REG - SThree plc - FY23 Final Results
30/01/2024 07:00
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RNS Number : 2836B SThree plc 30 January 2024
SThree plc
FINAL RESULTS FOR THE YEAR ENDED 30 NOvember 2023
Resilient performance sustained, underpinned by Contract
SThree plc ('SThree' or the 'Group'), the only global specialist talent
partner focused on roles in Science, Technology, Engineering and Mathematics
(STEM), today announces its financial results for the year ended 30 November
2023.
FINANCIAL HIGHLIGHTS
Continuing operations FY23 FY22 Variance
Reported Like-for-like ((1))
Revenue (£ million) 1,663.2 1,639.4 +1% flat
Net fees (£ million) 418.8 430.6 -3% -4%
Operating profit (£ million) 76.4 77.6 -2% -5%
Operating profit conversion ratio 18.2% 18.0% +0.2% pts -0.1% pts
Profit before tax (£ million) 77.9 77.0 +1% -2%
Basic earnings per share (pence) 42.4 41.0 +4% +1%
Proposed final dividend per share (pence) 11.6 11.0 +5% +5%
Total dividend (interim and final) per share (pence) 16.6 16.0 +4% +4%
Net cash (£ million)((2)) 83.2 65.4 +27% +27%
((1)) Variance compares the reported results for FY23 against FY22 on a
constant currency basis, whereby the prior year foreign exchange rates are
applied to current and prior financial year results to remove the impact of
exchange rate fluctuations.
((2)) Net cash represents cash and cash equivalents less borrowings and
excluding leases.
( )
Full-Year Highlights
· A resilient performance, with Group net fees down 4% YoY((3)) on a
like-for-like basis, against a record prior year (FY22: YoY growth: 19%) and
challenging global macro-economic backdrop.
o Net fees across our three largest countries, representing 73% of Group:
Netherlands up 3%, Germany and USA down 4% and 14% respectively.
o Within skill verticals: Engineering was up 17%, whilst Technology was down 2%
and Life Sciences was down 21%.
· Contract net fees, which now represent 82% of Group net fees (FY22: 78%), were
up 1% driven by robust contract extensions.
· Permanent net fees, representing 18% of Group net fees, were down 22%
reflecting both challenging market conditions and our strategic transition
towards Contract in specific markets (average Permanent headcount down 17%).
· Contractor order book((4)) of £184 million, whilst down 3% YoY versus a
record prior year comparator, represents sector-leading visibility with the
equivalent of c.4 months' net fees, providing a robust platform for the year
ahead.
· Profit before tax of £78 million (down 2% YoY on a like-for-like basis),
ahead of market expectations largely due to timing of recognition of
Technology Improvement Programme expenses, lower than expected final bonus and
commission payments, and the release of some specific bad debt provisions
following successful collections since the year-end.
· Strong balance sheet, with £83.2 million in net cash at year end (FY22:
£65.4 million).
· Final dividend proposed of 11.6 pence per share (FY22: 11.0 pence per share),
taking full year dividend to 16.6 pence per share (FY22: 16.0 pence per
share), up 4% YoY. This is in line with the previously communicated dividend
cover target between 2.5x and 3.0x.
· Technology Improvement Programme (TIP) remains on track and on budget with the
first iteration now live across the US business. This programme will be key to
further differentiating our proposition across our core markets, as well as
driving both scale and higher margins over the mid-to-long term.
· Delivering against our sustainable business and ESG commitments:
o Renewable business up 28% versus FY22 (FY22: up 29% versus FY21), ahead of our
target to double the share of this business from FY19 to FY24.
o 8% carbon reduction in FY23 in comparison to FY19, our baseline year for our
SBTi net zero target.
o Over 25,725 lives positively impacted in FY23 (FY22: over 32,900).
o 39% of women (FY22: 32%) in leadership positions as we progress towards
achieving our ambition of 50/50 representation in leadership.
Outlook
· Contract extensions remain strong whilst new business activity continues to be
subdued for longer than expected.
· Productivity normalisation, as previously communicated, combined with the
recognition of deferred TIP costs will temper the conversion ratio in FY24
from FY23 levels, yet we expect this will remain sector-leading.
· Continued focus on sequenced rollout of the TIP across rest of the Group,
strengthening the Group's position for long-term growth.
Timo Lehne, Chief Executive Officer, commented:
Notwithstanding the broader challenging economic environment, our delivery
this year has been resilient, especially against the context of a record prior
year. Our unique model and strategic focus have benefitted us throughout the
year, with our core areas of focus, STEM skills and flexible talent,
benefitting from structural growth drivers and providing us with a strong
platform both now and over the long term.
Following the successful roll out of the first iteration of our Technology
Improvement Programme in one of our most complex regions yielding positive
feedback from candidates, clients and our teams, we look forward to the next
phase of sequential implementation across Germany, UK and Netherlands. The
opportunity this brings is extensive, both operationally and commercially,
with the ultimate goal of driving scale and higher margins for the Group. In
the year ahead we expect to be able to share some early proof points.
We have been consciously investing in and positioning the business for future
growth and, whilst we continue to operate in a challenging macro environment,
this does not change our focus. We have a resilient business, a talented team
and are building a market-leading technology suite. We are confident that our
investments and innovations put the Group in a position of strength to capture
market share as and when the market returns to growth.
((3)) All YoY growth rates in this announcement are expressed at constant
currency.
((4)) The contractor order book represents value of net fees until contractual
end dates, assuming all contractual hours are worked.
Analyst conference call
SThree is hosting a webinar for analysts and investors today at 08:30 GMT to
present the Group's results for the financial year ended 30 November 2023. If
you would like to register for the webinar, please contact
SThree@almastrategic.com (mailto:SThree@almastrategic.com) .
SThree will issue its FY24 Q1 Trading Update on 19 March 2024.
The person responsible for this announcement is Kate Danson, Company
Secretary.
Enquiries:
SThree plc
Timo Lehne,
CEO
via Alma
Andrew Beach, CFO
Keren Oser, Investor Relations Director
Alma Strategic Communications
+44 20 3405 0205
Rebecca
Sanders-Hewett
SThree@almastrategic.com (mailto:SThree@almastrategic.com)
Hilary Buchanan
Sam Modlin
Will Ellis Hancock
Notes to editors
SThree plc brings skilled people together to build the future. We are the only
global specialist talent partner focused on roles in Science, Technology,
Engineering and Mathematics (STEM), providing permanent and flexible contract
talent to a diverse base of over 7,200 clients across 11 countries (excluding
Ireland, Luxembourg and Singapore, which as of 30 November 2023 were no longer
going concern). Our Group's circa 2,700 staff cover the Technology, Life
Sciences and Engineering sectors. SThree is part of the Industrial Services
sector. We are listed on the Premium Segment of the London Stock Exchange's
Main Market, trading with ticker code STEM.
Important notice
Certain statements in this announcement are forward looking statements. By
their nature, forward looking statements involve a number of risks,
uncertainties or assumptions that could cause actual results or events to
differ materially from those expressed or implied by those statements. Forward
looking statements regarding past trends or activities should not be taken as
representation that such trends or activities will continue in the future.
Certain data from the announcement is sourced from unaudited internal
management information and is before any exceptional items. Accordingly, undue
reliance should not be placed on forward looking statements.
CHair's statement
2023 has been another challenging year for many people around the globe.
Heightened levels of geo-political and macro-economic instability have
impacted individuals, businesses and governments, creating an increasingly
complex commercial environment. Meanwhile, issues that were prevalent last
year, including high inflation and interest rates, the rising cost of living
and a global energy crisis have continued to have an impact on our lives.
Our teams, customers and key markets of operation have all been impacted
differently by these issues, yet I am proud that SThree has still delivered a
resilient performance this year, thanks to our strategic focus on sourcing and
placing the best STEM talent. Our robust performance in Contract, supported by
our unique Employed Contractor Model (ECM), underpins our confidence in the
megatrend that is the demand for flexible workers in STEM. In the year we
placed 15,292 skilled people and maintained a strong orderbook throughout. I
would like to thank our clients and candidates for the trust they have placed
in the Group this year. I would also like to thank every member of the
SThree team for their efforts to support our customers. It is thanks to their
skill and dedication that SThree finds itself in this position of strength
today, with many exciting opportunities to be pursued in the near future.
Since Timo's appointment as Chief Executive Officer in April 2022 his energy
and vision has spread across the business, with the whole team coming together
to execute an exciting growth strategy. Our Technology Improvement Programme
underpins a large part of this strategy and I am delighted to report that it
continues to roll out at pace, providing a market-leading platform for future
growth and productivity that has been designed to provide us with the best
opportunity to continue to seize market share in our target markets.
Following the resilient trading performance in the year, coupled with a
healthy balance sheet position, the Board is proposing a final dividend at
11.6 pence per share, which taken together with the interim dividend of 5.0
pence per share, gives the total dividend for the year of 16.6 pence per
share, an increase of 4% over the prior year. This is in line with the Board's
policy to offer shareholders long-term ordinary dividend growth within a
targeted cover range of 2.5x to 3.0x and forms part of our wider capital
allocation policy.
Maximising shareholder value through a disciplined approach to investment to
deliver growth in net fees and margin, whilst maintaining a strong balance
sheet and sustainable through-the-cycle dividend, remains a priority for the
Board. Following a periodic review, the Group's capital allocation policy
has been refreshed to reflect investments in business improvement alongside
organic and inorganic growth as a key aspect of our strategy.
Across the Group, we are clear on our ambitions and delivering our strategy.
With the addition of Margot van Soest (managing director, Netherlands and
Spain), Sarah Mason (Chief People Officer) and Matt McManus (managing
director, USA) to the Executive Committee, coupled with the appointment of
Imogen Joss as Non-Executive Director early in the financial year, we have an
enhanced, experienced executive leadership team and Board in place to drive
the Group forward. I would like to thank both the executive team and Board for
all their hard work this year, alongside those inside and working together
with our business who have helped us achieve a resilient set of results. I am
especially proud of our promotion to the FTSE 250, after too many years of
absence. This is a clear reflection of the progress we have made, and is
another key milestone in SThree's ongoing journey.
We remain committed to reducing our impact on the planet, providing great
opportunities for our people and ensuring we have the governance processes in
place to protect each and every SThree stakeholder. We are proud to support
the transition to a green economy by connecting engineering talent to the
green energy projects where they are most needed, and we are dedicated to
making SThree an employer of choice for staff. I am delighted that, for the
first time, through targeted ownership opportunities, over 50% of our
employees are now shareholders in the business, something we see as the
ultimate vote of confidence in our direction of travel, providing strong
alignment with our wider shareholder base.
Looking ahead, while we remain conscious of the wider economic environment, I
am confident that the Group will continue to deliver against our strategy. We
have continued to invest across the business, enhancing and innovating how we
operate so that as customer confidence strengthens and the market returns to
growth, we are in the best position possible to seize the opportunity. With a
market leading technology suite underpinning our future operations and a
talented and experienced team in place, we are confident in the Group's
long-term prospect.
James Bilefield
Chair
29 January 2024
Chief executive officer's statement
I am proud of the work we have achieved over the past year. The Group has
performed well against a challenging economic backdrop, demonstrating the
resilience of our business model and strength of our strategy, with the
megatrend of demand for flexible STEM workers persisting across our core
markets. Through this, we have invested in our people, infrastructure, product
offering and made excellent progress in the positioning of SThree for
sustainable long-term growth.
The strength of the Group derives from our clear purpose: bringing skilled
people together to build the future. We firmly believe that the future is
flexible STEM talent. Underpinned by long-term megatrends, the two growth
drivers of STEM and flexible talent have proven resilient through cycles,
providing a unique business model that delivers quality of earnings and good
visibility.
Whilst this core purpose remains consistent, we must also evolve. As a
business consciously aligned to megatrends, we are acutely aware of how these
structural forces, such as digital transformation, changing patterns of work,
and the opportunities presented by artificial intelligence are affecting every
industry. We have established a position as a leading specialist talent
partner, built over decades through unrivalled STEM networks, long-term client
relationships and deep expertise, all of which work together to create
significant competitive differentiation. From this, we are progressing to the
next stage of our growth journey as a digital-first organisation, with an
integrated end-to-end platform that will redefine our potential and support us
in unleashing our vision.
At the same time, we continue to be guided by our disciplined and focused
approach to our investment decisions, supported by a robust business model.
For FY23, the Group delivered net fees of £419 million, 4% down on the record
prior year performance. With ongoing exceptional levels of productivity
combined with tight cost control, whilst also benefiting from spend
recognition timing on the Technology Improvement Programme (TIP) (without
impacting delivery) we delivered operating profit of £76 million. This was
delivered alongside a material increase in net cash balance to £83 million
and a contractor order book of £184 million. This provides us with the
financial strength and flexibility to pursue our market opportunity and to
deliver value to shareholders.
Our approach: a platform of STEM resourcing solutions supporting our
customers' business ambitions
The Group provides solutions to customers predominately through the placement
of specialist STEM Contract skills, representing 82% of total net fees, as
this model is particularly well aligned to employee and employer preferences
in STEM roles. Within this, we have also established a specific expertise in
delivering ECM, whereby contractors are directly employed by SThree and which
is increasingly a source of growth for the business, now comprising nearly 50%
of the contractor order book. We also provide our clients with high-value
Permanent skills in select, strategic markets. The Group's STEM proficiency
across all three employment models, whether it be Contractors, ECM or
Permanent roles, allows us to offer the best solution to meet our customers'
bespoke requirements.
We wrap this in a customer-centric service delivery approach, working
collaboratively with our clients to source the scarce skills on which they
depend, building enduring relationships with our contractors who view SThree
as a partner in their career development. We are a people business, and we are
super-charging our teams through the implementation of a sophisticated and
integrated IT infrastructure. This is bringing our organisation closer
together to drive scale, efficiencies and productivity, particularly in our
growing ECM business which is complex and compliance heavy. We believe this
will be a game-changer in the industry.
The market: our model performing in a challenging environment
Global macro-economic factors through the year, such as high inflation, market
uncertainty and high interest rates weighing on investment decisions, have
created a challenging labour market. Many organisations took stock of their
previous expansive hiring initiatives to reassess their footprint in light of
a weakening outlook.
The priority for organisations shifted to business-critical requirements,
which for many is represented by STEM Contract skills. Whether it be
engineers, cyber security specialists or medical scientists, organisations
across sectors are dependent on these skills to function effectively. We saw
these market dynamics play out during the year with robust extensions as
clients sought to retain critical STEM skills helping to somewhat offset
weaker new placement activity across the market.
Progressing our ESG commitments
As we navigate through periods of transient market conditions, we do not lose
sight of our ESG commitments. We know that a successful business is a
responsible one, seeking to deliver a positive outcome for all stakeholders.
As such, we are pleased to have not only made continued progress against the
clear ESG targets we have set ourselves, but to have also strengthened our
environmental ambitions during the year with a new science-based target
(SBTi-verified) of net zero before 2050. This complements the work we do every
day promoting jobs that will build a sustainable future, and we are delighted
to have achieved our target of doubling the share of our global renewables
business ahead of the target date of FY24.
We continue to strive for social mobility and equity in STEM by encouraging
diversity in our talent pipeline. We do this through our Elevate Careers
programme and our partnership with Women Who Code where we have funded
scholarships for 3,700 women. In FY23, we welcomed 47 women to our internal
talent programme, Identify. We can see how the programme is improving
retention and progression of our female employees, but we recognise we need to
do more to make progress towards our ambition to have 50/50 women in
leadership roles and this will continue to be a priority in FY24.
Strategic execution
Our places - knowing where to play, play where we can win
Our analytical and data-driven approach informs the regional and vertical mix
we choose to operate in. Over the year we forensically analysed and validated
our footprint, reconfirming our confidence in our active market coverage of 11
countries strategically focused in the biggest STEM markets. With an average
share of under 3%, we believe there is substantial scope to scale, both
organically and, given the highly fragmented and niche landscape, through
select acquisitions that align with the Board's strict criteria, and in doing
so, realise the increasing benefits of economies of scale.
This analysis also brought greater clarity and insight into the strategic
direction for our regions - understanding where our core opportunities lie to
drive margin and higher value, versus those regions ripe for steady growth or
fast scaling opportunities. Within this context we continue to refine how we
go to market. Within the US, we reinforced our presence by moving away from a
brand-led management structure, to having strong fully-integrated regional
teams serving all of our brands, and across the organisation we introduced new
tools and dashboards to bring greater performance insight.
Our platform - digital first
We have bold ambitions to be a digital-first innovator in a traditionally
analogue industry, and we see huge scope to drive higher margin growth by
leveraging the power of modern technology. The systematic roll out of our TIP
continues to progress on track and on budget, with our first deployment
successfully completed in the US. Whilst we continue to work on data quality
testing, it is evident that the "end-to-end" platform is working. We already
have onboarded over 2,000 contractors, using it to submit timesheets, while to
date we have issued over 15,000 invoices reflecting around $70 million of
revenue.
We are seeing the early benefits from our first deployment, including the
systemising of best practice and process efficiencies, helping to improve both
employee and client experiences. Our disputed invoice volume has fallen
considerably as a result of improved data collection, and our contractor
payment process, which previously required a high proportion of manual
intervention due to its complexity, has been streamlined significantly,
freeing teams up to be more productive. As we have said before, the wider
benefits around efficiencies and scaling will become evident with time as the
TIP progresses, and the platform develops richer functionality.
We look ahead to our next regional deployment in Germany, commencing in the
first half of FY24. We have a great team in place and are confident in our
approach as proven by deployment in the US.
Our people - best employer, best people
The engine of our business is our brilliant people, and as such, we are
focused on making our business a destination employer, attracting and
retaining the best talent, in order to support our collective push as one team
to achieve our growth ambition. The key metric we monitor to assess our
standing is our employee net promoter score, and we were pleased to have
comfortably retained our position this year in the top quartile of
professional services companies. We continue to see high engagement across our
employee surveys, there is growing uptake across the organisation of our
DE&I learnings initiative launched in the previous year, and the soft
launch of our newly redefined values in H2 to our sales leadership team is
helping shape our culture as we grow.
With relation to the TIP, whilst a great deal of focus is on IT migration and
data management, key to our programme is our training and change management
initiatives working to ensure our teams understand our new capabilities and
have the skills to adopt new ways of working. We have also started some bigger
programmatic work, taking the global best practices and looking to standardise
excellence.
Building on this, we will look to embed our new values across the Group. Other
priorities are centred on ensuring we have the right incentives and
infrastructure to allow our people to thrive, including the continued
optimisation of our office footprint in line with current working model
expectations, new talent management programmes to retain key talent and drive
shorter time-to-productivity, and ongoing efforts to ensure an inclusive
working environment that promotes best practice and ambition.
Our position - a winning brand with competitive and differentiated value
propositions
We are committed to providing best-in-class STEM staffing services to our
clients and candidates by leveraging our global network of specialised brands.
Our approach ensures that every client receives tailored solutions,
unparalleled expertise, and a pathway to reach their goals amid an
ever-changing landscape whilst helping candidates realise their career
ambitions. During the year, we reinforced our go-to-market brand position in
specific vertical skills, elevated our thought-leadership through new research
'How the STEM world evolves', and established a Group Commercial function
under a new Chief Commercial Officer position to coordinate our commercial
strategy.
Outlook
As we look forward, Contract extensions remain strong and provide an ongoing
source of resilience, although as we await an easing of the macro-economic
backdrop, new business activity continues to be subdued for longer than
expected. Our conversion ratio, whilst anticipated to temper from the
exceptional FY23 levels as our staged investment programme progresses, is
expected to remain sector leading. We have been consciously positioning the
business for the future and whilst we continue to operate in a challenging
market environment, this does not change our focus. We have a resilient
business, a talented team, great client and candidate partnerships, and we are
building a market leading technology suite. With our investments and
innovations, we are confident that when the market returns to growth, we will
be in a position of strength to source the best STEM talent the world needs.
Timo Lehne
Chief Executive Officer
29 January 2024
Group financial and OPERATIONAL REVIEW
Overview
The Group has delivered a resilient net fee performance during the year with
net fees down 4% against a record prior year performance and challenging
global macro-economic backdrop.
Our Contract business, which is our main strategic area, grew net fees by 1%
and now represents 82% of the Group net fees. To grow Contract net fees
against such a challenging market backdrop, is a particularly pleasing result.
The contractor order book closed at £183.5 million, down 3% YoY but provides
good visibility for the year ahead. Permanent net fees were down 22%
reflecting both global market conditions and record comparatives, particularly
in Life Sciences, together with our targeted investment towards Contract in
specific markets.
From a skills perspective, most notable during the year has been the impact of
reduced expenditure in the Global Life Sciences sector, which has affected the
performance of most markets, with the greatest exposure and impact on our USA
business. As a result, we saw a decline in Life Sciences net fees of 21%
across the Group, though this was mostly offset by an increase in Engineering
which was up 17%.
Overall, the Group reported operating profit was £76.4 million (FY22: £77.6
million), down 5% from the record performance achieved last year, reflecting
ongoing exceptional levels of productivity together with tight cost control,
including the benefits of the restructuring of certain markets at the end of
FY22, whilst also benefiting from spend recognition timing on the Technology
Improvement Programme (TIP) (without impacting delivery). Despite the
challenging macro environment, we continue to see productivity levels exceed
our expectations and anticipate this to moderate further until the market
conditions improve and benefits of the TIP begin to materialise. Our profit
also benefited from some delayed cost recognition (£2m-£3m) on the
programme, which will be incurred in FY24 together with the commencement of
licences and amortisation of the new technology. Combined with a continuing
decline in productivity in the very short term we expect margins to temper in
FY24 before improving in FY25.
The Group average headcount for the year was down 2% YoY which was partly
impacted by the restructure of the Singapore, Hong Kong and Ireland businesses
and also impacted by the strategic decision to reduce our average Permanent
headcount by 17% YoY.
Update against 2024 ambitions
In line with our 2024 ambitions to deliver growth and value for our Group and
all stakeholders, we continued to make good progress in our journey to become
the number one STEM talent provider in the best global STEM markets. In this
financial year, our key achievements included:
· Market Share: Our net fee growth vs FY19: Remains ahead of peers in four out
of our five largest markets (Germany, the Netherlands, the UK and Japan).
· Conversion Ratio: Achieved a sector-leading operating profit conversion ratio
of 18.2% in FY23. Our underlying conversion ratio, both before and after costs
associated with the TIP, continued to exceed our pre-Covid performance. We
remain committed to our ambition of achieving margins at 21% or higher in the
mid to long-term, however as previously stated we expect current
macro-economic headwinds to dampen margin progression in the short term.
· People: Group-wide eNPS was 43 at the end of FY23; supported by DE&I
networks and the launch of the third cohort of the Identify leader programme,
our eNPS remains within the top quartile of Professional Services industry.
· Planet: Reduced our carbon emissions by 8% versus FY19 (the base year).
Furthermore, in the fight against climate change, we launched several actions
to educate and influence sustainable behaviours across the business to ensure
we make progress towards our SBTi-verified net zero targets which were
announced in April 2023. We also grew our renewables business by 28% YoY, to
represent 10% of Group net fees at FY23.
· Positively impacted over 25,725 lives through delivering recruitment solutions
and community programmes in FY23 alone.
( )
Group net fees by geography, sector and division
Group net fees % of Group FY23 FY22 Variance
(£'000) (£'000)
Reported Like-for-like ((1))
Geographical mix ((2))
DACH 36% 148,925 148,922 - -3%
USA 23% 96,410 111,545 -14% -14%
Netherlands (including Spain) 19% 82,149 75,661 +8% +6%
Rest of the Europe 17% 70,439 73,093 -3% -4%
Middle East & Asia 5% 20,852 21,395 - +3%
Total 100% 418,775 430,616 -3% -4%
Skills mix
Technology 48% 202,510 203,184 - -2%
Engineering 26% 108,820 92,083 +18% +17%
Life Sciences 18% 75,516 95,172 -21% -21%
Other 8% 31,929 40,177 -21% -20%
Total 100% 418,775 430,616 -3% -4%
Service mix
Contract 82% 343,502 334,215 +3% +1%
Permanent 18% 75,273 96,401 -22% -22%
Total 100% 418,775 430,616 -3% -4%
((1)) Unless specifically stated, all Growth rates in this announcement are
expressed at constant currency.
((2)) In FY23, SThree has changed its reporting structure. The new groupings
are: DACH, Netherlands (including Spain, which is managed from the
Netherlands), Rest of Europe, USA and Middle East & Asia.
Business mix
The Group is well diversified, both geographically and by the skills; we place
across multiple sectors. Our top three countries now represent 73% of Group
net fees, with Germany accounting for 31%, USA 23% and the Netherlands 18% of
Group net fees.
Our Contract business grew by 1% on a like-for-like basis and now represents
82% of the Group net fees. Our Permanent business, which now represents 18% of
the Group net fees, saw net fees decline 22% in the year, reflecting
challenging market conditions across all regions, together with the previously
announced transition from Permanent to Contract in certain markets which is
largely complete. Average Permanent headcount was down 17% YoY. Our market
invest model enables us to continually review our markets to prioritise
investments where we see opportunities for growth and the strongest returns.
Technology, which represents 48% of the Group net fees, declined by 2% YoY,
while Engineering which represents 26% of net fees grew by 17%. These were
offset by the decline in Life Sciences of 21% due to reduced global
expenditure in that sector, though we note that net fees from that sector
remain comfortably above pre-pandemic levels. Life Sciences now represents 18%
of the Group net fees.
Operational review by reporting segment
DACH (36% of Group net fees)
FY23 FY22 Variance
Performance highlights Reported Like-for-like
Revenue (£'000) 524,732 539,014 -3% -6%
Net fees (£'000) 148,925 148,922 - -3%
Average total headcount (FTE) 877 874 - n/a
Impact of megatrends
We have seen the five megatrends continue to drive STEM demand, with only a
slight downturn in our Life Science business, reflecting the global market
challenge in this skills vertical.
There is still a war for talent in the DACH territories as employers struggle
with a shortage of STEM talent. Retirement of the baby boomer generation and
insufficient replacements from younger cohorts is intensifying STEM skill
shortages. That, combined with still high inflation rates, is likely to lower
GDP growth in DACH countries.
FY23 performance highlights
DACH region saw net fees decline by 3% YoY, with Contract down 1% and
Permanent down 8%. This was primarily driven by our greater exposure to small-
to medium-sized enterprise clients, which are more inclined to reduce
investment in the face of greater macro-economic challenges than our
enterprise clients. Germany, our largest country in the region (88% of net
fees), saw Contract down 1% with overall net fees down 4%, driven by
Engineering up 13%, offset by Technology and Life Sciences, down 4% and 16%
respectively. Switzerland saw net fees grow 2% YoY driven by Engineering and
Technology, with Austria net fees flat YoY.
Our people
Like most firms, we continually review our Employee Value Proposition to
ensure we attract and retain talent. It includes our hybrid working policy,
developing the office into an appealing place where people can connect,
collaborate and receive coaching. We aim to encourage more staff into the
office environment by enhancing our spaces as leases come up for renewal.
The Technology Improvement Programme (TIP), due to roll out in Germany at the
beginning of FY24, will enable us to increase the productivity of our
employees by giving them state-of-the-art tools to be more effective in their
day-to-day work.
We invested in the development of our leadership through the Leading with
Purpose programme. We will also be reviewing training delivery at all staff
levels as it has become rather too online centred in response to the Covid 19
pandemic. Our aim is to introduce a more balanced mix of online and classroom
training.
Reasons for confidence
We remain well positioned in flexible working with our strong ECM offering,
whilst our Permanent business has increasingly moved up the salary/seniority
range. Together, that enables us to be a full solution provider to our
customers and grow the value of each of our clients.
In FY23, we continued to invest in growing our strategic accounts
relationships and public sector business. The fact that we succeeded in our
application for a permanent ECM licence will allow us to further invest in ECM
and truly use ECM as a growth engine for our business in Germany.
In the short term, we will continue to operate under volatile market
conditions, However, we remain confident that we can achieve our ambition of
doubling our business by FY28, by being a partner of choice to our customers,
employer of choice for our people and creating a high performance culture in
which we all operate to the highest standards, proud to pursue our purpose.
USA (23% of Group net fees)
FY23 FY22 Variance
Performance highlights Reported Like-for-like
Revenue (£'000) 328,293 338,221 -3% -3%
Net fees (£'000) 96,410 111,545 -14% -14%
Average total headcount (FTE) 473 539 -12% n/a
Impact of megatrends
Significant investment into clean energy projects has been announced in the
USA since federal clean energy incentives were signed into law. 83 new or
expanded clean energy manufacturing facilities are creating demand for nearly
30,000 new jobs while the total number of renewable energy jobs in the USA is
up 50% on 2019. Pharmaceutical companies have also been ramping up their AI
operations in recent months
(https://www.pharmaceutical-technology.com/news/signal-big-pharma-embraces-ai-as-novo-nordisk-partners-with-ai-start-up-valo-in-2-7bn-deal/)
with multi-billion dollar investments.
Looking at demographic change, the US has a relatively favourable profile
compared to most large economies, but this is set to change with the share of
the population over the age of 65 more than doubling by the end of this
century. The shift will drive healthcare demand, exacerbating current staff
shortages. By the 2030s, the country could be faced with a shortage of nearly
200,000 nurses and 124,000 physicians.
FY23 performance highlights
Despite the overall US recruitment market declining YoY, we saw a 10% growth
in our top ten clients while the next ten grew by 26%. STEM is demonstrating
its resilience against general economic headwinds. New job activity has been
substantially impacted by a market-wide drop in hiring demand, underpinned by
inflationary and interest rate pressures.
Overall, we saw a net fee decline of 14% YoY due to very strong prior year
comparatives in Life Sciences. Engineering saw strong growth and we
outperformed the market, but we did see market-driven declines in Life
Sciences as job vacancies declined significantly due to the macro-economic
environment.
Contract, supported by improved finisher rates, showed stronger resilience
than Permanent, with a decline of 4% and 51% respectively. Engineering was up
16%, driven by demand for roles within Electrical Engineering, Project
Management and Construction. Life Sciences was down 24% YoY, in line with the
market conditions within this sector.
Our people
This year we have introduced a new operating model with the goal of
simplifying and standardising ways of working, increasing cross selling and
collaboration between industries. We also upgraded our hybrid working policy
to provide our people with more opportunities for coaching, collaboration and
community participation.
Reasons for confidence
Worth over $50bn, the USA has the largest STEM staffing market in the world.
It exhibited resilience in FY23 after two consecutive years of high
double-digit growth. It is projected to grow 5% in FY24.
We see immense opportunity in the US market, as we still only capture a
relatively small share of wallet of our key clients. The US is the first
region to benefit from our TIP, equipping our consultants with best-in-class
tools and processes ahead of the rest of the Group. This builds a solid
foundation for scaling our business profitably and winning market share.
The Engineering skills vertical offers particular potential. SThree is the
ninth largest engineering staffing agency in the world and is
eleventh largest in the USA.
Our focus in FY24 will be to capture market share through growth within our
core vertical markets of Technology (Software Development and Salesforce),
Engineering and Life Sciences (Clinical Research and Quality Assurance).
Netherlands (including Spain) (19% of Group net fees)
FY23 FY22 Variance
Performance highlights Reported Like-for-like
Revenue (£'000) 367,643 323,963 +14% +11%
Net fees (£'000) 82,149 75,661 +8% +6%
Average total headcount (FTE) 422 389 +8% n/a
Impact of megatrends
The region is responding to client demand for digitisation by investing in AI
and cloud infrastructure. It is also seeing significant spend on
decarbonisation. Although hydrogen is still in its infancy, we anticipate
client demand in this sector to increase in coming years; therefore, we have
been building our capability to secure a significant part of this market
opportunity.
There is a shifting attitude to work. Remote and hybrid working expanded
dramatically during the pandemic but the legal framework regulating them
lagged behind and employers are realising they may need to fill the gap with
their own policies. SThree, with its state-of-the-art systems for managing
contract employment, is well placed to provide this support.
FY23 performance highlights
Like for like, this region saw net fees grow by 6% year on year, with strong
growth in Contract, up 7%, partially offset by Permanent which was down 2%.
The Netherlands, which represents 94% of the region, saw a net fees growth of
3%, with Engineering up 8% and Technology up 3% YoY driven by demand for
skills within Enterprise Resource Planning (ERP), data and digitalisation
projects. Spain had an impressive year, with net fee growth of 82% driven
primarily by Technology.
Our people
Our focus this year has been on retention programs. We built on our
partnership with Nyenrode University to provide leadership training for our
business managers and tested improved reward communications with the
introduction of total reward statements.
Reasons for confidence
Two megatrends continue to drive up demand in the Netherlands STEM labour
market: the increasing requirement for specialist STEM skills linked to future
technologies within Technology and Engineering skill verticals, particularly
in relation to renewable energy, and the reduction in the talent pool that is
resulting from the demographical changes in particular a growing proportion of
an aging workforce retiring faster than ever.
In Spain we see a demand for contingent labour continuing to grow,
particularly within the Retail, Banking and Financial, and Energy sectors.
Rest of the Europe (17% of Group net fees)
FY23 FY22 Variance
Performance highlights Reported Like-for-like
Revenue (£'000) 399,862 394,351 +1% -
Net fees (£'000) 70,439 73,093 -3% -4%
Average total headcount (FTE) 499 547 -9% n/a
Impact of megatrends
Our Rest of Europe region is made up of businesses in the UK, Belgium and
France. In these markets, as globally, there is a shift from Permanent hires
to Contract, in large part due to project-specific hiring. With strong
extensions and increased contract lengths, we saw a 3% increase YoY in
Contract net fees.
AI is a hot topic amongst customers. Our report, How the STEM World Evolves,
revealed the rise of AI and automation caused concerns among STEM
professionals, with 34% worried about consequent job loss
(https://www.sthree.com/en-gb/insights-and-research/how-the-stem-world-evolves/ai-and-automation/)
es. However, the impact of these two technologies on recruitment is yet to be
seen and the prevailing view is that they will become another skill verticals,
creating more job opportunities in STEM with a positive impact on the number
of STEM specialists that companies employ.
The UK market is experiencing a green jobs boom as businesses seek to
decarbonise and reach challenging net zero targets. Demand for talent in the
clean energy sector is expected to grow YoY; reskilling and upskilling STEM
specialists will be essential to bridge the skills gap in this area.
FY23 performance highlights
Net fees saw a decline of 4% YoY. Contract, which represents 95% of net fees
for the region, grew 3%, with Permanent declining 59%, driven by both market
conditions and the transition towards Contract.
The UK, the largest country market in the region (64% of net fees), saw net
fees decline by 3% YoY, driven by Engineering, up 10%, as demand increased for
roles within Project and Construction Management, Electrical and Mechanical
Engineering, offset by decline in both Technology, down 5%, and Life Sciences,
down 27%. Belgium saw net fees up 13% and France was down 3%. Average
headcount for the region was down 9% YoY, with year-end headcount down 24%.
Our people
We built our Employee Value Proposition through several initiatives this year.
All our most senior people managers completed the Leading with Purpose
programme which gave them training in the four essential roles of leadership.
This will enhance their, and their teams' performance, as they build a
supportive culture. New compensation frameworks were adopted for all levels as
we invested in base salaries on a targeted basis and reviewed reward schemes
to ensure they are driving the right performance behaviours.
Reasons for confidence
Despite geopolitical and economic uncertainties, we remain confident about the
region's growth prospects. The implementation of the TIP alongside our focus
on STEM will be strong differentiators, and we remain confident this will
enable the business to capture more market share across the region.
By implementing dynamic and responsive strategies, the region is actively
adapting to meet the evolving needs of its customers. Besides flexible working
offering, it involves a deep understanding of STEM market, knowing the right
skills that are vital for clients' long-term success, and wider shifts in the
recruitment environment. The region's overarching goal is to maintain focus
and clarity, meticulously track leads and pipelines, and strategically invest
in its people to help them succeed.
Middle East & Asia (5% of Group net fees)
FY23 FY22 Variance
Performance highlights Reported Like-for-like
Revenue (£'000) 42,637 43,897 -3% +1%
Net fees (£'000) 20,852 21,395 - +3%
Average total headcount (FTE) 185 208 -11% n/a
Impact of megatrends
Life Sciences and Research-led Healthcare were the key drivers behind demand
for STEM talent in the region. Clients continued to appoint talent with skills
to keep up with increasing technological complexity. Digitisation was also a
significant demand driver as clients sought to harness the potential it offers
for business transformation.
FY23 performance highlights
The region saw net fees increase by 3% YoY. Excluding the restructured
businesses in Singapore and Hong Kong, net fees were up 20% YoY. Japan, which
represents 45% of the region, was up 6% YoY, driven by Engineering and Life
Sciences. Japan's Contract net fees were up 32% and Permanent up 5%. Strong
performance was also reported in UAE with net fees up 41% driven by
Engineering.
Our people
More than 60% of our regional leadership team have been with SThree since
joining through our graduate programme. Such strong retention of some of our
best talent demonstrates we have a compelling Employee Value Proposition and
are a preferred employer in the sector. This was confirmed independently this
year when we were recognised as a Great Place to Work-Certified™ company by
the Great Place to Work® organisation, a global authority on workplace
culture.
One of the attractions for graduates is the opportunities we offer for both
mentors and mentees. Beyond their core job role, all our people have the
opportunity to participate in community initiatives that promote DE&I and
ESG goals.
Reasons for confidence
Our specialism in major STEM disciplines, combined with our global reach,
gives us a significant edge over competitors in the region. Our office
footprint and consultants immersed in the prevailing culture, provide the
region with insights into clients' key challenges. We are well placed to build
candidate relationships and source talent.
In line with our global strategy, we will continue to increase our investment
into the Middle East & Asia region, with a focus on growing our business
in Japan and Dubai.
chief financial officer's STATEMENT
We delivered a resilient performance underpinned by our strategic focus on
Contract in STEM markets, while the wider macro-economic environment remained
challenging.
Income statement
On a reported basis revenue for the year was up 1% 1 (#_ftn1) and amounted to
£1.7 billion (FY22: £1.6 billion) while net fees declined by 3% to £418.8
million (FY22 £430.6 million). The strengthening of our two main trading
currencies, the US Dollar and the Euro, against Sterling during the year,
increased the total net fees by £5.6 million. Therefore, when presented on a
constant currency basis, the net fees decreased by 4% YoY.
Net fee growth in our Contract business was driven by robust contract
extensions from clients with demand for candidates with STEM skills across
most of our regions, with net fees growth of 1%. This was led by the
Netherlands region, which was up 7%, Rest of Europe, up 3%, and Middle East
& Asia, up 29%, while DACH and USA were down by 1% and 4% respectively.
This performance was driven by strong growth in Engineering, which was up 18%
YoY, and Technology, up 1%, with Life Sciences down 14% reflecting global
sector conditions. Our ECM proposition also continued to deliver encouraging
performance and was up by 3% YoY. Group Contract net fees as a percentage of
Contract revenue 2 (#_ftn2) remained consistent YoY at 21.7% (FY22: 21.7%),
and at the end of the year Contract represented 82% of the Group net fees in
the year (FY22: 78%).
The contractor order book closed at £183.5 million, down 3% YoY against a
record prior year comparative, and accounts for approximately four months'
worth of net fees, providing us with sector-leading visibility into FY24.
Permanent net fees were down 22% reflecting challenging market conditions
across all regions, and our planned transition from Permanent to Contract in
several markets, particularly in the USA and UK. Our largest Permanent market,
DACH, reported a decline of 8%. Netherlands region was down 1%, and Japan was
up 5%. Permanent average fee increased by 6% YoY in the year, with average
permanent fee margin (net fees as a percentage of salary) now at 27.1% (FY22:
25.3%).
Operating expenses decreased by 3% YoY on a reported basis, amounting to
£342.4 million (FY22: £353.1 million). This decline resulted from lower
personnel costs as average headcount declined by 2% compared to FY22.
The reported operating profit was £76.4 million (FY22: £77.6 million), down
5% YoY in constant currency while the Group operating profit conversion
ratio(2) increased to 18.2% (FY22: 18.0%). Operating profit conversion ratio
reflects the ongoing exceptional levels of productivity, that despite the
challenging macro environment dropped just 2% in the year, combined with tight
cost control, whilst also benefiting from spend recognition timing on the
Technology Improvement Programme (TIP) (without impacting delivery). Excluding
the TIP, for which £3.8 million was expensed in FY23, an operating profit
conversion ratio of 19.2% was achieved. The net currency movements versus
Sterling were favourable to the operating profit, providing a £2.3 million
benefit. Fluctuations in foreign currency exchange rates are expected to
remain a material sensitivity to the Group's reported results. By way of
illustration, each 1% movement in annual exchange rates of the Euro and US
Dollar against Sterling impacts the Group's operating profit by £0.9 million
and £0.3 million respectively per annum.
Net finance income
The Group received net finance income of £1.6 million as compared to net
finance costs of £0.5 million in the previous year. This was driven by
significantly higher interest rates applied to the Group's bank deposits.
Income tax
The total tax charge for the year on the Group's profit before tax was £21.9
million (FY22: £22.8 million), representing a full year effective tax rate
(ETR) of 28.1% (FY22: 29.6%). The Group's ETR also varies depending on the mix
of taxable profits by territory, non-deductibility of the accounting charge
for LTIPs and other one-off tax items. The FY23 ETR is lower than in the prior
year due to a change in the profit mix and FY22 being impacted by unrecognised
losses arising from the restructure of Singapore and Ireland, and the closure
of Hong Kong.
Overall, the reported profit before tax was £77.9 million, down 2% YoY in
constant currency and up 1% on a reported basis (FY22: £77.0 million).
The reported profit after tax was £56.1 million, flat YoY in constant
currency and up 3% on a reported basis (FY22: £54.2 million).
Earnings per share (EPS)
The EPS was 42.4 pence (FY22: 41.0 pence). The YoY movement is attributable to
the lower operating profit offset by net interest earned on cash balances,
lower Group ETR and a decrease of 0.1 million in the weighted average number
of shares.
The diluted EPS was 41.5 pence (FY22: 39.9 pence). Share dilution mainly
results from various share options in place and expected future settlement of
vested tracker shares. The dilutive effect on EPS from tracker shares will
vary in future periods, depending on the profitability of the underlying
tracker businesses and the settlement of vested arrangements.
Dividends and distributable reserves
The Board monitors the appropriate level of dividend, considering achieved and
expected trading of the Group, together with its balance sheet position. The
Board aims to offer shareholders long-term ordinary dividend growth within a
targeted dividend cover(2) range of 2.5x to 3.0x through the cycle.
The Board has proposed to pay a final dividend at 11.6 pence (FY22: 11.0
pence) per share, which together with the interim dividend of 5.0 pence (FY22:
5.0 pence) per share, will give the total dividend of 16.6 pence (FY22: 16.0
pence) per share for FY23.
The final dividend, which amounts to approximately £15.3 million, will be
subject to shareholder approval at the 2024 Annual General Meeting. It will be
paid on 7 June 2024 to shareholders on the register on 10 May 2024.
Balance sheet
Total Group net assets increased to £222.9 million (FY22: £200.4 million),
driven by the excess of net profit over the dividend payments, £6.2 million
increase in intangible assets attributable to development costs capitalised
under the TIP and favourable foreign currency movements, partially offset by
cost of shares purchased by the Employee Benefit Trust. Net working capital,
including contract assets, decreased by £2.1 million on the prior year,
driven mainly by the slowdown in trading, including reduced contractor order
book. Our days sales outstanding remained largely unchanged at 45.7 days
(FY22: 45.2 days); a slight YoY increase was mainly due to a change of '>60
days' debt profile which went from 7% to 8% of the book. To reflect the more
challenging macroeconomic backdrop, we have increased the provision for
impairment of trade receivables by £4.9 million.
Our business model remains highly cash generative, and we have no undue
concentration of repayment obligations in respect of trade payables or
borrowings.
Investments in subsidiaries
The subsidiary undertakings principally affecting the profits and net assets
of the Group are listed in note 24 to the Consolidated Financial Statements.
The recoverable amounts of the Company's key trading subsidiaries remained
strong in the current year. However, due to a continued underperformance in
trading in Luxembourg and Canada, a small impairment charge of £0.1 million
was recorded in the Company's separate books for FY23. This impairment charge
did not impact the Group consolidated results.
An impairment loss of £0.9 million recognised by the Company in the prior
year was in relation to three businesses, which were either restructured or
closed down.
Tracker shares
The Group settled certain vested and unvested tracker shares during the year
for a total consideration of £4.5 million which was determined using a
formula set out in the Articles of Association underpinning the tracker share
businesses. The consideration was settled in SThree plc shares; 320,457 new
shares were issued and 928,483 of shares held by the EBT were utilised. The
arrangement is deemed to be an equity-settled share-based payment arrangement
under IFRS 2 Share-based payments. There was no charge to the income statement
as initially the tracker shareholders subscribed to the tracker shares at
their fair value.
All current tracker share businesses remaining in existence will continue to
be reviewed for settlement based on the pre-agreed criteria each year, until
the full closure of the scheme in the next few years. As at the year end,
the valuation of the outstanding shareholdings was approximately £8m. These
settlements may either dilute the earnings of SThree plc's existing ordinary
shareholders if funded by a new issue of shares or result in a cash outflow if
funded via treasury shares or shares held in the EBT.
Liquidity management
In FY23, cash generated from operations was £93.3 million (FY22: £64.4
million). The increase was primarily driven by a release in working capital,
as the rate of new placement activity slowed down, partially offset by robust
Contract extensions. Income tax paid increased to £19.5 million (FY22: £18.9
million).
Capital expenditure increased to £8.2 million (FY22: £3.7 million), due to
the Group-wide TIP and related IT hardware costs. The capital expenditure also
included costs of leasehold improvements and fitting out certain of our office
portfolio.
The Group paid £14.9 million in rent (principal and interest portion) (FY22:
£14.3 million). The Group spent £10.0 million (FY22: £9.9 million) for the
purchase of its own shares to satisfy employee share incentive schemes. Cash
inflows of £0.3 million (FY22: £0.5 million) were generated from Save As You
Earn employee scheme.
Dividend payments were £27.4 million (FY22: £14.7 million, being the final
dividend paid in June 2022) and there was a small cash outflow of £0.1
million (FY22: £0.1 million) representing distributions to tracker
shareholders.
Foreign exchange had a significant positive impact of £2.1 million (FY22:
positive impact £4.5 million).
Overall, the underlying cash performance in FY23 was strong, reflecting
primarily improved working capital partially offset by the acquisition cost of
own shares purchased by the Employee Benefit Trust. We started the year with
net cash of £65.4 million and closed the year with net cash of £83.2
million.
Capital allocation and accessible funding
SThree remains disciplined in its approach to allocating capital, with the
core objective at all times being to maximise shareholder value. The Group's
capital allocation policy is reviewed periodically by the Board and was
refreshed at the start of 2024:
• Balance sheet - our intention is to maintain a strong balance sheet at all
times to provide operational flexibility throughout the business cycle.
• Dividend - we aim to pay a sustainable dividend, with a commitment to a
through the cycle dividend cover range of 2.5x to 3.0x of EPS.
• Deployment of capital prioritised in the order of:
1. Organic growth: Investing in our people and ensuring sufficient working
capital on hand to fund growth in the contractor order book while developing
new business opportunities.
2. Business improvement: Digitalising our business, putting in place the
technology and tools that are key to driving both scale and higher margins.
3. Acquisitions: Strict inorganic growth discipline, with a focus on
complementary and value enhancing acquisitions.
4. Capital return to shareholders: After all organic and inorganic opportunities
within an appropriate time horizon have been assessed, further cash returns to
shareholders may be considered.
The Group's capital allocation priorities are financed mainly by retained
earnings, cash generated from operations, and a £50.0 million Revolving
Credit Facility (RCF). This has remained undrawn during the year, but any
funds borrowed under the RCF would bear a minimum annual interest rate of 1.2%
above the benchmark Sterling Overnight Index Average. The Group also maintains
a £30.0 million accordion facility as well as a substantial working capital
position reflecting net cash due to SThree for placements already undertaken.
At the end of the current financial year, the Group did not draw down any of
the above credit facilities (FY22: £nil).
On 30 November 2023, the Group had total accessible liquidity of £138.2
million, made up of £83.2 million in net cash (FY22: £65.4 million), the
£50.0 million RCF and a £5.0 million overdraft facility (undrawn at the year
end).
PRINCIPAL AND EMERGING RISKS
Principal risks and uncertainties affecting the business activities of the
Group will be detailed within the Strategic Report section of the Group's 2023
Annual Report, a copy of which will be available on the Group's website
www.sthree.com (http://www.sthree.com) .
Delivering on our strategy requires all parts of our business to work
together. In isolation risk mitigation helps SThree manage specific subjects
and areas of the business. However, when brought into our day-to-day
activities, successful risk management has helped us to maximise our
competitive advantage and deliver on our strategic pillars in FY23. While the
ultimate responsibility for risk management rests with the Board, the
effective day-to-day management of risk is in the way we do business and our
culture.
Aligning risks and strategy by using risk to help make the right strategic
decisions - in order to deliver our strategy and competitive advantage
throughout the business we must ensure that we maintain a balance between
safeguarding against potential risks and taking advantage of all potential
opportunities.
consolidated income statement
for the year ended 30 November 2023
£'000 Note 2023 2022
Continuing operations
Revenue 2 1,663,167 1,639,446
Cost of sales (1,244,392) (1,208,830)
Net fees 2 418,775 430,616
Administrative expenses 3 (336,076) (349,301)
Impairment losses on financial assets (6,343) (3,763)
Operating profit 76,356 77,552
Finance income 2,257 141
Finance costs (698) (667)
Profit before income tax 77,915 77,026
Income tax expense 4 (21,864) (22,824)
Profit for the year attributable to the owners of the Company 56,051 54,202
Earnings per share attributable to shareholders
pence
Basic 5 42.4 41.0
Diluted 5 41.5 39.9
consolidated statement of comprehensive income
for the year ended 30 November 2023
£'000 2023 2022
Profit for the year 56,051 54,202
Other comprehensive (loss)/income:
Items that may be subsequently reclassified to income statement
Exchange differences on retranslation of foreign continuing operations (1,437) 7,096
Items that will not be subsequently reclassified to profit or loss:
Net loss on equity instruments at FVOCI - (1)
Other comprehensive (loss)/income for the year (net of tax) (1,437) 7,095
Total comprehensive income for the year attributable to owners of the Company 54,614 61,297
The accompanying notes form an integral part of these Consolidated Financial
Statements.
consolidated statement of financial position
as at 30 November 2023
As at As at
30 November 30 November
£'000 Note 2023 2022
ASSETS
Non-current assets
Property, plant and equipment 31,116 35,249
Intangible assets 6 7,066 846
Deferred tax assets 5,799 4,616
Total non-current assets 43,981 40,711
Current assets
Trade and other receivables 345,120 363,884
Cash and cash equivalents 7 83,202 65,809
Total current assets 428,322 429,693
Total assets 472,303 470,404
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital 8 1,349 1,345
Share premium 8 39,700 38,239
Other reserves (3,597) (802)
Retained earnings 185,432 161,610
Total equity 222,884 200,392
Current liabilities
Bank overdraft 7 - 423
Trade and other payables 200,132 216,842
Lease liabilities 9, 10 11,297 11,102
Provisions 7,373 7,871
Current tax liabilities 10,746 7,391
Total current liabilities 229,548 243,629
Non-current liabilities
Lease liabilities 9, 10 17,720 22,600
Provisions 2,151 3,783
Total non-current liabilities 19,871 26,383
Total liabilities 249,419 270,012
Total equity and liabilities 472,303 470,404
The accompanying notes form an integral part of these Consolidated Financial
Statements.
consolidated statement of changes in equity
for the year ended 30 November 2023
Share Share Capital Capital Treasury reserve Currency Fair value reserve of equity investments Retained Total equity attributable to owners of the Company
capital
premium
redemption
reserve
translation
earnings
reserve
reserve
£'000
Balance at 1 December 2021 1,337 35,466 172 878 (3,367) (2,354) (12) 126,033 158,153
Profit for the year - - - - - - - 54,202 54,202
Other comprehensive income for the year - - - - - 7,096 (1) - 7,095
Total comprehensive income/(loss) for the year - - - - - 7,096 (1) 54,202 61,297
Dividends paid to equity holders (note 11) - - - - - - - (14,650) (14,650)
Distributions to tracker shareholders - - - - - - - (116) (116)
Settlement of vested and unvested tracker shares 6 2,265 - - 3,835 - - (5,629) 477
Settlement of share-based payments 2 508 - - 2,851 - - (2,851) 510
Purchase of shares by Employee Benefit Trust - - - - (9,900) - - - (9,900)
Credit to equity for equity-settled share-based payments - - - - - - - 4,999 4,999
Current and deferred tax on share-based payment transactions - - - - - - - (378) (378)
Total movements in equity 8 2,773 - - (3,214) 7,096 (1) 35,577 42,239
Balance at 30 November 2022 and 1 December 2022 1,345 38,239 172 878 (6,581) 4,742 (13) 161,610 200,392
Profit for the year - - - - - - - 56,051 56,051
Other comprehensive income for the year - - - - - (1,437) - - (1,437)
Total comprehensive (loss)/income for the year - - - - - (1,437) - 56,051 54,614
Dividends paid to equity holders (note 11) - - - - - - - (27,373) (27,373)
Distributions to tracker shareholders - - - - - - - (94) (94)
Settlement of vested and unvested tracker shares 3 1,198 - - 3,987 - - (4,795) 393
Settlement of share-based payments 1 263 - - 4,655 - - (4,870) 49
Purchase of shares by Employee Benefit Trust - - - - (10,000) - - - (10,000)
Credit to equity for equity-settled share-based payments - - - - - - - 4,871 4,871
Current and deferred tax on share-based payment transactions - - - - - - - 32 32
Total movements in equity 4 1,461 - - (1,358) (1,437) - 23,822 22,492
Balance at 30 November 2023 1,349 39,700 172 878 (7,939) 3,305 (13) 185,432 222,884
The accompanying notes form an integral part of these Consolidated Financial
Statements.
consolidated statement of cash flows
for the year ended 30 November 2023
£'000 Note 30 November 30 November
2023 2022
Cash flows from operating activities
Profit before tax 77,915 77,026
Adjustments for:
Depreciation and amortisation charge 15,914 18,902
Loss on disposal of property, plant and equipment other than right-of-use 160 122
assets
Gain on lease modification - (266)
Impairment of intangible assets - 499
Loss on disposal of intangible assets - 1,176
Finance income (2,257) (141)
Finance costs 698 667
Non-cash charge for share-based payments 4,871 4,999
Operating cash flows before changes in working capital and provisions 97,301 102,984
Decrease/(increase) in receivables 10,019 (59,288)
(Decrease)/increase in payables (11,821) 17,174
(Decrease)/increase in provisions (2,220) 3,510
Cash generated from operations 93,279 64,380
Interest received 2,257 141
Income tax paid (19,495) (18,922)
Net cash generated from operating activities 76,041 45,599
Cash flows from investing activities
Purchase of property, plant and equipment (1,975) (3,407)
Purchase of intangible assets 6 (6,237) (265)
Net cash used in investing activities (8,212) (3,672)
Cash flows from financing activities
Interest paid 10 (698) (667)
Lease principal payments 10 (14,250) (13,721)
Proceeds from exercise of share options 264 510
Purchase of shares by Employee Benefit Trust 8 (10,000) (9,900)
Dividends paid to equity holders 11 (27,373) (14,650)
Distributions to tracker shareholders (94) (109)
Net cash used in financing activities (52,151) (38,537)
Net increase in cash and cash equivalents 15,678 3,390
Cash and cash equivalents at beginning of the year 65,386 57,502
Exchange gains relating to cash and cash equivalent 2,138 4,494
Net cash and cash equivalents at end of the year 7 83,202 65,386
The accompanying notes form an integral part of these Consolidated Financial
Statements.
Notes to the Financial information
for the year ended 30 November 2023
1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
Basis of preparation
The financial information in this preliminary announcement has been extracted
from the Group audited financial statements for the year ended 30 November
2023 and does not constitute statutory accounts within the meaning of section
434 of the Companies Act 2006. The Group financial statements and this
preliminary announcement were approved by the Board of Directors on 29 January
2024.
The auditors have reported on the Group's financial statements for the years
ended 30 November 2023 and 30 November 2022 under s495 of the Companies Act
2006. The auditors' reports are unqualified and do not contain a statement
under section 498(2) or (3) of the Companies Act 2006. The Group's statutory
financial statements for the year ended 30 November 2022 were filed with the
Registrar of Companies and those for the year ended 30 November 2023 will be
filed following the Company's Annual General Meeting.
The Consolidated Financial Statements have been prepared in accordance with
UK-adopted International Accounting Standards (IAS) and International
Financial Reporting Standards (IFRS) and in conformity with the requirements
of the Companies Act 2006 as applicable to companies reporting under those
standards, including interpretations issued by the IFRS Interpretations
Committee.
Going concern
The Consolidated Financial Statements have been prepared on a going concern
basis. The Directors have reviewed the Group's cash flow forecasts, considered
the assumptions contained in the budget and medium-term forecasts, and
considered associated principal risks which may impact the Group's performance
in the 12 months from the date of approval of this year's financial statements
and in the period immediately thereafter.
At 30 November 2023, the Group had no debt except for lease liabilities of
£29.0 million. Credit facilities relevant to the review period comprise a
committed £50.0 million RCF (with the expiry date of June 2026, with an
extension option to 2027) and an uncommitted £30.0 million accordion
facility, both jointly provided by HSBC and Citibank. These facilities
remained undrawn on 30 November 2023. A further uncommitted £5.0 million bank
overdraft facility (undrawn at the year end) is also held with HSBC.
In addition, the Group has £83.2 million of cash and cash equivalents
available to fund its short-term needs, as well as a substantial working
capital position, reflecting net cash due to SThree for placements already
undertaken.
Despite the ongoing challenging market conditions, the Group has delivered a
resilient net fee performance in FY23, supported by the strength of its
well-established strategy. In addition, the Group's targeted investment in
talent and digital infrastructure is progressing as planned, positioning the
Group to scale with sustainable margins, in line with the 2024 ambitions. The
Directors considered the current and possible future impact from the
macro-economic environment, which is expected to remain volatile in the short
term, on new placement activity and in turn on the Group's net fees
performance. The Directors also considered expected cash outflows attributable
to investments in people, talent acquisition and infrastructure in response to
identified market opportunities and emerging risks.
Based on this analysis, the Directors have formed a judgement that the Group
has adequate resources to continue in operational existence for at least the
next 12 months from the date of approval of the Group's Consolidated Financial
Statements, and there are no plausible downside scenarios that would cause an
issue for the Group's going concern status. The Directors have therefore
considered it appropriate to prepare the Group's Consolidated Financial
Statements on the going concern basis.
Climate change consideration
Climate change is a significant issue for the world and the transition to a
low-carbon economy will create both risks and opportunities for the Group. The
management team has considered the impact of climate change in preparing these
Consolidated Financial Statements in the areas as listed below. These
considerations are not viewed to be key areas of judgements or sources of
estimation uncertainty in the current financial year.
- The going concern and viability of the Group over the next five years,
including the potential impact of climate-related risks, such as SThree's
offices impacted by heightened physical risks affecting our operational
ability to place contractors and service the existing contracts, resulting in
lower revenue and income. This is subject to the ongoing assessment by the
management team performed using three climate-related scenarios for 2023-2040.
The assessment helps to continually test SThree's strategic resilience and its
flexibility to adapt operations to ever-changing risks and opportunities as a
consequence of climate change to drive continued growth.
- Useful lives of fixed assets: the impact of climate change is not considered
to be material on our existing asset base including on factors like residual
values, useful lives and depreciation methods which determine the carrying
value of non-current assets. Although the Group has plans to invest in
low-carbon technology as part of its net zero commitment, there is no
immediate risk of material adjustment to the carrying values of the existing
assets in the next financial year's results. Over the course of our net zero
path, the existing fixed assets are expected to be fully depreciated within
the next five to seven years.
- Recoverability of trade receivables and contract assets: the impact of
climate-related matters could have an impact on the Group's clients in the
future, especially, clients whose businesses/operations could be negatively
affected by the introduction of emission-reduction legislation, energy
transition plans or by extreme weather and other physical conditions, which
could lead to increase in manufacturing costs, dilapidation of their asset
base and their ability to pay debts. No material climate-related issues have
arisen during the current year that have impacted our assessment of the
recoverability of receivables. The Group's ECL allowance uses credit ratings
which inherently include the market's assessment of the climate change impact
on credit risk of our clients. Given the short-term maturity of trade
receivables including contract assets, climate change is unlikely to
materially increase our credit risk.
- Share-based payments: some performance conditions of the Long-Term Incentive
Plan for members of the Executive Committee are linked and measured against
ESG metrics since the 2022 financial year. This could impact the future amount
of the recognition of the share-based payment expense in the Group income
statement. However, as the ESG-related performance condition constitutes 10%
of each grant, the impact is low.
- Segmental reporting: in our response to climate change and transition to a
net zero target, there has been yet no change to the management information
provided to, and reviewed by, the chief operating decision maker each month.
Whilst there is currently no material medium-term impact expected from climate
change, the management team is aware of the ever-changing risks and will
continue to regularly monitor these risks against judgements and estimates
made in preparation of the Group's financial statements.
Accounting policies
The accounting policies used in the preparation of the Consolidated Financial
Statements are consistent with those applied in the previous financial year,
except for the adoption of new and amended standards effective as of 1
December 2022 as set out below.
New and amended standards effective in 2023 and adopted by the Group
The following amendments to the accounting standards, issued by the IASB and
endorsed by the UK and EU, have been adopted by the Group and became
applicable as of 1 December 2022. The Group did not have to change its
accounting policies or make retrospective adjustments as a result of adopting
these amended standards.
- Reference to the Conceptual Framework (amendments to IFRS 3 Business
Combinations).
- Property, plant and equipment - proceeds before intended use (amendments to
IAS 16 Property, Plant and Equipment).
- Onerous contracts - cost of fulfilling a contract (amendments to IAS 37
Provisions, Contingent Liabilities and Contingent Assets).
- Annual improvements to IFRS 2018-2020 (amendments to the following
standards: IFRS 1 First-time Adoption of IFRS, IFRS 9 Financial Instruments,
IFRS 16 Leases and IAS 41 Agriculture).
New and amended standards that are applicable to the Group but not yet
effective
As at the date of the financial information in this preliminary announcement,
the following amendments to existing standards were in issue but not yet
effective. Subject to the endorsement by the UKEB, these changes are effective
for the SThree's financial year beginning 1 December 2023. These amendments
are not expected to have a material impact on the Group in the current or
future financial years.
- Disclosure of Accounting Policies (Amendments to IAS 1 Presentation of
Financial Statements and IFRS Practice Statement 2).
- Definition of Accounting Estimates (Amendments to IAS 8 Accounting policies,
Changes in Accounting Estimates and Errors).
- Deferred Tax Related to Assets and Liabilities Arising from a Single
Transaction (Amendments to IAS 12 Income Taxes).
- International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12
Income Taxes).
- IFRS 17 Insurance Contracts, a standard that is ultimately intended to
replace IFRS 4 Insurance Contracts.
The Group has not early adopted any standard, interpretation or amendment that
has been issued but is not yet effective.
2. OPERATING SEGMENTS
The Group's operating segments are established on the basis of those
components of the Group that are regularly reviewed by the Group's chief
operating decision making body, in deciding how to allocate resources and in
assessing performance. The Group's business is considered primarily from a
geographical perspective.
The Directors have determined the chief operating decision-making body to be
the Executive Committee made up of the Chief Executive Officer, the Chief
Financial Officer, the Chief Operations Officer, the Chief Commercial Officer
and the Chief People Officer, with other senior management attending via
invitation.
In the current financial year, the Group has changed its reporting structure
and going forward it will segment the business into the following reportable
regions: DACH, Netherlands (including Spain, which is managed from the
Netherlands), Rest of Europe, USA and Middle East & Asia. The comparative
numbers have been restated in accordance with the new reporting structure. The
reporting structure in the previous year was EMEA excluding DACH, DACH, USA
and APAC.
The Group will continue to present separately the net fees of its five key
markets: Germany, the Netherlands, the USA, the UK and Japan. In addition,
what it previously was referred to sectors, has now been renamed as 'skills
mix'. Finally, Contract and Permanent are from now on referred to as 'service
mix'.
DACH region comprises Austria, Germany and Switzerland. Rest of Europe
comprises the UK, Belgium and France, and Middle East & Asia includes
Japan and UAE.
Countries aggregated into DACH and separately into Rest of Europe have similar
economic risks and prospects, i.e. they are expected to generate similar
average gross margins over the long term, and are similar in each of the
following areas:
- the nature of the services (recruitment/candidate placement);
- the methods used in which they provide services to clients (independent
contractors, employed contractors, and permanent candidates); and
- the class of candidates (candidates, who we place with our clients,
represent skillsets in Life Sciences, Technology and Engineering disciplines).
The Group's management reporting and controlling systems use accounting
policies that are the same as those described in these financial statements
and the accompanying notes.
Revenue and net fees by reportable segment
The Group assesses the performance of its operating segments through a measure
of segment profit or loss which is referred to as 'net fees' in the management
reporting and controlling systems. Net fees 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 Net fees
£'000 2023 2022 2023 2022
(restated) (restated)
DACH 524,732 539,014 148,925 148,922
Rest of Europe 399,862 394,351 70,439 73,093
Netherlands including Spain 367,643 323,963 82,149 75,661
USA 328,293 338,221 96,410 111,545
Middle East & Asia 42,637 43,897 20,852 21,395
1,663,167 1,639,446 418,775 430,616
Split of revenue from contracts with customers
The Group derives revenue from the transfer of services over time and at a
point in time in the following geographical regions:
2023 DACH Rest of Europe Netherlands including Spain USA Middle East & Asia Total
£'000
Timing of revenue recognition
Over time 483,491 396,354 358,122 316,866 29,382 1,584,215
At a point in time 41,241 3,508 9,521 11,427 13,255 78,952
524,732 399,862 367,643 328,293 42,637 1,663,167
2022 (restated) DACH Rest of Europe Netherlands including Spain USA Middle East & Asia Total
£'000
Timing of revenue recognition
Over time 495,268 385,772 315,371 315,134 28,778 1,540,323
At a point in time 43,746 8,579 8,592 23,087 15,119 99,123
539,014 394,351 323,963 338,221 43,897 1,639,446
Major customers
In FY23 and FY22, no single customer generated more than 10% of the Group's
revenue.
Other information
The Group's revenue from external customers, its net fees and information
about its segment assets (non-current assets excluding deferred tax assets) by
key location are detailed below:
Revenue Net fees
£'000 2023 2022 2023 2022
Germany 453,537 468,352 130,875 131,880
Netherlands 350,295 314,156 77,073 72,931
USA 328,293 338,221 96,410 111,545
UK 263,461 262,999 44,953 46,689
Japan 10,813 10,793 9,317 9,410
RoW ((1)) 256,768 244,925 60,147 58,161
1,663,167 1,639,446 418,775 430,616
30 November 30 November
£'000 2023 2022
Non-current assets
Germany 11,891 16,313
UK 11,458 5,374
Netherlands 5,678 2,149
Japan 2,730 4,144
USA 2,687 3,962
RoW ((1)) 3,738 4,153
38,182 36,095
(1) RoW (Rest of the World) includes all countries other than listed.
Non-current assets do not include Deferred Tax Assets as they are not reviewed
by the CODM.
The following segmental analysis by brands, recruitment classification and
sectors (being the profession of candidates placed) has been included as
additional disclosure to the requirements of IFRS 8 Operating Segments.
Revenue Net fees
£'000 2023 2022 2023 2022
Brands
Progressive 565,938 475,142 143,666 124,877
Computer Futures 538,710 564,844 137,591 143,932
Real Staffing Group 316,062 365,708 83,740 104,901
Huxley Associates 242,457 233,752 53,778 56,906
1,663,167 1,639,446 418,775 430,616
Other brands including Global Enterprise Partners, JP Gray, Madison Black,
Newington International and Orgtel are rolled into the above brands.
Revenue Net fees
£'000 2023 2022 2023 2022
Service mix
Contract 1,584,215 1,540,323 343,502 334,215
Permanent 78,952 99,123 75,273 96,401
1,663,167 1,639,446 418,775 430,616
Revenue Net fees
£'000 2023 2022 2023 2022
Skills mix
Technology 842,634 838,649 202,510 203,184
Engineering 415,357 341,850 108,820 92,083
Life Sciences 270,235 319,734 75,516 95,172
Other 134,941 139,213 31,929 40,177
1,663,167 1,639,446 418,775 430,616
3. ADMINISTRATIVE EXPENSES
Operating profit is stated after charging/(crediting):
£'000 2023 2022
Staff costs 255,007 266,010
Depreciation 15,898 18,682
Amortisation 16 220
Loss on disposal of property, plant and equipment 160 122
Gain on lease modification - (266)
Impairment of intangible assets - 499
Loss on disposal of intangible assets - 1,176
Service lease charges - Buildings 2,176 2,426
Service lease charges - Cars 1,890 1,391
Foreign exchange losses 1,882 1,164
4. INCOME TAX EXPENSE
(a) Analysis of tax charge for the year
£'000 2023 2022
Current income tax
Corporation tax charged on profits for the year 23,679 23,409
Adjustments in respect of prior periods (447) (133)
Total current tax charge 23,232 23,276
Deferred income tax
Origination and reversal of temporary differences (1,117) (395)
Adjustments in respect of prior periods (251) (57)
Total deferred tax credit (1,368) (452)
Total income tax charge in the Consolidated Income Statement 21,864 22,824
(b) Reconciliation of the effective tax rate
The Group's tax charge for the year exceeds (FY22: exceeds) the UK statutory
rate and can be reconciled as follows:
£'000 2023 2022
Profit before income tax for the Group 77,915 77,026
Profit before income tax multiplied by the standard rate of corporation tax in 17,920 14,635
the UK at 23.0% (FY22: 19.0%)
Effects of:
Disallowable items 1,720 1,905
Differing tax rates on overseas earnings 2,524 5,590
Adjustments in respect of prior periods (697) (190)
Adjustments due to tax rate changes (1) (294)
Tax losses for which deferred tax asset was not recognised or derecognised 398 1,178
Total tax charge for the year 21,684 22,824
At the effective tax rate 28.1% 29.6%
(c) Current and deferred tax movement recognised
directly in equity
£'000 2023 2022
Equity-settled share-based payments:
Current tax credit 69 196
Deferred tax charge (37) (574)
32 (378)
The Group expects to receive additional tax deductions in respect of share
options currently unexercised. Under IFRS, the Group is required to provide
for deferred tax on all unexercised share options. Where the amount of the tax
deduction (or estimated future tax deduction) exceeds the amount of the
related cumulative remuneration expense, this indicates that the tax deduction
relates not only to remuneration expense but also to an equity item. In this
situation, the excess of the current or deferred tax should be recognised in
equity. At 30 November 2023, a deferred tax asset of £1.4 million (FY22:
£1.1 million) was recognised in respect of these options.
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK;
the Act introduced a multinational top-up tax and domestic top-up tax as part
of the UK's adoption of the OECD's Pillar Two Global Anti-Base Erosion rules.
This will apply for accounting periods beginning on or after 31 December 2023.
The Group has applied the exception under the Amendments to IAS 12 Income
Taxes to not disclose information about deferred tax assets and liabilities
related to the OECD Pillar Two Income Taxes.
5. EARNINGS PER SHARE
Basic earnings per share (EPS) is calculated by dividing the profit for the
year attributable to owners of the Company by the weighted average number of
ordinary shares outstanding during the year excluding shares held as treasury
shares and those held in the Employee Benefit Trust (EBT), which for
accounting purposes are treated in the same manner as shares held in the
treasury reserve.
Diluted EPS is calculated by adjusting the weighted average number of ordinary
shares outstanding to assume conversion of all dilutive ordinary shares
arising from exercising employee stock options and tracker shares.
The following tables reflect the income and share data used in the basic and
diluted EPS calculations.
£'000 2023 2022
Earnings
Profit for the year attributable to owners of the Company 56,051 54,202
million 2023 2022
Number of shares
Weighted average number of shares used for basic EPS 132.1 132.2
Dilutive effect of share plans 2.9 3.7
Diluted weighted average number of shares used for diluted EPS 135.0 135.9
pence 2023 2022
Basic EPS 42.4 41.0
Diluted EPS 41.5 39.9
6. INTANGIBLE ASSETS
During the year, the Group made good progress in executing the Technology
Improvement Programme. Nearly £6.2 million in development costs were
capitalised in the statement of financial position. In addition, the Group
incurred £3.8 million in costs spent on research-related and administrative
costs which were expensed immediately to the income statement. At the
reporting date, all the costs capitalised in the statement of financial
position were classified as assets under construction due to the ongoing
testing procedures. Managements expects that these assets are likely to be
brought into use in Q2 FY24 at the earliest. Accordingly, the asset
amortisation is expected to start in the second half of the next financial
year.
7. CASH AND CASH EQUIVALENTS
£'000 30 November 2023 30 November 2022
Cash at bank 83,202 65,809
Bank overdraft - (423)
Net cash and cash equivalents 83,202 65,386
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.
The carrying amount of these assets approximate their fair values.
Substantially all of these assets are categorised within level 1 of the fair
value hierarchy.
The Group has four cash pooling arrangements in place at HSBC US (USD), HSBC
UK (GBP), NatWest (GBP) and Citibank (EUR).
8. EQUITY
During the year 409,818 (FY22: 831,845) new ordinary shares were issued,
resulting in a share premium of £1.5 million (FY22: £2.8 million). Of the
shares issued, 320,457 (FY22: 623,219) were issued to tracker shareholders on
settlement of vested and unvested tracker shares and 89,361 (FY22: 208,626)
pursuant to the exercise of share awards under the Save As You Earn (SAYE)
scheme.
Treasury Reserve
Treasury shares represent SThree plc shares repurchased and available for
specific and limited purposes. No shares were utilised from the treasury
reserve during the current and previous year. At the year end, 35,767 (FY22:
35,767) shares were held in treasury reserve.
Employee Benefit Trust
The Group holds shares in the Employee Benefit Trust (EBT). The EBT is funded
entirely by the Company and acquires shares in SThree plc to satisfy future
requirements of the employee share-based payment schemes.
For accounting purposes, shares held in the EBT are treated in the same manner
as shares held in the treasury reserve by the Company and are, therefore,
included in the financial statements as part of the treasury reserve for the
Group.
During the year, the EBT purchased 2,198,735 (FY22: 2,519,652) of SThree plc
shares. The average price paid per share was 455 pence (FY22: 393 pence). The
total acquisition cost of the purchased shares was £10.0 million (FY22: £9.9
million), for which the treasury reserve was reduced. During the year, the EBT
utilised 2,046,423 (FY22: 1,671,868) shares on settlement of vested and
unvested tracker shares, LTIP awards and free shares. At the year end, the EBT
held 1,923,458 (FY22: 1,771,146) shares.
9. LEASES
The leases which are recognised in the consolidated statement of financial
position are principally in respect of buildings and cars. The Group's
right-of-use assets and lease liabilities are presented below:
£'000 30 November 30 November
2023 2022
Buildings 24,772 27,862
Cars 1,934 1,932
Total right-of-use assets 26,706 29,794
Current lease liabilities 11,297 11,102
Non-current lease liabilities 17,720 22,600
Total lease liabilities 29,017 33,702
The consolidated income statement includes the following amounts relating to
depreciation of right-to-use assets:
£'000 2023 2022
Buildings 11,955 13,849
Cars 1,219 1,152
IT equipment - 74
Total depreciation charge of right-of-use assets 13,174 15,075
In the current year, interest expense on leases amounted to £0.6 million
(FY22: £0.5 million) and was recognised within finance costs in the
consolidated income statement.
The total cash outflow for leases in FY23 was £14.9 million (FY22: £14.3
million) and comprised the principal and interest element of recognised lease
liabilities.
10. OTHER FINANCIAL LIABILITIES
The Group maintains a committed Revolving Credit Facility (RCF) of £50.0
million along with an uncommitted £30.0 million accordion facility, both
jointly provided by HSBC and Citibank, giving the Group an option to increase
its total borrowings under the facility to £80.0 million. During the current
and previous year, the Group did not draw down under these facilities. The
Group has also an uncommitted £5.0 million overdraft facility with HSBC, of
which £nil was drawn at the year end (FY22: £0.4 million).
The RCF is subject to financial covenants and any funds borrowed under the
facility bear a minimum annual interest rate of 1.2% above the benchmark
Sterling Overnight Index Average (SONIA). As the Group did not draw down under
these facilities, the finance costs of £0.7 million (FY22: £0.5 million)
were mainly related to lease interest.
The covenants, which the RCF is subject to, require the Group to maintain
financial ratios over interest cover, leverage and guarantor cover. The Group
has complied with these covenants throughout the year.
Reconciliation of financial liabilities to cash flows arising from financing
activities:
£'000
Balance at 1 December 2021 35,068
Cash flows:
Interest paid on bank overdrafts (137)
Payments of principal and interest element of lease liabilities (14,251)
Total cash flows (14,388)
Lease increases 14,773
Lease termination (2,294)
Other movements((1)) 543
Balance at 30 November 2022 and 1 December 2022 33,702
Cash flows:
Interest paid on bank overdrafts (93)
Payments of principal and interest element of lease liabilities (14,855)
Total cash flows (14,948)
Lease increases 11,479
Lease terminations (1,558)
Other non-cash movements((1)) 342
Balance at 30 November 2023 29,017
1. Other movements in FY23 and FY22 primarily comprised unwind of the discount
on lease liabilities and forex revaluation.
11. DIVIDENDS
£'000 2023 2022
Amounts recognised as distributions to equity holders in the year
Interim dividend of 5.0 pence for FY22 (FY21: 3.0 pence) per share((1)) 6,605 3,965
Final dividend of 11.0 pence for FY22 (FY21: 8.0 pence) per share((2)) 14,385 10,685
Interim dividend of 5.0 pence for FY23 per share((3)) 6,383 -
27,373 14,650
£'000 2023 2022
Amounts arising in respect of the financial year
Interim dividend of 5.0 pence for FY23 (FY22: 5.0 pence) per share((3)) 6,383 6,632
Proposed final dividend of 11.6 pence for FY23 (FY22: 11.0 pence) per 15,327 14,547
share((4))
21,710 21,179
1. The FY22 interim dividend of 5.0 pence (FY21: 3.0 pence) per share was paid
on 2 December 2022 to those shareholders on the register of SThree plc on 4
November 2022.
2. The FY22 final dividend of 11.0 pence (FY21: 8.0 pence) per share was paid
on 9 June 2023 to shareholders on record on 12 May 2023.
3. The FY23 interim dividend of 5.0 pence (FY22: 5.0 pence) per share was paid
on 8 December 2023 to shareholders on record at 10 November 2023. The £6.4
million in funds, required for settlement of the interim dividend, were first
transferred to the share administrator before 30 November 2023.
4. The Board has proposed the FY23 final dividend of 11.6 pence (FY22: 11.0
pence) per share, to be paid on 7 June 2024 to shareholders on record at 10
May 2024. This proposed final dividend is subject to approval by shareholders
at the Company's next Annual General Meeting on 25 April 2024, and therefore
has not been included as a liability in these financial statements.
12. CONTINGENT LIABILITIES
Legal
The Group is involved in various disputes and claims which arise from time to
time in the course of its business. These are reviewed on a regular basis and,
where possible, an estimate is made of the potential financial impact on the
Group. The Group has contingent liabilities in respect of these claims. In
appropriate cases a provision is recognised based on advice, best estimates
and management judgement.
The Directors currently believe the likelihood of any material liabilities to
be low, and that such liabilities, if any, will not have a material adverse
effect on its financial position.
13. RELATED PARTY DISCLOSURES
The Group's significant related parties are as disclosed in the Group's 2023
annual financial statements. There were no other material differences in
related parties or related party transactions in the year compared to the
prior year.
14. SUBSEQUENT EVENTS
There were no subsequent events following 30 November 2023.
15. ALTERNATIVE PERFORMANCE MEASURES (APMs): DEFINITIONS AND RECONCILIATIONS
In discussing the performance of the Group, comparable measures are used.
The Group discloses comparable performance measures to enable users to focus
on the underlying performance of the business on a basis which is common to
both periods for which these measures are presented. The reconciliation of
comparable measures to the directly related measures calculated in accordance
with IFRS is as follows.
APMs in constant currency
As the Group operates in 11 countries, and with many different currencies, it
is affected by foreign exchange movements, and the reported financial results
reflect this. However, the Group business is managed against targets which are
set to be comparable between years and within them, for otherwise foreign
currency movements would undermine the management ability to drive the
business forward and control it. Within this preliminary results announcement,
comparable results have been highlighted on a constant currency basis as well
as the results on a reported basis which reflect the actual foreign currency
effects experienced.
The Group evaluates its operating and financial performance on a constant
currency basis (i.e. without giving effect to the impact of variation of
foreign currency exchange rates from year to year). Constant currency APMs are
calculated by applying the prior year foreign exchange rates to the current
and prior financial year results to remove the impact of exchange rate.
Measures on a constant currency basis enable users to focus on the performance
of the business on a basis which is not affected by changes in foreign
currency exchange rates applicable to the Group's operating activities from
period to period.
The calculations of the APMs on a constant currency basis and the
reconciliation to the most directly related measures calculated in accordance
with IFRS are as follows:
£'000, unless otherwise stated 2023
Revenue Net fees Operating profit Operating profit conversion ratio* Profit before tax
Basic EPS (pence)
Reported 1,663,167 418,775 76,356 18.2% 77,915 42.4
Currency impact (24,489) (5,602) (2,280) (0.3%) (2,237) (1.2)
In constant currency 1,638,678 413,173 74,076 17.9% 75,678 41.2
£'000, unless otherwise stated 2022
Revenue Net fees Operating profit Operating profit conversion ratio* Profit before tax
Basic EPS (pence)
Reported 1,639,446 430,616 77,552 18.0% 77,026 41.0
*Operating profit conversion ratio represents operating profit over net fees.
To calculate the YoY variances in constant currency, management compared the
FY23 results in constant currency versus the FY22 reported results.
Other APMs
Net cash excluding lease liabilities
Net cash is an APM used by the Directors to evaluate the Group's capital
structure and leverage. Net cash is defined as cash and cash equivalents less
current and non-current borrowings excluding lease liabilities, as illustrated
below:
£'000 2023 2022
Cash and cash equivalents 83,202 65,809
Bank overdraft - (423)
Net cash 83,202 65,386
EBITDA
In addition to measuring financial performance of the Group based on operating
profit, the Directors also measure performance based on EBITDA. It is
calculated by adding back to the reported operating profit non-cash items such
as the depreciation of property, plant and equipment (PPE), the amortisation
and impairment of intangible assets, loss on disposal of PPE and intangible
assets, gain on lease modification and the employee share options charge.
Where relevant, the Group also uses EBITDA to measure the level of financial
leverage of the Group by comparing EBITDA to net debt.
A reconciliation of reported operating profit for the year, the most directly
comparable IFRS measure, to EBITDA is set out below.
£'000 2023 2022
Reported operating profit for the year 76,356 77,552
Depreciation of PPE 15,898 18,682
Amortisation and impairment of intangible assets 16 719
Loss on disposal of PPE and intangible assets 160 1,298
Gain on lease modification - (266)
Employee share options charge 4,871 4,999
EBITDA 97,301 102,984
Dividend cover
The Group uses dividend cover as an APM to ensure that its dividend policy is
sustainable and in line with the overall strategy for the use of cash.
Dividend cover is defined as the number of times the Company is capable of
paying dividends to shareholders from the profits earned during a financial
year, and it is calculated as the Group's profit for the year attributable to
owners of the Company over the total dividend paid to ordinary shareholders.
£'000 2023 2022
Profit for the year attributable to owners of the Company A 56,051 54,202
Dividend proposed to be paid to shareholders (note 11) B 21,710 21,179
Dividend cover (A ÷ B) 2.6 2.6
Contract margin
The Group uses contract margin as an APM to evaluate contract business quality
and the service offered to customers. Contract margin is defined as contract
net fees as a percentage of contract revenue.
£'000, unless otherwise stated 2023 2022
Contract net fees A 343,502 334,215
Contract revenue B 1,584,215 1,540,323
Contract margin (A ÷ B) 21.7% 21.7%
Total shareholder return (TSR)
The Group uses TSR as an APM to measure the growth in value of a shareholding
over a specified period, assuming that dividends are reinvested to purchase
additional shares at the closing price applicable on the ex-dividend date. The
TSR is calculated by the external independent data-stream party.
pence, unless otherwise stated 2023 2022
SThree plc TSR return index value: three-month average to 30 Nov 2020 (FY22: 240.74 262.41
30 Nov 2019)
SThree plc TSR return index value: three-month average to 30 Nov 2023 (FY22: 365.25 355.43
30 Nov 2022)
Total shareholder return 51.7% 35.4%
16. ANNUAL REPORT AND ANNUAL GENERAL MEETING
The Annual General Meeting of SThree plc is to be held on 25 April 2024.
The 2023 Annual Report and Notice of 2024 Annual General Meeting will be
posted to shareholders shortly. Copies will be available on the Company's
website www.sthree.com or from the Company Secretary, 1st Floor, 75 King
William Street, London, EC4N 7BE.
1 (#_ftnref1) Unless specifically stated, all growth rates in revenue and
net fees are expressed in constant currency.
2 (#_ftnref2) The Group has identified and defined certain alternative
performance measures (APMs). These are the key measures the Directors use to
assess the SThree's underlying operational and financial performance. The APMs
are fully explained and reconciled to IFRS line items in note 15 to this
announcement.
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