Interim Results

SThree plc

("SThree" or the "Group")

Interim results for the six months ended 29 May 2011

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

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

Operational Highlights

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

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

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

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

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

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

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

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

• New offices opened in Sao Paulo, Doha and Antwerp

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

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

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

Russell Clements, CEO, commented:

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

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

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

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

Operating Review

Introduction

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

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

Overview and Business Mix

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

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

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

Strategy

The Group has a well-established strategy based on rolling out the SThree model to an increasing number of geographies and across a widening range of specialist staffing disciplines. We are particularly excited by our ever-increasing exposure to territories with strong structural growth characteristics across all segments - for example Germany, and to sectors where the competitive landscape is particularly underdeveloped even when the territory in question is perceived to be relatively mature - for example Mining in Australia.

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

The Group's core strategy will continue to be based on organic growth. Although we are not philosophically opposed to considering acquisitions, we would see any as opportunistic and more likely to be small "bolt-ons" capable of offering niche expertise we would find more difficult to build internally. As an alternative to acquisitions we are appointing senior management from competitor/comparator companies where the latter have gained valuable market knowledge. In this respect we believe that the Group's Tracker Share model is a key differentiator in terms of attracting senior talent to the business.

Margins and Value

A further key element of our strategy is to remain highly selective regarding the quality of the business we undertake. We remain healthily sceptical of the value of the "high volume, low margin" model associated with servicing the larger corporate market in more mature markets (particularly in the UK and US). Similarly, we see most of the Recruitment Process Outsourcing ("RPO") market as an opportunity to generate revenue rather than make profit and that it is at best only appropriate to commoditised, lower level staffing. By contrast, the Group prefers to fully leverage its niche specialist proposition to engage with less price-focused clients who value our services.

As a result our customer base is wide and varied, with a high percentage of SMEs, particularly in more mature markets such as the UK. This reduces the Group's exposure to a limited number of powerful customers and also ensures that we mitigate the margin pressure associated with "wholesale" buyers such as the major systems integration companies. In this respect it is instructive to note that despite the fact that in H1 2011 60% of the candidates we placed were ICT professionals, only approximately 19% of our transactions were in the ICT sector where buying behaviour tends to be heavily intermediated and strongly price sensitive.

Our strategy is underpinned by our multi-brand approach which allows the Group to subdivide the market around specific niches. This allows us to credibly position ourselves as market experts, which in turn justifies premium pricing. Our entrepreneurial culture is reinforced by our Tracker Share model, which is both a significant retention tool for existing management and a unique proposition to attract the brightest and best talent into the Group.

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

Performance by Geography

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

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

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

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

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

Geographical and Sector Expansion

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

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

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

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

Staffing Levels

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

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

Cash Flow

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

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

Taxation

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

Earnings per Share

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

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

The main functional currencies of the Group are Sterling and the Euro. The Group has significant operations outside the United Kingdom and as such is exposed to movements in exchange rates.

The Board has undertaken a review of its currency hedging strategy to ensure that it is appropriate and currently the Group does not actively manage its exposure to foreign exchange risk by the use of financial instruments, consistent with its major listed peers. The impact of foreign exchange will become a more significant issue for the Group as we expect the business mix to move further towards International, with International business accounting for 63% of gross profit in 2011 (2010: 60%). The Group therefore continues to monitor its policies in this area.

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

Directors' Report section of the Annual Report for the year ended 28 November 2010, a copy of which is available on the Group's website at www.sthree.com. In terms of macro economic environment risks, as previously stated, our strategy is to continue to grow the size of our International business in both financial terms and geographic coverage in order to reduce the Group's exposure or dependence on any one specific economy, although a downturn in a particular market could adversely impact the Group's business. In the view of the Board, there is no material change expected to the Group's key risk factors in the foreseeable future.

Dividends

It is the Board's intention to adopt a progressive dividend policy, targeting dividend cover of 2.0x to 2.5x over the medium term. The Board proposes to increase the interim dividend to 4.7p (2010: 4.0p) per share.

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

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

Outlook

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

1 Accounting policies

General information

SThree plc ("the Company") and its subsidiaries (together "the Group") operate predominantly in the United Kingdom and Continental Europe. The Group consists of different brands and provides both permanent and contract specialist staffing services, primarily in the ICT sector and, to an increasing extent, the banking and finance, accountancy, human resources, engineering, pharmaceutical, energy and resources and jobboard sectors.

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

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

This consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 28 November 2010 were approved by the Board of directors on 28 January 2011 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

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

Basis of preparation

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

Restatement

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

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

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

Seasonality of operations

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

Significant accounting policies

The same accounting policies, presentation and methods of computation are followed in these consolidated interim financial statements as were applied in the preparation of the Group's consolidated financial statements for the year ended 28 November 2010 except for the change in accounting policy regarding presentation.

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

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

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

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

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

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

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

2 Segmental analysis

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

Revenue and Gross Profit by reportable segment

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

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

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

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