SThree plc
FINAL RESULTS FOR THE
YEAR ENDED 30 NOvember 2023
Resilient performance
sustained, underpinned by Contract
SThree plc ('SThree' or the
'Group'), the only global specialist talent partner focused on
roles in Science, Technology, Engineering and Mathematics (STEM),
today announces its financial results for the year ended 30
November 2023.
FINANCIAL HIGHLIGHTS
Continuing
operations
|
FY23
|
FY22
|
Variance
|
Reported
|
Like-for-like
(1)
|
Revenue (£ million)
|
1,663.2
|
1,639.4
|
+1%
|
flat
|
Net fees (£ million)
|
418.8
|
430.6
|
-3%
|
-4%
|
Operating profit (£
million)
|
76.4
|
77.6
|
-2%
|
-5%
|
Operating profit conversion
ratio
|
18.2%
|
18.0%
|
+0.2%
pts
|
-0.1%
pts
|
Profit before tax (£
million)
|
77.9
|
77.0
|
+1%
|
-2%
|
Basic earnings per share
(pence)
|
42.4
|
41.0
|
+4%
|
+1%
|
Proposed final dividend per share
(pence)
|
11.6
|
11.0
|
+5%
|
+5%
|
Total dividend (interim and final)
per share (pence)
|
16.6
|
16.0
|
+4%
|
+4%
|
Net cash (£ million)(2)
|
83.2
|
65.4
|
+27%
|
+27%
|
(1) Variance compares the
reported results for FY23 against FY22 on a constant currency
basis, whereby the prior year foreign exchange rates are applied to
current and prior financial year results to remove the impact of
exchange rate fluctuations.
(2) Net cash represents cash
and cash equivalents less borrowings and excluding
leases.
Full-Year Highlights
·
|
A resilient performance, with
Group net fees down 4% YoY(3) on a like-for-like
basis, against a record prior year (FY22: YoY growth: 19%) and
challenging global macro-economic backdrop.
|
|
o
|
Net fees across our three largest
countries, representing 73% of Group: Netherlands up 3%, Germany
and USA down 4% and 14% respectively.
|
|
o
|
Within skill verticals:
Engineering was up 17%, whilst Technology was down 2% and Life
Sciences was down 21%.
|
·
|
Contract net fees, which now
represent 82% of Group net fees (FY22: 78%), were up 1% driven by
robust contract extensions.
|
·
|
Permanent net fees, representing
18% of Group net fees, were down 22% reflecting both challenging
market conditions and our strategic transition towards Contract in
specific markets (average Permanent headcount down 17%).
|
·
|
Contractor order
book(4) of £184 million, whilst down 3% YoY versus a
record prior year comparator, represents sector-leading visibility
with the equivalent of c.4 months' net fees, providing a robust
platform for the year ahead.
|
·
|
Profit before tax of £78 million
(down 2% YoY on a like-for-like basis), ahead of market
expectations largely due to timing of recognition of Technology
Improvement Programme expenses, lower than expected final bonus and
commission payments, and the release of some specific bad debt
provisions following successful collections since the
year-end.
|
·
|
Strong balance sheet, with
£83.2 million in net
cash at year end (FY22: £65.4 million).
|
·
|
Final dividend proposed of
11.6 pence per share (FY22:
11.0 pence per share), taking full year dividend to 16.6
pence per share (FY22: 16.0 pence per share), up
4% YoY. This is in line with the previously communicated dividend
cover target between 2.5x and 3.0x.
|
·
|
Technology Improvement Programme
(TIP) remains on track and on budget with the first iteration now
live across the US business. This programme will be key to further
differentiating our proposition across our core markets, as well as
driving both scale and higher margins over
the mid-to-long term.
|
·
|
Delivering against our sustainable
business and ESG commitments:
|
|
o
|
Renewable business up 28% versus
FY22 (FY22: up 29% versus FY21), ahead of
our target to double the share of this business from FY19 to
FY24.
|
|
o
|
8% carbon reduction in FY23 in
comparison to FY19, our baseline year for our SBTi net zero
target.
|
|
o
|
Over 25,725 lives positively
impacted in FY23 (FY22: over 32,900).
|
|
o
|
39% of women (FY22: 32%) in
leadership positions as we progress towards achieving our ambition
of 50/50 representation in leadership.
|
Outlook
·
|
Contract extensions remain strong
whilst new business activity continues to be subdued for longer
than expected.
|
·
|
Productivity normalisation, as
previously communicated, combined with the recognition of deferred
TIP costs will temper the conversion ratio in FY24 from FY23
levels, yet we expect this will remain sector-leading.
|
·
|
Continued focus on sequenced rollout
of the TIP across rest of the Group, strengthening the Group's
position for long-term growth.
|
Timo Lehne, Chief Executive Officer,
commented:
Notwithstanding the broader
challenging economic environment, our delivery this year has been
resilient, especially against the context of a record prior year.
Our unique model and strategic focus have benefitted us throughout
the year, with our core areas of focus, STEM skills and flexible
talent, benefitting from structural growth drivers and providing us
with a strong platform both now and over the long term.
Following the successful roll out
of the first iteration of our Technology Improvement Programme in
one of our most complex regions yielding positive feedback from
candidates, clients and our teams, we look forward to the next
phase of sequential implementation across Germany, UK and
Netherlands. The opportunity this brings is extensive, both
operationally and commercially, with the ultimate goal of driving
scale and higher margins for the Group. In the year ahead we expect
to be able to share some early proof points.
We have been consciously investing
in and positioning the business for future growth and, whilst we
continue to operate in a challenging macro environment, this does
not change our focus. We have a resilient business, a talented team
and are building a market-leading technology suite. We are
confident that our investments and innovations put the Group in a
position of strength to capture market share as and when the market
returns to growth.
(3) All YoY growth rates
in this announcement are expressed at constant
currency.
(4) The contractor order book
represents value of net fees until contractual end dates, assuming
all contractual hours are worked.
Analyst conference call
SThree is hosting a webinar for
analysts and investors today at 08:30
GMT to present the
Group's results for the financial year ended 30 November 2023. If
you would like to register for the webinar, please
contact SThree@almastrategic.com.
SThree will issue its FY24 Q1
Trading Update on 19 March
2024.
The person responsible for this
announcement is Kate Danson, Company Secretary.
Enquiries:
SThree
plc
Timo Lehne,
CEO
via Alma
Andrew Beach, CFO
Keren Oser, Investor Relations
Director
Alma Strategic Communications
+44 20 3405
0205
Rebecca
Sanders-Hewett
SThree@almastrategic.com
Hilary Buchanan
Sam Modlin
Will Ellis Hancock
Notes to editors
SThree plc brings skilled people
together to build the future. We are the only global specialist
talent partner focused on roles in Science, Technology, Engineering
and Mathematics (STEM), providing permanent and flexible contract
talent to a diverse base of over 7,200 clients across 11 countries (excluding Ireland, Luxembourg and
Singapore, which as of 30 November 2023 were no longer going
concern). Our Group's circa 2,700 staff cover the Technology, Life
Sciences and Engineering sectors. SThree is part of the Industrial
Services sector. We are listed on the Premium Segment of the London
Stock Exchange's Main Market, trading with ticker code
STEM.
Important
notice
Certain statements in this announcement are forward looking
statements. By their nature, forward looking statements involve a
number of risks, uncertainties or assumptions that could cause
actual results or events to differ materially from those expressed
or implied by those statements. Forward looking statements
regarding past trends or activities should not be taken as
representation that such trends or activities will continue in the
future. Certain data from the announcement is sourced from
unaudited internal management information and is before any
exceptional items. Accordingly, undue reliance should not be placed
on forward looking statements.
CHair's statement
2023 has been another challenging
year for many people around the globe. Heightened levels of
geo-political and macro-economic instability have impacted
individuals, businesses and governments, creating an increasingly
complex commercial environment. Meanwhile, issues that were
prevalent last year, including high inflation and interest rates,
the rising cost of living and a global energy crisis have continued
to have an impact on our lives.
Our teams, customers and key
markets of operation have all been impacted differently by these
issues, yet I am proud that SThree has still delivered a resilient
performance this year, thanks to our strategic focus on sourcing
and placing the best STEM talent. Our robust performance in
Contract, supported by our unique Employed Contractor Model (ECM),
underpins our confidence in the megatrend that is the demand for
flexible workers in STEM. In the year we placed 15,292 skilled
people and maintained a strong orderbook throughout. I would like
to thank our clients and candidates for the trust they have placed
in the Group this year. I would also like to thank every
member of the SThree team for their efforts to support our
customers. It is thanks to their skill and dedication that SThree
finds itself in this position of strength today, with many exciting
opportunities to be pursued in the near future.
Since Timo's appointment as Chief
Executive Officer in April 2022 his energy and vision has spread
across the business, with the whole team coming together to execute
an exciting growth strategy. Our Technology Improvement Programme
underpins a large part of this strategy and I am delighted to
report that it continues to roll out at pace, providing a
market-leading platform for future growth and productivity that has
been designed to provide us with the best opportunity to continue
to seize market share in our target markets.
Following the resilient trading
performance in the year, coupled with a healthy balance sheet
position, the Board is proposing a final dividend at 11.6 pence per
share, which taken together with the interim dividend of 5.0 pence
per share, gives the total dividend for the year of 16.6 pence per
share, an increase of 4% over the prior year. This is in line with
the Board's policy to offer shareholders long-term ordinary
dividend growth within a targeted cover range of 2.5x to 3.0x and
forms part of our wider capital allocation policy.
Maximising shareholder value
through a disciplined approach to investment to deliver growth in
net fees and margin, whilst maintaining a strong balance sheet and
sustainable through-the-cycle dividend, remains a priority for the
Board. Following a periodic review, the Group's capital
allocation policy has been refreshed to reflect investments in
business improvement alongside organic and inorganic growth as a
key aspect of our strategy.
Across the Group, we are clear on
our ambitions and delivering our strategy. With the addition of
Margot van Soest (managing director, Netherlands and Spain), Sarah
Mason (Chief People Officer) and Matt McManus (managing director,
USA) to the Executive Committee, coupled with the appointment of
Imogen Joss as Non-Executive Director early in the financial year,
we have an enhanced, experienced executive leadership team and
Board in place to drive the Group forward. I would like to thank
both the executive team and Board for all their hard work this
year, alongside those inside and working together with our business
who have helped us achieve a resilient set of results. I am
especially proud of our promotion to the FTSE 250, after too many
years of absence. This is a clear reflection of the progress we
have made, and is another key milestone in SThree's ongoing
journey.
We remain committed to reducing
our impact on the planet, providing great opportunities for our
people and ensuring we have the governance processes in place to
protect each and every SThree stakeholder. We are proud to support
the transition to a green economy by connecting engineering talent
to the green energy projects where they are most needed, and we are
dedicated to making SThree an employer of choice for staff. I am
delighted that, for the first time, through targeted ownership
opportunities, over 50% of our employees are now shareholders in
the business, something we see as the ultimate vote of confidence
in our direction of travel, providing strong alignment with our
wider shareholder base.
Looking ahead, while we remain
conscious of the wider economic environment, I am confident that
the Group will continue to deliver against our strategy. We have
continued to invest across the business, enhancing and innovating
how we operate so that as customer confidence strengthens and the
market returns to growth, we are in the best position possible to
seize the opportunity. With a market leading technology suite
underpinning our future operations and a talented and experienced
team in place, we are confident in the Group's long-term
prospect.
James Bilefield
Chair
29 January 2024
Chief executive officer's statement
I am proud of the work we have
achieved over the past year. The Group has performed well against a
challenging economic backdrop, demonstrating the resilience of our
business model and strength of our strategy, with the megatrend of
demand for flexible STEM workers persisting across our core
markets. Through this, we have invested in our people,
infrastructure, product offering and made excellent progress in the
positioning of SThree for sustainable long-term growth.
The strength of the Group derives
from our clear purpose: bringing skilled people together to build
the future. We firmly believe that the future is flexible STEM
talent. Underpinned by long-term megatrends, the two growth drivers
of STEM and flexible talent have proven resilient through cycles,
providing a unique business model that delivers quality of earnings
and good visibility.
Whilst this core purpose remains
consistent, we must also evolve. As a business consciously aligned
to megatrends, we are acutely aware of how these structural forces,
such as digital transformation, changing patterns of work, and the
opportunities presented by artificial intelligence are affecting
every industry. We have established a position as a leading
specialist talent partner, built over decades through unrivalled
STEM networks, long-term client relationships and deep expertise,
all of which work together to create significant competitive
differentiation. From this, we are progressing to the next stage of
our growth journey as a digital-first organisation, with an
integrated end-to-end platform that will redefine our potential and
support us in unleashing our vision.
At the same time, we continue to
be guided by our disciplined and focused approach to our investment
decisions, supported by a robust business model. For FY23, the
Group delivered net fees of £419 million, 4% down on the record
prior year performance. With ongoing exceptional levels of
productivity combined with tight cost control, whilst also
benefiting from spend recognition timing on the Technology
Improvement Programme (TIP) (without impacting delivery) we
delivered operating profit of £76 million. This was delivered
alongside a material increase in net cash balance to £83 million
and a contractor order book of £184 million. This provides us with
the financial strength and flexibility to pursue our market
opportunity and to deliver value to shareholders.
Our approach: a platform of STEM resourcing solutions
supporting our customers' business ambitions
The Group provides solutions to
customers predominately through the placement of specialist STEM
Contract skills, representing 82% of total net fees, as this model
is particularly well aligned to employee and employer preferences
in STEM roles. Within this, we have also established a specific
expertise in delivering ECM, whereby contractors are directly
employed by SThree and which is increasingly a source of growth for
the business, now comprising nearly 50% of the contractor order
book. We also provide our clients with high-value Permanent skills
in select, strategic markets. The Group's STEM proficiency across
all three employment models, whether it be Contractors, ECM or
Permanent roles, allows us to offer the best solution to meet our
customers' bespoke requirements.
We wrap this in a customer-centric
service delivery approach, working collaboratively with our clients
to source the scarce skills on which they depend, building enduring
relationships with our contractors who view SThree as a partner in
their career development. We are a people business, and we are
super-charging our teams through the implementation of a
sophisticated and integrated IT infrastructure. This is bringing
our organisation closer together to drive scale, efficiencies and
productivity, particularly in our growing ECM business which is
complex and compliance heavy. We believe this will be a
game-changer in the industry.
The market: our model performing in a challenging
environment
Global macro-economic factors
through the year, such as high inflation, market uncertainty and
high interest rates weighing on investment decisions, have created
a challenging labour market. Many organisations took stock of their
previous expansive hiring initiatives to reassess their footprint
in light of a weakening outlook.
The priority for organisations
shifted to business-critical requirements, which for many is
represented by STEM Contract skills. Whether it be engineers, cyber
security specialists or medical scientists, organisations across
sectors are dependent on these skills to function effectively. We
saw these market dynamics play out during the year with robust
extensions as clients sought to retain critical STEM skills helping
to somewhat offset weaker new placement activity across the
market.
Progressing our ESG commitments
As we navigate through periods of
transient market conditions, we do not lose sight of our ESG
commitments. We know that a successful business is a responsible
one, seeking to deliver a positive outcome for all stakeholders. As
such, we are pleased to have not only made continued progress
against the clear ESG targets we have set ourselves, but to have
also strengthened our environmental ambitions during the year with
a new science-based target (SBTi-verified) of net zero before 2050.
This complements the work we do every day promoting jobs that will
build a sustainable future, and we are delighted to have achieved
our target of doubling the share of our global renewables business
ahead of the target date of FY24.
We continue to strive for social
mobility and equity in STEM by encouraging diversity in our talent
pipeline. We do this through our Elevate Careers programme and our
partnership with Women Who Code where we have funded scholarships
for 3,700 women. In FY23, we welcomed 47 women to our
internal talent programme, Identify. We can see how the programme
is improving retention and progression of our female employees, but
we recognise we need to do more to make progress towards our
ambition to have 50/50 women in leadership roles and this will
continue to be a priority in FY24.
Strategic execution
Our places - knowing where
to play, play where we can win
Our analytical and data-driven
approach informs the regional and vertical mix we choose to operate
in. Over the year we forensically analysed and validated our
footprint, reconfirming our confidence in our active market
coverage of 11 countries strategically focused in the biggest STEM
markets. With an average share of under 3%, we believe there is
substantial scope to scale, both organically and, given the highly
fragmented and niche landscape, through select acquisitions that
align with the Board's strict criteria, and in doing so, realise
the increasing benefits of economies of scale.
This analysis also brought greater
clarity and insight into the strategic direction for our regions -
understanding where our core opportunities lie to drive margin and
higher value, versus those regions ripe for steady growth or fast
scaling opportunities. Within this context we continue to refine
how we go to market. Within the US, we reinforced our presence by
moving away from a brand-led management structure, to having strong
fully-integrated regional teams serving all of our brands, and
across the organisation we introduced new tools and dashboards to
bring greater performance insight.
Our platform - digital
first
We have bold ambitions to be a
digital-first innovator in a traditionally analogue industry, and
we see huge scope to drive higher margin growth by leveraging the
power of modern technology. The systematic roll out of our TIP
continues to progress on track and on budget, with our first
deployment successfully completed in the US. Whilst we continue to
work on data quality testing, it is evident that the "end-to-end"
platform is working. We already have onboarded over 2,000
contractors, using it to submit timesheets, while to date we have
issued over 15,000 invoices reflecting around $70 million of
revenue.
We are seeing the early benefits
from our first deployment, including the systemising of best
practice and process efficiencies, helping to improve both employee
and client experiences. Our disputed invoice volume has fallen
considerably as a result of improved data collection, and our
contractor payment process, which previously required a high
proportion of manual intervention due to its complexity, has been
streamlined significantly, freeing teams up to be more productive.
As we have said before, the wider benefits around efficiencies and
scaling will become evident with time as the TIP progresses, and
the platform develops richer functionality.
We look ahead to our next regional
deployment in Germany, commencing in the first half of FY24. We
have a great team in place and are confident in our approach as
proven by deployment in the US.
Our people - best employer,
best people
The engine of our business is our
brilliant people, and as such, we are focused on making our
business a destination employer, attracting and retaining the best
talent, in order to support our collective push as one team to
achieve our growth ambition. The key metric we monitor to assess
our standing is our employee net promoter score, and we were
pleased to have comfortably retained our position this year in the
top quartile of professional services companies. We continue to see
high engagement across our employee surveys, there is growing
uptake across the organisation of our DE&I learnings initiative
launched in the previous year, and the soft launch of our newly
redefined values in H2 to our sales leadership team is helping
shape our culture as we grow.
With relation to the TIP, whilst a
great deal of focus is on IT migration and data management, key to
our programme is our training and change management initiatives
working to ensure our teams understand our new capabilities and
have the skills to adopt new ways of working. We have also started
some bigger programmatic work, taking the global best practices and
looking to standardise excellence.
Building on this, we will look to
embed our new values across the Group. Other priorities are centred
on ensuring we have the right incentives and infrastructure to
allow our people to thrive, including the continued optimisation of
our office footprint in line with current working model
expectations, new talent management programmes to retain key talent
and drive shorter time-to-productivity, and ongoing efforts to
ensure an inclusive working environment that promotes best practice
and ambition.
Our position - a winning
brand with competitive and differentiated value
propositions
We are committed to providing
best-in-class STEM staffing services to our clients and candidates
by leveraging our global network of specialised brands. Our
approach ensures that every client receives tailored solutions,
unparalleled expertise, and a pathway to reach their goals amid an
ever-changing landscape whilst helping candidates realise their
career ambitions. During the year, we reinforced our go-to-market
brand position in specific vertical skills, elevated our
thought-leadership through new research 'How the STEM world
evolves', and established a Group Commercial function under a new
Chief Commercial Officer position to coordinate our commercial
strategy.
Outlook
As we look forward, Contract
extensions remain strong and provide an ongoing source of
resilience, although as we await an easing of the macro-economic
backdrop, new business activity continues to be subdued for longer
than expected. Our conversion ratio, whilst anticipated to temper
from the exceptional FY23 levels as our staged investment programme
progresses, is expected to remain sector leading. We have
been consciously positioning the business for the future and whilst
we continue to operate in a challenging market environment, this
does not change our focus. We have a resilient business, a talented
team, great client and candidate partnerships, and we are building
a market leading technology suite. With our investments and
innovations, we are confident that when the market returns to
growth, we will be in a position of strength to source the best
STEM talent the world needs.
Timo Lehne
Chief Executive Officer
29 January 2024
Group financial and OPERATIONAL REVIEW
Overview
The Group has delivered a
resilient net fee performance during the year with net fees down 4%
against a record prior year performance and challenging global
macro-economic backdrop.
Our Contract business, which is
our main strategic area, grew net fees by 1% and now represents 82%
of the Group net fees. To grow Contract net fees against such a
challenging market backdrop, is a particularly pleasing result. The
contractor order book closed at £183.5
million, down 3% YoY but provides good
visibility for the year ahead. Permanent
net fees were down 22% reflecting both global market conditions and
record comparatives, particularly in Life Sciences, together with
our targeted investment towards Contract in specific
markets.
From a skills perspective, most
notable during the year has been the impact of reduced expenditure
in the Global Life Sciences sector, which has affected the
performance of most markets, with the greatest exposure and impact
on our USA business. As a result, we saw a decline in Life Sciences
net fees of 21% across the Group, though this was mostly offset by
an increase in Engineering which was up 17%.
Overall, the Group reported
operating profit was £76.4 million (FY22: £77.6 million), down 5%
from the record performance achieved last year, reflecting ongoing
exceptional levels of productivity together with tight cost
control, including the benefits of the restructuring of certain
markets at the end of FY22, whilst also
benefiting from spend recognition timing on the Technology
Improvement Programme (TIP) (without impacting
delivery). Despite the challenging macro
environment, we continue to see productivity levels exceed our
expectations and anticipate this to moderate further until the
market conditions improve and benefits of the TIP begin to
materialise. Our profit also benefited from some delayed cost
recognition (£2m-£3m) on the programme, which will be incurred in
FY24 together with the commencement of licences and amortisation of
the new technology. Combined with a continuing decline in
productivity in the very short term we expect margins to temper in
FY24 before improving in FY25.
The Group average headcount for
the year was down 2% YoY which was partly impacted by the
restructure of the Singapore, Hong Kong and Ireland businesses and
also impacted by the strategic decision to reduce our average
Permanent headcount by 17% YoY.
Update against 2024 ambitions
In line with our 2024 ambitions to
deliver growth and value for our Group and all stakeholders, we
continued to make good progress in our journey to become the number
one STEM talent provider in the best global STEM markets. In this
financial year, our key achievements included:
·
|
Market Share: Our net fee growth
vs FY19: Remains ahead of peers in four
out of our five largest markets (Germany, the Netherlands, the UK
and Japan).
|
·
|
Conversion Ratio: Achieved a
sector-leading operating profit conversion ratio of 18.2% in FY23.
Our underlying conversion ratio, both before and after costs
associated with the TIP, continued to exceed our pre-Covid
performance. We remain committed to our ambition of achieving
margins at 21% or higher in the mid to long-term, however as
previously stated we expect current macro-economic headwinds to
dampen margin progression in the short term.
|
·
|
People: Group-wide eNPS was 43 at
the end of FY23; supported by DE&I networks and the launch of
the third cohort of the Identify leader programme, our eNPS remains
within the top quartile of Professional
Services industry.
|
·
|
Planet: Reduced our carbon
emissions by 8% versus FY19 (the base
year). Furthermore, in the fight against climate change, we
launched several actions to educate and influence sustainable
behaviours across the business to ensure we make progress towards
our SBTi-verified net zero targets which were announced in April
2023. We also grew our renewables business by
28% YoY, to represent 10% of Group net fees at
FY23.
|
·
|
Positively impacted over 25,725 lives through delivering recruitment
solutions and community programmes in FY23 alone.
|
Group net fees by geography, sector and
division
Group net fees
|
% of Group
|
FY23
(£'000)
|
FY22
(£'000)
|
Variance
|
Reported
|
Like-for-like
(1)
|
Geographical
mix (2)
|
|
|
|
|
|
DACH
|
36%
|
148,925
|
148,922
|
-
|
-3%
|
USA
|
23%
|
96,410
|
111,545
|
-14%
|
-14%
|
Netherlands (including
Spain)
|
19%
|
82,149
|
75,661
|
+8%
|
+6%
|
Rest of the Europe
|
17%
|
70,439
|
73,093
|
-3%
|
-4%
|
Middle East & Asia
|
5%
|
20,852
|
21,395
|
-
|
+3%
|
Total
|
100%
|
418,775
|
430,616
|
-3%
|
-4%
|
|
|
|
|
|
|
Skills mix
|
|
|
|
|
|
Technology
|
48%
|
202,510
|
203,184
|
-
|
-2%
|
Engineering
|
26%
|
108,820
|
92,083
|
+18%
|
+17%
|
Life Sciences
|
18%
|
75,516
|
95,172
|
-21%
|
-21%
|
Other
|
8%
|
31,929
|
40,177
|
-21%
|
-20%
|
Total
|
100%
|
418,775
|
430,616
|
-3%
|
-4%
|
|
|
|
|
|
|
Service
mix
|
|
|
|
|
|
Contract
|
82%
|
343,502
|
334,215
|
+3%
|
+1%
|
Permanent
|
18%
|
75,273
|
96,401
|
-22%
|
-22%
|
Total
|
100%
|
418,775
|
430,616
|
-3%
|
-4%
|
(1) Unless specifically stated,
all Growth rates in this announcement are expressed at constant
currency.
(2) In FY23, SThree has changed
its reporting structure. The new groupings are: DACH, Netherlands
(including Spain, which is managed from the Netherlands), Rest of
Europe, USA and Middle East & Asia.
Business mix
The Group
is well diversified, both geographically
and by the skills; we place across multiple
sectors. Our top
three countries now represent 73% of Group net fees, with Germany
accounting for 31%, USA 23% and the Netherlands 18% of Group net
fees.
Our Contract business grew by 1%
on a like-for-like basis and now represents 82% of the Group net
fees. Our Permanent business, which now represents 18% of the Group
net fees, saw net fees decline 22% in the year, reflecting
challenging market conditions across all regions, together with the
previously announced transition from Permanent to Contract in
certain markets which is largely complete. Average Permanent
headcount was down 17% YoY. Our market invest model enables
us to continually review our markets to prioritise investments
where we see opportunities for growth and the strongest
returns.
Technology, which represents 48%
of the Group net fees, declined by 2% YoY, while Engineering which
represents 26% of net fees grew by 17%. These were offset by the
decline in Life Sciences of 21% due to reduced global expenditure
in that sector, though we note that net fees from that sector
remain comfortably above pre-pandemic levels. Life Sciences now
represents 18% of the Group net fees.
Operational review by reporting
segment
DACH (36% of Group net fees)
|
FY23
|
FY22
|
Variance
|
Performance highlights
|
Reported
|
Like-for-like
|
Revenue (£'000)
|
524,732
|
539,014
|
-3%
|
-6%
|
Net fees (£'000)
|
148,925
|
148,922
|
-
|
-3%
|
Average total headcount
(FTE)
|
877
|
874
|
-
|
n/a
|
Impact of
megatrends
We have seen the five megatrends
continue to drive STEM demand, with only a slight downturn in our
Life Science business, reflecting the global market challenge in
this skills vertical.
There is still a war for talent in
the DACH territories as employers struggle with a shortage of STEM
talent. Retirement of the baby boomer generation and insufficient
replacements from younger cohorts is intensifying STEM skill
shortages. That, combined with still high inflation rates, is
likely to lower GDP growth in DACH countries.
FY23 performance
highlights
DACH region saw net fees decline
by 3% YoY, with Contract down 1% and Permanent down 8%. This was
primarily driven by our greater exposure to small- to medium-sized
enterprise clients, which are more inclined to reduce investment in
the face of greater macro-economic challenges than our enterprise
clients. Germany, our largest country in the region (88% of net
fees), saw Contract down 1% with overall net fees down 4%, driven
by Engineering up 13%, offset by Technology and Life Sciences, down
4% and 16% respectively. Switzerland saw net fees grow 2% YoY
driven by Engineering and Technology, with Austria net fees flat
YoY.
Our
people
Like most firms, we continually
review our Employee Value Proposition to ensure we attract and
retain talent. It includes our hybrid working policy, developing
the office into an appealing place where people can connect,
collaborate and receive coaching. We aim to encourage more staff
into the office environment by enhancing our spaces as leases come
up for renewal.
The Technology Improvement
Programme (TIP), due to roll out in Germany at the beginning of
FY24, will enable us to increase the productivity of our employees
by giving them state-of-the-art tools to be more effective in their
day-to-day work.
We invested in the development of
our leadership through the Leading with Purpose programme. We will
also be reviewing training delivery at all staff levels as it has
become rather too online centred in response to the Covid 19
pandemic. Our aim is to introduce a more balanced mix of online and
classroom training.
Reasons for
confidence
We remain well positioned in
flexible working with our strong ECM offering, whilst our Permanent
business has increasingly moved up the salary/seniority range.
Together, that enables us to be a full solution provider to our
customers and grow the value of each of our clients.
In FY23, we continued to invest in
growing our strategic accounts relationships and public sector
business. The fact that we succeeded in our application for a
permanent ECM licence will allow us to further invest in ECM and
truly use ECM as a growth engine for our business in
Germany.
In the short term, we will
continue to operate under volatile market conditions, However, we
remain confident that we can achieve our ambition of doubling our
business by FY28, by being a partner of choice to our customers,
employer of choice for our people and creating a high performance
culture in which we all operate to the highest standards, proud to
pursue our purpose.
USA (23% of Group net fees)
|
FY23
|
FY22
|
Variance
|
Performance highlights
|
Reported
|
Like-for-like
|
Revenue (£'000)
|
328,293
|
338,221
|
-3%
|
-3%
|
Net fees (£'000)
|
96,410
|
111,545
|
-14%
|
-14%
|
Average total headcount
(FTE)
|
473
|
539
|
-12%
|
n/a
|
Impact of
megatrends
Significant investment into
clean energy projects has been announced in the USA since federal
clean energy incentives were signed into law. 83 new or expanded
clean energy manufacturing facilities are creating demand for
nearly 30,000 new jobs while the total number of renewable energy
jobs in the USA is up 50% on 2019. Pharmaceutical companies have
also been
ramping up their AI operations in recent months
with multi-billion dollar
investments.
Looking at demographic change, the
US has a relatively favourable profile compared to most large
economies, but this is set to change with the share of the
population over the age of 65 more than doubling by the end of this
century. The shift will drive healthcare demand, exacerbating
current staff shortages. By the 2030s, the country could be faced
with a shortage of nearly 200,000 nurses and 124,000
physicians.
FY23 performance
highlights
Despite the overall US recruitment
market declining YoY, we saw a 10% growth in our top ten clients
while the next ten grew by 26%. STEM is demonstrating its
resilience against general economic headwinds. New job activity has been substantially impacted by a
market-wide drop in hiring demand, underpinned by inflationary and
interest rate pressures.
Overall, we saw a net fee decline of 14% YoY
due to very strong prior year comparatives in Life Sciences.
Engineering saw strong growth and we outperformed the market, but
we did see market-driven declines in Life Sciences as job vacancies
declined significantly due to the macro-economic
environment.
Contract, supported by improved
finisher rates, showed stronger resilience than Permanent, with a
decline of 4% and 51% respectively. Engineering was up 16%, driven
by demand for roles within Electrical Engineering, Project
Management and Construction. Life Sciences
was down 24% YoY, in line with the market conditions within this
sector.
Our
people
This year we have introduced a new
operating model with the goal of simplifying and standardising ways
of working, increasing cross selling and collaboration between
industries. We also upgraded our hybrid working policy to provide
our people with more opportunities for coaching, collaboration and
community participation.
Reasons for
confidence
Worth over $50bn, the USA has the
largest STEM staffing market in the world. It exhibited resilience
in FY23 after two consecutive years of high double-digit growth. It
is projected to grow 5% in FY24.
We see immense opportunity in the
US market, as we still only capture a relatively small share of
wallet of our key clients. The US is the first region to benefit
from our TIP, equipping our consultants with best-in-class tools
and processes ahead of the rest of the Group. This builds a solid
foundation for scaling our business profitably and winning market
share.
The Engineering skills vertical
offers particular potential. SThree is the ninth largest
engineering staffing agency in the world and is
eleventh largest in the USA.
Our focus in FY24 will be to
capture market share through growth within our core vertical
markets of Technology (Software Development and Salesforce),
Engineering and Life Sciences (Clinical Research and Quality
Assurance).
Netherlands (including Spain) (19% of Group net
fees)
|
FY23
|
FY22
|
Variance
|
Performance highlights
|
Reported
|
Like-for-like
|
Revenue (£'000)
|
367,643
|
323,963
|
+14%
|
+11%
|
Net fees (£'000)
|
82,149
|
75,661
|
+8%
|
+6%
|
Average total headcount
(FTE)
|
422
|
389
|
+8%
|
n/a
|
Impact of megatrends
The region is responding to client
demand for digitisation by investing in AI and cloud
infrastructure. It is also seeing significant spend on
decarbonisation. Although hydrogen is still in its infancy, we
anticipate client demand in this sector to increase in coming
years; therefore, we have been building our capability to secure a
significant part of this market opportunity.
There is a shifting attitude to
work. Remote and hybrid working expanded dramatically during the
pandemic but the legal framework regulating them lagged behind and
employers are realising they may need to fill the gap with their
own policies. SThree, with its state-of-the-art systems for
managing contract employment, is well placed to provide this
support.
FY23 performance highlights
Like for like, this region saw net
fees grow by 6% year on year, with strong growth in Contract, up
7%, partially offset by Permanent which was down 2%. The
Netherlands, which represents 94% of the region, saw a net fees
growth of 3%, with Engineering up 8% and Technology up 3% YoY
driven by demand for skills within Enterprise Resource Planning
(ERP), data and digitalisation projects. Spain had an impressive
year, with net fee growth of 82% driven primarily by
Technology.
Our people
Our focus this year has been on
retention programs. We built on our partnership with Nyenrode
University to provide leadership training for our business managers
and tested improved reward communications with the introduction of
total reward statements.
Reasons for confidence
Two megatrends continue to drive
up demand in the Netherlands STEM labour market: the increasing
requirement for specialist STEM skills linked to future
technologies within Technology and Engineering skill verticals,
particularly in relation to renewable energy, and the reduction in
the talent pool that is resulting from the demographical changes in
particular a growing proportion of an aging workforce retiring
faster than ever.
In Spain we see a demand for
contingent labour continuing to grow, particularly within the
Retail, Banking and Financial, and Energy sectors.
Rest of the Europe (17% of Group net fees)
|
FY23
|
FY22
|
Variance
|
Performance highlights
|
Reported
|
Like-for-like
|
Revenue (£'000)
|
399,862
|
394,351
|
+1%
|
-
|
Net fees (£'000)
|
70,439
|
73,093
|
-3%
|
-4%
|
Average total headcount
(FTE)
|
499
|
547
|
-9%
|
n/a
|
Impact of
megatrends
Our Rest of Europe region is made
up of businesses in the UK, Belgium and France. In these markets,
as globally, there is a shift from Permanent hires to Contract, in
large part due to project-specific hiring. With strong extensions
and increased contract lengths, we saw a 3% increase YoY in
Contract net fees.
AI is a hot topic amongst
customers. Our report, How the
STEM World Evolves, revealed the rise of AI and automation
caused concerns among STEM professionals,
with 34%
worried about consequent job losses. However, the impact of these two technologies on
recruitment is yet to be seen and the prevailing view is that they
will become another skill verticals, creating more job
opportunities in STEM with a positive impact on the number of STEM
specialists that companies employ.
The UK market is experiencing a
green jobs boom as businesses seek to decarbonise and reach
challenging net zero targets. Demand for talent in the clean energy
sector is expected to grow YoY; reskilling and upskilling STEM
specialists will be essential to bridge the skills gap in this
area.
FY23 performance
highlights
Net fees saw a decline of 4% YoY.
Contract, which represents 95% of net fees for the region, grew 3%,
with Permanent declining 59%, driven by both market conditions and
the transition towards Contract.
The UK, the largest country market
in the region (64% of net fees), saw net fees decline by 3% YoY,
driven by Engineering, up 10%, as demand increased for roles within
Project and Construction Management, Electrical and Mechanical
Engineering, offset by decline in both Technology, down 5%, and
Life Sciences, down 27%. Belgium saw net fees up 13% and France was
down 3%. Average headcount for the region was down 9% YoY, with
year-end headcount down 24%.
Our
people
We built our Employee Value
Proposition through several initiatives this year. All our most
senior people managers completed the Leading with Purpose programme
which gave them training in the four essential roles of leadership.
This will enhance their, and their teams' performance, as they
build a supportive culture. New compensation frameworks were
adopted for all levels as we invested in base salaries on a
targeted basis and reviewed reward schemes to ensure they are
driving the right performance behaviours.
Reasons for
confidence
Despite geopolitical and economic
uncertainties, we remain confident about the region's growth
prospects. The implementation of the TIP alongside our focus on
STEM will be strong differentiators, and we remain confident this
will enable the business to capture more market share across the
region.
By implementing dynamic and
responsive strategies, the region is actively adapting to meet the
evolving needs of its customers. Besides flexible working offering,
it involves a deep understanding of STEM market, knowing the right
skills that are vital for clients' long-term success, and wider
shifts in the recruitment environment. The region's overarching
goal is to maintain focus and clarity, meticulously track leads and
pipelines, and strategically invest in its people to help them
succeed.
Middle East & Asia (5% of Group net
fees)
|
FY23
|
FY22
|
Variance
|
Performance highlights
|
Reported
|
Like-for-like
|
Revenue (£'000)
|
42,637
|
43,897
|
-3%
|
+1%
|
Net fees (£'000)
|
20,852
|
21,395
|
-
|
+3%
|
Average total headcount
(FTE)
|
185
|
208
|
-11%
|
n/a
|
Impact of
megatrends
Life Sciences and Research-led
Healthcare were the key drivers behind demand for STEM talent in
the region. Clients continued to appoint talent with skills to keep
up with increasing technological complexity. Digitisation was also
a significant demand driver as clients sought to harness the
potential it offers for business transformation.
FY23 performance
highlights
The region saw net fees increase
by 3% YoY. Excluding the restructured businesses in Singapore and
Hong Kong, net fees were up 20% YoY. Japan, which represents 45% of
the region, was up 6% YoY, driven by Engineering and Life Sciences.
Japan's Contract net fees were up 32% and Permanent up 5%. Strong
performance was also reported in UAE with net fees up 41% driven by
Engineering.
Our
people
More than 60% of our regional
leadership team have been with SThree since joining through our
graduate programme. Such strong retention of some of our best
talent demonstrates we have a compelling Employee Value Proposition
and are a preferred employer in the sector. This was confirmed
independently this year when we were recognised as a Great Place to
Work-Certified™ company by the Great Place to Work® organisation, a
global authority on workplace culture.
One of the attractions for
graduates is the opportunities we offer for both mentors and
mentees. Beyond their core job role, all our people have the
opportunity to participate in community initiatives that promote
DE&I and ESG goals.
Reasons for
confidence
Our specialism in major STEM
disciplines, combined with our global reach, gives us a significant
edge over competitors in the region. Our office footprint and
consultants immersed in the prevailing culture, provide the region
with insights into clients' key challenges. We are well placed to
build candidate relationships and source talent.
In line with our global strategy,
we will continue to increase our investment into the Middle East
& Asia region, with a focus on growing our business in Japan
and Dubai.
chief financial officer's STATEMENT
We delivered a resilient
performance underpinned by our strategic focus on Contract in STEM
markets, while the wider macro-economic environment remained
challenging.
Income statement
On a reported basis revenue for
the year was up 1%[1] and amounted to £1.7
billion (FY22: £1.6 billion) while net fees declined by 3% to
£418.8 million (FY22 £430.6 million). The strengthening of our two
main trading currencies, the US Dollar and the Euro, against
Sterling during the year, increased the total net fees by £5.6
million. Therefore, when presented on a constant currency basis,
the net fees decreased by 4% YoY.
Net fee growth in our Contract
business was driven by robust contract extensions from clients with
demand for candidates with STEM skills across most of
our regions, with net fees
growth of 1%. This was led by the
Netherlands region, which was up 7%, Rest of
Europe, up 3%, and Middle East & Asia, up 29%, while DACH and USA were down by 1% and 4%
respectively. This performance was driven
by strong growth in Engineering, which was
up 18% YoY, and Technology, up 1%, with Life Sciences down 14%
reflecting global sector conditions. Our ECM proposition
also continued to deliver encouraging performance and was up by 3%
YoY. Group Contract net fees as a percentage of Contract
revenue[2] remained
consistent YoY at 21.7% (FY22: 21.7%), and at the end of the year
Contract represented 82% of the Group net fees in the year (FY22:
78%).
The contractor order
book closed at £183.5 million, down 3% YoY
against a record prior year comparative, and accounts for
approximately four months' worth of net fees, providing us with
sector-leading visibility into FY24.
Permanent net fees were
down 22% reflecting challenging market conditions
across all regions, and our planned transition from Permanent to
Contract in several markets, particularly in the USA and UK.
Our largest Permanent market, DACH, reported a decline of 8%. Netherlands region was down 1%, and Japan was up 5%. Permanent average fee increased by
6% YoY in the year, with average permanent fee margin (net
fees as a percentage of salary) now at 27.1%
(FY22: 25.3%).
Operating expenses decreased by 3% YoY on a reported basis, amounting to
£342.4 million (FY22: £353.1 million). This decline resulted from
lower personnel costs as average headcount declined by 2% compared
to FY22.
The reported operating profit was
£76.4 million (FY22: £77.6 million), down 5% YoY in constant
currency while the Group operating profit conversion
ratio2 increased to 18.2% (FY22: 18.0%). Operating
profit conversion ratio reflects the ongoing exceptional levels of
productivity, that despite the challenging macro environment
dropped just 2% in the year, combined with tight cost
control, whilst also benefiting from spend
recognition timing on the Technology Improvement Programme (TIP)
(without impacting delivery). Excluding the TIP,
for which £3.8 million was expensed in FY23, an operating profit
conversion ratio of 19.2% was achieved. The net currency movements
versus Sterling were favourable to the operating profit, providing
a £2.3 million benefit. Fluctuations in foreign currency exchange
rates are expected to remain a material sensitivity to the Group's
reported results. By way of illustration, each 1% movement in
annual exchange rates of the Euro and US Dollar against Sterling
impacts the Group's operating profit by £0.9 million and £0.3
million respectively per annum.
Net finance income
The Group received net finance
income of £1.6 million as compared to net finance costs of £0.5
million in the previous year. This was driven by significantly
higher interest rates applied to the Group's bank
deposits.
Income tax
The total tax charge for the year
on the Group's profit before tax was £21.9 million (FY22: £22.8
million), representing a full year effective tax rate (ETR) of
28.1% (FY22: 29.6%). The Group's ETR also
varies depending on the mix of taxable profits by territory,
non-deductibility of the accounting charge for LTIPs and other
one-off tax items. The FY23 ETR is lower than in the prior year due
to a change in the profit mix and FY22 being impacted by
unrecognised losses arising from the restructure of Singapore and
Ireland, and the closure of Hong Kong.
Overall, the reported profit
before tax was £77.9 million, down 2% YoY in constant currency and
up 1% on a reported basis (FY22: £77.0 million).
The reported profit after tax was
£56.1 million, flat YoY in constant currency and up 3% on a
reported basis (FY22: £54.2 million).
Earnings per share (EPS)
The EPS was 42.4 pence (FY22: 41.0
pence). The YoY movement is attributable to the lower operating
profit offset by net interest earned on cash balances, lower Group
ETR and a decrease of 0.1 million in the weighted average number of
shares.
The diluted EPS was 41.5 pence
(FY22: 39.9 pence). Share dilution mainly results from various
share options in place and expected future settlement of vested
tracker shares. The dilutive effect on EPS from tracker shares will
vary in future periods, depending on the profitability of the
underlying tracker businesses and the settlement of vested
arrangements.
Dividends and distributable reserves
The Board monitors the appropriate
level of dividend, considering achieved and expected trading of the
Group, together with its balance sheet position. The Board aims to
offer shareholders long-term ordinary dividend growth within a
targeted dividend cover2 range of 2.5x to 3.0x through
the cycle.
The Board has proposed to pay a
final dividend at 11.6 pence (FY22: 11.0
pence) per share, which together with the interim dividend of 5.0
pence (FY22: 5.0 pence) per share, will give the total dividend of
16.6 pence (FY22: 16.0 pence) per share for FY23.
The final dividend, which amounts
to approximately £15.3 million, will be subject to shareholder
approval at the 2024 Annual General Meeting. It will be paid on 7
June 2024 to shareholders on the register on 10 May
2024.
Balance sheet
Total Group net assets increased
to £222.9 million (FY22: £200.4 million), driven by the excess of
net profit over the dividend payments, £6.2 million increase in
intangible assets attributable to development costs capitalised
under the TIP and favourable foreign currency movements, partially
offset by cost of shares purchased by the Employee Benefit Trust.
Net working capital, including contract assets, decreased by £2.1
million on the prior year, driven mainly by the slowdown in
trading, including reduced contractor order book. Our days sales
outstanding remained largely unchanged at 45.7 days (FY22: 45.2
days); a slight YoY increase was mainly due to a change of '>60
days' debt profile which went from 7% to 8% of the book. To reflect
the more challenging macroeconomic backdrop, we have increased the
provision for impairment of trade receivables by £4.9
million.
Our business model remains highly
cash generative, and we have no undue concentration of repayment
obligations in respect of trade payables or borrowings.
Investments in subsidiaries
The subsidiary undertakings
principally affecting the profits and net assets of the Group are
listed in note 24 to the Consolidated Financial Statements. The
recoverable amounts of the Company's key trading subsidiaries
remained strong in the current year. However, due to a continued
underperformance in trading in Luxembourg and Canada, a small
impairment charge of £0.1 million was recorded in the Company's
separate books for FY23. This impairment charge did not impact the
Group consolidated results.
An impairment loss of £0.9 million
recognised by the Company in the prior year was in relation to
three businesses, which were either restructured or closed
down.
Tracker shares
The Group settled certain vested
and unvested tracker shares during the year for a total
consideration of £4.5 million which was determined using a formula
set out in the Articles of Association underpinning the tracker
share businesses. The consideration was settled in SThree plc
shares; 320,457 new shares were issued and 928,483 of shares held
by the EBT were utilised. The arrangement is deemed to be an
equity-settled share-based payment arrangement under IFRS 2
Share-based payments.
There was no charge to the income statement as initially the
tracker shareholders subscribed to the tracker shares at their fair
value.
All current tracker share
businesses remaining in existence will continue to be reviewed for
settlement based on the pre-agreed criteria each year, until the
full closure of the scheme in the next few years. As at the
year end, the valuation of the outstanding shareholdings was
approximately £8m. These settlements may either dilute the earnings
of SThree plc's existing ordinary shareholders if funded by a new
issue of shares or result in a cash outflow if funded via treasury
shares or shares held in the EBT.
Liquidity management
In FY23, cash generated from
operations was £93.3 million (FY22: £64.4 million).
The increase was primarily driven by a release in
working capital, as the rate of new placement activity slowed down,
partially offset by robust Contract extensions. Income tax paid
increased to £19.5 million (FY22: £18.9 million).
Capital expenditure increased to
£8.2 million (FY22: £3.7 million), due to the Group-wide TIP and
related IT hardware costs. The capital expenditure also included
costs of leasehold improvements and fitting out certain of our
office portfolio.
The Group paid £14.9 million in
rent (principal and interest portion) (FY22: £14.3 million). The
Group spent £10.0 million (FY22: £9.9 million) for the purchase of
its own shares to satisfy employee share incentive schemes. Cash
inflows of £0.3 million (FY22: £0.5 million) were generated from
Save As You Earn employee scheme.
Dividend payments were £27.4
million (FY22: £14.7 million, being the final dividend paid in June
2022) and there was a small cash outflow of £0.1 million (FY22:
£0.1 million) representing distributions to tracker
shareholders.
Foreign exchange had a significant
positive impact of £2.1 million (FY22: positive impact £4.5
million).
Overall, the underlying cash
performance in FY23 was strong, reflecting primarily improved working capital partially offset by the
acquisition cost of own shares purchased by the Employee Benefit
Trust. We started the year with net cash of £65.4 million and
closed the year with net cash of £83.2 million.
Capital allocation and accessible
funding
SThree remains disciplined in its
approach to allocating capital, with the core objective at all
times being to maximise shareholder value. The Group's
capital allocation policy is reviewed periodically by the Board and
was refreshed at the start of 2024:
•
|
Balance sheet - our intention is
to maintain a strong balance sheet at all times to provide
operational flexibility throughout the business cycle.
|
•
|
Dividend - we aim to pay a
sustainable dividend, with a commitment to a through the cycle
dividend cover range of 2.5x to 3.0x of EPS.
|
•
|
Deployment of capital prioritised
in the order of:
|
1.
|
Organic growth: Investing in
our people and ensuring sufficient working capital on hand to fund
growth in the contractor order book while developing new business
opportunities.
|
2.
|
Business improvement: Digitalising our business, putting in place the technology
and tools that are key to driving both scale and higher
margins.
|
3.
|
Acquisitions: Strict
inorganic growth discipline, with a focus on complementary and
value enhancing acquisitions.
|
4.
|
Capital return to shareholders: After all organic and inorganic opportunities within an
appropriate time horizon have been assessed, further cash returns
to shareholders may be considered.
|
The Group's capital allocation
priorities are financed mainly by retained earnings, cash generated
from operations, and a £50.0 million Revolving Credit Facility
(RCF). This has remained undrawn during the year, but any funds
borrowed under the RCF would bear a minimum annual interest rate of
1.2% above the benchmark Sterling Overnight Index Average. The
Group also maintains a £30.0 million accordion facility as well as
a substantial working capital position reflecting net cash due to
SThree for placements already undertaken.
At the end of the current
financial year, the Group did not draw down any of the above credit
facilities (FY22: £nil).
On 30 November 2023, the Group had
total accessible liquidity of £138.2 million, made up of £83.2
million in net cash (FY22: £65.4 million), the £50.0 million RCF
and a £5.0 million overdraft facility (undrawn at the year
end).
PRINCIPAL AND EMERGING RISKS
Principal risks and uncertainties
affecting the business activities of the Group will be detailed
within the Strategic Report section of the Group's 2023 Annual
Report, a copy of which will be available on the Group's
website www.sthree.com.
Delivering on our strategy
requires all parts of our business to work together. In isolation
risk mitigation helps SThree manage specific subjects and areas of
the business. However, when brought into our day-to-day activities,
successful risk management has helped us to maximise our
competitive advantage and deliver on our strategic pillars in FY23.
While 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
2023
£'000
|
Note
|
2023
|
2022
|
|
|
|
|
Continuing operations
|
|
|
|
Revenue
|
2
|
1,663,167
|
1,639,446
|
Cost of sales
|
|
(1,244,392)
|
(1,208,830)
|
Net
fees
|
2
|
418,775
|
430,616
|
Administrative expenses
|
3
|
(336,076)
|
(349,301)
|
Impairment losses on financial
assets
|
|
(6,343)
|
(3,763)
|
Operating profit
|
|
76,356
|
77,552
|
Finance income
|
|
2,257
|
141
|
Finance costs
|
|
(698)
|
(667)
|
Profit before income tax
|
|
77,915
|
77,026
|
Income tax expense
|
4
|
(21,864)
|
(22,824)
|
|
|
|
|
Profit for the year attributable to the owners of the
Company
|
|
56,051
|
54,202
|
Earnings per share attributable to
shareholders
|
|
|
|
pence
|
|
|
|
Basic
|
5
|
42.4
|
41.0
|
Diluted
|
5
|
41.5
|
39.9
|
consolidated statement of comprehensive
income
for the year ended 30 November
2023
|
|
|
|
£'000
|
|
2023
|
2022
|
Profit for the year
|
|
56,051
|
54,202
|
Other comprehensive
(loss)/income:
|
|
|
|
Items that may be subsequently reclassified to income
statement
|
|
|
|
Exchange differences on
retranslation of foreign continuing operations
|
(1,437)
|
7,096
|
|
|
|
|
Items that will not be subsequently reclassified to profit or
loss:
|
|
|
|
Net loss on equity instruments at
FVOCI
|
|
-
|
(1)
|
Other comprehensive (loss)/income
for the year (net of tax)
|
|
(1,437)
|
7,095
|
|
|
|
|
Total comprehensive income for the year attributable to
owners of the Company
|
|
54,614
|
61,297
|
The accompanying notes form an
integral part of these Consolidated Financial Statements.
consolidated statement of financial
position
|
|
as at 30 November 2023
|
|
|
|
|
|
As at
30
November
|
As at
30
November
|
£'000
|
|
Note
|
|
2023
|
2022
|
ASSETS
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
Property, plant and
equipment
|
|
|
|
31,116
|
35,249
|
Intangible assets
|
|
6
|
|
7,066
|
846
|
Deferred tax assets
|
|
|
|
5,799
|
4,616
|
Total non-current assets
|
|
|
|
43,981
|
40,711
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Trade and other
receivables
|
|
|
|
345,120
|
363,884
|
Cash and cash equivalents
|
|
7
|
|
83,202
|
65,809
|
Total current assets
|
|
|
|
428,322
|
429,693
|
|
|
|
|
|
|
Total assets
|
|
|
|
472,303
|
470,404
|
|
|
|
|
|
|
EQUITY AND LIABILITIES
|
|
|
|
|
|
Equity attributable to owners of the
Company
|
|
|
|
|
|
Share capital
|
|
8
|
|
1,349
|
1,345
|
Share premium
|
|
8
|
|
39,700
|
38,239
|
Other reserves
|
|
|
|
(3,597)
|
(802)
|
Retained earnings
|
|
|
|
185,432
|
161,610
|
Total equity
|
|
|
|
222,884
|
200,392
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Bank overdraft
|
|
7
|
|
-
|
423
|
Trade and other payables
|
|
|
|
200,132
|
216,842
|
Lease liabilities
|
|
9,
10
|
|
11,297
|
11,102
|
Provisions
|
|
|
|
7,373
|
7,871
|
Current tax liabilities
|
|
|
|
10,746
|
7,391
|
Total current liabilities
|
|
|
|
229,548
|
243,629
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
Lease liabilities
|
|
9,
10
|
|
17,720
|
22,600
|
Provisions
|
|
|
|
2,151
|
3,783
|
Total non-current
liabilities
|
|
|
|
19,871
|
26,383
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
249,419
|
270,012
|
|
|
|
|
|
|
Total equity and liabilities
|
|
|
|
472,303
|
470,404
|
|
|
|
|
|
|
|
The accompanying notes form an
integral part of these Consolidated Financial
Statements.
|
|
|
|
|
|
|
|
|
|
|
|
consolidated statement of cash flows
|
for the year ended 30 November
2023
|
£'000
|
Note
|
30
November
2023
|
30
November
2022
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
Profit before tax
|
|
77,915
|
77,026
|
Adjustments for:
|
|
|
|
Depreciation and amortisation
charge
|
|
15,914
|
18,902
|
Loss on disposal of property, plant
and equipment other than right-of-use assets
|
160
|
122
|
Gain on lease
modification
|
-
|
(266)
|
Impairment of intangible
assets
|
-
|
499
|
Loss on disposal of intangible
assets
|
-
|
1,176
|
Finance income
|
|
(2,257)
|
(141)
|
Finance costs
|
|
698
|
667
|
Non-cash charge for share-based
payments
|
|
4,871
|
4,999
|
Operating cash flows before changes in working capital and
provisions
|
97,301
|
102,984
|
Decrease/(increase) in
receivables
|
|
10,019
|
(59,288)
|
(Decrease)/increase in
payables
|
|
(11,821)
|
17,174
|
(Decrease)/increase in
provisions
|
|
(2,220)
|
3,510
|
Cash generated from
operations
|
|
93,279
|
64,380
|
Interest received
|
|
2,257
|
141
|
Income tax paid
|
|
(19,495)
|
(18,922)
|
|
|
|
|
Net cash generated from operating
activities
|
76,041
|
45,599
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
Purchase of property, plant and
equipment
|
|
(1,975)
|
(3,407)
|
Purchase of intangible
assets
|
6
|
(6,237)
|
(265)
|
|
|
|
|
Net cash used in investing
activities
|
(8,212)
|
(3,672)
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
Interest paid
|
10
|
(698)
|
(667)
|
Lease principal payments
|
10
|
(14,250)
|
(13,721)
|
Proceeds from exercise of share
options
|
|
264
|
510
|
Purchase of shares by Employee
Benefit Trust
|
8
|
(10,000)
|
(9,900)
|
Dividends paid to equity
holders
|
11
|
(27,373)
|
(14,650)
|
Distributions to tracker
shareholders
|
|
(94)
|
(109)
|
|
|
|
|
Net cash used in financing
activities
|
|
(52,151)
|
(38,537)
|
|
|
|
|
Net
increase in cash and cash equivalents
|
15,678
|
3,390
|
Cash and cash equivalents at
beginning of the year
|
65,386
|
57,502
|
Exchange gains relating to cash and
cash equivalent
|
|
2,138
|
4,494
|
|
|
|
|
Net
cash and cash equivalents at end of the year
|
7
|
83,202
|
65,386
|
|
|
|
|
The accompanying notes form an
integral part of these Consolidated Financial
Statements.
Notes to the Financial information
for the year ended 30 November
2023
1. BASIS OF PREPARATION AND 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 2023 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
29 January 2024.
The auditors have reported on the
Group's financial statements for the years ended 30 November 2023
and 30 November 2022 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 2022
were filed with the Registrar of Companies and those for the year
ended 30 November 2023 will be filed following the Company's Annual
General Meeting.
The Consolidated Financial
Statements have been prepared in accordance with UK-adopted
International Accounting Standards (IAS) and International
Financial Reporting Standards (IFRS) and in conformity with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards, including interpretations issued
by the IFRS Interpretations Committee.
Going concern
The Consolidated Financial
Statements have been prepared on a going concern basis. The
Directors have reviewed the Group's cash flow forecasts, considered
the assumptions contained in the budget and medium-term forecasts,
and considered associated principal risks which may impact the
Group's performance in the 12 months from the date of approval of
this year's financial statements and in the period immediately
thereafter.
At 30 November 2023, the Group had
no debt except for lease liabilities of £29.0 million. Credit
facilities relevant to the review period comprise a committed £50.0
million RCF (with the expiry date of June 2026, with an extension
option to 2027) and an uncommitted £30.0 million accordion
facility, both jointly provided by HSBC and Citibank. These
facilities remained undrawn on 30 November 2023. A further
uncommitted £5.0 million bank overdraft facility (undrawn at the
year end) is also held with HSBC.
In addition, the Group has £83.2
million of cash and cash equivalents available to fund its
short-term needs, as well as a substantial working capital
position, reflecting net cash due to SThree for placements already
undertaken.
Despite the ongoing challenging
market conditions, the Group has delivered a resilient net fee
performance in FY23, supported by the strength of its
well-established strategy. In addition, the Group's targeted
investment in talent and digital infrastructure is progressing as
planned, positioning the Group to scale with sustainable margins,
in line with the 2024 ambitions. The Directors considered the
current and possible future impact from the macro-economic
environment, which is expected to remain volatile in the short
term, on new placement activity and in turn on the Group's net fees
performance. The Directors also considered expected cash outflows
attributable to investments in people, talent acquisition and
infrastructure in response to identified market opportunities and
emerging risks.
Based on this analysis, the
Directors have formed a judgement that the Group has adequate
resources to continue in operational existence for at least the
next 12 months from the date of approval of the Group's
Consolidated Financial Statements, and there are no plausible
downside scenarios that would cause an issue for the Group's going
concern status. The Directors have therefore considered it
appropriate to prepare the Group's Consolidated Financial
Statements on the going concern basis.
Climate change consideration
Climate change is a significant
issue for the world and the transition to a low-carbon economy will
create both risks and opportunities for the Group. The management
team has considered the impact of climate change in preparing these
Consolidated Financial Statements in the areas as listed below.
These considerations are not viewed to be key areas of judgements
or sources of estimation uncertainty in the current financial
year.
- The going concern and viability
of the Group over the next five years, including the potential
impact of climate-related risks, such as SThree's offices impacted
by heightened physical risks affecting our operational ability to
place contractors and service the existing contracts, resulting in
lower revenue and income. This is subject to the ongoing assessment
by the management team performed using three climate-related
scenarios for 2023-2040. The assessment helps to continually test
SThree's strategic resilience and its flexibility to adapt
operations to ever-changing risks and opportunities as a
consequence of climate change to drive continued growth.
- Useful lives of fixed assets:
the impact of climate change is not considered to be material on
our existing asset base including on factors like residual values,
useful lives and depreciation methods which determine the carrying
value of non-current assets. Although the Group has plans to invest
in low-carbon technology as part of its net zero commitment, there
is no immediate risk of material adjustment to the carrying values
of the existing assets in the next financial year's results. Over
the course of our net zero path, the existing fixed assets are
expected to be fully depreciated within the next five to seven
years.
- Recoverability of trade
receivables and contract assets: the impact of climate-related
matters could have an impact on the Group's clients in the future,
especially, clients whose businesses/operations could be negatively
affected by the introduction of emission-reduction legislation,
energy transition plans or by extreme weather and other physical
conditions, which could lead to increase in manufacturing costs,
dilapidation of their asset base and their ability to pay debts. No
material climate-related issues have arisen during the current year
that have impacted our assessment of the recoverability of
receivables. The Group's ECL allowance uses credit ratings which
inherently include the market's assessment of the climate change
impact on credit risk of our clients. Given the short-term maturity
of trade receivables including contract assets, climate change is
unlikely to materially increase our credit risk.
- Share-based payments: some
performance conditions of the Long-Term Incentive Plan for members
of the Executive Committee are linked and measured against ESG
metrics since the 2022 financial year. This could impact the future
amount of the recognition of the share-based payment expense in the
Group income statement. However, as the ESG-related performance
condition constitutes 10% of each grant, the impact is
low.
- Segmental reporting: in our
response to climate change and transition to a net zero target,
there has been yet no change to the management information provided
to, and reviewed by, the chief operating decision maker each
month.
Whilst there is currently no
material medium-term impact expected from climate change, the
management team is aware of the ever-changing risks and will
continue to regularly monitor these risks against judgements and
estimates made in preparation of the Group's financial
statements.
Accounting policies
The accounting policies used in
the preparation of the Consolidated Financial Statements are
consistent with those applied in the previous financial year,
except for the adoption of new and amended standards effective as
of 1 December 2022 as set out below.
New and amended standards
effective in 2023 and adopted by the Group
The following amendments to the
accounting standards, issued by the IASB and endorsed by the UK and
EU, have been adopted by the Group and became applicable as of 1
December 2022. The Group did not have to change its accounting
policies or make retrospective adjustments as a result of adopting
these amended standards.
- Reference to the Conceptual
Framework (amendments to IFRS 3 Business Combinations).
- Property, plant and equipment -
proceeds before intended use (amendments to IAS 16 Property, Plant and
Equipment).
- Onerous contracts - cost of
fulfilling a contract (amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets).
- Annual improvements to IFRS
2018-2020 (amendments to the following standards: IFRS 1
First-time Adoption of
IFRS, IFRS 9 Financial
Instruments, IFRS 16 Leases and IAS 41 Agriculture).
New and amended standards
that are applicable to the Group but not yet
effective
As at the date of the financial
information in this preliminary announcement, the following
amendments to existing standards were in issue but not yet
effective. Subject to the endorsement by the UKEB, these changes
are effective for the SThree's financial year beginning 1 December
2023. These amendments are not expected to have a material impact
on the Group in the current or future financial years.
- Disclosure of Accounting
Policies (Amendments to IAS 1 Presentation of Financial Statements
and IFRS Practice Statement 2).
- Definition of Accounting
Estimates (Amendments to IAS 8 Accounting policies, Changes in Accounting
Estimates and Errors).
- Deferred Tax Related to Assets
and Liabilities Arising from a Single Transaction (Amendments to
IAS 12 Income
Taxes).
- International Tax Reform -
Pillar Two Model Rules (Amendments to IAS 12 Income Taxes).
- IFRS 17 Insurance Contracts, a standard that
is ultimately intended to replace IFRS 4 Insurance Contracts.
The Group has not early adopted
any standard, interpretation or amendment that has been issued but
is not yet effective.
2. OPERATING
SEGMENTS
The Group's operating segments are
established on the basis of those components of the Group that are
regularly reviewed by the Group's chief operating decision making
body, in deciding how to allocate resources and in assessing
performance. The Group's business is considered primarily from a
geographical perspective.
The Directors have determined the
chief operating decision-making body to be the Executive Committee
made up of the Chief Executive Officer, the Chief Financial
Officer, the Chief Operations Officer, the Chief Commercial Officer
and the Chief People Officer, with other senior management
attending via invitation.
In the current financial year, the
Group has changed its reporting structure and going forward it will
segment the business into the following reportable regions: DACH,
Netherlands (including Spain, which is managed from the
Netherlands), Rest of Europe, USA and Middle East & Asia. The
comparative numbers have been restated in accordance with the new
reporting structure. The reporting structure in the previous year
was EMEA excluding DACH, DACH, USA and APAC.
The Group will continue to present
separately the net fees of its five key markets: Germany, the
Netherlands, the USA, the UK and Japan. In addition, what it
previously was referred to sectors, has now been renamed as 'skills
mix'. Finally, Contract and Permanent are from now on referred to
as 'service mix'.
DACH region comprises Austria,
Germany and Switzerland. Rest of Europe comprises the UK, Belgium
and France, and Middle East & Asia includes Japan and
UAE.
Countries aggregated into DACH and
separately into Rest of Europe have similar economic risks and
prospects, i.e. they are expected to generate similar average gross
margins over the long term, and are similar in each of the
following areas:
- the nature of the services
(recruitment/candidate placement);
- the methods used in which they
provide services to clients (independent contractors, employed
contractors, and permanent candidates); and
- the class of candidates
(candidates, who we place with our clients, represent skillsets in
Life Sciences, Technology and Engineering disciplines).
The Group's management reporting
and controlling systems use accounting policies that are the same
as those described in these financial statements and the
accompanying notes.
Revenue and net fees by reportable
segment
The Group assesses the performance
of its operating segments through a measure of segment profit or
loss which is referred to as 'net fees' in the management reporting
and controlling systems. Net fees is the measure of segment profit
comprising revenue less cost of
sales.
Intersegment revenue is recorded
at values which approximate third party selling prices and is not
significant.
|
|
|
Revenue
|
Net
fees
|
£'000
|
|
|
2023
|
2022
(restated)
|
2023
|
2022
(restated)
|
DACH
|
524,732
|
539,014
|
148,925
|
148,922
|
Rest of Europe
|
|
399,862
|
394,351
|
70,439
|
73,093
|
Netherlands including
Spain
|
|
367,643
|
323,963
|
82,149
|
75,661
|
USA
|
|
328,293
|
338,221
|
96,410
|
111,545
|
Middle East & Asia
|
42,637
|
43,897
|
20,852
|
21,395
|
|
|
|
1,663,167
|
1,639,446
|
418,775
|
430,616
|
Split of revenue from contracts with
customers
The Group derives revenue from the
transfer of services over time and at a point in time in the
following geographical regions:
2023
£'000
|
DACH
|
Rest of
Europe
|
Netherlands including
Spain
|
USA
|
Middle East &
Asia
|
Total
|
Timing of revenue recognition
|
|
|
|
|
|
|
Over time
|
483,491
|
396,354
|
358,122
|
316,866
|
29,382
|
1,584,215
|
At a point in time
|
41,241
|
3,508
|
9,521
|
11,427
|
13,255
|
78,952
|
|
524,732
|
399,862
|
367,643
|
328,293
|
42,637
|
1,663,167
|
2022 (restated)
£'000
|
DACH
|
Rest of
Europe
|
Netherlands including
Spain
|
USA
|
Middle East &
Asia
|
Total
|
Timing of revenue recognition
|
|
|
|
|
|
|
Over time
|
495,268
|
385,772
|
315,371
|
315,134
|
28,778
|
1,540,323
|
At a point in time
|
43,746
|
8,579
|
8,592
|
23,087
|
15,119
|
99,123
|
|
539,014
|
394,351
|
323,963
|
338,221
|
43,897
|
1,639,446
|
Major customers
In FY23 and FY22, no single
customer generated more than 10% of the Group's revenue.
Other
information
The Group's revenue from external
customers, its net fees and information about its segment assets
(non-current assets excluding deferred tax assets) by key location
are detailed below:
|
|
|
Revenue
|
Net
fees
|
£'000
|
|
|
2023
|
2022
|
2023
|
2022
|
Germany
|
|
453,537
|
468,352
|
130,875
|
131,880
|
Netherlands
|
|
350,295
|
314,156
|
77,073
|
72,931
|
USA
|
|
328,293
|
338,221
|
96,410
|
111,545
|
UK
|
|
263,461
|
262,999
|
44,953
|
46,689
|
Japan
|
|
10,813
|
10,793
|
9,317
|
9,410
|
RoW (1)
|
|
256,768
|
244,925
|
60,147
|
58,161
|
|
|
|
|
|
|
|
|
|
|
1,663,167
|
1,639,446
|
418,775
|
430,616
|
|
|
|
|
|
|
|
|
30
November
|
30
November
|
£'000
|
|
|
|
|
2023
|
2022
|
Non-current assets
|
|
|
|
|
|
Germany
|
|
|
|
11,891
|
16,313
|
UK
|
|
|
|
11,458
|
5,374
|
Netherlands
|
|
|
|
5,678
|
2,149
|
Japan
|
|
|
|
2,730
|
4,144
|
USA
|
|
|
|
2,687
|
3,962
|
RoW (1)
|
|
|
|
3,738
|
4,153
|
|
|
|
|
|
|
|
|
|
|
|
|
38,182
|
36,095
|
(1) RoW (Rest of the World)
includes all countries other than listed.
Non-current assets do not include
Deferred Tax Assets as they are not reviewed by the
CODM.
The following segmental analysis
by brands, recruitment classification and sectors (being the
profession of candidates placed) has been included as additional
disclosure to the requirements of IFRS 8 Operating Segments.
|
|
|
Revenue
|
Net
fees
|
£'000
|
|
|
2023
|
2022
|
2023
|
2022
|
Brands
|
|
|
|
|
Progressive
|
|
565,938
|
475,142
|
143,666
|
124,877
|
Computer Futures
|
|
538,710
|
564,844
|
137,591
|
143,932
|
Real Staffing Group
|
|
316,062
|
365,708
|
83,740
|
104,901
|
Huxley Associates
|
242,457
|
233,752
|
53,778
|
56,906
|
|
|
|
1,663,167
|
1,639,446
|
418,775
|
430,616
|
Other brands including Global
Enterprise Partners, JP Gray, Madison Black, Newington
International and Orgtel are rolled into the above
brands.
|
|
|
Revenue
|
Net
fees
|
£'000
|
|
|
2023
|
2022
|
2023
|
2022
|
Service mix
|
|
|
|
|
Contract
|
|
1,584,215
|
1,540,323
|
343,502
|
334,215
|
Permanent
|
|
78,952
|
99,123
|
75,273
|
96,401
|
|
|
|
1,663,167
|
1,639,446
|
418,775
|
430,616
|
|
|
|
Revenue
|
Net
fees
|
£'000
|
|
|
2023
|
2022
|
2023
|
2022
|
Skills mix
|
|
|
|
|
Technology
|
|
842,634
|
838,649
|
202,510
|
203,184
|
Engineering
|
|
415,357
|
341,850
|
108,820
|
92,083
|
Life Sciences
|
|
270,235
|
319,734
|
75,516
|
95,172
|
Other
|
134,941
|
139,213
|
31,929
|
40,177
|
|
|
|
1,663,167
|
1,639,446
|
418,775
|
430,616
|
3. ADMINISTRATIVE
EXPENSES
Operating profit is stated after
charging/(crediting):
£'000
|
2023
|
2022
|
Staff costs
|
255,007
|
266,010
|
Depreciation
|
15,898
|
18,682
|
Amortisation
|
16
|
220
|
Loss on disposal of property, plant
and equipment
|
160
|
122
|
Gain on lease
modification
|
-
|
(266)
|
Impairment of intangible
assets
|
-
|
499
|
Loss on disposal of intangible
assets
|
-
|
1,176
|
Service lease charges -
Buildings
|
2,176
|
2,426
|
Service lease charges -
Cars
|
1,890
|
1,391
|
Foreign exchange losses
|
1,882
|
1,164
|
4. INCOME TAX EXPENSE
(a)
Analysis of tax charge for the year
£'000
|
2023
|
2022
|
Current income tax
|
|
|
Corporation tax charged on profits
for the year
|
23,679
|
23,409
|
Adjustments in respect of prior
periods
|
(447)
|
(133)
|
Total current tax
charge
|
23,232
|
23,276
|
Deferred income tax
|
|
|
Origination and reversal of
temporary differences
|
(1,117)
|
(395)
|
Adjustments in respect of prior
periods
|
(251)
|
(57)
|
Total deferred tax
credit
|
(1,368)
|
(452)
|
Total income tax charge in the Consolidated Income
Statement
|
21,864
|
22,824
|
(b)
Reconciliation of the effective tax
rate
The Group's tax charge for the
year exceeds (FY22: exceeds) the UK statutory rate and can be
reconciled as follows:
£'000
|
2023
|
2022
|
Profit before income tax for the
Group
|
77,915
|
77,026
|
Profit before income tax
multiplied by the standard rate of corporation tax in the UK at
23.0% (FY22: 19.0%)
|
17,920
|
14,635
|
Effects of:
|
|
|
Disallowable items
|
1,720
|
1,905
|
Differing tax rates on overseas
earnings
|
2,524
|
5,590
|
Adjustments in respect of prior
periods
|
(697)
|
(190)
|
Adjustments due to tax rate
changes
|
(1)
|
(294)
|
Tax losses for which deferred tax
asset was not recognised or derecognised
|
398
|
1,178
|
Total tax charge for the year
|
21,684
|
22,824
|
At the effective tax rate
|
28.1%
|
29.6%
|
(c)
Current and deferred tax movement recognised
directly in equity
£'000
|
2023
|
2022
|
Equity-settled share-based payments:
|
|
|
Current tax credit
|
69
|
196
|
Deferred tax charge
|
(37)
|
(574)
|
|
32
|
(378)
|
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 2023, a deferred tax asset of £1.4 million (FY22: £1.1
million) was recognised in respect of these options.
On 20 June 2023, Finance (No.2)
Act 2023 was substantively enacted in the UK; the Act introduced a
multinational top-up tax and domestic top-up tax as part of the
UK's adoption of the OECD's Pillar Two Global Anti-Base Erosion
rules. This will apply for accounting periods beginning on or after
31 December 2023. The Group has applied the exception under the
Amendments to IAS 12 Income
Taxes to not disclose information about deferred tax assets
and liabilities related to the OECD Pillar Two Income
Taxes.
5. EARNINGS PER SHARE
Basic earnings per share (EPS) is
calculated by dividing the profit for the year attributable to
owners of the Company by the weighted average number of ordinary
shares outstanding during the year excluding shares held as
treasury shares and those held in the Employee Benefit Trust (EBT),
which for accounting purposes are treated in the same manner as
shares held in the treasury reserve.
Diluted EPS is calculated by
adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive ordinary shares
arising from exercising employee stock options and tracker
shares.
The following tables reflect the
income and share data used in the basic and diluted EPS
calculations.
£'000
|
2023
|
2022
|
Earnings
|
|
|
Profit for the year attributable to
owners of the Company
|
56,051
|
54,202
|
|
|
|
|
million
|
2023
|
2022
|
Number of shares
|
|
|
Weighted average number of shares
used for basic EPS
|
132.1
|
132.2
|
Dilutive effect of share
plans
|
2.9
|
3.7
|
Diluted weighted average number of shares used for diluted
EPS
|
135.0
|
135.9
|
|
|
|
|
|
pence
|
2023
|
2022
|
Basic EPS
|
42.4
|
41.0
|
Diluted EPS
|
41.5
|
39.9
|
6. INTANGIBLE ASSETS
During the year, the Group made
good progress in executing the Technology Improvement Programme.
Nearly £6.2 million in development costs were capitalised in the
statement of financial position. In addition, the Group incurred
£3.8 million in costs spent on research-related and administrative
costs which were expensed immediately to the income statement. At
the reporting date, all the costs capitalised in the statement of
financial position were classified as assets under construction due
to the ongoing testing procedures. Managements expects that these
assets are likely to be brought into use in Q2 FY24 at the
earliest. Accordingly, the asset amortisation is expected to start
in the second half of the next financial year.
7. CASH AND CASH
EQUIVALENTS
£'000
|
30 November
2023
|
30 November
2022
|
Cash at bank
|
83,202
|
65,809
|
Bank overdraft
|
-
|
(423)
|
Net
cash and cash equivalents
|
83,202
|
65,386
|
Cash and cash equivalents comprise
cash and short-term bank deposits with an original maturity of
three months or less, net of outstanding bank overdrafts. The
carrying amount of these assets approximate their fair values.
Substantially all of these assets are categorised within level 1 of
the fair value hierarchy.
The Group has four cash pooling
arrangements in place at HSBC US (USD), HSBC UK (GBP), NatWest
(GBP) and Citibank (EUR).
8. EQUITY
During the year 409,818 (FY22:
831,845) new ordinary shares were issued, resulting in a share
premium of £1.5 million (FY22: £2.8 million). Of the shares issued,
320,457 (FY22: 623,219) were issued to tracker shareholders on
settlement of vested and unvested tracker shares and 89,361 (FY22:
208,626) pursuant to the exercise of share awards under the Save As
You Earn (SAYE) scheme.
Treasury Reserve
Treasury shares represent SThree
plc shares repurchased and available for specific and limited
purposes. No shares were utilised from the treasury reserve during
the current and previous year. At the year end, 35,767 (FY22:
35,767) shares were held in treasury reserve.
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.
During the year, the EBT purchased
2,198,735 (FY22: 2,519,652) of SThree plc shares. The average price
paid per share was 455 pence (FY22: 393 pence). The total
acquisition cost of the purchased shares was £10.0 million (FY22:
£9.9 million), for which the treasury reserve was reduced. During
the year, the EBT utilised 2,046,423 (FY22: 1,671,868) shares on
settlement of vested and unvested tracker shares, LTIP awards and
free shares. At the year end, the EBT held 1,923,458 (FY22:
1,771,146) shares.
9.
LEASES
The leases which are recognised in
the consolidated statement of financial position are principally in
respect of buildings and cars. The Group's right-of-use assets and
lease liabilities are presented below:
£'000
|
30
November
2023
|
30
November
2022
|
Buildings
|
24,772
|
27,862
|
Cars
|
1,934
|
1,932
|
Total right-of-use assets
|
26,706
|
29,794
|
|
|
|
Current lease liabilities
|
11,297
|
11,102
|
Non-current lease
liabilities
|
17,720
|
22,600
|
Total lease liabilities
|
29,017
|
33,702
|
The consolidated income statement
includes the following amounts relating to depreciation of
right-to-use assets:
£'000
|
2023
|
2022
|
Buildings
|
11,955
|
13,849
|
Cars
|
1,219
|
1,152
|
IT equipment
|
-
|
74
|
Total depreciation charge of right-of-use
assets
|
13,174
|
15,075
|
In the current year, interest
expense on leases amounted to £0.6 million (FY22: £0.5 million) and
was recognised within finance costs in the consolidated income
statement.
The total cash outflow for leases
in FY23 was £14.9 million (FY22: £14.3 million) and comprised the
principal and interest element of recognised lease
liabilities.
10. OTHER FINANCIAL LIABILITIES
The Group maintains a committed
Revolving Credit Facility (RCF) of £50.0 million along with an
uncommitted £30.0 million accordion facility, both jointly provided
by HSBC and Citibank, giving the Group an option to increase its
total borrowings under the facility to £80.0 million. During the
current and previous year, the Group did not draw down under these
facilities. The Group has also an uncommitted £5.0 million
overdraft facility with HSBC, of which £nil was drawn at the year
end (FY22: £0.4 million).
The RCF is subject to financial
covenants and any funds borrowed under the facility bear a minimum
annual interest rate of 1.2% above the benchmark Sterling Overnight
Index Average (SONIA). As the Group did not draw down under these
facilities, the finance costs of £0.7 million (FY22: £0.5 million)
were mainly related to lease interest.
The covenants, which the RCF is
subject to, require the Group to maintain financial ratios over
interest cover, leverage and guarantor cover. The Group has
complied with these covenants throughout the year.
Reconciliation of financial
liabilities to cash flows arising from financing
activities:
£'000
|
|
Balance at 1 December 2021
|
35,068
|
Cash
flows:
|
|
Interest paid on bank
overdrafts
|
(137)
|
Payments of principal and interest
element of lease liabilities
|
(14,251)
|
Total cash flows
|
(14,388)
|
Lease increases
|
14,773
|
Lease termination
|
(2,294)
|
Other
movements(1)
|
543
|
Balance at 30 November 2022 and 1 December
2022
|
33,702
|
Cash
flows:
|
|
Interest paid on bank
overdrafts
|
(93)
|
Payments of principal and interest
element of lease liabilities
|
(14,855)
|
Total cash flows
|
(14,948)
|
Lease increases
|
11,479
|
Lease terminations
|
(1,558)
|
Other non-cash
movements(1)
|
342
|
Balance at 30 November 2023
|
29,017
|
1. Other movements in FY23 and FY22
primarily comprised unwind of the discount on lease liabilities and
forex revaluation.
11. DIVIDENDS
£'000
|
|
|
|
|
2023
|
2022
|
Amounts recognised as distributions to equity holders in the
year
|
|
|
Interim dividend of 5.0 pence for
FY22 (FY21: 3.0 pence) per share(1)
|
6,605
|
3,965
|
Final dividend of 11.0 pence for
FY22 (FY21: 8.0 pence) per share(2)
|
14,385
|
10,685
|
Interim dividend of 5.0 pence for
FY23 per share(3)
|
6,383
|
-
|
|
27,373
|
14,650
|
|
|
|
£'000
|
2023
|
2022
|
Amounts arising in respect of the financial
year
|
|
|
Interim dividend of 5.0 pence for
FY23 (FY22: 5.0 pence) per share(3)
|
6,383
|
6,632
|
Proposed final dividend
of 11.6 pence for FY23 (FY22: 11.0 pence)
per share(4)
|
15,327
|
14,547
|
|
21,710
|
21,179
|
1. The FY22 interim dividend of 5.0
pence (FY21: 3.0 pence) per share was paid on 2 December 2022 to
those shareholders on the register of SThree plc on 4 November
2022.
2. The FY22 final dividend of 11.0
pence (FY21: 8.0 pence) per share was paid on 9 June 2023 to
shareholders on record on 12 May 2023.
3. The FY23 interim dividend of 5.0
pence (FY22: 5.0 pence) per share was paid on 8 December 2023 to
shareholders on record at 10 November 2023. The £6.4 million in
funds, required for settlement of the interim dividend, were first
transferred to the share administrator before 30 November
2023.
4. The Board has proposed the FY23
final dividend of 11.6 pence (FY22: 11.0 pence) per share, to be
paid on 7 June 2024 to shareholders on record at 10 May 2024. This
proposed final dividend is subject to approval by shareholders at
the Company's next Annual General Meeting on 25 April 2024, and
therefore has not been included as a liability in these financial
statements.
12. CONTINGENT LIABILITIES
Legal
The Group is involved in various
disputes and claims which arise from time to time in the course of
its business. These are reviewed on a regular basis and, where
possible, an estimate is made of the potential financial impact on
the Group. The Group has contingent liabilities in respect of these
claims. In appropriate cases a provision is recognised based on
advice, best estimates and management judgement.
The Directors currently believe
the likelihood of any material liabilities to be low, and that such
liabilities, if any, will not have a material adverse effect on its
financial position.
13. RELATED PARTY DISCLOSURES
The Group's significant related
parties are as disclosed in the Group's 2023 annual financial
statements. There were no other material differences in related
parties or related party transactions in the year compared to the
prior year.
14. SUBSEQUENT EVENTS
There were no subsequent events
following 30 November 2023.
15. ALTERNATIVE PERFORMANCE MEASURES (APMs):
DEFINITIONS AND RECONCILIATIONS
In discussing the performance of
the Group, comparable measures are used.
The Group discloses comparable
performance measures to enable users to focus on the underlying
performance of the business on a basis which is common to both
periods for which these measures are presented. The reconciliation
of comparable measures to the directly related measures calculated
in accordance with IFRS is as follows.
APMs in constant currency
As the Group operates in 11
countries, and with many different currencies, it is affected by
foreign exchange movements, and the reported financial results
reflect this. However, the Group business is managed against
targets which are set to be comparable between years and within
them, for otherwise foreign currency movements would undermine the
management ability to drive the business forward and control it.
Within this preliminary results announcement, comparable results
have been highlighted on a constant currency basis as well as the
results on a reported basis which reflect the actual foreign
currency effects experienced.
The Group evaluates its operating
and financial performance on a constant currency basis (i.e.
without giving effect to the impact of variation of foreign
currency exchange rates from year to year). Constant currency APMs
are calculated by applying the prior year foreign exchange rates to
the current and prior financial year results to remove the impact
of exchange rate.
Measures on a constant currency
basis enable users to focus on the performance of the business on a
basis which is not affected by changes in foreign currency exchange
rates applicable to the Group's operating activities from period to
period.
The calculations of the APMs on a
constant currency basis and the reconciliation to the most directly
related measures calculated in accordance with IFRS are as
follows:
£'000, unless otherwise stated
|
2023
|
Revenue
|
Net fees
|
Operating
profit
|
Operating profit conversion
ratio*
|
Profit before
tax
|
|
Basic EPS
(pence)
|
Reported
|
1,663,167
|
418,775
|
76,356
|
18.2%
|
77,915
|
42.4
|
Currency impact
|
(24,489)
|
(5,602)
|
(2,280)
|
(0.3%)
|
(2,237)
|
(1.2)
|
In
constant currency
|
1,638,678
|
413,173
|
74,076
|
17.9%
|
75,678
|
41.2
|
£'000, unless otherwise stated
|
2022
|
Revenue
|
Net fees
|
Operating
profit
|
Operating profit conversion
ratio*
|
Profit before
tax
|
|
Basic EPS
(pence)
|
Reported
|
1,639,446
|
430,616
|
77,552
|
18.0%
|
77,026
|
41.0
|
*Operating profit conversion ratio represents operating
profit over net fees.
To calculate the YoY variances in
constant currency, management compared the FY23 results in constant
currency versus the FY22 reported results.
Other APMs
Net cash excluding lease liabilities
Net cash is an APM used by the
Directors to evaluate the Group's capital structure and leverage.
Net cash is defined as cash and cash equivalents less current and
non-current borrowings excluding lease liabilities, as illustrated
below:
£'000
|
|
2023
|
2022
|
Cash and cash equivalents
|
|
83,202
|
65,809
|
Bank overdraft
|
|
-
|
(423)
|
Net
cash
|
|
83,202
|
65,386
|
EBITDA
In addition to measuring financial
performance of the Group based on operating profit, the Directors
also measure performance based on EBITDA. It is calculated by
adding back to the reported operating profit non-cash items such as
the depreciation of property, plant and equipment (PPE), the
amortisation and impairment of intangible assets, loss on disposal
of PPE and intangible assets, gain on lease modification and the
employee share options charge. Where relevant, the Group also uses
EBITDA to measure the level of financial leverage of the Group by
comparing EBITDA to net debt.
A reconciliation of reported
operating profit for the year, the most directly comparable IFRS
measure, to EBITDA is set out below.
£'000
|
|
2023
|
2022
|
Reported operating profit for the
year
|
|
76,356
|
77,552
|
Depreciation of PPE
|
|
15,898
|
18,682
|
Amortisation and impairment of
intangible assets
|
|
16
|
719
|
Loss on disposal of PPE and
intangible assets
|
|
160
|
1,298
|
Gain on lease
modification
|
|
-
|
(266)
|
Employee share options
charge
|
|
4,871
|
4,999
|
EBITDA
|
|
97,301
|
102,984
|
Dividend cover
The Group uses dividend cover as
an APM to ensure that its dividend policy is sustainable and in
line with the overall strategy for the use of cash. Dividend cover
is defined as the number of times the Company is capable of paying
dividends to shareholders from the profits earned during a
financial year, and it is calculated as the Group's profit for the
year attributable to owners of the Company over the total dividend
paid to ordinary shareholders.
£'000
|
|
2023
|
2022
|
Profit for the year attributable to
owners of the Company
|
A
|
56,051
|
54,202
|
Dividend proposed to be paid to
shareholders (note 11)
|
B
|
21,710
|
21,179
|
Dividend cover
|
(A ÷ B)
|
2.6
|
2.6
|
Contract margin
The Group uses contract margin as
an APM to evaluate contract business quality and the service
offered to customers. Contract margin is defined as contract net
fees as a percentage of contract revenue.
£'000, unless otherwise stated
|
|
2023
|
2022
|
Contract net fees
|
A
|
343,502
|
334,215
|
Contract revenue
|
B
|
1,584,215
|
1,540,323
|
Contract margin
|
(A ÷ B)
|
21.7%
|
21.7%
|
Total shareholder return (TSR)
The Group uses TSR as an APM to
measure the growth in value of a shareholding over a specified
period, assuming that dividends are reinvested to purchase
additional shares at the closing price applicable on the
ex-dividend date. The TSR is calculated by the external independent
data-stream party.
pence, unless otherwise stated
|
|
2023
|
2022
|
SThree plc TSR return index value:
three-month average to 30 Nov 2020 (FY22: 30 Nov 2019)
|
240.74
|
262.41
|
SThree plc TSR return index value:
three-month average to 30 Nov 2023 (FY22: 30 Nov 2022)
|
365.25
|
355.43
|
Total shareholder return
|
|
51.7%
|
35.4%
|
16. ANNUAL REPORT AND ANNUAL GENERAL
MEETING
The Annual General Meeting of
SThree plc is to be held on 25
April 2024.
The 2023 Annual Report and Notice
of 2024 Annual General Meeting will be posted to shareholders
shortly. Copies will be available on the Company's website
www.sthree.com or from the Company Secretary, 1st Floor, 75 King
William Street, London, EC4N 7BE.