ManpowerGroup 2006 Annual Report Download - page 18

Management’s฀Discussion฀&฀Analysis14 Manpower฀2006฀Annual฀Report
MAN AGEME NT’S฀DI SCUSS ION฀&฀ANA LYSIS
of฀financi al฀condition ฀and฀res ults฀of ฀op erations
Client฀demand฀for฀employment฀services฀is฀dependent฀on฀the฀overall฀strength฀of฀the฀labor฀market฀and฀secular฀trends฀toward฀
greater฀workforce฀flexibility฀within฀each฀of฀the฀countries฀in฀which฀we฀operate.฀Improving฀economic฀growth฀typically฀results฀in฀฀
increasing฀demand฀for฀labor,฀resulting฀in฀greater฀demand฀for฀our฀staffing฀services.฀Correspondingly,฀during฀periods฀of฀weak฀
economic฀growth฀or฀economic฀contraction,฀the฀demand฀for฀our฀staffing฀services฀typically฀declines,฀while฀demand฀for฀our฀฀
outplacement฀services฀typically฀accelerates.
During฀the฀last฀several฀years,฀secular฀trends฀toward฀greater฀workforce฀flexibility฀have฀had฀a฀favorable฀impact฀on฀demand฀for฀our฀
services฀in฀several฀markets.฀As฀companies฀attempt฀to฀increase฀the฀variability฀of฀their฀cost฀base,฀contemporary฀work฀solutions฀
help฀them฀to฀effectively฀address฀the฀fluctuating฀demand฀for฀their฀products฀or฀services.฀Due฀to฀our฀industry’s฀dependence฀on฀
economic฀factors,฀the฀inherent฀difficulty฀in฀forecasting฀the฀direction฀and฀strength฀of฀the฀economy฀and฀the฀short-term฀nature฀of฀
staffing฀assignments,฀it฀is฀difficult฀to฀forecast฀future฀demand฀for฀our฀services฀with฀any฀certainty.฀As฀a฀result,฀we฀monitor฀a฀number฀
of฀economic฀indicators,฀as฀well฀as฀recent฀business฀trends,฀to฀predict฀future฀revenue฀growth฀trends.฀Based฀upon฀these฀antici-
pated฀trends,฀we฀determine฀whether฀additional฀personnel฀and฀office฀investments฀are฀necessary฀to฀take฀full฀advantage฀of฀growth฀
opportunities.
Our฀staffing฀business฀is฀organized฀and฀managed฀primarily฀on฀a฀geographic฀basis,฀and฀Jefferson฀Wells฀and฀Right฀Management฀
are฀operated฀as฀separate฀global฀business฀units.฀Each฀country฀and฀business฀unit฀generally฀has฀its฀own฀distinct฀operations,฀and฀is฀
managed฀locally฀by฀its฀own฀management฀team.฀Each฀operation฀reports฀directly฀or฀indirectly฀through฀a฀regional฀manager,฀to฀a฀
member฀of฀executive฀management.฀Given฀this฀reporting฀structure,฀all฀of฀our฀operations฀have฀been฀segregated฀into฀the฀following฀
reporting฀segments:฀United฀States;฀France;฀EMEA฀(Europe,฀Middle฀East฀and฀Africa,฀excluding฀France);฀Jefferson฀Wells;฀Right฀
Management;฀and฀Other฀Operations.
The฀United฀States,฀France,฀EMEA,฀and฀Other฀Operations฀segments฀derive฀a฀significant฀majority฀of฀their฀revenues฀from฀the฀
placement฀of฀temporary฀workers.฀The฀remaining฀revenues฀within฀these฀segments฀are฀derived฀from฀other฀human฀resource฀฀
services,฀including฀permanent฀employee฀recruitment,฀temporary฀and฀permanent฀employee฀testing,฀selection,฀and฀training฀and฀
development.฀Jefferson฀Wells’฀revenues฀are฀derived฀from฀services฀related฀to฀internal฀controls,฀tax฀operations,฀finance฀operations฀
and฀technology฀risk฀management.฀Right฀Management’s฀revenues฀are฀derived฀from฀outplacement฀and฀consulting฀services.฀
Segment฀revenues฀represent฀sales฀to฀external฀customers.฀Due฀to฀the฀nature฀of฀our฀business,฀we฀generally฀do฀not฀have฀export฀or฀
intersegment฀sales.฀We฀provide฀services฀to฀a฀wide฀variety฀of฀customers,฀none฀of฀which฀individually฀comprises฀a฀significant฀฀
portion฀of฀revenue฀for฀us฀as฀a฀whole฀or฀for฀any฀segment.
FINANCIAL฀MEASURES฀–฀CONSTANT฀CURRENCY
Changes฀in฀our฀revenues฀and฀operating฀profits฀include฀the฀impact฀of฀changes฀in฀foreign฀currency฀exchange฀rates.฀We฀use฀the฀
non-GAAP฀financial฀measure฀“constant฀currency”฀in฀this฀annual฀report฀to฀remove฀the฀impact฀of฀currency.฀We฀express฀year-over-
year฀variances฀that฀are฀calculated฀in฀constant฀currency฀as฀a฀percentage.
When฀we฀use฀the฀term฀“constant฀currency,”฀it฀means฀that฀we฀have฀translated฀financial฀data฀for฀a฀period฀into฀U.S.฀Dollars฀using฀
the฀same฀foreign฀currency฀exchange฀rates฀that฀we฀used฀to฀translate฀financial฀data฀for฀the฀previous฀period.฀We฀believe฀that฀this฀
calculation฀is฀a฀useful฀measure,฀indicating฀the฀actual฀growth฀of฀our฀operations.฀We฀use฀constant฀currency฀results฀in฀our฀analysis฀
of฀subsidiary฀or฀segment฀performance.฀We฀also฀use฀constant฀currency฀when฀analyzing฀our฀performance฀against฀that฀of฀our฀
competitors.฀Substantially฀all฀of฀our฀subsidiaries฀derive฀revenues฀and฀incur฀expenses฀within฀a฀single฀country฀and,฀consequently,฀
do฀not฀generally฀incur฀currency฀risks฀in฀connection฀with฀the฀conduct฀of฀their฀normal฀business฀operations.฀Changes฀in฀foreign฀
currency฀exchange฀rates฀primarily฀impact฀only฀reported฀earnings฀and฀not฀our฀actual฀cash฀flow฀or฀economic฀condition.
Constant฀currency฀percent฀variances,฀along฀with฀a฀reconciliation฀of฀these฀amounts฀to฀certain฀of฀our฀reported฀results,฀are฀฀
included฀on฀page฀20.
RESULTS฀OF฀OPERATIONS฀–฀YEARS฀ENDED฀DECEMBER฀31,฀2006,฀2005฀AND฀2004
Consolidated฀Results฀–฀2006฀compared฀to฀2005
Revenues฀from฀Services฀increased฀10.8%฀to฀$17.6฀billion.฀Revenues฀were฀positively฀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.฀Revenues฀increased฀10.0%฀in฀constant฀currency.฀This฀growth฀rate฀is฀a฀result฀of฀increased฀demand฀for฀our฀services฀in฀
most฀of฀our฀markets,฀including฀the฀U.S.,฀France,฀EMEA,฀and฀Other฀Operations,฀where฀revenues฀increased฀3.2%,฀8.4%,฀14.7%฀
and฀13.8%,฀respectively,฀on฀a฀constant฀currency฀basis.฀We฀also฀saw฀solid฀growth฀in฀our฀permanent฀recruitment฀business฀which฀
increased฀38.8%฀on฀a฀consolidated฀basis฀in฀constant฀currency.