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SThree plc (STHR)

  Print      Mail a friend       Annual reports

Monday 21 July, 2008

SThree plc

Interim Results

RNS Number : 4613Z
SThree plc
21 July 2008
 




SThree plc

('SThree' or the 'Group')


Interim results for the six months ended 1 June 2008



SThree, the international specialist staffing business, is today announcing its interim results for the six months ended 1 June 2008.    


Financial Highlights - six months ended

1 June '08

£m

3 June '07

£m

% change

Revenue

295.4

240.4

22.9%

Gross profit

102.5

82.5

24.2%

Operating profit before exceptional items

24.4

19.6

24.4%

Profit before taxation before exceptional items

23.8

19.2

24.0%

Profit before taxation after exceptional items

21.8

19.2

13.9%

Profit for the period after exceptional items

15.0

13.2

13.7%

Basic earnings per share before exceptional items

11.8p

9.3p

26.9%

Basic earnings per share after exceptional items

10.8p

9.3p

16.1%

Interim dividend

4.0p

3.1p

29.0%


Operational Highlights

-

Satisfactory first half performance consistent with Board expectations. Gross Profit up 24% to £102.5m

-

Permanent placements increased by 9.3% to 5,008 (2007: 4,580) - average permanent placement fee up 10.7% to £10,091 (2007: £9,116)

-

Number of active contractors at period end increased by 15.5% to 5,743 (2007: 4,974) with average gross profit per day rates increased by 8.2% to £79.11 (2007: £73.14)

-

Permanent versus Contract mix of Gross Profit now 51:49 in favour of Contract 

-

Non-UK Gross Profit for the period represents 41% of the Group total (2007: 32%). 

-

International business performed particularly strongly, growing by 58% to £42.4m (2007: £26.8m). The UK business posted an 8% growth in GP to £60.1m (2007: £55.8m)

-

Non-ICT business segments grew very strongly, increasing by 56% to £21.8m (2007: £13.9m) representing 21% of total Gross Profit.

-

New offices opened in Sydney and Dubai in first half of the year, establishing the business in two new regions. Additional offices opened in Paris and Amsterdam

-

Basic earnings per share before exceptional items increased by 26.9% to 11.8p (2007: 9.3p) 

-

Net cash position transformed from H1 2007, to £3.9m net cash (2007: £40.6m net debt) and reduction of days sales outstanding figure to 51 (2007: 80)

-

Since the end of financial year 2007, £18.9m returned to shareholders via share buy backs

-

Interim dividend declared of 4.0p (2007: 3.1p), an increase of 29%


Russell Clements, CEO, commented:


'We are pleased with the performance of the Group in the first half, having once again posted strong growth. Our established strategy of geographical and sector diversification continues to deliver excellent results and it is pleasing to note that 41% of the Group's business now comes from outside of the UK.


The current uncertain economic situation has been reflected in some areas of the UK market, particularly those exposed to the banking & finance sector. However, this has been offset by an extremely robust performance from our international offices. As a result we believe we remain on course to make good progress for the year as a whole. 


We take confidence from the fact that SThree has a twenty two year track record of profitability and cash generation throughout the economic cycle. We also benefit from a seasoned management team who have gained their experience through all types of market conditions. SThree operates an agile business model notable for its flexibility and this positions us well to adapt quickly should the market require us to do so.'



Enquiries:

SThree plc

020 7292 3838

Russell Clements, Chief Executive Officer


Alex Smith, Chief Financial Officer




Citigate Dewe Rogerson

020 7638 9571

Kevin Smith / Nicola Smith



Notes to editors


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

Following the establishment of its first business, Computer Futures, in 1986, the Group adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree currently operates 12 brands, the four largest being Computer Futures, Huxley Associates, Progressive and Pathway, and has 33 offices in the UK and 21 offices internationally.

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

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



SThree plc

('SThree' or the 'Group')


Interim results for the six months ended 1 June 2008



Operating Review


The first half of 2008 saw a solid performance from the Group, with Gross Profit (GP) growing by 24.2% to £102.5m (2007: £82.5m). We are particularly pleased with the outstanding contribution of our international teams. In the first half Non-UK GP grew by 58% to £42.4m (2007: £26.8m). Although early returns from our newest offices in Hong Kong, Dubai and Sydney made a contribution, we are equally pleased by the growth posted by our longer established offices in continental Europe. 


It is notable to see the extent to which outside of UK and the US, even the financial markets have held up relatively well. This resilience is a reflection of the strong structural growth that characterises much of our fast growing international business. The increasing internationalisation of the Group is the most significant theme to note from the period. As at the half year 41% of Group GP was derived from outside of the UK, up from 32% at the end of the 2007 financial year.


GP growth in the UK was 8.0% ahead at £60.1m (2007: £55.8m). This was due to two major factors. Firstly, the slowdown in the banking sector and areas directly linked to it had a meaningful impact. Secondly, headcount growth in the UK was modest by recent standards at 7.8% ahead from the first half of last year. Given this fact it is interesting to note that the per capita yields achieved in the UK were basically unchanged from last year. 


The slowdown in headcount growth in the UK was partly a reflection of the Group requiring fewer Consultants in the banking and related markets, as well as moving a number of experienced Consultants abroad to help with the Groups' international expansion and therefore deliberate. However it was also a reflection of the fact that the Group found hiring staff more challenging than in the recent past and hence were not able to grow teams as significantly as in previous years.


During the first half of the year the Group benefited from a far more stable environment in terms of its internal finance and information systems. We are now starting to see a return on the investment we made on the 2007 ERP implementation, which was reflected in the very significant improvement in the Group's cash collection performance. At the half year the Group held £3.9m of net cash compared to £40.6m of net debt at the same time last year. The days sales outstanding ('DSO') figure reduced to 51 days at the period end from 80 days in the prior year and is an improvement on the pre-ERP regime. This allowed the Group to fund the repurchase of £14m worth of its shares - approximately 5.5% of the total share capital.


At the start of the year the Group recognised a £2m loss associated with the early closure of a number of complex derivatives-based foreign exchange contracts. The Group now has a hedging strategy which makes no use of complex derivatives products. As such the loss is taken in the accounts as an exceptional item.


Strategy  


The Group has a well-established strategy based on rolling out the SThree model to an increasing number of geographies and across a widening range of specialist staffing disciplines. At the same time the Group does not neglect the importance of its longer established franchises. Our default assumption is that the strategy will be based on organic growth. As such we will continue to invest in growing the headcount of the teams wherever the market situation and management capabilities justify it. We are pleased to see the results of our diversification strategy reflected in the fact that for the first time in the Group's history its UK ICT franchise is now a minority of Group GP at 45% of the total. This compares with 53% for the first half of 2007.


A key element of our strategy is that we remain highly selective regarding the quality of the business we undertake. We remain healthily sceptical of the value of the 'high volume, low margin' model associated with servicing the larger corporate market (particularly in the UK & US). The Group instead prefers to engage with less price-focused clients who value its services.  


As a result our customer base is wide and varied, with a high percentage of SMEs. This reduces the Group's exposure to a limited number of powerful customers and also ensures that we avoid the margin pressure associated with 'wholesale' buyers such as the major systems integration companies. In this respect it is instructive to note that despite the fact that in the first half 77% of the candidates we placed were ICT professionals, only 25% of our customers are in the ICT sector. The fact that the Group's first half contract margin improved to 21.8% (2007: 21.2%) is further evidence of the validity of this approach.  


Our multi-brand approach allows the Group to segment the market around specific niches. This allows us to credibly position ourselves as market experts, which in turn justifies a premium pricing position. Our entrepreneurial culture is reinforced by our Minority Interest model, which is both a significant retention tool for existing management and a unique proposition to attract the brightest and best talent into the Group.


Geographical Expansion


At the half year the Group had a total of fifty-four offices in ten countries. In the first half the Group added four new offices; Dubai (Pathway), Sydney (Progressive), Paris (Huxley) and Amsterdam (Madison Black). In the former two cases these were the Group's first moves into the respective regions, in the latter two the offices added to an already well-established SThree presence in France and Holland. These illustrate the two parallel strands of our international strategy; launching into entirely new territories and further expanding within those where we already have a substantial presence. We continue to see significant scope for expansion in all our current overseas territories.


The new offices for Madison Black and Pathway were both brands' first non-UK locations and reflect the fact that the Group's international growth is increasingly being undertaken by brands which have hitherto been solely UK based. To put this in some context, our longest established international brand Computer Futures now generates more than 60% of its business from outside of the UK.


Overall Non-UK GP grew by 58% to £42.4m (2007: £26.8m) helped by the increasing contribution made by the roll out of newer sectors into newer geographies. The exciting potential of this approach is increasingly evident. The Group has had a successful UK engineering business for a number of years, but has only much more recently started placing engineers in continental Europe. The longer term potential of this initiative in a market such as Germany is clearly very significant and only one example of many.


The first half of the year saw the Group expand its geographical footprint into the Middle East and Australia. These represent very different opportunities given the major differences in the maturity of the specialist staffing market in the two regions. That said, we are pleased with the early progress we have seen and both businesses are making strides towards repaying their initial investment. The same applies to our Hong Kong office, which has performed very satisfactorily despite thus far being primarily focused on the investment-banking sector. We are currently enhancing this franchise through the addition of an ICT capability.  


We continue to believe that the structural growth characteristics of our international markets mean they have the potential to show greater resilience to economic uncertainty, given their relatively underdeveloped and less intensively competitive nature. On this basis we have further plans for expansion in 2009 and have targeted Singapore, France and Germany for additional office openings.


In the UK the Group grew GP by 8% to £60.1m (2007: £55.8m). The UK market has seen a significant impact from the fall out of the credit crunch with the investment banking market being the worst affected sector by some way. As a relatively mature market the UK is in principal more sensitive to the effects of a slowdown. Nevertheless, even with a very uncertain economic background and negative sentiment providing the backdrop for the whole of the first half, UK GP still grew satisfactorily. This performance was supported by the roll out of newer segments, which helped offset the impact of the banking slowdown. Notable amongst these was the strength of demand in the UK Oil and Gas market.  


Sector Expansion 


Overall the Group grew GP from non-ICT sectors by 56% to £21.8m (2007: £13.9m). This was a significant acceleration in the rate of growth recorded during the full year 2007 when the non-ICT business achieved 33.3% growth. This result needs to be seen in the context that historically the Group's single largest non-ICT franchise has been its UK investment banking business which, as noted above, has been badly affected by the fall out from the banking crisis. 


The strength of the Non-ICT segment reflects two factors. First, the somewhat longer established UK Non-ICT teams have reached a meaningful degree of critical mass. Second, the roll out of non-ICT disciplines to the newer geographies, which was at an embryonic stage last year, has started to gain traction. 


As a consequence the contribution made by the non-ICT segment to the overall mix of business increased significantly. In 2007 the overall percentage of GP attributable to the newer sectors was 17% whereas by the half year this figure had changed to 21% of the total. This is a strong reinforcement of the potential of rolling out the SThree model to newer disciplines and we will continue to invest in this area. Our assumption is that as this programme continues, the non-ICT segment will play an increasingly important role in the Group's performance.  


Contract/Permanent Business Mix


The Group once again benefited from improvements in both volume and value in both the Permanent and Contract sides of the business. In the first half the Group made 5,008 permanent placements, an increase of 9.3% (2007: 4,580). At the same time the average fee achieved grew by 10.7% to £10,091 (2007: £9,116). At the half year the Group had a total of 5,743 contractors, a growth rate of 15.5% (2007: 4,580). These generated an average gross profit per day rate of £79.11, an improvement of 8.2% (2007: £73.14).


Due to the more rapid growth in Contract GP, the Group's mix of business has changed. In the first half Contract GP represented 51% of the total compared with 49% for 2007 as a whole and 50% for the half year 2007. This slight change is explained partly by a natural move towards Contract hiring in a less confident market such as banking in the UK, but also a larger contract contribution from some of our continental European teams. This reflects the increasing acceptance of the temporary staffing model in territories such as Germany.


Staffing Levels


At the end of the half-year total headcount for the Group was 2,122 (2007: 1,771) an overall increase of 19.8% on the previous year. Of this total, sales headcount grew by 23% but this growth was heavily weighted to our newer geographies, which were 59.1% ahead of their 2007 figure. By contrast the UK sales headcount was only 7.8% ahead of which a large proportion was attributable to teams addressing newer non-ICT disciplines. 


As noted above, the relatively modest headcount growth in the UK reflects a more challenging environment for hiring trainee consultants in the UK and is also a function of the Group's year-on-year reduction in the number of consultants addressing the banking market.  


The Group plans to continue to hire to support its growth where the market opportunity supports this approach. In the current circumstances this is likely to result in relatively modest headcount growth in the UK and continued strong growth in other territories. However, the Group is agile in terms of its hiring programme and will adapt where necessary to market changes - be they positive or negative.  


Brand Performance


As in 2007 the four largest brands in the first half in order of GP contribution were Computer Futures, Huxley, Progressive and Pathway. In aggregate these brands represented 82% of total GP, a figure slightly above 2007 when it was 78%. All four brands grew significantly albeit at differing rates depending on their mix of business and sector specialism.


In the first half Computer Futures achieved a 30.6% improvement in GP to £30.2m (2007: £23.1m). This was a strong result from our longest established business which benefits from a significant presence in continental Europe. Huxley grew by 24.5% to £27.6m (2007: £22.2m), a satisfactory performance when we take into account that this brand has a well developed UK banking franchise and hence has faced the most challenging market conditions of our major businesses.

 

Progressive's GP of £19.9m (2007: £14.1m) showed a major acceleration in its growth from 27.3% to 41.6%, primarily due to an increase in its international business and a strong performance in the UK from its newer sectors, particularly Oil & Gas. Pathway grew GP to £6.4m (2007: £5.4m) a rate of 19.2%, with its new office in Dubai playing a role in offsetting a tougher UK market. The smaller brands managed in aggregate to grow by a more modest 3.3% reflecting their UK focus and in most cases a greater than (the Group's) average exposure to the banking market.


Taxation


The charge for taxation on profits before exceptional items amounted to £7.5m (2007: £6.0m), an effective tax rate of 31.4% (2007: 31.3%). Under Schedule 23 of the Finance Act 2003, the Group obtains a corporation tax deduction relating to the various share awards and options exercised. The amount of the tax deduction is calculated by reference to the share price at the time of award or exercise. As a consequence, there is a cash benefit to the Group of such tax deductions, which, under IFRS, is dealt with through equity. The total Schedule 23 tax benefit amounts to £0.6m (2007: £9.1m).


Earnings Per Share


Basic earnings per share before the exceptional item (i.e. the £2m derivatives loss) increased by 27% to 11.8p (2007: 9.3p). After taking account of the current-period exceptional item, earnings per share increased by 16%. Diluted earnings per share before exceptional items increased by 28% to 11.5p (2007: 9.0p). 


Cash Flow


At the start of the period the Group had net cash of £3.5m. During the period the Group generated cash from operating activities of £32.8m (2007: cash outflow of £24.7m) being £27.5m of operating cashflow before changes in working capital and provisions (2007: £21.0m) and a reduction in working capital requirements and provisions of £5.3m (2007: increase in working capital of £45.7m). At 1 June 2008 the Group had net cash of £3.9m.


During the period, the Group spent some £14.4m purchasing 7.2m of its own shares. Since the period end the Group has purchased a further 2.7m shares at a cost of £4.5m This programme was financed utilising existing facilities. A flexible invoice financing arrangement is in place with Royal Bank of Scotland Group (RBS) until February 2010. Under this arrangement the Group is able to borrow up to £50m, with a committed facility of £20m.The Board is satisfied that these facilities are appropriate for the Group's needs. It is the current intention of the Group to continue to purchase shares for cancellation when the circumstances make it appropriate to do so.  


Treasury Management, Currency Risk and Other Principal Risks and Uncertainties affecting the Business


The Group does not have material transactional currency exposures although is exposed to translation differences on the profits and cash flows generated by its overseas operations, the main functional currencies of the Group being Sterling and the Euro. As reported in February 2008, some derivative transactions were undertaken to mitigate certain exposures to complex derivative financial instruments and these results include a £2.0m loss arising from having closed the positions before maturity. 


The Board has since undertaken a review of its foreign exchange hedging strategy to ensure that it is appropriate, given the Group's increasing international business and has adopted a policy not to hedge translation risk, but to hedge transaction exposures, consistent with our major listed competitors. As a result of the earlier mitigation, the Group no longer has exposure to complex derivative financial instruments, which the Board believes are not appropriate for the Group going forward.


The other principal risks and uncertainties affecting the business activities of the Group remain those detailed within the Directors' Report section of Annual Report for the year ended 2 December 2007, a copy of which is 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 in these factors in respect of the remaining six months of the year.


Dividends


It is the Board's intention to pay dividends at a level that it believes is sustainable throughout the economic cycle and is broadly in line with comparable quoted businesses' dividend covers. The Board proposes to pay an interim dividend of 4.0p (2007: 3.1p) per share, an increase of 29%. The interim dividend will be paid on 5 December 2008 to those shareholders on the register at 7 November 2008.


Outlook


Trading in the first half of 2008 took place against a background of an international banking crisis, economic uncertainty and a decline in business confidence. Notwithstanding this the Group grew GP by 24.4% to £102.5m (2007: £82.5m) and profit before tax (before exceptionals) by 24.0% to £23.8m (2007: £19.2m) We see this performance as an indication that the specialist staffing market has the capacity to show greater resilience than it is often given credit for having. 


Without question the Group's first half result was enhanced by the excellent performance of its international franchises and the strong structural growth characteristics, which are typical of the markets in which they operate. Similarly we must recognise that the UK market is tougher than it has been in recent years. 


Even so, we regard the fact that a market as relatively mature as the UK has shown the ability to grow in such difficult circumstances as a positive sign. Historically the specialist staffing market has not required buoyant economic growth to grow healthily. Given the evidence currently available, the Group remains realistic but positive regarding its future prospects and we have no reason to assume that we will not be able to achieve the Board's previous expectations for the year as a whole. 


In the event of a serious further deterioration in the underlying economic situation the Group would of course expect to be affected. However SThree has a number of strengths that position it well to cope with a change in market conditions. First, the Group has a strong contract business - the temporary market has consistently been more resilient to downturns and also provides a cash hedge as working capital unwinds. Second, it has exposure to international markets with significant structural growth characteristics. Third, it has a flexible business model, particularly in terms of the low percentage of fixed to variable consultant remuneration. Finally, it has a twenty two-year track record of profitability and a seasoned management team with experience gained throughout the economic cycle.





Consolidated Income Statement - unaudited 

Six months ended 1 June 2008





Six months

ended

Six months 

ended

Year

ended





1 June

3 June

2 December



Before


2008

2007

2007



Exceptional

Exceptional






items

items

Total

Total

Total









Note

£'000

£'000

£'000

£'000

£'000








Revenue

2

295,407

-

295,407

240,387

522,698

Cost of sales


(192,907)

-

(192,907)

(157,875)

(340,033)








Gross profit

2

102,500

-

102,500

82,512

182,665

Administrative expenses

3

(78,105)

(1,957)

(80,062)

(63,022)

(130,408)

Other operating income


-

-

-

132

-








Operating profit


24,395

(1,957)

22,438

19,622

52,257

Finance cost


(608)

-

(608)

(479)

(1,979)

Share of profit of joint venture


-

-

-

31

46








Profit before taxation


23,787

(1,957)

21,830

19,174

50,324

Taxation

4

(7,478)

613

(6,865)

(6,008)

(16,509)








Profit for the period


16,309

(1,344)

14,965

13,166

33,815








Attributable to:







Equity holders of the Company


15,227

(1,344)

13,883

12,053

32,648

Minority interest


1,082

-

1,082

1,113

1,167










16,309

(1,344)

14,965

13,166

33,815















Earnings per share

6

pence

pence

pence

pence

pence

Basic


11.8

(1.0)

10.8

9.3

25.2

Diluted


11.5

(1.0)

10.5

9.0

24.1








All amounts relate to continuing operations








An interim dividend of 4.0 pence (3 June 2007: 3.1 pence) per ordinary share will be paid on 5 December 2008 to shareholders on the register at the close of business on 7 November 2008.


Consolidated Statement of Changes in Equity - unaudited 

As at 1 June 2008





Capital


Currency


Attributable




Share

Share

redemption

Capital

translation

Retained

to Company's

Minority

Total


capital

premium

reserve

reserve

reserve

earnings

shareholders

Interest

Equity












£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000











Balance at 1 December 2006

1,380

2,925

-

878

(248)

58,828

63,763

348

64,111











Currency translation differences

-

-

-

-

73

-

73

-

73

Deferred tax on employee share options

-

-

-

-

-

494

494

-

494

Current tax on employee share options

-

-

-

-

-

9,136

9,136

-

9,136

Net income recognised in equity

-

-

-

-

73

9,630

9,703

-

9,703











Profit for the 6 months to 3 June 2007

-

-

-

-

-

12,053

12,053

1,113

13,166

Total recognised income and expense for the period

-

-

-

-

73

21,683

21,756

1,113

22,869











Dividends paid to equity holders

-

-

-

-

-

(6,345)

(6,345)

-

(6,345)

New share issue

-

-

-

-

-

-

-

-

-

Employee share award and share option credit

5

-

-

-

-

131

136

-

136











Total movements in equity

5

-

-

-

73

15,469

15,547

1,113

16,660











Balance at 3 June 2007

1,385

2,925

-

878

(175)

74,297

79,310

1,461

80,771











Currency translation differences

-

-

-

-

244

-

244

-

244

Deferred tax on employee share options

-

-

-

-

-

(8,091)

(8,091)

-

(8,091)

Current tax on employee share options

-

-

-

-

-

(878)

(878)

-

(878)











Net income/(expense) recognised directly in equity

-

-

-

-

244

(8,969)

(8,725)

-

(8,725)

Profit for the six months to 2 December 2007

-

-

-

-

-

20,595

20,595

54

20,649











Total recognised income and expense for the period

-

-

-

-

244

11,626

11,870

54

11,924

Repurchase of share capital

(2)

-

2

-

-

(388)

(388)

-

(389)

Issue of share capital to minority interest

-

-

-

-

-

-

-

990

990

Repurchase of minority interest

-

-

-

-

-

-

-

(10)

(10)

Dividends paid to minority interest

-

-

-

-

-

-

-

(70)

(70)

Employee share award and share option credit

-

-

-

-

-

216

216

-

216











Total movements in equity

(2)

-

2

-

244

11,454

11,698

964

12,662











Balance at 2 December 2007

1,383

2,925

2

878

69

85,751

91,008

2,425

93,433











Currency translation differences

-

-

-

-

1,480

-

1,480

183

1,663

Deferred tax on employee share options

-

-

-

-

-

(96)

(96)

-

(96)

Current tax on employee share options

-

-

-

-

-

635

635

-

635











Net income recognised directly in equity

-

-

-

-

1,480

539

2,019

183

2,202

Profit for the six months to 1 June 2008

-

-

-

-

-

13,883

13,883

1,082

14,965











Total recognised income and expense for the period

-

-

-

-

1,480

14,422

15,902

1,265

17,167

Repurchase of share capital

(72)

-

72

-

-

(14,401)

(14,401)

-

(14,401)

Repurchase of minority interest

-

-

-

-

-

-

-

(101)

(101)

Dividends paid to equity holders (note 5)

-

-

-

-

-

(12,004)

(12,004)

-

(12,004)

Employee share award and share option credit

-

-

-

-

-

283

283

-

283











Total movements in equity

(72)

-

72

-

1,480

(11,700)

(10,220)

1,164

(9,056)











Balance at 1 June 2008

1,311

2,925

74

878

1,549

74,051

80,788

3,589

84,377












Consolidated Balance Sheet - unaudited 

As at 1 June 2008




1 June

3 June

2 December



2008

2007

2007







Note

£'000

£'000

£'000






ASSETS





Non-current assets





Property, plant and equipment

7

6,375

5,038

6,479

Intangible assets - other

8

11,633

6,033

10,389

Intangible assets - goodwill

8

1,005

364

382

Investment in joint venture


135

120

135

Deferred tax asset


2,838

12,061

3,052








21,986

23,616

20,437






Current assets





Trade and other receivables


142,861

148,339

151,085

Current tax debtor


-

3,981

-

Cash and cash equivalents

10

10,569

-

4,771








153,430

152,320

155,856






Total assets


175,416

175,936

176,293






LIABILITIES





Current liabilities





Provisions for liabilities and charges

11

(228)

(345)

(250)

Trade and other payables


(75,575)

(48,010)

(73,180)

Financial liabilities

13

(6,690)

(40,545)

(1,267)

Current tax liability


(5,130)

-

(4,911)








(87,623)

(88,900)

(79,608)






Non-current liabilities





Provisions for liabilities and charges

11

(3,416)

(6,265)

(3,252)








(3,416)

(6,265)

(3,252)






Total liabilities


(91,039)

(95,165)

(82,860)






Net Assets


84,377

80,771

93,433
















EQUITY





Capital and reserves attributable to the Company's equity holders




Share capital


1,311

1,385

1,383

Share premium


2,925

2,925

2,925

Capital redemption reserve


74

-

2

Capital reserve


878

878

878

Currency translation reserve


1,549

(175)

69

Retained earnings


74,051

74,297

85,751








80,778

79,310

91,008

Minority interest


3,589

1,461

2,425






Total equity


84,377

80,771

93,433









Consolidated Cash Flow Statement - unaudited 

Six months ended 1 June 2008




6 months ended

Year ended



1 June

3 June

2 December



2008

2007

2007







Note

£'000

£'000

£'000






Cash flows from operating activities





Cash generated from/ (used in) operating activities

9

32,819

(24,679)

29,316

Income tax paid


(6,129)

(429)

(2,113)






Net cash generated from/ (used in) operating activities


26,690

(25,108)

27,203






Cash flows from investing activities





Purchase of property, plant and equipment


(1,087)

(2,758)

(5,173)

Purchase of intangible assets - others


(2,703)

(3,021)

(8,901)

Proceeds from disposal of property, plant and equipment


-

-

30






Net cash used in investing activities


(3,790)

(5,779)

(14,044)






Cash flows from financing activities





Drawdown on loan facility


6,690

39,000

-

Repayment of loan stock


(1,000)

-

-

Cash loss on settlement of treasury investment


(2,954)

-

-

Finance cost


(608)

(479)

(1,979)

Proceeds from issue of ordinary shares


-

6

5

Issue of share capital to minority interest


-

-

1,845

Repurchase of minority interest


(724)

-

(28)

Repurchase of share capital


(14,401)

-

(388)

Dividends paid


(4,101)

(6,345)

(6,415)






Net cash (used in)/ generated from financing activities


(17,098)

32,182

(6,960)






Net increase in cash and cash equivalents


5,802

1,295

6,199

Cash and cash equivalents at beginning of the period


4,504

(1,841)

(1,841)

Exchange gains on cash and cash equivalents


263

1

146






Cash and cash equivalents at the end of the period

10

10,569

(545)

4,504








Notes to the Financial Statements - unaudited

Six months ended 1 June 2008

1.  Accounting policies

General information


SThree plc ('the Company') and its subsidiaries (together 'the Group') operate predominantly in the United Kingdom and Europe. The Group consists of 12 different brands and provides both permanent and contract specialist staffing services, primarily in the ICT sector and, to an increasing extent, the banking and finance, accountancy, human resources, engineering, pharmaceutical and jobboard sectors.


The Company is a limited liability company incorporated and domiciled in the United Kingdom. The Company is listed on the London Stock Exchange.


These consolidated interim financial statements were approved for issue on 18 July 2008.


These consolidated interim financial statements do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985 (section 434 of the Companies Act 2006). Statutory accounts for the year ended 2 December 2007 were approved by the Board of directors on 7 March 2008 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 237 of the Companies Act 1985.


These consolidated interim financial statements have been reviewed, not audited.


Basis of preparation


This consolidated interim financial statements for the six months ended 1 June 2008 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 2 December 2007, which have been prepared in accordance with IFRSs as adopted by the European Union.


Significant accounting policies


The same accounting policies, presentation and methods of computation are followed in these financial statements as were applied in the preparation of the Group's financial statements for the year ended 2 December 2007.

 

Notes to the Financial Statements - unaudited

Six months ended 1 June 2008

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.


For reasons of risk management and tax planning, in certain instances the Group uses UK registered companies to transact with clients located in continental Europe. As a result we report fully allocated operating profit by location of operating company rather than by location of client.


Geographic analysis















By location of client

By location of operating company









Six months ended

Six months ended

Year 

ended

Six months ended

Six months ended

Year 

ended


1 June

3 June

2 December

1 June

3 June

2 December


2008

2007

2007

2008

2007

2007









£'000

£'000

£'000

£'000

£'000

£'000








Revenue







United Kingdom

189,797

171,557

369,735

237,423

222,889

479,521

Europe and Rest of the world

105,610

68,830

152,963

57,984

17,498

43,177









295,407

240,387

522,698

295,407

240,387

522,698








Gross profit







United Kingdom

60,095

55,750

123,321

71,618

66,815

147,459

Europe and Rest of the world

42,405

26,762

59,344

30,882

15,697

35,206









102,500

82,512

182,665

102,500

82,512

182,665








Operating profit







Operating profit before exceptional items:







United Kingdom




13,401

17,459

44,472

Europe and Rest of the world




10,994

2,163

7,785












24,395

19,622

52,257

Exceptional items (note 3):







United Kingdom




(1,957)

-

-












22,438

19,622

52,257
















By location of operating company









Total assets

Capital expenditure









Six months ended

Six months ended

Year 

ended

Six months ended

Six months ended

Year 

ended


1 June

3 June

2 December

1 June

3 June

2 December


2008

2007

2007

2008

2007

2007









£'000

£'000

£'000

£'000

£'000

£'000








United Kingdom

130,319

145,688

155,898

3,622

5,422

12,811

Europe and Rest of the world

45,097

30,249

20,395

168

357

1,263









175,416

175,937

176,293

3,790

5,779

14,074

















Notes to the Financial Statements - unaudited

Six months ended 1 June 2008

2.  Segmental analysis (continued)

The following segmental analyses by brand, recruitment classification and by discipline (being the profession of candidates placed) have been included as additional disclosure over and above the requirements of IAS14 'Segment Reporting'.



Revenue

Gross profit







Six months ended

Six months ended

Year 

ended

Six months ended

Six months ended

Year 

ended


1 June

3 June

2 December

1 June

3 June

2 December


2008

2007

2007

2008

2007

2007









£'000

£'000

£'000

£'000

£'000

£'000








Brand







Computer Futures Solutions

84,050 

68,748

148,096 

30,187 

23,111

53,850 

Huxley Associates

74,698 

60,413

134,374 

27,593 

22,159

50,746 

Progressive Computer Recruitment

58,198 

44,254

95,067 

19,938 

14,087

31,688 

Pathway

22,088 

21,363

45,279 

6,439 

5,400

11,595 

Others

56,373 

45,609

99,882 

18,343 

17,755

34,786 









295,407 

240,387 

522,698 

102,500 

82,512 

182,665 








Recruitment classification







Contract

245,535 

199,313

429,121 

52,632 

41,438

89,143 

Permanent

49,872 

41,074

93,577 

49,868 

41,074

 93,522 









295,407 

240,387 

522,698 

102,500 

82,512 

182,665 








Discipline







Information & communication technology

256,292 

217,523

469,883 

80,745 

68,570

150,139 

Other(1)

39,115 

22,864

52,815 

21,755 

13,942

32,526 









295,407 

240,387 

522,698 

102,500 

82,512 

182,665 








(1) Including banking and finance, accountancy, human resources, engineering, pharmaceuticals and jobboard sectors.



Notes to the Financial Statements - unaudited

Six months ended 1 June 2008

3.  Administrative expenses - exceptional items

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



Six months ended

Six months ended

Year 

ended


1 June

3 June

2 December


2008

2007

2007






£'000

£'000

£'000





Exceptional items - charged to operating profit




Exchange loss on settlement of financial instruments

1,957

-

-






1,957

-

-





The Group does not have material transactional currency exposures although is exposed to translation differences on the profits and cash flows generated by its overseas operations, the main functional currencies of the Group being Sterling and the Euro. During the prior period some derivative transactions were undertaken to mitigate certain exposures to complex derivative financial instruments and these results include a £2.0m loss arising from having closed the positions before maturity. The Board has since undertaken a review of its foreign exchange hedging strategy to ensure that it is appropriate, given the Group's increasing international business and has adopted a policy not to hedge translation risk, but to hedge transaction exposures, consistent with our major listed competitors. As a result of the earlier mitigation, the Group no longer has exposure to complex derivative financial instruments, which the Board believes are not appropriate for the Group policy going forward. 


4. Taxation

Interim period income tax is accrued on the estimated average annual effective rate of 31 per cent (6 months ended 3 June 2007: 31 per cent, year ended 2 December 2007: 33 per cent).



5. Dividends


Six months ended

Six months ended

Year 

ended


1 June

3 June

2 December


2008

2007

2007






£'000

£'000

£'000

Amounts recognised and distributed to shareholders in the year




Equity




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

7,903

6,345

6,345 

Interim dividend of 3.1 pence per ordinary share

4,101

-

4,011 






12,004

6,345

10,356


The final dividend of 6.2 pence (2007: 4.8pence) per ordinary share was approved to be paid on 9 June 2008 to shareholders on record at 2 May 2008.


An interim dividend of 4.0 pence (3 June 2007: 3.1pence) per ordinary share will be paid on 5 December 2008 to shareholders on the register at the close of business on 7 November 2008.



Notes to the Financial Statements - unaudited

Six months ended 1 June 2008

6. Earnings per share

The calculation of the basic and diluted earnings per share 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 Employee Benefit 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.



Six months ended

Six months ended

Year 

ended


1 June

3 June

2 December


2008

2007

2007






£'000

£'000

£'000

Earnings




Profit after tax

14,965

13,166

33,815

Minority interest

(1,082)

(1,113)

(1,167)

Profit after taxation attributed to equity holders of the Company

13,883

12,053

32,648





Effect of exceptional items (net of tax)

1,344

-

-





Profit for the period excluding exceptional items attributable to the equity holders of the Company

15,227

12,053

32,648










millions

millions

millions

Number of shares




Weighted average number of shares used for basic EPS

129.0

129.3

129.8

Dilution effect of share plans

3.4

5.1

5.9





Diluted weighted average number of shares used for diluted EPS

132.4

134.4

135.7










pence

pence

pence

Basic




Basic earnings per share

10.8

9.3

25.2

Basic earnings per share excluding exceptional items

11.8

9.3

25.2

Dilutive




Diluted earnings per share

10.5

9.0

24.1

Diluted earnings per share excluding exceptional items

11.5

9.0

24.1





All earnings are derived from continuing operations





Notes to the Financial Statements - unaudited

Six months ended 1 June 2008

7. Property, plant and equipment


IT

hardware

Leasehold

improvements

Fixtures and

fittings

Motor

vehicles


Total








£'000

£'000

£'000

£'000

£'000







Cost






At 30 November 2006

6,919 

2,001 

 1,499 

 221 

10,640 







Additions

1,240 

 562 

340 

 170 

2,312 

Exchange difference

 8 

-

-

 10 







At 3 June 2007

8,167 

2,563 

 1,841 

 391 

12,962 







Additions

1,008 

 896 

957 

-

2,861 

Disposals

 (94)

 (67)

(37)

 (69)

 (267)

Exchange difference

63 

20 

34 

-

 117 







At 2 December 2007

9,144 

3,412 

 2,795 

 322 

15,673 







Additions

 327 

 433 

260 

 67 

1,087 

Reclassification from intangible assets

49

-

-

-

 49 

Reclassification

2

 (2)

-

-

-

Exchange difference

156 

89 

86 

-

 331 







At 1 June 2008

9,678 

3,932 

 3,141 

 389 

17,140 







Depreciation






At 30 November 2006

5,580 

 716 

688 

 98 

7,082 







Charge for the period

 474 

 208 

130 

 23 

 835 

Exchange difference

 7 

-

-

-

 7 







At 3 June 2007

6,061 

 924 

818 

 121 

7,924 







Charge for the period

 774 

 299 

307 

 22 

1,402 

Disposals

 (90)

(46)

(25)

(30)

 (191)

Exchange difference

 43 

 5 

11 

-

 59 







At 2 December 2007

6,788 

1,182 

 1,111 

 113 

9,194 







Charge for the period

 695 

 336 

359 

 30 

1,420 

Reclassification from intangible assets

-

 (1)

-

-

 (1)

Exchange difference

 105 

 18 

29 

-

 152 







At 1 June 2008

7,588 

1,535 

 1,499 

 143 

10,765 













Net book value












At 1 June 2008

2,090 

2,397 

 1,642 

 246 

6,375 







At 3 June 2007

2,106

1,639

1,023

270

5,038







At 2 December 2007

2,356 

2,230 

 1,684 

 209 

6,479 





















Notes to the Financial Statements - unaudited

Six months ended 1 June 2008

8.  Intangible assets


Goodwill

Assets under 

construction

Computer 

software

Development costs

Trademarks

Total









£'000

£'000

£'000

£'000

£'000

£'000








Cost







At 30 November 2006

206,051

2,361

406

619

63

209,500








Additions

18

2,372

1,536

4,993

-

8,919

Reclassification

-

(2,361)

-

2,361

-

-








At 2 December 2007

206,069

2,372 

 1,942 

 7,973 

63 

218,419 








Additions

 623 

2,492 

211 

-

-

3,326 

Reclassification to property, plant and equipment

-

(49)

-

-

-

(49)

Reclassification

-

(2,885)

109 

 2,776 

-

-








At 1 June 2008

206,692 

1,930 

 2,262 

 10,749 

63

221,696 








Amortisation and Impairment














At 30 November 2006

205,687

-

304

90

43

206,124








Charge for the year

-

-

499

1,019

6

1,524








At 02 December 2007

205,687 

-

803 

 1,109 

49 

207,648 








Charge for the year

-

-

327 

 1,079 

1,409 

Reclassification to fixed assets

-

-

-

-

 1 








At 1 June 2008

205,687 

-

 1,131 

 2,188 

52 

209,058 















Net book value














At 1 June 2008

1,005 

1,930 

 1,131 

 8,561 

11 

12,638 








At 3 June 2007

364

-

429

5,587

17

6,397








At 2 December 2007

 382 

2,372 

 1,139 

 6,864 

14 

10,771 

















Goodwill


Goodwill has been recognised after the purchase of a -


(a) - 15% minority interest holding in Jobboard Enterprises Limited, increasing the Group share of identifiable net assets from 80% to 95%.


(b) - 18% minority interest holding in New Wave Resourcing Limited, increasing the Group share of identifiable net assets from 82% to 100%.


The total amount paid to increase the Group's holding in the above companies was £0.7m.



Notes to the Financial Statements - unaudited

Six months ended 1 June 2008

9. Cash flows from operating activities



Six months ended

Six months ended

Year 

ended



1 June

3 June

2 December



2008

2007

2007







Note

£'000

£'000

£'000






Profit before taxation


21,830

19,174

50,324

Adjustments for:





Depreciation and amortisation charge


2,829

1,278

3,761

Unrealised losses on financial instruments


-

-

999

Non-cash element of the charge for share options and awards


283

119

347

Profit attributable to the joint venture


-

(31)

(46)

Profit from partial deemed disposal of subsidiary


-

-

(855)

Finance cost


608

479

1,979

Loss on disposal of property, plant and equipment


-

-

46

Loss on settlement of treasury investment

3

1,957

-

-






Operating cashflow before changes in working capital and provision


27,507

21,019

56,555






Changes in working capital and provisions:





Decrease/(increase) in receivables


10,689

(55,670)

(58,500)

(Decrease)/increase in payables


(5,487)

8,986

33,383

Increase/(decrease) in provisions


110

986

(2,122)






Net cash inflow from/(outflow) from operating activities


32,819

(24,679)

29,316







10. Cash and cash equivalents


1 June

3 June

2 December


2008

2007

2007






£'000

£'000

£'000





Cash and cash equivalents include the following for the purposes




of the cash flow statement:




Cash in hand and at bank

10,569

-

4,771

Bank overdrafts

-

(545)

(267)






10,569

(545)

4,504






Notes to the Financial Statements - unaudited

Six months ended 1 June 2008

11. Provisions for liabilities and charges


Property

Other

Total






£'000

£'000

£'000





At 30 November 2006

672

4,952

5,624

Charged/(released) to the income statement

146

(2,268)

(2,122)





At 2 December 2007

 818 

2,684 

3,502 

Charged/(released) to the income statement

 180 

 (38)

 142 





At 1 June 2008

 998 

2,646 

3,644 








1 June

3June

2 December


2008

2007

2007





Current / non-current analysis:

£'000

£'000

£'000





Non-current liabilities

3,416

6,265

3,252

Current liabilities

228

345

250






3,644

6,610

3,502 



Property


Dilapidations - The Group is obliged to pay for dilapidations at the end of its tenancy of various properties. Provision has been made based on independent professional estimates of the likely costs based on current conditions and these have been spread over the relevant lease term. The liability will crystallise as follows: within one year £0.1m, one to five years £0.6m and after five years £0.3m.



Other


The provision meets the definition of a financial liability and arises from a contractual obligation.


Other provisions principally include amounts in respect of contractual liabilities resulting from indemnities given to Group clients in continental Europe arising in the normal course of business in respect of the employment status of contractors.


The timing of settlement is uncertain but the Directors expect that the provision may be utilised within the average statute of limitation period in the countries to which this exposure relates.



Notes to the Financial Statements - unaudited

Six months ended 1 June 2008

12. Share buy back


During the period, the Group purchased 7.2m of its own shares for cancellation on the London Stock Exchange, the average price paid per share amounts to 201 pence. The total consideration paid was £14.4m.


13. Financial liabilities


1 June

3 June

2 December


2008

2007

2007






£'000

£'000

£'000





Bank overdrafts

-

545

267

Bank borrowings

-

40,000

1,000

Invoice financing

6,690

-

-






6,690

40,545

1,267





A flexible invoice financing arrangement is in place with the Royal Bank of Scotland Group (RBS) until February 2010. Under this arrangement the Group was able to borrow up to £50.0m, with a committed facility of £20m. Funds borrowed under this facility bear interest at a rate of 0.75 per cent above RBS base rate.



14. Capital commitments

The Group had capital commitments of £0.2m (3 June 2007: £1.5m; 2 December 2007: £0.6m).



15. Related party disclosure

The Group's significant related parties are as disclosed in the SThree plc Annual Report for the year ended 2 December 2007. There were no material differences in related parties or related party transactions in the period or prior period.



This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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