REG-SThree INTERIM RESULTS FOR THE HALF YEAR ENDED 31 MAY 2017 <Origin Href="QuoteRef">STHR.L</Origin> - Part 2
24/07/2017 07:05
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1,385 1,659
Operating cash flows before changes in working capital and provisions 23,721 17,424
Increase in receivables (2,709) (1,857)
Decrease in payables (8,672) (12,026)
Decrease in provisions (464) (354)
Cash generated from operations 11,876 3,187
Finance income 30 56
Income tax paid (3,391) (2,345)
Net cash generated from operating activities 8,515 898
Cash generated from operating activities before previously recognised 8,593 1,487
exceptional items
Cash outflow from previously recognised exceptional items (78) (589)
Net cash generated from operating activities 8,515 898
Cash flows from investing activities
Purchase of property, plant and equipment (947) (1,389)
Purchase of intangible assets (1,667) (2,571)
Prepaid investment 9 (802) -
Net cash used in investing activities (3,416) (3,960)
Cash flows from financing activities
Finance cost (217) (255)
Employee subscriptions for tracker shares 13 90
Proceeds from exercise of share options 106 524
Purchase of own shares (3,409) (4,633)
Increase in borrowings 2,500 26,000
Dividends paid to equity holders 4 (6,046) (6,044)
Net cash (used in)/generated from financing activities (7,053) 15,682
Net (decrease)/increase in cash and cash equivalents (1,954) 12,620
Cash and cash equivalents at beginning of the period 10,022 6,159
Effect of foreign exchange rate changes (340) 2,821
Cash and cash equivalents at end of the period 6 7,728 21,600
The accompanying notes form an integral part of this interim financial information.
Notes to the interim financial information - unaudited
for the half year ended 31 May 2017
1. Accounting policies
General Information
SThree plc ('the Company') and its subsidiaries (together 'the Group') operate predominantly in the United
Kingdom & Ireland, Continental Europe, the USA and Asia Pacific & Middle East. The Group consists of different
brands and provides both Permanent and Contract specialist staffing services, primarily in the ICT, Banking &
Finance, Energy, Engineering and Life Sciences sectors.
The Company is a public limited company listed on the London Stock Exchange and incorporated and domiciled in
the United Kingdom and registered in England and Wales. Its registered office is 8th Floor, City Place House, 55
Basinghall Street, London, EC2V 5DX.
The condensed consolidated interim financial information ('interim financial information') of the Group as at
and for the half year ended 31 May 2017 comprises that of the Company and all its subsidiaries. The interim
financial information is unaudited and has not been reviewed by external auditors. It does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006. Statutory accounts for the year ended 30
November 2016 were approved by the Board of Directors on 20 January 2017 and a copy was delivered to the
Registrar of Companies. The auditors reported on those accounts, their report was unqualified, did not draw
attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
The interim financial information of the Group was approved by the Board for issue on 21 July 2017.
Basis of Preparation
The interim financial information has been prepared in accordance with the Disclosure and Transparency Rules of
the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union.
The interim financial information is presented on a condensed basis as permitted by IAS 34 and therefore does
not include all disclosures that would otherwise be required in a full set of financial statements and should be
read in conjunction with the Group's 2016 annual financial statements, which were prepared in accordance with
International Financial Reporting Standards ('IFRSs') as adopted and endorsed by the European Union.
Going Concern
The Group's business activities, together with the factors likely to affect its future development, performance
and position are set out in the accompanying Interim Management Report. The financial position of the Group, its
cash flows, liquidity position and borrowing facilities are shown in other sections of this interim financial
information.
Having considered the Group's resources and available banking facilities, the Directors are satisfied that the
Group has sufficient resources to continue in operational existence for the foreseeable future. Accordingly,
they continue to adopt the going concern basis in preparing this interim financial information.
Significant Accounting Policies
The accounting policies adopted are consistent with those applied in the preparation of the Group's 2016 annual
financial statements except as described below.
Taxes on income in the interim period are accrued using the effective tax rate that would be applicable to the
Group's expected total annual earnings.
New Standards and Interpretations
There are no new standards or IFRIC interpretations that were effective during the period that significantly
affect this interim financial information.
As at the date of authorisation of this interim financial information, the following key standards and
amendments to standards were in issue but not yet effective (IFRS 16 has not yet been endorsed by the EU). The
Group has not applied these standards and interpretations in the preparation of this interim financial
information.
- IFRS 9 'Financial instruments'
- IFRS 15 'Revenue from Contracts with Customers'
- IFRS 16 'Leases'
IFRS 9
The standard is effective for annual periods beginning on or after 1 January 2018. It introduces new
classification and impairment models for financial assets. The Group does not anticipate that IFRS 9 will have a
material impact on its financial statements once it becomes effective.
The Group will start reporting under the new standard during the financial year ending on 30 November 2019. At
present there is no plan for the Group to adopt this standard early.
IFRS 15
The standard is effective for annual periods beginning on or after 1 January 2018. It introduces the concept of
distinct performance obligations; revenue is recognised once performance obligations are satisfied and a
customer starts benefiting from the transferred goods or service.
During 2017, the Group performed an initial impact assessment of IFRS 15. The preliminary results indicate that
the adoption of IFRS 15 will not have a significant impact on the Group.
Under IFRS 15 revenue from permanent placements will continue to be recognised on the day when a recruited
employee starts their job and will be based on a percentage of the candidate's remuneration package. Contract
revenue, which represents amounts billed or accrued for the services of temporary staff, will continue to be
recognised when the service has been provided.
The Group also earns revenue from 'retained' assignments. A typical 'retainer' agreement is based on the
following three stages:
1. A percentage of the fee is payable by the client before the recruitment consultant starts the search
2. A second payment is due when a pre-agreed milestone has been met
3. The remainder of the fee is payable on the appointment of a candidate
The Group is in the process of evaluating the impact of adoption of IFRS 15 on 'retainer' income. However, as
this revenue stream represents a low percentage of total revenue, the Group does not anticipate that IFRS 15
will have a significant impact.
The Group will start reporting under the new standard during the financial year ending on 30 November 2019. At
present there is no plan for the Group to adopt this standard early.
IFRS 16
The new leasing standard is effective for the annual periods beginning on or after 1 January 2019.
IFRS 16 requires lessees to account for all leases under a single on-balance sheet model similar to the
accounting for finance leases under IAS 17. For every lease brought onto the balance sheet, lessees will
recognise a right-of-use asset and a lease liability, and consequently the depreciation and interest expense in
the income statement.
The Group anticipates that operating profit will improve due to a new requirement to present lease interest
payments as part of finance costs.
The Group is currently performing a preliminary assessment to establish the potential financial impact of
adopting IFRS 16 on the results and net assets.
The Group will start reporting under the new standard during the financial year ending on 30 November 2020. At
present there is no plan for the Group to adopt this standard early.
Estimates
The preparation of the interim financial information requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and
liabilities at the end of the reporting period, and the reported amounts of revenue and expenses during the
reporting period. Although these estimates are based on the Directors' best knowledge of the amounts, the actual
results may ultimately differ from these estimates.
In preparing the interim financial information, the significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied in
the Group's 2016 annual financial statements, with the exception of changes in estimates that are required in
determining the provision for income taxes.
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 compared to the first half. In the financial year ended 30 November
2016, 46% of gross profits were earned in the first half of the year, with 54% earned in the second half.
2. Segmental analysis
IFRS 8 'Segmental Reporting' requires operating segments to be identified on the basis of internal results about
components of the Group that are regularly reviewed by the entity's chief operating decision maker to make
strategic decisions and assess segment performance.
Management has determined the chief operating decision maker to be the Group Management Board ('GMB') made up of
the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the Chief People Officer
and the Regional CEOs and MDs, with other senior management attending via invitation. Operating segments have
been identified based on reports reviewed by the GMB, which consider the business primarily from a geographical
perspective. The Group segments the business into four regions: the United Kingdom & Ireland ('UK&I'),
Continental Europe, the USA and Asia Pacific & Middle East ('APAC & ME').
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 in the Group's 2016 annual financial
statements.
Revenue and Gross Profit by Reportable Segment
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 reporting and controlling systems. Gross profit is the
measure of segment profit comprising revenue less cost of sales.
Intersegment revenue is recorded at values which approximate third party selling prices and is not significant.
REVENUE GROSS PROFIT
31 May 31 May 31 May 31 May
2017 2016 2017 2016
£'000 £'000 £'000 £'000
United Kingdom & Ireland 129,896 142,915 27,039 32,096
Continental Europe 262,990 198,919 69,069 57,900
USA 100,237 77,728 29,729 22,132
Asia Pacific & Middle East 27,838 23,933 8,513 7,713
520,961 443,495 134,350 119,841
Continental Europe primarily includes Germany, Netherlands, France, Belgium, Luxembourg and Switzerland.
APAC & ME mainly includes Australia, Dubai, Singapore, Hong Kong and Japan.
Other Information
The Group's revenue from external customers, its gross profit and information about its segment assets
(non-current assets excluding deferred tax assets) by key location are detailed below:
REVENUE GROSS PROFIT
31 May 31 May 31 May 31 May
2017 2016 2017 2016
£'000 £'000 £'000 £'000
UK 124,887 135,480 25,320 29,413
Germany 117,684 89,486 36,014 30,258
USA 100,237 77,728 29,739 22,132
Netherlands 81,061 59,203 17,319 13,440
Other 97,092 81,598 25,958 24,598
520,961 443,495 134,350 119,841
NON-CURRENT ASSETS
Audited
31 May 30 November
2017 2016
£'000 £'000
UK 15,124 15,044
USA 2,029 2,481
Germany 701 589
Netherlands 126 165
Other 1,023 1,145
19,003 19,424
The following segmental analyses by brand, recruitment classification and discipline (being the profession of
candidates placed) have been included as additional disclosures to the requirements of IFRS 8.
REVENUE GROSS PROFIT
31 May 31 May 31 May 31 May
2017 2016 2017 2016
£'000 £'000 £'000 £'000
Brands
Progressive 157,806 126,013 35,105 30,591
Computer Futures 147,653 121,128 39,774 34,983
Real Staffing Group 110,222 105,713 32,997 31,020
Huxley Associates 105,280 90,641 26,474 23,247
520,961 443,495 134,350 119,841
Other brands including Global Enterprise Partners, Hyden, JP Gray, Madison Black, Newington International and
Orgtel are rolled into the above brands.
REVENUE GROSS PROFIT
31 May 31 May 31 May 31 May
2017 2016 2017 2016
Recruitment classification
£'000 £'000 £'000 £'000
Recruitment classification
Contract 480,819 403,423 94,208 79,769
Permanent 40,142 40,072 40,142 40,072
520,961 443,495 134,350 119,841
Sectors
Information & Communication Technology 239,007 207,276 59,701 54,228
Banking & Finance 85,238 79,311 20,520 19,457
Life Sciences 82,245 65,575 28,779 24,079
Energy 63,429 51,322 11,363 9,426
Engineering 44,488 35,371 11,800 10,754
Other 6,554 4,640 2,187 1,897
520,961 443,495 134,350 119,841
Other includes Procurement & Supply Chain and Sales & Marketing.
3. Taxation
Income tax for the half year is accrued based on management's best estimate of the average annual effective tax
rate for the financial year. The tax charge for the half year amounted to £5.0m (2016: £3.5m) at an effective
rate of 26% (2016: 27%).
4. DIVIDENDS
31 May 31 May
2017 2016
£'000 £'000
Amounts recognised as distributions to equity holders in the period
Interim dividend of 4.7p (2015: 4.7p) per share 6,046 6,044
Final dividend of 9.3p (2015: 9.3p) per share 11,951 11,934
17,997 17,978
2016 interim dividend of 4.7 pence (2015: 4.7 pence) per share was paid on 9 December 2016.
2016 final dividend of 9.3 pence (2015: 9.3 pence) per share was approved by shareholders at the AGM on 20 April
2017 and has been included as a liability in this interim financial information. The dividend was paid on 9 June
2017 to shareholders on record at 5 May 2017.
2017 interim dividend of 4.7 pence per share was proposed and approved by the Board on 21 July 2017 and has not
been included as a liability as at 31 May 2017. It will be paid on 8 December 2017 to shareholders on record at
3 November 2017.
5. Earnings per share
The calculation of the basic and diluted earnings per share ('EPS') is set out below:
Basic EPS is calculated by dividing the earnings attributable to owners of the Company by the weighted average
number of shares in issue during the period excluding shares held as treasury shares and those held in the EBT
which are treated as cancelled.
For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion of dilutive
potential shares. Potential dilution resulting from tracker shares takes into account profitability of the
underlying tracker businesses and SThree plc's earnings per share. Therefore, the dilutive effect on EPS will
vary in future periods depending on any changes in these factors.
31 May 31 May
2017 2016
£'000 £'000
Earnings
Profit for the period attributable to owners of the Company 14,175 9,347
millions millions
Number of shares
Weighted average number of shares used for basic EPS 128.7 128.5
Dilutive effect of share plans 4.7 5.0
Diluted weighted average number of shares used for diluted EPS 133.4 133.5
pence pence
Basic EPS before exceptional items 11.0 7.3
Diluted EPS before exceptional items 10.6 7.0
6. CASH
Audited
31 May 30 November
2017 2016
£'000 £'000
Cash at bank 13,831 15,707
Bank overdraft (6,103) (5,685)
Cash and cash equivalents per the statements of cash flows 7,728 10,022
Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months
or less, net of outstanding bank overdrafts which are repayable on demand. The carrying amount of these assets
is approximately equal to their fair values.
The Group has cash pooling arrangements with legally enforceable rights to set-off cash and overdraft balances.
Where there is an intention to settle on a net basis, cash and overdraft balances relating to the cash pooling
arrangements are reported on a net basis in the statement of financial position. Other bank overdrafts are shown
separately in the statement of financial position.
7. SHARE CAPITAL
During the period 56,440 (H1 2016: 224,906) new ordinary shares were issued, resulting in a share premium of
£0.2m (H1 2016: £0.5m). These shares were issued pursuant to the exercise of share awards under the Save As You
Earn (SAYE) scheme.
Treasury Reserve
During the period, SThree plc purchased 1,078,788 of its own shares to be held as treasury shares (H1 2016:
1,465,579). The average price paid per share was 316 pence (H1 2016: 316 pence) with total consideration
amounting to £3.4m (H1 2016: £4.6m). During the period, 1,000,000 shares (H1 2016: 510,081) were transferred
from treasury for LTIP exercises. At the half year end, 2,265,868 (H1 2016: 1,329,082) shares with a value of
£6.9m (H1 2016: £4.2m) were held in treasury.
8. BORROWINGS
The Group has a committed RCF of £50m along with an uncommitted £20m accordion facility in place with HSBC and
Citibank, giving the Group an option to increase its total borrowings under the facility to £70m. The RCF
expires in May 2019. The funds borrowed under the facility bear interest at a minimum annual rate of 1.3% (H1
2016: 1.3%) above 3 month Sterling LIBOR. The average interest rate paid on the RCF during the half year was
1.6% (H1 2016: 1.8%). The Group also has an uncommitted £5m overdraft facility with RBS.
At the half year end the Group had drawn down £2.5m (H1 2016: £26.0m) on the RCF.
The RCF is subject to certain covenants requiring the Group to maintain financial ratios over interest cover,
leverage and guarantor cover. The covenants' ratios are disclosed in the Group's 2016 annual financial
statements. The Group has been in compliance with these covenants throughout the period.
The Group's exposure to interest rate, liquidity, foreign currency and capital management risks is disclosed in
the Group's 2016 annual financial statements.
9. related party disclosures
During the period, the Group entered into an agreement whereby a prepayment was made to acquire a 30% minority
interest in the share capital of HRecTech Sandpit Limited ('HRecTech') for a total consideration of £0.8
million.
The Sandpit Limited is a privately owned group that specialises in developing early stage start-up companies
within defined vertical markets. HRecTech, The Sandpit Limited's newest vertical market, is focused on
business-to-business HR and recruitment. The investment in HRecTech is consistent with the Group's innovation
strategy to unlock the potential of disruptive technologies, as outlined in the Group's 2016 annual strategic
report.
At the half-year, the investment was classified as a 'prepaid investment' within the 'trade and other
receivables' in the statement of financial position. On share allocation date, expected in the second half of
the current year, the investment will be re-classified to 'investments in associate' because, in management's
judgement, the Group will have significant influence over HRecTech.
Gary Elden, Chief Executive Officer of SThree, and David Rees, Director of SThree GmbH, a subsidiary company of
SThree, are existing minority shareholders in The Sandpit Limited and will each be allotted shares on a pro-rata
basis in HRecTech. The Group's investment in The Sandpit Limited was undertaken on an arms' length basis and the
board are satisfied that there is no conflict of interest.
David Rees was appointed as a director of HRecTech on 22 June 2017. As a result of this appointment, SThree plc
is deemed to have significant influence over HRecTech and the business will be treated as an associate from this
date.
The Group's other significant related parties are as disclosed in the Group's 2016 annual financial statements.
There were no other material differences in related parties or related party transactions in the period compared
to the prior period.
10. CONTINGENT LIABILITIES
The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business.
There have been no material changes in these since the 2016 year end and none are expected to result in a
material cash outflow for the Group.
11. SHAREHOLDER COMMUNICATIONS
SThree plc has taken advantage of regulations which provide an exemption from sending copies of its interim
report to shareholders. Accordingly, the 2017 interim report will not be sent to shareholders but will be
available on the Company's website 4 www.sthree.com or can be inspected at the registered office of the
Company.
Financial Calendar
2017
15 September Q3 Trading Update
2 November Ex-dividend date for 2017 interim dividend
15 November Capital Markets Day
30 November 2017 Financial Year end
8 December 2017 Interim dividend paid
15 December Trading update for the year ended 30 November 2017
2018
29 January Annual results for the year ended 30 November 2017
════════════════════════════════════════════════════════════════════════════════════════════════════════════════
Language: English
ISIN: GB00B0KM9T71
Category Code: IR
TIDM: STHR
LEI Code: 2138003NEBX5VRP3EX50
Sequence No.: 4445
End of Announcement EQS News Service
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594755 24-Jul-2017
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