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Final results for the year ended 30 November 2016

Released 07:00 23-Jan-2017

SThree (STHR)
Final results for the year ended 30 November 2016

23-Jan-2017 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.


23 January 2017

SThree plc

('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.


FINANCIAL HIGHLIGHTS

  2016 2015(3) Variance
  Adjusted(1) As reported(4) Adjusted(2) As reported Adjusted As reported
  £m £m £m £m % %
Revenue 959.9 959.9 848.8 848.8 +6%* +13%
Gross profit 258.7 258.7 235.7 235.7 +2%* +10%
Operating profit 41.3 37.8 41.5 38.4 - -2%
Profit before taxation 40.8 37.3 40.8 37.7 - -1%
Basic earnings per share 23.2p 21.2p 23.2p 20.8p - +2%
Proposed final dividend 9.3p 9.3p 9.3p 9.3p - -
Total dividend (interim and final) 14.0p 14.0p 14.0p 14.0p - -
Operating profit conversion ratio 16.0% 14.6% 17.6% 16.3% -1.6% pts -1.7% pts
 

 

(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

OPERATIONAL HIGHLIGHTS

- 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)


* Variances in constant currency
**The range of market expectations for adjusted profit before tax for the year is £38.0m to £40.4m, with a current consensus of £39.4m. Adjustments relate to restructuring items of £3.5m.

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:

Dial in: +44 (0) 20 3003 2666  
     
Call passcode: SThree  
 

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.

Enquiries:

SThree plc 020 7268 6000
Gary Elden, Chief Executive Officer  
Alex Smith, Chief Financial Officer  
Sarah Anderson, Deputy Company Secretary/ Investor Relations  
   
Citigate Dewe Rogerson 020 7638 9571
Kevin Smith / Jos Bieneman  
 

Notes to editors


SThree is a leading international specialist staffing business, providing permanent and contract specialist staff to a diverse client base of over 9,000 clients. From its well-established position as a major player in the Information and Communications Technology ('ICT') sector the Group has broadened the base of its operations to include businesses serving the Banking & Finance, Energy, Engineering and Life Sciences sectors.

Since launching its original business, Computer Futures, in 1986, the Group has adopted a multi-brand strategy, establishing new operations to address growth opportunities. SThree brands include Computer Futures, Huxley Associates, Progressive and The Real Staffing Group. The Group has circa 2,600 employees in fifteen countries.

SThree plc is quoted on the Official List of the UK Listing Authority under the ticker symbol STHR and also has a US level one ADR facility, symbol SERTY.

Important notice


Certain statements in this announcement are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those statements. Forward looking statements regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. Data from the announcement is sourced from unaudited internal management information. Accordingly, undue reliance should not be placed on forward looking statements.

CHIEF EXECUTIVE OFFICER'S REVIEW

Overview

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).

Breakdown of GP FY 2016
%
FY 2015
%
Contract/ Permanent Split    
Contract 67% 64%
Permanent 33% 36%
  100% 100%
Geographical Split    
UK&I 25% 30%
Continental Europe 49% 44%
Americas 20% 19%
Asia Pacific & Middle East 6% 7%
  100% 100%
Sector Split    
ICT 45% 41%
Banking & Finance 16% 18%
Energy 8% 11%
Engineering 9% 9%
Life Sciences 21% 19%
Other 1% 2%
  100% 100%
 

Operating review
Contract and Perm

Our business mix continued to shift in favour of Contract, a business where we continue to see attractive growth opportunities and one which is also more resilient in times of uncertainty. In 2012 our GP was evenly split between Contract and Permanent recruitment. At that time we set out our plans to grow our Contract business faster than our Permanent business, with a mid-term goal of reaching roughly a two-thirds split in favour of Contract. We have now achieved a 67% split in favour of Contract, a growth of 3% YoY.

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.
Contract sales headcount at period end had grown by 1% YoY and will continue to represent the bulk of headcount growth during 2017. Permanent sales headcount by comparison was down by 17%. At the end of the financial year, Contract sales headcount represented 63% of total sales headcount (2015: 58%).

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.

    GP     Average Sales Headcount
    Growth YoY* FY 2016 Mix Growth YoY
    Cont Perm Total Cont Perm Cont Perm Total
                   
GROUP FY 16 +8% -8% +2% 67% 33% +11% -10% +1%
 

Regional Overview
At a regional level, the Group continues to become ever more international, with 75% of Group GP now derived from markets outside its historic base in the UK. Continental Europe has grown significantly while other regions have been challenged primarily due to regional or sector issues. Restructuring measures were taken in a number of businesses more heavily impacted by market conditions, especially Energy and Banking at a sector level and the UK, USA and APAC & ME at a regional level. Uncertainty created by the EU Referendum in the UK had an adverse impact with GP falling across all sectors, but with the greatest impact in our Banking sector and our Permanent business.

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.

Continental Europe

    GP     Average Sales Headcount
    Growth YoY* FY 2016 Mix Growth YoY
CONTINENTAL EUROPE   Cont Perm Total Cont Perm Cont Perm Total
                 
FY 16 +17% +7% +13% 66% 34% +12% +1% +7%
 


Performance in 2016
Management for Continental Europe is split into two regions: Germany, Austria and Switzerland (DACH) which is 27% of Group GP, and Belgium, Netherlands, Luxembourg & France (BENELUX & France), which is 22% of Group GP.

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 ended 2016 with a record Contract pipeline, our best ever level of staff retention, a clear strategy and a focused and motivated team driving a strong exit rate for the year. In 2017 we expect to leverage our newly established Employee Contractor Model to gain market share and to expand our office portfolio.

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.

UK&I

    GP     Average Sales Headcount
    Growth YoY* FY 2016 Mix Growth YoY
    Cont Perm Total Cont Perm Cont Perm Total
                   
UK&I FY 16 -3% -21% -8% 77% 23% +2% -21% -7%
 


Performance in 2016
Our UK&I business experienced a challenging year in 2016 with all sectors down YoY. The economic and political uncertainty created by the EU referendum adversely impacted the business, especially our Permanent division. It also compounded issues in the Banking sector (down 19%*) which was already facing a significant slowdown. We successfully re-tendered for a number of Public Sector Framework Agreements, demonstrating our ability to provide a high quality, compliant service. However, as expected these new framework agreements are being concluded at significantly lower rates, resulting in a sharp drop in Public Sector fees.

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
In 2017 we face considerable uncertainty as the UK formalises its exit from the EU and we will direct our resources to maximise the opportunities and protect against the risks as they become clear. The IR35 Intermediaries Legislation, applicable from April 2017, is expected to reform off-payroll working in the Public Sector. This is expected to adversely impact our UK Public Sector business, but could also present an opportunity for us given our ability to deliver fully compliant services to our Public Sector candidates and clients.

We expect to hold our UK&I headcount broadly level, re-mixing it as required through the year, to capitalise on the market opportunity.

USA

    GP     Average Sales Headcount
    Growth YoY* FY 2016 Mix Growth YoY
    Cont Perm Total Cont Perm Cont Perm Total
                   
USA FY 16 +10% -15% - 67% 33% +27% -18% +7%
 


Performance in 2016
The USA has been SThree's fastest growing region in recent years fuelled by growth across all of our STEM sectors. However, 2016 has seen overall growth slow as the business was impacted by difficult markets in both Banking and Energy. Overall GP was flat YoY but up 9%* excluding Energy. We continued to see positive growth in Contract with GP up 10%*, driven by growth in average sales headcount up 27%, and with period-end Contract runners up 5%. Permanent GP was down 15%* YoY, with average sales headcount down 18% and a 4% improvement in productivity. Fees remained robust, reflecting the niche position and value of our proposition to our clients in the region.

As previously reported, Life Sciences, our largest sector, suffered from some management issues early in the year but has continued to grow with GP up 10%* YoY, driven by Contract up 20%*. We are now the seventh largest Life Sciences staffing firm in the US. ICT, our fastest growing business, has continued to grow at a rapid pace with GP up 46%* YoY and it is now larger than our Energy business, representing 15% of our GP. We opened new offices in Austin and Minneapolis early in the year to focus on ICT opportunities. The low price of oil has continued to impact our Houston based Energy business (down 38%* YoY) and a global downturn in Banking has impacted our East Coast business with Banking down 7%* YoY. We launched a new brand during the year, Madison Black, focused on serving clients in the Digital Marketing and Creative staffing sector.

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.

Expectations for 2017
With growth in Contract runners and a restructured business delivering improved yields, we are in a stronger position for growth in 2017.The result of the US presidential election created some uncertainty over potential policy changes which may influence potential for growth and investment by corporates, but we will continue to evolve our business to best service our candidate and clients whatever the market. We expect moderate, selective headcount growth in 2017 in both Permanent and Contract, with a focus on improving productivity.

APAC & ME

    GP     Average Sales Headcount
    Growth YoY* FY 2016 Mix Growth YoY
    Cont Perm Total Cont Perm Cont Perm Total
                   
APAC & ME FY 16 -2% -23% -15% 39% 61% +3% -17% -11%
 


Performance in 2016
Our APAC & ME businesses both faced a very challenging economic environment in 2016. Asia has been adversely affected by a slowdown in China impacting the wider region and both APAC and the ME have experienced sharp falls in GP from Energy and Banking. Excluding Energy, GP for APAC & ME fell by 4%* YoY. Whilst GP is down, we have benefited from cost efficiencies and profitability has improved. This is our only region weighted more towards Permanent business, exposing it to greater volatility in response to external market factors than may be seen in other regions.

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
The price of crude oil remains low and the global banking market remains flat, but changes in either of these could present risks and opportunities for the region. With the Trans-Pacific Partnership free trade deal at risk following the election of Donald Trump in the USA, there is further uncertainty in the region. We have right-sized our business and are confident that we have the right team in place to address the risks and opportunities posed by the market as they arise.

Sector Overview
Looking at the performance of our regional teams and industry sectors across the globe, we are satisfied with the robustness of our business model.

ICT

    GP     Average Sales Headcount
    Growth YoY* FY 2016 Mix Growth YoY
    Cont Perm Total Cont Perm Cont Perm Total
                   
ICT FY 16 +15% +4% +12% 73% 27% +14% +1% +9%
 

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

    GP     Average Sales Headcount
    Growth YoY* FY 2016 Mix Growth YoY
    Cont Perm Total Cont Perm Cont Perm Total
BANKING & FINANCE                  
FY 16 -4% -14% -9% 52% 48% +13% -8% +1%
 

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.

Global Energy

    GP     Average Sales Headcount
    Growth YoY* FY 2016 Mix Growth YoY
GLOBAL ENERGY   Cont Perm Total Cont Perm Cont Perm Total
                 
FY 16 -12% -80% -30% 92% 8% -11% -86% -39%
 


The Energy division picked up significant new business in midstream and downstream this year to offset ongoing weakness in the upstream sector. It also diversified further into renewables and power generation. The oil price has remained much lower than highs seen in mid-2014 and there are no signs of a recovery to these levels as we enter 2017. This continued low oil price has hampered our reported growth, especially in the USA and APAC & ME. Energy now represents only 8% of the Group GP, contracting to small, highly-skilled teams who have returned to profitability through the year. The Energy division picked up significant new business in midstream and downstream this year, including in renewables, to offset ongoing weakness in the upstream sector.

Life Sciences

    GP     Average Sales Headcount
    Growth YoY* FY 2016 Mix Growth YoY
LIFE SCIENCES   Cont Perm Total Cont Perm Cont Perm Total
                 
FY 16 +12% +4% +8% 60% 40% +26% +2% +14%
 


We pride ourselves on being one of the largest professional recruiters in the Life Sciences market. Although the rate of growth has slowed in the year with cost-cutting across the sector, many new opportunities remain. New healthcare businesses with disruptive business models are fuelling change in the sector with a growth in the use of data analytics and the emergence of a new 'digital health' segment. These are all areas where our highly-skilled people can find the best candidates to support businesses across this broad industry.

Engineering
Our Engineering sector performed well in the year, despite restructuring its Permanent business in certain regions. The sector operates predominantly from Continental Europe.

    GP     Average Sales Headcount
    Growth YoY* FY 2016 Mix Growth YoY
    Cont Perm Total Cont Perm Cont Perm Total
                   
ENGINEERING FY 16 +10% +7% +9% 65% 35% +2% -13% -5%
 


Significant Projects
Away from the 'front line' of recruitment we have taken steps to ensure that we have the right mix of products, services and business models to address both current and future needs, with a much greater internal emphasis on innovation and entrepreneurship. We have created an internal system of innovation which gives us greater ability to identify promising new ideas and to test them quickly. At the end of the year there were a handful of new initiatives of different size and scale either already at early test stage with some clients, or being incubated internally for deployment during 2017.

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
Recognising the need to provide senior backing to our project streams, we have broadened Justin Hughes' role, appointing him as Chief Operating Officer from 1 December 2016.

Outlook
This has been a year of unexpected developments in several of our key territories which are likely to impact the future trading environment. The changed political landscape creates global macro-economic uncertainties which make this a difficult environment in which to plan. Upcoming elections in France and Germany are likely to prolong the political and economic uncertainty already created by the EU Referendum result in the UK and by new political leaders in the UK and USA. With that in mind, we will continue to adopt the prudent approach to planning which has served us well in recent years, but remain poised to respond quickly to opportunities when they arise.

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.

Taxation

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.

Dividends and Treasury Shares

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).

Treasury Management

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

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

 

SThree plc      
Consolidated income statement    
For the year ended 30 November 2016  
30 November 30 November
      2016 2015
        Before exceptional items Exceptional items Total
Note £'000 £'000 £'000 £'000
             
Continuing operations          
             
Revenue   2 959,861 848,841 - 848,841
Cost of sales     (701,180) (613,123) - (613,123)
             
Gross profit   2 258,681 235,718 - 235,718
             
Administrative expenses   (220,913) (197,316) - (197,316)
Gain on disposal of subsidiaries 3 - - 377 377
             
Operating profit   4 37,768 38,402 377 38,779
             
Finance income     79 64 - 64
Finance costs     (549) (751) - (751)
             
Profit before taxation   37,298 37,715 377 38,092
             
Taxation   5 (10,056) (11,350) (77) (11,427)
             
Profit for the year attributable
to owners of the Company
27,242 26,365 300 26,665
             
             
Earnings per share 7 pence pence pence pence
             
Basic     21.2 20.8 0.2 21.0
Diluted     20.6 19.9 0.2 20.1
 
SThree plc
Consolidated statement of comprehensive income
For the year ended 30 November 2016    
  30 November 30 November
  2016 2015
  £'000 £'000
     
Profit for the year 27,242 26,665
     
Other comprehensive income/(loss):    
Items that may be subsequently reclassified to profit or loss:    
Exchange differences on retranslation of foreign operations 10,774 (4,194)
     
Other comprehensive income/(loss) for the year (net of tax) 10,774 (4,194)
     
Total comprehensive income for the year attributable to owners of the Company 38,016 22,471
 
SThree plc  
Consolidated statement of financial position
As at 30 November 2016  
    30 November 30 November
    2016 2015
      *Restated
  Note £'000 £'000
       
Assets      
Non-current assets      
Property, plant and equipment   7,100 5,599
Intangible assets   11,597 11,108
Investments   727 -
Deferred tax assets   2,501 1,780
    21,925 18,487
       
Current assets      
Trade and other receivables   189,169 157,153
Current tax assets   4,650 3,292
Cash and cash equivalents 8 15,707 25,966
    209,526 186,411
       
Total assets   231,451 204,898
       
Equity and Liabilities      
Equity attributable to owners of the Company  
Share capital   1,312 1,295
Share premium   27,406 23,140
Other reserves   (5,381) (11,030)
Retained earnings   52,333 46,001
       
Total equity   75,670 59,406
       
Non-current liabilities      
Provisions for liabilities and charges   907 1,133
       
Current liabilities      
Bank overdraft 8 5,685 19,807
Provisions for liabilities and charges   4,953 5,579
Trade and other payables   138,859 117,039
Current tax liabilities   5,377 1,934
    154,874 144,359
Total liabilities   155,781 145,492
       
Total equity and liabilities   231,451 204,898
       
* An explanation of the restatement is provided in note 1 under basis of preparation.
 
SThree plc                  
Consolidated statement of changes in equity            
For the year ended 30 November 2016              
    Share
capital
Share
premium
Capital
redemption
reserve
Capital
reserve
Treasury reserve Currency
translation
reserve
Retained
earnings
Total equity attributable to owners of the Company
 
  Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
                   
Balance at 30 November 2014   1,266 14,470 168 878 (162) (6,564) 41,290 51,346
Profit for the year ended 30 November 2015   - - - - - - 26,665 26,665
Other comprehensive loss for the year   - - - - - (4,194) - (4,194)
Total comprehensive income for the year   - - - - - (4,194) 26,665 22,471
Dividends paid to equity holders 6 - - - - - - (17,671) (17,671)
Distributions to tracker shareholders   - - - - - - (164) (164)
Issue of new shares for settlement of vested tracker shares   22 8,206 - - - - (8,306) (78)
Settlement of share-based payments   7 464 - - 56 - 71 598
Purchase of own shares   - - - - (1,212) - - (1,212)
Credit to equity for equity-settled share-based payments   - - - - - - 4,133 4,133
Current and deferred tax on share-based payment transactions 5 - - - - - - (17) (17)
Total movements in equity   29 8,670 - - (1,156) (4,194) 4,711 8,060
                   
Balance at 30 November 2015   1,295 23,140 168 878 (1,318) (10,758) 46,001 59,406
Profit for the year ended 30 November 2016   - - - - - - 27,242 27,242
Other comprehensive income for the year   - - - - - 10,774 - 10,774
Total comprehensive income for the year   - - - - - 10,774 27,242 38,016
Dividends paid to equity holders 6 - - - - - - (17,972) (17,972)
Distributions to tracker shareholders   - - - - - - (149) (149)
Issue of new shares for settlement of vested tracker shares   14 3,706 - - - - (3,929) (209)
Settlement of share-based payments   3 560 - - 1,720 - (1,671) 612
Purchase of own shares   - - - - (6,845) - - (6,845)
Credit to equity for equity-settled share-based payments   - - - - - - 2,823 2,823
Current and deferred tax on share-based payment transactions 5 - - - - - - (12) (12)
Total movements in equity   17 4,266 - - (5,125) 10,774 6,332 16,264
                   
Balance at 30 November 2016   1,312 27,406 168 878 (6,443) 16 52,333 75,670
 
SThree plc      
Consolidated statement of cash flow      
For the year ended 30 November 2016
    30 November 30 November
    2016 2015
  Note £'000 £'000
       
Cash flows from operating activities      
Profit before taxation after exceptional items   37,298 38,092
Adjustments for:      
Depreciation and amortisation charge   5,716 5,091
Accelerated amortisation and impairment of intangible assets   - 1,471
Finance income   (79) (64)
Finance cost   549 751
Loss on disposal of property, plant and equipment 4 194 38
Gain on disposal of subsidiaries   - (377)
Non-cash charge for share-based payments   2,823 4,134
Operating cash flows before changes in working capital and provisions    
46,501 49,136
(Increase)/decrease in receivables   (9,404) 3,608
Increase in payables   5,731 9,395
Decrease in provisions   (632) (4,876)
       
Cash generated from operations   42,196 57,263
Finance income   79 64
Income tax paid - net   (8,477) (10,841)
       
Net cash generated from operating activities 33,798 46,486
       
Cash generated from operating activities before exceptional items 34,658 49,475
Cash outflow from previously recognised exceptional items (860) (2,989)
Net cash generated from operating activities 33,798 46,486
       
Cash flows from investing activities      
Purchase of property, plant and equipment   (3,220) (3,563)
Purchase of intangible assets   (3,973) (5,060)
Proceeds from disposal of subsidiaries 3 - 2,002
Investment in a related party   (727) -
       
Net cash used in investing activities (7,920) (6,621)
       
Cash flows from financing activities      
Finance cost   (549) (751)
Employee subscription for tracker shares   192 156
Proceeds from exercise of share options   612 598
Purchase of own shares   (6,845) (1,111)
Repayment of borrowings   - (24,000)
Dividends paid to equity holders 6 (17,972) (17,671)
Distributions to tracker shareholders   (130) (131)
       
Net cash used in financing activities   (24,692) (42,910)
       
Net increase/(decrease) in cash and cash equivalents 1,186 (3,045)
Cash and cash equivalents at beginning of the year 6,159 14,071
Effect of exchange rate changes   2,677 (4,867)
       
Cash and cash equivalents at end of the year 8 10,022 6,159
 

SThree plc
Notes to the financial statements
For the year ended 30 November 2016

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.

Revision of disclosure
Following an agenda decision by the IFRS IC in March 2016 regarding offsetting and cash pool arrangements, the Group has revised the disclosure of its cash pooling arrangements in the comparative statement of financial position at 30 November 2015 (and 30 November 2014). This revision has had the effect of increasing both cash and cash equivalents and bank overdraft by £19.8m each at 30 November 2015 - note 8 (£35.5m each at 30 November 2014). Similarly, resulting total current assets, total assets, total current liabilities and total liabilities at these dates have each been restated by this amount. There is no change to net assets or the results or cash flows for the year ended 30 November 2015 and 30 November 2014.

Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive Officer's Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Chief Financial Officer's Review. In addition, notes to the Group financial statements include details of the Group's treasury activities, funding arrangements and objectives, policies and procedures for managing various risks including liquidity, capital management and credit risks.

The Directors have considered the Group's forecasts, including taking account of reasonably possible changes in trading performance, and the Group's available banking facilities. Based on this review and after making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt a going concern basis in preparing these financial statements and this preliminary announcement.

2. Segmental analysis


IFRS 8 'Segmental Reporting' requires operating segments to be identified on the basis of internal results about components of the Group that are regularly reviewed by the entity's chief operating decision maker to make strategic decisions and assess segment performance.

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.

Revenue and Gross Profit 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 'Gross Profit' in the management reporting and controlling systems. Gross profit is the measure of segment profit comprising revenue less cost of sales.

Intersegment revenue is recorded at values which approximate third party selling prices and is not significant.

      REVENUE GROSS PROFIT
      30 November 30 November 30 November 30 November
      2016 2015 2016 2015
      £'000 £'000 £'000 £'000
             
UK&I 290,285 296,796 64,032 69,490
Continental Europe   448,606 346,404 127,543 103,237
USA   171,313 157,719 50,682 45,465
APAC & ME 49,657 47,922 16,424 17,526
             
      959,861 848,841 258,681 235,718
 


Continental Europe primarily includes Belgium, France, Germany, Luxembourg, Netherlands and Switzerland.
Asia Pacific & Middle East mainly includes Australia, Dubai, Hong Kong, Japan and Singapore.

Other information
The Group's revenue from external customers, its gross profit and information about its segment assets (non-current assets excluding deferred tax assets) by key location are detailed below:

      REVENUE GROSS PROFIT
      30 November 30 November 30 November 30 November
      2016 2015 2016 2015
      £'000 £'000 £'000 £'000
             
UK   275,839 276,160 58,828 63,085
Germany   206,130 152,363 67,739 52,210
USA   171,313 157,568 50,682 45,409
Netherlands   131,174 102,704 29,201 24,390
Other   175,405 160,046 52,231 50,624
             
      959,861 848,841 258,681 235,718
             
          NON-CURRENT ASSETS
          30 November 30 November
          2016 2015
          £'000 £'000
             
UK         15,044 13,080
USA       2,481 2,175
Germany       589 509
Netherlands       165 134
Other       1,145 809
             
          19,424 16,707
 

The following segmental analysis by brands, recruitment classification and sectors (being the profession of candidates placed) have been included as additional disclosure to the requirements of IFRS 8.

      REVENUE GROSS PROFIT
      30 November 30 November 30 November 30 November
      2016 2015 2016 2015
      £'000 £'000 £'000 £'000
             
Brands          
Progressive   275,729 259,239 65,859 63,319
Computer Futures   265,751 216,590 75,231 62,944
Real Staffing Group   225,123 200,427 67,915 61,047
Huxley Associates   193,258 172,585 49,676 48,408
             
      959,861 848,841 258,681 235,718
 

Other brands including Global Enterprise Partners, Hyden, JP Gray, Madison Black, Newington International and Orgtel are rolled into the above brands.

Recruitment classification        
Contract   874,440 763,937 173,260 150,814
Permanent   85,421 84,904 85,421 84,904
             
      959,861 848,841 258,681 235,718
             
Sectors          
Information & Communication Technology 447,560 365,129 115,844 97,321
Banking & Finance   168,263 161,872 41,735 42,582
Life Sciences   147,056 120,991 54,262 45,854
Energy   107,889 124,946 19,595 26,257
Engineering   79,016 67,476 23,253 20,032
Other   10,077 8,427 3,992 3,672
             
      959,861 848,841 258,681 235,718
 

Other includes Procurement & Supply Chain and Sales & Marketing.

3. Gain on disposal of subsidiaries - Exceptional items


In the prior year, the Group recognised a gain of £0.4m in relation to the disposal of IT Job Board in July 2013. This represented the amount of the final earn out received (£2.0m) against the amount estimated as receivable at the previous year end (£1.6m). The gain was classified as an exceptional item consistent with the previous presentation.

4. Operating profit

Operating profit is stated after charging/(crediting):

          30 November 30 November
          2016 2015
          £'000 £'000
             
Depreciation       2,276 1,910
Amortisation       3,440 3,181
Accelerated amortisation and impairment of intangible assets - 1,471
Foreign exchange gains       (849) (381)
Staff costs       168,971 149,389
Movement in bad debt provision and debts directly written off 573 552
Loss on disposal of property, plant and equipment   194 38
Gain on disposal of subsidiaries - exceptional items (note 3) - (377)
Operating lease charges          
- Motor vehicles         1,449 1,212
- Land and buildings         11,279 9,419
 

5. Taxation

 

(a) Analysis of tax charge for the year

 

    30 November 30 November
    2016 2015
      Before exceptional items Exceptional items Total
    £'000 £'000 £'000 £'000
           
Current taxation        
UK        
Corporation tax charged on profits for the year 3,931 4,672 77 4,749
Adjustments in respect of prior periods 63 (63) - (63)
Overseas        
Corporation tax charged on profits for the year 5,418 5,454 - 5,454
Adjustments in respect of prior periods 1,218 (252) - (252)
           
Total current tax charge 10,630 9,811 77 9,888
           
Deferred taxation        
Origination and reversal of temporary differences (768) 1,556 - 1,556
Adjustments in respect of prior periods 194 (17) - (17)
           
Total deferred tax (credit)/charge (574) 1,539 - 1,539
           
Total income tax charge in the income statement 10,056 11,350 77 11,427
 

 

(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:

    30 November 30 November
    2016 2015
      Before exceptional items Exceptional items Total
    £'000 £'000 £'000 £'000
           
Profit before taxation 37,298 37,715 377 38,092
           
Profit before taxation multiplied by the standard rate of corporation tax in the UK at 20% (2015: 20.33%)*        
7,460 7,667 77 7,744
           
Effects of:        
Disallowable items 442 937 - 937
Differing tax rates on overseas earnings 1,588 1,454 - 1,454
Adjustments in respect of prior periods 1,475 (332) - (332)
Adjustment due to tax rate changes (41) 120 - 120
Tax losses for which deferred tax asset was (recognised)/derecognised** (868) 1,504 - 1,504
           
Tax expense for the year 10,056 11,350 77 11,427
           
Effective tax rate 27.0% 30.1% 20.4% 30.0%
           
* The UK corporation tax rate reduced from 21% to 20% with effect from 1 April 2015 and is applicable for the year ended 30 November 2016.
** 2015 figure includes £1.1m in respect of prior periods.      
 

(c) Current and deferred tax movement recognised directly in equity

 

        30 November 30 November
        2016 2015
        £'000 £'000
           
Equity-settled share-based payments    
Current tax     (26) (53)
           
Deferred tax     38 70
           
        12 17
 

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.

6. Dividends

 

        30 November 30 November
        2016 2015
        £'000 £'000
           
Amounts recognised as distributions to equity holders in the year  
Interim dividend of 4.7p (2015: 4.7p) per share (i)   6,049 5,903
Final dividend of 9.3p (2015: 9.3p) per share (ii)   11,923 11,768
           
        17,972 17,671
           
Amounts proposed as distributions to equity holders    
Interim dividend of 4.7p (2015: 4.7p) per share (iii)   6,052 6,049
Final dividend of 9.3p (2015: 9.3p) per share (iv)   12,002 12,009
 

 

(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


The calculation of the basic and diluted earnings per share ('EPS') is set out below:

Basic EPS is calculated by dividing the earnings attributable to owners of the Company by the weighted average number of shares in issue during the year excluding shares held as treasury shares and those held in the EBT which are treated as cancelled.

For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion of dilutive potential shares. Potential dilution resulting from tracker shares takes into account profitability of the underlying tracker businesses and SThree plc's earnings per share. Therefore, the dilutive effect on EPS will vary in future periods depending on any changes in these factors.

          30 November 30 November
          2016 2015
          £'000 £'000
             
Earnings          
Profit after taxation before exceptional items 27,242 26,365
Exceptional items net of tax - 300
             
Profit for the year attributable to owners of the Company 27,242 26,665
             
          million million
             
Number of shares          
Weighted average number of shares used for basic EPS 128.3 127.0
Dilutive effect of share plans   3.8 5.6
             
Diluted weighted average number of shares used for diluted EPS 132.1 132.6
             
          30 November 30 November
          2016 2015
          pence pence
             
Basic          
Basic EPS after exceptional items 21.2 21.0
Impact of exceptional items - (0.2)
             
Basic EPS before exceptional items 21.2 20.8
             
Diluted          
Diluted EPS after exceptional items 20.6 20.1
Impact of exceptional items - (0.2)
             
Diluted EPS before exceptional items 20.6 19.9
 

 

8. Cash and cash equivalents

 

          30 November 30 November
          2016 2015
            *Restated
          £'000 £'000
             
Cash at bank       15,707 25,966
Bank overdraft       (5,685) (19,807)
             
Cash and cash equivalents per the consolidated statement of cash flow 10,022 6,159
             
* An explanation of the restatement is provided in note 1 under basis of preparation.
 

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.

9. Borrowings


The Group has a committed revolving credit facility ('RCF') of £50m along with an uncommitted £20m accordion feature in place with HSBC and RBS, giving the Group an option to increase its total borrowings under the facility up to £70m. The RCF expires in May 2019. The funds borrowed under the facility bear interest at a minimum annual rate of 1.3% (2015: 1.3%) above 3 month Sterling LIBOR. The average interest rate paid on the RCF during the year was 1.8% (2015: 1.8%). The Group also has an uncommitted £5m overdraft facility with RBS.

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.



Language: English
ISIN: GB00B0KM9T71
Category Code: FR
LSE Ticker: STHR
LEI Code: 2138003NEBX5VRP3EX50
Sequence No.: 3773

 
End of Announcement EQS News Service

538127  23-Jan-2017 

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Final results for the year ended 30 November 2016 - RNS