PageGroup Annual Report 2010

Plain-text annual report

ANNUAL REPORT AND ACCOUNTS 2010 In just thirty ﬁ ve years, Michael Page International has grown to become one of the world’s best-known and most respected recruitment consultancies. Today, we are proud to set the standard within our profession for specialist service, with a personal touch. CONTENTS 1 Highlights 2 Overview 12 Business Review 13 Group strategy 14 Review of 2010 16 Regional review of 2010 27 Balance sheet 27 Cashﬂ ow 28 Key performance indicators (“KPIs”) 28 Going concern 29 Foreign exchange 29 Treasury management and currency risk 30 Principal risks and uncertainties 31 Summary and outlook Michael Page International 32 Board of Directors 34 Directors’ Report 42 Corporate Governance 48 Remuneration Report 57 Auditor’s Report 58 Financial Statements 59 Consolidated Income Statement 59 Consolidated Statement of Comprehensive Income 60 Consolidated and Parent Company Balance Sheets 61 Consolidated Statement of Changes in Equity 62 Statement of Changes in Equity – Parent Company 63 Consolidated and Parent Company Cash Flow Statements 64 Notes to the Financial Statements 89 Five Year Summary 90 Shareholder Information and Advisers 98 Annual General Meeting 105 Cautionary Statement and Statement of Directors’ responsibilities Y R A M M U S Michael Page International 32* COUNTRIES DISCIPLINES 148* OFFICES 4,498 EMPLOYEES Accounting, Actuarial, Tax & Treasury Financial Services & Banking Oil & Gas Agency Buying & Merchandising Construction Consultancy, Strategy & Change Design Education Engineering & Manufacturing Executive Search Facilities Management Health & Social Care Hospitality & Leisure Human Resources Insurance Legal Life Sciences Logistics Marketing Mining & Resources Policy Procurement & Supply Chain Property Public Sector Retail Operations & Retail Banking Sales Secretarial Technology I H G H L G H T S I HIGHLIGHTS Strong results beneﬁ ting from geographic and discipline diversiﬁ cation Revenue (£m) Gross Proﬁ t (£m) 832.3 2010 716.7 2009 972.8 2008 831.6 2007 649.1 2006 442.2 2010 351.7 2009 552.7 2008 478.1 2007 348.8 2006 Proﬁ t Before Tax (£m) Basic Earnings Per Share (pence) 100.7* 2010 21.1 2009 140.1 2008 147.4 97.0 2007 2006 21.6* 2010 3.9 30.3 31.1 19.6 2009 2008 2007 2006 Dividend Per Share (pence) Headcount At Year End 9.0 8.0 8.0 8.0 6.0 2010 2009 2008 2007 2006 *Includes non-recurring items. 4,498 2010 3,549 2009 4,943 2008 5,052 3,758 2007 2006 Improved productivity and utilisation of spare capacity driving proﬁ t growth All regions growing sequentially in 2010 72% of gross proﬁ ts generated from outside the UK 53% of gross proﬁ t generated from non Finance and Accounting disciplines Gross proﬁ t from permanent placements growing at 38% Share repurchases of £76.8m during 2010 Strong balance sheet with net cash of £80.5m Total dividend increased by 12.5% to 9.0p Michael Page International 1 I W OVERVIEW E V R E V O +24% GROWTH IN GROSS PROFIT AND RAPID PROFIT RECOVERY +12.5% INCREASE IN FULL YEAR 2010 DIVIDEND +254% GROWTH IN OPERATING PROFIT BEFORE NRI* +27% GROWTH IN HEADCOUNT £100m OF CASH PAID IN DIVIDENDS AND SHARE REPURCHASES £80m OF NET CASH AT END OF 2010 *Non-recurring items 2 Michael Page International BUSINESS PERFORMANCE IN 2010: Recovery in our proﬁ ts, strong cash position and continued conﬁ dence in the future O V E R V E W I 2010 was a year of recovery after the downturn that ﬁ rst hit in the second half of 2008 and negatively impacted Group gross proﬁ t throughout 2009. The ﬁ rst increase in Group gross proﬁ t was seen in Q4 2009 and this trend continued throughout 2010, delivering revenue up 15% in constant currency to £832m and gross proﬁ ts up 24% to £442m. The recovery has been largely in permanent placements, where we have grown gross proﬁ t 35% in constant currency in the year. As a result, the proportion of gross proﬁ t from permanent and temporary placements has increased from 71:29 in 2009 to 78:22 in 2010. As we are a highly operationally geared business and maintained spare capacity following the downturn, the recovery in gross proﬁ ts has dropped rapidly through to operating proﬁ ts, which increased 3.5 times to £71.5m. With the beneﬁ t of the VAT refund of £17.1m and related interest of £11.3m, the proﬁ t before tax for the year was £100m. Excluding the beneﬁ t of the VAT refund, earnings per share increased from 3.9p to 15.1p. In terms of the cash we generate, the ﬁ rst use of our cash is always to support and grow the business. Our next priority is the dividend to shareholders, where we aim to either grow or at least maintain the level of dividend payment. Given the recovery in our proﬁ ts, our strong cash position and our conﬁ dence in the future, the Board are recommending an increase in the full year dividend for 2010 of 12.5% to 9.0p. After dividends and while maintaining a strong balance sheet, we use surplus cash to repurchase shares. Repurchases made via the employee beneﬁ t trust are either to cover share plan commitments or to reduce the dilution of share option awards. Alternatively, repurchases are made by the company, following which the shares are cancelled. During 2010, we spent £100m in dividends and share repurchases and still ended the year with a very strong balance sheet with net cash in excess of £80m. Michael Page International 3 I W E V R E V O PROFILE OF OUR BUSINESS: Geographical and discipline diversiﬁ cation, the foundation of our continued growth GEOGRAPHIC DEVELOPMENT With recruitment being driven by the economic cycle and overall business conﬁ dence, our strategy of diversiﬁ cation, both by geography and discipline, aims to diversify the Group’s exposure away from any one geographic area or business sector. During 2010, we achieved growth across all our geographic regions, with both the Americas and Asia Paciﬁ c having exceeded their previous peaks. Within each region, different countries reacted in different degrees and timings as their economies and conﬁ dence levels recovered. Being in 29 countries at the end of 2010 and now 32 with businesses opening in India, Malaysia and Chile, we now have the beneﬁ t of being in many faster growing economies where outsourced recruitment is relatively new and still developing, it is also where competition is limited. Today, the UK, which only 10 years ago was more than 50% of the Group is now 26%. Ten years ago the Americas and Asia Paciﬁ c had barely registered; they are now 30% of the Group and growing fast. Geographic diversiﬁ cation achieved by organic growth Reduced dependence on individual geographic markets *As at February 2011. 4 Michael Page International COUNTRIES 32* 148* OFFICES O V E R V E W I DISCIPLINE DEVELOPMENT As we have beneﬁ ted from our geographical diversiﬁ cation we have also beneﬁ ted from our discipline diversiﬁ cation, as different disciplines reacted in the recovery at different times and to different degrees. Finance and accounting remains our largest discipline, as it is the heritage of the business and also the discipline we tend to start with when we enter new countries and cities. As we have diversiﬁ ed into an increasing number of professional disciplines today, these now account for over half the Group’s gross proﬁ ts. As well as rolling out our Michael Page disciplines, we continue to invest in Page Personnel, our business focussed on the more junior professional recruitment markets. Page Personnel is now a global brand, across 19 countries with over a quarter of our fee earners. At the end of February 2011, the Group had a total of 239 country discipline businesses, up 23 from the start of 2010. Even within these many disciplines our teams are further specialised, with, for example, businesses such as Michael Page Oil & Gas launched within Engineering and Michael Page Logistics within Supply Chain & Procurement. Beneﬁ ting from discipline diversiﬁ cation Discipline roll-out continues with increasing specialisation PAGE PERSONNEL, A GLOBAL BRAND, NOW IN 19 COUNTRIES Michael Page International 5 I W E V R E V O A BUSINESS STRUCTURE FOR GROWTH: Focus on expanding in faster growing and less-developed markets with limited competition ORGANIC DEVELOPMENT OF THE BUSINESS In order to grow rapidly you have to have the platform or foundations to support it. We believe we have that, with over 2,100 years of Michael Page Director experience spread over 32 countries. This ensures we meet the needs of global or international clients and candidates who have increased geographic mobility, with a consistent quality, culture and values worldwide. With a meritocratically, home-grown, management team it creates a high level of trust, retains our entrepreneurs, as we are constantly launching new businesses, and makes lines of communication clear and simple. As we go through cycles, we protect the platforms and in downturns invest modestly, increasing the rate of upturns. Last year our headcount grew by nearly 1000, as we grew existing ofﬁ ces and countries and launched one new one, Chile. In the ﬁ rst two months of 2011, headcount is up by a further 258 and we have opened in three new countries, Qatar, Malaysia and India. Organic development of the business Geographic and discipline diversiﬁ cation Protecting and expanding the platform through economic cycles 6 Michael Page International MORE THAN 40% OF FEE EARNERS OPERATE IN LESS DEVELOPED, HIGH GROWTH RECRUITMENT MARKETS O V E R V E W I POSITIONED FOR GROWTH Our growth is organic, but strategically as well as growing existing business, our objective is to expand into less developed recruitment markets where, as a result, competition is far more limited. Many of these markets are emerging economies and are growing far faster than established ones, such as the UK. Only 10 years ago, 58% of our gross proﬁ t came from the most developed and competitive Australian and UK markets, whereas only 9% was from the least developed and least competitive markets. Our ability to grow fastest is naturally where markets have the potential to develop and where competition is weakest. At the end of February 2011, we have 41%, or to be precise 1,345, of our fee earners in these “higher potential” markets and that ﬁ gure is growing fast. Our track record of growth in this underdeveloped category is over 40% compound annual growth rate of gross proﬁ t. In 2010, it was 46%. Focus on expanding in faster growing and less-developed recruitment markets with limited competition More than 40% of fee earners now in these markets Michael Page International 7 I W E V R E V O DEVELOPING LATIN AMERICA: Market leading business representing nearly 10% of Group gross proﬁ t In 10 years, we have organically grown a market leading business All of this has, and continues to be, achievable because of the strength across four countries, 14 ofﬁ ces, with a headcount of 448 that and depth of our Michael Page management experience in the region. represents nearly 10% of the Group’s gross proﬁ t. Last year, our We have 150 years of Director experience, all of whom are home headcount grew by 80% and in the ﬁ rst two months of 2011, typically grown in our culture, methods and values and beneath them, an a quiet time of the year with the carnival in Brazil, by 11%. even larger and expanding management team. Brazil, now our fourth largest country, has opened ﬁ ve new ofﬁ ces This allows us to exploit these exciting opportunities in new countries in the last six months and in the region we opened in a new country, such as Chile and in opening ofﬁ ces like Recife, Barra, Porto Alegre Chile in Santiago. and São José Dos Campos in Brazil. Brazil fourth largest business in the Group Building headcount on top of a total of 150 Directors’ years of Michael Page Latin America experience Platform providing numerous opportunities for further growth in the region 8 Michael Page International DEVELOPING ASIA: Strength of management to succeed in high potential, challenging markets O V E R V E W I In Asia we are now in ﬁ ve countries, 13 ofﬁ ces and 359 people, potential, but challenging in many other ways, we have to have the having grown in headcount by 100% last year and 17% in the ﬁ rst strength and depth of management to succeed. This is why we are two months of 2011. Numerous opportunities exist to increase headcount, new cities, disciplines and countries. We have only just opened for business in India with two ofﬁ ces in Mumbai and New Delhi and in Malaysia with an ofﬁ ce in Kuala Lumpur. so conﬁ dent. We have 126 years of Michael Page Director experience where these individuals have proved their ability at all levels in different geographies. Beneath them, they have an even larger management team who have also proved themselves at consultant level before. It is on this structure we can, assuming economies remain favourable, continue to build rapidly our headcount, ofﬁ ce network, revenues In order to capitalise in these markets that are exciting with high and proﬁ ts. China largest and fastest growing part of the region Total of 126 Directors’ years of Michael Page Asia experience Singapore more than doubled headcount in 2010 Opened India with over 30 years of Michael Page experience Michael Page International 9 I W E V R E V O EXPANDING OUR REACH: Organic career moves enable consistent model to be deployed globally We’ve always believed that the only way to grow is organically and this airline style map shows how our organic development has moved Directors around the world, the most recent highlighted. with In addition, many more managers and consultants are transferred around in a similar way, helping with their career development and retention. This movement of talent has continued so that we could exploit new markets, such as India, and where we needed to strengthen management teams, such as Holland. We believe this strength and depth of Michael Page management experience in each of the regions in which we operate is the key factor that has enabled us to achieve what we have and it gives us the conﬁ dence that we can achieve a lot more. 10 Michael Page International CHILE Michael Page launched its new business in Santiago, Chile with the Finance, Financial Services, Marketing and Sales disciplines in January 2011 and is the ﬁ rst specialised recruitment ﬁ rm in the market. Chile is ranked as one of the safest offshore locations in the world, with a world-class telecommunications infrastructure and high uptake of higher-level education. Having gauged and fulﬁ lled client requirements through a team based elsewhere in the region, in late 2010 demand reached appropriate levels for Michael Page to deploy a local presence to further service the growing need for professional specialist recruitment. Michael Page management Roberto Machado joined Michael Page as a member of the ﬁ rst team of ﬁ ve people who launched Michael Page Brazil 11 years ago and while in Brazil launched our ﬁ rst Michael Page Oil & Gas business. In 2007, Roberto was promoted to Managing Director and moved to Buenos Aires to launch Michael Page Argentina. In December 2010, he moved to Santiago and launched Michael Page Chile, and now runs both our Argentinean and Chilean businesses. Roberto speaks Portuguese, French, Spanish and English! INDIA Michael Page India was launched initially with the Finance and Financial Services disciplines in January 2011 in both Gurgaon in the capital, New Delhi, and also the commercial capital and ﬁ nancial heart of the country, Mumbai. Widely acknowledged as a strong, vibrant, fast-growing free market economy, India will be a dominant player in the global market. Add to this the development of a highly skilled workforce and it is ideal for Michael Page’s market proposition. However only in 2010 did conditions align for Michael Page to launch our business in India – a burgeoning local base of clients whose business we already successfully service globally and the availability of the right management team. Michael Page management Tulika Tripathi joined Michael Page Switzerland as a consultant in 2004 and was promoted to Director to run the Geneva ofﬁ ce. In 2008, Tulika moved to Singapore as Managing Director of Michael Page Singapore and in January 2011 moved to India to launch Michael Page India as Managing Director. O V E R V E W I MALAYSIA Launched initially with the Finance and Financial Services disciplines, Michael Page Malaysia opened in Kuala Lumpur in January 2011. Malaysia boasts one of south-east Asia’s most vibrant economies, the fruit of decades of industrial growth and political stability. Previously managed by teams based in Singapore, the growing number of global clients positioning back ofﬁ ce functions into Malaysia, coupled with capable Michael Page management being ready to deploy made it the right time to launch. Michael Page management Paul Cooper joined Michael Page as a consultant in Manchester 12 years ago, before moving to London as a manager. Paul was promoted to Director to head the Public Sector business in London and, in January 2011, he moved to Kuala Lumpur to launch our Malaysian business as Managing Director of Michael Page Malaysia. QATAR Michael Page Qatar opened in Doha with the Finance discipline in December 2010 and was our third ofﬁ ce in the region, after Dubai and Abu Dhabi. Despite the global ﬁ nancial crisis, Qatar has prospered in the last several years - in 2010 Qatar had the world’s highest growth rate, with oil and gas accounting for more than 50% of GDP. Oil and gas have made Qatar the second highest per-capita income country. The close proximity of two other Michael Page ofﬁ ces enabled market demand to be met initially but our deep understanding of the signiﬁ cance of a local presence to meet local cultural demands drove our launch in Doha. Exciting times lie ahead with Qatar’s successful 2022 World Cup bid likely to accelerate large-scale infrastructure projects such as Qatar’s metro system and the Qatar-Bahrain causeway. Michael Page management Jason Grundy joined Michael Page Financial Services as a consultant in London in 2000 and was promoted within this business before moving to Abu Dhabi as a regional director in 2010 to both run our ofﬁ ce there and to reinforce the management in the region, allowing us to launch a new Michael Page business in Qatar. Michael Page International 11 I W E V E R S S E N S U B I BUSINESS REVIEW To the members of Michael Page International plc The Business Review discusses the following areas: Under Section 417 of the Companies Act 2006, all companies, (cid:129) Group Strategy .................................................................13 except companies that ﬁ le small company accounts, are required (cid:129) Review of 2010 .................................................................14 to prepare a Business Review. A Business Review is a fair review of the company’s business within the reporting period. The Business Review of a quoted company must include a balanced and comprehensive analysis of the development and performance of the company, with (cid:129) Regional Review of 2010 ..................................................16 (cid:129) Balance Sheet ..................................................................27 (cid:129) Cashﬂ ow ...........................................................................27 (cid:129) Key performance indicators (“KPIs”) ................................28 (cid:129) Going concern ..................................................................28 a description of the principal risks. The content within the (cid:129) Foreign exchange .............................................................29 Business Review should be to the extent necessary for an (cid:129) Treasury management and currency risk .........................29 understanding of the development, performance or position (cid:129) Principal risks and uncertainties ......................................30 of the company’s business. (cid:129) Summary and outlook ......................................................31 12 12 Michael Page International Michael Page International I B U S N E S S R E V E W I GROUP STRATEGY tighten, these teams then reduce in size largely through natural attrition. Consequently, our cost base will be reduced in a The Group’s strategy is to expand and diversify the business by slowdown, but having invested years in training and developing industry sectors, by professional disciplines, by geography and our highly capable management resources, our objective is to by level of focus, be it Page Personnel, Michael Page or Michael retain this expertise within the Group. By following this course Page Executive Search, with the objective of being the leading of action, we typically gain market share during downturns specialist recruitment consultancy in each of our chosen markets. and position our businesses for leading rates of growth when As recruitment activity is dependent upon economic cycles, economic conditions improve. by being more diverse, the dependency on individual businesses or markets is reduced, making the overall Group more resilient. This strategy is pursued entirely through the organic growth of existing and new teams, ofﬁ ces, disciplines and countries with a consistent team and meritocratic culture. Pursuing this approach does mean that in an economic downturn our proﬁ tability declines as, in addition to the lower productivity levels that come with a slowdown, we also carry spare capacity. However, when market conditions improve, the Group’s proﬁ tability recovers quickly as spare capacity is Our organic growth is achieved by drawing upon the skills and utilised. Adopting this strategy in times of economic slowdown experiences of proven Michael Page management, ensuring we also drives our ﬁ nancing strategy and balance sheet position. In have the best and most experienced, home-grown talent in each slowdowns, the business continues to produce strong cash ﬂ ows, key role. When we invest in a new business, we do so only with a as working capital requirements reduce. With uncertainty around long-term objective and in the knowledge that at some point there the length and depth of economic slowdowns, a strong balance will be periods when economic activity slows. Whilst it is difﬁ cult sheet is essential to support the businesses through tougher to predict accurately when these slowdowns will occur and how periods and, when conditions improve and the businesses start severe they will be, it has been our practice in the past and our growing, to fund increased working capital requirements. intention in the future to maintain our presence in our chosen markets, while keeping close control over our cost base. Our team-based structure and proﬁ t share business model is scalable. The small team size also means that we can increase our headcount rapidly to achieve growth. When market conditions 29 Countries 114 Ofﬁ ces 2,389 Fee Earners 19 Countries 64 Ofﬁ ces 884 Fee Earners To increase the diversiﬁ cation of Michael Page International by organically growing existing and new teams, ofﬁ ces, disciplines and countries with a consistent team and meritocratic culture and consistent client and candidate delivery. Michael Page International 13 I W E V E R S S E N S U B I REVIEW OF 2010 temporary placements. Gross proﬁ ts from permanent placements grew by 37.9% (35.2%*) to £343.8m (2009: £249.4m), The economic recovery from the global ﬁ nancial crisis, which representing 77.7% (2009: 70.9%) of Group gross proﬁ t. started in the second half of 2009, continued throughout 2010. The gross margin from permanent placements increased The pace of recovery has been strongest in some of the lesser- to 96.6% (2009: 95.9%), reﬂ ecting higher growth in higher developed recruitment markets where over the past decade margin online advertised positions compared to ofﬂ ine. we have established, organically, a market-leading position. Gross proﬁ t from temporary placements reduced by 3.8% to During the course of 2010, we continued our investment in £98.4m (2009: £102.3m), representing 22.3% (2009: 29.1%) developing and diversifying our business, with a new country of Group gross proﬁ t. The gross margin achieved on temporary opening in Chile and the launch of Page Personnel in Hong Kong, placements was 20.7% (2009: 22.4%), reﬂ ecting pricing pressure Mexico, Russia, Singapore and the USA. The rollout of disciplines experienced during the downturn, however, as the recovery under the Michael Page and Page Personnel brands continued strengthened, the gross margin on temporary placements levelled and we opened a number of new ofﬁ ces. At the start of 2011, off during 2010. we also launched new businesses in Qatar, India and Malaysia. Revenue Operating proﬁ t and conversion rates As a result of the Group’s organic long-term growth strategy, tight Reported revenue for the year was 16.1% (14.8%*) higher at control on costs and proﬁ t-based bonuses, we have a business £832.3m (2009: £716.7m). Revenue from permanent placements model that is highly operationally geared. The majority of our in 2010 grew by 36.8% (34.3%*) to £356.0m (2009: £260.2m), cost base, around 75%, relates to our staff, with the other main representing 42.8% (2009: 36.3%) of Group revenue. Revenue components being property and information technology costs. from temporary placements for the year grew by 4.3% to £476.3m With a strategy of organic growth, the Group incurs start-up (2009: £456.6m), having recovered later than permanent, costs and operating losses as investments are made to grow declining in Q1, stabilising in Q2 and growing in Q3 and Q4. existing and new businesses, open new ofﬁ ces and launch in new It is typical during a period of economic recovery that permanent countries. Furthermore, in periods when headcount increases placements grow at a faster rate than temporary placements. signiﬁ cantly, it takes time to train staff before they become fully This trend has been accentuated due to our faster growing regions productive. These characteristics of our growth strategy and the of Asia and Latin America being predominantly permanent rather levels of investment impact on the conversion rates† in any one than temporary placement markets. reporting period. Gross proﬁ t Generally, in years when economic conditions are benign, revenue and gross proﬁ ts grow, with operating proﬁ ts growing at a faster rate due Gross proﬁ t for the year grew by 25.7% (23.8%*) to £442.2m to a combination of higher productivity, stronger pricing and greater (2009: £351.7m). The Group’s gross margin increased to 53.1% utilisation of infrastructure. In order to continue to grow, we need (2009: 49.1%), largely as a result of the shift in the mix of business to increase our headcount and ensure that we have infrastructure due to the stronger rate of growth of permanent compared to to house and support them. When economic conditions weaken LONG-TERM ON INVESTMENT 1996 Singapore 1976 United Kingdom 1985 Australia 1993 Germany 1998 USA 2001 Switzerland Japan 2002 Belgium Sweden 2006 South Africa Russia Ireland UAE Mexico 2008 Austria Turkey New Zealand 2010 Chile 1987 Netherlands 1986 France 1997 Spain Italy 2000 Por tugal Brazil 2005 Poland Canada 2007 Luxembourg Argentina 1995 Hong Kong 2003 China 2011 India Malaysia Qatar Through economic cycles: • Maintain infrastructure and market presence • Strategic and measured investments for the longer-term 14 Michael Page International †Operating proﬁ t as a percentage of gross proﬁ t I B U S N E S S R E V E W I and recruitment activity slows, these factors work in reverse and 2010, an additional 311 staff were added and, as the recovery are compounded by a shortening of earnings visibility. strengthened, so did our pace of investment, with a further 638 In a recovery, activity levels improve, as fewer jobs are cancelled, companies withdraw hiring freezes and candidates become added in the second half. Headcount at 31 December 2010 was 4,498, an increase of 949 (26.7%) during the year. more conﬁ dent about moving jobs. The business will react to The Group’s strategy of growing organically using home-grown this activity by increasing headcount. The costs associated with talent, maintaining market presence and maintaining spare increasing and decreasing the headcount capacity in the business capacity, means that the Group is highly operationally geared are considered to be part of normal trading expenses and are to an increase in gross proﬁ t as economies recover, tempered therefore not separately disclosed as restructuring charges. The majority of our permanent placement activity is undertaken on a contingent basis, which means on those assignments we only generate revenue when a candidate is successfully placed in a role. Our short-term visibility on these earnings is provided by the number of assignments we are working on, the number of candidates we have at interview and the stage they are at in the interview process. The average time to complete a placement from taking on an assignment to successfully placing a candidate tends to shorten in a recovery, increasing productivity, and the risk of the candidate being rejected or the assignment being cancelled decreases, thereby further increasing our earnings visibility. In 2010, as market conditions in each of the geographic regions in which we operate ﬁ rst stabilised and then started to improve, the increased activity levels were ﬁ rst serviced by utilising the spare capacity created by maintaining our market presence only by the rate of investment for future growth. This is reﬂ ected in the 254% increase in operating proﬁ t, before non-recurring items, from £20.2m in 2009 to £71.5m in 2010 and the Group’s conversion rate of operating proﬁ t from gross proﬁ t increasing to 16.2% (2009: 5.7%). The levels and the increases in the conversion rates of our regions reﬂ ects their different timings and degrees of stabilisation and growth. Administrative expenses in the year increased by 11.8% to £370.7m (2009: £331.5m), largely as a result of the increase in headcount, higher proﬁ t-related bonus payments and investments in new ofﬁ ce and country start-ups. Administrative expenses included £12.4m of share-based payment charges (2009: £10.6m) in respect of the Group’s deferred annual bonus scheme, long-term incentive plans and executive share option schemes. The increase in these share-based payment charges was due to a combination of new awards and higher employers’ social charges, as a consequence of the increase in the share price from 378.9p during the downturn. As the demand for recruitment services at the end of 2009, to 555p at the end of 2010. increases, the number of positions to be ﬁ lled rises, candidate shortages begin to emerge, the time-to-hire period starts to reduce and there is less pressure on pricing. All of these factors trended positively in 2010, creating an environment for increased productivity and the generation of more gross proﬁ t per fee earner. As the spare capacity, which is not easily moved between disciplines or locations, is used up, additional headcount is added and new investments made for future growth. In the ﬁ rst half of THE GROUP’S STRATEGY OF GROWING ORGANICALLY USING HOME- GROWN TALENT, MAINTAINING MARKET PRESENCE AND MAINTAINING SPARE CAPACITY, MEANS THAT THE GROUP IS HIGHLY OPERATIONALLY GEARED TO AN INCREASE IN GROSS PROFIT AS ECONOMIES RECOVER. Michael Page International 15 I W E V E R S S E N S U B I REGIONAL REVIEW OF 2010 Continental Europe, Middle East and Africa (EMEA) EMEA, the Group’s largest region, contributing 43% of the Group’s gross proﬁ t for the year, grew revenue by 6.8% (10.1%*) to £332.2m (2009: £311.1m) and gross proﬁ t by 15.3% to £188.7m (2009: £163.7m). In all countries in the region, market conditions gradually improved as the year progressed. While headcount was reduced across the region in 2009, we ensured we maintained the platform of businesses, holding spare capacity in the larger more established countries and, as activity levels increased during 2010, some of this spare capacity was utilised. In the newer and smaller countries, we have continued to invest for growth. Headcount in the region was 1,572 at the start of the year and increased to 1,831 by the end of December, with the majority of the hiring taking place in the second half of the year. Headcount levels are still well below the 2,155 at the start of 2009 and, with the beneﬁ t of a lower cost base and the increased level of gross proﬁ t, the region recorded a strong recovery in operating proﬁ ts to £22.3m (2009: £1.0m), a conversion rate of 11.8% (2009: 0.6%). While the general pattern of stabilisation followed by growth is apparent in virtually all countries across the region, the extent and timing of that pattern varied. The Netherlands was our most challenging market, with year-on-year gross proﬁ t comparisons only beginning to stabilise in the fourth quarter. In all other countries in the region, we achieved strong gross proﬁ t growth: in France (38% of EMEA up 21%*); Germany (13% of EMEA up 17%*); Spain (8% of EMEA up 20%*); and Italy (9% of EMEA up 29%*). The other 13 countries, representing 32% of the EMEA region, achieved gross proﬁ t growth of 13%*, with particularly strong performances in Switzerland and the UAE. During the year we opened ofﬁ ces in Bilbao, Padova, and at the beginning of 2011, we opened our third ofﬁ ce in the Middle East in Doha, Qatar. 43% OF GROUP Gross proﬁ t Operating proﬁ t Headcount 17 COUNTRIES 2010 £188.7m £22.3m 1,831 +15% >100% +16% 2009 £163.7m £1.1m 1,572 72 OFFICES 120 COUNTRY DISCIPLINE COMBINATIONS 16 Michael Page International I B U S N E S S R E V E W I 2010 HIGHLIGHTS Market conditions improving France, Spain and Italy beneﬁ t from strong market-leading positions Strong ﬁ nish to 2010 in Germany, +38%* YOY growth in Q4 Holland, slowest to recover, but now stabilised and conﬁ dent of recovery Rest of EMEA (10% of Group) 12 countries, limited competition, growth +41%* New ofﬁ ces in Bilbao, Spain, Padova, Italy and Doha, Qatar GROWTH IN GROSS PROFIT +15% £22m OPERATING PROFIT, UP FROM £1M IN 2009 1,831 HEADCOUNT (+16%) GROSS PROFIT BY REGION GROSS PROFIT BY DISCIPLINE TEMPORARY : PERMANENT KEY: France Holland Germany Italy Spain +21%* -23%* +17%* +29%* +20%* Rest of EMEA** +41%* KEY: Finance & Accounting KEY: Permanent Marketing, Sales & Retail Engineering, Property & Construction, Procurement & Supply Chain Legal, Technology, HR, Secretarial, Healthcare Temporary *Growth rates in local currency. **Rest of EMEA: Austria, Belgium, Ireland, Luxembourg, Poland, Portugal, Russia, South Africa, Sweden, Switzerland, Turkey and UAE. Michael Page International Michael Page International 17 17 I I W W E E V V E E R R S S S S E E N N S S U U B B I I REGIONAL REVIEW OF 2010 United Kingdom The UK contributed 28% (2009: 32%) of the Group’s gross proﬁ ts in 2010. Revenue grew by 10.2% to £302.6m (2009: £274.6m) and gross proﬁ t grew by 12.7% to £124.9m (2009: £110.8m). The gross margin in the UK has remained ﬂ at at 41%, with the positive mix effect of a greater proportion of faster-growing permanent gross proﬁ t, being negated by slower-growing temporary gross proﬁ t, at lower margins due to pricing pressure. The UK business, which stabilised in the fourth quarter of 2009, achieved year-on-year growth in every quarter of 2010. While conﬁ dence levels have improved, market conditions remain tough, with clients and candidates remaining cautious over the impact of the government’s austerity measures. The UK business is well diversiﬁ ed in terms of geography, disciplines and the mix of permanent and temporary revenues and has limited exposure to the public sector and construction industry. Headcount was 1,179 at the start of the year and increased to 1,324 by the end of December, with the majority of the investment in new headcount being added in the second half of 2010, with the objective of continuing the growth and gaining market share in 2011. Beneﬁ ting from the reductions in the cost base achieved during 2009 and the increase in productivity, operating proﬁ ts for the year increased to £19.6m (2009: £11.3m), representing a conversion rate of 15.7% (2009: 10.2%). 28% OF GROUP Gross proﬁ t Operating proﬁ t Headcount 32 OFFICES 2010 £124.9m £19.6m 1,324 13 DISCIPLINES +13% +74% +12% 2009 £110.8m £11.3m 1,179 18 18 Michael Page International Michael Page International I I B B U U S S N N E E S S S S R R E E V V E E W W I I 2010 HIGHLIGHTS Market conditions improving Market conditions tough, but KPIs steadily improving, driven by private sector Financial Services, Sales, Legal and Technology recovering fastest Public sector (approx. 10% of UK), showing sequential slowdown throughout 2010 Strength of brand in this very competitive market helping win war for clients and candidates GROSS PROFIT BY DISCIPLINE TEMPORARY : PERMANENT GROWTH IN GROSS PROFIT +13% +74% GROWTH IN OPERATING PROFIT, TO £20M 1,324 HEADCOUNT (+12%) KEY: Finance & Accounting KEY: Permanent Marketing, Sales & Retail Engineering, Property & Construction, Procurement & Supply Chain Legal, Technology, HR, Secretarial, Healthcare Temporary Michael Page International Michael Page International 19 19 I W E V E R R S S S S E E N N S S U U B B I I REGIONAL REVIEW OF 2010 Asia Paciﬁ c The Asia Paciﬁ c region contributed 16% of the Group’s gross proﬁ t in 2010. Revenue was 51.5% (33.9%*) higher at £120.3m (2009: £79.4m) and gross proﬁ t was 71.1% (53.9%*) higher at £72.2m (2009: £42.2m). Operating proﬁ t increased to £22.3m (2009: £8.1m), representing a conversion rate of 30.9% (2009: 19.2%). The gross margin in the region increased from 53% to 60%, reﬂ ecting both the faster growth in permanent gross proﬁ ts and strong growth in Asia, where we have a predominantly permanent placement businesses. Headcount across the Asia Paciﬁ c region increased from 403 at the start of the year, to 691 at the end of the year, an increase of 71%, reﬂ ecting both increased activity levels and our intentions for building a substantial business in Asia. In Australia and New Zealand, gross proﬁ ts grew 35%*, with strong growth throughout the year. In Asia, conﬁ dence levels recovered quickly from the global ﬁ nancial crisis and we grew our gross proﬁ t by 79%*. We more than doubled our headcount in Asia during the year, opened our seventh ofﬁ ce in China, in Guangzhou and our second ofﬁ ce in Singapore, in Jurong. At the start of 2011, we opened ofﬁ ces in Kuala Lumpur, Malaysia and two ofﬁ ces in India, in Gurgaon, New Delhi and Mumbai. 16% OF GROUP Gross proﬁ t Operating proﬁ t Headcount 5 COUNTRIES 2010 £72.2m £22.3m 691 +71% >100% +71% 2009 £42.2m £8.1m 403 18 OFFICES 45 COUNTRY DISCIPLINE COMBINATIONS 20 Michael Page International I B U S N E E S S S S R R E E V V E E W W I I 2010 HIGHLIGHTS Strong recovery, back to record levels of headcount Australia/New Zealand up 34%* YOY Page Personnel launched in Hong Kong and Singapore Asia, 50% of region, up +79%* YOY Asia more than doubled headcount to 305 Opened 3 ofﬁ ces in 2010 and 3 in ﬁ rst two months of 2011 GROWTH IN GROSS PROFIT +71% £22m OPERATING PROFIT, UP FROM £8M IN 2009 691 HEADCOUNT (+71%) GROSS PROFIT BY REGION GROSS PROFIT BY DISCIPLINE TEMPORARY : PERMANENT KEY: Australia and New Zealand Asia +34%* +79%* *Growth rates in local currency KEY: Finance & Accounting KEY: Permanent Marketing, Sales & Retail Engineering, Property & Construction, Procurement & Supply Chain Legal, Technology, HR, Secretarial, Healthcare Temporary Michael Page International 21 I W E V E R S S E N S U B I REGIONAL REVIEW OF 2010 The Americas Revenue for the region grew by 49.5% (38.9%*) to £77.2m (2009: £51.6m) and gross proﬁ t grew by 61.4% (48.1%*) to £56.4m (2009: £35.0m). With strong growth in revenue and gross proﬁ t, the region produced operating proﬁ t of £7.3m (2009: loss £0.2), representing a conversion† rate of 13%. Headcount in the region increased from 395 at the start, to 652 at the end of the year, with a greater proportion being added in the second half. Approximately two thirds of the Americas region is in Latin America, of which our largest business is in Brazil. During the course of 2010, we invested to continue our growth and maintain our market-leading position. In Brazil, we opened ofﬁ ces in Alphaville (São Paulo), Barra da Tijuca (Rio de Janeiro), São José dos Campos and Recife. Our businesses in Mexico and Argentina continue to develop well and in the second half of 2010 we opened an ofﬁ ce in our fourth Latin American country, in Santiago, Chile. In North America, market conditions have been slower to recover from the downturn, but we are now beneﬁ ting from maintaining our platform, recording 42% year-on-year growth in gross proﬁ t in the fourth quarter of 2010. 13% OF GROUP Gross proﬁ t Operating proﬁ t Headcount 6 COUNTRIES 2010 £56.4m £7.3m 652 +61% >100% +65% 2009 £35.0m £(0.2)m 395 21 OFFICES 52 COUNTRY DISCIPLINE COMBINATIONS 22 Michael Page International I B U S N E S S R E V E W I 2010 HIGHLIGHTS Market conditions improving 21 ofﬁ ces at record level of headcount North America: +36%* YOY in spite of challenging conditions Latin America – two thirds of the region, limited competition Brazil, fourth largest country in the Group, opened 5 more ofﬁ ces, now 11 Mexico and Argentina performing well Opened in Santiago, Chile GROWTH IN GROSS PROFIT +61% £7m OPERATING PROFIT, UP FROM BREAK EVEN IN 2009 652 HEADCOUNT (+65%) GROSS PROFIT BY REGION GROSS PROFIT BY DISCIPLINE TEMPORARY : PERMANENT KEY: North America +36%* KEY: Finance & Accounting KEY: Permanent Latin America +56%* Marketing, Sales & Retail Engineering, Property & Construction, Procurement & Supply Chain Legal, Technology, HR, Secretarial, Healthcare Temporary *Growth rates in local currency Michael Page International 23 I W E V E R S S E N S U B I REGIONAL REVIEW OF 2010 Discipline development Our strategy of diversifying the Group by professional disciplines has continued, by investing in the roll-out of existing and new disciplines throughout our country and ofﬁ ce network. The heritage of the business is in placing people in Finance and Accounting roles, the large majority of which are professionally qualiﬁ ed accountants into industry and commerce. While this remains our largest area of business, it was less than half, at 47%, of the Group’s 2010 gross proﬁ t. Revenue from Finance and Accounting placements grew by 10.2% (8.9%*) to £450.6m (2009: £409.0m) and gross proﬁ t grew by 19.0% (16.7%*) to £209.2m (2009: £175.7m). Placements of Marketing, Sales and Retail professionals generated around 19% of the Group’s gross proﬁ t. Revenue from these disciplines grew by 21.6% (19.7%*) to £111.7m (2009: £91.8m) and gross proﬁ t grew by 34.9% (32.8%*) to £82.8m (2009: £61.4m). Legal, Technology, Human Resources, Secretarial and Other disciplines generated around 18% of Group gross proﬁ t. Revenue from these disciplines grew by 25.4% (23.9%*) to £157.0m (2009: £125.2m) and gross proﬁ t grew by 33.3% (31.5%*) to £81.6m (2009: £61.2m). Engineering, Property & Construction and Procurement & Supply Chain accounted for around 16% of Group gross proﬁ t. Revenue from these disciplines grew by 24.6% (24.1%*) to £113.1m (2009: £90.8m) and gross proﬁ t grew by 28.6% (27.7%*) to £68.6m (2009: £53.3m). 24 Michael Page International I B U S N E S S R E V E W I FINANCIAL REVIEW OF 2010 Non-recurring items (NRI) - VAT position, together with the remaining uncertainty pending formal contractual agreement, the Group reversed out the amounts originally recognised in the 2009 half year results and as such did not recognise any amount in the Income Statement in the In 2003, the Group submitted an initial claim to Her Majesty’s 2009 full year. Revenue and Customs (HMRC) for overpaid VAT which was rejected. The Group appealed and subsequently ﬁ led amended claims for £26.5m, net of fees, covering the period from 1980 to 2004. In March 2009, the Group ﬁ led amended claims for a further refund of an additional £80m, net of fees, of overpaid VAT covering the same period. In June 2009, the Group received a payment from HMRC of £26.5m, net of fees, as part settlement of these claims and in July 2009 received £10.5m, net of fees, of statutory interest. As a result, the principal and interest amounts were recognised in the half year to June 2009 results, with the interest receivable being recorded within working capital in the cash ﬂ ow statement. On 25 September 2009, the Group received a letter from HMRC, which stated that, ‘HMRC have reviewed the recent payment and are now of the view that the claim in whole or in part should not have been paid’. On 30 April 2010, a formal agreement was signed with HMRC. As a result, of the £50m originally received from HMRC, the Group retained £38.1m and returned £11.9m in May 2010. Accordingly, after fees, the Group has recognised £28.4m as non-recurring income in its 2010 Income Statement, of which £17.1m is in respect of refunded VAT and is included in operating proﬁ t and £11.3m is in respect of interest and is included in ﬁ nancial income. In respect of the amended claims for a further refund of an additional £80m, net of fees, of overpaid VAT, the Group is continuing to pursue the claim. Financial Income The Group had ﬁ nancial income for the year of £1.1m (2009: £2.0m). As trading conditions and the economic outlook improved during 2010, we were able to return surplus cash to shareholders by way of share repurchases. As a result, the Group held less A number of discussions and meetings with HMRC followed and net cash and in consequence received less ﬁ nancial income. on 5 March 2010, the Group announced that an agreement had Thus, the lower level of ﬁ nancial income compared to 2009 reﬂ ected been reached in principle, subject to legal contract, for the Group the strengthening of the Group’s trading conditions. In addition, to retain £28.4m (net of fees). However, given the background to the Group received ﬁ nancial income from non-recurring activities the initial receipt, the subsequent review and reversal of HMRC’s of £11.3m that related to the VAT refund. EFFECTIVE USE OF CASH The chart above shows how the Group managed its cash resources in the years the Group stopped its share repurchase programme and the cash generated since ﬂ otation. The cash paid in dividends has increased or been maintained, was retained on the balance sheet. This can be seen in the sharp increase in while maintaining a net cash position within a relatively small range. During net cash during 2008 and 2009. As trading conditions improved during 2010, 2001 to 2007, surplus cash was used to repurchase and cancel shares. the Group resumed its share repurchases both into the employee beneﬁ t trust As the downturn impacted the Group’s trading during the second half of 2008, to satisfy current and future share plan obligations and for cancellation, and consequently the net cash reduced. Michael Page International 25 I W E V E R S S E N S U B I Taxation Tax on proﬁ ts was £33.2m (2009: £8.6m), representing an effective tax rate of 33.0% (2009: 41.0%). The rate is higher than the effective UK Corporation Tax rate for the year of 28%, due to disallowable items of expenditure and proﬁ ts being generated in countries where the corporate tax rates are higher than in the UK. The effective rate was lower than in 2009, due to a large VAT reclaim taxed at 28% in the UK and higher overall proﬁ ts diluting the effect of the share plan non-deductible charges, partially offset by an increase in European proﬁ ts at generally higher rates than the Group average. Share repurchases and share options It is the Group’s intention to continue to use share repurchases to return surplus cash to shareholders and to satisfy awards under the Group’s incentive share plan, deferred annual bonus plan and share option scheme. During the year, 18.7m shares were At the beginning of 2010, the Group had 16.6m share options outstanding, of which 4.2m had vested. In March 2011, 11.5m share options were granted under the Group’s Executive Share Option Scheme. This award was larger than previous grants of share options, as no awards were made under the Incentive Share Plan. During the course of the year, options were exercised over 1.9m shares, generating £4.0m in cash and 3.1m share options lapsed. At the end of 2010, 23.4m share options remained outstanding, of which 2.1m had vested but had not been exercised. It is anticipated that 3.1m of these unvested options will lapse in March 2011. Earnings per share and dividends In 2010, basic earnings per share were 21.6p (2009: 3.9p) and diluted earnings per share were 21.1p (2009: 3.8p). The weighted average number of shares for the year was 311.8m (2009: 321.6m). repurchased at a cost of £76.8m. 3.7m of these shares were A ﬁ nal dividend of 6.12p, up 19.5%, (2009: 5.12p) per ordinary cancelled, with the remaining shares purchased by the Company’s share is proposed which, together with the interim dividend of employee beneﬁ t trust to satisfy future share plan awards. 2.88p (2009: 2.88p) per ordinary share, makes a 12.5% increase in the total dividend for the year to 9.0p per ordinary share. The proposed ﬁ nal dividend, which amounts to £18.8m, will be paid on 6 June 2011 to those shareholders on the register as at 6 May 2011. CASH RETURNED TO SHAREHOLDERS The chart above, on the right-hand axis, shows the annual and cumulative cash The left-hand axis shows the number of shares in issue at each year end. returns made to shareholders in the 10 years since the Group’s ﬂ otation. In At ﬂ otation there were 375.0m shares in issue, with an additional 33.8m total, over £425m of cash has been returned, with £179m in dividends and under option. However, share repurchases and subsequent cancellations have £246m in share repurchases. In addition, net cash retained on the Group’s reduced the shares in issue to 321.6m at the end of 2010, at which point a balance sheet over the same period increased by £65m. further 23.1m shares were under option. 26 Michael Page International BALANCE SHEET The Group had net assets of £177.4m at 31 December 2010 (2009: £197.0m). The decrease in net assets comprises proﬁ t for the year of £67.5m, currency movements of £0.3m, credits relating to share schemes of £10.3m and cash received from the exercise of share options of £4.0m, offset by share repurchases for cancellation of £15.1m, shares bought and held in the employee beneﬁ t trust of £61.8m and dividends paid of £24.9m. Our capital expenditure is driven primarily by two main factors being headcount, in terms of ofﬁ ce accommodation and infrastructure, and the development and maintenance of our IT systems. The project to replace our current IT recruitment system with the next generation continues to progress and we anticipate that the ﬁ rst full implementations will take place later this year, with the roll-out continuing throughout 2012 in order to mitigate the implementation risks. Capital expenditure, net of disposal proceeds, increased to £14.8m (2009: £11.3m), reﬂ ecting the investment in new systems and expenditure, where there is no longer spare capacity, due to headcount increasing in the year. The most signiﬁ cant item in the balance sheet is trade receivables, which were £134.7m at 31 December 2010 (2009: £100.2m). The increase in trade receivables reﬂ ects both the increased activity and a small increase in debtor days to 47 (2009: 45 days). The movement in debtor days is due largely to the increased proportion of revenue being derived from permanent placements where our debtor days are higher than from temporary revenues. CASH FLOW The Group started the year with net cash of £137.2m. In 2010, we generated £69.1m from operations after NRI, after an increase in working capital of £10.6m, reﬂ ecting increased activity and cash outﬂ ows relating to the VAT claim of £12.6m. Tax paid was £12.4m and net capital expenditure was £14.8m, with net interest received of £0.7m. During the year, £61.8m was spent repurchasing shares into the employee beneﬁ t trust to satisfy employee share schemes, £15.1m was spent on the repurchase and cancellation of shares, £4.0m was received from the exercise of share options and dividends of £24.9m were paid. The Group had net cash of £80.5m at 31 December 2010. Net cash and Group borrowing facilities At 31 December 2010, the Group had net cash of £80.5m (2009: £137.2m). The net cash position comprised gross cash deposits of £80.5m with 19 separate banks. The Group has a three year £50m multi-currency committed borrowing facility, which is currently undrawn, that expires in July 2012. I B U S N E S S R E V E W I THE GROUP RECOGNISED £28.5M AS NON- RECURRING INCOME, OF WHICH £17.1M IS IN RESPECT OF REFUNDED VAT AND £11.4M IS INTEREST OVER £100M OF CASH PAID IN DIVIDENDS AND SHARE REPURCHASES. STRONG BALANCE SHEET WITH OVER £80M IN CASH AT END OF 2010. Michael Page International 27 I W E V E R S S E N S U B I KEY PERFORMANCE INDICATORS (“KPIS”) Financial and non-ﬁ nancial key performance indicators (KPIs) used by the Board to monitor progress are listed in the table below. The source of data and calculation methods year-on-year are on a consistent basis. KPI 2010 2009 Deﬁ nition, method of calculation and analysis Gross margin 53.1% 49.1% Gross proﬁ t as a percentage of revenue. Gross margin increased from last year largely as a result of the higher gross margin permanent placements growing at a faster rate than temporary placements. Source: Consolidated income statement in the ﬁ nancial statements. Conversion 16.2% 5.7% Operating proﬁ t as a percentage of gross proﬁ t showing the Group’s effectiveness at controlling the costs and expenses associated with its normal business operations and the level of investment for the future. Conversion increased compared to last year, reﬂ ecting the improvement in economic conditions on demand for the Group’s services, higher productivity and lower levels of spare capacity in the business. Source: Consolidated income statement in the ﬁ nancial statements. Productivity £155.3k £124.0k Represents how productive fee earners are in the business and is calculated by (gross proﬁ t per fee earner) dividing the gross proﬁ t for the year by the average number of fee earners and directors. The higher the number, the higher their productivity. Productivity is a function of the rate of investment in new fee earners, the impact of pricing and the general conditions of the recruitment market. The increase in productivity this year is as a result of the general improvement in market conditions, but would be higher without the investment in an additional 949 headcount. Fee earner: support 73:27 71:29 Represents the balance between operational and non-operational staff. The ratio of staff ratio fee earners to support staff at the end of 2010 has increased from the level at the end of 2009. This ratio improves when the Group grows and headcount increases, but tends to decline when Group headcount reduces as the infrastructure staff to support a higher number of teams, ofﬁ ces and countries cannot be ﬂ exed as quickly as fee generating staff. Source: Internal data. Debtor days 47 45 Represents the length of time taken for the Group to receive payments from its debtors. Calculated by comparing how many days’ billings it takes to cover the debtor balance. The increase compared to last year relates to the shift towards permanent recruitment activity from temporary in a recovery. Permanent recruitment activity tends to have higher debtor days. Source: Internal data. The movements in KPIs are consistent with the business performance as discussed in the Business Review. GOING CONCERN The Board has undertaken a recent and thorough review of the Group’s budget, forecasts and associated risks and sensitivities and has concluded, given the level of cash in the business, the level of borrowing facilities available, the geographical and discipline diversiﬁ cation, limited concentration risk, as well as the ability to manage the cost base, that the Group has adequate resources to continue in operational existence for the foreseeable future, being a period of at least twelve months from the date of approval of these accounts. As a result, the going concern basis continues to be appropriate in preparing the ﬁ nancial statements. 28 Michael Page International I B U S N E S S R E V E W I FOREIGN EXCHANGE The Group now operates in 32 countries around the world and carries out transactions that are recorded in twenty-two local currencies. The Group reports its Income Statement and Cash Flow Statement results in Pounds Sterling, using the average exchange rate for each month to translate the local currency amounts into Sterling. The Balance Sheet is translated using the exchange rates at the Balance Sheet date. As a service company, most of the Group’s transactions are within the territory in which the local business operates and consequently there are few cross-border transactions between Group companies. However, royalties are charged for the use of the Group’s trademarks and management fees are charged for Group and regional functions that provide services to other Group subsidiary companies. Foreign exchange gains and losses are recognised in accordance with IFRS on the settlement of these transactions where the cash received, when converted into Sterling, differs from the amounts previously recorded in the Income Statement. These exchange gains and losses are included within operating proﬁ t. The table below shows the relative movements of the Group’s main trading currencies against Pounds Sterling during 2010, when compared to those prevalent during 2009. Negative percentages indicate that Sterling has weakened against the foreign currency during the period. With the exception of the Euro, Sterling has weakened against these main trading currencies. Currency Euro Swiss Franc Brazilian Real US Dollar Australian Dollar Hong Kong Dollar Singapore Dollar Japanese Yen Movement in the average exchange Movement in the year end exchange rate used for Income Statement rate used for Balance Sheet translation translation between 2009 and 2010 between 2009 and 2010 4% -5% -13% -1% -15% -1% -7% -7% 4% -13% -8% -3% -15% -3% -12% -16% TREASURY MANAGEMENT AND CURRENCY RISK It is the Directors’ intention to continue to ﬁ nance the activities and development of the Group from retained earnings and to operate the Group’s business while maintaining a strong balance sheet position. In a generally benign economic environment, this equates to maintaining the Group’s net cash/debt position within a relatively narrow band, with cash generated in excess of these requirements being used to buy back the Group’s shares. In a period of economic uncertainty, a more cautious funding position is adopted, with the Group being managed in a net cash position. Cash surpluses are invested in short-term deposits, with any working capital requirements being provided from Group cash resources, Group facilities, or by local overdraft facilities. The Group has a multi-currency notional cash pool between the Euro zone subsidiaries and the UK-based Group Treasury subsidiary. The structure facilitates interest and balance compensation of cash and bank overdrafts. It is the intention to extend the scope of the participation to other Group companies. The main functional currencies of the Group are Sterling, Euro 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. Our policy is not to hedge this exposure. In certain cases, where the Group gives or receives short-term loans to and from other Group companies with different reporting currencies, it may use foreign exchange swap derivative ﬁ nancial instruments to manage the currency and interest rate exposure that arises on these loans. It is the Group’s policy not to seek to designate these derivatives as hedges. Michael Page International 29 I W E V E R S S E N S U B I PRINCIPAL RISKS AND UNCERTAINTIES The management of the business and the execution of the Group’s strategy are subject to a number of risks. The following section comprises a summary of the main risks Michael Page International plc believes could potentially impact the Group’s operating and ﬁ nancial performance. People The resignation of key individuals and the inability to recruit talented people with the right skill-sets could adversely affect the Group’s results. This is further compounded by the Group’s organic growth strategy and its policy of not externally hiring senior operational positions. Mitigation of this risk is achieved by succession planning, training of staff, competitive pay structures and share plans linked to the Group’s results and career progression. Macro economic environment Recruitment activity is largely driven by economic cycles and the levels of business conﬁ dence. The Board look to reduce the Group’s cyclical risk by expanding geographically, increasing the number of disciplines, building part qualiﬁ ed and clerical businesses and continuing to build the temporary business. A substantial portion of the Group’s gross proﬁ t arises from fees that are contingent upon the successful placement of a candidate in a position. If a client cancels the assignment at any stage in the process, the Group receives no remuneration. As a consequence, the Group’s visibility of gross proﬁ ts is generally quite short and reduces further during periods of economic downturn. Competition The degree of competition varies in each of the Group’s main regions. In the UK, Australia and North America, the recruitment market is well developed, highly competitive and fragmented. The characteristics of a developed market are greater competition for clients and candidates, as well as pricing pressure. In EMEA, Latin America and Asia, the recruitment market is generally less developed, with a large proportion of all recruitment being carried out by companies’ internal resources, rather than through recruitment specialists. This is changing due to changes in legislation, increasing job mobility and the difﬁ culty internal resources face in sourcing suitably qualiﬁ ed candidates and managing compliance. If the Group does not continue to compete in its markets effectively, by hiring new staff, opening and expanding ofﬁ ces and continuing the discipline roll-outs, there is a risk that competitors may beat us to key strategic opportunities, which may result in lost business and a reduction in market share. This risk is mitigated by meetings of the Board, Executive Board and Regional and Country Management Boards where Group strategy is continually reviewed and decisions made over the allocation of the Group’s resources, principally people. Technology The Group is reliant on a number of technology systems to provide services to clients and candidates. These systems are dependent on a number of important suppliers that provide the technology infrastructure and disaster recovery solutions. The performance of these suppliers are continually monitored to ensure business critical services are available and maintained as far as practically possible. Due to the rapid advancement of technology, there is a risk that systems could become outdated with the potential to affect efﬁ ciency and have an impact on revenue and client service. This risk is mitigated by regular reviews of the Group’s technology strategy to ensure that it supports the overall Group strategy. Legal The Group operates in a large number of jurisdictions that have varying legal and compliance regulations. The Group takes its responsibilities seriously and ensures that its policies, systems and procedures are continually updated to reﬂ ect best practice and to comply with the legal requirements in all the markets in which it operates. In order to reduce the legal and compliance risks, fee earners and support staff receive regular training and updates of changes in legal and compliance requirements. Update on VAT reclaims We have had correspondence and discussions with HMRC concerning the amended claims for a further refund of VAT and related interest, but the eventual outcome and timing of any decision remains uncertain. 30 Michael Page International I B U S N E S S R E V E W I SUMMARY AND OUTLOOK Having maintained our business platform during the economic downturn and retained our experienced and talented people, the Group was well positioned to beneﬁ t from the economic recovery during 2010. The diversiﬁ cation of the Group, both geographically and by discipline, has proved advantageous as the recovery has developed. Through the utilisation of spare capacity, the Group’s proﬁ tability has improved signiﬁ cantly. We have maintained a strong balance sheet and, while increasing the returns to shareholders, we have also continued to take a long-term approach by making signiﬁ cant investments in the future of the business, both during 2010 and at the start of 2011. Following the launch of new businesses in Chile, Qatar, Malaysia and India, we now operate in 32 countries. With the increase in headcount of 949 during 2010 and a further 258 in the ﬁ rst two months of 2011, achievable because of the strength and depth of our management, we are well positioned to continue our growth. Since the start of 2011 we have seen strong growth in our EMEA region, Australia and North America and steady growth in our UK business where market conditions remain tough but stable. We continue to achieve our highest rates of growth in our Asian and Latin American regions where we have market leading positions. We will next update the market on our ﬁ rst quarter trading in an announcement on 11 April 2011. Steve Ingham Chief Executive 4 March 2011 Stephen Puckett Group Finance Director 4 March 2011 Michael Page International 31 BOARD OF DIRECTORS I S R O T C E R D F O D R A O B SIR ADRIAN MONTAGUE CBE Chairman (63) Sir Adrian is Chairman of Anglian Water Group Limited and of CHARLES-HENRI DUMON Managing Director – Continental Europe and The Americas (52) CellMark AB, the international forest products marketing group Charles-Henri joined Michael Page in 1985 and was appointed a based in Gothenburg and in July 2010, he was appointed Director in 1987. Since then he has had full responsibility for the Chairman of the private equity ﬁ rm 3i. From 1997 to 2001, Group’s operations in France and has managed the Group’s entry he held senior posts concerned with the implementation of the into Southern Europe and South America. He was appointed Government’s policies for the involvement of the private sector Managing Director for all Michael Page’s European and South in the delivery of public services, ﬁ rst as Chief Executive of the American businesses in January 2001. His responsibilities were Treasury Taskforce and then as Deputy Chairman of Partnerships increased to include North America in January 2006. UK plc. He was Deputy Chairman of Network Rail from 2001 to 2004, Chairman of Cross London Rail Links Limited from 2004 to 2005, Chairman of British Energy from 2002 to 2009 and Chairman of Friends Provident plc from 2005 to 2009. He spent his early career as a solicitor with Linklaters & Paines before RUBY MCGREGOR-SMITH Independent Non-Executive Director (48) joining Kleinwort Benson in1994. Sir Adrian is also Chairman of Ruby qualiﬁ ed as a Chartered Accountant with BDO Stoy London First, a Director of Skanska AB, the Swedish international Hayward and was appointed to the Board of Michael Page construction group, and a Trustee of The Historic Royal Palaces. International plc on 23 May 2007. She is Chief Executive of MITIE He is also a member of the Housing Finance Group of the Housing Group PLC, a position she has held since March 2007. Previously and Communities Agency and Chairman of the Advisory Board to being appointed Chief Executive, she held the positions of of Reform. He was awarded a CBE in 2001 and a knighthood in Group Finance Director and then Chief Operating Ofﬁ cer. Prior 2006. He is also Chairman of the Nomination Committee. STEVE INGHAM Chief Executive (48) to joining MITIE Group PLC, she held a range of senior roles within the support services sector, primarily at Serco Group plc. She is Chairman of the Audit Committee and a member of the Nomination and Remuneration Committees. Steve joined Michael Page in 1987 as a consultant with Michael Page Marketing and Sales. He was responsible for setting up the London marketing and sales businesses DR TIM MILLER Independent Non-Executive Director (53) and was promoted to Operating Director in 1990. He was Tim was appointed a Director of Standard Chartered Bank appointed Managing Director of Michael Page Marketing and in December 2004. Tim is responsible for the Corporate Sales in 1994. Subsequently he took additional responsibility Real Estate, Corporate Secretariat, Legal, Compliance & for Michael Page’s Retail, Technology, Human Resources Assurance, Internal Audit and Global Research functions. and Engineering businesses. He was promoted to the Board Tim is also Chairman of Standard Chartered Korea and Chairman as Executive Director of UK Operations in January 2001, of the Bank’s Environment Committee. Outside the Bank, and subsequently to Managing Director of UK Operations in May Tim is Chairman of the Governing Body, School of Oriental & 2005. He was appointed Chief Executive on 6 April 2006. Steve is African Studies (“SOAS”) and a Member of the School Advisory also a member of the Great Ormond Street Hospital’s Corporate Board, and a Special Professor of Strategy, at Nottingham Partnership Board. 32 Michael Page International University Business School, where, in 2007, he completed a Doctorate in Business Administration. Tim was appointed to the Board of Michael Page International plc on 15 August 2005 and was Chairman of the Remuneration Committee until 21 January 2011. He is now a member of the Audit, Nomination and Remuneration Committees. B O A R D O F D R E C T O R S I STEPHEN PUCKETT Group Finance Director (49) Stephen qualiﬁ ed 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 was a Non- Executive Director of SHL Group Plc from 2004 to 2006. HUBERT REID Independent Non-Executive Director Senior Independent Director (70) Hubert is Chairman of Enterprise Inns plc and of the Midas Income and Growth Trust PLC and Deputy Chairman of Majedie Investments PLC. He was previously Managing Director and then Chairman of the Boddington Group plc, and a Non-Executive Director and then Chairman of Ibstock Plc, Bryant Group plc and the Royal London Group. He was appointed a Non-Executive Director of Michael Page International plc on 25 February 2003. He is a member of the Audit, Nomination and Remuneration Committees. REG SINDALL Independent Non-Executive Director (56) Reg is Executive Vice President of Corporate Resources for the Burberry Group PLC, which is headquartered in London. Reg has held this position for three years. Prior to this he was an Executive of GUS Plc, a FTSE 30 company which owned Burberry for ﬁ fty years. He was part of the team that led the IPO of Burberry in 2002. Before joining GUS in 2000, Reg held a variety of positions within the Bass Group, including Group HR Director, SVP of Customer Service, Reservations and HR. A psychologist by academic training, he is a Fellow of the Chartered Institute of Personnel Development and a Fellow of the Royal Society of Arts. He is Chairman of the Remuneration Committee and a member of the Audit and Nomination Committees. EXECUTIVE BOARD In addition to the Executive Directors, the Executive Board comprises: ALEXIS DE BRETTEVILLE Regional Managing Director – The Americas (48) Sweden. In 2004, he moved to Belgium where his responsibilities also included Holland and the launch of Poland in 2005. In 2006, he became Regional Managing Director for the Americas, based in New York, having responsibility for Michael Page in USA, Canada, Brazil, Mexico and most recently Argentina. GARY JAMES Regional Managing Director – Asia Paciﬁ c (49) Gary joined Michael Page Finance in London in 1984. He was appointed Director of Michael Page Sales & Marketing in 1994, Managing Director of Michael Page Marketing in 1997 and transferred to America in 2002 as Managing Director of North America. He moved to Australia and was appointed Managing Director of the Asia Paciﬁ c region in August 2006. OLIVIER LEMAITRE Regional Managing Director – Continental Europe (38) Olivier joined Michael Page Finance in Paris in 1997, having worked previously as a Controller for Renault in Poland. In 1999, he moved to São Paulo to launch Michael Page Brazil, before returning to Europe in November 2002 to lead our Michael Page Frankfurt ofﬁ ce. Appointed Managing Director of Michael Page Germany in 2004, he also took responsibility for Michael Page Switzerland in 2006 and the launch of Michael Page Austria in 2008. In 2007, he was appointed Regional Managing Director and is now in charge of Austria, Belgium, Germany, Holland, Luxembourg and Switzerland. OLIVER WATSON Regional Managing Director – UK (41) Oliver joined Michael Page in 1995 as a consultant in London. He was appointed Director of Michael Page UK Sales in 1997 and then Managing Director in 2002. In 2006, he was appointed Regional Managing Director for Michael Page UK Sales, Marketing and Retail. In 2007, he launched Michael Page Middle East and has since developed our ofﬁ ce network across the region. In 2009, he became Regional Managing Director for Michael Page UK Finance, Marketing and Sales, and Michael Page Middle East, Scotland and Ireland. ANDREW WAYLAND Chief Information Ofﬁ cer (44) Andrew was the UK IT Business Management Director of PricewaterhouseCoopers where he worked for over 10 years in the Alexis joined Michael Page in 1993 as a Consultant in Paris, France. internal IT functions. He brings extensive experience in establishing In 1997 he was appointed Managing Director of Michael Page IT strategy and innovation to support the wider business strategy, Spain, launching Spain, Portugal and later, Brazil. In 2002, he and integrating technology teams. He was appointed Chief moved to Germany, taking responsibility for Germany, Belgium and Information Ofﬁ cer of Michael Page in December 2005. Michael Page International 33 ’ R O P E R T DIRECTORS’ REPORT S R O T C E R D I The Directors present their annual report on the affairs of the Principal activity Group, together with the Financial Statements and Auditor’s Report for the year ended 31 December 2010. The Group is one of the world’s leading specialist recruitment consultancies. The Group’s trading results are set out in the ﬁ nancial statements on pages 58 to 88. Business Review The Company is required by the Companies Act to include a business review in their report. The information that fulﬁ ls the requirements of the business review can be found on pages 12 to 31 which are incorporated in this report by reference. 34 Michael Page International CORPORATE GOVERNANCE The beneﬁ cial interests of Directors in ofﬁ ce at 31 December 2010 in the shares of the Company at 31 December 2010 and The Company and the Group are committed to high standards at 4 March 2011 are set out in the Remuneration Report on of corporate governance, details of which are provided in pages 48 to 55. I D R E C T O R S ’ R E P O R T the Corporate Governance Report on pages 42 to 47 and Remuneration Report on pages 48 to 55. SIGNIFICANT AGREEMENTS There are certain agreements to which the Company is party that take effect, alter or terminate upon a change of control of the Company following a takeover bid. Details of the signiﬁ cant agreements of this kind are as follows: • a £50m revolving credit facility that terminates on a change of control, with outstanding amounts becoming payable with interest; and • provisions of the Company’s share schemes and plans may cause options and awards granted to employees under such schemes and plans to vest on a takeover. DIRECTORS AND INTERESTS The following were Directors during the year and held ofﬁ ce throughout the year other than as shown below. • Sir Adrian Montague CBE‡ (Chairman) • Steve Ingham (Chief Executive) • Charles-Henri Dumon • Ruby McGregor-Smith‡ • Dr Tim Miller‡ • Stephen Puckett • Hubert Reid‡* • Reg Sindall‡ (appointed 14 December 2010) ‡ Non-Executive Directors * Senior Independent Director On 14 December 2010, Reg Sindall was appointed to the Board as an Independent Non-Executive Director. Reg is Executive Vice President, Corporate Resources, at Burberry Group PLC, the international fashion and retail group. Reg has held this position for three years. Prior to this he was an Executive of GUS Plc, a FTSE 30 company which owned Burberry for ﬁ fty years. He was part of the team which led the IPO of Burberry in 2002. Before that, his career encompassed Human Resources and Customer All of the Executive Directors are deemed to have an interest in the ordinary shares held in the Employee Beneﬁ t Trust. The Company has maintained throughout the year directors’ and ofﬁ cers’ liability insurance in respect of itself and its directors. The directors also have the beneﬁ t of the indemnity provision contained in the Company’s Articles of Association. These provisions, which are qualifying third party indemnity provisions as deﬁ ned by Section 234 of the Companies Act 2006, were in force throughout the year and are currently in force. RESULTS AND DIVIDENDS The proﬁ t for the year after taxation amounted to £67.5m (2009: £12.4m). A ﬁ nal dividend for 2009 of 5.12 pence per ordinary share was paid on 7 June 2010. An interim dividend for 2010 of 2.88 pence per ordinary share was paid on 8 October 2010. The Directors recommend the payment of a ﬁ nal dividend for the year ended 31 December 2010 of 6.12 pence per ordinary share on 6 June 2011 to shareholders on the register on 6 May 2011 which, if approved at the Annual General Meeting, will result in a total dividend for the year of 9.0 pence per ordinary share (2009: 8.0 pence). CREDITOR DAYS The Company acts as a holding Company for the Group. Creditor days for the Company were nil (2009: nil) as the Company does not undertake any transactions with suppliers. The Group’s creditor days at the year end were 39 (2009: 29 days). SUBSTANTIAL SHAREHOLDINGS As at 4 March 2011, the Company had been notiﬁ ed in accordance with Chapter 5 of the Disclosure and Transparency Rules of the following voting rights by shareholders of the Company as shown below. Capital International Limited 31,307,869 Number of ordinary shares % of issued share capital 17,021,321 15,886,847 15,351,191 13,357,067 12,367,334 9.73% 5.29% 4.94% 4.77% 4.15% 3.85% Service positions at Bass, Grand Metropolitan and Whitbread. His Holder experience at Burberry, a high-performing, people business with a broad international reach, has much in common with Michael Page, and he will be a most valuable addition to the Board. In accordance with the new UK Corporate Governance Code, all the Directors will retire by rotation at the Annual Sleep, Zakaria & Co Fidelity Lloyds Banking Group General Meeting and, being eligible, offer themselves for Standard Life Investments re-election. As Reg Sindall was appointed during the year, he will offer himself for election. Legal & General Biographical details for all the current Directors are shown on pages 32 and 33. Michael Page International 35 T R O P E R ’ S R O T C E R D I SHARE CAPITAL CORPORATE MEMBERSHIPS The authorised and issued share capital of the Company are We are members of the below organisations with the pure shown in Note 18 to the ﬁ nancial statements. intention to work with and advise our clients and candidates At the Annual General Meeting held on 21 May 2010, the Company renewed its authority to make market purchases of its own ordinary shares up to an increased maximum of 10% of the issued share capital. During the year, the Company purchased 3.7m shares which were cancelled. A further 15m shares were also purchased by the employee beneﬁ t trust and held to fund share scheme awards. The total nominal value of all shares repurchased was £0.2m and represented 5.8% of the issued share capital. The shares were on diversity. Our senior staff are actively involved with these bodies through work-streams and joint initiatives, ensuring we are constantly learning from their experience and indeed using our own resources to share best practice and ideas. • Race for Opportunity – an organisation committed to improving employment opportunities for ethnic minorities across the UK. • Opportunity Now – a membership organisation for employers who are committed to creating an inclusive workplace for women. purchased for a consideration of £76.8m including expenses. • Employers Forum for Disability – the world’s leading employers’ 1.9m shares were also issued to satisfy share options exercised organisation focused on disability as it affects business. during the year. CORPORATE RESPONSIBILITY (CR) • Employers Forum on Age – an independent network of leading employers, who recognise the need to attract and retain valuable employees, whatever their age. 2010 saw Michael Page International continue to engage, encourage and equip our people to make a positive impact OUR PEOPLE on the customers and communities we work with. It’s all part of our commitment to causes and practices that we ﬁ rmly Employee engagement believe in, spanning diversity, training, charity, community and With our business poised for international growth, our vision environment. Our approach to CR touches all those we engage of Maximising Potential exists for employees to articulate with; shareholders, clients, investors, employees and members opportunity, development and the ambition of each individual. of the wider community. Good CR is rewarding, as it doesn’t At the heart of our company is the camaraderie of team work, just make us feel good about ourselves, it makes good business so much so that it is also one of our company values. We are sense too. DIVERSITY a very sociable company with regular team activities in and out of the ofﬁ ce including quarterly events and high proﬁ le exclusive trips for our ‘High Flyers’, the latter a reward for those who have performed exceptionally well. Building on the positive steps we took in 2009, our diversity strategy describes our approach to monitoring (our own staff Hiring the best and candidate population), creating a diverse and inclusive Sourcing and retaining the highest calibre employees from a wide workforce ourselves, and assisting clients in fulﬁ lling their own range of backgrounds is key to our success. diversity agenda by introducing candidates from the widest possible talent pool. The service we provide to all our customers is only as good as the people who represent our brand. Our strategy, to grow organically We know it; our diversity proposition forms part of our long- by promoting from within, presents enormous opportunities to term global plans for growth. It is an integral part of our desire to employees who range from graduates to people changing careers – consistently offer quality services to our stakeholders. often from the disciplines we recruit for. It’s also extremely important We embrace it; our activities involve every single person working within the Michael Page world. It is part of our everyday life, in every ofﬁ ce, every country and in everything we do. We encourage it; we not only practice what we preach, but continually encourage our staff to offer ideas on how we could operate more responsibly or implement our current policies more effectively. Our Diversity Steering Committee meets quarterly to review and discuss new developments to engender an increasingly diverse workforce both for us and our clients. These meetings are chaired by our dedicated Head of Talent and attended by regional managing directors and our Director of Legal and Human Resources. to us to recognise that when we recruit, we are hiring our managers, directors and indeed managing directors of the future. Learning and Development - our future One of the strengths of our organically grown company is that our approach to the development of employees has mirrored our expansion and thus become something we pride ourselves on. We have a dedicated Learning & Development team networked across our international operations; comprising specialists with a total of over 100 years combined experience, many of whom started initially in operational roles. The team work alongside directors and managing directors who also act as trainers in all our internal interventions. 36 Michael Page International OUR CORE VALUES Our ﬁ ve values are key to our success. They are the roots of Michael Page and the foundation of our methods, approach to business and motivating our staff. More than mere words, we believe our values are the essence of our brand and instrumental to the way we work and operate, day in, day out. Take pride This means taking pride in everything we do, who we are and what we stand for. We want every person who works for us to be proud, not just of their personal achievements, but of those of the company too. Be passionate Without passion, how could we be so successful? It’s a key value that we see every day in our ofﬁ ces; from senior managers to new recruits. It’s the ingredient that ensures the very best service for our clients and candidates. Ultimately, it’s raw passion that has made us the strong, dynamic company we are today. I D R E C T O R S ’ R E P O R T Make it fun Of course we’re serious about business, but we recognise that having fun is an important factor within any ofﬁ ce environment. We encourage it and have learnt that the happier our people are, the more successful we’ll be. Never give up A value few possess, but is essential in business, particularly ours. It means never allowing yourself to be knocked back by disappointment, refusing to give up and showing real resilience. ‘When the going gets tough, the tough get going’, is an apt phrase for Michael Page. Work as a team Teamwork is essential in any company and ours in no exception. We embrace it wholeheartedly and every employee is committed to working as part of a team. Teamwork makes us stronger, more efﬁ cient and the success that follows is so much more rewarding. DIVERSITY AT MICHAEL PAGE Our approach to diversity varies from country to country. In the UK, we have a dedicated UK Diversity Board. Consisting of senior directors, the board regularly reviews, initiates and drives our policies forward. The group takes its responsibilities very seriously and is totally committed to the cause. Determined to establish Michael Page as the leading authority on diversity within the recruitment industry, they also work closely with our clients advising on how to implement their own diversity policies. Know it Our diversity proposition forms part of our long-term global plans for growth. It is an integral part of our desire to consistently offer quality services to our stakeholders. Embrace it Our activities involve every single person working within the Michael Page world. It is part of our everyday life, in every ofﬁ ce, every country and in everything we do. Encourage it We not only practice what we preach, but continually encourage our staff to offer ideas on how we could operate more responsibly or implement our current policies more effectively. employers’ forum on disability Michael Page International 37 T R O P E R ’ S R O T C E R D I On behalf of the children of Hong Kong and the world, thank you for the invaluable support Michael Page International has been giving to the St. Baldrick’s Day Events and its beneﬁ ciary, the Children’s Cancer Foundation in Hong Kong. The handsome donations raised in 2010 are presently funding three Childhood Cancer Research Projects being conducted in Hong Kong. With your continued participation in the St. Baldrick’s Day Events, we will conquer kid’s cancer. CHAIRMAN, ST. BALDRICKS FOUNDATION Operation Smile - China Medical Mission is grateful for the generous contributions and support that the caring employees at Michael Page International have shown over the years. This commitment allows us to continue expanding our medical activities throughout China, bringing new smiles to children and families in need, and changing their lives forever. MANAGING DIRECTOR, OPERATION SMILE – CHINA MEDIAL MISSION The Work & Learn scheme, unlike most student jobs, lets me get really involved in an interesting business and it’s ﬂ exible enough to ﬁ t around my study. It gives me the chance to independently fund myself through university. Thanks to this scheme, I’ve got more than just a degree on my CV; I’ve got practical experience and commercial awareness. Not only is this useful in the short-term, it’s also a great base on which to build my skills for the future. VICTORIA WOOLLEY, MICHAEL PAGE WORK & LEARN UK Pink Ribbon Day raises funds and awareness for breast cancer. Our vital support services and research programs could not be run without the generous support from organisations such as Michael Page. CORPORATE RELATIONSHIPS MANAGER, CANCER COUNCIL NSW, AUSTRALIA 38 38 Michael Page International I D R E C T O R S ’ R E P O R T Our L&D activities include: • Induction training; diversity, customer service, behaviour, culture, legal & policy for example by Michael Page International plc or its employees that falls short of these business principles. The aim of this policy is to ensure that as far as possible, our employees are able to tell us about any wrongdoing at work which they believe has occurred, or is • Business technology skills; preliminary and advanced • Maximising Sales; core skills in three day module sessions likely to occur. • Workshops; Self management, advanced interviewing, Bribery and Anti-Corruption presentation skills for example Bribery and corruption is, unfortunately, a feature of corporate • Virtual ofﬁ ce; Advanced skills training and public life in many countries across the world. Governments, • Management development for both fee earning and support staff; Operational management, ﬁ nancial/business management, succession planning, coaching and development, motivation, • One to one coaching and mentoring • Leadership programme for directors incorporating external 360 degree feedback • Global director academy; Sharing global knowledge • Talent management workshops for global managing director population businesses and non-governmental organisations such as Transparency International are working together to tackle the issue, but despite our collective efforts, eradicating all forms of bribery and corruption will take time. Michael Page International plc therefore has a clear policy and we support our employees to make decisions in line with our stated position. Our corporate conduct is based on our commitment to acting professionally, fairly and with integrity. Michael Page International plc has adequate anti-corruption procedures in place and maintains a zero-tolerance approach against corruption. Facilitation payments are also not permitted within the Group’s A fact we often use is that over 95% of our directors started as operations. trainees within the company and have been promoted internally. This is testament to our commitment to individual development and organic growth. Retaining the most talented people With a solid strategy of organic growth, and using this expertise as a platform for growing into new markets, we have a strong commitment to internal promotion and employee empowerment which has continually helped us retain our very best people. At the highest level, we want people who are immersed thoroughly in our company culture and understand the intricacies of our business. Retaining our best people is fundamental to our long- term success and continuity. Keeping in touch • Regular ‘state of the nation’ broadcasts to our staff from our CEO • ‘More’ – our internal intranet site offers discounts on a wide range of brands • Monthly newsletters and global updates • Quarterly team building events • High Flyers events – premium international trips for high performing consultants and managers Whistleblowing CHARITY AND COMMUNITY The Group made charitable donations of £181k during the year (2009: £190k). Giving something back We continue to offer all our employees the opportunity to be involved in activities with a charity, community or environmental cause. In some of our regions we call this a ‘More Giving Day’. With the permission from their director, employees are free to take a working day out of the ofﬁ ce in order to give something back. Since we launched the scheme, we have committed more than 600 days to a worthy cause. We have helped at hospices, decorated schools, cleaned conservation areas, helped the elderly with their gardening, provided man power at large charity functions and even used our people skills to run workshops on behalf of others. It’s another opportunity for us to show our values but also to help the community. Helping young people prepare for employment For the last ﬁ ve years, we have been proactively involved with several projects with youth employment schemes. We partnered with The Brokerage, a charity which works with businesses in the City of London and Docklands to provide work placement opportunities for under-graduates from inner city schools. We The Company is committed to maintaining the highest ethical have provided internships for a number of these students during standards and the personal and professional integrity of its their summer holidays over the years, which have been a great employees, suppliers, contractors and consultants. success. In conjunction with Business In The Community, we Michael Page International plc at all times conducts its business with the highest standards of integrity and honesty. It expects all employees to maintain the same standards in everything they do. Employees are therefore encouraged to report any wrongdoing have participated in The Prince’s Seeing is Believing project, which is a high proﬁ le programme lead by The Prince Of Wales. A recent event involved a number of business leaders visiting a local college to interact with students with personal difﬁ culties. Michael Page International 39 T R O P E R ’ S R O T C E R D I Another project saw us advise on life and employability skills for In November a number of our men across Australia and New the homeless. We not only work with external associations that help young people. We also launched our very own Work and Learn scheme Zealand sported moustaches in support of ‘Movember’, an initiative of the Cancer Council designed to raise funds and awareness for men’s health. in 2010. Unique not only for our industry, but also for many other 38 Michael Page employees from Spain completed a gruelling FTSE listed businesses, Work and Learn offers university students cycling challenge across Madrid in a bid to raise plenty of money paid work within a Michael Page ofﬁ ce local to wherever they for Children in Need. are studying. In four hour blocks adapted around their timetable, working for Michael Page will empower them with real commercial Spotlight on the UK exposure and experience in a professional services business. As well as running a ‘Give As You Earn’ scheme, matching any Charity partnerships around the world We are proud of our commitment to different charities around the world. Examples include: In Hong Kong and Southern China, Michael Page volunteers shaved their heads in aid of St. Baldrick’s, the world’s largest volunteer-driven fundraising initiative for childhood cancer research. This is now an annual event in our corporate giving programme. charitable donation made by an employee, our UK operations also has an ofﬁ cial charity partner. In 2009, we set out to raise £120,000 for Great Ormond Street Hospital Children’s Charity. Employees undertook several activities, either on their own, as a team or even department wide. Quiz nights, tuck shops, dress- down days ensured a solid foundation of fundraising, however large company organised events such as running the Yorkshire Three Peaks Challenge for 100 plus staff helped the balance for Great Ormond Street Hospital Children’s Charity. Now at the end of our two year partnership, we have raised in excess of Employees from Madrid sponsored a runner in Madrid’s marathon who was promoting the Fundación Caico. The money collected £220,000. was given to the Children’s Hospital of Madrid, which battles Seeing our efforts come to life diseases with therapies and music. Through our efforts for Great Ormond Street Hospital Children’s Consultants from Asia completed the Great Wall Marathon in Charity, we have fully funded a new adolescent recreation and Beijing in support of Operation Smile, a charity that contributes dining room in the Neurosciences Ward and an isolation bedroom to surgery for children with facial deformities in China. in the Cardiac Critical Care Unit, with both due for completion Six employees from Central Europe and Benelux took part in the Brussels 20km race “Run 4 Joyce” raising €2,800 in sponsorship money. The money will go toward helping Joyce who was born in Congo with a serious heart and lung disease. With the help of Chain of Hope, the money will help fund Joyce’s treatment in Brussels. 109 people from Michael Page in the UK took part in the Yorkshire Three Peaks challenge, taking on three peaks in under 12 hours. Some ran, some walked and some struggled, but £46,000 was raised for Great Ormond Street Hospital Children’s Charity. In addition, UK employees were fortunate enough to go along to Silverstone to fundraise for Great Ormond Street Hospital Children’s Charity, the ofﬁ cial charity of the F1 event. Michael Page raised £7,500 through bucket collections. Our Hong Kong and Southern China teams were again involved in the annual sedan chair race, the main fundraising event for Hong Kong’s Matilda International Hospital. Teams must carry a sedan chair around the peak following one of two different routes. In Japan, Michael Page consultants, friends and family annually attend the ‘Run for the Cure for Breast Cancer’ around the Tokyo Imperial Palace. We are also proud sponsors of the event. The team also participated in the Financial Industry Tokyo annual charity fundraising run in 2010, with the main benefactors being Tokyo homeless charities. in 2012. ENVIRONMENT Taking responsibility for our environment Michael Page is a typical ofﬁ ce-based business. As such, our main environmental impacts come from the running of our businesses around the world, generating carbon emissions though the consumption of gas and electricity, transport activities and commuting, as well as ofﬁ ce-based waste such as paper and toners. As a company, we are acutely aware of our responsibility and work hard to minimise our impact on the environment. In a number of areas, we strive to make a difference and act responsibly in terms of recycling, conservation and usage. Along with a number of policies on how to use our resources responsibly around the ofﬁ ces, we also have our own in-house “MoreGreen” scheme, which offers staff the opportunity to purchase ‘green’ products at reduced prices. Reducing our carbon footprint Michael Page International does not cause signiﬁ cant pollution, however we fully recognise our responsibilities. The Board is committed to improving the way in which our activities affect the environment by: 40 Michael Page International • Minimising the extent of the environmental impacts of • Corporate Governance Statement (Directors); operations within the Company’s sphere of inﬂ uence; • Striving to minimise any emissions of efﬂ uents in our properties that may cause environmental damage; • Remuneration Report (annual bonus plan); • Remuneration Report (Directors’ interests and share ownership requirements); • Conserving energy through minimising consumption and • Notes to the Accounts (Note 18: Called-up share capital); maximising efﬁ ciency; and • Promoting efﬁ cient purchasing, which will both minimise waste and allow materials to be recycled where • Shareholder Information and Advisers (Articles of Association). appropriate; • Employing sound waste management practices; • Putting in place procedures and supporting information that Each of the above sections is incorporated by reference into, and forms part of, this Directors’ Report. enables compliance with the law, regulation and code of Information to Auditors I D R E C T O R S ’ R E P O R T practice relating to environmental issues; and • Monitoring environmental performance and making improvements where possible. HEALTH & SAFETY We recognise that Health and Safety is an integral part of our workforce. The day-to-day services we provide do not pose great risk to either our employees or our clients. However, we endeavour to maintain a safe and active environment. Each ofﬁ ce is responsible for its own ﬁ re risk assessment and emergency procedures and has an allocated Facilities and Health and Safety Representative. Each of the Directors at the date of approval of this report conﬁ rms that: 1. so far as the Director is aware, there is no relevant audit information of which the company’s auditor is unaware; and 2. the Director has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. This conﬁ rmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. AUDITORS The above is only a summary of the many CR activities in which we are involved and the impact the Group has on its environment. Deloitte LLP are willing to continue in ofﬁ ce and accordingly resolutions to re-appoint them as auditor and authorising the Further details of our CR activities and impacts are shown in Directors to set their remuneration will be proposed at the our main CR report, a copy of which can be downloaded from forthcoming Annual General Meeting. our website at: http://investors.michaelpage.co.uk/corporate_governance ANNUAL GENERAL MEETING Supplier payment policy It is the policy of the Group to agree appropriate terms and conditions for transactions with suppliers (by means ranging from standard written terms to individually negotiated contracts) and The resolutions to be proposed at the Annual General Meeting to be held on 20 May 2011, together with explanatory notes, appear in the Notice of Meeting set out on pages 98 to 104 and is available on our website at http://investors.michaelpage.co.uk. that payment should be made in accordance with those terms There are no resolutions that have been classed as special and conditions, provided that the supplier has also complied business. with them. By order of the Board SHARE CAPITAL, RESTRICTIONS ON TRANSFER OF SHARES AND OTHER ADDITIONAL INFORMATION To the extent not discussed in this Directors’ Report, information relating to the Company’s share capital structure, restrictions on the holding or transfer of its shares or on the exercise of voting rights attached to such securities required by Section 992 of the Companies Act 2006 is set out in the following sections of the Annual Report: Kelvin Stagg Company Secretary 4 March 2011 Michael Page International 41 E CORPORATE GOVERNANCE C N A N R E V O G E T A R O P R O C At the date of this report, the principal governance rules applying principles of corporate governance as recommended in Section to UK companies listed on the London Stock Exchange are 1 of the Code for the year ended 31 December 2010. contained in the Combined Code on Corporate Governance (the “Code”), as adopted by the Financial Reporting Council (the “FRC”) in June 2008. In May 2010, the FRC published a new code, the UK Corporate Governance Code (the “Governance Code”), which will replace the Code for ﬁ nancial years beginning on or after 29 June 2010. The FRC has stated that changes have been made to help company boards to become more effective and more accountable to shareholders. The Board of Directors has a strong commitment to high standards of corporate governance and has applied the main and supporting Where applicable, the Company has already adopted principles from the Governance Code. The Directors also seek to comply with guidelines issued by institutional investors and their representative bodies where it is practical to do so. Compliance with the Code The Directors consider that the Company has complied with all the Code provisions set out in Section 1 of the Code throughout the year ended 31 December 2010. 42 Michael Page International C O R P O R A T E G O V E R N A N C E DIRECTORS The Board and its operation In July 2010, Sir Adrian Montague was appointed Chairman of listed private equity ﬁ rm 3i. Senior Independent Director The Board of Michael Page International plc is the body responsible for corporate governance, establishing policies and objectives, and the management of the Group’s resources. The Senior Independent Director is available to shareholders when they may have issues or concerns where contact through the normal channels of Chairman, Chief Executive or Finance The Board comprises currently the Chairman, who is deemed Director has either failed to resolve concerns, or contact is to be independent and has no operational responsibilities, deemed inappropriate. three Executive Directors and four independent Non-Executive Directors. Collectively, they have a broad balance of skills and experience. The composition of the Board complies with Code Provision A.3.2. The Board annually reviews the composition of the Board and considers that there is an appropriate balance of Executive and Non-Executive Directors on the Board. The Board meets regularly throughout the year. It has a formal schedule of matters reserved to it and delegates speciﬁ c responsibilities to Committees. During the meetings, the Board formally considers how and to whom matters covered at each meeting should be communicated and actioned beyond the Board. Decisions concerning matters of a more routine nature are dealt with by management below Board level. The structure of the Group facilitates the day-to-day running of the business and enables efﬁ cient and effective communication of issues to the Board when required. The Chairman and Non-Executive Directors also met during the year without the Executive Directors being present. Each of the Committees has formal written terms of reference, which were reviewed in 2010. The Senior Independent Director is Hubert Reid. Re-election of Directors It has been Board policy that 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. Subject to the Board being satisﬁ ed with the effectiveness, independence and commitment of a Non-Executive Director, there is no deﬁ ned limit regarding the number of terms a Director may serve. All Directors are subject to election by the shareholders at the ﬁ rst Annual General Meeting following their appointment. However, in accordance with the new Governance Code, the Directors have resolved that they will all submit themselves for annual re-election at each AGM. Accordingly, at the forthcoming AGM to be held on 20 May 2011, Reg Sindall will offer himself for election, with the remaining Directors offering themselves for re-election. As a result of their annual performance evaluation, the Board considers that their individual performances continue to be effective, with each Director demonstrating commitment The terms of reference for the Audit, Remuneration and to their role. The Board is therefore pleased to support their Nomination Committees are available on request and can be re-election at the forthcoming Annual General Meeting. found on the Group’s website. Their composition and the manner in which they discharge their responsibilities are described in this report. The Executive Board, a Committee of the Board, meets formally at least four times a year, and is responsible for assisting the Chief Executive in the performance of his duties, including development and implementation of strategy, operational plans, policies, procedures and budgets. These activities are performed at a regional level by four Regional Boards, Committees of the Board, for the UK, EMEA, Asia Paciﬁ c and the Americas. Each Regional Board meets at least four times a year. Chairman The Chairman, Sir Adrian Montague, is responsible for the leadership and efﬁ cient operation of the Board, setting its agenda and ensuring all Directors provide an effective contribution. The Chairman is also responsible for ensuring the provision of accurate and timely information to the Board and effective communications with shareholders. It is the Group’s policy that the roles of Chairman and Chief Executive are separate. It is also the Board’s view that the comparatively long tenure of some of the Directors has been key to the Board’s in-depth understanding of the Group and its operation. Sir Adrian Montague has served on the Board for more than nine years. The Board does not believe that he has served for a period that could materially interfere with his ability to act in the best interests of the Group. The Board also believes that he has retained independence of character and judgement and has not formed associations with management (or others) that might compromise his ability to exercise independent judgement or act in the best interests of the Group. Company Secretary 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. Board appointments The Board follows formal and transparent procedures when appointing directors. All candidates are interviewed by the Michael Page International 43 E C N A N R E V O G E T A R O P R O C Chairman and the Chief Executive, and, all candidates in the Induction and training programme ﬁ nal shortlist are interviewed by the Nomination Committee. Evaluations of all candidates are discussed with all members of the Nomination Committee and recommendations are subsequently made to the Board. Nomination Committee On appointment to the Board, each Director discusses with the Company Secretary the extent of training required and a tailored induction programme to cover their individual requirements is then compiled. Elements of the programme typically consist of meeting senior management, site visits and attending internal conferences. In addition, information is provided on the Company’s services, The Nomination Committee comprises the Non-Executive Group structure, Board arrangements, ﬁ nancial information, major Directors and is chaired by Sir Adrian Montague. It is responsible competitors and major risks. After an initial induction phase, for making recommendations to the Board on new appointments, updates are provided on a periodic basis. as well as making recommendations as to the composition of the Board generally, the balance between Executive and Non- Performance evaluation Executive Directors appointed to the Board and reviewing any conﬂ icts of interest. The terms of reference of the Nomination Committee can be found on our website. The Board, as part of its commitment to ensuring effectiveness and evaluating its performance, together with that of its Directors and Committees, conducted an internal review comprising During the year, the Committee recommended the appointment a questionnaire concerning all aspects of procedure and of a Non-Executive Director. An external search ﬁ rm was engaged effectiveness. and a detailed role proﬁ le was agreed by the Committee before a shortlist of suitable candidates was prepared to go forward to an interview process. This resulted in the recommendation of the appointment of Reg Sindall. Terms and conditions for Reg Sindall and the other Non-Executive Directors are available for inspection at the Company’s registered ofﬁ ce. Following completion of the questionnaires, the Chairman met with the individual Directors to discuss their views and to give feedback on their performance. The results of the evaluation were reported to the Board and where areas of improvement have been identiﬁ ed, actions have been agreed upon and training will be provided where required. Fig. 1. Attendance at Board Meetings (Committee attendance shown for Committee members only) Total meetings Meetings attended Executive Steve Ingham Charles-Henri Dumon Stephen Puckett Total meetings Meetings attended Non-Executive Sir Adrian Montague CBE Ruby McGregor-Smith Dr Tim Miller Hubert Reid Reg Sindall (appointed 14 December 2010) 44 Michael Page International Board 12 12 12 12 Board 12 12 12 9 12 1 Audit Committee Remuneration Committee Nomination Committee 9 9 9 9 9 0 9 9 9 7 9 1 4 4 4 2 4 0 Hubert Reid, as the Senior Independent Director, led a meeting of Sindall, who took over the Chairmanship from Dr Tim Miller. the Non-Executive Directors to appraise the performance of the Chairman. The meeting took into account any comments made by the Executive Directors. This evaluation is carried out annually. The Committee reviews the Group’s policy on the Chairman’s, Executive Directors’ and senior executives’ remuneration and terms of employment, makes recommendations upon this, Following the release of the Governance Code, an external Board along with the speciﬁ c level of remuneration to the Board, evaluation will now be carried out every three years. and also approves the provision of policies for the incentivisation Succession planning of senior employees, including share schemes. The Committee meets at least twice a year and is also attended by One of the basic premises behind the strategic development the Chief Executive, except when his own remuneration is under of the Michael Page business, is that growth is organic rather consideration. The Remuneration Report includes information on than through acquisitions of companies or hiring senior people the Directors’ service contracts. The terms of reference of the in non-support roles. In order to achieve this organic growth, Remuneration Committee can be found on our website. C O R P O R A T E G O V E R N A N C E 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 individuals. Due to this philosophy of nurturing our own talent, succession planning is inherently a key part of the business process. We do not make promotions or move people within the business unless there is a clear successor for the vacant position. It is, therefore, one of the key responsibilities of all levels of management, and not just the Board, to have a clear plan of development for their direct reports. Conﬂ icts of interest The Report of the Remuneration Committee can be found on pages 48 to 55 of the Annual Report. ACCOUNTABILITY AND AUDIT Audit Committee The Audit Committee comprises the independent Non-Executive Directors and is chaired by Ruby McGregor-Smith. The Committee members have broad experience and knowledge of ﬁ nancial reporting. Their relevant qualiﬁ cations and experience are shown in their biographies on the Board of Directors pages 32 and 33. The Board believes that Ruby McGregor-Smith and Hubert Reid have recent and relevant ﬁ nancial experience. The other members The Company has implemented robust procedures, in line with of the Audit Committee, Dr Tim Miller and Reg Sindall both have the Companies Act 2006, requiring Directors to seek appropriate wide experience in regulatory and risk issues. authorisation prior to entering into any outside business interests. The Committee met nine times in 2010 to fulﬁ l its duties and In all cases where a potential conﬂ ict is identiﬁ ed, it is Board policy included attendance by the external auditor where required. The that the Director in question is not involved in any discussion of Committee also met with the external auditors during the year the area or issue giving rise to the conﬂ ict. without the presence of management. During the course of the year, the Board reviewed and authorised, In 2010, the Audit Committee discharged its responsibilities as in accordance with the Company’s Articles of Association, a small set out in the terms of reference, which can be found on our number of external directorships and other business interests held website, www.investors.michaelpage.co.uk. Its principal tasks by individual directors. However, none were regarded as being of are to ensure the integrity of the Company’s Financial Reporting such signiﬁ cance as to give rise to a conﬂ ict of interest. process, review the effectiveness of the Group’s internal controls, All Directors are aware of their continuing obligation to report any new interests or changes in existing interests that might amount to a possible conﬂ ict of interest in order that these may be considered by the Board and appropriate authorisations given. Attendance at meetings internal audit and risk management function, review the scope of the external audit, consider issues raised by the external auditor, 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, as well as ensuring the independence of the external auditor and the provision of additional services to the The number of meetings of the Board and Committees and Company. individual attendance by the members of the Committees only are shown in Fig. 1 left. Objectivity and independence of external auditor REMUNERATION Remuneration Committee The Remuneration Committee comprises the independent Non- Executive Directors and, since 21 January 2011, is chaired by Reg Deloitte is employed 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 auditor. All other work is awarded on the basis of competitive tender. Michael Page International 45 E C N A N R E V O G E T A R O P R O C The objectivity and independence of the external auditor is It is also the Committee’s policy to consider whether there should safeguarded by: a. obtaining assurances from the external auditor that adequate policies and procedures exist within its ﬁ rm to ensure the ﬁ rm and its staff are independent of the Group by reason of family, be an audit tender process and whether using auditors from one audit network continues to enhance the quality of the audit. The Committee reviews the past service of the auditors who were ﬁ rst appointed in 1997. ﬁ nance, employment, investment and business relationships The Committee has also considered the likelihood of a (other than in the normal course of business); withdrawal of the auditor from the market and noted that there 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 iii. for which a case-by-case decision is required, which includes all engagements over certain fee limits. The following areas are considered to be unacceptable for the external auditor to undertake: • selection, design or implementation of key ﬁ nancial systems; • maintaining or preparing the accounting books and records or the preparation of ﬁ nancial accounts or other key ﬁ nancial data; are no contractual obligations to restrict the choice of external auditors. To assess the effectiveness of the external auditors, the Audit Committee reviewed: • the arrangements for ensuring the external auditors’ independence and objectivity; • the external auditors’ fulﬁ lment of the agreed audit plan and any variations from the plan; • the robustness and perceptiveness of the auditors in their handling of the key accounting and audit judgements; and • the content of the external auditor’s reporting on internal control. Following the above, the Audit Committee has recommended to the Board that Deloitte LLP is re-appointed. • provision of outsourced ﬁ nancial systems; Internal control • provision of outsource operational management functions; The responsibilities of the Directors in respect of internal control are deﬁ ned by the Financial Services Authority’s Listing Rules • recruitment of senior ﬁ nance or other executives; that incorporate a Code of Practice known as the Combined • secondment of senior ﬁ nance or other executives; • provision of internal audit services; • valuation services or fairness opinions; and • any services speciﬁ cally prohibited to be provided by a Code, which requires that Directors review, at least annually, the effectiveness of the Group’s system of internal controls. This requirement stipulates that the review shall cover all material controls including operational, compliance and risk management, as well as ﬁ nancial. Internal Control Guidance for Directors on listed company’s external auditors under UK regulations. the Combined Code (“the Turnbull Report”) was published in The following criteria also need to be met before the external auditors are contracted to provide such services: • the ﬁ rm has the necessary skills and experience to undertake the work; • there are no potential conﬂ icts that may arise as a result of carrying out this activity; • the external audit ﬁ rm 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 to be given by the Group Finance Director and, if the fee exceeds a certain level, the Audit Committee. September 1999, updated October 2005 and sets out best practice on internal audit for UK listed companies and assists them in applying Section C.2 of the Combined Code. The Board has assessed existing risk management and internal control processes during the year ended 31 December 2010 in accordance with the Turnbull guidance. The Board believes it has the procedures in place such that the Group has fully complied for the ﬁ nancial year ended 31 December 2010 and at the date of this report. The Directors are responsible for the Group’s system of internal ﬁ nancial and operational controls, which are designed to meet the Group’s particular needs and aim to safeguard Group assets, ensure proper accounting records are maintained and that the c. enforcing a policy of reviewing all cases where it is proposed ﬁ nancial information used within the business and for publication that a former employee of the external auditor be employed is reliable. by the Group in a senior management position; and Any system of internal control can only provide reasonable, but d. monitoring the external auditors’ compliance with applicable not absolute, assurance against material misstatement and loss. UK ethical guidance on the rotation of audit partners. Key elements of the system of internal control are as follows: 46 Michael Page International C O R P O R A T E G O V E R N A N C E • Group organisation. • internal audit activities. The Board of Directors meets at least ten times a year, The internal audit function is an independent, dedicated focusing mainly on strategic issues, operational and ﬁ nancial Internal Audit team, comprising the Head of Internal Audit performance. There is also a deﬁ ned policy on matters and an Internal Auditor. Businesses are visited on a risk- based reserved strictly for the Board. The Managing Director of and rotational basis to assess the effectiveness of controls each operating division is accountable for establishing and in mitigating speciﬁ c risks. In addition, risks are regularly monitoring internal controls within that division; reviewed and changes are made to the risk proﬁ le where • annual business plan. necessary. All internal audit activities are reported to the Audit Committee. During the year, the Board monitored and The Group has a comprehensive budgeting system with an reviewed the effectiveness of the internal audit activities. annual budget approved by the Board; • quarterly reforecasting. The Group prepares a full-year reforecast on a quarterly basis showing, by individual businesses/disciplines, the results to date and a reforecast against budget for the remaining period up to the end of the year; • ﬁ nancial reporting. Detailed monthly reports are produced showing comparisons of results against budget, forecast and the prior year, with performance monitoring and explanations provided for The Board has applied principle C.2 of the Combined Code and conﬁ rms that there is an ongoing process for identifying, evaluating and managing the signiﬁ cant risks faced by the Group and that the processes have been in place for the year under review and up to the date of approval of the annual report and accounts. RELATIONS WITH SHAREHOLDERS Board contact with shareholders signiﬁ cant variances. The Group reports to shareholders on Communications with shareholders are given a high priority. The a quarterly basis; • Audit Committee. main contact between the Board and shareholders is through the Chief Executive and the Group Finance Director. They undertake two major investor “roadshows” each year in February/March and There is an established Audit Committee whose activities are August/September, in which numerous one-to-one meetings with previously described; • ﬁ nancial and operational controls. Individual operations complete an annual controls self assessment and certiﬁ cation statement. Each operational shareholders take place. The outcome of these meetings and the views of shareholders are relayed back to the Board by the corporate brokers, at the end of each roadshow. The Group’s corporate brokers also report monthly to the Board on broking activity during the month and any issues that may have been raised manager, in addition to the ﬁ nance function for that operation, with them. conﬁ rms the adequacy of their systems of internal control and compliance with Group policies. The statement also requires the reporting of any signiﬁ cant control issues, including suspected or reported fraud, that have emerged so that Shareholders are invited to attend the Annual General Meeting where they are able to discuss any concerns with the Non- Executive Directors. areas of Group concern can be identiﬁ ed and investigated When requested by shareholders, individual matters can as required; • risk management. Identiﬁ cation of major business risks is carried out at Group level in conjunction with operational management and be discussed with the Chairman or Senior Independent Director. The Group also has a website with an investor section (http://investors.michaelpage.co.uk) that contains Company announcements and other shareholder information. appropriate steps taken to monitor and mitigate risk; Annual Report • public interest disclosure policy (whistleblowing). The Annual Report is designed to present a balanced and The audit committee has reviewed arrangements by which staff of the company may, in conﬁ dence, raise concerns about possible improprieties in matters of ﬁ nancial reporting or other matters. Arrangements are in place for the proportionate and understandable view of the Group’s activities and prospects. The Business Review provides an assessment of the Group’s affairs and position. The Annual Report and Interim Report are sent to all shareholders on the Register. independent investigation of such matters and for appropriate The Directors acknowledge their responsibility for the preparation follow-up action; and of the Annual Report. The Statement of Directors’ Responsibilities is shown on page 105. A statement by the auditors about their reporting responsibilities is shown in the Independent Auditors’ Report on page 57. Michael Page International 47 T REMUNERATION REPORT I R O P E R N O T A R E N U M E R 48 Michael Page International R E M U N E R A T O N R E P O R T I DEAR SHAREHOLDER As the new Chairman of Michael Page’s Remuneration Committee I am pleased to present the Committee’s Remuneration Report for 2010 for which we will be seeking approval from shareholders at our AGM in May. Following my appointment, the Remuneration Committee has started to undertake a review of the Company’s current remuneration arrangements to ensure that they remain appropriate in the current environment and are well aligned with the business strategy and creation of shareholder value. It is intended that a revised remuneration structure will be developed during 2011, to be implemented in 2012. In doing so, the Remuneration Committee has established a number of key principles which it intends will form the basis of the revised remuneration structure. These key principles have been outlined below. Business context Following a very challenging year in 2009, with signiﬁ cant fall in demand in our key markets, the Company took a number of actions to reduce its cost base, whilst retaining the existing platform of business disciplines in established countries and cities, and cautiously invested for the future. Economic recovery remained uncertain during 2010, and as such we have continued to operate in a difﬁ cult environment. However, as a result of the actions taken over the last two years the Company has continued to perform strongly, delivering an operating proﬁ t of £71.5m (more than three times reported proﬁ t for 2009) and delivering signiﬁ cant value to shareholders with a 50% increase in share price during 2010. The Committee’s intention is that the future remuneration structure will support the Company’s continued growth over both the medium and longer term whilst becoming further aligned with the interests of shareholders. Principles of the review The current remuneration structure was established when Michael Page was appreciably smaller. It has served the business well in some respects, being strongly aligned to proﬁ t and based on a simple and transparent structure. However, shareholder representative bodies have expressed concerns about the structure of the arrangements and that some of the share elements of the package are not based on longer term performance. As economic volatility continues, the Board is also concerned that the current highly geared package is signiﬁ cantly more volatile than the underlying business, which may reduce the ability to retain the strong management team. This management continuity is critical for a business which has built its success on organic growth and promotion from within. The principles we intend to apply to our review of remuneration are: • Moderate the volatility in remuneration arrangements so they are more in line with business performance; • Encourage active investment in Company shares linked to performance; • Establish longer term incentives less dependent on short-term performance. The intention is that the revised structure will take due account of the relevant guidelines regarding remuneration policy published by the ABI and other representatives of institutional shareholders. Reg Sindall Remuneration Committee Chairman 7 April 2011 Michael Page International 49 I T R O P E R N O T A R E N U M E R This report has been prepared in accordance with Schedule 8 Additional details of service contracts are shown on page 55. to The Accounting Regulations under the Companies Act 2006. The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board has applied the principles relating to Directors’ remuneration in the Combined Code. As required by the Act, a resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the ﬁ nancial statements will be approved. The remuneration agreed by the Committee for the Executive Directors contains the following elements: a base salary and beneﬁ ts, an annual bonus, share plan awards and pension beneﬁ ts. The remuneration of the Non-Executive Directors is determined by the Board. The Non-Executive Directors do not receive any other beneﬁ ts, other than out-of pocket expenses, from the Group, nor do they participate in any of the bonus or Scope and membership of Remuneration Committee share schemes. The Remuneration Committee, which meets not less than three times a year, comprises the independent Non-Executive Directors. The Chief Executive attends the meetings as required, 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 beneﬁ ts, compensation payments and the terms of employment of the Executive Directors and other senior executives. It seeks to provide a remuneration package that aligns strongly the interests of Executive Directors with those of the shareholders. Reg Sindall, who joined the Main Board and its Committees on 14 December 2010, was appointed as Chairman of the Remuneration Committee on 21 January 2011, replacing Dr Tim Miller. The Board would like to thank Dr Tim Miller for his valuable contribution in this role for the past ﬁ ve years. 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, annual bonus and long-term incentives and other beneﬁ ts. The following sections provide details of the Company’s remuneration policy during 2010. It is the intention that the Remuneration Committee will review the remuneration structure during 2011. BASE SALARY AND BENEFITS The Committee establishes salaries and beneﬁ ts by reference to those prevailing in the employment market generally for Executive Directors of companies of comparable status and market value, taking into account the range of incentives described elsewhere in this report, including a performance bonus. Reviews of such base salary and beneﬁ ts are conducted annually by the Committee. The Group operates a policy of providing below median salaries, with the balance of the package provided through incentives aligned with Group performance and shareholder value to ensure a total remuneration package geared to performance. As the Remuneration Committee is currently reviewing the structure of the Executive Directors’ remuneration packages, no changes have been made to their current base salaries or It receives advice from independent remuneration consultants, beneﬁ ts. Deloitte, and makes comparisons with similar organisations. Deloitte are also the Group’s auditors and have provided remuneration services in compliance with the Ethical Standards ANNUAL BONUS PLAN of the Auditing Practices Board. Both Deloitte and the Group Annual bonuses for the Executive Directors are based on the are comfortable that appropriate measures and controls are division of a pool of proﬁ ts earned during the ﬁ nancial year. in place to ensure that there is no conﬂ ict arising by providing In 2010, the bonus pool for Executive Directors was equal to both these services. No Directors, other than the members of 3.85% of proﬁ ts earned above a threshold equal to half of targeted the Remuneration Committee, provided material advice to the proﬁ ts for the year. If proﬁ ts exceed 1.1 times the targeted level, Committee on Directors’ remuneration. REMUNERATION POLICY The objective of the Group’s remuneration policy is to attract and retain management with the appropriate professional, managerial and operational expertise necessary to realise the Group’s strategic 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 month notice period. The Non-Executive Directors do not have service contracts with the Company. They are appointed for an initial three year term and thereafter may be reappointed for a further two terms of three years, subject to re-election at Annual General Meetings. then an additional 1.3% of proﬁ ts earned above the targeted level is added to the bonus pool. The Remuneration Committee retains the discretion to review this arrangement and set different rates and thresholds as it deems appropriate for the business. Proﬁ ts are deﬁ ned as Group proﬁ t 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 calculation is not entirely formulaic as the Committee has the ability to vary the pool both up and down, by up to 10%, to reﬂ ect its view of the performance of the Company relative to its directly comparable peers. Reﬂ ecting the strong recovery of the business and its performance compared to the peer group in the year, the Committee increased the 2010 bonus pool by 10%. 50 Michael Page International R E M U N E R A T O N R E P O R T I The targeted level of proﬁ ts for 2010 was £46.8m and was set at Two thirds of these shares (“Deferred Share Awards”) are the end of 2009 by reference to market expectations and internal subject to a three-year deferral period, during which they will be forecasts at that time. The Committee retains the discretion to forfeited if the relevant director or senior employee leaves, other review this arrangement and to set different rates and thresholds than in “compassionate circumstances”. The remaining third as it deems appropriate for the business. (“Performance Share Awards”) are also deferred for three years, Unlike all other employees who receive their annual bonuses in cash, the Executive Directors’ cash element of their annual but are subject to earnings per share (“EPS”) growth targets over the three year period. bonus is restricted to a multiple of salary. In the event that the Performance share awards of up to 50% of a Director’s or senior Executive Director’s annual bonus entitlement is greater than employee’s salary only vest if EPS grows by an average of 5% 150% of salary, only an amount equal to 150% of the executive’s over the growth in UK RPI per annum over the three year period. salary is paid in cash. To reward service over a longer period, Any excess between 50% and 75% of salary only vests to the any amount of the bonus pool above 150% of the individual’s extent that EPS grows by 7.5% over the growth in UK RPI per salary level is deferred, paid into an employee beneﬁ t trust and annum over the three year period. Finally, to the extent that the invested in the Company’s shares with no matching investment performance share award is greater than 75% of an executive’s by the Company. Such shares are reserved for the executive salary, the hurdle is 10% over the growth in UK RPI per annum and vest in equal annual tranches over two years, normally over the three year period. If awards do not vest after three years, so long as the executive is still in employment at that time. they automatically lapse. The Income Statement for the year carries a charge for the Directors’ annual bonus paid in cash while the deferred amount is charged in subsequent years until the shares vest. Based on the 2010 results, the aggregate amount deferred for the three Executive Directors is £1.8m (2009: £nil). There was no award in 2010. Based on the 2010 results, for awards to be made in 2011, the total award available was £5,011,080. Of this, £1,503,324 (30%) was allocated to the Executive Directors. Awards totalling £3,375,000 will be made to senior employees. Details of the awards made to the Executive The intention is that the Annual Bonus Plan will operate as normal Directors are disclosed on page 53. in 2011. The target will be set for 2011 by reference to market expectations and internal forecasts and will be disclosed in next year’s Remuneration Report. LONG-TERM INCENTIVES The performance criteria on the Performance shares and Performance share options awarded under the Incentive Share Plan in 2008 were tested at the end of 2010 and did not meet the EPS growth criteria. As no retesting after the initial vesting period is permitted, these awards have now lapsed in full. The Company currently operates two forms of long-term incentive Executive Share Option Scheme (ESOS) for Executive Directors and senior management: Incentive Share Plan (ISP) The ISP, which was approved by shareholders in 2003, is funded with a percentage, currently 6%, of Group proﬁ ts. Not more than 30% of this amount is available for awards to the Executive Directors, the balance being available for awards to senior employees. Awards vest after a three year period, with vesting of one-third of the award subject to achievement of additional performance conditions. Group proﬁ ts are deﬁ ned as Group proﬁ t before taxation, before exceptional items and charges or credits resulting from the plan or other share option grants. Awards under the ISP are satisﬁ ed in shares of the Company, which are market purchased and held by the employee beneﬁ t trust. The Committee retains the discretion to review the proportion of proﬁ ts dedicated to the ISP in the light of the growth in the size of the Company, its proﬁ tability and the number of Executive Directors. This was established on ﬂ otation in 2001. Vesting of share option awards made under the scheme is subject to performance conditions. For awards made between 2002 and 2008, a growth in earnings per share of at least 3% per annum above the growth in the UK Retail Price Index (RPI), over the three year performance period is required for vesting. There were no awards under the plan in 2009. In 2010, Executive Directors’ awards had a performance condition based on 2012 PBT, where the vesting percentage is on a straight-line basis from 0% at £48m to 100% at £66m. The Executive Directors and senior employees are eligible to participate in the ESOS. No payment is required on the grant of an option and no share options are granted at a discount. Beneﬁ ts received under the ESOS are not pensionable. Retesting after the initial vesting period is not permitted for any grants awarded in 2004 and subsequent years. As, this year, the Executive Directors will receive awards under the ISP, no awards will be made to the Executive Directors under the ESOS (2009: 400,000 options). The performance criteria on the options awarded under the Executive Share Option Scheme in 2008 was tested at the end of 2010 and did not meet the EPS growth criteria. As no retesting after the initial vesting period is permitted, these awards have now lapsed in full. Michael Page International 51 I T R O P E R N O T A R E N U M E R EMOLUMENTS The aggregate emoluments, excluding pensions, of the Directors of the Company who served during the year were as follows: 2010 Executive Steve Ingham (Note 1) Charles-Henri Dumon (Note 2) Stephen Puckett Non-Executive Sir Adrian Montague CBE Reg Sindall Ruby McGregor-Smith Dr Tim Miller Hubert Reid Total 2009 Executive Steve Ingham (Note 1) Charles-Henri Dumon (Note 2) Stephen Puckett Non-Executive Sir Adrian Montague CBE Stephen Box Ruby McGregor-Smith Dr Tim Miller Hubert Reid Total Salary and fees £’000 Beneﬁ ts (Note 3) £’000 Annual Bonus £’000 Deferred Annual Bonus £’000 Incentive Share Plan (note 4) £’000 380 395 290 130 2 49 43 46 34 72 28 – – – – – 570 435 435 – – – – – 689 549 549 – – – – – 334 334 334 – – – – – Total £’000 2,007 1,785 1,636 130 2 49 43 46 1,335 134 1,440 1,787 1,002 5,698 Salary and fees £’000 Beneﬁ ts (Note 3) £’000 Annual Bonus £’000 Deferred Annual Bonus £’000 Incentive Share Plan £’000 371 357 283 110 18 47 43 43 27 67 22 – – – – – 413 315 315 – – – – – 1,272 116 1,043 – – – – – – – – – – – – – – – – – – Total £’000 811 739 620 110 18 47 43 43 2,431 Notes to the emoluments: 1. Steve Ingham is the highest paid director. 2. Charles-Henri Dumon’s salary and beneﬁ ts are paid in Swiss Francs. In line with the other Executive Directors, he received a 2.5% increase in salary in 2010 and therefore the additional change in reported salary is due to movements in foreign exchange. 3. Beneﬁ ts include, inter alia, items such as company car or cash alternative, fuel and medical insurance. 4. Represents the non-performance proportion of the Incentive Share plan to be awarded in March 2011. PENSION BENEFITS Executive Directors are eligible to participate in the Group pension plan which is a deﬁ ned contribution scheme. In 2010, each Executive Director received a pension contribution equal to 25% (2009: 20%) of their base salary or a cash alternative. Pension contributions Steve Ingham Charles-Henri Dumon Stephen Puckett 2010 £’000 95 99 73 2009 £’000 74 66 57 52 Michael Page International DIRECTORS’ INTERESTS AND SHARE OWNERSHIP REQUIREMENTS It is Michael Page policy that Executive Directors are required to build and hold, as a minimum, a direct beneﬁ cial interest in the Company’s ordinary shares equal to their base salary. As at 31 December 2010, all Executive Directors complied with this requirement. The beneﬁ cial interests of the Directors who served during the year and their families in the ordinary shares of the Company of 1p each are shown below. For the Directors in ofﬁ ce at the balance sheet date there has been no change in these interests from 31 December 2010 to 4 March 2011. Ordinary shares of 1p At 1 January 2010 Steve Ingham Direct Holding Charles-Henri Dumon Direct Holding Stephen Puckett Direct Holding 1,555,439 1,230,107 720,016 Transferred in year ISP 52,684 89,702 52,683 ABP 204,864 275,945 161,996 Total transferred in year 257,548 365,647 214,679 Disposal in year (600,000) (967,754) (500,000) At 31 December 2010 1,212,987 628,000 434,695 1. Steve Ingham transferred 52,684 shares from the Incentive Share Plan and 204,864 from the Deferred Annual Bonus Plan into his direct holding and also disposed of 600,000 out of his direct holding in the year. 2. Charles-Henri Dumon transferred 89,702 shares from the Incentive Share Plan and 275,945 from the Deferred Annual Bonus Plan into his direct holding and also disposed of 967,754 out of his direct holding in the year. 3. Stephen Puckett transferred 52,683 shares from the Incentive Share Plan and 161,996 from the Deferred Annual Bonus Plan into his direct holding and also disposed of 500,000 out of his direct holding in the year. R E M U N E R A T O N R E P O R T I No other Director has a holding in the Company. INCENTIVE SHARE PLAN Details of awards made under the Incentive Share Plan that remain outstanding at 31 December 2010 are as follows: Total award at 1 January 2010 Performance shares Non- performance shares Total shares Vested in year Lapsed in year Total award at 31 December 2010 Performance shares Non- performance shares Total shares Lapsing in March 2011 Performance shares Steve Ingham Charles-Henri Dumon Stephen Puckett 306,198 306,198 306,198 612,393 612,393 612,393 918,591 (89,702) (44,851) 918,591 (89,702) (44,851) 918,591 (89,702) (44,851) 261,347 261,347 261,347 522,691 522,691 522,691 784,038 (107,562) 784,038 (107,562) 784,038 (107,562) 1. There were no awards made under the Incentive Share Plan in 2010. The market value of the shares vested in the year at the date of award was 285p. 2. The total value of awards at 31 December 2010 for each individual Director in ofﬁ ce at the balance sheet date is £4,351,411 and is calculated using the closing market price of the Company’s ordinary shares at 31 December 2010 of 555p. 3. Both the Performance shares and the Performance options awarded under the Michael Page Incentive Share Plan in 2008 did not meet their vesting criteria and have lapsed as at the end of 2010. DEFERRED ANNUAL BONUS As described on pages 50 and 51, in the event that the Executive Directors’ bonus entitlement is greater than 150% of salary, the excess above the individual’s salary is deferred, invested in the Company’s shares and delivered to the individual in two equal tranches on the ﬁ rst two anniversaries of the grant. In respect of 2010, a total of £1.8m will be awarded to the Executive Directors in March 2011, representing this excess, and has been included in the emoluments table for the year as shown on page 52. There has been no charge made to the income statement in the year for the deferred element of the 2010 annual bonus. The charge for the year will be spread over future periods as described in the accounting policies in Note 1 on page 69. For full descriptions of the vesting conditions, see “Annual Bonus Plan” on pages 50 and 51. Michael Page International 53 I T R O P E R N O T A R E N U M E R Details of awards made under the deferred Annual Bonus Plan that remain outstanding at 31 December 2010 are as follows: Steve Ingham Charles-Henri Dumon Stephen Puckett Total award at 1 January 2010 (shares) Vested in year (shares) Total award at 31 December 2010 (shares) 492,078 389,709 389,709 (348,963) (275,945) (275,945) 143,115 113,764 113,764 The average market value of the shares vested in the year at the date of award was 244.9p. BENEFICIAL INTERESTS The beneﬁ cial 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 2010 were as follows: Steve Ingham Charles-Henri Dumon Stephen Puckett Date of Grant At 1 January 2010 (shares) At 31 December 2010 (shares) Granted in year Exercise price (pence) Period of exercise 2001 2005 2010 2001 2005 2010 2001 2005 2010 93,471 50,000 – 140,209 50,000 – – 400,000 – – – 400,000 93,471 50,000 – – – 400,000 93,471 50,000 400,000 140,209 50,000 400,000 93,471 50,000 400,000 175 190.75 381.5 175 190.75 381.5 175 190.75 381.5 2004-2011 2008-2015 2013-2020 2004-2011 2008-2015 2013-2020 2004-2011 2008-2015 2013-2020 The market price of the shares at 31 December 2010 was 555p with a range during the year of 346.4p to 565.5p. TOTAL SHAREHOLDER RETURN (TSR) The graph below shows Total Shareholder Return (TSR) relative to a base index of 100 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. Versus FTSE 250 and FTSE Support Services 31 Dec 2006 31 Dec 2007 31 Dec 2008 31 Dec 2009 31 Dec 2010 250 200 150 100 50 227.31 150.75 132.92 169.89 130.21 123.95 127.01 111.70 109.57 83.97 81.43 78.55 152.24 118.33 107.90 FTSE250 FTSE Support Services Michael Page International 54 Michael Page International I A U D T O R S ’ R E P O R T OUTSIDE APPOINTMENTS The Remuneration Committee recognises that Non-Executive Directorships have signiﬁ cant beneﬁ t in broadening executives’ 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 conﬂ ict of interest and their effectiveness is not impaired. The executives are permitted to retain any fees for their service. SERVICE CONTRACTS A general review of all the Executive Directors’ contracts was carried out during 2010 to ensure they remain legally current and a number of minor amendments were made. All Executive Directors’ service contracts contain a twelve 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 twelve months following termination of employment. On termination, any compensation payments due to a Director are calculated in accordance with normal legal principles, including mitigation, as appropriate. Contract date Unexpired term at 31 December 2010 Notice period Provision for compensation on early termination Other termination provisions Executive Steve Ingham 31/12/10 no speciﬁ c term 12 months Charles-Henri Dumon 13/06/03 no speciﬁ c term 12 months Stephen Puckett Non-Executive 31/12/10 no speciﬁ c term 12 months Sir Adrian Montague CBE (Note 1) 27/02/10 26 months Ruby McGregor-Smith (Note 2) Dr Tim Miller (Note 4) Hubert Reid Reg Sindall (Notes 3 & 4) 23/05/10 15/08/08 25/02/09 14/12/10 29 months 8 months 14 months 36 months None None None None None 12 months salary plus other contractual beneﬁ ts 12 months salary plus other contractual beneﬁ ts 12 months salary plus other contractual beneﬁ ts None None None None None None None None None None None None None 1. Sir Adrian Montague’s contract was renewed for a further three year term on 27 February 2010. 2. Ruby McGregor-Smith’s contract was renewed for a further three year term on 23 May 2010. 3. Reg Sindall was appointed to the Main Board and the Audit, Remuneration and Nomination Committees for an initial three year term on 14 December 2010. 4. Dr Tim Miller stood down and Reg Sindall was appointed as Chairman of the Remuneration Committee on 21 January 2011. ANNUAL RESOLUTION Shareholders will be given the opportunity to approve the Remuneration Report at the Annual General Meeting (resolution 11) on 20 May 2011. AUDIT REQUIREMENT Within the Remuneration Report, the sections on Emoluments, and Directors’ interests and share ownership requirements, on pages 52 to 54 inclusive, are audited. All other sections of the Remuneration Report are unaudited. Reg Sindall Chairman – Remuneration Committee 4 March 2011 Michael Page International 55 T AUDITOR’S REPORT R O P E R S R O T D U A ’ I 56 Michael Page International I ’ A U D T O R S R E P O R T INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MICHAEL PAGE INTERNATIONAL PLC We have audited the ﬁ nancial statements of Michael Page International plc for the year ended 31 December 2010 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Group and Parent 31 December 2010 and of the group’s proﬁ t for the year then ended; • the group ﬁ nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company ﬁ nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and Company Balance Sheets, the Consolidated and Parent • the ﬁ nancial statements have been prepared in accordance Company Statements of Changes in Equity, the Group and Parent Company Cash Flow Statements and the related notes with the requirements of the Companies Act 2006 and, as regards the group ﬁ nancial statements, Article 4 of the IAS 1 to 26. The ﬁ nancial reporting framework that has been applied Regulation. in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company ﬁ nancial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 Auditor’s 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. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the Directors’ Report for the ﬁ nancial year for which the ﬁ nancial statements are prepared is consistent with the ﬁ nancial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you Respective responsibilities of directors and auditor if, in our opinion: As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the ﬁ nancial statements and for being satisﬁ ed that they give a true and fair view. Our responsibility is to audit and express an opinion on the ﬁ nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company ﬁ nancial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration speciﬁ ed by law are not made; or Scope of the audit of the ﬁ nancial statements • we have not received all the information and explanations we An audit involves obtaining evidence about the amounts and disclosures in the ﬁ nancial statements sufﬁ cient to give reasonable require for our audit. Under the Listing Rules we are required to review: assurance that the ﬁ nancial statements are free from material • the directors’ statement contained within the Business Review misstatement, whether caused by fraud or error. This includes an in relation to going concern; assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of signiﬁ cant accounting estimates made by the directors; and the overall presentation of the ﬁ nancial statements. • the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the June 2008 Combined Code speciﬁ ed for our review; and • certain elements of the report to shareholders by the Board on Directors’ remuneration. Opinion on ﬁ nancial statements In our opinion: • the ﬁ nancial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at Peter O’Donoghue for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 4 March 2011 Michael Page International 57 S FINANCIAL STATEMENTS T N E M E T A T S L A C N A N F I I Consolidated Income Statement ..........................................59 10. Earnings per ordinary share ....................................75 Consolidated Statement of Comprehensive Income ...........59 11. Property, plant and equipment ...............................76 Consolidated and Parent Company Balance Sheets ...........60 12. Intangible assets ....................................................76 Consolidated Statement of Changes in Equity ....................61 13. Investments............................................................77 Statement of Changes in Equity – Parent Company ...........62 14. Trade and other receivables ...................................78 Consolidated and Parent Company 15. Trade and other payables .......................................78 Cash Flow Statements ..........................................................63 16. Bank overdrafts ......................................................79 Notes to the Financial Statements .......................................64 17. Deferred tax ...........................................................79 1. 2. 3. 4. 5. 6. 7. 8. 9. Signiﬁ cant accounting policies................................64 18. Called-up share capital ...........................................80 Segment reporting .................................................70 19. Reserves ................................................................82 Proﬁ t for the year ....................................................72 20. Cash ﬂ ows from operating activities .......................83 Employee information .............................................72 21. Cash and cash equivalents ....................................83 Non-recurring items (NRI) .......................................73 22. Financial risk management .....................................83 Financial income/(expenses) ...................................74 23. Commitments ........................................................87 Taxation on proﬁ ts on ordinary activities .................74 24. Contingent liabilities ................................................88 Current tax assets and liabilities .............................74 25. Events after the balance sheet date .......................88 Dividends ...............................................................75 26. Related party transactions ......................................88 58 Michael Page International I I F N A N C A L S T A T E M E N T S CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2010 Revenue Cost of sales Gross proﬁ t Administrative expenses Operating proﬁ t before non-recurring items Other income - non-recurring items Operating proﬁ t Financial income Financial income - non-recurring items Financial expenses Proﬁ t before tax Income tax expense Income tax expense - non-recurring items Proﬁ t for the year Attributable to: Owners 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 6 5 6 2 7 5, 7 3 10 10 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2010 Proﬁ t for the year Other comprehensive income for the year Currency translation differences Total comprehensive income for the year Attributed to: Owners of the parent 2010 £’000 832,296 (390,089) 442,207 (370,680) 71,527 17,125 88,652 1,107 11,335 (438) 100,656 (25,203) (7,969) 67,484 2009 £’000 716,722 (365,028) 351,694 (331,491) 20,203 – 20,203 2,027 – (1,162) 21,068 (8,638) – 12,430 67,484 12,430 21.6 21.1 3.9 3.8 2010 £’000 67,484 290 67,774 67,774 2009 £’000 12,430 (11,978) 452 452 Michael Page International 59 S T N E M E T A T S L A C N A N F I I CONSOLIDATED AND PARENT COMPANY BALANCE SHEETS As at 31 December 2010 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 Current liabilities Trade and other payables Bank overdrafts Current tax payable Net current assets Non-current liabilities Other payables Deferred tax liabilities Total liabilities Net assets Capital and reserves Called-up share capital Share premium Capital redemption reserve Reserve for shares held in the employee beneﬁ t trust Currency translation reserve Retained earnings Total equity Note 2, 11 2, 12 13 17 14 14 8 21 2 15 16 8 15 17 2 18 19 19 19 19 Group Company 2010 £’000 28,526 27,574 – 12,441 1,145 69,686 168,305 2,810 80,531 251,646 2009 £’000 31,432 20,051 2010 £’000 2009 £’000 – – – – – 421,545 422,577 10,179 2,021 63,683 133,402 14,174 137,228 284,804 – – – – 421,545 422,577 552,108 1,305 – 481,679 1,305 – 553,413 482,984 321,332 348,487 974,958 905,561 (122,795) – (16,583) (139,378) (142,750) (43) (5,470) (148,263) (510,830) – – (510,830) (450,492) (43) – (450,535) 112,268 136,541 42,583 32,449 (4,156) (364) (4,520) (2,881) (327) (3,208) – – – – – – (143,898) (151,471) (510,830) (450,535) 177,434 197,016 464,128 455,026 3,216 55,607 875 (75,361) 33,691 159,406 177,434 3,234 51,589 838 (19,409) 33,401 127,363 197,016 3,216 55,607 875 – – 404,430 464,128 3,234 51,589 838 – – 399,365 455,026 These ﬁ nancial statements of Michael Page International plc, Company Number 3310225, were approved by the Board of Directors and authorised for issue on 4 March 2011. On behalf of the Board of Directors. S Ingham Chief Executive S R Puckett Group Finance Director 60 Michael Page International I I F N A N C A L S T A T E M E N T S CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2010 Group Note Called- up share capital £’000 Share premium £’000 Capital redemption reserve £’000 Reserve for shares held in the employee beneﬁ t trust £’000 Currency translation reserve £’000 Retained earnings £’000 Total equity £’000 Balance at 1 January 2009 3,220 48,856 838 (21,078) 45,379 133,449 210,664 Currency translation differences Net expense recognised directly in equity Proﬁ t for the year Total comprehensive (loss)/income for the year Purchase of shares held in the employee beneﬁ t trust Issue of share capital Transfer to reserve for shares held in the employee beneﬁ t trust Credit in respect of share schemes Credit in respect of tax on share schemes Dividends Balance at 31 December 2009 and 1 January 2010 Currency translation differences Net expense recognised directly in equity Proﬁ t for the year Total comprehensive income for the year Purchase of own shares for cancellation Purchase of shares held in the employee beneﬁ t trust Issue of share capital Transfer to reserve for shares held in the employee beneﬁ t trust Credit in respect of share schemes Credit in respect of tax on share schemes Dividends Balance at 31 December 2010 9 9 – – – – – – – – – – 14 2,733 – – – – – – – – 14 2,733 – – – – – – – – – – – – – – – (11,978) (11,978) – – (11,978) (11,978) – 12,430 12,430 (11,978) 12,430 452 (1,903) – 3,572 – – – 1,669 – – – – – – – – – (3,572) 8,491 2,418 (1,903) 2,747 – 8,491 2,418 (25,853) (25,853) (18,516) (14,100) 3,234 51,589 838 (19,409) 33,401 127,363 197,016 – – – – (37) – 19 – – – – – – – – – – 4,018 – – – – – – – – 37 – – – – – – (18) 3,216 4,018 55,607 37 875 – – – – – (61,757) – 5,805 – – – (55,952) 290 290 – 290 – – – – – – – – – – 67,484 67,484 290 290 67,484 67,774 (15,086) (15,086) – – (5,805) (61,757) 4,037 – 10,049 10,049 280 280 (24,879) (24,879) (35,441) (87,356) (75,361) 33,691 159,406 177,434 Michael Page International 61 S T N E M E T A T S L A C N A N F I I STATEMENT OF CHANGES IN EQUITY – PARENT COMPANY For the year ended 31 December 2010 Company Balance at 1 January 2009 Proﬁ t for the year Total comprehensive income for the year Issue of share capital Dividends Balance at 31 December 2009 and 1 January 2010 Proﬁ t for the year Total comprehensive income for the year Purchase of own shares for cancellation Issue of share capital Dividends Balance at 31 December 2010 Note Called-up share capital £’000 3,220 Share premium £’000 48,856 Capital redemption reserve £’000 838 9 9 – – 14 – 14 3,234 – – (37) 19 – (18) 3,216 – – 2,733 – 2,733 51,589 – – – 4,018 – 4,018 55,607 – – – – – 838 – – 37 – – 37 875 Retained earnings £’000 351,651 73,567 73,567 – (25,853) (25,853) 399,365 45,030 45,030 Total equity £’000 404,565 73,567 73,567 2,747 (25,853) (23,106) 455,026 45,030 45,030 (15,086) (15,086) – (24,879) (39,965) 404,430 4,037 (24,879) (35,928) 464,128 62 Michael Page International I I F N A N C A L S T A T E M E N T S CONSOLIDATED AND PARENT COMPANY CASH FLOW STATEMENTS For the year ended 31 December 2010 Note 20 20 Cash generated from underlying operations Net cash (paid)/received in respect of non-recurring items (NRI) Cash generated from operations Income tax paid Net cash from operating activities Cash ﬂ ows 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 Interest received Net cash (used in)/received from investing activities Cash ﬂ ows from ﬁ nancing activities Dividends paid Interest paid Issue of own shares for the exercise of options Purchase of own shares for cancellation Purchase of shares held in the employee beneﬁ t trust Net cash used in ﬁ nancing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Exchange loss on cash and cash equivalents Cash and cash equivalents at the end of the year 21 Group 2010 £’000 81,650 (12,558) 69,092 (12,408) 56,684 (7,371) (8,774) 1,392 1,107 (13,646) 2009 £’000 73,759 41,018 114,777 (28,196) 86,581 (5,757) (7,645) 2,061 2,027 (9,314) Company 2010 £’000 48,598 (12,558) 36,040 – 2009 £’000 45,074 41,018 86,092 – 36,040 86,092 – – – 72 72 – – – 448 448 (24,879) (25,853) (24,879) (25,853) (1,160) 2,747 (141) 4,037 – (15,086) – (780) 2,747 – – (439) 4,037 (15,086) (61,757) (98,124) (55,086) 137,185 (1,568) 80,531 (1,903) (26,169) 51,098 94,283 (8,196) 137,185 (36,069) (23,886) 43 (43) – – 62,654 (62,697) – (43) Michael Page International 63 S T N E M E T A T S L A C N A N F I I NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2010 1. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance Michael Page International plc is a company incorporated in the United Kingdom under the Companies Act. The ﬁ nancial statements have been prepared under the historical cost convention and in accordance with current International Financial Reporting Standards (IFRS). The ﬁ nancial 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 ﬁ nancial statements of Michael Page International plc consolidate the results of the Company and all its subsidiary undertakings. As permitted by Section 408 of the Companies Act 2006, the proﬁ t and loss account of the Company has not been included as part of these ﬁ nancial statements. The Company’s proﬁ t for the ﬁ nancial year amounted to £45.0m (2009: £73.6m). The decrease in the Company’s proﬁ t this year is as a result of decreased dividend income. The ﬁ nancial statements have been prepared on a going concern basis. Refer to page 28 for further details. 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 ﬁ nancial and operating policies of an entity so as to obtain beneﬁ ts from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The ﬁ nancial statements of subsidiaries are included in the consolidated ﬁ nancial 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 ﬁ nancial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (iii) Employee Beneﬁ t Trust Shares in Michael Page International plc held by the trust are shown as a reduction in shareholders’ funds. Other assets and liabilities held by the trust are consolidated with the assets of the Group. The policies, set out below, have been consistently applied to all the periods presented. New standards and interpretations The accounting policies applied by the Group in these Consolidated Financial Statements are the same as those applied by the Group in its consolidated ﬁ nancial statements as at and for the year ended 31 December 2009 except as described below. (a) New and amended standards adopted by the group The following new standards and amendments to standards are mandatory for the ﬁ rst time for the ﬁ nancial year beginning 1 January 2010. None of these new standards or amendments to standards have had a signiﬁ cant impact on the Group. IAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also speciﬁ es the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in proﬁ t or loss. IAS 27 (revised) has had no impact on the current period, as all subsidiaries in the Group are 100% owned; there have been no transactions whereby an interest in an entity is retained after the loss of control of that entity, and there have been no transactions with non-controlling interests. IFRS 2 (amendments), ‘Group cash-settled share-based payment transactions’, effective form 1 January 2010. In addition to incorporating IFRIC 8, ‘Scope of IFRS 2’, and IFRIC 11, ‘IFRS 2 – Group and treasury share transactions’, the amendments expand on the guidance in IFRIC 11 to address the classiﬁ cation of group arrangements that were not covered by that interpretation. (b) New and amended standards, and interpretations mandatory for the ﬁ rst time for the ﬁ nancial year beginning 1 January 2010 but not currently relevant to the group (although they may affect the accounting for future transactions and events). The following standards and amendments to existing standards have been published and are mandatory for the group’s accounting periods beginning on or after 1 January 2010 or later periods, but the group has not early adopted them. 64 Michael Page International I I F N A N C A L S T A T E M E N T S 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New standards and interpretations (continued) IAS 1 (amendment 2009), ‘Presentation of ﬁ nancial statements’. The amendment clariﬁ es that the potential settlement of a liability by the issue of equity is not relevant to its classiﬁ cation as current or non current. By amending the deﬁ nition of current liability, the amendment permits a liability to be classiﬁ ed as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time. IAS 36 (amendment), ‘Impairment of assets’, effective 1 January 2010. The amendment clariﬁ es that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as deﬁ ned by paragraph 5 of IFRS 8, ‘ Operating segments’ (that is, before the aggregation of segments with similar economic characteristics). IFRS 3 (revised), ‘Business combinations’, and consequential amendments to IAS 27, ‘Consolidated and separate ﬁ nancial statements’, IAS 28, ‘Investments in associates’, and IAS 31, ‘Interests in joint ventures’, are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the ﬁ rst annual reporting period beginning on or after 1 July 2009. The revised standard continues to apply the acquisition method to business combinations but with some signiﬁ cant changes compared with IFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classiﬁ ed as debt subsequently remeasured through the statement of comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs are expensed. IFRS 3 (revised) has had no impact on the Group, as the Group is organically grown and does not follow a strategy of acquisitions. IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’. The amendment clariﬁ caties that IFRS 5 speciﬁ es the disclosures required in respect of non-current assets (or disposal groups) classiﬁ ed as held for sale or discontinued operations. It also clariﬁ es that the general requirements of IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1. IFRIC 17, ‘Distribution of non-cash assets to owners’ (effective on or after 1 July 2009). The interpretation was published in November 2008. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classiﬁ ed as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. (c) New standards, amendments and interpretations issued but not effective for the ﬁ nancial year beginning 1 January 2010 and not early adopted. The group’s and parent entity’s assessment of the impact of these new standards and interpretations is set out below. IAS 24 (revised), ‘Related party disclosures’, issued in November 2009. It supersedes IAS 24, ‘Related party disclosures’, issued in 2003. IAS 24 (revised) is mandatory for periods beginning on or after 1 January 2011. Earlier application, in whole or in part, is permitted. However, the standard has not yet been endorsed by the EU. The revised standard clariﬁ es and simpliﬁ es the deﬁ nition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. The group will apply the revised standard from 1 January 2011. When the revised standard is applied, the group and the parent will need to disclose any transactions between its subsidiaries and its associates. The group is currently putting systems in place to capture the necessary information. It is, therefore, not possible at this stage to disclose the impact, if any, of the revised standard on the related party disclosures. ‘Classiﬁ cation of rights issues’ (amendment to IAS 32), issued in October 2009. The amendment applies to annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classiﬁ ed as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8 ‘Accounting policies, changes in accounting estimates and errors’. The group will apply the amended standard from 1 January 2011. Michael Page International 65 S T N E M E T A T S L A C N A N F I I 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New standards and interpretations (continued) IFRS 9, ‘Financial instruments’, issued in November 2009. This standard is the ﬁ rst step in the process to replace IAS 39, ‘Financial instruments: recognition and measurement’. IFRS 9 introduces new requirements for classifying and measuring ﬁ nancial assets. While the Group is yet to assess IFRS 9’s full impact, it is unlikely to signiﬁ cantly affect the Group’s accounting for ﬁ nancial assets. The standard is not applicable until 1 January 2013, but is available for early adoption. However, the standard has not yet been endorsed by the EU. ‘Prepayments of a minimum funding requirement’ (amendments to IFRIC 14). The amendments correct an unintended consequence of IFRIC 14, ‘IAS 19 – The limit on a deﬁ ned beneﬁ t asset, minimum funding requirements and their interaction’. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct this. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented. The group will apply these amendments for the ﬁ nancial reporting period commencing on 1 January 2011. IFRIC 19, ‘Extinguishing ﬁ nancial liabilities with equity instruments’, effective 1 July 2010. The interpretation clariﬁ es the accounting by an entity when the terms of a ﬁ nancial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the ﬁ nancial liability (debt for equity swap). It requires a gain or loss to be recognised in proﬁ t or loss, which is measured as the difference between the carrying amount of the ﬁ nancial liability and the fair value of the equity instruments issued. If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments should be measured to reﬂ ect the fair value of the ﬁ nancial liability extinguished. The group will apply the interpretation from 1 January 2011, subject to endorsement by the EU. It is not expected to have any impact on the group or the parent entity’s ﬁ nancial statements. The Directors anticipate that the adoption of the above Standards and Interpretations in future periods will have little or no impact on the ﬁ nancial statements of the Group when the relevant Standards come into effect for periods commencing on or after 1 January 2011. Going concern The directors have, at the time of approving the ﬁ nancial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the ﬁ nancial statements. Further detail is contained in the Business Review on page 28. a) Revenue and income recognition Revenue, which excludes value added tax (“VAT”), constitutes the value of services undertaken by the Group from its principal activities, which are recruitment consultancy and other ancillary services. These consist of: • • revenue 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; revenue from permanent placements is typically based on a percentage of the candidate’s remuneration package and is derived from both retained assignments (income recognised on completion of deﬁ ned stages of work) and non-retained assignments (income recognised at the date an offer is accepted by a candidate and where a start date has been determined). The latter includes revenue 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 • revenue 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 proﬁ t Gross proﬁ t represents revenue 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 ﬁ nancial 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 ﬁ nancial statements are presented in Sterling, which is the Company’s functional and presentation currency. 66 Michael Page International I I F N A N C A L S T A T E M E N T S 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New standards and interpretations (continued) (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. (iii) Group companies The results and ﬁ nancial position of all the Group entities (none of which has the currency of a hyperinﬂ ationary 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 identiﬁ able 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 at least 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). Included with computer software, are assets under construction which are amortised from the point they go live. (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 indeﬁ nite. Goodwill has an indeﬁ nite 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 (2009: £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, ﬁ xtures and equipment 10-20% per annum • Motor vehicles 25% per annum g) Investments Fixed asset investments are stated at cost less provision for impairment. h) Impairment of assets Assets that have an indeﬁ nite 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 identiﬁ able cash ﬂ ows (cash-generating units). A ﬁ nancial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A ﬁ nancial asset is considered to be impaired if objective evidence indicates that one or more events has had a negative effect on the estimated future cash ﬂ ows of that asset. For certain categories of ﬁ nancial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio, as well as observable changes in national or local economic conditions that correlate with default on receivables. The carrying amount of the ﬁ nancial asset is reduced by the impairment loss directly for all ﬁ nancial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the income statement. Michael Page International 67 S T N E M E T A T S L A C N A N F I I 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) i) Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable proﬁ t for the year. Taxable proﬁ t differs from proﬁ t 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. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the ﬁ nancial statements and the corresponding tax bases used in the computation of taxable proﬁ t, 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 proﬁ ts 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 proﬁ t nor the accounting proﬁ t. 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 sufﬁ cient taxable proﬁ ts 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 the income statement, 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. j) Pension costs The Group operates deﬁ ned contribution pension schemes. The assets of the schemes are held separately from those of the Group in independently administered funds. The pension costs charged to the income statement represent the contributions payable by the Group to the funds during each period. k) Leased assets Leases are classiﬁ ed as ﬁ nance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classiﬁ ed as operating leases. Assets held under ﬁ nance 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 ﬁ nance lease obligation. Lease payments are apportioned between ﬁ nance 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 the income statement. Rentals under operating leases are charged to the income statement on a straight-line basis over the term of the lease. Beneﬁ ts received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. l) Segment reporting IFRS 8 requires operating segments to be identiﬁ ed on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. Information provided to the Chief Executive is focused on regions and as a result, reportable segments are on a regional basis. m) Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s ﬁ nancial statements in the period in which the dividends are approved by the Company’s shareholders. 68 Michael Page International I I F N A N C A L S T A T E M E N T S 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) n) Share-based compensation The Group operates a number of equity-settled, share-based compensation plans. Their 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. (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 reﬂ ect 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. o) 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. p) 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 outﬂ ow of economic beneﬁ ts 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. q) Borrowing costs All borrowing costs are accrued in the income statement on a time basis. r) Financial assets and liabilities Financial assets and liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Non-derivative ﬁ nancial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables. Trade receivables, loans, and other receivables that have ﬁ xed or determinable payments that are not quoted in an active market are classiﬁ ed as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. 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 ﬂ ows. Trade and other payables are stated at cost. Other ﬁ nancial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. The Group has derivative contracts at the balance sheet date that have been valued at fair value through the income statement. s) Critical accounting estimates and judgements The preparation of ﬁ nancial 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. In particular, information about signiﬁ cant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most signiﬁ cant effect on the amount recognised in the ﬁ nancial statements are described in the following notes: Michael Page International 69 S T N E M E T A T S L A C N A N F I I 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) s) Critical accounting estimates and judgements (continued) (cid:129) Note 1 – revenue recognition In making its judgement, management considered the detailed criteria for the recognition of revenue from permanent placements where a position has been accepted by a candidate, a start date agreed, but employment has not yet commenced. A provision is made by management, based on past historical experience, for the proportion of those placements where the candidate is expected to reverse their acceptance prior to the start date. (cid:129) Note 14 – trade and other receivables There is uncertainty regarding customers who may not be able to pay as their invoices fall due. In reviewing the appropriateness of the provisions in respect of recoverability of trade receivables, consideration has been given to the economic climate in the respective markets, the ageing of the debt and the potential likelihood of default. (cid:129) Note 17 – deferred tax Management has estimated the likely value of deferred tax assets in respect of trading losses carried forward. (cid:129) Note 18 – share-based payments The Group’s policy for share-based payments is stated in note 1 (n). The fair value of equity settled share-based payments is partly derived from estimates of factors such as lapse rates and achievement of performance criteria. It is also derived from assumptions such as the future volatility of the Company’s share price, expected dividend yields and risk-free interest rates. t) Non-recurring items Non-recurring items are those items the Group considers to be one-off or material in nature that should be brought to the reader’s attention in understanding the Group’s ﬁ nancial performance. 2. SEGMENT REPORTING All revenues disclosed are derived from external customers. The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 1. Segment operating proﬁ t represents the proﬁ t earned by each segment without allocation of central administration costs and certain recharges. This is the measure reported to the Group’s Chief Executive for the purpose of resource allocation and assessment of segment performance. (a) Revenue, gross proﬁ t and operating proﬁ t by reportable segment EMEA United Kingdom Asia Paciﬁ c Australia and New Zealand Asia Total Americas Non-recurring items (NRI) Interest income Proﬁ t before tax Gross Proﬁ t Operating Proﬁ t Revenue 2010 £’000 332,202 302,567 81,676 38,630 120,306 77,221 832,296 – 2009 £’000 311,070 274,599 59,108 20,301 79,409 51,644 716,722 – 2010 £’000 188,706 124,858 37,645 34,569 72,214 56,429 442,207 – 2009 £’000 163,729 110,784 23,881 18,329 42,210 34,971 351,694 – 832,296 716,722 442,207 351,694 – – – – – – – – 2010 £’000 22,272 19,630 9,754 12,562 22,316 7,309 71,527 17,125 88,652 12,004 100,656 2009 £’000 1,055 11,275 4,287 3,798 8,085 (212) 20,203 – 20,203 865 21,068 The above analysis by destination is not materially different to the analysis by origin. Non-recurring items (NRI) relate wholly to the United Kingdom. The analysis below is of the carrying amount of reportable segment assets, liabilities and non-current assets. 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 reportable segments exclude income tax assets and liabilities. Non-current assets include property, plant and equipment, computer software and goodwill. 70 Michael Page International I I F N A N C A L S T A T E M E N T S 2. SEGMENT REPORTING (CONTINUED) (b) Segment assets, liabilities and non-current assets by reportable segment EMEA United Kingdom Asia Paciﬁ c Australia and New Zealand Asia Total Americas Segment assets/liabilities Income tax EMEA United Kingdom Asia Paciﬁ c Australia and New Zealand Asia Total Americas Total Assets Total Liabilities 2010 £’000 136,159 96,563 28,292 24,471 52,763 33,037 318,522 2,810 321,332 2009 £’000 117,863 161,653 18,025 13,025 31,050 23,747 334,313 14,174 348,487 2010 £’000 60,744 41,359 10,410 5,352 15,762 9,450 127,315 16,583 143,898 2009 £’000 49,504 83,341 6,622 2,322 8,944 4,212 146,001 5,470 151,471 Property, Plant and Equipment 2009 £’000 2010 £’000 10,104 9,090 2,104 996 3,100 6,232 28,526 13,016 9,985 2,411 708 3,119 5,312 31,432 Intangible Assets 2010 £’000 776 25,810 148 369 517 471 2009 £’000 1,166 17,933 258 310 568 384 27,574 20,051 The analyses below in notes (c) revenue and gross proﬁ t by discipline (being the professions of candidates placed) and (d) revenue and gross proﬁ t generated from permanent and temporary placements have been included as additional disclosure over and above the requirements of IFRS 8 “Operating Segments”. (c) Revenue and gross proﬁ t by discipline Finance and Accounting Marketing, Sales and Retail Legal, Technology, HR, Secretarial and Other Engineering, Property & Construction, Procurement & Supply Chain Revenue 2010 £’000 450,573 111,661 156,993 113,069 832,296 2009 £’000 408,951 91,811 125,199 90,761 716,722 Gross Proﬁ t 2010 £’000 2009 £’000 209,176 175,743 82,834 81,597 68,600 61,404 61,217 53,330 442,207 351,694 (d) Revenue and gross proﬁ t generated from permanent and temporary placements Permanent Temporary Revenue Gross Proﬁ t 2010 £’000 355,979 476,317 832,296 2009 £’000 260,161 456,561 716,722 2010 £’000 343,787 98,420 442,207 2009 £’000 249,387 102,307 351,694 Michael Page International 71 S T N E M E T A T S L A C N A N F I I 3. PROFIT FOR THE YEAR Proﬁ t for the year is stated after charging/(crediting): Employment costs (Note 4) Net exchange losses Depreciation of property, plant and equipment - owned Amortisation of computer software Impairment of trade receivables Loss on sale of property, plant and equipment and computer software Fees payable to the company’s auditor for the audit of the company’s annual accounts Fees payable to the company’s auditor and their associates for other services to the group: - The audit of the company’s subsidiaries pursuant to legislation Total audit fees - Other services pursuant to legislation - Tax services - Other services Total non-audit fees Total fees Operating lease rentals - land and buildings - plant and machinery 4. EMPLOYEE INFORMATION 2010 £’000 2009 £’000 255,435 226,692 307 9,310 1,269 6,370 151 67 463 530 23 195 66 284 814 144 9,926 1,342 8,665 383 65 466 531 22 114 78 214 745 25,226 4,832 25,794 5,785 The average number of employees (including Executive Directors) during the year and total number of employees (including Executive Directors) at 31 December 2010 were as follows: Management Client services Administration Employment costs (including Directors’ emoluments) comprised: 2010 Average No. 2009 Average No. 175 2,652 1,108 3,935 172 2,664 1,099 3,935 Wages and salaries Social security costs Pension costs - deﬁ ned contribution plans Share-based payments 2010 No. 184 3,089 1,225 4,498 2010 £’000 203,653 29,858 9,496 12,428 2009 No. 165 2,351 1,033 3,549 2009 £’000 182,656 27,007 8,538 8,491 255,435 226,692 Details of Directors’ remuneration for the year are provided in the Directors’ Remuneration Report on pages 48 to 55. No staff are employed by the parent company (2009: none) hence no remuneration has been disclosed. 72 Michael Page International I I F N A N C A L S T A T E M E N T S 5. NON-RECURRING ITEMS (NRI) – VAT In 2003, the Group submitted an initial claim to Her Majesty’s Revenue and Customs (HMRC) for overpaid VAT which was rejected. The Group appealed and subsequently ﬁ led amended claims for £26.5m, net of fees, covering the period from 1980 to 2004. In March 2009, the Group ﬁ led amended claims for a further refund of an additional £80m, net of fees, of overpaid VAT covering the same period. In June 2009 the Group received a payment from HMRC of £26.5m, net of fees, as part settlement of these claims and in July 2009 received £10.5m, net of fees, of statutory interest. As a result, the principal and interest amounts were recognised in the half year to June 2009 results, with the interest receivable being recorded within working capital in the cash ﬂ ow statement. On 25 September 2009, the Group received a letter from HMRC which stated that, ‘HMRC have reviewed the recent payment and are now of the view that the claim in whole or in part should not have been paid’. A number of discussions and meetings with HMRC followed and on 5 March 2010, the Group announced that an agreement had been reached in principle, subject to legal contract, for the Group to retain £28.4m (net of fees). However, given the background to the initial receipt, the subsequent review and reversal of HMRC’s position, together with the remaining uncertainty pending formal contractual agreement, the Group reversed out the amounts originally recognised in the 2009 half year results and as such did not recognise any amount in the Income Statement in the 2009 full year. On 30 April 2010, a formal agreement was signed with HMRC. As a result, of the £50m originally received from HMRC, the Group retained £38.1m and returned £11.9m in May 2010. Accordingly, after fees, the Group has recognised £28.4m as non-recurring income in its 2010 Income Statement, of which £17.1m is in respect of refunded VAT and is included in operating proﬁ t and £11.3m is in respect of interest and is included in ﬁ nancial income. In respect of the amended claims for a further refund of an additional £80m, net of fees, of overpaid VAT, the Group is continuing to pursue the claim. Taxation of £8.0m on non-recurring items, net of expenses, has been provided representing an effective tax rate of 28.0%. A summary of the effects of the non-recurring item (NRI) is shown in the tables below: Effect on proﬁ t after tax Operating proﬁ t Net interest Proﬁ t before tax Taxation Proﬁ t after tax There is no effect on proﬁ t after tax in the prior year. Effect on balance sheet Other debtors - balance due from advisor Other tax and social security - balance due back to HMRC Effect on cash ﬂ ows Decrease/(increase) in VAT related receivables (Decrease)/increase in VAT related payables Non-recurring income recognised in the proﬁ t and loss account Net affect on cash ﬂ ows Underlying 2010 £’000 71,527 669 72,196 (25,203) 46,993 NRI 2010 £’000 17,125 11,335 28,460 (7,969) 20,491 Total 2010 £’000 – – – Total 2010 £’000 8,972 (49,990) 28,460 (12,558) Total 2010 £’000 88,652 12,004 100,656 (33,172) 67,484 Total 2009 £’000 8,972 (49,990) (41,018) Total 2009 £’000 (8,972) 49,990 – 41,018 Michael Page International 73 S T N E M E T A T S L A C N A N F I I 6. FINANCIAL INCOME/(EXPENSES) Financial income Bank interest receivable Interest on non-recurring items (note 5) Financial expenses Bank interest payable 7. TAXATION ON PROFITS ON ORDINARY ACTIVITIES The charge for taxation is based on the annual tax rate of 33.0% on proﬁ t before tax (2009: 41.0%). Analysis of charge in the year UK income tax at 28% (2009: 28%) for year Adjustments in respect of prior year Overseas income tax Deferred tax expense Origination and reversal of temporary differences Charge/(beneﬁ t) of tax losses recognised Deferred tax expense/(beneﬁ t) Total income tax expense in the income statement Reconciliation of effective tax rate Proﬁ t before taxation Proﬁ t 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 Derecognition of overseas losses Movement on deferred tax not recognised Higher tax rates on overseas earnings Adjustment to tax charge in respect of prior periods Tax expense and effective rate for the year Tax recognised directly in equity Relating to equity settled transactions 2010 £’000 100,656 28,184 1,292 1,304 (4) – (1,385) 2,655 1,126 33,172 % 28.0 1.3 1.3 – – (1.4) 2.7 1.1 33.0 2010 £’000 1,107 11,335 12,442 2009 £’000 2,027 – 2,027 (438) (1,162) 2010 £’000 17,379 1,126 13,790 32,295 (1,184) 2,061 877 33,172 2009 £’000 21,068 5,899 894 2,051 – 2,256 – 74 (2,536) 8,638 2010 £’000 280 2009 £’000 8,556 (2,536) 4,589 10,609 (1,639) (332) (1,971) 8,638 % 28.0 4.2 9.7 – 10.7 – 0.4 (12.0) 41.0 2009 £’000 2,418 8. CURRENT TAX ASSETS AND LIABILITIES The current tax asset of £2.8m (2009: £14.2m), and current tax liability of £16.6m (2009: £5.5m) for the Group, and current tax asset of £1.3m (2009: £1.3m) for the parent company, represent the amount of income taxes recoverable and payable in respect of current and prior periods. 74 Michael Page International I I F N A N C A L S T A T E M E N T S 9. DIVIDENDS Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 31 December 2009 of 5.12p per ordinary share (2008: 5.12p) Interim dividend for the year ended 31 December 2010 of 2.88p per ordinary share (2009: 2.88p) 2010 £’000 16,066 8,813 24,879 2009 £’000 16,487 9,366 25,853 Amounts proposed as distributions to equity holders: Proposed ﬁ nal dividend for the year ended 31 December 2010 of 6.12p per ordinary share (2009: 5.12p) 18,755 16,535 The proposed ﬁ nal dividend had not been approved by shareholders at 31 December 2010 and therefore has not been included as a liability. The comparative ﬁ nal dividend at 31 December 2009 was also not recognised as a liability in the prior year. The proposed ﬁ nal dividend of 6.12p (2009: 5.12p) per ordinary share will be paid on 6 June 2011 to shareholders on the register at the close of business on 6 May 2011, subject to approval by shareholders. 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. 10. EARNINGS PER ORDINARY SHARE The calculation of the basic and diluted earnings per share is based on the following data: Earnings Earnings for basic and diluted earnings per share (£‘000) Non-recurring items (NRI) (£’000) (note 5) Earnings for basic and diluted earnings per share before NRI (£’000) Number of shares Weighted average number of shares used for basic 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) Basic earnings per share before NRI (pence) Diluted earnings per share before NRI (pence) The above results relate to continuing operations. Basic 2010 67,484 (20,491) 46,993 2009 12,430 – 12,430 311,821 321,643 7,653 7,412 319,474 329,055 21.6 21.1 15.1 14.7 3.9 3.8 3.9 3.8 Basic earnings per share is calculated by dividing the proﬁ t 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 Employee Beneﬁ t Trust and held in the reserve. Diluted Diluted earnings per share is calculated by 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 reﬂ ect 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. Potential future ordinary share transactions It remains the Company’s intention to use surplus cash to repurchase and cancel its shares. Michael Page International 75 S T N E M E T A T S L A C N A N F I I 11. PROPERTY, PLANT AND EQUIPMENT 2010 Leasehold improvements £’000 Furniture, ﬁ xtures and equipment £’000 Motor vehicles £’000 Leasehold improvements £’000 Total £’000 2009 Furniture, ﬁ xtures and equipment £’000 Motor vehicles £’000 27,775 2,684 (974) 309 29,794 14,878 3,609 (675) (15) 17,797 44,286 3,933 (3,893) 809 45,135 27,050 5,167 (2,932) 492 29,777 2,332 754 (953) 29 2,162 1,033 534 (700) 124 991 74,393 7,371 (5,820) 1,147 77,091 42,961 9,310 (4,307) 601 48,565 29,184 1,346 (1,765) (990) 27,775 13,099 3,781 (1,182) (820) 14,878 45,895 3,859 (3,846) (1,622) 44,286 24,823 5,496 (2,587) (682) 27,050 3,108 552 (1,319) (9) 2,332 1,168 649 (780) (4) 1,033 Total £’000 78,187 5,757 (6,930) (2,621) 74,393 39,090 9,926 (4,549) (1,506) 42,961 11,997 15,358 1,171 28,526 12,897 17,236 1,299 31,432 2010 Computer software, assets under construction £’000 Computer software £’000 2009 Computer software, assets under construction £’000 Computer software £’000 Total £’000 Goodwill £’000 Total £’000 Goodwill £’000 1,539 – – – 15,867 8,107 – 12 27,383 8,774 (1,036) 170 23,986 1,539 35,291 – – – – – – – – – – 7,332 1,269 (1,005) 121 7,717 9,977 667 (1,036) 158 9,766 7,332 1,269 (1,005) 121 7,717 9,518 902 (253) (190) 9,977 6,333 1,342 (190) (153) 7,332 9,131 6,743 – (7) 1,539 20,188 – – – 7,645 (253) (197) 15,867 1,539 27,383 – – – – – – – – – – 6,333 1,342 (190) (153) 7,332 2,049 23,986 1,539 27,574 2,645 15,867 1,539 20,051 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 12. 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 Disposals Effect of movements in foreign exchange At 31 December Net book value At 31 December Impairment tests for goodwill Goodwill is allocated to the Group’s cash-generating units (CGUs) identiﬁ ed according to the country of operation. A summary of the goodwill allocation is presented below. UK USA Singapore 76 Michael Page International 2010 £’000 1,274 214 51 1,539 2009 £’000 1,274 214 51 1,539 I I F N A N C A L S T A T E M E N T S 12. INTANGIBLE ASSETS (CONTINUED) In assessing value in use, the estimated future cash ﬂ ows are calculated by preparing cash ﬂ ow forecasts derived from the most recent ﬁ nancial budget, management projections for ﬁ ve years, followed by an assumed growth rate of 3%, which does not exceed the long-term average growth rate of the relevant markets and reﬂ ects long-term wage inﬂ ation fee growth. Management applied a discount rate of 10% to the estimated future cash ﬂ ows to calculate the terminal value of those cash ﬂ ows. 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 2010 there was no impairment of intangible assets. 13. INVESTMENTS Company Cost At 1 January 2010 Derecognised on vesting of LTIPs and deferred bonus shares At 31 December 2010 Subsidiary undertakings £’000 422,577 (1,032) 421,545 The derecognition of assets represents a decrease in the parent company’s holding of its own shares where share plan liabilities have vested and shares have been transferred to the beneﬁ cial holders. The Company’s principal subsidiary undertakings at 31 December 2010, 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 Holdings Limited Michael Page International Recruitment Limited* Michael Page International Southern Europe Limited* Michael Page UK Limited Michael Page Limited Page Personnel (UK) Limited Michael Page International Austria GmbH Michael Page International (Belgium) NV/SA Page Interim (Belgium) NV/SA Michael Page International (France) SAS Michael Page Financial Services SAS Page Personnel SAS Michael Page International (Deutschland) GmbH Page Personnel (Deutschland) GmbH Michael Page International (Ireland) Limited Michael Page International Italia Srl Page Personnel Italia SpA Michael Page International (Nederland) BV Page Interim BV Michael Page International (Poland) Sp.z.o.o Michael Page International Empressa de Trabalho Temporário e Serviços de Consultadoria Lda Michael Page International RU LLC Michael Page International (SA) (Pty) Limited Michael Page International (Espana) SA Michael Page Holding (Espana) SL Page Personnel Seleccion España SA Michael Page International (Sweden) AB Michael Page International (Switzerland) SA Michael Page International NEM Istihdam Danismanligi Limited Sirketi Michael Page International (UAE) Limited Michael Page International (Australia) Pty Limited Michael Page International (Hong Kong) Limited Michael Page (Beijing) Recruitment Co. Ltd Country of incorporation United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom Austria Belgium Belgium France France France Germany Germany Ireland Italy Italy Netherlands Netherlands Poland Portugal Russia South Africa Spain Spain Spain Sweden Switzerland Turkey United Arab Emirates Australia Hong Kong China Principal activity Holding company Support services Holding company Recruitment consultancy Holding company Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Support services Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Holding company Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Michael Page International 77 S T N E M E T A T S L A C N A N F I I 13. INVESTMENTS (CONTINUED) Name of undertaking Michael Page (Shanghai) Recruitment Co. Ltd Michael Page International (Shanghai) Consulting Ltd Michael Page International (Japan) K.K. Michael Page International (NZ) Limited. Michael Page International Pte Limited* Michael Page International Argentina SA Michael Page Do International (Brasil) Recrutamento Especializado Ltda Page Personnel Do Recruit. Especializ. E Servs. Corpor. Ltda Michael Page International Canada Limited Michael Page International Chile Ltda Michael Page International Mexico Reclutamiento Especializado, S.A. de C.V. Michael Page International Inc* Country of incorporation China China Japan New Zealand Singapore Argentina Brazil Brazil Canada Chile Mexico United States Principal activity Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy Recruitment consultancy *The equity of these subsidiary undertakings is held directly by Michael Page International plc. All companies have been included in the consolidation and 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. 14. TRADE AND OTHER RECEIVABLES Current Trade receivables Less provision for impairment of receivables Net trade receivables Amounts due from Group companies Other receivables Prepayments and accrued income Non-current Prepayments and accrued income Group 2010 £’000 141,120 (6,397) 134,723 – 5,035 28,547 168,305 2009 £’000 107,156 (6,959) 100,197 Company 2010 £’000 – – – 2009 £’000 – – – – 552,102 472,676 13,102 20,103 133,402 – 6 8,972 31 552,108 481,679 1,145 2,021 – – Within other receivables in the 2009 comparative is a balance of £9.0m for fees paid in respect of the VAT refund by HMRC (note 5). All non-current receivables are due within ﬁ ve years from the balance sheet date. The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables is disclosed in Note 22. 15. 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 78 Michael Page International Group Company 2010 £’000 9,091 – 33,900 20,340 58,248 1,216 2009 £’000 7,304 – 75,262 18,583 40,223 1,378 2010 £’000 – 510,819 – – 11 – 2009 £’000 – 400,476 49,990 – 26 – 122,795 142,750 510,830 450,492 1,830 2,326 4,156 2,334 547 2,881 – – – – – – I I F N A N C A L S T A T E M E N T S 15. TRADE AND OTHER PAYABLES (CONTINUED) Within other tax and social security in the 2009 comparative is a balance of £50.0m relating to VAT repaid by HMRC (note 5). The fair values of trade and other payables are not materially different to those disclosed above. There is no material effect on pre-tax proﬁ t if the instruments are accounted for at fair value or amortised cost. The total liability relating to other tax and social security includes a balance of £3.9m (2009: £2.5m) relating to social charges on share based payments. The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 22. 16. BANK OVERDRAFTS Bank overdrafts The carrying amounts of the Group’s borrowings are all denominated in sterling. Bank overdrafts are repayable on demand. Group 2010 £’000 – 2009 £’000 43 Company 2010 £’000 – 2009 £’000 43 At 31 December 2010, the Group had available £50.0m (2009: £50.0m) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. The Group’s exposure to interest rate, foreign currency and liquidity risk for ﬁ nancial assets and liabilities is disclosed in Note 22. 17. DEFERRED TAX The following are the major deferred tax assets and liabilities recognised by the Group, and the movements thereon, during the current and prior reporting periods. At 1 January 2009 Recognised in equity for the year Recognised in proﬁ t or loss for the year Exchange differences At 1 January 2010 Recognised in equity for the year Recognised in proﬁ t or loss for the year Exchange differences At 31 December 2010 Share-based payments £’000 (1,415) (2,283) (740) – (4,438) (3,698) 1,184 – (6,952) Tax losses £’000 (2,646) – (331) – Other £’000 (1,538) – (899) – (2,977) (2,437) – 2,060 – (917) – (2,367) 596 (4,208) Total £’000 (5,599) (2,283) (1,970) – (9,852) (3,698) 877 596 (12,077) 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: Deferred tax assets Deferred tax liabilities 2010 £’000 2009 £’000 (12,441) (10,179) 364 (12,077) 327 (9,852) At 31 December 2010, unremitted earnings of overseas Group companies amounted to £60.9m (2009: £52.2m). Unremitted earnings may be liable to some overseas tax, but should not be liable to UK tax if they were to be distributed as dividends. 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 £8.2m (2009: £5.5m) in respect of tax losses of overseas companies. These tax losses are available to offset future taxable proﬁ ts in the respective jurisdictions. All of the deferred tax asset for losses of £0.9m is dependent on generating future taxable proﬁ ts. Of the recognised deferred tax asset, £0.3m is recognised within territories that were loss making in the current year. Michael Page International 79 S T N E M E T A T S L A C N A N F I I 18. CALLED-UP SHARE CAPITAL Authorised Ordinary shares of 1p each Allotted, called-up and fully paid At 1 January Shares issued Cancellation of own shares At 31 December Share Option Plans 2010 2009 £’000 Number of shares £’000 Number of shares 5,713 571,250,000 5,713 571,250,000 3,234 323,424,875 3,220 321,990,067 19 (37) 1,874,930 (3,709,658) 14 – 1,434,808 – 3,216 321,590,147 3,234 323,424,875 The Group currently has share option awards outstanding under an Executive share option scheme (ESOS) and a share option scheme (SOS). These plans are described below. At 31 December 2010 the following options had been granted and remained outstanding in respect of the Company’s ordinary shares of 1p under both the Michael Page Executive Share Option Scheme and the 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. Balance at 1 January 2010 1,670,017 115,000 107,500 235,000 439,000 1,080,000 1,256,312 2,181,889 2,622,500 6,910,000 Granted in year Exercised in year Lapsed in year No. of options outstanding at 31 December 2010 Base EPS Exercise price per share Exercise period – – – – – – – – – – (532,149) (65,946) 1,071,922 n/a 175p March 2004 - March 2011 (48,700) (39,500) (99,700) (156,000) (425,381) – – – – – 66,300 10.6 186p March 2005 - March 2012 68,000 135,300 283,000 5.8 5.8 4.1 186p March 2006 - March 2012 81.5p-86.1p April 2006 - April 2013 171p-190.3p March 2007 - March 2014 654,619 7.5 190.75p-191.5p March 2008 - March 2015 (573,500) (51,312) 631,500 – – – – (2,181,889) – (241,919) 2,380,581 (459,089) 6,450,911 (112,917) 11,354,583 15.5 21.3 30.4 n/a n/a 309.9p March 2009 - March 2016 464.5p-494.1p March 2010 - March 2017 255.94-285p March 2011 - March 2018 187.5-211.84p March 2012 - March 2019 381.5-383.0p March 2013 - March 2020 – 11,467,500 16,617,218 11,467,500 (1,874,930) (3,113,072) 23,096,716 2.46 2.15 3.82 3.91 2.98 Year of grant 2001 (Note 1) 2002 (Note 2)* 2002 (Note 2)* 2003 (Note 2)* 2004 (Note 2)* 2005 (Note 2)* 2006 (Note 2)* 2007 (Note 2) 2008 (Note 2) 2009 (Note 3) 2010 (Note 2) Total 2010 Weighted average exercise price 2010 (£) Total 2009 12,200,942 7,205,000 (1,434,808) (1,353,916) 16,617,218 Weighted average exercise price 2009 (£) 2.79 1.91 1.91 3.04 2.46 *These options have fully vested 2,161,716 options were exercisable at the end of 2010 at a weighted average exercise price of £2.14 (2009: £2.14). The weighted average share price at the date of exercise was £4.55. Executive Share Option Scheme (ESOS) Using the ESOS, awards of share options can be made to key management personnel and senior employees to receive shares in the entity. Share 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 “First-time Adoption of International Financial Reporting Standards” and IFRS 2 “Share-based Payment”. No awards were made under the ESOS scheme in 2009. 80 Michael Page International I I F N A N C A L S T A T E M E N T S 18. CALLED-UP SHARE CAPITAL (CONTINUED) ESOS plan details Note 1 Pre ﬂ otation options On ﬂ otation, options over 33,750,000 (9%) ordinary shares were granted to the Executive Directors and 427 employees. An individual’s option entitlement will normally only be exercisable to the extent that share price growth targets have been satisﬁ ed over a period of at least 3 years. None of these options will vest unless the Company’s share price has achieved 50% growth after 3 years and not later than 5 years. At that point 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 ﬁ fth anniversary of the date of grant at compound rates of growth of 8.45% and 24.57% respectively. At 31 December 2010, the performance conditions were met for 81.8% (2009: 81.8%) of the outstanding share price dependent options. At 31 December 2010, 18.2% of the options remained unvested (2009: 18.2%). In order for these remaining options to have vested by 31 December 2010 a share price of £12.57 (2009: £10.96) would have been required. At this stage it is not expected that the remaining 18.2% of options will vest prior to the awards lapsing on 31 March 2011. Note 2 Grants post ﬂ otation For grants since 2004, the performance condition is tested on the third anniversary and no retesting will occur thereafter. 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 UK Retail Price Index. The respective base earnings per share for each grant are shown in the table on page 80. For the 2010 share option grant for Executive Directors only, the vesting of awards will be subject to proﬁ t before tax performance conditions measured over a three year period. Vesting will occur on a phased basis, with 30% of the award vesting for threshold performance, increasing on a straight line basis to 100% of the award for maximum performance. Share Option Scheme (SOS) Note 3 Executive Directors of the Company are not eligible to participate in this scheme. Any exercises of awards made under this plan must be settled by market purchased shares. This new scheme was created in 2009 to provide an effective plan under which to grant awards in 2009. It was the Board’s view that grants made under the existing ESOS plan, which would have required an increase over the 2008 base earnings per share of at least 3% per annum above the growth in the UK Retail Price Index by 2011, would be achievable due to the impact of the global downturn on the Group’s EPS and thus would not provide the required retention incentive. The 2009 grant made under the SOS plan is subject to a performance condition that will be tested, initially, three years after the date of grant and then annually until either the entire grant has vested, or ten years from the date of the award have elapsed, in which case any awards outstanding under the grant will lapse. The performance condition is directly linked to the Group’s Operating Proﬁ t. If Operating Proﬁ t is £30m then 30% of the award would vest. For every £1m of Operating Proﬁ t over £30m, a further 1% would vest. 100% of the award would vest if Operating Proﬁ t was £100m. Share Option valuation and measurement In 2010, options were granted on 9 March with the estimated fair values of the options granted on that day of £1.17. In 2009, options were granted on 9 March. The estimated fair values of the options granted on that date was £0.76. 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. Michael Page International 81 S T N E M E T A T S L A C N A N F I I 18. CALLED-UP SHARE CAPITAL Share Option valuation and measurement The options outstanding at 31 December 2010 have an exercise price in the range of 81.5 pence to 494.1 pence and a weighted average contractual life of 7.8 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 (£) Weighted average fair value (£) Expected volatility Expected life Risk free rate Expected dividend yield Share Option Plans Incentive Share Scheme Deferred Bonus Shares 2010 3.82 3.82 1.17 38% 5 years 2.99% 2.10% 2009 1.88 1.91 0.76 63% 5 years 2.19% 4.27% 2010 – – – – – – – 2009 1.88 Nil 1.88 63% 3 years 2.04% Nil 2010 – – – – – – – 2009 1.88 Nil 1.88 63% 2 years 1.46% Nil Expected volatility was determined by reference to historical volatility of the Company’s share price since ﬂ otation. 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 £10.0m (2009: £8.5m) related to equity-settled share-based payment transactions during the year. 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 50 and 51, and are settled by the physical delivery of shares, currently satisﬁ ed by shares held in the Employee Beneﬁ t Trust, to the extent that service and performance conditions are met. 19. RESERVES Share premium The share premium account has been established to represent the excess of the exercise share price over the nominal value of the shares on the exercise of share options. Capital redemption reserve The movement in the capital redemption reserve relates to the cancellation of the Company’s own shares. Reserve for shares held in the employee beneﬁ t trust At 31 December 2010, the reserve for shares held in the employee beneﬁ t trust consisted of 18,955,701 ordinary shares (2009: 5,925,597 ordinary shares) held for the purpose of satisfying awards made under the Incentive Share Plan, the Annual Bonus Plan and the Share Option Scheme (SOS), representing 5.9% of the called-up share capital with a market value of £105.2m (2009: £22.5m). A total of 6,941,429 shares have been allocated to satisfy share awards made under the Incentive Share Plan, 370,643 deferred shares have been allocated to the Annual Bonus Plan and 6,307,500 shares have been allocated to satisfy share options. Dividends are paid on 4,778,489 of these shares and they are included in the EPS calculation. Following the allocation of awards made under the above mentioned plans, to date 5,336,129 ordinary shares remain unallocated in the reserve and there are 14,177,212 shares that are treated as non-dilutive and on which dividends are waived. Currency translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the ﬁ nancial statements of foreign operations that are integral to the operations of the Company. 82 Michael Page International I I F N A N C A L S T A T E M E N T S 20. CASH FLOWS FROM OPERATING ACTIVITIES Group Company Proﬁ t before tax Non-recurring income Proﬁ t before tax and non-recurring income Depreciation and amortisation charges Loss on sale of property, plant and equipment, and computer software Share scheme charges Net ﬁ nance (income)/expense - including NRI Operating cash ﬂ ow before changes in working capital and NRI (Increase)/decrease in receivables Increase/(decrease) in payables Cash generated from underlying operations Decrease/(increase) in VAT claim related receivables (Decrease)/increase in VAT claim related payables Non-recurring income Cash generated from operations 21. 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 ﬂ ows Net funds/(debt) 2010 £’000 100,656 (17,125) 83,531 10,579 151 10,049 (12,004) 92,306 (41,107) 30,451 81,650 8,972 (49,990) 28,460 69,092 Group 2010 £’000 73,178 7,353 80,531 – 80,531 80,531 2009 £’000 21,068 – 21,068 11,268 383 8,491 (865) 40,345 70,911 (37,497) 73,759 (8,972) 49,990 – 114,777 2009 £’000 127,293 9,935 137,228 (43) 137,185 137,185 2010 £’000 45,030 (17,125) 27,905 – – – (11,264) 16,641 (79,404) 111,361 48,598 8,972 (49,990) 28,460 36,040 2009 £’000 73,567 – 73,567 – – – 332 73,899 (90,895) 62,070 45,074 (8,972) 49,990 – 86,092 Company 2010 £’000 – – – – – – 2009 £’000 – – – (43) (43) (43) The Group operates a multi-currency notional cash pool. Currently the main Eurozone subsidiaries and the UK-based Group Treasury subsidiary participate in this cash pool, although it is the Group’s intention to extend the scope of the participation to other Group companies going forward. The structure facilitates interest and balance compensation of cash and bank overdrafts. 22. FINANCIAL RISK MANAGEMENT The Group has exposure to the following risks from its use of ﬁ nancial instruments: (i) credit risk (ii) liquidity risk (iii) market risk This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated ﬁ nancial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reﬂ ect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee. Michael Page International 83 S T N E M E T A T S L A C N A N F I I 22. FINANCIAL RISK MANAGEMENT (CONTINUED) (i) Credit risk Credit risk is the risk of ﬁ nancial loss to the Group if a client or counterparty to a ﬁ nancial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from clients and investment securities. 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 signiﬁ cant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each ﬁ nancial asset in the balance sheet. Trade and other receivables Total trade receivables (net of allowances) held by the Group at 31 December 2010 amounted to £134.7m (2009: £100.2m). An initial credit period is made available on invoices. No interest is charged on trade receivables from the date of the invoice during this credit period. Thereafter, interest is charged on the outstanding balance. The Group has provided fully for all receivables over 150 days because historical experience is such that receivables past due beyond 150 days are generally not recoverable. Trade receivables below 150 days are provided for based on estimated irrecoverable amounts from the provision of our services, determined by reference to past default experience. Included in the Group’s trade receivables balance are debtors with a carrying amount of £54.0m (2009: £37.4m) that are past due at the reporting date for which the Group has not provided as the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 41 days in excess of the initial credit period (2009: 40 days). The ageing of trade receivables at the reporting date was: Not past due Past due 0-30 days Past due 31-150 days More than 150 days Gross trade receivables 2010 £’000 Provision 2010 £’000 Gross trade receivables 2009 £’000 81,685 38,755 16,145 4,535 141,120 982 162 718 4,535 6,397 62,942 27,880 11,466 4,868 107,156 Provision 2009 £’000 167 85 1,839 4,868 6,959 The Group’s exposure to credit risk is inﬂ uenced mainly by the individual characteristics of each client. The demographics of the Group’s client base, including the country in which clients operate, also has an inﬂ uence on credit risk. Less than 3% of the Group’s revenue is attributable to sales transactions with a single client. The geographic diversiﬁ cation of the Group’s revenue also reduces the concentration of credit risk. The majority of the Group’s clients have been transacting with the Group for several years, with losses rarely occurring. In monitoring client credit risk, clients are grouped according to their credit characteristics, including geographic location, industry, ageing proﬁ le, maturity and existence of previous ﬁ nancial difﬁ culties. Movement in the allowance for doubtful debts Balance at beginning of the year Impairment losses recognised on receivables Amounts written off as uncollectable Amounts recovered during the year Impairment losses reversed Balance at end of the year 2010 £’000 6,959 6,370 (1,279) (3,062) (2,591) 6,397 2009 £’000 7,708 8,665 (1,932) (4,131) (3,351) 6,959 The majority of the allowance for doubtful debts are individually impaired trade receivables with a balance of £3.2m (2009: £3.4m) which have been placed in litigation, as well as a further provision for debts of 150 days and over. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of the expected liquidation proceeds. The Group does not hold any collateral over these balances. 84 Michael Page International I I F N A N C A L S T A T E M E N T S 22. FINANCIAL RISK MANAGEMENT (CONTINUED) (i) Credit risk (continued) Exposure to credit risk The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: EMEA United Kingdom Asia Paciﬁ c Americas The maximum exposure to credit risk for accrued income at the reporting date by geographic region was: EMEA United Kingdom Asia Paciﬁ c Americas Carrying amount 2010 £’000 68,043 40,142 15,098 11,440 2009 £’000 55,783 28,705 9,384 6,325 134,723 100,197 Carrying amount 2010 £’000 1,079 8,713 5,983 3,026 2009 £’000 586 5,830 3,577 1,183 18,801 11,176 The entire accrued income balance is not past due. The fair values of trade and other receivables are not materially different to those disclosed above and in note 14. There is no material effect on pre-tax proﬁ t if the instruments are accounted for at fair value or amortised cost. (ii) Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board, which has built an appropriate liquidity risk management framework that aims to ensure that the Group has sufﬁ cient cash or credit facilities at all times to meet all current and forecast liabilities as they fall due. It is the Directors’ intention to continue to ﬁ nance the activities and development of the Group from retained earnings. Cash surpluses are invested in short-term deposits, with any working capital requirements being provided from Group cash resources, Group facilities, or by local overdraft facilities. Cash generated in excess of these requirements will be used to buy back the Company’s shares. The Group also operates a multi-currency notional cash pool to facilitate interest and balance compensation of cash and bank overdrafts. The following are the contractual maturities of ﬁ nancial liabilities. 2010 Trade payables Accruals and other payables Bank overdraft 2009 Trade payables Accruals and other payables Bank overdraft Less than 1 month £’000 5,625 37,597 – Less than 1 month £’000 5,360 26,849 43 Carrying amount 1-3 months £’000 3-12 months £’000 3,010 24,885 – 456 25,386 – Carrying amount 1-3 months £’000 3-12 months £’000 1,728 71,327 – 216 13,425 – More than 12 months £’000 – 4,156 – More than 12 months £’000 _ 2,881 – Michael Page International 85 S T N E M E T A T S L A C N A N F I I 22. FINANCIAL RISK MANAGEMENT (CONTINUED) (iii) Market risk and sensitivity analysis The Group’s activities expose it primarily to the ﬁ nancial risks of changes in foreign currency exchange rates and interest rates, but these risks are not deemed to be material. However, a sensitivity analysis showing hypothetical ﬂ uctuations in Pounds Sterling against the Group’s main exposure currencies is shown on page 87. There has been no material change in the Group’s exposure to market risks or the manner in which it manages and measures the risk. For additional information on market risk, refer to ‘Treasury management and currency risk’ in the Business Review. Interest rate risk management Borrowings are arranged at ﬂ oating rates, thus exposing the Group to cash ﬂ ow interest rate risk. The Group does not consider this risk as signiﬁ cant. The benchmark rates for determining ﬂ oating rate liabilities are based on relevant national LIBOR equivalents. The average interest rate paid on bank overdrafts was 1.82% (2009: 2.4%). Currency rate risk We publish our results in Pounds Sterling and conduct our business in many foreign currencies. As a result, we are subject to foreign currency exchange risk due to exchange rate movements. We are exposed to foreign currency exchange risk as a result of transactions in currencies other than the functional currencies of some of our subsidiaries and the translation of the results and underlying net assets of our foreign subsidiaries. The main functional currencies of the Group are Sterling, Euro 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. In certain cases, where the Group gives or receives short-term loans to and from other Group companies with different reporting currencies, it may use foreign exchange swap derivative ﬁ nancial instruments to manage the currency and interest rate exposure that arises on these loans. It is the Group’s policy not to seek to designate these derivatives as hedges. All derivative ﬁ nancial instruments not in a hedge relationship are classiﬁ ed as derivatives at fair value through the income statement. The group does not use derivatives for speculative purposes. All transactions in derivative ﬁ nancial instruments are undertaken to manage the risks arising from underlying business activities. Information on the fair value of derivative ﬁ nancial instruments held at the balance sheet date is shown in the table below. Derivatives Financial Instruments Derivative Assets Derivative Liabilities Sensitivity analysis - currency risk Contract amounts 2010 £m 30.8 30.8 2009 £m 10.0 (10.0) Derivatives at fair value 2009 £m 2010 £m 31.1 30.9 10.0 (10.1) A 10 percent strengthening of Sterling against the following currencies at 31 December would have increased/(decreased) equity and proﬁ t or loss by the amounts shown on page 87. This analysis is applied currency by currency in isolation, i.e. ignoring the impact of currency correlation, and assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2009. The amounts generated from the sensitivity analysis are forward-looking estimates of market risk assuming certain adverse market conditions occur. Actual results in the future may differ materially from those projected, due to developments in the global ﬁ nancial markets which may cause ﬂ uctuations in interest and exchange rates to vary from the hypothetical amounts disclosed in the table below, which therefore should not be considered a projection of likely future events and losses. 86 Michael Page International I I F N A N C A L S T A T E M E N T S 22. FINANCIAL RISK MANAGEMENT (CONTINUED) Sensitivity analysis - currency risk (continued) Euro Australian Dollar Swiss Franc Hong Kong Dollar Brazilian Real United States Dollar Other Euro Australian Dollar Hong Kong Dollar Swiss Franc Brazilian Real United States Dollar Other 2010 Equity £’000 (2,816) (1,799) (1,879) (642) (1,333) 356 (1,609) 2009 Equity £’000 (3,915) (1,342) (706) (492) (1,035) 169 (783) PBT £’000 287 (819) (751) (369) (743) 618 (656) PBT £’000 5,167 1,317 486 711 25 641 950 A 10 percent weakening of sterling against the above currencies at 31 December would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. 23. COMMITMENTS Operating lease commitments At 31 December 2010 the Group was committed to make the following payments in respect of non-cancellable operating leases: Leases which expire: Within one year Within two to ﬁ ve years After ﬁ ve years Land and buildings 2010 £’000 2,758 32,566 54,174 89,498 2009 £’000 1,677 38,034 55,386 95,097 Other 2010 £’000 1,150 3,942 – 5,092 2009 £’000 316 4,901 – 5,217 The Group leases various ofﬁ ces 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 £1.2m as at 31 December 2010 (2009: £0.1m) relating to property, plant and equipment. The Group had contractual capital commitments of £2.0m as at 31 December 2010 (2009: £1.6m) relating to computer software. Michael Page International 87 S T N E M E T A T S L A C N A N F I I 24. CONTINGENT LIABILITIES The Company has provided guarantees to other Group undertakings amounting to £80k (2009: £2.3m) in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities. 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 2010 amounted to £4.6m (2009: £2.6m). 25. EVENTS AFTER THE BALANCE SHEET DATE Between 31 December 2010 and 4 March 2011, 114,007 options were exercised, leading to an increase in share capital of £1,140 and an increase in share premium of £234,422. 26. RELATED PARTY TRANSACTIONS Identity of related parties The Group has a related party relationship with its Directors and members of the Executive Board, and subsidiaries (Note 13). Transactions with key management personnel Key management personnel are deemed to be the Directors and members of the Executive Board. The remuneration of Directors and members of the Executive Board is determined by the Remuneration Committee having regard to the performance of individuals and market trends. For transactions with Directors see the Remuneration Report on pages 48 to 55. Over and above these transactions, equity settled transactions for the year were £1.6m (2009: £1.1m). Transactions with the remaining members of the Executive Board are disclosed below: Short-term employee beneﬁ ts Pension costs - deﬁ ned contribution plans 2010 £’000 1,853 91 2009 £’000 1,822 112 The decrease in emoluments in the current year represents a decrease in the bonus award. In addition to their salaries, the Group also provides non-cash beneﬁ ts to members of the Executive Board, and contributes to a post- employment deﬁ ned contribution pension plan on their behalf, details of which are given in Note 1. Transactions between the Group and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation. Details of transactions between the parent company and subsidiary undertakings are shown below. Dividends received 2010 £’000 17,671 2009 £’000 75,965 Amounts owed by related parties Amounts owed to related parties 2010 £’000 2009 £’000 2010 £’000 2009 £’000 552,102 472,676 510,819 400,476 88 Michael Page International 5-YEAR SUMMARY I S E C T O N N A M E Revenue Gross proﬁ t Operating proﬁ t Proﬁ t before tax Proﬁ t attributable to equity holders Conversion 2006 £’000 649,060 348,817 97,367 96,959 65,447 27.9% 2007 £’000 831,640 478,094 149,432 147,441 101,734 31.3% 2008 £’000 972,782 552,702 140,501 140,056 97,339 25.4% 2009 £’000 716,722 351,694 20,203 21,068 12,430 5.7% 2010 £’000 832,296 442,207 88,652* 100,656* 67,484* 20.0%* Basic earnings per share (pence) 19.6 31.1 30.3 3.9 21.6* *Includes non-recurring items (Note 5). Michael Page International 89 I S SHAREHOLDER INFORMATION AND ADVISERS R E S V D A D N A N O T A M R O F N I I R E D L O H E R A H S 90 Michael Page International S H A R E H O L D E R I I N F O R M A T O N A N D A D V S E R S I ANNUAL GENERAL MEETING To be held on 20 May 2011 at 12.00 noon at Page House, The Bourne Business Park, 1 Dashwood Lang Road, Addlestone, Weybridge, Surrey, KT15 2QW. Every shareholder is entitled to attend and vote at the meeting. FINAL DIVIDEND FOR THE YEAR ENDED 31 DECEMBER 2010 To be paid (if approved) on 6 June 2011 to shareholders on the register on 6 May 2011. COMPANY SECRETARY Kelvin Stagg 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 ofﬁ ce is: Page House, The Bourne Business Park, 1 Dashwood Lang Road, Addlestone, Weybridge, Surrey KT15 2QW. Tel: 01932 264144 Fax: 01932 264297 Auditor Solicitors Registrars Deloitte LLP Chartered Accountants 2 New Street Square London EC4A 3BZ Herbert Smith LLP Exchange House Primrose Street London EC2A 2HS Joint Corporate Brokers Citigroup 33 Canada Square Canary Wharf London E14 5LB Deutsche Bank Winchester House 1 Great Winchester Street London EC2N 2DB Capita Registrars Ltd The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Bankers HSBC Bank plc West End Business Banking Centre 70 Pall Mall London SW1Y 5GZ KEY DATES Ex-Dividend date Record date Annual General Meeting Payment of proposed ﬁ nal ordinary dividend Interim results announcement ABN AMRO Bank N.V. Corporate Clients De Entree 99 1101 HE Amsterdam The Netherlands 4 May 2011 6 May 2011 20 May 2011 6 June 2011 15 August 2011 Michael Page International 91 I I N ARTICLES OF ASSOCIATION O T A C O S S A F O S E L C T R A I 92 Michael Page International I A R T C L E S O F A S S O C A T O N I I The following summarises certain provisions of the Company’s Articles of Association (as adopted on 21 May 2010) and applicable English Law. The summary is qualiﬁ ed in its entirety by reference to the Companies Act 2006 of Great Britain (the “Act”), as amended, and the Company’s Articles of Association. Under the Act, the Memorandum of Association of the Company has now become a document of record, and no longer contains any operative provisions. INCORPORATION The Company is incorporated under the name Michael Page International plc and is registered in England and Wales with registered number 3310225. SHARE CAPITAL The Act abolished the concept of, and requirement for a company to have, an authorised share capital. As such, the Company no longer has an authorised share capital. ALTERATION OF CAPITAL The Company may from time to time by ordinary resolution: (a) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; (b) sub-divide its shares, or any of them, into shares of a smaller amount than its existing shares; and (c) determine that, as between the shares resulting from such a sub-division, any of them may have any preference or advantage as compared with the others. Subject to the provisions of the Act, the Company may by special resolution reduce its share capital, any capital redemption reserve and any share premium account, in any way. PURCHASE OF OWN SHARES Subject to the provisions of the Act, the Company may purchase its own shares, including redeemable shares. The Company proposes to renew its authority to purchase its own shares for another year in item 17 of the Annual General Meeting notice. GENERAL MEETINGS AND VOTING RIGHTS The Directors may call general meetings whenever and at whatever time and location they so determine. Subject to the provisions of the Act, an annual general meeting and all general meetings (which shall be called extraordinary general meetings) shall be called by at least 21 clear days’ notice. Subject to the provisions of the Act, the Company may resolve to reduce the notice period for general meetings (other than annual general meetings) to 14 days on an annual basis. The Company proposes to renew its authority to hold general meetings on 14 days’ notice for another year in item 18 of the Annual General Meeting notice. Two persons entitled to vote upon the business to be transacted shall be a quorum. The Articles of Association provide that subject to any rights or restrictions attached to any shares, on a show of hands every member and every duly appointed proxy present shall have one vote. Every corporate representative present who has been duly authorised by a corporation has the same voting rights as the corporation would be entitled to. On a poll every member present in person or by a duly appointed proxy or corporate representative shall have one vote for every share of which he is a holder or in respect of which his appointment as proxy or corporate representative has been made. No member shall be entitled to vote in respect of any share held by him if any call or other sum payable by him to the Company remains unpaid. If a member or any person appearing to be interested in shares held by a member has been duly served with a notice under the Act and is in default for the prescribed period in supplying to the Company information thereby required, unless the Directors otherwise determine, the member shall not be entitled in respect of the default shares to be present or to vote (either in person or by representative or proxy) at any general or class meeting of the Company or on any poll or to exercise any other right conferred by membership in relation to such meeting or poll. In certain circumstances, any dividend due in respect of the default shares shall be withheld and certain certiﬁ cated transfers may be refused. A member entitled to more than one vote need not, if he votes, use all his votes or cast all the votes he uses in the same way. A member is entitled to appoint another person as his proxy to exercise all or any of his rights to attend and speak and vote at a meeting of the Company. A proxy need not be a member. A member may appoint more than one proxy to attend on the same occasion. This does not preclude the member from attending and voting at the meeting or at any adjournment of it. Michael Page International 93 I I N O T A C O S S A F O S E L C T R A I LIMITATIONS AND NON-RESIDENT OR FOREIGN SHAREHOLDERS English law treats those persons who hold the shares and are neither UK residents nor nationals in the same way as UK residents or nationals. They are free to own, vote on and transfer any shares they hold. VARIATION OF RIGHTS If at any time the capital of the Company is divided into different classes of shares, the rights attached to any class of may be varied either: (a) in such manner (if any) as may be provided by those rights; or (b) in the absence of any such provision, with the consent in writing of the holders of three-quarters in nominal value of the issued shares of the class (excluding any shares of that class held as treasury shares) or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of the class, but not otherwise, and may be so varied either whilst the Company is a going concern or during, or in contemplation of, a winding-up. At every such separate general meeting the necessary quorum shall be at least two persons together holding or representing by proxy at least one-third in nominal value of the issued shares of the class (excluding any shares of that class held as treasury shares), save that at any adjourned meeting any holder of shares of the class (other than treasury shares) present or by proxy shall be a quorum. Unless otherwise expressly provided by the rights attached to any class of shares, those rights shall be deemed not to be varied by the purchase by the Company of any of its own shares or the holding of such shares as treasury shares. DIVIDEND RIGHTS Holders of the Company’s ordinary shares may by ordinary resolution declare dividends but no such dividend shall exceed the amount recommended by the Directors. If, in the opinion of the Directors, the proﬁ ts of the Company available for distribution justify such payments, the Directors may, from time to time, pay interim dividends on the shares of such amounts and on such dates and in respect of such periods as they think ﬁ t. The proﬁ ts of the Company available for distribution and resolved to be distributed shall be apportioned and paid proportionately to the amounts paid up on the shares during any portion of the period in respect of which the dividend is paid. The members may, at a general meeting declaring a dividend upon the recommendation of the Directors, direct that it shall be satisﬁ ed wholly or partly by the distribution of speciﬁ c assets. No dividend shall be paid otherwise than out of proﬁ ts available for distribution as speciﬁ ed under the provisions of the Act. Any dividend unclaimed after a period of twelve years from the date of declaration of such dividend shall, if the Directors so resolve, be forfeited and shall revert to the Company. CALLS ON SHARES Subject to the terms of allotment, the Directors may make calls upon members in respect of any amounts unpaid on their shares (whether in respect of nominal value or premium) and each member shall pay to the Company as required by the notice the amount called on his shares. TRANSFER OF SHARES Any member may transfer all or any of his shares in certiﬁ cated form by instrument of transfer in the usual common form or in any other form which the Directors may approve. The transfer instrument shall be signed by or on behalf of the transferor and, except in the case of fully-paid shares, by or on behalf of the transferee. Where any class of shares is for the time being a participating security, title to shares of that class which are recorded as being held in uncertiﬁ cated form, may be transferred (to not more than four transferees) by the relevant system concerned. The Directors may in their absolute discretion refuse to register any transfer of shares (being shares which are not fully paid or on which the Company has a lien), provided that if the share is listed on the Ofﬁ cial List of the UK Listing Authority such refusal does not prevent dealings in the shares from taking place on an open and proper basis. The Directors may also refuse to register a transfer of shares (whether fully paid or not) unless the transfer instrument: (a) is lodged at the registered ofﬁ ce, or such other place as the Directors may appoint, accompanied by the relevant share certiﬁ cate(s); (b) is in respect of only one class of share; and (c) is in favour of not more than four transferees. The Directors of the Company may refuse to register the transfer of a share in uncertiﬁ cated form to a person who is to hold it thereafter in certiﬁ cated form in any case where the Company is entitled to refuse (or is excepted from the requirements) under the Uncertiﬁ cated Securities Regulations 2001 to register the transfer. 94 Michael Page International I A R T C L E S O F A S S O C A T O N I I DIRECTORS The Company’s Articles of Association provide for a Board of Directors, consisting of (unless otherwise determined by the Company by ordinary resolution) not fewer than two Directors, who shall manage the business of the Company. The Directors may exercise all the powers of the Company, subject to the provisions of the Articles of Association and any directions given by special resolution. If the quorum is not ﬁ xed by the Directors, the quorum shall be two. Subject to the provisions of the Company’s Articles of Association, the Directors may delegate any of their powers: (a) to such person or committee; (b) by such means (including power of attorney); (c) to such an extent; (d) in relation to such matters or territories; and (e) on such terms and conditions as in each case they think ﬁ t, and such delegation may include authority to sub-delegate all or any of the powers delegated, may be subject to conditions and may be revoked or varied. The Directors may also, by power of attorney or otherwise, appoint any person, whether nominated directly or indirectly by the Directors, to be the agent of the Company for such purposes and subject to such conditions as they think ﬁ t, and may delegate any of their powers to such an agent. The Articles of Association place a general prohibition on a Director voting on any resolution concerning a matter in which he has, directly or indirectly, a material interest (other than an interest in shares, debentures or other securities of, or otherwise in or through the Company), unless his interest arises only because the case falls within one or more of the following: (a) the giving to him of a guarantee, security, or indemnity in respect of money lent to, or an obligation incurred by him for the beneﬁ t of, the Company or any of its subsidiary undertakings; (b) the giving to a third party of a guarantee, security, or indemnity in respect of an obligation of the Company or any of its subsidiary undertakings for which the Director has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security; (c) the giving to him of any other indemnity which is on substantially the same terms as indemnities given or to be given to all of the other directors and/or the funding by the Company of this expenditure on defending proceedings or the doing by the Company of anything to enable him to avoid incurring such expenditure where all other directors have been given or are to be given substantially the same arrangements; (d) the purchase or maintenance for any director or directors of insurance against liability; (e) his interest arises by virtue of his being, or intending to become a participant in the underwriting or sub-underwriting of an offer of any shares in or debentures or other securities of the Company for subscription, purchase or exchange; (f) any arrangement for the beneﬁ t of the employees and directors and/or former employees and former directors of the Company or any of its subsidiaries and/or the members of their families or any person who is or was dependent on such persons, including but without being limited to a retirement beneﬁ ts scheme and an employees’ share scheme, which does not accord to him any privilege or advantage not generally accorded to employees and/or former employees to whom the arrangement relates; and (g) any transaction or arrangement with any other company in which he is interested, directly or indirectly (whether as a director or shareholder or otherwise), provided that he is not the holder of or beneﬁ cially interested in at least one per cent of any class of shares of that company (or of any other company through which his interest is derived), and is not entitled to exercise at least one per cent of the voting rights available to members of the relevant company. If a question arises at a Directors’ meeting as to the right of a Director to vote, the question may be referred to the Chairman of the meeting (or if the Director concerned is the Chairman, to the other Directors at the meeting), and his ruling in relation to any Director (or, as the case may be, the ruling of the majority of the other Directors in relation to the Chairman) shall be ﬁ nal and conclusive. The Act requires a Director of a company who is in any way interested in a proposed transaction or arrangement with the company to declare the nature of his interest at a meeting of the Directors of the company (save that a director need not declare an interest if it cannot reasonably be regarded as giving rise to a conﬂ ict of interest). The deﬁ nition of “interest” includes the interests of spouses, civil partners, children, companies and trusts. Michael Page International 95 I I N O T A C O S S A F O S E L C T R A I BORROWING POWERS OF THE DIRECTORS The Directors shall restrict the borrowings of the Company and exercise all powers of control exercisable by the Company in relation to its subsidiary undertakings so as to secure (as regards subsidiary undertakings so far as by such exercise they can secure) that the aggregate principal amount (including any premium payable on ﬁ nal repayment) outstanding of all money borrowed by the Group (excluding amounts borrowed by any member of the Group from any other member of the Group), shall not at any time, save with the previous sanction of an ordinary resolution of the Company, exceed an amount equal to three times the aggregate of: (a) the amount paid up on the share capital of the Company; and (b) the total of the capital and revenue reserves of the Group, including any share premium account, capital redemption reserve, capital contribution reserve and credit balance on the proﬁ t and loss account, but excluding sums set aside for taxation and amounts attributable to outside shareholders in subsidiary undertakings of the Company and deducting any debit balance on the proﬁ t and loss account, all as shown in the latest audited consolidated balance sheet and proﬁ t and loss account of the Group, but adjusted as may be necessary in respect of any variation in the paid up share capital or share premium account of the Company since the date of that balance sheet and further adjusted as may be necessary to reﬂ ect any change since that date in the companies comprising the Group. DIRECTOR’S APPOINTMENT, RETIREMENT AND REMOVAL At each annual general meeting, there shall retire from ofﬁ ce by rotation: (a) all Directors of the Company who held ofﬁ ce at the time of the two preceding annual general meetings and who did not retire by rotation at either of them; and (b) such additional number of Directors as shall, when aggregated with the number of Directors retiring under paragraph (a) above, equal either one third of the number of Directors, in circumstances where the number of Directors is three or a multiple of three, or in all other circumstances, the whole number which is nearest to but does not exceed one-third of the number of Directors (the “Relevant Proportion”) provided that: (i) the provisions of this paragraph (b) shall only apply if the number of Directors retiring under paragraph (a) above is less than the Relevant Proportion; and (ii) subject to the provisions of the Act and to the relevant provisions of these Articles of Association, the Directors to retire under this paragraph (b) shall be those who have been longest in ofﬁ ce since their last appointment or reappointment, but as between persons who became or were last reappointed Directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot. If the Company, at the meeting at which a director retires by rotation, does not ﬁ ll the vacancy the retiring Director shall, if willing to act, be deemed to have been reappointed unless a resolution not to ﬁ ll the vacancy or not to reappoint that Director is passed. In addition to any power of removal under the Act, the Company may, by special resolution, remove a director before the expiration of his period of ofﬁ ce (without prejudice to any claim for damages for breach of any contract of service between the director and the Company) and, subject to the Articles of Association, may by ordinary resolution, appoint another person who is willing to act as a director, and is permitted by law to do so, to be a director instead of him. The newly appointed person shall be treated, for the purposes of determining the time at which he or any other director is to retire as if he had become a director on the day on which the director in whose place he is appointed was last appointed or reappointed as a Director. A Director shall be disqualiﬁ ed from holding ofﬁ ce as soon as: (a) that person ceases to be a director under the provisions of the Act or is prohibited by law from being a Director; (b) a bankruptcy order is made against that person; (c) a composition is made with that person’s creditors generally in satisfaction of that person’s debts; (d) by reason of that person’s mental health, a court makes an order which wholly or partly prevents that person from personally exercising any powers or rights which that person would otherwise have; (e) (f) notiﬁ cation is received by the Company from that person that he is resigning or retiring from his ofﬁ ce as director, and such resignation or retirement has taken effect in accordance with its terms; in the case of an Executive Director, his appointment as such is terminated or expires and the Directors resolve that he should cease to be a Director; (g) that person is absent from Directors’ meetings for more than six consecutive months (without permission of the other Directors) and the Directors resolve that he should cease to be a Director; or (h) a notice in writing is served on him signed by all the Directors stating that that person shall cease to be a Director with immediate effect. There is no requirement of share ownership for a Director’s qualiﬁ cation. 96 Michael Page International AMENDMENTS TO THE ARTICLES OF ASSOCIATION Subject to the Act, the Articles of Association of the Company can be altered by special resolution of the members. WINDING-UP If the Company is wound up, the liquidator may, with the sanction of a special resolution of the Company and any other sanction required by law: (a) divide among the members in kind the whole or any part of the assets of the Company and, for that purpose, set such values as he deems fair upon any property to be divided and determine how the division shall be carried out between the members; and (b) vest the whole or any part of the assets in trustees upon such trusts for the beneﬁ t of members as the liquidator shall think ﬁ t, but no member shall be compelled to accept any assets upon which there is a liability. I A R T C L E S O F A S S O C A T O N I I Michael Page International 97 I G ANNUAL GENERAL MEETING N T E E M L A R E N E G L A U N N A 98 Michael Page International A N N U A L G E N E R A L M E E T N G I NOTICE OF MEETING Notice is hereby given that the Annual General Meeting of the Company will be held at Page House, The Bourne Business Park, 1 Dashwood Lang Road, Addlestone, Weybridge, Surrey, KT15 2QW on 20 May 2011 at 12.00 noon for the following purposes: 1. To receive the accounts and the reports of the directors and the auditors for the year ended 31 December 2010. 2. To declare a ﬁ nal dividend on the ordinary share capital of the Company for the year ended 31 December 2010 of 6.12p per share. 3. To re-elect Sir Adrian Montague as a director of the Company (Note 8). 4. To re-elect Steve Ingham as a director of the Company (Note 8). 5. To re-elect Charles-Henri Dumon as a director of the Company (Note 8). 6. To re-elect Ruby McGregor-Smith as a director of the Company (Note 8). 7. To re-elect Dr. Tim Miller as a director of the Company (Note 8). 8. To re-elect Stephen Puckett as a director of the Company (Note 8). 9. To re-elect Hubert Reid as a director of the Company (Note 8). 10. To elect Reg Sindall as a director of the Company (Note 8). 11. To propose the following ordinary resolution: That the Directors’ Remuneration Report for the year ended 31 December 2010 be received and approved. 12. To re-appoint Deloitte LLP as auditors of the Company to hold ofﬁ ce until the conclusion of the next Annual General Meeting of the Company. 13. To authorise the directors to determine the remuneration of the auditors. 14. To propose the following ordinary resolution (Note 9): That in accordance with section 366 and 367 of the Companies Act 2006 (the ‘2006 Act’) the Company, and all companies that are subsidiaries of the Company at the date on which this Resolution 14 is passed or during the period when this Resolution 14 has effect, be generally and unconditionally authorised to: (a) make political donations to political parties (or independent election candidates), as deﬁ ned in the 2006 Act, not exceeding £25,000 in total; (b) make political donations to political organisations other than political parties, as deﬁ ned in the 2006 Act, not exceeding £25,000 in total; and (c) incur political expenditure, as deﬁ ned in the 2006 Act, not exceeding £25,000 in total; during the period commencing on the date of passing this resolution and ending on the date of the next Annual General Meeting of the Company provided that the authorised sum referred to in paragraphs (a), (b) and (c) above, may be comprised of one or more amounts in different currencies which, for the purposes of calculating the said sum, shall be converted into pounds sterling at the exchange rate published in the London edition of the Financial Times on the date on which the relevant donation is made or expenditure incurred (or the ﬁ rst business day thereafter) or, if earlier, on the day in which the Company enters into any contract or undertaking in relation to the same provided that, in any event, the aggregate amount of political donations and political expenditure made or incurred by the Company and its subsidiaries pursuant to this Resolution shall not exceed £75,000. 15. To propose the following ordinary resolution (Note 10): That the directors be and they are hereby generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company (‘Rights’) up to an aggregate nominal amount of £1,062,543, provided that this authority, shall expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, on 20 August 2012, save that the Company shall be entitled to make offers or agreements before the expiry of such authority which would or might require shares to be allotted or Rights to be granted after such expiry and the directors shall be entitled to allot shares and grant Rights pursuant to any such offer or agreement as if this authority had not expired; and all unexercised authorities previously granted to the directors to allot shares and grant Rights be and are hereby revoked. 16. To propose the following special resolution (Note 11): That the directors be and they are hereby empowered pursuant to section 570 and section 573 of the Companies Act 2006 to allot equity securities (within the meaning of section 560 of that Act) for cash either pursuant to the authority conferred by Resolution 15 above or by way of a sale of treasury shares as if section 561(1) of that Act did not apply to any such allotment provided that this power shall be limited to: Michael Page International 99 I G N T E E M L A R E N E G L A U N N A (a) the allotment of equity securities in connection with an offer of securities in favour of the holders of ordinary shares on the register of members at such record date as the directors may determine where the equity securities respectively attributable to the interests of the ordinary shareholders are proportionate (as nearly as may be practicable) to the respective numbers of ordinary shares held or deemed to be held by them on any such record date, subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with treasury shares, fractional entitlements or legal or practical problems arising under the laws of any overseas territory or the requirements of any regulatory body or stock exchange or by virtue of shares being represented by depositary receipts or any other matter; and (b) the allotment (otherwise than pursuant to sub-paragraph (a) of this Resolution 16) to any person or persons of equity securities up to an aggregate nominal amount of £160,991, and shall expire upon the expiry of the general authority conferred by Resolution 15 above, save that the Company shall be entitled to make offers or agreements before the expiry of such power which would or might require equity securities to be allotted after such expiry and the directors shall be entitled to allot equity securities pursuant to any such offer or agreement as if the power conferred hereby had not expired. 17. To propose the following special resolution (Note 12): That the Company be generally and unconditionally authorised to make market purchases (within the meaning of section 693(4) of the Companies Act 2006) of ordinary shares of 1p each of the Company on such terms and in such manner as the directors may from time to time determine, provided that: (a) the maximum number of ordinary shares hereby authorised to be acquired is 32,198,282 representing approximately 10% of the issued ordinary share capital of the Company as at 15 April 2011; (b) the minimum price which may be paid for each ordinary share is 1p; (c) the maximum price which may be paid for any such ordinary share does not exceed either; (i) where the Company makes market purchases (either directly or through a broker), 105% of the average of the middle market quotations for an ordinary share in the Company as derived from The London Stock Exchange Daily Ofﬁ cial List for the ﬁ ve business days immediately preceding the day on which such share is contracted to be purchased; or (ii) £8.00, in circumstances where the Company makes market purchases of ordinary shares as part of a share purchase programme entered into with a third party executing dealer where that executing dealer acquires ordinary shares as principal for delivery to the Company. (d) the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting or 20 August 2012 whichever is earlier unless previously renewed, varied or revoked by the Company in general meeting; and (e) the Company may make a contract to purchase its ordinary shares under the authority hereby conferred prior to the expiry of such authority, which contract will or may be executed wholly or partly after the expiry of such authority, and may purchase its ordinary shares in pursuance of any such contract. 18. To propose the following special resolution (Note 13): That a General Meeting other than an Annual General Meeting, may be called on not less than 14 clear days’ notice. The Board consider that all the proposals to be considered at the Annual General Meeting are likely to promote the success of the Company and are in the best interests of the Company and its shareholders as a whole. The directors unanimously recommend that you vote in favour of the resolutions as they intend to do in respect of their own beneﬁ cial holdings which amount to 2,275,682 shares representing 0.7% of the existing issued share capital of the Company (excluding treasury shares). By order of the Board Kelvin Stagg Company Secretary Michael Page International plc Page House, 1 Dashwood Lang Road Addlestone, Weybridge, Surrey, KT15 2QW Registered in England No. 3310225 15 April 2011 100 Michael Page International A N N U A L G E N E R A L M E E T N G I NOTES 1. A member entitled to attend and vote at the meeting (the ‘Meeting’) may appoint another person(s) (who need not be a member of the Company) to exercise all or any of his rights to attend, speak and vote at the Meeting. A member can appoint more than one proxy in relation to the Meeting, provided that each proxy is appointed to exercise the rights attaching to different shares held by him. 2. A proxy does not need to be a member of the Company, but must attend the Meeting to represent you. Your proxy will vote as you instruct and must attend the Meeting for your vote to be counted. Details of how to appoint the Chairman or another person as your proxy using the proxy form are set out in the notes to the proxy form. Appointing a proxy does not preclude you from attending the Meeting and voting in person. If you attend the Meeting in person, your proxy appointment will automatically be terminated. 3. A proxy form which may be used to make this appointment and give proxy instructions accompanies this notice. If you do not have a proxy form and believe that you should have one, please contact Capita Registrars on, 0871 664 0300 (calls cost 10p per minute plus network extras) lines are open Monday to Friday, 8.30am to 5.30pm. If you require additional copies you may photocopy the proxy. 4. In order to be valid an appointment of proxy must be returned (together with any authority under which it is executed or a copy of the authority certiﬁ ed (or in some other way approved by the directors)) by one of the following methods: • in hard copy form by post, by courier or by hand to the Company’s Registrar, at, PXS, 34 Beckenham Road, Beckenham BR3 4TU; • in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the procedures set out in Note 6 below; or and in each case must be received by the Company not less than 48 hours before the time of the Meeting. 5. A copy of this notice has been sent for information only to persons who have been nominated by a member to enjoy information rights under section 146 of the Companies Act 2006 (a ‘Nominated Person’). The rights to appoint a proxy can not be exercised by a Nominated Person: they can only be exercised by the member. However, a Nominated Person may have a right under an agreement between him and the member by whom he was nominated to be appointed as a proxy for the Meeting or to have someone else so appointed. If a Nominated Person does not have such a right or does not wish to exercise it, he may have a right under such an agreement to give instructions to the member as to the exercise of voting rights. 6. CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so by utilising the procedures described in the CREST Manual on the Euroclear website (www.euroclear.com/CREST). CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (“EUI”) speciﬁ cations and must contain the information required for such instructions, as described in the CREST Manual. The message regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID number – RA10) by the latest time(s) for receipt of proxy appointments speciﬁ ed in the notice of meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in regulation 35(5)(a) of the Uncertiﬁ cated Securities Regulations 2001. 7. CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. Michael Page International 101 I G N T E E M L A R E N E G L A U N N A 8. Resolutions 3 to 10 – election/re-election of directors Resolutions 3 to 10 deal with the election/re-election of the directors in accordance with the UK Corporate Governance Code (which has replaced the Combined Code on Corporate Governance). The Governance Code provides for all directors of FTSE 350 companies to be subject to election/re-election by their shareholders every year. The Governance Code applies on a “comply or explain” basis and applies to ﬁ nancial years beginning on or after 29 June 2010. Accordingly, in keeping with the Board’s aim of following best corporate practice, each member of the board is standing for re-election, and in the case of Reg Sindall for election, by the shareholders for the ﬁ rst time at this year’s Annual General Meeting. Biographical information on each of the directors is contained on pages 32 and 33 of the Annual Report and Accounts. The Chairman conﬁ rms that, following formal performance evaluation, all directors standing for election/re-election continue to perform effectively and demonstrate commitment to the role. 9. Resolution 14 - political donations: For the purpose of this resolution, ‘political donations’, ‘political organisations’ and ‘political expenditure’ have the meanings given to them in Section 363-365 of the 2006 Act. In accordance with its Business Principles, it is the Company’s policy not to make contributions to political parties. There is no intention to change it. However, what constitutes a ‘political party’, a ‘political organisation’, ‘political donations’ or ‘political expenditure’ under the Companies Act 2006 is not easy to decide as the legislation is capable of wide interpretation. Sponsorship, subscriptions, payment of expenses, paid leave for employees fulﬁ lling public duties, and support for bodies representing the business community in policy review or reform, among other things, may fall within this. Therefore, notwithstanding that the Company has not made a political donation in the past, and has no intention of, either now or in the future, making any political donation or incurring any political expenditure in respect of any political party, political organisation or independent election candidate, the Board has decided to put forward Resolution 14 to renew the authority granted by shareholders at the last Annual General Meeting of the Company. This will allow the Company to continue to support the community and put forward its views to wider business and Government interests without running the risk of being in breach of the law. As permitted under the 2006 Act, Resolution 14 has also been extended to cover any of these activities by the Company’s subsidiaries. 10. Resolution 15 - directors’ authority to allot shares: If passed, Resolution 15 will give the directors authority to allot ordinary shares in the capital of the Company up to a maximum nominal amount of £1,062,543 representing approximately 33% of the Company’s issued ordinary share capital (excluding treasury shares) as at 15 April 2011 (the latest practicable date before publication of this notice). This power will last until the conclusion of the next Annual General Meeting in 2012. The directors have no present intention of exercising this authority. As at the date of this letter the Company does not hold any ordinary shares in the capital of the Company in treasury. 11. Resolution 16 – disapplication of pre-emption rights: Resolution 16 will give the directors authority to allot shares in the capital of the Company pursuant to the authority granted under Resolution 15 for cash without complying with the pre-emption rights in the Companies Act 2006 in certain circumstances. This authority will permit the directors to allot: (a) shares up to a nominal amount of £1,062,543 , (representing one-third of the Company’s issued share capital) on an offer to existing shareholders on a pre-emptive basis (in each case subject to adjustments for fractional entitlements and overseas shareholders as the directors’ see ﬁ t); and (b) shares up to a maximum nominal value of £160,991, representing approximately 5% of the issued ordinary share capital of the Company as at 15 April 2011 (the latest practicable date prior to publication of this notice) otherwise than in connection with an offer to existing shareholders. The directors have no present intention of exercising this authority. The directors conﬁ rm their intention to follow the provisions of the Pre-emption Group’s Statement of Principles regarding cumulative usage of authorities within a rolling three-year period. The Principles provide that companies should not issue for cash shares representing in excess of 7.5% of the Company’s issued share capital in any rolling three-year period, other than to existing shareholders, without prior consultation with shareholders. 102 Michael Page International A N N U A L G E N E R A L M E E T N G I 12. Resolution 17 – buyback authority: Resolution 17 gives the Company authority to buy back its own ordinary shares in the market as permitted by the Companies Act 2006. The authority limits the number of shares that could be purchased to a maximum of 32,198,282 (representing approximately 10% of the Company’s issued ordinary share capital (excluding treasury shares) as at 15 April 2011 (the latest practicable date prior to publication of this notice)) and sets minimum and maximum prices. This authority will expire at the conclusion of the Annual General Meeting of the Company in 2012. The Company may implement a purchase of ordinary shares pursuant to an arrangement entered into with a third party executing dealer where that executing dealer acquires ordinary shares as principal for delivery to the Company. Resolution 17 stipulates that, in the case, the maximum price which may be paid by the Company for the shares is £8.00. This maximum amount has been set to give the Company ﬂ exibility to make market purchases using this arrangement and the actual price paid by the Company may be less than this. If shares were purchased in this way, the arrangement with the executing dealer would provide that the actual price per ordinary share paid by the Company would not be more than the average of the volume weighted average price at which the Company’s ordinary shares trade over a speciﬁ c period to be agreed by the Company and the executing dealer being the period during which the executing dealer may make purchases of ordinary shares for delivery to the Company. This would be subject to a maximum price of £8.00 or such lesser amount as the Company and the executing dealer may agree. The actual price paid by the Company may also be subject to a minimum price as the Company and the executing dealer may agreed. The price paid by the executing dealer for the ordinary shares acquired by it for delivery to the Company would not be more than (a) 105 per cent of the average of the middle market quotations for the Company’s ordinary shares as derived from the London Stock Exchange Daily Ofﬁ cial List for the ﬁ ve business days before the purchase is made by the executing dealer and (b) the higher of the price of the last independent trade and the highest current independent bid on the market where the purchase is carried out. The directors have no present intention of exercising the authority to purchase the Company’s ordinary shares but will keep the matter under review, taking into account the ﬁ nancial resources of the Company, the Company’s share price and future funding opportunities. The authority will be exercised only if the directors believe that to do so would result in an increase in earnings per share and would be in the interests of shareholders generally. Any purchases of ordinary shares would be by means of market purchases through the London Stock Exchange. Listed companies purchasing their own shares are allowed to hold them in treasury as an alternative to cancelling them. No dividends are paid on shares whilst held in treasury and no voting rights attach to treasury shares. If Resolution 17 is passed at the Meeting, it is the Company’s current intention to cancel all of the shares it may purchase pursuant to the authority granted to it. However, in order to respond properly to the Company’s capital requirements and prevailing market conditions, the directors will need to reassess at the time of any and each actual purchase whether to hold the shares in treasury or cancel them, provided it is permitted to do so. As at 15 April 2011 (the latest practicable date prior to the publication of this notice), there were warrants and options over 26,271,063 ordinary shares in the capital of the Company representing 8.2% of the Company’s issued ordinary share capital (excluding treasury shares). If the authority to purchase the Company’s ordinary shares was exercised in full, these options would represent 9.1% of the Company’s issued ordinary share capital (excluding treasury shares). 13. Resolution 18 – length of notice for general meetings: This is a resolution to allow the Company to hold general meetings (other than Annual General Meetings) on 14 days notice. Before the introduction of the Companies (Shareholders’ Rights) Regulations 2009 on 3 August 2009, the minimum notice period permitted by the 2006 Act for general meetings (other than annual general meetings) was 14 days. One of the amendments made to the 2006 Act by the Shareholders’ Rights Regulations was to increase the minimum notice period for general meetings of listed companies to 21 days, but with an ability for companies to reduce this period back to 14 days (other than for annual general meetings) provided that two conditions are met. The ﬁ rst condition is that the Company offers a facility for shareholders to vote by electronic means. This condition is met if the Company offers a facility, accessible to all shareholders, to appoint a proxy by means of a website. The second condition is that there is an annual resolution of shareholders approving the reduction of the minimum notice period from 21 days to 14 days. The Board is therefore proposing Resolution 18 as a special resolution to approve 14 days as the minimum period of notice for all general meetings of the Company other than annual general meetings. The approval will be effective until the Company’s next annual general meeting, when it is intended that the approval be renewed. The Board will consider on a case by case basis whether the use of the ﬂ exibility offered by the shorter notice period is merited, taking into account the circumstances, including whether the business of the meeting is time sensitive. Michael Page International 103 I G N T E E M L A R E N E G L A U N N A 14. To have the right to attend and vote (whether in person or by proxy) at the Meeting or adjourned 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 6.00pm on 18 May 2011 (or if the Meeting is adjourned, at 6.00pm on the date which is two days prior to the adjourned 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. 15. A member of the Company which is a corporation may authorise a person or persons to act as its representative(s) at the Meeting. In accordance with the provisions of the Companies Act 2006, each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual member of the Company, provided that they do not do so in relation to the same shares. It is no longer necessary to nominate a designated corporate representative. 16. As at 15 April 2011 (being the latest business day prior to the publication of this notice), the Company’s issued share capital consists of 321,982,816 ordinary shares. The Employee Beneﬁ t Trust holds 14,407,545 ordinary shares of the Company carrying no voting rights. No shares are held in treasury. Therefore the total voting rights in the Company are 307,575,271. 17. The contents of this notice of Meeting, details of the total number of shares in respect of which members are entitled to exercise voting rights at the Meeting, details of the totals of the voting rights that members are entitled to exercise at the Meeting and, if applicable, any members’ statements, members’ resolutions or members’ matters of business received by the Company after the date of this notice will be available on the Company’s website: http://investors.michaelpage.com. 18. Members satisfying the thresholds in section 527 of the Companies Act 2006 can require the Company to publish a statement on its website setting out any matter relating to (a) the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that is to be laid before the Meeting; or (b) any circumstances connected with an auditor of the Company ceasing to hold ofﬁ ce since the last Annual General Meeting, that the members propose to raise at the Meeting. The Company cannot require the members requesting the publication to pay its expenses. Any statement placed on the website must also be sent to the Company’s auditors no later than the time it makes its statement available on the website. The business which may be dealt with at the Meeting includes any statement that the Company has been required to publish on its website. 19. The Company must cause to be answered at the Meeting any question relating to the business being dealt with at the Meeting that is put by a member attending the Meeting, except in certain circumstances, including if it is undesirable in the interests of the Company or the good order of the Meeting that the question be answered or if to do so would involve the disclosure of conﬁ dential information. 20. Copies of the directors’ service contracts with the Company, and the terms and conditions of the non-executive directors, are available for inspection at the registered ofﬁ ce of the Company during usual business hours (Saturdays, Sundays and public holidays excepted) and will be available at the place of the Meeting from 8.00 am until its conclusion. 21. You may not use any electronic address in this notice of meeting to communicate with the Company for any purpose other than those expressly stated. 104 Michael Page International I C A U T O N A R Y S T A T E M E N T Cautionary statement The Business Review has been prepared solely to provide additional information to shareholders to assess the company’s strategies and the potential for those strategies to succeed. The Business Review contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors underlying any such forward-looking information. Directors’ responsibilities The directors are responsible for preparing the Annual Report and the ﬁ nancial statements in accordance with applicable laws and regulations. Company law requires the directors to prepare such ﬁ nancial statements for each ﬁ nancial year. Under that law the directors are required to prepare group ﬁ nancial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the lAS Regulation and have also chosen to prepare the parent company ﬁ nancial statements under IFRSs as adopted by the European Union. Under company law the directors must not approve the accounts unless they are satisﬁ ed that they give a true and fair view of the state of affairs of the company and of the proﬁ t or loss of the company for that period. In preparing these ﬁ nancial statements, the directors are required to: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the speciﬁ c requirements in lFRSs are insufﬁ cient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s ﬁ nancial position and ﬁ nancial performance; and • make an assessment of the company’s ability to continue as a going concern. The directors are responsible for keeping proper accounting records that are sufﬁ cient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the ﬁ nancial position of the company and enable them to ensure that the ﬁ nancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and ﬁ nancial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of ﬁ nancial statements may differ from legislation in other jurisdictions. Directors’ responsibility statement We conﬁ rm to the best of our knowledge: 1. the ﬁ nancial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, ﬁ nancial position and proﬁ t or loss of the company and the undertakings included in the consolidation taken as a whole; and 2. the Business Review, which is incorporated into the directors’ report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. On behalf of the Board S Ingham Chief Executive 4 March 2011 S Puckett Group Finance Director 4 March 2011 Michael Page International 105 Specialists in Global Recruitment www.michaelpageinternational.co.uk

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