23rd Jul 2007 07:01
SThree plc23 July 2007 SThree plc ("SThree" or the "Group") Interim Results for the six-month period ended 3 June 2007 SThree, the international specialist staffing business, is today announcing itsinterim results for the six-month period ended 3 June 2007. Financial Highlights - six-month period ended 3 June 2007 31 May 2006 % change £m £m Revenue 240.4 178.0 35.1%Gross Profit 82.5 59.2 39.5%Operating profit* 19.6 15.1 29.7%Profit before taxation* 19.2 14.5 32.0%Profit before taxation after exceptional items 19.2 12.5 54.0%Profit for the period* 13.2 10.3 27.7%Basic earnings per share* 9.3p 8.1p 14.8%Earnings per share after exceptional items 9.3p 6.9p 34.8%Interim dividend 3.1p 2.4p 29.2% \* These 2006 figures are stated before the impact of exceptional items Operational Highlights • Strong first-half performance, continuing the trend since IPO in 2005 • Permanent placements increased by 31.8% to 4,580 in the first-half (2006: 3,475), with average fees increased by 10.2% • Number of active contractors at period end increased by 14.7% to 4,974 (2006: 4,335), with average gross profit per day rates increased by 19.3% • Information and Communications Technology ("ICT") business segment increased gross profit by 38.1% to £68.6m (2006: £49.7m) • Further growth in non-ICT, with banking and finance, accountancy, human resources, engineering, pharmaceuticals and job board businesses increasing gross profit by 46.8% to £13.9m (2006: £9.5m) • Non-UK businesses continue to perform very strongly, with gross profit increased by 70.5% to £26.8m (2006: £15.7m). Longer-established UK businesses also grew by 28.3% • Total headcount increased by 24.2% to 1,840 since year-end with sales consultant headcount up 17.6% to 1,051 over the same period • Further expansion of international network, with new offices opened in Rotterdam and Brussels in the first-half, and further openings in Hong Kong and Dubai scheduled for the second half • Basic earnings per share before exceptional items increased by 14.8% to 9.3p (2006: 8.1p) • Interim dividend of 3.1p (2006: 2.4p) per share declared, an increase of 29.2% Russell Clements, Chief Executive Officer, said: "The first-half of 2007 hasseen the Group report a further strong set of results and it is particularlypleasing to once again report growth across all sectors and geographies. Duringthe period we invested significantly in the future of the business in terms ofhuman capital, systems, infrastructure and in further enhancing our geographicalpresence. These decisions were made to provide us with the foundations for afuture business which is ever more multi-dimensional and geographically diverse.We feel that this broad-based performance further demonstrates the validity ofour strategy and the scalability of the SThree business model. We thereforeremain confident that the results achieved in the first half provide us with astrong platform to make further progress in the remainder of the year andbeyond." Enquiries: SThree plc 020 7292 3838Russell Clements, Chief Executive OfficerMichael Nelson, Chief Financial Officer Citigate Dewe Rogerson 020 7638 9571Kevin Smith / Nicola Smith Notes to editors SThree, founded in 1986, is one of the leading specialist staffing businesses inthe UK and Europe, providing permanent and contract specialist staff to adiverse, international client base of well over 4,000 clients. From itswell-established position as a major player in the information andcommunications technology ("ICT") sector the Group is now broadening the base ofits operations by building fast-growing businesses serving the banking andfinance, accountancy, human resources, engineering and pharmaceuticals, energyand job board sectors. Following the establishment of its first business, Computer Futures, in 1986,the Group adopted a multi-brand strategy, establishing new operations to addressgrowth opportunities. SThree currently operates 12 brands, the four largestbeing Computer Futures, Huxley Associates, Progressive and Pathway, and has 33offices in the UK and 15 offices internationally; 14 in Europe, in Belgium, TheNetherlands, France, Germany and Ireland, and one office in New York. SThree has a selective approach to clients and focuses on high marginopportunities, predominantly within the small to medium-sized enterprises ("SME") market. From its inception the Group has avoided the high volume/low marginbusiness model in favour of a focus on high quality business. SThree plc is quoted on the Official List of the UK Listing Authority under theticker symbol STHR. SThree also has a US level one ADR facility, symbol SERTY. SThree plc ("SThree" or the "Group") Interim Results for the Six Month Period Ended 3 June 2007 Operating Review The Group achieved another strong set of results in the first half, continuingthe trends evidenced last year and in line with the Board's expectations at thebeginning of the financial year. Revenue for the six-month period ended 3 June 2007 increased by 35.1% to £240.4m(2006: £178.0m). Gross profit increased by 39.5% to £82.5m (2006: £59.2m).Operating profit before exceptional items increased by 29.7% to £19.6m (2006:£15.1m). As we indicated at the time of the full year results, the first halfhas seen a significant further investment in upgrading offices within theexisting network as well as expanding into new geographical locations. Inaddition we launched non-ICT divisions into a number of brands that had hithertosolely addressed the ICT market and implemented the first stage of a major newERP system roll-out. As a result of these factors the conversion ratio ofoperating profit (before exceptional items) to gross profit was 23.8% (2006:25.6%). Profit before tax and exceptional items increased by 32.0% to £19.2m(2006: £14.5m). After taking account of the prior-year exceptional items, profitbefore tax grew by 54.0%. In addition to our ongoing investment in human capital, we have continued toinvest in our international office network and systems infrastructure. At 3 June2007, staff numbers had increased since year-end to 1,840 (30 November 2006:1,481) operating from 48 offices in 7 countries. Sales headcount increased by17.6% to 1,051 over the same period. During the period under review, we extendedour footprint in Benelux by opening new offices for Computer Futures inRotterdam and for Huxley in Brussels. We continue to expand organically andduring the second half of 2007 are planning to open offices in Hong Kong andDubai, both of which are markets we are already successfully servicing remotelyfrom London. In early 2007 we implemented the first phase of a new Enterprise ResourcePlanning (ERP) system for the Group. The new system replaced a number ofnon-scaleable legacy applications with the aim of providing an integratedplatform to support our future international growth. As is common with systemsimplementation on this scale, there was some short-term disruption in the periodimmediately following its introduction, which mainly impacted cash collections.However, as the system matures we expect to start to see the flow through ofadditional benefits in terms of staffing efficiencies and other cost savings. Inparallel with the ERP system we have begun the phased rollout of Siebel CRM tocomplement our proprietary front-office systems. This investment focuses onoptimising our client database to support our ongoing expansion into new sectorsand geographies. Permanent/Contract Contribution The rate of growth in total Group gross profit accelerated during the first-halfof 2007 to 39.5% (2006: 28.7%), with permanent and contract gross profit growingby 45.2% (2006: 40.5%) and 34.2% (2006: 19.5%) respectively. The ratio of grossprofit between the contract and permanent segments reached 50:50 (2006: 52:48),reflecting the strength of the permanent business and our increased exposure tonon-UK and non-ICT markets which tend to be more skewed towards permanentplacements. The gross margin on contract placements increased slightly to 20.8%(2006: 20.6%). The number of active contractors at the half-year end increasedby 14.7% to 4,974, and we also saw a year-on-year increase in average grossprofit per day rates of 19.3% to £71.24. This was partly due to continuedflow-through of the management actions taken in the second half of 2006 toimprove both the level of seniority of contractors placed and the contractualterms of the deals concluded. The number of permanent placements also increasedsignificantly by 31.8% to 4,580. This was enhanced by an increase in averagefees for the six-month period of 10.2% to £8,968. The latter is attributable toa combination of healthy levels of wage inflation, coupled with our success inattracting higher-calibre business and placing better-qualified candidates. UK/Non-UK Contribution Gross profit from UK-based clients continued to increase strongly, growing by28.3% to £55.8m (2006: 24.1% to £43.5m). Gross profit from non-UK based clientsaccelerated even more rapidly by 70.5% to £26.8m (2006: 43.7% to £15.7m),reflecting our ongoing geographical expansion. Our non-UK business nowrepresents 32.4% of Group gross profit (2006: 26.5%). ICT/Non-ICT Contribution Gross profit from our ICT business increased rapidly by 38.1% to £68.6m (2006:23.0% to £49.7m), reflecting the high level of non-UK growth which is currentlypredominantly ICT-based. Gross profit from non-ICT (banking and finance,accountancy, human resources, engineering, pharmaceuticals, energy and job boardbusinesses) increased by 46.8% to £13.9m (2006: 70.4% to £9.5m). This growth wasachieved against challenging comparatives and reflected our increased focus onnon-ICT revenue streams. We are also starting to see encouraging early returnsfrom a number of our recently-established teams. Brand Contribution Gross profit from our four largest brands, Computer Futures, Huxley, Progressiveand Pathway increased by 36.4%, 48.0%, 27.3% and 26.1%, respectively (2006:14.8%, 41.3%, 20.2% and 39.8%). It is pleasing that our longest-establishedbrands continue to post strong growth and have, in every case other thanPathway, increased the rate of growth in fee income, compared to the same periodlast year. Once again the exceptional performance of Huxley reflects not onlyits established presence in ICT, but also particularly strong growth outside theICT sector, coupled with an increasing international presence such as itsrecently-established New York office and its increased exposure to the Far East. Our longest-established brand, Computer Futures, accelerated its growthsignificantly, helped from an extremely strong performance from its non-UKbusiness. Here it is worth emphasising that virtually all of this growth camefrom ICT as this brand's expansion into newer sectors is still at an embryonicstage. A similar picture is seen at Progressive, our second longest-establishedbrand. Although this brand has modestly greater exposure to non-ICT thanComputer Futures, at this stage it is still largely delivering its impressivegrowth from its well-established ICT franchise. Pathway continues to growhealthily but in the face of tougher comparatives and is scheduled to begin itsoverseas expansion through the opening of an office in Dubai. Gross profit fromour smaller brands also continued to increase strongly by 49.3% to £17.8m (2006:42.9% to £11.9m). On a selective basis some of these brands have begun tradingwith overseas clients from their UK offices and we see opportunities for theserevenue streams to develop further through future openings of internationaloffices. This initiative will see the IT Job Board and Real Resourcing openoffices in Amsterdam by the end of the year. Taxation The charge for taxation on profits before exceptional items amounted to £6.0m(2006: £4.2m), an effective tax rate of 31.3% (2006: 29.0%). Under Schedule 23of the Finance Act 2003, the Group obtains a corporation tax deduction relatingto the various share awards and options exercised. The amount of the taxdeduction is calculated by reference to the share price at the time of award orexercise. As a consequence, there is a cash benefit to the Group of such taxdeductions. Under IFRS this tax benefit is dealt with through equity. The totalSchedule 23 tax benefit amounts to £9.1m. Earnings Per Share Basic earnings per share before exceptional items increased by 14.8% to 9.3p(2006: 8.1p). After taking account of the prior-year exceptional items, earningsper share increased by 34.8%. Diluted earnings per share before exceptionalitems increased by 13.9% to 9.0p (2006: 7.9p). Cash Flow At the start of 2007, the Group had net debt of £2.8m. This increasedsignificantly to £40.6m at the end of the first half. During the period, theGroup generated £21.0m of cash before changes in working capital. We invested£5.8m in fixed and intangible assets mainly related to new office fit-out andongoing development of our ERP and CRM systems. Tax paid amounted to only £0.4mdue to the Schedule 23 benefits mentioned above and we paid dividends of £6.3m.The principal cash flow movement was a £45.7m increase in working capital. Thiswas partly due to increased business activity, but in the main related to asignificant increase in debtor days from 54 to 80, following the implementationof the new ERP system and the associated restructuring and relocation of therelevant departments onto a single site. This combination of factors had asignificant short-term impact on cash collection activity in the immediatepost-implementation period. We have proactively addressed these issues and as we work through the collectionbacklog we are already starting to see a significant improvement in debtor daysand cash. As at 20 July 2007, net debt had reduced significantly from thehalf-year position to approximately £19m. We are therefore confident that anyoutstanding collection issues will be resolved by year-end, at which point weexpect debtor days to have improved substantially and for the Group to bemoderately cash positive. Dividends It is the Board's intention to pay dividends at a level that it believes issustainable throughout the economic cycle and is in line with comparable quotedbusinesses' dividend cover. The Board proposes to pay an interim dividend of3.1p (2006: 2.4p) per share, an increase of 29.2%. The interim dividend will bepaid on 7 December 2007 to those shareholders on the register at 9 November2007. Current Trading and Future Prospects The first half of 2007 has seen the Group report a further strong set of resultsand it is particularly pleasing to once again report growth across all sectorsand geographies. This reflects the fact that trading conditions in thespecialist recruitment markets we service remain positive. During the period weinvested significantly in the future of the business in terms of human capital,systems, infrastructure and in further enhancing our geographical presence.These decisions were made to provide us with the foundations for a futurebusiness which is ever more multi-dimensional and geographically diverse. Our UKbusiness continues to demonstrate its capacity to deliver robust growth and itsposition will be strengthened further as we increasingly add new sectordisciplines alongside our core ICT franchise. Our non-UK business has performedexceptionally well and it is encouraging to see that this applies both tomarkets with substantial structural growth potential such as those ofcontinental Europe and the Far East, as well as more established markets such asthe U.S. Indeed, although still in its relatively early stages, the experienceof our US business suggests that the future potential of the American marketcould be significantly greater than we first anticipated. We feel that this broad-based performance further demonstrates the validity ofour strategy and the scalability of the SThree business model. We thereforeremain confident that the results achieved in the first half provide us with astrong platform to make further progress in the remainder of the year andbeyond. Consolidated Income Statement - unaudited for the six months ended 3 June 2007 Six months ended 3 Six months ended 31 May Year ended 30 November June 2007 2006 2006 Ordinary Ordinary Exceptional Ordinary Exceptional activities activities items Total activities items Total Note £'000 £'000 £'000 £'000 £'000 £'000 £'000_____________________________Revenue 2 240,387 177,993 - 177,993 393,262 - 393,262Cost of sales (157,875) (118,829) - (118,829) (257,742) - (257,742)_____________________________Gross profit 2 82,512 59,164 - 59,164 135,520 - 135,520Administrative expenses 3 (63,022) (44,038) (2,068) (46,106) (94,487) (22,143) (116,630)Other operating income 132 - - - - - -_____________________________Operating profit 19,622 15,126 (2,068) 13,058 41,033 (22,143) 18,890Finance income 3 84 - 84 432 - 432Finance cost (482) (738) - (738) (1,284) - (1,284)Share of profit of joint venture 31 49 - 49 89 - 89_____________________________Profit before taxation 19,174 14,521 (2,068) 12,453 40,270 (22,143) 18,127Taxation 4 (6,008) (4,214) 621 (3,593) (12,289) 6,242 (6,047)_____________________________Profit for the period 13,166 10,307 (1,447) 8,860 27,981 (15,901) 12,080_____________________________Attributable to: 12,053 10,173 (1,447) 8,726 27,70 3 (15,901) 11,802Equity holders of the Company 1,113 134 - 134 278 - 278Minority interest_____________________________ 13,166 10,307 (1,447) 8,860 27,981 (15,901) 12,080_____________________________ Earnings per share 6 pence pence pence pence pence pence penceBasic 9.3 8.1 (1.2) 6.9 22.4 (12.9) 9.5Diluted 9.0 7.9 (1.1) 6.8 21.4 (12.3) 9.1 All amounts relate to continuing operations An interim dividend of 3.1 pence (2006: 2.4 pence) per Ordinary Share will bepaid on 7 December 2007 to shareholders on the register at the close of businesson 9 November 2007. The second interim dividend of 4.8 pence (2006: Nil) per Ordinary Share was paidon 4 June 2007. Consolidated Statement of Changes in Equity - unaudited as at 3 June 2007 Attributable Currency to Share Share Capital translation Retained Company's Minority Total capital premium reserve reserve earnings shareholders Interest Equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Balance at 30 November 2005 1,380 2,925 878 (146) 24,050 29,087 171 29,258Deferred tax on employee share options - - - - 2,337 2,337 - 2,337Current tax on employee share awards - - - - 1,231 1,231 - 1,231and share optionsCurrency translation differences - - - 63 - 63 - 63_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Net income recognised in equity - - - 63 3,568 3,631 - 3,631Profit for the 6 months to 31 May 2006 - - - - 8,726 8,726 134 8,860_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Total recognised income for the period - - - 63 12,294 12,357 134 12,491Employee share award and share option - - - - 1,874 1,874 - 1,874credit_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Total movements in equity - - - 63 14,168 14,231 134 14,365_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Balance at 31 May 2006 1,380 2,925 878 (83) 38,218 43,318 305 43,623Currency translation differences - - - (165) - (165) - (165)Deferred tax on employee share options - - - - (283) (283) - (283)Current tax on employee share awards - - - - 3,185 3,185 - 3,185and share options_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Net income/(expense) recognised - - - (165) 2,902 2,737 - 2,737directly in equityProfit for the six months to 30 - - - - 3,076 3,076 144 3,220November 2006_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Total recognised income and expense for - - - (165) 5,978 5,813 144 5,957the periodRepurchase of minority interest - - - - - - (36) (36)Dividends paid (note 5) - - - - (3,038) (3,038) (65) (3,103)Employee share award and share option - - - - 17,670 17,670 - 17,670credit_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Total movements in equity - - - (165) 20,610 20,445 43 20,488_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Balance at 30 November 2006 1,380 2,925 878 (248) 58,828 63,763 348 64,111Currency translation differences - - - 73 - 73 - 73Deferred tax on employee share options - - - - 494 494 - 494Current tax on employee share awards - - - - 9,136 9,136 - 9,136and share options_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Net income recognised directly in - - - 73 9,630 9,703 - 9,703equityProfit for the six months to 3 June - - - - 12,053 12,053 1,113 13,1662007_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Total recognised income for the period - - - 73 21,683 21,756 1,113 22,869Dividends paid (note 5) - - - - (6,345) (6,345) - (6,345)New share issue 1 - - - - 1 - 1Employee share award and share option 5 - - - 131 136 - 136credit_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Total movements in equity 6 - - 73 15,469 15,548 1,113 16,661_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______Balance at 3 June 2007 1,386 2,925 878 (175) 74,297 79,311 1,461 80,772_____________________________________ _______ _______ _______ _________ _______ _______ _______ _______ Consolidated Balance Sheet - unaudited as at 3 June 2007 3 June 31 May 30 November 2007 2006 2006 Note £'000 £'000 £'000____________________________________________ ________ ________ ____________ASSETSNon-current assetsIntangible assets - other 6,033 68 3,012Intangible assets - goodwill 364 - 364Property, plant and equipment 5,038 2,623 3,558Assets under construction - 790 -Investment in joint venture 120 49 89Deferred tax asset 12,062 12,115 11,459____________________________________________ ________ ________ ____________ 23,617 15,645 18,482____________________________________________ ________ ________ ____________Current assetsTrade and other receivables 148,339 83,761 92,585Current tax debtor 3,981 - 533Cash and cash equivalents - 2,468 2,440____________________________________________ ________ ________ ____________ 152,320 86,229 95,558____________________________________________ ________ ________ ____________Total assets 2 175,937 101,874 114,040____________________________________________ ________ ________ ____________LIABILITIESCurrent liabilitiesProvisions for liabilities and charges (345) (484) (188)Trade and other payables (48,010) (38,342) (39,024)Financial liabilities - borrowings (40,545) (12,250) (5,281)Current tax liabilities - (1,114) -____________________________________________ ________ ________ ____________ (88,900) (52,190) (44,493)____________________________________________ ________ ________ ____________Non-current liabilitiesProvisions for liabilities and charges (6,265) (6,061) (5,436)____________________________________________ ________ ________ ____________ (6,265) (6,061) (5,436)____________________________________________ ________ ________ ____________Total liabilities (95,165) (58,251) (49,929)____________________________________________ ________ ________ ____________Net Assets 80,772 43,623 64,111____________________________________________ ________ ________ ____________EQUITYCapital and reserves attributable to the Company's shareholdersShare capital 1,386 1,380 1,380Share premium 2,925 2,925 2,925Capital reserve 878 878 878Currency translation reserve (175) (83) (248)Retained earnings 74,297 38,218 58,828____________________________________________ ________ ________ ____________ 79,311 43,318 63,763Minority interest 1,461 305 348____________________________________________ ________ ________ ____________Total equity 80,772 43,623 64,111____________________________________________ ________ ________ ____________ Consolidated Cash Flow Statement - unaudited for the six months ended 3 June2007 6 months ended Year ended 3 June 31 May 30 November 2007 2006 2006 Note £'000 £'000 £'000______________________________________________________ _______ ______ __________Cash flows from operating activitiesCash (used in)/generated from operating activities 7 (24,679) (179) 15,025Income tax (paid)/received (429) 1,978 1,459______________________________________________________ _______ ______ __________Net cash (used in)/generated from operating activities (25,108) 1,799 16,484______________________________________________________ _______ ______ __________Cash flows from investing activitiesPurchase of property, plant and equipment (2,758) (1,446) (2,442)Purchase of intangible assets (3,021) - (3,001)Proceeds from disposal of property, plant and equipment - 56 56______________________________________________________ _______ ______ __________Net cash used in investing activities (5,779) (1,390) (5,387)______________________________________________________ _______ ______ __________Cash flows from financing activitiesDrawdown on loan facility 39,000 3,250 -Repayment of loan stock - - (8,000)Foreign exchange from financing activities - - 265Interest received 3 84 167Interest paid (482) (738) (1,284)Purchase of minority interest - - (400)Proceeds from issue of ordinary shares 6 - -Dividends paid (6,345) - (3,038)Dividends paid to minority interest - - (65)______________________________________________________ _______ ______ __________Net cash generated from/(used in) financing activities 32,182 2,596 (12,355)______________________________________________________ _______ ______ __________Net increase/(decrease) in cash and cash equivalents 1,295 3,005 (1,258)Cash and cash equivalents at beginning of the period (1,841) (550) (550)Exchange gains/(losses) on cash and cash equivalents 1 13 (33)______________________________________________________ _______ ______ __________Cash and cash equivalents at the end of the period 8 (545) 2,468 (1,841)______________________________________________________ _______ ______ __________ Notes to the Financial Statements - unaudited 1. Accounting policies The consolidated interim financial statements are for the six months ended 3June 2007. These financial statements have been prepared in accordance withaccounting policies expected to be followed for the year ending 2 December 2007and the Listing Rules of the London Stock Exchange. European Union (EU) lawrequires that the consolidated financial statements for the year ending 2December 2007 be prepared in accordance with International Financial ReportingStandards (IFRSs) and International Financial Reporting Committee (IFRIC)interpretations as adopted by the European Union in response to the IASregulation (EC 1606.2002), under the historic cost convention modified toinclude revaluation of certain financial instruments. The interim financialstatements are unaudited but have been reviewed by the auditors and their reportis set out on page 20. SThree plc's accounting policies, as set out below, have been consistentlyapplied to all the periods presented, unless otherwise stated. Consolidation The consolidated financial statements incorporate the financial statements ofSThree plc and of its subsidiaries, together with the Group's share of theresults of its joint ventures. Subsidiaries are all entities over which SThreeplc has the power to govern the financial and operating policies, generallyaccompanying a shareholding of more than one half of the voting rights.Subsidiaries are fully consolidated from the date on which control istransferred to SThree plc; they are de-consolidated from the date when controlceases. Joint ventures are defined as where the Group has joint control and areaccounted for using the equity method of accounting. Inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated. Unrealised losses are also eliminatedunless the transaction provides evidence of an impairment of the assettransferred. Foreign currencies Items included in the financial statements of each of SThree plc's subsidiariesare measured using the currency of the primary economic environment in whichthat subsidiary operates (its "functional currency"). The consolidated financialstatements of SThree plc are presented in sterling which is SThree plc'sfunctional and presentation currency. Foreign currency transactions aretranslated into the functional currency using the exchange rates prevailing atthe dates of the transactions. Foreign exchange gains and losses resulting fromthe settlement of such transactions and from the translation at period-endexchange rates of monetary assets and liabilities denominated in foreigncurrencies are recognised in the income statement. The results and financial position of all of SThree plc's subsidiaries (none ofwhich has the currency of a hyper-inflationary economy) that have a functionalcurrency different from SThree plc's presentation currency are translated intothe presentation currency as follows: • Assets and liabilities for each balance sheet presented are translated at theclosing rate at the date of that balance sheet; • Income and expenses for each income statement are translated at averageexchange rates (unless this average is not a reasonable approximation of thecumulative effect of the rates prevailing on the transaction dates, in whichcase income and expenses are translated at the dates of the transactions); and • All resulting exchange differences are recognised as a separate component ofequity. On consolidation, exchange differences arising from the translation of the netinvestment in foreign entities and of borrowings and other currency instrumentsdesignated as hedges of such investments, are taken to shareholders' equity.When a foreign operation is sold, such exchange differences are recognised inthe income statement as part of the gain or loss on sale. Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair valueof the company's share of the net identifiable assets of the acquired subsidiaryat the date of acquisition. Goodwill is included in intangible assets and istested annually for impairment. Any impairment is recognised immediately in theincome statement and is not subsequently reversed. Computer software Acquired computer software licenses are capitalised on the basis of the costsincurred to acquire and bring into use the specific software. These costs areamortised over their estimated useful lives. Costs that are directly associated with the production of identifiable andunique software products, controlled by SThree plc and that will probablygenerate economic benefits exceeding costs beyond one year, are recognised asintangible assets. Direct costs include the employee costs of the developmentteam and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised overtheir expected useful lives (not exceeding five years). Amortisation willcommence once the computer software is fully implemented and put into use. Costs associated with maintaining computer software programmes are recognised asan expense when incurred. Trademarks Trademarks are recognised at cost. They have a definite useful life and arecarried at cost less accumulated amortisation. Amortisation is calculated usingthe straight-line method to allocate the cost of trademarks over their estimateduseful lives. Property plant and equipment Property, plant and equipment is stated at historical cost less depreciation.Historical cost includes expenditure that is directly attributable to theacquisition of the items. Depreciation is calculated using the straight line method to allocate thedepreciable value of property, plant and equipment to the income statement overtheir useful economic lives as follows: Furniture, fittings and equipment 20%Computer equipment 33.33%Motor vehicles 33.33%Leasehold improvements 20% Assets' residual values and useful lives are reviewed and adjusted, ifappropriate, at each balance sheet date. Subsequent costs are included in theasset's carrying amount or recognised as a separate asset, as appropriate, onlywhen it is probable that future economic benefits associated with the item willflow to SThree plc and the cost of the item can be measured reliably. All otherrepairs and maintenance are charged to the income statement during the financialperiod in which they are incurred. Gains and losses on disposals are determined by comparing proceeds with carryingamounts. These are included in the income statement. Impairment of assets Assets that have an indefinite life are not subject to amortisation and aretested annually for impairment. Assets that are subject to amortisation arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable. An impairment loss isrecognised for the amount by which the asset's carrying amount exceeds itsrecoverable amount. The recoverable amount is the higher of an asset's fairvalue less costs to sell and value in use. For the purposes of assessingimpairment, assets are grouped at the lowest levels for which there areseparately identifiable cash flows (cash generating units). Trade receivables Trade receivables are measured at cost, less any provision necessary when thereis objective evidence that SThree plc will not be able to collect all amountsdue. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call withbanks, other short-term highly liquid investments with original maturities ofthree months or less and bank overdrafts. Bank overdrafts are shown withinborrowings in current liabilities on the balance sheet. Assets leased under an operating lease Leases where substantially all the risks and rewards of ownership of assetsremain with the lessor are accounted for as operating leases. Payments madeunder operating leases net of any incentives received from the lessor arecharged to the profit and loss account on a straight line basis over the leaseperiods. Provisions, contingent liabilities and contingent assets Provisions for dilapidations, onerous leases and deemed employment exposures arerecognised when SThree plc has a legal or constructive obligation as a result ofpast events, it is more likely than not that an outflow of resources will berequired to settle the obligation and the amount has been reliably estimated.Provisions are recognised as the present value of the expenditures expected tobe required to settle the obligation. No provision is recognised for futureoperating losses. Where there are a number of similar obligations, the likelihood that an outflowwill be required in settlement is determined by considering the class ofobligation as a whole. A provision may be recognised even if the likelihood ofan outflow with respect to any one item included in the same class ofobligations may be small. Deferred tax Deferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the consolidated financial statements. Deferredincome tax is determined using tax rates that have been enacted or substantiallyenacted by the balance sheet date and are expected to apply when the relateddeferred income tax asset is realised or the deferred income tax liability issettled. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. Share capital Ordinary shares are classified as equity. Incremental costs directlyattributable to the issue of new shares or options are shown in equity as adeduction, net of tax, from the proceeds. Employee benefits - Pension obligations - SThree plc has defined contribution plans and payscontributions to privately administered pension plans on a mandatory,contractual or voluntary basis. SThree plc has no further payment obligationsonce the contributions have been paid. - Bonus plans - SThree plc recognises a liability and an expense for bonusesbased on the Directors' best estimate of the amounts due. SThree plc recognisesa provision where contractually obliged or where there is a past practice ofpayments that has created a constructive obligation. - Termination benefits - Termination benefits are payable when employment isterminated before the normal retirement date, or whenever an employee acceptsvoluntary redundancy in exchange for those benefits. SThree plc recognisestermination benefits when it is demonstrably committed to either terminating theemployment of current employees according to a detailed formal plan withoutpossibility of withdrawal, or providing termination benefits as a result of anoffer made to encourage voluntary redundancy. Benefits falling due more than 12months after the balance sheet date are discounted to present value. Employee Benefit Trusts The Employee Benefit Trusts ("EBT") were funded by gifts from certain SThree plcshareholders and Directors. The assets and liabilities of the EBT areconsolidated into the SThree plc consolidated financial statements. The EBTs' only assets are the shares in SThree plc which were gifted and henceno cost is attributed to those shares and no amounts are shown in SThree plc'sfinancial statements. Share-based compensation The shares in the EBT are held for awards and grants under the employee shareaward and share option schemes. Where shares are awarded, the fair value of theshares on the date of the grant is charged to the income statement in the yearof grant, or over the period to which any performance criteria relate until thevesting date. Corresponding adjustment is made to equity. Where options are awarded, the fair value of the share options on the date ofgrant is charged to the income statement over the vesting period of the shareoption, based on the number of options which are expected to become exercisable.A corresponding adjustment is made to equity. At each balance sheet date, SThreerevises its estimates of the number of options that are expected to becomeexercisable and recognises the impact of any revision of original estimates inthe income statement. Revenue Revenue represents sales to third parties for services provided during theperiod, excluding value added tax and other sales taxes outside the UK. Contract revenue for the supply of professional services is based on the numberof hours worked by a contractor. Revenue for permanent placements is recognisedwhen employment candidates commence employment. Exceptional items Items which are non-recurring and sufficiently material are presented separatelywithin their relevant consolidated income statement category. The separatereporting of such items helps provide a better indication of the Group'sunderlying business performance. Notes to the Financial Statements - unaudited 2. Segmental analysis As the Group operates in one business segment, being that of recruitmentservices, no additional business segment information is required to be provided.The Group's secondary segment is geographical and the segmental results bygeographical area are shown below. By location of By location of operating client company Six months ended Year ended Six months ended Year ended 3 June 31 May 30 November 3 June 31 May 30 November 2007 2006 2006 2007 2006 2006 £'000 £'000 £'000 £'000 £'000 £'000_____________________________________ ________ _______ _________ _______ _______ _________RevenueUnited Kingdom 171,557 134,676 295,666 222,889 168,750 372,563Europe and rest of the world 68,830 43,317 97,596 17,498 9,243 20,699_____________________________________ ________ _______ _________ _______ _______ _________ 240,387 177,993 393,262 240,387 177,993 393,262_____________________________________ ________ _______ _________ _______ _______ _________Gross profitUnited Kingdom 55,750 43,469 98,937 66,815 51,663 118,612Europe and rest of the world 26,762 15,695 36,583 15,697 7,501 16,908_____________________________________ ________ _______ _________ _______ _______ _________ 82,512 59,164 135,520 82,512 59,164 135,520_____________________________________ ________ _______ _________ _______ _______ _________Operating profitOperating profit before exceptional itemsUnited Kingdom 17,459 13,339 38,659Europe and rest of the world 2,163 1,787 2,374_____________________________________ ________ _______ _________ _______ _______ _________ 19,622 15,126 41,033Exceptional items:United Kingdom - (2,068) (22,143)_____________________________________ ________ _______ _________ _______ _______ _________ 19,622 13,058 18,890_____________________________________ ________ _______ _________ _______ _______ _________Total assetsUnited Kingdom 145,688 96,140 106,193Europe and rest of the world 30,249 5,734 7,847_____________________________________ ________ _______ _________ _______ _______ _________ 175,937 101,874 114,040_____________________________________ ________ _______ _________ _______ _______ _________Capital expenditureUnited Kingdom 5,422 1,446 5,154Europe and rest of the world 357 - 289_____________________________________ ________ _______ _________ _______ _______ _________ 5,779 1,446 5,443_____________________________________ ________ _______ _________ _______ _______ _________ Notes to the Financial Statements - unaudited 2. Segmental analysis (continued) The following segmental analyses, by brand, by recruitment classification and bydiscipline, have been included as additional disclosure over and above therequirements of IAS 14 "Segment Reporting". Revenue Gross profit Six months ended Year ended Six months ended Year ended 3 June 31 May 30 November 3 June 31 May 30 November 2007 2006 2006 2007 2006 2006 £'000 £'000 £'000 £'000 £'000 £'000_________________________________ ________ ________ __________ _______ _______ __________BrandComputer Futures Solutions 68,748 51,492 113,391 23,111 16,948 36,749Huxley Associates 60,413 39,654 91,198 22,159 14,973 35,609Progressive Computer Recruitment 44,254 36,375 77,288 14,087 11,070 24,777Pathway 21,363 16,769 36,649 5,400 4,281 9,469Others 45,609 33,703 74,736 17,755 11,892 28,916_________________________________ ________ ________ __________ _______ _______ __________ 240,387 177,993 393,262 82,512 59,164 135,520_________________________________ ________ ________ __________ _______ _______ __________Recruitment classificationContract 199,313 149,707 327,459 41,438 30,878 69,717Permanent 41,074 28,286 65,803 41,074 28,286 65,803_________________________________ ________ ________ __________ _______ _______ __________ 240,387 177,993 393,262 82,512 59,164 135,520_________________________________ ________ ________ __________ _______ _______ __________DisciplineInformation & communicationtechnology 217,523 160,862 351,038 68,570 49,666 111,121Other(1) 22,864 17,131 42,224 13,942 9,498 24,399_________________________________ ________ ________ __________ _______ _______ __________ 240,387 177,993 393,262 82,512 59,164 135,520_________________________________ ________ ________ __________ _______ _______ __________ (1) Including banking and finance, accountancy, human resources, engineering,pharmaceuticals, energy and jobboard sectors. 3. Administrative expenses - exceptional items Six months Year ended ended 3 June 31 May 30 November 2007 2006 2006 £'000 £'000 £'000_________________________________________________________________ ______ ______ ________Employee share awards and share options - 1,874 19,544Employer's National Insurance on share awards, share options and related costs - 194 2,599_________________________________________________________________ ______ ______ ________ - 2,068 22,143 ______ ______ ________ Certain employees received share awards and share options at flotation andsubsequently under related arrangements. In accordance with IFRS 2 "Share-basedPayment", a charge has been reflected in the income statement, with acorresponding charge for Employer's National Insurance. 4. Taxation Six months ended Year ended 3 June 31 May 30 November 2007 2006 2006 £'000 £'000 £'000________________________________________ ________ _______ ____________Current tax - United Kingdom 4,776 2,801 4,339 - Overseas 1,451 729 1,099Deferred tax (219) 63 609 ________ _______ ____________ 6,008 3,593 6,047 ________ _______ ____________ The total tax charge is in line with the standard rate of corporation tax in theUK (30%). In the six months to 3 June 2007 a current tax credit of £9.1m (31 May 2006:£1.2m; 30 November 2006: £4.4m) has been taken directly to equity under IFRS 2 "Share-based Payment" and IAS 12 "Income Taxes". On 21 March 2007, the Chancellor of the Exchequer announced in his BudgetStatement that the rate of UK corporation tax is to be reduced from 30% to 28%with effect from April 2008. As this change was announced after the balancesheet date, it is a non-adjusting event and hence the amount recognised indeferred tax as at 3 June 2007 has not been adjusted to reflect the new rate oftax. If the new rate had been applied, the deferred tax asset would have beenreduced by £0.5m, of which £0.1m would have been taken through the Incomestatement. 5. Dividends Six months ended Year ended 3 June 31 May 30 November 2007 2006 2006 £'000 £'000 £'000__________________________________________________________________ _______ ______ __________Amounts paid as distributions to equity holders in the period:Dividend paid of 4.8p (2006: 2.4p) per Ordinary Shares 6,345 - 3,038__________________________________________________________________ _______ ______ __________Amounts proposed as distributions to equity holders in the period:Proposed interim dividend for the six months ending 3 June 2007 of 3.1p (2006: 2.4p) per Ordinary Share 4,011 3,038 -______________________________________________________________ _______ ______ __________ An interim dividend of 3.1 pence (2006: 2.4 pence) per Ordinary Share will bepaid on 7 December 2007 to shareholders on the register at the close of businesson 9 November 2007. The proposed interim dividend was approved by the Board on 20 July 2007. 6. Earnings per share Six months ended Year ended 3 June 31 May 30 November 2007 2006 2006 £'000 £'000 £'000___________________________________________________________ ______ ______ _________EarningsProfit for the period 12,053 8,726 11,802Effect of exceptional items (net of tax) - 1,447 15,901___________________________________________________________ ______ ______ _________Profit for the period excluding exceptional items 12,053 10,173 27,703___________________________________________________________ ______ ______ _________ millions millions millionsNumber of sharesWeighted average number of shares used for basic EPS 129.3 125.9 123.9Dilution effect of share plans 5.1 2.1 5.8___________________________________________________________ ______ ______ _________Diluted weighted average number of shares used for diluted EPS 134.4 128.0 129.7___________________________________________________________ ______ ______ _________ pence pence penceBasicBasic earnings per share 9.3 6.9 9.5Basic earnings per share excluding exceptional items 9.3 8.1 22.4DilutiveDiluted earnings per share 9.0 6.8 9.1Diluted earnings per share excluding exceptional items 9.0 7.9 21.4All earnings are derived from continuing operations Notes to the Financial Statements - unaudited7. Cash flows from operating activities Six months ended Year ended 3 June 31 May 30 November 2007 2006 2006 £'000 £'000 £'000______________________________________________________________ ________ _______ ________Profit before taxation 19,174 12,453 18,127Adjustments for:Depreciation and amortisation 1,278 708 1,556Loss on disposal of property, plant and equipment - 23 116Non-cash element of the charge for share awards and share options 119 1,874 19,544Profit attributable to the joint venture (31) (49) (89)Interest receivable (3) (84) (167)Interest payable 482 738 1,284Foreign exchange from financing activities - - (265)______________________________________________________________ ________ _______ ________Operating cashflow before changes in working capital and provision 21,019 15,663 40,106 Changes in working capital and provisions:Increase in debtors (55,670) (8,842) (17,760)Increase/(decrease) in creditors 8,986 (7,728) (7,128)Increase in provisions 986 728 (193)______________________________________________________________ ________ _______ ________Cash (used in)/generated from operations (24,679) (179) 15,025______________________________________________________________ ________ _______ ________ 8. Cash and cash equivalents Six months ended Year ended 3 June 31 May 30 November 2007 2006 2006 £'000 £'000 £'000________________________________________________________________ ______ _____ ________Cash and cash equivalents include the following for the purposes of the cash flow statement:Cash at bank and in hand - 2,468 2,440Bank overdrafts (545) - (4,281)______________________________________________________________ ______ _____ ________ (545) 2,468 (1,841) ______ _____ ________ 9. Capital commitments The Group had capital commitments of £1.5m (31 May 2006: £5.8m; 30 November2006: £0.1m). 10. Basis of preparation The financial information does not constitute statutory accounts as defined inSection 240 of the Companies Act 1985. Statutory accounts for the year ended 30November 2006, which were prepared under accounting policies generally acceptedin the UK, have been filed with the Registrar of Companies. The auditors' reporton those accounts was unqualified and did not contain a statement made underSection 237(2) or Section 237(3) of the Companies Act 1985. 11. Date of approval of interim statements The interim announcement covers the period 1 December 2006 to 3 June 2007 andwas approved by the Board on 20 July 2007. The interim report will be sent to shareholders in due course. Further copieswill be available from the Company's registered office, 41-44 Great WindmillStreet, London W1D 7NB, and can be accessed on the SThree website,www.sthree.com. - Ends - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SThree