ManpowerGroup's CEO Discusses Q2 2012 Results - Earnings Call Transcript

| About: ManpowerGroup Inc. (MAN)
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ManpowerGroup (NYSE:MAN) Q2 2012 Earnings Call July 20, 2012 8:30 AM ET


Jeff Joerres – Chairman, CEO, President

Mike Van Handel – EVP, CFO

Sara Gubins – Bank of America Merrill Lynch


Kevin McVeigh – Macquarie

Paul Ginocchio – Deutsche Bank

Sara Gubins – Bank of America Merrill Lynch

Tim McHugh – William Blair & Company

Andrew Steinerman – JPMorgan

Jim Janesky – Avondale Partners

Jeff Silber – BMO Capital Markets

Mark Marcon – Robert W Baird

James Sanford - Citigroup


Welcome and thank you for standing by. (Operator Instructions) Now I'd like to turn the call over to Mr. Jeff Joerres. Sir, you may begin.

Jeff Joerres

Good morning and welcome to the second quarter 2012 conference call. With me, as usual, is Mike Van Handel, our Chief Financial Officer.

I'll go through the high level results for the quarter. Mike will then spend some time with the segment detail as well as the balance sheet and an outlook for the third quarter. I'll then do a wrap up on some comments and then we'll open up for questions. Mike, could you read the Safe Harbor language?

Mike Van Handel

Good morning. 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 on the company's annual report on Form 10-K and in the other Securities and Exchange Commission filing for the company, which information is incorporated here and by reference.

Jeff Joerres

Thanks, Mike. The second quarter, given the economic volume, was a hard-fought quarter that yielded profits within our guidance. We did see declining trends throughout the quarter but for the most part, excluding the non-recurring items and the change in currency, which only affects us really on a translation basis, our operations came in where we anticipated.

We were anticipating constant currency revenue of flat to minus two. We came in down 1% for the second quarter. The revenue performances across the board were pretty much in line with what we had anticipated from a segment perspective with no segment being down more than 2.7% (inaudible).

Americas, slightly up at 1.4% as well as Asia up by 1.8%. And Right Management finished the second quarter up by 2.9%. We expected to have an earnings per share between $0.68 and $0.76 and, in fact, we earned $0.76 excluding the effect of the non-recurring items.

As we talked about in our conference calls, we see this current downturn as quite different than what we experienced in 2008. There really is no major fall off but rather a slow, decline of business that is holding true across all geographies at this time.

In total, our operating profit increased 11% in constant currency and our earnings per share dropped 5% in constant, (including) the non-recurring items.

While we were able to do a fair amount of work on our gross profit margin, we – there still is a lot more to do. In fact, we saw some drop in our permanent recruitment, which is what we've been seeing across the board for a little bit of time right now and we are still seeing some challenges in the staffing part of our business.

That is an overview. I'd like to turn it over to Mike to discuss the details.

Mike Van Handel

Okay, thanks, Jeff. I'll begin today with some overall comments on the quarter followed by a discussion of each of our operating segments and then a review of our cash flow and balance sheet. Lastly, I'll comment on our outlook of the third quarter.

As Jeff mentioned, our operational performance in the quarter was in line with expectations and the midpoint of our guidance. However, there are a number of unique items included in the reported results which I will try and unpack to give you a clear view of our underlying performance.

Revenue in the quarter was down 1% in constant currency, right at the midpoint of our guidance range of flat to minus 2%. Our operating profit margin, excluding non-recurring items, came in at 2.4% also in line with expectations at the midpoint of our guidance range.

While we delivered on our operating profit margin, our gross margin fell short of expectations but we're able to compensate for that with productivity improvements and expense reductions. I'll comment on both of these elements in just a bit.

Our reported earnings per share were $0.51 which includes reorganization cost of $0.17 and legal cost of $0.08, which gets you to an adjusted earnings per share of $0.76, which is at the higher end of our guidance range.

Of the $18.7 million reorganization charge, $10.4 million relates to the final phase of the reorganization plan announced in the fourth quarter for Right Management. This plan included realigning our management structure to more effectively deliver service to our clients and reducing our office cost by combing our office footprint for the professional business in certain markets.

Under this reorganization plan, Right was able to continue to deliver their market leading services in a more efficient and effective way while maintaining a strong presence in each of its markets.

This portion of the reorganization plan will result in additional annual savings of $6 million bringing the total reorganization plan savings to $20 million annually.

Also included in reorganization charges is a $8.3 million charge in the Americas, of which $6.9 million relates to the US. Roughly half of these costs are severance costs associated with business realignment and half relate to office rents as a result of utilizing less office space in some markets and office consolidation in other markets.

Also included in reported earnings in the US is the non-recurring legal charge of $10 million primarily related to the settlement of an alleged class action lawsuit regarding our vacation pay policies in Illinois.

While we deny any liability in this matter, we concluded a settlement was in our best interest given the cost of ongoing litigation.

Our earnings before non-recurring items of $0.76 per share was favorably impacted $0.04 as a result of a lower than planned income tax rate due to ta benefits from internal reorganizations.

Our effective tax rate on earnings before non-recurring items was 45.1% compared to a forecast of 48%.

Earnings were also favorably impacted by $0.01 as a result of a lower share count due to share repurchases in the quarter. I'll discuss this in more detail later in the call.

Finally, our earnings were unfavorably impacted $0.03 more than expected from exchange rates as a total negative impact was $0.07 per share compared to a forecast of $0.04 per share.

The gross profit margin in the quarter came in at 16.6% which is short of expectations and below prior year by 40 basis points. The shortfall from expectations is attributed to lower recruitment revenues and a lower temporary recruitment gross margin in some European countries.

(Primary) recruitment fees showed good growth in the Americas, albeit at a slightly lower rate than the first quarter, but softened considerably in Europe with the contraction of 17% in Southern Europe and 8% in Northern Europe both in constant currency.

Compared to the prior year, our gross margin was impacted negatively by 60 basis points due to lower margins on temporary recruitment. About one-third of this impact relates to pricing pressure coming from Middle East, Holland and the US Experis business.

One-third relates to the impact of timing of the May holidays in Europe and the balance relates to changes in business mix in smaller one-time items. This is partially offset by relatively stronger growth in our higher margin ManpowerGroup Solutions business as well as growth in Right Management's outplacement business, each of which added 10 basis points to our gross margin in the quarter.

I'll comment further on gross margin in the segment discussion.

SG&A expense on a reported basis was $767 million in the quarter compared to $811 million in the prior year. After adjusting for the $28.7 million of non-recurring items, SG&A costs in the quarter were $739 million.

This represents a reduction of $73 million from the prior year of which $51 million is currency and $22 million comes from current operations. This 3% constant currency expense reduction primarily relates to personnel costs as headcounts and bonus incentive costs are lower than the prior year.

On a sequential basis, SG&A costs were down 1% from the first quarter, also on a slightly lower headcount and lower incentives. We continue to focus on driving efficiency and productivity across our 3600 office network while delivering superior service to our clients and candidates.

Next, let's turn to our gross profit analysis by business line. A core part of our business strategy is to drive accelerated growth in our Solutions and Experis business which comprises about one-third of our business mix while also taking advantage of cyclical and secular trends in our traditional Manpower business.

Gross profit in our Manpower business represents about two-thirds of ManpowerGroup gross profit. During the quarter we experienced a decline of 6% in constant currency, reflecting the weaker economic environment.

That being the case, we continue to be encouraged by the growth prospects in our Manpower business as clients continue to focus on expanding flexibility within their workforce.

Our Experis business represents almost 20% of our overall mix as comprised of three primary professional skill verticals, IT being 70% of revenue and finance and engineering each comprising 10% of revenue.

During the quarter, Experis gross profit was down 9% with growth in engineering but contraction in IT and finance. From a segment standpoint, we saw growth in Southern Europe and Asia Pacific Middle East with some contraction in the Americas and Northern Europe. I'll cover this in more detail in the segment results.

Our ManpowerGroup Solutions business represents nearly 10% of company gross profit and consists of Recruitment Process Outsourcing, MSP, Talent Based Outsourcing, Borderless Town Solutions and Strategic Workforce Consulting.

This business saw exceptional growth of 18% in the quarter as our clients are looking for higher-value solutions to their workforce challenges.

Lastly, Right Management comprises about 6% of our gross profit and consists of Outplacement and Talent Management services. During the quarter we saw a nice improvement in Right's gross profit, increasing 6% in constant currency over the prior year. I'll discuss this in greater detail later in the call as well.

Now let's review the performance of the operating segments. Revenue in the Americas came in at $1.2 billion, a decrease of 2% on a reported basis or an increase of 1% in constant currency.

Operating unit profit was $18 million, which includes an $18.3 million charge for the previously discussed non-recurring items, $10 million of which was for legal costs in the US and $8.3 million was for reorganization charges.

Excluding these non-recurring items, (OUP) came in at $36.6 million, a decrease of 5% in constant currency and the (OEP) margin was 3.2% or a decline of 20 basis points. This decline was a result of very modest deleveraging as the gross profit margin in the region was stable. SG&A cost increased modestly by 2% in constant currency before non-recurring items.

Our US business, which represents two-thirds of the Americas segment had revenues of $763 million, down 4% from the prior year, which is in line with expectations. Our US gross profit margin increased over the prior year on the strength of permanent recruitment revenues which were up 32%.

SG&A costs, excluding non-recurring items were down 1% resulting in (OUP) excluding non-recurring items of $25 million, a decline of 10% from the prior year.

Within the US, our Manpower business comprised 57% of revenues and so our revenue was flat with the prior year. In the client mix we saw stronger growth in our small-medium businesses, which is up 4% over the prior year, versus our larger key accounts, which are down about 5% from the prior year.

Within Manpower, our total gross margin was above prior year due to the strength of permanent recruitment and our gross – and our staffing gross margin was in line with prior year.

Our US organization continues to maintain strong pricing discipline on new business opportunities, which explains the decline in our key account business.

Our Experis business in the US represents almost 40% of revenues and saw a revenue decline of 6% in the quarter. The demand for professional skills remains strong on the smaller retail accounts, up 6% over the prior year.

The demand for larger strategic accounts softened and revenue decreased 13% from the prior year. In fact, our five largest clients within Experis had a revenue decline of 33% compared to the prior year.

Our gross margin for Experis fell behind the prior primarily as a result of upward pressure and hourly pay rates. These higher wage rates have not been fully passed on to clients in the form of higher bill rates and this remains a key focus of the Experis organization in the second half of the year.

Our market leading RPO and MSP businesses both had strong quarters with RPO gross profit up 27% and MSP gross profit up 15%. Our business in Mexico continues to be one of the strongest throughout the world with constant currency revenue growth up 14% and strong profitability.

Revenue in Argentina was up 11% in constant currency, which was driven by the inflationary environment. We've seen a significantly weaker economic environment in Argentina resulting in a billable hours decline of 17% from the prior year. This has resulted in a significant decline in (OEP) and (OEP) margin in Argentina.

Revenue growth in Southern Europe softened pretty much in line with expectations, contracting 3% from the prior year on a constant currency basis. Revenues came in at $1.9 billion and (OEP) came in at $31 million.

(OEP) was down 30% in constant currency and the (OEP) margin declined 70 basis points to 1.6%. The decline in (OEP) margin primarily came from lower gross profit margin in France and Italy, which I'll cover in a minute.

Within Southern Europe, France represents 75% of the segment and had revenues of $1.4 billion, down 13% in US dollars or 3% in Euro. On an organic basis, French revenues were down 5% in Euro.

France (OUP) declined to $16 million, from $25 million the prior year and the (OEP) margin declined 40 basis points to 1.1%. This decline in (OEP) margin primarily came from a decline in the gross margin.

The core staffing gross margin improved in France as we continue to drive better pricing and we are more selective on new business opportunities. This improvement in our core gross margin was more than offset by the impact of two holidays falling during the week this year that were during the weekend last year and an increase in profit sharing costs for our associates.

Gross margin was also negatively impacted 20 basis points by a decline in permanent recruitment fees. Our permanent recruitment business was down 21% in constant currency, which includes a further wind down of the Pole Emploi contract with the French government.

Excluding the Pole Emploi contract, permanent recruitment fees were down 1% in the quarter.

As expected, revenues in Italy softened considerably during the quarter. Revenues in the quarter were $274 million, a decline of 21% or 11% in constant currency. (OEP) declined 37% in constant currency to $13 million. This represents an (OEP) margin of 4.6% compared to 6.5% the prior year.

About one-third of this margin decline is due to SG&A deleveraging and about two-thirds is due to a decline in gross margin. We've experienced pricing pressure in Italy with our (NYSEARCA:SMB) clients given the economic backdrop and have found it necessary in certain circumstances to reduce our pricing to defend our market position.

We also saw further market deterioration in Spain. Revenues were off 5% from the prior year in constant currency while profits weakened on further deleveraging.

Revenue in Northern Europe came in at $1.4 billion, a decline of 10% or 1% in constant currency, which also is about as expected. (OEP) for the quarter was $39 million, a decline of 24% in constant currency and a reduction of 80 basis points in (OEP) margin to 2.8%.

Gross profit was down 8% in constant currency on a lower gross margin and SG&A expenses were tightly controlled, down 4% in constant currency. Lower gross margin was due to a decline in permanent recruitment fees, which were down 8% in constant currency. The timing of May holidays in Germany and the Netherlands resulting in more unbillable time, changing business mix with higher growth coming out of the lower gross margin UK market and some pricing pressure in the Netherlands.

In Northern Europe, our Manpower business comprises 74% of revenue and Experis comprises 23% of revenue. We were able to produce some modest revenue growth in Manpower, primarily driven by growth in the UK while our Experis business declined 6% in constant currency.

We experienced softening demand for professional skills in Northern Europe with contracting revenues in most geographies.

UK continues to be one of the stronger markets in the region with revenue growth of 8% in constant currency for the quarter. While the UK market is fairly stagnant, our UK team continues to find good growth opportunities in staffing, professional services and solutions.

Our (Nordix) operation began to see contraction in revenue in the second quarter as a result of softening demand in the Swedish market. Our operation in Norway continues to produce good revenue growth at 7% and mid teens (OUP) growth.

Germany and the Netherlands also experienced further market declines with revenue in Germany down 7% in constant currency and Netherlands down 10% in constant currency.

Our Asia Pacific, Middle East segment had a very good performance in the second quarter. Revenues were flat at $663 million but up 2% in constant currency. (OUP) came in at $22 million, an increase of 18% in constant currency, bringing the (OUP) margin to 3.3%, an increase of 50 basis points.

The (OUP) improvement was driven by tight expense controls and productivity improvements resulting in an SG&A cost reduction of 2% in constant currency. Our overall gross margin and staffing gross margin were stable with the prior year.

Japan is the largest country within the Asia Pacific, Middle East segment with 44% of segment revenues. On an overall basis, revenues in Japan remained flat with the prior year and constant currency.

Our ManpowerGroup Solutions offering continues to do quite well in the Japanese market with growth of 5%. We are also beginning to see the effects of the slowing economy in Australia where revenues were down 7% in constant currency this quarter compared to growth of 2% in the fourth quarter.

We can do – continue to see good revenue growth in India, China, Hong Kong, Korea, Thailand and Singapore, which drove (OUP) growth between 31% and 41% in constant currency in each of these countries.

Revenue growth at Right Management was about as expected, up about 3% in constant currency to $84 million. (OUP) for the quarter was $75 million before the impact of the $10.4 million reorganization charge.

The (OUP) margin, excluding this charge, was 8.8%, an improvement of 5.5% over the prior year and reflects the success for reorganization plan as our expenses are now better aligned with our current revenue levels.

Now let's turn the cash flow and balance sheet. Pre-cash flow defined as cash from operations less capital expenditures was a use of $74 million for the first half of 2012 compared to a use of $220 million in the prior year.

Pre-cash flow in the second quarter was a use of $33 million compared to a use of $49 million in the prior year. Cash flow was negative in the quarter due to a net increase in working capital resulting from timing of tax payments. Our accounts receivable DSO was stable with the prior year at 55 days.

During the quarter, we repurchased 879,000 shares of ManpowerGroup stock for $32.6 million. This leaves 2.7 million shares remaining on our buyback authorization.

During the first half of the year, we used $34 million of cash to fund acquisitions, most of which came in the second quarter related to a high-end IT services and solutions company in France.

Our balance sheet remains strong at quarter end with net debt of $301 million and total debt to total capitalization of 23%. Total debt in the second quarter increased from $722 million to $755 million. This increase relates to the refinancing of our $300 million Euro note which came due in June of this year with a $350 million Euro note with a six-year term coming due in June of 2018.

The fixed interest rate on this new note is just slightly below the retired note at 4.505%. There were not borrowings under our $800 million revolving credit agreement at the end of the quarter. There were, however, $200 million of standby letters of credit issued and, therefore, we had $798 million available for borrowing under the revolver giving us ample liquidity.

Our revolver has two primary financial covenants, both of which we are well in compliance with during the quarter.

That said, I'd like to offer our thoughts regarding the third quarter outlook. As we look to the third quarter, we believe we could see some further easing in demand in many of our markets but we are not forecasting a dramatic drop off.

This is the context we are forecasting revenue growth in the third quarter to be down between 3% and 5% in constant currency, which at current exchange rates would be down between 11% and 13% on a reported basis.

One important aspect to consider in the third quarter, which is included in our guidance, is that most of our markets have one less billing day this year compared to last year. That results in 1.5% less revenue in the quarter or about $90 million.

Because our SG&A expense base is not significantly impacted by one less billing day, the gross profit lost on this lower revenue falls directly to the bottom line. As a result, the impact on the quarter's earnings per share is quite significant which we estimate to be a negative $0.10 per share.

From a segment standpoint, we expect revenues to contract on a constant currency basis in the Americas, Southern Europe and Northern Europe with year-on-year revenue growth 2% to 4% weaker than what we saw in the second quarter.

We expect modest low single-digit revenue growth in Asia Pacific, Middle East and Right Management. We expect our gross profit margin to range between 16.3% and 16.5%, just slightly below the prior year due to lower permanent recruitment fees and continued pressure in the few markets we mentioned earlier.

Our operating profit margin should range from 2.1% to 2.3%. This is slightly weaker than the 2.7% in the third quarter last year, which is attributable to slight operational deleveraging, given the business contraction and the impact of having one less billable day in the quarter.

Our income tax rate is expected to be at 46%, which is in line with the prior year or 34% if we exclude the impact of the French business tax. This will result in earnings per share ranging from $0.64 to $0.72 per share, which includes an estimated negative currency impact of $0.08 per share.

Again, it is important to keep in mind the impact of one less billing day resulting in $0.10 of lost earnings. As we look ahead to the fourth quarter, most of our markets have the same number of billing days in 2012 as they did in 2011, so we would not anticipate a similar impact in the fourth quarter.

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

Jeff Joerres

Thanks, Mike. The second quarter presented clearly more challenges than we experienced in the first quarter. However, overall, we held up well given the drop – the back drop of all of the challenges that are in the marketplace.

Throughout the quarter we were able to continue and expand many of our new offerings which include Experis and the solutions programs. At the same time, Right Management, through lots of work as Mike talked about, was able to produce good profitability and Manpower improved efficiency and productivity, all of which, as you heard from Mike said, allowed us to achieve our anticipated profit in the second quarter.

Our strategic driver of differentiation continues to gain traction as we are experiencing more pull through our network as more prospects and clients will see us as a solutions provider.

We are being invited and asked by many companies to participate in bids and come in and have conversations about their workforces as they are challenged with the chaos of today's world and the effects on its own workforce.

We continue to lead in thought leadership and we are turning this thought leadership into sales opportunities and business. Diversification, another strategic driver for us, is going very well.

Our Solutions business is growing faster than market. In the first quarter we grew our GP at 18% in constant currency and we were able to hold that strong growth in the second quarter.

At the same time, we were able to add to our book of business with 34 additional RPO wins, up from our previous run rate from the last few quarters of that in the mid 20s. And we see great uptick also in our Talent Based Outsourcing, which is the outcome-based pricing that involves service-level agreements.

This is done in all of our brands as well as the combination of our brands which makes it extremely powerful. Efficiency and productivity, another strategic driver, again paid off and there is more left within the organization.

This isn't necessarily about cost cutting. It's about doing business differently. We continue to look at what we do to assist the branches to be more efficient and productive and, again, this quarter it helped us achieve an operating profit of $123 million without the non-recurring items.

Our SG&A improvement, I believe, will continue for some time as there are many projects and initiatives in the works that have yet to be realized.

We continue to experience positive secular trends. Our conversations with clients as well as the percent of workforce that is working as an independent contractor as well as through temporary arrangements continue to reinforce that trend as they have gone up.

We've recently seen a positive sign, though slight right now, in Italy regarding regulation. The Parliament approved but has not yet affected some changes that are attempting to induce hiring, which, of course, will be beneficial to us.

The outlook for the third quarter looks a bit more difficult than it did coming into the second quarter. We have seen, as Mike described, a continued downward trend through moderate – though moderate throughout the quarter. This will give us our challenges but clearly the team has proven in the second quarter that, in fact, we know how to face these challenges and come through the third quarter in the finest fashion we possibly can.

With that, I'd like to thank you and use this time to open it up for questions.

Question- and-Answer Session


Thank you very much. (Operator Instructions) Our first question comes from the line of Kevin McVeigh – Macquarie.

Kevin McVeigh – Macquarie

Mike, I apologize. Could you just go through the $0.10 kind of non-recurring impact as we think about that into Q4? You explained it but I just – I didn't pick up it conceptually.

Mike Van Handel

You're talking about the loss of one billing day that …

Kevin McVeigh - Macquarie

Yes, the $0.10 that kind of flew through to the bottom line, the loss of the one billing day, yes.

Mike Van Handel

Right, right, so, so as we look at the third quarter, this year we have one less billing day than we did last year, so if you think about one less billing day, that's about 1.5% impact on our revenue, so say 1.5% less revenue.

And so the GPR for that revenue basically drops down to the bottom line. If you look at it on a comparative to prior year, it drops down to bottom line because one less billing day really doesn't impact our SG&A costs in a month. A lot of those are monthly-type costs.

So effectively, less revenue as a result of one less billing day, less GP. That GP will – makes its way down to the bottom line and as a result it impacts the year-on-year comparative as a result.

I did make the comment as we look to the fourth quarter, we don't have that issue. We have a few markets that have a few or that have one more billing day, have an extra billing day in the fourth quarter but with the holidays, I'm not sure how to handicap that. Perhaps there might be a little bit of an uptick in the fourth quarter from that but I'm not sure that I would count on that just given the timing of the rest of the holidays.

Kevin McVeigh - Macquarie

Then just I know it's tough kind of given the visibility but any thoughts on kind of how Q4 trends more just kind of around Right Management in particular? Are we going to expect a nice pick up in that just given kind of the environment we're in right now?

Jeff Joerres

The answer is on the margin. We've actually done our research. We're seeing that most companies are looking at trying to hold on to their staff. You are seeing some things particularly in the financial industry where they're announcing some layoffs and some downsizing.

So what we've done from a restructuring perspective in Right Management gives us some good hope and confidence when it comes into the profitability. When you look at that top line popping up in any kind of dramatic way, we're not actually forecasting that.

Now, in today's world, things happen pretty quickly but I would say other than the finance industry right now, which we have a pretty good presence in, we're not hearing from our clients that they're really getting their list together and are looking for any large downsizings coming up in the fourth quarter.


Your next question comes from the line of Paul Ginocchio – Deutsche Bank.

Paul Ginocchio – Deutsche Bank

Just a couple of minor housekeeping things, one bigger picture, just on Experis top five clients, how many of those are financial services? And then I think you won a (wealthy) large contract in France. When do you cycle that contract win? And we were minus what percent in France is auto?

And then finally, Jeff for you, can you just talk about the impact of the equal pay in the Netherlands and the recent supplemental wager payment in Germany where it's going to compress the cost of a temp in (inaudible)?

Mike Van Handel

I was copying so feverishly. I missed the first one, Paul. Say again, I'm sorry.

Paul Ginocchio – Deutsche Bank

Experis, the top five customers, what percent are – how many are financial services?

Mike Van Handel

Yes, our larger – we do have some larger clients in the financial services on the Experis side and we have been doing a lot of work with a lot of the integration as they've been through their acquisitions and migrating.

And some of that business is now falling off. So we're not – the business – we're not losing it to competitors per se but it's just business that's winding down and that's what we're seeing.

In terms of overall mix, if you look at the US business, it's maybe a quarter of the mix, something like that overall right, something in that neighborhood. I don't have the exact number right in front of me from a mix perspective but it would be in that neighborhood.

I think the second question you had was around France and France Auto. We don't have a big contract, per se, that we're anniversarying there but we do do business with the major French auto makers overall.

Our overall mix of business there would be less than 3% of the overall business in France and it has been declining. I’m sure you've read the headlines on PSA and the French automotives altogether have been declining.

So I would expect – so it's about 3% of the mix. I would expect the second half of the year we will do less business as they cut back on staff. Could it be half of what we did in the first half? I suppose it could be something to that magnitude but certainly less for sure in terms of the overall mix from that perspective.

I think the next had to do with the Netherlands and …

Jeff Joerres

Yes, so I'll take a little. So you're right, Paul, there's been some movement on CLAs primarily in Germany and then most recently announced in the Netherlands where the Netherlands have had some those agreements in the CLAs.

When you get into the kind of detail that we're talking about here, there's kind of what I would call puts and calls. Overall, to be very transparent, we think that this isn't better for us but it could be somewhat neutral.

So in Germany, too, the largest unions which now make up about 35% of the workforce, the IT metal and the (IGBCE), came out with some parody pay when, in fact, as we know, the (Convention 181) and some other things that have been done with the Agency Worker Directive have already talked about parody pay.

This basically moves you into from a Group 1 salary all the way into a nine-month – and you get these raises throughout to increase the minimum wage.

Having said that, many of our people are already at or above that minimum wage, so that change the calculation or at least lessens the effect of the calculation. We've seen parody pay in a fair amount of spots and there has been little blips, the biggest one, of course, was in the UK. But we don't see a major impact.

What could happen out of this – we do expect in Germany that many of the other unions will follow suit. But exactly what happens out of this is our revenue possibly goes up and our gross margin percent goes down but the dollars being yielded is actually slightly higher.

So then when you get into usage, in the case of Germany, when you get past nine months – you can go all the way up to 24 – when you get past nine months, you could say that there is a little bit of a disincent to possibly use a temporary contract within Germany but we're not quite sure. Our clients are still a little bit confused and a little bit concerned about which way they'll go on that.

Netherlands changes a little bit more rapidly. They already had this in place. And again, we would see the level as really being something that will affect us but will be more on the margin. Anything to add to that, Mike?

Mike Van Handel

Yes, I think just in terms of the Netherlands, I think what they're talking about there is that they're parody paid effective week one versus now it's week 26. So I think it's a little bit further and that would be effective in 2015.

I think the important thing to remember is why we're used. It's not really for the pay arbitrage. It's really for flexibility. That's what clients are looking for. That’s what they're using us for, so might there be some clients as pay rates go up on temporaries that don't use us? I think that is certainly possible.

But it really is the flexibility is the primary reason that we find our clients are using us just given the uncertainty and the changing workforce dynamic out there. So I think it's those elements that are driving a lot of this. So we'll see how it plays out.

As Jeff said, our view would be gross profit margin percent may go down but as we pass it through the gross profit dollars, it should be the same and but some risk on the revenue line and some clients drop off as a result of the pay rate increase.

Jeff Joerres

And in Germany most recently – I think it was yesterday or the day before, Labor Minister (inaudible) had stated that we're going to just calm down here for a second. She didn't use those words.

But we suspect back in November some of the other unions will probably pick up and mimic some of the things that have been occurred in the other two unions that have already struck their CLA agreements.


Your next question comes from the line of Sara Gubins – Bank of America Merrill Lynch.

Sara Gubins – Bank of America Merrill Lynch

In France, you're continuing to outperform the market and I'm wondering if you think that can continue. And I’m also wondering if you're seeing any pricing pressure in France.

Jeff Joerres

So we' have been and if you look at the (prison) data, which I'm sure you're referring to, Sara, and, yes, we are outperforming. And it really is the same reasons we had talked about in the first quarter conference call.

We put a tremendous amount of emphasis in sales activity to be able to do that. In addition to that, while our costs are higher there still than we want – and the team has just done a great job in efficiency and moving it down, so I think for them to hear me say that it's higher than what we want would be a little bit of distress for them.

But the fact is we've made sure that we didn't impact the quality. And many of our competitors are being some challenged with the quality and that's allowing us to pick up some additional business.

We've seen – and I would like to say but I don't believe it – I'd like to say, yes, we're just going to keep this spread of beating the market. That market is a tough market and typically what we find – we were leading that market for three or four quarters and then you start to anniversary it and all of a sudden it goes a little way the other way on the margin.

So I think we've got a little bit of some good things in there but my sense is competition is tough and for us to be on market, if we're doing on market with the appropriate amount of margin discipline, I'm fairly happy with that, which leads to the second question on pricing pressure.

It exists in France but no more than what we saw in the first quarter. So I would say that we are seeing, which is typical, very typical of what we're seeing in Italy and maybe, Mike, you'll talk about pricing pressures in Italy because I think that's almost more important when you look at some of the GP.

It's some of the mid-sized players in the mid-sized accounts that are now giving us some of the challenge because the market has gotten soft and the margin left is really in what would be called the (SMB)s and therefore, they're getting a little bit under attack.

So overall, we're still outperforming the market with some good execution. Pricing seems to be fair, tough. It is a tough market but not a major concern for us at this time. Mike, do you want to just (parlait) into maybe Italy? And, Sara, does that answer your question?

Sara Gubins – Bank of America Merrill Lynch

Yes, it does.

Jeff Joerres

Okay, so Italy just for a second.

Mike Van Handel

Maybe even just a little color on France before I go to Italy, in terms of when you look at what we've been trying to do, we've been trying to push pricing and push pricing up in that market, which is, of course, challenging in a contracting market.

So we've been able to get a little bit of pricing and a little bit of market share at the same time but that is difficult given the contraction we're seeing. So overall, our gross margin in France is down a little bit this quarter but the core underlying gross margin is actually up a little bit.

What did impact us, which brought our gross margin down this quarter, was the timing of holidays. We had two holidays last year were on a Sunday that happened to be on Tuesday this year which is a bit of a double whammy because you get the fact that now the holiday's in the middle of the week so you end up paying the temporaries and then also because they're on a Tuesday it ends up being what we call a bridge holiday where there is one work day in between which then has more of a dramatic impact because many then take the Monday off if it's on a Tuesday.

So that has impacted us. We also had a little bit of an increase in our profit sharing cost to temporaries as well, which has impacted the margin as well. But I just think it's important to underline that despite the overall, France's gross profit margin being down a bit, the core gross margin has actually bumped up a little bit as the team there continues to push as much as they can in a very difficult environment on price overall.

Jeff Joerres

And we're seeing some of the business that we had descoped or taken out affect that as well which is helping that some of that lift in the GP.

Mike Van Handel

That's right. That's right. And in the case of Italy, there we are seeing a little bit more pressure, particularly on the (SMB) margin, which is a greater percentage of the book of our business there.

So we are seeing more pressure amongst the smaller players in that market which is fairly typical in a contracting market. That usually happens – those happen first. And we also have a mix issue in Italy where the (SMB) side of the market is actually contracting more quickly than the key accounts as well.

So we've got a couple things going on that's impacting the overall margin on Italy overall. So that's where that's having some impact.

Sara Gubins – Bank of America Merrill Lynch

And then just one other separate question. In the US it looks like professional is slowing more with large accounts in the core Manpower business with its large accounts. If that's right, can you talk about what's driving that? Is that simply the decline in financial services business or is it something else?

Jeff Joerres

No, you hit it on the head. We had talked about that for two quarters and unfortunately the banks still haven't found their feet. So Mike, what percent on the top line of our business is financial for Experis US?

Mike Van Handel

Experis US is about 25%.

Jeff Joerres

So we're running about 25% and what's happening in there is that they are shedding off some of the projects, some of the integration projects that we had hundreds and hundreds of contractors in have rolled off.

Additionally, to add to the GP story, which I'm not happy about at all, but is correctable is our pay bill gap has narrowed primarily in Experis US. We are getting some pressure from the market as some of the higher skills are asking for more pay. But in the financial industry particularly, we have not been able to pass through some of that additional pay that's required to secure the candidate and, therefore, we're lessening a little of the gross margin in Experis.

I've got confidence in the Experis team. They're working on that not only in the fiancial services but also in the (SMB) where we have got to get back to that pay bill gap that we were at before.

So there is some execution issues that we're working on there but that also contributed somewhere around, what, 20 bips in there, Mike, on some of the GP decline.


Your next question comes from the line of Tim McHugh – William Blair & Company.

Tim McHugh – William Blair & Company

Can you just talk a little bit about the differential, why you continue to see good, permanent growth in the US versus the trends in the temporary? Is it simply the lack of exposure to financial services or is there any more – anything else going on that kind of underlies?

Jeff Joerres

Yes, it's a good question and it's one that we've analyzed and looked at and it really is following a secular trend that is positive for the industry and even more positive for us because of the infrastructure we've put in place.

What we are seeing is the tie, if you will, where that correlation between permanent recruitment and temporary and where you are in the cycle and how one leads to another, I think has broken down somewhat.

I mean, there are still some directional trends that can help out but they're broken down. In fact, if you recall, about three quarters ago, when they said you must be in the later innings of the recovery because perm is already so strong and we said, no, that's not the case.

What the case is, is companies want more agility and when they need more agility, one of the things they've noticed is why should I have a staff of recruiters when I'm going to stop or slow down hiring I still have those recruiters?

So they have basically advocated that recruitment to us, whether it be through RPO, large perm recruitment deals or just one-off perm. We've done extremely well in addressing that marketplace and, therefore, we are seeing our number percent of GP of perm is still relatively high in this quarter. It's as high as what we've seen in some of the peaks back in 2007, 2008.

So that will and does have a chance of coming down as you see the market come down but it's a bit more resilient than it's been in the past. It's a little different than in Europe because in Europe they haven't quite gone that extreme of outsourcing but they still have done some of that.

So that's why you're seeing the perm hold up primarily in the US, good execution and really some secular trends that we're taking advantage of.

Tim McHugh – William Blair & Company

Then, Mike, just two kind of numbers ones – one, for Right Management, the margin excluding the restructuring charge up in the single digits. Is that sustainable? And then also the tax rate you're guiding for Q3 of 34%, is that something that can continue for a couple quarters?

Mike Van Handel

Sure, so in the case of Right Management, I would expect that with the reorganization plan we've taken it really was to get those – our costs better in line with now the lower revenue levels. So our expectation would be that we're going to be a looking at upper single digit type operating margins given these revenue levels.

If revenue picks up a little bit more, if revenue goes the other way, which I don't see that happening at this stage. We may have to trim cost back a little bit but there's always some seasonality in Right.

Usually the fourth quarter is a bit of a softer quarter, so I would expect third quarter to dip down just a little bit but overall I think you can reset your thoughts around Right Management. I think we now are more in an even steady playing field there.

In terms of the overall tax rate, I do expect that we're going to have this lower tax rate throughout this year. As we look to next year, I would then bring it back up next year. I would say back into what's been more normalized rate of about 37% before the business tax. I think that's for planning purposes, 37% to 38% is maybe where I would think about for next year and we'll see how things move forward. But you can expect the lower rate for the balance of this year anyway.


Our next question comes from the line of Andres Steinerman – JPMorgan.

Andrew Steinerman – JPMorgan

Mike, I was surprised when you unpacked gross margin that you didn't pull out idle time just given the declines in Germany and Holland. I would think that idle time is having an impact here.

And Jeff, I know we've sort of been through this intellectual discussion before but let's just try at this stage. If real GDP in France inflects fourth quarter, first quarter but to modest levels, do you think that will drive overall French temporary help or do you think that will narrow the declines?

Jeff Joerres

Andrew, a couple things – one, Mike, you can discuss some of the idle time but one of the components of the downturn or the pricing is the Netherlands and the Netherlands does have particular (inaudible) and they have a bench model, which is down time. So Mike, do you maybe want to take it from there a put a little bit more color on it?

Mike Van Handel

Yes, yes, so I think – I didn't mention idle time. I did mention a little bit of pressure in Holland and part of the pressure in Holland does come from exactly that. We do have within our Experis business a bench model in Holland, so that did put some pressure on margin.

And then also the other market, of course, when we think about idle time is Germany and I somewhat bundled that, if you will, with the impact from the overall holidays because to some extent, whether it's holidays or just downtime or it's unutilized time, if you will.

So within Germany that was actually the biggest piece of that and I kind of characterized that as the overall impact of the holidays but it has had some of that idle time inherent in there as well. So you're right in thinking that. That's a good clarification.

Jeff Joerres

And then regarding the French scenario in GDP, while you're right, there is a little bit of a philosophical but mostly intellectual conversation on it, you can turn it to it is one of the markets where you had more higher correlation between growth in GDP and growth in temporary staffing. And we believe that is still true.

Now, when you get growth in GDP in Europe in the past it had been what I would call just a regular growth due to demand. With the new administration in Europe, which is looking at some stimulus, stimulus will create GDP growth, we then have to look at can we participate in that stimulus.

You've heard me talk about in the past that some stimulus programs in the US and other parts of the world really are GDP growth that we cannot participate in, therefore, it doesn't have an effect on us.

In the case of France, where we are large in the construction industry and construction tends to be a good stimulus area, we would see increased GDP growth in France having an effect on us.

Now, the question is, is when you get to 1% versus 1.5%, that will make a big difference to us. When you get into a 1% GDP growth in France, I think you will see a nominal effect. When you get to 1.5%, closer to 2%, now you start to see some of the momentum build.

So going from 0.2 down or whatever the post in number will be up to 0.2 to 0.3 up I think you're not going to feel it. Around 1% you start to feel relief, 1.5% you start to actually get a little leverage on it.


Your next question comes from the line of Jim Janesky – Avondale Partners.

Jim Janesky – Avondale Partners

Yes, I wanted to ask a question around perm first. Mike, what percent of GP did you say that was?

Mike Van Handel

12.9% of overall company GP.

Jeff Joerres

So CEO would round that to 13%.

Jim Janesky – Avondale Partners

And Jeff, it sounds like the increase in perm in the US is more secular than growth driven right now unless I didn't catch that right. So I’m just wondering, do you think that there is some pent up demand or deferred hiring that can happen in the back half of 2012 and then take that into Europe as well?

Do you think that the perm slowdown is those jobs are gone for good or could come back in a better economy?

Jeff Joerres

Jim, it's really a question and frankly it's where our heads are. If you talk to some of the labor economists, which I guess you can pick whichever one you're in favor of because they have answers all over the place.

But the majority of them would talk about this inflection point of productivity, where companies are and the growth of GDP is maxed out. I believe there is a little left in there but the reason I bring that up is if you get some slight demand, you actually have to start adding.

Companies are right on the cups of there's not much left juice – not much juice left in the orange, if you will, to get some productivity or work done. So if demand starts to pick up, I think our perm number has a nice jump to it.

I do think that we are getting into a little bit of a soft patch and then we also have some uncertainty in the US, all the things everybody's aware of, that is holding back. Well, this holding back is actually creating a little bit of that catapult-latent demand to it.

We're – they still may need the hiring. They're asking for more with less but they know they can't do that a whole lot longer. So our perm business is secular but it's also – I don't want to take anything away from our team.

What we've built on our perm recruiters, how we drive our perm recruiters, what we're doing in conversion rates from temp to perm, which is still almost 40%, is really showing that we have an offer that the clients want and we have an economy that when it springs back, there is not a lot of slack in that labor market in order for us not to achieve some really good perm numbers out of it.

Jim Janesky – Avondale Partners

And what about within the – globally, especially Europe?

Jeff Joerres

Well, you see some of that in Europe, no doubt. You'd see some of that in France, which actually in 2011 in the beginning of 2012 had some very good perm numbers. We started to see that tail off a little bit more. That's very economically driven.

I would suspect they have a bit more slack in their system than we would. So as the economy comes back, you would see a little bit more of a lag effect because it is social plans are much harder to implement, so you have a little bit more excess capacity than you wold in the US.

But across Europe and Sweden, the UK market, Netherlands, I think that – more than think – I’m confident perm has a very good future for the industry and because of our infrastructure and how we've built nearly close to some $500 million in GP dollars in there that it's a good second wave for us.

The question is, is do we see any of that in the fourth quarter or do we see more of that in 2013? And I'm not prepared to really put a number out because there is too much uncertainty in the market right now.

Jim Janesky – Avondale Partners

And then as it relates to – we understand that a better perm mix would be very positive for gross margins. But in terms of temp gross margins, when you look at that, should we be looking for gross margins to go up over time more because of a geographic or a business mix shift and maybe some of the pricing that has come under pressure might be more permanent in nature? Or how should we look at …

Jeff Joerres

It's temp gross margins. The reality is that for us to flatten it out, in other words to get it to go sideways instead of down, we believe will be very good. Meaning, yes, can we see a slight turn up? You see a little of that in the US. We saw slight of that in France. But we're talking little bips here. We're not talking big, big numbers.

The point of it is that the mix of business, the S&B, yes, that will help, pricing will help. Descoping or taking some – purging some accounts out will help. But as we see that, as that becomes more stabilized – in the quarter it was little anomalies had some little odd things in there. But as that stabilized, then we get into our $1 billion plus solutions business which is GP is growing at 18% in that area.

Then you get the business mix overturnings. So what we're really looking at is stabilizing the staffing GP, hopefully bending that curve just slightly but not, you know, setting any wild expectations that we can make a big bend in that curve and then filling it in with a mix of business and get our overall GP going up as an organization.


Your next question comes from the line of Jeff Silber – BMO Capital Markets.

Jeff Silber – BMO Capital Markets

Just wanted to circle back to Experis. Mike, if you can remind us within Experis what the breakdown is maybe on a gross profit basis between perm and temp and also between US and non-US.

Mike Van Handel

Yes, between perm and temp it's not too different from the overall mix, Jeff. I can look up the exact number but it's pretty similar to the overall company as a whole.

Jeff Joerres

It's a little less in the US maybe than where we might be going.

Mike Van Handel

A little bit less in the US in terms of where we are. So that's how that would lay out. And then your second question again was …

Jeff Joerres

(Tax) versus non-US within Experis.

Mike Van Handel

Yes, oh, geographically, so we would be looking at Experis US – we would be about 40% in the US basically and the rest would be Europe and Asia.

Jeff Silber – BMO Capital Markets

And in terms of the weakness that you're seeing again, is it more on the perm side or the temp side? Is it more on the US side or the non-US side?

Mike Van Handel

Well, I think revenue-wise we're seeing actually pretty similar on the – both in Europe and in the US. We would see both of them being down in the mid-single digits. So we're seeing fairly similar from that perspective.

I think you've got a little bit different (bags) occurring in the US. I think there still is good activity in the market. I think there's more strength in the US and the US just happens to be a little bit more of our client mix.

Jeff Joerres

If you took out the financial part, we're actually growing nicely.

Mike Van Handel

Yes, our (SMB) in Experis in the US is growing about 6%. So in terms of – so I think in terms of how it's acting, it's actually healthier in the US. We're seeing a little bit softer demand overall in Europe on the Experis side.

Jeff Silber – BMO Capital Markets

And just one quick follow up – within financial services and even more broadly, within Experis, in terms of the weakness, on the skill set side, is it mostly in IT or are there other skill sets that you're also seeing the weakness?

Mike Van Handel

I would say mostly IT.


Your next question comes from the line of Mark Marcon – Robert W Baird.

Mark Marcon – Robert W Baird

I was wondering if you could talk a little bit more about just the perm discussion that we're having and specifically can you tell us what percentage of GP perm comprises in Europe relative to the US and given the declines that you're seeing in Europe, how are you thinking about managing through that from an expense perspective?

Jeff Joerres

Well, so far we haven't seen – so we haven't seen perm drop off the map. So I think that's an important point and that's across geographies. We are seeing in some of the more distressed markets, like in Italy – but Italy we actually didn't have a lot of perm going on in Italy.

We have more going on in the Netherlands and the Netherlands is suffering a little. So I would say the spread in pricing, the biggest difference is that the French perm is probably at a lower number because it's also at a little bit different category of individual that we would be placing.

But even within the French market we've not seen it, again, fall off the cliff. So the perm, if I understood your question correctly, the perm from a margin and pricing and per mandate, if you will, it's fairly solid across the world.

There are some wage differences, so we do an awful lot of perm in India and China and those are also a little soft. China is going through a little bit of a soft time, even though they're growing. So we're seeing a little of that. Mike, do you want to add any other color on there?

Mike Van Handel

No, nothing further. I don't know if part of your question in terms of perm as a percentage of the overall business in Europe as well, which would …

Mark Marcon – Robert W Baird

That was exactly it.

Mike Van Handel

That would actually be pretty close to the overall – it's about 12.5%. Northern Europe has a little bit more, closer to 14% and Southern Europe closer to 11% of the overall GP. And then what you would see is the US slightly lower than that overall average and then coming out of Asia Pac, Middle East, we'd see a higher percentage.

Mark Marcon – Robert W Baird

And I've probably maybe a missed impression in terms of listening to the commentary. I was under the impression that some of the Northern Europe and Southern European markets were falling off a little bit more in perm than what you were seeing on average.

Mike Van Handel

Yes, I think if you look at what's happening overall, so if you take, you know, in the Americas perm overall was up 32% I think the number was. So we are – we're clearing seeing some difference. So yes, I guess the America perm was up 28%. Southern Europe perm down 17%.

Part of that was because of the French Pole Emploi contract, so without that, we're down 3%. Northern Europe perm was down 8%. So clearly see some softening in perm on a year – that's all year-on-year. And then sequentially we felt perm fall off more so going from Q1 to Q2 which when you look at where our GP forecast was relative to where we came out, part of where we missed or I missed was I was anticipating a bit stronger perm performance particularly.

I didn't see Europe falling down quite as quickly as it did.

Mark Marcon – Robert W Baird

Do you – if the weakness continues, just from a macro perspective, do you have levers to adjust for that or how should we think about that?

Jeff Joerres

Sure, so in – as you very well know, it's a little harder to adjust in Europe than it is in the US. However, the way we have set it up, we have some levers. But if you get down into the minus 20%, 25%, 30% range, you're in a little bit of a challenge.

But if we go back, which doesn't seem that long ago, we go back into the '08, '09, we were actually deploying, redeploying some of those perm recruiters into other positions.

So it is harder. You do reach a point where it almost becomes a bench model for recruiters, which is not healthy. But we don't see that happening in the near term because we still see enough business happening on the ground in Europe to really support the basis of recruiters that we have now.

Mike Van Handel

Yes, I think we're still a ways away from that but last time in the depths of the downturn we were deploying them and having them work on outplacement assignments. So there's a little bit of hedging that we can do as well there.

Mark Marcon – Robert W Baird

And two longer-term questions – one would relate to Italy, just if you could comment with regards to what you're seeing on the (SMB) pricing front there relative to the last downturn.

Is it something where you typically – this happens at this point in the cycle but then you're able to recoop it later on and, therefore, the profitability of the market probably is unchanged?

And then secondly – and I know it's early and there's not a lot of clarity – but to the extent that you've got some commentary, what do you think about this summit that (Holland) had in France and the likely ramifications of it with regards to labor?

Mike Van Handel

I'll take the first one …


Mike Van Handel

I think from an (SMB) pricing standpoint, I think one of the things you do have in Italy is it does, on the (SMB) side, enjoy some higher margins than other markets that we might have, not all markets but certainly some of the other markets.

And so it is typical in a downturn that you're going to see more pressure on the (SMB) side. The smaller players are struggling to stay alive and they just want the volume. So you do see that come under more pressure typically in a recession and I think we're seeing the early signs of that.

And then you do see – you also do see (SMB) come up. It is much more elastic. It can bounce back much more so. So I would expect that that should come back. Will it come back to the same level? Chances are it probably will not but we continue to drive efficiency and productivity within these markets as well.

So I know implicit in your question was how are we thinking about the overall margins once Italy gets back on their feet? What do we think about that?

And we still think it's a country that will deliver good margins. We've got a very efficient team there. They do good work. And even in a tough quarter like this, our overall operating margin was 4.6%. So they still are producing okay but certainly not at that 6% to 7% operating margin. I certainly wouldn't rule that out at this stage.

Jeff Joerres

And then regarding the summit, it's hard to figure out what was and what will be some of the outcomes. So you heard about (inaudible) on over time taxation or lack of or no taxation on the 35 hour work week.

It goes all the way back to before the elections where we talked about many of his policies, as stated and as may rule out, can and will increase some activity and stimulate the economy, which we would be a beneficiary of.

The notions of taxation and some of those others, those actually have potentially longer term implications, whether you want to be on the side of negative or positive implications, those are longer term.

So the summit and others, what we see coming out of there, right now there is kind of some subsidy changes a little here, tax change a little there. On the margin, Mike, I think we would – the best we can assess is let's call it a break even, a push and a take on it.

But overall, we could find ourselves with a little bit of stimulus in Japan – in France and, as a result, get some business out of it. But I think it's too early to tell. Is till think we've got to make it through the fall before we can see how this stuff really falls and what would be the ramifications of it.


Your last question comes from the line of James Sanford – Citigroup.

James Sanford – Citigroup

Just wanted to sort of focus on I guess visibility really quickly here. We've touched on most of the subjects here but I think you've commented that we're sort of in a chaotic world right now.

How do you feel about the visibility now versus maybe it was in '08 and are your clients giving you any feedback as far as – or at least in terms of length of engagement of your pipeline as to how they're thinking about fiscal cliff and political issues in the US?

Jeff Joerres

It's a really good question and it feels completely different. In '08, there felt like the world may come to an end and we would just have empty buildings. Of course, we knew that wasn't going to be true.

But it really felt – and when you talked to customers, the conversations were how do we shutter our doors as fast as possible and figure out how to (inaudible). The conversations are very different now.

They actually have healthy plans. They're just saying I don’t know when I can implement these plans. They're looking at expansions. They're looking at the ways to understand maybe the landscape of this new global connected world but they're not going to implement the plans.

They're not going to implement the plans for two reasons. One is massive amounts of uncertainty in the US, more than ever before, and a lot of uncertainty in Europe and then China just doesn't seem to have that good, old fashioned 10% GDP that we would like to see.

But it's also coupled with they look at their own demand for their products or services and it's a bit tepid if not anemic in some cases. Others it's fine. And the ones that have actually good demand are very nervous because they're trying to squeeze out as much as they can without adding anything else because they want to make sure that this uncertainty goes away.

So there is a bit of latency that's occurring here. The conversations with clients large, small and medium are a very different nature than what we would have seen and heard back in the last beginning of the downturn.

And then just one last comment because I actually planned on it coming up in a question and it didn't, so I’m just going to state it out there. And that is Mike mentioned some good performers in there.

And what I don't want to have lost in here is the amount of investment, energy and execution that we have done in emerging markets. We finished on an (OUP) basis of 3.3% in the second quarter of 2012 versus 2.8% in the second quarter of 2011.

These emerging markets are working for us. These emerging markets are paying off the investments and are now able to take their own cash, if you will, and reinvest and continue to grow their operating profit.

So it still is hard to offset some of the things that we're experiencing in France and in Italy and the Netherlands but you can see that that Asia Pacific region in the Middle East is starting to get to the size and execution and relevance that, in fact, it can start to offset, if not grow on top of.

So I just wanted to make sure that we don't miss that in a lot of the other detail. With that, we want to thank you for your attention and we apologize for running 11 minutes over, but we thought the questions were worth us making sure that we could answer them. Thank you.


Conference now is concluded. Thank you, everyone for your participation. All lines may, please, disconnect. Have a great day.

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