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SThree plc (STHR)

  Print      Mail a friend       Annual reports

Wednesday 07 February, 2007

SThree plc

Final Results

SThree plc
07 February 2007

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

            Preliminary Results for the year ended 30 November 2006

SThree, one of the UK's leading specialist staffing businesses, is today
announcing its unaudited preliminary results for the year ended 30 November

Financial Highlights

£m                                                                    2006          2005                Change
                                                               (Unaudited)   (Unaudited)
Revenue                                                            £393.3m       £315.1m               + 24.8%
Gross Profit (Fee Income)                                          £135.5m       £104.5m               + 29.7%
Operating profit before exceptional items*                          £41.0m        £29.5m               + 39.3%
Operating profit after exceptional items*                           £18.9m        £13.5m               + 39.7%
Profit before taxation and exceptional items*                       £40.3m        £28.0m               + 44.0%
Profit before taxation                                              £18.1m        £12.0m               + 50.7%
Basic earnings per share                                              9.5p          9.3p
Basic earnings per share before exceptional items*                   22.4p         38.1p
Basic earnings per share before exceptional items* (2005
comparatives adjusted to reflect new post IPO capital
structure)                                                           22.4p         15.4p               + 45.5%

Final dividend                                                        4.8p             -
Total dividend                                                        7.2p             -

The above results have been prepared under International Financial Reporting
Standards (IFRS)

* Exceptional items are detailed in Note 2

Operational Highlights

  • Excellent Group-wide performance with substantial volume increases
    achieved across all sectors whilst maintaining margins

  • Both Contract and Permanent businesses delivered further strong growth

     -    Permanent placements increased by 27.6% to 7,685 (2005: 6,023),
          with average fees increased by 7.4%

     -    Active contractors at period end increased by 8.1% to 4,719 (2005:
          4,365), with average gross profit per day rates increased by 11.1%

  • Well-established Information and Communications Technology ('ICT')
    business segment grew gross profit by 26.0% to £111.1m (2005: £88.2m),
    reflecting success in further increasing market share

  • Significant further progress made with development of new business
    segments (banking and finance, accountancy, human resources, engineering and
    pharmaceuticals) and geographical footprint

     -    Gross profit from non-ICT segments increased by 49.8% to £24.4m
          (2005: £16.3m), reflecting rapid growth in the UK

     -    Successful initial rollout of non-ICT capabilities in selected non-UK
          territories and continued expansion of international network with 
          addition of new offices in Paris, Frankfurt, Munich and New York 
          during the year, contributed to 46.4% increase in non-UK gross profit 
          to £36.6m (2005: £25.0m). New offices in Brussels and Rotterdam 
          scheduled for Q2 2007

  • Headcount increased by 38.0% to 1,481 at year end, with sales consultant
    numbers growing in line with expectations to 894 (2005: 627)

  • Final dividend of 4.8p per share declared

Russell Clements, Chief Executive Officer, said: '2006 was another very good
year for SThree.  Positive business sentiment underpinned healthy demand for the
specialist staff we supply.  These market conditions allowed the Group to make
further significant progress in terms of both the volume and the quality of the
business it undertook.

'2006 once again proved the robustness and scalability of the SThree business
model as we rolled it out across an increasingly wide range of new geographies
and new sectors.  This process will continue in 2007.

'Trading in the first two months of the current financial year was consistent
with our expectation that the market in which we will operate during 2007 will
be broadly similar to that of 2006.  On this assumption we go into our second
full year as a public company comfortable with the fact that our robust 2006
performance sets the standard by which we will be judged in 2007.'

SThree plc                                                                          (07.02.07) 020 7638 9571
Russell Clements, Chief Executive Officer                                         (Thereafter) 020 7292 3838
Michael Nelson, 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 specialist staffing businesses in
the UK, providing both permanent and contract specialist staff to a diverse,
international client base of well over 4,000 clients.  From its well established
position as a major player in the information and communications technology ('
ICT') sector the Group is now broadening the base of its operations by building
fast growing businesses serving the banking and finance, accountancy, human
resources, engineering and pharmaceuticals sectors.

Following the establishment of its first business, Computer Futures, in 1986,
the Group adopted a multi-brand strategy, establishing new operations to address
growth opportunities.  SThree currently operates 12 brands, the four largest
being Computer Futures, Huxley Associates, Progressive and Pathway, and has 32
offices in the UK and 11 offices elsewhere in Europe, in Belgium, The
Netherlands, France, Germany and Ireland.  In addition, the Group opened in
first North American office, in New York, in 2006.

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
                           ('SThree' or the 'Group')

            Preliminary Results for the year ended 30 November 2006

                                Operating Review

The financial year 2006 was SThree's first full year as a public company. As
such, it is particularly pleasing to be able to comment on a highly satisfactory
performance with progress made across all of the sectors in which we operate.

During the year positive business sentiment underpinned continued healthy demand
for specialist staff. This in turn encouraged candidates to seek new challenges
creating additional placing opportunities as their employers looked to replace
in their wake. These market conditions allowed the Group to build on the
progress made in the previous year and to further increase its sales consultant
headcount to capitalise on the available opportunities.

This capacity-driven growth was enhanced by increases in both the average
contract day rate achieved as well as the average fee charged for permanent
placements. We were therefore able to build substantial increases in the volume
of transactions undertaken without compromising value. We see this as a further
vindication of our long-established strategy of avoiding the high volume, low
margin model in favour of quality business.

The outcome achieved as a result was an improvement in gross profit of 29.7% to
£135.5m (2005: £104.5m). This figure translated into a 39.3% growth in operating
profit before exceptional items to £41.0m (2005: £29.5m). As a result our
operating profit before exceptional items to gross profit conversion ratio
improved to 30.3% (2005: 28.2%). This is a noteworthy achievement, particularly
given that this metric was already amongst the best in class relative to our
peer group and also that during the year we invested significantly in
geographical and sector expansion.

Staffing Levels

The Group continued to grow front-office staff numbers significantly during the
year. Total headcount at year-end was 1,481 (2005: 1,073) of which 894 (2005:
627) were sales consultants. The remaining 587 staff cover sales management,
direct sales support, sales training, internal recruitment and back office
functions. The expansion of the sales function required some increases in
headcount in the H.R., Legal, Internal Recruitment and Information Systems
functions. However, headcount in Finance decreased shortly after the year-end as
a consequence of restructuring associated with the implementation of SAP.

During the year the Group maintained its core strategy of recruiting sales staff
at a trainee level and from outside of the staffing industry. These recruits
were then put through an in-house graduate training and development programme.
In terms of sales staff the Group ended the year on planned headcount. However,
the last quarter represented a particularly intense recruitment phase meaning
that those hired in this latter period had limited opportunity to contribute
before the end of the financial year.

Given the highly competitive environment in which we operate, when recruiting
sales staff we must take every opportunity to establish in the minds of our
potential recruits that SThree is an employer of choice. For this reason it was
particularly pleasing to note that in the 2006 'Sunday Times/Best Companies Top
100 Places To Work' index SThree was placed in overall 13th position.


The Group's first year as a public company saw minimal changes to the strategy
that has served it well over its long history as a private company. In
particular, we continued to be highly selective in terms of the quality of
business undertaken, consistently avoiding low margin clients in favour of those
prepared to pay a favourable rate for our services. We also maintained our
commitment to ensuring our key staff were able to gain equity participation in
the Group, either through employee share schemes or minority stakes in
individual businesses.

Key factors supporting our successful pursuit of this strategy were once again
our multi-brand model and our strong SME franchise. Both factors mitigate
against any potential over-reliance on a limited number of clients and this
insulates us against the downward margin pressure experienced by less
diversified players. At the same time, our niche-within-niche approach allows us
to credibly position ourselves as market experts, particularly in relation to
candidate acquisition. This in turn justifies our higher margins.

During the year we took further strides in applying this model to an
ever-increasing number of staffing sectors and geographies.  This continuous
programme of rolling out the business model across a matrix of complementary
disciplines and territories is expected to be the core group growth strategy on
an ongoing basis. We have also continued to underpin our expansion strategy
through investment in and development of 'best in breed' ERP and CRM technology.

Contract / Permanent Business Mix

Both parts of the Group's business experienced strong growth during the year. By
year-end the Group had made a total of 7,685 permanent placements (2005: 6,023)
an increase of 27.6%. In addition, the number of active contractors had risen to
a record 4,719 at the year end (2005: 4,365) representing a more modest but
nevertheless healthy increase of 8.1% on the previous year.

The difference in the relative growth rates is consistent with benign market
conditions in which employers have the confidence to make permanent hires. In
the Group's case, this macro element is further impacted by the fact that our
fast-growing non-UK business is disproportionately biased towards permanent

Imbalances in candidate supply and demand in the specialist staffing market
complemented the Group's proactive efforts to place higher-level staff,
resulting in contract day rates increasing to £64.91, an increase of 11.1%
(2005: £58.42) and permanent fees reaching an average of £8,563 (2005: £7,972),
an increase of 7.4%.

The aggregate effect of all of the above was to see an increase of permanent
business within the overall mix. For the year the gross profit was split 51%
vs.49% in favour of contract as opposed to the 54% vs. 46% split of the previous

Sector Focus

Given the history of the group it is unsurprising that a significant percentage
of our business is in the ICT sector with 82.0% of gross profit derived from
this source in 2006 (2005: 84.4%). However, non-ICT is clearly now a substantial
and rapidly growing element of our business. During the year gross profit from
non-ICT sectors grew by 49.8% to £24.4m (2005: £16.3m).

The latter point should be seen in the context that the vast majority of the
fast growing non-UK businesses are currently predominantly ICT-based and hence
the growth figure illustrates the scope of the market opportunity within the UK
from newer sectors. That said, during the year we started to see the results of
newer sector disciplines being rolled out outside of the UK. Although still at a
relatively early stage, as this trend develops further we would expect to see it
impact meaningfully on the Group's overall sector mix.

The potential of this was well illustrated during the year with the opening of
Huxley's New York office in Q3. This office was initially launched off the
strength of Huxley's franchise in specialist banking and finance recruitment and
has subsequently added ICT to its portfolio. This was the first time that a
non-ICT platform has pioneered geographical expansion but we see no reason why
this should not become more widespread going forward.

The ICT versus non-ICT breakdown is also influenced by the growth in the actual
number of non-ICT sectors in which we operate as well as the number of group
brands that have extended their remits beyond an ICT-specific focus. In both of
these respects 2006 was a year of progress with a number of brands taking their
first steps towards enhancing their portfolios to include other specialist
staffing sectors. In each case, however, the Group intends to remain tightly
focused on niche, higher value segments.

Geographical Breakdown

By the end of the year the Group operated from a total of thirty-two UK offices,
eleven elsewhere in Europe and one office in New York.  During the year, in
addition to the New York office, the Group opened new offices in Paris,
Frankfurt and Munich. Further international expansion through new offices for
Huxley in Brussels and Computer Futures in Rotterdam is scheduled for Q2 2007.

Although physical offices outside of the UK remained limited to the three
largest brands i.e. Computer Futures, Huxley and Progressive, certain of the
other brands increased their trading with non-UK clients during the year with a
view to establishing overseas offices in due course.

At a total of £98.9m (2005: £79.5m), UK gross profit grew by 24.4% during the
year and represented 73.0% of the overall business compared to 76.1% in 2005.
Given the highly competitive nature of the UK specialist staffing market, this
is an encouraging result, particularly as we achieved this whilst maintaining
our margins. In other words, we were able to win market share rather than buy
market share.

As expected, a stronger rate of growth was achieved from the newer businesses
outside of the UK, with gross profit of £36.6m (2005: £25.0m), representing an
increase of 46.4% on the previous year. Overall-non-UK share of gross
profit increased to 27.0% from 23.9% in 2005. As we continue to expand into new
territories and at the same time add new sectors to the non-UK business, the
proportion of non-UK contribution is expected to continue to grow as a
percentage of the overall total.

Brand Breakdown

In aggregate our four largest brands, Computer Futures, Huxley, Progressive and
Pathway accounted for 78.7% of overall gross profit, the same as in 2005. All of
these brands posted impressive levels of growth during the year.

Computer Futures remained marginally the largest brand measured by gross profit,
achieving £36.7m which equated to a growth of 20.0% on 2005. This performance
was achieved despite the brand having focused to date solely on rolling out ICT
across all its geographies. We are confident this brand is now well positioned
to start to add new disciplines to its established branch network and is at an
exciting new phase in its development.

Huxley achieved a total gross profit of £35.6m, a 42.9% improvement on the
previous year. This is a remarkable achievement given that the 2005 growth
figure was itself 48%. Huxley's outstanding growth is a reflection of not only
its strong ICT franchise but also the fact that it has the most developed
programme of sector diversification with established businesses in banking and
finance and engineering. During the year Huxley took steps to roll out these
disciplines into newer territories, most notably with the opening of the New
York office. In this sense Huxley has acted as a pathfinder for a route that we
expect the other brands to increasingly follow.

Progressive's total gross profit of £24.8m was 25.5% ahead, a result that
reflected a particularly strong performance from its non-UK business. During the
year headway was made in adding new sector disciplines, with this brand making
encouraging progress in the pharmaceuticals sector, a large international market
we feel is particularly well suited to our model.

Pathway, the fourth largest brand delivered a total gross profit of £9.5m, an
improvement of 35.7% on the previous year. Historically, this brand has focused
exclusively on the UK ICT market. However, in Q4 it established teams to address
the banking and finance marketplaces in the UK, and we expect to see the results
of this initiative start to flow through during 2007.

The other group brands accounted for a combined total of £28.9m gross profit, a
growth of 30.1% on the previous year - a highly creditable performance given the
over 95% growth rate in 2005 provided a particularly challenging benchmark.
Again it is worth commenting that most of this growth was still derived from UK
ICT which is generally regarded as amongst the most competitive of all the
specialist staffing markets. We see this as further evidence that even our most
mature markets are capable of generating healthy growth if the strategy applied
to them is well formulated and properly executed.


2006 was another very good year for SThree. We built not only on the strong
performances of recent years but also on the solid platform we have developed
over our twenty years in the specialist staffing market. Clearly our maiden year
as a public company was particularly significant and it was critical that our
performance during the year reflected the confidence placed in us by our

We feel that in our relatively short history as a listed business we have taken
major strides forward in terms of establishing our credibility as a key player
in our sector.

Without question we enjoyed positive market conditions in which the candidate
supply/demand balance was once again in our favour. However, it is worth
observing that the overall economic backdrop was not exceptionally vibrant. This
demonstrates that we do not need a particularly strong economic tailwind to post
very impressive growth levels. Our view remains that as long as economic
conditions are at least benign and candidates have the confidence to put
themselves on the job market, then demand levels in the specialist staffing
market will remain supportive of continued strong performance.

We also take great confidence in that 2006 once again proved the robustness and
scalability of the SThree business model as we roll it out across an
increasingly wide range of new geographies and new sectors. The fact that we
achieved the growth we did with only limited parts of the business meaningfully
engaged outside of our core ICT franchise suggests that we have as yet only seen
a small part of the potential that this strategy has to offer.

Into 2007 and beyond we expect to see a significant increase in the number of
brands actively adding to their portfolios.  During 2006 proactive steps were
taken to expedite this process whilst at the same time ensuring that the more
established markets remain appropriately well resourced. Trading in the first
two months of the current financial year was consistent with our expectation
that the market in which we will operate during 2007 will be broadly similar to
that of 2006. On this assumption we go into our second full year as a public
company comfortable with the fact that our robust 2006 performance sets the
standard by which we will be judged in 2007.

                                Financial Review

Income Statement

Revenue                                              2006                       2005

- Contractor placements                           £327.5m                    £267.1m                    +22.6%
- Permanent placements                             £65.8m                     £48.0m                    +37.0%

Total                                             £393.3m                    £315.1m                    +24.8%

Gross profit ('Fee Income') for the year increased by 29.7% to £135.5m (2005:
£104.5m) representing an overall gross profit margin of 34.5% (2005: 33.2%).
The percentage increase in gross profit is greater than the increase in turnover
due to a higher proportion of permanent business (which is 100% gross margin) in
2006 (48.6% vs. 46.0%) coupled with a small increase in the gross margin on
contract placements to 21.3% from 21.1%.  Gross profit from contractor
placements was £69.7m (2005: £56.5m) and represented 51.4% (2005: 54.0%) of
Group gross profit.

The Group's strategy and profit-based bonuses result in a cost structure that is
significantly operationally geared as evidenced by the 39.3% increase in
operating profits before exceptional items from a 29.7% increase in gross
profit.  The conversion ratio (operating profit divided by gross profit) again
increased strongly from 28.2% to a record 30.3%.

Administrative expenses before exceptional items increased by 26.0% to £94.5m
(2005: £75.0m), principally due to increased numbers of staff.

Headcount of the Group totalled 1,073 at 30 November 2005 and increased by 38.0%
to 1,481 by 30 November 2006.  Sales consultant headcount increased by 42.6% to
894 (2005: 627). Average headcount for the year was 1,288 (2005: 1,037).

Exceptional items are detailed in note 3 to the accounts.  At the IPO, the Group
allocated a number of share awards and options to certain employees who had
contributed to the Group's prior success.  As disclosed in last year's annual
report, some such awards occurred at IPO with a further tranche of share awards
and options crystallising during 2006.  The resultant charge to the income
statement  amounted to £22.1m (2005: £15.9m) inclusive of related social
charges.  Since the Group satisfied these awards principally through shares held
in the SThree Employee Benefit Trusts, there is a corresponding credit of £19.5m
(2005: £12.0m) to reserves, being the value of the shares awarded before related
social charges.  For 2007 and beyond it is anticipated that there will be no
exceptional items relating to IPO-related share awards.

The net finance charge of £0.9m (2005: £1.5m) predominantly relates to bank loan
interest paid (2005: loan stock interest), offset by interest income on periodic
cash deposits and gains on financial instruments. During 2006, the Group entered
into new principal banking relationships and is now financed through a flexible
credit line arrangement provided by the new incumbent.

Profit before taxation and before exceptional items amounted to £40.3m (2005:
£28.0m), an increase of 44.0%.  Total profit before taxation and after
exceptional items was £18.1m (2005: £12.0m), an increase of 50.7%

Taxation on profits before exceptional items was £12.3m (2005: £8.7m),
representing an effective tax rate of 30.5% (2005: 31.1%).  Under Schedule 23 of
the Finance Act 2003, the Company obtains a corporation tax deduction relating
to the various share awards and options exercised.  The amount of the tax
deduction is calculated by reference to the share price at the time of exercise.
  As a consequence, the cash benefit to the Group of the tax deductions is
greater than the tax credit on the exceptional items reported in the income
statement.  This difference under IFRS is dealt with through equity.  The total
Schedule 23 tax benefit amounted to £10.7m (2005: £7.9m), of which £6.3m (2005:
£4.8m) appears in exceptional items in the income statement and the remaining
£4.4m (2005: £3.1m) is therefore a credit to equity.

Basic earnings per share were 9.5p (2005: 9.3p) and basic earnings per share
before exceptional items were 22.4p (2005: 38.1p).  The weighted average number
of shares for the year was 123.9m (2005: 38.8m).

In order to aid comparability of earnings per share numbers, the Group has
included an alternative presentation for 2005 on the face of the income
statement. Since the flotation and the related share capital conversion occurred
late in 2005, the weighted average number of shares used in the standard EPS
calculations for 2005 is far below the actual number of Ordinary Shares in issue
at the year-end itself.  At 30 November 2005, there were 138.0m shares in issue,
of which 13.7m are held within the Employee Benefit Trusts and therefore not
included within the basic EPS calculation.  Using the 2005 year-end number of
shares the basic earnings per share would have been 6.4p, and before exceptional
items 15.4p.  The Directors believe that these figures give a more useful
representation of the comparative Group earnings per share performance for 2005.

The Directors declared an interim dividend of 2.4p per share. The Board proposes
to pay a final dividend of 4.8p per share, bringing the total dividend for the
year to 7.2p per share.  The final dividend will be paid on 4 June 2007 to those
shareholders on the register at 4 May 2007.

Balance Sheet

The Group had net assets of £64.1m at 30 November 2006 (2005: £29.3m).  Net debt
amounted to £2.9m (2005: £9.6m), the reduction in debt of £6.7m being achieved
through increased trading.

Capital expenditure amounted to £2.4m (2005: £2.7m) and predominantly related to
upgrades of IT hardware and fit-out of new offices across the Group. In
addition, expenditure of £3.0m on new ERP and candidate/client management
systems has been capitalised within intangible assets.

Net trade debtors increased by 29.1% to £69.3m at 30 November 2006 (2005:
£53.6m) representing debtor days of 54 (2005: 46 days). Total trade and other
payables reduced from £46.1m to £39.0m. Of this reduction, £10.5m related to
income tax and social charges on share awards made at IPO shortly before the
2005 year-end which had been collected from employees but were not liable to be
paid to the tax authorities until early 2006.

Cash Flow

At the start of the year the Group had net debt of £9.6m.  During the year the
Group generated net cash from operating activities of £15.0m (2005: £25.0m)
being £40.1m of operating cashflow before changes in working capital and
provisions (2005: £27.2m), an increase in working capital requirements of £24.9m
(2005: £2.8m) and a decrease in provisions of £0.2m (2005: £0.5m increase).  At
30 November 2006 the Group had net debt of £2.9m.

Treasury Management and Currency Risk

It is the Directors' intention to finance the activities and development of the
Group principally from retained earnings. The continued investment in the
business and the cash-consuming nature of a growing contract segment mean that
operating cashflow will continue to be largely re-invested in the business.

Cash surpluses are invested in short-term deposits with any working capital
requirements being provided from Group resources or by local overdraft

The main functional currencies of the Group are Sterling and the Euro.  The
Group does not have material transactional currency exposures nor is there a
material exposure to foreign-denominated monetary assets and liabilities.
However, the Group does undertake forward rate agreements for both interest and
foreign currency risks. These do not meet the definition of hedging relationship
under IFRS, but are used to mitigate future exposures. The Group is exposed to
foreign currency translation differences in accounting for its overseas
operations although our policy at present is not to hedge this exposure.

                                    - Ends -

SThree plc

Consolidated Income Statement
Year ended 30 November 2006
                                                                2006                                       2005
                                   Ordinary   Exceptional      Total          Ordinary   Exceptional      Total
                                 activities         items                   activities         items
                                      £'000         £'000      £'000             £'000         £'000      £'000

Revenue                             393,262             -    393,262           315,087             -    315,087
Cost of sales                     (257,742)             -  (257,742)         (210,606)             -  (210,606)

Gross profit                        135,520             -    135,520           104,481             -    104,481

Administrative expenses            (94,488)      (22,143)  (116,631)          (75,022)      (15,939)   (90,961)

Operating profit                     41,032      (22,143)     18,889            29,459      (15,939)     13,520

Finance income                          432             -        432               482             -        482

Finance cost                        (1,284)             -    (1,284)           (1,973)             -    (1,973)

Share of profit of joint                 88             -         88                 -             -          -

Profit before taxation               40,269      (22,143)     18,126            27,968      (15,939)     12,029

Taxation                           (12,288)         6,242    (6,046)           (8,702)         4,759    (3,943)

Profit after taxation                27,981      (15,901)     12,080            19,266      (11,180)      8,086

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

Profit for the year                  27,981      (15,901)     12,080            14,915      (11,180)      3,735

Attributable to:
Equity holders of the Company        27,703      (15,901)     11,802            14,780      (11,180)      3,600
Minority interest                       278             -        278               135             -        135

                                     27,981      (15,901)     12,080            14,915      (11,180)      3,735

Earnings per share                    pence         pence      pence             pence         pence      pence

Basic                                  22.4        (12.9)        9.5              38.1        (28.8)        9.3
Diluted                                21.4        (12.3)        9.1              34.1        (25.8)        8.3
Adjusted - basic                       22.4        (12.9)        9.5              15.4         (9.0)        6.4
Adjusted - diluted                     21.4        (12.3)        9.1              14.9         (8.7)        6.2

All amounts relate to continuing operations.

SThree plc

Consolidated Statement of Changes in Equity as at 
30 November 2006
                                                   Shares             Currency           Attributable 
                                  Share    Share    to be  Capital translation  Retained to Company's Minority   Total
                                capital  premium   issued  reserve     reserve  earnings shareholders interest  equity
                                  £'000    £'000    £'000    £'000       £'000     £'000        £'000    £'000   £'000

Balance at 1 December 2004        2,214        -    6,035        -           -   (1,967)        6,282       30   6,312
Profit for the year to 30 November                                                 3,600        3,600      135   3,735
Issue of share capital               14       74                                                   88        6      94
Employee share award and share option                                             11,966       11,966           11,966
Deferred tax on employee                                                           7,315        7,315            7,315
share options
Current tax on employee                                                            3,136        3,136            3,136
share options
Satisfaction of rights of            30    6,005  (6,035)                                           -                -
shares to be issued
Share issue costs charged to share       (3,154)                                              (3,154)          (3,154)
Conversion of preference          (878)                        878                                  -                -
Currency translation                                                     (146)                  (146)            (146)

Total movements in equity         (834)    2,925  (6,035)      878       (146)    26,017       22,805      141  22,946

Balance at 30 November 2005       1,380    2,925        -      878       (146)    24,050       29,087      171  29,258

Profit for the year to 30                                                         11,802       11,802      278  12,080
November 2006

Employee share award and share option                                             19,544       19,544           19,544
Deferred tax on employee                                                           2,054        2,054            2,054
share options
Current tax on employee                                                            4,416        4,416            4,416
share options
Repurchase of minority                                                                 -            -     (36)    (36)
Dividends paid (Note 8)                                                          (3,038)      (3,038)     (65) (3,103)
Currency translation                                                     (102)                  (102)            (102)

Total movements in equity             -        -        -        -       (102)    34,778       34,676      177  34,853

Balance at 30 November 2006       1,380    2,925        -      878       (248)    58,828       63,763      348  64,111

SThree plc

Balance Sheet
as at 30 November 2006

                                                                       2006                        2005
                                                                      £'000                       £'000
Non-current assets
Property, plant and equipment                                         3,558                       2,815
Intangible assets - other                                             3,012                          43
Intangible assets - goodwill                                            364                         -

Investment in joint venture                                              89                         -
Deferred tax asset                                                   11,459                      10,014
                                                                     18,482                      12,872

Current assets
Trade and other receivables                                          92,585                      74,900
Current tax debtor                                                      533                       2,994
Cash and cash equivalents                                             2,440                       2,901

                                                                     95,558                      80,795

Total assets                                                        114,040                      93,667

Current liabilities
Provisions for liabilities and charges                                (188)                       (364)
Trade and other payables                                           (39,024)                    (46,141)
Financial liabilities - borrowings                                  (5,281)                    (12,451)

                                                                   (44,493)                    (58,956)

Non-current liabilities
Provisions for liabilities and charges                              (5,436)                     (5,453)
                                                                    (5,436)                     (5,453)

Total liabilities                                                  (49,929)                    (64,409)

Net Assets                                                           64,111                      29,258

Capital and reserves attributable to the
Company's equity holders
Share capital                                                         1,380                       1,380
Share premium                                                         2,925                       2,925
Capital reserve                                                         878                         878
Currency translation reserve                                          (248)                       (146)
Retained earnings                                                    58,828                      24,050
                                                                     63,763                      29,087
Minority interest                                                       348                         171

Total equity                                                         64,111                      29,258

SThree plc

Cash Flow Statement
Year ended 30 November 2006

                                                                           2006                      2005
                                                                          £'000                     £'000

Cash flows from operating activities
Cash generated from operating activities                                 15,025                    24,954
Income tax received/(paid)                                                1,459                   (5,449)

Net cash generated from operating activities                             16,484                    19,505

Cash flows from investing activities
Purchase of property, plant and equipment                               (2,442)                   (2,702)
Purchase of intangible assets                                           (3,001)                         -
Proceeds from sale of property, plant and equipment                          56                         -

Net cash used in investing activities                                   (5,387)                   (2,702)

Cash flows from financing activities
Expenses paid in respect of share issue                                       -                   (1,008)
Drawdown on new loan facility                                                 -                     9,000
Repayment of loan facility                                              (8,000)                         -
Repayment of loan stock                                                       -                  (39,900)
Interest income                                                             432                       482
Interest costs                                                          (1,284)                   (1,973)
Proceeds from issue of ordinary shares                                        -                        88
Issue of share capital to minority interest                                   -                        30
Purchase of minority interest                                             (400)                         -
Dividends paid                                                          (3,038)                         -
Dividend paid to minority interest                                         (65)                         -
Preference dividends paid                                                     -                   (8,876)

Net cash used in financing activities                                  (12,355)                  (42,157)

Net decrease in cash and cash equivalents                               (1,258)                  (25,354)

Cash and cash equivalents at beginning of the year                        (550)                    24,956
Exchange losses on cash and cash equivalents                               (33)                     (152)

Cash and cash equivalents at the end of the year                        (1,841)                     (550)

SThree plc

Notes to the Financial Statements
Year ended 30 November 2006

1. Segmental analysis
As the Group operates in one business segment, being that of recruitment services, no
additional business segment information is required to be provided.  The Group's secondary
segment is geographical and the segmental results by geographical area are shown below.

Geographic analysis

                                                       By location of client       By location of operating
                                                             2006            2005          2006          2005
                                                            £'000           £'000         £'000         £'000

United Kingdom                                            295,666         243,602       372,563       299,019
Europe and Rest of World                                   97,596          71,485        20,699        16,068

                                                          393,262         315,087       393,262       315,087

Gross Profit
United Kingdom                                             98,937          79,501       118,612        92,147
Europe and Rest of World                                   36,583          24,980        16,908        12,334

                                                          135,520         104,481       135,520       104,481

Operating Profit

Operating profit before exceptional
United Kingdom                                                                           38,659        27,789
Europe and Rest of World                                                                  2,374         1,670

                                                                                         41,033        29,459
Exceptional items
United Kingdom                                                                         (22,143)      (15,939)

                                                                                         18,890        13,520

                                                           Total assets               Capital expenditure
                                                             2006            2005          2006          2005
                                                            £'000           £'000         £'000         £'000

United Kingdom                                            106,195          87,248         5,517         2,562
Europe and Rest of World                                    7,847           6,419           289           154

                                                          114,042          93,667         5,806         2,716

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

                                                              Revenue                    Gross profit
                                                             2006            2005          2006          2005
                                                            £'000           £'000         £'000         £'000

Computer Futures Solutions                                113,391          96,223        36,749        30,620
Huxley Associates                                          91,198          64,971        35,609        24,911
Progressive Computer Recruitment                           77,288          66,728        24,777        19,750
Pathway                                                    36,649          27,586         9,469         6,979
Others                                                     74,736          59,579        28,916        22,221

                                                          393,262         315,087       135,520       104,481

Recruitment classification
Contract                                                  327,459         267,071        69,717        56,465
Permanent                                                  65,803          48,016        65,803        48,016

                                                          393,262         315,087       135,520       104,481

Information & communication technology                    351,038         285,388       111,121        88,190
Other(1)                                                   42,224          29,699        24,399        16,291

                                                          393,262         315,087       135,520       104,481

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

SThree plc

Notes to the Financial Statements
Year ended 30 November 2006

2. Administrative Expenses - Exceptional Items

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

                                                                                    2006          2005
                                                                                   £'000         £'000
Exceptional items - charged to operating profit
Employee share awards and share options charge                                    19,544        11,966
Employer's National Insurance on share awards and options, and related
costs                                                                              2,599         2,529
Special management bonuses                                                             -         1,444

Exceptional items - before taxation                                               22,143        15,939

Certain employees received share awards and share options that were granted during the
financial year but linked to arrangements made at IPO.  In accordance with IFRS 2 'Share
based payments' a charge has been reflected in the income statements.  This also
resulted in a corresponding charge for Employer's National Insurance contributions.  The
Group received tax relief in respect of these share awards and other options and will
receive tax relief in respect of options to be exercised in the future.  These credits
have also been classified as exceptional.

Special management bonuses relate to amounts paid to certain Directors and senior Group
management in proportion to their interest in Zero Coupon Preference Shares.  The
bonuses were awarded to reward those Directors and senior managers for services
provided, recognising the fact that the Zero Coupon Preference Shares did not bear
dividends. After flotation, the Zero Coupon Preference Shares ceased to exist and the
special management bonuses will no longer be payable.

The charge in respect of the employee share awards and options is a non-cash item. The
related Employer's National Insurance contribution was paid in cash after the balance
sheet date. In 2005, the special management bonuses were paid, in cash.

Corporation tax deductions have arisen on the exercise of options and awards granted to
certain employees of the Group.  The corporation tax deduction amounted to £18.5m (2005:
£20.9m) which reduces the current year's taxable profits of the Group.  The tax effect
of this deduction amounted to £5.6m (2005: £6.3m).

SThree plc

Notes to the Financial Statements
Year ended 30 November 2006

3. Taxation

(a) Analysis of tax charge for the
                                                                                                       2006        2005
                                                                         Ordinary   Exceptional       Total       Total
                                                                       activities         items
                                                                            £'000         £'000       £'000       £'000
Current taxation
Corporation tax at 30% (2005: 30%) on profits for the
year                                                                      11,154        (6,642)       4,512       4,131
Adjustments in respect of prior periods                                    (174)              -       (174)          63

Corporation tax on profits for the year                                    1,594              -       1,594         495
Adjustments in respect of prior periods                                    (495)              -       (495)         124

Total current tax charge/(credit)                                         12,079        (6,642)       5,437       4,813

Deferred taxation
Origination and reversal of temporary differences                            209              -         209       (427)
Schedule 23 deferred tax charge/ (credit) in respect of
unexercised employee share awards and options                                  -            400         400       (441)
Adjustments in respect of prior periods                                        -              -           -         (2)

Total deferred tax charge/(credit)                                           209            400         609       (870)

Total income tax expense in the income statement                          12,288        (6,242)       6,046       3,943

(b) Reconciliation of the effective tax rate

The total tax charge for the year is higher than the standard rate of corporation tax in the UK (30%). The differences
are explained below:
                                                                             2006                      2005
                                                                            £'000             %       £'000           %

Profit before taxation                                                     18,126                    12,029

Profit before tax multiplied by standard rate of corporation tax in                                       
the UK of 30%                                                               5,438           30%       3,609         30% 
Effects of:
Other expenses not deductible for tax purposes                                461            3%         469          4% 
Capital allowances in excess of depreciation and amortisation                 153            1%       (355)        (3)% 
Other timing differences                                                      383            2%       (387)        (3)% 
IFRS 2 charge in respect of share awards and options                        5,863           32%       3,567         30% 
Schedule 23 tax credit in respect of employee share options and                                         
awards                                                                    (5,543)         (31%)     (3,126)       (26%) 
Lower tax rates on overseas earnings                                        (149)          (1%)        (67)        (1%) 
Tax losses not utilised within the year.                                      109            1%          48          0% 
Adjustments to tax in respect of previous periods(UK)                       (174)          (1%)          63          1% 
Adjustments to tax in respect of previous periods(Overseas)                 (495)          (3%)         122          1% 
Tax expense and effective tax rate                                          6,046           33%       3,943         33% 

                                                                                                       2006        2005
(c) Current and deferred tax movement recognised                                                      £'000       £'000
directly in equity

Current tax
Equity settled employee share options                                                                 4,416       3,136

Deferred tax
Equity settled employee share options                                                                 2,054       7,315

                                                                                                      6,470      10,451

Corporation tax deductions have arisen on the exercise of options granted to certain employees of the Group
during the financial year.  The corporation tax deduction amounted to £33.2m (2005: £20.9m) which reduces
the current year's taxable profits of the Group.  The current tax effect of this deduction amounted to
£5.4m (2005 £3.6m) recognised in the income statement in the current year.  The current tax recognised
directly in equity amounted to £4.4m (2005: £3.1m).  This credit has been treated as exceptional due to its
unusual nature and its materiality.

In addition to the tax deductions described above, the Directors expect to receive additional tax
deductions in respect of the share awards and share options currently unexercised.  Under IFRS the Group is
required to provide for deferred tax on all unexercised share awards and options.  At 30 November 2006 a
deferred tax asset of £9.4m (2005: £7.8m) has been recognised in respect of this.

4. Dividends
                                                                                                       2006        2005
                                                                                                      £'000       £'000
Amounts recognised and distributed to shareholders in the year
Interim dividend for the year ended 30 November 2006 of 2.4p per ordinary share (2005: nil)           3,038           -

Preference dividend payable of 5% (net) on Preference and 'A' Preference shares1                          -       4,351

                                                                                                      3,038       4,351

1 IAS 32 'Financial Instruments - Disclosure and presentation' and IAS 39 'Financial Instruments -
Recognition and measurements' were not implemented in the prior year comparative figures in accordance with
the transitional rules set out in IFRS 1, thus the preference dividend was not reclassified as interest
within the income statement.

Amounts proposed for approval at the AGM

Proposed final dividend for year end 30 November 2006: 4.8p (2005:
nil)                                                                                                  6,624           -

The proposed final dividend had not been approved by the shareholders at 30 November 2006 and consequently
has not been included as a liability within the financial statements.

A final dividend of 4.8p (2005: nil) per ordinary share will be paid on 4 June 2007 to shareholders on the
register at the close of business on 4 May 2007.
5. Earnings per share

The calculation of the basic and diluted earnings per share is based on the
following data.
Basic earnings per share is calculated by dividing the earnings attributable to ordinary
shareholders by the weighted average number of Ordinary Shares in issue during the year,
excluding those held in the employee share trust which are treated as cancelled.

For diluted earnings per share, the weighted average number of Ordinary Shares in issue is
adjusted to assume conversion of all dilutive potential Ordinary Shares.

                                                                                        2006         2005
                                                                                       £'000        £'000

Profit after taxation                                                                 12,080        8,086
Minority Interest                                                                      (278)        (135)
Preference dividend paid                                                                   -      (4,351)

Basic Earnings                                                                        11,802        3,600

Effect of exceptional items (net of tax)                                              15,820       11,180

Profit for the year excluding exceptional items                                       27,622       14,780

                                                                                    millions     millions
Number of shares
Weighted average number of shares used for basic EPS                                   123.9         38.8
Dilution effect of share plans                                                           5.8          4.5

Diluted weighted average number of shares used for diluted EPS                         129.7         43.3

                                                                                       pence        pence
Basic earnings per share                                                                 9.5          9.3
Basic earnings per share excluding exceptional items                                    22.4         38.1

Diluted earnings per share                                                               9.1          8.3
Diluted earnings per share excluding exceptional items                                  21.4         34.1

Additional disclosure
The earnings per share figures presented above have been prepared in accordance with IAS 33
'Earnings per share'.  As the flotation and, consequently the share capital conversion,
occurred towards the end of the 2005 financial year, the weighted average number of shares
used in the above calculations for 2005 is considerably lower than the actual number of
Ordinary Shares in issue at the end of that financial year.  Therefore the Directors believe
that an additional EPS figure as at 30 November 2005 should be disclosed, based on the
capital structure at the balance sheet date.  For this EPS figure the preference dividend is
excluded from the calculation of earnings as it would not have been paid had the capital
structure as at the balance sheet date been in place throughout the relevant period.  The
Directors believe that these adjustments result in an EPS figure which is a better
representation of the underlying trend in Group performance.  The following tables set out
the number of shares and the earnings used in the calculation of the adjusted earnings per

                                                                                    millions     millions

Adjusted basic number of ordinary shares                                               123.9        124.3
Adjusted dilutive number of ordinary shares                                            129.7        128.0

                                                                                       pence        pence

Basic earnings per share                                                                 9.5          6.4
Basic earnings per share excluding exceptional items                                    22.4         15.4

Diluted earnings per share                                                               9.1          6.2
Diluted earnings per share excluding exceptional items                                  21.4         14.9

All earnings are derived from continuing operations

SThree plc

Notes to the Financial Statements
Year ended 30 November 2006

6. Cash flows from operating activities

                                                                                  2006          2005
                                                                                 £'000         £'000

Profit before taxation                                                          18,126        12,029
Depreciation and amortisation charge                                             1,556         1,480
Interest income                                                                  (432)         (482)
Interest costs                                                                   1,284         1,973
Loss on disposal of property, plant and equipment                                  116           275
Profit attributable to Joint venture                                              (89)             -
Profit from partial deemed disposal of subsidiary                                    -          (24)
Non-cash element of the exceptional charge for share options and awards.        19,544        11,966

Operating cashflow before changes in working capital and provisions             40,105        27,217

Increase in receivables                                                       (17,760)      (15,452)
(Decrease)/increase in payables                                                (7,127)        12,689
(Decrease)/increase in provisions                                                (193)           500                

Net cash inflow from operating activities                                       15,025        24,954

7. Cash and cash equivalents

                                                                                  2006          2005
                                                                                 £'000         £'000

Cash in hand and at bank                                                         2,440         2,901
Bank overdraft                                                                 (5,281)      (12,451)

Net debt                                                                       (2,841)       (9,950)

8.                 Nature of financial information

The financial information is not audited and does not constitute statutory
accounts within the meaning of S240 of the Companies Act 1985.  The financial
statements have been prepared in accordance with International Financial
Reporting Standards (IFRS).  The accounting policies (that comply with IFRS and
IAS) adopted by SThree plc (the 'Group') are set out in the 2006 Interim report.
  The restatement of previously published financial information under UK GAAP
(on to an IFRS basis) was publicly disclosed on 24 July 2006.  The restated
results have been fully adopted in these financial statements.

9.             Annual Report and Accounts

The 2006 Annual Report and Accounts will be posted to shareholders in due
course.  Further copies will be available from the Company Secretary, 41-44
Great Windmill Street, London W1D 7NB.  Telephone No. 020 7292 3838.

10.               Annual General Meeting

The Annual General Meeting of SThree plc will be held on 27 April 2007.

                      This information is provided by RNS
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