SThree (STHR)
SThree: Interim Results
22-Jul-2019 / 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")
INTERIM RESULTS FOR THE HALF YEARED 31 MAY 2019
Encouraging first half performance
FINANCIAL HIGHLIGHTS
HY 2019 HY 2018 Variance
Adjusted Reported Adjusted Reported Movement Constant
(1) (2) (3)
Currency
Movement
(4)
GBPm GBPm GBPm GBPm % %
Revenue 653.3 653.3 585.9 585.9 +12% +10%
Contract 121.1 121.1 106.7 106.7 +13% +12%
net fees
(5)
Permanent 41.9 41.9 41.7 41.7 - -1%
net fees
Net fees 163.0 163.0 148.4 148.4 +10% +9%
Operating 24.6 23.3 20.4 18.0 +21% +18%
profit
OP 15.1% 14.3% 13.7% 12.1% +1.4%pts +1.2%pts
Conversion
ratio (%)
Profit 24.0 22.7 20.3 17.8 +18% +16%
before
taxation
Basic 13.5p 12.7p 11.6p 10.1p +16% +14%
earnings
per share
Interim 5.1p 5.1p 4.7p 4.7p +0.4p -
dividend
per share
Net debt (8.0) (8.0) (6.2) (6.2) - -
(6)
(1) HY 2019 figures exclude the impact of GBP1.3 million in net exceptional strategic restructuring
costs and Senior Management change costs
(2) HY 2018 figures exclude the impact of GBP2.4 million in exceptional strategic restructuring
costs
(3) Variance compares adjusted HY 2019 against adjusted HY 2018 to provide a like-for-like view
(4) Variance compares adjusted HY 2019 against adjusted HY 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 fees were previously referred to as gross profit
(6) Net debt represents cash & cash equivalents less borrowings and bank overdrafts
OPERATIONAL HIGHLIGHTS
· Double digit growth in net fees across three of the Group's four regions, driving
profitability
· Adjusted profit before tax up 18% YoY to GBP24.0 million (HY 2018: GBP20.3 million)
· Reported profit before tax up 27% YoY to GBP22.7 million (HY 2018: GBP17.8 million)
· 86% of net fees generated from our international business (HY 2018: 82%)
· Strategic focus on Contract continuing to drive growth
· Contract represented 74% of Group net fees (HY 2018: 72%)
· Contract ahead by 12%* YoY, with strong growth across Energy, Engineering and Technology
· Permanent net fees down 1%* YoY, with good growth in DACH (Germany, Austria & Switzerland)
and Japan offset by declines in UK&I and USA
· Investment in the Group delivering returns
· Group period-end sales headcount up 12% YoY. Average sales headcount up 7% YoY
· The expected benefits are being realised from the successful restructure and relocation of
the majority of our London-based support functions to Glasgow
· Interim dividend of 5.1p up 0.4p (HY 2018: 4.7p)
* Variances are held in constant currency
Mark Dorman, CEO, commented: "This set of results, the first since I joined the Group,
demonstrates that our strategy is putting SThree ahead of the field. The engine room of our growth
has continued to be the key strategic focus areas of our business - progress within the key STEM
markets, particularly the USA and Continental Europe, as well as an increased Contract weighting.
"Alongside our teams having capitalised on these major structural trends, it has been pleasing to
note a number of other highlights for the Group. Our small but rapidly growing Permanent business
in Japan, the strong performance for Energy in the US driven by trends to renewable energy and
power transmission, and the strengthening of our market leading position in Life Sciences, where
we continue to benefit from the emergence of new sector technology and data analytics.
"To build on this growth, we are continuing to strategically invest in the areas of the business
which present the greatest opportunity, consistent with our vision to be the number one STEM
talent provider in the best STEM markets. With the scale of the opportunity available to us, we
look forward to continuing to execute in the period ahead.
"Notwithstanding the macro-economic backdrop in certain regions, the Group remains well positioned
as we enter the second half, and the Board's expectations for the full year remain unchanged."
SThree will host a 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: 35582282#
This event will also be simultaneously audio webcast, at https://plcwebcast.uk/sthreeh1july19 [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.
A video overview of the results from the CEO, Mark Dorman, and CFO, Alex Smith, is available to
watch here: http://bit.ly/STHRh1interview [2].
SThree will issue its Q3 trading update on 13 September 2019.
Enquiries:
SThree plc 020 7268 6000
Mark Dorman, Chief Executive Officer
Alex Smith, Chief Financial Officer
Kirsty Mulholland, Company Secretariat
Alma PR 020 3405 0205
Rebecca Sanders-Hewett SThree@almapr.co.uk
Hilary Buchanan
Notes to editors
SThree is a leading international STEM (Science, Technology, Engineering and Mathematics)
recruitment company. 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 STHR
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.
INTERIM MANAGEMENT REPORT
Chief Executive Officer's Review
Introduction
At this, my first set of interim results as CEO of SThree, I am pleased to say that my time with
the business so far has reinforced my confidence in the three core strengths of SThree that
initially attracted me to the Group; our purpose, the strong structural growth drivers in our
markets, and the high quality of our people.
The clear benefits of our model and the structural growth drivers in our markets have shaped the
encouraging results we are reporting today. It is a great demonstration that the Group's focus on
STEM and Contract is delivering effectively. Particular highlights include Group net fees up 9%*
year on year, double-digit growth across three of our four regions, and Contract, our strategic
focus, delivering 12%* growth in the first half and now representing 74% of Group net fees.
Our purpose
Our purpose is central to everything we do as a business and is why we exist, "to bring skilled
people together to build the future". Our work is aimed at changing people's lives for the better
and this is something that motivates my colleagues and I on a daily basis. As market trends shift
and STEM skills become ever more prevalent, we are helping build communities of talent and
future-proof people's careers while providing our customers with their most valuable asset.
Market drivers
I have spent my time since March immersing myself in the business and it is apparent that we are a
truly unique recruitment business, working in high growth markets with long-term structural
drivers of growth. The scale of opportunity in STEM globally is enormous, with the fourth
industrial revolution fuelling an ever-increasing demand for STEM workers across all verticals. In
the USA, according to the US Bureau of Labor Statistics, all STEM occupations are projected to
grow by 10.8% between 2016 and 2026 (compared to projected growth of 7.2% for non-STEM
occupations). A recent survey of 25,000 businesses in Germany by The Association of German
Chambers of Commerce and Industry cited the shortage of skilled workers as their greatest risk,
while a study by Bertelsmann predicts that the demand for STEM experts in Germany will grow by 1.4
million by 2035.
Alongside this, the way we work is structurally shifting, with the 'gig' economy, flexible ways of
working, and the changing role of contractors becoming increasingly important. This is closely
tied into highly skilled roles, which underpin the STEM markets.
Within our verticals, the thematic trends we all read about - renewable energies, genetic editing,
Artificial Intelligence ("AI"), cyber security, the Internet of Things ("IoT") - are examples of
the key societal movements driving growth across our diversified portfolio of sectors. For their
implementation, these trends all require people that are hard to find, have specialist skills, or
are brand new roles that were not in existence previously. In times like this, there is even more
value in our niche market approach and knowledge base.
2019 has seen us continue to focus on the value we provide to our customers in terms of providing
specialist support, a key competitive advantage and a significant barrier to entry for the Group.
As an example, in the UK we have actively shared our knowledge on IR35 reform as our stakeholders
within the private sector gear up for the tax changes in April. Doing nothing is not an option for
organisations that rely upon flexible workers and as the leading provider of specialist STEM
talent, we have provided support and material to help our contractors and clients understand how
to remain both compliant and commercially attractive. Further to this, we have actively fed into
the ongoing UK Government Consultation.
Our People
We believe people are the most important asset to any business. SThree is no different and
investing in our teams is critical in delivering our growth plans. We increased average Group
sales headcount in the period, predominantly in Contract, in line with our strategic focus. Our
people are high performing and driven, and I would like to take this opportunity to thank them for
their hard work and passion throughout the period.
For the second year in a row, the German SThree team was awarded the 'Top Employer' certification
in the overall midsized employers' category by the Top Employers Institute. This marks SThree
being named amongst Germany's top midsized employers for the sixth consecutive year in a row,
which shows how well our own people rate our unique offering when it comes to excellent working
conditions and talent strategy.
Testament to the strength of delivery across the business is our excellent Net Promoter Score
("NPS"), from both clients and candidates, which since the year-end has increased from 42 to 46,
and shows our customers' willingness to recommend our services to others. It is clear that both
clients and candidates value our teams' ability to understand the specialty of the roles we work
to fill and also the specialist expertise our teams have - how to deliver the right result within
a given process.
Investing for the future
Building for the future is important to us, and we are investing in the areas that will drive
growth.
A key strategic focus is our investment in technology to help drive both growth and efficiencies;
we believe our ability to harness actionable data insights and use of technology will continue to
be a competitive differentiator going forward. Part of our strategy involves our ongoing
investment in data to allow us to further analyse not just current but emerging trends, giving us
unique insights into our markets and helping us to identify the best current and future business
opportunities. In addition, we are investing in solutions and technologies, which make our offer
both more compelling and more efficient - for SThree, for our customers and for candidates. We
will continue to review which investments are likely to deliver the right returns within our
buy/build/rent structure.
We will also continue to invest in our people and infrastructure, realising benefits for the
Group. An example of this is our relocation to Glasgow and the creation of a Centre of Excellence,
which is already delivering the benefits that we were expecting; we will continue to invest in
this Centre to improve efficiency throughout the business.
Regional performance
Our diversity across geographies and STEM sectors provides growth and resilience for the Group;
the Group now derives 86% of its revenue from our international business. Our largest region,
Continental Europe, continued to grow well, alongside USA. Both of these regions have benefitted
not only from capitalising on the wealth of opportunity available in their markets brought about
by growing demand, but also from the strong delivery from our teams and strategic initiatives that
have been put in place.
We have identified and focused on those areas of the business that need refinement. For example,
in the UK, we are spending time driving and resourcing the specific areas of skills and industry
sectors where we have the opportunity to get the best returns. We are in the process of
capitalising on the insight we have into the market dynamics and focusing on allocating resources
accordingly. Whilst these areas are a work in progress, we are confident in the ability of our
teams to deliver growth. Ultimately, our focus is on execution across the business, based on
informed and data-driven detail. We have plans in place to drive growth across all areas of the
Group.
Outlook
Overall, we are pleased with trading in the first half of the year, driven by our strategy to
focus on STEM and Contract, our global market exposure and the entrepreneurial spirit of our
dedicated colleagues. We will be building on this strategy, driving execution through detailed
operational plans, in the period ahead. Notwithstanding the macro-economic backdrop of certain
regions, the Group remains well positioned for the second half, and the Board's expectations for
the full year remain unchanged.
HY 2019 Group trading performance
Overview
We are encouraged by our first half performance with net fees up 9%*, and strong growth achieved
in Q2, also up 9%* YoY. The growing breadth and scale of our international operations, which now
account for 86% of net fees, underline how far the Group has grown from its UK roots. Whilst
broader market conditions are weakening in some parts of Continental Europe, the STEM markets
remain buoyant and we are confident we can maximise our opportunities with selective headcount
growth. The USA, our second largest market, continues to be robust. We are actively managing our
business in the UK, where broader macro pressures remain significant.
Our strategic focus on Contract continues to deliver good growth across our key sectors and
regions, as well as providing greater resilience in more uncertain economic conditions. Contract
net fees were up 12%* in H1 YoY and up 13%* in Q2, with Continental Europe, USA and Asia Pacific &
Middle East ('APAC & ME') delivering double digit growth. Our focus in H2 is to prioritise
investment in Contract in our fastest growing markets.
Permanent net fees were down 1%* in H1 YoY and down 2%* in Q2, driven by declines in UK&I and USA,
both reflecting previous strategic decisions which we anticipate will drive positive change going
forwards. We saw strong growth in DACH and our small, fast-growing business in Japan.
Adjusted Operating Profit was up 18%* YoY and we are well positioned for the second half as our
investment in headcount continues to mature and we benefit from a strong Contractor book.
The expected benefits are being realised from the successful restructure and relocation of the
majority of our London-based support functions to Glasgow.
Our investment in headcount, the quality of our management and increasing expertise in our niche
markets alongside the strategic relocation and restructure of our support functions are all
driving us forward on our journey to become the number one STEM talent provider in the best STEM
markets. We are making good progress against the five-year growth strategy outlined at the Capital
Markets Day in November 2017.
Group
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +12% +1% +9% +8% -4% +4%
19
Q2 +13% -2% +9% +13% +5% +10%
19
HY +12% -1% +9% 74% 26% +11% - +7%
19
* Variances are held in constant currency
Breakdown of net fees HY 2019 HY 2018 FY 2018
Geographical Split
Continental Europe 58% 56% 57%
USA 22% 20% 21%
UK&I 14% 18% 17%
Asia Pac & Middle East 6% 6% 5%
100% 100% 100%
Sector Split
Technology 45% 45% 44%
Life Sciences 19% 20% 20%
Banking & Finance 12% 13% 13%
Energy 11% 9% 10%
Engineering 10% 10% 10%
Other Sectors 3% 3% 3%
100% 100% 100%
Operating Review
Business Mix
Contract is well suited to our STEM market focus and geographical mix and it remained the key area
of focus and growth throughout the period.
Our Contract business has continued to go from strength to strength with increasing net fees and
average headcount up 11% YoY. Q2 was the 22nd consecutive quarter of net fees growth achieved by
Contract since it was given greater strategic focus. The period ended with contractor numbers of
10,749, up 4% YoY.
Permanent net fees were marginally lower with UK&I and USA net fees declining, reflecting the
previously reported UK restructuring and the leadership and strategic changes that we made in the
USA last year. Average sales headcount in our Permanent business remained flat. We have seen
strong growth in our largest Permanent region, DACH, up 9%*. Japan, our small but fast growing
business continues to perform strongly as we look to invest in this business further.
Average Permanent fees were up 1%* YoY as we focus on specialist recruitment. We expect to
strategically invest in Permanent in the remainder of 2019, predominantly in USA, DACH and Japan.
Regional Growth
We have seen strong growth in Contract across most regions. 86% of the Group net fees are now
generated from outside the UK&I with our largest regions growing well.
Continental Europe (58% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +14% +6% +12% +12% - +8%
19
Q2 +17% +5% +14% +13% +4% +10%
19
HY +16% +5% +13% 74% 26% +13% +2% +9%
19
* Variances are held in constant currency
Continental Europe is our largest region comprising businesses in Germany, Switzerland, Austria,
Netherlands, Belgium, France, Luxembourg and Spain.
The region delivered strong growth in the period with increasing net fees across all main country
markets. DACH, our largest territory in the region was up 15%* YoY and we continued to invest with
average headcount up 8%. Netherlands also performed strongly, with net fees ahead by 11%* YoY and
average sales headcount up 15%. Contract growth in Technology, our largest sector, was very
strong, up 19%*. This was supported by Engineering, which grew 40%*.
The region delivered double digit growth in contractors, up 12% YoY, creating growth opportunities
for H2, with Net Fees per Day Rate ('NFDR') up by 1%*. Net fees in this region performed
particularly well against very strong prior year comparatives.
Growth was also delivered in Permanent, driven by DACH up 9%*. This was in part down to an
increase in average fees for Technology, Banking and Finance alongside Energy.
USA (22% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +24% -1% +17% +7% -3% +4%
19
Q2 +21% -15% +10% +11% +14% +12%
19
HY +22% -10% +13% 78% 22% +9% +5% +8%
19
* Variances are held in constant currency
The USA is the world's largest specialist STEM staffing market and is our second largest region.
We continue to see further opportunities for growth in all our markets as STEM roles in the region
continue to be highly sought after and are projected to grow by 10.8% between 2016 and 2026.
Growth of 13%* YOY in the region was across our major sectors Technology, Life Sciences and
Energy. Life Sciences, our largest sector in the region, grew 10%* YoY. Energy continued to
improve in the region up 68%* with Technology up 10%*.
Contract net fees in USA were very strong up 22%* YoY with double-digit growth across all sectors
except Banking & Finance which declined in line with global trends. Energy performance was very
pleasing, with net fees up 73%* YoY as we continue to develop our customer portfolio, build on our
strong position in renewable energy, power transmission and upstream alongside broadening our
service offering. We have invested in our Contract business with average sales headcount growing
9% YoY. Net Fees per Day Rate ('NFDR') increased by 28%* YoY, as we focused on higher margin and
higher salary roles.
Permanent net fees declined 10%* YoY, largely due to the following previously announced leadership
and strategic changes made to the division. These changes were implemented to create a platform
for more consistent and balanced growth and we are confident we have made the right strategic
decisions for the region. We expect the positive impact of these changes to be seen in performance
during H2 2019 and beyond. Despite this it is encouraging to note that average fees in the region
were up 6%* YoY with all sectors experiencing growth. Year to date average headcount also
increased by 5% YoY.
UK&I (14% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 -5% -16% -7% - -29% -8%
19
Q2 -7% -32% -12% +12% -12% +5%
19
HY -6% -25% -9% 84% 16% +6% -22% -2%
19
* Variances are held in constant currency
The UK&I is one of our smaller regions, however it remains an important part of our business.
Following the previously reported restructuring, net fees in the region were down 9%* YoY, with a
2% YoY reduction in average headcount. We have put significant work into stabilising the region,
the benefits of which are beginning to show.
In line with the broader Group strategy, the region is increasingly Contract focused as we have
cautiously invested in specific opportunities within the STEM market. Following a recently
increased focus, we saw growth in Life Sciences, however this was offset by decline in all other
sectors. Overall our Contract business saw a decline in performance with net fees down 6%* YoY.
Demonstrating our continued commitment to UK&I over the first half we made the decision to
strategically invest in our Contract business with average sales headcount up 6% YoY. We
anticipate this headcount will become productive in the second half of the year. Contractors for
the region were down 4% YoY, however we saw our NFDR up 1%*, reflecting the increasingly targeted
approach of the UK&I business.
Reflecting continued macro-economic and political uncertainty, Permanent net fees declined 25%*
YoY. As part of the region's recent restructuring, we significantly reduced our headcount in our
Permanent division towards the end of H1 2018 and as a result our average sales headcount was down
22% YoY. Our move to a specialist hub and onshore delivery model is now in place and we will
continue to cautiously build our presence in key sectors to maximise opportunity.
APAC & ME (6% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +16% -3% +5% +11% +21% +17%
19
Q2 +14% +26% +20% +20% +20% +20%
19
HY +15% +11% +13% 43% 57% +15% +21% +18%
19
* Variances are held in constant currency
Our APAC & ME business principally includes Japan, Australia, Singapore and Dubai. APAC & ME
represented 6% of Group net fees, a slight increase from 5% at the end of 2018.
Contract performance was strong in the period, led by our Dubai business, up 42%*, with growth in
Banking & Finance and Energy sectors. Contractors grew 4% YoY in the region, with NFDR down 2%*
YoY.
Growth in Permanent net fees in the region was primarily driven by Japan, which was up 49%* YoY,
with strong growth in Life Sciences and Technology. We invested in Permanent headcount in Japan
where average sales headcount was up 65%.
Average headcount was up 18% YoY with Contract up 15% YoY and Permanent up 21% YoY.
We will focus on our investment in the Japan Permanent and Dubai Contract businesses in the second
half with the rest of the region managed to maximise profitability.
Sector Highlights
The Group saw good growth across four of our five sectors in the period. Technology, our largest
sector, Engineering and Energy experienced strong growth in the period. Our second largest sector,
Life Sciences, also saw robust growth.
Technology (45% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +9% +11% +10% +9% +3% +8%
19
Q2 +13% +7% +12% +15% +11% +14%
19
HY +11% +9% +11% 75% 25% +12% +7% +11%
19
* Variances are held in constant currency
Technology is our largest and most established sector representing, 45% of the Group net fees and
48% of the Group average sales headcount, with the majority of its business in the more mature
UK&I and European markets. Net fees for the period were up with growth across both Contract and
Permanent divisions. The sector has delivered 21 consecutive quarters of growth. The rate of
growth was impacted by the relatively soft performance of Technology in the UK&I, however all
other regions were in double digit growth. Contractors for the sector have increased by 10% YoY,
with particularly strong growth noted across Continental Europe. Average headcount in Technology
was up 11% YoY, with Contract growing 12% YoY and Permanent up 7% YoY. The mix in headcount is
weighted towards Contract which accounts for 71% of total Technology headcount.
Life Sciences (19% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +6% -3% +3% -1% -11% -5%
19
Q2 +11% +3% +8% +3% +2% +3%
19
HY +8% - +6% 69% 31% +1% -5% -1%
19
* Variances are held in constant currency
Our Life Sciences sector is a market leader across several of our regions and Life Sciences
represented 19% of Group net fees in the period. Total net fees grew by 6%* YoY with Contract
growing 8%* YoY and Permanent remaining flat*. Contract performance was pleasing and was up across
all regions. Contractors increased 7% YoY with NFDR up 1%* YoY. Average sales headcount was down
1% YoY, with Contract up 1% and Permanent declining 5%. The emergence of new technology and data
analytics in this sector is enhancing the ability of our highly skilled people to find the best
candidates to support the business and capitalise on the market opportunity.
Banking & Finance (12% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Growth YoY
Mix
Cont Perm Total Con Perm Cont Perm Total
t
Q1 -6% +1% -3% +7% -1% +3%
19
Q2 -12% -16% -13% +1% - -
19
HY -9% -8% -9% 58% 42% +4% - +2%
19
* Variances are held in constant currency
Banking & Finance net fees were down 9%* YoY with Contract down 9%* and Permanent down 8%*. In
line with broader trends, Banking & Finance was our only sector in decline and we saw mixed
results across our regions. We saw good growth coming out of our DACH business, which was up 24%*.
There was growth in our new Japan business, up 30%* along with Dubai, up 29%*. The UK&I business
performance continues to be impacted by broader political uncertainty. Average headcount for the
sector was up 2% YoY.
Energy (11% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +26% -4% +25% +1% +28% +2%
19
Q2 +30% +20% +29% +10% +67% +13%
19
HY +28% +10% +27% 95% 5% +6% +47% +8%
19
* Variances are held in constant currency
Energy represented 11% of our overall Group net fees and the sector has shown good growth. Net
fees in the sector were up 27%* YoY. Contract which represents 95% of our Energy net fees grew
28%* YoY. We continue to support our Contract business with headcount up 6% YoY. Contractors in
the sector declined 9% YoY, however NFDR showed strong growth, up 18%* YoY driven by the USA which
successfully repositioned to placing more niche roles within power transmission and renewables.
Continental Europe and USA account for 85% of our total net fees in the sector - USA saw growth of
68%* YoY with Continental Europe remaining flat*. Our Dubai business grew by 9%* YoY. Average
sales headcount was up 8% YoY and we will continue to review the Energy business and selectively
invest where we can maximise market opportunities.
Engineering (10% of Group net fees)
Net fees Average Sales
Headcount
Growth* YoY HY 2019 Mix Growth YoY
Cont Perm Total Cont Perm Cont Perm Total
Q1 +39% -17% +19% +28% +1% +19%
19
Q2 +18% -17% +9% +40% +6% +28%
19
HY +27% -17% +14% 78% 22% +34% +3% +23%
19
* Variances are held in constant currency
Engineering represented 10% of Group net fees and grew strongly, with net fees up by 14%* YoY. The
sector is heavily weighted towards Contract, which accounted for 78% of net fees. Growth in
Contract net fees was very pleasing up 27%* YoY. Continental Europe is our largest region in the
Engineering sector and we saw good overall growth of 25%* YoY. Contractors are up 16% YoY with
NFDR up 6%*. Average sales headcount was up 23% YoY with Contract up 34% YoY and Permanent up 3%
YoY.
CHIEF FINANCIAL OFFICER'S REVIEW
Operating profit
Revenue for the year was up 10% on a constant currency basis to GBP653.3 million (HY 2018: reported
GBP585.9 million) and up 12% on a reported basis. On a constant currency basis, net fees increased
by 9%, and on a reported basis by 10% to GBP163.0 million (HY 2018 GBP148.4 million). Growth in
revenue exceeded the growth in net fees as the business continued to shift towards Contract.
Contract represented 74% of the Group net fees in the period (HY 2018: 72%). This change in mix
resulted in a modest decrease in the overall net fees margin to 24.9% (HY 2018: 25.3%), as
Permanent revenue has no cost of sale, whereas the cost of paying the contractor is deducted to
derive Contract net fees. The Contract margin increased slightly to 19.8% (HY 2018: 19.6%).
The reported profit before tax was GBP22.7 million, up 27%. The adjusted profit before tax ('PBT')
was GBP24.0 million up 18% YoY (HY 2018: reported GBP17.8 million and adjusted GBP20.3 million). The
'adjusted' PBT excludes restructuring costs of GBP1.3 million that were incurred in the current
period in respect of the Senior Management changes and relocation of support functions to Glasgow
(HY 2018: GBP2.4 million). The benefits of operational efficiencies delivered by the restructuring
of our support functions contributed to the increase in the operating profit conversion ratio of
1.4 percentage points to 15.1% on an adjusted basis and 2.2 percentage points to 14.3% on a
reported basis (HY 2018: adjusted 13.7% and reported 12.1%).
Restructuring costs ('Adjusting items')
The expected benefits are being realised from the successful restructure and relocation of the
majority of our London-based support functions to Glasgow. This restructuring is anticipated to
realise cost savings in excess of GBP5 million per annum.
Only immaterial net exceptional costs of GBP0.1 million have been recognised during the period in
relation to the transition to the Centre of Excellence. The exceptional charge in the period
included mainly personnel double-running costs of GBP0.2 million and property costs of GBP0.3 million.
These costs were subsequently offset by the government grant income of GBP0.4 million recognised as
an offset to the exceptional costs of an agreed percentage of gross wages for each full time role
created in the Centre of Excellence, bringing the total net costs recognised to date to GBP13.2
million (HY 2018: GBP9.2 million).
We do not expect to incur any further exceptional costs in the remainder of the year 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.
On 14 December 2018, the Group communicated to the market that the Chief Executive Officer, Gary
Elden, would step down from his role and the Board on 18 March 2019. The new Chief Executive
Officer ('CEO'), Mark Dorman, joined the Group on 18 March 2019. The new CEO was appointed
following Gary Elden stepping down from the role after leading the Company for six years. Mark was
appointed after a rigorous process determined he was the best candidate to take the business
forward to its next stage of growth and development. These Senior Management changes resulted in
the exceptional charge of GBP1.2 million in HY 2019. The total charge comprised contractual
payments, recruitment and other professional fees, double running costs and relocation costs.
The non-recurring nature of these strategic projects continues to be of sufficient magnitude to
warrant separate disclosure as an exceptional item on the face of the Consolidated Income
Statement, in line with our accounting policies. Disclosure of items as exceptional highlights
them and provides a clearer, comparable view of underlying earnings.
A reconciliation of profit before tax on an adjusted basis to reported basis
HY 2019 HY 2018 Variance
GBPm GBPm GBPm
Reported profit before tax after 22.7 17.9 4.8
exceptional items
Net exceptional costs - charged to 1.3 2.4 (1.1)
operating profit
(i) Senior Management changes 1.2 - 1.2
(ii) Support functions relocation 0.1 2.4 (2.3)
Reported profit before tax and 24.0 20.3 3.7
exceptional items ('Adjusted')
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. We changed our accounting policies and made
retrospective adjustments accordingly.
IFRS 9 introduced new requirements for classification, recognition and impairment of financial
assets.
Overall, IFRS 9 had an immaterial impact on the Group. On the date of initial application of the
standard, no adjustments were made to the opening balance of retained earnings or other reserves.
In line with the transitional provisions in IFRS 9, comparative figures have not been restated.
From 1 December 2018, the Group presents changes in the fair value of all its equity investments
in other comprehensive income, as these instruments are held for long-term strategic purposes.
Certain investments in convertible bonds with the embedded conversion rights were reclassified
from 'available-for-sale' to 'financial assets held at fair value through profit or loss'. There
were no changes to the Group's existing impairment methodology for trade receivables.
IFRS 15, a new revenue recognition standard effective for the Group from 1 December 2018, was
adopted on the modified retrospective basis without restatement of comparatives. IFRS 15 permits
the recognition of contingent consideration provided that it is highly probable that a significant
reversal in the amount of cumulative revenue recognised 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.
Accordingly, on 1 December 2018 the Group revised the way the Contract accrual income is
estimated. This change resulted in a net (post-tax) adjustment of GBP2.4 million that reduced the
opening balance of retained earnings on the date of initial application of IFRS 15.
Further details are provided in note 1 to the Consolidated Interim Financial Report.
Investments
During the period, we continued to invest in in-house innovation initiatives, expensing a total of
GBP1.0 million on our 'build' programme. We have reprioritised our innovation effort towards our
most promising initiatives, one of which is Hirefirst, which was launched in October 2018 and is
at the early market testing stage and, generating its first revenues in the half.
We continued to hold non-controlling shareholdings in three innovation start-ups which, since the
date of initial application of IFRS 9 are fair valued through other comprehensive income. In the
six months to 31 May 2019, our investments in The Sandpit Limited and separately in Ryalto have
been written down by GBP0.8 million and GBP0.2 million respectively. 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. The downward
valuation of Ryalto equity rights was caused by the dilution in the existing shareholders'
ownership of Ryalto as a result of the company issuing new equity.
Taxation
The tax charge on pre-exceptional statutory profit before tax for the period was GBP6.5 million (HY
2018: GBP5.3 million), representing an effective tax rate ('ETR') of 27% (HY 2018: 26%). The ETR on
post-exceptional statutory profit before tax was 27% (HY 2018: 27%).
The ETR primarily reflects our geographical mix of profits. Other material items affecting the tax
charge include the European Union's Anti-Tax Avoidance Directive, and US Tax Reform. The Group is
also affected by the European Commission's state aid investigation into the UK's controlled
foreign company legislation. We continue to note this as a contingent liability.
Earnings per share ('EPS')
On an adjusted basis, EPS was up by 1.9 pence at 13.5 pence (HY 2018: adjusted 11.6 pence and
reported 10.1 pence), due to an increase in the adjusted profit before tax offset by an increase
of 1.2 million in weighted average number of shares. On a reported basis, EPS increased to 12.7
pence, up 2.6 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 (HY 2018: 128.7 million). Reported diluted EPS was 12.2 pence (HY 2018: 9.6
pence), up 2.6 pence. Share dilution mainly results from various share options in place and
expected future settlement of certain tracker shares. The dilutive effect on EPS from tracker
shares will vary in future periods depending on the profitability of the underlying tracker
businesses, the volume of new tracker arrangements created and the settlement of vested
arrangements.
Dividends
The Board proposes to pay an interim dividend of 5.1 pence (HY 2018: 4.7 pence), amounting to
approximately GBP6.7 million in total. This will be paid on 6 December 2019 to shareholders on
record at 1 November 2019. 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 of between 2.0x and 2.5x,
based on underlying EPS, over the short to medium term.
Cash Flow
On an adjusted basis we generated higher cash from operations at GBP12.0 million (HY 2018: GBP7.5
million on an adjusted basis). It reflects a combination of the improved underlying trading
performance in a number of markets and sectors, and the benefits of operational efficiencies
including cash collection.
Capital expenditure decreased to GBP1.2 million (HY 2018: GBP3.1 million) with lower spend on office
moves and IT infrastructure. Within the six months ended 31 May 2019, the bulk of the capital
expenditure was in relation to new IT hardware, GBP0.5 million.
Overall, the cash conversion ratio increased to 44% on an adjusted basis and 39% on a reported
basis (HY 2018: 22% on an adjusted basis or 13% on a reported basis). The net cash outflow from
exceptional restructuring items was GBP1.6 million (HY 2018: GBP2.1 million).
Income tax paid decreased to GBP6.3 million (HY 2018: GBP7.4 million) and dividends remained largely
unchanged at GBP6.1 million (HY 2018: GBP6.0 million). During the period, the Group also paid GBP0.9
million (HY 2018: GBP1.0 million) for the purchase of its own shares to satisfy employee share
schemes in future periods. Foreign exchange had a moderate positive impact of GBP0.5 million (HY
2018: positive impact of GBP0.2 million).
We started the period with net debt of GBP4.1 million and closed the period with net debt of GBP8.0
million (HY 2018: net debt GBP6.2 million).
A reconciliation of cash conversion ratio on an adjusted basis to reported basis
HY 2019 HY 2018
Adjusted Reported Adjusted Reported
Cash flows from GBPm GBPm GBPm GBPm
operating activities
Operating profit 24.6(1) 23.3 20.4(1) 18.0
Non-cash items 4.4(2) 4.7 5.1 5.1
Changes in working (17.0)(3) (17.6) (18.0)(4) (17.7)
capital
Cash generated from 12.0 10.4 7.5 5.4
operations
Capex (1.2) (1.2) (3.1) (3.1)
Cash conversion ratio 44% 39% 22% 13%
(%)
(1) Excludes GBP1.3 million in exceptional costs (HY 2018: GBP2.4 million)
(2) Excludes GBP0.3 million in IFRS 2 charge classified as exceptional (HY 2018: GBPnil)
(3) Added back GBP0.6 million in a net decrease in exceptional provision
(4) Excludes GBP0.3 million in a net increase in exceptional provision
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 half year, the Group
had drawn down GBP15.0 million (HY 2018: GBP22.5 million) on these facilities.
The RCF is subject to financial covenants and the funds borrowed under this facility bear interest
at a minimum annual rate of 1.3% above a three-month Sterling LIBOR, giving an average interest
rate of 2.0% during the period (HY 2018: 1.8%). The finance costs for the half-year amounted to
GBP0.6 million (HY 2018: GBP0.3 million).
The Group also has an uncommitted GBP5.0 million overdraft facility with HSBC.
Foreign exchange
Foreign exchange volatility continues to be a significant factor in the reporting of the overall
performance of the business with the main functional currencies of the Group entities being
Sterling, the Euro and the US Dollar.
For HY 2019, the YoY 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. The exchange rate movements increased our reported HY 2019 net
fees by approximately GBP1.6 million and operating profit by GBP0.4 million.
Exchange rate movements remain a material sensitivity. By way of illustration, each one per cent
movement in exchange rates of the Euro and the US Dollar against Sterling impacted our HY 2019 net
fees by GBP0.9 million and GBP0.4 million, respectively, and operating profit by GBP0.3 million and GBP0.1
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 and Uncertainties
Principal risks and uncertainties affecting the business activities of the Group are detailed
within the Strategic Report section of the Group's 2018 Annual Report, a copy of which is
available on the Group's website www.sthree.com [3].
In terms of macroeconomic environment risks, our strategy is to continue to grow the size of our
international business and newer sectors, in both financial terms and geographical coverage. This
will help reduce our exposure or reliance on any one specific economy, although a downturn in a
particular market could adversely affect the Group's key risk factors.
In the view of the Board, there is no material change expected to the Group's key risk factors in
the foreseeable future.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge:
(a) the Condensed Consolidated Interim Financial Report (unaudited) has been prepared in
accordance with IAS 34, "Interim Financial Reporting" as adopted by the European Union; and
(b) the Interim Management Report includes a fair review of the information required by the
Disclosure and Transparency Rules ('DTR') paragraph 4.2.7R (an indication of important events that
have occurred during the first six months of the financial year and their impact on the condensed
financial information, and description of principal risks and uncertainties for the remaining six
months of the financial year); and
(c) the Interim Management Report includes a fair review of the information required by DTR
paragraph 4.2.8R (disclosure of material related parties' transactions and changes therein during
the first six months of the financial year).
The Directors of SThree Plc are listed in the SThree Plc Annual Report for 30 November 2018. A
list of the current Directors is maintained on the Group's website www.sthree.com [3].
Approved by the Board 19 July 2019 and signed on its behalf by:
Mark Dorman Alex Smith
Chief Executive Officer Chief Financial Officer
www.sthree.com/investors [4]
Condensed Consolidated Interim Financial Report
Condensed consolidated income statement - unaudited
for the half year ended 31 May 2019
31 May 2019 31 May 2018
Before Exceptional Total Before Exceptional Total
exceptio items except items
nal ional
items items
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 2 653,268 - 653,2 585,94 - 585,9
68 0 40
Cost of sales (490, - (490, (437,5 - (437,
279) 279) 45) 545)
Net fees 2 162,989 - 162,9 148,39 - 148,3
89 5 95
Administrative 3 (138,383 (1,333) (139, (127,9 (2,434) (130,
expenses ) 716) 98) 432)
Operating profit 24,60 (1,333) 23,27 20,397 (2,434) 17,96
6 3 3
Finance income 29 - 29 46 - 46
Finance costs (628) - (628) (313) - (313)
Gain on disposal - - - 146 - 146
of associate
Profit before 24,007 (1,333) 22,67 20,276 (2,434) 17,84
taxation 4 2
Taxation 4 (6,481) 253 (6,22 (5,320 462 (4,85
8) ) 8)
Profit for the 17,526 (1,080) 16,44 14,956 (1,972) 12,98
period 6 4
attributable
to owners of the
Company
Earnings per 6 pence pence pence pence pence pence
share
Basic 13.5 (0.8) 12.7 11.6 (1.5) 10.1
Diluted 13.0 (0.8) 12.2 11.1 (1.5) 9.6
The accompanying notes on pages 16-25 form an integral part of this Interim Financial Report.
Condensed consolidated statement of comprehensive income -
unaudited
For the half year ended 31 May 2019
31 May 31 May
2019 2018
Note GBP'000 GBP'000
Profit for the 16,446 12,984
period
Other
comprehensive
income:
Items that may be
subsequently reclassified to
profit or loss:
Exchange 220 680
differences on
retranslation
of foreign
operations
Items that
will not be
subsequently
reclassified
to profit or
loss:
Net loss on 1 (983) -
equity
instruments at
fair value
through other
comprehensive
income
Other comprehensive income (763) 680
for the period (net of tax)
Total comprehensive income for the period 15,683 13,664
attributable to owners of the Company
The accompanying notes on pages 16-25 form an integral part of this Interim Financial Report.
Condensed consolidated statement of financial position -
unaudited
as at 31 May 2019
Audited
31 May 30 November
2019 2018
Note GBP'000 GBP'000
ASSETS
Non-current
assets
Property, 6,136 6,915
plant and
equipment
Intangible 8,614 9,609
assets
Investments 1 1,017 1,977
Deferred 2,633 2,750
tax assets
18,400 21,251
Current
assets
Trade and 270,383 285,618
other
receivables
Current tax 2,099 2,751
assets
Cash and 7 22,591 50,844
cash
equivalents
295,073 339,213
Total 313,473 360,464
assets
EQUITY AND
LIABILITIES
Equity
attributabl
e to owners
of the
Company
Share 9 1,321 1,319
capital
Share 30,795 30,511
premium
Other (5,408) (5,275)
reserves
Retained 70,544 75,116
earnings
Total 97,252 101,671
equity
Non-current
liabilities
Provisions 1,465 1,569
for
liabilities
and charges
Current
liabilities
Borrowings 8 15,000 37,428
Bank 7 15,620 17,521
overdraft
Provisions 8,854 9,614
for
liabilities
and charges
Trade and 175,282 191,742
other
payables
Current tax - 919
liabilities
214,756 257,224
Total 216,221 258,793
liabilities
Total 313,473 360,464
equity and
liabilities
The accompanying notes on pages 16-25 form an
integral part of this Interim Financial Report.
Condensed consolidated statement of changes in equity - unaudited
for the half
year ended 31
May 2019
Share Share Capital Capital Treas Currency Retained Total
capital premium redemption reserve ury translation earnings equit
reserve reser reserve y
ve attri
butab
le to
owner
s of
the
Compa
ny
Fair
valu
e
rese
rve
of
equi
ty
inve
stme
nts
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Audited 1,317 28,806 168 878 (8,53 (1,067) - 59,138 80,70
balance at 5) (1,083) 5
30
November
2017
Profit for - - - - - - - 12,984 12,98
the half 4
year ended
31 May
2018
Other - - - - - 680 - - 680
comprehens
ive income
for the
period
Total - - - - - 680 - 12,984 13,66
comprehens 4
ive income
for the
period
Dividends - - - - - - - (6,041) (6,04
paid to 1)
equity
holders
(note 5)
Dividends - - - - - - - (11,976) (11,9
payable to 76)
equity
holders
(note 5)
Settlement - - - - 121 - - (212) (91)
of vested
tracker
shares
Settlement 2 349 - - - - - - 351
of
share-base
d payments
Purchase - - - - (989) - - - (989)
of own
shares by
Employee
Benefit
Trust
(note 9)
Credit to - - - - - - 1,577 1,577
equity for
equity-set
tled
share-base
d payments
Total 2 X222 349 - - (868) 680 - (3,668) (3,50
movements 5)
in equity
Unaudited 1,319 29,155 168 878 (9,40 387 - 55,470 77,20
balance at 3) 0
31 May
2018
Audited 1,319 30,511 172 878 (7,83 1,505 - 75,116 101,6
balance at 0) 71
30
November
2018
Effect of - - - - - - - (2,392) (2,39
a change 2)
in
accounting
policy
(note 1)
Restated 1,319 30,511 172 878 (7,83 1,505 - 72,724 99,27
total 0) 9
equity at
1 December
2018
Profit for - - - - - - - 16,446 16,44
the half 6
year ended
31 May
2019
Other - - - - - 220 (983) - (763)
comprehens
ive income
for the
period
(note 1)
Total - - - - - 220 (983) 16,446 15,68
comprehens 3
ive income
for the
period
Dividends - - - - - - - (6,069) (6,06
paid to 9)
equity
holders
(note 5)
Dividends - - - - - - - (12,722) (12,7
payable to 22)
equity
holders
(note 5)
Settlement 2 284 - - 1,507 - - (1,507) 286
of
share-base
d payments
Purchase - - - - (877) - - - (877)
of own
shares by
Employee
Benefit
Trust
(note 9)
Credit to - - - - - - - 1,672 1,672
equity for
equity-set
tled
share-base
d payments
Total 2 284 - - 630 220 (983) (2,180) (2,02
movements 7)
in equity
Unaudited 1,321 30,795 172 878 (7,20 1,725 (983) 70,544 97,25
balance at 0) 2
31 May
2019
The accompanying notes on
pages 16-25 form an integral
part of this Interim Financial
Report.
Condensed consolidated statement of cash flows - unaudited
for the half year ended 31 May 2019
31 May 31 May
2019 2018
Note GBP'000 GBP'000
Cash flows from
operating activities
Profit before taxation 22,674 17,842
after exceptional items
Adjustments for:
Depreciation and 3,001 2,787
amortisation charge
Accelerated amortisation and impairment of - 724
intangible assets
Finance income (29) (46)
Finance cost 628 313
Loss on disposal of 8 8
property, plant and
equipment
Loss on disposal of - 70
subsidiaries
Gain on disposal of - (146)
associate
FX revaluation gain on (5) (29)
investments
Non-cash charge for 1,672 1,577
share-based payments
Operating cash flows before changes in
working capital and provisions
27,949 23,100
Decrease/(increase) in 3,187 (7,960)
receivables
Decrease in payables (19,905) (8,916)
Decrease in provisions (916) (777)
Cash generated from 10,315 5,447
operations
Finance income 10 25
Income tax paid - net (6,345) (7,445)
Net cash generated from/(used in) operating 3,980 (1,973)
activities
Cash generated from operating activities 5,606 127
before exceptional items
Cash outflow from exceptional items (1,626) (2,100)
Net cash generated from/(used in) from 3,980 (1,973)
operating activities
Cash flows from
investing activities
Purchase of property, (721) (1,718)
plant and equipment
Purchase of intangible (520) (1,380)
assets
Net cash used in investing activities (1,241) (3,098)
Cash flows from
financing activities
(Net repayments 8 (22,428) 10,453
of)/proceeds from
borrowings
Interest paid (570) (313)
Employee subscription 70 -
for tracker shares
Proceeds from exercise 286 342
of share options
Purchase of own shares (877) (989)
Dividends paid to 5 (6,069) (6,041)
equity holders
Net cash (used (29,588) 3,452
in)/generated from
financing activities
Net decrease in cash and cash equivalents (26,849) (1,619)
Cash and cash equivalents at beginning of 33,323 17,621
the year
Exchange gains relating 497 225
to cash and cash
equivalent
Net cash and cash 7 6,971 16,227
equivalents at end of
the year
The accompanying notes on pages 16-25 form an integral part of this Interim Financial Report.
Notes to the CONDENSED CONSOLIDATED Interim Financial REPORT - unaudited
for the half year ended 31 May 2018
1) Accounting policies
Corporate Information
SThree plc ('the Company') and its subsidiaries (collectively 'the Group') operate predominantly
in the United Kingdom & Ireland, Continental Europe, USA and Asia Pacific & Middle East. The Group
consists of different brands and provides both Permanent and Contract specialist recruitment
services, primarily in the Technology, Banking & Finance, Energy, Engineering and Life Sciences
sectors.
The Company is a public limited company listed on the London Stock Exchange and incorporated and
domiciled in the United Kingdom and registered in England and Wales. Its registered office is 1st
Floor, 75 King William Street, London, EC4N 7BE.
This Condensed Consolidated Interim Financial Report ('Interim Financial Report') of the Group as
at and for the half year ended 31 May 2019 comprises that of the Company and all its subsidiaries.
The Interim Financial Report is unaudited and has not been reviewed by external auditors. It does
not constitute statutory accounts as defined in section 434 of the Companies Act 2006. Statutory
accounts for the year ended 30 November 2018 were approved by the Board of Directors on 25 January
2019 and a copy was delivered to the Registrar of Companies. The auditors reported on those
accounts, their report was unqualified, did not draw attention to any matters by way of emphasis
and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The Interim Financial Report of the Group was approved by the Board for issue on 19 July 2019.
Basis of preparation
This Interim Financial Report for the half-year reporting period ended 31 May 2019 has been
prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34 Interim Financial Reporting as adopted by the European Union. The
Interim Financial Report is presented on a condensed basis as permitted by IAS 34 and therefore
does not include all disclosures that would otherwise be included in an annual financial report
and should be read in conjunction with the Group's 2018 annual financial statements, which were
prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted and
endorsed by the European Union.
The Directors have elected to change all references to "gross profit" in the financial statements
to "net fees" with effect from the half-year reporting period ended 31 May 2019.
Going concern
The Group's business activities, together with the factors likely to affect its future
development, performance and position are set out in the accompanying Interim Management Report.
The financial position of the Group, its cash flows, liquidity position and borrowing facilities
are shown in other sections of this Interim Financial Information.
Having considered the Group's resources and available banking facilities, the Directors are
satisfied that the Group has sufficient resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing this
Interim Financial Information.
Significant Accounting Policies
The accounting policies adopted are consistent with those applied in the preparation of the
Group's 2018 annual financial statements and corresponding interim reporting period, except for
the adoption of new and amended standards as set out below.
New Standards and Interpretations
A number of new or amended standards became applicable for the current reporting period and the
Group had to change its accounting policies and make retrospective adjustments as a result of
adopting the following standards:
· IFRS 9 Financial ·
instruments
· IFRS 15 Revenue from Contracts with Customers
As at the date of authorisation of this Interim Financial Information, the following key standards
and amendments to standards were in issue but not yet effective. The amendments listed below do
not have any impact on the amounts recognised in prior periods and are not expected to
significantly affect the current or future periods.
IFRS 2 (amendments) Share Based Payments
IFRIC 22 Foreign Currency Transactions and Advance Consideration
IFRIC 23 Uncertainty over Income Tax Treatments
The impact and timing of the adoption of IFRS 16 Leases is disclosed below. The Directors are
currently evaluating the impact of the adoption of all other standards, amendments and
interpretations, but do not expect them to have a material impact on Group operations or results
IFRS 16 Leases
IFRS 16 Leases ('IFRS 16') requires lessees to account for all leases under a single on-balance
sheet model similar to accounting for finance leases under IAS 17 Leases. For every lease brought
onto the balance sheet, lessees will recognise a right-of-use asset and a lease liability. The
only exceptions are short-term and low-value leases.
Within the income statement, operating lease rental payment will be replaced by depreciation and
interest expense. This will result in an increase in operating profit and an increase in finance
costs.
The standard will affect primarily the accounting for the Group's operating leases. Based on the
results of a preliminary impact assessment, on the date of initial application of IFRS 16, the
Group's net assets are expected to decrease by a range of GBP3 million to GBP4 million (a net result
of the recognition of lease assets at approximately GBP35 million to GBP40 million offset by lease
liabilities of GBP38 million to GBP44 million).
The new leasing standard is mandatory for first interim period within the annual reporting periods
beginning on or after 1 January 2019. The Group does not intend to adopt the standard before its
effective date. The Group will transition to IFRS 16 on a modified retrospective basis in the
financial reporting period commencing on 1 December 2019.
Changes in accounting policies
This note explains the impact of the adoption of IFRS 9 Financial Instruments ('IFRS 9') and IFRS
15 Revenue from Contracts with Customers ('IFRS 15') on the Group's financial statements and also
discloses the new accounting policies that have been applied from 1 December 2018, where they are
different to those applied in prior periods.
(a) Impact on the financial statements
As a result of the changes in the Group's accounting policies, normally prior year financial
statements have to be restated. As explained in point (b) below, IFRS 9 was adopted without
restating comparative information. The reclassifications and the adjustments arising from the new
fair valuation requirements and impairment are therefore not reflected in the statement of
financial position as at 30 November 2018. As explained in point (d) below, IFRS 15 was adopted on
the modified retrospective basis, whereby the adjustment arising from the revised Contract accrued
income policy was recognised in the opening balance of retained earnings on 1 December 2018.
The following tables show the adjustments recognised for each individual line item. Line items
that were not affected by the changes have not been included.
30 November IFRS 9 IFRS 15 1 December 2018
2018
Impact on the GBP'000 GBP'000 GBP'000 GBP'000
statement of
financial
position
(increase/(decrea
se)) (extract)
Current assets
Trade and other 285,618 - (13,017) 272,601
receivables
Current tax 2,751 - 766 3,517
assets
288,369 - (12,251) 276,118
Current
liabilities
Trade and other 191,742 - (9,859) 181,883
payables
Equity
Retained earnings 75,116 - (2,392) 72,724
(b) IFRS 9 - Impact of adoption
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 from 1 December 2018 resulted in changes in accounting policies; however
there were no adjustments to the amounts recognised in the financial statements. In accordance
with the transitional provisions in IFRS 9 paragraphs 7.2.15 and 7.2.26, comparative figures have
not been restated. Due to the immaterial impact of IFRS 9 adoption, the adjustment to the opening
balance of retained earnings or other reserves at 1 December 2018 was not recognised.
(i) Classification and measurement
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
recei
(Available-for-sale) vable
s
Financial assets - 1 GBP'000 GBP'000 GBP'000
December 2018
Closing balance 30 November - 1,977 285,6
2018 - IAS39* 18
Reclassify debt investments 435 (435) -
from available-for-sale to
FVTPL (note (i.a))
Reclassify equity - - -
investments from
available-for-sale to FVOCI*
(note (i.b))
Adjustments arising from the - - (13,0
adoption of IFRS 15 (note 17)
(d))
Opening balance 1 December 435 1,542 272,6
2018 - IFRS 9 01
*The closing balances as at 30 November 2018 show available-for-sale financial assets under FVOCI.
(i.a) Reclassification from available-for-sale to FVTPL
Certain investments in convertible bonds with the embedded conversion rights were reclassified
from available-for-sale to financial assets at FVTPL (GBP0.4 million at 1 December 2018). Due to the
embedded call option, they did not meet the IFRS 9 criteria for classification at amortised cost,
because their cash flows did not represent solely payments of principal and interest.
There were no related fair value gains or losses to transfer from the available-for-sale financial
assets reserve to retained earnings on 1 December 2018. Under IAS 39, the bonds were held at cost
less impairment.
On the date of the initial application of IFRS 9, the fair value of the bonds was equivalent to
the cost for these assets. There was no impact on retained earnings at 1 December 2018. In the six
months ended to 31 May 2019, an immaterial uplift was determined in the fair value of one bond
including the embedded option. Hence, no upward fair valuation was performed in the income
statement.
(i.b) Equity investments previously classified as available-for-sale
The Group elected to present changes in the fair value of all its equity investments in OCI, as
they are held for long-term strategic purposes. As a result, assets with the carrying value of
GBP1.5 million under IAS 39 were reclassified from available-for-sale financial assets to financial
assets at FVOCI under IFRS 9. There were no fair value gains or losses recognised for these
investments in other reserves in prior years. On the date of initial application of IFRS 9, the
Directors estimated fair value of the entire equity portfolio at GBP1.7 million. This represented an
immaterial uplift from the carrying value of GBP1.5 million under IAS 39, resulting in GBPnil impact
on retained earnings at 1 December 2018.
However, in the six months to 31 May 2019, the Directors wrote off GBP0.8 million in relation to the
investment in The Sandpit Limited and GBP0.2 million in relation to Ryalto. The write-off amounts
were recognised in OCI. The equity rights in The Sandpit Limited, which discontinued its
operations, were converted into a minority shareholding in The Sandpit Ventures Limited at an
immaterial nominal book value. The downward valuation of Ryalto equity rights was caused by the
dilution in the existing shareholders' ownership of Ryalto as a result of the company issuing new
equity. The amount of the write-off was recognised in OCI.
(ii) Impairment of financial assets
The Group has two types of financial assets that are subject to IFRS 9's new expected credit loss
model: trade receivables and cash and cash equivalents.
The Directors determined that the Group's existing impairment methodology for trade receivables is
overall compliant with IFRS 9.
Under the existing policy, trade receivables are grouped based on the days past due. For each
category, the Group applies fixed provision rates based on historical collection experience and
current economic trends. In addition, the Group performs an individual assessment for a selection
of exposures, using qualitative factors such as forward-looking expectations about debtor's credit
standing or macroeconomic conditions.
As such, no adjustment to the loss allowance or opening balance of retained earnings was
recognised on transition to IFRS 9.
The loss allowances increased by a further GBP0.9 million to GBP3.6 million for trade receivables
during the six months to 31 May 2019. The increase would have been same under the incurred loss
model of IAS 39.
The expected credit losses on cash and cash equivalents were immaterial owing to the short-term
nature of the Group's bank deposits and strict treasury policy which stipulates a list of approved
counterparties, with reference to their high credit standing, resulting in GBPnil impact on retained
earnings at 1 December 2018.
(c) IFRS 9 - Accounting policies applied from 1 December 2018
(i) Classification of investments and other financial assets
From 1 December 2018, the Group classifies its financial assets in the following measurement
categories:
· those to be measured subsequently at fair value (either through OCI, or through profit or
loss), and
· those to be measured at amortised cost.
The classification depends on the Group's business model for managing the financial assets and the
contractual terms of the cash flows. For assets measured at fair value, gains and losses will
either be recorded in profit or loss or OCI. For investments in equity instruments that are not
held for trading, this will depend on whether the Group has made an irrevocable election at the
time of initial recognition to account for the equity investment at FVOCI.
(ii) Measurement of investments and other financial assets
At initial recognition, the Group measures a financial asset at its fair value plus, in the case
of a financial asset not at FVTPL, transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are
expensed in profit or loss.
Financial assets with embedded derivatives are considered in their entirety when determining
whether their cash flows are solely payment of principal and interest.
Equity instruments
The Group subsequently measures all equity investments at fair value. Where the Directors have
elected to present fair value gains and losses on equity investments in OCI, there is no
subsequent reclassification of fair value gains and losses to the income statement following the
derecognition of the investment. Dividends from such investments continue to be recognised in the
income statement as other income when the Group's right to receive payments is established.
Changes in the fair value of equity investments at FVTPL are recognised in other gains/(losses) in
the income statement. Impairment losses (and reversal of impairment losses) on equity investments
measured at FVOCI are not reported separately from other changes in fair value.
Debt instruments
Subsequent measurement of debt instruments depends on the Group's business model for managing the
asset and the cash flow characteristics of the asset. At present, the Group classifies its debt
instruments into two measurement categories:
· Amortised cost: assets that are held for collection of contractual cash flows where those cash
flows represent solely payments of principal and interest are measured at amortised cost. Any
interest income from these financial assets is included in finance income using the effective
interest rate method. Impairment losses are recognised in the income statement.
· FVTPL: assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL.
A gain or loss on a debt investment that is subsequently measured at FVTPL is recognised in the
income statement and presented below operating profit in the period in which it arises.
(iii) Impairment
Under IFRS 9, the Group will continue to assess trade receivables for any expected credit losses
associated with the instrument based on historical collection experience, current and forward
looking economic trends.
(d) IFRS 15 - Impact of adoption
The adoption of IFRS 15 resulted in changes in accounting policies and adjustments to the amounts
recognised in the financial statements on 1 December 2018. In line with the transition provisions
in IFRS 15, the Group adopted the new 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 GBP2.4 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 IFRS 15
30 November Re-measurements 1 December 2018
2018
GBP'000 GBP'000 GBP'000
Trade and other 78,741 (13,017) 65,724
receivables
(Accrued income
only)
Trade and other (107,105) 9,859 (97,246)
payables
(Accruals only)
Current tax 2,751 766 3,517
assets
Post-tax (2,392)
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 766
IFRS 15
Opening retained earnings 1 December from adoption of 72,724
IFRS 15
(e) IFRS 15 - Accounting policies applied from 1 December 2018
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.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of the Interim Financial Report requires the Directors to make judgements,
estimates and assumptions that affect the application of accounting policies and the reported
amounts of assets and liabilities at the end of the reporting period, and the reported amounts of
revenue and expenses during the reporting period. Although these estimates are based on the
Directors' best knowledge of the amounts, the actual results may ultimately differ from these
estimates.
In preparing the Interim Financial Report, the significant judgements made by management in
applying the Group's accounting policies and the key sources of estimation uncertainty were the
same as those that applied in the Group's 2018 annual financial statements, with the exception of
changes in estimates that are required in determining the provision for income taxes.
Seasonality of Operations
Due to the seasonal nature of the recruitment business, higher revenues and operating profits are
usually expected in the second half of the year compared to the first half. In the financial year
ended 30 November 2018, 46% of net fees were earned in the first half of the year, with 54% earned
in the second half.
2) Segmental analysis
IFRS 8 'Segmental Reporting' requires operating segments to be identified on the basis of internal
results about components of the Group that are regularly reviewed by the entity's chief operating
decision maker to make strategic decisions and assess segment performance.
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. Operating segments have been identified based on reports reviewed by the Executive
Committee, which consider the business primarily from a geographical perspective. The Group
segments the business into four reportable regions: the 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'; both of these sub-regions were
aggregated into one reportable segment based on the possession of similar economic
characteristics.
The Group's management reporting and controlling systems use accounting policies that are the same
as those described in note 1 in the summary of significant accounting policies in the Group's 2018
annual financial statements.
Revenue and net fees by reportable segment
The Group measures the performance of its operating segments through a measure of segment profit
or loss which is referred to as 'net fees' in the management reporting and controlling systems.
Net fees are 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
31 May 31 May 31 May 31 May
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
Continental Europe 383,328 328,804 93,910 83,934
UK&I 124,662 131,721 23,779 26,501
USA 114,554 98,443 35,468 29,465
APAC & ME 30,724 26,972 9,832 8,495
653,268 585,940 162,989 148,395
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
31 May 31 May 31 May 31 May
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
Germany 163,296 142,005 47,673 42,811
Netherlands 126,512 109,015 24,738 22,371
UK 117,754 126,025 21,617 24,414
USA 114,554 98,443 35,468 29,465
Other 131,152 110,452 33,493 29,334
653,268 585,940 162,989 148,395
Non-current assets
31 May Audited
30 November
2019 2018
GBP'000 GBP'000
UK 12,054 14,354
Germany 966 1,060
USA 810 1,136
Netherlands 721 803
Other 1,216 1,148
15,767 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
31 May 31 May 31 May 31 May
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
Brands
Progressive 216,883 182,092 49,244 40,580
Computer Futures 193,957 168,141 49,511 44,991
Huxley Associates 121,849 122,942 28,762 29,306
Real Staffing Group 120,579 112,765 35,472 33,518
653,268 585,940 162,989 148,395
Other brands including Global Enterprise Partners, JP Gray, Madison Black, Newington International
and Orgtel are rolled into the above brands.
Reven Net fees
ue
31 May 31 31 May 31 May
May
2019 2019 2018
2018
GBP'000 GBP'000 GBP'000 GBP'000
Recruitment classification
Contract 610,563 544,0 121,098 106,705
62
Permanent 42,705 41,87 41,891 41,690
8
653,268 585,9 162,989 148,395
40
Revenue Net fees
31 May 31 May 31 May 31 May
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
Sectors
Technology 310,501 270,691 73,111 66,488
Life Sciences 97,536 90,748 31,532 30,594
Energy 88,362 75,976 18,379 14,013
Banking & Finance 79,082 87,597 18,777 20,066
Engineering 62,475 51,516 16,343 14,292
Other 15,312 9,412 4,847 2,942
653,268 585,940 162,989 148,395
Other includes Procurement & Supply Chain and Sales & Marketing.
3) Administrative expenses - Exceptional items
The expected benefits are being realised from the successful restructure and relocation of the
majority of our London-based support functions to Glasgow. This restructuring is anticipated to
realise cost savings in excess of GBP5 million per annum.
Only immaterial net exceptional costs of GBP0.1 million have been recognised during the period in
relation to the transition to the Centre of Excellence. The exceptional charge in the period
included mainly personnel double-running costs of GBP0.2 million and property costs of GBP0.3 million.
These costs were subsequently offset by the government grant income of GBP0.4 million recognised as
an offset to the exceptional costs of an agreed percentage of gross wages for each full time role
created in the Centre of Excellence, bringing the total net costs recognised to date to GBP13.2
million (HY 2018: GBP9.1 million).
We do not expect to incur any further exceptional costs in the remainder of the year 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.
On 14 December 2018, the Group communicated to the market that the Chief Executive Officer, Gary
Elden, would step down from his role and the Board on 18 March 2019. The new Chief Executive
Officer ('CEO'), Mark Dorman, joined the Group on 18 March 2019. The new CEO was appointed
following Gary Elden stepping down from the role after leading the Company for six years. Mark was
appointed after a rigorous process determined he was the best candidate to take the business
forward to its next stage of growth and development. These Senior Management changes resulted in
the exceptional charge of GBP1.2 million in HY 2019. The total charge comprised contractual
payments, recruitment and other professional fees, double running costs and relocation costs.
Due to the material size and non-recurring nature of these strategic projects, the associated
costs have been separately disclosed as exceptional items in the Consolidated Income Statement in
line with the treatment in HY 2018. Disclosure of items as exceptional, highlights them and
provides a clearer, comparable view of underlying earnings.
Items classified as exceptional were as follows:
31 May 31
May
2019
2018
Exceptional GBP'000 GBP'000
items -
charged to
operating
profit
Senior Management
changes
Contractual payments 731 -
for CEO departure
Recruitment and other 342 -
professional fees
Double running costs 56 -
Relocation costs 60 -
Total - Senior 1,189 -
Management changes
Support functions
relocation
Staff costs and 249 1,494
redundancy
Property costs 305 147
Other 29 793
Grant income (439) -
Total - Support functions relocation 144 2,434
Total net exceptional costs for the period 1,333 2,434
4) Taxation
Income tax for the half year is accrued based on management's best estimate of the average annual
effective tax rate for the financial year. The tax charge for the half year amounted to GBP6.2
million (HY 2018: GBP4.9 million) at an effective rate of 27% (HY 2018: 27%). The effective tax rate
on the pre-exceptional trading profits arising in the period is 27% (HY 2018: 26%).
5) Dividends
31 May 31 May
2019 2018
Amounts recognised as distributions to equity GBP'000 GBP'000
holders in the period
Interim dividend of 4.7p (2017: 4.7p) per share 6,069 6,041
Final dividend of 9.8p (2017: 9.3p) 12,722 11,976
per share
18,791 18,017
2018 interim dividend of 4.7 pence (2017: 4.7 pence) per share was paid on 7 December 2018.
2018 final dividend of 9.8 pence (2017: 9.3 pence) per share was approved by shareholders at the
AGM on 24 April 2019 and has been included as a liability in this Interim Financial Report. The
dividend was paid on 7 June 2019 to shareholders on record at 26 April 2019.
2019 interim dividend of 5.1 pence per share was proposed and approved by the Board on 19 July
2019 and has not been included as a liability as at 31 May 2019. It will be paid on 6 December
2019 to shareholders on record at 1 November 2019.
6) Earnings per share
The calculation of the basic and diluted earnings per share ('EPS') is set out below:
Basic EPS is calculated by dividing the earnings attributable to owners of the Company by the
weighted average number of shares in issue during the period excluding shares held as treasury
shares and those held in the Employee Benefit Trust which are treated as cancelled.
For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion
of dilutive potential shares. Potential dilution resulting from tracker shares takes into account
profitability of the underlying tracker businesses and SThree plc's earnings per share. Therefore,
the dilutive effect on EPS will vary in future periods depending on any changes in these factors.
31 May 31 May
2019 2018
GBP'000 GBP'000
Earnings
Profit for the period after tax 17,526 14,956
before exceptional items
Exceptional items net of tax (1,080) (1,972)
Profit for the period attributable 16,446 12,984
to owners of the Company
Million million
Number of
shares
Weighted average number of shares 129.9 128.7
used for basic EPS
Dilutive effect of share 5.3 5.9
plans
Diluted weighted average number of shares 135.2 134.6
used for diluted EPS
31 May 31 May
2019 2018
pence pence
Basic
Basic EPS before exceptional items 13.5 11.6
Impact of exceptional items (0.8) (1.5)
Basic EPS after exceptional items 12.7 10.1
Diluted
Diluted EPS before exceptional 13.0 11.1
items
Impact of exceptional items (0.8) (1.5)
Diluted EPS after exceptional items 12.2 9.6
7) Cash and cash equivalents
31 May Audited
30
Novembe
r
2019 2018
GBP'000 GBP'000
Cash at bank 22,591 50,844
Bank overdraft (15,62 (17,521
0) )
Net cash and cash equivalents per the 6,791 33,323
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.
The Group has cash pooling arrangements in place which allow any one account to be overdrawn up to
GBP50.0 million, so long as the overall pool of accounts do not exceed a net overdrawn position of
GBP5.0 million.
8) Borrowings
The Group has access to a committed 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% (HY 2018: 1.3%) above the appropriate Sterling LIBOR.
The average interest rate paid on the RCF during the year was 2.0% (HY 2018: 1.8%). The Group also
has an uncommitted GBP5 million overdraft facility with HSBC.
At the half year end, GBP15.0 million (H1 2018: GBP22.5 million) was drawn down on these facilities.
The RCF is subject to certain covenants requiring the Group to maintain financial ratios over
interest cover, leverage and guarantor cover. The covenants ratios are disclosed in the Group's
2018 annual financial statements. The Group has been in compliance with these covenants throughout
the current period. The RCF facility is available under these terms and conditions until 2023.
The Group's exposure to interest rate, liquidity, foreign currency and capital management risks is
disclosed in the Group's 2018 annual financial statements.
Movements in borrowings are analysed as follows:
GBP'000
Opening amount as at 1 December 2017 12,000
Net drawings during the period 11,089
Changes to carrying amount due to RCF refinancing (1) (636)
Unaudited closing amount as at 31 May 2018 22,453
Audited closing amount as at 30 November 2018 37,428
Net repayments during the period (22,336)
Changes to carrying amount due to RCF refinancing (1) (92)
Closing amount as at 31 May 2019 15,000
(1) GBP0.1 million (HY 2018: 0.6 million) million represents the unamortised amount of transaction
costs including those incurred on renegotiating the facility.
9) SHARE CAPITAL
During the period 139,665 (H1 2018: 123,633) new ordinary shares were issued, resulting in a share
premium of GBP0.3 million (H1 2018: GBP0.3 million). These shares were issued pursuant to the exercise
of share awards under the Save As You Earn scheme.
Treasury Reserve
Treasury shares represent SThree plc shares repurchased and available for specific and limited
purposes.
In the six months ended 31 May 2019, none of its own shares were purchased by SThree plc treasury
and no shares were utilised from treasury on settlement of Long Term Incentive Plan ('LTIP'), Save
As You Earn ('SAYE') or Share Incentive Plan ('SIP') awards. At the period end, 1,045,334 (HY
2018: 1,724,673) shares were held in treasury.
Employee Benefit Trust
The Group holds shares in the Employee Benefit Trust ('EBT'). The EBT is funded entirely by the
Company and acquires shares in SThree Plc to satisfy future requirements of the employee
share-based payment schemes. For accounting purposes shares held in the EBT are treated in the
same manner as shares held in the treasury reserve by the Company and are, therefore, included in
the financial statements as part of the treasury reserve for the Group.
In the six months ended 31 May 2019, the EBT purchased 290,000 (HY 2018: 923,000) of SThree plc
shares. The average price paid per share was 302 pence (HY 2018: 314). The total acquisition cost
of these shares was GBP0.9 million (HY 2018: GBP1.0 million), for which the treasury reserve was
reduced. During the period, the EBT utilised 466,554 (HY 2018: nil) shares on settlement of LTIP
awards. At the period end, the EBT held 1,146,783 (HY 2018: 1,419,407) shares.
10) Contingent liabilities
State Aid
In June 2019, the UK government filed an annulment application with the European Union General
Court, against the European Commission's decision of April 2019, that certain parts of the UK's
Controlled Foreign Company regime gave rise to State Aid. The Group has historically relied on
this regime in certain jurisdictions. Our maximum potential liability is estimated at GBP3.2
million. Given the UK government's annulment application, our assessment is that no provision is
required in respect of this issue. Despite the annulment application, under EU law the UK
government is still required to recover aid in line with the Commission's findings. In this event,
we expect any agreed amount to be held in escrow, pending resolution of the legal process.
Legal
The Group has contingent liabilities in respect of legal claims arising in the ordinary course of
business. Legal advice obtained indicates that it is unlikely that any significant liability will
arise. The Directors are of the view that no material losses will arise in respect of legal claims
that have not been provided against at the date of these interim financial statements.
11) RELATED PARTY DISCLOSURES
The Group's significant related parties are as disclosed in the Group's 2018 annual financial
statements. There were no other material differences in related parties or related party
transactions in the period compared to the prior period.
12) Shareholder communications
SThree plc has taken advantage of regulations which provide an exemption from sending copies of
its interim report to shareholders. Accordingly, the 2019 interim report will not be sent to
shareholders but will be available on the Company's website www.sthree.com [3] or can be inspected
at the registered office of the Company.
Financial Calendar
2019
13 September Q3 Trading update
1 November Ex-dividend date for 2019 interim dividend
21 November Capital Markets Day
30 November 2019 Financial Year end
6 December 2019 Interim dividend paid
13 December Trading update for the year ended 30 November 2019
2020
27 January Annual results for the year ended 30 November 2019
ISIN: GB00B0KM9T71
Category Code: IR
TIDM: STHR
LEI Code: 2138003NEBX5VRP3EX50
OAM Categories: 1.2. Half yearly financial reports and audit reports/limited
reviews
Sequence No.: 14099
EQS News ID: 844289
End of Announcement EQS News Service
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(END) Dow Jones Newswires
July 22, 2019 02:02 ET (06:02 GMT)
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