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UK - SThree's profits rise due to international business

09 September 2011

Group gross profit (at constant currency) was up by +18% from 43 million Pounds in Q3 2010 to 50.2 million Pounds in Q3 2011 at SThree Plc (STHR:LSE), the international specialist staffing firm. Sequentially, it was up by +4% (at constant currency) when compared with Q2 2011.

Interim results for the three months ended 28 August, being the third quarter of the financial year ending 27 November 2011, reveal that UK gross profit increased by +5% year-on-year and by +8% on Q2 2011.

Non-UK gross profit increased by +26% (at constant currency) year-on-year and by +1% (at constant currency) on Q2 2011. Non-UK business now represents 64% of gross profit (2010: 60%), non-ICT represents 39% of gross profit (2010: 39%).

At 28 August 2011, SThree had 4,474 contract runners, an increase of +9% year-on-year, and sequentially up +2% on the half year position (29 May 2011: 4,381), the highest level since Q3 2009. During the period SThree made a total of 1,895 (excludes both the gross profit and placement volumes of retained business) permanent placements, an increase of +12% versus the prior year (2010: 1,690) and up +3% on Q2 2011. In the period, permanent placements represented 52% of Group Gross Profit (2010: 49%).

At 28 August 2011, UK contract runners at 2,271 were up +2% year-on-year and down -3% versus the half year 2011 position (29 May 2011: 2,340). During the period, UK permanent placements were level year-on-year and up +10% on Q2 2011.

At 28 August 2011, non-UK contract runners at 2,203 were up by +19% year-on-year and up by +8% versus the half year 2011 position (29 May 2011: 2,041). During the period, non-UK permanent placements increased by +20% year-on-year and were level on Q2 2011.

Average permanent fees and Gross Profit per Day Rates (GPDR) both strengthened in the period to record levels, despite the relative weakness of the (higher average fee) investment banking market. Average permanent fees were up +9% (at constant currency) year-on-year and GPDRs were up +4% (at constant currency) year-on-year.

Investment banking accounted for circa 12% of group transactions during the quarter (Q3 2010: 17%), sequentially down on Q2 2011's level of 15%. The public sector remains stable at 5% of group transactions.

The current deal pipeline indicates that the group is experiencing year-on-year improvements across most markets against strong comparatives. At 28 August 2011, the number of permanent deals agreed in the period, with candidates due to start in the future, was up more than +15% year-on-year. The pipeline at the end of Q3 2011 had improved by +7% sequentially from the position at the end of half year 2011, which was up at that time by +22% year-on-year.

Total group headcount at 28 August 2011 of 2,163 was up +14% year-on-year (2010: 1,897) and up +7% on the half year 2011 headcount of 2,019. UK sales headcount was up +10% year-on-year, in part reflecting the key role of the UK as a talent feeder for the non-UK business. Non-UK sales heads were up +27% year-on-year. The group was actively seeking to fill an additional 100 live sales vacancies at the end of the period, primarily relating to Germany and new offices.

During the quarter new offices were opened in Zürich, Luxembourg and Mumbai, with further offices due to open in Chicago, Boston and Moscow in the final quarter of 2011/early 2012.

The group remains in a strong cash position, with net cash of circa 40 million Pounds at 28 August 2011 after the payment of the final dividend and the purchase of 3 million Pounds of shares during the quarter. On an opportunistic basis, the group expects to make further meaningful purchases of shares for treasury. DSOs have remained stable at 37 days (29 May 2011: 37 days). The Group has committed facilities of 20 million Pounds, which have not been utilised during the period.

Russell Clements, Chief Executive Officer, commented "seen in the context of strengthening comparatives and the fact that macro-economic sentiment deteriorated over the quarter, the group delivered a positive performance."

"We feel that the group's resources are appropriate, both in terms of scale and the markets in which they are deployed. Our current deal pipeline reflects a healthy level of demand in most of our markets but we remain mindful of the state of the broader economic backdrop as we enter our final and traditionally, most important quarter."

"Our business remains highly cash generative, allowing us to continue to invest in the group's excellent medium-term potential and to maintain our robust attitude towards dividends."        

In early trading SThree's shares were down by -6.75% to 223.90 Pence.


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