REG-SThree SThree: Replacement Final Results
27/01/2020 08:55
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SThree (STEM)
SThree: Replacement Final Results
27-Jan-2020 / 08:52 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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A number of non-material typographical changes have been made to the Final Results announcement released on 27.01.2020 at
07:00, specifically a number of figures in the Consolidated Income Statement.
SThree plc
("SThree" or the "Group")
Final results for the year ended 30 November 2019
STHREE ANNOUNCES RECORD REVENUE AND OPERATING PROFIT
SThree, the only global pure play specialist staffing business focused on roles in STEM (Science, Technology, Engineering and
Mathematics), is today announcing its final results for the year ended 30 November 2019.
FINANCIAL HIGHLIGHTS
2019 2018 Variance
Constant
Adjusted (1) Reported Adjusted (2) Reported Movement (3) Currency
Movement (4)
Revenue (£ million) 1,345.0 1,345.0 1,258.2 1,258.2 +7% +6%
Contract net fees (£ million) 254.6 254.6 232.1 232.1 +10% +8%
Permanent net fees (£ million) 87.8 87.8 89.0 89.0 -1% -3%
Net Fees (£ million) 342.4 342.4 321.1 321.1 +7% +5%
Operating profit (£ million) 60.0 57.7 53.9 47.5 +11% +9%
Conversion ratio (%) 17.5% 16.9% 16.8% 14.8% +0.7% pts +0.6% pts
Profit before taxation (£ million) 59.1 56.8 53.4 47.0 +11% +9%
Basic earnings per share (pence) 33.2p 31.8p 30.7p 26.6p +8% +7%
Proposed final dividend (pence) 10.2p 10.2p 9.8p 9.8p +4% +4%
Total dividend (pence) 15.3p 15.3p 14.5p 14.5p +6% +6%
Net cash/(debt) (£ million) 10.6 10.6 (4.1) (4.1) - -
(1) 2019 figures exclude the impact of £2.3 million in net exceptional strategic restructuring costs and CEO change costs.
(2) 2018 figures exclude the impact of £6.4 million in exceptional strategic restructuring costs.
(3) Variance compares adjusted 2019 against adjusted 2018 to provide a like-for-like view.
(4) Variance compares adjusted 2019 against adjusted 2018 on a constant currency basis, whereby the prior financial year
foreign exchange rates are applied to current financial year results to remove the impact of exchange rate fluctuations.
(5) Net cash/(debt) represents cash & cash equivalents less borrowings and bank overdrafts.
HIGHLIGHTS
• Record revenue and profit for the Group
• Revenue of £1.35bn up by 6%*
• Adjusted operating profit grew by 9%* to £60.0m, a record level for the Group
◦ Adjusted profit before tax up 11% YoY to £59.1m (2018: £53.4m)
◦ Reported profit before tax up 21% YoY to £56.8m (2018: £47.0m)
• Strategic focus driving net fees growth for the full year of 5%*
◦ Strong growth in USA, Continental Europe and Asia Pacific & Middle East
◦ Good growth across Technology, Life Sciences, Energy & Engineering
◦ 86% of Group net fees generated from international markets (2018: 83%)
◦ Strong growth in Contract net fees up 8%*, in line with strategy, now representing 74% of Group net fees (2018: 72%)
◦ Permanent net fees down 3%*
• Further improvements in operational performance
◦ 0.6% pts* improvement in conversion ratio to 17.5%, reflecting strong trading performance and cost savings delivered
from the restructuring of support functions
◦ Bolstered management teams
◦ Implemented new strategic process and defined new strategic pillars
• Strong cash conversion underpins 6% increase in full year dividend to 15.3p (2018: 14.5p)
• Year-end net cash position of £10.6m; underlining the cash flow resilience of our Contract emphasis and tighter working
capital management.
* In constant currency
Mark Dorman, CEO, commented:
"I am pleased to be reporting today on a record year for the Group, during which we delivered an adjusted operating profit of
£60.0m. This performance is a result of the hard work delivered throughout the business over the period. Our focus on STEM and
flexible working is delivering good overall growth despite a challenging trading background.
Looking to the year ahead, we will continue to build our scalable platform. We will continue to invest in our people, data and
technology as we execute against our focused strategy as outlined at our recent Capital Markets Day. Whilst early in the year,
we can see that broader macro-economic and political uncertainties may well persist, and the trading environment remains
similar to Q4. We have the right strategy, are in the right sectors and geographies, and our Contract focus will allow us to
drive another year of progress towards our ambitions.
We have a unique position at the centre of long-term secular global trends and are focused on the right markets which will
stand us in good stead for the future. In addition, we are building a platform business with the systems to increase the
effectiveness of our execution. The opportunity for us is significant, and we are very well placed to capitalise on it, driving
sustainable value for all of our stakeholders."
SThree will host a live presentation and conference call for analysts at 0930 GMT today. The conference call participant
telephone details are as follows:
Dial in: 0800 358 9473
Call passcode: 90161391#
This event will also be simultaneously audio webcast, at 1 http://bit.ly/STEM_FY19. Please note that this is a listen only
facility. An archive of the presentation will be available via the same link following the event.
SThree will issue Q1 trading update on Monday 16 March 2020.
Enquiries:
SThree plc 020 7268 6000
Mark Dorman, Chief Executive Officer
Alex Smith, Chief Financial Officer
Shaun Zulafqar, Senior Company Secretarial Assistant
Alma PR 020 3405 0205
Rebecca Sanders-Hewett SThree@almapr.co.uk
Hilary Buchanan
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 3,100 employees in sixteen 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.
CHairman's statement
I'm proud that SThree delivered in 2019 a record performance in terms of revenue, profitability and market penetration as we
focused more tightly on providing our customers with the best STEM talent, our candidates with the opportunity to fulfil their
ambitions and potential, and our employees with engaging and rewarding work. This is all the more impressive given a complex
and somewhat unpredictable macro-economic and political backdrop in some of our main markets.
Our purpose remains compelling and unchanged: bringing skilled people together to build the future. It is this purpose that
governs our responsibility to all stakeholders. We have spent considerable effort and attention during the year to ensure that
we are closer to our customers and candidate communities, and this remains a key future priority of the Group, together with
enhancing our offering to employees and communicating better with our investors. We are pleased about the role that our
business plays in wider society and have re-energised our CSR activities and implemented new initiatives under our ESG
strategy. It is also significant that we have set ourselves a bold new target of reducing our absolute carbon emissions by 20%
by 2024, helping to address one of the world's key challenges.
The achievements in the year are in no small part the result of our exceptional, committed and entrepreneurial team. As
signalled last year, Gary Elden stepped down as CEO in March after nearly 30 years in the business, the last six of them as
CEO. Gary was responsible for setting a number of the business foundations we have in place today and which provide an enviable
springboard for future growth. We wish him all the best in his new endeavours and thank him for his leadership and direction. I
would also like to thank Justin Hughes, who stepped down as COO in July, for his significant contribution over the last 25
years.
We were pleased to welcome Mark Dorman as CEO in March, bringing to SThree a wealth of experience in scaling international
business service operations, delivering compelling strategies and leading great teams. He has already shown himself to be an
ambitious and insightful leader, and I look forward to continuing to work with him. The Board and I are confident that his
relentless focus on value creation for all our stakeholders will be indispensable as we scale further. During the year we also
made a number of significant appointments to our leadership teams around the world, bolstering our capabilities as we take the
business into its next stages of growth.
In November we held our Capital Markets Day in London to update investors on our vision, strategic evolution and blueprint for
success. Our huge market opportunity is also clear, and we are proud to have crystallised our strategy and pathway to
sustainable future growth.
On behalf of the Board, I would like to express our thanks for the tireless effort our colleagues put in every day to make
SThree a trusted partner to our many customers and candidates. It is their drive and dedication to our purpose that elevates
SThree as a global leader and partner of choice. It has been a pleasure for the Board and individual Board members to spend
time visiting a number of our offices over the year, seeing the work being delivered across our platform, from our excellent
operations and technology activities in Glasgow to the local market leadership we enjoy in Amsterdam.
Corporate governance remains a priority and focus of the business and we have set ourselves FTSE 250-appropriate targets and
aspirations. We are also focused on initiatives to enhance diversity and inclusion across our organisation and remain committed
to ensuring that all of our employees' voices are heard at every level.
A sense of excitement for the future is palpable across SThree. Our recently refined and newly articulated strategy provides us
with confidence in our long-term success, supported by strong structural market drivers around STEM and flexible working, a
great team and a corporate purpose that seems ever more relevant to meet many of the world's future challenges and
opportunities.
CHIEF EXECUTIVE OFFICER'S STRATEGIC REVIEW
The only global pure play STEM specialist 2 1
SThree is at the centre of STEM and this has enabled us to deliver a robust financial performance in what has been one of the
most uncertain macro-economic and political periods since 2008. Over the year we have built on the strong foundations that were
in place when I took over. Our continued focus on STEM, and our scale and global footprint in the right markets, combined with
our ability to provide a full staffing solution for all our clients' needs means that we have delivered an all-time record
profit performance.
Group net fees were up 5%* in the year. The growth was largely delivered, as expected, through our key territories of
Continental Europe and USA; the former was driven by our market-leading businesses in Germany and the Netherlands which
together saw growth of 8%*, whilst the latter was up 9%*. We also made improvements in our other target markets, including a
stand-out performance from our growing team in Japan, up 43%*. From a sector point of view, we saw robust growth across the
Group, with Technology up 7%*, Life Sciences up 5%*, and Energy & Engineering up 14%*.
This performance is a result of the hard work delivered both strategically and operationally, and we continue to move closer to
delivering on our vision of being the number one science, technology, engineering and mathematics ('STEM') recruiter in the
best STEM markets.
Bringing skilled people together to build the future
It is clear to see our purpose of bringing skilled people together to build the future in action through the work that has been
delivered in the period. The wide range of placements that we have made include, for example, a Regulatory Affairs Consultant,
who ensures life-changing medical devices meet the highest possible safety standards before going to market, a Commissioning
Manager whose planning and execution of key renewable energy projects is helping to make the world a greener place, as well as
a significant number of solar technicians who are providing homes and businesses across the US with environmentally-friendly
solar energy. We provide a company's most important asset - its people - to the businesses that are at the centre of some of
the biggest challenges going on in the world today. We are very pleased to be a true partner to those businesses, helping them
build the future.
The scale of the growth and change as a result of the need for STEM skills going forward should not be underestimated.
Addressing some of the biggest issues such as climate change and the huge demographic shifts is just the start. Skilled people
are needed to solve these global challenges and drive the future. This creates a huge opportunity as many of those skills,
while still in high demand, are also in short supply, irrespective of where we are in terms of economic cycle.
We truly understand the dynamics of our markets, both as they are now and where they are headed. Our knowledge of the STEM
markets, the needs of businesses operating within them and the niche, local talent we have built trusted relationships with is
unrivalled. This is supported by our ability to deliver a full set of resourcing solutions to our clients, whether that be
Contract or Permanent, to support with incoming legislation, and to develop supply though the cultivation of candidate
communities.
Alongside this, there are two factors driving the demand for flexible working. There is a generation of people entering the
global labour force that have a very different view of the workplace. Millennials and Generation Z, particularly those with
STEM skills, see their career through the lens of the various projects that they work on rather than the companies they work
for. At the same time, more and more companies are looking for contingent workers and flexible workforces, whether on large
scale capital projects in Engineering or Life Sciences, or whether they're looking to upgrade their technology and their
innovation sphere project by project. These dynamics continue to drive the need for the right talent in a supply constrained
environment.
Our ability to find great talent and to curate that talent to make sure that it matches the right opportunity is the reason we
are able to benefit from both of these trends. We are expert in engaging with both the client and the candidate all the way
through a project, standardising our processes across the globe and ensuring the client and candidate come to our teams for
their solutions going forward, making it a truly repeatable process. Our scale allows us to deliver this offering across the
globe, in an increasingly complex regulatory environment for our clients. Our scale, expertise and culture make us the partner
of choice.
A scalable platform business able to drive further growth
A key milestone of the year has been the development and articulation of a refocused strategy for the business that sets us up
well to scale the business effectively and deliver consistently into the future.
The long-term secular trends towards more flexible working manifests itself differently in the 70 different jurisdictions in
which we place talent. In order to meet this opportunity, SThree has built a set of scalable service offerings, which are
recurring in nature and which we deploy globally, allowing for long-term sustainable growth.
One of the important defining characteristics of SThree is our entrepreneurial spirit. It is truly a pleasure to be working
with a team that generates an abundance of new opportunities and good ideas. Our future success will be reliant on our ability
to channel those ideas and ensure we choose the right opportunities to focus on. As such, we have implemented a 'managing for
value' programme process which assesses the economic value that would be created by each idea, and allows us to rank them by
the economic rate of return. This allows us to create real structure to help us execute our strategy across five areas of focus
- our current geographies and markets, investment in sales and marketing, the use of data to enhance our decision making, to
help drive our business and innovation, while building on our operational capabilities.
Alongside the use of data to inform our business decisions we are also able to utilise valuable exhaust data from the activity
across our business. We understand what is going on in the STEM markets through the work we do, and this knowledge enables us
to have the right people in the right place to help our clients. An example of this is the use of data points, internal and
external, in order to select the optimum industry/skill base to invest in. This allows us to maximise productivity of our
consultants and scale appropriately within an industry/skill base.
We maintain our focus on embracing new technologies and believe that this should be central to everything we do. This will
drive efficiency across our scalable, platform business and support the delivery to our customers. We will continue to
capitalise on trends to remain relevant to our customers in a new digital era, whether that being new ways of working or
incremental improvements on an ongoing basis.
Building on our operational capabilities will underpin our execution going forward. Our creation of the Centre of Excellence in
Glasgow was a foundational step in building first class global operations to create operational scale and leverage. From that
foundational step we'll continue to invest as we move forward, enhancing our platform for growth.
Our six previous strategic pillars have been refined and we are now focused on executing across four key elements. Our new
strategic pillars are the guideposts of how the business will be driven going forward, and reflect how SThree will build upon
its unique position in the market:
Leveraging our position at the centre of STEM to deliver sustainable value to our candidates and customers
Create a world class operational platform through data, technology and infrastructure
To be a leader in the markets we choose to serve
Find, develop, retain great people
The right team to deliver on the opportunity
We have a truly great team with a wide breadth and depth of skills across our organisation, whether found in our experienced,
long-tenured team that have been delivering the Group's robust performance over prior years, or in our experts from outside the
industry that have joined to build upon the Group's foundations. Both have been working tirelessly over the year to ensure the
business is in its best position to capture the opportunity ahead of us.
We were pleased to appoint Matthew Blake as Chief People Officer to develop and lead the Group's people strategy, and Kate
Holden as Chief Strategy and Development Officer to oversee the strategic planning process and successful delivery of SThree's
Group-wide strategic programmes.
Our people truly are our lifeblood and we are focused on creating the right culture and environment for our people to thrive. A
full people strategy is being implemented, focused on driving engagement, shaping culture, developing talent, organisational
design, reward and governance, risk and compliance. Truly reflecting the customer and candidate pools we serve is also key and
we are focused on building diversity throughout the organisation, from top to bottom. To this end, we are building out our
Diversity and Inclusion ('D&I') strategy which will set out our ambition to become leaders of D&I in the staffing industry.
Aligned with our broader Group strategic themes, our D&I commitments will centre around initiatives such as building
communities, internal and external networking, data monitoring and data-based decision making, policy development,
communication, talent management and leadership development. Alongside this, we are building our Learning & Development ('L&D')
strategy through the creation of learning academies, and strengthening digitalisation (delivering learning the way our people
want to learn). Supporting this is the identification and development of the new L&D target operating model, structure and ways
of working.
Outlook: at the centre of STEM
"Looking to the year ahead, we will continue to build our scalable platform. We will continue to invest in our people, data and
technology as we execute against our focused strategy as outlined at our recent Capital Markets Day. Whilst early in the year,
we can see that broader macro-economic and political uncertainties may well persist, and the trading environment remains
similar to Q4. We have the right strategy, are in the right sectors and geographies, and our Contract focus will allow us to
drive another year of progress towards our ambitions.
We have a unique position at the centre of secular global trends and are focused on the right markets which will stand us in
good stead for the future. In addition, we are building a platform business with the systems that will increase the
effectiveness of our execution. The opportunity for us is significant, and we are very well placed to capitalise on it, driving
sustainable value for all of our stakeholders."
CHIEF SALES OFFICER'S REVIEW
2019 saw growth for the Group with net fees up 5%*. Our Contract division, which represents 74% of the Group, saw strong growth
of 8%* offset by a decline in Permanent down 3%* as anticipated. 3 2
Global pure play STEM specialist
SThree is the only global, pure play STEM specialist recruiter which makes our business unique. This enables us to service our
customers, both candidates and clients, and achieve our purpose of bringing skilled people together to build the future.
Our unique scalable business can holistically be viewed in five key distinct sections.
1. Customer
Our customers are split between SME to mid-size organisations and large enterprise organisations. Although it can vary
regionally, our core business sits within SME to mid-size which accounts for circa 82% of our business.
2. Skills
We place 100% STEM skills, exclusively, no matter what sector. As a result, we are better insulated against the worst vagaries
of the broader cycle. Our market intelligence tool uses 32 internal and external data points and enables us to identify what
skills and markets to invest in.
3. Resource options
We provide our customers with a full solution split into three distinct options, Freelance contractor, Employed contractor, and
Permanent. Our blueprint programme provides a standard service globally with options to fit regional needs.
4. Product type
Alongside our complete standard offerings, we also provide enhanced contract services to our customers. This provides
additional value above and beyond our standard service and supplements the clients' existing workforce and demanding project
requirements.
5. Service and delivery
In order to deliver to our customers in the most effective way we use a local model and a near shore model. Local delivery
model uses technical market and sector specialists to build strong customer relationships with primarily SME and mid-market
organisations. Near shore delivery model utilises our key account managers to provide scaled delivery to enterprise
organisations. We automate the process using technology and utilising AI to service the client efficiently.
Performance in 2019 4 3
The strategy to focus growth investment towards Contract in order to align SThree with the key drivers in its key markets
continues to bear fruit with the mix of Contract net fees increasing to 74% of total Group net fees, up from 72% in 2018. Total
net fees grew by 5%* with strong performance in Contract partially offset by a decline in Permanent.
Net fees per division 2019 2018 YoY Variance*
Contract £254.6m £232.1m +8%
Permanent £87.8m £89.0m -3%
Group £342.4m £321.1m +5%
Contract/Permanent Split 2019 2018
Contract 74% 72%
Permanent 26% 28%
Regional
SThree has well established and, in many cases, leading positions in the best STEM staffing markets across the globe. We are a
well-diversified business with 86% of our net fees now generated outside of the UK & Ireland ('UK&I'). We are pleased to report
that 2019 was another year where the majority of our regional businesses reported growth ahead of their domestic averages.
Performance in Continental Europe was pleasing with growth of 8%* in net fees. This is despite having strong prior year
comparatives with net fees growing 20%* in 2018. Within Continental Europe, DACH grew 10%* and Benelux, France & Spain grew
4%*. Our key aims in this region are to be the number one in the STEM space in both Germany and the Netherlands.
The Netherlands, which is a key business hub for many multinational companies, grew 8%* against strong prior year comparatives
of 25%*. Germany continues to deliver strong growth with net fees up 9%*. The expansion of our Contract service, to include
Employed Contractor Model in 2017, provided our German business with further opportunities for growth. We also opened two new
offices in Germany located in Hanover and Nuremburg, which enables us build towards our aim to be the number one in the STEM
space.
Our business in USA saw robust growth of 9%* in net fees. This is on the back of strong prior year growth of 8%*. We believe
the infrastructure that we have in place, alongside our experienced management team leaves us in a strong position to grow our
net fees going into the new year and target an increased market share.
The UK&I was challenging in 2019 as the uncertainty surrounding Brexit and wider political environment continues to impact the
region. Net fees for the year declined 9%* year on year. The UK is a mature recruitment market and is seeing slower industry
growth than other geographies, however, it remains a strategic priority for the Group. Following the restructuring of Permanent
division in 2018, we appointed a new Managing Director in Q4 2019 to positively impact performance.
Our Asia Pacific & Middle East ('APAC & ME') business delivered growth of 12%* in the year. This was driven largely by our
excellent Japan business which grew 43%*. Japan is a very important market for the Group where we have a small but fast-growing
business providing the Group with substantial opportunity for further growth.
Net fees per region 2019 2018 YoY Variance*
Continental Europe £196.7m £183.3m +8%
USA £76.7m £66.7m +9%
UK&I £48.2m £53.1m -9%
Asia Pacific & Middle East £20.8m £18.0m +12%
Group £342.4m £321.1m +5%
Sectors
Our largest sector, Technology, represents 45% of the Group's total net fees and net fees grew by 7%* in the year. All our
regions other than UK&I experienced growth in this sector.
Life Sciences grew net fees by 5%* in the year. USA, our largest region for this sector, grew net fees by 11%*. UK&I delivered
robust growth of 4%*, offset by 2%* decline in Continental Europe.
Banking & Finance was a challenging sector for the Group with net fees declining by 13%*. We saw a decline in UK&I of 22%*
driven by the uncertainty surrounding Brexit. Continental Europe and USA both declined in the year down 10%* and 21%*,
respectively.
We saw strong growth in our Energy & Engineering sector, with net fees up 14%*. This was driven by USA which grew 38%* and
Continental Europe which grew 10%*.
Net fees per sector 2019 2018 YoY Variance*
Technology £152.7m £142.0m +7%
Energy & Engineering £73.9m £64.0m +14%
Life Sciences £67.8m £66.3m +5%
Banking & Finance £38.0m £42.4m -13%
Other £10.0m £6.4m +3%
Group £342.4m £321.1m +5%
Focus on Contract
Across multiple geographies there is an increasing shift towards flexible employment, and we believe our focus on STEM provides
us a unique opportunity to capitalise on this shift. It is the Group's strategy to invest and grow our Contract offering.
Our average Contract headcount was up 10% year on year for the Group with all regions growing double digit with the exception
of UK&I which grew 4%. Our increased weighting towards Contract means we are more resilient to changing market conditions and
provides us with stronger and more sustainable profits. Our Freelance contractor model performs well across all our regions and
the popularity of our Employed contractor model leaves us well placed to drive further growth.
BUSINESS REVIEW
DACH (Germany, Austria and Switzerland) (32% of Group net fees)
DACH, our largest region, enjoyed a strong 2019 with growth across Contract and Permanent.
Net fees
growth* YoY 2019 Mix
Cont Perm Total Cont Perm
2019 +14% +5% +10% 65% 35%
Key developments in the year
Opening of two new offices in 2019
Winner of 'Mittelstand Deutschland Top Employer 2019'
Continued investment in headcount up 13%
Double digit growth in net fees
Overview
2019 was an encouraging year for our DACH region in terms of net fee growth. Total net fees grew strongly and were up 10%*
despite having strong prior year comparatives (2018: 21%*). 5 4
Our employee proposition launched in 2018 was fully implemented for the year and we have continued to retain and grow our
talent.
2019 saw the opening of two new offices in Germany, located in Nuremburg and Hanover. These are now fully operational with a
strong leadership team driving the business.
We developed a market intelligence tool allowing us to analyse the external market to ensure we are active in all the
attractive and relevant spaces.
Our Employed Contractor Model ('ECM') which we implemented in 2017, saw an 84% increase in volume in 2019. On top of that, we
saw a strong growth rate within our top 20 accounts of 37% year on year.
2019 net fees performance
DACH net fees grew 10%* in 2019 with our largest sector Technology growing 13%*. There was strong growth in Banking & Finance,
up 19%* and Energy & Engineering up 11%*.
Contract performance was very strong, up 14%* driven by our two largest sectors Technology and Energy & Engineering, up 13%*
and 16%* respectively. Life Sciences was up 7%* and Banking & Finance up 34%*.
Against some tough comparatives (2018: +19%*), Permanent saw growth of 5%*. Our biggest sector Technology grew 13%* on the
prior year. Our other sectors saw a slowdown with Life Sciences down 11%*, Energy & Engineering down 11%* and Banking & Finance
down 6%*.
2020 outlook
The broader German economy is sensitive to global trade tensions and we witnessed a deterioration in business sentiment through
the course of 2019. Despite these concerns, German domestic consumer spending remained solid. SThree's strengths lie in the
Mittelstand, and here the backdrop is proving more resilient. The high shortage of specialist labour in Germany is continuing
to be a challenge for employers, which points to supportive trading conditions in 2020.
We exit the year with a strong contractor book, our largest ECM order book to date and a strong Permanent starter pipeline.
In line with the Group strategy, we will continue to invest in DACH Contract division along with a focused investment in
Permanent in the markets where we see the best opportunity for growth.
Benelux, France & Spain (26% of Group net fees)
Benelux, France & Spain is the second biggest region after DACH and accounts for 26% of Group net fees. 2019 saw growth of 4%*
in overall net fees, however, our Permanent business has been challenging.
Net fees
growth* YoY 2019 Mix
Cont Perm Total Cont Perm
2019 +8% -13% +4% 85% 15%
Key developments in the year
• Continued investment in our ECM model which is the main driver of growth in Contract net fees and grew by 31%* in 2019
• New regional office opened in Utrecht, the Netherlands, to improve client and candidate proximity
• Appointed Managing Director for Regional Sales to maximise our position as a market leader in the region
• Appointed Managing Director for Sales Operations & Business Improvement to create a scalable platform for growth
Overview
Benelux, France & Spain is the second largest region after DACH, representing 26% of the Group net fees. Despite softening
macro-economic conditions, the region delivered a robust performance with net fees growth of 4%* in the year. 6 5
Growth was mainly driven by our ECM model, which grew by 31%* and now accounts for 23% of Contract net fees. Our clients favour
this model as it mitigates legislative risks.
We also continued our investment in building candidate communities of highly qualified, niche skilled STEM talent, so that we
are in the position to deliver the best candidates to our long serving clients.
Permanent had a challenging year. However, in line with Group strategy, we focused on increasing productivity per consultant in
our niche core STEM markets and we already saw the impact as productivity increased by 3%.
2019 net fees performance
Overall net fees for the region were robust and we saw growth of 4%* in the year. The Netherlands was the standout performer
with growth of 8%*, supported by France which grew 3%*. Technology, our largest sector, had a strong performance in the year
and grew 9%*.
Contract performance for the region was strong with growth of 8%*. We saw double digit growth of 12%* in our biggest sector
Technology. Energy & Engineering had a strong year with growth of 17%* and is now our second biggest sector. We saw good growth
across the majority of our key countries with the Netherlands, up 10%* and France up 7%*. A small decline was reported in
Luxembourg.
Permanent was down across all our countries (overall down 13%*) except for Spain. Average Permanent headcount declined by 17%
in the year.
2020 outlook
With soft macro-economic conditions continuing in the region, there are signs that growth may slow down. In line with our Group
strategy, we will continue to invest in growing Contract in scarce STEM markets, where we see market opportunity, and improving
Contract and Permanent productivity.
We are confident that with our well-diversified business in countries and sectors, combined with our highly experienced
leadership team, we will be able to balance the selective investments for long term growth while managing the softer market
conditions.
USA (22% of Group net fees)
During 2019, our US business continued to show robust growth with net fees up 9%*. The performance of our Contract division was
particularly strong, delivering 17%* growth in net fees.
Net fees
growth* YoY 2019 Mix
Cont Perm Total Cont Perm
2019 +17% -11% +9% 78% 22%
Key developments in the year
• Balanced further towards higher value Contract business (Contract net fees mix: 78% vs 73% in 2018)
• Successful pilot of Enhanced Employment Services product with Engineering sector clients resulting in 143%* higher average
weekly net fees
• Further investment in contingent workforce management expertise and thought leadership
• Appointed a new Vice President of Talent Acquisition to strengthen platform for headcount growth
• Top 125 training magazine winner, third year running
Overview
USA is our third largest region and represents 22% of Group net fees.
Against a backdrop of softening performance from USA competitors, our USA business delivered accelerated growth in net fees
while balancing the business further towards Contract.
A very strong Contract performance was driven by our ongoing investment in the candidate communities of scalable,
supply-constrained STEM markets which continued to drive customer value, resulting in accelerating growth and improving gross
margins.
We also continued to benefit from our expertise in the increasingly complex regulatory environment relating to contingent
workforce management in USA, as customers try to navigate these risks.
Our mature ECM product now has more than 1,200 contractors employed on assignment across 44 US states. Meanwhile, the
successful pilot of our Enhanced Employment Services product with Engineering sector clients resulted in a significant increase
in gross margins.
While Permanent performance declined, our new Permanent management team has refocused the business on scalable,
supply-constrained STEM markets and built headcount to provide a platform for growth in 2020.
Further headcount growth will be supported by our new Vice President of Talent Acquisition, who is strengthening our graduate
recruiting platform, and by our multi-award winning induction program.
2019 net fees performance
USA delivered a strong performance in 2019 with net fees growing 9%*. Energy & Engineering was the standout performer from a
sector perspective with growth of 38%* against strong prior year comparatives. We continued to build on our customer portfolio,
our strong position in renewable energy and broadened our product offering. Life Sciences, our largest sector in the region,
grew 11%*, and Technology grew 9%*. 7 6
Contract performance was very strong in 2019, with growth of 17%*. We saw a double-digit growth in our three biggest sectors.
Life Sciences up 19%*, Energy & Engineering up 45%*, and Technology up 12%*. Average headcount in Contract increased by 13%.
Our Permanent business saw a decline of 11%*, as the new management team tightened the focus on niche skill sets hired into our
biggest opportunity markets to build a platform for growth.
2020 outlook
With a strong exit rate in number of contractors, especially in Energy & Engineering, Life Sciences and Technology, we expect
continued growth into 2020. We expect Permanent to return to growth in 2020 as a result of the previously mentioned measures
implemented in 2019.
We are confident that we have the right team and structure to deliver a high-quality service to our clients and continue to
penetrate the largest recruitment market in the world. Moreover, we have a highly scalable platform for future growth in the US
based on a clear and differentiated customer value proposition, mature product offering and infrastructure to support scale. We
remain agile to cater for any risks or opportunities that are posed by the market.
UK&I (14% of Group net fees)
Macro-economic and political uncertainty impacted performance during 2019 with net fees down 9%*. UK&I remains a strategic
priority for the Group and Contract saw growth in headcount of 4%.
Net fees
growth* YoY 2019 Mix
Cont Perm Total Cont Perm
2019 -7% -18% -9% 84% 16%
Key developments in the year
• Tom Way appointed as Managing Director for UK&I in October 2019
• Investment in Contract in line with Group Strategy
• Permanent division now right sized following the 2018 restructure
Overview
2019 was a challenging year for the region impacted by the continued uncertainty around Brexit and larger political
environment.
Following the restructuring of our Permanent division in 2018, we appointed a new Managing Director in Q4 2019 to positively
impact performance. As a result, we refocused our leadership team to a regional delivery model.
While trading conditions were challenging, we saw success in our Life Sciences business which grew in the year, alongside our
robust public sector business.
The reform of IR35 in the private sector will be a significant change for clients and contractors. We have been actively
preparing our clients and candidates for the impact of this regulatory change with a number of initiatives, and with our
experience we believe we are well placed to minimise any impact.
2019 net fees performance
Challenging market conditions in the UK&I resulted in a net fees decline of 9%*. Although well diversified from a sector
perspective, tougher market conditions meant that fees were down in most sectors except for Life Sciences, which was up
4%*. 8 7
UK&I Contract net fees were down across most of our sectors with more competitive spaces such as Technology down 6%*, Energy &
Engineering down 8%* and Banking & Finance down 19%*. Life Sciences had a robust performance in the year with net fee growth of
2%*.
Permanent net fees were impacted by a slowdown in Technology and Banking & Finance which were down 30%* and 32%*, respectively.
Life Sciences was a standout performer from a sector perspective and grew 9%* with Energy & Engineering up 4%*. Permanent
headcount was significantly reduced in 2018 as part of our move to a specialist hub and onshore delivery model. This has now
been stabilised with headcount remaining at 2018 levels.
2020 outlook
While Brexit continues to remain a material uncertainty for the UK economy, we remain confident that we are set up to maximise
the market opportunity, with the existing customer base and sectors. Regional organisation enables us to execute more
effectively on our strategy.
IR35 intermediaries legislation applicable to private sector from April 2020 is starting to have an adverse impact on the UK
business, but also gives us an opportunity to deliver fully compliant services to our clients and candidates.
With our management team refocused on a regional delivery model we believe we are well placed to maximise opportunity in our
second largest STEM market.
Asia Pacific & Middle East (6% of Group net fees)
The region delivered a double-digit growth of 12%*, driven by excellent performance in Japan and strong performance in Dubai.
Net fees
growth* YoY 2019 Mix
Cont Perm Total Cont Perm
2019 +6% +16% +12% 43% 57%
Key developments in the year
• Office move in Dubai allowing the business to grow over the next four years
• Japan continued to grow aggressively and became our largest country in the region
• Hong Kong experienced some macro-economic challenges, with political instability impacting the hiring patterns of some our
key clients - mainly in Contract division
• We made key leadership appointments in 2019, mainly in Singapore and Australia; these are critical hires that we expect to
have a positive impact on both countries in 2020
• Local credit control function in Middle East region hired in the second half of the year, allowing the business to mitigate
the key risk of customer late payments
Overview
2019 was a very encouraging year for the region as we grew our net fees and invested in headcount.
The continued growth in Japan, which saw average headcount grow 50%, was the highlight of the year.
We were also very pleased with our business in Dubai which saw a strong double-digit growth in net fees.
Australia reported a 9%* growth in Permanent net fees.
2019 was a bit more challenging year for our Singaporean business, which underwent a significant restructuring that set the
platform for growth in 2020.
2019 net fees performance
Total net fees for the region grew 12%* year on year. Our two largest sectors showed good growth within Technology, up 29%* and
Banking & Finance, up 8%*. Energy & Engineering saw a small decline of 3%*. 9 8
Our Permanent division, which accounted for 57% of net fees, saw very good growth of 16%*. This was driven primarily by Japan
which was up 42%*. Japan Permanent grew across all sectors, with Technology growing 52%*, Life Sciences up 30%*, and Banking &
Finance up 29%*. Dubai saw growth of 7%* in Permanent and Australia grew 9%*. This was offset by a decline in Singapore, down
32%*.
Our Contract business grew 6%* in the year. Dubai Contract was up 19%*, which was driven by a strong performance in Banking &
Finance, up 87%*. This was supported by our small but growing Contract business in Japan which grew 53%*. Australia Contract
was down in the year with net fees declining 7%*.
2020 outlook
We will continue to invest in our Japanese Permanent business with planned investment in our operations and support functions
as well as sales headcount.
In Asia Pacific the demand for Technology skills is growing very fast. As a global pure play STEM specialist, we are well
positioned against our competitors and occupy a position in the market that benefits from innovation and the ever-evolving
technology market.
With our office move in Dubai completed, we will continue to invest in Middle East Contract across both Energy & Engineering
and Banking & Finance sectors.
We will continue to maintain a market leading position in Permanent division, with particular focus on placing candidates at an
executive level within Banking & Finance sector.
CHIEF FINANCIAL OFFICER'S REVIEW
The strength of our model has enabled us to deliver another year of strong performance in 2019.
Income statement
Revenue for the year was up 7% to £1.35 billion on a reported basis and up 6% on a constant currency basis (2018: £1.26
billion). On a reported basis, net fees increased by 7%, and 5% on a constant currency basis, to £342.4 million (2018: £321.1
million).
In constant currency, growth in revenue exceeded the growth in net fees as the business continued to remix towards Contract.
Contract represented 74% of the Group net fees in the year (2018: 72%). This change in mix resulted in a marginal decrease in
the overall net fees margin to 25.4% (2018: 25.5%), as Permanent revenue has no cost of sale, whereas the cost of paying a
contractor is deducted to derive Contract net fees. The Contract margin increased marginally to 20.3% (2018: 19.9%).
The reported operating profit was £57.7 million, up 22%. The adjusted operating profit was £60.0 million, up 11% year on year
(2018: reported £47.5 million and adjusted £53.9 million). The adjusted operating profit excluded exceptional costs of £2.3
million that were incurred in the current year primarily in respect of the CEO changes and restructuring of senior leadership
(2018: £6.4 million due to relocation of support functions).
Our operating profit conversion ratio has increased by 2.1 percentage points to 16.9% on a reported basis and 0.7 percentage
points to 17.5% on an adjusted basis (2018: reported 14.8% and adjusted 16.8%). The increase reflects strong trading
performance, primarily in our international markets, and operational cost savings delivered from the restructuring of our
support functions.
Exceptional costs ('adjusting items')
In discussing the performance of the Group, comparable measures are used. This approach allows users of our financial
statements to obtain a better understanding of the Group's operating and financial performance achieved from underlying
activities. The following items of material or non-recurring nature were excluded from the directly reconcilable IFRS measures.
Restructuring
Support function relocation
In 2019, the Group recognised a net income of £0.1 million in relation to support functions restructuring. It comprised
personnel costs of £0.3 million and property costs of £0.3 million, subsequently offset by the government grant income of £0.7
million. The total net costs recognised to date amounted to £12.9 million (2018: £13.1 million). This restructuring has
realised cost savings in excess of £5.0 million per annum.
Senior leadership restructuring
To continue to drive the Group growth plans and deliver on our ambition to be the number one in our chosen STEM markets, a
number of key changes were made to the senior leadership structure (impacting UK&I, Benelux, France & Spain, and Middle East).
These changes will drive further alignment between our key markets, leading to a well-governed and efficient regional
structure. Changes to the senior leadership structure resulted in the exceptional charge of £1.2 million in the current year.
CEO change
The costs associated with the departure of the previous Chief Executive Officer ('CEO'), Gary Elden, and the appointment of the
new CEO, Mark Dorman, led to the recognition of an exceptional charge of £1.2 million in 2019. The total charge comprised
contractual payments, recruitment and other professional fees, double running costs and relocation costs.
The Group alternative performance measures, used throughout this Annual Report, are fully explained and reconciled to IFRS line
items in the Alternative Performance Measures section of the Annual Report.
Accounting changes
On 1 December 2018, IFRS 9 Financial Instruments ('IFRS 9') and IFRS 15 Revenue from Contracts with Customers ('IFRS 15')
became effective for the Group.
IFRS 9 introduced new requirements for classification, recognition and impairment of financial assets.
Overall, IFRS 9 had an immaterial impact on the Group and no retrospective adjustments were made. Under IFRS 9, the Group
started to present changes in the fair value of all its equity investments in other comprehensive income, as these instruments
are held for long-term strategic purposes. There were no changes to the Group's existing impairment methodology for trade
receivables.
IFRS 15 was adopted on the modified retrospective basis. Under IFRS 15, the recognition of contingent consideration, such as
Contract accrued income, is recognised as revenue provided that it is highly probable that its significant reversal will not
occur when the uncertainty associated with the contingent consideration is subsequently resolved. Historically, the Group's
policy of estimating Contract accrued income resulted in certain amount of revenue being reversed. On 1 December 2018 the Group
revised the way the Contract accrued income is estimated. This change resulted in a net post-tax adjustment of £2.3 million
that reduced the opening balance of retained earnings on the date of initial application of IFRS 15.
On 1 December 2019, the Group will adopt IFRS 16, a new lease accounting standard that requires to recognise a lease asset and
lease liability for all contracts. The evaluation of the effect of adoption of the standard is substantially complete. On the
date of initial application, we expect that the net assets will decrease by £0.8 million (a net result of an increase in total
assets of £41.5 million offset by an increase in total liabilities of £42.3 million).
Operating costs
Adjusted operating costs, excluding exceptional costs of £2.3 million (2018: £6.4 million), increased by 6% to £282.3 million
(2018: £267.2 million). The increase was mainly driven by additional investment in total headcount (6% increase year on year),
3%* increase in personnel costs (an 8%* increase in salaries partially offset by a reduction in redundancy costs and
share-based benefits), and £3.2 million additional spend on IT licenses. 10 9
Payroll costs represented 78% of our cost base. Average total headcount was up by 6% at 3,109 (2018: 2,926), with average sales
headcount up 7%. The increase in average sales headcount was in response to supportive market conditions across most of our
geographies primarily in Continental Europe (Benelux, France & Spain and DACH regions) and USA, (headcount up 8% and 11%
respectively). The year-end total headcount was up 7% at 3,196 (2018: 2,979).
The year-end sales headcount represented 77% of the total Group headcount.
Investments
During the year, we continued to invest in in-house innovation initiatives, expensing a total of £2.2 million (2018: £2.4
million) on our 'build' programme. We have reprioritised our innovation effort towards our most promising initiative,
Hirefirst. It was launched in October 2018 and is at the early market testing stage. In the current year, Hirefirst generated
its first revenue of £0.3 million.
During the year we wrote off in full two equity investments that the Group held in the external innovation start-ups, i.e. The
Sandpit Limited and Ryalto Limited.
The equity rights in The Sandpit Limited, which discontinued its operations earlier this year, were converted into a minority
shareholding in The Sandpit Ventures Limited at an immaterial nominal book value.
Ryalto Limited continued to incur operating losses as it failed to gain momentum and build a customer base. Due to a lack of
prospective buyers for the business, Ryalto's board of directors passed a resolution to liquidate the business.
In 2019, the Group transitioned to IFRS 9, a new financial instruments standard, accordingly, the write-offs of the equity
investments were recognised in other comprehensive income.
Taxation
The tax charge on pre-exceptional statutory profit before tax for the year was £15.9 million (2018: £13.9 million),
representing an effective tax rate ('ETR') of 26.9% (2018: 25.9%). The ETR on post exceptional statutory profit before tax was
27.3% (2018: 27.1%).
The ETR is primarily driven by country profit mix and their respective tax rates. However, a number of other factors overlay
this base position, including:
i. Transfer pricing: The Group recharges support costs, and royalties for assets used throughout the business. As the bulk of
the support costs and assets are held in the UK, which benefits from a relatively low tax rate, compared to our main
businesses in Continental Europe and USA, our transfer pricing policy gives rise to material tax credits each year. However,
this is an inherent risk that we (and all multinationals) run, as tax authorities in all our jurisdictions question the
policies. This risk is increasing as corporates must now provide increased information to tax authorities, following the
OECD BEPS' proposals, and governments around the world exchange this information.
ii. Loss-making business: Tax credits on loss making businesses may be recognised to the extent that we consider future profits
are likely. This pushes the Group ETR up. Conversely, any such businesses which become profitable can benefit from historic
tax losses without recognising a tax charge. Such profitable businesses will push the Group ETR down.
iii. Finance companies: During the year the Group closed its finance companies in Luxembourg and Ireland which took advantage
of regulatory arbitrage.
iv. Taxation of LTIP's: Corporate tax deductions are not allowable on the accounting charge for LTIP's. Instead, a corporation
tax credit is available when employees exercise. To the extent LTIP's pay out less than anticipated on grant, this can
result in not all of the cost of LTIP's is deductible for tax. In particular, to the extent the total shareholder return
underperforms, the tax deduction reduces proportionally, but the accounting charge does not.
Earnings per share ('EPS')
On an adjusted basis, basic EPS was up by 2.5 pence, or 8%, at 33.2 pence (2018: adjusted 30.7 pence), due to an increase in
the adjusted profit before tax, partially offset by a 1.2 million increase in weighted average number of shares. On a reported
basis, EPS increased to 31.8 pence, up 5.2 pence on the prior year (2018: 26.6 pence), attributable mainly to an improved
trading performance and decline in restructuring costs as explained above. The weighted average number of shares used for basic
EPS grew to 129.9 million (2018: 128.7 million). Reported diluted EPS was 30.9 pence (2018: 25.7 pence), up 5.2 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 proposed to increase a final dividend to 10.2 pence per share (2018: 9.8 pence). Taken together with the interim
dividend of 5.1 pence per share (2018: 4.7 pence), this brings the total dividend for the year to 15.3 pence per share (2018:
14.5 pence). This represents a 6% increase in dividend per share versus the prior year. The final dividend, which amounts to
approximately £13.5 million, will be subject to shareholder approval at the 2020 Annual General Meeting. It will be paid on 5
June 2020 to shareholders on the register on 1 May 2020.
The Board monitors the appropriate level of the dividend, taking into account, inter alia, achieved and expected trading of the
Group, together with its balance sheet position. As previously stated, the Board is targeting a dividend cover(1) of between
2.0x and 2.5x, based on underlying EPS, over the short to medium term. 11 10
Share options and tracker share arrangements
We recognised a share-based payment charge of £2.7 million during the year (2018: £4.7 million) for the Group's various
share-based incentive schemes. The lower charge in 2019 is primarily due to lower than expected non-market vesting conditions,
such as strategic targets and regional trading performance. Furthermore, the share-based payment charge in the prior year was
affected by the accelerated cost recognised for all 'good leavers' who left the Group as a result of strategic restructuring of
our support functions.
We also operate a tracker share model to help retain and motivate our entrepreneurial management within the business. The
programme gives our most senior sales colleagues a chance to invest in a business they manage with the support and economies of
scale that the Group can offer them. In 2019, 52 employees invested an equivalent of £0.5 million in 23 Group businesses.
We settled certain tracker shares during the year for a total consideration of £4.4 million (2018: £3.7 million) which was
determined using a formula in the Articles of Association underpinning the tracker share businesses. We settled the
consideration in SThree plc shares either by issuing new shares (475,738 new shares were issued on settlement of vested tracker
shares in 2019) or treasury shares (in total 974,583 were used in settlement of vested tracker shares in 2019). Consequently,
the arrangement is deemed to be an equity-settled share-based payment arrangement under IFRS 2 Share-based payments. There is
no charge to the income statement as initially the tracker shareholders subscribed to the tracker shares at their fair value.
We expect future tracker share settlements to be between £5.0 million to £10.0 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 treasury shares.
Note 1 to the financial statements provides further details about all Group-wide discretionary share plans, including the
tracker share arrangements.
Balance sheet
At 30 November 2019, the Group's net assets increased to £116.8 million (2018: £101.7 million), mainly due to the excess of net
profit over the dividend payments, offset by share buy backs and decline in fair valuation of equity investments during the
year.
The most significant item in our statement of financial position is trade receivables (including accrued income) which
decreased to £256.2 million (2018: £274.6 million).
The main driver of the decline was an accounting adjustment of £13.0 million to the opening balance of the accrued income
following the implementation of the new revenue standard IFRS 15. It was partially offset by a 3%* increase in Contract net
fees Q4 year on year. Days Sales Outstanding ('DSOs') remained flat at 44 days (2018: 44 days).
Trade and other payables decreased to £172.4 million in 2019 (2018: £191.7 million), primarily due to £9.9 million in IFRS 15
adjustment, and the remainder is attributable to favourable movements in foreign exchange rates (£5.8 million), a 1% decline in
contractors in Q4 year on year, and a decline in Creditor Days to 15 days (2018: 17 days).
Provisions decreased by £1.5 million primarily due to a utilisation in a restructuring provision for the relocation of central
support functions from London to Glasgow.
Investment in subsidiaries (Company only)
During the year, the Directors reviewed the recoverable amount of the Company's own portfolio of investments. As a result, an
impairment loss of £8.2 million was recognised in respect of the UK operations. In 2019, the trading performance of the UK arm
of the Group operations continued to decline due to the ongoing macroeconomic uncertainty surrounding Brexit and its outcomes.
Both Permanent and Contract divisions across all sectors experienced reduced margins impacting the profitability of the UK
region.
After booking this impairment, the distributable retained earnings were £122.0 million (£2018: £156.5 million).
Strong cash generation
On an adjusted basis, we generated net cash from operations at £54.8 million (2018: £40.6 million on an adjusted basis). It
reflects a combination of (i) the improved underlying trading performance, driven by our international markets, (ii) cost
savings generated from the restructuring of support functions, and (iii) the benefits of operational efficiencies including
cash collection.
Capital expenditure increased moderately to £4.6 million (2018: £4.2 million excluding £1.0 million in exceptional capital
expenditure), reflecting higher spend on IT infrastructure and office fittings.
Overall, the cash conversion ratio(2) increased to 83.7% on an adjusted basis and 84.1% on a reported basis (2018: 67.4% on an
adjusted basis and 52.3% on a reported basis). The net cash outflow associated with exceptional items was £1.7 million (2018:
£10.5 million). 12 11
During the year, SThree plc bought back shares for £2.5 million (2018: £1.5 million) to satisfy employee share schemes in
future periods. Small cash inflows were generated from Save As You Earn employee schemes.
Income tax paid decreased to £12.9 million (2018: £14.4 million). The Group paid £0.9 million in net interest cost in the year.
Foreign exchange had a moderate positive impact of £0.6 million (2018: £0.3 million).
Dividend payments increased to £18.8 million (2018: £18.0 million) as a result of the increased dividend per share and higher
number of shares issued to the market. Distributions to tracker shareholders nearly doubled to £0.2 million (2018: £0.1
million) as a result of the improved trading performance of the tracked businesses.
We started the year with net debt of £4.1 million and closed the financial year with net cash of £10.6 million. The
year-on-year improvement primarily reflected an increased cash collection focus and significantly reduced cash outflows
associated with the Group restructuring.
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 £50.0 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. At the year end, there were no draw downs (2018: £37.4 million) on these facilities.
The RCF is subject to financial covenants requiring the Group to maintain financial ratios over interest cover of at least 4.0,
leverage of at least 3.0 and guarantor cover at 85% of EBITDA(3) and gross assets. The Group was in compliance with these
covenants throughout the year. We ended 2019 with significant headroom on all our covenants. The funds borrowed under this
facility bear interest at a minimum annual rate of 1.3% above three-month LIBOR, giving an average interest rate of 2.0% during
the year (2018: 1.8%). The finance costs for the year amounted to £1.0 million (2018: £0.7 million).
The Group also has an uncommitted £5.0 million overdraft facility with HSBC.
The Group's UK-based treasury function manages the Group's treasury risks in accordance with policies and procedures set by the
Board, and is responsible for day-to-day cash management; the arrangement of external borrowing facilities; the investment of
surplus funds; and the management of the Group's interest rate and foreign exchange risks. The treasury function does not
engage in speculative transactions or operate as a profit centre.
Foreign exchange
Foreign exchange volatility continues to be a significant factor in the reporting of the overall performance of the business
with the main functional currencies of the Group entities being Sterling, the Euro and the US Dollar.
In 2019, movements in exchange rates between Sterling and the Euro and the US Dollar provided a moderate net tailwind to the
reported performance of the Group with the highest impact coming from the Euro and US Dollar.
Year-on-year movements in foreign exchange rates increased our reported 2019 net fees by approximately £4.3 million and
operating profit by £1.2 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 2019 net fees by £2.0 million and £0.8 million, respectively, and
operating profit by £0.6 million and £0.2 million, respectively.
The Board considers it appropriate in certain cases to use derivative financial instruments as part of its day-to-day cash
management to provide the Group with protection against adverse movements in the Euro and US dollar during the settlement
period. The Group does not use derivatives to hedge translational foreign exchange exposure in its balance sheet and income
statement.
Principal Risks
Principal risks and uncertainties affecting the business activities of the Group will be detailed within the Strategic Report
section of the Group's 2019 Annual Report, a copy of which will be available on the Group's website 13 www.sthree.com.
Delivering on our strategy requires all parts of our business to work together. In isolation risk mitigation helps SThree
manage specific subjects and areas of the business. However, when brought into our day-to-day activities successful risk
management has helped us to maximise our competitive advantage and deliver on our strategic priorities in 2019. 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 2019
2019 2018
Before exceptional Exceptional Before Exceptional
items items Total exceptional items Total
items
Note £'000 £'000 £'000 £'000 £'000 £'000
Revenue 2 1,345,021 - 1,345,021 1,258,152 - 1,258,152
Cost of sales (1,002,669) - (1,002,669) (937,026) - (937,026)
Net fees 2 342,352 - 342,352 321,126 - 321,126
Administrative expenses 3 (282,326) (2,273) (284,599) (267,211) (6,397) (273,608)
Operating profit 4 60,026 (2,273) 57,753 53,915 (6,397) 47,518
Finance income 55 - 55 75 - 75
Finance costs (1,009) - (1,009) (743) - (743)
Gain on disposal of - - - 146 - 146
associate
Profit before taxation 59,072 (2,273) 56,799 53,393 (6,397) 46,996
Taxation 5 (15,908) 428 (15,480) (13,851) 1,127 (12,724)
Profit for the period
attributable 43,164 (1,845) 41,319 39,542 (5,270) 34,272
to owners of the Company
Earnings per share 7 pence pence pence pence pence pence
Basic 33.2 (1.4) 31.8 24.9 (4.1) 26.6
Diluted 32.3 (1.4) 30.9 29.7 (4.0) 25.7
consolidated statement of comprehensive income
for the year ended 30 November 2019
2019 2018
Note £'000 £'000
Profit for the period 41,319 34,272
Other comprehensive (loss)/income:
Items that may be subsequently reclassified to profit or loss:
Exchange differences on retranslation of foreign operations (3,892) 2,572
Items that will not be subsequently reclassified to profit or loss:
Net loss on equity instruments at fair value through other comprehensive income 1 (1,996) -
Other comprehensive (loss)/income for the period (net of tax) (5,888) 2,572
Total comprehensive income for the period attributable to owners of the Company 35,431 36,844
The accompanying notes on pages 20-30 form an integral part of this Financial Report.
consolidated statement of financial position
as at 30 November 2019
30 November 30 November
2019 2018
Note £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 6,804 6,915
Intangible assets 8,031 9,609
Investments 1 13 1,977
Deferred tax assets 4,167 2,750
19,015 21,251
Current assets
Trade and other receivables 270,350 285,618
Current tax assets 624 2,751
Cash and cash equivalents 8 15,093 50,844
286,067 339,213
Total assets 305,082 360,464
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital 1,326 1,319
Share premium 32,161 30,511
Other reserves (8,338) (5,275)
Retained earnings 91,622 75,116
Total equity 116,771 101,671
Non-current liabilities
Provisions for liabilities and charges 1,403 1,569
Current liabilities
Borrowings 9 - 37,428
Bank overdraft 8 4,538 17,521
Provisions for liabilities and charges 8,275 9,614
Trade and other payables 172,357 191,742
Current tax liabilities 1,738 919
186,908 257,224
Total liabilities 188,311 258,793
Total equity and liabilities 305,082 360,464
The accompanying notes on pages 20-30 form an integral part of this Financial Report.
consolidated statement of changes in equity
for the year ended 30 November
2019
Capital Currency Fair value Total equity
Share Share redemption Capital Treasury translation reserve of Retained attributable
capital premium reserve reserve reserve reserve equity earnings to owners of
investments the Company
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 1,317 (1,067) - 80,705
November 2017 28,806 168 878 (8,535) 59,138
Profit for the -
year - - - - - - 34,272 34,272
Other
comprehensive 2,572 -
income for the - - - - - - 2,572
year
Total
comprehensive 2,572 -
income for the - - - - - 34,272 36,844
year
Dividends paid
to equity 6 - - - - - - - (18,007) (18,007)
holders
Distributions
to tracker - - - - - - - (124) (124)
shareholders
Settlement of
vested tracker 4 1,306 - - 2,124 - - (3,306) 128
shares
Settlement of
share-based 2 399 - - 65 - - (65) 401
payments
Cancellation
of share (4) - 4 - - - - (1,468) (1,468)
capital
Purchase of
own shares by - - - - (1,484) - - - (1,484)
Employee
Benefit Trust
Credit to
equity for
equity-settled - - - - - - - 4,697 4,697
share-based
payments
Current and
deferred tax
on share-based 5 - - - - - - - (21) (21)
payment
transactions
Total
movements in 2 1,705 4 - 705 2,572 - 15,978 20,966
equity
Balance at 30 1,319 1,505 -
November 2018 30,511 172 878 (7,830) 75,116 101,671
Effect of a
change in 1 - - - - - - - (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
year - - - - - - 41,319
Other
comprehensive (3,892) (1,996) (5,888)
loss for the - - - - - -
year
Total
comprehensive (3,892) (1,996) 41,319 35,431
income for the - - - - -
year
Dividends paid
to equity 6 - - - - - - - (18,778) (18,778)
holders
Distributions
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 - - - - (2,506) - - - (2,506)
Employee
Benefit Trust
Credit to
equity for
equity-settled - - - - - - - 2,681 2,681
share-based
payments
Current and
deferred tax
on share-based 5 - - - - - - - 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 (2,387) (1,996) 91,622 116,771
November 2019 (5,005)
The accompanying notes on pages 20-30 form an integral part of this Financial Report.
consolidated statement of cash flows
for the year ended 30 November 2019
2019 2018
Note £'000 £'000
Cash flows from operating activities
Profit before taxation after exceptional items 56,799 46,996
Adjustments for:
Depreciation and amortisation charge 6,040 6,145
Accelerated amortisation and impairment of intangible assets - 709
Finance income (55) (75)
Finance cost 1,009 743
(Gain)/loss on disposal of property, plant and equipment (3) 8
Loss on disposal of subsidiaries - 70
Gain on disposal of associate - (146)
FX revaluation gain on investments - (26)
Non-cash charge for share-based payments 2,681 4,697
Operating cash flows before changes in working capital and provisions
66,471 59,121
Increase in receivables (8,020) (55,372)
(Decrease)/increase in payables (3,712) 30,116
Decrease in provisions (1,589) (3,796)
Cash generated from operations 53,150 30,069
Finance income 23 35
Income tax paid - net (12,958) (14,391)
Net cash generated from operating activities 40,215 15,713
Cash generated from operating activities before exceptional items 41,904 26,208
Cash outflow from exceptional items (1,689) (10,495)
Net cash generated from operating activities 40,215 15,713
Cash flows from investing activities
Purchase of property, plant and equipment (3,102) (3,161)
Purchase of intangible assets (1,455) (2,043)
Net cash used in investing activities (4,557) (5,204)
Cash flows from financing activities
(Repayments of)/proceeds from borrowings 9 (37,428) 25,428
Interest paid (894) (540)
Employee subscription for tracker shares 536 644
Proceeds from exercise of share options 327 401
Cancellation of share capital - (1,468)
Purchase of own shares (2,506) (1,484)
Dividends paid to equity holders 6 (18,778) (18,007)
Dividends paid to tracker shareholders (218) (116)
Net cash (used in)/generated from financing activities (58,961) 4,858
Net (decrease)/increase in cash and cash equivalents (23,303) 15,367
Cash and cash equivalents at beginning of the year 33,323 17,621
Exchange gains relating to cash and cash equivalent 535 335
Net cash and cash equivalents at end of the year 8 10,555 33,323
The accompanying notes on pages 20-30 form an integral part of this Financial Report.
Notes to the Financial Information
for the year ended 30 November 2019
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 2019 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 24
January 2020.
The auditors have reported on the Group's financial statements for the years ended 30 November 2019 and 30 November 2018 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 2018 were filed with
the Registrar of Companies and those for the year ended 30 November 2019 will be filed following the Company's Annual General
Meeting.
In 2019, 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 Financial Reporting Standards ('IFRSs')
and IFRS Interpretations Committee ('IFRS IC') as adopted and endorsed by the European Union and have been prepared under the
historical cost convention, as modified by financial assets held at fair value through profit or loss or held at fair value
through other comprehensive income.
The same accounting policies, presentation and computation methods are followed in this preliminary announcement as in the
preparation of the Group 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 and amended accounting standards
The Group adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers with effect from 1 December
2018. Information on the implementation of new accounting standards is included in the Group's financial statements - see note
1 New and amended accounting standards.
IFRS 9 Financial Instruments
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and
financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The
adoption of IFRS 9 resulted in changes in accounting policies; however, there were no adjustments to the amounts recognised in
the financial statements at 1 December 2018, due to the immaterial impact of IFRS 9.
On the date of initial application of IFRS 9, the Directors assessed which business models were applicable to the financial
assets held by the Group, and classified its financial instruments into the appropriate IFRS 9 categories: financial assets
held at fair value through profit or loss ('FVTPL'), financial assets held at fair value through other comprehensive income
('FVOCI'), and financial assets held at amortised cost (the latter comprise primarily 'Trade and other receivables'). The main
effects resulting from this reclassification were as follows:
FVTPL FVOCI (Available-for-sale 2018) Trade and other receivables
Financial assets - 1 December 2018 £'000 £'000 £'000
Closing balance 30 November 2018 - IAS 39* - 1,977 285,618
Reclassify debt investments from available-for-sale to FVTPL 435 (435) -
Reclassify equity investments from available-for-sale to - - -
FVOCI*
Adjustments arising from the adoption of IFRS 15 - - (13,017)
Opening balance 1 December 2018 - IFRS 9 435 1,542 272,601
* The closing balances as at 30 November 2018 show available-for-sale financial assets under FVOCI.
IFRS 15 Revenue from Contracts with Customers
Under IFRS 15, revenue from contracts with customers is recognised as or when the Group satisfies a performance obligation by
transferring a promised service to a customer. A service is transferred when the customer obtains control of that service.
The adoption of IFRS 15 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial
statements on 1 December 2018. In line with the transition provisions in IFRS 15, the Group adopted the refined revenue
recognition rules on the modified retrospective basis without restatement of comparatives. Under the modified transition
method, on 1 December 2018, a net (post tax) adjustment of £2.3 million was made to the opening balance of retained earnings,
to recognise a new policy of estimating accrued income.
The following adjustments were made to the amounts recognised in the statement of financial position at the date of initial
application:
IAS 18 carrying amount IFRS 15 carrying amount
Remeasure-ments
30 November 2018 1 December 2018
£'000 £'000 £'000
Trade and other receivables (Accrued income only) 78,741 (13,017) 65,724
Trade and other payables (Accruals) (107,105) 9,859 (97,246)
Current tax assets 2,751 814 3,565
Post-tax adjustment at the date of initial application of IFRS (2,344)
15
The impact on the Group's retained earnings at 1 December 2018 is as follows:
2018
£'000
Retained earnings prior to adjustment 75,116
Restatement of accrued income (13,017)
Restatement of accrued cost of sales 9,859
Tax adjustment to retained earnings from adoption of IFRS 15 814
Opening retained earnings 1 December post adoption of IFRS 15 72,772
Contract revenue ('accrued income') is recognised when the supply of professional services has been rendered. This includes an
assessment of professional services received by the client for services provided by contractors between the date of the last
received timesheet and the reporting end date. Accrued income is recognised as revenue for contractors where no timesheet has
been received, but the individual is 'live' on the Group's systems, or where a client has not yet approved a submitted
timesheet.
Previously, such accruals were systematically removed after a three-month cut-off date if no timesheet was received or no
customer approval was obtained. That policy of estimating accrued income/cost historically resulted in a portion of
revenue/cost being reversed (this is referred to as 'shrinkage').
Under IFRS 15, an amount of estimated Contract accrual can only be recognised if it is highly probable that a significant
reversal in the amount of recognised revenue will not occur in subsequent periods.
In line with this new requirement, to prevent the over-recognition of revenue, from 1 December 2018 the Group has applied the
historical shrinkage rate to the amount of accrued income/cost determined for unsubmitted or unapproved timesheets. As a
consequence, on 1 December 2018 the accrued income and cost would have been £13.0 million and £9.9 million lower respectively.
This resulted in a net adjustment to the opening balance of retained earnings of £3.1 million pre-tax.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance, its financial
position, cash flows, liquidity position and borrowing facilities are described in the strategic section of the Annual Report.
In addition, notes to the Group financial statements include details of the Group's treasury activities, funding arrangements
and objectives, policies and procedures for managing various risks including liquidity, capital management and credit risks.
The Directors have considered the Group's forecasts, including taking account of reasonably possible changes in trading
performance, and the Group's available banking facilities. Based on this review and after making enquiries, the Directors have
a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
For this reason, the Directors continue to adopt a going concern basis in preparing these financial statements and this
preliminary announcement.
2. SEGMENTAL ANALYSIS
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.
The Group segments the business into four reportable regions: United Kingdom & Ireland ('UK&I'), USA, Asia Pacific & Middle
East ('APAC & ME') and Continental Europe. The latter comprises DACH (Germany, Switzerland and Austria) and 'Benelux, France &
Spain' ('BFS'); both sub-regions were aggregated into one reportable segment based on the possession of similar economic
characteristics. DACH and BFS 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 (i. 'Freelance contractors', ii. Employed contractors,
and iii. 'Permanent' candidates)
the class of candidates (candidates, who we place with our clients, represent skill sets 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
to the Group financial statements in the summary of significant accounting policies.
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
2019 2018 2019 2018
£'000 £'000 £'000 £'000
Continental Europe 796,438 716,058 196,665 183,367
UK&I 249,708 268,031 48,191 53,144
USA 237,702 215,099 76,706 66,654
APAC & ME 61,173 58,964 20,790 17,961
1,345,021 1,258,152 342,352 321,126
Continental Europe primarily includes Austria, Belgium, France, Germany, Luxembourg, the 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 net fees and information about its segment assets (non-current assets
excluding deferred tax assets) by key location are detailed below:
Revenue Net fees
2019 2018 2019 2018
£'000 £'000 £'000 £'000
Germany 342,345 310,399 101,480 93,701
Netherlands 261,429 237,904 52,396 48,563
USA 237,702 215,099 76,706 66,654
UK 236,323 256,056 43,817 48,814
Other 267,222 238,694 67,953 63,394
1,345,021 1,258,152 342,352 321,126
Non-current assets
30 November 30 November
2019 2018
£'000 £'000
UK 11,160 14,354
Germany 949 1,060
USA 600 1,136
Netherlands 596 803
Other 1,543 1,148
14,848 18,501
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
2019 2018 2019 2018
£'000 £'000 £'000 £'000
Brands
Progressive 446,422 401,959 104,279 92,063
Computer Futures 400,184 362,958 103,533 96,672
Real Staffing Group 255,951 239,116 76,473 72,263
Huxley Associates 242,464 254,119 58,067 60,128
1,345,021 1,258,152 342,352 321,126
Other brands including Global Enterprise Partners, JP Gray, Madison Black, Newington International and Orgtel are rolled into
the above brands.
Recruitment classification
Contract 1,255,558 1,169,141 254,547 232,115
Permanent 89,463 89,011 87,805 89,011
1,345,021 1,258,152 342,352 321,126
Sectors
Technology 641,977 580,732 152,717 141,970
Life Sciences 207,738 195,102 67,841 66,250
Energy 181,521 169,018 39,150 33,452
Banking & Finance 151,917 180,122 37,923 42,454
Engineering 131,189 111,608 34,764 30,618
Other 30,679 21,570 9,957 6,382
1,345,021 1,258,152 342,352 321,126
Other includes Procurement & Supply Chain and Sales & Marketing.
3. ADMINISTRATIVE EXPENSES - EXCEPTIONAL ITEMS
CEO change costs
On 14 December 2018, the Group communicated to the market that the Chief Executive Officer, Gary Elden, would step down from
his role. After a rigorous recruitment process, the new Chief Executive Officer ('CEO'), Mark Dorman, joined the Group on 18
March 2019. This CEO change resulted in the exceptional charge of £1.2 million in 2019, mainly comprising contractual payments
to the departing CEO and recruitment fees.
Restructuring costs - Senior leadership restructuring
To continue to drive the Group growth plans, and deliver on our ambition to be the number one in our chosen STEM markets, a
number of key changes were made to the senior leadership structure (impacting UK&I, Benelux, Spain, MENA and France) in the
current year. These changes are expected to position the Group for a stronger growth by building upon the enhanced alignment
being put in place between these important markets and moving to a more efficient regional structure. These changes resulted in
the exceptional charge of £1.2 million in the current year.
Restructuring costs - Support function relocation
The expected benefits are being realised from the successful restructure and relocation of the majority of our London-based
support functions to our Centre of Excellence in Glasgow. This restructuring has realised cost savings in excess of £5.0
million per annum.
The restructuring resulted in the recognition of net exceptional income of £0.1 million in the current year. Personnel costs of
£0.3 million and property costs £0.3 million, offset by the government grant income of £0.7 million.
We do not expect to incur any further exceptional costs in respect of the move to Glasgow whilst the additional government
grant is anticipated to be received and recognised as exceptional income in the period through to the end of 2021.
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 2018. Disclosure
of items as exceptional, highlights them and provides a clearer, comparable view of underlying earnings.
Items classified as exceptional were as follows.
2019 2018
Exceptional items - charged to operating profit £'000 £'000
CEO change
Contractual payments for CEO departure 716 -
Recruitment and other professional fees 342 -
Double running costs 83 -
Relocation costs 60 -
Total - CEO change 1,201 -
Restructuring costs
Senior leadership restructuring 1,200 -
Support functions relocation
Staff costs and redundancy 318 4,075
Property costs 261 898
Other 14 1,842
Grant income (721) (418)
Total - Restructuring costs 1,072 6,397
Total net exceptional costs 2,273 6,397
4. OPERATING PROFIT
Operating profit is stated after charging/(crediting):
2019 2018
£'000 £'000
Depreciation 3,058 2,852
Amortisation 2,982 3,049
Accelerated depreciation - 244
Accelerated amortisation and impairment of intangible assets - 709
Foreign exchange gains (523) (644)
Staff costs 214,264 206,713
Movement in bad debt provision and debts directly written off 2,380 1,279
(Gain)/loss on disposal of property, plant and equipment (3) 8
Loss on disposal of intangible assets 51 62
Net exceptional restructuring costs 2,273 6,397
Net gain on disposal of subsidiaries and associate - (76)
Operating lease charges
- Motor vehicles 1,851 1,771
- Land and buildings 12,736 12,647
5. TAXATION
a. Analysis of tax charge for the year
2019 2018
Before
Exceptional Before exceptional
exceptional items Total items Exceptional items Total
items
£'000 £'000 £'000 £'000 £'000 £'000
Current taxation
Corporation tax charged/(credited) on 15,917 (428) 15,489 12,862 (1,127) 11,735
profits for the year
Adjustments in respect of prior periods 1,110 - 1,110 (541) - (541)
Total current tax charge/(credit) 17,027 (428) 16,599 12,321 (1,127) 11,194
Deferred taxation
Origination and reversal of temporary (678) - (678) 2,308 - 2,308
differences
Adjustments in respect of prior periods (441) - (441) (778) - (778)
Total deferred tax (credit)/charge (1,119) - (1,119) 1,530 - 1,530
Total income tax charge/ (credit) in the 15,908 (428) 15,480 13,851 (1,127) 12,724
income statement
b. Reconciliation of the effective tax rate
The Group's tax charge for the year exceeds (2018: exceeds) the UK statutory rate and can be reconciled as follows:
2019 2018
Before Exceptional Before Exceptional
exceptional items Total exceptional items Total
items items
£'000 £'000 £'000 £'000 £'000 £'000
Profit before taxation 59,072 (2,273) 56,799 53,393 (6,397) 46,996
Profit before taxation multiplied by the
standard rate of corporation tax in the UK at 11,223 (432) 10,144 (1,215) 8,929
19.00% (2018: 19.00%) 10,791
Effects of:
Disallowable items 756 4 760 988 88 1,076
Differing tax rates on overseas earnings 4,369 - 4,369 3,029 - 3,029
Adjustments in respect of prior periods 669 - 669 (1,319) -
(1,319)
Adjustment due to tax rate changes (246) - 816 -
(246) 816
Tax losses for which deferred tax asset was (863) - 193 -
derecognised (863) 193
Tax charge/(credit) for the year 15,908 (428) 15,480 13,851 (1,127) 12,724
Effective tax rate 26.9% 18.8% 27.3% 25.9% 17.6% 27.1%
c. Current and deferred tax movement recognised directly in equity
2019 2018
£'000 £'000
Equity-settled share-based payments
Current tax - (2)
Deferred tax 351 (19)
Tax adjustment on transition to IFRS 15 814 -
1,165 (21)
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 2019, a deferred tax asset of £1.9 million (2018: £0.9 million) has been
recognised in respect of these options.
Prior to the adoption of IFRS 15, income of £3.2 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.
6. DIVIDENDS
2019 2018
£'000 £'000
Amounts recognised as distributions to equity holders in the year
Interim dividend of 4.7p (2018: 4.7p) per share (i) 6,056 6,041
Final dividend of 9.8p (2018: 9.3p) per share (ii) 12,722 11,966
18,778 18,007
Amounts proposed as distributions to equity holders
Interim dividend of 5.1p (2018: 4.7p) per share (iii) 6,661 6,077
Final dividend of 10.2p (2018: 9.8p) per share (iv) 13,507 12,819
i. 2018 interim dividend of 4.7 pence (2017: 4.7 pence) per share was paid on 7 December 2018 to shareholders on record at 2
November 2018.
ii. 2018 final dividend of 9.8 pence (2017: 9.3 pence) per share was paid on 7 June 2019 to shareholders on record at 26 April
2019.
iii. 2019 interim dividend of 5.1 pence (2018: 4.7 pence) per share was paid on 6 December 2019 to shareholders on record at 1
November 2019.
iv. The Board has proposed a 2019 final dividend of 10.2 pence (2018: 9.8 pence) per share, to be paid on 5 June 2020 to
shareholders on record at 1 May 2020. This proposed final dividend is subject to approval by shareholders at the Company's
next Annual General Meeting on 20 April 2020, and therefore, has not been included as a liability in these financial
statements.
7. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share ('EPS') is set out below:
Basic EPS is calculated by dividing the earnings attributable to owners of the Company by the weighted average number of shares
in issue during the year excluding shares held as treasury shares and those held in the EBT which are treated as cancelled.
For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion of dilutive potential shares.
Potential dilution resulting from tracker shares takes into account profitability of the underlying tracker businesses and
SThree plc's earnings per share. Therefore, the dilutive effect on EPS will vary in future periods depending on any changes in
these factors.
2019 2018
£'000 £'000
Earnings
Profit for the year after tax and before exceptional items 43,164 39,542
Exceptional items net of tax (1,845) (5,270)
Profit for the year attributable to owners of the Company 41,319 34,272
million million
Number of shares
Weighted average number of shares used for basic EPS 129.9 128.7
Dilutive effect of share plans 3.7 4.4
Diluted weighted average number of shares used for diluted EPS 133.6 133.1
2019 2018
pence pence
Basic
Basic EPS before exceptional items 33.2 30.7
Impact of exceptional items (1.4) (4.1)
Basic EPS after exceptional items 31.8 26.6
Diluted
Diluted EPS before exceptional items 32.3 29.7
Impact of exceptional items (1.4) (4.0)
Diluted EPS after exceptional items 30.9 25.7
8. CASH AND CASH EQUIVALENTS
2019 2018
£'000 £'000
Cash at bank 15,093 50,844
Bank overdraft (4,538) (17,521)
Net cash and cash equivalents per the consolidated statement of cash flow 10,555 33,323
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 three cash pooling arrangements in place at HSBC US (USD), NatWest (GBP) and Citibank (EUR).
9. BORROWINGS
The Group has access to a committed Revolving Credit Facility ('RCF') of £50.0 million along with an uncommitted £20.0 million
accordion facility in place with HSBC and Citibank, giving the Group an option to increase its total borrowings under the
facility to £70.0 million. The funds borrowed under the facility bear interest at a minimum annual rate of 1.3% (2018: 1.3%)
above the appropriate Sterling LIBOR. The average interest rate paid on the RCF during the year was 2.0% (2018: 1.8%). The
Group also has an uncommitted £5.0 million overdraft facility with HSBC.
At the year end, the Group had drawn down £nil (2018: £37.4 million) on these facilities.
The RCF is subject to certain covenants requiring the Group to maintain financial ratios over interest cover, leverage and
guarantor cover. The Group has been in compliance with these covenants throughout the year. RCF facility is available under
these terms and conditions until April 2023.
Analysis of movements in borrowings is set out below.
£'000
At 1 December 2017 12,000
Net drawings during the year 25,967
Changes to carrying amount due to RCF refinancing (1) (539)
At 30 November 2018 37,428
Net repayments during the period (37,313)
Changes to unamortised transaction costs (115)
At 30 November 2019 -
1. In 2018, £0.5 million represented the unamortised amount of transaction costs including those incurred on renegotiating the
facility.
The carrying amount of the Group's borrowing, comprising the RCF, approximates its fair value. The fair value of the RCF is
estimated using discounted cash flow analysis based on the Group's current incremental borrowing rates for similar types and
maturities of borrowing and is consequently categorised in level 2 of the fair value hierarchy.
10. ALTERNATIVE PERFORMANCE MEASURES
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 and CEO change costs, which are considered as items
impacting comparability, due to their nature.
Reconciliation of adjusted financial indicators
2019
Revenue Net fees Administrative expenses Operating profit Profit before Tax Profit after Basic EPS
tax tax
£'000 £'000 £'000 £'000 £'000 £'000 £'000 pence
As reported 1,345,021 342,352 (284,599) 57,753 56,799 (15,480) 41,319 31.8
Exceptional costs - - 2,273 2,273 2,273 (428) 1,845 1.4
Adjusted 1,345,021 342,352 (282,326) 60,026 59,072 (15,908) 43,164 33.2
2018
Operating Profit Profit Basic
Revenue Net fees Administrative expenses profit before tax Tax after EPS
tax
£'000 £'000 £'000 £'000 £'000 £'000 £'000 pence
As reported 1,258,152 321,126 (273,608) 47,518 46,996 (12,724) 34,272 26.6
Exceptional costs - - 6,397 6,397 6,397 (1,127) 5,270 4.1
Adjusted 1,258,152 321,126 (267,211) 53,915 53,393 (13,851) 39,542 30.7
APMs in constant currency
As we are operating in 16 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 annual report, we highlighted comparable results on a constant currency basis as well as
the audited results ('on a reportable 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 budgeted foreign exchange rates to current and prior financial year results to remove the impact of exchange rate. (Two
main budgeted foreign exchange rates were GBP:EUR of 1.25 and GBP:USD of 1.40). 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 constant currency basis and the reconciliation to the most directly related measures calculated
in accordance with IFRS are as follows:
2019
Revenue Net fees Operating profit Operating profit conversion Profit before tax Basic EPS
ratio*
£'000 £'000 £'000 £'000 pence
Adjusted 1,345,021 342,352 60,026 17.5% 59,072 33.2
Currency impact (100,118) (26,449) (8,585) (1.2%) (8,584) (4.8)
Adjusted in constant 1,244,903 315,903 51,441 16.3% 50,488 28.4
currency
2018
Revenue Net fees Operating profit Operating profit conversion Profit before tax Basic EPS
ratio*
£'000 £'000 £'000 £'000 pence
Adjusted 1,258,152 321,126 53,915 16.8% 53,393 30.7
Currency impact (80,000) (21,075) (6,863) (1.1%) (7,008) (4.0)
Adjusted in constant 1,178,152 300,051 47,052 15.7% 46,385 26.7
currency
* Operating profit conversion ratio represents operating profit over net fees
Other APMs
Net debt
Net debt is an APM used by the Directors to evaluate the Group's capital structure and leverage. Net debt is defined as current
and non-current borrowings, plus bank overdraft less cash and cash equivalents, as illustrated below:
2019 2018
£'000 £'000
Borrowings - (37,428)
Bank overdraft (4,538) (17,521)
Cash and cash equivalents 15,093 50,844
Net cash/(debt) 10,555 (4,105)
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 below illustrating how adjusted cash conversion ratio is calculated. 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 Company's profit for the year
attributable to owners of the Company over the total dividend paid to ordinary shareholders.
2019 2018
Profit for the year attributable to owners of the Company (£'000) A 41,319 34,272
Dividend paid to shareholders (£'000) B 20,168 18,778
Dividend cover (A÷B) 2.0 1.8
Contract margin
The Group uses Contract margin as an APM to evaluate Contract business quality and the service offered to customers. Contract
margin is defined as Contract net fees as a percentage of Contract revenue.
2019 2018
Contract net fees (£'000) A 254,547 232,115
Contract revenue (£'000) B 1,255,558 1,169,141
Contract margin (A÷B) 20.3% 19.9%
Consultant yield
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 sales headcount over a factor of 12.
2019 2018
Total net fees (£'000) A 342,352 321,126
Average sales headcount B 2,423 2,254
Consultant yield (£'000) (A÷B) ÷12 11.8 11.9
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 are calculated by
the external independent data-stream party.
2019 2018
SThree plc TSR return index value
197.00 266.85
(three-month average to 30 Nov 2016 (2018: 30 Nov 2015) (pence)
SThree plc TSR return index value
262.41 284.75
(three-month average to 30 Nov 2019 (2018: 30 Nov 2018) (pence)
Total shareholder return 33.2% 6.7%
Cash conversion ratio
The Group uses 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 capex, stated as a percentage of operating profit.
The following table illustrates how adjusted cash conversion ratio is calculated.
2019
Operating profit Operating non-cash Changes in working Cash generated from operations Capex Cash conversion
items* capital ratio
A B C (B+C) ÷A
£'000 £'000 £'000 £'000 £'000
As reported 57,753 8,718 (13,321) 53,150 (4,557) 84.1%
Exceptional costs 2,273 (518) (79) 1,676 - n/a
Adjusted 60,026 8,200 (13,400) 54,826 (4,557) 83.7%
* Operating non-cash items represent primarily depreciation, amortisation and impairment of intangible assets and the employee
share option and performance share costs in line 'Non-cash charge for share-based payments' of the Consolidated Statement of
Cash Flows.
2018
Operating profit Operating non-cash Changes in working Cash generated from operations Capex Cash conversion
items* capital ratio
A B C (B+C) ÷A
£'000 £'000 £'000 £'000 £'000
As reported 47,518 11,603 (29,052) 30,069 (5,204) 52.3%
Exceptional costs 6,397 (503) 4,644 10,538 1,000 n/a
Adjusted 53,915 11,100 (24,408) 40,607 (4,204) 67.4%
* Operating non-cash items represent primarily depreciation, amortisation and impairment of intangible assets and the employee
share option and performance share costs in line 'Non-cash charge for share-based payments' of the consolidated cash flow
statement.
11. ANNUAL REPORT AND ANNUAL GENERAL MEETING
The 2019 Annual Report and Notice of 2020 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 20 April 2020.
═══════════════════════════════════════════════════════════════════════════════════════════════════════════════════════════════
14 1 * In constant currency
* In constant currency
15 3 * In constant currency
* In constant currency
* In constant currency
* In constant currency
* In constant currency
* In constant currency. For more details on APM, refer to Alternative Performance Measures in note 10
* In constant currency
(1) For details on dividend cover, its definition and how it was calculated, refer to Alternative Performance Measures in note
10
* In constant currency
(2) For details on cash conversion, its definition and how it was calculated, refer to Alternative Performance Measures in note
10
(3) For details on EBITDA, its definition and how it was calculated, refer to Alternative Performance Measures in note 10
═══════════════════════════════════════════════════════════════════════════════════════════════════════════════════════════════
ISIN: GB00B0KM9T71
Category Code: FR
TIDM: STEM
LEI Code: 2138003NEBX5VRP3EX50
Sequence No.: 42733
EQS News ID: 961229
End of Announcement EQS News Service
══════════════════════════════════════════════════════════════════════════
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