Interim Results

RNS Number : 5172P

SThree plc

19 July 2010

SThree plc

("SThree" or the "Group")

Interim results for the six months ended 30 May 2010

SThree, the international specialist staffing business, is today announcing its interim results for the six months ended 30 May 2010.

Financial Highlights - six months ended (unaudited)	30 May 2010	31 May 2009	% change
Revenue	£221.7m	£280.6m	-21.0%
Gross profit	£74.3m	£93.3m	-20.3%
Operating profit before exceptional items	£7.1m	£11.0m	-35.3%
Profit before taxation before exceptional items	£7.3m	£11.2m	-34.8%
Profit before taxation after exceptional items *	£7.3m	£2.7m	+170.3%

Basic earnings per share before exceptional items	4.0p	6.3p	-36.5%
Basic earnings per share after exceptional items *	4.0p	1.1p	+263.6%
Interim dividend	4.0p	4.0p

* Exceptional items relate to a charge for corporate restructuring announced on 15 April 2009 of £8.5m.

Operational Highlights

· Year on year comparatives distorted by the average consultant headcount in H1 2010 of 1,057 being 24% lower than the H1 2009 average of 1,387, reflecting the impact of the 32% rightsizing of staff numbers initiated in Q2 2009

· Satisfactory first half performance in a sequentially improving, but not yet fully recovered, market. Gross Profit down 20.3% year on year to £74.3m (2009: £93.3m). Like for like i.e. at constant currency ("LFL") Gross Profit down 19.4%

· Sequentially Q2 2010 Gross Profit up 7.8% versus Q1 2010, with Permanent up 12.0% and Contract up 4.4%

· Permanent placements down by 13.9% to 2,842 (2009: 3,302) - average permanent placement fee up 2.0% LFL to £12,071 (2009: £11,838)

· Number of active contractors at period end reduced by 12.1% year on year to 3,952 (2009: 4,494) - average gross profit per day rates decreased by 4.3% LFL to £83.91 (2009: £87.67). Average contract margin achieved 21.4% (2009: 22.5%)

· Contract versus Permanent mix of Gross Profit now 54:46 in favour of Contract (Full year 2009: 58:42)

· Non-UK Gross Profit for the period represented 60% of the Group total (Full year 2009: 55%)

· Rest of World (excluding UK and Europe) grew Gross Profit to 10% of mix (2009: 3%), up 136% year on year

· Non-ICT business segments grew by 9.7% LFL, now representing 34% of total Gross Profit (Full year 2009: 28%)

· Total headcount up 11.3% versus year end 2009 position, as the Group selectively reinvests in the business

· New offices opened in Düsseldorf, Munich, Delhi and Perth; San Francisco and Qatar offices to open in H2 2010

· Net cash position strong at £31.6m (2009: £43.9m) after payment of a second interim dividend of 8.0p per share (circa £10m) in March 2010 in place of the final dividend for the 2009 full year. The 2008 final dividend of 8.0p per share was paid in June 2009 after the half year end

· Interim dividend maintained at 4.0p (2009: 4.0p)

· Strong start to second half with June GP up 14.9% year on year driven by significant increase in Permanent

Russell Clements, CEO, commented:

"We are satisfied with a very creditable first half performance achieved in a market which, although much improved on the same period last year, is still some way from being fully recovered. Our year on year comparatives remain challenging given our average consultant headcount during H1 is still some way down on the same period last year. However, the fact that our current consultant headcount is 11% up on the end of 2009 reflects both the sequential improvements seen in recent months, which have allowed us to begin to rebuild established teams, as well as the staffing of our new international offices and teams addressing new market segments.

Having a strong sense of where the market is heading remains difficult, but on the basis of the currently available data we remain cautiously optimistic. That said, we are a debt-free, cash rich business with a long track record of consistent profitability and a highly experienced management team who are capable of dealing with whatever market conditions are presented to them. We are also a more diversified business by geography and by sector than at any time in our twenty four year history, increasingly exposed to markets with strong structural growth characteristics. This positions us extremely well both for the short and the longer term".

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

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

Conference call participant Telephone Numbers:

UK: 0845 634 0041

International: + 44 20 8817 9301

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

http://www.thomson-webcast.net/uk/dispatching/?event_id=9afbdb503799ba47e91b7fff4ef5e01e&portal_id=a98192164841f4a39f400936a24cde9c

Please 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 Q3 Interim Management Statement on Friday 10 September 2010.

Enquiries:

SThree plc	020 7268 6000
Russell Clements, Chief Executive Officer
Alex Smith, Chief Financial Officer
Sarah Anderson, Deputy Company Secretary/IR queries

Citigate Dewe Rogerson	020 7638 9571
Kevin Smith / Nicola Smith

Notes to editors

SThree, founded in 1986, is one of the leading international specialist staffing businesses, providing permanent and contract specialist staff to a diverse client base of well over 7,000 clients. From its well-established position as a major player in the information and communications technology ("ICT") sector the Group has further broadened the base of its operations by building fast-growing businesses serving the accountancy & finance, banking, engineering, oil & gas, pharmaceuticals, human resources, energy, legal and job board sectors.

Following the establishment of its first business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree operates through a number of brands, being Computer Futures, Huxley Associates, Progressive and The Real Staffing Group. It has circa 1,800 employees in twelve countries.

SThree has a selective approach to clients and focuses on high margin opportunities, predominantly within the small to medium-sized enterprises ("SME") market. From its inception the Group has avoided the high volume/low margin business model in favour of a focus on high quality business.

SThree plc 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")

Interim results for the six months ended 30 May 2010

Operating Review

Introduction

In H1 2010 the Group operated in a market which although in overall terms was much improved on the same period last year, was still some way from being fully recovered. Although some markets have staged a robust recovery, others are still subdued by normal standards. As such, H1 saw a satisfactory performance from the Group, with Gross Profit ("GP") reducing by 20.3% to £74.3m (2009: £93.3m).

Before going into a detailed analysis of the results it is important to recall that the Group undertook a substantial headcount reduction in the second quarter of the previous financial year. Headline Group headcount at the period end was up 7.9% on the previous year to 1,777 (2009: 1,647) but this does not however reflect the fact that average consultant headcount in H1 2010 was lower than H1 2009 by 330 heads or 24%. This was due to the fact that the rightsizing was undertaken during the second quarter of 2009 and total Group headcount at the start of the 2009 financial year was 2,274.

Moreover, the more distressed markets in H1 2009 saw the greatest headcount reductions and hence were likely in H1 2010 to have the largest negative variance in average consultant headcount. For example, UK average consultant headcount in H1 2010 was 38% down on the equivalent period in 2009, whereas UK GP in the same period was down by 29% to £30.2m (2009: £42.6m). This clearly indicates a marked year on year improvement in UK consultant yields albeit in comparison with those achieved at the market's nadir and still substantially down on normal market levels.

If we consider the performance in the half year sequentially, rather than year on year, then the improvement in trading is clearer. Group Gross Profit was up 7.9% Q2 2010 versus Q1 2010, with Permanent GP up 12.0% and Contract GP up 4.4% in this period.

Overview & Business Mix

H1 2010 saw a further internationalisation of the Group. Overall GP derived outside of the UK now stands at 60% (H1 2009: 54%; FY 2009: 55%). It was particularly pleasing to see that the percentage of Group GP derived from "Rest of World" ("ROW" i.e. excluding Europe and UK) more than doubled on the same period of 2009. ROW GP was £7.3m, representing 10% of Group GP and an absolute improvement of 136% year on year (2009: £3.1m). Although these are currently relatively small businesses we believe they have great future growth potential and are now well positioned to begin to make an increasingly significant contribution to the Group.

In parallel the Group's segmental diversification increased with overall Group GP derived from non-ICT sectors up by 8% to £25.6m (2009: £23.6m). As a result of the remixing of the business in geographical and segmental terms, the Group derives 25% of its GP from the UK ICT market (H1 2009: 33%; FY 2009: 31%). The Group's exposure to Public Sector clients reduced substantially over the period and now represents 7% of total transactions, down from 12% in the full year 2009. Although this reflects some absolute decrease in demand in this segment, it also reflects the Group's agility and ability to re-focus its resources.

During the period 54% of Group GP was attributable to Contract compared to 58% during the same period in 2009. This realignment would be expected as markets improve, but was also exacerbated by the geographical remixing of the business away from the UK, which is more exposed to contract, with the latter representing 65% of UK GP during H1 2010. The headline number of Group contractors reduced by 12.1% to 3,952 (2009: 4,494). In terms of the Group's expected seasonal decline in contract numbers from the end of the previous financial year, this was within the normal range at 4.9% (29 November 2009: 4,157). In H1 the Group made 2,842 permanent placements, a reduction of 13.9% (2009: 3,302).

Breakdown of GP	Six months ended 30 May 2010 %	Year ended 29 Nov 2009 %	Six months ended 31 May 2009 %
Contract	54	58	58
Permanent	46	42	42
Total	100	100	100
Continental Europe	50	49	51
Rest of World	10	6	3
UK	40	45	46
Total	100	100	100
Non ICT	34	28	25
ICT	66	72	75
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. The success of this strategy is reflected in the fact that our businesses outside of the UK ICT sector represented 75% of Group GP in H1 2010 (H1 2009: 67%; H1 2008: 55%). In order to further support the Group's 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.

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. 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). The Group instead prefers to engage with less price-focused clients who value its services.

As a result our customer base is wide and varied, with a high percentage of SMEs. 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 2010 66% of the candidates we placed were ICT professionals, only approximately 19% of our transactions are with customers in the ICT sector.

This strategy is supported by our multi-brand approach which allows the Group to segment 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 Minority Interest 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.

Margins & Value

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 stayed stable year on year at 33.6% (H1 2009: 33.5%) supported by a shift in the business towards permanent and a 2.0% like for like improvement in the average permanent fee to a record £12,071 (2009: £11,838). Moving in the other direction the Group saw a modest decline in the average contract margin to 21.4% (2009: 22.5%) and a reduction in the average Gross Profit per Day Rate (GPDR) of 4.3% to £83.91 (2009: £87.67). Here it should be remembered that the Group's contract margins and values have been consistently strong by comparison with its peer group and hence comparatives are challenging. It is likely that a number of factors rather than any single variable are at work. Suffice it to say that the data is not suggestive of any structural decline and we do not believe this is a major long term issue.

Performance by Geography

UK Gross Profit at £30.2m was down 29% year on year (2009: £42.6m) reflecting the reduction in the average number of consultants which was down 38% year on year. Permanent placements were down 16.2% and period end contractors were down 21.8% year on year. In terms of value, Permanent fees and GP day rates eased by 1.8% and 4.7% respectively. The latter was affected by the decline in demand for public sector contractors which were typically at higher margins than the UK average.

Mainland Europe Gross Profit of £36.8m was down by 23% year on year (2009: £47.6m). Market conditions in Benelux (and in particular Holland) remained challenging and this is reflected in a 34% year on year reduction in Gross Profit. That said, like the UK, the Benelux region was also impacted by a reduction in the average number of consultants compared to H1 2009, which were down 28% year on year. France performed better in the period than Benelux, with GP down 14% on the same period last year and the average number of consultants down 17% year on year.

The much less developed German market was broadly level in GP terms despite comparison with a relatively strong H1 2009 during which the Group's German business performed very resiliently. Germany's H1 2010 performance is also a reflection of the headcount investment in what we consider to be a market capable of exceptional medium term growth. As such, the average number of consultants increased by 27% year on year, with consultants hired during H1 2010 having limited opportunity to contribute in the period. As these new hires gain experience we expect them to contribute meaningfully in H2 and beyond.

ROW Gross Profit was up 136% year on year, with strong performances in Hong Kong and New York driven by our exposure to the banking sector. New York's average permanent fees in the period improved by 9.1% to £21,537 (H1 2009: £19,741) which compares to a Group average of £12,071 and demonstrates that good quality business can be done in even a highly mature market if the market proposition is compelling.

Our developing Oil and Gas franchise helped drive strong performances in Singapore and Perth. The latter office is pioneering the Group's move into the mining sector - a market with substantial potential to be rolled out in other geographies.

Geographical & Sector Expansion

Of the Group's total of fifty one offices, twenty nine are outside the UK with twenty one in Europe and eight in the ROW. In H1 the Group continued its roll out of international offices, opening in Perth, its second Australian office, which will focus on the Oil and Gas and Mining markets. We also added to our German office network with further openings in Munich and Düsseldorf, making a total of eleven offices in Germany. The Group also opened its first Indian office in Delhi, focusing on the financial market place.

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 performance in H1 2010 by ROW 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 and Banking franchises are therefore particularly exciting. The Group recently opened an office in San Francisco and will open in Qatar in H2 2010. In addition, the Group is currently considering a number of further international office openings due to be rolled out during 2011/12.

Staffing Levels

At the end of the half-year total headcount for the Group was 1,777, an overall increase of 11.3% on the previous year end (2009 year end: 1,597). At the half year versus the year end 2009 position, UK sales headcount was up 3.4%, Continental Europe headcount was up 14.0% and ROW was up 39.6%. The Group continues to hire sales consultants into extant teams where there is objective 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. These hires typically take around six to nine months to become productive. The investment in headcount in 2010 is likely to accentuate the Group's normal H2 seasonal profit weighting.

Cash Flow

At the start of the period the Group had cash of £45.3m. During the period the Group generated cash from operating activities of £4.3m (2009: cash inflow of £37.3m) being £11.1m of operating cashflow before changes in working capital and provisions (2009: £6.5m) and an increase in working capital requirements and provisions of £6.8m (2009: reduction in working capital of £30.8m). Dividends paid in the period increased by £10.4m as a result of the payment of a second interim dividend of 8.0p per share in March 2010 (2009: nil) in place of the final dividend which is usually paid in June, and dividends to minority interest shareholders of £1.0m (2009: nil). At 30 May 2010 the Group had net cash of £28.6m and assets held to maturity of £3.0m.

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 before exceptional items amounted to £2.5m (2009: £3.5m), an effective rate of 34% (2009: 31.4%), reflecting the remixing of the business towards higher tax geographies.

Earnings per Share

Basic earnings per share before exceptional items reduced by 36.5% to 4.0p (2009: 6.3p). After taking account of the 2009 exceptional item, earnings per share increased by 263.6% to 4.0p (2009: 1.1p). Diluted earnings per share after the exceptional item increased by 254.5% to 3.9p (2009: 1.1p).

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. 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 60% of Gross Profit in 2010 (2009: 54%). The Group therefore continues to monitor its policies in this area.

Other principal risks and uncertainties affecting the business activities of the Group may broadly be categorised by: the macro-economic environment; competitive environment; commercial relationships/ customer credit risk; availability of candidates; contractual risk; people; information technology; regulatory environment and legislative changes; and foreign exchange. More details are set out in the Directors' Report section of the Annual Report for the year ended 29 November 2009, 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 pay dividends at a level that it believes is sustainable throughout the economic cycle. The Board proposes to pay a maintained interim dividend of 4.0p (2009: 4.0p) per share, which will be paid on 3 December 2010 to those shareholders on the register at 5 November 2010.

Outlook

Compared to the extremely distressed market witnessed in H1 2009, the Group operated in far more benign conditions during H1 2010. Sequential improvements during the period gave the Group confidence to begin to rebuild established teams on an evidence-led and market driven basis. In addition we invested in the staffing of our new international offices and teams addressing new market segments. This means that the Group is increasingly exposed to markets with strong structural growth characteristics.

Currently, having a strong sense of where the market is heading remains difficult. On the basis of the available data and based on our most recent performance, assuming confidence remains positive, we remain cautiously optimistic.

That said, we are a debt-free, cash rich business with a long track record of consistent profitability and a highly experienced management team who are capable of dealing with whatever market conditions are presented to them. We are also a more diversified business by geography and by sector than at any time in our twenty four year history, which positions us extremely well both for the short and the longer term.

Consolidated Statement of Comprehensive Income - unaudited

for the six months ended 30 May 2010

				Audited
		Six months ended		Year ended
		30 May	31 May	29 November
		2010	2009	2009
	Note	£'000	£'000	£'000
Continuing operations
Revenue	2	221,676	280,578	519,372
Cost of sales		(147,359)	(187,283)	(348,217)
Gross profit	2	74,317	93,295	171,155
Administrative expenses		(67,195)	(90,772)	(162,209)
Operating profit		7,122	2,523	8,946
Finance income		227	284	359
Finance cost		-	(96)	(378)
Profit before income tax		7,349	2,711	8,927
Analysed as:
Underlying profit before exceptional items		7,349	11,175	17,977
One-off exceptional items	3	-	(8,464)	(9,050)
		7,349	2,711	8,927
Income tax	4	(2,499)	(1,081)	(2,965)
Profit for the period		4,850	1,630	5,962
Other comprehensive income
Exchange differences on retranslation of foreign operations		(2,262)	1,663	243
Deferred tax on employee share options		183	254	620
Current tax on employee share options		288	-	1,042
Employee share award and share option credit		600	600	1,448
Employee subscription for share awards		333	-	182
Other comprehensive income for the period (net of tax)		(858)	2,517	3,535
Total comprehensive income for the period		3,992	4,147	9,497
Profit for the period attributable to:
Owners of the parent		4,783	1,287	4,798
Minority interest		67	343	1,164
		4,850	1,630	5,962
Total comprehensive income attributable to:
Owners of the parent		3,784	4,063	9,339
Minority interest		208	84	158
		3,992	4,147	9,497

Earnings per share	6	pence	pence	pence

Basic before exceptional items		4.0	6.3	9.5
Diluted before exceptional items		3.9	6.1	9.2

Basic after exceptional items		4.0	1.1	4.0
Diluted after exceptional items		3.9	1.1	3.9

An interim dividend of 4.0 pence (31 May 2009: 4.0 pence) per ordinary share will be paid on 3 December 2010 to shareholders on the register at the close of business on 5 November 2010.

Consolidated Statement of Financial Position - unaudited

as at 31 May 2010

				Audited
		Six months ended		Year ended
		30 May	31 May	29 November
		2010	2009	2009
	Note	£'000	£'000	£'000

ASSETS
Non-current assets
Property, plant and equipment		5,540	6,558	5,398
Intangible assets		10,023	11,479	10,899
Deferred tax assets		8,946	5,640	5,515
		24,509	23,677	21,812

Current assets
Trade and other receivables	7	85,141	101,816	93,229
Current tax assets		-	-	3,309
Cash and cash equivalents	8	28,645	43,943	45,272
Assets classified as held-to-maturity	9	2,974	-	3,203
		116,760	145,759	145,013

Total assets		141,269	169,436	166,825

EQUITY AND LIABILITIES
Share capital		1,218	1,218	1,218
Share premium		2,925	2,925	2,925
Capital redemption reserve		168	168	168
Capital reserve		878	878	878
Currency translation reserve		13	3,910	2,416
Retained earnings		64,589	66,613	72,562
Equity attributable to owners of the company		69,791	75,712	80,167

Minority interest		3,888	4,366	4,650

Total equity		73,679	80,078	84,817

Non-current liabilities
Provisions for liabilities and charges	10	2,740	3,458	2,889
		2,740	3,458	2,889

Current liabilities
Provisions for liabilities and charges	10	1,491	4,011	3,063
Trade and other payables		62,202	78,923	76,056
Current tax liabilities		1,157	2,966	-
		64,850	85,900	79,119

Total liabilities		67,590	89,358	82,008

Total equity and liabilities		141,269	169,436	166,825

Consolidated Statement of Changes in Equity - unaudited

for the six months ended 30 May 2010

	Attributable to owners of the company
	Share capital	Share premium	Capital redemption reserve	Capital reserve	Currency translation reserve	Retained earnings	Total	Minority interest	Total equity


	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Audited
Balance at 30 November 2008	1,218	2,925	168	878	2,331	78,906	86,426	4,147	90,573
Profit for the six months to 31 May 2009	-	-	-	-	-	1,287	1,287	343	1,630
Other comprehensive income					1,579	854	2,433	84	2,517
Total comprehensive income for the period	-	-	-	-	1,579	2,141	3,720	427	4,147
Issue of share capital to minority interest	-	-	-	-	-	-	-	103	103
Repurchase of minority interest	-	-	-	-	-	-	-	(311)	(311)
Dividends to equity holders	-	-	-	-	-	(14,434)	(14,434)	-	(14,434)
	-	-	-	-	-	(14,434)	(14,434)	(208)	(14,642)
Unaudited
Balance at 31 May 2009	1,218	2,925	168	878	3,910	66,613	75,712	4,366	80,078

Profit for the six months to 29 November 2009	-	-	-	-	-	3,511	3,511	821	4,332
Other comprehensive income					(1,494)	2,438	944	74	1,018
Total comprehensive income for the period	-	-	-	-	(1,494)	5,949	4,455	895	5,350
Issue of share capital to minority interest	-	-	-	-	-	-	-	57	57
Repurchase of minority interest	-	-	-	-	-	-	-	(587)	(587)
Dividends to minority interest	-	-	-	-	-	-	-	(81)	(81)
	-	-	-	-	-	-	-	(611)	(611)
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)	1,404	(999)	141	(858)
Total comprehensive income for the period	-	-	-	-	(2,403)	6,187	3,784	208	3,992
Dividends to equity holders	-	-	-	-	-	(14,160)	(14,160)	-	(14,160)
Dividends to minority interest	-	-	-	-	-	-	-	(970)	(970)
	-	-	-	-	-	(14,160)	(14,160)	(970)	(15,130)
Unaudited
Balance at 30 May 2010	1,218	2,925	168	878	13	64,589	69,791	3,888	73,679

Consolidated Statement of cash flow - unaudited

for the six months ended 30 May 2010

				Audited
		Six months ended		Year ended
		30 May	31 May	29 November
		2010	2009	2009
	Note	£'000	£'000	£'000

Cash flows from operating activities
Profit before taxation		7,349	2,711	8,927
Depreciation and amortisation charge		3,004	3,038	6,128
Goodwill recognised in the statement of comprehensive income		-	-	(237)
Loss on disposal of investments		-	-	478
Finance income		(227)	(284)	(359)
Finance costs		-	96	378
Loss on disposal of property, plant and equipment		-	309	1,107
Loss on disposal of intangible assets		-	-	355
Non-cash charge for employee share options and awards		600	600	1,448
Employee subscription for share awards		333	-	182

Operating cash flows before changes in working capital and provisions
		11,059	6,470	18,407
Decrease in receivables		6,705	41,018	50,952
(Decrease) in payables		(11,935)	(13,763)	(7,704)
(Decrease)/increase in provisions		(1,568)	3,583	2,011

Cash generated from operating activities		4,261	37,308	63,666
Income tax paid		(1,354)	(11,735)	(18,267)
Net cash generated from operating activities		2,907	25,573	45,399

Cash flows from investing activities
Purchase of property, plant and equipment		(1,464)	(1,552)	(2,726)
Purchase of intangible assets		(735)	(926)	(2,128)
Purchase of held-to-maturity investment		-	-	(3,203)
Proceeds from disposal of investments		-	-	40
Net cash used in investing activities		(2,199)	(2,478)	(8,017)

Cash flows from financing activities
Finance income		227	284	359
Finance costs		-	(96)	(378)
Issue of share capital of subsidiary companies to minority interest		-	103	10
Repurchase of minority interest		-	(311)	(1,371)
Dividends paid to equity holders		(14,160)	(4,738)	(14,434)
Dividends paid to minority interest		(970)	-	(81)
Net cash used in financing activities		(14,903)	(4,758)	(15,895)
Net (decrease)/increase in cash and cash equivalents		(14,195)	18,337	21,487
Cash and cash equivalents at the beginning of the period		45,272	24,584	24,584
Effect of exchange rate changes		(2,432)	1,022	(799)
Cash and cash equivalents at the end of the period	8	28,645	43,943	45,272

Notes to the Financial Statements - unaudited

for the six months ended 30 May 2010

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 and jobboard sectors.

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

This consolidated interim financial information was approved for issue on 16 July 2010.

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 29 November 2009 were approved by the Board of directors on 29 January 2010 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 30 May 2010 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 29 November 2009, which have been prepared in accordance with IFRSs as adopted by the European Union.

Significant accounting policies

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 29 November 2009, as described in those annual financial statements.

The Group has adopted the following IFRS, IFRIC and amendments with effect from 30 November 2009. Apart from presentational changes and revised disclosures, they did not have a material effect on the results or net assets of the Group:

- Amendments to IAS 1 'Presentation of Financial Statements' (effective from periods commencing on or after 1 January 2009). The revised standard affects the presentation of other changes in equity and introduces a statement of comprehensive income. The Group have the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of other comprehensive income).

- Amendments to IAS 19 'Employee Benefits' in respect of definition of 'return on plan assets' to require the deduction of plan administration costs only to the extent that such costs have not been reflected in the actuarial assumptions used to measure the defined benefit obligation. Effective from periods commencing on or after 1 January 2009, it also amends the definition of 'short-term employee benefits' and 'other long-term employee benefits' to refer to when the benefits are 'due to be settled', rather than when they 'fall due'.

- Amendments to IAS 23 'Borrowing Costs' (effective from periods commencing on or after 1 January 2009) eliminates the option to recognise all borrowing costs immediately as an expense. To the extent that borrowing costs relate to the acquisition, construction or production of a qualifying asset, the revised Standard requires that they be capitalised as part of the cost of that asset. All other borrowing costs should be expensed as incurred.

- Amendments to IAS 27 'Consolidated and Separate Financial Statements' and IFRS 3 'Business Combinations' are effective from periods commencing on or after 1 July 2009. The amendments relate primarily to accounting for minority interest and the losses of control of a subsidiary. They also address the guidance for applying the acquisition method of accounting.

- Amendments to IAS 32 'Financial Instruments: Presentation' and IAS 1 'Presentation of Financial Statements' in respect to puttable financial instruments and obligations arising on liquidation are effective from periods commencing on or after 1 January 2009. Subject to specified criteria being met, these instruments are classified as equity whereas, prior to these amendments, they were classified as financial liabilities.

- Amendments to IAS 39 'Financial Instruments: Recognition and Measurement' in respect of eligible hedged items. Effective from periods commencing on or after 1 July 2009, it provides clarification on identifying inflation as a hedged risk or portion and hedging with options.

- Amendments to IFRS 2 'Share-Based Payment' (effective from periods commencing on or after 1 January 2009) clarifies terms 'vesting conditions' and 'cancellations' with proposed recognition and measurement criteria.

- Effective from periods commencing on or after 1 January 2009, the amendments to IFRS 7 'Financial Instruments: Disclosures' require enhanced disclosures about fair value measurements and liquidity risk in the wake of the recent financial crisis.

- IFRS 8 'Operating segments' (effective from periods commencing on or after 1 January 2009) sets out requirements for disclosure of information about an entity's operating segments and also about the entity's products and services, the geographical areas in which it operates, and its major customers. This standard replaces IAS 14 'Segment Reporting' and require a change in the disclosure of segmental information.

- IFRIC 15 'Agreements for the Construction of Real Estate' (effective from periods commencing on or after 1 January 2009) applies to the accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors.

- IFRIC 17 'Distributions of Non-cash Assets to Owners' (effective from periods commencing on or after 1 July 2009) provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to its shareholders.

- IFRIC 18 'Transfers of Assets from Customers' (effective from periods commencing on or after 1 July 2009) concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value on the date of the accordance with IAS 18 'Revenue'.

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).

- Amended IAS 32 'Financial Instruments: Presentation' addresses the accounting for rights issues (rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer. It requires that rights, options or warrants to acquire a fixed number of an entity's own equity instruments for a fixed amount of any currency are equity instruments (regardless of the currency in which the exercise price is denominated) if the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. The amendment is effective from periods commencing on or after 1 February 2010.

- Amendments to IFRS 1 'First-time Adoption of International Financial Reporting Standards' is effective from periods commencing on or after 1 July 2010. The standard gives first-time adopters the same relief from providing comparative period disclosures required by the IFRS 7 Amendments as the current IFRS preparers.

- 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.

- Amendments to IFRIC 14 'Prepayments of a Minimum Funding Requirement' (effective from periods commencing on or after 1 January 2011) remove an unintended consequence arising from the treatment of prepayments of future contributions in some circumstances when there is a minimum funding requirement.

- IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments' (effective from periods commencing on or after 1 July 2010) addresses the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability.

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 of net assets in 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. Operating segments have been identified based on reports reviewed by the Executive Committee, which considers the business primarily from the geographical 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 which is referred to as "Gross Profit" in the management and reporting system. Gross Profit is the measure of segment profit used in segment reporting and comprises revenue and cost of sales.

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

			Audited
	Six months ended		Year ended
	30 May	31 May	29 November
	2010	2009	2009
	£'000	£'000	£'000
United Kingdom
Revenue from external customers	106,144	149,449	271,248
Gross Profit	30,235	42,591	76,939
Total Assets	102,332	113,899	130,518
Total Liabilities	49,248	65,997	59,405
Capital expenditure	1,180	1,413	3,411

Continental Europe
Revenue from external customers	105,758	126,497	239,406
Gross Profit	36,753	47,599	86,762
Total Assets	27,752	51,050	27,767
Total Liabilities	16,211	23,051	20,957
Capital expenditure	248	521	918

Rest of the World
Revenue from external customers	9,774	4,632	8,718
Gross Profit	7,329	3,105	7,454
Total Assets	11,185	4,487	8,540
Total Liabilities	2,131	310	1,646
Capital expenditure	771	544	525

Group
Revenue from external customers	221,676	280,578	519,372
Gross Profit	74,317	93,295	171,155
Total Assets	141,269	169,436	166,825
Total Liabilities	67,590	89,358	82,008
Capital expenditure	2,199	2,478	4,854

The information below is included as additional disclosure to the requirements of IFRS 8 'Operating Segments'.

	Revenue			Gross Profit
	Six months ended		Audited Year ended	Six months ended		Audited Year ended
	30 May	31 May	29 November	30 May	31 May	29 November
	2010	2009	2009	2010	2009	2009
	£'000	£'000	£'000	£'000	£'000	£'000
Brand
Progressive	60,796	70,298	132,461	19,953	22,172	41,918
Computer Futures Solutions	59,877	82,379	149,247	19,869	29,514	51,526
Huxley Associates	57,920	70,234	132,670	20,302	23,618	44,839
Real Staffing Group	41,456	54,986	101,679	12,565	16,078	29,557
Others	1,627	2,681	3,315	1,628	1,913	3,315

	221,676	280,578	519,372	74,317	93,295	171,155

Recruitment classification
Contract	187,447	241,452	447,077	40,089	54,206	98,816
Permanent	34,229	39,126	72,295	34,228	39,089	72,339

	221,676	280,578	519,372	74,317	93,295	171,155

Discipline
Information & communication technology	166,880	227,663	411,761	48,707	69,674	122,612
Other⁽¹⁾	54,796	52,915	107,611	25,610	23,621	48,543

	221,676	280,578	519,372	74,317	93,295	171,155

(1) Including accountancy and finance, banking, engineering, oil and gas, pharmaceutical, human resources, energy, jobboard and legal sectors.

3 Exceptional items

Corporate and divisional restructuring

During the prior period, the Company announced a number of changes relating to corporate and divisional restructuring. The total cost of this restructuring including redundancy, relocation and consolidation of business, was considered exceptional by virtue of its size. The Group charged the restructuring cost incurred in the prior period to the statement of comprehensive income.

4 Taxation

The charge for taxation on profits amounted to £2.5m (2009:£1.1m), an effective rate of 34% (2009: 31% before exceptional items and 40% after exceptional items).

5 Dividends

			Audited
	Six months ended		Year ended
	30 May	31 May	29 November
	2010	2009	2009

	£'000	£'000	£'000
Amounts recognised and distributed to shareholders in the period

Final dividend per ordinary share	-	9,696	9,696
Second interim dividend per ordinary share	9,575	-	-
Interim dividend per ordinary share	4,585	4,738	4,738

	14,160	14,434	14,434

No final dividend was proposed for the year ended 29 November 2009 (2009: 8.0 pence per ordinary share for the year ended 30 November 2008).

However, a second interim dividend for the year ended 29 November 2009 (2008: nil) of 8.0 pence per ordinary share was paid on 31 March 2010 to shareholders on record at the close of business on 26 February 2010.

An interim dividend for six months ended 30 May 2010 of 4.0 pence per ordinary share will be paid on 3 December 2010 to shareholders on the register at the close of business on 5 November 2010 (2009: 4.0 pence for the six months ended 31 May 2009).

6 Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data.

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, excluding those held in the Employee Benefit Trust which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares.

			Audited
	Six months ended		Year ended
	30 May	31 May	29 November
	2010	2009	2009
	£'000	£'000	£'000
Earnings
Profit after taxation	4,850	1,630	5,962
Minority interest	(67)	(343)	(1,164)

Profit after taxation attributable to equity holders	4,783	1,287	4,798

Analysed as:
Underlying profit before exceptional items	4,783	7,368	11,274
One-off exceptional items (net of tax)	-	(6,081)	(6,476)
	4,783	1,287	4,798

	millions	millions	millions
Number of shares
Weighted average number of shares used for basic EPS	119.8	117.7	118.7
Dilutive effect of share plans	2.7	3.4	3.8

Diluted weighted average number of shares used for diluted EPS	122.5	121.1	122.5

	pence	pence	pence
Basic
Basic earnings per share before exceptional items	4.0	6.3	9.5
Basic earnings per share after exceptional items	4.0	1.1	4.0

Diluted
Diluted earnings per share before exceptional items	3.9	6.1	9.2
Diluted earnings per share after exceptional items	3.9	1.1	3.9

7 Trade and other receivables

			Audited
	30 May	31 May	29 November
	2010	2009	2009

	£'000	£'000	£'000

Current
Trade receivables	55,410	72,228	60,813
Less provision for impairment of trade receivables	(1,901)	(3,243)	(2,473)

Net trade receivables	53,509	68,985	58,340

Other receivables	3,300	3,348	5,392
Prepayments and accrued income	28,332	29,483	29,497

	85,141	101,816	93,229

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
	30 May	31 May	29 November
	2010	2009	2009
	£'000	£'000	£'000

The following table shows the development of allowances on receivables:

Allowances at start of financial period	2,473	2,772	2,772
Charge for the period	389	2,275	1,968
Amounts utilised during the period	(641)	(508)	(1,035)
Amounts released during the period	(320)	(1,296)	(1,232)

Allowances at end of financial period	1,901	3,243	2,473

8 Cash and cash equivalents

			Audited
	30 May	31 May	29 November
	2010	2009	2009
	£'000	£'000	£'000

Cash and cash equivalents include the following for the purposes of the cash flow statement:

Cash in hand and at bank	28,645	43,943	45,272

	28,645	43,943	45,272

9 Assets classified as held-to-maturity

			Audited
	30 May	31 May	29 November
	2010	2009	2009
	£'000	£'000	£'000

Fixed rate Euro Bond	2,974	-	3,203

The Group invested in a fixed rate Euro bond. The interest rate on this security is 1.16% per annum (2009: 1.4% per annum). The bond has a fixed maturity date of 8 November 2010 (2009: 6 May 2010), that is, between 3 to 6 months from the end of the reporting period. The counterparty has a minimum A credit rating. This asset is not past due or impaired.

10 Provisions for liabilities and charges

	Corporate and
	divisional
	Restructuring	Property	Other	Total
	£'000	£'000	£'000	£'000

At 30 November 2008 (Audited)	-	1,288	2,579	3,867
Charged/(released) to the statement of comprehensive income	8,464	186	(372)	8,278
Utilised during the period	(4,676)	-	-	(4,676)

At 31 May 2009 (Unaudited)	3,788	1,474	2,207	7,469
Charged/(released) to the statement of comprehensive income	586	353	65	1,004
Utilised during the period	(2,298)	(223)	-	(2,521)

At 29 November 2009 (Audited)	2,076	1,604	2,272	5,952
Charged/(released) to the statement of comprehensive income	-	184	(289)	(105)
Transfer	(511)	511	-	-
Utilised during the period	(1,565)	(51)	-	(1,616)

At 30 May 2010 (Unaudited)	-	2,248	1,983	4,231

		30 May	31 May	Audited 29 November
		2010	2009	2009
Current / non-current analysis:		£'000	£'000	£'000

Current liabilities		1,491	4,011	3,063
Non-current liabilities		2,740	3,458	2,889

		4,231	7,469	5,952

Restructuring

On the 15 April 2009, the Group announced a number of changes relating to corporate and divisional restructuring. The Group has charged the restructuring cost incurred of £9.1m at 29 November 2009 to the statement of comprehensive income in the previous period. The transfer to 'property' provision represents the residual amounts of £0.5m relating to property rationalisation costs.

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 £0.9m (2009: £0.2m), one to five years £0.7m (2009: £0.9m) and after five years £0.6m (2008: £0.4m).

Other

The provision meets the definition of a financial liability and arises from a contractual obligation.

Other provisions principally include amounts in respect of contractual liabilities resulting from indemnities given to Group clients in continental Europe arising in the normal course of business in respect of the employment status of contractors.

The timing of settlement is uncertain but the Directors expect that the provision may be utilised within the average statute of limitation period in the countries to which this exposure relates.

11 Related party disclosure

The Group's significant related parties are as disclosed in the SThree plc Annual Report for the year ended 29 November 2009. There were no material differences in related parties or related party transactions in the period or prior period.

12 Contingent Liabilities

The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business. It is not anticipated to result in a material cash outflow for the Group.

This information is provided by RNS

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SThree plc

Interim results for the six months ended 30 May 2010

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