REG-SThree SThree: INTERIM RESULTS FOR THE HALF YEAR ENDED 31 MAY 2018
23/07/2018 07:05
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SThree (STHR)
SThree: INTERIM RESULTS FOR THE HALF YEAR ENDED 31 MAY 2018
23-Jul-2018 / 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")
INTERIM RESULTS FOR THE HALF YEAR ENDED 31 MAY 2018
An Encouraging Start To The Year
FINANCIAL HIGHLIGHTS
HY 2018 HY 2017 Variance (2)
Constant
Actual
Adjusted(1) Reported Reported Currency
Movement
Movement
£m £m £m % %
Revenue 585.9 585.9 521.0 +12% +14%
Contract gross profit 106.7 106.7 94.2 +13% +14%
Permanent gross profit 41.7 41.7 40.2 +4% +4%
Gross profit 148.4 148.4 134.4 +10% +11%
Operating profit 20.4 18.0 19.3 +6% +6%
OP Conversion ratio (%) 13.7% 12.1% 14.4% -0.7%pts -0.7%pts
Profit before taxation 20.3 17.8 19.2 +6% +6%
Basic earnings per share 11.6 10.1 11.0p +5% +5%
Interim dividend per share 4.7p 4.7p 4.7p - -
Net (debt)/cash (6.2) (6.2) 5.2 - -
(1) HY 2018 figures were adjusted for the impact of £2.4 million of exceptional strategic restructuring costs.
(2) All variances compare adjusted HY 2018 against reported HY 2017 to provide a like-for-like view. There were
no adjustments to H1 2017.
OPERATIONAL HIGHLIGHTS
* Encouraging first half performance; Group GP up 11%* year on year ('YoY') to £148.4m (HY 2017:
£134.4m), with accelerated momentum in Q2 (up 13%*)
* Adjusted profit before tax up 6% YoY to £20.3 million (HY 2017: £19.2 million)
* Reported profit before tax down 7% YoY to £17.8 million
Growth in GP driven by Continental Europe (up 18%*) with strong performances in DACH and the
* Netherlands (GP up by 18%* and up 25%* respectively; and by USA (up 9%*), whilst UK&I remained
challenging (-2%*)
* 82% of GP generated outside UK&I (HY 2017: 80%)
* Contract GP, which represented 72% of Group GP (HY 2017: 70%), ahead by 14%* YoY, with strong
growth across Energy up 31%*, Engineering up 17%*, and Life Sciences up 11%* YoY
* Permanent GP up 4%* YoY, with productivity improved by 3%* YoY
* Group period-end sales headcount up 6% YoY. Average sales headcount up 10% YoY
* Move of London-based support functions to Glasgow progressing to plan. £2.4 million of exceptional
strategic restructuring costs recognised in HY 2018
* Net debt** of £6.2 million (HY 2017: net cash £5.2 million)
* Variances at constant currency
** Net debt represents cash & cash equivalents less borrowings and bank overdrafts
Gary Elden, CEO, commented: "We have delivered an encouraging first half performance, driven by further strong
growth in Contract, and our two biggest regions, Continental Europe and the USA.
"To build on this growth, we are continuing to invest in our highest performing teams, consistent with our
vision to be the number one STEM talent provider in the best STEM markets. The Group is performing well and we
are making good progress against our five-year growth plan.
"Trading in the weeks since the period end has continued the positive trend, leaving the Group well-positioned
as we enter our seasonally more significant second half."
SThree will host a live presentation and conference call for analysts at 0900 GMT today. The conference call
participant telephone details are as follows:
Dial in: +44 (0) 20 3003 2666 or 0808 109 0700 (toll free)
Call passcode: SThree
This event will also be simultaneously audio webcast, hosted on the SThree website at 1 www.sthree.com. Note
that this is a listen only facility and an archive of the presentation will be available via the same link
later.
SThree will issue its Q3 trading update on 14 September 2018.
Enquiries:
SThree plc 020 7268 6000
Gary Elden, Chief Executive Officer
Alex Smith, Chief Financial Officer
Kirsty Mulholland, Company Secretariat
Citigate Dewe Rogerson 020 7638 9571
Kevin Smith/Jos Bieneman
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.
INTERIM MANAGEMENT REPORT
Chief Executive Officer's Review
Overview
We are encouraged by our first half performance with GP up 11%*, and a step up in growth achieved in Q2 (up 13%*
YoY vs growth of 8%* YoY in Q1). The growing breadth and scale of our international operations, which now
account for 82% of gross profit, underline how far the Group has grown from its UK roots. Market conditions are
strong across our international business, especially the USA and Continental Europe, and we are maximising our
opportunities with selective headcount growth in these markets. We continue to actively manage our business in
the UK where Brexit continues to cast an uncertain political shadow.
Our strategic focus on our Contract business continues to deliver good growth across all sectors and most
regions, as well as providing greater resilience in more uncertain economic conditions. Contract GP was up 14%*
in H1 YoY and up 16% in Q2, with Continental Europe and the USA both delivering double digit growth. Our focus
in H2 is to prioritise investment in Contract in our fastest growing markets.
Our Permanent business has continued to increase its productivity and we remain focused on achieving further
gains in the remainder of the year. Permanent GP was up 4%* in H1 YoY and up 7%* in Q2, driven primarily by
Continental Europe, but also by our small and fast-growing business in Japan.
Adjusted Operating Profit was up 6%* YoY and we are well-positioned for the second half as our investment in
headcount in the second half of 2017 continues to mature and we benefit from a strong Contract runner book.
The strategic project to restructure and relocate our London-based support functions to Glasgow is progressing
well, with in excess of 70% of roles now hired at the new site. We expect to substantially complete this project
during 2018, creating a new Centre of Excellence for the Group, with a clear objective of reducing costs, while
improving operational capability.
Our investment in headcount, increased investment in innovation and strategic relocation and restructure of our
support functions are driving us forward on our journey to become the number one STEM talent provider in the
best STEM markets. We are making good progress against the five-year growth strategy outlined at the Capital
Markets Day in November 2017.
Group
GP Average Sales Headcount
Growth* YoY HY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 18 +11% +2% +8% +17% +4% +12%
Q2 18 +16% +7% +13% +14% -1% +9%
HY 18 +14% +4% +11% 72% 28% +16% +1% +10%
* Variances at constant currency
HY 2018 HY 2017 FY 2017
Breakdown of GP
% % %
Geographical Split
Continental Europe 56% 51% 52%
USA 20% 22% 22%
UK&I 18% 20% 19%
Asia Pac & Middle East 6% 7% 7%
100% 100% 100%
Sector Split
ICT 45% 44% 43%
Life Sciences 21% 21% 22%
Banking & Finance 13% 15% 15%
Engineering 10% 9% 9%
Energy 9% 9% 9%
Other Sectors 2% 2% 2%
100% 100% 100%
Operating Review
Business Mix
Contract is well suited to our STEM market focus and geographical mix and it remained the key area of focus and
growth throughout the period. Improving productivity per head was the prime focus in Permanent.
Our Contract business has continued to go from strength to strength. Contract GP was up 14%* YoY with average
headcount up 16% YoY. Q2 was the 18th consecutive quarter of GP growth achieved by Contract since it was given
greater strategic focus. We exited the period with runners of 10,292, up 11% YoY and 1% ahead of our 2017
seasonal year-end peak. As well as being an important driver of GP growth, our investment in Contract makes us
more resilient in times of economic uncertainty and selective expansion of our Contract teams will be a key
focus for the remainder of 2018.
Permanent GP grew 4%* YoY and we have been successful in implementing our strategy of growing Permanent
productivity by focusing growth on our high yielding regions and reducing headcount where yields are weak.
Yields have increased by 3%* YoY. Permanent GP now represents 28% of Group GP.
Permanent recruitment is more sensitive to overall market sentiment and has seen an improved performance during
the first half of the year. Average Permanent fees were up 5%* YoY as we focus on niche recruitment and average
sales headcount in our Permanent business was up 1% YoY. We expect to invest in Permanent in the remainder of
2018, predominantly in DACH ("Germany, Austria and Switzerland") and the USA, where there is clear evidence of
improving candidate and client confidence.
Regional Growth
We are encouraged by the improvement across the business in the period. We have seen strong growth in Contract
across most regions and Permanent continues to benefit from improved productivity. Although the UK&I remains an
important part of our business, the relative maturity of the recruitment market has led us to focus on growth
opportunities in other regions and to be cautious with our investment in the UK&I business. We now have 82% of
our Group GP generated from outside the UK. We have continued to expand our global footprint with the opening of
two new offices in Eindhoven (Netherlands) and Washington (USA) in the period.
Continental Europe (56% of GP)
GP Average Sales Headcount
Growth* YoY HY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 18 +19% +6% +15% +26% +10% +20%
Q2 18 +23% +13% +20% +21% +9% +17%
HY 18 +21% +9% +18% 72% 28% +23% +9% +18%
* Variances at constant currency
Continental Europe is our largest region comprising businesses in Germany, Switzerland, Austria, Netherlands,
Belgium, France, Luxembourg & Spain. These regional markets vary significantly in their level of maturity and
competition, with Germany remaining the most significant structural growth opportunity.
The region delivered strong growth in the period, up 18%* YoY, with growth across all main country markets.
Netherlands performed particularly well, with GP ahead by 25%* YoY and average sales headcount up 17%. DACH, our
largest territory in the region was up 18%* YoY and we continued to invest with average headcount up 23%.
We saw double digit growth in contract runners, up 23% YoY, creating strong growth opportunities for H2, with
Gross Profit per Day Rate ('GPDR') down by 1%*. Contract GP has posted double digit growth in this region over
the last ten consecutive quarters. Contract growth in all sectors remain robust with Energy also showing
improvement.
Permanent was up 9% YoY, driven by DACH and Netherlands. Permanent average fees were up 4%* YoY, with average
salaries up 3%*, demonstrating strength and confidence in the market.
USA (20% of GP)
GP Average Sales Headcount
Growth* YoY HY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 18 +10% -18% +1% +16% +16% +16%
Q2 18 +21% +6% +16% +18% +2% +12%
HY 18 +16% -5% +9% 72% 28% +17% +9% +14%
* Variances at constant currency
The USA is the world's largest specialist STEM staffing market and is our second largest region representing 20%
of our Group GP. After a slow start to the year, the region showed strong recovery in Q2 against a backdrop of
strong comparatives in the prior year.
We saw growth across all sectors except Banking & Finance. Life Sciences, our largest sector in the region, grew
6%* YoY against strong comparatives of 18%* growth YoY in H1 2017. Energy continued to improve in the region
with our investment in Power Generation paying off and an increase in the oil price towards the end of the
period supporting an improved performance in our Upstream Oil & Gas teams.
Contract GP in the USA was up 16%* YoY with growth across all sectors except Banking & Finance. Energy showed
strong growth with GP up 54%* YoY against strong prior year comparatives of 36%* growth YoY. We have invested in
our Contract business with average sales headcount growing 17% YoY. Runners increased 1% YoY with GPDR up 14%*
YoY, as we focus on higher margin and higher salary roles.
Although Permanent GP was down 5%* in H1 YoY, performance improved in Q2 with GP up 6%* YoY. We are seeing
exciting growth in Permanent Engineering with GP up 77%* YoY. Permanent average headcount is up 9% YoY, with
average fees up 9%* and average salaries up 8%*.
UK&I (18% of GP)
GP Average Sales Headcount
Growth* YoY HY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 18 -1% -11% -3% +1% -9% -2%
Q2 18 +3% -17% -2% -1% -22% -8%
HY 18 +1% -15% -2% 81% 19% - -16% -5%
* Variances at constant currency
The UK&I is our longest established region and the business is increasingly Contract focused as we invest in
opportunities in the STEM market. GP in the region is down 2%* YoY, despite a 5% YoY reduction in headcount.
Our more resilient Contract business saw an overall improvement in performance with GP up 1%* YoY. We saw good
growth in the Life Sciences, Engineering and Energy sectors. This was offset by a decline in ICT, particularly
driven by changes in the Public Sector that was impacted by IR35 and rate caps. Average sales headcount in
Contract also remained flat YoY. Runners for the region are down 2% YoY, but we saw robust growth in our GPDR,
up 4%*.
Our Permanent business is more sensitive to market conditions and declined 15%* YoY. In response we restructured
our UK&I Permanent business in the period to service our clients from hubs in Bristol, London, Birmingham and
Dublin and average sales headcount was down 16%* YoY. The decline in this division is across all sectors, except
Engineering, which was up 30%* YoY. Average salaries for placements appear to be improving, up 2% YoY.
Asia Pacific & Middle East (6% of GP)
GP Average Sales Headcount
Growth* YoY HY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 18 -12% +44% +15% +22% -10% +2%
Q2 18 -14% +18% +1% +6% -8% -3%
HY 18 -13% +30% +8% 43% 57% +14% -9% -1%
* Variances at constant currency
Our Asia Pacific & Middle East business principally includes Australia, Singapore, Japan and Dubai. Growth in
the region was across all sectors with Banking & Finance, the largest sector in the region, up 10%* YoY. Growth
in Permanent in the region was primarily driven by Japan, which was up 70% YoY, with average Permanent fees up
11%* and average salaries up 5%* YoY.
Contract performance was soft in the period with GP down 13%* YoY, as our Australian business underperformed in
a competitive market place. However, Dubai Contract was up 15%* YoY, with growth in Energy being driven by a
rising oil price. Contract runners have grown 2% YoY in the region, with GPDR down 2%* YoY. Average headcount
was down 1% YoY with Contract up 14% YoY and Permanent down 9% YoY. The decrease in average headcount was
largely due to a restructuring of our Hong Kong business at the end of FY17. We invested in Permanent headcount
in Japan where average sales headcount was up 54%. Our Dubai contract and Japan Permanent businesses are
expected to grow, while the rest of the region is being managed to maximise profitability.
Sector Highlights
The Group saw growth across all sectors in the period. ICT, our largest sector, grew 9%* YoY, with double digit
growth in our second largest sector, Life Sciences, which was up 11%* YoY. Growth in Energy picked up in H1,
with GP up 31%* YoY, driven by the USA up 47%* YoY. Strong growth was also seen from Engineering, up 17%* YoY.
ICT (45% of GP)
GP Average Sales Headcount
Growth* YoY HY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 18 +6% -1% +5% +16% +2% +12%
Q2 18 +13% +11% +13% +11% +3% +9%
HY 18 +10% +5% +9% 75% 25% +14% +3% +10%
* Variances at constant currency
ICT is our largest and most established sector representing, 45% of the Group GP and 46% of the Group average
sales headcount, with the majority of its business in the more mature UK&I and European markets. GP for the
period was up 9%* YoY and the sector has delivered 17 consecutive quarters of growth. However, the rate of
growth was impacted by the relatively soft performance of ICT in the UK&I, which includes our Public Sector
businesses where changes to the IR35 tax legislation reduced GP. Average headcount in ICT was up 10% YoY, with
Contract growing 14% YoY and Permanent up 3% YoY. The mix in headcount is weighted towards Contract which
accounts for 70% of total ICT headcount.
Life Sciences (21% of GP)
GP Average Sales Headcount
Growth* YoY HY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 18 +10% +7% +9% +25% +15% +21%
Q2 18 +18% +2% +12% +19% - +11%
HY 18 +14% +5% +11% 65% 35% +22% +8% +16%
* Variances at constant currency
Life Sciences represented 21% of Group GP and is our second largest sector after ICT. Total GP grew by 11%* YoY
with both divisions showing strong growth. Contract performance was particularly pleasing, up 14%* YoY against
strong comparatives of 15%* YoY in 2017. Contract runners increased 19% YoY and average sales headcount was up
16% YoY, with growth across all regions and both divisions. The emergence of new technology and data analytics
in this sector is enhancing the ability of our highly skilled people to find the best candidates to support the
business and capitalise on the market opportunity.
Banking & Finance (13% of GP)
GP Average Sales Headcount
Growth* YoY HY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 18 +8% -10% - -4% -9% -7%
Q2 18 +7% -5% +1% +1% -13% -6%
HY 18 +7% -7% +1% 59% 41% -2% -11% -7%
* Variances at constant currency
Banking & Finance represented 13% of Group GP, making it the third largest sector for the Group. Overall GP for
the sector grew 1%* YoY which was driven by Contract, up 7%*. We saw mixed results across our regions with
Continental Europe showing strong growth. The UK&I business performance continues to be hampered by Brexit
uncertainty leading to cautious hiring decisions. Average headcount for the sector was down 7% YoY.
Engineering (10% of GP)
GP Average Sales Headcount
Growth* YoY HY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 18 +3% +42% +14% +15% +8% +12%
Q2 18 +20% +22% +20% +8% +2% +6%
HY 18 +12% +32% +17% 70% 30% +11% +5% +9%
* Variances at constant currency
Engineering represented 10% of Group GP and has grown very strongly, with GP up by 17%* YoY. The sector is
heavily weighted towards Contract which accounts for 70% of GP and showed growth of 12%* YoY with runners up 15%
YoY. The majority of our Engineering business is in Continental Europe and the UK&I, which grew across both
Contract and Permanent YoY. USA Permanent is a relatively new addition to our Engineering portfolio and was
successful in the period, growing 77%* YoY. Average sales headcount is up 9% YoY with growth in Contract, up 11%
YoY and Permanent, up 5% YoY.
Energy (9% of GP)
GP Average Sales Headcount
Growth* YoY HY 2018 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 18 +46% -45% +35% +32% -26% +27%
Q2 18 +27% +59% +28% +31% -25% +26%
HY 18 +35% -11% +31% 94% 6% +31% -26% +27%
* Variances at constant currency
Energy represented 9% of our overall Group GP and the sector has shown signs of improvement. GP in the sector
was up 31%* YoY. Contract which represents 94% of our Energy GP grew 35%* YoY. We strategically supported our
Contract business with headcount up 31% YoY. We continue to grow our runners in the sector, up 11% YoY and have
exceeded our 2017 year end peak. GPDR for the region also showed strong growth, up 13%* YoY, due to the success
we have seen in higher fee Power business and improving oil prices. Continental Europe and USA account for 81%
of our total GP in the sector and showed good growth in the period, up 24%* YoY and 47* YoY, respectively.
Growth in these regions is predominantly driven by more stable Renewable and Power business. Average sales
headcount was up 27% YoY and we will continue to review the Energy business and selectively invest where we can
maximise market opportunities given the increasing oil price.
Outlook
We have delivered an encouraging first half performance, driven by further strong growth in Contract, and our
two biggest regions, Continental Europe and the USA.
We are continuing to invest in our highest performing teams, to build on this growth and consistent with our
vision to be the number one STEM talent provider in the best STEM markets. The Group is performing well and we
are making good progress against our five-year growth plan.
Trading in the weeks since the period end has continued the positive trend, leaving the Group well-positioned as
we enter our seasonally more significant second half.
* Variances at constant currency
CHIEF FINANCIAL OFFICER'S REVIEW
Operating profit
Revenue for the year was up 14% on a constant currency basis to £585.9 million (HY 2017: reported £521.0
million) and up 12% on a reported basis. On a constant currency basis, Gross Profit ('GP') increased by 11%, and
on a reported basis by 10% to £148.4 million (HY 2017: £134.4 million). Growth in revenue exceeded the growth in
GP as the business continued to shift towards Contract. Contract represented 72% of the Group GP in the period
(HY 2017: 70%). This change in mix resulted in a decrease in the overall GP margin to 25.3% (HY 2017: 25.8%), as
Permanent revenue has no cost of sale, whereas the cost of paying the contractor is deducted to derive Contract
GP. The Contract margin remained stable at 19.6% (HY 2017: 19.6%).
The reported profit before tax was £17.8 million, down 7%. The adjusted profit before tax ('PBT') was £20.3
million up 6% YoY (HY 2017: adjusted and reported £19.2 million). The 'adjusted' PBT excludes restructuring
costs of £2.4 million that were incurred in the current period in respect of the relocation of our support
function to Glasgow (HY 2017: £nil). The operating profit conversion ratio was down 0.7 percentage points on an
adjusted basis and down 2.3 percentage points on a reported basis to 12.1% (HY 2017: adjusted and reported
14.4%). The fall in the conversion ratio was largely driven by a significant investment in headcount at the end
of FY17 (average headcount up 10% YoY) and an increased investment in internal innovation to £1.3 million (HY
2017: £0.6 million) in the period. New consultants hired take time to become productive and benefit
profitability.
Restructuring costs ('Adjusting items')
In November 2017, we announced that we were commencing a strategic restructuring and relocation of support
functions away from our London headquarters to a new facility located in Glasgow. The transition to a Glasgow
Centre of Excellence is progressing to plan and we anticipate that this restructuring will realise cost savings
of approximately £4 million to £5 million per annum.
The restructuring is resulting in certain material one-off costs that are anticipated to be in the region of £15
million, of which an estimated £14 million is operating expenses and approximately £1 million relates to
property fit out costs (to be capitalised). The costs are mainly related to people, property and professional
advisor fees. The project will be partially funded by a grant receivable from Scottish Enterprise of c£2 million
which is receivable and recognisable over several years, subject to the terms of the grant being met within a
fixed timeframe.
Exceptional costs for the restructuring of £2.4 million have been recognised in the Income Statement bringing
the total costs recognised to date to £9.1 million. The exceptional charge in the period included people costs
of £1.5m and other costs (primarily professional fees) of £0.9 million. The additional exceptional cost to
complete the set-up of the centre of excellence in Glasgow in 2018 is expected to be between £5 million and £6
million.
The strategic nature and material cost of the restructuring of support functions announced in 2017 continues to
be of sufficient magnitude to warrant separate disclosure as an exceptional item on the face of the Consolidated
Income Statement, in line with our accounting policies.
A reconciliation of 'Adjusting items' is provided below:
£'000 HY 2018 HY 2017
Reported profit before tax after exceptional items 17,842 19,156
Exceptional strategic restructuring costs 2,434 -
Reported profit before tax and exceptional items ('Adjusted') 20,276 19,156
Investments
During the period, we continued to invest in a number of our in-house innovation incubators with £1.3 million
spent on our 'build' programme. By the end of the current financial year, we plan to invest an additional £2
million, bringing our investment in the year to c.£3 million (2017: £2 million). No costs are capitalised on
development costs in our new wholly-owned innovation businesses until there are clear indications that the
businesses will be profit generating.
Taxation
The tax charge on pre-exceptional statutory profit before tax for the period was £5.3 million (HY 2017: £5.0
million), representing an effective tax rate ('ETR') of 26% (HY 2017: 26%). The ETR on post-exceptional
statutory profit before tax was 27% (HY 2017: 26%).
The ETR primarily reflects our geographical mix of profits and a cautious approach to recognising deferred tax
assets on tax losses. The ETR was also influenced by US Tax Reform legislation passed in December 2017 which saw
a reduction in the federal corporate tax rate from 35% to 21%. The full benefit of this will be largely offset
in the first year by a reduction in US deferred tax assets.
Earnings per share ('EPS')
On an adjusted basis, EPS was up by 0.6 pence at 11.6 pence (HY 2017: adjusted and reported 11.0 pence), due to
an increase in the adjusted profit before tax. On a reported basis, EPS declined to 10.1 pence, down 0.9 pence,
attributable mainly to an increase in restructuring costs as explained above. The weighted average number of
shares used for basic EPS remained broadly stable at 128.7 million (HY 2017: 128.7 million). Reported diluted
EPS was 9.6 pence (HY 2017: 10.6 pence), down 1.0 pence. Share dilution mainly results from various share
options in place and expected future settlement of certain tracker shares. The dilutive effect on EPS from
tracker shares will vary in future periods depending on the profitability of the underlying tracker businesses,
the volume of new tracker arrangements created and the settlement of vested arrangements.
Dividends
The Board proposes to pay an interim dividend of 4.7 pence (HY 2017: 4.7 pence), amounting to approximately £6.0
million in total. This will be paid on 7 December 2018 to shareholders on record at 2 November 2018. The Board
will review the appropriate level of the final dividend in due course, taking into account, inter alia, achieved
and expected trading of the Group, together with its balance sheet position. As previously stated, the Board is
targeting a dividend cover of between 2.0x and 2.5x, based on underlying EPS, over the short to medium term.
Cash Flow
On an adjusted basis, we generated lower cash from operations of £7.5 million (HY 2017: £11.9 million on a
reported basis) due to continued growth of the contract runner book increasing our working capital and an
increase in Days Sales Outstanding (from 39 at HY 2017 to 41 at HY 2018). This resulted in a lower cash
conversion ratio of 22% on an adjusted basis or 13% on a reported basis (HY 2017: 48%). The cash outflow from
exceptional restructuring items was £2.1 million (HY 2017: £0.1 million).
Capital expenditure increased to £3.1 million (HY 2017: £2.6 million) including infrastructure investment in
offices in Switzerland, the Netherlands, Germany and UK, and investment in the Contractor Timesheet Portal
('Workflow') of £0.5 million. We expect capital expenditure will decrease in the second half of the current
financial year.
Income tax paid increased to £7.4 million (HY 2017: £3.4 million) and dividends remained unchanged at £6.0m (HY
2017: £6.0 million). During the period, the Group also paid £1.0 million (HY 2017: £3.4 million) for the
purchase of its own shares to satisfy employee share schemes in future periods.
Foreign exchange had an immaterial positive impact of £0.2 million (HY 2017: negative impact of £0.3 million).
We started the period with net cash of £5.6 million and closed the period with net debt of £6.2 million (HY
2017: net cash £5.2 million). The decrease since the year end primarily reflected increased cash absorbed in
working capital as the Contract business continued to grow and also the cash cost of the restructuring of the
Support functions in the UK.
Treasury management
We finance the Group's operations through equity and bank borrowings. The Group's cash management policy is to
minimise interest payments by closely managing Group cash balances and external borrowings. We intend to
continue this strategy while maintaining a strong balance sheet position.
We maintain a committed Revolving Credit Facility ('RCF') of £50 million, along with an uncommitted £20 million
accordion facility, with Citibank and HSBC, giving the Group an option to increase its total borrowings to £70
million. This facility was successfully renegotiated in the period and extended to May 2023, on similar terms
and conditions to the previous facility. At the half year, £22.5 million (HY 2017: £2.5m) was drawn down on
these facilities. The RCF is subject to financial covenants and the funds borrowed under this facility bear
interest at a minimum annual rate of 1.3% above 3 month Sterling LIBOR, giving an average interest rate of 1.8%
during the period (HY 2017: 1.6%). The finance costs for the half-year amounted to £0.3 million (HY 2017: £0.2
million).
The Group also has an uncommitted £5 million overdraft facility with NatWest and a £5 million overdraft facility
with HSBC.
Foreign exchange
Foreign exchange volatility continues to be a significant factor in the reporting of the overall performance of
the business with the main functional currencies of the Group entities being Sterling, the Euro and the US
Dollar.
For HY 2018, currency movements versus Sterling had only a moderate impact on the reported performance of the
Group with the highest impact coming from the Euro and US Dollar. Over the course of the period, the GBP/USD
exchange rate fluctuated from lows of 1.35 to highs of around 1.42, while the GBP/EUR exchange rate experienced
less volatile movements from lows of 1.13 to highs of 1.14. As such, the exchange rate movements decreased our
reported HY 2018 GP by approximately £0.7 million and operating profit by circa £0.1 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 the US Dollar against Sterling impacted our HY 2018 GP by £0.8 million and
£0.3 million, respectively, and operating profit by £0.2 million and £0.1m, respectively.
The Board considers it appropriate in certain cases to use derivative financial instruments as part of its
day-to-day cash management to provide the Group with protection against adverse movements in the Euro and the US
dollar during the settlement period. The Group does not use derivatives to hedge translational foreign exchange
exposure in its balance sheet and income statement.
Principal Risks and Uncertainties
Principal risks and uncertainties affecting the business activities of the Group are detailed within the
Strategic Report section of the Group's 2017 Annual Report, a copy of which is available on the Group's website
2 www.sthree.com.
In terms of macroeconomic environment risks, our strategy is to continue to grow the size of our international
business and newer sectors, in both financial terms and geographical coverage. This will help reduce our
exposure or reliance on any one specific economy, although a downturn in a particular market could adversely
affect the Group's key risk factors.
In the view of the Board, there is no material change expected to the Group's key risk factors in the
foreseeable future.
* Variances at constant currency
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge:
(a) the condensed consolidated Interim Financial Information (unaudited) has been prepared in accordance with
IAS 34, "Interim Financial Reporting" as adopted by the European Union; and
(b) the interim management report includes a fair review of the information required by the Disclosure and
Transparency Rules ('DTR') paragraph 4.2.7R (an indication of important events that have occurred during the
first six months of the financial year and their impact on the condensed financial information, and
description of principal risks and uncertainties for the remaining six months of the financial year); and
the interim management report includes a fair review of the information required by DTR paragraph 4.2.8R
(c) (disclosure of material related parties' transactions and changes therein during the first six months of the
financial year).
Approved by the Board on 20 July 2018 and signed on its behalf by:
Gary Elden Alex Smith
Chief Executive Officer Chief Financial Officer
3 www.sthree.com/investors
Interim Financial Information
Condensed consolidated income statement - unaudited
For the half year ended 31 May 2018
31 May 2018 31 May 2017
Before exceptional Reported Reported
items Exceptional items
Total
Note £'000 £'000 £'000 £'000
Continuing operations
Revenue 2 585,940 - 585,940 520,961
Cost of sales (437,545) - (437,545) (386,611)
Gross profit 2 148,395 - 148,395 134,350
Administrative expenses 3 (127,998) (2,434) (130,432) (115,007)
Operating profit 20,397 (2,434) 17,963 19,343
Finance income 46 - 46 30
Finance costs (313) - (313) (217)
Gain on disposal of associate 10 146 - 146 -
Profit before taxation 20,276 (2,434) 17,842 19,156
Taxation 4 (5,320) 462 (4,858) (4,981)
Profit for the year attributable
14,956 (1,972) 12,984 14,175
to owners of the Company
Earnings per share 6 pence pence pence pence
Basic 11.6 (1.5) 11.0
10.1
Diluted 11.1 (1.5) 9.6 10.6
The accompanying notes form an integral part of this Interim Financial Information.
Condensed consolidated statement of comprehensive income - unaudited
For the half year ended 31 May 2018
31 May 31 May
2018 2017
£'000 £'000
Profit for the period 12,984 14,175
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss:
Exchange differences on retranslation of foreign operations 680 337
Other comprehensive income for the period (net of tax) 680 337
Total comprehensive income for the period attributable to owners of the Company 13,664 14,152
The accompanying notes form an integral part of this Interim Financial Information.
Condensed consolidated statement of financial position
as at 31 May 2018
Unaudited Audited
Note 31 May 30 November
2018 2017
£'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 7,076 6,746
Intangible assets 10,566 11,386
Investment in associate 10 - 655
Other investments 10 1,940 1,110
Deferred tax assets 3,602 4,199
23,184 24,096
Current assets
Trade and other receivables 234,876 226,558
Current tax assets 1,961 1,534
Cash and cash equivalents 7 31,848 21,338
268,685 249,430
Total assets 291,869 273,526
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital 8 1,319 1,317
Share premium 29,155 28,806
Other reserves (8,744) (8,556)
Retained earnings 55,470 59,138
Total equity 77,200 80,705
Non-current liabilities
Provisions for liabilities and charges 1,464 2,172
Current liabilities
Borrowings 9 22,453 12,000
Bank overdraft 15,621 3,717
Provisions for liabilities and charges 12,141 12,352
Trade and other payables 162,990 159,556
Current tax liabilities - 3,024
213,205 190,649
Total liabilities 214,669 192,821
Total equity and liabilities 291,869 273,526
The accompanying notes form an integral part of this Interim Financial Information.
Condensed consolidated statement of changes in equity - unaudited
for the half
year ended 31
May 2018
Total
Share Share Capital Capital Treasury Currency Retained equity
capital premium redemption reserve reserve translation earnings attributable
reserve reserve to owners of
the Company
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Audited
balance at 30 1,312 27,406 168 878 (6,443) 16 52,333 75,670
November 2016
Profit for the
half year 14,175
ended 31 May - - - - - - 14,175
2017
Other
comprehensive
income for the - - - - - 337 - 337
period
Total
comprehensive 14,175
income for the - - - - - 337 14,512
period
Dividends paid
to equity (6,046)
holders (Note - - - - - - (6,046)
5)
Dividends
payable to (11,951)
equity holders - - - - - - (11,951)
(Note 5)
Settlement of
vested tracker - 3 - - - - (12) (9)
shares
Settlement of (2,959)
share-based 1 151 - - 2,959 - (2,959) 152
payments
Purchase of
own shares - - - - (3,409) - - (3,409)
(Note 8)
Credit to
equity for
equity-settled - - - - - - 1,385 1,385
share-based
payments
Total
movements in 1 154 - - (450) 337 (5,408) (5,366)
equity
Unaudited
balance at 31 1,313 27,560 168 878 (6,893) 353 46,925 70,304
May 2017
Audited (1,067)
balance at 30 1,317 28,806 168 878 (8,535) (1,083) 59,138 80,705
November 2017
Profit for the
half year 12,984
ended 31 May - - - - - - 12,984
2018
Other
comprehensive
income for the - - - - - 680 - 680
period
Total
comprehensive 12,984
income for the - - - - - 680 13,664
period
Dividends paid
to equity (6,041)
holders (Note - - - - - - (6,041)
5)
Dividends
payable to (11,976)
equity holders - - - - - - (11,976)
(Note 5)
Settlement of
vested tracker - - - - 121 - (212) (91)
shares
Settlement of -
share-based 2 349 - - - - (2,959) 351
payments
Purchase of
own shares by
Employee - - - - (989) - - (989)
Benefit Trust
(Note 8)
Credit to
equity for
equity-settled - - - - - - 1,577 1,577
share-based
payments
Total
movements in 2 349 - - (868) 680 (3,668) (3,505)
equity
Unaudited
balance at 31 1,319 29,155 168 878 (9,403) (387) 55,470 77,200
May 2018
The accompanying notes form an integral part of this Interim Financial Information.
Condensed consolidated statement of cash flows - unaudited
For the half year ended 31 May 2018
31 May 31 May
2018 2017
Note £'000 £'000
Cash flows from operating activities
Profit before taxation after exceptional items 17,842 19,156
Adjustments for:
Depreciation and amortisation charge 3,511 2,898
Finance income (46) (30)
Finance cost 313 217
Loss on disposal of property, plant and equipment 8 95
Loss on disposal of subsidiaries 70 -
Profit on disposal of associate 10 (146) -
FX revaluation gain on other investments (29) -
Non-cash charge for share-based payments 1,577 1,385
Operating cash flows before changes in working capital and provisions
23,100 23,721
Increase in receivables (7,960) (2,709)
Decrease in payables (8,916) (8,672)
Decrease in provisions (777) (464)
Cash generated from operations 5,447 11,876
Finance income 25 30
Income tax paid - net (7,445) (3,391)
Net cash (used in)/generated from operating activities (1,973) 8,515
Cash generated from operating activities before exceptional items 127 8,593
Cash outflow from exceptional items (2,100) (78)
Net cash (used in)/generated from operating activities (1,973) 8,515
Cash flows from investing activities
Purchase of property, plant and equipment (1,718) (947)
Purchase of intangible assets (1,380) (1,667)
Prepaid investment - (802)
Net cash used in investing activities (3,098) (3,416)
Cash flows from financing activities
Proceeds from borrowings 9 10,453 2,500
Finance cost (313) (217)
Employee subscription for tracker shares - 13
Proceeds from exercise of share options 342 106
Purchase of own shares (989) (3,409)
Dividends paid to equity holders 5 (6,041) (6,046)
Net cash generated from/(used in) financing activities 3,452 (7,053)
Net decrease in cash and cash equivalents (1,619) (1,954)
Cash and cash equivalents at beginning of the year 17,621 10,022
Effect of exchange rate changes 225 (340)
Net cash and cash equivalents at end of the year 7 16,227 7,728
The accompanying notes form an integral part of this Interim Financial Information.
Notes to the Interim Financial Information - unaudited
For the half year ended 31 May 2018
1. Accounting policies
General Information
SThree plc ('the Company') and its subsidiaries (together 'the Group') operate predominantly in the United
Kingdom & Ireland, Continental Europe, the USA and Asia Pacific & Middle East. The Group consists of different
brands and provides both Permanent and Contract specialist staffing services, primarily in the ICT, Banking &
Finance, Energy, Engineering and Life Sciences sectors.
The Company is a public limited company listed on the London Stock Exchange and incorporated and domiciled in
the United Kingdom and registered in England and Wales. Its registered office is 1st Floor, 75 King William
Street, London, EC4N 7BE.
The condensed consolidated Interim Financial Information ('Interim Financial Information') of the Group as at
and for the half year ended 31 May 2018 comprises that of the Company and all its subsidiaries. The Interim
Financial Information is unaudited and has not been reviewed by external auditors. It does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006. Statutory accounts for the year ended 30
November 2017 were approved by the Board of Directors on 26 January 2018 and a copy was delivered to the
Registrar of Companies. The auditors reported on those accounts, their report was unqualified, did not draw
attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
The Interim Financial Information of the Group was approved by the Board for issue on 20 July 2018.
Basis of preparation
The Interim Financial Information has been prepared in accordance with the Disclosure and Transparency Rules of
the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union.
The Interim Financial Information is presented on a condensed basis as permitted by IAS 34 and therefore does
not include all disclosures that would otherwise be required in a full set of financial statements and should be
read in conjunction with the Group's 2017 annual financial statements, which were prepared in accordance with
International Financial Reporting Standards ('IFRSs') as adopted and endorsed by the European Union.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance
and position are set out in the accompanying Interim Management Report. The financial position of the Group, its
cash flows, liquidity position and borrowing facilities are shown in other sections of this Interim Financial
Information.
Having considered the Group's resources and available banking facilities, the Directors are satisfied that the
Group has sufficient resources to continue in operational existence for the foreseeable future. Accordingly,
they continue to adopt the going concern basis in preparing this Interim Financial Information.
Significant Accounting Policies
The accounting policies adopted are consistent with those applied in the preparation of the Group's 2017 annual
financial statements except as described below.
Taxes on income in the interim period are accrued using the effective tax rate that would be applicable to the
Group's expected total annual earnings.
New Standards and Interpretations
There are no new or amended IFRSs or IFRS Interpretations Committee interpretations adopted during the period
that have a significant impact on this interim financial information.
As at the date of authorisation of this interim financial information, the following key standards and
amendments to standards were in issue but not yet effective. The Group has not applied these standards and
interpretations in the preparation of this Interim Financial Information.
• IFRS 2 (amendments) 'Share Based Payments'
• IFRS 9 'Financial instruments'
• IFRS 15 'Revenue from Contracts with Customers'
• IFRS 16 'Leases'
• IFRIC 22 'Foreign Currency Transactions and Advance Consideration'
• IFRIC 23 'Uncertainty over Income Tax Treatments'
The impact of IFRS 9, IFRS 15 and IFRS 16 is set out below. The Directors are currently evaluating the impact of
the adoption of all other standards, amendments and interpretations but do not expect them to have a material
impact on Group operations or results.
IFRS 9 Financial Instruments (unaudited)
The standard is effective for annual periods beginning on or after 1 January 2018. It introduces new
classification and impairment models for financial assets. Whilst financial assets will be reclassified into the
categories required by IFRS 9, the Directors have not identified any significant impacts on the measurement of
its financial assets as a result of the classification and measurement requirements of the new standard.
IFRS 9 also requires all investments in equity instruments, including those issued by an unlisted entity, to be
measured at fair value. The Directors elected to apply the market approach, under which a price generated by a
market transaction for an identical or similar instrument will be used to value the equity instrument from the
date of initial application of IFRS 9. The new policy of fair valuing equity instruments is expected to increase
the value of equity investments by an immaterial amount once IFRS 9 becomes effective. The Directors intend to
recognise fair value gains and losses for existing equity instruments classified as available for sale financial
assets under IAS 39 in other comprehensive income. Prospectively, fair value gains and losses on new equity
instruments may be recognised either in the income statement or in other comprehensive income as an election on
an instrument-by-instrument basis on initial recognition.
The impact of the financial asset impairment requirements of IFRS 9 is immaterial due to the short-term nature
of SThree's financial assets and strict treasury policy that stipulates a list of approved counterparties, with
reference to their high credit standing.
The Group will adopt IFRS 9 in the financial reporting period commencing 1 December 2018 and has elected to
apply the 'fully prospective' transition approach to the implementation.
IFRS 15 Revenue from Contracts with Customers (unaudited)
The standard is effective for annual periods beginning on or after 1 January 2018. It introduces the concept of
distinct performance obligations. Revenue is recognised once performance obligations are satisfied and a
customer starts benefiting from the transferred goods or service.
Under IFRS 15 revenue from permanent placements will continue to be recognised on the day when a recruited
employee starts their job and will be based on a percentage of the candidate's remuneration package. Contract
revenue, which represents amounts billed or accrued for the ongoing services of temporary staff, will continue
to be recognised when the service has been provided.
The Group also earns revenue from retained assignments, where it principally satisfies its performance
obligations over time. The amount of retainer revenue recognised to date depicts the amount of retained search
service performed to date by the Group on behalf of its client, towards complete satisfaction of the bundled
retained search service.
Certain immaterial changes in accounting arising from the implementation of IFRS 15 may be identified for the
product and service proposition offered by four new Innovation entities launched in 2017. Their aim is to win
additional marquee clients by offering a diverse portfolio of products and services within the technology
recruitment field. These newly established entities are in the early stages of their development, hence an
insignificant amount of sales has been recognised in the current period. Any potential changes in accounting for
revenue generated by Innovation start-ups under IFRS 15 will have no material effect on the Group's net assets
as at 1 December 2018 and only an immaterial transition adjustment will be presented.
Accounting for revenue under IFRS 15 does not, therefore, represent a substantive change from the Group's
current practice for recognising revenue from sales to clients.
SThree will adopt IFRS 15 in the financial reporting period commencing 1 December 2018 and has elected to apply
the 'modified retrospective' transition approach to implementation.
IFRS 16 Leases (unaudited)
The new leasing standard is effective for the annual periods beginning on or after 1 January 2019.
IFRS 16 requires lessees to account for all leases under a single on-balance sheet model similar to accounting
for finance leases under IAS 17. For every lease brought onto the balance sheet, lessees will recognise a
right-of-use asset and a lease liability.
Within the income statement, operating lease rental payment will be replaced by depreciation and interest
expense. This will result in an increase in operating profit and an increase in finance costs.
SThree will adopt IFRS 16 in the financial reporting period commencing 1 December 2019. At present there is no
plan for the Group to adopt this standard early. The Directors expect to be able to provide an indication of the
impact on the Group's results in the 31 May 2019 Interim Results.
Estimates
The preparation of the Interim Financial Information requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and
liabilities at the end of the reporting period, and the reported amounts of revenue and expenses during the
reporting period. Although these estimates are based on the Directors' best knowledge of the amounts, the actual
results may ultimately differ from these estimates.
In preparing the Interim Financial Information, the significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied in
the Group's 2017 annual financial statements, with the exception of changes in estimates that are required in
determining the provision for income taxes.
Seasonality of Operations
Due to the seasonal nature of the recruitment business, higher revenues and operating profits are usually
expected in the second half of the year compared to the first half. In the financial year ended 30 November
2017, 46% of gross profits were earned in the first half of the year, with 54% earned in the second half.
2. Segmental analysis
IFRS 8 'Segmental Reporting' requires operating segments to be identified on the basis of internal results about
components of the Group that are regularly reviewed by the entity's chief operating decision maker to make
strategic decisions and assess segment performance.
Management has determined the chief operating decision maker to be the Executive Committee made up of the Chief
Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the Chief Sales Officer and the
Chief People Officer, with other senior management attending via invitation. Operating segments have been
identified based on reports reviewed by the Executive Committee, which consider the business primarily from a
geographical perspective. The Group segments the business into four regions: the United Kingdom & Ireland
('UK&I'), Continental Europe, the USA and Asia Pacific & Middle East ('APAC & ME').
The Group's management reporting and controlling systems use accounting policies that are the same as those
described in note 1 in the summary of significant accounting policies in the Group's 2017 annual financial
statements.
Revenue and Gross Profit by reportable segment
The Group measures the performance of its operating segments through a measure of segment profit or loss which
is referred to as "Gross Profit" in the management reporting and controlling systems. Gross profit is the
primary measure of segment profit comprising revenue less cost of sales.
Intersegment revenue is recorded at values which approximate third party selling prices and is not significant.
REVENUE GROSS PROFIT
31 May 31 May 31 May 31 May
2018 2017 2018 2017
£'000 £'000 £'000 £'000
Continental Europe 328,804 262,990 83,934 69,069
UK&I 131,721 129,896 26,501 27,039
USA 98,443 100,237 29,465 29,729
APAC & ME 26,972 27,838 8,495 8,513
585,940 520,961 148,395 134,350
Continental Europe primarily includes Austria, Belgium, France, Germany, Luxembourg, Netherlands, Spain and
Switzerland.
APAC & ME mainly includes Australia, Dubai, Hong Kong, Japan, Malaysia and Singapore.
Other information
The Group's revenue from external customers, its gross profit and information about its segment assets
(non-current assets excluding deferred tax assets) by key location are detailed below:
REVENUE GROSS PROFIT
31 May 31 May 31 May 31 May
2018 2017 2018 2017
£'000 £'000 £'000 £'000
Germany 142,005 117,684 42,811 36,014
UK 126,025 124,887 24,414 25,320
Netherlands 109,015 81,061 22,371 17,319
USA 98,443 100,237 29,465 29,739
Other 110,452 97,092 29,334 25,958
585,940 520,961 148,395 134,350
NON-CURRENT ASSETS
Audited
31 May
30 November
2018 2017
£'000 £'000
UK 15,071 15,702
USA 1,440 1,608
Germany 1,250 1,131
Netherlands 676 431
Other 1,145 1,024
19,582 19,897
The following segmental analysis by brands, recruitment classification and sectors (being the profession of
candidates placed) have been included as additional disclosure to the requirements of IFRS 8.
REVENUE GROSS PROFIT
31 May 31 May 31 May 31 May
2018 2017 2018 2017
£'000 £'000 £'000 £'000
Brands
Progressive 182,092 157,806 40,580 35,105
Computer Futures 168,141 147,653 44,991 39,774
Huxley Associates 122,942 105,280 29,306 26,474
Real Staffing Group 112,765 110,222 33,518 32,997
585,940 520,961 148,395 134,350
Other brands including Global Enterprise Partners, Hyden, JP Gray, Madison Black, Newington International and
Orgtel are rolled into the above brands.
Recruitment classification
Contract 544,062 480,819 106,705 94,208
Permanent 41,878 40,142 41,690 40,142
585,940 520,961 148,395 134,350
REVENUE GROSS PROFIT
31 May 31 May 31 May 31 May
2018 2017 2018 2017
£'000 £'000 £'000 £'000
Sectors
Information & Communication Technology 270,691 239,007 66,488 59,701
Life Sciences 90,748 82,245 30,594 28,779
Banking & Finance 87,597 85,238 20,066 20,520
Energy 75,976 63,429 14,013 11,363
Engineering 51,516 44,488 14,292 11,800
Other 9,412 6,554 2,942 2,187
585,940 520,961 148,395 134,350
Other includes Procurement & Supply Chain and Sales & Marketing.
3. Administrative expenses - Exceptional items
A strategic relocation of the majority of our central support functions away from our London headquarters to a
new facility located within Glasgow was announced on 1 November 2017. The transition to a Glasgow Centre of
Excellence is progressing to plan and we anticipate that this restructuring will realise cost savings of
approximately £4 million to £5 million per annum.
The restructuring will incur significant costs including people, property and professional advisor fees that are
anticipated to be in the region of £15 million, with c£14 million of operating expenses and c£1 million of
capital expenditure. The project will be partially funded by a grant receivable from Scottish Enterprise of c£2
million which is receivable and recognisable over several years, subject to the terms of the grant being met
within a fixed timeframe. Exceptional costs of £2.4 million have been charged to the Consolidated Income
Statement in the period bringing the total costs recognised to date to £9.1 million. The exceptional charge in
the period included people costs of £1.5 million and other costs (primarily professional fees) of £0.9 million.
The additional exceptional cost expected in 2018 is between £5 million and £6 million with potential for some
grant income to be recognised too. The timing of the grant recognition will match against the costs that it is
intended to compensate. All capital expenditure is expected to be incurred in this financial year.
A restructuring provision can only include the direct expenditure arising from the announced strategic
restructuring, which are costs that are both necessarily entailed by the restructuring and not associated with
the ongoing activities of the entity. Restructuring items related to the transition, design and set up of the
new support function or for which there is no constructive obligation at period end have not been included
within the restructuring provision and will be recognised as incurred. The provision for associated redundancy
costs amounted to £5.8 million at period end (2017 Year End: £5.7 million), with other costs either incurred or
accrued.
Due to the material size and non-recurring nature of this strategic restructuring project, the associated costs
have been separately disclosed as exceptional items in the Consolidated Income Statement in line with their
treatment in FY 2017. Disclosure of items as exceptional, highlights them and provides a clearer, comparable
view of underlying earnings.
Items classified as exceptional were as follows:
31 May 31 May
2018 2017
£'000 £'000
Exceptional items - charged to operating profit
Personnel costs - redundancy 1,494 -
Property costs 147 -
Other 793 -
Total exceptional costs 2,434 -
4. Taxation
Income tax for the half year is accrued based on management's best estimate of the average annual effective tax
rate for the financial year. The tax charge for the half year amounted to £4.9 million (2017: £5.0 million) at
an effective rate of 27% (HY 2017: 26%). The effective tax rate on the pre-exceptional trading profits arising
in the period is 26% (2017: 26%).
5. Dividends
31 May 31 May
2018 2017
£'000 £'000
Amounts recognised as distributions to equity holders in the period
Interim dividend of 4.7p (2016: 4.7p) per share (i) 6,041 6,046
Final dividend of 9.3p (2016: 9.3p) per share (ii) 11,976 11,951
18,017 17,997
2017 interim dividend of 4.7 pence (2016: 4.7 pence) per share was paid on 8 December 2017 to shareholders on
record at 3 November 2017.
2017 final dividend of 9.3 pence (2016: 9.3 pence) per share, per share was approved by shareholders at the AGM
on 26 April 2018 and has been included as a liability in this interim financial information. The dividend was
paid on 8 June 2018 to shareholders on record at 27 April 2018.
2018 interim dividend of 4.7 pence per share was proposed and approved by the Board on 19 July 2018 and has not
been included as a liability as at 31 May 2018. It will be paid on 7 December 2018 to shareholders on record at
2 November 2018.
6. Earnings per share
The calculation of the basic and diluted earnings per share ('EPS') is set out below:
Basic EPS is calculated by dividing the earnings attributable to owners of the Company by the weighted average
number of shares in issue during the period excluding shares held as treasury shares and those held in the
Employee Benefit Trust which are treated as cancelled.
For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion of dilutive
potential shares. Potential dilution resulting from tracker shares takes into account profitability of the
underlying tracker businesses and SThree plc's earnings per share. Therefore, the dilutive effect on EPS will
vary in future periods depending on any changes in these factors.
31 May 31 May
2018 2017
£'000 £'000
Earnings
Profit for the period after tax before exceptional items 14,956 14,175
Exceptional items net of tax (1,972) -
Profit for the period attributable to owners of the Company 12,984 14,175
million million
Number of shares
Weighted average number of shares used for basic EPS 128.7 128.7
Dilutive effect of share plans 5.9 4.7
Diluted weighted average number of shares used for diluted EPS 134.6 133.4
31 May 31 May
2018 2017
pence pence
Basic
Basic EPS before exceptional items 11.6 11.0
Impact of exceptional items (1.5) -
Basic EPS after exceptional items 10.1 11.0
Diluted
Diluted EPS before exceptional items 11.1 10.6
Impact of exceptional items (1.5) -
Diluted EPS after exceptional items 9.6 10.6
7. Cash and cash equivalents
Audited
31 May
30 November
2018 2017
£'000 £'000
Cash at bank 31,848 21,338
Bank overdraft (15,621) (3,717)
Net cash and cash equivalents per the consolidated statement of cash flow 16,227 17,621
Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months
or less, net of outstanding bank overdrafts. The carrying amount of these assets is approximately equal to their
fair values.
The Group has cash pooling arrangements in place which allow any one account to be overdrawn up to £50m, so long
as the overall pool of accounts do not exceed a net overdrawn position of £5m.
8. SHARE CAPITAL
During the period 123,633 (HY 2017: 56,440) new ordinary shares were issued, resulting in a share premium of
£0.3 million (HY 2017: £0.2 million). These shares were issued pursuant to the exercise of share awards under
the Save As You Earn scheme.
Treasury Reserve
During the period, SThree plc did not purchase any of its own shares to be held as treasury shares (HY 2017:
1,078,788 shares, with the average price paid per share 316 pence and total consideration amounting to £3.4
million). During the period, nil shares (HY 2017: 1,000,000) were transferred from treasury for LTIP exercises.
At the half year end, 1,724,673 (HY 2017: 2,265,868) shares were held in treasury. The average price paid per
share was 302 pence (HY 2017: 305 pence) with a total consideration amounting to £5.2 million (HY 2017: £6.9
million).
For accounting purposes shares held in the EBT to meet the future requirements of the employee share-based
payment plans are treated in the same manner as shares held in the treasury reserve by SThree plc and are,
therefore, included in the financial statements as part of the treasury reserve for the Group.
During the period, the EBT was funded entirely by the Company. All SThree plc shares purchased directly by the
EBT are shown as a reduction in shareholders' equity. The average price paid by the EBT per share was 314 pence
(HY 2017: nil) with total consideration amounting to £1 million (HY 2017: nil).
At the half year end, 1,419,407 (HY 2017: 774,294) shares were held in the Group's EBT.
9. Borrowings
The Group has access to a committed RCF of £50 million along with an uncommitted £20 million accordion facility
in place with HSBC and Citibank, giving the Group an option to increase its total borrowings under the facility
to £70 million. The funds borrowed under the facility bear interest at a minimum annual rate of 1.3% (HY 2017:
1.3%) above the appropriate Sterling LIBOR. The average interest rate paid on the RCF during the half year was
1.8% (HY 2017: 1.6%). The Group also has an uncommitted £5 million overdraft facility with NatWest and a £5
million overdraft facility with HSBC.
At the half year end, £22.5 million (HY 2017: £2.5 million) was drawn down on these facilities.
The RCF is subject to certain covenants requiring the Group to maintain financial ratios over interest cover,
leverage and guarantor cover. The covenants ratios are disclosed in the Group's 2017 annual financial
statements. The Group has been in compliance with these covenants throughout the current period.
In May 2018, the Directors successfully renegotiated the RCF with its key terms and conditions (including the
total amount available under the facility and interest margin) remaining unchanged and the term of the facility
having been extended until 2023.
Since there was no substantial modification to the underlying terms and conditions, the refinancing of the
existing facility did not qualify for derecognition, hence no modification gain/loss was recognised in the
consolidated income statement.
Minor changes to the agreement were made on two of the covenants:
*Interest cover: the definition of Interest now excludes Dividends; the minimum cover has changed from 1.2:1 to
4:1.
*Leverage ratio changes from 2:1 to 3:1.
The third covenant: Guarantor cover, remains unchanged at 85% of EBITDA and gross assets.
Movements in borrowings are analysed as follows:
Six months ended 31 May 2018 £'000
Opening amount as at 1 December 2017 12,000
Net drawings during the period 11,089
Changes to carrying amount due to RCF refinancing* (636)
Closing amount as at 31 May 2018 22,453
*£636k represents the unamortised amount of transaction costs including those incurred on renegotiating the
facility.
10. INVESTMENTS
Sandpit (conversion of shareholding)
During the period, the Directors reached an agreement with Sandpit Limited to convert its shareholding in
HRecTech into a minority shareholding in Sandpit Limited. The conversion was an asset swap transacted between
SThree Overseas Holdings Limited (one of SThree Group's subsidiaries) and Sandpit Limited. Consequently,
SThree's share of the associate was derecognised at its carrying amount of £0.6 million and a new minority
shareholding in Sandpit Limited (with no significant influence) was recognised at a fair value of £0.8 million,
resulting in a net gain in other income of £0.1 million. The fair value of the minority shareholding was
determined as 1,077 ordinary shares in Sandpit Limited valued at £744.60 per share, giving a total fair value of
investment of £0.8 million. A value of £744.60 per share represented a price paid by multiple other investors
for identical shares in Sandpit Limited.
11. Contingent liabilities
The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business.
Legal advice obtained indicates that it is unlikely that any significant liability will arise.
The Directors are of the view that no material losses will arise in respect of legal claims that have not been
provided against at the date of these interim financial statements.
12. RELATED PARTY DISCLOSURES
The Group's significant related parties are as disclosed in the Group's 2017 annual financial statements. There
were no other material differences in related parties or related party transactions in the period compared to
the prior period.
13. Shareholder communications
SThree plc has taken advantage of regulations which provide an exemption from sending copies of its interim
report to shareholders. Accordingly, the 2018 interim report will not be sent to shareholders but will be
available on the Company's website www.sthree.com or can be inspected at the registered office of the Company.
Financial Calendar
2018
14 September Q3 Trading update
1 November Ex-dividend date for 2018 interim dividend
30 November 2018 Financial Year end
7 December 2018 Interim dividend paid
14 December Trading update for the year ended 30 November 2018
2019
28 January Annual results for the year ended 30 November 2018
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ISIN: GB00B0KM9T71
Category Code: IR
TIDM: STHR
LEI Code: 2138003NEBX5VRP3EX50
Sequence No.: 5771
EQS News ID: 706737
End of Announcement EQS News Service
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