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SThree plc (STHR)

  Print      Mail a friend       Annual reports

Monday 18 July, 2011

SThree plc

Interim Results

RNS Number : 5261K
SThree plc
18 July 2011
 



 

Embargoed until 0700





18 July 2011

SThree plc

("SThree" or the "Group")

Interim results for the six months ended 29 May 2011

 

SThree, the international specialist staffing business, is today announcing its unaudited interim results for the six months ended 29 May 2011.   

 

Financial Highlights - six months ended

29 May 2011

 

30 May 2010

 

% change

Revenue

£254.9m

£221.7m

+15.0%

Gross profit

£90.0m

£74.3m

+21.1%

Operating profit

£11.0m

£7.1m

+54.3%

Profit before taxation

£11.2m

£7.3m

+52.0%

Basic earnings per share

6.2p

4.0p

+55.0%

Interim dividend per share

4.7p

4.0p

+17.5%

Special dividend per share*

11.0p

-

-

 

* The special dividend will be payable along with the interim dividend on 2 December 2011 to those shareholders on the register at 4 November 2011.

 

Operational Highlights

 

•     Pleasing first half performance in a sequentially improving market. Gross Profit up 21% year on year to    £90.0m (2010: £74.3m). Like for like ("LFL") Gross Profit up 23%

 

•     Permanent placements up by 21% to 3,450 (2010: 2,842) - average permanent placement fee up 8% LFL to a record £12,851 (2010: £11,861)

 

•     Number of active contractors at period end up by 11% year on year to 4,381 (2010: 3,952) - average gross profit per day rates increased by 6% LFL to a record £88.10 (2010: £83.24). Average contract margin achieved of 21.4% (2010: 21.4%)  

 

•     Contract versus Permanent mix of Gross Profit now 50:50 (Full year 2010: 51:49 in favour of Contract)

 

•     Non-UK Gross Profit for the period represented 63% of the Group total (Full year 2010: 60%)

 

•     Rest of World (excluding UK and Europe) Gross Profit grew to 13% of mix (Full year 2010: 11%), up 43% LFL

 

•     Non-ICT business segments grew by 42% LFL, now representing 40% of total Gross Profit (Full year 2010: 38%)

 

•     Sales headcount up 14% year on year and 12% versus year end 2010 position, as the Group scales up its existing operations and opens into new sectors and geographies

 

•     New offices opened in Sao Paulo, Doha and Antwerp

 

•     Net cash position remains strong at £48.3m (2010: £31.6m)

 

•     Interim dividend increased by 17.5% to 4.7p (2010: 4.0p)

 

•     Special dividend of 11.0p per share payable on 2 December 2011, a cash outflow of circa £13.5m

 

 

Russell Clements, CEO, commented:

 

"During the first half of the year the Group benefited from a continued improvement in market conditions across all of our territories. The result was a performance which positions the Group well for the remainder of the year. That said, given the strong seasonality of our business, we are targeting for the second half to be a very significant contributor to our results for 2011 as a whole, as has historically been the case.

 

"We have continued to invest in the Group's future growth by scaling-up our capacity in established territories and markets, as well as opening new offices and addressing complementary specialist staffing segments. As a result the Group is more diversified and international than at any other time in its history, with almost two thirds of the business coming from outside of the UK. We expect our long established international office roll out programme to continue, with a number of further new offices scheduled to open during the second half of the year.

 

"With recovery now evident across our markets, it is pleasing to be able to announce the intention to pay a special dividend in addition to our usual interim dividend. The strong cash generative nature of our business will, we believe, allow us to periodically review our capital requirements with a view to, where prudent, returning further value to our shareholders in this manner. We are confident that this can be achieved whilst continuing to invest appropriately to support the Group's ambitious global growth plans.

 

"The Group has entered the second half in good shape, notwithstanding some evidence of a softening of UK demand in recent weeks, and our expectations for the full year remain unchanged."

 

Operating Review

 

Introduction

 

In H1 2011 the Group operated in markets which were in general further improved on the same period last year. That being said, the pace of improvement did vary with some markets trading very strongly and certain others still some way from being fully recovered, albeit in the vast majority of cases heading in a positive direction. The result was that H1 saw a pleasing performance from the Group, with Gross Profit ("GP") increasing by 21% to £90.0m (2010: £74.3m).

 

If we consider the performance during the half year sequentially, the improvement in trading is clearer. Group Gross Profit was up 27% LFL year on year in Q2 2011 as compared to up 19% LFL year on year in Q1 2011, despite more challenging comparatives.

 

Overview and Business Mix

 

H1 2011 saw a further internationalisation of the Group. Overall GP derived outside of the UK now stands at 63% (FY 2010: 60%).

 

In parallel, the Group's segmental diversification increased with overall Group GP derived from non-ICT sectors up by 40% to £35.9m (2010: £25.6m). As a result of the diversification of the business in geographical and segmental terms, the Group now derives only 22% of its GP from it's longest established sector, the UK ICT market (H1 2010: 25%; FY 2010: 24%). The Group's exposure to Public Sector clients represents 5% of total transactions, down from 6% in the full year 2010. This figure has been stable for some time suggesting that although we are unlikely to see a meaningful increase in Public Sector GP, there is no suggestion of significant further decline.  

 

During the period the Group's Contract business performed well. Nonetheless, the proportion of Group GP attributable to Contract fell to 50% in the period compared to 54% during the same period in 2010. Realignment in favour of Permanent is to be expected as markets cyclically improve, and this was further exaggerated by the geographical remixing of the business away from the UK, which is more exposed to contract, with UK contract representing 61% of UK GP during H1 2011. The headline number of Group contractors increased to 4,381 at the period end from 3,952 in the prior year period, an increase of 11%. In terms of the Group's expected seasonal reduction and rebuild in contract numbers from the end of the previous financial year, this was within the normal range, being up slightly at the half year at +0.5% (28 November 2010: 4,359). In H1 the Group made 3,450 permanent placements, an increase of 21% (2010: 2,842).

 

Breakdown of GP

Six months ended

29 May 2011

%

Year ended

28 Nov 2010

%

Six months ended

30 May 2010

%

Contract

50

51

54

Permanent

50

49

46

Total

100

100

100

Continental Europe

50

49

50

Rest of World

13

11

10

UK

37

40

40

Total

100

100

100

Non ICT

40

38

34

ICT

60

62

66

Total

100

100

100

 

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. We are particularly excited by our ever-increasing exposure to territories with strong structural growth characteristics across all segments - for example Germany, and to sectors where the competitive landscape is particularly underdeveloped even when the territory in question is perceived to be relatively mature - for example Mining in Australia.

 

The success of the Group's strategy is reflected in the fact that our businesses outside of the UK ICT sector represented 78% of Group GP in H1 2010 (H1 2010: 75%; H1 2009: 67%). To further support international expansion the Group's most senior operational management is now organised along geographical lines, with multiple brand responsibility within a region rather than by responsibility for a particular brand across regions. In addition a number of our most senior staff have recently relocated to give them greater proximity to strategically important regions (e.g. South East Asia and the Americas).   

 

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 more difficult to build internally. As an alternative to acquisitions we are appointing senior management from competitor/comparator companies where the latter have gained valuable market knowledge. In this respect we believe that the Group's Tracker Share model is a key differentiator in terms of attracting senior talent to the business.

 

Margins and Value

 

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 and US). Similarly, we see most of the Recruitment Process Outsourcing ("RPO") market as an opportunity to generate revenue rather than make profit and that it is at best only appropriate to commoditised, lower level staffing. By contrast, the Group prefers to fully leverage its niche specialist proposition to engage with less price-focused clients who value our services.

 

As a result our customer base is wide and varied, with a high percentage of SMEs, particularly in more mature markets such as the UK. This reduces the Group's exposure to a limited number of powerful customers and also ensures that we mitigate 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 H1 2011 60% of the candidates we placed were ICT professionals, only approximately 19% of our transactions were in the ICT sector where buying behaviour tends to be heavily intermediated and strongly price sensitive.  

 

Our strategy is underpinned by our multi-brand approach which allows the Group to subdivide 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 Tracker Share 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.

 

We believe that our choice of client type and clear focus on highly specialised niche markets allows us to defend a premium position in pricing terms. Overall Group gross margin grew to 35.3% (H1 2010: 33.5%) supported by a shift in the business towards permanent. We saw an 8% LFL improvement in the average permanent fee to £12,851 (2010: £11,861) and a 6% increase in the average Gross Profit per Day to £88.10 (2010: £83.24).

 

Performance by Geography

 

UK Gross Profit at £32.9m was up 9% year on year (2010: £30.2m) as the UK market continued to recover in most sectors. However, further improvement in the UK's performance was inhibited during the period by a lacklustre Banking market, in contrast to the previous year.

 

Permanent placements were up 6% and period end contractors were up 5% year on year. In terms of value, Permanent fees and GP day rates increased by 13% and 2% respectively. The strong permanent fee progression is particularly pleasing given the relative volumetric weakness in Banking which will have had a dilutive impact on the UK average because of the higher absolute fees associated with the sector. The robustness of overall UK fees was helped by a strong performance from other sectors such as IT and Oil & Gas.

 

Mainland Europe Gross Profit of £46.2m was up 32% LFL (2010: £36.8m). Market conditions in Benelux have finally turned positive, this region being the last into the downturn and the last into recovery. Gross Profit for the region was up 13% LFL.  France performed strongly in the period with Gross Profit up 37% LFL.

 

Our well established teams in Germany continued to benefit from the much less mature German staffing market with Gross Profit up 49% LFL.

 

Rest of the World ("ROW") Gross Profit was up 43% LFL, with strong performances in Australia (up 104% LFL) driven by our new Perth operation (Oil & Gas and Mining) and the diversification into Banking in Sydney. USA was up 53% LFL with notable contributions from the San Francisco (Pharmaceuticals) and Houston (Oil & Gas) offices, offset by some weakness in the New York Banking market which, in common with the City of London, was considerably quieter than in H1 2010.

 

Geographical and Sector Expansion

 

Of the Group's total of fifty five offices, thirty three are outside the UK with twenty two in Europe and eleven in the ROW. In H1 the Group continued its roll out of international offices, opening in Sao Paulo, Doha and Antwerp. These openings illustrate the two parallel strands of our international strategy - on the one hand launching into new territories and markets, and on the other further expanding within those in which we already have a substantial presence.

 

Indeed, much of the Group's growth will come from scaling up our operations in our established geographies and markets. In this regard the Group has in many of its territories substantial capacity to scale up without the need to add to the existing office footprint.

 

The strong ROW performance during the period was helped by the increasing contribution made by the roll out of newer sectors (i.e. non ICT) into these newer geographies. The long term potential of this approach is increasingly evident. Looking forward we still have substantial scope for more of this type of cross-pollination of sectors with geographies. Markets with global potential such as that addressed by our Oil and Gas, Mining and Banking franchises are therefore particularly exciting.

 

Since the half year, the Group opened an office in Mumbai to primarily address the Banking sector and an office in Zurich to address the Banking and Pharmaceutical markets. In the remainder of the year new offices are planned to open in Luxembourg and Chicago.   

 

Staffing Levels

 

At the end of the half-year total headcount for the Group was 2,019 an overall increase of 8% on the previous year end (2010 year end: 1,863). At the half year versus the year end 2010 position, UK sales headcount was up 7%, Continental Europe headcount was up 11% and ROW was up 29%. The Group continues to hire sales consultants into extant teams where there is market-based evidence to support the investment and to staff the opening of our new international offices.

 

The Group's strategic preference is for growing headcount primarily through hiring of new graduates or those relatively early in their careers, with these hires typically taking around three to six months to become productive. Wherever possible the business promotes from within, only looking externally by exception where particular market knowledge (sector and/or geography) is impossible to source from within the existing management talent pool, as referred above.

 

Cash Flow

 

At the start of the period the Group had cash and assets classified as held to maturity of £55.2m. During the period the Group generated cash from operating activities of £6.1m (2010: £3.9m) being £15.4m of operating cashflow before changes in working capital and provisions (2010: £10.7m) and an increase in working capital requirements and provisions of £9.2m (2010: £6.8m). Dividends paid in the period reduced by £9.3m as the Group returned to its normal timetable for paying the final dividend. In 2010 the Group paid a second interim dividend of 8.0p per share in March 2010 in place of the final dividend which is usually paid in June. At 29 May 2011 the Group had net cash of £48.3m.

 

A committed flexible invoice financing arrangement is in place with Royal Bank of Scotland Group ("RBS") until April 2012. Under this arrangement the Group is able to borrow up to £20m. Funds borrowed under this facility bear interest at the rate of 1.75% above the RBS base rate. The Group has not drawn down any amounts on this facility.

 

Taxation

 

The charge for taxation on profits amounted to £3.7m (2010: £2.5m), an effective rate of 33% (2010: 34%).

 

Earnings per Share

 

Basic earnings per share increased by 55% to 6.2p (2010: 4.0p). Diluted earnings per share increased by 54% to 6.0p (2010: 3.9p).

 

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 peers. 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 63% of gross profit in 2011 (2010: 60%). The Group therefore 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 28 November 2010, a copy of which is available on the Group'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 adopt a progressive dividend policy, targeting dividend cover of 2.0x to 2.5x over the medium term. The Board proposes to increase the interim dividend to 4.7p (2010: 4.0p) per share.

 

The Board also proposes a special dividend of 11.0p per share. Periodically, the Board will review the Group's capital structure, with a view to, where prudent, returning further cash to shareholders in this manner.

 

Both the ordinary interim dividend and special dividend will be paid on 2 December 2011 to those shareholders on the register at 4 November 2011. The combined payment to shareholders on this date will be approximately £19m.

 

Outlook

 

The markets in which the Group operated during the first half were consistent with the continuing improvement we have seen since the start of 2010. It was noteworthy that Contract, which had remained subdued for most of 2010 even while the Permanent market staged a strong recovery, itself improved sequentially during the first half of 2011 and is now in the best shape it has been post the downturn. On a similar note, the Benelux countries finally started to show signs of recovery, having spent an extended period in the doldrums. The only market experiencing disappointing trading conditions during the period was front office banking. However, other markets performed strongly, at least partially offsetting the impact. Taken overall, market conditions were improving, if not yet in all cases back to pre-recessionary levels of demand. This has positioned the Group well for the remainder of the year, albeit that given the strong seasonality of our business, we are targeting for the second half to be a very significant contributor to our results for 2011 as a whole, as has historically been the case. The Group has entered the second half in good shape, notwithstanding some evidence of a softening of UK demand in recent weeks, and our expectations for the full year remain unchanged.

 

 

Consolidated income statement - unaudited





for the six months ended 29 May 2011



















Audited





Six months ended

Year ended





29 May

30 May

28 November





2011

2010

2010










Note


 £'000

 £'000

 £'000






















Revenue


2


254,854

221,676

474,451








Cost of sales




             (164,850)

             (147,359)

             (308,083)








Gross profit


2


90,004

74,317

166,368








Administrative expenses




               (79,014)

               (67,195)

             (145,152)















Operating profit




10,990

7,122

21,216








Finance income




203

227

451








Finance cost




 (19)

-  

 (18)








Profit before income tax




11,174

7,349

21,649








Taxation


3


                 (3,743)

                 (2,499)

                 (7,366)








Profit for the period




7,431

4,850

14,283















Profit for the period attributable to:














Equity holders of the Company




7,431

4,783

14,216








Non-controlling interest




 -  

67

67












7,431

4,850

14,283






















Earnings per share


       5


 pence

 pence

 pence








Basic




6.2

4.0

11.9

Diluted




6.0

3.9

11.5








 

 

Consolidated Statement of Comprehensive Income - unaudited


for the six months ended 29 May 2011


















* Restated

* Restated







Audited





Six months ended

Year ended





29 May

30 May

28 November





2011

2010

2010












 £'000

 £'000

 £'000








Profit for the period




7,431

4,850

14,283

Other comprehensive income:







Exchange differences on retranslation of foreign operations




375

                 (2,262)

                 (3,603)

Deferred tax on employee share options




                   (637)

183

258

Current tax on employee share options




1,569

288

155








Other comprehensive income for the period (net of tax)




1,307

                 (1,791)

                 (3,190)








Total comprehensive income for the period




8,738

3,059

11,093















Total comprehensive income attributable to:














Owners of the parent




8,738

2,851

10,952








Non-controlling interest




 -  

208

141












8,738

3,059

11,093















* - An explanation of the restatement is provided in Note 1 under basis of preparation.








 

Consolidated statement of financial position - unaudited


as at 29 May 2011




















Audited





Six months ended

Year ended





29 May

30 May

28 November





2011

2010

2010



Note


 £'000

 £'000

 £'000








ASSETS














Non-current assets














Property, plant and equipment




                  5,058

                  5,540

                  5,447








Intangible assets




                10,083

                10,023

                10,161








Deferred tax assets




                  8,863

                  8,946

                  8,670





                24,004

                24,509

                24,278








Current assets














Trade and other receivables


6


              103,903

                86,248

                97,935








Cash and cash equivalents


7


                48,313

                28,645

                51,718








Assets classified as held-to-maturity


8


                       -  

                  2,974

                  3,500





              152,216

              117,867

              153,153








Total assets




              176,220

              142,376

              177,431















EQUITY AND LIABILITIES














Share capital




                  1,230

                  1,218

                  1,218








Share premium




                  2,925

                  2,925

                  2,925








Other reserves




                  (647)

                  1,059

                  (282)








Retained earnings




                72,903

                64,589

                78,057








Equity attributable to owners of the company




                76,411

                69,791

                81,918








Non-controlling interest




                       -  

                  3,888

                       -  








Total equity




                76,411

                73,679

                81,918








Non-current liabilities














Provisions for liabilities and charges


9


                  1,486

                  2,740

                  1,354





                  1,486

                  2,740

                  1,354








Current liabilities














Provisions for liabilities and charges


9


                  4,130

                  1,491

                  4,237








Trade and other payables




                92,519

                63,309

                86,150








Current tax liabilities




                  1,674

                  1,157

                  3,772





                98,323

                65,957

                94,159








Total liabilities




                99,809

                68,697

                95,513








Total equity and liabilities




              176,220

              142,376

              177,431








 

Consolidated statement of changes in equity - unaudited







for the six months ended 29 May 2011
































Attributable to owners of the company





 Share
capital

 Share
premium

 Capital
redemption
reserve

 Capital
reserve

 Treasury shares

 Currency
translation
reserve

 Retained
earnings

 Total

Non-controlling interest

 Total
equity




 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000












Audited balance at 29 November 2009

     1,218

      2,925

             168

            878

   -  

          2,416

      72,562

      80,167

        4,650

      84,817












Profit for the six months to 30 May 2010

            -  

             -  

                 -  

               -  

           -  

                 -  

        4,783

        4,783

              67

        4,850

Other comprehensive income

            -  

             -  

                 -  

               -  

          -  

         (2,403)

            471

       (1,932)

            141

       (1,791)












Total comprehensive income for the period

            -  

             -  

                 -  

               -  

         -  

         (2,403)

        5,254

        2,851

            208

        3,059












Employee share awards

            -  

             -  

                 -  

               -  

 -  

                 -  

            933

            933

               -  

            933

Dividends paid to equity holders

            -  

             -  

                 -  

               -  

    -  

                 -  

    (14,160)

    (14,160)

               -  

    (14,160)

Dividends paid to non-controlling interest

            -  

             -  

                 -  

               -  

   -  

                 -  

               -  

               -  

          (970)

          (970)


            -  

             -  

                 -  

               -  

     -  

                 -  

    (13,227)

    (13,227)

          (970)

    (14,197)












Unaudited balance at 30 May 2010

     1,218

      2,925

             168

            878

  -  

                13

      64,589

      69,791

        3,888

      73,679












Profit for the six months to 28 November 2010

            -  

             -  

                 -  

               -  

   -  

                 -  

        9,433

        9,433

               -  

        9,433

Other comprehensive income

            -  

             -  

                 -  

               -  

    -  

         (1,341)

        3,830

        2,489

       (3,888)

       (1,399)












Total comprehensive income for the period

            -  

             -  

                 -  

               -  

     -  

         (1,341)

      13,263

      11,922

       (3,888)

        8,034

Employee share awards

            -  

             -  

                 -  

               -  

     -  

                 -  

            414

            414

               -  

            414

Dividends paid to equity holders

            -  

             -  

                 -  

               -  

    -  

                 -  

          (209)

          (209)

               -  

          (209)


            -  

             -  

                 -  

               -  

    -  

                 -  

            205

            205

               -  

            205












Audited balance at 28 November 2010

     1,218

      2,925

             168

            878

   -  

         (1,328)

      78,057

      81,918

               -  

      81,918












Profit for the six months to 29 May 2011

            -  

             -  

                 -  

               -  

    -  

                 -  

        7,431

        7,431

               -  

        7,431

Other comprehensive income

            -  

             -  

                 -  

               -  

    -  

          375

       932

        1,307

               -  

        1,307












Total comprehensive income for the period

            -  

             -  

                 -  

               -  

    -  

375

8,363

        8,738

               -  

        8,738

Purchase of own shares

            -  

             -  

                 -  

               -  

  (740)

                 -  

               -  

          (740)

               -  

          (740)

Employee share awards

            -  

             -  

                 -  

               -  

  -  

                 -  

        1,140

        1,140

               -  

        1,140

Non-controlling interest repurchase

            -  

             -  

                 -  

               -  

    -  

                 -  

            (29)

            (29)

               -  

            (29)

Issue of

share capital

           12

             -  

                 -  

               -  

  -  

                 -  

               -  

              12

               -  

              12

Dividends paid to equity holders

            -  

             -  

                 -  

               -  

  -  

                 -  

       (4,797)

       (4,797)

               -  

       (4,797)

Dividends payable to equity holders

-

-

-

-

-

-

(9,831)

(9,831)

-

(9,831)


           12

             -  

                 -  

               -  

  (740)

                 -  

       (13,517)

       (14,245)

               -  

       (14,245)

Unaudited balance at 29 May 2011

     1,230

      2,925

             168

            878

  (740)

          (953)

72,903

      76,411

               -  

      76,411

 

 

Consolidated statement of cash flows - unaudited




for the six months ended 29 May 2011



















Audited





Six months ended

Year ended





29 May

30 May

28 November





2011

2010

2010



Note


 £'000

 £'000

 £'000








Cash flows from operating activities







Profit before taxation




                11,174

                  7,349

                21,649

Depreciation and amortisation charge




                  3,211

                  3,004

                  6,313

Finance income




                   (203)

                   (227)

                   (451)

Finance cost




19

                       -  

                      18

Loss on disposal of property, plant and equipment




                      23

                       -  

                    110

Loss on disposal of intangible assets




                       -  

                       -  

                        1

Non-cash charge for employee share options




                  1,140

                    600

                  1,656








Operating cash flows before changes in
working capital and provisions










                15,364

                10,726

                29,296

(Increase)/decrease in receivables




                 (5,060)

                  7,812

                 (3,652)

(Decrease)/increase in payables




                 (4,189)

               (13,042)

                  9,746

Increase/(decrease) in provisions




                      18

                 (1,568)

                 (3,625)








Cash generated from operating activities




                  6,133

                  3,928

                31,765

Income tax paid




                 (4,587)

                 (1,354)

                 (5,958)








Net cash generated from operating activities


                  1,546

                  2,574

                25,807








Cash flows from investing activities







Purchase of property, plant and equipment




                 (1,036)

                 (1,464)

                 (2,836)

Purchase of intangible assets




                 (1,678)

                   (735)

                 (2,922)

Proceeds from disposal of  held-to-maturity investments




                  3,500

                       -  

                  3,203

Purchase of held-to-maturity investment




                       -  

                       -  

                 (3,500)








Net cash generated from/(used in) investing activities




                    786

                 (2,199)

                 (6,055)








Cash flows from financing activities







Finance income




                    203

                    227

                    451

Finance cost




                     (19)

                       -  

                     (18)

Employee subscription for share awards




10

                    333

                    435

Repayment to non-controlling interest




                     (71)

                       -  

                       -  

Purchase of own shares




                   (740)

                       -  

                       -  

Issue of share capital of subsidiary companies to non-controlling interest


                       -  

                       -  

                      34

Dividends paid to equity holders




                 (4,797)

               (14,160)

               (14,369)

Dividends paid to non-controlling interest




                       -  

                   (970)

                   (970)








Net cash used in financing activities




                 (5,414)

               (14,570)

               (14,437)








Net (decrease)/increase in cash and cash equivalents




                 (3,082)

               (14,195)

                  5,315








Cash and cash equivalents at the beginning of the period




                51,718

                45,272

                45,272








Effect of exchange rate changes




                   (323)

                 (2,432)

                  1,131








Cash and cash equivalents at the end of the period


7


                48,313

                28,645

                51,718








 

1              Accounting policies                                                                                           

 

General information                                                                                                          

 

SThree plc ("the Company") and its subsidiaries (together "the Group") operate predominantly in the United Kingdom and Continental Europe.  The Group consists of 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, energy and resources and jobboard sectors.                                                                                                          

                                                                                                                                                                                                               

The Company is a public limited liability company incorporated and domiciled in the United Kingdom and the Company is listed on the London Stock Exchange. The address of its registered office is 5th Floor, GPS House, 215-227 Great Portland Street, London, W1W 5PN.                                                                                                                                                                                                                            

This consolidated interim financial information was approved for issue on 15 July 2011.                                                                                                                                                                                                                   

This consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 28 November 2010 were approved by the Board of directors on 28 January 2011 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 498 of the Companies Act 2006.                                                                                                    

                                                                                                                                                                                                                               

This consolidated interim financial information has been reviewed, not audited.                                                                                                  

                                                                                                               

Basis of preparation                                                                                                          

                                                                                                               

This consolidated interim financial information for the six months ended 29 May 2011 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. The consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 28 November 2010, which have been prepared in accordance with IFRSs as adopted by the European Union.                                                                                             

Restatement

Included in Other comprehensive income for the periods ended 30 May 2010 and 28 November 2010 were £933,000 and £1,347,000 respectively relating to employee share awards.  These represent transactions with owners and should be reflected directly in equity.  Therefore, these amounts have been removed from the consolidated statement of comprehensive income for the periods affected.

 

As a result of this change Other comprehensive income for the periods ended 30 May 2010 and 28 November 2010 has been restated to (£1,791,000) and (£3,190,000) respectively compared to (£858,000) and (£1,843,000) previously reported.

 

This restatement has not affected any other previously reported financial information.

 

Seasonality of operations                                                                                                

                                                                                                               

Due to the seasonal nature of the recruitment business, higher revenues and operating profits are usually expected in the second half of the year than the first six months.  In the financial year ended 28 November 2010, 47% of revenues accumulated in the first half of the year, with 53% accumulating in the second half.

 

                                                                                                                                                                                                               

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 28 November 2010 except for the change in accounting policy regarding presentation.

 

During the period the Board elected to separate the Consolidated statement of comprehensive income into a Consolidated income statement and Consolidated statement of comprehensive income.  The decision to separate the statements has been to align with industry presentation practice and to clearly disclose separately the entity's profit for the period.                                                                                                 

 

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.                                                                                                                                                                                                                 

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.                                                                                                             

                                                                                                                                                                               

As at the date of authorisation of these financial statements, the following standards and interpretations were in issue but not yet effective. The Group has not applied these standards and interpretations in the preparation of financial statements.                                                

 

-       The revised Standard IAS 24 'Related Parties Disclosure' is effective from periods commencing on or after 1 January 2011. The standard revises the definition of a related party and clarifies that disclosure is required of any commitments of a related party to do something if a particular event occurs or does not occur in the future, including executory contracts (recognised and unrecognised).           

 

-       IFRS 9 'Financial Instruments' will establish principles for the financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of the entity's future cash flows. The standard is applicable for periods commencing on or after 1 January 2013.       

                                                                               

The impact on the Group's financial statements of the future adoption of these standards and interpretations is still under review, but the Group does not expect any of these changes to have a material effect on the results or net assets of the Group.    

 

 

                                                                                               

2              Segmental analysis                                                                           

                                                                                               

IFRS 8 requires management to apply the 'management approach' to segmental reporting. This requires management to determine those segments whose operating results are reviewed regularly by the entity's chief operating decision maker to make strategic decisions and assess sector performance.                                                                                  

                                                                                                                                                                                               

Revenue and Gross Profit by reportable segment                                                                                     

                                                                                               

Management has determined the chief operating decision maker to be the Executive Committee made up of the Chief Executive Officer, the Chief Financial Officer, the Chief Development Officer, the Chief Information Officer, the Director of Strategic Planning, the Managing Directors and key function heads. Operating segments have been identified based on reports reviewed by the Executive Committee, which considers the business primarily from the geographic perspective.                                                                                        

                                                                                                                                                                                               

The Group's management reporting and controlling systems use accounting policies that are the same as those described in note 1 in the summary of significant accounting policies under IFRS.                                                                                           

                                                                                                                                                                                               

The Group measures the performance of its operating segments through a measure of segment profit or loss which is referred to as "Gross Profit" in the management and reporting system. Gross Profit is the measure of segment profit/(loss) used in segment reporting and comprise revenue and cost of sales.                                                                                                

                                                                                                                                                                                               

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

 





United Kingdom







Audited





Six months ended

Year ended





29 May

30 May

28 November





2011

2010

2010





£'000

£'000

£'000








Revenue from external customers

                               113,973

                               106,144

                               224,337

Gross Profit



                                32,880

                                30,235

                                66,820

Total Assets



                               107,019

                               103,439

                               118,099

Total Liabilities



                                61,970

                                50,355

                                62,496

Capital expenditure



                                  2,342

                                  1,180

                                  4,751



















Continental Europe







Audited





Six months ended

Year ended





29 May

30 May

28 November





2011

2010

2010





£'000

£'000

£'000








Revenue from external customers

                               124,712

                               105,758

                               226,694

Gross Profit



                                46,223

                                36,753

                                82,213

Total Assets



                                53,509

                                27,752

                                46,115

Total Liabilities



                                34,807

                                16,211

                                31,397

Capital expenditure



                                     261

                                     248

                                     611



















Rest of the World







Audited





Six months ended

Year ended





29 May

30 May

28 November





2011

2010

2010





£'000

£'000

£'000








Revenue from external customers

                                16,169

                                  9,774

                                23,420

Gross Profit



                                10,901

                                  7,329

                                17,335

Total Assets



                                15,692

                                11,185

                                13,217

Total Liabilities



                                  3,032

                                  2,131

                                  1,620

Capital expenditure



                                     111

                                     771

                                     396












Group







Audited





Six months ended

Year ended





29 May

30 May

28 November





2011

2010

2010





£'000

£'000

£'000








Revenue from external customers

                               254,854

                               221,676

                               474,451

Gross Profit



                                90,004

                                74,317

                               166,368

Total Assets



                               176,220

                               142,376

                               177,431

Total Liabilities



99,809

                                68,697

                                95,513

Capital expenditure



                                  2,714

                                  2,199

                                  5,758















The following segmental analyses by brand, recruitment classification and discipline (being profession of candidates placed) have been included as additional disclosure over and above the requirements of IFRS 8 'Operating Segments'

 











 











 











 




Revenue


Gross Profit

 






Audited




Audited

 




Six months ended

Year ended


Six months ended

Year ended

 




29 May

30 May

28 November


29 May

30 May

28 November

 




2011

2010

2010


2011

2010

2010

 




£'000

£'000

£'000


£'000

£'000

£'000

 











 

Brand









 

Progressive


          72,581

          60,796

        133,780


          24,917

         19,953

          45,416

 

Computer Futures Solutions


                    61,189

          59,877

        111,875


          20,934

          19,869

          37,745

 

Huxley Associates


71,271

          57,920

        125,843


25,874

          20,302

          44,892

 

Real Staffing Group


          47,065

          41,456

          98,938


          15,531

          12,565

          34,300

 

Others


            2,748

            1,627

            4,015


            2,748

            1,628

            4,015

 




        254,854

        221,676

        474,451


          90,004

          74,317

        166,368

 











 

Recruitment classification









 

Contract


        209,760

        187,447

        392,803


          44,944

          40,089

          84,954

 

Permanent


          45,094

          34,229

          81,648


          45,060

          34,228

          81,414

 




        254,854

        221,676

        474,451


          90,004

          74,317

        166,368

 











 

Discipline









 

Information & communication technology

        174,877

        166,880

        341,484


          54,085

          48,707

        102,610

 

Other(1)


          79,977

          54,796

        132,967


          35,919

          25,610

          63,758

 




        254,854

        221,676

        474,451


          90,004

          74,317

        166,368

 











 

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

 











 

3

Taxation









 











 

The charge for taxation on profits amounted to £3.7m (2010: £2.5m), an effective rate of 33% (2010: 34%).

 

 

 

 

4

Dividends














Audited






Six months ended

Year ended






29 May

30 May

28 November






2011

2010

2010






£'000

£'000

£'000

Amounts recognised and distributed to shareholders in the period




Equity







 

Final dividend of 8.0p per share



9,831

-

-

 

Second interim dividend of 8.0p per share



                   -  

              9,575

              9,587

Interim dividend of 4.0p per share



              4,797

              4,585

              4,782






              14,628

             14,160

             14,369









During the period, a final dividend of 8.0p per share (2009:nil) was proposed for the year ended 28 November 2010, payable on 6 June 2011.









For the period ended 30 May 2010, in respect of the year ended 29 November 2009, a second interim dividend of 8.0p per share was paid instead of a final dividend.









An interim dividend for the six months ended 29 May 2011 of 4.7p per share, as well as a special dividend of 11p per share, will be paid on 2 December 2011 to shareholders on the register at the close of business on 4 November 2011 (2010: 4.0p for the six months ended 30 May 2010).

 

 

5

Earnings per share















Basic earnings per share is calculated by dividing the earnings attributable to shareholders by the weighted average number of 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 shares in issue is adjusted to assume conversion of dilutive potential shares.








Audited






Six months ended

Year ended






29 May

30 May

28 November






2011

2010

2010






£'000

£'000

£'000









Earnings







Profit after taxation




              7,431

              4,850

             14,283

Non-controlling interest




                   -  

                  (67)

                  (67)









Profit after taxation attributable to equity holders of the Company 

              7,431

              4,783

             14,216














 millions

 millions

 millions









Number of shares







Weighted average number of shares used for basic EPS

              120.5

              119.8

              119.9

Dilutive effect of share plans




2.8

                  2.7

                  3.9









Diluted weighted average number of shares used for diluted EPS 

              123.3

              122.5

              123.8






















 pence

 pence

 pence









Basic







Basic earnings per share




                  6.2

                  4.0

                11.9

Diluted







Diluted earnings per share




                  6.0

                  3.9

                11.5

 

 

 

6

Trade and other receivables














Audited






Six months ended

Year ended






29 May

30 May

28 November






2011

2010

2010






£'000

£'000

£'000









Current







Trade receivables




             65,420

             55,410

             64,862

Less provision for impairment of trade receivables


             (1,728)

             (1,901)

             (1,767)









Net trade receivables




             63,692

             53,509

             63,095









Other receivables




              5,328

              4,407

              3,806

Prepayments and accrued income



             34,883

             28,332

             31,034














           103,903

             86,248

             97,935









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.








Audited






Six months ended

Year ended






29 May

30 May

28 November






2011

2010

2010






£'000

£'000

£'000









The following table shows the development of allowances on receivables:












Allowances at start of financial period



              1,767

              2,473

              2,473

Charge for the period




                 563

                 389

                 686

Amounts utilised during the period



                (326)

                (641)

                (917)

Amounts released during the period





                (276)

                (320)

                (475)









Allowances at end of financial period



              1,728

              1,901

              1,767

 

 

7

Cash and cash equivalents













Audited






Six months ended

Year ended






29 May

30 May

28 November






2011

2010

2010






£'000

£'000

£'000









Cash and cash equivalents include the following for the purposes of the cash flow statement:









Cash in hand and at bank




             48,313

             28,645

             51,718














             48,313

             28,645

             51,718









8

Assets classified as held-to-maturity












Audited






Six months ended

Year ended






29 May

30 May

28 November






2011

2010

2010






£'000

£'000

£'000









Fixed rate Euro Bond/Sterling Deposit



                   -  

              2,974

              3,500









At 28 November 2010 the Group had invested in a fixed rate Sterling deposit which matured on 23 May 2011. The interest rate on this security was 1.16% per annum. The Group has not reinvested in a fixed rate bond at 29 May 2011.

 

9

Provisions for liabilities and charges









Corporate and








divisional








Restructuring

Property

Other

Total





£'000

£'000

£'000

£'000









At 29 November 2009 (Audited)



              2,076

              1,604

              2,272

              5,952









Charged/(released) to the income statement

                   -  

                 184

                (289)

                (105)

Utilised during the period



             (1,565)

                  (51)

                   -  

             (1,616)

Transfer



                (511)

                 511

                   -  

                   -  









At 30 May 2010 (Unaudited)



                   -  

              2,248

              1,983

              4,231









Released to the income statement

                   -  

                (435)

             (1,538)

             (1,973)

Utilised during the period



                   -  

                  (49)

-

                  (49)

Tracker share consideration



                   -  

                   -  

              3,382

              3,382









At 28 November 2010 (Audited)



                   -  

              1,764

              3,827

              5,591









Charged to the income statement

                   -  

                 105

                   -  

                 105

Utilised during the period



                   -  

                   -  

                  (80)

                  (80)









At 29 May 2011 (Unaudited)



                   -  

              1,869

              3,747

              5,616














Six months ended

Year ended






29 May

30 May

28 November






2011

2010

2010

Current / non-current analysis:




£'000

£'000

£'000









Current liabilities




              4,130

              1,491

              4,237

Non-current liabilities




              1,486

              2,740

              1,354














              5,616

              4,231

              5,591









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 £0.4m (2010: £0.9m), one to five years £1.1m (2010: £0.7m) and after five years £0.4m (2010: £0.6m).









Other







Other remaining provisions relate to the obligation to repay amounts received or receivable in relation to the subscription of tracker shares offered to employees under the terms of the tracker share arrangements and ongoing legal matters.









10

Related party disclosures














The Group's significant related parties are as disclosed in the SThree plc Annual Report for the year ended 28 November 2010. There were no material differences in related parties or related party transactions in the period compared to the prior period.


11

Contingent liabilities















The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business. They are not anticipated to result in a material cash outflow for the Group.

 


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