Manpowergroup Inc. annual report, FY2021

ManpowerGroup Inc. Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2021. This is an annual Form 10-K, not a standalone fourth-quarter filing; fourth-quarter information is included where disclosed. ManpowerGroup provides staffing, permanent recruitment, professional resourcing, outsourcing, consulting, training and career-management services through more than 2,200 offices in 75 countries and territories.

Financial performance and condition

Metric	2021	2020	Change
Revenue from services	$20,724.4 million	$18,001.0 million	+15.1%; +12.1% constant currency; +11.3% organic constant currency
Gross profit	$3,407.5 million	$2,824.7 million	+20.6%
Gross margin	16.4%	15.7%	+70 basis points
Operating profit	$585.4 million	$187.6 million	+212.0%
Operating margin	2.8%	1.0%	+180 basis points
Net earnings	$382.4 million	$23.8 million	+1,504.6%
Diluted earnings per share	$6.91	$0.41	+1,585.4%
Cash from operating activities	$644.8 million	$936.4 million	Down $291.6 million
Capital expenditures	$64.2 million	$50.7 million	Up $13.5 million

Revenue growth reflected recovery from 2020 pandemic-related declines, stronger hiring demand, increased permanent recruitment, and higher demand for managed services. The U.S. dollar’s weaker average exchange rate favorably affected reported revenue by 3.0% and diluted EPS by approximately $0.17.

Selling and administrative expenses increased 7.0% to $2,822.1 million, but declined to 13.6% of revenue from 14.6%. The improvement included lower restructuring and impairment charges versus 2020. In 2021, the Company recorded $18.8 million of ettain acquisition and integration costs, $15.2 million of restructuring costs, a $10.0 million gain related to a Northern Europe long-term obligation, and a $1.2 million loss on the Tunisia disposition.

The effective tax rate improved to 32.7% from 83.9%, primarily because of higher pretax earnings and favorable French tax-rate changes. The 2020 rate was adversely affected by low pretax earnings, valuation allowances and a nondeductible goodwill impairment.

Cash flow, liquidity and debt

• Cash and cash equivalents were $847.8 million at December 31, 2021, compared with $1,567.1 million at year-end 2020.
• Accounts receivable increased to $5,448.2 million from $4,912.4 million; days sales outstanding increased by one day to 55 days.
• The decrease in operating cash flow primarily reflected increased accounts receivable as demand recovered, partly offset by higher accounts payable.
• Total debt was $1,118.3 million, representing 31% of total capitalization. Fixed-rate borrowings were $1,101.5 million and variable-rate borrowings were $16.8 million.
• The Company had $75.0 million outstanding under its $600.0 million revolving credit facility, leaving $524.5 million available. Its net debt-to-EBITDA ratio was 0.97 to 1 versus a maximum covenant ratio of 3.5 to 1; fixed-charge coverage was 5.12 to 1 versus a minimum of 1.5 to 1.
• The €400.0 million notes, recorded at $454.4 million, mature in September 2022. Management expected to repay or refinance them using cash, revolver borrowings or new debt. The €500.0 million notes, recorded at $565.2 million, mature in June 2026.
• The Company paid $136.6 million of dividends and repurchased $210.0 million of common stock during 2021. The annual dividend declared was $2.52 per share.
• Aggregate commitments for debt, leases, severance, transition tax and other obligations totaled approximately $2,100.1 million. Guarantees and standby letters of credit totaled $769.3 million.

Material changes versus 2020

• Revenue recovered across all major segments: Southern Europe rose 19.0%, Northern Europe 17.4%, the Americas 12.4% and APME 4.4%.
• Fourth-quarter revenue increased 6.5% year over year, following increases of 6.6%, 41.0% and 12.1% in the first three quarters, indicating a slowing recovery rate.
• Permanent recruitment revenue increased 45.5%, benefiting the revenue mix and gross margin. Higher-margin consulting and managed-service offerings also increased, while Right Management career-transition revenue declined.
• Operating unit profit margin improved in the Americas to 4.6% from 3.1%, Southern Europe to 4.5% from 3.0%, Northern Europe to 1.5% from negative 0.7%, and APME to 3.4% from 2.9%.
• On October 1, 2021, ManpowerGroup acquired ettain group, a North American IT resourcing and services provider, for aggregate cash consideration of $930.9 million. The acquisition contributed $182.7 million of revenue after closing and added $519.6 million of goodwill and a $360.0 million customer-relationship intangible asset.
• Investing cash outflows increased to $987.0 million, primarily because of the ettain acquisition. Net debt borrowings were $70.3 million versus net debt repayments of $38.5 million in 2020.
• No goodwill impairment was recorded in 2021, compared with $66.8 million in 2020. Restructuring costs declined to $15.2 million from $110.7 million.

Outlook, commentary and risks

Management reported strengthening demand in most markets as pandemic restrictions eased, but described the recovery as uneven and slower in the second half of 2021. Supply-chain disruptions, labor shortages and Delta and Omicron variant uncertainty continued to affect client demand. The filing does not provide formal numerical revenue or earnings guidance.

• Demand is highly sensitive to economic cycles. Weakening demand can cause operating deleveraging because selling and administrative expenses may not decline as quickly as revenue.
• Europe represented 68% of revenue, increasing exposure to European economic, political, regulatory and labor-market conditions. Approximately 87% of revenue was generated outside the United States.
• Mexico’s 2021 labor legislation materially restricted traditional temporary staffing and reduced Mexico revenue by 22.2%; management expects further revenue reductions but believes the shift toward specialized staffing may improve margins over time.
• COVID-19, future variants, lockdowns, worker illness, client closures and remote-work effects may continue to affect operations and financial results.
• Labor shortages, particularly for IT and other technology skills, may constrain the Company’s ability to satisfy client demand and execute its Experis growth strategy.
• Cybersecurity, data privacy, third-party vendor dependence, litigation, employment regulation, competition, foreign-currency volatility, inflation and tax-law changes remain material risks.
• The Netherlands goodwill reporting unit had only approximately 5.5% excess fair value over carrying value in the 2021 impairment test. Its $112.2 million of goodwill could be exposed to impairment if operating targets are not achieved.
• On January 17, 2022, the Company sold its Russia business for $4.0 million and expected to recognize an approximately $8.0 million loss in the first quarter of 2022.
• Management and Deloitte concluded that internal control over financial reporting was effective as of December 31, 2021, although ettain was excluded from the assessment because of its recent acquisition. Deloitte issued unqualified opinions on the financial statements and internal controls.

Investor verification points

• Verify the sustainability of post-pandemic revenue growth and the fourth-quarter slowdown, particularly in Europe.
• Assess whether permanent recruitment, Experis, RPO and MSP growth can offset potential weakness in staffing and Right Management.
• Review the funding or refinancing plan for the $454.4 million equivalent of notes maturing in September 2022.
• Evaluate ettain integration, realized synergies, acquisition-related costs and the sensitivity of the $360.0 million customer-relationship intangible asset and $519.6 million goodwill.
• Monitor accounts receivable growth, the 55-day DSO and client credit quality as indicators of working-capital and liquidity pressure.
• Reassess covenant headroom, interest-rate exposure, foreign-currency effects and the Company’s ability to maintain dividends and share repurchases.
• Review regulatory developments affecting temporary staffing, including Mexico, pay-parity requirements, immigration rules and potential European labor-market changes.
• Consider the Netherlands goodwill impairment sensitivity and broader macroeconomic, COVID-19, cybersecurity and litigation exposures.