STHREE (FRA:GB00B0KM) SThree: Final Results
Transparency directive : regulatory news
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SThree (STEM)
SThree plc
FINAL RESULTS FOR THE YEAR ENDED 30 NOvember 2021
RECORD profit PERFORMANCE up 111%, FY22 upgrade TO double-digit growtH
SThree plc ("SThree" or the "Group"), the only global pure-play specialist staffing business focused on roles in Science, Technology, Engineering and Mathematics ('STEM'), today announces its financial results for the year ended 30 November 2021. FINANCIAL HIGHLIGHTS
(1) Excluding discontinued operations in Australia. (2) Excluding the impact of £0.2 million in net exceptional income (2020: £0.5 million in net exceptional income). (3) Variance compares adjusted 2021 against adjusted 2020 to provide a like-for-like view. (4) Variance compares adjusted 2021 against adjusted 2020 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. (5) Net cash represents cash and cash equivalents less bank borrowings and bank overdrafts, excluding leases. FULL YEAR HIGHLIGHTS
As 2020 was significantly impacted by Covid-19, the Group has provided comparisons against 2019 for net fees and profit. Highlights include:
(1) All growth rates are expressed in constant currency and exclude Australia, which the Group exited in Q4 2020. (2) The contractor order book represents value of net fees until contractual end dates, assuming all contractual hours are worked.
Timo Lehne, Interim CEO, commented: "Having been part of the Group for over 16 years and leading its most successful region, I am delighted to take on the role of Interim CEO and continue to help the Group deliver excellent results. Our record-breaking full-year performance reported today demonstrates that we have a robust strategy focusing on STEM and flexible working, implemented by a talented management team, and the hard work of our people globally. As the market rebounded in 2021 following the impact of Covid-19, we saw demand for STEM skills increase across all of our key markets. Whether it is engineers building green infrastructure, developers aiding digital transformation or the scientists helping to develop the next life-changing drug, we are proud to have placed more than 22,000 skilled people and, combined with our ESG efforts, we impacted over 33,000 lives this financial year. Within our contractor markets, we see particular client demand for our employed contractor model, a market segment where we lead in many countries, and now accounts for 32% of Group net fees. I am confident and excited about the future of SThree. Momentum is strong and demand for the talent we provide is expanding, driving anticipated double-digit growth in 2022. We are well positioned, we demonstrated our ability to navigate through unforeseen challenges, such as Covid-19, and we continue to evolve our delivery model. We will further invest in our infrastructure and our people in 2022, enhancing our Group-wide platform to drive accelerated margins in future years. We remain positive about our growth prospects as we continue to position ourselves as the leading STEM talent provider in the best global STEM markets."
Analyst conference call SThree is hosting a webinar for analysts today at 09:30 GMT. If you would like to register for the webinar, please contact sthree@almapr.co.uk
SThree will issue its Q1 trading update on 21 March 2022.
The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (Regulation (EU) No.596/2014) as it forms part of UK Domestic Law by virtue of the European Union (Withdrawal) Act 2018.
Enquiries: SThree plc +44 7825122523 Rebecca Matts, Group Corporate Affairs Director r.matts@sthree.com
Alma PR +44 20 3405 0205 Susie Hudson Sthree@almapr.co.uk
Notes to editors SThree plc brings skilled people together to build the future. We are the only global pure-play specialist staffing business focused on roles in Science, Technology, Engineering and Mathematics ('STEM'), providing permanent and flexible contract talent to a diverse base of over 8,000 clients across 14 countries. Our Group's c.2,700 staff cover the Technology, Life Sciences, Engineering and Banking & Finance 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
Our purpose is 'Bringing skilled people together to build the future'. A key measure of our performance is how well we lived that purpose. In our 2021 financial year, we placed over 22,000 STEM specialists with companies which need their talents to build a better future. We ran skills development programmes that improved our staff's capabilities, and our environmental, social and governance ('ESG') efforts enhanced lives in the communities where we operate. In total, SThree positively impacted over 33,000 lives in the past year. Everyone at SThree is extremely proud to provide meaningful, decent work and job opportunities to tens of thousands of people around the world. As the world changed at the outset of the pandemic, and then fuelled by recovery in 2021 and a war for talent, our clients needed STEM talent fast, often on a project basis. We were ready to serve that demand, thanks to our strategy, as set out in our Capital Markets Day presentation in late 2019. Our approach was developed in response to two long-term trends: one, the growing need for STEM skills and two, the increased demand for flexible contract work to deliver time-limited projects, alongside focusing on best-in-class operational execution. As a result, we are pleased to report excellent year-end figures with net fees up 19% in constant currency at £356 million and adjusted operating profit up 106% in constant currency from £31 million in 2020 to £61 million in 2021. Both net fees and operating profit were also comfortably ahead of 2019 levels, which had been a record year in SThree's history. We took share from competitors in several key markets and our performance compares well to our UK-listed peer group.
Progress in pursuing our strategy
Governance One of my priorities as Chair is to move the Group towards FTSE 250 standards of governance and last year, we made good progress towards this goal with many new initiatives including the Board's focus on climate-related disclosures and governance framework to oversee a robust climate change management strategy.
Our positioning as leaders in STEM and flexible working We honed our value proposition through the year. The value we deliver for clients is our deep understanding of the STEM skills they need and the ability to supply candidates with those skills. That same deep understanding allows us to build strong relationships with candidates so that we can find the right roles for them and help guide their careers. In addition to being a leader in STEM, we want to be known as a leader in flexible working. While we remain a full-service business for our clients with around 25% of our net fees from the placement of permanent candidates, largely in leadership roles, the biggest part of our business is now helping our clients' teams with highly skilled, flexible contract workers. That ratio of 75:25 contract to permanent hasn't changed materially during the year but there has been a continued shift within the contract group. Our Employed Contractor Model ('ECM'), where contractors are directly employed by SThree rather than the client, is proving an increasingly compelling proposition alongside freelancing. At the beginning of the year the mix was 46% independent contractors and 30% ECM. Now it is 43% independent contractors and 32% ECM.
ESG and DE&I are central to our business model ESG and delivering on our purpose is a core part of our business. Every economy in which we operate will need to build back better and greener by investing in infrastructure. The COP26 UN climate change conference marked a step forward in global efforts to address climate change, including a material increase in ambitions to reduce emissions across the world. Within environment, many of our clients are either in the renewable energy sector or navigating the low carbon transition. Social policy is essential to our operation as people are at the heart of our performance. We need our culture to be diverse, equitable and inclusive in order to attract and retain capable talent for our own business but also to source the candidates our clients need. As for governance, clients need assurances we have the legal resources and governance structures to deliver employee contracts that are fully compliant. In April 2021 we published our first Impact Report, setting out ESG progress, metrics and targets. We are an early adopter of the robust Taskforce on Climate-related Financial Disclosures ('TCFD') reporting standard, and you will find our first performance data in the Responsible business section of the Annual Report. Also in April 2021, we were delighted to be recognised as a climate leader by the Financial Times, joining the top 300 companies on their European Climate Leaders list. We were placed number 69 and are the only staffing sector company to achieve that distinction. Our DE&I policies are critical to attract and retain talent and help people perform at the top of their game. In November 2021, SThree was awarded Company of the Year at the 2021 European Diversity Awards joining the ranks of best practitioners such as Lego, HSBC and Vivendi. Again, we were the only staffing sector company to be recognised. We measured our current make-up and set challenging targets for gender, aspiring to increase gender representation at leadership levels to 50/50 by 2024. Our NED representation at the Board level is 50/50, in our Senior Leadership Team it is 40/60 and women currently occupy 31% of leadership roles more widely within the Group.
Platform and people development We took great strides this year in improving our team members' development. We launched a new learning and development platform that is accessible to all from anywhere. New leadership training programmes were also put in place which achieved 92% participation. We gave bias training to our recruiters so they could reduce its influence in staffing decisions. We have exceeded the target percentage of the Group adjusted operating profit spend on our people development set out in our Capital Markets Day plan, achieving 5.5% in 2021 versus the target of 5.0%. It is critical for us to be hiring the right people in the right places as we increase our headcount. We therefore reviewed our talent acquisition and succession planning processes, refining them before training our recruiters in best practice. Having culture and values endorsed by our entire business, including every member of the senior management team, is also critically important. Extended parental leave, family leave, support for mental well-being and extended paid volunteering hours for everyone are just a few examples of this year's initiatives to develop an inclusive culture around our people. All these investments in our culture help us better fulfil our purpose: bringing skilled people together to build a better future.
Markets and operating where STEM demand is strongest We made a deliberate shift through the pandemic to adjust our portfolio and focus on the five core markets: US, UK, Netherlands, Germany and Japan. Together, these represent over 75% of the world STEM market and over 86% of our net fees. Our strategy is to aim for leadership in those markets by achieving scale and using that scale to add value to our offer.
Segment recovery in core markets The standout segmental performance during the pandemic was in life sciences in the US, where demand was particularly strong. This was not just a result of Covid-19 programmes as other areas, such as medical devices, also contributed. There was strong adoption of technology, especially amongst some of the more traditional retailers who realised that, with consumers at home, they needed to improve their online business models. Infrastructure investment in Germany was strong and engineering project growth in the Netherlands supported strong demand for technology candidates. Technology really helped drive a renaissance in the UK business as well, with public sector investment and other industries such as education and healthcare, which had been tech laggards, now rapidly adopting technology. Companies needed new channels to engage with their customers and drive more resilience in their supply chain. They also needed artificial intelligence experts and data analytics to understand their business and customers better. Both trends drove demand for programmers. Engineers were needed to increase automation as did the energy and other sectors to support their decarbonisation journeys. After elective surgeries and treatment were artificially depressed during lockdowns, backlogs finally began to be addressed, which required health technology and engineering experts. Although certain niche skills that were out of favour, generally the story was one of strong recovery in demand.
Our approach to the pandemic Our own response to the pandemic was to establish a framework approach, developing tactics for the three phases of the pandemic. First, there was the 'emergency response' phase, which we referred to in last year's annual report. Our approach here was to revise the way we supported our clients and our candidates, whilst still maintaining capacity for when demand began to return. We shifted to having all our people working from home and provided them with the IT equipment, training and personal support they needed. The next phase, which we are thankfully emerging from in many of our markets, is the 'ongoing management of a rolling crisis' phase. Until it is fully resolved, we won't get the cross-sector recovery required to say with confidence that we have reached the final phase, 'a new normal'. Throughout the year, we were still in the ongoing management phase and there was always going to be a level of volatility. As all the evidence suggested our strategy remained sound, the questions we focussed on throughout the year were, 'how do we operate in this period?' and, 'how do we implement the strategy given the uncertain background?'. Inevitably, some of the investment priorities we had a year ago changed. We formally changed to a global hybrid working policy for all staff that allows us to flex to uncertain times. It has been well received by our people. Remote working was putting heavier demands on our IT systems, so we further invested in our IT infrastructure. As cyber security is an ongoing issue, we invested in better-quality systems to protect our candidates' and clients' data. In the final quarter of the year, we hired Nick Folkes, a highly skilled technology and transformation leader as our Chief Technology and Information Officer.
Management appointments In July we welcomed Andrew Beach as our new Chief Financial Officer and said goodbye to Alex Smith, who had served as CFO for 12 years. I'd like to thank Alex again for his achievements in that time. At the close of the financial year, the Board announced that Mark Dorman would be stepping down from the Board and as CEO of the Group on 31 December 2021. Timo Lehne, who was serving as the Senior Managing Director of SThree's largest and most successful region, DACH (Germany, Austria and Switzerland), was appointed Interim CEO and joined the Board as Executive Director from 1 January 2022. Mark will continue to assist the Group in facilitating a smooth handover and transition until 1 April 2022. On behalf of the Board, I would like to thank Mark for his vision, drive and unique service to the Group over the past three years.
A strong team effort I must sincerely thank all of SThree's employees for their exceptional productivity and adaptability throughout 2021, in what have been extremely difficult circumstances. My colleagues on the Board who navigated a situation that was without precedent, also deserve thanks. They provided excellent stewardship of the Company over the year. I would also like to thank our external stakeholders for their support. Candidates trusted us for advice and to guide their career development choices. Clients turned to us to meet their STEM talent requirements as they adapted to new challenges. Investors also showed confidence in us, having the full understanding of our strategy as well as our great operational and financial performance of the Group in 2021.
Outlook Our year started with strong forward momentum. We will continue to build sustainable growth and will resume our plans for internal investment during the year, particularly in the infrastructure that will allow us to expertly harness data and efficiencies, for example in further enhanced CRM and ERP platforms. We expect to deliver double-digit growth in net fees and profits in 2022, maintaining our operating conversion ratio at similar levels to 2021 to allow for the impact from investment of between 1% and 2% of net fees to further strengthen our operational and sales platforms. We anticipate payback on the investment, delivering an acceleration of margins from 2023. I believe we have good reason to be confident: we are in the right markets, we are focused on the right sectors, and we have a team that is flexible and resilient enough to seize the opportunities ahead of us. Group OPERATIONAL REVIEW
Overview The Group delivered a very strong performance for the year, driven by the benefits of our business model and our strategy at the centre of two secular, long-term trends: an increasing demand for STEM skills and an accelerating trend towards flexible working. Overall, Group net fees were up 19%* YoY, primarily attributable to our strategic focus on our Contract business, which now accounts for 75% of the Group net fees and delivered growth in net fees of 17%* YoY. Our contractor order book increased by nearly 43% YoY reflecting the high demand for skilled contractors across our markets. Permanent net fees were up 24%* YoY. Adjusted operating profit was £60.8 million (2020: £31.3 million), up 106%* YoY. Total Group year-end headcount was up 6% YoY with average headcount down 11% YoY. Over the next year we are focussing our strategy for talent attraction and retention where we continue to drive market share gain. We increased productivity per head 31% YoY in the year, although we do expect this to normalise to some extent going into 2022. This has been a challenging period for our teams. The quality of our management and increasing expertise in our target markets are driving us forward on our journey to become the number one STEM talent provider in the best global STEM markets. We are committed to ensuring that SThree is well positioned over the long term and are confident we can continue to exploit the accelerating secular trends of STEM and flexible working across global markets and deliver our long-term ambitions. 2024 ambitions In 2019, looking ahead to 2024 we set ourselves several ambitions to deliver growth and value for our Company and all stakeholders:
We also committed to several targets regarding our people and society that reflect the importance we put on being a people-centric and purpose-driven business. For example, we committed to achieve 50/50 gender representation at all leadership levels by 2023, to maintain our Learning & Development ('L&D') spend at 5% of operating profit, to grow productivity per head over the period by 1% to 2% per annum, to reduce our absolute CO2 emissions by 20% and to double the size of our renewable energy business by 2024. We have made good progress taking market share in the USA, Germany and the Netherlands in the year. While the free cash flow conversion declined to 40% (2020: 178%) due to increased demand for contractors, our operating profit conversion ratio rapidly accelerated to 17.1% (2020: 10.1%), driven by our productivity and improved hiring conditions. Within our People and Society goals we have slightly exceeded the target of the Group spend on people development, being 5.5% in 2021 versus the target of 5.0%, to support our people in their efforts and strategic focus in the post-pandemic times. In 2021, we have also made a significant contribution towards climate action. We have grown our renewables business net fees by 22%* YoY, delivering nearly 46%* growth since 2019 (the baseline year). We have reduced our CO2 emissions by 44% YoY and have carried out a scenario analysis to provide our stakeholders with more transparency and better understanding of our business's exposure to climate-related risks and opportunities, and feed into the Group's first Task Force on Climate-related Financial Disclosures Report.
* All growth variances expressed in constant currency.
Group net fees by division, geography and sector
The Group is well diversified both geographically and by sector. Our top five countries now represent 86% of Group net fees, with Germany accounting for 33%, USA 25%, the Netherlands 16%, UK 10% and Japan 2% of Group net fees. More detail is provided in the section that follows. Our largest sector, Technology was up by 23%* YoY, driven by increased demand for infrastructure and software development roles across all major geographies, followed closely by the Life Sciences sector, which was up by 25%* YoY, driven by USA and Germany with increased demand for laboratory staff and quality assurance roles. Within our regions, USA and DACH are our two largest Permanent markets, and were up 53%* and 15%* YoY respectively. Our Japan business, which is predominately Permanent, saw net fees grow by 28%* YoY.
Operational review by geography
DACH is the largest region of the Group and represented 36% of Group's net fees in 2021
The DACH region comprises businesses in Austria, Germany and Switzerland, with Germany accounting for 91% of its net fees.
The year was characterised by excellent market recovery due to strong demand for a flexible workforce, delivering strong net fees up 24%* YoY. Market demand for specialists in the fields of Technology, Life sciences and Engineering increased dramatically, with Technology representing the largest share of the business at 65% followed by Life Sciences at 18% and Engineering at 13%. A key feature of the year was the growth in ECM revenue, which now accounts for 18% of net fees, up nine percentage points versus 2019. ECM will continue to be strategically important going into 2022 due to the growth in customer demand for this solution, coupled with the higher margins it delivers. Technology, our largest sector in the region, was up 34%*, driven by demand for infrastructure and open-source software development roles, while Life Sciences was up 25%*, with demand for laboratory staff and quality assurance roles continuing to increase. Germany, our largest country in the region, delivered strong net fee growth of 23%*, with the Contract business growing 28%* and Permanent up 15%*. Switzerland and Austria also grew strongly up 28%* and 43%* YoY respectively, both driven by the Technology sector.
Outlook The prospects for the DACH market are very encouraging. We believe that the shortage of skilled workers, especially in STEM professions, will ensure an increasing demand for the talent we provide. As one of the top three STEM providers in the region, we have an excellent platform to continue to grow, addressing market demand and delivering sustainable value for candidates and clients. Our strong investment focus on ECM will also allow us to meet increased market demand for flexible workers and strengthen our drive to be the leader in these markets. * In constant currency
EMEA excluding DACH, representing 36% of Group net fees EMEA excluding DACH is the joint largest region of the Group and comprises businesses in Belgium, Dubai. France, Ireland, Luxembourg, the Netherlands, Spain and the UK.
Overall, the market position of the EMEA excluding DACH segment is strong. The segment saw net fees grow by 9%* YoY, as a result of a significant recovery in trading in the second half of 2021. There has been a growing demand for STEM talent within all the geographies and markets that it serves, particularly within the Technology and Life Sciences sectors. Strong demand for Technology skills in both the private and public sectors was mainly attributable to accelerating investments in technology transformation by our clients. Within Life Sciences demand across pharmaceuticals, as well as medical devices, provided an 18%* growth versus 2020 and 14%* growth versus 2019. The Netherlands, our largest country in the region, finished the year strongly with net fees up 19%*, due to solid performances in Technology, up 15%*, which was driven by demand for SAP and ERP specialists, as well as cybersecurity experts. Engineering was up 28%* YoY, mainly due to demand for project management and quality assurance skills, as well as health, safety and environment roles. Net fees in the UK were up 8%* YoY reflecting strong sequential quarter-on-quarter improvement throughout the year. This was driven by Technology, up 11%*, as demand increased for skills such as business analysts, project managers and product owners. We also saw net fee growth of 12%* in Ireland, driven by Life Sciences, and 14%* in Dubai, driven by Banking & Finance.
Outlook We have set strong foundations in 2021 to continue our growth, despite the pandemic and we aim to continue our momentum into 2022. STEM talent is critical across our core sectors in the region and is in short supply. Whilst competition is fierce and STEM talent is hotly contested, we expect demand for talent to accelerate across core STEM verticals and geographies and underpins our growth prospects across the region. * In constant currency USA, representing 25% of Group net fees The USA is the world's largest specialist STEM staffing market and our third-largest region. It remains a key area of focus for the Group, and we will continue to invest strategically in the region as we align our resources with the best long-term opportunities.
The USA delivered an excellent performance in 2021 with net fees up 24%* YoY. There was good growth in Contract of 16%* driven by Technology, and a very strong performance in Permanent, up 53%*. The ever-increasing demand for technology and for e-commerce, as well being a partner for Salesforce, drove the growth of the segment's client base within the sector, with growth of 35%*. 2021 saw a significant increase in the demand for clinical research and quality assurance personnel, driving the 25%* growth in the Life Sciences sector. With the surge in medicines and devices that have approvals to enter the manufacturing phase, we expect this trend to continue through 2022. Engineering was up 11%*, driven by an increase in roles in renewables sectors such as wind and solar farms as well as battery storage. Power infrastructure and gas distribution saw record levels of investment in 2021 to minimise environmental impacts as well as maximise safety and efficiency. This gave us a strong pipeline of demand, which is expected to continue into 2022.
Outlook The focus in 2022 will be to capture market share through continued growth within our target vertical markets of Technology, Engineering and Life Sciences. We expect to deliver growth in productivity through efficiencies achieved in key customer accounts and client and candidate acquisitions, as well as through sales and marketing initiatives and continued investment in L&D programmes that drive retention and career development and enable hybrid working. * In constant currency
Asia Pacific, representing 3% of Group net fees Our APAC business principally includes Japan and Singapore.
2021 was an encouraging year for the region with net fees returning to growth following the impact of Covid-19 in 2020. Total net fees for the region were up 34%* YoY, with a 64%* increase in Q4 YoY. Our two largest sectors showed strong growth with Technology up 29%* and Life Sciences up 63%*. An excellent performance in Japan saw net fee growth of 27%* which was driven by Technology sector, up 29%* YoY, and Life Sciences sector, up 48%* YoY. Singapore net fees were up 54%* driven by Banking & Finance, up 33%* YoY, and Life Sciences, up 80%* YoY.
Outlook We will continue to invest in our business in the region as we look to position ourselves to take advantage of market opportunities. We will strengthen our position in STEM with a clear focus on Technology and Life Sciences, in line with our strategy. * In constant currency
chief financial officer's REVIEW The Group delivered a very strong performance in 2021, with both net fees and operating profit not only up strongly versus 2020 but also surpassing the record 2019 levels. The Group saw an encouraging performance in the first half, which was followed by a further strengthening in the second half across all sectors and regions. Our strong balance sheet and immediately accessible liquidity of £112.5 million positions us well for the future.
Income statement Revenue for the year was up 14%(1) to £1.3 billion (2020: £1.2 billion) while net fees increased by 19% to £355.7 million (2020: £308.6 million). The weakening of our two main trading currencies, US Dollar and Euro, against Sterling during the year, reduced total net fees by £11.3 million. The Group's performance in 2020 was impacted by the Covid-19 health crisis but during the current year demand for staffing regained momentum and excellent progress was made with the Group surpassing 2019 levels. The increase was led by strong growth in net fees in our three largest countries: Germany up 23% YoY, USA up 24% and Netherlands up 19% which was driven by growth in the Technology, Life Sciences and Engineering sectors. The contractor order book was up by 43% at the end of the year, reflecting the ongoing high demand for skilled contractors across our markets and underpinning our positive outlook. Permanent net fee income was up 24% which was largely driven by DACH and USA, our two largest Permanent regions which were up 17% and 53% respectively. At the end of the year, Contract represented 75% of the Group net fees in the year (2020: 76%). Overall, the Group Contract margin(2) increased marginally to 21.5% (2020: 20.7%). Operating expenses saw an increase of 6% YoY on a reported basis. The increase was mainly attributable to personnel costs as a result of higher average salaries, bonuses, commissions, share-based payment charges and temporary personnel costs across the organisation. Technology costs also increased mainly to drive innovation and reduce operational risk, by moving towards improved systems in support of the SThree strategy. The Group's financial results were impacted by the following two items of other income which are unusual because of their nature and incidence:
The adjusted operating profit was £60.8 million (2020: £31.3 million), up 106% YoY in constant currency. The reported operating profit of £61.0 million (2020: £31.8 million) included a small exceptional income of £0.2 million as described above. The Group operating profit conversion ratio increased to 17.1% (2020: 10.1%) which reflects the recovery in the Group trading activity as the impact of the pandemic eased, partially offset by higher personnel costs and technology spend. The conversion ratio was also favourably affected by elevated contractor working hours that improved productivity. The discontinued Australian operations have been excluded from the results presented above for both the current and prior year. In 2021, these discontinued operations incurred a loss of £0.3 million (2020: operating loss £1.8 million) mainly reflecting a true-up of exit costs/redundancy costs of gradually reduced staff following the business closure and the reclassification of accumulated foreign exchange differences from the Group currency reserve to the Group income statement.
Net finance costs Net finance costs, which predominantly related to lease interest, decreased to £0.8 million (2020: £1.2 million). The higher cost in the previous year was a result of the drawdown of the RCF in the course of 2020 to ensure strong liquidity in the face of the global health crisis. The RCF was subsequently repaid and remains available for future drawdowns. Foreign exchange exposure In 2021, the net currency movements versus Sterling provided a significant net headwind to the reported performance of the Group, reducing net fees by £11.3 million and operating profit by £3.6 million. This was mainly attributable to Sterling strengthening against the Euro and the US Dollar, the two main trading currencies of the Group. Fluctuations in foreign currency exchange rates 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 net fees by £2.1 million and £0.9 million respectively per annum, and operating profit by £0.7 million and £0.3 million respectively per annum. Our foreign exchange risk management strategy involves using certain derivative financial instruments to minimise the transactional exposure arising from currency fluctuations.
Income tax The tax charge for the year on the Group's profit before tax was £17.9 million (2020: £11.7 million), representing a full year effective tax rate ('ETR') on continuing operations of 30%. In the prior year, the reported ETR on continuing operations was 39%, significantly above the current year due to higher losses in certain jurisdictions not recognised for deferred tax purposes. The Group's ETR primarily varies depending on the mix of taxable profits by territory, non-deductibility of the accounting charge for LTIPs and other one-off tax items.
Overall, the reported profit before tax from continuing operations was £60.2 million (2020: £30.6 million), up 109% YoY in constant currency and up 97% on a reported basis. The reported profit after tax from continuing operations was £42.3 million (2020: £18.8 million), up 139% YoY in constant currency and up 125% on a reported basis.
Earnings per share ('EPS') The reported EPS was 31.9 pence (2020: 14.2 pence) on continuing operations, up 138% YoY in constant currency and up 125% YoY in reported currency. The YoY growth reflects higher operating profit given the significant improvement in trading performance post the pandemic, and a decrease in the Group's ETR. This was partially offset by an increase of 0.2 million in the weighted average number of shares. Exceptional items had an immaterial impact on the reported EPS (further information is provided in note 6 to the Group Consolidated Financial Statements). The reported diluted EPS was 30.9 pence (2020: 13.8 pence) on continuing operations. Share dilution mainly results from various share options in place and expected future settlement of certain tracker shares. The dilutive effect on EPS from tracker shares will vary in future periods depending on the profitability of the underlying tracker businesses and the settlement of vested arrangements.
Dividends The Board aims to maintain a sustainable dividend, within the range of 2.5x and 3.0x earnings cover(2). The Board has proposed to pay a final dividend at 8.0 pence (2020: 5.0 pence) per share. Taken together with the interim dividend of 3.0 pence (2020: nil pence) per share, this gives a total dividend for the year of 11.0 pence (2020: 5.0 pence) per share. The final dividend, which amounts to approximately £10.7 million, will be subject to shareholder approval at the 2022 Annual General Meeting. It will be paid on 10 June 2022 to shareholders on the register on 6 May 2022.
Balance sheet Total Group net assets increased to £158.2 million (2020: £128.5 million), driven by the excess of net profit over the dividend payments, partially offset by unfavourable foreign currency movements and share buy-backs. Net working capital, including contract assets, increased by £22.4 million on the prior year, driven mainly by the accelerated growth in revenue, due to continued growth of the contractor order book increasing our working capital, partially offset by our continued focus on credit risk management and normalisation in client payment times post the pandemic. Our days sales outstanding remained stable YoY at 44 days (2020: 44 days), following significant improvement last year. Our business model remains highly cash generative, and we have no undue concentration of repayment obligations in respect of trade payables or borrowings. Investment in subsidiaries During the year, the Group's businesses delivered a very strong financial performance, ahead of market and management's expectations. With candidate and client confidence improving across most of our global footprint, significant growth rates were reported in contractor order books among most of the Group's businesses to levels not seen since the peak of 2019. Accordingly, no significant indicators of impairment were identified when reviewing recoverable amounts of the Company's investment portfolio. For comparison, in the prior year the Company recognised an impairment loss of £12.9 million mainly in respect of the UK operations which were affected by heightened uncertainty and reduced economic activity caused by the pandemic. Tracker shares The Group settled certain vested tracker shares during the year for a total consideration of £4.6 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; 200,372 new shares were issued and 672,157 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. In 2021 the Directors decided to close the tracker share scheme for any new entrants/investments. 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. We expect all future tracker share settlements to be between £2.0 million to £10.0 million per annum. These settlements may either dilute the earnings of SThree plc's existing ordinary shareholders if funded by 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 2021, cash generated from operations was £54.5 million (2020: £76.9 million). It represented the improved adjusted EBITDA (2) offset by the continued growth of the contractor order book increasing our working capital and having fully repaid £2.3 million in VAT deferrals from the prior year. Income tax paid increased to £16.7 million (2020: £10.5 million) reflecting the improved underlying trading performance across our markets and sectors. Capital expenditure decreased to £2.6 million (2020: £5.3 million), the majority of which related to IT equipment and digitisation of our internal processes, with emphasis on greater automation and tools to improve efficiency, speed and effectiveness. The Group paid £13.1 million in rent (principal and interest portion) (2020: £13.6 million). Net interest cost (excluding interest on lease payments) was £0.2 million (2020: £0.4 million) in the year. The Group spent £5.2 million (2020: £2.0 million) for the purchase of its own shares to satisfy vesting employee share incentive schemes. Cash inflows of £0.2 million (2020: £0.9 million) were generated from the Save As You Earn employee scheme. Dividend payments were £6.6 million (2020: £6.7 million, being the interim dividend paid in December 2019) and there was a small cash outflow of £0.1 million (2020: £nil) representing distributions to tracker shareholders. Foreign exchange had a significant negative impact of £2.6 million (2020: £0.3 million). Overall, the underlying cash performance in 2021 was solid with 40% conversion of operating profit into operating cash flow (2) (2020: 175%), primarily reflecting very strong trading performance across the Group offset by increased working capital. We started the year with net cash of £49.9 million and closed the year with net cash of £57.5 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 priorities are financed mainly by retained earnings, cash generated from operations, a £50.0 million Revolving Credit Facility ('RCF') which is committed to 2023, and a £5.0 million overdraft. The Group also maintains a £20.0 million accordion facility as well as a substantial working capital position reflecting net cash due to SThree for placements already undertaken. On 30 November 2021, the Group had total accessible liquidity of £112.5 million. This was made up of £57.5 million net cash, £50.0 million in RCF and £5.0 million overdraft (both undrawn at the year-end). The increased net cash balance, achieved despite the growth in Contract placements made, reflects the Group's strong focus on cash management. Any funds borrowed under the RCF bear a minimum annual interest rate of 1.3% above three-month Sterling LIBOR. During the year, the Group did not draw down any of these facilities. In the prior year, the average interest rate paid on drawdown was 1.3%. The Group remains in a strong financial position and has sufficient cash reserves to meet its obligations as they fall due for a period of at least 12 months from the date of signing of these financial statements.
[1] Unless specifically stated, all growth rates in revenue and net fees are expressed in constant currency and exclude Australia, which the Group exited in Q4 2020. [2] The Group has identified and defined certain alternative performance measures ('APM'). These are the key measures the Directors use to assess the SThree's underlying operational and financial performance. The APMs are fully explained and reconciled to IFRS line items in note 15.
PRINCIPAL AND EMERGING RISKS Principal risks and uncertainties affecting the business activities of the Group are detailed within the Strategic Report section of the Group's 2021 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 2021. 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 2021
The accompanying notes form an integral part of these Consolidated Financial Statements.
The accompanying notes form an integral part of these Consolidated Financial Statements.
The accompanying notes form an integral part of these Consolidated Financial Statements.
Notes to the Financial information for the year ended 30 November 2021
The financial information in this preliminary announcement has been extracted from the Group audited financial statements for the year ended 30 November 2021 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 28 January 2022. The auditors have reported on the Group's financial statements for the years ended 30 November 2021 and 30 November 2020 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 2020 were filed with the Registrar of Companies and those for the year ended 30 November 2021 will be filed following the Company's Annual General Meeting. In 2021, selected UK subsidiaries were exempt from the requirements of the UK Companies Act 2006 ('the Act') relating to the audit of individual accounts by virtue of s479A of the Act. The Company provides a guarantee concerning the outstanding liabilities of these subsidiaries under section 479C of the Act. The Group's financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. Going concern In determining the appropriate basis of preparation of this year's financial statements, the Directors are required to assess whether the Group can continue in operational existence for the foreseeable future. The Directors have undertaken a review of the Group's forecasts and associated risks and sensitivities for at least 12 months from the date of approval of this year's financial statements. Although the global pandemic and its aftermath continue to create a moderate degree of uncertainty to economic conditions across all of our markets, the Group's business model has proven to be effective and resilient. In 2021 the Group delivered a very strong performance across key markets and sectors, with profit before tax surpassing the pre-pandemic levels of 2019, reflecting the continued strength of demand for the exceptional candidates we work with, their STEM skills and the growth trajectory of our business. In the assessment of the going concern basis of preparation, the Directors considered the future financial performance based on current trading and its growth trajectory, expected operating cash flows, as well as people and capital resources required to implement strategic initiatives in response to identified market opportunities and emerging risks. The Directors also assessed the Group's financial position, including accessible liquidity with committed borrowing facilities. At 30 November 2021, the Group had £57.5 million of cash, with no debt except for IFRS 16 lease liabilities of £35.1 million. As set out in note 10 to the financial statements, debt facilities relevant to the review period comprise a committed £50.0 million RCF (facility expiring in May 2023 with all covenants met) and an uncommitted £20.0 million accordion facility, both jointly provided by HSBC and Citibank. A further uncommitted £5.0 million bank overdraft facility is also held with HSBC. The RCF is subject to covenants that are measured biannually in May and November, on a trailing 12-month basis, being (i) net debt to EBITDA of a maximum of 3.0x and (ii) interest cover of a minimum of 4.0x, based on measures as defined in the facilities agreements which are adjusted from the equivalent IFRS amounts. The ratio of net debt to EBITDA at 30 November 2021 was nil, as no debt was drawn at the year end, and interest cover was 92.4 times. The Group developed a base case that demonstrates the Board's best estimate for the review period (to the end of Q1 2023), as well as a range of downside scenarios which may occur, either through further Covid-19 related impacts, general economic uncertainty or any of the Group's principal risks. This assessment considered the Group's potential responses to changing market conditions and business risks, resilience of its business model and overall level of Group funding and covenant requirements. The key assumptions of the downside scenarios linked to certain principal risks are shown below.
Scenario 1 Downside scenario - economic downturn The first scenario considers the downside impact of economic uncertainty triggered by the new Covid-19 variants over the review period, reflected in reduced sales activity for the remainder of 2022 and into Q1 2023. Under this plausible scenario, productivity is forecast to decline between 14% and 18% against the base case over 2022. While variable costs are forecast to reduce in line with net fees, all other costs are assumed to remain in line with the base case. Link to risk: Risk 1: Macro-economic environment/cyclicality risk Risk 3: Commercial relationship/client risk
Scenario 2 Severe but plausible scenario - demand/operational shock The second scenario, considered severe but plausible, includes further potential Covid-19 outbreaks and restrictions in all key markets throughout 2022 and into 2023, leading to demand at similar levels to that experienced in 2020 over that period. Under this severe but plausible scenario, the productivity is forecast to decline between 21% and 24% against the base case over 2022 and in Q1 2023. The impact of this severe but plausible downside is mitigated by the reduction in variable costs in line with net fees, together with further reductions in overheads resulting from the postponement of investment in additional headcount. Link to risk: Risk 1: Macro-economic environment/cyclicality risk Risk 3: Commercial relationship/client risk
Under both scenarios, the Group's day-to-day working capital requirements are expected to be met through existing cash resources and cash equivalents and receipts from its continuing business activities, with sufficient cash headroom for the Group to continue trading throughout 2022 and into 2023. In each of these scenarios the Group is also forecast to be compliant with all covenants throughout the review period, with no requirement to utilise the existing credit facilities.
Through this process, together with their knowledge and experience of the recruitment services industry, STEM markets and the principal risks, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the next 12 months, and therefore the Directors continue to adopt the going concern basis in preparing the financial statements for the year ended 30 November 2021.
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 climate change scenario analyses conducted in line with TCFD recommendations undertaken this year did not identify any material financial impact. The Group also constantly monitors the latest government legislation in relation to climate-related matters. The following considerations were also made in respect of the financial statements: - The impact of climate-related risks as well as opportunities on the long-term viability of the Group. In line with the Group long-term commitment to the environment and society the Directors refreshed the ESG strategy. The Directors carried out a detailed assessment of how climate change may emerge across SThree's operations and impact its business model. Having identified risks and opportunities relating to the transitional impact of climate change and using three scenarios of global energy pathways for 2021-2040, SThree's strategic resilience was tested as well as its flexibility to adapt operations and drive continued growth. - The impact of the potential introduction of emission-reduction legislation in different jurisdictions may increase manufacturing costs among the Group's clients, which in turn could negatively affect their ability to pay debts, resulting in higher expected credit losses for trade and other receivables recognised by the Group. Management identified the need to enhance the Group's existing tools and techniques to monitor and mitigate any potential deterioration in clients' credit risk, in particular for a small proportion of the Group's clients within the Oil & Gas sector (circa 6% of Group net fees) whose operations are heavily exposed to climate-related risks. At present management continue to monitor this sector and provide guidelines to sales teams in line with climate change strategy. At present, the impact of climate-related matters is not material to 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 2020 as set out below. New and amended standards effective in 2021 and adopted by the Group A number of amended standards became applicable as of 1 December 2020 and were adopted by the Group. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these amended standards. - Amendments to references to conceptual framework in IFRS standards; - Amendments to IFRS 3, Definition of a business; - Amendments to IAS 1 and IAS 8, definition of material; - Extension of the temporary exemption from applying IFRS 9 (amendments to IFRS 4); and - Amendments to IFRS 16, Covid-19 rent related concessions. New and amended standards that are applicable to the Group but not yet effective The following other amendments and interpretations were issued by the IASB but are effective from 1 January 2022. These amendments are not expected to have a material impact on the Group in the current or future periods. - Amendments to IFRS 7, IFRS 9, IFRS 16 and IAS 39, Interest Rate Benchmark Reform - phase 2. The replacement of Interbank Offered Rates ('IBORs') with Alternative Reference Rates ('ARRs') will begin from December 2021. Where floating interest-bearing receivables and payables exist (currently based on IBORs) the Group will apply suitable replacement benchmark rates and account for the instruments in accordance with the amendments to IFRS 9 Financial Instruments published in 2019 (Phase 1) and 2020 (Phase 2). The adoption of these amendments and the transition to ARRs are expected to have an immaterial financial impact. The implications on the trading results of our segments of IBOR reform have also been assessed and the expected impact is immaterial. The Group is preparing to move to the new benchmark rates in accordance with timelines as per regulatory guidelines. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
The Group's operating segments are established on the basis of those components of the Group that are regularly reviewed by the Group's chief operating decision maker, in deciding how to allocate resources and in assessing performance. The Group's business is considered primarily from a geographical perspective. The Directors have determined the chief operating decision maker to be the Executive Committee made up of the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer and the Chief People Officer, with other senior management attending via invitation. The Group segments the business into the following reportable regions: DACH, EMEA excluding DACH, USA and APAC, as well as presents an analysis of net fees by its five key markets: Germany, the Netherlands, USA, the UK and Japan. DACH region comprises Germany, Switzerland and Austria. 'EMEA excluding DACH' region comprises primarily Belgium, France, the Netherlands, Spain, the UK, Ireland, and Dubai. All these sub-regions were aggregated into two separate reportable segments based on the possession of similar economic characteristics. Countries aggregated into DACH and separately into 'EMEA excluding DACH' generate a similar average net fee margin together with long-term growth rates, 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); - the class of candidates (candidates, who we place with our clients, represent skillsets in Science, Technology, Engineering and Mathematics disciplines). The Group's management reporting and controlling systems use accounting policies that are the same as those described in these financial statements and the accompanying notes. Revenue and net fees by reportable segment The Group measures the performance of its operating segments through a measure of segment profit or loss which is referred to as 'net fees' in the management reporting and controlling systems. Net fees is the measure of segment profit comprising revenue less cost of sales. Intersegment revenue is recorded at values which approximate third party selling prices and is not significant.
EMEA excluding DACH includes Belgium, Dubai, France, Ireland, Luxembourg, the Netherlands, Spain and the UK. DACH includes Austria, Germany and Switzerland. APAC includes Hong Kong, Japan, Malaysia and Singapore. 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:
Major customers In 2021 and 2020, 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:
(1) RoW (Rest of the World) includes all countries other than listed.
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.
Other brands including Global Enterprise Partners, JP Gray, Madison Black, Newington International and Orgtel are rolled into the above brands.
Other includes Procurement & Supply Chain and Sales & Marketing. Engineering includes Energy.
Net exceptional income The Group recognised a net exceptional income of £0.2 million (2020: £0.5 million) in relation to a legacy restructuring programme partially funded by a grant receivable from Scottish Enterprise. The Group was entitled to the grant until the end of 2021 and complied with all terms of the grant. The grant has now been fully utilised and no further income is due. Impact of Covid-19 The Covid-19 health crisis had implications on certain items of income in the Group Consolidated Financial Statements, affecting the profit before tax for the current and prior year. These items were not treated as exceptional. Government assistance income The Group took advantage of job retention schemes launched by the national governments of France and Singapore, whereby it was reimbursed for a portion of salaries of furloughed personnel. A benefit of £0.3 million (2020: £1.2 million from local national governments of Belgium, France, Hong Kong, Japan, Luxembourg, Singapore and Spain) was recognised and presented as a deduction in reporting the related staff expense. Business optimisation expense In the prior year, in response to the significantly changed economic environment and increased risk and uncertainty caused by Covid-19, the Directors took relevant steps to right-size the structure and strategy of certain local businesses. These changes resulted in a charge of £3.3 million that was recognised in the previous year.
The total income tax charge relates entirely to continuing operations.
The Group's tax charge for the year exceeds (2020: exceeds) the UK statutory rate and can be reconciled as follows:
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 2021, a deferred tax asset of £1.5 million (2020: £0.7 million) was recognised in respect of these options. On transition to IFRS 16 an adjustment to retained earnings was made at 1 December 2019, and a corresponding tax credit was booked to equity of £0.3 million.
On 1 September 2020, the Group announced its intention to liquidate the Australian subsidiary ('SThree Australia'), the operations of which represented a separate major line of business for SThree. As a result, SThree Australia was treated as discontinued operations for the year ended 30 November 2021 and 30 November 2020. A single amount was shown on the face of the Consolidated Income Statement comprising the post-tax result of discontinued operations. That is, the income and expenses of SThree Australia were reported separately from the continuing operations of the Group. With SThree Australia being classified as discontinued operations, the APAC segment no longer includes its results in the segmental note. Financial information for SThree Australia operations after intra-group eliminations is presented below.
Closure-related costs In the current year, the discontinued operations incurred a total comprehensive loss of £0.3 million (2020: total comprehensive loss of £2.0 million) primarily reflecting a true-up of exit costs/redundancy costs of rolling off staff following the business closure and the reclassification of accumulated foreign exchange differences from the Group currency reserve to the Group Consolidated Income Statement. The total comprehensive loss incurred in the prior year was mainly attributable to closure-related costs of nearly £1.1 million due to redundancy payments and property costs.
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, which for accounting purposes are treated in the same manner as shares held in the treasury reserve. For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion of dilutive potential shares. Potential dilution resulting from tracker shares takes into account profitability of the underlying tracker businesses and SThree plc's earnings. Therefore, the dilutive effect on EPS will vary in future periods depending on any changes in these factors. The following table reflects the income and share data used in the basic and diluted EPS calculations.
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).
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:
The Consolidated Income Statement includes the following amounts relating to depreciation of right-to-use assets:
In the current year, interest expense on leases amounted to £0.6 million (2020: £0.7 million) and was recognised within finance costs in the Consolidated Income Statement. The total cash outflow for leases in 2021 was £13.1 million (2020: £13.6 million) and comprised the principal and interest element of recognised lease liabilities.
The Group maintains a committed Revolving Credit Facility ('RCF') of £50.0 million along with an uncommitted £20.0 million accordion facility, both jointly provided by HSBC and Citibank, giving the Group an option to increase its total borrowings under the facility to £70.0 million. The Group has an uncommitted £5.0 million overdraft facility with HSBC. The Group also had access to the Bank of England's Covid-19 Corporate Financing Facility, a £50.0 million committed Commercial Paper facility. While this provided the Group with access to an additional short-term form of financing up to March 2021, it was never utilised. Any funds borrowed under the RCF bear a minimum annual interest rate of 1.3% above the three-month Sterling LIBOR. At the year end, the Group and the Company did not draw down under these facilities (2020: £nil). Accordingly, the net finance costs decreased to £0.8 million (2020: £1.2 million) and were mainly related to lease interest. In the prior year, the average interest rate paid on drawdown was 1.3%. The RCF is subject to certain covenants requiring the Group to maintain financial ratios over interest cover, leverage and guarantor cover. The Group has complied with these covenants throughout the year. The RCF facility is available under these terms and conditions until May 2023. Reconciliation of financial liabilities to cash flows arising from financing activities:
(1) Other movements in 2021 and 2020 primarily comprise unwind of the discount on lease liabilities.
During the year 734,155 (2020: 441,306) new ordinary shares were issued, resulting in a share premium of £2.4 million (2020: £0.9 million). Of the shares issued, 200,372 (2020: none) were issued to tracker shareholders on settlement of vested tracker shares and 452,614 (2020: none) were issued on settlement of Long-Term Incentive Plans ('LTIP'), with the remaining issued 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. During the year no shares were utilised from the treasury reserve. In the prior year 33,949 shares were utilised from treasury reserve on settlement of vested tracker shares. At the year end, 35,767 (2020: 35,767) shares were held in treasury. Employee Benefit Trust The Group holds shares in the Employee Benefit Trust ('EBT'). The EBT is funded entirely by the Company and acquires shares in SThree plc to satisfy future requirements of the employee share-based payment schemes. For accounting purposes, shares held in the EBT are treated in the same manner as shares held in the treasury reserve by the Company and are, therefore, included in the financial statements as part of the treasury reserve for the Group During the year, the EBT purchased 1,220,854 (2020: 645,122) of SThree plc shares. The average price paid per share was 422 pence (2020: 315 pence). In addition, SThree plc gifted 54,054 shares to the EBT. The total acquisition cost of the purchased and gifted shares was £5.3 million (2020: £2.0 million), for which the treasury reserve was reduced. During the year, the EBT utilised 985,932 (2020: 1,723,288) shares on settlement of vested tracker shares and LTIP awards. At the year end, the EBT held 923,362 (2020: 634,386) shares.
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.
The Group's significant related parties are as disclosed in the Group's 2021 annual financial statements. There were no other material differences in related parties or related party transactions in the year compared to the prior year.
There were no subsequent events following 30 November 2021.
Adjusted APMs In discussing the performance of the Group, comparable measures are used, which are calculated by deducting from the directly reconcilable IFRS measures the impact of the Group's restructuring income, which is considered as an item impacting comparability, due to its nature. Restructuring income Support function relocation This category comprised government grant income arising from a strategic relocation of SThree's central support functions away from the London headquarters to the Centre of Excellence located in Glasgow in 2018, further explained in note 3. 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. Reconciliation of adjusted financial indicators for continuing operations
APMs in constant currency As we are operating in 14 countries and with many different currencies, we are affected by foreign exchange movements, and we report our financial results to reflect this. However, we manage the business against targets which are set to be comparable between years and within them, for otherwise foreign currency movements would undermine our ability to drive the business forward and control it. Within this announcement, we highlighted comparable results on a constant currency basis as well as the audited 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.
*Operating profit conversion ratio represents operating profit over net fees.
Other APMs Net cash excluding lease liabilities Net cash is an APM used by the Directors to evaluate the Group's capital structure and leverage. Net cash is defined as cash and cash equivalents less current and non-current borrowings excluding lease liabilities, less bank overdraft, as illustrated below:
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 for the Group operating non-cash items such as the depreciation and impairment of property, plant and equipment ('PPE'), the amortisation and impairment of intangible assets, and the employee share options. The Group also discloses adjusted EBITDA which is intended to provide useful information to analyse the Group's operating performance excluding the impact of operating non‑cash items as defined above and net exceptional items. Where relevant, the Group also uses adjusted EBITDA to measure the level of financial leverage of the Group by comparing adjusted EBITDA to net debt. A reconciliation of reported operating profit for the year, the most directly comparable IFRS measure, to EBITDA and adjusted EBITDA is set out below.
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.
Contract margin for continuing operations 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.
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.
Free cash conversion ratio The Group uses the free cash conversion ratio as an APM to measure the business's ability to convert profit into cash. It represents cash generated from operations for the year after deducting tax, net interest cost and rent payments, stated as a percentage of operating profit. The free cash flow can then be used to fund Group operations such as capex, share buy-backs, dividends, etc. The following table illustrates how adjusted cash conversion ratio is calculated.
* Operating non-cash items represent primarily depreciation, amortisation, impairment of intangible assets, loss on disposal of PPE and intangible assets, and employee share options and performance share costs as presented in the line 'Non-cash charge for share-based payments' of the Consolidated Statement of Cash Flows.
The Annual General Meeting of SThree plc is to be held on 20 April 2022. The 2021 Annual Report and Notice of 2022 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. |
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| ISIN: | GB00B0KM9T71 |
| Category Code: | FR |
| TIDM: | STEM |
| LEI Code: | 2138003NEBX5VRP3EX50 |
| OAM Categories: | 1.1. Annual financial and audit reports |
| Sequence No.: | 139703 |
| EQS News ID: | 1274390 |
| End of Announcement | EQS News Service |
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