REG-SThree SThree: Final Results
25/01/2021 07:05
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SThree (STEM)
SThree: Final Results
25-Jan-2021 / 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.
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SThree plc
("SThree" or the "Group")
FINAL RESULTS FOR THE YEAR ENDED 30 NOvember 2020
delivered a resilient performance
guided by our purpose and our focus on STem
SThree plc, the only global pure-play specialist staffing business focused on roles in Science, Technology, Engineering and
Mathematics ('STEM'), is today announcing its financial results for the financial year ended 30 November 2020.
FINANCIAL HIGHLIGHTS
2020 2019 Variance
Constant
Continuing operations
Adjusted (1) Reported Adjusted (1) Reported Movement (2) currency
excluding discontinued operations in Australia
movement (3)
Revenue (£ million) 1,202.6 1,202.6 1,324.7 1,324.7 -9% -9%
Net fees (£ million) 308.6 308.6 338.0 338.0 -9% -8%
Operating profit (£ million) 31.3 31.8 60.0 57.7 -48% -48%
Operating profit conversion ratio 10.1% 10.3% 17.8% 17.1% -7.7% pts -7.6% pts
Profit before tax (£ million) 30.1 30.6 59.1 56.8 -49% -49%
Basic earnings per share (pence) 13.9 14.2 33.2 31.8 -58% -58%
Proposed final dividend (pence) 5.0 5.0 - - n/a n/a
Net cash (£ million) (4) 49.9 49.9 10.6 10.6 +371% +371%
1) Excluding the impact of £0.5 million in net exceptional income (2019: £2.3 million in net exceptional cost).
(2) Variance compares adjusted 2020 against adjusted 2019 to provide a like-for-like view.
(3) Variance compares adjusted 2020 against adjusted 2019 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.
(4) Net cash represents cash and cash equivalents less borrowings and bank overdrafts and excludes leases.
FULL-YEAR HIGHLIGHTS
• Group net fees for the full year declined 8% YoY*, demonstrating resilience against COVID-19's impact and the continued
recovery of the underlying business in H2.
• Full year adjusted profit before tax of £30.1 million (2019: £59.1 million).
• Significant sequential improvement of underlying Group performance in the second half.
• Contractor order book stabilised
• Sales activity and contractor retention rates increased quarter-on-quarter from Q3
• Productivity per head up 4% in H2 YoY
• Continued market share gains in the USA, Germany, the Netherlands and the UK despite disruption, in line with 2024
strategic ambitions.
• Contract net fees demonstrating resilience, down 7%*. Contract represents 76% of Group net fees (2019: 74%) in line with
strategic focus.
• Permanent net fees also showing resilience, down 13%*.
• Customer net promoter score improved by eight points to 52, demonstrating the improving quality of our service.
• 89% of Group net fees generated outside the UK (2019: 87%).
• Very strong balance sheet, with net cash of £49.9 million at the year-end (2019: £10.6 million).
• Resumption of dividend payments with a final dividend proposed of 5.0 pence (2019: nil pence).
• Alex Smith, CFO, will be stepping down from his position during 2021 once a suitable successor has been identified.
* In constant currency
Mark Dorman, CEO, commented:
"In 2020 we faced a once in a century event that provided a series of unprecedented tests. SThree not only dealt with those
challenges but is emerging as a stronger business; I am proud of the many achievements we are able to list today. Through
our unrelenting focus on our strategy, and guided by our purpose, we have taken market share in several of our key regions
and delivered robust financial results which underscore our differentiation from non-specialist staffing businesses. Our USA
business, for example, has managed to grow net fees 2%* this year against an overall staffing market decline, which is a
testament to the quality of our teams there and the strength of our targeted STEM strategy.
Our focus on improving the way we operate, no matter the environment, has delivered increased sales activity, contractor
retention rates and the average productivity of our consultants steadily improving since Q3.
Alongside the positive progress in key performance indicators such as these, we have continued to make a real impact on the
lives of the people we work with and the society in which we operate. In 2020, we have placed nearly 14,000 of the skilled
people who are coming together to build the future, as well as providing comprehensive support to our consultants, clients
and communities. Being part of a responsible and sustainable organisation has never been more important and we have shown
this is at SThree's core.
Whilst uncertainty remains, we are confident we have the right strategy in place to continue to drive the Group forward
towards our long-term ambitions and are highly focused on ensuring we execute on it. Over the coming year we will continue
to invest in our people, data, technology, and our go-to market approach, leveraging the power of our platform to reduce the
cost of customer and candidate acquisition. Our aim remains to continue taking market share, working towards our ultimate
goal of becoming the number one STEM talent provider in the best STEM markets."
A video overview of the results from the CEO, Mark Dorman, and CFO, Alex Smith, is available to watch here:
1 http://bit.ly/STEM_FY20_overview
Management Succession
The Board also announces that following over twelve successful years with the Group, Alex Smith, CFO, will be stepping down
as CFO and a Board Member. The search for his successor is underway and the market will be updated accordingly.
James Bilefield, Chairman, commented:
"On behalf of the Group, I would like to take this opportunity to thank Alex for his excellent contribution over the past
twelve years. Alex has worked diligently and effectively with both the Board and our teams to help make SThree what it is
today, astutely guiding the Group's entrepreneurial spirit.
It would be remiss not to highlight his work over the past year, through an incredibly difficult environment, to ensure that
the Group has retained its financial strength. We are hugely grateful to him for building and maintaining such a strong
platform from which we will continue to deliver, and allowing us to focus on executing against our ambitions as we move into
our next stage of growth.
Mark Dorman, CEO, added:
"On joining the Group and wider industry, I could not have asked for a better right hand, providing me with sage insight and
guidance. It has truly been a pleasure working together and I want to take this opportunity to thank Alex, both from me
personally, but also the whole of SThree, and I know we all wish him all the best for the future."
Analyst conference call
SThree is hosting a webinar for analysts today at 09:30 GMT. If you would like to register for the webinar, please contact
2 SThree@almapr.co.uk
SThree will issue its Q1 trading update on 15 March 2021.
Enquiries:
SThree plc 020 7268 6000
Mark Dorman, Chief Executive Officer
Alex Smith, Chief Financial Officer
Steve Hornbuckle, Company Secretary
Alma PR 020 3405 0205
Rebecca Sanders-Hewett SThree@almapr.co.uk
Susie Hudson
Notes to editors
SThree is the only global pure play specialist staffing business focused on roles in STEM (Science, Technology, Engineering
and Mathematics). It brings skilled people together to build the future through the provision of specialist Contract and
Permanent services to a diverse client base of over 9,000 clients. From its well-established position as a major player in
the 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 2,600 employees in 15 countries.
SThree plc is quoted on the Official List of the UK Listing Authority under the ticker symbol STEM and also has a USA 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.
CHair's statement
Never has a year been more different than what we had expected. In November 2019 we set out our purpose, strategy and
ambitions at our Capital Markets Day with excitement and confidence for the years ahead. Whilst our first year following
this path has seen us, and the wider world, face a myriad of unexpected challenges, we have remained resolute in our focus
and determination to deliver on those ambitions. I am pleased to say that we have made significant progress along that path.
We have delivered financial performance above previous market expectations and are outperforming our peers on many measures,
demonstrating the resilience of our model with its recurring revenue and attractive cash characteristics, alongside our
strength of focus and clarity of strategy.
We have seen our purpose - bringing skilled people together to build the future - brought to life this year more than ever.
Our teams worked closely with our clients and candidates to be their partner through the COVID-19 health crisis and gradual
emergence of a 'new normal', filling key STEM roles at a time of extraordinary upheaval.
Internally, our leadership team brought our people together and showed decisiveness, strength and sensitivity. This year has
been tough on all of us, and I would like to take this opportunity to thank the exceptional teams around the world at SThree
not only for their hard work, but also for their fortitude and endurance in such challenging times.
The Board has worked hard during the year to act in the long-term interests of all stakeholders, balancing complex and
sometimes conflicting interests and priorities. We implemented a number of cost management initiatives which were required
during the year, but also were able to maintain necessary investment in the future of the Group, notably in technology and
some key appointments to drive operational change, project delivery and agility.
Whilst the health crisis and its economic impacts will eventually pass, we believe that the recent acceleration in the two
key long-term, secular trends at the heart of our strategy - STEM and flexible working - will continue to grow in importance
around the world as we all look to build a better future. That will require ongoing investment in operational scale, agility
and effectiveness, together with ever-closer client and candidate relationships.
The effective use of data will be critical to success in that environment. We have already established a comprehensive
market intelligence programme to ensure that we understand what is most important to our clients and candidates, both now
and in the future, and we plan to grow our expertise, staying ahead of the curve in the coming years.
Lastly, but importantly, during the year we have deepened our focus on the Group's impact on the wider world and the
communities in which we operate. Whilst Environmental, Social and Corporate Governance ('ESG') has long been on the agenda
at SThree, it is now increasingly woven into everything we do, with particular emphasis on building a green future,
developing a fully inclusive workforce and ensuring that we operate our business to the highest ethical standards, overseen
by FTSE 250-appropriate corporate governance.
Our opportunity is significant, our strategy is right and the improving sequential trends in our specialist STEM markets are
favourable. We remain confident that the Group is primed to deliver for the long-term benefit of all of our stakeholders.
CHIEF EXECUTIVE OFFICER'S STATEMENT
Our purpose of 'bringing skilled people together to build the future' has never been more relevant and we have the right
strategy, positioned at the centre of the secular trends of STEM and flexible working, to best capitalise on this growing
opportunity in the future.
As an example, our DACH business explored new opportunities within Life Sciences in the period, working closely with
BioNTech - our client in Germany - to place the experts leading the research efforts to find a vaccine for COVID-19. In the
UK, we worked closely with Thermo Fisher Scientific - a global life sciences company specialising in pharma, IVD, and
medical devices - in placing medical device professionals across validation, quality, and regulatory roles. In the USA, our
specialist IT team has worked alongside a higher education institution - Teachers College of Columbia University - to
implement the digital infrastructure that enables them to build virtual communities for the incoming college students.
Further examples of our purposeful work in the year can be found in our 2020 Annual Report and Accounts.
At our Capital Markets Day in November 2019, we set out a clear strategy and in the first quarter were delivering in line
with it. As the global health crisis accelerated, rapid adjustments to our business were made to ensure that we were able to
best look after our teams, service our clients and navigate the new economic and working landscape. I am pleased to say that
we never lost sight of our purpose or our strategy, and these principles continue to guide us.
This unrelenting focus on our strategy has delivered a financial performance ahead of where we reset our expectations when
COVID-19 first hit. Group net fees in the year were down only 8%*, with Contract net fees showing particular resilience with
a 7%* decline. We have continued to take market share in the USA, Germany, the Netherlands and the UK and made progress
against several of our 2024 ambitions. In the second half of the year, as our strategic management of the crisis took
effect, we saw significant sequential improvement of Group performance with sales activity, contractor retention rates and
consultant productivity increasing quarter-on-quarter from Q3.
Despite all the challenges this year, it is evident from our performance that we have the right strategy, are in the right
markets and our teams are executing well. While 2020 has not turned out as we had thought it would at our Capital Markets
Day in November 2019, what is clear is that we are well positioned for the future and for capturing the growth opportunities
ahead. The key strategic ambitions we outlined at the Capital Markets Day, if anything, have been reinforced by our
experience and actions over the last year.
Our response to the health crisis
As we saw the impact of the virus starting to take shape across the globe, on 28 February we set up a dedicated COVID-19
health crisis team made up of key senior managers from across the business, tasked with monitoring operations and reacting
as appropriate. The committee met daily to make sure all possible action to help mitigate any impact were considered and
then taken quickly and effectively, ensuring that the Group kept its people safe, could operate regardless of the conditions
and maintain its financial strength. So that we would be in a strong position to continue executing on our growth strategy,
we created a framework for the organisation to work with. This involved breaking the crisis down into operational phases,
each with its own set of priorities; these phases were Emergency Response, Ongoing Crisis Management and Recovery to the
Next Normal.
As the virus moved from mainland China and become a global health crisis, we saw an immediate impact across all our markets.
Our Emergency Response was triggered, focused on maintaining the safety of our people, candidates and clients whilst at the
same time maintaining the full operational capability of the Group. We were able to quickly and efficiently adjust, as
around 98% of our employees began working from home. Despite these changes, our teams went above and beyond to serve our
customers and meet their objectives.
The wellbeing and engagement of our team has been an ongoing priority. With over 95% of our colleagues continuing to work
remotely, we've made sure we are providing them with all the necessary tools to operate effectively. We have supplied
support digitally ranging from advice on how to manage remote teams and guidance on remote working, through to full online
learning and development programmes. Having the tools to operate effectively doesn't just mean physically, and in order to
protect the wellbeing of our employees we launched our THRIVE wellbeing platform in May offering comprehensive support and
advice on the areas of identified concern. Under this banner, we've also hosted a number of roundtable discussions on
working from home where our people shared their tips on how to get by in lockdown. 'Build trust' and 'Care then act' are two
of our three operating principals, and as an organisation, we've whole-heartedly embraced these as working hours have become
more flexible to adapt to personal commitments.
We have also created dedicated resources on our digital platforms for our candidates, to ensure that they are fully
supported, with information, articles and guidelines on remote working, as well as information on how to contact us and
other tips for getting through the health crisis. Illustrating the success of these programmes, our net promoter score
('NPS') from our clients and candidates has improved by eight points to 52.
I am proud to say that our teams have helped to place many candidates whose STEM talent is being utilised to solve the
health crisis. As an example, in DACH we were able to place multiple freelancers in key roles with leading pharmaceutical
and biotechnological companies, supporting the development of potential COVID-19 vaccine candidates. In the USA we
collaborated on a large-scale Clinical Research Associate ('CRA') project, quickly deploying over 50 CRAs nationally to help
in the fight to treat COVID-19.
We implemented a number of initiatives to ensure the business remained on a strong financial, as well as operational,
footing throughout this period. These proved very successful, and I am pleased that following an increase in sales activity
levels in Q3 (particularly in Contract) coupled with the strength of the balance sheet, we were able to repay all furlough
support that we had previously claimed from the UK Government. We also repaid the RCF of £50.0 million which was drawn down
at the beginning of the lockdown period but not utilised. We also resumed a modest share buy-back programme to satisfy
employee ownership plans, further demonstrating our confidence in the business.
The impact of the health crisis on society has been wide-ranging and has magnified the inequalities that already existed. It
has disproportionately impacted younger people, people of colour and women and this, together with other events in the year,
have shone a spotlight on diversity. In response we focused on strengthening and broadening our existing work on the issue,
launching a global D&I strategy in April 2020. We created local focus groups, with regional leads and advocates to support
progress in our business, and are working with community partners, clients and candidates to build programmes to open up
pathways into STEM careers for people from diverse backgrounds. Our ambition is to be recognised as a global D&I leader in
the staffing industry.
Leveraging our position at the centre of STEM
We have always had close relationships with our clients and candidates, but the health crisis has in many ways brought us
even closer. We are working with our clients to not only source the best talent to help them deal with changing business
conditions now, but also providing guidance on what skills they will likely need in both the immediate future and the longer
term. The health crisis has undoubtably broadened minds to flexible working and its ability to decrease the barriers of
physical geography, providing access to broader talent pools. This is where being the only global pure-play specialist
staffing business focused on STEM really comes into its own as we have access to niche talent across the world that we are
now able to offer more widely to global clients.
Alongside this, we believe our position in STEM markets should be a force for good, for clients, candidates, and our STEM
experts of the future. We have therefore launched a number of initiatives to nurture interest in our chosen industries. One
of these is our STEM Series, where we have collaborated with industry experts to run Thought Leadership events addressing
topics such as career barriers, diversity in STEM and personal development. We are pleased that over 2,750 people joined us
over the series to pursue their professional development. At the same time, we are working with community partners and
clients to deliver virtual events specifically for young people from underserved communities, helping them understand
pathways into STEM careers.
As well as cultivating future STEM talent, we began work supporting people at risk of unemployment and underemployment in
the USA with the launch of our STEM Career Pathways programme there in August. Within the programme candidates volunteer
their time to mentor students, developing their own leadership and coaching skills whilst supporting the next generation of
diverse tech talent. We will expand this programme into other markets in 2021.
A business set for now and the future
We still face, what is at its core, a health crisis, and while governments and scientists across the globe continue to
develop strategies to contain the virus and so long as the resulting economic and other impacts persist, we expect to see
significant continued volatility in our markets. However, in line with our approach at the outset of the health crisis we
are committed to learn and adapt so we can operate in whatever environment we are presented with. We have shown that we are
capable of overcoming the challenges by adapting to the next normal. Our teams have shown remarkable resilience during these
challenging times and we have shown that we can deliver in whatever environment we are presented with.
As a result of our strategic focus on STEM and flexible working, the current environment and its acceleration of those
trends, our proposition is proving to be highly relevant. Whilst the crisis has had a significant impact on the overall
recruitment market, demand for STEM roles has been robust. These roles have been crucial in supporting both the global
response to the crisis and the widespread adoption of digital transformation accelerated by different restrictions.
Alongside this, our second secular trend of flexible working has continued to become more prevalent. There has been a
seismic shift in working practices prompted by the health crisis and we believe many businesses will now be adopting these
for the long term.
Whilst a number of the initiatives we introduced in the period were immediate reactions to the health crisis, we remain
focused on building for the future, led by our purpose and strategy. It remains difficult to know what lies ahead and what
the future will look like, but it is clear that we are going to see lasting consequences of the current health crisis and
the way it has changed the way we work. Given our position at the centre of the two secular trends we are confident that we
are well placed to capitalise on this new world of work, and so we are investing in the areas that we are confident will
build the infrastructure to support our ambitions and drive our growth. We are committed to the use of data and insights to
drive the business, investing in the right tools and technology, continued learning and development and focusing on the
right markets, and will continue to do so to position us for the future.
Responsible business
Our purpose of bringing skilled people together to build the future feels even more appropriate today. We source, nurture
and place STEM talent with clients who are solving complex world challenges, we connect clients with talent who will
contribute solutions to society. Our goal is to truly embed ESG within our business and we have been building out our ESG
strategy; identifying three key areas we can have the most impact and introducing new targets to increase our
accountability. We are committed to building a sustainable future and the unprecedented events of this year have
strengthened our resolve. A more detailed review of the Group's ESG Strategy is available in the Group's Annual Report and
Accounts 2020.
Outlook
Our initial view, taken in spring 2020, that this health crisis will create sustained and significant volatility in staffing
demand has proven to be correct, and we continue to see uncertainty ahead in several of our markets as restrictions wax and
wane across the globe.
Our strategy so far has proven successful and we will continue to drive the Group forward in the coming period towards our
long-term ambitions. As we continue to head into the fourth industrial revolution accelerated by the current health crisis,
the secular trends of STEM and flexible working will only become more powerful over the next year. We see the world's
'winning' organisations embracing STEM skills in order to thrive, just as those businesses less well suited to the current
environment appreciate that they must adapt for the new world quickly to be able to survive. We are therefore highly focused
on first-class strategic execution across the business, ensuring we are best able to capitalise on the opportunity available
to us.
Over the coming year we will continue to invest in our people, data, technology, and our go-to market approach, leveraging
the power of our platform to reduce the cost of customer and candidate acquisition. Our ultimate aim remains to continue
taking market share, working towards our ultimate goal of becoming the number one STEM talent provider in the best STEM
markets.
Group OPERATIONAL REVIEW
Overview 3 1
As a Group, we have delivered a resilient performance for the period, despite the impact of the COVID-19 health crisis. As
previously noted, this drove an aggregate drop in demand across all our territories and sectors in Q2, although we have seen
a steady recovery in our performance throughout the second half.
Performance has been varied across different regions, sectors and within specific niches. From a regional perspective the
USA and Germany continue to perform particularly well, delivering very strong results given the circumstances. Our strategic
focus on Contract has also provided the business with greater resilience in the more uncertain economic conditions we have
faced. Pleasingly, Permanent has also held up well with DACH, our largest Permanent market, delivering net fees down only
3%*.
Whilst broader market conditions for staffing continue to be challenging, the STEM markets have been robust in comparison
and we are confident we can maximise our opportunities with strategic initiatives and selective headcount growth. In what
has been a more difficult period for our teams, the quality of our management and increasing expertise in our niche markets
is driving us forward on our journey to become the number one STEM talent provider in the best STEM markets. We are
committed to ensuring that SThree is well positioned over the long term and are confident we can continue to exploit the
accelerating secular trends of STEM and flexible working across global markets and deliver our long-term ambitions.
2024 ambitions
In 2019, looking ahead to 2024 we set ourselves several ambitions to deliver growth and value for our Company and all
stakeholders:
• to grow Group market share by 50%;
• to reach an operating profit conversion ratio in the range of 21-24%; and
• to drive a free cash flow conversion ratio of at least 75%.
Alongside this we committed to several targets regarding our people and society that reflect the importance we put on being
a people-centric and purpose-driven business. For example, to maintain our Learning & Development ('L&D') spend at 5% of
operating profit, to grow productivity per head over the period by 1% to 2% per annum and to reduce our absolute CO2
emissions by 20%.
We have made good progress taking market share in the USA, Germany, the Netherlands and the UK in the period. Whilst the
operating profit conversion ratio naturally declined to 10.1% as a result of the impact of the health crisis, our free cash
flow conversion rapidly accelerated up 168%, thanks to a focus on cash management alongside the nature of our
Contract-focused business model. Within our People and Society goals we are delighted to have maintained our L&D spend at 5%
in this crucial period for supporting consultants, and also to have reduced our CO2 emissions by 56%. Whilst overall
productivity per head declined 3% YoY as a direct impact of health crisis-related disruption, we are very pleased to have
achieved a strong sequential improvement over the second half, which was up 4% YoY, demonstrating the strength of our
strategy and our ability to embrace our challenging environment and focus on operating effectively regardless of the
physical restrictions.
Group
Net fees by division
Movement YoY (in constant currency) 2020 mix
Contract Permanent Total Contract Permanent
-7% -13% -8% 76% 24%
Breakdown of net fees 2020 2019
Geographical split
EMEA excluding DACH 38% 42%
DACH 34% 32%
USA 25% 23%
APAC 3% 3%
100%
100%
Sector split
Technology 45% 45%
Life Sciences 23% 20%
Engineering 22% 21%
Banking & Finance 8% 11%
Other sectors 2% 3%
100% 100%
Operational review by reporting segment
EMEA excluding DACH (38% of Group net fees)
Net fees by division
Movement YoY (in constant currency) 2020 mix
Contract Permanent Total Contract Permanent
-15% -26% -16% 86% 14%
EMEA excluding DACH comprises businesses in Belgium, the Netherlands, Luxembourg, France, Spain, the UK, Ireland and Dubai.
Highlights
▪ Development of localised customer-centric strategies in the UK has seen an increase in customer penetration.
▪ High value employed contractor model in the Netherlands remains resilient throughout the health crisis.
▪ Building very strong client and candidate relationships in the Netherlands has allowed us to outperform and take market
share.
Net fees performance
Net fees have declined in EMEA excluding DACH, down 16%* YoY, primarily driven by the more challenging performance in the
UK.
The Netherlands, our largest country in the region, has shown resilience - down 10%* in total - with strong performances in
Engineering (up 20%*) and Life Sciences (up 6%*) reflecting the strategic focus of our teams.
Our business in Dubai was down 11%*; however, Banking & Finance has grown 13%*.
Strategic progress
During the year we have focused on our customer relationships to deliver value and as a result have taken further market
share in the Netherlands and the UK. Data has been the key driver behind our investment decisions, enabling us to identify
changing customer demands and requirements, so that we can then utilise our position of strength within STEM and flexible
working to cater to those demands.
We have supported our people throughout the year and introduced flexible working during the health crisis as their safety
and well-being is our top priority. Diversity and inclusion programmes have been driven from the top and will continue into
the new financial year.
DACH (34% of Group net fees)
Net fees by division
Movement YoY (in constant currency) 2020 mix
Contract Permanent Total Contract Permanent
-3% -3% -3% 65% 35%
DACH is our second largest region comprising businesses in Germany, Switzerland and Austria; Germany accounts for 92% of net
fees.
Highlights
▪ Winner of Mittelstand Deutschland Top Employer 2020 for the fourth consecutive year.
▪ Successful re-organisation of our management infrastructure towards our 2024 strategic goals.
▪ Resilient performance despite significant challenges in trading conditions due to our leadership in highly specialised
STEM markets, resulting in growth in market share.
Net fees performance
Our DACH region had a resilient performance in the year driven by significant growth achieved in Q1.
Whilst Q2 was impacted by COVID-19, the region showed good resilience in the second half of the year with a very strong
performance considering the challenging macro-environment.
Net fees were down 3%* overall YoY.
Life Sciences has been the standout sector with growth of 4%* driven by an exceptionally strong Q1 and increased demand in
Quality Assurance and Clinical Research and Development in the second half of the year. Switzerland, although a small part
of the region, has shown strong growth of 31%*.
Strategic progress
We have continued to invest in our Market Intelligence tool and have seen a growth in our STEM market share, which helps us
to become a leader in our top STEM specialist markets.
Our people are key to us - therefore, we are continuously developing our employer value proposition and have made it our top
priority to protect our people and create a safe working environment for them in the light of the global health crisis. This
has resulted in being awarded the Top Employer Award (Mittelstand) for the fourth consecutive year.
USA (25% of Group net fees)
Net fees by division
Movement YoY (in constant currency) 2020 mix
Contract Permanent Total Contract Permanent
+4% -7% +2% 80% 20%
The USA is the world's largest specialist STEM staffing market. The region remains a key area of focus for the Group and we
will continue to strategically invest in it as we align our resources with the best long-term opportunities.
Highlights
▪ 2%* net fee growth against a declining STEM market.
▪ 16%* Life Sciences growth driven by focus on high value skill verticals and customer projects.
▪ Exceptionally resilient performance of the Permanent division with Q4 growth of 6%*.
Net fees performance
The USA business has demonstrated its strength with net fees up 2%* for the year and up 11%* in Q4. This is a considerable
achievement given the challenging macro-environment and this region has shown the benefits of investing in the right
vertical niches and deeply understanding customer needs.
Performance in our Life Sciences business has been particularly strong, with net fees growing 16%* in the year. We have seen
robust demand in the second half of the year in Clinical Operations, Product Development and Quality Assurance. Our
Technology business has grown 9%*, with increased demand in Mobile Applications & Software Development, and Engineering was
up 1%*.
Strategic progress
The USA business has continued to focus on high value skill niches resulting in an improvement in Contract gross margin
since Q1 2018. During 2020 we have partnered with our clients to deliver critical projects ranging from digital
transformation (mobile application development) to the development and deployment of COVID-19 vaccines, therapies and
testing. We have increased our market share, whilst we stay true to our purpose and executing robustly on our strategy.
Asia Pacific (3% of Group net fees)
Net fees by division
Movement YoY (in constant currency) 2020 mix
Contract Permanent Total Contract Permanent
-8% -30% -26% 20% 80%
Our APAC business principally includes Japan and Singapore. APAC represented 3% of Group net fees, in line with prior year.
Highlights
▪ Focus on clients with digital transformation demands.
▪ Built leadership capability in Japan and Singapore.
▪ Exited Australia in the final quarter.
Net fees performance
Net fees for our Asia Pacific ('APAC') region were down 26%* in the full year, primarily driven by the more transactional
nature of our business in Japan, which is 94% Permanent. Our Japanese business was down 25%* in the year with all sectors
impacted.
Singapore net fees were down 29%* in the year, with business impacted across all our sectors.
Strategic progress
We have taken the opportunity this year to focus on our brand identity and value proposition, and - as a result - delivered
targeted solutions for the success of our clients. In line with our strategy and purpose, we are strengthening our position
in STEM, with a clear focus on Technology and Life Sciences. People remain at the heart of our business and we have reviewed
our career programmes, provided robust digital learning and continue to support our people during this challenging period.
chief financial officer's REVIEW
When the health crisis struck, we responded thoughtfully and at pace. We protected liquidity and accelerated our scenario
planning, all whilst working remotely. As the year progressed, the Group executed well and delivered a resilient
performance, ahead of our expectations when COVID-19 first hit. Our strong balance sheet and immediately-accessible
liquidity of £154.9 million give us confidence and position us well for the future.
Income statement
Revenue for the year was down 9% on a reported and constant currency basis to £1.2 billion (2019: £1.3 billion). Net fees
decreased by 9% on a reported and 8% on a constant currency basis to £308.6 million (2019: £338.0 million).
Despite the negative implications of the COVID-19 health crisis, the Group succeeded in improving underlying sequential
performance in the second half and delivered a resilient result for the full year. The demand for contract staff accelerated
and our contractor book stabilised due to new deal activity and improved contractor retention rates in the second half. At
the end of the year, Contract represented 76% of the Group net fees in the period (2019: 74%). Our net fees margin increased
to 25.7% (2019: 25.5%).
Operating expenses decreased by 1.2% on a reported basis, mainly attributable to a reduction in personnel and miscellaneous
costs. The slowdown in the Group's operations caused by the COVID-19 health crisis led to a pause in marketing spend, a
decline in commissions and bonuses, and a temporary reduction in the Senior Executives' salaries. The Group also benefited
from the government job retention support schemes in selected countries.
The Group's financial results were impacted by certain significant items of expense and income.
• The impairment charge of £1.1 million was recognised for underperforming internally developed assets which were assessed
as no longer recoverable in the course of normal operations.
• In response to the significantly changed economic environment and increased risk and uncertainty caused by COVID-19, we
took steps to right size the structure and strategy of certain local businesses. These changes will optimise SThree's
resilience in the future. A charge of £3.3 million was recognised in the current year.
• During the year, the Group took advantage of job retention schemes launched by a number of national governments, whereby
a portion of salaries was reimbursed for furloughed staff. In 2020, the total benefit, including the associated payroll
savings, was £1.2 million (2019: £nil). The compensation was presented as a deduction in reporting the related staff
expense. The Group decided to repay UK furlough money as performance exceeded the Directors' expectations and is
therefore not included in the above figure.
The reported operating profit was £31.8 million, down 45% YoY (2019: £57.7 million). The adjusted operating profit of £31.3
million (2019: £60.0 million) excluded exceptional income of £0.5 million in respect of the government grant receivable from
Scottish Enterprise on the relocation of support functions (2019: £2.3 million primarily in respect of the CEO changes and
restructuring of senior leadership).
Our operating profit conversion ratio decreased by 6.8 percentage points to 10.3% on a reported basis and 7.7 percentage
points to 10.1% on an adjusted basis (2019: reported 17.1% and adjusted 17.8%). 4 2 The YoY movement reflects the overall
slowdown in the Group trading activity in the light of the health crisis, partially offset by cost management initiatives
implemented during the year in response to the crisis.
In line with our revised strategy and ambition to be the number one talent provider in the best STEM markets in which SThree
has the highest opportunity to take market share, we ceased our operations in Australia. Its results were taken out of the
above analysis for both the current and prior years. In 2020, the discontinued operations incurred an operating loss of £1.8
million (2019: breakeven), including exit costs of £1.1 million.
Net finance costs
Net finance costs increased to £1.2 million (2019: £1.0 million), which was a result of the full drawdown of the RCF to
ensure strong liquidity in the first half plus the adoption of the new standard IFRS 16 on leases.
Foreign exchange exposure
For 2020, the YoY movements in exchange rates between Sterling, the Euro and the US Dollar (the main functional currencies
of the Group) provided a moderate net headwind to the reported performance of the Group, reducing our reported net fees by
approximately £1.0 million and operating profit by £0.2 million.
Exchange rate movements remain a material sensitivity. By way of illustration, each one per cent movement in annual exchange
rates of the Euro and US Dollar against Sterling impacted our 2020 net fees by £1.8 million and £0.8 million respectively,
and operating profit by £0.5 million and £0.3 million respectively. Our foreign exchange risk management strategy involves
using certain derivative financial instruments to minimise the transactional exposure arising from currency fluctuations.
Income tax
The tax charge on the Group's adjusted profit before tax was £11.7 million (2019: £15.9 million) for the year, representing
an effective tax rate ('ETR') of 41.5% (2019: 26.9%). The ETR on the Group's reported profit before tax was 41.1% (2019:
27.3%).
The ETR on continuing operations was 39.0% before exceptional items and 38.7% after exceptional items.
The Group's ETR primarily varies depending on the mix of taxable profits by territory, non-deductibility of the accounting
charge for LTIPs and other one-off tax items.
In 2020, the extent to which tax credits on loss-making businesses were recognised had a material impact on the Group ETR.
The COVID-19 health crisis increased the ratio of operating losses as a proportion of the absolute profits and losses of the
Group. This, together with the reduction in Group results, resulted in the non-recognition of tax credits on loss-making
businesses. The Group is affected by the European Commission's investigation into the state aid received by foreign
subsidiaries controlled by SThree plc. Whilst this was noted as a contingent liability in 2019, in 2020 it was determined
that it was no longer probable that the uncertain tax treatment surrounding this issue will be accepted. As such, a
provision for £1.3 million was recognised and this also impacted the Group ETR.
Overall, the reported profit before tax from continuing operations was £30.6 million, down 46% YoY. The adjusted profit
before tax from continuing operations was £30.1 million, down 49% YoY (2019: reported £56.8 million and adjusted £59.1
million).
Our reported profit after tax from continuing operations was £18.8 million, down 55% YoY. The adjusted profit after tax from
continuing operations was £18.4 million, down 57% YoY (2019: reported £41.3 million and adjusted £43.2 million).
Earnings per share ('EPS')
On an adjusted basis, EPS was down 58%, at 13.9 pence (2019: adjusted 33.2 pence), due to a decrease in the adjusted PBT, an
increase in the Group's ETR, and a 2.2 million increase in weighted average number of shares. On a reported basis, EPS was
14.2 pence (2019: 31.8 pence), down 17.6 pence on the prior year, attributable mainly to a decline in trading performance as
explained above. The weighted average number of shares used for basic EPS grew to 132.1 million (2019: 129.9 million).
Reported diluted EPS was 13.8 pence (2019: 30.9 pence), down 17.1 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 and the settlement of vested
arrangements.
Dividends
Due to the prevailing uncertainty caused by the COVID-19 health crisis, the Board did not propose to pay the 2020 interim
dividend (2019: 5.1 pence).
With underlying sequential improvements noted across the Group in the second half, and in the light of the Group's
continued, robust financial position, the final dividend has been proposed at 5.0 pence and will be subject to shareholder
approval at the 2021 Annual General Meeting. Despite the improved financial performance of the Group, the Board remains
cognisant of the heightened volatility facing the Group and will continue to keep the capital allocation policy under
review.
Balance sheet
Total net assets increased to £128.5 million (2019: £116.8 million), driven by the excess of net profit over the reduced
dividend payment, favourable foreign currency, offset by the adoption of IFRS 16 and share buy-backs. Our trade receivables
(including Contract assets) declined to £226.8 million (2019: £256.2 million) reflecting lower revenue and due to
enhancements in credit risk management to preserve cash and provide greater clarity on the financial viability of the trade
debtor book. Days sales outstanding remained level at 44 days (2019: 44 days).
Investment in subsidiaries (Company only)
Following the review of the recoverable amount of the Company's own portfolio of investments, a total impairment loss of
£13.2 million was recognised. It was mainly in respect of the UK operation, which experienced increased risk, uncertainty,
and reduced economic activity caused by COVID-19.
After booking this impairment, the retained earnings were £87.2 million (2019: £122.0 million).
Tracker shares
Only an immaterial number of tracker shares were settled during the year as the annual buy-out process was postponed (2019:
tracker shares were settled for a total consideration of £4.4 million). In 2020 we settled the consideration in SThree plc
shares by utilising 33,949 treasury shares. In the prior year, we settled the consideration for vested tracker shares in
SThree plc shares either by issuing new shares (2019: 475,738) or treasury shares (2019: 974,583). 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 circa £5.0 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 Employee Benefit Trust shares. 5 3
Liquidity management
In 2020, cash generated from operations on an adjusted basis increased to £76.9 million (2019: £54.8 million). It
represented the net result of reduced adjusted EBITDA offset by the release of working capital as the business slowed down,
strong action to manage working capital in the face of the COVID-19 health crisis, reduced taxes paid and reclassification
of rent payments to financing activities under the newly implemented standard, IFRS 16 Leases.
Capital expenditure increased to £5.3 million (2019: £4.6 million). The Group made only essential capital investments to
support the ongoing pursuit of strategic priorities under the fast-evolving market conditions.
Income tax paid decreased to £10.5 million (2019: £12.9 million), and dividend payments reduced to £6.7 million (2019: £18.8
million) as a result of the withdrawal of the proposed final 2019 dividend. The Group paid £13.6 million in rent (2019:
£14.6 million) and £0.4 million (2019: £0.9 million) in net interest cost in the year. The Group paid £2.0 million (2019:
£2.5 million) for the purchase of its own shares to satisfy employee share schemes in future periods. Cash inflows of £0.9
million (2019: £0.3 million) were generated from Save As You Earn employee schemes. Foreign exchange had an immaterial
impact.
Overall, in 2020, the Group free cash conversion ratio increased to 178% on an adjusted basis compared to the prior year of
68%, primarily reflecting improved working capital. We started the period with net cash of £10.6 million and closed the
period with net cash of £49.9 million.
Borrowings
On 30 November 2020, the Group had total accessible liquidity of £154.9 million. This was made up of £49.9 million net cash,
a £50.0 million Revolving Credit Facility ('RCF'), which is committed to 2023, a £5.0 million overdraft and £50.0 million
under the Bank of England's COVID Corporate Financing Facility available until March 2021, with none of these debt
facilities drawn down at year end. In addition, SThree has a £20.0 million accordion facility as well as a substantial
working capital position reflecting net cash due to SThree for placements already undertaken.
At the year end, the funds borrowed under the RCF bear interest at a minimum annual rate of 1.3% above a three-month
Sterling LIBOR, giving an average interest rate of 1.3% during the period (2019: 2.0%).
These demonstrate that the Group remains in a strong financial position and has sufficient cash reserves to meet its
obligations as they fall due for a period of at least 12 months from the date of signing of these financial statements. The
Board therefore considers it appropriate to adopt the going concern basis of accounting in preparing these Consolidated
Financial Statements.
PRINCIPAL RISKS
Principal risks and uncertainties affecting the business activities of the Group are detailed within the Strategic Report
section of the Group's 2020 Annual Report, a copy of which will be available on the Group's website 6 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 2020. 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 2020
2020 2019
Before exceptional Exceptional Total Before exceptional Exceptional Total
items items items items
Note £'000 £'000 £'000 £'000 £'000 £'000
Continuing operations
Revenue 2 1,202,622 - 1,202,622 1,324,703 - 1,324,703
Cost of sales (894,047) - (894,047) (986,707) - (986,707)
Net fees 2 308,575 - 308,575 337,996 - 337,996
Administrative 3 (275,594) 468 (275,126) (275,592) (2,273) (277,865)
(expense)/income
Impairment losses on 3 (1,689) - (1,689) (2,376) - (2,376)
financial assets
Operating profit 31,292 468 31,760 60,028 (2,273) 57,755
Finance costs (1,279) - (1,279) (1,009) - (1,009)
Finance income 114 - 114 55 - 55
Profit before income tax 30,127 468 30,595 59,074 (2,273) 56,801
Income tax 4 (11,744) (89) (11,833) (15,908) 428 (15,480)
(expense)/benefit
Profit for the year from 18,383 379 18,762 43,166 (1,845) 41,321
continuing operations
Discontinued operations 5
Loss after tax for the year
from discontinued (1,809) - (1,809) (2) - (2)
operations
Profit for the period
attributable 16,574 379 16,953 43,164 (1,845) 41,319
to owners of the Company
Earnings per share 7 pence pence pence pence pence pence
Basic 12.5 0.3 12.8 33.2 (1.4) 31.8
Diluted 12.2 0.3 12.5 32.3 (1.4) 30.9
Earnings per share for 7 pence pence pence pence pence pence
continuing operations
Basic 13.9 0.3 14.2 33.2 (1.4) 31.8
Diluted 13.5 0.3 13.8 32.3 (1.4) 30.9
The above Consolidated Income statement should be read in conjunction with the accompanying notes.
consolidated statement of comprehensive income
for the year ended 30 November 2020
2020 2019
£'000 £'000
Profit for the year 16,953 41,319
Other comprehensive income/(expense):
Items that may be subsequently reclassified to profit or loss:
Exchange differences on retranslation of foreign continuing operations 2,955 (3,580)
Exchange differences on translation of discontinued operations (228) (312)
Items that will not be subsequently reclassified to profit or loss:
Net loss on equity instruments at fair value through other comprehensive income (12) (1,996)
Other comprehensive income/(loss) for the year (net of tax) 2,715 (5,888)
Total comprehensive income for the year attributable to owners of the Company 19,668 35,431
Total comprehensive income for the year attributable to owners of the Company arises from:
Continued operations 21,705 35,745
Discontinued operations (2,037) (314)
19,668 35,431
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
consolidated statement of financial position
as at 30 November 2020
30 November 30 November
2020 2019
Note £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 40,818 6,804
Intangible assets 4,409 8,031
Investments 1 13
Deferred tax assets 1,482 4,167
46,710 19,015
Current assets
Trade and other receivables 237,042 270,350
Current tax assets 377 624
Cash and cash equivalents 8 50,363 15,093
287,782 286,067
Total assets 334,492 305,082
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital 10 1,330 1,326
Share premium 10 33,026 32,161
Other reserves (118) (8,338)
Retained earnings 94,279 91,622
Total equity 128,517 116,771
Current liabilities
Bank overdraft 8 468 4,538
Trade and other payables 157,499 172,357
Lease liabilities 1,9 12,078 -
Provisions 9,915 8,275
Current tax liabilities - 1,738
179,960 186,908
Non-current liabilities
Lease liabilities 1,9 23,426 -
Provisions 2,589 1,403
26,015 1,403
Total liabilities 205,975 188,311
Total equity and liabilities 334,492 305,082
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
consolidated statement of changes in equity
for the year ended
30 November 2020
Total equity
Share Share Capital Capital Treasury Currency Fair value Retained attributable
capital premium redemption reserve reserve translation reserve of earnings to owners of
reserve reserve equity the Company
investments
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 1,319 30,511 172 (7,830) 1,505 - 75,116 101,671
November 2018 878
Effect of a
change in - - - - - - - (2,344) (2,344)
accounting
policy
Restated total
equity at 1 1,319 30,511 172 878 (7,830) 1,505 - 72,772 99,327
December 2018
Profit for the - 41,319 41,319
year - - - - - -
Other
comprehensive (3,892) (1,996)
loss for the - - - - - - (5,888)
year
Total
comprehensive (1,996) 41,319
income for the - - - - - (3,892) 35,431
period
Dividends paid
to equity - (18,778)
holders (note - - - - - - (18,778)
6)
Distribution
to tracker - - - - - - - (218) (218)
shareholders
Settlement of
vested tracker 5 1,325 - - 3,245 - - (4,419) 156
shares
Settlement of
share-based 2 325 - - 2,086 - - (2,086) 327
payments
Purchase of
own shares by
Employee - - - - (2,506) - - - (2,506)
Benefit Trust
(note 10)
Credit to
equity for
equity-settled - - - - - - - 2,681 2,681
share-based
payments
Deferred tax
on share-based - - - - - - - 351 351
payment
transactions
Total
movements in 7 1,650 - - 2,825 (3,892) (1,996) (18,850) (17,444)
equity
Balance at 30 1,326 32,161 172 878 (5,005) (2,387) (1,996) 91,622 116,771
November 2019
Effect of a
change in
accounting - - - - - - - (978) (978)
policy (note
1)
Restated total
equity at 1 1,326 32,161 172 878 (5,005) (2,387) (1,996) 90,644 115,793
December 2019
Profit for the - - - - - - - 16,953 16,953
year
Other
comprehensive - - - - - 2,727 (12) - 2,715
income for the
year
Total
comprehensive - - - - - 2,727 (12) 16,953 19,668
income for the
year
Transfer of
loss on
disposal of
equity
investments - - - - - - 1,996 (1,996) -
through other
comprehensive
income to
retained
earnings
Dividends paid
to equity - - - - - - - (6,659) (6,659)
holders (note
6)
Settlement of
vested tracker - - - - 103 - - 16 119
shares
Settlement of
share-based 4 865 - - 5,437 - - (5,437) 869
payments
Purchase of
own shares by
Employee - - - - (2,031) - - - (2,031)
Benefit Trust
(note 10)
Credit to
equity for
equity-settled - - - - - - - 916 916
share-based
payments
Current and
deferred tax
on share-based - - - - - - - (158) (158)
payment
transactions
Total
movements in 4 865 - - 3,509 2,727 1,984 3,635 12,724
equity
Balance at 30 1,330 33,026 172 878 (1,496) 340 (12) 94,279 128,517
November 2020
The above Consolidated Statement of Changes in Equity should be read in conjunction with
the accompanying notes.
consolidated statement of cash flows
for the year ended 30 November 2020
30 November 30 November
2020 2019
Note £'000 £'000
Cash flows from operating activities
Profit from continuing operations before tax after exceptional items 30,595 56,801
Loss before tax from discontinued operations (1,809) (2)
Profit before tax 28,786 56,799
Adjustments for:
Depreciation and amortisation charge 6,391 6,040
Lease asset depreciation 13,049 -
Loss/(gain) on disposal of property, plant and equipment 136 (3)
Impairment of intangible assets 1,124 -
Finance income (114) (55)
Finance cost 1,293 1,009
Non-cash charge for share-based payments 916 2,681
Operating cash flows before changes in working capital and provisions
51,581 66,471
Decrease/(increase) in receivables 41,225 (8,020)
Decrease in payables (20,088) (3,712)
Increase/(decrease) in provisions 4,175 (1,589)
Cash generated from operations 76,893 53,150
Interest received 114 23
Income tax paid - net (10,504) (12,958)
Net cash generated from operating activities 66,503 40,215
Cash generated from operating activities before exceptional items 66,503 41,904
Net cash outflow from exceptional items - (1,689)
Net cash generated from operating activities 66,503 40,215
Cash flows from investing activities
Purchase of property, plant and equipment (4,669) (3,102)
Purchase of intangible assets (609) (1,455)
Net cash used in investing activities (5,278) (4,557)
Cash flows from financing activities
Proceeds from borrowings 9 50,000 -
Repayment of borrowings 9 (50,000) (37,428)
Interest paid (481) (894)
Lease principal payments (13,579) -
Proceeds from exercise of share options 869 327
Employee subscription for tracker shares 291 536
Purchase of own shares (2,031) (2,506)
Dividends paid to equity holders 6 (6,659) (18,778)
Distribution to tracker shareholders - (218)
Net cash used in financing activities (21,590) (58,961)
Net increase/(decrease) in cash and cash equivalents 39,635 (23,303)
Cash and cash equivalents at beginning of the year 10,555 33,323
Exchange (losses)/gains relating to cash and cash equivalent (295) 535
Net cash and cash equivalents at end of the year 9 49,895 10,555
The above Consolidated Statement of Cash Flow should be read in conjunction with the accompanying notes.
Notes to the Financial information
for the year ended 30 November 2020
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 2020 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 22 January 2021.
The auditors have reported on the Group's financial statements for the years ended 30 November 2020 and 30 November 2019
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 2019 were
filed with the Registrar of Companies and those for the year ended 30 November 2020 will be filed following the Company's
Annual General Meeting.
In 2020, selected UK subsidiaries were exempt from the requirements of the UK Companies Act 2006 ('the Act') relating to the
audit of individual accounts by virtue of s479A of the Act. The Company provides a guarantee concerning the outstanding
liabilities of these subsidiaries under section 479C of the Act.
The Group's financial statements have been prepared in accordance with international accounting standards in conformity with
the requirements of the Companies Act 2006 and the international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
Going concern
The Group's financial statements have been prepared on a going concern basis under the historical cost convention.
The Group's business model has been tested during the recent period of particularly challenging market conditions and has
been found to be effective and resilient.
When assessing the Group's ability to continue as a going concern, the Directors reviewed assumptions about the future
trading performance, capital expenditure, working capital requirements and available funding facilities contained within the
Group's five-year plan. The Directors have also considered the principal risks in the business, credit, market and liquidity
risks, including forecast covenant compliance, as well as the other matters discussed in connection with the viability
statement that can be found in the Group Annual Report 2020 under Compliance Statements. Further stress testing has been
carried out to ensure the Group has sufficient cash resources and complies with bank covenants to continue in operation for
at least 12 months from the date of signing this report. This stress testing included severe but plausible scenarios of the
shape and severity of economic consequences of enforced lockdown restrictions on the aggregate demand for the Group's
services, deterioration in credit risk and days sales outstanding, partially offset by mitigating cost reduction actions.
Through this process the Directors have satisfied themselves that the Group will be able to meet its commitments and
obligations for at least the next twelve months from the date of this report.
The key assumptions of two severe but plausible scenarios linked to certain principal risks are shown below.
Scenario 1:
The COVID-19 global health crisis and the impact on the global economy have been considered. In this scenario we assume that
sales activity in the first half of 2021 is significantly impacted, being down 7% versus H1 2020, the period when the
majority of our markets went into lockdown and were significantly impacted in the early stages of the health crisis.
Under 'Scenario 1' the Group forecasts to be in a strong cash position throughout 2021 and Q1 2022 with significant headroom
against its banking covenants.
Following this period, it is assumed that there is recovery, and the Group returns to a more normal trading performance in
2022.
Scenario 2:
Under 'Scenario 2' we extended the impact of COVID-19 with an additional wave of lockdown restrictions and demand reductions
for the period from August to the end of November 2021. Sales activity for Q1 and Q2 mirror the performance of 'Scenario 1'.
The Q3 and Q4 impact is further offset by proportionate mitigating cost reduction actions.
Under 'Scenario 2' the Group forecasts to be in a strong cash position throughout 2021 and Q1 2022 with significant headroom
against its banking covenants.
Following this period, it is assumed that there is recovery, and the Group returns to a more normal trading performance in
2022.
The results of the stress testing demonstrated that due to the Group's significant free cash flow, strong balance sheet,
immediately accessible liquidity of £154.9 million (falling to £104.9 million on 23 March 2021 when the Group's access to
the Bank of England's COVID-19 Corporate Financing Facility expires), and the Board's ability to adjust the cost base
further, including the discretionary share buyback programme, it would be able to withstand the impact and remain cash
generative.
Based on the above, together with their knowledge and experience of the recruitment services industry and STEM markets, the
Directors continue to adopt the going concern basis in preparing the financial statements for the year ended 30 November
2020.
Significant accounting policies
The same accounting policies, presentation and computation methods are followed in this preliminary announcement as in the
preparation of the Group's financial statements. The Group's principal accounting policies, as set out below, have been
consistently applied in the preparation of these financial statements of all the periods presented, except where otherwise
indicated.
New standards and interpretations
A number of new or amended standards became applicable for the current reporting period. None of these, however, other than
the adoption of IFRS16 Leases, had a significant impact on the Group's accounting policies or the Consolidated Financial
Statements.
IFRS 16 Leases
This note explains the impact of the adoption of IFRS 16 Leases ('IFRS 16') on the Group's financial statements and also
discloses the new accounting policies that have been applied from 1 December 2019, where they are different to those applied
in prior periods.
(a) Impact on the financial statements
The Group adopted IFRS 16 under the modified retrospective transition approach from 1 December 2019 but has not restated
comparatives for the prior reporting period, as permitted under the specific transitional provisions in the standard. As
presented below, the reclassifications and the adjustments arising from the adoption of the new leasing standard are
therefore recognised in the opening balance sheet on 1 December 2019.
The following table shows the adjustments recognised for each individual line item. Line items that were not affected by the
changes have not been included.
Adjustments on adoption of 1 December
30 November 2019
IFRS 16 2019
£'000 £'000 £'000
Non-current assets
Property, plant and equipment 6,804 42,835 49,639
Deferred tax assets 4,167 342 4,509
10,971 43,177 54,148
Current liabilities
Lease liabilities - 11,627 11,627
Provisions 8,275 (1) 8,274
8,275 11,626 19,901
Non-current liabilities
Lease liabilities - 31,392 31,392
Provisions 1,403 1,137 2,540
1,403 32,529 33,932
Equity
Retained earnings 91,622 (978) 90,644
(b) Accounting policies applied from 1 December 2019
From 1 December 2019, leases, from a lessee perspective, are recognised as a right-of-use asset and a corresponding lease
liability at the date when the leased asset is available for use by the Group. Assets and liabilities arising from a lease
are initially measured on a net present value basis and are recognised as part of 'Property, plant and equipment', 'Current
lease liabilities', and 'Non-current lease liabilities' in the statement of financial position, respectively.
Lease liabilities include the net present value of the following lease payments:
a) fixed payments less any lease incentives receivable;
b) variable lease payments that are based on an index or a rate;
c) amounts expected to be payable by the lessee under residual value guarantees, if any;
d) the exercise price of a purchase option if the Group is reasonably certain it will exercise that option; and
e) payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
The lease payments are discounted using the interest rate implicit in the lease (if that rate can be determined), or the
incremental borrowing rate ('IBR'), being the rate, the Group would have to pay to borrow the funds necessary to obtain an
asset of similar value in a similar economic environment with similar terms and conditions. In determining the incremental
borrowing rate to be used, the Group applies judgement to establish the suitable reference rate and credit spread. IBR was
calculated at the transition date of 1 December 2019.
Each lease payment is allocated between the liability and finance costs, within finance costs in the income statement.
Right-of-use assets are measured at cost comprising the following:
a) the amount of the initial measurement of lease liability;
b) any lease payments made at or before the commencement date less any lease incentive received;
c) any initial direct costs; and
d) any restoration costs.
The right-of-use assets are depreciated over the shorter of the assets' useful life and the lease term on a straight-line
basis.
The Group does not apply the recognition exemption to short-term leases or leases of low value assets, as permitted by the
standard.
In determining the lease terms, the Directors consider all facts and circumstances that create an economic incentive to
exercise an extension option, or not exercise termination option. Extension options (or periods after termination option)
are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is
reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is
within the control of the lessee.
Other amendments and interpretations
The Group has adopted the following other amendments and interpretations which were issued by the IASB that are effective
for accounting periods beginning on 1 December 2019:
- Prepayment features with negative compensation - amendments to IFRS 9;
- Long-term interest in associates and joint ventures - amendments to IAS 28;
- Annual improvements to IFRS standards 2015-2017 cycle;
- Plan amendment, curtailment or settlement - amendments to IAS 19; and
- Interpretation 23 - uncertainty over income tax treatments.
The above other amendments and interpretations that came into effect on 1 December 2019 did not have a material impact on
the consolidated financial statements of the Group.
The following other amendments and interpretations are issued by the IASB that are effective from 1 January 2021 but will
not have a material impact on the Group's financial statements:
- Definition of a business - amendments to IFRS 3;
- Definition of material (amendments to IAS 1 and IAS 8); and
- Interest Rate Benchmark Reform - phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16).
2. Segmental analysis
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 maker, 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 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.
In the current year, the Group changed its reporting structure, as shown in the tables below, in line with the updated
strategy announced at its 2019 Capital Markets Day and internal management structures. As a result, the Group segments the
business into the following reportable regions: DACH, EMEA excluding DACH, USA and APAC, as well as presents an analysis of
net fees by its five key markets: Germany, the Netherlands, USA, the UK and Japan. On a sector basis, Engineering now
includes Energy, which was previously reported separately. The comparative numbers have been restated in accordance with the
new reporting structure.
DACH region comprises Germany, Switzerland and Austria. 'EMEA excluding DACH' region comprises primarily Belgium, France,
the Netherlands, Spain, the UK, Ireland, and Dubai. All these sub-regions were aggregated into two separate reportable
segments based on the possession of similar economic characteristics.
Countries aggregated into DACH and separately into 'EMEA excluding DACH' generate a similar average net fees margin and
long-term growth rates, and are similar in each of the following areas:
- the nature of the services (i.e., recruitment/candidate placement);
- 'the methods used in which they provide services to clients (freelance contractors, employed contractors, and permanent
candidates); and
- the class of candidates (candidates, who we place with our clients, represent skillsets in Science, Technology,
Engineering and Mathematics disciplines).
The Group's management reporting and controlling systems use accounting policies that are the same as those described in
note 1 in the summary of significant accounting policies in the Group's 2019 annual financial statements.
Revenue and net fees 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 '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
2020 2019 2020 2019
£'000 £'000 £'000 £'000
EMEA excluding DACH 588,787 693,099 117,629 141,172
DACH 371,915 375,735 105,764 109,347
USA 227,523 237,702 77,243 76,706
APAC 14,397 18,167 7,939 10,771
1,202,622 1,324,703 308,575 337,996
EMEA excluding DACH includes Belgium, Dubai, France, Ireland, Luxembourg, Netherlands, Spain and UK.
DACH includes Austria, Germany and Switzerland.
APAC includes Hong Kong, Japan, Malaysia and Singapore.
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
2020 2019 2020 2019
£'000 £'000 £'000 £'000
Germany 336,259 342,345 96,866 101,480
Netherlands 234,547 261,429 47,314 52,396
USA 227,523 237,702 77,243 76,706
UK 186,146 236,323 35,057 43,817
Japan 7,044 9,000 5,899 7,812
RoW(1) 211,103 237,904 46,196 55,785
1,202,622 1,324,703 308,575 337,996
(1) RoW (Rest of the World) includes all countries other than listed.
Non-current assets
30 November 30 November
2020 2019
£'000 £'000
UK 16,255 11,160
Germany 10,725 949
USA 6,466 600
Netherlands 3,928 596
Japan 118 43
RoW(1) 7,736 1,500
45,228 14,848
(1) RoW (Rest of the World) includes all countries other than listed.
Non-current assets from discontinued operations included in RoW amount to £nil (2019: £0.2 million).
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 Net fees
2020 2019 2020 2019
£'000 £'000 £'000 £'000
Brands
Computer Futures 376,053 400,184 95,530 103,533
Progressive 372,568 430,390 92,295 101,234
Real Staffing Group 253,682 255,951 75,884 76,473
Huxley Associates 200,319 238,178 44,866 56,756
1,202,622 1,324,703 308,575 337,996
Other brands including Global Enterprise Partners, JP Gray, Madison Black, Newington International and Orgtel are rolled
into the above brands.
Revenue Net fees
2020 2019 2020 2019
£'000 £'000 £'000 £'000
Recruitment classification
Contract 1,124,817 1,236,459 233,343 251,410
Permanent 77,805 88,244 75,232 86,586
1,202,622 1,324,703 308,575 337,996
Revenue Net fees
2020 2019 2020 2019
£'000 £'000 £'000 £'000
Sectors
Technology 591,333 630,369 138,234 150,602
Engineering 271,861 308,286 68,083 72,985
Life Sciences 223,655 207,738 71,604 67,841
Banking & Finance 101,196 147,631 25,760 36,611
Other 14,577 30,679 4,894 9,957
1,202,622 1,324,703 308,575 337,996
Other includes Procurement & Supply Chain and Sales & Marketing. Engineering includes Energy.
3. ADMINISTRATIVE EXPENSES
a. Operating profit from continuing operations is stated after charging/(crediting):
2020 2019
£'000 £'000
Staff costs 209,397 211,029
Depreciation 16,285 3,000
Amortisation 2,786 2,982
Loss/(gain) on disposal of property, plant and equipment 14 (3)
Impairment of intangible assets 1,124 -
Loss on disposal of intangible assets - 51
Impairment losses on financial assets 1,689 2,376
Service lease charges (2019: operating lease charges)
• Buildings 1,892 12,415
• Cars 402 1,843
Foreign exchange losses/(gains) 677 (518)
Other operating expenses (see 3(b)) 1,666 2,273
b. Other operating expenses:
2020 2019
£'000 £'000
1. Net exceptional (income)/expense (468) 2,273
2. Impact of COVID-19:
Business optimisation expenses 3,300 -
Government assistance income (1,166) -
Total 1,666 2,273
Net exceptional income/expense
In line with the Group's prior year practice and accounting policy, the following items of material or non-recurring nature
were excluded from the directly reconcilable IFRS measures.
Support function relocation
This is a legacy programme, which was partially funded by a grant receivable from Scottish Enterprise. The Group is entitled
to the grant over several years until 2021, subject to the terms of the grant being met. In 2020, the Group recognised £0.5
million in grant income (2019: net exceptional income of £0.1 million, comprising £0.6 million in personnel and property
costs less government grant income of £0.7 million).
Senior leadership restructuring
In 2019, several key changes were made to the senior leadership structure within the EMEA excluding DACH region. In 2020,
true-up of £0.1 million (2019: £1.2 million) in remaining charges was recognised.
CEO change
In the prior period, operating expenses classified as exceptional also included costs of £1.2 million associated with the
appointment of the new CEO.
Impact of COVID-19
The COVID-19 had implications on certain items of income and expense in the Group Consolidated Financial Statements,
affecting the profit before tax for the year ended 30 November 2020.
Business optimisation expense
In response to the significantly changed economic environment and increased risk and uncertainty caused by COVID-19, the
Directors took steps to right size the structure and strategy of certain local businesses. These changes resulted in a
charge of £3.3 million (2019: £nil) that was recognised in the current year.
Government assistance income
The Group took advantage of job retention schemes launched by local national Governments in Australia, Belgium, France, Hong
Kong, Japan, Luxembourg, Singapore and Spain, whereby it was reimbursed for a portion of salaries of furloughed staff. In
2020, the Group, recognised a total benefit, including the associated payroll savings, of £1.2 million (2019: £nil). The
compensation was presented as a deduction in reporting the related staff expense. The Group decided to repay UK furlough
money as performance exceeded Directors' expectations.
4. Taxation
a. Analysis of tax charge for the year
2020 2019
Before
Exceptional Before exceptional Exceptional
exceptional items Total items items Total
items
£'000 £'000 £'000 £'000 £'000 £'000
Current income tax
Corporation tax charged/(credited) on 8,651 89 8,740 15,917 (428)
profits for the year 15,489
Adjustments in respect of prior periods 438 - 438 1,110 - 1,110
Total current tax charge/(credit) 9,089 89 9,178 17,027 (428) 16,599
Deferred income tax
Origination and reversal of temporary 2,582 - 2,582 (678) - (678)
differences
Adjustments in respect of prior periods 73 - 73 (441) - (441)
Total deferred tax charge/(credit) 2,655 - 2,655 (1,119) - (1,119)
Total income tax charge/(credit) in the 11,744 89 11,883 15,908 (428) 15,480
Consolidated Income Statement
The total income tax charge relates to continuing operations.
b. Reconciliation of the effective tax rate
The Group's tax charge for the year exceeds (2019: exceeds) the UK statutory rate and can be reconciled as follows:
2020 2019
Before Exceptional Before Exceptional
exceptional items Total exceptional items Total
items items
£'000 £'000 £'000 £'000 £'000 £'000
Profit before income tax from continuing operations 30,127 468 30,595 59,074 (2,273) 56,801
Loss before income tax from discontinued operations (1.809) - (1,809) (2) - (2)
Profit before income tax for the Group 28,318 468 28,786 59,072 (2,273) 56,799
Profit before income tax multiplied by the standard
rate of corporation tax in the UK at 19.00% (2019: 5,380 89 11,223 (432)
19.00%) 5,469 10,791
Effects of:
Disallowable items 2,183 - 2,183 756 4 760
Differing tax rates on overseas earnings 2,576 - 2,576 4,369 -
4,369
Adjustments in respect of prior periods 511 - 511 669 -
669
Adjustment due to tax rate changes 115 - (246) -
115 (246)
Tax losses for which deferred tax asset was not 979 - 979 (863) -
recognised or derecognised (863)
Total tax charge/(credit) for the year 11,744 89 11,833 15,908 (428) 15,480
At the effective tax rate 41.5% 19.0% 41.1% 26.9% 18.8% 27.3%
Effective tax rate attributable to continuing 39.0% - 38.7% 26.9% 18.8% 27.3%
operations
Effective tax rate attributable to discontinued - - - - - -
operations
c. Current and deferred tax movement recognised directly in equity
2020 2019
£'000 £'000
Equity-settled share-based payments
Current tax 192 -
Deferred tax (350) 351
Current tax adjustment on transition to IFRS 15 - 814
Deferred tax adjustment on transition to IFRS 16 342 -
184 1,165
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 2020, a deferred tax asset of £0.7 million (2019:
£1.9 million) was recognised in respect of these options.
Prior to the adoption of IFRS 15, income of £3.1 million was recognised and taxed. On transition to IFRS 15 this income was
reversed via the opening balance of retained earnings, and hence a tax deduction was due on this reversal. This tax
deduction resulted in a tax credit of £0.8 million at 30 November 2019.
On transition to IFRS 16 an adjustment to retained earnings was made at 1 December 2019, and a corresponding tax credit was
booked to equity of £0.3 million.
5. Discontinued operations
On 1 September 2020, the Group announced its intention to liquidate the Australian subsidiary ('SThree Australia'), the
operations of which represented a separate major line of business for SThree. As a result, SThree Australia was treated as
discontinued operations for the year ended 30 November 2020.
A single amount was shown on the face of the Consolidated Income Statement comprising the post-tax result of discontinued
operations. That is, the income and expenses of SThree Australia were reported separately from the continuing operations of
the Group. With SThree Australia being classified as discontinued operations, the APAC segment no longer includes its
results in the segment note. Financial information for SThree Australia operations after intra-group eliminations is
presented below.
2020 2019
£'000 £'000
Revenue 11,538 20,318
Cost of sales (9,361) (15,962)
Administrative expenses (3,972) (4,358)
Operating loss (1,795) (2)
Net finance cost (14) -
Loss before income tax from discontinued operations (1,809) (2)
Loss for the year from discontinued operations (1,809) (2)
Exchange differences on translation of discontinued operations (228) (312)
Total comprehensive loss from discontinued operations (2,037) (314)
The net cash flows generated/(used) by SThree Australia are as follows:
Operating activities 291 452
Investing activities (16) (32)
Financing activities (343) -
Net cash (outflow)/inflow (68) 420
Closure-related costs
Closure-related costs of £1.1 million (2019: £nil) are included in administrative expenses in profit or loss.
Write-down of property, plant and equipment
Following the classification of SThree Australia as discontinued operations, certain items of property, plant and equipment
were disposed of, resulting in a net loss on disposal at £0.1 million (2019: £nil) recognised within administrative
expenses.
6. Dividends
2020 2019
£'000 £'000
Amounts recognised as distributions to equity holders in the year
Interim dividend of 5.1 pence (2018: 4.7 pence) per share 6,659 6,056
Final dividend of nil pence (2018: 9.8 pence) per share - 12,722
6,659 18,778
Amounts proposed as distributions to equity holders
Interim dividend of nil pence (2019: 5.1 pence) per share - 6,661
Final dividend of 5.0 pence (2019: nil pence) per share 6,645 -
2019 interim dividend of 5.1 pence (2018: 4.7 pence) per share was paid on 6 December 2019.
No final dividend for 2019 was approved by shareholders at the AGM on 20 April 2020 (2018: 9.8 pence) as this was withdrawn
by the Company in response to the COVID-19 health crisis.
No interim 2020 dividend was proposed due to continuation of COVID-19 health crisis (2019: 5.1 pence).
The Board has proposed a 2020 final dividend of 5.0 pence (2019: nil pence) per share, to be paid on 4 June 2021 to
shareholders on record at 7 May 2021. This proposed final dividend is subject to approval by shareholders at the Company's
next Annual General Meeting on 22 April 2021, and therefore has not been included as a liability in these financial
statements.
7. 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, which for accounting purposes are treated in the same manner as shares held in the
treasury reserve.
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.
The following table reflects the income and share data used in the basic and diluted EPS calculations.
2020 2019
£'000 £'000
Earnings
Continuing operations before exceptional items 18,383 43,166
Exceptional items 379 (1,845)
Discontinued operations (1,809) (2)
Profit for the year attributable to owners of the Company 16,953 41,319
million million
Number of shares
Weighted average number of shares used for basic EPS 132.1 129.9
Dilutive effect of share plans 4.3 3.7
Diluted weighted average number of shares used for diluted EPS 136.4 133.6
2020 2019
pence pence
Basic
Continuing operations before exceptional items 13.9 33.2
Exceptional items 0.3 (1.4)
Discontinued operations (1.4) -
Basic EPS 12.8 31.8
Diluted
Continuing operations before exceptional items 13.5 32.3
Exceptional items 0.3 (1.4)
Discontinued operations (1.3) -
Diluted EPS 12.5 30.9
8. Cash and cash equivalents
30 November 30 November
2020 2019
£'000 £'000
Cash at bank 50,363 15,093
Bank overdraft (468) (4,538)
Net cash and cash equivalents per the statement of cash flow 49,895 10,555
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.
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).
9. Other financial liabilities
The Group maintains a committed Revolving Credit Facility ('RCF') of £50.0 million, along with an uncommitted £20.0 million
accordion facility, with HSBC and Citibank, giving the Group an option to increase its total borrowings under the facility
to £70.0 million. The Group also has an uncommitted £5.0 million overdraft facility with HSBC. The Group has access to the
Bank of England's COVID-19 Corporate Financing Facility, a £50.0 million committed Commercial Paper facility, until 22 March
2021.
At the year end, the Group and the Company had drawn down £nil (2019: £nil) on these facilities, and the borrowed funds bear
interest at a minimum annual rate of 1.3% (2019: 1.3%) above a three-month Sterling LIBOR. The average interest rate paid on
the RCF during the year was 1.3% (2019: 2.0%).
The RCF is subject to certain covenants requiring the Group to maintain financial ratios over interest cover, leverage and
guarantor cover. The Group has complied with these covenants throughout the year. The RCF is available under these terms and
conditions until April 2023.
Reconciliation of financial liabilities to cash flows arising from financing activities:
£'000
Balance at 1 December 2018 37,428
Cash flows:
Repayments of borrowings (37,428)
Interest paid on borrowings (894)
Total cash flows (38,322)
Other non-cash movements 894
Balance at 30 November 2019 -
Recognition of leases on adoption of IFRS 16 43,019
Cash flows:
Proceeds from borrowings 50,000
Repayments of borrowings (50,000)
Interest paid on borrowings (481)
Principal repayments of lease obligations (13,579)
Total cash flows (14,060)
Lease increases 5,848
Other non-cash movements (1) 697
Balance at 30 November 2020 35,504
1 In 2020, other non-cash movements primarily comprise unwind of the discount on lease liabilities.
Leases
a. Adoption of IFRS 16
The Group applied the modified retrospective transition approach on adoption of IFRS 16 and recognised lease liabilities in
relation to leases which had previously been classified as operating leases under the principles of IAS 17 Leases ('IAS
17'). The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 December 2019 was 1.7%.
The table below shows the reconciliation of operating leases commitments previously recognised under IAS 17 and lease
liabilities initially recognised under IFRS 16:
£'000
Operating lease commitments at 30 November 2019 55,562
Non-lease payments (1,910)
Effect of discounting at the date of initial application (10,633)
Lease liabilities recognised at 1 December 2019 43,019
Of which are:
Current lease liabilities 11,627
Non-current lease liabilities 31,392
In line with IFRS 16 transition options, the associated right-of-use assets were measured at the amount equal to the lease
liability, adjusted by the amount of accrued lease incentives relating to those leases, recognised in the Consolidated
Statement of Financial Position at 30 November 2019. An immaterial amount of an onerous lease provision required an
adjustment to the right-of-use assets at the date of initial application.
b. Leasing activities
The leases which are recorded on the Consolidated Statement of Financial Position following implementation of IFRS 16 are
principally in respect of buildings and cars.
The Group's right-of-use assets and lease liabilities are presented below:
30 November
2020
£'000
Buildings 30,819
Cars 1,936
IT equipment 123
Total right of use assets 32,878
Current lease liabilities 12,078
Non-current lease liabilities 23,426
Total lease liabilities 35,504
10. SHARE CAPITAL
During the year 441,306 (2019: 636,595) new ordinary shares were issued, resulting in a share premium of £0.9 million (2019:
£1.7 million). All new shares were issued pursuant to the exercise of share awards under the Save As You Earn scheme. In the
current year no new shares (2019: 475,738 shares) were issued on settlement of vested tracker shares.
Treasury Reserve
Treasury shares represent SThree plc shares repurchased and available for specific and limited purposes.
During the year, 33,949 (2019: 974,583) shares were utilised from treasury reserve on settlement of vested tracker shares.
At the year end, 35,767 (2019: 70,751) shares were held in treasury.
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 and are, therefore, included in the
financial statements as part of the treasury reserve for the Group.
During the year, the EBT purchased 645,122 (2019: 860,000) of SThree plc shares. The average price paid per share was 315
pence (2019: 291 pence). The total acquisition cost of these shares was £2.0 million (2019: £2.5 million), for which the
treasury reserve was reduced. During the year, the EBT utilised 1,723,288 (2019: 654,994) shares on settlement of Long-Term
Incentive Plan awards. At the year end, the EBT held 634,386 (2019: 1,712,522) shares.
11. RELATED PARTY DISCLOSURES
The Group's significant related parties are as disclosed in the Group's 2020 annual financial statements. There were no
other material differences in related parties or related party transactions in the period compared to the prior period.
12. ALTERNATIVE PERFORMANCE MEASURES ('APMs') - definitions and reconciliations
Adjusted APMs
In discussing the performance of the Group, 'comparable' measures are used, which are calculated by deducting from the
directly reconcilable IFRS measures the impact of the Group's restructuring costs, which are considered as items impacting
comparability, due to their nature.
Restructuring costs
Support function relocation
This category comprises (income)/costs arising from a strategic relocation of SThree's central support functions away from
the London headquarters to the Centre of Excellence located in Glasgow.
Senior leadership restructuring
This category of costs is attributable to several key changes made to the regional leadership structure within EMEA
excluding DACH region in the prior year.
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 years for which these measures are presented. The reconciliation of comparable measures
to the directly related measures calculated in accordance with IFRS is as follows:
Reconciliation of adjusted financial indicators for continuing operations
2020
Revenue Net fees Administrative expenses, Operating Profit before Tax Profit Basic
incl. impairment losses profit tax after tax EPS
£'000 £'000 £'000 £'000 £'000 £'000 £'000 pence
As reported 1,202,622 308,575 (276,815) 31,760 30,595 (11,833) 18,762 14.2
Exceptional items - - (468) (468) (468) 89 (379) (0.3)
Adjusted 1,202,622 308,575 (277,283) 31,292 30,127 (11,744) 18,383 13.9
2019
Revenue Net fees Administrative expenses, incl. Operating Profit Tax Profit after Basic EPS
impairment losses profit before tax tax
£'000 £'000 £'000 £'000 £'000 £'000 £'000 pence
As reported 1,324,703 337,996 (280,241) 57,755 56,801 (15,480) 41,321 31.8
Exceptional items - - 2,273 2,273 2,273 (428) 1,845 1.4
Adjusted 1,324,703 337,996 (277,968) 60,028 59,074 (15,908) 43,166 33.2
APMs in constant currency
As we are operating in 15 countries and with many different currencies, we are affected by foreign exchange movements, and
we report our financial results to reflect this. However, we manage the business against targets which are set to be
comparable between years and within them, for otherwise foreign currency movements would undermine our ability to drive the
business forward and control it. Within this report, we highlighted comparable results on a constant currency basis as well
as the audited 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 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 year to year.
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:
2020
Revenue Net fees Operating profit Operating profit conversion Profit before tax Basic EPS
£'000 £'000 £'000 ratio* £'000 pence
Adjusted 1,202,622 308,575 31,292 10.1% 30,127 13.9
Currency impact 3,119 970 206 0.1% 203 0.1
Adjusted in constant currency 1,205,741 309,545 31,498 10.2% 30,330 14.0
2019
Revenue Net fees Operating profit Operating profit conversion Profit before tax Basic EPS
£'000 £'000 £'000 ratio* £'000 pence
Adjusted 1,324,703 337,996 60,028 17.8% 59,074 33.2
Currency impact (12,817) (4,419) (1,239) (0.2)% (1,239) (0.7)
Adjusted in constant currency 1,311,886 333,577 58,789 17.6% 57,835 32.5
*Operating profit conversion ratio represents operating profit over net fees.
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, less bank overdraft, as
illustrated below:
2020 2019
£'000 £'000
Cash and cash equivalents 50,363 15,093
Bank overdraft (468) (4,538)
Net cash 49,895 10,555
Adjusted EBITDA
Adjusted EBITDA is calculated by adding back to the reported operating profit operating non-cash items such as the
depreciation and impairment of property, plant and equipment, the amortisation and impairment of intangible assets, the
employee share option and exceptional costs. See the table on the next page illustrating how free cash conversion ratio is
calculated. EBITDA is the sum of operating profit and operating non-cash items. Adjusted EBITDA is intended to provide
useful information to analyse the Group's operating performance excluding the impact of operating non‑cash items as defined
above. The Group also uses adjusted EBITDA to measure the level of financial leverage of the Group by comparing adjusted
EBITDA to net debt.
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.
2020 2019
Profit for the year attributable to owners of the Company (£'000) A 16,953 41,319
Dividend proposed to be paid to shareholders (£'000) B 6,645 20,168
Dividend cover (A ÷ B) 2.6 2.0
Net fees margin for continuing operations
The Group uses net fees margin as an APM to evaluate business quality and the service offered to customers. Net fees margin
is defined as total net fees as a percentage of total revenue.
2020 2019
Total net fees (£'000) A 308,575 337,996
Total revenue (£'000) B 1,202,622 1,324,703
Net fees margin (A ÷ B) 25.7% 25.5%
Consultant yield for continuing operations
The Group uses consultant yield as an APM to assess the productivity of the sales teams. Consultant yield is defined as
Group net fees divided by Group average sale headcount over a factor of 12.
2020 2019
Total net fees (£'000) A 308,575 337,996
Average sales headcount B 2,193 2,384
Consultant yield (£'000) (A ÷ B) ÷ 12 11.7 11.8
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.
2020 2019
SThree plc TSR return index value: three-month average to 30 Nov 2017 (2019: 30 Nov 2016) (pence) 285.77 197.00
SThree plc TSR return index value: three-month average to 30 Nov 2020 (2019: 30 Nov 2019) (pence) 240.74 262.41
Total shareholder return -15.8% 33.2%
Free cash conversion ratio
This year the Directors have replaced the previously reported cash conversion ratio with the free cash conversion ratio to
better align to the Group's evolving strategy and remuneration policy.
The Group uses free cash conversion ratio as an APM to measure a business' ability to convert profit into cash. It
represents cash generated from operations for the year after deducting tax, net interest cost and rent payments, stated as a
percentage of operating profit. The free cash flow can then be used to fund Group operations such as capex, share buybacks,
dividends, etc.
The following table illustrates how adjusted cash conversion ratio is calculated:
2020
Operating Operating Changes in Cash generated Tax and net Rent Free cash
profit non-cash items working capital from operations interest paid payments conversion ratio
A B C D (B+C+D) ÷ A
£'000 £'000 £'000 £'000 £'000 £'000 %
As reported 29,965 21,616 25,312 76,893 (10,871) (13,579) 175.0%
Exceptional (468) - 468 - - - n/a
items
Adjusted 29,497 21,616 25,780 76,893 (10,871) (13,579) 177.8%
2019
Operating Operating Changes in Cash generated Tax and net Rent Free cash
profit non-cash items working capital from operations interest paid payments conversion ratio
A B C D (B+C+D) ÷ A
£'000 £'000 £'000 £'000 £'000 £'000 %
As reported 57,753 8,718 (13,321) 53,150 (13,829) - 68.1%
Exceptional 2,273 (518) (79) 1,676 - - n/a
items
Adjusted 60,026 8,200 (13,400) 54,826 (13,829) - 68.3%
* Operating non-cash items represent primarily depreciation, amortisation and impairment of intangible assets, and employee
share option and performance share costs as presented in the line 'Non-cash charge for share-based payments' of the
Consolidated Statement of Cash Flow.
13. Annual report and Annual general meeting
The 2020 Annual Report and Notice of 2021 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 22 April 2021.
════════════════════════════════════════════════════════════════════════════════════════════════════════════════════════════
* In constant currency
7 2 The Group's alternative performance measures, used throughout this Annual Report, are fully explained and reconciled
to IFRS line items in note 12.
8 3 Note 1 in the Group Annual Report and Accounts 2020 provides further details about all Group-wide discretionary share
plans, including the tracker share arrangements.
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ISIN: GB00B0KM9T71
Category Code: FR
TIDM: STEM
LEI Code: 2138003NEBX5VRP3EX50
Sequence No.: 92124
EQS News ID: 1162762
End of Announcement EQS News Service
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