ManpowerGroup 2004 Annual Report Download - page 43

MANPOWER INC. 2004 Annual Report41
RESULTS OF OPERATIONS – YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
Consolidated Results – 2004 compared to 2003
Revenues from Services increased 22.5% to $14.9 billion. Revenues were favorably impacted by changes in foreign
currency exchange rates during the period due to the weakening of the U.S. Dollar relative to the currencies in most
of our non-U.S. markets. In constant currency, revenues increased 14.1%. Revenues were also favorably impacted by
acquisitions, primarily the acquisition of Right Management Consultants, Inc. (“RMC”). Revenues increased 19.2%
excluding acquisitions or 10.9% on an organic constant currency basis. This growth rate is a result of improving economic
conditions and increased demand for our services in all of our major markets, particularly EMEA and Jefferson Wells,
where revenues increased 18.0% and 149.6% respectively, on a constant currency basis.
Gross Profit increased 30.5% to $2.8 billion in 2004. The Gross Profit Margin increased 120 basis points (1.2%) to
18.7% in 2004 from 17.5% in 2003. Gross Profit growth from acquisitions, primarily from RMC, was approximately
$220 million, which favorably impacted the Gross Profit Margin by 100 basis points (1.0%). Excluding acquisitions,
Gross Profit Margin was 17.7% in 2004, an increase of 20 basis points (0.2%) over the Gross Profit Margin of 17.5%
in 2003. This improvement is a result of the change in the mix of services provided, toward those with higher Gross
Profit Margins. Approximately one-half of this improvement is due to the relatively higher growth at Jefferson Wells,
with the remaining improvement a result of an increase in our permanent placement business, particularly in the EMEA and
the Other Operations segments. While we saw Gross Profit Margin improvement in our temporary staffing business in
several markets, this improvement was offset by decreases in others due to increased social costs, including increased
U.S. workers’ compensation costs and state unemployment taxes.
Selling and Administrative Expenses increased 27.3% during 2004 or 19.1% in constant currency. This increase is
primarily in response to the increase in business volume and the impact of acquisitions, including the intangible asset
amortization of $12.3 million in 2004 resulting from the RMC acquisition. Excluding the impact of acquisitions, these
expenses increased 16.6%, or 8.9% on an organic constant currency basis. As a percent of revenues, Selling and
Administrative Expenses were 16.0% in 2004 compared to 15.4% in 2003. This ratio is impacted by the acquisition of
RMC, because RMC has a different cost structure than our existing business. Excluding acquisitions, Selling and
Administrative Expenses were 15.1% of revenues in 2004, an improvement of 30 basis points (.3%) from 2003. This
improvement reflects continued productivity gains in conjunction with the revenue growth, as we were able to leverage
our office network.
Operating Profit increased 53.5% over 2003, with an Operating Profit Margin of 2.7% in 2004 compared to 2.1% in
2003. On a constant currency basis, Operating Profit increased 43.0%. Excluding the impact of acquisitions, Operating
Profit increased 46.0%, or 35.7% on an organic constant currency basis in 2004. Operating Profit Margin, excluding
acquisitions, improved to 2.6% in 2004 compared to 2.1% in 2003. This improvement in Operating Profit Margin is due
to the increase in Gross Profit Margin coupled with the productivity gains.
Interest and Other Expense is comprised of interest, foreign exchange gains and losses, and other miscellaneous non-
operating income and expenses. In total, Interest and Other Expenses decreased $9.5 million in 2004 from 2003. Net
Interest Expense was $36.0 million in 2004 compared to $33.4 million in 2003. This increase is primarily due to
increased interest rates and the impact of higher exchange rates on our euro-denominated interest expense, offset by
higher interest income. Foreign exchange gains and losses primarily result from intercompany transactions between our
foreign subsidiaries and the United States. Such gains were $1.6 million and $1.3 million in 2004 and 2003, respectively.
Miscellaneous Income (Expense), Net, was income of $8.1 million in 2004 compared to expense of $3.7 million in 2003.
The income in 2004 includes non-operating gains of $14.2 million ($0.11 per diluted share), primarily related to the sale of
our equity interest in a European internet job board during the first quarter of 2004. Net proceeds from this transaction
were $29.8 million.
MANAGEMENT’S DISCUSSION AND ANALYSIS
of financial condition and results of operations