REG - SThree plc - RESULTS FOR THE SIX MONTHS ENDED 31 MAY 2023
25/07/2023 07:00
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RNS Number : 0267H SThree plc 25 July 2023
SThree plc
RESULTS FOR THE six months ENDED 31 MAY 2023
Resilient performance in H1 driven by our contract business
SThree plc ('SThree' or the 'Group'), the only global pure-play specialist
staffing business focused on roles in Science, Technology, Engineering and
Mathematics (STEM), today announces its financial results for the six months
ended 31 May 2023.
FINANCIAL HIGHLIGHTS
HALF-YEAR HIGHLIGHTS
· A resilient performance, with Group net fees down 2% YoY(3) on a constant
currency basis, against the strong post-Covid comparative period (H1 FY22 YoY
growth: 25%) and backdrop of global macro-economic conditions.
o Across our three largest countries: Netherlands up 3%, Germany down 1% and USA
down 11%, together accounting for 73% of net fees.
o Growth seen across Technology, up 1% and Engineering, up 17%, while Life
Sciences was down 21% driven by global sector trends.
· Reflecting both our strategic focus on flexible talent together with global
market conditions, Contract net fees were up 3%, supported by strong
extensions, robust pricing and increased contract lengths, while Permanent was
down 19%.
· Contract net fees represented 81% of Group net fees (H1 FY22: 77%), with the
contractor order book(4) value of £190.3 million, which is flat YoY,
providing good visibility for the remainder of FY23.
· Margin of 18.3% remains above FY22 levels delivering profit before tax of
£38.5 million, down 20% YoY (H1 FY22: £44.3 million), due to the planned
investment in the Technology Improvement Programme and headcount.
· Strong balance sheet, with £72.4 million in net cash as at 31 May 2023 (H1
FY22: £48.4 million).
· Interim dividend approved at 5.0 pence per share (H1 FY22: 5.0 pence). We
intend to remain in line with our dividend policy of cover in the range of
2.5x to 3.0x for the full year.
· Technology Improvement Programme on track and on budget, with the integrated
platform passing through business user testing with excellent feedback.
o Key to delivering a differentiated proposition within the market, driving both
scale and higher margins over the mid-to-long term.
o Phased geographical roll out on track to commence in H2 FY23, onto which
SThree's bespoke methodologies will be layered to systematise best practice,
improve data and workflows.
· Sustainable business practice and ESG commitments demonstrated by:
o Over 17,375 lives positively impacted in H1 FY23 (H1 FY22: 16,540).
o SThree's renewables business up 29% versus H1 FY22 (H1 FY22: up 22% versus H1
FY21).
o 44% carbon reduction in FY22(5) in comparison to 2019, our baseline year for
our SBTi net zero target.
o 33% of women (H1 FY22: 30%) in leadership as we progress towards achieving our
ambition of 50/50 representation in leadership.
((1)) Variance compares reported H1 FY23 against reported H1 FY22 on a
constant currency basis, whereby the prior financial period foreign exchange
rates are applied to current and prior financial period results to remove the
impact of exchange rate fluctuations.
((2)) Net cash represents cash and cash equivalents less borrowings and bank
overdrafts and excluding leases.
((3)) All YoY growth rates in this announcement are expressed at constant
currency.
((4)) The contractor order book represents value of net fees until contractual
end dates, assuming all contractual hours are worked.
((5)) Target not measured at mid-year.
Timo Lehne, Chief Executive, commented:
"Our focus on STEM and flexible talent has delivered a resilient performance
in the first half of the year against strong comparatives and macro-economic
headwinds. This was underpinned by the Group's strategic focus on Contract,
which grew 3%, following robust extensions and pricing as companies commit to
holding on to required skills in the face of ongoing acute shortages.
We have made excellent progress against the four pillars of our strategy to
ensure the business has the right people, structures and processes to support
the next phase of our growth. The rollout of our Technology Improvement
Programme is on track and on budget, and will be a key enabler in us
delivering a unique proposition within the market, driving both scale and
higher margins over the mid-to-long term.
The macro-economic backdrop remains unpredictable in the short-term, however
our established leadership position and progress with our Technology
Improvement Programme leaves us more confident than ever in our growth
strategy."
Analyst conference call
SThree is hosting a webinar for analysts and investors today at 08:30 BST to
present the Group's results for the six months ended 31 May 2023. If you would
like to register for the conference call, please contact SThree@almapr.co.uk
(mailto:SThree@almapr.co.uk) .
SThree will issue its Q3 trading update on 19 September 2023.
Enquiries:
SThree plc
Timo Lehne, CEO
via Alma
Andrew Beach, CFO
Alma PR
+44 20 3405 0205
Hilary Buchanan
Sthree@almapr.co.uk (mailto:Sthree@almapr.co.uk)
Sam Modlin
Will Ellis Hancock
Notes to editors
SThree plc brings skilled people together to build the future. We are the only
global specialist talent partner focused on roles in STEM, providing permanent
and flexible contract talent to a diverse base of over 8,200 clients across 14
countries. Our Group's c.2,800 staff cover the Technology, Life Sciences and
Engineering sectors. SThree is part of the Industrial Services sector. We are
listed on the Premium Segment of the London Stock Exchange's Main Market,
trading with ticker code STEM.
Important notice
Certain statements in this announcement are forward looking statements. By
their nature, forward looking statements involve a number of risks,
uncertainties or assumptions that could cause actual results or events to
differ materially from those expressed or implied by those statements. Forward
looking statements regarding past trends or activities should not be taken as
representation that such trends or activities will continue in the future.
Certain data from the announcement is sourced from unaudited internal
management information and is before any exceptional items. Accordingly, undue
reliance should not be placed on forward looking statements.
Chief Executive Officer's STATEMENT
Resilient performance and strategic progress
The Group's resilient performance in the first half is underpinned by our
strategic and well executed focus on sourcing and placing highly skilled,
flexible STEM talent. With a backdrop of macro-economic headwinds and an
exceptional prior-year performance, to have delivered the same scale of
business well above pre-pandemic levels whilst progressing our Technology
Improvement Programme in line with plan, on track and on budget, is testament
to the quality and commitment of our global teams.
Our specialism in both STEM skills and new ways of working provides a
differentiated proposition to clients and candidates and a unique business
model aligned to long-term structural opportunities. With these complementary
pillars as the Group's bedrock, built over decades of industry experience, we
have made meaningful strides during the period in progressing our strategic
initiatives to build a more effective, customer-focussed, responsible and
purposeful business for long-term sustainable growth.
Unique and robust business model through uncertain and volatile markets
Through the first half of FY23, unprecedented market dynamics that commenced
at the end of the previous financial year, including high inflation and rising
costs of living coupled with low unemployment, drove varying impacts across
our global markets and skill disciplines, resulting in an overall softer
macro-economic outcome. Whilst our clients paused to assess near-term outlook
and their own investment and expansion plans, which is reflected in our lower
new placement activity, Contract extensions remained robust, including a 20%
YoY increase in average contract length coupled with steady pricing levels.
This demonstrates clients' commitment to retaining highly sought after skills
in the face of supply challenges and the quality of our business model.
Overall, the Group's net fee performance of £208.6 million represents a 2%
constant-currency decrease against peak prior year levels (H1 FY22: 25% growth
to £203.1m). The performance was driven by our strategic focus on Contract,
now representing 81% of Group net fees, which increased 3% following growth
across the majority of our regions. Within this, our Employed Contractor Model
(ECM), whereby contractors are directly employed by SThree for the duration of
the contract, is an increasing trend and driver of our performance,
representing 45% of all Contract work undertaken by the Group (H1 FY22: 43%).
It continues to be the predominant model in the US, and is fast-growing across
Europe, which is why the introduction of automation to ECM processes, enabling
scale, is a key aspect of the Technology Improvement Programme. This was
offset by our Permanent business, down 19% on a like-for-like basis,
reflecting global market conditions and the continuing strategic investment
into Contract in several markets.
Reported operating profit for the period was £38.1 million (H1 FY22: £44.6
million) driven by a resilient performance in net fees but offset by higher
operating expenses, up 8% YoY on a reported basis, including the investment in
the Technology Improvement Programme (£2.6m expensed in the period) which
commenced in the second half of FY22. We continue to invest modestly in
headcount, up 5% YoY, targeted towards Contract in specific niches, and the
phased investment in our strategic priorities is on track. We have seen some
normalisation of productivity from the exceptional levels experienced in H1
FY22 as new hires come on board, however it remains 28% above pre-pandemic
levels achieved in H1 FY19, and once our Technology Improvement Programme is
rolled out across the whole organisation we expect productivity to increase.
Building a world-class STEM talent partner through strategy and execution
Our vision is unchanged: to be the #1 STEM talent partner in the best STEM
markets and in doing so, build a business with scale and sustainable margins.
The Group has achieved considerable success toward this vision since its
founding almost 40 years ago through entrepreneurial drive and execution,
helping candidates realise their career ambitions and businesses succeed with
access to the skills they require.
Building on this heritage, we are now focused on preparing the business with
the right people, structures and processes to support its next growth
evolution. The strength of our business platform, combining global scale with
the flexibility of an agile business able to deploy resources as appropriate,
continues to provide robust foundations from which we have advanced our
disciplined and focused strategy - centred on four strategic pillars: our
Places, our Platform, our People and our Position.
Following extensive assessment and planning in the prior year, I am delighted
with the progress we are making against all four as we move through the
execution phase. The opportunity to standardise best practice, accelerate
speed to productivity and drive efficiencies through the organisation and work
closer together as a global team to the benefit of all our stakeholders is
huge, and we are excited about the prospects ahead.
Our Places - to be a leader in the markets we choose to serve
With an overall strategy geared toward STEM and Contract, we have a unique and
targeted mix of skills and markets, which we continuously assess through a
data-driven approach. The markets and disciplines we operate in are deliberate
and strategic, and whilst there may be variances across these over time as was
the impact from Life Science in this period offset by strong Engineering
performance, we have chosen our focus areas based on where we see long-term
structural opportunities. We concentrate efforts on those niches with the
highest demand for STEM specialists and limited supply and where we can
generate the highest returns.
We remain well-positioned in the world's top five STEM markets, representing
74% of the £112 billion global opportunity, being the USA, Germany, UK, Japan
and Netherlands. In line with our market investment model, we saw scope to
make our operating structure and regional presence less complex and more
focussed in those markets that offer the greatest growth opportunities for our
unique proposition. As part of this, we took the decision to restructure our
position in some markets, such as Singapore, Ireland and Hong Kong,
streamlining our focus further.
Additionally, we continued to apply pricing discipline in our markets while
inflationary pressures remained, strengthening our commercial discipline to
ensure contractor rates are in line with market rates. Our focus continues to
be on improving the quality of our market insights to support our
decision-making.
Our Platform - create a world class operational platform through data,
technology and infrastructure
We continue to make great progress with the strategic investment in our
Technology Improvement Programme, where we saw significant scope to
re-engineer, simplify and automate some of our most manual and complex
processes. We believe these improvements, along with implementing and
systemising best practice across the Group, will create a platform of
operational excellence and an environment which will ultimately improve the
experience and outcomes for our candidates and clients.
The programme has moved from detailed planning into execution mode, and in
line with our previously announced plans, is on track with budget. During the
first half, we engaged with leaders across all sections of the business at our
design conference in London, following which we completed phase one
development and progressed through business user testing with strong positive
feedback.
We are in the final stages of preparation for market rollout starting later in
FY23, commencing with the US followed by Germany, with other markets scheduled
for FY24. We are excited about the future as a modern and innovative business,
with the potential to leverage new technologies as appropriate and put
ourselves in a unique position to win.
Our People - find, develop and retain great people
Our commitment to creating an environment to support our people whereby they
can fulfil their potential is fundamental to the success of the business.
Building on achievements last year, including the launch of our leadership
behaviour framework, we continue to focus our efforts on initiatives that will
unite our global teams closer together and ensure our culture moves forward
with the evolution of the business.
Key areas of focus during the first half of the year included the continued
rollout of our 'Leading with Purpose' programme, with the ambition to upskill
all people managers across the Group on the four essential roles of
leadership; continued assessment and refinement of our compensation framework
and improved reward communication; implementation of new succession planning
and career pathways processes; and employee engagement surveys which attracted
81% engagement across the Group. We also bolstered our leadership team in this
area with the appointment of a new CPO, ensuring we have the support and
bandwidth in place to deliver on this mission.
As we look ahead, we will continue to invest in capabilities, tools and
initiatives to attract and retain the best talent, such as supporting hybrid
working through our Future Office property redesign programme. In H2 we will
be focusing on our Future Culture programme with global workshop events across
regions to co-design the Company's values with employees.
Our Position - leveraging our position in STEM to deliver sustainable value to
our candidates and clients
SThree enjoys a strong and established position in our core markets, serviced
through our 'House of Brands' approach with high brand value in the niches we
operate. As we look to leverage this position to grow share in our target
markets, we have further enhanced our efforts in elevating our leadership
position, building further on our refreshed brand identity launched in the
prior year.
Key developments in the period include new thought leadership campaigns
centred on the future of the world of STEM and how global megatrends,
including decarbonisation and digitalisation, are shaping our
future. Findings from our research conducted across our extensive STEM talent
network, 'How the STEM World Evolves', provide insights on topics such as
flexible working expectations, job security and pay risk appetite, job
priorities and career ambitions, ensuring we remain well attuned to the
evolving sentiment within our target markets.
Other areas of focus include our Elevate Careers programme, which sees us work
alongside community partners, clients, internal stakeholders, and leadership,
to create immediate action that will build a more diverse, inclusive, and
sustainable future, for historically underrepresented STEM talent communities.
We also continue to refresh and upgrade our digital assets in the markets in
which we operate to drive brand awareness, as well as work towards the closer
alignment of marketing and sales in our regions.
Our established position at the centre of STEM has enabled us to deliver
excellent results for our clients. Examples of our work include:
· Staffing support for a global renewable construction company to build a major
wind farm in the US to remove nearly 2 million tons of carbon dioxide
emissions annually. SThree was able to deploy the right skilled talent
quickly, thanks to extensive niche sector expertise, which made it easier for
the project owner to keep momentum going even through design revisions. The
wind farm became operational on schedule and as planned, demonstrating
SThree's dedication to helping renewable energy companies rise above
expectations and succeed through challenges.
· Delivering customer staffing solutions for one of the world's largest medical
devices company. The customer required quality candidates with a quick
turnaround in a highly competitive market, often with few briefing details on
the type of candidate required. The SThree team ensured they became experts
across the niche roles required, including clinical, finance and accounting,
regulatory and IT engineering, and, with the help of leveraging qualitative
data, have been able to fill 693 positions, with 1 out of 2 interviews leading
to a filled role. The longevity working with this client and SThree's position
as a market expert by providing invaluable data has resulted in a trusting and
long-lasting partnership.
We remain committed to continuously improving and evolving the way we interact
with our candidate and client communities, ensuring we continue to serve our
stakeholders as a trusted STEM talent partner.
Creating a sustainable future for everyone
SThree brings STEM professionals together to build a sustainable future. From
placing engineers who build wind turbines to providing skilled people to
enhance medical research, STEM talent continues to play a vital role in
tackling the most complex issues facing our world.
Our commitment to our ESG goals remains strong as we navigate the complexity
of the multiple challenges we now operate within. As the world continues to
shift and change in response to complex global issues, we continue to remain
focused on delivering value to all stakeholders. With clear targets and
metrics, we hold ourselves accountable to deliver the right outcomes for
everyone, mitigating social and climate risks, delivering social value and
contributing to business performance.
We remain focused on addressing the STEM skills gap through diversifying the
talent pipeline and contributing to social mobility and equity in the STEM
industries we partner with. To demonstrate our commitment to building a
diverse STEM talent pipeline we made a donation of £86,000 to Women Who Code
and have delivered three events with them in H1 FY23 to support women to
progress their career in tech. Our Elevate Careers programme provided
developing, coaching and mentoring support to 1,853 existing and aspiring STEM
professionals in the first half of FY23.
In our FY22 Impact Report we announced our Science Based Target initiative
(SBTi) validated near-term and long-term targets to achieve net zero before
2050. In FY23 we continue to make progress to deliver a robust transition plan
for the business which will be detailed in our Annual Report and Accounts for
FY23.
Further details of our net zero targets and wider ESG commitments can be found
in our Impact Report on our website. Below details the progress we have made
against our stated ESG targets during the first half of the current year (2019
baseline year):
To positively impact 150,000 lives by 2024 To double the share of our global clean energy business by 2024 To reduce our scope 1 and 2 emissions by 77% and reduce scope 3 emissions by To increase representation of women in leadership to 50/50
50% by 2030
Progress 106,116 lives positively impacted by SThree since 1 Dec 2019. 88% growth in clean energy business as of 2022, tracking ahead of -44% reduction in scope 1, 2 and 3 CO(2) emissions* in 2022 from 2019 33% women currently in leadership positions
expectations. (baseline)
FY23 half year activities 17,375 lives positively impacted: 29% growth in our renewables business net fees in H1 FY23 YoY. Continued to develop our transition plan with key actions to green our office Launched our talent accelerator programme, Identify, with the third group of
portfolio, minimise emissions from travel and engage suppliers in scope 3 aspiring women leaders.
7,897 accessed decent work through SThree placements 132% growth in our renewable business net fees since 2019 (baseline) reductions.
414 people at risk of unemployment accessed our Career Support
Initiatives.
1,853 existing and aspiring STEM professionals accessed Elevate Careers; a
STEM skills development programme to build a diverse talent pipeline
Alignment to strategic pillars Our People Our Places Our Platform Our People
Our Position
Relevant UN Sustainable Development Goals SDG 4. Quality Education SDG 7. Affordable and clean energy SDG 13. Climate action SDG 10. Reduced inequalities
SDG 8. Decent Work and economic growth SDG 13. Climate action
SDG 10. Reduced inequalities SDG 17. Partnerships for the goals
* Full SECR reporting is available in our FY22 Annual Report and Accounts.
Current trading and outlook: poised for the medium-term opportunity
We look ahead to our mid-term opportunities with optimism and believe our
focus and strategy is right for long-term success. Our specialism in scarce
STEM talent and new ways of working provides a differentiated proposition to
clients and candidates and a unique business model aligned to long-term
structural drivers.
Macro conditions continue to be varied as we enter the second half, however
contract extensions remain strong as our customers seek to retain scarce
skills to ensure they do not jeopardise future growth prospects. Furthermore,
in June we saw a modest improvement in new placement activity, which itself
was slightly ahead of the second quarter average. It is too early to know
whether this is an improving trend, but we will continue to monitor and
respond to activity levels over the coming months.
We are trading in line with market expectations for the full year, supported
by strong contract extensions and robust pricing, leading to continued
resilience of our contractor order book. We expect to deliver sector leading
operating margins, notwithstanding investment in both infrastructure and
strategic headcount to ensure we remain well positioned for when market
conditions improve.
Group OPERATIONAL REVIEW
Overview
The Group has delivered a resilient net fee performance in the first half of
FY23 with net fees down 2% YoY against the strong post-Covid peak performance
in H1 of FY22.
Our Contract business, which is our main strategic area, grew net fees by 3%
YoY and now represents 81% of the Group net fees. The contractor order book is
flat YoY as strong extensions performance has continued to offset the new
placement performance in a more challenging macro-economic environment.
Permanent net fees were down 19% YoY reflecting both global market conditions
and tough comparatives, particularly in Life Sciences, together with our
targeted investment towards Contract in specific markets.
From a skills perspective, most notable during the first half has been the
impact of reduced expenditure in the Global Life Sciences sector, which has
affected the performance of most markets, with the greatest exposure and
impact on our USA business. As a result, we saw a decline in Life Sciences
net fees of 21% across the Group, though this was mostly offset by increases
in Technology, up 1%, and Engineering, up 17%.
Overall, Group reported operating profit was £38.1 million (H1 FY22: £44.6
million), down 22% YoY as productivity levels have normalised since H1 FY22,
with average headcount up 5% YoY, and we commenced the investment in our
Technology Improvement Programme from the second half of last year.
The 5% increase in our average headcount reflects a 9% increase in Contract
headcount, partly offset by a 10% decline in Permanent headcount as we
continue to invest strategically in specific markets. Period-end headcount
declined 9% compared to the end of FY22, including the reductions related to
the restructure of our Singapore, Hong Kong and Ireland businesses. Excluding
these countries, period-end headcount declined by 7%.
Update and evolution of 2024 ambitions
In line with our 2024 ambitions announced at our Capital Markets Day in 2019
to deliver growth and value for our Group and all stakeholders, we continue to
make good progress in the period in our journey to become the number one STEM
talent provider in the best global STEM markets. Our key achievements so far
in this financial period included:
· We remain ahead of our peer group in all core geographies on the net fee
growth basis vs FY19.
· Achieved an operating profit conversion ratio of 18.3% in H1 FY23. Our
underlying conversion ratio, both before and after costs associated with the
Technology Improvement Programme, continues to considerably exceed our
pre-Covid performance. We remain committed to our ambition of achieving
margins at 21% or higher in the mid to long term, however we expect current
macro-economic headwinds to dampen margin progression in the short term.
· Reduced our carbon emissions by 44% versus 2019.
· Group-wide eNPS was 47 at H1 FY23; supported by DE&I networks and the
launch of the third cohort of the Identify leader programme, our eNPS remains
within the top 25% of a Professional Services industry.
· In the fight against climate change, we launched several actions to educate
and influence sustainable behaviours across the business to ensure we make
progress towards our SBTi net zero targets which were announced in April 2023.
We also grew our renewables business by 29% YoY, to represent 9% of Group net
fees at H1 FY23.
· Positively impacted over 17,375 lives through delivering recruitment solutions
and community programmes in H1 FY23 alone.
Group net fees % of Group H1 FY23 H1 FY22 Variance
(£'000) (£'000)
Reported Like-for-like ((1))
Geographical mix((2))
DACH 36% 74,476 70,489 +6% -
USA 23% 49,364 51,683 -4% -11%
Netherlands (including Spain) 19% 39,381 35,884 +10% +5%
Rest of Europe 17% 35,178 35,377 -1% -2%
Middle East & Asia 5% 10,192 9,620 6% +6%
Total 100% 208,591 203,053 +3% -2%
Skills mix
Technology 49% 101,712 96,339 +6% +1%
Engineering 24% 51,223 41,679 +23% +17%
Life Sciences 19% 38,958 46,293 -16% -21%
Other 8% 16,698 18,742 -11% -14%
Total 100% 208,591 203,053 +3% -2%
Service mix
Contract 81% 169,982 156,944 +8% +3%
Permanent 19% 38,609 46,109 -16% -19%
Total 100% 208,591 203,053 +3% -2%
(1) All YoY growth rates in this announcement are expressed at constant
currency.
(2) In Q1 FY23, SThree has changed its reporting structure. The new
groupings are: DACH, Netherlands (including Spain, which is managed from the
Netherlands), Rest of Europe, USA and Middle East & Asia.
Business mix
The Group is well diversified, both geographically and by the skills we place
across multiple sectors. Our top three countries represent 73% of Group net
fees, with Germany accounting for 31%, USA 23% and the Netherlands 18% of
Group net fees.
Our Contract business grew 3% YoY on a like-for-like basis, and now represents
81% of Group Net Fees. Our Permanent business, which now represents 19% of
net fees, saw net fees decline 19% in the period, reflecting market conditions
across all regions, together with the strategic transition from Permanent to
Contract in some of our key markets.
Technology, which represents 49% of net fees grew 1% YoY, while Engineering
(24% of net fees) grew 17%. These were offset by the decline in Life
Sciences of 21% due to reduced global expenditure in that sector. Life
Sciences now represents 19% of Group net fees.
Operational review by reporting segment
DACH (36% of Group net fees)
H1 FY23 H1 FY22 Variance
Performance highlights Reported Like-for-like
Revenue (£'000) 264,512 258,144 +2% -4%
Net fees (£'000) 74,476 70,489 +6% -
Average total headcount (FTE) 907 848 +7% n/a
NPS 58 57 +1pts n/a
DACH is our largest region comprising businesses in Austria, Germany and
Switzerland, with Germany accounting for 88% of net fees.
The region saw net fees remain flat YoY, with our Technology business up 2%
and Engineering business up 16% YoY. Technology was driven by higher demand
for roles within Cyber Security and Software Development, while Engineering
saw demand for Construction Management.
DACH delivered growth in Contract net fees of 1% YoY, which was broadly offset
by Permanent net fees, which were down 3%.
Germany's net fees were down 1% YoY driven by Life Sciences which was down 22%
due to market conditions across that sector. This performance was mostly
offset by Technology, up 2% YoY, and Engineering up 13%.
Switzerland saw net fees grow 10% and Austria net fees remained flat.
Average headcount was up 7% YoY, with period-end headcount up 4%.
USA (23% of Group net fees)
H1 FY23 H1 FY22 Variance
Performance highlights Reported Like-for-like
Revenue (£'000) 164,019 155,132 +6% -2%
Net fees (£'000) 49,364 51,683 -4% -11%
Average total headcount (FTE) 509 522 -3% n/a
NPS 51 55 -4pts n/a
The USA is the world's largest specialist STEM staffing market and our
second-largest region on a net fee basis. It remains a key area of focus for
the Group, and we will continue to invest in the region as we align our
resources with the best long-term opportunities.
USA saw net fees decline 11% YoY. Contract, which represents 86% of net fees,
was down 2% YoY driven by Life Sciences, down 16% YoY in line with the market
conditions for that sector. This was partially offset by Engineering, up 23%,
with increased demand for roles within Project Management and Electrical
Engineering.
Permanent, which represents 14% of net fees, declined 43% driven by Life
Sciences and due to the accelerated transition towards Contract in FY22.
Average headcount was down 3% YoY, with period-end headcount down 14%.
Netherlands (including Spain) (19% of Group net fees)
H1 FY23 H1 FY22 Variance
Performance highlights Reported Like-for-like
Revenue (£'000) 177,497 150,711 +18% +13%
Net fees (£'000) 39,381 35,884 +10% +5%
Average total headcount (FTE) 436 365 +19% n/a
NPS 36 39 -3pts n/a
Net fees for the region were up 5% YoY, with Contract up 7% and Permanent down
19%.
The Netherlands, our largest country in the region which accounts for 95% of
net fees, saw net fees increase 3% YoY. Notable performances were delivered in
Engineering, up 4% YoY, with increased demand for Process Engineers,
Electrical Engineers and Health and Safety advisors, as well as Technology up
3% YoY, with higher demand for Project Managers, ERP Consultants, Data
Engineers and Data Sciences roles.
Spain saw strong growth of 63% in the first half driven by Technology.
Average headcount for the region was up 19% YoY, with period-end headcount up
11%.
Rest of Europe (17% of Group net fees)
H1 FY23 H1 FY22 Variance
Performance highlights Reported Like-for-like
Revenue (£'000) 197,221 188,767 +4% +3%
Net fees (£'000) 35,178 35,377 -1% -2%
Average total headcount (FTE) 542 520 +4% n/a
NPS 53 55 -2pts n/a
Rest of Europe comprises of businesses in the UK, Belgium, France, Luxembourg
and Ireland.
Net fees saw a decline of 2% YoY. Contract, which represents 94% of net fees
for the region, grew 5%, with Permanent declining 48%, driven by both market
conditions and the transition towards Contract, particularly in the UK.
The UK, our largest country in the region, saw net fees remain flat, driven by
Engineering up 3%, as demand increased for roles within Project and
Construction Management, Electrical and Mechanical Engineering.
Belgium saw net fees up 15%, France down 8% and Luxembourg down 35%.
Average headcount for the region was up 4% YoY, with period-end headcount down
10%.
Middle East & Asia (5% of Group net fees)
H1 FY23 H1 FY22 Variance
Performance highlights Reported Like-for-like
Revenue (£'000) 21,962 19,495 +13% +10%
Net fees (£'000) 10,192 9,620 +6% +6%
Average total headcount (FTE) 189 200 -6% n/a
NPS 24 29 -5pts n/a
Our Middle East & Asia business principally includes Japan, UAE and
Singapore, and accounts for 5% of Group net fees.
Net fees were up 6% YoY, with Contract up 52% and Permanent down 10%. Japan,
which represents 43% of the region, was up 2% YoY driven by Engineering due to
demand for roles within Renewable Energy.
Strong performance in UAE with net fees up 46% driven by Engineering.
Average headcount was down 6% YoY, with period-end headcount down 6%.
Chief financial officer's REVIEW
The Group has delivered a resilient net fee performance in the first half of
FY23, despite the ongoing macro-economic uncertainties and strong prior year
comparatives. The performance is supported by the strength of our
well-established strategy, focused on STEM and flexible talent.
Income statement
On a reported basis revenue for the half year was up 7% 1 (#_ftn1) to £825.2
million (H1 FY22: reported £772.2 million) while net fees increased by 3% to
£208.6 million (H1 FY22 £203.1 million). The strengthening of our two main
trading currencies, the US Dollar and the Euro, against Sterling during the
year, increased the total net fees by £9.1 million. Therefore, when presented
on a constant currency basis, the net fees decreased by 2% YoY.
Net fee growth in our Contract business was driven by continued demand from
clients for candidates with STEM skills across most of regions, with net fee
growth of 3%. This was led by the Netherlands region, which was up 7%, Rest of
Europe, up 5%, DACH, up 1%, Middle East & Asia, up 52%, while USA was down
2%, primarily due to its exposure to Life Sciences. The majority of the growth
was seen in Engineering, which was up 20% YoY, and Technology, up 3%, with
Life Sciences down 14% reflecting global sector conditions. Our ECM
proposition also continued to deliver encouraging performance and was up by 6%
YoY. Group Contract net fees as a percentage of Contract revenue 2 (#_ftn2)
remained flat YoY at 21.7% (H1 FY22: 21.7%), and at the end of the year
Contract represented 81% of the Group net fees in the year (H1 FY22: 77%).
The contractor order book 3 (#_ftn3) remained flat YoY and continues to
provide good visibility into the remainder of FY23.
Permanent net fee income was down 19% reflecting market conditions across all
regions, together with the planned focus towards Contract, particularly in the
USA and UK. Our largest Permanent market, DACH, reported a decline of 3%.
Netherlands region was down 19%, Rest of Europe down 48%, USA down 43%, and
Middle East & Asia was down by 10%. Permanent average fee increased by 5%
YoY in the period, with average permanent fee margin (net fees as a percentage
of salary) now at 26.6% (H1 FY22: 25.1%).
Operating expenses increased by 8% YoY on a reported basis, amounting to
£170.5 million (H1 FY22: £158.4 million), resulting from increased personnel
costs as average headcount grew 5% compared to H1 FY22, together with £2.6
million expensed investment in the Technology Improvement Programme which
commenced in H2 FY22.
The reported operating profit was £38.1 million (H1 FY22: £44.6 million),
down 22% YoY in constant currency while the Group operating profit conversion
ratio reduced as expected, to 18.3% (H1 FY22: 22%), as productivity normalised
from the exceptional levels achieved in H1 FY22 and we commenced the
investment in our Technology Improvement Programme. Operating profit
conversion ratio would have been 19.5% were it not for amount expensed on the
programme as noted above. The net currency movements versus Sterling were
favourable to the operating profit, providing a £3.3 million benefit.
Net finance income
The Group received net finance income of £0.4 million as compared to net
finance costs of £0.4 million in the previous year. This was driven by
significantly higher interest rates applied to the Group's bank deposits.
Income tax
The total tax charge for the half year on the Group's profit before tax was
£10.8 million (H1 FY22: £12.3 million), representing an estimated full-year
effective tax rate (ETR) of 28.1% (H1 FY22: 27.8%). The tax rate is higher in
the current period mainly due to the increase in the UK tax rate to 25% from 1
April 2023. The Group's ETR varies depending on the mix of taxable profits by
territory, non-deductibility of the accounting charge for LTIPs and other
one-off tax items.
Overall, the reported profit before tax was £38.5 million, down 20% YoY in
constant currency and down 13% on a reported basis (H1 FY22: £44.3 million).
The reported profit after tax was £27.7 million, down 21% YoY in constant
currency and down 13% on a reported basis (H1 FY22: £32.0 million).
Earnings per share (EPS)
The reported EPS was 21.0 pence (H1 FY22: 24.1 pence). The YoY movement is
attributable to the slowdown in trading performance, overall stable Group ETR,
and partially offset by a decrease of 0.7 million in the weighted average
number of shares. Reported diluted EPS was 20.4 pence (H1 FY22: 23.4 pence).
Share dilution mainly results from various share options in place and expected
future settlement of certain tracker shares. The dilutive effect on EPS from
tracker shares will vary in future periods, depending on the profitability of
the underlying tracker businesses and the settlement of vested arrangements.
Dividends
The Board monitors the appropriate level of dividend, taking into account
achieved and expected trading of the Group, together with its balance sheet
position. The Board aims to offer shareholders long-term ordinary dividend
growth within a targeted dividend cover range of 2.5x to 3.0x through the
cycle.
The Board proposes to pay an interim dividend of 5.0 pence (H1 FY22: 5.0
pence), amounting to c.£6.6 million in total. This will be paid on 8 December
2023 to shareholders on record on 10 November 2023. The dividend will be paid
from distributable reserves.
Liquidity management
In H1 FY23, cash generated from operations was £55.1 million (H1 FY22: £24.2
million). The increase was primarily driven by £39.1 million release in
working capital, as the rate of new placement activity slowed but was
partially offset by Contract extensions, partially offset by £8.3 million
reduction in EBITDA. Income tax paid decreased to £10.2 million (H1 FY22:
£15.1 million) in line with the trading performance across our markets.
Capital expenditure increased to £3.0 million (H1 FY22: £1.9 million),
primarily driven by the Group-wide digital transformation programme and
related IT hardware costs. The capital expenditure also included costs of
leasehold improvements and fitting out certain of our office portfolio.
The Group paid £7.7 million in rent (principal and interest portion) (H1
FY22: £7.0 million). Net interest income (excluding interest on lease
payments) was £0.6 million (H1 FY22: net interest cost £0.1 million) during
the period. The Group spent £10.0 million (H1 FY22: £4.7 million) on the
purchase of its own shares to satisfy existing employee share incentive
schemes. Cash inflows of £0.1 million (H1 FY22: £0.3 million) were generated
from Save As You Earn employee scheme.
Dividends paid to equity holders were £6.6 million (H1 FY22: £4.0 million).
The final dividend of £13.9 million for the year ended 30 November 2022 was
paid subsequently to the half year, on 9 June 2023.
Foreign exchange had a positive impact of £2.6 million (H1 FY22: negative
impact of £0.8 million).
Overall, the underlying cash performance in the first half of FY23 was very
strong, reflecting primarily improved working capital partially offset by
buyback spend. We started the year with net cash of £65.4 million and closed
the period with net cash of £72.4 million.
Accessible funding
The Group's capital allocation priorities are financed mainly by retained
earnings, cash generated from operations, and a £50.0 million Revolving
Credit Facility (RCF). This has remained undrawn during the period, but any
funds borrowed under the RCF would bear a minimum annual interest rate of 1.2%
above the benchmark Sterling Overnight Index Average (SONIA). The Group also
maintains a £30.0 million accordion facility as well as a substantial working
capital position reflecting net cash due to SThree for placements already
undertaken.
During the current period, the Group did not draw down any of the above credit
facilities (H1 FY22: £nil).
On 31 May 2022, the Group had total accessible liquidity of £125.6 million,
made up of £72.4 million in net cash (H1 FY22: £48.4 million), the £50.0
million RCF (undrawn at the half year), and a £5.0 million overdraft facility
of which £1.8 million was in use at the half-year end.
PRINCIPAL RISKS AND UNCERTAINTIES
Risk management is a key part of our business, values and culture. Effective
risk management enables us to both protect the value of our business and to
proactively manage threats to the delivery of strategic and operational
objectives, while enhancing the realisation of
opportunities.
Our approach to risk management is flexible to ensure that it remains relevant
at all levels of the business, and dynamic to ensure we can be responsive to
changing business/macro-economic
conditions.
During FY23, there has been continued focus on the principal risks with
oversight of activities and controls to further mitigate these risks. Key risk
indicators, introduced in FY22, are monitored to ensure any negative changes
are proactively addressed. There continues to be positive progress in risk
mitigation activities. We continue to monitor the ongoing broader
macro-economic situation and assess the impact that this could have on
principal risks for the group, for example:
· Commercial relationship risk due to potential for increase in payment terms
and bad debt;
· People retention risk as employees look for roles offering higher salaries in
reaction to cost of living;
· Contractual liability risk as clients look to transfer financial exposures to
third parties.
Climate change remains an emerging risk for the Group, with an updated
assessment of materiality being undertaken during FY23. Where climate change
impacts or is impacted by a principal risk, these considerations have been
embedded into that risk, ensuring continuous discussion and monitoring.
The Board has recently agreed that artificial intelligence, as well as being
an opportunity, should be monitored as an emerging risk for the Group as the
risk has the potential to impact across different areas of the business,
strategy and current principal risks. A full assessment of this emerging risk
will be completed during FY23 and reported as part of full year risk
review.
Other than the above, the principal risks and uncertainties that the Company
expects to be exposed to in the second half of FY23 are substantially the same
as those described in the 'Risk management' section of SThree plc Annual
Report and Accounts FY22 (pages 106-113). Those principal risks which have
changed from FY22 year-end are detailed below. All other principal risks for
the Group: Future growth; Contractual liability; People; Talent acquisition
and retention; Data privacy; Cyber security; Regulatory compliance, and Health
and safety remain unchanged but with positive movement on mitigating
activities.
Risk Mitigation Change from FY22 year-end
Macro-economic environment · Strategically diversified business - geographically, by sector Increase in net risk due to external environment.
and by product.
Rapid changes in the macro-economic environment could result in SThree
suffering financial exposure and/or loss. · Strategic focus on STEM markets which are less sensitive to
economic cycles.
· Strategic focus on Contract market which is more resilient in
uncertain economic conditions than Permanent and provides a counter-cyclical
cash hedge working capital release with each contract finisher.
· Regular cycle of review of Country business performance, targets
and macro-economic risks
Strategic change management · Priority of investment decisions and approval of business cases Decrease in net risk due to enhanced project oversight structure and
through project governance structures. governance to ensure continued visibility and discussion of strategic
The inability to effectively manage and implement strategic change, resulting
projects.
in poorly implemented projects, could lead to wasted resource and/or adverse · Full Executive Committee and Board oversight of portfolio
financial impact and ability to execute strategy impacting future growth or dashboard showing Red, Amber, Green (RAG) status, timeline, spend and
the Group. escalation of risks and issues.
Commercial relationship · Robust payment terms oversight through a credit risk dashboard. Increase in gross risk due external macro-economic environment.
SThree may suffer financial loss through bad debt write off or working capital · Regular review of high-risk customers with risk mitigation steps
impairment due to inappropriate credit terms agreed when entering into being managed by our credit risk analysts.
commercial relationship/s with either direct customers or intermediaries if
they are unable to fulfil their obligation. · Contact review and payment terms escalation process.
· Workshops with senior business leaders to embed processes and
responsibilities.
The materialisation of our principal risks, either separately or in
combination, could have an adverse effect on the implementation of our
strategic priorities, our business model, financial performance, cash flows,
liquidity, shareholder value and other key stakeholders.
Please refer to our FY22 Annual Report and Accounts for further detail on our
risks, available at www.sthree.com/en/investors/financial-results/
(http://www.sthree.com/en/investors/financial-results/) .
DIRECTORS' RESPONSIBILITY
STATEMENT
The Directors confirm that to the best of their
knowledge:
a) the Condensed Consolidated Interim Financial Statements of the Group have been
prepared in accordance with IAS 34 Interim Financial Reporting as adopted for
use in the United Kingdom and give a true and fair view of the assets,
liabilities, financial position and profit or loss of the undertakings
included in the consolidation as a whole for the period ended 31 May 2023 as
required by the Disclosure Guidance and Transparency Rules sourcebook of the
UK FCA (DTR) 4.2.4R; and
b) the half-year results announcement includes a fair review of the significant
events during the six months ended 31 May 2023 and a description of the
principal risks and uncertainties for the remaining six months of the year
ending 30 November 2023;
c) there have been no significant individual related party transactions during
the first six months of the financial year; and
d) there have been no significant changes in the Group's related party
relationships from those reported in the FY22 Annual Report and Accounts for
SThree plc and its subsidiaries for the year ended 30 November 2022.
The Directors of SThree plc are listed in the SThree plc Annual Report and
Accounts for 30 November 2022. A list of the current Directors is maintained
on the Group's website www.sthree.com (http://www.sthree.com) .
The Group's Condensed Consolidated Interim Financial Statements, and related
notes, were approved by the Board and authorised for issue on 24 July 2023 and
were signed on its behalf by:
Timo
Lehne
Andrew
Beach
Chief Executive
Officer
Chief Financial
Officer
24 July 2023
Condensed consolidated income statement
for the six months ended 31 May 2023
£'000 Note (Unaudited) (Unaudited)
Six months ended Six months ended
31 May 2023 31 May 2022
Continuing operations
Revenue 2 825,211 772,249
Cost of sales (616,620) (569,196)
Net fees 2 208,591 203,053
Administrative expenses 3 (168,232) (157,290)
Impairment losses on financial assets (2,238) (1,118)
Operating profit 38,121 44,645
Finance income 691 15
Finance costs (321) (366)
Profit before income tax 38,491 44,294
Income tax expense 4 (10,816) (12,314)
Profit for the period attributable to the owners of the Company 27,675 31,980
Earnings per share attributable to shareholders
pence
Total Group
Basic 5 21.0 24.1
Diluted 5 20.4 23.4
The accompanying notes form an integral part of these Condensed Consolidated
Interim Financial Statements.
Condensed consolidated statement of comprehensive income
For the six months ended 31 May 2023
(Unaudited) (Unaudited)
Six months ended Six months ended
£'000 31 May 2023 31 May 2022
Profit for the period 27,675 31,980
Other comprehensive (loss)/income:
Items that may be subsequently reclassified to income statement
Exchange differences on retranslation of foreign operations (2,117) 3,018
Other comprehensive (loss)/income for the period (net of tax) (2,117) 3,018
Total comprehensive income for the period 25,558 34,998
attributable to owners of the Company
The accompanying notes form an integral part of these Condensed Consolidated
Interim Financial Statements.
Condensed consolidated statement of financial position
as at 31 May 2023
(Unaudited) (Audited)
As at As at
£'000 Note 31 May 2023 30 November 2022
ASSETS
Non-current assets
Property, plant and equipment 30,593 35,249
Intangible assets 6 2,693 846
Deferred tax assets 4,955 4,616
Total non-current assets 38,241 40,711
Current assets
Trade and other receivables 324,216 363,884
Cash and cash equivalents 7 74,186 65,809
Total current assets 398,402 429,693
Total assets 436,643 470,404
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital 8 1,346 1,345
Share premium 8 38,354 38,239
Other reserves (8,337) (802)
Retained earnings 166,513 161,610
Total equity 197,876 200,392
Current liabilities
Bank overdraft 7, 10 1,775 423
Trade and other payables 191,374 216,842
Lease liabilities 9 9,463 11,102
Provisions 6,080 7,871
Current tax liabilities 8,123 7,391
Total current liabilities 216,815 243,629
Non- current liabilities
Lease liabilities 9 19,388 22,600
Provisions 2,564 3,783
Total non-current liabilities 21,952 26,383
Total liabilities 238,767 270,012
Total equity and liabilities 436,643 470,404
The accompanying notes form an integral part of these Condensed Consolidated
Interim Financial Statements.
Condensed consolidated statement of changes in equity
for the six months ended 31 May 2023
£'000 Notes Share Share Capital Capital Treasury reserve Currency Fair value reserve of equity investments Retained Total equity attributable to owners of the Company
capital
premium
redemption
reserve
translation
earnings
reserve
reserve
Balance as at 1 December 2021 (audited) 1,337 35,466 172 878 (3,367) (2,354) (12) 126,033 158,153
Profit for the period - - - - - - - 31,980 31,980
Other comprehensive loss for the period - - - - - 3,018 - - 3,018
Total comprehensive income for the period - - - - - 3,018 - 31,980 34,998
Dividends paid to equity holders 11 - - - - - - - (3,965) (3,965)
Dividends payable to equity holders 11 - - - - - - - (10,636) (10,636)
Distributions to tracker shareholders - - - - - - - (7) (7)
Settlement of vested tracker shares - - - - - - - 183 183
Settlement of share-based payments 8 1 293 - - 2,850 - - (2,850) 294
Purchase of shares by Employee Benefit Trust 8 - - - - (4,718) - - - (4,718)
Credit to equity for equity-settled share-based payments - - - - - - - 2,236 2,236
Total movements in equity 1 293 - - (1,868) 3,018 - 16,941 18,385
Balance as at 31 May 2022 (unaudited) 1,338 35,759 172 878 (5,235) 664 (12) 142,974 176,538
Balance as at 1 December 2022 (audited) 1,345 38,239 172 878 (6,581) 4,742 (13) 161,610 200,392
Profit for the period - - - - - - - 27,675 27,675
Other comprehensive loss for the period - - - - - (2,117) - - (2,117)
Total comprehensive income for the period - - - - - (2,117) - 27,675 25,558
Dividends paid to equity holders 11 - - - - - - - (20,542) (20,542)
Settlement of vested tracker shares - - - - 30 - - (15) 15
Settlement of share-based payments 8 1 115 - - 4,552 - - (4,767) (99)
Purchase of shares by Employee Benefit Trust 8 - - - - (10,000) - - - (10,000)
Credit to equity for equity-settled share-based payments - - - - - - - 2,552 2,552
Total movements in equity 1 115 - - (5,418) (2,117) - 4,903 (2,516)
Balance as at 31 May 2023 (unaudited) 1,346 38,354 172 878 (11,999) 2,625 (13) 166,513 197,876
The accompanying notes form an integral part of these Condensed Consolidated
Interim Financial Statements.
Condensed consolidated statement of cash flows
for the six months ended 31 May 2023
(Unaudited) (Unaudited)
Six months ended Six months ended
£'000 Note 31 May 2023 31 May 2022
Cash flows from operating activities
Profit before tax 38,491 44,294
Adjustments for:
Depreciation and amortisation charge 8,001 8,468
Loss on disposal of property, plant and equipment 112 11
Impairment of intangible assets - 499
Loss on disposal of intangible assets - 1,206
Finance income (691) (15)
Finance costs 321 366
Non-cash charge for share-based payments 2,552 2,236
Operating cash flows before changes in working capital and provisions
48,786 57,065
Decrease/(increase) in receivables 28,622 (37,514)
(Decrease)/increase in payables (19,603) 3,503
(Decrease)/increase in provisions (2,727) 1,184
Cash generated from operations 55,078 24,238
Interest received 691 15
Income tax paid - net (10,230) (15,129)
Net cash generated from operating activities 45,539 9,124
Cash flows from investing activities
Purchase of property, plant and equipment (1,024) (1,873)
Purchase of intangible assets 6 (1,993) -
Net cash used in investing activities (3,017) (1,873)
Cash flows from financing activities
Interest paid (321) (366)
Lease principal payments 9 (7,398) (6,722)
Proceeds from exercise of share options 8 116 294
Purchase of shares by Employee Benefit Trust 8 (10,000) (4,718)
Dividends paid to equity holders 11 (20,542) (3,965)
Net cash used in financing activities (38,145) (15,477)
Net increase/(decrease) in cash and cash equivalents 4,377 (8,226)
Cash and cash equivalents at beginning of the period 65,386 57,502
Exchange gains/(losses) relating to cash and cash equivalents 2,648 (873)
Net cash and cash equivalents at end of the period 7 72,411 48,403
The accompanying notes form an integral part of these Condensed Consolidated
Interim Financial Statements.
Notes to the CONDENSED CONSOLIDATED Financial REPORT
for the six months ended 31 May 2023
1. basis of preparation and Accounting
policies
Basis of preparation
SThree plc is a public limited company listed on the London Stock Exchange and
incorporated and domiciled in the United Kingdom and registered in England and
Wales. Its registered office is 1st Floor, 75 King William Street, London,
EC4N 7BE.
These Condensed Consolidated Financial Statements (Interim Financial Report)
as at and for the six months ended 31 May 2023 comprise SThree plc (the
Company) and its subsidiaries (referred to as the Group).
The Group's Interim Financial Report has been prepared in accordance with
International Accounting Standard 34, 'Interim Financial Reporting' as adopted
for use in the United Kingdom (UK), and the Disclosure Guidance and
Transparency Rules sourcebook of the UK's Financial Conduct Authority. It
should be read in conjunction with the SThree plc' Annual Report and Accounts
FY22, prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006 as applicable to
companies reporting under those standards.
The Interim Financial Report does not constitute statutory accounts as defined
by section 434 of the Companies Act 2006. A copy of the statutory accounts for
the year ended 30 November 2022 has been delivered to the Registrar of
Companies. The auditors reported on those accounts; their report was
unqualified, did not draw attention to any matters by way of emphasis and did
not contain a statement under section 498 (2) or (3) of the Companies Act
2006.
The Interim Financial Report of the Group was approved by the Board for issue
on 21 July 2023.
Going concern
The financial information contained in this Interim Financial Report has been
prepared on a going concern basis.
The Directors have reviewed the Group's cash flow forecasts, considered the
assumptions contained in the reforecast, and considered associated principal
risks which may impact the Group's performance in the 12 months from the date
of approval of this Interim Financial Report and in the period immediately
thereafter.
At 31 May 2023, the Group had no debt except for lease liabilities of £28.9
million and bank overdraft. Credit facilities relevant to the review period
comprise a committed £50.0 million RCF (with the expiry date of June 2026,
with an extension option to 2027) and an uncommitted £30.0 million accordion
facility, both jointly provided by HSBC and Citibank. These facilities
remained undrawn on 31 May 2023. A further uncommitted £5.0 million bank
overdraft facility is also held with HSBC of which £1.8 million was used at
the period end.
In addition, the Group has £72.4 million of net cash and cash equivalents
available to fund its short-term needs, as well as a substantial working
capital position, reflecting net cash due to SThree for placements already
undertaken.
Despite the macro-economic uncertainties that currently exist, the Group has
delivered a resilient net fee performance in the first half of FY23, in line
with expectations, and supported by the strength of its well-established
strategy. In addition, the Group's targeted investment in talent and digital
infrastructure is progressing as planned, positioning the Group to scale with
sustainable margins, in line with the 2024 ambitions.
Based on the analysis performed, the Directors have formed a judgement that at
the time of approving the Interim Financial Report, there are no plausible
downside scenarios that would cause an issue for the Group's going concern
status. The Directors have therefore concluded that the Group has adequate
resources to continue in operational existence for the period through to
August 2024.
Accounting policies
The accounting policies used in the preparation of the Condensed Consolidated
Financial Statements are consistent with those applied in the previous
financial year and corresponding interim reporting period, except for the
adoption of new and amended standards effective as of 1 December 2022 as set
out below.
New and amended standards effective in FY23 and adopted by the Group
The following amendment to the accounting standards, issued by the IASB and
endorsed by the UK and EU, have been adopted by the Group which became
applicable as of 1 December 2022. The Group did not have to change its
accounting policies or make retrospective adjustments as a result of adopting
these amended standards.
- Reference to the Conceptual Framework (amendments to IFRS 3)
- Property, plant and equipment - proceeds before intended use (amendments to
IAS 16).
- Onerous contracts - cost of fulfilling a contract (amendments to IAS 37)
- Annual improvements to IFRS 2018-2020 (amendments to the following
standards: IFRS 1, IFRS 9, IFRS 16 and IAS 41).
New and amended standards that are applicable to the Group but not yet
effective
As at the date of authorisation of this Interim Financial Report, the
following amendments to existing standards were in issue but not yet
effective. Subject to the endorsement by the UKEB, these changes are effective
for the period beginning 1 January 2023. These amendments are not expected to
have a material impact on the Group in the current or future periods.
- Disclosure of Accounting Policies (Amendments to IAS 1 Presentation of
Financial Statements and IFRS Practice Statement 2);
- Definition of Accounting Estimates (Amendments to IAS 8 Accounting policies,
Changes in Accounting Estimates and Errors); and
- Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12 Income Taxes).
- IFRS 17 Insurance contracts, a standard that is ultimately intended to
replace IFRS 4.
The Group has not early adopted any standard, interpretation or amendment that
has been issued but is not yet effective.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Interim Financial Report includes the use of estimates
and assumptions. Although the estimates used are based on the management's
best information about current circumstances and future events and actions,
actual results may differ from these estimates.
In preparing this Interim Financial Report, the judgements made by management
in applying the Group's accounting policies and the key sources of estimation
uncertainty were the same as those applied in the Group's FY22 Annual Report
and Accounts.
Alternative Performance Measures
The Group presents certain measures of financial performance or financial
position in the Interim Financial Report that are not defined or specified
according to IFRS. These measures, referred to as APMs, are defined and
reconciled to IFRS in note 16 to the Condensed Consolidated Financial
Statements, and were prepared on a consistent basis for all periods presented.
2. operating segments
The Group's operating segments are established on the basis of those
components of the Group that are regularly reviewed by the Group's chief
operating decision-making body, in deciding how to allocate resources and in
assessing performance. The Group's business is considered primarily from a
geographical perspective.
The Directors have determined the chief operating decision-making body to be
the Executive Committee made up of the Chief Executive Officer, the Chief
Financial Officer, the Chief Operating Officer and the Chief People Officer,
with other senior management attending via invitation.
In the current financial period, the Group has changed its reporting segments
to reflect a new management structure. Going forward it will segment the
business into the following five reportable regions: DACH, Netherlands
(including Spain, which is managed from the Netherlands), Rest of Europe, USA
and Middle East & Asia. The comparative numbers have been restated in
accordance with this new reporting structure.
The Group will continue to present separately the net fees of its five key
markets: Germany, the Netherlands, USA, the UK and Japan. In addition, what it
was previously referred to sectors, has now been renamed as 'skills mix'.
Finally, Contract and Permanent are from now on referred to as 'service mix'.
DACH region comprises Austria, Germany and Switzerland. Rest of Europe
comprises the UK, Belgium, France, Luxembourg and Ireland, and Middle East
& Asia includes Japan, UAE and Singapore.
Countries aggregated into DACH and separately into Rest of the Europe have
similar economic risks and prospects, i.e. they are expected to generate
similar long-term average gross margins over the long-term, and are similar in
each of the following areas:
- the nature of the services (recruitment/candidate placement);
- the methods used in which they provide services to clients (independent
contractors, employed contractors and permanent candidates); and
- the class of candidates (candidates who are placed with SThree's 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 these financial statements
and in the Group's FY22 annual financial statements.
Revenue and net fees by reportable segment
The Group assesses the performance of its operating segments through a measure
of segment profit or loss which is referred to as 'net fees' in the management
reporting and controlling systems. Net fees is the measure of segment profit
comprising revenue less cost of sales.
Revenue (unaudited) Net fees (unaudited)
Six months ended Six months ended
Restated Restated
£'000 31 May 2023 31 May 2022 31 May 2023 31 May 2022
DACH 264,512 258,144 74,476 70,489
Rest of Europe 197,221 188,767 35,178 35,377
Netherlands (including Spain) 177,497 150,711 39,381 35,884
USA 164,019 155,132 49,364 51,683
Middle East & Asia 21,962 19,495 10,192 9,620
825,211 772,249 208,591 203,053
Split of revenue from contracts with customers
The Group derives revenue from the transfer of services over time and at a
point in time in the following geographical regions:
For the six months ended 31 May 2023 DACH Rest of Europe Netherlands (including Spain) USA Middle East & Asia Total
£'000
Timing of revenue recognition
Over time 243,756 195,014 173,260 157,188 15,743 784,961
At a point in time 20,756 2,207 4,237 6,831 6,219 40,250
264,512 197,221 177,497 164,019 21,962 825,211
For the six months ended 31 May 2022 (restated) DACH Rest of Europe Netherlands (including Spain) USA Middle East & Asia Total
£'000
Timing of revenue recognition
Over time 237,556 184,527 146,400 143,993 12,433 724,909
At a point in time 20,588 4,240 4,311 11,139 7,062 47,340
258,144 188,767 150,711 155,132 19,495 772,249
Major customers
In the six months ended 31 May 2023 (H1 FY22: none) no single customer
generated more than 10% of the Group's revenue.
Other information
The Group's revenue from external customers, its net fees and information
about its segment assets (non-current assets excluding deferred tax assets) by
key location are detailed below:
Revenue (unaudited) Net fees (unaudited)
Six months ended Six months ended
£'000 31 May 2023 31 May 2022 31 May 2023 31 May 2022
Germany 229,247 225,859 65,740 62,838
Netherlands 170,103 146,137 37,252 34,620
USA 164,019 155,132 49,364 51,683
UK 128,305 123,818 21,938 22,185
Japan 4,989 5,130 4,380 4,475
RoW((1)) 128,548 116,173 29,917 27,252
825,211 772,249 208,591 203,053
(1) RoW (Rest of the World) includes all countries other than listed.
(Unaudited) (Audited)
As at As at
£'000 31 May 2023 30 November 2022
Non-current assets
Germany 14,734 16,313
UK 5,995 5,374
Japan 3,455 4,144
USA 2,916 3,962
Netherlands 1,970 2,149
RoW 4,216 4,153
33,286 36,095
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 (unaudited) Net fees (unaudited)
Six months ended Six months ended
£'000 31 May 2023 31 May 2022 31 May 2023 31 May 2022
Brands
Computer Futures 273,869 267,129 69,924 68,110
Progressive 269,946 215,725 68,832 56,687
Real Staffing Group 162,941 174,484 43,377 50,237
Huxley Associates 118,455 114,911 26,458 28,019
825,211 772,249 208,591 203,053
Other brands including Global Enterprise Partners, JP Gray, Madison Black,
Newington International and Orgtel are rolled into the above brands.
Revenue (unaudited) Net fees (unaudited)
Six months ended Six months ended
£'000 31 May 2023 31 May 2022 31 May 2023 31 May 2021
Recruitment classification
Contract 784,961 724,909 169,982 156,944
Permanent 40,250 47,340 38,609 46,109
825,211 772,249 208,591 203,053
Revenue (unaudited) Net fees (unaudited)
Six months ended Six months ended
£'000 31 May 2023 31 May 2022 31 May 2023 31 May 2022
Skills mix
Technology 423,393 397,218 101,712 96,339
Engineering 194,579 155,816 51,223 41,679
Life Sciences 139,210 154,966 38,958 46,293
Other 68,029 64,249 16,698 18,742
825,211 772,249 208,591 203,053
3. administrative expenses
Operating profit is stated after charging:
(Unaudited) (Unaudited)
Six months ended Six months ended
£'000 31 May 2023 31 May 2022
Staff costs 128,246 121,298
Depreciation 8,001 8,250
Amortisation - 218
Loss on disposal of property, plant and equipment 112 11
Impairment of intangible assets (see note a) - 499
Loss on disposal of intangible assets (see note a) - 1,206
Service lease charges
- Buildings 1,071 789
- Cars 306 147
Foreign exchange losses 1,286 284
Note a) Disposal of intangible assets
During the previous financial period, in light of the commencement of the
Group-wide digital transformation programme, management reviewed the entire
book of legacy development costs and assets under construction capitalised in
previous years. The decision was taken to expense £1.7 million (including
£0.5 million in accelerated amortisation) worth of the legacy intangible
assets immediately to the income statement in the prior period.
4. income tax expense
Income tax for the half year is accrued based on the Directors' best estimate
of the average annual effective tax rate (ETR) for the financial year. The tax
charge for the half year amounted to £10.8 million (H1 FY22: £12.3 million)
at an ETR of 28.1% (H1 FY22: 27.8%). The tax rate is higher in the current
period mainly due to the increase in the UK tax rate to 25% from 1 April 2023.
The Group's ETR primarily varies with the mix of taxable profits by territory,
non-deductibility of the accounting charge for LTIP's and other one-off tax
items.
A deferred tax asset of £5.0 million (as at 30 November 2022: £4.6 million)
was recognised in the financial statements for the six months ended 31 May
2023. This comprised deferred tax assets of £5.1 million (as at 30 November
2022: £4.7 million) and deferred tax liabilities of £0.1 million (as at 30
November 2022: £0.1 million). The deferred tax assets arise on accelerated
depreciation, share based payments and provisions. The movement in the period
arises primarily on share-based payments.
At the reporting date, the Group had unused tax losses of £30.4 million (as
at 30 November 2022: £30.3 million) available for offset against future
profits. No deferred tax asset was recognised against these losses.
5. Earnings per share
Basic earnings per share (EPS) is calculated by dividing the profit for the
year attributable to owners of the Company by the weighted average number of
ordinary shares outstanding during the period excluding shares held as
treasury shares and those held in the Employee Benefit Trust, which for
accounting purposes are treated in the same manner as shares held in the
treasury reserve.
Diluted EPS is calculated by adjusting the weighted average number of ordinary
shares outstanding to assume conversion of all dilutive ordinary shares
arising from exercising employee stock options and tracker shares.
The following tables reflect the income and share data used in the basic and
diluted EPS calculations.
(Unaudited) (Unaudited)
Six months ended Six months ended
£'000 31 May 2023 31 May 2022
Earnings
Profit for the period attributable to the owners of the Company 27,675 31,980
(Unaudited) (Unaudited)
Six months ended Six months ended
millions 31 May 2023 31 May 2022
Number of shares
Weighted average number of shares used for basic EPS 131.9 132.6
Dilutive effect of share plans 3.5 4.1
Diluted weighted average number of shares used for diluted EPS 135.4 136.7
(Unaudited) (Unaudited)
Six months ended Six months ended
pence 31 May 2023 31 May 2022
Basic EPS 21.0 24.1
Diluted EPS 20.4 23.4
6. Intangible assets
During the six months ended 31 May 2023, in line with management expectations,
the Group made good progress in achieving key milestones of the technology
improvement plan.
As a result, as of 31 May 2023 nearly £2.0 million in development costs were
capitalised in the statement of financial position. At the reporting date,
these assets have been classified as under construction because due to the
ongoing development procedures they are not yet in the condition and location
as intended by management.
Subject to the successful roll out and completion of thorough tests, the first
developed assets are expected to be brought into use in certain locations,
primarily in the USA and Germany, in Q4 FY23 at the earliest. Accordingly, the
asset amortisation is expected to start in the second half of the current
financial year.
7. Cash and cash equivalents
(Unaudited) (Audited)
As at As at
£'000 31 May 2023 30 November 2022
Cash at bank 74,186 65,809
Bank overdraft (1,775) (423)
Net cash and cash equivalents 72,411 65,386
Cash and cash equivalents comprise cash and short-term bank deposits with an
original maturity of three months or less, net of outstanding bank overdrafts.
The carrying amount of these assets approximate their fair values. All of
these assets are categorised within level 1 of the fair value hierarchy.
The Group has four cash pooling arrangements in place at HSBC US (USD), HSBC
UK (GBP), NatWest (GBP) and Citibank (EUR).
8. SHARE CAPITAL
During the period 38,778 (H1 FY22: 120,438) new ordinary shares were issued,
resulting in a share premium of £0.1 million (H1 FY22: £0.3 million). These
shares were issued pursuant to the exercise of share awards under the Save As
You Earn scheme.
Treasury Reserve
Treasury reserve represent SThree plc shares repurchased and available for
specific and limited purposes.
In the six months ended 31 May 2023, no shares were purchased or utilised from
the treasury reserve. At the period end, 35,767 (H1 FY22: 35,767) shares were
held in treasury.
Employee Benefit Trust
The Group holds shares in the Employee Benefit Trust (EBT). The EBT is funded
entirely by the Company and acquires shares in SThree plc to satisfy future
requirements of the employee share-based payment schemes.
For accounting purposes shares held in the EBT are treated in the same manner
as shares held in the treasury reserve by the Company and are, therefore,
included in the financial statements as part of the treasury reserve for the
Group.
In the six months ended 31 May 2023, the EBT purchased 2,198,735 (H1 FY22:
1,189,306) of SThree plc shares. The average price paid per share was 455
pence (H1 FY22: 397 pence). The total acquisition cost of the purchased shares
was £10.0 million (H1 FY22: £4.7 million), for which the treasury reserve
was reduced. During the period, the EBT utilised 1,101,288 (H1 FY22: 687,858)
shares primarily on settlement of Long-Term Incentive awards. At the period
end, the EBT held 2,868,593 (H1 FY22: 1,424,810) shares.
9. leases
The leases which are recorded on the Condensed Consolidated Statement of
Financial Position are principally in respect of buildings and cars.
The Group's right-of-use assets and lease liabilities are presented below:
(Unaudited) (Audited)
As at As at
£'000 31 May 2023 30 November 2022
Buildings 23,862 27,862
Cars 1,984 1,932
Total right of use assets 25,846 29,794
Current lease liabilities 9,463 11,102
Non-current lease liabilities 19,388 22,600
Total lease liabilities 28,851 33,702
The Condensed Consolidated Income Statement includes the following amounts
relating to depreciation of right-of-use assets:
(Unaudited) (Unaudited)
Six months ended Six months ended
£'000 31 May 2023 30 May 2022
Buildings 5,849 5,869
Cars 616 560
IT equipment - 35
Total depreciation charge of right-of-use assets 6,465 6,464
In the current period interest expense on leases amounted to £0.3 million (H1
FY22: £0.3 million) and was recognised within finance costs in the Condensed
Consolidated Income Statement.
The total cash outflow for leases in six months ended 31 May 2023 was £7.7
million (H1 FY22: £7.0 million) and comprised the principal and interest
element of recognised lease liabilities.
10. other financial liabilities
As at 31 May 2023, the Group maintains a committed Revolving Credit Facility
(RCF) of £50.0 million along with an uncommitted £30.0 million accordion
facility, both jointly provided by HSBC and Citibank, giving the Group an
option to increase its total borrowings under the facility to £80.0 million.
During the current and previous period, the Group did not draw down under
these facilities. The Group has also an uncommitted £5.0 million overdraft
facility with HSBC of which £1.8 million was used at the current period end
(as at 30 November 2022: £0.4 million).
Any funds borrowed under the facility bear a minimum annual interest rate of
1.2% above the benchmark Sterling Overnight Index Average (SONIA). In the six
months ended 31 May 2023, the Group incurred £0.3 million in finance costs
(H1 FY22: £0.4 million) which were mainly related to lease interest.
The RCF is subject to certain covenants requiring the Group to maintain
financial ratios over interest cover, leverage and guarantor cover. The Group
has complied with these covenants throughout the current and prior period.
The Group's exposure to interest rates, liquidity, foreign currency and
capital management risks is disclosed in the Group's FY22 annual financial
statements.
11. Dividends
(Unaudited) (Unaudited)
Six months ended Six months ended
£'000 31 May 2023 31 May 2022
Amounts recognised as distributions to equity holders in the period
Interim dividend of 5.0 pence (2021: 3.0 pence) per share 6,605 3,965
Final dividend of 11.0 pence (2021: 8.0 pence) per share 13,937 10,636
20,542 14,601
The interim dividend for the year ending 30 November 2022 of 5.0 pence (FY21:
3.0 pence) per share was paid on 2 December 2022 to those shareholders on the
register of SThree plc on 4 November 2022.
The final dividend for the year ending 30 November 2022 of 11.0 pence (FY21:
8.0 pence) per share was approved by shareholders at the Annual General
Meeting on 20 April 2023. The £13.9 million in funds, required for settlement
of final dividend, were first transferred to the share administrator before 31
May 2023, and the dividend was paid on 9 June 2023 to those shareholders on
the register of SThree plc on 12 May 2023.
12. Contingent liabilities
Legal
The Group is involved in various disputes and claims which arise from time to
time in the course of its business. These are reviewed on a regular basis and,
where possible, an estimate is made of the potential financial impact on the
Group. The Group has contingent liabilities in respect of these claims. In
appropriate cases a provision is recognised based on advice, best estimates
and management judgement.
The Directors currently believe the likelihood of any material liabilities to
be low, and that such liabilities, if any, will not have a material adverse
effect on its financial position.
13. RELATED PARTY DISCLOSURES
The Group's significant related parties are as disclosed in the Group's FY22
annual financial statements. There have been no significant changes to the
nature of its related party transactions as disclosed in note 23 of the SThree
plc's Annual Report and Accounts FY22.
14. Shareholder communications
SThree plc has taken advantage of regulations which provide an exemption from
sending copies of its Interim Financial Report to shareholders. Accordingly,
the FY23 Interim Financial Report will not be sent to shareholders but will be
available on the Company's website www.sthree.com or can be inspected at the
registered office of the Company.
15. Subsequent events
There were no subsequent events following 31 May 2023.
16. ALTERNATIVE PERFORMANCE MEASURES (APMs): definitions and reconciliations
In discussing the performance of the Group, comparable measures are used.
The Group discloses comparable performance measures to enable users to focus
on the underlying performance of the business on a basis which is common to
both periods for which these measures are presented. The reconciliation of
comparable measures to the directly related measures calculated in accordance
with IFRS is as follows.
APMs in constant currency
As the Group operates in 14 countries and with many different currencies, it
is affected by foreign exchange movements, and the reported financial results
reflect this. However, the Group business is managed against targets which are
set to be comparable between years and within them, for otherwise foreign
currency movements would undermine the management ability to drive the
business forward and control it. Within this Interim Financial Report,
comparable results have been highlighted on a constant currency basis as well
as the results on a reported basis which reflect the actual foreign currency
effects experienced.
The Group evaluates its operating and financial performance on a constant
currency basis (i.e. without giving effect to the impact of variation of
foreign currency exchange rates from period to period). Constant currency APMs
are calculated by applying the prior period foreign exchange rates to the
current and prior financial period results to remove the impact of exchange
rate.
Measures on a constant currency basis enable users to focus on the performance
of the business on a basis which is not affected by changes in foreign
currency exchange rates applicable to the Group's operating activities from
period to period.
The calculations of the APMs on a constant currency basis and the
reconciliation to the most directly related measures calculated in accordance
with IFRS are as follows:
31 May 2023 (unaudited)
£'000, unless otherwise stated Revenue Net fees Operating profit Operating profit conversion ratio* Profit before tax Basic EPS
Reported 825,211 208,591 38,121 18.3% 38,491 21.0p
Currency impact (34,734) (9,102) (3,254) (0.8%) (3,233) -1.8p
In constant currency 790,477 199,489 34,867 17.5% 35,258 19.2p
31 May 2022 (unaudited)
£'000, unless otherwise stated Revenue Net fees Operating profit Operating profit conversion ratio* Profit before tax Basic EPS
Reported 772,249 203,053 44,645 22.0% 44,294 24.1p
Currency impact 11,331 2,482 919 0.2% 929 0.5p
In constant currency 783,580 205,535 45,564 22.2% 45,223 24.6p
*Operating profit conversion ratio represents operating profit over net fees.
Other APMs
Net cash excluding lease liabilities
Net cash is an APM used by the Directors to evaluate the Group's capital
structure and leverage. Net cash is defined as cash and cash equivalents less
current and non-current borrowings excluding lease liabilities, less bank
overdraft, as illustrated below:
(Unaudited) (Audited)
As at As at
£'000 31 May 2023 30 November 2022
Cash and cash equivalents 74,186 65,809
Bank overdraft (1,775) (423)
Net cash 72,411 65,386
EBITDA
In addition to measuring financial performance of the Group based on operating
profit, the Directors also measure performance based on EBITDA. It is
calculated by adding back to the reported operating profit operating non-cash
items such as the depreciation of property, plant and equipment (PPE), the
amortisation and impairment of intangible assets, loss on disposal of PPE and
intangible assets, gain on lease modification and the employee share options
charge. Where relevant, the Group also uses EBITDA to measure the level of
financial leverage of the Group by comparing EBITDA to net debt.
A reconciliation of reported operating profit for the period, the most
directly comparable IFRS measure, to EBITDA is set out below.
(Unaudited) (Unaudited)
Six months ended Six months ended
£'000 31 May 2023 31 May 2022
Reported operating profit for the period 38,121 44,645
Depreciation of PPE 8,001 8,250
Amortisation and impairment of intangible assets - 717
Loss on disposal of PPE and intangible assets 112 1,217
Employee share options charge 2,552 2,236
EBITDA 48,786 57,065
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.
(Unaudited) (Unaudited)
Six months ended Six months ended
£'000, unless otherwise stated 31 May 2023 31 May 2022
Contract net fees A 169,982 156,944
Contract revenue B 784,961 724,909
Contract margin (A ÷ B) 21.7% 21.7%
Financial Calendar
19 September 2023 FY23 Q3 Trading
Update
30 November 2023 2023 financial year
end
14 December 2023 FY23 Trading Update
30 January 2024 FY23
Final Results
1 (#_ftnref1) Unless specifically stated, all growth rates in revenue and
net fees are expressed in constant currency.
2 (#_ftnref2) The Group has identified and defined certain alternative
performance measures (APMs). These are the key measures the Directors use to
assess the SThree's underlying operational and financial performance. The APMs
are fully explained and reconciled to IFRS line items in note 16 to the
Consolidated Financial Statements.
3 (#_ftnref3) The contractor order book represents value of net fees until
contractual end dates, assuming all contractual hours are worked.
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