PageGroup Annual Report 2004

Plain-text annual report

MICHAEL PAGE INTERNATIONAL PLC ANNUAL REPORT 2004 Michael Page International plc Sea Island Cotton Top by John Smedley Leather Pleated Mini Skirt by Esprit NY Edition Suede Kitten Heel Boots by Hobbs Hair & Make-up by Denise Lilley Styling by Jo Bell Professional Career arranged through Michael Page International Michael Page International is a world leading recruitment consultancy 110 ofﬁ ces in 16 countries worldwide | www.michaelpage.co.uk Michael Page International plc A global organisation An established brand A market leader Michael Page is one of the world’s The Group has established a The role of a recruitment leading professional recruitment leading presence in many of consultancy is to act as an consultancies, specialising in the key markets for professional intermediary, identifying and the placement of candidates in recruitment around the world and sourcing suitably qualiﬁ ed permanent, contract, temporary has positioned itself in certain candidates on behalf of its clients. and interim positions with clients other markets, which offer the Candidates are recruited either for £433.7m Group Turnover £210.6m around the world. The Group has opportunity for future growth. permanent or contract positions Gross Proﬁ t operations in the UK, Continental Within its current largest markets, (typically for a ﬁ xed term) or on a Europe, Asia Paciﬁ c and The Michael Page has also built a temporary basis. Within the overall Americas and focuses on the regional presence, including in recruitment industry, the market for areas of Accounting, Tax and the UK, France and Australia. professional recruitment services Treasury, Banking and Financial Consequently the Michael is a specialist sector which has £40.0m Proﬁ t before taxation and Markets, Marketing, Retail, Page brand is among the most developed more recently. Michael exceptional items Sales, Legal, IT & Technology, widely recognised brands in the Page is widely recognised as Human Resources, Engineering professional recruitment industry. leading the development of this & Manufacturing, Procurement & Supply Chain, Consultancy/ Strategy/Change and Secretarial. market around the world. Building the brand: Opposite and on proceeding pages are advertisements selected from Michael Page International’s current ‘Fashion’ campaign. They form part of a communications portfolio that demonstrates the company’s commitment to building a brand that is fresh, contemporary and industry leading. 04 Chairman’s Statement 06 Chief Executive’s Review 09 Finance Director’s Review 12 Board of Directors 14 Directors’ Report 17 Corporate Governance 22 Remuneration Report 32 Independent Auditors’ Report 34 Consolidated Proﬁ t and Loss Account 35 Balance Sheets 36 Consolidated Statement of Total Recognised Gains and Losses 36 Consolidated Reconciliation of Movements in Shareholders’ Funds 37 Consolidated Cash Flow Statement 38 Notes to the Accounts 57 Shareholder Information and Advisers 58 Five Year Summary 59 Notice of Meeting 3 Michael Page International plc Chairman’s Statement The professional employment Proﬁ t before tax and exceptional During the year we reinitiated Outlook markets are primarily driven by items was £40.0m (2003: £23.5m) share repurchases acquiring the levels of economic activity and adjusted earnings per share 14.2m shares for £24.1m, and business conﬁ dence which before exceptional items were representing an average cost move in cycles, the timing and 7.4p (2003: 4.1p). per share of 170p. The short term outlook is encouraging. Market conditions in the UK, Asia Paciﬁ c and The Americas are favourable and we plan to grow our businesses by increasing our headcount, continuing the discipline roll out and opening new ofﬁ ces. In Continental Europe where market conditions are improving but remain uncertain, we will increase headcount in some of our businesses but no new ofﬁ ce openings are planned for 2005. On 6 April 2005 we will make a statement in respect of our trading for the ﬁ rst quarter which, unlike in 2004, includes Easter, an important holiday period. Dividends and share Employees repurchases I wish to express my thanks It is the Board’s intention to pay to the staff worldwide for their dividends at a level which is commitment, loyalty and efforts sustainable throughout economic throughout the year. Having cycles and to continue to use operated throughout a sustained share repurchases as an additional period of difﬁ cult trading mechanism for returning surplus conditions, they have maintained cash to shareholders. Accordingly your Company’s position as the we will be seeking shareholders’ international leader in the specialist consent for a renewal of the recruitment industry. repurchase authority at the Annual General Meeting on 27 May 2005. Board of Directors As the Group’s proﬁ tability has increased considerably and the prospects are encouraging, the Board is proposing an increase in the dividend for the year of 17.6%, the ﬁ rst such increase since ﬂ otation in March 2001. A ﬁ nal dividend of 2.75p (2003: 2.3p) per ordinary share is proposed which, together with the interim dividend of 1.25p (2003: 1.1p) per ordinary share paid in October, makes a total dividend for the year of 4.0p It is with regret that Rob Lourey has informed the Board that he will be resigning as a Non- Executive Director in April 2005. Rob will be relocating to Sydney, Australia and as a result, will be unable to continue as a Adrian Montague Director of the Company. Since Chairman his appointment in 2003, Rob 22 February 2005 has been a valued member of the Board and we wish him well for the future. A search for Rob’s replacement is currently (2003: 3.4p) per ordinary share. underway. The ﬁ nal dividend will be paid on 3 June 2005 to those shareholders on the register at 6 May 2005. The total dividend is covered 1.9 times by adjusted earnings per share before exceptional items of 7.4p. extent of which vary from region to region around the world. Our fundamental strategy is to grow the Group organically and, during an economic slowdown, maintain our infrastructure while continuing to make sensible investments for the future. As a result, we are particularly well positioned to beneﬁ t from any improvements in the market. During 2004 the markets improved in all the regions in which we operate and accordingly, I am very pleased to report a considerably improved set of results for 2004. Financial highlights Turnover for the year ended 31 December 2004 increased 16.4% to £433.7m (2003: £372.6m). As expected in an improving market, permanent placements grew more rapidly than temporary placement activity, and this movement in business mix contributed to a larger revenue (gross proﬁ t) increase of 18.0% to £210.6m (2003: £178.5m). Given the Group’s high operational gearing, operating proﬁ t before exceptional items increased by 75.0% to £40.0m (2003: £22.9m). 4 Pale Blue Long Sleeve T-Shirt, Zip-Up Cardigan, Denim Jeans, Parka Jacket all by Esprit Styling by Jo Harris Photography by Bob Komar Professional Career arranged through Michael Page International Michael Page International is a world leading recruitment consultancy 110 ofﬁ ces in 16 countries worldwide | www.michaelpage.co.uk 5 Michael Page International plc Chief Executive’s Review My expectation at the start of 2004 Staff and ofﬁ ce numbers United Kingdom The combined revenues of Michael We started the year with 2,260 In the UK, turnover increased fee generating and support staff by 20.9% to £234.8m (2003: operating from 105 ofﬁ ces in 16 £194.3m) and revenue by 21.4% countries. During the course of to £110.0m (2003: £90.6m). the year we opened ﬁ ve ofﬁ ces Operating proﬁ ts were £23.6m and extended our existing (2003: £15.6m before disciplines into more locations. At exceptional items). 31 December 2004 we employed 2,551 fee generating and support staff operating from 110 ofﬁ ces in 16 countries. The revenues of the ﬁ nance and accounting businesses of Michael Page Finance, Michael Page City and Accountancy Additions, which generated 62% of UK revenue, were 17% higher than in 2003. Michael Page Finance, the largest of the three businesses, opened an ofﬁ ce in Maidstone and recorded its highest quarterly revenue of the year in the fourth quarter, which is encouraging given that this quarter included the seasonally quieter Christmas period. The Finance business in part beneﬁ ted from increased demand for candidates, driven by the needs of companies to prepare for the impact of International Accounting Standards and compliance with Sarbanes-Oxley. The revenue of Michael Page City improved signiﬁ cantly, particularly in the ﬁ rst half of the year, whilst Accountancy Additions, which specialises in lower level ﬁ nance and accounting positions, grew revenue at the fastest rate partly driven by its network expansion from 27 to 30 locations with new ofﬁ ces in Cambridge, Glasgow and Nottingham. Page Marketing, Michael Page Sales and Michael Page Retail, were 24% higher than in 2003 and represented 23% of the UK total. The national coverage of these businesses increased to eight ofﬁ ces in January 2004 with the opening of an ofﬁ ce in Bristol. The Marketing and Sales businesses produced strong growth from all industry sectors and continue to develop a burgeoning temps business. Retail’s growth rate was lower reﬂ ecting the tougher market for retailers in general during 2004. Michael Page Legal which performed well throughout the downturn produced solid growth in 2004. Our small Technology business developed further during the year producing a trading proﬁ t compared to last year’s breakeven. Michael Page Human Resources achieved very strong growth beneﬁ ting from its increased geographic coverage. We believe there is a substantial opportunity in Michael Page Engineering and Supply Chain Management having opened a ﬁ fth ofﬁ ce (London). This business has now been separated into Michael Page Engineering and Manufacturing, and Michael Page Procurement and Supply Chain. Michael Page Secretarial which started at the end of 2003 progressed well and continues to focus on the City and West End of London. was that whilst the prospects for the UK, Asia Paciﬁ c and The Americas were improving, our Continental European businesses would face another difﬁ cult year as trading conditions remained weak. These assumptions proved to be correct for the best part of the year. However, in Continental Europe, after the summer holiday period, we experienced improving activity levels which strengthened as the year ended. We continued our strategy of investing cautiously and sensibly in the organic development of our businesses, while maintaining our normal tight cost control. This strategy means that we are operationally geared and while proﬁ tability suffered during the downturn, we gain the beneﬁ t as conditions improve. This is evidenced by our 18% increase in revenue (gross proﬁ t) for the year, yielding a 75% increase in operating proﬁ ts to £40.0m (2003: £22.9m before exceptional items). 6 Chief Executive’s Review These businesses combined Continental Europe In France, our second largest Our newer and smaller businesses produced revenue growth in 2004 of 40% and represent a signiﬁ cant opportunity for further strong growth as they are rolled out progressively across the UK network. Our two largest businesses in Continental Europe, France and the Netherlands, continued to experience challenging trading conditions during the ﬁ rst half of the year, recording like for like In order to capitalise on the revenue declines. Elsewhere in opportunity in Scotland, we have Continental Europe, all our other created a separate management businesses increased revenues structure to maximise revenue in the ﬁ rst half of the year. During from our existing ofﬁ ces in the second half, market conditions Glasgow and Edinburgh, as well marginally improved, including as to roll out other disciplines. in France and the Netherlands, which both contributed to our fourth quarter revenue growth in Continental Europe of 21.8%. Turnover for the year as a whole increased by 3.3% to £124.3m (2003: £120.4m) and revenue increased by 5.6% to £61.5m (2003: £58.2m). As a result of the increased revenue and tight control over costs, the region produced an operating proﬁ t of £4.4m (2003: operating loss before exceptional items of £0.3m). business after the UK and in Switzerland, Sweden, Belgium representing nearly 55% of and Portugal each achieved 30% the region, revenue was 6% plus revenue growth in 2004. As market conditions in Continental Europe begin to improve we are starting to reap the beneﬁ t of our strategy to maintain and invest in our businesses during a downturn. As part of this process, we have rebranded ‘Page Interim’ as ‘Page Personnel’ in France, Italy, Spain and the Netherlands. If revenue growth is maintained throughout 2005, proﬁ tability should improve considerably as there remains spare capacity within a number of our businesses. lower than in 2003. Trading conditions remained very difﬁ cult during 2004 with the business only achieving modest year on year revenue growth in the fourth quarter of 2004. The improved performance during the second half of the year was largely driven by permanent recruitment resulting in revenue from permanent placements for the year totalling a similar level to 2003. The temporary and contracting businesses experienced a 15% decline in revenue year on year. We believe that the recent increase in our revenues is largely the result of our ability to service the market from our leading position which we maintained during the downturn. Our businesses in the Netherlands, Italy, Spain and Germany collectively represent nearly 40% of the region. While the Netherlands did not achieve growth until the second half of 2004, our businesses in the other countries produced good growth throughout the year as market conditions improved. In addition, we believe we have made market share gains as conditions improved due to a number of competitors downsizing and closing ofﬁ ces during the downturn. 7 Chief Executive’s Review Asia Paciﬁ c 2004 was a very strong year in New IT system Our businesses in this region produced a very strong set of results for the year. Turnover was 22.2% higher at £62.8m (2003: £51.4m), revenue was 26.0% higher at £31.5m (2003: £25.0m) and operating proﬁ t increased 52.5% to £11.6m (2003: £7.6m before exceptional items). In Australia revenue grew 16.7% driven largely by continued strong demand from the ﬁ nancial services, business services, mining and resources, and manufacturing sectors. We opened an ofﬁ ce in Brisbane at the beginning of the year starting with ﬁ nancial recruitment. We also continued to progress the roll out of the newer businesses, starting Engineering and Supply Chain in Sydney. Our businesses in Hong Kong and Singapore both experienced substantial revenue growth in 2004 capitalising on our strong market position. In August we entered into a strategic alliance with Shanghai Tian Cai Network Co. Ltd., through which we can provide recruitment services to Tokyo and we substantially grew revenue and proﬁ ts. We expanded the range of disciplines by starting Sales and Marketing, and Human Resources. Our ofﬁ ce is now at capacity and we intend doubling the size of our ofﬁ ce space early in 2005. The Americas Turnover for the region was 79.2% higher at £11.8m (2003: £6.6m) and revenue increased by 65.8% to £7.6m (2003: £4.6m). Our new front ofﬁ ce recruitment system has been successfully rolled out throughout the UK, Continental Europe and USA. The Asia Paciﬁ c region will start implementing the system in the ﬁ rst quarter of 2005. Strategy Our overall long term strategy remains absolutely unchanged. We intend to stay focused on our core competency of specialist recruitment and to grow the During the year we opened new business organically by the ofﬁ ces in Chicago and Boston expansion of existing businesses and continued to add headcount in their local markets, the in the existing ofﬁ ces in the USA introduction of new disciplines into and Brazil. These investments, existing locations and by entering while increasing the cost base, new geographic markets. We have contributed to the revenue growth numerous opportunities to grow resulting in the region making an our business in all our regions. operating proﬁ t of £0.5m (2003: operating loss before exceptional items of £0.1m). We are extremely pleased with our progress in the USA and during early 2005 we will be investigating the opportunities for further ofﬁ ce openings in the second half of As we continue to grow the business it naturally becomes broader-based in terms of disciplines, customers and geographies, although we cannot escape the fact that recruitment is tied to economic cycles. Our strategy of organically growing, maintaining and sensibly investing in our business, even during a downturn, means that our ﬁ nancial performance will suffer during periods of economic slowdown. However, our track record since 1976 demonstrates the long term success of this strategy. As conditions improved throughout 2004 we again saw the beneﬁ ts of this approach, achieving a 75% increase in operating proﬁ t on an 18% increase in revenue. Terry Benson Chief Executive 22 February 2005 clients in Shanghai. the year. In Brazil we enjoyed another very successful year growing headcount in both the São Paulo and Rio de Janeiro ofﬁ ces and starting Sales and Marketing recruitment. 8 Michael Page International plc Finance Director’s Review Proﬁ t and loss account Operating proﬁ t Taxation Earnings per share and As a result of the Group’s strategy Tax on proﬁ ts before exceptional dividends and the proﬁ t based bonuses, we items was £13.9m (2003: £9.0m), Basic earnings per share were have a cost structure that is very representing an effective tax rate 10.0p (2003: 3.8p) and adjusted operationally geared as evidenced of 34.8% (2003: 38.3%). The rate earnings per share before by the 75% increase in operating is higher than the UK corporation exceptional items were 7.4p proﬁ ts before exceptional items tax rate of 30% as a result of non- (2003: 4.1p). The weighted from an 18% increase in revenue. deductible business expenses, average number of shares for Turnover Turnover for the year was 16.4% higher at £433.7m (2003: £372.6m). Turnover from temporary placements increased by 12.9% to £275.2m (2003: £243.8m) and represented 63.5% (2003: 65.4%) of Group turnover. Turnover from permanent placements was £158.5m (2003: £128.8m), an increase of 23.0%. Administrative expenses in the year increased to £170.6m (2003: £155.6m before exceptional items) principally due to increased numbers of staff and higher proﬁ t Gross proﬁ t (revenue) related bonuses. Revenue for the year increased by 18.0% to £210.6m (2003: £178.5m) representing an overall gross margin of 48.6% (2003: 47.9%). The percentage increase in revenue is greater than the increase in turnover due to the higher proportion of permanent placements in 2004 countered by a lower gross margin on temps. Revenue from temporary placements was £62.0m (2003: £56.7m) and represented 29.4% (2003: 31.7%) of Group revenue. The gross margin achieved on The Group’s largest category of expenditure is the remuneration of our consultants and support staff. Headcount of the Group was 2,260 at 1 January 2004 and increased to 2,435 at 30 June. The Group’s headcount increased further during the second half of the year reﬂ ecting both increased current activity and investment for future growth. At 31 December 2004 we employed 2,551 consultants and support staff. Net interest temporary placements was 22.5% The net interest receivable in the (2003: 23.2%). year was negligible (2003: £0.6m). The Group’s quarterly revenue has grown sequentially throughout 2004, as shown in Fig.1, with year on year growth increasing from 12.4% in quarter 1 to 23.9% in quarter 4, an average for the year of 18% growth. While we started the year with net cash of £22.4m there is a substantial cash outﬂ ow in January each year as quarter four and annual bonuses are paid. During 2004, surplus cash balances were invested in the short-term money market prior to being utilised for share repurchases. proﬁ ts arising in higher tax rate the year was 351,555,000 jurisdictions, and losses which are (2003: 357,955,000). The 2004 unable to be offset against proﬁ ts in average number of shares was the current year and against which lower than 2003 due to the share no deferred tax asset has been repurchases made during 2004. recognised. The rate is lower than 2003, primarily as a result of the higher proﬁ ts in Continental Europe. An increase in the ﬁ nal dividend to 2.75p (2003: 2.3p) per ordinary share has been proposed which, The Company expects to obtain together with the interim dividend a deduction for corporation tax of 1.25p (2003: 1.1p) per ordinary purposes for the Restricted Share share, makes a total dividend Scheme which vested in 2004. for the year of 4.0p (2003: 3.4p) This deduction reduces the current per ordinary share, an increase year’s tax charge by £9.0m and is of 17.6%. The ﬁ nal dividend, treated as an exceptional item in which amounts to £9.5m, will be these results. paid on 3 June 2005 to those shareholders on the register at 6 May 2005. £60m £50m £40m £30m £20m £10m m 5 . 9 4 £ Q1 m 4 . 1 5 £ Q2 m 8 . 7 4 £ Q3 m 9 . 3 4 £ Q4 m 8 . 2 4 £ Q1 m 0 . 5 4 £ Q2 m 0 . 5 4 £ Q3 m 7 . 5 4 £ Q4 m 1 . 8 4 £ Q1 m 3 . 2 5 £ Q2 m 5 . 3 5 £ Q3 m 7 . 6 5 £ Q4 2002 2003 2004 Fig.1. Quarterly Revenue 9 Finance Director’s Review Balance sheet Cash ﬂ ow Treasury management and International Financial The Group had net assets of At the start of the year the Group currency risk Reporting Standards (IFRS) £50.7m at 31 December 2004 had net cash of £22.4m. It is the Directors’ intention Following the European Union’s (2003: £53.3m) of which £12.2m (2003: £22.4m) is represented by net cash. The reduction in net assets and net cash is a direct consequence of the share repurchases made during 2004. During the year the Group generated net cash from operating activities of £35.7m (2003: £29.2m) being £47.0m (2003: £29.7m) of EBITDA, an increase in working capital requirements While our capital expenditure of £6.2m (2003: £0.8m) and is fundamentally driven by the movements in provisions of Group’s headcount, 2004 capital £5.1m (2003: inﬂ ow £0.2m). The expenditure, net of disposal increased working capital is largely proceeds, decreased to £4.4m due to the growth in the business, (2003: £6.3m). This is due to the particularly in the fourth quarter of 2003 expenditure reﬂ ecting the 2004. The settlement of provisions ﬁ t out costs of a large building in largely relates to the payroll taxes to ﬁ nance the activities and adoption of Regulation (EC) No development of the Group 1606/2002, the consolidated principally from retained earnings, accounts of EU companies whose and to operate the Group’s securities are publicly traded will business while maintaining the be required to adopt International net debt/cash position within Financial Reporting Standards a relatively narrow band. Cash (“IFRS”) together with revised generated in excess of these International Accounting Standards requirements will be used to (“IAS”), in issue at 31 March 2004, buy back the Company’s shares for their ﬁ nancial statements from for which renewal of the existing 2005. Full year IFRS consolidated authority is being sought at ﬁ nancial statements will be the forthcoming Annual produced for the ﬁ rst time to 31 General Meeting. December 2005, with the ﬁ rst London, and the implementation and social charges arising on the Cash surpluses are invested in of the new IT system. While vesting of the Restricted Share short-term deposits with any headcount did increase in Scheme in April 2004. working capital requirements being 2004, there remained surplus ofﬁ ce space and furnishings to accommodate the majority of the increase without further expenditure. Trade debtors were £69.3m at 31 December 2004 (2003: £53.2m) representing debtor days of 47 The principal payments have been: (cid:129) £4.4m (2003: £6.3m) of capital expenditure, net of disposal proceeds, on property, infrastructure, information systems and motor vehicles for staff; provided from Group resources or by local overdraft facilities. The main functional currencies of the Group are Sterling, Euro, US Dollar and Australian Dollar. The Group does not have material transactional currency exposures nor is there a material reported results under IFRS being our interims to 30 June 2005. This year’s consolidated ﬁ nancial statements remain in accordance with UK GAAP. A signiﬁ cant amount of work has been performed in 2004 by members of the Group Finance team, and this work is still ongoing. The work performed to date has been as follows: (2003: 46 days). (cid:129) taxes on proﬁ ts of £4.8m (2003: exposure to foreign-denominated (cid:129) identiﬁ cation of key accounting £10.7m); (cid:129) dividends of £12.6m (2003: £12.2m); and (cid:129) share repurchases of £24.1m (2003: nil). At 31 December 2004 the Group had net cash balances of £12.2m (2003: £22.4m). monetary assets and liabilities. changes and changes The Group is exposed to foreign required to the Group’s currency translation differences accounting policies; in accounting for its overseas operations although our policy is not to hedge this exposure. (cid:129) quantiﬁ cation of these changes detailing impact on proﬁ t and net assets; (cid:129) continued communication with the Audit Committee; 10 Michael Page International plc (cid:129) identiﬁ cation of matters a) Share-based payments b) Goodwill amortisation c) Proposed dividends requiring additional disclosure, Under UK GAAP, the cost of Under UK GAAP, the Under UK GAAP Accounting leading to changes in internal share options is based on the Group’s policy is to amortise for Post Balance Sheet procedures to capture and intrinsic value of the option capitalised goodwill on a Events, proposed dividends report additional data; and at the date of grant and as straight-line basis over its for the accounting year are (cid:129) preparation of a draft IFRS Annual Report based on the ﬁ nancial results to 31 December 2003. As a result of the work performed during 2004, the Group is conﬁ dent that it will be able to fully comply with the accounting and reporting requirements of IFRS in 2005. The following areas that could have a material impact on the Group’s ﬁ nancial statements have been identiﬁ ed. This summary is not intended to be an exhaustive list. Further differences may arise as a result of the Group’s ongoing detailed assessment and interpretations of IFRS. such, grants made under the estimated useful economic accrued for and recognised Group’s share option plans life of 20 years. On transition as a liability. Under IAS 10 have not resulted in a charge to IFRS, IFRS 1 First-time Events after the Balance to the proﬁ t and loss account. Adoption of International Sheet Date, dividends to Under IFRS 2 Share-based Financial Reporting Standards shareholders declared after Payment, the Group is requires the Group to the balance sheet date but required to measure the cost review the carrying value before the ﬁ nancial statements of all share options granted of capitalised goodwill for are authorised for issue are no since 7 November 2002 that potential impairment. longer recognised as a liability have not fully vested at the balance sheet date, using an option pricing model. If IFRS 2 had been in effect for 2004 it would have resulted in a charge of approximately £0.9m (2003: £0.5m) in the income statement. at the balance sheet date but are disclosed separately in the notes. Accordingly, the Group will no longer recognise an accrual for its ﬁ nal dividend in its current year IFRS balance sheet but will report it in the consolidated IFRS statement of changes in equity for the following ﬁ nancial period. At 31 December 2004 the accrual for the 2004 ﬁ nal dividend amounted to £9.5m. Stephen Puckett Group Finance Director 22 February 2005 In accordance with IFRS 3 Business Combinations, from 1 January 2005, amortisation of goodwill will no longer be charged in the Group’s consolidated IFRS income statement. In 2004 under UK GAAP the Group recorded a charge for goodwill amortisation of £0.1m (2003: £0.1m). Under IAS, instead of an annual charge to the proﬁ t and loss, an impairment review will be carried out at each balance sheet date, and this is required irrespective of there being an indicator of impairment in existence. If impairment is identiﬁ ed, the resulting debit will be charged to the income statement, rather than the current amortisation charge made under existing UK GAAP. At 31 December 2004, the Group holds £1.4m of goodwill on its balance sheet. 11 Michael Page International plc Board of Directors Adrian Montague CBE (56) Stephen Box (54) Stephen Burke (45) Stephen Ingham (42) Non-Executive Chairman Independent Non-Executive Managing Director – UK Executive Director – UK Adrian Montague is Non-Executive Chairman of British Energy plc, Director, Senior Independent Director Stephen Burke joined Michael Operations Page in 1981 and was appointed Stephen Ingham joined Michael Cross-London Rail Links Limited Stephen Box qualiﬁ ed as as a Director of Michael Page Page in 1987 as a consultant and Infrastructure Investors a Chartered Accountant at International in 1988 with with Michael Page Marketing and Limited and a Non-Executive Coopers & Lybrand where he responsibility for development Sales. He was responsible for Director of Friends Provident spent more than 25 years, 15 of of overseas businesses in the setting up the London marketing plc. From 1997 to 2001 he these as a partner. From August Netherlands and Germany. He and sales businesses and was held senior posts concerned 1997 to November 2002 he returned to the UK in 1996 as promoted to Operating Director with the implementation of the was Finance Director of National Managing Director of Accountancy in 1990. He was appointed Government’s policies for the Grid. He is a member of the Additions Ltd and was appointed Managing Director of Michael involvement of the private sector in Financial Reporting Review Panel Managing Director of Michael Page Marketing and Sales in the delivery of public services, ﬁ rst and a Non-Executive Director Page Finance in 1999. He was 1994. Subsequently he has taken as Chief Executive of the Treasury of South East Water Limited. appointed to his current position additional responsibility for Michael Taskforce and then as Deputy Stephen has experience of in January 2001. Page’s Retail, Technology, Human Resources and Engineering businesses. He was promoted to Executive Director of UK Operations in January 2001. Charles-Henri Dumon (46) Managing Director – Continental Europe and South America Charles-Henri Dumon joined Michael Page in 1985 and was appointed a Director in 1987. Since then he has had full responsibility for the Group’s operations in France and has managed the Group’s entry into Southern Europe and South America. He was appointed as Managing Director for all Michael Page’s Continental European and South American businesses in January 2001. Chairman of Partnerships UK Audit Committees as a partner plc. He was Deputy Chairman of at Coopers & Lybrand, as an Network Rail from 2001 to 2004. Executive Director of National He spent his early career as a Grid attending Audit Committees, solicitor with Linklaters & Paines and as a Non-Executive Director before joining Kleinwort Benson chairing the Audit Committee of in 1994. Adrian is also a Non- South East Water plc. Stephen Executive Director of CellMark was appointed a Non-Executive AB, the pulp and paper marketing Director and Chairman of the company based in Gothenburg. Audit Committee of MGN Gas He was appointed Chairman of Networks Limited on 13 October Michael Page International plc on 2004. He was appointed a Non- Executive Director of Michael Page International plc on 27 February 2001. 22 May 2002. Terry Benson (53) Chief Executive Terry Benson joined Michael Page in 1979 and was appointed to the Board in 1983. In 1986 he was promoted to Managing Director of the Group’s marketing recruitment businesses and in January 1988 to Managing Director of the Group. In 1993 he was appointed Chief Executive of the Group. 12 Board of Directors Rob Lourey (47) Stephen Puckett (43) Hubert Reid (64) Independent Non-Executive Group Finance Director Independent Non-Executive Director Stephen Puckett qualiﬁ ed as a Director Rob Lourey is Group Human Chartered Accountant with BDO Hubert Reid is Chairman of Resources Director of BOC Group Binder Hamlyn. He joined Wace Enterprise Inns plc, the Royal plc. He joined BOC in Australia in Group plc in 1988 as Director of London Group and of the 1996 and was appointed to the Corporate Finance, subsequently Taverners Trust PLC and Deputy Executive Management Board in being promoted to Group Chairman of Majedie Investments June 2000. He has a Bachelor Finance Director in 1991. He was PLC. He was previously Managing of Business degree in personnel appointed Group Finance Director Director and then Chairman management. He was appointed of Stat Plus Group plc in 2000. of the Boddington Group plc a Non-Executive Director of He was appointed Group Finance and Chairman of Ibstock Plc Michael Page International plc Director of Michael Page in and Bryant Group plc. He was on 7 October 2003. Rob has January 2001. He was appointed appointed a Non-Executive experience as a member of the a Non-Executive Director of SHL Director of Michael Page Executive Management Board Group plc on 3 March 2004, International plc on 25 February of BOC Group plc, including and chairs its company’s Audit 2003. Hubert has been a member participation in its management, Committee. investments, capital allocation, and governance. Rob also has experience as a Non-Executive Director of two publicly listed companies in the Republic of South Africa. of various Audit Committees since 1993 including Bryant Group plc, Ibstock Plc, Greenalls Group plc, Royal London Group, Taverners Trust PLC, Enterprise Inns plc and Majedie Investments PLC. 13 Michael Page International plc Directors’ Report Principal activity and review Biographical details for all the Share capital Substantial shareholdings of the business and future current Directors are shown on developments pages 12 and 13. The authorised and issued share As at 22 February 2005, the capital of the Company are Company has been notiﬁ ed of The Group is one of the world’s The beneﬁ cial interests of Directors shown in note 17 to the ﬁ nancial the interests held in more than leading specialist recruitment in ofﬁ ce at 31 December 2004 statements. consultancies. The Group’s trading in the shares of the Company at results are set out in the ﬁ nancial 31 December 2004 and at 22 statements on pages 34 to 56. February 2005 are set out in the Details of the Group’s strategy, Remuneration Report on page 26. At the Annual General Meeting held on 27 May 2004 the Company renewed its authority to make market purchases of its own 3% of the issued share capital of the Company as shown in Fig.2. below. Corporate social responsibility (CSR) The Board recognises its responsibilities in respect of social, environmental and ethical (SEE) matters, with the UK Managing Director having Board responsibility for Group Environmental Management. The Directors continually monitor all risks to its businesses, All of the Executive Directors are ordinary shares up to a maximum deemed to have an interest in of 10% of the issued share capital. the ordinary shares held in the Employee Beneﬁ t Trust and its subsidiaries. Results and dividends The proﬁ t for the year after taxation During the year the Company purchased 6,460,000 shares for cancellation with a nominal value of £64,600, representing 1.8% of the issued share capital for a consideration of £10,998,686 amounted to £35.1m (2003: including expenses. £13.7m). An interim dividend of 1.25 pence per ordinary share was paid on 15 October 2004. The Directors recommend the payment of a ﬁ nal dividend for the year ended 31 December 2004 of 2.75 pence per ordinary share on 3 June 2005 to shareholders on the register on 6 May 2005 which, if approved at the Annual General Meeting, will result in a total dividend for the year of 4.0 pence per ordinary share (2003: 3.4 pence). Following the authority granted by including SEE risks, which may shareholders at the Company’s impact the Group’s short and Annual General Meeting on 27 long term value. During 2004 May 2004, the Company also no signiﬁ cant SEE risks were purchased 7,765,000 shares identiﬁ ed. The Company is also during the year which are held a member of the FTSE4Good in treasury. The nominal value Index Series designed to measure of these shares is £77,600 and the performance of, and facilitate represents 2.2% of the issued investment in, those companies share capital. The shares were meeting globally recognised purchased for a consideration of standards of corporate £13,121,790 including expenses. responsibility. The Group’s policies on CSR matters are described in the following paragraphs. outlook and review of operations are described in the Chairman’s Statement, Chief Executive’s Review and Finance Director’s Review on pages 4 to 11. Directors and interests The following were Directors during the year and held ofﬁ ce throughout the year. A A Montague‡ CBE (Chairman) T W Benson (Chief Executive) S J Box‡* S P Burke C-H Dumon S J Ingham R Lourey‡ S R Puckett H V Reid‡ ‡ Non-Executive Directors * Senior Independent Director In accordance with the Company’s Articles of Association, A A Montague, T W Holder Benson and S J Ingham will retire Harris Associates by rotation. All retiring Directors Barclays plc Fig.2. Substantial Shareholdings Number of % of issued ordinary shares share capital 50,006,800 42,227,497 being eligible will offer themselves AXA Investment Managers UK Limited 34,582,879 for re-election at the forthcoming Silchester International Investors 34,569,705 Annual General Meeting. Fidelity Investment Management Limited 19,391,433 Legal & General Capital International Limited 12,780,166 10,656,792 14 14.31 12.08 9.90 9.89 5.55 3.66 3.05 Directors’ Report (a) Environmental policy This review is carried out annually Energy (c) Employee involvement The Group does not operate in a business sector which causes signiﬁ cant pollution but the Board recognises that the business does have an impact on the environment. The Board is committed to managing and improving the way in which our activities affect the environment by: (cid:129) optimising the use of energy; (cid:129) ensuring the efﬁ cient use of materials; (cid:129) encouraging re-use and recycling; and (cid:129) incorporating the principle of sustainable development. During the year, the Group has continued to allocate a signiﬁ cant amount of time and resource to further identify where its activities have an in accordance with the guidance as laid down by the Department for Environment, Food and Rural Affairs (DEFRA), and the Global Reporting Initiative (GRI), an independent, international institution established to create a common framework for sustainability reporting worldwide. The current environmental report, which covers our UK businesses only, can be found on the Michael (cid:129) 3,522,389 kWh of electricity Communication with employees was consumed in the UK, which is effected through the Company’s converts to 1,514,630 kgCO2 Intranet, information bulletins, (cid:129) 1,289,390 kWh of gas was consumed in the UK, which converts to 244,980 kgCO2 Water (cid:129) In the UK, Michael Page brieﬁ ng meetings conducted by senior management and formal and informal discussions. Interim and Annual Reports are available to all staff. Informal communication is further facilitated by the Group’s consumed 32,300 m3 of water. divisional organisation structure. Transport (d) Equal opportunity and Page website. A summary of its In total, UK employees travelling diversity ﬁ ndings during 2004 are shown in to and from work converts to The Group endorses and Fig.3. below. Waste 814,392 kgCO2. (b) Charitable donations (cid:129) 240 tonnes of waste was The Group made charitable generated by UK ofﬁ ces. Our donations of £44,037 during the current national recycling rate is year (2003: £25,567) principally 41% from recycling conﬁ dential to local charities serving the paper and toner cartridges. communities in which the Group operates. Subject to certain restrictions, the Group matches charitable donations made by supports the principles of equal employment opportunity. It is the policy of the Group to provide equal employment opportunity to all qualiﬁ ed individuals which ensures that all employment decisions are made, subject to its legal obligations, on a non-discriminatory basis. Due consideration is given to the recruitment, promotion, training impact on the environment. An environmental review was again undertaken jointly by Michael Page (cid:129) Through recycling, Michael Page in the UK has saved 1,371 trees and saved a total of 407m3 International plc, and Green-Works landﬁ ll space. Consulting, an external ﬁ rm of environmental consultants. Fig.3. UK Waste Generation employees. It is the Group’s policy and working environment of all staff not to make political donations either in the UK or overseas. including those with disabilities. It is the Group’s policy to encourage the training and further development of all its employees where this is of beneﬁ t to the individual and to the Group. Annual weight generated (tonnes) % of total waste Conﬁ dential waste Toners Mixed ofﬁ ce paper Food waste and packaging Aluminium cans Glass bottles Plastic bottles & plastic cups Cardboard Total 80 2 98 31 3 2 7 17 240 33% 1% 41% 13% 1% 1% 3% 7% 100% 15 Directors’ Report Throughout 2004, the Group The Group is currently working individually negotiated contracts) The Directors are responsible monitored the diversity of its with RfO on a benchmarking and that payment should be for keeping proper accounting UK employees, 73% of whom exercise, the results of which made in accordance with those records which disclose with to date have completed the will be reviewed by the Diversity terms and conditions, provided reasonable accuracy at any time voluntary request for information. Steering Group, which is chaired that the supplier has also the ﬁ nancial position of the Group The analysis indicates a split of by an Executive Director, and its complied with them. and the Company and to enable persons who may be affected by Statement of Directors’ its activities. In order to meet these responsibilities responsibilities the Group will: 57% female, 42% male, with 1% recommendations presented to declining to answer and regarding the Board for consideration in all origin, 89% white, 10% ethnic territories. origin and 1% declining to answer. The UK 2001 Census showed a total ethnic population of 7.9%. Similar monitoring will be carried out during 2005. The Group recognises the importance of diversity in the workplace for both our own and our clients’ businesses. We are committed to increasing the (e) Health and safety It is the policy of the Group to take all reasonable and practicable steps to safeguard the health, safety and welfare of its employees, visitors and other recognition of our brand amongst (cid:129) assess the risks to health and a more diverse audience, and to safety; encourage development of an (cid:129) implement safe systems at work; increasingly diverse candidate (cid:129) provide information, instruction database. Our monitoring of our and training; candidate databases conﬁ rms that (cid:129) establish and maintain the brand attracts candidates from emergency procedures; and (cid:129) regularly review health and safety policies and procedures. The Group is being proactive in our approach to health and safety by monitoring proposed changes in legislation and implementing policies accordingly, and as such we comply with all statutory and regulatory requirements. The Company acts as a holding company for the Group. Creditor days for the Company were nil (2003: nil) as the Company does not undertake any transactions with suppliers. The Group’s creditor days for the year ended 31 December 2004 were 38 (2003: 28 days). United Kingdom Company law requires the Directors to prepare ﬁ nancial statements for each ﬁ nancial period which give a true and fair view of the state of affairs of the Group and the Company as at the end of the ﬁ nancial period and of the proﬁ t or loss of the Group for that period. In preparing those ﬁ nancial statements, the Directors are required to: (cid:129) select suitable accounting policies and then apply them consistently; (cid:129) make judgements and estimates that are reasonable and prudent; (cid:129) state whether applicable them to ensure that the ﬁ nancial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Auditors Deloitte & Touche LLP are willing to continue in ofﬁ ce and accordingly resolutions to re-appoint them as auditors and authorising the Directors to set their remuneration will be proposed at the forthcoming Annual General Meeting. Annual General Meeting The resolutions to be proposed at the Annual General Meeting to be held on 27 May 2005, together with explanatory notes, appear in the Notice of Meeting set out on pages 59 to 62. By order of the Board (f) Supplier payment policy accounting standards have It is the policy of the Group to agree appropriate terms and conditions for transactions with suppliers (by means ranging from standard written terms to been followed; and (cid:129) prepare the ﬁ nancial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. R A McBride Company Secretary 22 February 2005 a wide range of backgrounds. We strive to ensure that we offer our clients the most qualiﬁ ed candidates on the basis of their relevant aptitudes, skills and abilities and that such candidates are drawn from diverse backgrounds. During 2004, the Group joined Race for Opportunity (RfO), part of Business in the Community, a UK movement of over 700 member companies whose purpose is to inspire, challenge and support business in improving its impact on society. 16 Michael Page International plc Corporate Governance The Board of Directors has (cid:129) Board balance (code (cid:129) Meetings with shareholders All Directors are subject to a strong commitment to provision A3.2) - The number (code provision D1.1) retirement by rotation and re- high standards of corporate of independent Non-Executive – The Senior Independent election by the shareholders in governance and has made Directors does not equal that Director has not met directly accordance with the Articles of signiﬁ cant progress in applying the of the executives. The Board with shareholders. However, Association, whereby one third main and supporting principles considers that the collective other members of the of the Directors retire by rotation of corporate governance as know-how and experience of Board and the Chairman each year. All Directors are subject recommended in Section 1 of the the Non-Executive Directors have met face-to-face with to election by the shareholders at Combined Code on Corporate provides a balanced mix of skills shareholders during the year the ﬁ rst Annual General Meeting Governance, (the “2003 FRC which matches the needs of and the issues discussed are following their appointment. All Code”), for the year ended 31 the business and is sufﬁ cient shared collectively with all Directors are subject to re-election December 2004. to ensure proper governance Board members. Additional every three years in accordance Compliance with the 2003 FRC Code The Directors consider that the Company has complied with the Code provisions set out in Section 1 of the 2003 FRC Code throughout the year ended 31 December 2004, except as stated below: of the Group which consists understanding of shareholders with the 2003 FRC Code. of an organically grown, single opinions is also gained from business, producing clear, monthly brokers’ reports. transparent results. It is for these As a result of this information reasons that there is currently no and extensive feedback from intention to increase the number shareholder meetings, the of Non-Executive Directors on Senior Independent Director the main Board to more than and the other Non-Executive four, including the Chairman. Directors believe they are (cid:129) Composition of the aware of shareholders’ views. remuneration committee (code provision B2.1) – During the year, Adrian Montague was a member of the remuneration committee which does not comply with the recommendations made in the 2003 FRC Code. On 18 September 2004 Adrian resigned from the committee, and the Group now complies with the 2003 FRC Code in this respect. The Board and its operation The Board of Michael Page International plc is the body responsible for corporate governance, establishing policies and objectives, and the management of the Group’s resources. It is the Group’s policy that the roles of Chairman and Chief Executive are separate. The main Board comprises the Chairman, who has no executive responsibilities, ﬁ ve Executive Directors and three independent Non-Executive Directors. Adrian Montague, Terry Benson and Steve Ingham will retire by rotation and offer themselves for re-election. As a result of their annual performance evaluation, the Board considers that their individual performances continue to be effective with each director demonstrating sufﬁ cient commitment to their role. The Board is therefore pleased to support their re-election at the forthcoming Annual General Meeting. All Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that Board procedures and applicable rules and regulations are observed. There is an agreed procedure for Directors to obtain independent professional advice, if necessary, at the Company’s expense. 17 Michael Page International plc The Board meets regularly Audit Committee Objectivity and The following areas are considered day running of the business and management. (a) obtaining assurances from the The Audit Committee comprises the independent Non-Executive independence of external to be unacceptable for the external auditors auditors to undertake: Directors and is chaired by Deloitte & Touche LLP are (cid:129) Selection, design or Stephen Box. Their relevant employed to perform work in implementation of key ﬁ nancial qualiﬁ cations and experience are addition to their statutory duties systems; shown in their biographies on where it is felt that they are pages 12 and 13. best placed to carry out the The Committee met ﬁ ve times in 2004 to fulﬁ l its duties and included attendance by the external auditors where required. engagement as a result of their being the Group’s auditors. All other work is awarded on the basis of competitive tender. The Committee also met with The objectivity and independence the external auditors during the of the external auditor is year without the presence of safeguarded by: (cid:129) Maintaining or preparing the accounting books and records or the preparation of ﬁ nancial accounts or other key ﬁ nancial data; (cid:129) Provision of outsource ﬁ nancial systems; (cid:129) Provision of outsource operational management functions; In 2004 the Audit Committee external auditor that adequate discharged its responsibilities as policies and procedures exist (cid:129) Recruitment of senior ﬁ nance or set out in the terms of reference within its ﬁ rm to ensure the ﬁ rm other executives; which can be found on our and its staff are independent website. Its principal tasks are of the Group by reason of to review the Group’s internal family, ﬁ nance, employment, controls, review the scope of the investment and business external audit, consider issues relationships (other than in the (cid:129) Secondment of senior ﬁ nance or other executives; (cid:129) Provision of internal audit services; raised by the external auditors, normal course of business); (cid:129) Valuation services or fairness and review the half-yearly and annual accounts before they are presented to the Board, focusing in particular on accounting policies and compliance, and areas of management judgement and estimates. (b) enforcing a policy concerning opinions; and the provision of non-audit (cid:129) Any services speciﬁ cally services by the auditor which prohibited to be provided by governs the types of work: a listed company’s external auditors under UK regulations. (i) from which the external auditor is excluded; (ii) for which the external auditor can be engaged without referral to the audit committee; (iii) for which a case-by-case decision is required, which includes all engagements over certain fee limits. throughout the year. It has a formal schedule of matters reserved to it and delegates speciﬁ c responsibilities to Committees. During the meetings, the Board formally considers how and to whom matters covered at each meeting should be communicated and actioned beyond the Board. Decisions concerning matters of a more routine nature are dealt with by management below Board level. The structure of the Group facilitates the day to enables efﬁ cient and effective communication of issues to the Board when required. The Chairman and Non-Executive Directors also met during the year without the Executive Directors being present. Each of the Committees has formal written terms of reference which were reviewed and amended in 2004 in accordance with the 2003 FRC Code. The terms of reference for each committee are available on request and are available on the Group’s website. Their composition and manner in which they discharge their responsibilities are described below. 18 Corporate Governance The following criteria also need The Committee reviews the Succession planning Transparency of Board to be met before the external Group’s policy on the Chairman’s, auditors are contracted to provide Executive Directors’ and senior such services: (cid:129) The ﬁ rm has the necessary skills and experience to undertake the work; (cid:129) There are no potential conﬂ icts that may arise as a result of carrying out this activity; (cid:129) The external audit ﬁ rm is subject to the company’s normal tendering processes; and (cid:129) In addition to the normal authorisation procedures and prior to inclusion in a tender, approval has been given by the Group Finance Director (and the Audit Committee if the fee is to exceed £25,000). executives’ remuneration and terms of employment, makes recommendations upon this along with the speciﬁ c level of remuneration to the Board, and also approves the provision of policies for the incentivisation of employees including share schemes. The Committee meets at least twice a year and is also attended by the Chief Executive except when his own remuneration is under consideration. The Remuneration Report is shown on pages 22 to 30 and includes information on the Directors’ service contracts. The terms of reference of the Remuneration Committee can be (c) enforcing a policy of reviewing found on our website. One of the basic premises behind appointments the strategic development of the The Board follows formal Michael Page business is that and transparent procedures growth is organic rather than when appointing directors. through acquisitions of companies The nomination committee or senior people. In order to achieve this organic growth we require good people. It is therefore one of the fundamental principles and a major part of the philosophy of the company that we train and develop our own people. This approach creates opportunities for career progression and helps us attract and retain high calibre people. engages external consultants to identify a shortlist of suitable candidates for Non-Executive appointments. All the candidates are interviewed by the Chairman and the Chief Executive and evaluations of all candidates are discussed with all members of the nomination committee and the recommendation is subsequently made to the Board. Induction and training Due to this philosophy of programme all cases where it is proposed that a former employee of the external auditors be employed by the Group; and (d) monitoring the external auditors’ compliance with applicable UK ethical guidance on the rotation of audit partners. nurturing our own talent, succession planning is inherently a key part of the process. We do not make promotions or move people within the business unless Nomination Committee The Nomination Committee there is a clear successor for the comprises the Non-Executive vacant position. It is therefore one Directors and is chaired by Adrian of the key responsibilities of all Montague. It is responsible for levels of management, and not making recommendations to the just the Board, to have a clear Board on new appointments, as plan of development for their well as making recommendations direct reports. as to the composition of the Remuneration Committee Board generally, and the balance The Remuneration Committee comprises the independent Non- Executive Directors and is chaired by Rob Lourey. between Executive and Non- Executive Directors appointed to the Board. The terms of reference of the Nomination Committee can be found on our website. On appointment to the Board, each director discusses with the Company Secretary the extent of training required and a tailored induction programme to cover their individual requirements is then compiled. Elements of the programme typically consists of meeting senior management, site visits and attending internal conferences. In addition, information is provided on the company’s services, group structure, Board arrangements, ﬁ nancial information, major competitors and major risks. After an initial induction phase, updates are provided on a periodic basis. 19 Michael Page International plc Performance evaluation Internal control The Board has assessed existing Any system of internal control The Board, as part of its The responsibilities of the Directors commitment to ensuring in respect of internal control are effectiveness and evaluating its deﬁ ned by the Financial Services performance together with that Authority’s Listing Rules which of its Directors and Committees, incorporate a Code of Practice conducted an internal review known as the Combined Code, comprising initially a questionnaire which requires that Directors concerning all aspects of review the effectiveness of the procedure and effectiveness. Group’s system of internal controls. risk management and internal can only provide reasonable, but control processes during the not absolute, assurance against year ended 31 December 2004 material misstatement and loss. in accordance with the Turnbull Key elements of the system of guidance. The Board believes it internal control are as follows: has the procedures in place such that the Group has fully complied for the ﬁ nancial year ended 31 December 2004. (cid:129) group organisation. The Board of Directors meets at least ten times a year, focusing mainly on strategic issues, Following completion of the questionnaires, the Chief Executive met with the individual Executive Directors, and the Chairman met with the individual Non-Executive Directors, to discuss their views and to give feedback on their performance. The results of the valuation were reported to the Board and where areas of improvement have been This requirement stipulates that the review shall cover all controls including operational, compliance and risk management, as well as The Directors are responsible for operational and ﬁ nancial the Group’s system of internal performance. There is also ﬁ nancial and operational controls a deﬁ ned policy on matters which are designed to meet strictly reserved for the Board. ﬁ nancial. Internal Control Guidance the Group’s particular needs The Managing Director of for Directors on the Combined Code (“the Turnbull Report”) was published in September 1999. and aim to safeguard Group each operating division is assets, ensure proper accounting accountable for establishing records are maintained and that and monitoring internal controls the ﬁ nancial information used within that division; within the business and for publication is reliable. identiﬁ ed, actions have been Fig.4. Attendance at Board Meetings (committee attendance shown for committee members only) agreed upon and training will be provided where required. Stephen Box, as the senior independent director, led a meeting of the non-executive directors to appraise the performance of the Chairman. The meeting took into account any comments made by the Executive Directors. This evaluation will be carried out annually. Attendance at meetings The number of meetings of the board and committees and individual attendance by the directors are shown in Fig.4: 20 Total meetings Meetings attended Executive T W Benson S P Burke C-H Dumon S J Ingham S R Puckett Total meetings Non-Executive A A Montague* S J Box R Lourey H V Reid Main Board 10 10 9 10 10 10 Main Board Committee Committee Audit Remuneration Nomination Committee 10 10 10 9 10 5 - 5 5 5 3 3 3 3 3 2 2 2 2 2 * Resigned as a member of the Remuneration Committee on 18 September 2004 in line with the recommendation made in the 2003 FRC Code. Corporate Governance (cid:129) ﬁ nancial reporting. The Group (cid:129) risk management. Identiﬁ cation Board contact with Annual Report has a comprehensive budgeting of major business risks is carried shareholders system with an annual budget out at Group level in conjunction approved by the Board. Detailed with operational management monthly reports are produced and appropriate steps taken to showing comparisons of results monitor and mitigate risk; The Annual Report is designed Communications with to present a balanced and shareholders are given a high understandable view of the priority. The main contact Group’s activities and prospects. between the Board and The Chairman’s Statement, Chief (cid:129) public interest disclosure shareholders is through the Executive’s Review and Finance policy. A procedure is in place Chief Executive and the Finance Director’s Review on pages 4 to where staff may, in conﬁ dence, Director. They undertake two 11 provide an assessment of the raise concerns about possible major investor “roadshows” Group’s affairs and position. The improprieties relating to ﬁ nancial each year in February/March Annual Report and Interim Report reporting or other matters; and and August/September, in which are sent to all shareholders. against budget, forecast and the prior year, with performance monitoring and explanations provided for signiﬁ cant variances. The Group reports to shareholders on a half-yearly basis; (cid:129) quarterly reforecasting. The Group prepares a full year reforecast on a quarterly basis showing, by individual businesses, the results to date and a reforecast against budget for the remaining period up to the end of the year; (cid:129) internal audit activities. These are performed throughout the year by members of the head ofﬁ ce ﬁ nance function, who are independent of the operations and by operational ﬁ nance staff on operations outside their own regions. Businesses are visited numerous one-to-one meetings with shareholders take place. The outcome of these meetings and the views of shareholders are relayed back to the Board by the corporate brokers, at the end of each roadshow. The Group’s corporate brokers also report monthly to the Board on broking activity during the month and any issues that may have been raised with them. (cid:129) Audit Committee. There is an on a rotational basis and their established Audit Committee controls are assessed in their whose activities are previously effectiveness to mitigate speciﬁ c described; risks. In addition, there is a regular (cid:129) ﬁ nancial and operational controls. Controls and procedures are documented in policies and procedures manuals. Individual operations complete an annual Self- Certiﬁ cation Statement. Each operational manager, in addition to the ﬁ nance function for that operation, conﬁ rms the adequacy review of these risks and changes When requested by shareholders, are made to the risk proﬁ le where individual matters can be necessary. All internal audit discussed with the Chairman or activities are reported to the Audit Senior Independent Director. Committee. During the year, the Board reviewed internal audit arrangements and concluded that there is currently no need for a separate and distinct internal audit department. The Group also has a website (www.michaelpage.co.uk) with an investor section that contains Company announcements and other shareholder information. of their systems of internal control The Board conﬁ rms that there is and their compliance with Group an ongoing process for identifying, policies. The Statement also evaluating and managing the requires the reporting of any signiﬁ cant risks faced by the Group signiﬁ cant control issues that and that the processes have been have emerged so that areas of in place for the year under review Group concern can be identiﬁ ed and up to the date of approval of and experience can be shared; the annual report and accounts. The Directors acknowledge their responsibility for the preparation of the Annual Report. The Statement of Directors’ Responsibilities is shown on page 16. A statement by the auditors about their reporting responsibilities is shown on pages 32 to 33. Going concern The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future being a period of at least twelve months from the date of approval of accounts and therefore continue to adopt the going concern basis in preparing the accounts. In forming this view, the Directors have reviewed the Group’s budget and forecasts for the next twelve months based on normal business planning and control procedures. 21 Michael Page International plc Remuneration Report Scope and membership of The Committee has continued It is the Company’s policy that Base salary and beneﬁ ts Remuneration Committee to review the remuneration of all Executive Directors service The Remuneration Committee, which meets not less than twice a year, comprises the independent Non-Executive Directors. In order to comply with the 2003 FRC Code, Adrian Montague resigned from the Committee on 18 September 2004 and Rob Lourey was appointed Chairman on the same the Executive Directors with contracts contain a 12 months’ regard to the need to maintain a notice period. The Non-Executive balance between the constituent Directors do not have service elements of salary, incentive contracts with the Company. They and other beneﬁ ts. It receives are appointed for an initial term of advice from independent three years and thereafter may be remuneration consultants, New reappointed for a further term of Bridge Street Consultants, and three years subject to re-election makes comparisons with similar at Annual General Meetings. organisations. Additional details of service day. The Chief Executive attends No Directors other than the contracts are shown on page 30. The Committee establishes salaries and beneﬁ ts by reference to those prevailing in the employment market generally for Executive Directors of comparable status and market value, taking into account the range of incentives described elsewhere in this report, including a performance bonus. Reviews of such base salary and beneﬁ ts are conducted annually by the the meetings except when his members of the Remuneration The remuneration of the Non- Committee having regard to wage own remuneration is under Committee provided material Executive Directors is determined inﬂ ation in the economy. consideration. The purpose of advice to the Committee on by the Board. The Non-Executive the Remuneration Committee is Directors’ remuneration. Directors do not receive any Annual bonus plan to review, on behalf of the Board, the remuneration policy for the Chairman, Executive Directors and other senior executives and to determine the level of remuneration, incentives and other beneﬁ ts, compensation payments and the terms of employment of the Executive Directors and other senior executives. It seeks to provide a remuneration package that aligns the interests of Executive Directors with the shareholders. Remuneration policy The objective of the Group’s remuneration policy is to attract and retain management with the appropriate professional, managerial and operational expertise necessary to realise the Group’s objectives as well as to establish a framework for remunerating all employees. pension or other beneﬁ ts, other than out-of-pocket expenses, from the Group, nor do they Annual bonuses for the Executive Directors are based on the division of a pool of Proﬁ ts participate in any of the bonus or earned during the ﬁ nancial year. share option schemes. The remuneration agreed by the Committee for the Executive Directors contains the following elements: a base salary and beneﬁ ts, an annual bonus reﬂ ecting Group performance, share options conditional upon achieving performance criteria, incentive share plan award and pension beneﬁ ts. This approach is similar to the bonus arrangements for other employees. The bonus pool for Executive Directors is equal to 6% of Proﬁ ts earned above a threshold equal to half of targeted Proﬁ ts for the year (i.e. approximately 3% of total Proﬁ ts). In addition, if Proﬁ ts exceed 1.25 times (2003: 1.2 times) the targeted level, then an additional 2% of Proﬁ ts earned above the The following sections provide targeted level will be added to the an outline of the Company’s bonus pool. Proﬁ ts are deﬁ ned remuneration policy during 2004. as group proﬁ t before taxation, Shareholders were consulted on exceptional items and before the the policy at the time of approval Executive Directors’ annual bonus of the Incentive Share Plan in charges and charges or credits December 2003. This policy resulting from the Incentive Share has been applied in 2004 and Plan described below or other will continue to be applied in share option grants. forthcoming years. 22 Remuneration Report The bonus pool will be capable of Such shares will be reserved for Two thirds of these shares Senior executives of the variation by the Committee both the executive and will vest in equal (“Deferred Share Awards”) are Group who beneﬁ t from these up and down by, initially, 10%, to tranches 1, 2 and 3 years later, subject to a three year deferral arrangements receive only reﬂ ect the Committee’s view on normally so long as the executive period during which they will be modest share option grants as the performance of the Company is still in employment at that time. forfeited if the relevant director described below. relative to its directly comparable peers. There has been no variation made to the 2004 bonus pool. The proﬁ t and loss account for the year carries a charge for the directors annual bonus paid in The targeted level of Proﬁ ts for cash while the deferred amount 2004 was £29.8m (2003: £16.0m) will be charged in subsequent and was set at the beginning years when the shares vest. of 2004 by reference to market expectations and internal forecasts at that time. The Committee retains the discretion to review this arrangement and set different rates and thresholds as it deems appropriate for the business. The target for 2005 has been set and will be disclosed in next year’s report. The threshold in 2005 for awarding the additional 2% of proﬁ ts remains at 1.25 times the targeted level. Incentive Share Plan for Executive Directors and Senior Employees In December 2003, shareholders approved a new Incentive Share Plan for Executive Directors and senior employees.The maximum award is capped at 5% of Group Proﬁ ts of the preceding year. Initially these awards are being satisﬁ ed by shares in the Employee Beneﬁ t Trust. Not more than 60% of this ﬁ gure is available Unlike all other employees who for awards to the Executive receive their annual bonuses Directors. The balance is available in cash, in the event that the for awards to senior employees. executive directors annual bonus Group Proﬁ ts are deﬁ ned as entitlement is greater than 100% group proﬁ t before taxation and of salary, only an amount equal before exceptional items and to the executive’s salary will be charges or credits resulting from paid in cash. To reward service the Plan or other share option over a longer period, any excess grants, as described below. or senior employee leaves, other than in “compassionate circumstances”. The remaining third (“Performance Share Awards”) are also to be deferred for three years but are subject to earnings per share (“EPS”) growth targets over the three year period. Performance share awards of up to 50% of a director’s or senior employee’s salary will only vest if EPS grows by an average of 5% over the growth in UK RPI per annum over the three year period. Any excess between 50% and 75% of salary will only vest to the extent that EPS grows by 7.5% over the growth in UK RPI per annum over the three year period. Finally, to the extent that the performance share award is greater than 75% of an executive’s salary, the hurdle will be 10% over the growth in UK RPI per annum over the three year period. If awards do not vest after three years, then they will lapse. above the individual’s salary level will be deferred, paid into an employee beneﬁ t trust and invested in the Company’s shares with no matching investment by the Company. Based on the 2004 results, the amount deferred is £0.630m (2003: nil). The Committee retains the discretion to review the proportion of proﬁ ts dedicated to the Incentive Share Plan in the light of the growth in the size of the Company, its proﬁ tability and the number of Executive Directors. Based on the 2004 results, awards totalling £2.0m (2003: £1.2m) will be made in 2005 of which £0.895m (2003: £0.675m) 44.75% (2003: 57.4%) will be for the Executive Directors. Details of those awarded in 2004 are disclosed on page 27. Restricted Share Scheme On ﬂ otation in 2001, 6% of the issued shares of the Group owned by Spherion Corporation, the Group’s previous ultimate parent company, were allocated to the Executive Directors and certain senior executives in a Restricted Share Scheme. The scheme vested in April 2004. The shares delivered to the Executive Directors are disclosed along with their other interests on page 26. Beneﬁ ts received under the Restricted Share Scheme were not pensionable. 23 Michael Page International plc Executive Share Option Scheme Directors’ remuneration The Executive Directors and Emoluments The aggregate emoluments, excluding pensions, of the Directors of the Company who served during the year were as follows: Salary and fees £’000 Beneﬁ ts (note 2) £’000 Annual Bonus (note 4) £’000 Deferred Annual Bonus (note 4) £’000 Incentive Share Plan (note 5) £’000 344 229 229 207 213 50 30 25 25 29 20 207 42 35 - - - - 344 229 229 207 213 - - - - 177 118 118 107 110 - - - - 119 119 119 119 119 - - - - Total £’000 1,013 715 902 682 690 50 30 25 25 1,352 333 1,222 630 595 4,132 Salary and fees £’000 Beneﬁ ts £’000 Annual Bonus £’000 Deferred Annual Bonus £’000 Incentive Share Plan £’000 334 223 223 202 207 50 30 6 21 28 20 125 42 43 - - - - 333 222 222 201 206 - - - - 1,296 258 1,184 - - - - - - - - - - Total £’000 785 555 660 535 546 50 30 6 21 90 90 90 90 90 - - - - 450 3,188 2004 Executive T W Benson (note 1) S P Burke C-H Dumon S J Ingham S R Puckett (note 3) Non-Executive A A Montague S J Box R Lourey H V Reid Total 2003 Executive T W Benson S P Burke C-H Dumon S J Ingham S R Puckett Non-Executive A A Montague S J Box R Lourey H V Reid Total The base salaries of the Executive Directors were reviewed in January 2005 and were increased by 3.0% effective from 1 January 2005. senior employees are eligible to participate in the Executive Share Option Scheme. No payment is required on the grant of an option and no share options are granted at a discount. Beneﬁ ts received under the Executive Share Option Scheme will not be pensionable. Share options can only be exercised on the achievement of performance criteria which are disclosed in note 17 of the Financial Statements. Retesting after the initial vesting period is not permitted for any grants awarded in 2004 or subsequent years. For participants of the Incentive Share Plan, the maximum annual awards are as follows: for the Chief Executive Ofﬁ cer, 150,000; for all other Executive Board Directors, 100,000; and 50,000 for any other senior executive participating in the Incentive Share Plan. Pension beneﬁ ts Executive Directors are eligible to participate in a Company pension plan which is a deﬁ ned contribution scheme. Where the pension entitlement exceeds the Inland Revenue’s cap, a cash alternative is payable. 24 Remuneration Report Emoluments (continued) Notes to the emoluments: 1. T W Benson is the highest paid director. 2. Beneﬁ ts include, inter alia, items such as company car or cash alternative, fuel, cash in lieu of pension contributions, and medical insurance. C-H Dumon’s beneﬁ ts also include housing and relocation costs. 3. S R Puckett also receives £25,000 per annum (£20,833 for the year to 31 December 2004) as a Non-Executive Director of SHL Group plc. He was appointed Non-Executive Director on 3 March 2004, and as such his director’s fee is pro-rated for this year. All such amounts are excluded from the table on Page 24. 4. The annual cash bonus for Board members is capped at 100% of salary. Any excess over this amount is deferred and invested in the Company’s shares which vest in equal tranches over three years. The amount of the annual bonus earned in 2004 but deferred to future periods was £630,000 (2003: nil). 5. Represents the non-performance proportion of the Incentive Share Plan. Pension contributions T W Benson S P Burke C-H Dumon* S J Ingham S R Puckett 2004 £’000 103 46 40 20 29 2003 £’000 100 45 5 20 20 * The change in pension contributions has arisen as a result of a relocation. In 2003 contributions were generally state funded. In 2004 contributions were made to a private fund as required by local legislation. 25 Michael Page International plc Directors’ interests and share ownership requirements Executive Directors are required to build and hold, as a minimum, a direct beneﬁ cial interest in the Company’s ordinary shares equal to their respective base salary. As at 31 December 2004 all Executive Directors comply with this requirement. The beneﬁ cial interests of the Directors and their families in shares of the Company are shown below. There has been no change in these interests from 31 December 2004 to 22 February 2005. Ordinary At 1 January lapsed awards Redistribution of T W Benson shares of 1p Direct Holding 2004 - (note 1) Vested in year (note 2) Disposal At 31 December in year 2004 - 5,848,540 (2,848,540) 3,000,000 Restricted Shares 5,673,583 174,957 (5,848,540) - - S P Burke Direct Holding 28,571 - 3,226,781 (2,179,680) 1,075,672 Restricted Shares 3,130,254 96,527 (3,226,781) - - C-H Dumon Direct Holding 14,285 - 3,226,781 (1,868,069) 1,372,997 Restricted Shares 3,130,254 96,527 (3,226,781) - - S J Ingham Direct Holding 28,571 Restricted Shares 1,662,947 S R Puckett S J Box ‡ Direct Holding Restricted Shares Direct Holding Restricted Shares 114,285 146,731 15,000 - - 51,280 - 4,525 - - 1,714,227 (1,714,227) (742,798) 1,000,000 - - 151,256 (151,256) - - (62,015) 203,526 - - - - 15,000 - ‡ Non-Executive Director 1. Represents shares resulting from the lapse of awards to former participants in the Restricted Share Scheme which were redistributed amongst the remaining participants. 2. Represents the vesting of the Restricted Share Scheme in April 2004. The market price at the date of vesting was 175.0p. No other director has a holding in the Company. 26 Remuneration Report Deferred share awards Incentive Share Plan Details of awards made in 2004 under the Incentive Share Plan that remain outstanding at 31 December 2004 are as follows: Awarded during the year under the Incentive Share Plan Total award at 1 January 2004 Performance Non- performance (note 5) T W Benson S P Burke C-H Dumon (note 4) S J Ingham S R Puckett - - - - - 26,315 26,315 26,315 26,315 26,315 52,631 52,631 52,631 52,631 52,631 Value at date of award (note 1) £’000 Total award at 31 December 2004 Value at 31 December 2004 (note 3) £’000 135 135 135 135 135 78,946 78,946 78,946 78,946 78,946 148 148 148 148 148 Total 78,946 78,946 78,946 78,946 78,946 1. The value of the awards under the Michael Page Incentive Share Plan 2004 are based on the purchase price of the Company’s ordinary shares on 1 March 2004 of 171.0p. 2. The base EPS for the performance criteria is 4.1p. 3. The value at 31 December 2004 is calculated using the closing market price of the Company’s ordinary shares at 31 December 2004 of 187.0p. 4. C-H Dumon was granted deferred share options to acquire 52,631 ordinary shares and performance share options to acquire 26,315 ordinary shares under the Michael Page Incentive Share Plan 2004. These options have a nil exercise price and do not accrue dividends. 5. The non performance shares have been included in the table of emoluments on page 24. The value of the awards accrued during the period was £187,500 in respect of awards made to the Executive Directors in the year and charged to the proﬁ t and loss account under the Incentive Share Plan. For full descriptions of the performance and vesting conditions, see “Incentive Share Plan for Executive Directors and Senior Employees” on pages 23. Deferred Annual Bonus As described on page 23, in the event that the Executive Directors’ bonus entitlement is greater than 100% of salary, the excess above the individual’s salary is deferred, invested in the Company’s shares and delivered to the individual in three equal tranches at the end of each of the following three years. In 2005 a total of £630,000 will be awarded to the Executive Directors representing this excess. The individual entitlement of the Executive Directors to this deferred annual bonus has been included in the emoluments table for the year as shown on page 24. There has been no charge made to the proﬁ t and loss account in the year for the deferred element of the Annual Bonus Plan. The charge for the year will be spread over future periods as described in the accounting policies in Note 1 on page 39. For full descriptions of the performance and vesting conditions, see “Annual Bonus Plan” on pages 22 to 23. 27 Michael Page International plc Directors’ interests and share ownership requirements (continued) The beneﬁ cial interests of the Executive Directors and their families in share options of the Michael Page International plc Executive Share Option Scheme at 31 December 2004 were as follows: At 31 December Exercise price T W Benson S P Burke C-H Dumon S J Ingham S R Puckett Date of Grant At 1 January 2004 Granted in year 2001 2002 2002 2003 2004 2001 2002 2002 2003 2004 2001 2002 2003 2004 2001 2002 2002 2003 2004 2001 2002 2002 2003 2004 3,750,000 150,000 150,000 200,000 - 1,125,000 150,000 150,000 200,000 - 1,125,000 300,000 200,000 - - - - 50,000 - - - - 50,000 - - - - 50,000 750,000 150,000 150,000 200,000 - 750,000 150,000 150,000 200,000 - - - - - 50,000 - - - - 50,000 2004 3,750,000 150,000 150,000 200,000 50,000 1,125,000 150,000 150,000 200,000 50,000 1,125,000 300,000 200,000 50,000 750,000 150,000 150,000 200,000 50,000 750,000 150,000 150,000 200,000 50,000 (pence) 175 186 186 81.5 171 175 186 186 81.5 171 175 186 83.4 171 175 186 186 81.5 171 175 186 186 81.5 171 Period of exercise 2004-2011 2005-2012 2006-2012 2006-2013 2007-2014 2004-2011 2005-2012 2006-2012 2006-2013 2007-2014 2004-2011 2006-2012 2007-2013 2007-2014 2004-2011 2005-2012 2006-2012 2006-2013 2007-2014 2004-2011 2005-2012 2006-2012 2006-2013 2007-2014 1. The market price of the shares at 31 December 2004 was 187.0p with a range during the year of 158.0p to 201.75p. 2. No options held by Directors lapsed unexercised or were exercised during the period. The options are normally exercisable subject to achieving performance criteria at any time on or after the third, but not later than the tenth anniversary of the date on which the option was granted, except for grants made in 2004 which are subject to one performance test only on the third anniversary of the grant. The performance criteria are set out in note 17 to the ﬁ nancial statements. 28 Remuneration Report Total Shareholder Return (TSR) The graphs opposite show Total Shareholder Return (TSR) for the Group and the FTSE Support 120 110 Services index which, as it is the 100 sector in which the Company operates, is considered the most appropriate comparator index in the absence of a more directly representative recognised index. A comparison with the FTSE 250 index is also given. The graphs illustrate TSR for the ﬁ nancial periods since the date of ﬂ otation in 2001. 90 80 70 60 50 130 120 110 100 90 80 70 60 50 Versus FTSE Support Services 31 December 2001 31 December 2002 31 December 2003 31 December 2004 112.8 115.7 96.9 89.4 71.7 69.9 64.2 59.4 Michael Page FTSE Support Services 31 December 2001 31 December 2002 31 December 2003 31 December 2004 Versus FTSE 250 128.5 115.7 112.8 104.6 100.4 89.4 75.3 64.2 Michael Page FTSE 250 29 Remuneration Report Service contracts All Executive Directors’ service contracts contain a 12 month notice period. The service contracts also contain restrictive covenants preventing the Directors from competing with the Group for six months following the termination of employment and preventing the Directors from soliciting key employees, clients and candidates of the employing company and Group companies for 12 months following termination of employment. On termination, any compensation payments due to a Director are calculated in accordance with normal legal principles. Mitigation of these payments would be applied, depending on the individual circumstances of each case. Unexpired term at 31 December 2004 Notice period Provision for compensation on early termination Other termination provisions Contract date 05/03/01 05/03/01 13/06/03 05/03/01 05/03/01 no speciﬁ c term no speciﬁ c term no speciﬁ c term no speciﬁ c term no speciﬁ c term 26/01/04 25 months 26/01/04 25 months 07/10/03 22 months 25/02/03 14 months 12 months 12 months 12 months 12 months 12 months None None None None 12 months salary plus other contractual beneﬁ ts 12 months salary plus other contractual beneﬁ ts 12 months salary plus other contractual beneﬁ ts 12 months salary plus other contractual beneﬁ ts 12 months salary plus other contractual beneﬁ ts None None None None None None None None None None None None None Executive T W Benson S P Burke C-H Dumon S J Ingham S R Puckett Non-Executive A A Montague S J Box R Lourey H V Reid Annual resolution Shareholders will be given the opportunity to approve the Remuneration Report at the Annual General Meeting (resolution 6) on 27 May 2005. Audit requirement Within the Remuneration Report, the sections on Directors’ remuneration and Directors’ interests and share ownership requirements, on pages 24 to 28 inclusive, are audited. All other sections of the Remuneration Report are unaudited. On behalf of the Board of Directors Rob Lourey Chairman - Remuneration Committee 22 February 2005 30 Michael Page International plc Leather Handbag, Satin Trenchcoat by Esprit Leather Gloves, Silk Scarf by TopShop Personal Organiser by Filofax Micromesh Tights by Falke Professional Career arranged through Michael Page International Michael Page International is a world leading recruitment consultancy 110 ofﬁ ces in 16 countries worldwide | www.michaelpage.co.uk 31 Michael Page International plc Independent Auditors’ Report to the Members of Michael Page International plc We have audited the ﬁ nancial This report is made solely to the We report to you our opinion as to We read the directors’ report and statements of Michael Page company’s members, as a body, whether the ﬁ nancial statements the other information contained International plc for the in accordance with section 235 give a true and fair view and in the annual report for the year ended 31 December of the Companies Act 1985. Our whether the ﬁ nancial statements above year as described in the 2004 which comprise the audit work has been undertaken and the part of the directors’ contents section including the consolidated proﬁ t and loss so that we might state to the remuneration report described as unaudited part of the directors’ account, the balance sheets, company’s members those having been audited have been remuneration report and consider the consolidated statement matters we are required to state properly prepared in accordance the implications for our report of total recognised gains to them in an auditors’ report and with the Companies Act 1985. if we become aware of any and losses, the consolidated for no other purpose. To the fullest We also report to you if, in our apparent misstatements or reconciliation of movements extent permitted by law, we do not opinion, the directors’ report is material inconsistencies with in shareholders’ funds, the accept or assume responsibility not consistent with the ﬁ nancial the ﬁ nancial statements. consolidated cash ﬂ ow to anyone other than the company statements, if the company has statement, and the related and the company’s members as not kept proper accounting notes 1 to 24. These ﬁ nancial a body, for our audit work, for this records, if we have not received all statements have been report, or for the opinions we the information and explanations prepared under the accounting have formed. policies set out therein. We have also audited the information in the part of the directors’ remuneration report that is described as having been audited. Respective responsibilities of directors and auditors As described in the statement of directors’ responsibilities, the company’s directors are responsible for the preparation of the ﬁ nancial statements in accordance with applicable United Kingdom law and accounting standards. They are also responsible for the preparation of the other information contained in the annual report including the directors’ remuneration report. Our responsibility is to audit the ﬁ nancial statements and the part of the directors’ remuneration report described as having been audited in accordance with relevant United Kingdom legal and regulatory requirements and auditing standards. we require for our audit, or if information speciﬁ ed by law regarding directors’ remuneration and transactions with the company and other members of the group is not disclosed. We review whether the corporate governance statement reﬂ ects the company’s compliance with the nine provisions of the July 2003 FRC Combined Code speciﬁ ed for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures. Basis of audit opinion We conducted our audit in accordance with United Kingdom auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the ﬁ nancial statements and the part of the directors’ remuneration report described as having been audited. It also includes an assessment of the signiﬁ cant estimates and judgements made by the directors in the preparation of the ﬁ nancial statements and of whether the accounting policies are appropriate to the circumstances of the company and the group, consistently applied and adequately disclosed. 32 We planned and performed Opinion our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufﬁ cient evidence to give reasonable assurance that the ﬁ nancial statements and the part of the directors’ remuneration report described as having been audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the ﬁ nancial statements and the part of the directors’ remuneration report described as having been audited. In our opinion: (cid:129) the ﬁ nancial statements give a true and fair view of the state of affairs of the company and the group as at 31 December 2004 and of the proﬁ t of the group for the year then ended; and (cid:129) the ﬁ nancial statements and part of the directors’ remuneration report described as having been audited have been properly prepared in accordance with the Companies Act 1985. Deloitte & Touche LLP Chartered Accountants and Registered Auditors London 22 February 2005 33 Michael Page International plc Consolidated Proﬁ t and Loss Account Year ended 31 December 2004 Turnover Cost of sales Gross proﬁ t Administrative expenses Operating proﬁ t Net interest Proﬁ t on ordinary activities before taxation Taxation on proﬁ t on ordinary activities Proﬁ t on ordinary activities after taxation being proﬁ t for the ﬁ nancial year Equity dividends Retained proﬁ t for the ﬁ nancial year Basic earnings per share (pence) Diluted earnings per share (pence) Adjusted earnings per share (pence) The above results relate to continuing operations. Note 2 2 4 6 2 7 8 18 9 9 9 2004 £’000 2003 £’000 433,731 372,616 (223,090) (194,131) 210,641 178,485 (170,604) (156,702) 40,037 1 40,038 (4,933) 35,105 (13,830) 21,275 10.0 9.9 7.4 21,783 626 22,409 (8,664) 13,745 (12,171) 1,574 3.8 3.8 4.1 34 Michael Page International plc Balance Sheets 31 December 2004 Fixed Assets Intangible assets Tangible assets Investments Current assets Debtors Cash at bank and in hand Creditors: Amounts falling due within one year Net current assets/(liabilities) Total assets less current liabilities Creditors: Amounts falling due after more than one year Provisions for liabilities and charges Net assets Capital and reserves Called up share capital Capital redemption reserve EBT reserve Treasury shares Proﬁ t and loss account Equity shareholders’ funds Group Company Note 10 11 12 13 21 14 14 15 2 17 18 18 18 18 2004 £’000 1,443 20,933 - 2003 £’000 1,539 23,101 - 22,376 24,640 88,160 12,532 100,692 (70,748) 29,944 52,320 (461) (1,188) 50,671 3,572 178 (9,871) (13,122) 69,914 50,671 71,530 23,211 94,741 (59,355) 35,386 60,026 (444) (6,239) 53,343 3,637 113 (9,871) - 59,464 53,343 2004 £’000 - - 421,545 421,545 292 156 448 2003 £’000 - - 421,545 421,545 1,414 131 1,545 (151,018) (122,657) (150,570) (121,112) 270,975 300,433 - - 270,975 3,572 178 (9,871) (13,122) 290,218 270,975 - (4,114) 296,319 3,637 113 (9,871) - 302,440 296,319 These ﬁ nancial statements were approved by the Board of Directors on 22 February 2005. On behalf of the Board of Directors. T W Benson Chief Executive S R Puckett Group Finance Director 35 Michael Page International plc Consolidated Statement of Total Recognised Gains and Losses Year ended 31 December 2004 Proﬁ t for the ﬁ nancial year Foreign currency translation differences Total recognised gains and losses for the year 2004 £’000 35,105 (188) 34,917 2003 £’000 13,745 2,786 16,531 Consolidated Reconciliation of Movements in Shareholders’ Funds Year ended 31 December 2004 Proﬁ t for the ﬁ nancial year Dividends Retained proﬁ t for the ﬁ nancial year Foreign currency translation differences Purchase of own shares Sale of shares held by the Employee Beneﬁ t Trust Credit in respect of share schemes Net (reduction in)/addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 36 2004 £’000 35,105 2003 £’000 13,745 (13,830) (12,171) 21,275 (188) 21,087 (24,120) - 361 (2,672) 53,343 50,671 1,574 2,786 4,360 - 129 - 4,489 48,854 53,343 Michael Page International plc Consolidated Cash Flow Statement Year ended 31 December 2004 Note 19 Net cash inﬂ ow from operating activities Returns on investments and servicing of ﬁ nance Interest received Interest paid Net cash inﬂ ow from returns on investments and servicing of ﬁ nance Taxation Capital expenditure and ﬁ nancial investment Purchase of tangible ﬁ xed assets Receipts from sales of tangible ﬁ xed assets Net cash outﬂ ow from capital expenditure and ﬁ nancial investment Equity dividends paid Net cash inﬂ ow before ﬁ nancing Financing Sale of shares held by the Employee Beneﬁ t Trust Purchase of own shares Net cash (outﬂ ow)/inﬂ ow from ﬁ nancing (Decrease)/increase in net cash in the year 20 2004 £’000 35,690 2 - 2 2003 £’000 29,179 702 (77) 625 (4,825) (10,657) (5,824) 1,416 (4,408) (12,593) 13,866 - (24,120) (24,120) (10,254) (8,311) 1,962 (6,349) (12,170) 628 129 - 129 757 37 Michael Page International plc Notes to the Accounts Year ended 31 December 2004 1. Accounting policies The ﬁ nancial statements are prepared in accordance with applicable United Kingdom law and accounting standards. The particular accounting policies adopted by the Directors are described below and have been applied consistently throughout the current and prior year. Accounting convention The accounts have been prepared under the historical cost convention. Basis of consolidation The ﬁ nancial statements of Michael Page International plc consolidate the results of the Company and all its subsidiary undertakings. As permitted by Section 230 of the Companies Act 1985, the proﬁ t and loss account of the Company has not been included as part of these accounts. The Company’s proﬁ t for the ﬁ nancial year amounted to £12.6m (2003: £14.0m). Turnover and income recognition Turnover, which excludes value added tax (“VAT”), constitutes the value of services undertaken by the Group as its principal activities, which are recruitment consultancy and other ancillary services. These consist of: (cid:129) 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; (cid:129) 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 deﬁ ned 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 “Prepayments and accrued income”. A provision is made against accrued income for possible cancellations of placements prior to, or shortly after, the commencement of employment; and (cid:129) Turnover from amounts billed to clients for expenses incurred on their behalf (principally advertisements) and is recognised when the expense is incurred. Cost of sales Cost of sales consists of the salary cost of temporary staff and costs incurred on behalf of clients, principally advertising costs. Gross proﬁ t (revenue) Gross proﬁ t is represented by turnover less cost of sales and consists of the total of placement fees of permanent candidates, the margin earned on the placement of temporary candidates and advertising income. It is referred to by management as revenue. Goodwill Since 31 December 1997, goodwill arising on acquisitions (representing the excess of the fair value of the consideration given over the fair value of the separable net assets acquired) has been capitalised and classiﬁ ed as an asset at cost on the balance sheet and amortised over its estimated useful economic life of 20 years. Goodwill arising on acquisitions prior to 31 December 1997 has been written off against reserves and will be charged or credited in the proﬁ t and loss account on subsequent disposal of the business to which it related. 38 Notes to the Accounts 1. Accounting policies (continued) Foreign exchange Transactions in foreign currencies are translated into sterling at the rates of exchange prevailing at the dates the transactions were made. Exchange differences on these items are dealt with in the proﬁ t and loss account. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at rates ruling at that date. Translation differences are dealt with in the statement of total recognised gains and losses. Accounts of overseas operations are translated using the closing rate method. Proﬁ ts, losses and cash ﬂ ows of overseas operations are translated at the average exchange rate applicable to the period, whereas assets and liabilities of overseas subsidiaries are translated at the rates ruling at the period end. Unrealised gains and losses arising on these transactions are dealt with in the statement of total recognised gains and losses. Tangible ﬁ xed assets Tangible ﬁ xed assets are stated at original cost less accumulated depreciation. Depreciation is calculated to write off the cost less estimated residual value of each asset evenly over its expected useful life at the following rates: Leasehold improvements 10% per annum or period of lease if shorter Furniture, ﬁ xtures and equipment 10% - 20% per annum Motor vehicles Investments 25% per annum Fixed asset investments are stated at cost less provision for impairment. Investments in own shares, including those held by the Employee Beneﬁ t Trust and treasury shares, are shown as a deduction to shareholders’ funds in accordance with UITF 38. Deferred Share Schemes Where deferred awards are made to directors and senior executives under either the Incentive Share Plan or the Annual Bonus Scheme, to reﬂ ect that the awards are for services over a longer period, the value of the expected award is charged to the proﬁ t and loss account on a straight line basis over the vesting period to which the award relates, in accordance with UITF 17 (revised 2003). Taxation The charge for taxation is provided at rates of corporation tax ruling during the accounting period. Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of income and expenditure in taxation computations in periods different from those in which they are included in ﬁ nancial statements. Deferred tax is not provided on unremitted earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Pension costs The Group operates deﬁ ned contribution pension schemes. The assets of the schemes are held separately from those of the Group in independently administered funds. The pension costs charged to the proﬁ t and loss account represent the contributions payable by the Group to the funds during each period. Leased assets Rentals under operating leases are charged to the proﬁ t and loss account on a straight line basis over the term of the lease. 39 Michael Page International plc 2. Segmental analysis (a) Turnover and gross proﬁ t by geographic region United Kingdom Continental Europe Asia Paciﬁ c Australia Other Total Americas Turnover Gross Proﬁ t 2004 £’000 2003 £’000 2004 £’000 2003 £’000 234,822 194,262 109,984 90,630 124,293 120,363 61,503 58,227 51,286 43,708 21,105 18,082 11,484 7,673 10,429 6,951 62,770 51,381 31,534 25,033 11,846 6,610 7,620 4,595 433,731 372,616 210,641 178,485 The above analysis by destination is not materially different to analysis by origin. The amounts stated above derive from the Group’s single activity of recruitment consultancy. (b) Turnover and gross proﬁ t by discipline Finance and accounting Marketing and sales Other Turnover Gross Proﬁ t 2004 £’000 2003 £’000 2004 £’000 2003 £’000 290,151 256,731 129,687 113,599 73,985 61,832 44,894 37,704 69,595 54,053 36,060 27,182 433,731 372,616 210,641 178,485 The Group operates in only one business segment, that of recruitment. The above analysis by discipline (being the professions of candidates placed) is included as additional disclosure over and above the requirements of SSAP25 “Segmental Reporting”. 40 Notes to the Accounts 2. Segmental analysis (continued) (c) Proﬁ t before interest, taxation and exceptional items by geographic region United Kingdom Continental Europe Asia Paciﬁ c Australia Other Total Americas Proﬁ t before interest, taxation and exceptional items Exceptional items (note 3) Release of payroll tax provision on Restricted Share Scheme (see below) United Kingdom property costs Proﬁ t before interest and taxation Net interest Proﬁ t on ordinary activities before taxation 2004 £’000 2003 £’000 23,607 15,638 4,401 (280) 7,649 3,926 11,575 6,303 1,285 7,588 454 (62) 40,037 22,884 - - 1,886 (2,987) 40,037 21,783 1 626 40,038 22,409 Net interest has not been allocated, recognising the head ofﬁ ce’s role and responsibility in allocating ﬁ nancial resources. Due to the non operational nature of the Restricted Share Scheme, the release of the provision for payroll costs is considered to be a central cost item and as such has not been allocated to geographical regions. 41 Michael Page International plc 2. Segmental analysis (continued) (d) Net assets/(liabilities) by geographic region United Kingdom Continental Europe Asia Paciﬁ c Australia Other Total Americas 3. Exceptional items 2004 £’000 2003 £’000 38,255 41,115 7,331 9,791 5,537 2,965 8,502 4,741 811 5,552 (3,417) (3,115) 50,671 53,343 As a result of the vesting of the Restricted Share Scheme in April 2004, the Company is able to obtain deductions for corporation tax purposes in various tax jurisdictions, resulting in a non-operating exceptional credit of £9.0m to the corporation tax charge. The exceptional items in the comparative period included in operating proﬁ t comprise a release of the payroll tax provision on the Restricted Share Scheme of £1.9m, and rentals and other unavoidable costs on onerous lease agreements on vacant properties in the UK of £3.0m. The net effect of these two items of £1.1m was included within administrative expenses. An exceptional tax credit on these items of £0.3m resulted in a net post tax exceptional item of £0.8m. 4. Operating proﬁ t Operating proﬁ t is stated after charging: Staff costs (note 5) Depreciation of tangible ﬁ xed assets - owned Amortisation of goodwill Audit services - statutory audit Other services provided by the auditors - tax compliance services - tax advisory services Loss on disposal of tangible ﬁ xed assets Operating lease rentals - land and buildings - plant and machinery 42 2004 £’000 2003 £’000 114,039 100,070 6,404 7,592 96 334 81 195 53 96 312 71 135 241 11,578 12,558 1,081 634 Notes to the Accounts 5. Employee information The average number of employees (including Executive Directors) during the year and total number of employees (including Executive Directors) at 31 December 2004 were as follows: Management Client services Administration Consultants for contract hire Employment costs (including Directors’ emoluments) comprised: Wages and salaries Social security costs Other pension costs 2004 Average No. 2003 Average No. 2004 Total No. 2003 Total No. 92 1,512 838 2,442 95 2,537 92 1,345 852 2,289 107 2,396 92 1,616 843 2,551 96 93 1,351 816 2,260 99 2,647 2,359 2004 £’000 2003 £’000 96,607 83,530 13,432 12,673 4,000 3,867 114,039 100,070 Details of Directors’ remuneration for the year are provided in the audited part of the Directors’ Remuneration Report on pages 24 to 28. 6. Net interest Bank interest receivable Bank interest payable Net interest receivable 2004 £’000 369 (368) 1 2003 £’000 704 (78) 626 43 Michael Page International plc 7. Taxation on proﬁ ts on ordinary activities (a) Analysis of charge in year UK Corporation tax at 30% for year before exceptional tax credits UK exceptional tax credit UK Corporation tax at 30% for year after exceptional tax credits Adjustments in respect of prior periods Overseas corporation tax before exceptional tax credits Overseas exceptional tax credit Overseas corporation tax after exceptional tax credits Total current tax charge (note 7(b)) Deferred taxation Origination and reversal of timing differences (note 16) Taxation on proﬁ t on ordinary activities 2004 £’000 9,081 (7,935) 1,146 2003 £’000 6,566 (330) 6,236 90 (543) 3,644 (1,065) 2,579 3,815 1,118 4,933 2,013 - 2,013 7,706 958 8,664 The tax assessed for the period differs from the standard rate of corporation tax in the UK (30%). The differences are explained below. (b) Factors affecting the taxation charge for the year Proﬁ t on ordinary activities before taxation 2004 £’000 2003 £’000 40,038 22,409 Proﬁ t on ordinary activities before tax multiplied by the standard rate of corporation tax in the UK of 30% 12,011 6,723 Effects of: Disallowable items and other permanent timing differences Capital allowances in excess of depreciation Unrelieved overseas losses Other timing differences Tax deduction for Restricted Share Scheme Reversal of deferred tax asset on provision for payroll taxes on Restricted Share Scheme Higher tax rates on overseas earnings Adjustment to tax charge in respect of prior periods Current tax charge for the period (note 7(a)) 44 1,151 (289) 453 405 (9,000) (1,235) 229 90 3,815 459 446 1,466 (354) - (565) 74 (543) 7,706 Notes to the Accounts 7. Taxation on proﬁ ts on ordinary activities (continued) (c) Factors affecting future taxation charges In the overseas jurisdictions where the Group currently operates, tax rates are generally higher than those in the UK. Certain of the Group’s overseas operations have current and prior year tax losses, the future utilisation of which is uncertain. Accordingly the Group has not recognised a deferred tax asset of £5.3m (2003: £3.9m) in respect of tax losses of overseas companies. These tax losses are available to offset future taxable proﬁ ts in the respective jurisdictions. 8. Dividends Interim dividend of 1.25p per ordinary share (2003: 1.1p) Proposed ﬁ nal dividend of 2.75p per ordinary share (2003: 2.3p) Total dividend of 4.0p per ordinary share (2003: 3.4p) 9. Earnings per ordinary share Earnings per share have been calculated on the following bases: Earnings after exceptional items for basic earnings per share (£‘000) Post tax exceptional items (net) ( £’000) Earnings before exceptional items for adjusted earnings per share (£‘000) Weighted average number of shares used for basic and adjusted earnings per share (‘000) Dilution effect of share plans (‘000) Diluted weighted average number of shares used for diluted earnings per share (‘000) Basic earnings per share (pence) Diluted earnings per share (pence) Adjusted earnings per share (pence) 2004 £’000 4,360 9,470 2003 £’000 3,937 8,234 13,830 12,171 2004 35,105 (9,000) 26,105 2003 13,745 771 14,516 351,555 357,955 3,744 - 355,299 357,955 10.0 9.9 7.4 3.8 3.8 4.1 45 Michael Page International plc 10. Intangible assets Group Cost At 1 January 2004 and 31 December 2004 Amortisation At 1 January 2004 Charge for the year At 31 December 2004 Net book value At 31 December 2004 At 31 December 2003 11. Tangible ﬁ xed assets Group Cost At 1 January 2004 Additions Disposals Foreign currency translation At 31 December 2004 Depreciation At 1 January 2004 Charge for the year Disposals Foreign currency translation At 31 December 2004 Net book value At 31 December 2004 At 31 December 2003 46 Goodwill £’000 1,876 337 96 433 1,443 1,539 Total £’000 50,582 5,824 (8,116) (230) 48,060 27,481 6,404 (6,647) (111) 27,127 20,933 23,101 Leasehold improvements £’000 Furniture, ﬁ xtures and equipment £’000 Motor vehicles £’000 14,782 817 (1,130) (43) 30,373 4,092 (4,143) (142) 14,426 30,180 6,028 1,521 (973) (27) 19,080 3,957 (4,016) (68) 6,549 18,953 7,877 8,754 11,227 11,293 5,427 915 (2,843) (45) 3,454 2,373 926 (1,658) (16) 1,625 1,829 3,054 Notes to the Accounts 12. Investments Company Cost Subsidiary undertakings £’000 Total £’000 At 1 January 2004 and 31 December 2004 421,545 421,545 The Company’s principal subsidiary undertakings at 31 December 2004, their principal activities and countries of incorporation are set out below: Name of undertaking Country of incorporation Principal activity Michael Page Recruitment Group Limited Michael Page Holdings Limited Michael Page International Recruitment Limited* Michael Page UK Limited Michael Page Limited Accountancy Additions Limited Michael Page International (France) SAS Page Personnel SAS Michael Page International (Espana) SA Page Personnel (Espana) SA Michael Page International Italia Srl Page Personnel Italia SpA Michael Page International (Deutschland) GmbH Michael Page International (Nederland) BV Michael Page International (Belgium) NV/SA Michael Page International (Sweden) AB Michael Page International (Australia) Pty Limited Michael Page International (Hong Kong) Limited Michael Page International (Brasil) SC Ltda Michael Page International Serviços de Consultadoria Lda Michael Page International (Japan) K.K. Michael Page International (Switzerland) SA Michael Page International Inc* Michael Page International Pte Limited* United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom France France Spain Spain Italy Italy Germany Netherlands Belgium Sweden Australia Hong Kong Brazil Portugal Japan Switzerland United States Singapore Holding company Support services Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy *The equity of these subsidiary undertakings is held directly by Michael Page International plc. All companies have been included in the consolidation and operated principally in their country of incorporation. The percentage of the issued share capital held is equivalent to the percentage of voting rights held. The Group holds 100% of all classes of issued share capital. The share capital of all the subsidiary undertakings comprise ordinary shares, with the exception of Michael Page International Recruitment Limited which comprises 1 ordinary share and 421,544,426 preference shares. 47 Michael Page International plc 13. Debtors Amounts falling due within one year Trade debtors Other debtors Prepayments and accrued income Amounts falling due after more than one year Deferred taxation (note 16) Prepayments and accrued income 14. Creditors Amounts falling due within one year Bank overdrafts Trade creditors Amounts owed to Group companies Corporation tax Other tax and social security Other creditors Accruals and deferred income Dividends payable Group Company 2004 £’000 2003 £’000 2004 £’000 2003 £’000 69,286 53,154 3,635 13,293 86,214 254 1,692 3,467 11,994 68,615 1,345 1,570 - 277 15 292 - - - 169 10 179 1,235 - 88,160 71,530 292 1,414 Group Company 2004 £’000 317 5,280 - 267 2003 £’000 777 3,815 2004 £’000 2003 £’000 - - - - - 141,544 114,420 1,222 22,530 18,048 7,157 7,003 25,727 20,256 - 1 3 - - - 3 - 9,470 8,234 9,470 8,234 70,748 59,355 151,018 122,657 Amounts falling due after more than one year Accruals and deferred income 461 444 - - 48 Notes to the Accounts 15. Provisions for liabilities and charges At 1 January 2004 Utilised in year At 31 December 2004 Payroll tax liability on Restricted Share Scheme £’000 Group Vacant property provision £’000 4,114 2,125 Total £’000 6,239 (4,114) (937) (5,051) - 1,188 1,188 Company Payroll tax liability on Restricted Share Scheme £’000 4,114 (4,114) - Payroll tax provision on Restricted Share Scheme The grant of Restricted Shares on ﬂ otation in 2001 gave rise to National Insurance and social security liabilities. These liabilities crystallised in April 2004 when the Restricted Shares vested. Vacant property provision The property cost provision represents rentals and other unavoidable costs on onerous lease agreements on vacant properties in the UK. 16. Deferred taxation Deferred taxation (asset)/provision is as follows: Capital allowances in excess of depreciation Other timing differences At 1 January Deferred tax charge in proﬁ t and loss account for period Foreign currency translation At 31 December (note 13) Group Company 2004 £’000 282 (536) (254) (1,345) 1,118 (27) (254) 2003 £’000 (7) (1,338) (1,345) (2,198) 958 (105) (1,345) 2004 £’000 - - - (1,235) 1,235 - - 2003 £’000 - (1,235) (1,235) (1,800) 565 - (1,235) 49 Michael Page International plc 17. Called-up share capital Authorised 571,250,000 ordinary shares of 1p each Allotted, called-up and fully paid 357,202,799 ordinary shares of 1p each (2003: 363,662,799 ordinary shares of 1p each) At 1 January Cancellation of own shares At 31 December Share options 2004 £’000 2003 £’000 5,713 5,713 3,572 3,637 (65) 3,572 3,637 3,637 - 3,637 At 31 December 2004 the following options had been granted and remained outstanding in respect of the Company’s ordinary shares of 1p under the Michael Page International plc Executive Share Option Scheme: Year of grant Balance at 1 January 2004 Granted in year Exercised in year Lapsed in year No. of shares oustanding Exercise price per share Exercise period 2001 (Note 1) 27,425,873 2002 (Note 2) 2,855,431 2002 (Note 2) 4,130,431 2003 (Note 3) 7,090,000 - - - - 2004 (Note 4) - 2,711,000 Note 1 Pre ﬂ otation options 267,858 3,080,356 24,077,659 175p March 2004 - March 2011 - - - - 216,681 2,638,750 186p March 2005 - March 2012 391,681 3,738,750 186p March 2006 - March 2012 410,000 6,680,000 81.5p-86.1p April 2006 - April 2013 64,000 2,647,000 171p-190.3p March 2007 - March 2014 On ﬂ otation, options over 33,750,000 (9%) ordinary shares were granted to the Executive Directors and employees. These options are subject to the following: (a) 55.6% of an individual’s option entitlement will normally only be exercisable to the extent that Earnings Per Share (EPS) targets have been satisﬁ ed over a period of 3 to 10 years. None of these options will vest unless EPS has grown in line with the UK Retail Prices Index (RPI) plus an average of 5% per annum. At that point 33.3% of this portion of the options vest. If EPS growth is higher than this level, vesting increases on a sliding scale basis until 100% of this portion of the options vest where EPS growth matches RPI plus an average of 10% per annum; The base earnings per share is 9.9p. At 31 December 2004, the performance conditions had not been met. (b) 44.4% of an individual’s option entitlement will normally only be exercisable to the extent that share price growth targets have been satisﬁ ed over a period of at least 3 years. None of these options will vest unless the Company’s share price has achieved 50% growth after 3 years and not later than 5 years. At that point 33.3% of this portion of the options vest. Vesting then increases progressively for further share price growth until full vesting occurs where there is 200% growth after 3 years and not later than 5 years. These hurdles rise from the ﬁ fth anniversary of the date of grant at compound rates of growth of 8.45% and 24.57% respectively. At 31 December 2004, the performance conditions had not been met. 50 Notes to the Accounts 17. Called-up share capital (continued) Note 2 2002 Grant On 14 March 2002, options over 7,500,000 ordinary shares were granted in two tranches to the Executive Directors and 203 employees at an exercise price of 186p. The ﬁ rst tranche of options is exercisable, under normal circumstances, between 3 and 10 years from the date of grant. The second tranche is exercisable, under normal circumstances, between 4 and 10 years from the date of grant. These options were granted subject to a performance condition requiring that an option may only be exercised, in normal circumstances, if there has been an increase in base earnings per share (as deﬁ ned) of at least 3% per annum above the growth in the retail price index. The 2001 earnings per share of 10.6p is the base for the ﬁ rst tranche of options. The 2002 earnings per share of 5.8p is the base for the second tranche of options. At 31 December 2004, the performance conditions had not been met. Note 3 2003 Grant On 8 April 2003, options over 7,140,000 were granted to the Executive Directors and 110 employees at exercise prices of between 81.5p and 86.1p. These are exercisable, under normal circumstances, between 3 and 10 years from the date of grant. These grants are subject to a performance condition requiring that an option may only be exercised, under normal circumstances, if there has been an increase in base earnings per share (as deﬁ ned) of at least 3% per annum above the growth in the retail price index. The base earnings per share is 5.8p. All future grants of options under this scheme will be subject to similar EPS performance conditions which is considered the best measure of the Group’s performance and is designed to provide a direct link between the rewards for executives and the returns to shareholders, whilst at the same time ensuring that senior executives can measure the results of their efforts through the Company’s share price. Note 4 2004 Grant On 1 March 2004, options over 2,711,000 were granted to the Executive Directors and 99 employees at an exercise price of between 171p-190.3p. These are exercisable, under normal circumstances, between 3 and 10 years from the date of grant. These grants are subject to a performance condition requiring that an option may only be exercised, under normal circumstances, if there has been an increase in base earnings per share (as deﬁ ned) of at least 3% per annum above the growth in the retail price index. The performance condition is tested on the third anniversary only and no retesting will occur thereafter. The base earnings per share is 4.1p. 18. Reserves Group Company Capital redemption reserve £’000 EBT reserve £’000 Treasury shares £’000 Capital redemption reserve £’000 EBT reserve £’000 Treasury shares £’000 Proﬁ t and loss account £’000 59,464 21,275 (188) - - - (13,122) (10,998) - 361 Proﬁ t and loss account £’000 302,440 (1,224) - - - - (13,122) (10,998) - - 113 (9,871) - - 65 - - - - - At 1 January 2004 113 (9,871) Retained proﬁ t/(loss) for the year Foreign currency translation differences Purchases of own shares Credit in respect of share schemes - - 65 - - - - - At 31 December 2004 178 (9,871) (13,122) 69,914 178 (9,871) (13,122) 290,218 At 31 December 2004, the EBT reserve consisted of 5,640,715 (2003: 5,640,715) ordinary shares held by the Employee Beneﬁ t Trust representing 1.58% of the called-up share capital with a market value of £10.5m (2003: £10.5m). During 2004, 561,386 shares were allocated to satisfy awards made under the 2004 Incentive Share Plan. Dividends are paid on these shares and they are included in the EPS calculation. Dividend income on the remaining 5,079,329 ordinary shares has been waived, and they are excluded from the EPS calculation. 7,765,000 shares representing 2.17% of the called-up share capital are held in treasury. Dividends are not paid on these shares and they are excluded from the EPS calculation. The cumulative amount of goodwill written off directly to reserves in respect of acquisitions prior to 31 December 1997 is £311.7m (2003: £311.7m). 51 Michael Page International plc 19. Reconciliation of operating proﬁ t to net cash inﬂ ow from operating activities Operating proﬁ t before exceptional items Exceptional items (note 3) Operating proﬁ t after exceptional items Depreciation and amortisation charges Loss on sale of ﬁ xed assets Share scheme charges Increase in debtors Incease/(decrease) in creditors (Decrease)/increase in provisions (note 15) Net cash inﬂ ow from operating activities 20. Reconciliation of net cash ﬂ ow to movement in net cash (Decrease)/increase in net cash in the year Foreign exchange movements Movements in net cash in year Opening net cash Closing net cash 21. Analysis of net cash Cash at bank and in hand Bank overdrafts Total net cash 52 2004 £’000 40,037 - 40,037 6,500 53 361 (17,739) 11,529 (5,051) 35,690 2004 £’000 (10,254) 35 (10,219) 22,434 12,215 2003 £’000 22,884 (1,101) 21,783 7,688 241 - (313) (459) 239 29,179 2003 £’000 757 305 1,062 21,372 22,434 At 1 January 2004 £’000 Foreign exchange movements £’000 At 31 December 2004 £’000 Cash ﬂ ow £’000 23,211 (10,720) (777) 466 22,434 (10,254) 41 (6) 35 12,532 (317) 12,215 Notes to the Accounts 22. Financial instruments The Group’s ﬁ nancial instruments comprise borrowings, cash and liquid resources plus various items such as trade debtors and trade creditors which arise directly from its operations. The main purpose of these ﬁ nancial instruments is to provide ﬁ nance for the Group’s operations. The Group has opted to exclude all ﬁ nancial risk disclosures relating to short term debtors and creditors with the exception of currency risk. The main exposure arising from the Group’s ﬁ nancial instruments is currency risk. An explanation of the Group’s treasury policy is included in the Finance Director’s review on page 10. (a) Currency exposures of ﬁ nancial assets and liabilities The extent to which Group companies have monetary assets and liabilities, excluding intercompany balances, in currencies other than their local currency is shown in the tables below. As at 31 December 2004 Net foreign currency monetary assets/(liabilities) Functional currency of Group operation Sterling US dollar EU currencies Other currencies Total Sterling £’000 - - - - - US$ £’000 29 - - - 29 EU currencies £’000 Other currencies £’000 - - - - - - - - 32 32 Total 2004 £’000 29 - - 32 61 As at 31 December 2003 Net foreign currency monetary assets/(liabilities) Functional currency of Group operation Sterling US dollar EU currencies Other currencies Total Sterling £’000 US$ £’000 EU currencies £’000 Other currencies £’000 - - - - - - - - - - - - - - - - - - 163 163 Total 2003 £’000 - - - 163 163 53 Michael Page International plc 22. Financial instruments (continued) (b) Maturity of ﬁ nancial liabilities The maturity proﬁ le of the carrying value of the Group’s and Company’s ﬁ nancial liabilities, other than short term creditors and accruals, as at 31 December was as follows: Less than one year (c) Borrowing facilities Group Company 2004 £’000 317 2003 £’000 777 2004 £’000 - 2003 £’000 - The Group and Company has the following undrawn committed borrowing facilities available at 31 December: Less than one year (d) Financial assets and liabilities (i) Assets excluding short-term debtors: Cash Group Company 2004 £’000 2003 £’000 2004 £’000 2003 £’000 34,877 23,786 30,646 20,632 Group 2004 £’000 Group 2003 £’000 12,532 23,211 54 Notes to the Accounts 22. Financial instruments (continued) (d) Financial assets and liabilities (ii) Liabilities including interest rate risk proﬁ le The Group does not consider the interest rate risk as signiﬁ cant. The interest rate proﬁ le of the Group’s ﬁ nancial liabilities, excluding short term creditors at 31 December was as follows: Currencies other than Sterling Floating rate liabilities 2004 £’000 317 2003 £’000 777 All the Group’s creditors falling due within one year (other than bank and other borrowings) have been excluded from the above table by either applying the exemption granted by Financial Reporting Standard 13 relating to other short-term items, or because they do not meet the deﬁ nition of a ﬁ nancial liability, such as balances relating to taxation. The benchmark rates for determining ﬂ oating rate liabilities are based on relevant national LIBOR equivalents. (e) Fair value of ﬁ nancial assets and liabilities The fair value of ﬁ nancial assets and liabilities is not materially different to the book value. 23. Commitments and contingent liabilities Operating lease commitments At 31 December 2004 the Group was committed to make the following payments in the next ﬁ nancial year in respect of operating leases: Leases which expire: Within one year Within two to ﬁ ve years After ﬁ ve years Land and buildings Other 2004 £’000 536 6,954 4,314 2003 £’000 705 6,232 4,094 11,804 11,031 2004 £’000 2003 £’000 103 590 - 693 90 238 - 328 55 Notes to the Accounts 23. Commitments and contingent liabilities (continued) Capital commitments The Group had capital commitments of £853,000 as at 31 December 2004 (2003: £613,000) VAT group registration As a result of group registration for VAT purposes, the Company is contingently liable for VAT liabilities arising in other companies within the VAT group which at 31 December 2004 amounted to £5,661,000 (2003: £3,770,814). Other commitments The Company has provided guarantees to other Group undertakings amounting to £533,000 (2003: £368,000). 24. Related party transactions Details of Directors’ shareholdings and share options are shown on pages 26 to 28. The Group is taking advantage of the exemption granted by paragraph 3(c) of Financial Reporting Standard No. 8 “Related Party Disclosures” not to disclose transactions with group companies which are related parties. 56 Michael Page International plc Shareholder Information and Advisers Annual General Meeting To be held on 27 May 2005 at 12.00 noon at 39-41 Parker Street, London, WC2B 5LN. Every shareholder is entitled to attend and vote at the meeting. Final dividend for the year ended 31 December 2004 To be paid (if approved) on 3 June 2005 to shareholders on the register on 6 May 2005. Company secretary R A McBride Company number 3310225 Registered ofﬁ ce 39-41 Parker Street London WC2B 5LN Tel: 020 7831 2000 Fax: 020 7269 2280 Auditors Solicitors Registrars Brokers Bankers Deloitte & Touche LLP Herbert Smith Chartered Accountants Exchange House Capita IRG The Registry Citigroup HSBC Bank plc 33 Canada Square West End Business Banking Centre London Primrose Street 34 Beckenham Road Canary Wharf 70 Pall Mall London EC2A 3TR Beckenham, Kent BR3 4TU London E14 5LB London SW1Y 5GZ Key dates Ex-Dividend date Record date Annual General Meeting Payment of ﬁ nal ordinary dividend Interim results announcement 4 May 2005 6 May 2005 27 May 2005 3 June 2005 15 August 2005 57 Michael Page International plc Five Year Summary Proﬁ t and Loss Account Turnover Gross proﬁ t Operating proﬁ t 2000 £’000 2001 £’000 2002 £’000 2003 £’000 2004 £’000 458,065 459,547 383,470 372,616 433,731 246,329 245,080 192,648 178,485 210,641 74,102 58,019 32,136 21,783 40,037 Proﬁ t on ordinary activities before taxation 58,536 62,326 32,597 22,409 40,038 Proﬁ t for the ﬁ nancial year 37,008 43,653 21,154 13,745 35,105 Basic earnings per share (pence) Adjusted earnings per share (pence) 9.9 9.9 11.8 10.6 5.8 5.8 3.8 4.1 10.0 7.4 58 Michael Page International plc Annual General Meeting Notice of Meeting Notice is hereby given that the Annual General Meeting of the Company will be held at 39-41 Parker Street, London WC2B 5LN on Friday 27 May 2005 at 12 noon for the following purposes: 1. To receive and approve the reports of the directors and auditors and accounts for the year ended 31 December 2004. 2. To declare a ﬁ nal dividend on the ordinary share capital of the Company for the year ended 31 December 2004 of 2.75p per share. 3. To re-elect A.A. Montague as a director of the Company (note 2) 4. To re-elect T.W. Benson as a director of the Company (note 2) 5. To re-elect S.J. Ingham as a director of the Company (note 2) 6. To propose the following ordinary resolution: That the directors’ remuneration report for the year ended 31 December 2004 be received and approved. 7. To re-appoint Deloitte & Touche LLP as auditors of the Company to hold ofﬁ ce until the conclusion of the next Annual General Meeting at a remuneration to be ﬁ xed by the directors. 8. To propose the following ordinary resolution: That the directors be and are hereby generally and unconditionally authorised for the purposes of Section 80 of the Companies Act 1985 (the “Act”) to exercise all powers of the Company to allot relevant securities (as deﬁ ned in Section 80 (2) of the Act) up to an aggregate nominal amount of £1,190,675 to such persons upon such conditions as the directors may determine, such authority to expire at the conclusion of the next Annual General Meeting of the Company save that the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted in pursuance of such an offer or agreement as if the authority conferred hereby had not expired (note 4). 9. To propose the following special resolution: That the directors be and are hereby empowered pursuant to Section 95 of the Companies Act 1985 (the “Act”) to allot equity securities (as deﬁ ned in Section 94 of the Act) for cash pursuant to the authority conferred by resolution 8 above as if Section 89 (1) of the Act did not apply to such allotment provided that this power shall be limited to: (a) the allotment of equity securities in connection with a rights issue and so that for this purpose “rights issue” means an offer of equity securities open for acceptance for a period ﬁ xed by the directors to holders of equity securities on the register on a ﬁ xed record date in proportion to their respective holdings of such securities or in accordance with the rights attached thereto but subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with fractional entitlements or legal or practical problems under the laws of any overseas territory or requirements of any recognised regulatory authority or stock exchange in any country or any matter whatever, and (b) the allotment (other than within the authority conferred in sub paragraph (a) above) of equity securities for cash up to an aggregate nominal amount of £178,601, and shall expire at the conclusion of the next Annual General Meeting of the Company when the general authority under Resolution 8 shall expire, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted in pursuance of such an offer or agreement as if the authority conferred hereby had not expired (note 5). 59 Michael Page International plc 10. To propose as special business the following special resolution: That pursuant to the Company’s Articles of Association and Section 166 of the Companies Act 1985 (the ”Act”), the Company be and is hereby generally and unconditionally authorised to make market purchases of ordinary shares of 1p each in the capital of the Company provided that: (a) the maximum number of ordinary shares hereby authorised to be purchased is 35,720,280; (b) the minimum price which may be paid for each ordinary share is 1 pence; (c) the maximum price which may be paid for each ordinary share is in respect of an ordinary share contracted to be purchased on any day, an amount equal to 105% of the average of the mid-market quotations for an ordinary share of the company as derived from The London Stock Exchange Daily Ofﬁ cial List for the ﬁ ve business days immediately preceding the day on which the ordinary share is contracted to be purchased; (d) the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company after the date of passing this resolution, unless such authority is renewed prior to such time; and (e) the Company may conclude a contract to purchase ordinary shares under the authority hereby conferred prior to the expiry of such authority which will or may be exercised wholly or partly after the expiry of such authority and may make a purchase of ordinary shares in pursuance of any such contract as if the authority hereby conferred had not expired (note 6). 11. To propose the following special resolution: That the existing Article 139 of the Company’s Articles of Association be deleted and replaced with the new Article 139 set out below: 139. Subject to the provisions of the Act, the Company may: (a) indemnify any person who is or was a director, directly or indirectly (including by funding any expenditure incurred or to be incurred by him), against any loss or liability whether in connection with any proven or alleged negligence, default, breach of duty or breach of trust by him or otherwise, in relation to the Company or any associated Company; and/or (b) purchase and maintain insurance for any person who is or was a director against any loss or liability or any expenditure he may incur, whether in connection with any proven or alleged negligence, default, breach of duty or breach of trust by him or otherwise, in relation to the Company or any associated Company. For the purposes of this article, “associated Company” has the same meaning as in section 309A of the Act (note 8 and 3(ii)). 12. To propose the following ordinary resolution: That the amendments to the rules of the Michael Page Incentive Share Plan 2004 (“the ISP”) set out in Note 9 below and contained in the rules of the ISP in the form produced to the Meeting and initialled by the Chairman for the purposes of identiﬁ cation be and are hereby approved and that the remuneration committee of the Board be and are hereby authorised to take such actions as may be necessary or desirable to make the amendments to the ISP (note 9 and 3(iii)). By order of the Board R. A. McBride Secretary 39-41 Parker Street London WC2B 5LN Registered in England No. 3310225 22 February 2005 60 Annual General Meeting Notes 1. Any member entitled to attend and vote at the meeting may appoint another person, whether a member or not, as his proxy to attend and on a poll, to vote instead of him. A form of proxy is enclosed for this purpose and must be deposited with the Company’s registrars together with any power of attorney or other authority under which it is signed, not less than 48 hours before the time appointed for the meeting. Completion and return of the form of proxy will not preclude a member from attending and voting at the meeting. 2. Messrs Montague, Benson and Ingham retire by rotation and are seeking reappointment at the Annual General Meeting. Biographical information on each of the directors is contained on pages 12 and 13 of the annual report and accounts. 3. The (i) register of directors’ interests required to be kept under section 325 of the Act together with copies of the directors’ service contracts; (ii) a copy of the proposed amended Articles of Association that reﬂ ect the proposed changes under paragraph 11 of this notice; and (iii) copies of the current rules of the ISP and copies of the amended rules of the ISP marked to show the proposed changes under paragraph 12 of this notice, will all be available for inspection by members at the registered ofﬁ ce of the Company on any weekday during normal business hours from the date of this announcement until the day of the Annual General Meeting and at the place of the meeting not less than 15 minutes before the meeting commences and after the meeting concludes. 4. This authority is in respect of 33% of the issued share capital of the Company and is in accordance with the recommendations of the Association of British Insurers (“ABI”). It is the directors’ intention to seek renewal of this authority annually. The directors have no present intention of exercising this authority. 5. This authority is in respect of 5% of the issued share capital of the Company and is in accordance with the recommendations of the ABI. It applies to both the issue of new shares and sales of shares out of treasury. It is the directors’ intention to seek renewal of this authority annually. The directors have no present intention of exercising this authority. 6. This authority is in respect of 10% of the issued share capital of the Company and the power given by this resolution will only be exercised if the directors are satisﬁ ed that any purchase will increase the Earnings per Share of the Ordinary Share Capital in issue after the purchase and accordingly, that the purchase is in the interests of shareholders. Shares purchased under this authority may be cancelled or held in treasury. Any shares held in treasury will have no voting rights, no rights to receive dividends, and will be treated as cancelled whilst in treasury. 7. To have the right to attend and vote at the meeting (and also for the purpose of calculating how many votes a person may cast), a person must have his/her name entered on the register of members by no later than 48 hours before the time of the meeting. Changes to entries on the register after this time shall be disregarded in determining the rights of any person to attend or vote (and the number of votes they may cast) at the meeting or adjourned meeting. 8. The Companies (Audit, Investigations and Community Enterprise) Act 2004 (“Companies (Audit) Act”) has come into force in April 2005. Amongst other things, the Companies (Audit) Act relaxes the previous prohibition in section 310 of the Act on companies indemnifying their directors against costs and liabilities. The changes to the Act mean that (i) the restrictions only apply to the Company’s directors and auditors and not to the Company’s Secretary and other ofﬁ cers; (ii) where liabilities arise from actions brought by third parties both the costs (of the director and the third party) and any damages may, subject to certain exclusions, be paid by the Company, even if the judgement goes against the director; and (iii) where liabilities are owing to the Company, the Company is not able to indemnify the director against damages awarded to the Company itself but, may pay the director’s defence costs as they are incurred. 61 Annual General Meeting Notes (continued) 9. Shareholders have already given approval for the Company to buy, hold and re-sell its own shares as treasury shares (see Resolution 9 and Note 5 to this Notice). The Directors are now seeking shareholder approval to use treasury shares to satisfy options and awards granted to participants under the Michael Page Incentive Share Scheme 2004 (“the ISP”). The ability to use treasury shares under the ISP is required because advice has been received that tax and legal problems may arise in certain overseas jurisdictions if existing shares are delivered to participants in the ISP by the trustees of the Michael Page Employees’ Beneﬁ t Trust (“the Trustees”). Consequently, it is anticipated that treasury shares will only be used under the ISP in those jurisdictions where tax or legal problems arise in connection with the delivery of existing shares by the Trustees. 62 Suit, Shoes, Bag and Scarf by House of Fraser, City Hair by Amanda Steele Make-Up by Bobbi Brown Styling by Deborah Miller Professional Career arranged through Michael Page International Michael Page International is a world leading recruitment consultancy 110 ofﬁ ces in 16 countries worldwide | www.michaelpage.co.uk Michael Page International plc 39-41 Parker Street, London WC2B 5LN Tel: 020 7831 2000 Fax: 020 7269 2280 www.michaelpage.co.uk

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