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23 January 2017
('SThree' or the 'Group')
Final results for the year ended 30 November 2016
SThree, the international specialist staffing business, is today announcing its final results for the year ended 30 November 2016.
(1) 2016 figures are adjusted for the impact of £3.5m of costs in relation to the restructuring of certain sales businesses and central support functions
(2) 2015 figures were adjusted for the impact of £3.1m of costs in relation to the restructuring of the Energy business and the impairment of certain IT assets
(3) 2015 figures exclude the impact of £0.4m exceptional gain
(4) FX impacted positively on our results YoY on a reported basis
- Robust full year performance, in the face of mixed trading conditions
- Adjusted profit before tax £40.8m, slightly above the top end of the consensus range**
- FX increased reported operating profit by circa £4.2m
- Group gross profit ('GP') up 2%* YoY (up 6%* excluding Energy) and up 10% on a reported basis
- Robust growth across ICT (+12%* YoY) and Engineering (+9%* YoY), offset by more difficult trading in Energy and Banking & Finance sectors
- Strong growth in Continental Europe (+13%* YoY)
- 75% of Group GP now generated from markets outside the UK&I (2015: 70%)
- Contract GP up 8%* YoY and ahead by 11%* excluding Energy, with record 9,078 Contract runners at year-end
- Contract now accounts for 67% of Group GP (2015: 64%)
- Permanent GP down 8%* YoY (down 1%* excluding Energy) but productivity improved by 3%* YoY
- Businesses restructured in markets where we are facing adverse trading conditions
- Improved balance sheet position with year-end net cash of £10.0m (2015: £6.2m)
Gary Elden, CEO, commented: 'The Group delivered a solid overall performance in what was a challenging financial year. Our strategic approach of diversifying by region and sector, with a key focus on growing our Contract business, has added resilience to our earnings, enabling us to weather the political and economic uncertainties that we have faced through 2016.
'Looking ahead, the heightened level of political and economic uncertainty remains the primary feature of our trading outlook. Against this backdrop we will continue to focus on the Contract market, where we see attractive growth opportunities and which is more resilient in periods of economic uncertainty. As we have done in 2016, we will pay close attention to productivity and underlying costs.
'We have shown in previous periods of uncertainty that we can optimise our performance. We will retain a prudent approach to planning and selective investment in growth, while preserving the agility to respond quickly to market opportunities as they arise, in the year ahead.'
SThree will host a live presentation and conference call for analysts at 0900 GMT today. The conference call participant telephone details are as follows:
This event will also be simultaneously audio webcast, hosted on the SThree website at www.sthree.com. Note that this is a listen only facility and an archive of the presentation will be available via the same link later.
SThree will be announcing its Q1 Trading Update on Friday 17 March 2017.
Notes to editors
Group GP grew by 2%* in the year with Contract ahead by 8%* and Permanent down by 8%*. Our strongest performances included Continental Europe (up 13%*), where very strong client and candidate delivery by our teams ensured we capitalised on a buoyant market. ICT and Engineering also fared well with GP ahead by 12%* and 9%*, respectively.
Performances in our other regions reflect more challenging conditions, with GP in the USA being flat*, Asia Pacific & Middle East (APAC & ME) down by 15%* and the UK&I down by 8%*. The majority of these year on year changes were attributable to external factors, with difficult trading conditions in key sectors in these regions, especially in Banking & Finance and Energy.
In the USA, a key growth engine for the Group in recent years, we faced operational challenges which were quickly addressed, but we nevertheless saw slower growth than previously, only part of which was down to market conditions.
We have responded to these difficult trading conditions with a greater focus on the growth of Contract and more selective headcount planning at a regional and sector level (including a restructuring of parts of the business).
To achieve this we have continued to invest in our teams that specialise in Contract, as we set out to do at the end of 2015.
Although this is pleasing from a business perspective, of greater significance for me and my colleagues is the knowledge that we have placed around 17,000 skilled specialists during the year.
As we have been able to report every year since placing the greater strategic focus on Contract in 2012, we entered our new financial year with a record Contract book. Period end Contract runners were at 9,078, up 8%.
A roll out of our Employed Contractor Model ('ECM') which was first introduced in 2013 continued through the year, with new offerings in Germany and Japan. At the year-end, 15% of contract runners were employed under this model. The ECM is structured such that the Group employs individuals directly and contracts them to clients, in contrast to the traditional Personal Service Company model. With governments examining new ways to raise tax revenues to address budget deficits, including the IR35 Intermediaries Legislation in the UK and the Deregulering Beoordeling Arbeidsrelaties (DBA law) in the Netherlands, our business model is expected to shift further towards the ECM over time.
The Permanent side of our business now represents 33% of Group GP, in line with our stated strategy of retaining a well-diversified business. In 2016 Permanent GP was down 8%* YoY. At the start of the year we set out a goal to focus primarily on improving yields. During 2016 we saw average Permanent yields grow by 3%* while period end sales headcount was down 17%.
We believe that this balance towards Contract continues to represent the best long-term approach for the company and, during 2017, we expect that Contract will continue to grow as a percentage of total Group GP, while we also maintain our sharp focus on improving yields and selectively growing headcount in Permanent.
During 2016 we expanded our US footprint by opening offices in Austin and Minneapolis as well as by launching Madison Black, a specialist digital marketing brand, in New York.
We have also laid the foundations for further growth within our existing regions by adding office capacity in some key locations and preparing for additional moves and new office openings in 2017. At the same time we continue to manage costs and contractual commitments carefully. In the second half of 2016 we moved our London consultants to two new locations and rehoused support staff, in order to reduce our property costs while also improving the work environment.
Overall, strong growth was achieved in the Contract business, with France and Germany the stand out countries on growth. Our Germany Contract GP grew +22%* and France Contract GP grew +16%* YoY.
In Germany, we have the largest Permanent business and our Contract business is growing rapidly. BENELUX & France also had a strong year with GP +9%*, with Contract +12%* and Perm +1%*. We have the largest professional staffing company in the Netherlands. We opened a new office in Brussels in 2016 and plan to take on more space in Amsterdam in 2017. Our strongest growth areas in both regions were ICT and Engineering, both achieving double digit growth. Strong staff engagement and a focus on improved service levels were key to the success of the region in 2016. We have also run internal innovation challenges to unlock new ideas.
Expectations for 2017
We aim to continue to grow our headcount selectively and capitalise on the market opportunity, whilst mindful of the legislative, macro-economic and political risks that may impact the region, especially with elections in France, the Netherlands and Germany scheduled for 2017.
In response to these challenges, we have restructured the UK business, including streamlining and re-sizing teams; re-defining our Permanent and Contract value propositions and trialling a candidate resourcer centre model. We ended 2016 with a small reduction in our Contract pipeline and a smaller, more focused Permanent business. The region has spearheaded the global rollout of our customer experience activity, using insight to change behaviour and improve satisfaction scores.
Expectations for 2017
We expect to hold our UK&I headcount broadly level, re-mixing it as required through the year, to capitalise on the market opportunity.
Period end sales headcount was down 17%, with Contract down 9% and Permanent down 30%, as we restructured the business in response to market conditions in Energy and Banking & Finance.
APAC & ME
We have responded to these challenges with a management restructuring in Permanent in the region to right-size the business until the markets pick up. We have also invested successfully in ICT in the year as we continue to diversify our business further (ICT +26%* YoY).
We have had notable success in Contract with growth in our Australian and Middle East runner books and the establishment of a Contract business in Japan. Later in the year we began the rollout of our Customer Experience programmes which lays the foundation for future growth across the region.
Expectations for 2017
ICT continues to be our biggest sector and to provide us with a breadth of opportunities across all of our regions. ICT accounted for 45% of our GP in 2016.
To be successful in this sector requires agility and significant skills in execution, in order to: identify new trends; understand what business model is required in sectors which are starting to become commoditised; and be able to act decisively to exit shrinking or over-commoditised niches. These same underlying organisational skills help us manage some of our smaller and more cyclical business units such as Energy - which has been affected by the low oil price for several years - and Banking & Finance, a sector which experienced a general slowdown during 2016.
Banking & Finance
We are one of the largest professional recruiters in the global banking market. The Global Banking market uncertainty is adversely impacting our Banking & Finance sector with a number of large clients implementing hiring freezes through the year as restructuring continues across the industry. This has impacted our businesses across the UK&I, USA and APAC & ME in Contract, but more so in Permanent.
Given current global economic conditions, this market is not expected to improve in the short-term and we are diversifying our teams into other related markets. Our Banking & Finance teams continue to expand their client mix beyond banking into adjacent sectors in the broader financial services market. Banking has remained resilient in Continental Europe. Although German banks are under intense pressure, opportunities exist as they modernise.
We also provided a structured opportunity for our staff to become involved in this process, running innovation challenges across a number of our offices to generate a stream of ideas to feed into our innovation system. We have found this to be both a strong source of ideas as well as a good way to engage and motivate our sales teams.
In addition to unlocking internal innovation we have also engaged with a number of start-ups in the recruitment space, to identify whether we should make strategic investments or find other ways to unlock the potential in these ideas. We have, for example, made a small investment in an HR Tech start up. We expect this process to continue in 2017 as an important way to be alert to potential disruptive technologies.
In addition to these activities in innovation we have made two large transitions during 2016 which we expect to generate significant benefits for the Group for the remainder of this decade and beyond.
First, we have rolled out a major customer experience programme globally, using Net Promoter Score (NPS) to capture insight from both client companies and individual candidates. Importantly, we understand that this is not just a data capture exercise but the first step in using greater customer insight to adapt our systems, processes and behaviours to deliver outstanding service. We have already seen significant improvements in our overall NPS results as well as in the volume of data we capture, as our sales and support teams take this information and use it to improve working practices. We are excited both by what we have achieved in the last 12 months and by the considerable ongoing improvements we can still make in order to increase satisfaction and loyalty.
Second, we continued to invest heavily in our systems and technology during the year. This will allow us to deliver a better and more efficient service to our customers while also providing market-leading tools to our workforce, helping them to fulfil their roles more effectively and improving retention. In particular we have rolled out three major new technology initiatives, replacing our core sales system with Salesforce, replacing our core HR system with Fairsail and our incentives system with Xactly.
Our underlying 'platform' - the linked set of systems and processes that power all our brands globally - has always been a source of sustained competitive advantage and we believe that the investments we have made and deployed in 2016 leave us very well placed for the years ahead.
Given the many uncertainties in the global economy during the year, our ability to stay focused and to deliver solid results is testament to the hard work of our skilled global teams, executing against a clear and successful strategy.
Chief Operating Officer
At a sector level, we expect continuing challenges in the Energy sector and also in the Banking market. In these two areas in particular, but also across the entire business, our management focus in 2017 will be on ensuring that we retain our valuable agility and that we make the right investment decisions across our portfolio.
We will continue to focus on the Contract market, where we see attractive growth opportunities and which is more resilient in periods of economic uncertainty. As we have done in 2016, we will pay close attention to productivity and underlying costs in both Permanent and Contract. We will also continue to be alert to opportunities to add new capabilities to the group by acquisition.
We have shown in previous periods of uncertainty that we can optimise our performance. All of these experiences have made us stronger and more resilient as a business. It is this knowledge, together with the investments we continue to make in both people and technology, that give us the leadership skills, the organisational intelligence and the underlying agility to thrive.
*In constant currency
CHIEF FINANCIAL OFFICER'S REVIEW
Group revenue for the year was up 6%* to £959.9m (2015: £848.8m) and up 13% on a reported basis. Gross profit ('GP') increased by 2%* to £258.7m (2015: £235.7m) and was up 10% on a reported basis. FX impacted positively on the revenue and GP growth YoY on a reported basis. Growth in revenue exceeded growth in GP as the business continued to remix towards Contract. This resulted in a decline in the overall GP margin to 26.9% (2015: 27.8%) as Permanent has no cost of sale. Contract represented 67% of the Group GP (2015: 64%). The Contract margin remained robust at 19.9% (2015: 19.8%) while the average contractor GP Day Rate ('GPDR') was down 1%* YoY.
Adjusted operating profit was level YoY at £41.3m (2015: £41.5m) and the adjusted conversion ratio was down 1.6 percentage points to 16.0% (2015: 17.6%). Reported operating profit was down 2%, resulting in a reported conversion ratio of 14.6%, down 1.7 percentage points.
Reported operating costs increased by 12% to £220.9m (2015: £197.3m), mainly driven by a 3% increase in Group average headcount, restructuring costs of £3.5m and a circa £13.4m adverse FX impact YoY on the operating costs.
Average total headcount was 3% higher YoY at 2,675 and year-end headcount was down 6% YoY at 2,590, reflecting a restructuring of our Permanent business which reduced its year-end headcount by 17%. Year-end Contract sales headcount represented 63% of total sales headcount (2015: 58%), up 1% YoY.
Adjusted profit before tax ('PBT') for the year was level YoY at £40.8m (2015: £40.8m). Statutory PBT was £37.3m (2015: £38.1m).
Adjusting Items - Restructuring
During the year, we carried out a restructuring of certain sales businesses and central support functions in response to the adverse market conditions in certain sectors and regions. These actions resulted in one-off redundancy costs of £3.5m and a cash outflow of £3.1m, with a further cash outflow of £0.4m expected in 2017.
In 2015, we incurred £3.1m of costs on a restructuring and right-sizing of the Energy business and the impairment and accelerated amortisation of certain IT assets due to a new system implementation.
These costs arose as part of decisions made during the ordinary course of business. However, due to their nature and collective quantum, the costs have been separately highlighted to provide further information to stakeholders to help them understand the Group's underlying results for the year ('Adjusted'). The Group's adjusted profit figures for the year are presented in various sections of this announcement.
The tax charge on statutory PBT for the year was £10.1m (2015: £11.4m), representing an effective tax rate ('ETR') of 27% (2015: 30%). The ETR primarily reflects our geographical mix of profits and an ongoing prudent approach to the treatment of tax losses. The underlying ETR will also be influenced by any changes to taxation rates and legislation which may result from the OECD Base Erosion and Profit Shifting ('BEPS') Project. We will continue to monitor and assess the impact of any changes as they are implemented.
Earnings per Share ('EPS')
Adjusted basic EPS was level YoY at 23.2p (2015: 23.2p). Reported basic EPS increased by 2% to 21.2p (2015: 20.8p). The weighted average number of shares used for basic EPS increased by 1% to 128.3m (2015: 127.0m). Reported diluted EPS were 20.6p (2015: 19.9p), up 4%. Share dilution mainly results from various share options in place and expected future settlement of certain tracker shares. The dilutive effect on EPS from tracker shares will vary in future periods depending on the profitability of the underlying tracker businesses, the volume of new tracker arrangements created and the settlement of vested arrangements.
Our strategy is to operate a policy of financing the activities and development of the Group from retained earnings and to maintain a strong balance sheet position.
The Board has proposed a final dividend of 9.3p (2015: 9.3p) per share. When taken together with the interim dividend of 4.7p (2015: 4.7p) per share, this brings the total dividend for the year to 14.0p per share (2015: 14.0p). This represents a dividend yield of 5% based on the average share price for the year (2015: 4%).
The final dividend, which amounts to circa £12.0m, will be paid, subject to shareholder approval, on 9 June 2017 to shareholders on the register on 5 May 2017.
During the year, SThree plc bought back shares amounting to £6.8m to satisfy future employee share schemes.
Share Options and Tracker Share Arrangements (Minority Interests or MI Model)
We recognised a share-based payment charge of £2.9m during the year (2015: £4.1m) for the Group's various share-based incentive schemes. An improvement in performance against the EPS target in the Long Term Incentive Plan ('LTIP') triggered an additional charge in 2015, hence the apparent drop in cost this year.
We also operate a tracker share model to retain our entrepreneurial management within the business. Further details about the tracker shares arrangements can be found in note 1 to the financial statements. Of the vested tracker shares, we settled certain tracker shares during the year for a total consideration of £4.6m (2015: £8.5m) which was determined using a formula in the Articles of Association underpinning the tracker share businesses. We continue to settle the consideration in SThree plc shares and issued 1.5m new shares. Consequently, the arrangement is deemed as an equity-settled share-based payment scheme under IFRS 2 'Share-based payments'. There is no charge to the income statement as the tracker shareholders initially subscribed to the tracker shares at their fair values. We expect future tracker share settlements to be between £5m to £15m per annum which we intend to settle either by new issue SThree plc shares or treasury shares. These settlements will either dilute the earnings of plc's existing ordinary shareholders if funded by new issue of shares or will result in a cash outflow if funded via treasury shares.
Balance Sheet and Cash Flow
The Group's net assets increased to £75.7m at 30 November 2016 (2015: £59.4m), mainly due to the excess of net profit over the dividend payments and share buy backs during the year and a favourable foreign exchange translation of the net assets.
The most significant item in our statement of financial position is trade receivables (including accrued income) which increased to £182.6m (2015: £150.7m), with £24m of the increase due to a favourable change in foreign exchange rates. Days Sales Outstanding ('DSOs') at the year-end reduced by one day to 37.5 days (2015: 38.5 days). Trade and other payables increased from £117.0m to £138.9m with £17m due to movements in foreign exchange rates, and creditor days were 19 days (2015: 19 days).
We started the year with net cash of £6.2m and closed the financial year with a higher net cash of £10.0m despite £6.8m of share buy backs. On a reported basis, we generated lower cash from operations of £42.2m (2015: £57.3m) due to higher working capital outflow YoY. This resulted in a lower reported cash conversion ratio of 95% (2015: 134%) or 96% (2015: 126%) on an adjusted basis.
The cash outflow on capital expenditure decreased to £7.2m (2015: £8.6m), as there was a significant cash investment in the prior year on key sales, HR and finance systems. We expect a similar level of capital expenditure in 2017.
Income tax payments decreased to £8.5m (2015: £10.8m) due to advance taxes paid in 2015 and dividend payments were £18.0m (2015: £17.7m). The cash outflow from previously recognised exceptional items was £0.9m (2015: £3.0m). Due to a weakening of Sterling against our major currencies, foreign exchange impacted favourably on the cash flows for the year with a net positive impact of £2.7m (including impact on working capital movements).
We finance the Group's operations through equity and bank borrowings. We intend to continue this strategy while maintaining a strong balance sheet position. We have a committed revolving credit facility ('RCF') of £50m in place with RBS and HSBC. This facility expires in May 2019 and was unutilised at the year-end (2015: unutilised). We also have a £5m overdraft facility with RBS. The RCF is subject to conventional covenants and the funds borrowed under this facility bear interest at a minimum annual rate of 1.3% above 3 month Sterling LIBOR giving an average interest rate of 1.8% during the year (2015: 1.8%). The finance costs for the year amounted to £0.5m (2015: £0.8m).
The Group's UK-based treasury function manages the Group's treasury risks in accordance with policies and procedures set by the Board, and is responsible for day-to-day cash management; the arrangement of external borrowing facilities; the investment of surplus funds; and the management of the Group's interest rate and foreign exchange risks. The treasury function does not engage in speculative transactions and does not operate as a profit centre, and the Group does not hold or use derivative financial instruments for speculative purposes. The Group's cash management policy is to minimise interest payments by closely managing group cash balances and external borrowings. Euro-denominated cash positions are managed centrally using a cash pooling facility which provides visibility over participating country bank balances on a daily basis.
Foreign exchange volatility continues to be a significant factor in the reporting of the overall performance of the business with the main functional currencies of the Group being Sterling, the Euro and the US Dollar.
For 2016, currency movements versus Sterling provided a strong tailwind for the reported performance of the Group with the highest impact coming from Eurozone countries. Over the course of the year, the exchange rate movements increased our reported 2016 GP and operating profit by circa £17.6m and £4.2m, respectively.
Exchange rate movements remain a material sensitivity. By way of illustration, each 1 percent movement in annual exchange rates of the Euro and the US Dollar impacted our 2016 GP by £1.3m and £0.5m respectively per annum; and operating profit by £0.4m and £0.1m respectively per annum.
The Board considers it appropriate in certain cases to use derivative financial instruments as part of its day to day cash management to reduce the Group's exposure to foreign exchange risk. The Group does not use derivatives to hedge balance sheet and income statement translation exposure.
Other Principal Risks and Uncertainties
Other principal risks and uncertainties generally affecting the business activities of the Group are detailed within the strategic section of the Annual Report.
In terms of macroeconomic environment risks, our strategy is to continue to grow the size of our international business and newer sectors, in both financial terms and geographical coverage. This will help reduce our exposure or reliance on any one specific economy, although a downturn in a particular market could adversely affect the Group's key risk factors.
In the view of the Board, there is no material change expected to the Group's key risk factors in the foreseeable future.
* Variances in constant currency
1. 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 2016 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 20 January 2017.
The auditors have reported on the Group's financial statements for the years ended 30 November 2016 and 30 November 2015 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 2015 have been filed with the Registrar of Companies and those for the year ended 30 November 2016 will be filed following the Company's Annual General Meeting.
The Group's financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') and IFRS Interpretations Committee ('IFRS IC') as adopted and endorsed by the European Union and have been prepared under the historical cost convention.
The same accounting policies, presentation and computation methods are followed in this preliminary announcement as in the preparation of the Group financial statements. The accounting policies have been applied consistently by the Group.
The Directors have considered the Group's forecasts, including taking account of reasonably possible changes in trading performance, and the Group's available banking facilities. Based on this review and after making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt a going concern basis in preparing these financial statements and this preliminary announcement.
2. Segmental analysis
Management has determined the chief operating decision maker to be the Group Management Board ('GMB') made up of the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the Chief People Officer and the Regional CEOs and MDs, with other senior management attending via invitation. Operating segments have been identified based on reports reviewed by the GMB, which consider the business primarily from a geographical perspective. The Group segments the business into four regions: the United Kingdom & Ireland ('UK&I'), Continental Europe, the USA and Asia Pacific & Middle East ('APAC & ME').
The Group's management reporting and controlling systems use accounting policies that are the same as those described in note 1 to the Group financial statements in the summary of significant accounting policies.
Intersegment revenue is recorded at values which approximate third party selling prices and is not significant.
The following segmental analysis by brands, recruitment classification and sectors (being the profession of candidates placed) have been included as additional disclosure to the requirements of IFRS 8.
Other brands including Global Enterprise Partners, Hyden, JP Gray, Madison Black, Newington International and Orgtel are rolled into the above brands.
Other includes Procurement & Supply Chain and Sales & Marketing.
3. Gain on disposal of subsidiaries - Exceptional items
4. Operating profit
Operating profit is stated after charging/(crediting):
(a) Analysis of tax charge for the year
(b) Reconciliation of the effective tax rate
The Group's tax charge for the year exceeds (2015: exceeds) the UK statutory rate and can be reconciled as follows:
(c) Current and deferred tax movement recognised directly in equity
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 2016 a deferred tax asset of £0.6m (2015: £0.9m) has been recognised in respect of these options.
(i)2015 interim dividend of 4.7 pence (2014: 4.7 pence) per share was paid on 11 December 2015.
(ii) 2015 final dividend of 9.3 pence (2014: 9.3 pence) per share was paid on 3 June 2016.
(iii) 2016 interim dividend of 4.7 pence (2015: 4.7 pence) per share was paid on 9 December 2016 to shareholders on record at 4 November 2016.
(iv) The Board has proposed a 2016 final dividend of 9.3 pence (2015: 9.3 pence) per share, to be paid on 9 June 2017 to shareholders on record at 5 May 2017. This proposed final dividend is subject to approval by shareholders at the Company's next Annual General Meeting on 20 April 2017, and therefore, has not been included as a liability in these financial statements.
7. Earnings per share
Basic EPS is calculated by dividing the earnings attributable to owners of the Company by the weighted average number of shares in issue during the year excluding shares held as treasury shares and those held in the EBT which are treated as cancelled.
For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion of dilutive potential shares. Potential dilution resulting from tracker shares takes into account profitability of the underlying tracker businesses and SThree plc's earnings per share. Therefore, the dilutive effect on EPS will vary in future periods depending on any changes in these factors.
8. Cash and cash equivalents
Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less, net of outstanding bank overdrafts. The carrying amount of these assets is approximately equal to their fair values.
The Group has cash pooling arrangements with legally enforceable rights to set-off cash and overdraft balances. Where there is an intention to settle on a net basis, cash and overdraft balances relating to the cash pooling arrangements are reported on a net basis in the statement of financial position. Other bank overdrafts are shown separately as above and in the statement of financial position.
At the year end the Group had drawn down £nil (2015: £nil) on these facilities.
The RCF is subject to certain covenants requiring the Group to maintain financial ratios over interest cover, leverage and guarantor cover. The Group has been in compliance with these covenants throughout the year.
10. Annual Report and Annual General Meeting
The 2016 Annual Report and Notice of 2016 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, 8th Floor, City Place House, 55 Basinghall Street, London, EC2V 5DX. The Annual General Meeting of SThree plc is to be held on 20 April 2017.
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