30th Nov 2007 07:01
SThree plc30 November 2007 Embargoed until 0700 30 November 2007 Trading Update and Close Period Share Repurchase Programme SThree, the international specialist staffing business, is today issuing atrading update for the year ending 2 December 2007 and announcing that it willundertake a share repurchase programme during its forthcoming close period. Headline performance The Group will report another year of significant growth. The Board anticipatesgross profit for the Group being not less than £178m for the year, an annualincrease of approximately 31% in line with consensus market expectations andconsistent with continuing strong demand for the Group's services. SThree estimates it will have made approximately 9,800 permanent placements inthe year, an increase of 28% (2006: 7,685). Average permanent placement fees forthe period have also increased strongly to record levels. SThree expects to close the year with not less than 5,700 contractors, anincrease of 21% on last year (2006: 4,719) and an increase of 15% on the totalat the end of the first half (3 June 2007: 4,974). As with permanent fees,average gross profit per day rates also showed further improvements to recordlevels. As anticipated, the ERP-related cash collection issues identified at thehalf-year have been fully resolved. During the second half of the year theGroup's net debt position continued to improve and as at close of businesstoday, 30 November, is expected to have been reduced to nil (3 June 2007: netdebt of £40.6m). The Group undertook unusually high levels of investment during the year. Inaddition the Group had one-off systems related costs (see below) ofapproximately £3m. The Board anticipates that as a consequence of these itemsthe Group's overall conversion ratio will be slightly lower than anticipated,with a current estimate of circa 29-30% (2006: 30.3%). As a result profit beforetax for the year will be approximately £3m (circa 5%) below consensus estimates. As costs and investments have now returned to normalised levels the Boardexpects the conversion ratio to recover fully in 2008 in line with recent trendlevels. Investments for the future 2007 was an investment year, in line with our strategy of rolling-out our provenbusiness model into non-ICT disciplines and further expanding our geographicfootprint. During the second half we accelerated this roll-out and as aconsequence, premises and staff costs for the year (as mentioned above) will besomewhat higher than anticipated. Some investments planned for early 2008 werebrought forward. Total office space increased by approximately 40%. This investment involved bothrelocating to larger premises in eight established locations as well as theestablishment of five entirely new offices in Amsterdam (2) Rotterdam, Brusselsand Hong Kong.1 In January 2008 the Group will open in Sydney and Dubai2bringing the total to 52 offices in 10 countries. The Group continued to invest substantially in increasing sales headcount. Salesheadcount in the UK increased by approximately 40% and outside of the UK byapproximately 80%. Approximately two thirds of the growth in sales headcount wasoutside of the Group's UK ICT franchise reflecting the Group's rapid expansionwithin newer geographies and sectors. During the year the Group rolled out major ERP and CRM packages. The ERPimplementation caused some disruption most significantly in the area of cashcollections. In rectifying this situation the Group incurred some one-off costsincluding the deployment of temporary finance and technical staff. Staff levelsin this area are now at normal levels. As a result of the issues experienced with the ERP implementation, the decisionwas made that the CRM roll-out should proceed at a slower pace than thatoriginally planned for. As mentioned above this had some additional one-off costimplications including the deployment of temporary technical and training staff.This programme is now complete and staff levels have reduced accordingly. Total capital expenditure for the year will be approximately £12m (2006: £5.4m)which the Board regards as not indicative of the level of investment requiredfor future years (2008 current estimate circa £6m). Recent Trading Recent trading conditions have remained positive, with no overall change insentiment. In the last quarter the Group saw some softening in demand in certainspecialist areas directly related to the fixed income market. However, to datethere has been no evidence that this has impacted the wider specialistrecruitment market. The Group's total exposure to the financial services market (defined asfinancial clients of all types - investment and retail banks, insurance, fundmanagers' etc.) is approximately 15% of total permanent and contract grossprofit, with approximately half derived from placement of ICT staff within thiscategory of customers. The Group has a wide range of clients within the financial services sector andis consequently not reliant on a small number of key clients in this market. Thelargest financial services customer accounts for approximately 1% of overallgross profit. Across all sectors and geographies the Group trades with approximately 7,000customers. Share buyback The recent weakness in the Group's share price does not in the Board's viewreflect the underlying quality of SThree's business, particularly given theGroup's increasing exposure to markets with strong structural growthcharacteristics. As such it is the intention of the Board to undertake an irrevocable,non-discretionary programme to purchase SThree shares, for cancellation, duringits forthcoming close period. This programme will commence on 30 November 2007and run up to and including 1 February 2008. The programme will be executed byUBS Limited. Any acquisitions will be effected within certain pre-set parameters, and inaccordance with both SThree's general authority to repurchase shares and Chapter12 of the Listing Rules which requires that the maximum price paid be limited tono more than 105 per cent of the average middle market closing price of SThree'sshares for the five dealing days preceding the date of purchase. SThree confirms that it currently has no unpublished price sensitiveinformation. Russell Clements, Chief Executive Officer, commented: "Trading conditions across our markets have remained encouraging and we have notseen any significant change in sentiment in recent months. Continuing positiveresults from our expansion into new disciplines and geographies have reinforcedour confidence in the scale of these opportunities. "We believe that growth prospects across our business are strong and consistentwith this we have invested very substantially this year across a wide range ofareas. "We are very well aware of the current uncertainty in financial markets.However, our exposure to this area is limited and there is nothing that we haveseen which suggests to us that this has prompted a paradigm-shift in overallmarket sentiment. "The history of the specialist staffing market shows that we do not need aparticularly strong economic tailwind to post substantial growth and it is onthis basis that we look forward to 2008. That said, we are a particularly agilebusiness with the flexibility to respond quickly to changes in marketconditions." SThree is hosting an analyst conference call today at 0830 GMT. The dial innumber is + 44 (0)20 3003 2666 and the password is SThree. SThree will be announcing its preliminary results for the year ended 2 December2007 on Monday 4 February 2008. 1 Computer Futures Rotterdam, Huxley Associates Brussels, Huxley Associates HongKong, Real Resourcing/ITJB Amsterdam, SThree Group European Training Amsterdam 2 Progressive Sydney, Pathway Dubai - Ends - Enquiries: SThree plc 020 7292 3838Russell Clements, Chief Executive OfficerMichael Nelson, Chief Financial Officer Citigate Dewe Rogerson 020 7638 9571Kevin Smith / Nicola Smith This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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