Final Results
Michael Page International PLC
28 February 2007
Michael Page International plc
RECORD REVENUES AND PROFITS
Full Year Results for the year ended 31 December 2006
Michael Page International plc ("Michael Page"), the specialist professional
recruitment company, announces its full year results for the year ended 31
December 2006.
2006 2005 Change
£m £m
Turnover 649.1 523.8 + 24%
Gross profit 348.8 267.6 + 30%
Operating profit 97.4 66.5 + 46%
Profit before tax 97.0 66.1 + 47%
Basic earnings per share (pence) 19.6 14.8 + 32%
Diluted earnings per share (pence) 19.0 14.4 + 32%
Dividend 6.0p 5.0p + 20%
Key Points
• Record levels of turnover and profits
• Gross profit increase of 30%
• Operating profit increase of 46%
• Strong gross profit growth in EMEA (up 47%) and Americas (up 67%)
• Significant investment during 2006
- Offices opened in five new countries: Russia, Mexico, South Africa, the
United Arab Emirates and the Republic of Ireland
- Headcount increased by 28% to 3,758 employees
• £78.8m of cash generated from operations (2005: £65.4m)
• 23.3m shares repurchased at a cost of £83.4m
• 20% increase in total dividend
Commenting on the results, Steve Ingham, Chief Executive of Michael Page, said:
"The outlook for Michael Page is highly encouraging. We are currently
experiencing favourable trading conditions in all the regions in which we
operate. During 2006, we invested heavily and this will continue in order to
capitalise on the numerous opportunities for further medium and longer-term
growth. Whilst this investment will be across all regions, the most significant
in terms of senior management, office openings and headcount will be in North
America and Northern Europe where we see the greatest opportunities.
"With the current short-term economic outlook looking relatively favourable, and
with our Australian business getting back on track, I am confident of reporting
further progress in 2007."
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 / Susanne Walker
CHAIRMAN'S STATEMENT
I am delighted to report on another year of tremendous growth for the Group with
record levels of turnover and profits. At the beginning of April, Steve Ingham
was appointed Chief Executive and under his stewardship we have continued our
strategy of growing organically, with start-ups in five new countries, opening
and expanding offices in our established countries and broadening the
disciplines offered in existing markets.
The Group has many opportunities to continue its growth and is particularly well
positioned with its strong brand, international network of offices,
multi-disciplinary offering and, above all, its high quality management and
staff.
Financial highlights
Turnover for the year ended 31 December 2006 increased 23.9% to £649.1m (2005:
£523.8m). Gross profits grew by 30.4% to £348.8m (2005: £267.6m). 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 53.7% (2005: 51.1%).
Given the Group's high operational gearing, combined with management's close
attention to costs, operating profits increased by 46.4% to a record £97.4m
(2005: £66.5m).
Profit before tax was £97.0m (2005: £66.1m) and basic earnings per share
increased by 32.4% to 19.6p (2005: 14.8p).
Dividends and share repurchases
With strong growth in earnings, it is the Board's intention to continue its
policy of continually reviewing the annual dividend with a view to maintaining
it at a level which it believes is sustainable throughout economic cycles. Cash
generated in excess of these 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 20%. A
final dividend of 4.2p (2005: 3.5p) per share is proposed which, together with
the interim dividend of 1.8p (2005: 1.5p) per share paid in October, makes a
total dividend for the year of 6.0p (2005: 5.0p) per share. The final dividend
will be paid on 5 June 2007 to those shareholders on the register at 4 May 2007.
The total dividend is covered 3.3 times by basic earnings per share of 19.6p.
We continued to make share repurchases throughout 2006 acquiring 23.3m shares
for £83.4m, including related expenses, at an average price per share of 355.8p.
At the Annual General Meeting on 23 May 2007, we will be seeking shareholders'
consent for a renewal of the authority to repurchase up to 10% of the issued
shares.
Employees
I wish to express my thanks to the staff worldwide for their commitment, loyalty
and efforts throughout the year which has delivered this outstanding
performance.
Board of Directors
On 6 April 2006, Steve Ingham was formally appointed as Chief Executive,
succeeding Terry Benson who announced his decision to retire as Chief Executive
in December 2005.
Steve Ingham, who has been with the Group for 20 years, has been a member of the
senior management for much of that time and a key contributor to establishing
the current Group strategy.
Prospects
The Group has excellent growth prospects across all its regions. We are
particularly excited about the opportunities in North America where, having
already successfully established a foot-hold, we will continue to roll-out our
strategy. In Continental Europe, market deregulation will continue to have a
positive impact on our business. With its strong brand, international network of
offices, multi-discipline offering and, above all, its high quality management
and staff, Michael Page is well positioned in all of its markets.
We will make a statement in respect of our trading for the first quarter on 5
April 2007.
Sir Adrian Montague CBE
Chairman
28 February 2007
CHIEF EXECUTIVE'S REVIEW
2006 was another very strong year for Michael Page and I am delighted to report
an excellent set of results, my first as Chief Executive of the Group. These
results reflect not only the efforts put in during the year, but also the
decisions made in earlier periods which laid the foundations to achieve these
record numbers. It always has been, and will continue to be, our intention to
take decisions and make investments for the longer-term benefit of our
stakeholders. These decisions and investments may impact the profits reported
in an individual period, but, we believe, they will deliver greater returns over
the longer-term.
Staff and office numbers
We have made a number of new investments during 2006, opening in five countries,
hiring new staff, opening and expanding offices and continuing the discipline
roll-outs. At the end of the year, the Group had 3,758 (2005: 2,926) fee
generating and support staff, operating from 133 (2005: 118) offices in 23
(2005: 18) countries.
United Kingdom
In the UK, turnover increased by 15.9% to £312.4m (2005: £269.6m) and gross
profit by 20.3% to £155.8m (2005: £129.5m). Operating profits were £44.3m (2005:
£31.9m), an increase of 38.6%.
The gross profits of the Finance and Accounting businesses of Michael Page
Finance, Michael Page Financial Services and Accountancy Additions, which
generated 54% of UK gross profit, were 14% higher than in 2005 with both
permanent and temporary recruitment fees growing well. Michael Page Finance, the
largest of the three businesses, opened offices in Sheffield and, in January
2007, Leicester. Michael Page Financial Services had a very strong year of
growth and now accounts for around 10% of UK gross profits. Accountancy
Additions, which specialises in part-qualified and clerical accounting
positions, continued to expand its office network from 32 to 35 locations with
new offices in Peterborough, Sheffield and Cardiff. We have a medium-term goal
of building the network towards 50 offices by 2010.
The combined gross profits of Michael Page Marketing, Michael Page Sales and
Michael Page Retail, were 13% higher than in 2005 and combined represented 21%
of the UK gross profit. The Marketing and Sales businesses, which operate from 8
locations, produced strong growth from all industry sectors. Despite the
continuing tough conditions on the High Street, Retail, the smallest of the
three businesses, still achieved year-on-year growth.
Michael Page Legal, Michael Page Technology, Michael Page Human Resources and
Michael Page Secretarial achieved strong growth of 44% and combined represent
15% of UK gross profit. Legal grew strongly both in London and the regions with
new teams being added in Liverpool and Guildford. Human Resources now operate
from 7 locations having opened in Leeds. Secretarial, which operates from a
single office in London, had a very successful year. Technology, the smallest of
the four businesses, operating only in London, has achieved good growth and in
January 2007 opened a second location in Weybridge.
The more recently created Michael Page Engineering & Manufacturing, Michael Page
Procurement & Supply Chain and the newly launched Michael Page Property and
Construction grew at over 40% and now represent 5% of UK gross profit. The
potential for all of these businesses is significant and we are investing
heavily in them, adding headcount and opening in new locations.
We also had an outstanding year in Scotland growing gross profit by 62%, adding
fee earners to the existing disciplines, as well as launching Legal and Human
Resources. Scotland now represents 4% of UK gross profit.
Continental Europe, Middle East and Africa (EMEA)
Turnover in EMEA for the year increased by 40.1% to £223.0m (2005: £159.2m) and
gross profit increased by 46.9% to £126.6m (2005: £86.1m). As a result of the
increased revenue and high operational gearing, the region produced an increase
of 75.7% in operating profit at £34.2m (2005: £19.4m).
In France (38% of EMEA), our second-largest and most established business after
the UK, gross profit increased by 22%. As a result of the "Borloo" law in France
we have restructured our businesses. Page Personnel, which was purely a
temporary placement business, can now make permanent placements, some of which
in the past would have been made by Michael Page. The businesses were
restructured during the second half of 2006, with Page Personnel now making
temporary and permanent placements from middle-management positions and below.
Michael Page still only does permanent placements, but now concentrates on
middle-management positions and above. We have established Michael Page Interim
to service senior level temporary positions.
Elsewhere in the region, collectively our businesses achieved gross profit
growth of 68%. In Holland (19% of EMEA), Germany (12% of EMEA) and Spain (11% of
EMEA) our businesses grew by over 60%. We have also achieved strong growth in
Belgium, Italy, Poland, Portugal, Sweden and Switzerland. In each of these
countries we added additional staff, expanded existing or opened new offices and
continued the roll-out of disciplines.
In addition, we launched businesses in four new countries where we saw
significant scope for longer-term growth. We opened offices in Moscow,
Johannesburg, Dubai and, at the end of October 2006, Dublin. These offices were
all opened with experienced senior Michael Page management and we have quickly
added additional staff with all offices generating gross profits in 2006.
The growth in 2006 has been partly achieved by utilising spare capacity and
partly by investment. The better utilisation of capacity is reflected in the
operating profits increasing by 75.7% from an increase in gross profit of 46.9%.
There is now little spare capacity remaining in the businesses and we will
continue to invest sensibly to exploit the numerous growth opportunities that
remain.
Asia Pacific
In the Asia Pacific region, turnover was 8.9% higher at £83.6m (2005: £76.7m),
gross profit was 15.2% higher at £45.0m (2005: £39.0m) and operating profit
increased 21.0% to £17.1m (2005: £14.1m).
In Australia (58% of Asia Pacific) gross profit grew by 5.2% and operating
profit increased by 5.6%. The weak performance in the fourth quarter of 2005
when the business was impacted by an IT implementation continued during the
first half of 2006. Following a review of the business a number of management
and structural changes were implemented. These changes were completed at the
end of the third quarter. While the full benefits of these changes are expected
to become evident as we progress through 2007, we were encouraged by the 16.8%
growth in fourth quarter gross profits.
In Hong Kong, Shanghai, Tokyo and Singapore, we achieved another year of
substantial gross profit growth with all locations growing at or above 30%.
During the year, we have expanded the office in Shanghai and at the end of the
year opened an office in Sha Tin which will allow us to penetrate more
effectively the market in the New Territories and across the border in Southern
China, particularly the Pearl River Delta.
The Americas
Turnover for the region was 64.3% higher at £30.1m (2005: £18.3m), gross profit
increased by 66.8% to £21.5m (2005: £12.9m) and operating profit increased 81.4%
to £1.9m (2005: £1.0m).
In North America, following our rapid expansion to seven offices, we
consolidated our presence by significantly increasing the staff in existing
locations and launching new disciplines. Having previously focused only on
Finance and Accounting, and Banking we started Sales, Marketing, Human
Resources, Engineering, and Procurement & Supply Chain, initially in one office.
These disciplines will be rolled-out to the existing network of offices in 2007.
We have also invested further in our senior management in North America, with
a number of experienced transfers, creating a regional structure to capitalise
on the size of the opportunity. This structure will enable us to expand further
with a new office already opened in Hartford, Connecticut in January 2007 and
others planned for later in the year. This scale and pace of investment will of
course have some impact on the operating margin we generate from the region in
the short-term. However, we believe structurally, in the medium-term, we can
achieve margins similar to those we generate in the UK and EMEA.
We are extremely pleased with our continued development in Latin America. In
Brazil, we achieved another very successful year growing headcount and expanding
the Sao Paulo and Rio de Janeiro offices, as well as opening a third office
in Campinas. In the second half of the year, we opened in Mexico City, starting
with Finance and Accounting, and Banking and plan to start another discipline
during the first quarter of 2007. Latin America provides another tremendous
opportunity for the Group to expand and we now have some highly-talented,
home-grown, experienced staff that can drive this growth.
Strategy
Having worked for Michael Page for 20 years and been a significant contributor
to the development of the Group's strategy, my appointment reinforces the
intention to maintain that strategy. I have, and will, continue to place great
emphasis on the key components of the strategy and where appropriate accelerate
the pace of implementation. For instance, communication across the Group and
between the regions has considerably improved with the establishment of an
Executive Committee. We will continue to expand organically, gradually
diversifying and reducing the dependency upon any single geographic market or
individual discipline.
Investment in 2007
We have made significant investment in 2006, opening in five new countries and
increasing headcount by 28% to 3,758. We plan further expansion in 2007, with
headcount expected to increase by 21% to around 4,550 by the end of the year.
Whilst this investment will be across all regions, the most significant in terms
of senior management, office openings and headcount, will be in North America
and Northern Europe where we see the greatest opportunities. The investments we
have made, and plan to make, will increase the 2007 pre-bonus cost base to
approximately £260m, including all share-based charges.
Outlook
The outlook for Michael Page is highly encouraging. We are currently
experiencing favourable trading conditions in all the regions in which we
operate. During 2006, we invested heavily and this will continue in order to
capitalise on the numerous opportunities for future medium and longer-term
growth. We have an exceptional pool of ambitious and talented people in the
Group, in particular at the senior management level, with the expertise and
skills required to launch new businesses successfully, and who are highly
motivated to build on our success.
With the current near-term economic outlook looking relatively favourable, and
with our Australian business getting back on track, I am confident of reporting
further progress during 2007.
Steve Ingham
Chief Executive
28 February 2007
FINANCE DIRECTOR'S REVIEW
Income statement
Turnover
2006 was another successful year for the Group with all regions delivering
strong growth. Turnover for the year increased by 23.9% to £649.1m (2005:
£523.8m). Turnover from temporary placements increased by 17.1% to £372.7m
(2005: £318.3m) and represented 57.4% (2005: 60.8%) of Group turnover. Turnover
from permanent placements was £276.3m (2005: £205.5m), an increase of 34.5%.
Gross profit
Gross profit for the year increased by 30.4% to £348.8m (2005: £267.6m)
representing an overall gross margin of 53.7% (2005: 51.1%). The percentage
increase in gross profit is greater than the increase in turnover due primarily
to the higher proportion of gross profit derived from permanent placements in
2006, together with a higher volume of temporary placements at a slightly higher
gross margin. Gross profit from temporary placements was £87.8m (2005: £72.6m)
and represented 25.2% (2005: 27.1%) of Group gross profit. The gross margin
achieved on temporary placements was 23.6% (2005: 22.8%).
Operating profit
As a result of the Group's organic growth strategy, tight control on costs and
profit-based bonuses, we have a business which is operationally geared as
evidenced by the 46.4% increase in operating profits from a 30.4% increase in
gross profit.
This strategy means the Group incurs start-up costs and operating losses as
investments are made to grow existing and new businesses, by opening new offices
or launching in new countries. The Chief Executive's review describes a number
of these investments including new businesses in Russia, Mexico, South Africa,
the United Arab Emirates and the Republic of Ireland.
As a result of the increased numbers of staff and offices, plus start-up costs
and higher bonuses due to the increased profits, administrative expenses in the
year increased by 25.1% to £251.5m (2005: £201.1m). Administrative expenses
also includes a £4.6m charge (2005: £2.9m) in respect of executive share option
schemes, the increase over the 2005 charge being largely due to the impact of
employers' social charges as a consequence of the 68% increase in the share
price from 270p at the end of 2005 to 452.25p at the end of 2006.
The Group's largest category of expenditure, approximately 75%, is the
remuneration of our consultants and support staff. Headcount of the Group was
2,926 at 1 January 2006 and increased during the year by 28% to 3,758
consultants and support staff. One of the anticipated benefits of the roll-out
of our new recruitment system, which started in 2003 and was completed in 2005,
was a reduction in the ratio of support staff to fee earners. The proportion of
support staff has reduced from 36% in 2003 to 26% in 2006.
Net interest
While we started the year with net cash of £13.1m, there is a substantial cash
outflow in January every year as fourth-quarter and annual bonuses, are paid,
and as profits have increased by 46% the bonuses have increased by a similar
proportion. We aim to manage the balance sheet with a broadly neutral cash/debt
position using surplus cash to repurchase shares and, as necessary, drawing on
borrowing facilities. As a consequence, a net interest charge similar to last
year was incurred of £0.4m (2005: £0.4m).
Taxation
Tax on profits was £31.5m (2005: £16.5m), representing an effective tax rate of
32.5% (2005: 25.0%). 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
was lower in 2005 as a result of utilising and recognising tax losses incurred
in earlier years.
Share repurchases and share options
During the year, 23.3m shares were repurchased at an average price of 355.8p.
These shares have all been cancelled.
At the beginning of 2006, the Group had options outstanding over 38.1m shares,
21.2m of which were granted at the time of the IPO in 2001, the balance being
accumulated by annual grants since 2001 with a further grant of 2.1m shares
during the year under review. In 2006, on achieving performance targets, 27.3m
share options vested, including 15.9m of the IPO grant referred to above. At 31
December 2006, option holders had exercised 23.9m of these share options. At the
end of 2006, 14.5m share options remain outstanding of which 3.5m have vested,
but not yet been exercised by option holders.
Earnings per share and dividends
In 2006, basic earnings per share were 19.6p (2005: 14.8p) and diluted earnings
per share were 19.0p (2005: 14.4p). The weighted average number of shares for
the year was 334.7m (2005: 336.3m) reflecting the impact of the shares
repurchased during the year and the new shares issued to satisfy option
exercises.
An increase in the final dividend to 4.2p (2005: 3.5p) per ordinary share has
been proposed which, together with the interim dividend of 1.8p (2005: 1.5p) per
ordinary share, makes a total dividend for the year of 6.0p (2005: 5.0p) per
ordinary share, an increase of 20%. The proposed final dividend, which amounts
to £13.9m, will be paid on 5 June 2007 to those shareholders on the register as
at 4 May 2007.
Balance sheet
The Group had net assets of £80.4m at 31 December 2006 (2005: £68.9m). The
increase in net assets principally relates to the profit of £65.4m, the credit
relating to share schemes of £12.4m and the exercise of share options of £38.2m,
offset by share repurchases of £83.4m and dividends paid of £18.1m.
Our capital expenditure is driven primarily by two main factors: headcount, in
terms of office accommodation and infrastructure; the maintenance and
enhancement of our IT systems. Capital expenditure, net of disposal proceeds,
increased to £8.7m (2005: £6.8m) reflecting the 28% 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
£118.2m at 31 December 2006 (2005: £82.7m) representing debtor days of 55 (2005:
49 days).
Cash flow
At the start of the year, the Group had net cash of £13.1m.
During the year, the Group generated net cash from operating activities of
£78.8m (2005: £65.4m) being £103.8m (2005: £72.7m) of EBITDA, an increase in
working capital requirements of £28.7m (2005: £8.5m) and movements in provisions
of £0.4m (2005: £0.6m).
The principal payments have been:
• £8.7m (2005: £6.8m) of capital expenditure, net of disposal proceeds, on
property, infrastructure, information systems and motor vehicles for staff;
• taxes on profits of £21.7m (2005: £10.1m);
• dividends of £18.1m (2005: £14.4m); and
• share repurchases of £83.4m (2005: £34.2m).
£38.2m (2005: £nil) was received in the year from the issue of new shares to
satisfy share option exercises.
At 31 December 2006, the Group had net debt of £3.6m.
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 cash/debt position within a relatively narrow
band. Cash generated in excess of these requirements will be used to buyback the
Company's shares for which renewal of the existing general authority is being
sought at the forthcoming Annual General Meeting.
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 main functional currencies of the Group are Sterling, Euro, US Dollar 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 although our policy is not
to hedge this exposure.
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. Certain of these indicators
are used in the appraisal of senior management on a global basis. The source of
data and calculation methods year-on-year are on a consistent basis. This is the
first year this information has been presented.
KPI 2006 2005 Definition, method of calculation and analysis
Job count data 35,336 24,496 Represents the number of live jobs on the Michael Page
website. It is not necessarily an indication of the financial
performance or prospects of Michael Page International and
should not be considered in isolation; the "global" figure
does not include all business lines (Accountancy Additions and
Page Personnel vacancies are not included). Source: Internal
data.
Gross margin 53.7% 51.1% 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 27.9% 24.9% Operating profit as a percentage of revenue 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 £126.2k £129.0k Represents how productive fee earners are in the business and
is calculated by dividing the gross profit for the year by the
(revenue per fee number of fee earners and directors at the year end. The
earner) 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 : support 74:26 71:29 Represents the balance between operational and non-operational
staff ratio staff. The movement this year demonstrates faster growth in
fee earners in relation to support staff. Source: Internal
data.
Return on capital 119.4% 95.2% A measure of the returns that a company is making from its
employed capital. Calculated as profit before interest, tax and
dividends, divided by total assets less current liabilities.
The ratio shows how efficiently capital is being used to
generate revenue. Source: Consolidated financial statements.
Current ratio 1.3 1.4 This ratio is derived by dividing current assets by current
liabilities, and is a good indicator of a company's ability to
meet short-term debt obligations; the higher the ratio, the
more liquid the company is. The current ratio is in line with
our expectations and broadly consistent with last year.
Source: Consolidated financial statements.
We achieved a higher level of organic 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. Our ROCE increased this year with the current ratio remaining
broadly in line with expectations. These are important measures of our creation
of value for shareholders. The increase in the ratio of number of fee earners to
the number of support staff has increased as a result of efficiencies made from
enhancing our IT systems.
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
To continue to attract, train and retain high calibre individuals who are key to
achieving these objectives. 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 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.
Economic cycle
Recruitment is largely driven by economic cycles and the levels of business
confidence. The Board look to reduce the 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.
Competition
The Group operates in a highly competitive market around the world. If the Group
does not continue to compete in its market effectively by hiring new staff,
opening and expanding offices and continuing the disciplines roll-outs, there is
a risk that our 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 and Executive Committee where Group
strategy is continually reviewed and discussed.
Technology
To utilise new technology or enhance existing technology to support the opening
of new offices and the roll-out of new disciplines around the world. 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 the appointment of a new Chief
Information Officer in 2005 to oversee all IT strategy and innovation to support
the wider business strategy.
Legal risks
The Group operates in a large number of jurisdictions which have varying legal
and compliance regulations. 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
28 February 2007
Consolidated Income Statement for the year ended 31 December 2006
2006 2005
Note £'000 £'000
Turnover 3 649,060 523,810
Cost of sales (300,243) (256,229)
Gross profit 3 348,817 267,581
Administrative expenses (251,450) (201,062)
Operating profit 3 97,367 66,519
Financial income 821 393
Financial expenses (1,229) (776)
Profit before tax 96,959 66,136
Income tax expense 4 (31,512) (16,506)
Profit for the year 65,447 49,630
Attributable to
Equity holders of the parent 65,447 49,630
Earnings per share
Basic earnings per share (pence) 7 19.6 14.8
Diluted earnings per share (pence) 7 19.0 14.4
The above results relate to continuing operations.
Consolidated Statement of Changes in Equity at 31 December 2006
Capital Reserve Currency
Share Share redemption for own Treasury translation Retained Total
capital premium reserve shares shares reserve earnings equity
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2005 3,572 - 178 (9,871) (13,122) (188) 79,931 60,500
Currency translation - - - - - 492 - 492
differences
Net income recognised directly - - - - - 492 - 492
in equity
Profit for the year - - - - - - 49,630 49,630
Total recognised income for - - - - - 492 49,630 50,122
the year
Purchase of own shares - - - - (34,216) - - (34,216)
Cancellation of treasury shares (246) - 246 - 47,338 - (47,338) -
Credit in respect of share - - - - - - 6,922 6,922
schemes
Dividends 5 - - - - - - (14,432) (14,432)
(246) - 246 - 13,122 - (54,848) (41,726)
Balance at 31 December 2005 3,326 - 424 (9,871) - 304 74,713 68,896
Balance at 1 January 2006 3,326 - 424 (9,871) - 304 74,713 68,896
Currency translation - - - - - (3,116) - (3,116)
differences
Net expense recognised directly - - - - - (3,116) - (3,116)
in equity
Profit for the year - - - - - - 65,447 65,447
Total recognised (expense)/ - - - - - (3,116) 65,447 62,331
income for the year
Purchase of own shares for (232) - 232 - - - (83,363) (83,363)
cancellation
Issue of share capital 238 37,952 - - - - - 38,190
Transfer to reserve for own - - - 970 - - (970) -
shares
Credit in respect of share - - - - - - 12,425 12,425
schemes
Dividends 5 - - - - - - (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
Consolidated Balance Sheet at 31 December 2006
2006 2005
Note £'000 £'000
Non-current assets
Property, plant and equipment 21,550 19,666
Intangible assets - Goodwill 1,539 1,539
- Computer software 2,059 2,212
Deferred tax assets 9,447 9,255
Other receivables 1,927 1,106
36,522 33,778
Current assets
Trade and other receivables 143,813 104,935
Current tax receivable 213 336
Cash and cash equivalents 10 35,587 20,060
179,613 125,331
Total assets 3 216,135 159,109
Non-current liabilities
Other payables (1,130) (662)
Provisions for liabilities - (192)
Deferred tax liabilities - (147)
(1,130) (1,001)
Current liabilities
Trade and other payables (83,525) (71,624)
Bank overdrafts 10 (43) (281)
Bank loans 10 (39,150) (6,700)
Current tax payable (11,704) (10,223)
Provisions for liabilities (192) (384)
(134,614) (89,212)
Total liabilities 3 (135,744) (90,213)
Net assets 80,391 68,896
Capital and reserves
Called-up share capital 3,332 3,326
Share premium 37,952 -
Capital redemption reserve 656 424
Reserve for own shares (8,901) (9,871)
Currency translation reserve (2,812) 304
Retained earnings 50,164 74,713
Total equity 80,391 68,896
Consolidated Statement of Cash Flows for the year ended 31 December 2006
2006 2005
Note £'000 £'000
Cash generated from operations 9 78,827 65,432
Income tax paid (21,705) (10,127)
Net cash from operating activities 57,122 55,305
Cash flows from investing activities
Purchases of property, plant and equipment (9,167) (7,167)
Purchases of computer software (737) (965)
Proceeds from the sale of property, plant and equipment, 1,210 1,354
and computer software
Proceeds from the sale of business - 1,353
Interest received 821 393
Net cash used in investing activities (7,873) (5,032)
Cash flows from financing activities
Dividends paid (18,088) (14,432)
Interest paid (1,209) (773)
Proceeds from bank loan 39,150 6,700
Repayment of bank loan (6,700) -
Issue of own shares for the exercise of options 38,190 -
Purchase of own shares (83,363) (34,216)
Net cash used in financing activities (32,020) (42,721)
Net increase in cash and cash equivalents 17,229 7,552
Cash and cash equivalents at the beginning of the year 19,779 12,215
Exchange (losses)/gains on cash and cash equivalents (1,464) 12
Cash and cash equivalents at the end of the year 10 35,544 19,779
Notes to the consolidated financial information
1. Corporate information
Michael Page International plc is a limited liability company incorporated 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 2006 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
2006 were approved by the directors on 28 February 2007. The Annual General
Meeting of Michael Page International plc will be held at Victoria House,
Southampton Row, London, WC1B 4JB on 23 May 2007 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 2005.
Nature of financial information
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2006 or 2005, but is derived
from those accounts. Statutory accounts for 2005 have been delivered to the
Registrar of Companies and those for 2006 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
results as at and for the year ended 31 December 2005.
3. Segment reporting
The consolidated entity operates in one business segment being that of
recruitment services and 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) Turnover, gross profit and operating profit by geographic region
Turnover Gross Profit Operating Profit
2006 2005 2006 2005 2006 2005
£'000 £'000 £'000 £'000 £'000 £'000
United Kingdom 312,408 269,623 155,811 129,535 44,270 31,939
EMEA 222,993 159,157 126,577 86,138 34,171 19,449
Asia Pacific Australia 63,208 61,152 26,017 24,722 8,982 8,509
Other 20,370 15,565 18,944 14,315 8,077 5,593
Total 83,578 76,717 44,961 39,037 17,059 14,102
Americas 30,081 18,313 21,468 12,871 1,867 1,029
649,060 523,810 348,817 267,581 97,367 66,519
The above analysis by destination is not materially different to analysis by
origin.
The analysis below is of the carrying amount of segment assets, segment
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, segment liabilities and capital expenditure by
geographic region
Total Assets Total Liabilities Capital Expenditure
2006 2005 2006 2005 2006 2005
£'000 £'000 £'000 £'000 £'000 £'000
United Kingdom 88,364 66,379 73,228 39,159 3,113 3,117
EMEA 91,281 64,932 39,734 31,648 3,899 2,403
Asia Pacific Australia 14,592 12,256 5,457 5,547 958 773
Other 10,165 6,877 2,251 1,694 386 584
Total 24,757 19,133 7,708 7,241 1,344 1,357
Americas 11,520 8,329 3,370 1,942 1,548 1,255
Segment assets/liabilities/capital 215,922 158,773 124,040 79,990 9,904 8,132
expenditure
Income tax assets/liabilities 213 336 11,704 10,223
216,135 159,109 135,744 90,213
(c) Turnover and gross profit by discipline
Turnover Gross Profit
2006 2005 2006 2005
£'000 £'000 £'000 £'000
Finance and accounting 408,250 336,207 202,542 159,463
Marketing, sales and retail 100,153 84,591 67,863 55,111
Legal, technology, HR, secretarial and 96,595 69,740 46,655 31,833
other
Engineering, property & construction, 44,062 33,272 31,757 21,174
procurement & supply chain
649,060 523,810 348,817 267,581
(d) Turnover and gross profit generated from permanent and temporary
placements
Turnover Gross Profit
2006 2005 2006 2005
£'000 £'000 £'000 £'000
Permanent 276,346 205,482 261,000 194,967
Temporary 372,714 318,328 87,817 72,614
649,060 523,810 348,817 267,581
The above analysis in notes (a) operating profit by geographic region, (b)
segment liabilities by geographic region, (c) turnover and gross profit by
discipline (being the professions of candidates placed), and (d) turnover and
gross profit generated from permanent and temporary placements, have been
included as additional disclosure over and above the requirement of IAS 14
"Segment Reporting".
Note (d) turnover and gross profit generated from permanent and temporary
placements has been included this year for the purpose of additional
information.
4. Taxation
The Group's consolidated effective tax rate in respect of continuing operations
for the year ended 31 December 2006 was 32.5% (31 December 2005: 25.0%).
2006 2005
£'000 £'000
Tax charge
Tax charge - UK 16,695 9,191
Tax charge - Overseas 14,817 7,315
Income tax expense reported in the consolidated income statement 31,512 16,506
5. Dividends
2006 2005
£'000 £'000
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2005 of 3.5p per ordinary share 12,100 9,444
(2004: 2.75p)
Interim dividend for the year ended 31 December 2006 of 1.8p per ordinary 5,988 4,988
share (2005: 1.5p)
18,088 14,432
Amounts proposed as distributions to equity holders in the year:
Proposed final dividend for the year ended 31 December 2006 of 4.2p per 13,859 11,497
ordinary share (2005: 3.5p)
The proposed final dividend had not been approved by shareholders at 31 December
2006 and therefore has not been included as a liability. The comparative final
dividend at 31 December 2005 was also not recognised as a liability in the prior
year.
A final dividend of 4.2p (2005: 3.5p) per ordinary share will be paid on 5 June
2007 to shareholders on the register at the close of business on 4 May 2007.
6. Share-based payments
In accordance with IFRS 2 "Share-based Payment", a charge of £4.6m has been
recognised for share options (including social charges) (2005: £2.9m), and £3.7m
has been recognised for other share-based payment arrangements (including social
charges) (2005: £1.5m).
7. Earnings per ordinary share
The calculation of the basic and diluted earnings per share is based on the
following data:
2006 2005
Earnings
Earnings for basic earnings per share (£'000) 65,447 49,630
Number of shares
Weighted average number of shares used for basic earnings per share ('000) 334,744 336,283
Dilution effect of share plans ('000) 8,888 9,014
Diluted weighted average number of shares used for diluted earnings per share 343,632 345,297
('000)
Basic earnings per share (pence) 19.6 14.8
Diluted earnings per share (pence) 19.0 14.4
The above results relate to continuing operations.
8. Property, plant and equipment
Acquisitions and disposals
During the year ended 31 December 2006 the Group acquired property, plant and
equipment with a cost of £9.2m (2005: £7.2m).
Property, plant and equipment with a carrying amount of £1.2m were disposed of
during the year ended 31 December 2006 (2005: £1.1m), resulting in a gain on
disposal of £48k (2005: gain of £0.2m), which is included in "Administrative
Expenses".
Capital commitments
The Group had contractual capital commitments of £0.6m as at 31 December 2006
(2005: £0.4m) relating to property, plant and equipment.
9. Cash flows from operating activities
2006 2005
£'000 £'000
Profit before tax 96,959 66,136
Depreciation and amortisation charges 6,445 6,162
Profit on sale of property, plant and equipment, and computer software (48) (183)
Profit on the sale of business - (622)
Share scheme charges 4,168 2,694
Net finance cost 408 383
Operating cashflow before changes in working capital and provisions 107,932 74,570
Increase in receivables (42,376) (17,907)
Increase in payables 13,655 9,381
Decrease in provisions (384) (612)
Cash generated from operations 78,827 65,432
10. Cash and cash equivalents
2006 2005
£'000 £'000
Cash at bank and in hand 23,355 11,095
Short term deposits 12,232 8,965
Cash and cash equivalents 35,587 20,060
Bank overdrafts (43) (281)
Cash and cash equivalents in the statement of cash flows 35,544 19,779
Bank loans (39,150) (6,700)
Net (debt)/funds (3,606) 13,079
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