Final Results

SThree plc 04 February 2008 SThree plc ('SThree' or the 'Group') Preliminary Results for the year ended 2 December 2007 SThree, the international, multi-sector specialist staffing businesses, is today announcing its unaudited preliminary results for the year ended 2 December 2007. Financial Highlights £m 2007 2006 Change (Unaudited) Revenue £522.7m £393.3m + 32.9% Gross Profit (Fee Income) £182.7 £135.5m + 34.8% Operating profit* £52.3m £41.0m + 27.6% Profit before taxation* £50.3m £40.3m + 24.8% Basic earnings per share* 25.2p 22.4p + 12.5% Final dividend 6.2p 4.8p + 29.2% Total dividend 9.3p 7.2p + 29.2% The above results have been prepared under International Financial Reporting Standards (IFRS) *Prior year EPS and profit figures are shown pre-exceptional charges of £22.1m, in respect of float-related share awards. Operational Highlights • Continued strong growth with substantial volume increases achieved across all sectors whilst maintaining gross margins - gross profit increased by 34.8% to £182.7m; • Both Contract and Permanent businesses delivered further strong growth: - Permanent placements increased by 29.4% to 9,945 (2006: 7,685), with average fees increased by 9.9%; - Contractors at period end increased by 20.8% to 5,700 (2006: 4,719), with average gross profit per day rates increased by 10.0%; • Continued roll-out of international office network resulted in a 62.2% growth in non-UK gross profit to £59.3m (2006: £36.6m): - New offices opened in Hong Kong, Amsterdam (x2), Rotterdam and Brussels during the year with Dubai and Sydney added at start of 2008; • Excellent progress made with roll-out of new sector disciplines (accountancy, banking & finance, human resources, engineering, pharmaceuticals and energy) resulting in non-ICT gross profit increasing by 33.3% to £32.5m (2006: £24.4m); • Total headcount increased by 37.4% to 2,035 (2006: 1,481) at year-end. Sales consultant headcount increased by 40.4% to 1,537 (2006: 1,095) with over three-quarters of new staff hired for new geographies and/or sectors; • Final dividend of 6.2p per share declared taking full year dividend to 9.3p (2006: 7.2p), an increase of 29.2%; • Current trading in line with expectations with no material change in overall recruitment market conditions; • Close season share buy back of 3m shares for cancellation completed at total cost of £6.2m; Further market purchases anticipated. Russell Clements, Chief Executive Officer, said: '2007 was another year of significant growth for SThree and it is particularly encouraging to see the excellent progress made with our ongoing strategy of geographical and sector expansion. The success of this strategy is well illustrated by the fact that we expect approximately half of gross profit in the current year to come from non-ICT and non-UK sources. It was also a year of unusually high levels of investment to ensure that the Group has the best possible platform for sustainable future growth. We are confident that we will see the returns on this investment programme into 2008 and beyond.' 'Trading in the first two months of the current financial year has been in line with our expectations and at this point we have no reason to assume that market conditions in the coming year will be anything other than supportive of another year of growth. However, SThree is an agile business with a seasoned management team and is well positioned to respond quickly and effectively in the event of a change in overall market sentiment.' SThree plc (04.02.08) 020 7638 9571 Russell Clements, Chief Executive Officer (Thereafter) 020 7292 3838 David Tilston, Interim Chief Financial Officer Citigate Dewe Rogerson 020 7638 9571 Kevin Smith / Nicola Smith Notes to editors SThree, founded in 1986, is an international specialist staffing business, providing both permanent and contract staff to a diverse, client base of well over 6,000 clients. From its well-established position as a major player in the information and communications technology ('ICT') sector the Group has broadened the base of its operations by building fast-growing businesses serving the banking and finance, accountancy, human resources, engineering, energy and pharmaceuticals sectors. Following the establishment of its first business, Computer Futures, in 1986, the Group adopted a multi-brand strategy. SThree currently operates 12 separately managed brands, the four largest being Computer Futures, Huxley Associates, Progressive and Pathway, and has 33 offices in the UK and 19 overseas offices, 15 elsewhere in Europe, the Netherlands, Belgium, France, Germany and Ireland. In 2006, the Group opened its first North American office, in New York, and recently opened offices in Australia, Hong Kong and Dubai. SThree has a selective approach to clients and focuses on high margin opportunities, predominantly within the small to medium-sized enterprises ('SMEs') market and, from its inception, the Group has avoided the high volume, low margin business model in favour of a focus on high quality business. SThree plc ('SThree' or the 'Group') Preliminary Results for the year ended 2 December 2007 Operating Review The 2007 financial year was one in which the Group made very substantial investments in its future and implemented a major reorganisation of some of its key business processes. In this context it is pleasing to be able to report that once again the Group made noteworthy progress, posting substantial year on year growth. We also took significant further steps towards our goal of becoming an ever more international and broadly based specialist staffing business. Notwithstanding the well-documented turmoil in the financial markets experienced in the second half of the year, overall business sentiment remained supportive. The only exceptions to this were those areas of the investment banking sector particularly exposed to the credit and risk markets, a sub sector that represented only a small percentage of Group revenue. In general, candidates continued to have the confidence to actively pursue new opportunities and in the process generate vacancies as their employers looked to replace them with similarly qualified specialist staff. In addition the Group benefited from its ever-increasing exposure to territories with staffing markets which have strong structural growth characteristics. During the year the Group continued to roll out its well-proven business model to drive expansion into new geographies and staffing sectors. A clear indication of the robustness of this strategy is provided by the fact that over the year, only a little over half (53%) of Group Gross Profit was derived from our UK ICT franchise (2006: 58%). As such, although the UK ICT business continues to deliver very healthy growth, the particularly rapid expansion of our non ICT and non-UK businesses means we expect to see an ongoing reduction in the proportion of overall Group business derived from our UK ICT franchise. The substantial increases in sales headcount that we made during the year reflect this growth theme. Overall we grew the number of sales staff by approximately 40% with over three-quarters of this increase accounted for by teams servicing non-UK and/or non-ICT marketplaces. Irrespective of sector or geography, the Group remained highly selective in terms of the type of business it transacted, maintaining healthy margins by not pursuing volume over value. This focus on quality, combined with a healthy level of demand-driven wage inflation allowed us to post record fee levels in both the permanent and contract markets. During the year the Group invested particularly heavily to ensure that the rapid growth of the business continues to be reflected in fit-for-purpose infrastructure and support functions. In addition to a substantial increase in office space (circa 40%) we also undertook a major programme of systems roll out with large-scale ERP and CRM package implementations. The impact of these factors was felt in terms of the Group's operating profit to gross profit conversion ratio, which declined to 28.6% (2006: 30.3%). However, given the unusually high level of investment and the one-off nature of some of the more significant costs, we see this year as an exception. As such, we anticipate a return to trend going forward. Group gross profit for the year improved by 34.8% to £182.7m (2006: £135.5m) with a corresponding increase in operating profit of 27.6% (2006: 39.3% before exceptional items). Against a backdrop of a higher than anticipated cost base as discussed above, we believe that this was an acceptable performance for a year in which the Group undertook a step change in terms of investing for future growth. Strategy The Group continued to pursue its stated strategy of adding additional revenue streams through expansion into newer geographies and staffing sectors, while at the same time driving the continued growth of its longer established franchises. Increasing the number of sales staff to ensure we were able to take full advantage of available market opportunities remained a key element of our strategy. We remained focused on high value markets in which the candidate supply and demand dynamics were in our favour and hence supportive of our higher margin model. The latter was once again reinforced by our preference for growing through highly specialist niche-within-niche teams who are able to gain in-depth understanding of their particular markets. This approach justifies a premium pricing position relative to less specialised peers. We continued to enjoy the benefits of a highly diversified client base with relatively low exposure to any individual client or small group of clients. In this respect, our strong SME franchise helps de-risk the business as a whole, as well as mitigating the downward price pressure often associated with exposure to a limited number of influential customers. Our multi-brand approach remained a central element of our strategy. The brands reinforce our niche specialisation, allowing us to further segment and subdivide our markets. As always they also provided a vehicle to attract and retain entrepreneurial talent who are strongly attracted to the potential of equity participation through the Group's minority stakes model. Once again our focus was on the extension of the existing brand portfolio into newer sectors and geographies rather than the creation of entirely new brands. Given the success of this approach we anticipate that this will remain our strategy going forward. Geographical Expansion As at the end of the year the Group had a total of fifty offices in eight countries. During the year we added five new international offices, two in Amsterdam (Real Resourcing/ IT Job Board and SThree Group training) and one in each of Rotterdam (Computer Futures), Brussels (Huxley) and Hong Kong (Huxley). In addition in Q1 2008 we opened in Dubai (Pathway) and Sydney (Progressive) which brings the overall total to fifty-two offices in ten countries. For the first time the Group's physical presence outside the UK was extended beyond the three largest brands to also include Pathway, Real Resourcing and ITJB. The Group also extended its geographical reach significantly with its first office in the Far East, a region with significant structural growth potential. Overall the Group grew its non-UK gross profit by 62.2% to £59.3m (2006: £36.6m). Although non-ICT sector growth outside of the UK was a more significant factor than in previous years, it is still true to say that the non-UK expansion was heavily ICT orientated. This illustrates both the robustness of the ICT market as well as the potential for further non-ICT growth as the Group rolls out more of its non-ICT disciplines into a greater number of non-UK regions. The roll out of newer sectors into the UK market is a more developed programme and this played a part in this business achieving gross profits of £123.3m, a year on year increase of 24.6% (2006: £98.9m). Given the relatively mature UK specialist staffing market this is a strong performance particularly given that we were able to achieve significant volume growth without compromising our margins. By the year-end the UK versus non-UK business mix had once again shifted towards a greater percentage being attributable to teams outside of the UK. Total non-UK gross profit represented 32.5% of the overall total compared to 27.0% in 2006.We anticipate that this trend will continue going forward with 2008 expected to be the first full year in which UK ICT will represent under half of our gross profit. Our further international growth will continue to benefit from the gradual evolution in the political and legislative environment in Europe becoming more sympathetic to the private staffing sector. Although jurisdictions such as France and Germany have a long way to go before they compare positively with the UK from a legislative standpoint, they are moving in the right direction, driven by a need to support labour market flexibility. Sector Expansion A major investment was made during the year to substantially increase sales head count in newer sectors. In particular, a number of brands that had taken their first, relatively minor steps in terms of sector diversification during 2006 accelerated this programme during 2007.This required teams in new disciplines to be seeded through the movement of experienced sales consultants/management from more established markets. At the same time our non-UK ICT business expanded very rapidly. As such, although by year-end ICT still represented 82% of the Group's business, unchanged from the previous year, in absolute terms non-ICT gross profit increased by 33.3% to £32.5m. This compares to a 2006 growth of 49.8% achieved off less challenging comparatives. As the more recently established teams start to come fully on stream and as non-ICT is rolled out outside of the UK to an ever greater extent, we would expect the non-ICT business to represent an increasingly significant part of the overall mix. However, the Group's sector expansion should be viewed in terms of adding valuable new revenue streams rather than as a defensive strategy. In our view the ICT sector remains a robust market for our services. This is reflected in the fact that during the year even in the relatively mature UK ICT market the Group grew gross profit by 23.7%. Staffing Levels The Group expanded headcount significantly during the year by a total of 554 to 2,035 (2006: 1,481) of which a total of 442 were recruited as sales consultants. The largest increases were in newer sectors and /or geographies which between them accounted for 81% of the total new hires. This cohort included a significant increase in the number of consultants addressing new sectors in new geographies. This investment in sales headcount growth naturally necessitated a commensurate expansion of the HR, Information Services and Training functions. In the case of the Finance function, issues concerning the ERP implementation caused a temporary spike in mid year headcount which had normalised by the end of the year. Our strategy of hiring sales staff at a junior level from outside of the staffing industry was maintained. Our in-house training and development programme was enhanced to accommodate the higher percentage of non-UK hires. This included the establishment of our first non-UK training facility in Amsterdam. The Group's remuneration strategy for its sales consultants remained strongly biased towards variable over fixed remuneration. This ensures the focus is towards encouraging higher individual performance and also provides the Group with considerable flexibility with regard to its cost base. As such the business has the potential to quickly respond to any change in market conditions. Contract/Permanent Business Mix The Group saw healthy increases in both volume and value in both the Permanent and Contact sides of the business. During the course of the year we made a total of 9,945 permanent placements, an increase of 29.4% on the previous year (2006: 7,685). By the end of the year our total of 5,700 contractors represented a 21% increase on the previous year (2006: 4,719). Once again, the increase in volume was not achieved at the expense of the quality of business completed. The average value of each Permanent and Contract placement also improved substantially. Over the period the Group's average Permanent placement fee grew by 9.9% to £9,409 (2006: £8,563). Similarly, the average Contract day rate achieved was a substantial 10% increase to £71.42 (2006: £64.91). As in the previous year the element of Permanent business as a percentage of the overall business mix increased marginally. This of course reflects the fact that employers continued to have the confidence to make permanent hires. In addition, the non-ICT sectors to which we are increasingly exposed are structurally less geared towards contract hiring. The impact of this change in the mix was further reinforced by the fact that the contract market in some of our non-UK geographies is less established. The overall impact was that the business was very slightly biased 51% to 49% in favour of Permanent (2006: Contract 51% Permanent 49%). Investments for the future The Group has always been prepared to investment in its future. Nonetheless, 2007 was an exceptional year in this respect with a combination of headcount growth, office roll-outs and systems implementations all playing their part in accounting for a substantial increase in capital expenditure to £14.1m (2006: £5.4m). The majority of the costs in question were expected and planned for accordingly. In other cases future investments originally anticipated for 2008 were brought forward for commercial reasons - for example the opening of our new European training centre in Amsterdam. However, we were also impacted by approximately £3m of unbudgeted additional costs associated with disruption caused by our roll-out of a major ERP package and the associated business process reengineering. The impact of these items was also seen on the Group's conversion ratio of Gross Profit to Operating Profit, which reduced to 28.6% (2007:30.3%). We anticipate that 2008 will see a return to normalised levels of expenditure with capital expenditure of approximately £7m and a commensurate recovery in our conversion ratio. Brand Analysis The four largest brands in the Group, Computer Futures, Huxley, Progressive and Pathway were responsible for 81.0% of the Group's gross profit during the year compared with a total of 78.7% for the previous financial year. All four brands posted significant growth. Computer Futures was once again the largest brand by gross profit contribution, achieving £53.9m (2006: £36.7m) and thus accelerating its year on year growth to 46.5% from 20% the previous year. This is a noteworthy achievement for the Group's oldest business. During the year this brand took its first meaningful steps to add new sectors alongside its ICT franchise, establishing teams in the Accountancy and HR markets. During the year Computer Futures also added a new office in Rotterdam. Huxley remained the second largest business, posting a total of £50.7m of gross profit (2006: £35.6m) representing an increase of 42.5%. Huxley benefited from having the most developed programme of sector diversification, with newer sectors increasingly being rolled out outside of the UK. Huxley enjoyed another strong year of growth despite being the brand most exposed to the investment banking market. Huxley also opened new offices in Brussels and Hong Kong. Our third largest brand, Progressive, achieved a 27.9% increase in gross profit to a total of £31.7m (2006: £24.8m). In common with the other brands, it enhanced its sector portfolio, making significant progress in the engineering market in particular. Progressive also continued its programme of international expansion by establishing a presence in Sydney, the office officially going live in Q1 2008. Pathway was the fourth largest Group brand once again, recording £11.6m of gross profit, a year on year improvement of 22.5% (2006: £9.5m). During the year Pathway established a team to address the Dubai market which operated out of London before physically relocating to Dubai at the beginning of 2008. In aggregate the other Group brands accounted for 19.0% of total gross profit compared to 21.3% in 2006. Of particular note was that two of these brands, the IT Job Board and Real Resourcing, took their first steps in terms of international expansion, both opening offices in Amsterdam. Similarly our accountancy brand JP Gray started to roll out in Europe; in its early stages this initiative will leverage the Computer Future's office network. Outlook We enter 2008 in good shape to take full advantage of the investments made in 2007. The Group's strong growth in Gross Profit of 34.8% (2006: 29.7%) reflects the overall strength of the market for the Group's services. The second half slowdown in certain niche areas of the banking sector did not have a meaningful impact on the 2007 financial year. We do not anticipate this changing during 2008 despite the fact that we do not see these markets staging a full recovery in the short term. We base this assessment on a number of factors: First, the areas particularly negatively impacted represent a small part of the Group's business; second other areas of our market, even in mature geographies remained robust; and third the Group's international and sector expansion increases our exposure to secular growth opportunities. We believe that together these factors are capable of offsetting the effects of less activity in certain areas of the banking market. In terms of the wider economic backdrop, the history of the specialist staffing market demonstrates that we do not need a particularly strong economic tailwind to post substantial growth. As such, we are confident that the prospect of some degree of slowdown during 2008 should not represent a significant obstacle to the Group's continuing growth. In the event of major economic recession the Group could not expect to be unaffected. However our twenty-one year history encompasses all phases of the economic cycle and the ability of the Group's management team to cope with highly challenging market conditions has been thoroughly tested on a number of occasions. In such circumstances the Group has proved to be an agile business, well capable of responding quickly and decisively to macro-economic changes. We are helped by the flexibility afforded by our sales consultants having relatively low fixed to variable remuneration. That said, based on 2007 and looking at the first two months trading for 2008 we have no reason to assume that market conditions in the coming year will be anything other than supportive of another year of growth for SThree. It is on this basis that we have made plans to continue to roll out the SThree model to an ever-increasing number of sectors and geographies. In summary SThree looks forward to the new financial year with a realistic but positive view. We understand that the economic picture is more uncertain than it has been in recent years, but believe continued healthy growth for SThree remains the most likely scenario given the available evidence. Financial Review Income Statement 2007 (Unaudited) 2006 (Unaudited) Revenue £'000 £'000 Contract 429,121 327,459 Permanent 93,577 65,803 522,698 393,262 Gross Profit ('Fee Income') for the year increased by 34.8% to £182.7m (2006: £135.5m) representing an overall gross profit margin of 34.9% (2006: 34.5%). The increase in margin is predominantly due to a higher proportion of permanent revenue, which is at 100% gross margin. The permanent revenue ratio grew from 16.7% to 17.9% of total revenue. Contract gross profit margins at 20.8% were 0.5 percentage points lower than 2006; however absolute average gross profit per day rates grew by 10%. Administration expenses before exceptional items increased by 38.0% to £130.4m (2006: £94.5m) principally due to increasing numbers of staff along with the previously announced one-off systems related costs of approximately £3m. As a result the Group's conversion ratio (operating profit divided by gross profit) stood at 28.6% (2006: 30.3%). Operating profit nevertheless increased by 27.6% to £52.3m (2006: £41.0m). Headcount of the Group totalled 1,481 at 30 November 2006 and increased by 37.4% to 2,035 by 2 December 2007. Sales consultant headcount increased by 40.4% to 1537 (2006: 1,095). Average total headcount for the year was 1,755 (2006: 1,288). Sales headcount year by year comparatives are not strictly like for like as the Group took steps in the year to more accurately define its sales cohort, resulting in some reclassification. The net finance charges of £2.0m (2006: £0.8m) increased as a result of higher borrowing requirements during the year following disruption to cash collections during implementation of our ERP package. These issues have now been resolved resulting in a significant improvement in DSO's compared to the half year. During the year, the Group re-assessed the historical risk associated with its Non-UK contract business and released provisions earlier set aside. This had a positive impact on the years' results. Profit before taxation and before exceptional items amounted to £50.3m (£40.3m), an increase of 24.8%. Taxation on profits was £16.5m (2006: £12.3m before exceptional items) representing an effective tax rate of 32.8% (2006: 30.5% pre-exceptional). The increase in the effective tax rate year on year was in part a reflection of the 2006 rate being positively impacted by one-off items. We anticipate that the effective tax rate will fall going forwards, as the Group benefits from a reduction of UK corporate tax rates, albeit this may be partially offset by an increase in business in some territories with higher taxation regimes. The Group's cash tax rate was 16.7% (2006: 6.5%), reflecting the Schedule 23 tax benefit. However, we anticipate that this rate will gradually increase to a more normalised effective rate in the future. Basic earnings per share were 25.2p (2005: 22.4p before exceptional items). This reflects an increase in the weighted average number of shares for the year of 129.8m (2006: 123.9m) and the deduction of profits attributable to minority interests of £1.2m (2006: £0.3m). The significant increase in the minority charge reflected the fact that a number of minorities were included in the calculation for the first time, resulting in an unusually large one-off year on year increase. As the minority charge normalises, we would expect the charge to grow from its current level slightly ahead of the overall percentage growth of Group profits, reflecting the fast growing nature of these businesses. The Board previously declared an interim dividend of 3.1p (2006: 2.4p). The Board proposes to pay a final dividend of 6.2p per share (2006: 4.8p) bringing the total dividend for the year to 9.3p per share (2006: 7.2p), an increase of 29.2%. The final dividend will be paid on 9 June 2008 to those shareholders on the register at 2 May 2008. Balance Sheet The Group had net assets of £93.4m at 2 December 2007 (2006: £64.1m). Net cash amounted to £3.5m (2006: net debt £2.8m), the improvement reflecting the net impact of increased profitability, working capital growth and capital investment. Capital expenditure amounted to £5.2m (2006: £2.4m) predominantly related to upgrades of IT hardware and fit-out of new offices across the Group in line with its geographic expansion plans. In addition, expenditure of £8.9m (2006: £3.0m) on new ERP and candidate/client management systems has been capitalised within intangible assets. Total capital expenditure next year is expected to fall significantly to around £7m now that this phase of investment in the core IT infrastructure is largely complete. Net trade debtors increased by 58.2% to £109.6m at 2 December 2007 (2006: £69.3m) representing debtor days of 59 days (2006: 54 days). Total trade and other payables increased from £39.0m to £73.2m as the Group sought to manage its supply chain more effectively. Cash Flow At the start of the year the Group had net debt of £2.8m. During the year the Group generated cash from operating activities of £29.3m (2006: £15.0m) being £56.6m of operating cashflow before changes in working capital and provisions (2006: £40.1m) and an increase in working capital requirements and provisions of £27.3m (2006: £25.1m). At 2 December 2007 the Group had net cash of £3.5m. In the first two months of the 2008 financial year the Group spent £6.2m purchasing 3m of its own shares. This programme was financed utilising existing facilities. However, we have an agreement in principle for an invoice discounting facility to provide further funding flexibility of up to £50m. Treasury Management and Currency Risk The main functional currencies of the Group are Sterling and the Euro. The Group does not have material transactional currency exposures although is exposed to translation differences on the profits and cash flows generated by its overseas operations. Some derivative transactions have been undertaken to mitigate these exposures and the 2007 results include a £1.0m loss arising from these investments. We expect to incur a further £1.9m loss in the first half of 2008 having closed these positions down. As a consequence, the Board is undertaking a review of its currency hedging strategy to ensure that it is appropriate given the Group's increasing international business. SThree plc Consolidated Income Statement - Unaudited Year ended 02 December 2007 02 December 30 November 2007 2006 Total Ordinary Exceptional Total activities items Notes £'000 £'000 £'000 £'000 Revenue 1 522,698 393,262 - 393,262 Cost of sales (340,033) (257,742) - (257,742) Gross profit 1 182,665 135,520 - 135,520 Administrative 2 (130,408) (94,487) (22,143) (116,630) expenses Operating profit 52,257 41,033 (22,143) 18,890 Finance income 6 432 - 432 Finance cost (1,985) (1,284) - (1,284) Share of profit of joint 46 89 - 89 venture Profit before 50,324 40,270 (22,143) 18,127 taxation Taxation 3 (16,509) (12,289) 6,242 (6,047) Profit for the year 33,815 27,981 (15,901) 12,080 Attributable to: Equity holders of the Company 32,648 27,703 (15,901) 11,802 Minority interest 1,167 278 - 278 33,815 27,981 (15,901) 12,080 Earnings per share 5 pence pence pence pence Basic 25.2 22.4 (12.9) 9.5 Diluted 24.1 21.4 (12.3) 9.1 All amounts relate to continuing operations. SThree plc Consolidated Statement of Changes in Equity - Unaudited as at 02 December 2007 Share Share Capital Currency Retained Attributable Minority Total capital premium reserve translation earnings to Company interest equity reserve shareholders £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 01 December 2005 1,380 2,925 878 (146) 24,050 29,087 171 29,258 Profit for the year to 30 - - - - 11,802 11,802 278 12,080 November 2006 Employee share award and share option - - - - 19,544 19,544 - 19,544 credit Deferred tax on employee share - - - - 2,054 2,054 - 2,054 options Current tax on employee share - - - - 4,416 4,416 - 4,416 options Repurchase of minority interest - - - - - - (36) (36) Dividends paid to equity holders - - - - (3,038) (3,038) - (3,038) Dividends paid to minority - - - - - - (65) (65) interest Currency translation differences - - - (102) - (102) - (102) Total movements in - - - (102) 34,778 34,676 177 34,853 equity Balance at 30 November 2006 1,380 2,925 878 (248) 58,828 63,763 348 64,111 Profit for the year to 02 - - - - 32,648 32,648 1,167 33,815 December 2007 Employee share award and share option 5 - - - 347 352 - 352 credit Deferred tax on employee share - - - - (7,597) (7,597) - (7,597) options Current tax on employee share - - - - 8,258 8,258 - 8,258 options Repurchase of share capital (2) - 2 - (388) (388) - (388) Issue of share capital to - - - - - - 990 990 minority interest Repurchase of minority interest - - - - - - (10) (10) Dividends paid to equity holders - - - - (6,345) (6,345) - (6,345) Dividends paid to minority - - - - - - (70) (70) interest Currency translation differences - - - 317 - 317 - 317 Total movements in 3 - 2 317 26,923 27,245 2,077 29,322 equity Balance at 02 December 2007 1,383 2,925 880 69 85,751 91,008 2,425 93,433 SThree plc Consolidated Balance Sheet - Unaudited as at 02 December 2007 02 December 30 November 2007 2006 Notes £'000 £'000 ASSETS Non-current assets Property, plant and 6,479 3,558 equipment Intangible assets - 10,389 3,012 other Intangible assets - 382 364 goodwill Investment in joint 135 89 venture Deferred tax asset 3,052 11,459 20,437 18,482 Current assets Trade and other receivables 151,085 92,585 Current tax debtor - 533 Cash and cash 7 4,771 2,440 equivalents 155,856 95,558 Total assets 176,293 114,040 LIABILITIES Current liabilities Provisions for liabilities and charges (250) (188) Trade and other (73,180) (39,024) payables Borrowings (1,267) (5,281) Current tax liability (4,911) - (79,608) (44,493) Non-current liabilities Provisions for liabilities and charges (3,252) (5,436) (3,252) (5,436) Total liabilities (82,860) (49,929) Net assets 93,433 64,111 EQUITY Capital and reserves attributable to the Company's equity holders Share capital 1,383 1,380 Share premium 2,925 2,925 Capital reserve 880 878 Currency translation reserve 69 (248) Retained earnings 85,751 58,828 91,008 63,763 Minority interest 2,425 348 Total equity 93,433 64,111 SThree plc Consolidated Cash Flow Statement - Unaudited Year ended 02 December 2007 02 December 30 November 2007 2006 Notes £'000 £'000 Cash flows from operating activities Cash generated from operating 6 29,316 15,025 activities Income tax (paid)/ (2,113) 1,459 received Net cash generated from operating activities 27,203 16,484 Cash flows from investing activities Purchase of property, plant and (5,173) (2,442) equipment Purchase of intangible (8,901) (3,001) assets Proceeds from sale of property, plant and equipment 30 56 Net cash used in investing (14,044) (5,387) activities Cash flows from financing activities Repayment of loan - (8,000) facility Foreign exchange from financing - 265 activities Finance income 6 167 Finance costs (1,985) (1,284) Proceeds from issue of ordinary 5 - shares Issue of share capital to minority 1,845 - interest Repurchase of share (388) - capital Purchase of minority (28) (400) interest Dividends paid (6,345) (3,038) Dividend paid to minority (70) (65) interest Net cash used in financing (6,960) (12,355) activities Net increase/(decrease) in cash and cash equivalents 6,199 (1,258) Cash and cash equivalents at beginning of the year (1,841) (550) Exchange losses on cash and cash equivalents 146 (33) Cash and cash equivalents at the end of the year 4,504 (1,841) SThree plc Notes to the Financial Statements Year ended 02 December 2007 1. Segmental analysis As the Group operates in one business segment, being that of recruitment services, no additional business segment information is required to be provided. The Group's secondary segment is geographical and the segmental results by geographical area are shown below. Geographic analysis By location of By location of operating client company 02 December 30 November 02 December 30 November 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Revenue United Kingdom 369,735 295,666 479,521 372,563 Europe and Rest of World 152,963 97,596 43,177 20,699 522,698 393,262 522,698 393,262 Gross Profit United Kingdom 123,321 98,937 147,459 118,612 Europe and Rest of World 59,344 36,583 35,206 16,908 182,665 135,520 182,665 135,520 Operating Profit Operating profit before exceptional items: United Kingdom 44,472 38,659 Europe and Rest of World 7,785 2,374 52,257 41,033 Exceptional items United Kingdom - (22,143) 52,257 18,890 Total assets Capital expenditure 02 December 30 November 02 December 30 November 2007 2006 2007 2006 £'000 £'000 £'000 £'000 United Kingdom 155,898 106,193 12,811 5,154 Europe and Rest of World 20,395 7,847 1,263 289 176,293 114,040 14,074 5,443 1. Segmental analysis (continued) The following segmental analyses by brand, recruitment classification and by discipline (being the profession of candidates placed) have been included as additional disclosure over and above the requirements of IAS14 'Segment Reporting'. Revenue Gross profit 02 December 30 November 02 December 30 November 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Brand Computer Futures Solutions 148,096 113,391 53,850 36,749 Huxley Associates 134,374 91,198 50,746 35,609 Progressive Computer Recruitment 95,067 77,288 31,688 24,777 Pathway 45,279 36,649 11,595 9,469 Others 99,882 74,736 34,786 28,916 522,698 393,262 182,665 135,520 Recruitment classification Contract 429,121 327,459 89,143 69,717 Permanent 93,577 65,803 93,522 65,803 522,698 393,262 182,665 135,520 Discipline Information & communication technology 469,883 351,038 150,139 111,121 Other(1) 52,815 42,224 32,526 24,399 522,698 393,262 182,665 135,520 (1) Including banking and finance, accountancy, human resources, engineering, pharmaceutical sectors and jobboard sectors. SThree plc Notes to the Financial Statements Year ended 02 December 2007 2. Administrative Expenses - Exceptional Items Exceptional items are those items which, because of their size, incidence or nature, are disclosed to give a proper understanding of the underlying results for the period. Items classified as exceptional are as follows: 02 December 30 November 2007 2006 £'000 £'000 Exceptional items - charged to operating profit Employee share awards and share options charge - 19,544 Employer's National Insurance on share awards and options, and related costs - 2,599 Exceptional items - before taxation - 22,143 Certain current and former employees received share awards and share options that were granted during the previous financial year but linked to arrangements made at IPO. In accordance with IFRS 2 'Share based payments' a charge was reflected in last year's income statement. This also resulted in a corresponding charge for Employer's National Insurance contributions. The Group received tax relief in respect of these share awards and other options and will receive tax relief in respect of options to be exercised in the future. These credits were also classified as exceptional. The charge in respect of the employee share awards and options is a non-cash item. The related Employer's National Insurance contributions were paid in cash. SThree plc Notes to the Financial Statements Year ended 02 December 2007 3. Taxation (a) Analysis of tax charge for the year 02 December 30 November 2007 2006 Total Ordinary Exceptional Total activities items £'000 £'000 £'000 £'000 Current taxation UK Corporation tax at 30% (2005: 30%) on profits for 12,646 11,155 (6,642) 4,513 the year Adjustments in respect of prior - (174) - (174) periods Overseas Corporation tax on profits for the 2,778 1,594 - 1,594 year Adjustments in respect of prior 278 (495) - (495) periods Total current tax charge/(credit) 15,702 12,080 (6,642) 5,438 Deferred taxation Origination and reversal of temporary 473 209 - 209 differences Adjustments in respect of prior periods 571 Schedule 23 deferred tax (credit)/charge in (32) - 400 400 respect of unexercised employee share awards and options Effects of change in future tax rate (205) - - - Total deferred tax charge 807 209 400 609 Total income tax expense in the income 16,509 12,289 (6,242) 6,047 statement 3. Taxation (continued) (b) Reconciliation of the effective tax rate The total tax charge for the year is higher than the standard rate of corporation tax in the UK (30%). The differences are explained below: 02 December 30 November 2007 2006 £'000 % £'000 % Profit before taxation 50,324 18,127 Profit before tax multiplied by standard rate of corporation tax in 15,097 30% 5,438 30% the UK of 30% Effects of: Other expenses not deductible for tax purposes 679 1% 461 3% Capital allowances in excess of depreciation and amortisation - 1% 153 1% Other timing differences - 0% 384 2% IFRS 2 charge in respect of share awards and 102 0% 5,863 32% options Schedule 23 tax credit in respect of employee share options and (32) 0% (5,543) (31%) awards Lower tax rates on overseas earnings 19 0% (149) (1%) Tax losses not utilised within the - 0% 109 1% year. Adjustments to tax in respect of previous periods 571 1% (174) (1%) current and deferred (UK) Adjustments to tax in respect of previous periods 278 1% (495) (3%) (Overseas) Effects of change in future tax rate (205) 0% - 0% Tax expense and effective tax rate 16,509 33% 6,047 33% 02 December 30 November 2007 2006 (c) Current and deferred tax movement recognised directly in equity £'000 £'000 Current tax Equity settled employee share options 8,258 4,416 Deferred tax Equity settled employee share options (7,597) 2,054 661 6,470 Corporation tax deductions have arisen on the exercise of options granted to certain current and former employees of the Group during the financial year. The corporation tax deduction amounted to £27.6m (2006: £33.2m) which reduces the current year's taxable profits of the Group. The current tax effect of this deduction amounted to £0.03m (2006: £5.6m) recognised in the income statement in the current year. This credit had been treated as exceptional in the prior year financial statements due to its unusual nature and its materiality. The current tax recognised directly in equity amounted to £8.3m (2006: £4.4m). In addition to the tax deductions described above, the Directors expect to receive additional tax deductions in respect of the share awards and share options currently unexercised. Under IFRS the Group is required to provide for deferred tax on all unexercised share awards and options. At 02 December 2007 a deferred tax asset of £1.8m (2006: £9.4m) has been recognised in respect of this. SThree plc Notes to the Financial Statements Year ended 02 December 2007 4. Dividends 02 December 30 November 2007 2006 £'000 £'000 Amounts recognised and distributed to shareholders in the year Equity Dividend paid of 4.8p per Ordinary share (2006: 2.4p) 6,345 3,038 Proposed interim dividend of 3.1p per Ordinary 4,011 - Share 10,356 3,038 Amounts proposed for approval at the AGM Proposed final dividend for year end 02 December 2007: 6.2p (2006: 8,573 6,307 4.8p) An interim dividend of 3.1p (2006: 2.4p) per Ordinary Share was paid on 7 December 2007 to shareholders on the register at the close of business on 9 November 2007. The proposed interim dividend was approved by the Board on 20 July 2007. The proposed final dividend had not been approved by the shareholders at 02 December 2007 and consequently has not been included as a liability within the financial statements. A proposed final dividend of 6.2p (2006: 4.8p) per Ordinary share will be paid on 09 June 2008 to shareholders on the register at the close of business on 2 May 2008. 5. Earnings per share The calculation of the basic and diluted earnings per share is based on the following data. Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of Ordinary shares in issue during the year, excluding those held in the EBT which are treated as cancelled. For diluted earnings per share, the weighted average number of Ordinary shares in issue is adjusted to assume conversion of all dilutive potential Ordinary shares. 02 December 30 November 2007 2006 £'000 £'000 Earnings Profit after taxation 33,815 12,080 Minority (1,167) (278) Interest Basic Earnings 32,648 11,802 Effect of exceptional items (net of - 15,901 tax) Profit for the year excluding exceptional 32,648 27,703 items 5. Earnings per share (continued) millions millions Number of shares Weighted average number of shares used for 129.8 123.9 basic EPS Dilution effect of share 5.9 5.8 plans Diluted weighted average number of shares used for diluted EPS 135.7 129.7 pence pence Basic Basic earnings per share 25.2 9.5 Basic earnings per share excluding exceptional 25.2 22.4 items Dilutive Diluted earnings per 24.1 9.1 share Diluted earnings per share excluding 24.1 21.4 exceptional items All earnings are derived from continuing operations SThree plc Notes to the Financial Statements Year ended 02 December 2007 6. Cash flows from operating activities 02 December 30 November 2007 2006 £'000 £'000 Profit before taxation 50,324 18,127 Depreciation and amortisation 3,761 1,556 charge Foreign exchange from financing activities - (265) Unrealised losses on financial 999 - instruments Finance income (6) (167) Finance costs 1,985 1,284 Loss on disposal of property, plant and 46 116 equipment Profit attributable to joint (46) (89) venture Profit from partial deemed disposal of (855) - subsidiary Non-cash element of the charge for share options and awards. 347 19,544 Operating cashflow before changes in working capital and provisions 56,555 40,106 Increase in receivables (58,500) (17,760) Increase/(Decrease) in payables 33,383 (7,128) Decrease in provisions (2,122) (193) Net cash inflow from operating activities 29,316 15,025 7. Cash and cash equivalents 02 December 30 November 2007 2006 £'000 £'000 Cash in hand and at bank 4,771 2,440 Bank overdraft (267) (4,281) 4,504 (1,841) SThree plc Notes to the financial statements Year ended 02 December 2007 8. Nature of financial information The financial information is not audited and does not constitute statutory accounts within the meaning of S240 of the Companies Act 1985. Group financial statements for 2007 will be delivered to the Registrar of Companies in due course. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The accounting policies (that comply with IFRS and IAS) adopted by SThree plc (the 'Group') are set out in the 2007 Interim report. Statutory accounts for the year ended 30 November 2006, which were prepared in accordance with IFRS as adopted by the European Union, have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain a statement made under s237 (2) or (3) of the Companies Act 1985. 9. Annual Report and Accounts The 2007 Annual Report and Accounts will be posted to shareholders in due course. Further copies will be available from the Company Secretary, 41-44 Great Windmill Street, London W1D 7NB. Telephone No. 020 7292 3838. 10. Annual General Meeting The Annual General Meeting of SThree plc will be held on 24 April 2008. This information is provided by RNS The company news service from the London Stock Exchange

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