REG-SThree SThree: Final Results
28/01/2019 07:05
============
SThree (STHR)
SThree: Final Results
28-Jan-2019 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014
(MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
════════════════════════════════════════════════════════════════════════════════════════════════════════════════════
SThree plc
("SThree" or the "Group")
Final results for the year ended 30 November 2018
SThree, the international specialist staffing business, is today announcing its final results for the year ended 30
November 2018.
FINANCIAL HIGHLIGHTS
2018 2017 Variance (3)
Constant
Actual
Adjusted (1) Reported Adjusted (2) Reported Currency
Movement
Movement
£m £m £m £m % %
Revenue 1,258.2 1,258.2 1,114.5 1,114.5 +13% +13%
Contract gross profit 232.1 232.1 203.5 203.5 +14% +14%
Permanent gross profit 89.0 89.0 84.2 84.2 +6% +6%
Gross profit 321.1 321.1 287.7 287.7 +12% +12%
Operating profit 53.9 47.5 44.9 38.2 +20% +20%
Conversion ratio (%) 16.8% 14.8% 15.6% 13.3% +1.2% pts +1.2% pts
Profit before taxation 53.4 47.0 44.5 37.7 +20% +20%
Basic earnings per share 30.7p 26.6p 25.7p 21.5p +19% +20%
Proposed final dividend 9.8p 9.8p 9.3p 9.3p +5% +5%
Total dividend (interim and final) per share 14.5p 14.5p 14.0p 14.0p +4% +4%
Net (debt)/cash (4.1) (4.1) 5.6 5.6 - -
(1) 2018 figures were adjusted for the impact of £6.4 million of net exceptional strategic restructuring costs.
(2) 2017 figures were adjusted for the impact of £6.7 million of exceptional strategic restructuring costs.
(3) All variances compare adjusted 2018 against adjusted 2017 to provide a like-for-like view.
OPERATIONAL HIGHLIGHTS
* Strong full year financial performance, ahead of expectations
* Growth in gross profit ('GP') driven by Continental Europe (up 20%*), USA (up 8%*), and APAC & ME (up
11%*)
* Restructured UK&I delivering in line with expectations, with GP down 5%* and productivity up 5%*
* 83% of GP now generated outside UK&I (2017: 81%)
* Contract GP up 14%* YoY, with growth across all sectors
* Permanent GP up 6%* YoY, with Permanent productivity up 7%
* Contract accounted for 72% of Group GP (2017: 71%)
* Successful relocation of circa 240 roles from London to Centre of Excellence in Glasgow
* Final dividend up 0.5p to 9.8p (2017: 9.3p), with cover now in target range of 2.0 to 2.5 times
* Strong Q4 exit run rate underpins expectations heading into 2019
* Variances in constant currency
Gary Elden, CEO, commented: "The Group continued to make good progress throughout 2018. This resulted in a strong
financial performance which, demonstrating our resilience, was delivered despite the ongoing macro-economic and
political uncertainties. Alongside the financial metrics, we delivered further structural and operational progress
which will enable us to attain our vision of being the number one Science, Technology, Engineering and Mathematics
('STEM') recruiter in the best STEM markets. We are on track with the delivery of the five-year plan as set out at
the November 2017 Capital Market Day."
"Looking forward to the year ahead, our post-year end trading is in line with expectations and we remain well
positioned to benefit from the growth opportunities in our chosen STEM markets."
SThree will host a live presentation and conference call for analysts at 0930 GMT today. The conference call
participant telephone details are as follows:
Dial in: 0800 358 9473
Call passcode: 21768800#
This event will also be simultaneously audio webcast, hosted on the SThree website at 1 www.sthree.com. Note that
this is a listen only facility and an archive of the presentation will be available via the same link later.
SThree will be announcing its Q1 Trading Update on Friday 15 March 2019.
Enquiries:
SThree plc 020 7268 6000
Gary Elden, Chief Executive Officer
Alex Smith, Chief Financial Officer
Kirsty Mulholland, Company Secretariat
Alma PR 020 3405 0205
Rebecca Sanders-Hewett
Josh Royston
SThree@almapr.co.uk
Susie Hudson
Sam Modlin
Notes to editors
SThree is a leading international specialist recruitment business, providing Permanent and Contract specialist staff
to a diverse client base of over 9,000 clients. From its well-established position as a major player in the
Information & Communications Technology sector, the Group has broadened the base of its operations to include
businesses serving the Banking & Finance, Energy, Engineering and Life Sciences sectors.
Since launching its original business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy,
establishing new operations to address growth opportunities. SThree brands include Progressive, Computer Futures,
Huxley Associates and Real Staffing Group. The Group has circa 3,000 employees in sixteen countries.
SThree plc is quoted on the Official List of the UK Listing Authority under the ticker symbol STHR and also has a US
level one ADR facility, symbol SERTY.
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. Data
from the announcement is sourced from unaudited internal management information. Accordingly, undue reliance should
not be placed on forward looking statements.
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview 2 1
The Group continued to make good progress throughout 2018. This resulted in a strong financial performance which,
demonstrating our resilience, was delivered despite the ongoing macro-economic and political uncertainties.
Alongside the financial metrics, we delivered further structural and operational progress which will enable us to
attain our vision of being the number one Science, Technology, Engineering and Mathematics ('STEM') recruiter in the
best STEM markets. We are on track with the delivery of the five-year plan as set out at the November 2017 Capital
Market Day.
At the start of 2018, I stated that after two years of political, market and economic pressure, we entered the year
in good shape. That turbulence and pressure increased throughout the year and yet we delivered a creditable
performance. As we enter 2019, I believe that we are in even better shape.
The STEM markets in which we operate continue to be affected by the ongoing global shortage of skilled workers and
the resulting supply and demand imbalances which underpin the need for our services.
Group gross profit ('GP') was up 12%* in the year. The growth was largely delivered, as expected, through our key
territories of Continental Europe and the USA; the former was driven by our market-leading businesses in Germany and
the Netherlands which together saw growth of 20%*, whilst the latter was up 8%*. We also made improvements in our
other target markets, including a stand-out performance from our growing team in Japan, up 85%*. From a sector point
of view, we saw robust growth across the Group, with Information and Communication Technology ('ICT') up 12%*, Life
Sciences up 8%*, Engineering up 16%* and Global Energy up 30%*.
Our specialist focus on STEM and being in the right STEM markets is helping us to build a growing reputation, using
a multi-brand approach where each brand is well regarded within its own specialist field. This is a key
differentiator for SThree. In technology, for example, where other companies position themselves as IT specialists,
we are recognised as experts in specific fields such as JAVA, Salesforce or .Net. This approach is the same across
all our markets, so clients know that we can access the very best people for highly skilled positions.
The Group is globally diversified, but at the same time specialises at a local level. We can source the right people
for clients in multiple territories whilst also understanding the nuances and dynamics of each individual market.
These include legislative requirements where our local knowledge can help us to advise clients on choosing the right
contracts and also help successful candidates navigate the necessary requirements.
The Group's central purpose is 'Bringing skilled people together to build the future', and we have six core
principles that will enable us to achieve this purpose and generate returns for all of our stakeholders. These are:
grow and extend regions, sectors and services; develop and sustain great customer relationships; focus on Contract,
drive Permanent profitability; generate incremental revenues through innovation and M&A; build infrastructure for
leveraged growth; and find, retain and develop great people. We have made considerable progress against the majority
of our strategic priorities. I will touch on two of them in more detail below with our Chief Sales Officer and Chief
Operational Officer providing further detail on the other four aspects.
Find, retain and develop great people
One of the most pleasing aspects of the year was the ongoing development of the Group's culture. Having collectively
agreed on what kind of organisation we want to be and the principles to which we would hold ourselves, it has been
particularly rewarding to see adoption across the Group and the benefits are already being seen. We have a vision
that is shared across all of our operations and the mindset has noticeably changed from thinking as individuals to
considering wider Group opportunities, shifting from a 'me' to a 'we' culture.
We have started to see the benefits of changes that we made about a year ago, including the appointments of Dave
Rees as Chief Sales Officer and Justin Hughes as Chief Operating Officer. As anticipated, this has helped us to
align our sales and operational strategies and ensure we have the right services, infrastructure and people to
execute our global growth strategy and provide our customers with the best possible experience.
Pleasingly, the year's results were achieved despite the inevitable disruption caused by relocating our London-based
support services to Glasgow where we have created a Centre of Excellence. All roles were fulfilled through our own
recruitment teams and the project has delivered ahead of our expectations. Any disruption caused was addressed
promptly and professionally and our customers experienced a smooth transition. We are delighted with the progress
being made by the Glasgow team which will give us greater conversion margin and competitive advantage.
Cultural changes do not happen overnight and there is still plenty for us to do. Our Female Leadership Development
Programme, IdentiFy, has been running throughout the year. It was introduced to help us identify and nurture top
female staff and give them the tools and support that they need to thrive, as in the past we have seen female staff
as a proportion of the total drop away when they reach management levels. It has already given us greater insight,
with initial feedback suggesting that female candidates will put themselves forward for a role only where they feel
comfortable in executing 80% of the tasks involved in that role, whereas the corresponding figure for male
applicants is 20%. Through this level of understanding we can take initiatives to redress that balance and encourage
females to stay with us longer and progress further. This mirrors many of the initiatives that we are conducting
externally on behalf of our clients to ensure that female talent is able to thrive in all of the STEM industries.
During the year we have seen 14 female promotions to management positions across the Group (out of 27 participants)
with one to Director level.
We have made a great start in bringing our people together and encouraging them to behave in a way that is
representative of our five Leadership Principles, Know Me, Focus Me, Develop Me, Care For Me and Include Me,
providing the necessary coaching and training to help them succeed. As a result, I believe that we are becoming
increasingly meritocratic and expect that trend to continue.
Generate incremental revenues through innovation and M&A
Ours remains a people business and one which thrives on the strength of its relationships. Our clients are looking
for highly skilled workers and they choose us to source them because of our specialist sector focus and expertise in
all aspects of our chosen markets. As such we believe that we are resilient to pure play technology competition that
naturally suits more commoditised offerings.
At the same time, our extensive industry expertise means that we are able to develop tools that can help deliver
different products for different markets, diversifying our business and opening up new revenue streams where clients
and candidates are less focused on the service elements that are so important in our chosen STEM markets. During
2018, we made significant progress with both our HireFirst and Showcaser initiatives.
HireFirst is an easy to use platform that uses Artificial Intelligence ('AI') to offer candidates live matches to a
diverse spectrum of roles and companies, whilst allowing companies the opportunity to market their employer brand
and attract the best people. It was officially launched in beta testing in October in both Paris and London and I am
pleased to say that the early results are encouraging.
Showcaser is a video platform which gives candidates the ability to highlight certain aspects of their CV, career to
date or other areas that they may choose to differentiate themselves. Showcaser was exhibited at UNLEASH Amsterdam
in November and, again, the feedback has been encouraging.
We would not anticipate material revenue from HireFirst or Showcaser in 2019 but do believe they have the ability to
generate strong returns on investment over the medium term.
Management succession
Having been with the Company for nearly 30 years and as CEO for the last six, I shall be stepping down before the
Annual General Meeting of Shareholders being held on 24 April 2019. The process for finding my successor is well
underway. I am very proud of everything that we have achieved as a business in that time and, as these results
demonstrate, I will be handing over the reins of a business that is in very good shape. I will be fully committed to
the role until that time and will work with the Board and the leadership team to ensure a smooth handover to my
successor.
Outlook
At the start of 2018, I stated that after two years of turbulent political markets and economic pressure we entered
the year in good shape. Despite that turbulence and pressure increasing throughout the year, we delivered a strong
set of results. Looking forward to the year ahead, our post-year end trading is in line with expectations and we
remain well positioned to benefit from the growth opportunities in our chosen STEM markets.
CHIEF SALES OFFICER'S OPERATING REVIEW
Group 3 2
Gross Profit 2018 2017 YoY Variance*
Contract £232.1m £203.5m +14%
Permanent £89.0m £84.2m +6%
Group £321.1m £287.7m +12%
2018 was a year of strong growth across the Group, with both Contract and Permanent showing an increase in gross
profit ('GP'). Permanent was up 6%*, with productivity in the division increasing by 7%. Reflecting the industry
megatrends driving our markets, and the Group's focus, the Contract division grew more strongly, up 14%*. In line
with our strategy, the mix of Contract GP increased slightly to represent 72% of total Group GP, up from 71% in
2017.
Regionally we saw stand out performances across the key regions of Germany, the Netherlands, and Japan. We also saw
continued growth in the USA. These strong performances were driven by a mixture of structural growth in our markets,
strong management execution and the benefits of our strategic business decisions becoming realised. We also saw
growth in all but one of our sectors within STEM, with Information and Communication Technology ('ICT') up 12%*,
Life Sciences up 8%*, Energy up 30%* and Engineering up 16%*. Banking & Finance was broadly level year on year.
2018 2017
Breakdown of GP
Contract/Permanent Split
Contract 72% 71%
Permanent 28% 29%
100% 100%
Geographical Split
Continental Europe 57% 52%
USA 21% 22%
UK&I 17% 19%
Asia Pacific & Middle East 5% 7%
100% 100%
Sector Split
ICT 44% 43%
Life Sciences 21% 22%
Banking & Finance 13% 15%
Energy 10% 9%
Engineering 10% 9%
Other 2% 2%
100% 100%
Regions
Gross Profit 2018 2017 YoY Variance*
Continental Europe £183.3m £150.6m +20%
USA £66.7m £64.4m +8%
UK&I £53.1m £55.7m -5%
Asia Pacific & Middle East £18.0m £17.0m +11%
Group £321.1m £287.7m +12%
SThree is a well-diversified business by geography, with non-UK GP now representing 83% of the Group's total GP.
SThree is strategically located in regions where there are clear growth opportunities within STEM industries, and we
are pleased that this resulted in growth across the vast majority of our businesses in the year.
SThree built upon its strong position in Continental Europe, with GP up 20%*, driven by strong growth in both DACH
(up 21%*) and Benelux, France & Spain (together up 18%*). Our key aims in this region are to dominate the STEM space
in both Germany and the Netherlands. We delivered a particularly strong performance in the Netherlands, which is a
key business hub for many multi-national companies, with GP up 25%*. During the year, we opened a new location in
Eindhoven, improving client proximity and reaffirming our position as the market leader in STEM professional
recruitment. In our largest country of operation, Germany, the team delivered another year of strong growth, with GP
up 18%* year on year. Germany benefited from the expansion of its Contract service to include ECM, which we launched
in 2017. 4 3
The USA saw robust GP growth of 8%* year on year, as we expanded our office footprint with a new office in
Washington DC, having previously serviced this market remotely from New York. This growth was pleasing given the
organisational changes implemented in the region in Q1 2018, which included the move from a regional to brand
management structure.
The increased economic uncertainty seen in the UK and Ireland continued to impact the region, causing overall GP to
decline by 5%*. The UK is a mature recruitment market and is seeing slower industry growth than other geographies,
although it remains a strategic priority for the Group. In the first half of 2018, we restructured parts of our
Permanent business, consolidating into key hubs and implemented a change of management. These actions showed clear
signs of delivery with Permanent productivity in the region up by 7%* on the prior year. As expected, the Contract
business demonstrated its resilience, remaining broadly stable.
Our Asia Pacific & Middle East ('APAC & ME') businesses delivered growth of 11%*. This was driven largely by an
excellent performance from the team in Japan, delivering GP up 85%* year on year. Japan is an important technical
market, with an immature recruitment industry, and the Group has capitalised well on these opportunities. Japan now
represents 29% of the APAC & ME GP, up from 17% in 2017. The Middle Eastern team also capitalised on its specialist
knowledge, driving growth from Contract placements across the Energy and Banking & Finance sectors.
Sectors
Gross Profit 2018 2017 YoY Variance*
ICT £142.0m £124.7m +12%
Life Sciences £66.3m £62.4m +8%
Banking & Finance £42.4m £43.5m -1%
Energy £33.4m £26.5m +30%
Engineering £30.6m £25.9m +16%
Other £6.4m £4.7m +28%
Group £321.1m £287.7m +12%
Our largest sector continues to be ICT and our strong technology capability across all verticals is becoming
increasingly recognised across our key regions. ICT represented 44% of Group GP, driven by an increase in GP across
Continental Europe of 22%*. In total, ICT GP increased by 12%*, with the year-end headcount up 7%.
Our Life Sciences sector is already a market leader across several of our regions, and we saw another robust
performance delivered across the Group, with GP up 8%* year on year. This was driven by strong performances in both
APAC up 29%* and Benelux, France & Spain up 15%*. Additionally, DACH and the USA delivered solid growth of 8% and 6%
respectively.
Banking & Finance was down 1%* year on year, with Contract GP up 4%*, driven by a robust performance in Continental
Europe, where average headcount was up 5% on the prior year. The decline in Permanent GP seen in the UK and the USA
was partially offset by growth in APAC and ME, leaving Banking & Finance at 13% of the Group GP.
We saw strong growth across both our Engineering and Energy sectors in 2018, up 16%* and 30%* respectively, year on
year. Within Engineering we pleasingly saw growth across all major regions with the UK up 7%*, DACH up 21%*,
Benelux, France & Spain up 19%* and the USA up 29%*.
Within Energy, where 94% of GP is derived from Contract, we had very strong performances in both Continental Europe,
up 25%*, and in the USA where our position in renewable energy helped deliver 40%* growth in GP. At the year end,
global headcount was up 20% on the prior year, with Continental Europe up 28% and the USA up 27%.
Focus on Contract, drive Permanent profitability
In 2018 we delivered on our stated strategy by further investing in Contract growth, and improving Permanent
productivity.
At the year end, Contract headcount was up 8% year on year, and all regions excluding UK&I reported increased
headcount and GP growth in Contract. Since 2012 we have doubled our runners, ending on 11,203 and for the sixth
consecutive year are able to report an all-time high number of runners at our financial year end. Our increased
weighting towards Contract is creating a business that is more resilient in times of uncertainty, as well as
providing stronger and more sustainable profits. The introduction of a Contract-specific management team has worked
to increase accountability and focus. Our freelancer model is continuing to perform well, and the focus on growing
the Employed Contractor Model ('ECM') is also paying dividends, as this model continues to grow in popularity across
our key territories. This was a key focus in 2018 and now accounts for 21% of our Contract runners, up from 19% in
2017. 5 4
Permanent productivity per head was up 7%, achieved through our focus on the best Permanent markets, with average
salaries up 1% and average fees up 4%. Over the year we focused on reallocating our headcount into our key growth
markets, rather than focussing on net growth in our Permanent headcount. We know that Permanent recruitment is more
sensitive to overall market sentiment and therefore we have a clear strategy to actively invest in Permanent
headcount in our key markets of Japan, the Netherlands, Germany and the USA, so that we are best-positioned for the
future. Maintaining a strong base of Permanent business in markets where there is space to grow continues to be
important to the business. From a strategic viewpoint, Permanent is key in building client relationships, provides a
Contractor development pipeline, and has strong cash generation characteristics.
GP* Average Headcount
GP Contract Permanent Total Contract Permanent Total
USA +14% -5% +8% +15% +2% +11%
APAC & ME -2% +24% +11% +13% -3% +3%
Continental Europe +22% +15% +20% +19% +8% +15%
UK&I 0% -20% -5% -1% -25% -9%
Total +14% +6% +12% +13% -1% +8%
Develop and sustain great customer relationships
Throughout 2018 we evolved our client segmentation strategy, allowing us to more effectively categorise our client
types to ensure we develop our relationships with them in a more tailored manner. We developed our first onshore
delivery centre based in Glasgow, which allows for larger and more nimble and scalable delivery mechanisms for
project recruitment.
We have fully integrated the Net Promoter Score ('NPS') metric into the organisation and it now feeds into the
rewards process across the business.
NPS scores were broadly flat in 2018, reflecting the move of our London support services to Glasgow. Looking ahead,
we are confident that we are well positioned to improve in 2019.
REGIONAL OVERVIEW
Continental Europe (57% of Group GP)
GP Average Sales Headcount
Growth* YoY FY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
2018 +22% +15% +20% 72% 28% +19% +8% +15%
Performance in 2018
DACH
Germany, Austria and Switzerland ('DACH'), representing 31% of Group GP, had a strong year in 2018, building on our
market-leading position in this region. Changes made to the management set-up delivered productivity gains as
expected, and during the year, we rolled out a new employer proposition, which helps us to attract and retain
talent. It also allowed us to deepen our customer relationships, and offer tailored solutions to major clients with
complex needs. This is a barrier to entry to our competitors.
This translated into tangible benefits; in Germany our Permanent GP grew 16%* with just 4% additional headcount. ICT
remains our largest sector.
Our Contract business grew by 22%*, with a 16% investment in headcount, and the dilutive effect on average tenure of
our expansion was fully compensated by a more focused customer strategy.
The Employed Contractor Model ('ECM') has been steadily gaining ground and has been regionalised further across our
existing office infrastructure.
We successfully completed an office launch in Austria, which has more than doubled its freelance business year on
year, whilst its Permanent business has increased its headcount by 50% year on year.
Benelux, France & Spain 6 5
Benelux, France & Spain is the second largest region after DACH, representing 26% of the Group GP. Benelux, France &
Spain GP was up 18%* year on year.
Overall, we delivered strong growth in the region, supported by strong economic growth, tight labour markets and
high quality execution from our team there.
The Netherlands was the stand-out performer with GP up 25%* year on year, which was an improvement on the 20%
delivered in the prior year. Belgium grew GP by 16%* year on year, while France and Luxembourg showed more modest
growth.
Strong growth was achieved in Contract across the region with GP up 21%* year on year. The Netherlands Contract
business grew 27%* and Belgium Contract up 17%* year on year. We enter 2019 with a strong Contract runner book up
14% on prior year.
Permanent also showed GP growth of 5%* year on year, with average sales headcount up 5%.
ICT, our largest sector, grew 20%* and continues to be the strongest growth market in the region, with ICT Contract
up 23%* and Permanent up 6% year on year*.
Our relatively new offices in Barcelona, Eindhoven, Lille, Lyon and Toulouse, all of which have strong STEM
opportunities, will enable us to more closely support our clients in these locations.
Expectations for 2019
DACH
We exit the year with a strong Contract runner book, which combined across the DACH region is 25% bigger than in the
prior year, a strong starter pipeline, and our largest ECM order book to date.
In line with our Group strategy, we will continue to invest in all divisions with particular focus on further
strengthening our ECM throughout 2019.
Benelux, France & Spain
We exit the year with a strong Contract pipeline, Permanent starter pipeline and a highly focused management team
with a clear strategy.
In line with our Group strategy, we will continue to invest in Contract throughout 2019, where we see market
opportunity. We will focus on improving Permanent productivity, with selective headcount investments.
Our investment in the ECM in 2018 helped the region increase the number of Contractors. We expect to leverage this
further in 2019 across the region.
We exit 2018 in good shape across our European business. Regional management objectives are fully aligned with our
corporate vision and we start 2019 with strong pipelines in both Contract and Permanent, and our largest ECM order
book to date. Despite ongoing macro-economic challenges, we remain optimistic in our growth potential for the year
ahead.
USA (21% of Group GP)
GP Average Sales Headcount
Growth* YoY FY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
2018 +14% -5% +8% 73% 27% +15% +2% +11%
Performance in 2018
The USA is our second largest region and represents 21% of Group GP. 7 6
Contract continued to deliver a strong performance in 2018 with GP up 14%*, balanced by the decline of 5%* seen in
Permanent, leaving the region having delivered overall GP growth of 8%*.
Growth in the region was across Energy, Life Sciences, ICT, and creative markets. Energy GP was up 40%* as we
continued to build our customer portfolio, build on our strong position in renewable energy, and broaden our service
offering. Life Sciences, our largest sector in the region grew by 6%*. ICT grew by 8%. We continue to see further
opportunities for growth in all our markets.
We continued to prioritise growth in Contract sales headcount, with an average increase of 15%* year on year.
Overall, average headcount across the region was up 11%* in 2018, period end sales headcount was up 5%.
In our Permanent division, we made critical leadership and strategic changes to create a platform for more
consistent and balanced growth. The effect of these structural changes impacted performance in the year, as we
expected. We are fully confident we have made the right strategic decisions and we expect the positive impact of
these changes to be seen in performance during 2019 and beyond.
Expectations for 2019
With a stable exit rate in Contract runners, especially in Energy and ICT, we expect to continue our strong growth
into 2019. We expect Permanent to return to growth in 2019.
We are confident that we have the right team and structure to deliver a high quality service to our clients and
continue to penetrate the largest recruitment market in the world. We remain agile to cater for any risks or
opportunities that are posed by the market.
UK&I (17% of Group GP)
GP Average Sales Headcount
Growth* YoY FY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
2018 0% -20% -5% 82% 18% -1% -25% -9%
Performance in 2018
Despite the continued uncertainty around Brexit, we have made very good progress in laying the foundations to
maximise our performance in the UK in 2019 through focusing on key strategic targets. We significantly reduced our
headcount in our Permanent division during the year and moved to a specialist hub and onshore delivery model. This
resulted in a strong productivity gain of 7%*. Permanent GP declined 20%* against a 25% reduction in headcount. Our
increased productivity also resulted in a strong performance on profitability. Contract GP (flat* year on year) was
largely due to a more cautious approach to headcount build in H1 which we ramped up in H2. Contract productivity was
up 1%. The UK remains regionally well diversified with strong GP growth in Glasgow (up 12%*), Bristol (up 13%*), and
Leeds (up 9%*). We also restructured a management team in Dublin (up 9%*) to better maximise the market
opportunity.
SThree has a diversified sector offering in UK&I, with strong GP performances within Life Sciences (up 7%*),
Engineering (up 7%*) and Energy (up 28%*). We have conversely seen greater challenges in some of the more
competitive spaces such as ICT (down 10%*) and Banking & Finance (down 7%*). However, we believe that we are
focussing on the right markets and customer segments to see this improve in 2019.
Expectations for 2019
We are well diversified both regionally and from a sector perspective within UK&I. We will continue to invest in
headcount based on customer and sector needs, mindful of the broader economic and political backdrop. We have an
agile model that allows us to meet a broad spectrum of our clients' demands. 8 7
APAC & ME (5% of Group GP)
GP Average Sales Headcount
Growth* YoY FY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
2018 -2% +24% +11% 45% 55% +13% -3% +3%
Performance in 2018
APAC & ME represented 5% of Group GP, a reduction from the 7% contribution in 2017. Whilst the aim of the region is
to outperform the Group average, 2018 was a return to growth for APAC & ME after a period of recovery in Energy and
a realignment of market focus in other sectors. The region includes Australia, Singapore, Japan, Malaysia, Hong Kong
and Dubai.
Our market exposure is broad with a balanced approach to all STEM markets and alignment to our Group strategic
priorities. Our exposure to Energy and Banking & Finance was lower than in previous years. The bulk of our headcount
investment was within ICT, Life Sciences and Engineering.
Our Japanese business delivered a stand-out performance this year, with Japan growing its GP by 85%*. We also saw a
strong performance in ME Contract where GP grew by 48%*, driven by both the ICT and Energy sectors. We are confident
in both businesses continuing that performance in 2019 and are investing in headcount and the correct infrastructure
to provide a platform for further growth.
Expectations for 2019
We expect to maintain good growth in 2019. We will continue to invest in our Japanese Permanent business where we
expect to continue seeing strong future growth. We will also continue to invest in ME Contract across both Energy
and ICT.
CHIEF FINANCIAL OFFICER'S REVIEW
In 2018, our improved operational performance delivered strong growth in gross profit and profit before tax, ahead
of market expectations.
Income statement
Revenue for the year was up 13% on constant currency and reported bases to £1,258.2 million (2017: £1,114.5
million). On constant currency and reported bases, gross profit ('GP') increased by 12% to £321.1 million (2017:
£287.7 million). Growth in revenue exceeded the growth in GP as the business continued to remix towards Contract.
Contract represented 72% of Group GP in the year (2017: 71%). This change in mix resulted in a slight decrease in
the overall GP margin to 25.5% (2017: 25.8%) as Permanent revenue has no cost of sale, whereas the cost of paying
the contractor is deducted to derive Contract GP. The Contract margin increased slightly to 19.9% (2017: 19.8%).
Reported profit before tax was up 25% at £47.0 million. The adjusted profit before tax ('PBT') was £53.4 million up
20% year on year (2017: adjusted £44.5 million and reported £37.7 million). The adjusted PBT excludes restructuring
costs of £6.4 million that were incurred during the year in respect of the relocation of our support function to
Glasgow (2017: £6.7 million). In 2018, this exceptional restructuring delivered savings which drove an increase in
our operating profit conversion ratio of 1.2 percentage points to 16.8% on an adjusted basis and 1.5 percentage
points to 14.8% on a reported basis (2017: adjusted 15.6% and reported 13.3%).
Restructuring costs ('adjusting items')
A strategic relocation of the majority of our central support functions away from our London headquarters to a new
facility located within Glasgow was announced on 1 November 2017. The transition to the Glasgow Centre of Excellence
is now substantially complete and we anticipate this restructuring will realise cost savings ahead of expectations,
in excess of £5 million per annum. In line with the project implementation timescale, benefits started to be
realised in the second half of the financial year and have led to the recognition of £2.6 million in savings in the
year. The trajectory of the realised savings is expected to result in additional support costs savings of £2.9
million in 2019.
We continue to anticipate that one-off restructuring costs will be in the region of £14.0 million, with circa £12.9
million of operating expenses, including personnel costs and professional advisor fees, and circa £1.1 million of
property related costs. The project is being partially funded by a grant receivable from Scottish Enterprise of
circa £2.1 million which is receivable and recognisable over several years, subject to the terms of the grant being
met within a fixed timeframe.
Net exceptional costs of £6.4 million have been charged to the Consolidated Income Statement during the year,
bringing the total costs recognised to date to £13.1 million. The exceptional charge in the year included personnel
costs of £4.1 million and other costs of £2.7 million (primarily professional and property costs). During the year,
the grant income of £0.4 million was recognised as an offset to the exceptional costs.
The strategic nature and material cost of the restructuring of support functions announced in 2017 continues to be
of sufficient magnitude to warrant separate disclosure as an exceptional item on the face of the Consolidated Income
Statement, in line with our accounting policies. The separate disclosure of the exceptional items helps readers
understand the Group's underlying results for the year ('Adjusted'). The Group adjusted profit KPIs for the year are
presented in various sections of this Annual Report.
A reconciliation of 'Adjusting items' is provided below:
£'million 2018 2017
Reported profit before tax after exceptional items 47.0 37.7
Exceptional strategic restructuring costs (net of government grant) 6.4 6.7
Reported profit before tax and exceptional items ('Adjusted') 53.4 44.5
Operating costs
Adjusted operating costs, excluding one-off net restructuring costs of £6.4 million (2017: £6.7 million), increased
by 10% to £267.2 million (2017: £242.8 million). The increase was mainly driven by additional investment in
headcount (8% increase year on year), 10% increase in personnel costs (£11.0 million* increase in salaries; £3.5
million* increase in commissions and bonuses in line with the improved GP), and £0.9 million increase in property
costs reflecting demand for new and modernised office space. 9 8
Payroll costs represented 79% of our cost base. Average total headcount was up by 10% at 2,926 (2017: 2,668), with
average sales headcount up 8%. The increase in average sales headcount was in response to supportive market
conditions across the majority of our geographies as well as improvements in consultant productivity, attributable
primarily to Continental Europe (Benelux & France and DACH regions) and the USA, (headcount up 15% and 11%
respectively). 2% of the average total headcount was attributable to the relocation of the support function to
Glasgow. The year-end total headcount was up 4% at 2,979.
The year-end sales headcount represented 78% of the total Group headcount.
The full benefits of the restructure of our UK support function on personnel and property costs are expected to be
realised from the financial year 2019 onwards.
Investments
During the year, we continued to invest in in-house innovation initiatives, expensing a total of £2.4 million (2017:
£2.0 million) across the year. Our intent is to build a more diverse portfolio of products and services so that we
capture a greater share of total customer spend on employment matters and to ensure we are well positioned to
benefit from potential disruption. The bulk of the investment was made in our HireFirst and Showcaser initiatives.
HireFirst launched in October 2018 is at the beta testing stage, and no profits were generated during the year.
Showcaser is progressing well and it has received encouraging feedback from the prospective clients. We do not
anticipate material revenue from HireFirst or Showcaser in 2019.
We continued to hold non-controlling shareholdings in three innovation start-ups. (i) Ryalto Limited which is
designing and developing a mobile application for healthcare professionals. (ii) RoboRecruiter Inc. which is
building automated multichannel platforms connecting candidates with recruiters and employers in real time; and
(iii) The Sandpit Limited, a privately owned group that specialises in developing early stage start-up companies
within defined markets.
Taxation
The tax charge on pre-exceptional statutory profit before tax for the year was £13.9 million (2017: £11.4 million),
representing an effective tax rate ('ETR') of 25.9% (2017: 25.6%). The ETR on post-exceptional statutory profit
before tax was 27.1% (2017: 26.7%).
The ETR primarily reflects our geographical mix of profits and a cautious approach to recognising deferred tax
assets on tax losses. USA Tax Reform legislation passed in December 2017 saw a reduction in the federal corporate
tax rate from 35% to 21%. As previously indicated, this had a minimal impact on the ETR because the tax credit
associated with the current year profits was largely offset by the reduction in the deferred tax asset. Whilst the
Group benefited from a reduction in the USA cash tax payable in 2018, the accounting ETR benefit of this change will
occur in 2019 and beyond.
Other regulatory changes which may impact the Group in future years include:
(i) If the UK leaves the European Union, the Group will no longer be able to benefit from
provisions applying in certain tax treaties and in the EU Parent Subsidiary Directive. The Group is currently
planning mitigating actions against this and hence we do not expect any material costs to arise.
(ii) In October 2017, the European Commission opened a state aid investigation into the Group
Financing Exemption in controlled foreign company rules, introduced by the UK Government in 2013. The Group has
historically relied on this exemption in certain jurisdictions and we are therefore monitoring the investigation.
If the preliminary findings of the European Commission are upheld, we calculate our maximum potential liability to
be £3.2 million. Our current assessment is that no provision is required in respect of this issue.
(iii) Increased transparency arising from the implementation of Country-By-Country reporting
provisions in various OECD member states may result in more frequent tax audits, particularly in the area of
transfer pricing. The Group is comfortable that its policies in this area are robust.
We will continue to monitor and assess the impact of any changes as they are implemented.
Earnings per share ('EPS')
On an adjusted basis, basic EPS was up by 5 pence, or 19%, at 30.7 pence (2017: adjusted 25.7 pence), due to an
increase in the adjusted profit before tax, partially offset by a marginal increase in weighted average number of
shares. On a reported basis, EPS increased to 26.6 pence, up 5.1 pence on the prior year (2017: 21.5 pence). The
weighted average number of shares used for basic EPS remained stable at 128.7 million (2017: 128.6 million).
Reported diluted EPS was 25.7 pence (2017: 20.8 pence), up 4.9 pence. Share dilution mainly results from various
share options in place and expected future settlement of certain tracker shares. The dilutive effect on EPS from
tracker shares will vary in future periods depending on the profitability of the underlying tracker businesses, the
volume of new tracker arrangements created and the settlement of vested arrangements.
Dividends
The Board monitors the appropriate level of the dividend, taking into account, inter alia, achieved and expected
trading of the Group, together with its balance sheet position. In line with the Board's strategy of targeting a
dividend cover of between 2.0x and 2.5x, based on underlying EPS, over the short to medium term, the Board has
proposed an increased final dividend of 9.8 pence per share (2017: 9.3 pence). Taken together with the interim
dividend of 4.7 pence per share (2017: 4.7 pence), this brings the total dividend for the year to 14.5 pence per
share (2017: 14.0 pence). This represents a 4% increase in dividend per share versus the prior year. This dividend
increase reflects the Board's confidence in SThree's long-term strategy, with cover now in the target range of 2.0
to 2.5 times. The final dividend, which amounts to approximately £12.8 million, will be subject to shareholder
approval at the 2019 Annual General Meeting. It will be paid on 7 June 2019 to shareholders on the register on 26
April 2019.
Share options and tracker share arrangements
We recognised a share-based payment charge of £4.7 million during the year (2017: £3.3 million) for the Group's
various share-based incentive schemes. The greater charge in 2018 is primarily due to improved non-market vesting
conditions, such as the adjusted earnings per share driven by increased profit before tax. A portion of the annual
charge also reflects the accelerated cost for all 'good leavers' who left the Group as a result of restructuring and
relocation of support functions away from London.
We also operate a tracker share model to help retain and motivate our entrepreneurial management within the
business. The programme gives our most senior sales colleagues a chance to invest in a business they manage with the
support and economies of scale that the Group can offer them. In 2018, 68 employees invested an equivalent of £0.6
million in 25 Group businesses.
We settled certain tracker shares during the year for a total consideration of £3.7 million (2017: £3.2 million)
which was determined using a formula in the Articles of Association underpinning the tracker share businesses. We
settled the consideration in SThree plc shares either by issuing new shares (398,298 new shares were issued on
settlement of vested tracker shares in 2018) or treasury shares (in total 700,200 were used in settlement of vested
tracker shares in 2018). Consequently, the arrangement is deemed to be an equity-settled share-based payment
arrangement under IFRS 2 'Share-based payments'. There is no charge to the income statement as initially the tracker
shareholders subscribed to the tracker shares at their fair value. We expect future tracker share settlements to be
between £5 million to £15 million per annum. These settlements may either dilute the earnings of SThree plc's
existing ordinary shareholders if funded by new issue of shares or will result in a cash outflow if funded via
treasury shares. This year we purchased 411,354 of SThree plc's ordinary shares for immediate cancellation to offset
a negative impact on share dilution as a result of tracker arrangements being funded via a new issue of shares.
Note 1 to the financial statements provides further details about all Group-wide discretionary share plans,
including the tracker share arrangements.
Balance sheet
At 30 November 2018, the Group's net assets increased to £101.7 million (2017: £80.7 million), mainly due to the
excess of net profit over the dividend payments supported by a strengthening of the Euro vs Sterling, offset by
share buy backs and share cancellations during the year.
The most significant item in our statement of financial position is trade receivables (including accrued income)
which increased to £274.6 million (2017: £217.7 million). The main drivers of this increase were an almost four day
growth in Days Sales Outstanding ('DSOs') to 44.7 days (2017: 40.6 days), reflecting a short-term impact from the
move of support functions to Glasgow, a 12% increase in Contract GP in Q4 year on year, and a £4.3 million increase
due to movements in foreign exchange rates. We expect DSOs to improve during the course of 2019. Trade and other
payables increased from £159.6 million to £191.7 million, with £2.5 million due to movements in foreign exchange
rates, and the remainder primarily due to an increase in Contract GP. Creditor days were 17 days (2017: 18 days).
Provisions decreased by £3.3 million primarily due to a £5.3 million utilisation in a provision for the relocation
of central support functions from London to Glasgow.
Investment in subsidiaries (Company only)
In the previous two years an impairment charge was recognised in respect of the Company's carrying value of
investments in subsidiaries. This was primarily in respect of the Group's UK operations. In 2018, we considered
whether there were new indicators of impairment and did not identify any circumstances or triggers which would
require a formal impairment test to be performed. However, as set out in the Risk section, at the date of signing
the financial statements, there is ongoing uncertainty surrounding the potential outcomes of Brexit. This is being
monitored and there remains a risk that Brexit outcome could trigger an impairment risk in 2019 or future periods.
Cash Flow
On an adjusted basis, we generated net cash from operations of £40.6 million (2017: £41.1 million on an adjusted
basis) due to continued growth of the Contract runner book increasing our working capital and an increase in DSOs.
This resulted in a lower cash conversion ratio of 67% (2017: 79%) on an adjusted basis or 52% (2017: 90%) on a
reported basis.
Capital expenditure (excluding £1.0 million in exceptional capital expenditure) reduced to £4.2 million (2017: £5.8
million), the majority of which was in relation to infrastructure investment in offices in the Netherlands, Germany
and UK, and investment in the Contractor Timesheet Portal ('Workflow') of £0.6 million. We expect capital
expenditure will increase year on year in 2019, to address security, out of support systems and a number of office
moves. Investments in available for sale financial assets were £nil (2017: £1.2 million) in the year.
During the year, SThree plc bought back shares for £1.5 million (2017: £7.8 million) to satisfy employee share
schemes in future periods, and repurchased 411,354 of its ordinary shares at an average price of 357 pence for
immediate cancellation. Small cash inflows were generated from share based payment schemes.
Income tax payments increased to £14.4 million (2017: £10.9 million). Small cash outflows were made for interest
payments.
Dividend payments were £18.0 million (2017: £18.0 million) and there was a small cash outflow of £0.1 million
representing distributions to tracker shareholders.
We started the year with the net cash of £5.6 million and closed the financial year with the net debt of £4.1
million. The year-on-year decrease primarily reflected increased cash absorbed in working capital as the Contract
business continued to grow, increased DSOs, and the £11.5 million cash cost of the restructuring of the support
functions in the UK. We expect DSOs to improve in 2019 and the restructuring cash costs to be significantly less in
the first half of 2019, as the project is now substantially complete.
Treasury management
We finance the Group's operations through equity and bank borrowings. The Group's cash management policy is to
minimise interest payments by closely managing Group cash balances and external borrowings. We intend to continue
this strategy while maintaining a strong balance sheet position.
We maintain a committed Revolving Credit Facility ('RCF') of £50 million, along with an uncommitted £20 million
accordion facility, with Citibank and HSBC, giving the Group an option to increase its total borrowings to £70
million for general corporate purposes. This facility was successfully renegotiated earlier in the year and extended
to May 2023, on similar terms and conditions to the previous facility. We also have an uncommitted £5 million
overdraft facility with NatWest and a £5 million overdraft facility with HSBC.
At the year end, the Group had drawn down £37.4 million (2017: £12.0 million) on these facilities.
The RCF is subject to financial covenants requiring the Group to maintain financial ratios over interest cover of at
least 4.0, leverage of at least 3.0 and guarantor cover at 85% of EBITDA and gross assets. In 2018, we ended the
year with significant headroom on all our covenants.
The funds borrowed under this facility bear interest at a minimum annual rate of 1.3% above 3 month LIBOR, giving an
average interest rate of 1.8% during the year (2017: 1.5%). The finance costs for the year amounted to £0.7 million
(2017: £0.4 million).
The Group's UK-based treasury function manages the Group's treasury risks in accordance with policies and procedures
set by the Board, and is responsible for day-to-day cash management; the arrangement of external borrowing
facilities; the investment of surplus funds; and the management of the Group's interest rate and foreign exchange
risks. The treasury function does not engage in speculative transactions or operate as a profit centre.
Foreign exchange
Foreign exchange volatility continues to be a significant factor in the reporting of the overall performance of the
business with the main functional currencies of the Group entities being Sterling, the Euro and the US Dollar.
For 2018, movements in exchange rates between Sterling and the Euro and the US Dollar provided a moderate net
headwind to the reported performance of the Group with the highest impact coming from the Euro and US Dollar. The
exchange rate movements decreased our reported 2018 GP by approximately £0.7 million and operating profit by £0.1
million.
Our financial performance KPIs remain materially sensitive to exchange rate movements. By way of illustration, each
one per cent movement in annual exchange rates of the Euro and US Dollar against Sterling impacted our 2018 GP by
£1.8 million and £0.7 million, respectively, and operating profit by £0.5 million and £0.2 million, respectively.
The Board considers it appropriate in certain cases to use derivative financial instruments as part of its
day-to-day cash management to provide the Group with protection against adverse movements in the Euro and US dollar
during the settlement period. The Group does not use derivatives to hedge translational foreign exchange exposure in
its balance sheet and income statement.
Principal Risks and Uncertainties
Connecting risk, opportunity and strategy
Principal risks and uncertainties affecting the business activities of the Group will be detailed within the
Strategic Report section of the Group's 2018 Annual Report, a copy of which will be available on the Group's website
10 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
priorities in 2018. Whilst 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 2018
2018 2017
Before Exceptional Before Exceptional
exceptional items Total exceptional items Total
items items
Note £'000 £'000 £'000 £'000 £'000 £'000
Continuing operations
Revenue 2 1,258,152 - 1,258,152 1,114,530 - 1,114,530
Cost of sales (937,026) - (937,026) (826,858) - (826,858)
Gross profit 2 321,126 - 321,126 287,672 - 287,672
Administrative expenses 3 (267,211) (6,397) (273,608) (242,752) (6,741) (249,493)
44,920
124
Operating profit 4 53,915 (6,397) 47,518 (439) (6,741) 38,179
(147)
Finance income 75 - 75 124 - 124
Finance costs (743) - (439) -
(743) (439)
Gain on disposal/(Share 146 - 146 (147) - (147)
of losses) of associate
Profit before taxation 53,393 (6,397) 44,458 (6,741)
46,996 37,717
Taxation 5 (13,851) 1,127 (11,392) 1,303
(12,724) (10,089)
Profit for the year
attributable 39,542 (5,270) 34,272 33,066 (5,438) 27,628
to owners of the Company
Earnings per share 7 pence pence pence pence pence pence
25.7
Basic 30.7 (4.1) 26.6 24.9 (4.2)
21.5
Diluted 29.7 (4.0) 25.7 24.9 (4.1)
20.8
consolidated statement of comprehensive income
For the year ended 30 November 2018
2018 2017
£'000 £'000
Profit for the year 34,272 27,628
Other comprehensive income/(loss):
Items that may be subsequently reclassified to profit or loss:
Exchange differences on retranslation of foreign operations 2,572 (1,083)
Total other comprehensive income/(loss) for the year (net of tax) 2,572 (1,083)
Total comprehensive income for the year attributable to owners of the Company 36,844 26,545
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 November 2018
30 November 30 November
2018 2017
Note £'000 £'000
Assets
Non-current assets
Property, plant and equipment 6,915 6,746
Intangible assets 9,609 11,386
Investment in associate - 655
Other investments 1,977 1,110
Deferred tax assets 2,750 4,199
21,251 24,096
Current assets
Trade and other receivables 285,618 226,558
Current tax assets 2,751 1,534
Cash and cash equivalents 8 50,844 21,338
339,213 249,430
Total assets 360,464 273,526
Equity and Liabilities
Equity attributable to owners of the Company
Share capital 1,319 1,317
Share premium 30,511 28,806
Other reserves (5,275) (8,556)
Retained earnings 75,116 59,138
Total equity 101,671 80,705
Non-current liabilities
Provisions for liabilities and charges 1,569 2,172
Current liabilities
Borrowings 9 37,428 12,000
Bank overdraft 8 17,521 3,717
Provisions for liabilities and charges 9,614 12,352
Trade and other payables 191,742 159,556
Current tax liabilities 919 3,024
257,224 190,649
Total liabilities 258,793 192,821
Total equity and liabilities 360,464 273,526
consolidated statement of changes in equity
for the year ended 30 November
2018
Capital Currency Total equity
Share Share redemption Capital Treasury translation Retained attributable to
capital premium reserve reserve reserve reserve earnings owners of the
Company
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 1,312 16
December 2016 27,406 168 878 (6,443) 52,333 75,670
Profit for the
year - - - - - - 27,628 27,628
Other
comprehensive (1,083) (1,083)
loss for the - - - - - -
year
Total
comprehensive 27,628
income for the - - - - - (1,083) 26,545
year
Dividends paid
to equity 6 - - - - - - (17,994) (17,994)
holders
Distributions
to tracker - - - - - - (115) (115)
shareholders
Settlement of
vested tracker 4 1,185 - - 2,746 - (3,060) 875
shares
Settlement of
share-based 1 215 - - 2,959 - (2,972) 203
payments
Purchase of
own shares - - - - (4,618) - - (4,618)
Purchase of
own shares by - - - - (3,179) - - (3,179)
Employee
Benefit Trust
Credit to
equity for
equity-settled - - - - - - 3,256 3,256
share-based
payments
Current and
deferred tax
on share-based 5 - - - - - - 62 62
payment
transactions
Total
movements in 5 1,400 - - (2,092) (1,083) 6,805 5,035
equity
Balance at 30 1,317 (1,067) 80,705
November 2017 28,806 168 878 (8,535) 59,138
Profit for the
year - - - - - - 34,272 34,272
Other
comprehensive 2,572
income for the - - - - - - 2,572
year
Total
comprehensive 2,572
income for the - - - - - 34,272 36,844
year
Dividends paid
to equity 6 - - - - - - (18,007) (18,007)
holders
Distributions
to tracker - - - - - - (124) (124)
shareholders
Settlement of
vested tracker 4 1,306 - - 2,124 - (3,306) 128
shares
Settlement of
share-based 2 399 - - 65 - (65) 401
payments
Cancellation
of share (4) - 4 - - - (1,468) (1,468)
capital
Purchase of
own shares by - - - - (1,484) - - (1,484)
Employee
Benefit Trust
Credit to
equity for
equity-settled - - - - - - 4,697 4,697
share-based
payments
Current and
deferred tax
on share-based 5 - - - - - - (21) (21)
payment
transactions
Total
movements in 2 1,705 4 - 705 2,572 15,978 20,966
equity
Balance at 30 1,319 1,505
November 2018 30,511 172 878 (7,830) 75,116 101,671
consolidated statement of cash flows
For the year ended 30 November 2018
2018 2017
Note £'000 £'000
Cash flows from operating activities
Profit before taxation after exceptional items 46,996 37,717
Adjustments for:
Depreciation and amortisation charge 6,145 5,744
Accelerated amortisation and impairment of intangible assets 709 309
Finance income (75) (124)
Finance cost 743 439
Loss on disposal of property, plant and equipment 4 8 110
(Gain on disposal)/Share of losses of associate (146) 147
Loss on disposal of subsidiaries 70 144
FX revaluation gain on other investments (26) -
Non-cash charge for share-based payments 4,697 3,256
Operating cash flows before changes in working capital and provisions
59,121 47,742
Increase in receivables (55,372) (35,712)
Increase in payables 30,116 19,291
(Decrease)/increase in provisions (3,796) 8,758
Cash generated from operations 30,069 40,079
Interest received 35 124
Income tax paid - net (14,391) (10,921)
Net cash generated from operating activities 15,713 29,282
Cash generated from operating activities before exceptional items 26,208 30,273
Net cash outflow from recognised exceptional items (10,495) (991)
Net cash generated from operating activities 15,713 29,282
Cash flows from investing activities
Purchase of property, plant and equipment (3,161) (2,374)
Purchase of intangible assets (2,043) (3,392)
Investments designated as available-for-sale - (383)
Investment in an associate - (802)
Net cash used in investing activities (5,204) (6,951)
Cash flows from financing activities
Proceeds from borrowings 9 25,428 12,000
Interest paid (540) (431)
Proceeds from exercise of share options 401 215
Employee subscription for tracker shares 644 98
(1,468)
Cancellation of share capital -
Purchase of own shares (1,484) (7,797)
Dividends paid to equity holders 6 (18,007) (17,994)
Distributions to tracker shareholders (116) (115)
Net cash generated from/(used in) financing activities 4,858 (14,024)
Net increase in cash and cash equivalents 15,367 8,307
Cash and cash equivalents at beginning of the year 17,621 10,022
Exchange gains/(losses) relating to cash and cash equivalents 335 (708)
Net cash and cash equivalents at end of the year 8 33,323 17,621
Notes to the Financial Information
For the year ended 30 November 2018
1. 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 2018 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 25 January 2019.
The auditors have reported on the Group's financial statements for the years ended 30 November 2018 and 30 November
2017 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 2017 have been filed with the Registrar of Companies and those for the year ended 30 November 2018 will
be filed following the Company's Annual General Meeting.
The Group's financial statements have been prepared in accordance with International Financial Reporting Standards
('IFRSs') and IFRS Interpretations Committee ('IFRS IC') as adopted and endorsed by the European Union and have been
prepared under the historical cost convention with the exception of certain financial instruments classified as
available for sale.
The same accounting policies, presentation and computation methods are followed in this preliminary announcement as
in the preparation of the Group financial statements. The accounting policies have been applied consistently by the
Group.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance, its
financial position, cash flows, liquidity position and borrowing facilities are described in the strategic section
of the Annual Report. In addition, notes to the Group financial statements include details of the Group's treasury
activities, funding arrangements and objectives, policies and procedures for managing various risks including
liquidity, capital management and credit risks.
The Directors have considered the Group's forecasts, including taking account of reasonably possible changes in
trading performance, and the Group's available banking facilities. Based on this review and after making enquiries,
the Directors have a reasonable expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future. For this reason, the Directors continue to adopt a going concern basis in
preparing these financial statements and this preliminary announcement.
2. SEGMENTAL ANALYSIS
IFRS 8 'Segmental Reporting' requires operating segments to be identified on the basis of internal results about
components of the Group that are regularly reviewed by the entity's chief operating decision maker to make strategic
decisions and assess segment performance.
Management has determined the chief operating decision maker to be the Executive Committee made up of the Chief
Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the Chief People Officer and the Chief
Sales Officer, with other senior management attending via invitation. Operating segments have been identified based
on reports reviewed by the Executive Committee, which consider the business primarily from a geographical
perspective. The Group segments the business into four regions: the United Kingdom & Ireland ('UK&I'), Continental
Europe, the USA and Asia Pacific & Middle East ('APAC & ME').
The Group's management reporting and controlling systems use accounting policies that are the same as those
described in note 1 to the Group financial statements in the summary of significant accounting policies.
Revenue and Gross Profit by reportable segment
The Group measures the performance of its operating segments through a measure of segment profit or loss which is
referred to as "Gross Profit" in the management reporting and controlling systems. Gross profit is the measure of
segment profit comprising revenue less cost of sales.
Intersegment revenue is recorded at values which approximate third party selling prices and is not
significant.
REVENUE GROSS PROFIT
2018 2017 2018 2017
£'000 £'000 £'000 £'000
Continental Europe 716,058 576,018 183,367 150,636
UK&I 268,031 269,777 53,144 55,687
USA 215,099 212,737 66,654 64,369
APAC & ME 58,964 55,998 17,961 16,980
1,258,152 1,114,530 321,126 287,672
Continental Europe primarily includes Austria, Belgium, France, Germany, Luxembourg, Netherlands, Spain and
Switzerland.
APAC & ME mainly includes Australia, Dubai, Hong Kong, Japan, Malaysia and Singapore.
Other information
The Group's revenue from external customers, its gross profit and information about its segment assets (non-current
assets excluding deferred tax assets) by key location are detailed below:
REVENUE GROSS PROFIT
2018 2017 2018 2017
£'000 £'000 £'000 £'000
Germany 310,399 256,825 93,701 78,021
UK 256,056 259,028 48,814 51,922
Netherlands 237,904 180,602 48,563 38,039
USA 215,099 212,737 66,654 64,369
Other 238,694 205,338 63,394 55,321
1,258,152 1,114,530 321,126 287,672
NON-CURRENT ASSETS
30 November 30 November
2018 2017
£'000 £'000
UK 14,354 15,702
USA 1,136 1,608
Germany 1,060 1,132
Netherlands 803 431
Other 1,148 1,024
18,501 19,897
The following segmental analysis by brands, recruitment classification and sectors (being the profession of
candidates placed) have been included as additional disclosure to the requirements of IFRS 8.
REVENUE GROSS PROFIT
2018 2017 2018 2017
£'000 £'000 £'000 £'000
Brands
Progressive 401,959 344,537 92,064 77,105
Computer Futures 362,958 311,134 96,672 83,700
Huxley Associates 254,119 228,529 60,128 56,183
Real Staffing Group 239,116 230,330 72,263 70,684
1,258,152 1,114,530 321,126 287,672
Other brands including Global Enterprise Partners, JP Gray, Madison Black, Newington International and Orgtel are
rolled into the above brands.
Recruitment classification
Contract 1,169,141 1,030,359 232,115 203,501
Permanent 89,011 84,171 89,011 84,171
1,258,152 1,114,530 321,126 287,672
Sectors
Information & Communication Technology 580,732 502,299 141,970 124,746
Life Sciences 195,102 176,870 66,250 62,351
Banking & Finance 180,122 181,007 42,454 43,502
Energy 169,018 142,822 33,452 26,494
Engineering 111,608 97,469 30,618 25,851
Other 21,570 14,063 6,382 4,728
1,258,152 1,114,530 321,126 287,672
Other includes Procurement & Supply Chain and Sales & Marketing.
3. ADMINISTRATIVE EXPENSES - EXCEPTIONAL ITEMS
A strategic relocation of the majority of our central support functions away from our London headquarters to a new
facility located within Glasgow was announced on 1 November 2017. The transition to the Glasgow Centre of Excellence
is now substantially complete and we anticipate that this restructuring will realise cost savings ahead of
expectations, in excess of £5 million per annum.
In line with the project implementation timescale, benefits started to be realised in the second half of this
financial year and led to the recognition of £2.6 million in savings in 2018. The trajectory of the realised savings
is expected to result in additional savings of £2.9 million in support costs in 2019.
We continue to anticipate that one-off restructuring costs will be in the region of £14.0 million, with circa £12.9
million of operating expenses, including personnel costs and professional advisor fees, and circa £1.1 million of
property related costs. The project is being partially funded by a grant receivable from Scottish Enterprise of
circa £2.1 million which is receivable and recognisable over several years, subject to the terms of the grant being
met within a fixed timeframe.
Net exceptional costs of £6.4 million have been charged to the Consolidated Income Statement during the year,
bringing the total costs recognised to date to £13.1 million (2017: £6.7 million). The exceptional charge in the
year included personnel costs of £4.1 million and other costs of £2.7 million (primarily professional and property
costs). During the year, the grant income of £0.4 million was recognised as an offset to the exceptional costs of an
agreed percentage of gross wages for each full time role created in the Centre of Excellence in the year.
A restructuring provision can only include the direct expenditure arising from the announced strategic
restructuring, which are costs that are both necessarily entailed by the restructuring and not associated with the
ongoing activities of the entity. Restructuring items related to the transition, design and set up of the new
support function for which there is no constructive obligation at period end have not been included within the
restructuring provision and will be recognised as incurred. The remaining balance of the provision for redundancy
costs for employees, who will leave the business post the year end date, amounted to £1.1 million (2017: £5.7
million).
Due to the material size and non-recurring nature of this strategic restructuring project, the associated costs have
been separately disclosed as exceptional items in the Consolidated Income Statement in line with their treatment in
2017. Disclosure of items as exceptional, highlights them and provides a clearer, comparable view of underlying
earnings.
Items classified as exceptional were as follows:
2018 2017
£'000 £'000
Exceptional items - charged to operating profit
Staff costs and redundancy 4,075 5,709
Professional advisor fees 1,050 1,017
Property costs 898 -
Travel 496 -
Recruitment 282 -
Other 14 15
Total exceptional costs 6,815 6,741
Grant income (418) -
Total net exceptional costs 6,397 6,741
4. OPERATING PROFIT
Operating profit is stated after charging/(crediting):
2018 2017
£'000 £'000
Depreciation 2,852 2,516
Amortisation 3,049 3,228
Accelerated depreciation 244 -
Accelerated amortisation and impairment of intangible assets 709 309
Foreign exchange gains (644) (345)
Staff costs 206,713 187,419
Movement in bad debt provision and debts directly written off 1,279 496
Loss on disposal of property, plant and equipment 8 110
Loss on disposal of intangible assets 62 66
Net exceptional restructuring costs 6,397 6,741
Net (gain)/loss on disposal of subsidiaries and associate (1) (76) 144
Operating lease charges
- Motor vehicles 1,771 1,790
- Land and buildings 12,647 12,005
(1) The net gain on disposal of £76k comprises (i) £70k in the accumulated foreign exchange net loss
reclassified from Currency Translation Reserve to the Consolidated Income Statement on liquidation of subsidiary
companies; and (ii) £146k gain on disposal of associate.
5. TAXATION
(a) Analysis of tax charge for the year
2018 2017
Before Exceptional Before Exceptional
exceptional items Total exceptional items Total
items items
£'000 £'000 £'000 £'000 £'000 £'000
Current taxation
Corporation tax charged/(credited) 12,862 (1,127) 11,735 13,520 (946) 12,574
on profits for the year
Adjustments in respect of prior (541) - (758) - (758)
periods (541)
Total current tax 12,321 (1,127) 11,194 12,762 (946) 11,816
charge/(credit)
Deferred taxation
Origination and reversal of 2,308 - (2,308) (743) (357)
temporary differences (1,100)
Adjustments in respect of (778) - (778) (627) -
prior periods (627)
Total deferred tax credit 1,530 - 1,530 (1,370) (357)
(1.727)
Total income tax
charge/(credit) in the income 13,851 (1,127) 12,724 11,392 (1,303) 10,089
statement
(b) Reconciliation of the effective tax rate
The Group's tax charge for the year exceeds (2017: exceeds) the UK statutory rate and can be reconciled as follows:
2018 2017
Before Exceptional Before Exceptional
exceptional items Total exceptional items Total
items items
£'000 £'000 £'000 £'000 £'000 £'000
Profit before taxation 53,393 (6,397) 46,996 44,458 (6,741) 37,717
Profit before taxation multiplied by the
standard rate of corporation tax in the UK at 10,144 (1,215) 8,594 (1,303) 7,291
19.00% (2017: 19.33%) 8,929
Effects of:
Disallowable items 988 88 1,076 847 - 847
Differing tax rates on overseas earnings 3,029 - 2,725 -
3,029 2,725
Adjustments in respect of prior periods (1,319) - (1,385) - (1,385)
(1,319)
Adjustment due to tax rate changes 816 - 33 - 33
816
Tax losses for which deferred tax asset was 193 - 578 - 578
derecognised 193
Tax charge/(credit) for the year 13,851 (1,127) 12,724 11,392 (1,303) 10,089
Effective tax rate 25.9% 17.6% 27.1% 25.6% 19.3% 26.7%
(c) Current and deferred tax movement recognised directly in equity
30 November 30 November
2018 2017
£'000 £'000
Equity-settled share-based payments
Current tax (2) -
Deferred tax (19) (62)
(21) (62)
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 2018, a deferred
tax asset of £0.9 million (2017: £1.0 million) has been recognised in respect of these options.
6. DIVIDENDS
2018 2017
£'000 £'000
Amounts recognised as distributions to equity holders in the year
Interim dividend of 4.7p (2017: 4.7p) per share (i) 6,041 6,052
Final dividend of 9.3p (2017: 9.3p) per share (ii) 11,966 11,942
18,007 17,994
Amounts proposed as distributions to equity holders
Interim dividend of 4.7p (2017: 4.7p) per share (iii) 6,077 6,038
Final dividend of 9.8p (2017: 9.3p) per share (iv) 12,819 12,086
(i) 2017 interim dividend of 4.7 pence (2016: 4.7 pence) per share was paid on 8 December 2017 to
shareholders on record at 3 November 2017.
(ii) 2017 final dividend of 9.3 pence (2016: 9.3 pence) per share was paid on 8 June 2018 to
shareholders on record at 27 April 2018.
(iii) 2018 interim dividend of 4.7 pence (2017: 4.7 pence) per share was paid on 7 December 2018 to
shareholders on record at 2 November 2018.
(iv) The Board has proposed a 2018 final dividend of 9.8 pence (2017: 9.3 pence) per share, to be
paid on 7 June 2019 to shareholders on record at 26 April 2019. This proposed final dividend is subject to approval
by shareholders at the Company's next Annual General Meeting on 24 April 2019, and therefore, has not been included
as a liability in these financial statements.
7. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share ('EPS') is set out below:
Basic EPS is calculated by dividing the earnings attributable to owners of the Company by the weighted average
number of shares in issue during the year excluding shares held as treasury shares and those held in the EBT which
are treated as cancelled.
For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion of dilutive
potential shares. Potential dilution resulting from tracker shares takes into account profitability of the
underlying tracker businesses and SThree plc's earnings per share. Therefore, the dilutive effect on EPS will vary
in future periods depending on any changes in these factors.
30 November 30 November
2018 2017
£'000 £'000
Earnings
Profit for the year after tax before exceptional items 39,542 33,066
Exceptional items net of tax (5,270) (5,438)
Profit for the year attributable to owners of the Company 34,272 27,628
million million
Number of shares
Weighted average number of shares used for basic EPS 128.7 128.6
Dilutive effect of share plans 4.4 4.0
Diluted weighted average number of shares used for diluted EPS 133.1 132.6
30 November 30 November
2018 2017
pence pence
Basic
Basic EPS before exceptional items 30.7 25.7
Impact of exceptional items (4.1) (4.2)
Basic EPS after exceptional items 26.6 21.5
Diluted
Diluted EPS before exceptional items 29.7 24.9
Impact of exceptional items (4.0) (4.1)
Diluted EPS after exceptional items 25.7 20.8
8. CASH AND CASH EQUIVALENTS
30 November 30 November
2018 2017
£'000 £'000
Cash at bank 50,844 21,338
Bank overdraft (17,521) (3,717)
Net cash and cash equivalents per the consolidated statement of cash 33,323 17,621
flow
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 is approximately equal to their fair
values.
The Group has cash pooling arrangements in place which allow any one account to be overdrawn up to £50 million, so
long as the overall pool of accounts does not exceed a net overdrawn position of £5 million.
9. BORROWINGS
The Group has access to a committed RCF of £50 million along with an uncommitted £20 million accordion facility in
place with HSBC and Citibank, giving the Group an option to increase its total borrowings under the facility to £70
million. The funds borrowed under the facility bear interest at a minimum annual rate of 1.3% (2017: 1.3%) above the
appropriate Sterling LIBOR. The average interest rate paid on the RCF during the year was 1.8% (2017: 1.5%). The
Group also has an uncommitted £5 million overdraft facility with NatWest and a £5 million overdraft facility with
HSBC.
At the year end, the Group had drawn down £37.4 million (2017: £12.0 million) on these facilities.
The RCF is subject to certain covenants requiring the Group to maintain financial ratios over interest cover,
leverage and guarantor cover. The Group has been in compliance with these covenants throughout the year.
In May 2018, the Directors successfully renegotiated the RCF with its key terms and conditions (including the total
amount available under the facility and interest margin) remaining unchanged and the term of the facility having
been extended until 2023. Since there was no substantial modification to the underlying terms and conditions, the
refinancing of the existing facility did not qualify for derecognition, hence no modification gain or loss was
recognised in the consolidated income statement
10. ANNUAL REPORT AND ANNUAL GENERAL MEETING
The 2018 Annual Report and Notice of 2018 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. The Annual General Meeting of SThree plc is to be held on 24 April 2019.
════════════════════════════════════════════════════════════════════════════════════════════════════════════════════
11 1 * Variances in constant currency
12 2 * Variances in constant currency
13 3 * Variances in constant currency
14 4 * Variances in constant currency
15 5 * Variances in constant currency
16 6 * Variances in constant currency
17 7 * Variances in constant currency
18 8 *Variances in constant currency
════════════════════════════════════════════════════════════════════════════════════════════════════════════════════
ISIN: GB00B0KM9T71
Category Code: FR
TIDM: STHR
LEI Code: 2138003NEBX5VRP3EX50
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 7264
EQS News ID: 769857
End of Announcement EQS News Service
══════════════════════════════════════════════════════════════════════════
19 fncls.ssp?fn=show_t_gif&application_id=769857&application_name=news&site_id=reuters8
References
Visible links
1. https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=04ccb9928f205f22063cbe5da1a3724c&application_id=769857&site_id=reuters8&application_name=news
2. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftn1
3. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftn2
4. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftn3
5. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftn4
6. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftn5
7. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftn6
8. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftn7
9. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftn8
10. https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=04ccb9928f205f22063cbe5da1a3724c&application_id=769857&site_id=reuters8&application_name=news
11. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftnref1
12. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftnref2
13. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftnref3
14. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftnref4
15. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftnref5
16. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftnref6
17. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftnref7
18. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_6GIRbiuz.html#_ftnref8
============Recent news on SThree
See all newsREG - SThree plc - Holding(s) in Company
AnnouncementREG - SThree plc Jupiter Fund Mgmt - Holding(s) in Company
AnnouncementREG - SThree plc - Notice of GM
AnnouncementREG - SThree plc - Total Voting Rights
AnnouncementREG - SThree plc - Director/PDMR Shareholding
Announcement