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Executives

Jeffrey A. Joerres – Chairman, President and Chief Executive Officer

Mike Van Handel – Executive Vice President and Chief Financial Officer

Analysts

Sara Gubins – Bank of America Merrill Lynch

Timothy Mchugh – William Blair & Company, L.L.C.

Andrew Steinerman – JPMorgan

Jeffrey Silber – BMO Capital Markets

Mark Marcon – Robert W. Baird & Co., Inc.

Paul Ginocchio – Deutsche Bank Securities

Thomas Allen – Morgan Stanley

Kevin McVeigh – Macquarie Research Equities

Gary Bisbee – Barclays Capital

Manpower Inc. (MAN) Q1 2012 Earnings Call April 20, 2012 11:30 AM ET

Operator

Welcome, thank you very much for standing by. At this time, all participants are in a listen-only mode. (Operator Instructions) Now, I’d like to turn the meeting over to Mr. Jeff Joerres. Sir, you may begin.

Jeffrey A. Joerres

Good morning and welcome to the First Quarter 2012 Conference Call. With me this morning is Mike Van Handel, our Chief Financial Officer. I’ll go through the high level results for the quarter. Mike will then spend time on the segment detail as well as the balance sheet and our outlook for the second quarter.

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

Mike Van Handel

Hi, good morning, everyone. This conference call includes forward-looking statements, which are subject to risks and uncertainties. Actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements can be found in the company's Annual Report on Form 10-K and in the other Securities and Exchange Commission filings of the company, which information is incorporated herein by reference.

Jeffrey A. Joerres

Thanks Mike. The first quarter was much better than what we had anticipated. It was primarily driven by the higher than anticipated revenue line. Going into the quarter, we were seeing some crepitation, as we continue to, but it turned out to be much less than anticipated. We were anticipating constant currency revenue growth of zero to 2%, and we achieved 3% for the quarter.

Revenue growth in U.S. dollars was flat but also above expectation as our guidance called for a contraction between 1% and 3%. The higher than anticipated revenue was achieved across the board as the Americas, Southern Europe, Northern Europe, Asia-Pacific and Right Management, all exceeded expectations.

We expected to earn between $0.30 and $0.38 with a negative impact of $0.02 per currency. In fact, we earned $0.50 with a negative impact of $0.02 per currency. Given the choppy economic environment, our success in the first quarter attribute to the team as well as the lot of hard work that had taken place prior to the quarter. It’s also important to note, as you can see that, while our growth is below normal levels for this time of the recovery, we were able to achieve or leverage given even modest increase in revenue.

Our operating earnings increased 14% in constant currency with our earnings per share increasing 21% over the last year in constant currency. We were able to maintain a much better hold on gross margin and continued our path towards diversifying our business and differentiating ourselves within the brands under ManpowerGroup.

With that overview, I’d like to turn over to Mike to discuss the details.

Mike Van Handel

Okay, thanks Jeff. I will follow my typical format with some overall comments on the quarter followed by discussion of each of our operating segments, a review of our cash flow and balance sheet, and finally our outlook for the second quarter of 2012.

As Jeff mentioned, the first quarter was a strong start to the year. Revenue growth exceeded expectations up 3% in constant currency. Revenue benefited approximately 1% from acquisitions and about 1% due to an extra billing day compared to the prior year in some of our countries. Earnings per share of $0.50 exceeded the midpoint of our guidance by $0.16 per share, which was all driven by superior operational performance.

Our SG&A expense was in line with expectations despite the stronger revenue growth, and as a result the incremental gross profit and the additional revenue growth fell straight to the bottom line. This resulted in an operating profit margin of 1.8% which was 30 basis points better than expectations and 10 basis points better than prior year. Our reported tax rate of 51% was slightly below expectations, which was simply due to the fact that the French business tax component of our provision was not impacted by higher pretax earnings. The underlying effect of income tax rate excluding the French business tax was 38%, which was right in line with expectations.

The currency impact on the quarter was a negative $0.02 right in line with the expectations. While the year was slightly stronger than expected, the overall earnings per share impact fell in line with expectations as more euro based earnings were generated than anticipated.

Our gross profit margin came in above as expected at 16.6%. This is 30 basis points below the prior-year and primarily relates to a lower staffing gross profit margin impact of 20 basis points. Staffing gross margins are stable in most markets, but margins have been negatively impacted by slightly higher unbillable bench times and stronger growth from a few lower gross margin key accounts.

We have also experienced some price pressure in the contracting Italian and Dutch markets. Additionally, our gross margin was impacted about 10 basis points from our China acquisition last year, which will anniversary this month.

Growth in our permanent recruitment business remains positive in the quarter, up 5% over the prior-year in constant currency. We experienced strong growth in recruitment fees in the Americas and Southern Europe with modest contraction in Northern Europe and Asia-Pacific, Middle East segments. Permanent recruitment fees as a percent of overall gross profit expanded 60 basis points to 13.5%.

SG&A cost decreased from $772 million in the first quarter of last year to $754 million this year. Of this reduction, $60 million relates to the change in exchange rates between periods and $8 million related to cost savings from the reorganizational plan we put in place in the fourth quarter of last year. As we recall, we took a charge of $20.5 million in the fourth quarter, we are already exceeding the savings expected under that plan.

Prior year acquisitions added about $7 million to our SG&A cost, leaving a decrease in operational SG&A cost of just over $1 million. This decrease not only reflects rigorous cost controls but also the productivity improvement resulting from a number of productivity initiatives across the organization. Our SG&A as a percentage of GP is always higher in the seasonally smaller first quarter, but more importantly we saw an improvement of 110 basis points from 90% to 88.9%.

Finally, before I turn to the performance of the operating segments, I'd like to review our business line gross profit. As you would expect, our business lines coincide with the new branding we rolled out last year. Our overall business strategy calls for investment and accelerated growth in our higher value service offerings of professional, personnel and solution. These offerings have increased to 35% of our mix, and our traditional staffing and recruitment services under Manpower account for 65% of our mix.

Our gross profit growth for Manpower was a decline of 1% in constant currency in the quarter, as a result of sluggish demand in many markets given the current weak economic environment. We believe that Manpower business has very good growth prospects as the economy improves but also from a secular standpoint, as many of our clients are looking to add greater flexibility to their workforce.

Under our Experis brand, we provide professional interim and permanent recruitment services primarily in the IT, engineering and accounting and finance verticals. This business represents almost 20% of our gross profit and grew 1% in the quarter.

Our ManpowerGroup Solutions business comprises 10% of gross profit and consist of RPO, MSP, Talent Based Outsourcing, Borderless Talent Solutions and Strategic Workforce Consulting offerings. This business saw exceptional growth of 18% in the quarter.

Lastly, our Right Management business offers outplacement services and talent management solutions and comprises of 6% of our gross profit. Right’s gross profit was flat with the prior year and I’ll further discuss this later in the call.

Now, let's review our operating segments. Revenue in the Americas exceeded expectations coming in at $1.1 billion, an increase of 2% on a reported basis, or 4% in constant currency. Our gross profit margin was stable and SG&A expenses were well-controlled resulting in $22 million of OUP, an increase of 7% in constant currency. OUP margin increased 10 basis points to 2%.

Our U.S. business which represents 65% of segment revenues saw revenues contract 2% to $736 million. Our U.S. gross profit margin was stable with the prior-year and SG&A expenses were 1% below the prior year. This resulted in operating unit profit of $7 million, a decline of 21% from the prior year.

Our Manpower business which represents 55% of U.S. revenue was flat with the prior year. The Manpower gross margin was up 10 basis points, as the U.S. continues to maintain rigorous price discipline despite general pricing pressure in the market. Increases in 2012 state unemployment taxes were fully passed on to our clients, and therefore this direct cost increase did not negatively impact margins. As we have discussed on our previous calls, we have traded some market share in the U.S. for higher margin business.

Our Experis business represents 40% of U.S. revenues and declined 4% in the quarter. As this was the case last quarter, our U.S. Experis business continues to be impacted by revenue declines in a few large accounts. One of these accounts was in the financial services area and we saw the project wind down in the third quarter of last year and the other account made the decision to bring their business in-house. Without the impact of these accounts, revenue growth was positive which relates to good growth in the SMB business, partially offset by contraction in some of the larger key accounts.

Overall pricing in the Experis business was stable, however gross margin was down 130 basis points from the prior-year due to an increase in unbillable bench time and adjustments to client rebate accruals. Both of these matters were addressed and resolved in the first quarter and therefore we expect an improving gross margin in the second quarter.

Our permanent recruitment business had a strong first quarter, up 31% over the prior year. We continued to benefit from a secular shift as our clients are moving to outsource more of the permanent recruitment function. Our U.S. Recruitment Process Outsourcing business continues to make great strides with a revenue increase of 23% in the quarter.

Our operations in Mexico, Argentina and Canada delivered strong revenue performance with revenue growth of 16%, 24% and 13% in constant currency respectively. These strong top line performances resulted in the strong profit performance with OUP growing in the double digits for each country.

Revenue in Southern Europe was slightly stronger than expected coming in at $1.8 billion, an increase of 1% in constant currency, or decline of 4% in U.S. dollars. Our gross profit margin was down slightly and SG&A expense was up slightly due to acquisitions resulting in OUP of $23 million, a decrease of 9% in constant currency. OUP margin was up slightly, a decrease of 20 basis points to 1.3%.

Revenue in France was flat with the prior year in constant currency, at $1.3 billion. Revenues benefited from an additional billing day in the quarter and therefore revenues were down 3% on an average daily basis.

France revenues also include the favorable impact of the Proservia acquisition in the fourth quarter of 2011 which added about 1.5% to their growth rate in the quarter. While France revenues softened in the first quarter, the level of contraction stabilized in March and held in April. So while we continue to see year-over-year contraction, the rate of decline is not increasing at this point.

Gross margins were up slightly in the quarter primarily as a result of the favorable impact of the acquisition. Additionally, we continue to implement our previously announced price improvement initiatives. Well this has been successful. We continue to see some aggressive pricing behavior from some of the smaller players in the market. SG&A expenses were up 4% in constant currency, of which more than half the expense increase relates to the acquisition. This resulted in OUP of $5 million in the quarter.

Revenue in Italy showed gradual weakening during the quarter, resulting in a 2% contraction in constant currency. This includes the benefit of two additional billing days and therefore on an average daily basis, revenues were down 7%.

Gross profit margins in Italy were up slightly as an increase in permanent recruitment fees offset the deterioration in staffing gross margins. SG&A expenses were down in the prior year resulting in OUP improving to $15 million, an increase of 18% in constant currency. Our Spanish market continues to be difficult. We are able to achieve growth of 2% in constant currency.

Revenue in Northern Europe also exceeded expectations coming in at $1.4 billion, an increase of 3% in constant currency or a decline of 1% in U.S. dollars. Within Northern Europe our gross profit margin declined by 70 basis points primarily due to the mixed impact of stronger growth from lower gross margin clients.

Our team did a nice job reducing expenses in the quarter resulting in OUP of $44 million, an 8% increase in constant currency or 5% in U.S. dollars. This reflects an expansion of OUP margin by 10 basis points to 3%. Within Northern Europe, the UK was the star performer with revenue growth of 14% in constant currency. This revenue growth was fueled by growth in one large key account which came on in the second quarter of last year.

Growth in the Nordics slowed at 1% in constant currency primarily as result of the softening market in Sweden, were we saw revenues contract year-over-year. Our team in Norway had an excellent performance, were revenue growth was stable in the upper single digits and OUP was up in excess of 40%.

Revenue in Germany was flat with the prior year, the gross profit was up as we were able to improve pricing and staffing services. This combined with tight control on SG&A resulted in an expansion of OUP margin and OUP growth of 13% in constant currency.

Revenue growth in the Netherlands and Belgium also weakened further in the quarter with the Netherlands declining by 4% in constant currency and Belgium flat with the prior year.

Our Asia-Pacific, Middle East segment reported the strongest performance, with revenue up 10% in constant currency, OUP up 16% in constant currency both exceeding our expectations. Included in the revenue growth, was second quarter 2011 acquisitions in China and India which add about 7% to our growth rate.

Our expenses were tightly controlled in the quarter resulting in OUP margin expansion of 20 basis points to 2.9%. Revenue growth outside of the emerging markets in Asia-Pacific, Middle East, remains modest with Japan flat prior year and Australia up 2% in constant currency.

Organic revenue growth in China moderated during the quarter, but remained strong about 30% over the prior year. We’re seeing strong demand from both multi-national and local clients as we’re recognized as the market leader in providing higher quality recruitment services and solutions.

Organic revenue growth in India continues to be stable, up 8% over the prior year. Revenue of Right Management was stronger than expected, coming in at $80 million for the quarter. After several quarters of revenue declines at Right, we’re seeing revenue levels stabilize and contracting only 2% in constant currency in the quarter.

Our outplacement revenues were up 3% year-on-year, while our talent management revenues were down 13% year-on-year. Well, we continue to see a high level of interest in our talent management services, the sales cycle has lengthened as clients start to frame more of this discretionary spend. Right’s OUP swung to a positive $2 million in the quarter as we’re starting to see the impact of the reorganization we announced in the fourth quarter.

As indicated in the fourth quarter, we expect to see further reorganization charges related to Right in 2012 as we continue to implement the reorganization plan to achieve a more streamlined office infrastructure and management organization.

Now, let’s have a look at the cash flow and balance sheet. Free cash flow defined as cash flow from operations less capital expenditures was use of $40 million in the quarter compared with use of $171 in the prior year. The first quarter is typically a weaker quarter from a cash flow standpoint, as I know incentives are paid in the first quarter.

Our capital expenditures increased to $20 from $11 million the prior year. Most of this increase is attributable to office consolidations and realignments as well as lease hold improvements. On a full year basis, we’re currently estimating that capital expenditures will be up about 10% over the prior year. Accounts receivable, DSO was 56 days in the quarter, up one day from the prior year, which primarily relates to the timing of quarter end collections and a shift of revenue mix to larger key accounts with extended payment terms.

Our balance sheet at quarter end remains in good shape with total cash of $554 million; and total debt of $722 million bringing our net debt position to $168 million. Our total debt to total capitalization remains constant in the quarter at 22%. Our $722 million of debt at quarter end primarily relates to the 300 million euro notes coming due in June of 2012; and the 200 million euro notes coming due in June of 2013.

Our intention is to refinance the 300 million euro notes in the U.S or Europe public markets. We believe a new issue would be well received by either market at this time, and the effective interest rate on a seven year term note should be slightly lower than the 4.6% we are currently paying. In event that the public markets become challenged between now and June, we can easily refinance this note under our $800 million revolving credit facility. Currently we have no borrowings under this facility, and therefore we have ample liquidity. You may recall, in the fourth quarter we increased the size of our revolver from $400 million to $800 million to ensure sufficient liquidity during this period of refinancing.

Finally, I’d like to comment on our second quarter outlook. As we look to revenues in the second quarter, we anticipate continued soft demand for our services given the current economic environment especially in Europe. Another factor to consider is that, we have one less billing day compared to the prior year in some of our markets; this will negatively impact revenue growth by about 1.5%. Additionally, we will anniversary a few acquisitions that were made early in the second quarter of 2011, this will negatively impact our growth rate by almost 1% as well.

Considering these factors, we expect our second quarter consolidated revenue to be flat with the prior year to down 2% in constant currency. Based on where exchange rates are at the moment, our U.S. dollar reported revenue will be about 6% less or range from a decline of 6% to 8%.

Within our operating segments, we expect the Americas, Asia-Pacific and Right Management to grow in the low to mid-single digits in constant currency; and southern Europe and northern Europe to kind of contract in the low to mid-single digits in constant currency.

The gross profit margin is expected to improve sequentially and be roughly in line with the prior year. Our operating profit margin is expected to range between 2.3% and 2.5%. It’s a slight margin decline from the prior year as we expect some aberrational deleveraging given the contraction of the top line.

Our income tax rate is expected to approximate 48% including the French business tax or 37% if we exclude the French business tax. Both amounts are in line with prior year. This will result in earnings per share ranging from $0.68 to $0.76 per share with a negative currency impact of $0.04.

As was the case in the first quarter, earnings per share a very sensitive to revenue levels at this stage of the cycle. Revenue gains or revenue declines, leverage or deleverage quickly to the bottom line; as a result our actual earnings per share can be significantly different than forecast if revenues vary only slightly from forecast.

With that, I’ll turn things back to Jeff.

Jeffrey A. Joerres

Thanks Mike. The first quarter was a solid quarter, we were able to achieve better than expected revenue growth. And while it was a modest revenue growth, we showed good operating leverage, first quarter was an important quarter for us to get behind. We were able to continue and expand many of our programs that are leading to our revenue and profitability growth. The areas of differentiation, diversification, the efficiency and productivity are key to our overall performance. Each of those areas we’ve done quite well at.

Differentiation is extremely important, and we are clearly seeing this payoff. Our branding strategy with the parent brand ManpowerGroup, Manpower Experis, Right Management and ManpowerGroup Solutions continue to get more visibility and distinction within the industry. The thought leadership as well as positions that we’ve taken across the world is bringing us leads and we believe we’ll continue to do so. That coupled with our increased ability in our sales function and global footprint will continue to enhance our differentiation.

Under diversification, we continue to grow our solutions business. And what we believe is much faster than market, our growth in solutions gross profit was 18% in constant currency, which included nearly 30 additional RPO wins as well as expansion in our Borderless Talent Solutions as we are seeing more clients interested in cross border RPO work as the talent mismatch accentuates the need for such a service.

Additionally, our Talent Based Outsourcing, which is the outcome-based pricing solutions business, continues to grow. That alone grew at 16%, and our pipeline is very solid. So we would continue to anticipate good growth in the second quarter.

Our Recruitment Process Outsourcing business also saw a strong revenue growth of 27% increase in constant currency as our clients continue to shift more of their recruiting to us as the experts as they recognize our capabilities and the value we bring to the marketplace. We have invested in a world-class RPO offering, which is validated earlier this month by the Everest Group, who ranked us as the leader in Global RPO, and awarded us their Star performance designation.

We continue to build strength and see some very strong secular trends that are in our favor, which will continue to benefit us. Efficiency and productivity is critical. We have still not achieved our EBIT percent goal, and it is a clear way to accomplish this besides revenue and GP leverage, it’s continued to improve our efficiency and productivity.

Last year we improved our SG&A to gross profit by 400 basis points. And in the first quarter of this year, we continued down that brigade with 88.9% SG&A to GP, a 110 basis point improvement over last year. This is done through technology process and in many cases consolidations of functions out of our branches and into regionalized or centralized locations.

Secular trends will not present themselves fully because of the depressed economic environment that we are in are still alive and well. The trends occur across all parts of our business. I mentioned before, the secular trends in our permanent recruitment business as companies are looking to advocate that responsibility, which enhances their flexibility therefore the mandates in permanent recruitment, whether they’d be classic volume, RPO or temporary to permanent conversions are increasing as more companies are using this as a way to bring people into their companies. Also we are seeing pure flexibility in the core part of our business, and Manpower improve that dramatically as companies must remain agile, and this is true for our largest geography, which is Europe.

While there are some very mature countries, there are other countries that still have a long way to go as a percent of workforce working as a temporary. This is extremely healthy for the labor market as it creates a velocity and vitality, but also gives us a good secular traction.

Additionally, there are strong secular trends within Experis as we see IT, finance and accounting and engineering becoming more project based if you will, where companies have been able to bite size the projects, and therefore sunset the talent more quickly as they ramp up the agility of their operations in these areas. This is good for us and we will continue to see this trend expand over the next three to five years.

The outlook is still difficult for us, we are dealing with uncertainties in Europe and U.S. economy is moving forward, but it does have its ups and downs. Slow if you will, choppy growth is a little bit difficult on a day-to-day basis, but it is pointing in the right direction. And therefore as we work through these uncertain economic times, we continue to gain momentum, add profitability to the organization, and position ourselves better for the future. Thanks. And with that, I’d like to open it up for questions.

Question-and-Answer Session

Operator

Thank you. So we’ll now begin the question-and-answer session. (Operator Instructions) Our first request now is from Sara Gubins of Bank of America Merrill Lynch. Your line is open ma’am.

Sara Gubins – Bank of America Merrill Lynch

Hi, thanks. Good morning. You mentioned seeing some stabilization in France in terms of declines in March and April so far, the guidance for the second quarter of course suggests a continued deceleration in your markets. And so I’m just wondering what you’re seeing in other key markets in April, and maybe how much turned out as well?

Jeffrey A. Joerres

When we talk about stabilization, what we’re really seeing is that, some of the markets have gone down and you can go almost in all of them with maybe a few exceptions. But what we saw in drops in some of the November, December timeframe; really just kind of stayed the same. I mean we had some choppy weeks in there, where a few weeks were maybe a little bit weaker; and then it would come back a little bit more.

So when we’re talking about stabilization, we’re really looking – if you look at the euro zone, and there are some differences with the Netherlands, maybe it’s dropping off a little bit more in Sweden as Mike mentioned, dropping off a little bit more. But even that, it’s not dramatically.

So as we unfold and as we talked about in the last conference call, we really didn’t see it is dropping off the cliff in Europe, and in fact as we look at the first quarter, there really wasn’t, it was pretty much just stabilized at a lower level. There are some events whether they’d be elections or consumer confidence things that could drop that, but at this point we’re really looking at from almost all markets in Spain, we actually grew a little.

So when we talk about stabilize, we’re talking about stabilized at a lower level as you can see from the forecast end of the second quarter, without really a lot of turmoil happening other than – the turmoil of what might be happening at the bank level.

Sara Gubins – Bank of America Merrill Lynch

Okay, great. And then separately, last year you closed 2% of your southern European offices while northern Europe was pretty much flat. Would you consider closing additional offices in Europe in light of demand trends?

Jeffrey A. Joerres

It’s a good question. What we had done last year and as we have done some in the previous was we really looked mostly at consolidation, and in fact there are some strategies that we have and that will still be rolled out in southern Europe as well as northern Europe, or we may have multiple offices relatively close in a city center.

We’re looking at possibly consolidating those, so we’re not closing offices as much as consolidation, and we are doing a few of those in northern Europe. Frankly, it is more driven on better service, better management and of course, we’ll get a little bit of benefit from a reduced real estate.

But we really feel as though running a three to four person office is harder in the cities to larger cities than running a nine or ten person office, we have much more flexibility and much more actual energy in some of those offices. So you’ll see that in places like Berlin, we’ve already done that in Netherlands, we’re looking at a few other places in northern Europe.

Mike Van Handel

So maybe, just a little bit. Two things, maybe first just little bit more color on your question related to trends, and maybe put a little bit more color on France. So we did see some decline in demand in France in the first quarter. If you look at by month on an average daily basis, January was pretty flat on prior year for us, then February went down a bit to about down about 5% or so year-on-year. And then March came back up to down about 3% year-on-year. February, there was a cold weather snap in Europe you may recall, I think that impacted the numbers a little bit. So that could be a reason why February dipped.

And then we look to April, we’re seeing pretty much the same as what we saw in March, and our view and our guidance was for the second quarter to be down between 3% and 5%. So pretty much still looking at that same trajectory – maybe getting a touch later, but not – I think that’s pretty much inline with what we’ve been seeing overall, just a little bit of color there.

The second point which I made in my call notes, but I just want to maybe reemphasize that I caught your note earlier today. Just in terms of the out performance relative to expectations, I really would characterize it as all operations.

Our tax rate overall was lower than what we expected, it came in at 51% versus 56%, but the reason for that is because the French business tax now was classified in our tax provision. Now it’s $17.4 million in the quarter and about as expected, and as our pre-tax amount moves that business tax does not and that has a unusual impact, it impacts at effective rate if you will. And if you actually take that business tax out, our tax rate came in at 37.7% and we are forecasting an underlying rate of 38%.

So just to make sure we are clear in terms of how we communicate that. We would see really the 16% of performance above our midpoint of guidance is being operational in nature even though part of it looks like it shows up on the tax line.

Sara Gubins – Bank of America Merrill Lynch

Okay. Thanks a lot.

Jeffrey A. Joerres

Thank you.

Operator

Our next now from Tim McHugh of William Blair. And your line is open.

Timothy Mchugh – William Blair & Company, L.L.C.

Yes, thanks. Just wanted to ask, you mentioned in the UK that you have had a large key account program that helped you during the last year. Is that significant and should we model or think about it, to the later half of this year as a growth likely to slow there or is there enough momentum going on in the UK that you can continue to kind of outperform the market there?

Jeffrey A. Joerres

We have – just to give a little history on the UK, we’ve done a very nice job of mixing the business where we actually were skewed in many cases and our book of business is too much towards key accounts. We’ve done a nice balancing of that. We now have, it’s actually one account and kind of one and half if you will that have really added because of increased demand of their product, a fair amount. We see that demand continuing through the second quarter, could potentially go into the third quarter. Its starts to anniversary a little at that point, so then you’d see that kind of come down. So the market itself, if you would take that out and which we still have some good pipeline. You would probably, I don’t know Mike, what may be, take out, may be get it to about 3%, 4% top line growth without that account in it.

Mike Van Handel

Maybe just a little bit stronger probably in the mid single-digits. So I think overall, my sense would be that, we’re still outperforming the UK market, our market data is little bit hard to combine in the UK but my senses were we’re still outperforming despite that account and that account has added a little bit on the top which has been good, but I think I don’t want to lose sight of the fact, I think the UK organization really has done a nice job performing across-the-board and getting new business and really delivering good profit performance on the business they have been giving. So I think it's a – things are moving well in the UK now.

Timothy Mchugh – William Blair & Company, L.L.C.

Okay. And then just in the U.S. the profit margin, you said that the gross margin for the Manpower, traditional Manpower business was up, so the margin they’re being down year-over-year. Was that just negative leverage from some of the key accounts that you talked about that pull some work in the large projects that’s stopped or are there any other factor hitting the U.S. margin there?

Jeffrey A. Joerres

Yeah, I think what you are seeing there really is just the delivering with the contraction on the top line. We were able to pull our SG&A cost down a little bit but not to the same level that we were able, that revenue and GP drop, so it’s effectively some delevering that’s coming through. And the first quarter numbers are fairly small, so the percentages tend to look a little bit bigger. So no real secrets rather than some delevering that came through.

Mike Van Handel

And I think you’ll see that increase in profitability as you move into the second quarter because it’s a larger quarter and you get to get actually more leverage out of the expense action that we’re taking. And by the improved gross margin which our goal is to take that improved gross margin EBIT to drop to bottom line.

Jeffrey A. Joerres

Well, we are on that topic. I’d say the same thing in the French market, we’ve, yeah I think our team has done quite a nice job working around pricing and managing the GP well. And overall in the French market our GP margin was up a little bit on prior year. So that was a good success there but topline was a little bit weakened and we had the acquisitions coming through which added a little bit to the SG&A line. So effectively we did see some delivering, if you will the organic business contracted and while we did take some of that expense out, not enough to, that we still are seeing some delevering in the first quarter in the French market as well, despite what I think was some pretty good performance on the GP line where we did see some improvement there.

Timothy Mchugh – William Blair & Company, L.L.C.

Great, right thank you.

Operator

Thank you. Our next now from Andrew Steinerman of JPMorgan. Your line is open.

Andrew Steinerman – JPMorgan

Hi, Mike and Jeff. Mike would you say GP lines in fact you meant gross margins or gross profit dollars? And I think you’re outperforming other market in terms of revenue growth, I remember last quarter, you thought you would look to potentially purge account in France in order to take price discipline. Did that happen and so how are you outperforming the market and having gross margin trends, say well at the same time?

Mike Van Handel

Sure, I’ll take the first part of that. Andrew, I must say, our gross profit margin was up slightly year-on-year, gross profit dollars would as well be, but I think the point what I was trying to say was the gross profit margin percent was up year-on-year. I’ll let Jeff comment on the second part of your question.

Jeffrey A. Joerres

Yeah. On the second part, it is about 18 to 24 months of work within the network that you are starting to see and it’s really in three different areas where we would be getting that growth. And we have the present data, so we feel pretty confident that we are outperforming the market which in the market that is that large with large players it’s difficult to do, those three areas are focused. We really been able to focus our branch offices on who to be approaching, who to sell to, and what are the appropriate margins and what are the indicators of that we’re doing well on that, we’ve done a lot better on that.

Secondly, the SMB market is growing better than the key account market and we’ve had a very concerted effort on the SMB market and that is now starting to come through, it takes a long time. I took us almost a full 18 month before we can certainly see the traction in the SMB. And then I mentioned a little about this last quarter but it’s even more so now and that is in the French market where you may have three or four companies that are sharing the business. And what we’re starting to see and I really want to emphasize at this point is we talked about efficiencies and growth and all those others. And frankly a lot of industry players have forgotten, it’s still about the quality match and now it’s coming back to hurt them. Without the quality match and doing things for low price, lower than what we would be doing.

We are taking business from other large competitors, who are being if you will ask to leave the account because they are just not matching in a quality way. All throughout that process we’ve been able to take about €80 million and take that business away. So similar with U.S., we are taking business out on the bottom end and still being able to outgrow the market. So it’s our goal to do that in the U.S., we are on that path but you’re seeing a little bit of a balance issue in the U.S., where at least right now in France between us delivering good quality SMB, we have been able to eliminate on an annualized basis about $80 million worth of business, I'm sorry €80 million worth of business.

Andrew Steinerman – JPMorgan

That’s awesome, Jeff, you did mention. Is there any need, has M&A been purged against France similar to the U.S. to stay price disciplined?

Jeffrey A. Joerres

Well, we’re being selectively, we have unfortunately had to walk away from some what we would have thought, we could have delivered some really good service to them but market is competitive, we are seeing the market become very competitive as Mike mentioned from the, and as the second group or the second tier, the mid sized regional are extremely competitive. Interestingly enough there has been about 100 offices opened this year alone in France all by mid-size players. So market is competitive, we’re going to continue to see the competition in pricing. However, with that GP percent improvement our SMB focus and our quality focus we feel as that we are going to be able to maintain in industry lead for a bit here.

Andrew Steinerman – JPMorgan

Nice job, thanks.

Jeffrey A. Joerres

Thanks.

Operator

Thank you. Jeff Silber, BMO Capital. Your line is open now.

Jeffrey Silber – BMO Capital Markets

Thanks, so much. Just wanted to continue the discussion on France, Jeff in your remarks you just alluded to start of the elections and it looks like we may have a change in party. If the socialist do takeover, do you see any major regulatory changes coming? Thanks.

Jeffrey A. Joerres

Yeah, thanks Jeff. Yeah, we talked about that when we were together in France. And there is a view of what a socialist means that maybe outside of – France is a little different. And no doubt history would say that possibly the other party, Sarkozy party would be a little bit better for us, but frankly it’s hard to tell right now.

When you look at some of the issues or platforms that Holland has been and on is, there are some positive things for us like maybe stopping some overtime and which would give us additional business. Increasing the allocation to the training fund maybe taxing some short-term contracts other than it's been in the staffing business.

So right now we’re looking at it, it is both candidates have some puts and calls if you will and puts and takes on what might be positive or negative. But at this point, we could almost call it a push. I would also say that the rhetoric, like in all countries, have been ramped up a lot. So those are hard to discern between what is said pre-election and what is actually done post-election, so we will have to wait. But right now it wouldn’t spell at all a disaster for us; in fact there could be some positives on those sites, Sarkozy and some other things like looking at the social VAT which would be redirecting the tax off from the work and helping us and may be some competitive agreements and he to is interested in increasing the training fund.

So there is some puts and takes and right now we are relatively sanguine on which one would win or lose.

Jeffrey Silber – BMO Capital Markets

Okay, that’s helpful. You also talked a little bit about the pricing pressure specifically in Italy and your Dutch market. I'm wondering you can see this creeping into other markets, where you are seeing trends unfortunately move in the wrong direction?

Jeffrey A. Joerres

Northern Europe in general maybe feeling a little bit more pressure on pricing or maybe they haven't had that before. But as Mike mentioned, our German operation was able to increase their gross profit percent. So we are still able to do that, but the Dutch market never really came out of the downturn and as a result I think that there is some more intensity in some of the pricing, so that's a pretty tough market.

In Italy, the major players other than the locally domiciled players have actually been fairly disciplined. And we also have a good solutions business and permanent recruitment business and our Experis business is doing well there. So there is a good mix, but I would say pricing pressures are there but at this point other than maybe the Dutch market in a few key regions within certain countries it’s competitive but not ridiculous. Not like what we were seeing in 2009.

Jeffrey Silber – BMO Capital Markets

Okay, great that's helpful. Thanks so much.

Operator

Thank you. Mark Marcon of R.W. Baird. Your line is open now.

Mark Marcon – Robert W. Baird & Co., Inc.

Good morning and congratulations on the good results. I’m wondering if you can talk a little bit more about the gross margin trends more broadly given your changing mix with solutions and Experis becoming bigger, as well as France and the U.S. in terms of core temp stabilizing. How should we think about gross profit longer-term and then I've got a follow-up with regards to SG&A?

Jeffrey A. Joerres

Sure, Mark. I think when you step back and look at the gross margins, couple of things that I think showed positive, one of the positive is, we’ve got stable with the right management side, so that's no longer dragging overall. So I think now we’re at a point of building on where we are and moving things from here. And when you look at what we are doing on the solution side that is higher gross margin business. And right now the solutions and specialty side of our business is 35% of the overall mix. As we continue to drive that, I do see opportunity for further enhancement of gross margin going forward.

The other thing that we’ve talked a little bit about is just the opportunity for firm recruitment in this market. We are really reaching peak levels of perm recruitment already peek historical levels. And we still – we are obviously still in the early innings from a labor market recovery standpoint. So we see that as really a good opportunity, clients are thinking about using us differently and using us, using more of our services on that side than we ever had before rather than building them in-house. And we ourselves have built out the capability over the last, if you go back to the 2004, ’05, ‘06 period that's really when we built up the capability for perm recruitments.

So we’ve got that capability now that we haven't had in the last cycle and of course the French market is now open for perm recruitment which happened in 2005. So I think there are a number of positives on that front, when you look at the core staffing side, I think that we will remain a bitty choppy for a while, I think we’re going to continue to see a little bit of pressure in some of the markets, so we start to see some growth and until that supply demand equation changes a little bit, that’s what will start to change the dynamic overall.

So on the other side, also within the professional side you certainly have Experis as well and as we continue to drive that mix upward, I think that's going to help our overall mix of GP. So I think there are a number of positive things, I think there is going to be a little bit of choppiness if we see some contraction in markets, so I think its logical to expect some near-term contraction, but I think as the market start to improve I feel pretty good about the opportunity there and with some gains on the gross profit margin continue to push and drive the SG&A leverage and drive our productivity matrices that's what's going to get us to our overall goal on the operating margin of 4%. So it is those two elements combine.

Mark Marcon – Robert W. Baird & Co., Inc.

Great. And then could you just talk a little bit more about the SG&A, I mean the $8 million in savings that you achieve this quarter was greater than what’d hinted at during the last conference call. Are you still expecting roughly around $30 million in savings or could it be greater than that? And what the size of the structuring, what inning are you in with regards to driving the efficiencies across the overall franchise?

Mike Van Handel

Yeah. So from a restructuring standpoint, so it did take a $20.5 million charge in the fourth quarter primarily related our realignment of the professional business with Elan and Experis in Europe and then also related a plan we introduced with Right Management. The Right Management plan, we still expect further restructuring charges to probably land either in the second quarter or third quarter, but that plan is going quite well.

We did say $30 million for the year; we did get $8 million in the first quarter. So my guess is we will be a little bit above that $30 million, but also I’d say that most of the changes we made are fully online already. So it’s not like it’s ramping dramatically from where we are in the first quarter, but obviously you can do the straight math on that and say we will probably top up a little bit ahead of that $30 million.

Beyond some of the reorganization and realignment work, we are always driving overall initiatives with in the organization to drive productivity across our field network, so they can handle more volumes and deliver better service to our clients. So that’s a never ending process. There is never one silver bullet on that. That’s a long list of initiatives that we are driving and tracking on a monthly and quarterly basis with the operations and a lot of that has to do with standardizing processes, but also introducing new technology and centralizing and using more shared service across all of our processes.

So I think good opportunity there, and of course with top line growth, you get the scale advantage as well. So I see that’s coming on and – but I’ve been quite pleased with is the fact that we’ve been able really keep a tight hold on cost and when you see our revenue and GP coming through the incremental margin that’s coming to the bottom line is quite nice.

So with that said, there is a lot of those we’ve been working on are really showing themselves now because we are not required to add-on that cost quite as quickly as what we normally might be able to. So we’ve got somethings that maybe haven’t fully exposed themselves yet, but that will as top line start to pick up.

Mark Marcon – Robert W. Baird & Co., Inc.

Great. Can I ask one more, just with regard to the last quarter, you basically – Jeff you mentioned that you were looking at a few opportunities in terms of some big account wins that could potentially come down from some RFPs, any progress report there?

Jeffrey A. Joerres

Yes. Those are of sizable nature and as a result, they take a little bit longer to work through the line pipeline, but although those are still there and in fact we’ve added a few more to the pipeline. And what I was referring to last time was that our Solutions business was moving along nicely and those really are in the areas of the Solution business. So it’s very good for us, because what we’ve been able to see is that we are really not competing with the same companies because our offering is a bit different.

So they take a little bit longer, but we are still quite optimistic that our win ratio should be pretty good on those because of the work that we’ve been able to do in Solutions. So those large Solution wins are still in the pipeline and we are hoping to realize those yet this year.

Mark Marcon – Robert W. Baird & Co., Inc.

Great. Thank you.

Operator

Thank you. Our next request now, from Paul Ginocchio of Deutsche Bank. Your line is open sir.

Paul Ginocchio – Deutsche Bank Securities

Thanks. Hi, just getting back to the U.S., you talked about shedding some contracts. Can you quantify that? And then also looking at Experis, if you could sort of, I don’t know, clean it up for some these larger contracts, can you talk about what’s going on there? It looks like you are underperforming in market. I just want to get a little more color. Thanks.

Jeffrey A. Joerres

Sure. When we had talked about was last time was somewhere in the neighborhood, I think we said last quarter some $50 million, maybe a little bit more that we had taken out of the U.S. particular out of the Manpower side. And then it’s a little bit harder to quantify the new business opportunities coming in that we normally would be much, I shouldn’t say much more aggressive, we might be a bit more aggressive on. And we have decided through a really good analysis of pro forma P&L before we even go into the bit process, we continue to update the pro forma P&L. And at certain times we decide to write a very nice letter saying we really want your business, but not at this level, because we think that you are not going to be receiving the quality.

So I think that’s throttling some of our growth in U.S. And as I mentioned, also we want to be able to find that balance. That balance isn’t easy to find about what you pursue all the way to the end where it’s a brass knuckle fight in the alley at the end. And then what are the one that you say, no, we’re just not going to go down that path and we might be being a little too selective at this point, but I think it’s a good organizational behavior to do that.

On the Experis side, I’d say that the market is not an easy market to determine if we are underperforming. But your statement is very logical one and I can – I too can see how you’d say that. And I have said that more than once inside the organization. But when you really break it down, and we’ve spend a lot of time doing that, we had some large accounts and we’ve got some large account business that rolled off. If you look at our replacement business where we are and what we’ve been able to do, I’d say that we are completing well on that.

Where we would be not keeping up with the market is when you would be comparing us to a company who has much more skew towards SMB market. The SMB market and particulately the IT part of Experis is outperforming the larger account market. Where some of the larger accounts are now coming off of some very major projects. We had two very large bank integrations that we were doing and those have rolled off. Those were great opportunities for us, we perform very well.

So one of the ways that look at it is kind of doing a two year look that what’s happening with market share and how it’s going. And on a two year kind of rolling basis, we are doing well. And the integration has gone extremely well. Good moral, great engagement and I’d tell you that we are after the SMB business and we’ve got a good pipeline also on the key account.

So we probably, as we also mentioned squeezed out a little bit too much recruiter productivity; and coming into the end of 2011, we were a little cautious and wanting to – not wanting to add too many recruiters, because we’re nervous that 2012 might tail off a little, when in fact in the SMB it didn’t. So we are adding our recruiters to make sure because it’s all not selling, some of it is delivery. We just can’t find some of the candidates.

So overall, probably a little off market, a team that understands that, and I have a high degree of confidence in the team. They are going to get back on market and above market and on a two year basis we feel good where we are right now.

Paul Ginocchio – Deutsche Bank Securities

Thanks. Mike, just real quick, what is your percent of perm including RPO as a percent of GP?

Mike Van Handel

Yeah. We came in at 13.5% in the quarter. So we are up 60 basis points over the prior year.

Paul Ginocchio – Deutsche Bank Securities

Thank you.

Operator

Thank you. And it’s now Thomas Allen of Morgan Stanley. Your line is open.

Thomas Allen – Morgan Stanley

Yes. Going back to Europe a little, I wanted to talk about Germany and Italy. In Germany, you’ve been making some changes over the past couple of years to improve profitability, do you think you can trend up to top-line growth now, now that you’ve made those changes in Italy. It seem like you did pretty well in this quarter. How should we think about that market going forward about what you said about the pricing impact? And then how should we think about the labor reforms going on there? Thank you.

Jeffrey A. Joerres

In Germany, you are right. The team has really done a nice job on – and continues to work to be done on what would be the back office and getting some profitability. And in fact we increased our profitability substantially again year-on-year in Germany though our top line was basically flat or zero.

So we are now moving more in an external facing way. And again, we have a good team there. So I’m confidant in that. And we made a conscious decision, which was let’s get our house in order, then let’s go to the outside, so now we are going to the outside and we feel with the propositions we have, we are going to do well though. It takes a little while. So my sense is that in second quarter you will see a little bit more of the same and then you will start to see some of the growth coming out into third and fourth quarter.

Now we also are seeing, in general the market in Germany is going down a bit. So it’s not just our performance against the market, the market in general for temporary staffing is just trimming down a little. Some of that has to do with the very low unemployment rates and it’s very hard to find people. So that’s a little bit of a governor on that.

Italy, we think that we will continue to see some pricing pressure. The team there is doing extremely well. There are lots of labour reform conversation. There are something called Article 18, which is an extremely robust discussion and has a lot of courage associated right now. Article 18 really has two major components to it. One is to reduce the restriction for entry of people into companies particularly where you would see the big push in there would be the entrepreneurial federation or what we would more classically call the SMB, to try to get that small and medium sized business to be able to bring employees on in a much faster way without all of the restrictions and then of course the notion of exit flexibility.

There has been several iterations with the government and hearings and Article 18 looks like it has a very good chance of moving nicely through, of course, with some real angst with it. But there is a commitment to by middle of the year that this has a change of being moved through. There are some parts in there that could be more positive than negative for the staffing industry, but it’s too early to tell if those walk through.

Thomas Allen – Morgan Stanley

Okay. Thank you.

Jeffrey A. Joerres

Okay.

Operator

Thank you. Kevin McVeigh, Macquarie. Your line is open.

Kevin McVeigh – Macquarie Research Equities

Great. Thanks. Jeff or Mike, any thoughts on kind of the length of assignments, in terms of as contracts come back up, are they being kind of expanded or just any thoughts on that would be helpful?

Jeffrey A. Joerres

Great question, Kevin. In fact one of the challenges that we would be having right now, to be very honest, in Experis U.S. is that the assignments are shorter. And as a result, you do a lot more work potential for the same amount, which is what is impacting some of our recruiter productive.

Also, assignments tend to be shorter in small and medium size businesses, which is where some of the growth is right now. I think it’s really just the function of the uncertainty in companies. As we talked about, we think overall that is actually in general tends to be a positive secular trend for us, as companies are using more project based and by definition they are shorter and therefore using more of us.

The assignments in France, Italy, the UK, for the most part in Manpower as well, they tend to have shorten slightly just as companies are looking at their visibility and wanting to ensure that they keep themselves as agile as possible. So we think as the uncertainty starts to lift, which would be throughout this year that those assignment lengths will probably go back to more of a normalized timeframe.

Kevin McVeigh – Macquarie Research Equities

Got it. Then without being a kind of too theoretical, does that help from a pricing perspective, Jeff? Because if you got a shorter duration when the price resets does that help recapture some margin that may have kind of gone out to sea during the downturn?

Jeffrey A. Joerres

Well, on the SMB business, you have a chance to do that. But frankly, to be real honest, what it does is it does it puts more pressure on efficiency and productive because you are generating that many more interviews, that many more paychecks, that many more invoices, that many more customer reports. So it puts a little stress on the efficiency part of the business, but you definitely have the opportunity there, more conversations about price and how labor markets are tighter in some cases. So now that that rolls off, the next one is going to have to be at a little bit higher. So we clearly are using that as an opportunity.

Kevin McVeigh – Macquarie Research Equities

Super, thanks. Great job.

Jeffrey A. Joerres

Last question.

Operator

Our last question now, from Gary Bisbee of Barclays Capital. Sir, your line is open now.

Gary Bisbee – Barclays Capital

Hi, just another question on the U.S. Experis business. Can you give us a sense how concentrated that is in the large customer versus the SMB market? And what’s the current mix today of IT versus finance and accounting or engineering or other?

Jeffrey A. Joerres

Mike, why don’t you take that one.

Mike Van Handel

Sure, sure. Yeah, when you look at from a large account mix versus SMB, we are looking right now at about a 60/40 spilt, where 60% being the larger accounts, maybe its 65% something like that. So we’ve got more work to do around SMB. Our historical Manpower professional business that moved over to Experis that was more the large account business and COMSYS brought some very good SMB business, but we want to move that mix to a little bit more SMB. So we are working hard on that. When it gets to the verticals, right now, we are more IT focused. About 70%, just under 70% is on the IT vertical. Then engineering has just over 10%, finance has just over 10% and then healthcare and other professional skills would be the remaining 10%. So that’s how it breaks out.

Gary Bisbee – Barclays Capital

Great. And then just as a follow-up. Can you give us an example of maybe what a typical RPO contract would look like or if there are wide range of them what the range of things you are doing at, I feel like a lot of people are seeing they are doing RPO, but it seems like there is an awful lot of different things going on there. Where is your business now?

Jeffrey A. Joerres

Yeah. I’m glad you asked that, because we take pride in the fact that when we talk about RPO, it’s real RPO. And what we mean by that is, RPO is a managed co-sourced in some – in most instances recruitment function. So that mean in order for us to say RPO, our 30 wins in the RPO in this quarter, you have to be part of building the job description, working with the managers, the hiring managers, doing the interviewing, doing the onboarding, all of the reporting out as if you were the HR staff.

And then there is volume procurement – volume recruitment, which many organizations say, well, the company gave us a mandate for a 100, so that’s an RPO. That’s in our recruitment. We do not that count that in an RPO win. RPO wins, in almost all cases have a monthly fee with them and they have staff on sight. We have a very strict definition in order to count RPO because we think RPO should be priced appropriately.

And if you mix volume, permanent recruitment with RPO, you are actually doing the entire industry a disservice and you are degrading your own service, because those are two separate ways. Now in fact for the same account, we might be doing RPO, volume procurement, and add volume recruitment and ad hoc recruitment. But those are all designated in our accounting systems and our GL very differently and are priced differently.

Gary Bisbee – Barclays Capital

And then just one last one on that point, is this an offering that’s more attractive to a large company like in and overseas market where they might have a smaller staff, or are you seeing these all over the place? Are they doing them in the US, for example, where they would presumably have a scale to do this in-house, but they have decided you are offering them a better or more efficient solution?

Jeffrey A. Joerres

Yes. It’s a good question. It’s across-the-board. The fact is that they may have the scale, but they lack agility then. So what this is just another form of creating good flexibility. So theoretically, if you have 100% recruiters in your company and now you’ve hit a little soft patch, what you say is we don’t need to hire anybody.

Well, you’ve got 100 recruiters twiddling their thumbs. What they want to do is to give us the 100 recruiters and then they can flex up and down or maybe half of those recruiters, so they can flex up and down. When that company may not be hiring, another company is hiring and we can turn some of that -- those recruiting staffs to be working on another organization.

Also what we are seeing is large organizations that have large networks want to have a better discipline of hiring. So if you have one plant site, yes, we do that; but if you have 30 or 40 or 50 locations, we typically can drive more discipline and better hirers through that.

Also what I’d say is that the Asian market and the emerging market is one our leading RPO markets. Part of it is, we got a great team; second part of it is, they are lacking that as a core competency and know that we have it. So they are leapfrogging what we are seeing in Europe and in the U.S. and going right to kind of state of the art recruiting techniques by using us in those markets. So probably half of those wins, a little bit more than half the wins, last year, we racked up about 130 RPO wins, this first quarter about 30. You’d see half or a little more half than half of those sitting in the Asian market.

Gary Bisbee – Barclays Capital

Thank you.

Jeffrey A. Joerres

All right. Thank you.

Operator

Thank you everyone for your participation. Conference now is concluded. All lines may please disconnect.

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