DJ SThree: Final Results
SThree (STEM)
SThree: Final Results
27-Jan-2020 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU)
No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
SThree plc
("SThree" or the "Group")
Final results for the year ended 30 November 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
Adjusted Reported Adjusted Reported Movement Constant
(1) (2) (3)
Currency
Movement
(4)
Revenue (GBP 1,345.0 1,345.0 1,258.2 1,258.2 +7% +6%
million)
Contract 254.6 254.6 232.1 232.1 +10% +8%
net fees
(GBP
million)
Permanent 87.8 87.8 89.0 89.0 -1% -3%
net fees
(GBP
million)
Net Fees 342.4 342.4 321.1 321.1 +7% +5%
(GBP
million)
Operating 60.0 57.7 53.9 47.5 +11% +9%
profit (GBP
million)
Conversion 17.5% 16.9% 16.8% 14.8% +0.7% +0.6%
ratio (%) pts pts
Profit 59.1 56.8 53.4 47.0 +11% +9%
before
taxation
(GBP
million)
Basic 33.2p 31.8p 30.7p 26.6p +8% +7%
earnings
per share
(pence)
Proposed 10.2p 10.2p 9.8p 9.8p +4% +4%
final
dividend
(pence)
Total 15.3p 15.3p 14.5p 14.5p +6% +6%
dividend
(pence)
Net 10.6 10.6 (4.1) (4.1) - -
cash/(debt
) (GBP
million)
(1) 2019 figures exclude the impact of GBP2.3 million in net exceptional strategic restructuring costs and
CEO change costs.
(2) 2018 figures exclude the impact of GBP6.4 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 GBP1.35bn up by 6%*
· Adjusted operating profit grew by 9%* to GBP60.0m, a record level for the Group
· Adjusted profit before tax up 11% YoY to GBP59.1m (2018: GBP53.4m)
· Reported profit before tax up 21% YoY to GBP56.8m (2018: GBP47.0m)
· 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 GBP10.6m; 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 GBP60.0m. 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 http://bit.ly/STEM_FY19 [1]. 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
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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[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:
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? 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.[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[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 GBP254.6m GBP232.1m +8%
Permanent GBP87.8m GBP89.0m -3%
Group GBP342.4m GBP321.1m +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 GBP196.7m GBP183.3m +8%
USA GBP76.7m GBP66.7m +9%
UK&I GBP48.2m GBP53.1m -9%
Asia Pacific & Middle East GBP20.8m GBP18.0m +12%
Group GBP342.4m GBP321.1m +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 GBP152.7m GBP142.0m +7%
Energy & Engineering GBP73.9m GBP64.0m +14%
Life Sciences GBP67.8m GBP66.3m +5%
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Banking & Finance GBP38.0m GBP42.4m -13%
Other GBP10.0m GBP6.4m +3%
Group GBP342.4m GBP321.1m +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%*).[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.[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%*.[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%.
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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%*.[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%*.[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 GBP1.35 billion on a reported basis and up 6% on a constant currency
basis (2018: GBP1.26 billion). On a reported basis, net fees increased by 7%, and 5% on a constant
currency basis, to GBP342.4 million (2018: GBP321.1 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 GBP57.7 million, up 22%. The adjusted operating profit was GBP60.0
million, up 11% year on year (2018: reported GBP47.5 million and adjusted GBP53.9 million). The adjusted
operating profit excluded exceptional costs of GBP2.3 million that were incurred in the current year
primarily in respect of the CEO changes and restructuring of senior leadership (2018: GBP6.4 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 GBP0.1 million in relation to support functions
restructuring. It comprised personnel costs of GBP0.3 million and property costs of GBP0.3 million,
subsequently offset by the government grant income of GBP0.7 million. The total net costs recognised to
date amounted to GBP12.9 million (2018: GBP13.1 million). This restructuring has realised cost savings in
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excess of GBP5.0 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 GBP1.2 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 GBP1.2
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 GBP2.3 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 GBP0.8 million (a net result of an increase in total assets of GBP41.5 million
offset by an increase in total liabilities of GBP42.3 million).
Operating costs
Adjusted operating costs, excluding exceptional costs of GBP2.3 million (2018: GBP6.4 million), increased by
6% to GBP282.3 million (2018: GBP267.2 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 GBP3.2 million
additional spend on IT licenses.[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 GBP2.2
million (2018: GBP2.4 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 GBP0.3 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 GBP15.9 million (2018:
GBP13.9 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 GBP13.5
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.[10]
Share options and tracker share arrangements
We recognised a share-based payment charge of GBP2.7 million during the year (2018: GBP4.7 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
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manage with the support and economies of scale that the Group can offer them. In 2019, 52 employees
invested an equivalent of GBP0.5 million in 23 Group businesses.
We settled certain tracker shares during the year for a total consideration of GBP4.4 million (2018: GBP3.7
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 GBP5.0
million to GBP10.0 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 GBP116.8 million (2018: GBP101.7 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 GBP256.2 million (2018: GBP274.6 million).
The main driver of the decline was an accounting adjustment of GBP13.0 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 GBP172.4 million in 2019 (2018: GBP191.7 million), primarily due to
GBP9.9 million in IFRS 15 adjustment, and the remainder is attributable to favourable movements in foreign
exchange rates (GBP5.8 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 GBP1.5 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 GBP8.2 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 GBP122.0 million (GBP2018: GBP156.5
million).
Strong cash generation
On an adjusted basis, we generated net cash from operations at GBP54.8 million (2018: GBP40.6 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 GBP4.6 million (2018: GBP4.2 million excluding GBP1.0 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 GBP1.7 million (2018: GBP10.5 million).[11]
During the year, SThree plc bought back shares for GBP2.5 million (2018: GBP1.5 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 GBP12.9 million (2018: GBP14.4 million). The Group paid GBP0.9 million in net
interest cost in the year. Foreign exchange had a moderate positive impact of GBP0.6 million (2018: GBP0.3
million).
Dividend payments increased to GBP18.8 million (2018: GBP18.0 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 GBP0.2 million (2018: GBP0.1 million) as a result of the improved trading performance of the
tracked businesses.
We started the year with net debt of GBP4.1 million and closed the financial year with net cash of GBP10.6
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 GBP50.0 million, along with an uncommitted
GBP20.0 million accordion facility, with HSBC and Citibank, giving the Group an option to increase its
total borrowings under the facility to GBP70.0 million. At the year end, there were no draw downs (2018:
GBP37.4 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 GBP1.0 million (2018: GBP0.7 million).
The Group also has an uncommitted GBP5.0 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
GBP4.3 million and operating profit by GBP1.2 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 GBP2.0 million and GBP0.8 million, respectively, and operating profit by GBP0.6 million and GBP0.2 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 www.sthree.com [2].
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 Total Before Exceptional Total
excepti items except items
onal ional
items items
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DJ SThree: Final Results -8-
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 2 1,345,0 - 1,345 1,258, - 1,258
21 ,021 152 ,152
Cost of sales (1,0 - (1,00 (937,0 - (937,
02,6 2,669 26) 026)
69) )
Net fees 2 342,352 - 342,3 321,12 - 321,1
52 6 26
Administrative 3 (282,32 (2,273) (284, (267,2 (6,397) (273,
expenses 6) 599) 11) 608)
Operating profit 4 60,0 (2,273) 57,75 53,915 (6,397) 47,51
26 3 8
124
(439)
(147)
Finance income 55 - 55 75 - 75
Finance costs (1,0 - (1,00 (743) - (743)
09) 9)
Gain on disposal - - - 146 - 146
of associate
Profit before 59,072 (2,273) 56,79 53,393 (6,397) 46,99
taxation 9 6
Taxation 5 (15,908 428 (15,4 (13,85 1,127 (12,7
) 80) 1) 24)
Profit for the 43,164 (1,845) 41,31 39,542 (5,270) 34,27
period 9 2
attributable
to owners of the
Company
Earnings per 7 pence pence pence pence pence pence
share
Basic 33.2 (1.4) 31.8 30.7 (4.1) 26.6
24.9
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 GBP'000 GBP'000
Profit for 41,319 34,272
the period
Other
comprehensiv
e
(loss)/incom
e:
Items that may be
subsequently
reclassified to profit
or loss:
Exchange (3,892) 2,572
differences
on
retranslatio
n of foreign
operations
Items that
will not be
subsequently
reclassified
to profit or
loss:
Net loss on 1 (1,996) -
equity
instruments
at fair
value
through
other
comprehensiv
e income
Other comprehensive (5,888) 2,572
(loss)/income for the
period (net of tax)
Total comprehensive income for the 35,431 36,844
period attributable to owners of the
Company
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 30 November
November
2019 2018
Note GBP'000 GBP'000
ASSETS
Non-current
assets
Property, 6,804 6,915
plant and
equipment
Intangible 8,031 9,609
assets
Investments 1 13 1,977
Deferred 4,167 2,750
tax assets
19,015 21,251
Current
assets
Trade and 270,350 285,618
other
receivables
Current tax 624 2,751
assets
Cash and 8 15,093 50,844
cash
equivalents
286,067 339,213
Total 305,082 360,464
assets
EQUITY AND
LIABILITIES
Equity
attributabl
e to owners
of the
Company
Share 1,326 1,319
capital
Share 32,161 30,511
premium
Other (8,338) (5,275)
reserves
Retained 91,622 75,116
earnings
Total 116,771 101,671
equity
Non-current
liabilities
Provisions 1,403 1,569
for
liabilities
and charges
Current
liabilities
Borrowings 9 - 37,428
Bank 8 4,538 17,521
overdraft
Provisions 8,275 9,614
for
liabilities
and charges
Trade and 172,357 191,742
other
payables
Current tax 1,738 919
liabilities
186,908 257,224
Total 188,311 258,793
liabilities
Total 305,082 360,464
equity and
liabilities
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
Share Share Capital Capital Treas Currency Fair Retained Total
capital premium redemption reserve ury translation value earnings equit
reserve reser reserve reser y
ve ve of attri
equit butab
y le to
inves owner
tment s of
s the
Compa
ny
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 30 1,317 28,806 168 878 (8,53 (1,067) - 59,138 80,70
November 2017 5) 5
Profit for - - - - - - - 34,272 34,27
the year 2
Other - - - - - 2,572 - - 2,572
comprehensive
income for
the year
Total - - - - - 2,572 - 34,272 36,84
comprehensive 4
income for
the year
Dividends 6 - - - - - - - (18,007) (18,0
paid to 07)
equity
holders
Distributions - - - - - - - (124) (124)
to tracker
shareholders
Settlement of 4 1,306 - - 2,124 - - (3,306) 128
vested
tracker
shares
Settlement of 2 399 - - 65 - - (65) 401
share-based
payments
Cancellation (4) - 4 - - - - (1,468) (1,46
of share 8)
capital
Purchase of - - - - (1,48 - - - (1,48
own shares by 4) 4)
Employee
Benefit Trust
Credit to - - - - - - - 4,697 4,697
equity for
equity-settle
d share-based
payments
Current and 5 - - - - - - - (21) (21)
deferred tax
on
share-based
payment
transactions
Total 2 1,705 4 - 705 2,572 - 15,978 20,96
movements in 6
equity
Balance at 30 1,319 30,511 172 878 (7,83 1,505 - 75,116 101,6
November 2018 0) 71
Effect of a 1 - - - - - - - (2,344) (2,34
change in 4)
accounting
policy
Restated 1,319 30,511 172 878 (7,83 1,505 - 72,772 99,32
total equity 0) 7
at 1 December
2018
Profit for - - - - - - - 41,319 41,31
the year 9
Other - - - - - (3,892) (1,99 - (5,88
comprehensive 6) 8)
loss for the
year
Total - - - - - (3,892) (1,99 41,319 35,43
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DJ SThree: Final Results -9-
comprehensive 6) 1
income for
the year
Dividends 6 - - - - - - - (18,778) (18,7
paid to 78)
equity
holders
Distributions - - - - - - - (218) (218)
to tracker
shareholders
Settlement of 5 1,325 - - 3,245 - - (4,419) 156
vested
tracker
shares
Settlement of 2 325 - - 2,086 - - (2,086) 327
share-based
payments
Purchase of - - - - (2,50 - - - (2,50
own shares by 6) 6)
Employee
Benefit Trust
Credit to - - - - - - - 2,681 2,681
equity for
equity-settle
d share-based
payments
Current and 5 - - - - - - - 351 351
deferred tax
on
share-based
payment
transactions
Total 7 1,650 - - 2,825 (3,892) (1,99 18,850 17,44
movements in 6) 4
equity
Balance at 30 1,326 32,161 172 878 (5,00 (2,387) (1,99 91,622 116,7
November 2019 5) 6) 71
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 GBP'000 GBP'000
Cash flows from
operating activities
Profit before taxation 56,799 46,996
after exceptional items
Adjustments for:
Depreciation and 6,040 6,145
amortisation charge
Accelerated amortisation and impairment of - 709
intangible assets
Finance income (55) (75)
Finance cost 1,009 743
(Gain)/loss on disposal (3) 8
of property, plant and
equipment
Loss on disposal of - 70
subsidiaries
Gain on disposal of - (146)
associate
FX revaluation gain on - (26)
investments
Non-cash charge for 2,681 4,697
share-based payments
Operating cash flows before changes in
working capital and provisions
66,471 59,121
Increase in receivables (8,020) (55,372)
(Decrease)/increase in (3,712) 30,116
payables
Decrease in provisions (1,589) (3,796)
Cash generated from 53,150 30,069
operations
Finance income 23 35
Income tax paid - net (12,958) (14,391)
Net cash generated from operating 40,215 15,713
activities
Cash generated from operating activities 41,904 26,208
before exceptional items
Cash outflow from exceptional items (1,689) (10,495)
Net cash generated from operating 40,215 15,713
activities
Cash flows from
investing activities
Purchase of property, (3,102) (3,161)
plant and equipment
Purchase of intangible (1,455) (2,043)
assets
Net cash used in investing activities (4,557) (5,204)
Cash flows from
financing activities
(Repayments 9 (37,428) 25,428
of)/proceeds from
borrowings
Interest paid (894) (540)
Employee subscription 536 644
for tracker shares
Proceeds from exercise 327 401
of share options
Cancellation of share - (1,468)
capital
Purchase of own shares (2,506) (1,484)
Dividends paid to 6 (18,778) (18,007)
equity holders
Dividends paid to (218) (116)
tracker shareholders
Net cash (used (58,961) 4,858
in)/generated from
financing activities
Net (decrease)/increase in cash and cash (23,303) 15,367
equivalents
Cash and cash equivalents at beginning of 33,323 17,621
the year
Exchange gains relating 535 335
to cash and cash
equivalent
Net cash and cash 8 10,555 33,323
equivalents at end of
the year
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 Trade and other
(Available-for-s receivables
ale 2018)
Financial assets - 1 GBP'000 GBP'000 GBP'000
December 2018
Closing balance 30 - 1,977 285,618
November 2018 - IAS 39*
Reclassify debt 435 (435) -
investments from
available-for-sale to
FVTPL
Reclassify equity - - -
investments from
available-for-sale to
FVOCI*
Adjustments arising - - (13,017)
from the adoption of
IFRS 15
Opening balance 1 435 1,542 272,601
December 2018 - IFRS 9
* 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
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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 GBP2.3 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 Remeasure-ments IFRS 15
carrying carrying
amount amount
30 1 December
November 2018
2018
GBP'000 GBP'000 GBP'000
Trade and 78,741 (13,017) 65,724
other
receivables
(Accrued
income only)
Trade and (107,105) 9,859 (97,246)
other
payables
(Accruals)
Current tax 2,751 814 3,565
assets
Post-tax (2,344)
adjustment at
the date of
initial
application
of IFRS 15
The impact on the Group's retained earnings at 1 December 2018 is as follows:
2018
GBP'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 814
IFRS 15
Opening retained earnings 1 December post adoption of 72,772
IFRS 15
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 GBP13.0 million and GBP9.9 million lower respectively. This resulted in a net adjustment to
the opening balance of retained earnings of GBP3.1 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
GBP'000 GBP'000 GBP'000 GBP'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
1,345,02 1,258,15 342,352 321,126
1 2
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
GBP'000 GBP'000 GBP'000 GBP'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 1,258,15 342,352 321,126
2
Non-current assets
30 November 30 November
2019 2018
GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'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 1,258,15 342,352 321,126
2
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 1,1 254 232
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69, ,54 ,11
141 7 5
Permanent 89,463 89, 87, 89,
011 805 011
1,345,021 1,2 342 321
58, ,35 ,12
152 2 6
Sectors
Technology 641,977 580 152 141
,73 ,71 ,97
2 7 0
Life Sciences 207,738 195 67, 66,
,10 841 250
2
Energy 181,521 169 39, 33,
,01 150 452
8
Banking & 151,917 180 37, 42,
Finance ,12 923 454
2
Engineering 131,189 111 34, 30,
,60 764 618
8
Other 30,679 21, 9,9 6,3
570 57 82
1,345,021 1,2 342 321
58, ,35 ,12
152 2 6
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 GBP1.2 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 GBP1.2 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 GBP5.0 million per annum.
The restructuring resulted in the recognition of net exceptional income of GBP0.1 million in the current
year. Personnel costs of GBP0.3 million and property costs GBP0.3 million, offset by the government grant
income of GBP0.7 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 GBP'000 GBP'000
items -
charged to
operating
profit
CEO change
Contractual payments 716 -
for CEO departure
Recruitment and other 342 -
professional fees
Double running costs 83 -
Relocation costs 60 -
Total - CEO change 1,201 -
Restructuring costs
Senior leadership 1,200 -
restructuring
Support functions
relocation
Staff costs and 318 4,075
redundancy
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
GBP'000 GBP'000
Depreciation 3,058 2,852
Amortisation 2,982 3,049
Accelerated - 244
depreciation
Accelerated amortisation and impairment of - 709
intangible assets
Foreign exchange gains (523) (644)
Staff costs 214,26 206,7
4 13
Movement in bad debt provision and debts 2,380 1,279
directly written off
(Gain)/loss on disposal of property, (3) 8
plant and equipment
Loss on disposal of 51 62
intangible assets
Net exceptional 2,273 6,397
restructuring costs
Net gain on disposal of - (76)
subsidiaries and associate
Operating lease charges
- Motor 1,851 1,771
vehicles
- Land and 12,736 12,64
buildings 7
5) TAXATION
a) Analysis of tax charge for the year
2019 2018
Before Exceptional Total Before Exceptional Total
items exceptiona items
l items
exceptional
items
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Current taxation
Corporation tax 15,917 (428) 15,489 12,862 (1,127) 11,735
charged/(credite
d) on profits
for the year
Adjustments in respect 1,11 - 1,110 (541) - (541)
of prior periods 0
Total current 17,0 (428) 16,599 12,321 (1,127 11,194
tax 27 )
charge/(credit)
Deferred
taxation
Origination (678) - (678) 2,308 - 2,308
and reversal
of temporary
differences
Adjustments in (441) - (441) (778) - (778)
respect of prior
periods
Total deferred (1,119) - (1,119) 1,530 - 1,530
tax
(credit)/charge
Total income tax 15,908 (428) 15,480 13,851 (1,127 12,724
charge/ (credit) )
in the 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 Total Before Exceptional Total
except items except items
ional ional
items items
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Profit before 59,072 (2,273) 56,79 53,393 (6,397) 46,99
taxation 9 6
Profit before
taxation
multiplied by
the standard
rate of
corporation
tax in the UK
at 19.00%
(2018:
19.00%)
11,2 (432) 10,791 10,144 (1,21 8,929
23 5)
Effects of:
Disallowable 756 4 760 988 88 1,076
items
Differing tax 4,369 - 4,369 3,029 - 3,029
rates on
overseas
earnings
Adjustments 669 - 669 (1,319 - (1,31
in respect of ) 9)
prior periods
Adjustment (246) - (246) 816 - 816
due to tax
rate changes
Tax losses (863) - (863) 193 - 193
for which
deferred tax
asset was
derecognised
Tax 15,908 (428) 15,48 13,851 (1,127) 12,72
charge/(credi 0 4
t) for the
year
Effective tax 26.9% 18.8% 27.3% 25.9% 17.6% 27.1%
rate
c) Current and deferred tax movement recognised directly in equity
2019 2018
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GBP'000 GBP'000
Equity-settled share-based payments
Current tax - (2)
Deferred tax 351 (19)
Tax adjustment on transition to IFRS 814 -
15
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 GBP1.9 million
(2018: GBP0.9 million) has been recognised in respect of these options.
Prior to the adoption of IFRS 15, income of GBP3.2 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 GBP0.8 million.
6) DIVIDENDS
2019 2018
GBP'000 GBP'000
Amounts recognised as distributions to equity holders
in the year
Interim dividend of 4.7p (2018: 4.7p) per 6,056 6,041
share (i)
Final dividend of 9.8p (2018: 12,722 11,966
9.3p) per share (ii)
18,778 18,007
Amounts proposed as distributions to equity
holders
Interim dividend of 5.1p (2018: 4.7p) per 6,661 6,077
share (iii)
Final dividend of 10.2p (2018: 9.8p) per 13,507 12,819
share (iv)
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
GBP'000 GBP'000
Earnings
Profit for the year after tax and before 43,164 39,542
exceptional items
Exceptional items net of tax (1,845) (5,270)
Profit for the year attributable to 41,319 34,272
owners of the Company
million million
Number of shares
Weighted average number of shares used 129.9 128.7
for basic EPS
Dilutive effect of share plans 3.7 4.4
Diluted weighted average number of shares 133.6 133.1
used for diluted EPS
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
GBP'000 GBP'000
Cash at bank 15,093 50,844
Bank overdraft (4,538 (17,52
) 1)
Net cash and cash equivalents per the 10,555 33,323
consolidated statement of cash flow
Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three
months or less, net of outstanding bank overdrafts. The carrying amount of these assets is approximately
equal to their fair values. 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 GBP50.0 million along with an
uncommitted GBP20.0 million accordion facility in place with HSBC and Citibank, giving the Group an option
to increase its total borrowings under the facility to GBP70.0 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 GBP5.0 million overdraft facility with HSBC.
At the year end, the Group had drawn down GBPnil (2018: GBP37.4 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.
GBP'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, GBP0.5 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 Administrative Operating Profit Tax Profit Basic
fees expenses profit before after EPS
tax tax
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 pence
As reported 1,345,0 342,3 (284,599) 57,753 56,799 (15,4 41,319 31.8
21 52 80)
Exceptional - - 2,273 2,273 2,273 (428) 1,845 1.4
costs
Adjusted 1,345,0 342,3 (282,326) 60,026 59,072 (15,9 43,164 33.2
21 52 08)
2018
Revenue Net Administrative Operating Profit Tax Profit Basic
fee expenses profit before after EPS
s tax tax
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 pence
As reported 1,258 321,126 (273, 47,518 46,996 (12,72 34,272 26.6
,152 608) 4)
Exceptional - - 6,397 6,397 6,397 (1,127 5,270 4.1
costs )
Adjusted 1,258 321,126 (267, 53,915 53,393 (13,85 39,542 30.7
,152 211) 1)
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
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