.

Thanks a lot, guys.

Sara Gubins, Bank of America Merrill Lynch.

Couple of quick ones.

For Italy, you have had great growth given a tough background.

You mentioned perm as one particular area of strength.

Could you give us a sense, if the macro environment remains as is, do you think that we should continue to see such outsized growth?

The macro environment, as you know, has been tough, but people retire and companies are still hiring talent, and they are using us to do both their perm hiring, frankly, to a great degree, as well as bringing new people in.

The unemployment numbers that were released this morning in Italy show that unemployment improved.

It improved by 100,000 and it is the lowest it has been now for a year.

The outlook, and if you listen to, the economists in Italy at least, think that the QE combined with lower prices and a weaker euro should help Italy keep on -- kick-start a little bit more growth.

The economy stands a good chance of improving somewhat from the abysmal state that it is now in terms of the growth rate and that should give us a good opportunities also going forward in Italy.

Okay, great.

Then Mike, you talked about a tax rate of 41.5% for the first quarter.

How should we think about that for the full year?

On a full-year basis, this last year we came in at 37.3% as the effective rate.

What I would be thinking about for the full year, 38% to 38.5%.

At this stage, I'm not sure we can count on the WOTC, or the Workers Opportunity Tax Credits, which added about -- or take off, reduce our tax rate by about 1%, so I'm not planning on that.

So I would -- why don't we say 38.5% is a good place to start for the year and we will see how things work their way through.

Obviously, there's a lot of complexities and it has a lot to do with mix of earnings as we make our way through the year but that is a safe place to start.

Thanks.

Just last question.

You mentioned Experis in the US revenue was up about 1%.

Do you think that we should see this accelerate?

When you think about Experis in the US, we saw growth rates stable between Q3 and Q4, but we are clearly still behind market.

With that, though, came some very good gross profit margin evolution, so we're getting better margins at higher build rates, which is exactly what we're looking for.

I would say that we are still not where we need to be on SMB sales, and that is where the market growth is very strong.

So we are having to -- we're feathering the recruiters and the sales people aimed at the SMB side.

At the same time, we're managing the client portfolio in our book of business that start and end projects that make for more volatility.

We're working to address both the book of business, in terms of our bigger clients, as well as accelerating SMB, because that is really where we're not seeing the growth that we would like to see.

We are working on putting on more recruiters so we can start to fill this.

Demand for talent is pretty tight, so it takes some time to get recruiters up to full productivity, but there's still more work to do for us for experienced IT in the US, no question about that.

Thank you.

Gary Bisbee, RBC Capital Markets.

Just a little more color, if I could, of what is driving perm.

I assume from your perspective it is headcount additions, but the numbers seem surprisingly strong across almost every market where you called out a growth rate.

Is there a change in how clients perceive you or are using you or is it just that in certain skill areas there is real tighter labor market conditions than the overall in some of your markets?

How do we think about what's driving that?

You have a couple of things.

Some markets have really -- has improved and as we have spoken about in prior calls, we will invest in recruiters and salespeople when we think there are growth opportunities.

Clearly, there are some markets like the UK where we are seeing that, we saw that, and we invested, and we have seen some great results and returns on that.

From a broader perspective, overall, clients are seeing us as more than just flexible staffing, and that is part of our workforce solutions strategy being seen as a workforce solutions provider.

We have increasingly managed to invest in the areas with capabilities, so clients see us as being capable, not only in providing flexibility, which is a really good thing to have been in a certain and very dynamic environment, for higher as well as lower skills, and that is what Manpower and Experis achieved.

But also as being experts in permanent hiring.

We have seen tremendous success in that, not only in the regular direct [hire-up] activity, but also in the RPO space, where we're really seen as experts and we're able to achieve our global leadership on RPO thanks to that.

You could also see it across the growth of our Solutions business.

It grew by 19% in the quarter and we're really increasingly seen by clients as a provider of broader workforce solutions.

We've been very mindful of leveraging our strong and connected brand so clients see the breath of our portfolio, the breadth of our geographic reach, and this is part of the explanation as to why we're seeing some good growth both on the perm side, as well as very good growth also on the solutions side.

Just to clarify, when you're talking perm, you're talking direct hire, right?

You're not lumping RPO in that, RPOs within solutions, or is that not right?

Both of them are together, so we have both perm, direct hire, as well as RPO, both are together in that number.

Okay, great.

Then just a quick follow up, I continue to be surprised by Italy and Spain, how strong they are relative to poor GDP growth in those countries.

What are the characteristics that describe that?

And is it -- how do you think about sustainability of that if GDP remains fairly weak throughout 2015 in those markets?

I talked a little bit about that in my prepared remarks, that the environment of slow growth and some uncertainty, so it takes a while for the economy to pick up, is really conducive to positioning Manpower Group as a provider of workforce solutions in a number of areas.

Clearly, Spain is an example of exactly that, where we are able to see great permanent placement growth, good solutions growth, breadth across Experis and Manpower.

We then become an entry point, both from a temporary, as well as from a permanent basis, and are able to see some secular growth opportunity in those countries.

That's what we talked about six or seven years ago when we had the same discussion around the US, which was starting to come out.

We saw some good growth rates and we said, look, it is early days yet, so you cannot talk about secular growth actually happening because you can't tell.

But over time, we believe that a slow growth environment can be really conducive to generating demand for more services and more solutions.

In fact, that is exactly what we saw in the US and you have seen penetration rates go up above prior peaks in the cycle.

We believe exactly the same thing will happen in Europe, where the importance of our kinds of services and solutions is going to increase for our clients.

It is still very early days.

As good as the growth is for us in Spain, we are still well off the peak of where that market was before the recession.

There is still a long runway of cyclical growth in many of these countries.

But then we believe that the secular growth opportunity is very similar to what we've experienced, for instance, in the US.

Thank you.

That's helpful.

George Tong, Piper Jaffray.

Your 1Q guidance for Northern Europe and Southern Europe is about 100 basis points higher in constant currency than 4Q guidance you've previously provided.

Can you walk us through a bridge for that acceleration in growth and assumptions you are incorporating for various country performance, just in terms of where you see the most opportunity geographically?

You're talking about in Northern Europe?

I'm sorry, missed the first part?

Northern and Southern Europe?

When you look at Southern Europe, the improvement that we see is really in France, in terms of -- and I talked about that it little bit earlier.

We do expect that to go to positive growth in the first quarter, so within Southern Europe, that's the primary changes, as we've talked so far.

The other key markets, Spain and Italy, have been growing quite well in Southern Europe.

I don't expect we're going to see a further acceleration there overall, but there could be.

But certainly I'm not going to bake that in when we're seeing already a 20% plus growth, 25% plus growth in Spain.

When you look at Northern Europe, there you've got a very strong market in the UK and that has been improving.

That's one of the strongest markets within Europe.

Also the Swedish market, we're seeing some improvement in that market.

The Netherlands market, the Dutch market, we have also seen some good improvement.

We saw that in the fourth quarter.

With that, though, we have seen of late a little bit of pricing pressure.

We've had a couple of key accounts that we've stepped aside on, just given some of the pricing pressure, it no longer made sense for us to participate at the levels that they were going at.

Then Germany, at this point, as we look, it's been a fairly stable growth for us in the lower single-digits.

We expect that going forward in the first quarter, as well.

Got it.

That's helpful.

Can you provide some color on your market share performance in France, Italy, and Germany?

In France, we believe that we've outperformed the market somewhat.

In Italy, we're coming close to being at market, maybe slightly, a smidge behind, but we had a good performance in the fourth quarter.

In Germany, we have been behind, but we are making some good progress on closing the gap.

Just around that, [art], in the UK, the other key market in Europe, we have been picking up a little bit of market share there.

Got it.

Very helpful.

And in Spain.

Randy Reece, Avondale Partners.

I just wanted to hit Right Management really quickly.

Does that business have the business mix that you want it to have long-term.

What are you investing in there that might improve its all-seasons growth profile?

We have about two-thirds in outplacement and one-third in talent management.

Talent management held steady and it's the out-placement business that is countercyclical and served us really well during the recession.

The idea is we continue to evolve our talent management business, but we also believe that there are some good opportunities within the outplacement business.

It isn't surprising to us that the revenue is negative from the outplacement perspective, as we saw in the fourth quarter, but we think that we can do and we should do better in that area because there are going to be opportunities.

This volatile and uncertain environment means some industries do well and others don't.

You just have to look at part of the industries that get affected by oil prices or by changes in foreign currencies.

There are going to be companies that need adjust and that's where we need to be.

Having said that, making sure that we also, in Right Management, work a lot on our delivery models so that we can leverage technology and deliver very high-quality services with more efficient ways of getting the service to our clients and to the candidates is going to be really important.

What's the geographic mix of Right Management right now, and is that also the way you want it to be?

It's roughly one-half in the US and one-half in Europe, not quite one-half in Europe, and then some exposure in Asia as well.

Given the nature of the services, that's a good mix, and with that mix, there's good opportunity that we can take advantage of.

Very good.

Thank you.

With that, we conclude our fourth-quarter earnings call.

Thank you everybody for listening in.

Thank you for participating in today's conference.

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