SThree plc 23 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 its interim 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 has seen the Group report a further strong set of results and it is particularly pleasing to once again report growth across all sectors and geographies. During the period we invested 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 future business which is ever more multi-dimensional and geographically diverse. We feel that this broad-based performance further demonstrates the validity of our strategy and the scalability of the SThree business model. We therefore remain confident that the results achieved in the first half provide us with a strong platform to make further progress in the remainder of the year and beyond." Enquiries: SThree plc 020 7292 3838 Russell Clements, Chief Executive Officer Michael Nelson, Chief Financial Officer Citigate Dewe Rogerson 020 7638 9571 Kevin Smith / Nicola Smith Notes to editors SThree, founded in 1986, is one of the leading specialist staffing businesses in the UK and Europe, providing permanent and contract specialist staff to a diverse, international client base of well over 4,000 clients. From its well-established position as a major player in the information and communications technology ("ICT") sector the Group is now broadening the base of its operations by building fast-growing businesses serving the banking and finance, accountancy, human resources, engineering and pharmaceuticals, energy and 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 address growth opportunities. SThree currently operates 12 brands, the four largest being Computer Futures, Huxley Associates, Progressive and Pathway, and has 33 offices in the UK and 15 offices internationally; 14 in Europe, in Belgium, The Netherlands, France, Germany and Ireland, and one office in New York. SThree has a selective approach to clients and focuses on high margin opportunities, predominantly within the small to medium-sized enterprises ("SME ") market. From its inception the Group has avoided the high volume/low margin business model in favour of a focus on high quality business. SThree plc is quoted on the Official List of the UK Listing Authority under the ticker 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, continuing the trends evidenced last year and in line with the Board's expectations at the beginning 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 half has seen a significant further investment in upgrading offices within the existing network as well as expanding into new geographical locations. In addition we launched non-ICT divisions into a number of brands that had hitherto solely addressed the ICT market and implemented the first stage of a major new ERP system roll-out. As a result of these factors the conversion ratio of operating 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, profit before tax grew by 54.0%. In addition to our ongoing investment in human capital, we have continued to invest in our international office network and systems infrastructure. At 3 June 2007, 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 by 17.6% to 1,051 over the same period. During the period under review, we extended our footprint in Benelux by opening new offices for Computer Futures in Rotterdam and for Huxley in Brussels. We continue to expand organically and during the second half of 2007 are planning to open offices in Hong Kong and Dubai, both of which are markets we are already successfully servicing remotely from London. In early 2007 we implemented the first phase of a new Enterprise Resource Planning (ERP) system for the Group. The new system replaced a number of non-scaleable legacy applications with the aim of providing an integrated platform to support our future international growth. As is common with systems implementation on this scale, there was some short-term disruption in the period immediately following its introduction, which mainly impacted cash collections. However, as the system matures we expect to start to see the flow through of additional benefits in terms of staffing efficiencies and other cost savings. In parallel with the ERP system we have begun the phased rollout of Siebel CRM to complement our proprietary front-office systems. This investment focuses on optimising our client database to support our ongoing expansion into new sectors and geographies. Permanent/Contract Contribution The rate of growth in total Group gross profit accelerated during the first-half of 2007 to 39.5% (2006: 28.7%), with permanent and contract gross profit growing by 45.2% (2006: 40.5%) and 34.2% (2006: 19.5%) respectively. The ratio of gross profit between the contract and permanent segments reached 50:50 (2006: 52:48), reflecting the strength of the permanent business and our increased exposure to non-UK and non-ICT markets which tend to be more skewed towards permanent placements. The gross margin on contract placements increased slightly to 20.8% (2006: 20.6%). The number of active contractors at the half-year end increased by 14.7% to 4,974, and we also saw a year-on-year increase in average gross profit per day rates of 19.3% to £71.24. This was partly due to continued flow-through of the management actions taken in the second half of 2006 to improve both the level of seniority of contractors placed and the contractual terms of the deals concluded. The number of permanent placements also increased significantly by 31.8% to 4,580. This was enhanced by an increase in average fees for the six-month period of 10.2% to £8,968. The latter is attributable to a combination of healthy levels of wage inflation, coupled with our success in attracting higher-calibre business and placing better-qualified candidates. UK/Non-UK Contribution Gross profit from UK-based clients continued to increase strongly, growing by 28.3% to £55.8m (2006: 24.1% to £43.5m). Gross profit from non-UK based clients accelerated even more rapidly by 70.5% to £26.8m (2006: 43.7% to £15.7m), reflecting our ongoing geographical expansion. Our non-UK business now represents 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 currently predominantly ICT-based. Gross profit from non-ICT (banking and finance, accountancy, human resources, engineering, pharmaceuticals, energy and job board businesses) increased by 46.8% to £13.9m (2006: 70.4% to £9.5m). This growth was achieved against challenging comparatives and reflected our increased focus on non-ICT revenue streams. We are also starting to see encouraging early returns from a number of our recently-established teams. Brand Contribution Gross profit from our four largest brands, Computer Futures, Huxley, Progressive and 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-established brands continue to post strong growth and have, in every case other than Pathway, increased the rate of growth in fee income, compared to the same period last year. Once again the exceptional performance of Huxley reflects not only its established presence in ICT, but also particularly strong growth outside the ICT sector, coupled with an increasing international presence such as its recently-established New York office and its increased exposure to the Far East. Our longest-established brand, Computer Futures, accelerated its growth significantly, helped from an extremely strong performance from its non-UK business. Here it is worth emphasising that virtually all of this growth came from ICT as this brand's expansion into newer sectors is still at an embryonic stage. A similar picture is seen at Progressive, our second longest-established brand. Although this brand has modestly greater exposure to non-ICT than Computer Futures, at this stage it is still largely delivering its impressive growth from its well-established ICT franchise. Pathway continues to grow healthily but in the face of tougher comparatives and is scheduled to begin its overseas expansion through the opening of an office in Dubai. Gross profit from our 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 trading with overseas clients from their UK offices and we see opportunities for these revenue streams to develop further through future openings of international offices. This initiative will see the IT Job Board and Real Resourcing open offices 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 23 of the Finance Act 2003, the Group obtains a corporation tax deduction relating to the various share awards and options exercised. The amount of the tax deduction is calculated by reference to the share price at the time of award or exercise. As a consequence, there is a cash benefit to the Group of such tax deductions. Under IFRS this tax benefit is dealt with through equity. The total Schedule 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, earnings per share increased by 34.8%. Diluted earnings per share before exceptional items 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 increased significantly to £40.6m at the end of the first half. During the period, the Group 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 and ongoing development of our ERP and CRM systems. Tax paid amounted to only £0.4m due 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. This was partly due to increased business activity, but in the main related to a significant increase in debtor days from 54 to 80, following the implementation of the new ERP system and the associated restructuring and relocation of the relevant departments onto a single site. This combination of factors had a significant short-term impact on cash collection activity in the immediate post-implementation period. We have proactively addressed these issues and as we work through the collection backlog we are already starting to see a significant improvement in debtor days and cash. As at 20 July 2007, net debt had reduced significantly from the half-year position to approximately £19m. We are therefore confident that any outstanding collection issues will be resolved by year-end, at which point we expect debtor days to have improved substantially and for the Group to be moderately cash positive. Dividends It is the Board's intention to pay dividends at a level that it believes is sustainable throughout the economic cycle and is in line with comparable quoted businesses' dividend cover. The Board proposes to pay an interim dividend of 3.1p (2006: 2.4p) per share, an increase of 29.2%. The interim dividend will be paid on 7 December 2007 to those shareholders on the register at 9 November 2007. Current Trading and Future Prospects The first half of 2007 has seen the Group report a further strong set of results and it is particularly pleasing to once again report growth across all sectors and geographies. This reflects the fact that trading conditions in the specialist recruitment markets we service remain positive. During the period we invested 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 future business which is ever more multi-dimensional and geographically diverse. Our UK business continues to demonstrate its capacity to deliver robust growth and its position will be strengthened further as we increasingly add new sector disciplines alongside our core ICT franchise. Our non-UK business has performed exceptionally well and it is encouraging to see that this applies both to markets with substantial structural growth potential such as those of continental Europe and the Far East, as well as more established markets such as the U.S. Indeed, although still in its relatively early stages, the experience of our US business suggests that the future potential of the American market could be significantly greater than we first anticipated. We feel that this broad-based performance further demonstrates the validity of our strategy and the scalability of the SThree business model. We therefore remain confident that the results achieved in the first half provide us with a strong platform to make further progress in the remainder of the year and beyond. 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 - 393,262 Cost of sales (157,875) (118,829) - (118,829) (257,742) - (257,742) _____________________________ Gross profit 2 82,512 59,164 - 59,164 135,520 - 135,520 Administrative 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) 18,890 Finance income 3 84 - 84 432 - 432 Finance 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) 18,127 Taxation 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) 11,802 Equity holders of the Company 1,113 134 - 134 278 - 278 Minority 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 pence Basic 9.3 8.1 (1.2) 6.9 22.4 (12.9) 9.5 Diluted 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 be paid on 7 December 2007 to shareholders on the register at the close of business on 9 November 2007. The second interim dividend of 4.8 pence (2006: Nil) per Ordinary Share was paid on 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 29,258 Deferred tax on employee share options - - - - 2,337 2,337 - 2,337 Current tax on employee share awards - - - - 1,231 1,231 - 1,231 and share options Currency translation differences - - - 63 - 63 - 63 _____________________________________ _______ _______ _______ _________ _______ _______ _______ _______ Net income recognised in equity - - - 63 3,568 3,631 - 3,631 Profit 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 12,491 Employee share award and share option - - - - 1,874 1,874 - 1,874 credit _____________________________________ _______ _______ _______ _________ _______ _______ _______ _______ 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 43,623 Currency translation differences - - - (165) - (165) - (165) Deferred tax on employee share options - - - - (283) (283) - (283) Current tax on employee share awards - - - - 3,185 3,185 - 3,185 and share options _____________________________________ _______ _______ _______ _________ _______ _______ _______ _______ Net income/(expense) recognised - - - (165) 2,902 2,737 - 2,737 directly in equity Profit for the six months to 30 - - - - 3,076 3,076 144 3,220 November 2006 _____________________________________ _______ _______ _______ _________ _______ _______ _______ _______ Total recognised income and expense for - - - (165) 5,978 5,813 144 5,957 the period Repurchase 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 - 17,670 credit _____________________________________ _______ _______ _______ _________ _______ _______ _______ _______ 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 64,111 Currency translation differences - - - 73 - 73 - 73 Deferred tax on employee share options - - - - 494 494 - 494 Current tax on employee share awards - - - - 9,136 9,136 - 9,136 and share options _____________________________________ _______ _______ _______ _________ _______ _______ _______ _______ Net income recognised directly in - - - 73 9,630 9,703 - 9,703 equity Profit for the six months to 3 June - - - - 12,053 12,053 1,113 13,166 2007 _____________________________________ _______ _______ _______ _________ _______ _______ _______ _______ Total recognised income for the period - - - 73 21,683 21,756 1,113 22,869 Dividends paid (note 5) - - - - (6,345) (6,345) - (6,345) New share issue 1 - - - - 1 - 1 Employee share award and share option 5 - - - 131 136 - 136 credit _____________________________________ _______ _______ _______ _________ _______ _______ _______ _______ 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 ____________________________________________ ________ ________ ____________ ASSETS Non-current assets Intangible assets - other 6,033 68 3,012 Intangible assets - goodwill 364 - 364 Property, plant and equipment 5,038 2,623 3,558 Assets under construction - 790 - Investment in joint venture 120 49 89 Deferred tax asset 12,062 12,115 11,459 ____________________________________________ ________ ________ ____________ 23,617 15,645 18,482 ____________________________________________ ________ ________ ____________ Current assets Trade and other receivables 148,339 83,761 92,585 Current tax debtor 3,981 - 533 Cash and cash equivalents - 2,468 2,440 ____________________________________________ ________ ________ ____________ 152,320 86,229 95,558 ____________________________________________ ________ ________ ____________ Total assets 2 175,937 101,874 114,040 ____________________________________________ ________ ________ ____________ LIABILITIES Current liabilities Provisions 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 liabilities Provisions 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 ____________________________________________ ________ ________ ____________ EQUITY Capital and reserves attributable to the Company's shareholders Share capital 1,386 1,380 1,380 Share premium 2,925 2,925 2,925 Capital reserve 878 878 878 Currency translation reserve (175) (83) (248) Retained earnings 74,297 38,218 58,828 ____________________________________________ ________ ________ ____________ 79,311 43,318 63,763 Minority interest 1,461 305 348 ____________________________________________ ________ ________ ____________ Total equity 80,772 43,623 64,111 ____________________________________________ ________ ________ ____________ Consolidated Cash Flow Statement - unaudited for the six months ended 3 June 2007 6 months ended Year ended 3 June 31 May 30 November 2007 2006 2006 Note £'000 £'000 £'000 ______________________________________________________ _______ ______ __________ Cash flows from operating activities Cash (used in)/generated from operating activities 7 (24,679) (179) 15,025 Income 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 activities Purchase 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 activities Drawdown on loan facility 39,000 3,250 - Repayment of loan stock - - (8,000) Foreign exchange from financing activities - - 265 Interest received 3 84 167 Interest 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 3 June 2007. These financial statements have been prepared in accordance with accounting policies expected to be followed for the year ending 2 December 2007 and the Listing Rules of the London Stock Exchange. European Union (EU) law requires that the consolidated financial statements for the year ending 2 December 2007 be prepared in accordance with International Financial Reporting Standards (IFRSs) and International Financial Reporting Committee (IFRIC) interpretations as adopted by the European Union in response to the IAS regulation (EC 1606.2002), under the historic cost convention modified to include revaluation of certain financial instruments. The interim financial statements are unaudited but have been reviewed by the auditors and their report is set out on page 20. SThree plc's accounting policies, as set out below, have been consistently applied to all the periods presented, unless otherwise stated. Consolidation The consolidated financial statements incorporate the financial statements of SThree plc and of its subsidiaries, together with the Group's share of the results of its joint ventures. Subsidiaries are all entities over which SThree plc has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to SThree plc; they are de-consolidated from the date when control ceases. Joint ventures are defined as where the Group has joint control and are accounted for using the equity method of accounting. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Foreign currencies Items included in the financial statements of each of SThree plc's subsidiaries are measured using the currency of the primary economic environment in which that subsidiary operates (its "functional currency"). The consolidated financial statements of SThree plc are presented in sterling which is SThree plc's functional and presentation currency. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. The results and financial position of all of SThree plc's subsidiaries (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from SThree plc's presentation currency are translated into the presentation currency as follows: • Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • All resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders' equity. When a foreign operation is sold, such exchange differences are recognised in the 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 value of the company's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is included in intangible assets and is tested annually for impairment. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Computer software Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. These costs are amortised over their estimated useful lives. Costs that are directly associated with the production of identifiable and unique software products, controlled by SThree plc and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the employee costs of the development team and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised over their expected useful lives (not exceeding five years). Amortisation will commence once the computer software is fully implemented and put into use. Costs associated with maintaining computer software programmes are recognised as an expense when incurred. Trademarks Trademarks are recognised at cost. They have a definite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks over their estimated useful 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 the acquisition of the items. Depreciation is calculated using the straight line method to allocate the depreciable value of property, plant and equipment to the income statement over their 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, if appropriate, at each balance sheet date. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to SThree plc and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the income statement. Impairment of assets Assets that have an indefinite life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Trade receivables Trade receivables are measured at cost, less any provision necessary when there is objective evidence that SThree plc will not be able to collect all amounts due. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Assets leased under an operating lease Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the profit and loss account on a straight line basis over the lease periods. Provisions, contingent liabilities and contingent assets Provisions for dilapidations, onerous leases and deemed employment exposures are recognised when SThree plc has a legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are recognised as the present value of the expenditures expected to be required to settle the obligation. No provision is recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligation as a whole. A provision may be recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Deferred tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Employee benefits - Pension obligations - SThree plc has defined contribution plans and pays contributions to privately administered pension plans on a mandatory, contractual or voluntary basis. SThree plc has no further payment obligations once the contributions have been paid. - Bonus plans - SThree plc recognises a liability and an expense for bonuses based on the Directors' best estimate of the amounts due. SThree plc recognises a provision where contractually obliged or where there is a past practice of payments that has created a constructive obligation. - Termination benefits - Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for those benefits. SThree plc recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months 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 plc shareholders and Directors. The assets and liabilities of the EBT are consolidated into the SThree plc consolidated financial statements. The EBTs' only assets are the shares in SThree plc which were gifted and hence no cost is attributed to those shares and no amounts are shown in SThree plc's financial statements. Share-based compensation The shares in the EBT are held for awards and grants under the employee share award and share option schemes. Where shares are awarded, the fair value of the shares on the date of the grant is charged to the income statement in the year of grant, or over the period to which any performance criteria relate until the vesting date. Corresponding adjustment is made to equity. Where options are awarded, the fair value of the share options on the date of grant is charged to the income statement over the vesting period of the share option, based on the number of options which are expected to become exercisable. A corresponding adjustment is made to equity. At each balance sheet date, SThree revises its estimates of the number of options that are expected to become exercisable and recognises the impact of any revision of original estimates in the income statement. Revenue Revenue represents sales to third parties for services provided during the period, excluding value added tax and other sales taxes outside the UK. Contract revenue for the supply of professional services is based on the number of hours worked by a contractor. Revenue for permanent placements is recognised when employment candidates commence employment. Exceptional items Items which are non-recurring and sufficiently material are presented separately within their relevant consolidated income statement category. The separate reporting of such items helps provide a better indication of the Group's underlying business performance. Notes to the Financial Statements - unaudited 2. Segmental analysis As the Group operates in one business segment, being that of recruitment services, no additional business segment information is required to be provided. The Group's secondary segment is geographical and the segmental results by geographical area are shown below. 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 _____________________________________ ________ _______ _________ _______ _______ _________ Revenue United Kingdom 171,557 134,676 295,666 222,889 168,750 372,563 Europe 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 profit United Kingdom 55,750 43,469 98,937 66,815 51,663 118,612 Europe 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 profit Operating profit before exceptional items United Kingdom 17,459 13,339 38,659 Europe and rest of the world 2,163 1,787 2,374 _____________________________________ ________ _______ _________ _______ _______ _________ 19,622 15,126 41,033 Exceptional items: United Kingdom - (2,068) (22,143) _____________________________________ ________ _______ _________ _______ _______ _________ 19,622 13,058 18,890 _____________________________________ ________ _______ _________ _______ _______ _________ Total assets United Kingdom 145,688 96,140 106,193 Europe and rest of the world 30,249 5,734 7,847 _____________________________________ ________ _______ _________ _______ _______ _________ 175,937 101,874 114,040 _____________________________________ ________ _______ _________ _______ _______ _________ Capital expenditure United Kingdom 5,422 1,446 5,154 Europe 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 by discipline, have been included as additional disclosure over and above the requirements 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 _________________________________ ________ ________ __________ _______ _______ __________ Brand Computer Futures Solutions 68,748 51,492 113,391 23,111 16,948 36,749 Huxley Associates 60,413 39,654 91,198 22,159 14,973 35,609 Progressive Computer Recruitment 44,254 36,375 77,288 14,087 11,070 24,777 Pathway 21,363 16,769 36,649 5,400 4,281 9,469 Others 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 classification Contract 199,313 149,707 327,459 41,438 30,878 69,717 Permanent 41,074 28,286 65,803 41,074 28,286 65,803 _________________________________ ________ ________ __________ _______ _______ __________ 240,387 177,993 393,262 82,512 59,164 135,520 _________________________________ ________ ________ __________ _______ _______ __________ Discipline Information & communication technology 217,523 160,862 351,038 68,570 49,666 111,121 Other(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 19,544 Employer'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 and subsequently under related arrangements. In accordance with IFRS 2 "Share-based Payment", a charge has been reflected in the income statement, with a corresponding 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 1,099 Deferred 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 the UK (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 Budget Statement 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 balance sheet date, it is a non-adjusting event and hence the amount recognised in deferred tax as at 3 June 2007 has not been adjusted to reflect the new rate of tax. If the new rate had been applied, the deferred tax asset would have been reduced by £0.5m, of which £0.1m would have been taken through the Income statement. 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 be paid on 7 December 2007 to shareholders on the register at the close of business on 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 ___________________________________________________________ ______ ______ _________ Earnings Profit for the period 12,053 8,726 11,802 Effect 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 millions Number of shares Weighted average number of shares used for basic EPS 129.3 125.9 123.9 Dilution 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 pence Basic Basic earnings per share 9.3 6.9 9.5 Basic earnings per share excluding exceptional items 9.3 8.1 22.4 Dilutive Diluted earnings per share 9.0 6.8 9.1 Diluted earnings per share excluding exceptional items 9.0 7.9 21.4 All earnings are derived from continuing operations Notes to the Financial Statements - unaudited 7. 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 18,127 Adjustments for: Depreciation and amortisation 1,278 708 1,556 Loss on disposal of property, plant and equipment - 23 116 Non-cash element of the charge for share awards and share options 119 1,874 19,544 Profit attributable to the joint venture (31) (49) (89) Interest receivable (3) (84) (167) Interest payable 482 738 1,284 Foreign 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 2,440 Bank 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 November 2006: £0.1m). 10. Basis of preparation The financial information does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. Statutory accounts for the year ended 30 November 2006, which were prepared under accounting policies generally accepted in the UK, have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain a statement made under Section 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 and was approved by the Board on 20 July 2007. The interim report will be sent to shareholders in due course. Further copies will be available from the Company's registered office, 41-44 Great Windmill Street, 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 Exchange