Half Yearly Report

RNS Number : 1559M

SThree plc

14 July 2014

 



14 July 2014

SThree plc

("SThree" or the "Group")

Interim Results for the half year ended 1 June 2014

SThree, the international specialist staffing business, is today announcing its interim results for the half year ended 1 June 2014.

Financial Highlights

The prior period reported figures include the results of the IT Job Board business ("ITJB") which was sold in the second half of 2013. For comparison purposes, the results of the ITJB have been removed from the prior period to show Like for Like ("LFL") figures.

	As reported Six months ended		LFL Six months ended	LFL	LFL at CC*
	1 June 2014	26 May 2013	26 May 2013	Change	Change
	£m	£m	£m	%	%
Revenue	341.7	291.9	289.5	+18.0%	+20.9%
Gross profit	100.8	94.0	91.6	+10.0%	+13.4%
Operating profit	8.4	6.7	6.8	+23.5%	+27.3%
Profit before taxation	8.2	6.7	6.8	+20.6%	+24.2%
Basic earnings per share	4.7p	3.7p		+27.0%
Interim dividend per share	4.7p	4.7p

Operational Highlights

·      Improved overall performance with Group gross profit ("GP") up 10% year on year ("YoY") or 13% on a constant currency basis;

·      Operating profit up 24% to £8.4m (H1 2013: £6.8m) reflecting growth in GP and sales headcount;

·      Contract GP up 22%* YoY, with Contract now accounting for 60% of Group GP (H1 2013: 55%);

·      Strong seasonal recovery in contractor runners - up 26% YoY at the end of H1 and 12% above 2013 year end peak;

·      Permanent GP up 2%* YoY and Permanent deal pipeline volume up 5% YoY;

·      Period end Group sales headcount up 12% versus the year end position and up 20% YoY;

·      70% of Group GP now generated in markets outside the UK & Ireland (H1 2013: 69%);

·      Excellent performance in the Americas (up 62%* YoY), which now represents 14%* of Group GP (H1 2013: 10%);

·      Continued sector diversification with non-ICT disciplines now representing 60% (H1 2013: 55%);

·      Encouraging performance from Banking & Finance up 20%* YoY

·      Strong performances from our less mature global sectors - Energy up 52%* YoY, Life Sciences up 43%* YoY

* at constant currency

Gary Elden, Chief Executive Officer, commented: "As expected, the Group performance improved during the first half as the economic recovery gained momentum in a number of our markets.

"Contract made further progress in all territories as it continued to benefit from a greater strategic focus and increasing exposure to new global high growth markets, particularly Energy and Life Sciences. Contract gross profit increased by 22%* year-on-year and now accounts for 60% of Group gross profit. 

"The Americas had a very strong first half, growing 62%* year-on-year and we are doubling our office space in San Francisco and Houston to accommodate our expansion plans.

"During the second half, we are focusing on driving up the productivity of new hires, particularly in Permanent, with headcount growth moderating.

"As we look forward, the strength of our Contract book, investment in headcount and benefits of the restructuring in the second half of last year will provide the Group with a solid platform for growth and operational gearing into recovery.  Our seasoned home-grown management team and strong financial position give us confidence in the medium term prospects for the business."

SThree will host a presentation and conference call for analysts at 0900 BST today.

Conference Call participant Telephone Numbers:

Dial in: [phone]

Password: SThree

There will also be a live audio webcast, hosted on the SThree website at:

http://www.media-server.com/m/p/99y3gsk5

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

SThree will be announcing its Q3 Interim Management Statement on Friday 12 September 2014.

Enquiries:

SThree plc	020 7268 6000
Gary Elden, Chief Executive Officer
Alex Smith, Chief Financial Officer
Sarah Anderson, Deputy Company Secretary/ Investor Relations
Citigate Dewe Rogerson	020 7638 9571
Kevin Smith / Jos Bieneman

Notes to editors

SThree is a leading international specialist staffing business, providing permanent and contract specialist staff to a diverse client base of over 7,000 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 to include businesses serving the Banking & Finance, Energy, Engineering and Life Sciences 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 2,600 employees in twenty one 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. Certain data from the announcement is sourced from unaudited internal management information and is before any exceptional items. Accordingly, undue reliance should not be placed on forward looking statements.

SThree plc

("SThree" or the "Group")

Interim results for the half year ended 1 June 2014

OPERATING REVIEW

Introduction

Against a more encouraging macroeconomic backdrop, we delivered an improved first half performance, with business confidence and trading momentum picking up through the period.  This resulted in 13%* YoY growth in Group gross profit ("GP") largely driven by Contract and growth in our newer businesses, especially the Americas.  We also saw strong performances from our Energy and Life Sciences businesses across most of our geographies and they are making an increasingly important contribution to the Group result. 

Period end Group sales headcount was up 20% YoY which leaves us well positioned for the future. No new offices were opened in the period as we focus on driving the productivity of existing teams across the Group, with future investment in new territories in the second half of the year only likely where it is necessary to meet specific client requirements. 

Strategy

The Group operates in the specialist recruitment market and is strategically focused on rolling out the SThree model to an increasing number of geographies and across a range of disciplines. In implementing this strategy we are building on a combination of our pure play STEM positioning, multi brand approach, entrepreneurial culture, and mix of Contract and Permanent exposure, whilst also growing our global database of candidates and clients.

We had noticeable success in many of these areas during the first half.  With a greater weighting towards Contract, the Group is increasingly engaging with larger global clients and driving higher volumes of business, whilst still targeting higher value, niche specialist roles.

Breakdown of GP	Six months ended 1 June 2014 %	Six months ended 26 May 2013 %	Year ended 1 December 2013 %
Contract	60%	55%	56%
Permanent	40%	45%	44%
Total	100%	100%	100%
UK&I	30%	31%	31%
Continental Europe	47%	49%	49%
Americas	14%	10%	11%
Asia Pac & Middle East	9%	10%	9%
Total	100%	100%	100%
ICT	40%	45%	43%
Non ICT	60%	55%	57%
Total	100%	100%	100%

Business Mix

Contract was again a key area of focus in the first half.  After successful launches in the USA and Australia, the Group is in the process of rolling out an employed contractor model and enhancing its contractor service offerings in other regions. The investment in headcount combined with increasing exposure to new high growth global markets, particularly Energy and Life Sciences, resulted in a 22%* YoY increase in Contract GP.

The Contract exit growth rate in Q2 2014 was pleasing, with period end runners up 26% to 6,493 (H1 2013: 5,171). The Group experienced the usual seasonal reduction and rebuild in runners from the end of the previous financial year. We ended the period with 12% more runners than at the 2013 year end, the traditional peak (YE 2013: 5,791), giving the Group a strong platform to build from in the second half of the year.   

The Group made 3,057 Permanent placements in the first half of the year, a 1% reduction YoY (H1 2013: 3,093) but an increase in average fees (on a constant currency basis) led to a modest improvement in GP (up 2%* YoY). Period end headcount in our Permanent teams is up 19% YoY and we expect to see an improved performance in this business as this newer headcount matures and productivity increases. The Permanent pipeline at period end was up 5% on a volume basis.

As a result of the stronger Contract performance, we saw a further re-mixing of the business in favour of Contract, with Contract GP representing 60% of Group GP, up from 55% in H1 2013 (FY 2013: 56%).  The further evolution of this metric in the near term will be at least somewhat dictated by the macroeconomic backdrop in the remainder of 2014 and in 2015. In a more challenging environment Contract tends to be more resilient but when sentiment changes for the better, Permanent can recover very quickly. However, both Permanent and Contract benefit from improving sentiment - Permanent being more driven by candidate confidence impacting on churn and Contract being more impacted by client confidence. We are therefore pleased to have a balanced business with a significant presence in both Contract and Permanent markets.

International diversification and expansion

The Group saw growth across its international footprint, especially in Contract.  The Group's geographical business mix saw a further shift in favour of our international operations with overall GP generated outside of the UK&I increasing to 70% (H1 2013: 69%). We expect this trend to continue, with the Group becoming increasingly internationally diverse.  That said, we retain full confidence in the long term potential of our highly profitable UK&I business and expect to see a strong return to growth as sentiment continues to improve in these markets.

UK&I overall GP at £30.6m was up 6%* YoY (H1 2013: £28.8m) as the market continued to improve and the benefits of our recent investment in headcount began to come through. The business mix has continued to move towards Contract. Period end contractors were up 15% YoY, with GP per day rate ("GPDR") up 4%* YoY. Although Permanent placements were down 9% YoY, average fees increased by 6%* YoY.

Continental Europe GP was up 7%* YoY at £47.8m (H1 2013: £45.2m). Period end contractors were up 17% YoY and GPDR grew by 9%* YoY.  Permanent placements were down 13% and average fees decreased by 1%* YoY.

Americas overall GP was up 62%* YoY at £13.6m (H1 2013: £9.0m) and it now represents 14% of Group GP (H1 2013: 10%), with the USA being the main driver in the region. The major contributors to growth were the Energy, Life Sciences and Banking & Finance sectors, which were up 73%*, 64%* and  44%* YoY, respectively. Americas Contract GP was up 95%* YoY and Contract now accounts for 55% of total GP (H1 2013: 46%). Contract runners increased by 130% YoY and GPDR increased by 4%* YoY. Permanent placements increased by 46% YoY, while average fees fell by 7%* YoY, mainly due to sector mix. Our performance in the USA has been highly encouraging and we see significant opportunities to maintain these high levels of growth. Office space in San Francisco and Houston is being doubled to accommodate our expansion plans.

Asia Pac & Middle East GP was up 19%* at £8.8m (H1 2013: £8.5m), with notable contributions from Energy and Life Sciences, up 27%* and 127%* YoY, respectively. Permanent placements increased by 24% YoY, while average fees fell by 7%* YoY. Asia Pac & Middle East Contract GP was up 32%* YoY. Contract runners increased by 64% YoY, while GPDR fell 5%* YoY.

Of the Group's 52 offices in 21 countries, 38 are outside of the UK. Much of the Group's international growth in the second half will come from achieving scale in locations and sectors in which we already have a presence as we continue our focus on driving up the returns from our existing office portfolio.

Sector Diversification and Expansion

SThree is focused on five core sectors; Information & Communications Technology ("ICT"), Energy, Engineering, Life Sciences and Banking & Finance. In line with its strategic objective, the Group has made significant progress growing its newer sectors.

ICT represented 40% of GP during the year (H1 2013: 45%). ICT is our longest and most established sector and consequently the majority of ICT business is in the more mature UK and European markets and its performance reflected this geographical bias. We see an exciting opportunity to roll out ICT beyond the UK and Europe, with promising early results seen from Computer Futures in the highly fragmented ICT recruitment market in the USA.

Non-ICT enjoyed very strong growth, particularly Energy and Life Sciences which were up 52%* and 43%* YoY, respectively.  Banking & Finance continues to face challenging conditions but has had an encouraging performance up 20%* YoY.

High Value and Niche

Over the years we have consistently pursued a "High Margin High Value" approach to ensure that the Group maintains a focus on the quality of the business it transacts. As the Group expands into new sectors where it is increasingly engaging with larger global clients which offer higher volumes of business, this approach is being maintained to ensure we are still able to target higher value, niche specialist roles without sacrificing business quality.

The Group's overall gross margin declined to 29.5%* (H1 2013: 31.6%) due to the re-mixing towards Contract. The Contract margin has remained robust at 20.1% (H1 2013: 20.4%) while the average contractor GPDR increased by 7%* during the first half, reflecting geographical and sector mix benefits. The Group's average Permanent fee in H1 was broadly stable at £12.5k (H1 2013: £12.7k).

Headcount

The Group ended the period with total headcount of 2,579 (YE 2013: 2,327), an increase on prior year end of 11% and building on a significant increase in headcount in the latter months of 2013. Relative to the 2013 year end position, UK&I sales headcount grew by 11%, Continental Europe was up 13%, Americas up 21% and Asia Pac and Middle East up 3%.

Overall, average sales headcount was up 17% YoY, with Contract consultant average headcount up 25% YoY and Permanent consultant average headcount up 11% YoY. Consultant headcount continued to remix towards Contract during the half year, with Contract consultant numbers up 12% and Permanent consultant headcount up 11% since the year end. At the end of the period, Contract consultant headcount represented 50% of total consultant headcount for the first time in the Group's history.  This investment in headcount puts us in a strong position to take advantage of improving market conditions.

Operating Profit

Operating profit increased by 23.5% to £8.4m (H1 2013: £6.8m). Despite the increase in GP, our investment in headcount inevitably meant that we were carrying some additional costs in the period before these new hires become fully productive. 

Cash Flow

At the start of the period the Group had net cash of £8.7m. During the period, the Group used £5.5m of cash in operations (H1 2013: £3.2m) mainly due to higher working capital from an increase in the Contract business.  Whilst the cash outflow on capital expenditure reduced to £2.3m (H1 2013: £3.7m), income taxes paid increased to £4.8m (H1 2013: £1.9m) and dividend payments to ordinary shareholders were steady at £5.7m (H1 2013: £5.7m). The effect of exchange rate changes was to reduce net cash by £1.3m (H1 2013: increase net cash by £2.9m).  Other net cash inflow movements of £0.8m (H1 2013: net cash outflow of £1.2m) resulted in the Group having net debt of £10.1m at 1 June 2014.

Taxation

The tax charge for the six months amounted to £2.5m (H1 2013: £2.1m) at an effective rate of 30% (H1 2013: 32%).

Earnings per Share

Basic earnings per share were up 27% to 4.7p (H1 2013: 3.7p). Diluted earnings per share grew by 26% to 4.3p (H1 2013: 3.4p).

Dividends

The Board proposes to pay an interim dividend of 4.7p (H1 2013: 4.7p) per share. The interim dividend will be paid on 5 December 2014, to the shareholders on record at 6 November 2014. The total payment to shareholders on this date will be approximately £6m.

Treasury Management and Currency Risk

On 27 May 2014, the Group signed a committed revolving credit facility of £50m with RBS and HSBC which expires in May 2019. Borrowed funds bear interest at a minimum annual rate of 1.3% above relevant Sterling LIBOR.

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

The Board periodically reviews its hedging strategy to ensure that it remains appropriate. The Group does not engage in speculative trading. The impact of foreign exchange is significant for the Group, with the international business now accounting for 70% of GP in H1 2014 (H1 2013: 69%). The Group will continue to monitor its policies in this area.

Other principal risks and uncertainties

Other principal risks and uncertainties affecting the business activities of the Group, are as detailed within the Strategic Report section of the Annual Report for the year ended 1 December 2013, a copy of which is available on the Group's website at www.sthree.com.

In terms of macroeconomic environment risks, our strategy is to continue to grow the size of our international business and newer sectors, in both financial terms and geographical coverage. This will help reduce the Group's exposure or dependence on any one specific economy, although a downturn in a particular market could adversely affect the Group's key risk factors. In the view of the Board, there is no material change expected to the Group's other key risk factors in the foreseeable future.

Outlook

The Group is well diversified, both geographically and by sector and, as a result, is trading in markets with varied characteristics. While the specialist staffing market does not need high levels of GDP growth to perform robustly, a sustained and wide-ranging recovery in candidate and client confidence is key.

During the second half, we will be focusing on driving up the productivity of new hires, particularly in Permanent, with headcount growth expected to moderate.

As we look forward, the strength of our Contract book, investment in headcount and benefits of the restructuring in the second half of last year will provide the Group with a solid platform for growth and operational gearing into recovery.  Our seasoned home-grown management team and strong financial position give us confidence in the medium term prospects for the business.

* in constant currency

Responsibility Statement

The Directors confirm that to the best of their knowledge:

• the condensed consolidated financial information (unaudited) has been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the European Union; and

• the interim highlights and operating review include a fair review of the information required by Disclosure and Transparency Rule 4.2.7R and Disclosure and Transparency Rule 4.2.8R.

(a) DTR 4.2.7R of the Disclosure and Transparency Rules of the Financial Services Authority, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated financial information and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules of the Financial Services Authority, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period, and any changes in the related party transactions described in the Annual Report for the year ended 1 December 2013.

Approved by the Board on 11 July 2014 and signed on its behalf by:

Gary Elden	Alex Smith
Chief Executive Officer	Chief Financial Officer

SThree plc
Condensed consolidated income statement - unaudited
for the six months ended 1 June 2014
				1 June	26 May
				2014	2013
		Note		£'000	£'000
Continuing operations
Revenue		2		341,735	291,888
Cost of sales				(240,905)	(197,892)
Gross profit		2		100,830	93,996
Administrative expenses				(92,434)	(87,313)
Operating profit				8,396	6,683
Finance income				34	66
Finance cost				(187)	(96)
Profit before taxation				8,243	6,653
Taxation		3		(2,506)	(2,129)
Profit for the period attributable to owners of the Company				5,737	4,524
Earnings per share		5		pence	pence
Basic				4.7	3.7
Diluted				4.3	3.4

Condensed consolidated statement of comprehensive income - unaudited
for the six months ended 1 June 2014
				1 June	26 May
				2014	2013
				£'000	£'000
Profit for the period				5,737	4,524
Other comprehensive (loss)/income:
Items that may be subsequently reclassified to profit or loss:
Exchange differences on retranslation of foreign operations				(1,150)	1,880
Other comprehensive (loss)/income for the period (net of tax)				(1,150)	1,880
Total comprehensive income for the period attributable to owners of the Company				4,587	6,404

SThree plc
Condensed consolidated statement of financial position - unaudited
as at 1 June 2014
					Audited
				1 June	1 December
				2014	2013
		Note		£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment				3,320	3,950
Intangible assets				11,806	12,033
Deferred tax assets				3,147	3,481
Trade and other receivables				-	1,449
				18,273	20,913
Current assets
Trade and other receivables				144,385	124,905
Current tax assets				1,095	510
Cash and cash equivalents				25,936	13,690
				171,416	139,105
Total assets				189,689	160,018
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital				1,244	1,240
Share premium				6,149	4,961
Other reserves				(5,238)	(5,440)
Retained earnings				38,788	50,854
Total equity				40,943	51,615
Non-current liabilities
Provisions for liabilities and charges				3,344	4,748
Trade and other payables				379	758
				3,723	5,506
Current liabilities
Provisions for liabilities and charges				6,422	7,361
Trade and other payables				102,601	88,500
Current tax liabilities				-	2,036
Borrowings		6		36,000	5,000
				145,023	102,897
Total liabilities				148,746	108,403
Total equity and liabilities				189,689	160,018

SThree plc
Condensed consolidated statement of changes in equity - unaudited
for the six months ended 1 June 2014
	Share capital	Share premium	Capital redemption reserve	Capital reserve	Treasury reserve	Currency translation reserve	Retained earnings	Total equity attributable to owners of the Company
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Audited balance at 25 November 2012	1,234	4,138	168	878	(5,928)	(4,070)	65,503	61,923
Profit for the six months to 26 May 2013	-	-	-	-	-	-	4,524	4,524
Other comprehensive income	-	-	-	-	-	1,880	-	1,880
Total comprehensive income for the period	-	-	-	-	-	1,880	4,524	6,404
Dividends paid to equity holders	-	-	-	-	-	-	(5,654)	(5,654)
Dividends payable to equity holders	-	-	-	-	-	-	(11,280)	(11,280)
Purchase of own shares	-	-	-	-	(1,272)	-	-	(1,272)
Treasury shares used for buy-back of vested tracker shares	-	-	-	-	3,817	-	(3,817)	-
Treasury shares used for share-based payments	-	-	-	-	555	-	(469)	86
Credit to equity for equity-settled share-based payments	-	-	-	-	-	-	503	503
Current and deferred tax on share-based payment transactions	-	-	-	-	-	-	187	187
Total movements in equity	-	-	-	-	3,100	1,880	(16,006)	(11,026)
Unaudited balance at 26 May 2013	1,234	4,138	168	878	(2,828)	(2,190)	49,497	50,897
Audited balance at 1 December 2013	1,240	4,961	168	878	(1,514)	(4,972)	50,854	51,615
Profit for the six months to 1 June 2014	-	-	-	-	-	-	5,737	5,737
Other comprehensive loss	-	-	-	-	-	(1,150)	-	(1,150)
Total comprehensive income for the period	-	-	-	-	-	(1,150)	5,737	4,587
Dividends paid to equity holders	-	-	-	-	-	-	(5,728)	(5,728)
Dividends payable to equity holders	-	-	-	-	-	-	(11,458)	(11,458)
Issue of new shares for buy-back of vested tracker shares and share-based payments	4	1,188	-	-	-	-	(628)	564
Treasury shares used for buy-back of vested tracker shares	-	-	-	-	1,352	-	(1,326)	26
Credit to equity for equity-settled share-based payments	-	-	-	-	-	-	1,225	1,225
Current and deferred tax on share-based payment transactions	-	-	-	-	-	-	112	112
Total movements in equity	4	1,188	-	-	1,352	(1,150)	(12,066)	(10,672)
Unaudited balance at 1 June 2014	1,244	6,149	168	878	(162)	(6,122)	38,788	40,943

SThree plc
Condensed consolidated statement of cash flows - unaudited
for the six months ended 1 June 2014
				1 June	26 May
				2014	2013
				£'000	£'000
Cash flows from operating activities
Profit before taxation				8,243	6,653
Adjustment for:
Depreciation and amortisation charge				2,638	3,066
Finance income				(34)	(66)
Finance cost				187	96
Loss/(gain) on disposal of property, plant and equipment				39	(17)
Non-cash charge for share-based payments				1,225	503
Operating cash flows before changes in working capital and provisions				12,298	10,235
Increase in receivables				(19,129)	(6,092)
Increase/(decrease) in payables				3,668	(7,479)
(Decrease)/increase in provisions				(2,371)	108
Cash (used in)/generated from operations				(5,534)	(3,228)
Finance income				34	66
Income tax paid				(4,750)	(1,897)
Net cash used in operating activities				(10,250)	(5,059)
Cash flows from investing activities
Purchase of property, plant and equipment				(537)	(606)
Purchase of intangible assets				(1,772)	(3,108)
Proceeds from disposal of property, plant and equipment				-	72
Proceeds from disposal of subsidiaries				401	-
Net cash used in investing activities				(1,908)	(3,642)
Cash flows from financing activities
Finance cost				(187)	(96)
Employee subscription for tracker shares				24	-
Proceeds from exercise of share options				574	253
Repurchase of unvested tracker shares				(7)	(85)
Purchase of own shares				-	(1,423)
Proceeds from borrowings				31,000	-
Dividends paid to equity holders				(5,728)	(5,654)
Net cash generated from/(used in) financing activities				25,676	(7,005)
Net increase/(decrease) in cash and cash equivalents				13,518	(15,706)
Cash and cash equivalents at the beginning of the period				13,690	28,291
Effect of foreign exchange rate changes				(1,272)	2,877
Cash and cash equivalents at end of the period				25,936	15,462

SThree plc

Notes to the Financial Information - unaudited

for the six months ended 1 June 2014

1.     Accounting policies

General information

SThree plc ("the Company") and its subsidiaries (together "the Group") operate predominantly in the United Kingdom, Continental Europe, the Americas and Asia Pacific & Middle East.  The Group consists of different brands and provides both permanent and contract specialist staffing services, primarily in the ICT, banking & finance, energy, engineering and life sciences sectors.

The Company is a public limited company incorporated and domiciled in the United Kingdom and the Company is listed on the London Stock Exchange. The address of its registered office is 5th Floor, GPS House, 215-227 Great Portland Street, London, W1W 5PN.

The condensed consolidated interim financial information of the Group as at, and for the six months ended, 1 June 2014 comprises that of the Company and all its subsidiaries. The condensed consolidated interim financial information has neither been reviewed nor audited. The condensed consolidated interim information does not comprise statutory accounts as defined in section 434 of the Companies Act 2006. Statutory accounts for the year ended 1 December 2013 were approved by the Board of Directors on 31 January 2014 and a copy was delivered to the Registrar of Companies. The auditors reported on those accounts, their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The consolidated interim financial information was approved for issue on 11 July 2014.

Basis of preparation

'The condensed consolidated interim financial information for the six months ended 1 June 2014 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. The consolidated interim financial information is presented on a condensed basis as permitted by IAS 34 and therefore does not include all disclosures that would otherwise be required in a full set of financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 1 December 2013, which were prepared in accordance with IFRSs as adopted and endorsed by the European Union.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Operating Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are shown earlier in this interim financial information.

Having considered the Group's resources and available banking facilities, the Directors are satisfied that the Group has sufficient resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing this condensed interim financial information.

Significant accounting policies

The accounting policies adopted are consistent with those applied in the preparation of the Group's annual financial statements for the year ended 1 December 2013 except as described below.                

Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings.

New standards and interpretations

There are no new standards or IFRIC interpretations that are either effective or issued but not effective that would be expected to have a material impact on the Group.

Estimates

The preparation of the condensed consolidated interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities at the end of the reporting period, and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on the Directors' best knowledge of the amounts, the actual results may ultimately differ from these estimates.

In preparing the condensed interim financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Group's annual financial statements for the year ended 1 December 2013, with the exception of changes in estimates that are required in determining the provision for income taxes.

Seasonality of operations

Due to the seasonal nature of the recruitment business, higher revenues and operating profits are usually expected in the second half of the year than the first six months.  In the financial year ended 1 December 2013, 46% of revenues were earned in the first half of the year, with 54% earned in the second half.

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.

Management has determined the chief operating decision maker to be the Group Management Board ('GMB') made up of the Chief Executive Officer, the Chief Financial Officer and Regional CEOs, with other senior management attending via invitation. Operating segments have been identified based on reports reviewed by the GMB, which consider the business primarily from a geographic perspective.

The Group's management reporting and controlling systems use accounting policies that are the same as those described in note 1 in the summary of significant accounting policies in the Group's 2013 Annual Report.

Revenue and Gross Profit by reportable segment

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 reporting and controlling systems. Gross profit is the measure of segment profit/(loss) comprising revenue less cost of sales.

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

		Revenue from external customers		Gross profit
		1 June	26 May	1 June	26 May
		2014	2013	2014	2013
			Restated*		Restated*
		£'000	£'000	£'000	£'000
United Kingdom & Ireland		129,820	117,246	30,632	30,501
Continental Europe		147,726	133,578	47,814	45,987
Americas*		45,646	25,338	13,600	8,975
Asia Pacific & Middle East*		18,543	15,726	8,784	8,533
		341,735	291,888	100,830	93,996

* These two segments were disclosed as one segment up until the 2013 year end. The new split is in line with the revision that has been introduced to the Group's internal reporting system. The comparatives have been restated.

Continental Europe includes Belgium, France, Germany, Luxembourg, Netherlands and Switzerland.

Americas includes USA, Brazil and Canada.

Asia Pacific & Middle East includes Australia, Hong Kong, India, Singapore, Dubai, Qatar, Japan, Malaysia, Russia and Thailand.

Other information

The Group's revenue from external customers, its gross profit and information about its segment assets (non-current assets excluding deferred tax assets) by key location are detailed below:

		Revenue		Gross profit
		1 June	26 May	1 June	26 May
		2014	2013	2014	2013
		£'000	£'000	£'000	£'000
UK		120,627	113,564	27,727	29,007
Germany		64,640	56,014	23,227	22,344
Netherlands		40,147	35,796	10,572	10,073
USA		44,764	28,600	13,024	9,582
Other		71,557	57,914	26,280	22,990
		341,735	291,888	100,830	93,996

				Non-current assets
					Audited
				Six months ended	53 weeks ended
				1 June	1 December
				2014	2013
				£'000	£'000
UK				13,033	14,991
Germany				255	246
Netherlands				191	236
USA				566	641
Other				1,081	1,318
				15,126	17,432

The following segmental analyses by brand, recruitment classification and discipline (being the profession of candidates placed) have been included as additional disclosures to the requirements of IFRS 8.

				Revenue		Gross profit
				1 June	26 May	1 June	26 May
				2014	2013	2014	2013
				£'000	£'000	£'000	£'000
Brand
Progressive				113,027	97,427	31,148	30,454
Huxley Associates				74,552	64,959	21,713	21,624
Computer Futures				83,788	74,007	25,402	23,293
Real Staffing Group				70,368	55,495	22,567	18,625
				341,735	291,888	100,830	93,996
Recruitment classification
Contract				301,673	248,474	60,768	50,582
Permanent				40,062	43,414	40,062	43,414
				341,735	291,888	100,830	93,996
Discipline					Restated*		Restated*
Information & communication technology				147,336	146,914	40,395	41,418
Others				194,399	144,974	60,435	52,578
				341,735	291,888	100,830	93,996

* Information and communication technology has been restated to exclude banking technology.

Others include banking & finance, energy & engineering and life sciences.

3.     Taxation

Income tax is accrued based on management's best estimate of the average annual effective tax rate for the financial year. The tax charge for the six months amounted to £2.5m (2013: £2.1m) at an effective rate of 30% (2013: 32%).

4.     Dividends

				1 June	26 May
				2014	2013
				£'000	£'000
Amounts recognised as distributions to equity holders in the period
2013 interim dividend of 4.7p (2012: 4.7p) per ordinary share				5,728	5,654
2013 final dividend of 9.3p (2012: 9.3p) per ordinary share				11,458	11,280
				17,186	16,934

An interim dividend of 4.7 pence (2013: 4.7 pence) per share for the six months ended 26 May 2013 was paid on 6 December 2013 to shareholders on record at 8 November 2013.

A final dividend of 9.3 pence per ordinary share for the year ended 1 December 2013 (2012: 9.3 pence) was approved by shareholders on 24 April 2014 and has been included as a liability in this interim financial information. The dividend was paid on 4 June 2014 to shareholders on record at 2 May 2014.

An interim dividend for the six months ended 1 June 2014 of 4.7 pence per share will be paid on 5 December 2014 to shareholders on record at 6 November 2014.

5.     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 owners of the Company by the weighted average number of shares in issue during the period, excluding shares held in treasury reserve and those held in the EBT which are treated as cancelled.

For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion of dilutive potential shares. Potential dilution resulting from tracker shares takes into account profitability of the underlying businesses and SThree plc's price-earnings ratio. Therefore, the actual dilutive effect on EPS will vary in future periods depending on the changes in these factors.

					1 June	26 May
					2014	2013
					£'000	£'000
Earnings
Profit for the period attributable to owners of the Company					5,737	4,524
					millions	millions
Number of shares
Weighted average number of shares used for basic EPS					122.8	120.7
Dilutive effect of share plans					11.2	11.9
Diluted weighted average number of shares used for diluted EPS					134.0	132.6
					pence	pence
Basic EPS					4.7	3.7
Diluted EPS					4.3	3.4

6.     Borrowings

							Audited
					1 June		1 December
					2014		2013
					£'000		£'000
Revolving credit facility ('RCF')					36,000		5,000

As disclosed in the Group's annual financial statements for the year ended 1 December 2013, the Group had a committed revolving credit facility of £20m with The Royal Bank of Scotland ('RBS'), valid until January 2017. On 27 May 2014, the Group entered into a new £50m RCF facility with RBS and HSBC, which expires in May 2019. Borrowed funds bear interest at a minimum annual rate of 1.3% above relevant Sterling LIBOR.

Similar to the previous facility, the new RCF is subject to certain covenants requiring the Group to maintain financial ratios over interest cover, leverage and guarantor cover. The Group has complied with these covenants throughout the period.

7.     Related party disclosures

The Group's significant related parties are as disclosed in the Group's annual financial statements for the year ended 1 December 2013. There were no material differences in related parties or related party transactions in the period compared to the prior period.

8.     Contingent liabilities

The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business. There have been no material changes in these since the year end, and none are expected to result in a material cash outflow for the Group.

9.     Shareholder communications

SThree plc has taken advantage of regulations which provide it exemption from sending copies of its interim report to shareholders. Accordingly, the 2014 interim report will not be sent to shareholders but will be available on the Company's website www.sthree.com or available to be inspected at the registered office of the Company.

 

END

 

 

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