Final Results

RNS Number : 3414W

SThree plc

30 January 2012

 



SThree plc

("SThree" or the "Group")

Final Results for the year ended 27 November 2011

SThree, the international specialist staffing business, is today announcing its final results for the year ended 27 November 2011.

Financial Highlights

	2011	2010	Change
Revenue	£542.5m	£474.5m	+14.3%
Gross Profit	£195.5m	£166.4m	+17.5%
Operating profit	£30.0m	£21.2m	+41.2%
Profit before taxation	£30.3m	£21.6m	+40.0%
Basic earnings per share	16.8p	11.9p	+41.2%
Diluted earnings per share	16.4p	11.5p	+42.6%
Proposed ordinary final dividend	9.3p	8.0p	+16.3%
Total ordinary dividend	14.0p	12.0p	+16.7%
Total dividend (ordinary and special)	25.0p	12.0p	+108.3%

Operational Highlights

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

·     Non-UK&I share of gross profit increased significantly to 63% (2010: 59%), with the trend expected to continue as the Group becomes ever more international;

·     New offices opened in Doha, Antwerp, Sao Paulo, Zurich, Luxembourg, Mumbai, Chicago, Boston and Moscow, bringing the Group total to sixty offices in seventeen countries;

·     Permanent placements increased by 13.5% to 7,434 (2010: 6,551), with average fees growing strongly;

·     Number of active contractors at year end increased by 7.6% to 4,692 (2010: 4,359), with average gross profit per day rates remaining strong;

·     Contract versus Permanent mix of gross profit 48%:52% in favour of Contract (2010: 51%:49%);

·     Continued sector diversification, with non-ICT⁽¹⁾ disciplines now representing 40% of total gross profit (2010: 38%);

·     78% of gross profit now derived from outside of the UK ICT market (2010: 76%);

·     Total Group headcount at year end increased by 22.0% to 2,272 (2010: 1,863);

·     Year end net cash and term investments of £55.6m (2010: £55.2m) reflecting continued strong cash generation;

Russell Clements, CEO, commented: "We start 2012 against a backdrop of increased economic uncertainty.  Whiledemand is lower than in the prior year, it is also undoubtedly the case that overall, market conditions remain in far better shape than those we saw in the aftermath of the global financial crisis. It is also true that just as sentiment can deteriorate very quickly, it can also move in a positive direction equally rapidly.

"Whatever 2012 has in store for us, we remain confident that we will make the best of it. Our seasoned management team has seen all market scenarios and has become increasingly adept in recent years at driving the best available result in uncertain circumstances. We will manage the business prudently but we will not lose sight of the great medium term prospects for our business and where appropriate we will invest to ensure that the Group's future lives up to its potential." 

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

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

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

Conference Call participant Telephone Numbers:

Dial in: [phone] - Standard International Access

            0808 109 0700 - UK Toll Free

            Access PIN1394019

Call reference: SThree Final Results presentation

This event will also be simultaneously audio webcast, hosted on SThree website at

 http://www.media-server.com/m/p/74go685d 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 9 March 2012.

Enquiries:

SThree plc	020 7268 6000
Russell Clements, Chief Executive Officer
Alex Smith, Chief Financial Officer
Sarah Anderson, Deputy Company Secretary/Investor Relations
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 2,300 employees in seventeen 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")

Final results for the year ended 27 November 2011

Overview

With the specialist staffing market having started the year in line with the improving trend seen in the latter part of 2010, the year ultimately proved to be one of two contrasting halves. The first half was characterised by steadily strengthening sentiment and activity - even if certain markets were still trading somewhat below pre-downturn levels. This changed progressively through the second half as the macro-economic picture deteriorated and stock markets responded accordingly. Given the sentiment-driven nature of the staffing market, demand deteriorated in line with associated decreases in client and (in particular) candidate confidence.  As such, in the final quarter, the optimism felt in the earlier part of the year was overtaken by a sense of greater uncertainty.

That said, market conditions remained significantly more robust than those we experienced in the depths of the 2008/09 downturn and provided the Group with a platform that allowed us to deliver a substantial improvement in profitability whilst continuing to invest in the future of the business. In addition to increasing sales headcount significantly, we also opened a further 9 offices, bringing the overall total to 60, of which 38 are outside the UK. Notwithstanding this ongoing investment, we were also in a position to reward our shareholders with both a significant improvement in the ordinary dividend as well as through the payment of a substantial special dividend. Overall then, we can regard our results for 2011 with some satisfaction.

Financial Outcome

During the year the Group Gross Profit (GP) was up 17.5% at £195.5m (2010: £166.4m) and Profit before Tax (PBT) of £30.3m was up 40% (2010: £21.6m).

Although 2011 was again a year of investment, the Group had another strong performance in terms of cash generation. At the end of 2011 net cash (including term investments) had increased to £55.6m (2010: £55.2m), after buying back £7.6m of shares and paying ordinary dividends of £14.5m during the 2011 financial year. Our strong cash performance, combined with the knowledge that even in the most difficult of circumstances the Group remains highly cash generative, provided the context for the Board's decision to increase the total 2011 ordinary dividend to 14.0p (2010: 12.0p), up 16.7%. At the half year the Group also declared a special dividend of 11.0p per share, which was paid to shareholders on 2 December 2011. As a result, the total payout to shareholders for 2011 was 25.0p per share (2010:12.0p), up 108.3%.

The Board believes that the circumstances which allowed for the payment of the special dividend are not a one-off and hence will periodically review the capital structure of the Group with a view to, where prudent, returning surplus cash to shareholders.

Geographical Expansion

The Group continued its well established programme of international office roll-outs in a further 9 locations during the year.  New offices were opened in Doha, Antwerp, Sao Paulo, Zurich, Luxembourg, Mumbai, Chicago, Boston and Moscow bringing the Group total to 60 offices in 17 countries.

In aggregate, Group GP generated from outside of the UK&I was £124.2m (2010: £98.1m), up 26.6%.  Given the more mature nature of the UK&I staffing market and despite a strong start to the year, including a recovery in the contract market, 2011 UK&I GP of £71.3m ended the year  a more modest 4.5 % up on the prior year (2010: £68.3m). The UK performance was particularly pleasing given the very weak UK investment banking market; demand in most other sectors was healthy.

As a consequence of the faster growth recorded outside of the UK&I, the Group's non UK&I/UK&I business mix underwent a further shift in favour of our international operations. For 2011 the ratio was 63:37 in favour of non UK&I GP compared with 59:41 in 2010. We see no reason why this trend will not continue on an ongoing basis ensuring the Group becomes ever more internationally diverse. Notwithstanding this, we have confidence in the long term value of our UK&I franchise and expect to see very positive returns as sentiment ultimately improves. Given our focus on niche specialisms, in more normal conditions our candidates remain highly sought-after, even in more mature markets and we have demonstrated over many years that our UK&I business does not require high rates of GDP growth to post strong growth. 

All of our international markets are less developed than the UK, offering us the opportunity to drive margin improvement and benefit from structural market growth in each. A particularly notable example of this is Germany which with GP of £44.3m (2010: £33.9m) grew by 30.6% and is now our second largest geography after the UK. By the end of 2011 we had grown our headcount in Germany by 45.7% to 322 consultants (2010: 221). We believe Germany has enormous scope for further growth over the medium term given the scale of the German economy, the size of the working population and the latter's "STEM" (Science, Technology, Engineering & Maths) bias which dovetails well with SThree's sectorial strengths.   

Further international office expansion is planned for 2012/13. Currently we expect to open new offices in Oslo, Johannesburg, Rio de Janeiro, Brisbane, Lyon, Shanghai, Calgary and Tokyo

Sector Diversification

In recent years the Group has diversified its portfolio of sectors substantially. However, we have consistently noted that the rationale for doing so was not a reflection of concern that our longest established franchise - the ICT sector - does not have attractive long term characteristics. As such, it is pleasing to note that ICT performed robustly with 2011 GP of £116.6m (2010: £102.6m), up 13.7% on the prior year. Nonetheless, our non ICT businesses once again grew faster. As a result our non ICT franchises accounted for 40.4% of total GP (2010: 38.3%). In Gross Profit (GP) terms this amounted to £78.9m, up 23.8% on the previous year (2010: £63.8m).

The major non ICT segments for the Group are Engineering & Energy, Pharmaceuticals & Biotechnology, Banking and Accountancy & Finance. Of these Banking had a very challenging 2011, particularly compared with a strong 2010. By contrast our Energy teams enjoyed strong trading conditions throughout the year and this franchise continues to make an ever more significant contribution to the Group.

As usual, the GP breakdowns given above are a reflection of the skill set of the candidate rather than the business sector of the client company. Measured by the latter, rather than a 60% exposure to the ICT market, only 19% of the Group's transactions in 2011 (2010: 19%) were with ICT firms per se. This mitigates the Group's exposure to this type of customer, who are typically (particularly in mature markets) more margin-sensitive.  

"High Margin High Value"

Our selective approach to customers has a direct bearing on our ability to consistently pursue our "High Margin High Value" approach. The Group has an established strategy which is focused on the quality of the business we transact.  Given the highly fragmented nature of the specialist staffing market we do not see the case for buying market share and, in the process, exchange value for volume. In particular, we consciously avoid the lower margin business which is often a prerequisite of dealing with larger price-sensitive clients in our more competitive markets.

In parallel we look to go "up the food chain" and place more highly paid candidates, either as a function of the latter's seniority and/or their niche specialisation. This factor, along with the positive impact of an increasing contribution from higher value geographies (e.g. Germany) was reflected in the robustness of our fees and contract rates during the year. The Group's overall contract margin stayed broadly stable at 21.4% (2010: 21.6%) and the average gross profit per day rate (GPDR) improved somewhat, up 2.8 % to £86.58 (2010: £84.20) on a constant currency basis.

A similar but much more pronounced value theme was seen in the Group's permanent business. The average fee recorded in 2011 was £13,028 (2010: £12,123) up 7.5% on a constant currency basis. It is worth noting that this was achieved despite the fact that the Banking market (with its associated higher-than-average fees) was weak throughout 2011.

Contract/Permanent Business Mix

The recovery seen in 2010 was very much led by the permanent market with demand for contract staff far more subdued for most of the year. By contrast, 2011 (particularly the first half) saw a pick-up in demand for contractors; however, once again, the permanent market grew at a faster rate. The number of contract runners at the end of 2011 had improved to 4,692 (2010: 4,359) representing an increase of 7.6%. During the year the Group made a total of 7,434 permanent placements (2010: 6,551) an increase of 13.5%.

The net effect of the above was that permanent GP represented 52% of the Group's total in 2011 compared with 49% of GP for 2010. The evolution of this metric in the near term will be at least somewhat dictated by the macro-economic backdrop in 2012. Given benign conditions we would normally expect a continuation of the recent trend which has favoured an increase in the permanent weighting. However, in a more challenging environment contract tends to be the more resilient of the two. Either way we are pleased to have a balanced business with our significant contract presence providing some downside protection.    

Headcount

Market conditions during the year allowed us to continue to grow sales headcount in line with the post downturn hiring programme we began in the second half of 2009. As a result the Group ended 2011 with a total of 2,272 staff (2010: 1,863) an increase of 22.0% on the prior year and in line with our overall prior peak in November 2008 of 2,274. Sales headcount growth was primarily focused on Rest of World, up 72%, and Europe, up 35%. The UK was up 14% but still remains very substantially below its peak headcount and is, increasingly, contributing staff to other parts of our international network.

Headcount growth for 2012 is likely to be far less significant than that seen in 2011. This partly reflects a more uncertain economic outlook but is also driven by our desire to see the large number of new staff we have recruited during the year become fully productive prior to further hiring. In any case, we will only look to grow heads where the current and recent performance of the specific team and the strength of the demand pipeline merit it being considered.

Outlook

Trying to predict the kind of market conditions the Group will face during 2012 with any accuracy is extremely difficult given the current levels of global economic and political uncertainty. The specialist staffing market does not have a linear relationship with GDP growth and there is ample historical precedent for growth in the former to outstrip the latter. However, the staffing market is sentiment driven and uncertainty is the enemy of confidence.

Whatever 2012 has in store for us, we remain confident that we will make the best of it. We will manage the business prudently but we will not lose sight of the great medium term prospects for our business and where appropriate we will invest to ensure that the Group's future lives up to its potential. In the meantime we are an agile, cash rich business with a twenty five year track record of profitability. Our seasoned management team has seen all market scenarios and has become increasingly adept in recent years in driving the best available result from uncertain circumstances.

Financial Review

	Revenue			Gross Profit
	2011	2010	Change	2011	2010	Change
Contract	£441.5m	£393.1m	+12.3%	£94.5m	£85.0m	+11.2%
Permanent	£101.0m	£81.4m	+24.1 %	£101.0m	£81.4m	+24.1%
Total	£542.5m	£474.5m	+14.3%	£195.5m	£166.4m	+17.5%

Revenue for the year increased by 14.3% to £542.5m (2010: £474.5m). Gross profit for the year increased by 17.5% to £195.5m (2010: £166.4m), representing a Group gross profit margin of 36.0% (2010: 35.1%). The Group gross profit margin increased as a result of the remix in business towards permanent, which represented 52% of gross profit in 2011, up from 49% in 2010. Permanent revenues are accounted for at 100% gross margin, whereas contract gross profit is shown after the associated cost of sale.

Administrative expenses increased by 14.1% to £165.6m (2010: £145.2m), as the Group scaled up its operations, hiring more heads and opening new offices. As a result, the Group's conversion ratio grew to 15.3% (2010: 12.8 %).

Group headcount was 2,272 at 27 November 2011, up 22.0% on the prior year headcount at 28 November 2010 of 1,863. Average total headcount for the year was 2,042 up 15.2% year on year (2010: 1,772).

Profit before tax increased by 40.0% to £30.3m (2010: £21.6m) as the Group benefitted from positive operational gearing from the business expansion and investment in 2010 and early 2011.

Taxation on profit before exceptional items was £10.0m (2010: £7.4m), representing an effective tax rate of 33% (2010: 34%). The slight reduction in the effective tax rate was driven by the geographical mix of taxable profits and the 2% point reduction in the UK Corporation Tax rate during 2011. 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 or slightly below this level in the near to medium term.

Basic earnings per share were 16.8p (2010: 11.9p), up 41.2%. This was driven by an increase in profit before tax of 40.0% and the lower effective tax rate. The weighted average number of shares used for basic EPS increased slightly to 120.6m (2010: 119.9m). Fully diluted earnings per share were 16.4p (2010: 11.5p), up 42.6%.

The Board previously declared an interim ordinary dividend of 4.7p per share (2010: 4.0p). The Board has decided to recommend a final ordinary dividend of 9.3p per share (2010:8.0p), bringing the total ordinary dividend for the year to 14.0p per share (2010: 12.0p). The final ordinary dividend will be paid on 6 June 2012 to those shareholders on the register as at 4 May 2012.

During the year, the Board also declared a special dividend of 11.0p per share which was paid on 2 December 2011(2010: nil), as a means of returning surplus cash to shareholders to improve their total returns. The Board will periodically review the capital structures of the Group and intends to return further cash when it feels it is prudent to do so.

Balance Sheet

The Group had net assets of £82.5m at 27 November 2011 (2010: £81.9m). Net cash including term investments amounted to £55.6m (2010: £55.2m).

Tangible fixed asset capital expenditure amounted to £3.0m (2010: £2.8m), 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, remained level at £2.9m (2010: £2.9m). Total capital expenditure is planned to be slightly ahead of these levels in 2012 as the business continues its office opening programme and invests further in developing the infrastructure to support the globalising business.

As a result of the Group gross profit growing in H2 by 14.5% year on year to £105.5m (2010 H2: £92.2m), net trade debtors increased by £7.4m to £70.5 m (2010: £63.1m) representing a DSO of 36 days (2010: 37 days) and total trade and other payables increased from £86.2m to £95.6m.

Cash Flow

At the start of the year the Group had net cash of £55.2m (including assets held to maturity of £3.5m). During the year, the Group generated cash from operating activities of £36.4m (2010: £31.8m). Income taxes paid increased to £8.0m (2010: £2.8m).

During the year, the Group paid ordinary dividends of £14.5m (2010: £14.4m) and dividends to tracker share or "Minority Interest" participants of £0.7m (2010: £1.0m). The Group also bought back £7.6m of shares and held them in treasury, with the intention of using these to settle the acquisitions of certain tracker shares and / or awards of shares under the Group's share plans.

At 27 November 2011 the Group had net cash of £55.6m.

The Group has recently signed a committed revolving credit facility of £20m with Royal Bank of Scotland which expires in January 2017. The Group is not currently drawing down against this facility.

Treasury Management and Currency Risk

The main functional currencies of the Group are Sterling, the Euro and the Dollar. 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 remains appropriate. 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 64% of gross profit in 2011 (2010: 60%). The Group will continue to monitor its policies in this area.

Other Principal Risks and Uncertainties affecting the Business

Other principal risks and uncertainties generally affecting the business activities of the Group are detailed within the Directors' Report section of the Annual Report for the year ended 27 November 2011, a copy of which will be made available on the Company's website at www.sthree.com. 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 continue to give us the confidence to maximise the opportunities that lie ahead.

SThree plc
Consolidated income statement
Year ended 27 November 2011
			27 November	28 November
			2011	2010
		Note	£'000	£'000
Revenue		2	542,450	474,451
Cost of sales			(346,920)	(308,083)
Gross profit		2	195,530	166,368
Administrative expenses		3	(165,567)	(145,152)
Operating profit			29,963	21,216
Finance income			361	451
Finance cost			(25)	(18)
Profit before taxation			30,299	21,649
Taxation		4	(10,034)	(7,366)
Profit for the year			20,265	14,283
Profit for the year attributable to:
Equity holders of the Company			20,265	14,216
Non-controlling interest			-	67
			20,265	14,283
Earnings per share		6	pence	pence
Basic			16.8	11.9
Diluted			16.4	11.5
All amounts relate to continuing operations.

SThree plc
Consolidated statement of comprehensive income
Year ended 27 November 2011
				*Restated
			27 November	28 November
			2011	2010
			£'000	£'000
Profit for the year			20,265	14,283
Other comprehensive income:
Exchange differences on retranslation of foreign operations			103	(3,603)
Other comprehensive income for the year (net of tax)			103	(3,603)
Other comprehensive income for the year			20,368	10,680
Total comprehensive income attributable to:
Owners of the parent			20,368	10,539
Non-controlling interest			-	141
			20,368	10,680

* An explanation of the restatement is provided in Note 1 under basis of preparation.

SThree plc
Consolidated statement of financial position
As at 27 November 2011
				27 November	28 November
				2011	2010
	Note			£'000	£'000
Assets
Non-current assets
Property, plant and equipment				5,263	5,447
Intangible assets				8,548	10,161
Deferred tax assets				6,395	8,670
				20,206	24,278
Current assets
Trade and other receivables				111,093	97,935
Cash and cash equivalents	7			55,605	51,718
Assets classified as held-to-maturity				-	3,500
				166,698	153,153
Total assets				186,904	177,431
Equity and Liabilities
Equity attributable to the owners of the parent
Share capital				1,230	1,218
Share premium				2,925	2,925
Other reserves				(8,087)	(282)
Retained earnings				86,399	78,057
Total equity				82,467	81,918
Non-current liabilities
Provisions for liabilities and charges				1,678	1,354
				1,678	1,354
Current liabilities
Provisions for liabilities and charges				4,894	4,237
Trade and other payables				95,561	86,150
Current tax liabilities				2,304	3,772
				102,759	94,159
Total liabilities				104,437	95,513
Total equity and liabilities				186,904	177,431

SThree plc
Consolidated statement of changes in equity
Year ended 27 November 2011
	Note	Share capital	Share premium	Capital redemption reserve	Capital reserve	Treasury shares	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	£'000
Balance at 29 November 2009		1,218	2,925	168	878	-	2,416	72,562	80,167	4,650	84,817
Profit for the year ended 28 November 2010		-	-	-	-	-	-	14,216	14,216	67	14,283
Other comprehensive income		-	-	-	-	-	(3,744)	-	(3,744)	141	(3,603)
Total comprehensive income for the year (restated*)		-	-	-	-	-	(3,744)	14,216	10,472	208	10,680
Dividends paid to equity holders		-	-	-	-	-	-	(14,369)	(14,369)	-	(14,369)
Dividends paid to non-controlling interest		-	-	-	-	-	-	-	-	(970)	(970)
Employee share awards		-	-	-	-	-	-	1,347	1,347	-	1,347
Current tax on employee share options	4	-	-	-	-	-	-	155	155	-	155
Deferred tax on employee share options	4	-	-	-	-	-	-	258	258	-	258
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
Profit for the year ended 27 November 2011		-	-	-	-	-	-	20,265	20,265	-	20,265
Other comprehensive income		-	-	-	-	-	103	-	103	-	103
Total comprehensive income for the year		-	-	-	-	-	103	20,265	20,368	-	20,368
Dividends paid to equity holders		-	-	-	-	-	-	(14,518)	(14,518)	-	(14,518)
Distributions to tracker share holders		-	-	-	-	-	-	(679)	(679)	-	(679)
Issue of share capital		12	-	-	-	-	-	-	12	-	12
Purchase of own shares		-	-	-	-	(7,908)	-	-	(7,908)	-	(7,908)
Employee share awards		-	-	-	-	-	-	2,426	2,426	-	2,426
Current tax on employee share options	4	-	-	-	-	-	-	1,776	1,776	-	1,776
Deferred tax on employee share options	4	-	-	-	-	-	-	(928)	(928)	-	(928)
Total movements in equity		12	-	-	-	(7,908)	103	8,342	549	-	549
Balance at 27 November 2011		1,230	2,925	168	878	(7,908)	(1,225)	86,399	82,467	-	82,467

* An explanation of the restatement is provided in Note 1 under basis of preparation.

SThree plc
Consolidated statement of cash flows
Year ended 27 November 2011
					*Restated
				27 November	28 November
				2011	2010
	Note			£'000	£'000
Cash flows from operating activities
Profit before taxation				30,299	21,649
Depreciation and amortisation charge				7,659	6,313
Finance income				(361)	(451)
Finance cost				25	18
Loss on disposal of property, plant and equipment				67	110
Loss on disposal of intangible assets				11	1
Non-cash charge for employee share options				2,426	1,656
Operating cashflow before changes in working capital and provisions				40,126	29,296
Increase in receivables				(12,005)	(3,652)
Increase in payables				8,443	9,746
Decrease in provisions				(197)	(3,625)
Cash flows from operating activities
Cash generated from operating activities				36,367	31,765
Income tax paid				(7,951)	(2,758)
Net cash generated from/(used in) operating activities				28,416	29,007
Cash flows from investing activities
Purchase of property, plant and equipment				(2,918)	(2,836)
Purchase of intangible assets				(2,911)	(2,922)
Purchase of held-to-maturity investment				-	(3,500)
Proceeds from disposal of held-to-maturity investment				3,500	3,203
Net cash used in investing activities				(2,329)	(6,055)
Cash flows from financing activities
Finance income				361	451
Finance cost				(25)	(18)
Employee subscription for share awards				135	435
Repayment to non-controlling interest				(71)	-
Purchase of own shares				(7,557)	-
Issue of share capital of subsidiary companies to non-controlling interest				-	34
Issue of share capital to Equity holders				12	-
Dividends paid to equity holders				(14,518)	(14,369)
Distribution to tracker share holders				(679)	(970)
Net cash used in financing activities				(22,342)	(14,437)
Net increase in cash and cash equivalents				3,745	8,515
Cash and cash equivalents at the beginning of the year				51,718	45,272
Effect of exchange rate changes				142	(2,069)
Cash and cash equivalents at the end of the year	7			55,605	51,718

* An explanation of the restatement is provided in Note 1 under basis of preparation.

SThree plc

Notes to the Financial Information

Year ended 27 November 2011

1.      Basis of preparation

This preliminary announcement does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006.

These financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted and endorsed by the European Union ('EU') and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs.  Therefore the Group financial statements comply with Article 4 of the EU International Accounting Standards Regulation.  The Group's consolidated financial statements have been prepared under the historical cost convention.

During the period the Board elected to separate the Consolidated statement of comprehensive income into a Consolidated income statement and Consolidated statement of comprehensive income. The decision to separate the statements has been to align with industry presentation practice and to clearly disclose the entity's profit for the period.

The financial year of the Group comprises 52 weeks and not a calendar year.

Restatement of the consolidated statements

Included in other comprehensive income for the period ended 28 November 2010 was £1,347,000 relating to employee share awards, and deferred and normal tax on employee share options of £258,000 and £155,000 respectively.  These represented transactions with owners and should have been reflected directly in equity. Therefore, these amounts have been removed from the consolidated statement of comprehensive income for the year affected.

As a result of this change Other comprehensive income for the year ended 28 November 2010 has been restated to (£3,603,000) compared to (£1,843,000) previously reported.

In the Statement of cash flows for the period ended 28 November 2010, the tax paid was disclosed as a gross amount and excluded any refunds of tax paid in the period of £3.2m.  The corresponding entry reduces the effects of foreign exchange rates on cash and therefore has no impact on the cash flows from operating activities or opening and closing cash and cash equivalents.  As a result of this change, Income tax paid has been restated to (£2,758,000) compared to (£5,958,000) and the Effect of exchange rate changes has been restated to (£2,069,000) compared to £1,131,000 as previously reported.

The restatements have no impact on the income statement or operating profit.

2.     Segmental analysis

IFRS 8 'Segmental Reporting' 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 made up of the Chief Executive Officer, the Chief Financial Officer, the Chief Strategy Officer, the Chief Information Officer, the Director of Strategic Capability, the Regional Managing Directors and key function heads. Operating segments have been identified based on reports reviewed by the Executive Committee, which considers the business primarily from the geographic perspective.

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 less cost of sales.

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

						*Restated
United Kingdom & Ireland					27 November	28 November
					2011	2010
					£'000	£'000
Revenue from external customers					242,667	227,872
Gross Profit					71,348	68,282
Total Assets					105,185	118,971
Total Liabilities					52,828	63,063
Capital Expenditure					3,983	4,751
Continental Europe
Revenue from external customers					258,977	223,159
Gross Profit					98,448	80,751
Total Assets					64,813	45,243
Total Liabilities					46,928	30,830
Capital Expenditure					981	611
Rest of the World
Revenue from external customers					40,806	23,420
Gross Profit					25,734	17,335
Total Assets					16,906	13,217
Total Liabilities					4,681	1,620
Capital Expenditure					865	396
Group
Revenue from external customers					542,450	474,451
Gross Profit					195,530	166,368
Total Assets					186,904	177,431
Total Liabilities					104,437	95,513
Capital Expenditure					5,829	5,758

                * In 2010, Ireland was included within Continental Europe.  In 2011 the results reviewed by the chief operating decision maker now show Ireland within the UK.  The 2010 comparative figures have been restated on the same basis.

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
				Restated(1)		Restated(1)
			27 November	28 November	27 November	28 November
			2011	2010	2011	2010
				£'000		£'000
Brand
Progressive			158,114	133,780	55,241	45,416
Huxley Associates			146,376	125,843	54,551	44,892
Computer Futures Solutions			145,879	125,331	52,912	44,613
Real Staffing Group			92,081	89,497	32,826	31,447
			542,450	474,451	195,530	166,368
Recruitment classification
Contract			441,456	393,037	94,536	84,954
Permanent			100,994	81,414	100,994	81,414
			542,450	474,451	195,530	166,368
Discipline
Information and communication technology			373,745	341,484	116,619	102,610
Others(2)			168,705	132,967	78,911	63,758
			542,450	474,451	195,530	166,368

                    (1)  Real staffing Group has been restated to include IT Jobboard and JP Gray International. Computer Futures Solutions has been restated to exclude JP Gray International.

         (2) Including engineering and energy, banking, accountancy and finance, pharmaceuticals, and jobboard sectors.

3.      Administrative expenses

Operating profit is stated after charging/(crediting):

					27 November	28 November
					2011	2010
Analysis of costs by nature					£'000	£'000
Net trade receivables provision charge					223	211
Depreciation					3,148	2,925
Amortisation of intangible assets
	- Software and systems development costs				3,770	3,000
	- Trademarks				1	3
	- Computer software				740	385
Foreign exchange gains					(515)	(1,016)
Staff costs					121,392	106,617
Loss on disposal of property, plant and equipment					67	110
Loss on disposal of intangible assets					11	1
Operating lease charges
	- Motor vehicles				1,223	1,449
	- Land and buildings				9,912	9,050

During the year the Group (including its overseas subsidiaries) obtained the following services from the Group's auditors at the costs detailed below:

					27 November	28 November
					2011	2010
Amounts payable to PricewaterhouseCoopers LLP:					£'000	£'000
Fees payable to the Company's auditor for the audit of parent and consolidated financial statements
					90	120
Fees payable to the Company's auditor and its associates for other services:
- The audit of the Company's subsidiaries pursuant to legislation					330	377
- Other services pursuant to legislation					40	40
- Other assurance services					10	10
- Taxation advice					154	165
- Other services					126	383
Costs charged to operating profit					750	1,095

4.      Taxation

(a)  Analysis of tax charge for the year:

				27 November	28 November
				2011	2010
				£'000	£'000
Current taxation
UK
Corporation tax charged at 27% (2010: 28%) on profits for the year				6,278	9,195
Adjustments in respect of prior periods				133	583
Overseas
Corporation tax charged on profits for the year				3,252	1,274
Adjustments in respect of prior periods				(1,073)	(768)
Total current tax charge				8,590	10,284
Deferred taxation
Origination and reversal of temporary differences				(13)	(3,862)
Adjustments in respect of prior periods				1,270	992
Schedule 23 deferred tax charge/(credit) in respect of unexercised employee share awards and options
				187	(48)
Total deferred tax charge/(credit)				1,444	(2,918)
Total income tax charge in the income statement				10,034	7,366

(b)  Reconciliation of the effective tax rate

The Group's tax charge for the year ended 27 November 2011 exceeds the UK statutory rate and can be reconciled as follows:

		27 November		28 November
		2011		2010
		£'000	%	£'000	%
Profit before taxation		30,299		21,649
Profit before tax multiplied by standard rate of corporation tax in the UK		8,081	27%	6,062	28%
Effects of:
Disallowable items		626	2%	80	-
Differing tax rates on overseas earnings		585	2%	376	2%
Adjustments to tax in respect of previous periods		330	1%	807	4%
Adjustment due to UK tax rate change		58	-	41	-
Tax losses for which no deferred tax was recognised		354	1%	-	-
Tax expense and effective tax rate		10,034	33%	7,366	34%

(c)  Current and deferred tax movement recognised directly in equity

				27 November	28 November
				2011	2010
				£'000	£'000
Current tax
Equity settled employee share options				(1 ,776)	(155)
Deferred tax
Equity settled employee share options				928	(258)
				(848)	(413)

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. Where the amount of the tax deduction (or estimated future tax deduction) exceeds the amount of the related cumulative remuneration expense, this indicates that the tax deduction relates not only to remuneration expense but also to an equity item. In this situation, the excess of the current or deferred tax should be recognised in equity. At 27 November 2011 a deferred tax asset of £1.0m (2010: £2.1m) has been recognised in respect of these options.

5.      Dividends

				27 November	28 November
				2011	2010
				£'000	£'000
Amounts recognised and distributed to shareholders in the year
Equity
Interim dividend of 4.0p (2010: 4.0p) per ordinary share  *i)				4,694	4,782
Second interim dividend of nil (2010: 8.0p) per ordinary share				-	9,587
Final dividend of 8.0p (2010: nil) per ordinary share  *ii)				9,824	-
				14,518	14,369
Amounts proposed as distributions to shareholders
Interim dividend of 4.7p (2010: 4.0p) and special dividend of 11.0p (2010: nil) per ordinary share for the period ended 29 May 2011  *iii)
				18,786	4,797
Final dividend of 9.3p (2010: 8.0p) per ordinary share for the year ended 27 November 2011  *iv)
				11,128	9,594

i)     An interim dividend of 4.0 pence (2010: 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.

ii)    A final dividend of 8.0 pence (2009: nil) per ordinary share for the year ended 28 November 2010 was paid on 6 June 2011 to shareholders on record at 6 May 2011.

iii)   An interim dividend of 4.7pence (2010: 4.0 pence) per ordinary share and a special dividend of 11.0 pence (2010: nil) per ordinary share for the six months ended 29 May 2011 were paid on 2 December 2011 to shareholders on record at 4 November 2011.

iv)   The Board proposes a final dividend of 9.3 pence per ordinary share for the year ended 27 November 2011 (2010: 8.0 pence), to be paid on 6 June 2012 to shareholders on record at 4 May 2012. This proposed final dividend had not been approved by shareholders at 27 November 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 shareholders by the weighted average number of  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 shares in issue is adjusted to assume conversion of dilutive potential shares.

					27 November	28 November
					2011	2010
					£'000	£'000
Earnings
Profit after taxation					20,265	14,283
Non controlling interest					-	(67)
Profit after taxation attributable to equity holders of the Company					20,265	14,216
					millions	millions
Number of shares
Weighted average number of shares used for basic EPS					120.6	119.9
Dilutive effect of share plans					3.3	3.9
Diluted weighted average number of shares used for diluted EPS					123.9	123.8
					pence	pence
Basic
Basic earnings per share					16.8	11.9
Diluted
Diluted earnings per share					16.4	11.5

7.      Cash and cash equivalents

				27 November	28 November
				2011	2010
				£'000	£'000
Cash in hand and at bank				55,605	51,718

8.      Financial information

The financial information in this preliminary announcement which comprises the Consolidated income statement, Consolidated statement of comprehensive income, Consolidated statement of financial position, Consolidated statement of changes in equity, Consolidated statement of cash flowsand related Notes is derived from the full Group financial statements for the year ended 27 November 2011 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 27 November 2011 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 28 November 2010 have been delivered to the Registrar of Companies and the Group's statutory accounts for the year ended 27 November 2011 will be filed with the Registrar of Companies in due course.

9.      Annual Report and Accounts and Annual General Meeting

The 2011 Annual Report and Accounts and Notice of 2012 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, 5^th Floor, 215 -227 Great Portland Street, London, W1W 5PN. The Annual General Meeting of SThree plc is to be held on 19 April 2012.

 

END

 

 

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