ManpowerGroup 2001 Annual Report Download - page 18

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The operating profit margin declined 20 basis points (.2%) during the
year primarily as a result of expense de-leveraging in the second half of
the year as revenue levels began to trail the prior year.
United Kingdom revenue operating profit
In Millions of U.S. Dollars
Other Europe — Revenues in the Other Europe segment grew 7% in
constant currency during 2001, totaling $1.9 billion. The revenue
growth rate has slowed from prior year levels, reflecting the softening
European economy experienced during the last six months of the year.
Operating profit declined 12% in constant currency during 2001
primarily as a result of the de-leveraging effect caused by the slowing
revenue growth in many of the European countries, and the Company’s
continued investment in faster growing markets, such as Italy. Operating
profit increases exceeded 14% in the Netherlands, Israel and Spain despite
the declining revenues in those countries.
During 2001, the Company opened almost 100 offices in the Other
Europe markets, most of which were in Italy. Over 700 offices have been
opened in the Other Europe markets during the past five years.
Other Europe revenue operating profit
In Millions of U.S. Dollars
Other Countries — Revenues in the Other Countries segment were $1.3
billion, increasing 22% in constant currency. The Company’s largest
operation within this segment is Japan, which represents approximately
43% of the segment’s 2001 revenues. Revenues in Japan increased 34% in
local currency, or 25% excluding acquisitions. This strong revenue growth
was achieved despite the weak economy as secular trends toward flexible
staffing remain very positive. The Company continues to invest in Japan
and is well positioned to take advantage of future growth opportunities.
Also included in this segment are Jefferson Wells International, Inc.
(“Jefferson Wells”) and The Empower Group (“Empower”). Jefferson
Wells, which was acquired in July 2001, is a professional services
provider of internal audit, accounting, technology and tax services. It
operates a network of offices throughout the United States and Canada.
Empower, which was formed in 2000, provides added-value human
resource solutions and consulting services through a network of global
offices. During 2001, the Company added to the strength of its Empower
service offering with the integration of a number of smaller acquisitions.
In total, Jefferson Wells and the newly acquired Empower companies
added over $90 million of revenue in 2001.
Operations in Mexico and Asia, excluding Japan, posted local currency
revenue growth of 11% and 42%, respectively, in 2001 while improving
operating profit margins. These results reflect the benefit of our continued
investment in these regions, where we added 33 offices during the past
two years.
The operating profit margin for the segment overall declined during
the year, due to the economic softening in many of these markets along with
the Company’s continued investments in this segment.
Other Countries revenue operating profit
In Millions of U.S. Dollars
Cash Sources
Excluding the impact of the Receivables Facility, cash provided by oper-
ating activities was $281.0 million in 2001 and $212.9 million in 2000
compared to a $25.5 million use of cash in 1999. Including the impact of
the Receivables Facility, cash provided by operating activities was
$136.0 million in 2001 and $157.9 million in 2000 compared to a
$.5 million use of cash in 1999. Changes in working capital significantly
impacted cash flow. Cash provided by changes in working capital,
excluding the Receivables Facility, was $59.8 million in 2001 compared
to cash used to support working capital needs during 2000 and 1999 of
$31.0 million and $275.2 million, respectively. The changes from 2000
to 2001 and from 1999 to 2000 are the result of the Company’s
continued focus on working capital management, evidenced by a
reduction in consolidated Days Sales Outstanding (DSO) levels for
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Segment Results
The Company is organized and managed primarily on a geographical
basis. Each country has its own distinct operations, is managed locally by
its own management team and maintains its own financial reports. Each
country reports directly, or indirectly through a regional manager, to a
member of executive management. Given this reporting structure, all of
the Company’s operations have been segregated into the following segments
– United States, France, United Kingdom, Other Europe and Other
Countries. (See Note 13 to the Consolidated Financial Statements for
further information.)
Revenues from Services
In Millions of U.S. Dollars
United States — Systemwide sales in the United States were $3.1 billion, a
decrease of 18% from 2000. Revenues decreased 17% to $2.0 billion.
These declines reflect a significant decrease in demand for our services in
response to the deteriorating U.S. economy. The rate of revenue contraction
compared to prior year grew during the year, with revenues down 3% in the
first quarter and 25% in the fourth quarter. During the last five months of
the year, the contraction appeared to stabilize with revenues trailing prior
year by approximately 25%.
In response to the declining revenue trends, the U.S. organization
implemented a number of cost control initiatives. These initiatives resulted
in a 7% decrease in selling and administrative expenses in 2001, or a $48
million reduction on an annualized run-rate basis, beginning with the
second half of the year.
Despite these cost reduction initiatives, the rate of expense reduction (-7%)
lagged the decline in revenues (-17%) as management is committed to
preserving a quality network of offices which will be necessary to fully
benefit from anticipated revenue growth when the economy improves.
Operating profit decreased 65% to $29.5 million in 2001, while the
operating profit margin declined to 1.5% from 3.5% in 2000. This
decline primarily reflects the impact of the selling and administrative
expense de-leveraging caused by the revenue decline.
The Company acquired two U.S. franchises during the year, adding
approximately $38 million of revenue. The impact of these acquisitions
on Operating profit was negligible.
United States revenue operating profit
In Millions of U.S. Dollars
France — Revenues in France decreased 2% in local currency to K4.2
billion ($3.8 billion) in 2001 from K4.3 billion ($3.9 billion) in 2000.
During the year the Company experienced slowing demand for its
services as the French economy continued to weaken. Revenue growth in
the fourth quarter contracted 11.0% from the prior year level.
Despite this decrease in revenues, our French organization was able to
achieve improved operating profit margins. Operating profit margins
improved to 3.6% in 2001, representing a 30 basis point (.3%) improvement
over 2000 and a 90 basis point (.9%) improvement over 1999. Operating
profit increased 7% in local currency in 2001, following a 49% improvement
in 2000. These improvements are the result of enhanced pricing initiatives
and effective cost control in response to the slowing French economy.
France revenue operating profit
In Millions of U.S. Dollars
United Kingdom —The United Kingdom segment includes Manpower
which provides services though 160 offices, Brook Street which provides
services through 126 offices and Elan, a specialty IT staffing business,
which provides services throughout Europe through 22 offices.
Revenues for the U.K. segment grew 8% in constant currency reaching
$1.5 billion for 2001. While demand for our services was not as strong in
the second half of the year, the U.K. economy was stronger than many of
the other markets in which the Company operates.
The gross profit margin improved substantially during the year, increasing
190 basis points (1.9%). This reflects an improvement in business mix to
more higher-value services and enhanced pricing.
United States 2,003.4
France 3,766.4
United Kingdom 1,489.3
Other Europe 1,939.4
Other Countries 1,285.3
Management’s Discussion and Analysis (continued)
— of Financial Condition and Results of Operations —