Final Results

RNS Number : 3110A

SThree plc

31 January 2011

 



SThree plc

("SThree" or the "Group")

Preliminary Results for the year ended 28 November 2010

SThree, the international specialist staffing business, is today announcing its final results for the year ended 28 November 2010.

Financial Highlights

	2010	2009	Change
Revenue	£474.5m	£519.4m	-8.6%
Gross Profit	£166.4m	£171.2m	-2.8%
Operating profit*	£21.2m	£18.0m	+17.8%
Profit before taxation*	£21.6m	£18.0m	+20.0%
Statutory profit before taxation	£21.6m	£8.9m	+142.7%
Basic earnings per share*	11.9p	9.5p	+25.3%
Statutory basic earnings per share	11.9p	4.0p	+197.5%
Proposed dividend	8.0p	8.0p	-
Total dividend	12.0p	12.0p	-

*Prior year operating profit, profit before taxation and EPS are shown before exceptional charges of £9.1m before tax, £6.5m after tax relating to a Group restructuring.

Operational Highlights

·     A strong performance given the changing market sentiment during the year;

·     Non-UK share of gross profit increased significantly to 60% (2009: 55%), with trend expected to continue as 
the Group becomes ever more international;

·     New offices opened in Perth, Delhi, Houston, San Francisco, Munich and Düsseldorf, bringing the total to 52. 
Doha, Sao Paulo, Antwerp and Abu Dhabi due to open in H1 2011;

·     Permanent placements increased by 8.1% to 6,551 (2009: 6,060), with average fees remaining strong;

·     Number of active contractors at year end increased by 4.9% to 4,359 (2009: 4,157), with average gross 
profit per day rates remaining strong;

·     Contract versus Permanent mix of gross profit 51:49 in favour of Contract (2009: 58:42);

·     Continued sector diversification, with non-ICT(1) disciplines now representing 38% of total gross profit 
(2009: 28%);

·     76% of gross profit now derived from outside of the UK ICT market (2009: 69%);

·     Total Group headcount at year end increased by 16.7% to 1,863 (2009: 1,597), with a significant further 
increase planned for 2011;

·     Year end net cash and term investments of £55.2m (2009: £48.5m) reflecting continued strong cash 
generation;

·     Entered 2011 with all markets in growth.

Russell Clements, CEO, commented: "SThree delivered a strong result in 2010 in a market which was still some way from fully recovered.  Sentiment improved steadily and we ended the year with all our markets and territories in growth. We were also pleased with the increasing momentum in our longer established businesses building towards the end of the year. Looking ahead, we remain well positioned to make further progress through a combination of expansion in existing markets and further investment in new geographies with their substantial structural growth potential."

(1)  Non ICT sectors primarily comprise Engineering & Energy, Banking, Accountancy & Finance and Pharmaceuticals & Biotechnology

SThree will host a live presentation and conference call for analysts at 9am today.

The presentation will be held at Citigate Dewe Rogerson's offices.

Conference Call participant Telephone Numbers:

Dial in: 0208 817 9301

Call reference: SThree Preliminary results presentation

This event will also be simultaneously audio webcast, hosted on SThree website at http://www.thomsonwebcast.net/uk/dispatching/?event_id=89741b0dc05c8f5496451613b28b1db5&portal_id=a98192164841f4a39f400936a24cde9c   note that this is a listen only facility.

An archive of the presentation will be available via the same link later today.

SThree will be announcing its Q1 Interim Management Statement on Friday 4 March 2011.

Enquiries:

SThree plc	020 7268 6000
Russell Clements, Chief Executive Officer
Alex Smith, Chief Financial Officer
Sarah Anderson, Deputy Company Secretary/IR queries
Citigate Dewe Rogerson	020 7638 9571
Kevin Smith / Nicola Swift

Notes to editors

SThree is a leading international specialist staffing businesses, providing permanent and contract specialist staff to a diverse client base of over 7,500 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 to include businesses serving the accountancy & finance, banking, engineering, oil & gas, pharmaceuticals, human resources, energy, legal and job board sectors.

Since launching its original business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree brands include Computer Futures, Huxley Associates, Progressive and The Real Staffing Group. The Group has circa 1,900 employees in twelve countries.

SThree plc is quoted on the Official List of the UK Listing Authority under the ticker symbol STHR and also has a US level one ADR facility, symbol SERTY

Important notice

Certain statements in this announcement are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. Accordingly, undue reliance should not be placed on forward looking statements.

SThree plc

("SThree" or the "Group")

Preliminary results for the year ended 28 November 2010

Overview

2010 saw a substantially improved market when compared to the exceptionally challenging environment of 2009. That said, it would be misleading to suggest that the overall level of demand for our services during 2010 was universally consistent with a fully recovered marketplace. Whilst some parts of our business equalled or surpassed pre-downturn levels of performance and all our markets were in growth by the last quarter, most were yet to return to the very buoyant conditions that we would associate with "normality" in the specialist staffing market.

Given this specific context it is pleasing to report a strong 2010 performance. The Group delivered a substantial improvement in overall profitability and a further increase in our cash balances, whilst at the same time continuing to invest in the future of the business.

In addition to increasing sales headcount substantially, we also opened a further six offices, bringing the overall total to 52, of which 30 are outside the UK. Given this strong trading platform, coupled with steadily improving market conditions, we believe we are in an excellent position to make 2011 another year of progress. On this basis the Group intends to further grow sales headcount and continue the international office roll out throughout 2011.

Financial Outcome

During the year the Group saw a modest reduction in Gross Profit (GP) with the 2010 figure of £166.4m down 2.8% (2009: £171.2m), largely due to the relative weakness of the contract marketplace during most of the year. However, this converted to a Profit Before Tax (PBT) of £21.6m, up some 20% before prior year exceptional items (2009: £18.0m), reflecting a continued tight control of costs.

Notwithstanding the fact that 2010 was a year of investment, the Group had another strong performance in terms of cash generation. At the end of 2010 net cash (including term investments) had increased to £55.2m (2009: £48.5m).

The strong cash performance, combined with steadily improving market conditions, support the Board's decision to maintain the total 2010 dividend at 12.0p (2009: 12.0p) which is comfortably underpinned by the cash available to the Group.

Geographical Expansion

The Group continued its well established strategy of geographical expansion opening six international offices in the year. In addition to further offices in Munich and Düsseldorf, we rolled out offices in Perth, Delhi, Houston and San Francisco, bringing the overall total to 52 offices in 12 countries.

In aggregate, Group GP generated from outside of the UK was £99.5m (2009: £94.2m), up 5.6%.  Given the more mature nature of the UK staffing market and in particular the continued relatively subdued demand for contract staff, UK GP of £66.8m was down 13.1% on the prior year (2009: £76.9m).

As a consequence of this difference in relative performance, the overall non UK/UK business mix underwent a marked change. For 2010 the ratio was 60:40 in favour of non UK GP compared with 55:45 in 2009. It is likely that this shift will represent an ongoing trend as the Group becomes ever more international. However, the fact remains that the UK has consistently demonstrated very robust growth in more typical market conditions and we are confident that the UK will show a significant bounce back as confidence levels build.

There is now ample evidence to indicate a rapidly growing opportunity to take the proven SThree model into an ever wider range of international markets, most of which are substantially less mature than the UK. In the first half of 2011 we expect to open offices in Doha, Sao Paulo, Abu Dhabi and Antwerp and it is likely that the total number of new offices opened during 2011 will be similar to the six that came on stream each year during 2010 and 2009. That being said, during 2011 we expect the large majority of our new hires to be into established SThree locations, thereby de-risking the expansion programme.

Sector Diversification

In parallel with its greater geographical diversity, in recent years the Group has made significant progress in developing markets outside of its historic ICT franchise. The ICT market has attractive characteristics, not least of all in terms of highly paid candidates and a structural skills shortage in most technical areas, albeit in some territories the ICT market is particularly competitive.

Over a period of years the Group has demonstrated its expertise in moving into adjacent specialist staffing sectors, many of which are both substantially less competitive than the ICT market and are also characterised by candidates who can command rates which are at least equal to and in many cases above those achieved in ICT.

The result of this sectoral diversification is that non ICT franchises accounted for 38.3% of total GP. This figure of £63.8m was up 31.5% on the previous year (2009: £48.5m). The major non ICT segments for the Group are Banking, Engineering & Energy, Accountancy & Finance and Pharmaceuticals; the Group also has (a relatively modest) presence in each of HR and Sales & Marketing.

The ICT franchise performed somewhat less robustly than the other sectors with 2010 GP of £102.6m (2009: £122.6m), down 16.3% on the prior year. The Group's ICT performance was impacted by a number of factors: the relatively subdued contract market which is disproportionately ICT based; the decline in public sector hiring - another ICT biased market; and the weakness of the Benelux territories, our largest ICT franchise outside the UK.

It is worth noting that the GP breakdowns given above are measured by the skill set of the candidate rather than the nature of the business of the client company. By the latter metric, rather than a 62% exposure to the ICT market, the Group has in fact only a 19% exposure (2009: 21%) to ICT customers per se and hence benefits from a broad client base in terms of industry sectors.

"High Margin High Value"

The Group has a stated strategy which is focused on the quality of the business transacted. We do not buy market share or swap value for volume as we believe both to be inappropriate given the highly fragmented nature of the specialist staffing market. We are highly selective in terms of the type of clients with which we engage and avoid the lower margin business which is often a condition of dealing with many larger employers in more mature markets.

In addition, we look to go "up the food chain" and place more highly remunerated candidates, either as a result of increasing the level of seniority of the placements we make, or by identifying more highly paid niche markets. The benefits of this approach can be seen in the robustness of our fees and contract rates, even in a market which remained somewhat more price sensitive than normal and which was not characterised by the level of wage inflation typical of a more normal market.

The Group's overall contract margin remained broadly flat at 21.6% (2009: 22.1%) despite a substantial reduction in the number of public sector contractors, which were typically higher than the average margin. Moreover, in absolute terms the average gross profit per day rate (GPDR) improved somewhat, up 1.1 % to £85.65 (2009: £84.69) on a constant currency basis. Pro rated to an annual permanent salary the GPDR is the equivalent of £90k (2009: £88k).

A similar but more pronounced value theme was seen in the Group's permanent business. The average fee recorded in 2010 was £12,340 (2009: £11,930) up 3.4% on a constant currency basis.

Contract/Permanent Business Mix

Unlike the early recovery phase of previous upturns, the contract market did not outperform the permanent market in 2010. On the contrary (and in common with the peer group), our permanent performance was markedly ahead of contract. During the year the Group made a total of 6,551 permanent placements (2009: 6,060) an increase of 8.1%. The number of contract runners at the end of 2010 had improved to 4,359 (2009: 4,157) representing an increase of 4.9%.

The relative weakness of the contract market was exacerbated by the fact that the market in Benelux was weak through most of the year and after the UK this territory is the Group's largest in terms of contract exposure. On a similar note GP derived from the Public Sector declined by around 50% during the year and this is largely a contract market. By contrast, some of the strongest performing markets (e.g. the Far East, Banking, Oil & Gas etc.) are for us, disproportionately permanent franchises.

The net effect of the above was that permanent GP represented 49% of the Group's total in 2010 compared with 42% of GP for 2009. Going forward into 2011 and beyond, we would expect a further increase in terms of the permanent share of GP as the economic cycle enters a more positive phase and the Group becomes increasingly exposed to territories and markets in which the prime opportunity is in permanent recruitment.

Headcount

The improved market conditions allowed us to continue with the sales headcount growth plan that we initiated in the second half of 2009. As a result the Group ended 2010 with a total of 1,863 staff (2009: 1,597) an increase of 16.7% on the prior year. The sales headcount growth was primarily focused on Rest of World, up 76%, and Europe, up 11%, with the UK up 6%.

Our 2010 closing headcount of 1,863 is still 18% below our previous peak of 2,274 heads in November 2008 and given our expansion plans for the year ahead it is likely that this historic peak will be surpassed during 2011.

Outlook

Ultimately, the global economic backdrop will to some extent influence the scale of our market opportunity in the coming year. However, it is worth remembering that the history of the Group specifically, and the specialist staffing market more generally, demonstrates that we do not need exceptionally strong economic tailwinds as a precondition for strong performance. Indeed, it is candidate confidence as much as any other major factor which drives demand and our experience shows that a healthy level of candidate confidence is not predicated on above-trend economic growth.

In addition, we are more exposed than ever before to markets with strong structural growth characteristics. Recent experience in territories such as Germany suggest that the underlying growth of the specialist staffing market can act as a powerful counter-balance even when economic conditions are dire. Given that the balance of opinion suggests at least a benign global economic scenario for 2011, markets such as these have particularly strong potential. At the same time our longer established franchises had all returned to growth by the end of 2010 and we have no reason to believe that this is a trend which will not continue.

Taking all the available indicators into consideration, we feel there are justifiable reasons to remain optimistic about the forthcoming year. As always, we take confidence that our twenty five year track record, seasoned management team and well established brands to provide us with an excellent platform to make the most of whatever the market has to offer us.

Financial Review

	2010		2009
	Revenue	Gross Profit	Revenue	Gross Profit
Contract	£392.8m	£85.0m	£447.0m	£98.8m
Permanent	£81.7m	£81.4m	£72.4m	£72.4m
Total	£474.5m	£166.4m	£519.4m	£171.2m

Revenue for the year decreased by 8.6% to £474.5m (2009: £519.4m). Gross profit for the year decreased by 2.8% to £166.4m (2009: £171.2m), representing a Group gross profit margin of 35.1% (2009: 33.0%). The Group gross profit margin increased as a result of the remix in business towards permanent, which represented 49% of gross profit in 2010, up from 42% in 2009. Permanent revenues are accounted for at 100% gross margin, whereas contract gross profit is shown after the associated cost of sale.

Administrative expenses before prior year exceptional items decreased by 5.2% to £145.2m (2009: £153.2m), as the Group benefitted from close monitoring of costs and made efficiency savings on advertising spend, professional fees, motor vehicle costs, bank charges and a number of other such costs. As a result, the Group's conversion ratio grew to 12.8% (2009: 10.5%).

Group headcount was 1,863 at 28 November 2010, up 16.7% on the opening headcount at 29 November 2009 of 1,597. Average total headcount for the year was 1,772 down 3.7% year on year (2009: 1,841).

Profit Before Tax increased by 20.0% to £21.6m (2009: £18.0m) before prior year exceptional items are taken into account and by 142.7% to £21.6m (2009: £8.9m) after prior year exceptional items.

Taxation on profit before exceptional items was £7.4m (2009: £5.5m), representing an effective tax rate of 34% (2009: 31%). The increase in the effective tax rate was driven by a remix of the business towards jurisdictions with higher tax rates. Based on the current structure of the Group and existing local taxation rates and legislation, it is expected that the underlying effective tax rate will remain at around this level.

Basic earnings per share before exceptional items were 11.9p (2009: 9.5p), up 25.3%. This was driven by an increase in profit before tax of 20.0%, partially offset by a higher effective tax rate of 34% (2009: 31%), and enhanced by a reduction in the profit attributable to non-controlling interest holders (minority interest participants) to £0.1m (2009: £1.2m), which is explained further below. The weighted average number of shares increased slightly to 119.9m (2009: 118.7m). Fully diluted earnings per share before prior year exceptional restructuring items were 11.5p (2009: 9.2p), up 25.0%. Basic earnings per share after prior year exceptional restructuring items were 11.9p (2009: 4.0p), up 197.5%. Fully diluted earnings per share after prior year exceptional restructuring items were 11.5p (2009: 3.9p), up 194.9%.

During the second half of the year, the Group migrated certain entity-based minority interests to tracker share arrangements, which fall within the scope of IFRS 2 'Share-based Payment'. Looking forwards, the profit attributable to non controlling interests (minority interest participants) will be nil, as all significant minority interest arrangements have moved to tracker arrangements. The subscription price methodology for tracker share arrangements is fair market value as determined by an independent valuation expert, and shares may be equity or cash settled.  As the participant subscribes at fair market value for the award, the fair value of the award is reduced to nil and therefore no IFRS 2 accounting charge arises.

The Board previously declared an interim dividend of 4.0p per share (2009: 4.0p). The Board has declared a final dividend of 8.0p per share, bringing the total dividend for the year to 12.0p per share (2009: 12.0p). The final dividend will be paid on 6 June 2011 to those shareholders on the register as at 6 May 2011.

Balance Sheet

The Group had net assets of £81.9m at 28 November 2010 (2009: £84.8m). Net cash including term investments amounted to £55.2m (2009: £48.5m), the improvement in our cash position reflecting the net impact of the profitability of the Group and the improved management of working capital during the year.

Tangible fixed asset capital expenditure amounted to £2.8m (2009: £2.7m), relating to investment in IT hardware and the fit out of new offices. Intangible asset additions, primarily relating to IT software purchases and development costs, increased to £2.9m (2009: £2.1m). Total capital expenditure is planned to be slightly ahead of these levels in 2011, as the business continues its office opening programme and invests further in establishing an infrastructure to support the globalising business.

As a result of the Group gross profit growing in H2 by 18.4% year on year to £92.2m (2009 H2: £77.9m), net trade debtors increased by £4.8m to £63.1m (2009: £58.3m) representing DSO's of 37 days (2009: 37 days) and total trade and other payables increased from £76.1m to £86.2m.

Cash Flow

At the start of the year the Group had net cash of £48.5m (including assets held to maturity of £3.2m). During the year, the Group generated cash from operating activities of £31.8m (2009: £63.7m). In 2009, the Group benefitted from a reduction in the working capital funding of the reduced contractor book. This is now partially reversing, as our contractor book grows. Income taxes paid reduced to £6.0m (2009: £18.3m).

During the year, the Group paid ordinary dividends of £14.4m (2009: £14.4m) and dividends to Minority Interest participants of £1.0m (2009: £0.1m). The Group also invested £3.5m in an A rated Unbreakable Enhanced Fixed Rate Deposit with a maturity of less than 6 months at year end.

At 28 November 2010 the Group had net cash of £55.2m (including assets held to maturity of £3.5m).

The Group has a committed invoice discounting facility of £20m with Royal Bank of Scotland Invoice Finance ("RBS") which expires in April 2012. The Group is not currently drawing down against this facility.

Treasury Management and Currency Risk

The main functional currencies of the Group are Sterling and the Euro. The Group has significant operations outside the United Kingdom and as such is exposed to movements in exchange rates.

The Board has undertaken a review of its currency hedging strategy to ensure that it is appropriate and currently the Group does not actively manage its exposure to foreign exchange risk by the use of financial instruments. The impact of foreign exchange will become a more significant issue for the Group as we expect the business mix to move further towards International, with the International business accounting for 60% of gross profit in 2010 (2009: 55%). The Group will continue to monitor its policies in this area.

Other Principal Risks and Uncertainties affecting the Business

Other principal risks and uncertainties affecting the business activities of the Group are detailed within the Directors' Report section of the Annual Report for the year ended 28 November 2010, a copy of which will be made available on the Company's website at www.sthree.com. In terms of macro economic environment risks, as previously stated, our strategy is to continue to grow the size of our international business in both financial terms and geographic coverage in order to reduce the Group's exposure or dependence on any one specific economy, although a downturn in a particular market could adversely impact the Group's business. In the view of the Board, there is no material change expected to the Group's key risk factors in the foreseeable future.

Our strong balance sheet and net cash give us the confidence to maximise the opportunities that lie ahead.

	SThree plc
	Consolidated statement of comprehensive income
	Year ended 28 November 2010
						28 November	29 November
						2010	2009
				Note		£'000	£'000
	Revenue			2		474,451	519,372
	Cost of sales					(308,083)	(348,217)
	Gross profit			2		166,368	171,155
	Administrative expenses			3		(145,152)	(162,209)
	Operating profit					21,216	8,946
	Finance income					451	359
	Finance cost					(18)	(378)
	Profit before taxation					21,649	8,927
	Analysed as:
	Underlying profit before exceptional items					21,649	17,977
	One-off exceptional items					-	(9,050)
						21,649	8,927
	Taxation			4		(7,366)	(2,965)
	Profit for the year					14,283	5,962
	Other comprehensive income
	Exchange differences on retranslation of foreign operations					(3,603)	243
	Deferred tax on employee share options					258	620
	Current tax on employee share options					155	1,042
	Employee share awards					1,347	1,630
	Other comprehensive income for the period (net of tax)					(1,843)	3,535
	Total comprehensive income for the period					12,440	9,497
	Profit for the year attributable to:
	Equity holders of the Company					14,216	4,798
	Non-controlling interest					67	1,164
						14,283	5,962
	Total comprehensive income attributable to:
	Owners of the parent					12,299	9,339
	Non-controlling interest					141	158
						12,440	9,497
	Earnings per share			6		pence	pence
	Basic before exceptional items					11.9	9.5
	Diluted before exceptional items					11.5	9.2
	Basic after exceptional items					11.9	4.0
	Diluted after exceptional items					11.5	3.9
	All amounts relate to continuing operations.

	SThree plc
	Consolidated  statement of financial position
	As at 28 November 2010
			28 November	29 November
			2010	2009
		Note	£'000	£'000
	Assets
	Non-current assets
	Property, plant and equipment		5,447	5,398
	Intangible assets		10,161	10,899
	Deferred tax assets		8,670	5,515
			24,278	21,812
	Current assets
	Trade and other receivables		97,935	93,229
	Current tax assets		-	3,309
	Cash and cash equivalents	7	51,718	45,272
	Assets classified as held-to-maturity		3,500	3,203
			153,153	145,013
	Total assets		177,431	166,825
	Equity and Liabilities
	Equity attributable to the owners of the parent
	Share capital		1,218	1,218
	Share premium		2,925	2,925
	Capital redemption reserve		168	168
	Capital reserve		878	878
	Currency translation reserve		(1,328)	2,416
	Retained earnings		78,057	72,562
			81,918	80,167
	Non-controlling interest		-	4,650
	Total equity		81,918	84,817
	Non-current liabilities
	Provisions for liabilities and charges		1,354	2,889
			1,354	2,889
	Current liabilities
	Provisions for liabilities and charges		4,237	3,063
	Trade and other payables		86,150	76,056
	Current tax liabilities		3,772	-
			94,159	79,119
	Total liabilities		95,513	82,008
	Total equity and liabilities		177,431	166,825

	SThree plc
	Consolidated statement of changes in equity
	Year ended 28 November 2010
		Share capital	Share premium	Capital redemption reserve	Capital reserve	Currency translation reserve	Retained earnings	Attributable to owners of the parent	Non-controlling interest	Total equity
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
	Balance at 30 November 2008	1,218	2,925	168	878	2,331	78,906	86,426	4,147	90,573
	Exchange differences on retranslation of foreign operations	-	-	-	-	85	-	85	158	243
	Deferred tax on employee share options	-	-	-	-	-	620	620	-	620
	Current tax on employee share options	-	-	-	-	-	1,042	1,042	-	1,042
	Net income recognised directly in equity	-	-	-	-	85	1,662	1,747	158	1,905
	Total comprehensive income for the year to 29 November 2009	-	-	-	-	-	4,798	4,798	1,164	5,962
	Total recognised income and expense for the period	-	-	-	-	85	6,460	6,545	1,322	7,867
	Issue of share capital to non-controlling interest	-	-	-	-	-	-	-	160	160
	Repurchase of non-controlling interest	-	-	-	-	-	-	-	(898)	(898)
	Dividends paid to equity holders	-	-	-	-	-	(14,434)	(14,434)	-	(14,434)
	Dividends paid to non-controlling interest	-	-	-	-	-	-	-	(81)	(81)
	Employee share award	-	-	-	-	-	1,630	1,630	-	1,630
	Total movements in equity	-	-	-	-	85	(6,344)	(6,259)	503	(5,756)
	Balance at 29 November 2009	1,218	2,925	168	878	2,416	72,562	80,167	4,650	84,817
	Exchange differences on retranslation of foreign operations	-	-	-	-	(3,744)	-	(3,744)	141	(3,603)
	Deferred tax on employee share options	-	-	-	-	-	258	258	-	258
	Current tax on employee share options	-	-	-	-	-	155	155	-	155
	Net income recognised directly in equity	-	-	-	-	(3,744)	413	(3,331)	141	(3,190)
	Total comprehensive income for the year 28 November 2010	-	-	-	-	-	14,216	14,216	67	14,283
	Total recognised income and expense for the period	-	-	-	-	(3,744)	14,629	10,885	208	11,093
	Dividends paid to equity holders	-	-	-	-	-	(14,369)	(14,369)	-	(14,369)
	Dividends paid to non-controlling interest	-	-	-	-	-	-	-	(970)	(970)
	Employee share award	-	-	-	-	-	1,347	1,347	-	1,347
	Loss on disposal of non-controlling interest net assets	-	-	-	-	-	(52)	(52)	52	-
	Transfer to reserves non-controlling interest net assets	-	-	-	-	-	3,940	3,940	(3,940)	-
	Total movements in equity	-	-	-	-	(3,744)	5,495	1,751	(4,650)	(2,899)
	Balance at 28 November 2010	1,218	2,925	168	878	(1,328)	78,057	81,918	-	81,918

	SThree plc
	Consolidated Statement of cash flows
	Year ended 28 November 2010
			28 November	29 November
			2010	2009
		Note	£'000	£'000
	Profit before taxation		21,649	8,927
	Depreciation and amortisation charge		6,313	6,128
	Goodwill recognised in the statement of comprehensive income		-	(237)
	Loss on disposal of investments		-	478
	Finance income		(451)	(359)
	Finance cost		18	378
	Loss on disposal of property, plant and equipment		110	1,107
	Loss on disposal of intangible assets		1	355
	Non-cash charge for employee share options and awards
			1,656	1,448
	Operating cashflow before changes in working capital and provisions
			29,296	18,225
	(Increase)/decrease in receivables		(3,652)	50,952
	Increase/(decrease) in payables		9,746	(7,704)
	(Decrease)/increase in provisions		(3,625)	2,011
	Cash flows from operating activities
	Cash generated from operating activities		31,765	63,484
	Income tax (paid)/received		(5,958)	(18,267)
	Net cash generated from operating activities		25,807	45,217
	Cash flows from investing activities
	Purchase of property, plant and equipment		(2,836)	(2,726)
	Purchase of intangible assets		(2,922)	(2,128)
	Sale of held-to-maturity investment		3,203	-
	Purchase of held-to-maturity investment		(3,500)	(3,203)
	Proceeds from disposal of investments		-	40
	Net cash used in investing activities		(6,055)	(8,017)
	Cash flows from financing activities
	Finance income		451	359
	Finance cost		(18)	(378)
	Employee subscription for share awards		435	182
	Issue of share capital of subsidiary companies to non-controlling interest		34	10
	Repurchase of non controlling interest		-	(1,371)
	Dividends paid to equity holders		(14,369)	(14,434)
	Dividends paid to non controlling interest		(970)	(81)
	Net cash used in financing activities		(14,437)	(15,713)
	Net increase in cash and cash equivalents		5,315	21,487
	Cash and cash equivalents at the beginning of the year		45,272	24,584
	Effect of exchange rate changes		1,131	(799)
	Cash and cash equivalents at the end of the year	7	51,718	45,272

 

 

SThree plc

Notes to the Financial Information

 

Year ended 28 November 2010

 

1.     Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as issued by the International Accounting Standards Board ('IASB'), International Financial Reporting Interpretations Committee ('IFRIC') interpretations and Standing Interpretations Committee ('SIC') interpretations as adopted and endorsed by the European Union ('EU') and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.  Therefore the Group financial statements comply with Article 4 of the EU International Accounting Standards Regulation.

2.     Segmental analysis

IFRS 8 requires management to apply the 'management approach' to segmental reporting. This requires management to determine those segments whose operating results are reviewed regularly by the entity's chief operating decision maker to make strategic decisions and assess sector performance.

Revenue and Gross Profit by reportable segment

Management has determined the chief operating decision maker to be the Executive Committee. Operating segments have been identified based on reports reviewed by the Executive Committee, which considers the business primarily from the geographic perspective.

The Group's management reporting and controlling systems use accounting polices that are the same as those described in note 1 in the summary of significant accounting policies under IFRS.

The Group measures the performance of its operating segments through a measure of segment profit or loss which is referred to as "Gross Profit" in the management and reporting system. Gross Profit is the measure of segment profit/(loss) used in segment reporting and comprises revenue and cost of sales.

Intersegment revenue is recorded at values which approximate third party selling prices and is not significant.

	United Kingdom
						28 November	29 November
						2010	2009
						£'000	£'000
	Revenue from external customers					224,337	271,248
	Gross Profit					66,820	76,939
	Total Assets					118,099	130,518
	Total Liabilities					62,496	59,405
	Capital Expenditure					4,751	3,411
	Continental Europe
						28 November	29 November
						2010	2009
						£'000	£'000
	Revenue from external customers					226,694	239,406
	Gross Profit					82,213	86,762
	Total Assets					46,115	27,767
	Total Liabilities					31,397	20,957
	Capital Expenditure					611	918
	Rest of the World
						28 November	29 November
						2010	2009
						£'000	£'000
	Revenue from external customers					23,420	8,718
	Gross Profit					17,335	7,454
	Total Assets					13,217	8,540
	Total Liabilities					1,620	1,646
	Capital Expenditure					396	525
	Group
						28 November	29 November
						2010	2009
						£'000	£'000
	Revenue from external customers					474,451	519,372
	Gross Profit					166,368	171,155
	Total Assets					177,431	166,825
	Total Liabilities					95,513	82,008
	Capital Expenditure					5,758	4,854
	The following segmental analyses by brand, recruitment classification and discipline (being the profession of candidates placed) have been included as additional disclosure to the requirements of IFRS 8 'Operating Segments'.
				Revenue		Gross profit
				28 November	29 November	28 November	29 November
				2010	2009	2010	2009
				£'000	£'000	£'000	£'000
	Brand
	Progressive			133,780	132,461	45,416	41,918
	Huxley Associates			125,843	132,670	44,892	44,839
	Computer Futures Solutions			111,875	149,247	37,745	51,526
	Real Staffing Group			98,938	101,679	34,300	29,557
	Others			4,015	3,315	4,015	3,315
				474,451	519,372	166,368	171,155
	Recruitment classification
	Contract			392,803	447,077	84,954	98,816
	Permanent			81,648	72,295	81,414	72,339
				474,451	519,372	166,368	171,155
	Discipline
	Information & communication technology			341,484	411,761	102,610	122,612
	Others(1)			132,967	107,611	63,758	48,543
				474,451	519,372	166,368	171,155
	(1) Including engineering and energy, banking, accountancy and finance, pharmaceuticals and jobboard sectors.

3.     Administrative expenses

Exceptional items are those items which, because of their size, incidence or nature, are separately disclosed to give a proper understanding of the underlying results for the period. Items classified as exceptional are as follows:

						28 November	29 November
						2010	2009
						£'000	£'000
	Exceptional items - charged to operating profit
	Corporate and divisional restructuring					-	(9,050)
	Exceptional items - before taxation					-	(9,050)
	Corporate and divisional restructuring
	During the prior period, the Company announced a number of changes relating to corporate and divisional restructuring. The total cost of this restructuring including redundancy, relocation and consolidation of business, was considered exceptional by virtue of its size.  The Group charged the restructuring cost incurred in the prior period to the statement of comprehensive income.

4.     Taxation

(a) Analysis of tax charge for the year

							28 November	29 November
							2010	2009
							£'000	£'000
	Current taxation
	UK
	Corporation tax charged/(credited) at 28% (2009: 28%) on profits for the year
							9,195	4,732
	Adjustments in respect of prior periods						583	(1,447)
	Overseas
	Corporation tax charged/(credited) on profits for the year
							1,274	1,725
	Adjustments in respect of prior periods						(768)	(329)
	Total current tax charge						10,284	4,681
	Deferred taxation
	Origination and reversal of temporary differences
							(3,862)	(3,401)
	Adjustments in respect of prior periods						992	2,079
	Schedule 23 deferred tax credit in respect of unexercised employee share awards and options
							(48)	(394)
	Total deferred tax (credit)/charge						(2,918)	(1,716)
	Total income tax charge in the statement of comprehensive income
							7,366	2,965

	(b) Reconciliation of the effective tax rate
	The Group's tax charge for the year ended 28 November 2010 exceeds the UK statutory rate and can be reconciled as follows:
						28 November				29 November
						2010				2009
						£'000		%		£'000		%
	Profit before taxation					21,649				8,927
	Profit before tax multiplied by standard rate of corporation tax in the UK					6,062		28%		2,500		28%
	Effects of:
	Disallowable items and other timing differences					80		-		59		1%
	Differing tax rates on overseas earnings					376		2%		103		1%
	Adjustments to tax in respect of previous periods					807		4%		303		3%
	Adjustment due to UK tax rate change					41		-		-		-
	Tax expense and effective tax rate					7,366		34%		2,965		33%

	(c) Current and deferred tax movement recognised directly in equity
							28 November		29 November
							2010		2009
							£'000		£'000
	Current tax
	Equity settled employee share options						155		1,042
	Deferred tax
	Equity settled employee share options						258		620
							413		1,662
	The Group expects 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 28 November 2010 a deferred tax asset of £2.1m (2009: £1.8m) has been recognised in respect of these options.

5.     Dividends

							28 November	29 November
							2010	2009
							£'000	£'000
	Amounts recognised and distributed to shareholders in the year
	Equity
	Interim dividend of 4.0p (2009: 4.0p) per ordinary share						4,782	4,738
	Second interim dividend of 8.0p (2009: nil) per ordinary share						9,587	-
	Final dividend of nil (2009: 8.0p) per ordinary share						-	9,696
							14,369	14,434
	Amounts proposed
	Interim dividend of 4.0p (2009: 4.0p) per ordinary share for the period ended 30 May 2010						4,797	4,782
	Second interim dividend of nil (2009: 8.0p) per ordinary share for the year ended 28 November 2010						-	9,544
	Final dividend of 8.0p (2009: nil) per ordinary share for the year ended 28 November 2010						9,594	-
	An interim dividend of 4.0 pence (2009: 4.0 pence) per ordinary share for the six months ended 31 May 2009 was paid on 4 December 2009 to shareholders on record at 6 November 2009.
	For the year ended 29 November 2009, instead of a final dividend, a second interim dividend of 8.0 pence per ordinary share was paid on 31 March 2010, to shareholders on record at 26 February 2010.
	An interim dividend of 4.0 pence (2009: 4.0 pence) per ordinary share for the six months ended 30 May 2010 was paid on 3 December 2010 to shareholders on record at 5 November 2010.
	The Board propose a final dividend of 8.0 pence per ordinary share for the year ended 28 November 2010 (2009: nil), to be paid on 6 June 2011 to shareholders on record at 6 May 2011.

6.     Earnings per share

The calculation of the basic and diluted earnings per share ('EPS') 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 dilutive potential ordinary shares.

						28 November	29 November
						2010	2009
						£'000	£'000
	Earnings
	Profit after taxation excluding exceptional items					14,283	12,438
	Non controlling interest					(67)	(1,164)
	Adjusted profit for the year attributable to the equity holders of the Company excluding exceptional items					14,216	11,274
	Effect of exceptional items (net of tax)					-	(6,476)
	Profit after taxation attributable to equity holders of the Company					14,216	4,798
						millions	millions
	Number of shares
	Weighted average number of shares used for basic EPS					119.9	118.7
	Dilutive effect of share plans					3.9	3.8
	Diluted weighted average number of shares used for diluted EPS					123.8	122.5
						pence	pence
	Basic
	Basic earnings per share					11.9	4.0
	Adjusted basic earnings per share excluding exceptional items					11.9	9.5
	Diluted
	Diluted earnings per share					11.5	3.9
	Adjusted diluted earnings per share excluding exceptional items					11.5	9.2

7.     Cash and cash equivalents

					28 November	29 November
					2010	2009
					£'000	£'000
	Cash in hand and at bank				51,718	45,272
					51,718	45,272
	Due to the Group pooling arrangement, an overdraft amount of £0.4m (2009: £nil) in SThree plc is netted out against cash balance in Group companies.
	Included within cash and cash equivalents is £0.8m (2009: £0.4m) against which the Group has issued cash collaterised bank guarantees. This amount is not immediately available for use in the business.

8.     Group reorganisation

During the current year, the Group further rationalised its structure by undertaking mergers and other legal restructuring steps, some of which will not formally take effect until into 2011. This followed on from the reorganisation started in the prior year, where two new holding companies were incorporated, namely, SThree UK Holdings Limited and SThree Overseas Holdings Limited.  These holding companies either incorporated or purchased the share capital of a number of UK and overseas subsidiaries in a share for share exchange and this had no effect on the net assets of the Group. Non-controlling interests remain in respect of three companies at the year end. The aggregate profit and net assets attributable to these non-controlling interest holders has not been separately recognised in the financial statements on the basis of materiality.

9.     Financial in formation

The financial information in this preliminary announcement which comprises the Consolidated statement of comprehensive income, Consolidated statement of changes in equity, Consolidated statement of financial position, Consolidated statement of cash flows and related Notes is derived from the full Group financial statements for the year ended 28 November 2010 and does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.

The auditors have reported on the Group's statutory accounts for the year ended 28 November 2010 under s495 of the Companies Act 2006, which do not contain statements under s498(2) or s498(3) of the Companies Act 2006 and are unqualified. The Group's statutory accounts for the year ended 29 November 2009 have been delivered to the Registrar of Companies and the Group's statutory accounts for the year ended 28 November 2010 will be filed with the Registrar of Companies in due course.

10.   Annual Report and Accounts and Annual General Meeting

The 2010 Annual Report and Accounts and Notice of 2011 Annual General Meeting will be posted to shareholders shortly. Copies will be available on the Company's website www.sthree.com or from the Company Secretary, 215 Great Portland Street, London, W1W 5PN. The Annual General Meeting of SThree plc is to be held on 21 April 2011.

 

END

 

 

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