Interim Results

16 July 2012

SThree plc

("SThree" or the "Group")

Interim Results for the half year ended 27 May 2012

SThree, the international specialist staffing business, is today announcing its interim results for the half year ended 27 May 2012.

Operational Highlights

·; Satisfactory first half performance with Gross Profit (GP) up 11.0% year on year ("YoY") to £99.9m (H1 2011: £90.0m). Like for like ("LFL") GP up 12.2%.

·; Profit before tax reduced by 16.9% to £9.3m (H1 2011: £11.2m) reflecting costs of expanding the international network and relative immaturity of newer international teams which are yet to achieve full productivity.

·; Permanent placements up by 3.5% to 3,572 (H1 2011: 3,450) - average Permanent placement fee up 8.2% LFL to a record £13,712 (H1 2011: £12,672).

·; Number of active contractors at period end up by 8.6% YoY to 4,757 (H1 2011: 4,381) - average GP per day rates increased by 2.2% LFL to £87.88 (H1 2011: £86.03). Average Contract margin achieved of 21.6% (H1 2011: 21.4%).

·; Permanent versus Contract mix of GP now 51:49 in favour of Permanent (FY 2011: 52:48).

·; Non-UK&I GP for the period represented 66% of the Group total (FY 2011: 63%).

·; Rest of World (excluding UK and Europe) GP grew to 16% of mix (FY 2011:13%), up 42% LFL.

·; Non-ICT business segments grew by 24% YoY LFL, now representing 44% of total GP (FY 2011: 40%).

·; Sales headcount up 14.8% YoY and down 2.2% versus year end 2011 position, as certain of the Group's markets have right sized to match macroeconomic conditions. Average sales headcount up 24% YoY, reflecting the impact of hiring that took place largely in H2 2011.

·; New offices opened in Oslo, San Diego, Rio de Janeiro and Brisbane.

·; Net cash position remains strong at £31.0m (FY 2011: £55.6m), after payment of a special dividend of £13.2m in December 2011.

·; Management succession plan initiated - Gary Elden to succeed Russell Clements as CEO in 2013 and other Board level appointments made.

Russell Clements, Chief Executive Officer, said: "The Group traded satisfactorily and in line with management's expectations in the first half, particularly given the deterioration in the macro-economic situation seen during the second quarter. Despite this softening in demand, overall GP grew by 11% to £99.9m and, once again, our discipline on deal values was rewarded with strong improvements in average permanent fees and a robust performance in terms of contract day rates.

Against a background of continuing solid demand, both Engineering & Energy and Pharmaceuticals & Biotechnology are making an increasingly significant contribution to Group performance, and this trend is mirrored in our more recent international office openings, including those in Oslo, San Diego, Rio de Janeiro and Brisbane.

Looking ahead, in our seasonally more important second half we see the Group's balanced business model and in particular its significant presence in Contract as an undoubted strength in these more difficult trading conditions. Our strong net cash position will allow us to continue to invest in the Group's future growth while also underpinning our commitment to a robust dividend policy. With a seasoned and strengthened senior management team, we look forward to the future confident that we can optimise our performance whatever the prevailing market opportunity."

SThree will host a presentation and conference call for analysts at 9am today.

Conference Call participant Telephone Numbers:

Dial in: +44 (0) 20 3003 2666 Passcode: 6493437

Call reference: SThree Interim Results presentation

There will also be a live audio webcast, hosted on the SThree website at: http://www.media-server.com/m/p/76xrb6i3

An archive of the presentation will be available via the same link later today.

SThree will be announcing its Q3 Interim Management Statement on Friday 7 September 2012.

Enquiries:

Notes to editors

SThree is a leading international specialist staffing businesses, providing permanent and contract specialist staff to a diverse client base of over 7,500 clients. From its well-established position as a major player in the information and communications technology ("ICT") sector the Group has broadened the base of its operations to include businesses serving the accountancy & finance, banking, engineering, oil & gas, pharmaceuticals, human resources, energy, legal and job board sectors.

Since launching its original business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree brands include Computer Futures, Huxley Associates, Progressive and The Real Staffing Group. The Group has circa 2,300 employees in seventeen countries.

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

Important notice

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

SThree plc

("SThree" or the "Group")

Interim results for the half year ended 27 May 2012

Operating Review

Introduction

Given the deteriorating macro economic situation during the second quarter we have seen a slowing of the rate of growth in Gross Profit ("GP") in Q2 versus Q1 but nonetheless GP in Q2 was 9% ahead of the same period last year. Pleasingly, we once again performed robustly in terms of the value of the business written up with strong improvements in average Permanent fees. As a result, a satisfactory result was recorded for H1, with GP increasing by 11.0% to £99.9m (H1 2011: £90.0m).

Overview and Business Mix

In line with our strategy, H1 2012 saw the Group become more international. Overall GP derived outside of the UK&I increased to 66% (FY 2011: 63%). The Group's segmental diversification also increased with overall Group GP generated from non-ICT sectors up by 24% on a LFL basis, to represent 44% of total GP (FY 2011: 40%). The Group now derives only 20% of its GP from the UK ICT market, its longest established franchise (H1 2011: 22%; FY 2011: 22%). The Group's exposure to Public Sector clients represented 6% of total transactions, up from 5% in the full year 2011. This figure has been broadly stable for some time and it appears likely it will remain so for the foreseeable future.

During the period the Group's Contract business performed pleasingly and the proportion of Group GP attributable to Contract increased marginally to 49% in the period compared to 48% in the full year to November 2011. Remixing in favour of Contract is to be expected in a more uncertain economic environment, although this effect was offset to some degree by the geographical remixing of the business away from the UK which has a higher proportion of Contract business than the Group average, with UK Contract representing 62% of total UK GP during H1 2012.

The headline number of Group contractors increased to 4,757 at the period end from 4,381 at the end of H1 2011, an increase of 8.6%. The Group experienced the usual seasonal reduction and rebuild in Contract numbers from the end of the previous financial year, but active contractors were also up 1.4% at the end of half year compared to the end of 2011 (27 November 2011: 4,692). The Group made 3,572 Permanent placements in the first half, an increase of 3.5% (H1 2011: 3,450).

Strategy

The Group has a well-established strategy based on rolling out the SThree model to an increasing number of geographies and across a range of complementary, largely technical, specialist staffing disciplines. The success of the Group's strategy is reflected in the fact that our businesses outside of the UK ICT sector represented 80% of Group GP in H1 2012 (H1 2011: 78%; H1 2010:75%; H1 2009: 68%). However, we continue to believe that the UK ICT market has strong long term growth characteristics in itself and we would expect it to perform robustly in more normal conditions.

The Group's strategy will continue to be based on organic growth, although acquisitions may be considered on a selective basis if these would expedite our development in a strategically attractive market. These would most likely mean "bolt-ons" capable of offering niche expertise in a particular sector and/or geography. In parallel, we are on occasion appointing senior management from competitor/comparator companies where the individuals would bring valuable new market knowledge to the Group. In this respect we believe that the Group's Tracker Share model (previously referred to as the "Minority Interest model") is a key differentiator in terms of attracting senior talent to the business as well as a significant retention tool for existing management.

Board changes

During the period the Group announced that Russell Clements, CEO, will retire from the Board at the conclusion of the next Annual General Meeting in April 2013 after more than twenty six years with the Group. He will be succeeded as CEO by Gary Elden, who joined the SThree Board in 2008 and has over twenty two years service with the Group, latterly as Group Chief Strategy Officer. Gary has been appointed as Deputy CEO and is working closely with Russell to effect a progressive transition of responsibilities over the coming months.

Two further Board appointments were also announced as part of the managed succession process - Steve Quinn, previously Group Managing Director Benelux & Middle East, who joins the Board as Chief Operating Officer, and Justin Hughes, who joins as Group Managing Director Asia Pacific.

Gary, Steve and Justin are all talented executives with long and successful track records with the Group and their appointments will help ensure that the Board retains the right mix of skills and experience for what is an increasingly diverse and international business.

Margins and Value

A further key element of our strategy is to remain highly selective regarding the quality of the business we undertake. The Group aims to fully leverage its niche specialist proposition to engage with clients which value our services and remunerate our expertise accordingly. This is further underpinned by our multi-brand approach which allows the Group to segregate the market around specific niches, establishing its consultants as market experts who can justify premium pricing compared to the "generalist specialist" approach applied by some peers.

Our customer base is wide and varied, with a relatively high percentage of SMEs, particularly in the UK. This reduces the Group's exposure to a limited number of price sensitive customers and therefore reduces our exposure to the margin pressure associated with "wholesale" buyers such as the major systems integration companies. This is reflected by the fact that in H1 2012 56% of the candidates we placed were ICT professionals but only approximately 18% of all transactions were in the ICT sector per se.

Our strict client selection and clear focus on highly specialised niche markets allows us to defend our margins. Overall Group gross margin grew to 35.9% (H1 2011: 35.3%) supported by a shift in the business towards Permanent and a slight improvement in the Contract margin to 21.6% (2011: 21.4%). Pleasingly, we saw an 8.2% LFL improvement in the average Permanent fee to £13,712 (H1 2011: £12,672) and a 2.2% increase in the LFL average GP Profit per Day to £87.88 (H1 2011: £86.03) during the first half.

Performance by Geography

UK&I GP at £34.8m was up 2% LFL (H1 2011: £34.1m), which was a very respectable performance given the overall softening of the market in the UK. Permanent placements were down 4.4% and period end contractors were also down 2.1% YoY. In terms of value, however, Permanent fees and GP day rates increased by 4.2% and 2.7% respectively. The robustness of overall UK fees was again helped by a strong performance from sectors such as Pharmaceuticals & Biotechnology and Engineering & Energy. Mainland Europe GP of £49.4m was up 13% LFL (H1 2011: £45.0m). Market conditions in Benelux remained challenging with GP for the region up 2% LFL. France delivered a GP increase of 23% LFL. Our well established teams in Germany continued to benefit from the relatively immature staffing market in Germany, with GP up 17% LFL.

Rest of the World ("ROW") GP was up 42% LFL, notably with a strong performance in Australia (up 42% LFL) helped by the continued healthy state of the resources market. USA was up 68% LFL with notable contributions from the San Francisco (Pharmaceuticals) and Houston (Oil & Gas) offices, somewhat diluted by continued weakness in the Banking market.

Geographical and Sector Expansion

Of the Group's total of 64 offices in 18 countries, 42 are outside the UK with 25 in Europe and 17 in the ROW. In H1 the Group continued its roll out of international offices, opening in Oslo, San Diego, Rio de Janeiro and Brisbane. These latest openings reflect the increasing importance of Oil & Gas placements to our international strategy with three of the four focusing on this market. The fourth, San Diego, focuses on Life Sciences, a robust market which is also growing in importance for the Group. That said, much of the Group's international growth will come from achieving scale in locations and sectors in which we already have a presence. The Group has substantial capacity to scale up in many of its territories, when market conditions permit, without the need to add to the existing office footprint.

Staffing Levels

At the end of the half-year total headcount for the Group was 2,269, a slight decrease on the previous year end (FY 2011 year end: 2,272). Relative to the year end 2011 position, UK sales headcount fell by 9.3%, Continental Europe sales headcount was down 1.6% and ROW was up 11.3%. Overall, average sales headcount was up 24% YoY, reflecting the second half weighting in hiring last year.

The Group continues to hire sales consultants highly selectively into teams where there is clear market-based evidence to support the investment and to staff the opening of our new international offices. However, where the market demand is weaker we are currently prepared to allow natural attrition to rightsize teams. As such we do not anticipate meaningful increases in headcount until the overall state of the market shows signs of sustainable improvement.

Operating profit

Operating profit declined by 16.7% to £9.1m (H1 2011: £11.0m) as a result of increased costs of new sales heads and property costs exceeding the growth in GP.

Cash Flow

At the start of the period the Group had net cash of £55.6m. During the period the Group generated cash from operating activities of £8.5m (H1 2011: £6.1m) being £14.1m of operating cash flows before changes in working capital and provisions (H1 2011: £15.4m) and an increase in working capital requirements and provisions of £5.6m (H1 2011: £9.2m). Dividends paid in the period increased by £14.0m due to the payment of a special dividend of 11.0p per share and a 0.7p increase in the interim dividend per share. At 27 May 2012 the Group had net cash of £31.0m. A committed flexible revolving credit facility is in place with Royal Bank of Scotland Group ("RBS") until January 2017. Under this arrangement the Group is able to borrow up to £20m. Funds borrowed under this facility bear interest at a minimum annual rate of 1.3% above LIBOR.

Taxation

The charge for taxation on profits amounted to £3.1m (H1 2011: £3.7m), an effective rate of 33% (H1 2011: 33%).

Earnings per Share

Basic earnings per share fell by 16% to 5.2p (H1 2011: 6.2p). Diluted earnings per share fell by 15% to 5.1p (H1 2011: 6.0p).

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 maintain its interim dividend at 4.7p (H1 2011: 4.7p) per share. The interim dividend will be paid on 7 December 2012 to those shareholders on the register at 9 November 2012. The total payment to shareholders on this date will be approximately £6m.

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

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

The main functional currencies of the Group are Sterling, Euro and US dollar. 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 Group continues to monitor its policies in this area. Other principal risks and uncertainties affecting the business activities of the Group are as detailed within the Directors' Report section of the Annual Report for the year ended 27 November 2011, 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.

Outlook

Growth in the Group's markets has slowed as expected over the first half, given the macro economic conditions, with deteriorating global economic sentiment impacting demand for the Group's services across a number of sectors. However, market conditions remain in far better shape than in the 2009 financial trough. The emerging markets and non-ICT sectors are generating an increasing portion of our GP and this growth is expected to continue. Against this background, the Group's focus remains on driving productivity, optimising cash and selectively targeting growth of teams in key sectors/geographies.

The Group remains cash rich and agile, with a seasoned and strengthened senior management team. We look forward to the future confident that we can optimise our performance against the prevailing market opportunity.

Responsibility statement

The Directors confirm that to the best of their knowledge:

·; the condensed consolidated financial statements (unaudited) have been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the European Union; and

·; the interim highlights and operating review include a fair review of the information required by Disclosure and Transparency Rule 4.2.7R and Disclosure and Transparency Rule 4.2.8R.

(a) DTR 4.2.7R of the Disclosure and Transparency Rules of the Financial Services Authority, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated financial statements and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules of the Financial Services Authority, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period, and any changes in the related party transactions described in the Annual Report for the year ended 27 November 2011.

Approved by the Board on 13 July 2012 and signed on its behalf by:

SThree plc

SThree plc

SThree plc

SThree plc

SThree plc

SThree plc

Notes to the interim financial information - unaudited

for the six months ended 27 May 2012

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 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.

The consolidated interim financial information was approved for issue on 13 July 2012.

The condensed consolidated interim financial information of the Group as at, and for the six months ended, 27 May 2012 comprises that of the Company and all its subsidiaries. The condensed consolidated interim financial information has been reviewed, not audited. The condensed consolidated interim information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 27 November 2011 were approved by the Board of directors on 27 January 2012 and delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006.

Basis of preparation

The consolidated interim financial information for the six months ended 27 May 2012 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 is presented on a condensed basis as permitted by IAS 34 and therefore does not include all disclosures that would otherwise be required in a full set of financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 27 November 2011, which have been prepared in accordance with IFRSs as adopted by the European Union.

Restatement

Included in Other comprehensive income for the period ended 29 May 2011 was £932,000 relating to tax on employee share awards. This represented the tax effects on transactions with owners and should be reflected directly in equity. Therefore, this amount has been removed from the consolidated statement of comprehensive income for the period ended 29 May 2011.

As a result of this change Other comprehensive income for the period ended 29 May 2011 has been restated to £375,000 compared to £1,307,000 previously reported.

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

Going concern

The directors are satisfied that, at the time of approving the consolidated interim financial information, it is appropriate to continue to adopt a going concern basis of accounting.

Estimates

The preparation of the condensed consolidated financial information requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the end of the reporting period, and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on the Directors' best knowledge of the amounts, actual results may ultimately vary from those estimates.

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 27 November 2011, 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 this condensed consolidated interim financial information as were applied in the preparation of the Group's consolidated financial statements for the year ended 27 November 2011.

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

There are no new standards or IFRIC interpretations that are either effective or issued but not effective that would be expected to have a material impact on 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 Deputy Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the Chief Information Officer, the Director of Strategic Capability & Organisational Development, the Regional 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 in the Group's 2011 Annual Report.

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 less cost of sales.

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

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'.