15th Aug 2005 07:00
Michael Page International PLC15 August 2005 Half Year Results for the Period Ended 30 June 2005 Michael Page International plc ("Michael Page"), the specialist professionalrecruitment company, announces its half year results for the period ended 30June 2005. Key Points • Turnover up 22.4% to £250.4m (2004: £204.6m) • Gross profit up 27.6% to £128.2m (2004: £100.4m) • Operating profit up 78.8% to £30.6m (2004: £17.1m) • £20.1m of cash generated from operations (2004: £8.0m) • Gross profit from permanent placements up 31.2% • Gross profit split between permanent and temporary placements was 73: 27 (2004: 71:29) • Adjusted earnings per share before exceptional tax items up 113% to 6.6p (2004: 3.1p). Basic earnings per share 6.6p (2004: 5.6p). Diluted earnings per share 6.5p (2004: 5.6p). • Proposed interim dividend up by 20% to 1.5p per share (2004: 1.25p) Commenting on the results, Terry Benson, Chief Executive of Michael Page, said: "This is an outstanding set of results, with substantial rises in gross profit,operating profit and dividends, as well as strong generation of cash. We haveseen excellent growth across all regions of our business and were veryencouraged by the performance of our Continental European businesses,particularly the strengthening growth in France. "Market conditions remain favourable and, with the business well positioned forfurther growth, we are confident of sustained good progress into the second halfof the year." Enquiries: Michael Page International plcTerry Benson, Chief Executive 020 7214 4487Stephen Puckett, Finance Director 020 7269 2301 Financial Dynamics 020 7269 7291David Yates/Rob Gurner CHAIRMAN'S STATEMENT It is a pleasure to report another set of strong results for the Group wellahead of expectations set at the start of the year. While the UK, Asia Pacificand the Americas continued to grow strongly, the most encouraging aspect of thefirst half has been the improved performance of our Continental Europeanbusinesses. These interim results are our first set of results prepared under InternationalFinancial Reporting Standards (IFRS). While the application of IFRS has nosignificant impact on the reported results for the Group, the results for 2004have been restated in accordance with IFRS. Reconciliation of prior periods'results to those restated under IFRS are shown in Note 10. The Group's turnover for the six months ended 30 June 2005 increased by 22.4% to£250.4m (2004: £204.6m) and gross profit increased 27.6% to £128.2m (2004:£100.4m). The Group's business model with inherent high operational gearingcombined with management's close attention to costs has resulted in operatingprofit increasing by 78.8% to £30.6m (2004: £17.1m). Profit before tax was£30.5m (2004: £17.2m). We have continued to invest sensibly in our global office network and increasingour own people resources. At 30 June 2005 our staff numbers have increased to2,747 (2004: 2,435) operating from 112 offices in 16 countries. During theperiod we opened new offices in Chatswood, North Sydney in Australia, Amersfoortin The Netherlands and Liverpool in the UK. Our ongoing organic expansionprogramme will continue in the second half and as part of this we will, duringthe third quarter, open an office in Toronto in Canada and Warsaw in Poland. We generated significantly higher growth in gross profit from permanentplacements (+31.2%) than from temporary placements (+18.9%). In the first halfof 2005, the mix of the Group's turnover and gross profit between permanent andtemporary placements was 39:61 (2004: 37:63) and 73:27 respectively (2004: 71:29). The gross margin on temporary placements increased to 22.9% (2004: 22.7%). UNITED KINGDOM Turnover of the UK operations increased by 14.7% to £127.9m (2004: £111.5m),gross profit increased by 18.5% to £62.9m (2004: £53.1m) and operating profitincreased by 42.3% to £15.5m (2004: £10.9m). Excluding our Scottish operationswhich are now managed separately from the rest of the UK, gross profit fromFinance and Accounting increased by 11%, Marketing, Sales and Retail increasedby 19% and the other disciplines increased by 50%. In Scotland gross profitincreased by 29%. CONTINENTAL EUROPE Turnover of the Continental European operations increased by 29.1% to £77.2m(2004: £59.8m), gross profit increased by 37.2% to £40.7m (2004: £29.7m) andoperating profit increased more than five fold to £7.8m (2004: £1.3m). Ourlargest business in this region is in France, which currently contributes justunder 50% of the region's gross profit. The French business returned to growthtowards the end of the fourth quarter of 2004 and this growth rate strengthenedin the first half of 2005 to 14%. Elsewhere in the region our businesses areall performing well, gaining market share and collectively growing gross profitby 68%. ASIA PACIFIC Turnover of the Asia Pacific operations increased by 33.6% to £37.3m (2004:£27.9m) and gross profit increased by 31.3% to £18.8m (2004: £14.3m). Operatingprofit increased by 38.9% to £6.6m (2004: £4.7m). Our largest business in theregion, Australia continues to perform consistently well increasing gross profitby 25.8%. The other smaller businesses in the region grew at faster rates,particularly in Tokyo which benefited from increased investment in personnel andenlarged office space. AMERICAS In the Americas, turnover increased by 50.1% to £8.0m (2004: £5.3m) and grossprofit increased by 71.8% to £5.7m (2004: £3.3m). Operating profit increased to£0.7m (2004: £0.2m). In the USA we are continuing to develop our finance andaccounting businesses and build the Michael Page brand. In the second half weplan further investment with a new office in Toronto, Canada and another officeon the Eastern seaboard of the USA. In Brazil, gross profit more than doubledas we benefited from increased investment and our strong market position. TAXATION AND EARNINGS PER SHARE The charge for taxation is based on the expected effective annual tax rate of26.0% (2004: 34.8% before exceptional items) on profit before taxation. Theeffective rate is substantially lower than in 2004 due to the anticipatedutilisation and recognition of prior years' tax losses. In 2004 the Restricted Share Scheme, established at the time of flotation,vested and gave rise to a deduction for tax purposes in the UK and certain othertax jurisdictions. These deductions gave rise to a tax credit of £9.0m whichwas recorded as an exceptional item in 2004. Basic earnings per share for the six months ended 30 June 2005 was 6.6p (2004:5.6p) and before exceptional items adjusted earnings per share was 6.6p (2004:3.1p). CASH FLOW AND SHARE REPURCHASES The Group started the year with net cash of £12.2m. In the first half wegenerated £20.1m from operations after funding a £14.1m increase in workingcapital reflecting the increased activity. Tax paid was £1.2m, benefiting fromthe exceptional tax credit and net capital expenditure was £2.9m. During thefirst half £24.9m was spent repurchasing 12.8m shares at an average price of193.3p. After paying £9.4m of dividends in the first half, the Group had netdebt of £6.1m at 30 June 2005. DIVIDENDS As previously stated, it is the Board's intention to pay dividends at a levelwhich it believes is sustainable throughout economic cycles and to continue touse share repurchases to return surplus cash to shareholders. The Board hasdecided to increase the interim dividend by 20% to 1.5p (2004: 1.25p) per share. The interim dividend will be paid on 14th October 2005 to shareholders on theregister at 16th September 2005. CURRENT TRADING AND FUTURE PROSPECTS We are greatly encouraged by our first half results and although we are now inthe seasonally quieter summer period we are confident of further progress in thesecond half. We believe the business is well positioned and intend to continueto invest and expand the business during the second half of the year. Our thirdquarter trading update will be issued on 5 October 2005. Adrian MontagueChairman 15 August 2005 Unaudited Consolidated Income Statement for the six months ended 30 June 2005 As restated Six months ended Year ended 30 June 30 June 31 December 2005 2004 2004 Note £'000 £'000 £'000 Turnover 2 250,415 204,568 433,731 Cost of sales (122,247) (104,123) (223,090) Gross profit 2 128,168 100,445 210,641 Administrative expenses (97,586) (83,342) (171,783) Operating profit 2 30,582 17,103 38,858 Net finance (costs) / income (38) 144 1 Profit before tax 30,544 17,247 38,859 Income tax (expense) /credit 3 (7,942) 2,689 (4,523) Profit for the period 22,602 19,936 34,336 Attributable to:Equity holders of the parent 22,602 19,936 34,336 Earnings per share Basic earnings per share (pence) 5 6.6 5.6 9.8Diluted earnings per share (pence) 5 6.5 5.6 9.7 The above results relate to continuing operations. Unaudited Consolidated Statement of Changes in Equity at 30 June 2005 Capital Currency Share Treasury redemption EBT translation Retained Total capital shares reserve reserve reserve earnings equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2004 (as 3,637 - 113 (9,871) - 67,628 61,507restated) Currency translation differences - - - - (1,500) - (1,500) Net expense recognised directly in - - - - (1,500) - (1,500)equity Profit for the six months ended 30 - - - - - 19,936 19,936June 2004 Total recognised (expense)/income - - - - (1,500) 19,936 18,436for the period Purchase of own shares (65) (4,348) 65 - - (10,999) (15,347) Credit in respect of share schemes - - - - - 502 502 Dividends - - - - - (8,248) (8,248) (65) (4,348) 65 - - (18,745) (23,093) Balance at 30 June 2004 (as 3,572 (4,348) 178 (9,871) (1,500) 68,819 56,850restated) Balance at 1 July 2004 3,572 (4,348) 178 (9,871) (1,500) 68,819 56,850 Currency translation differences - - - - 1,312 - 1,312 Net income recognised directly in - - - - 1,312 - 1,312equity Profit for the six months ended 31 - - - - - 14,400 14,400December 2004 Total recognised income for the - - - - 1,312 14,400 15,712period Purchase of own shares - (8,774) - - - - (8,774) Credit in respect of share schemes - - - - - 1,057 1,057 Dividends - - - - - (4,345) (4,345) - (8,774) - - - (3,288) (12,062) Balance at 31 December 2004 (as 3,572 (13,122) 178 (9,871) (188) 79,931 60,500restated) Balance at 1 January 2005 3,572 (13,122) 178 (9,871) (188) 79,931 60,500 Currency translation differences - - - - (203) - (203) Net expense recognised directly in - - - - (203) - (203)equity Profit for the six months ended 30 - - - - - 22,602 22,602June 2005 Total recognised (expense)/income - - - - (203) 22,602 22,399for the period Purchase of own shares - (24,920) - - - - (24,920) Credit in respect of share schemes - - - - - 1,360 1,360 Dividends - - - - - (9,444) (9,444) - (24,920) - - - (8,084) (33,004) Balance at 30 June 2005 3,572 (38,042) 178 (9,871) (391) 94,449 49,895 Unaudited Consolidated Balance Sheet at 30 June 2005 As restated 30 June 30 June 31 December 2005 2004 2004 Note £'000 £'000 £'000Non-current assetsIntangible assets - Goodwill 1,539 1,539 1,539 - Computer software 2,448 2,299 2,194Property, plant and equipment 18,352 18,770 18,739Deferred tax assets 6,891 2,914 2,423Trade and other receivables 1,756 1,374 1,692 30,986 26,896 26,587 Current assetsTrade and other receivables 102,399 78,201 86,214Current tax receivables 623 9,932 1,183Cash and cash equivalents 7 14,984 12,140 12,532 118,006 100,273 99,929 Total assets 2 148,992 127,169 126,516 Current liabilitiesTrade and other payables (62,397) (51,066) (60,694)Bank overdrafts and loans 7 (21,035) (11,350) (317)Current tax payable (12,406) (4,458) (1,450)Provisions for liabilities and charges (480) (712) (576) (96,318) (67,586) (63,037)Non-current liabilitiesTrade and other payables (2,166) (1,103) (1,678)Provisions for liabilities and charges (394) (914) (612)Deferred tax liabilities (219) (716) (689) (2,779) (2,733) (2,979) Total liabilities (99,097) (70,319) (66,016) Net assets 49,895 56,850 60,500 Capital and reservesCalled-up share capital 3,572 3,572 3,572Capital redemption reserve 178 178 178EBT reserve (9,871) (9,871) (9,871)Treasury shares (38,042) (4,348) (13,122)Currency translation reserve (391) (1,500) (188)Retained earnings 94,449 68,819 79,931Total equity 49,895 56,850 60,500 Unaudited Consolidated Cash Flow Statement for the six months ended 30 June 2005 As restated Six months ended Year ended 30 June 30 June 31 December 2005 2004 2004 Note £'000 £'000 £'000 Cash generated from operations 6 20,063 7,992 35,690 Income tax paid (1,216) (4,364) (4,825) Net cash from operating activities 18,847 3,628 30,865 Cash flows from investing activities Purchases of property, plant and equipment (3,187) (2,362) (5,324) Purchases of computer software (611) (285) (500) Proceeds from the sale of property, plant and equipment 921 900 1,416 Interest received 193 244 369 Net cash used in investing activities (2,684) (1,503) (4,039) Cash flows from financing activities Dividends paid (9,444) (8,248) (12,593) Interest paid (216) (78) (367) Purchase of own shares (24,920) (15,347) (24,120) Proceeds from short-term loan - 10,600 - Net cash used in financing activities (34,580) (13,073) (37,080) Net decrease in cash and cash equivalents (18,417) (10,948) (10,254) Cash and cash equivalents at the beginning of the 12,215 22,434 22,434period Net cash inflow from short-tem loans - (10,600) - Exchange gains/(losses) on cash and cash equivalents 151 (96) 35 Cash and cash equivalents at the end of the period 7 (6,051) 790 12,215 Notes to the unaudited financial information 1. Accounting policies The consolidated interim financial statements are for the six months ended 30June 2005. They have been prepared under the historical cost convention and inaccordance with current International Financial Reporting Standards (IFRSs), andare covered by IFRS 1, "First-time Adoption of International Financial ReportingStandards", because they are part of the period covered by the Group's firstIFRS financial statements for the year ended 31 December 2005. The interimfinancial statements are unaudited but have been reviewed by the auditors. The policies set out below have been consistently applied to all the periodspresented. The Group has made use of the exemption available under IFRS 1 wherecumulative translation differences for all foreign operations are deemed to bezero at the date of transition. The Group has also taken the exemption not toapply IFRS2 "Share-based Payment" to share options granted before 7 November2002. Additionally, as permitted by IFRS 1, the Group has adopted IAS 32 "Financial instruments: disclosure and presentation" and IAS 39 "Financialinstruments: recognition and measurement", prospectively from 1 January 2005. The Group's consolidated financial statements were prepared in accordance withthe United Kingdom Generally Accepted Accounting Principles (UK GAAP) until 31 December 2004. UK GAAP differs in some areas from IFRS. In preparing the2005 consolidated interim financial statements, management has amended certainaccounting and valuation methods applied in the UK GAAP financial statements tocomply with IFRS. The comparative figures in respect of 2004 were restated toreflect these adjustments as disclosed in the reconciliations, and descriptionsof the effect of the transition from UK GAAP to IFRS on the Group's equity andits net income and cash flows are shown in Note10. The interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRS in issue that either areendorsed by the EU and effective (or available for early adoption) at 31December 2005 or are expected to be endorsed and effective (or available forearly adoption) at 31 December 2005, the Group's first annual reporting date atwhich it is required to use adopted IFRSs. In addition, the adopted IFRS thatwill be effective (or available for early adoption) in the annual financialstatements for the year ending 31 December 2005 are still subject to change andto additional interpretations and therefore cannot be determined with certainty. Accordingly, the accounting policies for that annual period will be determinedfinally only when the annual financial statements are prepared for the yearending 31 December 2005. The comparative figures for the year ended 31 December 2004, prior to theadjustments required on transition to IFRS as described below and in Note 10,have been extracted from the Group's financial statements, a copy of which hasbeen delivered to the Registrar of Companies. The auditors' report on thosestatements was unqualified and did not include a statement under Section 237(2)or (3) of the Companies Act 1985. The interim financial information does notconstitute statutory accounts as defined under Section 240 of the Companies Act1985. The adoption of the above IFRS did not result in substantial changes to theGroup's accounting policies under UK GAAP and as set out in the Group'sfinancial statements for the year ended 31 December 2004. In summary: • IAS 1 "Presentation of Financial Statements" and IAS 7 "Cash Flow Statements" have affected the overall presentation and certain disclosures. • IAS 10 "Events After the Balance Sheet Date" has the effect of prohibiting the recognition of the final dividend as a liability until shareholder approval has been received. Under FRS 12 "Provisions, contingent liabilities and contingent assets", a liability was recognised. • IAS 14 "Segment Reporting" has no material effect on the Group's policy. The Group continues to operate in only one business segment being that of recruitment services, and this has been identified as the Group's primary segment. Geography is the Group's secondary segment. • IAS 21 "The Effects of Changes in Foreign Exchange Rates" has no material effect on the Group's policy. All material Group entities have the same functional currency as their measurement currency. • IAS 24 "Related Party Disclosures" has affected the identification of related parties and some other related-party disclosures. • the adoption of IFRS 2 "Share-based Payment" has resulted in a change in the accounting policy for share-based payments. Under UK GAAP, the provision of share-based payments to employees did not result in a charge in the income statement. Under IFRS, the Group charges the cost of share-based payments to the income statement over the vesting period. • the adoption of IFRS 3 "Business Combinations", IAS 36 "Impairment of Assets and IAS 38 "Intangible Assets" have resulted in a change in the accounting policy for goodwill. Under UK GAAP, goodwill was amortised on a straight line basis over a period of 20 years and assessed for an indication of impairment at each balance sheet date. In accordance with the provisions of IFRS 3, the Group ceased amortisation of goodwill from 1 January 2005. Accumulated amortisation as at 31 December has been eliminated with a corresponding decrease in the cost of goodwill. From the year ended 31 December 2005 onwards, goodwill is tested annually for impairment, as well as when there are indications of impairment. The group has reassessed the useful lives of its intangible assets in accordancewith the provisions of IAS 38. No adjustment resulted from this reassessment. The remaining standards are either not applicable to the business or have nomaterial effect on the Group's policies. All changes in the accounting policies have been made in accordance with thetransition provisions in the respective standards. The revised accountingpolicies now followed by the Group are shown below. Turnover and income recognition Turnover, which excludes value added tax ("VAT"), constitutes the value ofservices undertaken by the Group as its principal activities, which arerecruitment consultancy and other ancillary services. These consist of: • turnover from temporary placements, which represents amounts billed for the services of temporary staff including the salary cost of these staff. This is recognised when the service has been provided; • turnover from permanent placements, which is based on a percentage of the candidate's remuneration package, and is derived from both retained assignments (income recognised on completion of defined stages of work) and non-retained assignments (income recognised at the date an offer is accepted by a candidate, and where a start date has been determined). The latter includes turnover anticipated, but not invoiced, at the balance sheet date, which is correspondingly accrued on the balance sheet within "Trade and other receivables". A provision is made against accrued income for possible cancellations of placements prior to, or shortly after, the commencement of employment; and • turnover from amounts billed to clients for expenses incurred on their behalf (principally advertisements) and is recognised when the expense in incurred. Cost of sales Cost of sales consists of the salary cost of temporary staff and costs incurredon behalf of clients, principally advertising costs. Gross profit Gross profit is represented by turnover less cost of sales and consists of thetotal placement fees of permanent candidates, the margin earned on the placementof temporary candidates and advertising income. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair valueof the Group's share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiariesis included in intangible assets. Goodwill is tested annually for impairmentand carried at cost less accumulated impairment losses. Gains and losses on thedisposal of an entity include the carrying amount of goodwill relating to theentity sold. Goodwill is allocated to cash-generating units for the purpose ofimpairment testing. Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ("the functional currency"). The consolidated financialstatements are presented in sterling, which is the Company's functional andpresentation currency. (b) Transactions and balances Foreign currency transactions are translated into the respective functionalcurrency using the exchange rates prevailing at the dates of the transactions.Foreign exchange gains and losses resulting from the settlement of suchtransactions and from the translation at year-end exchange rates of monetaryassets and liabilities denominated in foreign currencies are recognised in theincome statement. (c) Group companies The results and financial position of all the group entities (none of which hasthe currency of a hyperinflationary economy) that have a functional currencydifferent from the presentation currency are translated into the presentationcurrency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (ii) income and expenses for each income statement are translated at average exchange rates; and (iii) all resulting exchange differences are recognised as a separate component of equity. Intangible assets Intangible fixed assets are stated at original cost less annual impairment (inthe case of Goodwill) or accumulated amortisation (in the case of Computersoftware). Amortisation is calculated to write off the cost less estimated residual valueof the asset evenly over its expected useful life. Goodwill Annually impaired where required Computer software 20% per annum Property, plant and equipment Property, plant and equipment is stated at original cost less accumulateddepreciation. Depreciation is calculated to write off the cost less estimatedresidual value of each asset evenly over its expected useful life at thefollowing rates: Leasehold improvements 10% per annum or period of lease if shorter Furniture, fixtures and equipment 10% - 20% per annum Motor vehicles 25% per annum Investments Fixed asset investments are stated at cost less provision for impairment. Impairment of assets Assets that have an indefinite useful life are not subject to amortisation andare tested annually for impairment. An impairment loss is recognised for theamount by which the asset's carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of an asset's fair value less costs to sell andvalue in use. For the purpose of assessing impairment, assets are grouped atthe lowest levels for which there are separately identifiable cash flows(cash-generating units). Taxation The charge for taxation is provided at rates of corporation tax ruling duringthe accounting period. Deferred tax provided in full, using the liability method, on temporarydifferences which result in an obligation at the balance sheet date to pay moretax, or a right to pay less tax, at a future date, at rates expected to applywhen they crystallise based on current tax rates and law. Temporary differencesarise between the tax bases of assets and liabilities and their carrying amountsin the financial statements. Deferred tax assets are recognised to the extentthat it is regarded as more likely than not that they will be recovered. Pension costs The Group operates defined contribution pension schemes. The assets of theschemes are held separately from those of the Group in independentlyadministered funds. The pension costs charged to the income statementrepresents the contributions payable by the Group to the funds during eachperiod. Leased assets Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at theirfair value at the inception of the lease or, if lower, at the present value ofthe minimum lease payments. The corresponding liability to the lessor isincluded in the balance sheet as a finance lease obligation. Lease payments areapportioned between finance charges and reduction in the lease obligation so asto achieve a constant rate of interest on the remaining balance of theliability. Finance charges are charged to profit or loss. Rentals payableunder operating leases are charged to profit or loss on a straight-line basisover the term of the relevant lease. Benefits received and receivable as anincentive to enter into an operating lease are also spread on a straight-linebasis over the lease term. Leases in which a significant portion of the risks and rewards of ownership areretained by the lessor are classed as operating leases. Rentals under operatingleases are charges to the income statement on a straight line basis over theterm of the lease. Segment reporting The consolidated entity operates in one business segment being that ofrecruitment services (primary segment). As a result no additional businesssegment information is required to be provided. The consolidated entityoperates in four geographic segments (secondary segments), the United Kingdom,Continental Europe, Asia Pacific and the Americas. Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends areapproved by the Company's shareholders. Share-based compensation The Group operates a number of equity-settled, share-based compensation plans.Their subsequent accounting treatments are described below: Share option schemes The fair value of the employment services received in exchange for the grant ofthe options is recognised as an expense. The total amount to be expensed overthe vesting period is determined by reference to the fair value of the optionsgranted, excluding the impact of any non-market vesting conditions (for example,earnings per share). Non-market vesting conditions are included in assumptionsabout the number of options that are expected to become exercisable. At eachbalance sheet date, the estimate of the number of options that are expected tobecome exercisable is revised. The Group recognises the impact of the revisionof original estimates, if any, in the income statement, and the correspondingadjustment to equity over the remaining vesting period. Deferred Annual Bonus and Long Term Incentive Plan Where deferred awards are made to directors and senior executives under eitherthe Incentive Share Plan or the Annual Bonus Scheme, to reflect the awards arefor services over a longer period, the value of the expected award is charged tothe income statement on a straight line basis over the vesting period to whichthe award relates. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call withbanks, other short-term highly liquid investments with original maturities ofthree months or less, and bank overdrafts. Bank overdrafts are shown withincurrent liabilities on the balance sheet. 2. Segment analysis Business is the Group's primary segment. The consolidated entity operates in onebusiness segment being that of recruitment services. As a result, no additionalbusiness segment information is required to be provided. The Group's secondarysegment is geography. The segment results by geography are shown below: (a)Turnover and gross profit by geographic region Turnover Gross profit Six months ended Year ended Six months ended Year ended 30 June 30 June 31 December 30 June 30 June 31 December 2005 2004 2004 2005 2004 2004 £'000 £'000 £'000 £'000 £'000 £'000 United Kingdom 127,876 111,474 234,822 62,946 53,140 109,984 Continental Europe 77,228 59,836 124,293 40,719 29,670 61,503 Asia Pacific Australia 30,230 22,959 51,286 12,365 9,830 21,105 Other 7,077 4,966 11,484 6,440 4,489 10,429 Total 37,307 27,925 62,770 18,805 14,319 31,534 Americas 8,004 5,333 11,846 5,698 3,316 7,620 250,415 204,568 433,731 128,168 100,445 210,641 (b) Segment assets and capital expenditure by geographic region Total assets Capital expenditure Six months ended Year ended Six months ended Year ended 30 June 30 June 31 December 30 June 30 June 31 December 2005 2004 2004 2005 2004 2004 £'000 £'000 £'000 £'000 £'000 £'000 United Kingdom 60,981 57,388 55,897 1,821 1,368 3,106 Continental Europe 59,533 45,176 50,222 852 655 1,404 Asia Pacific Australia 14,069 7,333 10,134 176 245 610 Other 7,230 3,670 5,157 408 53 98 Total 21,299 11,003 15,291 584 298 708 Americas 6,556 3,670 3,923 541 326 606 Segment assets/capital expenditure 148,369 117,237 125,333 3,798 2,647 5,824 Income tax assets 623 9,932 1,183 Total assets 148,992 127,169 126,516 Segment assets consist primarily of property, plant and equipment, computersoftware, receivables and operating cash. The individual geographic segmentsexclude income tax assets. Capital expenditure comprises additions to property,plant and equipment, motor vehicles and computer hardware/software. (c) Turnover and gross profit by discipline Turnover Gross profit Six months ended Year ended Six months ended Year ended 30 June 30 June 31 December 30 June 30 June 31 December 2005 2004 2004 2005 2004 2004 £'000 £'000 £'000 £'000 £'000 £'000 Finance and accounting 160,551 138,244 290,151 76,248 61,936 129,687 Marketing and sales 40,926 35,188 73,985 26,792 21,975 44,894 Other 48,938 31,136 69,595 25,128 16,534 36,060 250,415 204,568 433,731 128,168 100,445 210,641 (d) Operating profit by geographic region As restated Six months ended Year ended 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 United Kingdom 15,464 10,869 22,928 Continental Europe 7,797 1,330 4,101 Asia Pacific Australia 4,268 3,247 7,551 Other 2,318 1,494 3,883 Total 6,586 4,741 11,434 Americas 735 163 395 Operating profit 30,582 17,103 38,858 The above analysis in notes (c) by discipline (being the professions ofcandidates placed), and (d) by operating profit have been included as additionaldisclosure over and above the requirement of IAS 14 "Segment Reporting". 3. Taxation The charge for taxation is based on the expected annual tax rate of 26.0% onprofit before taxation (30 June 2004: 36.6% before exceptional items, 31December 2004: 34.8% before exceptional items). The exceptional item referred toin the comparative periods related to a tax deduction received as a result ofthe vesting of the Restricted Share Scheme in April 2004. This deduction forcorporation tax purposes arose in various tax jurisdictions and resulted in anon-operational exceptional credit of £9.0m to the income tax charge. 4. Dividends Six months ended Year ended 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 December 2004 of 2.75p per ordinary share 9,444 8,248 8,248(2003: 2.3p) Interim dividend for the period ending 30 June 2004 of 1.25p per ordinary - - 4,345share 9,444 8,248 12,593 Amounts proposed as distributions to equity holders in the period: Proposed interim dividend for the six months ending 30 June 2005 of 1.5p per 4,987 4,345 -ordinary share (2004: 1.25p) The proposed interim dividend had not been approved by the Board at 30 June 2005and therefore is not included as a liability. The comparative interim dividendat 30 June 2004 was also not recognised as a liability in the June comparatives. An interim dividend of 1.5 pence (2004: 1.25 pence) per ordinary share will bepaid on 14 October 2005 to shareholders on the register at the close of businesson 16 September 2005. 5. Earnings per share ("EPS") The calculation of the basic, diluted and adjusted earnings per share is basedon the following data: As restated Six months ended Year ended 30 June 30 June 31 December 2005 2004 2004 Earnings Earnings after exceptional items for basic EPS (£'000) 22,602 19,936 34,336 Post tax exceptional items (£'000) - (9,000) (9,000) Earnings before exceptional items for adjusted EPS (£'000) 22,602 10,936 25,336 Number of shares Weighted average number of shares used for basic and adjusted EPS ('000) 341,591 356,689 351,555 Dilution effect of share plans 5,617 165 3,744 Diluted weighted average number of shares used for diluted EPS ('000) 347,208 356,854 355,299 Basic earnings per share (pence) 6.6 5.6 9.8 Diluted earnings per share (pence) 6.5 5.6 9.7 Adjusted earnings per share (pence) 6.6 3.1 7.2 All earnings are derived from continuing operations. 6. Cash flows from operating activities As restated Six months ended Year ended 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Profit before taxation 30,544 17,247 38,859 Depreciation and amortisation charges 3,080 3,225 6,404 (Profit)/loss on sale of fixed assets (150) (39) 53 Share scheme charges 955 556 1,178 Net finance cost/(income) 38 (144) (1) Operating cashflow before changes in working capital and provisions 34,467 20,845 46,493 Increase in receivables (17,096) (11,388) (17,739) Increase in payables 3,008 2,810 11,987 Decrease in provisions (316) (4,275) (5,051) Cash generated from operations 20,063 7,992 35,690 7. Cash and cash equivalents Six months ended Year ended 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Cash at bank and in hand 11,103 9,524 10,091 Short term deposits 3,881 2,616 2,441 14,984 12,140 12,532 Cash and cash equivalents include the following for the purposes of the cashflow statement: Cash at bank and short term deposits 14,984 12,140 12,532 Bank overdrafts (21,035) (11,350) (317) (6,051) 790 12,215 8. Capital commitments The Group had capital commitments of £518,000 at 30 June 2005 (31 December 2004:£853,000) 9. Nature of financial information The interim financial statements were approved by a committee of the Board ofDirectors on 15 August 2005. Copies of this statement of interim results are available from the Company'sRegistrar - Capita IRG plc, The Registry, 34 Beckenham Road, Beckenham, Kent BR34TU, at the Company's registered office - Page House, 39-41 Parker Street,London WC2B 5LN, and on the Company's website - www.michaelpage.co.uk. 10. Adoption of IFRS in 2005 The accounting policies were changed on 1 January 2005 to comply with IFRS. Thetransition to IFRS is accounted for in accordance with IFRS 1, "First-TimeAdoption of International Financial Reporting Standards" with 1 January 2004 asthe date of transition. The changes in accounting policies as a consequence ofthe transition to IFRS are described below, and the reconciliations of theeffects of the transition to IFRS are presented in the notes to the first IFRSfinancial statements. The transition to IFRS resulted in the following changes in accounting policies: Goodwill is not amortised but measured at cost less impairment losses. Under UKGAAP, goodwill was amortised on a straight line basis through profit and lossover its estimated useful economic life of 20 years. The effect of the changeis an increase in equity and profit before tax of £48,000 and £96,000 at 30 June2004 and 31 December 2004 respectively. The change does not affect equity orprofit before tax at 1 January 2004. The change has no tax effect as deferredtaxes are not recognised for temporary differences arising from goodwill forwhich amortisation is not deductible for tax purposes. Dividends to shareholders declared after the balance sheet date but before thefinancial statements are authorised for issue are not recognised as a liabilityat the balance sheet date but are disclosed separately in the notes. Under UKGAAP dividends for the accounting year were recognised as a liability. Theeffect of the change is an increase in equity at 1 January 2004 of £8,234,000and £9,470,000 at 31 December 2004. Share option costs under UK GAAP were based on the intrinsic value of the optionat the date of grant and as such, grants made under the Group's share optionplans did not result in a charge to the profit and loss account. Under IFRS 2 "Share-based Payment", the Group measures the cost of all share options grantedsince 7 November 2002 that have not fully vested at the balance sheet date,using an option pricing model. A liability in respect of social charges hasalso been recognised in respect of the Group's share option schemes. Thisliability is fair valued at each half year. Deferred tax relating to the new share option charges above have been recognisedas a deferred tax asset. Computer Software has been reclassified from tangible fixed assets to intangiblefixed assets. Cumulative translation differences for all foreign operations have been deemedto be zero at the date of transition. After the date of transition, foreignexchange differences arising from the translation of accounts of overseasoperations are shown as a currency translation reserve as a separate componentof equity. RECONCILIATION OF PROFIT As at 30 June 2004 As at 31 December 2004 (comparable interim period under UK (end of last period presented under UK GAAP) GAAP) Effect of Effect of transition transition Under to IFRS Under Under to IFRS Under IFRS UK GAAP IFRS UK GAAP Note £'000 £'000 £'000 £'000 £'000 £'000 Turnover 204,568 - 204,568 433,731 - 433,731 Cost of sales (104,123) - (104,123) (223,090) - (223,090) Gross profit 100,445 - 100,445 210,641 - 210,641 Administrative expenses a,c (82,826) (516) (83,342) (170,604) (1,179) (171,783) Operating profit 17,619 (516) 17,103 40,037 (1,179) 38,858 Net finance income 144 - 144 1 - 1 Profit before taxation 17,763 (516) 17,247 40,038 (1,179) 38,859 Income tax credit/(expense) d 2,428 261 2,689 (4,933) 410 (4,523) Profit for the period 20,191 (255) 19,936 35,105 (769) 34,336 Attributable to: Equity holders of the 20,191 (255) 19,936 35,105 (769) 34,336parent Basic earnings per share 5.7 (0.1) 5.6 10.0 (0.2) 9.8(pence)Diluted earnings per share 5.7 (0.1) 5.6 9.9 (0.2) 9.7(pence) Profit UK GAAP 20,191 35,105 Goodwill not amortisedafter date of transition a 48 96 Share option charges c (564) (1,275) Deferred tax on share d 261 410scheme charges (255) (769) Profit IFRS 19,936 34,336 RECONCILIATION OF EQUITY At 1 January 2004 (date of transition) Effect of Opening Under UK transition IFRS Balance GAAP to IFRS Sheet Note £'000 £'000 £'000 Non-current assets Goodwill a 1,539 - 1,539Computer software e - 2,444 2,444Property, plant and equipment e 23,101 (2,444) 20,657Deferred income tax assets d 1,345 1,416 2,761Trade and other receivables 1,570 - 1,570 27,555 1,416 28,971 Current assets Trade and other receivables 68,615 - 68,615Current tax receivables 1,664 - 1,664Cash and cash equivalents 23,211 - 23,211 93,490 - 93,490 Total assets 121,045 1,416 122,461 Current liabilities Trade and other payables b (57,356) 8,234 (49,122)Related Shares:
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