Preliminary Results

RNS Number : 5939M

SThree plc

02 February 2009

 



SThree plc

('SThree' or the 'Group')

Preliminary results for the year ended 30 November 2008

SThree, the international specialist staffing business, is today announcing its final results for the year ended 30 November 2008.    

Financial Highlights

£m	2008	2007	Change
Revenue	£631.5m	£522.7m	+ 20.8%
Gross Profit (Fee Income)	£218.9m	£182.7m	+ 19.8%
Operating profit*	£56.8m	£52.3m	+ 8.6%
Profit before taxation*	£56.0m	£50.3m	+ 11.3%
Statutory profit before taxation	£54.1m	£50.3m	+ 7.4%
Basic earnings per share*	29.9p	25.2p	+ 18.7%
Proposed final dividend	8.0p	6.2p	+ 29.0%
Total dividend	12.0p	9.3p	+ 29.0%

* Current year operating profit, profit before taxation and EPS are shown before exceptional charges of £2m before tax, £1.4m after tax, in respect of the early close out of foreign exchange derivative transactions, which were entered into in 2007.

Operational Highlights

	Significant volume growth achieved whilst maintaining gross margins - gross profit increased by 19.8% to £218.9m;
	Permanent placements increased by 7.0% to 10,236 (2007: 9,568), with average fees increased by 5.9%;
	Number of active contractors at year end increased by 1.5% to 5,745 (2007: 5,662) with average gross profit per day rates increasing by 9.7%;
	Contract versus Permanent mix of gross profit now 52:48 in favour of Contract, providing us with an excellent ''cash hedge'' in challenging market conditions;
	Excellent further progress made with roll-out of new sector disciplines (accountancy, banking & finance, human resources, engineering, pharmaceuticals and energy), resulting in non-ICT gross profit increasing by 55.2% to £50.5m (2007: £32.5m), representing 23.1% of total gross profit;
	59% of gross profit now derived from outside of the UK ICT market;
	International business performed particularly strongly, growing by 64% to £97.4m (2007: £59.3m), representing 45% of the Group total (2007: 32%);
	UK gross profit declined slightly by 1% to £121.6m (2007: £123.3m), reflecting a weaker UK market and impact of financial markets crisis;
	Year end net cash of £24.6m (2007: £3.5m) despite significant cash out flows on share buy-backs, an increased dividend and a growing contractor book, reflecting our strong cash generation;
	New offices opened in existing geographies (Aberdeen, Paris and Amsterdam) and new geographies (Dubai and Sydney). Further new offices in Singapore, Hamburg, Frankfurt, Dusseldorf and Marseilles to be opened in H1 of 2009;
	Total headcount increased by 11.7% to 2,274 (2007: 2,035) at year end. Sales consultant headcount increased to 1,684 (2007: 1,537) up 9.6% with net new staff hired only for new geographies and/or new sectors;
	£31.3m returned to shareholders via share buy backs during the year, representing 13.6% of the issued share capital as at 30 November 2008, funded from cash flows from operating activities.

Russell Clements, CEO, commented: '2008 was, by any standards, an extraordinary year. In particular, the second half of the year was influenced by the enormous upheavals in global financial markets and the inevitable uncertainty that such events bring to the recruitment market place.

'Given these exceptional circumstances, it is pleasing to be once again in a position to report on another year of growth and significant further progress towards the Group's strategic objectives. SThree ends the 2008 financial year a more international and more diversified business than at any time in its twenty-two year history.

'We enter 2009 with our eyes open, mindful of the risks and challenges ahead. Nonetheless, we are confident that as a business we are particularly well suited to emerge from the current difficult period in excellent shape to take advantage of the inevitable market recovery, whenever it may materialise.'

Enquiries:

SThree plc	020 7292 3838
Russell Clements, Chief Executive Officer
Alex Smith, Chief Financial Officer
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 is further broadening 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 adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree currently has 8 operating brands, the five largest being FS Group (Computer Futures), Huxley Associates, Progressive, Real Resourcing and Pathway and has 33 offices in the UK and 24 offices internationally.

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. SThree 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')

Preliminary results for the year ended 30 November 2008

Overview

2008 was, by any standards, an extraordinary year. In particular, the second half of the year was influenced by the enormous upheavals in global financial markets and the inevitable uncertainty that such events bring to the recruitment market place.

Given these exceptional circumstances, it is pleasing to be once again in a position to report on another year of growth and significant further progress towards the Group's strategic objectives. SThree ends the 2008 financial year a more international and more diversified business than at any time in its twenty-two year history.

Indeed, the exceptional progress we made in our ongoing roll out of the SThree model into newer geographies and staffing segments was the highlight of the year under review. The continued success of this well-established programme means that as of the year end, the Group generated 59% of gross profit outside of the UK ICT market, our longest established franchise.

Given the robustness of our international business and our increasing success in growing our newer staffing segments, we are confident that this trend is set to continue. As time goes on the Group's exposure to the UK as a whole will inevitably decline as a percentage of the whole as we establish an ever more global platform. That said, we remain convinced that once an economic recovery is established, even given its relatively mature nature, the UK will once again represent both a substantial and growing marketplace for the Group.

Given the events of the year, geographic and segmental distinctions were even more important than usual in determining the scale of opportunities available to the Group. In line with this we were able to continue to invest substantially in the development of some teams, whereas in other areas we were content to see consultant numbers decline in line with reduced demand.

The overall impact was an increase in consultant headcount of approximately 18.6% - relatively modest growth by the standards of recent years (2007: c. 42.3%). The Non UK/Non ICT teams grew by a robust 42% on average whilst the UK ICT headcount reduced over the year by 24%. In the latter case we once again benefited from our unusually flexible workforce. Our lower fixed to variable remuneration and relatively young consultant demographic meant that right sizing was achieved almost exclusively through natural attrition.

That said, even in the worst affected parts of the market, the Group was able to keep its discipline in terms of the quality of the business it transacted and typically either preserved or improved margins. The result of this was that across almost all markets and geographies we saw an overall improvement in average permanent recruitment fees and average contract gross profit per day rates. As a consequence we are pleased to be able to report that both of these metrics reached record levels once again.

We see our strength in both permanent and contract recruitment as a significant competitive advantage, since the relative resilience of contract demand helps to mitigate the natural decline in permanent hires in more challenging markets. Given the current tough market conditions in the UK in particular, we take confidence from the fact that the majority of our business in this geography is derived from the contract marketplace.

During 2008 the Group placed a great deal of emphasis on the importance of cash management. It is pleasing to note that the Group's performance in this area was exemplary. Our Days Sales Outstanding (DSO) figure reduced to a record 43 days (2007: 59) with a meaningful improvement in the quality of the aged debtors. Alongside strong, profitable trading this helped the Group fund over £31m of share buy-backs, a substantially increased dividend and a growing contractor book. Despite these significant cash out flows the Group ended 2008 with net cash of £24.6m (2007: £3.5m).

The Group's very strong year end financial position and excellent cash generation characteristics give us great confidence for the future even in the event of further declines in market sentiment. We believe we will be able to continue to manage the business for the longer term and afford to make investments for the future without compromising our need to manage the Group prudently in line with the prevailing market conditions.

Group gross profit for the year improved by 19.8% to £218.9m (2007: £182.7m) with profit before tax and before exceptional items improving by 11.3% to £56.0m (2007: £50.3m) and profit before tax after exceptional items improving by 7.4% to £54.1m (2007: £50.3m). Given the exceptionally challenging business environment we are pleased with this result which we believe validates both the Group's strategy and the quality of our staff and management.

Strategy

Notwithstanding the very different market conditions experienced during 2008, the Group's strategy remained fundamentally unchanged. We continued to roll out the SThree model internationally into markets with strong structural growth characteristics. In parallel we looked to increase our exposure to a growing number of specialist staffing markets characterised by attractive supply and demand dynamics.

We remained highly selective in terms of the type of business we pursued. This meant once again rejecting the 'high volume, low margin' model, instead favouring higher value transactions. Our niche-within-niche approach underpins our strong margins and is a key element of this strategy, as is our ongoing push to go further up the value chain by securing a greater percentage of senior level placements. We also retained our preference for a broad client base to avoid being overly exposed to a limited number of influential clients. Our significant SME franchise helps us to mitigate this risk.

Our internal hiring strategy continued to be based on 'grow our own' with an emphasis on taking on relatively young individuals early in their professional careers. We then provide extensive training to transform raw potential into productive consultants and ultimately our future management and Directors. For the most able and entrepreneurial of these, the possibility of equity participation through our Minority Interest (MI) programme remains an important incentive.

Our multi-brand approach remains a key element of our model and the brand's separate identities and specialist areas of expertise are an important market segmentation strategy. However, we increasingly look to maximise synergies and during the year saw a pleasing level of cross-pollination within the Group, particularly in terms of talented individuals moving inter-brand to pursue new opportunities.

Geographical Expansion

At the end of 2008 the Group operated a total of fifty-seven offices in ten countries. During the year we added four new offices outside of the UK and one in the UK in Aberdeen. Two of these international offices were in established countries (Huxley Paris and Madison Black Amsterdam) with two others in entirely new locations for the Group (Pathway Dubai and Progressive Sydney). The latter are both seen as platforms for further geographical expansion within their respective regions. In H1 of 2009, we plan to open additional international offices in Singapore, Hamburg, Frankfurt, Dusseldorf and Marseilles.

Whilst it is exciting to note the increasingly global nature of the Group, it is worth commenting that much of the very strong Non UK result was attributable to the performance of our longer established and far larger territories in mainland Europe, particularly Germany and Benelux.

Overall Non UK gross profit growth accelerated slightly during the year improving by 64.1% to £97.4m (2007: 62% to £59.3m). Given that 2007 was a tough act to follow being itself an extremely strong year, we believe this represents an excellent performance. It is worth considering the fact that growth on this scale was achievable despite the Eurozone not providing a strong economic tailwind during the year. We believe this is testimony to the powerful structural growth dynamics that prevail in the specialist staffing markets of territories such as Germany and France.

By contrast the UK staffing market is far more mature. This fact was compounded by the weakness in the UK economy and the impact on the (already weak) banking and finance market of the intensification of the banking crisis in the second half. In these circumstances a gross profit of £121.6m representing only a 1.4% decline against the previous year (2007: £123.3m) was an entirely acceptable result. As we would expect, the UK showed greater weakness within the permanent market than in contract with the latter market holding up reasonably well in the circumstances.

Sector Expansion

The major investment that we made during 2007 to accelerate our growth into newer staffing segments was continued in 2008. The results were extremely encouraging. In particular we saw a step up in the roll-out of Non ICT segments into Non UK territories. We believe the combination of the two is a powerful one with (to cite just one example) the German engineering market having massive long term potential. The result was a striking step forward in the growth of Non ICT gross profit during 2008 to a total of £50.5m representing a year on year improvement of 55.2% compared to the 33.3% increase posted the previous year.

The performance of the Non ICT segment is all the more impressive when we consider that historically our largest Non ICT franchise has been the UK investment banking market which was down around 50% in 2008. Taking up a good part of this shortfall was the investment banking market overseas, which was (perhaps surprisingly) robust during the year. In addition we saw strong performances from teams in areas such as public sector, oil & gas, pharmaceuticals and engineering.

Notwithstanding the successes referred to above, the Group's Non ICT franchise is still a relatively young and underdeveloped element of the Group's activities and one which we believe has great future potential.

Staffing Levels

Growth in sales headcount is an integral part of the Group's strategy. We look to staff our sales teams to the maximum level that the prevailing market opportunity and management bandwidth will sustain. Consistent with this, in recent years, sales headcount growth has been very significant.

Unsurprisingly, 2008 saw a far more conservative growth with overall Group headcount increasing by a total of 239 to 2,274 as at 30 November 2008 (2007: 2,035). However, this top-level view disguises the fact that in those markets where demand remained robust we were still able to grow teams quite aggressively. As such, teams that address Non UK and/or Non ICT areas grew by 42% during 2008.

Conversely, markets which saw major reduction in demand contracted sharply. For example our UK ICT teams ended the year 23.8% down and the UK Banking segment rightsized by c. 45% in line with the further decline in that market. Our remuneration strategy is unashamedly 'Darwinian' and a survival of the fittest ethos applies. We believe this inherent flexibility is a great strength of the business allowing us to react in 'real time' to changes in the market. Conversely because we hire staff at a junior level and train them ourselves we can rebuild teams in anticipation of an upturn almost equally quickly.

Contract / Permanent Business Mix

During the year the Group recorded increases in both volume and value across both the contract and permanent sides of the business. In 2008 we made a total of 10,236 permanent placements, an increase of 7.0% on 2007 (2007: 9,568). Our year end total of contract runners was 5,745 compared to 5,662 at the end of 2007, representing an increase of 1.5%.

Consistent with our strategy of focusing on good quality, high margin business we were still able to post meaningful increases in value. During the year our average permanent placement fee grew 5.9% to £10,355 (2007: £9,780). Similarly the Group's contractors produced an average daily gross profit of £78.30 (2007: £71.42) representing a 9.7% increase.

Although advantageous FX movements explain some of these improvements, even if we strip this effect out the underlying growth rates remain strong. Indeed it is interesting to note that even in the very tough UK market both the average permanent fee and the average contractor gross profit showed growth. The former is all the more noteworthy when we consider that the percentage of banking-related fees in the mix (typically significantly higher fees than average) was substantially down year-on-year.

The impact of a weaker UK permanent market and a strong performance from Non UK contract business combined to impact the overall business mix in favour of contract. At the end of 2008 the group was biased 52%: 48% in favour of contract for the year ended 30 November 2008, a change from the 51%: 49% ratio in favour of permanent that we saw at the end of 2007.

Brand Analysis

In 2007, as in previous years, we reported the four largest brands as being Computer Futures, Huxley, Progressive and Pathway. However, Real Resourcing, a brand not previously mentioned specifically, had an outstanding 2008. As a result of its 48.1% increase in gross profit to £15.4m (2007: £10.4m) it overtook Pathway to become the 4th largest of the SThree brands.

Real Resourcing's achievement was all the more impressive considering that it currently has relatively limited exposure to our more buoyant overseas markets through its very recently established international office in Amsterdam and its planned Frankfurt office. It does however have a strong UK public sector franchise and this certainly contributed to its exceptional performance. For its part, Pathway posted growth of 15.5% to £13.4m (2007: £11.6m) with a significant contribution from its Dubai operation helping to offset the relative weakness of its domestic ICT business.

Computer Futures (which re-branded as FS Group during the year) was once again our largest brand with gross profit of £63.1m (2007: £53.9m) representing a 17.1% increase on the previous year. We see this as a very credible performance from our longest established business which benefited from the maturity of its international presence and improved returns from its newer non ICT franchises in Accountancy and HR. During H1 of 2009, this brand will add further offices in Hamburg and Marseilles.

Huxley, although close behind, stayed in second position with growth of 19.1% resulting in gross profit of £60.4m (2007: £50.7m). Huxley's performance was achieved despite the fact that it has the Group's greatest overall exposure to the investment banking market. The impact of this was offset by its fast growing Non UK business. During the year Huxley added to its network of international offices by opening a new operation in Paris.

Progressive, our third largest brand, had an excellent year. Gross profit increased during 2008 by 37.2% to £43.5m (2007: £31.7m). In common with Huxley and Computer Futures (FS Group) this was driven through an expanding international presence, which will be further enhanced in 2009 through office openings in Singapore, Dusseldorf and Dubai. In Progressive's case it was also enhanced by the success of its Oil & Gas franchise which led to the planned establishment of an Aberdeen office to open in Q1 of 2009. Progressive opened in Sydney during the year and will launch in Singapore in Q1 2009.

Overall the performance of the five largest brands resulted in an increase in their internal 'market share' relative to the smaller Group brands. In aggregate they were responsible for 89.4% of the Group's gross profit compared to 86.6% in the previous year.

Outlook

We enter 2009 off the back of a very creditable 2008 performance achieved in exceptional circumstances. The year was more challenging than we anticipated but the Group still posted significant growth and we were able to continue to build the strategic platform for our future success.

Looking forward to 2009 we are not anticipating a meaningful change in market sentiment from that we saw in the latter part of 2008. As such, we expect 2009 trading conditions to be more difficult overall than in 2008 and there is little doubt that the year in prospect will be the toughest we have experienced in some years.

However, we have a twenty two-year track record of profitable trading and cash generation throughout the cycle and a seasoned management team that has been through major market downturns in the past. As a business we have been thoroughly stress tested on a number of occasions and have never been found wanting. The Group also benefits from a flexible workforce and an agile business model. We start the year with a strong cash position and no debt.

Our substantial exposure to the contract market is a significant mitigating factor and a valuable 'cash hedge' in difficult market conditions. Each contractor ties up working capital, therefore as contractor numbers reduce, so working capital is released, improving the Group's cash position. That said, we will continue to run the business with an emphasis on operational efficiency and prudent cost control. We will not, however, cease to make sensible investments where appropriate or turn our back on opportunities where they arise.

In summary, we enter 2009 with our eyes open, mindful of the risks and challenges ahead. Nonetheless, we are confident that as a business we are particularly well suited to emerge from the current difficult period in excellent shape to take advantage of the inevitable market recovery, whenever it may materialise.

Financial Review

	2008		2007
	Revenue	Gross Profit	Revenue	Gross Profit
Contract	£525.5m	£113.1m	£429.1m	£89.2m
Permanent	£106.0m	£105.8m	£93.6m	£93.5m
Total	£631.5m	£218.9m	£522.7m	£182.7m

Revenue for the year grew by 20.8% to £631.5m (2007: £522.7m). Gross profit ('Net Fee income') for the year increased by 19.9% to £218.9m (2007: £182.7m), representing an overall gross profit margin of 34.7% (2007: 34.9%). The gross profit margin was held broadly flat, despite the shift of business mix from permanent revenue, which is at 100% gross margin. The permanent revenue ratio reduced to 16.8% from 17.9% of total revenue, but this was offset by contract gross profit margins which grew to 21.5% (2007: 20.8%).

Administration expenses before exceptional items increased by 24.3% to £162.1m (2007: £130.4m), primarily driven by increasing numbers of staff, the costs of new office openings and the first full year effect of the depreciation of the 2007 SAP and CRM investments. As a result, the Group's pre-exceptional conversion ratio (pre-exceptional operating profit divided by gross profit) stood at 25.9% (2007: 28.6%). Nevertheless, pre-exceptional operating profit grew by 8.6% to £56.8m (2007: £52.3m).

Group headcount was 2,274 at 30 November 2008, up 11.7% on the opening headcount at 2 December 2007 of 2,035. Average total headcount for the year was 2,157 (2007: 1,786). Sales headcount year on year comparatives are not strictly like for like as the Group took steps in 2007 to more accurately define its sales cohort, resulting in some reclassification.

The net finance charge of £0.8m (2007: £2.0m) reduced as a result of strong cash generation during the year.

Profit before tax and exceptional items amounted to £56.0m (2007: £50.3m), an increase of 11.3%, whilst profit before tax after exceptional items grew by 7.4% to £54.1m (2007: £50.3m).

Taxation on profits before exceptional items was £16.8m (2007: £16.5m), representing an effective tax rate of 30% (2007: 32.8%). The reduction in the effective tax rate was driven by the reduction in UK corporate tax rates from 30% to 28% from April 2008 and the utilisation of unrelieved overseas tax losses, where entities have now become profitable. Based on the current structure of the Group and existing local taxation rates and legislation, it is expected that the underlying effective tax rate will remain at a level of around 30% going forward. The Group's effective cash tax rate was 26.4% (2007: 16.7%), reflecting the reducing Schedule 23 tax benefit.

Basic earnings per share before exceptional items were 29.9p (2007: 25.2p), up 18.7%. This is driven by a growth in profit before taxation before exceptional items of 11.3%, a reduction of the effective tax rate to 30% (2007: 32.8%), an increase in the minority charge to £2.0m (2007: £1.2m) and a reduction of the weighted average number of shares to 124.7m (2007: 129.8m). Fully diluted earnings per share before exceptional items were 29.2p (2007: 24.1p), up 21%. Basic earnings per share after exceptional items were 28.8p (2007: 25.2p), up 14%. Fully diluted earnings per share after exceptional items were 28.1p (2007: 24.1p), up 17%.

The Board previously declared an interim dividend of 4.0p per share (2007: 3.1p). The Board proposes to pay a final dividend of 8.0p per share (2007: 6.2p), bringing the total dividend for the year to 12.0p per share (2007: 9.3p), an increase of 29.0%. The final dividend will be paid on 8 June 2009 to those shareholders on the register at 1 May 2009.

Balance Sheet

The Group had net assets of £90.6m at 30 November 2008 (2007: £93.4m). Net cash amounted to £24.6m (2007: £3.5m), the improvement reflecting the net impact of increased profitability of the Group and the improved management of working capital.

Tangible fixed asset capital expenditure amounted to £2.3m (2007: £5.2m), relating to a significantly reduced investment in IT hardware and fit out of new offices, as expected following the high level of investment in 2007. Intangible asset additions, primarily relating to IT software purchases and development costs, also reduced significantly to £3.9m (2007: £8.9m). Total capital expenditure more in line with these lower levels is expected to continue into 2009.

Net trade debtors reduced by 7.0% to £101.9m (2007: £109.6m) representing DSOs of 43 days (2007: 59 days). Total trade and other payables increased from £73.2m to £81.2m as the Group sought to manage its supply chain more effectively.

Cash Flow

At the start of the year the Group had net cash of £3.5m. During the year, the Group generated cash from operating activities of £87.0m (2007: £29.3m). The Group achieved a significant reduction in working capital of £23.5m through improved debtor and creditor management (2007: increased working capital requirement of £27.2m). Income taxes paid increased to £11.4m (2007: £2.1m) as the benefits of the Schedule 23 relief reduced as expected and overseas businesses in higher tax jurisdictions became more profitable.

During the year, the Group bought back 16.6m shares for £31.3m, representing 13.6% of the issued share capital as at 30 November 2008. This was funded from cash flows from operating activities.

At 30 November 2008 the Group had net cash of £24.6m.

The Group has a committed invoice discounting facility of £20m, with further funding flexibility up to £50m, through to 25 February 2010. The Group is not currently drawing down against this.

Treasury Management and Currency Risk

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.

During 2007, some derivative transactions were undertaken to mitigate these exposures and the results for 2008 include an exceptional charge of £2.0m arising from having closed out the positions before maturity. 

The Board has undertaken a review of its currency hedging strategy to ensure that it is appropriate and currently the Group does not actively manage its exposure to foreign exchange risk by the use of financial instruments, consistent with its major listed competitors. 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 45% of gross profit in 2008 (2007: 32%). The Group will continue to monitor its policies in this area.

Other Principal Risks and Uncertainties Affecting the Business

Other principal risks and uncertainties affecting the business activities of the Group will be detailed within the Directors' Report section of the Annual Report for the year ended 30 November 2008, a copy of which will be made available on the Company'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.

SThree plc
Consolidated Income Statement - Audited
Year ended 30 November 2008
					30 November 2008			2 December 2007
					Ordinary activities	Exceptional items	Total		Total
			Note		£'000	£'000	£'000		£'000
Revenue			2		631,520	-	631,520		522,698
Cost of sales					(412,581)	-	(412,581)		(340,033)
Gross profit			2		218,939	-	218,939		182,665
Administrative expenses			3		(162,129)	(1,957)	(164,086)		(130,408)
Operating profit					56,810	(1,957)	54,853		52,257
Finance income					25	-	25		6
Finance cost					(827)	-	(827)		(1,985)
Share of profit of joint venture					-	-	-		46
Profit before taxation					56,008	(1,957)	54,051		50,324
Taxation			4		(16,809)	594	(16,215)		(16,509)
Profit for the year					39,199	(1,363)	37,836		33,815
Attributable to:
Equity holders of the Company					37,241	(1,363)	35,878		32,648
Minority interest					1,958	-	1,958		1,167
					39,199	(1,363)	37,836		33,815
Earnings per share			6		pence	pence	pence		pence
Basic					29.9	(1.1)	28.8		25.2
Diluted					29.2	(1.1)	28.1		24.1
All amounts relate to continuing operations.

SThree plc
Consolidated Statement of Changes in Equity - Audited
as at 30 November 2008
				Share capital	Share premium	Capital Redemption reserve	Capital reserve	Currency Translation reserve	Retained earnings	Attributable to Company equity shareholders	Minority interest	Total equity
				£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 November 2006				1,380	2,925	-	878	(248)	58,828	63,763	348	64,111
Profit for the year to 2 December 2007				-	-	-	-	-	32,648	32,648	1,167	33,815
Employee share award and share option credit				5	-	-	-	-	347	352	-	352
Deferred tax on employee share options				-	-	-	-	-	(7,597)	(7,597)	-	(7,597)
Current tax on employee share options				-	-	-	-	-	8,258	8,258	-	8,258
Repurchase of share capital				(2)	-	2	-	-	(388)	(388)	-	(388)
Issue of share capital to minority interest				-	-	-	-	-	-	-	990	990
Repurchase of minority interest				-	-	-	-	-	-	-	(10)	(10)
Dividends paid to equity holders				-	-	-	-	-	(6,345)	(6,345)	-	(6,345)
Dividends paid to minority interest				-	-	-	-	-	-	-	(70)	(70)
Currency translation differences				-	-	-	-	317	-	317	-	317
Total movements in equity				3	-	2	-	317	26,923	27,245	2,077	29,322
Balance at 2 December 2007				1,383	2,925	2	878	69	85,751	91,008	2,425	93,433
Profit for the year to 30 November 2008				-	-	-	-	-	35,878	35,878	1,958	37,836
Employee share award and share option credit				-	-	-	-	-	658	658	-	658
Deferred tax on employee share options				-	-	-	-	-	(1,297)	(1,297)	-	(1,297)
Current tax on employee share options				-	-	-	-	-	1,043	1,043	-	1,043
Repurchase of share capital				(166)	-	166	-	-	(31,250)	(31,250)	-	(31,250)
Issue of share capital				1	-	-	-	-	-	1	-	1
Employee subscription for share awards				-	-	-	-	-	127	127	-	127
Repurchase of minority interest				-	-	-	-	-	-	-	(242)	(242)
Dividends paid to equity holders				-	-	-	-	-	(12,004)	(12,004)	-	(12,004)
Dividends paid to minority interest				-	-	-	-	-	-	-	(89)	(89)
Currency translation differences				-	-	-	-	2,262	-	2,262	95	2,357
Total movements in equity				(165)	-	166	-	2,262	(6,845)	(4,582)	1,722	(2,860)
Balance at 30 November 2008				1,218	2,925	168	878	2,331	78,906	86,426	4,147	90,573

SThree plc
Consolidated Balance Sheet - Audited
as at 30 November 2008
				30 November	2 December
				2008	2007
			Note	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment				6,575	6,479
Intangible assets				12,262	10,771
Investment in joint venture				-	135
Deferred tax assets				3,146	3,052
				21,983	20,437
Current assets
Trade and other receivables				139,937	151,085
Cash and cash equivalents			7	24,584	4,771
				164,521	155,856
Total assets				186,504	176,293
LIABILITIES
Current liabilities
Provisions for liabilities and charges				(332)	(250)
Trade and other payables				(81,246)	(73,180)
Financial liabilities				-	(1,267)
Current tax liabilities				(10,818)	(4,911)
				(92,396)	(79,608)
Non-current liabilities
Provisions for liabilities and charges				(3,535)	(3,252)
				(3,535)	(3,252)
Total liabilities				(95,931)	(82,860)
Net assets				90,573	93,433
EQUITY
Capital and reserves attributable to the Company's equity holders
Share capital				1,218	1,383
Share premium				2,925	2,925
Capital redemption reserve				168	2
Capital reserve				878	878
Currency translation reserve				2,331	69
Retained earnings				78,906	85,751
				86,426	91,008
Minority interest				4,147	2,425
Total equity				90,573	93,433

SThree plc
Consolidated Cash Flow Statement - Audited
Year ended 30 November 2008
					30 November	2 December
					2008	2007
					£'000	£'000
Cash flows from operating activities
Profit before taxation					54,051	50,324
Depreciation and amortisation charge					5,895	3,761
Unrealised losses on financial instruments					-	999
Realised losses on financial instruments					1,957	-
Finance income					(25)	(6)
Finance cost					827	1,985
Loss on disposal of property, plant and equipment					-	46
Profit attributable to joint venture					-	(46)
Profit from partial deemed disposal of subsidiary					-	(855)
Non-cash charge for employee share options and awards					658	347
Employee subscription for share awards					127	-
Operating cashflow before changes in  working capital and provisions					63,490	56,555
Decrease/(increase) in receivables					16,455	(58,500)
Increase in payables					6,731	33,383
Increase/(decrease) in provisions					295	(2,122)
Cash generated from operating activities					86,971	29,316
Income tax paid					(11,449)	(2,113)
Net cash generated from operating activities					75,522	27,203
Cash flows from investing activities
Purchase of property, plant and equipment					(2,341)	(5,173)
Purchase of intangible assets					(3,861)	(8,901)
Proceeds from sale of property, plant and equipment					-	30
Net cash used in investing activities					(6,202)	(14,044)
Cash flows from financing activities
Repayment of loan facility					(1,000)	-
Cash loss on settlement of treasury investments					(2,956)	-
Finance income					25	6
Finance costs					(827)	(1,985)
Proceeds from issue of ordinary shares					1	5
Issue of share capital to minority interest					-	1,845
Repurchase of share capital					(31,250)	(388)
Repurchase of minority interest					(1,072)	(28)
Dividends paid					(12,004)	(6,345)
Dividend paid to minority interest					(89)	(70)
Net cash used in financing activities					(49,172)	(6,960)
Net increase in cash and cash equivalents					20,148	6,199
Cash and cash equivalents at beginning of the year					4,504	(1,841)
Exchange (loss)/gain on cash and cash equivalents					(68)	146
Cash and cash equivalents at the end of the year					24,584	4,504

SThree plc
Notes to the Financial Statements
Year ended 30 November 2008
1. Basis of preparation
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ('IFRS') as endorsed by the European Union and also comply with International Financial Reporting Interpretations Committee ('IFRIC') interpretations and the Companies Act 1985 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through the income statement.
2. Segmental analysis
As the Group operates in one business segment, being that of recruitment services, no additional business segment information is required to be provided. The Group's secondary segment is geographical and the segmental results by geographical area are shown below.
Geographic analysis
				By location of client		By location of operating company
				30 November 2008	2 December 2007	30 November 2008	2 December 2007
				£'000	£'000	£'000	£'000
Revenue
United Kingdom				386,934	369,735	486,944	479,521
Europe and Rest of World				244,586	152,963	144,576	43,177
				631,520	522,698	631,520	522,698
Gross Profit
United Kingdom				121,566	123,321	144,975	147,459
Europe and Rest of World				97,373	59,344	73,964	35,206
				218,939	182,665	218,939	182,665
Operating Profit
Operating profit before exceptional items
United Kingdom						27,372	44,472
Europe and Rest of World						29,438	7,785
						56,810	52,257
Exceptional items
United Kingdom						(1,957)	-
						54,853	52,257
				Total assets		Capital expenditure
				30 November 2008	2 December 2007	30 November 2008	2 December 2007
				£'000	£'000	£'000	£'000
United Kingdom				124,817	155,898	4,806	12,811
Europe and Rest of World				61,687	20,395	1,396	1,263
				186,504	176,293	6,202	14,074

2. Segmental analysis (continued)
The following segmental analyses by brand, recruitment classification and by discipline (being the profession of candidates placed) have been included as additional disclosure over and above the requirements of IAS14 'Segment Reporting'.
				Revenue		Gross profit
				30 November 2008	2 December 2007	30 November 2008	2 December 2007
				£'000	£'000	£'000	£'000
Brand
Computer Futures Solutions				174,838	148,096	63,081	53,850
Huxley Associates				160,918	134,374	60,428	50,746
Progressive				127,911	95,067	43,462	31,688
Real Resourcing				49,713	34,005	15,443	10,364
Pathway				45,026	45,279	13,426	11,595
Others				73,114	65,877	23,099	24,422
				631,520	522,698	218,939	182,665
Recruitment classification
Contract				525,531	429,121	113,098	89,143
Permanent				105,989	93,577	105,841	93,522
				631,520	522,698	218,939	182,665
Discipline
Information & communication technology				535,164	469,883	168,465	150,139
Others(1)				96,356	52,815	50,474	32,526
				631,520	522,698	218,939	182,665
(1) Including accountancy and finance, banking, engineering, oil and gas, pharmaceuticals, human resources, energy, jobboard and legal sectors.

3. Administrative Expenses - Exceptional Items
Exceptional items are those items which, because of their size, incidence or nature, are disclosed to give a proper understanding of the underlying results for the period. Items classified as exceptional are as follows:
								30 November 2008		2 December 2007
								£'000		£'000
Exceptional items - charged to operating profit
Exchange loss on settlement of financial instruments								(1,957)		-
Exceptional items - before taxation								(1,957)		-
During the prior period, some complex financial instruments transactions were undertaken to mitigate certain foreign currency exposures. These have resulted in a £2.0m loss arising when a series of equal and opposite positions were taken during this financial year in order to reduce the Group's total exposure from these positions to a minimal level. 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 our international business; which accounted for 45% of gross profit in 2008. The Group will continue to monitor its policies in this area. As a result of earlier mitigation, the Group no longer has net exposure to complex financial instruments, which the Board believes are not appropriate for the Group going forward.

SThree plc
Notes to the Financial Statements
Year ended 30 November 2008
4. Taxation
(a) Analysis of tax charge for the year
							Ordinary activities	Exceptional items	30 November 2008	2 December 2007
									Total	Total
							£'000	£'000	£'000	£'000
Current taxation
UK
Corporation tax at 28% (2007: 30%) on profits for the year							12,592	(876)	11,716	12,646
Adjustments in respect of prior periods							33	-	33	-
Overseas
Corporation tax on profits for the year							5,857	-	5,857	2,778
Adjustments in respect of prior periods							-	-	-	278
Total current tax charge/(credit)							18,482	(876)	17,606	15,702
Deferred taxation
Origination and reversal of temporary differences							(1,193)	282	(911)	473
Adjustments in respect of prior periods							(216)	-	(216)	571
Schedule 23 deferred tax credit in respect of unexercised employee share awards and options							(264)	-	(264)	(32)
Impact of change in UK tax rate							-	-	-	(205)
Total deferred tax (credit)/charge							(1,673)	282	(1,391)	807
Total income tax charge/(credit) in the income statement							16,809	(594)	16,215	16,509

4. Taxation (continued)
(b) Reconciliation of the effective tax rate
The Group's tax charge for the year ended 30 November 2008 exceeds the UK statutory rate and can be reconciled as follows:
							30 November 2008			2 December 2007
							£'000		%	£'000	%
Profit before taxation							54,051			50,324
Profit before tax multiplied by standard rate of corporation tax in the UK of 28%							15,134		28%	15,097	30%
Effects of:
Disallowable items and other timing differences							283		-	679	1%
Net difference between IFRS 2 charge and Schedule 23 deferred tax credit							-		-	70	-
Higher tax rates on overseas earnings							959		2%	19	-
Utilisation of tax losses brought forward							(235)		-	-	-
Unrelieved overseas losses net of deferred tax							(23)		-	-	-
Adjustment due to UK tax rate change							280		-	-	-
Adjustment to tax in respect of previous periods							(183)		-	849	2%
Remeasurement of deferred tax change in UK tax rate							-		-	(205)	-
Tax expense and effective tax rate							16,215		30%	16,509	33%
										30 November 2008	2 December 2007
(c) Current and deferred tax movement recognised directly in equity										£'000	£'000
Current tax
Equity settled employee share options										1,043	8,258
Deferred tax
Equity settled employee share options										(1,297)	(7,597)
										(254)	661
The Directors expect to receive additional tax deductions in respect of the share awards and share options currently unexercised. Under IFRS the Group is required to provide for deferred tax on all unexercised share awards and options. At 30 November 2008 a deferred tax asset of £0.8m (2007: £1.8m) has been recognised in respect of this.

SThree plc

Notes to the Financial Statements

Year ended 30 November 2008

5. Dividends

30 November 2008

2 December 2007

£'000

£'000

Amounts recognised and distributed to shareholders in the year

Equity

Interim dividend of 3.1p per ordinary share

4,101

-

Dividend paid of 6.2p per ordinary share (2007: 4.8p)

7,903

6,345

12,004

6,345

Amounts proposed

Interim dividend for the period ended 1 June 2008: 4.0p (2007: 3.1p)

4,738

4,101

Final dividend of 8.0p (2007: 6.2p) per ordinary share for the year ended 30 November 2008

9,280

7,903

An interim dividend of 3.1 pence per ordinary share for the six months ended 3 June 2007 was paid on 7 December 2007 to shareholders on record at 9 November 2007.

The dividend of 6.2 pence (2007: 4.8 pence) per ordinary share for the year ended 2 December 2007 was paid on 9 June 2008 to shareholders on record at 2 May 2008.

An interim dividend of 4.0 pence per ordinary share for the six months ended 1 June 2008 was paid on 5 December 2008 to shareholders on record at 7 November 2008.

The proposed final dividend for the year ended 30 November 2008 of 8.0 pence (2007: 6.2 pence) per ordinary share will be paid on 8 June 2009 to shareholders on record at 1 May 2009, if approved on 24 April 2009.

SThree plc
Notes to the Financial Statements
Year ended 30 November 2008
6. Earnings per share
The calculation of the basic and diluted earnings per share ('EPS') is based on the following data.
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding those held in the EBT which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares.
											30 November 2008			2 December 2007
											£'000			£'000
Earnings
Profit after taxation excluding exceptional items											39,199			33,815
Minority interest											(1,958)			(1,167)
Adjusted profit for the year attributable to the equity holders of the Company excluding exceptional items											37,241			32,648
Effect of exceptional items (net of tax)											(1,363)			-
Profit after taxation attributable to equity holders of the Company											35,878			32,648
											millions			millions
Number of shares
Weighted average number of shares used for basic EPS											124.7			129.8
Dilutive effect of share plans											3.0			5.9
Diluted weighted average number of shares used for diluted EPS											127.7			135.7
											pence			pence
Basic
Basic earnings per share											28.8			25.2
Adjusted basic earnings per share excluding exceptional items											29.9			25.2
Diluted
Diluted earnings per share											28.1			24.1
Adjusted diluted earnings per share excluding exceptional items											29.2			24.1
All earnings are derived from continuing operations.

SThree plc

Notes to the Financial Statements

Year ended 30 November 2008

7. Cash and cash equivalents

30 November 2008

2 December 2007

£'000

£'000

Cash in hand and at bank

24,584

4,771

Bank overdraft

-

(267)

24,584

4,504

8.    Financial information

The financial information in this preliminary announcement which comprises the Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Statement of Changes In Equity, Consolidated Cash Flow Statement, Accounting Policies and related Notes does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985.

The auditors have reported on the Group's statutory accounts for the year ended 30 November 2008 and year ended 2 December 2007 under s235 of the Companies Act 1985, which do not contain statements under s237(2) or s237(3) of the Companies Act 1985 and are unqualified. The Group's statutory accounts for the year ended 2 December 2007 have been delivered to the Registrar of Companies and the Group's statutory accounts for the year ended 30 November 2008 will be filed with the Registrar of Companies in due course.

9.    Annual Report and Accounts and Annual General Meeting

The 2008 Annual Report and Accounts and Notice of 2009 Annual General Meeting will be posted to shareholders shortly. Copies will be available on the Company's website www.sthree.com or from the Company Secretary, 41-44 Great Windmill Street, London W1D 7NB. The Annual General Meeting of SThree plc is to be held on 24 April 2009.

 

END

 

 

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