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Annual Report 2005

Plain-text annual report

Global know-how. Specialist knowledge. Local offices. Michael Page International plc Annual Report and Accounts 2005 MICHAEL PAGE INTERNATIONAL “2005 was another year of considerable progress for the Group and Michael Page delivered significantly improved results over the previous year. All our businesses recorded increased profits, but the outstanding performance came from Continental Europe. “The short term outlook is encouraging for Michael Page. Against a background of relatively favourable trading conditions in all regions across the Group, we will continue our strategy of organic growth and controlled investment for the future.” TERRY BENSON | Chief Executive  ANNUAL REPORT AND ACCOUNTS 005 £523.8m Group Turnover £267.6m Gross Profit £66.1m Profit before tax 17 Chairman’s Statement 18 Chief Executive’s Review 20 Finance Director’s Review 22 Board of Directors 24 Directors’ Report 30 Corporate Governance 35 Remuneration Report 46 Independent Auditors’ Report to the members of Michael Page International Plc 48 Consolidated Income Statement 49 Consolidated Statement of Changes in Equity 50 Statement of Changes in Equity – Parent Company 51 Balance Sheets 52 Cash Flow Statements 53 Notes to the Accounts 80 Shareholder Information and Advisers 81 Five Year Summary 82 Annual General Meeting  MICHAEL PAGE INTERNATIONAL  London ANNUAL REPORT AND ACCOUNTS 005 London “ In the UK, turnover increased by 14.8% to £269.6m (2004: £234.8m) and gross profit by 17.8% to £129.5m (2004: £110.0m). Operating profits were £31.9m (2004: £22.9m), an increase of 39.3%.” Manchester Weybridge develop teams in existing offices and disciplines. Plans are also in place to roll out the newer disciplines to existing offices and open new offices. United Kingdom A good performance was seen across the UK with all markets improving over the prior year. Our most established business, Finance and Accounting, had good growth (10%) in both the permanent and temporary businesses, strong growth was evident in Marketing and Sales (19%) across all industry sectors and in our Retail business growth exceeded 10%, an excellent achievement considering the difficult year seen on the High Street. The remaining disciplines grew revenue by 44% offering significant scope for expansion as they are rolled out progressively across the UK network. Our business in Scotland is now managed separately and grew gross profits in excess of 50%. There continues to be considerable scope for all businesses in the UK to grow with numerous opportunities to expand and STEVE INGHAM | UK Managing Director 5 MICHAEL PAGE INTERNATIONAL “ Turnover in Continental Europe for the year increased by 28.0% to £159.2m (2004: £124.3m) and gross profit increased by 40.1% to £86.1m (2004: £61.5m). As a result of the increased revenue and high operational gearing, the region produced an increase of over 370% in operating profit at £19.4m (2004: £4.1m).”  ANNUAL REPORT AND ACCOUNTS 005 Geneva Amsterdam Paris Milan Continental Europe Our European businesses achieved gross profit growth in excess of 40%, with France, our largest business in Europe showing strong recovery with gross profit increasing 18%. The market in France is still recovering and as our spare capacity is utilised, we are well positioned to benefit and gain market share. Our remaining businesses in the region achieved gross profit growth in excess of 65%. With market conditions improving, our strategy of maintaining and investing in our businesses during the downturn is clearly justified. Profitability is also improving as spare capacity is utilised. However, in some markets we now need to invest to exploit the growth opportunities. During the year we opened an office in Warsaw, Poland, our first expansion into Central Europe. There remains considerable scope for expanding teams and disciplines, rolling out new disciplines to existing offices, opening new offices and opening in new countries. CHARLES-HENRI DUMON | Continental Europe Managing Director  MICHAEL PAGE INTERNATIONAL  Sydney ANNUAL REPORT AND ACCOUNTS 005 “ Our businesses in Asia Pacific produced a record set of results for the region. Turnover was 22.2% higher at £76.7m (2004: £62.8m), gross profit was 23.8% higher at Chatswood £39.0m (2004: £31.5m) and operating profit increased 23.3% to £14.1m Singapore (2004: £11.4m).” Wheelers Hill Asia Pacific The markets in Australia remain encouraging with gross profit growing a healthy 17.1%. Strong demand continued from the Financial Services, Business Services, and Mining and Resources. We opened a seventh office, in Chatswood, North Sydney and completed a large office relocation of our business in Melbourne. Our other markets in the Asia Pacific region all achieved excellent results, with Hong Kong, China, Japan and Singapore all achieving another year of significant gross profit growth. CHRIS ADAMS | Asia Pacific Managing Director  MICHAEL PAGE INTERNATIONAL “ An excellent result was reported in the Americas with turnover for the region 54.6% higher at £18.3m (2004: £11.8m), gross profit increased by 68.9% to £12.9m (2004: £7.6m) an d operating profit increased 161% to £1.0m (2004: £0.4m).” 10 ANNUAL REPORT AND ACCOUNTS 005 Philadelphia New York Toronto The Americas In North America we opened offices in Toronto, Canada and in Philadelphia, USA. We now operate from seven offices, providing recruitment in Finance and Accounting. All businesses performed well, with our existing businesses generating much improved results and the new offices starting well. During 2006 we plan to continue this expansion by investigating the opportunities for further office openings as well as the commencement of new recruitment disciplines. In Brazil we achieved another very successful year with gross profit growth of 96%. Headcount was increased in the São Paulo and Rio de Janeiro offices to nearly 100 staff. We now have a number of energetic and experienced staff who will continue to generate increased business in Brazil and, when the opportunity arises, elsewhere in South America. GARY JAMES | Americas Managing Director 11 MICHAEL PAGE INTERNATIONAL 1 ANNUAL REPORT AND ACCOUNTS 005 1 MICHAEL PAGE INTERNATIONAL 1 ANNUAL REPORT AND ACCOUNTS 005 ANNUAL REPORT AND ACCOUNTS 005 Business Superbrand 005 Michael Page International has again been awarded Business Superbrand status in the UK. A new Superbrand book is published every 18 months and features some of the UK’s foremost B2B companies and this is the 4th consecutive time we’ve been featured. The Sunday Times 100 Best Companies to work for Michael Page International are featured in the The Sunday Times 100 Best Companies to Work For and received particular commendations for organic growth, people development and individual contribution to the business. Britain’s Top Employers Michael Page International has grown and succeeded purely through organic growth. This has been recognised in the 2006 edition of Britain’s Top Employers. Put together by The Corporate Research Foundation (CRF) and published by The Guardian, they applauded our fast-track promotion policy and meritocratic system. We were naturally proud to be listed as the UK’s No.1 company in the ‘Promotion and Benefits’ category. Quality Assurance In RFI questionnaires and pitches we are often asked for the details of our Quality Accreditations. Michael Page currently has two accreditations: ISO 9001/MQA01 (pertaining to Marketing Quality) - Our certificate is granted by Marketing Quality Assurance, and the registration number is 0058. ISO 9002 (pertaining to Quality Systems) - also granted by Marketing Quality Assurance, registration number 0065. 1515 MICHAEL PAGE INTERNATIONAL “ I am pleased to report another year of considerable progress for the Group and significantly improved results for 2005. Our outstanding performance is, we believe, clear vindication of our longer term strategic decision to only grow organically, to maintain our infrastructure during economic slowdowns and to continue to make sensibly controlled investments for the future. This is particularly evident in the profit before tax of £66.1m (2004: £38.9m) and adjusted earnings per share increase by 105.6% to 14.8p (2004: 7.2p before exceptional tax items).” 1 CHAIRMAN’S STATEMENT ANNUAL REPORT AND ACCOUNTS 005 I am pleased to report another year of recommending an increase in the Group, I sincerely thank him for his considerable progress for the Group total dividend per share for the year tremendous contribution and he has and significantly improved results for of 25%. A final dividend of 3.5p our best wishes for his retirement. 2005. Our outstanding performance (2004: 2.75p) per share is proposed is, we believe, clear endorsement of which, together with the interim our longer term strategic decision dividend of 1.5p (2004: 1.25p) per only to grow organically, to maintain share paid in October, makes a total our infrastructure during economic dividend for the year of 5.0p (2004: slowdowns and to continue to 4.0p) per share. The final dividend make controlled investments for the will be paid on 5 June 2006 to those future. This is particularly evident in shareholders on the register at 5 May the improved performance of our 2006. The total dividend is covered businesses in Continental Europe 3.0 times by basic earnings per share where, despite the economic of 14.8p. Steve Ingham, who has been with the Group for 19 years, will succeed Terry as Chief Executive. He has been a member of the senior management for many years and a key contributor in establishing the current Group strategy. I, and the rest of the Board, am delighted that we have an exceptional successor who we are confident will continue the successful development of the Group. On 25 April 2005, Rob Lourey, a Non-Executive Director resigned as he was relocating to Sydney, Australia. Tim Miller was appointed on 15 August 2005 as a Non-Executive Director and as Chairman of the Remuneration Committee. Stephen Burke, the former UK Managing Director, left the company in May 2005. Outlook The short term outlook is encouraging We continued to make share repurchases throughout 2005 acquiring 16.8m shares for £34.2m, representing an average cost per share of 203.7p. These shares were initially held in Treasury but were subsequently cancelled along with 7.8m shares that were held in Treasury from purchases made in 2004. We will be seeking shareholders’ consent for a renewal of the authority to repurchase up to 10% of the issued shares at the Annual General for Michael Page. Meeting on 23 May 2006. Employees I wish to express my thanks to the staff worldwide for their commitment, loyalty and efforts throughout the year. Having operated throughout a sustained period of difficult trading conditions, they have maintained your Company’s position as the international leader in the specialist recruitment industry. Board of Directors On 16 December 2005 Terry Benson announced his decision to retire as Chief Executive at the forthcoming Annual General Meeting on 23 May 2006. Terry has worked for the Group for over 26 years, the last 12 as Chief Executive, during which the company has enjoyed phenomenal success. On behalf of all stakeholders in the Against a background of favourable trading conditions in all regions across the Group, we plan to continue the controlled growth of our businesses by further increasing our headcount, continuing the discipline roll out, opening new offices in countries where we already have a presence and establishing new businesses in other countries. On 6 April 2006 we will make a statement in respect of our trading for the first quarter. Sir Adrian Montague CBE Chairman 1 March 2006 1 conditions remaining difficult, we have increased gross profits by 40% and operating profits by over 370%. Financial highlights Turnover for the year ended 31 December 2005 increased 20.8% to £523.8m (2004: £433.7m). Gross profits from permanent placements again grew more rapidly than from temporary placements. This movement in business mix, together with an increase in margins on temporary placements, contributed to a strong increase in gross profit of 27.0% to £267.6m (2004: £210.6m). Given the Group’s high operational gearing, operating profit increased by 71.2% to £66.5m (2004: £38.9m). Profit before tax was £66.1m (2004: £38.9m) and adjusted earnings per share increased by 105.6% to 14.8p (2004: 7.2p before exceptional tax items). Dividends and share repurchases It is the Board’s intention to pay dividends at a level which it believes is sustainable throughout economic cycles and to continue to use share repurchases as an additional mechanism for returning surplus cash to shareholders. As a consequence of our strong growth in profits and excellent cash generation, the Board is MICHAEL PAGE INTERNATIONAL CHIEF EXECUTIVE’S REVIEW I am delighted with our performance in Liverpool and achieved the highest we created a separate management in 2005, particularly as I believe growth rate of the three finance structure to drive growth from our it demonstrates the benefits of businesses. Michael Page City, which existing offices in Glasgow and our longer term approach to the accounts for less than 10% of UK Edinburgh. This has proved to be a development of the business. We have gross profits, recorded the lowest level successful development with gross achieved good levels of growth in all of of growth. Accountancy Additions, profits in Scotland increasing in 2005 our businesses reflecting the quality of which specialises in lower level finance by over 50%. Continental Europe Turnover in Continental Europe for the year increased by 28.0% to £159.2m (2004: £124.3m) and gross profit increased by 40.0% to £86.1m (2004: £61.5m). As a result of the increased revenue and high operational gearing, the region produced an increase of over 370% in operating profit at £19.4m (2004: £4.1m). In France, our second largest business after the UK and representing 48% of the region, gross profit increased by 18%. The growth rate in our French business improved each quarter throughout the year, exceeding 20% in the fourth quarter. The growth in France has come entirely from permanent recruitment with temporary recruitment fees flat on 2004 levels. While the market in France has improved during 2005, our rate of growth clearly indicates that we are well positioned to benefit and gain market share. Elsewhere in the region, collectively our businesses achieved gross profit growth in excess of 65%. There remains considerable scope for these businesses to grow with numerous opportunities for expanding teams in existing offices and disciplines, rolling out the disciplines to existing offices and opening new offices. In addition to the roll out of disciplines, during the year we started a business our staff and the high levels of service and accounting positions, again they provide to clients and candidates. expanded its office network from A product of our strategy to maintain our infrastructure in a downturn is 30 to 32 locations with new offices in Liverpool and Edinburgh. that for a period we may carry spare The combined gross profits of Michael capacity and consequently have high Page Marketing, Michael Page Sales operational gearing. When economic and Michael Page Retail, were 19% conditions improve, we believe this higher than in 2004 and represented approach puts us in a better position 22% of the UK total. The Marketing than the majority of our competitors to and Sales businesses produced strong grow our business, and at a far faster growth from all industry sectors, with rate. As this spare capacity is utilised growth from temporary placement fees through growth, we benefit from this exceeding permanent as we continue operational gearing as evidenced by to develop the temping business in the 71.2% increase in operating profit these disciplines. Retail’s growth rate, from a 27.0% growth in gross profit. while lower, was still over 10% despite another tough year on the High Street. The remaining businesses together produced gross profit growth in 2005 of 44% and represent a significant opportunity for further strong growth as they are rolled out progressively across the UK network. Michael Page Legal and Michael Page Technology both performed well in the year. Michael Page Human Resources achieved another year of strong growth benefiting from its increased geographic coverage. The separation of Michael Page Engineering and Supply Chain Management into Michael Page Engineering and Manufacturing, and Michael Page Procurement and Supply Chain at the beginning of 2005 was particularly successful, with both businesses having significant scope for further Staff and office numbers The investments we have made in new staff, discipline roll outs, office expansion and start ups has resulted in an increase in fee generating and support staff to 2,926 (2004: 2,551), operating from 118 (2004: 110) offices in 18 (2004: 16) countries at the end of the year. United Kingdom In the UK, turnover increased by 14.8% to £269.6m (2004: £234.8m) and gross profit by 17.8% to £129.5m (2004: £110.0m). Operating profits were £31.9m (2004: £22.9m) an increase of 39.3%. The gross profits of the finance and accounting businesses of Michael Page Finance, Michael Page City and Accountancy Additions, which generated 57% of UK gross profit, were 10% higher than in 2004 with both permanent and temporary recruitment fees growing well. Michael Page Finance, the largest of the three businesses, opened an office 1 expansion. Michael Page Secretarial in Warsaw, Poland, our first expansion which only started at the end of 2003 into Central Europe, and have opened had a successful year with gross profit a fourth office in the Netherlands in more than doubling. In order to capitalise on the opportunity in Scotland, at the beginning of 2005 Amersfoort, and a Michael Page office in Toulouse. Page Personnel opened in Nantes, Strasbourg and Rouen in ANNUAL REPORT AND ACCOUNTS 005 France, and Geneva in Switzerland. rapid expansion opening offices in condition for many more years of As market conditions in Continental Europe continue to improve, we are reaping the benefit of our strategy to maintain and invest in our businesses during a downturn. As predicted last year, with gross profit growth maintained throughout 2005, profitability has improved considerably as spare capacity is utilised. There Toronto, Canada and in Philadelphia, successful growth and development. USA. We now have established a However I believe the time is right for network of seven offices in North me to retire from the business and in America, providing only recruitment December 2005 we announced the in Finance and Accounting. These plans for succession. Steve Ingham, investments, together with the who joined Michael Page in 1987, will continuing development of our other formally take over as Chief Executive offices, incur significant start up costs at the Annual General Meeting in ahead of gross profit growth. May. In my opinion he and the senior is still some spare capacity within We are extremely pleased with our a number of our businesses but in progress in North America and others we now need to invest to during 2006, we will be investigating exploit the growth opportunities. the opportunities for further office management team are second to none in our sector, and they possess the energy and enthusiasm to continue the track record of achievement. openings as well as starting other I am sure our shareholders, clients, Asia Pacific Our businesses in Asia Pacific produced a record set of results for the region. Turnover was 22.2% higher at £76.7m (2004: £62.8m), gross profit was 23.8% higher at £39.0m (2004: £31.5m) and operating profit increased 23.3% to £14.1m (2004: £11.4m). In Australia gross profit grew a healthy 17.1% despite a disappointing fourth quarter which was impacted by an IT implementation. There continued recruitment disciplines. In Brazil we achieved another very successful year growing headcount in the São Paulo and Rio de Janeiro offices to nearly 100 staff. We have now reached the stage where we have a number of experienced and talented local staff who will further drive our expansion in Brazil and elsewhere in South America. Executive Committee to be strong demand from the In September 2005 the Board financial services, business services, approved the establishment of an mining and resources. During the Executive Committee comprising Chris year we opened a seventh office, Adams, Regional MD Asia Pacific, in Chatswood, North Sydney and Andrew Wayland, Chief Information completed a large office relocation of Officer, and the four executive Main our business in Melbourne. Board Directors. The committee, which In Hong Kong, Shanghai, Tokyo and Singapore, we achieved another year of substantial gross profit growth. In Tokyo we moved into larger offices at the beginning of the year which provides sufficient accommodation to achieve a doubling of our headcount. The Americas Turnover for the region was 54.6% higher at £18.3m (2004: £11.8m), gross profit increased by 68.9% to £12.9m (2004: £7.6m) and operating profit increased 161% to £1.0m (2004: £0.4m). In North America we continued our is headed by the Chief Executive, is focused on the operational management of the Group and meets formally every quarter. It was formed to facilitate greater communication and cooperation between the regions, and to ensure that the deployment of our resources is considered from a global perspective. Strategy I am delighted with our performance in 2005 as it clearly demonstrates the strength of our longer term strategy. Having worked for Michael Page for 26 years, the last 12 as Chief Executive I believe the business is in excellent candidates and staff will welcome the fact that the overall long term strategy of the Group will remain absolutely unchanged following the change in leadership. The Group intends to stay focused on its core competency of specialist recruitment, will continue to grow organically by the expansion of existing businesses in their local markets, the introduction of new disciplines into existing locations and by entering new geographic markets. There exist numerous opportunities to grow the business in all our regions and expand into new regions. There is an exceptional pool of ambitious and talented people in the Group who are highly motivated to build on our success. With the short term economic outlook set to be relatively favourable, the plan during 2006 is to slightly increase the pace of our controlled development. Terry Benson Chief Executive 1 March 2006 1 MICHAEL PAGE INTERNATIONAL FINANCE DIRECTOR’S REVIEW International Financial Reporting Standards (IFRS) The 2005 financial statements are our first to have been prepared under IFRS and accordingly the comparative results for 2004 have been restated. The most significant impact from the Operating profit Taxation As a result of the Group’s organic Tax on profits was £16.5m (2004: growth strategy and the profit based £4.5m after an exceptional tax credit bonuses, we have a business which of £9.0m), representing an effective is operationally geared as evidenced tax rate of 25.0% (2004: 34.8% by the 71.2% increase in operating before exceptional items). The rate is profits from a 27.0% increase in gross lower than the UK corporation tax rate application of IFRS on reported profits profit. is a charge of £2.7m (2004: £1.2m) in respect of share options. Full details of the application of IFRS are set out in note 27 on page 74. Income statement Turnover 2005 was another successful year for the Group with all regions delivering strong growth. Turnover for the year increased by 20.8% to £523.8m (2004: £433.7m). Turnover from temporary placements increased by 15.7% to £318.3m (2004: £275.2m) and represented 60.8% (2004: 63.5%) of Group turnover. Turnover from permanent placements was £205.5m (2004: £158.5m), an increase of 29.6%. Gross profit This strategy means the Group incurs start up costs and operating losses as investments are made to grow existing businesses, start new businesses, open new offices and start up in new countries. The Chief Executive’s review describes a number of these investments including starting businesses in Canada and Poland. of 30% primarily as a result of utilising and recognising tax losses incurred in earlier years. The majority of these tax losses arose in Continental Europe and have largely been recognised this year as profits in the region have grown significantly. Earnings per share and dividends In 2005, basic earnings per share were 14.8p (2004: 9.8p) and adjusted As a result of the increased numbers earnings per share in 2005 were of staff, start up costs and higher 14.8p (2004: 7.2p before exceptional profit related bonuses, administrative tax items). The weighted average expenses in the year increased by number of shares for the year was 17.0% to £201.1m (2004: £171.8m). 336.3m (2004: 351.6m) reflecting The Group’s largest category of expenditure is the remuneration of the impact of the share repurchases during the year. our consultants and support staff. An increase in the final dividend to Headcount of the Group was 2,551 3.5p (2004: 2.75p) per ordinary share at 1 January 2005 and increased has been proposed which, together Gross profit for the year increased to 2,747 at 30 June 2005. The with the interim dividend of 1.5p by 27.0% to £267.6m (2004: Group’s headcount increased further (2004: 1.25p) per ordinary share, £210.6m) representing an overall during the second half of the year makes a total dividend for the year of gross margin of 51.1% (2004: 48.6%). reflecting both the growth of existing 5.0p (2004: 4.0p) per ordinary share, The percentage increase in gross businesses and continuing investment an increase of 25%. The final dividend, profit is greater than the increase in for the future. At 31 December 2005 which amounts to £11.5m, will be paid turnover due primarily to the higher we employed 2,926 consultants and on 5 June 2006 to those shareholders proportion of gross profit derived support staff. on the register at 5 May 2006. from permanent placements in 2005, together with a higher volume of temporary placements at slightly higher gross margin. Gross profit from temporary placements was £72.6m (2004: £62.0m) and represented 27.1% (2004: 29.4%) of Group gross profit. The gross margin achieved on temporary placements was 22.8% (2004: 22.5%). Net interest While we started the year with net cash of £12.2m there is a substantial cash outflow in January every year as quarter four and annual bonuses are paid. As a result of the decision to spend £34.2m repurchasing shares, the Group had limited surplus cash to invest. As a consequence a net interest charge was incurred of £0.4m (2004: £nil). 0 Balance sheet • dividends of £14.4m (2004: The Group had net assets of £68.9m £12.6m); and at 31 December 2005 (2004: £60.5m) • share repurchases of £34.2m of which £13.1m (2004: £12.2m) is (2004: £24.1m). represented by net cash. The increase in net assets relates to the profit of £49.6m and the credit relating to share schemes of £6.9m, more than offsetting share repurchases of £34.2m and dividends paid of £14.4m. In At 31 December 2005 the Group had net cash balances of £13.1m (2004: £12.2m). Treasury management and currency risk accordance with IFRS there is no It is the Directors’ intention to finance provision in the balance sheet for the the activities and development of 2005 final dividend as this has not yet the Group principally from retained been approved by our shareholders. earnings, and to operate the Group’s Capital expenditure, net of disposal proceeds, increased to £6.8m (2004: £4.4m). Our capital expenditure is driven primarily by two main factors; headcount and the maintenance and enhancement of our IT systems. The most significant item in the balance sheet is trade receivables which were £82.7m at 31 December 2005 (2004: £69.3m) representing debtor days of 49 (2004: 47 days). Cash flow business while maintaining the net debt/cash position within a relatively narrow band. Cash generated in excess of these requirements will be used to buy back the Company’s shares for which renewal of the existing general authority is being sought at the forthcoming Annual General Meeting. Cash surpluses are invested in short- term deposits with any working capital requirements being provided from Group cash resources or by local At the start of the year the Group had overdraft facilities. net cash of £12.2m. During the year the Group generated net cash from operating activities of £65.4m (2004: £35.7m) being £72.7m (2004: £45.3m) of EBITDA, an increase in working capital requirements of £8.5m (2004: £5.8m), movements in provisions of £0.6m (2004: £5.1m), and profit on disposal of our French contractors business of £0.6m. The principal payments have been: • £6.8m (2004: £4.4m) of capital expenditure, net of disposal proceeds, on property, infrastructure, information systems and motor vehicles for staff; • taxes on profits of £10.1m (2004: £4.8m); The main functional currencies of the Group are Sterling, Euro, US Dollar and Australian Dollar. The Group does not have material transactional currency exposures nor is there a material exposure to foreign- denominated monetary assets and liabilities. The Group is exposed to foreign currency translation differences in accounting for its overseas operations although our policy is not to hedge this exposure. Stephen Puckett Group Finance Director 1 March 2006 ANNUAL REPORT AND ACCOUNTS 005 1 MICHAEL PAGE INTERNATIONAL BOARD OF DIRECTORS Sir Adrian Montague CBE (5) Non-Executive Chairman Terry Benson (5) Chief Executive Sir Adrian Montague is Non- Terry Benson joined Michael Page in Charles-Henri Dumon () Managing Director – Continental Europe and The Americas Executive Chairman of British Energy 1979 and was appointed to the Board Charles-Henri Dumon joined Michael plc, Friends Provident plc and in 1983. In 1986 he was promoted Infrastructure Investors Limited. From to Managing Director of the Group’s 1997 to 2001 he held senior posts marketing recruitment businesses concerned with the implementation and in January 1988 to Managing of the Government’s policies for the Director of the Group. In 1993 he involvement of the private sector in was appointed Chief Executive of the the delivery of public services, first Group. He will stand down as Chief as Chief Executive of the Treasury Executive at the forthcoming Annual Taskforce and then as Deputy General Meeting in May and will leave Chairman of Partnerships UK plc. the Company at the end of 2006. 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. His responsibilities were increased to include North America in January 2006. Steve Ingham () Managing Director – UK Chief Executive Designate Stephen Box (55) Independent Non-Executive Director, Senior Independent Director Stephen Box qualified as a Chartered Accountant at Coopers & Lybrand where he spent more than 25 years, Steve Ingham joined Michael Page 15 of these as a partner. From August in 1987 as a consultant with Michael 1997 to November 2002 he was Page Marketing and Sales. He was Finance Director of National Grid. responsible for setting up the London He is a member of the Financial marketing and sales businesses and Reporting Review Panel and a Non- was promoted to Operating Director Executive Director of South East in 1990. He was appointed Managing Water Limited (SEW) and Wales and Director of Michael Page Marketing West Utilities Ltd (WWU). Stephen has and Sales in 1994. Subsequently he experience of Audit Committees as has taken additional responsibility for a partner at Coopers & Lybrand, as Michael Page’s Retail, Technology, an Executive Director of National Grid Human Resources and Engineering attending Audit Committees, and as businesses. He was promoted to a Non-Executive Director chairing the the Board as Executive Director of Audit Committees of SEW and WWU. UK Operations in January 2001, and He was appointed a Non-Executive subsequently to Managing Director of Director of Michael Page International UK Operations in May 2005. He was plc on 27 February 2001. appointed Chief Executive Designate in December 2005. He was Deputy Chairman of Network Rail from 2001 to 2004 and Non- Executive Chairman of Cross London Rail Links Limited from 2004 to 2005. He spent his early career as a solicitor with Linklaters & Paines before joining Kleinwort Benson in 1994. Sir Adrian is also a Non-Executive Director of CellMark AB, the pulp and paper marketing company based in Gothenburg. He was awarded a CBE in 2001 and a knighthood in 2006. He was appointed Non-Executive Director of Michael Page International plc on 27 February 2001, and appointed Chairman on 22 May 2002.  ANNUAL REPORT AND ACCOUNTS 005 Tim Miller () Independent Non-Executive Director Hubert Reid (5) Independent Non-Executive Director Tim Miller was appointed to the Board Hubert Reid is Chairman of Enterprise on 15 August 2005 and became Inns plc and of the Midas Income Chairman of the Remuneration and Growth Trust PLC and Deputy Committee on 16 September 2005. Chairman of Majedie Investments He is also a member of the Audit and PLC. He was previously Managing Nomination Committees. Tim has Director and then Chairman of the wide experience in human resources Boddington Group plc, Chairman of and has held a number of senior HR Ibstock Plc, Bryant Group plc and and business roles in the information the Royal London Group. He was technology, retail and pharmaceutical appointed a Non-Executive Director sectors. He is currently a Director of of Michael Page International plc on Standard Chartered Bank, responsible 25 February 2003. Hubert has been a for HR, Corporate Real Estate, member of various Audit Committees Corporate Secretariat, Compliance since 1993 including Bryant Group EXECUTIVE COMMITTEE In addition to the Executive Directors, the Executive Committee comprises Chris Adams (Regional Managing Director - Asia Pacific) and Andrew Wayland (Chief Information Officer). Chris Adams () Regional Managing Director - Asia Pacific Chris Adams joined Michael Page Marketing in Birmingham in 1987 and transferred to Australia in 1990. He was appointed a Director in 1996 and Managing Director of Michael Page Australia in 1998. He was appointed Managing Director of the Asia Pacific and Regulatory Risk, Internal Audit plc, Ibstock Plc, Greenalls Group plc, region in May 2000. and Legal. Stephen Puckett () Group Finance Director Stephen Puckett qualified as a Chartered Accountant with BDO Binder Hamlyn. He joined Wace Group plc in 1988 as Director of Corporate Finance, subsequently being promoted to Group Finance Director in 1991. He was Group Finance Director of Stat Plus Group plc in 2000, and appointed Group Finance Director of Michael Page International plc in January 2001. He is a Non-Executive Director of SHL Group plc and chairs its Audit Committee. Royal London Group, Midas Income and Growth Trust PLC, Enterprise Inns plc and Majedie Investments PLC. Andrew Wayland () Chief Information Officer Andrew Wayland was the UK IT Business Management Director of PricewaterhouseCoopers where he worked for over 10 years in the internal IT functions. He brings extensive experience in establishing IT strategy and innovation to support the wider business strategy, and integrating technology teams. He was appointed Chief Information Officer of Michael Page in December 2005.  MICHAEL PAGE INTERNATIONAL DIRECTORS’ REPORT Principal activity and review of the business and future developments The Group is one of the world’s leading specialist recruitment consultancies. The Group’s trading results are set out in the financial statements on pages 48 to 79. Details of the Group’s strategy, outlook and review of operations are described in the Chairman’s Statement, Chief Executive’s Review and Finance Director’s Review on pages 17 to 21. Directors and interests The following were Directors during the year and held office throughout the year other than as shown below. Sir Adrian Montague CBE‡ (Chairman) Terry Benson (Chief Executive) Stephen Box‡* Stephen Burke (resigned 25 May 2005) Charles-Henri Dumon Steve Ingham Rob Lourey‡ (resigned 25 April 2005) Tim Miller‡ (appointed 15 August 2005) Stephen Puckett Hubert Reid‡ ‡ Non-Executive Directors * Senior Independent Director In accordance with the Company’s Articles of Association, Tim Miller, who was appointed as a Non-Executive Director on 15 August 2005, will retire at the Annual General Meeting and, being eligible, offers himself for election. Biographical details for all the current Share capital Directors are shown on pages 22 and 23. The authorised and issued share capital of the Company are shown in The beneficial interests of Directors note 18 to the financial statements. in office at 31 December 2005 in the shares of the Company at 31 December 2005 and at 27 February 2006 are set out in the Remuneration Report on page 38. At the Annual General Meeting held on 27 May 2005 the Company renewed its authority to make market purchases of its own ordinary shares up to a maximum of 10% of the All of the Executive Directors are issued share capital. deemed to have an interest in the ordinary shares held in the Employee Benefit Trust and its subsidiaries. Results and dividends The profit for the year after taxation amounted to £49.6m (2004: £34.3m). A final dividend for 2004 of 2.75 pence per ordinary share was paid on 3 June 2005. An interim dividend of 1.5 pence per ordinary share was paid on 14 October 2005. The During the year, the Company purchased 16.8m shares which were placed in treasury. The nominal value of these shares was £0.2m and represented 4.8% of the issued share capital. The shares were purchased for a consideration of £34.2m including expenses. On 28 December 2005 all 24.6m shares held in treasury were cancelled. Substantial shareholdings Directors recommend the payment As at 27 February 2006, the of a final dividend for the year ended Company has been notified of the 31 December 2005 of 3.5 pence per interests held in more than 3% of the ordinary share on 5 June 2006 to issued share capital of the Company shareholders on the register on 5 May as shown in Fig.1. below. 2006 which, if approved at the Annual General Meeting, will result in a total dividend for the year of 5.0 pence per ordinary share (2004: 4.0 pence). Fig.1. Substantial Shareholdings In addition, Stephen Puckett and Hubert Reid will retire by rotation at Holder Number of ordinary shares % of issued share capital the Annual General Meeting and, being eligible, offer themselves for re-election. Harris Associates 39,232,100 11.75 Silchester International Investors 25,683,231 Barclays plc 19,905,287 AXA Investment Managers UK Limited 19,560,090 Legal & General 12,780,166 Capital International Limited 12,311,486 7.69 5.96 5.86 3.83 3.69  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, including SEE risks, which may impact the Group’s short and long term value. During 2005 no significant SEE risks were identified. The Company is also a member of the FTSE4Good Index Series designed to measure the performance of, and facilitate investment in, those companies meeting globally recognised standards of corporate responsibility. The Group’s policies on CSR matters are described in the following paragraphs. (a) Environmental policy The Group does not operate in a business sector which causes significant 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: Fig.2. UK Waste Generation ANNUAL REPORT AND ACCOUNTS 005 • optimising the use of energy; Waste • ensuring the efficient use of • 274 tonnes of waste was materials; • encouraging re-use and recycling; and • incorporating the principle of generated by UK offices. Our current national recycling rate is 16% from recycling confidential paper and toner cartridges. sustainable development. • Through recycling, Michael Page During the year, the Group has continued to allocate a significant amount of time and resource to in the UK has saved 677 trees and saved a total of 230m3 landfill space. further identify where its activities Energy • 3,587,058 kWh of electricity was consumed in the UK, which converts to 1,542,440 kgCO2. • 2,272,919 kWh of gas was consumed in the UK, which converts to 431,855 kgCO2. Water • In the UK, Michael Page consumed 22,991 m3 of water. Transport In total, UK employees travelling to and from work converts to 1,841,860 kgCO2. have an impact on the environment. An environmental review was again undertaken jointly by Michael Page International plc, and Green-Works Consulting, an external firm of environmental consultants. This review is carried out annually 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, will shortly be available on the Michael Page website. A summary of its findings during 2005 is shown in Fig.2. below. Confidential waste Toners Mixed office paper Food waste and packaging Aluminium cans Glass bottles Plastic bottles & plastic cups Cardboard Miscellaneous Total Annual weight generated (tonnes) 40 % of total waste 15% 2 96 94 2 5 5 13 17 274 1% 35% 34% 1% 2% 2% 5% 5% 100% 5 MICHAEL PAGE INTERNATIONAL DIRECTORS’ REPORT (b) Charitable donations (d) Equal opportunity and diversity In 2005, the Group joined Race for The Group made charitable donations The Group endorses and supports of £70,245 during the year (2004: the principles of equal employment £44,037). Included in donations opportunity. It is the policy of the are amounts made to the Tsunami Group to provide equal employment Appeal, and various local charities opportunity to all qualified serving the communities in which the individuals which ensures that all Group operates. Subject to certain employment decisions are made, restrictions, the Group matches subject to its legal obligations, charitable donations made by on a non-discriminatory basis. employees. It is the Group’s policy not Due consideration is given to the to make political donations either in recruitment, promotion, training 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. On completion of the benchmarking, Michael Page International plc was credited in the ‘Best Newcomer’ Category. As a result, the Group has taken a number of proactive steps to enhance its position on diversity and works closely with a number of clients to share ideas/best practice, and to offer expertise to minority groups. and working environment of all staff 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 benefit The Group is currently working with to the individual and to the Group. RfO on the 2006 benchmarking Throughout 2005, the Group monitored the diversity of its UK employees, 79% of whom to date have completed the voluntary request for information. The analysis indicates a split of 55% female, 44% male, with 1% declining to answer, and regarding exercise, the results of which will be reviewed by the Diversity Steering Group, which is chaired by an Executive Director, and its recommendations presented to the Board for consideration in all territories. origin, 89% white, 10% ethnic origin (e) Health and safety and 1% declining to answer. The UK 2001 Census showed a total ethnic population of 7.9%. Similar monitoring will be carried out during 2006. 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 The Group recognises the importance other persons who may be affected of diversity in the workplace for both by its activities. In order to meet these our own and our clients’ businesses. responsibilities the Group will: We are committed to increasing the recognition of our brand amongst a more diverse audience, and to encourage development of an increasingly diverse candidate database together with our workforce. Our monitoring of our candidate databases confirms that the brand attracts candidates from a wide range of backgrounds. We strive to ensure that we offer our clients the most qualified candidates on the basis of their relevant aptitudes, skills and abilities and that such candidates are drawn from diverse backgrounds. • assess the risks to health and safety; • • implement safe systems at work; provide information, instruction and training; • establish and maintain emergency procedures; and • 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 UK or overseas. (c) Employee involvement Employees are involved in all aspects of the business. Michael Page International is featured in The Sunday Times 100 Best Companies to Work For and received particular commendations for organic growth, people development and individual contribution to the business. Communication with employees is effected through the Company’s Intranet, information bulletins, briefing 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 divisional organisation structure.  ANNUAL REPORT AND ACCOUNTS 005 (f) Supplier payment policy circumstances, a fair presentation Annual General Meeting It is the policy of the Group to agree appropriate terms and conditions for transactions with suppliers (by means ranging from standard written terms will be achieved by compliance with all applicable International Financial Reporting Standards. Directors are also required to: The resolutions to be proposed at the Annual General Meeting to be held on 23 May 2006, together with explanatory notes, appear in the to individually negotiated contracts) • properly select and apply Notice of Meeting set out on pages and that payment should be made accounting policies; 82 and 83. in accordance with those terms and conditions, provided that the supplier has also complied with them. • present information, including By order of the Board accounting policies, in a manner that provides relevant, reliable, The Company acts as a holding comparable and understandable company for the Group. Creditor days information; and for the Company were nil (2004: nil) as the Company does not undertake any transactions with suppliers. The Group’s creditor days at the year end were 30 (2004: 38 days). Statement of Directors’ responsibilities The directors are responsible • provide additional disclosures Richard McBride when compliance with the specific Company Secretary requirements in IFRS is insufficient 1 March 2006 to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. for preparing the Annual Report The directors are responsible for and the financial statements. The keeping proper accounting records directors are required to prepare which disclose with reasonable financial statements for the Group accuracy at any time the financial in accordance with International position of the company, for Financial Reporting Standards safeguarding the assets, for taking (IFRS) and have also elected to reasonable steps for the prevention prepare financial statements for the and detection of fraud and other company in accordance with IFRS. irregularities and for the preparation Company law requires the directors of a directors’ report and directors’ to prepare such financial statements remuneration report and operating in accordance with IFRS, the and financial review which comply Companies Act 1985 and Article 4 of with the requirements of the the IAS Regulation. Companies Act 1985. International Accounting Standard Legislation in the United Kingdom 1 requires that financial statements governing the preparation and present fairly for each year the dissemination of financial statements company’s financial position, financial may differ from legislation in other performance and cash flows. This jurisdictions. requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the preparation and Presentation of Financial Statements’. In virtually all Auditors Deloitte & Touche LLP are willing to continue in office 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.  MICHAEL PAGE INTERNATIONAL  ANNUAL REPORT AND ACCOUNTS 005  MICHAEL PAGE INTERNATIONAL CORPORATE GOVERNANCE The Board of Directors has a strong • Meetings with shareholders Tim Miller will retire and offer himself commitment to high standards of corporate governance and (code provision D1.1) – The for election. Stephen Puckett and Senior Independent Director has Hubert Reid will retire by rotation and has made significant progress in not met directly with shareholders. offer themselves for re-election. As applying the main and supporting However, other members of the a result of their annual performance principles of corporate governance Board have met face-to-face evaluation, the Board considers that as recommended in Section 1 of with shareholders during the their individual performances continue the Combined Code on Corporate year and the issues discussed to be effective with each director Governance, (the “2003 FRC Code”), are shared collectively with all demonstrating sufficient commitment for the year ended 31 December Board members. Additional to their role. The Board is therefore 2005. Compliance with the 00 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 2005, except as stated below: • Board balance (code provision A3.2) - The number of independent Non-Executive Directors does not equal that of the executives. The Board considers that the collective know-how and experience of the Non-Executive Directors provides a balanced mix of skills which understanding of shareholders’ pleased to support their re-election opinions is also gained from at the forthcoming Annual General monthly brokers’ reports. Meeting. As a result of this information and extensive feedback from shareholder meetings, the Senior Independent Director and the other Non-Executive Directors believe they are aware of shareholders’ views. The Board and its operation The Board of Michael Page International plc is the body 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. responsible for corporate governance, The Board meets regularly throughout 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 the year. It has a formal schedule of matters reserved to it and delegates specific 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 day running of the business and enables efficient 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 in 2005. matches the needs of the business Executive are separate. The main Board currently comprises the Chairman, who has no operational responsibilities, four Executive Directors and three independent Non- Executive Directors. All Directors are subject to retirement by rotation and re-election by the shareholders in accordance with the Articles of Association, whereby one third of the Directors retire by rotation each year. All Directors are subject to election by the shareholders at the first Annual General Meeting following their appointment. All Directors are subject to re-election every three years in accordance with the 2003 FRC Code. and is sufficient to ensure proper governance of the Group which consists of an organically grown, single business, producing clear, transparent results. It is for these reasons that there is currently no intention to increase the number of Non-Executive Directors on the main Board to more than four, including the Chairman. • Composition of the remuneration and audit committees (code provision B2.1 and C3.1) – Due to the resignation of Rob Lourey on 25 April 2005, the remuneration and audit committees did not comprise three Non-Executive Directors until the appointment of Tim Miller on 15 August 2005. 0 ANNUAL REPORT AND ACCOUNTS 005 The terms of reference for each policies and procedures exist The following criteria also need to be committee are available on request within its firm to ensure the firm met before the external auditors are and can be found on the Group’s and its staff are independent of the contracted to provide such services: website. Their composition and Group by reason of family, finance, manner in which they discharge their employment, investment and responsibilities are described below. business relationships (other than Audit Committee The Audit Committee comprises the independent Non-Executive Directors and is chaired by Stephen Box. Their relevant qualifications and experience are shown in their biographies on pages 22 and 23. The Committee met five times in 2005 to fulfil its duties and included attendance by the external auditors where required. The Committee also met with the external auditors during the year without the presence of management. In 2005 the Audit Committee discharged its responsibilities as set out in the terms of reference which can be found on our website. Its principal tasks are to review the Group’s internal controls, review the scope of the external audit, consider issues raised by the external auditors, 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. in the normal course of business); (b) enforcing a policy concerning the provision of non-audit services by the auditor which governs the types of work: (i) from which the external auditor is excluded; (ii) for which the external auditor can be engaged without referral to the audit committee; and • the firm has the necessary skills and experience to undertake the work; • there are no potential conflicts that may arise as a result of carrying out this activity; • the external audit firm is subject to the company’s normal tendering processes; and • in addition to the normal authorisation procedures and prior to inclusion in a tender, approval has been given by the Group (iii) for which a case-by-case Finance Director (and the Audit decision is required, which Committee if the fee is to exceed includes all engagements over £25,000). certain fee limits. (c) enforcing a policy of reviewing all The following areas are considered cases where it is proposed that a to be unacceptable for the external former employee of the external auditors to undertake: • selection, design or auditors be employed by the Group; and implementation of key financial (d) monitoring the external auditors’ systems; • maintaining or preparing the accounting books and records or the preparation of financial accounts or other key financial data; • provision of outsource financial systems; compliance with applicable UK ethical guidance on the rotation of audit partners. Remuneration Committee The Remuneration Committee comprises the independent Non- Executive Directors. During the year it was chaired by Rob Lourey until his resignation on 25 April 2005. Hubert Reid chaired the Remuneration Committee following Rob Lourey’s departure until Tim Miller’s appointment as Chairman on Objectivity and independence of external auditors • provision of outsource operational management functions; Deloitte & Touche LLP are employed • recruitment of senior finance or other executives; to perform work in addition to their statutory duties where it is felt that they are best placed to carry out the engagement as a result of their being the Group’s auditors. All other work is • secondment of senior finance or 16 September 2005. other executives; • provision of internal audit services; awarded on the basis of competitive • valuation services or fairness tender. opinions; and The objectivity and independence of the external auditor is safeguarded by: (a) obtaining assurances from the external auditor that adequate • any services specifically prohibited to be provided by a listed company’s external auditors under UK regulations. 1 MICHAEL PAGE INTERNATIONAL CORPORATE GOVERNANCE The Committee reviews the Succession planning Group’s policy on the Chairman’s, Executive Directors’ and senior executives’ remuneration and terms of employment, makes recommendations upon this along with the specific 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 35 to 42 and includes information on the Directors’ service contracts. The terms of reference of the Remuneration Committee can be found on our website. Nomination Committee The Nomination Committee comprises the Non-Executive Directors and is chaired by Sir Adrian Montague. It is responsible for making recommendations to the Board on new appointments, as well as making recommendations as to the composition of the Board generally, and the balance between Executive and Non-Executive Directors appointed to the Board. The terms of reference of the Nomination Committee can be found on our website. During the year, the committee recommended the appointment of a new Non-Executive Director to replace Rob Lourey after his resignation. Detailed role profiles were agreed by the Committee before One of the basic premises behind the strategic development of the Michael Page business is that growth is organic rather than through acquisitions of companies 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. and the benefits of continuity, the Nomination Committee concluded that there would be no merit in progressing with an extensive external search. As a result of this internal process, Steve Ingham was selected and appointed as Chief Executive Designate on 16 December 2005. Induction and training programme On appointment to the Board, each director discusses with the Company Secretary the extent of training required and a tailored induction programme to cover Due to this philosophy of nurturing their individual requirements is then our own talent, succession planning compiled. Elements of the programme is inherently a key part of the process. typically consists of meeting senior We do not make promotions or move management, site visits and attending people within the business unless internal conferences. In addition, there is a clear successor for the information is provided on the vacant position. It is therefore one of company’s services, group structure, the key responsibilities of all levels of Board arrangements, financial management, and not just the Board, information, major competitors and to have a clear plan of development major risks. After an initial induction for their direct reports. phase, updates are provided on a Board appointments The Board follows formal and transparent procedures when periodic basis. Performance evaluation The Board, as part of its commitment appointing directors. The nomination to ensuring effectiveness and committee engages external evaluating its performance consultants to identify a shortlist of together with that of its Directors suitable candidates for Non-Executive and Committees, conducted an appointments. All the candidates are internal review comprising initially a interviewed by the Chairman and questionnaire concerning all aspects the Chief Executive and evaluations of procedure and effectiveness. of all candidates are discussed with all members of the nomination committee and the recommendation is subsequently made to the Board. Following completion of the questionnaires, the Chief Executive met with the individual Executive Directors, and the Chairman met with external search consultants were In respect of the appointment of the individual Non-Executive Directors, engaged to prepare a shortlist of the Chief Executive Designate, the to discuss their views and to give potentially suitable candidates to go Nomination Committee considered feedback on their performance. The forward to an interview process which an external search. However, in results of the evaluation were reported resulted in the recommendation of the view of the strong culture of organic to the Board and where areas of appointment of Tim Miller. growth, the emphasis on promotion improvement have been identified, of capable executives within the actions have been agreed upon businesses, the strength and and training will be provided where experience of internal candidates, required.  ANNUAL REPORT AND ACCOUNTS 005 Stephen Box, as the Senior including operational, compliance and Any system of internal control can Independent Director, led a meeting risk management, as well as financial. only provide reasonable, but not of the non-executive directors to Internal Control Guidance for Directors absolute, assurance against material appraise the performance of the on the Combined Code (“the Turnbull misstatement and loss. Key elements Chairman. The meeting took into Report”) was published in September of the system of internal control are account any comments made by the 1999. as follows: 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 members of the Committees only are shown in Fig.3. The Board has assessed existing risk • group organisation. The Board management and internal control of Directors meets at least ten processes during the year ended 31 times a year, focusing mainly on December 2005 in accordance with strategic issues, operational and the Turnbull guidance. The Board financial performance. There is believes it has the procedures in also a defined policy on matters place such that the Group has fully strictly reserved for the Board. complied for the financial year ended The Managing Director of each Internal control 31 December 2005. The responsibilities of the Directors in The Directors are responsible for the respect of internal control are defined Group’s system of internal financial by the Financial Services Authority’s and operational controls which operating division is accountable for establishing and monitoring internal controls within that division; Listing Rules which incorporate are designed to meet the Group’s • strategic plan. A three year a Code of Practice known as the particular needs and aim to safeguard strategic plan is prepared each Combined Code, which requires that Group assets, ensure proper year and is approved by the Directors review the effectiveness accounting records are maintained Board. The plan sets out the main of the Group’s system of internal and that the financial information used objectives for the Group; controls. This requirement stipulates within the business and for publication that the review shall cover all controls is reliable. Fig.3. Attendance at Board Meetings (committee attendance shown for committee members only) Total meetings Meetings attended Executive Terry Benson Stephen Burke (resigned 25 May 2005) Main Board 11 10 3 10 10 11 Charles-Henri Dumon Steve Ingham Stephen Puckett Total meetings Non-Executive Sir Adrian Montague CBE Stephen Box Rob Lourey Tim Miller Hubert Reid Main Board Committee Committee Committee Audit Remuneration Nomination (resigned 25 April 2005) (appointed 15 August 2005) 11 11 11 2 3 11 5 5 2 1 5 7 7 2 2 7 3 3 3 - 2 3  MICHAEL PAGE INTERNATIONAL CORPORATE GOVERNANCE • financial reporting. The Group confidence, raise concerns about Board on broking activity during the has a comprehensive budgeting possible improprieties relating to month and any issues that may have system with an annual budget financial reporting or other matters; been raised with them. approved by the Board. Detailed and Shareholders are invited to attend the monthly reports are produced showing comparisons of results against budget, forecast and the prior year, with performance monitoring and explanations provided for significant variances. The Group reports to shareholders on a half-yearly basis; • quarterly reforecasting. The Group prepares a full year reforecast on a quarterly basis • internal audit activities. These are Annual General Meeting where they performed throughout the year by are able to discuss any concerns with members of the head office finance the Non-Executive Directors. function, who are independent of the operations and by operational finance staff on operations outside their own regions. Businesses are visited on a rotational basis and their controls are assessed in their effectiveness to mitigate specific risks. In addition, there When requested by shareholders, individual matters can be discussed with the Chairman or Senior Independent Director. The Group also has a website (www.michaelpage. co.uk) with an investor section that contains Company announcements and other shareholder information. Annual Report showing, by individual businesses, is a regular review of these risks the results to date and a reforecast and changes are made to the risk against budget for the remaining profile where necessary. All internal The Annual Report is designed period up to the end of the year; • audit committee. There is an established Audit Committee whose activities are previously described; • financial and operational controls. Controls and procedures are documented in policies and procedures manuals. Individual operations complete an annual Self-Certification Statement. Each operational manager, in addition to the finance function for that operation, confirms the adequacy of their systems of internal control and their compliance with Group policies. The Statement also requires the reporting of any significant control issues that have emerged so that areas of Group concern can be identified and experience can be shared; audit activities are reported to the Audit Committee. During the year, to present a balanced and understandable view of the the Board reviewed internal audit Group’s activities and prospects. arrangements and concluded that The Chairman’s Statement, Chief there is currently no need for a Executive’s Review and Finance separate and distinct internal audit Director’s Review on pages 17 to 21 department. The Board confirms that there is an ongoing process for identifying, evaluating and managing the provide an assessment of the Group’s affairs and position. The Annual Report and Interim Report are sent to all shareholders. significant risks faced by the Group The Directors acknowledge their and that the processes have been in responsibility for the preparation of place for the year under review and the Annual Report. The Statement of up to the date of approval of the Directors’ Responsibilities is shown on annual report and accounts. Board contact with shareholders Communications with shareholders are page 27. A statement by the auditors about their reporting responsibilities is shown on page 44. Going concern given a high priority. The main contact The Directors have a reasonable between the Board and shareholders expectation that the Group has is through the Chief Executive and adequate resources to continue the Finance Director. They undertake in operational existence for the • risk management. Identification two major investor “roadshows” each foreseeable future being a period of of major business risks is carried out at Group level in conjunction with operational management and appropriate steps taken to monitor and mitigate risk; year in February/March and August/ at least twelve months from the date September, in which numerous one-to- of approval of accounts and therefore one meetings with shareholders take continue to adopt the going concern place. The outcome of these meetings basis in preparing the accounts. In and the views of shareholders are forming this view, the Directors have • public interest disclosure policy relayed back to the Board by the reviewed the Group’s budget and (whistleblowing). A procedure is in place where staff may, in corporate brokers, at the end of each forecasts for the next twelve months roadshow. The Group’s corporate based on normal business planning brokers also report monthly to the and control procedures.  REMUNERATION REPORT Scope and membership of Remuneration Committee The Remuneration Committee, which meets not less than twice a year, comprises the independent Non-Executive Directors. The Chief Executive attends the meetings except when his own remuneration is under consideration. The purpose of the Remuneration Committee is 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 benefits, 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 that of the shareholders. The Committee has continued to review the remuneration of the Executive Directors with regard to the need to maintain a balance between the constituent elements of salary, incentive and other benefits. It receives advice from independent remuneration consultants, New Bridge Street Consultants LLP, and makes comparisons with similar organisations. Following the transition to International Financial Reporting Standards, the Committee reviewed the elements of remuneration and confirms that the measures of performance for the Directors and other senior executives remains consistent with previous years. No Directors other than the members of the Remuneration Committee provided material advice ANNUAL REPORT AND ACCOUNTS 005 Remuneration policy of comparable status and market 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. It is the Company’s policy that all Executive Directors service contracts contain a 12 months’ notice period. The Non-Executive Directors do not have service contracts with the Company. They are appointed for an initial term of three years and thereafter may be reappointed for a further term of three years subject to re-election at Annual General Meetings. Additional details of service contracts are shown on page 42. The remuneration of the Non- Executive Directors is determined by the Board. The Non-Executive Directors do not receive any pension or other benefits, other than out-of- pocket expenses, from the Group, nor do they participate in any of the bonus or share option schemes. The remuneration agreed by the Committee for the Executive Directors contains the following elements: a base salary and benefits, an annual bonus reflecting Group performance, share options conditional upon achieving performance criteria, incentive share plan award and pension benefits. The following sections provide an outline of the Company’s remuneration policy during 2005. Shareholders were consulted on the policy at the time of approval of the Incentive Share Plan in December 2003. value, taking into account the range of incentives described elsewhere in this report, including a performance bonus. Reviews of such base salary and benefits are conducted annually by the Committee having regard to wage inflation in the economy. Annual bonus plan Annual bonuses for the Executive Directors are based on the division of a pool of Profits earned during the financial year. This approach is similar to the bonus arrangements for other employees. In 2005, the bonus pool for Executive Directors was equal to 6% of Profits earned above a threshold equal to half of targeted Profits for the year (i.e. approximately 3% of total Profits). In addition, if Profits exceed 1.25 times (2004: 1.2 times) the targeted level, then an additional 2% of Profits earned above the targeted level is added to the bonus pool. This arrangement was in force for 2005 until the resignation of Stephen Burke, when the Remuneration Committee revised the bonus pool arrangements reducing the relevant percentages from 6% and 2% to 5% and 1.65% respectively. Profits are defined as group profit before taxation, exceptional items and before the Executive Directors’ annual bonus charges and charges or credits resulting from the Incentive Share Plan described below or other share option grants. The bonus pool as described above is capable of variation by the Committee both up and down by, initially, 10%, to reflect the Committee’s view on the performance of the Company relative to its directly comparable peers. No such variation was made in respect of to the Committee on Directors’ Base salary and benefits remuneration. The Committee establishes salaries the performance in 2005. and benefits by reference to those prevailing in the employment market generally for Executive Directors 5 MICHAEL PAGE INTERNATIONAL REMUNERATION REPORT The targeted level of Profits for 2005 preceding year. Initially these awards The Committee reviewed the Incentive was £51.2m (2004: £29.8m) and are being satisfied by shares in the Share Plan with regards to the was set at the beginning of 2005 by Employee Benefit Trust. Not more company’s current operations and reference to market expectations than 60% of this figure is available for prospects. It confirms that the growth and internal forecasts at that time. awards to the Executive Directors. levels and criteria remain appropriate. Based on the 2005 results, awards totalling £3.5m (2004: £2.0m) will be made in 2006 of which £940,500 (2004: £895,000) 27% (2004: 44.75%) will be for the Executive Directors. Details of the awards made in 2005 are disclosed on page 39. Executive Share Option Scheme The Executive Directors and 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. Benefits 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 18 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 Officer, 150,000; for all other Executive Board Directors, 100,000; and 50,000 for any other senior executive participating in the Incentive Share Plan. The Remuneration Committee has decided not to make any share option awards to the Executive Directors in 2006. Pension benefits Executive Directors are eligible to The Committee retains the discretion The balance is available for awards to to review this arrangement and set senior employees. Group Profits are different rates and thresholds as it defined as group profit before taxation deems appropriate for the business. and before exceptional items and The target for 2006 has been set and will be disclosed in next year’s report. The threshold in 2006 for awarding the charges or credits resulting from the Plan or other share option grants, as described below. higher level of bonus is set at 1.2 times Two thirds of these shares (“Deferred the targeted level of profits. Share Awards”) are subject to a three Unlike all other employees who receive their annual bonuses in cash, in the event that the executive director’s annual bonus entitlement is greater than 100% of salary, only an amount equal to the executive’s salary will be paid in cash. To reward service over a longer period, any excess above the individual’s salary level will year deferral period during which they will be forfeited if the relevant director 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. be deferred, paid into an employee Performance share awards of up benefit trust and invested in the to 50% of a director’s or senior Company’s shares with no matching employee’s salary will only vest if EPS investment by the Company. Based grows by an average of 5% over the on the 2005 results, the amount growth in UK RPI per annum over deferred for the four Executive the three year period. Any excess Directors is £1.6m (2004: £0.63m). 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. Senior executives of the Group who benefit from these arrangements receive only modest share option grants as described below. Such shares will be reserved for the executive and will vest in equal tranches 1, 2 and 3 years later, normally so long as the executive is still in employment at that time. The profit and loss account for the year carries a charge for the directors annual bonus paid in cash while the deferred amount will be charged in subsequent years when the shares vest. 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 current level of award is 5% of Group Profits of the  The Committee retains the discretion participate in a Company pension to review the proportion of profits plan which is a defined contribution dedicated to the Incentive Share Plan scheme. Where the pension in the light of the growth in the size of entitlement exceeds the United the Company, its profitability and the Kingdom HM Revenue & Customs number of Executive Directors. cap, a cash alternative is payable. ANNUAL REPORT AND ACCOUNTS 005 Emoluments Notes to the emoluments: The aggregate emoluments, excluding pensions, of the Directors of the Company 1. Charles-Henri Dumon is the who served during the year were as follows: Salary and fees £’000 Benefits (note 2) £’000 Annual Bonus (note 3) £’000 Deferred Annual Bonus (note 3) £’000 Incentive Share Plan (note 4) £’000 Compensation for loss of office (note 5) £’000 Total £’000 354 98 236 227 219 63 34 6 12 29 30 8 197 48 29 – – – – – 354 98 236 227 219 – – – – – 314 – 432 441 448 – – – – – – – 209 209 209 – – – – – – 1,052 410 614 – 1,310 – 1,152 – 1,124 – – – – – 63 34 6 12 29 1,278 312 1,134 1,635 627 410 5,396 2005 Executive Terry Benson Stephen Burke (note 5) Charles-Henri Dumon (note 1) Steve Ingham Stephen Puckett Non-Executive Sir Adrian Montague CBE Stephen Box Rob Lourey (note 6) Tim Miller (note 6) Hubert Reid Total Salary and fees £’000 Benefits (note 2) £’000 Annual Bonus (note 3) £’000 Deferred Annual Bonus (note 3) £’000 Incentive Share Plan (note 4) £’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 2005 £’000 106 47 38 21 36 2004 £’000 103 46 40 20 29 2004 Executive Terry Benson Stephen Burke Charles-Henri Dumon Steve Ingham Stephen Puckett Non-Executive Sir Adrian Montague CBE Stephen Box Rob Lourey Hubert Reid Total Pension contributions Terry Benson Stephen Burke Charles-Henri Dumon Steve Ingham Stephen Puckett highest paid director. 2. Benefits include, inter alia, items such as company car or cash alternative, fuel, cash in lieu of pension contributions, and medical insurance. Charles-Henri Dumon’s benefits also include housing and relocation costs. 3. 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 by the remaining Executive Directors in 2005 but deferred to future periods was £1.6m (2004: £0.6m). 4. Represents the non-performance proportion of the Incentive Share Plan to be awarded in March 2006. 5. On 25 May 2005, Stephen Burke resigned as an Executive Director. During the period to 25 May 2005, his remuneration (salary, bonus and benefits) totalled £204,000. Details of his compensation for loss of office can be found on page 38. 6. Rob Lourey resigned on 25 April 2005. Tim Miller was appointed on 15 August 2005.  MICHAEL PAGE INTERNATIONAL REMUNERATION REPORT Compensation for loss of office The Remuneration Committee has exercised its discretion over Stephen Burke’s compensation for loss of office, taking into consideration his length of service, his individual performance, the overall performance of the Group and the length of time the share based awards have been held. On termination of this contract, he received a compensation package totalling £410,000. From 1 June 2005 until 31 December 2005 he received his normal monthly salary and contractual benefits (£146,000) whilst on garden leave during which time he was unable to be employed or otherwise engaged in a competing business. On 31 December 2005 he was paid a lump sum representing salary and contractual benefits for the remaining five months of his notice period. During this five month period, he remains unable to solicit clients and employees of the Group without prior consent from the Board. The salary, benefits in kind and pension over the remaining five months of his notice period was £126,000 with his bonus entitlement under the Annual Bonus Plan being £138,000. Restricted shares previously granted under the Incentive Share Plan and Annual Bonus Plan were transferred to Stephen Burke with the restrictions lifted at the discretion of the Remuneration Committee. The total compensation granted to Stephen Burke is summarised in the table below. Salary and contractual benefits (1 June 2005 - 31 December 2005) Salary and contractual benefits (1 January 2006 - 31 May 2006) Annual Bonus Plan 2005 Compensation for loss of office as disclosed in the table on page 37 £’000 146 126 138 410 Directors’ interests and share ownership requirements Executive Directors are required to build and hold, as a minimum, a direct beneficial interest in the Company’s ordinary shares equal to their respective base salary. As at 31 December 2005 all Executive Directors comply with this requirement. The beneficial interests of the Directors who served throughout the year and their families in the ordinary shares of the Company of 1p each are shown below. Other than for Stephen Burke, there has been no change in these interests from 31 December 2005 to 1 March 2006. Terry Benson Stephen Burke (note 1) Charles-Henri Dumon Steve Ingham Stephen Puckett Stephen Box ‡ ‡ Non-Executive Director Note: Ordinary shares of 1p Direct Holding Direct Holding Direct Holding Direct Holding Direct Holding Direct Holding At 1 January 2005 Acquired in year Disposal in year At 31 December 2005 or date of resignation 3,000,000 1,075,672 1,372,997 1,000,000 203,526 15,000 - - - - - - (1,000,000) - (40,000) - - - 2,000,000 1,075,672 1,332,997 1,000,000 203,526 15,000 1. Stephen Burke resigned on 25 May 2005. No other director has a holding in the Company.  ANNUAL REPORT AND ACCOUNTS 005 Directors’ interests and share ownership requirements (continued) Incentive Share Plan Details of awards made under the Incentive Share Plan that remain outstanding at 31 December 2005 are as follows: Total award at 1 January 2005 Awarded during the year Vested in year Total award at 31 December 2005 Performance Non- performance Total Performance Non- performance Total Performance Non- performance Total Terry Benson Stephen Burke (note 6) Charles-Henri Dumon (note 4) Steve Ingham Stephen Puckett 26,315 26,315 26,315 26,315 26,315 52,631 78,946 52,631 78,946 52,631 78,946 52,631 78,946 52,631 78,946 30,915 30,915 30,915 30,915 30,915 61,831 92,746 – 57,230 114,462 171,692 61,831 92,746 (171,692) – – – 61,831 92,746 61,831 92,746 61,831 92,746 – – – 57,230 114,462 171,692 57,230 114,462 171,692 57,230 114,462 171,692 1. The value of the awards made under the Michael Page Incentive Share Plan in 2005 is £180,855 for each individual Director and is based on the purchase price of the Company’s ordinary shares on 8 March 2005 of 195.0p. 2. The value at 31 December 2005 for each individual Director is £463,568 and is calculated using the closing market price of the Company’s ordinary shares at 31 December 2005 of 270.0p. 3. For awards made in 2005, the base EPS for the performance criteria is 7.5p (2004: 4.1p). 4. Charles-Henri Dumon was granted deferred share options to acquire 61,831 ordinary shares and performance share options to acquire 30,915 ordinary shares under the Michael Page Incentive Share Plan 2005. These options have a nil exercise price and do not accrue dividends. 5. The non performance shares to be awarded in 2006 have been included in the table of emoluments on page 37. 6. As part of Stephen Burke’s compensation for loss of office as disclosed on page 38, awards made to him under the Long Term Incentive Plan vested in the year with the restrictions lifted at the discretion of the Remuneration Committee. The value of the awards charged to the income statement during the period was £377,900 (2004: £187,500) in respect of awards made to the Executive Directors in the year 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 page 36. Deferred Annual Bonus As described on pages 35 and 36, 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 on the first three anniversaries of the grant. In 2006 a total of £1.6m will be awarded to the Executive Directors representing this excess and has been included in the emoluments table for the year as shown on page 37.There has been no charge made to the income statement 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 pages 53 to 57. For full descriptions of the performance and vesting conditions, see “Annual Bonus Plan” on pages 35 and 36.  MICHAEL PAGE INTERNATIONAL REMUNERATION REPORT Directors’ interests and share ownership requirements (continued) Beneficial interests The beneficial interests of the Executive Directors who served during the year and their families in share options of the Michael Page International plc Executive Share Option Scheme at 31 December 2005 were as follows: Date of Grant At 1 January 2005 Granted in year Exercised in year Lapsed in year At 31 December 2005 Exercise price (pence) Terry Benson Stephen Burke Charles-Henri Dumon Steve Ingham Stephen Puckett 2001 2002 2002 2003 2004 2005 2001 2002 2002 2003 2004 2005 2001 2002 2003 2004 2005 2001 2002 2002 2003 2004 2005 2001 2002 2002 2003 2004 2005 3,750,000 150,000 150,000 200,000 50,000 - - - - - - 50,000 1,125,000 150,000 150,000 200,000 50,000 - - - - - - 50,000 1,125,000 300,000 200,000 50,000 - - - - - 50,000 750,000 150,000 150,000 200,000 50,000 - - - - - - 50,000 750,000 150,000 150,000 200,000 50,000 - - - - - - 50,000 - - - - - - - - - - - - 3,750,000 150,000 150,000 200,000 50,000 50,000 (168,223) - - (200,000) (37,500) (20,833) (956,777) (150,000) (150,000) - (12,500) (29,167) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,125,000 300,000 200,000 50,000 50,000 750,000 150,000 150,000 200,000 50,000 50,000 750,000 150,000 150,000 200,000 50,000 50,000 175 186 186 81.5 171 190.75 175 186 186 81.5 171 190.75 175 186 83.4 171 190.75 175 186 186 81.5 171 190.75 175 186 186 81.5 171 190.75 Period of exercise 2004-2011 2005-2012 2006-2012 2006-2013 2007-2014 2008-2015 2004-2011 2005-2012 2006-2012 2006-2013 2007-2014 2008-2015 2004-2011 2006-2012 2007-2013 2007-2014 2008-2015 2004-2011 2005-2012 2006-2012 2006-2013 2007-2014 2008-2015 2004-2011 2005-2012 2006-2012 2006-2013 2007-2014 2008-2015 1. The market price of the shares at 31 December 2005 was 270.0p with a range during the year of 175.5p to 278.0p. 2. Other than those held by Stephen Burke (details of which are given on page 41), no options held by Directors lapsed unexercised or were exercised during the period. Options granted before 2004 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. Grants made in 2004 and subsequent years are subject to one performance test only on the third anniversary of the grant. The performance criteria are set out in note 18. 0 ANNUAL REPORT AND ACCOUNTS 005 3. The total gain on share options exercised by Stephen Burke was £575,518. His 2001 options were exercised subject to performance criteria which had been achieved. Options under the 2003, 2004 and 2005 Share Option Scheme were prorated to reflect the period of his employment. The vesting periods of these options were reduced at the discretion of the Remuneration Committee and the performance conditions waived. The market price at the date of exercise was 270.0p. Total Shareholder Return (TSR) The graphs below show Total Shareholder Return (TSR) for the Group and the FTSE Support Services index which, as it is the 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 financial periods since the date of flotation in 2001. 190 170 150 130 110 90 70 50 190 170 150 130 110 90 70 50 31 December 2001 31 December 2002 31 December 2003 31 December 2004 31 December 2005 Versus FTSE Support Services 96.9 89.4 112.8 115.7 64.2 59.4 69.9 71.7 FTSE Support Services Michael Page International 170.5 87.2 31 December 2001 31 December 2002 31 December 2003 31 December 2004 31 December 2005 Versus FTSE250 128.5 115.7 112.8 104.6 100.4 89.4 75.3 64.2 FTSE250 Michael Page International 170.5 167.5 1 MICHAEL PAGE INTERNATIONAL REMUNERATION REPORT Outside appointments The Remuneration Committee recognises that Non-Executive Directorships are a significant benefit in broadening executive’s experience. Subject to review in each case, the Remuneration Committee’s general policy is that Executive Directors may accept Non-Executive Directorships with other companies, so long as there is no conflict of interest and their effectiveness is not impaired. The executive is permitted to retain any fees for the service. Stephen Puckett received fees of £25,000 (2004: £20,833 prorated from his date of appointment) as a Non-Executive Director of SHL Group plc. These fees are not included in the emoluments table on page 37. 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. Contract date Unexpired term at 31 December 2005 Notice period Provision for compensation on early termination Other termination provisions Executive Terry Benson 05/03/01 12 months 12 months Charles-Henri Dumon 13/06/03 no specific term 12 months Steve Ingham 05/03/01 no specific term 12 months Stephen Puckett 05/03/01 no specific term 12 months Non-Executive Sir Adrian Montague CBE 26/01/04 13 months Stephen Box Hubert Reid* Tim Miller 26/01/04 25/02/03 15/08/05 13 months 2 months 31 months None None None None *Hubert Reid’s appointment was renewed on 27 February 2006. Annual resolution 12 months salary plus other contractual benefits 12 months salary plus other contractual benefits 12 months salary plus other contractual benefits 12 months salary plus other contractual benefits None None None None None None None None None None None None Shareholders will be given the opportunity to approve the Remuneration Report at the Annual General Meeting (resolution 6) on 23 May 2006. Audit requirement Within the Remuneration Report, the sections on Emoluments, Compensation for loss of office, and Directors’ interests and share ownership requirements, on pages 37 to 41 inclusive, are audited. All other sections of the Remuneration Report are unaudited. Tim Miller Chairman - Remuneration Committee 1 March 2006  ANNUAL REPORT AND ACCOUNTS 005 This page is left intentionally blank  MICHAEL PAGE INTERNATIONAL  ANNUAL REPORT AND ACCOUNTS 005 This page is left intentionally blank 5 MICHAEL PAGE INTERNATIONAL INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF MICHAEL PAGE INTERNATIONAL PLC Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the annual report, the We also report to you if, in our opinion, the company has not complied with any of the four directors’ remuneration disclosure directors’ remuneration report and the requirements specified for our review financial statements in accordance with applicable United Kingdom law and International Financial Reporting Standards (IFRSs) as adopted for use in the European Union are set out in the statement of directors’ responsibilities. Our responsibility is to audit the financial 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 International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view in accordance with the relevant framework and whether the financial statements and the part of the directors’ remuneration report described as having been audited have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation. We report to you if, in our opinion, the directors’ report is not consistent with the financial statements. We also report to you if the company has not kept proper accounting records, if we have not received all the information and by the Listing Rules of the Financial Services Authority. These comprise the amount of each element in the remuneration package and information on share options, details of long term incentive schemes, and money purchase and defined benefit schemes. We give a statement, to the extent possible, of details of any non- compliance. We review whether the corporate governance statement reflects the company’s compliance with the nine provisions of the 2003 FRC Combined Code specified 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. We read the directors’ report and the other information contained in the annual report including the unaudited part of the directors’ remuneration report and we consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial explanations we require for our audit, statements. or if information specified by law regarding directors’ remuneration and transactions with the company and other members of the group is not disclosed. We have audited the group and individual company financial statements (the “financial statements”) of Michael Page International plc for the year ended 31 December 2005 which comprise the consolidated income statement, the consolidated and individual company balance sheets, the consolidated and individual company cash flow statements, the consolidated and individual company statements of change in shareholders’ equity, and the related notes 1 to 27. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the directors’ remuneration report that is described as having been audited. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.  Basis of audit opinion Opinion We conducted our audit in In our opinion: accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the directors’ remuneration report described as having been audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied • the group financial statements give a true and fair view, in accordance with IFRSs as adopted for use in the European Union, of the state of the group’s affairs as at 31 December 2005 and of its profit for the year then ended; • the individual company financial statements give a true and fair view, in accordance with IFRSs as adopted for use in the European Union as applied in accordance with the requirements of the Companies Act 1985, of the individual company’s affairs as at 31 December 2005; and and adequately disclosed. • the financial statements and the We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial 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 financial statements and the part of the directors’ remuneration report described as having been audited. part of the directors’ remuneration report described as having been audited have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation. Deloitte & Touche LLP Chartered Accountants and Registered Auditors London 1 March 2006 ANNUAL REPORT AND ACCOUNTS 005  MICHAEL PAGE INTERNATIONAL CONSOLIDATED INCOME STATEMENT Year ended 1 December 005 Turnover Cost of sales Gross profit Administrative expenses Operating profit Financial income Financial expenses Profit before tax Income tax expense Profit for the year Attributable to: Equity holders of the parent Earnings per share Basic earnings per share (pence) Diluted earnings per share (pence) The above results relate to continuing operations. Note 2 2 2 5 5 6 9 9 2005 £’000 523,810 (256,229) 267,581 (201,062) 66,519 393 (776) 66,136 (16,506) 49,630 2004 £’000 433,731 (223,090) 210,641 (171,783) 38,858 369 (368) 38,859 (4,523) 34,336 49,630 34,336 14.8 14.4 9.8 9.7  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY at 1 December 005 ANNUAL REPORT AND ACCOUNTS 005 Group Note Balance at 1 January 2004 Currency translation differences Net expense recognised directly in equity Profit for the year Total recognised (expense)/income for the year Purchase of own shares Credit in respect of share schemes Dividends Balance at 31 December 2004 Balance at 1 January 2005 Currency translation differences Net income recognised directly in equity Profit for the year Total recognised income for the year Purchase of own shares Cancellation of treasury shares Credit in respect of share schemes Dividends Balance at 31 December 2005 8 8 Capital redemption reserve £’000 EBT reserve £’000 Treasury shares £’000 113 (9,871) Currency translation reserve £’000 Retained earnings £’000 – 67,628 – – – – – (13,122) – – (13,122) – – – – – – – – (188) (188) – (188) – – – – Total equity £’000 61,507 (188) (188) 34,336 34,148 – – 34,336 34,336 (10,999) (24,121) 1,559 1,559 (12,593) (12,593) (22,033) (35,155) Share capital £’000 3,637 – – – – (65) – – (65) 3,572 – – – – 65 – – 65 178 (9,871) (13,122) (188) 79,931 60,500 3,572 178 (9,871) (13,122) (188) 79,931 60,500 – – – – – (246) – – (246) 3,326 – – – – – 246 – – 246 424 – – – – – – – – – – – – – (34,216) 47,338 – – 13,122 492 492 – 492 – – – – – – – 49,630 49,630 492 492 49,630 50,122 – (34,216) (47,338) – 6,922 6,922 (14,432) (14,432) (54,848) (41,726) (9,871) – 304 74,713 68,896  MICHAEL PAGE INTERNATIONAL STATEMENT OF CHANGES IN EQUITY – PARENT COMPANY at 1 December 005 Company Balance at 1 January 2004 Profit for the year Total recognised income for the year Purchase of own shares Dividends Balance at 31 December 2004 Balance at 1 January 2005 Profit for the year Total recognised income for the year Purchase of own shares Cancellation of treasury shares Dividends Balance at 31 December 2005 Note 8 8 Share capital £’000 3,637 – – (65) – (65) Capital redemption reserve £’000 EBT reserve £’000 Treasury shares £’000 Retained earnings £’000 Total equity £’000 113 (9,871) – – 65 – 65 – – – – – – – – 310,674 304,553 12,606 12,606 12,606 12,606 (13,122) (10,999) (24,121) – (12,593) (12,593) (13,122) (23,592) (36,714) 3,572 178 (9,871) (13,122) 299,688 280,445 3,572 178 (9,871) (13,122) 299,688 280,445 – – – (246) – (246) 3,326 – – – 246 – 246 424 – – – – – – – – 12,793 12,793 12,793 12,793 (34,216) – (34,216) 47,338 (47,338) – – (14,432) (14,432) 13,122 (61,770) (48,648) (9,871) – 250,711 244,590 50 BALANCE SHEETS at 1 December 005 Non-current assets Property, plant and equipment Intangible assets Investments Deferred tax assets Other receivables Current assets Trade and other receivables Current tax receivable Cash and cash equivalents Total assets Non-current liabilities Other payables Provisions for liabilities and charges Deferred tax liabilities Current liabilities Trade and other payables Bank overdrafts Bank loans Current tax payable Provisions for liabilities and charges Total liabilities Net assets Capital and reserves Called-up share capital Capital redemption reserve EBT reserve Treasury shares Currency translation reserve Retained earnings Total equity ANNUAL REPORT AND ACCOUNTS 005 Group Company Note 2005 £’000 2004 £’000 2005 £’000 2004 £’000 10 11 12 17 13 13 7 21 2 14 16 17 14 21 15 7 16 2 18 19,666 3,751 – 9,255 1,106 18,739 3,733 – – – – – 421,545 421,545 2,423 1,692 – – – – 33,778 26,587 421,545 421,545 104,935 86,214 336 20,060 125,331 1,183 12,532 99,929 15 225 156 396 15 277 156 448 159,109 126,516 421,941 421,993 (662) (192) (147) (1,678) (612) (689) (1,001) (2,979) – – – – – – – – (71,624) (60,694) (170,651) (141,548) (281) (6,700) (317) – (10,223) (1,450) (384) (576) – (6,700) – – – – – – (89,212) (63,037) (177,351) (141,548) (90,213) (66,016) (177,351) (141,548) 68,896 60,500 244,590 280,445 3,326 424 (9,871) – 304 74,713 68,896 3,572 178 (9,871) (13,122) (188) 79,931 60,500 3,326 424 (9,871) – – 250,711 244,590 3,572 178 (9,871) (13,122) – 299,688 280,445 These financial statements were approved by the Board of Directors on 1 March 2006. On behalf of the Board of Directors. T W Benson Chief Executive S R Puckett Group Finance Director 51 MICHAEL PAGE INTERNATIONAL CASH FLOW STATEMENTS for the year ended 1 December 005 Cash generated from operations Income tax (paid)/received Net cash from operating activities Cash flows from investing activities Purchases of property, plant and equipment Purchases of computer software Proceeds from the sale of property, plant and equipment, and computer software Proceeds from sale of business Interest received Net cash used in investing activities Cash flows from financing activities Dividends paid Interest paid Proceeds from bank loan Purchase of own shares Net cash used in financing activities Note 20 22 Group Company 2005 £’000 65,432 2004 £’000 35,690 (10,127) (4,825) 55,305 30,865 2005 £’000 40,754 1,702 42,456 2004 £’000 36,932 – 36,932 (7,167) (5,324) (965) 1,354 1,353 393 (500) 1,416 – 369 (5,032) (4,039) – – – – – – – – – – – – (14,432) (12,593) (14,432) (12,593) (773) 6,700 (367) – (508) 6,700 (199) – (34,216) (24,120) (34,216) (24,120) (42,721) (37,080) (42,456) (36,912) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Exchange gains on cash and cash equivalents 7,552 (10,254) 12,215 22,434 12 35 Cash and cash equivalents at the end of the year 21 19,779 12,215 – 156 – 156 20 136 – 156 5 ANNUAL REPORT AND ACCOUNTS 005 NOTES TO THE ACCOUNTS 1. Significant accounting policies Statement of compliance The financial statements have been prepared under the historical cost convention and in accordance with current International Financial Reporting Standards (IFRS), and are covered by IFRS 1, “First-time Adoption of International Financial Reporting Standards”, because they are the Group’s first consolidated IFRS financial statements. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in note 27. The financial statements have been prepared in accordance with IFRS adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation. Basis of preparation The financial 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 profit and loss account of the Company has not been included as part of these accounts. The Company’s profit for the financial year amounted to £11.1m (2004: £12.6m). The policies set out below have been consistently applied to all the periods presented. The Group has made use of the exemption available under IFRS 1 where cumulative translation differences for all foreign operations are deemed to be zero at the date of transition. The Group has also taken the exemption not to apply IFRS 2 “Share-based Payment” to share options granted before 7 November 2002. Additionally, as permitted by IFRS 1, the Group has adopted IAS 32 “Financial instruments: disclosure and presentation” and IAS 39 “Financial instruments: recognition and measurement”, prospectively from 1 January 2005. The Group’s consolidated financial statements were prepared in accordance with United Kingdom Generally Accepted Accounting Principles (UK GAAP) until 31 December 2004. UK GAAP differs in some areas from IFRS. In preparing the 2005 consolidated financial statements, management has amended certain accounting and valuation methods applied in the UK GAAP financial statements to comply with IFRS. The comparative figures in respect of 2004 were restated to reflect these adjustments as disclosed in the reconciliations, and descriptions of the effect of the transition from UK GAAP to IFRS on the Group’s equity and its net income and cash flows are shown in note 27. The comparative figures for the year ended 31 December 2004, prior to the adjustments required on transition to IFRS as described below and in note 27, have been extracted from the Group’s financial statements, a copy of which has been delivered to the Registrar of Companies. The auditors’ report on those statements was unqualified and did not include a statement under Section 237(2) or (3) of the Companies Act 1985. The adoption of the above IFRS did not result in substantial changes to the Group’s accounting policies under UK GAAP and as set out in the Group’s financial statements for the year ended 31 December 2004. In summary: • IAS 1 “Presentation of Financial Statements” and IAS 7 “Cash Flow Statements” have affected the overall presentation and certain disclosures. • IAS 10 “Events After the Balance Sheet Date” has the effect of prohibiting the recognition of the final dividend as a liability until shareholder approval has been received. Under FRS 12 “Provisions, contingent liabilities and contingent assets”, a liability was recognised. • IAS 14 “Segment Reporting” has no material effect on the Group’s policy. The Group continues to operate in only one business segment being that of recruitment services, and this has been identified as the Group’s primary segment. Geography is the Group’s secondary segment. • IAS 21 “The Effects of Changes in Foreign Exchange Rates” has no material effect on the Group’s policy. All material Group entities have the same functional currency as their measurement currency. • • IAS 24 “Related Party Disclosures” has affected the identification of related parties and some other related-party disclosures. The adoption of IFRS 2 “Share-based Payment” has resulted in a change in the accounting policy for share-based payments. Under UK GAAP, the provision of share-based payments to employees did not result in a charge in the income statement. Under IFRS, the Group charges the cost of share-based payments to the income statement over the vesting period. • The adoption of IFRS 3 “Business Combinations”, IAS 36 “Impairment of Assets” and IAS 38 “Intangible Assets” have resulted in a change in the accounting policy for goodwill. Under UK GAAP, goodwill was amortised on a straight line basis over a period of 20 years and assessed for an indication of impairment at each balance sheet date. In accordance with the provisions of IFRS 3, the Group ceased amortisation of goodwill from 1 January 2005. Accumulated amortisation as at 31 December 2004 has been eliminated with a corresponding decrease in the cost of goodwill. From the year ended 31 December 2005 onwards, goodwill is tested annually for impairment, as well as when there are indications of impairment. • The Group has reassessed the useful lives of its intangible assets in accordance with the provisions of IAS 38. No adjustment resulted from this reassessment. 5 MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS 1. Significant accounting policies (continued) The remaining standards are either not applicable to the business or have no material effect on the Group’s policies. Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. (ii) Transactions eliminated on consolidation Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards. The revised accounting policies now followed by the Group are shown below: a) 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: • turnover from temporary placements, which represents amounts billed for the services of temporary staff including the salary cost of these staff. This is recognised when the service has been provided; • turnover from permanent placements, which is based on a percentage of the candidate’s remuneration package, and is derived from both retained assignments (income recognised on completion of defined stages of work) and non-retained assignments (income recognised at the date an offer is accepted by a candidate, and where a start date has been determined). The latter includes turnover anticipated, but not invoiced, at the balance sheet date, which is correspondingly accrued on the balance sheet within 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 • turnover from amounts billed to clients for expenses incurred on their behalf (principally advertisements) is recognised when the expense is incurred. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. b) Cost of sales Cost of sales consists of the salary cost of temporary staff and costs incurred on behalf of clients, principally advertising costs. c) Gross profit Gross profit is represented by turnover less cost of sales and consists of the total placement fees of permanent candidates, the margin earned on the placement of temporary candidates and the margin on advertising income. d) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in sterling, which is the Company’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the respective functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. 5 ANNUAL REPORT AND ACCOUNTS 005 1. Significant accounting policies (continued) d) Foreign currency translation (continued) (iii) Group companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each income statement are translated at average exchange rates; and • all resulting exchange differences are recognised as a separate component of equity. e) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on the acquisition of subsidiaries is included in intangible assets. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment (see accounting policy h). Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. (ii) Computer software Computer software acquired by the Group is stated at cost less accumulated amortisation (see below). (iii) Amortisation Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill has an indefinite useful life. Computer software is amortised at 20% per annum. The cumulative amount of goodwill written off directly to retained earnings in respect of acquisitions prior to 31 December 1997 is £311.7m (2004: £311.7m). f) Property, plant and equipment Property, plant and equipment 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, fixtures and equipment 10-20% per annum Motor vehicles g) Investments 25% per annum Fixed asset investments are stated at cost less provision for impairment. h) Impairment of assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). i) Trade and other receivables Trade and other receivables are stated at cost less impairment losses. j) Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. 55 MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS 1. Significant accounting policies (continued) j) Taxation (continued) Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. k) Pension costs The Group operates defined 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 income statement represent the contributions payable by the Group to the funds during each period. l) Leased assets Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classed as operating leases. Rentals under operating leases are charged to the income statement on a straight-line basis over the term of the lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. m) Segment reporting The consolidated entity operates in one business segment being that of recruitment services (primary segment). As a result no additional business segment information is required to be provided. The consolidated entity operates in four geographic segments (secondary segment), the United Kingdom, Continental Europe, Asia Pacific and the Americas. n) Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. o) Share-based compensation The Group operates a number of equity-settled, share-based compensation plans. Their subsequent accounting treatments are described below: (i) Share option schemes The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non- market vesting conditions (for example, earnings per share). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the estimate of the number of options that are expected to become exercisable is revised. The Group recognises the impact of the revision of original estimates, if any, in the income statement, and the corresponding adjustment to equity over the remaining vesting period. 5 ANNUAL REPORT AND ACCOUNTS 005 1. Significant accounting policies (continued) o) Share-based compensation (continued) (ii) Deferred Annual Bonus and Long Term Incentive Plans Where deferred awards are made to directors and senior executives under either the Incentive Share Plan or the Annual Bonus Scheme, to reflect that the awards are for services over a longer period, the value of the expected award is charged to the income statement on a straight-line basis over the vesting period to which the award relates. p) Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. q) Repurchase of share capital When share capital recognised as equity is repurchased, the amount of the consideration paid, including any directly attributable costs, is recognised as a change in equity. r) Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. s) Trade and other payables Trade and other payables are stated at cost. t) Borrowing costs All borrowing costs are recognised in the income statement in the period in which they are incurred. u) Financial instruments The Group has no derivative contracts and therefore the requirements of the recognition criteria under IAS 39 are not relevant to the Group. v) Critical accounting estimates and judgements The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and judgements. It also requires management to exercise judgement in the process of applying the Company’s accounting policies. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management anticipate that any estimates and judgements made do not have a material effect on the results. 5 MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS . Segment reporting Business is the Group’s primary segment. The consolidated entity operates in one business segment being that of recruitment services. As a result, no additional business segment information is required to be provided. The Group’s secondary segment is geography. The segment results by geography are shown below: (a) Turnover and gross profit by geographic region United Kingdom Continental Europe Asia Pacific Australia Other Total Americas Turnover Gross Profit 2005 £’000 2004 £’000 2005 £’000 2004 £’000 269,623 234,822 129,535 109,984 159,157 124,293 86,138 61,503 61,152 15,565 76,717 51,286 11,484 62,770 24,722 14,315 39,037 21,105 10,429 31,534 18,313 11,846 12,871 7,620 523,810 433,731 267,581 210,641 The above analysis by destination is not materially different to analysis by origin. The analysis below is of the carrying amount of segment assets, segment liabilities and capital expenditure. Segment assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The individual geographic segments exclude income tax assets and liabilities. Capital expenditure comprises additions to property, plant and equipment, motor vehicles and computer hardware/software. (b) Segment assets, segment liabilities and capital expenditure by geographic region Total Assets Total Liabilities Capital Expenditure 2005 £’000 66,379 2004 £’000 55,897 2005 £’000 39,159 2004 £’000 30,924 2005 £’000 3,117 2004 £’000 3,106 64,932 50,222 31,648 27,246 2,403 1,404 773 584 1,357 1,255 8,132 610 98 708 606 5,824 United Kingdom Continental Europe Asia Pacific Australia Other Total 12,256 6,877 19,133 10,134 5,157 15,291 5,547 1,694 7,241 4,178 1,295 5,473 Americas 8,329 3,923 1,942 923 Segment assets/liabilities/capital expenditure 158,773 125,333 79,990 64,566 Income tax 336 1,183 10,223 1,450 159,109 126,516 90,213 66,016 5 . Segment reporting (continued) (c) Turnover and gross profit by discipline Finance and accounting Marketing, sales and retail Other (d) Operating profit by geographic region United Kingdom Continental Europe Asia Pacific Australia Other Total Americas ANNUAL REPORT AND ACCOUNTS 005 Turnover Gross Profit 2005 £’000 2004 £’000 2005 £’000 2004 £’000 336,207 290,151 159,463 129,687 84,591 73,985 55,111 44,894 103,012 69,595 53,007 36,060 523,810 433,731 267,581 210,641 2005 £’000 2004 £’000 31,939 22,928 19,449 4,101 8,509 5,593 7,551 3,883 14,102 11,434 1,029 66,519 395 38,858 The above analyses in notes (b) segment liabilities by geographic region, (c) turnover and gross profit by discipline (being the professions of candidates placed), and (d) by operating profit, have been included as additional disclosure over and above the requirements of IAS14 “Segment Reporting”. . Other operating expenses Profit for the year is stated after charging/(crediting): Employee benefit costs (note 4) Depreciation of property, plant and equipment - owned Amortisation of computer software Audit services - statutory audit Other services provided by the auditors - tax compliance services - tax advisory services (Profit)/loss on disposal of property, plant and equipment, and computer software Profit on disposal of business Operating lease rentals - land and buildings - plant and machinery 2005 £’000 2004 £’000 139,697 115,217 5,201 5,704 961 440 76 115 (183) (622) 12,026 1,574 700 334 81 195 53 – 11,578 1,081 5 MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS . Employee information The average number of employees (including Executive Directors) during the year and total number of employees (including Executive Directors) at 31 December 2005 were as follows: Management Client services Administration Consultants for contract hire (note a) 2005 Average No. 2004 Average No. 2005 Total No. 2004 Total No. 96 1,806 846 2,748 53 2,801 92 1,512 838 2,442 95 2,537 104 1,971 851 2,926 – 2,926 92 1,616 843 2,551 96 2,647 Note a: The business in which the Group employed consultants for contract hire was disposed of during 2005. (See note 22 Disposal of business.) Employment costs (including Directors’ emoluments) comprised: Wages and salaries Social security costs Pension costs - defined contribution plans Equity settled transactions 2005 £’000 115,602 16,781 4,620 2,694 2004 £’000 96,607 13,432 4,000 1,178 139,697 115,217 Details of Directors’ remuneration for the year are provided in the audited part of the Directors’ Remuneration Report on pages 35 to 42. No staff are employed by the parent company (2004: nil) hence no remuneration has been disclosed. 5. Finance income/(costs) Finance income Bank interest receivable Finance costs Bank interest payable 2005 £’000 2004 £’000 393 369 (776) (368) 0 ANNUAL REPORT AND ACCOUNTS 005 . Taxation on profits on ordinary activities The charge for taxation is based on the annual tax rate of 25.0% on profit before tax (2004: 34.8% before exceptional items). The exceptional item referred to in the prior year comparatives relates to a tax deduction received as a result of the vesting of the Restricted Share Scheme in April 2004. This deduction for income tax purposes arose in various tax jurisdictions and resulted in a non-operational exceptional credit of £9.0m to the income tax charge. Analysis of charge in year UK income tax at 30% for year before exceptional tax credits UK exceptional tax credit UK income tax at 30% for year after exceptional tax credits Adjustments in respect of prior periods Overseas income tax before exceptional tax credits Exceptional tax credit Overseas income tax after exceptional tax credits Deferred tax expense Origination and reversal of temporary differences Benefit of tax losses recognised Deferred tax expense Total income tax expense in the income statement Reconciliation of effective tax rate Profit before taxation Profit on ordinary activities before tax multiplied by the standard rate of corporation tax in the UK Effects of: Disallowable items and other permanent timing differences Unrelieved overseas losses Utilisation of losses not previously recognised Recognition of further losses not previously recognised Tax deduction for Restricted Share Scheme Higher tax rates on overseas earnings Adjustment to tax charge in respect of prior periods Tax expense and effective rate for the year Deferred tax recognised directly in equity Relating to equity settled transactions 2005 £’000 66,136 19,841 557 332 (1,966) (2,621) – 483 (120) 16,506 % 30.0 0.9 0.5 (3.0) (4.0) – 0.7 (0.1) 25.0 2005 £’000 12,522 – 12,522 2004 £’000 9,081 (7,935) 1,146 (120) 152 7,334 – 7,334 19,736 (609) (2,621) (3,230) 16,506 2004 £’000 38,859 11,658 1,151 453 – – 3,644 (1,065) 2,579 3,877 646 – 646 4,523 % 30.0 3.0 1.1 – – (9,000) (23.2) 109 152 4,523 2005 £’000 (4,228) 0.3 0.4 11.6 2004 £’000 (381) 1 MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS . Current tax assets and liabilities The current tax asset of £0.4m (2004: £1.2m), and current tax liability of £10.2m (2004: £1.5m) represent the amount of income taxes recoverable and payable in respect of current and prior periods. . Dividends Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 31 December 2004 of 2.75p per ordinary share (2003: 2.3p) Interim dividend for the year ended 31 December 2005 of 1.5p per ordinary share (2004: 1.25p) 2005 £’000 9,444 4,988 2004 £’000 8,248 4,345 14,432 12,593 Amounts proposed as distributions to equity holders in the year: Proposed final dividend for the year ended 31 December 2005 of 3.5p per ordinary share (2004: 2.75p) 11,497 9,444 The proposed final dividend had not been approved by shareholders at 31 December 2005 and therefore has not been included as a liability. The comparative final dividend at 31 December 2004 was also not recognised as a liability in the prior year comparatives. A final dividend of 3.5p (2004: 2.75p) per ordinary share will be paid on 5 June 2006 to shareholders on the register at the close of business on 5 May 2006. When the Company pays a dividend to shareholders, there may be income tax consequences. The impact will depend upon the individual circumstances of the shareholder. . Earnings per ordinary share The calculation of the basic, diluted and adjusted earnings per share is based on the following data: Earnings Earnings after exceptional tax items for basic earnings per share (£‘000) Exceptional tax items ( £’000) Earnings before exceptional tax items for adjusted earnings per share (£‘000) Number of shares 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) The above results relate to continuing operations. 2005 49,630 – 49,630 2004 34,336 (9,000) 25,336 336,283 351,555 9,014 3,744 345,297 355,299 14.8 14.4 14.8 9.8 9.7 7.2  ANNUAL REPORT AND ACCOUNTS 005 . Earnings per ordinary share (continued) Basic Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the company and held in the EBT reserve or as treasury shares. Diluted Diluted earnings per share is calculated adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. This calculation determines the number of shares that could have been acquired at fair value (determined as the average market price of the Company’s shares) based on the monetary value of the subscription rights attached to the outstanding share options. The number of shares calculated in the basic earnings per share is then adjusted to reflect the number of shares deemed to be issued for nil consideration as a result of the potential exercise of existing share options. The remaining share options that are currently not dilutive and hence excluded from the dilutive earnings per share calculation remain potentially dilutive until they are either exercised or they lapse. Adjusted Adjusted earnings per share is calculated as for basic earnings per share with the profit attributable to equity holders of the Company adjusted to be stated before exceptional items. Potential future ordinary share transactions It remains the Company’s intention to use surplus cash to repurchase and cancel its shares. 10. Property, plant and equipment Group Cost At 1 January Additions Disposals Effect of movements in foreign exchange At 31 December Depreciation At 1 January Charge for the year Disposals Effect of movements in foreign exchange At 31 December Net book value At 31 December 2005 Leasehold improvements £’000 Furniture, fixtures and equipment £’000 14,426 25,586 4,083 Motor vehicles £’000 Leasehold improvements £’000 Total £’000 2004 Furniture, fixtures and equipment £’000 Motor vehicles £’000 Total £’000 3,454 993 43,466 14,782 25,135 7,167 817 3,592 5,427 915 45,344 5,324 (2,155) (2,341) (5,042) (1,130) (3,035) (2,843) (7,008) 125 19 126 (43) (106) 15,953 27,639 2,125 45,717 14,426 25,586 16,553 2,875 1,625 552 24,727 5,201 (1,955) (1,442) (3,897) 32 20 (13) 722 6,028 1,521 (973) (27) 16,286 3,257 (59) 7,824 17,505 26,051 6,549 16,553 (45) 3,454 2,373 926 (194) 43,466 24,687 5,704 (16) 1,625 (102) 24,727 (2,931) (1,658) (5,562) 2,091 (546) (18) 6,549 1,774 (500) 1 8,129 10,134 1,403 19,666 7,877 9,033 1,829 18,739  MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS 11. Intangible assets Group Cost At 1 January Additions Disposals Effect of movements in foreign exchange At 31 December Amortisation At 1 January Charge for the year Impairment Disposals Effect of movements in foreign exchange At 31 December Net book value At 31 December Impairment tests for goodwill 2005 2004 Computer software £’000 Goodwill £’000 Total £’000 Computer software £’000 Goodwill £’000 Total £’000 4,596 965 (244) 30 5,347 2,402 961 – (218) (10) 3,135 1,539 – – – 1,539 – – – – – – 6,135 965 (244) 30 6,886 5,238 500 (1,108) (36) 4,594 2,402 2,794 961 – (218) (10) 3,135 700 – (1,085) (9) 2,400 1,539 – – – 1,539 – – – – – – 6,777 500 (1,108) (36) 6,133 2,794 700 – (1,085) (9) 2,400 2,212 1,539 3,751 2,194 1,539 3,733 Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to the country of operation. A summary of the goodwill allocation is presented below. UK USA Singapore 2005 £’000 1,274 214 51 2004 £’000 1,274 214 51 1,539 1,539 In assessing value in use, the estimated future cash flows are calculated by preparing cash flow forecasts derived from the most recent financial budget and an assumed growth rate of 3%, which does not exceed the long-term average growth rate of the relevant markets. The terminal value of the cash flow is then calculated by discounting using the Group’s weighted average cost of capital. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. It is the opinion of the Directors that at 31 December 2005 there was no impairment of intangible assets.  ANNUAL REPORT AND ACCOUNTS 005 1. Investments Company Cost At 1 January 2005 and 31 December 2005 Subsidiary undertakings £’000 Total £’000 421,545 421,545 The Company’s principal subsidiary undertakings at 31 December 2005, their principal activities and countries of incorporation are set out below: Name of undertaking 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 Country of incorporation Principal activity United Kingdom Holding company United Kingdom Support services United Kingdom Recruitment consultancy United Kingdom Recruitment consultancy United Kingdom Recruitment consultancy United Kingdom Recruitment consultancy France France Spain Spain Italy Italy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Michael Page International Empressa de Trabalho Temporário e Serviços de Consultadoria Lda Portugal Recruitment consultancy Michael Page International (Switzerland) SA Michael Page International (Deutschland) GmbH Michael Page International (Nederland) BV Page Interim BV Michael Page International (Belgium) NV/SA Page Interim (Belgium) NV/SA Michael Page International (Sweden) AB Michael Page International (Poland) Sp.Z.O.O Michael Page International (Australia) Pty Limited Michael Page International (Hong Kong) Limited Michael Page International (Brasil) SC Ltda Michael Page International (Japan) K.K. Michael Page International Pte Limited* Michael Page International Inc* Michael Page International Canada Limited Switzerland Recruitment consultancy Germany Recruitment consultancy Netherlands Recruitment consultancy Netherlands Recruitment consultancy Belgium Belgium Sweden Poland Australia Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Hong Kong Recruitment consultancy Brazil Japan Recruitment consultancy Recruitment consultancy Singapore Recruitment consultancy United States Recruitment consultancy Canada 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 operate 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. 5 MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS 1. Trade and other receivables Trade receivables Less provision for impairment of receivables Net trade receivables Other receivables Prepayments and accrued income Non-current Prepayments and accrued income Group Company 2005 £’000 85,059 (2,328) 82,731 3,854 18,350 104,935 2004 £’000 72,384 (3,098) 69,286 3,635 13,293 86,214 1,106 1,692 2005 £’000 2004 £’000 – – – – 15 15 – – – – – 15 15 – All non-current receivables are due within five years from the balance sheet date. The fair values of trade and other receivables are not materially different to those disclosed above. Credit risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. 1. Trade and other payables Current Trade payables Amounts owed to Group companies Other tax and social security Other payables Accruals Deferred income Non-current Deferred income Other tax and social security Group Company 2005 £’000 2004 £’000 2005 £’000 2004 £’000 4,608 – 26,098 8,837 31,579 502 5,280 – – – 170,648 141,544 22,530 7,157 25,616 111 1 – 2 – 1 3 – – 71,624 60,694 170,651 141,548 350 312 662 461 1,217 1,678 – – – – – – The fair values of trade and other payables are not materially different to those disclosed above.  ANNUAL REPORT AND ACCOUNTS 005 Group Company 2005 £’000 281 6,700 6,981 2004 £’000 317 – 317 Sterling £’000 – 6,700 6,700 2005 £’000 – 6,700 6,700 Euro £’000 281 – 281 2004 £’000 – – – Total £’000 281 6,700 6,981 – 317 317 15. Bank overdrafts and loans Bank overdrafts Bank loans The borrowings stated above are repayable on demand or otherwise within one year. The carrying amounts of the Group’s borrowings are denominated in the following currencies: 31 December 2005 Bank overdrafts Bank loans 31 December 2004 Bank overdrafts Bank overdrafts are repayable on demand. Overdrafts of £281,000 (2004: £305,000) have been secured against assets of the company. At 31 December 2005, the Group had available £44.8m (2004: £40.8m) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. The average interest rates paid were as follows: Bank overdrafts Bank loans Interest rate risk 31 December 2005 31 December 2004 5.63% 5.46% 5.56% 5.38% The exposure to interest rate and currency risk arises in the normal course of the Group’s business. Borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk. The Group does not consider this risk as significant. The benchmark rates for determining floating rate liabilities are based on relevant national LIBOR equivalents. Currency rate risk An explanation of the Group’s treasury policy is included in the Finance Directors review on page 21.  MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS 1. Provisions for liabilities and charges At 1 January Utilised in year At 31 December Analysis of total provisions: Non-current liabilities Current liabilities Group Company 2005 £’000 1,188 (612) 576 2005 £’000 192 384 576 2004 £’000 6,239 (5,051) 1,188 2004 £’000 612 576 1,188 2005 £’000 – – – 2004 £’000 4,114 (4,114) – 2005 £’000 2004 £’000 – – – – – – The provision at 31 December 2005 relates to rentals and other unavoidable costs on onerous lease agreements on properties in the UK. The Group expects to utilise the provision over the next 2 years. The provision in the prior year also included National Insurance and social security liabilities on the Restricted Share Scheme. These liabilities crystalised in April 2004 when the Restricted Shares vested. 1. Deferred tax The following are the major deferred tax liabilities and assets recognised by the Group, and the movements thereon, during the current and prior reporting periods. Accelerated tax depreciation £’000 Share-based payments £’000 NIC Provision £’000 Tax losses £’000 At 1 January 2004 Credit to equity for the year Charge/(credit) to profit or loss for the year Exchange differences At 1 January 2005 Credit to equity for the year Credit to profit or loss for the year Exchange differences At 31 December 2005 245 – 37 1 283 – (7) (1) (689) (381) (410) – (1,480) (4,228) (552) – 275 (6,260) (1,234) – 1,234 – – – – – – – – – – – – (2,621) – Other £’000 (356) – (153) (28) (537) – (50) 85 Total £’000 (2,034) (381) 708 (27) (1,734) (4,228) (3,230) 84 (2,621) (502) (9,108) Certain deferred tax assets and liabilities have been offset in accordance with the Group’s accounting policy. The following is the analysis of the deferred tax balances (after offset) for balance sheet purposes: 2005 £’000 2004 £’000 (9,255) (2,423) 147 689 (9,108) (1,734) Deferred tax assets Deferred tax liabilities  ANNUAL REPORT AND ACCOUNTS 005 1. Deferred tax (continued) At 31 December 2005, unremitted earnings of overseas Group companies amounted to £17.6m (2004: £14.0m). Unremitted earnings may be liable to some overseas and UK tax (after allowing for double taxation relief) if they were to be distributed as dividends. However no tax is expected to be payable on them. 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 £0.5m (2004: £5.3m) in respect of tax losses of overseas companies. These tax losses are available to offset future taxable profits in the respective jurisdictions. 1. Called-up share capital Authorised Ordinary shares of 1p each Allotted, called-up and fully paid At 1 January Cancellation of own shares At 31 December 2005 £’000 Number of shares 2004 £’000 Number of shares 5,713 571,250,000 5,713 571,250,000 3,572 (246) 3,326 357,202,799 (24,565,000) 332,637,799 3,637 363,662,799 (65) (6,460,000) 3,572 357,202,799 Executive Share Option Scheme (ESOS) The Group has an Executive Share Option Scheme (ESOS) that entitles key management personnel and senior employees to receive shares in the entity. In accordance with these programmes, options are exercisable at the market price of the shares at the date of the grant. Two grants under the ESOS were made before 7 November 2002. The recognition and measurement principles in IFRS 2 have been applied to all grants after 7 November 2002. They have not been applied to the two grants made prior to 7 November 2002 in accordance with the transitional provisions in IFRS 1 and IFRS 2. At 31 December 2005 the following options had been granted and remained outstanding in respect of the Company’s ordinary shares of 1p under the Michael Page Executive Share Option Scheme. All options granted are settled by the physical delivery of shares. The Group has no legal or constructive obligation to repurchase or settle the options in cash. Year of grant 2001 (Note 1) 2002 (Note 2) 2002 (Note 2) 2003 (Note 3) 2004 (Note 4) 2005 (Note 5) Total 2005 Balance at 1 January 2005 Granted in year Exercised in year Lapsed in year No. of shares oustanding at 31 December 2005 Exercise price per share Exercise period 24,077,659 2,638,750 3,738,750 6,680,000 2,647,000 – – – – – (168,223) (2,743,381) 21,166,055 175p March 2004 - March 2011 – – (315,000) 2,323,750 186p March 2005 - March 2012 (395,000) 3,343,750 186p March 2006 - March 2012 (200,000) (360,000) 6,120,000 81.5p-86.1p April 2006 - April 2013 (37,500) (146,500) 2,463,000 171p-190.3p March 2007 - March 2014 – 2,770,000 (20,833) (99,167) 2,650,000 190.75p-191.5p March 2008 - March 2015 39,782,159 2,770,000 (426,556) (4,059,048) 38,066,555 Weighted average exercise price 2005 1.61 1.91 1.32 1.69 1.63 Total 2004 41,501,735 2,711,000 (267,858) (4,162,718) 39,782,159 Weighted average exercise price 2004 1.62 1.72 1.75 1.66 1.61 3,164,968 options were exercisable at the end of 2005 at a weighted average exercise price of £1.75 (2004: nil).  MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS 1. Called-up share capital (continued) In 2005, options were granted on 28 February with the estimated fair values of the options granted on that day of £1.7m. In 2004, options were granted on 1 March. The estimated fair values of the options granted on that date was £1.5m. Share options are granted under service and non-market performance conditions. These conditions are not taken into account in the fair value measurement at grant date. There are no market conditions associated with the share option grants other than those on the initial grant in 2001. The options outstanding at 31 December 2005 have an exercise price in the range of 81.5 pence to 190.75 pence and a weighted average contractual life of 6.2 years. The fair values of options granted during the year were calculated using the Black-Scholes option pricing model. The inputs into the model were as follows: Share price (£) Average exercise price (£) Expected volatility Expected life Risk free rate Expected dividend yield Share Option Scheme Incentive Share Scheme Deferred Bonus Shares 2005 1.91 1.91 35% 5 years 4.75% 2% 2004 1.71 1.72 35% 5 years 4.75% 2% 2005 1.93 Nil 35% 3 years 4.75% Nil 2004 1.71 Nil 35% 3 years 4.75% Nil 2005 1.93 Nil 35% 3 years 4.75% Nil 2004 – – – – – – Expected volatility was determined by reference to historical volatility of the Company’s share price since flotation. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Expectations of early exercise are incorporated into the Black-Scholes option pricing model. The Group recognised total expenses of £2.7m (2004: £1.2m) related to equity-settled share-based payment transactions during the year. Option plan details Note 1 Pre flotation options On flotation, options over 33,750,000 (9%) ordinary shares were granted to the Executive Directors and 427 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 satisfied 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 one third 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. The results for the year ended 31 December 2005 have met the EPS performance conditions for 85% of the outstanding options which will vest on 1 March 2006. (b) 44.4% of an individual’s option entitlement will normally only be exercisable to the extent that share price growth targets have been satisfied 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 one third 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 fifth anniversary of the date of grant at compound rates of growth of 8.45% and 24.57% respectively. At 31 December 2005, the performance conditions were met for 33.7% of the outstanding share price dependent options and these vested on 31 December 2005. 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 first 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 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 first tranche of options. The 2002 earnings per share of 5.8p is the base for the second tranche of options. The results for the year ended 31 December 2005 have met the performance conditions for both tranches, 100% of which will vest on 1 March 2006 and 14 March 2006 respectively. 0 ANNUAL REPORT AND ACCOUNTS 005 1. Called-up share capital (continued) 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 of at least 3% per annum above the growth in the retail price index. The base earnings per share is 5.8p. The results for the year ended 31 December 2005 have met these performance conditions and therefore 100% of these options will vest on 8 April 2006. 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 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. Note 5 2005 Grant On 28 February 2005, options over 2,770,000 were granted to the Executive Directors and 133 employees at an exercise price of between 190.75p and 191.5p. 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 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. Base earnings per share is 7.5p after adjusting for share scheme charges. 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. Other share-based payment plans The Company also operates an Incentive Share Plan for the Executive Directors and Senior Employees and an Annual Bonus Plan for the Executive Directors. Details of these schemes are disclosed on pages 35 and 36, and are settled by the physical delivery of shares to the extent that service and performance conditions are met. 1. Reserves Capital redemption reserve The capital redemption reserve relates to the cancellation of the Company’s own shares. The increase in the year represents the nominal value of the 24,565,000 shares cancelled during the year as shown in Note 18. EBT reserve At 31 December 2005, the EBT reserve consisted of 5,640,715 (2004: 5,640,715) ordinary shares held by the Employee Benefit Trust representing 1.70% of the called-up share capital with a market value of £15.2m (2004: £10.5m). A total of 1,219,934 shares have been allocated to satisfy awards made under the Incentive Share Plan, and 265,439 deferred shares have been allocated under the Annual Bonus Plan. Dividends are paid on these shares and they are included in the EPS calculation. Dividend income on the remaining 4,155,342 ordinary shares has been waived, and they are excluded from the EPS calculation. Treasury shares The reserve for the Company’s own shares in the previous year comprised the cost of the Company’s shares held by the Group. During the year to 31 December 2005, all shares held in treasury were cancelled. At 31 December 2004, the Group held 7,765,000 of the Company’s shares in Treasury. Currency translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations that are integral to the operations of the Company. 1 MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS 0. Cash flows from operating activities Profit before tax Depreciation and amortisation charges (Profit)/loss on sale of property, plant and equipment, and computer software Profit on the sale of business (note 22) Share scheme charges Net finance cost/(income) Group Company 2005 £’000 66,136 6,162 (183) (622) 2,694 383 2004 £’000 38,859 6,404 53 – 1,178 (1) 2005 £’000 2004 £’000 11,142 13,732 – – – – – – – – 511 200 Operating cashflow before changes in working capital and provisions 74,570 46,493 11,653 13,932 Increase in receivables Increase in payables Decrease in provisions Cash generated from operations 1. Cash and cash equivalents Cash at bank and in hand Short term deposits Cash and cash equivalents Bank overdrafts Cash and cash equivalents in the statement of cash flows . Disposal of business (17,907) (17,739) 9,381 (612) 65,432 11,987 (5,051) 35,690 – 29,101 – 40,754 (6) 27,120 (4,114) 36,932 Group Company 2005 £’000 11,095 8,965 20,060 (281) 19,779 2004 £’000 10,091 2,441 12,532 (317) 12,215 2005 £’000 2004 £’000 156 – 156 – 156 156 – 156 – 156 In July 2005 the Group sold its French contractors business for £1.4m resulting in a profit on disposal of £0.6m. No assets, liabilities or cash were disposed of, with the disposal comprising business contracts only and associated costs. The trading and cash effects of this business during the year were not material. . Commitments Operating lease commitments At 31 December 2005 the Group was committed to make the following payments in respect of non-cancellable operating leases: Land and buildings Other 2005 £’000 2004 £’000 2005 £’000 2004 £’000 2,205 17,718 50,517 70,440 536 18,083 55,614 74,233 245 2,820 – 3,065 86 1,749 – 1,835 Leases which expire: Within one year Within two to five years After five years  ANNUAL REPORT AND ACCOUNTS 005 . Commitments (continued) The Group leases various offices under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The Group also leases various plant and machinery under operating lease agreements. The Group is required to give a varying notice for the termination of these agreements. Capital commitments The Group had contractual capital commitments of £0.4m as at 31 December 2005 (2004: £0.8m) relating to property, plant and equipment. The Group had contractual capital commitments of £nil as at 31 December 2005 (2004: £0.1m) relating to computer software. 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 2005 amounted to £6.4m (2004: £5.7m). . Contingent liabilities The Company has provided guarantees to other Group undertakings amounting to £5.0m (2004: £5.2m) in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities. 5. Events after the balance sheet date Between 31 December 2005 and 17 February 2006 785,125 options were exercised, which has led to an increase of share capital of £7,851. . Related party transactions Identity of related parties The Group has a related party relationship with its subsidiaries (note 12), and with its directors and members of the Executive Committee. Details of transactions between the Group and other related parties are disclosed below: Transactions with key management personnel For transactions with directors see the Remuneration report on pages 35 to 42. The remuneration of directors and members of the Executive Committee is determined by the remuneration committee having regard to the performance of individuals and market trends. In addition to their salaries, the Group also provides non-cash benefits to members of the Executive Committee, and contributes to a post- employment defined contribution pension plan on their behalf, details of which are given in note 1. The compensations of the members of the Executive Committee who are not directors are detailed below (pro rated from committee commencement date): Short-term employee benefits Their compensation is included in employment costs (note 4). Details of transactions between the Company and its subsidiaries are shown below: 2005 £’000 87 Dividends received Amounts owed by related parties Amounts owed to related parties 2005 £’000 11,668 2004 £’000 6,109 2005 £’000 2004 £’000 2005 £’000 2004 £’000 47,576 42,487 218,224 184,031  MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS . Adoption of IFRS in 005 The accounting policies were changed on 1 January 2005 to comply with IFRS. The transition from UK GAAP to IFRS is accounted for in accordance with IFRS 1 “First-Time Adoption of International Financial Reporting Standards” with 1 January 2004 as the date of transition. The changes in accounting policies as a consequence of the transition to IFRS are described below, and the reconciliations of the effects of the transition to IFRS are presented in the notes to the first IFRS financial statements. The revised accounting policies are described in note 1. The transition to IFRS resulted in the following changes in accounting policies: Goodwill is not amortised but measured at cost less impairment losses. Under UK GAAP, goodwill was amortised on a straight-line basis through profit and loss over its estimated useful economic life of 20 years. The effect of the change is an increase in equity and profit before tax of £96,000 at 31 December 2004. The change does not affect equity or profit before tax at 1 January 2004. The change has no tax effect as deferred taxes are not recognised for temporary differences arising from goodwill for which amortisation is not deductible for tax purposes. Dividends to shareholders declared after the balance sheet date but before the financial statements are authorised for issue are not recognised as a liability at the balance sheet date but are disclosed separately in the notes. Under UK GAAP dividends for the accounting year were recognised as a liability. The effect of the change is an increase in equity at 1 January 2004 of £8.2m and £9.5m at 31 December 2004. Share option costs under UK GAAP were based on the intrinsic value of the option at the date of grant and as such, grants made under the Group’s share option plans did not result in a charge to the income statement. Under IFRS 2 “Share-based Payment”, the Group measures the cost of all share options granted since 7 November 2002 that have not fully vested at the balance sheet date, using an option pricing model. A liability in respect of social charges has also been recognised in respect of the Group’s share option schemes. Deferred tax relating to the new share option charges described above have been recognised as a deferred tax asset. Computer software has been reclassified from tangible fixed assets to intangible fixed assets. Cumulative translation differences for all foreign operations have been deemed to be zero at the date of transition. After the date of transition, foreign exchange differences arising from the translation of accounts of overseas operations are shown in a currency translation reserve as a separate component of equity.  . Adoption of IFRS in 005 (continued) Reconciliation of Group Profit The adoption of IFRS had the following impact on Group profit. Turnover Cost of sales Gross profit Administrative expenses Operating profit Net finance income Profit before tax Income tax expense Profit for the year Attributable to: Equity holders of the parent Earnings per share Basic earnings per share (pence) Diluted earnings per share (pence) Profit UK GAAP Goodwill not amortised after date of transition Share option charges Deferred tax on share scheme charges Profit IFRS ANNUAL REPORT AND ACCOUNTS 005 Ref Year ended 31 December 2004 (end of last period presented under UK GAAP) Under UK GAAP £’000 433,731 (223,090) 210,641 Effect of transition to IFRS £’000 – – – Under IFRS £’000 433,731 (223,090) 210,641 a, c (170,604) (1,179) (171,783) d a c d 40,037 (1,179) 38,858 1 – 1 40,038 (1,179) (4,933) 35,105 410 (769) 38,859 (4,523) 34,336 35,105 (769) 34,336 10.0 9.9 (0.2) (0.2) 9.8 9.7 £’000 35,105 96 (1,275) 410 (769) 34,336 5 MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS . Adoption of IFRS in 005 (continued) Reconciliation of Group Equity At 1 January 2004 (date of transition) At 31 December 2004 (end of last period presented under UK GAAP) Under UK GAAP £’000 Ref Effect of transition to IFRS £’000 Opening IFRS balance sheet £’000 Under UK GAAP £’000 Effect of transition to IFRS £’000 Opening IFRS balance sheet £’000 e a e d c d b f Non-current assets Property, plant and equipment Goodwill Computer software Deferred income tax assets Other receivables Current assets Trade and other receivables Current tax receivable Cash and cash equivalents Total assets Non-current liabilities Other payables Provisions for liabilities and charges Deferred tax liabilities Current liabilities Trade and other payables Borrowings Current tax payable Provisions for liabilities and charges Total liabilities Net assets Capital and reserves Called-up share capital Capital redemption reserve EBT reserve Treasury shares Currency translation reserve Profit and loss account Total equity  23,101 (2,444) 20,657 20,933 (2,194) 18,739 1,539 – 1,345 1,570 – 2,444 1,416 – 1,539 2,444 2,761 1,570 1,443 – 254 1,692 96 2,194 2,169 – 1,539 2,194 2,423 1,692 27,555 1,416 28,971 24,322 2,265 26,587 68,615 1,664 23,211 93,490 – – – – 68,615 86,214 1,664 1,183 23,211 12,532 93,490 99,929 – – – – 86,214 1,183 12,532 99,929 121,045 1,416 122,461 124,251 2,265 126,516 (444) (1,376) – (1,820) (759) – (727) (1,486) (1,203) (1,376) (727) (3,306) (461) (612) – (1,073) (1,217) (1,678) – (689) (1,906) (612) (689) (2,979) (57,356) 8,234 (49,122) (70,164) 9,470 (60,694) (777) (2,886) (4,863) – – – (777) (2,886) (4,863) (317) (1,450) (576) – – – (317) (1,450) (576) (65,882) 8,234 (57,648) (72,507) 9,470 (63,037) (67,702) 6,748 (60,954) (73,580) 7,564 (66,016) 53,343 8,164 61,507 50,671 9,829 60,500 3,637 113 (9,871) – – 59,464 53,343 – – – – – 8,164 8,164 3,637 3,572 113 178 (9,871) (9,871) (13,122) – – – – – – 3,572 178 (9,871) (13,122) – (188) (188) 67,628 69,914 10,017 79,931 61,507 50,671 9,829 60,500 ANNUAL REPORT AND ACCOUNTS 005 Ref a b c d e f At 1 January 2004 (date of transition) Effect of transition to IFRS £’000 At 31 December 2004 (end of last period presented under UK GAAP) Effect of transition to IFRS £’000 53,343 50,671 – 8,234 (759) 689 – – 8,164 61,507 96 9,470 (1,217) 1,480 – – 9,829 60,500 . Adoption of IFRS in 005 (continued) Reconciliation of Group Equity (continued) Total equity UK GAAP Goodwill not amortised after date of transition Dividend not recognised as a liability until approved by shareholders Social charges on share option schemes Deferred tax on share schemes Computer software now classified as intangible Currency translation reserve Total adjustments to equity Total equity IFRS There are no material adjustments to the cash flow statement in either period.  MICHAEL PAGE INTERNATIONAL NOTES TO THE ACCOUNTS . Adoption of IFRS in 005 (continued) Reconciliation of Company Profit The adoption of IFRS had no impact on the Company’s profit. Reconciliation of Company Equity At 1 January 2004 (date of transition) At 31 December 2004 (end of last period presented under UK GAAP) Under UK GAAP £’000 Ref Effect of transition to IFRS £’000 Opening IFRS balance sheet £’000 Under UK GAAP £’000 Effect of transition to IFRS £’000 Opening IFRS balance sheet £’000 421,545 1,235 422,780 179 131 310 423,090 – – – – – – – – – b (8,237) 8,234 421,545 421,545 1,235 – 422,780 421,545 179 131 310 292 156 448 423,090 421,993 – – (3) – – – – – – – – 421,545 – 421,545 292 156 448 421,993 – (3) (9,473) 9,470 (114,420) – (4,114) – – – (114,420) (141,544) – (4,114) (1) – – – – (141,544) (1) – (126,771) 8,234 (118,537) (151,018) 9,470 (141,548) (126,771) 8,234 (118,537) (151,018) 9,470 (141,548) 296,319 8,234 304,553 270,975 9,470 280,445 3,637 113 (9,871) – 302,440 296,319 – – – – 3,637 3,572 113 178 (9,871) (9,871) – (13,122) – – – – 8,234 8,234 310,674 290,218 304,553 270,975 9,470 9,470 3,572 178 (9,871) (13,122) 299,688 280,445 Non-current assets Investments Deferred tax assets Current assets Trade and other receivables Cash and cash equivalents Total assets Non-current liabilities Current liabilities Trade and other payables Amounts owed to Group companies Current tax payable Provisions for liabilities and charges Total liabilities Net assets Capital and reserves Called-up share capital Capital redemption reserve EBT reserve Treasury shares Profit and loss account Total equity  ANNUAL REPORT AND ACCOUNTS 005 Ref b At 1 January 2004 (date of transition) Effect of transition to IFRS £’000 At 31 December 2004 (end of last period presented under UK GAAP) Effect of transition to IFRS £’000 296,319 270,975 8,234 9,470 8,234 304,553 9,470 280,445 . Adoption of IFRS in 005 (continued) Reconciliation of Company Equity (continued) Total equity UK GAAP Dividend not recognised as a liability until approved by shareholders Total adjustments to equity Total equity IFRS There are no material adjustments to the cash flow statement in either period.  MICHAEL PAGE INTERNATIONAL SHAREHOLDER INFORMATION AND ADVISERS Annual General Meeting To be held on 23 May 2006 at 12.00 noon at Victoria House, Southampton Row, London, WC1B 4JB. Every shareholder is entitled to attend and vote at the meeting. Final dividend for the year ended 1 December 005 To be paid (if approved) on 5 June 2006 to shareholders on the register on 5 May 2006. Company secretary Richard McBride Company number 3310225 Registered office, domicile and legal form The Company is a limited liability company incorporated and domiciled within the United Kingdom. The address of its registered office is: 39-41 Parker Street London WC2B 5LN Tel: 020 7831 2000 Fax: 01932 264297 Auditors Solicitors Registrars Deloitte & Touche LLP Herbert Smith Capita IRG Brokers Citigroup Bankers HSBC Bank plc Chartered Accountants Exchange House The Registry 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 final ordinary dividend Interim results announcement 3 May 2006 5 May 2006 23 May 2006 5 June 2006 14 August 2006 0 FIVE YEAR SUMMARY INCOME STATEMENT Turnover Gross profit Operating profit Profit before tax Profit attributable to equity holders Basic earnings per share (pence) Adjusted earnings per share (pence) ANNUAL REPORT AND ACCOUNTS 005 UK GAAP IFRS 2001 £’000 2002 £’000 2003 £’000 2004 £’000 2005 £’000 459,547 383,470 372,616 433,731 523,810 245,080 192,648 178,485 210,641 267,581 58,019 62,326 43,653 11.8 10.6 32,136 32,597 21,154 5.8 5.8 21,783 22,409 13,745 3.8 4.1 38,858 38,859 34,336 9.8 7.2 66,519 66,136 49,630 14.8 14.8 The amounts disclosed for 2003 and earlier periods are stated on the basis of UK GAAP because it is not practicable to restate amounts for periods prior to the date of transition to IFRS. The principal differences between UK GAAP and IFRS are explained in note 27 to the financial statements which provides an explanation of the transition to IFRS. 1 MICHAEL PAGE INTERNATIONAL ANNUAL GENERAL MEETING Notice of Meeting Notice is hereby given that the Annual General Meeting of the Company will be held at Victoria House, Southampton Row, London, WC1B 4JB on 23 May 2006 at 12.00 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 2005. 2. To declare a final dividend on the ordinary share capital of the Company for the year ended 31 December 2005 of 3.5p per share. 3. To re-elect Stephen Puckett as a director of the Company (note 2) 4. To re-elect Hubert Reid as a director of the Company (note 2) 5. To elect Tim Miller 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 2005 be received and approved. 7. To re-appoint Deloitte & Touche LLP as auditors of the Company to hold office until the conclusion of the next Annual General Meeting at a remuneration to be fixed 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 defined in Section 80 (2) of the Act) up to an aggregate nominal amount of £1,112,516 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 defined 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 fixed by the directors to holders of equity securities on the register on a fixed 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 £166,877, 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). 10. To propose 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 33,263,780; (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 Official List for the five business days immediately preceding the day on which the ordinary share is contracted to be purchased;  ANNUAL REPORT AND ACCOUNTS 005 (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). By order of the Board Richard McBride Secretary 39-41 Parker Street London WC2B 5LN Registered in England No. 3310225 1 March 2006  MICHAEL PAGE INTERNATIONAL ANNUAL GENERAL MEETING Notice of 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. Stephen Puckett and Hubert Reid retire by rotation and are seeking reappointment at the Annual General Meeting. Tim Miller was appointed after the last Annual General Meeting and must therefore retire and seek re-appointment at this Annual General Meeting. Biographical information on each of the directors is contained on pages 22 and 23 of the annual report and accounts. 3. The register of directors’ interests required to be kept under section 325 of the Act together with copies of the directors’ service contracts will be available for inspection by members at the registered office 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 satisfied 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.  ANNUAL REPORT AND ACCOUNTS 005 This page is left intentionally blank 5 MICHAEL PAGE INTERNATIONAL  ANNUAL REPORT AND ACCOUNTS 005 This page is left intentionally blank  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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