Interim Results

RNS Number : 5261K

SThree plc

18 July 2011

 



Embargoed until 0700

18 July 2011

SThree plc

("SThree" or the "Group")

Interim results for the six months ended 29 May 2011

SThree, the international specialist staffing business, is today announcing its unaudited interim results for the six months ended 29 May 2011.   

Financial Highlights - six months ended	29 May 2011	30 May 2010	% change
Revenue	£254.9m	£221.7m	+15.0%
Gross profit	£90.0m	£74.3m	+21.1%
Operating profit	£11.0m	£7.1m	+54.3%
Profit before taxation	£11.2m	£7.3m	+52.0%
Basic earnings per share	6.2p	4.0p	+55.0%
Interim dividend per share	4.7p	4.0p	+17.5%
Special dividend per share*	11.0p	-	-

 

* The special dividend will be payable along with the interim dividend on 2 December 2011 to those shareholders on the register at 4 November 2011.

Operational Highlights

•     Pleasing first half performance in a sequentially improving market. Gross Profit up 21% year on year to    £90.0m (2010: £74.3m). Like for like ("LFL") Gross Profit up 23%

•     Permanent placements up by 21% to 3,450 (2010: 2,842) - average permanent placement fee up 8% LFL to a record £12,851 (2010: £11,861)

•     Number of active contractors at period end up by 11% year on year to 4,381 (2010: 3,952) - average gross profit per day rates increased by 6% LFL to a record £88.10 (2010: £83.24). Average contract margin achieved of 21.4% (2010: 21.4%)  

•     Contract versus Permanent mix of Gross Profit now 50:50 (Full year 2010: 51:49 in favour of Contract)

•     Non-UK Gross Profit for the period represented 63% of the Group total (Full year 2010: 60%)

•     Rest of World (excluding UK and Europe) Gross Profit grew to 13% of mix (Full year 2010: 11%), up 43% LFL

•     Non-ICT business segments grew by 42% LFL, now representing 40% of total Gross Profit (Full year 2010: 38%)

•     Sales headcount up 14% year on year and 12% versus year end 2010 position, as the Group scales up its existing operations and opens into new sectors and geographies

•     New offices opened in Sao Paulo, Doha and Antwerp

•     Net cash position remains strong at £48.3m (2010: £31.6m)

•     Interim dividend increased by 17.5% to 4.7p (2010: 4.0p)

•     Special dividend of 11.0p per share payable on 2 December 2011, a cash outflow of circa £13.5m

Russell Clements, CEO, commented:

"During the first half of the year the Group benefited from a continued improvement in market conditions across all of our territories. The result was a performance which positions the Group well for the remainder of the year. That said, given the strong seasonality of our business, we are targeting for the second half to be a very significant contributor to our results for 2011 as a whole, as has historically been the case.

"We have continued to invest in the Group's future growth by scaling-up our capacity in established territories and markets, as well as opening new offices and addressing complementary specialist staffing segments. As a result the Group is more diversified and international than at any other time in its history, with almost two thirds of the business coming from outside of the UK. We expect our long established international office roll out programme to continue, with a number of further new offices scheduled to open during the second half of the year.

"With recovery now evident across our markets, it is pleasing to be able to announce the intention to pay a special dividend in addition to our usual interim dividend. The strong cash generative nature of our business will, we believe, allow us to periodically review our capital requirements with a view to, where prudent, returning further value to our shareholders in this manner. We are confident that this can be achieved whilst continuing to invest appropriately to support the Group's ambitious global growth plans.

"The Group has entered the second half in good shape, notwithstanding some evidence of a softening of UK demand in recent weeks, and our expectations for the full year remain unchanged."

 

Operating Review

Introduction

In H1 2011 the Group operated in markets which were in general further improved on the same period last year. That being said, the pace of improvement did vary with some markets trading very strongly and certain others still some way from being fully recovered, albeit in the vast majority of cases heading in a positive direction. The result was that H1 saw a pleasing performance from the Group, with Gross Profit ("GP") increasing by 21% to £90.0m (2010: £74.3m).

If we consider the performance during the half year sequentially, the improvement in trading is clearer. Group Gross Profit was up 27% LFL year on year in Q2 2011 as compared to up 19% LFL year on year in Q1 2011, despite more challenging comparatives.

Overview and Business Mix

H1 2011 saw a further internationalisation of the Group. Overall GP derived outside of the UK now stands at 63% (FY 2010: 60%).

In parallel, the Group's segmental diversification increased with overall Group GP derived from non-ICT sectors up by 40% to £35.9m (2010: £25.6m). As a result of the diversification of the business in geographical and segmental terms, the Group now derives only 22% of its GP from it's longest established sector, the UK ICT market (H1 2010: 25%; FY 2010: 24%). The Group's exposure to Public Sector clients represents 5% of total transactions, down from 6% in the full year 2010. This figure has been stable for some time suggesting that although we are unlikely to see a meaningful increase in Public Sector GP, there is no suggestion of significant further decline.  

During the period the Group's Contract business performed well. Nonetheless, the proportion of Group GP attributable to Contract fell to 50% in the period compared to 54% during the same period in 2010. Realignment in favour of Permanent is to be expected as markets cyclically improve, and this was further exaggerated by the geographical remixing of the business away from the UK, which is more exposed to contract, with UK contract representing 61% of UK GP during H1 2011. The headline number of Group contractors increased to 4,381 at the period end from 3,952 in the prior year period, an increase of 11%. In terms of the Group's expected seasonal reduction and rebuild in contract numbers from the end of the previous financial year, this was within the normal range, being up slightly at the half year at +0.5% (28 November 2010: 4,359). In H1 the Group made 3,450 permanent placements, an increase of 21% (2010: 2,842).

Breakdown of GP	Six months ended 29 May 2011 %	Year ended 28 Nov 2010 %	Six months ended 30 May 2010 %
Contract	50	51	54
Permanent	50	49	46
Total	100	100	100
Continental Europe	50	49	50
Rest of World	13	11	10
UK	37	40	40
Total	100	100	100
Non ICT	40	38	34
ICT	60	62	66
Total	100	100	100

Strategy

The Group has a well-established strategy based on rolling out the SThree model to an increasing number of geographies and across a widening range of specialist staffing disciplines. We are particularly excited by our ever-increasing exposure to territories with strong structural growth characteristics across all segments - for example Germany, and to sectors where the competitive landscape is particularly underdeveloped even when the territory in question is perceived to be relatively mature - for example Mining in Australia.

The success of the Group's strategy is reflected in the fact that our businesses outside of the UK ICT sector represented 78% of Group GP in H1 2010 (H1 2010: 75%; H1 2009: 67%). To further support international expansion the Group's most senior operational management is now organised along geographical lines, with multiple brand responsibility within a region rather than by responsibility for a particular brand across regions. In addition a number of our most senior staff have recently relocated to give them greater proximity to strategically important regions (e.g. South East Asia and the Americas).   

The Group's core strategy will continue to be based on organic growth. Although we are not philosophically opposed to considering acquisitions, we would see any as opportunistic and more likely to be small "bolt-ons" capable of offering niche expertise we would find more difficult to build internally. As an alternative to acquisitions we are appointing senior management from competitor/comparator companies where the latter have gained valuable market knowledge. In this respect we believe that the Group's Tracker Share model is a key differentiator in terms of attracting senior talent to the business.

Margins and Value

A further key element of our strategy is to remain highly selective regarding the quality of the business we undertake. We remain healthily sceptical of the value of the "high volume, low margin" model associated with servicing the larger corporate market in more mature markets (particularly in the UK and US). Similarly, we see most of the Recruitment Process Outsourcing ("RPO") market as an opportunity to generate revenue rather than make profit and that it is at best only appropriate to commoditised, lower level staffing. By contrast, the Group prefers to fully leverage its niche specialist proposition to engage with less price-focused clients who value our services.

As a result our customer base is wide and varied, with a high percentage of SMEs, particularly in more mature markets such as the UK. This reduces the Group's exposure to a limited number of powerful customers and also ensures that we mitigate the margin pressure associated with "wholesale" buyers such as the major systems integration companies. In this respect it is instructive to note that despite the fact that in H1 2011 60% of the candidates we placed were ICT professionals, only approximately 19% of our transactions were in the ICT sector where buying behaviour tends to be heavily intermediated and strongly price sensitive.  

Our strategy is underpinned by our multi-brand approach which allows the Group to subdivide the market around specific niches. This allows us to credibly position ourselves as market experts, which in turn justifies premium pricing. Our entrepreneurial culture is reinforced by our Tracker Share model, which is both a significant retention tool for existing management and a unique proposition to attract the brightest and best talent into the Group.

We believe that our choice of client type and clear focus on highly specialised niche markets allows us to defend a premium position in pricing terms. Overall Group gross margin grew to 35.3% (H1 2010: 33.5%) supported by a shift in the business towards permanent. We saw an 8% LFL improvement in the average permanent fee to £12,851 (2010: £11,861) and a 6% increase in the average Gross Profit per Day to £88.10 (2010: £83.24).

Performance by Geography

UK Gross Profit at £32.9m was up 9% year on year (2010: £30.2m) as the UK market continued to recover in most sectors. However, further improvement in the UK's performance was inhibited during the period by a lacklustre Banking market, in contrast to the previous year.

Permanent placements were up 6% and period end contractors were up 5% year on year. In terms of value, Permanent fees and GP day rates increased by 13% and 2% respectively. The strong permanent fee progression is particularly pleasing given the relative volumetric weakness in Banking which will have had a dilutive impact on the UK average because of the higher absolute fees associated with the sector. The robustness of overall UK fees was helped by a strong performance from other sectors such as IT and Oil & Gas.

Mainland Europe Gross Profit of £46.2m was up 32% LFL (2010: £36.8m). Market conditions in Benelux have finally turned positive, this region being the last into the downturn and the last into recovery. Gross Profit for the region was up 13% LFL.  France performed strongly in the period with Gross Profit up 37% LFL.

Our well established teams in Germany continued to benefit from the much less mature German staffing market with Gross Profit up 49% LFL.

Rest of the World ("ROW") Gross Profit was up 43% LFL, with strong performances in Australia (up 104% LFL) driven by our new Perth operation (Oil & Gas and Mining) and the diversification into Banking in Sydney. USA was up 53% LFL with notable contributions from the San Francisco (Pharmaceuticals) and Houston (Oil & Gas) offices, offset by some weakness in the New York Banking market which, in common with the City of London, was considerably quieter than in H1 2010.

Geographical and Sector Expansion

Of the Group's total of fifty five offices, thirty three are outside the UK with twenty two in Europe and eleven in the ROW. In H1 the Group continued its roll out of international offices, opening in Sao Paulo, Doha and Antwerp. These openings illustrate the two parallel strands of our international strategy - on the one hand launching into new territories and markets, and on the other further expanding within those in which we already have a substantial presence.

Indeed, much of the Group's growth will come from scaling up our operations in our established geographies and markets. In this regard the Group has in many of its territories substantial capacity to scale up without the need to add to the existing office footprint.

The strong ROW performance during the period was helped by the increasing contribution made by the roll out of newer sectors (i.e. non ICT) into these newer geographies. The long term potential of this approach is increasingly evident. Looking forward we still have substantial scope for more of this type of cross-pollination of sectors with geographies. Markets with global potential such as that addressed by our Oil and Gas, Mining and Banking franchises are therefore particularly exciting.

Since the half year, the Group opened an office in Mumbai to primarily address the Banking sector and an office in Zurich to address the Banking and Pharmaceutical markets. In the remainder of the year new offices are planned to open in Luxembourg and Chicago.   

Staffing Levels

At the end of the half-year total headcount for the Group was 2,019 an overall increase of 8% on the previous year end (2010 year end: 1,863). At the half year versus the year end 2010 position, UK sales headcount was up 7%, Continental Europe headcount was up 11% and ROW was up 29%. The Group continues to hire sales consultants into extant teams where there is market-based evidence to support the investment and to staff the opening of our new international offices.

The Group's strategic preference is for growing headcount primarily through hiring of new graduates or those relatively early in their careers, with these hires typically taking around three to six months to become productive. Wherever possible the business promotes from within, only looking externally by exception where particular market knowledge (sector and/or geography) is impossible to source from within the existing management talent pool, as referred above.

Cash Flow

At the start of the period the Group had cash and assets classified as held to maturity of £55.2m. During the period the Group generated cash from operating activities of £6.1m (2010: £3.9m) being £15.4m of operating cashflow before changes in working capital and provisions (2010: £10.7m) and an increase in working capital requirements and provisions of £9.2m (2010: £6.8m). Dividends paid in the period reduced by £9.3m as the Group returned to its normal timetable for paying the final dividend. In 2010 the Group paid a second interim dividend of 8.0p per share in March 2010 in place of the final dividend which is usually paid in June. At 29 May 2011 the Group had net cash of £48.3m.

A committed flexible invoice financing arrangement is in place with Royal Bank of Scotland Group ("RBS") until April 2012. Under this arrangement the Group is able to borrow up to £20m. Funds borrowed under this facility bear interest at the rate of 1.75% above the RBS base rate. The Group has not drawn down any amounts on this facility.

Taxation

The charge for taxation on profits amounted to £3.7m (2010: £2.5m), an effective rate of 33% (2010: 34%).

Earnings per Share

Basic earnings per share increased by 55% to 6.2p (2010: 4.0p). Diluted earnings per share increased by 54% to 6.0p (2010: 3.9p).

Treasury Management, Currency Risk and Other Principal Risks and Uncertainties affecting the Business

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, consistent with its major listed peers. 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 International business accounting for 63% of gross profit in 2011 (2010: 60%). The Group therefore continues to monitor its policies in this area.

Other principal risks and uncertainties affecting the business activities of the Group are as detailed within the

Directors' Report section of the Annual Report for the year ended 28 November 2010, a copy of which is available on the Group'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.

Dividends

It is the Board's intention to adopt a progressive dividend policy, targeting dividend cover of 2.0x to 2.5x over the medium term. The Board proposes to increase the interim dividend to 4.7p (2010: 4.0p) per share.

The Board also proposes a special dividend of 11.0p per share. Periodically, the Board will review the Group's capital structure, with a view to, where prudent, returning further cash to shareholders in this manner.

Both the ordinary interim dividend and special dividend will be paid on 2 December 2011 to those shareholders on the register at 4 November 2011. The combined payment to shareholders on this date will be approximately £19m.

Outlook

The markets in which the Group operated during the first half were consistent with the continuing improvement we have seen since the start of 2010. It was noteworthy that Contract, which had remained subdued for most of 2010 even while the Permanent market staged a strong recovery, itself improved sequentially during the first half of 2011 and is now in the best shape it has been post the downturn. On a similar note, the Benelux countries finally started to show signs of recovery, having spent an extended period in the doldrums. The only market experiencing disappointing trading conditions during the period was front office banking. However, other markets performed strongly, at least partially offsetting the impact. Taken overall, market conditions were improving, if not yet in all cases back to pre-recessionary levels of demand. This has positioned the Group well for the remainder of the year, albeit that given the strong seasonality of our business, we are targeting for the second half to be a very significant contributor to our results for 2011 as a whole, as has historically been the case. The Group has entered the second half in good shape, notwithstanding some evidence of a softening of UK demand in recent weeks, and our expectations for the full year remain unchanged.

Consolidated income statement - unaudited
for the six months ended 29 May 2011
						Audited
				Six months ended		Year ended
				29 May	30 May	28 November
				2011	2010	2010
		Note		£'000	£'000	£'000
Revenue		2		254,854	221,676	474,451
Cost of sales				(164,850)	(147,359)	(308,083)
Gross profit		2		90,004	74,317	166,368
Administrative expenses				(79,014)	(67,195)	(145,152)
Operating profit				10,990	7,122	21,216
Finance income				203	227	451
Finance cost				(19)	-	(18)
Profit before income tax				11,174	7,349	21,649
Taxation		3		(3,743)	(2,499)	(7,366)
Profit for the period				7,431	4,850	14,283
Profit for the period attributable to:
Equity holders of the Company				7,431	4,783	14,216
Non-controlling interest				-	67	67
				7,431	4,850	14,283
Earnings per share		5		pence	pence	pence
Basic				6.2	4.0	11.9
Diluted				6.0	3.9	11.5

Consolidated Statement of Comprehensive Income - unaudited
for the six months ended 29 May 2011
					* Restated	* Restated
						Audited
				Six months ended		Year ended
				29 May	30 May	28 November
				2011	2010	2010
				£'000	£'000	£'000
Profit for the period				7,431	4,850	14,283
Other comprehensive income:
Exchange differences on retranslation of foreign operations				375	(2,262)	(3,603)
Deferred tax on employee share options				(637)	183	258
Current tax on employee share options				1,569	288	155
Other comprehensive income for the period (net of tax)				1,307	(1,791)	(3,190)
Total comprehensive income for the period				8,738	3,059	11,093
Total comprehensive income attributable to:
Owners of the parent				8,738	2,851	10,952
Non-controlling interest				-	208	141
				8,738	3,059	11,093
* - An explanation of the restatement is provided in Note 1 under basis of preparation.

Consolidated statement of financial position - unaudited
as at 29 May 2011
						Audited
				Six months ended		Year ended
				29 May	30 May	28 November
				2011	2010	2010
		Note		£'000	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment				5,058	5,540	5,447
Intangible assets				10,083	10,023	10,161
Deferred tax assets				8,863	8,946	8,670
				24,004	24,509	24,278
Current assets
Trade and other receivables		6		103,903	86,248	97,935
Cash and cash equivalents		7		48,313	28,645	51,718
Assets classified as held-to-maturity		8		-	2,974	3,500
				152,216	117,867	153,153
Total assets				176,220	142,376	177,431
EQUITY AND LIABILITIES
Share capital				1,230	1,218	1,218
Share premium				2,925	2,925	2,925
Other reserves				(647)	1,059	(282)
Retained earnings				72,903	64,589	78,057
Equity attributable to owners of the company				76,411	69,791	81,918
Non-controlling interest				-	3,888	-
Total equity				76,411	73,679	81,918
Non-current liabilities
Provisions for liabilities and charges		9		1,486	2,740	1,354
				1,486	2,740	1,354
Current liabilities
Provisions for liabilities and charges		9		4,130	1,491	4,237
Trade and other payables				92,519	63,309	86,150
Current tax liabilities				1,674	1,157	3,772
				98,323	65,957	94,159
Total liabilities				99,809	68,697	95,513
Total equity and liabilities				176,220	142,376	177,431

Consolidated statement of changes in equity - unaudited
for the six months ended 29 May 2011
	Attributable to owners of the company
	Share capital	Share premium	Capital redemption reserve	Capital reserve	Treasury shares	Currency translation reserve	Retained earnings	Total	Non-controlling interest	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Audited balance at 29 November 2009	1,218	2,925	168	878	-	2,416	72,562	80,167	4,650	84,817
Profit for the six months to 30 May 2010	-	-	-	-	-	-	4,783	4,783	67	4,850
Other comprehensive income	-	-	-	-	-	(2,403)	471	(1,932)	141	(1,791)
Total comprehensive income for the period	-	-	-	-	-	(2,403)	5,254	2,851	208	3,059
Employee share awards	-	-	-	-	-	-	933	933	-	933
Dividends paid to equity holders	-	-	-	-	-	-	(14,160)	(14,160)	-	(14,160)
Dividends paid to non-controlling interest	-	-	-	-	-	-	-	-	(970)	(970)
	-	-	-	-	-	-	(13,227)	(13,227)	(970)	(14,197)
Unaudited balance at 30 May 2010	1,218	2,925	168	878	-	13	64,589	69,791	3,888	73,679
Profit for the six months to 28 November 2010	-	-	-	-	-	-	9,433	9,433	-	9,433
Other comprehensive income	-	-	-	-	-	(1,341)	3,830	2,489	(3,888)	(1,399)
Total comprehensive income for the period	-	-	-	-	-	(1,341)	13,263	11,922	(3,888)	8,034
Employee share awards	-	-	-	-	-	-	414	414	-	414
Dividends paid to equity holders	-	-	-	-	-	-	(209)	(209)	-	(209)
	-	-	-	-	-	-	205	205	-	205
Audited balance at 28 November 2010	1,218	2,925	168	878	-	(1,328)	78,057	81,918	-	81,918
Profit for the six months to 29 May 2011	-	-	-	-	-	-	7,431	7,431	-	7,431
Other comprehensive income	-	-	-	-	-	375	932	1,307	-	1,307
Total comprehensive income for the period	-	-	-	-	-	375	8,363	8,738	-	8,738
Purchase of own shares	-	-	-	-	(740)	-	-	(740)	-	(740)
Employee share awards	-	-	-	-	-	-	1,140	1,140	-	1,140
Non-controlling interest repurchase	-	-	-	-	-	-	(29)	(29)	-	(29)
Issue of share capital	12	-	-	-	-	-	-	12	-	12
Dividends paid to equity holders	-	-	-	-	-	-	(4,797)	(4,797)	-	(4,797)
Dividends payable to equity holders	-	-	-	-	-	-	(9,831)	(9,831)	-	(9,831)
	12	-	-	-	(740)	-	(13,517)	(14,245)	-	(14,245)
Unaudited balance at 29 May 2011	1,230	2,925	168	878	(740)	(953)	72,903	76,411	-	76,411

Consolidated statement of cash flows - unaudited
for the six months ended 29 May 2011
						Audited
				Six months ended		Year ended
				29 May	30 May	28 November
				2011	2010	2010
		Note		£'000	£'000	£'000
Cash flows from operating activities
Profit before taxation				11,174	7,349	21,649
Depreciation and amortisation charge				3,211	3,004	6,313
Finance income				(203)	(227)	(451)
Finance cost				19	-	18
Loss on disposal of property, plant and equipment				23	-	110
Loss on disposal of intangible assets				-	-	1
Non-cash charge for employee share options				1,140	600	1,656
Operating cash flows before changes in working capital and provisions
				15,364	10,726	29,296
(Increase)/decrease in receivables				(5,060)	7,812	(3,652)
(Decrease)/increase in payables				(4,189)	(13,042)	9,746
Increase/(decrease) in provisions				18	(1,568)	(3,625)
Cash generated from operating activities				6,133	3,928	31,765
Income tax paid				(4,587)	(1,354)	(5,958)
Net cash generated from operating activities				1,546	2,574	25,807
Cash flows from investing activities
Purchase of property, plant and equipment				(1,036)	(1,464)	(2,836)
Purchase of intangible assets				(1,678)	(735)	(2,922)
Proceeds from disposal of  held-to-maturity investments				3,500	-	3,203
Purchase of held-to-maturity investment				-	-	(3,500)
Net cash generated from/(used in) investing activities				786	(2,199)	(6,055)
Cash flows from financing activities
Finance income				203	227	451
Finance cost				(19)	-	(18)
Employee subscription for share awards				10	333	435
Repayment to non-controlling interest				(71)	-	-
Purchase of own shares				(740)	-	-
Issue of share capital of subsidiary companies to non-controlling interest				-	-	34
Dividends paid to equity holders				(4,797)	(14,160)	(14,369)
Dividends paid to non-controlling interest				-	(970)	(970)
Net cash used in financing activities				(5,414)	(14,570)	(14,437)
Net (decrease)/increase in cash and cash equivalents				(3,082)	(14,195)	5,315
Cash and cash equivalents at the beginning of the period				51,718	45,272	45,272
Effect of exchange rate changes				(323)	(2,432)	1,131
Cash and cash equivalents at the end of the period		7		48,313	28,645	51,718

1              Accounting policies                                                                                           

General information                                                                                                          

SThree plc ("the Company") and its subsidiaries (together "the Group") operate predominantly in the United Kingdom and Continental Europe.  The Group consists of different brands and provides both permanent and contract specialist staffing services, primarily in the ICT sector and, to an increasing extent, the banking and finance, accountancy, human resources, engineering, pharmaceutical, energy and resources and jobboard sectors.                                                                                                          

The Company is a public limited liability 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.                                                                                                                                                                                                                            

This consolidated interim financial information was approved for issue on 15 July 2011.                                                                                                                                                                                                                   

This consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 28 November 2010 were approved by the Board of directors on 28 January 2011 and delivered to the Registrar of Companies.  The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.                                                                                                    

This consolidated interim financial information has been reviewed, not audited.                                                                                                  

Basis of preparation                                                                                                          

This consolidated interim financial information for the six months ended 29 May 2011 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 should be read in conjunction with the annual financial statements for the year ended 28 November 2010, which have been prepared in accordance with IFRSs as adopted by the European Union.                                                                                             

Restatement

Included in Other comprehensive income for the periods ended 30 May 2010 and 28 November 2010 were £933,000 and £1,347,000 respectively relating to employee share awards.  These represent transactions with owners and should be reflected directly in equity.  Therefore, these amounts have been removed from the consolidated statement of comprehensive income for the periods affected.

As a result of this change Other comprehensive income for the periods ended 30 May 2010 and 28 November 2010 has been restated to (£1,791,000) and (£3,190,000) respectively compared to (£858,000) and (£1,843,000) previously reported.

This restatement has not affected any other previously reported financial information.

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 28 November 2010, 47% of revenues accumulated in the first half of the year, with 53% accumulating in the second half.

Significant accounting policies                                                                                                        

The same accounting policies, presentation and methods of computation are followed in these consolidated interim financial statements as were applied in the preparation of the Group's consolidated financial statements for the year ended 28 November 2010 except for the change in accounting policy regarding presentation.

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 separately the entity's profit for the period.                                                                                                 

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

There were no new International Financial Reporting Standards or interpretations that had to be implemented during the period that affect these consolidated interim financial statements.                                                                                                             

As at the date of authorisation of these financial statements, the following standards and interpretations were in issue but not yet effective. The Group has not applied these standards and interpretations in the preparation of financial statements.                                                

-       The revised Standard IAS 24 'Related Parties Disclosure' is effective from periods commencing on or after 1 January 2011. The standard revises the definition of a related party and clarifies that disclosure is required of any commitments of a related party to do something if a particular event occurs or does not occur in the future, including executory contracts (recognised and unrecognised).           

-       IFRS 9 'Financial Instruments' will establish principles for the financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of the entity's future cash flows. The standard is applicable for periods commencing on or after 1 January 2013.       

The impact on the Group's financial statements of the future adoption of these standards and interpretations is still under review, but the Group does not expect any of these changes to have a material effect on the results or net assets of the Group.    

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 made up of the Chief Executive Officer, the Chief Financial Officer, the Chief Development Officer, the Chief Information Officer, the Director of Strategic Planning, the 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'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 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 comprise revenue and cost of sales.                                                                                                

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

							United Kingdom
														Audited
							Six months ended							Year ended
							29 May			30 May				28 November
							2011			2010				2010
							£'000			£'000				£'000
Revenue from external customers							113,973			106,144				224,337
Gross Profit							32,880			30,235				66,820
Total Assets							107,019			103,439				118,099
Total Liabilities							61,970			50,355				62,496
Capital expenditure							2,342			1,180				4,751
							Continental Europe
														Audited
							Six months ended							Year ended
							29 May			30 May				28 November
							2011			2010				2010
							£'000			£'000				£'000
Revenue from external customers							124,712			105,758				226,694
Gross Profit							46,223			36,753				82,213
Total Assets							53,509			27,752				46,115
Total Liabilities							34,807			16,211				31,397
Capital expenditure							261			248				611
							Rest of the World
														Audited
							Six months ended							Year ended
							29 May			30 May				28 November
							2011			2010				2010
							£'000			£'000				£'000
Revenue from external customers							16,169			9,774				23,420
Gross Profit							10,901			7,329				17,335
Total Assets							15,692			11,185				13,217
Total Liabilities							3,032			2,131				1,620
Capital expenditure							111			771				396
							Group
														Audited
							Six months ended							Year ended
							29 May			30 May				28 November
							2011			2010				2010
							£'000			£'000				£'000
Revenue from external customers							254,854			221,676				474,451
Gross Profit							90,004			74,317				166,368
Total Assets							176,220			142,376				177,431
Total Liabilities							99,809			68,697				95,513
Capital expenditure							2,714			2,199				5,758
The following segmental analyses by brand, recruitment classification and discipline (being profession of candidates placed) have been included as additional disclosure over and above the requirements of IFRS 8 'Operating Segments'
						Revenue							Gross Profit
									Audited						Audited
						Six months ended			Year ended				Six months ended		Year ended
						29 May		30 May	28 November				29 May	30 May	28 November
						2011		2010	2010				2011	2010	2010
						£'000		£'000	£'000				£'000	£'000	£'000
Brand
Progressive						72,581		60,796	133,780				24,917	19,953	45,416
Computer Futures Solutions						61,189		59,877	111,875				20,934	19,869	37,745
Huxley Associates						71,271		57,920	125,843				25,874	20,302	44,892
Real Staffing Group						47,065		41,456	98,938				15,531	12,565	34,300
Others						2,748		1,627	4,015				2,748	1,628	4,015
						254,854		221,676	474,451				90,004	74,317	166,368
Recruitment classification
Contract						209,760		187,447	392,803				44,944	40,089	84,954
Permanent						45,094		34,229	81,648				45,060	34,228	81,414
						254,854		221,676	474,451				90,004	74,317	166,368
Discipline
Information & communication technology						174,877		166,880	341,484				54,085	48,707	102,610
Other(1)						79,977		54,796	132,967				35,919	25,610	63,758
						254,854		221,676	474,451				90,004	74,317	166,368
(1) Including banking and finance, accountancy, human resources, engineering, pharmaceutical, energy and resources and jobboard sectors.
3	Taxation
The charge for taxation on profits amounted to £3.7m (2010: £2.5m), an effective rate of 33% (2010: 34%).

4	Dividends
							Audited
					Six months ended		Year ended
					29 May	30 May	28 November
					2011	2010	2010
					£'000	£'000	£'000
Amounts recognised and distributed to shareholders in the period
Equity
Final dividend of 8.0p per share					9,831	-	-
Second interim dividend of 8.0p per share					-	9,575	9,587
Interim dividend of 4.0p per share					4,797	4,585	4,782
					14,628	14,160	14,369
During the period, a final dividend of 8.0p per share (2009:nil) was proposed for the year ended 28 November 2010, payable on 6 June 2011.
For the period ended 30 May 2010, in respect of the year ended 29 November 2009, a second interim dividend of 8.0p per share was paid instead of a final dividend.
An interim dividend for the six months ended 29 May 2011 of 4.7p per share, as well as a special dividend of 11p per share, will be paid on 2 December 2011 to shareholders on the register at the close of business on 4 November 2011 (2010: 4.0p for the six months ended 30 May 2010).

5	Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to shareholders by the weighted average number of shares in issue during the period, excluding those held in the Employee Benefit Trust 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.
								Audited
						Six months ended		Year ended
						29 May	30 May	28 November
						2011	2010	2010
						£'000	£'000	£'000
Earnings
Profit after taxation						7,431	4,850	14,283
Non-controlling interest						-	(67)	(67)
Profit after taxation attributable to equity holders of the Company						7,431	4,783	14,216
						millions	millions	millions
Number of shares
Weighted average number of shares used for basic EPS						120.5	119.8	119.9
Dilutive effect of share plans						2.8	2.7	3.9
Diluted weighted average number of shares used for diluted EPS						123.3	122.5	123.8
						pence	pence	pence
Basic
Basic earnings per share						6.2	4.0	11.9
Diluted
Diluted earnings per share						6.0	3.9	11.5

6	Trade and other receivables
														Audited
												Six months ended		Year ended
												29 May	30 May	28 November
												2011	2010	2010
												£'000	£'000	£'000
Current
Trade receivables												65,420	55,410	64,862
Less provision for impairment of trade receivables												(1,728)	(1,901)	(1,767)
Net trade receivables												63,692	53,509	63,095
Other receivables												5,328	4,407	3,806
Prepayments and accrued income												34,883	28,332	31,034
												103,903	86,248	97,935
Trade receivables do not carry interest. The Group makes judgements on an entity by entity basis as to its ability to collect outstanding receivables and provides an allowance for doubtful accounts based on a specific review of significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing percentages based on the age of the receivable. In determining these percentages, the Group analyses its historical collection experience and current economic trends. Trade receivable balances are written off when the Group determines that it is unlikely that future remittances will be received. Management considers the carrying values of trade and other receivables are equal to the fair value and are deemed to be current assets.
Trade receivables and cash and cash equivalents are deemed to be all current loan and receivables for disclosure under IFRS 7 'Financial Instruments' - Disclosures.
														Audited
												Six months ended		Year ended
												29 May	30 May	28 November
												2011	2010	2010
												£'000	£'000	£'000
The following table shows the development of allowances on receivables:
Allowances at start of financial period												1,767	2,473	2,473
Charge for the period												563	389	686
Amounts utilised during the period												(326)	(641)	(917)
Amounts released during the period												(276)	(320)	(475)
Allowances at end of financial period												1,728	1,901	1,767

7	Cash and cash equivalents
							Audited
					Six months ended		Year ended
					29 May	30 May	28 November
					2011	2010	2010
					£'000	£'000	£'000
Cash and cash equivalents include the following for the purposes of the cash flow statement:
Cash in hand and at bank					48,313	28,645	51,718
					48,313	28,645	51,718
8	Assets classified as held-to-maturity
							Audited
					Six months ended		Year ended
					29 May	30 May	28 November
					2011	2010	2010
					£'000	£'000	£'000
Fixed rate Euro Bond/Sterling Deposit					-	2,974	3,500
At 28 November 2010 the Group had invested in a fixed rate Sterling deposit which matured on 23 May 2011. The interest rate on this security was 1.16% per annum. The Group has not reinvested in a fixed rate bond at 29 May 2011.

9	Provisions for liabilities and charges
				Corporate and
				divisional
				Restructuring	Property	Other	Total
				£'000	£'000	£'000	£'000
At 29 November 2009 (Audited)				2,076	1,604	2,272	5,952
Charged/(released) to the income statement				-	184	(289)	(105)
Utilised during the period				(1,565)	(51)	-	(1,616)
Transfer				(511)	511	-	-
At 30 May 2010 (Unaudited)				-	2,248	1,983	4,231
Released to the income statement				-	(435)	(1,538)	(1,973)
Utilised during the period				-	(49)	-	(49)
Tracker share consideration				-	-	3,382	3,382
At 28 November 2010 (Audited)				-	1,764	3,827	5,591
Charged to the income statement				-	105	-	105
Utilised during the period				-	-	(80)	(80)
At 29 May 2011 (Unaudited)				-	1,869	3,747	5,616
					Six months ended		Year ended
					29 May	30 May	28 November
					2011	2010	2010
Current / non-current analysis:					£'000	£'000	£'000
Current liabilities					4,130	1,491	4,237
Non-current liabilities					1,486	2,740	1,354
					5,616	4,231	5,591
Property
Dilapidations - The Group is obliged to pay for dilapidations at the end of its tenancy of various properties.  Provision has been made based on independent professional estimates of the likely costs based on current conditions and these have been spread over the relevant lease term. The liability will crystallise as follows: within one year £0.4m (2010: £0.9m), one to five years £1.1m (2010: £0.7m) and after five years £0.4m (2010: £0.6m).
Other
Other remaining provisions relate to the obligation to repay amounts received or receivable in relation to the subscription of tracker shares offered to employees under the terms of the tracker share arrangements and ongoing legal matters.
10	Related party disclosures
The Group's significant related parties are as disclosed in the SThree plc Annual Report for the year ended 28 November 2010. There were no material differences in related parties or related party transactions in the period compared to the prior period.
11	Contingent liabilities
The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business. They are not anticipated to result in a material cash outflow for the Group.

 

END

 

 

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