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UK – Michael Page results flat

13 August 2012

Michael Page International plc (MPI:LSE) the specialist professional recruitment company, announces its unaudited half year results for the period ended 30 June 2012 today. Revenue was up very slightly +0.1% at £502.6 million (m) compared to £502.1m in H1 2011. While Group gross profit was down very slightly -0.5% at £273.9 million compared to £275.1m the year before. At constant exchange rates, the Group's revenue increased by 2.6% and gross profit by 2.2%.

With a small increase in gross profit adversely affected by the effects of exchange rates, a weaker economic environment in most of the Group's markets and investment for the future, operating profit from trading activities for the first half of 2012 decreased to £36.0m before exceptional items (2011: £45.4m). The Group's conversion rate of gross profit to operating profit from trading activities is now 13.1% before exceptional items (2011: 16.5%).

In the firm’s largest region, Europe, Middle East and Africa (EMEA) revenue increased by 0.9% to £211.5m (2011: £209.5m) and gross profit decreased by 1.9% to £117.9m (2011: £120.3m). The 1.9% decrease in gross profit resulted in a 21.1% decrease in operating profit before exceptional items for the first half of 2012 to £13.4m (2011: £17.0m), a conversion rate of 11.3% (2011: 14.1%).

According to the company market conditions remained challenging across the region; with economic uncertainty, increasing austerity measures and levels of unemployment across Southern Europe further impacting market confidence. The weakening of the Euro relative to sterling during the second quarter, has impacted the results of the Eurozone countries, with year-on-year growth rates at constant rates of exchange some 5% higher than in reported.

The business in Germany, now represents 16% of the region, and grew 25% year-on-year in constant currency against a strong prior year comparator. In France, the company grew 3% despite the uncertainties surrounding the French elections and the wider Eurozone issues. Headcount across the region decreased by 25 (1%) in the first half of 2012 to 2,185, but was still up 59 or 3% on June 2011. During the first half they opened new offices in Casablanca, Morocco, and in Cape Town, South Africa. 

In the United Kingdom, representing 22% of the Group's gross profit in the first half, revenue decreased by 10.4% to £146.0m (2011: £163.0m), gross profit decreased by 6.5% to £61.7m (2011: £66.0m) and operating profit before exceptional items was down 17.2% at £8.6m (2011: £10.4m).

Market conditions have remained tough, but broadly stable throughout the first half of 2012. Michael Page’s banking business continued to be affected strongly by conditions in the banking sector and was down over 50% year-on-year. However, several other businesses, particularly the more technical disciplines, continued to grow. Overall, operating profit decreased by 17%, with the conversion rate slightly down at 14.0% (2011: 15.8%). Headcount in the UK was down 3.8% during the first half of 2012 to 1,243 at the end of June 2012 (1,292 at 31 December 2011), but down some 171 on the previous peak of 1,414 at Q3 2011.

In Asia Pacific, representing 21% of the Group's gross profit in the first half, revenue increased by 23.3% to a record £94.6m (2011: £76.7m) and gross profit increased by 17.1% to £56.9m (2011: £48.6m). In constant currency, revenue increased by 20.4% and gross profit by 14.1%. Operating profit rose by 12.8% to £13.8m (2011: £12.2m), with the large investments in additional headcount and new offices in Taipei and Suzhou, partially offset by operational gearing and increased productivity, resulting in a small net decrease in the conversion rate to 24.3% (2011: 25.2%).

Australia, their largest business in the region, grew gross profits by 9% in constant currency. Market conditions were particularly strong in Western Australia and Queensland, benefiting from the strength of the mining and commodities sector. In Asia, despite the on-going weakness in the Financial Services sector continuing to impact their growth in Tokyo, Hong Kong and Singapore, gross profits grew 19% in constant currency. According to the company their newer businesses in Malaysia and India are progressing well. At the end of June, they had 1,050 staff in the region, an increase of 79 (8%) since the start of the year and assuming market conditions remain strong, further headcount will be added during the second half of 2012.

In the Americas, representing 14% of the Group's gross profit in the first half, revenue decreased by 4.1% to £50.6m (2011: £52.7m) and gross profit decreased by 7.2% to £37.4m (2011: £40.3m). In constant currency, revenue increased by 1.1% and gross profit decreased by 1.3%. According to the company they continued to make significant investment in new countries and offices to build on their dominant market-leading position in Latin America. This, along with the one-off expense of a senior management charge taken in the normal course of business, decreased operating profit by 96.6% to £0.2m (2011: £5.8m), with a conversion rate of 0.5% (2011: 14.4%).

In North America the business was impacted by the difficulties in the financial services sector and year-on-year gross profit was down by 3% in constant currency. However, their newer offices in Houston and San Francisco performed well. The company announced that they have strengthened the management team in the region and expect to benefit from this in the future.

In Latin America, gross profit was down 1% year-on-year in constant currency. In Brazil, where they believe they are the clear market leader with approaching 400 employees and where the economy has slowed compared to H1 2011, their activity levels were stable. Their other businesses in Latin America are growing strongly and accordingly they have invested in additional headcount in Mexico, Argentina and Chile to further enhance their market leading positions. Colombia, their newest country in Latin America which opened at the start of 2012 has already recorded a small monthly profit. They also opened in Q2 an additional office in Macaé, Rio de Janeiro, to invest further in their growing global Oil and Gas business. The Brazilian Real has weakened against Sterling compared to H1 2011, with year-on-year growth rates at constant rates of exchange some 10% higher than in reported. The firm now have 843 staff in the region, an increase of 30 (4%) since the start of the year.

During the first half of 2012, the mix of the Group's revenue and gross profit between permanent and temporary placements decreased slightly to 44:56 (2011: 45:55) and 79:21 (2011: 80:20), respectively. The company also restructured its regional management structure removing one layer of management (the Continental Europe and Americas regional management team) including one Executive Director. Severance packages for this team, who had been employed by the Group for many years and were largely based in France, with accompanying high employment protection and social charges, totalled £7.8m.

The Group started the year with net cash of £58.2m and ended the period at 30 June 2012 with £32.4m; for full details see the link below. The Board has maintained the interim dividend at 3.25p (2011: 3.25p) per share.

Commenting on the results, Steve Ingham, Chief Executive of Michael Page, said:

“The second quarter … saw a 4% increase in gross profit compared to the first quarter, against a tough comparator, with Q2 2011 having been our second highest quarter on record, with a growth rate of 32%.

Over the last 10 years we have continued to diversify and hence have altered significantly the composition of the Group, entirely through organic investment and development, with over three quarters of the Group's gross profits now generated from outside the UK.

It is a clear priority that we continue to manage the cost base to reflect market conditions, whilst investing to create a platform for greater growth when markets improve. We believe strongly that we have the balance right.  The business remains profitable throughout all our major markets, apart from new start-ups.

We anticipate a challenging second half as we enter the seasonally quieter summer period in both Continental Europe and the UK. This is set against tough comparables and an ongoing backdrop of economic uncertainty. The Group is financially strong, with net cash of £32.4m. We remain well-placed to take advantage of any recovery in the markets in which they operate. At this time, we expect our full year operating profit from trading activities to be broadly in line with current market estimates.”.

Michael Page International is a provider of permanent, contract and temporary recruitment for clerical professionals, qualified professionals and executives.  Established more than 35 years ago in the United Kingdom, they now have 162 offices in 34 countries and more than 5,309 employees.

After announcing its financial results this morning, the company’s share price was up very slightly by -0.37% to 380.4 pence, down -5.0% from a year ago and +21.49% above the 52-week low of 313.10 pence set on 5 December 2011. This means the company is valued at £1.15 billion


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