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11 May 2005
MOODY'S ASSIGNS Baa3 SR UNSECURED RATING TO MANPOWER INC.'S PROPOSED EURO NOTES AND AFFIRMS EXISTING RATINGS; OUTLOOK REMAINS STABLE
EUR 300 million Issue To Be Sold Under SEC Rule 144A and Regulation S
New York, May 11, 2005 -- Moody's Investors Service assigned a Baa3 senior unsecured rating to Manpower
Inc.'s ("Manpower") proposed notes, due
2012, and affirmed the company's existing ratings at Baa3.
The rating outlook remains stable. These rating actions assume
that expected proceeds of about EUR300 million (approximately US$389
million) will be used to refinance short term borrowings outstanding under
the company's accounts receivable securitization facility,
reduce debt outstanding under its revolving credit facility, and
fund share repurchases, acquisitions and general corporate purposes.
The ratings affirmation recognizes the company's solid growth and
earnings performance since fiscal 2003, and our expectation that
free cash generation will strengthen compared to fiscal 2004, allowing
the company to maintain debt protection measures within levels adequate
for the rating category. For the 12 months ended March 31,
2005, EBIT margins improved to 2.6%, an increase
of about 50 basis points since fiscal 2003, and cash flow from operations
came in at $246 million, covering capital expenditures,
acquisitions, dividends, and share repurchases about 1.4
At the same time, fixed charge coverage rose to approximately 4.0
times, a modest improvement over fiscal 2003. However,
we note that free cash flow plus 2/3rds rent to adjusted debt of around
10% remained modest for the rating category.
Moody's anticipates that issuance of the proposed euro notes will
be slightly beneficial to the company's liquidity position because
its extends the maturity profile of its long-term debt.
On a pro-forma basis, total debt would have been approximately
$810 million as of March 31, 2005, which is less than
$902 million of debt at the end of fiscal year 2004. This
pro-forma calculation accounts for the issuance of the proposed
euro notes as well as the anticipated repayment of about $207 million
of debt outstanding under the company's accounts receivable securitization
and revolving credit facilities.
Manpower's liquidity position is bolstered by $397 million
in cash available at the end of the first quarter 2005, sizeable
free cash generation and appropriate availability under its committed
credit facilities. Moody's notes that the company's
free cash flow is seasonal because of working capital funding peaks in
the second and third quarters.
The company maintains a 5-year, $625 million revolving
credit facility that matures in October 2009, and a $200
million accounts receivable securitization facility, which we assume
will be renewed before it expires in July 2005. Following the proposed
issuance of the euro notes in late May, we estimate the average
availability under the revolver at about $420 million, and
anticipate that short term debt currently outstanding under the accounts
securitization facility will be fully repaid.
The next major term debt maturity will occur in July 2006, when
EUR200 million notes (about $260 million) will come due.
We anticipate that the company will continue to build cash from operations
enabling it to repay all or a portion of these notes.
The ratings also reflect Manpower's brand strength, leading
market shares in Europe and the U.S., the positive
growth fundamentals of the staffing industry given the global demand from
companies to replace fixed cost permanent labor with less costly temporary
staff, and slowly easing labor regulations internationally.
In recent years, Manpower has increased its position in higher margin
sectors of the industry, such as career transition services and
organizational consulting (Right) and professional financial services
(Jefferson Wells). This development has shown good results in fiscal
2004 and should help to increase consolidated operating margins.
Key credit concerns include the cyclical nature of the staffing business
that causes earnings and margins to be volatile through economic cycles,
low operating margins due to price competition among the top five largest
staffing companies, low barriers to entry and a high level of local
and national regulation. Moody's notes that selling, general
and administrative expenses are less variable than the direct costs of
sales in the staffing industry, so operating margins and earnings
are dampened when revenue growth declines. A mitigating factor
is that when economic growth declines, working capital needs decline,
which offsets lower cash flow generation to some degree. Conversely,
when economies grow, revenues also grow, which increases working
capital needs. The increase in working capital needs can diminish
the cash flow benefits of revenue growth, , which was the
case in fiscal 2004.
The stable outlook reflects our expectation that overall industry trends
will remain favorable and support growth in earnings and cash generation
over the near to medium term. Moody's notes, that currently
visibility for the remainder of fiscal 2005 is somewhat limited as hiring
behavior by the company's customers has become more cautious in
the first quarter. The outlook also anticipates that the investigation
by French authorities of the company and certain of its competitors regarding
alleged violations of European Union and French competition laws will
have no material impact on Manpower's financial position.
In light of the severe impact the recession has had on earnings and credit
measures, an upgrade is not likely in the near term. In the
intermediate term an upgrade may be considered when EBIT margins recover
to around 3%, fixed charge coverage improves to around 5.0
times and the ratio of free cash flow plus 2/3rds rent to adjusted debt
exceeds 15%. An upgrade would also assumes that Moody's
can gain comfort that the company can maintain an improved credit profile
in the context of its strategic objectives, financial policy priorities
and the normal cyclical patterns of the industry.
The rating outlook could be pressured if industry conditions weaken unexpectedly
and result in a deterioration in total fixed charge coverage of approximately
3.0 times, or if the ratio of free cash flow plus 2/3rds
rent to adjusted debt falls below 10% for an extended period.
Moody's notes that initial purchasers are offering the proposed
notes inside the U.S. to qualified institutional buyers
in reliance on Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act"). In addition, the initial purchasers,
through their selling agents, are offering the notes outside the
U.S. to non-U.S. persons in reliance
on Regulation S under the Securities Act. The proposed notes have
not been and will not be registered under the Securities Act.
Based in Milwaukee, Wisconsin, Manpower, Inc.
is a leading company in the global staffing industry, providing
work force management services and solutions to customers through 4,300
offices in 68 countries. Sales for the twelve months ended March
31, 2005 were approximately $15.4 billion.
Corporate Finance Group
Moody's Investors Service
Corporate Finance Group
Moody's Investors Service
No Related Data.
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