4th Mar 2008 07:01
Michael Page International PLC04 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 professionalrecruitment company, announces its full year results for the year ended 31December 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 eachquarter as we continued our significant organic expansion, both by geography anddiscipline. Since the start of the current year, with the exception of certainsectors related to the banking market, we continue to experience similaryear-on-year increases in activity levels in all of our regions. "Our consistent organic growth strategy of investment through cycles, coupledwith structural changes are driving our growth in the specialist recruitmentmarket. We believe this investment has, in turn, given us greater resilience tothe economic cycle by virtue of our increased diversification. Whilst we aremindful of the uncertainties surrounding the current global economic outlook, weshall continue to make strategic and measured investments to position thebusiness for long-term growth. The Board remains confident in the prospects forMichael Page." Enquiries: Michael Page International plc 01932 264144Steve Ingham, Chief ExecutiveStephen Puckett, Group Finance Director Financial Dynamics 020 7269 7121Richard Mountain / David Yates / Sophie Kernon CHAIRMAN'S STATEMENT 2007 has been an outstanding year for the Group, producing record resultsquarter after quarter while continuing significant organic expansion, bothgeographically and by discipline. Market conditions have been strong, withfavourable economic activity and positive business confidence driving demand fortalent, 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). Reflectingstrong market conditions, gross profits from permanent placements grew morerapidly than from temporary placements. This movement in business mix, togetherwith an increase in margins on temporary placements, contributed to an increasein gross margin to 57.5% (2006: 53.7%). Given the Group's high operationalgearing, 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 profitconverted into operating profit, rose to 31.3% (2006: 27.9%). Profit before taxwas £147.4m (2006: £97.0m) and basic earnings per share increased by 58.7% to31.1p (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 goodworking capital management. The success of our strategy to diversify the business, both geographically andby discipline, through organic growth is increasingly evident, with the EMEAregion now the largest in the group. Over 60% of the Group's gross profits weregenerated outside the UK. With a heritage in Finance and Accounting recruitment,it is likely that these disciplines will continue to represent a significantproportion of the business for some time. However, the other professionaldisciplines, we are successfully rolling-out, now account for just over 45% ofthe Group's gross profit and the proportion generated from Finance andAccounting will continue to reduce. Dividends and share repurchases With strong growth in earnings, it is the Board's intention to continue itspolicy of reviewing the annual dividend, with a view to increasing it by a levelwhich we believe can be sustained throughout economic cycles. Surplus cashgenerated in excess of these dividend levels will continue to be returned toshareholders through share repurchases. With the strong growth in profits, earnings and cash generation, the Board isrecommending an increase in the total dividend per share for the year of 33%. Afinal dividend of 5.6p (2006: 4.2p) per share is proposed which, together withthe interim dividend of 2.4p (2006: 1.8p) per share paid in October, makes atotal 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 registerat 9 May 2008. The total dividend is covered 3.9 times by basic earnings pershare of 31.1p. We repurchased shares throughout 2007, acquiring 15.1m shares for £74.9m. Wehave 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 intentionto continue to use surplus cash to repurchase the Company's shares, in order tonot be unduly constrained, we will be seeking shareholders' consent for anincrease in the maximum authority to repurchase shares from 10% to 15% at theAnnual 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 outstandingperformance in 2007. Board of Directors On 23 May 2007 Ruby McGregor-Smith, Chief Executive of MITIE Group plc, joinedas 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 anumber of long-term structural changes that are having a positive impact on thespecialist recruitment markets. These key drivers include a deregulation of thelabour markets, demographic changes, an increased global shortage of qualifiedprofessionals, increasing job mobility and a greater awareness and acceptancefor companies to use specialist recruitment services. The latter part of 2007 has created significant uncertainty over the short-termprospects for the global economy and consequently business confidence,investment and hiring plans. It is a characteristic of the permanent recruitmentmarket that earnings visibility is short. Since the start of the current year,with the exception of certain sectors related to the banking market, we continueto experience similar year-on-year increases in activity levels in all of ourregions. 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 CBEChairman4 March 2008 CEO'S REVIEW In 2007, we have grown gross profits by 37% and delivered record operatingprofits of £149m, up 54%. This time last year we described 2006 as a very strongyear for the Group, growing gross profits 30% and producing £97m of operatingprofit. We also said that we would continue with our strategy of expandingorganically, gradually diversifying and reducing our dependency upon any singlegeographic market or individual discipline and that we would accelerate the paceof implementation. Our results for 2007 confirm that we have followed this through and howsuccessful we have been. Having opened in five countries in 2006, our geographicexpansion continued in 2007 with openings in Luxembourg and Argentina. Moresignificantly, we increased our fee generating and support staff by nearly 1,300people, enabling us to expand existing and open new offices, as well ascontinuing 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 themiddle to senior-management professional market. Michael Page International isnow a high-profile brand, globally recognised, that enables us to attractconsultants, candidates and clients in an ever increasing number of countries. As a result of the complex variation in legislation relating to how temporaryand permanent recruitment is managed in different countries, we developed twobrands for the clerical professional market. In the UK, where we were onlyfocused on clerical accounting professionals, the brand was AccountancyAdditions. In Europe, where in many countries legislation required us to have aseparate 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. Thisand our desire to roll-out the brand to other disciplines, as we havesuccessfully done in Europe, has resulted in us clarifying our strategy at thislevel with one brand. In November 2007, Accountancy Additions was rebranded toPage Personnel Finance and Accounting and during 2007 we launched in the UK twoother Page Personnel disciplines, Human Resources and Secretarial. Both the Michael Page and Page Personnel businesses are significant in terms ofcountries, offices networks and fee earners as illustrated below: Fee Earners Offices* CountriesMichael Page 2,964 91 25Page Personnel 873 79 8 *In some locations offices are shared. Diversification The objective of our strategy to diversify the business, both geographically andby discipline, while remaining focused on the cyclical recruitment market, is toreduce the dependency upon any one particular market. We believe we have beenvery successful in implementing this strategy as illustrated in the table belowwhich compares the gross profit from the business today with the position at theend of 2000. 2007 2000Gross profit £478.1m £238.3m% of gross profit by RegionEMEA 41% 36%UK 39% 49%Asia Pacific 12% 13%Americas 8% 2%% of gross profit from four largest countriesUK 39% 49%France 13% 25%Netherlands 7% 6%Australia 7% 9%Top 4 66% 89%% of gross profit by DisciplineFinance 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, itwas less than 40%, with EMEA now our largest region. In 2000, nearly 90% of Group gross profit was generated in four countries. In2007, these same four countries generated two-thirds of Group gross profit. In 2000, two-thirds of Group gross profit was generated by Finance andAccounting. 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 largestregion in the Group, both in terms of gross profit and headcount. Revenue inEMEA increased by 44.0% to £321.1m (2006: £223.0m) and gross profit increased by55.2% to £196.4m (2006: £126.6m). As a result of the increased revenue and highoperational gearing, the region produced an increase of 84.4% in operatingprofit 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, withthe majority joining existing offices. In a number of locations we have takenlarger office space to accommodate the growth and we continued our longer-terminvestment opening in Luxembourg and starting new offices in Hamburg, Valenciaand Bordeaux. France (33% of EMEA), which remains our second largest and most establishedbusiness after the UK, had a very successful year growing gross profits by 33%in constant currency. The restructuring of the Michael Page and Page Personnelbusinesses, following the introduction of the "Borloo" law, is now starting todeliver significant growth with the back drop of stable economic conditions.While the growth in France has been impressive, there remains significant scopefor further growth, particularly when recognising that the 2007 gross profits ofour French business are still approximately 10% below the gross profits producedin 2000 and 2001. Elsewhere in the region, collectively, our businesses during 2007 maintained thegross profit growth rate of 2006 at 68%. All countries contributed to thisstrong growth as we continue our discipline and geographic expansion. Inconstant 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 grossprofits 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 andDublin, together with Luxembourg in 2007, are ahead of plan. They continue togrow 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 thesebusinesses and future growth in profits will largely be driven by investment innew staff and office space to accommodate them. United Kingdom In the UK, revenue increased by 15.4% to £360.4m (2006: £312.4m) and grossprofit 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% to1,799 and opening new offices in Pall Mall and Canary Wharf in London, Leicesterand 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, thelargest of the three businesses, produced a mixed performance, with good growthin the regions, being held back by below expectation growth in London and theSouth East. A number of changes have been made to the management structure ofthese businesses, which should produce an improved performance in 2008. MichaelPage Financial Services had a very strong first half of the year with goodgrowth. The "credit crunch" in the latter half of 2007 has impacted certainparts of the banking market and consequently our growth rate slowed, being flatyear-on-year in the fourth quarter. During the year we continued to expand thePage Personnel office network from 35 to 37, opening in Swindon and Sheffield. The combined gross profits of Michael Page Marketing, Michael Page Sales andMichael Page Retail, were 23% higher than in 2006 and, combined, represented 22%of UK gross profit. The Marketing and Sales businesses performed strongly andnow operate from 10 and 9 locations respectively. Retail, the smallest of thethree businesses, had a tremendous year growing in excess of 40%. Michael Page Legal, Michael Page Technology, Michael Page Human Resources andMichael Page Secretarial achieved growth of 26% and, combined, represented 16%of UK gross profit. From the Legal business, we created a new business, MichaelPage Offshore, which focuses on placing legal, tax and accounting candidates insome of the many offshore tax havens around the world. The more recently created Michael Page Engineering & Manufacturing, Michael PageProcurement & Supply Chain and Michael Page Property & Construction businesses,grew at over 50% and now represent 7% of UK gross profit. These businesses allgrew significantly in 2007 and given the enormous scope for growth in thesedisciplines, we will continue to invest heavily in them.I am delighted to report another outstanding year in Scotland, growing grossprofit by 50%. In 2007, we opened a new office in Aberdeen and moved into largeroffices 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 profitincreased 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, increasingheadcount by 43% to 632. In Australia, (57% of Asia Pacific) gross profit and operating profit grew inconstant currency by 23.0% and 7.2% respectively, as anticipated, benefitingfrom the management and structural changes made in the second half of 2006. Wecontinue to see numerous growth opportunities and with a strong Australianeconomy, we have increased our headcount in Australia by 46%, a large proportionof which joined during the second half of the year. In Hong Kong, Sha Tin, Shanghai, Tokyo and Singapore, we achieved another yearof substantial gross profit growth, with all locations having a record year.While we continue our discipline roll-out, some less mature offices derive asignificant proportion of gross profit from one discipline. This is the casewith our Tokyo office, where in the fourth quarter of 2007 our business slowedas the credit crunch impacted on demand in the banking sector. We have anexcellent opportunity to expand our business significantly in China and plan toopen 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 profitincreased 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 theregion 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 newoffices and the discipline roll-out has continued at pace. We now have nineoffices and over 280 staff. In Latin America, we now have over 260 staff and inMexico, which opened in 2006, we are well ahead of plan, with a good level ofprofits. With very limited competition in Latin America, the Americas represent atremendous long-term opportunity for the Group to expand and we will continue toinvest heavily to grow the businesses rapidly. This degree of investment resultsin 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 thangross 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 startof the year, as market conditions remained favourable. We plan further expansionin 2008, with new offices already opened in Montreal, Newcastle, Gothenburg andSeville and new country openings planned in Austria, Turkey and New Zealand.Assuming market conditions remain favourable in the majority of countries inwhich we operate, these investments, together with our continued expansion ofour existing businesses, should see our headcount reach 6,000 by the end of2008. 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 fiveyears, however, these systems continually develop and the next generation ofsystems are now available that will facilitate our continued growth. A projectis underway throughout the Group to replace the current recruitment system, witha view to the first full implementation taking place early in 2009. The planned headcount levels, new countries and office openings, will result inan estimated 2008 pre-bonus cost base of approximately £350m, including allshare-based charges. Bonuses will continue to be approximately 25% of pre-bonusoperating profit. While we have identified numerous opportunities to continue our growth, we aremindful of the current and now widely-predicted weakening of global economicactivity. All our businesses are formally reviewed and forecasts revised on aquarterly basis. At present there is considerable uncertainty over the extent ofany economic slowdown and which region's economies will be most affected. Theseverity of any slowdown is unlikely to impact significantly on our investmentplans for new country and office openings as we believe they represent excellentstrategic long-term opportunities. However, a slowdown would impact theheadcount growth plans of our more established businesses and in the event of asustained global economic slowdown, our headcount would not reach 6,000 staff bythe end of 2008. We have an exceptional pool of ambitious and talented people in the Group, inparticular at the senior management level, with proven expertise and skillsrequired to launch new or grow existing businesses successfully. This team alsohas a track record of managing these businesses during recessions and economicslowdowns, while continuing to generate profits and cash. Furthermore, we have atrack record in periods of economic slowdown of maintaining our infrastructureand market presence, while continuing to make strategic and measured investmentsfor the longer-term, positioning the business for strong growth when economicconditions improve. It has always been, and will continue to be, our intention to take decisions andmake investments for the longer-term benefit of our stakeholders. If there is aslowdown, we believe that the greater geographic and discipline diversificationof the business that we have created since 2000 will make the Group earningsmore resilient to a slowing in economic activity when compared to previousslowdowns. I look forward to reporting our progress each quarter as we progressthrough 2008. Steve InghamChief Executive4 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 fromtemporary placements increased by 17.8% to £439.1m (2006: £372.7m) andrepresented 52.8% (2006: 57.4%) of Group revenue. Revenue from permanentplacements 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 inconstant currencies by 37.6% to £480.0m. The Group's gross margin increased to57.5% (2006: 53.7%). The growth in gross profit is greater than the growth inrevenue, due to the higher proportion of gross profit derived from permanentplacements in 2007, together with a higher volume of temporary placements at ahigher gross margin reflecting strong market conditions. Gross profit fromtemporary placements was £106.1m (2006: £87.8m) and represented 22.2% (2006:25.2%) of Group gross profit. The gross margin achieved on temporary placementswas 24.2% (2006: 23.6%). Operating profit and conversion rates As a result of the Group's organic long-term growth strategy, tight control oncosts and profit-based bonuses, we have a business model which is operationallygeared, as evidenced by the 54% increase in operating profits to £149.4m from a37% increase in gross profit. In constant currencies operating profits increasedby 54.2% to £150.2m. With a strategy of organic growth, the Group incurs start-up costs and operatinglosses as investments are made to grow existing and new businesses, open newoffices and launch new countries. Furthermore, significant increases inheadcount take time to train and become productive. These characteristics of ourgrowth strategy and the levels of investment impact on the conversion rates inany one reporting period. The Group's conversion rate in 2007 has increased to 31.3% (2006: 27.9%). Theconversion rate in three of the Group's four regions exceeds this rate, with theconversion rate in the Americas being lower as a result of the greater level ofnew investment and start-ups. As a result of the increased numbers of staff and offices, start-up costs andhigher bonuses due to the increased profits, administrative expenses in the yearincreased by 30.7% to £328.7m (2006: £251.5m). Administrative expenses alsoincludes £7.2m of share-based charges (2006: £8.3m) in respect of the Group'sdeferred annual bonus scheme, long-term incentive plans and executive shareoption schemes. The reduction in these share-based charges, compared to 2006, isdue to lower employers' social charges as a consequence of the reduction in theshare 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, includingthe profit-related bonus, of our consultants and support staff. Headcount of theGroup 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 theend of December each year is usually one of the strongest, due to the need tofund fourth quarter and annual profit-based bonus payments in January. Westarted 2007 with net debt of £3.6m and, after funding £74.9m of sharerepurchases throughout the year, we operated for a large period of 2007 with netdebt. 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 of31% (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 incountries where the corporate tax rates are higher than 30%. The effective rateis lower than in 2006 primarily as a result of reductions to tax charges inprior periods. With UK corporation tax rates reducing from 30% to 28% in April2008, the Group's effective tax rate in 2008 is estimated to be in the region of30.5%. Share repurchases and share options It is the Group's intention to continue to use share repurchases to returnsurplus cash to shareholders and to satisfy awards under the Group's incentiveshare plan and deferred annual bonus plan. During the year, 15.1m shares wererepurchased at a cost of £74.9m. 11.5m of these shares were cancelled, with theremaining shares purchased by the Company's employee benefit trust to satisfyfuture 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 repurchasingshares 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 on23 May 2008, be seeking shareholder approval for an increase in the authority tomake share repurchases up to a maximum of 15%, from 10%, of the issued sharecapital. At the beginning of 2007, the Group had 14.5m share options outstanding of which3.5m had vested. In March 2007, 2.8m share options were granted. During thecourse of the year options were exercised over 5.7m shares, generating £8.7m incash and 0.5m share options lapsed. At the end of 2007, 11.1m share optionsremained 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 earningsper share were 30.6p (2006: 19.0p). The weighted average number of shares forthe year was 327.5m (2006: 334.7m) reflecting the shares repurchased during theyear 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 isproposed which, together with the interim dividend of 2.4p (2006: 1.8p) perordinary share, makes a total dividend for the year of 8.0p (2006: 6.0p) perordinary share, an increase of 33%. The proposed final dividend, which amountsto £18.0m, will be paid on 9 June 2008 to those shareholders on the register asat 9 May 2008. Balance sheet The Group had net assets of £107.9m at 31 December 2007 (2006: £80.4m). Theincrease 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, interms of office accommodation and infrastructure and the maintenance andenhancement of our IT systems. Capital expenditure, net of disposal proceeds,increased to £12.8m (2006: £8.7m) reflecting the 34% increase in headcount andthe 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 inworking capital requirements of £15.1m (2006: £28.7m) and movements inprovisions 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 tosatisfy 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 Boardto monitor progress are listed in the table below. The source of data andcalculation 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 earnersfee 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. Thesupport staff movement this year demonstrates faster growth in fee earners in relation toratio 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 growthas a result of our high operational gearing. The decrease in productivity is asa result of the large increase in headcount particularly in the second half ofthe year, as new fee earners can take a number of months to become fullyproductive. Debtor days have increased largely as a result of a greaterproportion of receivables being in Continental Europe where our debtor days aregenerally higher than in the UK. The ratio of fee earners to support staff hasincreased as a result of continued efficiencies arising from our effective useof technology and economies of scale. Treasury management and currency risk It is the Directors' intention to continue to finance the activities anddevelopment of the Group from retained earnings, and to operate the Group'sbusiness while maintaining the net cash/debt position within a relatively narrowband. Cash generated in excess of these requirements will be used to buy backthe Company's shares. Cash surpluses are invested in short-term deposits, with any working capitalrequirements being provided from Group cash resources, Group facilities, or bylocal overdraft facilities. The Group has set up a multi-currency notional cashpool in 2007. Currently the main Eurozone subsidiaries and the UK-based GroupTreasury subsidiary participate in this cash pool, although it is the intentionto extend the scope of the participation to other Group companies. The structurefacilitates interest and balance compensation of cash and bank overdrafts. The main functional currencies of the Group are Sterling, Euro and AustralianDollar. The Group does not have material transactional currency exposures, noris there a material exposure to foreign denominated monetary assets andliabilities. The Group is exposed to foreign currency translation differences inaccounting for its overseas operations. Our policy is not to hedge thisexposure. In certain cases, where the Group gives or receives short-term loans to and fromother Group companies with different reporting currencies, it may use foreignexchange swap derivative financial instruments to manage the currency andinterest rate exposure that arises on these loans. It is the Group's policy notto seek to designate these derivatives as hedges. Principal risks and uncertainties The management of the business and the execution of the Company's strategy aresubject to a number of risks. The following section comprises a summary of whatMichael Page International plc believes are the main risks that couldpotentially impact the Group's operating and financial performance. People The resignation of key individuals and the inability to recruit talented peoplewith the right skill-sets could adversely affect the Group's results. This isfurther compounded by the Group's organic growth strategy and its policy of notexternally hiring senior operational positions. Mitigation of this risk isachieved by succession planning, training of staff, competitive pay structureslinked to the Group's results and career progression. Macro economic environment Recruitment activity is largely driven by economic cycles and the levels ofbusiness confidence. The Board look to reduce the Group's cyclical risk byexpanding geographically, by increasing the number of disciplines, by buildingpart-qualified and clerical businesses and by continuing to build the temporarybusiness. A substantial portion of the Group's gross profit arises from fees which arecontingent upon the successful placement of a candidate in a position. If aclient cancels the assignment at any stage in the process the Group receives noremuneration. As a consequence the Group's visibility of gross profits isgenerally quite short and tends to reduce further during periods of economicdownturn. 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, highlycompetitive and fragmented. The characteristics of a developed market aregreater competition for clients and candidates, as well as pricing pressure. InEMEA, Latin America and Asia, the recruitment market is generally less developedwith a large proportion of all recruitment being carried out by companies'internal resources rather than through recruitment specialists. This is changingrapidly due to changes in legislation, increasing job mobility and thedifficulty internal resources face in sourcing suitably qualified candidates. If the Group does not continue to compete in its markets effectively, by hiringnew staff, opening and expanding offices and continuing the disciplineroll-outs, there is a risk that competitors may beat us to key strategicopportunities, which may result in lost business and a reduction in marketshare. This risk is mitigated by meetings of the Main Board, Executive Board andRegional and Country Management Boards where Group strategy is continuallyreviewed 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 toclients and candidates. These systems are dependent on a number of importantsuppliers that provide the technology infrastructure and disaster recoverysolutions. The performance of these suppliers are continually monitored toensure business critical services are available and maintained as far aspractically possible. Due to the rapid advancement of technology, there is arisk that systems could become outdated with the potential to affect efficiencyand have an impact on revenue and client service. This risk is mitigated byregular reviews of the Group's technology strategy to ensure that it supportsthe overall Group strategy. Legal The Group operates in a large number of jurisdictions which have varying legaland compliance regulations. The Group takes its responsibilities seriously andensures that its policies, systems and procedures are continually updated toreflect best practice and to comply with the legal requirements in all themarkets 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 inlegal and compliance requirements. Stephen PuckettGroup Finance Director4 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 - - - - 38,190Transfer to reserve for shares held in the employee benefit trust - - - 970 - (970) -Credit in respect of share schemes - - - - - 12,425 12,425Dividends - - - - - (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 - 8,127Profit 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 - - - - 8,740Transfer to reserve for shares held in the employee benefit trust - - - 1,161 - (1,161) -Credit in respect of share scheme - - - - - 5,528 5,528Dividends - - - - - (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 £'000Non-current assetsProperty, plant and equipment 27,149 21,550Intangible assets - Goodwill 1,539 1,539 - Computer software 2,757 2,059Deferred tax assets 4,998 9,447Other receivables 2,301 1,927 38,744 36,522 Current assetsTrade and other receivables 192,810 143,813Current tax receivable - 213Cash and cash equivalents 10 82,990 35,587 275,800 179,613 Total assets 3 314,544 216,135 Non-current liabilitiesOther payables (680) (1,130)Deferred tax liabilities (17) - (697) (1,130) Current liabilitiesTrade 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 reservesCalled-up share capital 3,274 3,332Share premium 46,635 37,952Capital redemption reserve 771 656Reserve 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 78,827Income tax paid (36,519) (21,705) Net cash from operating activities 112,144 57,122 Cash flows from investing activitiesPurchases 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 1,210Interest received 1,189 821 Net cash used in investing activities (11,574) (7,873) Cash flows from financing activitiesDividends paid (21,785) (18,088)Interest paid (2,741) (1,209)Proceeds from bank loan 25,300 39,150Repayment of bank loan (39,150) (6,700)Issue of own shares for the exercise of options 8,740 38,190Purchase 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) 17,229Cash and cash equivalents at the beginning of the year 35,544 19,779Exchange 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 inGreat Britain and domiciled within the United Kingdom whose shares are publiclytraded. The consolidated preliminary results of the Company as at and for theyear ended 31 December 2007 comprise the Company and its subsidiaries (togetherreferred to as the "Group"). The consolidated preliminary results of the Group for the year ended 31 December2007 were approved by the directors on 4 March 2008. The Annual General Meetingof Michael Page International plc will be held at Page House, The BourneBusiness Park, Dashwood Lang Road, Addlestone, Surrey, KT15 2QW on 23 May 2008at 12.00 noon. 2. Basis of preparation and accounting policies Basis of preparation These consolidated preliminary results have been prepared in accordance with therecognition and measurement criteria of IFRS and the disclosure requirements ofthe Listing Rules. They do not include all the information required for fullannual financial statements, and should be read in conjunction with theconsolidated financial statements of the Group as at and for the year ended 31December 2006. Nature of financial information The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 December 2007 or 2006, but is derivedfrom those accounts. Statutory accounts for 2006 have been delivered to theRegistrar of Companies and those for 2007 will be delivered following theCompany'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 preliminaryresults are the same as those applied by the Group in its consolidated financialstatements as at and for the year ended 31 December 2006. 3. Segment reporting The consolidated entity operates in one business segment, being that ofrecruitment services, and this is the Group's primary segment. As a result, noadditional business segment information is required to be provided. The Group'ssecondary segment is geography. The segment results by geography are shownbelow: 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 byorigin. The analysis below is of the carrying amount of segment assets, liabilities andcapital expenditure. Segment assets and liabilities include items directlyattributable to a segment as well as those that can be allocated on a reasonablebasis. The individual geographic segments exclude income tax assets andliabilities. Capital expenditure comprises additions to property, plant andequipment, 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 cashpool. Were the cash pool to be shown on a net basis, this would reduce both thetotal 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 bydiscipline (being the professions of candidates placed) and (d) revenue andgross profit generated from permanent and temporary placements have beenincluded 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 operationsfor the year ended 31 December 2007 was 31.0% (2006: 32.5%) 2007 2006 £'000 £'000Tax chargeUnited Kingdom 21,357 17,046Overseas 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 12,100Interim 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 perordinary share (2006: 4.2p) 17,984 13,859 The proposed final dividend had not been approved by shareholders at 31 December2007 and therefore has not been included as a liability. The comparative finaldividend at 31 December 2006 was also not recognised as a liability in the prioryear. The proposed final dividend of 5.6p (2006: 4.2p) per ordinary share will be paidon 9 June 2008 to shareholders on the register at the close of business on 9 May2008, subject to approval by shareholders. 6. Share-based payments In accordance with IFRS 2 "Share-based Payment", a charge of £2.4m has beenrecognised for share options (including social charges) (2006: £4.6m), and £4.8mhas been recognised for other share-based payment arrangements (including socialcharges) (2006: £3.7m). 7. Earnings per ordinary share The calculation of the basic and diluted earnings per share is based on thefollowing data: 2007 2006EarningsEarnings for basic and diluted earnings per share (£'000) 101,734 65,447 Number of sharesWeighted average number of shares used for basic earnings per share ('000) 327,528 334,744Dilution effect of share plans ('000) 5,353 8,888Diluted weighted average number of shares used for diluted earnings per share ('000) 332,881 343,632 Basic earnings per share (pence) 31.1 19.6Diluted 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 andequipment with a cost of £11.9m (2006: £9.2m). Property, plant and equipment with a carrying amount of £0.8m were disposed ofduring the year ended 31 December 2007 (2006: £1.2m), resulting in a loss ondisposal of £91k (2006: gain of £48k), which is included in "AdministrativeExpenses". 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 96,959Depreciation and amortisation charges 7,660 6,445Loss/(profit) on sale of property, plant and equipment, and computer 91 (48)softwareShare scheme charges 6,757 4,168Net finance cost 1,991 408 Operating cash flow before changes in working capital and provisions 163,940 107,932Increase in receivables (40,863) (42,376)Increase in payables 25,778 13,655Decrease 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 23,355Short-term deposits 7,343 12,232 Cash and cash equivalents 82,990 35,587Bank overdrafts (47,433) (43) Cash and cash equivalents in the statement of cash flows 35,557 35,544Bank loans (25,300) (39,150) Net funds/(debt) 10,257 (3,606) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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