ManpowerGroup Inc (MAN) 2021 Q4 法說會逐字稿

Welcome to the ManpowerGroup Fourth Quarter Earnings Results Conference Call. At this time, all participants are in a listen only mode until the Q&A section of this conference. This call will be recorded if you have any objections please disconnect at this time.

And now I will turn the call over to ManpowerGroup Chairman and CEO, Jonas Prising. Sir, you may begin.

Welcome to the fourth quarter conference call for 2021. Our Chief Financial Officer, Jack McGinnis, is on the call with me today. For your convenience, we have included our prepared remarks within the Investor Relations section of our website at manpowergroup.com.

I will start by going through some of the highlights of the quarter, then Jack will go through the fourth quarter results and guidance for the first quarter of 2022. And I'll then share some concluding thoughts before we start our Q&A session.

Jack will now cover the safe harbor language.

Good morning, everyone. This conference call includes forward-looking statements, including statements regarding the impact of the COVID-19 pandemic, 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. We assume no obligation to update or revise any forward-looking statements.

Slide 2 of our earnings release presentation further identifies forward-looking statements made in this call and factors that may cause our actual results to differ materially and information regarding reconciliation of non-GAAP measures.

Thanks, Jack. With another unique pandemic year behind us, we continue to see the global recovery progress, strong hiring levels and employer optimism persist across our geographies even when the pace of recovery has been hampered most recently by the Omicron variant.

Before I turn to our financials for the fourth quarter and full year, let me start by thanking all our people. Our resilience, agility and innovation has continued to be tested during the last year, and I'm proud of and thankful to our ManpowerGroup team for their relentless pursuit of success and unwavering delivery of our people first commitment. Thank you for all you do every day, helping our clients navigate a challenging environment and delivering on our purpose by finding meaningful sustainable employment for millions of people.

Turning to our financial results. In the fourth quarter, revenue was $5.4 billion, up 9% year-over-year in constant currency or 6% in organic constant currency. Our EBITA for the quarter was $177 million. Adjusting for the ettain transaction and integration costs, EBITA was $189 million, reflecting significant improvement year-over-year. Reported EBITA margin was 3.3%, and adjusted EBITA margin was 3.5%. Reported earnings per diluted share was $2.02 and $2.20 on an adjusted basis. Both were significantly above prior year.

Turning to full year results for a moment. Reported earnings per share for the year was $6.91. Adjusted earnings per share was $7.24 and represented a constant currency increase of 93% year-over-year or 88% organically. Revenues for the year increased 12% in constant currency or 11% organically to $20.7 billion, and reported EBITA was $610 million. Adjusted EBITA was $634 million, which represented a significant constant currency improvement year-over-year.

Globally, we continue to be optimistic and well prepared to benefit from the market opportunities ahead. We believe the pandemic has accelerated the impact of various trends we've been tracking for some time, notably talent shortages due to changing demographics and changing demands for skills due to digital transformation across industries and geographies.

Employers are adapting to the new environment by transforming their business models and their attraction and retention strategies for new skill sets, all of this against the backdrop of volatility. The strategic and operational flexibility that our clients need to transform and thrive aligns well to our own transformation: our shifting business mix; our investments in technology; and progress on our plans to diversify, digitize and innovate (DDI), which I will share more on shortly.

In the fourth quarter, we saw increasing confidence in a stronger dynamic labor market, even if the Omicron variant muted sentiment somewhat in the final weeks of the quarter. More people were returning to work and changing jobs than we have seen for quite some time, resulting in more of a mass reshuffle in my view than a mass resignation. Europe's unemployment rates are now below pre-pandemic levels, and the U.S. is catching up quickly as well.

This optimism was further reinforced by our own data from our ManpowerGroup Employment Outlook Survey, which showed that across 40 countries and 40,000 employers, hiring outlooks were strong. For the first time since the pandemic began, all countries reported positive hiring outlooks.

We're also seeing the strong demand across all of our brands in both temporary and permanent hiring across sectors within Manpower, Experis and in our market-leading RPO and MSP businesses within Talent Solutions.

Now more than ever, companies need our help to source, upskill and manage their workforce; to embrace bold thinking on where, when and how work gets done in order to compete for scarce talent and offer what workers want while balancing the requirements of their business.

Thanks, Jonas. Going back to the quarterly results on Slide 3. Revenues in the fourth quarter came in at the top end of our constant currency guidance range. Gross profit margin came in above our guidance range. As I mentioned last quarter, due to the amortization associated with our recent acquisition, we have added EBITA, representing operating profit before amortization of intangible assets, to our financial information to provide additional information on underlying performance.

Operating profit is also disclosed, but we will talk to EBITA. As adjusted, EBITA was $189 million, representing a 24% increase in constant currency from the prior year period or a 12% increase on an organic constant currency basis. As adjusted, EBITA margin was 3.5% and came in at the top end of our guidance, representing 40 basis points of improvement or 20 basis points organically.

Breaking our revenue trend down into a bit more detail, after adjusting for the negative impact of currency of 3%, our constant currency revenue increased 9%. Due to the impact of net acquisitions of almost 4% and slightly fewer billing days, the organic days adjusted revenue increase was 6%. Comparing to pre-pandemic levels, our fourth quarter revenues were below 2019 levels by 1% on an organic constant currency basis, which is a 4% improvement from the third quarter trend on the same basis.

Turning to the EPS bridge on Slide 5. Reported earnings per share was $2.02, which included $0.18 related to ettain transaction and integration costs. Excluding these costs, adjusted EPS was $2.20, which was well above the top end of our guidance range.

Walking from our guidance midpoint, our results included improved operational performance of $0.12, slightly lower weighted average shares due to repurchases in the quarter, which had a positive impact of $0.01; and slightly better effective tax rate that added $0.03; and favorable other expenses, which added $0.01.

Next, let's review our revenue by business line. Experis and Talent Solutions experienced organic constant currency growth versus 2019 in the fourth quarter, while Manpower significantly closed the gap to pre-pandemic revenue levels.

Year-over-year, on an organic constant currency basis, the Manpower brand reported revenue growth of 4%. The Experis brand reported revenue growth of 14%, and Talent Solutions brand reported revenue growth of 11%. Within Talent Solutions, we saw record-setting revenue figures for the year in both our RPO and MSP businesses.

In the quarter, RPO had revenue growth in the very high double-digit percentages and MSP in the double-digit percentages year-over-year. As we continue to experience a record low outplacement environment, Right Management saw double-digit percentage revenue decreases year-over-year.

Looking at our gross profit margin in detail. Our gross margin came in at 17.2%. Underlying staffing margin contributed a 40 basis point increase. The ettain acquisition added 30 basis points. Permanent recruitment contributed an 80 basis point GP margin improvement as hiring activity was strong across our largest markets. A lower mix of Right Management career transition business drove 30 basis points of GP margin reduction. Improvement from Experis solutions resulted in a 10 basis point margin improvement. Other items represented an additional 10 basis point improvement.

Moving on to our gross profit by business line. During the quarter, Manpower brand comprised 59% of gross profit. Our Experis professional business comprised 26%, reflecting an all-time high contribution post ettain, and Talent Solutions comprised 15%.

During the quarter, our Manpower brand reported an organic constant currency gross profit year-over-year growth of 9%. Compared to pre-pandemic levels, this was 2% below the fourth quarter of 2019.

Gross profit in our Experis brand increased 25% on an organic constant currency basis year-over-year during the quarter. This represented an increase of 7% from the fourth quarter of 2019.

Organic gross profit in Talent Solutions increased 15% in constant currency year-over-year. This represented an increase of 16% from the fourth quarter of 2019 on an organic constant currency basis. This was driven by the great performance in RPO and MSP discussed earlier, which was partially offset by the decreases in Right Management due to outplacement trends.

Our SG&A expense in the quarter was $760 million. Excluding the net impact of the ettain transaction and integration costs in the current year and restructuring charges in the prior year, SG&A was 18% higher on a constant currency basis and 13% higher on an organic constant currency basis. This reflects continued investment in the business. The underlying increases consisted of operational costs of $85 million, incremental costs related to the acquired businesses of $31 million, offset by currency changes of $17 million. Adjusted SG&A expenses as a percentage of revenue represented 13.9% in the fourth quarter.

The Americas segment comprised 23% of consolidated revenue. Revenue in the quarter was $1.2 billion, an increase of 22% in constant currency or 3% on an organic constant currency basis or 5% after adjusting for days.

OUP was $54 million. As adjusted, OUP was $67 million, and OUP margin was 5.5%. A lower mix of Right Management outplacement activity drove the 10 basis point reduction in OUP margin on an organic constant currency basis.

The U.S. is the largest country in the Americas segment, comprising 71% of segment revenues. Revenue in the U.S. was $861 million, representing a 39% increase or 8% organically compared to the prior year.

As adjusted to exclude acquisition transaction and integration costs, OUP for our U.S. business was $53 million in the quarter, representing an organic increase of 15%. As adjusted, OUP margin was 6.2% or 5.2% on an organic basis.

Within the U.S., the Manpower brand comprised 29% of gross profit during the quarter. Revenue for the Manpower brand in the U.S. increased 2% during the quarter.

Aside from normal seasonality in December, we have seen our levels of associates on assignment build during the fourth quarter and again in early January as workers continue to return to the labor force.

The Experis brand in the U.S. comprised 43% of gross profit in the quarter. Within Experis in the U.S., IT skills comprised approximately 90% of revenues. Experis U.S. revenues grew 24% organically during the quarter, and we anticipate continued strong double-digit organic growth in the first quarter of 2022.

The ettain business also performed well during the quarter, and the early phases of the integration are proceeding on schedule. We are encouraged by the current trends in our U.S. Experis business, including ettain, which has significantly increased our presence in the convenience market for IT professional services.

Talent Solutions in the U.S. contributed 28% of gross profit and experienced revenue growth of 9% in the quarter. This was driven by RPO, which continues to win new business and experienced record revenue levels during the quarter as hiring programs continue to strengthen. The U.S. MSP business continued to perform well and experienced record revenue levels in the quarter as well.

Within Right Management, career transition activity continued to run off as the economy strengthens. In the first quarter, we expect ongoing underlying improvement in revenue growth for the U.S. in the range of 38% to 42% year-over-year or 8% to 12% organically.

Our Mexico operation experienced a revenue decline of 60% in constant currency in the quarter. The decline was driven by the new labor legislation we discussed in the prior quarter. Although the impact of the legislation has had a more severe impact on the industry than originally anticipated, the fourth quarter trend reflects the stabilized impact. We anticipate a similar revenue decrease in the first quarter.

Southern Europe revenue comprised 43% of consolidated revenue in the quarter. Revenue in Southern Europe came in at $2.4 billion, growing 6% in constant currency. OUP equaled $117 million, and OUP margin was 4.9%.

France revenue comprised 55% of the Southern Europe segment in the quarter and increased 6% in constant currency. Compared to the same period in 2019, France revenues were down 6%, improving from down 10% in the third quarter. OUP was $64 million in the quarter, and OUP margin was 4.8%.

As we begin the first quarter, we are estimating a year-over-year constant currency increase in revenues for France in the range of 6% to 10%.

Revenue in Italy equaled $467 million in the quarter, reflecting an increase of 15% in constant currency. OUP equaled $33 million, and OUP margin was 7.2%. We estimate that Italy will continue to perform very well in the first quarter with year-over-year constant currency revenue growth in the range of 13% to 17%.

Our Northern Europe segment comprised 22% of consolidated revenue in the quarter. Revenue increased 9% in constant currency to $1.2 billion driven by most of our major markets. OUP represented $29 million, and OUP margin was 2.4%.

As indicated in the notes of the segment results slide, during the quarter, we had a modest restructuring charge in Germany, which was offset by a onetime pension gain. Our largest market in Northern Europe segment is the U.K., which represented 36% of segment revenues in the quarter. During the quarter, U.K. revenues grew 6% in constant currency.

Our U.K. business is performing well, and we expect flat to slight decreases in revenues in the first quarter, reflecting the exit of certain low-margin arrangements replaced with higher fee-based margin opportunities. These and other actions, including permanent recruitment growth, are driving significant improvement in the margin profile of our U.K. business.

In Germany, revenues increased 9% in days adjusted constant currency in the fourth quarter. We expect to see constant currency mid-single-digit percentage revenue improvement year-over-year in Germany in the first quarter.

As noted in our earnings release materials today, as part of our geographic portfolio strategy, we sold our Russia business, which will operate as a franchise going forward. This will reduce our Northern Europe revenues by approximately $125 million annually and will have a favorable impact on our global gross profit and EBITA margins going forward.

The Asia Pacific Middle East segment comprises 12% of total company revenue. In the quarter, revenue grew 7% in constant currency to $623 million. OUP was $21 million, and OUP margin was 3.3%.

Revenue in Japan grew 16% in constant currency, which represents an improvement from the 13% growth in the third quarter. We are very pleased with the performance of our Japan business, which continues to lead the market in revenue growth. And we expect continued strong revenue growth in the first quarter.

I'll now turn to cash flow and balance sheet. In full year 2021, free cash flow equaled $581 million compared to $886 million in the prior year. The prior year result included significant cash inflow from accounts receivable declines from the onset of the pandemic. Our fourth quarter free cash flow of $238 million exceeded the prior year period free cash flow of $201 million, representing strong current period cash collections.

At quarter end, days sales outstanding was up 1 day year-over-year at 55 days. Capital expenditures represented $64 million for the year and $24 million during the fourth quarter.

During the fourth quarter, we repurchased 643,000 shares of stock for $60 million. Our full year purchases stand at 2.1 million shares of stock for $210 million. As of December 31, we have 1.2 million shares remaining for repurchase under the 2019 share program and 4 million shares remaining under the share program approved in August of 2021.

Our balance sheet ended the year with cash of $848 million and total debt of $1.12 billion, resulting in a net debt position of $271 million. On October 1, we utilized $800 million of cash to fund the acquisition of ettain. Our debt ratios at quarter end reflect total gross debt to trailing 12 months adjusted EBITDA of 1.64 and total debt to total capitalization at 31%.

Our debt and credit facilities did not change in the quarter. We utilized $150 million of the $600 million revolving credit facility on October 1 in conjunction with the funding of the ettain acquisition. We are pleased to report that we have already repaid half of this amount after 3 months. And as previously indicated, we expect to pay down the remainder over the next 9 months.

Next, I'll review our outlook for the first quarter of 2022. Our guidance continues to assume no material additional COVID-19-related difficulties beyond those that exist today.

On that basis, we are forecasting underlying earnings per share for the first quarter to be in the range of $1.56 to $1.64, which includes an unfavorable foreign currency impact of $0.10 per share. This does not include the impact of acquisition integration costs of $4 million to $6 million or the loss on disposition of our Russia business of approximately $8 million, which will be broken out separately from ongoing operations.

Regarding revenues, the stabilized impact of the regulation in Mexico represents a year-over-year revenue loss of about 2% in the first quarter of 2022. Considering this, our constant currency revenue guidance growth range is between 6% and 10%. After adjusting for the acquisition of ettain and the disposition of Russia mid-January, our organic constant currency growth range is estimated between 3% and 7%. As billing days are only a minor increase in the first quarter, this results in an organic days adjusted revenue growth rate of 5% at the midpoint.

We expect our EBITA margin during the first quarter to be up 70 basis points at the midpoint compared to the prior year with ettain contributing 20 basis points of the improvement.

We estimate that the effective tax rate for both the first quarter and the full year of 2022 to be 30%. This incorporates the final phase of the multiyear reduction in the France corporate tax rate and a continuation of the 2021 French business tax reduction.

As usual, our guidance does not incorporate restructuring charges or additional share repurchases. And we estimate our weighted average shares to be 54.6 million.

I will now turn it back to Jonas.

Thank you, Jack. A year ago, we updated you on our acceleration progress for DDI, Diversification, Digitization and Innovation. Reflecting on that update, we're pleased with our progress during 2021 and confident that these strategic choices and investments are strengthening our capabilities, differentiating our offerings and providing the foundation for profitable growth and long-term sustainable value creation.

We're making great progress on diversification by improving our business mix, expanding the contribution of higher growth and higher value services, especially our Experis IT resourcing, Talent Solutions and Manpower permanent recruitment.

Specific to Experis, which makes up 26% of our GP business mix globally, we're proud of the successful completion, at speed, of our acquisition of the ettain group in recent months, which is off to a great start with a full quarter of contribution during the quarter. Our increased presence in the IT convenience segment of the market positions us as an overall top 4 IT resourcing and services provider in the U.S. market and serves to reduce the impact of revenue volatility occasionally associated with large enterprise clients' shifts in demand.

Talent Solutions also plays a critical role in our ongoing diversification as it includes our highest margin businesses of MSP, RPO and Right Management. As Jack mentioned, we're seeing record levels of volumes in both our MSP and RPO businesses, which are driving an increased contribution from Talent Solutions overall. We expect the Right Management outplacement volume to stabilize in the quarters ahead. And Right Management will then become a contributor in our diversification strategies as well.

We're also making strong progress on the digitization part of our strategy, moving at speed and scale. In 2021, we implemented PowerSuite applications, our leading cloud-enabled front office technology, in 22 markets. We are also improving efficiency and productivity via progressive moves to global SaaS platforms, shifting more of our data assets to the cloud and using analytics to enable better insight, predict match and performance more accurately and to drive new value creation.

Lastly, we continue making great progress on innovation. In Experis, this is notably through our investment in Experis Academy and leading tools, specifically Experis Career Accelerator for our professional consultants. In Manpower, it is through MyPath, our innovative global associate upskilling program.

Our DDI strategy also enables us to deliver on our ESG strategy. We believe this to be a clear differentiator as purpose and profit become increasingly interconnected for all organizations. Our MyPath program is a great example of how we're executing the strategy by significantly expanding the countries participating in the program, transforming the working lives of 150,000 individuals so far.

We shared our ESG strategy when we published our Working to Change the World Plan, focused on planet, people and prosperity and principles of governance, reflecting the International Business Council's Stakeholder Capitalist Metrics, which we're already incorporating into our reporting. The recent validation from the Science-Based Targets initiative, SBTi, of our ambitious plans to drive positive climate action, is a demonstration of the urgency and speed with which we intend to lead our industry in this space.

We have the talent, brands, technology and purpose in place to capture fast-evolving opportunities in the market and to build on the strong foundation of 2021. We are convinced that more companies will turn to us for expertise in finding, retaining and reskilling diverse talent to enable them to accelerate their digital transformation and execute their business strategies.

I'd now like to open the call for Q&A. Operator?

(Operator Instructions) Our first question is coming from the line of Andrew Steinerman from JPMorgan.

It's Andrew. I was hoping you could hone in a little bit more on January and the month that was just completed in the U.S. and just kind of go over what trends you're seeing both in the Manpower business and in the Experis business? Is Omicron a positive or negative or really not a factor for your U.S. business?

And do you feel like Experis, which obviously had organic revenue growth, do you feel like that's back to kind of market growth rates? Or are they benefiting from just a year-over-year comparison?

Andrew, thanks. Yes. Maybe I'll start with the question you asked last and say that we're very pleased on how Experis is progressing. I would estimate that we're tracking to the market growth, maybe slightly above. And we feel really good about the progress we've been making in Experis U.S. organically over a number of quarters. So we're executing well, and we continue to see great opportunities for Experis in the U.S. market.

So you asked a bit about Omicron. And the impact, I would say, is limited and manageable. Certainly, less impactful for white-collar workers and our IT consultants because they have an ability to continue working, frankly, if they are not feeling great. So remote work is a positive factor in managing and mitigating the impact of Omicron. From a Manpower perspective, it has clearly led to the difficulties in finding people since absenteeism due to illness is high, I mean much higher than we would normally expect to see.

Now the good news is, though, that we're seeing it being a spike in that people are ill and then they come back into the workforce. So over time, we would expect this to subside and really normalize as the quarter moves on.

And overall, we've been encouraged, after the seasonal slowdown, to see that the workers are coming back into the workforce, and our Manpower business is continuing to do well. But Omicron is much more manageable than we see in the other variants, and we feel good about our ability to progress with the business in both of our brands.

Andrew, this is Jack. I'll just add one additional point to Jonas' comment on Experis in the U.S. And certainly, the organic -- the legacy Experis business performed very well at that 24% growth. And we commented that we expect very strong double-digit growth again in the first quarter.

But I really wanted to talk about the acquisition, ettain. So that performed very well in the fourth quarter as well. And so at the midpoint of our guidance, I mentioned about $180 million. They came in a few million above that. And more importantly, they came in stronger on the EBITA line, about $1.2 million better than we anticipated in the guidance, too. So ettain is off to a good start, and we anticipate they're going to have a good first quarter as well as part of our combined Experis business.

Right. And Jack, I really asked about January. So I assume when you kind of say what the fourth quarter was and what we're expecting in the first quarter is because January for the U.S. started out favorably, right?

Yes. Yes. January is looking very consistent with where we were ending the fourth quarter in terms of ongoing trends, Andrew. And as we did mention on the Manpower business, we are seeing the associates on assignment start to increase in the month of January as well week-over-week. So that's a good sign.

Our next question is coming from the line of Jeff Silber of BMO Capital Markets.

Actually, I wanted to focus a little bit outside the U.S. You've talked about strong demand. We've seen your Manpower survey showing that as well.

I'm just wondering about the tight labor market. We hear a lot about it in the U.S. I know there's a little bit of an Omicron issue. But beyond Omicron, are you seeing similar aspects in terms of tight labor supply in your major markets outside the U.S.? And if you could talk a little bit about where, that would be great.

We are seeing tight labor markets across the board, Jeff. And some of this, we think, is a pandemic anomaly because the full workforce has not returned.

I would say though that the U.S. is an outlier in terms of how tight the labor markets are. We don't see the labor markets as tight outside of the U.S. The closest that follows the U.S. is probably the U.K. And both of those countries have had significant numbers of people not returning to the workforce post or at this point, at least during the pandemic. So 3,000,000 and 600,000 people, respectively, are still not back.

That's not the case in most other countries. You might have seen that the unemployment rate in the euro area is at a 20-plus year low now, at about 6%, 7% unemployment. And so it indicates a strong labor market. And that's been very favorable to us.

And you've seen our progress in permanent placement. It's -- there's very strong demand for talent, and our permanent placement recruitment is really seeing the effects of that, not only in the U.S. but also globally. But it also is driving demand for temporary staffing in most countries. And in a number of our major operations, we have seen demand as well as our revenues surpass 2019 levels.

And for those countries that aren't yet past 2019 levels, we would expect them to continue to make progress towards bypassing that milestone reasonably quickly as well. So overall, demand is strong, both for temporary as well as for permanent placement across all of our brands. And you've also seen that reflected in the great progress we've seen in Talent Solutions with RPO and MSP posting record levels of revenues.

Okay. That's really helpful. My follow-up question is about Brexit. I know you haven't had one of those in a while. But we've been hearing about a lot of the financial services firms that are and still in London really relocating a lot of their folks over to Paris.

I know Germany was expected to be a big winner. I know there's some folks going over there, but Paris seems to be a big surprise. I'm just wondering if you're seeing any of that? And is it having any impact on your business there?

Well, Jeff, that is actually fake news. The big migration of financial institutions away from the U.K. has not happened. Although there has been some new hiring occurring outside of London and the financial district, it remains a very vibrant labor market for financial professionals, IT professionals in the U.K.

So the Brexit effect as it relates to that part of the workforce has really not come to pass. But what you might have seen instead is the tremendous shortage of truck drivers in the U.K., shortage of health care staff in the U.K. And those are directly linked to the impact of Brexit, new regulations, making it harder for drivers to get in and out of the U.K., supply chain issues.

So there are a number of parts of the labor market in the U.K. that are seeing significant shortages, and that's due to Brexit. But it's not in the financial sector because those moves have not really come to pass.

Jeff, I would just add, in the U.K., financial services is about 15% of our business there. And actually, it's been the opposite. That business has been growing for us.

We took on a very large bank client last year. That's been a good addition to the portfolio. So we've actually seen that side of the business actually increasing.

Our next question is coming from the line of Hamzah Mazari of Jefferies.

My first question is just around labor inflation. Maybe just talk about your bill pay spreads, what they look like today versus history. How do you think they'll trend in terms of your guidance?

And then just similarly on labor availability, does your scale help you today? I know not all of your employee base or candidates, I guess, can work remotely. Some can, but some of your peers have been talking about kind of national scale helping them, but most of their business can work remotely. So just any thoughts on labor availability and then labor inflation?

Of course, Hamzah. Maybe the best starting point is to look at the U.S. market, and that's where we see the highest degree of wage inflation. But as with anything, you want to be careful with averages because the average wage inflation could be between 5% and 6%, maybe a bit higher in some specific white-collar skill sets.

But for the blue-collar workers, unskilled, semi-skilled workers, the wage inflation is much stronger and has been much stronger over the last 18 months. So that's where you can really see wage inflation kicking in.

And that level of wage inflation is unique to the U.S. Although wage inflation is stronger across the world generally and also in Europe, which is where we have a lot of our business, it's not as strong as it is in the U.S.

In all cases, we have been able to match those wages through bill pay increases so that our spreads are moving in the right direction. As we've talked on prior calls, wage inflation is generally a positive aspect for our business. And certainly, we have seen some very good evolution on our bill rates in the U.S. specifically, but also overall as we look at our business on a global basis.

And Hamzah, I would just add to your second question on remote work and availability and how our footprint -- so that is absolutely a huge opportunity for our Experis business. We're seeing it. As we've talked about, Experis for us is predominantly IT.

And similar to the comments that you mentioned, that is a big benefit for us when we look at our global Experis business. And we talked about post the ettain acquisition, that $4.5 billion global business. And the U.S. is a big part of that and with our U.S. footprint with the ettain acquisition and the addition of our convenience market, we have a great footprint in the U.S., very broad. And that's a huge opportunity for additional worker availability that are working remotely as well. So we see the same trends in our Experis business.

Got it. My follow-up question is just around M&A. The ettain acquisition, you talked a lot about it. It seems like it's the largest deal you've done since maybe 2010 with COMSYS. Is this sort of -- are you getting more aggressive on M&A? Is it just sort of timing of these deals? Are you seeing more of them out there?

I know you've had a strategic focus to increase higher-margin professional services and solutions as part of your sort of long-term margin strategy. But just any thoughts on that would be helpful.

Yes. Sure, Hamzah. I think from a capital allocation standpoint, I'd say nothing's really changed. I think we've been pretty open that we have -- when we look on the professional side, that, that was certainly an area of interest where we thought that could be a very good complement in terms of an acquisition.

And as we talked about, ettain basically fit very, very well. And -- but with that being said, as you know, we're very careful. So we will continue to advance our capital allocation strategy in line with what we've laid out.

Right now, the main focus is integrating ettain. We're off to a great start, as we mentioned in our prepared remarks. So the integration is going very well. And as we go forward, certainly, we'll continue to look to see if there are additional opportunities that could be good bolt-on opportunities for us as we go forward on the professional resourcing and services, focused on IT, as we've talked about in the past.

And certainly, on the Talent Solutions side, as we've talked about with our market-leading MSP and RPO, those continue to be opportunities. We're doing great on organic growth at the moment. But I'd say that would be another area that we continue to keep our eyes open.

But again, it has to be a very, very good fit, and we're very careful when it comes to analyzing those opportunities.

Our next question is coming from the line of Kevin McVeigh of Credit Suisse.

Great. Jack or Jonas, can you give us a sense -- I mean, obviously, you've got a couple of different efforts in terms of it seems like remixing the business a little bit through the Russian disposition, some professional acquisitions and some initiatives on digitization. Is there any way to think about the puts and takes on both the gross margin line and then operating margin longer term?

I guess, Jack, maybe that's a question for you. Just -- it seems like you've got more of a focus there and could lead to a nice outcome. So just any thoughts on that?

The journey and the evolution that you're describing, Kevin, is really all encompassed within our DDI strategy. So diversifying the business into faster-growing, higher-margin business segments; moving all of the company on to a cloud-based mobile SaaS applications for a modern infrastructure so that we can engage our people, engage our consultants, our associates as well as our clients in great ways as well as generate data and analytics and insights that benefit our clients and all of our stakeholders. And then finally, innovation initiatives where you've seen us really lean into the notion that in a labor-tight environment, which you are seeing right now, we are able not only to find and source the best talent in all of our brands, but we're also able to create the skills that the talent needs that may not have those skills.

And that's really the direction that we're taking strategically. So what you're describing and what you're seeing is us executing on our DDI strategies.

And I would just add to that, Kevin. I think that really just goes in line with what we've talked about in terms of our EBITA margin financial target. So again, fully committed to the 4.5% to 5%.

And these steps are the type of steps that you'd expect us to take as we're focused on that diversification part of DDI, as Jonas mentioned.

So ettain coming in at above 20%. You can see that coming through. We've been very open about the increase. You can see on the GP margin walk, that added 30 basis points in the fourth quarter, which was great, a little higher than we actually guided to. They came in a bit better on the GP margin in the fourth quarter, as I mentioned, a strong result.

And as we look at the portfolio adjustments, it really is in line with our profitability hurdle rates that we look at that and the margin opportunity. And Russia was a very good business, but it's a commercial staffing business, lower margin. And really, that's going to be a great opportunity for us going forward as a franchise, where we collect franchise fees from the very strong management team there going forward.

So you should expect that we're going to continue to focus on diversification going forward. And those are the types of steps that are improving our GP margin, and that's going to be a sustainable structural improvement over time.

Great. And then just real quick, Jack. Is there any way to frame how much absenteeism impacted Q4, and what's in the Q1 guidance?

Yes. I'd say it's -- we definitely saw some absenteeism in the bench countries and a -- to a broader impact in some of the other countries. But it comes through more in the bench countries because of the impact on the GP margin.

So that's not new. We've always seen sickness in the winter periods in our bench countries like Germany and the Netherlands to some degree, and I'd say the Nordics as well with Norway and Sweden.

And that did tick up. So we are at higher levels than average. And so if we look at sickness levels in a country like Germany, that could be at a 6% type of average for this time of the year. That's probably ticking up to more like 9% at the moment.

But as Jonas said, when we look at this, it's much more manageable than kind of what we were dealing with in the third quarter when we were seeing much more severe impacts from the Delta variant. And so it is a bit of a drag, but candidly, it's being overcompensated by the improvement we've been seeing in other markets when we look at the strong results in the U.S. and actually the U.K. and other markets that aren't impacted due to bench models.

So it's been offset, for the most part. We would expect that some of that's going to continue, certainly, and that's been factored into our guide. But I'd say at this point, Kevin, we're viewing it as relatively manageable.

Our next question is coming from the line of Mark Marcon of Baird.

You've mentioned that you've implemented PowerSuite in 22 markets. I was wondering if you could talk a little bit about what you're seeing in the markets that you've implemented PowerSuite in? Also, when we think about like Mon Manpower in France, what the impact has been there?

And then what the rollout looks like across the rest of your operations across the globe? How soon should we expect that? And what sort of lift should we get from that?

So the rollout of the PowerSuite technology is something that we -- you've heard us talk about for the last couple of years. And it's a major effort to really strengthen both the back and the middle and the front office for all of our major operations and ultimately for the whole company.

We do -- we have been doing this at an accelerated pace. And in the countries with the most mature adoption, because as you can imagine, these are like waves that are rolling through the organization, we're seeing greater employee engagement, better recruiter productivity, faster match, easier access to information for our associates and our consultants in Experis.

And we are, of course, also at this point, being able to leverage the visibility of common platforms across the globe. So we're collecting data and insights on MyPath, for instance, on reskilling and upskilling efforts, that inform what would be the best predictable match of a candidate to a specific opportunity because we're always striving to perfect the match. And that means doing it faster, better with greater productivity gains for the associate or the consultant for the client benefit.

And so we feel very good about the progress that we're making. And France is in deployment phase now, and that is going to be a very big deployment. But we've had a number of major countries implement PowerSuite over the last 12 months.

And overall, we're very pleased with the progress and the early signs that we're seeing of productivity improvements, user experiences from our people, experiences interacting with the systems from an associate and consultant perspective as well as the client feedback. We can leverage the data insights and give them really pinpoint analytics on what they could do to improve the composition of their workforce, to improve their retention rates, not only for our population, but frankly, for the entirety of their workforce in a specific location.

That's proven to be a really valuable addition for many of our clients where we have deployed those solutions and tools.

Jonas, could you be a little bit more granular with regards to some of the productivity improvements? Like for example, in terms of recruiter productivity, does it go up by 50% or 100% post implementation? How do you look at that just in terms -- or fill rates or time to fill when you take a look at some of the key metrics?

I'd love to be able to say that we get 50% to 100% productivity improvements when we use the tools. But we were quite efficient and productive already before, as you can imagine, at our scale, Mark. So I think we're looking at productivity improvements in the high teens.

We would be very pleased with the progress there. Sometimes it's more, sometimes it's less. But frankly, it's all to do with also the maturity. As you can tell, we've been on a very rapid deployment schedule. And I don't think we've optimized the adoption levels yet.

So there's more to come on productivity. And I think it translates exactly into the kind of measures you're discussing, more placements per recruiter, quicker placements per recruiter. And we have seen some very good improvements on speed to match when we're leveraging some of these new tools, which, were frankly, surprising and very positive to see.

Now at our scale, all of this needs to be done. And that's why we have global platforms in many different countries before we can start to see the effects come through at a global level. But we've been very encouraged by these new technology tools and not only from a productivity perspective, but also from the promise of what data and insight can provide us as support to our clients.

If they want to reduce turnover, for instance, which has been a hot topic here in the U.S. and what might be counter to any prevailing logic. If you increase your wage rates significantly, you can also significantly reduce turnover. Many of our client organizations are reluctant to reduce -- I mean, increase their pay rates. But if you increase their pay rates in a scientific way, looking at all of the data and the surrounding locations and what other employers are doing, you can reduce turnover very, very significantly.

So that kind of insight, new counterintuitive insights that the data is providing us, which is benefiting our clients and frankly, benefiting our growth, both in margins as well as in revenues.

Great. And then as a follow-up, obviously, these productivity tools, as you roll them out across the globe, are going to be helpful. Then we also have an improvement with regards to mix, both in terms of solutions as well as Experis.

And in contrast to last quarter, we're not talking about supply chain issues to the same extent. So it sounds like as we think about rolling towards the second half of this year, hopefully, by that point, some of the supply chain issues and Omicron are dissipated.

How are you thinking about kind of the margin trajectory with all of the positives that you have going for you, helping you to move towards that 4.5% to 5% target that we discussed earlier?

Mark, this is Jack. I'll talk to that. So I would say, I like the way you frame that because that's the same way we're thinking of the opportunity. And we've talked about it a bit in our prepared remarks.

But the more and more we talk to our clients, they're seeing more and more visibility on the supply chain time line in terms of expecting that to start to work itself out in the first half of the year here. So that's been a positive.

And as you can tell from the fourth quarter results, it's coming through as more and more manageable. So there's still a ways to go. But more and more manageable by our clients. So it's helping them with their ability to schedule demand and so forth with us.

When we think about the margin progression, I think the way to think about it is quarter in, quarter out, we're very focused on margin expansion. So another quarter in the fourth quarter of good underlying margin expansion on the bottom line, the GP margin has certainly been strengthened by the strong levels of perm.

But the staffing going up 40 basis points on an underlying basis point is really, really encouraging. And I think that's what we're very focused on as well.

So I'd say as we go forward, you should expect that from us. As we march towards those financial targets each quarter will be continued expansion on an overall basis. We'll certainly call out any unique items as part of that. But you should expect as the revenue levels come back, we will get more and more operational leverage.

And we should note as part of this, we know that France has been a bit behind some of the other large countries in terms of versus 2019 levels. But it was really good to see in the fourth quarter that we projected, we were looking at them going from minus 10% to 2019 levels in the third quarter to minus 8% in the fourth quarter, and they came in at minus 6%, so about 2% better.

So that's going to be a big part of the improvement as we go forward. France coming back, our largest operation, adding more and more operational leverage as they get back to pre-crisis levels.

And as Jonas said, we expect that to happen relatively soon. We'll continue to march in that direction. So all of that will equate to a good ongoing EBITA margin expansion year-over-year.

So I think '22 will be a great year of margin expansion for us on the bottom line. It's been a great year already for us on the top line. But as the operational leverage continues to come in, you should expect that we're going to make very good progress in '22 as we approach that goal.

Our next question is coming from the line of George Tong of Goldman Sachs.

You indicated that your Mexico operation has started to stabilize after a decline due to new labor legislation. Can you elaborate on some of the trends you're seeing in Mexico in response to the legislation?

Well, George, it's still early days in Mexico. As you know, the impact of the legislation was really starting to be felt in late July and then more so in August and fully so in September.

But I would say, based on the most recent trends we've seen, the significant decline of almost 60% has now stabilized. And we feel that we are seeing some normalization of the new markets and the new industry that we're operating in.

We've been very successful. And the Mexican team has been very good at creating a market-leading position. We have the most specializations approved by the Mexican government. And that means we can operate in many different sectors, except the one broad-based general staffing, which is the one that was eliminated in the legislation.

So we feel very good about our opportunity, but I would say it's still early days to determine what the opportunities are going to be, frankly. Many of our clients are still coming to grips with these changes. And we think it will take time for them to get comfortable with the new situation, and then we'll start to see some improvement in our Mexican business.

But so far, so good in terms of stabilization that we perceive to have happened in the market. And then we'll take it from there going forward.

Got it. Very helpful. And then can you discuss the impact of ongoing supply chain disruptions on your business? And in which geographies and markets you're seeing the most impact?

As jack said, we think it's becoming increasingly manageable. Our clients are sounding more optimistic that they can see the light at the end of the tunnel.

And more than countries maybe, I would say it's about sectors and industries. The automotive sector has had difficulties. Anybody dealing with any equipment that uses chips has clearly -- computer chips has clearly been impacted as well.

But we are, in our discussions with our clients, starting to see some settling in terms of when this is going to come through. And of course, it depends on country, and it depends on the industry. But it appears that it's coming to a more normal situation during the course of 2022.

If you look at the countries that are the most impacted, Germany clearly stands out. And you can see that in their GDP estimates for the fourth quarter. They are the worst affected country in Europe and one of the worst affected countries in the world, I suspect. But also there, over time, we think, since they're so dependent on the automotive sector, when that gets better, the country will get better as well.

Our next question is coming from the line of Tobey Sommer of Truist Securities.

Could you speak to your existing productivity and where you're adding recruiters? You've already talked about productivity improvements, but if you could give us some color as to where you're adding recruiters now and if you are?

Tobey, we are definitely leaning into what we think is a very strong growth environment. And as you can see, and some of our businesses are already over, but as over 2019 levels and getting close as a whole.

But in terms of resourcing and investment in our producers or recruiters and salespeople, we are already ahead of 2019. And we're anticipating a good growth environment, and we're staffing accordingly. Jack, maybe you have some further color on the question that Tobey asked.

Sure, Jonas. Just a little color around that. So we're up 5% in FTEs from pre-crisis levels. And so as we guided in the third quarter, we were going to be hiring in the fourth quarter. We did that, but that's been a trend over the last few quarters.

So FTEs are up 5% from year-end 2019. They're up 17% in the fourth quarter. So we are clearly investing heavily in the growth. And in line with our previous comments about the way we're looking at 2022 is a great opportunity for us.

And to your point, where, Tobey, it's broad-based. I'd say the only large country we're not adding FTEs is Mexico due to the reasons Jonas just talked about due to the legislation there. But very broad-based, but probably the U.S. is the most.

In the U.S., it's really all 3, Manpower, Experis and Talent Solutions, brands are all growing nicely. So that's broad-based increase. The U.K. is adding very heavy amounts as well. And we talked about Italy has been progressively adding. Italy is a great perm market for us. And France is adding as well. So it is broad-based across all of our largest businesses.

My follow-up question has to do with the RPO and MSP businesses in the industry. Where are we in the adoption and the growth there? Trying to just get a sense for whether there's still room in terms of not only new clients, but sort of wallet share where your customers are just shifting that fixed recruiting expense into variable expense.

I'd say the U.S. is the most mature market, and Europe is probably lagging 5 to 6 years in maturity with the other regions coming behind that. So in terms of potential for growth, we still see some very good opportunities for growth across the world.

Now when I say the U.S. maturity is the highest, we don't believe that it's fully saturated yet. We think we have lots of opportunities. And as you heard us say in our prepared remarks, companies are coming to us and really looking for innovative RPO solutions, innovative MSP solutions that, frankly, are evolving and have evolved significantly since we started to see strong growth maybe over the last 8 to 6 years in the U.S.

And that is really part of our strength, to be able to evolve our service offerings, leverage the data and the insights that we gain from these very significant global platforms and use them to enhance our service, make our hiring more accurate. And then add to that, of course, the reminder from any organizations that volatility can strike at any moment and be unexpected.

So having the ability to ramp up very quickly is something that we excel at, and that is clearly going to be a feature going forward as well. So I think we can still see some good -- some very good growth here in the U.S., some very good growth outside of the U.S. based on penetration rates of the offerings as a whole.

But overall, I'd also say that the industry is in full evolution. And we are leading that innovation drive to make sure that we are great for the services that we provide for today's needs, but also developing for future needs. And clearly, technology and leveraging the data to create insights has been a huge driver of our ability to satisfy our clients and frankly, also being able to engage talent in a very, very tight labor market.

Excellent. That brings us to the end of our fourth quarter earnings call, and we look forward to speaking with you on our next earnings call. Thanks very much. Have a good rest of the week.

Thank you. And that concludes today's conference call. Thank you all for joining. You may now disconnect.