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SThree plc (STHR)

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Monday 20 July, 2009

SThree plc

Interim results

RNS Number : 9076V
SThree plc
20 July 2009
 




SThree plc

('SThree' or the 'Group')


Interim results for the six months ended 31 May 2009


SThree, the international specialist staffing business, is today announcing its interim results for the six months 

ended 31 May 2009.


Financial Highlights - six months ended

31 May '09


1 June '08


% change

Revenue

£280.6m

£295.4m

-5.0%

Gross profit

£93.3m

£102.5m

-9.0%

Operating profit before exceptional items

£11.0m

£24.4m

-55.0%

Profit before taxation before exceptional items

£11.2m

£23.8m

-53.0%

Profit before taxation after exceptional items

£2.7m

£21.8m

-87.6%

Profit for the period after exceptional items

£1.6m

£15.0m

-89.3%

Basic earnings per share before exceptional items

6.3p

11.8p

-46.6%

Basic earnings per share after exceptional items

1.1p

10.8p

-89.8%

Interim dividend

4.0p

4.0p



Operational Highlights


• Satisfactory first half performance in a very challenging market. Gross Profit down 9% to £93.3m (2008: £102.5m). On a constant currency basis Gross Profit down 15%


• Permanent placements down by 34.1% to 3,302 (2008: 5,008) - average permanent placement fee up significantly by 17.3% to £11,838 (2008: £10,091)


• Number of active contractors at period end reduced by 21.8% to 4,494 (2008: 5,743) - average gross profit per day rates increased by 10.8% to £87.67 (2008: £79.11)


• Contract margin improved to 22.5% (2008: 21.4%)


• Contract versus permanent mix of Gross Profit now 58:42 in favour of contract (Full year 2008: 52:48)


• Non-UK Gross Profit for the period represented 54% of the Group total (Full year 2008: 45%)


• International business performed robustly, growing Gross Profit by 20% to £50.7m (2008: £42.4m).

The UK business posted a 29% decline in Gross Profit to £42.6m (2008: £60.1m)


• Non-ICT business segments grew by 9% to £23.6m (2008: £21.8m) representing 25% of total Gross Profit


• New offices opened in DusseldorfFrankfurtHamburg and Singapore


• Business right sized in Q2 2009 for the prevailing climate, resulting in a 25% reduction in headcount and an

exceptional charge of £8.5m 


• Basic earnings per share (before exceptional items) of 6.3p (2008: 11.8p); post exceptional 1.1p (2008: 10.8p)


• Net cash position strong at £43.9m (2008: £3.9m net cash) and reduction of days sales outstanding to 39 (2008: 51) 


• Interim dividend maintained at 4.0p (2008: 4.0p)


Russell Clements, CEO, commented:


'The Group performed very satisfactorily in the first half in extremely challenging market conditions.  In particular, we are pleased with the strong contribution made by our international businesses, which grew by 20%, reflecting both our growing international presence and the structural growth opportunities available outside of the mature staffing markets of the UK and US. Our commitment to maintaining price discipline was once again evident in our robust like for like fee growth, with average fees improving further even in the face of significant volume declines. This performance is testament to the strengths of the Group's well-established positioning in the SME market, significant contract business and focus on the placement of specialist candidates in higher wage bands.  


'Whilst we took decisive restructuring action in the period to align our cost base with the market opportunity, we also continue to invest for the future - expanding our international network into new territories and adding or growing new disciplines such as Legal, Sales & Marketing and Public Sector.


'With a strong cash position and healthy balance sheet the Group is well positioned to ride out the current downturn and capture the opportunities of the recovery when it arrives. In the meantime, it is gratifying to once again be in a position to reward our shareholders' commitment with a strong dividend payment.'


  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 has further broadened the base of its operations by building fast-growing businesses serving the accountancy & finance, banking, engineering, oil & gas, pharmaceuticals, human resources, energy, legal and job board sectors.

  

Following the establishment of its first business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree operates through brands including FS Group (Computer Futures/JP Gray), Huxley Associates, Progressive and RPMG (Real/Pathway) and has 1,650 employees in eleven countries.


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


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


Important notice


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










SThree plc

('SThree' or the 'Group')


Interim results for the six months ended 31 May 2009


Operating Review


Given the exceptional market conditions, the first half of 2009 saw a satisfactory performance from the Group, with Gross Profit (GP) reducing by a relatively modest 9% to £93.3m (2008: £102.5m). We are particularly pleased with the strong contribution of our international teams during the period. In the first half Non-UK GP grew by 20% to £50.7m (2008: £42.4m). Although early returns from our newer offices in Singapore, DusseldorfFrankfurt (our third office in this city) and Hamburg 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 the UK and the US the business has performed more strongly. This resilience is a reflection of the structural growth that characterises much of our fast growing international business. That said, all of our Non UK offices faced deteriorating market conditions during the period in sharp contrast to the buoyant conditions they enjoyed during H1 2008.


Unsurprisingly the teams addressing those territories that are relatively more mature in terms of specialist staffing markets (such as Benelux) found conditions more challenging than their colleagues exposed to strong structural growth in territories such as Germany. Nonetheless the increasing internationalisation of the Group is the most significant theme to note from the period. As at the half year 54% of Group GP was derived from outside of the UK, up from 45% at the end of the 2008 financial year.


By contrast GP in the UK declined by 29% to £42.6m (2008: £60.1m). As a mature staffing market, the UK does not benefit from any structural growth to offset weak levels of demand. Ordinarily the normal fluctuations of the economy tend to have a limited impact at the very specialist end of the market, as the inherent shortage of highly skilled staff acts as a mitigating factor. However the severity of the current recession has clearly been too much for this shortage to make a material difference and as a consequence the Group found the UK market particularly difficult.


It is worth noting however that the current downturn has not experienced (with the exception of the banking market) the mass redundancies seen in the ICT market in the period following the Dot Com crash. Unlike then, this has meant that there is not a ready supply of unemployed candidates prepared to bid down the market rate for roles. Indeed given the prevailing level of uncertainty, candidates are often reluctant to put themselves on the market. The resulting scarcity of candidates for certain positions explains (along with the Group's price discipline) the robustness of our UK fees.


Very recently there have been indications that the UK market may be showing some signs of stability. In particular, the decline in productivity per consultant has been replaced by a modest improvement. However at this stage the data points are relatively limited and we therefore remain cautious regarding the UK market until such time as we see further evidence to suggest that the bottom has been reached. 


As we would expect, as a result of the difficult market conditions we have seen a further shift in the business mix towards contract. During the period 58% of Group GP was attributable to contract compared to 52% during the same period in 2008. However, although relatively more robust, the volume of contract runners at period end declined by 21.8% to 4,494 (2008: 5,743). Despite this the average contract margin improved from 21.4% to 22.5%, once again this is testament to the Group's unwillingness to compete solely on price.


The reduction in contract runners resulted in a commensurate unwinding of working capital and this contributed to a major strengthening of the Group's net cash position to £43.9m from £3.9m in the previous year. This strong cash performance was also driven by the Group continuing to trade profitably and a significant improvement in the Group's DSO figure to 39 from 51 in 2008. The latter was a reflection of seeing a return on the Group's investment in ERP as well as a concentrated management focus.


During the second quarter of 2009, the Group undertook a significant restructuring to right size the business for the prevailing market climate. This led to a restructuring charge of £8.5m, relating to people exit and office rationalisation costs, which has been taken in the accounts as an exceptional item. We anticipate that this will pay back within the current financial year.


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. Clearly the current market conditions have in the short term impacted the scale and pace of the roll out. However we are focused on a strategy for the medium/long term and added to our international office network and grew our Non ICT franchises during the period. The success of the strategy is reflected in the fact that our businesses outside the UK ICT sector represented 67% of Group GP in the first half of 2009 compared to 55% in the first half of 2008. We will continue to look at further expansion opportunities with a view to ensuring that the Group is well positioned strategically to take full advantage of the inevitable upturn.


The Group's core strategy will continue to be based on organic growth. Although we are not philosophically opposed to considering acquisitions we would see any as opportunistic and more likely to be small 'bolt-ons' capable of offering niche expertise we would find difficult to build internally.


In normal conditions the Group's growth strategy is to increase sales headcount to the fullest extent possible given market opportunity and management bandwidth. That said, our strategy is agile and we benefit from a highly flexible workforce. This enabled us during the period to rightsize the business by reducing headcount by approximately 28%, which was achieved at a relatively modest cost and paying back within the financial year, although we were still also able to invest in those geographies/sectors offering growth opportunities. We believe that headcount is now at a level commensurate with both the current trading conditions as well as our need to ensure a level of critical mass in our chosen markets. Our overall headcount strategy is to maintain team sizes at their current level until we see signs of meaningful improvement in the market. That said, in markets which offer strong structural growth and/or markets that we feel are strategically attractive for different reasons (for example size) we will continue to selectively add headcount where appropriate.


A further key element of our strategy is to 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 in more mature markets (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 of the year 75% of the candidates we placed were ICT professionals, only approximately 22% of our customers are in the ICT sector. The improvement in the Group's first half contract margin to 22.5% (2008: 21.4%) is further evidence of the validity of this approach even in very challenging conditions.  We are committed strategically to  maintaining our price  discipline even if  this  means walking

away from lower quality business which would flatter volumes but at an unacceptable margin.


This strategy is supported by our multi-brand approach which allows the Group to segment the market around specific niches. This allows us to credibly position ourselves as market experts, which in turn justifies premium pricing. 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.




Breakdown of GP

Six months ended

31 May '09

%

Year ended

30 Nov '08

%

Six months ended

1 June '08

%

Contract

58

52

51

Permanent

42

48

49

Total

100

100

100

Non UK

54

45

42

UK

46

55

58

Total

100

100

100

Non ICT

25

23

21

ICT

75

77

79

Total

100

100

100





Geographical Expansion & Sector Expansion


At  the half year the Group had 1,650 employees  in eleven countries.  In the first half  the Group added four new  offices;
Dusseldorf  (Progressive),  our third office in Frankfurt  (Real Resourcing), Hamburg (Computer Futures) and Singapore (Progressive). These  openings  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 albeit that some are more attractive attractive than others given current market conditions.
 
 
Overall Non-UK GP grew by 20% to £50.7m (2008: £42.4m) helped by the increasing contribution made by the roll out of newer sectors into newer geographies. The long term potential of this approach is increasingly evident. For example the Group has had a successful UK engineering business for a number of years, but has only more recently started placing engineers in Continental Europe. Looking forward we still have substantial scope for more of this type of cross pollination of sectors with geographies. Markets with global scope such as that addressed by our Oil & Gas franchise are particularly exciting examples of newer initiatives. We are currently considering a number of further international office openings due to be rolled out during 2010.
 
In the UK, GP declined by 29% to £42.4m (2008: £60.1m) and we closed/consolidated a number of smaller sub-critical UK offices as a part of the restructuring. Although currently a challenging geography, the UK is a major market for us and is of great strategic importance to the Group. As such we will defend our UK franchise given the fact that prior to the current downturn the Group’s UK business grew at 25% in 2007.
 
Overall the Group grew GP from non-ICT sectors by 9% to £23.6m (2008: £21.8m). This result needs to be seen in the context that historically the Group’s single largest non-ICT franchise has been investment banking business which was clearly operating in a particularly weak market. In addition, the non-ICT business is, compared to ICT, relatively more exposed to the permanent market and to the UK, both very difficult markets currently.


 

Contract/Permanent Business Mix


The Group saw reductions in volume mitigated by good value growth in both the Permanent and Contract sides of the business.

In the first half  the Group made  3,302  permanent placements, a  reduction of  34.1% (2008:  5,008). At  the same time  the

average fee achieved grew by 17.3% to £11,838 (2008: £10,091). At the half year the Group had a total of 4,494 contractors, a reduction of 21.8% (2008: 5,743). These generated an average gross profit per day rate of £87.67, an improvement of 10.8% 

(2008: £79.11). 

 


Due to the more rapid growth in Contract GP, the Group's mix of business has changed. In the first half Contract GP represented 58% of the total compared with 52% for 2008 as a whole and 51% for the half year 2008. This shift is explained partly by a natural move towards Contract hiring in a difficult market and by a larger contract contribution from our continental European teams. This in turn 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 1,647, an overall decrease of 27.6% on the previous year (2008 year end: 2,274). The Group is agile in terms of its hiring programme and will adapt where necessary to market changes. The Group's strategic preference is for growing headcount primarily through hiring of graduates. As such, the Group has shown itself capable of rapidly increasing headcount as market conditions improve.


Brand Performance


As for the full year 2008, the four largest brands in order of GP contribution were Computer Futures, Huxley, Progressive and Real Resourcing. In aggregate these brands represented 83% of total GP, a figure slightly above 2008 when it was 82%.

 

In the first half of the year, Computer Futures declined by 11.2% in GP to £26.8m (2008: £30.2m). This was a satisfactory

result from our longest established business which benefits from a significant presence in Continental Europe. Huxley declined by 14.9% to £23.5m (2008: £27.6m), an acceptable performance when we take into account that this brand has historically been particularly strong in investment banking and is also more permanent focused than the rest of the Group. 


Progressive's GP of £19.8m (2008: £19.9m) showed commendable resilience, primarily due to an increase in its international business and a strong performance in the UK from its newer sectors, particularly Oil & Gas. Real Resourcing grew GP by 12% to £7.4m (2008: £6.6m), by continuing its drive in the public sector. Overall this brand's performance was a very notable achievement given its largely UK focus The smaller brands declined in aggregate by 12.7% reflecting their UK focus and in most cases a greater than (the Group's) average exposure to the financial market.


Taxation


The charge for taxation on profits before exceptional items amounted to £3.5m (2008:£7.5m), an effective rate of 31% (2007:31.4%). The tax rate for the full year is anticipated to increase from 30% to around 31% due to the increased proportion of profits that is expected to arise in overseas territories with comparably higher rates of tax.


Earnings per Share


Basic earnings per share before the exceptional item reduced by 46.6% to 6.3p (2008: 11.8p). After taking account of the exceptional item, earnings per share reduced by 89.8% to 1.1p. Diluted earnings per share before the exceptional item decreased by 46.9% to 6.1p (2008: 11.5p).


Cash Flow


At the start of the period the Group had net cash of £24.6m. During the period the Group generated cash from operating activities

of £37.3m (2008: cash inflow of £32.8m) being £6.5m of operating cashflow before changes in working capital and provisions (2008: £27.5m) and a reduction in working capital requirements and provisions of £30.8m  (2008: reduction in working capital of  £5.3m).

At 31 May 2009 the Group had net cash of £43.9m.


A  flexible invoice financing  arrangement  is in  place with Royal Bank of Scotland Group  (RBS)  until 25  February 2010. Under this arrangement the Group is able to borrow up to £50m, with a committed facility of £20m. The Board is in the process of assessing the level of  facility required and is in discussions  with a number of potential providers. The Board expects to conclude  this  later in 2009.


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


The main functional currencies of the Group are Sterling and the Euro. The Group has significant operations outside the United

Kingdom and as such is exposed to movements in exchange rates. 


The Board has undertaken a review of its currency hedging strategy to ensure that it is appropriate and currently the Group does not actively manage its exposure to foreign exchange risk by the use of financial instruments, consistent with its major listed competitors. However, the impact of foreign exchange will become a more significant issue for the Group as we expect the business mix to move further towards International, with International business accounting for 54% of gross profit in 2009 (2008: 45%). The Group continues to monitor its policies in this area.


Other principal risks and uncertainties affecting the business activities of the Group are as detailed within the Directors' Report

section of  the Annual Report for  the year ended  30 November 2008, 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 expected to the Group's key risk factors in the foreseeable future.


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 a maintained interim dividend of 4.0p (2008: 4.0p) per share. The interim dividend will be paid on 4 December 2009 to those shareholders on the register at 6 November 2009.


Outlook


Trading in the first half of 2009 took place against a background of a severe global downturn and sharply declining business confidence. 


During the period the Group took decisive steps to ensure that the business remains fit for purpose in the current climate. That said, we are also committed to maintaining a scaleable platform to support future growth and will continue to make prudent investments as these opportunities arise.


The Group's extremely healthy cash position is particularly pleasing to note. This, along with our twenty two year track record of consistent profitability and our seasoned management team position us extremely well to deal with whatever the market presents us with.


Looking beyond the current downturn the Group operates in an extremely attractive market which has delivered profit for the Group in every year since its inception in 1986. Historically the Group's bounce back from downturns has been very rapid. Given that we are ever more an international business and increasingly exposed to markets with strong structural growth, we believe there is no reason why our recovery from the current downturn will be any less marked. In the meantime the strongly cash generative nature of the business and its healthy balance sheet puts us in a strong position to continue to support a robust attitude towards our dividend payment.



Consolidated Income Statement - unaudited 

for the six months ended 3May 2009






Six months 

ended



Six months 

ended



Year 

ended





31 May



1 June



30 November



Before


2009

Before


2008

Before


2008



Exceptional

Exceptional


Exceptional

Exceptional


Exceptional

Exceptional




items

items

Total

items

items

Total

items

items

Total













Note

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000












Continuing operations






















Revenue

2

280,578

-

280,578

295,407

-

295,407

631,520

-

631,520

Cost of sales


(187,283)

-

(187,283)

(192,907)

-

(192,907)

(412,581)

-

(412,581)












Gross profit

2

93,295

-

93,295

102,500

-

102,500

218,939

-

218,939

Administrative expenses

3

(82,308)

(8,464)

(90,772)

(78,105)

(1,957)

(80,062)

(162,129)

(1,957)

(164,086)












Operating profit


10,987

(8,464)

2,523

24,395

(1,957)

22,438

56,810

(1,957)

54,853

Finance income


284

-

284

-

-

-

25

-

25

Finance cost


(96)

-

(96)

(608)

-

(608)

(827)

-

(827)












Profit before taxation


11,175

(8,464)

2,711

23,787

(1,957)

21,830

56,008

(1,957)

54,051

Taxation

4

(3,464)

2,383

(1,081)

(7,478)

613

(6,865)

(16,809)

594

(16,215)












Profit for the period


7,711

(6,081)

1,630

16,309

(1,344)

14,965

39,199

(1,363)

37,836












Attributable to:











Equity holders of the Company


7,368

(6,081)

1,287

15,227

(1,344)

13,883

37,241

(1,363)

35,878

Minority interest


343

-

343

1,082

-

1,082

1,958

-

1,958














7,711

(6,081)

1,630

16,309

(1,344)

14,965

39,199

(1,363)

37,836























Earnings per share

6

pence

pence

pence

pence

pence

pence

pence

pence

pence

Basic


6.3

(5.2)

1.1

11.8

(1.0)

10.8

29.9

(1.1)

28.8

Diluted


6.1

(5.0)

1.1

11.5

(1.0)

10.5

29.2

(1.1)

28.1













An interim dividend of 4.0 pence (1 June 20084.0 pence) per Ordinary Share will be paid on 4 December 2009 to shareholders on the register at the close of business on 6 November 2009.


Consolidated Balance Sheet - unaudited

as at 31 May 2009




 31 May

1 June

30 November



2009

2008

2008







Note    

£'000

£'000

£'000






ASSETS





Non-current assets





Property, plant and equipment


6,558

6,375

6,575

Intangible assets


11,479

12,638

12,262

Investment in joint venture


-

135

-

Deferred tax assets


5,640

2,838

3,146








23,677

21,986

21,983






Current assets





Trade and other receivables

7    

101,816

142,861

139,937

Cash and cash equivalents

8    

43,943

10,569

24,584








145,759

153,430

164,521






Total assets


169,436

175,416

186,504






LIABILITIES





Current liabilities





Provisions for liabilities and charges

9    

(4,011)

(228)

(332)

Trade and other payables


(78,923)

(75,575)

(81,246)

Financial liabilities

10    

-

(6,690)

-

Current tax liabilities


(2,966)

(5,130)

(10,818)








(85,900)

(87,623)

(92,396






Non-current liabilities





Provisions for liabilities and charges

9    

(3,458)

(3,416)

(3,535)








(3,458)

(3,416)

(3,535)






Total liabilities


(89,358)

(91,039)

(95,931)






Net Assets


80,078

84,377

90,573
















EQUITY





Capital and reserves attributable to the Company's equity holders




Share capital


1,218

1,311

1,218

Share premium


2,925

2,925

2,925

Capital redemption reserve


168

74

168

Capital reserve


878

878

878

Currency translation reserve


3,910

1,549

2,331

Retained earnings


66,613

74,051

78,906








75,712

80,788

86,426

Minority interest


4,366

3,589

4,147






Total equity


80,078

84,377

90,573







Consolidated Statement of Changes in Equity - unaudited 

as at 31 May 2009





Capital


Currency






Share

Share

redemption

Capital

translation

Retained

Attributable

Minority

Total


capital

premium

reserve

reserve

reserve

earnings

to Company

Interest

Equity












£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000





















Balance at 2 December 2007

1,383

2,925

2

878

69

85,751

91,008

2,425

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 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











Currency translation differences

-

-

-

-

782

-

782

(88)

694

Deferred tax on employee share options

-

-

-

-

-

(1,201)

(1,201)

-

(1,201)

Current tax on employee share options

-

-

-

-

-

408

408

-

408











Net income recognised directly in equity

-

-

-

-

782

(793)

(11)

(88)

(99)

Profit for the six months to 30 November 2008

-

-

-

-

-

21,995

21,995

876

22,871











Total recognised income and expense for the period

-

-

-

-

782

21,202

21,984

788

22,772

Repurchase of share capital

(94)

-

94

-

-

(16,849)

(16,849)

-

(16,849)

Issue of share capital

1

-

-

-

-

-

1

-

1

Employee subscription for share awards

-

-

-

-

-

127

127

-

127

Repurchase of minority interest

-

-

-

-

-

-

-

(141)

(141)

Dividends to minority interest

-

-

-

-

-

-

-

(89)

(89)

Employee share award and share option credit

-

-

-

-

-

375

375

-

375











Total movements in equity

(93)

-

94

-

782

4,855

5,638

558

6,196











Balance at 30 November 2008

1,218

2,925

168

878

2,331

78,906

86,426

4,147

90,573





















Currency translation differences

-

-

-

-

1,579

-

1,579

84

1,663

Deferred tax on employee share options

-

-

-

-

-

254

254

-

254











Net income recognised directly in equity

-

-

-

-

1,579

254

1,833

84

1,917

Profit for the six months to 31 May 2009

-

-

-

-

-

1,287

1,287

343

1,630











Total recognised income and expense for the period

-

-

-

-

1,579

1,541

3,120

427

3,547

Issue of share capital to minority interest

-

-

-

-

-

-

-

103

103

Repurchase of minority interest

-

-

-

-

-

-

-

(311)

(311)

Dividends to equity holders (note 5)

-

-

-

-

-

(14,434)

(14,434)

-

(14,434)

Employee share award and share option credit

-

-

-

-

-

600

600

-

600











Total movements in equity

-

-

-

-

1,579

(12,293)

(10,714)

219

(10,495)











Balance at 3May 2009

1,218

2,925

168

878

3,910

66,613

75,712

4,366

80,078













Consolidated Cash Flow Statement - unaudited 

for the six months ended 31 May 2009



Six months

Six months

Year



ended

ended

ended



31 May

1 June

30 November



2009

2008

2008







Note

£'000

£'000

£'000






Profit before taxation


2,711

21,830

54,051

Depreciation and amortisation charge


3,038

2,829

5,895

Realised losses on financial instruments

3

-

1,957

1,957

Finance income


(284)

-

(25)

Finance cost


96

608

827

Loss on disposal of property, plant and equipment


309

-

-

Non-cash charge for employee share option and award


600

283

658

Employee subscription for share awards


-

-

127






Operating cashflow before changes in working capital and provisions


6,470

27,507

63,490






Decrease in receivables


41,018

10,689

16,455

(Decrease)/increase in payables


(13,763)

(5,487)

6,731

Increase in provisions


3,583

110

295






Cash flows from operating activities





Cash generated from operating activities


37,308

32,819

86,971

Income tax paid


(11,735)

(6,129)

(11,449)






Net cash generated from operating activities


25,573

26,690

75,522






Cash flows from investing activities





Purchase of property, plant and equipment


(1,552)

(1,087)

(2,341)

Purchase of intangible assets


(926)

(2,703)

(3,861)






Net cash used in investing activities


(2,478)

(3,790)

(6,202)






Cash flows from financing activities





Drawdown on loan facility


-

6,690

-

Repayment of loan facility


-

(1,000)

(1,000)

Cash loss on settlement of treasury investments


-

(2,954)

(2,956)

Finance income


284

-

25

Finance cost


(96)

(608)

(827)

Proceeds from issue of ordinary shares


-

-

1

Issue of share capital to minority interest


103

-

-

Repurchase of share capital


-

(14,401)

(31,250)

Repurchase of minority interest


(311)

(724)

(1,072)

Dividends paid


(4,738)

(4,101)

(12,004)

Dividends paid to minority interest


-

-

(89)






Net cash used in financing activities


(4,758)

(17,098)

(49,172)






Net increase in cash and cash equivalents


18,337

5,802

20,148

Cash and cash equivalents at the beginning of the period


24,584

4,504

4,504

Exchange gain/(loss) on cash and cash equivalents


1,022

263

(68)






Cash and cash equivalents at the end of the period

8

43,943

10,569

24,584







Notes to the Financial Statements - unaudited

for the six months ended 31 May 2009



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 17 July 2009.


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 30 November 2008 were approved by the Board of directors on 30 January 2009 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


These consolidated interim financial statements for the six months ended 3May 2009 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 30 November 2008, 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 consolidated interim financial statements as were applied in the preparation of the Group's consolidated financial statements for the year ended 30 November 2008.


There were no new International Financial Reporting Standards or interpretations that had to be implemented during the period that affect these consolidated interim financial statements.



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


31 May

1 June

30 November

31 May

1 June

30 November


2009

2008

2008

2009

2008

2008









£'000

£'000

£'000

£'000

£'000

£'000








Revenue







United Kingdom

149,449

189,797

386,934

205,002

237,423

486,944

Europe and Rest of World

131,129

105,610

244,586

75,576

57,984

144,576









280,578

295,407

631,520

280,578

295,407

631,520








Gross profit







United Kingdom

42,591

60,095

121,566

56,127

71,618

144,975

Europe and Rest of World

50,704

42,405

97,373

37,168

30,882

73,964









93,295

102,500

218,939

93,295

102,500

218,939








Operating profit







Operating profit before exceptional items:







United Kingdom




6,503

13,401

27,372

Europe and Rest of World




4,484

10,994

29,438












10,987

24,395

56,810








Exceptional items (note 3)




(8,464)

(1,957)

(1,957)












2,523

22,438

54,853
















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


31 May

1 June

30 November

31 May

1 June

30 November


2009

2008

2008

2009

2008

2008









£'000

£'000

£'000

£'000

£'000

£'000








United Kingdom

114,899

130,319

124,817

1,413

3,622

4,806

Europe and Rest of World

55,537

45,097

61,687

1,065

168

1,396









170,436

175,416

186,504

2,478

3,790

6,202









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


31 May

1 June

30 November

31 May

1 June

30 November


2009

2008

2008

2009

2008

2008









£'000

£'000

£'000

£'000

£'000

£'000








Brand







Computer Futures Solutions

76,618

  84,050 

174,838

26,790

30,187 

63,081

Huxley Associates

68,528

  74,698 

160,918

23,463

27,593 

60,428

Progressive

61,502

  58,198 

127,911

19,831

19,938 

43,462

Real Resourcing

23,978

21,588

49,713

7,367

6,630

15,443

Pathway

16,016

  22,088 

45,026

4,569

6,439 

13,426

Others

33,936

34,785

73,114

11,275

11,713

23,099









280,578

  295,407 

631,520

93,295

102,500 

218,939








Recruitment classification







Contract

241,452

  245,535 

525,531

54,206

52,632 

113,098

Permanent

39,126

  49,872 

105,989

39,089

49,868 

105,841









280,578

  295,407 

631,520

93,295

  102,500 

218,939








Discipline







Information & communication technology

227,663

  256,292 

535,164

69,674

  80,745 

168,465

Other(1)

52,915

  39,115 

96,356

23,621

  21,755 

50,474









280,578

  295,407 

631,520

93,295

  102,500 

218,939








(1) Including accountancy and finance, banking, engineering, oil and gas, pharmaceutical, human resources, energy, jobboard and legal sectors.



3.  Administrative expenses - exceptional items

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



Six months ended

Six months ended

Year 

ended


3May

1 June

30 November


2009

2008

2008






£'000

£'000

£'000





Exceptional items - charged to operating profit




Corporate and divisional restructuring

(8,464)

-

-

Exchange loss on settlement of financial instruments

-

(1,957)

(1,957)





Exceptional items - before taxation

(8,464)

(1,957)

(1,957)






Corporate and divisional restructuring

On 15 April 2009, the Company announced a number of changes relating to corporate and divisional restructuring. The total cost of this restructuring including redundancy, relocation and consolidation of business, is considered exceptional by virtue of its size. The Group has charged the restructuring cost incurred in the current period.


Exchange loss on settlement of financial instruments

During the prior period, some complex financial instruments transactions were undertaken to mitigate certain foreign currency exposures. These have resulted in a £2.0m loss arising when a series of equal and opposite positions were taken during this financial year in order to reduce the Group's total exposure from these positions to a minimal level. The Board has undertaken a review of its currency hedging strategy to ensure that it is appropriate and currently the Group does not actively manage its exposure to foreign exchange risk by the use of financial instruments. The impact of foreign exchange will become a more significant issue for the Group as we expect the business mix to move further towards our international business, which accounted for 54% of gross profit in H1 2009. The Group continues to monitor its policies in this area. As a result of earlier mitigation, the Group no longer has net exposure to complex derivative financial instruments, which the Board believes are not appropriate for the Group going forward.



4. Taxation

The charge for taxation on profits before exceptional items amounted to £3.5m (2008:£7.5m), an effective rate of 31% (2008:31.4%). The tax rate for the full year is anticipated to increase from 30% to around 31% due to the increased proportion of profits that is expected to arise in overseas territories with comparably higher rates of tax.



5. Dividends


Six months ended

Six months ended

Year 

ended


3May

1 June

30 November


2009

2008

2008






£'000

£'000

£'000

Amounts recognised and distributed to shareholders in the period








Equity




Final dividend per Ordinary share (2008: 8.0 pence, 2007:6.2 pence)

9,696

7,903

7,903

Interim dividend per Ordinary share (2008: 4.0 pence, 2007: 3.1 pence)

4,738

4,101

4,101






14,434

12,004

12,004


The final dividend of 8.0 pence per Ordinary share for the year ended 30 November 2008 was approved to be paid on 8 June 2009 to shareholders on record at 1 May 2009 (2008: 6.2 pence for year ended 2 December 2007).


An interim dividend of 4.0 pence for six months ended 31 May 2009 per Ordinary share will be paid on 4 December 2009 to shareholders on the register at the close of business on 6 November 2009 (2008: 4.0 pence for the 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 period, 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


3May

1 June

30 November


2009

2008

2008






£'000

£'000

£'000

Earnings




Profit after taxation excluding exceptional items

7,711

16,309

39,199

Minority interest

(343)

(1,082)

(1,958)

Adjusted profit for the period attributable to equity holders of the Company




excluding exceptional items

7,368

15,227

37,241





Effect of exceptional items (net of tax)

(6,081)

(1,344)

(1,363)





Profit after taxation attributable to the equity holders of the Company

1,287

13,883

35,878










millions

millions

millions

Number of shares




Weighted average number of shares used for basic EPS

117.7

129.0

124.7

Dilution effect of share plans

3.4

3.4

3.0





Diluted weighted average number of shares used for diluted EPS

121.1

132.4

127.7










pence

pence

pence

Basic




Basic earnings per share

1.1

10.8

28.8

Adjusted basic earnings per share excluding exceptional items

6.3

11.8

29.9

Dilutive




Diluted earnings per share

1.1

10.5

28.1

Adjusted diluted earnings per share excluding exceptional items

6.1

11.5

29.2





All earnings are derived from continuing operations






7.  Trade and other receivables


3May

1 June

30 November


2009

2008

2008






£'000

£'000

£'000





Current




Trade receivables

72,228

107,471

104,675

Less provision for impairment of trade receivables

(3,243)

(4,001)

(2,772)





Net trade receivables

68,985

103,470

101,903





Other receivables

3,348

3,439

1,228

Prepayments and accrued income

29,483

35,952

36,806






101,816

142,861

139,937


Trade receivables do not carry interest. The Group makes judgements on an entity by entity basis as to its ability to collect outstanding receivables and provides an allowance for doubtful accounts based on a specific review of significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing percentages based on the age of the receivable. In determining these percentages, the Group analyses its historical collection experience and current economic trends. Trade receivable balances are written off when the Group determines that it is unlikely that future remittances will be received. Management considers the carrying values of trade and other receivables are equal to the fair value and are deemed to be current assets.


Trade receivables and cash and cash equivalents are deemed to be all current loan and receivables for disclosure under IFRS 7 'Financial Instruments' - Disclosures.



3May

1 June

30 November


2009

2008

2008






£'000

£'000

£'000





The following table shows the development of allowances on receivables:








Allowances at start of financial period

2,772

4,226

4,226

Charge for the period

2,275

1,756

1,321

Amounts utilised during the period

(508)

(363)

(757)

Amounts released during the period

(1,296)

(1,618)

(2,018)





Allowances at end of financial period

3,243

4,001

2,772



8. Cash and cash equivalents


3May

1 June

30 November


2009

2008

2008






£'000

£'000

£'000





Cash and cash equivalents include the following for the purposes




of the cash flow statement:




Cash in hand and at bank

43,943

10,569

24,584






43,943

10,569

24,584







9. Provisions for liabilities and charges


Restructuring

Property

Other

Total







£'000

£'000

£'000

£'000






At 02 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 

Charged/(released) to the income statement

-

290

(67)

223






At 30 November 2008

-

1,288

2,579

3,867

Charged/(released) to the income statement

3,788

186

(372)

3,602






At 31 May 2009

3,788

1,474

2,207

7,469









3May

1 June

30 November


2009

2008

2008





Current / non-current analysis:

£'000

£'000

£'000





Current liabilities

4,011

228

332

Non-current liabilities

3,458

3,416

3,535






7,469

3,644

3,867


Restructuring


During the period the Group restructured its operations and incurred an exceptional restructuring charge of £8.5m. As at 31 May 2009, £3.8remains as a provision relating to people exit and property rationalisation costs.


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 crystalise as follows: within one year £0.2m, one to five years £0.9m and after five years £0.4m.


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.



10. Financial liabilities


3May

1 June

30 November


2009

2008

2008






£'000

£'000

£'000





Invoice financing

-

6,690

-






-

6,690

-






A flexible invoice financing arrangement is in place with the Royal Bank of Scotland Group (RBS) until February 2010. Under this arrangement the Group is 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.



11. Related party disclosure

The Group's significant related parties are as disclosed in the SThree plc Annual Report for the year ended 30 November 2008. There were no material differences in related parties or related party transactions in the period or prior period.





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