Final Results
Michael Page International PLC
04 March 2008
Michael Page International plc
RECORD RESULTS DRIVEN BY CONSISTENT, ORGANIC GROWTH STRATEGY OF INVESTMENT
THROUGH CYCLES
Full Year Results for the year ended 31 December 2007
Michael Page International plc ("Michael Page"), the specialist professional
recruitment company, announces its full year results for the year ended 31
December 2007.
2007 2006 Change
£m £m
Revenue 831.6 649.1 +28%
Gross profit 478.1 348.8 +37%
Operating profit 149.4 97.4 +54%
Profit before tax 147.4 97.0 +52%
Basic earnings per share (pence) 31.1 19.6 +59%
Diluted earnings per share (pence) 30.6 19.0 +61%
Dividend 8.0p 6.0p +33%
Key Points
• Record levels of revenue and profits
• Gross margin increased to 57.5% (2006: 53.7%)
• Conversion rate* up to 31.3% (2006: 27.9%)
• Over 60% of gross profits generated outside the UK
• EMEA gross profits up 55% and now largest region
• Americas gross profits up 79%
• Cash generated from operations up 88.6% to £148.7m (2006: £78.8m)
• 15.1m shares repurchased at a cost of £74.9m (includes 3.5m shares
repurchased into trust)
• Group headcount increased by 34% to 5,052 employees
* The amount of operating profit as a proportion of gross profit.
Commenting on the results, Steve Ingham, Chief Executive of Michael Page, said:
"2007 was an outstanding year for Michael Page, with record results in each
quarter as we continued our significant organic expansion, both by geography and
discipline. Since the start of the current year, with the exception of certain
sectors related to the banking market, we continue to experience similar
year-on-year increases in activity levels in all of our regions.
"Our consistent organic growth strategy of investment through cycles, coupled
with structural changes are driving our growth in the specialist recruitment
market. We believe this investment has, in turn, given us greater resilience to
the economic cycle by virtue of our increased diversification. Whilst we are
mindful of the uncertainties surrounding the current global economic outlook, we
shall continue to make strategic and measured investments to position the
business for long-term growth. The Board remains confident in the prospects for
Michael Page."
Enquiries:
Michael Page International plc 01932 264144
Steve Ingham, Chief Executive
Stephen Puckett, Group Finance Director
Financial Dynamics 020 7269 7121
Richard Mountain / David Yates / Sophie Kernon
CHAIRMAN'S STATEMENT
2007 has been an outstanding year for the Group, producing record results
quarter after quarter while continuing significant organic expansion, both
geographically and by discipline. Market conditions have been strong, with
favourable economic activity and positive business confidence driving demand for
talent, combined with a shortage of suitably qualified candidates.
Highlights
Revenue for the year ended 31 December 2007 increased 28.1% to £831.6m (2006:
£649.1m) and gross profit grew by 37.1% to £478.1m (2006: £348.8m). Reflecting
strong market conditions, gross profits from permanent placements grew more
rapidly than from temporary placements. This movement in business mix, together
with an increase in margins on temporary placements, contributed to an increase
in gross margin to 57.5% (2006: 53.7%). Given the Group's high operational
gearing, operating profits increased by 53.5% to a record £149.4m (2006:
£97.4m). The Group's conversion rate, which is the proportion of gross profit
converted into operating profit, rose to 31.3% (2006: 27.9%). Profit before tax
was £147.4m (2006: £97.0m) and basic earnings per share increased by 58.7% to
31.1p (2006: 19.6p). Cash generated from operations increased by 88.6% to
£148.7m (2006: £78.8m) driven by the increase in operating profits and good
working capital management.
The success of our strategy to diversify the business, both geographically and
by discipline, through organic growth is increasingly evident, with the EMEA
region now the largest in the group. Over 60% of the Group's gross profits were
generated outside the UK. With a heritage in Finance and Accounting recruitment,
it is likely that these disciplines will continue to represent a significant
proportion of the business for some time. However, the other professional
disciplines, we are successfully rolling-out, now account for just over 45% of
the Group's gross profit and the proportion generated from Finance and
Accounting will continue to reduce.
Dividends and share repurchases
With strong growth in earnings, it is the Board's intention to continue its
policy of reviewing the annual dividend, with a view to increasing it by a level
which we believe can be sustained throughout economic cycles. Surplus cash
generated in excess of these dividend levels will continue to be returned to
shareholders through share repurchases.
With the strong growth in profits, earnings and cash generation, the Board is
recommending an increase in the total dividend per share for the year of 33%. A
final dividend of 5.6p (2006: 4.2p) per share is proposed which, together with
the interim dividend of 2.4p (2006: 1.8p) per share paid in October, makes a
total dividend for the year of 8.0p (2006: 6.0p) per share. The final dividend,
if approved, will be paid on 9 June 2008 to those shareholders on the register
at 9 May 2008. The total dividend is covered 3.9 times by basic earnings per
share of 31.1p.
We repurchased shares throughout 2007, acquiring 15.1m shares for £74.9m. We
have no intention of changing our strategy on the Group's capital structure.
Given the fall in the share price in the latter part of 2007, and our intention
to continue to use surplus cash to repurchase the Company's shares, in order to
not be unduly constrained, we will be seeking shareholders' consent for an
increase in the maximum authority to repurchase shares from 10% to 15% at the
Annual General Meeting on 23 May 2008.
Employees
I wish to express my thanks to the employees worldwide for their commitment,
loyalty and efforts throughout the year which delivered the outstanding
performance in 2007.
Board of Directors
On 23 May 2007 Ruby McGregor-Smith, Chief Executive of MITIE Group plc, joined
as a non-executive director. We are delighted to welcome her to the Board.
Prospects
While the economic cycle is the most important short-term factor, there are a
number of long-term structural changes that are having a positive impact on the
specialist recruitment markets. These key drivers include a deregulation of the
labour markets, demographic changes, an increased global shortage of qualified
professionals, increasing job mobility and a greater awareness and acceptance
for companies to use specialist recruitment services.
The latter part of 2007 has created significant uncertainty over the short-term
prospects for the global economy and consequently business confidence,
investment and hiring plans. It is a characteristic of the permanent recruitment
market that earnings visibility is short. Since the start of the current year,
with the exception of certain sectors related to the banking market, we continue
to experience similar year-on-year increases in activity levels in all of our
regions.
Our next trading statement covering the first quarter, which in this year,
unlike 2007, includes the Easter period, will be released on 7 April 2008.
Sir Adrian Montague CBE
Chairman
4 March 2008
CEO'S REVIEW
In 2007, we have grown gross profits by 37% and delivered record operating
profits of £149m, up 54%. This time last year we described 2006 as a very strong
year for the Group, growing gross profits 30% and producing £97m of operating
profit. We also said that we would continue with our strategy of expanding
organically, gradually diversifying and reducing our dependency upon any single
geographic market or individual discipline and that we would accelerate the pace
of implementation.
Our results for 2007 confirm that we have followed this through and how
successful we have been. Having opened in five countries in 2006, our geographic
expansion continued in 2007 with openings in Luxembourg and Argentina. More
significantly, we increased our fee generating and support staff by nearly 1,300
people, enabling us to expand existing and open new offices, as well as
continuing our discipline roll-out. At the end of 2007, the Group had 5,052
(2006: 3,758) fee generating and support staff, operating from 149 (2006: 133)
offices in 25 (2006: 23) countries.
Branding and market positioning
Over the last 30 years, the Group has developed a clear brand strategy for the
middle to senior-management professional market. Michael Page International is
now a high-profile brand, globally recognised, that enables us to attract
consultants, candidates and clients in an ever increasing number of countries.
As a result of the complex variation in legislation relating to how temporary
and permanent recruitment is managed in different countries, we developed two
brands for the clerical professional market. In the UK, where we were only
focused on clerical accounting professionals, the brand was Accountancy
Additions. In Europe, where in many countries legislation required us to have a
separate business for temporary recruitment, the brand is Page Personnel.
With changes in legislation over recent years, Page Personnel can now operate,
as did Accountancy Additions, in both temporary and permanent recruitment. This
and our desire to roll-out the brand to other disciplines, as we have
successfully done in Europe, has resulted in us clarifying our strategy at this
level with one brand. In November 2007, Accountancy Additions was rebranded to
Page Personnel Finance and Accounting and during 2007 we launched in the UK two
other Page Personnel disciplines, Human Resources and Secretarial.
Both the Michael Page and Page Personnel businesses are significant in terms of
countries, offices networks and fee earners as illustrated below:
Fee Earners Offices* Countries
Michael Page 2,964 91 25
Page Personnel 873 79 8
*In some locations offices are shared.
Diversification
The objective of our strategy to diversify the business, both geographically and
by discipline, while remaining focused on the cyclical recruitment market, is to
reduce the dependency upon any one particular market. We believe we have been
very successful in implementing this strategy as illustrated in the table below
which compares the gross profit from the business today with the position at the
end of 2000.
2007 2000
Gross profit £478.1m £238.3m
% of gross profit by Region
EMEA 41% 36%
UK 39% 49%
Asia Pacific 12% 13%
Americas 8% 2%
% of gross profit from four largest countries
UK 39% 49%
France 13% 25%
Netherlands 7% 6%
Australia 7% 9%
Top 4 66% 89%
% of gross profit by Discipline
Finance and Accounting 54% 66%
Marketing, Sales and Retail 19% 21%
Legal, Technology, HR, Secretarial and Other 15% 10%
Engineering, Property & Construction, Procurement & Supply Chain 12% 3%
In 2000, nearly 50% of Group gross profit was generated in the UK. In 2007, it
was less than 40%, with EMEA now our largest region.
In 2000, nearly 90% of Group gross profit was generated in four countries. In
2007, these same four countries generated two-thirds of Group gross profit.
In 2000, two-thirds of Group gross profit was generated by Finance and
Accounting. In 2007, it was just over a half.
Continental Europe, Middle East and Africa (EMEA)
During 2007, the EMEA region achieved strong growth and is now the largest
region in the Group, both in terms of gross profit and headcount. Revenue in
EMEA increased by 44.0% to £321.1m (2006: £223.0m) and gross profit increased by
55.2% to £196.4m (2006: £126.6m). As a result of the increased revenue and high
operational gearing, the region produced an increase of 84.4% in operating
profit to £63.0m (2006: £34.2m), a conversion rate of 32.1% (2006: 27.0%).
Headcount in the region increased by 640 (45%) during the year to 2,078, with
the majority joining existing offices. In a number of locations we have taken
larger office space to accommodate the growth and we continued our longer-term
investment opening in Luxembourg and starting new offices in Hamburg, Valencia
and Bordeaux.
France (33% of EMEA), which remains our second largest and most established
business after the UK, had a very successful year growing gross profits by 33%
in constant currency. The restructuring of the Michael Page and Page Personnel
businesses, following the introduction of the "Borloo" law, is now starting to
deliver significant growth with the back drop of stable economic conditions.
While the growth in France has been impressive, there remains significant scope
for further growth, particularly when recognising that the 2007 gross profits of
our French business are still approximately 10% below the gross profits produced
in 2000 and 2001.
Elsewhere in the region, collectively, our businesses during 2007 maintained the
gross profit growth rate of 2006 at 68%. All countries contributed to this
strong growth as we continue our discipline and geographic expansion. In
constant currency, the Netherlands (18% of EMEA) grew gross profits by 47%,
Germany (13% of EMEA) grew gross profits by 75%, Spain (11% of EMEA) grew gross
profits by 59%, Italy (8% of EMEA) grew gross profits by 61% and Switzerland (8%
of EMEA) grew gross profits by 116%.
The new businesses which opened in 2006 in Moscow, Johannesburg, Dubai and
Dublin, together with Luxembourg in 2007, are ahead of plan. They continue to
grow rapidly and collectively had 65 staff at the end of 2007.
With operating profits increasing by 84% from an increase in gross profit of 55%
and the conversion rate now at 32%, there is little spare capacity within these
businesses and future growth in profits will largely be driven by investment in
new staff and office space to accommodate them.
United Kingdom
In the UK, revenue increased by 15.4% to £360.4m (2006: £312.4m) and gross
profit by 19.4% to £186.0m (2006: £155.8m). Operating profits were £59.4m (2006:
£44.3m), an increase of 34.2% and represent a conversion rate of 31.9% (2006:
28.4%). We invested heavily during the year, increasing headcount by 17% to
1,799 and opening new offices in Pall Mall and Canary Wharf in London, Leicester
and Aberdeen.
The gross profits of the Finance and Accounting businesses, which generated 51%
of UK gross profit, were 11% higher than in 2006. Michael Page Finance, the
largest of the three businesses, produced a mixed performance, with good growth
in the regions, being held back by below expectation growth in London and the
South East. A number of changes have been made to the management structure of
these businesses, which should produce an improved performance in 2008. Michael
Page Financial Services had a very strong first half of the year with good
growth. The "credit crunch" in the latter half of 2007 has impacted certain
parts of the banking market and consequently our growth rate slowed, being flat
year-on-year in the fourth quarter. During the year we continued to expand the
Page Personnel office network from 35 to 37, opening in Swindon and Sheffield.
The combined gross profits of Michael Page Marketing, Michael Page Sales and
Michael Page Retail, were 23% higher than in 2006 and, combined, represented 22%
of UK gross profit. The Marketing and Sales businesses performed strongly and
now operate from 10 and 9 locations respectively. Retail, the smallest of the
three businesses, had a tremendous year growing in excess of 40%.
Michael Page Legal, Michael Page Technology, Michael Page Human Resources and
Michael Page Secretarial achieved growth of 26% and, combined, represented 16%
of UK gross profit. From the Legal business, we created a new business, Michael
Page Offshore, which focuses on placing legal, tax and accounting candidates in
some of the many offshore tax havens around the world.
The more recently created Michael Page Engineering & Manufacturing, Michael Page
Procurement & Supply Chain and Michael Page Property & Construction businesses,
grew at over 50% and now represent 7% of UK gross profit. These businesses all
grew significantly in 2007 and given the enormous scope for growth in these
disciplines, we will continue to invest heavily in them.
I am delighted to report another outstanding year in Scotland, growing gross
profit by 50%. In 2007, we opened a new office in Aberdeen and moved into larger
offices in Edinburgh. Scotland now represents 5% of UK gross profit.
Asia Pacific
In the Asia Pacific region, revenue was 17.0% higher at £97.8m (2006: £83.6m),
gross profit was 27.3% higher at £57.2m (2006: £45.0m) and operating profit
increased 22.1% to £20.8m (2006: £17.1m), with a conversion rate of 36.4% (2006:
37.9%). We invested in all the existing offices in the region, increasing
headcount by 43% to 632.
In Australia, (57% of Asia Pacific) gross profit and operating profit grew in
constant currency by 23.0% and 7.2% respectively, as anticipated, benefiting
from the management and structural changes made in the second half of 2006. We
continue to see numerous growth opportunities and with a strong Australian
economy, we have increased our headcount in Australia by 46%, a large proportion
of which joined during the second half of the year.
In Hong Kong, Sha Tin, Shanghai, Tokyo and Singapore, we achieved another year
of substantial gross profit growth, with all locations having a record year.
While we continue our discipline roll-out, some less mature offices derive a
significant proportion of gross profit from one discipline. This is the case
with our Tokyo office, where in the fourth quarter of 2007 our business slowed
as the credit crunch impacted on demand in the banking sector. We have an
excellent opportunity to expand our business significantly in China and plan to
open in Beijing and Shenzhen in the first half of 2008.
The Americas
Revenue for the region was 74.1% higher at £52.4m (2006: £30.1m), gross profit
increased by 79.0% to £38.4m (2006: £21.5m), operating profit increased to £6.2m
(2006: £1.9m), with a conversion rate of 16.1% (2006: 8.7%). Headcount in the
region increased by 59% to 543 and we opened new offices in Hartford, Atlanta,
Curitiba Brazil and our first office in Argentina in Buenos Aires.
In North America, we have continued our rapid expansion of existing and new
offices and the discipline roll-out has continued at pace. We now have nine
offices and over 280 staff. In Latin America, we now have over 260 staff and in
Mexico, which opened in 2006, we are well ahead of plan, with a good level of
profits.
With very limited competition in Latin America, the Americas represent a
tremendous long-term opportunity for the Group to expand and we will continue to
invest heavily to grow the businesses rapidly. This degree of investment results
in the conversion rate in the region being below that of the other regions.
However, we anticipate that operating profits will grow at a faster rate than
gross profits and the conversion margin will improve over time.
Investment in 2008 and outlook
We made significant investments in 2007, ahead of what was planned at the start
of the year, as market conditions remained favourable. We plan further expansion
in 2008, with new offices already opened in Montreal, Newcastle, Gothenburg and
Seville and new country openings planned in Austria, Turkey and New Zealand.
Assuming market conditions remain favourable in the majority of countries in
which we operate, these investments, together with our continued expansion of
our existing businesses, should see our headcount reach 6,000 by the end of
2008.
An important factor in our success as a business has been our use of technology.
Our current recruitment system has supported our growth over the past five
years, however, these systems continually develop and the next generation of
systems are now available that will facilitate our continued growth. A project
is underway throughout the Group to replace the current recruitment system, with
a view to the first full implementation taking place early in 2009.
The planned headcount levels, new countries and office openings, will result in
an estimated 2008 pre-bonus cost base of approximately £350m, including all
share-based charges. Bonuses will continue to be approximately 25% of pre-bonus
operating profit.
While we have identified numerous opportunities to continue our growth, we are
mindful of the current and now widely-predicted weakening of global economic
activity. All our businesses are formally reviewed and forecasts revised on a
quarterly basis. At present there is considerable uncertainty over the extent of
any economic slowdown and which region's economies will be most affected. The
severity of any slowdown is unlikely to impact significantly on our investment
plans for new country and office openings as we believe they represent excellent
strategic long-term opportunities. However, a slowdown would impact the
headcount growth plans of our more established businesses and in the event of a
sustained global economic slowdown, our headcount would not reach 6,000 staff by
the end of 2008.
We have an exceptional pool of ambitious and talented people in the Group, in
particular at the senior management level, with proven expertise and skills
required to launch new or grow existing businesses successfully. This team also
has a track record of managing these businesses during recessions and economic
slowdowns, while continuing to generate profits and cash. Furthermore, we have a
track record in periods of economic slowdown of maintaining our infrastructure
and market presence, while continuing to make strategic and measured investments
for the longer-term, positioning the business for strong growth when economic
conditions improve.
It has always been, and will continue to be, our intention to take decisions and
make investments for the longer-term benefit of our stakeholders. If there is a
slowdown, we believe that the greater geographic and discipline diversification
of the business that we have created since 2000 will make the Group earnings
more resilient to a slowing in economic activity when compared to previous
slowdowns. I look forward to reporting our progress each quarter as we progress
through 2008.
Steve Ingham
Chief Executive
4 March 2008
CFO'S REVIEW
Income statement
Revenue
2007 was a record year for the Group with all regions delivering strong growth.
Reported revenue for the year increased by 28.1% to £831.6m (2006: £649.1m).
Using constant currencies, revenue increased by 28.4% to £833.4m. Revenue from
temporary placements increased by 17.8% to £439.1m (2006: £372.7m) and
represented 52.8% (2006: 57.4%) of Group revenue. Revenue from permanent
placements was £392.6m (2006: £276.3m), an increase of 42.1%.
Gross profit
Gross profit for the year increased by 37.1% to £478.1m (2006: £348.8m) and in
constant currencies by 37.6% to £480.0m. The Group's gross margin increased to
57.5% (2006: 53.7%). The growth in gross profit is greater than the growth in
revenue, due to the higher proportion of gross profit derived from permanent
placements in 2007, together with a higher volume of temporary placements at a
higher gross margin reflecting strong market conditions. Gross profit from
temporary placements was £106.1m (2006: £87.8m) and represented 22.2% (2006:
25.2%) of Group gross profit. The gross margin achieved on temporary placements
was 24.2% (2006: 23.6%).
Operating profit and conversion rates
As a result of the Group's organic long-term growth strategy, tight control on
costs and profit-based bonuses, we have a business model which is operationally
geared, as evidenced by the 54% increase in operating profits to £149.4m from a
37% increase in gross profit. In constant currencies operating profits increased
by 54.2% to £150.2m.
With a strategy of organic growth, the Group incurs start-up costs and operating
losses as investments are made to grow existing and new businesses, open new
offices and launch new countries. Furthermore, significant increases in
headcount take time to train and become productive. These characteristics of our
growth strategy and the levels of investment impact on the conversion rates in
any one reporting period.
The Group's conversion rate in 2007 has increased to 31.3% (2006: 27.9%). The
conversion rate in three of the Group's four regions exceeds this rate, with the
conversion rate in the Americas being lower as a result of the greater level of
new investment and start-ups.
As a result of the increased numbers of staff and offices, start-up costs and
higher bonuses due to the increased profits, administrative expenses in the year
increased by 30.7% to £328.7m (2006: £251.5m). Administrative expenses also
includes £7.2m of share-based charges (2006: £8.3m) in respect of the Group's
deferred annual bonus scheme, long-term incentive plans and executive share
option schemes. The reduction in these share-based charges, compared to 2006, is
due to lower employers' social charges as a consequence of the reduction in the
share price from 452.25p at the end of 2006, to 288.0p at the end of 2007.
Approximately 75% of the Group's operating expenses are staff-related, including
the profit-related bonus, of our consultants and support staff. Headcount of the
Group was 3,758 at 1 January 2007 and increased during the year by 34% to 5,052.
The ratio of directors and fee earners to support staff in 2007 was 76:24 (2006:
74:26).
Net interest
Our intention is to manage the balance sheet with a broadly neutral net cash/
debt position throughout the year, using surplus cash to repurchase shares and,
as necessary, drawing on borrowing facilities. Our net cash/debt position at the
end of December each year is usually one of the strongest, due to the need to
fund fourth quarter and annual profit-based bonus payments in January. We
started 2007 with net debt of £3.6m and, after funding £74.9m of share
repurchases throughout the year, we operated for a large period of 2007 with net
debt. At 31 December 2007, the Group had net cash of £10.3m. As a consequence,
the Group has a net interest charge for the year of £2.0m (2006: £0.4m).
Taxation
Tax on profits was £45.7m (2006: £31.5m), representing an effective tax rate of
31% (2006: 32.5%). The rate is higher than the UK Corporation Tax rate of 30%
due to disallowable items of expenditure and profits being generated in
countries where the corporate tax rates are higher than 30%. The effective rate
is lower than in 2006 primarily as a result of reductions to tax charges in
prior periods. With UK corporation tax rates reducing from 30% to 28% in April
2008, the Group's effective tax rate in 2008 is estimated to be in the region of
30.5%.
Share repurchases and share options
It is the Group's intention to continue to use share repurchases to return
surplus cash to shareholders and to satisfy awards under the Group's incentive
share plan and deferred annual bonus plan. During the year, 15.1m shares were
repurchased at a cost of £74.9m. 11.5m of these shares were cancelled, with the
remaining shares purchased by the Company's employee benefit trust to satisfy
future share plans awards.
We have no intention of changing our strategy on the Group's capital structure.
Given the Group's strong cash generation, the intention to continue repurchasing
shares and the reduction in the Group's share price in the latter part of 2007,
in order not to be unduly constrained, we will, at the Annual General Meeting on
23 May 2008, be seeking shareholder approval for an increase in the authority to
make share repurchases up to a maximum of 15%, from 10%, of the issued share
capital.
At the beginning of 2007, the Group had 14.5m share options outstanding of which
3.5m had vested. In March 2007, 2.8m share options were granted. During the
course of the year options were exercised over 5.7m shares, generating £8.7m in
cash and 0.5m share options lapsed. At the end of 2007, 11.1m share options
remained outstanding of which 3.1m had vested.
Earnings per share and dividends
In 2007, basic earnings per share were 31.1p (2006: 19.6p) and diluted earnings
per share were 30.6p (2006: 19.0p). The weighted average number of shares for
the year was 327.5m (2006: 334.7m) reflecting the shares repurchased during the
year and the new shares issued to satisfy option exercises.
A 33% increase in the final dividend to 5.6p (2006: 4.2p) per ordinary share is
proposed which, together with the interim dividend of 2.4p (2006: 1.8p) per
ordinary share, makes a total dividend for the year of 8.0p (2006: 6.0p) per
ordinary share, an increase of 33%. The proposed final dividend, which amounts
to £18.0m, will be paid on 9 June 2008 to those shareholders on the register as
at 9 May 2008.
Balance sheet
The Group had net assets of £107.9m at 31 December 2007 (2006: £80.4m). The
increase in net assets principally relates to the profit for the year of
£101.7m, the credits relating to share schemes of £5.5m, currency movements of
£8.1m and the exercise of share options of £8.7m, offset by share repurchases of
£74.9m and dividends paid of £21.8m.
Our capital expenditure is driven primarily by two main factors: headcount, in
terms of office accommodation and infrastructure and the maintenance and
enhancement of our IT systems. Capital expenditure, net of disposal proceeds,
increased to £12.8m (2006: £8.7m) reflecting the 34% increase in headcount and
the opening and expansion of a number of offices.
The most significant item in the balance sheet is trade receivables, which were
£160.9m at 31 December 2007 (2006: £118.2m) representing debtor days of 58
(2006: 55 days).
Cash flow
At the start of the year, the Group had net debt of £3.6m.
During the year, the Group generated net cash from operating activities of
£148.7m (2006: £78.8m), being £157.2m (2006: £103.8m) of EBITDA, an increase in
working capital requirements of £15.1m (2006: £28.7m) and movements in
provisions of £0.2m (2006: £0.4m).
The principal payments have been:
• £12.8m (2006: £8.7m) of capital expenditure, net of disposal proceeds, on
property, infrastructure, information systems and motor vehicles for staff;
• taxes on profits of £36.5m (2006: £21.7m);
• dividends of £21.8m (2006: £18.1m); and
• share repurchases of £74.9m (2006: £83.4m).
£8.7m (2006: £38.2m) was received in the year from the issue of new shares to
satisfy share option exercises.
At 31 December 2007, the Group had net cash of £10.3m.
Key Performance Indicators ("KPIs")
Financial and non-financial key performance indicators (KPIs) used by the Board
to monitor progress are listed in the table below. The source of data and
calculation methods year-on-year are on a consistent basis.
KPI 2007 2006 Definition, method of calculation and analysis
Gross margin 57.5% 53.7% Gross profit as a percentage of revenue. Gross margin has slightly improved on
last year as a result of the mix of permanent and temporary placements, and
improvements in the gross margins on temporary placements. Source:
Consolidated income statement in the financial statements.
Conversion 31.3% 27.9% Operating profit as a percentage of gross profit showing how effective the
Group is at controlling the costs and expenses associated with its normal
business operations and the level of investment for the future. Conversion has
improved over last year as a result of better utilisation of existing
capacity, and improved pricing. Source: Consolidated income statement in the
financial statements.
Productivity £144.2k £146.3k Represents how productive fee earners are in the business and is calculated by
(gross profit per dividing the gross profit for the year by the average number of fee earners
fee earner) and directors. The higher the number, the higher their productivity.
Productivity is a function of the rate of investment in new fee earners, the
impact of pricing and the general conditions of the recruitment market.
Source: Consolidated financial statements.
Fee earner: 76:24 74:26 Represents the balance between operational and non-operational staff. The
support staff movement this year demonstrates faster growth in fee earners in relation to
ratio support staff. Source: Internal data.
Debtor days 58 55 Represents the length of time the company receives payments from its debtors.
Calculated by comparing how many days billings it takes to cover the debtor
balance. Source: Internal data.
We achieved a higher level of operating profit growth than gross profit growth
as a result of our high operational gearing. The decrease in productivity is as
a result of the large increase in headcount particularly in the second half of
the year, as new fee earners can take a number of months to become fully
productive. Debtor days have increased largely as a result of a greater
proportion of receivables being in Continental Europe where our debtor days are
generally higher than in the UK. The ratio of fee earners to support staff has
increased as a result of continued efficiencies arising from our effective use
of technology and economies of scale.
Treasury management and currency risk
It is the Directors' intention to continue to finance the activities and
development of the Group from retained earnings, and to operate the Group's
business while maintaining the net cash/debt position within a relatively narrow
band. Cash generated in excess of these requirements will be used to buy back
the Company's shares.
Cash surpluses are invested in short-term deposits, with any working capital
requirements being provided from Group cash resources, Group facilities, or by
local overdraft facilities. The Group has set up a multi-currency notional cash
pool in 2007. Currently the main Eurozone subsidiaries and the UK-based Group
Treasury subsidiary participate in this cash pool, although it is the intention
to extend the scope of the participation to other Group companies. The structure
facilitates interest and balance compensation of cash and bank overdrafts.
The main functional currencies of the Group are Sterling, Euro and Australian
Dollar. The Group does not have material transactional currency exposures, nor
is there a material exposure to foreign denominated monetary assets and
liabilities. The Group is exposed to foreign currency translation differences in
accounting for its overseas operations. Our policy is not to hedge this
exposure.
In certain cases, where the Group gives or receives short-term loans to and from
other Group companies with different reporting currencies, it may use foreign
exchange swap derivative financial instruments to manage the currency and
interest rate exposure that arises on these loans. It is the Group's policy not
to seek to designate these derivatives as hedges.
Principal risks and uncertainties
The management of the business and the execution of the Company's strategy are
subject to a number of risks. The following section comprises a summary of what
Michael Page International plc believes are the main risks that could
potentially impact the Group's operating and financial performance.
People
The resignation of key individuals and the inability to recruit talented people
with the right skill-sets could adversely affect the Group's results. This is
further compounded by the Group's organic growth strategy and its policy of not
externally hiring senior operational positions. Mitigation of this risk is
achieved by succession planning, training of staff, competitive pay structures
linked to the Group's results and career progression.
Macro economic environment
Recruitment activity is largely driven by economic cycles and the levels of
business confidence. The Board look to reduce the Group's cyclical risk by
expanding geographically, by increasing the number of disciplines, by building
part-qualified and clerical businesses and by continuing to build the temporary
business.
A substantial portion of the Group's gross profit arises from fees which are
contingent upon the successful placement of a candidate in a position. If a
client cancels the assignment at any stage in the process the Group receives no
remuneration. As a consequence the Group's visibility of gross profits is
generally quite short and tends to reduce further during periods of economic
downturn.
Competition
The degree of competition varies in each of the Group's main regions. In the UK,
Australia and North America, the recruitment market is well developed, highly
competitive and fragmented. The characteristics of a developed market are
greater competition for clients and candidates, as well as pricing pressure. In
EMEA, Latin America and Asia, the recruitment market is generally less developed
with a large proportion of all recruitment being carried out by companies'
internal resources rather than through recruitment specialists. This is changing
rapidly due to changes in legislation, increasing job mobility and the
difficulty internal resources face in sourcing suitably qualified candidates.
If the Group does not continue to compete in its markets effectively, by hiring
new staff, opening and expanding offices and continuing the discipline
roll-outs, there is a risk that competitors may beat us to key strategic
opportunities, which may result in lost business and a reduction in market
share. This risk is mitigated by meetings of the Main Board, Executive Board and
Regional and Country Management Boards where Group strategy is continually
reviewed and decisions made over the allocation of the Group's resources,
principally people.
Technology
The Group is reliant on a number of technology systems to provide services to
clients and candidates. These systems are dependent on a number of important
suppliers that provide the technology infrastructure and disaster recovery
solutions. The performance of these suppliers are continually monitored to
ensure business critical services are available and maintained as far as
practically possible. Due to the rapid advancement of technology, there is a
risk that systems could become outdated with the potential to affect efficiency
and have an impact on revenue and client service. This risk is mitigated by
regular reviews of the Group's technology strategy to ensure that it supports
the overall Group strategy.
Legal
The Group operates in a large number of jurisdictions which have varying legal
and compliance regulations. The Group takes its responsibilities seriously and
ensures that its policies, systems and procedures are continually updated to
reflect best practice and to comply with the legal requirements in all the
markets in which it operates. In order to reduce the legal and compliance risks,
fee earners and support staff receive regular training and updates of changes in
legal and compliance requirements.
Stephen Puckett
Group Finance Director
4 March 2008
Consolidated Income Statement for the year ended 31 December 2007
2007 2006
Note £'000 £'000
Revenue 3 831,640 649,060
Cost of sales (353,546) (300,243)
Gross profit 3 478,094 348,817
Administrative expenses (328,662) (251,450)
Operating profit 3 149,432 97,367
Financial income 1,189 821
Financial expenses (3,180) (1,229)
Profit before tax 147,441 96,959
Income tax expense 4 (45,707) (31,512)
Profit for the year 101,734 65,447
Attributable to:
Equity holders of the parent 101,734 65,447
Earnings per share
Basic earnings per share (pence) 7 31.1 19.6
Diluted earnings per share (pence) 7 30.6 19.0
The above results relate to continuing operations.
Consolidated Statement of Changes in Equity at 31 December 2007
Reserve for
shares held in
Called-up Capital the employee
share Share redemption Currency translation Retained Total
capital premium reserve benefit trust reserve earnings equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2006 3,326 - 424 (9,871) 304 74,713 68,896
Currency translation differences - - - - (3,116) - (3,116)
Net expense recognised directly in equity - - - - (3,116) - (3,116)
Profit for the year - - - - - 65,447 65,447
Total recognised (expense)/income for
the year - - - - (3,116) 65,447 62,331
Purchase of own shares for cancellation (232) - 232 - - (83,363) (83,363)
Issue of share capital 238 37,952 - - - - 38,190
Transfer to reserve for shares held
in the employee benefit trust - - - 970 - (970) -
Credit in respect of share schemes - - - - - 12,425 12,425
Dividends - - - - - (18,088) (18,088)
6 37,952 232 970 - (89,996) (50,836)
Balance at 31 December 2006 3,332 37,952 656 (8,901) (2,812) 50,164 80,391
Balance at 1 January 2007 3,332 37,952 656 (8,901) (2,812) 50,164 80,391
Currency translation differences - - - - 8,127 - 8,127
Net income recognised directly in equity - - - - 8,127 - 8,127
Profit for the year - - - - - 101,734 101,734
Total recognised income for the year - - - - 8,127 101,734 109,861
Purchase of own shares for cancellation (115) - 115 - - (59,885) (59,885)
Purchase of shares held in the
employee benefit trust - - - (15,000) - - (15,000)
Issue of share capital 57 8,683 - - - - 8,740
Transfer to reserve for shares held
in the employee benefit trust - - - 1,161 - (1,161) -
Credit in respect of share scheme - - - - - 5,528 5,528
Dividends - - - - - (21,785) (21,785)
(58) 8,683 115 (13,839) - (77,303) (82,402)
Balance at 31 December 2007 3,274 46,635 771 (22,740) 5,315 74,595 107,850
Consolidated Balance Sheet at 31 December 2007
2007 2006
Note £'000 £'000
Non-current assets
Property, plant and equipment 27,149 21,550
Intangible assets - Goodwill 1,539 1,539
- Computer software 2,757 2,059
Deferred tax assets 4,998 9,447
Other receivables 2,301 1,927
38,744 36,522
Current assets
Trade and other receivables 192,810 143,813
Current tax receivable - 213
Cash and cash equivalents 10 82,990 35,587
275,800 179,613
Total assets 3 314,544 216,135
Non-current liabilities
Other payables (680) (1,130)
Deferred tax liabilities (17) -
(697) (1,130)
Current liabilities
Trade and other payables (115,405) (83,525)
Bank overdrafts 10 (47,433) (43)
Bank loans 10 (25,300) (39,150)
Current tax payable (17,859) (11,704)
Provisions for liabilities - (192)
(205,997) (134,614)
Total liabilities 3 (206,694) (135,744)
Net assets 107,850 80,391
Capital and reserves
Called-up share capital 3,274 3,332
Share premium 46,635 37,952
Capital redemption reserve 771 656
Reserve for shares held in the employee benefit trust (22,740) (8,901)
Currency translation reserve 5,315 (2,812)
Retained earnings 74,595 50,164
Total equity 107,850 80,391
Consolidated Statement of Cash Flows for the year ended 31 December 2007
2007 2006
Note £'000 £'000
Cash generated from operations 9 148,663 78,827
Income tax paid (36,519) (21,705)
Net cash from operating activities 112,144 57,122
Cash flows from investing activities
Purchases of property, plant and equipment (11,927) (9,167)
Purchases of computer software (1,579) (737)
Proceeds from the sale of property, plant and equipment, and computer
software 743 1,210
Interest received 1,189 821
Net cash used in investing activities (11,574) (7,873)
Cash flows from financing activities
Dividends paid (21,785) (18,088)
Interest paid (2,741) (1,209)
Proceeds from bank loan 25,300 39,150
Repayment of bank loan (39,150) (6,700)
Issue of own shares for the exercise of options 8,740 38,190
Purchase of own shares for cancellation (59,885) (83,363)
Purchase of shares held in the employee benefit trust (15,000) -
Net cash used in financing activities (104,521) (32,020)
Net (decrease)/ increase in cash and cash equivalents (3,951) 17,229
Cash and cash equivalents at the beginning of the year 35,544 19,779
Exchange gains/(losses) on cash and cash equivalents 3,964 (1,464)
Cash and cash equivalents at the end of the year 10 35,557 35,544
Notes to the consolidated preliminary results
1. Corporate information
Michael Page International plc is a limited liability company incorporated in
Great Britain and domiciled within the United Kingdom whose shares are publicly
traded. The consolidated preliminary results of the Company as at and for the
year ended 31 December 2007 comprise the Company and its subsidiaries (together
referred to as the "Group").
The consolidated preliminary results of the Group for the year ended 31 December
2007 were approved by the directors on 4 March 2008. The Annual General Meeting
of Michael Page International plc will be held at Page House, The Bourne
Business Park, Dashwood Lang Road, Addlestone, Surrey, KT15 2QW on 23 May 2008
at 12.00 noon.
2. Basis of preparation and accounting policies
Basis of preparation
These consolidated preliminary results have been prepared in accordance with the
recognition and measurement criteria of IFRS and the disclosure requirements of
the Listing Rules. They do not include all the information required for full
annual financial statements, and should be read in conjunction with the
consolidated financial statements of the Group as at and for the year ended 31
December 2006.
Nature of financial information
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2007 or 2006, but is derived
from those accounts. Statutory accounts for 2006 have been delivered to the
Registrar of Companies and those for 2007 will be delivered following the
Company's Annual General Meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under Section 237
(2) or (3) of the Companies Act 1985.
Significant accounting policies
The accounting policies applied by the Group in these consolidated preliminary
results are the same as those applied by the Group in its consolidated financial
statements as at and for the year ended 31 December 2006.
3. Segment reporting
The consolidated entity operates in one business segment, being that of
recruitment services, and this is the Group's primary segment. As a result, no
additional business segment information is required to be provided. The Group's
secondary segment is geography. The segment results by geography are shown
below:
a) Revenue, gross profit and operating profit by geographic region
Revenue Gross Profit Operating Profit
2007 2006 2007 2006 2007 2006
£'000 £'000 £'000 £'000 £'000 £'000
EMEA 321,102 222,993 196,421 126,577 63,013 34,171
United Kingdom 360,395 312,408 186,024 155,811 59,412 44,270
Asia Pacific Australia 72,020 63,208 32,855 26,017 9,899 8,982
Other 25,741 20,370 24,366 18,944 10,922 8,077
Total 97,761 83,578 57,221 44,961 20,821 17,059
Americas 52,382 30,081 38,428 21,468 6,186 1,867
831,640 649,060 478,094 348,817 149,432 97,367
The above analysis by destination is not materially different to analysis by
origin.
The analysis below is of the carrying amount of segment assets, liabilities and
capital expenditure. Segment assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on a reasonable
basis. The individual geographic segments exclude income tax assets and
liabilities. Capital expenditure comprises additions to property, plant and
equipment, motor vehicles and computer hardware/software.
b) Segment assets, liabilities and capital expenditure by geographic region
Total Assets Total Liabilities Capital Expenditure
2007 2006 2007 2006 2007 2006
£'000 £'000 £'000 £'000 £'000 £'000
EMEA 165,719 91,281 58,325 39,734 5,934 3,899
United Kingdom 89,679 88,364 114,622 73,228 5,043 3,113
Asia Pacific Australia 22,899 14,592 7,103 5,457 436 958
Other 15,672 10,165 2,738 2,251 303 386
Total 38,571 24,757 9,841 7,708 739 1,344
Americas 20,575 11,520 6,047 3,370 1,790 1,548
Segment assets/liabilities/
capital expenditure 314,544 215,922 188,835 124,040 13,506 9,904
Income tax - 213 17,859 11,704
314,544 216,135 206,694 135,744
The above table is shown gross of the effect of the multi-currency notional cash
pool. Were the cash pool to be shown on a net basis, this would reduce both the
total liabilities in the UK and the total assets in EMEA by £29.5m each.
c) Revenue and gross profit by discipline
Revenue Gross Profit
2007 2006 2007 2006
£'000 £'000 £'000 £'000
Finance and Accounting 496,506 408,250 258,667 202,542
Marketing, Sales and Retail 119,103 100,153 89,910 67,863
Legal, Technology, HR, Secretarial and Other 134,908 96,595 73,835 46,655
Engineering, Property & Construction, Procurement & Supply
Chain 81,123 44,062 55,682 31,757
831,640 649,060 478,094 348,817
d) Revenue and gross profit generated from permanent and
temporary placements
Revenue Gross Profit
2007 2006 2007 2006
£'000 £'000 £'000 £'000
Permanent 392,583 276,346 371,998 261,000
Temporary 439,057 372,714 106,096 87,817
831,640 649,060 478,094 348,817
The above analyses in notes (a) operating profit by geographic region, (b)
segment liabilities by geographic region, (c) revenue and gross profit by
discipline (being the professions of candidates placed) and (d) revenue and
gross profit generated from permanent and temporary placements have been
included as additional disclosure over and above the requirements of IAS 14 "
Segment Reporting".
4. Taxation
The Group's consolidated effective tax rate in respect of continuing operations
for the year ended 31 December 2007 was 31.0% (2006: 32.5%)
2007 2006
£'000 £'000
Tax charge
United Kingdom 21,357 17,046
Overseas 24,350 14,466
Income tax expense reported in the consolidated income statement 45,707 31,512
5. Dividends
2007 2006
£'000 £'000
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2006 of 4.2p per ordinary
share (2005: 3.5p) 13,979 12,100
Interim dividend for the year ended 31 December 2007 of 2.4p per
ordinary share (2006: 1.8p) 7,806 5,988
21,785 18,088
Amounts proposed as distributions to equity holders in the year:
Proposed final dividend for the year ended 31 December 2007 of 5.6p per
ordinary share (2006: 4.2p) 17,984 13,859
The proposed final dividend had not been approved by shareholders at 31 December
2007 and therefore has not been included as a liability. The comparative final
dividend at 31 December 2006 was also not recognised as a liability in the prior
year.
The proposed final dividend of 5.6p (2006: 4.2p) per ordinary share will be paid
on 9 June 2008 to shareholders on the register at the close of business on 9 May
2008, subject to approval by shareholders.
6. Share-based payments
In accordance with IFRS 2 "Share-based Payment", a charge of £2.4m has been
recognised for share options (including social charges) (2006: £4.6m), and £4.8m
has been recognised for other share-based payment arrangements (including social
charges) (2006: £3.7m).
7. Earnings per ordinary share
The calculation of the basic and diluted earnings per share is based on the
following data:
2007 2006
Earnings
Earnings for basic and diluted earnings per share (£'000) 101,734 65,447
Number of shares
Weighted average number of shares used for basic earnings per share ('000) 327,528 334,744
Dilution effect of share plans ('000) 5,353 8,888
Diluted weighted average number of shares used for diluted earnings per share ('000) 332,881 343,632
Basic earnings per share (pence) 31.1 19.6
Diluted earnings per share (pence) 30.6 19.0
The above results relate to continuing operations.
8. Property, plant and equipment
Acquisitions and disposals
During the year ended 31 December 2007 the Group acquired property, plant and
equipment with a cost of £11.9m (2006: £9.2m).
Property, plant and equipment with a carrying amount of £0.8m were disposed of
during the year ended 31 December 2007 (2006: £1.2m), resulting in a loss on
disposal of £91k (2006: gain of £48k), which is included in "Administrative
Expenses".
Capital commitments
The Group had contractual capital commitments of £1.2m as at 31 December 2007
(2006: £0.6m) relating to property, plant and equipment.
9. Cash flows from operating activities
2007 2006
£'000 £'000
Profit before tax 147,441 96,959
Depreciation and amortisation charges 7,660 6,445
Loss/(profit) on sale of property, plant and equipment, and computer 91 (48)
software
Share scheme charges 6,757 4,168
Net finance cost 1,991 408
Operating cash flow before changes in working capital and provisions 163,940 107,932
Increase in receivables (40,863) (42,376)
Increase in payables 25,778 13,655
Decrease in provisions (192) (384)
Cash generated from operations 148,663 78,827
10. Cash and cash equivalents
2007 2006
£'000 £'000
Cash at bank and in hand 75,647 23,355
Short-term deposits 7,343 12,232
Cash and cash equivalents 82,990 35,587
Bank overdrafts (47,433) (43)
Cash and cash equivalents in the statement of cash flows 35,557 35,544
Bank loans (25,300) (39,150)
Net funds/(debt) 10,257 (3,606)
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