Preliminary results

RNS Number : 4079G

SThree plc

01 February 2010

 



SThree plc

("SThree" or the "Group")

Preliminary results for the year ended 29 November 2009

SThree, the international specialist staffing business, is today announcing its final results for the year ended 29 November 2009.    

Financial Highlights

	2009	2008	Change
Revenue	£519.4m	£631.5m	-17.8%
Gross Profit	£171.2m	£218.9m	-21.8%
Operating profit*	£18.0m	£56.8m	-68.3%
Profit before taxation*	£18.0m	£56.0m	-67.9%
Statutory profit before taxation	£8.9m	£54.1m	-83.5%
Basic earnings per share*	9.5p	29.9p	-68.2%
Statutory basic earnings per share	4.0p	28.8p	-86.1%
Proposed dividend	8.0p	8.0p	-
Total dividend	12.0p	12.0p	-

*Current year operating profit, profit before taxation and EPS are shown before exceptional charges of £9.1m before tax, £6.5m after tax relating to a Group restructuring (2008: £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

• A very good performance given the highly challenging market conditions; 

• Non-UK share of gross profit increased significantly to 55% (2008: 45%), with trend expected to continue as the Group becomes ever more international; 

• New offices opened in Düsseldorf, Hamburg, Stuttgart, Marseille and Singapore and a second office added in Frankfurt, during 2009. Second Australian office (Perth) and additional offices in Munich and   Düsseldorf already opened in January 2010, with further openings in San Francisco and Delhi expected this year. Further international expansion in the pipeline;

• Permanent placements decreased by 40.8% to 6,060 (2008:10,236), with average fees increased by 15.2% (+3.9% on a constant currency basis);

• Number of active contractors at year end decreased by 27.6% to 4,157 (2008: 5,745), with average gross profit per day rates up by 8.1% (+1.4% on a constant currency basis);

• Contract versus Permanent mix of gross profit now 58:42 in favour of Contract, providing the Group with an excellent ''cash hedge'' in challenging market conditions;

• Continued sector diversification, with non-ICT disciplines (principally Banking, Engineering, Finance and Accountancy, Oil & Gas and Pharmaceuticals) now representing 28.4% of total gross profit (2008: 23.1%);

• 69.2% of gross profit now derived from outside of the UK ICT market (2008: 59.2%);

• Total Group headcount at year end reduced by 29.8% to 1,597 (2008: 2,274) but up 6.0% from end third quarter as stabilising market conditions have supported selective hiring; 

• Year end net cash and term investments of £48.5m (2008: £24.6m) reflecting continued strong cash generation with Days Sales Outstanding at 37 days (2008: 43 days);

• Maintained total dividend for the year reflecting strong Group cash position and confidence in the strength of the SThree business model;

• Entered 2010 with most markets now stable or modestly improving. 

Russell Clements, CEO, commented: "The Group now has a broader geographical base and addresses a more diverse range of sectors than ever before. Our seasoned management team has used the challenging circumstances to make positive changes in many areas of the business. Although by no means yet close to fully recovered, the market is showing some positive signs. As such we look forward to 2010 with a pragmatic but positive mindset."

SThree will host a live presentation and conference call for analysts at 9.30am today.  

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

Conference call participant Telephone Numbers:

UK Freephone: 0800 028 1277 

USA Freephone: 1888 935 4577

International Local: [phone]

Confirmation Code: 7694933

This event will also be simultaneously audio webcast, hosted on SThree's website at  http://www.thomson-webcast.net/uk/dispatching/?event_id=49238b39d1d324dc5b586138822d62db&portal_id=a98192164841f4a39f400936a24cde9c, please note that this is a listen only facility.  

An archive of the presentation will be available via the same link later today.  

SThree will be announcing its Q1 Interim Management Statement on Monday 8 March 2010.

Enquiries:

SThree plc	020 7292 3838
Russell Clements, Chief Executive Officer
Alex Smith, Chief Financial Officer
Sarah Anderson, Deputy Company Secretary/IR queries
Citigate Dewe Rogerson	020 7638 9571
Kevin Smith / Nicola Smith

Notes to editors

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

Following the establishment of its first business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree operates through a number of brands, the largest of which are FS Group (Computer Futures/JP Gray), Huxley Associates and Progressive and has 1,600 employees in eleven countries.

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

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

Important notice

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

SThree plc

("SThree" or the "Group")

Preliminary results for the year ended 29 November 2009

Overview

2009 was by any standards an extraordinary year and was without question one of the most difficult the Group has faced in its twenty three year history. The impact of the global crisis on demand for specialist staff was as tough, if not worse than the dot com crash - in itself a slow down of historical severity and certainly the sternest test the Group had faced up until that point. 

The slowdown evident in the UK and US by Q2 of 2008 was highly indicative that 2009 was likely to be a far more difficult market than the Group had to deal with in some years. Normal levels of expectation, either internal or external, had quite clearly been overtaken by external events.

Nonetheless the extent and rapidity of the further decline seen in the early part of 2009 was striking. In particular the Group's international businesses, which had very largely showed remarkable robustness throughout 2008, demonstrated that they were not immune to the impact of the global recession. For its part, the UK market demonstrated that although conditions were already bad, they had the capacity to get substantially worse. 

This then is the only context in which the Group's 2009 performance can be judged. And if we bear in mind these unprecedented headwinds, it is pleasing to say that the 2009 SThree results can be characterised as a very commendable outcome in exceptionally difficult circumstances. The fact that the Group adapted to the exceptional conditions with outstanding levels of grit and determination is what we would expect. The fact that we were also able to take further steps towards achieving our strategic goals gives a further perspective on what was achieved.

Financial outcome

Inevitably given the circumstances the Group saw a reduction in gross profit (GP). The 2009 GP figure of £171.2m was 21.8% down on the prior year (2008: £218.9m). This converted to a profit before tax (PBT) of £18.0m (2008: £56.0m) down 67.9% before exceptional items. Post exceptional items PBT was £8.9m (2008: £54.1m), down 83.5% on 2008. All exceptional items related to the restructuring exercise undertaken by the Group in Q2 2009.

During the year the Group continued to focus on maximising cash. At the end of 2009 net cash including term investments almost doubled to £48.5m (2008: £24.6m). Approximately £12.0m of the improvement was attributable to the unwinding of working capital associated with the reduction in contract runners. However, the net cash position also reflected strong cash management, with Days Sales Outstanding (DSO's) improving to 37 days (2008: 43 days).

The Group's strong and improving cash position combined with a high degree of confidence in the fundamental robustness of the Group's business model informed the decision to maintain the total 2009 dividend at 12.0p (2008: 12.0p). Although uncovered by earnings, the board took the view that this level of payment was prudent, being very comfortably covered by the level of cash available to the Group.

Notwithstanding the fact that the Group's finances strengthened during the year and the Group is cash rich and debt free, steps were also taken to ensure that the Group retains maximum financial flexibility. A new 30 month banking facility was negotiated in October 2009, providing £20m of committed funds at highly competitive rates. 

Restructuring

By Q1 of 2009 it had become evident that compared to Q4 2008, the market had taken a further step downwards. As a result, Group headcount was out of line with market demand and the business was running at an approximately break-even level. It was clear that the Group needed to urgently address its cost base and restructure the business in line with a substantially reduced market opportunity.

As a consequence Group headcount was reduced by approximately 25%. In addition the Group closed four offices and consolidated a number of others, resulting in it exiting a total of eleven leases. Together these actions incurred a one off exceptional charge of £9.1m which paid back within the financial year. Most significantly the actions taken successfully recalibrated the Group's overheads resulting in a commensurate and rapid return to profitability. 

Strategy "High margin, high value"

Although 2009 offered no shortage of short term challenges and tactical difficulties, the Group did not lose sight of its medium/long term priorities. A notable example of the latter is the Group's commitment to its "High margin, high value" model. Notwithstanding the fact that the market inevitably became more price sensitive during 2009, the Group successfully resisted any downward pricing pressure, which would otherwise have impacted the quality of the business executed.

As a result, the Group's overall contract margin actually improved to 22.1% (2008: 21.5%), a noteworthy result in the circumstances. In absolute terms the average gross profit per day rate (GPDR) increased to £84.69 (2008: £78.30). This represents an 8.1% year on year increase on an externally reported basis or a 1.4% improvement on a constant currency basis.  

A similar theme was seen in the Group's permanent business but with a still stronger value performance. The average permanent fee recorded in 2009 was £11,930 (2008: £10,355) up 15.2% on an unadjusted basis or 3.9% on a constant currency basis.

Geographical Expansion 

The Group continued its successful strategy of geographical expansion, opening six international offices during the year. In addition to a further office in Frankfurt, new offices were rolled out in Düsseldorf, Hamburg,    Stuttgart, Marseilles and Singapore. 

The strong German theme of 2009 office openings reflected the relative robustness of demand in the German specialist staffing market during the year which showed 28% growth. However, it is equally indicative of the outstanding long term growth potential of what is currently a very underdeveloped market. 

The Group ended the year with a total of 46 offices in 11 countries. In aggregate Group GP generated from outside of the UK was £94.2m (2008: £97.4m.)  Although down 3.2%, this contrasts starkly with the 64.1% year on year growth achieved in 2008. Nonetheless the non UK businesses still performed substantially better than the UK. In the absence of any structural growth to mitigate the wider economic situation, UK GP of £76.9m was down 36.7% (2008: £121.6m) 

As a consequence of the significant difference in relative performance, the overall UK/non UK business mix underwent a marked change. During 2009 the ratio was 55:45 in favour of non UK GP compared with 45:55 in 2008. It is likely that this shift will prove permanent as the Group becomes ever more international. However, the fact remains that the UK has consistently showed itself to be capable of very robust growth in more typical market conditions. 

We remain convinced that a substantial opportunity exists to move the proven SThree model into an ever-wider range of international markets.

In early 2010 the Group launched its second Australian office in Perth and opened an additional office in Munich. In the second half of the year we expect to open in Düsseldorf and San Francisco and later in the year will open in Delhi. Additional international offices are in the pipeline subject to final approval and it is likely that the total for the year will be similar to the six that came on stream during 2009. 

Sector Diversification 

In parallel with its greater geographical diversity, in recent years the Group has made significant progress in developing a meaningful presence outside of its traditional Information Technology (IT) franchise. It is worth clarifying that this metric is measured by the skillsets of the candidates the Group places rather than the nature of the business of the client company. By the latter metric the Group has only a 21% exposure to the IT industry per se. 

The major non IT segments for the Group are Banking, Engineering, Finance and Accountancy, Oil & Gas and Pharmaceuticals; the Group also has a smaller presence in HR and Sales & Marketing. In aggregate these niches accounted for £48.5m of GP in 2009 (2008: £50.5m). Although this was modestly down by 3.8% on the prior year, the non IT franchises represented 28.4% of total Group GP compared to 23.1% in the previous year. The (generally more competitive) IT market performed less robustly with 2009 GP of £122.6m (2008: £168.5m) down 27.2%.

Although it showed definite signs of improvement in the latter part of 2009, the Banking market remained, by normal standards, very subdued and when taking the year as a whole was weak. Given that historically the Group's largest non IT sector has been Banking, the positive momentum seen more recently is an encouraging trend particularly given that the Group now has a presence in most of the world's major financial centres. 

Contract/Permanent Business Mix

It is an accepted feature of the specialist staffing market that temporary hiring tends to be more robust in a downturn. Therefore it is unsurprising that a shift in this direction that started in 2008 continued throughout 2009. During the year the Group made a total of 6,060 permanent placements (2008: 10,236) a reduction of 40.8%. It is pleasing to reiterate that this significant decline in volume was not accompanied by a commensurate decline in quality, but an improvement in the average placement fee achieved. 

The number of contract runners at the end of 2009 was 4,157 (2008: 5,745) representing a reduction of 27.6%, illustrating the relatively better health of the temporary sector. As with the permanent market, the average value of each contractor improved. The net effect of the above was that contract GP represented 58% of the Group's total in 2009 compared with 52% of GP for 2008. However, as market conditions improve and the recent trends favouring contract normalise, the Group's permanent GP will once again become an increasingly significant part of the mix. 

Headcount 

The Group ended 2009 with a total of 1,597 staff (2008: 2,274) a reduction of 29.8% on the prior year. Clearly the large part of this reduction was attributable to the rightsizing exercise undertaken in Q2 of 2009 which saw approximately 25% of the Group's staff exit the business.

In 2008, normal natural attrition aided by the Group's remuneration strategy was enough to ensure that the size of sales teams flexed in line with changes in market conditions. However, as discussed above, in the substantially worse market of early 2009 it was agreed necessary to take a more proactive approach.

Following this exercise the Group's approach was to broadly maintain the post-rightsizing staffing levels and little active hiring/replacement was undertaken until some signs of improvement in certain markets were detected later in the year. As a consequence of the latter the Q4 headcount was up sequentially on Q3 and the Group is now selectively growing headcount where appropriate.

It is worth noting that one of the key strengths of the Group is significant flexibility in terms of headcount. Staffing levels can be reduced aggressively if needed but by the same token can be rebuilt almost equally quickly. Indeed the level of staff reduction seen in 2009 is not unprecedented, being comparable in percentage terms to the 2002/03 downturn. As the market recovered the Group was able to rebuild its teams and took full advantage of the upturn. 

Outlook

The experience of 2009 clearly demonstrates the risk inherent in attempting to predict market trends. Although we began the last year with "our eyes open and mindful of the risks and challenges", the market we actually faced was of an order of magnitude more difficult still. 

Towards the end of the year there were signs that certain markets were improving and that others were at the least stable and, so far, this has continued into 2010. Compared with what the Group has been used to in recent times, this was a welcome positive trend which was reflected in the Group's return to headcount growth. Whilst there are indications that confidence is gradually returning to the market and this above all else is what is needed for a full recovery to gain traction, it remains true that in overall terms market conditions have yet to recover to anything close to normal.

Market conditions like those the Group faced in 2009 have a creative dimension. They force an in depth and uncompromising assessment of all aspects of the business. As a result changes are made, some of which are overdue and would be more difficult to envisage and execute in more benign times. Moreover, many individuals who have not previously been tested to the same degree mature as a result of their experiences. Given that the Group also has a broader geographical base and a more diverse range of sectors than ever before, we look forward to 2010 with a pragmatic but positive mindset.

Financial Review

	2009		2008
	Revenue	Gross Profit	Revenue	Gross Profit
Contract	£447.0m	£98.8m	£525.5m	£113.1m
Permanent	£72.4m	£72.4m	£106.0m	£105.8m
Total	£519.4m	£171.2m	£631.5m	£218.9m

Revenue for the year decreased by 17.8% to £519.4m (2008: £631.5m). Gross profit for the year decreased by 21.8% to £171.2m (2008: £218.9m), representing a Group gross profit margin of 33.0% (2008: 34.7%). The Group gross profit margin reduced as a result of the remix in business from permanent, which represented 48% of gross profit in 2008, to 42% in 2009. Permanent revenues are accounted for at 100% gross margin, whereas contract gross profit is shown after the associated cost of sale. As the contract margin improved year on year to 22.1% from 21.5% in 2008, the reduction in Group gross margin is driven by a permanent/contract mix effect and not by a weakness in underlying margin discipline.

Administration expenses before exceptional items decreased by 5.5% to £153.2m (2008: £162.1m), primarily driven by the reduced number of staff, and savings on the exit of certain leases. On 15 April, the Group announced a restructuring of the business in line with the markedly reduced market opportunity, and an exceptional charge of £9.1m has been recognised. As a result, the Group's pre-exceptional conversion ratio (pre-exceptional operating profit divided by gross profit) fell to 10.5% (2008: 25.9%).

Group headcount was 1,597 at 29 November 2009, down 29.8% on the opening headcount at 1 December 2008 of 2,274. Average total headcount for the year was 1,841 (2008: 2,157), as a result of the restructuring and natural attrition in the year.

Profit before tax and exceptional items amounted to £18.0m (2008: £56.0m), a reduction of 67.9%, whilst profit before tax after exceptional items reduced by 83.5% to £8.9m (2008: £54.1m).

Taxation on profit before exceptional items was £5.5m (2008: £16.8m), representing an effective tax rate of 31% (2008: 30%). The slight increase in the effective tax rate was driven by a remix of the business towards jurisdictions with higher tax rates. 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 around this level. The Group's effective cash tax rate was 25.0% (2008: 26.4%), reflecting the relatively higher Schedule 23 tax benefit (re share options) compared to the previous year.

Basic earnings per share before exceptional items were 9.5p (2008: 29.9p), down 68.2%. This was driven by a reduction in profit before taxation before exceptional items of 67.9%, the marginally higher effective tax rate of 31% (2008: 30%), a reduction in the minority charge to £1.2m (2008: £2.0m) and a reduction in the weighted average number of shares to 118.7m (2008: 124.7m). Fully diluted earnings per share before exceptional items were 9.2p (2008: 29.2p), down 68.5%. Basic earnings per share after exceptional items were 4.0p (2008: 28.8p), down 86.1%. Fully diluted earnings per share after exceptional items were 3.9p (2008: 28.1p), down 86.1%.

The Board previously declared an interim dividend of 4.0p per share (2008: 4.0p). The Board has declared a second interim dividend of 8.0p per share in place of the final dividend, bringing the total dividend for the year to 12.0p per share (2008: 12.0p). The second interim dividend will be paid on 31 March 2010 to those shareholders on the register as at 26 February 2010.

Balance Sheet

The Group had net assets of £84.8m at 29 November 2009 (2008: £90.6m). Net cash including term investments amounted to £48.5m (2008: £24.6m), the improvement in our cash position reflecting the net impact of the profitability of the Group, the improved management of working capital and the release of working capital as the number of contractors reduced during the year.

Tangible fixed asset capital expenditure amounted to £2.7m (2008: £2.3m), relating to a more normalised level of 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, reduced significantly to £2.1m (2008: £3.9m). Total capital expenditure is planned to grow slightly ahead of these levels in 2010, as the business accelerates its office opening programme.

Net trade debtors reduced by 42.7% to £58.3m (2008: £101.9m) representing DSO's of 37 days (2008: 43 days). Total trade and other payables reduced from £81.2m to £76.1m as the volumes of business reduced.

Cash Flow

At the start of the year the Group had net cash of £24.6m. During the year, the Group generated cash from operating activities of £63.7m (2008: £87.0m). The Group achieved a significant reduction in working capital of £45.3m through improved debtor management and a reduction in the working capital funding of the reduced contractor book. Income taxes paid increased to £18.3m (2008: £11.4m) as we settled overseas tax liabilities relating to prior years.

During the year, the Group repurchased certain minority stakes for £1.4m and paid dividends of £14.4m. The group also invested £3.2m in an A rated Euro bond with a maturity of less than 6 months.

At 29 November 2009 the Group had net cash of £45.3m.

In October 2009, the Group renewed a committed invoice discounting facility of £20m with Royal Bank of Scotland Invoice Finance ('RBS') for a 30 month term. 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.

The Board has undertaken a review of its currency hedging strategy to ensure that it is appropriate and currently the Group does not actively manage its exposure to foreign exchange risk by the use of financial instruments. The impact of foreign exchange will become a more significant issue for the Group as we expect the business mix to move further towards International, with the International business accounting for 55% of gross profit in 2009 (2008: 45%). The Group will continue to monitor its policies in this area.

During the year, the Group implemented a European cash pooling arrangement, with a target to invest at least 85% of the Group's cash, returning in excess of the 7 day LIBID rate on average.

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 29 November 2009, 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.

Having been tested by extraordinary market conditions in 2009, the Group has been successful in strengthening its financial position. Our strong balance sheet and net cash give us the confidence to maximise the opportunities that lie ahead in an uncertain environment.

SThree plc
Consolidated Income Statement - Audited
Year ended 29 November 2009
		29 November 2009									30 November 2008
		Before exceptional items			Exceptional items			Total			Before exceptional items			Exceptional items			Total
	Note	£'000				£'000		£'000			£'000			£'000			£'000
Revenue	2	519,372				-		519,372			631,520			-			631,520
Cost of sales		(348,217)				-		(348,217)			(412,581)			-			(412,581)
Gross profit	2	171,155				-		171,155			218,939			-			218,939
Administrative expenses	3	(153,159)				(9,050)		(162,209)			(162,129)			(1,957)			(164,086)
Operating profit		17,996				(9,050)		8,946			56,810			(1,957)			54,853
Finance income		359				-		359			25			-			25
Finance cost		(378)				-		(378)			(827)			-			(827)
Profit before taxation		17,977				(9,050)		8,927			56,008			(1,957)			54,051
Taxation	4	(5,539)				2,574		(2,965)			(16,809)			594			(16,215)
Profit for the year		12,438				(6,476)		5,962			39,199			(1,363)			37,836
Equity holders of the Company		11,274				(6,476)		4,798			37,241			(1,363)			35,878
Minority interest		1,164				-		1,164			1,958			-			1,958
		12,438				(6,476)		5,962			39,199			(1,363)			37,836
Earnings per share	6	pence				pence		pence			pence			pence			pence
Basic		9.5				(5.5)		4.0			29.9			(1.1)			28.8
Diluted		9.2				(5.3)		3.9			29.2			(1.1)			28.1

All amounts relate to continuing operations.

SThree plc
Consolidated Statement of Changes in Equity - Audited
Year ended 29 November 2009
	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 2 December 2007	1,383		2,925			2	878		69	85,751	91,008	2,425
Profit for the year  to 30 November 2008	-		-			-	-		-	35,878	35,878	1,958
Employee share  award#and share  option credit	-		-			-	-		-	658	658
Deferred tax on employee share options	-		-			-	-		-	(1,297)	(1,297)	-
Current tax on employee share options	-		-			-	-		-	1,043	1,043	-
Repurchase of share capital	(166)		-			166	-		-	(31,250)	(31,250)	-
Issue of share capital	1		-			-	-		-	-	1	-
Employee subscription for share awards	-		-			-	-		-	127	127	-
Repurchase of minority interest	-		-			-	-		-	-	-	(242)
Dividends paid to equity holders	-		-			-	-		-	(12,004)	(12,004)	-
Dividends paid to minority interest	-		-			-	-		-	-	-	(89)
Exchange differences on retranslation of foreign operations	-		-			-	-		2,262	-	2,262	95
Total movements in equity			(165)			-	166		-	2,262	(6,845)	(4,582)
Balance at 30 November 2008	1,218		2,925			168	878		2,331	78,906	86,426	4,147
Profit for the year to 29 November 2009	-		-			-	-		-	4,798	4,798	1,164
Employee share award and  share option credit	-		-			-	-		-	1,448	1,448
Deferred tax on employee share options	-		-			-	-		-	620	620	-
Current tax on employee share options	-		-			-	-		-	1,042	1,042	-
Issue of share capital to minority interest			-			-	-		-	-	-	-
Employee subscription for share awards			-			-	-		-	-	182	182
Repurchase of minority interest			-			-	-		-	-	-	-
Dividends paid to equity holders			-			-	-		-	-	(14,434)	(14,434)
Dividends paid to minority interest			-			-	-		-	-	-	-
Exchange differences on retranslation of foreign operations			-			-	-		-	85	-	85
Total movements in equity						-	-		-	-	85	(6,344)	(6,259)
Balance at 29 November 2009	1,218		2,925			168	878		2,416	72,562	80,167	4,650	84,817

SThree plc
Consolidated Balance Sheet - Audited
As at 29 November 2009
					29 November	30 November
					2009	2008
				Note	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment					5,398	6,575
Intangible assets					10,899	12,262
Deferred tax assets					5,515	3,146
					21,812	21,983
Current assets
Trade and other receivables					93,229	139,937
Current tax assets					3,309	-
Cash and cash equivalents				7	45,272	24,584
Assets classified as held-to-maturity					3,203	-
					145,013	164,521
Total assets					166,825	186,504
LIABILITIES
Current liabilities
Provisions for liabilities and charges					(3,063)	(332)
Trade and other payables					(76,056)	(81,246)
Current tax liabilities					-	(10,818)
					(79,119)	(92,396)
Non-current liabilities
Provisions for liabilities and charges					(2,889)	(3,535)
					(2,889)	(3,535)
Total liabilities					(82,008)	(95,931)
Net assets					84,817	90,573
EQUITY
Capital and reserves attributable to the Company's equity holders
Share capital					1,218	1,218
Share premium					2,925	2,925
Capital redemption reserve					168	168
Capital reserve					878	878
Currency translation reserve					2,416	2,331
Retained earnings					72,562	78,906
					80,167	86,426
Minority interest					4,650	4,147
Total equity					84,817	90,573

SThree plc
Consolidated Cash Flow Statement - Audited
Year ended 29 November 2009
					29 November	30 November
					2009	2008
					£'000	£'000
Cash flows from operating activities
Profit before taxation					8,927	54,051
Depreciation and amortisation charge					6,128	5,895
Goodwill recognised in the income statement					(237)	-
Loss on disposal of investments					478	-
Realised losses on financial instruments					-	1,957
Finance income					(359)	(25)
Finance cost					378	827
Loss on disposal of property, plant and equipment					1,107	-
Loss on disposal of intangible assets					355	-
Non-cash charge for employee share options and awards					1,448	658
Employee subscription for share awards					182	127
Operating cashflow before changes in  working capital and provisions					18,407	63,490
Decrease/(increase) in receivables					50,952	16,455
(Decrease)/increase in payables					(7,704)	6,731
Increase in provisions					2,011	295
Cash generated from operating activities					63,666	86,971
Income tax paid					(18,267)	(11,449)
Net cash generated from operating activities					45,399	75,522
Cash flows from investing activities
Purchase of property, plant and equipment					(2,726)	(2,341)
Purchase of intangible assets					(2,128)	(3,861)
Purchase of held-to-maturity investment					(3,203)	-
Proceeds from disposal of investments					40	-
Net cash used in investing activities					(8,017)	(6,202)
Cash flows from financing activities
Repayment of loan facility					-	(1,000)
Cash loss on settlement of treasury investments					-	(2,956)
Finance income					359	25
Finance costs					(378)	(827)
Proceeds from issue of ordinary shares					-	1
Issue of share capital of subsidiary companies  to minority interest					10	-
Repurchase of share capital					-	(31,250)
Repurchase of minority interest					(1,371)	(1,072)
Dividends paid to equity holders					(14,434)	(12,004)
Dividend paid to minority interest					(81)	(89)
Net cash used in financing activities					(15,895)	(49,172)
Net increase in cash and cash equivalents					21,487	20,148
Cash and cash equivalents at beginning of the year					24,584	4,504
Effect of exchange rate changes					(799)	(68)
Cash and cash equivalents at the end of the year				7	45,272	24,584

SThree plc
Notes to the Financial Information
Year ended 29 November 2009
1. Basis of preparation
This financial information has been prepared in accordance with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board ('IASB'), International Financial Reporting Interpretations Committee ('IFRIC') interpretations and Standing Interpretations Committee ('SIC') interpretations as adopted and endorsed by the European Union ('EU') and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Therefore the Group financial statements comply with Article 4 of the EU International Accounting Standards Regulation. The consolidated financial information 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
				29 November  2009	30 November  2008	29 November  2009	30 November  2008
				£'000	£'000	£'000	£'000
Revenue
United Kingdom				271,248	386,934	381,965	486,944
Europe and Rest of World				248,124	244,586	137,407	144,576
				519,372	631,520	519,372	631,520
Gross Profit
United Kingdom				76,939	121,566	103,713	144,975
Europe and Rest of World				94,216	97,373	67,442	73,964
				171,155	218,939	171,155	218,939
				Total assets		Capital expenditure
				29 November  2009	30 November  2008	29 November  2009	30 November  2008
				£'000	£'000	£'000	£'000
United Kingdom				130,518	124,817	3,411	4,806
Europe and Rest of World				36,307	61,687	1,443	1,396
				166,825	186,504	4,854	6,202

The following supplemental segmental analyses have been included as additional disclosure over and above the requirements of IAS 14 'Segment Reporting'.
						By location of operating company
						29 November  2009	30 November  2008
						£'000	£'000
Operating Profit
Operating profit before exceptional items
United Kingdom						5,543	27,372
Europe and Rest of World						12,453	29,438
						17,996	56,810
Exceptional items (note 3)
United Kingdom						(7,478)	(1,957)
Europe and Rest of World						(1,572)	-
						(9,050)	(1,957)
Operating (loss)/profit after exceptional items
United Kingdom						(1,935)	25,415
Europe and Rest of World						10,881	29,438
						8,946	54,853
The analysis of operating profit does not include inter-segment recharges

				Revenue		Gross profit
				29 November  2009	30 November  2008	29 November  2009	30 November  2008
					(Restated)		(Restated)
				£'000	£'000	£'000	£'000
Brand
Computer Futures				149,247	180,295	51,526	65,345
Huxley				132,670	169,338	44,839	59,911
Progressive				132,461	150,811	41,918	50,099
RPMG				101,679	125,893	29,557	38,437
Others				3,315	5,183	3,315	5,147
				519,372	631,520	171,155	218,939
Recruitment classification
Contract				447,077	525,531	98,816	113,098
Permanent				72,295	105,989	72,339	105,841
				519,372	631,520	171,155	218,939
Discipline
Information & communication technology				411,761	535,164	122,612	168,465
Others(1)				107,611	96,356	48,543	50,474
				519,372	631,520	171,155	218,939
During the year, the Group announced that the divisional management of the business segments would be combined. At the heart of this restructuring was a desire to eliminate duplication, save costs and better align the management teams to the businesses. As a result the Group now reports Pathway, Madison Black and JP Gray as part of the Real Staffing Group brand segment and Orgtel as part of the Progressive brand. The comparative analysis has been changed to reflect this structure.
(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 separately disclosed to give a proper understanding of the underlying results for the period. Items classified as exceptional are as follows:
								29 November  2009		30 November  2008
								£'000		£'000
Exceptional items - charged to operating profit
Corporate and divisional restructuring								(9,050)		-
Exchange loss on settlement of financial instruments								-		(1,957)
Exceptional items - before taxation								(9,050)		(1,957)
Corporate and divisional restructuring On 15 April 2009, the Company announced a number of changes relating to corporate and divisional restructuring. The total cost of this restructuring including redundancy, relocation and consolidation of business, is considered exceptional by virtue of its size. The Group has charged the restructuring cost incurred in the current period to the income statement.
Exchange loss on settlement of financial instruments During the prior period, some complex financial instruments transactions were undertaken to mitigate certain foreign currency exposures. These resulted in a £2.0m loss arising when a series of equal and opposite positions were taken during the previous 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. 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 derivative financial instruments, which the Board believes are not appropriate for the Group going forward.

4. Taxation
(a) Analysis of tax charge for the year
		Before  exceptional  items		29 November 2009		Before exceptional items	30 November 2008
				Exceptional items	Total		Exceptional items	Total
			£'000	£'000	£'000	£'000	£'000	£'000
Current taxation
UK
Corporation tax charged/(credited) at 28% (2008: 28%) on profits for the year			6,834	(2,102)	4,732	12,592	(876)	11,716
Adjustments in respect of prior periods			(1,447)	-	(1,447)	33	-	33
Overseas
Corporation tax charged/(credited) on profits for the year			2,197	(472)	1,725	5,857	-	5,857
Adjustments in respect of prior periods			(329)	-	(329)	-	-	-
Total current tax charge/(credit)			7,255	(2,574)	4,681	18,482	(876)	17,606
Deferred taxation
Origination and reversal of temporary differences			(3,401)	-	(3,401)	(1,193)	282	(911)
Adjustments in respect of prior periods			2,079	-	2,079	(216)	-	(216)
Schedule 23 deferred tax credit in respect of unexercised employee share awards and options			(394)	-	(394)	(264)	-	(264)
Total deferred tax (credit)/charge			(1,716)	-	(1,716)	(1,673)	282	(1,391)
Total income tax charge/(credit) in  the income statement			5,539	(2,574)	2,965	16,809	(594)	16,215

(b) Reconciliation of the effective tax rate
The Group's tax charge for the year ended 29 November 2009 exceeds the UK statutory rate and can be reconciled as follows:
							29 November 2009			30 November 2008
							£'000	%		£'000	%
Profit before taxation							8,927			54,051
Profit before tax multiplied by standard rate of corporation tax in the UK of 28%							2,500	28%		15,134	28%
Effects of:
Disallowable items and other timing differences							59	1%		283	-
Higher tax rates on overseas earnings							103	1%		959	2%
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							303	3%		(183)	-
Tax expense and effective tax rate							2,965	33%		16,215	30%
										29 November  2009	30 November  2008
(c) Current and deferred tax movement recognised directly in equity										£'000	£'000
Current tax
Equity settled employee share options										1,042	1,043
Deferred tax
Equity settled employee share options										620	(1,297)
										1,662	(254)
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 29 November 2009 a deferred tax asset of £1.8m (2008: £0.8m) has been recognised in respect of these options.

5. Dividends
															29 November  2009		30 November  2008
															£'000		£'000
Amounts recognised and distributed to shareholders in the year
Equity
Interim dividend of 4.0p (2008: 3.1p) per ordinary share															4,738		4,101
Final dividend paid of 8.0p (2008: 6.2p) per ordinary share															9,696		7,903
															14,434		12,004
Amounts proposed
Interim dividend for the period ended 31 May 2009: 4.0p (2008: 4.0p) per ordinary share															4,782		4,738
Second interim dividend of 8.0p (2008: nil) per ordinary share for the year ended 29 November 2009															9,544		-
Final dividend of 0 p (2008: 8.0p) per ordinary share for the year ended 29 November 2009															-		9,280
An interim dividend of 4.0 pence (2008: 3.1 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 final dividend of 8.0 pence (2008: 6.2 pence) per ordinary share for the year ended 30 November 2008 was paid on 8 June 2009 to shareholders on record at 1 May 2009.
An interim dividend of 4.0 pence (2008: 4.0 pence) per ordinary share for the six months ended 31 May 2009 was paid on 4 December 2009 to shareholders on record at 6 November 2009.
No final dividend is proposed for the year ended 29 November 2009 (2008: 8.0 pence). The Board propose a second interim dividend for the year ended 29 November 2009 of 8.0 pence per ordinary share to be paid on 31 March 2010 to shareholders on record at the close of business on 26 February 2010.

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.
													29 November  2009	30 November  2008
													£'000	£'000
Earnings
Profit after taxation excluding exceptional items													12,438	39,199
Minority interest													(1,164)	(1,958)
Adjusted profit for the year attributable to the equity holders of the Company excluding exceptional items													11,274	37,241
Effect of exceptional items (net of tax)													(6,476)	(1,363)
Profit after taxation attributable to equity holders of the Company													4,798	35,878
													Millions	Millions
Number of shares
Weighted average number of shares used for basic EPS													118.7	124.7
Dilutive effect of share plans													3.8	3.0
Diluted weighted average number of shares used for diluted EPS													122.5	127.7
													Pence	Pence
Basic
Basic earnings per share													4.0	28.8
Adjusted basic earnings per share excluding exceptional items													9.5	29.9
Diluted
Diluted earnings per share													3.9	28.1
Adjusted diluted earnings per share excluding exceptional items													9.2	29.2

7. Cash and cash equivalents
					29 November  2009	30 November  2008
					£'000	£'000
Cash in hand and at bank					45,272	24,584

8.    Financial information

The financial information in this preliminary announcement which comprises the Consolidated Income Statement, Consolidated Statement of Changes In Equity, Consolidated Balance Sheet, Consolidated Cash Flow Statement and related Notes is derived from the full Group financial statements for the year ended 29 November 2009 and does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.

The auditors have reported on the Group's statutory accounts for the year ended 29 November 2009 under s495 of the Companies Act 2006, which do not contain statements under s498(2) or s498(3) of the Companies Act 2006 and are unqualified. The Group's statutory accounts for the year ended 30 November 2008 have been delivered to the Registrar of Companies and the Group's statutory accounts for the year ended 29 November 2009 will be filed with the Registrar of Companies in due course.

9.    Annual Report and Accounts and Annual General Meeting

The 2009 Annual Report and Accounts and Notice of 2010 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 23 April 2010.

 

END

 

 

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