Interim results for the half year ended 31.05.16

RNS Number : 7183D

SThree plc

11 July 2016

 

11 July 2016

SThree plc

("SThree" or the "Group")

Interim results for the half year ended 31 May 2016

SThree, the international specialist staffing business, is today announcing its interim results for the half year ended 31 May 2016.

Financial Highlights

	H1 2016		H1 2015(2)	Variance
	Adjusted(1)	As reported		Adjusted	As reported
	£m	£m	£m	%	%
Revenue	443.5	443.5	403.6	+8%*	+10%
Gross profit	119.8	119.8	110.5	+6%*	+8%
Operating profit	15.3	13.0	14.1	+9%	-8%
Operating profit conversion ratio	12.8%	10.9%	12.8%	-	-1.9% pts
Profit before taxation	15.1	12.8	13.8	+9%	-7%
Basic earnings per share	8.6p	7.3p	7.3p	+18%	-
Interim dividend per share	4.7p	4.7p	4.7p	-	-

⁽¹⁾Adjusted for the impact of £2.3m of costs in relation to the restructuring of the Energy, Banking & Finance and UK businesses and right sizing of the central support functions

⁽²⁾ The figures exclude the impact of a £0.4m exceptional gain related to the disposal of IT Job Board in H1 2015

Operational Highlights

·    Adjusted operating profit up 9% year on year ("YoY") to £15.3m (H1 2015: £14.1m) with adjusted operating profit conversion ratio unchanged at 12.8% (H1 2015: 12.8%)

·      Gross profit ("GP") up 6%* YoY and ahead by 11%* excluding Energy

o  Continued strong growth across ICT (up 18%* YoY)

o  Strongest growth in Continental Europe (up 18%* YoY)

o  USA GP up 6%* YoY (up 20%* excluding Energy), reflecting tough trading conditions in the Energy and Banking & Finance sectors

o  UK market impacted by uncertainty in lead up to EU referendum and slowdown in Banking & Finance sector  - GP down 5%* YoY

o  Conditions in the Energy market remain challenging - GP down 31%* YoY

·      Contract GP up 11%* YoY and ahead by 14%* excluding Energy. Contract now accounts for 67% of Group GP (H1 2015: 64%)

·      Permanent GP down 2%* YoY but productivity improved by 5% YoY following a decrease in average sales headcount of 7%. Permanent GP excluding Energy up 6%* YoY

·      Group period end sales headcount down 2% on the 2015 year-end position and up 4% YoY, driven by investment in Contract. Average sales headcount up 6% YoY

·      Improved balance sheet position with net debt of £4.4m (H1 2015: net debt of £9.5m).

* Variances in constant currency

Gary Elden, CEO, commented: "We experienced mixed trading conditions in the period.  Our Contract business, which now represents more than two thirds of the Group, continued to perform well, with gross profit increasing by 11%* year on year.  ICT growth was strong, with gross profit ahead by 18%* year on year, and Continental Europe was once again our fastest growing region.  However, slowdowns in the global banking market and in the UK, and the ongoing weakness in Energy, all impacted on our first half growth rate. 

"While it is too early to assess the impact of the EU Referendum result, the effect on client and candidate confidence in our UK business will become clearer as we trade through our seasonally more important second half.        

"Looking ahead, the Group's weighting towards the more resilient Contract market, where we continue to see good growth momentum, and our diversified portfolio of geographies and sectors, give us confidence that we can optimise our performance, whatever the prevailing market opportunity." 

SThree will host a live presentation and conference call for analysts at 0900 BST today. The conference call participant telephone details are as follows:

Dial in:	[phone]
Call passcode:	SThree

This event will also be simultaneously audio webcast, hosted on the SThree website at http://www.sthree.com. Note that this is a listen only facility and an archive of the presentation will be available via the same link later.

SThree will be announcing its Q3 Interim Management Statement on Friday 9 September 2016.

Enquiries:

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

Notes to editors

SThree is a leading international specialist staffing business, providing permanent and contract specialist staff to a diverse client base of over 7,000 clients. From its well-established position as a major player in the Information and Communications Technology ("ICT") sector the Group has broadened the base of its operations to include businesses serving the Banking & Finance, Energy, Engineering and Life Sciences sectors.

Since launching its original business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree brands include Computer Futures, Huxley Associates, Progressive and The Real Staffing Group. The Group has circa 2,900 employees in fifteen 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. Data from the announcement is sourced from unaudited internal management information. Accordingly, undue reliance should not be placed on forward looking statements.

INTERIM MANAGEMENT REPORT

ChIEF EXECUTIVE OFFICER'S ReVIEW

Overview

We delivered Group GP for the period up 6%* (up 11%* excluding Energy), driven by positive results from our continued investment in Contract, our drive to build productivity in Permanent and our ability to capitalise on opportunities in key markets, especially Continental Europe and the USA. 

Underlying performances by region and sector were mixed. We saw some continued strong performances:

o  Contract GP increased by 11%*, or 14%* excluding Energy;

o  Continental Europe was our fastest growing region, led by Germany, where GP was ahead by 22%*; and 

o  ICT growth was robust, with GP ahead by 18%*

This good progress was offset to some extent by ongoing weakness in the Oil and Gas market, a slow-down in the UK, particularly in Banking & Finance, and a lower rate of growth in the USA, where GP was ahead by 6%*.

The rate of growth YoY dropped from Q1 into Q2, especially in Permanent. 

The conversion ratio for GP into operating profit remained flat as we invested across the business in 2015 and in H1 2016, especially in the USA. Headcount build remained modest, with Group period-end sales headcount down 2% on the 2015 year-end position and up 4% YoY as we rebalance our Permanent business and remix our sales heads to reflect the current trading environment.  Our focus in H2 is primarily on improving yields in both Permanent and Contract. 

			GP					Average Sales Headcount
			Growth* YoY			HY 2016 Mix		Growth YoY
			Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
Group		Q1 16	+11%	+9%	+10%			+16%	-6%	+6%
		Q2 16	+10%	-12%	+2%			+17%	-7%	+6%
		HY 16	+11%	-2%	+6%	67%	33%	+17%	-7%	+6%

			GP					Average Sales Headcount
			Growth* YoY			HY 2016 Mix		Growth YoY
			Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
Group (excluding Energy)		Q1 16	+15%	+21%	+17%			+21%	+8%	+15%
		Q2 16	+13%	-6%	+6%			+21%	+4%	+13%
		HY 16	+14%	+6%	+11%	65%	35%	+21%	+6%	+14%

Breakdown of GP	HY 2016 %	HY 2015 %	FY 2015 %
Geographical Split
UK&I	27%	30%	30%
Continental Europe	48%	44%	44%
USA	19%	18%	19%
Asia Pac & Middle East	6%	8%	7%
	100%	100%	100%
Sector Split
ICT	45%	41%	41%
Banking & Finance	16%	18%	18%
Energy	8%	12%	11%
Engineering	9%	9%	9%
Life Sciences	20%	18%	19%
Other Sectors	2%	2%	2%
	100%	100%	100%

Operating Review

Business Mix

Contract is well suited to our STEM market focus and geographical mix. It remained the key area of focus and growth throughout the period, while Permanent headcount was reduced in a number of key locations to reflect market conditions, especially in the UK&I.

Our Contract business maintained its robust performance. Contract GP was up 11%* YoY (up 14%* excluding Energy), with average sales headcount up 17% (up 21% excluding Energy).  Q2 was the tenth consecutive quarter of double digit GP growth achieved by Contract since it was given greater strategic focus. We exit the period with runners up 7% YoY and period-end gross profit per day rates up 2%*. As well as being an important driver of GP growth, our investment in Contract makes us more resilient in times of economic uncertainty and selective expansion of our Contract teams will be a key focus for the remainder of 2016.

Permanent GP, which represented 33% of Group GP, was down 2%* YoY, but - in line with a key strategic objective - we were successful in driving up productivity by 5%*.  Permanent GP excluding Energy was up by 6%*.

Permanent is more sensitive to market sentiment and has been hit harder by the weakening Banking & Finance market globally and uncertainty over the EU Referendum in the UK. Average Permanent fees remained robust YoY. Average sales headcount in our Permanent business was down 7% largely due to the reduction in our Energy business and a restructuring in the UK. We expect to invest in Permanent selectively in the remainder of 2016 where there is clear evidence of improving candidate and client confidence, but our primary focus will be on improving consultant yields.

Sector Highlights

Strong performances from ICT and continuing growth in Life Sciences and Engineering have offset the adverse impact of global economic conditions on Energy and Banking & Finance. Highlights of those sector developments that have had a global impact are provided below:

			GP					Average Sales Headcount
			Growth* YoY			HY 2016 Mix		Growth YoY
			Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
ICT 45% of GP		Q1 16	+21%	+17%	+20%			+24%	+13%	+20%
		Q2 16	+20%	+6%	+15%			+23%	+9%	+18%
		HY 16	+20%	+11%	+18%	72%	28%	+24%	+11%	+19%

ICT is our largest and most established sector representing 45% of the Group GP and average sales headcount, consequently the majority of its business is in the more mature UK&I and European markets. GP for the period was up 18%* YoY with average sales headcount up 19%. Exciting ICT opportunities remain in the USA where we have invested for future growth in this vast, domestic, specialist staffing market.  USA ICT GP grew by 86%* in H1. 

			GP					Average Sales Headcount
			Growth* YoY			HY 2016 Mix		Growth YoY
			Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
Banking & Finance 16% of GP		Q1 16	+12%	-	+6%			+11%	-5%	+1%
		Q2 16	-3%	-24%	-14%			+14%	-3%	+4%
		HY 16	+4%	-14%	-5%	53%	47%	+12%	-4%	+3%

Uncertainty in the global banking markets adversely impacted our Banking & Finance business in H1, with GP down 5%* YoY.  Hiring freezes were put in place by a number of major banks and the industry is undergoing significant restructuring.  The UK banking market was also adversely impacted by uncertainty in the run-up to the EU Referendum in late June which caused managers to put hiring decisions on hold.  Our performance deteriorated in Q2.

			GP					Average Sales Headcount
			Growth* YoY			HY 2016 Mix		Growth YoY
			Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
Energy 8% of GP		Q1 16	-15%	-77%	-34%			-12%	-84%	-45%
		Q2 16	-7%	-77%	-28%			-7%	-89%	-40%
		HY 16	-12%	-77%	-31%	90%	10%	-10%	-86%	-43%

Overall conditions in the Oil and Gas market remain challenging and although we continue to reshape our Energy teams, reducing our exposure to the Upstream Permanent market in particular, the newer opportunities will take time to develop.  The Contract runner book has declined from our year end position, but appears to have now stabilised.  Stronger comparatives impact the YoY results across the Group for Q2 and Q3.

Regional Growth

We saw growth across our international foot print, building scale and critical mass in our existing 43 offices in 15 countries, of which 31 are outside of the UK. Offices in Austin and Minneapolis were opened in the period to focus on growth opportunities in the USA ICT market.

			GP					Average Sales Headcount
			Growth* YoY			HY 2016 Mix		Growth YoY
			Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
Continental Europe 48% of GP		Q1 16	+17%	+25%	+20%			+14%	+1%	+8%
		Q2 16	+20%	+8%	+16%			+13%	+4%	+9%
		HY 16	+19%	+16%	+18%	65%	35%	+13%	+3%	+9%

Continental Europe is our largest and fastest growing region, with the key contributors to our business being Germany, Netherlands, Belgium, France, Switzerland and Luxembourg.  These regional markets vary significantly in their level of maturity and competition, with Germany remaining the most significant structural growth opportunity.

This region delivered excellent growth in the period, up 18%* with growth across all main countries. Germany performed particularly well, with GP ahead by 22%*. In Continental Europe, we saw double digit growth in contract runners YoY creating a strong exit rate for Contract GP, as well as improved consultant productivity in Permanent.  Highlights in the region include the ICT sector up 19%*, Engineering up 37%* and Life Sciences sectors up 16%*. Average sales headcount was up 9% with Contract up 13% and Permanent up 3%.

			GP					Average Sales Headcount
			Growth* YoY			HY 2016 Mix		Growth YoY
			Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
UK&I 27% of GP		Q1 16	-1%	+2%	-			+5%	-10%	-1%
		Q2 16	-	-31%	-9%			+9%	-15%	-
		HY 16	-1%	-17%	-5%	76%	24%	+7%	-12%	-1%

The UK&I is our longest established region and the business is increasingly Contract focused as we make the most of opportunities in the STEM market. EU Referendum uncertainty, weakness in the banking market and newly-introduced rate caps on Public Sector business are all impacting our UK performance. We have restructured our Permanent and Banking & Finance businesses in response to challenging market conditions. 

GP was down 5%* YoY, with the performance weakening in Q2, when GP was down by 9%* YoY. In H1, Energy was down 47%*, Banking & Finance down 19%*, and Engineering down 23%*. Contract headcount is expected to remain broadly flat for the remainder of the year and Permanent headcount will continue to reduce as we do not replace heads that churn and remix our headcount to maximise productivity.

			GP					Average Sales Headcount
			Growth* YoY			HY 2016 Mix		Growth YoY
			Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
USA 19% of GP		Q1 16	+20%	+2%	+14%			+61%	-1%	+32%
		Q2 16	+10%	-15%	-			+53%	-18%	+20%
		HY 16	+15%	-8%	+6%	67%	33%	+57%	-9%	+26%

The USA is the world's largest specialist STEM staffing market. It currently represents 19% of Group GP. Leveraging our increasing knowledge and experience of this exciting market, we have grown aggressively in our existing offices and by replicating our business model in new locations.  Average sales headcount is up 26% YoY and we expect to benefit from productivity gains in the future.  If appropriate businesses are identified, we may also acquire to help further accelerate our USA growth.

GP was up 6%* YoY (up 20%* excluding Energy), reflecting tough trading conditions in the Energy and Banking & Finance sectors. The Energy business went through a significant restructuring in 2015 and the Banking & Finance market was impacted in the second quarter as US investment banks cut back on hiring across the board. 

Our USA business is moving more towards Contract in response to the needs of its clients, with Contract GP up 15%*, average sales headcount up 57% and the period-end runner book up 8% YoY (excluding Energy, GP up 35%*, average sales headcount up 74%  and runners up 17%). We have countered the challenge posed by the adverse Energy market by investing heavily in ICT via our Computer Futures brand, which continued to grow strongly (up 86% YoY). While our USA ICT and Life Sciences Contract businesses continued to report good growth, some short term execution issues have meant that the productivity of new consultants has not moved forward at the expected rate.  We've now addressed this with a range of measures that will begin to take effect over the second half.        

Permanent GP is down YoY with average sales heads down 9% (excluding Energy, GP up 1%* and average sales headcount up 10%). Fees remained strong, reflecting the niche positioning of our proposition to our clients in the region.

			GP					Average Sales Headcount
			Growth* YoY			HY 2016 Mix		Growth YoY
			Cont	Perm	Total	Cont	Perm	Cont	Perm	Total
Asia Pacific & Middle East 6% of GP		Q1 16	+3%	-21%	-13%			-4%	-24%	-19%
		Q2 16	+3%	-27%	-18%			+6%	-15%	-9%
		HY 16	+3%	-24%	-15%	39%	61%	+1%	-20%	-14%

Our Asia Pacific business principally includes Australia, Singapore, Japan and Hong Kong and the Middle East mainly covers Dubai and Qatar.  These businesses were significantly impacted by the downturn in the Energy market and this is reflected in the YoY drop in GP in the period, down 15%*.  The Energy sector was down 44%* YoY and now represents 20% of the region (2015: 31%).  Asia Pacific is also feeling the impact of slowing growth in China with reduced demand for energy, mining and minerals and a tough banking market. The Middle East has, however, shown promising growth on Contract.

Outlook

"While it is too early to assess the impact of the EU Referendum result, the effect on client and candidate confidence in our UK business will become clearer as we trade through our seasonally more important second half.        

"Looking ahead, the Group's weighting towards the more resilient Contract market, where we continue to see good growth momentum, and our diversified portfolio of geographies and sectors, give us confidence that we can optimise our performance, whatever the prevailing market opportunity." 

* Variances in constant currency

ChIEF FINANCIAL OFFICER'S ReVIEW

Operating Profit

A 6%* growth in GP converted into a 9% growth in adjusted operating profit. The adjusted operating profit conversion ratio remained unchanged at 12.8% (H1 2015: 12.8%). The growth in the adjusted operating profit was moderated by investment in sales headcount and infrastructure. Reported operating profit reduced by 8% mainly due to one-off restructuring costs of £2.3m.

Restructuring

During the period, we undertook certain restructuring initiatives to address the weaknesses in our Energy, Banking & Finance and UK businesses and we further right-sized our central support functions. These actions resulted in one-off costs of £2.3m. The cash impact is expected to predominantly fall in the second half of the year. These costs arose as part of decisions made during the ordinary course of business. However, due to their nature and collective quantum, the costs have been separately highlighted to provide further information to shareholders to help them understand the Group's underlying results for the period ("Adjusted"). The Group's adjusted profit figures for the period are presented in various sections of this Interim Report.

Taxation

The reported taxation charge for the half year was £3.5m (H1 2015: £4.5m), representing an effective tax rate ("ETR") of 27% (FY 2015: 30%). The Group ETR primarily reflects our geographical profit mix. The 2015 comparative was higher than the profit mix would suggest due to the write-off of tax assets in Asia-Pac. In addition, in 2016 we expect to utilise some unrecognised tax assets in parts of Continental Europe due to improving profitability.

Earnings per Share ("EPS")

The adjusted basic EPS increased by 18% to 8.6p (H1 2015: 7.3p). The weighted average number of shares used for basic EPS increased by 2% to 128.5m (H1 2015: 126.3m). Adjusted diluted earnings per share increased by 21% to 8.2p (H1 2015: 6.8p). Share dilution mainly results from various share awards in place and unsettled tracker shares. The dilutive effect on EPS from tracker shares will vary in future periods depending on the profitability of the underlying tracker businesses, the volume of new tracker arrangements created and the settlement of vested arrangements.

Dividends

The Board proposes to pay an interim dividend of 4.7p (H1 2015: 4.7p) per share. This will be paid on 9 December 2016, to the shareholders on record at 4 November 2015. The total payment to shareholders on this date will be approximately £6.1m.

Cash Flow

We started the period with net cash of £6.2m. We generated cash from operations of £3.2m (H1 2015: £16.7m).

The cash outflow on capital expenditure increased to £4.0m (H1 2015: £3.7m) which broadly related to new office fit-outs and investment in software and system development costs as we continued to upgrade our sales technology platform and HR systems.

Cash outflow from previously recognised exceptional items was £0.6m (H1 2015: £2.4m). Income taxes paid decreased to £2.3m (H1 2015: £5.3m) and dividends were broadly unchanged at £6.0m (H1 2015: £5.9m). We also paid £4.6m for the purchase of own shares to satisfy future vesting of awards under employee share schemes (H1 2015: £nil).

We closed the period with net debt of £4.4m after favourable currency movements of £2.8m.

Treasury Management

We finance the Group's operations through equity and bank borrowings. We intend to continue this strategy while maintaining a strong balance sheet position. We have a committed revolving credit facility ("RCF") of £50m in place with RBS and HSBC which expires in May 2019. The RCF is subject to conventional covenants and funds borrowed under this facility bear interest at a minimum annual rate of 1.3% above 3 month Sterling LIBOR giving an average interest rate of 1.8% during the period (H1 2015: 1.8%).

The Group has a notional cash pool between its Eurozone subsidiaries and a UK-based treasury subsidiary.

Foreign Exchange

Foreign exchange volatility continues to be a significant factor in the reporting of the overall performance of the business with the main functional currencies of the Group being Sterling, the Euro and the US Dollar.

For H1 2016, currency movements versus Sterling provided a modest tailwind for the reported performance of the Group. The exchange rate movements increased our H1 2016 reported GP and operating profit by circa £2.0m and £0.3m, respectively.

Exchange rate movements remain a material sensitivity. By way of illustration, each 1 percent movement in average exchange rates of the Euro and the US Dollar impacted our H1 2016 GP by £0.6m and £0.2m respectively per annum; and H1 2016 operating profits by £0.2m and £nil, respectively.

The Board reviews its currency hedging strategy periodically to ensure that it remains appropriate. The Group does not hold or use derivative financial instruments for speculative purposes.

Principal Risks and Uncertainties

Principal risks and uncertainties affecting the business activities of the Group are the same as those detailed within the Strategic Report section of the Group's 2015 Annual Report, a copy of which is available on the Group's website at www.sthree.com.

As explained in the Outlook section, it is too early to assess the impact of the EU Referendum result. The effect on client and candidate confidence in our UK business will become clearer as we trade through our seasonally more important second half. In terms of wider macroeconomic environment risks, our strategy is to continue to grow the size of our international business and expand to new sectors, both financially and geographically. This will help reduce our exposure or dependence on any one specific economy.

In the view of the Board, there is no material change expected to the Group's other key risk factors in the foreseeable future.

* Variances in constant currency

Directors' Responsibility Statement

The Directors confirm that to the best of their knowledge:                   

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

(b)           the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events that have occurred during the first six months of the financial year and description of principal risks and uncertainties for the remaining six months of the year); and                                                                                        

(c)           the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).                                                                                                                                                                                                  

Approved by the Board on 8 July 2016 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 half year ended 31 May 2016
			31 May		31 May
			2016		2015
					Before exceptional items	Exceptional items	Total
		Note	£'000		£'000	£'000	£'000
Continuing operations
Revenue		2	443,495		403,589	-	403,589
Cost of sales			(323,654)		(293,048)	-	(293,048)
Gross profit		2	119,841		110,541	-	110,541
Administrative expenses			(106,837)		(96,392)	-	(96,392)
Gain on disposal of subsidiaries		3	-		-	377	377
Operating profit			13,004		14,149	377	14,526
Finance income			56		40	-	40
Finance costs			(255)		(429)	-	(429)
Profit before taxation			12,805		13,760	377	14,137
Taxation		4	(3,458)		(4,541)	(78)	(4,619)
Profit for the period attributable to owners of the Company			9,347		9,219	299	9,518
Earnings per share		6	pence		pence	pence	pence
Basic			7.3		7.3	0.2	7.5
Diluted			7.0		6.8	0.2	7.0

SThree plc
Condensed consolidated statement of comprehensive income - unaudited
for the half year ended 31 May 2016
				31 May	31 May
				2016	2015
				£'000	£'000
Profit for the period				9,347	9,518
Other comprehensive income/(loss):
Items that may be subsequently reclassified to profit or loss:
Exchange differences on retranslation of foreign operations				2,588	(2,879)
Other comprehensive income/(loss) for the period (net of tax)				2,588	(2,879)
Total comprehensive income for the period attributable to owners of the Company				11,935	6,639

SThree plc
Condensed consolidated statement of financial position - unaudited
as at 31 May 2016
					Audited
		Note		31 May	30 November
				2016	2015
				£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment				6,098	5,599
Intangible assets				11,942	11,108
Deferred tax assets				1,796	1,780
				19,836	18,487
Current assets
Trade and other receivables				166,198	157,153
Current tax assets				271	3,292
Cash and cash equivalents				21,600	6,159
				188,069	166,604
Total assets				207,905	185,091
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital		7		1,297	1,295
Share premium				23,640	23,140
Other reserves				(11,355)	(11,030)
Retained earnings				37,309	46,001
Total equity				50,891	59,406
Non-current liabilities
Provisions for liabilities and charges				1,085	1,133
Current liabilities
Provisions for liabilities and charges				5,332	5,579
Trade and other payables				124,597	117,039
Current tax liabilities				-	1,934
Borrowings		8		26,000	-
				155,929	124,552
Total liabilities				157,014	125,685
Total equity and liabilities				207,905	185,091

SThree plc
Condensed consolidated statement of changes in equity - unaudited
for the half year ended 31 May 2016
	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 30 November 2014	1,266	14,470	168	878	(162)	(6,564)	41,290	51,346
Profit for the half year ended 31 May 2015	-	-	-	-	-	-	9,518	9,518
Other comprehensive loss for the period	-	-	-	-	-	(2,879)	-	(2,879)
Total comprehensive income for the period	-	-	-	-	-	(2,879)	9,518	6,639
Dividends paid to equity holders	-	-	-	-	-	-	(5,903)	(5,903)
Dividends payable to equity holders	-	-	-	-	-	-	(11,833)	(11,833)
Settlement of share-based payments	7	460	-	-	-	-	75	542
Credit to equity for equity-settled share-based payments	-	-	-	-	-	-	1,915	1,915
Current and deferred tax on share-based payment transactions	-	-	-	-	-	-	98	98
Total movements in equity	7	460	-	-	-	(2,879)	(6,130)	(8,542)
Unaudited balance at 31 May 2015	1,273	14,930	168	878	(162)	(9,443)	35,160	42,804
Audited balance at 30 November 2015	1,295	23,140	168	878	(1,318)	(10,758)	46,001	59,406
Profit for the half year ended 31 May 2016	-	-	-	-	-	-	9,347	9,347
Other comprehensive income for the period	-	-	-	-	-	2,588	-	2,588
Total comprehensive income for the period	-	-	-	-	-	2,588	9,347	11,935
Dividends paid to equity holders	-	-	-	-	-	-	(6,044)	(6,044)
Dividends payable to equity holders	-	-	-	-	-	-	(11,934)	(11,934)
Issue of new shares for settlement of share-based payments	2	500	-	-	-	-	-	502
Purchase of own shares	-	-	-	-	(4,633)	-	-	(4,633)
Treasury shares used for settlement of share-based payments	-	-	-	-	1,720	-	(1,720)	-
Credit to equity for equity-settled share-based payments	-	-	-	-	-	-	1,659	1,659
Total movements in equity	2	500	-	-	(2,913)	2,588	(8,692)	(8,515)
Unaudited balance at 31 May 2016	1,297	23,640	168	878	(4,231)	(8,170)	37,309	50,891

SThree plc
Condensed consolidated statement of cash flows - unaudited
for the half year ended 31 May 2016
				31 May	31 May
				2016	2015
				£'000	£'000
Cash flows from operating activities
Profit before taxation after exceptional items				12,805	14,137
Adjustment for:
Depreciation and amortisation charge				2,568	2,225
Accelerated amortisation and impairment of intangible assets				190	1,322
Finance income				(56)	(40)
Finance cost				255	429
Loss on disposal of property, plant and equipment				3	101
Gain on disposal of subsidiaries				-	(377)
Non-cash charge for share-based payments				1,659	1,915
Operating cash flows before changes in working capital and provisions				17,424	19,712
(Increase)/decrease in receivables				(1,857)	5,616
Decrease in payables				(12,026)	(6,374)
Decrease in provisions				(354)	(2,225)
Cash generated from operations				3,187	16,729
Finance income				56	40
Income tax paid				(2,345)	(5,342)
Net cash generated from operating activities				898	11,427
Cash generated from operating activities before previously recognised exceptional items				1,487	13,828
Cash outflow from previously recognised exceptional items				(589)	(2,401)
Net cash generated from operating activities				898	11,427
Cash flows from investing activities
Purchase of property, plant and equipment				(1,389)	(1,804)
Purchase of intangible assets				(2,571)	(1,906)
Proceeds from disposal of subsidiaries				-	2,002
Net cash used in investing activities				(3,960)	(1,708)
Cash flows from financing activities
Finance cost				(255)	(429)
Employee subscriptions for tracker shares				90	115
Proceeds from exercise of share options				524	542
Purchase of own shares				(4,633)	-
Increase/(decrease) in borrowings				26,000	(3,000)
Dividends paid to equity holders				(6,044)	(5,903)
Net cash generated from/(used in) financing activities				15,682	(8,675)
Net increase in cash and cash equivalents				12,620	1,044
Cash and cash equivalents at beginning of the period				6,159	14,071
Effect of foreign exchange rate changes				2,821	(3,525)
Cash and cash equivalents at end of the period				21,600	11,590

SThree plc                                                                                                                                                                                           

Notes to the interim financial information - unaudited                                                                                                              

for the half year ended 31 May 2016                                                               

1.             Accounting Policies                                                                      

General Information                                                                                                                      

SThree plc ('the Company') and its subsidiaries (together 'the Group') operate predominantly in the United Kingdom & Ireland, Continental Europe, the USA and Asia Pacific & Middle East. The Group consists of different brands and provides both Permanent and Contract specialist staffing services, primarily in the ICT, Banking & Finance, Energy, Engineering and Life Sciences sectors.

The Company is a public limited company listed on the London Stock Exchange and incorporated and domiciled in the United Kingdom and registered in England and Wales. Its registered office is 1st Floor, 75 King William Street, London, EC4N 7BE.

The condensed consolidated interim financial information ('interim financial information') of the Group as at and for the half year ended 31 May 2016 comprises that of the Company and all its subsidiaries. The interim financial information is unaudited and has not been reviewed by external auditors. It does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 November 2015 were approved by the Board of Directors on 22 January 2016 and a copy was delivered to the Registrar of Companies. The auditors reported on those accounts, their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The interim financial information of the Group was approved by the Board for issue on 8 July 2016.                                                                                                                                                                                                                

Basis of Preparation                                                                                                                                                          

The interim financial information 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 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 2015 annual financial statements, which were prepared in accordance with IFRSs as adopted and endorsed by the European Union.

Going Concern                                                                                                                                                                    

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

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

Significant Accounting Policies                                                                                                                                       

The accounting policies adopted are consistent with those applied in the preparation of the Group's 2015 annual financial statements except as described below.

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

New Standards and Interpretations                                                                                                               

There are no new standards or IFRIC interpretations that were effective during the period that significantly affect this interim financial information.

Estimates                                                                                                             

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

In preparing the 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 in the Group's 2015 annual financial statements, 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 compared to the first half.  In the financial year ended 30 November 2015, 47% of gross profits were earned in the first half of the year, with 53% earned in the second half.

2.             Segmental Analysis                                                      

IFRS 8 'Segmental Reporting' requires operating segments to be identified on the basis of internal results about components of the Group that are regularly reviewed by the entity's chief operating decision maker to make strategic decisions and assess segment performance.

Management has determined the chief operating decision maker to be the Group Management Board ('GMB') made up of the Chief Executive Officer, the Chief Financial Officer and the Regional CEOs and MDs, with other senior management attending via invitation. Operating segments have been identified based on reports reviewed by the GMB, which consider the business primarily from a geographical perspective. The Group segments the business into four regions: the United Kingdom & Ireland, Continental Europe, the USA and Asia Pacific & Middle East.

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 2015 annual financial statements.

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 comprising revenue less cost of sales.                                                                           

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

		REVENUE		GROSS PROFIT
		31 May	31 May	31 May	31 May
		2016	2015	2016	2015
		£'000	£'000	£'000	£'000
United Kingdom & Ireland		142,915	145,105	32,096	33,463
Continental Europe		198,919	162,214	57,900	48,418
USA		77,728	73,179	22,132	19,738
Asia Pacific & Middle East		23,933	23,091	7,713	8,922
		443,495	403,589	119,841	110,541

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

Asia Pacific & Middle East mainly includes Australia, Dubai, Hong Kong, Japan and Singapore.

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
		31 May	31 May	31 May	31 May
		2016	2015	2016	2015
		£'000	£'000	£'000	£'000
UK		135,480	134,198	29,413	30,486
Germany		89,486	70,056	30,258	23,902
USA		77,728	73,128	22,132	19,689
Netherlands		59,203	48,066	13,440	11,417
Other		81,598	78,141	24,598	25,047
		443,495	403,589	119,841	110,541
				NON-CURRENT ASSETS
					Audited
				31 May	30 November
				2016	2015
				£'000	£'000
UK				14,072	13,080
USA				2,441	2,175
Germany				535	509
Netherlands				165	134
Other				827	809
				18,040	16,707

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

		REVENUE		GROSS PROFIT
		31 May	31 May	31 May	31 May
		2016	2015	2016	2015
		£'000	£'000	£'000	£'000
Brand
Progressive		126,013	127,390	30,591	30,368
Computer Futures		121,128	101,024	34,983	29,215
Real Staffing Group		105,713	92,438	31,020	27,747
Huxley Associates		90,641	82,737	23,247	23,211
		443,495	403,589	119,841	110,541
Recruitment classification
Contract		403,423	363,605	79,769	70,557
Permanent		40,072	39,984	40,072	39,984
		443,495	403,589	119,841	110,541
Discipline
Information and communication technology		207,276	170,113	54,228	45,302
Energy		51,322	63,666	9,426	13,283
Other		184,897	169,810	56,187	51,956
		443,495	403,589	119,841	110,541

Other includes Banking & Finance, Engineering and Life Sciences.

3.             Gain on Disposal of Subsidiaries                                                               

During the previous period, the Group recognised an additional gain of £0.4m in relation to the disposal of IT Job Board. This represented the amount of the final earn out received (£2.0m) against the amount estimated as receivable at 2014 year end (£1.6m). This gain was classified as an exceptional item consistent with the previous presentation.

4.             Taxation                                                             

Income tax for the half year is accrued based on management's best estimate of the average annual effective tax rate for the financial year. The tax charge for the half year amounted to £3.5m (2015: £4.6m) at an effective rate of 27% (2015: 33%).                

5.             Dividends             

				31 May	31 May
				2016	2015
				£'000	£'000
Amounts recognised as distributions to equity holders in the period
2015 interim dividend of 4.7p (2014: 4.7p) per share				6,044	5,903
2015 final dividend of 9.3p (2014: 9.3p) per share				11,934	11,833
				17,978	17,736

2015 interim dividend of 4.7 pence (2014: 4.7 pence) per share was paid on 11 December 2015.

2015 final dividend of 9.3 pence (2014: 9.3 pence) per share was approved by shareholders at the AGM on 21 April 2016 and has been included as a liability in this interim financial information. The dividend was paid on 3 June 2016 to shareholders on record at 29 April 2016.

2016 interim dividend of 4.7 pence per share was proposed and approved by the Board on 8 July 2016 and has not been included as a liability as at 31 May 2016. It will be paid on 9 December 2016 to shareholders on record at 4 November 2016.

6.             Earnings Per Share                                                         

The calculation of the basic and diluted earnings per share ('EPS') is set out below:

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 as treasury shares 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 tracker businesses and SThree plc's earnings per share. Therefore, the dilutive effect on EPS will vary in future periods depending on any changes in these factors.

					31 May	31 May
					2016	2015
					£'000	£'000
Earnings
Profit after taxation before exceptional items					9,347	9,219
Exceptional items net of tax					-	299
Profit for the period attributable to owners of the Company					9,347	9,518
					millions	millions
Number of shares
Weighted average number of shares used for basic EPS					128.5	126.3
Dilutive effect of share plans					5.0	9.5
Weighted average number of shares used for diluted EPS					133.5	135.8
					pence	pence
Basic
Basic EPS after exceptional items					7.3	7.5
Impact of exceptional items					-	(0.2)
Basic EPS before exceptional items					7.3	7.3
Diluted
Diluted EPS after exceptional items					7.0	7.0
Impact of exceptional items					-	(0.2)
Diluted EPS before exceptional items					7.0	6.8

7.             Share Capital

During the period 224,906 (H1 2015: 735,098) new ordinary shares were issued, resulting in a share premium of £0.5m (H1 2015: £0.5m). These shares were issued pursuant to the exercise of share awards under the Save As You Earn (SAYE) scheme.

Treasury Reserve

During the period, SThree plc purchased 1,465,579 of its own shares to be held as treasury shares (H1 2015: nil). The average price paid per share was 316 pence (H1 2015: nil) and the total consideration was £4.6m (H1 2015: £nil). During the period, 510,081 shares (H1 2015: nil) were transferred from treasury for LTIP awards. At the half year end, 1,329,082 (H1 2015: 55,953) shares with a value of £4.2m were held in treasury.

8.             Borrowings                                                                       

The Group has a committed RCF of £50m in place with RBS and HSBC which expires in May 2019. The funds borrowed under the facility bear interest at a minimum annual rate of 1.3% (H1 2015: 1.3%) above 3 month Sterling LIBOR. The average interest rate paid on the RCF during the half year was 1.8% (H1 2015: 1.8%).

At the half year end the Group had drawn down £26.0m (H1 2015: £21.0m) on this facility.

The facility is subject to certain covenants requiring the Group to maintain financial ratios over interest cover, leverage and guarantor cover. The covenants ratios are disclosed in the Group's 2015 annual financial statements. The Group has been in compliance with these covenants throughout the period.

The Group's exposure to interest rate, liquidity, foreign currency and capital management risks is disclosed in the Group's 2015 annual financial statements.

9.             Related Party Disclosures                                                                        

The Group's significant related parties are as disclosed in the Group's 2015 annual financial statements. There were no material differences in related parties or related party transactions in the period compared to the prior period.

10.           Contingent Liabilities                                                                   

The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business. There have been no material changes in these since the 2015 year end and none are expected to result in a material cash outflow for the Group.

11.           Shareholders Communications                                                                

SThree plc has taken advantage of regulations which provide an exemption from sending copies of its interim report to shareholders. Accordingly, the 2016 interim report will not be sent to shareholders but 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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