Interim Results

RNS Number : 2678J

SThree plc

15 July 2013

 



15 July 2013

SThree plc

("SThree" or the "Group")

Interim Results for the half year ended 26 May 2013

SThree, the international specialist staffing business, is today announcing its interim results for the half year ended 26 May 2013.

Financial Highlights	Six months ended
	26 May 2013	27 May 2012	% change
Revenue	£291.9m	£278.4m	+4.8%
Gross profit	£94.0m	£99.9m	-5.9%
Operating profit	£6.7m	£9.1m	-26.9%
Profit before taxation	£6.7m	£9.3m	-28.3%
Basic earnings per share	3.7p	5.2p	-28.8%
Interim dividend per share	4.7p	4.7p	-

Operational Highlights

·      Satisfactory first half against a backdrop of weaker macroeconomic conditions

·      Contract gross profit up 3%* year on year

·      Further progress made against key strategic priorities - contract, international expansion and ongoing sector diversification

·      Contract represents 54% of GP (2012: 49%)

·      Non UK&I represents 68% (2012: 65%)

·      New offices opened in Tokyo, Berlin and Calgary taking to 67 offices in 20 countries

·      Resilient performance from newer sectors. Pharmaceuticals & Biotechnology and Energy & Engineering now representing 36% of GP (2012: 32%)

·      Total Group headcount at 2,283 increased by 4% on prior year end (2012: 2,188), driven by Rest of World ("ROW") headcount

·      Net cash position of £15.5m (FY 2012: £28.3m), after a dividend payment of £5.7m in December 2012 and capital expenditure of £3.7m

·      Restructuring of property portfolio and support functions implemented after period end, to realign the Group's overall cost base and long term profitability, will be booked in H2. Annualised cost base reduced by circa £8m pa, H2 2013 saving of circa £3m and exceptional cost of circa £8m.

* at constant currency

Gary Elden, Chief Executive Officer, said: "Against a backdrop of weaker macroeconomic conditions, we had a satisfactory first half."

"Contract, international and expansion of our newer sectors remained our strategic priorities in the period, along with a refocusing of elements of the business to ensure they are positioned to target growth markets more effectively."

"We continued to invest in Contract sales headcount in growth markets, with a particular focus on Energy, up 48%, and Pharmaceuticals & Biotechnology, up 13%, since the start of the year. Allowing for the usual lag before these new hires become productive, we expect the full benefit of this investment to be felt in 2014.  In Permanent, after a number of quarters of headcount decline, we are now investing selectively to preserve our capabilities, given the importance of an exposure to Permanent in recovering markets."

"Looking ahead, global economic conditions remain fragile and predicting the kind of market conditions the Group will face in the second half with any accuracy is extremely difficult." 

 "Our balanced business mix between Contract and Permanent, continued drive to improve productivity and tight focus on growing teams only in selective sectors/geographies, together with the savings expected from the restructuring programme, give us confidence that we will make the best of the market opportunity in the second half, whilst managing the business prudently for the medium term." 

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

Conference Call participant Telephone Numbers:

Dial in: [phone]

Password: SThree Interim Results

There will also be a live audio webcast, hosted on the SThree website at: http://www.media-server.com/m/p/3f94o796

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 6 September 2013.

Enquiries:

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

Notes to editors

SThree is a leading international specialist staffing businesses, providing permanent and contract specialist staff to a diverse client base of over 7,500 clients. From its well-established position as a major player in the information and communications technology ("ICT") sector the Group has broadened the base of its operations to include businesses serving the accountancy & finance, banking, energy & engineering, oil & gas, pharmaceuticals, human resources, energy, legal and job board sectors.

Since launching its original business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree brands include Computer Futures, Huxley Associates, Progressive and The Real Staffing Group. The Group has circa 2,300 employees in twenty countries.

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

Important notice

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

SThree plc

("SThree" or the "Group")

Interim results for the half year ended 26 May 2013

OPERATING REVIEW

Introduction

Against a backdrop of weaker macroeconomic conditions, we have had a satisfactory first half, with growth in our Contract business offset by a further softening in Permanent. As a result, Gross Profit ("GP") decreased by 6%* year on year ("YoY") in H1 2013. Contract GP grew across all regions except the UK&I, with YoY growth in Continental Europe and Rest of World of 3%* and 44%*, respectively. 

Overview and Business Mix

Contract, international and expansion of our newer sectors remained the strategic priorities in the first half.

In Contract, our expansion into new disciplines is increasing our exposure to the larger blue chip clients that dominate industries such as Energy or Pharmaceuticals.  Building deeper, longer term relationships with these newer clients is a key part of the Group's growth strategy and will also help improve revenue visibility.  In parallel with this expansion in new high growth markets like Energy & Engineering and Pharmaceuticals & Biotechnology we have been shifting the focus of these teams to lifetime contract value from the traditional upfront margin/GP day rate.  Initial progress with this shift has been pleasing but there will be a lag before we see the benefit of these changes coming through in the contract book.

During the period, the Contract business continued to make good progress and now accounts for a greater proportion of Group GP than the Permanent business, with an increase to 54% of Group GP in the period (H1 2012: 49%; FY 2012: 50%).

Contract runners increased to 5,171 at the period end (H1 2012: 4,757), an increase of 9%. The Group experienced the usual seasonal reduction and rebuild in contractor numbers from the end of the previous financial year, and contractors were also up 1% compared to the 2012 year-end (25 November 2012: 5,122).  The Group made 3,093 permanent placements in the first half of the year, a 13% reduction YoY (H1 2012: 3,572).

H1 2013 saw the Group continue its international expansion. Overall GP generated outside of the UK&I increased to 68% (H1 2012: 65%). The Group's sector diversification also continued, with GP generated from non-ICT sectors now representing 46% of overall GP (H1 2012: 44%). The Group now derives only 19% of its GP from the UK ICT market, its longest established franchise (H1 2012: 20%; FY 2012: 20%).

Breakdown of GP	Six months ended 26 May 2013 %	Six months ended 27 May 2012 %	Year ended 25 November 2012 %
Contract	54%	49%	50%
Permanent	46%	51%	50%
Total	100%	100%	100%
Continental Europe	49%	49%	48%
UK&I	32%	35%	35%
Rest of World	19%	16%	17%
Total	100%	100%	100%
ICT	54%	56%	54%
Non ICT	46%	44%	46%
Total	100%	100%	100%

Strategy

The Group has a well-established strategy of rolling out the SThree model to an increasing number of geographies and across a range of complementary, technical, specialist staffing disciplines. The success of this strategy is reflected in the fact that our businesses outside of  UK ICT, our longest established sector, represented 81% of overall GP for the half-year (H1 2012: 80%; H1 2011: 78%; H1 2010: 75%). However, we continue to believe that the UK ICT market has strong long term growth characteristics in itself and we would expect it to perform robustly when normal macroeconomic conditions return.

The Group's strategy will continue to be based on organic growth, although acquisitions may be considered on a selective basis if these would expedite our development into a strategically attractive market. These would most likely be "bolt-ons" capable of offering niche expertise in a particular sector and/or geographic location. Similarly, we are, on occasion, appointing senior management from competitor/comparator companies, where the individuals can bring valuable new market knowledge to the Group. In this respect, we believe that the Group's Tracker Share model (previously referred to as the "Minority Interest model") is a key differentiator in attracting senior talent and retaining existing management.

Margins and Value

A further key element of our strategy is to remain highly selective regarding the quality of the work we undertake. The Group aims to fully leverage its niche specialist proposition to engage with clients that value our services and remunerate our expertise accordingly. This is further underpinned by our multi-brand approach, which allows the Group to segregate the market around specific niches, establishing its consultants as market experts who can justify premium pricing compared to the 'generalist specialist' approach applied by some peers.

Our customer base remains highly diversified, reducing the Group's exposure to a limited number of price sensitive customers and our exposure to the margin pressure associated with "wholesale" buyers, such as the major systems integration companies. This is reflected by the fact that in H1 2013, 54% of the candidates placed were ICT professionals, but only 15% of all transactions were in the ICT sector.

Overall Group gross margin declined to 32.2%* (H1 2012: 35.9%) due to the re-mixing in the business towards Contract.  Average Permanent fees remained robust at £12,637* (H1 2012: £12,795). Average contractor Gross Profit Per Day decreased by 6.4%* during the first half, the result of fee pressure in our more mature markets and certain sectors, notably banking. In addition, as discussed above, contract gross profit growth in Energy & Engineering and Pharmaceuticals & Biotechnology has typically been generated from larger multinational clients, where we have taken the strategic decision to prioritise contract lifetime values over upfront margin percentage and GP day rates.

Performance by Geography

UK&I GP at £30.5m was down 12%* (H1 2012: £34.8m) as the market continued to slow. Although Permanent placements were down 24%, average fees remained flat* YoY. Period end contractors were up 2% YoY, but GP day rates decreased by 8%*, reflecting a highly competitive market and rate cuts imposed by the major UK banks.

Continental Europe GP was down 7%*  at £46.0m (H1 2012: £49.4m). While Permanent placements were down 14%, average fees remained flat* YoY. Period end contractors were up 7% YoY, but GP day rates fell by 7%*. Market conditions in Benelux remained challenging with GP down 10%* LFL YoY, mainly across the IT and Banking sectors. France also had challenging conditions, with GP down 27%* YoY, with reductions seen across all sectors except Pharmaceuticals & Biotechnology which was up 19%* YoY. Germany continued to experience challenging conditions in the Banking sector but grew overall GP by 1%* YoY.

Rest of the World ("ROW") GP was up 11%* at £17.5m (H1 2012: £15.7m), with a strong performance in the USA up 30%*, which included notable contributions from Energy and Pharma & Biotech, up 29%* and 43%* YoY, respectively. For ROW overall, Permanent placements increased by 6% YoY, but average fees fell by 8%* YoY. ROW contract GP was up 44%*, with contract runners increased by 60% YoY, while GP day rates fell 13%* YoY, reflecting a broadening in the range of roles we are placing and the focus on lifetime value.

Geographical and Sector Expansion

During the period, the Group continued its international rollout with new offices opening in Tokyo, Berlin and Calgary. Of the Group's 67 offices in 20 countries, 45 are outside of the UK, with 26 in Europe and 19 in ROW. Much of the Group's international growth will come from achieving scale in locations and sectors in which we already have a presence. The Group has substantial capacity to scale up in many of its territories, when market conditions permit, without the need to add to the existing office footprint. The demand in the Group's newer sector disciplines, Energy & Engineering and Pharmaceuticals & Biotechnology, remained strong in H1, and together they now account for 36% of Group GP.

Staffing Levels

Total headcount at the half-year was 2,283, up 4% on the 2012 year end (FY 2012: 2,188). Relative to the 2012 year end position, UK sales headcount fell by 8%, Continental Europe sales headcount was up 1% and ROW sales headcount was up 12%. Overall average sales headcount was down 6% YoY, with Contract average headcount up 11% and Permanent average headcount down 16%.

The Group continues to hire sales consultants highly selectively into teams where there is clear market based evidence to support the investment and to staff the opening of new international offices.

Operating Profit

Operating profit declined by 27% to £6.7m (H1 2012: £9.1m) as a result of the overall drop in GP, with some benefit from the fall in average head count in the period and other cost saving initiatives.

Cash Flow

At the start of the period, the Group had net cash of £28.3m. During the period, the Group used £3.2m of cash in operating activities (H1 2012: generated £8.5m). Income taxes paid decreased to £1.9m (H1 2012: £4.0m). Dividends paid in the period were £5.7m (H1 2012: £18.8m). Cash outflow on capital expenditure was £3.7m (H1 2012: £5.9m) and the Group paid £1.4m (H1 2012: £1.2m) purchasing its own shares. The effect of exchange rate changes was to increase net cash by £2.9m (H1 2012: reduce cash by £3.3m). At 26 May 2013 the Group had net cash of £15.5m.

Taxation

The charge for taxation on profits amounted to £2.1m (H1 2012: £3.1m), an effective rate of 32% (H1 2012: 33%).

Earnings per Share

Basic earnings per share fell by 29% to 3.7p (H1 2012: 5.2p). Diluted earnings per share fell by 28% to 3.4p (H1 2012: restated 4.7p).

Dividends

The Board proposes to pay a maintained interim dividend of 4.7p (H1 2012: 4.7p) per share. The interim dividend will be paid on 6 December 2013, to those shareholders on the register at 8 November 2013. The total payment to shareholders on this date will be approximately £5.6m.

Treasury Management and Currency Risk

The Group has a £20m committed flexible revolving credit facility in place with Royal Bank of Scotland until January 2017. Funds borrowed under this facility bear interest at a minimum annual rate of 1.3% above 3 month LIBOR.

The main functional currencies of the Group are Sterling, the Euro and the US Dollar. The Group has significant operations outside the UK and, as such, is exposed to movements in exchange rates. The Board has undertaken a review of its current hedging strategy, to ensure that it remains appropriate. The Group does not engage in speculative trading.

The impact of foreign exchange will become more of a significant issue for the Group, as we expect the business mix to move further towards international, with the international business accounting for 69% of GP in H1 2013 (H1 2012: 67%). The Group continues to monitor policies in this area.

Other principal risks and uncertainties

Other principal risks and uncertainties affecting the business activities of the Group, are as detailed within the Directors' Report section of the Annual Report for the year ended 25 November 2012, a copy of which is available on the Group's website at www.sthree.com.

In terms of macroeconomic environment risks, as previously stated, our strategy is to continue to grow the size of our international business, in both financial terms and geographical 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 affect the Group's key risk factors in the foreseeable future.

Restructuring

Following a review of its property portfolio and support infrastructure, the Group commenced a restructuring of its cost base subsequent to the period end.  This rationalisation programme includes reducing staff numbers within the support functions, office closures and a number of other cost saving initiatives. With an implementation cost of circa £8m and a 2013 cash cost of circa £5m, the programme is expected to bring immediate cost savings of circa £3m in H2 2013 and reduce the annualised cost base by circa £8m pa, without compromising the Group's ability to grow strongly when markets recover.

Outlook

Global economic conditions remain fragile and predicting the kind of market conditions the Group will face in the second half with any accuracy is extremely difficult. 

Our balanced business mix between Contract and Permanent, continued drive to improve productivity and tight focus on growing teams only in selective sectors/geographies, together with the savings expected from the restructuring programme, give us confidence that we will make the best of the market opportunity in the second half, whilst managing the business prudently for the medium term. 

The Group remains agile, with a seasoned and strengthened senior management team.  We look forward to the future confident that we can optimise our performance against the prevailing market opportunity.

Responsibility Statement

The Directors confirm that to the best of their knowledge:

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

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

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

(b) DTR 4.2.8R of the Disclosure and Transparency Rules of the Financial Services Authority, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period, and any changes in the related party transactions described in the Annual Report for the year ended 25 November 2012.

Approved by the Board on 12 July 2013 and signed on its behalf by:

Gary Elden                               Alex Smith

Chief Executive Officer                Chief Financial Officer

SThree plc
Condensed consolidated income statement - unaudited
for the six months ended 26 May 2013
							Audited
				Six months ended			Year ended
				26 May	27 May		25 November
				2013	2012		2012
		Note		£'000	£'000		£'000
Revenue		2		291,888	278,415		577,457
Cost of sales				(197,892)	(178,516)		(372,161)
Gross profit		2		93,996	99,899		205,296
Administrative expenses				(87,313)	(90,752)		(180,205)
Operating profit				6,683	9,147		25,091
Finance income				66	143		222
Finance cost				(96)	(5)		(46)
Profit before taxation				6,653	9,285		25,267
Taxation		3		(2,129)	(3,070)		(8,442)
Profit for the period attributable to owners of the Company				4,524	6,215		16,825
Earnings per share		5		pence	pence		pence
Basic				3.7	5.2		14.1
Diluted				3.4	4.7*		12.6
* Restated, refer note 1.

SThree plc
Condensed consolidated statement of comprehensive income - unaudited
for the six months ended 26 May 2013
						Audited
				Six months ended		Year ended
				26 May	27 May	25 November
				2013	2012	2012
				£'000	£'000	£'000
Profit for the period				4,524	6,215	16,825
Other comprehensive income/(loss):
Exchange differences on retranslation of foreign operations				1,880	(2,604)	(2,845)
Other comprehensive income/(loss) for the period (net of tax)				1,880	(2,604)	(2,845)
Total comprehensive income for the period attributable to owners of the Company				6,404	3,611	13,980

SThree plc
Condensed consolidated statement of financial position - unaudited
as at 26 May 2013
						Audited
				26 May	27 May	25 November
				2013	2012	2012
		Note		£'000	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment				5,078	5,983	5,897
Intangible assets				13,338	11,953	14,250
Deferred tax assets				4,918	5,900	4,871
				23,334	23,836	25,018
Current assets
Trade and other receivables				120,156	109,867	113,994
Current tax assets				650	-	653
Cash and cash equivalents				15,462	31,036	28,291
				136,268	140,903	142,938
Assets of disposal group classified as held for sale		6		2,541	-	-
Total assets				162,143	164,739	167,956
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital				1,234	1,230	1,234
Share premium				4,138	2,925	4,138
Other reserves				(3,972)	(7,989)	(8,952)
Retained earnings				49,497	60,251	65,503
Total equity				50,897	56,417	61,923
Non-current liabilities
Trade and other payables				758	1,136	1,136
Provisions for liabilities and charges				1,350	1,476	1,484
				2,108	2,612	2,620
Current liabilities
Trade and other payables				102,468	99,649	98,003
Provisions for liabilities and charges				5,332	5,293	5,410
Current tax liabilities				-	768	-
				107,800	105,710	103,413
Liabilities of disposal group classified as held for sale		6		1,338	-	-
Total liabilities				111,246	108,322	106,033
Total equity and liabilities				162,143	164,739	167,956

SThree plc
Condensed consolidated statement of changes in equity - unaudited
for the six months ended 26 May 2013
	Share capital	Share premium	Capital redemption reserve	Capital reserve	Treasury reserve	Currency translation reserve	Retained earnings	Total equity attributable to owners of the Company
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Audited balance at 27 November 2011	1,230	2,925	168	878	(7,908)	(1,225)	86,399	82,467
Profit for the six months to 27 May 2012	-	-	-	-	-	-	6,215	6,215
Other comprehensive loss	-	-	-	-	-	(2,604)	-	(2,604)
	-	-	-	-	-
Total comprehensive income for the period	-	-	-	-	-	(2,604)	6,215	3,611
Dividends paid to equity holders	-	-	-	-	-	-	(18,786)	(18,786)
Dividends payable to equity holders	-	-	-	-	-	-	(11,179)	(11,179)
Purchase of own shares	-	-	-	-	(1,384)	-	-	(1,384)
Treasury shares used for share-based payments	-	-	-	-	4,086	-	(4,086)	-
Credit to equity for equity-settled share-based payments	-	-	-	-	-	-	1,333	1,333
Current tax on share-based payment transactions	-	-	-	-	-	-	695	695
Deferred tax on share-based payment transactions	-	-	-	-	-	-	(340)	(340)
	-	-	-	-
Total movements in equity	-	-	-	-	2,702	(2,604)	(26,148)	(26,050)
Unaudited balance at 27 May 2012	1,230	2,925	168	878	(5,206)	(3,829)	60,251	56,417
Audited balance at 27 November 2011	1,230	2,925	168	878	(7,908)	(1,225)	86,399	82,467
Profit for the year ended 25 November 2012	-	-	-	-	-	-	16,825	16,825
Other comprehensive loss	-	-	-	-	-	(2,845)	-	(2,845)
Total comprehensive income for the year	-	-	-	-	-	(2,845)	16,825	13,980
Dividends paid to equity holders	-	-	-	-	-	-	(29,951)	(29,951)
Distributions to tracker shareholders	-	-	-	-	-	-	(424)	(424)
Issue of new shares	4	1,213	-	-	-	-	(1,217)	-
Purchase of own shares	-	-	-	-	(6,682)	-	-	(6,682)
Treasury shares used for buy-back of vested tracker shares	-	-	-	-	3,661	-	(3,661)	-
Treasury shares used for share-based payments	-	-	-	-	5,001	-	(4,475)	526
Credit to equity for equity-settled share-based payments	-	-	-	-	-	-	1,548	1,548
Current tax on share-based payment transactions	-	-	-	-	-	-	972	972
Deferred tax on share-based payment transactions	-	-	-	-	-	-	(513)	(513)
Total movements in equity	4	1,213	-	-	1,980	(2,845)	(20,896)	(20,544)
Audited balance at 25 November 2012	1,234	4,138	168	878	(5,928)	(4,070)	65,503	61,923
Profit for the six months to 26 May 2013	-	-	-	-	-	-	4,524	4,524
Other comprehensive income	-	-	-	-	-	1,880	-	1,880
	-	-	-	-	-
Total comprehensive income for the period	-	-	-	-	-	1,880	4,524	6,404
Dividends paid to equity holders	-	-	-	-	-	-	(5,654)	(5,654)
Dividends payable to equity holders	-	-	-	-	-	-	(11,280)	(11,280)
Purchase of own shares	-	-	-	-	(1,272)	-	-	(1,272)
Treasury shares used for buy-back of vested tracker shares	-	-	-	-	3,817	-	(3,817)	-
Treasury shares used for share-based payments	-	-	-	-	555	-	(469)	86
Credit to equity for equity-settled share-based payments	-	-	-	-	-	-	503	503
Current and deferred tax on share-based payment transactions	-	-	-	-	-	-	187	187
	-	-	-	-
Total movements in equity	-	-	-	-	3,100	1,880	(16,006)	(11,026)
Unaudited balance at 26 May 2013	1,234	4,138	168	878	(2,828)	(2,190)	49,497	50,897

SThree plc
Condensed consolidated statement of cash flows - unaudited
for the six months ended 26 May 2013
						Audited
				Six months ended		Year ended
				26 May	27 May	25 November
				2013	2012	2012
				£'000	£'000	£'000
Cash flows from operating activities
Profit before taxation				6,653	9,285	25,267
Adjustment for:
Depreciation and amortisation charge				3,066	3,606	6,841
Finance income				(66)	(143)	(222)
Finance cost				96	5	46
(Gain)/loss on disposal of property, plant and equipment				(17)	7	9
Non-cash charge for share-based payments				503	1,333	1,548
Operating cash flows before changes in working capital and provisions				10,235	14,093	33,489
Increase in receivables				(6,092)	(1,962)	(5,265)
(Decrease)/increase in payables				(7,479)	(3,856)	3,952
Increase in provisions				108	253	513
Cash (used in)/generated from operations				(3,228)	8,528	32,689
Finance income				66	143	222
Income tax paid				(1,897)	(3,986)	(9,527)
Net cash (used in)/generated from operating activities				(5,059)	4,685	23,384
Cash flows from investing activities
Purchase of property, plant and equipment				(606)	(2,498)	(3,862)
Purchase of intangible assets				(3,108)	(3,438)	(6,669)
Proceeds from disposal of property, plant and equipment				72	-	-
Net cash used in investing activities				(3,642)	(5,936)	(10,531)
Cash flows from financing activities
Finance cost				(96)	(5)	(46)
Employee subscription for tracker shares				-	-	341
Proceeds from exercise of share options				253	-	564
Repurchase of unvested tracker shares				(85)	(32)	(78)
Purchase of own shares				(1,423)	(1,240)	(6,882)
Dividends paid to equity holders				(5,654)	(18,786)	(29,951)
Distributions to tracker shareholders				-	-	(424)
Net cash used in financing activities				(7,005)	(20,063)	(36,476)
Net decrease in cash and cash equivalents				(15,706)	(21,314)	(23,623)
Cash and cash equivalents at the beginning of the period				28,291	55,605	55,605
Effect of exchange rate changes				2,877	(3,255)	(3,691)
Cash and cash equivalents at the end of the period				15,462	31,036	28,291

SThree plc

Notes to the Financial Information-unaudited

For the 6 months ended 26 May 2013

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, banking & finance, accountancy, human resources, energy & engineering, pharmaceuticals & biotechnology and jobboard sectors.                    

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

The consolidated interim financial information was approved for issue on 12 July 2013.            

The condensed consolidated interim financial information of the Group as at, and for the six months ended, 26 May 2013 comprises that of the Company and all its subsidiaries. The condensed consolidated interim financial information has neither been reviewed nor audited. The condensed consolidated interim information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 25 November 2012 were approved by the Board of directors on 25 January 2013 and delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Basis of preparation                                                                                                                  

The condensed consolidated interim financial information for the six months ended 26 May 2013 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. The consolidated interim financial information is presented on a condensed basis as permitted by IAS 34 and therefore does not include all disclosures that would otherwise be required in a full set of financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 25 November 2012, which have been prepared in accordance with IFRSs as adopted by the European Union.

Restatement of diluted earnings per share                                                                                                  

An assessment of the impact of the tracker share arrangement on earnings per share ("EPS") was performed in the second half of 2012 and the dilutive effect of the tracker shares was reflected in diluted EPS presented in the Group's 2012 annual financial statements. Accordingly, diluted EPS for the six months ended 27 May 2012 has been adjusted from 5.1p to 4.7p per share after taking into account the dilutive effect of the tracker shares (note 5).                                                                                                         

The restatement has no impact on the Group's reported profits or financial position.

Going concern                                                                                                            

The directors have, at the time of approving the consolidated interim financial information, a reasonable expectation that the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt a going concern basis of accounting in preparing the financial information.

Significant accounting policies                                                                                                               

The accounting policies adopted are consistent with those applied in the preparation of the Group's consolidated financial statements for the year ended 25 November 2012 except as described below.                                                                                                                

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

New standards and interpretations                                                                                                       

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

Assets held for sale

Assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within 12 months from the date of classification. When the Group is committed to sale a plan involving the loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.                                                                     

Estimates                                                                                                     

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

In preparing the condensed interim financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Group's annual financial statements for the year ended 25 November 2012, with the exception of changes in estimates that are required in determining the provision for income taxes. 

Seasonality of operations                                                                                                        

Due to the seasonal nature of the recruitment business, higher revenues and operating profits are usually expected in the second half of the year than the first six months.  In the financial year ended 25 November 2012, 48% of revenues accumulated in the first half of the year, with 52% accumulating in the second half.                                                                                                                                                                                   

2.     Segmental analysis

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

Management has determined the chief operating decision maker to be the Executive Committee made up of the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the Chief Information Officer, the Director of Strategic Capability, the Regional Managing Directors and key function heads. Operating segments have been identified based on reports reviewed by the Executive Committee, which consider the business primarily from a geographic perspective.                                                                                                      

The Group's management reporting and controlling systems use accounting policies that are the same as those described in note 1 in the summary of significant accounting policies in the Group's 2012 Annual Report.              

Revenue and Gross Profit by reportable segment                                                                                             

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

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

Certain comparatives below have been revised from those presented in the 2012 interim financial information to provide further detail on the performance of our reportable segments as presented to the Executive Committee.

		Revenue from external customers			Gross profit
				Audited			Audited
		Six months ended		Year ended	Six months ended		Year ended
		26 May	27 May	25 November	26 May	27 May	25 November
		2013	2012	2012	2013	2012	2012
		£'000	£'000	£'000	£'000	£'000	£'000
United Kingdom & Ireland		117,246	120,040	246,679	30,501	34,785	70,870
Continental Europe		133,578	128,154	262,633	45,987	49,420	99,397
Rest of the World		41,064	30,221	68,145	17,508	15,694	35,029
		291,888	278,415	577,457	93,996	99,899	205,296

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

Rest of the World refers to 'all other segments' as defined under IFRS 8 and includes Australia, Hong Kong, India, Singapore, Dubai, Qatar, Brazil, USA, Canada, Japan and Russia.           

Other information                                                                                                      

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

		Revenue			Gross profit
				Audited			Audited
		Six months ended		Year ended	Six months ended		Year ended
		26 May	27 May	25 November	26 May	27 May	25 November
		2013	2012	2012	2013	2012	2012
		£'000	£'000	£'000	£'000	£'000	£'000
UK		113,564	116,550	240,002	29,007	33,284	68,078
Germany		56,014	51,861	108,790	22,344	22,191	46,349
Netherlands		35,796	35,369	70,575	10,073	11,637	22,257
Other		86,514	74,635	158,090	32,572	32,787	68,612
		291,888	278,415	577,457	93,996	99,899	205,296
					Non-current assets
							Audited
					Six months ended		Year ended
					26 May	27 May	25 November
					2013	2012	2012
					£'000	£'000	£'000
UK					15,468	14,505	17,034
Germany					337	457	422
Netherlands					313	469	383
Other					2,298	2,505	2,308
					18,416	17,936	20,147

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

		Revenue			Gross profit
				Audited			Audited
		Six months ended		Year ended	Six months ended		Year ended
		26 May	27 May	25 November	26 May	27 May	25 November
		2013	2012	2012	2013	2012	2012
		£'000	£'000	£'000	£'000	£'000	£'000
Brand
Progressive		97,427	90,641	192,327	30,454	32,030	67,467
Huxley Associates		64,959	69,493	139,854	21,624	25,045	50,601
Computer Futures		74,007	66,009	144,544	23,293	23,200	50,021
Real Staffing Group		55,495	52,272	100,732	18,625	19,624	37,207
		291,888	278,415	577,457	93,996	99,899	205,296
Recruitment classification
Contract		248,474	227,558	473,838	50,582	49,042	101,710
Permanent		43,414	50,857	103,619	43,414	50,857	103,586
		291,888	278,415	577,457	93,996	99,899	205,296

		Revenue			Gross profit
				Audited			Audited
		Six months ended		Year ended	Six months ended		Year ended
		26 May	27 May	25 November	26 May	27 May	25 November
		2013	2012	2012	2013	2012	2012
		£'000	£'000	£'000	£'000	£'000	£'000
Discipline
Information & communication technology		186,802	185,627	378,169	50,362	55,517	110,820
Others		105,086	92,788	199,288	43,634	44,382	94,476
		291,888	278,415	577,457	93,996	99,899	205,296

Others include energy & engineering, banking & finance, accountancy, human resources, pharmaceuticals & biotechnology and jobboard sectors.

3.     Taxation

Income tax expense is accrued based on management's estimate of the weighted average annual income tax rate expected for the full financial year. The charge for taxation on profits amounted to £2.1m (2012: £3.1m), an effective rate of 32% (2012: 33%).

4.     Dividends

							Audited
					Six months ended		Year ended
					26 May	27 May	25 November
					2013	2012	2012
					£'000	£'000	£'000
Amounts recognised as distributions to equity holders in the period
Final dividend of 9.3p (2011: 9.3p) per ordinary share					11,280	11,179	11,165
Interim dividend of 4.7p (2011: 4.7p) per ordinary share					5,654	5,624	5,624
Special dividend of nil (2011: 11.0p) per ordinary share					-	13,162	13,162
					16,934	29,965	29,951

A final dividend of 9.3 pence per ordinary share for the year ended 25 November 2012 (2011: 9.3 pence) was approved by shareholders on 18 April 2013 and has been included as a liability in this interim financial information. The dividend was paid on 5 June 2013 to shareholders on record at 3 May 2013.                              

An interim dividend of 4.7 pence (2011: 4.7 pence) per share for the six months ended 27 May 2012 was paid on 7 December 2012 to shareholders on record at 9 November 2012.                                                                                                                                                                                             

An interim dividend for the six months ended 26 May 2013 of 4.7 pence (2011: 4.7 pence) per share will be paid on 6 December 2013 to shareholders on the register at the close of business on 8 November 2013.

5.     Earnings per share

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

Basic EPS is calculated by dividing the earnings attributable to owners of the Company by the weighted average number of shares in issue during the period, excluding shares held in Treasury reserve and those held in the EBT which are treated as cancelled.

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

							Audited
					Six months ended		Year ended
					26 May	27 May	25 November
					2013	2012	2012
					£'000	£'000	£'000
Earnings
Profit for the period attributable to equity holders of the Company					4,524	6,215	16,825
					millions	millions	millions
Number of shares
Weighted average number of shares used for basic EPS					120.7	19.6	119.5
Dilutive effect of share plans (see note 1)					11.9	13.4	14.3
Diluted weighted average number of shares used for diluted EPS					132.6	133.0	133.8
					pence	pence	pence
Basic earnings per share					3.7	5.2	14.1
Diluted earnings per share (see note 1)					3.4	4.7	12.6

6.     Assets and liabilities of disposal group held for sale

On 11 February 2013, the Board approved the disposal of a small non-core business. The subject business has been classified as a disposal group held for sale and presented separately on the face of the condensed consolidated statement of financial position. The sale transaction is expected to be completed within 12 months from the date of classification.

The Group has valued the disposal group held for sale at its carrying amount, which is lower than its fair value less costs to sell. The proceeds of disposal are expected to exceed the carrying values of the related net assets and accordingly no impairment losses have been recognised on the classification as held for sale.       

At 26 May 2013, the disposal group comprised the following assets and liabilities:     

							26 May
							2013
							£'000
Assets of disposal group classified as held for sale
Property, plant and equipment							87
Intangible assets (including goodwill)							1,139
Deferred tax assets							179
Trade and other receivables							1,136
							2,541
Liabilities of disposal group classified as held for sale
Trade and other payables							1,277
Provisions for liabilities and charges							61
							1,338

The results of the discontinued operation are not shown separately in the condensed consolidated income statement as it is not deemed a major line of business for the Group.

7.     Related party disclosures

The Group's significant related parties are as disclosed in the SThree plc Annual Report for the year ended 25 November 2012. There were no material differences in related parties or related party transactions in the period compared to the prior period.

8.     Contingent liabilities

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

9.     Subsequent event

The Group has commenced a restructuring of the cost base post period end, including redundancies, closure of certain offices and other cost saving initiatives.

10.   Shareholder communications

The Company has taken advantage of current regulations which provide it exemption from sending copies of its interim report to shareholders. Accordingly, the 2013 interim report will not be sent to shareholders. The report will be available on the Company's website www.sthree.com or can be inspected at the registered office of the Company.

 

END

 

 

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