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SThree plc (STHR)

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Wednesday 08 February, 2006

SThree plc

Final Results

SThree plc
08 February 2006



Embargoed until 0700                                             8 February 2006

                                   SThree plc
                           ('SThree' or the 'Group')

            Preliminary Results for the Year Ended 30 November 2005

SThree, one of the UK's leading information, communication and technology
('ICT') staffing businesses, is today announcing its preliminary results for the
year ended 30 November 2005. The results are the first to be reported by the
Group since its flotation on 16 November 2005.

Financial Highlights

£m                                                    2005       2004     Change
Turnover                                             315.1      242.4     + 30.0%
Gross Profit (Fee Income)                            104.5       75.9     + 37.7%
Operating profit before exceptional items*            29.5       17.4     + 69.9%
Operating profit/(loss) after exceptional items*      13.6      (15.7)         -
Profit before tax and exceptional items*              28.0       16.0     + 75.5%
Profit/(loss) before tax                              12.2      (17.1)         -
Basic earnings/(loss) per share                       16.2p     (65.4)p        -
Basic earnings per share before exceptional items*+   35.1p      16.4p    + 114.0%
Basic earnings per share before exceptional items
 adjusted for effect of new shares issued at IPO*+#   15.4p       8.9p    + 73.0%


* Exceptional items in 2005 were a charge of £15.9m against operating profit and
  a credit of £7.9m against tax, all relating to non-recurring items
+ 2004 figures also exclude goodwill amortisation and other exceptional items
  less related tax
# Calculated using the number of shares in issue at 30 November 2005 (excluding
  shares in the EBT), rather than the weighted average number of shares in issue
  throughout the year. Earnings before preference dividends are used as the
  numerator in this EPS calculation since, had the year-end share structure been
  in place throughout FY 2005, there would have been no preference dividend paid.

Operational Highlights

• Strong overall performance driven by multi-brand strategy and first full year 
  of broad-based recovery in core ICT market - performance in line with 
  expectations at flotation

• Significant recovery in permanent market conditions - number of placements in 
  the year increased by 35% to 6,023 (2004: 4,460) with average placement fees 
  increasing by 6.9% to a record £7,915 (2004: £7,407)

• Number of active contractors at year end increased 16.9% to 4,365 (2004: 3,735) 
  with gross profit per day rates increasing by 14.4% to £58.42 (2004: £51.08)

• Strategic focus on higher margin opportunities and strong presence in the SME 
  market delivers significant improvement in margins year-on-year

• Further organic expansion and market share growth achieved in core UK ICT 
  business

• Non-UK businesses growing strongly - gross profits increased by 28.9% to £25.0m 
  (2004: £19.4m), with overseas businesses now accounting for 23.9% of Group 
  gross profit

• Continued successful expansion of non-ICT businesses - Banking & Finance, 
  Engineering, Accountancy and HR brands achieved 56.5% increase in gross profit 
  to £13.1m (2004: £8.3m), accounting for 12.5% of Group total

• Successful IPO and admission to the Official List in November 2005

• Strong start to current financial year - current trading encouraging


Russell Clements, Chief Executive Officer, said: '2005 was a very good year for
SThree. Our UK ICT business delivered significant growth despite operating in a
relatively mature and competitive marketplace. Our fast-growing, younger revenue
streams, both geographic and sector-specific, also made significant
contributions. Consistent with our core strategy, we did not buy this growth at
the price of margins, which, on the contrary, we improved year on year.

'Current trading is in line with our expectations, although the start of our
financial year coincides with December and January - a quiet period for the
recruitment market - and hence revenue visibility in our business is relatively
limited. We expect the momentum seen in the closing months of 2005 will continue
in both our UK and European businesses. Activity levels in our non-ICT brands
are also positive. We remain confident that our well-proven strategy will
underpin another year of progress.'

SThree plc                                              (08.02.06) 020 7067 0700
Russell Clements, Chief Executive Officer             (Thereafter) 020 7292 3838
Sunil Wickremeratne, Chief Operating Officer
Michael Nelson, Chief Financial Officer

Weber Shandwick Square Mile                                        020 7067 0700
Kevin Smith / Stephanie Badjonat


Notes to editors

SThree, founded in 1986, is one of the leading ICT staffing businesses in the
UK. The Group provides both permanent and contract specialist staffing services
in the UK and Europe, primarily in the information and communications technology
sector and, to an increasing extent, the banking and finance, accountancy, human
resources and engineering sectors. Following the establishment of its first
brand, Computer Futures, in 1986, the Group adopted a multi-brand strategy,
establishing new operations to address growth opportunities. SThree currently
operates 12 brands, the 3 largest by turnover being Computer Futures,
Progressive and Huxley, and has 30 offices in the UK and 9 offices in mainland
Europe, in Belgium, The Netherlands, France, Germany and Ireland.

SThree has a selective approach to clients and focuses on high margin
opportunities, predominantly within the small to medium-sized enterprises
('SME') market, which SThree defines as including autonomous divisions of large
corporates. The Group does not pursue a high volume/low margin model. SThree has
a diverse, international client list of over 4,000 clients.

SThree plc is quoted on the Official List of the London Stock Exchange under the
ticker symbol STHR.


                                   SThree plc
                           ('SThree' or the 'Group')

            Preliminary Results for the Year Ended 30 November 2005


Operational Review

2004/2005 was the first year of a substantial widespread improvement in our core
UK ICT market since the significant downturn of 2002/2003. In particular, we
benefited from a return in confidence in the permanent market, which had lagged
behind the improvements in the contract market already in evidence in the
previous year.

The improved sentiment and associated upturn in demand allowed us the
opportunity to increase the sales consultant headcount to a level more
appropriate to the more buoyant market conditions. In general this was achieved
by utilising the existing office infrastructure and therefore the associated
incremental costs were largely limited to salaries and commissions, resulting in
the Group benefiting from its operational gearing.

In addition, as the supply and demand equation moved more in our favour through
2005, we also benefited from an increase in both the average contract day rate
we charged and an improvement in our average permanent fee rate, as detailed
below.

We continued our strategy of avoiding high volume/low margin business in favour
of pursuing quality opportunities associated with superior margins.

During the 2005 financial year, these factors all helped to contribute to an
increase in gross profit of 37.7% to £104.5m (2004: £75.9m). This in turn
translated to an operating profit before exceptional items which was improved by
over 69.9% to £29.5m (2004: £17.4m). After taking account of exceptional items,
operating profit grew by £12.1m.

As well as an improved performance in our core market and geography, the year
also saw noteworthy progress outside of the UK and in other specialist staffing
sectors outside of ICT. Both have come to represent increasingly significant
contributions to Group revenues and profits.

Staffing Levels

Total employees at the year end were 1,073 of which 911 were in sales, sales
management, direct sales support and sales training (2004: 965 and 775,
respectively). The balance of 162 (2004: 190) were employed in the Group's
shared support functions which include accounts, legal, HR and information
services.

Recruitment and retention of sales consultants remains a crucial priority for
the Group. Unlike many other businesses in the sector SThree's model is based on
home-grown talent; i.e. rather than looking to hire experienced staff from
elsewhere within the industry, the Group's sales consultants are typically taken
on through our graduate recruitment and training programme.

Strategy

Since its formation in 1986 the Group has pursued a clearly defined strategy of
focusing on higher margin client opportunities. This entails adopting a highly
selective approach to clients and, in particular, an explicit avoidance of the
'high volume, low margin' model which has been central to the strategy of some
other specialist staffing companies.

Although this by no means precludes us from dealing on favourable economic terms
with larger organisations, in practice it has resulted in the Group having
particular strength in the small to medium-sized enterprises ('SME') market
where margins are typically higher.

We believe that our multi-brand model has been central to the Group's successful
execution of this strategy, as it enables us to address a variety of fast
growing sub-markets via a number of specialist brands able to offer niche
expertise.

Having proven this model in our core UK ICT market we have undertaken a
progressive roll out into new geographies and, latterly, into other specialist
staffing markets, such as banking and finance and accountancy. We expect the
continuation of this highly successful approach to continue to drive growth for
the foreseeable future.

Contract v. Permanent Split

Strong progress was made in both our permanent and contract business segments.
The Group made 6,023 permanent placements during the year (2004: 4,460), an
increase of 35.0%. Our average fees from permanent recruitment also grew to
£7,915 by the end of the year which is the Group's highest ever and a 6.9%
improvement over the prior year.

At 30 November 2005, SThree had 4,365 active contractors, its highest number
ever, and an increase of 16.9% over the prior year (2004: 3,735). Contractor
gross profit per day rates also increased by 14.4% to £58.42 by the end of the
year (2004: £51.08).

When comparing the relative contribution of the contract and permanent sides of
the business, we believe the most meaningful yardstick is that of gross profit.
On this basis during the year contract activities contributed £56.5m and
permanent £48.0m or 54.0% and 46.0% respectively.

In the 2004 financial year the contract/permanent percentages were 56.5% and
43.5%, respectively, reflecting the fact that the recovery in the permanent
market only began to be felt in earnest in the second half of that year. Once
under way the recovery fed through into the 2005 financial year.

Sector Focus

ICT remains by some way the Group's largest market and is likely to remain so
for the foreseeable future. In recent years, however, an increasingly meaningful
contribution has been derived from our other disciplines - Banking & Finance,
Engineering, Accountancy and Human Resources.

During the course of the year gross profit from outside the ICT sector grew to
12.5% of total from 11.0% the year previously. This performance is encouraging
particularly when seen in the context of the buoyant conditions and growth of
our core ICT market in the same period. In absolute terms the gross profit
derived from newer sectors grew by 56.5% compared to the previous year. The
Group continues to assess opportunities in other sectors of the specialist
staffing market.

Geographical Breakdown

During the course of the year the Group operated thirty UK offices and eight
elsewhere in Europe. A further international office was opened in Paris early in
2006. All of the three largest SThree brands, Computer Futures, Progressive and
Huxley Associates, have growing and profitable operations in Europe. During the
year the brand longest-established in Europe, Computer Futures, for the first
time generated slightly more than 50% of its gross profit from outside of the UK.

UK gross profit of £79.5m was 76% of the Group total and represented a
year-on-year increase of 40.7%. Even allowing for improving underlying demand
levels this is a very positive result. Given the relatively mature nature of the
UK market we believe this improvement represents capacity-based growth, derived
from increased headcount and market share. It is worth noting that the latter
was achieved without sacrificing margin - a reflection of our highly selective
approach to formal Preferred Supplier Agreements (PSA's) and our strong SME
franchise.

Non-UK gross profit at £25.0m or 24% of the total was a similar percentage to
the prior year, reflecting the fact that the UK also grew strongly over the same
period. We believe that the Group is now well positioned to benefit from
opportunities for structural growth in the liberalising markets of the
Continental European specialist-staffing sector.

Brand Breakdown

The three largest SThree brands between them represented c. 72% of the gross
profit generated by the Group during the year. In addition, each of these brands
posted positive year-on-year profit growth.

Computer Futures, our largest brand, accounted for 29.3% of total gross profit,
achieving 19.8% growth helped by an excellent performance from its European
operations.

The second largest brand by share of gross profit at 23.8% was Huxley. This was
a noteworthy performance given that this represented a year-on-year growth of
some 48%. Significant contributions were made by the Banking and Finance team
which extended its existing City of London based activities to include
placements for clients in Amsterdam and through its London office, in New York.
Huxley's Engineering division also enjoyed a strong year.

Progressive ended the year with 18.9% of total gross profit. During the last
quarter, to support further European expansion, Progressive opened its second
non-UK office in Amsterdam. A third office in Paris was opened early in the new
financial year.

The other Group brands grew their share of overall Group gross profit to 27.9%
of the total from 23.1% the year previously. In terms of absolute value this
represented a year-on-year increase of 66.6%. This result is all the more
impressive when we consider that with the exception of the IT Job Board, which
derived a small percentage of its income from Belgium and Holland, none of the
smaller brands were active in Continental Europe. As such, virtually all of this
growth was generated from the relatively mature UK market.

Outlook

2005 was a very good year for SThree. Our core UK ICT business delivered
significant growth despite operating in a relatively mature and particularly
competitive marketplace. Our fast-growing, younger revenue streams, both
geographic and sector-specific, made significant contributions. Consistent with
our core strategy, we did not buy this growth at the price of margins, which, on
the contrary, we improved year on year. In our view, above all else it was our
multi-brand strategy which made this possible.

We are particularly encouraged by the fact that we achieved what we achieved
against an economic backdrop of below-trend economic growth in the UK and very
modest growth in the Eurozone. This suggests to us that, whilst we are a
somewhat cyclical business, we do not need exceptional economic circumstances to
post impressive growth.

Current trading is in line with our expectations, although the start of our
financial year coincides with December and January - a quiet period for the
recruitment market - and hence revenue visibility in our business is relatively
limited. We expect the momentum seen in the closing months of 2005 will continue
in both our UK and European businesses. Activity levels in our non-ICT brands
are also positive. We remain confident that our well-proven strategy will
underpin another year of progress.

Financial Review

Profit & Loss Account

Turnover for the year was 30.0% higher at £315.1m (2004: £242.4m). Turnover from
contractor placements grew by 27.6% to £267.1m (2004: £209.4m), representing 85%
of Group turnover. Turnover from permanent placements was £48.0m (2004: £33.0m),
an increase of 45.4%.

Gross Profit ('Fee Income') for the year increased by 37.7% to £104.5m (2004:
£75.9m) representing an overall gross margin of 33.2% (2004: 31.3%). The
percentage increase in gross profit is greater than the increase in turnover due
to a higher proportion of permanent business in 2005 (45.6% vs 43.5%) coupled
with an increase in the gross margin on contract placements from 20.5% to 21.1%.
Gross profit from contractor placements was £56.5m (2004: £42.9m) and
represented 54.1% (2004: 56.5%) of Group gross profit.

The Group's strategy and profit-based bonuses result in a cost structure that is
significantly operationally geared as evidenced by the 70% increase in operating
profits before exceptional items from a 38% increase in gross profit. The
conversion ratio (Operating Profit divided by Gross Profit) increased
significantly from 22.9% to 28.2%.

Administrative expenses (before exceptional items) increased by 28.2% to £75.0m
(2004: £58.5m before amortisation of goodwill and exceptional items) principally
due to increased numbers of staff.

Headcount of the Group totalled 965 at 30 November 2004 and increased by 11.2%
to 1,073 by 30 November 2005. Average headcount for the year was 1,037 (2004:
805), the increase of 28.8% reflecting steps taken in the second half of 2004 to
increase headcount in anticipation of favourable market conditions in 2005.

Exceptional items are detailed in Note 2 to the accounts. As a consequence of
the IPO, the Group allocated a number of share awards and options to certain
employees who have contributed to the Group's success over recent years. The
resultant charge to the profit and loss account amounted to £14.4m inclusive of
related social charges and Employer National Insurance. Since the Group
satisfied these awards principally through shares held in the SThree Employee
Benefit Trusts, there is a corresponding credit of £11.9m to reserves, being the
value of the shares awarded before related social charges and Employer National
Insurance. The Board expects to allocate a further tranche of share options
during 2006; this will result in a further exceptional charge to the profit and
loss account in the current financial year.

In addition to the above, management bonuses of £1.5m previously paid to holders
of zero coupon preference shares in compensation for the lack of a dividend,
have been classified as exceptional items due to materiality and the
non-repeatable nature of these costs following the conversion of all preference
shares to ordinary shares on IPO.

The net interest charge of £1.5m was comparable to 2004 and predominantly
relates to loan stock interest paid, with cash and bank overdraft interest
netting off to a small positive balance. At IPO, the then outstanding loan stock
balance of £37.4m was repaid in full. The Group is now financed through a
flexible credit line arrangement provided by Barclays.

Profit before taxation and before exceptional items amounted to £28.0m (2004:
£16.0m before amortisation of goodwill and exceptional items), an increase of
75.5%. Total profit before taxation and after exceptional items was £12.2m
(2004: Loss before tax of £17.1m).

Tax on profits before exceptional items was £8.7m (2004: £5.1m), representing an
effective tax rate of 31.1% (2004: 32.0%). The tax credit relating to
exceptional items amounts to £7.9m (2004: £0.5m credit). Under Schedule 23 of
the Finance Act 2003, the Company expects to obtain a corporation tax deduction
relating to the various share awards and options exercised following IPO.
Although the charge to the profit and loss account relating to these items is,
in accordance with UK GAAP, based on the value of the share award or share
option at the time of grant, the related tax credit is based on the value at the
time of gift or exercise. As a result the tax credit relating to the exceptional
items is at an effective rate of 49.8%. At a total level therefore, the Group's
tax charge for 2005 amounts to £0.8m, an effective rate of 6.8%.

Basic earnings per share were 16.2p (2004: Loss per share of 65.4p) and basic
earnings per share before exceptional items more than doubled to 35.1p (2004
16.4p). The weighted average number of shares for the year was 42.2m (2004:
39.9m).

Since the flotation and the related share capital conversion occurred late in
the financial year, the weighted average number of shares used in the standard
EPS calculations is far below the actual number of ordinary shares in issue at
the year-end itself. At 30 November 2005, there were 138.0m shares in issue, of
which 13.6m are held within the Employee Benefit Trust and therefore not
included within the basic EPS calculation. Using the year-end number of shares
the basic earnings per share would have been 9.0p (2004: loss per share of 17.3p
on the same basis), and before exceptional items 15.4p (2004: 8.9p), the
Directors believe that these figures give a more useful representation of the
Group's earnings per share performance in the period.

A preference dividend of £4.4m was paid at IPO in accordance with the terms of
conversion of preference shares into ordinary shares. In line with statements
made in our Prospectus, no ordinary dividend is proposed for 2005. The Directors
currently expect to declare the Group's first dividend with the interim results
for the six months ended 31 May 2006.

Balance Sheet

The Group had net assets of £21.9m at 30 November 2005 (2004: £6.3m). Net debt
amounted to £9.6m (2004: £14.9m), the reduction in debt of £5.3m being achieved
through increased trading.

Capital expenditure amounted to £2.7m (2004: £2.1m) and predominantly related to
upgrades of IT hardware and fit-out of new offices across the Group.

Trade debtors increased at a lower rate than turnover (26.7%) to £53.6m at 30
November 2005 (2004: £42.3m) representing debtor days of 46 (2004: 47 days).

Cash Flow

At the start of the year the Group had net debt of £14.9m. During the year the
Group generated net cash from operating activities of £25.0m (2004: £5.1m) being
£27.2m of EBITDA (2004: £17.0m), an increase in working capital requirements of
£2.8m (2004: £10.5m) and an increase in provisions of £0.5m (2004: decrease of
£1.5m). At 30 November 2005 the Group had net debt of £9.6m (2004: £14.9m).

International Financial Reporting Standards (IFRS)
Following the European Union's adoption of Regulation (EC) No 1606/2002, in line
with other EU companies whose securities are publicly traded, the Group will be
required to adopt International Financial Reporting Standards ('IFRS') together
with revised International Accounting Standards ('IAS'), in issue at 31 March
2004, for the first time for our financial statements to 30 November 2006. The
first reported results under IFRS will be our interim results to 31 May 2006.
The 2005 financial year's consolidated financial statements remain in accordance
with UK GAAP.

                                    - Ends -


SThree PLC
Consolidated Profit and Loss Account
Year ended 30 November 2005

                                                                  2005                                   2004
-------------------------------------------------------------------------------------------------------------
                                                                                       Exceptional
                                                                                         items and
                                     Ordinary   Exceptional                Ordinary   amortisation
                                   activities         items      Total   activities    of goodwill      Total
                                        £'000         £'000      £'000        £'000          £'000      £'000
-------------------------------------------------------------------------------------------------------------

Turnover                              315,087             -    315,087      242,413              -    242,413

Cost of sales                        (210,606)            -   (210,606)    (166,516)             -   (166,516)
-------------------------------------------------------------------------------------------------------------

Gross profit                          104,481             -    104,481       75,897              -     75,897

Administrative expenses               (74,974)      (15,864)   (90,838)     (58,530)       (33,083)   (91,613)
-------------------------------------------------------------------------------------------------------------

Operating profit/(loss)                29,507       (15,864)    13,643       17,367        (33,083)   (15,716)

Net Interest                           (1,491)            -     (1,491)      (1,405)             -     (1,405)
-------------------------------------------------------------------------------------------------------------

Profit/(loss) before taxation          28,016       (15,864)    12,152       15,962        (33,083)   (17,121)

Taxation                               (8,726)        7,895       (831)      (5,114)           470     (4,644)
-------------------------------------------------------------------------------------------------------------

Profit/(loss) after taxation           19,290        (7,969)    11,321       10,848        (32,613)   (21,765)

Minority interest                        (135)            -       (135)         207              -        207
-------------------------------------------------------------------------------------------------------------

Profit/(loss) for the financial 
 year                                  19,155        (7,969)    11,186       11,055        (32,613)   (21,558)

Dividends - including non
 equity                                (4,351)            -     (4,351)      (4,525)             -     (4,525)
-------------------------------------------------------------------------------------------------------------

Retained profit/(loss)
 for the year                          14,804        (7,969)     6,835        6,530        (32,613)   (26,083)
-------------------------------------------------------------------------------------------------------------

Basic earnings/(loss) per 
 share (pence)                           35.1         (18.9)      16.2         16.4          (81.7)     (65.4)

Diluted earnings/(loss) per 
 share (pence)                           34.1         (18.4)      15.7         16.4

Adjusted earnings/(loss) per 
 share (pence)

Basic                                    15.4         (6.4)        9.0          8.9           (26.2)    (17.3)

Diluted                                  15.0         (6.3)        8.7          8.9

All amounts relate to continuing operations.


SThree PLC
Consolidated Balance Sheet as at 30 November 2005

                                                                  2005      2004

                                                                 £'000     £'000
--------------------------------------------------------------------------------

Fixed assets
Tangible assets                                                  2,815     1,833
--------------------------------------------------------------------------------

                                                                 2,815     1,833
Current assets
Debtors                                                         80,589    61,336
Cash at bank and in hand                                         2,901    24,956
--------------------------------------------------------------------------------

                                                                83,490    86,292

Creditors: amounts falling due within one year                 (58,592)  (39,118)
--------------------------------------------------------------------------------

Net current assets                                              24,898    47,174
--------------------------------------------------------------------------------

Total assets less current liabilities                           27,713    49,007

Creditors: amounts falling due after more    
 than one year                                                       -   (37,425)

Provisions for liabilities and charges                          (5,817)   (5,317)
--------------------------------------------------------------------------------

Net assets                                                      21,896     6,265
--------------------------------------------------------------------------------

Capital and reserves
Called up share capital                                          1,380     2,214
Share premium                                                    2,925         -
Shares to be issued                                                  -     6,035
Capital reserve                                                    878         -
Profit and loss account                                         16,542    (2,014)
--------------------------------------------------------------------------------

Total equity shareholders' funds                                21,725     6,235
--------------------------------------------------------------------------------

Minority interest - equity                                         171        30
--------------------------------------------------------------------------------

Capital employed                                                21,896     6,265
--------------------------------------------------------------------------------


SThree PLC
Consolidated Statement of Total Recognised Gains and Losses
Year ended 30 November 2005

                                                                 2005       2004

                                                                £'000      £'000
--------------------------------------------------------------------------------

Retained profit/(loss) for the year                             6,835    (26,083)

Exchange (loss)/gain on translation of net
 investment in foreign subsidiaries                              (173)       527
--------------------------------------------------------------------------------

Total recognised gains and losses relating to the
 financial year                                                 6,662    (25,556)
--------------------------------------------------------------------------------


Consolidated Reconciliation of Movements in Shareholders' Funds
Year ended 30 November 2005

                                                                 2005       2004

                                                                £'000      £'000
--------------------------------------------------------------------------------

Profit/(loss) after taxation                                   11,321    (21,765)

Minority interest                                                (135)       207
Dividends                                                      (4,351)    (4,525)
--------------------------------------------------------------------------------

Retained profit/(loss) for the year                             6,835    (26,083)

Exchange (loss)/gain on translation of
 net investment in foreign subsidiaries                          (173)       527
New share capital issued                                           88          4
Share issue costs                                              (3,151)         -
Share award credit (1)                                         11,891          -
--------------------------------------------------------------------------------

Net increase/(decrease) in shareholders' funds                 15,490    (25,552)
--------------------------------------------------------------------------------

Shareholders' funds at the beginning of year                    6,235     31,787
--------------------------------------------------------------------------------

Shareholders' funds at the end of year                         21,725      6,235
--------------------------------------------------------------------------------

(1) - The share award credit relates to the reversal of the non-cash charge
recorded as an exceptional charge against operating profit in respect of shares
awarded to employees


SThree PLC
Consolidated Cash Flow Statement
Year ended 30 November 2005

                                                                 2005       2004

                                                                £'000      £'000
--------------------------------------------------------------------------------

Net cash inflow from operating activities                      24,954      5,053

Returns on investments and servicing of finance

Interest received                                                 482        611
Interest paid                                                  (1,973)    (1,983)
Preference dividends paid                                      (8,876)    (2,643)
--------------------------------------------------------------------------------

Net cash outflow from returns on
 investments and servicing of finance                         (10,367)    (4,015)

Taxation                                                       (5,449)    (3,292)

Capital expenditure and financial investment

Purchase of tangible fixed assets                              (2,702)    (2,118)

Receipts from sale of tangible fixed assets                         -         38
--------------------------------------------------------------------------------

Net cash outflow for capital expenditure
 and financial investment                                      (2,702)    (2,080)
--------------------------------------------------------------------------------

Net cash inflow/(outflow) before financing                      6,436     (4,334)

Financing

Issue of ordinary share capital                                    88          4

Expenses paid in respect of share issue                        (1,008)         -

Repayment of loan stock                                       (39,900)         -
Drawdown on new loan facility                                   9,000          -

Issue of ordinary share capital in
 subsidiaries to minority interests                                30         40
--------------------------------------------------------------------------------

Net cash (outflow)/inflow from financing                      (31,790)        44
--------------------------------------------------------------------------------

(Decrease) in cash                                            (25,354)    (4,290)
--------------------------------------------------------------------------------


SThree PLC
Notes to the Financial Statements
Year ended 30 November 2005

1. Segmental analysis

The consolidated entity operates in one business segment being that of
recruitment services. As a result, no additional business segment information is
required to be provided. The segmental results by geography are shown below:

Geographic analysis by destination

                                                 Turnover          Gross profit
--------------------------------------------------------------------------------
                                              2005      2004      2005      2004
                                             £'000     £'000     £'000     £'000
--------------------------------------------------------------------------------

United Kingdom                             243,602   184,424    79,501    56,511
Europe and Rest of World                    71,485    57,989    24,980    19,386
--------------------------------------------------------------------------------

                                           315,087   242,413   104,481    75,897
--------------------------------------------------------------------------------

                                                                  2005      2004
                                                                 £'000     £'000
--------------------------------------------------------------------------------

Operating profit before interest, exceptional
 items and amortisation of goodwill:
United Kingdom                                                  19,170    15,040
Europe and Rest of World                                        10,337     2,327
--------------------------------------------------------------------------------

Operating profit before interest, exceptional 
 items and amortisation of goodwill                             29,507    17,367

Amortisation of goodwill                                             -   (31,517)

Exceptional items (note 2)                                     (15,864)   (1,566)

Net interest
United Kingdom                                                     107       490
Europe and Rest of World                                           302       100
Interest paid on loan stock, now repaid                         (1,900)   (1,995)
--------------------------------------------------------------------------------

Profit/(loss) before taxation                                   12,152   (17,121)
--------------------------------------------------------------------------------


SThree PLC
Notes to the Financial Statements
Year ended 30 November 2005

1. Segmental analysis (continued)

                                                Turnover           Gross profit
--------------------------------------------------------------------------------
                                             2005      2004      2005       2004
                                            £'000     £'000     £'000      £'000
--------------------------------------------------------------------------------

United Kingdom                            299,019   227,904    92,147     66,493
Europe and Rest of World                   16,068    14,509    12,334      9,404
--------------------------------------------------------------------------------

                                          315,087   242,413   104,481     75,897
--------------------------------------------------------------------------------

                                                                 2005       2004
                                                                £'000      £'000
--------------------------------------------------------------------------------

Operating profit before interest, exceptional 
 items and amortisation of goodwill:
United Kingdom                                                 27,837     16,791
Europe and Rest of World                                        1,670        576
--------------------------------------------------------------------------------

Operating profit before interest, exceptional 
 items and amortisation of goodwill                             29,507    17,367

Amortisation of goodwill                                         -       (31,517)

Exceptional items (note 2)                                    (15,864)    (1,566)

Interest 
United Kingdom                                                    557        490
Europe and Rest of World                                         (148)       100
Interest paid on loan stock, now repaid                        (1,900)    (1,995)
--------------------------------------------------------------------------------

Profit/(loss) on ordinary activities before
 taxation                                                       12,152   (17,121)
--------------------------------------------------------------------------------

                                                                    Net assets
                                                                 2005       2004
                                                                £'000      £'000
--------------------------------------------------------------------------------

Net assets including goodwill:
United Kingdom                                                 17,871      1,708
Europe and Rest of World                                        4,025      4,557
--------------------------------------------------------------------------------

                                                               21,896      6,265
--------------------------------------------------------------------------------


SThree PLC
Notes to the Financial Statements
Year ended 30 November 2005

2. Exceptional Items

Exceptional items are those items which, because of their size or nature, are
disclosed to give a proper understanding of the underlying results for the
period. Items classified as exceptional are as follows:

                                                                    2005    2004
                                                                   £'000   £'000
--------------------------------------------------------------------------------

Exceptional items - charged to operating profit

Employee share awards and share options at IPO                    11,891       -
Employer's National Insurance on share awards 
 and options, and other related costs                              2,529       -
Special management bonuses                                         1,444   1,566
--------------------------------------------------------------------------------

Exceptional items - before taxation                               15,864   1,566
--------------------------------------------------------------------------------

Exceptional items -taxation
Taxation credit in respect of employee
 share options and awards (Schedule 23)                            6,262       -
Taxation credit on other exceptional items                         1,192     470
Schedule 23 deferred tax in respect of
 unexercised employee share options and awards                       441
--------------------------------------------------------------------------------

Exceptional items - taxation                                       7,895     470
--------------------------------------------------------------------------------

Certain employees received share awards and share options at IPO and in
accordance with UITF 17, a charge has been reflected in the profit and loss
account. This also resulted in a corresponding charge for employer's National
Insurance. The Group received tax relief in respect of these share awards. This
credit has also been classified as exceptional.

Special management bonuses relate to amounts paid to those directors and senior
Group management in proportion to their interest in zero coupon preference
shares. The bonuses were awarded to reward those directors and senior managers
for services provided, recognising the fact that the zero coupon preference
shares did not bear dividends.

After flotation, the zero coupon preference shares ceased to exist and the
special management bonuses will no longer be payable.


SThree PLC
Notes to the Financial Statements
Year ended 30 November 2005

3. Taxation on profit from ordinary activites

(a) Analysis of tax charge for theyear
--------------------------------------------------------------------------------------
                                               Ordinary   Exceptional     2005    2004
                                             activities         items    Total   Total
                                                  £'000         £'000    £'000   £'000
--------------------------------------------------------------------------------------

Current tax:
UK corporation tax at 30% (2004: 30%) 
 on profits for the year                          8,487        (1,192)   7,295   4,328
Schedule 23 tax credit in respect of 
 employee share awards and options (note 2)           -        (6,262)  (6,262)      -
Adjustments in respect of previous periods           63             -       63    (190)
--------------------------------------------------------------------------------------
                                                  8,550        (7,454)   1,096   4,138

Overseas tax                                        495                    495     405
Adjustments in respect of
previous periods                                     97                     97    (117)
--------------------------------------------------------------------------------------
                                                    592             -      592     288
--------------------------------------------------------------------------------------

Total current tax charge                          9,142        (7,454)   1,688   4,426
--------------------------------------------------------------------------------------

Deferred tax:
Origination and reversal of timing 
 differences                                       (414)            -     (414)     95
Schedule 23 deferred tax in respect of 
 unexercised employee share options and
 awards (Note 2)                                      -          (441)    (441)      -
Adjustments in respect of previous periods           (2)            -       (2)    123
--------------------------------------------------------------------------------------

Total deferred tax charge                          (416)         (441)    (857)    218
--------------------------------------------------------------------------------------

Tax on profit on ordinary activities              8,726        (7,895)     831   4,644
--------------------------------------------------------------------------------------


SThree PLC
Notes to the Financial Statements
Year ended 30 November 2005

3. Taxation on profit from ordinary activites (continued)

The total current tax charge for the year is lower than the standard rate of
corporation tax in the UK (30%). The differences are explained below:

                                                                  2005      2004
                                                                 £'000     £'000
--------------------------------------------------------------------------------

Profit/(loss) before                                            12,152   (17,121)
--------------------------------------------------------------------------------

Profit /(loss) before tax multiplied by standard rate 
 of corporation tax in the UK of 30%                             3,646    (5,136)

Effects of:
Goodwill amortisation not deductible for tax purposes                -     9,455
Other expenses not deductible for tax purposes                     469       275
Capital allowances in excess of depreciation 
 and amortisation                                                   72        (6)
Other timing differences                                            55       (34)
UITF 17 charge in respect of share awards and options            3,567         -
Schedule 23 tax credit in respect of
 employee share options and awards (note 3)                     (6,262)        -
Lower tax rates on overseas earnings                               (67)      (14)
Tax losses not utilised within the year                             48       193
Adjustments to tax in respect of prior period (UK)                  63      (190)
Adjustments to tax in respect of prior period (Overseas)            97      (117)
--------------------------------------------------------------------------------

Total current tax charge                                         1,688     4,426
--------------------------------------------------------------------------------

Corporation tax deductions have arisen on the exercise of options granted to
certain employees of the Group prior to the flotation. The corporation tax
deduction amounted to £20.9m which reduces the current year's taxable profits of
the Group. The tax effect of this deduction amounted to £6.3m, and the effective
current tax rate reduced to 13.9% in the current year. This credit has been
treated as exceptional due to its unusual nature and its materiality.
In addition to the tax deductions described above, the Directors expect to
receive additional tax deductions in respect of the share awards and share
options currently unexercised. There is a timing difference between recognition
of a charge for these share options for accounting purposes and the receipt of a
tax credit. A deferred tax asset of £0.4m has been recognised in respect of this
timing difference.

                                                                   2005     2004
                                                                  £'000    £'000
--------------------------------------------------------------------------------

Deferred tax comprises:
Other timing differences                                          1,854      730
Accelerated capital allowances                                      832    1,099
--------------------------------------------------------------------------------

Deferred tax asset                                                2,686    1,829
--------------------------------------------------------------------------------

The movement in deferred taxation for the Group can be
 analysed as follows:
At 1 December                                                     1,829    2,047
Amount credited/(charged) to the profit and loss account            857     (218)
--------------------------------------------------------------------------------

At 30 November                                                    2,686    1,829
--------------------------------------------------------------------------------

In addition to the recognised deferred tax asset detailed above, the Group has
carried forward tax losses of £0.2 million (2004: £0.2 million) for which no
deferred tax asset has been recognised. Utilisation of these losses is currently
considered too uncertain to justify recognition.
The Group also has tax losses of £0.7m for which claims to recover prior period
tax payments have been submitted. However, recovery is considered uncertain and
therefore no deferred tax asset has been recognised in respect of these losses


SThree PLC
Notes to the Financial Statements
Year ended 30 November 2005

4. Dividends

                                                                   2005     2004
                                                                  £'000    £'000
--------------------------------------------------------------------------------

Non-equity shares:
Preference dividend payable of 5% (net) on
 Preference and 'A' Preference shares                            (4,351)  (4,525)
--------------------------------------------------------------------------------

                                                                 (4,351)  (4,525)
--------------------------------------------------------------------------------

5. Earnings per share

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 employee share trust which are
treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. If the dilutive number of ordinary shares result in a lower loss or
higher profit these are considered to be anti-dilutive and have been excluded
from the earnings per share calculations.

Reconciliations of the earnings and weighted average number of shares used in
the calculations are set out below.

                                                    2005                                 2004
                                                Weighted                             Weighted 
                                                 average                              average   
                                                  number   Per-share                   number   Per-share
                                 Earnings      of shares      amount   Earnings     of shares      amount
                                    £'000       millions       pence      £'000      millions       pence
----------------------------------------------------------------------------------------------------------

Basic earnings/(loss) 
 per share

Earnings/(loss) attributable
 to ordinary shareholders           6,835           42.2        16.2    (26,083)         39.9       (65.4)

Effect of dilutive employee 
 share options                                       1.2                                    0
----------------------------------------------------------------------------------------------------------

Diluted earnings/(loss) 
 per share                          6,835           43.4        15.7    (26,083)         39.9        (65.4)
----------------------------------------------------------------------------------------------------------


SThree PLC
Notes to the Financial Statements
Year ended 30 November 2005

5. Earnings per share (continued)

Supplementary earnings per share to exclude goodwill amortisation and
exceptional items

Earnings per share before exceptional items and amortisation of goodwill is
presented because the Directors believe it better explains the underlying trends
of the Group's performance.

                                                    2005                                 2004
                                                Weighted                             Weighted 
                                                 average                              average   
                                                  number   Per-share                   number   Per-share
                                 Earnings      of shares      amount   Earnings     of shares      amount
                                    £'000       millions       pence      £'000      millions       pence
----------------------------------------------------------------------------------------------------------

Basic earnings/(loss) 
 per share                          6,835           42.2        16.2    (26,083)         39.9       (65.4)
Effect of goodwill amortisation
 and exceptional items              7,969           42.2        18.9     32,613          39.9         81.7
----------------------------------------------------------------------------------------------------------
Basic earnings per share 
 excluding exceptional
 items and goodwill  
 amortisation                      14,804           42.2        35.1      6,530          39.9         16.4
----------------------------------------------------------------------------------------------------------

Diluted earnings per share          6,835           43.4        15.7    (26,083)

Effect of goodwill amortisation
 and exceptional items              7,969           43.4        18.4     32,613
----------------------------------------------------------------------------------------------------------
Diluted earnings per share
 excluding exceptional
 items and goodwill
 amortisation                      14,804           43.4        34.1      6,530          39.9         16.4
----------------------------------------------------------------------------------------------------------

Additional Disclosure

The earnings per share figures presented above have been prepared in accordance
with UK Financial Reporting Standard 14 'Earnings per share'.  Due to the
flotation and, consequently, the share capital conversion occurring late in the
financial year, the weighted average number of shares used in the above
calculations is considerably lower than the actual number of Ordinary shares in
issue at the end of the financial year.  Therefore the directors believe that a
more meaningful denominator, based on the capital structure at the balance sheet
date, should be used in order to provide a better understanding of the true
position.  The earnings used in the additional earnings per share calculation is
before deduction of the preference dividend as this is considered as more
representative of the future earnings position.  The tables below set out the
number of shares and earnings used in the calculation of the adjusted earnings
per share.

                                                                 2005       2004
                                                            Number of  Number of
                                                               shares     shares
                                                             millions   millions
--------------------------------------------------------------------------------

Total share capital in issue                                    138.0      138.0
Shares held by the EBT                                          (13.6)     (13.6)
Basic number of shares                                          124.3      124.3
Effect of dilutive options                                        3.7          0
--------------------------------------------------------------------------------

Dilutive number of ordinary shares                                128      124.3
--------------------------------------------------------------------------------

                                                    2005                                 2004
                                                Weighted                             Weighted 
                                                 average                              average   
                                                  number   Per-share                   number   Per-share
                                 Earnings      of shares      amount   Earnings     of shares      amount
                                    £'000       millions       pence      £'000      millions       pence
----------------------------------------------------------------------------------------------------------

Retained profit/(loss) for 
 the year                           6,835                               (26,083)
Add preference dividend             4,351                                 4,525

Adjusted basic earnings/
 (loss) per share                  11,186          124.3        9.0     (21,558)        124.3       (17.3)
Effect of goodwill 
 amortisation and
 exceptional items                  7,969          124.3        6.4      32,613         124.3        26.2
----------------------------------------------------------------------------------------------------------
Adjusted basic earnings per
 share excluding exceptional
 items and goodwill
 amortisation                      19,155          124.3       15.4      11,055         124.3         8.9
----------------------------------------------------------------------------------------------------------

Adjusted diluted earnings/
 (loss) per share                  11,186          128.0        8.7    (21,558)
Effect of goodwill 
 amortisation and
 exceptional items                  7,969          128.0        6.3      32,613
----------------------------------------------------------------------------------------------------------
Adjusted diluted earnings 
 per share excluding
 exceptional items and
 goodwill amortisation             19,155          128.0       15.0      11,055         124.3         8.9
----------------------------------------------------------------------------------------------------------

6. Reconciliation of operating profit to net cash inflow from operating activities

                                                              2005         2004
                                                             £'000        £'000
--------------------------------------------------------------------------------

Operating profit/(loss)                                      13,643      (15,716)
Depreciation charge                                           1,442        1,311
Goodwill amortisation                                             -       31,517
Negative goodwill arising on acquisition
 of minority interest in a subsidiary                             -          (58)
Profit from partial deemed disposal of subsidiary               (24)         (32)
Charge in respect of employee share
 awards and options                                          11,891            -
Loss/(profit) on sale of tangible fixed assets                  275          (38)
Increase in debtors                                         (15,462)     (17,503)
Increase/(decrease) in provisions                               500       (1,454)
Increase in creditors                                        12,689        7,026
--------------------------------------------------------------------------------

Net cash inflow from operating activities                    24,954        5,053
--------------------------------------------------------------------------------


7. Reconciliation of net cash flow to movement in net debt

                                                             2005           2004
                                                            £'000          £'000
--------------------------------------------------------------------------------

Decrease in cash in the year                              (25,354)        (4,290)
Repayment of loan stock                                    39,900              -
Drawdown on short-term loan facility                       (9,000)             -
Exchange differences and other non-cash changes              (152)           527
--------------------------------------------------------------------------------

Movement in net debt                                        5,394         (3,763)

Opening net debt                                          (14,944)       (11,181)
--------------------------------------------------------------------------------

Closing net debt                                           (9,550)       (14,944)
--------------------------------------------------------------------------------


8. Nature of financial information

The financial information set out above has been prepared in accordance with the 
accounting policies used in preparing the Group's accounts for the year ended 
30 November 2004.  It does not constitute the Group's audited statutory accounts 
within the meaning of Section 240 of the Companies Act 1985.  The financial 
information for the year ended 30 November 2004 has been extracted from the s
tatutory accounts for that year which have been delivered to the Registrar of 
Companies.  The report of the auditors on those accounts was unqualified and did 
not contain a statement under section 237 (2) or (3) of the Companies Act 1985.  
The Group accounts for the year ended 30 November 2005 will be finalised on the 
basis of the financial information presented by the Directors in the preliminary 
announcement.

9. Annual Report and Accounts

The 2005 Annual Report and Accounts will be posted to shareholders in due course.  
Further copies will be available from the Company Secretary, 41-44 Great Windmill 
Street, London W1D 7NB.  Telephone No. 020 7292 3838.

10. Annual General Meeting

The Annual General Meeting of SThree plc will be held on 3 May 2006.





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